Grant v. National Bank of Auburn

• Decision Date: 11 July 1912
• Citation: 197 F. 581
• Parties: GRANT v. NATIONAL BANK OF AUBURN.
• Court: U.S. District Court — Northern District of New York

197 F. 581

GRANT v. NATIONAL BANK OF AUBURN.

United States District Court, N.D. New York.

July 11, 1912

[Copyrighted Material Omitted]

G Earle Treat, of Auburn, N.Y., for plaintiff.

Chas I. Avery, of Auburn, N.Y., for defendant.

RAY District Judge.

This action was commenced by the service of a summons and complaint; the summons being in the usual form for commencing actions at law.

The complaint addressed to the District Judge says:

'J. Lewis Grant, as trustee in bankruptcy of Cayuga Construction Company of Auburn, Cayuga County, N.Y., brings his bill against the National Bank of Auburn,' etc., and 'thereupon your orator complains and says.'

Then follows the following allegations, viz.:

(1) The filing of the petition in involuntary bankruptcy May 19, 1911, and the adjudication June 6, 1911.

(2) The reference of the case to Wm. S. Elder, referee in bankruptcy, and the appointment of the plaintiff as trustee on the 19th day of July, 1911, and his qualification on that day.

(3) That April 13, 1911, the said Cayuga Construction Company, the bankrupt, confessed judgment in the Supreme Court of the state of New York in favor of the National Bank of Auburn, the defendant here, on three promissory notes in the sum of $4,756.86 damages, and that such judgment was docketed in Cayuga company clerk's office April 19, 1911, when judgment was entered on such confession in the sum of $4,772.11 damages and costs.

(4) That on the same day execution in the usual form was issued on such judgment and placed in the hands of the sheriff of said county of Cayuga where the said Cayuga Construction Company had its principal office and place of business.

(5) That on said 19th day of April, 1911, there was already in the hands of said sheriff two other executions, one in favor of the Auburn Light, Heat & Power Company, for $58.39 issued on a judgment obtained April 14, 1911, and the other in favor of the Wood Glass Company for $169.44 obtained the same day, both against the said Cayuga Construction Company.

(6) That defendant knew of such prior judgments and executions when it so entered its judgment.

(7) That the sheriff levied on all the personal property of said Cayuga Construction Company pursuant to said three executions and April 28, 1911, sold same (not including book accounts) in bulk to the National Bank of Auburn, this defendant, for the sum of $3,500, and on or about May 8, 1911, returned the two prior executions satisfied and the execution in favor of the National Bank of Auburn satisfied as to the sum of $3,196.51 and nulla bona as to the balance.

(8) That the property of the said Cayuga Construction Company so levied on, seized, and sold to the defendant, National Bank of Auburn, was reasonably worth the sum of $12,668.06 and consisted of lumber not in view at the time of the sale, machinery, and tools, and all of the stock in trade and personal property belonging to and in use by said Cayuga Construction Company in its business, and that such property was taken by this defendant, the National Bank of Auburn, and applied upon said debt of $4,772.11 at the sum of $3,196.51, and that all the money bid by the said defendant, except sufficient to pay said prior judgments, was returned to the defendant, said National Bank of Auburn, and that said defendant took the property as alleged.

(9) That the said confession of judgment and all the subsequent proceedings stated were in fraud of the Bankruptcy Act and in fraud of the other creditors of said Cayuga Construction Company. That the notes on which said confession of judgment was based and founded were all then past due, and that the bankrupt was then insolvent, and 'said defendant, the National Bank of Auburn, had reasonable cause to believe that said Cayuga Construction Company at said time was insolvent and in contemplation of bankruptcy,' that the existence and enforcement of said judgment would work a preference, that said confession of judgment was given by said bankrupt without present or future consideration, and that said bankrupt and said bank by said judgment and such subsequent proceedings intended to give a preference to said the National Bank of Auburn, and to enable the said bank to obtain a greater percentage of its said debt than other creditors of said construction company of the same class. Also, that said judgment was given and said subsequent proceedings thereon had for the purpose and with the intent on the part of both said parties of hindering, delaying, and defrauding the other creditors of the said bankrupt, and that same and such proceedings did hinder, delay, and defraud the other creditors of said bankrupt. Also, that such judgment was confessed and entered and such proceedings had within the four months preceding the filing of such petition in bankruptcy. Also, that the unsecured debts of said bankrupt were $22,000, or thereabouts, and that there was no other property of said Cayuga Construction Company except an equity in certain real estate worth not to exceed $3,000 and some book accounts of little or no value. Also:

'Your orator further says, upon information and belief: That the said Cayuga Construction Company procured and suffered the said judgment in favor of the defendant herein to be given and entered against it within four months before the filing of the said petition in bankruptcy. That at the time said judgment was confessed and entered said Cayuga Construction Company was insolvent, and said judgment did then operate as a preference, and the effect of the enforcement thereof will be to enable the defendant herein, the National Bank of Auburn, to obtain a greater percentage of its said debt than other creditors of the same class. That defendant herein, the National Bank of Auburn, at the time said judgment was confessed and entered in the Cayuga county clerk's office, had reasonable cause to believe that it was thereby intended to give a preference and that said judgment and the enforcement thereof would effect a preference within the meaning of the said bankruptcy acts. That prior to the commencement of this action, to wit, on July 26, 1911, your orator demanded of defendant herein that it surrender and restore to him as such trustee all the property purchased and attempted to have been purchased by defendant at said execution sale, all of which defendant neglected and refused to do and converted it to its own use, all to your orator's damage of $12,668.06. That prior to the commencement of this action, an order was duly made by William S. Elder, Esq., referee in bankruptcy for the Cayuga county district of this court, authorizing and directing your orator as such trustee to institute and maintain this action.'

The said complaint demands judgment as follows:

'Wherefore, your orator, J. Lewis Grant, as trustee in bankruptcy of Cayuga Construction Company, demands judgment against the defendant herein, the National Bank of Auburn, in the sum of $12,668.06, with interest thereon since April 28, 1911, besides the costs of this action.'

The grounds of demurrer are as follows:

'First. That there is a defect of parties defendant in that the sheriff of the county of Cayuga, state of New York, is not made a party defendant.

'Second. That there is a defect of parties defendant in that the Auburn Light, Heat & Power Company and the Wood Glass Company are not made parties defendant.

'Third. That causes of action have been improperly united in that the complaint sets out a cause of action brought to recover the avails of the sale of certain property and also a cause of action brought to recover the said property or its value.

'Fourth. That the complaint does not state facts sufficient to constitute a cause of action.' The defendant appeared generally and filed its demurrer.

The parties stipulate that the argument of the demurrer before the court shall not be construed as a consent to the jurisdiction of the court.

The defendant contends, quoting from the brief of its counsel

'This is not a suit brought for the recovery of property. This is an action brought to recover damages for an alleged conversion of personal property. It is based on tort.'

The defendant also says:

'The complaint is defective in the following particulars: (1) The complaint does not allege any title or right of possession in the plaintiff. (2) It appears on the face of the complaint that the plaintiff did not have title or right of possession. (3) It appears on the face of the complaint that the defendant did have title and right of possession.'

This action was commenced October 10, 1911. The transactions complained of occurred on and after April 13, 1911.

By subdivision 25 of section 1 of the act entitled 'An act to establish a uniform system of bankruptcy throughout the United States,' approved July 1, 1898, as amended to and including the year 1910:

'Transfer shall include the sale and every other and different mode of disposing of or parting with property, or the possession of property, absolutely or conditionally, as a payment, pledge, mortgage, gift or security.'

A party may therefore transfer his property to another by voluntarily confessing judgment to that other and allowing him to issue execution, have a levy made on such property and a sale made at which the other becomes the purchaser of such property through which sale the proceeds of such property are transferred to such other person.

It is evident from the allegations of this complaint, and stands out clearly (assuming same to be true for the purposes of this demurrer which admits all facts pleaded, but not conclusions), that the National Bank of Auburn on April 13 1911, held past-due notes of the Cayuga Construction Company, and that on said day said...