Jordan v. Downey

Bartol, C. J., delivered the opinion of the Court. We fully concur in the ruling of the City Court upon the demurrer, and in the reasoning upon which the learned Judge rested his decision. In support of these,views, we may refer to the decision of the Court of Appeals of New York, in Cook vs. Waters, 9 N. B. R., 155, as expressing the true ground upon which the rights of an assignee in Bankruptcy may be asserted by proceeding in a State Court. It was there held that such assignee ‘‘may sue in a State Court for the enforcement of any right vested in him by the bankrupt Act, as for the recovery of property transferred in fraud of that Act within six months prior to the commencement of bankrupt proceedings. That the State Court in passing upon claims of assignees in bankruptcy, is not proceeding under the bankrupt Act; but simply recognizes that Act as the source of the assignee’s title, in the same manner as it would, if he derived his title from a deed or contract.” That decision was contrary to the ruling of the Supreme Court of Wisconsin in Bingham vs. Claflin, 7 N. B. R., 412, and that of the Supreme Court of Michigan in Vorhees vs. Frisbie, 8 N. B. R., 152. But it is supported by Ward vs. Jenkins, 10 Met., 583, a case under the former bankrupt Act; and by Stevens vs. Mech. S. Bank, 101 Mass., 109; Forbes vs. Howe, 102 Mass., 428; Hastings vs. Folder, 2 Carter, 216; Boone vs. Hall, 7 Bush., 66, and Mays vs. Man. N. B., 64 Pa., 74. Both upon reason and authority, we think the decision of the Court below, was correct, and ought to be affirmed. After the demurrer was overruled, the appellee was permitted to answer the petition, and to file an amended answer, and the cause was submitted upon petition and answer, without any proof being offered. It is argued by the appellant’s attorney, that the appellee having by the demurrer, admitted the facts alleged [411] in the petition, was thereby estopped, and that final judgment ought to have been entered for the petitioner; but the learned counsel is in error. The object of the demurrer was merely to raise the question of jurisdiction, and being overruled, the appellee was entitled to file an answer, and be heard upon the merits. The petition alleges that one Isaac Larnberd was adjudicated a bankrupt on the 29th day of July, 1873, and the appellant was duly appointed assignee. That on the 27th day of February, 1873, the appellee obtained a judgment against Larnberd, by confession. That fieri facias had been issued thereon, the personal property of Larnberd had been seized and sold by the sheriff, and the sum of $797.83 realized from the sales; which was then in Court. The petition charges that the judgment was a fraud upon the bankrupt Act, because it was confessed at a time when the defendant (Larnberd) was unable in the ordinary course of business to pay his debts, and was hopelessly bankrupt; and that the appellee knew these facts ; and further that the confession of judgment was made in contemplation of bankruptcy, and the petitioner claims the fund in Court, realized under the execution, as properly payable to him as assignee. The appellee in his answer states that the judgment was obtained on an indebtedness for that sum, due and owing to him from Larnberd ; that the same was rendered more than four months before the proceedings in bankruptcy were commenced. “He denies all charges of fraud in obtaining the judgment, denies that Larnberd was at the time the judgment was rendered or the levy made, either insolvent or bankrupt, within the respondent’s knowledge; and further denies, that at either of those times he had reasonable cause to believe Larnberd to be insolvent, and avers that the judgment was not confessed in contemplation of bankruptcy, so far as the respondent has any knowledge; and [412] that the levy was not made with a view to obtain any preference over other creditors, for he did not know that there were any other creditors, and that the judgment was not confessed with any such view by the defendant, Lamberd.” The answer is Verified by oath, and no evidence was produced to contradict it. It is difficult to see, on what ground the appellant’s claim can be maintained in the face of the uncontradicted statements in the answer. It is contended that the confession of judgment was a fraudulent preference and void under the 35th section of the bankrupt law. That section contains two clauses the difference between which, is very clearly defined by Mr. Justice Swayne in Gibson vs. Warden, 14 Wall., 244, 298, 299. We quote from the head note. “The two clauses of the 35th section differ mainly in their application to two different classes of recipients of the bankrupt’s property or means, that is to say the first clause is limited to a creditor, or person having a claim against the bankrupt, or who is under any liability for him, and who receives money or property by way of preference; and the second clause applies to the purchase of property of the bankrupt, by any person who has no claim against him and is under no liability for him,” It is obvious that-the transaction here assailed, if within the Act, must fall within the first clause of the 35th section, which avoids the prohibited acts “if done within four months before the filing of the petition in bankruptcy, ’ ’ 14 Wal., 248, and to bring the case within this clause it must appear that Lamberd was at the time insolvent, or in contemplation of insolvency, that the judgment was confessed with a view to give a preference to the appellee, and that the appellee hnew or had reason to believe that the transaction was in fraud of the statute, 14 Wal., 248. Now in this case the judgment was confessed more than four months before the proceedings in bankruptcy were [413] begun, and besides tbe answer distinctly avers (and there_ is no, proof to tbe contrary) that tbe appellee had no knowledge of the insolvency of Lamberd, or any reason to believe that he was insolvent, or in contemplation of bankruptcy. (Decided 23rd June, 1874.) In this state of facts the Court below was right in dismissing the petition. It is well settled that the proceedings by an assignee authorized by the 39th section, must depend upon his rights under the 35th section. The two sections are to be construed together, as said by Judge Shaeswood in Holl vs. Deshler, 71 Pa., 302. The words in the 39th section “if.such person shall be adjudged a bankrupt, the assignee may recover back the money, or other property so paid, sold, assigned or transferred contrary to this Act,” must be construed so as to be consistent with the 3oth section, namely, provided the petition be filed within fov/r months, in case of a preference to a creditor, or within six months, in case “of a transfer to a stranger.” The same decision was made in Collins vs. Gray, 8 Blatchford, C. C. R., 483, where are cited to the same effect, Hubbard vs. The Allaire Works, 7 Blatchf. C. C. R., 284, and Bean vs. Brookmire, 1 Dillon, C. C. R., 24. The order of the City Court in this case, will be affirmed and the cause remanded. Order affirmed.