Case ID: ad_53/html/0547-01.html
Source: Caselaw Access Project
Author: {"author": "Spuing, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The National Bank and Loan Company of Watertown, N. Y., Plaintiff, and the Bank of Philadelphia, Respondent, v. Henry G. P. Spencer and Others, Defendants. Frank M. Hugo, as Trustee in Bankruptcy of Henry G. P. Spencer, and Emily A. Spencer, Appellants.
    
      Judgments, recovered within four months of the filing of a voluntary petition in bankruptcy, are void.
    
    A judgment recovered within four months prior to the filing of a voluntary petition in bankruptcy is void under subdivision f of section. 67 of the National Bankruptcy Act (30 U. S. Stat. at Large, 564, 565), providing “ That all levies, judgments, attachments or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt.”
    Subdivision c of that section, by which “A lien created by or obtained in or pursuant to any suit or proceeding at law or in- equity,- including an attachment -upon mesne process or a judgment by-confession, which was begun against a person within four months before the filing of a petition in bankruptcy by or against such person, shall be dissolved by the adjudication of such person to be a bankrupt,” does not limit the application of subdivision f solely to cases of involuntary bankruptcy, as chapter 1 of such act provides that “A person against whom a petition has been filed shall include a person who has filed a voluntary petition.”
    Appeal by the defendants, Frank M. Hugo, as trustee in bankruptcy of Henry G: P. Spencer, and another, from a judgment of the Supreme Court in favor of the plaintiff, the Bank of Philadelphia, entered in the office of the clerk of the county of Jefferson on the 23d day of January, 1900, upon the decision of the court rendered after a trial at the Jefferson Special Term, adjudging the judgment of the plaintiff, the Bank of Philadelphia, to be a valid lien, and dismissing the complaint as to the plaintiff, The National Bank and Loan Company of Watertown, N. Y.
    The Bank of Philadelphia commenced an action on a promissory note against the defendant Henry O. P. Spencer, May 26, 1898. An answer was interposed and judgment by default was entered October 26, 1899, for $4,557.47 damages and $90.80 costs. The action of the National Bank and Loan Company against said defendant was commenced November 23, 1898, and judgment was entered December sixteenth of that year. This action was commenced February 3, 1899, to set aside certain conveyances made by the judgment debtor to his wife, the defendant Emily, in March and April, 1897, and also the assignment of a mortgage o*. said debtor to his daughter, Ella A. Martyn, on the ground that they were made to hinder, delay and defraud his creditors.
    February 7, 1899, Spencer filed his petition in bankruptcy and was adjudged a bankrupt, and the defendant Hugo was appointed and qualified as trustee in that proceeding and was brought in as defendant in this action. Apart from the property that Spencer conveyed and transferred as aforesaid, he did not have sufficient property to pay his debts. •
    
      Elon B. Brown, for the appellants.
    
      Henry Pureell, for the respondent.
   Spuing, J.:

The only question in this case is whether the judgment of the plaintiff, having been recovered within four months prior to the filing of the voluntary petition in the bankruptcy proceeding, is void within subdivision f of section 67 of the National Bankruptcy Act. That section reads in part as follows : “ That all levies, judgments, attachments or tither liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment or other lien shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the bankrupt.” (30 H. S. Stat. at Large, 564, 565.)

The difficulty arising over the interpretation of this subdivision has been due in the main to its conflict with subdivision c of the same section, from which we make the following extract: “ A lien created by or obtained in or pursuant to any suit or proceeding at law cr in equity, including an attachment upon mesne process or a judgment by confession, which was begun against a person within four months before the tiling of a petition in bankruptcy by or against such person, shall be dissolved by the adjudication of such person to be a bankrupt.”

It is urged that this subdivision was intended not to apply to actions commenced more than four months before the filing of the petition in bankruptcy, although the judgment or lien was not created until within the inhibited period, and that section is not in contravention of this section, as it relates solely to the involuntary proceedings under the Bankruptcy Law, it in terms applying only to a petition tiled against the bankrupt. The earlier cases in the United States District Courts gave this construction to the law. (Matter of O'Connell, 2 Nat. Bank. News, 90 ; Matter of De Lue, 1 Am. Bank. Rep. 387.)

An examination of the act, however, carries its own condemnation to this interpretation. The first definition given in chapter 1 of the act is that “ A person against whom a petition has been filed ’ shall include a person who has tiled a voluntary petition.” (30 U. S. Stat. at Large, 544.) This clearly has reference to the expression wherever used in the act, and it appears in subdivision e of this section, making it plain that, so far as the use of this term is concerned, it has application to voluntary proceedings as well as to those instituted by creditors.

The trend of the recent authorities is quite unanimous in giving this construction to the language, and in holding that subdivision f controls. The effect of this is that any judgment or lien obtained within four months antecedent to the filing of the petition in bankruptcy is null and void if the debtor is adjudged a bankrupt. (Matter of Richards, 3 Am. Bank. Rep. 145 ; Matter of Dobson, 98 Fed. Rep. 86; Matter of Vaughan, 97 id. 560; Bear v. Chase, 99 id. 920; Matter of Spacht, 2 Nat. Bank. News, 238; Matter of Rhoads, 3 Am. Bank. Rep. 380.)

The aim of a bankrupt law is to secure the distribution of the assets of the insolvent equally among his creditors. In considering antagonistic provisions of an act of this character, that central purpose should have its weight. No substantial reason occurs to ns why there should be-any distinction made between the two classes of proceedings provided for in the act. The bankruptcy court takes possession of the bankrupt’s property and administers upon it in either event. While much may be said in favor of the diligent creditor, his diligence is not recognized by this law. The lien created three months and twenty-nine days before the filing of the petition in bankruptcy is within the condemnation of the act, as effectually as that of the tardy pursuer of the insolvent whose judgment was docketed the day preceding that event. The time fixed by the act, during which it reaches back and nullifies liens, is arbitrarily designated. The intent of the act is to bring all liens of creditors within its grasp during the inhibited period. While this probably eliminates the effect of the provision quoted from subdivision c, it seems to accord with the general policy of the law, and is certainly in harmony with the authorities in the United States District and Circuit Courts of Appeals, although the question does not seem to have been passed upon by the United States Supreme Court.

It is conceded that, when Spencer transferred his property to his wife, “ he did not have enough of remaining property to pay his debts.” He was then insolvent within the definition in subdivision 15, section 1, chapter 1 of the National Bankruptcy Act, which reads as follows: “A person shall be deemed insolvent within the provisions of this act whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed or removed, or permitted to be concealed or removed,' with intent to defraud, hinder or delay his creditors, shall not, at a fair valuation, be sufficient in amount to-pay his debts.”

The judgment as to defendant Hugo, as trustee, is reversed and a new trial ordered, with one bill of costs and disbursements of this appeal to the appellants to abide the event, and the judgment is affirmed, with costs as to defendant Emily Silencer.

All concurred, except Williams, J., not sitting.

Judgment as to the defendant Hugo, trustee, reversed and a new trial ordered, with costs to the appellants to abide event,.and judgment as to the defendant Emily Spencer affirmed, with costs.