Court Opinion

ID: 6227521
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:14:38.378601+00
Date Added: 2024-06-11T08:57:43.665556
License: Public Domain

Coulter, J.,
(after stating the case.)—The counsel for the appellees contended on the argument of the cause, that the confession of judgment to Wilkinson was given in contemplation of bankruptcy, and with an intent to give him a preference over the other creditors of the debtor ; and that it was, per se, a fraud upon the bankrupt law, and therefore void. It was not contended that there was actual or'moral fraud in the transaction, but that it must be construed a legal fraud, in order to effectuate the intention of the bankrupt law. And if it were not so held, there would be a loophole, through which the statute could easily and readily be evaded. To sustain this view of the case, Van Keeck v. Thurber, 1 Penna. Law Jour., was cited. It must be admitted, that at first view, the general terms used by Judge Conkling would seem to sustain the counsel for the appellees, 1 The judge combats the position, that confessing judgment or giving other security by the debtor, must be voluntary or spontaneous on his part, and without solicitation from the creditor, in order to render it void; and in the course of his argument seems to maintain that it is not necessary that any circumstances leading to the proof of actual collusion should be present in the transaction. But yet, in the case which he decides, strong facts .of that kind were present, and governed the conduct of the debtor. Thus, it appears, from the statement of the case, that the debtor being insolvent and pressed by his creditors, suddenly went from Owego to Utica, where his father resided, stayed at his father’s house, who immediately brought suit against him, and the debtor confessed judgment, including a debt due to his brother-in-law. It is added in the statement of the case, that many circumstances were shown, tending strongly to prove, that the suit was instituted with the full knowledge and consent of the debtor, and was, in fact, a concerted proceeding between his father and,-brother-in-law on the one part, and himself on the other. This clearly brought the case within one of the categories of the statute, to_ wit, “0r shall willingly procure himself to be arrested, or his goods and chattels to be taken in execution and he was, without doubt, by taking the first step, to *288prefer his relatives over other creditors, within the range of the bankrupt law, and properly adjudged a bankrupt. We must, therefore, refer the general expressions of the judge to the particular circumstances of the case, and limit their extent to the facts, upon which he adjudicated. So in the case of Wakeman v. Hoyt, 5 Law Reporter, 309, cited by Judge Conkling: the facts of the case control the extent of the decision, and Judge Thompson, who delivers the opinion of the court, says: “ The debt secured by the attachment or execution may be boná fide and honestly due; nevertheless, if the debtor, being a merchant, willingly or fraudulently procures himself to be attached, or his property taken in execution, it is an act of bankruptcy.” Judge Conkling did not sufficiently mark the line of distinction in this case, between the debt due and-the means taken to enforce its collection. The true extent of the decision is, that there need not be actual fraud in the transaction. But it leaves the irresistible conclusion on the mind, that there must be a collusive design on the part of the debtor to give an unlawful preference to one or more creditors over the rest, to constitute it an act of bankruptcy. And such was the impress of the case; when the debtor, being hopelessly insolvent and pressed for security by his other creditors, executed to certain family connections a mortgage and assignment of all his property, including his stock in trade, tools, &c., manifesting by that operation a determination to stop business, and prefer his relations over his other creditors.
The case of Arnold et al. v. Maynard, 5 Law Rep. 296, was also cited for the appellees. Judge Story, who delivered the judgment of this- court, observes, in relation to the point which has a bearing on this cause: “ For the purpose of answering this question, I must assume that the retailer was conscious of his own insolvency, and his utter inability to carry on his business any longer, and designed to give the mortgagee a preference over all his other creditors. In this view of the matter, and the facts stated, I should answer the question in the affirmative, an,d say, the mortgage so given was an act of bankruptcy. Now, the facts stated, without repeating them here, did show a collusive design on the part of the debtor, to prefer one creditor over all the rest, and to cover a great deal more than was necessary to pay the preferred debt, from the reach and pursuit of the others, by that operation.”
These last two decisions, by men so ripe in all legal learning, as to give their opinions a character of almost oracular verity in the profession, do not sustain the position that the confession of a judgment by a person even deeply indebted and insolvent, constitutes of *289itself a fraud on the bankrupt act, and is an act of bankruptcy. Indeed,they both look to the presence of circumstances of some kind or other, which conduce to prove a sense of obliquity in the mind of the debtor, and a collusive design of willingly preferring one. creditor over the other in a condition of known and hopeless insolvency. It may be, that the act need not be spontaneous on the part of the debtor, if other circumstances sufficiently mark the design of the act, and give it character. But, certainly, the debtor taking the initiative step, is, in all cases, evincive of the design of the act, and the .almost'universality of its existence in cases of unlawful preferences has_ tainted, and will continue to mark the character of such transactions. In a part of the opinion delivered-by Mr. Justice Story, in the case last cited, he observes, «I agree, that the mere fact of a man’s being insolvent, and knowing the fact, does not necessarily establish, that he-means to stop business and break up his establishment ; for he may 'still hope, and believe, that he can carry on business and redeem himself from insolvency.” The learned and humane judge thus opens up to the eye and faith of the unfortunate debtor - a land of hope and promise, to which he may look as encouragement to struggle on with adversity by. honest and fair means, without fear of the blight of bankruptcy. While his conduct is bona fide, and marked- with hoiiesty,.he may continue in the usual course of business, adopting the same means of extrication which the law allows to those^who finally overcome their difficulties.
Let us look for a moment to the fountain head, the statute itself. The first proviso to the second section is in these words: «Provided, that all dealings and transactions by and with any bankrupt, bona fide made .and entered into more than two months before the petition filed against him, or by him, shall not be invalidated or affected by this act. The confession of judgment to Wilkinson was over four months previous to. the filing the petition in bankruptcy by Moss.. And if it was bona fide, it is protected, by the very terms of the act. And is mala fides to'be imputed to any individual without evidence to support the imputation ? Call it as you will a legal fraud, and without moral turpitude, still it is a fraud, and branded as such, which cannot exist in such cases without bad faith, as contradistinguished from cases bona fide. The statute admits and acknowledges the act of confessing judgment two months before the application in bankruptcy, and saves it from disturbance by the provisions of the act, if it be bond fide; and yet we’are invoked to say that the existence of the fact is per se a fraud on the law,' and not bond fide. Strange inconsistency! The statute would thus be made *290afielo de se. It would strangle the very act which it sought to save. We apprehend that, to take the case out of the saving clause, it is incumbent upon those who attempt to defeat its operation to show, by satisfactory evidence, that the act or dealings were not bond fide. A confession of judgment is always bond fide, when the debt to secure which it was given was honestly due, unless done to accomplish some unlawful purpose. There is no allegation here that the debt to Wilkinson was not honest and fair. I admit that if it had been proved that Moss was hopelessly insolvent, and knew the fact; that he intended to.break up and quit business ; and that the judgment to Wilkinson was confessed under these circumstances, with a view to prefer him over the other creditors, that it would not have been bona fide, and that it would have been an act. of bankruptcy, because it would have been a fraud upon the law, and an evasion of its provisions. But there is no colour of such evidence in this cause, nor any fact or circumstance proved leading to such conclusion. The account of Wilkinson was .put into the hands of his attorney, for the purpose of taking measures to collect it. When he called on Moss, or saw him, the account and evidence of it was presented to him, who on request agreed to enter an amicable. action and confess judgment. This was characteristic of an honest man. This judgment was not urged' to execution immediately, nor for three months afterwards. The attorney, who was requested by Wilkinson several times to issue execution, advising forbearance and lenity, under a belief that part of the debt would be paid. It does not appear that Moss stopped his business; the amount or extent of his property at the time of confessing the judgment, or since, is not in evidence. It does not appear whether or not he has real estate, nor is there any thing in evidence from which it can be inferred, that at the time he confessed the judgment, he knew that he was insolvent, beyond the hope of saving himself; nor is the amount of his debts given. Four months often produces great reversions in business. In mercantile and trading communities, people tread on shifting sands; the wealth of to-day may pass away to-morrow. But nothing, of the- course of business, or his stock in trade, in relation to Moss has been given in evidence. In short, it has not been shown that at the time he confessed the judgment to Wilkinson, he was within the range of any of the five categories, the existence of some one of which must be shown to authorize creditors to proceed in invitum 'against the debtor as a bankrupt. There is' no evidence .furnished, which the court could lay their hands upon, as justifying us in pronouncing the confession of judgment by Moss to Wilkinson as an act *291of bankruptcy, and not bona fide. This view of the case appears to be in conformity with the decisions of this court on the subject. Thus in Haldeman v. Michael, 6 Watts & Serg. 128, it was ruled that a bond with warrant of attorney to confess judgment, which was given two months and twenty days before the- petition to have the debtor declared a bankrupt was presented, by his creditor, and oh which a fi.fa. was issued on the same day the bond and warrant were given, w.as good and valid, and did not constitute an act of bankruptcy. Judge Hays observes that the slightest solicitation on the part of the creditor will protect the transaction. “ Unless it clearly appears that the act originated with the debtor, and that he took the first step to make the transfer, it will not be deemed a fraudulent preference. And it is incumbent on the party who seeks to defeat the transaction to show that it was voluntary.” This court confirmed the judgment for the reasons given by the court below. In the case of Miller v. Bayle, 1 Barr, 420, although not precisely analogous in its features to this cause, yet the doctrines asserted by the late Mr. Justice Kennedy, in delivering the judgment of the court, strongly corroborate the -views here expressed. Upon the whole, we are of opinion that the judgment of Wilkinson v. Moss has not been successfully impeached, and that being a valid judgment, and the execution issued upon it'being the first levied, is entitled to the money in court. The order or decree of the District Court is therefore reversed, and it is ordered that A. M. Wilkeson have leave to take the money out of court, after payment of costs, to be applied to the satisfaction of his judgment, and an execution pro tanto.