Alexander Armstrong, upon a petition in voluntary bankruptcy, was adjudicated a bankrupt by the United States district court for the southern district of Iowa on August 6, 1904. Josiah Coder, appellant, was duly elected and qualified as trustee. On August 26, 1904, William Arts, appellee, filed a claim for $104,880.46 against the bankrupt estate on certain promissory notes, to wit, one in the sum of $2,700, dated May 19, 1900, due May 19, 1901; one in the sum of $18,453, dated December 26, 1903, due March 26, 1904; one in the sum of $20,000, dated January 29, 1904, due on demand; one in the sum of $58,826.50, dated January 29, 1904, due January 30, 1905; and one in the sum of $5,512.40, dated June 17, 1904, due on demand.
It was alleged in the claim filed that the first four notes were secured by a realestate mortgage, dated May 2, 1904, covering 2,280 acres of land in Carroll county, Iowa, and the last note by a real-estate mortgage of June 17, 1904, covering 615 1/2 acres of land in Monona county, Iowa. The claimant asked for the allowance of his notes against the estate, reserving all rights to his securities in every portion thereof. The trustee filed an answer and objections to the claim of Arts, attacking both the notes and the mortgage, alleging, in substance, that the bankrupt was not indebted to the claimant in the amount named; that two of the notes were really obligations of the sons of Armstrong, signed by Arts as surety; that the mortgage was given to secure a pre-existing indebtedness within four months of the adjudication in bankruptcy; that, at the time of the giving of the mortgage, the property of the bankrupt was not, at a fair valuation, sufficient to pay his debts, and that he was insolvent; that the claimant or his agents knew the bankrupt's condition, or had knowledge of such facts as would put them on inquiry; that the mortgage was given with the intent and purpose to prefer claimant; that claimant or his agents had reason to believe a preference was intended; and that the mortgage was made and given within four months of the adjudication in bankruptcy with the intent and purpose to hinder, delay, or defraud creditors.
Testimony was taken before the referee, and upon exceptions to his findings the case went before the district judge, who set aside the findings of the referee, made findings of fact, and entered the following order:
'It is therefore hereby ordered, adjudged, and decreed that the said claim of William Arts, on account of the four notes referred to in the fourth finding of facts herein, and secured by the said mortgage of May 2, 1904, be and the same are established against the trustee and estate of Alexander Armstrong, bankrupt, and the said notes and the mortgage securing the same are hereby declared to have been a good, valid, and [enforceable] lien on the property described in said mortgage from the time of the giving and recording of said mortgage down to the time when said property was sold by the trustee in bankruptcy herein, under order of this court, discharged and free and clear of all liens, and are now a good, valid, and [enforceable] lien on the proceeds of the sale of said land in the hands of the trustee. To which said order, adjudication, and decree, and each part thereof, the trustee excepts.
'It is further ordered, adjudged, and decreed that the said claims of the said William Arts on account of said four notes, aggregating, principal and interest, the sum of $97,497.40, as found in the fifth finding of fact, herein to be paid in full to the said William Arts, claimant, by the trustee out of the funds and moneys in his hands by him received on account of the sale of the lands covered by said mortgage, and hereinbefore described, after the payments of all prior liens and claims thereon as determined by this court. To which said order, adjudication, and decree, and each part thereof, the trustee excepts.
'It is further ordered, adjudged, and decreed that the note and claim of $5,512.40, referred to in the fourteenth finding of fact herein, be, and the same is hereby, established as against the trustee and the estate, and that, as to said claim, the said William Arts will participate in said estate as a general creditor. To which said order, adjudication, and decree, and each part thereof, the trustee excepts.
'It is further ordered, adjudged, and decreed that the said mortgage of June 17, 1904, given to secure said claim of $5,512.40, be not enforced, but is hereby set aside, canceled, and held for naught, and treated as though never given, and the claimant Arts take nothing under the mortgage.'
The case is reported in the district court in 145 Fed. 202.