Clarion Bank v. Jones - 88 U.S. 325 (1874)
U.S. Supreme Court
Clarion Bank v. Jones, 88 U.S. 21 Wall. 325 325 (1874)
Clarion Bank v. Jones
88 U.S. (21 Wall.) 325
1. In the construction of the Bankrupt Act, the fact that a debtor signed and delivered to his creditor a judgment note payable one day after date, giving to him a right to enter the same of record and to issue execution thereon without delay for a debt 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 it is unimportant whether the preference was voluntary or given at the urgent solicitation of the creditor.
2. Where, in the case of a person decreed a bankrupt, a question of insolvency at the particular date (when the debtor gave a security alleged to be a preference) is raised, the court may properly charge (much other evidence having been given on the issue),
"that if the jury find that the quantity and value of the assets of the debtor had not materially diminished from the day when the security was given till the day when he filed his petition in bankruptcy, and the day when he was adjudged a bankrupt on his own petition, they may find that he was insolvent on the said first-mentioned day when he gave the security."
3. In a suit by the assignee of a bankrupt to recover the proceeds of the bankrupt's property, sold under at judgment given in fraud of the Bankrupt Act, the measure of damages is the actual value of the property seized and sold; not necessarily the sum which it brought on the sale. The sheriff may be asked his opinion as to such actual value.
4. The giving of a warrant to confess a judgment may be a preference forbidden by the thirty-fifth section of the Bankrupt Act, though not mentioned in that section in the specific way in which it is in the thirty-ninth section.
5. It is not a true proposition of law that the federal courts will not take jurisdiction of a suit to recover the proceeds of a sheriff's sale of a bankrupt's property, made under a judgment in a state court alleged to have been confessed in fraud of the act, because the judgment has been perfected
by levy or sale and distribution of proceeds of sale among the lien creditors entitled by virtue of their liens under state courts to receive distribution.
6. When a debtor has once given a warrant of attorney to confess a judgment, he knowing beyond peradventure that the holder of it could enter judgment, obtain a lien, and get a preference, it is doubtful whether even his acts afterwards in opposition to the enforcement of the judgment are evidence against an assignee seeking to recover from the person to whom he gave the warrant the proceeds of a sale made on a judgment obtained on the warrant. The fact that entry of judgment on the warrant was a surprise to him, and wholly unexpected by him, is certainly not evidence.
The Bankrupt Act enacts:
"SECTION 35. That 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 . . . procures any part of his property to be . . . seized on execution . . . the person . . . to be benefited thereby . . . having reasonable cause to believe such person is insolvent, and that such attachment &c., is made in fraud of the provisions of this act, the same shall be void, and the assignee may recover the property or the value of it from the person so receiving it, or so to be benefited."
"SECTION 39. That any person residing and owing debts . . . who being bankrupt or insolvent or in contemplation of bankruptcy or insolvency shall . . . give any warrant to confess judgment, or procure or suffer his property to be taken on legal process with intent to give a preference to one or more of his creditors . . . shall be deemed to have committed an act of bankruptcy, and . . . shall be adjudged a bankrupt on the petition of one or more of his creditors."
These provisions of law being in force, S. & W. Burns were lumbermen and merchants doing business as partners in the County of Jefferson, Pennsylvania. They became indebted to the Clarion Bank in the sum of $10,000, the bank having discounted their two notes for $5,000 each. The one note was due July 16-19, 1867, and the other August 6-9.
On the 9th of July, S. Burns, one of the partners, having died, the officers of the bank insisted upon a change of the security, and the surviving partner, yielding to their importunity, gave the bank an acknowledgment of the debt, payable one day after date, coupled with a warrant of attorney to confess judgment for the debt and costs.
On the 18th of July, the judgment was entered up in Clarion County under the warrant of attorney authorizing it, and by exemplification it was transferred to Jefferson, where Burns lived, and had his property and business.
On the 19th of July, the attorney of the bank filed his praecipe for a fieri facias, which was probably issued on the same day or the next day. On the 22d of July, the Sheriff of Jefferson County had the writ certainly in his hands, and made a levy on Burns's goods. The property levied on remained in the sheriff's hands unsold for want of time to sell it before the return day of the writ.
To the next term afterwards, a venditioni exponas was issued, under which the sheriff sold the goods and paid the bank $9,359.50. The balance of the debt and costs was afterwards made by a sale of land in Clarion County.
On the 30th of July, 1867, Burns filed his petition for the benefit of the Bankrupt Law in the District Court of the United States for the Western District of Pennsylvania, sitting at Pittsburgh.
Upon this petition, he was adjudged a bankrupt by the district court on the 9th day of September, 1867.
His property was assigned by the register in bankruptcy to one Jones, on the 29th of November, 1867, who on the 6th of January, 1869, a year and more afterwards, brought suit in the court below to recover back from the Clarion Bank the debt which it had collected from Burns, the bankrupt.
The declaration alleged:
That Burns suffered or procured process to be issued out of the Common Pleas of Jefferson, and that thereupon a large amount of his property was seized and the proceeds thereof received by the bank on account of its claim against Burns.
That within four months after he procured or suffered the seizure, he filed his petition and was adjudicated a bankrupt.
That he was insolvent at the time he gave the note with warrant of attorney to confess judgment, and did it with a view to give a preference to the Clarion Bank.
That the Clarion Bank accepted the judgment and received the proceeds of the execution having reasonable cause to believe that Burns was insolvent.
That the judgment, exemplification, execution, and payment of proceeds on the bank's claim were all in fraud of the Bankrupt Act.
That the facts above stated made it the duty of the plaintiff to recover the property seized, or the value thereof, and concluded as in trespass on the case for a tort, to the damage of the plaintiff $30,000.
Plea not guilty, with a special traverse of every fact alleged in the declaration, except the judgment note, the execution and levy.
The case came on for trial in November, 1870, before a jury.
The plaintiff produced sundry witnesses whose testimony tended to prove that Burns was insolvent when he gave the judgment note, and that the defendant had reasonable cause to believe or suspect him of insolvency.
On the other hand, the defendant produced witnesses whose testimony tended to prove that at the date of the judgment and afterwards when it was entered of record, the debtor (Burns) was not insolvent, that he did not then contemplate insolvency or bankruptcy, and that the defendant had no reasonable cause to believe or suspect him of being insolvent.
In the course of the trial, the plaintiff having given such evidence as he deemed necessary of the fraud committed on the Bankrupt Law, proposed to ask the Sheriff of Jefferson County, who sold the personal property of S. & W. Burns on the writ already mentioned, the actual value, in his opinion, of such property.
The question was objected to because the evidence would be incompetent and because the plaintiff could not recover more than the amount for which the property sold at sheriff sale.
The objection was overruled, and the evidence admitted under exception of the defendant.
The defendant offered to prove by W. Burns, the surviving partner, that the issuing of the execution and the entry of the judgment was a surprise to and wholly unexpected by him, and that from the time he was first apprised of it, he opposed the bank in both judgment and execution and endeavored to have the original judgment opened.
The plaintiff objected to the foregoing offer as introducing evidence irrelevant and incompetent.
The court rejected the first part of the offer, but allowed the defendant to show what the witness did in opposition to the enforcement of the judgment and execution.
The defendant proposed to prove by him, the same witness, that upon the entry of confession of judgment by the Clarion Bank, in Jefferson County, and issuing of execution, he came down to Pittsburgh, consulted his Pittsburgh creditors, and notified them of the state of affairs, and that, at their instance, he went into voluntary bankruptcy, they and he believing that in some way or other, under the provisions of the Bankrupt Law, then new to all, the execution and all proceedings thereon might be set aside; that it was a part of the agreement and understanding of the witness and the creditors that the proceeding in bankruptcy was, if they were successful in defeating the bank executions, to be then superseded by arrangement and withdrawn, and the witness to be allowed to resume possession of his mills &c., and an extension given him, this proof to be accompanied by proof that from and after the issuing of the bank's execution the defendant, Burns, fought and opposed the same.
The plaintiff objected to the offer as introducing evidence irrelevant and incompetent. The objection was sustained and the evidence rejected under exception by the defendant.
The court charged:
"That everyone is presumed to intend that which is the necessary and unavoidable consequence of his acts, and therefore when W. Burns signed and delivered to the defendant in this case the judgment note dated July 9, 1867, payable one day after date, giving to the defendant the right to enter the same of record and issue execution thereon without delay for a debt which was not then due it, it afforded the strongest grounds for the presumption that the debtor intended to give to his creditors a preference and that the said creditor intended to obtain such preference, thereby enabling him to make his money on execution before any other creditor could interfere, and that in such case it was wholly immaterial whether the preference was voluntary on the part of the debtor or given at the urgent solicitation of the preferred creditor. [Footnote 1]"
"That if the quantity and value of the assets of the said Burns had not materially diminished from July 9, 1867, when the judgment note was given, till July 30, when he filed his petition in bankruptcy, and September 9, when he was adjudicated a bankrupt, on his own petition, they may find that he was insolvent on the said 9th day of July. [Footnote 2]"
"That the measure of damages was the value of the property seized and sold by virtue of the execution issued on the judgment, confessed on said judgment note, in the Counties of Clarion and Jefferson. [Footnote 3]"
The defendant asked the court to charge as follows:
"1st. In this case, the plaintiff must recover (if at all) under the provisions of the thirty-fifth or thirty-ninth section of the Bankrupt Act, as the bankrupts, whose assignee sues in this case, to-wit, S. & W. Burns, were not so adjudicated in an adverse proceeding in bankruptcy presented by their petitioning creditors, but went into bankruptcy voluntarily. The thirty-ninth section does not apply to this case, and as the thirty-fifth section does not specify, among the acts it exhibits, as does the thirty-ninth section, 'the giving any warrant to confess judgment,' no recovery can be had under that section, and the verdict of the jury must be for the defendant. "
This charge the court refused to give.
The defendant also requested the court further to charge:
"2d. That while under the Bankrupt Act, this court has the right to restrain the further action of parties litigant in cases arising under and referred to by the act from further proceedings in said case during the pendency of the same, and while they are yet undetermined in the state courts -- that is to say while the said cases are yet without judgment, execution, sale of defendant's property, and distribution of proceeds, and while this court has the right and power to restrain proceedings on unfair securities when given in fraud of the Bankrupt Act, whether of record or not of record, yet this court has not the right or power to and will not take jurisdiction in a suit of this kind when the judgment of a state court has been perfected by levy or sale and distribution of proceeds of sale of a defendant's property among the lien creditors of a defendant, entitled by virtue of their liens under state courts to receive distribution."
This charge also the court refused to give.
Verdict and judgment having been given for the assignee in $15,557, the bank brought the case here. The admission of the evidence objected to by the defendant, the refusal to admit that offered by him, the giving of the charges given, and the refusal to give those requested, were the matters assigned for error.