Page v. Rogers

delivered the opinion of the court.

This is an appeal in equity from a decree of the Circuit Court of Appeals for the Sixth Circuit. The suit was begun by the appellee, the trustee of the estate of I. B. Merriam, a bankrupt, against Thomas Merriam, to recover a preference alleged to have been received by the latter in violation of- the bankrupt law. During the- pendency of the suit the defendant died, and the executors of his will were admitted to defend. The plaintiff had a decree, which was affirmed by the Circuit Court of Appeals. There were findings of fact by, the District Court, concurred in by the Circuit . Court of Appeals. These findings, together with the undisputed facts, may be condensed and stated in narrative form.

I. B. Merriam had been engaged in business for some years as a wholesale grocer at Chattanooga, Tenn. On the first day of June, 1903, he was considerably indebted and insolvent, and the defendant knew it. Much the larger portion of his indebtedness was to his brother, the defendant, Thomas Merriam, or to persons holding claims which Thomas Merriam had guaranteed by indorsement or otherwise. I. B. Merriam then had' no assets of much value, with the exception of an undivided half interest in certain coal lands situated in Tennessee. On that day he conveyed his interest in the coal lands to Thomas Merriam, who agreed to pay therefor $65,000 in money and stock of the par value of $20,000 in the Tennessee Lumber & Coal Company, a corporation, to which Thomas Merriam immediately sold and conveyed the land. The purchase money, after the deduction of $7,400, used for the purpose of extinguishing encumbrances on the land, in pursuance of an agreement made at the time, was mainly devoted to the payment of the debt then due directly from I. B. Merriam to Thomas Merriam, and to the payment of other debts of I. B. Merriam for which Thomas Merriam was liable. At the same time, and as part of the same transaction, Thomas Merriam caused to be advanced to I.

' Upon the foregoing statement of facts it is indisputable that Thomas Merriam received a preference to the extent of $61,000, forbidden by the bankrupt law, and that it could be -avoided and recovered by the trustee.' We do not understand counsel for the defendant as. disagreeing with this conclusion. Conceding it, however, counsel urged with great earnestness that the findings of fact in the two courts below were erroneous, and we were invited- to consider the evidence again in that view. But the rule is well established that where two courts have concurred in findings of- facts in a suit in equity, this court will accept those findings, unless clear error is shown. Dun v. Lumbermen’s Credit Association, 209 U. S. 20 .

We are unable to discover any such error. On the contrary, every fact essential to constitute a preference was substantiated by the evidence. That being so we decline.to subject to minute scrutiny the language of the court employed in discussing questions of fact. There is no reason for a review of

There, however, should be a brief reference to two contentions of the defendant, that the findings were influenced by erroneous views of the law. It is first said that there was error in law in confounding the individual debts of I. B. Merriam with the partnership debts of I. B. Merriam & Son, with the result that í. B. Merriam was 'found to be insolvent as an individual, while really he was solvent, as his individual-assets exceeded his individual indebtedness. But there was no. real partnership. I. B. Merriam & Son was simply the name under which I. B. Merriam conducted the wholesale grocery business. The son was only an employé, receiving a salary, and had no interest whatever in the business. All the assets were owned and all the debts were owed by I. B. Merriam. alone.

It is further said that I. B. Merriam agreed in writing, on November 15, 1902, to convey the coal lands to Thomas Merriam in satisfaction of the debts due to him or for which he was liable. It is, therefore, argued that as the conveyance, on June 1,1903, was in performance of this agreement, which antedated the bankruptcy proceedings by more than four months, it cannot be regarded as a preference.

The facts, however, do not raise the question which was argued. Upon a proper interpretation of the evidence we need not determine whether an insolvent debtor may make an agreement to convey a substantial portion of his assets to a favored creditor, keep that agreement secret for more than four months, and then execute it in fraud- of the .rights of his other creditors, in favor of a creditor who then has reasonable cause to believe that he is receiving a preference. In re Broadway Savings Trust Co., 152 Fed. Rep. 152 , and see Wilson v. Nelson, 183 U. S. 191 .

What actually occurred was that a contract in. writing was made in November, 1902, between I.

When Thomas Merriam came to file his answer in the suit, he alleged, in substance, that several years before the conveyance, which has been referred to, and the adjudication in bankruptcy, which followed, I. B. Merriam had executed and delivered, for an expressed consideration of $35,000, a trust deed of the coal lands, which was intendéd to be a security to Thomas Merriam for loans which he had made or might make to his brother, up to that amount. This trust deed, ais subsequently appeared by the evidence, was executed but not registered. A registration of the deed was not required by the law of the State of Tennessee to make it a valid instrument inter partes. The defendant therefore contended that so far as the payments from the purchase money of the coal lands were applied to the indebtedness secured by the trust deed •they were payments for the extinguishment of a valid, subsisting lien upon the land, fixed upon it more than four months before bankruptcy, and therefore not a preference. It may be assumed, without decision, that the payment within four months’ of bankruptcy of a mortgage older than four months, and valid inter partes, though unrecorded, cannot be a preference! There is no such case here. The trust deed was not delivered unconditionally and the parties to it intended that it should go into effect as a lien only when it was registered, which was never done. The instrument, though actually written, was never delivered as a present, valid and subsisting obligation. It was executed and. held in the possession of

The alternative ruling that the trust deed was invalid for want of good faith, and because it was agreed to be withheld from record to mislead and defraud creditors, may be ^'disregarded. Therefore we need not consider whether the bill should have been amended to permit an.attack on the deed as fraudulent.

What has been said disposes of every question made in the case, except one, which may be considered more advantageously after the form of the decree is noticed. There were two decrees in the cause. Their effect, taken together, as we understand them, is to order the defendant to pay into the court of bankruptcy the $61,000 received as a preference on June 1, 1903, with interest to the date of the rendition of the final decree, making the total amount to be paid $70,891.54. The theory upon which the decree proceeded was, that no greater sum should be required of the defendant than would be needed to meet, the amount of the claims proved or provable against the bankrupt and the cost and expenses of the administration of the bankrupt estate, including fees of counsel for the trustee. As this amount exceeded that received by the defendant by way of preference, the decree exacted of him all that he had received. In computing the amount required to meet the expenses of administration a fee of $15,000, of counsel for the

. All that has been said would naturally lead to an affirmance of the decree. Nevertheless, we are of the opinion that it ought to be modified, for a reason not dwelt upon in argument. Now that this litigation has come to an end, and the defendant has been compelled to surrender the preference which he received,, he is entitled to prove his claim and to receive a dividend on it upon an equality with other creditors. Keppel v. Tiffin Savings Bank, 197 U. S. 356 . In view of the fact that this suit was brought in the bankruptcy court itself, and a final decree is to be entered by the judge of that court, it is entirely practicable to avoid the circuitous proceeding of compelling the defendant to pay into the bankruptcy court the full amount of the preference which he has received, and then to resort to the same court to obtain part of it back by way of dividend. The defendant may be permitted, if he shall be so advised, to prove his claim against the estate of the bankrupt, and the bankrupt court then may settle the amount of the dividend coming to him, and the final decree may direct him to pay over the full amount of his preference, with interest, less the amount of his dividend. Solely for the purpose of accomplishing this result, thg final decree in the case is reversed and the case remanded to the District Court to take proceedings in conformity with this opinion.

Decree reversed.