Court Opinion

ID: 8761941
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:09:59.710915+00
Date Added: 2024-06-11T17:01:37.584612
License: Public Domain

HOOK, Circuit Judge.
The question in this case is whether a chattel mortgage taken by the appellant upon the property of the bankrupt constitutes a voidable preference under section 60b ,of the bankruptcy act (Act. July 1, 1898, c. 541, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445]), as amended by Act Feb. 5, 1903, c. 487, § 13, 32 Stat. 799 [U. S. Comp. St. Supp. 1905, p. 689]. Since it appears without dispute that the mortgage was secured within four months before the filing of the petition and the maker was insolvent at the time, the question may be more narrowly stated: Had the appellant or its attorney who attended to the matter reasonable cause to believe that a preference was intended by the bankrupt? The referee answered in the affirmative, and he was sustained by the District Court. *378We are of the opinion that they were right. For several months prior to the talcing' of the mortgage the appellant had almost wholly ceased its sales to the .bankrupt, and was insistently pressing' > for a full satisfaction of its account. Two agents of appellant had recently visited the bankrupt to secure payment. An attorney then went to- the city where the bankrupt did business with instructions not to do anything if the agent who last preceded him had secured a substantial payment on the demand. The agent had secured such a payment and also a check for the balance. The attorney learned of the payment and returned home. The check was subsequently dishonored. One previously given had also been dishonored. The attorney went again and secured another check, dated ahead, for the balance then due, and also a note for the same amount secured by a chattel mortgage ■uopn all of the bankrupt’s tangible personal property, consisting of machinery, materials, arid manufactured stock, worth many times the amount of the debt. This was nine days before the adjudication in bankruptcy. By agreement the mortgage was not to be placed on record if the bankrupt should send a draft for the amount of the debt by the time the date of the check came by. This check, the third one, was also dishonored and the mortgage was recorded the day before the adjudication. The bankrupt was hopelessly insolvent. That he intended a preference is inferred as a necessary consequence of his act in giving the mortgage while in such financial condition, and an examination of the record impresses us with the belief that the appellant’s attorney was so well satisfied of the bankrupt’s insolvency and its effect upon the mortgage he was about to take that he purposely traveled as close to the edge of actual knowledge as he could without obtaining it. He testified to efforts to ascertain the bankrupt’s financial condition, whether he owed certain parties, and that he relied on the information.obtained, but he ignored other sources of information which were at hand and were so obvious and so much more accurate and reliable that in view of the undisputed facts of the case intentional avoidance is suggested. The finding that the representative of appellant had reasonable grounds for believing that a preference was being intentionally given is sustained.
The order is affirmed.