there was no depletion of the assets of the bankrupt since the estate was thus reimbursed by funds equitably belonging to them.
The testimony of Mr. Borie was that when the Finance Committee turned over to him the $5,000 in 1939, he was told that it was a general emergency fund to be used for different purposes of the Consistory for which it might be required, including the payment of legal fees.
This evidence wholly fails to establish a transfer of Consistory funds in 1939 to the defendants or to Borie in escrow as trustee for them. It seems clear that the Consistory did not at that time surrender control of the disposition of the fund. Under the defendants' own testimony the fund could have been applied to take care of any other unusual circumstances which might arise and, under Mr. Borie's testimony, it could have been applied to any purpose of the Consistory. A corporation or unincorporated association cannot put its assets beyond the reach of its creditors by transferring them to a separate account out of which legal fees or any other "emergency expenses" may be paid. The mere fact that it puts the fund in the name of an employee rather than in a separate account in its own name does not change the character of the transfer. The fund in the present case remained an asset of the Consistory subject to be applied to the payment of its obligations. Just who was to determine what constituted the "unusual circumstances" upon which its disbursement was to be permitted does not appear. There is certainly nothing in the record to suggest that Mr. Borie was given anything like the specific instructions as to the disposition of the fund which would be necessary to create a trust.His own testimony indicates that he understood that it might be applied for any legitimate purpose, including the payment of legal fees, and that he would have applied it as directed at any time by the Finance Committee.
The true nature of the transaction in 1939 seems to be that, for purposes of convenience, the sum of $5,000 was deposited in the name of the secretary of the Consistory, so that on occasions when the officers who were authorized to sign checks drawn on its general account were not available, he could make payment of Consistory expenses by drawing on this special fund. It may well be that it was the intention of the Finance Committee that this fund be used, among other purposes, for the payment of legal fees to the defendants, but the record is devoid of any testimony indicating that the Consistory completely divested itself of all interest in or control over the fund so that it ceased to be an asset of the Consistory.
It is therefore unnecessary to consider the effect of the admitted fact that defendants in May of 1941 were not paid out of that fund but out of the general funds of the Consistory, because in any event that special fund remained an asset of the Consistory and its transfer within four months prior to the bankruptcy would create a preference voidable by the trustee. I make the follwing.
Conclusions of Law:
1. The transfer of $5,000 by the Consistory to its secretary in May or June of 1939 for use as an emergency fund did not effect a change in the beneficial ownership of the fund, which remained an asset of the Consistory.
2. The payments by the Consistory of the sum of $2,500 to the defendant Walker on May 17, 1941, and of the sum of $2,500 to defendant Jones on May 19, 1941, were transfers of its property while insolvent and within four months of the filing of its petition in bankruptcy and therefore constitute a preference within the meaning of Section 60, sub. a of the Bankruptcy Act.
3. Defendants had reasonable cause to believe that the Consistory was insolvent at the time they received payment of their fees in May of 1941, and hence plaintiff is entitled, under Section 60, sub. b of the Bankruptcy Act, to void the payments and recover the proceeds thereof.
4. Judgment is hereby entered in favor of the plaintiff against the defendant Walker in the sum of $2,500 with interest from May 17, 1941.
5. Judgment is hereby entered in favor of the plaintiff against the defendant Jones in the amount of $2,500 with interest from May 19, 1941.
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