Williams v. German-American Trust Co.

• Decision Date: 04 January 1915
• Docket Number: 4166.
• Citation: 219 F. 507
• Parties: WILLIAMS v. GERMAN-AMERICAN TRUST CO. In re FORWARD LAUNDRY CO.
• Court: U.S. Court of Appeals — Eighth Circuit

219 F. 507

WILLIAMS v. GERMAN-AMERICAN TRUST CO.

In re FORWARD LAUNDRY CO.

No. 4166.

United States Court of Appeals, Eighth Circuit.

January 4, 1915

John A Gordon, of Denver, Colo. (Andrew H. Wood, of Denver Colo., on the brief), for appellant.

Fred W Parks, of Denver, Colo., for appellee.

Before CARLAND, Circuit Judge, and T. C. MUNGER and YOUMANS District judges.

CARLAND Circuit Judge.

This action was commenced by bill in equity to recover of appellee the value of certain personal property alleged to have been transferred to it from the estate of the bankrupt, within four months prior to the filing of the petition in bankruptcy, under such circumstances as to constitute a voidable preference. Appellee moved to dismiss the bill for the reason that it did not state facts sufficient to constitute a cause of action. Equity Rule 29 (198 F. xxvi 115 C.C.A. xxvi). No objection was made that the action was brought in equity and not at law. The bill was dismissed, and appellant appeals.

The facts pleaded in the bill are substantially as follows: An involuntary petition in bankruptcy was filed against the Forward Laundry Company, May 20, 1913. June 13, 1913, the company was adjudged a bankrupt, and in due course thereafter appellant was appointed trustee of the estate of the bankrupt. September 18, 1911, the laundry company executed and delivered to William F. Dieter its eight promissory notes, payable one every three months thereafter, and amounting in all to the principle sum of $4,500. To secure the payment of said notes on the same day, the laundry company executed and delivered to Dieter its chattel mortgage on certain personal property described in the bill of the alleged value of $6,000. The notes and chattel mortgage, although given to Dieter, were in fact the property of appellee, and Dieter subsequent to the execution of the notes and mortgage indorsed and transferred the same to it. The mortgage was filed for record September 22, 1911. That no sworn statement of the mortgagee or any one in its behalf that said mortgage was given in good faith to secure the payment of the sum of money mentioned therein, or that said sum of money was still unpaid, or how much thereof, if any, remained unpaid, was ever recorded on the records of the county of Denver where said chattel mortgage was recorded, nor was any such sworn statement ever filed or offered for record. That on April 25, 1913, the laundry company was insolvent, and the aggregate of its property at a fair valuation was not sufficient in amount to pay its debts, and the appellee at that time knew and had reason to believe and know that said laundry company was insolvent. That on said April 25, 1913, appellee fraudulently took possession of all the goods and chattels mentioned in said chattel mortgage, and the said laundry company suffered and permitted the appellee to take such possession under said mortgage, and transferred the goods and chattels mentioned therein to appellee; that appellee foreclosed said chattel mortgage and appropriated the proceeds of the sale to its own use and benefit and to the payment in full of its debt against the laundry company. That the effect of the taking and selling of said goods and chattels and the appropriation of the proceeds thereof by appellee toward the payment of its debt enabled said appellee to obtain a greater percentage of its debt than any other of the creditors of the said laundry company of the same class. That the taking, selling, and appropriation of the goods and chattels described in the mortgage operated as a preference in favor of the appellee, and appellee at the time had reasonable cause to believe that the taking, selling, and appropriation of said goods and chattels under said mortgage toward the payment of its debt would effect a preference in its favor over other creditors of the laundry company. That the property sold under said mortgage had passed into the hands of innocent purchasers, and the specific property could not be recovered. It was prayed by the bill that the chattel mortgage be declared void, and that the transfer of the property to the possession of appellee be adjudged and decreed to be a voidable preference, and that appellant recover from appellee the value of said goods and chattels. For the purposes of this appeal, the above facts stand admitted.

We think much confusion exists on the part of counsel for appellee as to the nature of the attack made upon the alleged transfer. No attack is made upon it, except that it constituted a voidable preference. Hence it does not answer this attack to show that the mortgage was otherwise valid whether on or off the record, or whether against third parties or between the original parties thereto. The trustee can attack a transfer as a voidable preference concededly valid on all other grounds. The real question, so far as the record of the transfer is concerned, is, Did the four months in which it could be attacked commence to run from September 22, 1911, the date the mortgage was recorded, or April 25, 1913, the date that appellee took possession of the mortgaged property? If from the former date the bill was rightly, if from the latter date wrongly, dismissed.

This statement of the case also does away with much apparent confusion as to the power of the trustee to attack the transfer. By the express authority of the bankruptcy law, the trustee can attack any transfer alleged to be voidable as a preference if made within the period fixed by law. It is only when the trustee attacks a transfer or mortgage on other grounds that state laws and decisions apply as to the validity of the transfer.

It is the claim of co...