Whitmer v. Childers

Citation300 P. 1112,133 Kan. 445
Decision Date03 July 1931
Docket Number29,891
PartiesJULIA E. WHITMER, as Trustee of the Estate of J. E. WATSON, a Bankrupt, Appellant, v. MARTIN CHILDERS, Appellee
CourtUnited States State Supreme Court of Kansas

Decided July, 1931.

Appeal from Mitchell district court; WILLIAM R. MITCHELL, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. BANKRUPTCY--Unlawful Preference--What Constitutes. To constitute a voidable preference under the bankruptcy act, of a questioned transfer of real property, made in payment of a debt of the bankrupt, more than four months prior to the filing of the petition in bankruptcy, the transferee must not only have had knowledge of the bankrupt's insolvency but must also have had reasonable cause to believe that the transfer would effect a preference.

2. SAME--Unlawful Preference--Evidence. Under the controlling facts as noted in the findings of the trial court, the transfer in controversy cannot be regarded as a voidable preference.

C. A Walsh, of Concordia, for the appellant; Joe H. Eresch, of Topeka, of counsel.

C. L. Kagey, Leon W. Lundblade and L. M. Kagey, all of Beloit, for the appellee.

OPINION

JOHNSTON, C. J.:

This appeal brings up for a review the question of whether a conveyance of property constituted a voidable preference under the bankruptcy law. On April 10, 1928, J. E. Watson filed his voluntary petition in bankruptcy and on that day was adjudged a bankrupt, and the plaintiff, Julia E. Whitmer, was appointed trustee. It appears from the findings of the court that on December 1, 1927, Watson was indebted to the defendant, Martin Childers, in the sum of $ 645 for money loaned to him by Childers, some of which had been due for several years. On that day Watson and his wife conveyed by a deed to Childers a one-eighth interest in the tract of 120 acres of land to pay the indebtedness of Childers. A deed was then executed, but was not recorded until March 18, 1929, the delay in recording the instrument being due to sickness in Watson's family, and also to his own sickness. When the deed was executed Childers did not know of any indebtedness of Watson, except that to the First National Bank of Beloit, which had a mortgage on practically all of Watson's property as security for his indebtedness to the bank. Childers accepted the deed from Watson in good faith in payment of Watson's debt to him and did not believe that Watson was insolvent, and it was found that he did not have reasonable grounds for believing him to be insolvent.

On December 1, 1927, Watson owed creditors about $ 12,000, $ 4,000 of which was unsecured, and at that time he owned property of the value of about $ 10,000. The land in question was encumbered by a life estate in the mother of Watson, and she was collecting the rents and profits of the land. In an action by the trustee to set aside the conveyance to Childers the trial court found that Childers was a purchaser in good faith and for a fair consideration, and refused to set the deed aside. Findings of fact were made substantially as stated and plaintiff moved to set the conclusion of law aside, and this motion being overruled judgment was entered for the defendant. Plaintiff appeals.

The transfer was made more than four months before the bankruptcy proceeding was instituted. Plaintiff says he is not raising a question that the conveyance was fraudulent, but is contending that it constituted a voidable preference within the meaning of the bankruptcy act. He concedes that an insolvent person may prefer his creditor unless there is a statutory inhibition, but that a trustee has a right under the bankruptcy act to have set aside a voidable preference. The trustee claims the transfer by Watson was a voidable preference under section 96 (b) Title 11, U.S.C. A. (p. 336.) It reads:

"If a bankrupt shall have procured or suffered a judgment to be entered against him in favor of any person or have made a transfer of any of his property, and if, at the time of the transfer, or of the entry of the judgment, or of the recording or registering of the transfer if by law recording or registering thereof is required, and being within four months before the filing of the petition in bankruptcy or after the filing thereof and before the adjudication, the bankrupt be insolvent and...

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