Case ID: ad_74/html/0478-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Laughlin, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Charles M. Schreyer, as Trustee in Bankruptcy of John Foerst, Respondent, v. The Citizens’ National Bank of the City of Yonkers, Appellant.
    
      Actionby a trustee in bankruptcy to set aside a preferential transfer to a bank, whose cashier is called, as a witness by the trustee — testimony of the cashier before the referee in bankruptcy is not admissible as an admission or to impeach the cashier — the complaint must allege that the tra-nsfer effects a preference.
    
    Where a trustee in' bankruptcy brings an action to set aside an alleged preferential transfer made by the bankrupt to the defendant bank, and, for the purpose of establishing that the bank had knowledge of the insolvency of the bankrupt when it accepted the transfer, calls the cashier of the bank as a witness, but fails to elicit the desired testimony from him, testimony given by the cashier when examined before the referee in bankruptcy, to the effect that the bank knew of the insolvency of the bankrupt at the time it accepted the transfer, is not admissible as an admission or declaration binding upon the bank or for the purpose of impeaching the testimony given by the cashier.
    The complaint in such an action is defective, unless it alleges that the effect of the transfer is to secure to the creditor to whom the transfer is made a greater ' percentage of his debt than other creditors of the same class.
    Appeal by the defendant, The Citizens’ National Bank of the City of Yonkers, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 11th day of March, 1902, upon the decision of the court rendered after a trial at the New York Special Term.
    
      Ralph Earl Prime, Jr., for the appellant.
    
      H. B. Bradbury, for the respondent.
   Laughlin, J.:

The action was brought by the trustee in bankruptcy of John Foerst to .set aside an assignment or transfer of certain book accounts made by the bankrupt to tlie defendant less than four months prior to the filing of the petition and the adjudication in bankruptcy. It is alleged that Foerst was insolvent at the time of the transfer; that this was known to the bank and that such transfer created an unlawful preference in favor of the defendant as against the other creditors.

Section 60, subdivision a, of the Bankruptcy Act, approved July 1, 1898, provides, among other things, that where an insolvent transfers property which enables one of his creditors to obtain a greater percentage of his debt than other creditors of the same class, he shall be deemed to have given a preference, and subdivision b .of the same section provides that if a bankrupt shall give a preference within four months before the filing of a petition or after the filing of the petition and before the adjudication “ 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, it shall be voidable by the trustee and he may recover the" property or its value from such person.” It thus appears that it was necessary to show, not only that the bankrupt was insolvent at the time of the transfer, but that the property was accepted by the bank with knowledge of such insolvency.

With a view, to establishing this fact the cashier of the bank was called as a witness on behalf of the plaintiff. He testified that the bankrupt volunteered to assign the accounts for the purpose of securing the indebtedness to the bank. He was closely questioned as to whether the insolvent did not inform him of the existence of other liabilities and offer to tender an assignment of all his property to the witness as security for the benefit of all creditors. Nothing material in favor of the plaintiff was elicited by this examination. The cashier had been examined before the referee in bankruptcy. It was claimed that on such examination he admitted the facts sought to be established by his examination as herein stated. After being questioned to some extent concerning his testimony before the referee in bankruptcy, such testimony was offered in evidence for the purpose of showing a declaration or admission of knowledge on his part óf the insolvency of the bankrupt at the time of the transfer. It was objected to by the appellant as incompetent, irrelevant, immaterial and not binding upon it. The objection was overruled, the defendant duly excepted, and the testimony was read in evidence. This testimony was incompetent, and since it bore upon a material issue in the case, which was not otherwise clearly established in favor of the. plaintiff, it constitutes reversible error. It was proper to allow a reasonable amount of latitude in the examination of the cashier concerning his testimony before the referee in bankruptcy, for the purpose of refreshing his recollection' and with a view to enabling him to testify as to the facts; but his former testimony was not binding on the defendant, either as an admission or declaration, which must have been the object of its introduction, for, of course, it was inadmissible at the instance of the plaintiff for the’ purpose of impeaching his own witness.

Upon the trial, at the close of the plaintiff’s case, the defendant moved to dismiss the complaint upon the ground that it did not ¡state facts sufficient to constitute a cause of action. The motion was denied and the defendant excepted. This exception has been urged upon the appeal. The criticism of the complaint is that it alleges as a legal conclusion that the transfer constituted an unjaw.ful preference instead of stating the facts showing that the bank was thereby preferred over other creditors of the same class. As :has been observed, a preference under the Bankruptcy Act is defined in section 60, subdivision a, and it does not depend upon .knowledge of the creditor of the insolvency of the debtor; but the preferential transfer can only be set aside under subdivision b of that section where it is accepted by the creditor with knowledge of the insolvency. The statute does not authorize the trustee in bankruptcy to recover all payments accepted by creditors with knowledge of the insolvency of the bankrupt. The recovery is limited to such payments as have the effect of giving the creditor .a greater percentage of his debt than other creditors of the same class. (Matter of Henry C. King Co., 113 Fed. Rep. 110 ; Pirie v. Chicago Title & Trust Co., 182 U. S. 438.) We think the complaint is defective in this regard. It is possible that the deduction may be made from the allegations of the complaint as a whole that the facts exist which constitute this a preference which may be avoided by the trustee in bankruptcy, but there are general allegations to the effect that other unlawful and voidable transfers of property were made by the bankrupt, and there is no specific allegation that the appellant will Teceive, if this transfer be permitted. to stand, a greater percentage of its debt than will be received by other creditors of the same class.

The judgment should be reversed and .a new trial granted, with costs to appellant to abide-the event.

Van Brunt, P. J., Patterson, Ingraham and Hatch, JJ., concurred.

Judgment reversed, new trial granted, costs to appellant to abide event.