Court Opinion

ID: 6583911
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:40:46.290208+00
Date Added: 2024-06-11T15:57:23.702794
License: Public Domain

The opinion of the court was delivered by
MUNSON J.
This suit is brought by the assignees of the estate of Albert Sowles, an insolvent debtor, to recover certain sums paid, and the value of certain real estate conveyed, by said debtor to the defendant, within four months of the filing of the petition in insolvency. After giving the history of the indebtedness, and fully reporting the circumstances under which the pay*632ments and conveyances were made, tlie referee presents further findings as made by him, if he may so find from the facts before reported, consistently with their legal effect.
In this manner the referee finds as to the payment of five hundred dollars, that it “was not made in the usual course of business or in the usual course of making payments, that the circumstances under which it was made put the defendant on inquiry as to said Sowles’ solvency, that it was made by said Sowles while insolvent with a view to a preference, and that the defendant received it having reasonable cause to believe said Sowles to be insolvent or in contemplation of insolvency.” ■
The argument of the defendant with reference to this payment is based upon a construction of the clause above quoted which makes all the findings subsequent to the first one, conclusions drawn from the first. Assuming that everything rests upon the finding that the payment was not made in the usual course of business, the defendant contends that this finding is not justified by the facts reported; and insists further that even if the finding can be sustained, it cannot support the subsequent findings, or affect the legal nature of the transaction ; for the reason, as asserted by the defendant, that the provision making a departure from the usual course of business prima facia evidence of fraud applies only to the transactions which come under the section in which the provision is found.
We see nothing in the clause quoted from the referee’s report to justify the construction given it by the defendant. It is evident that 1he findings subsequent to the first are not deductions from the prior finding, but that each conclusion is an independent finding from the facts previously stated. If the finding that the payment was not in the usual course of business be rejected, there will .remain the findings that the payment was made by the debtor while insolvent with a view to give a preference, and that the defendant received it having reasonable cause to believe the debtor insolvent or in contemplation of insolvency. *633These are conclusions of fact, and the oiily question for the court is whether the circumstances reported by the referee tend to establish them. It is very clear that they do. It appears then that the debtor was insolvent at the time of the payment, that a preference was intended by the debtor, and that the creditor had reasonable cause to believe the debtor insolvent or in contemplation of insolvency. If these findings are sufficient to support a recovery, without an express finding that the creditor had reasonable cause to believe that the payment was made in fraud of the laws relating to insolvency, it is unnecessary to consider whether the payment was out of the usual course of business, or whether the provision making that fact jjrimafaoie evidence of fraud is applicable to such a payment.
As to the second cash payment and the conveyance in rnort.gage, the referee finds, with the proviso above stated, that they “were made under circumstances which put the defendant on inquiry as to said Sowles’ insolvency, that they were made by said Sowles while insolvent and with a view to give a preference, and that the defendant received them having reasonable cause to believe said Sowles to be insolvent or in contemplation of insolvency.”
The defendant claims as to both causes quoted from the report that the finding that the defendant was put upon inquiry is the basis of the subsequent findings; that such finding is not justified by the facts reported, and cannot be sustained; that in any event the finding cannot afEect the question at issue in the absence of a further finding that the defendant would have ascertained the fact of insolvency upon inquiry. The view of the court as to the character of these findings is indicated above. The finding that the defendant had reasonable cause to believe the debtor insolvent or in contemplation of insolvency is not dependent upon the finding that defendant was put upon inquiry, but is a conclusion drawn directly from the facts previously stated. The finding that the defendant had reasonable cause to believe the debtor insolvent or in contemplation of insolvency *634reaches beyond and renders inapplicable the questions raised by the defendant as to the duty of inquiry.
The report so construed presents distinct and positive findings, that Sowles was insolvent when the payments and conveyance in question were made, that such payments and conveyance were made with a view to give a preference, and that the defendant when receiving them had reasonable cause to believe that Sowles was insolvent or in contemplation of insolvency. But the plaintiffs are not entitled to recover unless the defendant had-also reasonable cause to believe that the payments and conveyance were made in fraud of the insolvent law. The referee has not found this fact, unless it is covered by the findings above stated in their application to the case presented. It has been repeatedly held that a referee’s report cannot be aided by inferring facts from the facts reported; and we cannot sustain a judgment for the plaintiffs on this report unless the fact not specifically stated is included in the findings made.
The first cash payment was the result of a demand for full satisfaction, and was taken in connection with an understanding that another meeting of the parties should be had at once, and that the balance should then be provided for. The proposed meeting occurred after a short delay, and the balance was then covered by the second cash payment and the conveyance in mortgage, and the note was thereupon given up as paid. These matters were all parts of one transaction, in which the purpose of the defendant throughout was to secure full satisfaction of its claim. So no distinction .need be made between the two payments, in considering whether it sufficiently appears from the report that payment was received with reasonable cause to believe that it was made in fraud of the law.
The referee reports that Sowles had been insolvent for some time, owing debts- amounting to more than twice the value of his assets. The questions presented for the determination of the court are not submitted in connection with any findings as to the business of the debtor, or the usual course of making pay*635ments as depending upon the usages of his business. There is nothing to indicate that in submitting his report the referee had in mind any other condition of insolvency than the one above stated, nor that his findings were presented in any other view. We consider, therefore, that the findings in question are to be construed as having reference to that condition of insolvency which is established by the report.
Then we have presented for consideration the question whether in the case of one who has received full payment of his demand, a finding that he had reasonable cause to believe the debtor insolvent in the ordinary sense, necessarily involves the fact that he had reasonable cause to believe that the payment was made in fraud of the insolvent law. It is evident that payment in full from one who has not the means to pay all his creditors in full must necessarily, in the event of insolvency proceedings, prevent that equal distribution of his assets which it is the object of the insolvent law to secure. Such a payment is, therefore, a payment in fraud of the law. It seems clearly to follow that when the payment received is payment in full, and the one receiving it has reasonable cause to believe that the payor is insolvent in the sense indicated, he has reasonable cause to believe that such payment is made in fraud of the law. The first two facts necessarily include the third.
But the defendant is found, in the words of the statute, to have had reasonable cause to believe the debtor “insolvent or in contemplation of insolvency.’’ In view of this alternative finding, the question of the sufficiency of the facts reported must be considered as if there were no other finding than that the creditor had reasonable cause to believe that the debtor was in contemplation of insolvency. But we think no different conclusion can be reached when the question is thus considered. As before indicated, the findings are' to be treated as referring to that condition of insolvency 1 which the report discloses. It thus appears that the defendant, in receiving full satisfaction of its *636demand, had reasonable cause to believe that the debtor was then contemplating a condition of insolvency in which payment in full to one would necessarily be at the expense of others; and such a payment could not be a payment in fraud of the law.
So the report is held to embrace all the findings necessary to enable the assignees to recover payments made and the value of property conveyed within four months before the filing of the petition. No further question arises regarding the two payments.
After petition, but before the adjudication of insolvency, the defendant sold the mortgage for its face value to one Merritt Sowles, who still holds it. The claim of the plaintiffs that they can recover in addition to the cash payments the full value of the premises mortgaged, cannot be sustained. If a recovery is to be had upon the mortgage transaction as for the value of property conveyed, the property of which the insolvent divested himself by the conveyance in mortgage will be determined by the amount which would be required to free the title from the incumbrance. If the mortgage were valid as against insolvency proceedings, the title would be in the assignees subject to the mortgage lien, and they could protect their interest in the property by paying the mortgage' indebtedness. It is evident that the insolvent’s deed did not take from the estate anything of greater amount than the debt secured. So the assignees cannot be permitted to recover more than the amount of the incumbrance, if they may recover on account of the mortgage in this proceeding. The law is designed merely to undo the transaction.
But the defendant insists that if the mortgage is void nothing passed by it; and that consequently the estate is without injury except from the cloud upon its title, and can have no other remedy than a proceeding to set aside the conveyance. The provision that certain transactions shall be void was made for the benefit of creditors, and must be construed as making such transactions voidable at the election of the assignee. But in treating *637a preference as void, an assignee may either avoid the conveyance and retake the property, or suffer the eonvej'-anee to stand and recover the value of the property conveyed. The assignees are no more restricted to proceedings to set aside this mortgage than they would be restricted to a pursuit of the specific property in the case of an unlawful receipt and disposition of goods. The defendant having realized upon the mortgage security, we see no ground upon which it can - contest the plaintiffs’ right to recover the value of the mortgage interest ■ as ascertained by its sale. We think the money received by the defendant on account'of the mortgage stands the same as if received directly from the insolvent, and may be recovered by the assignees in this action.
It remains to determine the date from which interest should be allowed. As between Albert Sowles and the defendant, the payments were properly made and the mortgage valid. They were void only as against proceedings in insolvency, and upon being so treated by the assignees. Some action in disaffirmance of the transaction was necessary to charge the defendant with the payment of interest. As no date of an earlier demand is shown, the bringing of the suit is the only demand from which computation can be made. Interest is therefore allowed from the day of service.
Judgment reversed, and judgment for plaintiffs for $%,368, and i/nterest thereon from March 1%, 1887.