Opinion
No. 122.
January 9, 1933.
Appeal from the District Court of the United States for the Southern District of New York.
In the matter of the Schleicher Printing Corporation, bankrupt. Proof of claim having been filed by a creditor of the bankrupt, a motion by the trustee to expunge the claim was denied by the referee, whose order was reversed in part on review by the district court, and the claimant appeals.
Affirmed.
Schleicher Printing Corporation was adjudicated a bankrupt in the Southern district of New York on a petition filed June 18, 1930 and a trustee was duly elected and qualified. It was a New York corporation 50 per cent. of whose stock was, and since its organization had been, held by its president, Mr. Schleicher, and the remainder by the claimant-appellant. The latter filed an amended proof of claim to the amount of $24,876.59. The trustee moved to expunge this claim under section 57g, 11 USCA § 93(g), on the ground that the claimant had received preferences voidable under sections 60b and 67e of the Bankruptcy Act (11 USCA §§ 96(b), 107(e), and section 15 of the Stock Corporation Law of the State of New York (Consol. Laws N.Y. c. 59). The motion was denied by the referee, but, on review by the District Court, this order was reversed to the extent of $1,827.37, and this appeal was taken. As will appear, the provisions of section 60b of the Bankruptcy Act (11 USCA § 96(b) are alone sufficient to dispose of this case.
The claimant was the source of practically all of the financial backing the bankrupt corporation ever had. He was apparently a man of means, and from time to time made loans to the corporation and took its notes. Some of these loans were secured by a second mortgage on property of the bankrupt on which the Manufacturers' Trust Company of New York held a first mortgage. The claimant, also, on February 16, 1928, personally guaranteed the payment of all the obligations of the bankrupt to the Manufacturers' Trust Company, and this guaranty was in full force and effect when adjudication took place. Included among the obligations, the payment of which was so guaranteed was a note of the bankrupt for $2,000. On May 23, 1930, the bankrupt transferred to the bank for application upon this note an account receivable amounting to $1,827.37 which the bank later collected and so applied. The bank began foreclosure proceedings under its mortgage, which resulted in a sale of the property on May 23d under foreclosure and its purchase by the claimant. The bankrupt did no business after that. The claimant testified that he had received monthly statements showing the bankrupt's financial condition; that such statements showed its condition to be worse in April, 1930. When asked if they continued to be worse in May, 1930, he answered, "Yes sir, May was the finish." The schedules in bankruptcy showed total liabilities of $25,916.27 and assets of only $9,023.54, which were accounts receivable, most of which were of admittedly doubtful value. It is clear from the evidence that the bankrupt was insolvent on May 23, 1930, and had been for some time to the knowledge of the claimant whose financial support had alone kept it from collapse.
He testified that the transfer of the account to the bank for application on the note whose payment he had guaranteed was made because he wanted that taken care of so that he would not "be left" on his guaranty, and that the transfer was made at his request. There was no evidence to show that the bank knew that the transfer would effect a preference.
Krause, Hirsch Levin, of New York City (Sydney Krause, of New York City, of counsel), for trustee.
Gould Newman, of New York City, for claimant-appellant, Herman Diamond.
Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.
As the bankrupt was insolvent when the transfer of the account was made to the bank and the claimant knew it, there is no doubt whatever that the claimant knew the transfer would effect a preference. Indeed, it is plain from his own testimony that this was exactly what he wanted. He asked Schleicher to take care of his guaranty so he would not "be left" on it. He knew the debts could not be paid in full, and wanted his liability reduced as much as possible. He was a creditor. Paper et al. v. Stern (C.C.A.) 198 F. 642. Compare Cohen v. Goldman (C.C.A.) 250 F. 599. This transfer of the account to the bank resulted in the collection of it and the application of $1,827.47 to extinguish pro tanto his liability on the note whose payment he had guaranteed. To that extent he was the person to be benefited by the transfer. Section 60b, 11 USCA § 96(b), provides that, if "the person receiving it [the transfer] or to be benefited thereby" has reasonable cause to believe that it would effect a preference, it shall be voidable by the trustee. From the language used it is clear that the person receiving it need not be the one to be "benefited thereby" and equally clear, since the amendment of 1910, that, if the one to be benefited has reasonable cause to believe that a preference will be effected, the transfer is voidable. All that has been said is contingent, of course, upon the additional fact, which is undisputed in this case, that the transfer was made within the four-month period of the statute. It should be noticed that in Paper et al. v. Stern, supra, the transfer was held voidable even though the guarantor did not induce the payment of the debt. Probably this goes only to the means of proof of reasonable cause to believe that a preference would be effected, but, as the guarantor here did cause the transfer to be made and so must have known about it, we have no occasion to go farther than the present facts require.
Decree affirmed.