Worden v. Morigeau

• Decision Date: 19 May 1920
• Docket Number: 4126.
• Citation: 190 P. 122,58 Mont. 64
• Parties: WORDEN v. MORIGEAU.
• Court: Montana Supreme Court

190 P. 122

58 Mont. 64

WORDEN v. MORIGEAU.

No. 4126.

Supreme Court of Montana

May 19, 1920

Appeal from District Court, Sanders County; R. Lee McCulloch, Judge.

Action by H. O. Worden, trustee of Eli Morigeau, bankrupt, against Joseph Morigeau. From a judgment for defendant and an order denying a new trial, plaintiff appeals. Affirmed.

William Wayne, of Missoula, for appellant.

Hall & Whitlock, of Missoula, for respondent.

COOPER J.

This action was instituted in the court below by appellant, as trustee in bankruptcy of Eli Morigeau, who received patent for his Indian allotment embracing the west half of the northwest quarter, and the southeast quarter of the northwest quarter, of section 25, township 17 north, range 21 west of the Montana meridian, situated in Sanders county, on August 26, 1912. By deed dated December 16, 1913, recorded on the 31st day of that month, the consideration being a pre-existing indebtedness amounting to the sum of $12,000 Eli conveyed the land so patented to his brother Joseph Morigeau. On February 13 following, Eli Morigeau filed his petition to be declared a bankrupt; the approved claims against his estate amounting to the sum of $8,833.85 $2,944.76 of which originated after the date of the issuance of patent. As will be observed, the conveyance was made within four months prior to the filing of the petition in bankruptcy. The district court, aided by the finding of a jury declaring that the defendant, Joseph Morigeau, did not have "reasonable cause to believe that the enforcement of said transfer would effect a preference in his favor," found for the defendant, entered judgment in his favor validating the transfer, and denied plaintiff's motion for a new trial. From the judgment and order so made this appeal is prosecuted.

It is appellant's contention that the agreed statement of facts admits all of the elements of a voidable transfer, save two to wit: The insolvency of the bankrupt at the time of the transfer, and that the grantee had "reasonable cause to believe that the enforcement of such * * * transfer would effect a preference." The frailty of appellant's contention lies in the failure of the evidence to show that Joseph Morigeau knew his brother Eli was insolvent at the time of the transfer; knew that he was then indebted to other persons than himself, or, if he owed debts other than those due defendant, that he did not have sufficient other property to satisfy all his creditors. These facts the trustee is bound to establish by a fair preponderance of the evidence before a transfer of this character can be avoided. This is the spirit of the Bankruptcy Act (U. S. Comp. St. §§ 9585-9656).

"By the statute's very words," says the Supreme Court of the United States in Pyle v. Texas Transport & Terminal Co., 238 U.S. 90, 35 S.Ct. 667, 59 L.Ed. 1215, "in order to set aside such a transfer and recover the property it must appear that 'the person receiving it, or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference.' Whether such 'reasonable cause to believe' existed is a question of fact and the burden of proof is upon the trustee." Grant v. National Bank, 97 U.S. 80, 24 L.Ed. 971; Barbour v. Priest, 103 U.S. 293, 26 L.Ed. 478; Coder v. Arts, 213 U.S. 233, 29 S.Ct. 436, 53 L.Ed. 772, 16 Ann. Cas. 1008; Wright v. Sampter (D. C.) 152 F. 196; Calhoun County Bank v. Cain, 82 C. C. A. 114, 152 F. 983; 2 Remington on Bankruptcy, sec. 1404; Marshall v. Nevins, 242 F. 476, 155 C. C. A. 252.

This court, in the recent case of De Forrest v. Crane & Ordway Co., 55 Mont. 494, 179 P. 292, had occasion to consider a question similar to the one under discussion, and in its disposition made use of this language:

"Though a transfer is made which amounts to a preference, yet it is not unlawful within the meaning of section 60b [of the Bankruptcy Act (32 U.S. Stat. at Large, 799)], unless the creditor receiving it had reasonable cause to believe that the debtor intended thereby to give him a preference; that is, to pay him a larger percentage of his claim than others would receive.

As pointed out by the court in Pirie v. Chicago Title & Trust Co., supra , if reasonable cause for this belief does not exist, the preference cannot be recovered from the creditor by the trustee."

The plaintiff in this case could not hope to prevail until he had established by a fair preponderance of the evidence these conditions: The insolvency of the bankrupt at the time the deed was given; knowledge of insolvency on the part of the transferee sufficient to put a reasonably prudent man upon inquiry; and the existence of other creditors of the same class against whom the conveyance would operate unequally by allotting to them a lesser percentage on their debt than the defendant would receive by reason of the security given. In Grant v. National Bank, supra, this language is used by Mr. Justice Bradley:

"It is not enough that a creditor has some cause to suspect the insolvency of his debtor; but he must have such a knowledge of facts as to induce a reasonable belief of his debtor's insolvency, in order to invalidate a security taken for his debt."

The test of the sufficiency of the evidence does not rest upon the assertions by either party of his intent or belief, but on inferences which may fairly arise from the facts in evidence. Hamilton Nat. Bank v. Balcomb, 177 F. 155, 100 C. C. A. 575. Financial embarrassment does not necessarily amount to insolvency. In re Bartlett (D. C.) 172 F. 679. Something more than suspicion is necessary to put a reasonably prudent man upon inquiry. Brookheim v. Greenbaum (D. C.) 225 F. 638. In the latter case the court made use of these very pertinent remarks:

"It does not seem to me that, in case of a man who concededly did business in such an unbusinesslike way as this bankrupt, shortness of cash and absence of free capital, continuing for so long a period of time without any insolvency, ought to be enough to put on inquiry all those who dealt with him. It must be remembered that something more than suspicion is necessary. Stucky v. Masonic Savings Bank, 108 U.S. 74, 2 S.Ct. 219, 27 L.Ed. 640; Grant v. National Bank, 97 U.S. 80, 24 L.Ed. 971; Sharpe v. Allender, 170 F. 589, 96 C. C. A. 104 (C. C. A.3d Cir.); J. W. Butler Paper Co. v. Goembel, 143 F. 295, 74 C. C. A. 433 (C. C. A. 6th Cir.); Re Goodhile (D. C.) 130 F. 471. These cases all decide that it is not enough that the bankrupt is

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