Whitson v. Farber Bank
| Decision Date | 29 March 1904 |
| Parties | WHITSON, Respondent, v. FARBER BANK, Appellant |
| Court | Missouri Court of Appeals |
Appeal from Audrain Circuit Court.--Hon. H. W. Johnson, Judge.
Judgment reversed and cause remanded.
P. H Cullen for appellant.
(1) The papers in the bankruptcy case were inadmissible in evidence because they failed to show that the Sisk Bros. had been personally served with process and also failed to show that they appeared. And further the proof was undisputed that one of the alleged bankrupts was a resident of the State of California. Bors v. Preston, 111 U.S. 252; National Bankruptcy Law, sec. 2a, subsection 1; Brandenburg on Bankruptcy (2 Ed.), p. 21, sec. 4; In re Waukesha Water Co., 8 Am. B. R. 715; In re Laskaris, 1 Am. B R. 480. (2) Error was committed by the court in allowing the witness Gilliland to testify to what he heard the witness Lee state. Timely objection was made and overruled. The testimony was improperly admitted for two reasons, (a) it was hearsay of the most marked type and (b) it was proving knowledge on the part of the agent before he became an agent. Scoville v. Glasner, 79 Mo. 448; McDermott v. Railroad, 73 Mo. 516; Anderson v. Valmer, 83 Mo. 406; Hamilton v. Berry, 74 Mo. 177. (3) It is the settled rule in this State that notice to an agent can effect the principal only when the notice was given or the knowledge obtained by the agent during the agency. The principal is not bound by any knowledge the agent possessed before the time he became agent of his principal. Richardson v. Palmer, 24 Mo.App. 493; Wheeler v. Stock Yards, 66 Mo.App 272; Haywood v. Ins. Co., 52 Mo. 191; Bank v. Shaumburg, 38 Mo. 228; Day v. Walmsley, 33 Ind. 145; Keomly Bank v. Froman, 129 Mo. 430; Benton v. Bank, 122 Mo. 339; Johnson v. Shortridge, 93 Mo. 227; Bank v. Lovitt, 114 Mo. 519; Manhatton Brass Co. v. Webster, 37 Mo.App. 135. (4) It is well settled that the person receiving the preference must have reasonable cause to believe that a preference was intended. This cause must exist at the time, not afterwards. Bankruptcy Law, sec. 60, subdiv. b.; Gates v. Lebeauvre, 19 Mo. 27. If this preference was not void at its inception it can not be avoided because of subsequent knowledge on the part of defendant's officers. 14 Ency. of Law (2 Ed.), 269. (5) Return of goods or any part thereof must be considered in mitigation of damages, such is the clear holding of all our courts. Loyd v. Tracy, 53 Mo.App. 175; Wood v. Moffitt, 38 Mo.App. 395; Gilbert v. Peck, 43 Mo.App. 582; Spark v. Purdy, 11 Mo. 219. (6) For a full statement of the law on such a state of facts see Sutherland on Damages, where the rule with all its variations is clearly stated and the authorities cited and classified. 1 Sutherland on Dam. (Ed. 1883), sec. 238-240; 3 Sutherland on Dam. (Ed. 1883), sec. 528-537. (7) The defendant took possession under its mortgage on June 7; the petition in bankruptcy was filed August 8. The adjudication in bankruptcy was entered Sept. 26, the defendant had sold sufficient goods to pay its debt by Sept. 8, and on that date, Sept. 8, released all claim on the remainder of the goods and turned them back to Sisk Bros. Defendant turned back the goods 18 days before the adjudication in bankruptcy. It could not lawfully turn them back to any one but Sisk Bros. as the trustee had no right to them until the date of the adjudication. National Bankruptcy Law, sec. 70, subdiv. a; McFarlane Carriage Co. v. Wells, 99 Mo.App. 641; In re Wells, 114 F. 222, Am. B. R. 75; Mueller v. Nugent, 184 U.S. 1. (8) In order to set aside an alleged preference at the suit of a trustee it must be made to appear that the debtor intended to prefer and the creditor must have reasonable cause to believe that such intention existed in the mind of the debtor. Peck Trustee v. Connell, 8 Am. B. R. 500; Babbett v. Kelley, 96 Mo.App. 534; Brandenburg on Bankruptcy (2 Ed.), sec. 16, p. 567 and sec. 19, p. 570; Collier on Bankruptcy (3 Ed.), 342.
George Robertson for respondent.
(1) Under the law and undisputed evidence in this case the plaintiff was entitled to a verdict and the court should have instructed the jury to return a verdict for the plaintiff. No other verdict than that which was rendered could be allowed to stand in this case. Sherman v. Luckhardt, 96 Mo.App. 320; Pepperdine v. Bank, 84 Mo.App. 234; Landis v. McDonald, 88 Mo.App. 335; Babbitt v. Kelley, 96 Mo.App. 529; In re Egbert, 98 F. 843; Dutcher et al. v. Wright, assignee, 94 U.S. 553; Troop v. Martin, Assignee, 13 Wall. 40; Rosenfeld v. Seigfried, 91 Mo.App. 169; Harris v. National Bank, 75 S.W. 1052; Fed. Bankruptcy Act, sec. 3, subdivisions 1 and 2; Collier on Bankruptcy, pp. 25 to 35; Bankruptcy Act, sec. 67e. and f.; Collier on Bankruptcy, 422. (2) The certified copy of the judgment of bankruptcy and the certified copies of proceedings before the referee, and of the order approving the bond of the trustee, are conclusive evidence of the vesting in the trustee of the title to the property of the bankrupts. Sec. 21 of the Act of Bankruptcy, clauses d and e; Scrubby v. Morton, 91 Mo.App. 517. Lee was agent of the bank in taking possession of the stock of goods, and the conversation of Gilliland called for with him was admissible, because the admissions of the agent in and about the business which he is transacting for the principal, is the admission of the principal, and because the knowledge of Lee in and about the business at the time of taking possession of the goods and making the inventory thereof is the knowledge of the bank, because he is its duly authorized agent for that purpose. Underhill on Evidence, sec. 73 a.; 1 Am. & Eng. Ency. of Law (2 Ed.), 691, et seq; 3 Am. & Eng. Ency. of Law (2 Ed.), 845, note 3; Hawk v. Applegate, 37 Mo.App. 32; Midland Lumber Co. v. Kreeger, 52 Mo.App. 418; Hill v. Bank, 86 Mo.App. 590; Fowles v. Loan Co., 86 Mo.App. 103; Rodgers v. Palmer, 102 U.S. 263; Atkison v. Elmore, 77 S.W. 492; In re Beerman (D. C.), 112 F. 662; Act of Bankruptcy, clause b, sec. 60.
The respondent is a trustee in bankruptcy in charge of the estate of Sisk Bros., and as such instituted this action against the appellant for the value of a stock of merchandise, formerly owned by the firm; which was composed of Robert E. and Geo. W. Sisk and engaged in the mercantile business at Farber, in Audrain county. The value of the stock was alleged to be $ 2,794.52.
The answer was a general denial.
On May 8, 1902, Sisk Bros. were indebted to the Farber Bank in the sum of $ 640, to secure which they gave a chattel mortgage on their stock of goods. The mortgage was not recorded until June 9, 1902, prior to which day, viz: June 7, the bank took possession of the property pursuant to the terms of the instrument, put George A. Lee in charge as agent of the bank and proceeded to sell goods, mostly at retail, until September 8; at which date, as enough had been sold for the proceeds to pay the bank's debt, the stock was turned over to J. D. Pitt, who held a second chattel mortgage on it to secure a debt of $ 970. While the stock was in the bank's possession it had realized from the goods sold $ 833.48. Pitt afterwards sold the remainder of the stock at auction to pay his debt. Sisk Bros. had been indebted to the Farber Bank since June 11, 1901, for about the amount of $ 640 and had given the bank a previous note and chattel mortgage to secure that debt, which were superseded by those executed May 7, 1902. On August 4, 1902, a petition in bankruptcy was filed against the partnership and it was adjudged bankrupt September 26, 1902. At the first meeting of the firm's creditors on November 17, 1902, the respondent Whitson was elected trustee, and qualified November 21st. George W. Sisk was in California when the petition in bankruptcy was filed and service was had on Robert E. Sisk, the other member of the firm. George A. Lee, who was put in charge of the stock by the bank when it took possession, had been previously employed by Sisk Bros. as a clerk. A point is made about this on the appeal in connection with certain testimony and instructions to be adverted to later.
The basis of this action for the value of the goods is that the mortgage was executed by Sisk Bros. when they were insolvent, for the purpose of giving a preference to the bank, was accepted by the bank with knowledge of that purpose and of the insolvency of the mortgagors, and possession of the mortgaged property delivered to the bank under the same circumstances. As the mortgage was executed and the goods were taken by the bank less than four months prior to the petition in bankruptcy, the preference given by those acts would be contrary to the bankrupt act and voidable by the trustee, if the intention of the mortgagors to give a preference was known to the bank, or if it had good cause to believe that was their purpose.
Complaints are preferred against instructions given by the court, which will be noticed below.
The trustee had judgment and the bank appealed.
The appellant complains of the admission in evidence of certified copies of the adjudication that Sisk Bros were bankrupts and of the order of the referee in bankruptcy approving the bond of Whitson as trustee. Those documents are said to have been erroneously admitted for the reason that no service of process on either of the Sisk brothers was affirmatively shown and one of them was proven to have been continuously in California for a long period antedating the inception of the bankruptcy proceeding, and, therefore beyond the reach of the subpoena of the United States district court for the Eastern District of Missouri, wherein the proceeding was instituted. The...
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