Case ID: f2d_7/html/0766-02.html
Source: Caselaw Access Project
Author: {"author": "WINSLOW, District Judge.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In re TAUB.
    District Court, S. D. New York.
    November 5, 1924.
    Bankruptcy <§=»303 (3)— Evidence held insufficient to avoid transfer as preference.
    A creditor, at the time claims were assigned to it by bankrupt as additional security for bis indebtedness, held, on the evidence, not chargeable with knowledge of facts which gave it reasonable cause to believe that the debtor was insolvent or that the transfer would work a preference, so as to render it voidable under Bankruptcy Act, § 60b (Comp. St. § 9644).
    In Bankruptcy. In the matter of Louis Taub, bankrupt. On review of order of referee holding transfer preferential.
    Reversed.
    
      Zalkin & Cohen, of New York City, for Sgobel & Day, Inc.
    David Haar, of New York City, for Trustee.
   WINSLOW, District Judge.

This matter comes before the court on a petition to review an order made by the referee in bankruptcy holding, in substance, that an assignment of certain railroad claims to Sgobel & Day, Inc., by the bankrupt prior to his adjudication, should be set aside, on the ground that at the time of such transfer tho assignee “had reasonable cause to believe that the enforcement of tho transfer of the claims would effect a preference” under section 60b of the Bankruptcy Act (Comp. St. § 9644).

The testimony of the two witnesses, Stokes, the vice-president of Sgobel & Day, Inc., and the testimony of the witness Taub, are all that we have from which to determine whether or not the conclusion of the learned referee is justified. Sgobel & Day, Inc., had been in business for many years, and had dealt with the bankrupt over a long period of time, apparently upward of 12 years. This fact is indicative of an intimate business relationship.

The witness Stokes had three conversations with the bankrupt prior to the assignment of the claims which are in dispute in September and October preceding the bankruptcy, which occurred in or about November, 1922. The accounts payable to Sgobel 8s Day, Inc., were overdue at the timo of these conversations. Stokes said to the bankrupt, “I told him I wanted the money.” The bankrupt said, “Ho will pay it * "* soon as I can.” At tho time of the second conversation, when tho bankrupt was again asked for money, the bankrupt “stated repeatedly, ‘I have not got the money now, just now, hut I will give every cent I owe you; you will get every cent I owe you.’ ” The witness then said, “That is not satisfactory, I want to see some cash.” Tho bankrupt replied, “Yon will get it.” He further testified that the responses of the bankrupt were not satisfactory because they were only promises, and that he said that he feared he was- not going to get his money “because I was not getting it.” Payments theretofore had been promptly made. When asked again as to whether he was fearful as to the payment of the indebtedness, Stokes, in substance, said he was not sure about it. He did not, however, hear anything unfavorable in the market about Taub, although he made inquiry from other dealers concerning his promptness in payments. Such dealers said they did not know anything against him. One creditor said that “Mr. Taub was paying his bills promptly.”

Again, in the course of one of those conversations, when the bankrupt was again asked why he did not pay Sgobel & Day, Ine., the bankrupt replied that “he had a lot of cars rolling, and he was waiting for these cars to he sold so that he can turn these goods into cash.” Stokes testified further that the delay in payment impelled him to ask for the money “because I did not think it was right to keep us waiting;” that ho wanted the bankrupt “to assign these claims to us to be part security for his indebtedness.” The bankrupt did not tell the creditor how much he owed, and the creditor did not know- — “I didn’t have the faintest idea.”

This testimony is, of course, of value, as indicating whether or not the debtor was in possession of facts from wliieh the conclusion may be drawn that the debtor’s affairs were sufficiently known to the - creditor, and tho facts known were of such a character that he, as a prudent business man, had “reasonable cause to believo” that “tho enforcement of * * the transfer would effect a preference.”

It is true that actual knowledge of insolvency is not a condition precedent — nor even a belief of insolvency — to justify the conclusion that the creditor had reasonable cause to believe that the bankrupt was insolvent at the time of the assignment and that tho transfer would effect a preference; but, on the other hand, it is not sufficient that the creditor merely has some suspicion. Ho must have a knowledge of facts sufficient to induce a reasonable belief on the part of a patient man as to the debtor’s insolvency and the effect of a transfer. He may he unwilling to trust him further; he may feel anxious about his claim; and he may have a strong desire and make the effort to obtain security for his debt, hut these things are the ordinary mental operations of a prudent business man. Obtaining additional security, as in this case, is by no means an act which justifies the conclusion that the bankrupt was insolvent or that the creditor had reasonable cause to believo him so. Indeed, the assignee, as stated, testified that ho knew nothing about indebtedness to others, if any there was, and was assured by the bankrupt that the question of cash was a matter of waiting for cars then rolling to he. turned into cash. The bankrupt himself testified to his belief that he was solvent up to the time the petition in bankruptcy was filed, “up to the last minute.” Grant v. National Bank, 97 U. S. 80, 24 L. Ed. 971; Sumner v. Parr (D. C. N. Y.) 270 F. 675.

Further reference might be made to the testimony of the two witnesses, but the excerpts quoted are sufficient, to my mind, to warrant the conclusion that the assignee of the claims did not have reasonable cause to believe that the bankrupt was insolvent at the time of the assignment of claims or that the transfer would effect a preference.

I am of the opinion that the order of the learned referee, setting aside the assignment made to Louis Taub, the bankrupt, to Sgobel & Day, Inc., of certain claims, should be reversed and set aside.