Citations
- 18 F. Supp. 680
Full opinion text
PATTERSON, District Judge.
The trustee in bankruptcy of William P. Smith Company, Inc., brought an action at law to recover $37,500, alleged to have been received by the defendant as a voidable preference. The $37,500 was made up of three sums — $25,000 received on May 15, 1935, and $6,000 and $6,500 received on May 18, 1935. A jury was waived.
Down to the time of bankruptcy on June 6, 1935, the bankrupt was a corporation engaged in selling automobiles -at Wassaic, N. Y., under the guidance of William P. Smith. Whatever chances it had of successful continuance in business were ruined by forgeries and frauds committed by Smith. In March, 1935, Smith got in touch with the defendant, a company in the business of buying customers’ negotiable paper from concerns selling automobiles and other articles on the installment plan. He proposed that the defendant take over a $25,000 loan that Manufacturers Trust Company had made to the bankrupt a year earlier. The defendant was given to understand that Manufacturers Trust Company wished to get clear of the loan, not because of any dissatisfaction with it, but merely in order to avoid having it rated as a slow loan, and that the trust company would reinstate the loan after a thirty-day interval. The defendant took the matter up with the trust company and was told that the loan would be taken back after thirty days, provided the bankrupt’s financial condition should warrant it. The defendant, after making inquiries about the bankrupt’s business, decided, to make the loan. On March 23d, the bankrupt gave a $25,000 demand note to the defendant and delivered as collateral security thirteen notes purporting to be those of customers. At the same time the defendant gave the bankrupt a check for $25,000 which the bankrupt indorsed and deposited in its account with the trust company. The old note held by the trust company was paid off by charging it against the bankrupt’s account so built up.
In April the defendant informed Smith that it expected the note to be taken up on April 23d. This was in accordance with the understanding that 'the loan was to be one for thirty days. Smith made the excuse that the,, bankrupt’s 1934 financial statement would not be ready for a few days, that even after it was ready a little time would be required to get the new loan from Manufacturers Trust Company, and he asked that the note be carried for three or four days. Smith then caused the bankrupt’s accountant to send the trust company a financial statement purporting to show the bankrupt’s condition at the end of 1934. This statement, false though it was, showed an apparent net worth of over $200,000, and on the strength of it Smith pleaded with the trust company to grant the bankrupt a new loan, so that the $25,-000 loaned by the defendant might be paid off. After several refusals the trust company was prevailed upon by Smith on May 14th to grant the bankrupt a new loan of $25,000 for one week, to be secured by customers’ notes. The trust company understood that the loan was to take the place of the loan that had been made by the defendant in March. Quigley and Richardson, the defendant’s representatives in charge, immediately went to the trust company to close the matter. They produced the collateral notes held by the defendant; several of the collateral notes were overdue and for these Smith produced notes that he claimed were renewals. The renewal notes as well as most of the other collateral notes proved later to be fictitious. Smith signed the bankrupt’s notes for $25,-000 payable to the trust company to evidence the new loan, also the bankrupt’s check for $25,000 payable to the trust company, and gave the note and the check to the officer of the trust company in charge of the matter, the check to be in payment for a cashier’s check to be turned over to the defendant. Quigley would not take the bankrupt’s uncertified check. But it was too late in the day to issue a cashier’s check or to certify the bankrupt’s check. On the next morning a cashier’s check of the Manufacturers Trust Company for $25,000, payable to the defendant, was handed to Richardson, who then turned over the collateral to the trust company. The $25,000 loan that had been made by the defendant to the bankrupt in March was thus paid off. This is the first transaction which the plaintiff attacks as a voidable preference.
Meanwhile the defendant had been purchasing supposed customers’ paper from the bankrupt from time to time; such purchases had commenced on March 26th and amounted to $42,000 by the middle of May. It had also advanced some $12,400 to the bankrupt for the purchase of automobiles at wholesale, such advances being secured by trust receipts or chattel mortgages on the automobiles purchased. Between May 10th and May 16th the bankrupt sent to the defendant some eight checks drawn on its account in First National Bank of Amenia, for a total figure of $13,859.96. Most of the checks were in repayment of loans on wholesale transactions. On May 16th the defendant had word from the Amenia bank that the bankrupt’s credit balance was insufficient to meet these checks and that none of them would be paid. Quigley and Richardson pressed Smith for payment. Smith tried to reassure them; he claimed that he had not had time t