Hass v. Sachs

• Decision Date: 28 December 1933
• Docket Number: No. 9714.,9714.
• Parties: HAAS v. SACHS et al.
• Court: U.S. Court of Appeals — Eighth Circuit

68 F.2d 623 (1933)

HAAS v. SACHS et al.

No. 9714.

Circuit Court of Appeals, Eighth Circuit.

December 28, 1933.

Henry M. Armistead, George M. Armistead, and W. H. Rector, all of Little Rock, Ark., for appellant.

J. W. House, C. H. Moses, W. H. Holmes, Eugene R. Warren, and House, Moses & Holmes, all of Little Rock, Ark., for appellees.

Before GARDNER, WOODROUGH, and VAN VALKENBURGH, Circuit Judges.

GARDNER, Circuit Judge.

Jack Fine's Palais Royal Stores, Inc., was adjudged a bankrupt on the 17th of November, 1931. Within four months preceding the filing of the petition in bankruptcy, the bankrupt paid appellant $2,000. In the course of the bankruptcy proceedings, appellant filed his claim for $17,800, alleged to be the balance due him from the bankrupt. To the allowance of this claim the trustee in bankruptcy filed objection, alleging that within four months preceding the filing of the bankruptcy petition, and at a time when the bankrupt was insolvent, appellant had received upon said claim a payment of $2,000 from the bankrupt, the effect of which payment was to give appellant a greater percentage of his claim than other creditors of the same class, and that appellant received such payment "with reasonable cause for belief that such would be the effect thereof, and thereby received a preference," which he had not surrendered. On hearing, the referee sustained the trustee's objection, and ordered that the claim be postponed and not allowed until such time as appellant should surrender the said preference. On petition for review of this order of the referee, the lower court found that "The said claimant received a voidable preference by the payment to him by the bankrupt of the sum of $2,000.00, approximately three weeks prior to bankruptcy, and it is therefore ordered that the said claim be postponed and not allowed until such time as the said claimant surrenders the said preference."

From this order appellant prosecutes this appeal.

The bankrupt, under date July 2, 1931, executed and delivered to the appellant two promissory notes of $10,000 each, payable on October 10, 1931. On November 3, 1931, the bankrupt paid appellant $2,000 on the indebtedness represented by these notes, which the lower court adjudged claimant must surrender as a voidable preference, as a condition to the allowance of the balance of his claim.

The pertinent provisions of the Bankruptcy Act § 60 are as follows:

"(a) 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. * * *

"(b) 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 thereof and before the adjudication, the bankrupt be insolvent and the * * * transfer then operate 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." 11 USCA § 96 (a, b).

In general, it may be said that a voidable preference is established by proof that a person, while insolvent, and within four months of the bankruptcy, made a transfer of property, the effect of which will be to enable one creditor to obtain a greater percentage of his debt than other creditors of the same class, if the person receiving it or to be benefited thereby, has reasonable cause to believe that the enforcement of the transfer will result in a preference. Mayes v. Palmer (C. C. A. 8) 208 F. 97; Mansfield Lumber Co. v. Sternberg (C. C. A. 8) 38 F.(2d) 614; W. S. Peck & Co. v. Whitmer (C. C. A. 8) 231 F. 893.

While section 93 (g), 11 USCA, section 57g of the Bankruptcy Act, provides that the claims of creditors who have received preferences voidable under the foregoing quoted sections shall not be allowed unless such preferences shall be surrendered, the burden of proving the existence of the essential elements of a preferential transfer is upon the trustee seeking to avoid it. If any of these elements is wanting, a transfer cannot be set aside as a voidable preference.

There can be no doubt of the correctness of the findings of the referee and the lower court to the effect that the bankrupt was insolvent at the time of making the payment in question. It confessedly was within four months of the filing of the petition in bankruptcy, and the real crux of this controversy is whether or not the effect of this payment was to enable appellant to obtain a greater percentage of his debt than the other creditors of the same class, and whether he had reasonable cause to believe that the enforcement of the payment would result in a preference.

Appellant received in this payment...