The Federal Reporter with Key-Number Annotations, Volume 272: Cases Argued and Determined in the Circuit Courts of Appeals and District Courts of the United States and the Court of Appeals in the District of Columbia, June-August, 1921. Page: 21
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CITY NAT. BANK V. SLOCUM E1
express decision to this effect, though there is analogy to the joint and
several liability of partners. See Jacobs v. Van Sickel [C. C.] 123
Fed. 340, 342; In re Hull (D. C.) 224 Fed. 796, 800. No doubt debts
founded on indorsements may be proved against the indorser, but it
does not follow that they must be taken at their face m forming a
judgment as to the indorser's solvency. The method pursued by the
trustee is to use the total of the indorsed paper in determining the
maker's solvency, and then to use the same total again, as against the
indor-er's assets, to show her insolvency. We think this obviously
unsound, particularly when the inquiry is not as to actual solvency,
but only as to what future situation the creditor should reasonably
anticipate. One who has ample property to pay his separate debts
cannot he subject to be put into bankruptcy because he is also indorser
for a soh ent maker; but this is the alternative to the rule we have
stated IIalhday had been for some time carrying on an extensive
creamery business. He had upon the farm a herd of valuable cattle
and appropriate buildings and apparatus, was buying milk and cream
in quantities, and shipping butter to other parts of the country. The
necessity alleged by him to the bank for his increasing loans was that
the business was increasing so rapidly that it took larger and larger
capital to carry it. As late as October he stated to the bank that he and
his mother [the record says wife] had a net worth of $130,000 This
probably was intended to include the value of the farm, but deducting
this would leave a net worth of $80,000 or $90,000. The directors of
the bank then made him an additional loan of $3,500. We cannot ac-
cept the suggestion that this was made with knowledge of his insolv-
ency and to enable him to keep the business going until the mortgage
of September 1st should become unassailable by the lapse of four
months' time: First, because this rests only on surmise; and, second,
because, when the bank, on November 16th, first received a statement
showing the full amount of his debts and the small sum of his re-
ceivables, it refused to honor a small overdraft, and thus precipitated
the collapse-action entirely inconsistent with the surmised intent. It
seems probable that Halliday was generally regarded as conducting a
prosperous business, and we have no doubt that the bank, as late as
October, considered him solvent. The district judge, upon a care-
ful review of the evidence, concluded that the proof sufficiently es-
tablished that the bank ought to have believed him to be insolvent, or
at least had reasonable ground so to believe. We are not inclined to
question this conclusion, but it does not go far enough to be controlling.
In order to make the mother insolvent, it was necessary that Halliday
should be not merely insolvent, but so badly short that his assets would
pay only about 40 per cent. of his debts.' The controlling question,
therefore, is whether the bank had reason to believe that Halliday was
so badly insolvent that the deficiency coming against his mother on
1 If his debts were $70,000 and the endorsed paper $50,000, to bring a de-
liciency of $30,000 on the $30,000 would require a shortage of $42,000 on the
$70,000, indicating ability to pay only 40 per cent. If his debts were only
$60,000, there must' be a shortage of $36,000 to carry over $30,000 against the
indorser, thus indicating the same dividend.
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The Federal Reporter with Key-Number Annotations, Volume 272: Cases Argued and Determined in the Circuit Courts of Appeals and District Courts of the United States and the Court of Appeals in the District of Columbia, June-August, 1921., legislative document, 1921; Saint Paul, Minnesota. (digital.library.unt.edu/ark:/67531/metadc38843/m1/43/: accessed February 17, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.