Clarke v. Second Nat. Bank of Springfield

• Decision Date: 01 January 1901
• Citation: 59 N.E. 121,177 Mass. 257
• Parties: CLARKE et al. v. SECOND NAT. BANK.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

177 Mass. 257

59 N.E. 121

CLARKE et al. v. SECOND NAT. BANK.

Supreme Judicial Court of Massachusetts, Hampden.

January 1, 1901

The following are the defendant's 3d, 4th, 5th, 6th, 7th 8th, 9th, 13th, 14th, and 15th requests for rulings, referred to in the opinion:

'(3) The fact that payment was made before the debt upon which same was applied matured or became payable is not prima facie evidence that the same was made out of the usual and ordinary course of business.

'(4) The fact that the payment was made before the debt upon which same was applied matured or became payable is not evidence that defendant had reasonable cause to believe that the said Warwick Cycle Company was insolvent or in contemplation of insolvency, or that said Warwick Cycle Company made such payment in fraud of the laws relating to insolvency.

'(5) If the defendant had notes of Warwick Cycle Company indorsed by person or persons of undoubted credit, and received from debtor in part payment thereof said sum of ten thousand dollars, such payment was not an unlawful preference, within the contemplation of the statute.

'(6) There is no sufficient evidence that Russell was acting for or in behalf of the defendant when said payment was made, and his view or intention with reference thereto cannot affect the defendant's rights, or be in evidence that the defendant had reasonable cause to believe that the Warwick Cycle Company was insolvent or in contemplation of insolvency, or that said payment was made in fraud of the laws relating to insolvency.

'(7) There is no evidence that Russell was acting for or in behalf of the defendant in any of the transactions between said defendant and the Warwick Cycle Company, and his knowledge or views with reference thereto or of the condition of the company cannot be imputed to the defendant.

'(8) The mere fact that Russell was a director of the defendant would not charge or impute to the bank his knowledge of the condition of the Warwick Cycle Company, or the view or intent possessed by him at the time said payment was made, or in reference thereto.

'(9) If Russell or Very or both made the payment to defendant with a view to lessen their contingent liability as indorsers, and to prefer themselves and not the defendant, then plaintiff cannot recover.'

'(13) Unless said Warwick Cycle Company made said payment with the intent to prefer said Second National Bank over its other creditors, the plaintiffs cannot recover in this action.

'(14) The proof by said defendant in, and the allowance thereof by, the court of insolvency of said note of thirteen thousand dollars, less said sum of ten thousand dollars paid and credited thereon, and the payment of dividends thereon by said plaintiffs, preclude said plaintiffs from a recovery in this action.

'(15) The proof by said defendant in, and the allowance thereof by, the court of insolvency of said note of thirteen thousand dollars, less said sum of ten thousand dollars paid and credited thereon, and the payment of dividends thereon by said plaintiffs, constitute an affirmance of the validity and legality of said payment of ten thousand dollars, and the plaintiffs cannot recover in this action.'

COUNSEL

J. B. Carroll and W. H. McClintock, for plaintiffs.

Jonathan Barnes and Brooks & Hamilton, for defendant.

OPINION

HOLMES C.J.

This is an action brought by the assignees in insolvency of the Warwick Cycle Manufacturing Company to recover $10,000 paid by the company to the defendant on November 13, 1897, as an unlawful preference. The facts are in controversy, but the following statement is warranted by the evidence:

In November, 1897, the company's assets were not enough to pay its debts. The annual meeting of the company was on the 6th. Before that date, Very, the treasurer, had changed valuations in the statement of assets, and had included worthless accounts, so as to make the company appear solvent at the meeting; but at the meeting Bannigan, a stockholder and a creditor of the company for a large sum, stated that the capital was impaired, and called for a committee to appoint a person to audit the books, and an auditor was appointed. Very knew this, and knew that the company had lost $60,000 in the last business year. He also had been notified in his capacity of the company's representative that Bannigan would not renew notes of the company held by him, one of which, for $50,000, fell due on November 15th, and one, for $25,000, fell due on November 22d. It is, at least, a fair inference that Very knew that the company would not be able to pay its notes. The foregoing facts warrant the further inference that the company knew that it was insolvent.

The president of the defendant bank was present at the meeting, and, it may be inferred, heard what was said at it. He knew, by his own admission, that the debts of the company exceeded its capital. There was also present one Russell, who was the president of the cycle company, and a director of the defendant bank, and who, along with Very, was an indorser of notes of the company held by the bank. On November 12th the bank president's son, who was a director of the cycle company, resigned his office with the knowledge of his father, and it hardly would be a strained inference that he did so fearing the personal liability of directors in the situation in which he found himself, and that his father supposed that to be his motive. He seems to have been on confidential terms with his father, and interested in the bank, in which he became a director soon after.

In this state of things, the representatives of the company and the bank having the knowledge which we have stated, and the auditor having gone to work upon the books, Very and Russell made a large sale, it would seem of pretty much all the wheels which they could scrape together from the company's own place and from distant cities. On the evidence it might be found that the price was low. Before the transaction was completed, checks were received for part of the price, to the amount of $10,000. These checks were not deposited in the usual way, always adopted by the company theretofore, but were transferred to the bank, to be credited on the notes held by it, although none of those notes was due, or would fall due, until after the above-mentioned notes for $50,000 and $25,000 held by Bannigan, and other notes due to him and to others. They were so credited by the defendant's cashier on a note indorsed by Russell and Very, and no rebate of interest ever was allowed for the prepayment. The company never had anticipated payment of its notes before. The company's bookkeeper was not notified of the sale or payment until November 24th, after the auditor had left, and, when the bookkeeper remonstrated, he was told that it was in order that he might be able to say truthfully that he did not know of it. We do not see how the judge who tried the case could have hesitated to find that the company intended a preference.

The company went into insolvency on February 26, 1898, in consequence of a suit and attachment by Bannigan. When demand was made by the assignees for repayment, the president and cashier, respectively, said that they had accepted the payment under advice of counsel. Taking all the facts, it is a mild conclusion to say that the bank had notice of the condition of the cycle company, and that the manifestly necessary result of the large payment made to the bank would be to give it a preference. There is, at least, a plausible argument that a preference actually was intended by all parties concerned in the transaction.

The case was tried by a judge without a jury, and he considered that the allegations of the declaration were proved, and found for the plaintiffs. The finding would have been justified by the evidence properly admitted, if every correct ruling that could have been asked for by the defendant had been given. Under such circumstances, we are not disposed to deal very critically with matters of detail.

We have scrutinized every exception that was taken to the admission of evidence, but we do not think it necessary or advisable now to go over them one by one. A large part of them may be disposed of at once by saying that, in a case like this there are two things to be proved,--on the one hand, the condition and intent of the debtor; on the other, the reasonable cause to believe, etc., on the part of the creditor. The former may be proved by facts of which the creditor had no knowledge, if the creditor's cause to believe can be shown from any other source. Therefore the actual state of the company's assets, Very's knowledge concerning them, and his directions as to the conduct in the management of the cycle company with regard to this matter, whether known to the defendant or not, were admissible to prove the company's insolvency and its intent. The fact that no rebate was allowed for the prepayment, although this did not appear conclusively until the final payment on the note, after the preference, was evidence that there was no intent to allow one at the time of the preference. See Com. v. Rubin, 165 Mass. 453, 455, 456, 43 N.E. 200. So, even more clearly, the direction on ...