Watchmaker v. Barnes

• Decision Date: 18 June 1919
• Docket Number: 1391,1393-1396.
• Citation: 259 F. 783
• Parties: WATCHMAKER v. BARNES. LEVI v. SAME. RUDNICK v. SAME (two cases). MELTZER v. SAME.
• Court: U.S. Court of Appeals — First Circuit

259 F. 783

WATCHMAKER v. BARNES. LEVI v. SAME. RUDNICK v. SAME (two cases). MELTZER v. SAME.

Nos. 1391, 1393-1396.

United States Court of Appeals, First Circuit.

June 18, 1919

Abraham K. Cohen, of Boston, Mass. (David M. Watchmaker, of Boston Mass., on the brief), for plaintiff in error Watchmaker.

Charles H. Dow, of Boston, Mass. (Samuel Sigilman, of Boston, Mass on the brief), for plaintiff in error Levi.

David Stoneman, of Boston, Mass. (C. S. Hill, of Boston, Mass Elijah Adlow, of Roxbury, Mass., and Stoneman, Gould &amp Stoneman, of Boston, Mass., on the brief), for plaintiffs in error Rudnick and Meltzer.

Clarence A. Barnes, of Boston, Mass. (White & Barnes, of Boston, Mass., on the brief), for defendants in error.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

JOHNSON Circuit Judge.

In each of the above actions, the plaintiff, the defendant below, and hereinafter called the defendant, seeks a review of a judgment recovered in action at law by the trustee in bankruptcy of David M. Rubin, under the provisions of section 60b of Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 562, as amended by Act June 25, 1910, c. 412, Sec. 11, 36 Stat. 842 (Comp. St. Sec. 9644)), which, so far as it relates to the matters in issue, is as follows:

'If a bankrupt shall * * * have made a transfer of any of his property, and if, at the time of transfer, * * * and being within four months before filing of the petition in bankruptcy, * * * the bankrupt be insolvent and the * * * transfer then operate as a preference, and the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that * * * such * * * transfer would effect a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person.'

Under section 60a of the same act, as amended by Act Feb. 5, 1903, c. 487, Sec. 13, 32 Stat. 799 (Comp. St. Sec. 9644), a preference is defined as follows:

'A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, * * * made a transfer of any of his property, and the effect of the enforcement of such * * * 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.'

A jury trial was waived in each case, and in each the learned judge of the District Court found that all the essentials to a recovery by the plaintiff were either admitted or proved by uncontradicted evidence, except whether, at the time when the payments were made, the several defendants knew that Rubin had committed forgery; and if they did know, whether this knowledge in connection with all facts shown to have been known to them, or which it could reasonably be inferred were known to them, furnished reasonable cause to believe him to be insolvent, and that the payments made by him would effect a preference. Upon these questions he found for the plaintiff. His findings cannot be reversed unless they are clearly wrong, because not sustained by any view of the evidence or inferences which might reasonably be drawn therefrom or induced by a mistaken view of the law.

It appeared at the trial that Rubin had been engaged in the wholesale coal business in Chelsea, Mass., for several years under the name of the Chelsea Iron & Coal Company; that he owed large sums of money to various banks, private money lenders, and other people; that he had borrowed large sums of money from time to time on promissory notes, to which he either forged the signatures or indorsements of some one of several relatives who were known to Rubin's creditors as responsible financially. Rubin testified that he was insolvent in 1914; that his condition grew worse, until in 1915 and 1916 it had become very desperate; that his assets were merely nominal, and he owed over $120,000 at the time of bankruptcy; that for over a year prior to his bankruptcy he had been forging extensively the names of various friends and relatives, and on the strength of said forgeries had obtained many thousands of dollars from about 40 different firms and individuals in Boston; that he had exhausted his credit at the banks in the spring of 1916 and was obliged to deal with various private money lenders, paying interest at the rate of from 1 to 3 per cent. a month, and in some cases bonuses in addition. A petition in bankruptcy was filed by his creditors on December 15, 1916, and he was duly adjudicated a bankrupt on January 9, 1917.

Whether knowledge that Rubin had committed forgery, taken with all other testimony in each case, constituted reasonable cause to believe that he was insolvent when the payments were made by him of notes which had been discounted for him by the several defendants and upon which they were indorsers, and that these payments would effect a preference, was the principal question in all the cases, and its discussion and our conclusion will apply to all. That a debtor would commit the crime of forgery which, if detected, might subject him to severe punishment, would indicate to the ordinarily intelligent mind that his financial condition must be desperate, and leads us to the same conclusion as that reached by the learned district judge, that information that forgery had been committed by Rubin would incite in the mind of a reasonably intelligent man more than suspicion and furnish reasonable cause for belief that he was insolvent, as defined in the Bankruptcy Act, and that the payments made by him would effect a preference. What will constitute reasonable cause for belief under the Bankruptcy Act has been considered many times in both federal and state courts, but it is evident that no general rule could be laid down which would apply to every case, but that each must be decided upon its own facts and the circumstances surrounding them.

In Connors v. Bucksport National Bank, 214 F. 847, decided in the District Court of Maine, it was held that knowledge on the part of the bank that forgery had been committed by the bankrupt, taken in connection with all the other testimony, constituted reasonable cause to believe that the bankrupt was insolvent when he executed certain mortgages to the bank, and this finding was affirmed by this court 216 F. 990, 132 C.C.A. 90. In Putnam v. United States Trust Co., 223 Mass. 199, 204, 111 N.E. 969, the court held that knowledge that the bankrupt had committed forgery, taken in connection with other testimony in the case, furnished reasonable cause for belief that payments received by the bank would effect a preference. We think that knowledge that the bankrupt has committed forgery is notice of a fact which would incite a person of reasonable prudence to an inquiry under similar circumstances, and is notice of all the facts which a reasonably diligent inquiry would disclose. Farmers' State Bank v. Freeman, 249 F. 579, 161 C.C.A. 505; Coder v. McPherson, 152 F. 951, 82 C.C.A. 99; Huttig Manufacturing Co. v. Edwards, 160 F. 619, 87 C.C.A. 521; Peters v. Bain, 133 U.S. 670, 693, 10 Sup.Ct. 354, 33 L.Ed. 696; National City Bank v. Hotchkiss, 231 U.S. 50, 57, 34 Sup.Ct. 20, 58 L.Ed. 115.

All the payments which the trustee seeks to recover in these actions, with but one or two exceptions, were made to banks in which the defendants had rediscounted the notes which they had discounted for Rubin. As indorsers upon the notes so paid they were benefited by these payments, and the trustee may recover such payments from them, provided they had reasonable cause to believe, when they were made, that Rubin was insolvent; that their payment would effect a preference; and that as found by the learned district judge in each case, which we think is sustained by the evidence, they had procured Rubin to make them. Swarts v. Fourth National Bank, 117 F. 1, 54 C.C.A. 387; Cohen v. Goldman, 250 F. 599, 162 C.C.A. 615; Kobusch v. Hand, 156 F. 660, 84 C.C.A. 372, 18 L.R.A. (N.S.) 660; Stern v. Paper (D.C.) 183 F. 228; In re Silvernail Co. (D.C.) 218 F. 979; Lazarus v. Eagen (D.C.) 206 F. 518; Paper v. Stern, 198 F. 642, 117 C.C.A. 346; National Bank of Newport v. Herkimer Bank.

225 U.S. 178, 32 Sup.Ct. 633, 56 L.Ed. 1042; Bartholow v. Bean, 18 Wall. 635, 2 L.Ed. 866; Landry v. Andrews, 22 R.I. 597, 48 A. 1036; Brown v. Streicher (D.C.) 177 F. 473.

The learned judge of the District Court has found that all the payments made by Rubin which the trustee seeks to recover in these actions were made from Rubin's general funds, which 'were largely the proceeds of other forged notes which Rubin put out from time to time to meet notes coming due. In no case was the sum received on a note held separate and used to pay the note by which it had been obtained. ' The evidence upon which this finding was made has not been reported, but as it has not been questioned by counsel we accept it as fully sustained by the evidence.

The Case Against Meltzer.

The defendant Meltzer was engaged in the metal business in Chelsea for a number of years, and knew Rubin slightly, and the persons whose names appeared as indorsers upon his notes intimately. On July 24, 1916, he loaned Rubin $2,450 upon several promissory notes, signed or indorsed by Rubin and purporting to be signed or indorsed by several persons and firms known to the defendant to be men of financial responsibility. On November 1, 1916, two of these notes, one for $500 and the other for $250, became due. Rubin telephoned to the defendant that he would be unable to pay these notes and asked for an extension, which was refused. He thereupon paid the $250 note, and the $500 note was protested. That night Rubin testified that he went to Meltzer's home, and asked him...