Case ID: ad_146/html/0296-01.html
Source: Caselaw Access Project
Author: {"author": "Robson, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Bank of Wayne, Appellant, v. William A. Gold, as Trustee in Bankruptcy of W. A. Bostwick Glass Company, a Bankrupt, Respondent.
    Fourth Department,
    July 11, 1911.
    Bankruptcy — chattel mortgage made within four months of bankruptcy— illegal preference — indorser of note of bankrupt is creditor — appeal — when findings implied by opinion of court below — set off — when claim should be .presented .in bankruptcy court.
    A corporation, being insolvent, and within four months prior to filing a petition in bankruptcy, gave a chattel mortgage to the plaintiff bank as collateral security for a loan made at the time the mortgage was given. It appeared that the loan was made upon the solicitation of a person who was a director of the bank and of the insolvent corporation, and was induced for the purpose of paying a prior indebtedness of the insolvent on an overdue note on which he was liable as an indorser and which was otherwise unsecured, a renewal thereof having beeh refused.
    
      Held, that the indorser was a creditor of the insolvent corporation within the meaning of the Bankruptcy Act;
    
      That-the chattel mortgage being made within four months of the petition in bankruptcy created an unlawful preference, so that the bank was not entitled to recover the proceeds of the mortgaged property when sold by the trustee in bankruptcy.
    To constitute a preferential transfer it is immaterial to whom the'transfer is made if it be made for the purpose of paying the claims of one . creditor in preference to those of others.
    The Appellate Division will find that the loan to ’the insolvent corporation was made by the bank with knowledge that it was intended to create a preference in favor, of the indorser although there is no specific finding to that effect, if it clearly appear from the opinion of the court below that it so determined and if the evidence leads to no other conclusion. The bank, having surrendered possession of "the mortgaged property, is not entitled to.recover as a set off advances made by it in connection therewith after it had taken possession under the mortgage and before the bankruptcy proceedings, where it does not appear that any part of the advances resulted in any advantage to the mortgaged property.
    
      It seems, having voluntarily relinquished possession, the creditor should collect the amount, if any, to which it is entitled by presenting its claim in the course of the administration in the bankruptcy court.
    McLeotan, P. J., dissented.
    Appeal by the plaintiff, The Bank of Wayne, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of Wayne on the 9th day of January, 1911, upon the decision of the court, rendered after a trial at the Wayne Special Term, dismissing the complaint.
    The action is brought to recover of the trustee in bankruptcy of the W. A. Bostwick Class Company the sum of $1,615.42, the proceeds of property taken possession of and sold by him as property of the bankrupt. Plaintiff’s claim to the fund is predicated upon a chattel mortgage covering the property so sold by the trustee given to it by the bankrupt within four months prior to the filing of the petition in the proceedings in which the W. A. Bostwick Class Company was adjudicated a bankrupt.
    
      Charles P. Williams, for the appellant.
    
      Charles L. Nicholls [Erwin S. Plumb of counsel], for the respondent.
   Robson, J.:

That the W. A. Bostwick Class Company was insolvent at the time it gave to plaintiff the chattel mortgage in question and that plaintiff then had reasonable cause to believe, and in fact is chargeable with áctual knowledge, that the enforcement of the mortgage would operate as a preference and that a preference was thereby intended within the meaning of that term, as defined by section 60 of the Bankruptcy Act, is amply shown by the proofs presented to .the .trial court. It is true that the mortgage was given as collateral security for the payment of money then loaned the 'glass company by plaintiff, and that plaintiff’s claim was not a precedent indebtedness. But it clearly appears that the loan was made by the plaintiff primarily upon the solicitation of Mapes, a director of both plaintiff and the glass company, for the known purpose of paying therewith a prior indebtedness of the- glass company, for the payment off which Mapes was lia- • ble as indorser, and which was otherwise unsecured. The note representing this claim had then matured and renewal, or extension thereof, had been refused. Mapes, as such indorser, was a creditor of the glass company within the meaning of that term as used in the Bankruptcy Apt. (Kobusch v. Hand, 19 Am. Bank. Rep. 379.) Mapes also indorsed the glass company’s note which plaintiff took when it made the loan. Mapes was, therefore, still a creditor of the glass company, and if, instead of the glass' company’s giving plaintiff the chattel mortgage as collateral to the note, it had given Mapes a- mortgage to secure him for his indorsement, there could be no question that a preference, voidable at the option of the trustee, would have been created. But the effect of the transaction as it was actually carried out was as to Mapes* not essentially different . from that which would have resulted in the case supposed. The evidence warrants a finding that plaintiff made the loan and took the mortgage security not in good faith and in the ordinary course, of business, but for the purpose in that way of ' indirectly securing to Mapes a -preference by lessening his ultimate liability as indorser by the amount plaintiff might realize on its mortgage security. “ To constitute ,a preferential transfer it is immaterial to' whoni the transfer is made, iff it' be made for the purpose of paying the claims of one creditor in preference to those of others.” (Collyer Bankruptcy [8th ed.], 666; Matter of Lynden Mercantile Company, 19 Am. Bank. Rep. 444; Matter of Beerman, 7 id. 431; Hackney v. Raymond Bros. Clarke Co., 68 Neb. 633, 637.) Though the decision of the trial court contains no specific finding that plaintiff made the loan to the glass company and took the mortgage security having reasonable cause to believe that by such transfer to it a preference in favor of Mapes was intended, yet it clearly appears from the opinion of the court that the court so determined. The evidence leads to no other conclusion, and, if necessary to support the judgment, such finding may be considered as now supplied. (Matter of Snedeker, 95 App. Div. 149.)

Counsel for appellant further urges that in any event it was entitled to recover certain advances made by it in connection with the mortgaged 'property after it had taken possession thereof under the mortgage and before the bankruptcy proceedings were begun. This claim is made under subdivision c of section 60 of the Bankruptcy Act (30. U. S. Stat. at Large, 562). Reference to this provision of the act discloses that the further credit given the debtor by the creditor, which may be set off as therein provided, must not only be given in good faith and without security, but must also result in property which becomes a part of the debtor’s estate. (Collier Bankruptcy [8th ed.], 611.) Whether any recovery for such alleged expenditure could in any event be had in the present action it is unnecessary now to .determine; for the proof does not disclose that any part thereof resulted in any advantage to, or increase, of, the mortgaged property. Having apparently voluntarily relinquished possession of the mortgaged property without then making any claim on account of such expenditure and the proceeds of the sale being now. in the possession of the trustee, it would seem that the proper method to collect such amount, if any, as it may be entitled to receive because of this claim would be by presentation thereof in the orderly course of the administration of the bankrupt’s estate in the Bankruptcy Court.

All concurred, except McLennan, P. J., who dissented.

Judgment affirmed, with costs.