In re New York Car Wheel Works

139 F. 421, 1905 U.S. Dist. LEXIS 143

• Court: District Court, W.D. New York
• Decided: January 30, 1905
• Docket: No. 1,570
• Status: Published

Opinion

HAZEL, District Judge.

The facts are sufficiently set forth in the opinion of the referee in bankruptcy, and I. concur in the conclusions therein stated. Mr. Burnett, witness for claimant, substantially testified at the hearing that the sight drafts which were subsequently secured by the transfers of stock in the Boston Car Wheel Company, and evidenced by the promissory notes upon which the claim herein is based, were given in renewal of previous bills of exchange drawn in the same manner. Prior bills of exchange had been accepted by the bankrupt in London, and, according to the proofs, were received or discounted by the claimant in the ordinary course of business dealings. It had become a custom in the course of dealings between the North American Trust Company and the P. H. Griffin Machine Works for a number of years to draw on the bankrupt at its London office. The bills of exchange drawn in the manner indicated by the proofs were sight drafts in renewal of the original drafts. In the circumstances presented, which are mentioned more in detail in the opinion of the referee, it is difficult to conceive of any substantial reason why the trust company should have been suspicious when the original bills of exchange were drawn. True, a party to whom negotiable paper is presented for discount or sale before maturity by an officer of a corporation is bound to exercise caution and circumspection in order to escape the charge of bad faith when a defect in his title is urged. Cheever v. Pittsburgh Railway Co., 150 N. Y. 59, 44 N. E. , 34 L. R. A. 69, 55 Am. St. Rep. 646. The title of the trust company, however, in the sight drafts, in view of the unchallenged original transactions, is not subject to attack unless it acted in bad faith. The mere negligent acceptance or purchase of the bills of exchange does not impute to the claimant a presumptive knowledge of any unlawful diversion of the proceeds by Mr. Griffin. The situation of the parties at the beginning of their relations was such that the trust company could rightfully presume that the drafts were drawn on the bankrupt pursuant to bona fide transactions existing between the drawer and drawee. The subsequent arrangements to secure the payment of the indebtedness are wholly dependent upon the original transaction, and upon a course of business dealing which the parties themselves adopted prior to the purchase of the sight drafts in question. Nothing occurred before the failures of the City National Bank and the Niagara Bank to put the claimant upon inquiry. There were no suspicious circumstances attached to the initial transaction to warrant the claimant in refusing the renewal drafts which evidently were a continuation of the original indebtedness. As the evidence falls short of showing the drafts in the beginning of the relations with the trust company to have been without consideration, it necessarily follows that the contention of the trustee that the transfer of the Boston stock was ultra vires must fail. Having concluded that, upon the main issues involved, the referee has correctly decided the questions submitted for review, a further discussion will not be necessary.

The question submitted, whether the claim of the North American Trust Company hitherto allowed by the referee should be expunged, is answered in the negative.