Griffin v. Kelley

• Citation: 227 F.2d 258
• Decision Date: 23 November 1955
• Docket Number: No. 15674.,15674.
• Parties: P. G. GRIFFIN, Appellant, v. A. L. KELLEY, Jr., Trustee in Bankruptcy of the Estate of Clifford H. Brown, Bankrupt, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

227 F.2d 258 (1955)

P. G. GRIFFIN, Appellant, v. A. L. KELLEY, Jr., Trustee in Bankruptcy of the Estate of Clifford H. Brown, Bankrupt, Appellee.

No. 15674.

United States Court of Appeals Fifth Circuit.

November 23, 1955.

H. C. Eberhardt, Valdosta, Ga., John T. Ferguson, Tifton, Ga., Franklin, Eberhardt, Barham & Coleman, Valdosta, Ga., for P. G. Griffin.

R. D. Smith, Robert R. Forrester, Tifton, Ga., for appellee.

Before HUTCHESON, Chief Judge, and BORAH and CAMERON, Circuit Judges.

CAMERON, Circuit Judge.

We are asked to reverse as clearly erroneous a judgment of the District Court denying a petition by appellant to review an order of a referee in bankruptcy rejecting a secured claim filed by appellant, on the ground that the claim was based on a mortgage which was fraudulent and void and which was given without consideration, to appellant by Brown, the bankrupt.¹ Appellant claimed to have loaned the bankrupt $5,000.00 in cash about three months before the bankruptcy, taking a thirty day note secured by mortgage, which he foreclosed prior to joining in the involuntary bankruptcy petition.

Finding, upon the objection to the claim filed by the trustee in bankruptcy, that the money was not actually loaned to the bankrupt and that the whole transaction was a fraud and a sham, the referee rejected appellant's claim and the court below adopted those findings, entering judgment denying the petition for review. Appellant prays a reversal of that judgment on the ground that the evidence fails to sustain the finding that the mortgage was "fraudulent, fictitious and without consideration". On this appeal appellant must carry the burden of showing that these findings of fact were clearly erroneous.²

The testimony of appellant and the bankrupt were not accepted by the referee. According to that testimony, appellant was approached by Brown who desired to borrow $5,000.00 with which to settle, at a discount, the accounts of certain creditors who were "on his neck". The bankrupt offered to secure the loan by a mortgage on certain merchandise together with store fixtures, a good portion of the security being already under pledge for other indebtednesses. After examining the security, appellant agreed to make the loan and a note payable in thirty days was executed along with the mortgage which latter was promptly recorded.

The money was delivered in cash by appellant to the bankrupt in the office of an attorney who was acting for both parties.³ Appellant stated that he obtained the cash money by borrowing $2,600.00 from his brother and putting up the remaining $2,400.00 from funds he was keeping at his home. He did not use any portion of $7,000.00 he stated he had in a "secret hiding place", which developed, upon pressure from the referee, to be a locked tool chest at the home of his son in another state. He moved that money to his brother's home a few days after the loan was made. The brother and the son were not produced as witnesses.

When the bankrupt did not respond to his several demands for payment, appellant, on June 26, began foreclosure proceedings which, with the aid of a waiver by the bankrupt of certain time factors, resulted in a sale of the mortgaged property. Promptly thereafter appellant joined in an involuntary petition in bankruptcy against Brown, averring that his claim exceeded the value of the security by $400.00. The claim he filed against the bankrupt after adjudication represented the principal of $5,000.00 plus interest.

The foregoing facts were testified to by appellant and the bankrupt and, if the referee had believed them, would necessarily have resulted in a finding in appellant's favor. But the referee did not believe them. He entered his findings of fact⁴ to the effect that appellant did not have $5,000.00 to lend, that the loan was not bona fide but was a mere fiction, and that the mortgage and all actions in connection with it were part of a conspiracy between appellant and the bankrupt to defraud the creditors of the latter. These findings and conclusions by the referee rejecting the appellant's claim were adopted by the District Court, and appellant's petition for review was denied.

Both the referee and the court below adverted to certain Georgia statutes respecting proof of fraud which tend to mitigate the strict requirements of proof at common law where fraud is alleged;⁵ and appellee relies upon the broad discretion lodged in the fact-finder by other Georgia statutes.⁶ It was proper that these statutory policies should be thus influential.⁷

We have read the evidence carefully and are unable to say that these findings are clearly erroneous. No good purpose will be served by enumerating or cataloging the evidence which the referee and the Court below accepted as sufficient to overturn the testimony of the appellant and the bankrupt. The referee had a right to reject their evidence if, after observing the witnesses as they testified, their manner on the stand, their candor or evasiveness, the conflicts and inconsistencies in their testimony, weighed in the balance with the other countervailing facts and circumstances, he found what they said to be highly improbable or inherently unbelievable.⁸

The referee was persuaded to some extent by a transaction between the bankrupt and one Smith the day following the giving of the mortgage to appellant. The bankrupt then executed a note and mortgage in the sum of $5,600.00 which Smith recorded but which he virtually repudiated at the trial as spurious. The referee concluded that the two similar transactions were part of a well-laid scheme of the bankrupt to defraud his creditors. This evidence was properly considered by the referee in reaching his conclusion.⁹

Every trier of the facts forms his conclusions not only from what the witnesses before him say, but their appearance when they say it. The cold printed page does not preserve this important ingredient of proof, and we are relatively unable to appraise its cogency. Except in plain cases it is the duty of a court denied that vantage point to accept the findings of the one who occupied it — in this case, the referee. The court below did accept and approve them, and we are unable to say that they were clearly erroneous. The judgment is, therefore,

Affirmed.

1 Brown will sometimes be referred to herein as the bankrupt, but his adjudication as such followed by three months the giving of the mortgage. The mortgage was given April 22, 1954, the involuntary petition in bankruptcy and Brown's consent to the adjudication were filed July 3rd, and the adjudication followed on July 20th.

2 Rule 52(a) Fed.Rules Civ.Proc. 28 U.S. C.A.; General Orders in Bankruptcy No. 47, 11 U.S.C.A. following section 53; Donald v. Bankers Life Co., 5 Cir., 1939, 107 F.2d 810; In re Di Palo, 2 Cir., 1955, 218 F.2d 816; and see generally 5 Moore's Federal Practice 53.126, pp. 2989 et seq.

3 Without dispute the attorney took the money and disbursed it in liquidation, at a discount, of pressing obligations of the bankrupt.

4 The following are excerpts from his findings and conclusions: "The Court had the opportunity of observing Clifford H. Brown, P. G. Griffin and E. Mace Smith, as witnesses, when they testified and observed their manner on the witness stand, and after a careful consideration of their evidence, I make the following findings of fact:

"1.

"T...