In re Abraham Steers Lumber Co.

• Decision Date: 01 August 1901
• Citation: 110 F. 738
• Parties: In re ABRAHAM STEERS LUMBER CO.
• Court: U.S. District Court — Southern District of New York

110 F. 738

In re ABRAHAM STEERS LUMBER CO.

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

August, 1901

Kneeland La Fetra & Glaze (Stillman F. Kneeland, of counsel), for trustee.

McKelvey & Mattocks, for respondent.

The following is the opinion of Olney, Referee:

This is an application for the re-examination of a proof of claim filed by the respondent, Robert R. Sizer, doing business under the name of Robert R. Sizer & Co., against the estate of the above-named bankrupt, amounting to $191.25; being the balance due on open account for merchandise sold by the respondent to the bankrupt in March and August, 1900, upon which certain payments have been made. It is sought to vacate proof of claim unless such payment and others made in settlement of a previous independent account, where the debtor was insolvent, be surrendered by the claimant. An involuntary petition in bankruptcy was filed October 22 1900, and some of the alleged preferential payments were made more than four months prior thereto. The facts are all admitted. The account referred to may be stated as follows:

Abraham Steers Lumber Company in Account with Sizer & Company.

1899. Dec. 23. To mdse. . . .	$232 46
1900. Jan. 24. By cash		$29 68
By bills rec. . . .		200 00
Jan. 31. By cash . . .		2 78
. . .	$232 46	$232 46
Mch. 10. To mdse. . . .	$231 66
To mdse. . . .	126 14
June 26. By cash . . .		$100 00
Aug. 16. To mdse. . . .	20 62
Aug. 25. By cash . . .		50 00
Aug. 28. By charges (hauling, piling, and tallying lumber). . .		37 17
Balance (proved). . .		191 25
. . .	$378 42	$378 42

[110 F. 740]

It is alleged in the third paragraph of the petition that the payments therein set forth, amounting in the aggregate to $419.23, were made by the debtor while insolvent, and by the fourth paragraph that the effect thereof was to enable the said creditor to obtain a greater percentage of his debt than other creditors of the same class. These statements which confirm precisely with the statutory definition of a preference, are admitted by the first paragraph of the answer; but it is claimed as to the payments made prior to June 22, 1900, that they were not made within four months prior to bankruptcy, and therefore not within the provisions of subdivision 'g' of section 57. The first question, therefore, to be considered, is whether the four-months limitation specified in subdivision 'b' of section 60 and subdivision 'b' of section 3 apply to the preferences referred to in subdivision 'g' of section 57, so as to limit the return of preferential payments to those received during four months prior to bankruptcy proceedings. The question seems to be a new one. The four-months period is often specified by the court and applied without objection to cases of this character, but, so far as 2 have knowledge, the point has never before been raised or specifically passed upon. The bald theory is whether subdivision 'a' of section 60 contains the entire and complete definition of the word 'preference,' when used generally in the bankruptcy act, as it is in subdivision 'g' of section 57. This subdivision 'a' says, in substance: 'A person shall be deemed to have given a preference, if, being insolvent, he has suffered a judgment against himself * * * or made a transfer of any of his property, and the effect of the enforcement of such judgment,' etc. 'A person shall be deemed to have given a preference if, being insolvent, he has procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer or any of his property, and the effect of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other one of such creditors of the same class. ' As this is the only definition of the word, these two elements, insolvency and payment, made up of a condition and an act, are all that is necessary to constitute a preference under the act. To hold that there is a limitation of four months in all cases is to hold that preferences cannot be predicated upon any facts arising prior to that period,-- in other words, that a payment by an insolvent prior to that period cannot be considered a preference. It is difficult to assume such a construction in the face of the opening clause of the next subdivision: 'If a bankrupt shall have given a preference within four months before the filing of a petition,' etc. This clearly indicates that a preference may be created for general purposes prior thereto, but for the particular purpose of recovery by the trustee it is limited as therein stated. So in section 3 it is provided by subdivision 'a' that a preference with intent, etc., is an act of bankruptcy, and subdivision 'b' provides that a petition may be filed if such act of bankruptcy was committed within four months. This language would be surplusage and meaningless if preferences generally were limited to four months. Again, it may be well urged that, if it was necessary to confine by specific language the period of preferential acts for the purposes of sections 3 and 60b, then it was also necessary in the case of section 57g, if it was intended to limit that case to the same period. In the case of Carson, Pirie, Scott & Co. v. Chicago Title & Trust Co., 5 Am.Bankr.R. 814, 21 Sup.Ct. 906, 45 L.Ed. 1171, the United States supreme court held that the element of intent, as contained in section 60b, did not enter into the definition of a preference, as used in the clause under consideration, because such element did not form a part of the requirements of a preference as specified in section 60a. It is difficult to distinguish in principle between that case and the present one. It is significant that in sections 3b and 60b the four-months limitation is connected with the element of intent, and that and the period of time are both specific limitations upon the general effect of a preference defined in section 60a. One is a limit of time, and the other of character. The same rule should apply to each of them. If we must borrow from subdivision 'b' to complete the definition in subdivision 'a' in the point of time, we could equally borrow therefrom in the other case. As it has been determined by supreme authority that it cannot be done in one case, it is safe to say that it cannot in the other. Standing alone, subdivision 'a' does not confine the meaning of the word 'preference' to any period except that of insolvency. That is a limit of time, not by days or months, but by an event. That section 60a contains a general definition of a preference, while subdivision 'b' sets forth a special kind of a preference and the results flowing therefrom, is evident not only from the reading of the statute, but from the opinion in the Carson Case. Thus the court says: 'Subdivisions 'a' and 'b' are concerned with a preference given by a debtor to his creditor. Subdivision 'a' defines what constitutes it, and subdivision 'b' states a consequence of it, gives a remedy against it. * * * Provided, however, that the preference was given four months before the filing of the petition in bankruptcy or before the adjudication, and the creditor has reason to believe that a preference was intended. ' See opinion of court in Carson, Pirie, Scott & Co. v. Chicago Title & Trust Co. The question at bar did not arise in the Carson Case, but counsel referred to the four-months limit for the purpose of showing that, if that was allowed, the court 'could travel outside' for the purpose of taking in the connecting element of intent also. This argument was met by the court as follows: 'The argument is strong which is urged to support a four-months limitation, but it can be argued in opposition that subdivision 'a' needs no explanation from other parts of the statute in order to obtain a time limit on the question of preference. It can be argued that subdivision 'a' gives such limit in the existence of insolvency. But we are not required to decide either way on this record. If the element of 'intent' is not to be interpolated into subdivision 'a' of section 60, it must seem that the element of time is not to be so interpolated. ' I am of the opinion that the payments received from the bankrupt while insolvent, though more than four months prior to the commencement of bankruptcy proceedings, were preferences, within the meaning of section 57g.

The next claim on the part of the respondent to be considered is that a complete settlement and discharge of the original liability for merchandise purchased by the debtor having been effected by the receipt of cash and note, both treated as payment, the transaction is canceled and ended, and the payments made therein, being bona fide, can no more be questioned than they could have been if no subsequent transactions had been entered into between the parties,-- in other words, that the right to prove a claim...