Court Opinion

ID: 9818082
Source: CourtListenerOpinion
Date Created: 2023-09-01 05:18:40.067996+00
Date Added: 2024-06-11T11:00:52.057526
License: Public Domain

On RbhsaRing.
It is urged in the petition for rehearing that the transfer of February 15, 1910, would constitute a preference under section 60 of the Barikruptcy Act of 1910 (Act June 25, 1910, c. 412, sec. 11, 36 St. at L. 842 [U. S. Comp. St. Supp. 1911, p. 1506J). This act was passed on June 25, 1910, which was subsequent to the date of the transfer in this case. The act in force prior to the amendment of 1910 was the act of 1898 as amended in T'k.5 (32 St. at L. 800), and under that section the question whether the- person receiving such preference had reasonable grounds to believe that a preference was intended was one of fact, and the burden of proof would be upon the bankrupt’s trustee to show that all the elements of a voidable preference under section 60 (a) and (b) of the Bankruptcy Act of 1898 as amended in 1903 existed. Section 60 (a) and (b) reads as follows:
(a) “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 h:s 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.”
(b) “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 *93person. 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.”
In order for the trustee to recover in the instant case, it would be necessary for him to show that the bankrupt was insolvent on the date of the conveyance; that the recording of such instrument was within four months before the filing of the petition in bankruptcy; that the effect of the transfer would be to enable T. W. Pritchett to obtain a greater per cent, of his debt than any other creditor of the same class, and that T. W. Pritch-ett, the person receiving such preference, had reasonable cause to believe that it was intended to be a preference. Calhoun County Bank v. Cain, 152 Fed. 983, 82 C. C. A. 114.
Whether the bankrupt was insolvent at the time of the conveyance, and whether the transferee had reasonable cause to believe that the conveyance was intended thereby to give a preference, are questions of fact, determined by the findings of the court, and not open to review in this court. Kaufman v. Tredway, 195 U. S. 271, 25 Sup. Ct. 33, 49 L. Ed. 191; Ridge Ave. Bank v. Studheim, 145 Fed. 798, 76 C. C. A. 362. No showing was made by the trustee that W. H. Pritchett was insolvent at the time of the conveyance, but to the contrary the court found that at the time of the conveyance 'the bankrupt was solvent. Kaufman v. Tredway, supra; In re Clifford (D. C.) 136 Fed. 475; In re Hines (D. C.) 144 Fed. 142; Calhoun County Bank v. Cain, supra; In re Farmers’ Supply Co. (D. C.) 170 Fed. 502; Worrell v. Whitney (D. C.) 179 Fed. 1014.
Nor is there any showing that T. W. Pritchett, the person receiving the benefit of the transfer of February 21, 1910, had reasonable cause to believe that the same was intended to be a preference. Kaufman v. Tredway, supra; Off v. Hakes, 142 Fed. 364, 73 C. C. A. 464; Hussey v. Richardson, Roberts Dry Goods Co., 148 Fed. 598, 78 C. C. A. 370; Coder v. Arts, 152 Fed. 943, 82 C. C. A. 91, 15 L. R. A. (N S.) 372; Blyth & Fargo Co. v. Kastor, 17 Wyo. 180, 97 Pac. 921.
*94It is urged, further, that the transfer of Feb. 15, 1910, should be set aside under subdivision (e) of section 67, for the reason that the court found that the said conveyance was made for the purpose of hindering, delaying, or defrauding creditors. Subdivision (e) of section 67 of the Bankruptcy Act reads as follows:
“That all conveyances, transfers, assignments, or incum-brances of his property, or any part thereof,.made or given by a person adjudged a bankrupt under the provisions of this act subsequent to the passage of this act and within four months prior to the filing of the petition, with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in good faith and for a present' fair consideration; and all property of the debtor conveyed, transferred, assigned, or incumbered as aforesaid shall, if he be adjudged a bankrupt, and the same is not exempt from execution and liability for debts by the law of his domicile,' be and remain a part of the assets and estate of the bankrupt and shall pass to his said trustee, whose duty it shall be to recover and reclaim the same by legal proceedings or otherwise for the benefit of the creditors. And all conveyances, transfers, or incum-brances of his property made by a dejbtor at any time within four months prior to the filing of the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the state, territory, or district in which such property is situated, shall be deemed null and void under this act against the creditors of such debtor if he be adjudged a bankrupt, and such property shall pass to the assignee and be by him reclaimed and recovered for the benefit of the creditors of the bankrupt. * * * ”
There is a marked distinction between transfers with intent to prefer a creditor, as contemplated by section 60, and transfers with intent to hinder, delay, or defraud creditors, as contemplated by section 67(e), of the Bankruptcy Act. In one sense, fraud is involved in all such transactions, but there is a difference in the character of the fraud. In a preferential transfer, as contemplated by section 60, the fraud is of a technical or constructive nature, consisting in an unequal distribution of the *95assets of the bankrupt among the creditors, but where the fraud is with the intent to hinder, delay, or defraud creditors, as contemplated by section 67(e), the fraud is actual, in that the bankrupt has secured an advantage for himself out of the property which rightfully belongs to the creditors and not to him. There is no finding in this case that W. H. Pritchett secured to himself an advantage by reason of the transfer of this property. The findings of the court are that W. H. and C. W. Pritchett were indebted to T. W. Pritchett in the sum of $5,000; that the property was transferred to T. W. Pritchett in payment of that indebtedness; and the additional finding of the court that the transfer of February 15, 1910, was made for the purpose of hindering, delaying, and defrauding the creditors of W. H. Pritch-ett could not be held to have been a finding of actual fraud, in view of the other findings of the court. All the findings taken together show that the effect of the transfer of February 15, 1910, was constructive or technical fraud, in that it made an unequal distribution among the. creditors of W. H. Pritchett. The court having found that the bankrupt was indebted to T. W. Pritchett in the sum of $5,000, and that the transfer was made in payment of that claim, shows that the court found that the act done was a bona fide transaction and not within the Bankruptcy Act.
The remaining questions presented by the petition for a rehearing were disposed of in the original opinion.
The petition should be denied.
By the Court: It is so ordered.