Winsor v. Kendall

STORY, Cireuit Justice. The -whole question Jn this ease turns upon this, whether the due hill owing to Kendall was paid by Babcock in contemplation of bankruptcy, and with an intent to give Kendall a preference over the other creditors, contrary to the intendment of tue second section of the bankrupt act of 1841 (chapter 9). To establish such a case, several facts must concur. The due bill must have been paid by Bab-cock or his agent, acting as such, out of his, Babcock’s funds; it must have been in contemplation of his bankruptcy; and it must have been with a design to give a preference to Kendall. I shall not dwell a moment upon the consideration, of what in point of law is the meaning of the words “in contemplation of bankruptcy,” in the sense of the bankrupt •act of 1841 (chapter 9). It has been often adjudged by this court to mean contemplation of an insolvency and inability of the debtor to- pay his debts, and also the contemplation of a total stoppage and destruction of his business consequent thereon. In the former cases, arising under this same bankruptcy, (aid the evidence in-this case on the same points does not materially differ in its aspect,) I have had occasion to state that the general assignment made by Bab-cock did not, under all the circumstances, and with reference to the stipulations contained therein, constitute an act of bankruptcy, and that, as it became a nullity from the non-compliance of all his creditors with the conditions of that assignment, it might be laid out of our consideration. The very object of the 'payment of the present due bill, even according to the view of the case now asserted by the assignee, was to procure the assent and signature of Kendall to that assignment. H;s signature and assent were obtained; but it became ineffectual, because the assignment did not ultimately become a valid or operative instrument. It might, therefore, be truly said, that the object of the negotiation for, and payment of, this due bill was not to give an undue preference to Kendall in contemplation of bankruptcy, in the sense of the bankrupt act, but it was to give validity and effect to that instrument, so as to supersede the necessity of going into bankruptcy. In this view of the matter there is much difficulty in maintaining this point as propounded on behalf of the as-signee. The case bears a close analogy to that of Wheelwright v. Jackson, 5 Taunt. 109. But this point is the less material in this case, because the other points of the case i seem to me, upon the evidence, decisive i against the assignee. In the first place, it ! is. in my judgment, fairly made out by the j evidence, and confirmed by the answer of ] Kendall, that the negotiation of Smith with ! Kendall was not for the payment of the due bill by Smith on account of or as agent of Babcock. Smith came avowedly as a friend -of the family to purchase the bill on his own account, aDd not to purchase it for Bab-cock. The due bill was, upon the representations of Smith, sold to him as a purchaser on his own account, and he gave his personal security to Kendall, by a note, with his partner as endorser for the payment thereof. Non constat, if he had come to Kendall avowedly to pay the due bill out of Babcock’s funds, and on his account, that Kendall would have taken the funds, or agreed to the arrangement; for if Babcock should subsequently become a bankrupt, the transaction might be liable to be overhauled as a fraudulent preference under the bankrupt act. If, on the contrary, Smith became a purchaser on his own account, then the transaction was susceptible of no such interpretation; for it would then amount to a mere assignment or transfer of the due bill to Smith, and make him, instead of Kendall, a creditor of Babcock. Besides, Smith does not pretend that he ever told Kendall that he came to purchase for Babcock or with his funds; and Kendall had not the slightest reason, from the attendant circumstances, to believe that he did. The professed, or at least the apparent object, was to purchase the due bill on his, Smith’s, own sole account, to be used by him as he should choose; and enforced or not'according to his pleasure. So Barnes expressly testifies; and Kendall solemnly asserts that he sold the bill to Smith upon the faith of this statement. Then, again, it is difficult to perceive any very satisfactory evidence in the case to establish the fact, that Smith did purchase and pay for the due bill out of the funds of Babcock. In fact, he paid the amount by his own promissory note, endorsed by his partner; and this very circumstance shows, that the funds actually appropriated by him for the payment were his own funds. It is true, that he or his firm, was owing Babcock a part of the money on a due bill, and that he obtained some other funds from Leonard, and other persons, which seem to have been handed to Smith for the purpose of paying the due bill to Kendall. But the money was not, strictly speaking, so applied; and Smith (as Barnes testifies) afterwards treated the due bill, not as an extinguished debt of Babcock, but as a subsisting debt; and he requested Kendall to take back the due bill and prove it as a debt against Babcock, as if it were his own. as he, Smith, did not wish to be known in the business at all. There is nothing in Smith’s deposition which can fairly be said to shake or overcome the credibility of Barnes’s testimony. Babcock’s testimony has been introduced into the case; and certainly it does not exactly correspond with that which, upon his examination in bankruptcy, when he applied for his discharge, he gave as to the nature and character of the transaction. He then represented, in effect, that the funds to take up the due bill of Kendall were not his own funds; but were [323] furnished by friends. How far that statement coincides with or contradicts his present testimony, I do not now stop to inquire. There is certainly mueli looseness in his testimony; and it may arise from the infirmity of his memory, without any deliberate intention to falsify the actual facts. Perhaps the different statements might be reconciled, if Babcock had been called upon to explain the apparent discrepancies. But, ás my judgment in the present case does not turn upon any investigation of this sort, I am content to leave the testimony as it is. [For other cases involving the estate' of this bankrupt, see Cases Nos. 696, 697, and 17,884.] What I do proceed upon is this: That even if Smith did actually use the funds of Bab-cock and with his consent, in paying the due bill; yet if Smith concealed that fact from Kendall, and Kendall, in the whole transaction and arrangement, understood from Smith that he was dealing with him as a purchaser on his own account, and not as an agent of Babcock, it is not now important either for Smith, or for Babcock, or for Bab-cock’s assignee, to set up that concealment as a ground to recover back the money from Kendall. Kendall dealt with Smith as a principal and not as an agent. He sought no preference under the bankrupt act, and he had no means of knowing that Babcock was negotiating with him to give him any preference. To allow Kendall’s title to the money under such circumstances to be impeached by Smith or by Babcock, would be in effect to enable them to perpetrate a fraud upon an innocent creditor, who supposed, and had a right to suppose, that he was making a sale to Smith, and not receiving payment from Babcock. I know of no case, where a creditor has been held to be unduly preferred by a bankrupt, unless, at the time, the creditor clearly understood himself to be dealing directly with his agent for a conveyance, security, transfer, or payment, from or out of the funds of the debtor, thus withdrawing a part of the common funds appropriated by law for the benefit of all the creditors. Payment or security by a third person out of his own funds, and not out of those of the debtor, would not fall within the predicament contemplated by the second section of the bankrupt act of 1841 (chapter 9). In general, the assignee of a bankrupt does not stand in a better predicament than the bankrupt himself, and can claim only what the latter might claim. See Wheel-right v. Jackson, 5 Taunt. 109. An admitted exception is, where the conveyance, security, assignment, transfer, or negotiation is made in fraud of the other creditors, or is to give an unlawful preference. There may possibly be some other exceptions; but certainly this is • the most prominent and important. But where the assignee seeks to recover from a creditor a sum of money, paid to him by a third person, for the debt due to such creditor by the bankrupt, it ought to appear, that the creditor knew that the payment was made out of the bankrupt’s funds, or on his account, so as to extinguish the debt, and not that the creditor was misled by such third person into the belief, that it was a purchase of the debt on his own account, and was a mere assignment to himself for his own benefit, and to be paid for out of his own funds.' My opinion, therefore, is, that the petition of the assignee is not maintainable, and that it ought to be dismissed, with costs to the respondent.