Court Opinion

ID: 8631504
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:38:25.46308+00
Date Added: 2024-06-11T16:55:46.926197
License: Public Domain

RANDALL, District Judge.
I do not agree with the counsel for the opposing creditors that any payment made by a person who is insolvent, and aware of his insolvency, is to be considered as an act of bankruptcy, or as the giving a preference prohibited by the bankrupt law. Many persons, knowing they are insolvent and unable to meet their engagements, continue business in the expectation and hope that they will be able eventually to extricate themselves from debt, and in this they frequently succeed: — to hold that payments, made by a person under such circumstances, are fraudulent, would be to put an end to the exertions of an honest and enterprising debtor, who, finding himself suddenly overtaken by losses and disasters, is determined to devote his time and talents to a business which, he is confident, will, with industry, enable him to meet all the demands against him. To make such payments fraudulent they must be with the intention of giving a preference to the particular creditor, whether the debtor intends making application for the benefit of the bankrupt law or not Neither do I agree that the payment or satisfaction of a judgment on which execution may be at once issued, can be considered as a voluntary payment, in fraud of the bankrupt law, if the judgment was obtained bona fide, and without collusion, if by such payment the debtor is enabled to continue his business. These views would seem to dispose of most of the exceptions urged against the discharge of the petitioners, if I have correctly viewed the evidence; but I have not examined it with as much care as I should have deemed it my duty to do had these been the only objections urged.
The petitioners were extensively engaged in commercial pursuits, and apparently in prosperous business, when, in the early part of 1842, they found themselves involved in the general prostration which then came over our business community. On the 27th of April of that year, being unable to meet their engagements, they called a meeting of their creditors, from whom they asked an extension of nine, twelve and fifteen months, which was generally agreed to; on the 14th of May, however, Harley and Son filed a petition in the district court, praying to have them declared bankrupts, and alleging, as an act of bankruptcy, a fraudulent conveyance and assignment of their goods and chattels, viz.: a certain quantity of coffee, to Richard D. Garwood, the father of one of these petitioners, and an endorser of their *61notes, with a view to give him a preference over the other creditors. This application was subsequently dismissed. On the 13th of December, 1842, these petitioners made a voluntary assignment of all their property, for the benefit of their creditors, without preference; on the 21st, Garwood, and on the 23d, Potts, presented a petition for the benefit of the bankrupt law. During the pendency of Harley’s petition, Garwood, in the name of the firm, wrote to Kechmli, their consignee in Rio, under date of the 27th May, 1842, — “The object of this letter is to request you to ship $10,000 under cover to Richard D. Garwood, as he is our endorser, and, under the bankrupt law, this is the only way we can secure him.” It is admitted, and indeed could not be denied, that if this instruction had been carried into effect, it would have been fatal to the application of the petitioners. Does the failure make any difference?
The second section of the bankrupt law enacts, “that all future payments, securities, conveyances, or transfers of property, or agreements made or given by any bankrupt in contemplation of bankruptcy, and for the purpose of giving any creditor, endorser, surety, or other person any preference or priority over the general creditors of such bankrupt, and all other payments, securities, conveyances, or transfers of property, or agreements made or given by such bankrupt, in contemplation of bankruptcy, to any person or persons whatever, not being a bona fide creditor or purchaser for a valuable consideration, without notice, shall be deemed utterly void, and a fraud upon this act; and the assignee under the bankruptcy shall be entitled to claim, sue for, recover, and receive the same as part of the assets of the bankrupt; and the person making such unlawful preferences and payments shall receive no discharge under the provisions of this act.” The only question then is whether this transfer was made in contemplation of bankruptcy, and for the purpose of giving a preference to an endorser, surety, or other person, over the general creditors. To determine that it was so it is only necessary to refer to the letter itself. The act of congress does not contemplate that the instrument giving the. preference shall be valid and effective: on the contrary, it declares it shall be void, that the assignee in bankruptcy shall be entitled to the property so attempted to be transferred, and the assignor be denied a discharge. What difference then can it make whether the transfer is inoperative by act of law, or by the omission of the consignee to carry it into effect? The object of the law was to insure equality among all the creditors, and to punish any one who attempted to destroy that equality; not only by declaring his attempt to be void, but also by refusing him a certificate and discharge for making such an attempt It is true that this letter was written by Garwood in the name of the firm, without the knowledge or consent of Potts, and was not entered in the letter book of the firm. If the evidence rested here I should hesitate to charge the consequences of it on Potts, but Garwood swears that, in a few days after it was sent, he communicated the contents of it to Potts, and that it was the subject of frequent conversations between them, and it is also in evidence that the notes on which Richard D. Garwood was endorser, have since been purchased with the funds of the firm, some of them certainly with the knowledge and, if not with the assent, without the disapprobation or dissent of Potts, while other creditors remained wholly unpaid. Although the acts complained of were perfectly legal and justifiable under the laws of Pennsylvania, yet, as the petitioners ask a benefit under the bankrupt law of the United States, and believing as I do their acts to be prohibited by that law, I cannot grant their discharge unless directed to do so by the verdict of a jury, or a decree of the circuit court, to either of which they, or either of them, may appeal.
Subsequently both the petitioners demanded a jury, and were by it decided to be entitled to their discharges.