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cause to believe that the said mortgage was intended as a preference? I conclude that the claimant had knowledge of such facts as would put a reasonable man upon inquiry, and consequently, under the decisions above cited, the claimant is chargeable with knowledge of facts which such inquiry would reasonably be expected to disclose. These facts would have been the insolvency of Tindal and his intention to prefer the claimant.
"It is therefore ordered that the claim of G. Manly Norris be disallowed as a secured claim, but that the same be allowed as an unsecured claim.
"The facts and circumstances attending the execution of the mortgage to Mrs. Norris are somewhat dissimilar from those attendant upon the execution of the bond and mortgage to Mr. Norris. It is true that Mrs. Norris was the mother-in-law of the bankrupt. She dealt with him on her own account. Mr. Tindal owed her $3,000, advanced to him in the spring of 1906, and due November 1, 1906. Mrs. Norris knew that crops were short. She did not desire to press her son-in-law, and made no demand upon him. On January 2, 1907, the bankrupt came to her, and offered to her a mortgage to secure her if she would agree to extend the time for payment. To this she assented. She had no knowledge of his financial condition, and the only facts known to her were that crops were short, and that Mr. Tindal stated he could not then pay the money, and that he volunteered the security. Were these such facts as would put a reasonable person on inquiry? Did she have reasonable cause to believe that Tindal intended a preference? I think not, and it is therefore ordered that the claim of Mrs. H. H. Norris be, and the same is hereby, allowed as a secured claim for the sum of $3,000, with interest thereon at 7 per cent. per annum from the 2d day of January, 1907, and that the same be paid out of the fund of $4,000 derived from the sale of the real estate of the bankrupt next after the payment of the debt allowed in favor of the estate of Harby, or so much thereof as said fund shall pay, and as to any deficiency, that the said claimant Mrs. H. H. Norris be entitled to share as an unsecured creditor in any other funds of the bankrupt estate.
"Under the views which I have taken of the mortgages of Mr. and Mrs. Norris, it is needless to consider the objection of the trustee that the same were executed in contravention of section 67e of the bankruptcy act.”
BRAWLEY, District Judge. This case comes up on a review of the report and order of I. C. Strauss, Esq., referee, dated May 29, 1907, allowing as valid a mortgage executed by the bankrupt November 1, 1906, to A. D. Harby, executor and trustez, for $2,442.43, and a mortgage dated January 2, 1907, to Mrs. H. H. Norris for $3,000, and disallowing a mortgage dated February 5, 1907, for $1,000 to G. Manley Norris. The
bankrupt filed his voluntary petition, and was adjudicated bankrupt February 13, 1907. All of these mortgages would have been void under the bankrupt act prior to the amendment of February 5, 1903, in that they were executed within four months before the filing of the petition, when the bankrupt was insolvent, and hy them the creditors named obtained a greater percentage of their debts than any other creditors of the same class. The main object of the bankrupt act, and one of its most beneficial results, was an equal distribution among his creditors of the estate of the bankrupt. The effect of the amendment referred to is in most cases to practically defeat this beneficial intent, for it becomes necessary now to prove that the party receiving the preference had reasonable cause to believe that it was intended thereby to give the preference. The referee in this case had opportunity, which this court has not, of seeing in person the parties to this transaction, of observing their demeanor, and determining their credibility. The circumstances were suspicious, the mortgages were executed when the bankrupt was gravely embarrassed, and within less than four months of the date of filing the petition, when it appeared that he was hopelessly insolvent. It appears that the bankrupt had in the year 1905 planted and raised a large crop o. cotton, had paid off large sums of money advanced in the raising of the crop, and was in excellent credit; that he was a young man of unusual energy and skill and of buoyant disposition, and that, encouraged by his success in 1905, he planted very largely in 1906, securing large advances, whereby he was enabled to advance to tenants and others, having under his control about 79 ploughs. The year 1906, owing to weather conditions, was a disastrous one in the county where he lived, and the crop of that year was wholly insufficient to realize an amount sufficient to pay his indebtedness, but his father, who was a man supposed to be of large means, having died that year, it was thought that he would share a considerable inheritance, and it appears that his credit, therefore, was not greatly impaired. Being of sanguine disposition and energy, he expected to secure advances and to go on planting upon a large scale in the year 1907. He had among his assets claims against the tenants and others to whom he had made advances in 1906 amounting to about $20,000, and it was his hope and expectation that, if he succeeded in raising the money necessary to continue his planting operations in 1907, he would secure payment of this indebtedness, and, so far as appears from the testimony and from the finding of the referee, it was not until within a few days prior to the filing of the petition in bankruptcy that, being unable to procure the necessary advances, he realized his true condition, and filed his petition in bankruptcy. Harby, a merchant in Sumter, had sold him goods during the year 1906, taking no note or security; thus showing entire faith in the good credit of the bankrupt. It was understood between them that the money was to be paid about November 1st, and, not receiving payment, he went to the plantation of the bankrupt about November 1st, obtained a mortgage, and transferred it to the estate of his father, of whom he was one of the executors, thus obtaining the money needed in his business. Harby has testified that at that time he did not believe that the bankrupt was insolvent, and had no ground for believing that this mortgage was intended as a preference. The referee has found as a fact that the creditor had no reasonable cause to believe that the mortgage was intended as a preference, and that he had no knowledge of the real pecuniary condition of the bankrupt. Mr. Frost, the largest creditor, whose claim amounts to about
lived in Charleston. There is no testimony showing that the amount of this indebtedness was known to Harby or in that neighborhood. In the usual course of business, such fact was not likely to be made public, and, although it was well known that the crops were very short that year, it did not necessarily follow that all the planters in that region were insolvent. I do not find in the testimony sufficient ground to reverse the referee's conclusion as to the Harby mortgage, and it is therefore affirmed.
The next mortgage is that to Mrs. H. H. Norris for $3,000, dated January 2d. It appears that Mrs. Norris was the mother of the bankrupt's wife, and naturally any transactions between the bankrupt and members of his family required close scrutiny. The common instincts of human nature incline one in failing circumstances to provide for those of his own household, and the nearest of kin are likely to be preferred. It appears from the testimony that the bankrupt had borrowed this money from his mother-in-law early in the year 1906, to be repaid in the autumn, when his crop was sold; that in the autumn, finding his crop short, he proposed to his mother-in-law to extend the loan, and executed this mortgage January 2, 1907, in order to secure it. There is no testimony that Mrs. Norris was acquainted with the bankrupt's actual condition. She lived in another county, separated by a river, and it appears that her son-in-law and his wife, according to the testimony, were in the habit of paying a yearly visit. The same considerations which led the referee to the conclusion that Harby had no reason to believe in accepting the mortgage that a preference was intended has led him to a like conclusion with respect to the mortgage to Mrs. Norris, and his order respecting it is affirmed.
Next is the mortgage to G. Manley Norris for $1,000, executed February 5, 1907. This was only eight days before the petition in bankruptcy was filed, when all hope of weathering the storm must have been abandoned, and there is testimony tending to show sufficient knowledge on the part of the mortgagee of the bankrupt's actual condition as to put him upon inquiry, and, as that inquiry would have demonstrated a hopeless condition of insolvency, the referee's conclusion that this mortgage is void, because the creditor had reasonable cause to believe that a preference was intended, will not be disturbed.
The able and well-considered report of the referee, stating all the facts and the law applicable thereto, renders further review unnecessary.
The orders made by the referee in accordance with the said report are affirmed.
RIVER SPINNING CO. V. ATLANTIC MILLS.
The price of goods contracted to be sold and delivered, but which have not been delivered nor accepted so as to pass title to the buyer, cannot be recovered under a count in assumpsit for goods bargained and sold, the only remedy of the seller being an action for damages for breach of the contract, and the rule is the same whether the contract is one to sell mere ly or to manufacture and sell, in the absence in the latter case of the assent of the buyer to an appropriation on the contract of goods manufactured by the seller, or unless they are of such peculiar character as not to be marketable.
[Ed. Note.--For cases in point, see Cent. Dig. vol. 43, Sales, $$ 958, 960.] 2. SAME-CONSTRUCTION OF CONTRACT.
A written contract to sell a specified quantity of yarn of a stated quality, at a stated price, to be delivered in smaller quantities at intervals, is not one to manufacture and sell, but an executory contract to sell only, although the seller owned and operated a mill for making yarn, and it was contemplated by the parties that the yarn should be spun at such mill, since it was not bound to so make it.
[Ed. Note.-Contracts for sale of things to be produced or manufactured, see note to Star Brewing Co. v. Horst, 58 C. C. A. 363.]
3. SAME-MEASURE OF DAMAGES FOR BREACH.
Where a purchaser refuses to take goods bought which the seller has not on hand, but is to manufacture or purchase, the measure of his damages recoverable for breach of the contract is not the difference between the contract price and the market price of the goods at the time of the breach, but the actual profit he would have made on the sale.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 43, Sales, & 1106.] 4. SAME.
A company operating mills for making yarn which contracted to furnish to a buyer a quantity of yarn to be delivered as required in the future, after the completion of a contract then existing between the parties, on the refusal of the buyer to order or accept any further deliveries under the contract, held not entitled to recover as damages for its breach a loss resulting from a resale of wool which it bought some two years before it was required and reserved for use in filling the contract, although it was suitable for use on other contracts; such an element of damages apparently not being within the contemplation of the parties when the contract
was made. At Law.
Walter F. Angell, Frank H. Swan, and Edwards & Angell, for plaintiff.
Rathbone Gardner, Wm. H. Thornley, Gardner, Pirce & Thornley, John W. Boothby, and Boothby & Baldwin, for defendant.
BROWN, District Judge. This is an action of assumpsit by the River Spinning Company, a Rhode Island corporation, against the Atlantic Mills, a corporation organized under the laws of Maine, and was begun by attachment of real property by writ issued by the state court. Upon removal a jury trial was waived, and the case heard by the court on oral testimony and documentary proofs.
The declaration contains two special counts, also a count for goods bargained and sold, and other common counts.
Findings of Fact. I find the facts as follows: The following letters passed between the plaintiff and the defendant:
"Providence, R. I., March 20th, 1900. “Mr. Andrew Adie, Agent,
"River Spinning Co., Woonsocket, R. I. “Dear Sir: I beg to confirm the conversation over the 'phone to-day, and understand that you have sold us 250,000 pounds of what we call the regular 672 run woolen yarn, at 8112¢ a pound. Also 250,000 pounds of special 642 run, at 8312¢. This yarn to follow along after the present contracts with you are filled.
"It was not mentioned to-day, as a part of the conversation, but as nearly as I can remember the conversation, previous to your illness and mine, we were to have at the beginning of this contract (if you increased the capacity of your machinery at that time) deliveries of some 6,000/7,000 lbs. per week more, than we are now receiving. In other words, after your new machinery was in, and installed.
"It is also understood to be a part of this contract, that the Atlantic Mills deliver to you 250,000 lbs. of Noils, either ‘X.X.' or 'X.X.X.' Z or P Noils, as they may be making from time to time, at 24 per pound less, than the contract price for this year, made with Mess. Asa Peck & Co. Will you, at your early convenience, please confirm the above. "Yours very truly,
"Chas. D. Owen, Agent."
“Woonsocket, R. I., U. S. A., March 30th, 1900. “Atlantic Mills, "C. D. Owen Esq., Agt.,
"Providence, R. I. “Dear Sir: We beg to confirm your esteemed favor of the 20th inst. accepting our offer of 250,000 lbs. 614-Run Filling Regular, at 8112€., also 250,000 lbs. 642-Run Special at 8342¢.
"The above to follow present Contracts. It is also understood to be a part of this Contract that you deliver to us 250,000 lbs. of Noils, XX or XXX Z & Pat 33°. and 45¢. respectively.
"We cannot yet determine what additional deliveries we can make with our increased capacity, but we fully expect to be able to give you 6,000 lbs. per week more, in other words, 34 of our whole product. “We trust this will be satisfactory, and esteeming your favors, "Yours very truly,
River Spinning Co.,
“Andrew Adie, Agent."
March 22, 1900, the plaintiff bought 221,036 pounds of wool at the cost of $82,869.53. This was bought at a fair price at that date, and was suitable material for the manufacture of the yarn. The price, by mutual agreement, was subsequently reduced to 761/2 cents per pound for regular yarn, and 781/2 cents per pound for special yarn, and the price of noils was also reduced. The plaintiff delivered, and the defendant accepted and paid for, all the special yarn; and the defendant delivered, and plaintiff paid for, the noils. The present controversy relates to the lot of yarn which we may designate as 250,000 pounds of regular 612 run woolen yarn. It was understood by both plaintiff and defendant that the yarn had not been manufactured, but was to be manufactured by the plaintiff, and that spinning instructions were to be given by defendant to plaintiff. Referring to the provisions, “this yarn to follow along after the present contracts with you are filled," and “the above to follow present contracts,” I find that, though deliveries of special yarn were begun prior to the completion of contracts existing March 30, 1900, deliveries on previous contracts were not completed before September 24, 1902, and that the defendant was not in default up to this date,
I find that from and after September 24, 1902, and until the date of the plaintiff's writ, March 29, 1904, the plaintiff was willing and ready and able in all respects to make deliveries at the rate of 24,000 pounds per week if the defendant had given spinning directions, or had so requested, and that the plaintiff repeatedly urged that spinning instructions be sent. On October 21, 1902, the plaintiff by letter informed the defendant that the plaintiff had been obliged to carry wool for the completion of the contract for a long period of time, and on November 24, 1902, the plaintiff sent the defendant samples of such wool.
Í find that the rate of deliveries of yarn was not expressly agreed upon, but that the defendant, from and after September 24, 1902, was bound to take deliveries at reasonable rates. In considering what was a reasonable rate, I find that at the time of the contract the parties had in contemplation rates of delivery exceeding 18,000 pounds of yarn
The rate of deliveries upon the previous contract of November 18, 1899, I find not a proper or reasonable rate for deliveries under this contract. While there is doubt whether, by the terms of the contract of November 18, 1899, the defendant was to have an option