McAleer v. People's Bank

The plaintiff, as trustee in bankruptcy of one Henry C. Meyer, brought this suit to recover $2,898.11 paid by the said Meyer to defendant bank on June 2, 1917, upon the theory that the payment constituted a recoverable preference under the provisions of section 60b of the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 562 [U.S. Comp. St. 1916, § 9644]), which, so far as pertinent here, reads as follows:

"If a bankrupt shall have * * * made a transfer of any of his property, and if, at the time of the transfer * * * and being within four months before the filing of the petition in bankruptcy or after the filing thereof and before the adjudication, the bankrupt be insolvent and the judgment or transfer then operate as a preference, and the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such judgment or transfer would effect a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person. And for the purpose of such recovery any court of bankruptcy, as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction."

To entitle the plaintiff to recover, he must first show that at the time of the transfer the bankrupt was insolvent, as that word ("insolvent") is understood to mean in the Bankruptcy Act; that is, that a fair valuation of the bankrupt's property was insufficient in amount to pay his debts, and further that the payment operated as a preference in favor of the bank, and that the bank had reasonable cause to believe that the enforcement of the payment would effect a preference. Hewitt v. Boston Strawboard Co., 214 Mass. 260, 101 N.E. 424; Mechanics' Metals Nat. Bk. v. Ernst, 231 U.S. 60, 34 Sup. Ct. 22,58 L.Ed. 121; Carey v. Donohue, 209 Fed. 328, 126 C.C.A. 254; Stucky, Assignee, v. Masonic Sav. Bk., 108 U.S. 74, 2 Sup. Ct. 219,27 L.Ed. 640; Grant v. Nat. Bk., 97 U.S. 80, 24 L.Ed. 971.

It is very ingenuously argued by counsel for appellee that the evidence was insufficient for submission to the jury, both as to the question of insolvency of the bankrupt at the time of the transfer, and also as to whether or not such payment in fact created a preference.

The evidence as to the financial condition of the bankrupt at the time of the payment, and the fair valuation of his property, have been very carefully considered, and to discuss the same here would serve no useful purpose. Suffice it to say that upon a careful examination of this evidence, viewed in the light of the argument of counsel, we are of the opinion that it was sufficient for submission to the jury upon the question of insolvency of the bankrupt at the time of the transfer. The payment extinguished entirely the unsecured debt of the defendant, leaving a debt of $1,300 secured. If the defendant is not satisfied with the security of the $1,300, he may surrender the same to the bankrupt court, and share equally with the other creditors in any dividends to be declared. We think it quite clear, therefore, that the question of preference was also sufficient for the jury's determination.

The last question in regard to reasonable cause for belief on the part of the bank that the payment would effect a preference is one which presents more difficulty, but the conclusion which we have reached upon the question of evidence to be now discussed leaves a determination of that question unnecessary upon the present record, in view of another trial of the cause.

The plaintiff offered to show the common report upon the streets of Mobile (where the bankrupt had for a number of years been engaged in business, and where the defendant bank was also engaged in business) that the bankrupt just immediately prior to the transfer had contemplated bankruptcy, or was about to go into bankruptcy on account of his insolvent condition. Objection to this question was sustained. In this we are of the opinion the court below committed error. The purpose of this testimony was, of course, not to show the bankrupt or insolvent condition of Meyer, but only to show notice to the defendant bank of such condition.

In Price v. Mazange Co., 31 Ala. 701, it was held that, where the validity of a mortgage is impeached for fraud, the fact that the mortgagor, at the time of its execution, was "notoriously insolvent," is admissible in evidence, as tending to prove that such insolvency was known to the mortgagee. In discussing the question, the court said:

"The credit system rests, not alone, or even mainly, on the personal confidence which one man reposes in another. Ability to pay — responsibility to the coercive power of an execution — is a weighty consideration with one who parts with his goods on credit. Persons engaged in commerce and traffic are usually prudent, if not cautious. It is difficult to believe that merchants and traders will not learn the pecuniary condition of their customers, when that condition so vitally affects them, and is notorious in the neighborhood in which they are operating."

Speaking to a question somewhat similar to that here involved, the court in Humes v. O'Bryan, 74 Ala. 64, said:

"The rule is settled, however, that when once a partnership is shown to exist by independent testimony, it is then competent to prove a general reputation or common report of its existence, in order to impute a probable knowledge of such fact to a plaintiff. And for a like purpose the notoriety of a dissolution may be shown to charge one with notice of such fact."

See, also, Greenl. on Ev. (16th Ed.) §§ 14p, 140b; Cleveland Woolen Mills v. Sibert, Ward Co., 81 Ala. 140, 1 So. 773; Hodges v. Coleman, 76 Ala. 104; Owen v. State, 74 Ala. 405.

There was evidence tending to show, as previously stated, the insolvent condition of Meyer at this time, and we are therefore of the opinion that the plaintiff should have been permitted to offer proof of the notoriety of this fact in the community in which both parties were engaged in business. This proof was one of such a character as to be important to the plaintiff, and in this ruling the court committed error, for which the judgment must be reversed.

We are of the opinion that, with evidence of this character admitted and the testimony substantially the same as now presented in this record, upon another trial the affirmative charge should not be given for the defendant; but the question should be submitted to the jury for determination. Likewise we are of the opinion that the plaintiff should, upon another trial, be permitted to show by the attorney for Meyer that Pake required, as a condition for the loan of the full sum requested, the payment of the unsecured indebtedness to the bank.

We need not discuss the evidence in this respect further than to state that we think there was testimony tending to show that Pake and the president of the bank had some kind of understanding in reference to this loan, and the securing by the bank of the full payment of its unsecured debt, sufficient for a submission of this question to the jury. If the jury may reasonably infer that Pake was acting in consort with the bank officials, then, of course, the testimony sought to be elicited in regard to the statement made by Pake would be admissible against the bank.

For the error indicated, the judgment is reversed, and the cause remanded.

Reversed and remanded.

McCLELLAN, SAYRE, and SOMERVILLE, JJ., concur.