Lowenstein v. Salop

• Citation: 55 F.2d 889
• Decision Date: 01 February 1932
• Docket Number: No. 132.,132.
• Parties: LOWENSTEIN v. SALOP et al.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

55 F.2d 889 (1932)

LOWENSTEIN v. SALOP et al.

No. 132.

Circuit Court of Appeals, Second Circuit.

February 1, 1932.

Benjamin Bernstein, of New York City (Benjamin Bernstein and Max J. Wolff, both of New York City, of counsel), for defendant-appellant Alexander A. Salop.

Jacob M. Zinaman, of New York City, for complainant-appellee William Lowenstein as trustee in bankruptcy of Meyer Reikes, Inc.

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

AUGUSTUS N. HAND, Circuit Judge.

The defendant Manufacturers' Trust Company is a mere stakeholder, and has no interest in this appeal. The trustee in bankruptcy of Meyer Reikes, Inc., sues to recover a transfer made by the bankrupt to the defendant Salop within four months of the filing of the petition in bankruptcy on March 29, 1929, and alleged to have been in violation of section 60b of the Bankruptcy Act (11 USCA § 96 (b). The trial court sustained this cause of action and decreed that the transfer was an unlawful preference and should be turned back. The transferee, Salop, contends that there was no proof that (a) the bankrupt was insolvent at the time of the transfer; (b) that Salop had reasonable cause to believe that the transfer would effect a preference; or (c) that a preference was in fact effected.

The bankrupt had been a corporation engaged in the contracting business, fitting up restaurants and altering buildings. All its stock was owned by Meyer Reikes. It had done business with Salop for some ten years. On February 14, 1929, Salop held its note for $3,000 drawn to his order and indorsed by Reikes individually, which Salop had discounted. This note had become due on January 9, 1929, and remained unpaid. Salop likewise had discounted a promissory note for $3,500, drawn by Papae & Co. to the order of Reikes individually, and indorsed by the latter. This note had become due January 24, 1929, and was held by Salop on February 14, 1929. Salop threatened suit on both notes. In order to avoid suit, Meyer Reikes, Inc., entered into an agreement with Salop under date of February 14, 1929, which recited that Salop was the owner of the $3,000 overdue note of Meyer Reikes, Inc., and also the owner of the $3,500 overdue note of Papae & Co., the proceeds of which, when it was discounted by Salop, were delivered by Meyer Reikes to Meyer Reikes, Inc. The agreement provided that the above notes should be surrendered, and that in consideration of the surrender Meyer Reikes, Inc., assigned to Salop all its equity in certain promissory notes of the Regal Food Shops belonging to it which were at the time held by the Manufacturers' Trust Company as security for a loan. This equity was not merely $7,500, as contended by Salop, but actually $17,000. So Reikes testified (fol. 109), and so the answer of the trust company, which was a mere stakeholder, indicated. The counsel for Salop conceded that the facts in this answer were true.

It appears from the foregoing that Salop acquired equities of the face value of about $17,000 in exchange for the note of Meyer Reikes, Inc., for $3,000, and the note of Papae & Company for $3,500. Each note had been protested for nonpayment.

The trial judge held that Meyer Reikes, Inc., was insolvent at the time the transfer of the equities was made, that Salop had reasonable cause to believe it insolvent and to believe that the enforcement of the transfer would effect a preference. He found that the bankrupt's equity at the time of the trial was $4,464.10 in cash and $12,770.92 in notes, which he ordered the Manufacturers' Trust Company to turn over to the complainant.

The proof justified the finding of the trial court that the bankrupt was insolvent at the time the transfer was made. The assets shown by schedule B-3 were valued at $118,574.97. They included a balance of $86,899.10 due from Veribest Corporation. That corporation owned an improved piece of real estate on which there were three mortgages for $161,700, $80,750, and $20,000, making altogether $262,450. The company had thirteen vacant apartments out of fifty-three, was operated at a loss, and evidently was without available assets outside of its practically worthless equity in the apartment house. The mortgagee instituted a foreclosure of the third mortgage in March, 1929, and sold the property under decree of foreclosure. Bachrach, who owned the third mortgage, had appraised the property at a value of $300,000 when he made the loan. Bachrach testified at the trial that it was worth $325,000, but the condition of the property would certainly justify a valuation at no more than $300,000 at most. Such a valuation would reduce the worth of the claim against Veribest Corporation from $86,899.10, at which it was carried in the schedules, to $37,550.

After an analysis of the figures furnished by the accountant Karp, appellant's counsel has placed the total valuation of the bankrupt's assets at $238,710 (appellant's brief, at page 32). But this $238,710 included the claim against the Veribest Corporation valued at $86,899.10, whereas the value should not have exceeded $37,550. Thus the value of the assets calculated at $238,710 would be reduced by $49,349.10, and so, would not exceed $189,360.90. According to the same analysis the liabilities were $207,237.84, thus leaving Meyer Reikes, Inc., insolvent by $17,876.94. Even this is on the assumption that bills and notes aggregating $85,662.77 on which Meyer Reikes, Inc., was secondarily liable, would all be paid. The unsecured creditors were substantially the same on February 14, 1929, as at the time of the filing of the petition in bankruptcy, so that we may say that Meyer Reikes, Inc., was insolvent when the transfer was made. At that time Salop knew that one of the notes of Meyer Reikes, Inc., which he held, had been protested for nonpayment, that he was himself threatening the company with suit, and that Meyer Reikes, when Salop insisted that there should be payment or an exchange of other notes, said to him: "The only thing I have is what the bank holds." These things must have made it plain to Salop that the corporation was in...