Grubb v. General Contract Purchase Corporation

• Decision Date: 10 January 1938
• Docket Number: No. 140.,140.
• Citation: 94 F.2d 70
• Parties: GRUBB v. GENERAL CONTRACT PURCHASE CORPORATION.
• Court: U.S. Court of Appeals — Second Circuit

94 F.2d 70 (1938)

GRUBB v. GENERAL CONTRACT PURCHASE CORPORATION.

No. 140.

Circuit Court of Appeals, Second Circuit.

January 10, 1938.

Sydney Krause, of New York City, for appellant.

Harold H. Kissam, of New York City (Lloyd F. Thanhouser, of New York City, of counsel), for appellee.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

L. HAND, Circuit Judge.

This is an appeal from a judgment dismissing a complaint at law brought by the trustee in bankruptcy of Wm. P. Smith Co., Inc. to recover three payments made by that company in violation of section 60b of the Bankruptcy Act, as amended, 11 U.S.C.A. § 96(b). The case was tried to a judge upon stipulation made in open court; he made findings of the facts and conclusions of law and dismissed the complaint. The facts are as follows. The bankrupt was indebted to the defendant under a note for $25,000, which, since the understanding had been that it should be outstanding for only a short time, the defendant was pressing it to take up. To that end Smith, who was in absolute control of the bankrupt, arranged with the Manufacturers Trust Co. to take over the loan upon the understanding that he would discharge it in a few days, which he hoped to do by a renewed loan from the defendant. On the 14th of May, 1935, Smith signed a note for $25,000 in the bankrupt's name, which the trust company discounted, placing the proceeds to the bankrupt's credit. He at once drew a cheque to the trust company's order for the same amount, and was to receive in its place a cashier's cheque to the order of the defendant, which was simultaneously to surrender its own note for cancellation and deliver to the trust company the collateral by which that note was secured. However, as the parties had reached the trust company's office after the vault had been closed for the night, it was too late to issue a cashier's cheque till the next morning; but at that time Richardson and Quigley for the defendant attended once more at the office, received the cashier's cheque and delivered their collateral to the trust company's officer. Smith took up and cancelled the defendant's note and the transaction was closed. This was the first of the three payments challenged.

The second and third were connected with each other. Smith had passed to the defendant cheques aggregating about $14,000 drawn on the bankrupt's account in its bank in Amenia, which had either been dishonored, or were known not to be good. He twice assured Richardson that he would have enough money to pay these on the next day, but both times he failed to get it. On the morning of the 18th he once more said that he had made arrangements to secure $12,500, and this time he succeeded in the following way. On that day the Dover Plains National Bank lent him $6,000 upon a note of the bankrupt, endorsed by him and his father, and secured by collateral of both. In order to get this Smith had told Reynolds of the bank that he was "in a jam" with the defendant and that he must pay $12,500 at once, of which one, Cline, of Wassaic had agreed to lend $6,500. Reynolds called up the Amenia bank to verify what Smith had said, and finding it to be true, agreed to lend the money "to tide him over the emergency." The proceeds of the loan were credited to the bankrupt, and against them Smith at once drew a cheque, payable to the defendant, which the bank certified and Smith took away. He met Richardson, showed him the cheque, and both went to Smith's bank in Amenia to get Cline's $6,500. Smith had told Cline that he would use this money to buy some new trucks in Buffalo, but Hoose, the cashier of the Amenia bank, knowing that it was to go to the defendant, induced Smith to tell the truth, though it appeared to make little difference to Cline. Cline borrowed $6,500 from the bank on his own note, secured by collateral, the proceeds being placed to his credit; he drew his own check against these, payable to the bank, in exchange for which the bank issued a cashier's cheque for $6,500 on a New York bank, payable to the defendant. This cheque, together with the certified cheque on the Dover Plains Bank, were then handed to Richardson who had been standing by.

The court found, and for the purposes of this case we shall assume, that on the 15th and 18th of May the bankrupt was insolvent, and that the defendant was charged with notice that it was. As the bankruptcy was in June, the plaintiff asserts that the case is no more than the usual one of preferences under section 60b. The defendant answers that in none of the three cases was the money ever within the bankrupt's control or a part of its assets, and that the transactions were therefore no more than the substitution of one creditor for another without loss to the...