Source: http://openjurist.org/263/f2d/422/saper-v-s-west-s-w
Timestamp: 2017-04-30 16:06:22
Document Index: 197347497

Matched Legal Cases: ['§ 67', '§ 70', '§ 60', '§ 107', '§ 1377', '§ 204', '§ 2274', 'art. 4', '§ 1', '§ 45', '§ 70']

263 F2d 422 Saper v. S West S W | OpenJurist
263 F. 2d 422 - Saper v. S West S W HomeFederal Reporter, Second Series 263 F.2d.
263 F2d 422 Saper v. S West S W 263 F.2d 422
Docket 25054.
I. Arnold Ross, New York City (I. Arnold Ross and Stanley J. Mayer, New York City, of counsel), for appellant.
Shearman & Sterling & Wright, New York City (Hugh W. Darling, Los Angeles, and M. Van Voorhies, New York City, of counsel), for appellees.
The trustee in bankruptcy seeks to recover, except as to the sums of $5,000 to Long and $2,500 to West (to cover certain expenses) funds distributed to those defendants on November 21, 1950 by the clerk of a California court, pursuant to the judgment of that court. The plaintiff alleges that such payments to West and Long were fraudulent and preferential, and in violation of § 67, sub. d(2) (a); of § 70, sub. e. and of § 60 of the Bankruptcy Act, 11 U.S.C.A. §§ 107, sub. d(2) (a), 110(e), 96.1
West and Long were informed of this proposed plan. In this entire negotiation among Bradt, West and Long it clearly appears that Bralowe was acting simply as a medium to facilitate transfer. In April 1940, Long became interested with Bradt in the Iron Chief lease and sale agreement on a fifty-fifty basis, and later in the year West also became interested on an equal basis with Bradt and Long. Controversy followed between Bradt on the one hand and West and Long on the other as to how the development of the Iron Chief and a certain manganese mining claim, designated as The Three Kids, was to be financed. Finally, after months of discussion and dispute, a settlement agreement was entered into by West, Long and Bradt. Bradt organized Riverside on March 1, 1941, which corporation was to accept the assignment and assume all of the obligations under the lease agreement.
Controversy then arose because Bradt refused to recognize the claims of West and Long which they claimed stemmed from the agreement of March 14, 1941. Bradt, on July 1, 1946, also challenged Foley's authority to make the sale to Kaiser. Therefore, on October 25, 1946, Foley commenced the action in the Superior Court of the State of California, herein referred to as the California action. That action was concluded on April 29, 1948. So far as West and Long were concerned it was adjudged that out of the proceeds of the sale of the Iron Chief lease and sale agreement West was entitled to $76,898.48, and Long to $81,898.48. Judgment was entered in that California action on July 28, 1948. It was amended on September 24, 1948 by an order which provided that Foley, within ten days after the entry of the judgment, was to deposit with the clerk of the court the proceeds of the sale for distribution in accordance with the judgment of the court, and the order further provided:
Basic to the trustee's recovery on any and all of the claims involved here is appellant's contention that Riverside was insolvent on the key date — August 2, 1948. On this point there is a complete failure of proof. The District Court seems correct in ruling that all of appellant's proof (sworn claims filed in the Riverside bankruptcy proceeding, Riverside's schedules as listed therein and certain judgments against Riverside on claims of uncertain origin) was hearsay and inadmissible as against these defendants. In the convincing discussion by Judge Herlands he cites as supporting his view Bookman v. Stegman, 105 N.Y. 621, 11 N.E. 376, 5 Wigmore on Evidence (3rd ed. 1940) § 1377, and Richardson on Evidence, § 204, at p. 184. Judge Herlands concludes that the schedules in bankruptcy of Riverside are inadmissible to prove the insolvency of Riverside as against West and Long, and considering the context in which they are offered and the purpose for which they are offered they do not come within any of the recognized exceptions to the hearsay rule, citing 5 Remington on Bankruptcy, § 2274; Taylor v. Nichols, 134 App.Div. 787, 119 N.Y.S. 1042; Rosenbluh v. Kurash, 248 App.Div. 504, 290 N.Y.S. 576, and In re Weissman, 2 Cir., 19 F.2d 769.
Judge Herlands also establishes that the full faith and credit clause of the Constitution, art. 4, § 1, does not require this court to hold that the nine judgments set forth in Exhibit B, conclusively establish the veracity of the allegations in the complaint initiating the actions resulting in these judgments as against West and Long since they were never parties to those actions, Gratiot County State Bank v. Johnson, 249 U.S. 246, 39 S.Ct. 263, 63 L.Ed. 587. Judge Herlands notes that the judgments, especially the six default judgments, are not admissible in evidence insofar as they were introduced for the purpose of establishing the facts alleged in the complaint upon which the judgments were granted. See Cromwell v. County of Sac., 94 U.S. 351, 24 L.Ed. 195.
The Sixth and Seventh causes of action might perhaps be best disposed of when considered together. The Sixth cause alleges that the distribution of the funds on November 21, 1950 constituted a distribution of assets of Riverside to defendants as stockholders of Riverside in disregard of the rights of creditors of Riverside, and is void as to such creditors as a matter of law under § 45 of the Nevada Domestic Corporation Act, N.R.S. 78.625, and such funds may be recovered by Riverside's bankruptcy trustee under § 70, sub. e of the Bankruptcy Act. The Seventh cause of action alleges that under the March 14, 1941 agreement the defendants appointed Bradt their agent to administer, operate and sell their property right in the lease and option agreement, and Bradt in his own behalf and in such representative capacity incurred debts and obligations totaling about $210,000 either in Riverside's name or in the name of Riverside and Bradt. The action alleges that the defendants permitted legal title to said lease and option agreement to be placed in the name of Riverside, and that defendant knew or should have known that Bradt and Riverside were incurring said debts upon the representation made to the creditors that Riverside was the owner of said lease and option agreement. The Seventh cause of action also alleges that the distribution to the defendants by the California court on November 21, 1950 is impressed with a trust for the benefit of said creditors of Riverside, and that defendants held so much of said funds in trust for said creditors to the extent of defendants' respective one-third share of said debts, and that the plaintiff can recover said trust funds for the benefit of said creditors of Riverside.
These last two causes of action are both unsound. First it may be observed that the several claims contained in these causes of action cannot be advanced on behalf of creditors who became such after August 2, 1948, when Foley paid the money in court; and moreover on that date Riverside does not appear to have been insolvent. On August 2, 1948 (supra) Riverside had assets of $82,619, its recovery out of the California action. Its liabilities — omitting claims of lesser equity than West's and Long's — were at most $44,095.58, as set forth in Exhibit B. Judge Herlands found, and the finding is correct that there is no competent proof as against West and Long of the amount of the assets or liabilities of Riverside on August 2, 1948, or indeed on November 21, 1950, or of its insolvency at any of such times. Nor is there proof that either of the defendants should be charged with knowledge of its insolvency then or at any time prior to the filing of Riverside's petition in bankruptcy.
"(a) A preference is a transfer, as defined in this title, of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition in bankruptcy, or of the original petition under chapter 10, 11, 12, or 13 of this title, the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class. For the purposes of subdivisions a and b of this section, a transfer shall be deemed to have been made at the time when it became so far perfected that no bona-fide purchaser from the debtor and no creditor could thereafter have acquired any rights in the property so transferred superior to the rights of the transferee therein, and, if such transfer is not so perfected prior to the filing of the petition in bankruptcy or of the original petition under chapter 10, 11, 12 or 13 of this title, it shall be deemed to have been made immediately before bankruptcy.
"(b) Any such preference may be avoided by the trustee if the creditor receiving it or to be benefited thereby or his agent acting with reference thereto has, at the time when the transfer is made, reasonable cause to believe that the debtor is insolvent. Where the preference is voidable, the trustee may recover the property or, if it has been converted, its value from any person who has received or converted such property, except a bona-fide purchaser from or lienor of the debtor's transferee for a present fair equivalent value: Provided, however, That where such purchaser or lienor has given less than such value, he shall nevertheless have a lien upon such property, but only to the extent of the consideration actually given by him. Where a preference by way of lien or security title is voidable, the court may on due notice order such lien or title to be preserved for the benefit of the estate, in which event such lien or title shall pass to the trustee. For the purpose of any recovery or avoidance under this section, where plenary proceedings are necessary, any State court which would have had jurisdiction if bankruptcy had not intervened and any court of bankruptcy shall have concurrent jurisdiction. * * *"
Carnrick (default judgment on promissory
notes)                                            $14,673.18
Ward (same)                                          14,707.00
Martin (for services, litigated)                        986.00
Wood (unspecified, litigated)                         4,012.90
Kuttnauer (default judgment for legal
services)                                           1,500.00
N. Y. State License fee                           unliquidated
7/11/42 &#x2014; 3/13/48 balance due)                      1,050.00
Landels &amp; Weigel (legal services re
Riverside-Foley contract negotiations)                262.02
Alley (legal services re Riverside-RFC
dealings in 1942)                                     501.50
Brumley (judgment for an unspecified
obligation)                                         3,682.98
W. L. Paulson (loans to Riverside)                    2,720.00
Total    $44,095.58
For ready reference there is appended to this opinion parts of the Bankruptcy Act sections referred to (Exhibit A)