323 U.S. 365 (1945), 188, McKenzie v. Irving Trust Co.

Docket Nº:No. 188
Citation:323 U.S. 365, 65 S.Ct. 405, 89 L.Ed. 305
Party Name:McKenzie v. Irving Trust Co.
Case Date:January 08, 1945
Court:United States Supreme Court

Page 365

323 U.S. 365 (1945)

65 S.Ct. 405, 89 L.Ed. 305

McKenzie

v.

Irving Trust Co.

No. 188

United States Supreme Court

Jan. 8, 1945

Argued December 14, 1944

CERTIORARI TO THE COURT OF APPEALS OF NEW YORK

Syllabus

1. The purpose of the Assignment of Claims Act of October 9, 1940, 54 Stat. 1029, is the protection of the Government, and not the regulation of equities of claimants as between themselves. P. 369.

2. For the purpose of determining whether a transfer is a preference under § 60a of the Bankruptcy Act, that section provides that the transfer shall be deemed to have been made

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.

Since, in the absence of any controlling federal statute, a creditor or bona fide purchaser could acquire rights in the property transferred by the debtor only by virtue of state law, § 60a thus adopts state law as the rule of decision for determining the effectiveness of a transfer and the time when a transfer is deemed to have been made or perfected. P. 370.

3. In determining in this case that the transfer of a check was completed not later than when the debtor endorsed and mailed the check to its assignee -- rather than when the assignee received the check and credited the proceeds upon an antecedent debt -- the state court applied the proper test under § 60a, and its conclusion that, under state law, the transfer was perfected more than four months before bankruptcy is accepted. Hence, the transfer was not a preference within the meaning of § 60a. P. 371.

4. In this proceeding by the trustee to set aside an alleged preference, the court cannot adjudicate upon the present record the claim of a surety whose claim, if it has one, is adverse and superior to that of the trustee in bankruptcy and the other creditors, and who is not a party to the suit. P. 372.

5. Under the federal rule, a subsequent assignee is entitled to retain assigned moneys which it receives without notice of a prior assignment. Martin v. National Surety Co., 300 U.S. 588, distinguished. P. 373.

292 N.Y. 347, 55 N.E.2d 192, affirmed.

Page 366

Certiorari, post, p. 687, to review the affirmance of a judgment which dismissed a cause of action in a complaint by the trustee in bankruptcy seeking to set aside an alleged preference.

STONE, J., lead opinion

MR. CHIEF JUSTICE STONE delivered the opinion of the Court.

Petitioner, trustee in bankruptcy of Graves-Quinn Corporation, the debtor, brought this suit in the Supreme Court of New York to recover the sum of $150,000 paid by the debtor to respondent, its creditor. The payment was alleged to be an unlawful preference under § 60a of the Bankruptcy Act, 11 U.S.C. § 96. Respondent moved for summary judgment under Rule 113 of the New York Rules of Civil Practice on the ground that the transfer did not occur within four months of bankruptcy, and hence was not a preference under § 60a. The Supreme Court of New York denied the motion, but the Appellate Division of the Supreme Court reversed, dismissing the complaint. 266 A.D. 599, 42 N.Y.S.2d 551. The New York Court of Appeals affirmed, 292 N.Y. 347, 55 N.E.2d 192, holding that the transfer was not made within four months of bankruptcy.

We granted certiorari, 323 U.S. 687, on a petition raising questions important to the administration of the Bankruptcy Act, only one of which we find it necessary to decide. That question is whether a check, made payable to the bankrupt and endorsed and mailed by it to respondent more than four months before bankruptcy, but received by respondent and credited upon the bankrupt's antecedent debt within the four months, is, by the applicable law, a

Page 367

transfer within the four-months period within the meaning of § 60a.

In September, 1940, the Graves-Quinn Corporation, later adjudicated a bankrupt, entered into a contract with the United States, acting through the War Department, for the construction of military housing. The required payment and performance bond was given by a surety to the Government, and at the same time, October 2, 1940, the surety took from the debtor as security an assignment of all sums payable on the contract.

Beginning in October, 1940, respondent, a trust company, made loans from time to time to the debtor to finance its operations under the government contract. It was agreed that the loans were to be repaid from the money to be received under the contract. On November 20, 1940, the debtor executed, and, on November 22, delivered to respondent, a written assignment of these moneys to become due. The assignment was made without at that time giving the notices and procuring the consent of the Secretary of War, which, by the Assignment of Claims Act of October 9, 1940, 54 Stat. 1029, amending R.S. § 3477, 31 U.S.C. § 203, were required in order to give validity to the assignment.1

Page 368

[65 S.Ct. 407] On November 27, 1940, after the assignment, the Government delivered to the debtor its check for $155,865.50 as a progress payment then due upon the contract. The debtor on that date endorsed the check and mailed it to respondent, accompanied by its own check for the sum of $150,000, made payable to respondent and drawn upon the debtor's account with respondent. On November 28th, which was exactly four months before the petition in bankruptcy was filed on March 28, 1941, respondent received the checks and credited $150,000 of the proceeds of the Government check on four promissory notes of the debtor, aggregating $150,000.

On November 27 respondent sent to the Secretary of War its assignment of the sums due and to become due on the contract, and, on December 2, gave the other notices required by the statute regulating assignments of claims against the United States. On December 5, the assignment was approved by the Secretary of War, and on that date the conditions of a valid assignment, prescribed by the statute, had been fully satisfied.

By § 60a of the Bankruptcy Act,

a transfer . . . of any of the property of a debtor to . . . a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition in bankruptcy . . . the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class

is declared to be an unlawful preference. Only a single issue was raised by respondent's motion for summary judgment, whether the debtor's transfer to respondent of $150,000 of...

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