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facts as to induce a reasonable belief of his debtor's insolvency in order to invalidate a security taken for his debts."
This court sees nothing irreconcilable in these cases, when we take into consideration the degree of evidence decided to be sufficient to establish a knowledge of the facts within the meaning of the bankrupt law.
Thus in In re Hauck & Co. 17 N. B. R. 158, (commenting on the difference between constructive and actual knowledge,) the opinion proceeds: “Taking into consideration the adjudications under section 35 prior to said amendment, and the cir. cumstances attendant on such amendment, I believe it to be more consonant with proper judicial construction to hold that said section as amended requires actual knowledge, as contradistinguished from constructive knowledge, to be shown.
There can be no doubt, however, that actual knowledge may, under certain circumstances, be properly a matter of legal presumption; as, for instance, when the person receiving the alleged preference is shown to have actual notice of a state of facts in relation to the financial affairs of the bankrupt constitnting in law a state of insolvency. Under such circumstances, actual knowledge would ordinarily and properly be inferred as a matter of legal presumption. This legal presumption rests upon the principle that every person must be held to intend the necessary and natural results of his own acts, as viewed under the law. Every one is presumed to know the law; and when a person enters into a transaction, the natural and necessary, result of which is an infraction of the law, it becomes properly a matter of legal presumption that such person had actual knowledge of such unlawful result of his own act.”
Under the law as laid down in this case, which met the approval of Judges Love and Dillon, (one a district and the other a circuit judge of the United States,) it is a serious question whether the complainants have not shown a case, which, if the circumstances had transpired subsequent to instead of before the amendment of 1874, would not have brought it within their decision as to evidence sufficient to establish actual instead of constructive knowledge. But this court does not
see the necessity of the application of the rule as to knowledge as required by the amendment.
Now, as to the question of fact, what is the evidence to show that Swan, Clark & Co., the creditors of the bankrupt, Graves, and the complainants in this cause, had, at the time of the transfer of the stock aforesaid, viz., first of August, 1873, and four months before the filing the petition in bankruptcy against Graves, "reasonable cause to believe said Graves was insolvent," and that "such transfer was made in fraud of the provisions of the bankrupt act."
1. In the mind of the court it is the result of the whole testimony (without going into detail) that Clark, one of the partners of the aforesaid firm, made himself thoroughly acquainted with the business affairs, embarrassments, and difficulties of Graves in the month of July, 1873, before the first of August of that year, the date of the transfer in question; and they, (the firm of Swan, Clark & Co.,) as a consequence, must be charged with and made responsible for Clark's knowledge on this subject.
2. It is not to be doubted from the testimony that Graves, during July, and at the time of the transfer of the stock in question, was insolvent within the meaning of the bankrupt law, in that he was entirely unable to pay his commercial indebtedness as it matured, and that Graves was fully acquainted with that fact.
'3. The evidence shows that Clark was acquainted with the circumstances of the bankrupt, out of which arose his inability to pay his debts as they matured, and under the decisions of the supreme court must be treated as having presumptive knowledge of an intended fraud on the bankrupt act,-a condition of things not necessary, as before intimated, to be proven in the present case.
4. A presumption against the complainants arises from the fact that this transfer was pot made in the ordinary course of the business transactions of the bankrupt, and that of itself is prima facie evidence of fraud. In re Butler, 4 B. R. 302.
Swan, Clark & Co. more manufacturers and dealers in fur
niture, as was also the bankrupt; and in no sense can such a transfer of stock as aforesaid be said to have been in the bankrupt's ordinary course of business.
5. It will be noted that there is a current of decisions establishing the proposition that a debtor's inability to pay liabilities as they fall due in the course of business constitutes insolvency within the meaning of the bankrupt act, and, . in the administration of this law by the courts, individuals must be held to knowledge of this fact. Now, in the present instance, the complainants had this actual knowledge brought home to them of insolvency; for they carried the protested paper of the bankrupt to the amount of $1,146.78, which fell due, the one note of $300 on the sixteenth of July, 1873, and the other of $846.78 on July 22, 1873, both of which remained in the hands of the complainants unpaid, and were part consideration for the sale and transfer of the stock aforesaid,
6. It is in evidence not only that Clark was in close consultation with Graves about his business difficulties and embarrassments for sometime prior to the said transfer, but that he agreed to a joint assignee for the benefit of all Graves' creditors, and acted as such subsequently to the first of August, 1873, under an assignment actually made. Now, while this assignment was made after the time of the transfer of stock, it was so near thereto that it may be taken as a strong fact to show the actual knowledge, and opportunities of knowledge, Clark had of Graves' affairs on the first of August, i, e., the date of the transfer of the stock.
From these considerations, and others which might be adduced were it necessary, the court finds, as matter of fact, that the complainants, at the time they received the said transfer of stock, did have reasonable cause to believe Graves, the bankrupt, was insolvent, and that said transfer was made by the said Graves in fraud of the provisions of the bankrupt act.
It is sufficient, for the purpose of deciding this suit, to pass upon the proper construction of section 5128 as affecting this case, and the court will make no further inquiry as to how
far, if at all, the provisions of section 5129 have been violated. If the transfer is made void by reason of the violation of one section, the case cannot be altered by showing that there was an additional violation of another. How far, then, was this transfer void? In the opinion of this court it was totally void. The act of congress makes it so. We do not see how it can be considered in any other light. This transfer of stock or contract is not divisible in its character; it is not separable as to the rights of different claimants under one instrument, which may be void as to one and valid as to others, as in the case in 3 Harrington's Rep. 117, (Waters v. Comly.)
Now, if this transfer was void, as a consequence, no rights under it passed to the complainants, and whatever value there was in the stock, as a matured scheme, still remained in the bankrupt. Yet the complainants have equities in this case which should be protected by the courts. To the maturing of this stock, which was used for the payment of $4,000 due on the mortgage aforesaid, the complainants made contribution, and it would be manifestly inequitable that the assignee of the bankrupt should retain the amount of the matured stock, and also the voluntary contributions of the complainants which contributed to bring the stock to the value of $4,000. All the dues and fines paid by the complainants were just so much money received and appropriated by the loan society, and enured to the benefit of the bankrupt in paying off so much of the mortgage which was due from his estate, and which sum the complainants are entitled to have returned to them, together with interest thereon. This sum amounts to $620 in the aggregate, having been paid by monthly instalments of $20 each, running through a period of 31 months. They are also entitled to have returned to them with interest on the same, the sum of $738, being the amount of cash and goods paid and delivered by the complainants to the bankrupt, at the time of the transfer of the said stock, as part consideration therefor.
The court finds no difficulty in awarding interest on these
above-named sums, as they contributed to the aggregation of moneys which composed the sum of $4,000, and completed the scheme of the loan society. As the bankrupt received all the profits from that scheme, it is but equitable and just that those who contributed the money to produce this result should receive their advances, with interest on the same. Interest will be computed on the sum of $738 (advances as aforesaid) from August 1, 1873, and upon the sum of $620 the interest will be averaged in accordance with the time of payment.
Let a decree be prepared accordingly. As to the costs, we think it would be as nearly equitable as we can make it, that they should be divided, each party paying an equal portion
of the same.
In re WHEELER and others, Bankrupts.
(District Court, S. D. New York. January, 1891.
1. BANKRUPTCY-DEB1PROVED-No ASSIGNEE--PETITION FOR DisCHARGE-Rev. ST. $ 5108—WAIVING OBJECTION-Costs.
At the time of filing the petition for discharge, within six months of the adjudication, debts had been proved against the estate. An assignee was elected at a creditors' meeting, on the day the petition was filed, but did not qualify or receive his assignment until several days afterwards.
Held, that the petition must be dismissed, there being no assignee duly qualified to act when the petition was filed, and, without such assignee, it could not be ascertained whether any assets had come into his hands within the meaning of Rev. St. g 5108.
The creditor having, in his specifications against the discharge, obJected that the petition was prematurely filed, held, that he did not waive the objection by afterwards taking testimony under the speci. fications.
Also held, that the objection could not be waived, as the court is bound, for the protection of all the creditors, to see that all the statutory conditions of granting the discharge arc fulfilled.
Where much time and money were consumed in taking testimony under the specifications, held, that no costs should be allowed on dismissing the petition, because either party could have sooner brought the preliminary objection to the attention of the court.