Stedman v. Bank of Monroe

LOCHREN, District Judge, after stating the case as above, delivered the opinion of the court. The bankrupt act (section 6yd) provides: “Liens given or accepted in good faith and not in contemplation of or In fraud upon this act, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall not be affected by this act” Aside from other provisions of the bankrupt act, this recorded chattel mortgage would have been a valid security for the prior as well as of the then present loan, according to its terms and'purport. It was not illegal, and its continued security of the prior loan merely failed because the bankruptcy of the mortgagor intervened within four months of the giving of the mortgage, and the security, under the terms of the act, became as to the prior loan a preference. But no such result followed in respect to the $3,000 actually loaned when the mortgage was given. As to that sum the security of the mortgage was valid under the terms of section 67d, unless it was given in contemplation of bankruptcy or in fraud of the act. A careful examination- of all the testimony in the case has led us to the conclusion that on the 2d day of April, 1900, when the Bank of Monroe loaned Sinnard $3,000 and took this chattel mortgage, it did not believe, and had no reasonable cause to believe, that Sinnard was insolvent, or that it was intended thereby to give a preference. The evidencé shows that the indebtedness of Sinnard, of which the bank had any knowledge or information, was small compared with what the bank-understood [240] to be the value of his assets, and that the bank then understood that $2,800 of such indebtedness was to be paid from the loan then made to Sinnard. The mere fact of taking the security where six-sevenths of the debt seemed was a then present loan does not raise any presumption that the creditor had any belief that the debtor was insolvent. It is even very doubtful whether the debtor, Sinnard, then believed himself to be insolvent, and it is reasonably certain that the mortgage was not made even on his part in contemplation of bankruptcy, as the fact that he did actually apply the money then borrowed from the bank to the discount and payment of his merchandise bills shows that he expected his business to continue. The chattel mortgage was a valid security for the $3,000 loaned when it was given, and the order and decree appealed from are affirmed. Footnotes [¶] 2. See Bankruptcy, vol. 6, Cent. Dig. § 255.