Western Tie & Timber Co. v. Brown

• Decision Date: 28 March 1904
• Docket Number: 1,953.
• Citation: 129 F. 728
• Parties: WESTERN TIE & TIMBER CO. v. BROWN.
• Court: U.S. Court of Appeals — Eighth Circuit

129 F. 728

WESTERN TIE & TIMBER CO. v. BROWN.

No. 1,953.

United States Court of Appeals, Eighth Circuit.

March 28, 1904

Syllabus by the Court

Under section 61a of the bankrupt law of July 1, 1898, c. 541, 30 Stat. 562 (U.S. Comp. St. 1901, p. 3445), as amended (Act Feb. 5, 1903, c. 487, Sec. 13, 32 Stat. 799 (U.S. Comp. St Supp. 1903, p. 416)), a transfer of the debtor's property may constitute a preference, although the property is not conveyed to the preferred creditor, if the effect of the transfer is to enable the creditor to receive out of the debtor's estate a larger percentage of his claim than others of the same class obtain.

An intention on the part of the insolvent to give a preference by means of a transfer he makes is not indispensable to the existence of a voidable preference, under section 60 of the bankrupt law of July 1, 1898, c. 541, 30 Stat. 561 (U.S Comp. St. 1901, p. 3445), as amended (Act. Feb. 5, 1903, c 487, Sec. 13, 32 Stat. 799 (U.S. Comp. St. Supp. 1903, p. 416)). It is sufficient that a transfer of the insolvent's property is made, which has the effect to give a preference, and that the party who receives it has reasonable cause to believe that it is intended by the party who procures the transfer, or who gives to the transfer the effect of a preference, that it should have that effect, although the insolvent is innocent of that intention.

Preferences voidable under sections 60a and 60b of the bankrupt law of July 1, 1898, c. 541, 30 Stat. 562 (U.S. Comp. St. 1901, p. 3445), as amended (Act. Feb. 5, 1903, c. 487, Sec. 13, 32 Stat. 799 (U.S. Comp. St. Supp. 1903, p. 416)), are not allowable as set-offs against claims of the preferred creditors under section 68 (30 Stat. 565 (U.S. Comp. St. 1901, p. 3450)), on the ground that the preferences and the claims constitute mutual debts and credits.

A company was hiring laborers to gather ties. The insolvent was operating stores and supplying the men. For many months an inspector had sent a pay roll once in about two weeks to the company, upon which the name of each laborer, his earnings, and the amount furnished him by the insolvent, appeared. The company had uniformly deducted the price of the supplies from the earnings of each man, had sent him a check for the balance, and had sent the insolvent a check for the supplies furnished. The insolvent owed the company more than $20,000, when, within four months of the filing of the petition in bankruptcy, it retained the amount owing the insolvent for the supplies furnished for three months and credited him with this amount $2,210.73, on its claim against him.

Held, this was a voidable preference, and the claim of the company against the estate of the bankrupt should be expunged unless it pays to the trustee the amount it thus withheld.

F. H. Sullivan, for appellant.

S. M. Stuckey (M. S. Stuckey and H. L. Ponder, on the brief), for appellee.

Before SANBORN, THAYER, and HOOK, Circuit Judges.

SANBORN Circuit Judge.

This is an appeal from an order of the District Court that the claim of the Western Tie & Timber Company against the estate of S. F. Harrison, a bankrupt, be expunged unless the company pays to the trustee the sum of $2,210.73 which the court below found had been transferred to the company by the bankrupt in such a way that the transaction constituted a preference.

A motion has been made to dismiss the appeal, under rule 11 of this court (90 F. cxlvi, 31 C.C.A. cxlvi), because the assignment of errors was not filed at the time of, or before, the allowance of the appeal. The record, however, does not establish the fact upon which this motion is founded. The order allowing the appeal, the citation, the admission of service of the citation, and the bond, are dated June 12, 1903. The approval of the bond and the assignment of errors are not dated. All these papers were filed June 16, 1903. As the assignment of errors was filed at the same time as the other appeal papers, the presumption is that it was presented to the court with them when the appeal was allowed, and the motion to dismiss is denied.

Harrison was adjudged a bankrupt on February 24, 1903. Prior to that time he owned some merchandise in two stores, and he was engaged in forwarding the work of gathering ties from the lands of the tie company, and in selling supplies to the laborers engaged in this work. Once in two or three weeks an inspector sent to the company a pay roll upon which the name of each workman, the amount owing to him for his services, and the price of the supplies which Harrison had furnished him, appeared. The company uniformly deducted from the wages due each workman the price of the supplies Harrison had delivered to him, sent the workman its check for the balance, and sent Harrison the price of all the supplies he had furnished to the laborers. This course of dealing had been followed for many months on October 24, 1902, four months before the filing of the petition in bankruptcy. On that day Harrison owed to the company more than $20,000. He owed other creditors many thousand dollars. The tie company held a mortgage on his property to secure the payment of $15,000 to it, and he was insolvent. During the month of December he applied to the tie company to advance him more money, and it refused his request. Thereafter, when the pay rolls for December, 1902, and January and February, 1903, came in, the company paid the laborers as usual, but, instead of sending to Harrison, as it had become accustomed to do, the price of the supplies which he had delivered to the men, it credited him with this amount, which aggregated $2,210.73, and in this way secured a payment of this amount upon its claim against him. The referee and the District Court held that this transaction gave to the tie company a voidable preference, and required it to pay to the trustee $2,210.73, as a condition of the allowance of its claim against the estate of the bankrupt.

This ruling is challenged by counsel for the appellant on three grounds: Because no transfer of anything by Harrison to the appellant was shown; because there was no proof that Harrison was insolvent, or that the tie company had any notice of his insolvency, when it withheld the price of the supplies; and because there was no evidence that Harrison intended to prefer the tie company when he delivered the supplies to the men, or that the company had any notice of any such intention.

But the test of a preferential transfer under the bankrupt act of 1898 is not whether or not the debtor has conveyed anything to the creditor, or whether or not the creditor has received anything from the debtor. It is whether or not the debtor has made a transfer of any of his property to any one in any way whereby the enforcement of the transfer will enable one of his creditors to obtain a greater percentage of his debt than any other creditor of his class can secure. So the question in this case is not whether or not Harrison transferred any of his property directly to the tie company, but whether or not any transfer of his property was made in the time and manner denounced by the bankrupt law, so that the tie company was enabled to secure a larger percentage of its claim against him than other creditors of its class can obtain.

One of the main purposes of the bankrupt law is to distribute the unexempt property which the bankrupt has four months before the filing of the petition in bankruptcy, share and share alike, among his creditors. In order to attain this object the law provides that if a person, being insolvent, has, within four months before the filing of the petition, made a transfer of any of his property, the effect of the enforcement of which will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of his creditors of the same class, he shall be deemed to have given a preference, and that if he has 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, the claim of the creditor who has received such a preference shall not be allowed, unless he surrenders it. Bankr. Law 1898, c. 541, ...