MARIETTA STATE BANK, DEFENDANT-APPELLANT, V. MORRIS Texas Court of Civil Appeals, January, 1924. PREFERENCES-CONSTITUENT ELEMENTS OF VOIDABLE PREFERENCES-CREDITORS' Where it appears that evidence is sufficient to sustain a judgment that a mortgagee did not have reasonable cause to believe that the mortgage would effect a preference as to other creditors, the judgment will not be disturbed. (See Collier, 13th Ed., p. 1313; Am. B. R. Digest, § 514.) SUITS BY OR AGAINST TRUSTEE-BURDEN OF PROOF IS ON HIM WHO ASSERTS PREFERENCE. Where the bankrupt executed a mortgage prior to bankruptcy, the burden of proving that it was a voidable preference is on the party attacking it. (See Collier, 13th Ed., p. 1328; Am. B. R. Digest, § 1328.) Action by Morris County National Bank against the Marietta State Bank and others. Judgment for plaintiff, and the named defendant appeals. Affirmed. Bartlett & Patman, for appellant. Wheeler & Robison, and O'Neal & Harvey, for appellee. HODGES, J.: In February, 1923, the Morris County National Bank filed this suit against W. E. McCoy and his wife Lola McCoy, H. P. McCoy, W. Z. McCoy, Leo Lambert, and the Marietta State Bank. The object of the suit was to foreclose a deed of trust on a tract of land situated in Cass county, claimed by the appellant. The record shows that on February 16, 1921, W. E. McCoy and his wife executed and delivered to the Morris County National Bank a promissory note for $885.65, due on November 1st following. That note was also signed by H. P. McCoy and *257 S. W. 991. W. Z. McCoy as sureties. On March 21, 1921, W. E. McCoy and wife executed a deed of trust on the land in controversy, to secure the payment of the note above mentioned. On May 25, 1921, W. E. McCoy was adjudged a bankrupt. A meeting of the creditors followed, a trustee was appointed, and in the course of time the land in controversy was sold in obedience to an order issued by the referee. At that sale the appellant, the Marietta State Bank, became the purchaser. It was agreed on the trial that the Marietta Bank thereby acquired a good title to the land, unless the deed of trust executed by W. E. McCoy and wife was a superior lien. On the trial, W. E. McCoy and W. Z. McCoy were released upon their plea of bankruptcy. A judgment was taken against H. P. McCoy for the debt, and the mortgage was foreclosed upon the ground that it was superior to the title under which the appellant and Lambert claimed the land. As shown by his findings of fact filed in the case, the court concluded that the lien held by the appellee bank was superior to the conveyance from the trustee in bankruptcy. That conclusion was based upon the finding that at the time the mortgage was taken the appellant did not have reasonable grounds to believe that the enforcement of the lien would effect a preference against the other creditors of McCoy. In this appeal the appellant contends that the evidence is not sufficient to support the finding and conclusions of the court. As stated by counsel for appellant in their brief, the only question presented in this appeal is: Was the mortgage executed by McCoy and wife to the appellee a voidable preference of the latter as a creditor? In his work on Bankruptcy (1922, par. 575), Mr. Black thus states what is required to constitute a voidable preference: "First, there must have been either an act of the debtor in procuring or suffering a judgment to be entered against him or making a 'transfer' of any of his property, taking that term in the very wide sense in which it is defined by the Bankruptcy Act. Second, the debtor must have been insolvent either at the time of the transfer or of its recording, or of the entry of the judgment. Third, these things must have concurred within four months before the filing of the petition in bankruptcy, or after the filing and before the adjudication. Fourth, the judgment or transfer must operate as a preference, that is, enable the creditor to obtain a greater percentage of his debt than other creditors of the same class. Fifth, the person receiving it or to be benefited by it (or his agent acting in the transaction) must have had reasonable cause to believe that the enforcement of the judgment or transfer would effect a preference." It appears that the court found all of the above issues in favor of the appellant except the last. The correctness of the judg ment then rests solely upon the ground that the evidence justified that conclusion of the court. The officers of the appellee bank, and the one who conducted this transaction with McCoy, testified that they did not know how much McCoy owed, or that he was insolvent at the time the mortgage was taken; they had reason to believe that he owed other debts, but they did not know the amount of his indebtedness, nor did they know that he did not have property sufficient to pay those debts if given time to convert it into money. McCoy testified that at the time he gave this deed of trust to the Morris County National Bank he did not think he was insolvent; he believed that he had property sufficient to more than pay his debts if given time; his embarrassment arose from the fact that he could not then convert his property into money. In attacking this mortgage the burden of proving it was a voidable preference rested upon the appellant. Bank of Commerce v. Brown (C. C. A., 4th Cir.), 40 Am. B. R. 591, 249 Fed. 37, 161 C. C. A. 97. That case also states the rule usually applied in determining whether or not the preferred creditor had reasonable cause to believe that his debtor was insolvent and that the conveyance taken would operate as a preference. See, also, Black on Bankruptcy, § 597, and notes. A careful examination of the testimony in this case has convinced us that the judgment should be affirmed, and it is accordingly so ordered. IN THE MATTER OF EARL N. MCKINNEY.* U. S. Circuit Court of Appeals, Ninth Circuit, May, 1923. No. 3933. SUITS BY AND AGAINST TRUSTEE-SUMMARY PROCEEDINGS OR PLENARY SUIT -DETERMINATION OF CHARACTER OF CLAIM-WHERE CLAIM IS NOT COLORABLE NOR FRAUDULENT, BUT CLEARLY ADVERSE, IT IS ONLY DETERMINABLE IN PLENARY PROCEEDINGS. A controversy relating to transactions between the bankrupt and the petitioner which were asserted by the petitioner to have been settled upon mutual accounting are not properly determined in summary proceedings and a special appearance at the summary proceedings without an answer to the merits did not amount to a waiver by the petitioner of his right to have the matter adjudicated in plenary proceedings. (See Collier, 13th Ed., p. 777; Am. B. R. Digest, § 648.) Petition by William Cowan to review order of referee, opposed by John P. Cull, trustee in bankruptcy. Judgment was rendered against petitioner, and he appeals. Reversed. Before GILBERT, Ross, and RUDKIN, Circuit Judges. David Benshimol and Oscar T. Barber, for appellant. C. V. Manatt, for appellee. John F. Seymour, for bankrupt. GILBERT, Circuit Judge: On February 16, 1920, the petitioner was ordered to appear before the referee and show cause why he should not pay over to the estate of the bankrupt the sum of $5,038.41. The petitioner appeared and objected to the jurisdiction of the referee to proceed in a summary manner, for the reason that the petitioner claimed to own the money referred to in the order adversely to the trustee and to the estate of the bankrupt. In his said appearance and objection the petitioner expressly stated that he did 289 Fed. 242. The not consent that the matter be heard before the referee. facts out of which the claim of the trustee arose are, in brief, the following: The petitioner had loaned the bankrupt upon mortgages various sums of money, and in 1917 by agreement the petitioner took over all the mortgaged property and managed the same, with a view to working out the bankrupt's indebtedness. But on January 2, 1918, the petitioner brought suit to foreclose the mortgages, whereupon a stipulation was entered into between him and the bankrupt, whereby the latter agreed to confess judgment for $16,260, and interest and attorney's fees, amounting in all to $20,411.68, which amount was to bear interest at 10 per cent per annum from January 3, 1918. It was not until December 16, 1918, that judgment was entered in accordance with the stipulation. The petition for adjudication of bankruptcy was filed April 9, 1918. The trustee in bankruptcy thereafter obtained a temporary injunction staying the sale, but, the injunetion being dissolved, the sale was made on November 25, 1919, and the petitioner bid in the property for $24,349.34. Judgment was rendered in the bankruptcy court upon the trustee's summary proceeding against the petitioner for $4,705.55. That sum was composed of two items: First, the sum of $1,265.54, a balance of moneys alleged to have been received by the petitioner from the sale of cattle belonging to the bankrupt during the time of the petitioner's possession of the same and before the foreclosure suit, which sum the referee found should have been credited upon the notes owing from the bankrupt to the petitioner. Second, the sum of $3,439.97, which was claimed to be due from the petitioner to the bankrupt's estate for the reason that the interest charged by the petitioner upon the indebtedness from the bankrupt from January 3, 1918, until the date of the sale of the property should be credited with interest at the rate of 10 per cent upon the value of the personal property at the time when it was turned over to Cowan on December 12, 1918. The referee assumed that value to be $15,736.33, and computed interest on it at 10 per cent per annum, whereby he arrived at the sum of $3,439.97, which he ruled should be credited to the bankrupt's account. As to the first of these items, the petitioner's claim to the right |