Walter A. Hoffman, Jr., Trustee in Bankruptcy for Caudle-barger Corporation, et al., Bankrupts, Appellants, v. First National Bank of Pompano Beach, Florida, Appellee, 392 F.2d 202 (5th Cir. 1968)

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.

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 appropriate⁵  — 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.