Court Opinion

ID: 6655211
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:57:15.885963+00
Date Added: 2024-06-11T15:59:52.736742
License: Public Domain

Tbe following opinion on rebearing in Hackney, Trustee, v. Hargreaves Bros., 3 Neb. (Unof.) 676, and in Hackney, Trustee, v. Raymond Bros. Clarke Co., ante, p. 624, was filed May 5, 1904. Judgment of reversal in Hackney, Trustee, v. Hargreaves Bros. adhered to; judgment of affirmance in Hackney, Trustee, v. Raymond Bros. Clarke Co. vacated. Both cases remanded:
Holcomb, C. J.
What is here said regarding the two cases as above entitled is to be considered in connection with the two opinions heretofore announced: Hackney v. Hargreaves Bros., 3 Neb. (Unof.) 676, and Hackney v. Raymond Bros. Clarke Co., ante, p. 624. The facts as disclosed by the two records in all material respects are essentially the same, so much so that the conclusion as to the ultimate fact in controversy, properly deducible in one case, must necessarily be the same in the other, and the principles of law applicable are identical in each case. We have therefore deemed it proper and a lessening- of labor to consider both cases together. A thorough consideration of the two records convinces us that the conclusion reached and announced in the opinion heretofore rendered in the first-mentioned case is correct and should be adhered to, and that the second opinion; in so far as it conflicts with the first, must give way to that extent. Counsel in both cases have very ingeniously, and with more or less plausibility, argued that the controlling proposition and question for determination is with respect to the right of a creditor in good faith to sell and dispose of an account or other obligation held against a bankrupt debtor, regardless of the question of insolvency or notice thereof, and that in such a transaction none of the provisions of the bankruptcy law are infringed upon. The soundness of the proposition is readily conceded, but its applicability to the facts as disclosed by the records in the two cases at bar is seriously questioned.. The arguments thus advanced to sustain the transactions under investigation are beside the mark. While an attempt is made to clothe the transactions out of which the controversies arise in the garb of a legitimate contract of bargain and sale of an account wholly independent of and free from any of the provisions of the bankruptcy law, yet when they are stripped of the covering thus sought to be thrown around them, and exposed to view *635in their real character, the conclusion is inevitable that the transactions resulted in a preference in favor of the defendants, other essential elements not being lacking, and that'these creditors of the bankrupt received more of his estate than" other creditors who weré under that law entitled to share equally in the distribution of the assets of the bankrupt. It is conceded that if it be determined that. the transactions in question are not such as to bring them within the rule invoked which permits any creditor' to make a bona fide sale of his claim or account against a bankrupt as he sees fit, then the transactions in ihe case at bar result in a preference which is inhibited by the law of bankruptcy, assuming that the creditors had knowledge or reasonable cause to know the financial condition of the bankrupt. It is indisputably established by the records tha t the defendants Hargreaves Brothers and Raymond Brothers Clarke Company are wholesale merchants in the city of Lincoln, dealing in grocery supplies; that the bankrupt. Erlenborn, was conducting a retail grocery store in the same city, and was indebted to the two firms mentioned in a considerable sum of money to each on account, at the time of the transactions forming the basis of the presen f acucn. One Kettering began negotiations to purchase, the grocery stock and good will of Erlenborn. During the negotiations, knowledge of the indebtedness owing to the two wholesale firms was conveyed to Kettering, which caused him to confer with both defendants about their respective accounts against Erlenborn before he had completed the purchase of the latter’s stock of groceries-. Kettering then entered into negotiations with both firms, with a view to his assuming these obligations and agreeing to satisfy the indebtedness owing by Erlenborn. The negotiations resulted in an agreement whereby Kettering was to become the debtor in place of Erlenborn, and satisfy the two accounts by the payment of 75 cents on the dollar, a part of which was to be paid in cash, and the remainder by accepting his personal obligations payable in stated instalments. These negotiations with the defendants were *636qualified and contingent upon his consummation of the negotiations then under way with Erlenborn the bankrupt. Hargreaves Brothers frankly admit that the assignment of their account to Kettering was with the understanding that it was to be used in part payment by Kettering in his purchase of the Erlenborn stock of groceries.
It is equally patent from the record in the other case that Kettering offered, to pay 7.5 cents on the dollar for the account held by Raymond Bros. Clarke Company against Erlenborn, provided he succeeded in buying the stock, and that his offer was accepted with this understanding. It is vain to talk about Kettering buying these two accounts unqualifiedly and unconditionally, as such accounts might, in the ordinary course of business, be sold and transferred from one person to another. The fundamental basis of the negotiations between Kettering and the defendants was the successful conclusion of the contemplated purchase of the grocery stock of the bankrupt. The antecedent agreement in each case was made to depend on the consummation of the negotiations then in progress with Erlenborn. Kettering was not buying stale demands or bad debts as such, but was desiring to purchase a stock of groceries, the owner of which was indebted to these defendants, and as a part of the transaction, entered into the negotiations with the defendants with a view to the satisfaction of their demands against the seller, in the event a purchase was effectuated. This was obviously known to all the parties to the transaction, and herein lies the determining factor which takes the transaction out of the class which involves only a simple business proposition of buying and selling a book account against a third party, or other similar subjects of bargain and sale. But what followed? After Kettering and the defendants had agreed upon the terms by which he could satisfy the accounts of thé defendant against Erlenborn, and which agreements were contingent upon his purchase of the Erlenborn stock of groceries, he reaches an agreement with Erlenborn concerning the terms of the sale *637of the latter’s stock, and, as a part of the consideration for the purchase, agrees with the seller that he will satisfy the two accounts owing by Erlenbom to the defendants, and reserve from the agreed purchase price for the stock the total amount of the face of both accounts. The terms of the sale between Erlenbom and Kettering were agreed upon on Saturday. On Sunday an invoice of the goods sold was taken — the city sales agents of the- two defendants assisting in the invoice — and thereafter the key to the store was turned over, and possession given to Kettering and his agent. On Monday morning, papers evidencing the executed contract of sale were made and exchanged between Kettering and Erlenbom, and thereafter Kettering went to the two defendants herein, Arranged for the satisfaction of the two accounts in controversy, in pursuance of the prior arrangements, by paying a part in cash and giving his personal obligations for the remainder, and he was given a formal assignment of the accounts. These transactions are denominated unqualified and bona -fide sales of the accounts which Kettering thus satisfied wholly disconnected and unrelated to any of the provisions of the bankruptcy law. If the provisions of the bankruptcy law may, by an arrangement so transparent as those under consideration, be evaded, then, indeed, has the law failed of its purpose as if it were a sieve designed to hold water.' The labeling of the transaction a simple sale of an account does not make it so. A court will not hesitate to throw off the covering and ascertain the true nature of the transaction under inquiry. If the transactions are in truth and substance plans whereby creditors secure a preference, and which result in violations of the provisions of the bankruptcy act, a court ought not to hestitate so to characterize them. The act was designed to bring about equality between creditors of a bankrupt, and to prevent one creditor by any method, either direct or indirect, from securing an unlawful preference to the exclusion of others. The act was designed for the protection, more than any others, of the very class to which the defendants belong. *638In the final analysis of the transactions under consideration, the conclusion is inevitable that the estate-of the bankrupt was depleted to the extent of the amount required to satisfy the claims of the defendants, and that the debtor Erlenborn surrendered his property to that extent for the very purpose of, and with the express agreement for, the payment of these claims then owing to' the defendants. To constitute a preferential transfer, it is immaterial to whom the transfer is made, if it be made for the purpose of paying the claims of one creditor in preference to those of others. 5 Cyc. 294, par. b; Goldman v. Smith, 93 Fed. 182. The observation, therefore, in the first opinion to the effect that the defendants were parties to' the transfer of the stock, and that the arrangement by which they took 75 per cent, of their claims against Erlenborn was a part of the transaction, and the assignments were made with the understanding that the accounts were to be used in payment of the goods, is pertinent and correctly stated. Looking to the substance rather than the form, it at once becomes obvious that the logical and legal effect of the transactions as a whole was to appropriate out of the proceeds of the sale of the bankrupt’s estate a sufficient amount to satisfy the claims of the Wo creditors who are defendants in these actions. The true nature of the transactions is not open to question, and, if the defendants knew that Erlenborn was insolvent, or had reasonable grounds to believe that he was, they must have known that a preference would result, and must be held to have so understood and intended it. Intent, in one sense of the word and in the sense in which the witness Raymond was permitted to testify as to his intent in-transferring the account, is wholly outside the case as made by the record. The bankruptcy act makes the result obtained by a creditor, and not the specific intent of the debtor, the essential fact. An intent to prefer is not required to be specifically proved, but is conclusively presumed from the effect of the transaction in giving one creditor a greater percentage of his debt than any other *639creditor of like class. If a preference would inevitably result, then it is conclusively presumed that a preference was intended. Wilson v. Nelson, 183 U. S. 191; Brandenburg, Bankruptcy (2d ed.), 562, and authorities cited. Where a creditor has reasonable ground to believe that the debtor is insolvent, and the obvious effect of the receipt of money in satisfaction of the obligation under those circumstances is to give him an advantage over other creditors, he is chargeable with notice of intention to prefer. Pirie v. Chicago Title & Trust Co., 182 U. S. 438. We are, for the reasons given, of the opinion, as was held in the first opinion in Hackney v. Hargreaves Bros., 3 Neb. (Unof.) 676, that the trial court erred in submitting to the jury the question of whether the transactions between Kettering and Erlenborn and the defendants were or were not bona fide sales of accounts, or whether they were entered into Avith a view to securing a preference in violation of the bankruptcy law.
One other question seems to require consideration. This refers to the ruling of the trial court in excluding as evidence the schedule of liabilities filed by the bankrupt in bankruptcy proceedings. In the former opinion in the Raymond case this ruling was approved. The authorities hold such evidence admissible, not as conclusive of the alleged insolvency, but as tending to prove that issue. The schedule was a part of the pleadings in the bankruptcy proceedings, and defendants in these, actions are sought to be charged by the trustee as having been given an unlaAvful preference as creditors of the bankrupt. All the creditors of the. bankrupt were parties to the bankruptcy proceeding. In re Pekin Plow Co., 112 Fed., 308, 50 C. C. A. 257; In re Frasier, 117 Fed. 746; In re Beerman, 112 Fed. 662; Logan v. Nebraska Moline Plow Co., 3 Neb. (Unof.) 516.
“The books of a bankrupt are competent evidence on the question of his insolvency within four months of the date of the filing of the petition, and AAdiile not conclusive are ordinarily important evidence entitled to much weight; *640the schedules and inventory and appraisement are also evidence on the same question.” In re Docker-Foster Co., 123 Fed. 190.
See, also, Martin-Brown Co. v. Henderson, 9 Tex. Civ. App. 130, 28 S.W. 695; Ball v. Bowe, 49 Wis. 495; Von Sachs v. Kretz, 72 N. Y. 548; Lowell, Bankruptcy, sec. 98. The adjudication of bankruptcy is manifestly admissible in evidence for the purpose of establishing the fact of insolvency, and it can scarcely be doubted that the schedule of liabilities, as against the parties to the controversy, and upon Avhich the adjudication is based, are likeAvise admissible, not only as evidence of the same class or character as the books of the bankrupt but also for the purpose of shoAving the grounds upon Avhich the judgment of bankruptcy Avas rendered. The defendants in the actions are not third parties in the sense that they are in no Avise connected Avith the bankruptcy proceedings, because, for the purpose of these controversies, and in determining their liability, they are sought to be charged as creditors of the bankrupt having received unlaAvful preferences, and for such purposes Avere necessarily parties to the bankruptcy proceedings. The schedule of liabilities of the bankrupt should have been, on the issue of insolvency, admitted in evidence.
It folloAVS from Avhat has been said that the opinion and judgment announced in the first above mentioned case should be adhered to, and that the judgment in the case of Hackney, Trustee, v. Raymond Bros. Clarke Co., heretofore entered, should be vacated, and a judgment rendered reversing the judgment of the trial court, and both causes remanded for further proceedings not inconsistent with the views herein expressed.
Judgment accordingly.