Read v. Moody

The opinion of the court was delivered by Veazey, J. The referee finds every element of fact entitling the plaintiff to recover except one. He says : “I am not able to find as a matter of fact, upon the evidence, that the defendant had reasonable cause to believe his son was insolvent at the time of the transfer of said notes.” Then he submits to the court, as matter of law, to determine whether the facts found should have put the defendant on inquiry. It is plain that if the defendant had made inquiry he would have found that his son was insolvent. Was he put upon inquiry ? This must be determined upon all the facts reported. One fact found, viz., that the transfer was not made in the usual course of business, was by the statute prima facie evidence of fraud (sec. 1861, R. L.), but not conclusive. Another fact known to the defendant, that his son, the debtor, had sold out his business, his entire stock, tó one person, is also prima facie [672] evidence of fraud. Walbrun v. Babbitt, 16 Wall. 577. Either of these facts were doubtless sufficient, unexplained, to entitle the plaintiff to a recovery. The question is whether the referee has reported other facts which relieve the transaction of the fraudulent aspect imported by these adverse facts, so that, as a prudent man, charged, as he was, with knowledge of the insolvent law, he was bound to make inquiry, which would have disclosed the true condition. The referee reports, as before stated, that he cannot find that the defendant knew his son was insolvent, or had reasonable cause to believe him insolvent. “He supposed his son had been doing a fairly profitable business, and was worth something above what he might owe.” He held a mortgage as. security for what his son owed him; but it does not appear how long it had rested on the property, and on application of his son, who told him he was going to sell out, he released the mortgage. Two or three days thereafter the son told the father that he had sold out to Wheeler, who had formerly been his partner, and handed him the notes in question, which the father took and applied on the debt against his son, which had been secured as aforesaid. This was done under peculiar circumstances, and without a word of inquiry by the father, or of explanation or direction by the son. These facts had some tendency to show that the father thought his son was financially sound, but the referee also finds that the defendant "made no inquiry of his son why he was going to sell out, and made no attempt to ascertain from him or Wheeler, or any other person, his son’s financial condition.” Herein was the defendant’s fault. He was bound to make inquiry. He had no right to rely upon his impressions up to the time of these transactions of unusual nature and out of the ordinary mode of transacting such business. The presumption or prima facie evidence of fraud arising therefrom could only be overcome by proof on the part of the defendant that he took the proper steps to find out the pecuniary' condition of [673] his son. He was bound to use. all reasonable means, pursued in good faith, for this purpose. The prima facie evidence of fraud threw the burden of proof on the defendant to sustain the validity of'the transactions. He chose to remain ignorant of what the necessities of the case required him to know. He thereby took the risk of the impeachment of the transactions by the assignee in insolvency in case his son should, within the time limited in the statute, be declared a bankrupt. These propositions are well sustained by authority. Walbrun v. Babbitt, supra, and cases there cited. Judgment affirmed.