In re Mosher

• Decision Date: 21 July 1915
• Citation: 224 F. 739
• Parties: In re MOSHER. v. HAMBLIN. FIRST NAT. BANK OF ALBANY, N.Y.,
• Court: U.S. District Court — Northern District of New York

224 F. 739

In re MOSHER.

FIRST NAT. BANK OF ALBANY, N.Y., v. HAMBLIN.

United States District Court, N.D. New York.

July 21, 1915

John F Gleason, of Albany, N.Y., for claimants Galib Bros.

Tracey Cooper & Townsend, of Albany, N.Y., for claimant First Nat Bank of Albany.

Geo. J Hatt, 2d, of Albany, N.Y., for trustee.

RAY District Judge.

November 20, 1913, a petition in bankruptcy was filed against said James T. Mosher, and December 8, 1913, he was duly adjudicated a bankrupt. January 2, 1914, Emery A. Hamblin was duly appointed and qualified as trustee. Mosher, the now bankrupt, had been a customer of the First National Bank of Albany, N.Y., for some years prior to April 16, 1913, discounting paper at said bank from time to time, and on that day he informed Mr. Gallogly, the vice president of said bank, that he desired a loan of $10,000, in response to which Mr. Gallogly stated the bank would make the loan if secured. Mosher offered a second mortgage on his real estate, but Mr. Gallogly declined this, on the ground the bank could not make loans on mortgage, but at the same time informed Mosher he could give his note indorsed by some friend and secure such indorser by a mortgage on his real estate. Thereupon Mosher suggested Galib Bros. as indorser, and as Gallogly had known the said firm for some years and regarded the members as good business men and the firm responsible for a reasonable amount, the note for $10,000 was made by Mosher, indorsed by Galib Bros., and Mosher executed and delivered to that firm the mortgage in question to secure it on such indorsement. The note, so indorsed, due in four months, was thereupon delivered to the said bank by Mosher and discounted by it for his benefit. In August, 1913, the note was renewed for two months, and October 20, 1913, was again renewed. In April, 1913, when Mosher applied to Galib Bros. for their indorsement, he informed that firm that he was a little short of money and desired to uphold his business. The members of the firm were acquainted with Mosher and his fellow countrymen, all being Armenians. Mosher at the time of giving the mortgage requested Galib Bros. not to record it, saying:

'Don't record it because I want to do some business. If you record it, it might be hard for me to do business'

-- and thereupon Galib Bros. agreed not to record such mortgage. Of this agreement the said bank had no knowledge. This mortgage was not recorded until October 30, 1913, or 20 days prior to the filing of the petition in bankruptcy and 10 days subsequent to the last renewal of the note. November 5, 1913, Galib Bros. assigned such mortgage to the said bank, and the assignment was that day recorded. This was done under the following circumstances, viz.: In October, 1913, Mr. Gallogly, vice president of the bank, heard that Mosher was in financial trouble and gambling heavily, which Mosher admitted, and thereupon turned the matter over to its attorneys, who learned that the mortgage had not been recorded. Galib Bros. were sent for and informed of Mosher's financial condition and practices, and an assignment of the mortgage was thereupon requested and given. About this time Mosher offered the bank additional collateral security by way of chattel mortgage, but the bank declined, as under the then existing conditions it had no right to take same.

It conclusively appears that prior to taking the assignment of the mortgage to the bank Mr. Gallogly had become acquainted with Mosher's financial condition, but there is no evidence to sustain a finding that the bank, or any of its officers, had any knowledge of the true financial condition of Mosher at the time the $10,000 note was given, indorsed by Galib Bros, and at the time the mortgage was given by Mosher to Galib Bros. as security to them for their indorsement. Some point was made in the testimony that the note was indorsed and delivered prior to the execution and delivery of the mortgage. This is of no consequence, as the mortgage was given the same day that the note was executed and delivered, and with the understanding and agreement that the mortgage was to be given as a part of the transaction. Some point has also been made that the bank did not have actual knowledge that the mortgage was in fact executed and delivered at the time or on the day the note was indorsed and taken. This I regard as of no consequence, for the bank understood that Galib Bros. was to indorse the note and be secured by the mortgage executed by Mosher. It was all a part of the one transaction. There is no evidence or statement in the case that the bank declined to discount the note with Galibs' indorsement thereon, and required as a condition of discounting the note that Galib Bros. be secured. The bank simply knew that Galib Bros. was to be secured by the giving of the mortgage, and understood that it had been done.

It is not disputed that from time to time Mosher, now bankrupt, made financial statements to various commercial agencies which were communicated to the trade for the purpose of obtaining credit. Such statements were made in February, 1913, August, 1913, and possibly at other times. Other parties investigated Mosher's condition by making inquiry and made reports as to his financial condition and the credit that was due him. The existence of the unrecorded mortgage was not disclosed by Mosher in making these financial statements, or in answer to inquiries made by other parties.

During all of this time, including the time when the $10,000 note was given and the mortgage executed, Mosher was insolvent. And thereafter, and while the mortgage remained unrecorded, it is a fact that various parties, relying upon the reports of the trade agencies and upon the information given to other parties in answer to inquiries, and upon the apparent equity of Mosher in this mortgaged property, filled orders given by Mosher and extended new and further credit to him. There is no evidence that Galib Bros., or either of the firm, was cognizant of the financial condition of Mosher at the time they indorsed the note and took the mortgage as security to their indorsement, and there is no evidence that the bank had any knowledge, at the time the note was discounted and the mortgage executed to secure the indorsement of Galib Bros., that Mosher was insolvent or financially embarrassed to a serious extent. Neither is there any evidence that the bank or Galib Bros. were informed that Mosher was making financial statements which concealed the existence of the mortgage. There is no evidence in the case, or in the statement of facts, that would justify the inference or conclusion or a finding that Galib Bros. neglected or failed to record the mortgage for the purpose of cheating or defrauding then existing, or subsequently existing, creditors of Mosher. Galib Bros. of course knew that a failure to record the mortgage would keep record knowledge of its existence from then existing and subsequently existing creditors of Mosher, but there is no evidence that they had any information which led them to believe, or which ought to have led them to believe, that Mosher would make any false or untrue statements as to the existence of such mortgage. When the mortgage was assigned to the bank it had knowledge for the first time of the agreement not to record it. I do not think it can be held or found that there was any express purpose or design on the part either of Mosher or Galib Bros., at the time the note was indorsed and the mortgage given, to cheat, defraud, deceive, or mislead existing creditors, or those persons who should subsequently become creditors. The mortgage at that time was not intended as a preference, inasmuch as it was given to secure Galib Bros. for its indorsement upon a note given for a new consideration; that is, a present loan of money made by the bank.

Under the conditions existing and known to Galib Bros. when the note was indorsed and the mortgage delivered, was a valid security, unless the agreement not to record, entered into for the purpose stated, made it void as to general creditors who should thereafter become such. Galib Bros. of course knew that Mosher desired the mortgage kept from record in order that he might secure credit upon the faith of his apparent ownership of the real estate unincumbered by this particular mortgage. Mosher expressed the wish that the mortgage be not recorded for that very purpose.

The real questions are:

1. Was this mortgage fraudulent and void as to the general creditors of Mosher, who thereafter extended credit to him on the faith of his real estate being unincumbered by such a mortgage? If so, it was void for the same reason in the hands of the bank. The bank did not discount the note on the faith of the mortgage being given to the indorsers as security. No evidence or concession sustains such a conclusion.

2. Was the bank entitled to an assignment of such valid security as the Galibs or Galib Bros. had?

3. Another question under the facts of this case is this: Is the mortgage deemed to have been given to secure an antecedent debt and given as of the date of its record and therefore within the four months preceding the filing of the petition in bankruptcy, or did the four-month period begin to run at the date of the record of the mortgage?

If this mortgage was valid in the hands of Galib Bros. as a security for their indorsement on this note of $10,000, and could have been enforced by that firm and it was competent for Galib Bros. to transfer this security to the bank as security for the payment of the note, then it is good and valid in the hands of the bank. The bank, however, is in no better position than its assignor, Galib Bros.

On the second proposition stated there can be no serious contention....