Court Opinion

ID: 8194550
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:17:42.775951+00
Date Added: 2024-06-11T16:40:43.314600
License: Public Domain

Jones, J.
The first exception of the defendant relates to the reception as evidence of the statement of assets and liabilities contained in Exhibit 7. There was no verification of its. correctness, and it clearly was not substantive proof tending to show the insolvency of the Aromatic Products Company. It was admitted by Mr. Kay that he had no reason to believe that the exhibit was incorrect. We cannot say that it had no probative value as bearing on the question of whether the bank and its officers had reasonable grounds to believe that the Aromatic Company was insolvent.
One of the main objections raised by the defendant is that the whole of the evidence is insufficient to sustain the finding of the jury that the Aromatic Company was insolvent at the time the defendant received the payments. There is little difference of opinion between counsel as to the law relating to the subject. The statute prescribes that—
“Whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, with intent to defraud, hinder, or delay his creditors, shall not, at a fair valuation, be sufficient in amount to pay his debts,” insolvency exists. U. S. Comp. Stats. § 9585.
Counsel are agreed that under the statute the fact that a man is pressed and cannot pay his debts as they fall due does not constitute sufficient proof of insolvency, since it is common for both solvent and insolvent debtors to pay some of their debts and to leave others unpaid. Persons with ample assets may be without current funds with which to pay their debts. It is also true that in cases of this char*249acter it is incumbent upon the plaintiff to show the aggregate of the assets and the financial condition of the alleged insolvent. McDonald v. Clearwater S. R. Co. 164 Fed. 1007. Counsel for both parties presented lists and inventories tending to show the assets and liabilities of the Aromatic Company. Counsel for the plaintiff were willing to accept the balance sheet proposed by the defendant bank showing accounts payable, with some inconsiderable changes. Counsel for the plaintiff produced witnesses who testified as to the value of the assets contained in the statement, and there was considerable evidence tending to show that the liabilities of the corporation exceeded its assets by $20,000 or more. Counsel for the appellant lay stress on the fact that the books of the company were not produced by the trustee. It was proven that the trustee had never had possession of the books of the company and had not been able to find them. Besides the direct evidence of the insolvency there was the fact that the factory had been destroyed by fire on the 13th of October, 1920, and had not been a going concern since that event. Although it is true that mere inability to pay debts as they accrue does not constitute insolvency, it cannot be said that continued inability to pay debts has no bearing on the question. Such inability to pay debts in the ordinary course of business, long continued, is apt to accompany insufficiency-of assets. There was a very large amount of proof of nonpayment of debts, both large and small, as to which creditors were pressing. Many of these were such debts as a company having sufficient assets would ordinarily pay. There was such an amount of testimony, direct and circumstantial, tending to prove insolvency on the part of the Aromatic Products Company that we see no good reason why the trial court should have disturbed the verdict of the jury on that subject.
The next point urged by the appellant is that there was not sufficient proof of knowledge by the officers of the de*250fendant bank nor of reasonable cause to believe there was insolvency. Here again counsel differ but little on the legal question involved. They concur in the view that a reasonable cause to suspect that a person is insolvent is not sufficient. Grant v. National Bank, 97 U. S. 80; In re F. M. & S. Q. Carlile, 199 Fed. 612; Sumner v. Parr, 270 Fed. 675. And it is agreed that the intent of the bankrupt is immaterial, and that the question is whether the person receiving the preferential payments had knowledge of the insolvency or reasonable cause to believe that it existed. Debtors often have financial difficulties which they hope to overcome while they have sufficient assets to meet their indebtedness, and there may be some grounds of suspicion that a debtor is in failing financial circumstances without any well founded belief. In this case the defendant’s counsel rely on the facts that favorable reports had been received'and that the companjr’s stock was fully insured. But there was direct evidence produced by the plaintiff to the effect that Mr. Stark, soon after the fire, had notified Mr. Kay that the company was not responsible. Mr. Kay was an attorney and familiar with the law as to preferences. It is clear that the transaction in which the bank received the coumarin for the debt and the subsequent transactions in respect to it were not in the usual course of business. It was not necessary for .the plaintiff to show actual knowledge by the defendant of the insolvency. It was only necessary to prove that there was reasonable cause to so believe.
“A person has reasonable cause to believe when such a state of facts is brought to his notice and attention respecting the affairs and pecuniary condition of his debtor as would lead a prudent business man of intelligence to the conclusion that the debtor was then insolvent, and that the payment then made to him (such creditor) would, if retained, operate to give him a greater percentage of his debt than other creditors of the same class would receive.” Smith v. Powers, 255 Fed. 582, 586; In re Star S. B. Co. 265 Fed. 133; Goetz v. Zeif, 181 Wis. 628, 195 N. W. 874.
*251The jury found for the plaintiff on this issue and their finding was approved by the court. It cannot be said that there was not credible evidence to sustain the finding.
By the Court. — Judgment affirmed.