In re Siegel-Hillman Dry Goods Co.

• Decision Date: 04 December 1901
• Citation: 111 F. 980
• Parties: In re SIEGEL-HILLMAN DRY GOODS CO.
• Court: U.S. District Court — Eastern District of Missouri

111 F. 980

In re SIEGEL-HILLMAN DRY GOODS CO.

United States District Court, E.D. Missouri, Eastern Division.

December 4, 1901

Sale &amp Sale, for Bank.

Abbott & Edwards and David Goldsmith, for trustee.

Stewart Cunningham & Eliot, for F. Siegel & Bro.

SHIRAS District Judge.

From the record certified to by the referee in this case, it appears that the Siegel-Hillman Dry Goods Company, a corporation created under the laws of the state of Missouri was on the 6th of February, 1900, adjudged to be bankrupt upon a petition filed by creditors under date of December 30, 1899. On March 7, 1900, the Fourth National Bank of St. Louis presented and secured the allowance of a claim in the total sum of $35,246.56, represented by several promissory notes of the corporation; and F. Siegel & Bro. on the same date secured the allowance of several claims, amounting in all to the sum of $32,287.54. Subsequently the trustee filed before the referee petitions praying for an order setting aside the allowance of these claims, mainly on the ground that the parties had received preferential payments from the bankrupt after the date of its insolvency, which they had not accounted for, and upon the hearing before the referee the facts were shown to be as follows: The claim proven up by the Fourth National Bank was for money loaned the bankrupt company, and was evidenced by six promissory notes (five for $5,000 each, and one for $10,000) executed by the bankrupt, and indorsed by B. Hillman and H. A. Loeb, who were officers of, and stockholders in, the corporation. It further appeared that during the month of December, 1899, there had been paid in money to the bank by the dry goods company sums aggregating $14,600, which were applied in part payment of other notes, amounting to $25,000, held by the bank, and which were indorsed by B. Hillman, H. A. Loeb, L. Regenstein, and F. Siegel & Bro.; these payments being all made after the actual insolvency of the corporation, but while it was yet conducting its business; the fact of insolvency being unknown to the bank. Under these facts the referee entered an order to the effect that unless the bank paid to the trustee, within 30 days, the sum of $14,600, the claim of the bank should be expunged and disallowed, but, if repayment of the sum named should be made, then the claim should be allowed in the sum of $49,846.56. With respect to the claims allowed in favor of F. Siegel & Bro., it appears that they embrace a claim of $4,142.75 for goods sold the bankrupt company; a claim of $1,869.67 for rental paid by Siegel & Bro. to the lessors of the premises occupied by the bankrupt company, who held under an assignment of a lease originally executed to Siegel & Bro., and by them assigned to the company; of a claim of $2,792.30 for taxes paid by Siegel & Bro., assessed against the property embraced within the lease assigned as above stated; of a claim for $17,609.33 moneys paid by Siegel & Bro. to the Corn Exchange Bank of New York in the month of January, 1900, to take up notes held by that bank, executed by the bankrupt company, and indorsed by Siegel & Bro.; and of a claim for $10,535.41 for moneys paid on February 21, 1900, by Siegel & Bro. to the Fourth National Bank of St. Louis, to take up two notes, of $5,000 each, and a further note of $5,000, on which was due the sum of $400, all executed by the bankrupt company, and indorsed by Siegel & Bro. Upon the hearing the referee found and held that the claim for the rental paid, amounting to $1,869.67, was not a provable claim against the estate, in that it was rent accruing for the period from January 12, 1900, to February 1st, covering a period when the premises were not in the possession of the bankrupt company, and in that the trustee never occupied the premises and never assumed the lease. The referee further found that after the insolvency of the company it had paid to Siegel & Bro. sums aggregating $5,219.63, and therefore ordered that, unless this sum should be repaid to the trustee within 30 days, the entire claim should be disallowed, but, if this amount should be repaid to the trustee, then the claim would be allowed in the sum of $40,811.65, which amount includes all the items of the original claims, except that for rental. The claimants and the trustee, also, except to the ruling and order, and the several matters thus presented have been certified to this court for its decision; Siegel & Bro. claiming that the referee erred in expunging the claim based upon the rental paid, and in holding that the payment of the sums aggregating $5,219.63 were preferential, and must be repaid as a condition to the allowance of any claim in their behalf; and the trustee claiming that the referee erred in refusing to find that Siegel & Bro. were the parties benefited by the payments to the Corn Exchange Bank and the Fourth National Bank of St. Louis, and in refusing an order requiring the repayment of these amounts to the trustee as a condition to the allowance of any claim on behalf of Siegel & Bro.; and the Fourth National Bank claiming that it was error to hold it responsible for the repayment of the $14,600, instead of placing the obligation on Siegel & Bro.

This court, sitting in bankruptcy, can exercise the full powers of a court in equity for the ascertainment and enforcement of the rights and equities of the various parties interested in the estate of the bankrupt company. So far as the questions now presented are involved, the parties interested therein are the general creditors, represented by the trustee, the Fourth National Bank, and Siegel & Bro. The attention of counsel, in their argument, has peen mainly devoted to the questions arising on the ruling of the referee with respect to the payment of the sum of $14,600 to the Fourth National Bank upon the notes for $25,000 indorsed by Siegel & Bro.; it having been held by the referee that these payments were preferential, and that the bank must repay them to the trustee, or be precluded from proving up its claim against the estate. It is not questioned that in fact these payments, aggregating $14,600, were all made after the insolvency of the company, and therefore the trustee, representing the general creditors, has the right to further participate in the distribution of the estate, unless the preference received shall be surrendered, as required by clause 'g' of section 57 of the bankrupt act. The general creditors, however, in cases wherein the preferential payments, as in this case, were made in the ordinary course of business, and without knowledge on part of the creditor of the insolvency of the debtor, are not entitled to demand the repayment of the money. Under these circumstances, the preferred creditor has the option given him of surrendering the preferences received, and then sharing in the estate, or of retaining the preference, and being debarred from proving his claim. The equity and right of the general creditors consist in securing one or the other of these results, to the end that the shares or dividends coming to them shall be increased either through the addition to the assets of the estate of the sum surrendered, or, if the preferential payment is not surrendered, then by means of lessening the amount of provable claims. While this right of the general creditors must be observed and be fairly protected, yet it does not prevent the court from determining in each case what may be the equities of parties interested in the same claims, and upon which one rests the ultimate duty of surrendering a preference as a condition to the allowance of a further claim against the estate. In the present case it is shown that the Fourth National Bank loaned to the bankrupt company the sum of $25,000 upon its notes secured by the indorsement of Siegel & Bro. Upon these notes during the month of December, 1899, there was paid to the bank by the maker of the notes sums aggregating $14,600. Subsequent to the initiation of the proceedings in bankruptcy Siegel & Bro. paid to the bank the balance due on the notes for $25,000, and the payment thus made forms a large part of their claim against the estate.

If the bank had not received the payments of $14,600, it would have held Siegel & Bro. for the entire sum due on the notes for $25,000; and, as Siegel & Bro. are shown to be solvent, there can be no reasonable doubt that they would have paid the entire amount to the bank, instead of the balance left after deducting the $14,600 received by the bank. In that event they would have had the right to prove up the entire amount of the notes against the estate, and the result would have been that the bank would have been paid the full amount of the notes by Siegel & Bro. and the latter would have the right to prove up the entire amount as a claim against the estate. If the bank is not compelled to repay the $14,600 received...