Macdonald v. Haynes
| Citation | 226 P. 57,1924 OK 445,100 Okla. 135 |
| Decision Date | 15 April 1924 |
| Docket Number | Case Number: 14694 |
| Parties | MACDONALD v. HAYNES. |
| Court | Supreme Court of Oklahoma |
¶0 1.Bankruptcy--Voidable Preference--Elements--Failure of Proof.
The failure of a trustee in bankruptcy suing to recover a payment as a voidable preference to prove the bankrupt's insolvency at date of payment results in failure to prove that defendant creditor had reasonable cause to believe the bankrupt was insolvent at the time of payment.
2.Same--Burden of Proof--Bankrupt Partnership.
In a suit by a trustee in bankruptcy of the estate of a bankrupt partnership to recover a payment made by the firm to a creditor as a preference in order for plaintiff to recover, the burden is upon him to show that the firm, and the partners also, were insolvent when the payment was made.
3. Same--Insufficiency of Evidence.
Record examined, and held, that the court did not err in sustaining the demurrer to the plaintiff's evidence and in instructing the jury to return a verdict for the defendant.
Commissioners' Opinion, Division No. 5.
Error from District Court, Bryan County; Porter Newman, Judge.
Action by John A. MacDonald against E. T. Haynes. From a judgment in favor of the defendant, plaintiff brings error. Affirmed.
W. E. Utterback and D. S. MacDonald, for plaintiff in error.
Hatchett & Ferguson, for defendant in error.
¶1 This suit was instituted in the district court of Bryan county on the 20th day of April, 1922, by the plaintiff in error, John A. MacDonald, trustee in bankruptcy, against the defendant in error, E. T. Haynes, to recover the sum of $ 2,000, in which the plaintiff alleges that he was the duly appointed, qualified, and acting trustee for the Crescent Drug Company, a copartnership composed of G. W. Lindley and M. H. McDaniel, and for G. W. Lindley, an individual.
The petition further alleged, in substance, that the Crescent Drug Company, a copartnership, and G. W. Lindley, an individual, duly instituted a voluntary bankruptcy proceeding in the United States District Court for the Eastern District of Oklahoma; that thereafter an adjudication of bankruptcy was made by R, McMillan, referee, and by Hon. R. L. Williams, Judge.Plaintiff further alleged that on the 30th day of November, 1921, the Crescent Drug Company was owned exclusively by G. W. Lindley, and that the said Lindley was at that time insolvent; that the defendant, Haynes, was one of his creditors and knew of the insolvent condition of Lindley; that on the 30th day of November, 1921, the said Lindley sold an undivided one-half interest in his business unto one McDaniel; that after making said sale the said Lindley paid to the said E. T. Haynes the sum of $ 2,000, which was paid as a preference and was received by the said Haynes with full knowledge that the said Lindley was insolvent.
¶2 The answer of the defendant, E. T. Haynes, consisted of a general denial.
¶3 The cause was tried before the court and jury. At the conclusion of the plaintiff's evidence the defendant entered a demurrer to the evidence, which was by the court sustained, and the jury was instructed to return a verdict for the defendant. Judgment was rendered in accordance with the verdict. Motion for new trial was overruled, exceptions seven, and the cause comes regularly on appeal to this court.
¶4 The decisive question to be determined is whether the plaintiff's evidence disclosed by the record in this case shows that at the time of the payment of G. T. Lindley to the defendant, Haynes, of $ 2,000, it constituted a voidable preference under the federal statutes governing the case. (Section 60-b, National Bankruptcy Act, 1 Fed. Stat. Ann. [2nd Ed.] 1026; 32 Stat. L. 800, 36 Stat. L. 842.)
¶5 The preference consists in a person (1) while insolvent, and (2) within four months of the bankruptcy, (3) procuring or suffering a judgment to be entered against himself or making a transfer of his property, (4) the effect of which will enable one creditor to obtain a greater percentage of his debt than any other creditor of the same class. Such a preference is voidable at the instance of the trustee, if (5) the person receiving it or to be benefited thereby has (6) reasonable cause to believe that the enforcement of the judgment or transfer will result in a preference.
¶6 If any of these elements is wanting a preference cannot be set aside if otherwise valid under the state law. Collier on Bankruptcy (13th Ed.) 1923, vol. 2, 1248.
¶7 There must be proof, both of insolvency of the bankrupt at the time of the transfer and reasonable cause to believe that such transfer would effect a preference. Ky. Bank & Trust Co. v. Pritchard, 44 Okla. 87, 143 P. 338.But even though the creditor knows the debtor to be for the moment insolvent in the sense of the statute, yet if he honestly supposes that some of his assets, worthless for the moment, will, if he be allowed to continue, realize enough to pay the debts in full, such knowledge of insolvency is not enough to show a reasonable cause to believe that the transfer would effect a preference. Subsequent knowledge of the creditor that the debtor was at the time of the preference insolvent is not material. Wrenn v. Citizens' National Bank (Conn.) 114 A. 120; Collier on Bankruptcy (13th Ed.) 1923, vol. 2, page 1307.
¶8 The burden of showing that the person receiving the preference had knowledge or reasonable cause to believe that the debtor was insolvent is upon the trustee.It is well settled by a long line of decisions in the federal courts and in many state courts that where there is no evidence tending to show that a creditor had reasornable cause to believe that payment made by the bankrupt would result in a preference a recovery cannot be had.
¶9 The law presumes that such payments are legal and the burden of proof is on the trustee seeking to recover them to overcome this presumption and establish the essential elements of a voidable preference.He must prove the insolvency of the debtor at the time the security was given or the transfer made or recorded. And he must also prove the existence of the "reasonable cause to believe" and that the payment diminished the estate of the bankrupt.All this must be done by a fair preponderance of all the evidence in the case, and, where inferences from proved facts are to be drawn, the rule obtains that if two inferences of substantially equal weight may reasonably be drawn from the proved facts then that inference shall prevail which sustains the transfer or security.
¶10 The authorities in support of this rule are cited in Collier on Bankruptcy (13th Ed.) vol. 2, at page 1328, which cases include Ky. Bank & Trust Co. et al. v. Pritchard, supra.The controlling facts briefly stated are as follows:That on or about the 29th day of November, 1921, the said Lindley, who, at that time, was the sole owner of a drug store which he operated under the name of the Crescent Drug Company, sold a one-half...
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