Kennard v. Behrer
| Decision Date | 18 October 1920 |
| Citation | 270 F. 661 |
| Parties | KENNARD v. BEHRER et al. |
| Court | U.S. District Court — Southern District of New York |
Charles C. Pearce, of New York City, for trustee.
Milton M. Leichter, of New York City, for Behrer & Sons.
Bartholomew Foody, of New York City, for Walworth Co.
LEARNED HAND, District Judge (after stating the facts as above).
It is quite clear that both Rowland, the bankrupt, and the Stephenson Company, were insolvent on April 12th, the day of the assignment, unless the unperformed plumbing contracts of the company be taken as having a very substantial value. On January 1, 1917, and on March 1, 1917, Greenfield's report shows that the company was insolvent in the sum of $20,000, and in July, upon their bankruptcy, their condition was worse. Stephenson's testimony, as well as Brandon's and Rowland's, touching the condition of the business after April 12th, precludes the supposition that their position had been bettered on April 12th, and it would be casuistical to indulge in any scruples as to the sufficiency of the proof.
Similarly too, of Rowland's condition. His interest now in suit had then a present value of about $5,400, out of which he must pay some $1,000 of personal debts. The remaining $4,400 was all he had to pay the deficiency upon at least $18,000 of indorsements; his schedules, indeed, show about $25,000. Now the debts of the Stephenson company were about $43,000, and their assets $23,000, not much over 50 per cent. of the debts. Certainly Rowland had no resources to pay any such deficiency.
The value of the uncompleted contracts is not in proof; probably 'at a fair valuation,' as the statute provides, they were worth nothing in exchange, and, if so, insolvency was established. As I view the case, it is, however, unnecessary to determine whether the trustee should have shown that fact or whether I could assume so much from the mere character of the property itself. I should be much tempted to do so. The point upon which the case in my judgment turns against the trustee is that he has not shown that the defendants had reasonable cause to believe that the transfer would effect a preference, assuming that the contracts had no such value.
In discussing this point I shall assume that, even though the defendants did not know the company's financial condition, or Rowland's either, they are charged as much with knowledge as though they had. As to the company, I cannot doubt that this is true. They were certainly discussing, and I think proposing, to file mechanics' liens upon the contracts, they had vainly been endeavoring to make some satisfactory adjustments of the notes, and they had put the accounts in the hands of their lawyers to force some payment. Weisburger had received summonses and complaints, which he must have known to be sure to result in judgments, the notes were in large part, if not altogether, overdue, and the scarcity of ready cash was well known to Clarence Behrer. Moreover, they had insisted upon some statement of the resources of the company, obviously because they feared its solvency and its possible suspension. Before taking security in such a posture of their debtor's affairs, I think they were bound to require an actual examination of its books, which would have disclosed what we now know from the Greenfield report; that is, that upon any present liquidation the company was wholly insolvent.
Moreover such an examination would have disclosed Rowland's indorsements, and with them his own insolvent condition. I cannot suppose that, whatever his protestations, it would have required more than a moderate insistence to compel a disclosure of his actual assets. The creditors were in a position to compel the most detailed disclosures. Yet, while all this would have shown, as I have said, a very substantial insolvency, if the contracts were disregarded, it would nevertheless leave the creditors as much in doubt as we are now as to the value of the unfinished contracts. And even assuming that these must be wholly disregarded in appraising the assets under the statute, they were a legitimate factor in the defendants' determination whether the assignment would effect a preference. That, they knew, would depend upon whether, if they were content not to press the company into immediate...
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