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J. OCHOA & HERMANO v. PEREZ BLANCO.

(Circuit Court of Appeals, First Circuit.

November 23, 1926.)

No. 2014.

1. Bankruptcy <@=>303(3) — Finding that creditor, receiving preference, had knowledge of bankrupt’s insolvency, held supported by circumstances.

Finding that creditor, to whom mortgage was given within four months of petition in bankruptcy, had knowledge of bankrupt’s insolvency, so as to create preference, held supported by circumstances surrounding transaction.

2. Appeal and error <@=>1008(1).

Finding, which,is not shown to be clearly wrong, will not be disturbed on appeal.

3. Costs <@=>238(I).

Where appellee files no brief, and is not present at argument, decree, on being affirmed, will be without costs.

Appeal from, the' District Court of the United States for the District of Porto Rico; Ira K. Wells, Judge.

Suit by Manuel Perez Blanco, trustee in bankruptcy of Juan Gilibertys, against J. Ochoa & Hermano. Decree for plaintiff, and defendant appeals.

Affirmed.

Ramon Siaca, of New York City (P. Soto Gras, of San Juan, Porto Rico, and Delafield, -Thorne & Burleigh, of New York City, on the brief), for appellant.

Luis Toro Cabanas, of San Juan, Porto Rico, for appellee.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

BINGHAM, Circuit Judge.

This is a bill in equity, brought by the trustee in bankruptcy of Juan Gilibertys (.who, on November 21, 1923, filed a petition in bankruptcy and was that day adjudicated a bankrupt), to set aside a mortgage, given by the bankrupt on the 17th day of September, 1923, to the firm of Ochoa & Hermano, to secure a credit with that concern for $3,000, on the ground that, at the time of the giving of the mortgage, Gilibertys was insolvent; that Ochoa & Hermano then knew, or had reason to believe, that he was insolvent, and that the giving of the mortgage would work a preference.

In the District Court of Porto Rico, after hearing, it was found that the mortgage was in fact given to secure an old indebtedness of $1,945.15, for goods previously sold and delivered to him; that the balance of the credit or sum secured by the mortgage was to cover goods thereafter to be sold to him by the firm; that the firm afterwards sold him goods to the amount of $912.66; that the mortgage was given within four months prior to the filing of the petition in bankruptcy; that Gilibertys on September 17, 1923, was insolvent, and that Ochoa & Hermano then knew, or had reasonable cause to believe, that he was insolvent, and that the mortgage, to the extent it was given to secure the old debt, would effect a preference. Prom a decree embodying the foregoing findings this appeal was taken.

The only error complained of is the finding of the court that Ochoa & Hermano, at the time the mortgage was given, knew, or had reasonable cause to believe, that Gilibertys was insolvent.

[1] It appeared in evidence that Gilibertys owed $24,610.63, of which $2,857.81 was secured by the mortgage in question, the balance being unsecured; that he owned real estate listed in his schedules at $3,500, which the trustee sold for $4,000 (out of which the value of the homestead is to be deducted); and that he had stock in trade listed at $4,-000, and machinery and fixtures at $500, out of which the trustee realized $2,500, and book accounts of $17,598.42, from which the trustee collected about $30. Many of the book accounts were old; 20 or more of the debtors were dead, and the balance of the accounts were uneollectable. There was nothing to show that the stock in trade had been increased from September 17, when the mortgage was given, to the filing of the petition in bankruptcy, other than through the purchases made of Ochoa & Hermano, amounting to $912.66, and there' was no evidence as to how much the stock in trade had been reduced by sales during this period. It is a fáir inference, however, that it had not been materially changed.

It further appeared that early in September, 1923, a salesman of Ochoa & Hermano, whose place of business was in San Juan, called on Gilibertys, who had a small retail store in the town of Toa Baja, to collect the sum of $1,945.15, then overdue; that he was told by Gilibertys that he was out of funds and could not pay it; that he was trying to negotiate a loan, secured by a mortgage on his house, to take care of some of his debts, but had not succeeded"; that thereafter, on the 17th of September, 1923, Gilibertys went to see Ochoa & Hermano, and entered into negotiations with them for the credit of $3,000 above spoken of; that at that time Gilibertys requested an increase in his credit, and an extension of time for the payment of his old indebtedness, on the ground that he was unable to collect the accounts due him and business was slow; that Ochoa & Hermano de*619elined to increase Ms credit, or extend the time for payment of Ms indebtedness, unless he would guarantee the old account, as well as the additional credit; and that it was for this purpose that the mortgage was given. In the mortgage it was stipulated that Gilibertys should make use of the credit by buying goods from Ochoa & Hermano, should pay the amount of each invoice within 30 days, and 10 per cent, interest thereon if not paid at maturity. The credit was to last for a year, and then be fully liquidated. ° The mortgage said notMng about the old debt of $1,945.15, but on that date Gilibertys addressed and delivered to Ochoa & Hermano a letter, authorizing them to charge against the credit the old debt of $1,945.15. No explanation was given in the evidence for the failure to state in the mortgage that it was given to secure the old indebtedness of $1,945.15.

[2] It further appeared that during the month of September, 1923, other creditors of Gilibertys sought to collect their debts, but were unable to do so, and that some went so far as to attaeh Ms property. As a result, the petition in bankruptcy was filed. It does not appear that, at the time the mortgage was given, Ochoa & Hermano knew of the attachments, if any had then been made; but it does appear that they knew from Gilibertys that he was indebted to others, whom he had declined to pay for lack of funds, and it is a fair inference that they knew that other creditors, as well as themselves, were pressing their claims. The partner who conducted the negotiations leading up to the mortgage testified that he did not know, and did not inquire of Gilibertys, as to Ms indebtedness or his assets; but it does appear that the firm’s salesman, who was in Gilibertys’ store in the early part of September to collect their account, saw the stock of goods he then had on hand, learned of the poor condition of Ms business, and, being unable to collect anything from him, on reporting to his firm, probably informed them of their debtor’s situation. This, at least, is the fair inference. Indeed, the circumstances attending the transaction were such that the District Judge was warranted in disregarding the testimony of this partner, and in finding that his firm knew, or had reason to believe, that Gilibertys was insolvent. Surely it does not appear .that the finding was clearly wrong, and, such being the case, it will not be disturbed.

[3] The appellee has filed no brief, and was not present at the argument. Such being the case the order is:

The decree of the District Court is affirmed, without costs.

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