Margolis v. Gem Factors Corp.
| Decision Date | 04 February 1953 |
| Docket Number | No. 143,Docket 22542.,143 |
| Parties | MARGOLIS v. GEM FACTORS CORP. |
| Court | U.S. Court of Appeals — Second Circuit |
Isadore B. Hurwitz, New York City (Louis P. Rosenberg, Brooklyn, N. Y., on the brief), for plaintiff-appellant.
Louis J. Weinshenker, New York City (Weinshenker & Kenner, New York City, on the brief), for defendant-appellee.
Before SWAN, Chief Judge, and CLARK and FRANK, Circuit Judges.
The trustee in bankruptcy of Bri-Test Inc. brought this action in the district court to recover an allegedly preferential payment of $21,000 made to defendant by the bankrupt within four months of the filing of its Chapter XI, 11 U.S.C. § 701 et seq., petition. The amended complaint set forth two causes of action, the first to recover the preference under § 60 of the Bankruptcy Act, 11 U.S.C. § 96, and the second for the same relief under § 15 of the N. Y. Stock Corporation Law, McK.Consol. Laws, c. 59, applicable under Bankruptcy Act § 70, 11 U.S.C. § 110. Defendant's answer admitted receipt of the $21,000, but generally denied the other material allegations of the complaint.
Two pre-trial conferences formulated the issues to be tried. At the first conference the disputed issues on the first cause of action were narrowed to: (1) Was Bri-Test insolvent on July 10, 1950, the date of the $21,000 payment, and (2) did defendant have knowledge or reasonable cause to believe that Bri-Test was insolvent on that date? The issues raised by the second cause of action were formulated at the second conference in substance as follows: (1) Was the bankrupt insolvent, actual or imminent, in the sense of being unable to meet its obligations in due course, on the date in question; (2) was the $21,000 payment made with the intent of preferring defendant to other creditors; (3) did the payment result in such a preference; and (4) did defendant have notice or reasonable cause to believe that this payment would effect a preference?
At the close of plaintiff's case in a trial to a jury, defendant moved to dismiss the complaint on the merits for failure to establish a prima facie case on either cause of action. The court permitted plaintiff to introduce some further testimony and then, defendant having rested, granted defendant's motion without opinion. This ruling, from which plaintiff appeals, was error as to both causes of action.
There was surely sufficient evidence of Bri-Test's insolvency on July 10, 1950, to warrant submission of that issue to the jury. The schedules filed by the bankrupt with its petition on September 1, 1950, showed assets on that date of $88,525.00 as against liabilities of $285,665.41. Gould, the bankrupt's president, testified that his company had no assets on July 10 which were not reflected in the September 1 schedules, and that its liabilities on the earlier date might actually have been greater than those reported with the petition. Between July 10 and September 1, the bankrupt sustained only ordinary operating losses, the exact amount of which does not appear. Hence the hopelessly insolvent condition obtaining on September 1 might well have been found to exist in July.
A balance sheet prepared for the bankrupt indicated that on March 31, 1950, it was solvent to the extent of $27,364.66; but the accounts receivable, there stated at $317,744.72, consisted largely of amounts expected from unfilled orders, the bids for which were either never accepted or subsequently cancelled. The bankrupt, a manufacturing chemist producing waxes, polishes, soaps, and disinfectants, had hit upon this happy, if not haphazard, way of counting its chickens before they were hatched. During the summer of 1950, credits amounting to $294,514.02 were entered against these receivables to eliminate the fictitious items. Of this amount, $43,452.81 — substantially more than the March 31 surplus — had been credited by July 10. Moreover, Jacobs, an accountant who audited the bankrupt's books after its petition was filed, testified that Bri-Test would have been insolvent roughly to the extent of $72,800 on July 10, had the accounts receivable on that date accurately reflected the amounts then due the bankrupt. Despite Gould's testimony that he thought the company then solvent, the jury could certainly have found the fact to be otherwise on the basis of this evidence.
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...the natural, probable and only foreseeable end." Dalziel v. Rosenfield, supra, 265 N.Y. at 80, 191 N.E. at 842; Margolis v. Gem Factors Corp., 201 F.2d 803, 805 (2d Cir. 1953). On the other hand, a transfer made with a view to keep the company in business and eventually liquidate all debts ......
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