In re Perlhefter

• Decision Date: 24 March 1910
• Citation: 177 F. 299
• Parties: In re PERLHEFTER et al.
• Court: U.S. District Court — Southern District of New York

177 F. 299

In re PERLHEFTER et al.

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

March 24, 1910

[Copyrighted Material Omitted]

This case comes up upon motion to confirm the report of the special master, to whom was referred the petition to adjudicate the respondents bankrupts, both individually and as constituting the firm of Perlhefter & Shatz. The petition was brought by the Broadway Trust Company, and the Twenty-Third Ward Bank of the City of New York, on the 22d day of September 1908. Subsequently, on the 21st day of October, 1908, Henry Klinger intervened as a party petitioner. An amendment was filed on October 22, 1908, after demurrer sustained to the first petition. The respondent Perlhefter has defaulted and the respondent Shatz has answered. However, one Grace C. Whitehall, an individual judgment creditor of Perlhefter, has intervened and answered as permitted by the statute.

The firm did business as auctioneers in the city of New York, and in the spring of 1908 entered into a contract for the purchase of 40,000 pairs of shoes from the Vaughn Monnig Shoe Company of St. Louis. In order to procure the purchase price for these shoes, they entered into a contract with the Fourteenth Street Bank, in which they agreed to open an account with the bank, into which the bank was to deposit the sum of $20,000, for which they were to give their note in the sum of $20,000. They likewise agreed that the bill of lading for the shoes should be given to the bank, and that the bank should charge to the account the purchase price of the shoes should deliver to them possession, retaining title in itself and that they should sell them and deposit the proceeds into the bank account, over which they should have no control till the bank was repaid in full. Instead of being made formally with the bank, the contract was made with one Heidelberg, as agent of the bank, and they agreed that Heidelberg should have $1,000, in addition as profits upon the transaction, which profits they guaranteed to him. The shoes were shipped and taken possession of by the alleged bankrupts, the bank paid the purchase price to the sellers out of the account in the name of the bankrupts in their bank, and took their note for $20,000. Subsequently, and on June 22d, the alleged bankrupts paid upon this note sufficient to reduce it to $17,085, and renewed the note for that sum, as the bank had agreed in the contract. From that date, June 22d, until August 20, 1908, the firm paid $17,085, with interest, or, in other words, completed payments on the note; all these payments being out of the proceeds from the sale of the shoes, and made by depositing several sums in the deposit as prescribed in the contract. On September 16th the firm likewise paid to Heidelberg $200 and gave him four notes of $200 each to make up the balance of his $1,000 profits. On July 20, 1909, Perlhefter made a deed of all his interest in the firm to Shatz and has disappeared since that time. He was served by publication. He received for his part of the interest in the firm Shatz's note for $272.66 at one year. Shatz conducted the business after the conveyance of Perlhefter until the filing of the petition against him on September 22, 1908, and on September 16, 1908, paid $1,109.32. upon a note of $5,000 to the Fourteenth Street Bank. The master has found the firm insolvent on July 20, 1908, and thereafter. Other facts are stated in the opinion.

Ira Leo Bamberger and Sidney Lowenthal, for petitioning creditors.

Henry A. Rubino, for intervening creditor.

Sternberg, Jacobson & Pollock (Henry W. Pollock, of counsel), for bankrupts.

HAND District Judge (after stating the facts as above).

I think that the payment to Heidelberg of $200 in September, 1908, was a preferential payment; the firm being at that time concededly insolvent. It is said that the payment is so small that it cannot be inferred that there was any intention to prefer one creditor over the other. The size of the payment makes no difference if the requisite intent existed, but it does make a difference in determining whether or not the intent did exist. The circumstances of this payment, however, were such as lead me to agree with the master that in spite of its size the bankrupt must have intended to prefer Heidelberg. It was a part of his effort to pay Heidelberg the sum of $1,000, which the firm had guaranteed him under the contract; that guaranty constituting an obligation to pay which was a preference when the firm was insolvent. This Shatz tried to do by paying $200 in cash and the balance in four notes of $200 each. It was part, therefore, of an effort to pay him the full $1,000 and the intent of the payment of the $200 must be governed by the purpose of which the cash payment was a part. At the time the firm was hopelessly insolvent, as Shatz knew. It had obligations of over $23,000 and assets which could not have been worth more than $10,000. Indeed, when the receiver took possession six days thereafter, he got assets which realized scarcely more than half that sum. Besides Shatz's other payment on the same day is very significant. The Fourteenth Street Bank held a firm note for $5,000, given March 19, 1908 and renewed twice thereafter, and on the 16th of September, 1908, Shatz paid to the bank, on this note, $1,109.32. That this payment was preferential within section 3a2, the master finds, and I agree with him. Though it cannot be used in this proceeding as an act of bankruptcy, under the rule in Re Haff, 136 F. 78, 68 C.C.A. 646, having been first brought out at the reference before the master, some seven months after its occurrence, yet it quite plainly evinces Shatz's partiality toward the Fourteenth Street Bank, and confirms me in my decision that, by the payment of $200 to Heidelberg, the bank's agent, Shatz intended to prefer him over other firm creditors. Together these two payments constituted over one-fifth of the assets which he then had, and the conclusion is inevitable that he intended to prefer the bank.

Two objections are urged: First, that the payment was made out of the account in the Fourteenth Street Bank and, therefore, under the case of New York County Bank v. Massey, 192 U.S. 138, 24 Sup.Ct. 199, 48 L.Ed. 380, could not be a preference, and, the other, that the payment was in pursuance of a lien created under an agreement between the bank and the firm. As to the first objection, it is sufficient to say that New York County Bank v. Massey, supra, went upon the very theory that the deposit in the bank did not diminish the estate of the depositor, for he had a corresponding property in his claim against the bank.

Although the bank has a right upon his insolvency to set off one against the other, that is one thing, and it is another by his voluntary act to lose his control over his deposit and assign it to the bank. By that act he not only parts with his money, but parts with the corresponding obligation, and forever after puts the property out of his power.

So far as concerns the claim of a lien antedating four months and by virtue of the agreement of January 31, 1908, it is enough to say that the bank account was empty in August, and that the sum of $200, as well as the sum of $1,109, both drawn out by check on September 16, 1908, had been deposited within four months. It is not necessary, in that view of the situation, to determine whether the deposit created a lien or not, or at what time the bank obtained a proprietary interest in the money paid over. It certainly had no interest in the money four months previously. In all cases in which an agreement in equity antedating four months has been held valid, it affected some specific property, or at least property which had been substituted for other specific property, and which was in existence when a contract was made. A bank account is no such property except in so far as by the agreement it must be kept at a given sum. Therefore, I agree with the master that this is a sufficient act of bankruptcy on the part of the firm to justify an adjudication, provided the partners were insolvent-- a matter with which I shall deal later.

I agree also with the master that the larger payments to the bank made in accordance with the contract and during the months of July and August are not preferences within the statute. This raises the question of whether the bank had in fact a valid lien upon the shoes and of the profits in the hands of the firm, under the cases of Humphrey v. Tatman, 198 U.S. 91, 25 Sup.Ct. 567, 49 L.Ed. 956, Thompson v Fairbanks, 196 U.S. 516, 25 Sup.Ct. 306, 49 L.Ed. 577, and Sexton v. Kessler & Co., 172 F. 545, 97 C.C.A. 161. The...