Trepp v. Monongah Glass Co.

This is an action by the Trustee in Bankruptcy of the United Packing Preserving Company, to recover from defendant, the Monongah Glass Company (a corporation with its principal offices at Fairmount, West Virginia), an alleged preferential payment in the sum of $1779.05. The verdict of the jury was for plaintiff, in the full amount sued for, and from the judgment rendered thereon defendant has appealed. The charge in plaintiff's petition was as follows: "For his cause of action against defendant, plaintiff states that within four months prior to the filing of said involuntary petition in bankruptcy against the United Packing and Preserving Company and while insolvent and indebted to defendant and divers other creditors of the same class upon unsecured indebtedness provable in bankruptcy, and well knowing such insolvency, the said United Packing and Preserving Company did, on or about the 30th day of January, 1922, pay to defendant the sum of $1779.05; that the said payment was for a pre-existing debt, to-wit, a trade acceptance dated September 19, 1921, given by the United Packing and Preserving Company to the defendant in settlement for goods and merchandise sold and delivered by defendant to said United Packing and Preserving Company. "Plaintiff further states that the effect of such payment by the United Packing and Preserving Company to the defendant was to enable the defendant to obtain a greater percentage of its debt than other creditors of the bankrupt of the same class as the said defendant, *Page 1106 and that said payment did thus operate as a preference under the provisions of the Bankruptcy Act of 1898 and amendments thereto. "That the defendant at the time it received said payment knew, or had reasonable cause to believe, that it was intended thereby to give it a preference, and that it was receiving a preference thereby under the provisions of the Bankruptcy Act. "Plaintiff states that he has insufficient assets in his hands to pay in full the debts of the United Packing and Preserving Company, bankrupt." The answer of defendant was a general denial. Briefly, the evidence disclosed that the A.M. Neville Manufacturing Company was a Missouri corporation which had failed in business. In September, 1920, a petition in bankruptcy was filed against it, and, subsequently, the claims of certain of its creditors were adjusted on the basis of seventy-five cents on the dollar. On May 31, 1921, Mr. A.F. Ruppenthal acquired an interest in the company, and became its president, and its name was thereupon changed to United Packing Preserving Company, although there was no reorganization of the company. Its plant was located on South Broadway, in the city of St. Louis, and its business, as its name implies, was the manufacture and sale of fruit products. Two consignments of glassware were sold the United Packing Preserving Company by defendant, the first, of the value of $1000, on July 21, 1921, and the second, amounting to $1779.05, (the payment for which is involved in the present litigation), on August 2, 1921. Each bill was due thirty days from date of shipment, but neither was paid when due. Instead, trade acceptances were given to defendant, the first due in thirty days, and the other in sixty days. It appears that the financial condition of the United Packing Preserving Company had again become involved, with the result that on September 19, 1921, a contract was entered into between such company and the Evans-Rich Manufacturing Company, one of its St. Louis competitors, whereby the Evans-Rich Manufacturing Company agreed to buy the raw materials necessary to manufacture merchandise to fill the outstanding orders of the United Packing Preserving Company, which latter company would then manufacture the finished product and ship same to its customers under such an arrangement that the Evans-Rich Manufacturing Company would receive the payments therefor and thus be protected on its original investment. In the following October, M.H.M. Kelly, the St. Louis representative of defendant, having been apprised of the above working agreement between the two companies, called upon Mr. Sidney Rich, of the Evans-Rich Manufacturing Company, and advised him of the two trade acceptances which defendant held against the United Packing Preserving Company, the first of which had gone to *Page 1107 protest. In the conversation which ensued, Rich agreed, on behalf of his company, to take up the first acceptance, provided a thirty-day extension thereon would be granted by defendant, but refused to guarantee the payment of the second; and when the first acceptance again fell due it was, in fact, paid by the Evans-Rich Manufacturing Company. On November 17, 1921, the plant of the United Packing Preserving Company was wholly destroyed by fire, and the company never resumed operations thereafter. Although insurance had been carried in the sum of $35,000, the loss was adjusted for $25,673.35, which amount was paid on and after January 20, 1922. Some time in December, 1921, the United Packing Preserving Company filed with the State National Bank of St. Louis, with which it was transacting its business, and to which it was indebted, an agreement, by the terms of which the insurance money was to be paid to such bank, and by it distributed pro rata to certain creditors, as shown by a list also filed with the bank. However, it developed that such list was incomplete, in that it did not include the names of all of the creditors, among those omitted being the Evans-Rich Manufacturing Company, and defendant. Accordingly, after considerable controversy, an involuntary petition in bankruptcy was filed on February 28, 1922, by the Evans-Rich Manufacturing Company, against the United Packing Preserving Company, in the United States District Court at St. Louis, and, thereafter, on June 23, 1922, the company was adjudged bankrupt, and plaintiff was in due course elected and qualified as trustee in bankruptcy. Meanwhile, on January 30, 1922, the United Packing Preserving Company had drawn a check, payable to the order of defendant, for $1,779.05, covering the amount of the second trade acceptance, although for some reason the check was not forwarded to defendant until about February 12th following. It was deposited by defendant in its own bank on February 14, 1922, and was paid by the Mound City Trust Company, of St. Louis, on February 17, 1922. It is to recover such alleged preferential payment that the present action was brought. Other details of the evidence will be hereinafter noted as they may bear upon particular points to be decided. The first point urged by defendant is that its requested peremptory instruction in the nature of a demurrer to the evidence should have been given. Our task, therefore, under such assignment, will be to determine whether there was substantial evidence to establish the several elements of plaintiff's cause of action, namely, that a payment was made to defendant by the United Packing Preserving Company while the latter was insolvent, and within four months of bankruptcy; that defendant had reasonable grounds for believing that the United Packing Preserving Company was insolvent at *Page 1108 the time such payment was made; and that the effect of such payment was to give defendant a greater percentage of its debt than other creditors of the same class secured. [Trepp v. State National Bank (Mo. Sup.), 289 S.W. 540; Newman v. Tootle-Campbell Dry Goods Co., 174 Mo. App. 528, 160 S.W. 825; Walker v. Wilkinson (C.C.A.), 296 F. 850; 2 Collier on Bankruptcy (13 Ed.), p. 1248; 7 C.J. 270; 3 R.C.L., p. 285.] We must further bear in mind that, while it is quite true that the burden of proof was upon plaintiff to prove all of the above essential elements of a voidable preference, the usual rule upon demurrer prevails, that plaintiff is entitled to have the evidence in his favor accepted as true, and is also entitled to every reasonable inference to be drawn therefrom. [Trepp v. State National Bank, supra.] In plaintiff's principal instruction he designated February 14, 1922, as the date on which the alleged preferential payment was made, and in such respect the instruction was drawn to conform to the evidence. It also appeared that plaintiff had insufficient assets on hand out of which to pay those creditors whose claims had been allowed. Thus, if the payment to defendant constituted a preference, it is clear that the effect thereof was to give defendant a greater percentage of its debt than other creditors of the same class secured. The correctness of the court's ruling on demurrer, therefore, seems to turn upon the question of whether there was substantial evidence from which the jury might have found that the United Packing Preserving Company was, in fact, insolvent at the time of such payment, and, if so, that defendant had reasonable cause to believe that such payment to it would effect a preference over other creditors. Accordingly we shall confine our discussion as to the case on demurrer within the limits thus set for us. A party is deemed to be insolvent, within the meaning, and under the provisions, of the Bankruptcy Act, whenever the aggregate of its property, exclusive of any property which it may have conveyed or transferred with intent to defraud its creditors, shall not, at a fair valuation, be sufficient to pay such party's debts. Moreover, the question of solvency must be determined as of the date when the alleged preferential payment was made. [2 Collier on Bankruptcy (13 Ed.). p. 1250; 4 Remington on Bankruptcy (3 Ed.), sec. 1766; 7 C.J. 150; 3 R.C.L., p. 273.] It follows, therefore, that we must view the evidence as it may bear upon the solvency of the United Packing Preserving Company as of February 14, 1922, which date, as we have said before, was the one submitted to the jury as the date of the payment in question. In his brief, plaintiff attempts to list the assets and liabilities of the United Packing Preserving Company, as of January 20, 1922, when the payment of the insurance money began to be made. At such date, it appears that the company's total assets were $25,799.05, *Page 1109 based upon items of $25,673.35 from fire insurance, and $125.70 from salvage. There was evidence that at the same time the company's liabilities amounted, at the very least, to the sum of $33,860.22, even when we adopt the figures at which the claims of the Jim Anderson Company and the South Side Bank were compromised, rather than at their face values. While it is true that there were certain outstanding accounts receivable made payable to the Evans-Rich Manufacturing Company, such of the accounts as were paid did not add to the assets of the United Packing Preserving Company, but instead were applied to and merely decreased the amount of the claim of the Evans-Rich Manufacturing Company. It seems apparent, therefore, that the United Packing Preserving Company was insolvent, as we have defined the term above, on January 20, 1924, a conclusion which, incidentally, is the same as that reached by our Supreme Court upon practically the same state of facts, in Trepp v. State National Bank, supra. The evidence disclosed that, on and after the above date, until February 14, 1922, certain of the claims against it were paid by the United Packing Preserving Company, which fact, however, did not affect the solvency of the company, inasmuch as the payment of the claims merely reduced the amount of the assets accordingly. The result is that, while direct proof of the insolvency of the company on February 14th was lacking, proof of its insolvency on January 20th, a reasonable time prior to the date of payment, accompanied with proof that no substantial change had occurred in its financial condition in the meanwhile, may be taken as evidence of insolvency at the latter date, under the usual presumption that a condition, once shown to exist, is presumed to continue for a reasonable time thereafter under the same circumstances. [4 Remington on Bankruptcy (3 Ed.), sec. 1768.] Passing to the second feature of the case, can it be said that defendant, at the time it received the payment in question, had reasonable grounds for believing that the United Packing Preserving Company was insolvent, so that such payment to it would effect a preference over the other creditors? To establish such reasonable cause for belief, as the expression is used in the statute, it is not necessary that proof be made, either of actual knowledge, or of actual belief, on the part of the preferred creditor, but it suffices if such surrounding circumstances appear as would have led an ordinarily prudent business man to conclude that such payment would result in a preference. Of course, mere suspicion that a preference would be effected, is not sufficient. [2 Collier on Bankruptcy (13 Ed), p. 1299; 4 Remington on Bankruptcy (3 Ed.), sec. 1823; 7 C.J. 152; 3 R.C.L., p. 278.] This element of plaintiff's proof appeared almost wholly from the evidence of Mr. Rich, of the Evans-Rich Manufacturing Company. *Page 1110 who testified, in substance, that he had had ten or twelve conversations with Mr. Kelly, the St. Louis representative of defendant, during the months of November and December, 1921, and January, 1922; that he had informed Kelly of the incomplete list of creditors of the United Packing Preserving Company that had been filed with the State National Bank, and that the claims of their respective companies were not included therein; that he had discussed with Kelly the assets and liabilities of the United Packing Preserving Company, and had shown him that such company was insolvent; and, finally, that he had asked Kelly, on behalf of defendant, to join with the Evans-Rich Manufacturing Company, and the Schramm Glass Company, in filing the petition in bankruptcy against the United Packing Preserving Company. Furthermore, Kelly knew that he had been unable to obtain payment from such company on the two trade acceptances, was aware of the fire, and had advised his home office that the United Packing Preserving Company had experienced a total loss therein. Thus, we are clearly of the opinion that there was substantial evidence of such facts as to the insolvency of the United Packing Preserving Company having been brought home to Kelly as to have put an ordinarily prudent person upon inquiry, from which it follows that the jury could with propriety have found that, at the time the payment to it was made, defendant had reasonable cause to believe that such payment would effect a preference, inasmuch as the knowledge of Kelly, acting as agent for defendant, and in its behalf, was imputed to the latter. [2 Collier on Bankruptcy (13 Ed.), p. 1314; 4 Remington on Bankruptcy (3 Ed.), sec. 1839; 7 C.J. 154.] From the above conclusions it is therefore apparent that defendant's requested peremptory instruction in the nature of a demurrer to all the evidence was properly refused. The next point strenuously argued by counsel for defendant is that the court erred in admitting in evidence the petition in bankruptcy filed in the federal court by the Evans-Rich Manufacturing Company against the United Packing Preserving Company, in which petition the payment of its indebtedness to defendant by the United Packing Preserving Company was assigned as an act of bankruptcy, that is, that the United Packing Preserving Company, while insolvent, made the payment in question to defendant with the intent to prefer such creditor over the Evans-Rich Manufacturing Company, the petitioning creditor. We have no doubt that, as a general rule of practice, it is entirely proper for the trustee in bankruptcy, in an action to avoid a preference, to allege and prove as necessary elements of his cause of action (as did plaintiff in the case at bar) the filing of an involuntary petition in bankruptcy, the adjudication thereon, and that he is the duly appointed, qualified, and acting trustee of the estate of the *Page 1111 bankrupt. [3 R.C.L., p. 268; 5 Remington on Bankruptcy (3 Ed.), sec. 2286.] The date of the filing of the petition in bankruptcy is material, inasmuch as under the provisions of the statute the status of the trustee as that of a lien creditor is held to exist as of such date. [Bailey v. Baker Ice Machine Co.,239 U.S. 268, 36 S.Ct. 50, 60 L.Ed. 275; Fairbanks Steam Shovel Co. v. Wills, 240 U.S. 642, 36 S.Ct. 466, 60 L.Ed. 841.] However, an adjudication in bankruptcy, beyond determining the status of the debtor as a bankrupt, is not conclusive upon creditors, such as defendant, who were not parties to the proceedings in bankruptcy, in subsequent actions between them and the trustee, even as to the points necessarily decided in such adjudication. [Gratiot County State Bank v. Johnson,249 U.S. 246, 39 S.Ct. 263, 63 L.Ed. 587; Liberty National Bank v. Bear,265 U.S. 365, 44 S.Ct. 499, 68 L.Ed. 1057; 3 R.C.L., p. 284; 4 Remington on Bankruptcy (3 Ed.), sec. 1762.] Thus, although the insolvency of the United Packing Preserving Company was a necessary element of its alleged act of bankruptcy, upon a finding of which the adjudication of the federal court was based, nevertheless such adjudication was not res judicata as to such fact of insolvency in the present action brought by the trustee against defendant, not a party to the original bankruptcy proceedings. We recognize the fact that the pleadings of one case may, under certain conditions, be introduced in evidence in another case, if relevant and material to the issues involved in the action in which they are sought to be used, and if the doctrine of resinter alios acta is not violated. But here, neither the subject-matter, the parties, nor the relief sought in the two proceedings, was the same. Consequently, we cannot avoid the conclusion that the contents of such petition (as distinguished from the date of its filing) was inadmissible for any purpose against defendant, and that the ruling of the court on defendant's objection constituted prejudicial error, in that the jury was thus allowed to be impressed with the fact that the federal court had found the allegations of such petition, as to essential elements of plaintiff's case, hotly contested in the present trial, to be true. [4 Remington on Bankruptcy (3 Ed.), secs. 1753-1760; 5 Remington on Bankruptcy (3 Ed.), secs. 2291-2294; Clifton Mercantile Co. v. Conway (Tex. Civ. App.),264 S.W. 192.] Other alleged errors assigned by defendant may not appear upon a retrial of the case. For the error above noted, the Commissioner recommends that the judgment of the circuit court be reversed, and the cause remanded.