Opinion
A. N. Crandall, of Coudersport, Pa., for petitioner.
W. F. DuBois, of Coudersport, Pa., for William A. Eimer, Creditor.
JOHNSON, District Judge.
This is a petition to review an order of the referee in bankruptcy holding invalid two chattel mortgages given by the bankrupts and holding a mortgage claim to be an unsecured debt.
On May 25, 1934, the Coudersport Production Credit Association loaned $900 to the bankrupts and the latter executed to the former a chattel mortgage in the same amount secured by all the bankrupts' livestock and farm equipment. This chattel mortgage was duly recorded on June 6 1934. After paying $200 upon the mortgage, the bankrupts desired to make an additional loan of $150 and by agreement of the parties the mortgagee loaned the bankrupts the additional $150, whereupon the bankrupts on March 27, 1935, executed a new chattel mortgage for $850 to cover the $700 remaining due on the first mortgage and the additional loan of $150. The $850 mortgage, recorded on April 2, 1935, was secured by the identical livestock and farm equipment as mentioned above. On June 28, 1935, within four months from the time the $850 mortgage was made, the bankrupts filed their voluntary petition in bankruptcy.
William A. Eimer, administrator, and one of the bankrupts' creditors, petitioned the referee to declare the mortgages void on the ground that the second mortgage, being a new contract, extinguished the first mortgage, and that the second mortgage was void because given within four months of the filing of the petition in bankruptcy. The referee so held and the Coudersport Credit Association petitioned for review.
From the evidence the referee found that the parties intended the $850 mortgage to take the place of the former mortgage of $900 which was to be thereupon satisfied and extinguished and found that the $900 mortgage was in fact extinguished. The evidence clearly supports this finding. The referee, however, erred in concluding that the mortgage for $850 was void because made within four months of the filing of the petition in bankruptcy.
In the case of In re Cutting (D.C.) 145 F. 388, the facts were almost identical with the present case. In that case, Cutting, the bankrupt, executed a chattel mortgage upon enumerated livestock and other personal property. This chattel mortgage was replaced, within four months of the filing of a bankruptcy petition by Cutting, by a new chattel mortgage to secure the balance remaining on the prior mortgage and an additional present loan of $125. The property covered by the later mortgage was identical with the property enumerated in the earlier mortgage, except that the later one included in addition the offspring of the livestock mentioned in the earlier mortgage and an additional item of property in consideration of the new loan of $125. The court held that the giving of the later chattel mortgage within four months of the bankruptcy in renewal of the prior valid chattel mortgage and covering the same property did not constitute an unlawful preference; nor did the inclusion of additional property render it preferential, where the mortgagor received a further present consideration sufficient to warrant the additional security. See, also, Matter of Shepherd, 6 A.B.R. 725; In re Endlar (C.C.A.) 192 F. 762; In re Schwab (D.C.) 258 F. 772.
The mere exchange of one kind of property or security for another of equal value, the renewal of a mortgage, or a pledge of property for a present consideration are not void as preferences, though done within four months of the filing of a bankruptcy petition, since one creditor is not favored or preferred over others and the bankrupt's estate is not diminished. Remington on Bankruptcy (3d Ed.) vol. 4, § 1703; Gilbert's Collier on Bankruptcy (4th Ed.) §§ 1172, 1170; Sawyer et al. v. Turpin et al., 91 U.S. 114, 23 L.Ed. 235.
The conclusion of the court is that the later chattel mortgage for $850 was given for a present valid consideration and as a mere renewal in good faith of the earlier mortgage and therefore is valid.
The Coudersport Credit Production Association's petition to review is sustained; the order of the referee is reversed; and the petition of William A. Eimer, administrator, to declare the chattel mortgage void, is dismissed.