Court Opinion

ID: 8763303
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:15:46.996873+00
Date Added: 2024-06-11T17:01:42.438936
License: Public Domain

HOUGH, District Judge.
The facts agreed upon in this cause present two oft-mooted questions in rather an extreme and unusual form. The trustee seeks to recover the sum paid Elvira Sampter on the eve of bankruptcy, (1) because it is a voidable preference within sections 60a and 60b of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 562 [U. S. Comp. St. 1903, p. 3445]), and (2) because the transfer was “with the intent” on the bankrupt’s part to “hinder, delay or defraud” his creditors, and was not for “a present fair consideration” within section 67e (30 Stat. 564, c. 541 [U. S. Comp. St. 1901, p. 3449]) ; and should also be “held null and void as against the creditors” of the firm “by the laws of the state” of New York, pursuant to the same section.
*198First. It cannot be doubted that the payment in question was a preference, and that Miss Sampter is the person “benefited thereby,” and the first question raised revolves' around the inquiry whether she had “reasonable cause to believe that it was thereby (i. e., by the payment) intended to give (her) a preference.” It has frequently been said, in actions turning upon the presence or absence of reasonable cause to believe a material or vital fact, that anything “sufficient to excite attention and put a party on inquiry is notice of everything to which inquiry would have led,” and that known facts “calculated to awake suspicion” will justify an inference of actual and complete knowledge. In re Knopf, 16 Am. Bankr. Rep. 432, 144 Fed. 245; Parker v. Conner, 93 N. Y. 118, 45 Am. Rep. 178. But obviously facts, whether producing certainty or merely suspicion, must have a mind upon which to operate and affect, and the rule is equally well established that it is sufficient if the facts brought home to the person sought to be affected are such as would produce action and inquiry on the part of “an ordinarily intelligent man” (Grant v. Bank, 97 U. S. 80, 24 L. Ed. 971), “a prudent business man” (Bank v. Cook, 95 U. S. 343, 24 L. Ed. 412; Toof v. Martin, 13 Wall. 40, 20 L. Ed. 481), “a person of ordinary prudence and discretion” (Wager v. Hall, 16 Wall. 584, 21 L. Ed. 504), “an ordinarily prudent man” (In re Eggert, 4 Am. Bankr. Rep. 449, 102 Fed. 735), “a prudent man” (Dutcher v. Wright, 94 U. S. 553, 24 L. Ed. 130).
The peculiarity of this case is that the mind to be affected is that of a-confiding niece, wholly unacquainted with business knowledge, and, however intelligent and prudent in matters within her own experience, incapable of comprehending the significance of business facts, which would have been more than enlightening to men of the business world. It is therefore urged by the defendants that Barbour v. Priest, 103 U. S. 293, 26 L. Ed. 478, justifies the proposition that not only must the • facts exist and be sufficiently impressive to awake inquiry in such minds as are catalogued in the cases above cited, but they must be sufficient to impress their significance upon the mind of the person to be affected —in this case a woman leading a life apart from the world of business. It was indeed said in the case last cited (one inducing great sympathy' for the preferred creditor) that it is “necessary to prove the existence of this reasonable cause of belief * * * in the mind of the preferred party.” Page 296 of 103 U. S. (26 L. Ed. 478). But these words must be taken in conjunction with the whole opinion, which was written in express consonance with Grant v. Bank, supra, and the phrase quoted I take to assume in “the preferred party” the mind of “an ordinarily intelligent man.” It would be intolerable that the voidability of a preference should depend not upon the effect of facts admittedly or by proof known to a defendant, but upon the degree of intelligence or experience which such defendant was capable of exercising in- respect thereto'; such a rule would put'a premium upon ignorance, and encourage the assumption thereof. The rule here applicable is, therefore : Would an ordinarily intelligent and prudent business man have had reasonable cause to believe, upon any facts known to Miss Sampter, that her unc-le intended to prefer herself, ^ her sister and mother? I think not. All that she knew was entirely consistent with the busi*199ness conclusion that, inasmuch as 6 per cent, was a high rate of interest, it was no longer profitable for the firm to pay it, and wrong for them to keep the money in a mercantile venture at lower rates, which could be obtained with greater security elsewhere. >5he ¿id not know that all friends and relatives were being paid off, nor was she aware of any embarrassment on the part of her long prosperous uncle. If all she knew had been known by a merchant, I see no reason why it should have produced any other feeling than that Sampter’s Sons no longer felt like paying a high rate for the use of a small sum of money.
Second. This branch of complainant’s contention assumes (and I think properly) that the payment to Miss Sampter was with the intent on Arnold Sampter’s part prohibited by the statute, but admits (necessarily, in my opinion) that the defendant was wholly guiltless of any participation in the bankrupt’s purpose or design. In the view contended for, the ignorance or innocence of the transferee is of no consequence, provided the bankrupt, with the “intent and purpose” prescribed in 67e, executes a preferential transfer to any one not a “purchaser in good faith and for a present fair consideration.” Miss Sampter was a “purchaser,” because she acquired the payment to her otherwise than by descent (McCartee v. Orphan Asylum Soc., 9 Cow. [N. Y.] 437, 18 Am. Dec. 516), and her “good faith” (as defined in Searle v. School District, 133 U. S., at page 563, 10 Sup. Ct. 377 [33 L. Ed. 740]) is unimpeachable; but inasmuch as she neither requested nor desired the payment that surprised her so much to her advantage, it is denied that she got the money “for a present fair consideration,” and the payment must be regarded under the act as a voluntary dissipation of a fund properly to be regarded as a trust for all creditors alike. This view of the section under consideration assumes that the bankruptcy act has laid down a new rule in respect of the voidability of fraudulent conveyances by wholly sweeping away the requirement that the transferee or grantee, to merit condemnation, shall have either actual notice of the fraudulent intent, have participated in the fraud, or had notice of some fact calculated to put him on inquiry and leading to a discovery of such fraudulent intent. Undoubtedly this assumption finds support in Sherman v. Luckhardt, 11 Am. Bankr. Rep. 26, 74 Pac. 277, 67 Kan. 682, and possibly also in Re McLam, 3 Am. Bankr. Rep. 245, 97 Fed. 922. But it cannot prevail in this court, being clearly opposed to the ruling for this circuit made in Re Bloch, 142 Fed. 674, 15 Am. Bankr. Rep., at page 751, viz., that the transfers prohibited by 67e are only those fraudulent and therefore voidable at “common law,” or, what is the same thing, such as constitute acts of bankruptcy under section 3. (30 Stat. 546, c. 541 [U. S. Comp. St. 1901, p. 3423]). By “common law” must be understood the rules of property growing out of 13 Eliz, c. 5, as affected by similar statutory enactments in force in the state wherein the transaction complained of took place.
It follows that the payment to Miss Sampter is voidable under this section of the act, only if in fraud of creditors according to the law of New York as contained in the decisions of the courts of that state and (at present) in the - personal property law (Laws 1897, p. 511, c. 417, § 24), prohibiting transfers “with the intent to hinder, delay or defraud creditors,” and no other or different tests are to be applied there*200to than have long been used in federal and state decisions without any reference to bankruptcy.
Further consideration would be superfluous, were it not for certain decisions in this state wherein the courts have pointed out as one of the badges of fraud that the creditors preferred “took no affirmative or independent action to collect their claim; they simply accepted the advantages which the fraudulent debtor voluntarily gave them for his own purpose and as a part of the fraudulent scheme.” Metcalf v. Moses, 161 N. Y. 587, 56 N. E. 67. And compare First National Bank v. Miller, 163 N. Y. 164, 57 N. E. 308; Mandeville v. Avery, 124 N. Y. 376, 26 N. E. 951, 21 Am. St. Rep. 678. From these authorities it is urged that while a creditor demanding payment in the way of business may lawfully obtain such payment even from a-fraudulent insolvent intending to hinder and delay his creditors, provided that he himself does not participate in the fraud, a similar right does not attach to one who, without effort and without demand, merely receives payment of an unmatured debt from such fraudulent debtor. Undoubtedly as civilization, and with it business methods, become more complex, the badges of fraud increase with the opportunities for fraud; but the decisions above referred to have not changed, and do not purport to change, the rule of law. The court or jury must find participation in the fraud on the part of the payee or grantee as a matter of fact, and each case must stand upon its own facts. There is nothing in this cause, except the bare fact that-Miss Sampter did not demand or expect payment, to indicate participation on her part in the fraud of her uncle, and that bare fact, even plus the relationship, is not enough to turn the scale against her; it is evidence, nothing more, and on the whole evidence she must be absolved.
The bill is dismissed