Grant v. National Bank

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.