Fourth Nat. Bank v. Willingham

SHEEBY, Circuit Judge. The appellant filed in the court below an intervention, claiming that it held a mortgage for $5,300 on the stock of merchandise iri the store of the bankrupt company. The purpose of the appellant was to establish its mortgage as a secured or preferred claim against the estate of the bankrupt. The trustee filed his answer, resisting the proof of the mortgage as a preferred claim on various grounds, only one of which it is necessary to notice. It was claimed by the trustee that the mortgage was fraudulent and void because of an agreement between the parties to it that it should be withheld from record for the purpose of bolstering the credit of the mortgagor. The mortgage in question was a renewal of a prior mortgage (the latter was never recorded); and, although the renewal mortgage was executed October 11, 1912, it was not recorded until January 22, 1913, at 11:45 o’clock in the forenoon of the samp day that the petition in bankruptcy was filed. The evidence—which we need not quote—was sufficient to sustain the contention of the trustee that the mortgage .was withheld from the record to bolster the credit of the mortgagor, and to sustain the finding of Plon. Alexander Proudfit, referee in bankruptcy, that the original mortgage “was withheld from record for the purpose of hindering, delaying, and defrauding the creditors of the said Lester-Clark Shoe Company.” On this and other grounds, the referee ordered that “the claim be disallowed ■as a preferred lien, but that the trustee be directed to enter the same upon his record as an unsecured claim.” [1, 2] On petition for review, the petition was denied by the District Court, and the intervention of the appellant “was denied.” The effect, of the court’s decree is the affirmance of the order of the referee. The question before us involves the correctness of the decree. [221] We are not concerned with the reasons given for making it, referred to at the bar, for if the order is itself correct, it is not to be disturbed, although the reasons for it or the grounds on which it is based are-not such as meet approval. It is sufficient to say that we hold that on the facts found by the referee—that the mortgage was withheld from record to bolster the credit of the mortgagor and for the purpose of defrauding the creditors of the mortgagor, the bankrupt company— the mortgage is void and was properly rejected as a>preferred claim. We have had occasion to decide the same question on similar facts, and we then considered the relevant parts of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 544 [U. S. Comp. St. 1901, p. 3418]) and the Georgia statutes. The decree of the District Court is affirmed on the authority of Clayton v. Exchange Bank, 121 Fed. 630, 57 C. C. A. 656, and In re Duggan, 183 Fed, 405, 106 C. C. A. 51. Affirmed.