Rutland County Nat. Bank v. Graves
| Decision Date | 21 September 1907 |
| Parties | RUTLAND COUNTY NAT. BANK v. GRAVES. |
| Court | U.S. District Court — District of Vermont |
R. A Lawrence, for claimant.
J. K Batchelder, for trustee.
In this case a payment was made by the bankrupt to a creditor within four months of bankruptcy proceedings. The question is whether that payment was made with intent to prefer, and whether it was received under such circumstances that there was reason to believe that a preference was intended.
In weighing the evidence relating thereto, it becomes necessary to consider the meaning of the statute of February 5, 1903 and the necessary and legal inferences arising from the circumstances under which the payment was made.
Section 57, subd. 'g,' of the statute of July 1, 1898, c 541, 30 Stat. 560 (U.S. Comp. St. 1901, p. 3443), reads thus:
'The claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences.'
The amendment (Act Feb. 5, 1903, c. 487, Sec. 12, 32 Stat. 799 (U.S. Comp. St. Supp. 1905, p. 689)), changed said subdivision 'g' to read thus:
'The claims of creditors who have received preferences, voidable under section 60, subdivision 'b,' or to whom conveyances, transfers, assignments, or incumbrances, void or voidable under section 67, subdivision 'e,' have been made or given, shall not be allowed unless such creditors shall surrender such preferences, conveyances, transfers, assignments or encumbrances.'
It will be observed that this amendment of said subdivision 'g' is limited to creditors who have received preferences voidable under section 60, subd. 'b,' and section 67, subd. 'e.' No such limitation existed until this amendment was made.
Subdivision 'a' of section 60, which provides, in substance, that a person shall be deemed to have given a preference if, being insolvent, he has within four months before filing of the petition, etc., suffered judgment or made a transfer of his property, etc., was not included in the amendment. Subdivision 'b' of said section 60, which provides, in substance, that if a bankrupt shall have given a preference, and the person receiving it, etc., shall have reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable, and subdivision 'e' of section 67, which provides, in substance, that conveyances, transfers, etc., made or given by a person adjudged a bankrupt within four months prior to the filing of the petition, with intent and purpose on his part to hinder, delay, or defraud his creditors, shall be void, are included. Before the amendment, a creditor could not be allowed for the balance due if he had received a preference for any portion of a debt unless he surrendered the preference so received, and an insolvent person, who, within four months of filing his petition in bankruptcy, made a transfer of his property to a creditor whereby the creditor obtained a larger percentage of his debt than any other of such creditors of the same class, was deemed to have given a preference whatever might have been his intent.
In Pirie v. Chicago Title & Trust Co., 182 U.S. 438, 21 Sup.Ct. 906, 45 L.Ed. 1171, the Supreme Court, by a divided opinion, four judges dissenting, construed the statute of 1898 as above stated. There the court held that, if a person receiving payment did not have cause to believe that it was intended as a preference, he may keep the property transferred; but, if it be only a partial discharge of his debt, he cannot prove the balance without returning the payment. This case was decided May 27, 1901. The amendment above referred to was approved February 5, 1903. It is apparent that Congress intended, by this amendment, that creditors of a bankrupt receiving partial payment and those receiving full payment should stand on the same basis. Of course, Congress could have provided that they should all come under the principle defined in subdivision 'a' of section 60, which would have been, in effect, that any payment made within four months of bankruptcy should be recoverable by the trustee, whatever may have been the intent of the payor or payee; but it did not so provide, but did expressly provide, by the elimination in the amendment of subdivision 'a' of section 60, and by the inclusion of only subdivision 'b' of said section, and subdivision 'e' of section 67, that in order to make a payment a preference it must have been made by the debtor with intent to prefer, and the creditor who received it must have had reasonable cause to believe that a preference was intended. To enable a trustee to recover, the equivalent of both these conditions must appear.
In Re Andrews, 16 Am.Bankr.Rep. 387, 144 F. 922, 75 C.C.A. 562, Judge Putnam, speaking for the First Circuit, discusses at length the effect of the amendment of 1903 upon payments, and therein that court held that said amendment involves the element that a creditor cannot be held to have had a good reason to believe a preference was intended unless a preference was actually intended on the part of the debtor, or unless there existed what the law regards as the equivalent thereof. This change in the law makes inapplicable a large number of the decisions of the courts relative to payments made by a bankrupt within four months of the bankruptcy proceedings, some of which appear upon the brief of counsel for the trustee, notably Benedict v. Deshel, 11 Am.Bankr.Rep. 20, 177 N.Y. 1, 68 N.E. 999. It was there held under the law previous to the amendment that a trustee need not prove an intent on the part of the insolvent in making the payment. This case arose before the amendment of 1903.
The case of Western Tie & Timber Co. v. Brown, 12 Am.Bankr.Rep. 111, 129 F. 728, 64 C.C.A. 256, illustrates what the law regards as the equivalent of an intent in making payment by the bankrupt. In that case the bankrupt was running two stores and was engaged in gathering ties for the Western Tie & Timber Company and selling supplies from his stores to the laborers engaged in this work. Once in two or three weeks an inspector sent to the company a pay roll upon which appeared the name of each workman, and the amount owing to him for his services and the price of the supplies which the bankrupt had furnished him. The company uniformly deducted from the wages due each workman the price of the supplies which Harrison, the bankrupt, had delivered to him, sent the workman his check for the balance, and sent said Harrison the price of the supplies he had furnished the laborers. There came a time when the company ascertained that Harrison was insolvent. He was owing the company upwards of $20,000 and other creditors many thousand dollars. The company, after discovering the bankrupt condition of Harrison, sent the laborers their checks as before, but, instead of sending Harrison his check for the supplies furnished the laborers, they withheld it, and applied it as part payment of the debt he owed the company, and against his protest, and this within four months of his bankruptcy. The mooted question there was whether there was any transfer. It is true that the trial judge, who wrote the opinion, used this language:
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