Malone v. Bolstein

• Decision Date: 28 March 1957
• Docket Number: Civ. No. 5187.
• Citation: 151 F. Supp. 544
• Parties: Bernard J. MALONE, as Trustee in Bankruptcy of Little Falls Dairy Company, Inc., Plaintiff, v. Moe BOLSTEIN and David Gimpel, Defendants.
• Court: U.S. District Court — Northern District of New York

151 F. Supp. 544

Bernard J. MALONE, as Trustee in Bankruptcy of Little Falls Dairy Company, Inc., Plaintiff, v. Moe BOLSTEIN and David Gimpel, Defendants.

Civ. No. 5187.

United States District Court N. D. New York.

June 30, 1956.

Affirmed March 28, 1957.

James A. McTiernan, Little Falls, N. Y., for plaintiff.

Bartle Gorman, Utica, N. Y., for defendants.

Affirmed March 28, 1957. See 244 F.2d 954.

BRENNAN, Chief Judge.

This action involves the determination of the existence of a preference under the provisions of the Bankruptcy Act in the matter of the payment of $8,050 to the two defendants within a period of four months prior to an adjudication in bankruptcy. The facts are undisputed. They are set out below in narrative form.

On Jan. 29, 1951 the Little Falls Dairy Co., Inc. (hereinafter referred to as "Little Falls" or the "bankrupt") entered into a written agreement with Gimpel Farms Inc. whereby Little Falls agreed to sell and deliver to Gimpel Farms, who agreed to purchase, four tanks of milk weekly consisting of not less than 350 cans of milk per tank, commencing Mar. 1, 1951 and terminating on Feb. 28, 1952. Gimpel Farms Inc. agreed to make payment for the milk so delivered weekly following receipt of bill from the seller. The sales agreement granted to Gimpel Farms the option of renewing the contract for an additional period of one year from the expiration date thereof.

On the same date, the defendants entered into a written agreement to loan to Little Falls the sum of $30,000 to be repaid at the rate of $1,000 per month, commencing Apr. 1, 1951 with interest at the rate of 7½% per annum.

On Feb. 20, 1952 the sales agreement between Little Falls and Gimpel Farms Inc. was extended an additional year in accordance with the option contained in the original agreement.

On July 24, 1951 an additional writing termed an "agreement" was executed by Little Falls and the two individual defendants. The body of the document is set out below.

"Now, Therefore, it is agreed by and between the parties hereto, as follows:

"1. That the said agreement dated January 29th, 1951 be deemed modified by the addition of the following provisions:

"It is further understood and agreed that in the event of failure to deliver milk from Little Falls Dairy Co. Inc. as per contract at any time it is then agreed that Gimpel Farms, Inc. is then authorized to pay to David Gimpel and Moe Bolstein any and all debts and claims owing to them by Little Falls Dairy Co., Inc. and remit the balance, if any, to Little Falls Dairy Co., Inc.; to the extent of such payment to David Gimpel and Moe Bolstein, the said account is assigned to David Gimpel and Moe Bolstein.

"In all other respects the said agreement dated the 29th day of January, 1951 shall be deemed in full force and effect."

As far as the record discloses, the obligations of all parties under the agreements were performed in accordance with their terms until Jan. 25, 1953 when Little Falls failed to deliver milk to Gimpel Farms Inc. in accordance with the original sales agreement. On that date Gimpel Farms was indebted to Little Falls for milk delivered in an amount somewhat in excess of $8,050. At the same time Little Falls was indebted to Messrs. Bolstein and Gimpel on account of the loan agreement, above referred to, in an amount of $8,050. On Jan. 28, 1953 Gimpel Farms Inc. paid to the defendant Bolstein $4,025 and a like sum to defendant Gimpel. Such payments were made under the provisions of the agreement of Jan. 24, 1951, which is set forth above.

Little Falls filed a petition under Chapter 11 of the Bankruptcy Act, 11 U.S. C.A. § 701 et seq. in the Clerk's office of this district on Feb. 16, 1953. The plan submitted failed and Little Falls was adjudicated a bankrupt on Apr. 22, 1953. A trustee was thereafter appointed who brings this action against the individual defendants to recover from each the sum of $4,025. The action proceeds upon the theory that the payments, above referred to, were made within a period of four months prior to bankruptcy and constitute a preference under the provisions of Sec. 60 of the Bankruptcy Act, 11 U.S.C. § 96.

The only additional relevant fact, which should be added, is that at all of the times pertinent here, the individual defendants were officers and directors of Gimpel Farms Inc. This fact accounts for the knowledge that Gimpel Farms had of the existence of the agreement of July 24, 1951. The record is otherwise entirely silent as to any formal notification of such agreement given to Gimpel Farms.

The above facts are readily understood and there is no problem in connection therewith. The construction and application of the agreement of July 24, 1951 is actually the crux of this litigation. No question is raised but what the problem here is to be solved under the provisions of New York State law as construed and applied in New York State court decisions. Manchester Nat. Bank v. Roche, 1 Cir., 186 F.2d 827; In re Barnett, 2 Cir., 124 F.2d 1005, at page 1008, Okin v. Isaac Goldman Co., 2 Cir., 79 F. 2d 317.

Before attempting any discussion of the law which must be applied, it seems logical to consider and interpret the agreement of July 24, 1951. It is plain that the primary purpose of the agreement is to afford the individual defendants additional security to insure the repayment of the moneys advanced under the January 1951 loan agreement.

It is equally plain that the language of the instrument makes it an adjunct to the sales agreement of Jan. 29, 1951. It in no way purports to stand alone and unsupported. Its language contains words of present agreement and present transfer. Nothing remains to be done by either of the parties to the agreement by the terms thereof. True, it contemplates the performance by Little Falls of an independent, entirely separate bilateral contract and the authority to make the payment comes into existence only in the event of a breach of such separate contract.

In summary, I construe the instrument as an agreement made July 24, 1951 assigning that part of the credit account of Little Falls with Gimpel Farms in an amount necessary to repay the two defendants the balance of the moneys advanced under the loan agreement. Authority to pay same to the two defendants is withheld until Little Falls is in default in their sales contract.

The plaintiff argues that the instrument contains no present agreement because of the use of the words "* * * it is then agreed * * *" in referring to Little Falls' failure to deliver milk. It is my opinion that the words quoted do not nullify the remaining express language of a present assignment but must be construed as fixing the time when Gimpel Farms is authorized to make payment of an account presently assigned. It is a well recognized rule of construction that effect should be given to all provisions of an instrument whenever possible. See also Sexton v. Kessler & Co., 225 U.S. 90, at pages 96-97, 32 S.Ct. 657, 56 L.Ed. 995.

The plaintiff also contends that the agreement is invalid for any purpose. Reliance is based upon the decision In Matter of Kienle's Estate, 202 Misc. 396, 109 N.Y.S.2d 496, affirmed 280 App.Div. 975, 117 N.Y.S.2d 467. The decision in that case was based on two holdings. First, the writing was interpreted to be simply a promise to pay a debt out of a designated fund. Second, the agreement was not supported by a legal consideration. Section 33 of the Personal Property Law of the State of New York, McK.Consol.Laws, c. 41 eliminates the application of the second reason from the instant case, Rudnick v. Fishbeck, 2 Cir., 158 F.2d 940, and my interpretation of the contract in the instant case eliminates the first basis for the decision. The instrument created "* * * a mere possibility coupled with no interest". Hinkle Iron Co. v. Kohn, 229 N.Y. 179, at page 182, 128 N.E. 113, at page 114. I would conclude that the case cited is not an authority here.

I must confess a confusion on my part in an independent investigation of New York State law as applicable to the validity of and the interest, if any, granted in the agreement under discussion. No single decision has been cited or found which is an authority for the solution of the problem here. Many cases have been examined but the analysis thereof is an onerous task which may better be left for more authoritative decision. New York State law upon the subject under discussion has been...