Court Opinion

ID: 3303951
Source: CourtListenerOpinion
Date Created: 2016-07-05 17:19:23.42582+00
Date Added: 2024-06-11T13:57:06.982744
License: Public Domain

This is an appeal by the defendant from an order of the superior court granting the plaintiff's motion for a new trial in an action to set aside an alleged fraudulent transfer of property by an insolvent debtor in anticipation of bankruptcy, and for the purpose of giving the defendant an undue preference over other creditors. The grounds of the motion were insufficiency of the evidence to support the findings and that the decision was against law. It was made upon a statement of the case setting forth the evidence adduced at the trial.
The second ground of the motion seems to have no support, and is not discussed in the briefs. The only question to be considered is whether there was evidence which would have supported findings for the plaintiff on the material issues made by the pleadings; for if so the discretion of the superior court was not abused in granting a new trial, and its order must be affirmed.
It is alleged in the complaint that for some time prior to the twenty-fourth day of December, 1902, one J.H. Corcoran was engaged in the hotel and saloon business at the town of Mt. Bullion, in Mariposa County; that on said date, and on his own petition, he was duly adjudged a bankrupt; that plaintiff was subsequently appointed and qualified as trustee in that proceeding; that as such trustee he took possession of the hotel portion of the Corcoran House, but was excluded by the defendant from the possession of one-half of the saloon property in said hotel, consisting of the stock, fixtures, business, and so forth; that the refusal of the defendant to yield possession of said interest in the saloon was based upon a pretended bill of sale of the same, made, executed, and delivered to the defendant by said Corcoran on the twelfth day of December, 1902; and, finally, "That said attempted transfer was an attempted fraudulent preference against the other creditors of the said J.H. Corcoran, a bankrupt." This *Page 40 
rather meager statement of the sole ground upon which the validity of the transfer is assailed is all that the complaint contains in relation to that point. It seems to have been treated at the trial as equivalent to an allegation that defendant was at the date of the bill of sale one of the creditors of Corcoran, and that what purported on its face to be a sale of Corcoran's half-interest in the bar fixtures, etc., for a consideration of one thousand dollars then paid, was in fact an attempted transfer of the property in satisfaction of a preexisting debt in prejudice of the rights of other creditors and in anticipation of the voluntary petition in bankruptcy filed by the vendor only twelve days thereafter. The denial of this allegation in the answer of the defendant raised the only material issue in the case, and to that issue all the evidence taken at the trial was directed. No issue was made or tendered as to the value of the property or the adequacy of the consideration, if it was a sale, and if, as suggested in the argument of counsel for appellant, the order granting a new trial was based upon the sole ground that one thousand dollars was not an adequate price for the property attempted to be transferred, neither the pleadings nor the evidence would justify it. The order, however, is general in terms, and we must presume that it was made because, in the opinion of the judge of the superior court, the transaction was not a sale, but an attempted transfer of the property in satisfaction of a debt due the defendant.
The only direct evidence upon this point was that of the defendant and of Corcoran, which was to this effect: Corcoran boarded in his hotel a number of employees of a mining company, and after each pay-day was in the habit of cashing the checks received by them for their wages out of funds furnished by the defendant. The consideration to defendant for supplying these funds is not stated, and we are left to infer either that the checks were cashed at a discount for him or that Corcoran paid him some percentage for supplying the means of collecting his bills from the men by cashing their checks and retaining in each case the amount due from the payee. In November, 1902, Corcoran's debts to various parties amounted to about eighteen thousand dollars, and all his property was encumbered except his homestead and his *Page 41 
half-interest in the Corcoran Hotel bar — the property in controversy. Among his pressing obligations was a note for $1,666, secured by mortgage, and falling due December 1st. To meet this obligation he applied to defendant for a loan of sixteen hundred dollars, stating that the only security he had to offer was his half-interest in the saloon. Defendant declined to make the loan upon the ground, among others, that the proposed security was not worth more than one thousand dollars. He advised Corcoran to try to obtain an extension of time on his note, and offered, in case he failed to do so, to buy his interest in the saloon for one thousand dollars. Corcoran failed to obtain the extension and returned home. About the ninth day of December defendant placed in Corcoran's hands three thousand dollars, to be used in cashing checks on the approaching pay-day, and this money was in Corcoran's safe on December 10th, when he was threatened with an attachment suit for $208. To prevent this attachment, and to satisfy some other claims, he was authorized by defendant to use a portion of the three thousand dollars. Defendant says that in giving him this authority he expressly stated that whatever amount he so used should be deemed a payment on account of the purchase of the saloon interest at the agreed price of one thousand dollars. Corcoran does not testify to any such express agreement, but says that having occasion to pay several demands, and deeming defendant's offer to purchase still open, he appropriated one thousand dollars out of the three thousand dollars on the 11th, and the next morning at four o'clock, just before leaving home, made out a bill of sale, statement of checks cashed, etc., and left them and the remaining cash with his bookkeeper for delivery to defendant. The bill of sale, statement, and possession of the saloon were delivered to and accepted by the defendant at six o'clock the same morning, and he thereafter remained in possession of the saloon by his employees in conjunction with Corcoran's former partner — the owner of the other half-interest. This evidence, if true, shows a perfectly legitimate transaction in no wise opposed to the letter or spirit of the Bankruptcy Law if the price paid for the property transferred was a fair one, and there is neither allegation nor proof that it was inadequate. A creditor of an *Page 42 
insolvent debtor gains no advantage over other creditors by buying his property at a fair price, paid in cash. And there is no fraud in such a transaction unless its purpose is to enable the insolvent to conceal, misappropriate, or abscond with the proceeds.
The whole question in this case is therefore reduced to this: Was there anything in the testimony of the other witnesses or in the documentary evidence adduced at the trial which would have warranted the court and jury in discrediting the testimony of defendant and Corcoran, and in finding that there was no sale of the property in controversy, but merely a transfer in satisfaction of a debt? Counsel for respondent contends that it is clear from Corcoran's own testimony that what happened was simply an embezzlement by Corcoran of one thousand dollars of defendant's money on December 11th, and then — when he owed defendant over seventeen hundred dollars — a pretended sale of the property on the 12th, an afterthought on his part to screen him from the consequences of his misappropriation of money intrusted to him for a particular purpose, acquiesced in by defendant merely because he could do no better than to put that face upon it. We find nothing in the testimony of Corcoran or the defendant to justify this construction. But, considering the unusual circumstances of the transaction, we think the burden of proof rested upon the defendant to establish its bona fides. The sale — if a sale — was not in the ordinary course of business. Corcoran was undoubtedly insolvent, and there is abundant evidence that defendant knew the state of his affairs. The court was not bound to accept their evidence upon a matter in which they were so deeply interested; and although we cannot see in the record before us any cogent reason for rejecting their evidence, the judge who heard them testify may have been entirely justified in doing so, and as his order granting a new trial implies that he did not accept their statements it cannot be disturbed.
Counsel for appellant makes the point that the order granting a new trial should be reversed and the superior court directed to dismiss the action because it is essentially an action to recover the property or its value, and that no such action can in any event be sustained, because it appears from *Page 43 
the record that Corcoran and C.F. Adair owned the saloon and conducted the business as partners; that Adair is not insolvent or adjudged bankrupt; that under paragraph h of section 5 of the Bankrupt Act of 1898 he is entitled to retain possession of the property pending settlement of the partnership business, subject only to the duty of accounting for the interest of Corcoran when the business is closed. The fact of Adair's interest is found by the court, though not alleged in the pleadings, and the law appears to secure him in the right of possession as contended. But this is not an action to recover possession of the property. Its object is merely to determine the title to the half-interest which Corcoran attempted to transfer to defendant. The prayer of the complaint is, that said transfer may be adjudged invalid, for an accounting of the proceeds received by defendant since he took possession, and for general relief. A judgment for plaintiff would not disturb the possession of Adair or affect his right to conduct the business to a settlement. Nor is Adair a necessary party to the action in any view. With respect to the rival claims of plaintiff and defendant to Corcoran's half-interest, he occupies the position of a sort of stakeholder, and in supposable circumstances might have required them to interplead as to their conflicting claims upon him for an accounting of the Corcoran interest in the partnership. But whether he should be a party to the controversy or not was a question for him to decide. At all events the defendant could not be prejudiced by his absence. And, moreover, the question of proper parties is not involved in an appeal from an order granting a new trial.
Order affirmed.
Van Dyke, J., Shaw, J., Angellotti, J., Lorigan, J., and Henshaw, J., concurred. *Page 44