The opinion of the court was delivered by: Mercer, Chief Judge.
On January 17, 1962, Maltec Designs, Inc., a Missouri
corporation, was adjudicated
a bankrupt in the United States District Court for the Eastern
District of Missouri. Plaintiff, Donald B. Kramer, was
appointed trustee in bankruptcy of the Maltec estate. Plaintiff
filed this suit under the provisions of 60, sub. a of the
Bankruptcy Act, 11 U.S.C. 96, sub. a, to recover alleged
preferential payments of money made by the bankrupt within 4
months prior to the adjudication of the bankruptcy to defendant
Malco, Inc., in the amount of $80,387.22.
At the close of the trial of the cause, Malco's motion for
judgment was denied and the case is now before the court for
decision. Malco is an Illinois corporation engaged in the
distribution and sale of aluminum windows, doors, awnings and
related products. All of Malco's shares are owned by Murray
Scheer, Arthur Wagner and Lilyan Wagner, who are also the
officers and directors of the corporation.
Prior to March 4, 1959, the Malco officers, in collaboration
with one Clinton Jostad, opened two separate outlets for the
sale of the Malco products in St. Louis, Missouri. On March 4,
1959, both outlets were merged and incorporated as Maltec
Designs, Inc., the bankrupt. Maltec then engaged in the
business of selling, installing and servicing aluminum windows,
doors, awnings and related products until its adjudication in
Scheer, Jostad and the Wagners were shareholders of Maltec, and
Scheer acted as Secretary of that corporation until on or about
December 8, 1961. Arthur Wagner became the Vice-President of
Maltec on March 1, 1961, and continued in that capacity until
on or about December 8, 1961.
Malco was the principal supplier of inventory and material used
by Maltec in its operation. With respect to payments alleged as
preferential, the following appears from the evidence: On
December 17, 1961, the start of the 4 months period, Maltec was
indebted to Malco in the amount of $27,357.65; between
September 23, 1961 and January 17, 1962, shipments of
merchandise were made by Malco to Maltec in the amount of
$63,893.31; between September 23, 1961, and January 17, 1962,
Maltec made payments to Malco upon its account in the aggregate
amount of $80,387.22; and as of January 17, 1962, the balance
due to Malco upon its account was $4,817.25.
The evidence adduced tended to show that the bread and butter
operations of Maltec were left to Jostad until November 21,
1961. Some time prior to that date, Jostad became interested in
a competing company under the name of Weather Master, after
which he steered business to Weather Master and away from
Maltec. On the last mentioned date Jostad was stripped of all
authority, and from November 21, 1961, to December 7, 1961,
Scheer and Arthur Wagner took charge of the Maltec operations.
On December 7, 1961, the other shareholders of Maltec disposed
of their stock to Jostad, upon Jostad's promise to pay the
balance owing by Maltec to Malco. When Jostad refused to pay
that balance, a law suit was filed against Maltec. Bankruptcy
To prove a voidable preference under Section 60, sub. a of the
Bankruptcy Act, it must be established that there was a
transfer of property of the bankrupt for the benefit of a
creditor, that the transfer was made on account of an
antecedent debt, that it was made at a time when the debtor was
insolvent, that the creditor knew or had reasonable cause to
believe that the debtor was insolvent and that the effect of
such transfer is to enable the creditor to recover a greater
percentage of his debt than other creditors in the same class.
11 U.S.C. 96, sub. a.
The burden of proof as to each of those elements rests upon the
trustee if he is to establish a voidable preference. Canright
v. General Finance Co., 7 Cir., 123 F.2d 98; Cohen v.
Sutherland, 2 Cir., 257 F.2d 737; Engelkes v. Farmers
Cooperative Co., D.C., 194 F. Supp. 319.
I hold that the balance sheets, offered as plaintiff's exhibits
1 to 5, inclusive, are not admissible in evidence.
The federal statute provides in part:
"* * * any writing or record, whether in the form of an entry
in a book or otherwise, made as a memorandum or record of any
act, transaction, occurrence, or event, shall be admissible
as evidence of such act, transaction, occurrence, or event,
if made in regular course of any business, and if it was the
regular course of such business to make such memorandum or
record at the time of such act, transaction, occurrence, or
event or within a reasonable time thereafter." 28 U.S.C. § 2
Records must not only be shown to have come from the files of
the party to whom they relate, but they must otherwise be
competent as evidence. Schmeller v. United States, 6 Cir.,
143 F.2d 544, 550. The accountants who prepared these balance
sheets were not called as witnesses. The instruments are the
accountants' interpretation and summary of the information
presumably supplied to them from the original business records
of Maltec, but there is lacking any proof that the instruments
themselves are an accurate summary of the original records upon
which they are based. The federal act provides an exception to
the hearsay rule, giving competency to otherwise incompetent
evidence upon proof that the entries relied upon were made
contemporaneously with the facts which they purport to record
in the usual course of the business of the person whose records
they are. These balance sheets do not meet that minimum
safeguard. They are, at best, a hearsay summary of hearsay
entries which would, upon adequate proof, be admissible, under
the federal statute.
The original records of Maltec are not shown to be unavailable.
In fact, the bankruptcy schedules suggest that the existence of
such records is a fact. The books of ...