Opinion
Bankr. No. 68375.
September 10, 1953.
Donald F. Kepple, Akron, Ohio, Trustee.
Wm. G. Roderick and Kent W. Woodward, Akron, Ohio, for trustee.
Wells Marks and Paynter Show, Cleveland, Ohio, for Hattendorf-Bliss, Inc.
Johnson, Whitmer Sayre, Cleveland, Ohio, for bankrupt.
The following is the opinion of WOODS, Referee in Bankruptcy.
To the Honorable Judges of the United States District Court, for the Northern District of Ohio, Eastern Division, sitting in Bankruptcy:
I, William B. Woods, Referee in Bankruptcy, in charge of the above proceedings, do hereby certify:
That in the course of the proceedings in the above case, Donald F. Kepple was elected Trustee of the Poston Construction Corporation, the bankrupt, which was in the pipeline construction business at Barberton, Summit County, Ohio.
Hattendorf-Bliss, Inc., of Euclid, Cuyahoga County, Ohio, filed its claim on account for $7807.21, stating "for rental of trenching machine, rental of Insley Backhoe machine, including operator, and freight charges for moving trencher with invoices attached".
To this claim, the Trustee in Bankruptcy filed his objection for the reason that said claimant, while insolvent and within four months of Bankruptcy, received from bankrupt certain chattels worth $46,236.56 for payment of an antecedent debt, and that the claimant then knew or had cause to know bankrupt was insolvent, so that said Hattendorf-Bliss, Inc., creditor, received a preference, and under Sections 60, 67 and 70 of the Bankruptcy Act, 11 U.S.C.A. §§ 96, 107, 110, said chattel equipment, or the reasonable value thereof, belongs to the Trustee.
Hattendorf-Bliss, Inc., answered, admitting receiving the chattels within four months, denying the other allegation and stating that the chattel machinery had been taken back by it, and credited on notes of bankrupt secured by chattel mortgages.
After filing its answer, Hattendorf-Bliss, Inc., filed a Motion, asking that the Trustee's objection to the Hattendorf-Bliss, Inc., claim be dismissed, for the reason that it is a bona fide adverse party, that the trustee is not in possession and has no right to possession of the machinery, or proceeds received therefrom. The Court reserved decision on this motion, and directed that the hearing proceed.
Upon hearing had, an order was entered on December 3, 1952, disallowing the claim of Hattendorf-Bliss, Inc., finding that the value of the chattels taken back on May 11, 1951 and June 22, 1951 was $26,936.92, and was received within four months to apply upon an antecedent debt, being a voidable preference, so that the claim of Hattendorf-Bliss, Inc., for $7807.21 was disallowed, unless Hattendorf-Bliss, Inc., surrendered the chattels in question or paid $26,836.92 to the Trustee in Bankruptcy.
Thereafter, being aggrieved thereat, the time for filing having been extended by order of the Bankruptcy Court, a Petition for Review of the Referee's Order was filed on December 23, 1952.
Statement of the Case
The controversy concerns the transfer back to the Hattendorf-Bliss, Inc., of chattels, which it had sold the bankrupt, taking a mortgage thereon, and then learning of the financial difficulties of bankrupt, Hattendorf and Bliss, as the two other Directors of the Poston Construction Corporation, resigned, Poston bought their stock, and the Corporation returned to Hattendorf-Bliss, Inc., the chattels which had been sold outright. Before such repossession by Hattendorf-Bliss, Inc., within four months of Bankruptcy, Hattendorf-Bliss, Inc., as a creditor, opened an account and billed to the Poston Construction Corporation rental and service charges, which are the basis of the claim for $7807.21 filed in the proceeding, and to which the Trustee objects and sets up the claim that the creditor has received a voidable preference.
The bankrupt purchased items of equipment totaling $167,349.68 between April 23, 1949 and January 1, 1950. On December 31, 1949, at the instruction of its Board of Directors, Bankrupt gave to Hattendorf-Bliss, Inc., the bill of sale for part of the equipment, (Trustee's Exhibit "5"), executed by Hattendorf, as President, and Bliss, as Secretary, and for Bankrupt by Poston, as President, and Hattendorf, as Secretary, gave to Hattendorf-Bliss, Inc., chattel mortgages on the equipment (Trustee's Exhibits 6-ab to 12-ab inclusive), and executed notes to Hattendorf-Bliss, Inc., for $25,630. (Exhibits 13-19 inclusive).
The said chattel mortgages were recorded in Cuyahoga County, Ohio, on January 26, 1950, where none of the equipment was ever used; were never filed in Summit County, the principal place of business of bankrupt; and so far as the record shows, were never filed in any county in which equipment was being used.
The controversy thus arises by reason of a voidable preferential transfer of the trenching machinery after it had been sold by Hattendorf-Bliss, Inc., to the Poston Construction Corporation back to the seller, Hattendorf-Bliss, Inc., notwithstanding the transfer was made within four months of Bankruptcy, when the officers of Hattendorf-Bliss, Inc., knew Poston Construction Corporation was insolvent.
By its answer, Hattendorf-Bliss, Inc., admitted that the Bankruptcy Court might try the objection of the claim, but denied the right of the Court to try a preference suit, and objected to the jurisdiction to try any preference against Hattendorf-Bliss, Inc., on the ground that the Trustee was not in possession of any of the machinery and had no right to the assets, and that Hattendorf-Bliss, Inc., was an adverse party.
Whatever the rule might be as to the right of this Court to make a judgment, finding against Hattendorf-Bliss, Inc., for the return of the assets or for a money judgment, the rule seems to be that the finding in this Court is res adjudicata, which could be the basis of a plenary suit by the Trustee against the Hattendorf-Bliss, Inc., creditor, which had benefited by the fraudulent transfer.
The statutes and the principles of law, to be applied in this proceeding, appear to be about three subjects: (1) Jurisdiction; (2) State Laws of Ohio Controlling Recording of Chattel Mortgages, and (3) Federal and State Laws on Preferences and Fraudulent Transfers; which subjects will be considered in order.
Jurisdiction
The pertinent sections to be considered here are: Bankruptcy Act, Section 23, 11 U.S.C.A. § 46:
23, sub. a. "The United States district courts shall have jurisdiction of all controversies at law and in equity, as distinguished from proceedings under this Act, between receivers and trustees as such and adverse claimants, concerning the property acquired or claimed by the receivers or trustees, in the same manner and to the same extent as though such proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants."
sub. b. "Suits by the receiver and the trustee shall be brought or prosecuted only in the courts where the bankrupt might have brought or prosecuted them if proceedings under this Act had not been instituted, unless by consent of the defendant, except as provided in sections 60, 67 and 70 of this Act."
Bankruptcy Act, Section 57, 11 U.S.C.A. § 93:
57, sub. g. "The claims of creditors who have received or acquired preferences, liens, conveyances, transfers, assignments or encumbrances, void or voidable under this Act, shall not be allowed unless such creditors shall surrender such preferences, liens, conveyances, transfers, assignments, or encumbrances."
Counsel for Hattendorf-Bliss, Inc., have discussed whether their client is an adverse party, and if so, whether this Court has jurisdiction to determine the existence of a preference.
Counsel for the Trustee urges that even if Hattendorf-Bliss, Inc., were an adverse party, the Bankruptcy Court is within its jurisdiction in hearing the Trustee's objection to the claim of Hattendorf-Bliss, Inc., and further to determine whether Hattendorf-Bliss, Inc., received a preference and the amount thereof.
This question of the jurisdiction of the Bankruptcy Court, and whether the filing of a claim is to be construed as a consent to the summary jurisdiction of the Court, is treated in 3 Collier on Bankruptcy 14 Ed. page 1033, where the author says:
"Section 57-g provides that the claim of creditors who have received preferences shall not be allowed unless the creditor surrenders such preference. Proof of claim certainly permits the use of all valid defenses, of which the claim of preference is thus one. The Referee may adjudicate the question of preference as an incident to the determination of allowability."
The Counsel for Hattendorf-Bliss, Inc., placed great reliance on B.F. Avery Sons Co. v. Davis, 5 Cir., 1951, 192 F.2d 255 which case the Trustee urges is not in point, as a plenary action had previously been filed by the Trustee in the District Court. In the case at bar, Counsel for the Hattendorf-Bliss, Inc., claimant, and also respondent, because of Trustee's claim of preference in its original objection to the claim, had requested in its answer to the objections "that the objections to the claim be tried fully", and surely this cannot be done without considering the Trustee's claim of preference by fraudulent transfer, effected by the Hattendorf-Bliss, Inc., immediately before the bankrupt's petition was filed. It is interesting to note that by correspondence about the Avery case with him, Hon. E.P. Johnston, Referee in the Middle District of Georgia, before whom the Bankruptcy proceeding was pending, advises this Referee as late as November 1952, that the plenary suit was pending contemporaneously with the bankruptcy proceeding, and that the Court of Appeals sent the whole matter back for further hearing before the District Court; and as Referee Johnston had heard the bankruptcy proceeding, plenary suit had been referred to another attorney in Columbus, Georgia, for determination of the issues.
Whatever the decision may have been in other Districts, in the 6th Circuit it has been held that the Bankruptcy Court has summary jurisdiction of the adverse claim, which is merely sham or colorful.
In First National Bank of Negaunee v. Fox, 6 Cir., 1940, 111 F.2d 810, 813 was a case where the bank received a voidable preference and in Bankruptcy Court was ordered to pay this fund to the Trustee in Bankruptcy. On review, in affirming the Lower Court, Judge Hamilton said:
"The determination of jurisdiction to dispose summarily of the question of title to property to which a claim is asserted against that of the bankrupt when such jurisdiction is not consented to will depend upon the nature and validity of such claim."
On the question of summary jurisdiction, the decision of the 6th Circuit Court of Appeals is accepted and approved in Re Journal-News Corp., D.C.S.D.N.Y. 1951, 104 F. Supp. 843. Decisions to the same effect are reported in Shackleford v. Weinberg, D.C.S.D.N.Y., August 1952, C.C.H. par. 57712 and in Re Bromel-Knapp Corp., D.C.Mich. 1952, 106 F. Supp. 519.
State Law of Ohio on Recording Controls Validity of Chattel Mortgages in Bankruptcy
The Ohio General Code provides in Sections 8560, 8561, that a chattel mortgage shall be absolutely void, unless filed with the Recorder of the County where mortgagee resides, or in the County where the chattels are situated at the time of the execution of the mortgage.
Apparently, Hattendorf-Bliss, Inc., and its counsel, recognizing the invalidity of any claim of lien, because of the filing of the chattel mortgage in Cuyahoga County instead of Summit County, for no claim to that effect is made; in fact, the attempt to revoke the sale of equipment by transferring it back to Hattendorf-Bliss, Inc., in May and June, just prior to the bankruptcy, shows no reliance of the Hattendorf-Bliss, Inc., on that chattel mortgage as fixing lien.
Federal and State Laws on Preferences and Fraudulent Conveyances.
The language of the Federal and State statutes involved here are: Bankruptcy Act, Section 60:
60, sub. a. (1) "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".
Bankruptcy Act, Section 67, sub. d:
"(2) Every transfer made and every obligation incurred by a debtor within one year prior to the filing of a petition in bankruptcy * * * is fraudulent * * *."
"(d) As to then existing and future creditors, if made or incurred with actual intent as distinguished from intent presumed in law, to hinder, delay, or defraud either existing or future creditors."
Bankruptcy Act, Section 70, sub. e:
"(1) A transfer made or suffered or obligation incurred by a debtor adjudged a bankrupt under this Act which, under any Federal or State law applicable thereto, is fraudulent as against or voidable for any other reason by any creditor of the debtor, having a claim provable under this Act, shall be null and void as against the trustee of such debtor".
"(2) All property of the debtor affected by any such transfer shall be and remain a part of his assets and estate, discharged and released from such transfer and shall pass to, and every such transfer or obligation shall be avoided by, the trustee for the benefit of the estate. The trustee shall reclaim and recover such property or collect its value from and avoid such transfer or obligation against whoever may hold or have received it, except a person as to whom the transfer or obligation specified in paragraph (1) of the subdivision `e' is valid under applicable Federal or State laws."
Ohio General Code, Section 8618
"Every gift, grant, or conveyance of lands, tenements, hereditaments, rents, goods or chattels, and every bond, judgment or execution, made or obtained with intent to defraud creditors of their just and lawful debts or damages * * * shall be utterly void and of no effect."
Ohio General Code, Section 11104
"A sale, conveyance, transfer, mortgage or assignment, made in trust or otherwise, by a debtor * * in contemplation of insolvency and with a design to prefer one or more creditors to the exclusion in whole or in part of others, and a sale, conveyance, transfer, mortgage or assignment made, or judgment procured * * * in any manner, with intent to hinder, delay or defraud creditors, shall be void as to creditors of such debtor, or debtors at the suit of any creditor or creditors * * *."
Ohio General Code, Section 11105
"The provisions of the next preceding section shall not apply unless the person or persons to whom such sale, conveyance, transfer, mortgage or assignment is made, knew of such fraudulent intent on the part of such debtor or debtors, nor shall anything in such section contained vitiate or affect any mortgage made in good faith, to secure any debt or liability created simultaneously with such mortgage * * *."
The arguments of the briefs of counsel for Trustee and for the respondent claimant, whose claim is objected to, are long and seem to cover the phases of this controversy.
Summing up the facts presented, the facts seem to establish, as claimed, a preference under the Bankruptcy Act, or a fraudulent transfer under the Ohio Statute, in that: (1) Property of bankrupt was transferred, as described in said statutes; (2) for the benefit of a creditor; (3) on account of antecedent debt; (4) while debtor was insolvent; (5) within four months of bankruptcy; (6) with an effort to give such creditor a greater percentage of his debt than other debtors of the same class.
The briefs of parties are voluminous and complete, and no attempt will be made to review all the points and questions urged by counsel. Suffice to say, the three directors and officers of Poston Construction Corporation, bankrupt, were Messrs. Hattendorf, Bliss and Poston.
The accountant of the claimant, sent to collect or examine the effects of the corporation in February, became so worried after time spent on bankrupt's books and with its President, Poston, that he summoned Hattendorf and Bliss, who returned from Florida, and then spent several days with Poston going over the company's affairs with Poston and his accountant. Shortly thereafter Hattendorf and Bliss sold their stock to Poston, and when matters became worse, they took back the trenching equipment in May and June, shortly before bankruptcy, when they knew, or should have known the bankrupt's financial condition.
The effort of counsel for respondent claimant to convince the Court that Hattendorf-Bliss, Inc., was without knowledge of bankrupt's insolvent condition is interesting. Against this, it is urged that Hattendorf and Bliss, as officers of Poston knew of its financial condition, and they cannot thereafter "unknow" or be ignorant of its affairs as officers of the Hattendorf-Bliss, Inc. As the Supreme Court of Ohio said in its opinion in First Nat. Bank of New Bremen v. Burns, 88 Ohio St. 434, 103 N.E. 93, 49 L.R.A., N.S., 764 — "the manager's knowledge as a man is equally his knowledge as manager of the bank. He cannot unknow as manager what he knows as man. To hold otherwise would be to promote fraud rather than prevent it."
Under Section 8618 of the Ohio General Code, it is provided that the transfer to be voided must be made or obtained, with intent to defraud creditors; and knowledge by the grantee of such intent is immaterial. Cited in support of this proposition is Ursak v. Sivanick, 56 Ohio App. 434, 10 N.E.2d 1017; City Trust Savings Bank v. Weaver, 68 Ohio App. 323, 40 N.E.2d 953; In re Wright Industries, Inc., D.C., 93 F. Supp. 58.
Under Sections 11104 and 11105, a transfer "made in trust, or otherwise, * * * in contemplation of insolvency and with a design to prefer one or more creditors to the exclusion in whole or in part of others and * * * with intent to hinder, delay or defraud creditors, shall be void * * *." To avail oneself of this section proof must be established that the transferee had knowledge of the fraudulent intent. However, it appears that Section 70 of the Bankruptcy Act has been so interpreted that any transfer avoided under state law will be so held in the bankruptcy court and the rule of the State Courts there followed.
The Supreme Court of the United States held in Stellwagen v. Clum, 245 U.S. 605, 38 S.Ct. 215, 62 L.Ed. 507, 41 Am.Bankr.Rep. 1, that the Bankruptcy Act does not suspend the right of the Trustee under the statutes of Ohio to challenge a transaction for the benefit of the bankrupt's creditors. This has been followed by the Court of Appeals of this Circuit in Irwin v. Maple, 252 F. 10, 41 Am.Bank.Rep. 532, where these two sections of the Ohio statutes as to fraudulent conveyances were construed by the Court.
Before clarification of the statute as to preferences, as provided in the Chandler Act Amendment to the Bankruptcy Act of 1938, one of the last cases is Prudential Insurance Co. v. Nelson, Trustee, 6 Cir., 1938, 96 F.2d 487, 491, 36 Am.Bankr.Rep., N.S., 993, where the opinion is by Judge Simons, and his statement as to the respondent's knowledge of the bankrupt's insolvency is pertinent here:
"While it is true that mere suspicion of insolvency or preferential effect is not enough to establish the voidability of a transfer, yet neither are circumstances which carry absolute conviction of insolvency the test of its infirmity. The statute condemns a transfer as preferential when the transferee has reasonable cause to believe that the transferor is insolvent and that it will effect a preference. It sets up a practical test, one with which courts are familiar and which in other transactions is frequently applied. If reasonable cause to believe a transferor insolvent and his transfer preferential in effect must wait upon complete audit and appraisal of a bankrupt's affairs, preferential transfers would rarely exist and the statutory protection to creditors be unavailing."
So the conclusion and finding is that the claimant, who has also become a respondent by filing its claim and submitting to the jurisdiction of the Bankruptcy Court, was ordered to surrender the trenching machinery or pay its value in lieu thereof before its claim could be allowed.
This matter is before the court upon the petition of Hattendorf-Bliss, Inc., for review of the referee's order of December 3, 1952, disallowing its claim.
Hattendorf-Bliss filed its claim in the amount of $7,807.21 for rental of equipment to the bankrupt during the months of July, August, and September, 1950. By separate rental purchase agreement, it had leased other equipment to the bankrupt in April, 1949. This agreement was converted to an outright sale with note and mortgage in December, 1949. The purchase price was $25,630.30 — after allowances for rentals and interest already paid. The bankrupt made no further payments, and in May and June, 1951, seven pieces of the equipment were returned to petitioner. They were then sold by petitioner for $26,936.92.
The bankrupt filed its voluntary petition on July 2, 1951, and adjudication followed thereafter.
In proceedings before the referee, the trustee objected to the claim of Hattendorf-Bliss on the ground that the claimant had received a voidable preference from the bankrupt, which preference, under Section 57, sub. g, of the Bankruptcy Act, it was required to surrender before its claim might be allowed.
In its answer, Hattendorf-Bliss, admitted receipt of the equipment from the bankrupt, prior to bankruptcy and within four months thereof. It denied, however, that the bankrupt was insolvent when the equipment was returned, or that it knew, or had reasonable cause to believe that the bankrupt was insolvent. It alleged that the machinery was taken back by it in due course, and credited on a mortgage note. While it admitted that the court might try the objection to its claim, it objected to the jurisdiction of the court to try the preference suit. It asserted that the trustee was not in possession of the chattels and that, therefore, it was an adverse party. It moved to dismiss the objection to its claim.
A hearing on the objections was had before the referee. On December 3, 1952, the referee entered his order that the claim of Hattendorf-Bliss be disallowed unless the claimant surrendered to the trustee the chattels received as a preference, or paid their value within thirty days.
The petition for review asks that the order of the referee be set aside and the claim allowed. Numerous errors in the findings and conclusions of the referee are assigned. Three substantial questions are raised: The questions of (1) jurisdiction, (2) reasonable cause to believe, and (3) insolvency.
Although the petitioner by answer did request "that the objection to its claim be tried fully", and the trustee's objection was based solely upon the preference obtained by the petitioner, nevertheless, I think it definitely cannot be found that the petitioner thereby consented to summary jurisdiction respecting the preference, or that the petitioner's claim to the equipment was merely colorable. However, the exercise of jurisdiction in this instance must be sustained, for reasons to follow.
In determining the validity and allowability of petitioner's claim, it became the duty of the referee to determine, when the trustee raised the question as a defense, the preferential status of the petitioner; and this would be so whether or not the claimant petitioner requested "that the objections to its claim be tried fully." It well may be that a plenary suit under Sections 23 and 60 of the Act will be required to set aside the alleged preferential transfer and secure the property or its value, but that is something other and different from disallowing the claim on the ground that there has been a preferential transfer and no surrender of the preference. See, however, In re Nathan, D.C.S.D.Cal. 1951, 98 F. Supp. 686, where jurisdiction to summarily render an affirmative judgment on trustee's counterclaim for a preference was sustained. The counterclaim arose out of the same transaction as did the creditor's claim. See also, discussion of this problem in Journal of the National Association of Referees in Bankruptcy, Vol. 27, No. 3, pp. 90-92.
As stated earlier, Section 57, sub. g, of the Bankruptcy Act required surrender of the preference as a condition for allowance of the claim. Unless the referee determined upon hearing whether there had been a preference, he would not be in position to fulfill the mandate of the statute.
The referee's exercise of jurisdiction is in accordance with the well established rule in bankruptcy cases. Giffin v. Vought, 2 Cir., 1949, 175 F.2d 186; Schwartz v. Levine Malin, Inc., 2 Cir., 1940, 111 F.2d 81; Metz v. Knobel, 2 Cir., 1927, 21 F.2d 317. See, however, B.F. Avery Sons Co. v. Davis, 5 Cir., 1951, 192 F.2d 255, contra.
Petitioner concedes that its mortgage covering the equipment returned to it was not properly recorded, and is void under the applicable state statute. Ohio General Code, §§ 8560-8561. It has only the standing of a general creditor and not that of lien-holder.
The referee disallowed petitioner's claim because he found that every element of a voidable preference was present and established. In this review, the rule applies that the referee's findings may not be disturbed unless found to be clearly erroneous.
The exhibits introduced at the hearing before the referee, the transcript of testimony, and the briefs of the parties have been carefully considered. The evidence disclosed in the record supports the finding and conclusion of voidable preference.
Petitioner's officers were also officers and directors of the bankrupt corporation. As such, they were in a position to know, ultimately, of the financial condition of the bankrupt, even though it may be conceded that proper books were not kept.
Petitioner, through its officers, had reasonable cause to believe the bankrupt was insolvent when the equipment was returned to it. Circumstances which carry absolute conviction of insolvency need not be present. Prudential Ins. Co. of America v. Nelson, 6 Cir., 1938, 96 F.2d 487.
Early in 1950 the bankrupt corporation began to sustain losses in its operations. This fact was verified by an auditor's report on May 27, 1950. Thereafter, the directors of the corporation expressed concern over its financial condition. Unable to secure accurate financial data, petitioner's officers sent their own auditor to investigate the affairs of the bankrupt in January, 1951, and he conducted an audit for nineteen days. Special meetings of the Board of Directors followed in February, 1951, at which time the financial condition of the corporation was discussed.
Petitioner's officers learned from their own auditor of large withdrawals of corporate funds by the president which allegedly were not accounted for. They also discovered that the corporation was heavily indebted to the Government for taxes and to other creditors. They knew of large expenditures which had been made for equipment. These were signs "which to a careful creditor pointed unerringly to a critical stage having been reached in * * * the (corporation's) affairs." Prudential Insurance Co. of America v. Nelson, supra, 96 F.2d at page 491.
Knowledge or belief must be inferred from all the circumstances. Circumstances have been shown, pointing to knowledge or reasonable cause to believe that the bankrupt was insolvent at the time of the transfer. In this connection, the referee had the right to consider the evasiveness of petitioner's auditor when testifying as to the knowledge gained by him and presumably passed on to petitioner.
The referee's finding and conclusion of "reasonable cause to believe" is supported by the evidence.
The evidence on the question of actual insolvency at the time of the transfer is conflicting. It was for the referee to judge its weight and sufficiency in support of the contentions of the parties, as well as to judge the credibility of the witnesses and their interest in the case when testifying with respect to the various audits.
The court appointed auditor found insolvency as of December 31, 1950, continuing thereafter month by month up to and including the date of bankruptcy. Also, the auditors of the bankrupt estimated that it was insolvent as of December 31, 1950.
By adjustment of the figures in the court audit as of the date of bankruptcy to a supposed fair valuation of assets, petitioner attempts to show solvency as of that date, and a probability of solvency as of the time of the transfer. The evidence, however, does not support nor furnish justification for these adjustments.
It is true that the personal account of the president of the bankrupt was not in good order. The data at hand indicates a probable balance in favor of the bankrupt as of the date of bankruptcy. Fairly evaluated, however, this account had little in asset value, and its inclusion as an asset could not materially alter the financial picture of the bankrupt nor overcome the deficit shown.
The same is true for the contracts on hand immediately prior to bankruptcy. It is conceded that the corporation was not "liquid". The resignation of Hattendorf and Bliss as directors of the corporation further impaired its credit. The corporation possessed little in "going-concern" value. Only through the intervention of bankruptcy was it able to retain its contracts and continue its operations.
Widely divergent values are placed upon the inventory of equipment by the court auditor and auditors of petitioner. It was the province of the referee to resolve this conflict in the evidence.
The record discloses every element of voidable preference and supports the referee's findings and conclusions.
Accordingly, the order of December 3, 1952 will be confirmed, and the petition for review dismissed.