Court Opinion

ID: 8631687
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:38:42.413465+00
Date Added: 2024-06-11T16:55:47.310953
License: Public Domain

BLODGETT, District Judge.
In the light of this evidence I do not think respondents chargeable with knowledge of Baierle’s insolvency at the time of these extensions, nor with such notice of facts touching his probable insolvency, as should be held sufficient to put a cautious man on inquiry.* Baierle's credit was good among those with whom he dealt during all these transactions; that a man engaged in extensive commercial transactions should need extensions or renewals of his commercial paper is no unusual circumstance, and the fact that two responsible citizens were willing to answer as sureties for him shows the estimate in which he was held by them in regard to solvency.
The reasons, too, which he assigned for asking the two last extensions were natural, and there is no dispute as to the existence of those reasons; in fact, a failure in an arrangement for partnership in so complicated a business as Baierle was then carrying on might make an extension necessary for the most solvent man, while the condition of the market for the product of his manufacturing business was certainly an adequate reason for continuing his loan in January, rather than to have sold the highwines and beef at a sacrifice, to pay them.
■ Again, our examination of the proofs of debt against the estate of the bankrupt shows that considerable more than half of those debts were contracted between the time these extensions were obtained and the acts of bankruptcy. This fact proves conclusively that Baierle was, at this time, in the full enjoyment of unlimited credit in the community with whom he dealt and where he resided. The proof shows that the rate of discount paid was not unusual at the "time, but that, on the contrary, the best commercial paper in this city was then in the market at those rates, thus rebutting any presumption or inference of insolvency from :the -payment- of the discount alleged. I think, therefore, that the petitioners’ proof fails in a most essential particular, as to the claim to recover back the $2,000, and sums paid by way of. discount or interest
In regard to the preference obtained by the entry and collection of the judgment on the. $1,000 note, the proof is that on or about the 12th day of February, 1870, Baierle was missing, and various rumors were afloat in the community in regard to him — by some he was supposed to have been murdered, while others supposed he had absconded with a large sum of money for the purpose of defrauding his creditors — and these ■ rumors; were to some extent the subject of articles and notices in the newspapers published in this city. Niehoff, one of the respondents, testifies that he heard something of these rumors, but did not hear that Baierle was insolvent; that Hoffman, who was surety on one of the notes, talked with him as to what, steps he, Niehoff, would take to protect the-sureties on the paper he held, and it was finally concluded that judgment could be entered on the one thousand dollar note, which was accordingly done on the morning of the 15th of February, about 10 o'clock, and the levy made on the execution the same morning, and before the petition in bankruptcy was filed. It is true Niehoff denies all actual knowledge or information, at the time the judgment was entered, of Baierle’s insolvency, but it is clear, from the evidence, that he knew something of the extraordinary rumors afloat in regard to Baierle’s being missing, or having absconded; and so much discussion of his affairs seems to have transpired as to lead to the conclusion that the safety of the surety on the note, if not the interest of Niehoff & Co., required that the power to-enter judgment on the warrant of attorney should be called into execution. Niehoff says himself, in his evidence, that at the time of the entry of the judgment he “thought something was wrong with Baierle.” He evidently did not suppose him dead, as one rumor had it, for he would not have entered judgment against a dead man, and the “something wrong” evidently referred to Baierle’s pecuniary affairs, or there would not have been this consultation with sureties, and final conclusion of counsel to enter up a judgment on this note. The proof also shows that Troost, who is a member of the firm of Nie-hoff & Co., participated in these discussions in regard to Baierle’s absence, and the corase to be pursued in order to secure the debts the firm held against him, and it would seem from the proof that this judgment was -en-. tered after consultation between Troost and Grater, the surety.
Within a few hours of the entry of this judgment, the records of this court, of which all persons in the district are bound to take notice, contained ample evidence of Baierle’s insolvency and acts of bankruptcy, and from the time of the filing of the petition in bank*572ruptcy the respondents are chargeable with full knowledge of Baierle’s insolvency. At the time when the satisfaction of this judgment was actually obtained by the sale of the property levied upon, Niehoff & Co. were certainly informed of all the facts necessary to advise them of Baierle’s insolvent condition. The 35th and 39th sections of the bankrupt act make void all transactions by which one creditor, with the knowledge of the debtor’s insolvency, and with the assent •of the debtor, obtains a preference as against the other creditors, and the question arises as to whether this is such a preference as is prohibited by these sections.
NOTE. Consult In re Weeks [Case No. 17,-350]; In re Eldridge [Id. 4.330]; Campbell v. Traders’ Nat. Bank [Id. 2,370]; and numerous authorities there cited.
In considering these questions the first inquiry is as to when the preference by means •of a judgment note is obtained — is it when the note, with a warrant of attorney to confess judgment, is executed and delivered? Clearly not, because the power lies dormant, and in mose cases secret, until it is executed by the entry of the judgment. Up to this time the warrant to confess judgment is only an evidence of the debt, and gives the creditor no lien, and, consequently, no preference. It may be of itself an act of bankruptcy, under the law, to give a warrant of attorney to confess judgment, but not necessarily a preference. The warrant of attorney, in fact, is only a means placed in the hands of a creditor by which he may, more promptly than other creditors, seize the property of the debtor on legal process, and only becomes dangerous when used to the detriment of other creditors. It would seem to follow, then, that if a creditor holding a warrant to confess a judgment against a ■debtor, causes the power thus entrusted to him to be exercised after he has notice of the debtor’s insolvency, or has notice of such facts as make it reasonable to believe the debtor is insolvent, and takes his judgment and levies upon the property of the debtor with such knowledge or notice, he is guilty of intending a fraud upon the bankrupt act.
■ The consequences of his acts are to secure a preference over other creditors, and'if he obtains such preference with notice of the debtor’s insolvency, he is liable to an action by the assignee for the recovery of the property thus obtained, or its value. The warrant of attorney is a continuing consent on the part of the debtor to the entry of the judgment by the creditor, and if when the creditor executes the power thus delegated, he knows the debtor to be insolvent, the judgment and execution under it is manifestly an act of bankruptcy, participated in by the creditor to such an extent as to make void all advantages obtained thereunder. It will not do to say that because the creditor had no knowledge of the debtor’s insolvency at the time he obtained the warrant of attorney, and that the same was given to secure a bona fide debt, therefore all he does under the warrant of attorney must be sustained. As I said before, the warrant to confess judgment lies dormant until the creditor sees fit to act upon it, and whether his action shall result in such an unlawful preference as will make the creditor liable to the assignee depends upon the knowledge or information the creditor had in regard to the debtor’s insolvency at the time he made his warrant of attorney operative. Applying these principles to the case before me, I think the proof shows Niehoff & Co., at the time they entered their judgment against Baierle, had knowledge of such facts as gave them reasonable cause to doubt Bai-erle’s solvency, which is equivalent to having cause to believe him insolvent They thought “something was wrong with him,” and this, evidently, had reference to his pecuniary affairs, for the action in question was taken to save the surety, Grater, and perhaps partly in his .interest Baierle, it will be remembered, was missing on the 12th of February, 1870, which was Friday, and it can hardly be possible that with the large number of creditors, and other persons who were more or. less affected by the occurrence, there should not have been a comparison and discussion by those most interested, in regard to his financial embarrassment, which must have reached the ears of the respondents, and contributed to hasten their action upon this warrant of attorney.
I therefore conclude that the judgment entered in this case was entered at a time when the respondents had reasonable cause to believe the bankrupt insolvent, and therefore with intent to evade that provision of the bankrupt act which prohibits and makes void all preferences. Let there be a decree entered for the amount of the execution collected, with six per cent Interest
Motion for new trial by respondent overruled by court