Smith v. Tostevin

Decision Date13 December 1917
Docket Number52.
Citation247 F. 102
PartiesSMITH v. TOSTEVIN.
CourtU.S. Court of Appeals — Second Circuit

Appeal from a final decree dismissing a bill in equity upon its face for insufficiency. The substantial allegations of the bill were as follows: On September 22, 1916, one Tostevin borrowed of the defendant bank $3,600 and pledged as security 13 shares of corporate stock, the property of his wife, given for that purpose by her. On November 9th, being aware of his insolvency and with the privity of his wife, Tostevin paid the bank its loan and received back the stock, which on the same day he delivered to his wife, the other defendant. Petition was filed against him on November 15, 1916, and the plaintiff is his trustee in bankruptcy. The theory of the suit is that the payment to the bank was in fact a preference as to the wife, which, being within four months of petition filed, is voidable under section 60b of the Bankruptcy Act. The decree was granted upon the theory that the stock had only been bailed to the bankrupt, and that after its redemption he might return it to the bailor.

Jacob S. Gross, of Binghamton, N.Y., for appellant.

George Edwin Joseph, of New York City, for respondent.

Before ROGERS and HOUGH, Circuit Judges, and LEARNED HAND, District judge.

LEARNED HAND, District Judge (after stating the facts as above).

If Rose Tostevin, the wife, had been a surety for the loan, it is settled that the payment would have been a preference under section 60b. Swartz v. Siegel, 117 F. 13, 54 C.C.A 399; Re Lyon, 121 F. 723, 58 C.C.A. 143. Before insolvency the surety, by payment of the debt, gets through subrogation the status of a transferee, and that status protects him from loss. After insolvency, while he is, of course, still subrogated, his subrogation will not protect him. He must pay without recourse, and he loses to the extent of the insolvency. A payment to the creditor discharges him therefore, precisely as though made directly to him. Hence it was inevitable that such a payment should be held a preference, whether made to the innocent creditor or to the surety; the effect was identical, whichever course was chosen.

If we now substitute a pledger of property upon the debt of another in the place of a surety, precisely the same situation arises. The pledgor will be entitled to exoneration against the principal. Robinson v. Gee, 1 Vesey, Sr., 251. If the pledge be sold, he is entitled through subrogation to the status of the principal, and upon insolvency he is certain to suffer a loss, measured by the extent of the insolvency. To the extent of the pledge he is the creditor as much as though he...

To continue reading

Request your trial
12 cases
  • In re Plaza Hotel Corp.
    • United States
    • U.S. Bankruptcy Court — Eastern District of California
    • March 21, 1990
    ...to a review of whether there is a conflict of interest. 21 4 L. King, Collier on Bankruptcy ¶ 547.04 (1989). Cf. Smith v. Tostevin, 247 F. 102 (2d Cir.1917) (L. Hand, J.). Although it is settled that the guarantor is liable as a transferee of a preference, there is a raging dispute about wh......
  • Krudy v. Simpson (In re Simpson)
    • United States
    • U.S. Bankruptcy Court — Southern District of Indiana
    • July 2, 2012
    ...be recognizable to bankruptcy courts that routinely hear preference cases pursuant to 11 U.S.C. § 547,3see, e.g., Smith v. Tostevin, 247 F. 102, 103 (2d Cir.1917) (Hand., J.) (ruling that a “payment to the creditor discharges [the surety] ... precisely as though made directly” to the surety......
  • McCain Foods USA, Inc. v. Central Processors, Inc.
    • United States
    • Kansas Supreme Court
    • December 20, 2002
    ...made on the principal obligation as an indirect benefit to a guarantor, the basic issue was addressed years ago in Smith v. Tostevin, 247 F. 102 (2d Cir. 1917). An individual debtor paid his bank loan 1 week prior to the filing of his bankruptcy petition. The bank then released certain stoc......
  • Stamp v. Insurance Co. of North America
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • July 23, 1990
    ...225 U.S. 178, 184, 32 S.Ct. 633, 635, 56 L.Ed. 1042 (1912); Huntington v. Baskerville, 192 F. 813 (8th Cir.1911); Smith v. Tostevin, 247 F. 102 (2d Cir.1917) (L. Hand, J.). See also Ingersoll Rand, 874 F.2d at 1190, 1194-96 (1978 Code). Sureties, indorsers, and other persons conditionally l......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT