Citizens' Bank of Salem v. W. C. De Pauw Co.

After the foregoing statement of the case, GBOSSOUP, CircuitJudge, delivered the opinion of the court, as follows: The provisions of the bankrupt act governing this case are as follows: Section 3, (a), “Acts of bankruptcy by a person shall consist of his having (1) conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, any part of his property with intent to hinder, delay, or defraud his creditors, or any of them,” and (b) “A petition may be filed against a person who is insolvent and who has committed an act of bankruptcy within four months after the commission of such act. Such time shall not expire until four months after (1) the date of the recording or registering of the transfer or assignment when the act consists in having made a transfer of any of his property with intent to hinder, delay, or defraud his creditors or for the purpose of giving a preference as hereinbefore provided, or a general assignment for the benefit of his creditors, if by law such recording or registering is required or permitted, or, if it is not, from the date when the beneficiary takes notorious, exclusive, or continuous possession of the property unless the petitioning creditors have received actual notice of such transfer or assignment,” and (c) “It shall be a complete defense to any proceedings in bankruptcy instituted under the first subdivision of this section to allege and prove that the party proceeded against was not insolvent as defined in this Act at the time of the filing the petition against him, and if solvency at such date is proved by the alleged bankrupt the proceedings shall be dismissed, and under said subdivision one the burden of proving solvency shall be on the alleged bankrupt,” and Section 1, (15)' “A person shall be deemed insolvent within the provisions of this Act whenever the aggregate Of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, [929] with intent to defraud; hinder, or delay his, creditors, .shall not, at a fair •valuation, be sufficient in amount to pay his debts.” ' ' ' , ■■ The case presented upon the petition, at most; is that,of.an officer ■of a corporation buying up at a discount, under the. guise, of, another person, outstanding judgments against the corporation; under which its property, under the same guise, is subsequently purchased at judicial sale. The insistence is that the property thus, transferred from the corporation to the offending officer remains, in equity, the property of the corporation, subject only to a lien in favor of the purchaser (to be asserted, of course, in apt time,) for the actual amount paid out by him; and that the failure of the corporation to assert its right, or' make known to the creditors the nature of the transaction under .which the transfer was made, • constituted in law a concealment of its property with intent to hinder and defraud creditors. , , ■;1 , It is clear that if the property transferred under the judicial sale is to he excluded from consideration in balancing the assets and liabilities incident to the question of solvency, the, corporation was; after such transfer, insolvent; for after the judicial sale nothing was left to balance against the petitioner’s claim. The position of the appellant is that this property, as an available asset, was, in effect, concealed; that the concealment was. the debtor’s act, in. tended to diminish, by so much, the property open to seizure by creditors; and that, having thus hindered, delayed, and attempted to defraud his creditors, he can not, when the fraud is disclosed, plead that a restoration of the property, to the. estate would make it solvent, and thus preclude an application of the bankruptcy law at all. The contention, in short, is that the bankrupt, having committed a fraud that makes him amenable to the law, can not ward off the hand of the law by showing that the extent of the fraud was such that, but for it, the estate would be solvent. The bankrupt law is, in this, as in its other provisions, intended to protect creditors; and was perhaps intended to lend a hand to those who, by its enforcement, will receive one hundred cents, as well as those who will receive but ninety-five, in cases where, but for the enforcement of the law, there would be received less than full payment. This brings, u$, then, to the real question in this case; If the corporation is guilty of any act of bankruptcy, within what definition does the transaction fall. It is insisted by counsel for appellant that the transaction constitutes, within the meaning of the bankruptcy law, a concealment of the corporation’s property with intent to hinder, etc. Counsel for appellée, on the contrary, contends that the-transaction, if an act of bankruptcy at all, fails within the words, “convey,” or “transfer,” as used in Section 3. The significance of the difference is. that, if the latter construction prevails the petition was demurrable, for it shows that more than four months had elapsed after the conveyance or transfer, and before the filing of the petition; while, if the former is maintained, and the concealment is deemed continuous until discovered March. 1st, 19.00, there remains no question, based: upon the ■four months intervening. . • ■...'• '; ¡ -,■ • ■, [930] It may, perhaps, with correctness, be said that the separation of some tangible thing, money, or chose in action, from the body of an insolvent debtor’s estate, and its secretion from those who have a right to seize upon it for the payment of their debts, is, within the law, a concealment, and continues such as long as the secretion remains. In such a case, the property open to creditors is decreased by just the amount thus secreted. It is, to all intents and purposes, so far as the creditors are concerned, as if the property thus secreted had not been in existence. There is nothing to put the creditors upon notice; nothing that they may keep within their vision — a tangible subject of inquiry, either as to its value or its ownership. It is, in effect, a concealed withdrawal from possibility of seizure of just so much of the debtor’s estate. But such is not the case under review. This case is as if the corporation had transferred to the Trust Company property worth two hundred thousand dollars, at a nominal consideration of two hundred and fifty thousand dollars, but upon the real consideration of eighty thousand, dollars. The quantum of property is not kept under cover. There has been no withdrawal. The res is not concealed. It remains open and visible. The creditor may keep it in sight, and may take any available means of seizing it. It is only the actual consideration paid that is concealed. Fraudulent “transfers” are always accompanied by a concealment of some such character. It is what, in most cases, makes the “transfer” fraudulent. But it does not transpose the transaction from its proper place as a fraudulent “transfer” or “conveyance,” to some other place in the classification of the law. We regard the transaction as more nearly falling within the definition of “transfer” than that of “concealment,” as these terms are used in the Bankrupt Act. The judicial sale was open; was known to the petitioner; and the thing transferred was clearly defined. The petitioner had the same opportunity of inquiry that other creditors have in cases where debtors attempt to fraudulently convey and transfer their property. To the extent that the Bankrupt Act covers such an offence, we are willing to go, but we have no warrant, we think, to stretch its provisions, in order to meet what may seem like a hard case. There is no error in the order of the court below.