author: MOSCOWITZ, District Judge.

text:
    ALBERT PICK CO., Inc., v. TRAVIS.
    District Court, E. D. New York.
    Dec. 26, 1933.
    Verne ft. Foley, of New York City, for plaintiff.
    Irving C. Maltz, of Brooklyn, N. Y., for defendant.
   MOSCOWITZ, District Judge.

This is an action by Albert Pick Company, Inc., on behalf of itself and other creditors of Charles H. Mentzinger, against Eugene M. Travis as trustee in bankruptcy of the said Mentzinger, to impress a trust upon certain moneys now in the possession of the said trustee and upon a further certain sum of money when and if the same is acquired by the trustee.

On or about the 2d day of May, 1930, the said Mentzinger entered into a contract with the city of New' York, acting through the board of higher education of the city of New York, to furnish labor and materials for public improvements in the construction of a social unit for Hunter College.

On or about November 10, 1930, Albert Pick-Barth Company, Inc., by and through and in the name of the John Van Range Company (the John Van Range Company and Albert Pick-Barth Company, Inc., being subsidiaries of Albert Pick & Co., an Illinois corporation) entered into a subcontract with said Mentzinger for the furnishing and installation of certain cafeteria and kitchen equipment in the said Power House — cafetería — social unit of said Hunter College; that the said contract was for the sum of $33,-5Q0, all of which has been paid with the exception of $10,659.60.

On the 26th day of September, 1932, the city of New York paid the said Mentzinger out of funds applicable to the payment of said contract between Mentzinger and the city of New York the sum of $10,724.86, which sum constituted the final payment on the said contract, exclusive, however, of the sum of $2,-010.04, which was a retained percentage customarily withheld on city contracts.

On the 27th day of September, 1932, the said Mentzinger deposited approximately $9,-000 of the moneys received from the city of New York in his bank account maintained in the Bank of Manhattan Trust Company. On the same day, and. subsequent to the deposit of the money, one Cliston Corporation presented to the bank for payment a certain demand note, dated November 6, 1931, in the sum of $7,000, made and executed by the said Mentzinger, which said note and interest due thereon was on the 28th of September, 1932, paid by the said Bank of Manhattan Trust Company to said Cliston Corporation.

It has been stipulated that the Cliston Corporation was not a subcontractor under said Mentzinger, nor did it furnish labor or materials to the said Mentzinger, nor did it act as architect, engineer, or surveyor in connection with the Hunter College job, the subject of the contract between Mentzinger and the city of New York.

At the time that the $9,000, part of the payment received by Mentzinger from the city of New York, was deposited by' him in his bank account, there was a balance in the said account of approximately $110. It has been stipulated that the said sum of $7,000 received by the Cliston Corporation was paid out of funds in the said account.

On the 27th day of October, 1932, an involuntary petition in bankruptcy was filed against Mentzinger. On or about tbe 10th day of November, 1932, Mentzinger was duly adjudicated a bankrupt. On tbe 20th day of December, 1932, Eugene M. Travis was duly appointed trustee in bankruptcy, and thereafter duly qualified as such trustee.

Subsequently, Eugene M. Travis, as trustee, demanded that the Cliston Corporation return the said moneys on the ground that the moneys so received constituted a preferential payment in violation of the bankruptcy laws of the United States.

On the 1st day of February, 1933, the Cliston Corporation offered to pay to the said Eugene M. Travis, as trustee, the sum of $5-,-090 in settlement of the claim against it. At a meeting of the creditors called for the purpose of passing upon the said offer, the plaintiff herein, on behalf of itself and other creditors similarly situated, consented to the acceptance of the said offer without prejudice to it and such creditors’ claims that the said moneys constituted trust funds.

On the 27th of March, 1933, the said Cliston Corporation paid to Eugene M. Travis, as trustee, the sum of $5,000.

The question presented is whether the $5,-000 now in the hands of Eugene M. Travis, as trustee, shall be impressed with a trust fund for the benefit of the creditors who furnished materials and performed work on the Hunter College job, or whether it should be equally distributed among all the creditors.

Section 36-a of the Lien Law of the state of New York (Consol. Laws, e. 33) provides:

“Contractor who diverts funds guilty of larceny. The funds received by a contractor from an owner for the improvement of real property are hereby declared to constitute trust funds in the hands of such contractor to be applied first to the payment of claims of subcontractors, architects, engineers, surveyors, laborers and materialmen arising out of the improvement, and to the payment of premiums on surety bond or bonds filed and premiums on insurance accruing during the making of the improvement and any contractor and any officer, director or agent of any contractor who applies or consents to the application of such funds for any other purpose and fails to pay the claims hereinbefore mentioned is guilty of larceny and punishable as provided in section thirteen hundred and two of the penal law.” Added by Laws 1930, e. 859, § 18, in effect October 1, 1930.

Under such section there can be no doubt that the funds in the hands of a contractor are trust funds for the benefit of subcontractors, materialmen, etc.

Article 1, § 2, of the Lien Law, defines a contractor as follows: “The term ‘contractor,’ when used in this chapter, means a person who enters into a contract with the owner of real property for the improvement thereof, or with the state or a municipal corporation for a public improvement.”

The rule of construction of statutes compels that all sections of law be read together to ascertain the true intent of the Legislature. Section 25-a (added by Laws N. Y. 1932, c. 627, § 8) served to clarify section 36-a. People v. Levitt (1932) 145 Misc. 621, 260 N. Y. S. 458. It is apparent that section 36-a includes a contractor engaged in a public improvement.

Section 36-a was in effect October 1, 1930. Plaintiff’s contract was executed November 10,1930, one month and ten days after the enactment of section 36-a. Both contracting parties knew of the existence of such statute. Mentzinger must have been aware that any money received from the city of New York under the said contract he held as trust funds for the benefit of the materialmen, subcontractors, etc.

It is conceded that the money paid to the Cliston Corporation was part of the said trust fund. The money paid to the Cliston Corporation can be clearly ear-marked as part of the trust fund, and its return in no wise affects its fiduciary character. Oliver v. Piatt, 3 How. 333, 11 L. Ed. 622; Van Alen v. American Nat. Bank, 52 N. Y. 1; Central National Bank v. Life Insurance Co., 104 U. S. 54, 26 L. Ed. 693; Smith v. Township Au Gres, Michigan (C. C. A.) 150 F. 257, 9 L. R. A. (N. S.) 876.

No matter when the money came into the hands of the trustee, the trust creditors: are entitled to satisfy their claim if they can show that the trust fund or the property into which it was converted came into the hands of the trustee. In re Blue Bird Appliance Co. (C. C. A.) 292 F. 127; Peters v. Bain, 133 U. S. 670, 10 S. Ct. 354, 33 L. Ed. 696; City Bank of Hopkinsville v. Blackmore (C. C. A.) 75 F. 771.

The intention of the Legislature of the state of New York was to protect subcontractors, materialmen, and laborers. Contractors cannot avoid their responsibilities by making preferential payments out of trust funds and then filing petitions in bankruptcy or having involuntary petitions filed against them.

To follow the trustee’s contention that the funds should be distributed among all the creditors would nullify the very purpose of the statute, which was to distribute the specific fund to a preferred class of creditors. There would be no purpose for the Lien Law were it not that the state intended to protect the very class that the statute outlined. If the contractor attempts to deprive the lienors of their rights, the court should restrain and not help facilitate the avoidance of lawful obligations.

As to the sum of $2,010.04, which has been retained by the city of New York, no disposition can be made of that money for the reason that the city of New York is not a party to this litigation. However, as between the trustee and the Albert Piek-Barth Company, Inc., and other creditors similarly situated, who performed work on the Hunter College job, their rights as trust creditors to the fund have priority over the general creditors.

Settle findings and decree on notice.


source: Caselaw Access Project

author: FORMAN, District Judge.

license: Public Domain

text:
    In re RICHARDS.
    District Court, D. New Jersey.
    March 30, 1934.
    Walter S. Keown and William A. Early King, both of Camden, N. J., for exceptant.
    Frederick C. Kentz and Jacob R. Mantel, both of Summit, N. J., for bankrupt.
   FORMAN, District Judge.

Exceptant is Edward B. Smith & Co., a creditor of the above-named bankrupt. It filed objections to the discharge of the bankrupt, specifying the following grounds:

“1. That said Gordon Richards subsequent to the first day of the four months immediately preceding the filing of the petition in bankruptcy, transferred a property on the 31st day of December, 1931, with intent to hinder, delay or defraud his creditors, and the said property was more particularly described as follows: (Here follows a detailed description of premises known as 601 Third St., Belvidere, New Jersey, consisting of a dwelling house and lots.)

“2. Said Gordon J. Richards concealed or attempted to conceal the transfer of said property in defraud of his creditors.”

The issues were referred to the Honorable Charles H. Weelans, referee in bankruptcy, who heard testimony on the same. During the course of the hearing the exceptant asked leave to amend his specifications of objections by adding that the bankrupt had concealed the existence of certain book accounts not set forth in his schedule. The referee, in his report, recites the facts as adduced before him, and finds that the objection concerning the concealment of the book accounts was not sustained in the face of the explanation offered by the bankrupt and in view of the fact that the bankrupt turned over to the trustee records of all of his accounts.

He also rejected the objection raised by the written specifications above set forth and found that the bankrupt was entitled to his discharge.

The referee’s finding regarding the book accounts was manifestly correct and will be affirmed without discussion here.

The pith of his finding on the question of the alleged fraudulent transfer of the real estate was based upon the following facts:

The bankrupt owned a dwelling house and lots known as No. 601 Third street, Belvidere, N. J. His father, Herman R. Richards, was the owner of 301 Mill street, a business property, in the same town. Both properties were about identical in value and unencumbered. In March of 1931 the bankrupt found himself financially embarrassed due to speculations in the stock market. He had borrowed considerable money from the Warren County Trust Company, a bank in his town, of which he was a director, a practice, by the way, indulged in only too frequently as contemporaneous events so vividly disclosed during those times. The bank called upon him to supply additional collateral for his loans, the proceeds of a large portion of which, ironically enough, went through the hands of thé ex-ceptant here, for the purpose of purchasing stock.

The bank indicated its willingness to accept a $10,000 mortgage upon the business property belonging to the bankrupt’s father, rather than to accept as security the private property of the bankrupt. Accordingly the bankrupt agreed with his father to exchange their respective properties, the estimated values of the same being equal, a fact conceded by the exceptant. Pursuant to this agreement the father conveyed to the bankrupt the business property in March of 1931 and a few days later the bankrupt mortgaged it to the bank. The actual transfer of the private property by the bankrupt to his father was not consummated until December of 1931.

Meanwhile, the exceptant, then a creditor of the bankrupt, had threatened suit and a few days after he had conveyed the property to his father its summons and complaint was served upon him. Judgment was taken against him and on February 13,1932, he filed his petition in bankruptcy.

The exceptant contends that the delayed transfer by bankrupt to his father was fraudulent, and that he did thereby forfeit his right to a discharge from bankruptcy.

The Bankruptcy Act provides as follows:

“(b) The judge shall hear the application for a discharge and such ^proofs and pleas as may be made in opposition thereto by the trustee or other parties in interest, at such time as will give the trustee or parties in interest a reasonable opportunity to be fully heard; and investigate the merits of the application and discharge the applicant, unless he has * * * (4) at any time subsequent to the first day of the twelve months immediately preceding the filing of the petition, transferred, removed, destroyed, or concealed or permitted to be removed, destroyed, or concealed any of his property, with intent to hinder, delay, or defraud his creditors.” Bankruptcy Act § 14b (4), as amended in 1926,11 USCA § 32 (b) (4).

The bankrupt explained that although his father from time to time requested him to execute his agreement and transfer the private dwelling property to him, negligence upon his part to have the deed drawn, and some tardiness in the office of the lawyer who was to draw the deed, caused the delay. He rather artlessly admitted, also, that he did not hasten to deliver the deed to his father be'cause his “credit standing” would be impaired by the fact that the record would disclose that he had divested himself of the title.

This admission is the only indicium of lack of good faith upon his part, but I am not inclined to feel that it taints the entire transaction. His action here, though not to be commended, was a product of a business world pregnant with a calloused unconsciousness of moral values, and drenched with the sordid atmosphere of the gambling house, rather than the sober influence that should pervade honest business enterprise.

The expression of Judge McDermott in the ease of Bailey v. Boss, 53 F.(2d) 783, 784 (10th C. C. A.), seems peculiarly applicable here. In that ease the bankrupt owned property to the value of about $2,500. All of it was mortgaged to a local bank to secure indebtedness of $2,200. The bank was about to foreclose. The bankrupt, a farmer, wanted the bank to carry him through another crop, and to advance him more money. Other creditors were pressing him, and the bank was unwilling to carry him further unless he would make a bill of sale to his wife. This the bankrupt did and the bank then took a mortgage from his wife. Judge McDermott, in part, said:

“The appellant contends that the effect of the transfer was to hinder and delay creditors, and that the law imputes the intent from the act. It is very doubtful if this ‘transfer’ in fact hindered or delayed any creditor; but passing that, the contention is not a sound one. If appellant is correct, a preferential transfer is necessarily a fraudulent one, for its effect is to hinder and delay other creditors. But the Supreme Court of the United States has held otherwise. Dealing with this clause of the Bankruptcy Act, the Supreme Court in Coder v. Arts, 213 U. S. 223, 242, 29 S. Ct. 436, 443, 53 L. Ed. 772, 16 Ann. Cas. 1008, held: ‘This form of expression is familiar to the law of fraudulent conveyances, and was used at the common law, and in the statute of Elizabeth, and has always been held to require, in order to invalidate a conveyance, that there shall be actual fraud; and it makes no difference that the conveyance was made upon, a valuable consideration, if made for the purpose of hindering, delaying, or defrauding creditors. The question of fraud depends upon the motive. Kerr, Fraud & Mistake, 196, 201. The mere fact that one creditor was preferred over another, or that the conveyance might have the effect to secure one creditor and deprive others of the means of obtaining payment, was not sufficient to avoid a conveyance; but it was uniformly recognized that, acting in good faith, a debtor might thus prefer one or more creditors. Stewart et al. v. Dunham et al., 115 U. S. 61, 5 S. Ct. 1163, 29 L. Ed. 329; Huntley v. Kingman & Co., 152 U. S. 527, 14 S. Ct. 688, 38 L. Ed. 540.’ And in the concluding paragraph of the opinion, the court met this case squarely when it held that there was no fraud if the bankrupt in conveying his property ‘acted in good faith with a view to preserving his estate, and enabling him to meet his indebtedness.’ This decision was followed by Van Iderstine v. Nat. Discount Co., 227 U. S. 575, 33 S. Ct. 343, 57 L. Ed. 652. See, also, In re Goodwine (C. C. A. 7) 298 F. 81; Farmers’ Sav. Bank v. Allen (C. C. A. 8) 41 F.(2d) 208; Remington on Bankruptcy, §§ 3312-3317, and eases cited in 11 USCA § 32, notes 261-321.”

I must agree with the referee that the conveyance from the bankrupt to his father was made in good faith and that there was an absence of any intent to “hinder, delay, or defraud his creditors.”

The finding of the referee that the specifications have not been sustained and that the bankrupt is entitled to his discharge is, therefore, affirmed.


author: JAMES C. WILSON, District Judge.

text:
    In re TURRENTINE & THOMPSON.
    District Court, N. D. Texas, Fort Worth Division.
    Feb. 13, 1934.
    Slay & Simon, of Fort Worth, Tex., for petitioners.
    McLean, Scott & Sayers, of Fort Worth, Tex., for bankrupt.
   JAMES C. WILSON, District Judge.

Turrentine & Thompson, a partnership, is doing a general job printing business, on rather a large scale. They do any kind of printing job, such as stationery, etc., large or small. This work is done by machinery, some of the individual pieces of machinery and presses each weighing more than a ton, and all of it electrically powered. This system of machinery is operated by employees, only in emergencies by the partners themselves, their regular work being supervision and the business management of the concern.

Revised Statutes of Texas 1911, art. 3785, subd. 5 (Rev. St. Tex. 1925, art. 3832, subd. 5), exempts, from execution, etc., to the head of a family, “all tools, apparatus and books belonging to any trade or profession.” A question of exemption of such property, under this statute, is presented. Is such machín ery, so driven by electrical power, apparatus? That is the important question, and rather a difficult one, to be decided. It arises out of these faets: August 9, 1932, the firm was indebted in the sum of five or six thousand dollars, unsecured, including $1,200, also unsecured, to F. G. Thompson, a brother of C. H. Thompson, one of the partners. On that date negotiations were closed for the purchase by Turrentine, at a price of $4,000, of said partner’s interest. It was arranged, at least Turrentine and C. H. Thompson so testified, that F. G. Thompson was to loan Turrentine $4,000 with which to pay such purchase price. So a mortgage was executed by Turrentine, on all of the machinery and fixtures, to F. G. Thompson, not only to secure the $4,000, but included the $1,200, making a total of $5,200. This brought on, within four months, the involuntary petition in bankruptcy by the petitioning creditors herein. They alleged that no loan was really made by F. G. Thompson to Turrentine; that, though in form it was real, in fact it was a bogus, simulated transaction, intended to and had the effect to delay, hinder, and defraud creditors. They urge also that the inclusion in the mortgage of the $1,200 was a preference, under Bankr. Act, e. 3, § 3a, Acts of Bankruptcy (11 USCA § 21 (a), and that, since the firm was insolvent, as alleged, they are entitled to an adjudication. All issues were submitted to the court.

Despite the length of time this exemption statute has been in effect in Texas, and the many decisions by Texas and federal courts construing it, the law is still in a nebulous state as to what kind of machinery propelled by steam or electric or any power other than hand, if any, is exempt as “tools or apparatus of trade.” This court, in deciding this question, is bound by the decisions of the Supreme Court of Texas and of the Circuit Court of. Appeals of the Fifth Circuit. It is only in the event the question has-not been directly passed upon by these courts that this court is privileged to look to the decisions of the Courts of Civil Appeals of Texas, and then only as persuasive, since they are not courts of last resort. The Circuit Court of Appeals for the Fifth Circuit in the ease of Peyton v. Farmers’ National Bank, 261 F. 326, 330, where the case involved mill machinery propelled by electric motors, held, as follows: “Where hand power is used, the machinery is held to be ‘tools or apparatus of trade’; but, where steam or any other power than hand is used, machinery so propelled is held not to be included within the statutory terms. There are decisions of the Courts of Civil Appeals of Texas which do not seem to observe the distinction.” Judge Grubb, thus speaking for the court, was construing the decision of Chief Justice Gaines of the Supreme Court of Texas in Willis v. Morris, 66 Tex. 628, 1 S. W. .799, 803, 59 Am. Rep. 634, where it was said: “Expensive and complicated machinery propelled by steam-power, or any power other than hand, is not exempt as ‘tools of trade;’ the latter phrase being held to apply only to simple instruments used by hand. Thomp. Homest. & Ex. § 756. The word ‘apparatus’ used in the statute may take a wider range, and embrace such minor machinery as may be operated by hand, and such as courts of high authority have held not to be included under the term ‘tools,’ as used in similar enactments.” The ease passed upon by Chief Justiee Gaines involved machinery and tools for the manufacturing of cotton gins which was claimed to be exempt upon two grounds, one of them being that such machinery was “tools or apparatus of trade.” The question was directly presented in that ease and the holding against the contention. Judge Grubb’s decision was made in 1&19 and Judge Gaines’ in 1886. I am rather impressed that Peyton v. Farmers’ National Bank, supra, gave a broader scope to Judge Gaines’ decision than was intended by this language: “The word ‘apparatus’ used in the statute may take a wider range, and embrace such minor machinery as may be operated by hand. * * * ” This must be read in the light of the times with respect to machinery at the time it was written. It was a holding that minor machinery propelled by hand was exempt, and that the heavy machinery involved in that particular ease was not, but, as I view it, was not a holding that no machinery propelled by other power might not also be exempt as apparatus. It will be noted that Judge Gaines, in construing the phrase “tools of trade,” held it “to apply only to simple instruments used by hand.” By using the adverb only he very definitely limited its significance to simple instruments used by hand. However, in defining the meaning of the word “apparatus,” he avoided the use of the adverb only and simply held it to “embrace such minor machinery as may be operated by hand.” If he had used it, there would have been.the definite limitation as given to it by Judge Grubb. It would appear that Judge Grubb construes apparatus to embrace only minor machinery propelled by hand. Many of the courts of Civil Appeals of Texas since the decision in Willis v. Morris, supra, have held, and I think properly so, machinery operated by steam, electricity, and other like power, to be exempt as “apparatus” under the statute. For example, in Hinekley-Tandy Leather Co. v. Hazelwood (Tex. Civ. App.) 35 S.W.(2d) 209, where electrically driven machinery, ordinarily seen in modem shoe shops, with a long shaft equipped with pulleys and belts, which, when in operation, turn emery wheels, brushes, sewing devices, etc., was held to be exempt as apparatus. Such is minor machinery and seems to be typically apparatus under all the definitions given of the word by courts, as well as dictionaries. But a cobbler’s business could increase to such proportions in the manufacture of shoes that his machinery would cease to be apparatus. Though numerous decisions might be cited where the Courts of Civil Appeals have held power propelled machines and mechanical devices exempt under the statute, none can be cited where ponderous power driven machinery such as we have here is held to be exempt as “tools or apparatus of trade.” It is simply not apparatus under any definition. Though a liberal meaning is given to such statutes, to extend the meaning to include such machinery would be a lawmaking process. Attorneys for the bankrupt press for consideration, as controlling, all of these Texas decisions, some by the Supreme Court, where printing presses were held as exempt. As far as I know, all of them were hand operated, but, if the same presses were power operated, they might very properly be held to be exempt. But this does not mean that everything that cap be called a printing press is exempt. The machines, weighing many tons, seen in our modem publishing houses, such as print our great daily newspapers, are printing presses, but they are not apparatus, and are not exempt. Just where and how the line of demarcation, between machinery power driven that is exempt, and machinery power driven that is not exempt, may be fixed by the courts, I do not know. It' would seem, as here, that each case would be judged by its peculiar circumstances and facts, to determine whether the particular instrument, machine, or mechanical device, comes fairly within, or outside, the meaning of “tools or apparatus of any trade or profession.” Certainly, in the face of the holdings in Willis v. Morris, and Peyton v. Farmers’ National Bank, supra, this court cannot hold such power driven machinery as we have here to be exempt. First, because of those decisions; and, second, because I am impressed such holding should not be made. If so, there is no stopping place. For example, we have in Fort Worth large printing, stationery houses doing the same kind of business, on a still larger scale, with great rooms filled with ponderous machinery, the owners having practically nothing to do with such machinery, as here, engaging themselves almost exclusively, as here, with supervision and the financing and the management of the business affairs of the concern. Would the machinery in a great printing house like Clark & Courts, if owned by individuals, be exempt in Texas? In their essence, there is no difference between that ease and this. To exempt such machinery to such owners was never the purpose of the Legislature. Be that as it may, as long as those decisions stand, this court would have no option but to hold that the property here involved is not exempt.

The reason the question of exemption of this machinery is of primary importance is: (1) If exempt, the mortgage of $5,200 was not to hinder, delay, or defraud, since the right of no other creditor would be either defeated or impaired. No creditor, not secured by a lien on such property if exempt, would have any right to look to same for the collection of his debt. (2) If not exempt, that simplifies and aids materially to settle the issue of the alleged insolvency of the bankrupt, because, if the facts show the mortgage was given with intent to hinder, delay, or defraud creditors, under the Bankruptcy Act, e. 1, § 1 (15), Definitions (11 USCA § 1 (15), all such mortgaged machinery and fixtures must be excluded from the aggregate of the property, and, if what remains shall not, at a fair valuation, be sufficient in amount to pay the debts, the firm is deemed to be insolvent. Such machinery and fixtures constituted the major part of the assets. It is not contended that the partnership was solvent, if the mortgaged property is excluded. There is even doubt about the firm being shown solvent were such machinery and fixtures included. To hinder, delay, and defraud the creditors certainly was the effect of the mortgage, if the property was not exempt. As stated, the mortgaged property largely constituted the assets. Other creditors, if the property was not exempt, had a right to look to it for assurance and security. It was not in dispute that the firm, in a commercial sense, was insolvent, in that it could not pay its debts as they came due, nor that it was begging for and getting extensions when this happened. To blanket the most valuable properties with a mortgage, to protect the selling partner for his sale price and his brother for a pre-existing indebtedness, left a very discouraging picture for all of the other creditors not so closely related to the firm. Of course, to actually hinder, and delay, if not defraud, creditors was the natural consequence of it. It is difficult for any person to establish they intended differently from ■that which was the natural and only result of their act. Nearly a year has passed, and many of the debts, current in their nature, existing August 9, 1932, as they were then, are still pressing for payment. The manner of the execution of the loan and the payment of the purchase price of $4,000 for the half interest, if indeed any such payment was made, furnishes abundant confirmation of the presumption naturally arising from results and the circumstances attending the transaction.

At the outset, this mortgage for $5,200 is tainted, in that it includes a $1,200 item obviously a preference of the brother as a creditor. The change of the status of this $1,200 item, by including it in the mortgage, was more apparent than real. Next, in the face of the economic conditions existing and particularly the state of this business, it was most unlikely that F. G. Thompson, if he had the money, would loan to Turrentine $4,000 cash, the full amount necessary to buy the half interest in the business, or that he would involve his credit to that extent. The natural thing, if some material advantage over other creditors was not to be gained, would have been for Turrentine to have given a $4,000 mortgage to C. H. Thompson, and, if he owed his brother, F. G. Thompson, any money, transferred such mortgage to him as security. But, the advantage was, if made directly to F. G. Thompson, it would appear on the record that he had loaned Turrentine the money, the purchase price of the half interest.

Here appear to be the facts as to how the matter was handled: That F. G. Thompson gave his check to Turrentine on the Continental National’Bank of Fort Worth for $4,000; that Turrentine indorsed this check to C. H. Thompson; that F. G. Thompson had less than $2,000 in his bank account at the time; that C. H. Thompson deposited the cheek the next day, not in his account, but in the account of F. G. Thompson; that the following day the $4,000 disappeared from F. G. Thompson’s account. With no explanation of these bank transactions and entries, and there were none, either by the Thompsons or Turrentine, the following conclusions are inescapable: That F. G. Thompson loaned no money to Turrentine; that the mechanics of handling it was a mere form devised to give a better appearance of valid security to the Thompsons, C. H. for the sale price, and F. G. for his prior loan. The only explanation attempted was by C. H. Thompson, that he individually had borrowed money from his brother and owed him money at the time, but such statements were entirely oral and nothing definite as to amount. So, my conclusion is that the mortgage transaction was simulated and to delay, hinder, and defraud creditors, and that the firm and the partners were insolvent at the time. However, such holding is with this reservation, that there was no actual intent not to finally pay other creditors. Turrentine has kept up the business and run it faithfully, apparently paying all indebtedness he could. I think he is actuated by entire good faith in this respect. In fact, so much was I impressed with this, it has looked to me, in view of present conditions, that the happiest solution of this matter, for all concerned, would be a voluntary cancellation of this mortgage and further extensions and indulgences by- the creditors, all on equal basis, to give Turrentine a better opportunity to work this business out.

The petitioning creditors present another theory for a basis of holding that the firm was insolvent, relying on the provision of chapter 3, § 3d, Acts of Bankruptcy (11 US GA § 21 (d), to the effect that the burden of proof to show solvency, when such a petition is filed, is upon the bankrupt. It is true that the bankrupt did not produce in court its books, and it is further true that the showing on its part touching its solvency, even including the mortgaged property, was not satisfactory. The contention may be correct, but it is not necessary to discuss it, since the adjudication will be made on the ground heretofore discussed, and a form of order in accordance herewith may be submitted for my signature.