Watson v. Taylor - 88 U.S. 378 (1874)
U.S. Supreme Court
Watson v. Taylor, 88 U.S. 21 Wall. 378 378 (1874)
Watson v. Taylor
88 U.S. (21 Wall.) 378
In which the doctrines of the preceding case are affirmed and applied to the case of a note with warrant to confess judgment, given five months before the petition of bankruptcy was filed against the debtor, the case showing affirmatively that no fraud was intended when the note with warrant was given, and that the creditor had no reason to believe that the debtor was insolvent.
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 Pittsburgh, Pennsylvania.
Sweeney, prior to the same day, was, and until January 13, 1869, continued to be, a retail merchant residing and
doing business in Freeport, Pennsylvania. For sometime prior to the said 4th of August, 1868, and up to January 1, 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 Pittsburgh 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.