D. F. Smith, Trustee in Bankruptcy, Appellant, v. Merchants Wholesale Grocery Company, Appellee, 269 F.2d 838 (6th Cir. 1959)

This is an appeal from an order of the District Court dismissing a petition for review of an order of the Referee in Bankruptcy. Appellee, a creditor of a bankrupt, filed a petition for an order requiring the Trustee in Bankruptcy to surrender certain property claimed by appellee, under a chattel mortgage. The Trustee filed answer to the petition, setting forth that the giving of the chattel mortgage in question constituted a preference that should be set aside on the ground that at the time that it was made, appellee had reasonable ground to believe that the bankrupt was insolvent, and that the mortgage was given by the bankrupt in contemplation of bankruptcy and with the design to prefer appellee to the exclusion of the bankrupt's other creditors. The Trustee further claimed that under Kentucky Revised Statutes, Section 378.060, the claimed preference was an invalid transaction and should be set aside.

After a full hearing, the Referee in Bankruptcy filed findings of fact to the effect that the appellee did not, at the time the mortgage was recorded, know or have reasonable cause to believe that the bankrupt was insolvent; and that the bankrupt did not contemplate insolvency or have any intent or design to prefer appellee by the execution of the mortgage. The Referee further held that Kentucky Revised Statute 378.060 did not provide for avoidance of the chattel mortgage under the evidence in this case.

Upon review on the Trustee's petition to reverse the order of the Referee, the District Court found that the findings of the Referee that appellee did not, at the time the mortgage was recorded, know or have reasonable cause to believe that the bankrupt was insolvent, and that the bankrupt did not contemplate insolvency or have the intent or design to prefer the appellee by the execution of the mortgage were supported by substantial evidence and were not clearly erroneous. The court, therefore, adopted the findings of fact and conclusions of law of the Referee, affirming his order and dismissing the petition for review.

It appearing that the findings of fact and conclusions of law of the Referee, as affirmed by the District Court, are supported by substantial evidence and are not clearly erroneous, the order of the District Court is affirmed.