Watson v. Adams

• Decision Date: 19 May 1917
• Docket Number: 2925,2926.
• Parties: WATSON et al. v. ADAMS. SIMPSON et al. v. SAME.
• Court: U.S. Court of Appeals — Sixth Circuit

242 F. 441

WATSON et al. v. ADAMS.

SIMPSON et al. v. SAME.

Nos. 2925, 2926.

United States Court of Appeals, Sixth Circuit.

May 19, 1917

[Copyrighted Material Omitted]

One not appearing to be purchaser in good faith of preferential payment held not prejudiced because decree was based in part on testimony received in another case tried with the suit against her.

Joseph M. Hamilton was adjudicated bankrupt upon a petition filed against him January 19, 1913. On January 1, 1912, he had given to his wife, Rebecca, a note for $7,000, said to represent an existing debt, and had deeded to her their home property at a stated price of $3,000 (leaving $4,000 unpaid). This deed was not recorded until within four months before the filing of the petition. October 25, 1912, he deeded three parcels of land to his mother and sister (Elizabeth Hamilton and Margaret Watson) for a recited consideration of $3,000 and they gave him credit for this amount upon his notes to them. At about the same date he and his wife joined in a mortgage for $3,000 upon the 'Boyle place'-- apparently the greater share of its value. This mortgage was for a permanent loan, and the amount was given to her and applied upon the $4,000 (balance) debt from him to her. This $3,000, and its proceeds, were turned over by her to Linnie G. Simpson (wife of Wilbur E.) in exchange for Missouri property.

To restore all this property to the estate, the trustee in bankruptcy, Adams, brought three suits in the court below though informal, these have been treated as plenary suits in equity. One was against the wife, Rebecca, to set aside the deed to the home. This relief was granted, and she has not appealed. The second was against the mother and sister. The conveyance to them was vacated, and their appeal is No. 2925. The third was against Mr. and Mrs. Hamilton and Mr. and Mrs. Simpson, to reach the proceeds of the $3,000 in the hands of the Simpsons. No. 2926 is their appeal from a decree giving the relief sought. There is one record common to both appeals (except as later stated).

B. W. Gearheart, of Columbus, Ohio, for appellants.

Albert O. Barnes, of Cadiz, Ohio, for appellee.

Before KNAPPEN and DENISON, Circuit Judges, and SANFORD, District judge.

DENISON Circuit Judge (after stating the facts as above).

The petition against the mother and sister directly alleges that the conveyance was made by Hamilton with intent to hinder, delay, and defraud his creditors, but does not say that the grantees participated in this intent. It then proceeds to allege that the deed was within the four months period and constituted a preference, but omits any statement that the recipients were chargeable with notice that a preference would result-- a fatal omission on this theory. Carey v. Donohue (C.C.A. 6) 209 F. 328, 126 C.C.A. 254. However, we pass by any question of pleading and come to the merits.

The distinction between a fraudulent conveyance, voidable under section 67e, and a preference, denounced by section 60b has been often stated, most lately and most clearly in the Van Iderstine Case, 227 U.S. 575, 582, 33 Sup.Ct. 343, 57 L.Ed. 652. At least since that decision, it cannot be doubted that a conveyance which is a preference under section 60b, is not, therefore, and merely therefore, fraudulent under section 67e. Conceivably, there may be other elements of intent which will give it also the latter character; but the intent to prefer reached by one section is not, ipso facto, the intent to defraud reached by the other. The record here is barren of evidence indicating this distinct and characteristic intent to commit a fraud by the deed to the mother and sister. The existence and good faith of their debt against Hamilton are not questioned. That the property conveyed was fairly worth just about the amount at which it was taken over is practically conceded. Their only offense is that they accepted partial payment of an honest debt when it was offered, and this is not fraud.

Upon the matter of preference, the only question is whether they had the condemnatory knowledge; everything else is clear. Here the trustee has not met the burden of proof resting upon him. Interest had been regularly paid; Hamilton told them he would rather give them some property and get rid of his interest burden; they had a sentimental desire to own some land; they looked into the value and agreed on a price; and the deal was made. They did not live in the family with him, but apart; they had no knowledge of his other transfers, nor any reason to think him insolvent; and the inference that they knew (had reasonable cause, etc.) they would get their pay, while others would fare worse, rests only on suspicion-- an insufficient foundation. The decree in No. 2925 must be reversed, and the court below instructed to dismiss the petition.

In the other case, No. 2926, the petition, which was treated as a bill of complaint, is subject to the same infirmities as in No. 2925, but they may be...