Court Opinion

ID: 9299673
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:06:12.949739+00
Date Added: 2024-06-11T17:13:38.129794
License: Public Domain

RANDALL, District Judge.
Objection has been made to the right of G. Harley and Son, who filed this petition, to become petitioning creditors, inasmuch as they had signed the agreement for an extension of credit, and a sufficient time had not elapsed to ascertain whether all the creditors would become parties to that agreement, so as to make it binding. Under ordinary circumstances, and if there bad been no express dissent, perhaps a reasonable time had not elapsed, and they would not have been entitled to proceed against the respondents; but I think that where a auditor, after a proposition to compromise has been submitted to him, attaches the property of his debtor in another state, it is such an unequivocal act that his dissent may reasonably be presumed. The transfer to Richard D. Garwood has been mainly relied on as the act of bankruptcy here; and whether it is or is not such an act depends on the terms and conditions on which it was made. If the object of the transfer was to give Richard D. Garwood a preference over the other creditors, and if it was made in contemplation of bankruptcy, then it is void, as being contrary to the spirit and policy of the bankrupt law, which contemplates equality among all the creditors; and it matters not whether a preference, by a person subject to be involuntarily declared a bankrupt, is given by a general assignment of all his property or by a transfer of a portion of it; if it is done with a view to give a preference, and in contemplation of bankruptcy it is void, no matter what be its form. In this case the transfer of the bill of lading is made in the ordinary form. No trust appears on the face of it, and none was declared in writing by Richard D. Gar-wood when he received it, and it is contended that no 'evidence can now be received to show a trust. It may be that a substantive and unequivocal act of bankruptcy, where the preference is apparent on the face of the instrument, can not be explained by other circumstances; but when the act is of an uncertain or doubtful character, I can see no objection to evidence tending to prove the true circumstances of the whole transaction. What is tlie evidence here? A majority of the creditors of Potts and Garwood offered them an extension of nine, twelve, and fifteen months, for payment, provided all the creditors named in a schedule attached to the agreement should assent to it, and on condition that they should be paid in equal proportions out of the property of Potts and Garwood, while if these last were able to anticipate the time of payment it was to be done. The coffee in question was part of the property relied on for paying the creditors.' As soon as it was ascertained that it had arrived in New York the transfer of the bill of lading was made to Richard D. Garwood, for the purpose of carrying out the views of the creditors. It is ti-ue that this object of the transfer does not appear on the face of it; but it is clearly in evidence that it was made and accepted, under the advice of counsel, for the equal benefit of all the creditors and as the best mode of carrying their intentions into effect; the transferee disclaiming all right or claim to any priority.
But stih it is said this transfer was, under the circumstances, an act of bankruptcy. The first section of the bankrupt law makes any “fraudulent” conveyance, assignment, sale, gift, or other transfer of lands, tenements, goods or chattels, credits, or evidences of debt, an act of bankruptcy. To know what are “fraudulent” conveyances, &c., we may consider; First, what are fraudulent at common law; second, what are fraudulent by the statute of Elizabeth; and third, what are declared so by the second section of the bankrupt law, as frauds upon that act. If the view I have taken of the evidence in this case be correct, the present transfer does not come within any of these classes. An assignment for the benefit of creditors is made on good and sufficient consideration, and is perfectly valid, both at common law and under the statute, while to make it void under the second section of the bankrupt law, it must be made, not only in contemplation of bankruptcy, but also for the purpose of giving a creditor, endorser, surety, or other person, a preference or priority over the general creditors of the bankrupt; but where the object is as the evidence shows it to have been here, to prevent such a preference or priority. 1 cannot consider the transfer as a fraud. The transfers to D. Smith, Jr., as collateral security for his advances have been urged as acts of bankruptcy, one of them being as late as the 1st of May, 1842; but the evidence is. that they were made in pursuance of an agreement entered into in February, and the last advance of any amount was made in the early part of March, when the parties were supposed to be in prosperous circumstances. [See McMechen’s Lessee v. Grundy, 3 Har. & J. 185.]2
It has. however, been urged, that the respondents are insolvent, and therefore, liable to be declared bankrupts under the fourteenth section of the bankrupt law. . Without undertaking to decide whether that section declares insolvency in case of partners, to be in itself *1202an act of bankruptcy, and, if so, whether such insolvency means a mere present inability to ray debts, or an open, notorious insolvency, exhibited by an assignment of all their property, or an application for the benefit of the insolvent laws, it is sufficient, at present, to observe, that this is not one of the acts of bankruptcy specified in the petition. The rules of court require the particular acts of bankruptcy intended to be relied on to be specially set forth: and the act of congress directs twenty days' notice of the time and place of hearing to be given to the respondents, that they may be prepared to rebut the allegations if unfounded in fact. The propriety of this rule is exemplified in the present case. The parties are charged with having made a fraudulent transfer of their property, and evidence has been taken in relation to that charge; on the hearing, the charge of insolvency as an act of bankruptcy is, for the first time, made. It has been said that in criminal cases, if any offence is proved, the party will not be released, whether it is the offence charged or not. This may be true on a preliminary hearing; but on a final trial, such as this, the specific offence charged must be proved, or the party will be acquitted; though a new prosecution may be had against him on other charges. I am of opinion that the petitioners have failed to establish their right to have the respondents declared bankrupt; and that, therefore, the petition should be dismissed.
[Subsequently to this decision, as the reporter was informed, a friend of the respondents purchased Henrick’s claim for 75 p. e., and all the creditors then came into the agreement of extension. The Harleys sued P. and G. on the debt upon which the petition was founded, alleging that the terms were not complied with by a transferee's signing the extension. P. and G. then brought suit against the Harleys for damages, the result of having filed this petition.] 2
[For subsequent proceedings in this litigation, sc Case Xu. 5.25S.]

 [From 1 Pa. Law J. 139.]