McNaboe v. Columbian Mfg. Co.

• Decision Date: 31 May 1907
• Parties: McNABOE v. COLUMBIAN MFG. CO.
• Court: U.S. Court of Appeals — Second Circuit

153 F. 967

McNABOE v. COLUMBIAN MFG. CO.

United States Court of Appeals, Second Circuit.

May 31, 1907

The following is the opinion of Hough, District Judge, in the court below:

The legal question here to be decided offers as a basis for adjudication very few and simple facts.

Within four months of the petition filed against the bankrupt herein the same man was at the same time the president of the bankrupt corporation, and an agent and director of an entirely different corporation. The bankrupt being already insolvent, this person on several occasions applied the funds of the corporation for which he was agent to the uses and purposes of the bankrupt, passing such funds through the bankrupt's bank account. Neither as agent nor director had he any authority to do what he did, and what he did do amounted in plain language to theft. The money under his control was in New York, and the headquarters of the corporation for which he was agent were in St. Louis, where also all its officers resided or had their place of business. When this man realized that bankruptcy of the corporation of which he was president was inevitable, he converted into cash a considerable portion of the bankrupt's assets, and repaid to himself as agent for the St. Louis corporation the amount which he had practically stolen. None of the officers of the defendant (the St. Louis corporation) had the slightest knowledge that their New York funds had either been taken or replaced until months after the bankruptcy was flagrant. The trustee in bankruptcy now asserts that the repayment of the stolen money constitutes a voidable preference under section 60 of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 562 (U.S. Comp. St. 1901, p 3445)).

It is admitted that, in order to constitute a voidable preference either (a) the person receiving the preference; or (b) the person to be benefited by the preference, or (c) 'his agent acting therein' shall have had reasonable cause to believe that a preference was intended by the payment or transfer complained of. Assuming that the performance above outlined comes within the purview of the bankruptcy act at all, it must be admitted that neither 'the person receiving' the payment in question, nor the person 'to be benefited thereby,' had, or had reasonable cause to have, the guilty knowledge which is the basis of a voidable preference.

This whole claim rests upon the proposition that the man who took the money from the defendant was the agent of the defendant in respect of the repayment, and that, inasmuch as the payment constituted a preference under section 60a, the words 'his agent acting therein' bring the matter within the prohibition of section 60b. It is candidly admitted in the able argument for the plaintiff that the rule which charges the principal with his agent's knowledge is subject to exception in cases where the agent is acting in fraud of his principal in the very transaction wherein he has knowledge or gets notice. As was said in De Kay v Hackensack Water Co., 38 N.J.Eq. 161: 'Where an officer of a corporation deals with the corporation in a matter in which his interest is opposed to the interest of the corporation, he does...