Phœnix v. Dey

Spencer, J. By the decree of the court of chancery, in this case, all the conveyances, assignments, securities and payments, made by Ingraham, the bankrupt, to the appellant, or for his use, stated and set forth in the bill of complaint, and which were made subsequent to the 6th of October, 1800, are adjudged to be fraudulent and yoj^ as against the assignees of the bankrupt, and arq set aside, and the appellant is ordered to account for, and pay to the respondents all moneys received by him, being the proceeds of property, or securities so assigned, and to assign and reconvey such as had not been disposed of by him. The decree refers several things to the master, which it is not necessary for me to state. In considering this case, I shall confine myself to the. examination of two points only. 1. Whether there was sufficient evidence to authorize, the conclusion, that Ingraham contemplated an act of bankruptcy, when he executed the conveyances, and made the assignments and payments to the appellant, which have been a (fudged fraudulent and void. 2. Whether, if Ingraham did, at that time, contemplate an act of bankruptcy, the application of the appellant to him for further security, and the giving the same accordingly, were not valid acts, notwithstanding a subsequent act of bankruptcy. I shall not enter into a repetition of the various facts in the case, but shall notice such prominent ones, as are necessary to the consideration of the points proposed to be examined» There is. one fact beyond all controversy, that the appellant had advanced to the bankrupt, at various times, large sums of money, and furnished him with his credit for other sums, which, eventually, the appellant had to pay. These advances began in May, 1798, and were continued down to the latter part of the year 1800. These loans appear to have proceeded from the relation which existed between the parties, the appellant being — 425 — the father-in-law of the bankrupt, who was doing business as a merchant, and whose exigencies seem to have required the appellant’s aid. The motives to the advances he made, may be considered as dictated by friendship, and with a view to aid the bankrupt in his business. The appellant stands before the court in a meritorious light, and will be protected in any security he may have legally acquired;. The only evidence in chief, in the cause, on which the respondents can rest to make out that Ingraham contemplated an act of bankruptcy, when he gave the appellant the securities, attempted to be set aside, is his answer on oath, and the testimony of Ingraham, a witness on the part of the appellant. The answer admits that the appellant believed Ingram hmn to be insolvent, about the time mentioned in the bill, which I presume to be the 6th of October, 1300, and that he did not, in consequence thereof, generally pay his notes at the bank, or elsewhere; it alleges that In-graham, until a short time before he was declared a bankrupt, always appeared solicitous to avoid doing anything that might be deemed an act of bankruptcy, and that Ingraham did not, to his knowledge or belief, commit an act of bankruptcy until February, 1801, and that the appellant did not know whether he had it in contemplation or not, at the times when the securities were given, to become a bankrupt. The testimony of Ingraham states, that after the month of October, 1800, he continued to do business as a merchant, almost to the time when he was declared a bankrupt, and that he paid several notes and other debts to a large amount; that at the time of giving the moneys and securities to the appellant, he had no intention of becoming a bankrupt, nor did he make any such conveyances, assignments or payments in contemplation of bankruptcy. — 426 — The most which- can be deduced from this evidence *S’ ^llSra^lain was insolvent; but it expressly rejects the idea that the acts done were in contemplation of bankruptcy. Reference has been had to the answer of Ingraham, and to the testimony of Dickson and Prime, .to impeach that part of his evidence, which denies that ' what he did to secure the appellant, was in contemplation of bankruptcy ; if it be admitted that his answer and the declarations he made, completely produce that effect, still the fact is to be made out affirmatively, that the preference given to the appellant, was in contemplation of bankruptcy : For no propositions can be clearer, than that the answer of one defendant is not evidence against his co-defendant; and that the declarations of a party to a sale or transfer, going to destroy and take away the vested rights of another, cannot, ex post facto, work that consequence, nor be regarded as evidence against the vendee or assignee. The book which Prime says Ingraham showed him in December, 1800, in which were the names of certain creditors who were his friends, and whom he said he had secured to a large amount, since his failure, as he was determined his friends should not suffer, stands upon the same principle ; for if the subsequent declarations of a party making a sale and transfer of his property are not evidence, surely the ex parte acts of such person cannot be evidence. If then the ex post facto acts and declarations of In-graham, are not evidence against the appellant, and can only be used to impeach Ingraham’a testimony, admitting that testimony so far to be impeached, there is no evidence' of an aqt of bankruptcy contemplated, nor any circumstance from which to infer it, but the simple fact of In-graham’s insolvency ; and the court is without any evidence to show the nature and extent of this insolvency, and whether it was irretrievable and desperate, or not. That an insolvency is no objection to giving a preference, unless it be shown that a bankruptcy was com427 t'emplated at the time, was decided in the supreme court, in the case of M'Menomy and Townsend v. Ferris. (3 Johns. Rep. 82.) That principle will be found admitted and acted upon, in a great variety of cases. It is founded upon the right which every man has to dispose of his property to whom he pleases, for an adequate consideration, and in satisfaction of his debts, until he commits an act of bankruptcy, or contemplates so to do; and where a part only of the insolvent’s estate is transferred for the payment of a just debt, though the act be voluntary on the part of the insolvent, the transaction is not, on that ground, impeachable. I have hitherto supposed that Dickson and Prime were competent witnesses, and that their testimony had produced the effect of discrediting Ingraham, in that part of his testimony, which goes to deny that he contemplated bankruptcy, when he gave the appellant the securities for his debt. I do not propose to enter into a minute discussion of the question of their competency; because, if they were competent, and the fullest effect be given to their testimony, it does not go to make out the fact, that bankruptcy was contemplated, as it is not evidence in chief, Dickson appears to me to have been a competent witness ; his interest being remote and contingent. This is not the case with Prime ; he was a creditor of Ingraham’s, had proved his debt under the commission, and had a right to a distributive part of the bankrupt’s estate, and Iris testimony went directly to increase that fund. Prime’s debt was not extinguished by the transaction in. which he acted as broker for the firm of Ingraham, Phoenix and Nixen. There are cases in which the rendering an account and an acquiescence in it, for a considerable time, by the party to whom it is rendered, will preclude that party from disputing the items, or calling for vouchers to substantiate it. In the present case, there is no controversy as to vouchers. Prime clearly had no •right to make the charge against the firm ; he has- not — 428 — been credited the money; and although he has not been resorted to for payment, nothing has taken place to absolve him from his responsibility. On the second question, how far forth payments obtained by a creditor, on his application, after the debtor an act of bankruptcy, but before one is, in fact, committed, are to be upheld, I confess I have little difficulty. It will be unnecessary to go into an elaborate examination of the cases ; but it may be safely advanced, that there is not a case to be met with, which denies this position, that if even an act of bankruptcy be contemplated by the debtor, yet if, at the instance, and on the application of the creditor, he makes payment, or assigns property, such payment or assignment is valid, as against the assignees of the bankrupt. As to the degree of pressure, or the urgency of the solicitation, this case comes within the principles sanctioned by the opinions of very distinguished judges. In the case of Hartshorn and another v. Slodden, (2 Bos. and Pull. 586.) the debt was not due, and both parties knew that there could be no legal process made use of ; yet the court decided diat the preference was legally acquired, on the principle, that if a security be bona jide given under the impression of an obligation, and not springing from the voluntary act of the bankrupt, such security is good; and in that case the preference was given when the debtor was in failing circumstances, and that known to the creditor, and the motive of his conduct. So, also, in the case of Thompson v. Freeman (l Term Rep. 156.) there was no existing debt which could be enforced; still the act creating the preference was upheld, on the principle that it was not voluntary, because it was not spontaneous. In the case of Yeates v. Groves, (1 Vesey, jun. 280.) the Lord Chancellor held that insolvency was no objection to the creditor’s receiving payment, for that the bankrupt being in failing circumstances, is a good reason. — 429 — for pressing him, I assent to the principle, that a credit- or is not restrained, either by law, or the principles of morality and good faith, from obtaining payment of his debtor, until the very moment an act of bankruptcy is committed ; and until then, there is no legal restraint on the ’ ' ° bankrupt from giving a preference, providec^/it be not by his own unsolicited, voluntary act; if the gaining a preference, by the act of the creditor, is not unlawful, if the debtor is not restrained from parting with his property, on the application, and at the instance of his creditor, how is it possible that such an act, valid in all its parts, can be considered fraudulent and void ? It appears to me to be contrary to a maxim long established in courts of equity, that where the rights of persons are equal, and where each has the same equity, and one has obtained a plank, by which he can save himself at law, equity ought not to devest him of it. That the appellant obtained his securities on application, is manifest, not only from his answer, but from the evidence of the bankrupt. It has been urged, that ' the application went only to a part of the securities, and that a policy of insurance, effected in Philadelphia, which formed a part of them, had been exchanged by the appellant with the bankrupt, for a cargo of molasses; and thus, with respect to the molasses, the preference was lost. It appears to me, that the evidence warrants the conclusion, that all the payments and securities ■ given by the bankrupt, were in consequence of applications by the appellant; and if the policy was valid in his hands, the molasses which was its substitute, stands on the same footing. On both of the points, which I have thus briefly considered, it appears clearly to me, that the fact and law of the case have been mistaken, and, consequently, that the decree must be reversed. It has been suggested, that an account ought to be directed, as there is in the appellant’s hands a balance due — 430 — the respondents, as assignees of Ingraham; there appears nd foundation for the suggestion ; and to direct an account, under these circumstances, would be productive of useless litigation. Kent, Ch. J. and Van Ness, J. were of the same opinion. Thompson, J. and Yates, J. were absent. The rest of the court concurred; it was thereupon, ordered, adjudged and decreed, that the order or decree of the court of chancery be reversed; and that the bill of the complainants be dismissed, &c. Judgment of reversal.