Court Opinion

ID: 8189350
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:12:12.965597+00
Date Added: 2024-06-11T16:40:32.918386
License: Public Domain

Tbe following opinion was filed November 10, 1908:
SiebecKee, J.
(dissenting). I cannot concur in tbe court’s bolding tbat, under tbe provisions of tbe bankruptcy act, as amended February 5, 1903, Claridge did not secure a preference under tbe mortgage .recorded October 19, 1906. It is conceded tbat tbe mortgagee knew .that tbe mortgagor was insolvent at tbe time tbe mortgage was. given as well as when it was recorded. A mortgage given by a debtor, either to secure payment of a present loan or to secure future advancements, whether given within or prior to tbe four months before the filing of tbe petition in bankruptcy, creates no preference under tbe bankruptcy act, but a mortgage so given to one of a class of creditors to secure a prior debt creates a preference, in tbat such mortgage creditor is thereby taken ■from a class of creditors for preference. Unless such a mortgage was void under tbe local law, such a preference, before tbe anlendment of February 5, 1903, could only be attacked if given within tbe four months immediately preceding tbe filing of tbe petition in bankruptcy. This state of tbe law permitted debtors to give security to favored creditors by keeping the instruments off tbe record and thereby to conceal the fact of such preference from existing and subsequent ■creditors. Such a practice was well calculated to lull such other creditors into a sense of security as to tbe debtor’s financial responsibility and to induce tbe belief tbat all bis ■creditors stood on an equality as to payment out of bis estate. In fact, it afforded an opportunity to give a secret preference to some one or more of tbe same class of creditors and resulted in inequities among tbe members of such a class, if, by not recording such security, its giving could be kept secret *230for four months. The amendment of February 5, 1903, it seems to me, was intended to prevent such secret securities. I3y such amendment (see. 60) the bankruptcy act declared, in effect, that if an insolvent, within four months before the filing of the petition, should transfer any of his property and thereby enable a creditor to obtain a greater per cent, of his debt than others of the same class, it should be declared a preference; and, “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.” As I view it, this court gives no other effect to the amendment than to hold that the validity of a transfer, made prior to the four months pending the filing of the petition but recorded within that period, may be assailed as of the date when the transfer was made. The language of the amendment, when applied to what precedes it, discloses an apparent intent by Congress to make the time of recording-the time of transfer of the property covered by the instrument of transfer, instead of the time when the transfer would be effectual under the local law. Under the amendment of' February 5, 1903, the validity of a voidable preference should, I think, be determined as of the day on which the-mortgage was recorded, which in this case is October 16,. 1906, instead of the day of its delivery to Mr. Olaridge, December 16, 1904 These facts present a case of a transfer within the four months prior to the filing of the petition in bankruptcy, when the mortgagor was insolvent to the knowledge of the mortgagee, and, under the ruling of the court, enables Mr. Olaridge to obtain a greater percentage of his-pre-existing claim than the other creditors of the same class. Under the circumstances the mortgage was fraudulent within the provisions of the bankruptcy act, and the trustee should be entitled to judgment declaring it void, and awarding him the amounts applied within the four months before the filing *231of the petition in bankruptcy, in payment of the debt secured by it, as adjudged by the lower court. I deem the following cases, referred to in the opinion of the court, as controlling and supporting these conclusions: First Nat. Bank v. Connett, 142 Fed. 33; In re Reynolds, 153 Fed. 295; English v. Ross, 140 Fed. 630.
The mortgage, in view of the provisions of the law o£ this state for recording mortgages, is an instrument required to be recorded within the meaning of the amendment of February 5, 1903. As held in the English Case, supra, the amendment contemplates that instruments shall be recorded whenever recording is necessary to protect the transferee against subsequent purchasers, even though such instruments may be valid between the parties thereto without recording. The mortgage to Glaridge, in my opinion, should be judged, on the question of preference, as if executed and delivered on the day it was recorded. When so considered, it results in a preference under the established facts, and it is fraudulent and void under the bankruptcy aet.
KebwiN, J. I concur in the foregoing dissenting opinion of Mr. Justice Siebeckeb.
The following opinion was filed December 15, 1908:
WiNsnow, O. J.
The appellant moves for a rehearing in the action brought by the trustee to recover the preferential payments made within the four-months period, and urges two grounds, viz.: (1) That the note of $1,000, which is said in the statement of facts to have been.paid June 29th, was in fact paid June 23d, and hence was not paid within the four-months period; and (2) that there is no finding to the effect that Glaridge had reasonable cause -to believe that a preference was intended when these payments were made, and hence that there can be no recovery under subd. b, sec. 60, *232of the bankruptcy act. Act July 1, 1898, ch. 541, 30 U. S. Stats, at Large, 562 (U. S. Comp. Stats. 1901, p. 3445).
1. As to the first claim, the matter must be considered as settled adversely to the appellant’s contention by finding of fact number 17 in the preference action, to which there was no exception. That finding says that on the 29th day of June, 1906, Olaridge paid to himself from the funds of the association $1,003.80 as payment in full of a note of $1,000 and interest secured by the mortgage, and that on the 25 th day of August, 1906, he paid to himself $1,519.75 as payment in full of the $1,500 note, and that at both times he knew the association to be insolvent. It is true that in the •seventh finding a list is given of the various notes given under the mortgage, with their respective dates of payment, and that in such list the $1,000 note has opposite to it, as the date of payment, “June 23, 1906.” This makes an apparent contradiction in the findings, but the seventeenth finding, being a specific finding directed to the special question of the time of payment, must be held as controlling over the mere recapitulation of the notes contained in finding 7. Phalen v. Hershey L. Co. 136 Wis. 571, 118 N. W. 219. An error in printing the cases in the two actions may here be noted which may account for the misapprehension of appellant’s counsel ■on this point. In both printed cases the findings in the foreclosure action are printed as the findings of the court, and these findings did not contain finding 17 as above quoted, but ;an entirely different proposition. We were obliged to go to the record in the preference action to find the correct findings.
2. It is true that the statute requires that a preferred creditor must have had reasonable cause to believe that a preference was intended at the time of receiving his preference before the same can be set aside, and it is equally true that in the present case there was no finding that Olaridge had such cause, either on the 29th of June or on the 25th of August, but only that he had such cause on the 19th of Octo-*233her, when tibie mortgage was recorded. This was evidently upon the theory that his rights were to be determined solely by the situation at the time of the recording of the mortgage. The court, however, found that the association was insolvent, to the knowledge of Claridge, at the time the mortgage was executed, and was also insolvent at all times within the four months immediately preceding the bankruptcy proceedings, which fact was also within the knowledge of Claridge. It ■also appeared without dispute that Claridge was the active manager of the entire business of the association from the time of the giving of the mortgage up to the time of its bankruptcy, and in fact was the only person who had personal and accurate knowledge of its affairs; and further, that as secretary he in fact made the preferential payments to himself. Thus he was, in effect, both debtor and creditor, and whatever he knew in one capacity he also knew in the other. The 'complete and practically hopeless insolvency of the association was known to him when he made the payments to himself, and it was also known to him that the effect of each payment was to enable himself as creditor to obtain a greater percentage of • his debt than other creditors of the same class. Thus at the time he made the payments he knew that all the facts existed which are necessary to constitute a preferential payment under subd. a, sec. 60, of the bankruptcy act. In order that a preference within the terms of subd. a, sec. 60, should be recoverable, the statute only requires that the creditor should have reasonable cause to believe that a preference was intended. 1 Eemington, Bankruptcy, § 405. Could a creditor, to whom the utterly insolvent and practically hopeless condition of his debtor had been fully explained, at the time he received a payment or transfer, be heard to say with any reason that the facts known to him did not give him reasonable cause to believe that a preference was intended? We think not. A finding to the contrary could hardly be sustained, and hence the motion for a rehearing must be denied.
By the Court. — It is so ordered.