M. L. Byrne & Co. v. Their Creditors

The opinion of the Court was delivered by Poché, J. The following appeals have been taken from the judgment of the District Court, amending and homologating the final account ' of the syndic in this cause. 1st. By John Bendernagel, the notary public, who complains that the court erred in reducing the amount of three hundred dollars, allowed him by the syndic, to one hundred dollars. 2d. By Richard F. Harrison and Joseph McElroy, receivers of the firms of Wallace, Cary & Co. and Wallace & Cary, who complain — 200 — of the dismissal of their opposition to the tableau, on an alleged claim of six thousand four hundred and fifteen, dollars and twenty-five cents and interests ; which claim had been refused by the syndic. 3d. By D. R. Carroll who, by opposition to the tableau, had claimed to be placed thereon as a privileged creditor for $12,703 09, subject to a credit of $900, and who complains of the judgment of the court, under which his claim was allowed, but classed as an ordinary, and not as a privileged claim. By an answer filed to the appeal, Richardson & Magruder, attorneys •of the provisional syndic, pray for an amendment of the judgment, under which their claim for fees was reduced from five hundred to two hundred and seventy-five dollars, and Henry P. Dart, attorney of absent creditors, also prays for an amendment of the judgment under which his fees were reduced from two hundred and fifty dollars to one hundred. First — As to the notary’s appeal, the record shows that, under orders of the District Court, he made an inventory, of the property surrendered by the bankrupts, and that he held a meeting of the creditors of the estate and that both duties were laborious and necessitated voluminous writings. With proper evidence before us, we would be justifiable in increasing the amount allowed him. We find in a brief which he files in ¡his own behalf, a detailed bill of charges for the services which he-rendered, but as this bill was not presented and acted upon by the lower court, it comes before us in a shape under which it cannot be considered. This court cannot entertain original evidence. And, besides, the labor was performed under the orders and supervision of the District Judge, and without proof to the contrary we must presume that he correctly appreciated the services of the notary, and fixed a proper and reasonable compensation therefor, and we will not disturb that part of his judgment. For the same reasons we affirm those rulings in his judgment fixing the fees of Messrs. Richardson & Magruder, attorneys of the provisional syndic, and those of Henry P. Dart, attorney of absent creditors. As to the appeal taken by Harrison and McElroy, receivers, we have not been favored, by brief or argument of their counsel, with any reasons or authorities to justify the reversal of the judgment in this particular. We have read the evidence introduced in the lower court in support of their claims, and find it conflicting and doubtful. It failed to satisfy us that the amounts claimed were for debts incurred since the composition of the bankrupts, to be hereafter referred to. It was the duty of the opponents to prove their claim with legal authority ; this they have failed to do, and the judgment dismissing their opposition is therefore correct. The opposition of D. R. Carroll presents for our solution several questions which are not entirely free of difficulty, and on which the decisions of this Court are not all in perfect accord. — 201 — In his opposition to the syndic’s account, in which his claim had been entirely ignored or rejected, he alleges that he is the subrogee of Wallace & Cary to a confession of judgment for $12,703 19, made in their favor by M. L. Byrne & Go. on the 28th of November, 1878, as a •security for money loaned to them by said Wallace & Gary, in July and November, 1878, and that as such transferee, he obtained judgment on •said confession in the Fourth District Court of the parish of Orleans, on April 25th, 1879, and that on the next day he issued execution, under ■which the stock of goods of said M. L. Byrne & Go., situated in a store -at No. 163 Canal street, was seized and was in the possession of the -sheriff on the 10th of May, 1879, when his debtors made a voluntary surrender, under the insolvent laws of the State, of their property, which consisted mainly of said stock of goods. That under the order of the court staying his proceedings, the property, which had been seized under his •execution, was transferred from the possession of the sheriff to that of the syndic, by whom it was sold under the order of the court, and the proceeds of which form the fund now in process of distribution by the syndic, in the final account presented by him, and now under discussion. He alleges a privilege on such proceeds, as a result of his seizure. , His opposition was met by an answer of the syndic, who urged the nullity of his judgment, and charged that it was the result of a scheme concocted by Wallace & Cary and M. L. Byrne & Co. to defraud the latter’s creditors, and that said confession was made by the bankrupts without legal consideration, at a time suspicious, when they were notoriously insolvent. And, secondly, he urged that if any consideration had passed for ■such confession, the said Wallace & Gary, well knowing the insolvency of M. L. Byrne & Go., had thus sought to obtain an undue and unjust preference over the other creditors of the latter. On the trial, Carroll objected to the admission of any evidence in -support of the averments in the syndic’s answer to his opposition, on the •grounds : 1st. That the syndic is without authority, after the filing of his final account, to plead in behalf of the creditors, and to question the validity •of any claims set up by creditors. 2d. That the attack on his claim, as an alleged undue preference, performed by an insolvent, cannot be made in this proceeding, but must be inaugurated by means of a direct revocatory action. 3d. That such action could not then have been maintained, because •more than one year had elapsed since the performance of the act complained of. 4th. That the claims of the other creditors had accrued since the •date of the act complained of. — 202 — Opponent quotes several authorities which bear him out in the denial of the right of the syndic to plead in such a case in behalf of the estate and of the creditors, but the weight of authority preponderates-in favor of the exercise of such right. He is the representative of the estate until discharged, and his duty requires that he should resist all claims which he suspects as unjust, fraudulent or otherwise defective. We cannot assent to the proposition that he is functus officio after the-filing of his final account; for then, frequently, begins the-struggle of vital importance to all the creditors to the fund in his custody; and the bona fide creditors are entitled to his assistance in such a contest. Nor do we understand that in meeting such issues as alleged, undue preference-conferred by the bankrupt, he should be confined to the direct revocatory action. When the issue is directly made, as in this case, the creditor cannot-complain, as he then comes in the concurso, to assert his privilege, and he' must be ready then, if ever, to maintain his position. Both upon reason and authority, we hold that the issue was properly made. 8 N. S. 532 ; 2 L. 28 ; 15 A. 582. . The answer which assails the validity of opponent’s claim and judgment was filed on the 20th of January, 1880, and he urges that, as the confession of judgment in favor of Wallace & Cary had been made in November, 1878, more than one year had elapsed since the act was performed, and that, therefore, both syndic and creditors were debarred from the right of charging fraud or undue preference against the confession. A plain answer to this pretension is in the fact that the confession of judgment was not brought to the knowledge of either syndic or creditors,, or indeed to any third parties before the 25th of April, 1879, from which event alone the time prescribed can, in reason or in law, be computed. The law can hold no one to impossibilities, which would be the very task imposed on a party if required to assail an act which has no existence as to him. The right to plead in behalf of the estate and of the creditors being once recognized in the syndic, cannot be affected or modified by the riature, origin or the date of the claims of any creditor of the estate.. The rule invoked by opponent is applicable to a direct revocatory action brought by a creditor, and not to a contest for the classification of claims in a concurso under insolvent proceedings. 15 A. 582. As it has now been demonstrated that the syndic had the right and' authority to assail the validity of opponent’s alleged priority over other creditors in the manner and form and at the time that he presented that issue, we have no other obstacle in the way of an investigation of the confession, the judgment and the seizure Which are held up by opponent. — 203 — as the muniments of the privilege which he claims on the property of the-bankrupts. The record discloses the following facts as bearing on this point: In February, 1878, M. L. Byrne & Co. went into bankruptcy in the-TJ. S. District Court, and under the authority of the bankrupt laws, made a composition with their creditors, who accepted in full of their claims twenty-five cents on the dollar, payable in three installments, whereof' eight cents cash, and the balance by notes, maturing in July and November of that year. At the maturity of the first installment notes, the debtors were unable to meet the payment thereof, whereupon they applied to Wallace &~ Cary, with whom they had had for years very close business relations,, and secured from them the loan of money needed for such payment. On the maturity of the second series of notes, which represented the-third and last payment under the composition, they were in the same-embarrassment as in July previous, owing to the complete stagnation of' business in New Orleans, resulting from the memorable yellow fever-scourge which devastated the city during that year ; and they again applied for assistance to Wallace & Cary, who again came to their relief with the necessary funds. But as the same cause had also produced a-depressing effect on the affairs of Wallace & Cary, they refused at the-second call to assist M. L. Byrne & Co. without some security for the-advances of funds made in both emergencies ; and the security agreed-upon was a confession of judgment for $12,703 19, exéeuted by M. L.. Byrne & Co., on November 28,1878. In that transaction it was stipulated in substance that the amount confessed was to be paid by installments ranging from $333 33 to $500,. due and exigible at graduated and fixed periods, covering a space of time, extending from February 13,1879, to January 29,1880. And it was-further stipulated that if default was made in the payment of any installment at the stipulated time, the whole amount confessed would thereby, and at once, become due and exigible. This security was transferred on the 3d of January, 1879, by Wallace & Cary to opponent, D. B. Carroll, for valuable consideration, as shown by his testimony and other evidence in the record. In fact, we don’t understand the validity of this transfer to be questioned on appeal, and we shall treat opponent as entitled to all the rights-of Wallace & Cary, and liable to all the defenses which could be urged! against his transferrers. - After his acquisition, D. B. Carroll received, in sundry remittances, an aggregate of nine hundred dollars from Byrne & Co. on account of his claim, and notwithstanding repeated defaults on their part to meet the stipulated installments, he continued to indulge them until the 25th, — 204 — of April, 1879, when, under advice of Cary, one of his transferrers, of the impending storm gathering over the house of his debtors, he concluded to enforce the confession of judgment and to execute the judgment rendered thereon by seizing the property of his debtors. The mere statement of these facts contains a refutation of the charge advanced by the syndic, that the confession of judgment was obtained Without consideration, with a view to defraud creditors, or with a view to secure past indebtedness and to obtain an unjust or undue preference. The funds loaned were used for a legitimate, pressing and useful purpose,.and prevented the debtors and their property from reverting ■back into bankruptcy, as a consequence of a failure on the part of Byrne & Co. to execute the terms of their composition. The confession is ■shown to have been subscribed on the 28th of November, 1878, more than three months previous to the surrender or declared insolvency, and is, therefore, not to be tested under the law, which strikes with nullity such acts performed within three months previous to the failure of the debtor. »C. C. 3359. We cannot accept the interpretation suggested by the syndic, in which he construes this article as referring to actual insolvency. The law does mot prohibit a creditor who pays a real and effective value at the moment •of the contract from obtaining a privilege or security, because, forsooth, ¡he has reasons to suspect the inability of his debtor to pay and satisfy all his debts. Nor does the law forbid a creditor holding such security from obtaining the privilege by seizure, provided for in Art. 722 of the 'Code of Practice. “ If the seizure created a privilege in those cases only in which the property of a debtor is sufficient to pay all his debts, the privilege would only attach in those cases in which it would be useless.” 3 R. 106 ; 7 Otto, 80. We understand the test of all these laws to be found in the declared insolvency of the debtor. And although the testimony on this point is ¡somewhat conflicting, yet, after carefully weighing and considering all the ■statements bearing upon the transaction, it satisfies us beyond a reasonable doubt, that the transaction is free from any of the suspicions which are pointed out or suggested by the laws regulating contracts made by insolvent debtors immediately preceding their failure. The law watches their movements with a suspicion in the interest of creditors, who are so often injured and jeopardized by well concocted ■schemes between unscrupulous creditors and unfortunate and dishonest debtors. Tested under this vigorous rule, the conduct of these parties is not in contravention of any law, and their contract must, therefore, be ■enforced. It is, therefore, ordered, adjudged and decreed that the judgment •of the lower court bé amended in so far as it rejects the privilege — 205 — claimed by D. R. Carroll, which privilege is hereby recognized, to be paid as second to the costs incurred for the sale of the property surrendered, and to law charges, and in preference over other creditors, and that in all other respects said judgment be affirmed; costs of this appeal to be paid by.the syndic, by John Bendernagel and by Harrison and McElroy, ratably. ' ■