Full opinion text
WOOLSEY, District Judge. My decision herein is as follows: In the first suit there will be a decree for the plaintiff. In the second suit there will be a decree dismissing the complaint. In the third suit there will be a decree providing for a dismissal of the complaint as against the plaintiff and of the petition of intervention as against the intervener. In the fourth, fifth, sixth, and seventh suits, there will be decrees dismissing each of the complaints. Costs will not be granted to any party -herein. I. This is a consolidation of seven alleged causes of action brought by the plaintiff William R. Willcox, as trustee m bankruptcy of the estate of the J. A. M. A. Realty Corporation (hereinafter called ‘'JAMA”) against Frederick V. Goess, as receiver (hereinafter referred to as the ■Receiver) of the Harriman National Bank & Trust Company of the City of New York (hereinafter referred to as the Bank). The subject-matter jurisdiction of this court in this consolidated cause is based on the fact that it is brought against a receiver of a closed national bank, who was appointed by the Comptroller of the Currency, and so arises under the laws of the United States. Title 28, United States Code, § 41 (1), 28 U.S.C.A. § 41 (1). Cf. Wyman v. Wallace, 201 U.S. 230, 241, 242, 26 S.Ct. 495, 50 L.Ed. 738; Auten v. United States National Bank, 174 U.S. 125, 141, 19 S.Ct. 628, 43 L.Ed. 920. The several alleged causes of action which have been thus consolidated have to be separately dealt with hereinafter in some respects. It is necessary, however, first to summarize the facts which constitute the background of the situation out of which all these suits arose. II. The corporate and other principal dramatis personae herein, their respective descriptions with some comments on them, are as follows: 1. The J.A.M.A. Realty Corporation-of which the trustee in bankruptcy is plaintiff herein — was organized under the laws of the state of New York in 1923, and, during all the times involved herein, it had outstanding, issued for cash and property, 20,000 shares of capital stock, of which Joseph W. Harriman and his wife, Augusta B. Harriman, owned 19,992 shares. It was the holding corporation of the Harriman family property. During all the times involved herein and until 1934, the officers of JAMA of importance to the discussion in this cause were as follows: Joseph W. Harriman, president, who had held that office from its organization in 1923; Augusta B. Harriman, vice president, who had held that office from its organization in 1923, and had been secretary from August 7, 1928; John A. Noble, vice president from Jan7 uary 4, 1926, to September 30, 1932; Matthew A. Foley, assistant secretary from September 15, 1931. Joseph W. Harriman and Augusta B. Harriman were throughout also directors of JAMA. The sources of JAMA’S income were: (1) Harriman bank stock; (2) interest on mortgages and loans; (3) interest from rent of real estate or equities therein; and (4) credits on accounts with brokers. Its income for the year 1931 was $152,646.81, and for the year 1932, $42,412.79. ' On January 17, 1934, an involuntary petition in bankruptcy was filed in this court by Evan W. Hughes — formerly the confidential financial secretary of Joseph W. Harriman — against JAMA. An order adjudicating JAMA a bankrupt was duly entered in this court on February 2, 1934, and thereafter William R. Willcox, the plaintiff herein, was elected trustee in bankruptcy of the said corporation and duly qualified as such. The following persons and corporations have filed proofs of claim in the following principal amounts against JAMA in said bankruptcy proceeding: Frederick V. Goess, as receiver of the Harriman National Bank '& Trust Company of the City of New York ................... $ 477,350.65 Kings County Trust Company 190,000.00 Chase National Bank of the City of New York........ 101,250.00 Lawyers’ County Trust Company .................... 67,144.86 Union Trust Company of Maryland ............... 150,000.00 The First National Bank & Trust Company of Rochester (on a judgment) ...... 50,000.00 Marie T. Dixon............ 75,000.00 2 East 70th Street Corporation (on a judgment)...... 5,000.00 1170 Fifth Avenue Corporation .................... 470.00 Evan W. Hughes........... 32,929.00 $1,149,145.44 The only collateral held by any of these creditors, other than the Bank, is as follows : Lawyers’ County Trust Company, 596 shares of Bank stock. Union Trust Company of Maryland, 600 shares of Bank stock. First National Bank of Rochester, 200 shares of Bank stock. Marie T. Dixon, chattel mortgage on certain furniture and works of art. On December 31, 1935, the funds of the bankrupt estate in the hands of the plaintiff trustee amounted to $68,394.49. 2. The Harrinfan National Bank & Trust Company of the City of New York— of which the receiver Frederick V. Goess is defendant herein — at all times hereinafter mentioned was a banking corporation organized and existing under the National Bank Act of the United States (12 U.S.C.A. § 21 et seq.) having. its principal place of business at 527 Fifth avenue, in the city of New York, where, from March, 1911, it had carried on a general banking business as successor to the Night & Day Bank which had opened at the same address on May -1, 1906. The capital stock of the Bank was originally $200,000. At the time of its closing in March, 1933, and for several years prior thereto its capital stock consisted of 20,000 shares of the par value of $100. The persons in control of the Bank during all the times hereinafter mentioned were the following: Joseph W. Harriman, who was president from its beginning to July 14, 1932, and thereafter was made chairman of the board of directors without the power of the authority previously had and exercised ■by him as president. Henry B. Cooper was elected president of the Bank on July 14, 1932, actively took over the functions of that office on July 21, 1932, and continued as president until the Bank was closed at the end of the so-called bank holiday in March, 1933. On March 13, 1933, after the so-called bank holiday, on Mr. Cooper’s recommendation the Bank was not reopened and he was appointed conservator thereof and duly qualified as such. On October 16, 1933, the defendant, Frederick V. Goess, was appointed by the Comptroller of the Currency to be receiver of the Bank and duly qualified as such. 3. The Harriman Securities Corporation — hereinafter referred to as the Securities Corporation — was organized on or about April 27, 1925, under the laws of the state of New York at the instance of the then directors of the Bank for the purpose of purchasing and dealing in securities and in doing business and carry;-' ing on transactions, including the purchase of securities, which the Bank was prohibited from doing by the national banking laws, and it continued as such during the times hereinafter mentioned. The stock of the Securities Corporation was held by trustees, and, pursuant to an agreement dated April 16, 1925, the owner of each share of stock of the Bank became entitled to a beneficial interest— transferable only with the shares of the Bank stock — -in a share of stock of the Securities Corporation. During the years before 1929 to 1932, Joseph W. Harriman was president of the Securities Corporation. On or about July 15, 1933, the Securities Corporation filed a voluntary petition in bankruptcy in this coúrt and the Irving Trust Company was thereafter duly appointed its trustee in bankruptcy and duly qualified as such. 4. The M. H. O. Company, Inc., was a corporation organized under the laws of the state of New York and all the stock thereof was owned beneficially by Joseph W. Harriman and Augusta B. Harriman. The said company was used by Harriman to engage in trading in securities on margin. All the funds of the said company were obtained either by borrowing from JAMA or from the Bank. 5. The Midtown Trading Corporation was a corp- ration organized under the laws of the state of New York. All its stock was owned beneficially by Harriman. Its funds were also secured by borrowing from JAMA or from the Bank. 6. Augusta B. Harrimen was the wife of Harriman. Her principal role herein is as vice president of JAma. She filed a voluntary petition in bankruptcy on March 21, 1933, in this court, and was adjudicated a bankrupt thereon on March 21, 1933. The Irving Trust Company was appointed her trustee in bankruptcy and duly qualified as such. All the claims against her estate in bankruptcy, except the claim of Henry E. Cooper, as conservator of the Harriman National Bank & Trust Company of the City of New York, were expunged, and on June 19, 1934, the Irving Trust Company, as trustee in bankruptcy of Augusta B. Harriman, indorsed and delivered to Frederick V. Goess, as receiver of the Bank, a demand promissory note of JAMA to her, dated May 7, 1932, in the principal amount of $30,000. 7. The First National Bank & Trust Company of Rochester — hereinafter called the Rochester Bank — intervened in action No. 3. This is a banking corporation duly organized and existing under the national banking act with its principal place of business in the city of Rochester, N. Y. 8. Joseph W. Harriman — hereinafter called Harriman — was admittedly the dominating figure in the Bank and the Securities Corporation, in both of which his word was law. He was given, as of course, by corporate resolution, absolute control of JAMA’S affairs, for his wife had not any business experience. Harriman, as will be noted later, had a broad power of attorney from JAMA which was lodged with the Bank. He used the M. H. O. Company, Inc., and the Midtown Trading Corporation, which he owned in their entirety, as corporate shields behind whicfi he hid when it was convenient to do so for the sake of getting loans from the Bank in excess of the legally permissible limit for loans to a single borrower. (a) The largest proportion of Harriman’s once considerable fortune was invested in stock of the Bank, registered in the name of JAMA and others. As the depression of business, which began in the latter part of 1929, grew worse, Harriman attempted to maintain, in respect of his personal credit, a situation of which the whole structural strength depended on the maintenance of a false market value for the Bank stock at a figure of from $1,200 to $1,400 per share, which was admittedly wholly disproportionate to its book value— as hereinafter found — and more than four times as high as the price which expectably it would have commanded in a free market. The principal purpose of maintaining this false market seems to have been to prevent the creditors of JAMA or of Harriman who held stock of the Bank as collateral to their loans from foreclosing thereon or demanding additional security. The details of the methods followed in maintaining this false market for the Bank stock are not relevant in this cause, but it is common ground, as I understand it, that in the maintenance thereof moneys of the Bank to the amount of upwards of $7,900,-000 were used, and that therewith 5,546% shares of the Bank stock were acquired by the several persons and corporations who were participants in the false market transactions. This explains the financial collapse of the Bank, of Harriman, and of JAMA. (b) It should be noted that the Bank was the only one of the creditors of Harriman or of his personal corporations which could not properly take Bank stock as collateral. The result was that when pressure was put on Harriman in September, 1931, by the national bank examiner, and slightly later by the examiner for the Clearing House, who were criticizing some of the Bank loans to JAMA and to Harriman, Harriman was forced to turn over to the Bank most of JAMA’S assets of value except its Bank stock. Thus the Bank came to have its loans secured by what events have proved to be JAMA’S best assets, and when JAMA’S own creditors — unsecured, or secured, with one exception, by Bank stock — came around after the bankruptcy, they found little of value to be shared amongst them. (c) Harriman must at least be held to have known that the best assets of JAMA were being given to secure the loans of the Bank or of the Securities Corporation to JAMA and that, in the event of the fall of the house of cards which he was trying to keep together, the Bank would have preference over JAMA’S creditors. But he had to make the transfers because the bank examiners were becoming increasingly suspicious, and to save himself he had, at all hazards, to maintain a facade for the Bank which looked impregnable. Consequently, whether the transfers made for the Bank’s benefit when Harriman was president of the Bank are voidable preferences or not has to turn solely on JaMA’S financial condition on the dates' when they were made as tested by the criterion of solvency applicable under the statute involved in the trustee’s attempt to set them aside. III. The question of whether the transfers of JAMA’S assets to the Bank are voidable or not arises under the first three suits; that is, Equity No. 78 — 44, Equity No. 78 — 56, and Equity No. 78 — 115. A. A summary of the facts underlying these causes of action follows: 1. On June 8, 1931, JAMA borrowed $150,000 from the Bank and gave therefor a simple unsecured note payable September 8, 1931. The sum thus borrowed was used to pay an indebtedness of $150,000 due from JAMA to the Securities Corporation. This note for $150,0^J was renewed as a simple note on September 8, 1931, December 7, 1931, March 7, 1932, and July 6, 1932. 2. On October 13, 1931, JAMA borrowed from the Bank $195,000 more. This was credited on its account with the Bank, and for which it gave a simple note payable January 11, 1932. This sum was also used by JAMA to pay off an indebtedness of $195,000 owed by it to the Securities Corporation. This note of October 13, 1931, for $195,-000 was renewed in simple form on January 11, 1932, on April 11, 1932, and on July 11, 1932. 3. On or about October 13, 1931, as a result of pressure from tne bank examiners, Harriman had JAMA execute and deliver to the Bank as collateral for its indebtedness to the Bank amounting to $345,000, the following: (a) An assignment of what was referred to throughout the trial and will be herein called the Brookville mortgage. This was a purchase-money mortgage given by one A. L. Smith (of the Philadelphia banking house of- E. B. Smith & Co.) to Harriman, when Harriman sold him the Harriman country estate at Brook-ville, Long Island, in 1929. This assignment was executed by Augusta B. Harriman as vice president of JAMA, and by M. A. Foley as its assistant secretary. (b) An assignment of a proprietary lease and 173 shares of the capital stock of a co-operative apartment at 1170 Fifth avenue, which was also executed by Augusta B. Harriman as vice president of JAMA, and by M. A. Foley as its assistant secretary. 4. On October 13, 1931, after JAMA with the proceeds of the note for $195,000 above mentioned had paid its indebtedness to the Securities Corporation in that sum, Harriman caused it to borrow on a simple note from the Securities Corporation $400,-000, and to deliver to the Securities Corporation as collateral security for said loan— (a) A deed to property owned by JAMA situate at 20 East Fifty-Fourth street, executed by Augusta B. Harriman as vice president of JAMA, and by M. A. Foley as assistant secretary. (b) An assignment of the proprietary lease and stock in a cooperative apartment owned by JAMA at 2 East Seventieth street, also executed by Augusta B. Harriman as vice president of JAMA, and by M. A. Foley as assistant secretary. 5. At the first renewal of JAMA’S note of $195,000 to the Bank on January 11, 1932, JAMA was no longer indebted to the Securities Corporation, and Harriman caused the Securities Corporation to execute an assignment of the proprietary lease and stock of the co-operative apartment at 2 East Seventieth street to the Bank and then caused it to be put as security under his personal loan. What happened at this time to the deed to 20 East Fifty-Fourth street is not clearly shown, but it is fairly inferable from the subsequent developments that it was returned to JAMA. 6. On March 19, 1932, Harriman caused the Bank to lend $50,000 to the Securities Corporation, and on March 22, 1932, Harriman caused the .Securities Corporation to lend the said money to JAMA. On or prior to March 24, 1932, JAMA redelivered to the Securities Corporation as collateral security for said loan the above-mentioned deed, dated October 13, 1931, whereby JAMA conveyed to the Securities Corporation the property situate at 20 East Fifty-Fourth street. The said funds were used by JAMA on the same day for payments to its brokers, Harriman & Co., and were credited to a-n account with them called “J. A. M. A. Realty Corporation.” On April 4, 1932, Harriman caused the Securities Corporation to lend to JAMA $50,000 more, and JAMA on the same day used the said funds to pay in part its then existing indebtedness to the Chase National Bank. 7. From April 4, 1932 until May 17, 1932, the Securities Corporation held the deed to 20 East Fifty-Fourth street above mentioned as collateral security for this debt of $100,000 which thus had become due to it from JAMA. 8. On April 25, 1932, the Clearing House examiner made an examination of the Bank and criticized many of the loans of the Bank including, among others, its loans to Harriman and to JAMA. 9. After the said examination, and on May 17, 1932, Harriman caused the Securities Corporation, which then held the deed to 20 East Fifty-Fourth street as collateral security for JAMA’s aforesaid indebtedness to it, to convey by deed the said premises to the Bank, and also to turn over to the Bank its deed from JAMA thereto. Harriman then caused the Bank to put the said deeds as collateral security-under a note of his own to the Bank. 10. There was no direct conveyance of 20 East Fifty-Fourth street by JAMA to the Bank on May 17, 1932. 11. Prior to the conveyance on May 17, 1932, of 20 East Fifty-Fourth street by the Securities Corporation to the Bank, the said premises were encumbered by the lien of a first mortgage held by the United States Trust Company in the principal sum of $50,000. Consequently, at the time when said premises were held by the Securities Corporation as collateral security for JAMA’S indebtedness to it in the principal sum of $100,000, the only interest therein available to creditors of JAMA, other than the first mortgagee and the Securities Corporation, was the equity therein over and above those liens. This equity amounted to nothing for the property was then worth only $125,000. 12. As will be later noticed in greater detail, neither this deed nor any of the assignments above mentioned were recorded until October, 1932. 13. On December 8, 1931, JAMA was, as has been shown, in debt to the Bank in the total sum of $345,000. Harriman wished to borrow more money for JAMA in order that it might be able to loan the money to the Securities Corporation to help the latter corporation pay its semiannual dividend in January, 1932. Accordingly, Harriman had recourse to the following subterfuge to avoid JAMA’S having such loans from the Bank in excess of its quota as would violate the national banking act: A man named Harry J. Levin was induced by Harriman to borrow $100,000 from the Bank, for which he signed a collateral promissory note secured by collateral valued at approximately $120,000, and, at the same time, a side agreement was made between Harriman and Levin to the effect that the proceeds of this note were to be used to purchase shares of Bank stock, and that Harriman was to repurchase this stock from Levin at the end of six months for the sum of $100,000, and that as payment for thus loaning his credit to Harriman for six months, Levin was to receive 5 shares of Bank stock at the end of'the said period. In return for Levin’s collateral promissory note, the Bank delivered to Levin a cashier’s check which was indorsed by Levin and cashed by the paying teller of the Bank. The proceeds of this cashier’s check were then deposited in cash in- JAMA’S account, in part on December 8, and in part on December 9, 1931. Thereupon JAMA used the funds thus' secured to pay part of its then indebtedness to the Securities Corporation in the sum of $100,000. 14. On January 7, 1932, the regular semiannual dividend of the Securities Corporation, which was maintained at $7.50 per share, was due to be paid. For this purpose the Securities Corporation needed $150,000. The $100,000 paid to the Securities Corporation by JAMA, as above described, seems to have been used to meet in part the requirements of this dividend. JAMA, as the then owner of 3,451 shares of the affiliated shares of the Bank and the Securities Corporation, received its dividends on those shares at the rate of $17.50 per share — $10 from the Bank and $7.50 from the Securities Corporation — amounting in all to the sum of $60,392.50. 15. When Levin’s note matured on June 8, 1932, the funds of JAMA were used to pay to the Bank the interest thereon. But when called on to pay the principal, Levin denied any liability on the note and the matter was brought to the attention of Mr. Henry E. Cooper, who, as above noted, had on or about July 21, 1932 — at the insistence of the New York Clearing House — become President of the Bank. On investigation, Mr. Cooper ascertained that this $100,000 loan of December 8, 1931, from the Bank via Levin to JAMA, had been used for its proper corporate purpose by JAMA in payment of part of its indebtedness to the Securities Corporation, and that, consequently, in spite of the fantastic arrangement with Levin, JAMA had been the real beneficiary of the loan. Thereupon Mr. Cooper, in July, 1932, after a conference with Levin and his attorney, released Levin’s collateral and surrendered Levin’s note to him. Then on Mr. Cooper’s insistence, JAMA, on July 25, 1932, acting through Harriman as its president, executed and delivered to the Bank its note in collateral form in the sum of $100,000. The items of collateral mentioned in this note were: (a) A deed to the premises called High Farms at Glen Cove, Long Island; (b) The assignment of a mortgage on land in West Orange, N. J.; (c) A chattel mortgage on certain personal property of JAMA consisting of works of art, furniture, t'apestries, etc.; and (d) Two hundred shares of Bank stock which were delivered by Harriman ' to JAMA to be used for this purpose. This collateral note was indorsed by Harriman and renewed in the same form with his indorsement on January 25, 1933. 16. On September 8, 1932, the chattel mortgage on the personal property owned by JAMA, which had been executed on September 2, 1932, and which was part of the agreed collateral for the note for $100,-000 given to cover JAMA’S indebtedness in respect of the Levin transaction, was filed in the office of the registrar of the county of New York. 17. On October 4, 1932, JAMA’S renewed note for its loan from the Bank of June 8, 1931, in the sum of $150,000, and its renewed note for its loan from the Bank of October 13, 1931, in the sum of $195,000, together with some accrued interest, were consolidated into a single collateral note for $347,409.70. This note was indorsed by Harriman, and the items of collateral listed therein were as follows: (a) The Brookville mortgage. (b) The lease and stock of a cooperative apartment at 1170 Fifth avenue. This collateral had been held by the Bank under JAMA’S loans since the middle of October, 1931. 18. On October 5, 1932, owing to JAMA’S failure to deposit additional collateral when demanded, the Rochester Bank, in pursuance of the provisions of a collateral three months’ note, dated August 2, 1932, which JAMA had given to it for a loan of $50,000, accelerated the maturity date of the'nbte and so advised JAMA. This action by the Rochester Bank seems to have precipitated the recording, in the first half of October, 1932, by the Bank, of the deeds above mentioned, as well as other transfers from JAMA which had remained unrecorded in the Bank’s possession from the middle of October, 1931. 19. On October 5, 1932, the deed, executed on October 13, 1931, by JAMA, to the Securities Corporation, of 20 East Fifty-Fourth street, and the deed, executed on May 17, 1932, by the Securities Corporation, to the Bank, together with the assignment of the proprietary lease at 2 East Seventieth street, were recorded. 20. On October 10, 1932, the assignment of the Brookville mortgage by JAMA to the Bank, executed October 13, 1931, the High Farms deed by JAMA to the Bank, executed July 25, 1932, and the assignment of the West Orange mortgage by JAMA, to the Bank also executed on the latter date, were recorded. 21. On October 10, 1932, action against JAMA on its note was threatened by the Rochester Bank, was begun on October 17, 1932, judgment was entered against JAMA therein in Monroe county on November 16, 1932, and a transcript of the judgment roll was duly filed in New York county on November 23, 1932. Execution issued on this judgment in New York county and was returned unsatisfied February 2, 1933. 22. This, in brief, is a history of the transactions by which the Bank became transferee of the assets of JAMA above enumerated, and the steps taken by it to consolidate its position in respect thereof. As above indicated, the objective of the first three causes of action is to set aside these transfers on the ground that they were preferences or conveyances in fraud of creditors. 23. The Rochester Bank, the intervener in the» so-called suit No. 3, Equity 78 — 115, claims that by reason of the filing in New York county of the transcript of its judgment against JAMA, as above mentioned, it secured a lien for the amount of $50,394.90 with interest at 6 per cent, from the date of its judgment, November 16, 1932, on the property at 20 East Fifty-Fourth street. By stipulation, if there be such a lien, it has been transferred, subject to my decision herein, to the proceeds of sale of said property now in the Receiver’s hands. 24. The so-called first suit, Equity 78 — ■ 44, deals with transfers made on July 25, (1932; the so-called second suit, Equity 78 — 56, deals with transfers made on October 13, 1931, and the so-called third suit, Equity 78 — 115, deals with a transfer ma-de on May 17, 1932. They will each be hereinafter dealt with in such detail as may be necessary. B. However, before I take up the suits, just referred to, separately, there are certain questions raised by the plaintiff which are involved in several of the transfers of JAMA’S property and will, therefore, be first decided in order to determine whether what was done by the transferor duly divested it of its property and thus accomplished a transfer thereof to the transferee. 1. Where a corporation is the transferor, it must first be decided whether the required form of corporate consent was present to allow the particular kind of transfer in question. (a) Section 16 of the New York Stock Corporation Law (Consol.Laws, c. 59) deals with consent to corporate mortgages and provides, so far as here relevant, as follows: “The consent to the execution of such mortgage, except a purchase-money mortgage, by the holders of not less than two-thirds of the total number of shares outstanding entitled to vote thereon, given either in writing or by vote at a meeting of the stockholders called for that purpose in the manner prescribed by section forty-five, shall be required. A certificate that such consent was given by the stockholders in writing or that it was given by vote at a meeting as aforesaid, shall be subscribed, acknowledged and verified by the president or a vice-president and by the secretary or an assistant secretary of the corporation, and shall be filed and recorded in the office of the clerk or register of each county in which the mortgage is filed or recorded.” But it is settled law in this court, failing a definitive construction of this section by the New York Court of Appeals, that actual consent of stockholders owning two-thirds of the stock entitled to vote on the question may be shown without following the precise formalities prescribed by the section just quoted. In re Victoria Fusilli Co., 79 F.(2d) 611, 612 (C.C.A.2); Cf. In re Quigley Motor Sales, 75 F.(2d) 253, 254 (C.C.A.2); In re Paul De Laney Co., 26 F.(2d) 961, 963 (C.C.A.2); In re Oliver C. Putney Granite Corporation (D.C.) 14 F.Supp. 31, 32, 33. In the present case the mortgages or deeds intended as mortgages executed by JAMA on October 13, 1931, were signed by Augusta B. Harriman, its vice president and secretary, who owned 11,532 shares of the JAMA stock, and were delivered to the transferees by Harriman, who owned 8,640 shares thereof. The joint stockholding in JAMA of Harriman and his wife, therefore, was far more than two-thirds of the outstanding 20,000 shares. As to the deed and the chattel mortgage given as collateral under the note of July 25, 1932, they were signed by Harriman in pursuance of the authority vested in him by unanimous resolution (hereinafter mentioned and dated January 26, 1923) of the board of directors of JAMA of which both he and his wife were members. To hold mortgages and deeds, — intended as mortgages and executed and delivered under such circumstances — void for lack of consent by two-thirds of the stockholders, would, in my opinion, be an obvious trespass on the actualities of the situation, and, as I appear at present not to be forced to do so by controlling authorities, I refuse so to hold. (b) When the pledging of JAMA’S assets is considered, the question is one of the authority vested in Harriman, as president of JAMA, either implicitly by reason of his position and his many transactions with the Bank in that capacity, or explicitly under a resolution of its board of directors. Harriman’s authority to pledge JAMA’S property as collateral is shown not only by the estoppels arising out of the ordinary course of business between the Bank and-JAMA over many years, but also by the unanimous resolution of JAMA’S board of directors adopted on January 26, 1923, shortly after its incorporation, and filed with the Bank on January 7, 1930. This resolution authorized Harriman from time to time to borrow money and obtain credit from the Bank on behalf of JAMA and on its credit and on such terms as might seem to him advisable, and deliver the notes or other obligations of JAMA signed by him as president in such form as the Bank might require, and further authorized him to pledge any bonds, stocks, bills, and accounts receivable, or other property of the corporation as collateral security for such notes and obligations. I think it is quite clear, therefore, that so far as the giving of mortgages on the property of the corporation or deeds intended as mortgages thereon and the pledging of the property of the corporation as collateral is concerned, there is not any question that the necessary corporate authority existed. 2. The next general question to be considered is whether the transfers thus authorized by JAMA were fully achieved by a surrender of JAMA’S dominion over the subject-matter of the transfers. It is common ground that the assignments of the mortgages and leases and the deed to 20 East Fifty-Fourth street, made by JAMA on October 13, 1931, were not recorded until the early part of October, 1932. The fact that Harriman, as above stated, was the dominating figure in the Bank and the Securities Corporation and had absolute control of JAMA as his private holding company, puts the situation into a zone wherein it is natural for the plaintiff to claim that the failure to record these instruments was a badge of fraud, and wherein perhaps a court would tend to be hospitable to such a claim. But it must always be remembered, throughout the consideration of the facts in this cause, that JAMA, the Bank, and the Securities Corporation, were separate legal entities, each with its own separate obligations to creditors, and, in spite of the “sole actor” doctrine which was favorably noticed by Judge Knox in Munroe v. Harriman et al. (D.C.) 16 F.Supp. 341, decided July 11, 1935, and in the case of Satterwhite v. Harriman National Bank & Trust Co. et al. (D.C.) 13 F.Supp. 489, it would be an error to allow Harriman’s knowledge in regard to and control of these different corporations to blur corporate distinctions, after creditors, as here, have become entitled to throw their clutch into the situation and achieve through their appropriate representatives a locus standi therein. It is now necessary to endeavor, therefore, as far as possible, to deal with each of the recurrent complicated situations involved herein as if the several corporations concerned were dealing with each other at arm’s length and were not acting as Harriman’s puppets. As I understand it, the claim, that the failure to record the assignments or the deed mentioned rendered them invalid as transfers, involves merely the application to different subject-matters of the principle which was dealt with by the Supreme Court in Benedict v. Ratner, 268 U.S. 353, 45 S.Ct. 566, 69 L.Ed. 991, namely, that due to an agreement, a secret trust or otherwise, the dominion over the property supposed to be conveyed by the instrument in question actually has not been transferred to the grantee. Here, the instruments on their face purported to divest JAMA of title and vest the Bank or the Securities Corporation, as the case might be, with title to and control of the property in question. No secret trust is shown, and the fact that Harriman, as the controller of the situation, might have changed it by reassignment or by surrender of the assignments or by having JAMA recapture the deed, without paying the debt which it secured, is wholly unimportant until he actually did something of the kind; but he never acted in this regard. It is quite possible, as I suggested on the trial, that the recording of these instruments was postponed in order that Harriman might keep the situation inside the Bank as plastic as possible for JAMA’S loans so as to fit in with his extraordinary financial methods of shifting collateral from one loan to another. But, inasmuch as all this collateral given to the Bank was required by the national bank examiners or by the examiner for the Clearing House, and as those examiners were regularly turning up from time to time to see how the matter lay, the strongest of sanctions was operating on Harriman, namely, his dread of what might happen to the Bank and to him if he played false with the bank examiners and was caught at it. I think it is clear, therefore, that under the circumstances herein, the fact that the transfers were not promptly recorded cannot be considered to indicate that they were not actual transfers giving dominion over their subject-matter to the Bank. 3. The next question is whether the chattel mortgage which JAMA promised to give to the Bank on July 25, 1932, and which was named as part of the collateral for its note of that date in the sum of $100,000, was filed within a reasonable time after its execution, and whether its validity was maintained by the filing of proper notices by the Bank as mortgagee and by its successors in interest. The mortgage was executed on September 2, 1932, and filed on September 8, 1932. That certainly was not an unreasonable time after its execution, and it was not, of course, until the mortgage was actually filed that the Bank acquired a lien on the chattels in question. Furthermore, if the question of the delay between July 25, 1932, when JAMA promised to give the chattel mortgage, and September 8, 1932, when it was actually filed, is regarded as important, it may be observed that there was not any new obligation incurred by JAMA during the period intervening between the promise to give the mortgage and its filing. Leaving aside for the moment any consideration of the voidability of this mortgage as a preference, the next question which arises is whether, under section 235 of the Lien Law of New York State (Consol.Laws, c. 33), having received and filed a chattel mortgage, the Bank maintained its validity by filing at the times required a proper statement of the Bank’s interest in the property claimed by virtue thereof. Section 235 of the Lien Law of the State of New York, so far as here pertinent, provides as follows: “A chattel mortgage, except as otherwise provided in this article, shall be invalid as against creditors of the mortgagor and against subsequent purchasers or mortgagees in good faith, after the expiration of the first or any succeeding term of one year, reckoning from the time of the first filing, unless, “1. Within thirty days next preceding the expiration of each such term, a statement containing a description of such mortgage, the names of the parties, the time when and place where filed, the interest of the mortgagee or any person who has succeeded to his interest in the property claimed by virtue thereof.” When Mr. Cooper, as conservator of the Bank, on August 31, 1933, filed his statement setting forth the interest of the Bank in the property claimed by it as mortgagee under the chattel mortgage, his statement, in so far as here relevant, was as follows: “The present interest and claim of said Bank and of said Conservator in said chattel mortgage is that the same is held by the said Bank and-or by the Conservator for the benefit of the Bank, and there is now due and unpaid thereon the sum of $100,000, with interest at the rate of 5% per annum from January 26, 1933, and that said chattel mortgage is also held by them as collateral security for the payment of all liability and indebtedness of said J. A. M. A. to said Bank aggregating the principal amount of $447,350.65, with interest at the rate of 5% per annum on the following sums: “(a) $347,409.70 from January 4, 1933, to July 13, 1933. “(b) $347,350.65 from July 14, 1933. “(c) $100,000 from January 26, 1933.” When on August 20, 1934, Mr. Goess, as Receiver of the Bank, filed his statement .of the Bank’s interest in the property claimed by it as mortgagee under this mortgage, he used exactly the same form substituting the word “Receiver” for the word “Conservator.” The rationale of requiring these refiling statements is explained in the opinion of the Court of Appeals of the State of New York in Porter v. Parmley, 52 N.Y. 185, at page 188, which held that, even where there -is a forfeiture, the chattel mortgage must be refiled in accordance with the Lien Law, and in which the court said: “The same reason then remains for refiling that existed before the forfeiture. The mortgagor is, to the public, the apparent owner. The statute requires a statement to be filed, to show the true interest of the parties, for the protection of the public. Whatever its purpose, it is enough that the statute so declares.” The defendant claims that these refiling statements were made precisely in accordance with the requirements of the statute. I agree. Mr. Cooper and Mr. Goess each first stated exactly the amount due on the mortgage at the time of refiling, and then, in order not to waive their rights under the general lien given to the Bank by the collateral note of July 25, 1932, which was part of the transaction out of which the mortgage arose, stated that the property claimed under the mortgage was also held as collateral security for all the indebtedness of JAMA to the Bank. Clearly, there was not any false statement with regard to the amount due on the mortgage, or of the interest of the mortgagee in the property claimed thereunder. C. All the transfers by JAMA involved in this cause were given either to secure present advances by or enforceable antecedent debts to the Bank. Hence they were given for fair consideration and, as no intent to defraud other creditors is shown, they would not come within the category of conveyances in fraud of creditors, Strongin v. International Acceptance Bank, 70 F.(2d) 248, 252 (C.C.A.2); Irving Trust Company v. Chase National Bank, 65 F.(2d) 409, 411 (C.C.A.2); even if JAMA were insolvent when it made some of the transfers, In re Handerson (D.C.) 3 F.Supp. 92, 93. The petition in bankruptcy against JAMA under which the plaintiff became trustee was filed on January 17, 1934. The latest transfer of property by JAMA to the Bank of which complaint is made in this consolidated cause occurred on July 25, 1932, and, consequently, the four months’ statute of limitation in bankruptcy (Bankr. Act § 60a, as amended, 11 U.S.C.A. § 96 (a) had run and the plaintiff trustee is forced to rely for any recovery of preferences on section 15 of the New York State Stock Corporation Law (Consol. Laws, c. 59) in its present form. So far as relevant, this section as amended by the Laws of 1929, chapter 653, effective on April 15, 1929, reads as fol-lows (italics mine) : “§ 15. Prohibited transfers to officers, stockholders, directors or creditors. No corporation which shall have refused to pay any of its notes or other obligations, when due, in lawful money of the United States, nor any of its officers or directors, shall transfer any of its property to any of its officers, directors or stockholders, directly or indirectly, for the payment of any debt, or upon any other consideration than the full value of the property paid in cash. No conveyance, assignment or transfer of any property of any such corporation by it or by any officer, director or stockholder thereof, nor any payment made, judgment suffered, lien created or security given by it or by any officer, director or stockholder when the corporation is insolvent or its insolvency is imminent, with the intent of giving a preference to any particular creditor over other creditors or the corporation, shall be valid, except as to any rights or interest which may be acquired thereunder by any person without notice or reasonable cause to believe that such conveyance, assignment, transfer, pay ment, judgment, lien or security would effect a preference. * * * Every person receiving by means of any such prohibited act or deed any property of a corporation shall be bound to account therefor to its creditors or stockholders or other trustees. * * * Every transfer or assignment or other act done in violation of the foregoing provisions of this section shall be void, except as hereinbefore provided. * * * No such conveyance, assignment or transfer shall be void in the hands of a purchaser for a valuable consideration without notice.” Counsel for the trustee in bankruptcy claims that the definition of “insolvency” under section 271 of the Debtor and Creditor Law (Consol.Laws, c. 12) should be the criterion of insolvency under section 15 of the Stock Corporation Law because it is a legislative definition of insolvency. I do not think that this construction is tenable because the two statutes are not in pari materia, as one deals with fraudulent conveyances and the other with preferences. Cf. Van Inderstine v. National Discount Company, 227 U.S. 575, 582, 33 S.Ct. 343, 57 L.Ed. 652. Consequently, I hold that the statutory definition of “insolvency” under the Debtor and Creditor Law does not bridge over into section 15 of the Corporation Law. As I understand the decisions in the federal courts, the true criterion of the insolvency of a corporation under section 15 of the Stock Corporation Law is whether at the time of an allegedly preferential transfer the corporation in question is obviously in such condition as not to be able to meet its obligations as they mature or that such a condition is expectably imminent. Childs v. County Trust Company (D.C.) 6 F.Supp. 821, 823, affirmed without opinion 70 F.(2d) 1012 (C.C.A.2); Emerson v. Berman, 57 F.(2d) 637 (C.C.A.2); Irving Trust Company v. Chase National Bank, 72 F.(2d) 668 (C.C.A.2); In re Utrecht Coal Company, 63 F.(2d) 745 (C.C.A.2). This, as I understand it, has been the law of New York since the case of Brouwer v. Harbeck, 9 N.Y. 589, which dealt with a statute in pari materia with section 15 of the Stock Corporation Law, although limited to moneyed corporations. The Court of Appeals in that case said at page 594 of 9 N.Y.: “A corporation, like an individual, is insolvent when it is not able to pay its debts. Insolvency means a general inability to answer in the course of business the liabilities existing and capable of being enforced.” I think the crucial words in this definition of insolvency are “in the course of business,” and by reason of those words the criterion which I shall use in determining JAMA’s financial situation on the several dates here in question will not be, what might be called, the static test of whether its balance sheet on the date of the transfers which are attacked showed red, but, what might be called, the kinetic test of whether having regard to the amount and maturities of its obligations and the amount and nature of its assets, it might — as a going concern — have been expected to realize on its assets in the existing market so as to meet its obligations as they fell due. D. In the light of this criterion I shall now chancer, as far as necessary, the value of JAMA’S assets during 1931 and 1932 in relation to its impending liabilities on the several dates when the transfers which are attacked herein occurred. (a) The value of JAMA’S assets, of which the value is disputed, I fix, as of the times hereinafter indicated, as follows : 1. The Brookville Mortgage: Mr. A. L. Smith had bought a house and circa 70 acres of land at Brookville, Long Island, from Harriman in 1929 for $625,000, paying $300,000 in cash and giving Harriman a purchase-money mortgage for $325,000. The defendant’s expert contends that in 1931 and 1932 the mortgage was worth its face, $325,000. The plaintiff’s expert fixes its value at $295,000. Neither had sold mortgages on land in that neighborhood at or about this time. The market for large places like this, on the North Shore of Long Island, had depreciated between 1929 and 1931 at least 50 per cent. In 1932, it was about the same, but in 1934 market for properties thereabouts was better than it was in 1932. The expert called by the plaintiff fixed the value in 1931 of the real estate on which this mortgage was a lien at $295,000. The expert called by the defendant fixed it at $350,000. They both agreed that the value was substantially the same in 1931 and 1932. I much preferred the evidence of the plaintiff’s expert on this item and adopt his valuation for the real estate. Mr. A. L. Smith died on May 20, 1934, leaving an estate of circa $772,000. In the latter part of 1934 a compromise on this mortgage was reached by the receiver with the executors of his estate, by which the executors paid the Bank the sum of $260,-000. This sum is now held by the Bank subject to the result of my decision in this cause. Putting the situation most favorably to the defendant, I think that a mortgage, which was in amount so near the value of the property as fixed by the defendant’s expert, could not have been sold for its face value to an investor in mortgages in view of the market conditions then existing, in spite of its 5 per cent, interest and the solvency of Mr. Smith. I should think it unlikely that this mortgage could have been sold in 1931 or 1932 to a third party at much more than the sum at which it was subsequently compromised by the receiver with the Smith estate in 1934, but I will fix its value at something more than the compromise figure which may have been due to the anxiety of the Bank to realize on its collateral as promptly as might be. Therefore, on conflicting evidence, I fix the value of the Brookville mortgage as a salable asset of JAMA during 1931 and 1932 at $275,000. 2. Furniture, Tapestries and Works of Art: The furniture, tapestries, and works of art owned by JAMA were carried on its books as worth $252,219.60. The appraiser for the defendant is perhaps more experienced than the appraiser for the plaintiff. Furthermore, he made the appraisal which was used on the chattel mortgage, above mentioned, and therefore had knowledge of all the items under consideration in this heading. But he thinks that these items could have been sold in 1931 for circa $165,000, and in 1932 for circa $145,000, which it seems to me is too high a price. The plaintiff’s appraiser fixed the value for the items under this heading at very much less. I think perhaps he fixed them too low; but it was testified to that the antique dealers were not, operating any “knock outs” in 1931 and 1932, and that this meant lower prices for all antiques sold at auction. The reason for this was that the antique dealers were short of money, and if they spent any money they had difficulty in reimbursing themselves by selling the articles they had bought. This combination of poor turnover and short funds made the antique market very weak in 1931 and 1932. On conflicting evidence, I fix the gross sale value for the items under this heading at $125,000 for 1931, and $100,000 for 1932. 3. Shares in a Co-operative Apartment Corporation Called 2 East Seventieth Street Corporation and Accompanying Proprietary Lease: This asset of JAMA’S consisted of 1,-530 shares of a co-operative apartment corporation owning the building at 2 East Seventieth street. These shares carried with them a lease to the seventh and eighth floors in the said building. The maintenance charge on the tenant under the lease was $16,000 a year, and the landlord, by the provisions of the articles of incorporation, had a lien on the shares of stock for any indebtedness by the tenant. A similar apartment could have been rented for much less, and the plaintiff’s real estate expert considered that there was not any value for JAMA in the ownership of this lease, especially as the lease ran for almost 99 years, and any purchaser thereof would have to assume the heavy obligation involved in it for that period of time. The defendant’s real estate expert contended that the fair and reasonable value of this proprietary lease on October 13, 1931, was $48,300, and that the same was true in 1932 on the various dates in which we are here interested. He admitted that he did not think it could have been sold to any one in 1931 for that amount on account of the high maintenance charges. He thought, however, that in 1931 and 1932 the public did not realize how bad real estate conditions were and that the stock and lease might have been sold for something. I hold, on this conflicting evidence, that in view of the maintenance charge of $16,000 a year, for which the purchaser would have had to obligate himself for the long term of the lease, that this lease and its accompanying shares of stock in the 2 East Seventieth Street Corporation had not any asset value to JAMA at any of the times here involved. 4. Equity in 20 East 54th Street: This is a five-story building which fronts 26 feet on the south side of East Fifty-Fourth street between Fifth and Madison avenues on a lot 105 feet deep. On this property there was a $50,000 mortgage, paying interest at 5 per cent., held by the United States Trust Company. The property was leased under a net lease to the Baldwin Piano Company at a rental of $12,000 a year for twenty-one years, stepping up in 1936 to $13,000. The Baldwin Piano Company was in good condition financially and paid its rent and taxes promptly. In 1931 the land had an assessed value of $175,000, the building $50,000, making a total of $225,000. In 1932, the land was assessed at $155,-000, and the building at $45,000, making a total of $200,000. The plaintiff’s real estate expert stated that the market value of the land and building, both in 1931 and 1932, was $110,-000. In view of the mortgage of $50,000, this gave the property an equity value to JAMA of $60,000. In the opinion of the plaintiff’s expert, properties of this kind were declining in value in 1932, and he thought the fair rental value at that time of 20 East Fifty-Fourth street was not more than $9,000 a year. The building was actually sold, subject to the mortgage, by the Bank’s receiver to the Baldwin Piano Company in 1934, when the real estate market had somewhat improved, for $108,500. That, of course, should not be considered on the same basis as a sale by a seller free to bide his time. After deducting the mortgage and commission, there is now being held in escrow by the receiver, subject to the result of this suit, the sum of $55,267.77. The defendant’s real estate expert said that in his opinion a reasonable market value of the premises in October, 1931, was $185,000, leaving an equity, after deducting the $50,000 mortgage, of $135,000. He said the value was the same throughout 1932. He based this on the fact that there was a solvent tenant for the whole building under a net lease which provided that the tenant should pay any taxes and any other upkeep, which would have meant, if the property were purchased at $185,000, a return to the purchaser of 7% per cent, on his money. The market for real estate in Manhattan was very slow, however, in 1932, and finally on cross-examination, the defendant’s expert weakened a little and admitted that he thought the property might have been sold for not less than $150,000 to $160,000. Out of that, of course, the purchaser would have had to pay the mortgage interest at 5 per cent, on $50,-000, amounting to $2,500 a year. It seems to me that on these figures, having regard to the admittedly slow real estate market in 1931 and 1932, it is fair to fix the reasonable market value of the property on a negotiated sale in October 1931, or during 1932, at $125,000, leaving an equity to JAMA after deducting the amount of the mortgage lien of the United States Trust Company and, for the moment, disregarding all other liens, of circa $75,000. 5. Account No. 14 — A with Harriman & Company: This account was a deposit account which was long maintained by JAMA with Harriman & Co., a firm of brokers. In it on October 13, 1931, there was an apparent credit balance of $459,908.70. The plaintiff says that the asset value of this account had been destroyed by Harriman’s having put it in hotchpotch with his other accounts at Harriman & Co. by a letter, dated October 17, 1930. I agree. That letter read as follows: "Messrs. Harriman & Company, “111 Broadway, “New York, N. Y. “Gentlemen: “I hereby consent that any and all collateral or credits of any kind or description now to my credit with you, or which may hereafter be to my credit, may be used by you in any or all accounts wherein I may be interested, or in any account which I have opened or which may hereafter be opened by me, or in which I may have an interest, for the same purposes as mentioned and described in my signature contract now on file in your office, which signature contract is made a part hereof. The accounts now open are the following: J. W. H., No. 14, No. 14-A, Jama Corp., J. W. H. A/c O. H., and J. W. H. Seat. “Very truly yours, , “J. W. Harriman “Date October 17, 1930.” On October 17, 1930,' no question of JAMA’S solvency had arisen, and Harfiman had authority from JAMA to write this letter. By October 13, 1931, almost a year later, there were too many estoppels in Harriman & Co.’s favor as a result of their continuing business .with Harriman in reliance on this letter until he became hopelessly insolvent, to enable JAMA, as defendant’s counsel contends, by declaring its ownership of the account, to have it segregated as a separate available asset. I, therefore, hold that this account did not have any asset value to JAMA on October 13, 1931. 6. The Notes of J. W. Harriman and E. W. Hughes: On October 13, 1931, Harriman owed JAMA $965,831.14, and E. W. Hughes, Harriman’s . confidential secretary, owed JAMA $502,600. Harriman at the time was , himself hopelessly insolvent and Hughes was not a person of any substance, so neither he nor Harriman could have paid anything on account of the notes, and to have realized anything from them would have certainly required a litigation and probably in either case a proceeding in bankruptcy. I do not think, therefore, that these notes can be regarded as ■ salable during the period under consideration except in so far as a speculator might have been willing to buy them for some small amount on the chance of realizing something out of them. I, therefore, hold that neither of these notes had any asset value to JAMA on October 13, 1931. 7. The Bank Stock: On October 13, 1931, JAMA was the registered owner of 3,059 shares of stock in the Bank, with each of which a share of the Securities Corporation was affiliated. ' In October, 1931, there was not any free market for this . Bank stock. The market prices for the stock had been artificially maintained from December 28, 1929, at the Bank’s expense — as has been above mentioned; — and in October, 1931, the price of the stock stood at. between $1,390 and $1,480 per share. There is, therefore, no real market value by which I can chancer the Bank stock, and I will have to take the next best available norm by which to measure its value. Cf. United States v. Wishnatzki (D.C.) 7 F.Supp. 313, and cases there cited; reversed on other grounds 77 F.(2d) 357 (C.C.A.2). Proceeding on this basis, I find that I have the following figures by which .to check what is a fair valuation for the Bank stock as of October- 13, 1931': First, I have, as a minimum price, the book value of the Bank stock and its affiliated Securities Corporation stock, which was fixed by the examiner for the Clearing House, Mr. Hanna, on corrected figures, at $160 per share for the Bank stock and $33 per share for the Securities Corporation stock, making a total for the affiliated unit of $193 per share. Second, I 'have another and somewhat higher value which is the value that might have been given to the affiliated stock if some larger bank had been intending to merge the Harriman Bank with itself. In such an event allowance would have been made for the good will of the Bank, which was not inconsiderable at this time; for it had occupied a very strategic position at the southeast corner of Forty-Fourth street and Fifth avenue for upwards of twenty-five years, and in October, 1931, it was in good repute and remained so until the unfortunate events with which we are in part concerned on this trial, .and which led eventually to its being closed. Mr. Henry. E. Cooper, who was put in charge of the Bank by the Clearing House in July, 1932, as president in succession to Harriman, is an experienced banker, and he testified that whenever a merger of banks was to be made there would always be an allowance for good will of at least 5 per cent, of the deposits, and that some times larger, percentages were allowed. Now the, deposits in the Bank amounted in October, .1931, to abput $35,000,000. The capital funds of the Bank,' at Hanna’s revised figures, amounted to $3,208,000, Five per cent, of the deposits would have amounted to $1,750,000. This amount added to the capital funds, makes a total of $4,958,000. ^Dividing this sum by tlm'20,-j 000 shares of stock outstanding would have given what I call a ■ fair merger value of the Bank stock alone at $247.90 per share. Third, I have a reconstructed free market value which is worked out mathematically on a graph and which may be thus shortly described: Counsel' for the defendant, realizing the difficulty of the problem which was presented in any attempt to" value the Bank stock in this cause owing to its hav-' ing no free market, had a graph made based on the records of the Commercial and .Financial Chronicle showing the actual course of prices of the stocks of a number of Clearing House Banks from October 5, 1929, to M