Court Opinion

ID: 9638145
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:35:19.907721+00
Date Added: 2024-06-11T18:10:04.164343
License: Public Domain

ANDERSON, Circuit Judge
(dissenting).
This record does not contain the evidence before the referee. We know nothing of the facts except as they are set forth in the referee’s certificate. Allusions to evidence in the majority opinion are without foundation. The referee’s certificate is in effect a master’s report. Sternburg v. M. Cohen & Co. (C. C. A.) 254 F. 1, 4, and eases cited; 8 Remington, Bankruptcy (3d Ed.) § 3669; In re Noyes Brothers (C. C. A.) 127 F. 286, 287. The primary facts must be taken as true; the inferences from those facts are open to the District Court, and equally to this court.
- The controlling facts in that report are as follows:
*514“For years Herbert has been accustomed to lending money to Norman for short periods. On April.26, 1926, the brothers were square. Thereafter Norman asked for further loans. Herbert did not want to let Norman have any money, and did not want to get involved in Norman’s affairs. He insisted that, if he were to make further loans, he must have some security. Norman promised to convey to Herbert a property at Central Village, Connecticut, as security for such advances as might be made. Herbert, who knew that Norman had nothing else to give, agreed to this. Thereafter, .in June, Herbert advanced sums aggregating about $25,000. He made several demands for a conveyance of the Central Village property, but Norman never gave it to him. Shortly thereafter Herbert went to Labrador, and from there to 'California. He did not return to Boston, or see Norman, until late in February, 1927, as will appear later. In the meantime there seems to have been something of a running account between the two brothers; Herbert or his Boston representatives advancing sums to Norman, between June and December 31, 1926, aggregating over $100,000. A portion of these advances were repaid by Norman, so that on December 31st Norman appears to have been- the debtor of Herbert to the extent of about $30,000. On February 10, 1927, Herbert’s secretary advanced to Norman about $4,000 more, without authority from Herbert, but at the urgent request of Norman, who promised to return it in a day or- two.
“It does not appear that Herbert ever made further demand on Norman for a deed of the Central Village property after he left for Labrador some time in the summer of 1926. The loan of $4,000 made on February 10, 1927, by Herbert’s secretary, was made without any knowledge of Norman’s promise to give Herbert a deed of the Central Village property, without any request for such a deed, and without any expectation that such a deed would be given. It appears to have been made as a result of Norman’s persuasion and his promise of immediate repayment.
“On February 12th Norman, without the knowledge of Herbert, and without any request from Herbert or any of Herbert’s representatives, executed a deed of the Central Village property to Herbert and had it recorded on February 16th. Within a few days of this time Norman telegraphed Herbert, who was in California, to come home at once. Herbert returned from California about the 22d of February. On the 24th or 25th he met Norman in the office of Norman’s lawyer. The interview was a brief one. Norman told Herbert that he and his companies were in bad financial straits. Herbert said he could do nothing, and that Norman must follow the advice of his attorney. There was no discussion at this meeting of Norman’s indebtedness to Herbert, or of the conveyance of the Central Village property. Herbert did not know that there had been sueh a conveyance, and did not learn until some time afterward, when Norman presented him the deed after its return from the registry. * * *
“At the time of this hearing Herbert had never taken possession of the Central Village property, and frankly stated he had no use for it, except as a haven for Norman, who still continues to live there and manage it as though he were the owner.
“The agreement between the brothers made in the spring of 1926 was never carried out. After demanding that Norman fulfill his promise, Herbert appears to have given up. His subsequent conduct would seem to indicate a waiver of the agreement, for in spite of his flat refusal to lend without security, and in spite of Norman’s refusal to give the security, Herbert continued to make large advances aggregating over $100,000 during the balance of the year.
“There was no present consideration for the deed of February 12. The loan of $4,000 made just prior to that was advanced without thought of obtaining the deed and in sole reliance upon Norman’s promise to repay at once. When Norman did make the deed on February 12, he knew he was on the rocks. I believe he gave that deed with no thought o-f the recent advance, with no thought of his agreement with Herbert, but with the sole purpose to put this property out of the reach of his creditors and into friendly hands until the storm blew over.”
These findings make a plain case of loans made — by running account of advances and partial payments — on security promised. The aggregate of “over $100,000” does not mean that the indebtedness at any one time substantially exceeded the unpaid balance of about $30,000 on December 31, 1926. Herbert’s refusal, until Norman promised security, to make any further advances, is the controlling finding.
The referee’s deductions, from this primary finding,-that Herbert waived the agreement for security, and that the conveyance was in fraud of creditors, are held unwarranted by my brethren. They say: “The deed was undoubtedly delivered to Herbert in *515compliance with Norman’s promise and in fulfillment thereof.” In those conclusions I fully concur. They eliminate fraud and waiver.
But my brethren reach the conclusion that the transaction is voidable as an unlawful preference by deducing from the primary facts the conclusion that the agreement was not in legal effeet an agreement for security, not an equitable lien on the land, but was “a mere agreement to give at some future time, a deed on the land,” and that, as the deed was given within four months, it is voidable under section 60 (11 USCA § 96).
From this conclusion I emphatically dissent. It seems to me irreconcilable with the finding (binding on us), supra, that, on Herbert’s refusal to make unsecured advances, an agreement to give security was made, and also irreconcilable with the sound inference of this court that the deed was given “in fulfillment” of that agreement. The essence of the agreement was for security. The security might have taken ike form of a mortgage or of a deed, executed at any time. But' in equity and in good faith a right in the property promised to be conveyed arose in the lender the moment the loans were made on the faith of the promise. The dealings are to be so construed as to effect, not thwart, the honest, underlying purpose of the parties. Equitable liens frequently arise, not merely from express agreements, but “from circumstances of such nature as to require the presumption upon general considerations of justice as between those conducting commercial transactions according to a reasonable standard of integrity that an equitable lien was meant.” Rugg, C. J., in Westall v. Wood, 212 Mass. 540, at page 544, 99 N. E. 325.
The facts in this case, construed in harmony with the “general considerations of justice” and “according to a reasonable standard of integrity,” require the conclusion that “an«equitable lien was meant.” It is only by scholastic artificiality that the agreement can be cut down to little more than idle and empty talk about a deed. If ever an oral agreement to give a deed of, or mortgage on, realty, as security for advances to be made, could create an equitable lien, one was here created.
To summarize: From the primary facts, I can deduce no fraud, the referee’s inference; nor “attempted concealment of the bankrupt’s assets,” the inference of the court below; nor failure of the agreement to create a right in the lender arising at the moment when the loans were made, the conclusion of the majority of this court. Viewed in proper perspective, the transaction was nothing but the natural and honest attempt of an embarrassed, but still hopeful, debtor to turn his last resource into liquid form in an attempt to escape from the threatened wreck of his business. It took nothing away from his creditors, present or prospective. The transaction was good between the parties, and is, fairly construed, binding on the borrower’s trustees in bankruptcy.
On the merits, the ease should be reversed. •