Smyth v. Kaufman, 328.

• Decision Date: 07 August 1940
• Docket Number: No. 328.,328.
• Citation: 114 F.2d 40
• Parties: SMYTH v. KAUFMAN et al. In re J. D. KOPLIK & CO.
• Court: U.S. Court of Appeals — Second Circuit

114 F.2d 40 (1940)

SMYTH v. KAUFMAN et al. In re J. D. KOPLIK & CO.

No. 328.

Circuit Court of Appeals, Second Circuit.

August 7, 1940.

Harold Flatto, of New York City, for defendants-appellants.

Joseph Allentuck, of New York City (Bernard L. Seligman, of New York City, of counsel), for plaintiff-appellee.

Before L. HAND, AUGUSTUS N. HAND, and CLARK, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

This action was brought by the trustee in bankruptcy of J. B. Koplik & Co. for the recovery of sums paid to the defendants and allegedly voidable and recoverable by the trustee in bankruptcy as preferences under Section 60, sub. b, of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. b. The defendants are the executors under the will of Beccie Baruch, and they were sued both as individuals and in their representative capacity. Judgment was given for the plaintiff, and the defendants appeal.

J. B. Koplik & Co., the bankrupt (hereafter referred to as Koplik), was a jewelry and pawnbroking establishment which had long been in business. On January 2, 1937, Koplik issued to one Beccie Baruch its renewal note, payable in one year, in the sum of $3,700. Beccie Baruch died on August 7, 1937; under her will letters testamentary were issued to the defendants Bertram L. Kaufman and I. Morton Brenner. On January 3, 1938, after due notice, the defendants presented for payment the note owned by the decedent. The note was dishonored and was protested. The executors were told that Koplik was hard pressed for cash since an auction of its stock in trade had not been had for a long time because the market for jewelry was depressed. Although assurances were given that Koplik was "working out quite a number of new deals for capital" the defendants began suit on the note in the Supreme Court of New York. No answer was filed by Koplik in that proceeding, and on February 10, 1938, judgment by default was entered for the executors, the defendants herein.

On February 8, 1938, after the time for Koplik to answer in the state court proceeding had expired, an agreement to settle and to discontinue the suit was reached by the parties. Under the agreement Koplik delivered to the executors one check for $723.76 dated February 8, 1938, and another check for $500 dated February 15, 1938. Five notes in the sum of $500 each, due February 25, March 7, March 17. March 28 and April 6, 1938, were executed by Koplik and indorsed by its officers, and were also delivered to the executors. The agreement was to be null and void and judgment could be entered in the amount then due in the event that either of the checks were not paid or that the notes were not executed and delivered.

The first check for $723.76 was presented at the bank and was returned because of insufficient funds. Koplik then borrowed approximately $500 from its landlord, one Eversley Childs, and with this, together with other funds, paid the check at the office of the attorney for the executors. On February 14, the day before the second check was to be due, Koplik informed the attorney for the executors that there would not be funds in the bank sufficient to cover the check, but that "if he would send the check up to Mr. Childs' office, why, Mr. Childs would give him $500 for the check." This second check was paid at Mr. Childs' office on February 15, 1938.

On March 2, 1938, an involuntary petition in bankruptcy was filed against Koplik and on the 15th of March Koplik was adjudicated a bankrupt. The plaintiff was appointed trustee in bankruptcy and sued the defendants individually and as executors to recover the alleged two preferential payments. The district court found that the bankrupt was insolvent at the dates of both the payments, that the executors had reasonable cause to believe that the bankrupt was then insolvent, and that the effect of the payments was to enable the executors to obtain a greater percentage of their debt than other creditors of the same class. The payments were therefore held to be preferences and to be recoverable from the defendants individually and as executors.

The defendants assign error in the finding that they had reasonable cause to believe that Koplik was insolvent at the time when the payments were made. They point to the long existence of the Koplik concern, to the stablity of pawnbroking establishments, and to the Jewelers' Board of Trade Rating Book, which gave Koplik a credit rating up to $1,000,000 at "slow pay". There was testimony that this was considered a "marvelous account" in the trade, as well as testimony that Koplik was considered a safe concern by members of the trade. However, the credit manual stated that Koplik did not make a practice of issuing statements and there was much evidence to inform the executors that the bankrupt was in financial difficulties. Koplik was unable to pay its renewal note at maturity, although it was given ample notice that payment would be required and that no further extension would be granted. Moreover in spite of the fact that it was claiming to have ample stocks of merchandise it had defaulted on its note and had allowed judgment to go against it. The check for $723.76, dated February 8, was dishonored at the bank, and the executors were informed that most of the funds used to pay it, and all of the funds used to pay the second check, had to be borrowed from the bankrupt's landlord. It cannot be said that there was not evidence to support the finding of the trial court that the executors had reasonable cause to believe that Koplik was insolvent.

Next, it is contended by the defendants that there is no support for the finding that Koplik was in fact insolvent at the time of the payments. This finding might well be supported by the evidence relied on to show reasonable cause to believe, and by the collapse of Koplik only three weeks after the first payment. But in any event, the fact of insolvency stands admitted because of the defendants' failure to deny it after being served by the plaintiff with a notice to admit that fact. Under Rule 36(a) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, "a party may serve upon the other party a written request for the admission by the latter of the genuineness of any relevant documents described in and exhibited with the request or of the truth of any relevant matters of fact set forth therein." The executors contend that the last word of the sentence, the word "therein," refers to the "documents" mentioned in the rule and not merely to the "request" to admit, and that therefore they are not bound by a request to admit a fact unrelated to documents, such as the fact of insolvency. However, the opinion both of the courts and of commentators has been uniform that under Rule 36(a) a "matter of fact" not related to any document may be presented to the other party for admission or denial. Walsh v. Conn. Mutual Life Ins. Co., D.C.E.D.N.Y., 26 F.Supp. 566; McCrate v. Morgan Packing Co., D.C.N.D. Ohio, 26 F.Supp. 812; Nekrasoff v. United States Rubber Co., D.C.S.D.N.Y., 27 F. Supp. 953; Hanauer v. Siegel, D.C.N.D. Ill., 29 F.Supp. 329; Booth Fisheries Corp. v. General Foods Corp., D.C.D.Del., 27 F. Supp. 268; Modern Foods Process Co. v. Chester Packing & Provision Co., D.C.E.D. Pa., 30 F.Supp. 520. See Moore's Federal Practice, p. 2652; Proceedings of the Institute on Federal Rules, pp. 103, 142, 263. Under the rule, therefore, the defendants...