189 F. 508 | U.S. Circuit Court for the District of Eastern New York | 1911
This is an action in equity to set aside the transfer of some $8,638, face value, of merchandise accounts, made December 15, 1906, by the United Syndicate Buyers, a corporation doing business in the city of New York and organized under the laws of the state of New Jersey, and for an accounting as to collections from these accounts. This corporation had very little capital and hardly any stock, but bought goods for export and discounted _or pledged the bills or accounts for these sales, in order to meet the bills becoming due for goods previously purchased and disposed of in other transactions. The secretary and active man in the business was a son of the present defendant. The defendant became a director and stockholder and participated in the business in order to help her son, who was not yet 21 years of age and could not engage in business as he wished on that account. This son became of age before the transactions in question, and his mother ceased then to act as director, but seems to have remained legally a member of the board. The corporation not only had an unusual business, but conducted this business in an unusual manner, and negotiated loans substantially with two men, who received interest on the advances, being protected by an agreement on the part of the corporation, to refund or purchase back all of the accounts which were not paid within the time in which the debt to secure which they were assigned fell due. The defendant was frequently called upon to advance money to help the corporation out in taking over or repurchasing these bills which were not paid promptly, and it appears that in the month of December, 1906, about $1,000 was due to her in this way. She also had a claim for money loaned of $500, and at that time advanced $500 more by check. To secure this the corporation assigned to her some $9,000 worth of accounts, which had then not been paid or were of doubtful value, and had been taken back from the pledgees. The corporation then proceeded, within the next few months, to borrow from the two gentlemen who had previously made loans over $5,000 more, with which they paid all the creditors having claims at the time of the assignment. Ultimately, in the month of February, 1907, a proceeding was brought in New Jersey to have the corporation liquidated, and for the appointment of a receiver. At this time, the corporation was insolvent. But, this plan not working out as was expected, a petition in bankruptcy filed in the Southern District of New York in July, 1907, caused the assets of the corporation to be taken in charge of by the bankruptcy court. Ultimately a trustee was appointed, who brought the present action against Mrs. Sedgwick, on the ground that the transfer to her in December previous to the filing of the petition was with intent to hinder, delay, and defraud creditors, and therefore void.
Such a transfer would plainly not be valid as against creditors, if attacked in time. In ré George W. Shiebler & Co., 174 Fed. 336, 98 C. C. A. 408. Further, a transfer of accounts for a past consideration, or even for a present inadequate consideration, where the circumstances as well as the books and instruments themselves indicate that the transfer was not intended to be absolute, but was merely to keep assets from other creditors, and as security to the assignee, must be held void. The burden is therefore upon the defendant in this action to account for and restore what she received, and the burden is upon the plaintiff to show that the .defendant did receive something for which to account. It would appear from the testimony that, as has been said, the face value of the accounts was some $9,000. The amount of the debt for which they were transferred was about $2,000, and the defendant shows by the testimony that she has received from $700 to $1,000 collected by the corporation.
The fact that the creditors whose subsequent claims for loans have been proven in bankruptcy did not know of the transfer to Mrs. Sedgwick, and did not succeed in getting good collateral for their loans, or in keeping track of the business and accounts which were actually left in the hands of the corporation, does not give the trustee any rights as against Mrs. Sedgwick.
A further defense has been interposed, inasmuch as it is claimed that the testimony does not show that the corporation was insolvent in December, at the time of the assignment of these accounts. The disposition which has been made of the matter has been based upon the conclusion that the history of everything concerned in collecting these accounts and winding up the affairs of the concern would indicate that it was losing money at the time of these transactions, and, if it had been compelled at that time to liquidate, its liabilities would have considerably exceeded its assets.
If any of the uncollected accounts were actually in the hands of Mrs. Sedgwick, and the assignment claimed by her to be absolute and not as security, or if the transfer were merely preferential, it might he necessary to consider this defense more in detail, in order to see if her claim of solvency could be sustained. But as the case stands such scrutiny is unnecessary, and the plaintiff is entitled to a decree, with a reference, if necessary, to determine the amount of money collected by the bankrupt and turned over to Mrs. Sedgwick, but against which should be offset the sum of $500 cash actually advanced for this assignment.