Ensley v. First Nat. Bank

• Decision Date: 28 February 1927
• Docket Number: No. 22-D.,22-D.
• Parties: ENSLEY v. FIRST NAT. BANK OF HOOPESTON.
• Court: U.S. District Court — Eastern District of Illinois

17 F.2d 603 (1927)

ENSLEY v. FIRST NAT. BANK OF HOOPESTON.

No. 22-D.

District Court, E. D. Illinois.

February 28, 1927.

Dyer & Dyer, of Hoopeston, Ill. (J. H. Dyer, of Hoopeston, Ill., of counsel), for plaintiff.

Gunn, Penwell & Lindley, of Danville, Ill. (Walter T. Gunn, of Danville, Ill., of counsel), for defendant.

LINDLEY, District Judge.

The plaintiff, trustee in bankruptcy, filed suit in equity to cancel a mortgage given to defendant bank within four months prior to the filing of the petition in bankruptcy and alleged to be a voidable preference. The master in chancery found that at the time of the execution of the mortgage, more than three months prior to the adjudication in bankruptcy, the bankrupt was insolvent, but that at said time the defendant and its officers acting for it in the premises had no reasonable ground to believe that a preference would result from the taking of the mortgage, no knowledge of the bankrupt's insolvency, and no such knowledge of the condition of the bankrupt's affairs as would put them as reasonably prudent business men upon inquiry which would have resulted in knowledge of the bankrupt's insolvency, or of such facts as would have given them reasonable cause to believe that a preference would result from the transfer. The mortgage was given to secure a debt of approximately $6,000 previously unsecured, except for the personal liability of the bankrupt's wife, who owned considerable assets.

Plaintiff excepts to the findings and conclusions of the master, and, in view of the earnest argument of his solicitor, the court has examined carefully all of the evidence submitted, and is of the opinion that the master's findings should not be disturbed. There is no direct evidence of any knowledge of the bankrupt's condition at the time of the execution of the mortgage on the part of the bank's officers. There is no showing that the bank had any knowledge of any debts other than the mortgages upon certain real estate located in part in Illinois and in part in Arkansas. One witness testified that the president of the bank, a few days prior to the filing of the petition in bankruptcy, stated that the defendant was "broke" at the time the mortgage was taken; but there is no testimony that that officer, or any other person employed by the bank, had any knowledge of that fact at the time the mortgage was executed. Within a few days after the mortgage was received, the bankrupt delivered to the bank his financial statement, showing an excess of assets over liabilities of over $20,000. At the time the mortgage was executed the bankrupt had on deposit at the bank $1,000 in cash, which the bank did not demand or receive. Some three or four months prior to said date the bankrupt had on deposit in the bank over $9,000, which it might legally have applied upon his indebtedness. The president of the bank testifies that he did not know of any additional debts of the bankrupt until some weeks after the mortgage was given by him, when his wife died and notes signed by the bankrupt and her were filed in the probate court, where her estate was being administered. The master has rightfully found that there are not sufficient facts in this record to sustain the burden of the plaintiff to prove that the bank had reasonable cause to believe that the mortgage amounted to a preference.

The plaintiff offered in this connection the testimony of a small number of witnesses, consisting of the president of another bank, the attorney for the petitioning creditors, and some other witnesses, whose interests apparently were with the plaintiff, to the effect that at the time of the execution of this mortgage the general reputation of the bankrupt in the community was that of an insolvent person, and that it was commonly reputed that he was insolvent....