Bean v. Ore

PARDEE, Circuit Judge (after stating the facts as above). It must be conceded, and the referee practically found!, that the agreement in writing between the appellant, Bean, and the Tysor-Cheatham Mercantile Company constituted, under the laws of Georgia, a valid mortgage between the parties and against all creditors except such as may have acquired a lien prior to its proper record — all, unless it was a mortgage void under the laws of Georgia as made with intent to hinder, delay, and dtefraud creditors. As it was executed more than four months before the involuntary petition of creditors for the adjudication in bankruptcy of the Tysor-Cheatham Mercantile Company, it is not obnoxious to any provision of the bankruptcy law. It would seem to be protected in bankruptcy, if valid!, under the laws of Georgia, by section 64(b) of the bankruptcy law (Act July 1, 1898, c. 541, 30 Stat. 563 [U. S. Comp. St. 1901, p. 3447]), reading: “Debts to have priority except as herein provided and to be paid in full out of the bankrupt’s estates and the order of payment shall be * * * (5) debts owing to any person who by the laws of the states or the United States are entitled to priority.” So that the real question before the referee and now before this court is whether the mortgage was fraudulent because made and executed with the intention to hinder and! delay or defraud creditors; and this issue is to be decided under the laws of Georgia. The referee made no specific finding of facts. In his opinion he says: “It seems to me that this case is controlled by the Olayton Case, above cited [121 Fed. 630, 57 C. C. A. 656]. Although the evidence of the intention on the part of the mortgagee, to allow subsequent creditors to be deceived is more direct in the Clayton Case than in the case at bar, it is hardly more convincing Bean made this loan to the bankrupt company, because Tysor was his brother-in-law and he wanted to help him. Also, he had confidence that Tysor would repay him. If his purpose was to help Tysor, then the withholding of the mortgage from the record must have been in his contemplation, for to have taken such an instrument and then recorded it would have impaired the credit of the company and injured Tysor rather than benefited him. “For these reasons the objections of the trustee to the priority of payment from the proceeds of the mortgaged property, claimed by W. It. Bean, are sustained.” After a careful reading of the evidence, we are unable to find sufficient facts warranting the holding that Bean acted otherwise than in the utmost good .faith, or that he was in any wise a party to any intention to hinder and delay or defraud any of the creditors of the Tysor-Cheatham Mercantile Company, or, at the time of advancing his money to the said company, he had any suspicion that the said company was insolvent. In fact, the case shows that the very $4,000 which Bean advanced pn the security in question was full consideration and was intended to' be used and was used to pay off creditors, and! the propriety and necessity of the loan is shown to have been the dullness [603] and embarrassment of business, crops being short, collections poor, and that the company was presently unable to dispose of its goods. It is true that Tysór, of the Tysor-Cheatham Mercantile Company, was a brother-in-law of Bean, and Bean wanted to help him, and he testifies that he had confidence that Tysor could and would repay him; and it is also true under the circumstances fairly explained by Bean that his mortgage was not recorded until some months subsequent to its execution. It is on these last-mentioned circumstances that the referee held that the mortgage was executed to hinder and! delay creditors, relying upon the case of Clayton v. Exchange Bank, 121 Fed. 630, 57 C. C. A. 656, in which this court, in a case where there was a mortgage upon a stock of goods on hand and to be added to by subsequent purchases, and an agreement to withhold the mortgage from record for the purpose of aiding the credit of the mortgagor, and the mortgage was withheld from record until the mortgagor decided to take the benefit of the bankruptcy act, and where there were other circumstances pointing to fraud, held, stressing the withholding from record, that the mortgage was fraudulent under Georgia law, as made to hinder and defraud creditors. Here the mortgage is on real estate, and the evidence shows at best only suspicion that fraud! was intended by either party to it, while Bean, the mortgagee, so far as such showing can be made, vindicates himself of all fraud or intention to defraud or to aid to defraud. Neglecting to promptly record a mortgage is not in itself fraudulent as against other creditors, and it is not made fraudulent by the additional fact that brothers-in-law are adverse parties to the mortgage. The decree appealed from is reversed, and the cause is remanded, with instructions to allow the claim of appellant, and pay the same ou^ of proceeds of sale of the mortgaged property in preference and priority to all other claims except costs of sale.