Paper v. Stern

• Decision Date: 19 August 1912
• Docket Number: 3,668.
• Citation: 198 F. 642
• Parties: PAPER et al. v. STERN.
• Court: U.S. Court of Appeals — Eighth Circuit

198 F. 642

PAPER et al. v. STERN.

No. 3,668.

United States Court of Appeals, Eighth Circuit.

August 19, 1912

Syllabus by the Court

A guarantor, an indorser, an accommodation maker, or a surety on the obligation of a bankrupt, is a creditor within the meaning of section 60b of the Bankruptcy Act of July 1, 1898 c. 541, 30 Stat. 562 (U.S. Comp. St. 1901, p. 3445).

The fact that the guarantor or indorser did not pay or induce the payment of the debt, but the payment was made by the bankrupt, does not except the case from the operation of the rule.

A transfer by a bankrupt within four months of the filing of the petition does not create a voidable preference unless he is 'insolvent'; that is to say, unless his property at a fair valuation is insufficient to pay his debts at the time of the transfer.

Proof of knowledge or notice of facts which give a creditor, or a person to be benefited by a preference, reasonable cause to believe at the time of the transfer that it is intended to give a preference thereby, is indispensable to the establishment of a voidable preference.

Suspicion fear, and facts that arouse suspicion and fear in the mind of the creditor, or the party to be benefited, but give no reasonable ground for him to believe that a preference is intended by the transfer, do not make such a preference voidable.

Ball, Watson, Young & Lawrence, for appellants.

Sam T. Swansen and T. C. Richmond (Ralph W. Jackman, of counsel), for appellee.

Before SANBORN and HOOK, Circuit Judges, and WILLARD, District Judge.

SANBORN Circuit Judge.

Sam Paper and Abraham Yoffey have appealed from a decree that a transfer of some of the property of the bankrupt, Dave Naftalin, to them on February 13, 1908, constituted a voidable preference under section 60b of the Bankruptcy Act of July 1, 1898, c. 541, 30 Stat. 562 (U.S. Comp. Stat. 1901, p. 3445), and that the trustee recover of them the value of this property. Naftalin was adjudged a bankrupt on March 24, 1908. He had been engaged in the business of a retail merchant of clothing, gents furnishing goods, boots, and shoes at Fargo, N.D., for about four years. He had a stock of goods worth somewhere from $5,000 to $10,000. In March, 1907, he gave his promissory note for $3,000, payment of which was guaranteed by the appellants to the First National Bank of Fargo, the note and guaranty were renewed for 90-day periods, and one or two small payments were made upon the debt until, on February 13, 1908, the bank held the note of Naftalin and the guaranty of the appellants for $2,948.35, principal and interest, dated December 16, 1907, due March 16, 1908. Naftalin was, and for some months had been, unable to pay his debts as they matured, the bank had received several drafts on him which it had been compelled to return unpaid, the appellants were engaged in business in Fargo and had exchanged checks with and loaned small amounts to Naftalin from time to time, which he had repaid. The bank had notified Naftalin that its discount committee insisted that his note should be paid, and the appellant Paper knew this fact. Thereupon Naftalin sold a portion of his stock of merchandise that cost him $4,400 to the appellants for $3,140, the appellants borrowed of the bank on their note on February 13, 1908, $2,950, and gave Naftalin their check for that amount in part payment for this merchandise because he told them he wanted this amount of money then to pay the bank, and Naftalin on the same day gave the bank his check for $2,948.35 in payment of his note. A few days later the appellants paid Naftalin the remainder of the purchase price of the goods they bought.

The appellants specify three errors: That the court ruled that the appellants were creditors of the bankrupt at the time of the transfer; that it found that Naftalin was insolvent at that time; and that it found that the appellants had reasonable ground to believe that it was intended to give a preference by the transfer. The first specification presents a question of law; the second and third questions of fact.

In 1908, section 60b provided that if a bankrupt shall have given a preference within four months preceding the filing of the petition in bankruptcy, 'and the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that it was...