Levy v. Weinberg & Holman
| Decision Date | 05 July 1927 |
| Docket Number | No. 272.,272. |
| Citation | 20 F.2d 565 |
| Parties | LEVY v. WEINBERG & HOLMAN, Inc. |
| Court | U.S. Court of Appeals — Second Circuit |
Rosenthal & Heermance, of New York City (S. Michael Ress, of New York City, of counsel), for appellant.
David W. Kahn, of New York City, for appellee.
Before MANTON, L. HAND, and SWAN, Circuit Judges.
SWAN, Circuit Judge (after stating the facts as above).
To establish the insolvency of the bankrupt the complainant introduced testimony of an accountant, who examined the books of the bankrupt and submitted summaries thereof, which showed insolvency at the date of the petition to the extent of $61,000, and on September 27, 1923, to the extent of $26,000. Although liabilities to merchandise creditors totaled $93,000, the merchandise and fixtures taken over by the receiver were valued at less than $1,000, and were actually sold for about $500. We entertain no doubt that the bankrupt was insolvent on September 27, 1923, and at all subsequent dates in question.
The only real question in the case is whether the defendant had reasonable cause to believe that a preference would be effected when it received from time to time the transfer of collateral, with the understanding that the value realized above the sum then advanced should stand as security for the merchandise account. It was upon the ground that the proof was insufficient in this respect that the bill of complaint was dismissed.
As is usual in such litigation, there was no direct evidence that Weinberg, who acted for the defendant in all the loans, had any knowledge of the bankrupt's financial condition. He denied that, when any of the loans were made, he asked any questions. He could not remember any conversations with the borrower regarding the loans. His answers to questions at the examination in the bankruptcy proceedings in December, 1923, scarcely a month after the final loan, show an evasiveness and a lack of memory not consistent with an honest attempt to explain bona fide transactions. The transparent falsity of his attempt to change his testimony before the referee in bankruptcy, by substituting the word "coats" for "notes," with reference to collateral received for two of the loans, proves him a witness entirely unworthy of belief in respect to any matter in which a truthful answer might be detrimental to him.
If, when Weinberg learned that drafts received from the bankrupt had been refused acceptance by their drawees, he had gotten collateral from the bankrupt to replace them, it would have been impossible to infer that he knew of the bankrupt's insolvency. To have required the substitution of new collateral for the rejected drafts would have been reasonable conduct, and would have aroused no suspicion. The thing which does arouse suspicion is that the subsequent dealings were not of that simple kind, but were so complete a departure from the former course of dealing, and so covered with and involved in other transactions, that one naturally looks for an explanation. People do not do indirectly what they can do directly, unless they have a motive for the indirection. Weinberg was a dealer in furs, not a money lender, and he has suggested no reason why he should have accommodated the bankrupt to the extent of $18,590 in loans, while selling him no additional goods and while the previous merchandise debt remained unpaid. Within 50 days 10 loans of the aggregate amount above stated were made, and security was taken on which the defendant realized $32,518.82. The actual value of the collateral was supposed by the parties to be considerably greater. The skins were invoiced at much more than they realized, and Weinberg admitted that the Huth equity was thought to be worth nearly $20,000, though it realized only $7,500. It is apparent that Weinberg took far more security than he needed to cover the advances, and that the purpose was to get security upon the preexisting indebtedness. No other hypothesis will explain such an excess of benevolence theretofore unknown in the relations of the parties. By this means the defendant has reduced the bankrupt's merchandise debt to it to "around $2,000."
Had the bankrupt been endeavoring to raise money for his business, instead...
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