Grant v. National Bank
| Decision Date | 01 October 1877 |
| Parties | GRANT v. NATIONAL BANK |
| Court | U.S. Supreme Court |
Appeal from the Circuit Court of the United States for the Northern District of Illinois.
This case arises upon a bill in equity, filed by Charles E. Grant, assignee in bankruptcy of John S. Miller, to set aside a mortgage, or deed of trust, executed by him about two months prior to his bankruptcy. Miller was indebted to the First National Bank of Monmouth, Illinois, in about $6,200, of which $4,000 consisted of a note which had been twice renewed, and the balance was the amount which he had overdrawn his account in the bank. Wanting some cash for immediate purposes, the bank advanced him $300 more, on his giving them the deed of trust in question, which was made for $6,500, and was given to secure the indebtedness referred to. The question below was, whether, at the time of taking this security, the officers of the bank had reasonable cause to believe that Miller was insolvent. The Circuit Court came to the conclusion that they had not, and dismissed the bill. From that decree the assignee appealed.
Mr. Thomas G. Frost and Mr. H. G. Miller for the appellant.
Where a creditor, who accepts a conveyance to secure a precedent debt, has reason to believe that his debtor is at the time unable to pay his debts as they become due, the conveyance is void as a fraudulent preference within the meaning of the Bankrupt Act. Toof et al. v. Martin, Assignee, &c., 13 Wall. 40; Buchanan v. Smith, 16 id. 308; Wilson v. City Bank, 17 id. 487; Dutcher v. Wright, 94 U. S. 553; Forbes v. Howe, 102 Mass. 437.
Mr. C. B. Lawrence, contra.
If Miller was in fact insolvent when he executed the deed of trust, the officers of the bank had no knowledge of the fact, nor any reasonable cause for believing it.
The deed of trust was given to secure $6,500, of which only the sum of $4,000 was a precedent debt, the remaining $2,500 being for money advanced under the provision of the deed. Even if it could be held that the deed was constructively fraudulent as to the $4,000, it must be sustained as to the $2,500.
MR. JUSTICE BRADLEY, after stating the case, delivered the opinion of the court.
Some confusion exists in the cases as to the meaning of the phrase, 'having reasonable cause to believe such a person is insolvent.' Dicta are not wanting which assume that it has the same meaning as if it had read, 'having reasonable cause to suspect such a person is insolvent.' But the two phrases are distinct in meaning and effect. It is not enough that a creditor has some cause to suspect the insolvency of his debtor; but he must have such a knowledge of facts as to induce a reasonable belief of his debtor's insolvency, in order to invalidate a security taken for his debt. To make mere suspicion a ground of nullity in such a case would render the business transactions of the community altogether too insecure. It was never the intention of the framers of the act to establish any such rule. A man may have many grounds of suspicion that his debtor is in failing circumstances, and yet have no cause for a well-grounded belief of the fact. He may be unwilling to trust him further; he may feel anxious about his claim, and have a strong desire to secure it, and yet such belief as the act requires may be wanting. Obtaining additional security, or receiving payment of a debt, under such circumstances is not prohibited by the law. Receiving payment is put in the same category, in the section...
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...of insolvency alone enough to create a preference. Stucky v. Masonic Sav. Bank, 108 U.S. 74, 2 S.Ct. 219, 27 L.Ed. 640; Grant v. National Bank, 97 U.S. 80, 24 L.Ed. 971. Mere inability to make payments on demand, if the debtor is at the same time continuing the business, does not constitute......
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