Source: https://caselaw.findlaw.com/us-supreme-court/238/90.html
Timestamp: 2019-04-21 15:30:21+00:00

Document:
Messrs. William C. Dufour, W. J. Lamb, H. Generes Dufour, and George Janvier for appellant. [238 U.S. 90, 91] Messrs. Victor Leovy, Joseph Paxton Blair, and George Den egre for appellees.
These causes, begun at the same time, were tried and decided together in the United States district court, eastern district of Louisiana (192 Fed. 725), and also in the circuit court of appeals (121 C. C. A. 664, 203 Fed. 1023). [238 U.S. 90, 92] The original bills, except as to details concerning times, amounts, etc., are essentially identical; by stipulation the evidence in each one became part of the record in the others; and all the appeals may be conveniently considered in a single opinion.
Steele, Miller, & Company were merchants at Corinth, Mississippi, engaged in exporting cotton. Scheuch & Company were merchants and importers domiciled at [238 U.S. 90, 93] Havre, France. The Bank de Mulhouse, Comptoir D'Escompte de Mulhouse, Soci et eG en erale, and Credit Havre; and Paul Chardin is a business at Havre; and Paul Chardin is a banker and cotton merchant in that city.
The Compagnie G en erale Transatlantique is an ocean carrier. It owned the steamship Texas; and Texas Transport & Terminal Company was its agent at New Orleans.
In 1909 the bankrupts engaged to consign large quantities of cotton to Scheuch & Company for sale, and the latter on their own responsibility arranged for reimbursement credits with the banks, who, according to established trade custom, undertook to accepts the drafts drawn on themselves by consignors for value of shipments when accompanied by proper bills of lading, insurance papers, etc., 'all necessary documents.' In the honest course Steele, Miller, & Company delivered 100 bales of cotton to a railroad carrier for through shipment to Havre, taking therefor a bill of lading to their own order containing marks, numbers of bales, etc., and direction to notify Scheuch & Company. The bill with accompanying documents was then annexed to a draft for the consignment's approximate market price, addressed to the Havre bank and specifying (marks being changed to meet the circumstances) 'value received and charged to account R. D. A. R. 1/100 bales cotton.' This was discounted and ultimately accepted and paid. Upon arrival at Havre the drawee bank received and held the cotton until reimbursed by Scheuch & Company.
During December, 1909, and January and February, 1910, the bankrupts drew the twenty-five drafts-each for about $7,300, approximate market value of 100 bales-here involved on the separate appellee banks, attaching to each a fictitious through railroad bill of lading; and in due course these were accepted and paid in entire good faith. Prior to April 6, 1910, while insolvent, the bankrupts assembled in Mississippi and Tennessee the number of bales specified by the several forged bills marked as therein stated, shipped them to New Orleans, and there delivered them to the Compagnie G en erale Transatlantique for transportation to Havre. The ocean carrier issued to bankrupts for each 100 bales a port or ocean bill with same marks, etc., and placed cotton aboard the Texas. The bankrupts promptly indorsed the genuine bills and forwarded them by mail to Scheuch & Company, with directions to deliver to banks holding corresponding fictitious ones and return the latter. Deliveries were made in Havre on April 26th, May 3d and 7th; but because of disquieting rumors concerning wrongful practices by others the banks retained both forged and genuine documents. They had no actual knowledge of the frauds practised upon them until May 8th, when information was received [238 U.S. 90, 95] concerning the receiver's bill filed during the preceding day.
About April 20, 1910, the failure of Knight, Yancey, & Company, large exporting cotton merchants at Decatur, Alabama, was announced, and shortly thereafter wide publicity was given to the fact that they had made extensive use of forged through railroad bills of lading with foreign drafts. Steele, Miller, & Company suspended payment April 29th; bankruptcy proceedings were instituted against them May 4th; removal from New Orleans of cotton covered by the above-described ocean bills was enjoined in a proceeding by the receiver filed May 7th; and on August 18th the instant causes were begun.
Appellant trustee maintains that he is seeking to set aside a preference as authorized by statute; that the French banks became mere ordinary unsecured creditors of Steele, Miller, & Company by paying drafts with forged bills of lading attached as security; and that when genuine bills were substituted for spurious ones these banks had [238 U.S. 90, 97] positive information of the bankrupts' insolvency, any knew or should have known that they were receiving an intended preference.
In behalf of the appellee banks it is insisted that the transactions between them and bankrupts were in the nature of sales, and by marking and shipping the cotton before bankruptcy it was appropriated to the contracts; that bankrupts had no purpose to give a preference; and certainly the banks had no reasonable cause to believe they were receiving an intended preference.
The trial judge, relying upon The Idaho, 93 U.S. 575 , 23 L. ed. 978, held the cotton was appropriate before bankruptcy to prior contracts between the parties. He further said: 'I am not convinced that Steele, Miller, & Company intended a preference, as it seems to me they uniformly discounted drafts purporting to be secured by bills of lading for cotton, which were in reality forged, and thereafter shipped the cotton to prevent discovery of their dishonest methods, and that their transactions with the bank were in the usual course of business and without any intention on their part other than to conceal their true methods. Furthermore, while the facts on which they might be charged with notice ought to have excited the suspicion of the bank, I am not prepared to say that they had knowledge, constructive or actual, of Steele, Miller, & Company's insolvency, or that a preference was intended.' The bill was accordingly dismissed and the circuit court of appeals affirmed this action upon authority of Lovell v. Isidore Newman & Son, 113 C. C. A. 39, 192 Fed. 753, and Henry Hentz & Co. v. Lovell, 113 C. C. A. 48, 192 Fed. 762.
Admitting that title to the cotton in question passed, the trustee now seeks annulment of the consummated transfer because a preference would result therefrom. In Lovell v. Isidore Newman & Son, supra, recovery was asked upon the theory that the title had remained in the bankrupts. By the statute's very words in order to set aside such a [238 U.S. 90, 98] transfer and recover the property it must appear that 'the person receiving it, or to 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. Coder v. Arts, 213 U.S. 223, 240 , 53 S. L. ed. 772, 780, 29 Sup. Ct. Rep. 436, 16 Ann. Cas. 1008; Wright v. Sampter, 152 Fed. 196, 198; McNaboe v. Columbian Mfg. Co. 83 C. C. A. 81, 153 Fed. 967, 968; Tumlin v. Bryan, 21 L.R.A.(N.S.) 960, 91 C. C. A. 200, 165 Fed. 166-168; Reber v. Shulman 106 C. C. A. 110, 183 Fed. 564, 565; Kimmerle v. Farr, 111 C. C. A. 27, 189 Fed. 295, 299- 300; Mayes v. Palmer, 125 C. C. A. 325, 208 Fed. 97, 98, 101.
Considering the whole record we are unable to conclude that appellee banks had reasonable cause to believe that, by transferring the genuine bills of lading to them, a preference was intended or given; and accordingly, without undertaking to decide other interesting questions raised, we must affirm the decree of the court below. Prior to May 8, 1910, the banks thought the forged bills in their keeping represented cotton actually moving from designated points of shipment. They were unaware of the bankrupts' crimes; and in the circumstances we cannot say they either believed or ought to have believed that they were receiving anything more than new receipts for their own property, physical possession of which had passed during transit from a responsible railroad to a trustworthy steamship company.
[ Footnote 1 ] Sec. 60a. A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required.
Sec. 60b. If a bankrupt shall have given a preference, and 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, it shall be voidable by the trustee, and he may recover the property or its value from such person. And, for the purpose of such recovery, any court of bankruptcy, as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction.

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