페이지 이미지

3 F.(20) 88 property to the Kirby Petroleum Company to the values at the time of the transfer to with intent to hinder, delay, or defraud its the Kirby Petroleum Company coincided creditors. The evidence on the facts is with- nearly with the facts of value, and that the out dispute; the evidence of opinion pre- statements made to the agencies did not sents widely variant views.

represent their real views, but were gross The evidence on the facts is that this and inexcusable misstatements. company, a canal company, which had been Mr. Kittrell's testimony was to the effect for many years engaged in planting rice, that, as a director, he knew there was no which had had some very prosperous years, value for the stockholders unless oil might but which for the last three years of its ex- be discovered, but that he did think there istence had had one failure after another, was an equity for the unsecured creditors, until its losses reached the staggering total and that he had opposed the transfer of the of $400,000, placed a mortgage upon prac- property for these reasons. There was testically its entire property in favor of the timony that the officers of the Kirby PetroKirby Petroleum Company, in the principal leum Company had stated to one of the unsum of $ ; that it defaulted on its in- secured creditors that, if they could receive terest, which for a year had gone unpaid, their debt, they would be glad to release and that after many demands for payment, the property. and expressions of determination to fore- In my opinion, the property, if it had close, it was arranged that the Old River been in free hands, which were not forced Company, in satisfaction of the mortgage by the pressure of an overdue mortgage of debt, which at that time, with interest and enormous size, would have been, in Decemattorney's fees, amounted to $ , should ber, 1923, worth more than the mortgage. convey to the Kirby Petroleum Company Just how much I cannot say with accuthe property covered by the mortgage, racy, as value is entirely a question of opinwhich was substantially the entire property ion, and value, where it is connected with of the company.

a plant, is so largely dependent upon the There was the evidence of Mr. Kittrell, & going qualities of that plant. Taking the former director of the company, that in his land as acreage, apart from its value inciopinion the assets of the company were dent to an operating rice canal, it is my worth in excess of $750,000. There was tes- opinion that the value placed by some of the timony of others that they were worth no witnesses of $25 an acre is ample, if not more than the amount of the debt. The offi- too high. It is very difficult to state what cers of the company, who on the stand tes- value the plant, in its present condition, tified that the value of the property at the adds to the land. From some aspects it time of the transfer was not more than the might become a white elephant. If one amount of the debt, were confronted with bought the lands and the plant, with the statements issued by them prior to the trans- necessity to operate at a heavy loss, the fer, showing assets in excess of $1,000,000, existence of the plant would be a detriment, and, unless conditions have arisen since the rather than a benefit. giving out of the statements which change However that may be, I am of the opinthe basis of the opinions, the opinions of ion that, taking it as it stands, it did not these officers are undoubtedly of little value, have a value in bulk, which is the way, beand furnish little guide to go by.

cause of the mortgage, it must be treated, It is clear that the company, having suf- of much more than the mortgage, and in fered such tremendous losses during the the light of the broken state of the properpast three years as put it out of active oper- ty, the pressing character and overwhelmation, and being in December, 1923, under ing size of the debt, the property could not the hammer of the mortgage in the congeal- be said to have any value greatly in excess ing state of a moribund, if not entirely dead, of the debt. estate, its value had shrunk tremendously [1] I do not agree with the contention of during the three years of adverse times. I the defendant that actual fraud, in the sense am of the opinion, however, that the chang- of a gross and corrupt motive to profit es in condition between the times of the those who are acting, must be shown in statements issued by one of the officers and order to justify' adjudication. I think it the transfer under the mortgage did not sufficient if the effect of the transfer is to justify such a difference in valuation, and give one creditor such an unreasonable adthat the values given in these statements vantage over the others as that no reasonwere recklessly and unwarrantably, if not able explanation appears other than actual fraudulently, stated; and I am further of or constructive fraud. the opinion that the views of the officers as [2] On the other hand, I do not agree


ed condition.

with the contention of the plaintiffs that it

In re SMITH, is sufficient to show that more property was PAYNTER V. SLATOR et al. transferred than the debt amounted to. I think the true rule is that there must be

(District Court, S. D. Texas, at Laredo. De

cember 3, 1924.) fraud, actual or constructive. This fraud must be deduced from a motive to oppress

No. 13. some of the creditors in favor of others, or 1. Bankruptcy 213—Value of mortgaged to advantage the transferror, or from some property to be determined in view of its facts which furnish the basis for a finding of corrupt motive, or, a corrupt motive being

In determining whether a bankrupt has an absent, the act must be so egregious, must in its actual condition, subject to the mortgage

equity in mortgaged property, it must be valued appear so unnecessary for a reasonable man and its conditions, and not at the value it might to perform, unless he intends to defraud, have, if free of incumbrance. as that from the act no reasonable infer- 2. Bankruptcy @ 101-Adjudication brings inence, except intent to deceive, can be drawn. to custody of the court only property of

131 In this case I think it clear that no which bankrupt has possession. actual fraud was intended. I think it fur- An adjudication in bankruptcy operates as ther clear that the parties to the transac- a universal caveat, and brings in custodia legis

all property of the bankrupt of which he has tion believed that what they were doing was

possession at the time, but not property to the only reasonable and correct way to dis- which he may have title, but of which he is pose of the transaction; that they felt sure not in possession, until it is reduced to possesthat if the property was put up at fore- sion by plenary suit. closure it could not bring the debt, and that 3. Bankruptcy C 213—Possession of mort. it was an unreasonable and an ungracious gaged property under foreclosure does not thing to compel a creditor to go through the pass to bankruptcy court. expense and trouble of a sale, when the

Where property of a bankrupt is subject to property, which they had represented to him

a valid mortgage, which is unaffected by the

Bankruptcy Act (Comp. St. 88 9585-9656), and was of good value in order to get his loan, which is in process of foreclosure in a state was not, in the opinion of all parties con- court at the time of adjudication, custody of the cerned, substantially above that value. and property remains in the state court, and does certainly would not at a sale bring more

not pass to the court of bankruptcy. than the mortgage.

4. Bankruptcy 213—Sale by mortgagee unCounsel for the petitioner denies that the

der power of sale held valid as against the

trustee of mortgagor. fact of the mortgage and its threatened

Where under the state law, as in Texas, a foreclosure can be taken into consideration power of sale in a mortgage or trust deed gives in determining whether the transfer was or a contract right to pass title to the property as was not fraudulent within the statute. They against the mortgagor and all junior lienholdsay that the value of the property in free hat the value of the property in freers, the posting of notice of sale thereunder

prior to the filing of a petition in bankruptcy hands is the controlling question. With this against the mortgagor is a constructive taking position I do not agree. As I have tried to of possession by the mortgagee, which possesindicate above, the question in its last anal- sion is not affected by the subsequent adjudivsis is one of intent. this intent to be ein cation, and a sale pursuant to such notice.

though after adjudication, is valid as against ther directly proven or inferred from the the

the trustee. facts. How can it be said that persons knowing that their property was about to be In Equity. Suit by Hollie D. Paynter, sold under a mortgage which they could not

trustee in bankruptcy of L. C. Smith, possibly protect it from, who took the short

against M. D. Slator and others. Decree for est and best way out by transferring the

e defendants. property without a dollar of return to themselves, they themselves being unsecured cred- Asher R. Smith, of Laredo, Tex., Henry itors of the company, were guilty of an act A. Bundschu, of Kansas City, Mo., for of fraud? Certainly I cannot say it, nor plaintiff. do I believe that the small margin between White, Wilcox, Graves & Taylor, of Austhe value of this incumbered property in a tin, Tex., and F. Stevens, of San Antonia free state and its mortgage, is sufficient to Tex., for defendants. justify any court in holding, under these facts, that the transfer was other than bona HUTCHESON, District Judge. This is fide, or that any element of intent to de- a suit by Hollie D. Paynter, as trustee in fraud was present in it.

bankruptcy of the estate of L. C. Smith, in The petition for bankruptcy will there which it is sought to set aside a sale made fore be denied.

under the power contained in a deed of trust 3 F.(20) 40 executed on the 31st day of October, 1913, which this land was adapted, had become, and renewed from time to time by M. D. practically unsalable, and their rentals had Slator and L. C. Smith, who were joint own- been enormously reduced, so that at the ers of a tract of land of 17,500 acres in time of the sale the property was worth far Webb and Zapata counties, Tex.

less than it was at the time of the giving The facts are undisputed, except as to of the mortgage. I find that had the propthe value of the land in dispute. They are, erty been in free hands—that is, unincumbriefly: That Slator lives in Texas, and L. bered by past due mortgage, and in a conC. Smith, the bankrupt, lives in Missouri. dition to be held until a purchaser could be That, the principal note of $35,000 and one discovered for it-it would have been worth of the interest notes being in default, H. P. somewhat more than the mortgage, just how Drought, in accordance with the terms of much more upon the evidence I find it very the deed of trust, did on November 12, 1923, difficult to say. But in the condition it post three notices of sale in Webb and Zapa- was in, incumbered by mortgage to very ta counties, and that, pursuant to said no- near its entire value, the whole property, tices, the property was sold at public sale and therefore the half interest in the bankon the 4th day of December, 1923, and at rupt, was not worth in excess of the mortsaid sale was bought by the defendant, H. gage debt, and there was no equity for the P. Drought. Thereafter, on the 8th day of bankrupt. December, 1923, the land was sold by Could the property be treated as in free Drought to Slator for $38,433.14. That at hands, it is my opinion that the property the date of the sale of said land under the was probably worth $3 an acre, with an deed of trust there was due $41,916.15. equity, therefore, in the bankrupt at this That now, if the sale should be avoided, time of something like $4,000 or $5,000. there would be due on the debt, up to Octo. The debt, and its validity and amount, are ber 20, 1924, the sum of $45,576.30. That conceded. The whole contention on the neither Drought nor Stevens, the substitute foregoing facts is that, on account of the trustee, had any notice of the bankruptcy bankruptcy of the Smith estate prior to the proceedings until after the land had been sale under the deed of trust, the property sold under trustee's sale, and in turn con- had passed into the custody of the bankveyed to Slator. That an involuntary pe- ruptcy court, which custody preserved the tition in bankruptcy was filed against L. C. status, and prevented any effective sale unSmith, bankrupt, in the District Court of der the power, at least until in due process the United States for the Western Division of administration, the bankruptcy court of Missouri, at Kansas City, on November could elect either to surrender the property 17, that he was adjudicated bankrupt on as burdensome, or by administration, realize November 20, 1923. That Hollie D. Payn- the bankrupt's equity out of it. ter was appointed receiver of the bankrupt's [1] Plaintiff concedes that, if there was estate on November 27, 1923. That a copy no equity for the bankrupt, the sale must of the order of adjudication of the bankrupt stand, but contends that the finding of the was recorded in Zapata county, Tex., on the court that the property must be valued in 17th day of December, 1923, and in Webb its mortgage condition is incorrect, and that county on the 7th day of December. That upon the finding that there was an equity, the schedules in bankruptcy were filed on the had the property been free and unincum6th day of February, 1924, and that the re- bered, prima facie right on the part of the ceiver, Paynter, was elected trustee on 25th plaintiff to have the sale set aside is estabday of February, 1924, and that neither as lished. With this contention I do not agree, receiver nor trustee did he have any notice because the administration of an equity in of the foreclosure proceedings, until Janu bankruptcy is a practical, not a theoretical, ary, 1924. That the trustee had never at any proposition, and it is unsound to say that time offered to pay any interest, or bear property can be valued for the purpose of any of the burdens incident to the indebted- determining the beneficial interest of the ness.

bankrupt in it from any other standpoint Upon the testimony of value I find that, than that which its actual condition prewhile at the time of the making of the deed sents. Mente & Co. et al. v. Old River Comof trust and its various extensions the prop- pany (D. C.) 3 F.(20) 38. erty was worth in excess of the debt, at the • Since, however, the parties have with such time of the sale, on account of the great de- industry, ingenuity, and ability presented pression which existed in the cattle busi- and argued the contention of the validity of ness, lands for grazing, which is the use to the sale, even assuming that there was an

equity for the bankrupt, I have concluded court, instead of beginning trustee's sale by to dispose of the matter, not from the stand- posting notices, there can be no doubt that point of the want of equity of the bankrupt the bankruptcy could not in any manner in the property, but from that of want of have affected the proceedings, and the state equity in the bill, having concluded that the court could and should have proceeded to adjudication of the bankrupt was not ef- judgment and sale. fective to suspend or prevent the sale under [4] This much is conceded by the parties. the power, and that that sale was valid and The rub comes where the contention of the effectual to pass the title to the property. plaintiff that, adjudication having taken The reasons which support this conclusion place before the sale, the sale constituted an will be briefly stated.

unwarranted interference with the custody [2] Notwithstanding the difficulty inher- of the bankruptcy court, under the analogy ing in the application of the doctrine of of a suit of foreclosure commenced after custodia legis to real property situated in a bankruptcy, meets the contention of the dejurisdiction other than that of the adjudica- fendant that this analogy is false, and that tion, which view has been ably pressed by the true analogy is found in cases where defendant, and which finds support in Jones possessory rights under contract are asserton Mortgages, § 1234, citing Whitridge v. ed against the bankrupt, such as under conTaylor, 66 N. C. 273, I agree with plaintiff's ditional sales (York Mfg. Co. v. Cassell, 201 contention, in view of the amendment of the U. S. 350, 26 S. Ct. 481, 50 L. Ed. 782), or Bankruptcy Act (Comp. St. 8 9585–9656), sales under powers (Hiscock v. which gives general ancillary jurisdiction to Bank, 206 U. S. 28, 27 S. Ct. 681, 51 L. all bankruptcy courts (Collett v. Adams, 249 Ed. 945). U. S. 545, 39 S. Ct. 372, 63 L. Ed. 764; In support of their contentions both parKnauth, Nachod & Kuhne v. Latham, 242 ties cite authorities in point. For the plainU. S. 427, 37 S. Ct. 139, 61 L. Ed. 404; tiff is In re Hasie, 206 F. 789, opinion by Lazarus v. Prentice, 234 U. S. 263, 34 S. District Judge Meek, Northern district of Ct. 851, 58 L. Ed. 1305) that the adjudica- Texas, holding flatly that a sale under a tion in bankruptcy of Smith in the Western deed of trust is void, Cohen v. Nixon, 236 district of Missouri operated as a universal F. 407 (D. C. Georgia), to the same effect, caveat, and brought in custodia legis, not and Pugh v. Loisel, 219 F. 417, 135 C. C. only the property of the bankrupt in that A. 221, a case of foreclosure, but one whose jurisdiction, but the property of the bank- general expressions give him comfort. On rupt in his possession at the time of the the point that a sale under a deed of trust bankruptcy wherever situated (Acme Har- is valid, Bray v. Aikin, 60 Tex. 688; Hall vester v. Beekman, 222 U. S. 301, 32 S. Ct. v. Bliss, 118 Mass. 554, 19 Am. Rep. 476, 96, 56 L. Ed. 208).

and McGready v. Harris, 54 Mo. 137, which This caveat, however, does not extend to cases flatly support defendant's contention, all property to which the bankrupt has title, and, in addition, defendant argues that In but only to that of which he has possession re Hasie misinterpreted and misunderstood also, as to which property the summary ju- the status of powers of sale in Texas, and risdiction of the bankruptcy court is com- therefore cannot be followed as authority. plete. As to all property of the bankrupt In this particular defendants are correct, not in his possession at the time of bank- for it is the rule in Texas that a power of ruptcy, the doctrine of custodia legis does sale granted in a deed of trust is not a not extend, until by plenary suit it has been mere remedy, but it is a contract right, efreduced to possession.

fective to pass full title, foreclosing, not [3] Bankruptcy Act, 8 67d (Comp. St. only the maker, but all junior lienholders. 9651), provides that valid, bona fide liens Hampshire v. Greeves, 104 Tex. 620, 143 S. are not affected by the act, and it has been W. 147. Nor can this right be taken away affirmatively settled by the authorities that, by retroactive law. International Bldg. & as to all liens where foreclosure has been Loan Ass'n v. Hardy, 86 Tex. 610, 26 S. W. commenced prior to the bankruptcy, the 497, 24 L. R. A. 284, 40 Am. St. Rep. 870. property covered thereby is not drawn into It is also clear that Judge Meek misinterthe bankruptcy court, but remains in the preted the Texas authorities as to the effect custody of the court of foreclosure. Griffin of death on the power of sale, it being the et al. v. Lenhart et al. (C. C. A.) 266 F. law in Texas that death does not affect the 671; Brown Shoe Co. v. Wynne (C. C. A.) power. Wiener v. Zwieb, 105 Tex. 262, 141 281 F. 807. Had Drought, therefore, com- S. W. 771, 147 S. W. 867. menced foreclosure proceedings in the state Plaintiff concedes that, if this were a sale 3 F.(20) 40 by a pledgee of property in his possession, attempt by any of its provisions to deprive the sale would be valid under the authority a lienor of any remedy which the law of of Hiscock v. Bank. He çontends, however, the state vested him with; on the other that the property was never in the posses- hand, it provided (section 67d): 'Liens sion of the trustee in the deed of trust, but given or accepted in good faith was in the possession of the bankrupt, and shall not be affected by this act.”that In re Eppstein, 156 F. 42, 84 C. C. In York Mfg. Co. v. Cassell the court A. 208, 17 L. R. A. (N. S.) 465, Stanard held that under its conditional sale the York v. Dayton, 220 F. 442, 137 C. C. A. 35, and Manufacturing Company had the right to Dayton v. Pueblo Co., 241 U. S. 589, 36 S. take the machinery out of the premises, Ct. 695, 60 L. Ed. 1190, control.

bankruptcy having supervened. Prior to I agree with plaintiff that, whatever in- bankruptcy here the bankrupt had by valid consistencies and vagaries appear in the ap- contract given Drought the right to realize plication given by the courts to the doctrine upon his debt by notice and sale. This conof custodia legis, this one thing is fixed: tract right the bankruptcy neither attemptThat property which is actually in custodia ed to nor could impair, and until, in the exlegis cannot be put up at forced sale, or by ercise of its administrative powers, the bankany sort of vis major have its title affected ruptcy court undertook the administration adversely to the bankrupt, without the con- of this property in order to realize the equisent of the court of its custody, and I also ty of the bankrupt, the power of sale was agree with plaintiff that the Eppstein Case unaffected and unimpaired, and this, in my and the Dayton Case furnish very strong opinion, whether the foreclosure proceedings analogies. In those cases, however, it will had been commenced before or after bankbe noted that the sale, while not through ruptcy intervened. court process, was a forced sale, and that In this case, foreclosure proceedings havthe possession and right to possession was ing commenced before the filing of the petiin the bankrupt when adjudication occurred; tion in bankruptcy or the adjudication, at whereas, here the sale was under a contract the times of those procedures the property right given by the bankrupt, and the trus- was in the possession of the trustee, and tee had, under the terms of the contract, did not pass into the possession of the banktaken constructive possession, at least, of ruptcy court, so that, if a sale by trustee the property in order to exercise his power under a power commenced after bankruptcy before adjudication.

would be avoided under the decision in the To such a case the rule of York Mfg. Co. Eppstein and Dayton Cases, supra, such deand the Hiscock-Case I think applies. In cision could not affect this transaction, since the Hiscock Case, which was a sale under å

the basis of those decisions, the possession pledge, it appeared that no effort was made of the bankrupt at the time of the bankruptto enforce the pledge until after the petition cy, is wanting here. in bankruptcy had been filed, but the sale

Believing as I do, then (1) that the powwas made before the adjudication, the court,

er of sale, being a valid contract right, acaffirming the sale against the judgment of quired before bankruptcy and not subject the lower court setting it aside, said:

to be affected by it, can be exercised as well “According to the terms of the Bankrupt- after as before bankruptcy, and (2) that, it cy Act, the title of the bankrupt is vested wrong in this, the beginning of foreclosure

proceedings before bankruptcy operated to in the trustee by operation of law as of the bring this case within the principle of Hisdate of the adjudication.


cock v. Bank, I find the sale under the deed the petition in the present case was filed of trust to be valid and effectual, and not the bank had a valid lien upon these poli- subject to be set aside or interfered with at cies for the payment of its debt. The con- the suit of the trustee, and that therefore tracts under which they were pledged were the plaintiff's suit is without equity, and valid and enforceable under the laws of New should be dismissed. York where the debt was incurred and the Let a decree be prepared in accordance lien created. The Bankruptcy Act did not with this opinion.

[ocr errors]
« 이전계속 »