Case ID: f_252/html/0112-01.html
Source: Caselaw Access Project
Author: {"author": "McPHERSON, Circuit Judge.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In re CRAMER & ROGERS GROCERY CO. G. H. HAMMOND CO. v. DANENHOWER. SWIFT & CO. v. SAME.
    (Circuit Court of Appeals, Third Circuit.
    July 12, 1918.)
    Nos. 2357, 2358.
    Bankruptcy @=3166(5) — Preferences—Knowledge of Creditor.
    Receipt by an agent of payment of the claims of two creditors of bankrupt, a grocery company, then actually insolvent, after notification by its attorney that it was in difficulties and that a statement to him by i'ts president was probably untrue, and on the express condition that he surrender the statement, held, sufficient to sustain a verdict finding the payments preferential.
    In Error to the District Court of the United States for the District of New Jersey; J. Warren Davis, Judge.
    Actions at law by John C. Danenhower, trustee in bankruptcy of the Cramer & Rogers Grocery Company, against the G. H. Hammond Company and against Swift & Co. Judgments for plaintiff, and defendants bring error.'
    Affirmed.
    Walter Hi. Bacon, of Bridgeton, N. J., for plaintiffs in error.
    Wilson & Carr and Walter R. Carroll, all of Camden, N. J., for defendant in error.
    Before BUFFINGTON, McPHERSON, and WO ORREY, Circuit Judges.
   McPHERSON, Circuit Judge.

In these two actions the trustee sued to recover preferential payments. They were tried together, and in each the important question was, and still is, whether the evidence was sufficient to go to the jury. The disputed payments were made to J. H. Loomis, the agent and credit man of each defendant, and the precise question, now and at the trial, is whether the trustee had satisfactorily proved that when Loomis received the money he had reasonable cause to believe that the payment was intended to prefer. On- this point the record contains sufficient evidence of the following facts:

The petition in bankruptcy was filed August 21, 1914, and the payments were made on August 5 — the Grocery Company being then insolvent — one payment of nearly $1,200 to the Hammond Company and one of about $2,700 to Swift & Co, If on August 5 Loomis had reasonable' cause to believe that .the bankrupt was insolvent, every other element of a preference is present. This is not the usual situation, where an account has been long overdue and a creditor’s fears and suspicions have gradually become acute. On the contrary, the essential knowledge that Loomis had, and by which he is to be judged, came to him during two days, August 4 and 5, and in the nature of things it would be more impressive because it was unexpected. He knew that the Grocery Company was the owner of 12 stores in New Jersey, and was apparently doing a prosperous business of several thousand dollars a week. For some months, at least, his principals had been dealing with the company on the basis of weekly credit, and their bills had been satisfactorily met. The record does not show the items of charge and credit during the period of mutual dealings, but it does show that the oldest-item of charge on the Hammond account was July 17, and on the Swift account July 14. How much was overdue on each account does not appear, but in any event the amounts overdue on August 4 were not of long standing, and there is nothing to suggest that either defendant felt any anxiety about payment. Moreover, since July 21 Loomis had in his possession a financial statement made by the bankrupt’s president, which showed the company to be solvent by a margin of more than $50,000. Naturally he felt no uneasiness, and it does not appear that he had even a suspicion that the accounts might be in danger. But on August 4 he received a visit at his office in Philadelphia from an attorney who had close relations with the management of the company, and was told that the company’s real condition was such that it could not go on unless its creditors would agree to some arrangement — the reason being that ready money was imperative and could not be had either from the stockholders or from any other source. The defendants’ claims were among the largest, and the attorney asked to have them put into his hands; his object being to get control over the situation that was likely to develop. At this unexpected turn of events Loomis produced the statement of July 21, and made it plain to his informant that if the statement was untrue the president might have to face a criminal prosecution. The attorney examined the statement and expressed doubt of its accuracy. Thereupon the claims were put into his hands for immediate collection, and he took them back to New Jersey, where he laid the matter at once before his office associate, who was also the company’s attorney and secretary, and by one or both of them the subject was brought to the president’s attention. The next day, August 5, the president himself and the two attorneys withdrew from the banks in which the company kept its deposits enough money to pay the two claims and brought the cash to Philadelphia. The reason for taking this unusual step, instead of sending a check to Loomis, or making payment to the attorney in New Jersey, sufficiently appeal's; • they intended to offer the money to Loomis, and they did offer it, on the express condition that the statement should be surrendered, and the payment was not made until the condition was agreed to. Soon afterward the statement was destroyed.

Now, it is fair to say that all this was unusual, and could not be disregarded, as if it were a matter in ordinary course. Clearly it gave Loomis notice that the statement on which lie was relying was probably untrue; for, if true, the company could easily pay its debts in the customary way, and the existence of the statement would he of no importance. To demand its surrender as the condition of payment looked much like an admission of its falsity, and of fear that it might be used to support a criminal prosecution. Still further, and of much significance, it was also proved that, while the discussion was proceeding on August 5, the attention of Loomis was expressly called to the fact that his principals might have to pay the money back, and this could only mean that bankruptcy, was so threatening that the payments might turn out to be preferential. These inferences were obvious, and the jury were at liberty to find that a prudent business man should have drawn them, and should have made a further effort to discover the truth. But Loomis made no inquiry, although the three men in his office could have told him exactly what the situation was. They knew that the bankrupt was practically at the end of its resources ; that on the very next day the secretary was to meet some of the creditors to discuss a plan for liquidation; and that a bill in equity was either already prepared, or at all events was seriously contemplated, for the appointment by the New Jersey chancery of a receiver on the ground of insolvency, and that in this bill the president and the treasurer were to be parties plaintiff. The bill had been decided upon unless the company should obtain immediate help, and this was known to be out of the question, for the stockholders had refused to furnish more capital, and a purchaser of the business was nowhere in sight. (The bill was filed August 18.) And if he had asked for confirmatory details about the assets listed in the statement, he might have learned the facts that the $10,000 item of accounts receivable comprised many accounts of long standing, such as no business man of experience would accept as worth more than a small fraction of their face value, and that the item of fixtures and equipment valued them at cost, without charging anything off for depreciation, although no such valuation could possibly be correct.

But, even, without inquiry of this sort, the circumstances were such as to point to only one conclusion, namely, that the company’s situation was desperate, that in all probability insolvency already existed, and that, while he might be able to force an immediate settlement by the scarcely veiled threat of a criminal prosecution, he would force it at the risk of having the payment set aside as preferential. These inferences were plainly suggested by the facts he knew, and, if he did not actually draw them, the jury had a right to say that a reasonable business man should have drawn them, or must take the consequence of failing so to do. The -trial judge was right in submitting this question to the jury, and as the charge was clear and adequate the verdict is conclusive.

The other questions raised by the assignments of error are of minor importance, and the rulings complained of do not furnish sufficient ground for reversal.

In each case the judgment is affirmed. 
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