Chadbourne v. Harding

Peters, C. J. It appears, as found by the judge at nisi prius, that two debtors are in insolvency as partners and also individually; that the partnership assets are small, but that the private assets of one of the partners are enough to pay all his own liabilities and leave a surplus to be applied on the liabilities of the firm ; that a creditor of the solvent partner denies that his own claim can be contested by another creditor whose claim is against the partnership estate only; and whether the one creditor is or not entitled to resist the other creditor’s alleged claim is one of the questions presented. We have no doubt that the contesting- creditor has such right. Although a direct creditor of the firm only, he has an interest in having all the estates comprehended in the insolvency proceeding-turn out as large as possible. The more the individual assets may be, the larger the dividend to be received on his debt. His pecuniary interest in the solvent individual estate may be even more in amount than that of some of the creditors whose claims are against the debtors personally. It also appears, as further found by the judge, that the note, which is the subject of controversy in this case, was given, within four months of the institution of the insolvency proceedings, by the two insolvents personally in exchange for two other notes, on one of which only the partnership was bolden, and on the other only the partner who individually has no assets whatever; and that the exchange of notes was made for the fraudulent purpose of giving to the claimant a better standing when his debt should be proved in the insolvency proceedings. It is plain to be seen that upon the proof of the old notes the creditor could receive but a small dividend, while upon proof of the substituted note he would receive his claim in full. The judge ruled, on this finding of fact, that the transaction amounted to a preference, such as is inhibited by the statute, and rejected the claim wholly. The ruling was right. The excepting party contends that merely making a written promise is not the transfer of any property, that it does not convey the thing promised, and that the statutory provisions touching preferences refer to the conveyance or transference of [584] some material or tangible thing. If this should be the correct view of the law, it would be easy to practice a class of frauds upon insolvent estates, with no power in the court of insolvency to prevent them. If the note were allowed, its collection would be a transfer of the very thing promised. • It is true that the statutory provision does not hit such a case in very express terms, and for the reason that the contrivance resorted to by these parties i.s so uncommon and novel as not to have been foreseen by the framers of the statutes. But we think that the transaction is comprehended by the spirit and purpose of the law, and practically enough within its literal provisions. Section 29, c. 70, R. S., in general terms prohibits preferences, and other sections • of the insolvency chapter are declaratory of the same idea. By section 33, money may be recovered back, mortgages annulled, and attachments dissolved, under certain conditions which are prescribed to prevent preferences, and it would be a strange result if money fraudulently or improperly paid and received in contemplation of bankruptcy, may be recovered back, and still a note fraudulently given by the insolvent for the payment of money be legally enforced. The common definition of preference, as found in law dictionaries, is, the paying or securing to one or more of his creditors, by an insolvent debtor, the whole or a part of their claims, to the exclusion of the rest. A note is property. The note in question was given in payment of or as security for other notes, and represents a lien on the insolvents’ estates which did not exist before. It undertakes to secure the creditor as he was not secured before. Allowing an attornej- of an -attaching creditor to take judgment which would give that claim a privilege over claims not in judgment, is giving a preference. Eastman v. Eveleth, 4 Met. 137. If paying money would be wrongful, certainly the giving a promise to pay the money would not be right, and a note given for such purpose, would be void as against creditors. If the money paid can be recovered back for the benefit of the estate, a note given for the money cannot be [585] collected against the estate. If the ruling does not cancel a fraudulent transfer, it prevents one. Counsel complains that by the ruling his client loses his original notes. It was not so ruled. It was ruled that he could not prove and collect the new note. The other question does not arise in this controversy. Exceptions overruled. Walton, Virgin, Libbey, Emery and Foster, JJ., concurred.