Post v. Fischer

• Decision Date: 21 September 1937
• Docket Number: 26667.
• Parties: POST v. FISCHER.
• Court: Washington Supreme Court

71 P.2d 659

191 Wash. 577

POST v. FISCHER.

No. 26667.

Supreme Court of Washington

September 21, 1937

Department 1.

Appeal from Superior Court, Pierce County; Fred G. Remann, Judge.

Action by Herbert E. Post, as receiver of Morrison & Company Incorporated, against Ida Fischer, a widow. From a judgment dismissing the action, the plaintiff appeals.

Reversed and remanded, with directions.

Reuben C. Carlson and Hayden, Metzger & Blair, all of Tacoma, for appellant.

Bogle Bogle & Gates, Ray Dumett, and Arthur C. Spencer, Jr., all of Seattle, amici curiae.

Williamson Freeman & Broenkow, of Tacoma, for respondent.

BLAKE Justice.

Pursuant to an application filed in superior court February 28, 1936, the plaintiff was appointed receiver of Morrison & Co., Inc. He brought this action to recover $500 paid by the corporation to defendant within four months prior to that date. He alleged that the corporation was insolvent at the time defendant received the money; that the payment constituted an unlawful preference given in fraud of creditors of the corporation and, if allowed to stand, would result in the defendant receiving a greater proportion of the assets of the property of the corporation than would be received by other creditors of the same class. It is to be observed that the complaint contains no allegation that defendant had reasonable cause to believe that the payments would effect a preference. The court sustained a demurrer to the complaint, and entered judgment dismissing the action. Plaintiff appeals.

The demurrer was sustained on the ground that under § 2(a), c. 47, p. 160, Laws 1931 (Rem.Rev.Stat. § 5831-2(a), a payment made within four months from the time of filing application for the appointment of a receiver does not constitute a preference, unless the person receiving it has reasonable cause to believe that the payment would effect a preference. The section contains no such limitation. But respondent contended, and the court took the view, that the Legislature, in the enactment of section 2(a, b), c. 47, p. 160, Laws 1931 (Rem.Rev.Stat. § 5831-2(a, b) , adopted section 60, subdivisions (a, b), of the Federal Bankruptcy Act (11 U.S.C.A. § 96(a, b); that therefore our act, under the well-recognized rule of statutory construction, must be deemed to have been adopted with the construction placed on section 60 of the Bankruptcy Act (11 U.S.C.A. § 96) by the federal courts; that, under the decisions of the federal courts, a payment can be recovered as a preference only when made within four months of the filing of the petition in bankruptcy, and then only if the person receiving the payment has reasonable ground to believe that the payment will effect a preference. We, however, do not think that view is sound. While the wording of section 2(a, b), c. 47, Laws 1931 (Rem.Rev.Stat. § 5831-2(a, b), is in most respects identical with section 60, subdivisions (a, b), of the Bankruptcy Act, it cannot be construed solely in the light of the construction placed upon section 60 by the federal courts. In construing it, we must take into account the whole of chapter 47 and the law of this state relating to preferences prior to its enactment. The trust fund doctrine was and is the common law of this state. Sterrett v. White Pine Sash Co., 176 Wash. 663, 30 P.2d 665. Under that doctrine, prior to the enactment of section 5 (a, b), c. 47, Laws 1931, all payments or transfers of property made without present consideration by an insolvent corporation constituted preferences, and could be recovered even though the creditor acted in good faith, and had no reasonable ground to believe that the corporation was insolvent. Jensen v. American Bank of Spokane, 157 Wash. 240, 288 P. 660. Construing section 2(a, b), c. 47, Laws 1931 (Rem.Rev.Stat. § 5831-2(a, b), in Meier v. Commercial Tire Co., 179 Wash. 449, 38 P.2d 383, this court said:

'It seems obvious that the purpose of the Legislature was to mitigate the harshness of the rule when applied to a creditor who, in good faith and without knowledge of the insolvency, has received a payment more than four months Before the filing of an application for the appointment of a receiver.

'Subdivision (a) of the statute enacts our court-made rule that all such payments made within the four-month period shall be voidable just as they have been prior to the adoption of the statute; and subdivision (b) enacts the same rule as to all payments made Before the four-month period in all those cases where the creditor receiving the payment has reasonable cause to believe that a preference would thus be created. A creditor, who without knowledge of insolvency or of other facts indicating a preference, receives his money more than four months Before other creditors begin to act, is thus by clear and necessary implication protected by the statute.'

This construction of the act was reiterated in Guaranty Trust Co. v. Yakima First Natl. Bank, 179 Wash. 615, 38 P.2d 384. Upon reconsideration, we are still satisfied that section 2(a, b), c. 47, Laws 1931, was intended to modify the trust fund doctrine only to the extent stated in Meier v Commercial Tire Co., supra, and that the Legislature had no intention of changing the law relating to recovery of payments made as preferences to conform to the law as laid down by the federal courts in construing section 60 of the Bankruptcy Act. We are now...