Court Opinion

ID: 8806600
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:49:55.703797+00
Date Added: 2024-06-11T17:04:05.180927
License: Public Domain

HOUGH, Circuit Judge.
From the majority opinion I am compelled to dissent:
(1) Because the question, whether it should be conclusively held fraudulent for an iusolveut to convey all his property to a corporation in exchange for all or nearly all of its stock, was in my opinion correctly disposed o f both on reason and authority by Learned Hand, District Judge, in the lower court.
(2) Because by bankrupt’s own testimony it was proved that the conveyance was in fact fraudulent. ITe admitted that he created his new corporation to coerce or compel the landlords of his unprofitable stores to reduce their rentals to a point that ¿light enable him to make money. Such an assertion of intent states a purpose to defraud. Undoubtedly the bankrupt too deemed it “wise to stop the business in the unprofitable stores,” but such wisdom, gave him no right to change, into easily hidden corporate stock, visible property on the faith of wdiich he had received credit. That stock shares are not equivalent to stocks of goods seems especially plain, and the exchange was a badge of fraud.
But what Braus did with the corporate stock taking the place of all the property out of which he had any hope of profit is instructive. As soon as he formed the- new corporation, he made new creditors, borrowing (whether in his own name or that of the new corporation does not appear) new money for the use of that company, and for such loans presently made he hypothecated 356 out of its 500 shares. Thus in effect he not only conveyed his property, but hypothecated the stock that took the place of said property in order to get money for the beuelit of an entity, which was not liable to the men who had largely furnished what the new concern got.
Braus knew that he was sinking into insolvency, if not already insolvent; but the only definite statement he makes of the purpose of transfer is that it was to protect “all I could of my creditors and get rid of the had stores,” i. e., get rid of them without paying the rent. The whole sentence (if it means anything) means that he would pay if he could those creditors whom it was profitable for him to keep in a good humor. This is the object of most fraudulent transfers.
(3) The majority opinion places special reliance on In re Julius 217 Fed. 3, 133 C. C. A. 328, L. R. A. 1915C, 89. That case largely rested on Sargent v. Blake, 160 Fed. 57, 87 C. C. A. 213, 17 L. R. A. (N. S.) 1040, 15 Ann. Cas. 58. The Sargent Case together with our earlier decisions in Re Bloch, 142 Fed. 674, 74 C. C. A. 250, and in Re Baar, 213 Fed. 628, 130 C. C. A. 292, have been specifically disapprov*66ed, at least as to their language, in the recent-case of Dean v. Davis, 242 U. S. 438, 32 Sup. Ct. 130, 61 L. Ed. 419. I think conformity to the spirit of that decision would produce affirmance of the order appealed from.