Court Opinion

ID: 6508758
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:20:29.760558+00
Date Added: 2024-06-11T15:54:48.645233
License: Public Domain

BRICKELL, J.
We will assume, that it can be fairly collected from the agreement described in the pleadings, that the contracting parties had received from their debtors, Parker, Lake & Co., payments or preferences, which they could not retain against an assignee in bankruptcy, and the making or giving of which subjected the debtors to involuntary bankruptcy, at the suit of a creditor not participating in them. We will further assume, that the object of the agreement was to prevent the institution of proceedings in bankruptcy, so that such payments or preferences could be preserved and retained. Proceeding on this assumption, the conclusion we have reached is, that the agreement is valid, not offending public policy, or violative of law. To render the agreement invalid, we must be prepared to pronounce, that the payments or preferences, which the contracting parties had received, were made or given and accepted in violation of law. This we cannot declare, for, in the absence of the provisions of a bankrupt law, the right of a debtor to prefer one creditor to another, either by payments, or assignment, sale, or conveyance of property, is as absolute and unqualified as his power of disposing of his estate. The only qualification of this right is, that the appropriation must be absolute to the payment of the preferred debts, reserving no benefit to the debtor. That the debtor is in failing circumstances, or actually insolvent, and that the favored creditor has full knowledge of his condition, and obtains a preference which deprives all other creditors of the means of payment, does not affect or qualify the right. A reference to the numerous decisions of this court affirming this principle, commencing at an early day, is unnecessary, for they are familiar to the profession, and are recognized as just expositions of- the law. A debtor may be actually insolvent, and suffer his property to be seized under legal process; or he may confess a judgment in favor of a particular creditor, that his property may be so seized, without offending any other than the bankrupt law; and the seizure, or the judgment, will prevail against all the world, except an assignee in bankruptcy. No creditor can avoid the seizure, or impeach the judgment. *577He may make payments, gifts, grants, sales, conveyances, or transfers of money, or other property, estate, rights, or credits, with intent to give a preference to one or more of his creditors; and the preference will be preserved, except as against an assignee in bankruptcy. This is all offensive to the bankrupt law, and the purpose may be to defeat the operation of that law. Until the jurisdiction of a court of bankruptcy attaches, and a right is founded on its proceedings, the validity of all such preferences is measured by another law than the bankrupt law ; and if they do not fall within the prohibitions of the statute of frauds, they must be sustained. It cannot be asserted, that if a creditor contests the validity of such preferences, and seeks to condemn the subject thereof to the payment of his debt, he could invoke the aid of the provisions of the bankrupt law, declaring such preferences void. These provisions of the bankrupt law are designed to secure the main purpose of that law, an equality of distribution among creditors, and to prevent any “ race of diligence,” whereby one could acquire priority over another. If, in a contest between creditors, involving the validity of such preferences, the one could invoke the aid of these provisions, he would destroy one preference, and substitute another in its stead; thus defeating at last an equality of distribution, — the purpose the law designed to effect. Hence, the authorities seem to be uniform, that payments, sales, transfers, or conveyances of any character, declared void by the bankrupt law, and a fraud upon it, are void only as against persons claiming under proceedings in bankruptcy, or in the course of administration of a bankrupt’s estate, in a court of bankruptcy. Hilliard on Bankruptcy, 350, § 27; Atkins v. Spear, 8 Metc. 490; Penniman v. Cole, Ib. 496; Dodge v. Sheldon, 6 Hill, 9; Burt v. Perkins, 9 Gray, 317; Beck v. Parker, 65 Penn. 262; Hawkins’ Appeal, 8 Amer. Law Beg. 205.
When this agreement was made, no proceedings in bankruptcy were pending. The jurisdiction of a court of bankruptcy had not attached. Neither the debtor, nor his estate, nor his creditors were then under the operation of the bankrupt law. The payments or preferences which the contracting parties had received, and which they were solicitous to preserve, were legal, and their right to them was indisputable. We can see no good reason for declaring that it was offensive to public policy, or violative of law, for them to contract to preserve the legality of, and the right to such payments or preferences. A contract contravening the policy or provisions of the bankrupt law is doubtless void; so is any contract to defeat • its operation, or prejudicial to creditors at large, or securing one creditor a preference over another, not allowed by *578law. Addison on Con. 97. But the law must be of force when the contract is made, or it cannot be affirmed that its policy or provisions are contravened. The examples illustrating the rule, found in the books, show that the rule itself is applied only to contracts made when the policy and provisions of the bankrupt law are prevailing. Thus, a contract to induce a creditor to withdraw opposition to an insolvent’s discharge, or to sign a bankrupt’s certificate, or not to oppose the granting of such certificate, or to abandon the prosecution of a fiat in bankruptcy, &c., are all void, and are all contracts of necessity made when the bankrupt law is in operation, and the jurisdiction of a court of bankruptcy has attached, to which the debtor and his estate and his creditors are subject. Here, the contract is by creditors who have received payments or preferences, valid under the general law, and which can be avoided only by subjecting them to the operation of the bankrupt law, to contribute such a sum as will satisfy creditors who could institute proceedings in bankruptcy, because of such payments or preferences to forbear such proceedings. The institution of such proceedings rested exclusively in the volition of such creditors; They were under no obligation to institute them. No duty to the public compelled their institution, or their continued prosecution. They were only a remedy given by the bankrupt law, for the collection of their debts, or the appropriation to their satisfaction of a just proportion of the assets of the debtor. They could release, compound, or on any consideration they deemed adequate extinguish the debts, and could, of consequence, contract to waive any remedy given by law for their collection, which is a mere incident to the debts. The interests of creditors may often be promoted by such contracts, rather than by a resort to proceedings in bankruptcy. In their practical operation, such proceedings may have proven dilatory and expensive, “tearing to pieces the estate of the bankrupt,” and the “ lion’s share ” of the fragments may be diverted from creditors, to pay the fees of officers of court charged with the administration of the law. It seems to us it would be a harsh rule, that would compel a creditor to resort to such proceedings, and prohibit him from contracting to forbear them, as he can contract to waive any other right or remedy that the law gives him. In our judgment, the law authorizes creditors tHio have received payments or preferences, offensive to the bankrupt law, to preserve their validity, by paying, or contracting to pay other creditors, who could found on them proceedings in bankruptcy, a consideration to forbear such proceedings.
The rulings of the court below were adverse to this conclusion, and its judgment is therefore reversed, and the cause remanded.