Boone v. Merchants' & Farmers' Bank

• Decision Date: 30 September 1922
• Docket Number: 445.
• Parties: BOONE v. MERCHANTS' & FARMERS' BANK et al. In re PILAND.
• Court: U.S. Court of Appeals — Fourth Circuit

285 F. 183

BOONE v. MERCHANTS' & FARMERS' BANK et al.

In re PILAND.

No. 445.

United States District Court, E.D. North Carolina.

September 30, 1922

Stanley Winborne, of Murfreesboro, N.C., for plaintiff.

Hicks &amp Son, of Henderson, N.C., for defendants.

CONNOR District Judge.

The bill, answer, and evidence disclose the following case:

J. J Piland, 58 years of age, engaged in farming, residing on his farm, about 6 miles from the village of Winton, N.C purchased a stock of goods from a merchant, and with his son-in-law, W. H. Lassiter, began business in Winton, under the firm name of J. J. Piland & Co. Lassiter kept the books and attended to the business, which appeared to be prosperous until the fall and winter of 1920. The firm kept its account and did its banking with defendant, Merchants' & Farmers' Bank of Winton. During the year 1920 notes aggregating $5,500 (less $316), were executed by J. J. Piland and the firm of J. J. Piland & Co. to the bank, all of which were due January 27, 1921.

On or about January 27, 1921, John E. Vann, one of the directors of the bank, requested Piland to go to the bank, where he met defendant, W. P. Shaw, then vice president, and J. P. Mitchell, cashier. Piland says:

'They asked me to secure the notes-- said, if I would take over the business in my name, they would advance the money to pay the debts of the firm; that if I would get my partner out of the business they would help me pay the unsecured claims. Had been doing all my business at the Merchants' & Farmers' Bank, and the bank was in a position to know my condition. Mr. Mitchell knew, when I had conversation with him, that a great many notes were past due, and it was after that I executed the deed of trust; said they would keep the same and not record it. It was my understanding that deed was not to go on record, and that they would let me have money to take up unsecured accounts. I thought in January and March, 1921, when I gave the deed of trust, that I was solvent, and I did not know until the 1st of April what my condition in the store debts was.

'When I made the mortgage, I thought the store debts were about $1,500 or more. I can't identify statements shown, but the one I made was written. It was some time after this statement that I learned that the store owed so much money. The money they loaned they said was to keep off the market, and I told them all I thought I owed. After I found out the large amount of indebtedness, I did not ask the bank for money to pay the same; but when I took (gave) the mortgage the bank told me that they would give me $10,000 to pay unsecured claims. Mr. Mitchell told me to dispense with Lassiter, my partner. My relation in store was clerking, and books of the store were given up entirely to Lassiter. At the time I executed the deed in trust, I knew that my debts amounted to over $11,000. The bank officials said that they would write the deed of trust, and it would not cost me one cent, and they could take it to my wife and have her execute the same. I knew nothing about my business. Lassiter attended to it. At the time I gave the deed in trust, I asked the bank officials not to put it on the record; that if they did so my creditors would press me. They promised not to record it.'

It appears that, early in April, 1921, Piland secured from Lassiter a list of creditors and amounts due the firm, aggregating $6,288.86 (filed and marked Exhibit A). W. P. Shaw went to Richmond and Piland to Norfolk, for the purpose of making arrangements with creditors, when they found that the debts of the firm amounted to a very much larger amount than Lassiter had stated-- some $16,000. Piland says:

'I thought the statement was correct. ' (Lassiter turned the business over to Piland April 9, 1921, at same time he went to Norfolk.) 'I refused to go into bankruptcy.'

Piland owned, January 1, 1921, several tracts of land and town lots assessed for taxation at $24,600. Bank held mortgage on one tract for $2,500, assessed at $8,000. It seems that, after Piland Returned from Norfolk and Shaw from Richmond, where they had learned the amount of indebtedness, a proposition was made by some of the creditors, or some one representing them, that Piland execute a general assignment for the benefit of all of his creditors and that the bank would cancel the deed in trust. The assignment was executed on May 21, 1921, but the directors of the bank refused to cancel the deed, and the creditors filed a petition in involuntary bankruptcy against Piland. He was adjudged bankrupt June 7, 1921.

J. P. Mitchell says:

That he was cashier of defendant bank when the deed in trust was executed--had been for 19 years; had known Piland from boyhood, regarded him as a man of his word, of honor; looked after the deed. A few checks of Piland had come to the bank, for which he had not sufficient funds; took them up later. Knew that his son-in-law, Lassiter, had charge of the business. He appeared to be a competent man. Had a talk with him before the deed was made about the business. He said that the accounts due the store amounted to $12,000 or $14,000; debts, $6,000. Piland then owed the bank $5,500, for which it had no security; thought that he was good. 'When he gave the deed in trust, I thought that he had property sufficient to pay all of his debts. Had let him have money without security during 1920; one of his notes indorsed by W. P. Shaw. I do not know what he did with the money loaned him; do not know that he was being pressed by small creditors. When Piland executed deed in trust, he asked us not to record it; said that he was afraid that, if we did so, his creditors would press him. I told him that I would hold it off-- did not name any time. I heard that Lassiter wanted to put Piland into bankruptcy-- no one else. I kept hearing it, and did not know what they would do. This was before I had the mortgage recorded. It was my intention and purpose to advance the money to pay his debts. Later on I heard that his debts were much larger than I thought. This was after the mortgage was recorded. When I heard that Lassiter wanted to put him into bankruptcy, I had the deed recorded. I did not hear a rumor that he was about to break. I thought he was solvent. Did not hear that any one was pushing him.'

W. P. Shaw says:

'Am president of bank; was, at date deed was executed, vice president; wrote the deed; did not believe that the execution of the deed would give bank a preference over his other creditors; had no reasonable cause for such belief; found out in April that he owed $6,000, besides what he owed the bank. This list ($6,200) was given me when I went to Richmond between the 10th and 15th of April. I believed that this was all that he owed, and that if he could get time he could pay all of his debts. I regarded Piland as a truthful man. I still think so. If this had been all he owed, we would have financed him. Bank was able to do so. I thought stock was worth $10,000 to $12,000. I knew of decrease in value of land during 1920. I knew that he owed money. Checks would sometimes come in bank for which he did not have sufficient funds for the day. He would make them good. I did not know that he was being pressed by his creditors. I indorsed note for him early in 1920 to pay for a Delco plant. He did not ask me to indorse others. Do not remember discussing Piland's financial condition in bank. Bank wanted to concentrate its paper and get security. Piland and Mitchell had conversation about the loan of $316 and not putting the mortgage on record. Had not heard that one of his creditors was threatening to put him into bankruptcy. Knew January 27, 1921, that Piland owed money, and that it was reported around Winton that he was in precarious financial condition.'

The trustee alleges that Piland was insolvent on January 27, 1921, the date of the deed, and that such insolvency continued until it was registered March 22, 1922; that the officers of the bank on both said dates either knew or had reasonable cause to believe the existence of such insolvency; that the deed in trust was intended by Piland to give a preference to the bank, and that its officers intended, by taking the deed, to secure by such preference a larger percentage of its debt than other creditors of the same class would receive upon a sale of his property. Defendants deny that the bank officers knew, or had reasonable cause to believe, on January 27 or March 22, 1922, that Piland was insolvent, or that the deed would operate as a preference.

The allegation that Piland was insolvent, within the meaning of the Bankruptcy Act (Comp. St. Secs. 9585-9656), on January 27, 1921, is sustained by the evidence. It is not, however, clear that either he, or the officers of the bank, at that time, knew of his insolvency. He says, and is corroborated in his statement, and not contradicted, that the mercantile business of J. J. Piland & Co. was conducted by his son-in-law, Lassiter, who lived in the town of Winton, kept the books, contracted the debts, and that he (Piland) lived on his farm 6 miles away; that his occupation was farming, and had been so at all times during his life. This is manifestly true. This situation is similar to that of many other men, who, having lived upon and operated their farms with success, accumulated some money and established credit, during the years immediately following the war, when the impression prevailed that mercantile and every other character of business was successful and yielding large profits; having a son-in-law, who probably had some business experience, he purchased a stock of goods and 'set him up in business.'

It is well known that farming, mercantile, and almost every character of business at that time yielded profits...