Miller v. Fisk Tire Co.

• Citation: 11 F.2d 301
• Parties: MILLER v. FISK TIRE CO.
• Decision Date: 02 March 1926
• Court: U.S. District Court — District of Minnesota

11 F.2d 301 (1926)

MILLER v. FISK TIRE CO.

District Court, D. Minnesota, Fifth Division.

March 2, 1926.

A. G. McKnight, of Duluth, Minn., for plaintiff.

M. T. O'Donnell, of Duluth, Minn., for defendant.

JOHN B. SANBORN, District Judge.

At the close of the testimony the plaintiff and defendant each moved for a directed verdict, and thereupon the court discharged the jury and took the case under advisement. From the admissions contained in the pleadings and the evidence adduced, the court finds generally in favor of the defendant; that it is entitled to judgment that the plaintiff take nothing by this action and for its costs and disbursements. Let judgment be entered accordingly.

Memorandum.

Joseph B. Healy and Elmer J. Lindsay, who had been copartners doing business as the Hibbing Auto Supply Company, and who had been engaged in the automobile business at Hibbing, Minn., were adjudged bankrupt on the 8th day of July, 1923. Paul A. Miller was appointed trustee on the 24th day of July, 1923, and he has brought this action to recover what he claims was a voidable preference.

The Hibbing Auto Supply Company, early in the spring of 1923, was evidently insolvent, but was doing business. The company it had been buying automobile tires from had refused to deal with it further. It had received orders for a number of tires. Healy took the matter up with Neumann, a representative of the defendant, a manufacturer of tires, but was told that none would be sold to the Hibbing Auto Supply Company, unless he could secure a guarantor of the account. He offered J. H. Ryan, a man of financial responsibility, who was accepted by the company, and who signed the following guaranty on the 9th day of April, 1923:

"I hereby guarantee, unconditionally, to the Fisk Tire Company, Inc., a New York corporation, the full and prompt payment at maturity of all invoices that it has now rendered or may hereafter render against Hibbing Auto Supply Company, my liability not to exceed $1,000, same to continue until further notice, for merchandise furnished or to be furnished, and all extensions, notes, and renewals given on account thereof, hereby waiving notice to me of the acceptance of this guaranty, and of delivery of all materials and waiving notice of default in payment, and, in the event of the failure of the said Hibbing Auto Supply Company to pay any such invoices, extensions, or notes when due and matured, acknowledge myself liable, and agree to pay same upon demand, as though the material had been purchased and invoiced to me for my own account; the guaranty being given for and in consideration of $1 and other valuable considerations, the receipt whereof is hereby acknowledged."

After this guaranty had been given, the defendant made several shipments of tires to the partnership, and received some payments on account. On the 6th day of June there was still due the defendant $1,147.15. On that day Neumann called at the Hibbing Auto Supply Company's place of business and found it had been closed by the sheriff. He called Healy on the telephone, and was told to go to Ryan, the guarantor. He went to Ryan, presented a statement of the account to him, and Ryan gave him a check payable to himself for $1,147.15, signed "Ryan Bros., by J. H. Ryan." Neumann testified that, when he called Healy prior to receiving this check, he asked him if he had made provision to settle the account; that Healy said, in substance, that he could get a check from Ryan. On direct examination, Healy stated that, when Neumann called him, he said that Ryan had the money; that he had told him he had given the money to Ryan. On cross-examination, he said he had told Neumann that Ryan would take care of the account. Neumann denies that he knew that Ryan had funds of the partnership, or was so advised.

At the time that Ryan consented to guarantee the account of the partnership with the defendant, he had an understanding that collections received on account of sales of tires by the Hibbing Auto Supply Company were to be turned over to him. From time to time thereafter Healy did turn over to Ryan, upon that understanding, village warrants and cash. The warrants were turned over to Ryan on or before May 20th, and up to the time that Ryan made the payment to Neumann he had received from the partnership about $500 in warrants and $500 in cash. He has never returned the warrants or the cash, and he received in addition, after his check was given, $147.15 from Healy personally.

The plaintiff's contention is that Ryan was an intermediary, and that the money which he paid to Neumann on the 6th day of June, by his check, was the money of the partnership, and not the money of Ryan, and that the Fisk Tire Company had reasonable cause to believe that the payment by Ryan to it would effect a preference. The defendant takes the position that the village warrants and money transferred to Ryan by the partnership were transferred to him to protect him upon his guaranty; that the defendant did not know of the arrangement existing between the partnership and Ryan, and did not know and did not have cause to believe that it was being paid by Ryan moneys belonging to the partnership, or that the payment to it by Ryan of its account would effect a preference.

The Bankruptcy Act, in section 60a, provides: "A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class." Comp. St. § 9644. Section 60b provides that such a transfer shall be voidable if "the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such judgment or transfer would effect a preference."

So far as we are concerned here, a voidable preference exists when a person, while insolvent and within four months of bankruptcy, makes a transfer of his property, the effect of which is to enable one creditor to obtain a greater percentage of his debt than another creditor of the same class, in case such transferee has reasonable cause to believe that the transfer will result in a preference. Collier on Bankruptcy (13th Ed.) vol. 2, p. 1248.

The payment to the defendant's representative was made while the partnership was insolvent, and the evidence indicates that the defendant had reasonable cause to believe that it was. It was made within four months of bankruptcy. If Ryan, the guarantor of the account, was an intermediary, and the partnership...