text:
Walbrun v. Babbitt/Opinion of the Court

In the view we take of this case it is not necessary to notice the assignments of error upon the instructions to the jury by the court below. In some respects they may be technically inaccurate, and in others they were far too favorable to the defendants. But, in any event, they did not materially affect the merits of the action, and, as there were no disputed facts bearing on the real matter in controversy, the court could have properly told the jury to find, as they did, for the plaintiffs. Indeed, the verdict was so obviously right that the court would not set aside the judgment when the record shows that no other result could be obtained on a new trial.

That Mendelson intended to defraud his creditors in the course which he pursued is too plain for controversy; but the inquiry is, has he succeeded in diverting his property from the payment of his debts to the injury of his creditors?

The 35th section of the bankrupt law condemns fraudulent sales equally with fraudulent preferences, and declares that if such sales are not made in the usual and ordinary course of the business of the debtor that fact shall be prim a facie evidence of fraud. The usual and ordinary course of Mendelson's business was to sell at retail a miscellaneous stock of goods common to country stores in a small town in the interior of the State of Missouri. It was to conduct a business of this character that the goods were sold to him, and, as long as he pursued the course of a retailer, his creditors could not reach the property disposed of by him, even if his purpose at the time were to defraud them.

But it is wholly a different thing when he sells his entire stock to one or more persons. This is an unusual occurrence, out of the ordinary mode of transacting such a business, is prim a facie evidence of fraud, and throws the burden of proof on the purchaser to sustain the validity of his purchase.

Summerfield seeks to overthrow the legal presumption that Mendelson intended to commit a fraud on his creditors by showing that he paid full value for the goods in ignorance of the condition of Mendelson's affairs. But the law will not let him escape in this way. The question raised by the statute is not his actual belief, but what he had reasonable cause to believe. In purchasing in the way and under the circumstances he did, the law told him that a fraud of some kind was intended on the part of the seller, and he was put on inquiry to ascertain the true condition of Mendelson's business. This he did not do, nor did he make any attempt in that direction. Indeed, he contented himself with limiting his inquiries to the object Mendelson had in selling out, and to his future purposes. Something more was required than this information to repel the presumption of fraud which the law raised in the mere fact of a retail merchant selling out his entire stock of goods. If this sort of information could sustain the sale, the provision of the bankrupt law we are considering would be no protection to creditors, for any one in Mendelson's situation, and with the purpose he had in view, would be likely to give the party with whom he was dealing a plausible reason for his conduct.

The presumption of fraud arising from the unusual nature of the sale in this case can only be overcome by proof on the part of the buyer that he took the proper steps to find out the pecuniary condition of the seller. All reasonable means, pursued in good faith, must be used for this purpose. If Summerfield had employed any means at all directed to this end he would have discovered the actual insolvency of Mendelson.

In choosing to remain ignorant of what the necessities of his case required him to know, he took the risk of the impeachment of the transaction by the assignee in bankruptcy, in case Mendelson should, within the time limited in the statute, be declared a bankrupt.

The defendants are in no better condition than Summerfield would be if he had not transferred the stock to them, because they took his title with full knowledge of its infirmity, and must blame their own folly for the result. Ritter, the active agent of the firm in the transaction, was fully informed by Summerfield of the circumstances attending his purchase, and this information was confirmed on his arrival at Kingsville. He there found Mendelson in charge of the store, with some of the goods boxed up and some on the shelves, sure indications that the sale was recent and that there had been no actual change of possession. These things, in connection with the residence of Summerfield in St. Louis, and his occupation there, ought to have excited the fears of a reasonable man that the sale by Mendelson was not for an honest purpose, and prompted him to make inquiry upon the subject. Ritter, instead of doing this, treated the transaction as one of ordi ary occurrence and as not imposing on him the duty of ascertaining the pecuniary status of either the vendor or vendee. Without learning anything, or seeking to learn anything, beyond the facts that the goods suited him and Mendelson wanted to change his business, he completed the purchase and immediately transferred the stock to the store of the defendants in Chillicothe. If this sale can be upheld, the law which declared the title of Summerfield prim a facie fraudulent could be easily rendered of no benefit, for all that would be necessary for a person buying property out of the ordinary course of business of the seller, to place it out of the reach of creditors, would be, as soon as he had consummated his purchase, to sell to another, who would acquire a good title, no matter how presumptively invalid the title of his vendor might be. It needs no argument to prove that if the law against fraudulent sales could be evaded in this way, it would furnish no sort of protection to creditors. Ritter, when he purchased, knew the nature of Summerfield's title, because he knew, or ought to have known, that a retail dealer like Mendelson, in selling out his entire stock, was presumptively guilty of intending to defraud his creditors, if it should turn out that he had any. Of this the bankrupt law gave him distinct notice, and as he chose, like Summerfield, to remain ignorant of Mendelson's affairs, he took the hazard of Summerfield's inability to prove the fairness of his title. It follows that if the sale to Summerfield cannot be supported, neither can the sale by him to the defendants.

It is unnecessary to notice the exceptions taken to the admission or rejection of testimony, because our decision is based on the evidence which was received without objection, and about which there is no controversy.

JUDGMENT AFFIRMED.

[See the next following case, and also Smith v. Buchanan, supra, p. 277.]

title: Walbrun v. Babbitt/Opinion of the Court


text: Talk:Walbrun v. Babbitt/Opinion of the Court

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


text: Wager v. Hall

title: Wager v. Hall


text: Talk:Wager v. Hall

title: Talk:Wager v. Hall


text:
Wager v. Hall/Opinion of the Court

APPEAL from the Circuit Court for the Western District of Wisconsin.

Hall, assignee of Lakin, a trader in Brodhead, Green County, Wisconsin, filed a bill in the court below against Wager & Fales, merchants, of Troy, New York, to set aside a mortgage on lands in the said Brodhead, given by the said bankrupt to them for $3000, to secure five payments, of $600 each, payable in six, twelve, sixteen, twenty, and twenty-four months, which mortgage and notes were executed December 15th, 1869, being twenty-four days prior to his filing his petition in bankruptcy, on the ground that it was given in violation of the Bankrupt Act. That act, in its 35th section, thus enacts:

'If any person, being insolvent, or in contemplation of insolvency, within four months before the filing of the petition by or against him, with a view to give a preference to any creditor or person having a claim against him,. . . makes any. . . pledge, assignment, transfer, or conveyance of any part of his property,. . . absolutely or conditionally, the person receiving such. . . pledge, assignment, transfer, or conveyance, or to be benefited thereby,. . . having reasonable cause to believe such person is insolvent, and that such. . . pledge, assignment, or conveyance is made in fraud of the provisions of this act, the same shall be void, and the assignee may recover the property, or the value of it, from the person so receiving it, or so to be benefited.'

The admitted case, stated favorably for the bankrupt, seemed to be thus:

Prior to 1854, Lakin was a clerk in Troy, and while there made the acquaintance of Fales (one of the defendants), who was a clerk at the same time. In 1854, Lakin went to Janesville, Wisconsin, and for two years worked as a clerk in a grocery store. Then he was in partnership with one Williston, in the grocery business, in Janesville, until the spring of 1858. Then he was a clerk for two years in Janesville and other places, during the last six mon hs of which he was in the hardware store of one Richardson, of Janesville. In 1860 Richardson started a branch hardware store at Brodhead, about twenty miles west of Janesville, and put the same under the control of Lakin, who received half of the profits for his services.

After about sixteen months Lakin bought out Richardson, and continued a general hardware business at Brodhead, making purchases of stoves from a firm in Troy, which his former fellow-clerk at Troy, Fales, had formed with one Wager under the name of Wager & Fales. His sales in 1862 and 1863 were about $15,000 a year, and from 1864 to 1870 from $20,000 to $28,000 per year. His invoice of goods on hand, taken in 1864, was $10,393.67. His invoice of goods taken September 13th, 1865, was $8450.77. Soon after that he set agoing a branch store at Juda, near Brodhead, and his whole inventory, taken December 31st, 1867, was $23,978.97.

In February, 1868, he sold out his entire stock of stoves and tinware to Spaulding & Brown, of Brodhead, for $6000, but contined to deal in hardware and agricultural implements.

Spaulding & Brown paid $2000 cash down, and for the balance gave their note of $4000, payable as fast as the stoves should be sold, and a considerable portion of this note remained unpaid January, 1870.

Up to April 1st, 1868, Lakin's stock was in a rented wooden building, and then being in fear of fire, he resolved to build a brick store, and for that purpose borrowed, at that time, on long time, $3000 of his father-in-law, Hayner, to be secured by mortgage on the store, and began to build the store on lots which he then owned. Hayner superintended the building of the store, and it was completed near the close of the same year, costing, aside from the lots, $8500.

Hayner resided in Brodhead from April 1st, 1868, to June, 1869, when he moved to Woodstock, Illinois, but he did not receive his mortgage until August 27th, 1869.

Lakin commenced buying stoves of Wager & Fales (whose mortgage it was now sought to set aside) as early as 1863, and continued to buy from $300 to $4000 per year from that time to and including 1867.

The debt for which Lakin gave the mortgage to Wager & Fales, was mostly for stoves purchased by him in 1867 at four months' credit. At the time of purchase it was agreed that Lakin should pay interest on all bills after maturity. Wager & Fales permitted the account to run until the notes and mortgage were given, he in the meantime making some small payments.

Lakin sold but few of the stoves bought of Wager & Fales during 1867, nor until he sold out his stove business to Spaulding & Brown; and the fact that he failed to realize on the stoves, and that he desired to build a new brick block during 1868, induced him to urge Wager & Fales to wait on him, and as their account was on interest, and there was nothing else to be done amicably, they consented.

When his store was completed, which was near the close of the year 1868, he found it had cost about double what he had expected, and as he had not realized on the stoves, he asked for further time, again promising to pay interest.

On the 1st of February, 1869, Lakin wrote Wager & Fales hoping that they would 'not get entirely out of patience with him or lose confidence in him,' excusing himself for non-payment, and telling them that he had 'a good stock of goods, in a good brick store, well insured, and was in a better and safer condition than ever before.'

On the 4th of March, 1869, Lakin, having again excused himself for non-payment, and begged patience, after repeated requests for payment by Wager & Fales, who say they have already waited 'very patiently,' requested Wager & Fales to send him a statement of his account, and 'several notes running as long a time as they could afford to let them, and that he would stamp, sign, and return them,' and do his best to meet them when due. The matter rested in this way until one Johnson, who had for several years been the travelling agent of Wager & Fales, and was then th ir partner, came West and saw Lakin with a view of getting money from him. Lakin asked for more time. Johnson told him he would give him time, but if he gave him long time that he ought to give a mortgage on his real estate. Lakin was reluctant to give a mortgage, and stated that he was perfectly responsible, more so than when the debt was incurred, and that if his matters were closed up under the hammer, he would have $15,000 over and above his debts, and offered to turn out notes against other parties, three dollars to one, but said that the times were hard, and that he depended upon farmers for collection. The matter was left open at Lakin's special request and on his assurance that a mortgage would injure his credit, and on his promise to pay certain stipulated sums monthly.

After Johnson got home, and about September, 1869, he gave Wager & Fales a detailed account of his interview with Lakin, and told them that he considered Lakin honest and responsible, that he required some time to make him easy in his business matters, and that he thought it was their duty to accommodate him by giving him time, for the reasons that he had bought a great many stoves of them, and paid them a great deal of money, and probably would again, and was partly a Trojan, and out of their friendship for him; and then if he would give a ten per cent. mortgage, that would close up the account on the books of the old firm of Wager & Fales, now about to be reconstituted, with him, Johnson, as a partner. In this Wager & Fales concurred.

The matter remained in that way until some time in October or November, 1869, when Wager & Fales sent the matter to Richardson to put in shape; the same Richardson already mentioned as the old principal of Lakin at Janesville, in 1860, and who was a friend as well of their own. Richardson and Lakin agreed upon terms, and Lakin was to get an abstract of title, execute the papers, and return them; but upon Richardson's submitting the proposition to Wager & Fales, they objected to certain portions of it, and Richardson informed Lakin that the matter must rest until he heard further from Wager & Fales. When he did hear, Lakin consented to their terms, and on the 15th of December, 1869, the mortgage and notes were given.

During the year 1869, including the last four months of that year, Lakin was in the habit of stating to all who questioned him in regard to his condition, that he was worth from $12,000 to $15,000 over and above his debts and liabilities.

So far as to the mortgage sought by this bill to be set aside.

Now as to the circumstances under which the petition in bankruptcy was filed.

About the 1st of September, 1869, that is to say, four months prior to filing it, Lakin owed a certain Nazro about $2400. During that four months Nazro sold him over $500 worth of goods, and Lakin paid him during the same time over $400. His last purchase was over $200, and made November 26th, 1869, and his last payment December 20th, 1869.

On the 26th of December, 1869, a friend of Lakin, residing at Brodhead, went to Woodstock with a letter which he had just received from a friend in Chicago, saying that a report had been sent by some one in Brodhead to the Mercantile Agency in Chicago, that Lakin had made an assignment of his property to his father-in-law, Mr. Hayner. Lakin went to Janesville and told his attorney of the report, gave him what, according to his own account, he supposed, at the time, to be a true statement of his affairs, that he owed about $12,000 besides what he owed Hayner on the mortgage above mentioned, and that he had goods, notes, accounts, and real estate, which in his opinion were worth $28,000 or $30,000, and asked for advice. His attorney advised him to make a statement of his affairs to his creditors, ask them for an extension, if necessary; telling them there was no truth in the report of the assignment, and to get his friends to indorse for him; the attorney saying that thus he thought there would be no trouble in arranging matters. Almos immediately some of his creditors, including an agent of Nazro, came to Brodhead to investigate his concerns. He and Nazro's agent made a statement of his condition, and on December 27th or 28th, 1869, and after a considerable investigation, found that his debts were much larger than he had ever stated, and, as he alleged, much larger than he had ever supposed; being at least $23,000. Lakin then saw his attorney again, and told him how he had found matters, and was advised to send a full printed statement of his condition to each of his creditors. Lakin made and sent out such a statement, dated January 1st, 1870, and it showed his debts to be $26,447.73.

Lakin, then in company with Nazro's agent, again counselled with his attorney, who advised him that as Nazro was one of his largest creditors and a man of great business experience, he had better go to Milwaukee with the agent, and confer with Nazro, and he did so. Nazro then requested Lakin to go into voluntary bankruptcy. Lakin expressed a wish to do what was best for his creditors, but told Nazro he thought his creditors would get more money if they would select some one as assignee, and that he would turn over everything he had to such assignee for the benefit of his creditors. Nazro told Lakin that the securities he had given stood in the way of that, and unless he went into voluntary bankruptcy, would himself file a petition and force him into bankruptcy. Lakin then saw his attorney, and filed his petition in bankruptcy January 8th, 1870.

Lakin's books were in a bad condition, and had been kept very loosely for years. The result was that his schedules in bankruptcy, dated February 2d, 1870, showed his debts to be $28,450.

Lakin's particular friend, Richardson, was on his paper during most of the last six months of the year 1869, and a company with which he was connected was a general creditor at the time of the failure. Lakin's father-in-law, Hayner, and his particular friend, Williston, were on his paper to a considerable amount at the bank at the time of his failure. A brother-in-law was a general creditor for $1083. Several of his most intimate friends were general creditors.

So far as to the admitted case.

1. To show that Lakin was at the time of giving the mortgage to Wager & Fales insolvent, and that he gave them the mortgage with a view to give them a preference over his other creditors, the assignee called five witnesses, whose evidence tended to show that for one or two years prior to the failure, Lakin had found it difficult to raise money to pay certain claims against him, and at times had been unable to do so and been protested; that he used moneys in his hands as treasurer of the school district, and also as treasurer of the church, and also moneys held by him in trust and in a fiduciary capacity, and that they and some others in Brodhead regarded him irresponsible, but that during the same time he was doing a business of from $15,000 to $30,000 per year, and pretended to be worth $20,000 over and above all his debts. Two of these witnesses had, during the time, reported him to mercantile agencies as insolvent.

To rebut this evidence, and to show that whatever might have been Lakin's actual condition, he never, prior to his failure, had any idea of stopping business, or being unable to pay all his debts, or that the mortgage would operate as a preference to Wager & Fales, but that he gave the mortgage to obtain a long extension so that he would not have to crowd his own creditors, or sell property for less than it was worth to pay his debts, and that this extension would give him more money to use in his business and pay other debts, the defendants called nine witnesses, whose evidence in addition to the facts, as above stated, tended to show that Lakin as treasurer of the school district and the church received no compensation, but by a sort of consent of the board of trustees used the moneys as he pleased, they drawing on him for the amounts as they might desire to use it; that there was no defalcati n with either.

2. To show that Wager & Fales at the time of receiving this mortgage had reasonable cause to believe that Lakin was insolvent, and that the mortgage was made in fraud of the provisions of the Bankrupt Act, the assignee called one witness. His evidence tended to show that he had had a conversation with the defendant, Wager, in November, 1869, in which Wager stated that he had made up his mind that Lakin was insolvent, but that the witness stated that he had recently been in Brodhead and that Lakin had assured him that he had property enough to pay all his debts, and he thought Lakin would pay dollar for dollar.

This testimony was contradicted by Wager.

In addition to this there was the positive evidence of six witnesses, that Lakin had all the time represented himself to be worth from $12,000 to $15,000 over and above his debts, and that they all believed it.

The court below decreed that the mortgage was fraudulent, and should be discharged of record. The defendants appealed to this court.

Messrs. J. B. Cassady and W. Merill, for the appellant:

1. Did Lakin make the mortgage with a view to give Wager & Fales a preference over his other creditors?

The words-'with a view to give a preference'-were selected and put in this clause of the statute because they express a thought-a condition of things which the clause would not express without them, and hence they are not to be rendered insignificant by construction.

Lakin could not give a mortgage 'with a view to give Wager & Fales a preference over his other creditors,' without recognizing the fact, or in other words knowing, or at least believing, that he had not sufficient property to pay all his debts, and hence that in so far as he secured them in excess of their proportionate share of his estate, he would take from others a corresponding amount of their proportionate share of his estate, and thus prevent an equal distribution of his estate which in his mind-his view-at the time was less in value than the amount of his liabilities. A view to give a preference, therefore, as used in this clause, is nothing more nor less than a mental picture, a vision of an amount of indebtedness by the debtor exceeding the value of all his property, and a purpose to prevent an equal distribution by paying or securing some creditors at the expense of others. If Lakin had the picture in his mind-the vision-then he necessarily had some intent or belief as to the effect of giving the mortgage, and hence his intent or belief is in the question. The giving of a mortgage, or doing any other act by a debtor which would operate as a preference with such a picture in his mind, and with such a purpose, would establish an intent to give a preference.

But it is idle to talk about a man giving a mortgage with a view to give a preference to some of his creditors over others, when at the time of giving the mortgage he had no knowledge or belief that his property was less in value than the amount of his liabilities.

The case of Jones v. Howland, a leading case in Massachusetts, seems to settle this case in our favor. That case, indeed, arose on section second of the Bankrupt Act of 1841. But a fair analysis of that section and of section thirty-five of the present bankrupt law, under which this case arises, will, we think, reveal the fact, that they mean to lay down essentially the same rule as to the intent of the debtor, and if this is so the authorities sustain our position.

'If a party who fears or belives himself insolvent, but does not contemplate stoppage or failure, and intends to keep on, and make his payments, and transact his business, hoping that his affairs may be thereafter retrieved, and in that state of mind makes a sale or payment, without intending to give a preference, and as a measure connected with going on in his business, and not as a me sure preparatory to, or connected with, a stoppage in business, such sale or payment is not void, as made in contemplation of bankruptcy, within the meaning of the second section of the United States Bankrupt Act of 1841, though he immediately after wards became bankrupt.

'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 consequences. But the man who is doing the act may contemplate a very different result. His judgment may be biassed 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 court in the above opinion follows the best considered English cases; and these cases have been adopted by this court as containing the 'sounder rule.' Hence this court takes the same view as the court did in Jones v. Howland. The doctrine stated in that case has moroever been cited with approval or substantially followed in many of the Circuit and District Courts of the United States.

2. Did Wager & Fales, at the time of receiving the mortgage, have reasonable cause to believe that Lakin was insolvent?

There is no evidence that Wager & Fales had any knowledge that Lakin owed any debt except their own, and we submit, as a matter of law, that the mere fact that Wager & Fales held an account against Lakin which had been due nearly two years, under the circumstances stated, is not sufficient to establish as a matter of fact that they had reasonable cause to believe that he was insolvent.

3. Did Wager & Fales when they received the mortgage have reasonable cause to believe that Lakin made it in fraud of the provisions of the Bankrupt Act?

It is very evident that the question whether the mortgage was made by Lakin in fraud of the provisions of the Bankrupt Act, is entirely a different question from the one whether at the time he had the ability to pay his debts as they became due in the ordinary course of business; and for Wager & Fales to have reasonable cause to believe the one, is entirely a different question than for them to have reasonable cause to believe the other.

The evidence is overwhelming that Wager, Fales, Johnson, and Richardson were at the time of receiving the mortgage each and all convinced from what they knew in regard to Lakin, and what he had told them, that he was worth from $10,000 to $20,000, over and above his debts, and there is no evidence in the case tending to show that they had any reasonable cause to believe that he owed any considerable amount of debts aside from their own, much less that the amount of his debts was in excess or equal to the value of his propert.

Mr. Justice CLIFFORD delivered the opinion of the court.

Preferences as well as fraudulent conveyances, if made within four months before the filing of the petition by or against the bankrupt, are forbidden by the Bankrupt Act, but three things must be proved in order that the transaction may come within that prohibition and be affected by it as an illegal payment, security, or transfer: (1.) That the payment, pledge, assignment, transfer, or conveyance was made within four months before the filing of the petition by or against the bankrupt and with a view to give a preference to some one of his creditors, or to a person having a claim against him or who was under some liability on his account. (2). That the person making the payment, pledge, assignment, transfer, or conveyance was insolvent or in contemplation of insolvency at the time the preference was given or secured. (3.) That the person receiving such payment, pledge, assignment, or conveyance, or to be benefited thereby, had reasonable cause to believe that the person making the payment or giving or securing such preference was insolvent, and that the payment, pledge, assignment, transfer, or conveyance was made in fraud of the provisions of the Bankrupt Act.

On the 15th of December, 1869, the insolvent debtor named in the bill of complaint executed to the respondents a certain deed of mortgage of that date, of the following parcels of real estate, situate in the town of Brodhead in that State, and known as the north one-third of lot one in block one hundred and one, also all of lot three in block one hundred and one, also the north half of the south half of block seventy-nine, also the east half and the southwest quarter of block two hundred and six, also all of block one hundred and forty-two, it appearing that all of these several parcels of real estate were conveyed by the insolvent debtor to secure the payment of five notes which he gave to the respondents, of the same date, payable to the respondents or order as follows: one for $600, payable in six months; one for $600, payable in twelve months; one for $600 payable in sixteen months; one for $600, payable in twenty months, and one for $600 payable in two years, and all with interest at the rate of 10 per cent.

Prior to that date, to wit, on the 27th of August of the same year, the insolvent debtor mortgaged the first-named parcel of real estate, which is his new brick store and lot, to Andrew P. Hayner, the father of his wife, to secure the payment of three notes of that date which he gave to the mortgagee, of the following tenor: one for $1287.87, payable in three years; one for $1000, payable in two years, and one for $1000, payable in three years, all with interest annually at the rate of 10 per cent.

Twenty-four days after he gave the mortgage to the respondents he filed his petition in bankruptcy, and on the 2d of February following he was adjudged a bankrupt. His creditors made an examination into his affairs soon after he gave the mortgage to the respondents, when it was made to appear that he was hopelessly insolvent, which induced him to make an effort to compromise with his creditors, but without any success, and he then filed the petition to be adjudged a bankrupt, and on the 4th of March in the same year the complainant was duly appointed the assignee in bankruptcy of his estate.

All of the notes secured by the mortgage to the respondents were given by the insolvent debtor for a debt which had been past due more than two years, and which the insolvent contracted for stoves purchased by him as stock in trade. His purchases were made on a credit of four months, and the record shows that the respondents, in repeated instances, called upon him for payment and had several times sent their agent to effect that object without much success. Small amounts were paid, but the insolvent debtor constantly asked for further indulgence, offering as a reason for his failure to meet his contr cts that business was dull, and that it was impossible to collect what wad due from his customers.

More than a year before the execution of this mortgage, he sold out his stock of stoves to other parties and abandoned that business, limiting his trade to that of a retail hardware merchant, and during that same year he built the new brick store which he mortgaged to his father-in-law three or four months before he gave the mortgage to the respondents.

Precisely what sum the store cost does not appear, but it must have been as much as $6000 or $8000, as the evidence shows that he owed more than $14,000 when he gave the mortgage in question, a large portion of which had been due for a long time.

Convincing evidence was also introduced showing that for a year or two he had been hard pressed for money by many of his creditors, and that his notes in repeated instances had been protested for non-payment, and it also appears that he had borrowed money at banks by means of indorsers and been obliged to get the same renewed, and he had used trust funds in his hands to pay pressing demands, and when called upon to repay the amount he was obliged to ask for delay.

Some of the notes given for the stock of stoves he had used to secure past-due debts and such portion of the consideration as had been paid he had expended in his business. Part of the money required to build the store, to wit, the sum of $3000, he borrowed of his wife's father, agreeing at the time to give him a mortgage of the premises when the store was completed, but the mortgage was not executed until the next season, and it appears that the respondents, whey they heard of that mortgage through their agent, also demanded a similar security, which the insolvent debtor for a time refused to give, pleading as an excuse for declining the request that it would injure his credit. Witnesses were also examined to show that his credit was not in good repute, but it is unnecessary to enter into those details, as the proofs are of the most satisfactory character that he did not pay his debts when the obligations fell due and that he suffered his notes to go to protest.

Nothing need be added to show that the means of ascertaining the condition of his affairs were at hand, as his other creditors, when they instituted inquiries upon the subject, shortly after the insolvent debtor gave the mortgage to the respondents, found no difficulty in learning that he owed more than the value of his property, and that he had been insolvent for two years. Enough, and more than enough has been remarked to show that the mortgagor was insolvent when he executed the mortgage to the respondents, as the fact is admitted both by the mortgagor and the mortgagees.

Preferences of one creditor over another are prohibited by the Bankrupt Act, if made within four months before the filing of the petition, and the complainant, as such assignee, prays that the mortgage may be declared fraudulent and void, and that the same may be decreed to be given up to be cancelled, or that the respondents may be required, in due form of law, to execute and deliver to him, as such assignee, a satisfaction, release, and discharge of the mortgage. Proofs were taken, and the parties having been heard, the Circuit Court entered a decree for the complainant, and the respondents appealed to this court.

Made, as the mortgage was, within twenty-four days next before the petition in bankruptcy was filed, and for the express purpose of securing to the respondents the payment of a large debt long overdue, the first material allegation to be proved may be considered, in view of the evidence already referred to, as fully established. Discussion to show that the effect of the mortgage was to secure a preference over all of the creditors of the bankrupt, except his wife's father and the firm secured by one of the notes given by the purchasers of the stoves, is unnecessary, as that proposition is self-evident; and the allegation that the mortgagor was insolvent as the time may als be considered established, as it is fully proved and stands confessed. Sufficient has also been remarked to show that the conveyance in mortgage was made with a view to give a preference to the respondents over all his other creditors, except such as he had previously secured in the modes previously explained.

Evidence of the most satisfactory character was introduced to show that the insolvent debtor had reasonable cause to believe that he was insolvent, and in view of all the circumstances the conclusion of the court is that he knew that he was insolvent in the sense of the Bankrupt Act. Creditors were constantly pressing him for payment, and he was notoriously unable to comply with their just demands. Extensions were asked, which were sometimes granted and sometimes refused, and it appears that considerable of his paper went to protest. Such a conveyance, under such circumstances, could hardly be made by one deeply insolvent unless with a view to give the grantee a preference over other creditors, who were without any security, as the law authorizes the presumption that a person of ordinary intelligence intends what is the necessary and unavoidable consequence of his acts.

Insolvency, as used in the Bankrupt Act, when applied to traders, does not mean an absolute inability of the debtor to pay his debts at some future time, upon a settlement and winding up of his affairs, but a present inability to pay in the ordinary course of his business, or, in other words, that a trader is insolvent when he cannot pay his debts in the ordinary course of business as men in trade usually do, and such much be the conclusion, even though his inability be not so great as to compel him to stop business.

Reference is made by the respondents to the case of Jones v. Howland, which it is insisted lays down a different rule. Suppose it be admitted that the opinion in that case affords some support to the suggestion, still it is only an apparent inconsistency, which is easily reconciled, as the case arose upon the prior Bankrupt Act, which did not declare such a conveyance void, unless it was made in contemplation of bankruptcy and for the purpose of giving the creditor a preference or priority over the other creditors of the bankrupt. What was said by the judge who gave the opinion in that case, which is supposed to be inconsistent with the more recent opinions of the court upon the same general subject, was said in construing the provision referred to in the prior law. He did say in that case that 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 afterwards ensue; but the judge admitted in the same case that 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 other creditors, such payment or giving security is fraudulent. But the present Bankrupt Act avoids a conveyance, made with a view to give a preference, if the debtor at the time be in fact insolvent, although he may not contemplate bankruptcy in connection with the conveyance. Such a conveyance, if made by a person actually insolvent or in contemplation of insolvency, to secure a preexisting debt, said Hoar, J., 'may be avoided by the assignee if the mortgagee had reasonable cause to believe him insolvent at the time he took the mortgage, and that the conveyance was made to impede the operation of the insolvent laws;' and he added that it is made prim a facie evidence of such cause of belief if the conveyance is not made in the usual and ordinary course of business of the debtor.

Nothing remains, therefore, to be re-examined except the issue whether the respondents had reasonable cause to believe that the mortgagor was insolvent and that the conveyance was made in fraud of the provisions of the Bankrupt Act. Proof that the respondents had actual knowledge that the mortgagor was insolvent at that time is not required to support the prayer for relief, but the allegation in that behalf is sustained if it appears that they had reasonable cause for such belief, as that is the language of the Bankrupt Act. Actual knowledge of the alleged fact is not made the cirterion of proof in such an issue, nor is it necessary that it should appear that the respondents actually believed that the mortgagor was insolvent, but the true inquiry is whether they, as business men, acting with ordinary prudence, sagacity, and discretion, had reasonable cause to believe that the debtor was insolvent, in view of all the facts and circumstances known to them at the time the conveyance was made. Unless the debtor was in fact insolvent it cannot be held that such a grantee had reasonable cause to believe the allegation, but if it appears that the debtor was in fact insolvent as alleged, and that the means of knowledge were at hand, and that such facts and circumstances were known to the grantee as were clearly sufficient to put a person of ordinary prudence and discretion upon inquiry, it is well settled that it would be his duty to make all such reasonable inquiries to ascertain the true state of the case. Purchasers are required to exercise ordinary prudence in respect to the title of the seller, and if they fail to investigate when put upon inquiry, they are chargeable with all the knowledge which it is reasonable to suppose they would have acquired if they had performed their duty in that regard. Creditors have reasonable cause to believe that a debror, who is a trader, is insolvent when such a state of facts is brought to their notice respecting the affairs and pecuniary condition of the debtor as would lead a prudent business man to the conclusion that he is unable to meet his obligations as they mature in the ordinary course of business. All experience shows that positive proof of fraudulent acts, between debtor and creditor, is not generally to be expected, and it is for that reason, among others, that the law allows in such controversies a resort to circumstances as the means of ascertaining the truth, and the rule of evidence is well settled that circumstances altogether inconclusive, if separately considered, may by their number and joint operation, especially when corroborated by moral coincidences, be sufficient to constitute conclusive proof, which is a rule clearly applicable to the facts and circumstances disclosed in this record.

Apply those two rules to the present case and it may well be said that the argument is concluded, as it is difficult to resist the conclusion that the respondents had actual knowledge that 'the insolvent debtor was unable to meet his obligations as they matured in the ordinary course of his business.' Such proof, however, is not required, as the only issue in this behalf is whether the respondents had reasonable cause to believe that the debtor was insolvent at the time they received the conveyance, testing the question under the rule prescribed by this court.

Much discussion of the question whether the respondents had reasonable cause to believe that the conveyance was made in fraud of the Bankrupt Act may well be omitted, as the whole issue is substantially adjudged by the recent decision of this court, which is to the effect foll wing: that the transfer by a debtor who is insolvent of his property, or a considerable portion of it, to one creditor as a security for a pre-existing debt, without making any provision for an equal distribution of its proceeds to all his creditors, operates as a preference to such transferee and must be taken as prim a facie evidence that a preference was intended, unless the debtor or transferee can show that the debtor was at the time ignorant of his insolvency, and that his affairs were such that he could reasonably expect to pay all his debts; and that a transfer by an insolvent debtor of his property, or any considerable portion of it, with a view to secure it to one creditor, and thus prevent an equal distribution among all his creditors, is a transfer in fraud of the Bankrupt Act.

Knowledge of a given fact may be proved by circumstances, even in an ordinary equity suit, where, from the nature of the pleadings, the testimony of a single witness without corroboration would not be sufficient to establish the alleged fact, and if so it cannot be doubted that circumstances in a case like the present are sufficient to put the respondents upon inquiry, or even to show that they had reasonable cause to believe the alleged fact, that the conveyance was made in fraud of the Bankrupt Act. Their debt had been overdue for two years, and throughout that period they had pressed the insolvent debtor for payment, both in person and through their agent, and it is not doubted that if they had made the least inquiry they would have been as successful as his other creditors were, a few days later, in ascertaining that he was hopelessly insolvent. Beyond doubt they knew that he had mortgaged his new brick store and lot to his wife's father, and when he finally consented to give them a mortgage on all or nearly all of his real estate, they were fairly put upon inquiry, and having neglected to make such they are justly chargeable with all the knowledge it is reasonable to suppose they would have acquired if they had performed their duty as required by law.

DECREE AFFIRMED.

[See the last preceding case, and also Buchanan v. Smith, supra, p. 277.]

title: Wager v. Hall/Opinion of the Court


text: Talk:Wager v. Hall/Opinion of the Court

title: Talk:Wager v. Hall/Opinion of the Court


text:
Kansas Pacific Railway Railway Company v. Prescott

ERROR to the Supreme Court of Kansas; the case being thus:

An act of Congress passed in 1862, to aid what was afterwards known as the Kansas Pacific Railway Company, in the construction of its road, gave to the said company alternate sections of land on each side of the road, within certain limits, and provided that a patent should issue to the company only as each section of forty miles in length should be completed and accepted by the President. The act also contained a provision that any of these lands not sold by the company within three years after the final completion of the road, should be liable to be sold to actual settlers under the pre-emption laws, at a dollar and a quarter per acre, the money to be paid to the company.

No part of the road having been built in 1864, the original act of 1862 was amended in the year last named, by extending the limits of the grant on each side of the road, and by several other provisions favorable to the company. But by the 21st section of the amendatory statute it was enacted:

'That before any land granted by this act shall be conveyed to any company or party entitled thereto under this act, there shall first be paid into the Treasury of the United States the cost of surveying, selecting, and conveying the same by the said company or party in interest as the titles shall be required by said company, which amount shall, without any further appropriation,. . . be used by the Commissioner of the General Land Office, for the prosecution of the survey of the public lands along the line of said road, and so from y ar to year, until the whole shall be completed, as provided under the provisions of this act.'With these statutes in force, the railway company filed its bill in one of the State courts of Kansas against one Prescott, to quiet the title to a tract of land in Kansas, to which it set up title only by virtue of the provisions of the abovequoted act of Congress of 1862. The defendant set up a tax title for taxes assessed in 1868, with a subsequent sale.

It was admitted on both sides that at the time the lands were assessed the company had completed the section of forty miles of road within which the lands lay, and that the President had accepted them; but that in the present case payment of the costs of surveying, selecting, and conveying had never been made, and that no patent for the land had issued.

The primary question thus was, who was the owner of the land at the time it was assessed and taxed, the United States or the railway company? If the United States, then the land was not subject to State taxation, and the sale was void. If the railway company, it was, and there being in that case no question about the regularity of the sale, the title of the company had been divested.

And this primary question depended on others behind it, to wit:

1st. Whether in order to the procuring of a title into itself, it was necessary for the company to have paid the costs of surveying, selecting, and conveying the land?

2d. Whether such a proviso as existed here, giving to the government a contingent right to offer the lands to actual settlers under the pre-emption laws, did not prevent the lands so vesting in the company as to be liable to be sold for taxes?

The court in which the company's bill was filed, referring to the doctrine as admitted, that a right to a patent was sufficient to subject lands to taxation, considered:

1. That where land is granted to a company for the sole purpose of aiding in the construction of a railroad, and the same was constructed to the approval of government, the company acquired such an interest in the land as rendered it subject to taxation, even though it had not received a patent, and had not paid the cost of surveying, selecting, and conveying the same.

2. That the provision in a grant by the government 'that any of the lands so granted and not sold by the company within three years after the final completion of the road, should be liable to be sold to actual settlers under the preemption laws, at one dollar and a quarter per acre, the money to be paid to the company,' reserved no such interest in the government as would render the land not subject to taxation.

It accordingly decreed a dismissal of the bill, and that decree being affirmed in the Supreme Court of the State, the case was brought here by the company for review.

Mr. I. G. Mohler, in support of the ruling below:

We submit as a preliminary point, worthy of consideration, whether the 21st section of the amendatory act of 1864,-requiring that before any of the lands granted by 'this act' should be conveyed to the company the cost of surveying, selecting, and conveying said lands, shall first be paid into the Treasury of the United States by the company, &c.,-is not limited to lands acquired by virtue of that act. The language is 'this act.' Independently of that the original act of 1862 required no such prepayment, and the government cannot disregard a statute which made a grant-an executed contract-and annex new conditions to the grant by a subsequent enactment. If this point is well taken, then as the title here is derived under the original act (the act of 1862), the requisition does not apply to this particular case.

But independently of this:

1. A legal title is confessedly unnecessary to give to a State a right to tax. 'The right to a patent once vested,' says this court, in Stark v. Starrs, 'is equivalent, as respects the government dealing with the public lands, to a patent issued; and when issued, it relates back so far as may be necessary to cut off intervening claimants, to the inception of the right of the patentee.' Indeed the whole foundation of the plaintiff's case is a title in himself. He sets one up, and if he has no title, of course, he can maintain no bill to have his title quieted.

2. Now the grant attached, and a good equitable title vested upon the compliance by the company on which the grant itself was made; that is to say, upon the completion of any forty consecutive miles of road, accepted by the President. The 21st section of the amendatory act does not prevent an equitable title from vesting. It only declares that 'before any land granted by this act shall be conveyed,' certain small expenses shall be paid. It assumes that the land has been 'granted,' i. e., that the grant has attached; but withholds a patent, or evidence of legal title, till the small expenses mentioned are discharged.

3. The court below was equally right as to the effect of the proviso in the original statute of 1862, opening to actual settlers under the pre-emption laws any of the lands not sold within three years. The effect of an opposite construction would be to render the act nugatory and void, and consequently destory the grant, for government cannot grant away any portion of the public lands, and yet still own them. This proviso is in the nature of a saving clause in a statute; but a saving clanse in a statute, where it is directly repugnant to the purview or body of the act, and cannot stand without rendering the act inconsistent and destructive of itself, is to be rejected.

Mr. J. P. Ushur, contra, for the plaintiff in error.

Mr. Justice MILLER delivered the opinion of the court.


text: Talk:Kansas Pacific Railway Railway Company v. Prescott


text:
Kansas Pacific Railway Railway Company v. Prescott/Opinion of the Court

The original act of 1862 was amended in 1864 by extending the limits of the grant on each side of the road, and by several other provisions.

A question is raised whether the provision in the twenty-first section of the amendatory statute of 1864-by which it is declared that before any of the lands granted by the act should be conveyed to the company, the cost of surveying, selecting, and conveying said lands should first be paid into the Treasury of the United States by the company or party in interest requires this prepayment of the cost of surveying for the lands granted by the original act, or is limited to the lands acquired by the extension of the grant.

Looking to the whole scope of the amended act, and to the provision that the money so paid was to constitute a fund for the continuance and completion of the entire surveys along the road where none had been made, we are of opinion that no patent could rightfully issue in any case until the cost of survey had been paid. None of the road had been built when the amendatory act was passed. No right had vested in any tracts of land, and the power, as well as intent, of Congress to require such payment cannot be contested.

While we recognize the doctrine heretofore laid down by this court, that lands sold by the United States may be taxed before they have parted with the legal title by issuing a patent, it is to be understood as applicable to cases where the right to the patent is complete, and the equitable title is fully vested in the party without anything more to be paid, or any act to be done going to the foundation of his right.

The present case does not fall within that principle.

Two important acts remain to be done, the failure to do which may wholly defeat the right of the company to a patent for these lands.

The first is the payment of the costs of surveying. It is admitted that this has never been done in the present case. If the company have such an interest in these lands that they can be sold by the State under her power of taxation, then the title is divested out of the government without its consent, and the right to recover the money expended in the surveys is defeated. As the government retains the legal title until the c mpany or some one interested in the same grant or title shall pay these expenses, the State cannot levy taxes on the land, and under such levy sell and make a title which might in any event defeat this right of the Federal government reserved in the act by which the inchoate grant was made.

Another important and declared purpose of Congress would be equally defeated by the title thus acquired under the tax sale, if it were valid.

It is wisely provided, that these lands shall not be used by the company as a monopoly of indefinite duration. The policy of the government has been for years to encourage settlement on the public land by the pioneers of emigration, and to this end it has passed many laws for their benefit. This policy not only favors the actual settler, but it is to the interest of those who, by purchase, own adjacent lands, that all of it should be open to settlement and cultivation. Looking to this policy, and to the very large quantity of lands granted by this statute to a single corporation, Congress declared that if the company did not sell those lands within a time limited by the act they should then, without further action of the company, or of Congress, be open to the actual settler under the same laws which govern the right of pre-emption on government lands, and at the same price. Any one who has ever lived in a community where large bodies of lands are withheld from use, or occupation, or from sale except at exorbitant prices, will recognize the value of this provision. It is made for the public good, as well as for that of the actual settler. To permit these lands to pass under a title derived from the State for taxes would certainly defeat this intent of Congress. It makes no difference in the force of the principle, that the money paid by the settler goes to the company. The lands which the act of Congress declares shall be open to pre-emption and sale are withdrawn from pre-emption and sale by a tax title and possession under it, and it is no answer to say that the company which might have paid the taxes gets the price paid by the settler.

For these reasons we think that though the line of the road had been built and approved by the President, so far as to authorize the company to obtain a patent for this land, if they had paid the cost of survey and the expenses of making the conveyance, yet the neglect to do this and the contingent right of offering the land to actual settlers at the minimum price asked for its lands by the government, forbid the State to embarrass these rights by a sale for taxes.

JUDGMENT REVERSED, and the case remanded to the State court with instructions to proceed in conformity to this opinion.


text: Talk:Kansas Pacific Railway Railway Company v. Prescott/Opinion of the Court


text:
Crapo v. Kelly

ERROR to the Supreme Court of New York; the case being thus:

On the 18th of January, 1861, the American ship Arctic, owned, as to one-half, by Gibbs & Jenny, of Massachusetts, and registered as to that half in their names, in the port of Fairhaven, in the State aforesaid, was at the guano islands in the Southern Pacific Ocean, and on that day set sail from the said islands for New York.

On the 12th of February, and the 6th of March following, the ship, then sailing on the said ocean, and the said Gibbs & Jenny being insolvent and applying voluntarily to the judge of the insolvent court of Massachusetts for the benefit of the insolvent laws of the State, that judge, acting under a statute of the State, appointed one Crapo and others their assignees in insolvency, and executed and delivered to them an assignment of all the personal property of the said insolvents. No assignment was made by the insolvents themselves.

The statute which authorizes the judge of the insolvent court thus to transfer the debtor's property makes the transfer operate as a conveyance of all the debtor's property 'which he could have lawfully sold, assigned, or conveyed.' It however enacts further, that the debtor shall,

'When required by the assignees, mak and execute all such deeds and writings, and do all such other lawful acts and things which may be necessary or useful for confirming the assignment so made by the said judge, and for enabling the assignees to demand, recover, and receive all the estate and effects assigned as aforesaid, especially such part thereof, if any, as may be without this Commonwealth.'

On the 24th of April following (the ship still on the high seas), one Robinson, a citizen and resident of New York, began an action against the said Gibbs & Jenny on certain promissory notes of theirs held by him, and in consequence of their residence out of the State of New York, a warrant was issued to the sheriff of New York, one Kelly, to attach their property; this proceeding being one in conformity to the laws of New York.

On the 30th of April the ship arrived at New York, direct from the Pacific Ocean, and the sheriff seized her in the harbor, and attached one undivided half of her as the property of Gibbs & Jenny. Crapo and his co-assignees appeared two days afterwards and, notwithstanding the previous attachment by the sheriff, claimed the ship as assignees of Gibbs & Jenny. She was thereupon released from custody on the claimants giving a bond, in conformity with the statutes of New York, conditioned that in a suit to be brought on the bond they would establish the fact that they were owners of the half of the vessel attached, or on failure to do so pay the sheriff the value of the share.

Kelly accordingly brought suit on the bond; the question on that suit being this, whether a New York creditor of the insolvents, by his prior attachment of their property in the State of New York, and pursuant to the laws of that State, could hold the property against the subsequent possession or claim of possession of such property, asserted in the State of New York, by authority of a statutory sequestration under the laws of Massachusetts of the general property of the debtors for the benefit of their creditors, and seeking to take the property out of the possession of the New York sheriff, on the ground of the sequestration of the Massachusetts insolvent statute antedating the New York sheriff's attachment.

The highest court of the State upheld the sheriff's title, and a recovery accordingly was had upon the bond.

The case was now brought here, as within the jurisdiction of this court, under the 25th section of the Judiciary Act, because, as was alleged, the highest court of New York had disregarded that provision of the Constitution which ordains that

'Full faith and credit shall be given in each State to the public acts, records, and judicial proceedings of every other State; and the Congress may, by general laws, prescribe the manner in which such acts, records, and proceedings shall be proved, and the effect thereof',--

And to the act of Congress of May 26th, 1790, which, after prescribing the forms of authentication, enacts:

'And the said records and judicial proceedings authenticated as aforesaid shall have such faith and credit given to them in every court within the United States as they have by law or usage in the courts of the State from whence the said records are or shall be taken.'

Mr. W. M. Evarts, against the jurisdiction and in support of the ruling below:

I. There is no jurisdiction.

1. The fact that controversies between litigants involve rights or titles claimed under the laws and jurisprudence of different States, does not subject the determinations of State courts, made the forum of such controversies, to review by this court. Unless the controversy and its decision in the State court involves the further element that some right or protection claimed under the Constitution of the United States has been denied by the State court, its judgment is not reviewable here.

. If the insolvent proceedings in Massachusetts are to be considered as within the sense of this article of the Constitution, 'Judicial Proceedings,' full faith and credit was given to their purport at the trial of this cause in the New York courts.

No 'judicial proceeding' in Massachusetts has adjudicated anything whatever concerning the ship, her title or possession, or any consequences that have attached to her by reason of the insolvency of her owners.

The controversy between these two competing pursuits of the ship in the port of New York was res integra, as a judicial question, when the action now under review was begun in New York.

No adjudication on this controversy has ever yet been had in Massachusetts, and all that the insolvent proceedings in Massachusetts have contributed towards such an adjudication has been to furnish the assignees a standing, which has been fully recognized in the New York courts.

The case of Green v. Van Buskirk, where the section of the Constitution relied on by the plaintiffs in error was considered, while it upheld the appellate jurisdiction of this court in that case, excludes it, we submit, in this. That case upon the merits, seems conclusive of this case upon its merits; that is to say, that the lex fori where the res is found must determine when and how it shall be subjected to the pursuit of creditors seeking the forum.

II. But if jurisdiction exists here to review, the judgment below was right.

1. The attaching creditor, Robinson, was a resident, subject, and citizen of New York, and as such entitled to the protection of its tribunals, and to seek their aid and remedies in asserting his claims against his debtors, and in satisfying his debt out of their property found within that jurisdiction.

2. The insolvent proceedings in Massachusetts never operated, or purported to operate, to transfer, by their own force, possession of choses in possession beyond the jurisdiction of the powers of the court, to wit, the county of its jurisdiction. Any further transfer could, by the terms of the statute, exist only by virtue of the jurisdiction which the court had over the persons of the insolvents, and it needed the personal exercise of their jus disponendi in aid of the court.

3. It is too late to dispute the doctrine (which has been accepted and established throughout the United States) that the insolvent laws of a State have no force to transfer the title to property not within the territory of the State, and that the title of such assignees will not be recognized when it comes in conflict with liens acquired by domestic creditors under the local laws. International comity may require us to permit such assignees to come to another State and take possession of property and collect choses in action, but they must take subject to the prior liens of creditors there who, by greater diligence, have availed themselves of the remedies provided by its laws against the property of the debtor.

4. Nor in this view does the fact that the property in dispute was an American ship, registered under the acts of Congress, at Fairhaven, in Massachusetts, make any difference or enable her to carry with her the operation of her insolvent law round the world. Upon the high seas neither the attachment law of New York nor the insolvent laws of Massachusetts have any dominion. After leaving Massachusetts the ship was free from the operation o the one, and until she reached New York she was exempt from that of the other. She was indeed the property of a citizen of the State from which she sailed, and, as property, followed his person so far that his acts and contracts in respect to her were to be controlled by the lex loci contractus, but it was only through the owner that that law could operate upon her. So that if he sold or mortgaged her, or made any other contract respecting her in Massachusetts, or if he died, domiciled there, and bequeathed her by will, or died intestate as to her, the laws of Massachusetts would regulate the rights of property in her arising from these incidents. So in respect to the taxing power, being within no other State, it would properly be held that the owners residing where she was registered would be properly taxable for her there. But in no other or larger sense can it justly be said that at sea she was governed by or subject to the laws of Massachusetts. The American doctrine, as to the effect of foreign bankrupt assignments, has always been a recognized and admitted exception to the rule that personal property follows the person of the owner.

5. Therefore the simple question is, whether, because the vessel did not arrive until after the assignment was executed, comity requires that a New York creditor of the insolvent, pursuing with diligence the remedy prescribed by the law of New York, shall be deprived of the fruits of his diligence for the accommodation and benefit of the assignees and the Massachusetts creditors whom they represent. To this there can be but one answer, and the right of the New York creditor must be preferred and his remedy upheld. The reasons upon which this policy of protecting the rights of domestic creditors have always been rested, apply with equal force to property of the insolvent brought into the State after the assignment, as to that which happens to be here at the exact moment of the assignment. Their convenience, their natural right to all the securities and remedies which the laws of their own State afford, the fairness of allowing them to reap the fruits of their diligence, the hardships of sending them to a foreign State or country for dividends when a remedy lies at their own doors, and those considerations of general utility which relate to the general interests of creditors and the harmony of States, all lead to the same policy and necessity in respect to property of the insolvent attached by the diligent creditor, no matter at what precise moment it came within the State.

6. If the point in issue is regarded as a question of comity, the superior rights of the home creditor must prevail. The argument will then be rested upon the proposition that the operation of the insolvent law of Massachusetts did proprio vigore transfer the absolute title of the ship, being at sea, to the assignees, to the exclusion of creditors attaching under the laws of whatever State and jurisdiction she should first reach.

This proposition is in defiance of the settled law of the Federal and State courts. And, not only is there no authority whatever for the new and startling proposition contended for; not only must this court, to establish it, override the well-settled current of American law, by which bankrupt laws and proceedings of foreign States have been allowed no effect upon property situated outside of their territorial limits, but the result sought to be obtained will be contrary to our best interests and subversive of our longestablished and well-recognized policy. It will be a complete abandonment of the American doctrine, and a submission to the rule devised by Great Britain for her own benefit, as the great creditor nation of the world, so that she might, in the language of Platt, J., in Holmes v. Remsen:

title: Crapo v. Kelly


text: Talk:Crapo v. Kelly

title: Talk:Crapo v. Kelly