Jaquith v. Alden
Headline: Court affirms that good‑faith supplier payments on a running account that increased a bankrupt’s estate are not preferential transfers, allowing the supplier to keep payments rather than return them to the trustee.
Holding:
- Allows good‑faith suppliers who extend running credit to keep payments that increase the bankrupt’s estate.
- Limits trustee recovery of payments when new sales increase the estate’s value beyond payments.
- Makes courts assess the entire sequence of sales and payments, not isolated transaction dates.
Summary
Background
A supplier named Alden sold material (rubber) to a business operated by Frank Brothers. By August 15 the bankrupts’ property was not enough to pay their debts, but Alden was unaware of that and continued to sell and receive payments in the ordinary course of business through November 26. When the bankruptcy petition was filed, $546.89 for recent material remained unpaid. The sold material had been manufactured by the bankrupts and increased the estate’s value.
Reasoning
The central question was whether those payments were “preferences” under section 60 — transfers that let one creditor get a greater percentage of its debt than other creditors of the same class. The Court explained that all sales and payments formed one continuous running account. Because new sales followed payments and the net result was an increase in the bankrupts’ estate (by the amount noted in the findings), the receipts did not diminish the estate or operate as preferences. The Court distinguished this situation from cases where payments were made on antecedent debts while creditors knew of insolvency.
Real world impact
The Court affirmed the lower-court judgment. Practically, a supplier who in good faith extends credit and keeps selling on a running account that overall increases the bankrupt’s estate will not be treated as having received a voidable preference. Trustees cannot automatically reclaim such payments when the continuing transactions net out to a gain for the estate. The decision shows courts will evaluate the whole sequence of sales and payments rather than isolate individual dates.
Dissents or concurrances
Two Justices dissented, stating they could not accept the majority’s distinction from the earlier Pirie decision and would have treated that prior case as controlling in this situation.
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