enabling it to obtain a preference, as in the case at bar. The trustee in bankruptcy sought to recover from the assignees, and the Supreme Court said:
'Nor is it any answer to such a proceeding that the diverted assets are no longer under the control of the assignees. * * * The duty of a fiduciary to account for property intrusted to his care is fulfilled by delivery of the property, but, if he has put it out of his power to deliver it, he may nevertheless be compelled to account for its worth.' 268 U.S. at page 119, 45 S. Ct. at page 460.
Accordingly, it was held that fiduciaries in possession of an asset of the bankrupt after actual notice of bankruptcy are liable to the bankruptcy trustee if they divert that asset 'to the payment of a favored creditor'. May v. Henderson, supra.
The advent of Industrial's bankruptcy superseded the duties of Royal, as a trustee, to pay off some of the bankrupt's creditors. As in cases involving assignees for the benefit of creditors, after bankruptcy intervened Royal held the fund for the bankruptcy trustee. When after ample warning and with full knowledge of the facts and circumstances, Royal paid this money, which had all the earmarks of a preference, to Puritan, it took a calculated risk that it would be held liable to account under the law. Cf. 1 Collier, Bankruptcy, par. 2.78(3) (14th ed. 1940); 2 id. par. 23.06(9).
It is the opinion of the court, therefore, that plaintiff trustee can recover from royal on two grounds: first, for converting the property of the bankrupt under Section 60, sub. b, because the transaction constituted a voidable preference; and, second, for disposing of said property after notice of bankruptcy and request by the plaintiff to hold it for use of the bankrupt's estate. It is also our opinion that the plaintiff is entitled to interest from January 5, 1951, the date on which the complaint was filed. Kaufman v. Tredway, 1904, 195 U.S. 271, 25 S. Ct. 33, 49 L. Ed. 190.
Conclusions of Law
1. The court has jurisdiction of this plenary proceeding to avoid a preferential transfer pursuant to Section 60, sub. b, of the Bankruptcy Act, 11 U.S.C.A. § 96, sub. b, as well as jurisdiction pursuant to 28 U.S.C.A. § 1332, the parties being citizens of different states and the sum involved exceeding the jurisdictional amount.
2. Industrial Contracting Company, a bankrupt partnership of which Dorothy Hubbard and Grover D. Still, both individually bankrupt, are partners, and Frank E. Hubbard, individually a bankrupt, was a former partner, is subject to the terms, conditions and liabilities and entitled to the benefits of the contract entered into between Industrial Contracting Company and Bechtel International Corporation in May and June, 1949.
3. The payment by Bechtel to the defendant, Royal Indemnity Company of the balance due Industrial under the Bechtel -- Industrial contract in trust for distribution among some of Industrial's creditors was a voidable preference within the meaning of Section 60, subs. a and b of the Bankruptcy Act, 11 U.S.C.A. § 96, subs. a and b.
4. After notice of bankruptcy and demand, the payment of $ 10,955.84 by Royal Indemnity Company to Puritan Paint & Oil Company was an unlawful conversion of the property of Industrial and is recoverable by its trustee in bankruptcy from Royal.
5. Judgment should be entered in favor of plaintiff, Louis Shapiro, trustee, against the defendant, Royal Indemnity Company, in the sum of $ 10,955.84, with interest from January 5, 1951, and costs.