137 Wis. 218 | Wis. | 1908
Lead Opinion
Tbe following opinion was filed October 20, 1908:
In tbe foreclosure action tbe question is whether tbe mortgage of December 16, 1904, is void as a
There can be no doubt that, in the absence of fraud, actual ■or constructive, this mortgage, though unrecorded, gave to the mortgagee a lien upon .the mortgaged property for the ■sums thereafter advanced under it, good as between the parties and as to all the world except subsequent purchasers -or mortgagees in good faith and for a valuable consideration. Secs. 2203, 2209, 2241, 2242, Stats. (1898) ; Mathwig v. Mann, 96 Wis. 213, 71 N. W. 105; Wis. P. M. Co. v. Schuda, 72 Wis. 277, 39 N. W. 558. It is familiar law that the trustee in bankruptcy takes the bankrupt’s property subject to all the equities impressed upon it in the hands of the bankrupt, unless otherwise provided in the bankrupt act. In other words, he has no greater right to set aside convey-•anoes or transfers than the bankrupt himself had, except in so far as the bankrupt law empowers hini to avoid such transactions in cases of actual or constructive fraud or in cases -of preference inhibited by the act. Security W. Co. v. Hand, 206 U. S. 415, 27 Sup. Ct. 720; Eastman v. Parkinson, 133 Wis. 375, 113 N. W. 649. No actual or constructive fraud
“A person shall be deemed to have given a preference if, being insolvent, be bas, witbin four months before tbe 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 he to enable any one-cí 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’ tbe recording or registering of the transfer, if by law such recording or registering is required.”
Subd. b, sec. 60,' provides that:
“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.”
The mortgagee here knew that the company was insolvent, at the time the mortgage was given as well as at the time it. was recorded, and the trustee claims that, though it was given nearly two years before the bankruptcy proceedings were-commenced, still, because it was not recorded until.a few days before the petition was filed, it becomes a voidable preference by virtue of the last clause of subd. a, sec. 60. The-fundamental difficulty with the trustee’s contention is that-the sections deal with preferences alone, not with all business transactions, and the giving of a mortgage or other-
“An insolvent person may properly make efforts to extricate himself from his embarrassments, and therefore he may borrow money and give at the time security therefor, provided always the transaction be free from fraud in fact and*226 upon, the bankrupt act; and Pence it is a settled principle of bankrupt law, both in England and in tbis country, tbat advances, made in good faitb to a debtor to carry on business upon security taken at tbe time, do not violate either tbe terms or policy of tbe bankrupt act.”
Tbis principle is definitely laid down and approved in tbe cases of In re Wolf, 98 Fed. 74; In re Clifford, 136 Fed. 415 ; First Nat. Bank v. Pa. T. Co. 124 Fed. 968, and In re Noel, 137 Fed. 694, and in effect in Rogers v. Page, 140 Fed. 596. In tbe Noel Case tbe court said: “As to tbe question of preference under tbe bankrupt act, it is clear tbat a present loan on security is not a preference” — citing sec. 67, subd. d (Act July 1, 1898, cb. 541, 30 U. S. Stats, at Large, 565, U. S. Comp. Stats. 1901, p. 3449), of tbe bankrupt act, wbicb reads as follows:
“Liens given or accepted in good faitb, and not in contemplation of or in fraud upon tbis act, and for a present consideration, wbicb bave been recorded according to law, if record thereof was necessary in order to impart notice, shall not be affected by tbis act.”
Tbe very word “preference” means tbat one person is favored above others who before tbe favor was shown stood on equal footing. Bouvier defines it as “the paying or securing, to one or more of bis creditors, by an insolvent, the whole or part of their claim to tbe exclusion of tbe rest.” Tbis seems entirely clear, and probably there would bave been no attack on tbe mortgage were it not for tbe concluding-clause of subd. a, sec. 60, wbicb in effect declares tbat if the local law requires recording of tbe transfer, tbe four-months period during wbicb preferences are inhibited shall not expire until four months after tbe date of tbe recording. But this clause does not define a preference, nor purport to malee a preference out of a transaction wbicb was not a preference before. It only applies where the transfer itself constitutes a preference. In order to ascertain what a preference in
Passing to the action to recover the preferential payments, made within the four-months period, we find a different question. These were payments made upon an antecedent debt. True it was a secured debt, but only to the amount of the security. On June 25, 1906, when the four-months’period began, the company owed Glañdge $5,000 and his security was only of the value of $1,125. Thus, as to the sum of $3,215, Glaridge was an unsecured creditor, and he could not, with knowledge of his debtor’s insolvency, obtain a valid preferential payment on his unsecured debt within the four-months period, because this would give him" a greater percentage than any other unsecured creditors, of whom there were a considerable number. After exhausting his security his debt is of the same class as all other unsecured contract-debts which are not given priority by the terms of the bankrupt act. The judgment in the second action was therefore correct.
It follows that in the foreclosure action the judgment must be reversed, with costs, and the action remanded with directions to enter judgment of foreclosure against the fund
By the- Court. — It is so ordered.
Dissenting Opinion
Tbe following opinion was filed November 10, 1908:
(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
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.
The following opinion was filed December 15, 1908:
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,
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-
By the Court. — It is so ordered.