Grandison v. Robertson

• Decision Date: 15 February 1916
• Docket Number: 127.
• Citation: 231 F. 785
• Parties: GRANDISON v. ROBERTSON et al.
• Court: U.S. Court of Appeals — Second Circuit

231 F. 785

GRANDISON v. ROBERTSON et al.

No. 127.

United States Court of Appeals, Second Circuit.

February 15, 1916

[Copyrighted Material Omitted]

Dirnberger & Augspurger, of Buffalo, N.Y. (M. F. Dirnberger, Jr., and George A. Orr, both of Buffalo, N.Y., of counsel), for appellants.

Thomas C. Burke, of Buffalo, N.Y. (Thomas C. Burke, Frank Gibbons and Henry W. Pottle, all of Buffalo, N.Y., of counsel), for appellee.

Before LACOMBE, COXE, and ROGERS, Circuit Judges.

ROGERS Circuit Judge.

This suit was commenced by the trustee in bankruptcy against the defendants to recover certain payments claimed to have been made preferentially by the bankrupt within four months before the filing of the petition in bankruptcy. The District Court has found that certain payments were preferential and has entered a decree directing defendants to pay over to complainants the sum of $8,576.73.

The defendants are members of the firm of Frederick Robertson &amp Co. They are private bankers at North Tonawanda, N.Y. The O. L. Gregory Vinegar Company is a corporation organized under the laws of the state of New York, and was engaged in the business of manufacturing cider and vinegar in North Tonawanda in this state. It will be hereinafter referred to as the company.

On February 15, 1910, an involuntary petition in bankruptcy was filed against it, and on March 4, 1910, it was duly adjudicated a bankrupt. On March 28, 1910, the complainant was appointed trustee of the estate of the bankrupt. The trustee alleges in his bill that the company was insolvent at all of the times between October 15, 1909, and the time of the filing of the petition in bankruptcy. On October 15, 1909, it was indebted to defendants on two promissory notes of $5,000 each. One of these notes was made by the company. The other was made by the Albion Fruit Produce Company and was indorsed by the company. On November 1, 1909, the company renewed the note which it had made and gave a new note for $5,000, indorsed by O. L. Gregory and O. L. Alexander. This note was payable on demand, but no demand has ever been made. There was paid, on the note last given, $508.53 on November 20, 1909; $1,000 on December 1, 1909; $1,000 on December 9, 1909; and $2,534.47 on January 18, 1910. In addition, certain other payments were made which are hereinafter stated.

It may be said that O. L. Alexander, the indorser of the note for $5,000 above mentioned, was at the time of his indorsement the president and treasurer of the company which gave the note, and that he continued as president and treasurer down to the time this suit was brought. He was elected president on October 12, 1909, and at that meeting of the board of directors a resolution was adopted which recited that as defendants herein and the Rochester bank had refused to grant to the company further credit unless its notes were indorsed by an additional indorser, and that as Mr. Alexander was willing to indorse the renewal notes 'provided certain security, as hereinafter stated, is given to him:' 'Now, therefore, be it resolved, that this company assign to the said O. L. Alexander, as collateral security for the indorsements, as above stated, accounts receivable of this company and the proceeds thereof aggregating an amount not exceeding twenty thousand dollars ($20,000).'

After the adoption of that resolution, and, as we have seen, on November 1, 1909, Mr. Alexander indorsed the note for $5,000. The assignment of accounts was not made at the time the resolution was adopted, nor at the time the note was indorsed. But thereafter, and as the products of the company were sold, the accounts were assigned to him, and as the accounts were realized upon the proceeds were deposited in bank to the credit of the O. L. Alexander Collateral Account, and thereafter were applied by him on the note due to the defendants, and which are now claimed by the trustee as preferential payments.

At common law, and except as forbidden by statute, an insolvent debtor had the right to prefer one creditor over others. If a payment was made in good faith and in satisfaction of a real debt, the fact that it operated to prevent other creditors from collecting their debt was not regarded by the common law as making it a voidable payment. Whatever right the trustee in bankruptcy, therefore, has to recover in this suit any payments made to these defendants by this bankrupt company, he must derive from some provision in the Bankruptcy Act.

The Bankruptcy Act of 1898, as amended in 1903, provides in section 60a as follows:

'A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and before the adjudication * * * made a transfer of any of his property, and the effect of the enforcement of such * * * transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.'

And the act, as amended in 1910, provides in section 60b as follows:

'If a bankrupt * * * shall have made a transfer of any of his property, and if, at the time of the transfer, * * * and being within four months before the filing of the petition in bankruptcy or after the filing * * * and before the adjudication, the bankrupt be insolvent and the * * * transfer then operates as a preference, and the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such * * * transfer would effect a preference, it shall be voidable by the trustee and he may recover the property or its value from such person.' 36 Statutes at Large, 842.

And the act, also as amended in 1903, provides in section 67e as follows:

'That all conveyances, transfers, assignments or incumbrances of his property, or any part thereof, made or given by a person adjudged a bankrupt under the provisions of this act subsequent to the passage of this act and within four months prior to the filing of the petition, with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in good faith and for a present fair consideration; and all property of the debtor conveyed, transferred, assigned or encumbered as aforesaid shall, if he be adjudged a bankrupt, and the same is not exempt from execution and liability for debts by the law of his domicile, be and remain a part of the assets and estate of the bankrupt and shall pass to his said trustee, whose duty it shall be to recover and reclaim the same by legal proceedings or otherwise for the benefit of the creditors. And all conveyances, transfers, or encumbrances of his property made by a debtor at any time within four months prior to the filing of the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the state, territory, or district in which such property is situate, shall be deemed null and void under this act against the creditors of such debtor if he be adjudged a bankrupt, and such property shall pass to the assignee and be by him reclaimed and recovered for the benefit of the creditors of the bankrupt. For the purpose of such recovery any court of bankruptcy as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction.' 30 Statutes at Large, 564; 32 Statutes at Large, 800.

But the trustee in his bill claims that payments made to the defendants were also made in violation of the Stock Corporation Law of the state of New York, and that he is, therefore, entitled by virtue of the provisions in Bankruptcy Act, Sec. 67e, to recover any payments which are made preferential and void under the New York act. The Stock Corporation Law (Consolidated Laws N.Y. 1909, vol. 5, p. 5782) provides in section 66, among other things, that:

'No conveyance, assignment or transfer of any property of any such corporation (one that has refused to pay any of its notes or other obligations, when due, in lawful money) by it or any officer, director or stockholder thereof, nor any payment made, judgment suffered, lien created or security given by it or by any officer, director or stockholder when the corporation is insolvent or its insolvency is imminent, with the intent of giving a preference to any particular creditor over other creditors of the corporation, shall be valid, except that laborers' wages for services shall be preferred claims and be entitled to payment before any other creditors out of the corporation assets in excess of valid prior liens of incumbrances. * * * Every person receiving by means of any such prohibited act or deed any property of the corporation shall be bound to account therefor to its creditors or stockholders or other trustees. * * * Every transfer or assignment or other act done in violation of the foregoing provisions of this section shall be void.'

The above act also provides that every director or officer of a corporation, who shall violate or be concerned in violating any provision of the section referred to, shall be personally liable to the creditors and stockholders of the corporation of which he shall be a director or an officer to the full extent of any loss they may respectively sustain by such violation. With this last provision we are not, however, now concerned. The act also prohibits the defaulting corporation from transferring any of its property 'to any of its officers, directors or stockholders, directly or indirectly for the payment of any debt, or upon any other consideration than...