Court Opinion

ID: 8687350
Source: CourtListenerOpinion
Date Created: 2022-11-26 00:30:51.969751+00
Date Added: 2024-06-11T16:57:39.496481
License: Public Domain

LOWELL, District Judge.
It is evident that the defendants were insolvent in the technical sense on the twenty-third of September, for they had no ready means to meet the large debts presently to fail due; and they were fully aware of this state of things, and discussed the means for obtaining an extension of time. If so, a mortgage of the whole stock in trade to a pre-existing creditor would be prima facie a preference. In England such a mortgage to a pre-existing creditor has always been held to be fraudulent per se, where it is of the whole stock, or of so much as will produce insolvency. Worseley v. De Mattos, 1 Burrows. 647; Newton v. Chantler, 7 East, 138; Siebert v. Spooner, 1 Mees. & W. 714; Lindon v. Sharp, 6 Man. & G. 895; Graham v. Chapman, 12 C. B. 85; Smith v. Cannan, 2 El. & Bl. 35. I do not say that under our statute such a mortgage is conclusive evidence of a technical fraud; but it is very strong evidence, because it is out of the ordinary course of business, and is of itself enough, if duly recorded, to destroy the credit of any trader, and therefore would not be resorted to by one who had readier means of paying the debt.
There is the further circumstance that Mrs. Badger was not a joint creditor as to the larger part of her debt. Crocker says he does not know whether the notes given him by Waite were intended to be joint or separate; but Waite says they were separate; and they must have been so, because they were given for capital contributed by Crocker, and he would ftot promise himself to repay it. The notes, being on demand, were subject, by the law of Massachusetts, to the same equities in the hands of Mrs. Badger that would have affected them in Crocker’s, and as he was her agent, she would be bound by his knowledge, whatever had been the form of the notes. Here there is a mortgage of all the joint estate to secure a separate debt, neither partner having any separate property. This appears a preference on the face of the transaction, and the evidence rather confirms the inference than removes it. But it is said that partners may lawfully dissolve their firm, even if they are insolvent, and that their creditors will be bound by their action, though it should have the effect to convert joint into separate property to the injury of a large class of creditors. The courts have certainly gone a great way in sanctioning the dissolution of partnerships, and have held to- what appear to be the logical consequences of the dissolution. But every such judgment which I have seen is qualified by the condition that the act itself should have been done in good faith. Here the evidence is very strong that good faith was wanting. The partnership articles- have been destroyed, and their contents, excepting- in one particular, have not been disclosed. It appears, however, that Crocker urged the taking of the account before the regular time of accounting according to the articles had come; that he acted throughout not as a partner, but as agent for Mrs. Badger, and with a view to her interests; and I consider it the fair result of the whole conduct of the parties, that he never intended to risk his mother’s capital, but intended to get security for it, whenever he should have occasion to fear an eventual loss. He had no property of his own, and no interest to dissolve the firm, but some interest to continue it with a view to possible profits.
Under the peculiar circumstances of this case, the dissolution of the partnership was a fraud on the statute, and rather an incident to a scheme for giving one creditor a preference, than a bona fide copartnership act. Indeed the mere dissolution itself would work a preference to the separate creditors of Waite, by converting the joint into separate assets; and where such a result is contemplated, and is the motive or one of the motives of the act of dissolving a firm, the act is voidable by the joint creditors, whether the result must be worked out through a bankrupt law or through the attachment laws of a state. Ex parte Shouse [Case No. 12,815]; Ferson v. Monroe, 1 Post. (N. H.) 462.
Under the bankrupt act of 1841 [5 Stat. 440], a transaction which was relied on as a preference by a debtor, must have been done in contemplation of becoming bankrupt under the statute; though such contemplation might have been inferred from circumstances like those which this case discloses. Buckingham v. McLean, 13 How. [54 U. S.] 150. The law of 1867 [14 Stat. 517] is not thus limited, and requires only that the debtor, being insolvent, should do the act, with intent to prefer (see sections 29, 35, 39); which implies, undoubtedly, that the- debtor expected that some advantage would accrue to the favored creditor over the rest; that is. he must have thought it probable or possible that he should not pay all in full. Under every system of bankruptcy, such facts as appear in this case would be ample proof of the intent.
Such a mortgage, given with the intent to prefer, may be charged either as a preference or a conveyance to delay and hinder creditors, for it is both. And the creditors may well enough rely on the mortgage or on the dissolution of the firm, or on both; for it was all one transaction, and all fraudulent in the technical-sense, as a preference in bankruptcy, though at common law and in equity the securing a just debt is no fraud.
This case does not raise the question whether partners can be adjudged bankrupt for any thing done or omitted after they have dissolved their connection, because the act of bankruptcy was contemporaneous with the dissolution and a part of the same transaction. I have no doubt that a joint voluntary petition may be maintained so long as there are joint debts outstanding, but here it is only necessary to decide that a fraudulent dissolution will not *1341oust the jurisdiction of a joint petition in in-vitum, and that I decide. Adjudication ordered.
[See Case No. 7,170.]