Farmers' & Merchants' Bank of Bryant v. Briggs , 4 F.2d 227 ( 1924 )

ALSCHULER, Circuit Judge

(after stating the facts as above). Did the bank have reasonable cause to believe that its taking of the mortgage would effect a preference in its favor? All the evidence and the findings of fact seem to us to require a negative answer. The only evidence of the extent of the bankrupt’s assets and liabilities was afforded by the report of the master on the issue of insolvency; the assets showing $45,400, and the debts $46,500, a difference of but $1,100. The evidence conclusively shows that some of Macklin’s debts were not disclosed to the hank at or before the mortgage was given. Allowing the trustee the benefit of all disputed items, there is nothing in the record to indicate that the hank had any reason to believe the entire debts of Maeklin at that time exceeded $32,500 — a margin of nearly $13,000 upon the side of his solvency. The bank officers testified they had reason to believe that the difference was .$20,000. One finding of the referee is:

'Ut is fair-to state, in discussing the findings, that when Mr. Schwartz, one of the bank’s directors, at the time the mortgage was taken, made memorandum of the amounts of the debts, that he did npt have and was not' informed by the bankrupt of all the debts which he owed.”

While the finding does not state the amount of the debts thus unknown to the bank, it was evidently believed by the referee sufficiently to’ he worthy of mention, and, if at all substantial, the assets would have been materially larger than the believed liabilities. True-it is, the bank knew, he had not the ready means fot quickly discharging his' debts/ But it goes without saying that this alone does not show insolvency, or knowledge of it. He was a good customer of this small hank, apd it is but natural that, so long as they believed him solvent and able ultimately to meet his obligations, they would not force him to the wall. The desire to be secured showed only ordinary business prudence, but apart from this the hanking department was pressing them to have the claim reduced or secured, and Maeklin had this large farm unincumbered, whereby he could furnish the security. The bank evidently did not wish to make a long-time loan of so large a part of its capital, and encouraged him to make a loan elsewhere. It knew that McKenzie was threatening proceedings to collect the $3,500 which Macklin owed him for the balance of the purchase money of another farm, and the bank showed its further faith by advancing the funds to pay off McKenzie. It is true the mortgage was given for the whole debt, and Macklin’s wife signed the notes; but it does not appear she had any property, and, even if she had, the giving of the mortgage for the whole debt and her signing the notes may well be regarded as added incentive for Maeklin to carry out the arrangement for a permanent loan, and the payment of the bank’s indebtedness down to $5,000, for which they would extend credit to him without security.

It is insisted for the trustee that this issue was decided adversely to and conclusively upon the bank in the earlier controversy, wherein the bank was a party by its intervention. But that proceeding involved only the issue of insolvency and the occupation of the alleged bankrupt. The mortgage was not in controversy, and there then was no semblance of an issue as to the bank’s reason to believe that Maeklin tyas insolvent at the time it took the mortgage. This beeamq an issue only when the trustee asked that the mortgage be set aside as preferential. Upon the record we cannot escape the conclusion that the bank had no reasonable ground to believe it was being preferred in the giving of the mortgage.

The order of the District' Court is reversed, with direction to dismiss the petition, in so far as it asks to have the mortgage set aside.