Case ID: nys_80/html/0706-01.html
Source: Caselaw Access Project
Author: {"author": "HIRSCHBERG, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

PERRY v. BOOTH et al.
    (Supreme Court, Appellate Division, Second Department.
    March 6, 1903.)
    1. Bankruptcy — Preferences—Belief of Creditor.
    The mere fact that a creditor demands security for a debt previously unsecured does not show that he has reasonable grounds for believing his debtor to be insolvent, or that he is receiving a preference so as to 'make the transfer voidable under section 60 of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445]).
    Appeal from Special Term, Kings county.
    Action by John M. Perry, as trustee for Samuel A. Skead, bankrupt, against Charles Booth and others. Judgment dismissing the complaint on the merits, and plaintiff appeals.
    Affirmed.
    Argued before GOODRICH, P. J., and BARTLETT, JENKS. HIRSCHBERG, and HOOKER, JJ.
    
      Wm. S. Maddox (Everett V. Abbot, on the brief), for appellant.
    Charles Edwards Woodbridge, for respondents.
   HIRSCHBERG, J.

The transactions which are the subject of review on this appeal have engaged the attention of the court once before, and will be found fully detailed in the opinion then written by Mr. Justice Sewell. Perry v. Booth, 67 App. Div. 235, 73 N. Y. Supp. 216. The plaintiff, as trustee of Samuel A. Skead, a bankrupt, claims that certain transfers of lumber made by Skead in the months of November and December, 1898, to the defendants, were violative of the provisions of section 60 of the bankrupt act (Act July 1, 1898, c. 541; 30 Stat. 562 [U. S. Comp. St. 1901, p. 3445]). On the first trial the court found that Skead was insolvent on November 16, 1898', and had been for a long time prior thereto, and that, with the exception of the transfer of lumber macle on that day, the defendants had. reasonable cause to believe that the transfers complained of, and which were made subsequently, were made with the intention of creating a preference whereby they obtained a greater percentage of their antecedent debt than the other creditors in their class. The defendants appealed from the judgment then rendered against them, excepting so much thereof as adjudged that the transfer on November 16, 1898, was made in good faith, and that the defendants advanced money on’the lumber then transferred in excess of its value. The consideration of .the court was directed to all the transactions, however, and the entire judgment was reversed, and a new trial granted on the whole issue; but the conclusion reached was not only that the facts did not establish anything to indicate that the defendants had reasonable cause to believe that a preference was intended, but also that the necessary inference from the facts 'was that no preference-was in fact created by any of the transactions.

We do not find that on the second trial any additional facts have been disclosed which distinguish the case in any material degree from the one first presented. The court has found that none of the transfers complained of created a preference, and that neither the defendants, nor their agent who acted for them in the course of the dealings involved in the inquiry, believed or had reasonable cause to believe that a preference was intended. These findings are not without sufficient support in the evidence, and a careful examination of the record and of the points urged on behalf of the appellant fails to furnish any valid reason why they should be overthrown.

In Benedict v. Deshel, 77 App. Div. 276, 79 N. Y. Supp. 205, the Appellate Division in the First Department recently held that a transfer is not voidable under section 60 of the bankrupt act, supra (Act July 1, 1898, c. 541; 30 Stat. 562 [U. S., Comp. St. 1901, p. 3445]), unless it appears that the bankrupt was insolvent at the time the transfer was made, that the transfer actually operated to create a preference, that the bankrupt intended to create a preference, and that the creditor had reasonable grounds to believe that a preference was intended. The contention on the part of the learned counsel for the appellant is, in effect, that, assuming the existence of insolvency, the intention and the existence of reasonable ground for the belief may be inferred from the mere demand for security. They say in the brief:

“We submit that the creditor who demands security for a previously unsecured debt at once and by that act brings himself within the category of those who have a reasonable cause to believe that they are getting a preference.”

A different view appears to have been taken by the federal courts. In Grant v. National Bank, 97 U. S. 80, 24 L. Ed. 971, in considering the quite similar terms of the former bankruptcy act, Mr. Justice Bradley said (page 81, 97 U. S., 24 L. Ed. 971):

“A man may have many grounds of suspicion that his debtor is in failing circumstances, and yet have no cause for a well-grounded belief of the fact. He may be unwilling to trust him further; he may feel anxious about his claim, and have a strong desire to secure it; and yet such belief as the act requires may be wanting. Obtaining additional security or receiving payment of a debt under such circumstances is .not prohibited by the law. * * * Hence the act, very wisely, as we think, instead of making- a payment or a security void for a mere suspicion of the debtor’s insolvency, requires, for that purpose, that his creditor should have some reasonable cause' to believe him insolvent. He must have a knowledge of some fact or facts calculated to produce such a belief in the mind of an ordinarily intelligent man.”

• It has also been held' under the present act that the giving ■ of security for a past-due demand is neither sufficient to establish knowledge of insolvency, nor to put the creditor upon inquiry. The court said in In re Eggert, 43 C. C. A. 1, 8, 102 Fed. 735, 742:

“To hold that a creditor receiving payment of or security for a past-due debt is, by the mere fact of knowledge that the debt is past maturity, put upon inquiry of his debtor’s inability to pay all his debts, and that under such circumstances he received payment or security at his peril, would be to put at hazard many business transactions, and make the act oppressive. The fact of such inability, coupled with other facts and circumstances brought home to the creditor, might be sufficient to put him on inquiry; but this is the only fact from which the deduction is sought that the creditor had reasonable cause to believe his debtor insolvent, and, standing alone, it is insufficient to raise an inference of law that the creditor is chargeable with knowledge of the facts which inquiry would have elicited,”

The judgment should be affirmed.

Judgment affirmed, with costs. All concur. 
      
       1. See Bankruptcy, vol. 6, Cent. Dig. § 255.