Court Opinion

ID: 8189326
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:12:11.242997+00
Date Added: 2024-06-11T16:40:32.851457
License: Public Domain

The following opinion was filed September 29, 1908:
Dodge, J.
This ease, as presented by tbe record, is involved in muck confusion. Certain issues of fact were submitted to tbe jury and other controverted issues were withheld from it, some of them by consent of counsel that the court might find upon them, and others apparently without any consent at all of the attorneys. The issues other than those which were submitted to the jury were: First. Was^ Luckey insolvent? Second. Did the defendant have reasonable cause to believe so ? Third. Did the transaction between the bankrupt and the defendant at the time of the alleged payment constitute a payment or transfer by the bankrupt, or merely an exercise by the creditor of its right in in-vitum to apply its indebtedness on open account to him upon his debts to it? This question was severable in its applica*71tion to the whole transaction and also to several individual items of so-called payment. Fourth. "Was the defendant the real party benefited by the payment, or the so-called sureties? • On all these questions there was at least claimed to be some evidence in favor of the defendant’s contentions; on some of them, that it clearly preponderated in defendant’s favor. There is no indication in the record that any tribunal has passed upon these questions of fact specifically, unless we indulge in the presumption, because they were so plainly in issue, that the court. must be deemed to have' passed upon them in rendering judgment against the defendant. In view, however, of the conclusion we have reached upon one of the assignments of error, which conclusion must necessitate a new trial, we forbear to express our opinion whether the evidence is sufficient to support either the verdict of the jury upon the two questions submitted to them or the apparent conclusion of the court upon the questions of fact not so submitted.
Error is assigned upon the instruction under which the second question of the special verdict was submitted to the jury. A material and illustrative part of that instruction was as follows:
“The jury are instructed that the words ‘reasonable cause to believe that it was intended to enable the bank to obtain a greater percentage of its debts than other creditors would be able to obtain’ does not mean reasonable cause to suspect such intention. It is not enough that the creditor had some cause to suspect that his debtor did not have sufficient property left to pay an equal percentage to other creditors of the same class, but he must have such knowledge of facts as to induce a reasonable belief thereof, or of circumstances to put him upon inquiry, in order to find that the creditor had reasonable cause to believe that a preference was intended.”
It is contended that the last portion of this instruction is erroneous; that only when the facts known to the creditor ■ are such as would induce a present belief in the ordinarilv *72prudent and intelligent business man that his debtor is insolvent and intends a preference is he prohibited by the bankruptcy act from collecting or securing his debt or a part thereof. The court has obviously by these words,'and others to similar effect elsewhere in the charge, instructed the jury that although the facts that the creditor then knows may not be sufficient to induce that belief, yet, if a reasonably prudent man would be put upon inquiry thereby, and if upon such inquiry he might learn other facts, then he is chargeable with notice of the insolvency and intent to prefer, if such facts, which he did not know but upon inquiry would be likely to ascertain, would warrant such belief. There is considerable variance in expressions of courts upon this subject. The supreme court of the United States has in several cases declared that the reasonable ground of belief intended by the bankruptcy act is the present knowledge of the creditor; that he may safely act upon what he knows, and that, if the reasonably prudent and intelligent man would not be led to a belief of insolvency or preferential intent by such facts, it is not the purpose of the bankruptcy act to prevent collection or securement of debts in the ordinary course of business; and there are many decisions to like effect by other courts. Merchants' Nat. Bank v. Cook, 95 U. S. 342, 346; Grant v. Nat. Bank, 97 U. S. 80, 82; Barbour v. Priest, 103 U. S. 293, 297; Stucky v. Masonic Sav. Bank, 108 U. S. 74, 2 Sup. Ct. 219; In re Goodhile, 130 Fed. 471, 12 Am. Bankr. Rep. 374; Sundheim v. Ridge Ave. Bank, 138 Fed. 951, 15 Am. Bankr. Rep. 132; In re Hines, 144 Fed. 543, 16 Am. Bankr. Rep. 495, 497; May v. Le Claire, 18 Fed. 164; Blankenbaker v. Charleston State Bank, 111 Ill. App. 393. On the other hand we find in the utterances of several of the inferior federal courts, and of some of the state courts, appended to this doctrine the further rule that if a reasonably prudent man would be moved to inquiry, and inquiry would disclose facts leading to a belief, that is suf*73ficient. In re Eggert, 98 Fed. 843; In re Virginia H. Mfg. Co. 139 Fed. 209, 15 Am. Bankr. Rep. 135; Wright v. Sampter, 152 Fed. 196, 18 Am. Bankr. Rep. 355; In re Coffey, 19 Am. Bankr. Rep. 149; Bardes v. First Nat. Bank, 122 Iowa, 443, 98 N. W. 284. Whether such courts have always recognized the distinction between the two ideas or considered that they were only defining and making more clear the rule of the supreme court, we are unable to say. But we think it clear upon any careful analysis of the ideas expressed that these cases import an additional serious burden upon ordinary transactions in the collection of debts within the four months preceding bankruptcy and while the debtor is in the ordinary course of business. The latter rule as laid down is substantially the rule of Wisconsin in regard to notice of fraudulent intent under Avhich conveyances by a debtor to a creditor with intent to defraud creditors are held void. Rindskopf v. Myers, 87 Wis. 80, 57 N. W. 967. That state oí mind which in a reasonable man would lead to inquiry is called mere “suspicion.” This burden the state law has placed upon the free■dom of doing business for the protection of creditors against actual fraud; but, apart from some statutes in case of assignments, there is nothing in state policy, nor indeed in the policy of the common law, to prevent a debtor from honestly paying one creditor to the exclusion of others, although knowing and intending that thereby he will gain preference. Bleiler v. Moore, 94 Wis. 385, 69 N. W. 164; Shepard v. Ostertag, 106 Wis. 82, 81 N. W. 1103. The bankruptcy act has added a new and very serious limitation upon the freedom of business intercourse. An act, however much in the ordinary course of business, by which a merchant pays a debt is liable to be reviewed and rescinded if it happen that within four months thereafter the debtor becomes bankrupt. It is therefore entirely reasonable that a less stringent rule of caution .be required in the mere reception of payment or *74security by a" creditor simply because it ultimately results in preferring bim tban in the case of a transfer to him, whether by payment or otherwise, which is made with the actual intent to defraud other creditors. The distinction between the first rule above stated, namely, that of a reasonable belief deducible from the facts then within the knowledge of the creditor, and the second rule, namely, his charge-ability with facts which he might on inquiry ascertain, was carefully considered in the recent case in this court of Suffel v. McCartney Nat. Bank, 127 Wis. 208, 106 N. W. 837. There the circuit court had expressly found that the facts known by the creditor at the time of the payment were not of themselves reasonable cause to believe in insolvency or preferential intent; but that if the rule applicable to fraud cases in our own court were to be applied, they were such “as would naturally produce in the mind of a reasonably intelligent man a doubt or suspicion of the solvency, and were such as would put a reasonably prudent man upon inquiry.” Upon this state of facts the circuit court, relying upon the above cases in the supreme court of the United States, held that the payment did not constitute an illegal preference. That case was most carefully considered in this court after able argument, where was brought to our attention the case of In re Eggert, 102 Fed. 735, and the approving case of Jackman v. Eau Claire Nat. Bank, 125 Wis. 465, 104 N. W. 98, which is one of the cases asserting the duty of inquiry to be upon the creditor, and the rule applied by the circuit court was approved. The Bggert Case was referred to at the end of the opinion with no further comment thereon upon this subject, but, obviously, by the decision reached the rule of that case embodied in the last two lines of the portion quoted, requiring inquiry, was rejected. The Jach-man Case was affirmed by the supreme court of the United States, but the particular question in hand was in no wise considered. 204 U. S. 522, 27 Sup. Ct. 391
*75Of course tbe construction. of the bankruptcy act finally rests with the federal courts and at last with -the supreme court of the United States. If there were no difference of' opinion among those courts, _ or indeed if the supreme court had finally spoken on that subject, we should of course beguiled by such utterance. But where variant views are entertained it is the duty of this court to decide for itself. When it has done so once upon full consideration, at least the rule of stare decisis would suggest the duty and certainly the advisability of adhering to the rule laid down. Especially does that course seem proper in the present instance, where the view established in the Suffel Case is supported by the later utterance of the federal supreme court. We-think the law must be held settled in accordance with that case, and that the instruction given in the case at bar warranted the jury in finding against the defendant, although it did not have the reasonable cause to believe in the bankrupt’s intent to give a preference as those words must be-construed. Thereby error, obviously prejudicial, was committed.
By the Court. — Judgment reversed, and cause remanded for new trial.