
    Edward A. Silberstein, as Trustee in Bankruptcy of Marcus Rosen, Plaintiff, v. Jacob Stahl, Jr., et al., Defendants.
    (Supreme Court, New York Special Term,
    August, 1900.)
    1. Bankruptcy — Preference.
    Where, within a month of the filing by a vendee of a petition in bankruptcy, unpaid vendors, who had sold him goods upon credit and who have reasonable cause to believe him to be presently insolvent, take back from him so much of the goods as he has not sold and thereupon acknowledge satisfaction of the entire purchase price, although suffering by the arrangement a serious loss, the transfer must be deemed a preference and the trustee of the bankrupt may subsequently maintain an action in the Supreme Court of the State of New York to recover of the vendors the said goods, or their value, where the vendors have sold them.
    2. Same — Right of trustee to sue in State court.
    The right, under the Bankruptcy Act of 1898, of a trustee to sue to set aside such a preferential transfer is essentially the same as that which an assignee had under the Bankruptcy Act of 1867. The Supreme Court of the State of New York has jurisdiction of such an action and there is no exclusive jurisdiction in the courts of the United States.
    Action by the trustee of a bankrupt to recover of creditors property which they received from the bankrupt under a preferential transfer and converted into money. The bankrupt was adjudged such, upon his own petition, on December 20, 1898. His petition was filed in the same month.
    Shiland & Honeyman (H. B. Shoemaker, of counsel), for plaintiff.
    Wahle & Stone (C. G. F. Wahle, of counsel), for defendants.
   Russell, J

. The bankrupt, Rosen, carried on a cigar business at Denver, Col., purchasing from the defendants Jacob Stahl, Jr. & Co., at New York, as well as from other wholesalers. On the 1st day of December, 1898, through the efforts of the defendant Edward Seifert, a member of the creditor firm, he transferred to the defendants all of the cigars, unsold, which he had received from the defendants, amounting in value to $693.25, in agreed satisfaction of the defendants’ entire claim against Rosen, amounting to $1,242. This transaction culminated a correspondence between the defendants in New York, and Rosen, in Denver, plainly showing the anxiety of the defendants to collect on the line of credit which had been extended by them to Rosen, and anxious perception of his neglect and inability to discount his bills for goods purchased. from them, and it evinced a willingness on their part to surrender over forty per cent, of their claim in order to secure the remainder, even though that security was the receipt back of their own goods with the risk of being able to sell them to other customers for cash at the price stated. There can be no doubt that the facts indicate a reasonable cause to believe Rosen not only unable to pay his obligations as they matured, but also unable to pay them by dedication of his entire assets to the payment of his obligations, were time given hi in to turn those assets into money under circumstances which would enable him to realize the most. Capable business men do not relinquish a large percentage of a claim, against a solvent debtor, to take in kind the merchandise, sold the debtor by them, as the best bargain they can make for a release of their claim. And, if it is correct, as the defendants claim, to say that Bosen was limited, in his power of disposition of the goods sold to him by the defendants, so that at any time the defendants could resume possession of the remaining stock for the more efficient selling of the particular brands they manufactured, the inquiry becomes more acute as to why, under the exercise of an undoubted right to take their goods back, they should be compelled to surrender their claim for the goods sold by Rosen to others, and which they could not reclaim. The inferences to be drawn from the circumstances of the dealings, correspondence, and settlement, are strengthened by the interviews which took place November 30, 1898, and December 1, 1898, between Seifert, other creditors and the bankrupt. The consciousness of Rosen’s insolvency permeated the conversations and acts of all of the participants. That consciousness was entirely justified by the facts. Rosen was then insolvent, and, at the time the transfer was made to the defendants, instead of preferring one creditor, should have yielded his entire property to the payment of his just debts, so far as that property would go, and thus alone have acted in consonance with the fundamental principle upon which the Bankruptcy Act of 1898 is founded.

The counsel for the defendants ingeniously tries to pervert +he application of the Bankruptcy Act, to the case under consideration, by the endeavor to distinguish between a creditor seeking a preference, 'and a former owner simply striving to regain his own. The defendants carefully avoid the dilemma of maintaining a right of rescission, and restoration of the remaining goods unsold by Rosen, on account of a fraud on the part of Rosen in stating his responsibility, which would justify rescission, for, that would confess a knowledge, at the time the goods were taken back by the defendants, that Rosen was insolvent and unable to pay, as the very foundation of their claimed right to rescind. Accordingly, an ingenious, if not ingenuous, theory is advanced, by testimony and argument, that Rosen was quasi-debtor and quasi-agent. He is claimed to have been the debtor so long as the creditors wished him to be so, and only agent after they chose to terminate his right to sell the goods they had sold him. Their theory is, as suggested by the testimony of the defendant Seifert, that Rosen was to introduce their brands of cigars into the distant regions contiguous to Denver, through the form of a sale, with the right to the defendants to terminate his acting for them in case he was not active, or expert, enough to place the goods in the surrounding territory to a sufficient extent to satisfy them. There was no reservation of title to the goods. There was an absolute line of credit extended to Rosen, and an absolute right on the part of the defendants to enforce their claim against him, not only for goods which he sold and thus could' not return, but also for goods which he had on hand and which the defendants did not care to take back. Reasonably construed, the understanding was simply that the defendants had a right to refuse further deliveries at any time when they saw lit. If any additional force is claimed, so that it is urged, there was an inherent right to reclaim the unsold goods in the possession of Rosen, this court could not find the facts with the defendants, either upon the evidence or under the pleadings. The answer was verified by this same witness, Seifert. No claim is made in that answer of any such reservation of title, and the distinct affirmative allegation is made, as to the apparent defense which is relied upon in regard to the facts of the original sales to Rosen, that the cigars were actually sold outright, but that it was not Marcus Rosen, and was his mother Emile Rosen, who purchased them. It is also quite evident that the culminating cause, of the transfer back to the defendants of the stock unsold by Rosen, was his inability to pay his obligations in full, and not any choice on the part of the defendants of another agent endowed with greater efficiency in the display and disposition of their brands of cigars.

Nor can I agree with the learned counsel for the defendants that there is a wide distinction between the Bankruptcy Act of 1867, and that of 1898, as to the power to bring actions in the Supreme Court of this State. His argument is that, under the Bankruptcy Act of 1867, preferences to creditors, having reasonable cause to believe the debtor insolvent, were declared fraudulent and void, and, therefore, the title, to the property transferred, of course vested in the assignee in bankruptcy, who, having such title, could maintain in a court of general jurisdiction an action at law or in equity to recover that property; but that, there being no such declaration in the Bankrupt Act of 1898, the title never came to the trustee, who cannot, therefore, assert his claim to the goods as a trustee owner, but is remitted to some indefinite form of" action in the United States District or Circuit Court, which alone has special jurisdiction of such a controversy. The Supreme Court of the State of New York is a court of general jurisdiction, which has the right to entertain actions in the determination of controversies over property, and was recognized as having jurisdiction to render judgment setting aside preferences given in hostility to the Bankruptcy Act of 1867. It was also held that no exclusive jurisdiction was given the courts of the United States. Claflin v. Houseman, 93 U. S. 130; Ansley v. Patterson, 77 N. Y. 156. The right, under the Bankruptcy Act. of 1898, of the trustee to bring an action in the Supreme Court of this State to set aside a preference of this character, is recognized. Crooks v. People’s National Bank, 46 App. Div. 335. Section 70 of the Bankrupt Act of 1898 provides that the trustee is vested with the title of the bankrupt to his estate. Section 60 provides that the trustee may avoid a preference given within four months before the filing of the petition, if the person receiving the payment had reasonable cause to believe it was intended to give a preference. It would be a very narrow construction of these provisions to hold that the trustee might avoid a preference, and yet take no title to the property transferred by such preference. The moment he avoided the preference given, that moment, if his act was justified by the facts, the transfer ceased to be effective and the property transferred dropped into the bankrupt’s estate, which passed over to the trustee, the same as now a receiver of an insolvent debtor may avoid the fraudulent acts of his debtor and recover the property transferred, which he could not do prior to the statute of 1858. It is difficult to perceive where the title to the property would go, upon the avoidance of the transfer, if it did not go to the trustee. It could hardly pass back to the bankrupt debtor and be held by him as unassigned property. The statute itself by its own operation transfers all the property interests of the debtor to the trustee. The title could not be given to the participating creditors who were preferred, for, their title was avoided by the act of the trustee for just cause. The Bankrupt Law of 1898 would be very ineffective to protect the rights of creditors generally, and secure equality of distribution of the assets of an insolvent debtor, if each creditor who was lucky enough to find some of his goods on hand could take them, thus disposing of all the stock which was available for payment of any debts, and leaving the creditors,, whose merchandise had been entirely parted with by the debtor, wholly unprotected; it would be equally as ineffective if the insolvent debtor could transfer his property to favored creditors, under the claim that the trustee took no title to such property, and the trustee be deprived of ordinary recourse to the courts for remedial justice in the effort to secure a just and equal distribution of all the property of the insolvent debtor remaining on hand, or that fraudulently or preferentially transferred shortly before the bankruptcy, and at a time when the insolvent knew the day was close at hand when he could have no longer even the apparent right to dispose of his property. As the property received by the defendants has been disposed of by them, judgment is directed in favor of the plaintiff against the defendants for $693.25, with interest from November 30, 1898, and costs.

Judgment for plaintiff against defendants, for $693.25, with interest from November 30, 1898, and costs.

Judgment for plaintiff, with costs.  