Walter A. Hoffman, JR., Trustee in Bankruptcy For Caudle-Barger Corporation, Bankrupts v. First National Bank of Pompano Beach, Florida, 392 F.2d 202, 1st Cir. (1968)

392 F.
2d 202
Walter A. HOFFMAN, Jr., Trustee in Bankruptcy for CaudleBarger Corporation, et al., Bankrupts, Appellants,
v.
FIRST NATIONAL BANK OF POMPANO BEACH,
FLORIDA, Appellee.
No. 24963.
United States Court of Appeals Fifth Circuit.

March 26, 1968.
John L. Britton, Miami, Fla., for appellants.

Marshall G. Curran, Jr., Fort Lauderdale, Fla., for appellee.
Before BROWN, Chief Judge, CLAYTON, Circuit Judge, and SCOTT,
District Judge.
CLAYTON, Circuit Judge:
On April 18, 1965, Caudle-Barger Corporation, the bankrupt here, executed a

second mortgage to the appellee, First National Bank of Pompano Beach,
Florida, to secure an antecedent debt. Within four months thereafter, this
corporation was adjudicated a bankrupt. On June 20, 1966, after a hearing on
the merits, the referee found that this mortgage was given as security while the
bankrupt was insolvent and that, therefore, a voidable preference had been
created under Section 60(a) of the Bankruptcy Act [11 U.S.C.A. 96(a) (1)]. 1
In accordance with this finding, the mortgage was declared to be void.
The district court on review found that the evidence presented to the referee
was insufficient to support a finding that the appellee bank had reasonable
cause to believe that the debtor was insolvent at the time the aforementioned
mortgage was executed and that, thus, the security in question did not create a
voidable preference.
Before the date upon which this mortgage was taken, the debtor had renewed
an unsecured note payable to the bank on several occasions; however, the

indebtedness which was evidenced by these notes had been reduced by $24,000
within about twelve months preceding the date of the mortgage. But, at the
then current due date of the last of such notes, the bank asked for and obtained
the security in question, since it was "concerned" about this debtor's
delinquency. This was in accordance with general banking practice. No new
financial statement was then given to the bank. There was also testimony, by
one who identified himself as an "officer" of the company, that at the critical
date this debtor's liabilities exceeded its assets. However, there was no showing
that the bank knew that such was then the condition (if in fact it was) of this
corporation. The bank did know of temporary failure by the debtor to discharge
an undisclosed quantity of its obligations. It also appears that Caudle-Barger on
occasions had overdrawn its corporate checking account which it maintained
with the bank.
4
After a careful review of the record, we are unable to say that the district court
was clearly erroneous in its finding with respect to Section 60(a) of the
Bankruptcy Act. Rule 52, Federal Rules of Civil Procedure. Thus, we affirm as
to this aspect of the case. But, this does not end the matter, since Section 70(e)2
of the Act must also be dealt with. It brings Florida law into the picture. Thus,
F.S. 608.55, F.S.A.3 must be considered.
Upon de novo4 consideration of this question, the district court found the
mortgage to be valid under Florida law. Although we have the power to do so,
we cannot with assurance deal with this issue here on the sparse record made
before the referee. This is especially so since, on the record now here, we have
serious doubts about applicability of the rule announced in Venice East, Inc. v.
Manno, 186 So.2d 71 (Fla.App.1966), upon which the district court relied.
In these circumstances, the interests of justice require that this cause be

remanded for such further proceedings as may be appropriate 5 in district
court, or before the referee, as the district court may decide for a
determination of the single question of the effect, if any, of the aforementioned
Florida statute on the security transaction which is in question here. Ribaudo v.
Citizens National Bank of Orlando, 261 F.2d 929 (5 Cir. 1958); Cf. Porterfield
v. Gerstel, 222 F.2d 137 (5 Cir. 1955); M. M. Landy Inc. v. Nicholas, 221 F.2d
923 (5 Cir. 1955).
We make no intimation about what disposition should be made.
Affirmed in part. Reversed and remanded in part for further proceedings not
inconsistent herewith.
Notes:
1
This Act in its relevant part provides:

A preference is a transfer, as defined in this title, of any of the property of a
debtor to or for the benefit of a creditor for or on account of an antecedent debt,
made or suffered by such debtor while insolvent and within four months before
the filing by or against him of the petition initiating a proceeding under this
title, the effect of which transfer will be to enable such creditor to obtain a
greater percentage of his debt than some other creditor of the same class.
Section 70(e) of the Act [11 U.S.C.A. 110(e) (1)] reads as follows:
A transfer made or suffered or obligation incurred by a debtor adjudged a
bankrupt under this title which, under any Federal or State law applicable
thereto is fraudulent as against or voidable for any other reason by any creditor
of the debtor, having a claim provable under this title, shall be null and void as
against the trustee of such debtor.
The relevant portion of this statute reads:

No conveyance, assignment or transfer of any property of any such corporation
by it or by any officer, director or stockholder thereof, nor any payment made,
judgment suffered, lien created or security given by it or by any officer, director
or stockholder when the corporation is insolvent or its insolvency is imminent,
with the intent of giving a preference to any particular creditor over other
creditors of the corporation, shall be valid. Every person receiving by means of
any such prohibited act or deed any property of a corporation shall be bound to
account therefor to its creditors or stockholders. (Emphasis added.)
Apparently, the referee did not consider this aspect of the case
This properly should include the taking of additional evidence. Development of

all relevant facts may demonstrate that the district court's disposition was
correct or may form the basis for a different result there, or here if another
appeal ensues

Walter A. Hoffman, JR., Trustee in Bankruptcy For Caudle-Barger Corporation, Bankrupts v. First National Bank of Pompano Beach, Florida, 392 F.2d 202, 1st Cir. (1968)

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392 F.

United States Court of Appeals Fifth Circuit.

John L. Britton, Miami, Fla., for appellants.

On April 18, 1965, Caudle-Barger Corporation, the bankrupt here, executed a

an unsecured note payable to the bank on several occasions; however, the

In these circumstances, the interests of justice require that this cause be

We make no intimation about what disposition should be made.

This Act in its relevant part provides:

The relevant portion of this statute reads:

This properly should include the taking of additional evidence. Development of

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