Court Opinion

ID: 8764717
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:20:40.314361+00
Date Added: 2024-06-11T17:01:47.625415
License: Public Domain

BRAWLEY, District Judge.
This case comes up on a review of the report and order of I. C. Strauss, Esq., referee, dated May 29, 1907, allowing as valid a mortgage executed by the bankrupt November 1, 1906, to A. D. Harby, executor and trustee, for $2,442.43, and a mortgage dated January 2, 1907, to Mrs. H. H. Norris for $3,000, and disallowing a mortgage dated February 5, 1907, for $1,000 to G. Manley Norris. The bankrupt filed his voluntary petition, and was adjudicated bankrupt February 13, 1907. All of these mortgages would have been void under the bankrupt act prior to the amendment of February 5, 1903, in that they were executed within four months before the filing of the petition, when the bankrupt was insolvent, and by them the creditors named obtained a greater percentage of their debts than any other creditors of the same class. The main object of the bankrupt act, and one of its most beneficial results, was an equal distribution among his creditors of the estate of the bankrupt. The effect of the amendment referred to is in most cases to practically defeat this beneficial intent, for it becomes necessary now to prove that the party receiving the preference had reasonable cause to believe that it was intended thereby to give the preference. ' The referee in this case had opportunity, which this court has not, of seeing in person the parties to this transaction, of observing their demeanor, and determining their credibility. The circumstances were suspicious, the mortgages were executed when the bankrupt was gravely embarrassed, *465and within less than four months of the date of filing the petition, when it appeared that he was hopelessly insolvent. It appears that the bankrupt had in the year 1905 planted and raised a large crop of cotton, had paid off large sums of money advanced in the raising of the crop, and was in excellent credit; that he was a young man oí unusual energy and skill and of buoyant disposition, and that, encouraged by his success in 1905,- he planted very largely in 1906, securing large advances, whereby he was enabled to advance to tenants and others, having under his control about 79 ploughs. The year 1906, owing to weather conditions, was a disastrous one in the county where he lived, and the crop of that year was wholly insufficient to realize an amount sufficient to pay his indebtedness, but his father, who was a man supposed to be of large means, having died that year, it was thought that he would share a considerable inheritance, and it appears that his credit, therefore, was not greatly impaired. Being of sanguine disposition and energy, he expected to secure advances and to go on planting upon a large scale in the year 1907. He had among his assets claims against the tenants and others to whom he had made advances in 1906 amounting to “about $30,000, and it was hís hope and expectation that, if he succeeded in raising the money necessary to continue his planting operations in 1907, he would secure payment of this indebtedness, and, so far as appears from the testimony and from the finding of the referee, it was not until within a few days prior to the filing of the petition in bankruptcy that, being unable to procure the necessary advances, he realized his true condition, and filed his petition in bankruptcy. Harby, a merchant in Sumter, had sold him goods during the year 1906, taking no note or security; thus showing entire faith in the good credit of the bankrupt. It was understood between them that the money was to be paid about November 1st, and, not receiving payment, he went to the plantation of the bankrupt about November 1st, obtained a mortgage, and transferred it to the estate of his father, of whom he was one of the executors, thus obtaining the money needed in his business. Harby has testified that at that time he did not believe that the bankrupt was insolvent, and had no ground for believing that this mortgage was intended as a preference. The referee has found as a fact that the creditor had no reasonable cause to believe that the mortgage was intended as a preference, and that he had no knowledge of the real pecuniary condition of the bankrupt. Mr. Frost, the largest creditor, whose claim amounts to about-, lived in Charleston. There is no testimony showing that the amount of this indebtedness was known to Harby or in that neighborhood. In the usual course of business, such fact was not likely to be made public, and, although it was well known that the crops were very short that year, it did not necessarily follow that all the planters in that region were insolvent. I do not find in the testimony sufficient ground to reverse the referee’s conclusion as to the Harby mortgage, and it is therefore affirmed.
The next mortgage is that to Mrs. H. H. Norris for $3,000, dated January 3d. It appears that Mrs. Norris was the mother of the bankrupt’s wife, and naturally any transactions between the bankrupt and members of his family required close scrutiny. The common instincts *466•of human nature incline one in failing circumstances to provide for those .of his own household, and the nearest of kin are likely to be preferred. -If appears from the testimony that the bankrupt had borrowed this money from his mother-in-law early in the year 1906, to be repaid in the autumn, when his crop was sold; that in the autumn, finding his crop short, he proposed to his mother-in-law to extend the loan, and executed this mortgage January 2, 1907, in order to secure it. There is no testimony that Mrs. Norris was acquainted with the bankrupt’s actual condition. She lived in another county, separated by a river, and it appears that her son-in-law and his wife, according to the testimony, were in the habit of paying a yearly visit. The same •considerations which led the referee to the conclusion that Harby, had no reason to believe in accepting the mortgage that a preference was intended has led him to a like conclusion with respect to the mortgage to Mrs. Norris, and his order respecting it is affirmed.
Next is the mortgage to G. Manley Norris. for $1,000, executed February 5, 1907. This was only eight days before the petition in bankruptcy was filed, when all hope of weathering the storm must have been abandoned, and there is testimony tending to show sufficient knowledge on the part of the mortgagee of the bankrupt’s actual condition as to put him upon inquiry, and, as that inquiry would have ■demonstrated a hopeless condition of insolvency, the referee’s conclusion that this mortgage is void, because the creditor had reasonable cause to believe that a preference was intended, will not be disturbed.
The able and well-considered report of the referee, stating all the facts and the law applicable thereto, renders further review unnecessary.
The orders made by the referee in accordance with the said report are affirmed.