Court Opinion

ID: 8635645
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:44:46.467529+00
Date Added: 2024-06-11T16:55:55.001065
License: Public Domain

STORY, Circuit Justice.
Upon the argument in this case it was admitted by the defendant’s counsel, that they did not contest the general principles of law stated on the other side, so far as they were properly applicable to the case. The main, if not the whole controversy, therefore, turns upon matters of fact. I have considered these matters deliberately, and am, on the whole, of opinion, that the conveyances stated in the bill and answer, as executed by the bankrupts, were made by them in contemplation of bankruptcy or insolvency, and with a design, in that event, to give a preference to the defendant over all his other creditors, in fraud of the bankrupt act of 1841 (chapter 9).
The facts are somewhat complicated, and I am not aware, that any useful purpose would be subserved, at least, so far as my *88own judgment is concerned, by minutely examining them at large. I wish, therefore, merely to state, that the evidence satisfactorily establishes to my mind, that the bankrupts were, at the time of those conveyances. either absolutely insolvent, or in a state so nearly approaching it, that they must have contemplated insolvency as in a high degree probable, if not inevitable; and that these conveyances were designed, in that event, to secure a preference to the defendant, as their drawer and guarantor, a preference over all their other creditors. These conveyances, as we shall presently see, cover a very large proportion of all the property of the bankrupts. They were then owing large debts, fully equal in amount to their property, which were then due or soon to become due; and, without the aid of the defendant to sustain them by his endorsements and credit, they could not go on in business. It was under these circumstances that the conveyances were made. Now, nothing can be clearer or better founded in reason and common sense than the rule, that every man must be presumed to know and comprehend the natural results of his own conduct. He, who being deeply in debt, and therefore embarrassed for want of sufficient means, which are, used moderately, applicable to his relief, applies to another person for present and future aid and succour, and conveys to him the title of all his property, in order that this aid and suc-cour may be instantly given and constantly continued, as it must be to be effectual, cannot but know, that he is in imminent danger of stoppage in his business, and of being reduced to immediate insolvency; and by such conveyances he does in fact give, and must be presumed to intend to give a preference and security to that person in that very event over all his other creditors. What is this, but making the conveyance in contemplation of bankruptcy or insolvency, with an intent, in that event, to give that person a preference over all other creditors? I confess, that in my view of the facts, with the deep indebtment of the bankrupts, and the involved state of their assets, I do not well see, how a reasonable hope could be indulged of escaping bankruptcy. It was confessedly inevitable, if the aid or succour of the defendant as endorser, or guarantor, was subsequently, at any time, withdrawn. It is not an unimportant fact, that these conveyances were made upon the very eve of the period when the bankrupt act was to come into full and complete operation. They were made on the 25th and 29th of January, 1842; the bankrupt act took full effect on the 1st of February, 1842; and the bankrupts actually failed in the beginning of April following, — that is, within little more than two months after the conveyances were executed. How it is possible, under such circumstances, to escape the conclusion, that a- total stoppage of business was then in the open vision of the bankrupts as a probable, nay, a certain event, unless the aid of the defendant, or some other responsible endorser or guarantor, could be obtained, I profess not to be able to understand. No new or extraordinary events, changing the fortune of the bankrupts in any essential manner, are shown to have occurred in the intermediate period between the close of January and the beginning of April. The .effort, therefore, of the bankrupts, was a desperate effort to relieve themselves from the embarrassments of debts which were daily pressing more and more heavily upon them. The very conveyances show, that they were not made merely as an indemnity to the defendant to cover past responsibilities, but that they were designed also to include future responsibilities, which should be incurred by them. He was to sustain the credit of the bankrupts, as far as he might or would, in the struggle to avert the impending dangers; and when he stopped his endorsements and guaranties, they must sink, and they did sink, under the superincumbent weight of their debts.
The learned counsel on the opposite side differ widely in their views of the evidence. There are three points which seem to be the most important, and should be examined with a close and scrutinizing care. First, what, at and about the close of January, 1842, was the actual amount of the debts of the bankrupts; secondly, what was the true and real value of their assets at the same period; thirdly, what was the amount of the property included in the eonvéyances to the defendant. Now, it seems to me clear, from the evidence, that the debts of the firm were upwards of $36,000, at the time of these conveyances. The assets of the firm did not, at that time, according to the estimates of the bankrupts themselves, exceed that amount. But, in point of fact, the basis of this very statement is not a satisfactory one; for it is an estimate of the value of the property at its cost, and not at its then marketable value. Indeed, there is no proof whatever, that the property could then have been turned into cash to meet the debts, as they became due, at any prices, which would have paid the debts. It would have been a most extraordinary circumstance. if the property would not, under the circumstances, have fallen far short of the amount of the debts, if sold, or if the sales could have been effected without great sacrifices. And. then, as to the amount of the property' of the bankrupts not included in their conveyances, it was manifestly very small. The estimate of the property of the bankrupts at the time of those conveyances, as made, by themselves, was about $36.000; and from what I have been able to gather from the schedules in the case, (which are so obscure and ill digested that I have not been able to arrive at any very precise conclusion,) all the property not included in *89these conveyances does not exceed two thousand dollars, and seems apparently much less. So that here we have the bankrupts, owing at the time of these conveyances $36,000, the full amount of all their assets, and indeed, upon all reasonable calculations, far more, who convey to the defendant, their indorser and guarantor, the hulk of their property nominally for the consideration of $5,000, but in reality for his existing liabilities to that amount for them, and also for future liabilities to be incurred by him on their account. So that, stripped of its artificial form, we here have an in-debtment of the bankrupts to the full extent of all their means, to say the least of it, with a possibility of escaping from immediate insolvency and stoppage of their business only by future credits, to be given to them by the defendant at his pleasure, and those credits avowedly to be given upon the basis of a direct preference over all the other creditors, in case of that very insolvency and stoppage of business. It is difficult for me to perceive a more clear case for the application of the act of congress to conveyances made “in contemplation of bankruptcy, and for the purpose of giving a preference and priority over the general creditors of the bankrupts.”
I have thus stated my impressions of the force and results of the evidence in the case. I regret that it is so inexact and imperfect in its actual presentation. I should have thought, that the ease might well have been referred to a master to ascertain the exact amount of the debts of the bankrupts on the 25th and 29th of January, 1842, the exact marketable value of all their assets at the same period, and the exact amount of property not included in the conveyances of the 25th and 29th of January, 1842. I am still willing to do so. if the parties desire it. But upon the actual posture of the evidence, it seems to me,, that the conclusions, which I have already suggested, are fully maintained. and I have, therefore, not thought myself at liberty to put the parties to the expense of a reference to a master, unless they should be anxious to have it made.
One other point has been suggested at the argument, which it is proj>er to notice: and that is, that even supposing that the bankrupts did make these conveyances in contemplation of bankruptcy, for the puipose of giving a preference and priority'over the other creditors, yet unless the defendant knew of that fact, and was a party to the arrangement, with that knowledge, he is to be treated as a bona fide purchaser for a valuable consideration without notice, and as saved out of the provisions of the second section of the bankrupt act. In my view of the present case, that point does not arise; for it is impossible for me to doubt, that the facts connected with these conveyances were not such as necessarily to put the defendant upon full inquiry as to the debts, the resources, and the situation of the bankrupts. He could not but know, that they were in a state inevitably leading them to bankruptcy, unless he sustained them by future large credits as well as by his past credits. If, under such circumstances, he chose to shut his eyes, and to make no inquiries, but to place confidence in the hopes of the bankrupts, he must take the consequences of his own voluntary confidence and indolent indifference. He took the conveyances, knowing that they contained the bulk of the visible property of the bankrupts, and that it rested solely with him whether they should stop business or not; and he was not bound to sustain them by new credits for any certain period or for any certain amount.
But I am strongly of opinion, that, upon the true policy and interpretation of the second of the bankrupt act, it is not necessary for the preferred creditor to have any knowledge or co-operation with the bankrupt in arranging a preference in contemplation of bankruptcy. It is sufficient, that the bankrupt himself intends such a preference in contemplation of bankruptcy, to bring the case within the provisions of the act. All conveyances made by the bankrupt in contemplation of bankruptcy, for the purpose of giving any preference or priority over the other creditors, are by the express terms of the act declared to be void. The second proviso in the section is a limitation merely upon the proviso of the act, and does not apply to the preceding enacting clause.
Upon the whole; my opinion is, that the plaintiff is entitled to a decree, declaring the conveyances of the 25th and 29th days of January, 1842, to be fraudulent in the sense of the bankrupt act and void, and that the plaintiff is entitled accordingly to the relief which is sought by the bill.
Decided accordingly.