Bank of Leavenworth v. Hunt Assignee

ERROR to the Circuit Court for the District of Kansas.

This was an action brought by the assignee in bankruptcy of Keller and Gladding to recover of the Second National Bank of Leavenworth the value of certain property alleged to have been transferred to it by them in fraud of the provisions of the Bankrupt Act.

On the trial evidence was introduced, on the part of the plaintiff, tending to show that the bankrupts had made a conveyance of their property to the defendants when they were insolvent, and that the defendants had reasonable grounds for believing that the bankrupts were in this condition at the time; that the transfer was not made in the ordinary course of their business; and that, on the first day of August, 1866, they executed a chattel-mortgage on portions of their property to the cashier of the bank to secure the payment of two notes, each for four thousand dollars, belonging to that institution. This chattel-mortgage provided that in case of default in the payment of the notes or interest, it should be lawful for the cashier of the bank to take possession of the property and sell the same. The mortgage was never deposited in the office of any register of deeds of any county in Kansas. The statute of Kansas in force at the time declared a mortgage of goods and chattels, not accompanied by an immediate delivery of the property and followed by an actual and continued change of possession, absolutely void as against creditors and subsequent purchasers and mortgagees in good faith, unless the mortgage or a copy thereof was forthwith deposited in the office of the register of deeds in the county where the property was situated, or if the mortgagor was a resident of the State, then in the county of which he was a resident.

Thereupon evidence was given on the part of the defendants, tending to show that the bankrupts, in conversations preliminary to the execution of the chattel-mortgage, for the purpose of securing their existing indebtedness to the bank, as well as to obtain future advances, promised its president to deliver to the bank, whenever it should desire, the entire stock of goods which they might have at the time on hand; that in February, 1867, in pursuance of this agreement, they delivered a portion of their stock, amounting in value to $2542, and in July following they turned over the balance to the bank.

Evidence was also given, tending to show that the bankrupts continued to sell the goods included in the mortgage, and all other goods at their store, with the consent of the defendants, until the transfer in July, 1867, and that this was contemplated by the parties when the mortgage was made.

The defendants thereupon prayed the court to instruct the jury, that if they 'believe from the evidence that the conveyance by Keller and Gladding, in July, 1867, was made in pursuance of the original agreement between them and the bank, they are to regard the sale or transfer as valid, and not [as made] in contemplation of evading the provisions of the bankrupt law.' The court refused to give the instruction, and the defendants excepted. The correctness of this refusal was the question presented for consideration in this court. The plaintiff obtained judgment, and the defendants brought the case here by writ of error.

Messrs. Sherry and Helm, for the plaintiffs in error; Messrs. Stillings and Wheat, contra.

Mr. Justice FIELD, after stating the case, delivered the opinion of the court, as follows: