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IN RE IDEAL MERCANTILE CORP.

July 24, 1956

Matter of IDEAL MERCANTILE CORPORATION, Alleged Bankrupt


The opinion of the court was delivered by: WEINFELD

These are cross petitions to review an order of the Referee in Bankruptcy adjudging Ideal Mercantile Corporation a bankrupt. Ideal contends the Referee erred in finding that it had committed an act of bankruptcy by failing to vacate or discharge within thirty days a lien against its property obtained by a judgment creditor. *fn1" The petitioning creditors by cross petition charge the Referee erred in finding that the alleged bankrupt had not committed other acts of bankruptcy when it assigned, while insolvent, claims against the United States for refund of customs duties. *fn2"

On November 19, 1954, three creditors of Ideal filed an involuntary petition against it. The petition alleged in general terms the making of fraudulent and preferential transfers, but failed to specify dates, amounts or transferees. Upon Ideal's motion to dismiss the petition for indefiniteness the petitioning creditors cross-moved for, and were granted, leave to serve an amended petition. The amended petition was filed on February 11, 1955, enumerating specific acts of bankruptcy. Ideal served an answer which in general contested the charges. The issues so joined were tried before the Referee whose order is now the subject of the petitions to review.

The issues and the proof before the Referee centered about (1) the assignment of the claims for customs refunds, and (2) the failure to vacate and discharge an alleged lien against Ideal's property. All other claims of preferential payment set forth in the amended petition were withdrawn.

 A preliminary question is whether the date of filing of the original or the amended petition determines the four months period within which the alleged acts of bankruptcy were committed. The assignment of the customs refund claims was first ascertained by the petitioning creditors during an examination of an officer of Ideal conducted on December 28, 1954, under the original petition. Thus the alleged acts of bankruptcy based upon the assignment of the customs refunds set forth in the amended petition became known to the petitioning creditors only after the filing of the original petition. Hence there is ample support for the Referee's finding that the petitioning creditors, when they filed the original petition on November 19, 1954, neither knew of nor attempted to plead the assignment. As to the alleged lien, the failure to discharge which within thirty days was also charged as an act of bankruptcy, there was no claim that the lien attached until December 30, 1954, some six weeks after the filing of the original petition. Accordingly, the acts of bankruptcy alleged in the amended petition must be regarded as new acts and may not be related back to the original petition. *fn3"

 We first consider the Referee's disposition of the issues posed by the assignment.

 Ideal was admittedly insolvent on and after July 20, 1954 and it ceased to do business in August of that year. On August 2, 1954, it executed and delivered to the firm of Kraditor and Haber, its attorneys and accountants, an assignment of all its claims for refund of customs duties paid under protest to the United States. The claims aggregated $ 38,447.85 and were assigned in full payment of an antecedent indebtedness of $ 11,491.09 allegedly due to the assignees from the alleged bankrupt for accounting and legal services and a loan in the approximate sum of $ 2,500. This assignment is attacked as preferential. If the assignment was perfected on August 2, 1954, when made, it is immaterial whether it was so tainted since, whatever its character, it was made more than four months before the filing of the amended petition and hence could not constitute an act of bankruptcy.

 The Referee concluded that the assignment of the customs claims by Ideal was 'complete upon delivery' since under New York law there was no requirement that it be filed or recorded. *fn4" Whether or not this conclusion is correct depends upon the nature of the assignment. *fn5" If it was an assignment of an existing contract under which payments were to become due in the future, then it was a perfected transfer which occurred more than four months before the filing of the amended petition and the Referee's ruling must be upheld. *fn6" On the other hand, if the assignment created only an unperfected lien then, under Section 60, sub. a(2) of the Bankruptcy Act the assignment must be deemed to have been made immediately before the filing of the amended petition and constituted an act of bankruptcy as a preferential transfer within the four months period. *fn7"

 When made the purported assignment was 'absolutely null and void' as against the Government since the claims had never been allowed and no warrant had been issued for their payment. *fn8" However, the bar against assignment of such claims is 'for the protection of the Government and not for the regulation of the equities of the claimants as between themselves.' *fn9" Thus the issue to be resolved centers about the assignees' rights as against those of Ideal's creditors. *fn10"

 Section 3 of the Bankruptcy Act provides:

 '(a) Acts of bankruptcy by a person shall consist of his having * * * (2) made or suffered a preferential transfer, as defined in subdivision a of Section 60 of this Act * * *.

 '(b) A petition may be filed against a person within four months after the commission of an act of bankruptcy. * * * and such time with respect to the second act of bankruptcy shall not expire until four months after the date when the transfer became perfected as prescribed in subdivision a of section 60 of this Act.'

 Section 60, sub. a(1) of the Bankruptcy Act, insofar as applicable, provides:

 'A preference is a transfer, as defined in this Act, of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this Act, the effect of which transfer will be to enable such ...


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