In re Bernard

• Decision Date: 01 February 1937
• Docket Number: No. 237.,237.
• Citation: 87 F.2d 705
• Parties: In re BERNARD.
• Court: U.S. Court of Appeals — Second Circuit

87 F.2d 705 (1937)

In re BERNARD.

No. 237.

Circuit Court of Appeals, Second Circuit.

February 1, 1937.

Bregman & Bregman, of New York City (Harry Malter and Herman Levenson, both of New York City, of counsel), for bankrupt-appellant Barnett Bernard.

Samuel Sobel, of New York City (Nathan Weinstein and Isidore L. Weishar, both of New York City, of counsel), for creditor-appellee New York Credit Men's Association.

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

AUGUSTUS N. HAND, Circuit Judge.

New York Credit Men's Association, the above-named creditor, was assignee for the benefit of creditors of Yale Garment Company, Inc., a corporation of which the bankrupt Barnett Bernard and his son Arthur Bernard were both directors and of which Barnett Bernard was also the president and Arthur Bernard was the secretary. On June 24, 1936, New York Credit Men's Association, as assignee of Yale Garment Company, recovered a judgment in the New York Supreme Court against Arthur Bernard in the sum of $927.79, and against Barnett Bernard in the sum of $1,112.16, in which it was provided that, if the judgment against Arthur Bernard should be collected, that against Barnett Bernard should be reduced accordingly.

The complaint in the action by New York Credit Men's Association contained five counts. The first was against Arthur Bernard and alleged that, when Yale Garment Company was insolvent, and Barnett Bernard was president and director, it transferred sums totalling $927.79 to Arthur Bernard, secretary and a director, without receiving any consideration therefor and with the intent to prefer Arthur Bernard, and that the latter knew of such insolvency and intent. The second cause of action was also against Arthur Bernard. It contained the same allegations as the first, except that it did not allege lack of consideration, but specified that $927.79 was transferred for payment of an alleged claim of Arthur Bernard. The third cause of action was against Barnett Bernard. It reiterated the allegations in the first two counts and stated that Barnett as president of the Yale Garment Company signed the checks transferring the $927.79 to Arthur and thereby was concerned in the transfers in violation of section 15 of the New York Stock Corporation Law (Consol.Laws, c. 59), but did not in terms allege that Barnett knew of the insolvency. The fourth cause of action was against Barnett. It alleged transfers to him by Yale Garment Company, when insolvent, of sums totalling $684.09, without consideration and with intent to prefer him; also that he knew of such insolvency and intent. The fifth cause of action also against Barnett omitted the allegation of a transfer without consideration, but contained the other allegations of the fourth count and added an allegation that the transfer was in payment of a claim of Barnett. Each cause of action alleged violation of section 15 of the New York Stock Corporation Law. The judgment entered upon such a complaint as the foregoing necessarily involved a decision that, when Barnett Bernard received the $184.37 with which he was primarily charged, he either received it without furnishing any consideration, when knowing that the corporation was insolvent as alleged in the fourth count, or when knowing of the insolvency and of the intent of the corporation to prefer his claim as alleged in the fifth count. His secondary liability under the judgment for $927.79 transferred to his son Arthur must rest on the third count, which alleged that Bernard signed the checks whereby the transfers to Arthur were effected, but did not allege that he knew that the corporation was insolvent. But the judgment against him for the transfers to his son was apparently rendered for violation of section 15 of the New York Stock Corporation Law, and therefore must have been based on the latter portion of that section which holds every director or officer liable to the creditors who "shall be concerned in the making of any * * * transfer or payment * * * by such corporation when it is insolvent or its insolvency is imminent, with the intent of giving a preference to any particular creditor over any of the other creditors." He evidently could not have been held under section 15 for being "concerned" in a transfer with intent to prefer unless he had reason to believe the corporation was insolvent, for only under those circumstances would a preference be effected.

The District Court held that the ex parte order which had been made restraining the New York Credit Men's Association from enforcing its judgment except in the bankruptcy proceeding should be vacated for the reason that the debt of Barnett to Yale Garment Company embodied in the judgment was, under section 17a, subds. 2 and 4, of the Bankruptcy Act (11 U.S.C.A. § 35 (2, 4), not dischargeable because it was a liability for "willful and malicious injuries to the * * * property of another," and was likewise a liability "created by his fraud, embezzlement, misappropriation, or defalcation while acting as an officer or in any fiduciary capacity." We agree with the result reached by the court below, even if the debt was not a liability arising from "willful and malicious injuries to the * * * property of another," for in any event it was a liability arising from a "misappropriation" by Barnett "while acting as an officer" of the Yale Garment Company. Inasmuch as he intended to take a preference for himself and to obtain one for his son, he inevitably must have been chargeable with knowledge that the corporation was insolvent. Under such circumstances, he knowingly secured for himself an advantage at the expense of the other creditors and by signing checks of the corporation to make payment of the claims of his son who was another officer enabled the latter to take a similar advantage over the corporation to which both owed fiduciary...