Empire State Trust Co. v. Fisher Co. 67 Eq. three years previously to Mr. May by a responsible business acquaintance of Mr. May as a wealthy and entirely reliable contractor in New York City, and Mr. May knew nothing to the contrary of the truth of his friend's statement at the time Mr. Hart called with and introduced Mr. Fisher in May, 1902. Before making any loan, Mr. May made the usual inquiries as to the standing of Mr. Fisher and the Fisher company, for which the loan was asked. He inquired of their standing of the mercantile agencies and found them rated very high. He also required the usual statements of the financial standing of both the company and its president, and they were furnished. In the statement of the company its real estate was estimated at $150,000; the plant and movables at $55,000; the outstanding accounts at $12,000, making $217,000. The liabilities were stated as a mortgage, held by the New Brunswick bank, $24,000; notes, $7,000, and open accounts, $3,000, making a total indebtedness of $34,000, and leaving a net value of over $180,000. A certificate was also given that the company had no other debts or liabilities of any kind. Mr. Fisher's personal statement gave a list of his real estate and stock in the Fisher company, &c., and states himself to be worth $250,000. Fisher and Hart, at the same time, also presented to Mr. May a letter, purporting to be written by Mr. Parker, cashier of the New Brunswick bank, addressed to Mr. May, as follows: "NATIONAL BANK OF NEW JERSEY. "NEW BRUNSWICK, N. J., May 20, 1902. "V. M. W. Suydam, President. H. G. Parker, Cashier. "Morris May, Esq., President Broadway Trust Company, New York City: "DEAR SIR-W. F. Fisher & Company have carried their banking account at this institution for some twenty years and conducted the same in a manner entirely satisfactory to the bank. From time to time they have borrowed large sums of money from us, and at the present we have a loan with them, but cannot increase it if we would, because of the limitation put upon us by the National Bank act. "Mr. Fisher advises me that he expects to open an account at your Trust Company. You may rest assured that any statement that he may make to you is correct, and you can rely upon the same. 1 Robbins. Empire State Trust Co. v. Fisher Co. "W. F. Fisher & Company plant is a very valuable one, worth over $100,000. "Mr. Fisher individually owns considerable property, which he can explain to you more fully than I. "Wishing that you and Mr. Fisher may come to some arrangement mutually satisfactory, I am, "Ex A B D, Nov. 3/03." "Very truly yours, "H. G. PARKER, Cashier. No direct or positive proof of the genuineness of that letter was introduced, but I have no doubt that it was a genuine letter. It certainly had every appearance of being genuine, and Mr. May had every reason to believe, and did, in fact, believe it was genuine. On the strength of those representations Mr. May discounted for the Fisher company two notes of $7,500 each, dated May 20th, 1902, one at three months and the other at four months. The first note being unpaid at maturity, August 20th, 1902, action was immediately commenced thereon by the Broadway Trust Company against the Fisher company. Immediately after the service of process negotiations for a settlement were entered into, excuse was made for the non-payment, on the ground of Mr. Fisher's personal illness, and on September 12th the mortgage here in question was given to secure as well the $7,500 which was past due as the $7,500 note, which would come due September 20th. Mr. May and the officers of the Broadway Trust Company had no notice or information as to the financial condition of the Fisher company besides what has already been stated, except that its counsel learned that another mortgage, one to the Empire Trust Company, had been put on the property. Let us see what was the exact financial condition of the company as disclosed by a careful examination of its affairs made by Mr. Wylie. It was indebted to the New Brunswick bank $24,000; to the Empire Trust Company $15,000; and to the Broadway Trust Company $15,000, making $54,000. It was indebted to the laborers, who are preferred by our laws, in the sum of about $7,000. Besides that it was indebted to divers other indi Empire State Trust Co. v. Fisher Co. 67 Eq. viduals about $20,000, most of which represented the ordinary indebtedness of a going concern, in all $81,200. These last figures were ascertained by me at the hearing, and their substantial accuracy was admitted by Mr. Wylie and the counsel of the trustees. They do not disclose any indebtedness to Mr. Fisher, and it is proper to say that since the hearing the contest between the trustees and Mr. Fisher as to the validity of his two mortgages, or either of them, has been judicially heard ́and determined against Mr. Fisher, not only on the ground that the mortgages were valueless under the sixty-fourth section of our Corporation act, but also on the ground that nothing was due him. Now with regard to what might be called the available or quick assets of the company. It had on hand about ten million moulded but unburned bricks, which were afterwards burned and marketed by Mr. Wylie under disadvantageous circumstances and produced $15,000, net; thereby discharging the laborers' preferred claims and leaving a balance in the hands of the trustees. It is proper for me to say that the evidence satisfies me that if the moneys borrowed from the Empire Trust Company and from the Broadway Trust Company had not been diverted by the president to outside purposes and had been devoted, even partially, to the conduct of the regular business of the company under the supervision of Mr. Wylie, there would have been no interruption of the business of the company. I doubt if even the imposition of the mortgage to the Broadway Trust Company would have alarmed creditors and induced bankruptcy proceedings had it not been for the two mortgages to himself and the one to Frieda Hart, which Mr. Fisher was induced by the ill advice of New York counsel to put upon the premises. But, besides the unburned brick just mentioned, Mr. Wylie swears that the company owned a large number of building. lots facing on the main street of the village, much in demand and readily salable, and for which $25,000 could have been easily realized in a short time. The sale of these lots would not have affected in the least the value of the property as a brick-producing plant. 1 Robbins. Empire State Trust Co. v. Fisher Co. Now as to the value of the property in the latter aspect. It was appraised by the trustees, as stated by counsel, at over $100,000, and it was capable, with ordinarily good business management, of earning a fair dividend on the amount at which it was capitalized. The difficulty was that Mr. Fisher, the president and largest stockholder, had been, for a year or two, induced by bad business advice to neglect the business for which he was competent and go into outside speculation. However, notwithstanding that the property was located in the midst of the brick-producing region of New Jersey, and had the very best natural advantages for being profitably worked, Mr. Wylie says that the best offer that the trustees had been able to secure for it was $75,000. But for the accumulation of interest on the indebtedness and the cost of the judicial administration, that sum would pay all the debts remaining, after applying thereto the proceeds of the burning and sale of the ten millions of bricks. I have not dealt, in the above, with the mortgage from the company to Mrs. Hart. The question of indebtedness to her is under consideration and is strenuously denied by the trustees. I shall treat it, for present purposes, as representing no indebtedness. But it must be borne in mind that this offer of $75,000 was made after the business of the company had come to a standstill, as it did immediately after the imposition of the mortgages to Mr. Fisher and Mrs. Hart, and the company was in the hands of the bankrupt court. It is common knowledge that such a condition has at once a depressing effect upon the market value of such a property. Now, on these facts, the question is whether the mortgage here in question is a valid lion against the trustees in bankruptcy. That depends upon the construction of a few sections in the federal Bankrupt act. The first to which I refer is paragraph 15, chapter 1, section 1, of "Definitions:" *(15) A person shall be deemed insolvent within the provisions of this act whenever the aggregate of his property, exclusive of any property Empire State Trust Co. v. Fisher Co. 67 Eq. 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." I come to the conclusion, on the facts, that at the time this mortgage was given the Fisher company was not insolvent, within that definition. I think that "at a fair valuation" the aggregate of its property was sufficient in amount to pay its debts. The authorities seem to hold the reasonable rule that the assets of the debtor must, for the purposes of this section, be valued as those of a going concern, if that be the actual condition, and that subsequent actual insolvency is not the true and only test. I also find as a fact that at that date the company had not conveyed, transferred, concealed or removed any of its property, with intent to defraud, hinder or delay its creditors, nor had it permitted any such action. The next clause to which I refer is chapter 3, under the title "Bankrupts:" "Acts of bankruptcy by a person shall consist of his having (1) con. veyed, transferred, concealed or removed, or permitted to be concealed or removed, any part of his property with intent to hinder, delay or defraud his creditors, or any of them; or (2) transferred, while insolvent, any portion of his property to one or more of his creditors with intent to prefer such creditors over his other creditors." Now, I do not find that the corporation, at the date of this mortgage, had committed any act of bankruptcy as therein stated, or as stated in any of the subsequent sections. I think that the intention was to secure the Broadway Trust Company, but I am far from being satisfied that Mr. Fisher did not fully believe, when he executed the mortgage in question, that his property was amply sufficient to pay all his debts. I think he was ill advised, three days later, to execute the mortgages to himself. But, it is argued by counsel for the Broadway Trust Company, admitting that the Fisher company did intend to prefer the |