Buchanan State Bank v. De Groot, 5537.

• Decision Date: 08 April 1930
• Docket Number: No. 5537.,5537.
• Citation: 39 F.2d 397
• Parties: BUCHANAN STATE BANK v. DE GROOT.
• Court: U.S. Court of Appeals — Sixth Circuit

39 F.2d 397 (1930)

BUCHANAN STATE BANK v. DE GROOT.

No. 5537.

Circuit Court of Appeals, Sixth Circuit.

April 8, 1930.

C. H. Kavanagh and Stuart B. White, both of Niles, Mich. (Stuart B. White, of Niles, Mich., on the brief), for appellant.

Francis L. Williams, of Grand Rapids, Mich. (on the brief), for appellee.

Before HICKS and HICKENLOOPER, Circuit Judges, and WEST, District Judge.

WEST, District Judge.

J. R. Ross, the bankrupt, was indebted to the appellant, Buchanan State Bank, on three notes amounting to $1,550. Of these, one for $750 was payable to and indorsed by one Miller, who discounted it with the bank of which he was a director. On April 9, 1928, Ross gave the bank a new note for $1,600, in consideration of which it surrendered his old notes and paid him $24 in cash, the difference between the new and old obligations with accrued interest; and all the old notes, including the one indorsed by Miller, were canceled and surrendered.

On March 30, 1928, Paul Caruso purchased a confectionery store in Buchanan from Ross for $6,000, half cash and half evidenced by the purchaser's note payable $100 per month, beginning May 1, 1928, and secured by chattel mortgage on the stock and fixtures. On April 9, 1928, in connection with giving the $1,600 note to the bank, Ross assigned the Caruso note and mortgage to the appellant to secure his indebtedness generally; and on July 28th following, filed a voluntary petition in bankruptcy and was adjudicated a bankrupt.

The bank's claim for the unpaid balance on this $1,600 note was contested before the referee on the ground that the creditor had secured an unlawful preference as defined by section 60a of the Bankruptcy Act (11 USCA § 96(a), which should be surrendered as a condition to allowance. Extended hearings were held and much testimony taken; and the referee made written findings and an order that said claim be disallowed as a secured claim except as to the $24 new consideration, and that as a condition to the allowance as a general claim of the remaining amount due, the bank turn over and refund to the trustee the Caruso note and mortgage with such sums as it had collected thereon, less said $24; and the District Court affirmed this order.

The first claim of the bank, to which several assignments of error are directed, is that on April 9, 1928, Ross was not insolvent. In the assignments of error accompanying its petition for review in the District Court, there is no intimation by the appellant of error committed by the referee in finding, as he did, that the bankrupt was insolvent at the date of the transfer.

Passing the trustee's claim that in this situation the question is not open to us, we have carefully examined the record, and think that there was ample evidence before the referee to support this finding of insolvency. On the face of the schedules, which, however, were filed more than three months subsequent to the assignment, assets exceeded liabilities. But a real estate mortgage for $3,000 against the Three Oaks store was omitted from the indebtedness, and this store and fixtures were scheduled by the bankrupt at cost without depreciation. The evidence showed that this business had never prospered. Ross testified that in originally buying the property he acted against much advice but was "bull-headed and stubborn enough to go ahead," and was now convinced that he had paid more than it was worth, and, further, that in March or April, 1928, his...