189 F. 636 | E.D. Mo. | 1911
This is a proceeding for review of an order of the referee in bankruptcy, allowing the claim of the Sturdivant Bank as an unsecured claim against the bankrupt estate and denying the prayer of the claimant that its claim be allowed as a secured claim. The Sturdivant Bank presented its claim against the bankrupt in the sum of $15,410, and set forth therein that it held as security for said indebtedness 25 promissory notes, each for $500, executed by the Jackson Chemical Manufacturing Company, a corporation, and that the last-mentioned notes were secured by a deed of trust upon 117 acres of land, and also upon two lots in Cape Girardeau county, Mo. The claimant prayed that its claim be allowed as a “preferred claim” against the bankrupt, and prayed that the land described in the deed of trust “be stricken from the schedule of assets belonging to the bankrupt estate and applied to the credit of the notes,” referred to in the claim. The trustee of the bankrupt estate filed written objections to the allowance of the claim as a preferred one, alleging, in substance: (1) That the claimant obtained a preference in respect of its claim by means of a judgment rendered in its favor against the bankrupt; (2) that the transfer of the land mentioned in the deed of trust from the bankrupt company to the Jackson Chemical Manufacturing Company, and the deed of trust executed by the Jackson Chemical Manufacturing Company, constituted a voidable preference
One Hugh R. Quinn, a creditor, by leave of the referee, also filed written objections to the allowance of the bank’s claim, alleging, in substance: (1) That the real estate described in tlie deed of trust held by the bank is and always has been the property of the bankrupt company; (2) 'that the deed from the bankrupt company to the Jackson Chemical Manufacturing Company was never delivered and no title passed thereby; (3) that the said deed was not filed for record until within four months of the adjudication of bankruptcy; (4) that the Jackson Chemical Manufacturing Company, if incorporated in fact, had no authority under its charter to take and hold said real estate, and that the deed of trust made by the Jackson Chemical Manufacturing Company is null and void and of no effect; (5) that the deed of trust executed by the Jackson Chemical Manufacturing Company was never delivered, and no title passed thereunder; (6) that the deed of trust executed by the Jackson Chemical Manufacturing Company was not filed for record until within four months of the adjudication of bankruptcy herein and is null and void as a lien upon the estate of the bankrupt.
The réferee afterwards heard the evidence submitted by the respective parties, and on March 23, 1908, made an order disallowing the claim “as a preferred or secured claim,” and allowing it as a general claim in the sum of $16,275; and also made an order denying the application of the claimant to strike from the schedule of assets the land described in the deed of trust referred to in the claim. Thereafter, on April 2, 1908, the claimant, the Sturdivant Bank, filed with the referee a petition for review of the foregoing order and the referee has certified the matter to this court.
The material facts bearing upon this controversy, as they appear from the referee’s summary of the evidence, are as follows:
The bankrupt company was incorporated in Missouri in April, 1897, under the name of the English Mining & Manufacturing Company, and in December, 1902, changed its name to the Jackson Brick & Tile Company. From the time of its original incorporation in 1897, until July, 1906, the bankrupt company was engaged in the business of manufacturing brick, fire brick and drain tile near Jackson, Mo., and had
It further appears from the evidence that on September 12, 1902, the Jackson Chemical Manufacturing Company executed a deed of trust whereby it conveyed the 117 acres of land and the 2 lots here in question to one Henry L. Jones, as trustee, to secure the payment of 25 promissory notes for the sum of $500 each, executed by it and payable five years after date to the English Mining & Manufacturing Company. On December 4, 1902, the English Mining & Manufacturing Company borrowed $8,500 from the Sturdivant Bank and pledged with the bank as collateral security for the loan, the 25 notes of the Jackson Chemical Manufacturing Company above referred to. The evidence shows that in negotiating this loan the bankrupt company was represented by Henry R. English, who informed the bank that the notes were secured by a deed of trust upon certain lands formerly owned by the bankrupt company and that the bankrupt company had conveyed'the lands to the Jackson Chemical Manufacturing Company by warranty deed, and that the notes were secured by a deed of trust upon the laud executed by the Jackson Chemical Manufacturing Company.
It further appears from the evidence that at the time the loan was obtained from the Sturdivant Bank, Henry R. English forwarded.to the bank by mail the deed of trust executed by the Jackson Chemical Manufacturing Company to secure the collateral notes and requested the bank to return the deed of trust to him and that he would record
The evidence further showed that in September, 1902, the bankrupt company executed a deed of trust whereby it conveyed to Henry R. English lots 154, 155, 167, and 168 in the city of Jackson, and also certain lands in Cape Girardeau county, including the plant used by it for the purpose of making brick and tile, to secure 25 notes' of $500 each executed by the English Mining & Manufacturing Company to the order of Henry R. English, that on September 12, 1902, English obtained a loan of $8,500 from the Merchants-Laclede National Bank of St. Louis, giving the bank á note for that sum executed by him, and deposited with the bank as security for the $8,500 and the twenty-five notes of the English Mining & Manufacturing Company referred to above. It further appeared that' this deed of trust was not recorded, but remained in the possession of English until about July 19, 1906, when he delivered it to his attorney, one W. H. Miller, under circumstances tq be stated hereafter. It further appeared that about July 6, 1906, the bankrupt executed and delivered to one Hugh R. Quinn a note for about $27,000 to cover an indebtedness due Quinn by the bankrupt company, and to secure this note the bankrupt executed and delivered to Quinn a mortgage covering the entire property and plant of the bankrupt company and embracing substantially all the land described in the prior deeds of trust held by the Sturdivant Bank and the Merchants-Laclede National Bank.
The evidence further showed that in July, 1906, the bankrupt company had become heavily involved, was insolvent and unable to meet its obligations, and that English as president of the company placed the affairs of the company in the hands of his attorney, W. H. Miller, of
It further appeared from the evidence that a petition in involuntary bankruptcy was filed by creditors against the bankrupt on October 8, 1906, and resulted in an adjudication of bankruptcy on October 31, 1908. The evidence showed that in July, 1906, and thereafter, up to the time of its bankruptcy, the bankrupt company owed debts amounting to $69,959; that upwards of $25,000 of this indebtedness arose after the Sturdivant Bank had received the collateral notes delivered to if by the bankrupt in December, 1902; that between December 4, 1902, and July 19, 1906, the Bank of Whitewater had loaned the bankrupt about $2,600, and before making the loan had caused the title to bankrupt’s real estate to be examined and had found no incumbrances thereon of record. It further appeared that in June, 1906, Hugh R. Quinn had made a loan to bankrupt company of about $27,000, and received from the bankrupt as security for the loan a deed of trust covering all the bankrupt’s property including that embraced in the deed of trust to the claimant bank, and before loaning the money that Quinn had examined the records and found that no incumbrances were of record affecting the bankrupt’s real estate. Quinn testified that at the time he received his mortgage he had no knowledge of the deed of trust given the claimant bank. The evidence makes it clear that Henry R. English, the president of the bankrupt company, withheld the various conveyances heretofore mentioned from record in order that the bankrupt might obtain credit upon its apparent ownership of the property described in such conveyances.
“Where the preference consists of 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.”
It is to be noticed that the deed of trust here in question was executed in September, 1902, and that the notes secured thereby were delivered to the bank for a present loan on December 4, 1902; but that the deed was not recorded until August 8, 1906, within four months of the filing of the petition in bankruptcy. The transfer of title effected by the deed of trust was made prior to the enactment of the amendatory act” of February 5, 1903, and it is open to doubt whether the amendment to section 60a contained in that act can be given retrospective effect so as to render it applicable to this transaction. But even if it is to be assumed that the amendment of 1903 is applicable to the transfer here in question, it still seems clear that the transaction cannot properly be treated as a voidable preference be*
The provision of the statute that “where the preference consists in a transfer, such period of four months shall not expire until four months after the recording or registering of the transfer, if, by law, such recording or registering is required, was intended to postpone the time within which a transfer is open to attack as a preference until four months after the date of the recording of the transfer, where such recording is required by the local law; but while the statute postpones the time within which the transfer can be attacked the statute cannot properly be so applied as to materially alter the essential character of the transaction. If the transfer is one which is required to be recorded, the four-month period during which it may be attacked does not begin to run until the conveyance is recorded, but if the transfer when made was based upon a present consideration, a delay in recording the instrument does not warrant us in treating the conveyance as if it were made as security for an antecedent debt, lie-cause to do so would be to create by construction a transaction different from the actual one. It is true that in certain cases where the conveyance has no force and validity whatever as to creditors until recorded, the courts have held that the transfer may be regarded as first coming into existence when it is recorded (McElvain v. Hardesty, 22 Am. Bankr. Rep. 320, 169 Fed. 31; In re Newton, 18 Am. Bankr. Rep. 567, 153 Fed. 841, 83 C. C. A. 23; Bank v. Connett, 15 Am. Bankr. Rep. 662, 142 Fed. 33, 73 C. C. A. 219, 5 L. R. A. [N. S.] 148); but in my opinion these cases are inapplicable to the facts here presented, and, as the transfer here in question was for a present consideration, it cannot properly be treated as a voidable preference.
“No such instrument in writing shall be valid, except between the parties thereto and such as have actual notice thereof, until the same shall be deposited with the recorder for record.”
This statute, although broad and comprehensive, in its terms, has been sp. construed as to have little effect, the general doctrine laid (down in Missouri cases being that an unrecorded conveyance of real ^e^te is good, except to bona fide purchasers or incumbrances for ' value; and without notice. Cape Girardeau Road Co. v. Renfroe, 58 Mo. 265; Bank v. Rohrer, 138 Mo. 370, 39 S. W. 1047; Hord v. Harlin, 143 Mo. 469, 45 S. W. 274.
But -ft is well-established law in Missouri that a conveyance of real * estate <may, under certain circumstances, be held’ constructively fraudulent or inoperative as to creditors because of its being' withheld from record. In Goldsby v. Johnson, 82 Mo. 602, foe, ext, 606;. the Supreme Court, speaking through Judge Norton, said::-
■•“It seems to he an established principle that a deed' not a'4 first f'jrauduletlii •may .become so by long being concealed, because by its concealment, persons* •may 'be .induced to give credit to the grantor. In such eases the use that is* :made of .it relates back and shows the intent with which it was- madte. The* .omission-to place the deed on record or leaving' it in th'e hands a£' the1 grantor; - .or placing it in the hands of a third person to he produced) on suppressed aseexigencies may demand, are instances of delay that are within tile» rufe.”
In Central National Bank v. Doran,, 109 Mo. 40; loc. cit. 49, 18 S. W. 838, it was held that where one indebted to a. bank executed a (deed of trust on his land with the understanding that it was to be withheld from record so as not to impair his credit, and another bank, relying upon the indicia of solvency thus created, extended credit to the debtor after execution of the deed of trust and' before it was recorded, that the deed would be treated as constructively fraudulent as to the creditor so extending credit although-: there was no> actual, intent to defraud. In its opinion in this case the-court said:
“The authorities cited by the plaintiff: bank fully bear-out: thee position) tikat in circumstances similar to those related, a court of equity will; postpone1 or set aside as fraudulent an instrument whose recording has-been clandestinely •delayed as aforesaid. And, apart from any agreement of the-sort memüonsd, some of .the authorities hold that where a deed ia concealed from, t-ha-public, .at least for a considerable length of time,' while the reeord-.awnen- remains .in possession'and is given a suppositious credit thereby,, which: results detrimentally .to others who rely upon the outward indicia: of solvency thus created, such'deed will be declared constructively fraudulent; .though, no. anfc&al intent to .defraud exists.”
In Bank v. Buck, 123 Mo. 141, 27 S. W. 341, it appeared that a bank had taken two deeds from a customer as security, for his indebtedness and withheld them from record for two and three years; respectively, and did not place them of record until the day the grantor failed in business. While the deeds were so withheld, from record, the grantor continued in business and incurred various- debts. There was no agreement that the deeds should be withheld from, record for any definite time, but the court concluded from the evidence that there
“Tlie essential facts authorizing the decree entered herein by the trial court * * * are these: That although the appellant was found to have been the real owner of the land, in controversy prior to the creation of the debt of plaintiff's assignor, and although she was found to have accepted the deed to the land at tlie time it was made in good faith and without the contemplation of a fraud upon the rigid s of any one, the court found that while she was the real owner of the land, she suffered the record title thereof to be and remain in her codefendant Charles Clifton, whereby he, on the 'strength of his apparent ownership of same induced the plaintiff’s assignor to extend to him a credit which otherwise would have been denied. The mere recital by the court in its finding of facts ‘that the conveyance of the land to the defendant Isabel Stephens was made and accepted by her in good faith and without fraud on her part’ is no impeachment of the correctness or the validity of the decree subjecting appellant’s land to the claim of a creditor of the apparent owner of the land, prior to the time appellant was invested with the legal title thereto in November, 1894. It was not necessary that the defendant Isabel Stephens should actually have known that her codeiendant Clifton was obtaining credits from the plaintiff's* assignor on the faith of his apparent ownership of the land ih controversy which stood of record in his name, or that she did in fact know that credit liad actually been extended to Clifton’s creditor on the faith of his apparent ownership of the land, prior to tlie time the conveyance of the land was made to her. Actual knowledge of eiiher of those conditions on part of appellant would have amounted to a 'positive fraud against plaintiff, and of this tlie court’s finding of facts shows •she was not guilty; but the decree entered ivas predicated upon the fact not that an intentional fraud was commuted by appellant upon tbe plaintiff, ¡but that a wrong had resulted to plaintiff by means of the conduct of appellant in so managing her property that plaintiff was induced to give to another -on the strength of his apparent ownership of it a credit which otherwise "WouM have been denied.”
The facts in this case, in my opinion, bring it within the doctrine announced in the cases just referred to and constrain me to treat the deed of trust as constructively fraudulent and unenforceable as against the trustee in bankruptcy. The evidence in this case shows that the claimant bank exercised little care or vigilance for its own protection, but relied implicitly on English. At the time the deed of trust was delivered to the bank in December, 1902, the record •title to the property was in the bankrupt company and not in ‘•the Jackson Chemical Manufacturing Company, the grantor in the xléecl of trust. The bank made no investigation into the state of the record title, but simply accepted the statement of English that the Jackson Chemical Company had a warranty deed to the property and
It is, however, contended on behalf of- the bank that in Missouri a deed cannot in any case be treated as fraudulent or inoperative as
Upon a careful consideration of the facts disclosed in the evidence and of the law applicable thereto as laid down in the Missouri cases, I have reached the 'conclusion that the deed of trust held by the bank should be treated as constructively fraudulent or inoperative as to those creditors who extended credit to the bankrupt subsequent to December 1902, and as the amount of these debts considerably exceeds the value of the property embraced in the deed, the lien here asserted cannot be sustained. In my opinion the referee’s order was justified by the evidence, and it will be affirmed.