In re Sagor

• Decision Date: 25 February 1903
• Docket Number: 63.
• Citation: 121 F. 658
• Parties: In re SAGOR et al.
• Court: U.S. Court of Appeals — Second Circuit

121 F. 658

In re SAGOR et al.

No. 63.

United States Court of Appeals, Second Circuit.

February 25, 1903

Lee M Friedman and David J. Gallert, for appellant.

M. D Stiver, for respondent.

Before WALLACE, LACOMBE, and COXE, Circuit Judges.

LACOMBE Circuit Judge.

The following excerpts from the opinion of the referee succinctly state the facts and the question presented thereon:

'The American Woolen Company's proof of claim for merchandise sold and delivered shows forty-three different items, aggregating net $16,530.42, the items being chiefly in three figures, and the dates of the items ranging in a period from January 31, 1961, to July 2, 1901, both dates inclusive. Each of these items represents merchandise purchased on its date, and payable at a specific subsequent date. Within the period above named, and between May 4th and June 12th, both dates inclusive, specified groups of bills of the company, which do not figure in the proof of claim offered, were paid by the bankrupts while insolvent to the company, the latter not knowing and not having reasonable cause to know such insolvency. The bills so paid aggregate $4,322.82. ' 'Notwithstanding its feature that the items of the transaction between the company and the bankrupts consisted of separate bills of goods bought on distinct dates, some of which were paid for specifically on specific dates (which seems to be at the most nothing more than the purchase of and payment for so much merchandise on such dates), * * * the transaction between the parties presents all the features of an open and running merchandise account, though itemized, and does not constitute a series of distinct and independent debts. * * * It does not seem that at any time the relation of debtor and creditor had ceased to exist between the parties, and the transactions between them closed.'

The referee and the district judge held that the sum of $4,322.82 cash received during the period of insolvency must be returned before the American Woolen Company could file its claim, on the authority of section 57g of the bankrupt act (U.S. Comp. St. 1901, p. 3443), and of Pirie v. Chicago Title & Trust Co. (May 27, 1901) 182 U.S. 438, 21 Sup.Ct. 906, 45 L.Ed. 1171.

Examination of the accounts discloses these additional facts: The sales made to the bankrupt subsequent to the first of the payments which he made during insolvency, i.e., the sales on and subsequent to May 9th, aggregate $4,427.82, no part of which has been paid the sales made to the bankrupt subsequent to the last payment during insolvency, i.e., subsequent to June 12th, aggregate $3,863.34. It is apparent that the net result of the transactions subsequent to insolvency has been to increase the bankrupt's indebtedness to the claimant and to increase the bankrupt's estate to the like amount-- a condition of things which it may easily be conjectured would not have happened if the bankrupts had not by their payments induced the giving to them of further credit.

In view of the conclusion we have reached upon the merits, some questions as to practice which have been argued need not be discussed.

The sections of the bankrupt act relevant to the questions raised on this appeal are as follows:

'Sec. 60a. 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 of any of his property, and the effect of the enforcement 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 of such creditors of the same class. (U.S. Comp. St. 1901, p. 3445.)

'Sec. 60b. If a bankrupt shall have given a preference within four months before the filing of a petition, or after the filing of the petition and before the adjudication, and the person receiving it, or to be benefited thereby, or his agent, acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person.

'Sec. 60c. If a creditor has been preferred, and afterwards in good faith gives the debtor further credit without security of any kind for property which becomes a part of the debtor's estates, the amount of such new credit remaining unpaid at the time of the adjudication in bankruptcy may be set off against the amount which would otherwise be recoverable from him.'

'Sec. 57g. The claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences. ' (U.S. Comp. St. 1901, p. 3443.)

'Sec. 68a. In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated, and one debt shall be set off against the other, and the balance only shall be allowed or paid. ' (U.S. Comp. St. 1901, p. 3450.)

There have been many and conflicting decisions disposing of the questions raised by the application of these sections to the facts in different cases. Among such questions are these: (1) Is a payment of money a 'transfer of property'? (2) Does section 57g apply when the creditor acted in good faith, was ignorant of the debtor's insolvency, and had no reasonable cause to believe the transfer was a preference? (3) Does section 60c, the set-off clause, apply only to the cases provided for in section 60b, or does it also apply to those covered by section 60a? (4) What is the precise meaning of the words in section 60a: 'The effect * * * will be to enable any one of his creditors to obtain a greater percentage of his debts than any other of such creditors of the same class'? (5) Do payments and sales under running account, where new sales succeed payments, and the net result is to increase the indebtedness, constitute a preferential transfer, under section 60a?

In Pirie v. Chicago Title & Trust Co., 182 U.S. 438, 21 Sup.Ct. 906, 45 L.Ed. 1171, decided May 27, 1901, the first two of these questions were specifically answered in the affirmative. As to the third question the opinion of the court was clearly expressed; but it may fairly be held that, with the other questions disposed of, an answer to it was not necessary to a decision, and it was not discussed. The fourth and fifth questions were not considered; the fifth, indeed, did not arise, for the statement of facts certified to the court recited only the payment of $1,336.79 on an indebtedness of $4,403.77. The facts in the case at bar present the situation set forth in the fifth question, and in examining the authorities it will be necessary to consider only those in which a similar situation is presented.

In re Teslow, 4 Am. Bankr. Rep. 757, 104 F. 229, was decided by Judge Lochren, February, 1900. The statement of facts shows that goods were sold to the bankrupt after a payment was made by him, but the question presented here was not suggested, discussed, or decided.

In re Fixen & Co., 42 C.C.A. 354, 102 F. 295, 50 L.R.A. 605, was decided by the Circuit Court of Appeals for the Ninth Circuit, May, 1900. Sales were made subsequent to the receipt of payments, but the total payments during insolvency exceeded the sales during same period, so that the net result was to reduce the indebtedness. The situation suggested by the fifth question did not arise and was not discussed. In re Christensen (D.C.) 101 F. 802, was decided by Judge Shiras May, 1900. The facts were similar to those at bar, but the discussion was confined to the set-off clauses 60c and 68. The question here discussed was not presented. In re Soldosky (D.C.; Lochran, District Judge, Oct., 1901) 111 F. 511, and In re E. O. Thompson Sons (D.C.; McPherson, District Judge, Jan., 1902) 112 F. 651, present parallel cases to the one at bar, but the fifth question was not discussed. They were decided on the 'set-off' clauses. In re H.C. King Co. (D.C.; Lowell, District Judge, Jan. 22, 1902) 113 F. 110, the creditor knew of the bankrupt's insolvency. In Kahn v. Cone Export Co., 53 C.C.A. 92, 115 F. 290, Fifth Circuit, the facts are not fully stated, but the decision refers only to the construction of section 60c. The same may be said of In re Keller, 6 Am. Bankr. Rep. 343, 109 F. 118.

The first discussion of the question upon which the...