Crawford v. Broussard

WALKER, Circuit Judge. [1] This suit was instituted in July, 1917, by Beaumont Rice Mills, a corporation, and by individuals who prior to the organization of that corporation were members of a partnership which did business in the name of Beaumont Rice Mills (which will be referred to as the appellee), against the appellant, the trustee in bankruptcy of E. F. Moore. The averments of the bill as it was amended show the following state of facts: On and prior to January 1, 1906, E. F. Moore was indebted to sundry parties, including the appel-lee, in considerable amounts, the appellee holding a first mortgage on about $3,000 worth of live stock and implements to secure a debt then owing to it. About January 1, 1906, Moore verbally agreed with J. E. Broussard, as manager of the appellee, that he would rent for the year 1906 280 acres of land known as the McCrimmin farm, and plant the same in rice, devoting the crop to the payment of the appellee, on condition that the latter should advance about $1,000 for seed and other indispensable things, and the charges for rent, water, cost of harvesting, sacking and hauling, and saving said rice being first deducted or paid by the appellee. Under that agreement Broussard gave satisfactory assurances to the landlord and obtained for Moore the use of said land and made him said indispensable advances in the amount of $1,-139.80, prior to and during the growing of said crop, and paid said rental in the amount of $810, as had been agreed. On April 5, 1906, Moore executed a conveyance of said crop to Broussard, the parties intending that the latter should hold the same as trustee for the benefit of the appellee. No part of the crop had been planted at the time said verbal agreement was made. Not all, if any, of it was planted when said conveyance was executed. The advances mentioned were necessary to be made because Moore was insolvent when they were made. About June 15, 1906, the said agreement was modified to this extent, viz: ' That the beneficial interest of the appellees in said crop should become absolute, and that the same should be accepted by it in satisfaction of all claims held by it against Moore, but that Moore should complete the cultivation, harvesting, and saving of the crop, at the cost and expense of the appellee for all, save the supervision, which was to be given by Moore, and, after such modification of the agreement, the appellee abandoned its above-mentioned first mortgage on stock and implements, and its claim of indebtedness as against Moore. While the crop was growing, Moore went into bankruptcy. The crop went into the possession of Moore’s trustee in bankruptcy, who per [124] mitted Moore to harvest it, the appellee paying the expenses of harvesting, such expenses, added to the amounts advanced, and that paid as rent, aggregating $5,751.52. The property covered by the above-mentioned mortgage of Moore to the appellee went into the bankrupt estate, the appellee asserting no claim to it. There was realized from the sale of the rice crop by Moore’s original trustee in bankruptcy $11,-651.25, which, with interest earned on that sum, making a total of $13,-130.50, went into and still remains in the hands of the appellant, Moore’s present trustee in bankruptcy. The prayers of the bill were: That the trustee in bankruptcy be required to pay the amount of that fund to the plaintiff, or that the trustee be ordered to pay to the plaintiff out of that fund the said sum of $5,751.52, with interest from November 1, 1906, and in the alternative that said fund in the hands of the trustee be charged with the amount secured by said mortgage to the appellee; and, if neither of the foregoing prayers be granted, that said mortgage to the appellee be foreclosed, and that the trustee be reqúired to pay out of the fund in his custody the amount of the debt secured by said mortgage. The record discloses that on July 16, 1906, Moore filed his voluntary petition in bankruptcy, and was adjudged bankrupt on the 25th day of the same month. It appears on the face of the bill that he was known to be insolvent when about June 15th preceding the filing of the petition in bankruptcy the appellee acquired the absolute ownership of the rice crop, which before stood as security for advances made and to be made. The evidence showed that when that transaction occurred the rice crop was in existence and had been irrigated. A result of the transaction was that the relation of the appellee to the crop was changed from that of a creditor having security to Üiat of absolute owner of the thing which before had stood as security, from which was realized greatly more than the amount of the outlay required to obtain it, including the debt which it had secured. This happened one month and one day before the filing of the petition on which the former debtor was adjudged bankrupt, and when his insolvency was known to both parties to the transaction. The averments of the bill as amended do not show that the appellee is entitled to the proceeds of the sale'of the rice crop. The facts averred do not show that its relation to the transaction of about June 15, 1906, was that of a purchaser in good faith and for a present fair consideration. The value of the rice crop at the time of its transfer was not averred. The amount realized from it indicates that it was worth greatly more than the cost of it to the appellee. When that transfer was made the amounts chargeable against the rice crop were $1,139.80, the amount of the advances made up to that time, and $810, the amount of the rent for which the appellee had become responsible. A result of sustaining that transaction between the appellee and the bankrupt, the insolvency of the latter being known to both, would be to enable the appellee to realize out of the property transferred more than its debt and other-consideration paid, while the remaining property left to the transferrer was insufficient to satisfy the demands of his other creditors. It is to be presumed that the transferrer intend [125] ed the necessary consequences of his act, which, on its face, as it is disclosed by the averments of the bill as amended, included the hindering-, delaying, or defrauding of his other creditors. The transfer having been made with such intent within four months prior to the filing of the petition in bankruptcy, it was void as against the transferrer’s other creditors, unless the appellee was a purchaser in good faith and for a present fair consideration. Bankruptcy Act July 1, 1898, c. 541, 30 Stat. 564, § 67e. (Comp. St. § 9651). ■ As the appellee comes into court claiming the proceeds of the sale of the rice crop by virtue of that transfer, it is incumbent upon it to aver and prove what is requisite to give validity to that transaction. Jones v. Simpson, 116 U. S. 609, 614, 6 Sup. Ct. 538, 29 L. Ed. 742. This it failed to do, in that its bill as amended shows that the transfer relied on was such a one as was void as against the transferrer’s other creditors, unless the transferee was a purchaser in good faith and for a present fair consideration, but does not show that the appellee was such a purchaser. The decree in favor of the appellee was based upon a finding to the effect that, under the original arrangement between it and Moore as to the 1906 rice crop to be grown on the McCrimmin farm, that crop was to go to the appellee for the purpose of clearing up tire indebtedness of Moore to the appellee. It is to be inferred from expressions contained in the opinion rendered by the District Judge that his conclusion was “that the rice crop belonged to the Beaumont Rice Mills before it was ever planted,” as was stated by Moore in testimony given before the referee in bankruptcy in a former proceeding or suit, which testimony was introduced by the appellee in this case, Moore having died before this suit was brought. There was no allegation to support such a finding. The state of facts disclosed by the appellee’s amended bill has been set out above. That the original bill did not assert a claim that when the rice crop was planted it belonged to the appellee is shown by the explicit averment of that pleading that the claim of the appellee to the proceeds of the sale of the rice crop was based “on the fact that said crop of rice had first been conveyed by the bankrupt, E. F. Moore, to said J. E. Broussard in trust for Beaumont Rice Mills, as security for debt, and later transferred absolutely by said E. F. Moore, the owner of the same, to Beaumont Rice Mills before the bankruptcy of the said E. F. Moore.” We do not think that the evidence was such as to warrant a finding that the appellee became the owner of the rice crop prior to about one month before the filing of the petition under which Moore was adjudged bankrupt. J. E. Broussard, the president and manager of the appellee, represented and acted for it in all its dealings with Moore in regard to the rice crop in question. He was a witness for the appellee. The following are extracts from his testimony: “I knew E. F. Moore. He was killed by the Frisco Railroad 2 years aso. Bridgeman was his son-in-law. They were rice farmers prior to 1906. We advanced money for them to make rice crops for a number of years.” In reference to an instrument in the form of a bill of sale of the rice crop made by Moore to Broussard, dated April 5, 1906, the witness stated that that instrument was filed for registration as a chattel [126] mortgage in the county clerk’s office, and was indexed and recorded as such, and, in reply to the question, “What was the purpose of it with reference to the indebtedness of Moore?” said: “It was tlie intention that the proceeds of the crop should be applied on the debt that Moore and Moore & Bridgeman owes. * * * In addition 'to the advancement for payment of the rent on the McCrimmin land, the Beaumont Rice Mills made advance^ for seed rice, and also advanced some money to put the crop in. * * * In all we advanced Moore & Ilridgeman before they went into bankruptcy §1,139.80 for seed, rice, feed, and cash for labor, etc. That was advanced against the crop. * * * After the rice was planted and growing on the McCrimmin farm I went on the place with Mr. Moore. I had an agreement with Moore, after the rice was up and growing and had been watered, that he would deliver the rice crop at the station, and we would take it in settlement of the Moore & Bridgeman and the Moore ana Gregg indebtedness to the Beaumont Rice Mills. They were to harvest the crop and deliver it at the railroad station in satisfaction and cancellation of the indebtedness they owed, and the relinquishment of the mortgages we held against their property. * * * If they had been compelled to adjust their affairs in June, 1906, I would say they would be insolvent. I could not state the exact time in June that I had this contract with him to let us purchase the McCrimmin rice. I could not state exact date, but it was after the rice was worked, between the 1st and 30th of the month. * * * The agreement I had with Moore was that he was to harvest the crop at his own expense and deliver it to Beaumont Rice Mills. At the time I had that agreement with Moore we made no entry of it on our books. It is a fact that we made an agreement in June, 1906, to, take that rice crop in satisfaction of the indebtedness due us, and made no entry whatever on the books at that time.” The above extracts show that the court’s findings were not supported by the testimony of Broussard, who alone acted for the appel-lee in the transaction, and remained interested in disclosing it in the light favorable to the appellee. The opinion rendered shows that the above-mentioned testimony of Moore and the testimony of P. A. Dow-len also were relied on to support the findings made. Moore’s admission o,f previous statements and acts wholly inconsistent with his statement that “the rice belonged to the Beaumont Rice Mills before it was ever planted” were enough to show that his testimony had little probative value. The witness Dowlen, as the agent of the owner of the McCrimmin land, attended to the renting of that land for the year 1906. In the written lease, dated January 9, 1906, Moore was named as the lessee. Testifying more than 12 years after the occurrence, the witness» stated that about the time or before the contract was executed he, in behalf of the landlord and at the request of Moore, agreed to look to Broussard exclusively for the payment of the rent for the year 1906. Broussard testified that he agreed to pay the rent at the time the land was rented. Yet the written lease contract was made as above stated, and the facts that it was so made and remained unchanged are not explained. From the entire evidence on this subject it well may be inferred that Moore was the renter as the rent contract showed, and that Broussard, acting for the appellee, which was making advances to Moore on the security of the crop, stood for the rent. That was not at all inconsistent with Moore continuing to be the owner of the crop until it was sold shortly before the bankruptcy as testified by Broussard. If the appellee had alleged that the rice belonged to it from the time the crop came into existence, in view of Brous127 sard’s testimony and his relation to the transaction and his interest in behalf of the appellee, we think it could not properly have been said that the evidence as a whole warranted the findings upon which the decree appealed from was based. But the absence of allegations to support such findings is enough to condemn them. [2] The appellee alleged a sale of the rice crop by Moore to it, and, relying upon its alleged ownership, claimed the proceeds of the subsequent sale of the crop by the trustee in bankruptcy. In the alternative it prayed the enforcement of the liens which existed in its favor before it bought the crop, if the relief based on its alleged ownership should not be granted. The averments showed a sale which was valid as between Moore and the appellee, but it did not show that that sale was valid as against Moore’s creditors. Though the sale was voidable at the instance of creditors of the seller adversely affected by it, neither the seller nor the buyer can question it. As between them it passed to the latter all the estate of the former, and extinguished any lien on the subject of the sale held by the buyer prior to his purchase. Moore had ceased to be the owner of the rice crop before he was adjudged bankrupt. The crop did not pass to the trustee in bankruptcy subject to any lien on it in favor of the appellee, as whatever lien the appellee formerly had had was extinguished before the bankruptcy. While the grantee of property conveyed in fraud of the grantor’s creditors holds it in subordination to the right of the creditors to have it subjected to the satisfaction of their demands, he is without right, when the conveyance is attacked by such creditors, to revive liens or incumbrances on the property which existed in favor of himself or others, but were discharged when he bought or while he was in possession as owner. A fraudulent purchaser of property is not entitled to have it subjected to the satisfaction of a lien on it which existed in his favor prior to his purchase. Railroad Co. v. Soutter, 13 Wall. 517, 20 L. Ed. 543; Barnes v. Chicago, M. & St. P. R. Co., 122 U. S. 1, 7 Sup. Ct. 1043, 30 L. Ed. 1128; Luhrs v. Hancock, 181 U. S. 567, 573, 21 Sup. Ct. 726, 45 L. Ed. 1005; U. S. Fire E. & C. Co. v. Joseph Halsted Co. (D. C.) 195 Fed. 295. In the first cited case it was decided that a fraudulent purchaser of property was not, as against defrauded creditors, entitled to charge against it, or be paid back, the amount of an incum-brance on it which such purchaser had lifted while in possession under his purchase. It was said in the opinion; “Who are the complainants? Are they not the very bondholders, self-incorporated into a body politic, who, through their trustee and agent, effected the sale which was declared fraudulent and void, as against creditors, and made the purchase which has been set aside for that cause? Was it ever known that a fraudulent purchaser of property, when deprived of its possession, could recover for his repairs or improvements, or for incumbrances lifted by him whilst in possession? * * * But the complainants are wrong in asserting that the property was not theirs. It was theirs. Their purchase was declared void only as against the creditors of the Ra Orosse and Milwaukee Railroad Company. In other words, it was only voidable, not absolutely void. By satisfying those creditors they could have kept the property, and their title would have been good, as against all the world. The property was theirs; but, by reason of the fraudulent sale, was subject to incumbrance of the debts of the La Crosse Company. This was the legal effect -of the decree declaring their title void. Therefore they were, in fact, paying off an incumbrance on [128] their own property when they paid into court the money which they are now seeking to recover back.” The appellee was not entitled to subject the proceeds of tire trustee's sale of the rice crop to a lien existing in its favor prior to its purchase, as an-effect of that purchase was to extinguish such lien. So far as appears, it had no mortgage on any property of Moore which went into the possession of his trustee in bankruptcy. A result of the alleged sale was a satisfaction of the previously existing mortgage on stock and implements. If after the transaction of about June 15, 1906, the appellee had a provable claim against Moore’s estate in bankruptcy it lost the benefit of such claim by failing to assert it as required by the Bankruptcy Act. The conclusion is that the averments of the bill as it was amended do not show that the appellee is entitled to the relief sought or any part of it. The decree in its favor is reversed, with direction that the bill be dismissed. Reversed.