Rice v. Melendy

Beck, J. — I. Section 35, of the Act of Congress, approved March 2, 1867, establishing a uniform system of bankruptcy, provides that conveyances and transfers of property by any person who is insolvent, or in contemplation of insolvency, within four months prior to the institution of bankruptcy proceedings against him, in payment of debts, to one having reasonable cause to believe the party making the conveyance is insolvent, and that the conveyance is in fraud of the act, shall be void. All conveyances made within six months of the filing of proceedings in bankruptcy by like parties to others having reasonable cause to believe the grantors to be insolvent, with a view to prevent the property transferred coming into the hands of assignees, or to defeat the object of or impede the operation of this act, are declared to be void. If such sales are not made in the' usual course of business, the fact shall be prima facie evidence of fraud. The questions of fact determined by the referee were these: 1. Were Clark & Freer, at the time of the sale to plaintiff, insolvent? 2. Did plaintiff know, or have reasonable cause to believe, that Clark & Freer were insolvent or contemplating insolvency, and thus the sale was made in fraud of the provisions of the Bankrupt Act? With the first question we have no trouble. The insolvency of the partnership who transferred the goods to plaintiff cannot be doubted. The matters involved in the second are by no means free of doubt. . ‘ i. bankruptoy : sale * liow defeated. In order to defeat the sale and conveyance under which plaintiff claims, it must not only be shown that ^ ; » the firm was insolvent, or contemplating insolvency, but it must also appear that plaintiff had reasonable cause to know such fact, and that the sale was for the purpose of preferring him as a creditor and defeating the', provisions of the Act, and it will not be disputed that plaintiff’s rights can [399] not be defeated on account of tbe fraudulent intentions of the bankrupts unless they were known to him, or he had reasonable cause to believe they were acting fraudulently. There were many facts and circumstances developed in the evidence which are considered by the law as badges of fraud on the part of plaintiff, that need not be enumerated or discussed. That they are established by the evidence may be admitted. But it must be remembered that these things will not of themselves, against preponderating evidence of good faith, establish fraud; they are evidence, not conclusive evidence, of fraud. ____ notice. II. At the time of the transaction Clark & Freer had good credit in the town where they were doing business and regarded as prosperous and successful. Plaintiff testifies that he had no suspicion of their insolvency or of any intention, if they possessed it, to evade the operation of the bankrupt law. He is corroborated in his evidence by his course of dealing with them and by many facts and circumstances developed on the trial. And, it may be stated with confidence, that not one of his acts is necessarily inconsistent with his entire good faith and ignorance of any unlawful intention of the other parties. Did he have good reason to believe that Clark & Freer were insolvent and that the conveyance was made ,in fraud of the provisions of the law? Plaintiff is not only charged with notice of facts within his knowledge, but of all such as he could have discovered upon inquiry, if reasonable prudence required inquiry. Bump on Fraudulent Conveyance, 232; Forbes v. How, 102 Mass., 428; Beals v. Quinn, 101 Mass., 262. It may well be concluded that upon the facts within plaintiff’s knowledge there was no reasonable ground to believe the firm was insolvent. They were doing a good business, had good credit, and met their paper with ordinary promptness. These things were known to plaintiff. The extent of their indebtedness is not shown to have been within his knowledge. The circumstances of the sale alone cannot be claimed as grounds which should have prompted plaintiff, in the exercise of pru [400] dence, to make inquiry as to the condition and intentions of the parties. These were, all their merchandise was covered by the sale; they were indebted to plaintiff; part of the notes given by plaintiff for the goods were made payable to the father of one of the parties; no provision was made for the payment of bills for goods recently procured, etc., etc. Upon this branch of the case there is great doubt in our minds and some of us feel that, were this question here for decision, on the evidence we would be required to hold that plaintiff in the exercise of prudence was required to make inquiry concerning the solvency and intentions of the partners. But this was a question of fact to be determined upon the evidence by the court below. We cannot say that there is no evidence to support the conclusion therein reached by the referee, nor that there is such an absence of evidence in support of his finding that it will be presumed to have been made through the influence of passion, prejudice or favor. We must reach this conclusion, in order, under the often repeated decisions of the court, to authorize us to disturb the judgment. The case, it will be observed, turns upon the sufficiency of the evidence and, under the uniform practice of the court, demands no further discussion. The motion to set aside the report of the Referee was rightly overruled. Affirmed.