Matthew Brown, trustee in bankruptcy, vs. Palmer Clay Products Company

Massachusetts Supreme Judicial Court1935-03-05

290 Mass. 108

Summary · law.co

Holding. The court affirmed the judgment for the trustee, holding that whether a payment operates as a preference under the bankruptcy statute is determined as of the date the bankruptcy petition is filed, not as of the date the payment is made.

A bankruptcy trustee sued to recover payments made by an insolvent company to a creditor, claiming those payments were preferential transfers made within the relevant period before bankruptcy. The defendant argued that whether a payment constitutes a preference—and whether it gives a creditor a larger share than other creditors in the same class—must be determined as of the time the payment was actually made. The trial judge rejected this argument, ruling instead that preference status is determined as of the date the bankruptcy petition was filed, and found that the defendant had reasonable cause to believe the company was insolvent when the payments were received. The judge awarded the trustee the full amount of the preferential payments plus interest.

The defendant appealed, focusing solely on the timing question for determining preferences under federal bankruptcy law. The court examined conflicting interpretations from federal circuit court decisions but chose to follow its own prior precedent establishing that preferences are measured as of the petition filing date rather than the payment date. The court reasoned that absent a contrary ruling from the U.S. Supreme Court, state courts may exercise independent judgment on federal statute interpretation, though they should give respectful consideration to federal circuit decisions.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Timing for determining whether a payment constitutes a preferential transfer in bankruptcy
Whether preference status is measured at payment date or petition filing date
State court authority to interpret federal bankruptcy statutes independently of federal circuit court decisions

Procedural posture

The trial court found for the bankruptcy trustee and awarded damages; the Appellate Division affirmed; the defendant appealed to this court on the sole question of when preference status should be determined.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

Crosby, J.

This is an action of contract brought by a trustee in bankruptcy to recover from the defendant certain payments alleged to have been made by the bankrupt Metropolitan Builders Supply Co. to the defendant, which payments are alleged by the plaintiff to be preferences. The answer was a general denial.

It appeared that on January 14, 1933, an involuntary petition in bankruptcy was filed against the Metropolitan Builders Supply Co. and Matthew Brown was duly elected trustee in bankruptcy of the company on February 28, 1933, and duly qualified. At the close of the trial, the defendant made certain requests for rulings. The judge denied request numbered 8 which was as follows: “The burden is on the plaintiff to prove that each of the payments received by the defendant had the effect of enabling the defendant to receive a greater percentage of its claim than other creditors of the same class could at the time of each payment have received.” In passing upon this request he said: “Not a correct statement of the law. . . . Preference is determined as of the date of filing the petition.” The judge found that “on November 8, 1932, and thereafter, the defendant had reasonable cause (1) to believe that the Metropolitan Builders Supply Co. was insolvent and (2) that payments made thereafter to them by the said Metropolitan Builders Supply Co. would effect a preference over other creditors of the same class. . . .” He found for the plaintiff in the sum of $1,688.29, with interest from the date of the writ. The case was reported to the Appellate Division. The report was dismissed, and the defendant appealed.

The only question argued by the defendant before this court is as to the time when a preference is to be determined. It is the contention of the defendant (1) that whether a payment operates as a preference is to be determined as of the time it is made, "or not at all”; and (2) that whether a creditor, who is alleged to have received a preferential transfer, has received a greater percentage of his debt than other creditors of the same class is to be determined as of the time of actual payment or transfer. The question presented involves the construction of § 60 a, b, of the bankruptcy act (Act of July 1, 1898, c. 541; 30 U. S. Sts. at Large, 544, 562, as amended by Act of February 5, 1903, 32 U. S. Sts. at Large, 799, c. 487, § 13, and by Act of June 25, 1910, 36 U. S. Sts. at Large, 842, c. 412, § 11). The defendant relies upon certain Federal cases which support its contentions. See W. S. Peck & Co. v. Whitmer, 231 Fed. Rep. 893; Haas v. Sachs, 68 Fed. Rep. (2d) 623. The construction of § 60 a, b, in these cases is directly contrary to that given by this court to the same section in Rubenstein v. Lottow, 223 Mass. 227. No decision of the Supreme Court of the United States interpreting this section in the present particular has been cited and none has been found. The case of Rubenstein v. Lottow is controlling. No occasion is presented for overruling it. Old Dominion Copper Mining & Smelting Co. v. Bigelow, 203 Mass. 159, 196. It has been referred to with apparent approval in Cohen v. Goldman, 250 Fed. Rep. 599, 601. It was likewise cited in a recent decision of this court discussing § 60 a of the bankruptcy act. Baker v. Chisholm, 268 Mass. 1, 7. In the absence of a contrary decision by the Supreme Court of the United States it must be accepted as sound and determinative of the present case. County of Berkshire v. Cande, 222 Mass. 87, 89. Morse v. Stober, 233 Mass. 223, 227. Unless and until the Supreme Court of the United States reaches a conclusion, State courts are not precluded from exercising their own judgments upon questions involving Federal statutes. They are not concluded by decisions of other Federal courts. Gehlen v. Patterson, 83 N. H. 328, 330. Noble v. Dibble, 119 Wash. 509, 511. Burnham v. Fort Dodge Grocery Co. 144 Iowa, 577, 580. Nebraska State Bank of Valparaiso v. Citizens State Bank of Thedford, 122 Neb. 522, 526. However, respectful consideration should be given to decisions of Federal circuit courts of appeal. The cases cited by the defendant have been examined. We realize that uniformity in the interpretation of the bankruptcy act is desirable. Nevertheless we are of opinion that the case of Rubenstein v. Lottow, 223 Mass. 227, should not be overruled. The construction of § 60 a, b, of the act adopted by the Appellate Division in this case was warranted.

It follows that there was no error in the denial of the defendant’s eighth request.

Order dismissing report affirmed.