M'Menomy v. Ferrers

Spencer, J. The judges of this court must know, and will take notice of what passes on trials before them; but we have no such knowledge in relation to trials before inferior courts, and to bring the facts before this court, by affidavit, is unprecedented. Kent, Ch. J. We may, perhaps, take notice of the fact, in the exercise of our discretion, as to granting a new trial. Thompson, J. Though it is unusual to receive affidavits in such a case, yet I see no objection to taking notice of the fact suggested, when we come to exercise our discretion as to the propriety of granting a new trial. T. A. Emmet, in reply. 1. The rule laid down by Chief Justice Lewis, in the case of Peyton v. Hallett,* seems to me to be the correct one; that the lien is confined to the case of an order on the person holding the fund, and has never been extended so far as to vest an interest in one man, in a fund which may, or may not, come into the hands of another. The acceptance of the order in the present case is conditional; that is, "if I receive the money, and receive it as the agent of Mark & Speyer, I will pay it to you.” No doubt, if the money had come into the hands of the defendant, prior to the bankruptcy of Mark £s? Speyer, they would have been bound by their order to pay it to Roosevelt; but here the fund might have been attached in Europe, or Mark Speyer might have displaced the defendant as their agent, before the money was paid to him. 2. It does not appear, from the case, that Roosevelt knew of the order or the acceptance. It appears, then, to be — 82 — a transaction incomplete, or an arrangement made with a view to prefer Roosevelt. The law on this subject.is well summed up by Wood, arguendo, in the case of Rust v. Cooper.* “ Though in general, a trader, before an a.ct of bankruptcy committed, has. such a, property in, and power over, his effects, as to do acts which, by consequence, may give one creditor a preference to another ; yet, if he is insolvent, or has an act of bankruptcy in contemplation, he can do no act out of the usual course of trade, in favour of a particular creditor.” The length of time intervening makes no difference, if a bankruptcy is contemplated. In the case of The Assignees of Cummings v, Jackson,† the court considered the stopping payment and insolvency, as controuling circumstances, to show a meditated bankruptcy. It is not pretended, that here was any fraud, in a moral sense, but a legal, or constructive fraud. What circumstances amount to a fraud is a question of law.‡ There are strong and sufficient circumstances in the present case, to justify the court in making the inference of fraud. The acknowledged insolvency of the debtors, the preference of a particular creditor, and the transaction being out of the ordinary course of business, with the very suspicious character of the conveyance to Townsend id. Jones, most conclusively show that species of fraud, which .must render this act of Aiark is Speyer void, and that the plaintiffs are, therefore, entitled to the money in the hands of the defendant. Van Ness, J, delivered the opinion of the court. A new trial is moved for in this cause ; 1st. Because, the order drawn by Mark, in behalf of himself and partner, upon the defendant, was contingent and revocable, and that it was, in fact, revoked by the intervening bankruptcy of the drawers : 2d.- Because the order was given in contemplation of bankruptcy, and for the purpose of giving Roosevelt an undue preference, and so a fraud upon the bankrupt law. — 83 — I consider the first question as settled by the decision of this court, in the case of Peyton v. Hallet.* The order, in that case, was drawn upon an agent, not in possession of the fund out of which it was to be satisfied ; and the objection arising from that circumstance, was much relied upon, and seems to have been well considered. The court held, that the order and acceptance fixed the fund irrevocably, and amounted to an equitable assignment of it. The effect Peyton's bankruptcy might have had on the order, was also noticed, and the court supposed that White (the witness) would not have been deprived, thereby, of his lien. Indeed, upon no other principle, could White have been considered as an incompetent witness. This decision is not only well founded in principle, but is supported by authority. (Powel v. Gordon, 2 Esp. Rep. 735. Green v. Scott, 1 Ves. jun. 282. Row v. Dawson, 1 Vez. 331.) I am satisfied that there is no ground for the distinction that was attempted to be shown between this case, and those which have been mentioned. It was strongly urged, on the argument, that, in the case of Green v. Scott, and Row v. Dawson,.the funds were actually in the hands of the drawees. This is not so. In the last of these cases, the very terms of the order will show, that part of the bond was not in hand. Nothing, even at law, vests in the assignee of a bankrupt, but such real and personal estate, of which the bankrupt had the equitable, as well as legal interest. (Willes' Rep. 402.) In the case of Carpenter and others v. Mainell, (3 Bos. & Pull. 40.) it was held, that where a bankrupt, before his bankruptcy, had indorsed a note, payable out of a contingent and.specified fund, although the indorsement had no legal effect, yet it passed the beneficial interest, and the bankrupt became a mere trustee for the indorsee, and that the trust did not pass to his assignees, under the assignment. The moment the money, in this case, came into the hands of the defendant, he became bound to pay it over to Roosevelt. Certainly, Mark & Speyer could not reclaim — 84 — it; and unless the order was fraudulent, their assignees succeeded to no greater or better rights. This appears to me to be a case, that must frequently have occurred in tjje course 0f commercial transactions, and great and extensive mischief and inconvenience would result from the doctrine, contended for by the counsel for the plaintiffs, if it should have been found necessary to accede to it. The remaining question, if the bankrupt system was still in operation, might present some difficulty. The bankrupt law was passed on the 4th April, 1800; but ivas not to take effect, until the 1st of June,, 1800. Mark Speyer were declared bankrupts, on the ,18th of July, upon an act of bankruptcy committed on the 11th of July, in the same year. The deed to Jones y Tnuns end, is dated the 15 th of April, and the declaration of trust, the 31st of May, 1800, both anterior to the period when the bankrupt law went into operation. The order on the defendant, is dated the 13th of June, nearly a month before the act of bankruptcy was committed. It is not contended, that the conveyances, and other dispositions, which Mark y Speyer made of their property, prior to the 1st of June, of themselves, amounted to an act of bankruptcy. The bankrupt law never attached upon them, unless by construction, until after they were completed. But it is said they were fraudulent, because designed to defeat or evade the operation of an act which they knew would, in a short period, put it out of their power to give a preference to favoured, or, what they conceived to be, meritorious creditors. Before the bankrupt law, debtors had a right to give a preference to bona jide creditors. There is nothing in our insolvent laws to prohibit it; and the bankrupt law left this right until the 1st of June, 1800, unimpaired. In England, before the passing of the bankrupt laws, debtors had the same right; whenever, therefore, we find it said in the books, that an attempt to give a preference to a particular creditor, on the eve of bankruptcy, is fraudulent, it is to bé un — 85 — derstood, that such attempt is fraudulent, as against the spirit of the bankrupt laws only. If the deeds to Murray, and to Jones &? Townsend, were executed by Mark & -Speyer, with a view of giving a preference to certain of their bona jide creditors, and of this I think there is no doubt, that was permitted by the law of this state, and until the 1st June, was not prohibited by the act of congress, and, therefore, they were not fraudulent. The order in question, however, was given after the 1st June, and when, it is insisted, a bankruptcy must have been contemplated. It is difficult to reconcile the fact of the bankrupts’ having pledged all their property for the payment of their debts, with a belief, that at the time this order was given, a bankruptcy was not contemplated. Their situation appears to me to have been hopeless, and the whole course of their conduct, for many months before the date of the order, looks as if they were meditating on the best means to procure a discharge from their creditors, by surrendering to them all their property. Still, however, there is the positive testimony of Mark, who was a competent witness, and whom the jury must have believed, that the order was not given in contemplation of bankruptcy, and. that he had no expectation of becoming a bankrupt, a fortnight before the commission issued. Y. Jones's testimony .strongly supports that of Mai'k. He says, that Mark appeared to think he should be able, ultimately, to pay his debts; and that he persevered in that belief, until very shortly before he became a bankrupt. I think it probable, that Mark was sincere in the belief. The property of the bankrupts consisted, chiefly, of very large tracts of new lands, the value of which they did not understand, and greatly overrated j and this is not the first time that this species of property has proved a most deceptive and precarious source of relief against the pressing calls of numerous and importunate creditors. Upon the whole, ¿he question, whether a bankruptcy was contemplated, or — 86 — not, when the order was given, has been twice fairly submitted to a jury, who have found for the defendant; an<j taking into consideration, that the bankrupt law is repealed, and that it probably never will be re-enacted, becauge no attempt has hitherto been made for that purpose, and that the sum in controversy would afford, as it were, but a nominal dividend among the creditors, we are against the interfering with the verdict ; and, consequently, the motion for a new trial must be denied. Rule refused. Footnotes [*] 1 Caines, 380 [*] Cowper, 630. [†] 1 Johnson, 370. [‡] 1 Burrow, 396. [*] 1 Caines, 363.