Before CLARK, Chief Judge, LUMBARD, Circuit Judge, and DIMOCK, District Judge.
Joseph Cohen, trustee in bankruptcy of New York Investors Mutual Group, Inc., appeals from a judgment by Chief Judge Clancy, Southern District of New York, dismissing his complaint at the end of trial. Appellant seeks to set aside a mortgage assignment to the defendant on the ground that it was a voidable preference, a fraudulent conveyance, or a corporate mortgage to which the stockholders did not consent. Sections 69, sub. a, 67, sub. d(2), 70, sub. e, Bankruptcy Act, 11 U.S.C.A. §§ 96, sub. a, 107, sub. d(2), 110, sub. e, New York Debtor and Creditor Law, McKinney's Consol.Laws, c. 12, § 270 et seq., New York Stock Corporation Law, McKinney's Consol.Laws, c. 59, §§ 15 and 16. This appeal primarily turns on the district court's findings of fact that there was no proof of the bankrupt's insolvency before the date of bankruptcy, that there was no evidence the defendant acted in bad faith, and that there was fair consideration for the mortgage. Since these findings are not clearly erroneous, we affirm the judgment below.
Before passing to a recital of what the record discloses and what the district court found, we emphasize that, in seeking to attack the assignment, the trustee has the burden of proving the facts necessary to support his contentions.
The record discloses that in 1954 defendant invested $15,000 in the bankrupt, New York Investors Mutual Group, Inc., one of several business interests of Robert Morman and a corporation of which he was president. The bankrupt, which dealt in realty, purchased numerous properties of the Stuyvesant Estate in a package deal in September 1954, one Rene Frank acting as broker. It thereafter proceeded to sell the properties in separate sales. Early in 1955 defendant became dissatisfied with her investment and through Frank, who was also an investor in the bankrupt, pressed for the return of her money. This demand was satisfied in May by the bankrupt's transfer to her of 30 shares of Fourth Avenue Blockfront Corp., another Morman realty corporation.
On September 5, 1955 the bankrupt paid off a second mortgage on property it owned at 31-35 Third Avenue, the district court finding on conflicting testimony that the payment was in full.In lieu of a satisfaction piece, the mortgagee, Harland Development Corporation, at the request of the bankrupt, assigned a $16,709 interest in the mortgage on September 5 to the defendant, who transferred her Blockfront stock to the bankrupt as consideration for the assignment.*fn1 Ten days later the Third Avenue property was sold to Beatrice L. Feinstein, who took the property subject to the mortgage.
The record sheds but little light on the value of the Blockfront stock transferred by defendant for the mortgage assignment. It does disclose that the defendant received $187.50 a month for the four months she held the stock, a rate of return of 15% on $15,000. The district court considered these payments to be dividends in the absence of any evidence as to their source.
During 1955 the bankrupt had not always promptly met its obligations. The attorney who handled the Stuyvesant transaction, William L. Reichman, billed the bankrupt for $20,000 on September 20, 1954 and received $4,000 in October. No other payments were made and a suit initiated by Reichman in the spring of 1955 was settled by a stipulation upon whih the bankrupt defaulted in October 1955, apparently after bankruptcy. Reichman also testified that the title company was not paid for its part in the Stuyvesant closing at the time of the closing, nor thereafter, except for occasional small payments. After it brought suit in April 1955 it received payments out of the closings of sales by the bankrupt. The bankrupt was also billed on August 1, 1955 by Louis Feinstein for $2,877.50 for services in connection with the closings of bankrupt's realty sales. Although Feinstein asked Morman about it two or three times he testified that he never pressed for payment.
The record indicates that these failures of the bankrupt to make prompt payment were to a considerable extent due to the terms of the mortgage agreements covering the Stuyvesant properties. Four blanket mortgages covered all or most of the properties, the most subordinate being a fourth mortgage on some of the properties. Under the terms of many of the mortgages the proceeds of sales were required to be used in full to satisfy the second mortgages and additional payments had to be made to the other mortgagees. Initially, therefore, profitable sales would increase the equity of the mortgagor bankrupt but would require the contribution of further liquid assets to the enterprise in order to discharge current obligations. Irwin Landes, a quondam attorney for the bankrupt and for mortgagee Harland Development Corporation, testified that he knew that the bankrupt did not always pay its obligations promptly but "as respects their general assets against their general liabilities I though they were well off."
On September 19 or 20, 1955, Morman disappeared. Louis Feinstein, husband of Beatrice Feinstein and the agent for both parties in the sale of the Third Avenue property, testified that the disappearance became publicly known immediately thereafter; Frank and Miss Sutherland stated tht the news was published shortly before the petition of involuntary bankruptcy was filed on October 5.
The trustee now contends that the mortgage assignment to Miss Sutherland was a voidable preference, § 60, sub. a(1) and (2) of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. a(1) and(2), on the ground that it was a transfer made by a debtor while insolvent to a creditor with notice and within four months of bankruptcy. It is sufficient answer to point out that a voidable preference is dependent on insolvency on the date of transfer and that the district court found that there was no proof of insolvency before October 5. We agree with this finding of the district court.
The trustee had the burden of establishing insolvency at the time of the September transfer to the defendant. It was not enough to show that the bankrupt was slow in meeting his current obligations. The trustee had to establish that at the time of transfer the "aggregate of (the bankrupt's) property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, with intent to defraud, hinder, or delay his creditors, shall not, at a fair valuation, be sufficient in amount to pay his debts." 11 U.S.C.A. § 1(19). Indeed, the trustee did not even attempt to prove insolvency prior to October 5.*fn2
The trustee also contends that the transfer was a fraudulent conveyance within § 67, sub. d(2) of the Bankruptcy Act, 11 U.S.C.A. § 107, sub. d(2). This federal codification of the Uniform Fraudulent Conveyance Act sets out four situations in which a transfer is fraudulent.*fn3 The first three situations, from which fraud is conclusively presumed, regardless of actual intent, each depend upon an absence of "fair consideration" to the debtor in return for his conveyance.
The "fair consideration," absence of which brings into operation the first three clauses of § 107, sub. d(2), is not merely the good and valuable consideration necessary to sustain a simple contract. See Cole v. Lama Plastics, Inc., D.C.N.D.Tex.1953, 112 F.Supp. 138, 141. As defined in 11 U.S.C.A. § 107, sub. :(1), "consideration given for the property or obligation of a debtor is 'fair' (1), when, in good faith, in exchange and as a fair equivalent therefor, property is transferred or an antecedent debt is satisfied. * ...