4:22
FEDERAL. IU1PORTER.
, As GilliEl'swascalled as a witness merely, and not in' any proceeding by his firm as such; his. refusal to answer was a matter wholly personal. It is of no consequence in whose ultimate interest his refusal to answer was made-whether for the firm's benefit or the bankrupt's, or otherwise. If adjudged in contempt, the punishment or penalty must have been personal, and so also are the expenses of this reference in the endeavor on his part to justify his' refusal. For this reason the taxation of the bill, as against the firm, must be overruled. The views of the court have been expressed on the other points raised, to enable. the parties to adjust the matter between themselves without further application to the court.
JUDSON, Assignee, etc., V.TUE COURIER Co. (District Court, S. D. New York. July 23,1881.) 1. AGREElImNTS BETWEEN CREDITORS-PREFERENCES-REV. ST. § 5128.
A transfer, by in failing circumstances, of the greater portion of his assets to, a creditor is not void under section 5128 of the Revised Statutes, as involving unlawful preference of such creditor, where all known creditors, and all whom the grantee suspected were creditors, and all the creditors of whose existence he was bound to know, joined in the arrangement under which the transfer was made; though such creditor thereby secured a preference.
In Equity.
E. H. Penn, for complainant. Hamilton Gale, for defendant. BROWN, D. J. This action was brought to have declared void a transfer of the effects of Montgomery Queen, a bankrupt, to the defendant, one of his creditors, made on October 27, 1877, and to recover the proceeds, or the value thereof. The proceedings in bankruptcy were commenced by petition of the bankrupt on February 8, 1878, and the plaintiff was thereafter duly appointed his assignee. . In October, 1877, the bankrupt was the OWl1flr of what was known as Queen's traveling circus and menagerie, which he had for several years prior thereto. been engaged in exhibiting about the country. The defendant, a printing company of Buffalo, New York, had been accustomed to do his printing, for which he was usually considerably in debt to them, paying on a running account as was found convenient. In October, 1877, this indeb tedness amoun: edto abou $18,000, but up to that time the defendant had no reason [0 believe
JUDSON
v.
THE CbURIER CO.
423
him insolvent, and had not pressed him for payment. Shortly after, October 16, 1877, McCune, the president of the company, received from Queen a letter of that date from Hillsboro, Illinois, stating that he had been compelled to give to E. D. Calvin, his superintendent, and others of his leading employes, a chattel mOl·tgage on his, circus property for $13,000; that he hoped McCune would not join them in legal proceedings, and assuring him that h'e would be paid. This mortgage was executed at Shelbyville,' Illinois, on October 15, 1877, and was given 1;0 secure six promissory notes to Calvin and his associates, amounting together to $13,045.71, payable in 60 days. The mortgage was recorded in Shelby county, Illinois, October 15th, and at St. Louis October 23d. The letter to McCune did not have the effect intended, as McCune immediately went west, whither the circus was traveling, and arrived at St. Louis about the sametiine with the circus, shortly after the twentieth of October. In Queen's absence McCune immediately caused suit to be btought against him by the present defendant in St. Louis, and all the circus -property to be attached by the sheriff. Shortly thereafter he learned that on the ninth of October Queen had executed at Indianapolis, Indiana, a bill of sale of all the circu8 and menagerie property to James How, of Brooklyn, New York, and that How had given back an agreement of the same date to resell the same property to Queen upon payment of six notes, amounting together to $35,000. The evidence showed that this traIisaction was designed as security for an 'old debt of $25,000, and lor '$10,000 additional, hoped to get froln How to sUpply his present needs, but which How afterwards declined to fumish;'l'he agreement of resale provided 'thaFQueenwas to maintain and exhibit the show as before, which he accordingly did. This transaction, I hold, had the effect only of an unrecorded mortgage. ' By assignment, dated October 17,1877, How assigned all his claim to Robert C. Deniger, of New York,who seems to have held somewhat confidential relations with both How and Queen,and Deniger was now in St. Louis. The season for exhibitions was at its close; it was necessary to provide winter quarters for the animals, and some $3,300 was owing for wages to the minor employes of the circus. To pay these wages, and to remove and provide for the menagerie over winter, about $10,000 was required. Under these circumstances, Dehiger. claiming to be the owner of ,th13 property by virtue of the bill of sale to How, and Calvin and the defendant claiming liens by the subsequent mortgftge and attach.
424:
FEDERAL REPORTER.
ment, a.n agreement was entered into, dated October 24, 1878, whereby the defendant agreed to' release his attachment, and Deniger agreed to take and provide for the show property, and to sell the same, and pay 50 per cent. of the defendant's claim within 90 days, or else after that time reorganize the show and pay defendant the same amount in cash or good bankable paper, and as security for such agreement he transferred the property to the defendant. After further communication with How, Deniger informed defendant of his inability to carry out this contract, and thereupon a new arrangement was made October 27, 1878, when the various transfers were executed under which the defendant claims, and which the plaintiff now seeks to set aside. By this arrangement Calvin and his associates transferred to the defendant all their interest under the chattel mortgage, and surrendered to it the six notes of Queen which were secured by it. Deniger and Queen executed to the defendant a bill of sale of all the circus and menagerie property, and a tripartite agreement was into between Deniger, Calvin, and his associates and the defendant whereby the defendant was to pay the wages owing to the employes, remove the property to Louisville for winter quarters, pay all the expenses of removing and keeping the property over winter, and permit Deniger to repurchase the property within 90 days, upon repayment of defendant's advances for these purposes, and 50 per cent. upon its claim against Queen, and upon payment to Calvin and 'his associates of $7,550, and interest upon their claims; and in defll,ult thereof the defendant was to sell the property, and from its proceeds repay such advances and 50 per cent. of its own claims against Queen, $7,550 of the claims of Calvin and his associates next, and the balance, if any, to Deniger. Under this transfer and agreement the defendant paid the wages of the employes of the circus, amounting to $3,309.95, removed the menagerie to Louisville, as agreed, and there maintained it, at an expense of $6,107.39, until in default of repurchase by Deniger, as provided by the agreement, it sold the property on February 25, 1878, for about $20,000; from which, after deducting its advances, it realized 50 per cent. upon its own olaims against Queen, and accounted for the balance, a few hundred dollars only, to Calvin and his associates, according to agreement. So far as this agreement provided for the advances of money for t·he preservation of the property, no objection was made to it. But the plaintiff claims that this transaction was void as against the assignee in bankruptcy, under section 5128 of the Revilled Statutes, as involving an unlawful preference of the defend-
JUDSON V. THE COURIER CO.
425
ant. It is not claimed to come under section 5129, which relates to transfers other than those of giving preferences to creditors. v. Warden, 14 Wall. 244. The defendant was a creditor seeking to recover something upon its demand. The arrangement made was out of the usual course of business, as it transferred all the circus property; it contemplated, at least, a contingent preference of the defendant for a part of his claim, and such has been its result. The debtorJ Queell, assented to it,not, as he testifies, with any wish or intent to give :any preference to the defendant, but obviously on account of its relief from present rassnient, and to retain through Deniger his claims of going on with the business in the spring, upon Deniger's expected repurchase of the erty. This purpose, if no olie were legally injured by the means adopted, was justifiable. Tijfanyv. Lucas, 15 Wall. But, though this was doubtless Queen's main 'motive, he is none the less' legall:Y chargeablewi'th having intended all the contingencies for which the agreement provided, and among these was a preferencetQ a greater or less extent of tlie defendant. Queen was insolvent and from the circnmstances above stated I cannot doubt'th'at.the defendant, and all the other persons taking part in the arrangem,ent then made, knew, or had reasonable cause to believe, him so. If, in addition to this, the evidence warrants the conclusion that the ant also knew that the transfer was a fraud upon the bankrupt act, then all the conditions of section 5128 exist, and the plaintiff must recover. And this is the only substantial question in the case. Knowledge that a transfer is a fraud upon the act must include actual or constructive knowledge that the transfer is either expressly forbidden by the act or inconsistent with its policy and illtent. If the transaction as a whole is not one which, under the circumstances known to the grantee, or ascertainable by him with ordinary care, would be condemned by the words or the policy of the act, then no fraud upon it can be said to be "known" to him. It is plain, moreover, that neither the words nor policy nor intent of the bankrupt act forbid any settlement by a debtor with his creditors, nor any dispotion of his property, to which all his creditors assent. In re Miller, 1 B. R. 410. In providing for the disposition of the bankrupt's esta.te through trustees, to be chosen by the creditors and subject to the direction of a committee appointed by them, the bankrupt act itself (section 5103) recognizes the controlling power and interest ()f even less than the entire body of creditors. An omission of a creditor's name from the schedule of creditors, if made with the creditor's
426
FEDERAL
assent, has been held not to be a "wilful or fraudulent" omission. In re Needham, 2 B. R. 387. A. transfer is not, then, a fraud upon the act if made with the consent of all persons in interest fairly obtained, uneqllal in its results the transfer prove. Such a consent is a virtual waiver of all the benefits of the bankrupt act, is an estoppel against subseand, when act,ed on' by the quent incompatible claims undeitheact.. In re Williams, 14 B. R. 132, 136 ; Johnson v. Rogers, 15 B. B. 1; In re Langley, 1 B. R. 559, 565; In re Schuyler, 2 B.B. 549; Inre Kraft, 8 FED. REP. 892. For the same reason a gran'tee cannot be held to ."know" a transfer to be a fraud upon the act if it is assented t,o by all the creditors known to him, or that upon reasonable inquiry he might and would have ascertained or have had reason to suspect. , " Such, upon the testimony, appea,rs to be this case. The evidimceshows that at the " time this arrangement was made by :. ' . r the defendant no other of Queen were known tOOl' suspected those who took part in and were provided for by the by agreement. '. The ,defendant, before taking a transfer sucb as this, was boulldto make reasonable inquiry as to other creditors. But it appearstbat McCune bad been accustomed from time to time to make such inquiries, andtbat, only a few months ,before, Queen, in answer 'to McCune's had assured him that "all he owed in the world besides Mr. How were these circus employes and Mr. Calvin ahd Mr. Cole. All of these debts were provided for in the arrangement of October 27th, and of these parties, or their reprewarranted a full and absolute title in the sentatives, agreed to it, defendant. Instead of there being any collusion, 'the parties were all hostile to each other, and the final agreement was apparently a fair settlement'arid compromise of the conflicting interests of the largest while it provided meritoriously for the payment in full of all ' others known, being the wages and small debts owed by the circus business. All of these debts the de.fendant seems to have paid-73 in varying in amount from $3 to $369 each. Only eight of them, however, exceeded $50 each, and all the rest would apparently llave been entitled to a preference under section 5101. No charge is made that the arrangement was not brought about perfectly fairly as betwe'enthe parties to it, nor that it has not been executed by the defendant,in good faith as among themselves, and it seems to have been intended to provide for all the circus debts; nor does it now appear that there were any other debts belonging to that busineSB.
all
JUDSON.1i.· TRE COURIER CO.
427
In Metcalf v. Officer, 2 FED. REP. 640, 643, it said that the principal circumstance proving defendant's knowledge that a fraud on the act was intended was that "he knew that there were other creditors who would be deprived of their right to an equal distribution of the proceeds of the bankrupt's estate." I am satisfied that the defendant, in entering into the arrangement complained of, had no knowledge or suspicion, and is not legally chargeable with knowledge, of any other creditors of Queen, (if any there are,) except those who took part in and bound themselves by it, and those whose claims were paid in the performance of it; that consequently no known fraud upon the act can be ascribed to the defendant, and, that the transfer is therefore not void under section 5128. as claimed. Buernsey v. Miller, 80 N. Y. 181. If this case were ,to turn upon the simple fact of there being other creditors of Queen, instead of upon the defendant's actual OJ;' constructive knowledge of it, I should still hesitate, upon the evidence in this case, to give judgment in favor of the,plaintiff. The proofs were all taken out of court, and the only evidence :t have , found as to the existence of any other creditors is inferen.tial merely from the following testimony of Queen, a witness for the plaintiff, who says: "I think I was indebted or $179,000 when I gave the mortgage and bill of sale... ' My bankruptcy schedull}s will tell." These schedules were npt offered in evidence, While such of the proceedings in bankruptcy as. tIle plaintiff's counsel chose to put in evidence show bur one creditor, 'viz., Deniger himself, who alone proved his. debt, and chose the assignee, whos.e name appears also as couns.el upon the written agreement of October 9th between How and Queen; and although other creditors not parties to the agreement, if there were any such, 'might doubtless come in and proved their claims, yet none have done so, so far as the evidence shows, though more than three years have elapsed since the proceedings in bankruptcy were commenced. " , The action appears, therefore, to be practically for the benefit of Deniger, who by his agreement and its covenants would be precluded from questioning directly the transaction complained of. In re Williams, 14 N. B. R. 132, 136, Fed. Cas. No. 17,706, and cases cited. The statement to :Mr. McCuue that the circus debts spebified, those to How, Calvin, and Cole, were "all that he owed in the world," was not denied by Queen; and if the existence of other creditors were a material and controlling fact, despite McCune's want of knowledge of it, the mere loose testimony of Queen that he thinks his debts were $160,000 or $170,000, qualified by a reference to his schedules, which
428
were not produced, while no snoh .ontside oreditors in fact appear, would be, I think, wholly insufficient evidencl:l upon wbicll to lOund a decree. The bill is therefore dismissed.
In re BEAR and others, Bankrupts. (Dz'strict Oourt, S. D. New York. 1. July 14, 1881.) PRACTICE-AMENDMENTS-STATUTES OF LIMITATIONS.
Amendments will not generally be allowed for the purpose of setting up statutes of limitation to defe:tt claims otherwise equitable and just. 2. DELAY PROCURED BY REQUEST.
One cannot take advantage of delay procured by his attorney's request.
In Bankruptcy. Petition of Hunter. Geo. Bell, for petitioner. Fred. W. Henrichs, for assignee. BROWN, D. J. The general rule is not to allow amendments for the purpose of setting up statutes of limitation merely to defeat a claim otherwise equitable and just. Walcott v. McFarlan, 6 Hill, 227; 2 Wend. 294; 7 Cow. 401. While the Eleventh Ward Bank Case was pending and undetermined it was undesirable that other suits of a similar character should be multiplied. J ones properly waited for its determination. After that he acted promptly in preparing and forwarding proof of secured claim to be filed. The mistakes made by his attorneys as to the filing of olaims show gross carelessness or inattention on their part; but I think the oonsequences should not be visited upon Jones, an absent non-resident creditor who held a legal lien on the assets. The affidavit of Brainsby shows that Jones' attorneys were about to file petition for the enforcement of his lien on the prooeeds within the two years, but were deterred from doing 80 by the request of the assignee's attorney on the ground of an appeal taken by the latter. It would be inequitable to allow the assignee to take advantage of the delay thus prooured hy his attorney's request, (In re Maybin, 15 B. R. 468,) and I think the usual be applied denying the motion, wit.hout costs. rule
WOOSTER
V.
BLAKE.
429
In re BEAR and others, Bankrupts. (District Court, S. D. 'New York. July 14,1881.) 1. VESTED RIGHTS. ' One cannot be deprived of vested rights without his consent.
In Bankruptcy. Petition of Jones. BROWN, D. J. The affidavits on the part of the petitioner show that the filing of the claim as an unsecured debt was not legally the act of Jones. Neither he nor Porter, his attorney, ever authorized or assented to it. Porter held it to be used provisionally only, and forbade its being filed. The preparation of the secured claim, and Brainsby's affidavit of preparation for petition shortly after, confirm this view. Jones' lien under the levy was a vested right of property of which he cannot be deprived except by his own consent or that of his dulyauthorized agent. The case is stronger than that of filing under mistake or misapprehension of fact or law, where an amepdment is usually allowed. The motion must therefore be granted, but only upon the payment of the costs of this motion, for the trouble occasioned by the evident laches and repeated applications.
BLAKE and others. April 27, 1881.)
(Circuit Court, S. D. New York.
