In Re Bernard
87 F.2d 705
2d Cir.
1937
Check Treatment

*1 Circuit Court of Second Circuit. SWAN, Judges.

AUGUSTUS Association, New York Credit Men’s creditor, assignee above-named the benefit creditors of Yale Garment Company, of which the bankrupt Barnett Bernard and Arthur Bernard were both directors and of which Barnett Bernard presi- also the dent and Arthur Bernard was the secre- tary. On New York Cred- June Association, assignee Men’s of Yale Company, recovered a in the New York $927.79, Arthur Bernard in the sum *2 $1,- son Arthur sum of transferred to his in the against $927.79 Barnett Bernard count, that, alleged if must 112.16, provided rest on the third which in which it was whereby signed that Bernard Bernard the checks judgment against Arthur the effected, but the transfers-to were Arthur collected, against Barnett he that should corpo- did allege not that knew that the he accordingly. be reduced Bernard should judgment ration insolvent. But the was by New in the action complaint The against to for the transfers (cid:127) contained Men’s Association Credit of apparently was rendered for violation against Arthur counts. The first was five Corpora- section‘15 the New that, Yale alleged when Bernard and been must tion and therefore insolvent, Bar Company was portion of that section based on the latter director, it president and nett Bernard was liable every which holds totalling to transferred sums $927.79 to “shall be concerned the who creditors director, * * Bernard, secretary and a * Arthur any transfer or making there * * receiving any * without consideration payment by such prefer Arthur to for and with intent insolvency when is im- insolvent knew of such and that the latter minent, giving pref- the intent of a with insolvency The second cause and intent. any particular any erence to creditor over Arthur Bernard. against action was evidently of the could other creditors." He allegations as the contained the It not held under 'section 15 for have been allege first, except not lack of it did being in- “concerned” transfer with consideration, specified that but $927.79 he had reason to be- prefer to unless tent alleged payment of an was transferred insolvent, corporation was lieve the third cause claim of Arthur Bernard. only a under circumstances would against of action was preference be effected. first two allegations in the reiterated It the ex Court held that The District presi Barnett as counts and stated made restrain order had been which signed Company dent of the Yale Garment Associa York Credit Men’s ing the New to transferring checks $927.79 except in enforcing judgment tion from in the thereby concerned Arthur and was bankruptcy proceeding be va 15 of the of. section transfers Bar reason that the debt of cated for the Law New York Stock Company embodied nett to Yale Garment not in terms (Consol.Laws, 59), did c. 17a, was, section under judgment insolvency. of the allege knew that Barnett (1 of the subds. against of action was The fourth dischargeable be 4), not (2, by alleged to him transfers Barnett. liability “willful and a cause it was Company, when Yale Garment * * * prop to the malicious consid totalling $684.09, without of sums another,” a lia likewise erty and was him; prefer and with intent eration embezzlement, bility insolvency and he knew such also that while act defalcation of action also fifth cause intent. The fiduciary capac any or in ing as an officer allegation of a omitted the Barnett the result reached ity.” agree with We consideration, but con without transfer below, a if the debt was not allegations of the fourth the other tained liability “willful and malicious arising from allegation that and added an count * * * property of an injuries to the a claim was transfer liability a other,” any it was event for in of action vio Barnett. Each cause by Bar “misappropriation” arising from a lation 15 of the New Stock of section officer” of the as an acting “while nett entered Law. The as he Company. Inasmuch foregoing Yale Garment upon such a that, necessarily preference for himself when involved decision intended take inevitably son, he received the with for his Bernard Barnett obtain $184.37 knowledge with primarily charged, chargeable either which he was he must Under any corporation was insolvent. consid furnishing received it without circumstances, knowingly secured eration, knowing corpora when advantage alleged in himself an tion was insolvent as the fourth for count, signing checks insolvency other creditors and knowing or when of the pre to make and of the intent of alleged in son who his claim as the fifth count. liability to take similar advan- secondary His under the enabled both in corporation to tage which declaration of an divi over the unlawful corporation, not dend owed would rise duties. the New to nondischargeable 15 of unlawful under section debt in cases where *3 un was not aware of the insol equity. Cornelius general company, vent condition of der doctrines nor are 308, Pictures, 309 7 F.(2d) suggesting preferential v. C. C. that a trans Pennsylvania v. Ped (C.C.A.2); R. Co. to an ordinary creditor would have rick, 75, Adams v. (D.C.); 222 F. 79 effect. places Section 17a lia (4) Co., (C.C.); 433 Milling bilities Kehlor 35 F. his embezzle Co., (C. 212 ment, 36 F. Milling Kehlor Adams v. defalcation” 47, 49, ; Raff, 81 App.Div. 82 C.) Joseph the same the v. clause. Such collocation under 546, 611, 68 “ejusdem N.Y. N.E. affirmed 176 rule of generis” N.Y.S. indicates Elliott, 1118; 42 National Bank v. misappropriation Third must be due to a 622, Hun, 121, 129, 21 N. affirmed 114 duty, N.Y. known breach of the and not to mere 416; 791, 72 Leigh, E. 136 Ga. negligence Tatum v. present mistake. But in the Ann.Cas.1912D, 236, 216; v. S.E. Banks case the and judgment Co., 841, Ark. Corning Bank & Trust 188 state court bankrupt indicate that 744; 452, A.B.R.(N.S.) (2d) brought 68 28 payments S.W. about the corporation when he knew 578, Miller, Savage N.J.Eq. 432, 36 A. v. 56 that the was insolvent and that 39 A. 665. the interests of other creditors would be sacrificed for the benefit of its fiduciaries. a situation In the case at bar we have This, opinion, in our “misappropria was a president, knowing where a tion” within the meaning of the Bank appro has be ruptcy Act and the indebtedness to cor priated part liquidate its assets to his poration which arose from it not dis- own son who was chargeable. 791, Tatum v. Leigh, 136 Ga. duty another officer. It was his not to use 236, Ann.Cas.1912D, 72 S.E. 216. Accord position fiduciary ás for his own ben ingly the order of the District Court was co-operate efit and also not to with his right and is affirmed. fiduciary, another to benefit at of the creditors. Therefore he has not acted in Judge sec (dissenting). tion 15 of the Stock Law but appeal is from granting an order obligations the motion part of a creditor to vacate in common 791, In Leigh, law. Tatum v. 136 Ga. ex usual order staying actions 236, Ann.Cas.1912D, 216, 72 S.E. the against bankrupt kept and should be Supreme of Georgia held that offi force op- until has had a reasonable cers of an insolvent who had portunity to obtain his discharge unless the applied its assets in of their indi appellee clearly debt due the chargeable. is not dis- plead discharge vidual claims could not in Bankruptcy While the Act de- bankruptcy as a defense to a cause of general fines in terms what debts dis- upon payments action founded be charged not, and what are whether they a “misappropriation” constituted judgment of the state court here involved corporate meaning funds within the inis its nature included within or excluded (4) Bankruptcy section 17a (11 Act from scope of dischargeability in bank- (4), 35 so this indebted ruptcy question ais which should ordi- dischargeable. ness was not Cf. In re narily decided first (D.C.) 186 Gulick F. 350. Applying the which the was obtained and is principle, Supreme Court Ar bound, enforceable. state court is Banks Corning kansas in v. Bank & Trust discharge when the brought to Co., 841, 452, 188 Ark. 68 (2d) S.W. 28 A. attention, its the due consideration to 744, B.R.(N.S.) held that a effect the gives it. against a director for joining corpo Harding, Hill 2 107 U.S. S.Ct. rate resolution which resulted in declaring And, 27 if it L.Ed. 493. errs in doing, so paying dividend stockholders when the error be corrected was insolvent was not a Copper Dimock v. Compa- Court. Revere dischargeable debt. ny, U.S. S.Ct. L.Ed. not saying my We are that a right brothers are claim, concept an of his own or that their nature of the state officer, participation or his judgment, court but I think that not so plain that the justify holding in effect as to is not debatable. matter If, think, doubt on is a fair as I there in fa- score, it should now be resolved re- bankrupt the order vor of (C. C. versed. In re 280 F. A.2).

THE SCANDRETT. H. A. LAKES TRANSIT

SELLON GREAT CORPORATION. Circuit. Second Sanders, Hamilton, Dudley Connelly, Buffalo, Connelly, Y. (W. N. M. of Buf- falo, Y., appellant. Y., for Buffalo, N. Henry Fogler,

appellee. MANTON, AUGUSTUS N. Circuit Judges. admiralty brought is a suit Corporation, Lakes Great Transit Scandrett, the owner steamer H. A. damages injuries to recover suffered on 13, 1933, by Sellon, November a mate and crew, member of the because of the neglect of to furnish seaworthy fitted and door with a appliances thereon. The contain- libel action, ed two causes the first to recover damages under the maritime law for