Court Opinion

ID: 7337146
Source: CourtListenerOpinion
Date Created: 2022-07-25 23:15:25.958284+00
Date Added: 2024-06-11T16:20:13.504340
License: Public Domain

HERRICK, J.
The bankruptcy act provides as follows:
“Sec. 60a. A person shall be deemed to have given a preference if, being insolvent, he has procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property,- and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.
*607“Sec. 60b. If a bankrupt shall have given 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 a 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.”
Under this statute, the question of fraud does not enter. It is the result or effect of the act done which is declared against, not the manner or method by which it is done. No matter how circuitous the method may be, if the effect of a transfer of property, made within four months before the filing of a petition in bankruptcy, is to enable any of the bankrupt’s creditors to obtain a greater percentage of his debt than others of the same class, then such transfer is voidable, if the person receiving it or to be benefited thereby had reasonable cause to believe that it was intended thereby to give a preference. From the allegation in the complaint,, it appears that the defendant had advanced money to the firm of H. E. King & Son upon notes and acceptances made by an insolvent, and from whom it could collect nothing; that the indorsers upon said notes, the firm of H. E. King & Son, were also bankrupts and insolvent, both as a firm and individually; that by the appropriation and transfer of a large amount of the property of one of those insolvents, made three days before they filed their petition in bankruptcy, the money so advanced by the defendant upon the notes or acceptances of such insolvent persons has been paid or secured to be paid. And it is alleged that the effect of such transfer will be to enable the defendant to obtain a greater percentage of its debt than other creditors of the same class, and to obtain a preference over the individual creditors of H. E. King, out of his individual property. This allegation follows, as nearly as may be, the language of the statute, and must be considered, I think, an allegation of a fact, and not of a conclusion, and the truth of it is admitted by the demurrer.
It was not necessary to set out in the complaint the value of the bankrupts’ property, and the extent of their indebtedness. Those things are matters of evidence, which would tend to prove the fact alleged in the complaint, that the effect of the transfer of property, as alleged, would be to enable the defendant to obtain a greater percentage of its debt than the other creditors. The pleader need only to allege facts. He is not obliged to demonstrate them, nor allege the evidence of them. Here the narration of the transaction, together with the financial condition of the person involved, is sufficient, it seems to me, to show that the defendant will receive a greater percentage of its debt than other creditors.
By the demurrer the defendant admits that the Kings were, as alleged in the complaint, insolvent. An insolvent is one who has not sufficient property, at a fair valuation, to pay his debts. And when such a person sets apart over $12,000 of his property, which is already insufficient to pay his debts, to pay or secure the payment of a debt of like amount, it should need no argument to show that the creditor holding such debt will receive a greater percentage of his debt than will the other creditors from the insolvent estate thus depleted. The complaint alleges that the defendant had knowledge *608of the transfer of the property to the indorsers, and of the purpose of such transfers, and that it had reasonable cause to believe that it was intended thereby to give it a preference. In this the complaint follows the language of the statute, and is sufficient. It is not necessary to allege why it had reasonable cause to so believe, nor the evidence thereof. This allegation, like the allegation that the effect “of such transfer will be to enable the defendant to obtain a greater percentage of its debt than other creditors of the same class,” etc., heretofore considered, is an allegation of a resultant fact, and it is such facts, and not evidentiary facts, which should be alleged in a pleading. Railway Co. v. Robinson, 133 N. Y. 242-246, 30 N. E. 1008. By the demurrer the truth of such allegation is admitted.
What I have said so far relates to the transfer of the property of H. E. King, the effect of which was to secure the debt for which he was jointly responsible as a member of the firm of H. E. King & Son. There is another aspect, however, in which the case may be considered. The note of Searles was worthless. When it was indorsed by Paddock, after he had been secured by the transfer of property, it was made a thing of value, and when the Arm of H. 'E. King & Son became possessed thereof it was an asset in their hands of the value of $12,064.35. It was property of that value, and when they transferred it to the defendant it was a transfer of so much property, and its transfer depleted the assets of the Arm of H. E. King & Son to that extent, and had the effect of enabling the defendant to obtain a greater percentage of its debt than any other creditor of such Arm; and, as the property was transferred by the bankrupts within four months before the Aling of their petition m bankruptcy, the effect of such transfer was to enable the creditor to whom it was transferred to obtain a greater percentage of his debt than other creditors; and such creditor having, as alleged, reasonable cause to believe that it was intended thereby to give it a precedence, such transfer is voidable, at the election of the trustee, and he is entitled to recover the same from the defendant.
What I have said as to the Searles note applies likewise to the note referred to in the second cause of action alleged in the complaint. It seems to' me that it must be perfectly apparent that to sustain the contention of the appellant is to set a precedent by which the provisions of the bankrupt act as to undue preference can be readily defeated. The ease and simplicity with which an insolvent could transfer his property for the beneAt of a favored creditor would invite evasion of the law, and utterly defeat its intent. It follows that -the interlocutory judgment sustaining the demurrer should be reversed, with costs.
Judgment sustaining the demurrer reversed, with costs, with leave to the defendant to plead over, upon payment'of such costs, within 2d days. ÁE concur.