McKenzie v. Irving Trust Co.
| Decision Date | 13 April 1944 |
| Citation | 292 N.Y. 347,55 N.E.2d 192 |
| Parties | McKENZIE v. IRVING TRUST CO. |
| Court | New York Court of Appeals Court of Appeals |
OPINION TEXT STARTS HERE
Appeal from Supreme Court, Appellate Division, First Department.
Action by Albert E. McKenzie, as trustee in bankruptcy of Graves-Quinn Corporation, gainst Irving Trust Company, wherein the first cause of action sought recovery of a payment made by the corporation to the trust company on ground that the payment was preferential. From a judgment entered upon an order of the Appellate Division of the Supreme Court in the First Judicial Department, 266 App.Div. 599, 42 N.Y.S.2d 551, which reversed on questions of law an order of a Special Term of the Supreme Court, New York County, Collins, J., denying a motion by defendant for a dismissal of the first cause of action set forth in the complaint, and which granted the motion, the plaintiff appeals. Following the making of the order of reversal by the Appellate Division, an order was made by Special Term, O'Brien, J., on written stipulation, directing, among other things, a severance of the action so that each of the two causes of action might proceed as a separate action and terminate in a separate judgment.
Affirmed.
David Morgulas, of New York City, for appellant.
William A. Onderdonk and Paul E. Mead, both of New York City, for respondent.
On March 28, 1941, a petition in bankruptcy was filed against Graves-Quinn Corporation and thereafter the corporation was duly adjudicated a bankrupt. On November 28, 1940, the defendant bank had received from the bankrupt its check for $150,000. The check had been mailed from Boston on November 27th. The deposit account of the bankrupt with the defendant bank was at that time overdrawn. It had borrowed large sums of money from the bank and had executed and delivered to the bank three promissory notes aggregating the sum of $150,000. On November 27, 1940, the bankrupt received a check for $155,865.50 from the United States Government in payment of construction work which the bankrupt was performing under a contract with the War Department. On the same evening the bankrupt mailed that check to the bank for deposit in the bankrupt's account, and also mailed to the bank a second check in the sum of $150,000 drawn on its deposit account to the order of the bank. The bank received the checks on November 28th and used the bankrupt's check for $150,000 to pay and discharge the three promissory notes of the bankrupt, executed by the bankrupt when it borrowed that amount from the bank. After the adjudication in bankruptcy the trustee brought an action for the restitution of the moneys of the bankrupt which the bank had applied on November 28, 1940, to the payment of that indebtedness.
The first cause of action in the complaint alleges that such transfer of its moneys by the bankrupt in payment of an antecedent indebtedness operated as a preference which is unlawful under the provisions of the Bankruptcy Act, U.S.Code, tit. 11, 11 U.S.C.A. The second cause of action alleges that the transfer was void because in violation of section 15 of the Stock Corporation Law of the State of New York, Consol.Laws, c. 59. In its answer the defendant, in addition to denials of material allegations of the complaint, pleaded certain affirmative defenses to each cause of action and then moved pursuant to rule 113 of the Rules of Civil Practice for summary judgment dismissing the first cause of action on the ground that ‘the defenses thereto are sufficient as matter of law and founded upon facts established by documentary evidence or official record’. The Appellate Division unanimously reversed an order of Special Term denying the motion and granted the motion to dismiss the first cause of action alleged in the complaint. An order of severance and a judgment dismissing the first cause of action was entered. Upon this appeal we are concerned only with that cause of action.
The alleged unlawful transfer on November 28th was made, it is said, exactly four months prior to the date of the petition in bankruptcy. Payment of an antecedent debt by a transfer of moneys, at that time belonging to the bankrupt, upon which the creditor had no lien and in which it had no special property would, it is plain, constitute an unlawful preference which could be set aside upon the suit of the trustee if the creditor at that time knew that the debtor was insolvent. That would not be true, however,if the payment of the antecedent debt was made from property of the debtor which had been transferred to the creditor at any time prior to November 28th, and the defendant has pleaded in its affirmative defenses and, upon the motion for summary judgment has established, facts which, it is contended, show a prior assignment by the debtor of the moneys which might thereafter be paid by the government for work performed under the construction contract of the defendant and which show, also, that on and after November 27th, if not before, the ‘defendant had a lien and right of offset against the deposit balance of Graves-Quinn Corporation to the amount of $150,000.’ The Bankruptcy Act, which in section 60, 11 U.S.C.A. s 96, provides that a preferential transfer of property by an insolvent debtor in payment of an antecedent debt shall be void, if made within four months of the filing of a petition in bankruptcy, by an amendment adopted in 1938 also formulates in section 60, sub. a, the test which must be applied in determining the date when a transfer is complete. ‘A transfer shall be deemed to have been made at the time when it became so far perfected that no bona-fide purchaser from the debtor and no creditor could thereafter have acquired any rights in the property so transferred superior to the rights of the transferee therein, and, if such transfer is not so perfected prior to the filing of the petition in bankruptcy * * * it shall be deemed to have been made immediately before bankruptcy.’ We apply that test here. The problem presented upon this appeal is whether a transfer so perfected that it can withstand that test was made on or before November 27th.
The facts which may be relevant to that problem are not disputed. In September, 1940, Graves-Quinn Corporation, the bankrupt, entered into a contract with the War Department for the construction of military housing at several places in New England, for a stipulated consideration of approximately $1,000,000. In accordance with the terms of the contract, Standard Accident Insurance Company executed and delivered bonds for the performance of its contract by the bankrupt and for the payment by the bankrupt for labor and materials furnished to it. The bankrupt, in October and November, 1940, became indebted to the defendant for moneys which it borrowed from the defendant and for overdrafts made by the bankrupt upon its bank account. In accordance with an understanding or agreement it had with the defendant, the bankrupt from time to time applied upon this indebtedness moneys which were paid to the bankrupt by the government. On November 22, 1940, the bankrupt upon the demand of the defendant, delivered to it an assignment of ‘any and all sums of money now due or to become due’ under its contract with the War Department.
In September, 1940, when the contract was made, assignments of moneys due or to become due from the United States under contracts with the government, were expressly prohibited by statute: ‘All transfers and assignments made of any claim upon the United States * * * and all powers of attorney, orders, or other authorities for receiving payment of any such claim * * * shall be absolutely null and void, unless they are freely made * * * after the allowance of such a claim, the ascertainment of the amount due, and the issuing of a warrant for the payment thereof. * * *’ United States Code, title 31, Money and Finance, section 203, 31 U.S.C.A. s 203, Revised Statutes, s 3477. The assignment delivered by the bankrupt on November 22, 1940, would undoubtedly have been ‘absolutely null and void’ if the statute had not been amended on October 9, 1940, for the express purpose of authorizing, subject to conditions therein specified, the assignment of claims against the United States arising even under contracts theretofore made with the government. Public Law No. 811 of the 76th Congress, 54 Stat. 1029. The statute as amended provides that:
‘The provisions of the preceding paragraph shall not apply in any case in which the moneys due or to become due from the United States or from any agency or department thereof, under a contract providing for payments aggregating $1,000 or more, are assigned to a bank, trust company, or other financing institution, including any Federal lending agency: Provided,
‘1. That in the case of any contract entered into prior to the date of approval of the Assignment of Claims Act of 1940, no claim shall be assigned without the consent of the head of the department or agency concerned;
‘(c) the surety or sureties upon the bond or bonds, if any, in connection with such contract, and
‘(d) the disbursing officer, if any, designated in such contract to make payment.
‘Notwithstanding any law to the contrary governing the validity of assignments, any assignment pursuant to the Assignment of Claims Act of 1940 shall constitute a valid assignment for all purposes.’
The defendant bank did not request or receive the ‘consent of the head of the department or agency concerned’ to the assignment executed on November 22nd until...
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