Perry v. Van Norden Trust Co.

Scott, J.: In the year 1904 the Broadway Trimmed Hat Company, a domestic stock corporation, had a deposit account with the defendant trust company, and at various times obtained from that company loans represented by promissory notes and secured by the assignment of outstanding accounts. On May 23, 1904," the trust company held two promissory notes of the trimmed hat company, one dated February 17, 1904, for $2,100, payable on demand, and secured by the assignment of outstanding accounts, and the other dated May 12, 1904, for $4,600, payable on demand, and also secured by the assignment of outstanding accounts. On these assigned accounts the defendant has collected $857.45 more than the amount, with interest, due on the notes. On the same date the defendant held three other promissory notes of the trimmed hat company dated respectively February 1, 1904, March 7, 1904, and April 28, 1904, the first two being for $500 each and the third for $3,000, each being payable four months after its date, rand all being indorsed by one Max Feist. For these notes the defendant held no security save such as was implied by. the indorsement of Max Feist. On said May 23, 1904, the Broadway Trimmed Hat Company sold out all its merchandise and fixtures. On the following day, May 24,'1904, it deposited the sum of $1,000 in the defendant trust company and borrowed from said company the sum of $3,000, which was credited on its deposit account with said trust company and as security for which the trimmed hat company assigned to the trust company all of its outstanding accounts not theretofore assigned, as well as the equity in the accounts which had thereto [290] fore been assigned as security for the loans of February seventeenth and May twelfth. The trimmed hat company thereupon drew a check upon said trust company for $4,000, which it delivered to the trust company in payment of the unsecured and unmatured notes of February first, March seventh and April twenty-eighth. By these transactions the Broadway Trimmed Flat Company denuded itself of practically all its assets, leaving nothing to meet the claims of the other creditors which aggregated- about $10,000. On May twenty-fourth a' petition in bankruptcy was' filed against the Broadway Trimmed Flat Company, and in due course the plaintiff was appointed its trustee in bankruptcy. . This action is brought under section 48 of the Stock Corporation Law (Laws of 1892, chap. 688, as atnd. by Laws of 1901, chap. 354) to recover the amount paid to defendant on May 24, 1904, as a preferential payment. This section, so far as material to this action, reads as follows: “ Wo conveyance, assignment or transfer of any property of any such corporation by it, or by any officer, director or stockholder thereof, nor any payment made, judgment suffered, lien created or security given by it, or by any officer, director or stockholder when the corporation is insolvent or its insolvency is imminent, with the intent of giving a preference to any particular creditor over other creditors of the corporation, shall be valid * * *. Every person receiving by means of any such prohibited act or deed any property of the corporation shall be bound to account therefor to its creditors or stockholders or other trustees. *■ * * Every transferor assignment or other act done in violation of the foregoing provisions of this section shall be void. * • * * Wo such conveyance, assignment or transfer shall be void in the hands of a purchaser for a valuable'consideration without notice.” The terms of the act are very simple. All that is necessary in order that it shall become operative is that the corporation shall be insolvent, or its insolvency imminent, and that the payment shall have been made or the security given with the intent on the part of the debtor to give a preference. • The intent of the creditor, or his. knowledge as to the insolvency of the debtor or of the intent of the debtor is immaterial. If, however, the creditor parts with valuable- consideration, and is without notice of the insolvency or its [291] imminence, he stands in the position of a purchaser for value and without notice, and the transaction is not avoided. That the Broadway Trimmed Hat Company was insolvent on May 24, 1904, is indisputable, and there can be no doubt whatever that when it gave all its assets to one creditor, leaving claims amounting to $10,000 entirely unprovided for, it meant to prefer the creditor to whom the assets were given. It is not necessary to uncover the mind of a debtor in order to ascertain his intent, when the natural, probable and indeed inevitable consequence of his acts is to effect a preference. The transaction of May 24, 1904, between the trimmed hat company and the defendant cannot be treated or considered otherwise than as a device to give to defendant, under the guise of a new loan, security for the unsecured loan represented by the unmatured notes. The pretended loan of $3,000; the crediting of that amount on the deposit account of the trimmed hat company, and the immediate payment of the amount to defendant as payment of the unsecured notes was obviously a mere bookkeeping device. The net result was that for its claim of $4,000 represented by the three unsecured notes, the defendant received a cash payment of $1,000, and an assignment of accounts, leaving its claim only $3,000 now represented by a single note. The case must be considered as if, on May twenty-fourth, the trimmed hat company had paid $1,000 in cash on account of its $4,000 debt and had assigned the accounts as security for the balance of $3,000. In this view the case would be a simple one, and the plaintiff’s right to a judgment perfectly clear, but for the fact that the notes for $4,000 taken up on May 24, 1904, bore the indorsement of Max Feist, conceded upon the trial to have been perfectly solvent and responsible. If a creditor, holding security, innocently and apparently in the due course of business, accepts payment even from an insolvent corporation, and thereupon surrenders his security to which he cannot be restored, the payment cannot be said to be preferential and contrary to the statute, because the creditor has received tlie payment in good faith and upon a valuable consideration. If, however, the creditor has surrendered no security the rule does not apply. The only security the trust company held was the indorse [292] ment of Max Feist, and that security it. will not have lost even if it now he required to return to the trustee the money, and the accounts or the proceeds of the accounts, which were assigned to it on May 24, 1904.- . Ordinarily,, of course, the payment of a note by the maker terminates the liability of the indorser, but the receipt of a preferential payment, contrary to the statute, of an indorsed note, is in. the contemplation of law.no payment at all, and does not release the' indorser. (Swarts v. Fourth Nat. Bank, 117 Fed. Rep. 1; Petty v. Cooke, L. R. 6 Q. B. 790-796; Brandt Suretyship [3d ed.], § 368; Williams v. Gilchrist, 11 N. H. 535; Watson v. Poague, 42 Iowa, 582.) The defendant trust company, in surrendering the notes indorsed by Feist, did not discharge him, but retained whatever right of recourse it then had against him. So far as he was concerned, its position remained' unaltered and the debt remained unpaid, and it does not appear that the defendant has in any way lost its right of recourse against Feist, the indorser. If it appeared, as it does not in the case as presented to us, that the defendant, believing in good faith that its claim had been discharged by pay- • ment, and acting upon that belief, had hy act or omission effectually discharged the indorser a different question might be presented, which, however, it is not necessary to consider at present. We are, therefore, of the opinion that upon the evidence the payment to the. defendant trust .company of $1,000 on May 24,1904, and the assignment to it on that day of the accounts until then unassigned, and of. the equity in the accounts previously assigned was. preferential, contrary to the statute and void, and that the- plaintiff- is entitled to recover the $1,000 and whatever may have been collected upon, the accounts and the equities attempted to be assigned, and a reassignment of so many thereof as have not.-been collected. The judgment should be reversed and a -new trial granted, with' costs to. appellant to abide the event. Patterson, P. J., and Clarke, J., concurred; Ingraham . and McLaughlin, JJ., dissented.