Jones v. Howland

49 Mass. 377

• Court: Massachusetts Supreme Judicial Court
• Decided: October 15, 1844
• Status: Published

Opinion

Hubbard, J.

This case turns upon the fact, whether the respective sales to the defendants by Stowell, which the plaintiff seeks to avoid, were made in contemplation of bankruptcy, and with the view of giving the defendants a preference over his general creditors, or whether they were made with an honest intent, in the transaction of his business, and not in contemplation of bankruptcy. The question presented in the case grows out of the instructions of the presiding judge on committing the cause to the jury; and in considering the subject, it is not necessary to recite the facts as they appeared on the trial.

The instructions to the jury, were embraced in the three following propositions, which the judge charged them it was necessary for the plaintiff to prove, to entitle himself to a verdict: 1st. That Stowell was insolvent at the time he made the sales or transfers of the oil to the defendants: 2d. That he knew

or believed he was insolvent at those times: 3d. That he made them for the purpose of preferring the defendants. Under this last head, the judge instructed the jury that, if Stowell knew he was insolvent at the time, they might infer from that fact, that he made the transfer for the purpose of preferring the defendants : That if he knew or believed himself to be insolvent, he must be supposed to intend the natural result of his act: That if he made a transfer of a large quantity of oil, he must have known that it would operate as a preference: That the plain tiff undertook to show Stowell’s insolvency, of which there was no doubt, and that Stowell knew it, which was denied by the defendants ; and that it was for the jury to judge, upon all the evidence on both sides, whether they were satisfied that he knew it.

The cause has been elaborately argued, and the leading authorities, being principally the adjudged cases in England, com mencing with the decisions in the time of Lord Mansfield, and coming down to the present day, have been cited. And though the late bankrupt law of the United States is different, in its provisions, from the English statutes, in respect to payments and transfers of property declared to be void, yet the English decisions throw much light on the language of our statute, which was probably in part framed by incorporating into it the princi pies of those decisions.

The provision of St. 1 Jac. I. c. 15, <§> 2, was, that every person using the trade of merchandize, who should “ make, or cause to be made, any fraudulent conveyance of his lands, tenements, goods or chattels, to the intent, or whereby, his creditors shall or may be defeated or delayed for the recovery of their just and true debts, shall be accompted and adjudged a bankrupt.” But the words of the United States bankrupt act of 1843, $2, are, that “ all conveyances or transfers of property, in contemplation of bankruptcy, and for the purpose of giving any creditor, &c. any preference or priority, &c., shall be deemed utterly void, and a fraud upon this act.” This phrase, “ in contemplation of bankruptcy,” is in common use in the English reports ; but Gibbs, C. J. in Fidgeon v. Sharpe, 5 Taunt. 541, said, “ with respect to this doctrine of contemplation in cases of bankruptcy, we have nothing, either in the common or statute law, to show what it is. The cases in which this doctrine was introduced make it depend upon the quo animo."

It is unnecessary to review the various cases in which the subject is discussed; but the later ones state the doctrine, as now received in the courts of Westminster Hall, distinctly. In Morgan v. Brundrett, 5 Barn. & Adolph. 297, Patteson, J. says, “ the recent cases have gone too great a length. They seem to have proceeded on the principle, that if a party be insolvent at the time when he makes a payment or a delivery, and afterwards become bankrupt, he must be deemed to have contemplated bankruptcy at the time when he made such payment ; but I think that is not correct; for a man may be insolvent, but yet not contemplate bankruptcy.” And Parke, J. says, “ the meaning of those words ” (in contemplation of bankruptcy) “ I take to be, that the payment or delivery must be with intent to defeat the general distribution of effects which takes place under a commission of bankrupt. It is not sufficient that it should be made (as may be inferred from some oí the late cases) in contemplation of insolvency. These cases, I think, have gone too far.”

The cases referred to, as carrying the doctrine too far, are Pulling v. Tucker, 4 Barn. & Aid. 382, and Poland v. Glyn, 2 Howl. & Ryl. 310. In the last of these, Bayley, J. says, “I take the general rule of law upon this subject to be, that a voluntary payment to one creditor, under circumstances which must reasonably lead the debtor to believe bankruptcy probable (not inevitable; for I do not think it necessary the rule should go that length,) is a fraud upon the other creditors, within the meaning of the bankrupt laws, and that money so paid may be recovered by the assignees, when a bankruptcy has taken place.” And in the other case, Abbott, C. J. after speaking of what was submitted to the jury, says, “ indeed, if it were material that the deed should have been executed in contemplation of bankruptcy, there is very strong evidence to show that it was so done in this case; for the bankrupt, being in insolvent circumstances, conveys his real estate to certain persons as a security for debts then due, or any other debts which might accrue due. Such a deed, given under such circumstances, would make bankruptcy inevitable; and a man must be supposed to contemplate the consequence of his own acts.” See also Flook v. Jones, 4 Bing. 20, an Arnold v. Maynard, 2 Story R. 349. The objection to the doctrine drawn from these cases is, that the design to give the preference, in fraud of the law, is directly inferred from the mere fact of the insolvency; whereas such fact does not necessarily prove a contemplated bankruptcy.

The doctrine, we think, is correctly and clearly laid down by Gibbs, C. J. in the case of Fidgeon v. Sharpe, 5 Taunt. 545. He observes that “ the general effect of the statutes on the subject of bankrupts is, that all payments made before bankruptcy are legal and valid; but a certain class of cases has arisen, in which certain payments have been supposed to be made in fraud of the bankrupt laws, and are, therefore, fraudulent and void. But I find in all the cases, from Fordyce’s

* to the present, the fact found, that the act was done in fraud of the bankrupt laws. It must be an act. then, not only that in effect contravenes the bankrupt laws, but it must be done with intent to contravene them, and in contemplation of bankruptcy. The innocence or guilt of the act depends, then, on the mind of him who did it; and it cannot be in fraud of the bankrupt laws, unless the actor meant it should be so.” See also Hartshorn v. Slodden, 2 Bos. & Pul. 582. Gibbins v. Phillipps, 7 Barn. & Gres. 529. Atkinson v. Brindall, 2 Bing. N. R. 225, and 2 Scott, 369. Belcher v. Brittle, 10 Bing. 408.

The result of these cases is the drawing of a distinction between an actual insolvency and a contemplated bankruptcy , between the payment of a just debt in the course of business, though insolvency exists and is known to the insolvent, and the design to give a preference, in view of stopping payment. And in view of all the authorities we hold the law to be this; that though insolvency in fact exists, yet if the debtor honestly believes he shall be able to go on in his business, and, with such belief, pays a just debt, without a design to give a preference, such payment is not fraudulent, though bankruptcy should after-wards ensue. And on the other hand, if the debtor, being insolvent, and knowing his situation, and expecting to stop payment, shall then make a payment or give security to a creditor for a just debt, with a view to give him a preference over the general creditors, such payment or giving security is fraudulent as against the creditors, and property that is transferred, in making such payment or giving the security, may be recovered by his assignee ; and the debtor will not be entitled to a discharge under the statute. It rests upon the intent with which the act was done; and the intent is to be proved, as a fact, either by direct evidence, or as the necessary and certain consequence of other facts clearly proved.

' In respect to the charge .of the judge, in the .case at bar, it will be found, when carefully examined, to express the opinion that the fact of insolvency being proved, and a knowledge of it on the part of Stowell, the debtor, the jury were bound to infer the intention of Stowell to make a fraudulent preference; because he must be held to have intended the natural result of his act; and, consequently, that his act was in fraud of the bankrupt law. This direction, though in accordance with the opinions of the court in Poland v. Glyn and Pulling v. Tucker, is, we think, broader than is warranted by the cases of Fidgeon v. Sharpe, Morgan v. Brundrett, and Atkinson v. Brindall, which, as before observed, we think, lay down the law correctly.

The charge assumes, as a fact, the very thing which is to be proved, namely, the intent which actuated the debtor, at the time of making payment; whereas insolvency may be known to exist, and yet the debtor, though compelled to make sacrifices, be determined to go on with his business, and not yield to the pressure, and thus make payments without any intention of giving a preference in contemplation of bankruptcy. Such instances are not of very rare occurrence; and such intent should have been more freely submitted to the jury.

It is said that a man must be supposed to intend the natural result of his act. But this remark, though often treated as an axiom, is by no means an infallible proposition. The result is not always evidence of the supposed intent. When we look back upon events that have happened, we stand in a different position; we behold with a clearer vision, as we embrace within our glance the beginning and the end, the act and the consequence. But the man who is doing the act may contemplate a very different result. His judgment may be biased by his wishes, and sanguine feelings may be the cause of overlooking difficulties, which to a more quiet temperament might appear insurmountable. Disappointments also may take place, which were not anticipated. The experience of others is rarely a guide to an embarrassed man, and he goes on with the hope of relief, even against hope. To infer, therefore, a design to give a preference to a favored creditor, and in the immediate expectation of bankruptcy, from the mere fact of insolvency, is by no means a certain inference, nor such as the jury would be necessarily bound to draw from the debtor’s knowledge of his insolvency. The evidence must also go further, and establish, as a fact, the design to give the preference — a fact too important to be left upon conjecture.

The instruction requested by the counsel for the defendants was substantially correct. With some slight modification, it may be stated as follows : That if, on the 8th day of March, Stowell feared or believed himself to be insolvent, but did not contemplate stoppage or failure, and intended to keep on and make his payments, and transact his business, hoping that his affairs might be thereafterwards retrieved, and, in that state of mind, made the sale or payment of that day, without intending to give a preference to the defendants, and as a measure connected with going on in his business, and not as a measure preparatory to or connected with a stoppage in business, then the sale or payment on that day was not a sale or payment made in contemplation of bankruptcy, within the meaning of the act.

It is insisted by the counsel for the plaintiff, that the case of Arnold v. Maynard, 2 Story R. 349, is directly in point, to sustain the instructions which were given to the jury. And it is true that the reasoning there does go to support the cases which the later English authorities say have carried the doctrine of contemplation of bankruptcy too far. But the case itself, though with some features of similarity, is founded upon a very different statement of facts, and in which the design to give the preference is not drawn into doubt; and the answers to the questions referred to the court do not advance a doctrine different from that which we think is correct.

A similar question has arisen before the United States district court in Vermont. In the matter of Pearce, 6 Law Reporter, 261, the learned judge held that “ it is not a necessary and legal inference, that a conveyance was made in contemplation of bankruptcy, merely because the debtor was insolvent at the time ; but it must appear that the conveyance was made by the debtor in anticipation of breaking or failing in his business, of committing an act of bankruptcy, or of being declared bankrupt at his own instance, and intending to defeat the general distribution of his effects.” And with this we fully concur

It is unnecessary to remark on the charge under the second head, further than to say, that if the sale was only partially executed on the 4th of April, and at the time of completing it, Stowell knew he must stop, and therefore completed it in order to give the preference, such sale is fraudulent and void.

We, of course, do not mean to express any opinion upon the evidence as detailed in the report of the presiding judge; the questions of fraud, raised by the plaintiff, being peculiarly within the province of the jury. In conformity with these views, the verdict is set aside, and a

New trial granted

Fordyce's case is reported in 1 Cooke’s Bankrupt Laws, (8th ed.) 531