Court Opinion

ID: 8628581
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:33:59.463059+00
Date Added: 2024-06-11T16:55:41.553250
License: Public Domain

WOODRUFF, Circuit Judge.
Abraham Bininger and Abraham B. Clark composed the firm of Abraham Bininger & Co., who, for many years, carried on business in this city as merchants and traders. On the petition of William J. Hardy and others, creditors of the firm, they were, on the 22d of December, 1809, decreed bankrupt, and Clark has brought into this court for review the proceedings had in the district court upon that petition, and the decree pronounced thereon.
The petition, as originally filed, alleged, as acts of bankruptcy, that Bininger and Clark had fraudulently stopped, and had not resumed, payment of their commercial paper within a period of fourteen days; and that they, on the 19th of November, 1869, did, in substance, effect a transfer of all their partnership property to one Daniel H. Han-rahan, under color of the appointment of said Hanrahan to be a receiver of the property of the firm, procured by Clark in a proceeding instituted in the superior court of the city of New York against Bininger, and suffered by the said Bininger, with intent to hinder and delay the creditors of the firm. Clark alone appeared and answered this petition. By his answer he denied that he or his said firm had “committed an act of bankruptcy set forth in the said petition or otherwise,” and demanded a trial by jury. He alleged, in his answer, that neither he nor his said firm were insolvent, but were, on the contrary, fully able to pay all their just debts and liabilities and have a large surplus. He admitted that, on the 19th of November, 1869, he commenced an action in the aforesaid court, against his co-partner, Bininger, praying for a dissolution and an accounting, and for the appointment of a receiver; and that such court did appoint the receiver, and he, on the same 19th of November, took possession of the property of the firm in this city, and was in possession when the petition of the creditors was filed. He further alleged, that such petition was filed by collusion between his co-partner Bininger and their creditors.
On the trial, and upon the examination of Clark on his own behalf, the petitioning creditors obtained leave to add further allegations to their petition, by way of amendment. To the granting of such leave Clark objected and excepted. By the amendment the petitioners further charged, that the debtors, on the 19th of November, 1869, being bankrupt and insolvent; and in contemplation of bankruptcy or insolvency, made a grant, sale, conveyance and transfer of their property, estate, effects, rights and credits to the before-mentioned Hanrahan, with intent thereby to defeat and delay the operation of the bankrupt act, and procured and suffered their property to be taken on legal process, to wit, under and by virtue of the before-mentioned order appointing Hanrahan receiver, which was procured by the said Clark, and the said receiver was suffered to take possession, &c., with the intent, by such disposition of their property, to defeat and delay the operation of the said act of congress, and to delay, defraud, and hinder the creditors of the said debtors.
The allegation thus added to the petition, Clark answered by a denial. Bininger thereupon appeared in form by his solicitor, but made no answer to the petition. The trial then proceeded, and, at the close of the testimony, the judge charged the jury, in effect, that the petitioning creditors were entitled to a verdict finding that the debtors, being insolvent, did, on the 19th of November, 1869, *416suffer their property to be taken on legal process, with the intent, by such disposition of that property, to defeat the operation of the said act of congress.
(1.) In my judgment, there was no error in permitting an amendment of the petition. It belongs to courts of justice, as the general rule, to permit amendments of proceedings before them, where they have obtained jurisdiction of the person and of the subject-matter; and it would be strange if the district court, in the administration of the bankrupt law, should be held incompetent to allow such amendments. The exercise of the power may often be indispensable to the complete attainment of justice. The general orders in bankruptcy made by the supreme court contemplate the exercise of this power, and are, at least, evidence that the supreme court deemed that such amendments might lawfully be allowed. See General Order 14. Here, Clark answered the amended petition, and the issue thereby created was tried and determined.
(2.) On the question, what constitutes insolvency in a trader, I concur in the views expressed by the district judge on the trial; and they have singular aptness to the present case. The alleged bankrupts owed a very large sum of money. They had been struggling for months, in a condition of great embarrassment, to raise money for the payment of their obligations as they matured. They used means ordinary and extraordinary, until even such means failed to procure them funds, submitting to sales of their-own paper at an enormous discount, for that purpose. It is dear that, if they had been able to raise money by continuing to enlarge their liabilities in the future at such a. rate, in order to meet their payments, the loss would have absorbed their entire estate. Their real estate in this city was incumbered. They had real estate in "Virginia, which they had been long endeavoring in vain to dispose of and convert into some available form; and, at length, they stopped payment, for the want of funds wherewith to pay. This, in my judgment, constituted insolvency, within the meaning of that term, as used in the bankrupt law.
On a question of this kind, in Thompson v. Thompson. 4 Cush. 127, 134, Chief Justice Shaw says: “By the term insolvency, as used in these statutes, we do not understand an absolute inability to pay one’s debts at some future time, upon a settlement and winding up of all a trader’s concerns; but a trader may be said to be in insolvent circumstances, when he is not in a condition to pay his debts in the ordinary course, as persons carrying on trade usually do.” This is the only construction which I think is adapted to give effect to the act of congress, for the beneficial purposes for which it was designed. Without this, a trader's property may be wasted, preferences among creditors given, and other transfers of his property effected, wholly inconsistent with the intent of the act. To hold that the probability that, if the estate should be judiciously managed, it would, after the lapse of some indefinite time, at prices corresponding with its then present estimated value, produce enough to pay the creditors, if they also would wait and not force sales by judgments and executions, is to constitute proof of solvency, within the meaning of the law, would be neither sensible nor just. The contrary is held in Lee v. Kilburn, 3 Gray, 594, 600; in Shone v. Lucas, 3 Dowl. & R. 218; and in Bayly v. Schofield, 1 Maule & S. 338, 350. The late learned chancellor of this state, I recollect, used to express and apply the rule above stated by Chief Justice Shaw, and the district judge has, in his charge, cited numerous other cases from this and other states, to the same effect
I have no doubt that the charge of the court below was correct upon that point. By this, however, I do not mean to say, that in every instance of temporary want of money to pay debts coming to maturity, insolvency is to be inferred. This would be tantamount to saying that, whenever a trader suffers a note to go to protest for want of funds in hand wherewith to pay, he can thereupon be adjudged insolvent. This would be an extreme view. Here, the debtors were shown to be permanently in that condition, and they could not be delivered therefrom, if at all, except by extraordinary means, out of the course of business; and even extraordinary means had been resorted to and had failed.
(3.) The remaining question is, whether, the firm being insolvent, it was an act of bankruptcy to apply to the state court, procure the appointment of a receiver and an order for the delivery of the property of the firm to him, and thereby prevent the operation of the bankrupt law upon the property and the administration thereof.
I concur with Judge Blatchford, that the term “legal process,” as used in the bankrupt law, is not to be confined to any particular form of writ, execution or attachment. An order of sale to be executed by a master in chancery is. in a just and proper sense, legal process, though, in a technical sense, writs, executions, attachments and the like, running in the name of the people, and addressed to a sheriff or like officer, are usually meant by that term. The writ, mandate, or order of a court, taking hold of the property, and withdrawing it from the possession and control of the debtor, and from the ordinary reach of creditors for the payment of what is due to them, are each and either of them, within the intent and true meaning of the term, legal process, as here employed.
Was this, then, done, with intent to defeat or delay the operation of the bankrupt act? It is entirely clear that its effect was to do both.
*417In the discussions of this subject, had before me, it has been, in substance, insisted, that a proceeding in the state court for winding up the business of a co-partnership, settling the accounts between the partners, and paying the co-partnership debts, through a receiver, was the appropriation of the property just as an administration under the bankrupt act would appropriate it; that, therefore, such a proceeding cannot be said to defeat the operation of the bankrupt act; and that, on the contrary, it effectuates the very purpose and object of that act, by paying the creditors without preference. In the first place, it does absolutely defeat the operation of the bankrupt act, by withdrawing the property from any administration under it. Whether some other administration, either through a receiver or a voluntary as-signee, is wiser and better or not, whether the end will be the same, if those modes are carried into honest and faithful execution or not, the operation of the bankrupt act is equally defeated. For, be it observed, the statute does not say, with intent to defeat or prevent the result which the bankrupt law is intended ultimately to accomplish, namely, the appropriation of the property to the payment of the debts, but it does say, with intent to defeat or delay the operation of the act. Withdrawing the property from the reach of that law and the means which it provides to secure the intended result, does effectually, in respect of that property, defeat the operation of the act
The design and purpose of the bankrupt law is, that the property of insolvents shall be secured to their creditors in the very mode pointed out thereby, with all the facilities for its appropriation, all the security for its administration, all the safeguards against fraud, all the protection against devices to establish false claims, fictitious debts and illegal or inequitable preferences, which that act provides, and in the summary manner in which the proceedings may be conducted. It is not, therefore, for the debtors or for the debtors and some of the creditors to say. we can devise a better or safer or more economical mode of reaching the same final result. If it were true, it would be only saying, we will resort to an expedient to defeat the bankrupt law, and our reason therefore is, that we think oar plan is wiser and better than that which congress has seen fit to prescribe.
But the administration of the property under a receiver in such a suit does not necessarily accomplish the same result. It is not necessary to enlarge upon this to anticipate all possible differences, but reference may be made to various provisions of the bankrupt law, such as, requiring the surrender of securities as a condition of participation in the bankrupt’s estate, (section 20;) excluding claims deemed fraudulent under the act, (sections 22, 30;) denying to creditors who have received or taken securities, with reason to believe in the insolvency of the debtor, and for the purpose of obtaining a preference, any share of the estate, (section 23;) and excluding those who may have received security or property as a consideration for not opposing a discharge, (section 35.) These subjects would find no place in the administration of the estate under the state laws, through a receiver. There are, also, summary means of investigation and enquiry peculiar to the bankrupt law and not known to the other proceeding. So, too, the subject of making dividends from time to time is committed to the determination of creditors, (section 27;) several classes of debts are declared entitled to a preference and to payment in full in priority to others, (section 28;) and special modes of determining disputed claims are provided, (section 6.) There are, doubtless, other differences between the administrations under the bankrupt law and by a receivership under the state laws, but the above are sufficient to show that the two are wholly inconsistent and that the latter defeats the former.
To this it seems hardly necessary to add, that the taking of the property by a receiver for administration delays the operation of the act; for, it cannot reach the property at all as to the co-partnership debts, and, as to individual creditors, if it should turn out that there is any thing for them, they must-wait the termination of the entire proceedings under the receivership before the as-signee in bankruptcy appointed for them, can reach it. A proceeding which must pass through all the ordinary forms of litigation,; and which is susceptible of almost indefinite-protraction, through orders, appeals, rehearings, &c., is substituted for the summary proceeding which the act of congress provides.
It is claimed, on behalf of Clark, that, although all this may be true, yet this necessary result of his action in the matter was not the motive which influenced him; that it was not for the purpose of accomplishing this defeat of the operation of the bankrupt law that he proceeded to the appointment of a receiver; that other considerations were the moving cause; and that, therefore, it cannot be said that he intended the results; pointed out.
It seems unnecessary to say anything in addition to the reasoning of the district judge upon this point, and that of Judge Hall, in the northern district, in the case of In re Smith, (Case No. 12,974,] and to what is said in Denny v. Dana, 2 Cush. 160, 172, and Beals v. Clark, 13 Gray, 18, 21. It is no-novel doctrine. The debtor must be taken to know the law, and to know the precise legal effect of his act. He did certainly intend the act and all the legal consequences of the act.
It is easy to confound motive with intent, and that has been done, I think, in the discussion of this case. It was done by the debt- *418or, Clark, In his testimony. No doubt be testified truthfully, when be said, in substance, that be did not procure the appointment of a receiver with the intent to defeat the operation of the bankrupt law. I have no doubt he meant by this, that defeating or delaying the operation of the bankrupt act was not the motive which induced him to procure such appointment. He did intend to do the very thing which hinders and defeats that act, and, in judgment of law, he knew when he did it that it would have that effect. Knowing the effect, he must have intended to produce it, when he voluntarily chose to do the act. Whatever his motive was, he acted voluntarily in choosing, and, therefore, in intending all the legal results which would flow from his action in the matter.
There is an alternative view of this subject which would induce me to affirm the decree in this case, if I deemed it doubtful whether a state of insolvency within the meaning of the law existed, and which is so conclusive that a reversal and an order for a new trial would be useless and, therefore, improper. It is alluded to in the charge of Judge Blatchford. If the firm was not insolvent, they had the means of paying their debts. It is now insisted, on that precise ground, that they were not insolvent. If, then, they had such means, it was their duty to use them for the purpose of paying their debts; and, being solvent merchants and traders, they committed an act of bankruptcy by stopping payment, and not resuming payment within fourteen days. Of such an act fraud will certainly be the prima facie import; and the construction given in many cases to the language of the 39th section, makes it an act of bankruptcy to suspend and not resume payment within fourteen days, whether the same be fraudulent or not. Without affirming the construction, I incline very decidedly to hold, that congress intended that, for a solvent trader to suspend payment and not resume for fourteen days, should be deemed fraudulent as against creditors. Doubtless, cases may arise in which solvent traders may be compelled. while acting in the utmost good faith, to suspend payment; and, in considerat'ou thereof, fourteen days are allowed within which they may resume and thereby repel .any inference of fraud. But, within that period, if solvent, in the just sense of that term, applied to this subject, they must resume or their continued suspension is, per se, fraudulent.
I have only to add, that the motive of the petitioners in prosecuting the petition, or the co-operation of Bininger, or his motive therefor, can have no possible effect in determining the quality of the acts alleged to be acts of bankruptcy, or the legal consequence of such acts. The rejection of evidence tending to show collusion between Bininger and the petitioning creditors was not erroneous. However fully established, the decree must have followed, as the right of the creditors. If the design was to show a purpose to administer the bankrupt’s estate so as to defraud Clark, that design appertains to the future. The means are abundant to protect Clark against any such fraud, and the court and the law are competent in adequacy and power to see that, in the execution of the law. full justice and protection are accorded to all who are interested.
The decree must be affirmed.