Vogler v. Rosenthal

36 A. 650, 85 Md. 37, 1897 Md. LEXIS 26

• Court: Court of Appeals of Maryland
• Decided: January 6, 1897
• Status: Published

Opinion

McSherry, C. J.,

delivered the opinion of the Court.

On the seventeenth of July, eighteen hundred and ninety-six, the appellants filed a petition in the Court of Common Pleas praying that Louis Buckner might be adjudged an insolvent debtor. The petition contained numerous paragraphs, each averring some specific act of insolvency on the part of Buckner. The tenth paragraph alleged that Buckner had, within two weeks prior to the date of the filing of the petition against him, made a fraudulent transfer of personal property to one Hyman Rosenthal; and in the eleventh paragraph it was charged that on the twenty-ninth of June he had made a similar transfer of other personal property to a certain J. Goldman, with intent, in each instance, to hinder, defraud and delay his creditors, and with a design to conceal the said property and to prevent the same from being taken under legal process. Buckner answered the petition and denied its material allegations, and then prayed that the issues arising on the petition and answer might be tried by a jury. Both Rosenthal and Goldman came into the case and filed answers in which they respectively controverted the averments of the tenth and eleventh paragraphs of the petition. Eighteen issues were thereupon propounded by the petitioning creditors to be passed on by a jury. Subsequently these issues came on to be tried and Buckner, through his attorney, asked leave in open Court to withdraw his answer and prayer for a jury trial, to the granting of which the petitioning creditors objected because the answers of Rosenthal and Goldman would still remain in the case. Whereupon Rosenthal and Goldman gave notice that as soon as Buckner’s answer and demand for a jury trial were withdrawn and he was adjudicated an insolvent, they would withdraw their answers if. they could do so without prejudice; and the creditors gave notice that they would object. The answer of Buckner and his demand for a jury trial being then withdrawn and there being no further defence made, he was at once adjudicated an insolvent debtor, and preliminary trustees were appointed. Thereupon both Rosenthal and Goldman, pursuant to the notice they had given, filed petitions asking leave to withdraw their respective answers without prejudice; and the Court passed two orders allowing these answers to be withdrawn without prejudice; and to the granting of these orders the creditors objected and from the orders when passed, they have taken this appeal. The creditors, both before and after the with-. drawal of Buckner’s answer and prayer for a jury trial, and: before and after his adjudication as an insolvent debtor, claimed the right to have the issues arising out of the answers of Rosenthal and Goldman to the original petition, then and there tried by a jury; but the Judge held that the withdrawal of Buckner’s answer and prayer for a jury trial and his adjudication as an insolvent, coupled with the announcement that Rosenthal and Goldman would retire, left nothing before the Court to try.

Had Rosenthal and Goldman the right to withdraw their answers? This is the sole question in the case. Rosenthal and Goldman were not made parties to the proceeding against Buckner, and no process was asked or was issued against them; but they came in of their own accord, as they were entitled to do, for the purpose of upholding the alleged fraudulent transfers of property made to them by the insolvent. They were under no obligation to appear if they-did not wish to contest these allegations. Had they failed to appear at all the adjudication of insolvency against Buckner would have conclusively established the invalidity of these transfers, because the unlawfulness of these transfers was one of the very grounds relied on to bring Buckner within the operation of the involuntary feature of the insolvent law. When a transfer, assignment, conveyance or other disposition of property is charged to have been fraudulently made by a person who is insolvent or in contempla- ■ tion of insolvency, with intent to hinder creditors, and the debtor is proceeded against under the provisions of the insolvent law relating to involuntary insolvency, and the transfer, assignment, conveyance or other disposition complained, of is made the basis or ground upon which the machinery-of the Insolvent Court is put in motion and its jurisdiction-is invoked, and there is no contest or denial of the aver-ments of the petition by the debtor or by the individual holding the transferred, assigned, conveyed or otherwise disposed of property; an adjudication that the debtor is an insolvent and that he has committed acts of insolvency by doing the things alleged against him, of necessity, fixes his status and the status of the property and conclusively establishes the fact that the transfer, or other disposition of property assailed or impeached, was fraudulently made with intent to hinder and delay his creditors. It would be an anomaly, indeed, if a debtor could be adjudged an insolvent on the ground that he had made an illegal transfer,' whilst at the same time the transfer thus made is still allowed to stand because, in fact, it is not an illegal transfer' at all. Such a contradictory position would make the assailed transfer, which is denounced only when it conflicts with the insolvent law, sufficiently unlawful to justify an-adjudication of insolvency against the debtor, though sufficiently lawful, under the same law, to protect the person to whom the transfer had been made and to withdraw the transferred property from the reach of the insolvent’s creditors. As a result the transfer would be unlawful as respects the debtor, but lawful as respects the person to whom it was made; and thus the same act would at one and the same time be both lawful and unlawful, denounced and upheld.

Singular as this result may seem, it would nevertheless be entirely possible for it to occur if the adjudication of the debtor in involuntary»proceedings does not determine that the allegations upon which the adjudication is founded are incontestably true. For the purpose of illustration assume a case: Suppose the debtor in this case had been proceeded against solely on the ground that he had transferred property to Rosenthal with intent to hinder and delay creditors and with a view to conceal it and place it beyond the reach of legal process; and without contest Buckner had-for that cause been adjudicated an insolvent. Would not that adjudication establish the truth of the averment that he did make such a transfer "with such intent? And would it not further determine that as respects the person to- whom the transfer was made, the transfer was unlawful because of the absence of good faith on his part? If, however, it would still be necessary for the trustee subséquently appointed to go into a Court of Equity, for the purpose of having the transfer annulled, and that Court should decree that the transfer was not made with a fraudulent intent but was bona fide both as respects the debtor and the transferee, you would have two flatly contradictory decisions on the. same subject by two separate tribunals; and you would have this anomaly that Buckner had been declared an insolvent because he had done an act which the Insolvent Court adjudged unlawful but which the Equity Court decreed to be lawful; and therefore, either he was wrongly adjudged an insolvent or the decree sustaining the transfer was erroneous.

If the transfer or conveyance, when made, is not a prohibited transfer, it is not a ground for an adjudication against the debtor; but if, when made, it is a ground for such an adjudication, then it is so because it is an inhibited, transfer. But whether it be or be not such a transfer must be determined before the debtor can be adjudged an insolvent. When, therefore, a Court having the jurisdiction to decide whether the debtor has, by a given transfer or disposal of his property to another, committed an act of insolvency, does in fact determine that the debtor did by that particular specified transfer make an unlawful disposal of his property and in consequence further adjudges the debtor to be an insolvent, the transfer or disposal decided to be unlawful and made the foundation of the insolvency proceedings and the adjudication, must of necessity fall because the adjudication itself involves and is based on the invalidity of the impeached transaction. If the individual who holds what is alleged to be an unlawful transfer of the debtor’s property washes to rescue the transfer from condemnation in an involuntary insolvency proceeding, he must interpose and make defence in the Insolvent Court or he will be forever barred by the adjudication there pronounced upon that transaction; because the Court having jurisdiction to determine whether the thing alleged to be unlawful was or was not a fraudulent transfer or disposal of the debtor’s property, having once decided that it was, its adjudication being in rem, or in the nature of an adjudication in rem, binds all the world until reversed on appeal or set aside by the tribunal that pronounced it.

This has been the uniform ruling of this Court when the transaction or instrument assailed in the petition in involuntary insolvency has been one that created a prohibited preference, whether the preference was one that was apparent on the face of the instrument or was disclosed by extrinsic evidence. Thus in Brown v. Smart et al., 69 Md. 320, affirmed in 145 U. S. 457, where a deed of trust for the benefit of creditors, reciting the grantor’s insolvency and giving preferences, wás made the basis of an involuntary insolvency proceeding, it was held that the adjudication of the grantor to be an insolvent debtor struck down the deed of trust under the 13th sec. of Art. 48 of the Code of i860 (now sec. 14 of Art. 47 of the Code of 1888 as amended by the Act of 1896, ch. 446). “ The statute,” we said, “ by force of its own terms operates upon the deed and * * * strikes it down from the moment the debtor is adjudicated an insolvent, the illegal preference being the basis of the adjudication; and in such case no defence could be interposed to rescue the deed from the fate declared for it by the statute.”. And so in Baker et al v. Kunkel, 70 Md. 392, the mortgage executed by the insolvent was made the basis of the proceedings against him and when he was adjudged to be within the insolvent law because he executed it, it was stricken down by the Insolvent Court. The mortgagee could have saved the mortgage from condemnation only by appearing to the insolvent proceedings and resisting the adjudication of the debtor to be an insolvent. In Willison v. First Nat. Bk. of Frostburg, 80 Md. 196, the fraudulent preferences attacked were payments, and upon the adjudication of the debtor to be an insolvent, it was held that the payments were void and the trustee to be after-wards elected was ordered to recover the money back. In Dumler v. Bergman, 79 Md., “unreported cases,” 29 Atl. Rep. 826, a bill of sale was attacked as a preference. The debtor filed no answer, but the grantee in the bill of sale did. It appeared from the evidence and finding of the jury on the issues submitted to them that part of the expressed consideration was an antecedent debt, and the Court upon adjudicating the grantor to be an insolvent struck down and annulled the bill of sale as a prohibited preference. The cases just cited were all cases of unlawful preferences and they fell under sec. 14 of Art. 47 of the Code, which in terms declares all preferences void, “ howsoever the same may be made.” It is wholly immaterial whether the preferences appear upon the face of a written instrument, or whether they are created by a payment of money, a transfer of property or otherwise, they all alike are denounced as void; and the adjudication of the debtor to be an insolvent ipso facto, strikes them down when they are made the basis of that adjudication.

The tenth and eleventh paragraphs of the petition were framed under sec. 22 of Art. 47 of the Code, as amended by the Act of 1896, ch. 446, and it is assumed that though Buckner has been adjudged an insolvent, the transfers complained of must be treated under sec. 24 of the Article, amended by the same Act of 1896, as only prima facie intended to hinder and delay creditors, and that they cannot be set aside by the Insolvent Court, but must be assailed in another forum. ^ As thus put the proposition is not tenable. Any deed, conveyance, gift, tx-ansfe'r or delivery of goods, chattels, moneys, choses in action, lands, tenements or other propexty made when the grantor or donor is insolvent or in contemplation of insolvency is declared by sec. 24 to be prima facie intended to hinder, delay and defraud the creditors of the person by whom the same is made, and the burden of proof is imposed on both him and the grantee or donee to explain the same and show the bona fides thereof. This section prescribes a new rule of evidence which is applicable as well to deeds, conveyances, gifts and transfers relied on as grounds in coercive insolvency proceedings to have a debtor adjudged an insolvent, as to the same instruments and acts when attacked in suits instituted by the insolvent’s trustee after adjudication; and in each instance it condemns the transaction as fraudulent on its face, and permits it to be rescued only when the grantor and grantee or donor and donee shall cause its good faith to appear affirmatively. And this rule of evidence under the broad terms of the statute is operative alike in the Insolvent Court and in a Court of Law and of Equity. As it is obvious that the character of the acts or transactions which are made the basis of involuntary insolvency proceedings must be passed upon and as those acts and transactions must be determined by the Insolvent Court to be fraudulent within the meaning of the insolvent law before the Court can adjudicate the debtor to be an insolvent; it is no less apparent, that when the Insolvent Court has adjudged the debtor to be insolvent because, under the rule of evidence prescribed by sec. 24, the very acts or transactions complained of were, in the eye of the law, fraudulent and intended to hinder and delay creditors, it must of necessity have passed upon and decided a subject-matter expressly within its jurisdiction, and the same question cannot be open for investigation in some other tribunal thereafter, except upon appeal for review by an Appellate Court. Without possessing the power to decide whether a given transfer of chattels was made with intent to hinder and defraud creditors, or with a view to conceal the property so'as to preyent it from being taken under legal process, the Insolvent Court would be wholly unauthorized to adjudge the debtor an insolvent under this particular involuntary feature of the law; because it is only when the Court has itself or by the aid of a jury found the fundamental fact of a fraudulent transfer or concealment that it can, in the case suggested and for that, cause, proceed to declare the debtor an insolvent. When that Court has found the fact which empowers it to adjudicate the debtor an insolvent, the fact thus found cannot be controverted elsewhere and ic becomes unnecessary to go into any other tribunal to procure an adjudication precisely to the same effect.

But where a debtor has been adjudged an insolvent upon one ground, or where he voluntarily applies for the benefit of the insolvent law, then his trustee must proceed in other forums to have set aside and annulled whatever fraudulent transfers, assignments, liens or preferences there may be apart from the one forming the basis of his involuntary adjudication ; and the Insolvent Court is without jurisdiction to strike them down. Under the insolvent law existing prior to the Act of 1880, there was no involuntary feature and whenever it became necessary to vacate an assignment or a fraudulent preference or other prohibited transfer, the insolvent’s trustee was compelled to seek the aid of a Court having jurisdiction over the subject-matter as in other controversies. It was with reference to the state of the law existing prior to 1880, that this Court used the language quoted from Purviance v. Glenn, 8 Md. 206, in Paul & Slingluff, Trustees, v. Locust Point Co., 70 Md. 292, to this effect, viz.: “ Property belonging to the insolvent may be in different places, or suits in equity may be necessary to vacate assignments ; in all which cases it is manifest that the trustee can proceed only in the Courts having jurisdiction over the subject-matter, as in other controversies.”

Now, if Rosenthal and Goldman had not withdrawn their answers, it cannot be doubted that the Court of Common Pleas would have had jurisdiction to try the 12th, 13th, 14th and 15th issues framed under the tenth and eleventh paragraphs of the petition; and if that Court would have had jurisdiction to try those issues, it would have had authority upon a finding in favor of the creditors to enter up not only an adjudication of insolvency against Buckner, but also an adjudication that the transfers of merchandise to Rosenthal and Goldman were fraudulent and that they had been made to conceal the property and place it beyond the reach of legal process. Such an adjudication would have been effective to vacate the transfers, because it would have stamped them as invalid, and no resort would have been necessary, or could have been had, to any other tribunal for the purpose of annulling what had already been made void. The averments of the petition gave the Court of Common Pleas jurisdiction over the subject-matter set forth in the tenth and eleventh paragraphs, and the withdrawal of the answers of Rosenthal and Goldman and of Buckner could not oust or even limit that jurisdiction in any way. Without any answers at all sec. 24 of Art. 47 denounced the transfers as prima facie fraudulent and the Court would have been justified in proceeding to an adjudication of insolvency and the consequent annulment of the transfers. As, then, that Court had incontestably the jurisdiction to hear and decide upon the validity and good faith of these transfers under the petition, it was clearly the duty of Rosenthal and Goldman to remain in the case and to controvert the averments of the tenth and eleventh paragraphs, if they desired to prevent the transfers from being set aside; but they had the undoubted right to withdraw from the case, just as they had, in the first instance, the right not to become parties to it. But that withdrawal was at their peril, for they could, by withdrawing, neither deprive the Court of jurisdiction nor retard or delay the petitioning creditors in having every averment of their petition passed upon by the Insolvent Court. Having announced their intention to withdraw their answers, which asserted the validity of the transfers ; and having actually withdrawn them, the Court of Common Pleas rightly adjudicated Buckner an insolvent, and with that adjudication these transfers fell and were vacated, because there were practically no longer any answers in the case to rescue the transfers from that fate. The learned Judge was consequently right in refusing to go on with the trial, because, as he held, there was nothing before him to be tried. The fact that the withdrawal of the answers was without prejudice amounts to nothing. That part of the orders was simply inoperative, because the withdrawal of the answers, in whatever form it was made was, of necessity, in effect unqualified. And it was unqualified because there is no other proceeding to which resort can be had. It is perfectly true this may not result as Rosenthal and Goldman intended; but we are unwilling to put a construction on the insolvent law which will lead to a defeat of its salutary provisions in many instances ; or at least will often be conducive to such delay in actual practice as will seriously impair and cripple the efficacy of the whole insolvent system.

•Distinct issues were made by the answers of Rosenthal and Goldman. The Court of Common Pleas as a Court of Insolvency had the undoubted jurisdiction to try those issues, and the announcement that those parties would withdraw their answers and, therefore, make no further contest as to the truth of the matters averred in the tenth and eleventh paragraphs of the petition, did not and could not deprive the Court of its power to proceed in the case to an adjudication, with all the incidents and consequences which that adjudication involved.

We are not unmindful of the general principle that a judgment in one tribunal only operates as an estoppel to a subsequent proceeding when the matter in issue in the second inquiry has been determined between the same parties in the first; and that where the first judgment may have been founded on one or more of _ many grounds it is generally competent to show that it was not in fact based on the particular ground relied on in the subsequent action, unless pursuant to settled principles a contrary presumption prevails. But we are not invoking in this case the doctrine of res adjudicata or estoppel. The adjudication in insolvency is an adjudication in rem and upon that ground it is held to fix and determine the status' of the debtor and the status of the property alleged in the petition to have been unlawfully dealt with by him. For that reason a party who has had an opportunity to maintain in the Insolvent Court the va7 lidity of a transfer made to him and which transfer the petition against the debtor impeaches, will not be allowed after standing by without contest, to litigate the same matter in some other forum; more especially after having voluntarily appeared in the Insolvent Court, and then having subsequently abandoned the very same issue he had set up there. The law having given him a standing in Court, it will not suffer him, when he has deliberately refused to avail of it, to assert the same claim in some other tribunal.

(Decided January 6th, 1897).

As the adjudication of Buckner to be an insolvent carried with it the transfers mentioned, the Court was right in not allowing a trial to be had upon ss ues already determined; and as the petitioning creditors secured by that adjudication all they could have been entitled to if a trial had taken place and had resulted in a finding on every issue for them, they were not prejudiced by the orders allowing Rosenthal and Goldman to retire from the proceedings.

There being no error in the action of the Court as we have interpreted it, the rulings complained of will be affirmed with costs.

Rulings affirmed with costs, and case remanded for further proceedings, striking doyen these transfers.