Holbrook v. International Trust Co.

• Decision Date: 18 January 1915
• Parties: HOLBROOK v. INTERNATIONAL TRUST CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

220 Mass. 150

107 N.E. 665

HOLBROOK v. INTERNATIONAL TRUST CO.

Supreme Judicial Court of Massachusetts, Suffolk.

January 18, 1915

COUNSEL

Powers, Folsom &amp Powers and M. Sumner Holbrook, all of Boston, for plaintiff.

Wm. M Richardson and John R. Lazenby, both of Boston, for defendant.

OPINION

LORING J.

This is an action brought by a trustee in bankruptcy under section 70e of the U.S. Bankruptcy Act of 1898, ^[1] to recover payments made to the defendant amounting to $1,677.70. At the trial the report of an auditor was put in evidence. No other evidence was introduced by either party. The defendant asked for eighteen rulings three of which were given by the presiding judge. Thereupon the presiding judge directed the jury to return a verdict for the plaintiff. No exception was taken to this ruling. The only exception taken was to the refusal of the judge to give the rulings asked for by the defendant.

The facts found by the auditor were in substance as follows: In June, 1903, a corporation known as the Bolles, Wilde Company borrowed of the defendant $3,935, and pledged as security therefor two warehouse receipts and the merchandise thereby represented. It was provided in the note given by the Bolles Wilde Company that the collateral given as security for the note should stand as security 'for the payment of this or any other direct or indirect liability of ours to said trust company due or to become due.' At some date not fixed in the evidence before August 31st of the same year (1903) a partnership known as Graves, Brown & Co. took over the assets of the Bolles, Wilde Company and assumed their liabilities. On October 22d of the same year (1903) the partnership of Graves, Brown & Co. made an assignment for the benfit of their creditors. The assignee continued the business for about two years. On November 22, 1905, partnership articles were signed which created a new firm of Graves, Brown & Co. It is found by the auditor that the business was carried on continuously by the assignee and the second firm of Graves, Brown & Co.; that the second firm of Graves, Brown & Co. began to carry on business before the partnership articles were signed, but the time when the new firm of Graves, Brown & Co. succeeded to the business could not be ascertained on the evidence. While the assignee of the first firm of Graves, Brown & Co. was carrying on the business he paid a dividend of 30 per cent. to the creditors of the first firm of Graves, Brown & Co. Before that time came the original note of the Bolles, Wilde Company for $3,935 had been paid in order to secure a release of the goods which had been pledged as collateral security for it. When the fianl payment was made on that note, there were in the hands of the defendant warehouse receipts representing goods worth $2,000. At the time of this final payment the defendant trust company had in its possession customers' notes which it had discounted for and which were indorsed by the Bolles, Wilde Company and also other customers' notes which had been discounted for and were indorsed by Graves, Brown & Co. These notes were at that time all overdue and the auditor found that 'though the fact does not clearly appear it may be inferred that at this time the Bolles, Wilde Company and Graves, Brown & Co. were liable to the defendant upon the notes which each had indorsed.' At the time that the assignee of Graves, Brown & Co. paid the dividend of 30 per cent. to the creditors of that firm, the customers' notes of both kinds held by the defendant trust company amounted to $3,252.95. On the amount of these customers' notes of both kinds the assignee paid the defendant trust company a dividend of 30 per cent., amounting to $975.88. The check by which the $975.88 was paid to the defendant states that it was paid 'in full of all claims and demands against Graves, Brown & Co.' and the defendant trust company executed an assignment to the trustee which as printed is almost unintelligible but which the auditor found covered all these customers' notes.

On September 27, 1905, shortly before the partnership articles were signed by the second firm of Graves, Brown & Co., the defendant persuaded one of the new firm to give it a note for $2,504.80. The auditor found that 'the amount of this note of September 27, 1905 ($2,504.80) represented exactly the unpaid balance of the entire indebtedness owed by the old firm of Graves, Brown & Co. to the defendant trust company at the time the assignment to Murphy was made ($3,480.68) after deducting the amount of the dividend paid by Murphy ($975.88).' The second firm of Graves, Brown & Co. continued in business for about two years. Upon November 1, 1907, an involuntary petition in bankruptcy was filed against them upon which they were adjudicated bankrupt, and the plaintiff is now the trustee of their estate in bankruptcy appointed under that petition.

After the note of September 27, 1905, was given, the second firm of Graves, Brown & Co. made various payments upon it amounting to $1,677.70. These payments were made at various dates between October 10, 1906, and October 5, 1907. The auditor found that the note of September 27, 1905, was given because the defendant trust company at which the firm kept its bank account asked for a note for the difference between the debt owed to it (including the debt of the Bolles, Wilde Company) and the dividend paid on that debt by the assignee. He further found that it was not founded on a valid consideration. This matter is dealt with at length by the auditor in his report, but as the question before us is a question whether on the auditor's report a jury could find for the plaintiff, it need not be repeated here.

The auditor further found that during the years 1906 and 1907 the firm of Graves, Brown & Co. 'was frequently unable to meet its bills promptly, and that frequently it could not pay outstanding checks at the bank but was obliged to allow such dishonored checks to be returned.' He further found that 'during the years 1906 and 1907 Graves, Brown & Co. were unable to pay their debts as they matured and became due and payable in the ordinary course of business as persons carrying on trade usually do.'

The learned counsel for the defendant has not addressed his argument to the exceptions which were taken, but has stated that these exceptions are based upon the four contentions stated in the note. ^[2]

1. The first two contentions are founded on a misapprehension of the nature of section 70e of the Bankrupt Act. This section of the Bankrupt Act does not create in the trustee in bankruptcy a new right to avoid transfers of property made by the bankrupt. All that it does is to give authority to the trustee to avoid any transfers of property made by the bankrupt 'which any creditor' might have avoided. It was early decided in this commonwealth in a series of cases of which Holland v. Cruft, 20 Pick. 321, may be taken to be the most important, that an administrator of a deceased person (who had made a conveyance fraudulent as to creditors) might as the representative of the creditors of...