Stevens v. Oscar Holway Co.

• Citation: 156 F. 90
• Decision Date: 07 September 1907
• Docket Number: 54.,53
• Parties: STEVENS v. OSCAR HOLWAY CO. SAME v. DOTEN GRAIN CO.
• Court: U.S. District Court — District of Maine

156 F. 90

STEVENS v. OSCAR HOLWAY CO.

SAME v. DOTEN GRAIN CO.

Nos. 53, 54.

United States District Court, D. Maine.

September 7, 1907

Robert T. Whitehouse, for Stevens, trustee.

Geo. C Wing, for Oscar Holway Co.

Foster & Foster and Chas. A. Strout, for Doten Grain Co.

HALE District Judge.

Each of the above causes in equity is heard upon bill, answer replication, and proofs. By agreement of counsel, the two cases are tried and argued together. In both cases the trustee seeks to recover, for the benefit of creditors certain payments made by the bankrupt to the several respondents, within four months next preceding the filing of a petition in bankruptcy against him, on the ground that the payments were voidable preferences. The answers of the respondents admit the bankruptcy of the debtor and the receipt of the various payments on the dates alleged; but deny the insolvency of the debtor at the dates of the several payments, his knowledge of his insolvency, his intent to prefer, and that the respondents had any knowledge of the bankrupt's insolvency, or had reasonable cause to believe that he intended a preference by the payments.

Sections 60a and 60b of the bankruptcy act of July 1, 1898 (30 Stat 562, c. 541 (U.S. Comp. St. 1901, p. 3445)), as amended February 5, 1903 (32 Stat. 799, c. 487 (U.S. Comp. St. Supp. 1905, p. 689)), provide that:

(a) '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. Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required.'

(b) 'If a bankrupt shall have given a preference, and the person receiving it, or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person. And, for the purpose of such recovery, any court of bankruptcy, as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction.'

The payments in question were as follows: A payment of $688.19 made to the Doten Grain Company on February 20, 1906, and $330 paid to the same respondent company on May 5, 1906; and the following payments made to the respondent, the Oscar Holway Company: $176 on April 12, 1906, $150 on April 13th, $135.02 on April 14th, and $43.02 on April 25th. It is admitted that all these payments were made within four months before the filing of the petition in bankruptcy.

1. The testimony shows that, at the time when all of the above payments were made, the debtor, William W. Blanchard, was insolvent, within the meaning of section 1, par. 15, of the bankruptcy act, which provides that:

'A person shall be deemed insolvent within the provisions of this act whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, with intent to defraud, hinder, or delay his creditors, shall not, at a fair valuation, be sufficient in amount to pay his debts.'

The testimony of the trustee establishes the fact that on February 20, 1906, the liabilities of the debtor were about $11,333, and that his assets amounted to $3,491, exclusive of the mill, which was mortgaged to its full value, and that there was therefore an excess of $8,844 of liabilities over assets, that on April 12th the total liabilities of the debtor were $13,385, and that his assets were about $3,000, showing a total excess of more than $10,000 liabilities over assets. On May 5, 1906, the liabilities, shown by the claims proven, were $12,220; and this sum is exclusive of $250 of unproved claims listed by the debtor as justly due. On May 9th a voluntary assignment was made at common law, and the inventory of the common-law assignee shows that the assets were about $3,000, leaving an excess of over $9,000 of liabilities at that time.

2. The testimony in the record shows that the effect of the enforcement of the several payments or transfers would be to enable the respondent creditors to obtain a greater percentage of their debts than any other of the creditors of the same class.

3. Did the debtor, knowing that he was insolvent, intend a preference by the said several payments?

In his testimony the bankrupt testified that he was insolvent, and that he knew he was insolvent, during the period of time covered by said payments. But the respondents contend that there is not sufficient evidence to prove that when he made the said several payments, or any of them, the bankrupt intended to create a preference to either of the several creditors.

Before discussing the several payments in detail, it is necessary to consider the law with reference to a bankrupt's intention to make a preference. In the Andrews Case, 144 F. 922, 75 C.C.A. 562, it was held by the Circuit Court of Appeals in this circuit that the intention to prefer must be an actual intent, and not an attributed one, and that it cannot be presumed from the fact alone that the debtor knew he was insolvent when he made the payment of a pre-existing debt. In speaking for the Court of Appeals, Judge Putnam said:

'It is true that the ordinary rule that a person who does an act is supposed to contemplate what results therefrom applies to cases of this class, but only as an element, and it cannot apply even as an element, unless the party who does the act has a knowledge of the essential facts which tend to produce the resulting consequences, or at least has a reasonable cause to believe them, or purposely shuts his eyes.'

In the case at bar the testimony convinces me that, at the time when all the several payments were made, the bankrupt knew he was insolvent; that he knew the great excess of his liabilities over his assets; that his property was fully mortgaged; that his paper was long overdue; and that his creditors were 'declining to wait any longer.' The testimony is not so clear with reference to his intention to prefer when he made the payment of February 20, 1906, as when he made the subsequent payments; but, even when he made the earliest payment, I must conclude that he knew he was 'hopelessly insolvent,' and that he did, as a matter of fact, intend a preference in making such payment. And, in respect to the latter payments, the testimony does not leave room for the slightest question upon this point. I have no hesitation, then, in coming to the conclusion that, at the time when he made each one of the several payments, he, in the language of Judge Putnam, 'had knowledge of the essential facts which tend to produce the resulting consequences.'

I conclude in respect to each one of the several payments that the debtor, knowing he was insolvent, intended a preference.

4. It now becomes my duty to inquire, in respect to the several payments, whether or not each one of them was made by the debtor with the knowledge on the part of the creditor, or with a reasonable cause to believe, that it was intended thereby to give a preference.

Each payment presents a question of fact for the court to pass upon. The law is clear and undisputed. In the case of each payment, in order to sustain the complainant's allegation upon this point, he must show that, at the time the payment was made, the creditor had reasonable cause to believe the debtor to be insolvent. If facts in respect to the debtor's financial condition are brought home to the creditor, or such information is brought home to him as would put an ordinarily prudent man upon his inquiry, then the creditor is chargeable with knowledge of the facts which such inquiry would reasonably be expected to disclose. Upon this point, the Andrews Case, supra, is controlling, especially when taken in connection with the decisions cited therein. Since that case, I do not find that the Supreme Court has given any decisions which throw any light upon the question; but, in the several circuits, there have been important decisions to the same effect.

In Hussey v. Richardson-Roberts Dry Goods Co., 148 F. 598 78 C.C.A. 370, the Circuit Court of Appeals for the Eighth Circuit passed upon a case...