Wilson v. Mitchell-woodbury Co.

• Decision Date: 23 May 1913
• Parties: WILSON v. MITCHELL-WOODBURY CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

214 Mass. 514

102 N.E. 119

WILSON v. MITCHELL-WOODBURY CO.

Supreme Judicial Court of Massachusetts, Suffolk.

May 23, 1913

COUNSEL

Anson M. Lyman, of Boston, for plaintiff.

Carver Wardner, Cavanagh & Walker, G. Philip Wardner, and Clifford H. Walker, all of Boston, for defendant.

OPINION

RUGG C.J.

This is a bill in equity brought by the trustee in bankruptcy of the Graves China Company, a Missouri corporation to recover for alleged unlawful preferences under the national bankruptcy act. The case comes to this court on appeals by both plaintiff and defendant from a final decree.

1. The first question is whether the effect of the transfer was to enable the defendant as a creditor 'to obtain a greater percentage of his debt than any other of such creditors of the same class' would obtain under the definition of preference given in section 60 of the Bankruptcy Act. Act July 1, 1898, c. 541, 30 Stat. 562 (U. S. Comp. St. 1901, p 3445), as amended by Act Feb. 5, 1903, c. 487, § 13, 32 Stat. 799 (U. S. Comp. St. Supp. 1911, p. 1506). The finding of the master makes it plain that a larger percentage of the defendant's claim would be paid out of the property of the bankrupt if the conveyance is permitted to stand than the other creditors would get. His finding was that one of three notes held by the defendant was paid in full. It cannot be said that this finding was plainly wrong, nor that, on the question of perference, the several notes maturing at different times constituted a single debt.

2. The next question is whether there was a preference under the bankruptcy act arising from the intent of parties. The facts as found by the master are that on February 12, 1908, the Graves China Company was adjudicated a bankrupt. At that time it was hopelessly insolvent, the actual value of its assets being not in excess of $6,000, and its liabilities approximately $60,000. Prior to December, 1907, the bankrupt owed the defendant on three promissory notes, each for $2,500, for borrowed money, and for more than $1,600 on other indebtedness. In December, 1907, the president and general manager of the bankrupt came to Boston, and in consequence of a conference with Mr. Woodbury representing the defendant at or about that time goods of nearly $3,500 in value were shipped to one Cochran for the defendant, which took up one $2,500 note the balance being credited on account. The master finds: 'That this transaction was put through by Mr. Woodbury, for the purpose of obtaining a preference at a time when, although he did not have actual knowledge, yet he believed and had reasonable cause to believe, that the Graves China Company was insolvent, and would not be able to pay its creditors in full. That at the time, while Graves may not have realized the insolvent condition of his company, and had fairly in mind and actually in fact intended a preference, he knew that he was giving the defendant an advantage over other creditors, and actually discussed the desirability of keeping the shipment of the goods to Cochran secret. * * * He was in no position to oppose any suggestions of the defendant, and readily yielded to their proposition as a hope to continue business and work out some plan of reorganization. I find that the defendant had reasonable cause to know of this state of mind of the bankrupt. * * * It is true that it cannot be said that an actual intent to give a preference existed as such in Graves' mind, yet the facts which do exist here are plainly what the law regards as the equivalent thereof.'

It is not necessary to decide whether under section 60 of the Bankruptcy Act an actual intent on the part of the debtor to prefer, as well as reasonable cause to believe that a preference was intended on the part of the creditor, is necessary to constitute a preference, as was held in Hardy v. Gray, 144 F. 922, 75 C. C. A. 562, and by other decisions of Circuit Courts of Appeal (First National Bank v. Holt, 155 F. 100, 84 C. C. A. 16; Curtiss v. Kingman, 159 F. 880, 87 C. C. A. 60; Tumlin v. Bryan, 165 F. 166, 91 C. C. A. 200, 202 21 L. R. A. [N. S.] 960; Kimmerle v. Farr, 189 F. 295, 111 C. C. A. 27; In re Klein, 197 F. 241, 116 C. C. A. 603, 612), or whether the intent of the debtor is immaterial, as was held in Benedict v. Deshel, 177 N.Y. 1, 68 N.E. 999, Parker v. Black (D. C.) 143 F. 560, affirmed on opinion below in 151 F. 18, 80 C. C. A. 484, Gabriel v. Tonner, 138 Cal. 63, 70 P. 1021, and Alexander v. Redmond, 180 F. 92, 103 C. C. A. 446, 449, following strong intimations to that effect in Wilson Bros. v. Nelson, 183 U.S. 191, 196, 22 S.Ct. 74, 46 L.Ed. 147, and Pirie v. Chicago Title & Trust Co., 182 U.S. 438, 446, 21 S.Ct. 906, 45 L.Ed. 1171, because it appears from the report of the master that, whichever of those views be sound, the provisions of section 60 were violated, and a preference was created from the conduct of the bankrupt and the defendant in December, 1907, which we have outlined. It was said in Western Tie & Timber Co. v. Brown, 196 U.S. 502, at page 508, 25 S.Ct. 339, at page 341 (49 L.Ed. 571): 'If the inevitable result of the transaction would have been to create such a preference, then the law would conclusively impute to * * * [the debtor] the intention to bring about the result necessarily arising from the nature of the act which he did.' To the same effect are Kimmerle v. Farr, 189 F. 295, 111 C. C. A. 27, 32, First National Bank v. Abbott, 165 F. 852, 91 C. C. A. 538, and our own decisions in Atherton v. Emerson, 199 Mass. 199, 211, 85 N.E. 530; Brown v. Pelonsky, 210 Mass. 502, 505, 96 N.E. 1102. Categorical affirmative evidence of intent to prefer is difficult to obtain. Where the position of the officer of the bankrupt corporation, through whom it is alleged that the preference was made, was such that it was his duty to know the bankrupt's financial condition, and where his conduct indicates a thorough knowledge of its embarrassment and general business conditions, and where a conveyance of property is made to a creditor not in the ordinary course of business, but under extraordinary conditions which render imperative the result that other creditors...