ROQUE GONZALEZ & CIA., v. TORRES, 51 F.2d 237

BINGHAM, Circuit Judge. This is an appeal from a decree of the federal District Court of Porto Rico in a proceeding in equity brought by the appel-lee, as trustee in bankruptcy of one Juan Botet, against the appellants, to have set aside an agricultural loan contract alleged to .have been entered into with intent to hinder, delay, and defraud creditors of Juan Botet and to recover of the appellants an alleged preference of $2,351.42, Botet having been adjudged .a bankrupt August 12, 1929, on his voluntary petition filed that day. Botet had three farms in Cidra, Porto Rico,' on which he raised tobacco.

He also had a store there, where he dealt in merchandise. Prior to January 2, 1929, he purchased merchandise from Gonzalez & Co., defendants-appellants, for which, on January 2,1929, he owed a balance of $1,696.47, after deducting certain payments amounting to $1,100. On January 2, 1929, he was also owing the firm of Lopez & Co. $2,683.29 for merchandise which he had theretofore purchased. Neither Gonzalez & Co. nor Lopez & Co. had any security for these advancements.

They were in fact largely used by Botet in preparing his tobacco crop, although there was no agreement or understanding, at the time they were made, that they would be so used or that Gonzalez & Co. and Lopez & Co. should have a lien on the crop therefor. In September, 1928, a hurricane swept over Porto Rico, injuring Botet’s tobacco crop and taking away his barns, requiring him to build new ones to house his crop. Binding it necessary that he should have further advances or loans to restore his barns and complete the making and storing of his tobacco crop, he applied to some of his creditors for aid.

They declined to extend him further credit. Thereafter, on December 21, 1928, he applied to Gonzalez & Co. and Lopez & Co., requesting advancements and offering to secure them by a refacción contract on the tobacco crop being raised on his three farms which he then had. These firms agreed to make advancements for use in making, harvesting, and storing his 1929 crop, and a formal contract was drawn up and executed and recorded in compliance with the laws of Porto Rico. In it it was stated that. Botet had been advanced $6,000 toward the making of this crop.

The fact was that, at that time, he had been advanced by these parties $4,831.64, after deducting payments of $1,100 which had been made to Gonzalez & Co. on their advancements. It was also provided in the contract that there should be advanced to Botet a further sum of $2,000 to aid him in making and harvesting his tobacco crop.

Under this provision of the contract Lopez & Co. turned over to Botet two lots of merchandise of the value of $1,003.54, and Gonzalez & Co., under this branch of the contract, made advances in goods of the value of $1,385.98; and $602.48 for fertilizer — a total of $1,998.-46. ‘ While the formal contract ran to Gonzalez & Co. alone, the evidence shows and it was admitted that it was understood and agreed between the parties that it was entered into for the benefit of Lopez & Co. as well.

July 29,1929, and within four months before the filing of the petition in bankruptcy, Botet turned over to Gonzalez & Co. the proceeds derived from the sale of his tobacco crop, amounting to $2,351.42. Of this sum Gonzalez & Co. turned over to Lopez & Co. $708.16, leaving in their hands a balance of $1,643.26. In this action the plaintiff, trustee, is seeking to recover of Gonzalez & Co. the entire $2,351.42 received as above stated, and it is this sum which the court below held the plaintiff was entitled to recover on the ground that the contract of January 2, 1929, was fraudulent and the payment a preference.

It is unnecessary to consider whether the statement in the contract of January 2, 1929 — that there had been advanced to Botet the sum of $6,000 to aid him in planting, harvesting, and storing his crop — was true or false and intended to hinder and delay his creditors, for the branch of the contract wherein it was agreed to advance Botet a further sum of $2,000 is entirely separable from that relating to the prior advancements of $6,000.

The evidence conclusively shows that Lopez & Co., under the agreement to advance the further sum of $2,000, advanced to Botet $1,003.54 to aid him in making his tobacco crop, and received only $708.16 out of the proceeds of the sale of the crop. The evidence also conclusively shows that Gonzalez & Co. advanced goods under the contract on and after January 2, 1929, of the value of $1,385.98, and $602.48 in cash for fertilizers, or a total of $1,988.46; and that they received and kept out of the proceeds derived from the sale of the tobacco only $1,643.26.

In respect to the further advancements, there is nothing to show that the contract was not made in absolute good faith, and it is not questioned but that advancements in merchandise and money of the value above set out were actually made by Lopez & Co. and Gonzalez & Co. The evidence, not only shows that these further advancements were actually made under the agricultural loan contract, but that substantially all, if not all, of them, whether in goods or money, were used by Botet in making and storing his crop.

But having shown that advancements were actually made under the loan contract, it was not necessary that the defendants should show that Botet used the money or property advanced in the making of his crop, to establish their right to a lien on the crop under the contract. This was so held by the Supreme Court of Porto Rico in Gomez v. Bravo et al., 34 Porto Rico 141. Some question is raised as to whether, under the Porto Rican Act No. 37 of March 10, 1910, as amended by the Act No. 66 of August 1, 1925, advances for agricultural purposes may be made in merchandise as well as in cash.

The Spanish text in the original act, and as amended, reads as follows: “Entiéndese por contrato de refacción agrieola aquel mediante el cual una de las partes en-trega y la otra recibe con carácter devolutivo, determinadas cantidades de dinero efectivo o en especies, bien en una sola vez o en distintas ocasiones.” The English translation given in the Porto Rican laws is as follows: “A. contract of advances for agricultural, purposes is one under which one of the parties thereto turns over and the other party receives, subject to reimbursement, a certain amount of money in cash or specie, whether in lump sum or in different instalments, etc.” The Spanish words, “dinero efectivo” mean “cash.” The words “en especies,” according to the Royal Spanish Dictionary of the Spanish Language, Fifteenth Edition, mean “fruitage or merchandise.” If such is the correct meaning of the language used, it is evident that the act contemplates that advancements for agricultural purposes may be made in cash or in fruits or merchandise.

The Supreme Court of Porto Rico, in Gomez v.

Bravo, supra, at page 146 of 34 Porto Rico, evidently took this view of the act, for it said: “Section 1 of Act No. 37 [1910] provides that a contract of advances for agricultural purposes is one under which one of the parties thereto turns over and the other party receives, subject to reimbursement, a certain amount of money in cash or its equivalent.” And continuing on page 147 of 34 Porto Rico it said: “From the foregoing it may •be seen that an agricultural loan contract arises from the delivery of cash or its equivalent for the cultivation of the property.” As, under the statute (Act No. 37, of 1910, amended by Act No. 66, 1925), advancements may be made in cash or merchandise, and the lender is not required to show that the advancements in fact went into the making of the crop, and the defendants, Gonzalez & Co., actually advanced under the contract $1,385.98 in goods and $602.-48 in cash, or a total of $1,988.46, to Botet to make, harvest, and store his crop, and received out of the proceeds of the crop for their own benefit only $1,643.26, or a sum more than $340 less than the sum they had actually advanced, no other conclusion can be reached than that the court below erred in ordering the defendants to' pay the trustee the sum of $2,351.42, which includes, not only the $1,643.26, which the defendant actually received out of the crop, but the $708.-16, which Lopez & Co. received out of it.

The $1,643.26, which the defendants had out of the proceeds of the crop, though re-eeived 'within the four months, was not a preference. They had a valid lien on the crop, created prior to the four months’ period, for more than that sum. The same would be true if their lien were only an equitable one and not one sanctioned at law. Massachusetts Trust Co. v. MacPherson (C. C. A., 1st Circuit) 1 F.(2d) 769, 771, 772; Harding v. Federal Nat. Bank (C. C. A.) 31 F.(2d) 914; Boyle v. Gray (C. C. A.) 28 F.(2d) 7; Beacon Trust Co. v. Dolan (C. C. A.) 27 F.(2d) 247; Forman v. Jacobs (C. C.

A.) 26 F.(2d) 764; Credito y Ahorro Ponceno v. Gorbia (C. C. A.) 25 F.(2d) 817, 820. Moreover, the other creditors of Botet were not prejudiced by the statement in the contract that $6,000 had already been advanced for making the crop, for the value of the crop was not sufficient even to meet the further advancements actually made for the purpose of making .the crop. Some of the further advances undoubtedly were used to rebuild the tobacco barns, which the statute authorized, thereby enhancing the value of the property remaining to general creditors.

The decree of the District Court is vacated, and the ease is remanded to that court, with directions to enter a decree for the defendants, with costs-.