Case ID: f_213/html/0628-01.html
Source: Caselaw Access Project
Author: {"author": "WARD, Circuit Judge.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In re BAAR.
    (Circuit Court of Appeals, Second Circuit.
    April 7, 1914.)
    No. 214.
    Bankruptcy (§§ 181, 188)—Chattel Mortgages—Validity—Fraud.
    Where a chattel mortgage, executed by a mortgagor subsequently adjudged a bankrupt, was valid under the laws of tbe state where made, because duly filed, it was good as against tbe trustee in bankruptcy, under Bankr. Act July 1, 1898, e. 541, § 67 (d), 30 Stat. 564 (U. S. Comp. St. 1901, p. 3449), unless it was given and accepted with intent to hinder, delay, and defraud creditors, and the mere fact that the mortgagee, giving full consideration, knew or stipulated that part of the proceeds of the loan should be applied to relieve a corporation of which he was president and a relative of liability as accommodation indorsers on the notes of the bankrupt, did not invalidate the mortgage, though a preference resulted, because of want of actual fraud on tbe part of tbe bankrupt.
    [Ed. Note.—For other cases, see Bankruptcy, Cent. Dig. §§ 259, 260, 270, 271, 273, 274, 286-289, 291-295; Dec. Dig. §§ 181, 188.]
    Appeal from the District Court of the United States for the Eastern District of New York.
    
      In the matter of bankruptcy proceedings of Jacob Baar, banlcru.pt. From an order adjudging void a chattel mortgage executed by the bankrupt to Solomon Baar, the latter appeals.
    Reversed.
    D. C. Myers, of New York City, for appellant.
    H. C. Clore, of Brooklyn, N. Y., for appellee.
    ' Before LACOMBE, COXE, and WARD, Circuit Judges.
    
      
      For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes
    
   WARD, Circuit Judge.

Jacob Baar, the bankrupt, had carried on for many years the fat rendering business under the name of the Long Island Soap Works. On or about July 3, 1912, Baar Bros., Incorporated, of which his brother Solomon Baar was president, had indorsed as an accommodation two of the bankrupt’s notes, each for $250, one due September 3, and the other October 3, 1912, which were discounted by the Greenpoint National Bank. The bankrupt had also discounted his note for $500, indorsed by his son .Sigmund, due August 9, 1912, in the Broadway Bank of Brooklyn, and another for $1,000, indorsed by his son, due September 26, 1912, in the Greenpoint National Bank.

August 3, 1912, being in financial straits, he applied to his brother Solomon for a loan of $2,500, to be secured by a chattel mortgage on the horses, wagons, tools, and machinery used in his business. The special commissioner and the District Judge have found that Solomon Baar stipulated that the loan should be applied in payment of the notes aforesaid and that he knew Jacob was in financial difficulties. The chattel mortgage was duly recorded on that day, the $2,500 paid over, and some $2,000 of it went to take up the notes in bank before their maturity.

September 17th, an involuntary petition in bankruptcy was filed, and subsequently Jacob Baar was adjudicated a'bankrupt. The trustee obtained an order upon Solomon Baar to show cause why the chattel mortgage should not be declared null and void against creditors, because made within four months of the filing of the petition and with the intent of hindering, delaying, and defrauding creditors. Solomon Baar submitted to the jurisdiction of the court, and it was so proceeded that the mortgage was declared null and void. This appeal is from that order. . '

The mortgage was valid under the law of the state of New York against creditors, because it was duly filed in accordance with article 10 of the Lien Law (Consol. Laws N. Y. c. 33), As such it is good against the trustee in bankruptcy under section 67 (d) of the Bankruptcy Act, unless it was not accepted in good faith or was in fraud of thq act. It could not be set aside under section 67 (e) unless it was given and accepted with the intent of hindering, delaying, and defrauding creditors. Solomon Baar gave a full present consideration. If he knew or even stipulated that part of the proceeds of the loan should be applied to relieve the corporation of which he was president and his nephew of liability as accommodation indorsers on the bankrupt’s notes, there was nothing fraudulent in that. The payment was a preference of the banks, and so of the indorsers; but the bankrupt had at common law and under the statute of Elizabeth a right to prefer any bona fide creditor. The trustee could recover the payments .under section 60, if the banks received them having reasonable cause to believe that they were intended as preferences; but to invalidate the mortgage under section 67 (e) a preference is not sufficient. Actual fraud on the bankrupt’s part must be shown. Van Iderstine v. National Dicount Co., 174 Fed. 518, 98 C. C. A. 300; Coder v. Arts, 213 U. S. 223, 241, 29 Sup. Ct. 436, 53 L. Ed. 772, 16 Ann. Cas. 1008.

No such fraud, being shown, the-order is reversed.