text:
Clark v. Iselin

ON appeal and cross-appeal from the Circuit Court for the Southern District of New York.

Clark, assignee in bankruptcy of Dibblee & Co., filed a bill in the District Court of the district just named against Iselin & Co., to recover certain assets which the bill charged were made over to them in fraud of the Bankrupt law; an act whose thirty-fifth section is in these words:

'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, or who is under any liability for him, procures any part of his property to be attached, sequestered, or seized on execution, or makes any payment, pledge, assignment, transfer, or conveyance of any part of his property, either directly or indirectly, absolutely or conditionally, the person receiving such payment, pledge or assignment, transfer or conveyance, or to be benefited thereby, or by such attachment, having reasonable cause to believe such person is insolvent, and that such attachment, payment, pledge, assignment, or conveyance is made in fraud of the provisions of this act, the same shall be void, and the assignee many recover the property, or the value of it, from the person so receiving or so to be benefited.'

Upon the hearing a decree was made granting the relief asked for, in part, and in part refusing it; and on appeal to the Circuit Court this decree of the District Court was affirmed. Both parties now appealed to this court.

The firm of Dibblee & Co., jobbers, was formed in January, 1866, continued in business till May, 1869, and on the petition of creditors, filed May 3d, 1869, was adjudged bankrupt June 2d, 1869.

The defendants, Iselin & Co., were bankers, doing business in the city of New York, and as such had various dealings with the firm of Dibblee & Co., who from time to time required commercial facilities; advancing to them money on the pledge of bills receivable, which Dibblee & Co. had received in the course of their business.

On the 6th of August, 1868, they borrowed from the defendants $61,000, for which they gave their four notes, payable one in September, one in October, one in November, and the other in December of that year, and at the same time they transferred to the defendants, as collateral security for the loan, one hundred and forty-seven bills receivable by them, amounting in the aggregate to $72,170.42. Many of these bills were past due when they were pledged. On the day next following the loan the notes held as collateral were returned to Dibblee & Co. for convenience of collection, to be collected for account of the defendants, or to be replaced by others.

Of the four notes discounted by Iselin & Co., on the 6th of August, 1868, the one which fell due in September was paid at maturity, and the collaterals pledged for it were surrendered. The other notes were not paid when they fell due, but were renewed from time to time and extended, and the collaterals held by them were in part replaced by others.

Thus, on the 4th day of December, 1868, the day when the bankrupts' last note matured, the amount of the collaterals pledged to the defendants was $63,240.61, and they were all, or nearly all, good. It did not appear that any of them were uncollectible. For some of these others were substituted up to January 15th, 1869, and on the 5th of April, 1869, the amount of collaterals pledged for the payment of the three notes given by the bankrupts was either $63,318.89 or $65,013.15. On that day they were all withdrawn, and others, amounting to $62,027.34, were contemporaneously pledged in their stead.

This pledge was sustained by the decrees below, and the assignee appealed.

On the 8th of April, 1869, Dibblee & Co. paid to Iselin & Co. $7944.88, being the principal and interest of certain loans made without security prior to the 30th of November, 1868. The evidence showed that Dibblee & Co. were paying their debts generally, as they matured. This payment also was sustained by the decree, and the assignee appealed.

There were some other transactions which the assignee called in question, which were sustained, and from which the assignee appealed, but which need not be more particularly mentioned.

A transaction, however, which both courts set aside, and over which there was much more doubt and argument everywhere than about the others which it sustained, was of this sort.

On the 25th of February, 1869, Dibblee & Co. gave a judgment note, in the form authorized by the New York code, to secure $54,100 lent by the defendants to them. This sort of note had what is called 'a confession of judgment' on it. The maker declares that he 'confesses judgment in favor of A. B.' for such a sum, and 'authorizes judgment to be entered therefor' against him. It is the equivalent of the old 'warrant of attorney.' A portion of the sum of $54,000, mentioned in this note, had been advanced on the 21st of February, and a judgment bill then given; another portion on the 23d of February, for which a similar security was then given, and the remainder was advanced February 24th. On the 25th of that month the previous confessions of judgment were given up and destroyed, and one confession for the entire loan, $54,100, was taken as above mentioned. The advances for which this confession was taken were made in negotiable State and railroad bonds, of a larger nominal value, but they were taken by Dibblee & Co. at their cash value at the time. They were made to enable the bankrupts to borrow money, and upon depositing the securities lent as collateral they obtained $46,000 from three banks with which they did business.

The confession of judgment was held by the defendants without entry of record until April 30th, 1869, when judgment was entered upon it in the Supreme Court, as the bill averred at the request of the defendants, and an execution was issued and levied upon the debtor's stock of goods, considerably greater in value than the amount of the debt. On the next day (May 1st), at the request of the debtors, they paid to the banks with which the bonds lent had been pledged the sums for which they were held, and took up the collaterals and notes. Thus a payment was effected on the judgment of the difference between the amount of the notes and the collaterals. Then Dibblee & Co. paid $1900 in cash, and transferred bills receivable and accounts owned by them, amounting to $47,839.52, in satisfaction of the balance of the judgment, and the levy was released.

The Circuit Court decided that the mere giving of the judgment note was legitimate, but held the subsequent transaction to be fraudulent, as in conflict with the Bankrupt Act, and decreed that the assignee of the bankrupts should recover from the defendants the amount received by them from the securities transferred on the 1st of May, together with the $1900 paid to them in cash, and the value of the securities redeemed by them from the banks, above the sums which they paid for the redemption. From this part of the decree Iselin & Co. appealed, asserting that the payment, and the transfer of securities made to them by Dibblee & Co. on the 1st of May, was not a preference in fraud of the Bankrupt Act, or any preference at all.

We return now to the transactions previous to the one last mentioned (from which the defendants appealed), and state the testimony bearing upon them.

The complainant alleged that the notes discounted by the defendants for the bankrupts in August, 1868, were mere renewals, and renewals of notes previously unsecured. However, the testimony established that Iselin & Co. were fully covered with collaterals for these discounts, from the time that they originated, and that the moneys collected by Dibblee & Co., on the collaterals temporarily intrusted to them, were, until replaced, regarded as the specific property of Iselin & Co., and to be paid over by Dibblee & Co. to Iselin & Co.

The testimony further showed that Dibblee & Co. were making preparations for extending their business during the then approaching 'season.'

Two members of the firm were examined as witnesses.

One of them thus testified:

'Up to April 30th, I never heard the solvency of our house questioned, nor had I any reason to suppose that it would suspend. A week or ten days before that Mr. Dibblee had said to Mr. Bingley and myself, that we had a good prospect for the coming season. Up to the 30th day of April, 1869, I had no reason to suppose that the house was not perfectly solvent.'

Another thus:

'Though I knew little of the financial condition of Dibblee & Co., on the 30th April, 1869, I was led to believe by Mr. Dibblee's acts and from the circumstance that a few days before he directed me to re-engage certain salesmen for the approaching season, that we were on that day solvent. I did not, of my own knowledge, know of such solvency. Up to that time, however, I never heard it questioned.'

Both of these witnesses were partners in the house of Dibblee & Co., and attended to the purchases and sales made by the house, and were therefore in intercourse with the parties who sold the house goods. It seemed, therefore, that they would have been the first to hear any question as to the credit of the house being doubted.

A witness of the complainant, who, as an expert, had examined their books lately, testified that Dibblee & Co. were insolvent on the 1st day of August, 1868, to the extent of at least $75,000, and to a like amount for months provious to that date. However, subsequently to that date, the defendants purchased in the market Dibblee & Co.'s notes to the amount of over $80,000, more than $47,000 being unsecured.

On the 13th of April, 1869, a firm in which one of the Iselins was a special partner, sold goods to Dibblee & Co. upon credit for over $24,000, and the amount due them from Dibblee & Co., at the time of the adjudication in bankruptcy, and proved before the register, was $8351, one of the largest debts proved.

As already said, the court below sustained all the transactions except the last. That one it held fraudulent.

Mr. James Emott, for Clark, the assignee in bankruptcy:

1. With regard to the debt of August 6th, 1868, for $61,000. The evidence shows that Dibblee & Co. immediately took back and retained the so-called collaterals, and collected the money as if it had been their own. They doubtless used it in the same way. The whole transaction, in short, was an attempt by Iselin to escape the penalties of the Bankrupt Act, bolster up the credit of what he knew to be a failing house, and enable Dibblee & Co. to keep working along, so that he might ultimately, at all events, secure the payment of his debt.

The transactions and shiftings about the so-called 'collaterals' connected with this loan were sustained by the court below, doubtless, as being a mere exchange of collaterals. But herein lies the fallacy. Up to the time of hopeless and notorious insolvency, the securities were in the possession of Dibblee & Co. Iselin & Co. had, in truth, no collaterals; and when collaterals were really transferred, Dibblee & Co. had been insolvent for months. It is the case, therefore, of an old and unprotected debt secured in the very view of approaching failure. The case of Buchanan v. Smith covers this part of the case.

2. The payment of April 8th, 1869. This payment was made when the firm of Dibblee & Co. were certainly insolvent. Iselin & Co. must have known that fact. They were substantially the backers of Dibblee & Co. The fact that the firm was still paying other debts, got with money raised through fraudulent and secreted warrants of attorney to confess judgment, does not help them.

So far as to transactions sustained by the court below, and as to which we appeal.

3. As to the confessions of judgment. We take no appeal as to the action of the court below as to this. That court set it aside. That this action was right we think plain.

The security was an extraordinary one-not in the usual course of business, and one which, of itself, is evidence both of the debtor's precarious condition and of the creditor's knowledge of it.

The debtor was hopelessly insolvent and on the verge of bankruptcy when the confession was filed and the judgment entered. The preference by means of the judgment was not given or obtained when the paper authorizing the judgment was executed and delivered to the creditors, but when it was used and the judgment was entered. Until then there was only a continuing consent or authority; the act was done when the authority was used, and the validity of the act depends upon the conditions existing at that time.

No doctrine of relation will be recognized by the courts, which would make an act which was invalid and a fraud upon the Bankrupt law at the time when it occurred, legal and valid, because it was promised or agreed to previously, when the circumstances of the parties were different.

In the language of Judge Hall, in Graham v. Stark,

'The doctrine would defeat the purposes of the Bankrupt Act. It would be easy, in every case where it was desired, to give a fraudulent preference to a relative or other favored creditor, to make such a contract for security when called for; and such agreements would be in effect secret liens upon the property of the debtor, and enable him to effect the objects generally effected before the Bankrupt law under promises to secure relatives and indorsers against loss in any event, by assignments made for the benefit of such favorite creditors.'

If a creditor could hold a warrant of attorney or 'confession of judgment' without causing it to be entered of record, the debtor could readily obtain a false credit.

But the transaction which was set aside by the decree was even more than this. They went further than to confess a judgment and suffer a seizure; after they had committed an act of bankruptcy, they paid this debt of Iselin & Co. by turning over to the latter all their good assets, their bills receivable and accounts. It is not important that the Iselins in fact reaped no advantage from this payment or transfer of securities. If they had not expected to do so, and if it had not been intended that they should, the transfer would not have been made. The assignee in bankruptcy had a right to the property of the bankrupts in an unchanged condition. He might have contested the levy, stayed the sale of the goods, and had the goods or their proceeds in court, to abide the event. The bankrupts and their favored creditors had no right to turn him over to an action against parties who might or might not be responsible, to recover the value of property to which they had no right.

Messrs. H. W. Clark and S. P. Nash, contra, for Iselin & Co.

Mr. Justice STRONG delivered the opinion of the court.

title: Clark v. Iselin


text: Talk:Clark v. Iselin

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title: Talk:Clark v. Iselin


text:
Clark v. Iselin/Opinion of the Court

It is argued by the counsel for the assignee that the return to Dibblee & Co. for collection of the notes transferred to secure the loan of August 6th, 1868, for $61,000, destroyed the title of Iselin & Co. to them. The notes, however, were returned to Dibblee & Co. for convenience of collection, to be collected for account of the defendants or to be replaced by others.

Obviously this deposit in no degree affected the title of the defendants to the notes. It merely facilitated collections. In White v. Platt, it was said by the court that 'where promissory notes are pledged by a debtor to secure a debt, the pledgee acquires a special property in them. That property is not lost by their being redelivered to the pledgor to enable him to collect them, the principal debt being still unpaid. Money which he may collect upon them is the specific property of the creditor. It is deemed collected by the debtor in a fiduciary capacity.'

It is further argued in behalf of the assignee, that the pledge, on the 5th of April, 1869, of the collaterals, amounting to $62,027.34, was void, because made at that date. The transaction, however, was a mere exchange of securities. The new collaterals were not pledged to secure an unsecured debt, or to give any preference to the defendants. They were no addition to what the defendants had before; to what they had held from August 6th, 1868, when the loan to Dibblee & Co. was made. The exchange, therefore, withdrew nothing from the creditors generally which had not long before been withdrawn. The defendants owned the securities they then surrendered, and by surrendering them they enlarged the debtors' estate to the extent of the securities received in exchange. In Cook v. Tullis, we held that there is nothing in the Bankrupt law which prevents an insolvent from dealing with his property-selling or exchanging it for other property-at any time before proceedings in bankruptcy are taken by or against him, provided such dealing be conducted without any purpose to delay or defraud his creditors, or to give a preference to any one, and does not impair the value of his estate. The same doctrine was asserted in its fullest extent in Tiffany v. Boatman's Savings Institution.

It is argued on behalf of the assignee that the notes discounted by the defendants for the bankrupts in August, 1868, were a mere renewal of an antecedent debt, and not a loan or a discount at that time. If this be conceded it will not help the assignee. The transaction, whatever it was, was nine months before the petition for bankruptcy was filed, and nothing in the thirty-fifth section of the Bankrupt Act would justify its disturbance. But it is said the transfer of collaterals to secure the notes was a fraud and a sham, and this is asserted because the collaterals were placed in the hands of Dibblee & Co. for collection on account of the defendants. We do not think so. It has been said already, and decided, as we have noticed, that a pledgee does not lose his property is collaterals pledged to him by putting them into the hands of the pledgor for collection. In this case there was peculiar reason for allowing Dibblee & Co. to collect them for the defendants. Many of them, nearly all, were past due. They could not, therefore, be collected through banks, and the convenience of all parties was subserved by placing them where the debtors might be expected to come. If, then, the property in these collaterals was by the pledge vested in the defendants, and remained in them until they or their proceeds were surrendered for other collaterals, as we think it was, the subsequent exchanges, though made within four months next prior to the petition in bankruptcy, were not a fraud upon the Bankrupt law. The exchanges amounted to no preference. They took nothing from the debtor's estate. The general creditors lost nothing thereby. Such was the opinion of both the District and the Circuit Court, and with that opinion we concur.

Little need be said respecting the other particulars in regard to which the assignee complains of the decree in the Circuit Court. The payment of $7944.88 on the 8th of April, 1869, and the payments in discharge of the call loans were made in the regular course of business. It is not denied that they were in discharge of debts due to the defendants, and it is not denied that at the times when they were made Dibblee & Co. were paying their other creditors as their claims matured. There is nothing in those transactions that shows any intended preference. And in reference to all the transactions between the defendants and the bankrupts prior to April 30th, 1869, we may remark that we find no evidence in the record that the latter contemplated bankruptcy. It is highly probable that they were in fact insolvent, but their whole conduct, as well as the testimony of two of them, shows that they did not anticipate any interruption of their business. In fact, they were planning its enlargement. And there is no sufficient evidence that the defendants knew, or had reason to believe that the bankrupts were insolvent. Up to January, 1869, they were buying the unsecured notes of the bankrupts in the market, until they had obtained them to an amount exceeding $47,000. In February, 1869, they lent the bankrupts bonds and other securities amounting to $54,100, taking, it is true, a confession of judgment, which they did not enter until April 30th, 1869. About the middle of April a firm in which one of the defendants was a partner sold the bankrupts goods on credit for more than $24,000, and late in March, and at divers times in April, down to the 30th, the defendants themselves lent the bankrupts sums amounting to $20,000, without any security, except in part a confession of judgment never entered. In view of these facts it cannot be said the defendants knew the bankrupts were insolvent. Nor can we discover in the whole case anything that should have led them to suspect insolvency. Nobody else suspected it, why should they? If, then, the bankrupts intended no preference in fraud of the Bankrupt Act in any of their dealings with the defendants prior to April 30th, 1869, and if the defendants had no knowledge of the insolvency of the bankrupts prior to that day, or any reasonable cause to believe they were insolvent, what ground is there for impeaching those dealings? We think there is none, and, hence, that the assignee in bankruptcy has no just cause to complain that the decree of the Circuit Court was not at least as favorable to him as he had any right to claim.

But the defendants below have also appealed. The Circuit Court decreed partially against them. On the 25th of February, 1869, Dibblee & Co. gave a judgment note or bill, in the form authorized by the New York code, to secure $54,100 loaned by the defendants to them. A portion of this sum had been advanced on the 21st of February, for which a judgment bill was then given; another portion on the 23d of February, for which a similar security was then given, and the remainder was advanced February 24th. On the 25th of that month the previous confessions of judgment were given up and destroyed, and one confession for the entire loan, $54,100, was taken by the defendants. The advances for which this confession was taken were made in negotiable State and railroad bonds, of a larger nominal value, but they were taken by the bankrupts at their actual cash value at the time. They were made to enable the bankrupts to borrow money, and upon depositing the securities lent as collateral they obtained $46,000 from three banks with which they did business. That this transaction thus far was perfectly legitimate can hardly be doubted, and so it was regarded by the court below. The bankrupts acquired property by it to the full value of the security they gave. They parted with nothing that they then had. If the defendants had known that they were insolvent at the time it would make no difference. The confession of judgment was not given for a pre-existing debt. And if it had been, the defendants had, as we have stated, no reasonable cause to believe that the debtors were insolvent. We may assume, therefore, that the confession of judgment is unimpeachable. It was held by the defendants without entry of record until April 30th, 1869, when judgment was entered upon it in the Supreme Court, as the bill avers, at the request of the defendants, and an execution was issued and levied upon the debtors' stock of goods, greater in value than the amount of the debt. Thus the defendants obtained a lien upon the goods, a full security for the debt due them. On the next day (May 1st), at the request of the debtors, they paid to the banks with which the bonds loaned had been pledged the sums for which they were held, and took up the collaterals and notes. Thus a payment was effected on the judgment of the difference between the amount of the notes and the collaterals. Then Dibblee & Co. paid $1900 in cash, and transferred bills receivable and accounts owed by them, amounting to $47,839.52, in full satisfaction of the balance of the judgment, and the levy of the execution was released.

This transaction the Circuit Court held to be fraudulent, as in conflict with the Bankrupt Act, and decreed that the assignee of the bankrupts should recover from the defendants the amount received by them from the securities transferred on the 1st of May, together with the $1900 paid to them in cash, and the value of the securities redeemed by them from the banks, above the sums which they paid for the redemption. It is from this part of the decree that the defendants below have appealed, and they now contend the payment, and the transfer of securities made to them by Dibblee & Co. on the 1st of May, was not a preference in fraud of the Bankrupt Act, or any preference at all.

Whether it was or not obviously depends upon the answer which must be given to the question, 'Was it a transfer of property for a sufficient present consideration, or was it a transfer to satisfy or secure an antecedent debt or liability?' The confession of judgment given on the 25th of February was, as we have seen, a security to the defendants for a loan then made, not a security for a pre-existing debt. Giving and receiving that paper, therefore, cannot be considered a preference of creditors. The defendants had a clear right to take and to hold it, and the borrower had a clear right to give it. Besides, as already remarked, it does not appear from the evidence that at that time Dibblee & Co. were insolvent. It must, therefore, be concluded, as it was by the court below, that there was nothing in that transaction which was fraudulent in fact, or fraudulent as against the Bankrupt law. The confession was not itself a judgment, but it authorized the defendants to cause a judgment to be entered without the knowledge of the debtors, and even against their protest. Was, then, the subsequent entry of the judgment, and the issuing of an execution thereon, followed by a levy on the debtor's goods, obtaining an unlawful preference? The court below thought it was, but such is not our opinion. It must be conceded that on the 30th day of April, when the defendants caused the judgment to be entered, the execution to issue, and the levy to be made, they knew that Dibblee & Co. were insolvent; but that knowledge is not of itself sufficient to invalidate the judgment and execution. A creditor may pursue his insolvent debtor to judgment and execution, with full knowledge of the insolvency, notwithstanding the provisions of the Bankrupt Act, provided the debtor does nothing to aid the pursuit. If there be no collusion between the debtor and the creditor, the ordinary remedies of the law are open to the latter. In Wilson v. The City Bank, it was decided by this court that when a debt is due, and the debtor is without just defence to the action, 'something more than passive non-resistance of an insolvent debtor to regular judicial proceedings, in which a judgment and levy on his property are obtained, is necessary to show a preference of a creditor, or a purpose to defeat or delay the operation of the Bankrupt Act, and that though the judgment creditor in such a case may know the insolvent condition of the debtor, his levy and seizure are not void under the circumstances, nor any violation of the Bankrupt law.' It was also decided that a 'lien thus obtained by the creditor will not be displaced by subsequent proceedings in bankruptcy against the debtor, though obtained within four months from the filing of the petition.' It is true that in Wilson v. The City Bank the judgment under review and the execution thereon were obtained in an ordinary suit at law, to which the debtor made no defence, but allowed the judgment to be taken by default. In this case the judgment was entered by the creditor in virtue of what is called a confession previously made, equivalent to a warrant of attorney to confess a judgment. But it is impossible that can make any difference in its validity. The confession having been lawful when it was given, the subsequent use of it by the creditors according to its legal effect, a use to which the debtors were not parties, and of which they had no knowledge, cannot be illegal. If it is, it must be because it is made so by the thirty-fifth section of the Bankrupt Act. But a careful examination of that section will show that the mere entry of a judgment against an insolvent debtor, by virtue of a warrant of attorney, though entered just before the proceedings in bankruptcy are commenced, and when the creditor knows his debtor is insolvent, and though followed by an execution, is not such a preference as the statute avoids. Something more is needed to make it an unlawful procurement of a preference.

To bring the case of a judgment and execution, or attachment, within the thirty-fifth section of the Bankrupt Act, several things must concur: 1. The debtor must have procured the judgment and attachment of his property.

2. He must have procured them within four months next prior to the filing of the petition in bankruptcy by or against him.

3. He must have been insolvent, or contemplating insolvency, at the time, and he must have procured the judgment and execution with a view to give a preference to the judgment creditor.

4. The creditor must have had reasonable cause to believe that the debtor was insolvent, and that the judgment and execution were given in fraud of the provisions of the Bankrupt Act.

We say these things must concur. And they must concur not only in fact, but in time also. The words of the thirty-fifth section admit of no other construction. The debtor must be insolvent, or contemplating insolvency, when the alleged preference is given. And he must then have in view giving a preference. He must procure the attachment or the entry of the judgment, the execution, and the levy, with a present intention to prefer the creditor. The unlawful view to a preference must coexist with the procurement. It is not enough that it precedes the entry of the judgment and the levy of the execution, or that it follows. And the creditor, when he obtains the judgment and execution, must have reasonable cause to believe not only that the debtor is insolvent, but that the attachment is made (made or caused by the debtor) in fraud of the provisions of the act. In fine, there must be guilty collusion to constitute the fraudulent preference condemned by the statute.

Now, in a case where a creditor, holding a confession of judgment perfectly lawful when it was given, causes the judgment to be entered of record, how can it be said the debtor procures the entry at the time it is made? It is true the judgment is entered in virtue of his authority, an authority given when the confession was signed. That may have been years before, or, if not, it may have been when the debtor was perfectly solvent. But no consent is given when the entry is made, where the confession becomes an actual judgment, and when the preference, if it be a preference, is obtained. The debtor has nothing to do with the entry. As to that he is entirely passive. Ordinarily he knows nothing of it, and he could not prevent it if he would. It is impossible, therefore, to maintain that such a judgment is obtained by him when his confession is placed on record. Such an assertion, if made, must rest on a mere fiction. And so it has been decided by the Supreme Court of Pennsylvania. More than this, as we have seen, in order to make a judgment and execution against an insolvent debtor a preference fraudulent under the law, the debtor must have procured them with a view or intent to give a preference, and that intent must have existed when the judgment was entered. But how can a debtor be said to intend a wrongful preference at the time a judgment is obtained against him when he knows nothing of the judgment? That years before he may have contemplated the possibility that thereafter a judgment might be obtained against him; that long before he may have given a warrant of attorney to confess a judgment, or by a written confession, as in this case, have put it in the power of his creditor to cause a judgment to be entered without his knowledge or subsequent assent, is wholly impertinent to the inquiry whether he had in view or intended an unlawful preference at a later time, at the time when the creditor sees fit to cause the judgment to be entered. For, we repeat, it is a fraudulent intent existing in the mind of the debtor at this later time which the act of Congress has in view. The preference must be accompanied by a fraudulent intent, and it is that intent that taints the transaction. Without it the judgment and execution are not void.

This construction of the act of Congress, which appears to us to be the only one of which it is susceptible, necessitates the conclusion that the entry of the judgment against Dibblee & Co. on the 30th of April, 1869, the issue of the execution thereon, and the levy upon the debtors' stock, were not fraudulent; that they were not a procurement by the debtor of a seizure of his property with a view on his part to give a preference to the defendants, within the meaning of the thirty-fifth section.

It has been suggested in opposition to the view we have taken, that if a creditor may hold a confession of judgment by his debtor, or a warrant of attorney to confess a judgment, without causing it to be entered of record until the insolvency of the debtor appears, the debtor may thereby be able to maintain a false credit. If this be admitted it is not perceived that it has any legitimate bearing upon the question before us. The Bankrupt Act was not aimed against false credits. It did not prohibit holding judgment bonds and notes without entering judgments thereon until the debtors became embarrassed. Such securities are held in some of the States amounting to millions upon millions. The Bankrupt Act had a very different purpose. It was to secure equality of distribution of that which insolvents have when proceedings in bankruptcy are commenced, and of that which they have collusively with some of their creditors attempted to withdraw from ratable distribution, with intent to prefer some creditors over others. There is much in the language of the court in Wilson v. The City Bank that confirms the opinion we express.

If, then, the entry of the judgment, the execution, and the levy, on the 30th of April, 1869, were not a forbidden preference, as we have endeavored to show they were not, the transaction on the next day, May 1st, was unimpeachable. It was only an exchange of values. The debtors transferred to the execution creditors bills receivable and other securities, together with $1900 in cash, the whole value being equal to the amount of the judgment, and received back the goods upon which the execution had been levied. Those goods were of greater value than the securities transferred and the money paid. It is not claimed that the defendants obtained more than they gave in return. The exchange, instead of impairing the debtors' estate, actually benefited it. It saved the stock levied upon from the expense and sacrifice of a forced sale. It was, therefore, such an exchange as the debtors might lawfully make and as the creditors might lawfully accept. This is determined by Cook v. Tullis, and Tiffany v. Boatman's Savings Institution.

DECREE WHOLLY REVERSED, and the cause remanded, with instructions to proceed

IN ACCORDANCE WITH THIS OPINION.

Justices HUNT, CLIFFORD, and MILLER dissented. See next case, infra, p. 381.

At the same time with the preceding case was adjudged the case of

title: Clark v. Iselin/Opinion of the Court


text: Talk:Clark v. Iselin/Opinion of the Court


text:
Watson v. Taylor

ON certificate of division in opinion from the Circuit Court for the Western District of Pennsylvania. The case was thus:

Taylor, prior to the 4th of August, 1868, was, and at the time of this suit still continued to be, a wholesale drygoods merchant, in Pittsburg, Pennsylvania.

Sweeney, prior to the same day, was, and until January 13th, 1869, continued to be, a retail merchant, residing and doing business in Freeport, Pennsylvania. For some time prior to the said 4th of August, 1868, and up to January 1st, 1869, Sweeney was a customer of Taylor in the purchasing of merchandise on credit, according to the usual course of the business.

On the 4th of August, 1868, Sweeney was in debt to Taylor in an account then due, for merchandise previously purchased in the ordinary course of business; and on that day, according to the custom of said Taylor, and in the ordinary course of business, closed the account by executing and delivering to Taylor a note, with warrant of attorney, for $800, the balance of the account, embracing the amount of a small bill of goods, about $13, that day sold said Sweeney, payable four months after date, with interest. After this Sweeney continued to purchase from Taylor merchandise as before, all of which had now been paid for, but he paid nothing on the note.

It was the regular custom of Taylor to close such accounts by taking notes with warrant of attorney.

The note remained unpaid, and on the 1st of January, 1869, was, by an agent of Taylor, delivered to Taylor's attorneys for collection (he having demanded payment a day or two before), and was by them entered of record and judgment confessed by virtue of the warrant of attorney, and on the same day a writ of fieri facias was issued thereon and delivered to the sheriff, which became a lien under the laws of Pennsylvania upon the goods and chattels of Sweeney, and upon the 4th day of January, 1869, an actual levy was made in pursuance of said writ upon the personal estate of Sweeney, consisting of drygoods, groceries, & c., in his store at Freeport, being all he had, the store being closed and sold out on the execution (he having no real estate), and, in accordance with said law, the goods and chattels were sold by the sheriff on the 13th day of January, 1869, and on the 18th of January, 1869, the sum of $860 paid over by the sheriff to Taylor's attorneys, who paid it to him, Taylor. Neither Taylor nor his counsel became the purchasers of any property thus sold by the sheriff.

It appeared from the evidence that at the time of taking the note and confessing judgment thereon there was no fraud or collusion intended by either Taylor or Sweeney, and Taylor testified that he did not know or have any reasonable cause to believe that Sweeney was bankrupt or insolvent, or contemplated bankruptcy or insolvency, or any fraud on the Bankrupt law.

On the 15th of January, 1869, two days after the sale, a petition in bankruptcy was filed in the United States District Court, at Pittsburg, against Sweeney, by Hanlon and others, his creditors, and on the same day an injunction was awarded, which was never served personally on Taylor, or in any manner upon his attorneys, but was served on the sheriff on the 18th January, 1869, after the money had been paid over. There was no evidence given to show that at the time of receiving the money, either Taylor, his attorney, or the sheriff had any notice of said writ of injunction or proceedings in bankruptcy.

On the 2d of February, 1869, Sweeney was adjudged bankrupt, in default of appearance to the rule to show cause, and on the 30th day of March, 1869, Watson was chosen his assignee, to whom an assignment was duly made by the register.

Watson, the assignee, now brought assumpsit in the court below, to recover the value of the personal property sold under the confession of judgment; and on the trial these questions occurred and were certified to this court:

1. Whether the confession of judgment, execution, levy, and sale, as proved, constituted an indirect transfer of the property with a view to give a preference, within the meaning of the thirty-fifth section of the Bankrupt Act.

2. Whether the confession of judgment, execution, levy, and sale aforesaid, constituted a transfer or other disposition of the property, with a view to give a preference.

3. Whether, if the facts aforesaid constituted a transfer or other disposition within the meaning of the Bankrupt Act, it was made at the date of the warrant of attorney, or at or after the time of confessing the judgment.

4. Whether, from the debtor's default in payment of the debt, the warrant of attorney, the confession of judgment, execution, and levy, as aforesaid, the execution creditor had reasonable cause to believe that the debtor was insolvent, and that the proceedings were in fraud of the Bankrupt Act.

5. Whether the entry of judgment in the State court and the proceedings therein, as aforesaid, constitute a bar to the present suit.

No counsel for Watson, the assignee; Messrs. E. S. Golden and G. W. Guthrie, for the creditor, Taylor.

Mr. Justice STRONG delivered the opinion of the court.

title: Watson v. Taylor


text: Talk:Watson v. Taylor

title: Talk:Watson v. Taylor


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Watson v. Taylor/Opinion of the Court

In this case the proceedings in bankruptcy were commenced on the 15th of January, 1869. On the 4th of August, 1868, more than five months before the petition was filed, the bankrupt gave to the defendant his promissory note containing a warrant to confess a judgment thereon. By virtue of the warrant a judgment was entered on the 1st day of January, 1869, and the execution, levy, and sale immediately followed. Were there nothing more in the case, what we have just decided in Clark v. Iselin would determine that no preference within the meaning of the Bankrupt Act was given. The case, however, shows affirmatively that no fraud or collusion was intended, either at the time when the note was given or when the judgment was entered, and that the creditor had no reason to believe the debtor was insolvent.

The first, second, and fourth questions are, therefore, answered in the negative, and, being thus answered, the other questions become immaterial.

Mr. Justice HUNT (with whom concurred Justices CLIFFORD and MILLER) dissenting, in this case of Watson, Assignee, v. Taylor, as in the preceding one of Clark, Assignee, v. Iselin:

The importance of the principle involved in the decision of these cases justifies a statement of the position of those who do not concur in the decision.

Stated in brief words the decision is this: A merchant in solvent circumstances may give his creditor a warrant to confess a judgment, which may be held by him, concealed from the knowledge of every other person; the debtor may continue his business for an indefinite time, buying other goods of the same creditor, paying for the new purchases, but paying nothing on the judgment debt, and when he becomes insolvent, judgment may be perfected on the warrant of attorney so given, execution issued, and the proceeds of the property sold paid to the judgment creditor in preference to and in exclusion, if need be, of all other creditors.

In the case of Iselin the warrant of attorney was held by him unacted upon for two months, and in the case of Taylor for five months. The precise time is not important. If the power to enter the judgment may remain unexercised for five months, and be enforced after insolvency has occurred, there is no limit to the time, except such as may arise from the statute of limitations. In the case of Iselin the confession was given to secure a debt then created. In the case of Taylor it was given to secure an antecedent debt. The decision, therefore, embraces as well the case of a debt past due at the time of giving the confession as of a debt then created.

1st. This decision impresses me as being in violation of the whole spirit and intent of the Bankrupt law, and as calculated to destroy its beneficial effect.

The first principle of this law is to secure an equal distribution of the property of a bankrupt among all his creditors. Its first intent was to destroy the system of preferences allowed in most of the States, by which in the act of bankruptcy, as it were 'in articulo mortis,' a debtor could give all his property to favored creditors. It was intended to prevent this vicious system and, in the language of the act, 'to secure the rights of all parties and the due distribution of assets among all the creditors, without any priority or preference whatever, except wages not exceeding $50.' To this end the whole machinery of the act is directed. To accomplish this end all attachments made within four months of the bankrupt proceedings are annulled, however vigilant the creditor, however honest his debt; all offsets in favor of debtors of the bankrupt purchased after bankruptcy, are disallowed; no discharge is to be granted to the bankrupt if within four months he has procured his property to be attached or seized on execution, or if in contemplation of bankruptcy he has made any conveyance, pledge, or transfer, directly or indirectly, absolutely or conditionally, for the purpose of preferring one creditor over another. With the same view it is further provided that payments within six months, or, in certain cases, within four months, with a view to giving a preference, or if he procures his property to be attached, or makes pledges, assignments, or transfers, where the person receiving them has reason to believe there is insolvency, and that it is in fraud of this act, all these acts are void, and the creditor may be compelled to refund to the assignee the money received by him; and if the transaction is not in the usual course of business, the fact shall be prim a facie evidence of fraud.

How can the spirit of this act be carried out if the debtor is allowed to give a secret preference to one creditor, by which his debt is free from the hazards of trade, and is secure whatever may happen? The favored creditor lends his debtor other moneys from day to day. He sells him other goods as his occasions require. Other creditors buy, sell, et credit, all is fair to the view, all stand upon an apparent equality. Each one supposes that he understands that no preference can by law be given, but that by law all will share alike in the event of a calamity. A calamity does occur, and through a concealed instrument, not possible to be known to others, by which the favored creditor has had the power to precipitate the crisis whenever his interests required it, and to delay it until that time came. The judgment by confession for a debt long since mature is now entered of record, execution is issued, and his debt is paid in preference of or to the exclusion of all others. A Bankrupt Act which permits such a result cannot be said to be based upon the principle of an equal distribution of all the assets among all the creditors.

If the creditor had desired to bring his debt within the protection of the law, and to make it like a mortgage, a lien upon the real estate of the debtor, he should have entered it of record in the clerk's office. Until so entered, while kept in his safe or his pocket, it is not a mortgage, or judgment, or lien, of any character. He simply has the means or the power of giving himself a lien upon land by filing his judgment, or upon goods by issuing execution. Of itself, unexecuted, the confession has no force or virtue.

But, secondly, I am of the opinion that the proceeding in question is forbidden by the terms of the thirty-fifth section of the Bankrupt law. It is there enacted that if any person, being insolvent, within four months before the bankruptcy proceedings, with a view to give a preference to any creditor, 'procures any part of his property to be seized on execution,' the same shall be void and the assignee may recover the value of the same.

Every person is deemed to contemplate the natural result of his acts, and is responsible for all the results that legitimately follow them. A debtor who confesses a judgment cannot be heard to say that he did not contemplate the issuing of an execution thereon. A judgment is given that execution may follow thereon. An execution is the only mode by which the benefit of the judgment can be obtained. This principle is so plain that we could hardly expect to find a decision supporting it. It so happens, however, that the precise proposition was involved in the case of the Clarion Bank v. Jones, assignee, recently decided by this court.

Whoever, therefore, procures judgment to be entered against himself, upon which execution is issued and levied, procures his goods to be seized on execution within the provision of the statute. In the case just cited Mr. Justice Clifford uses the following language:

'1. That every one is presumed to intend that which is the necessary and unavoidable consequence of his acts, and that the evidence introduced that the debtor signed and delivered to the defendants the judgment note payable one day after date, giving to them the right to enter the same of record and to issue execution thereon without delay, for a debt which was not then due, affords a strong ground to presume that the debtor intended to give the creditor a preference, and that the creditor intended to obtain it, and that it is wholly immaterial whether the preference was voluntary or was given at the urgent solicitation of the creditor.'

On the 25th of February, 1869, Dibblee gave to Mr. Iselin what is termed in the State of New York a confession of judgment for $54,000. The paper contained an acknowledgment of indebtedness to that amount. It carried an authority to enter judgment for that sum in the Supreme Court of the State of New York. Until so entered it had no force or effect in any degree or in any form. It created no lien on lands until so entered. It could give no lien on goods until so entered and an execution issued in the ordinary form of law. It was not a mortgage or judgment. It created no lien or incumbrance. It may be compared to an agreement to give a mortgage under certain circumstances. Such an agreement might be made of value, but it is nothing of itself.

Dibblee gave a power or authority simply, by which the creditor was authorized to give to himself a judgment and execution. This is conceded in general terms. It is sought to annul its effect, however, by reference to the fact that when the confession was executed, or the authority given, Dibblee was solvent and might lawfully confess a judgment. If this be conceded, it does not aid the argument. If he had entered up the judgment on the 25th of February, by virtue of an authority then given, it might have been valid, but he did not exercise the authority until the 30th of April. At that time Dibblee was insolvent, to the knowledge of Iselin. The authority given on the 25th of February was a continuing authority. It was not in its effect an act then and there done and ended, and of which the force was then and there exhausted. It was not an act then and there perfected, like a mortgage or deed. The paper given was nothing of itself, but it gave to the creditor power and authority to create a judgment. This authority was not exhausted on the 25th of February, when the paper was executed. It continued every day to be a subsisting power, and every moment of the day. On the 30th of April, 1869, it was a power and authority then subsisting and in force. The judgment entered in the clerk's office on that day, was entered by force of a power of attorney in the exercise of authority given by Dibblee, and that day existing in full force. The cases of Bennett v. Davis, and Nichols v. Chapman, show that if Dibblee had died at any time before the judgment had been actually entered up, the judgment could not have been perfected. His death would work a revocation of the authority. From this we conclude, 1, that the paper was of itself no lien or security; 2, that it was merely a power of attorney, which, like every other power of attorney, is revoked by the death of the grantor. While the debtor lived, and in this case on the 30th of April, the authority to enter judgment on that day continued, and on that day the power and authority were carried into execution. On that day, however, the debtor was a bankrupt.

These suggestions are equally applicable in the case of Taylor.

No case has been cited which gives the authority of this court to the principle held by the majority of the court in the present case. The case of Buckingham v. McLean, not cited, is the only one I have been able to find giving apparent countenance to it. The language of Mr. Justice Curtis in that case is broad enough to cover it. The case there under consideration did not require or justify the examination of the question now before us. The question was whether the fact of the debtor's insolvency should refer to the time when the confession was given and was entered of record, or when the execution was issued, and it was held that the first named was the time to be inquired about. The execution was issued on the 22d of April. The confession was signed on the 7th of May, and entered of record on the next day, and the twenty-four hours had made no change in the debtor's affairs. He was solvent on both of those days. On the 22d of April he was insolvent. The distinction, so important in the present case, between the condition of affairs when the judgment was authorized and the condition months later, when the judgment was entered of record, did not and could not arise.

Except for the judgment of a majority of my brethren to the contrary, I should say that it was plain, 1st, that the judgment was entered by virtue of an authority from the debtor when he was insolvent to the knowledge of the creditor; and, 2d, that this was a procuring by the debtor of the seizure of his property on execution, which cannot be sustained under the Bankrupt law.

Great as is my deference to the opinions of my associates, I am not able in this case to yield my judgment.

title: Watson v. Taylor/Opinion of the Court


text: Talk:Watson v. Taylor/Opinion of the Court


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Brown v. Brackett

ERROR to the Supreme Court of the State of California, the action being ejectment for lands in that State, on which judgment was rendered for the defendant in a District Court of the State and affirmed by the Supreme Court.

Mr. C. T. Botts, for the plaintiff in error; Mr. J. M. Coghlan, for the defendant in error.

Mr. Justice FIELD stated the case, and delivered the opinion of the court, as follows:

title: Brown v. Brackett


text: Talk:Brown v. Brackett

title: Talk:Brown v. Brackett


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Brown v. Brackett/Opinion of the Court

This is an action for the possession of certain real property situated in the county of Marin, in the State of California. The premises are embraced within the boundaries of a grant made by the former Mexican government to one Ramon Mesa, in March, 1844. Through Mesa the plaintiff derives his interest; and as evidence of the recognition and confirmation of Mesa's title, produces a decree of the District Court of the United States for California confirming, under the act of Congress of March 3d, 1851, a claim of one Vasques to a portion of the land covered by the same grant; and he insists that as the confirmation of that claim involved a recognition of the validity of the grant, this decree may be invoked for the maintenance of his title to the remaining portion of the premises.

It is undoubtedly true, as contended by counsel, that the tribunals of the United States in acting upon grants of land in California of the former Mexican government, under the act of 1851, were concerned only with the validity of the grants as they cam from that government, and were not interested in any derivative titles from the grantees further than to see that the parties before them were bon a fide claimants under the grants. And it is also true that the decrees of confirmation, and the patents which followed, inured to the benefit of all persons deriving their interests from the confirmees. But in these positions there is nothing which gives countenance to the pretensions of the plaintiff in this case. Every confirmation is limited by the extent of the claim made; and it does not follow that because the tract embraced within the description of the grant is more extended than the land claimed, that the confirmation would have been made to any greater amount than that claimed if it had been prayed. Good reasons may have existed why the remaining portion could not be confirmed, and why its confirmation was not, therefore, asked. The remaining portion may have consisted of lands not subject to grant under the colonization laws of Mexico; or it may have been previously granted to other parties by the Mexican government; or it may have been subsequently acquired by that government previous to the cession, or by our government subsequently. Whatever the reasons the confirmation covered nothing and protected nothing beyond the claim asserted.

After the full and elaborate consideration which has been heretofore given in this court, in the numerous cases before it, to Mexican grants in California, we do not feel called upon to say more as to the effect of a confirmation of claims under them. Every conceivable point respecting these grants, their validity, their extent, and the operation of decrees confirming claims to land under them, has been frequently examined; and the law upon these subjects has been repeated even to wearisomeness.

JUDGMENT AFFIRMED.

title: Brown v. Brackett/Opinion of the Court


text: Talk:Brown v. Brackett/Opinion of the Court


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Atlee v. Packet Company

APPEAL from the Circuit Court for the District of Iowa.

The Union Packet Company filed a libel in admiralty, in the District Court of Iowa, against Atlee, founded on the sinking of a barge, for which he, Atlee, was charged to be liable, on the ground that it was caused by a collision with a stone pier built by him in the navigable part of the Mississippi River.

The pier was built in the winter of 1870-71; the collision occurred in April, 1871.

The District Court was of opinion that Atlee had not exceeded his rights as a riparian owner in building the pier where it was, in aid of his business as a lumberman and owner of a saw-mill on the bank of the river, the pier being part of a boom to retain his logs until needed for sawing. But that court was further of opinion that by failing to have a light on this pier during a dark night, Atlee was guilty of a fault which rendered him in part responsible for the collision. As, however, the libellants were also found to be in fault, for want of care and knowledge of this obstruction on the part of the pilot, the District Court divided the damages, and rendered a decree against Atlee for half of them.

The Circuit Court was of opinion that Atlee had no right to erect the pier where it was, and, seeing no fault on the part of the pilot, decreed the whole damage against Atlee. He accordingly appealed to this court.

The appeal was submitted to this court on printed argument, November 26th, 1873, and the decree of the Circuit Court was affirmed by an equal division of the court, which was at that time composed of eight members. On application for rehearing, this decree of affirmance was set aside and a reargument ordered on the question whether the damages should be apportioned, both parties being in fault.

The reargument was accordingly made by briefs at this term, the court being now full, and the whole matter reconsidered.

Mr. G. W. McCrary, for the appellant; Mr. H. S. Howell, contra.

Mr. Justice MILLER now delivered the judgment of the court, stating, at the same time, the more particular and necessary facts of the case.

title: Atlee v. Packet Company


text: Talk:Atlee v. Packet Company

title: Talk:Atlee v. Packet Company


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Atlee v. Packet Company/Opinion of the Court

No question is made of the jurisdiction of the District Court sitting in admiralty.

The testimony is very voluminous, as is also the discussion of it by counsel, but we are of opinion that the decision of the case must rest mainly on undisputed facts, or those about which there is but little conflict of testimony.

We shall assume the truth of the facts which we state as the foundation of our judgment, without a reference to the witnesses by which they are proved.

The pier against which libellant's barge struck is about thirty feet square, constructed of stone and timber, located from one hundred and forty to fifty feet from the bank of the river, in water of the average depth of twelve feet at that place, being ten feet even at a low stage of the water.

At low water this pillar is fifteen feet above the surface, and a foot or two in very high water. A part of the distance between the shore and the pier consists in low water of a sand-bar. Seven hundred feet above the pier this sand-bar tends to a point in the river made by the deposits from a small stream called French Creek, and this point, in relation to the general course of the river, projects something further towards the centre of the channel than Atlee's pier does.

Three-quarters of a mile above the pier is the levee, wharf, or landing-place of the city of Fort Madison.

The appellant was the owner of extensive saw-mills, and of the lands on which they were located, bounded by the river at the point of the location of the pier for some distance above and below. He had built this pier, and another below it, as parts of a boom for receiving and retaining the logs necessary for use in his mill. Some kind of a boom was necessary to enable him to keep these logs safely and economically. No question is made but that if he had a right to build a pier at that place it was built with due skill and care, and that he was blameless in every other respect, unless the absence of a light at night was a fault.

The first question, then, to be decided is whether, in view of these facts, appellant could lawfully build such a pier at the precise spot where this was located.

The affirmative of this proposition was held by the learned judge of the District Court, on the general ground of the analogy which the present case bears to wharves, levees, piers, and other landing-places on navigable rivers, which are built and owned by individuals, and which are projected into the navigable channel of the river farther than defendant's pier. The cases of Yates v. Milwaukee, Dutton v. Strong, and The Railroad Company v. Schurmeir, are cited in support of the proposition. Bridges, also, across these rivers, with piers, which clearly render navigation more hazardous, and which have by this court been held to be lawful structures, are cited in aid of this view.

What is the precise extent to which, in cities and towns, these structures, owned by individuals, or by the town or city corporations, may be permitted to occupy a portion of what had been navigable water, and under what circumstances this may be done, it is not our present purpose to decide, nor to lay down any invariable rule on the subject. It is sufficient to say that we do not consider the case before us as falling within the principles on which that class of cases has been decided.

In all incorporated towns or cities located on navigable waters, there is in their charters, or in some general statute of the State, either express or implied power for the establishment and regulation of these landings.

This may be done by the legislature of the State or by authority expressly or impliedly delegated to the local municipal government. In all such cases there is exercised a control over the location, erection, and use of such wharves or landings, which will prevent their being made obstructions to navigation and standing menaces of danger.

The wharves or piers are generally located by lines bearing such relation to the shore and to the navigable water as to present no danger to vessels using the river, and the control which the State exercises over them is such as to secure at once their usefulness and their safety.

These structures are also allowable in a part of the water which can be used for navigation, on the ground that they are essential aids to navigation itself.

The navigable streams of the country would be of little value for that purpose if they had no places where the vessels which they floated could land, with conveniences for receiving and discharging cargo, for laying by safely until this is done, and then departing with ease and security in the further prosecution of their voyage. Wharves and piers are as necessary almost to the successful use of the stream in navigation as the vessels themselves, and are to be considered as an important part of the instrumentalities of this branch of commerce. But to be of any value in this respect they must reach so far into deep water as to enable the vessels used in ordinary navigation to float while they touch them and are lashed to their sides. They must of necessity occupy a part of the stream over which a vessel could float if they were not there.

The structure of Mr. Atlee is sustained by none of these considerations. It is built far away from a city or town, and might as well be ten miles off as where it is, for any relation it has to the business or commerce of the city of Fort Madison, or any subjection to the control of the city authorities. His right to build this structure in the navigable channel of the river is unsupported by any statute of the State, general or specific, by any ordinance of a city or town, or by any license from any authority whatever.

Nor is there any claim or pretence that this pier is in aid of navigation. No vessel or water-craft is expected to land there, nor are there any arrangements by which they can land or be secured or fastened. The size of the pier, its sharp corners, its elevation from the water, and its want of connection with the shore, forbid any such use of it. It is intended to receive nothing that floats but rafts, and no rafts but such as its owner designs to keep there permanently for his own use.

He rests his defence solely on the ground that at any place where a riparian owner can make such a structure useful to his personal pursuits or business, he can, without license or special authority, and by virtue of this ownership, and of his own convenience, project a pier or roadway into the deep water of a navigable stream, provided he does it with care, and leaves a large and sufficient passway of the channel unobstructed.

No case known to us has sustained this proposition, and we think its bare statement sufficient to show its unsoundness.

It is true that bridges, especially railroad bridges, exist across the Mississippi and other navigable streams, which present more dangerous impediments to navigation than this pier of Mr. Atlee's, and that they have, so far as they have been subjected to judicial consideration, been upheld. But this has never been upon the ground of the absolute right of the owners of the land on which they abutted to build such structures. The builders have in every instance recognized the necessity of legislative permission by express statute of the State, or of the United States, before they ventured on such a proceeding. And the only question that has ever been raised in this class of cases is, whether a State could authorize such an invasion of the rights of persons engaged in navigating these streams. This court has decided that in the absence of any legislation of Congress on the subject, the State may authorize bridges across navigable streams by statutes so well guarded as to protect the substantial rights of navigation. But Mr. Atlee has no such authority, and pretends to none.

We are of opinion that the pier against which libellant's barge struck was placed by him in the navigable water of the Mississippi River, without authority of law, and that he is responsible for the damages to the barge and its contents.

But the plaintiff has elected to bring his suit in an admiralty court, which has jurisdiction of the case, notwithstanding the concurrent right to sue at law. In this court the course of proceeding is in many respects different and the rules of decision are different. The mode of pleading is different, the proceeding more summary and informal, and neither party has a right to trial by jury. An important difference as regards this case is the rule for estimating the damages.

In the common-law court the defendant must pay all the damages or none. If there has been on the part of plaintiffs such carelessness or want of skill as the common law would esteem to be contributory negligence, they can recover nothing. By the rule of the admiralty court, where there has been such contributory negligence, or in other words, when both have been in fault, the entire damages resulting from the collision must be equally divided between the parties. This rule of the admiralty commends itself quite as favorably in its influence in securing practical justice as the other, and the plaintiff who has the selection of the forum in which he will litigate, cannot complain of the rule of that forum.

It is not intended to say that the principles which determine the existence of mutual fault on which the damages are divided in admiralty, are precisely the same as those which establish contributory negligence at law that would defeat the action. Each court has its own set of rules for determining these questions, which may be in some respects the same, but in others vary materially.

The district judge was of opinion in this case that the libellant was in fault so as to require the application of the admiralty rule, and on that point this court agrees with him.

The character of the skill and knowledge required of a pilot in charge of a vessel on the rivers of the country is very different from that which enables a navigator to carry his vessel safely on the ocean. In this latter case a knowledge of the rules of navigation, with charts which disclose the places of hidden rocks, dangerous shores, or other dangers of the way, are the main elements of his knowledge and skill, guided as he is in his course by the compass, by the reckoning, and the observations of the heavenly bodies, obtained by the use of proper instruments. It is by these he determines his locality and is made aware of the dangers of such locality if any exist. But the pilot of a river steamer, like the harbor pilot, is selected for his personal knowledge of the topography through which he steers his vessel. In the long course of a thousand miles in one of these rivers, he must be familiar with the appearance of the shore on each side of the river as he goes along. Its banks, towns, its landings, its houses and trees, and its openings between trees, are all landmarks by which he steers his vessel. The compass is of little use to him. He must know where the navigable channel is, in its relation to all these external objects, especially in the night. He must also be familiar with all dangers that are permanently located in the course of the river, as sand-bars, snags, sunken rocks or trees, or abandoned vessels or barges. All this he must know and remember and avoid. To do this he must be constantly informed of changes in the current of the river, of sand-bars newly made, of logs or snags, or other objects newly presented, against which his vessel might be injured. In the active life and changes made by the hand of man or the action of the elements in the path of his vessel, a year's absence from the scene impairs his capacity, his skilled knowledge, very seriously in the course of a long voyage. He should make a few of the first 'trips,' as they are called, after his return, in company with other pilots more recently familiar with the river.

It may be said that this is exacting a very high order of ability in a pilot. But when we consider the value of the lives and property committed to their control, for in this they are absolute masters, the high compensation they receive, and the care which Congress has taken to secure by rigid and frequent examinations and renewal of licenses, this very class of skill, we do not think we fix the standard too high.

Any pilot who, during the navigable season of the year 1870, was engaged in conveying vessels up and down the Mississippi River past Fort Madison, would have known of the existence of this pier and would have avoided it. Though the pilot in this case had been many years engaged in navigating this part of the river, he had been absent for over a year, and this was his first voyage in a period of about fifteen months. He, therefore, did not know of the existence of this pier, and ran against it.

Again, the natural current of the river, after striking the little projection of the sand-bar below Fort Madison, is towards the eastern shore, and away from the shore with which this pier is connected. There was a large expanse of deep water a hundred feet further out than where the vessel ran which was safe, while there must always have been felt to be more or less danger of striking the saw-logs or boom, or some other matter belonging to Atlee's mill, by hugging the shore at that point even before the pier was built. A careful and prudent pilot in a dark night as this was would, therefore, have taken the middle of the river, the course of its natural current, instead of tending inward towards the shore after passing the projecting point of the sand-bar. For these reasons we are of opinion that there was such want of knowledge and skill in the pilot, and such want of care in his management of his vessel at that point, as to require the damages to be divided.

As there is no exception to the report of the commissioner of the District Court-to whom the question of damages was referred based on this view, the decree of the Circuit Court is REVERSED, with instructions to render a decree on the basis of that report for HALF THE DAMAGES which he found the libellant to have suffered.


text: Talk:Atlee v. Packet Company/Opinion of the Court


text: Michaels v. Post Assignee

title: Michaels v. Post Assignee


text: Talk:Michaels v. Post Assignee

title: Talk:Michaels v. Post Assignee


text:
Michaels v. Post Assignee/Opinion of the Court

APPEAL from the Circuit Court for the Northern District of New York.

Post, assignee in bankruptcy of the Macary Brothers, filed a bill against Henry Michaels and Nathan Levi, partners, to make them account for the value of certain merchandise (an entire stock in trade, worth about $4200), which Post, as assignee, alleged that the said Macary Brothers had transferred to the said Michaels & Levi in fraud of the Bankrupt law.

The case, as it appeared on the weight of evidence, and as it was assumed by this court to be, was thus:Harlow Macary and Henry Macary, two young men, aged respectively twenty-four and twenty-one years, sons of Adam Macary, began business under the name of Macary Brothers, as dealers in ready-made clothing, in August, 1868, at Hudson, Michigan; their father, who lived at Coldwater, a place about forty miles from Hudson, lending to them $2500. At this same place, Coldwater, there lived also a certain Louis Sloman; a brother-in-law of Henry Michaels, above named.

By the 25th of October, 1869, Macary Brothers had got a good deal in debt to other persons. The most important of their debts were: To Michaels & Levi, already named, $4600; Beir & Stern, $476; Sabey & Co., $368; Sloman & Rosenthal, $343; all these creditors residing at Rochester, New York, and being wholesale dealers in clothing. The debt to the father had been reduced to $2300, but this amount remained unpaid. They owed a few other small firm debts in their regular business. Henry Macary, who carried on some little trading in cigars and tobacco, owed certain debts besides, the largest being to Mowry & Co., of Detroit, about $350, for which the brothers had given their joint notes and a chattel mortgage on their stock in trade.

In October, 1869, Michaels set off on a business tour through the West, and having passed through Coldwater, the place of his brother-in-law, Sloman's, residence, and stopped there a short time, arrived at Hudson on Friday, October 22d, 1869. He at once, on the afternoon of that same day, called at the store of the Macary Brothers, Henry Macary alone being at the store, Harlow being ill and at home. Michaels knew that the brothers Macary were indebted to other Rochester houses. He said to Henry Macary that he had come to Hudson to look over matters there a little between himself and the firm of Macary Brothers, and asked about how much stock there was on hand. Henry replied, between $5000 and $6000. Michaels said that he thought that there was not so much, and proposed to take an inventory at cost; a matter which Henry agreed should be done, and which they did the next day. When the inventory had been taken, Michaels asked about the firm debts, and in a general way was told what they were. He then asked if he might look over the firm books, proposing to take them to the hotel where he was, with the inventory of stock as made out. This also Henry agreed that he might do. The next morning, returning to the store, he said, 'You have about $4500 worth of goods.' Henry replied, 'We must have more.' 'The invoice figures no more,' was the reply. 'You have about enough to pay us.' 'Have you any proposition to make.' Henry replied that he had no proposition to make until after he could consult with his brother.

The testimony of Henry, which was taken in the case, thus proceeded:

'He asked me, if he should throw us into bankruptcy, how much I thought each creditor would get. I told him I did not know. He said to me, 'Your father would get about ten cents on the dollar, and we would get about the same.' He said, 'Henry, I don't want any underhanded game undertaken with me.' I told him there was none; that the goods were all on the shelf, and that the books would show the accounts. He said, 'I don't want to injure you in any way or throw you out of business; but I see no way not to do it, unless I take the stock of goods and run the store myself until such time as I get my pay.' I told him, 'I would do nothing until my brother was present;' I think it was then near six o'clock; and he went to tea. About seven o'clock on the same day (the 23d) he came to the store and remained there till I closed it for the night. Before we closed it he said, 'I will look these books over more to-night, and you come to the hotel, at my room, to-morrow about two o'clock.' He then asked me if I had any objections to letting him have what money I had on hand, as it was best to make the amount I owed him as small as possible. I told him I had no objection, and handed him what money I had, $110. I then closed the store and went home. I went to the hotel where he was the next day and saw him there. He asked me if I had any proposition then to make. I told him I had none. He asked me what we proposed to do. I told him I did not know what to do. He then said, 'I have a proposition to make to you. It is that I shall buy the stock of goods and run the store in a third party's name, leaving you and your brother in the store, and to conduct the business the same as you have, and pay the expenses of the store and remit the balance to me.' He had before said, in this conversation, 'I will restock this store with new goods and furnish you what goods are necessary to conduct the business, and in the meantime I will have Rudolph, my agent, find a better place for business than Hudson, and after the first of January we will move the stock to the place he shall select. I will restock the store with new goods at that place, and you and your brother shall conduct the business the same as you have done.' He then asked me how the proposition suited me. I told him I did not know how that would do, but if we were not thrown out of business, it was satisfactory to me if the agreement was fulfilled. I then told him that we would have to see my brother before anything was done. Mr. Michaels and myself went to the house where my brother was; went upstairs and saw him. Mr. Michaels told him he had made a proposition to me, and we had come there to talk with him about it. Mr. Michaels then stated the proposition over to my brother as he had stated it to me. My brother then asked him, in case we should sell the stock to him, what would become of our other creditors, and what we 'should do in case they should present their bills.' Mr. Michaels said, 'Pay no attention to them; they can't do anything.' Mr. Michaels then asked my brother who the third party should be. My brother proposed the name of David Bovie, of Coldwater, Michigan, who was master of our lodge. Mr. Michaels said, 'I do not know him; it must be somebody that I know.' He said 'Louis Sloman, for instance.' He said, 'You know Louis; he lives here, and he will do just as I tell him to.' My brother said, 'I think we ought to have some choice in this matter.' Mr. Michaels said, 'It don't make any difference what you think, it must be as I want it.' My brother said, 'Does Louis Sloman understand this, Mr. Michaels?' Mr. Michaels says, 'He does; he will do just as I tell him.' Mr. Michaels said, 'Boys, I think this is the best thing you can do, and you will think so too after a little.' He then said, 'I think that one of you had better go to Coldwater with me and see your father Monday, so that he will understand it and will not make you any trouble, as he is one of your creditors.' We then went to dinner. While at dinner Mr. Michaels said, 'Boys, I think you will come out all right now. I have known cases a good deal worse than yours having come out all right.' That was all that was said till Monday, that I remember of now. Mr. Michaels asked my brother if he would be at the store Monday morning. He told him he would, about ten o'clock. Mr. Michaels went to the hotel.

'Monday morning, October 25th, 1869, Mr. Michaels came to the store and returned the books. My brother, who was then there, asked him to restate the proposition he had made the day before. Mr. Michaels restated his proposition as he had stated it the day before. I think my brother then asked him what would be done with a chattel-mortgage of about $400 on the stock of goods that Mowry & Co., of Detroit, held on the goods. Mr. Michaels said he did not care anything about that; he would make that all right. Mr. Michaels then asked which one of us would go with him that afternoon to Coldwater. I asked my brother to go. He said to me, 'You had better go.' Mr. Michaels said, 'Henry, I think you had better go; I want you to go.' Mr. Michaels then asked my brother to give him a writing authorizing me to sign the firm-name to any transfer or sale of the stock of goods that might be made at Coldwater. My brother gave him the writing he required. Mr. Michaels then said to me, 'Telegraph to your father, so that he will be sure to be at home.' I did so telegraph my father. Mr. Michaels and I went to Coldwater that afternoon; we arrived between four and five o'clock. On our arrival Mr. Michaels said to me, 'You go home and get your father and come to Mr. Shipman's office, and I'll be there.' Mr. Shipman is an attorney. I left Mr. Michaels, went to my father's, and he and I went to Mr. Shipman's office together. We there found Mr. Michaels, and I introduced him to my father. Mr. Michaels then told my father that he had sent for him to talk with him about the matter between his (Michaels) firm and the firm of Macary Brothers. My father asked him what the difficulty was. Mr. Michaels said we were in a bad condition and he wanted to help us out; that he did not want to see us thrown out of business. My father then asked him what he proposed to do. Mr. Michaels told father he proposed to buy the stock of goods and run the store himself through a third party; that my brother any myself were to conduct the business the same as we had done; that he would restock the store with such goods as were needed, and keep it stocked; that we should keep the store in Hudson till the 1st of January, and during this time he would have Rudolph, his agent, find a better place for business than Hudson was, and would then move the stock to such a place as Rudolph should select; that we were to receive the profits from the goods after expenses of the store had been paid, and he should receive his pay for the goods and we should have our living out of the profits on the sale of the goods. Mr. Michaels stated that we should go with the goods to this place and take charge of the business the same as we had done before. He then said to my father, in order to do this he (father) would have to withdraw his claim, so that he would not make us any trouble until such time as he, Mr. Michaels, had got his pay; then the stock should revert back to the firm of Macary Brothers, the same as it was before the sale was made. My father then said to Mr. Michaels, 'Ought I not to have some writing from you to show this?' Mr. Michaels said, 'That is not necessary, as I have always done by the boys, and always intend to, as I have agreed.' Mr. Michaels then asked me if I had confidence in him that he would do as he said-as he agreed to. I told him that I had. Father said if Mr. Michaels did as he agreed, it was all right. I think that was all that was said, till Mr. Shipman came in and drew up some writings. He drew up two or three writings. He read them over to Mr. Michaels. They did not suit Mr. Michaels, and Mr. Shipman tore them up. I think then Mr. Shipman said it was his tea-time, and we had better go to tea and come in after tea.

'After tea, my father and myself went back to Mr. Shipman's, and found Mr. Michaels and Mr. Shipman there. Mr. Shipman was writing a bill of sale. Mr. Shipman asked if the invoice that Mr. Michaels had should be the price of the goods. Mr. Michaels said, 'No, it will not look well; it will look as though we intended to defraud the other creditors.' Mr. Michaels said we had better make it seventy-five cents on a dollar, so that it would look as though we did not mean anything wrong. Mr. Shipman then finished the bill of sale, and also drew up a receipt for my father to sign.

'Mr. Michaels then said, 'I will go over to get Mr. Sloman to come over to the office;' and Mr. Sloman came to the office, and Mr. Shipman then read the bill of sale, and also the receipt, and then the papers were signed. I signed the bill of sale, and father signed the paper prepared for him to sign.'

'Macary Brothers, of Hudson, Michigan (who are my sons), being desirous of selling their stock of merchandise and goods in said place, to Louis Sloman, but the said Sloman being afraid of their creditors, to confirm said sale and his title, and in consideration that he should buy them out, I do hereby acknowledge receipt in full of all demands against the said Macary Brothers to this date, October 25th, 1869.

'A. MACARY.'

'Then there were three notes drawn up for six, nine, and twelve months. The price of the goods was divided into four equal parts, and the cash was one of these quarters, and the notes were of equal amount. Then Mr. Sloman signed the notes, and handed the notes and the money to Mr. Shipman. Mr. Shipman handed them to Mr. Michaels. Mr. Michaels did not take them; he said, 'Hand them to Henry (meaning me), and let him hand them to me.' Mr. Shipman handed the notes and the money to me, and I handed them to Mr. Michaels. Mr. Shipman then wrote a receipt. This interview after tea lasted about an hour. I returned to Hudson the next morning, Tuesday morning. On that day (Tuesday, October 26th, 1869) Mr. Sloman came to our store, and said that he had come to make out a list of what goods we needed, so as to send it to Mr. Michaels. My brother and Mr. Sloman looked through the stock, and made out a list of what goods we needed. Mr. Sloman made some proposition in regard to some goods he thought we ought to have, and Mr. Sloman took the list and went away. The value of the stock of goods on the 25th day of October, 1869, as nearly as I can estimate, was about $5000.'

Harlow Macary, the other brother, was also examined. Confirming generally Henry's statement, so far as it related to matters in which he, Harlow, had been an actor, he added:

'My brother returned from Coldwater on Tuesday morning, early. Sloman came to Hudson on the same day. The first thing Sloman wanted to know, was, what we were going to do with the mortgage on the stock of goods. I told him I did not know, that we wanted to fix it some way. He said, 'Suppose you transfer your book-accounts to me towards it.' I transferred the book-accounts to him. I gave him also the proceeds of sales for part of the week. He then wanted that I should turn over to him a cow that I owned. I told him, 'No, sir; not so long as my name is Macary.' Sloman then said, 'I propose to move this stock to Coldwater.' I asked him, why. He said he owned it. I asked him how he got it. He said he bought it of Michaels I asked him where and when. He said in Coldwater, last Monday; meaning Monday, the 25th of October. I told him that I did not understand it so. He said that made no difference, and proposed to move that stock of goods that day. He ordered myself and my brother to help his clerk to pack up the goods that day. I told him there would be no goods packed that day in that store. He told his clerk to go to packing up the goods. I forbid them both from touching a dollar's worth of goods, and the result was that Sloman demanded the goods, which I refused to grant, and subsequently I locked up the store; after which the sheriff broke open the store and took possession of the goods under a writ of replevin, and has held them ever since. This replevin suit was in behalf of Sloman, as plaintiff, and the goods were delivered to him by the sheriff.'

The father was examined also, and confirmed, so far as respected his action, what his son Henry had stated.

After Michaels and Henry Macary had agreed to go over to Coldwater, the former sent this telegram to his brother-in-law, Louis Sloman:

'HUDSON, October 25th, 1869.

'L. S.-Expect me next train. Tell lawyer to be in office.

'H. MICHAELS.'

Sloman accordingly met Michaels at the station.

After the deed of sale and other papers were executed at Coldwater, Michaels left the place; leaving it on the train of that night. On reaching home he adjusted the claims of the other Rochester creditors, taking their discharges in full. None of them made any claim nor proved any demand in the bankruptcy proceedings. Sloman paid Mowry & Co. Certain other creditors mentioned hereafter, and having debts amoungting in all to $304.08, proved them.

Michaels himself and Sloman were also examined as witnesses. They did not disprove the leading facts stated by the Macary Brothers; that is to say, they did not disprove the fact of the debt due to Michaels & Levi, the insolvency of the brothers Macary; the visit of Michaels to Coldwater; his visit immediately afterwards to Hudson, and interview with the brothers Macary, and arrangements for a sale of the stock, and the extinction of the father's claim; the telegraphing to Hudson; the meeting in the office of the lawyer, Mr. Shipman, there; and the signing of papers, and the supposed conclusion of all these things. They omitted to state many incidents stated by the Macary Brothers, and toned down or changed the coloring which they gave to the leading facts testified to by them, and some minor matters, and all fraudulent motives they denied. But, as this court assumed on the evidence, the case in its great features stood.

In the state of things above described by these witnesses, Adam Macary, the father, on the 19th day of November, 1869, and of course after he had signed the paper on p. 404, releasing his debt, filed a petition in the District Court for the Eastern District of Michigan, representing himself still to be a creditor of the Macary Brothers for $2200; that they were insolvent, and that they had committed an act of bankruptcy by the sale of their property to Sloman; the same being alleged to have been done with an intent to give a preference to Michaels & Levi. The petition, which was set out in the case below, was regular in form, and assuming it to be true, made a plain case within the thirty-fifth section of the Bankrupt Act, quoted supra, p. 361. The Macary Brothers put in no defence, and were decreed bankrupts on the 1st of December, 1869, on their father's petition as aforesaid; and one Post was appointed their assignee in bankruptcy.

Post, as such assignee, now filed his bill in the court below against Michaels & Levi, to recover the value of the stock of goods assigned to Sloman, alleging that the sale was really to Michaels & Levi, or if not, that they got the benefit of it to the exclusion of other creditors, and were in either case preferred within the meaning of the thirty-fifth section of the Bankrupt Act already referred to.

The defendants denied all the plaintiffs' allegations, generally and specifically:

Alleged that the sale was made to Sloman with the assent of Adam Macary, the father and petitioning creditor, and in consequence of his releasing his claim:

That Adam Macary, the party petitioning for a decree of bankruptcy, was in fact no creditor at all of his sons; that he had released his debt; that the court which had made the decree in bankruptcy accordingly had no jurisdiction in the case, the Bankrupt Act in its thirty-ninth section making, in terms, a decree of bankruptcy on the petition of a person other than the debtor legal only on the petition of one or more of the debtor's 'creditors, the aggregate of whose debts, provable under the act, shall amount to at least $250:'

That the whole proceeding in the District Court was by collusion and fraud between the party calling himself the petitioner, creditor, and the so-called debtors, and therefore void; and that there were no other creditors who could have petitioned:

That if Michaels & Levi were guilty of any fraud, Adam Macary was a participant in it and could not profit by it.

On the hearing of the case, it was stipulated in open court by the parties as follows:

'Henry and Harlow Macary were adjudicated bankrupts on the 1st day of December, A.D. 1869, by the District Court of the United States for the Eastern District of Michigan, upon the creditor petition of A. T. Macary. Such adjudication was made in the ordinary manner upon default. Such proceedings were thereafter had that the complainant was on the 8th day of January, 1870, appointed assignee of said Henry and Harlow, and that he duly qualified as such, and entered upon the performance of the duties of said trust; that on the 13th of January, 1870, Hovey Clarke, register in bankruptcy, to whom said bankrupt proceedings were referred, executed and delivered to the complainant an assignment in due form, of all the estate and effects of said bankrupts, a copy of which, duly certified, is produced on the hearing, to be read as evidence on said hearing, and filed in said cause; that debts have been proved before said register against said bankrupts as follows, viz.:

F. B. Schermerhorn, of Hudson, for printing,. $93

Miller & Co., Syracuse, cigars, .... 58

A. Judson, Chicago, mittens and gloves,. 84

Northrup & Richards, Bro'dalbin, N. Y., gloves,. 36

Charles B. Northrup, Detroit, furnishing goods,. 31


text: Talk:Michaels v. Post Assignee/Opinion of the Court