Lewis v. Julius

HOUGH, District Judge (after stating the facts as above). [1] That what was done by Julius Bros, amounted to a conveyance with intent to hinder, delay, or defraud their creditors or some of them has been decided in this court on the discharge proceedings. This equity case grows out of the bankruptcy, and it would be entirely improper for me not to recognize the decision on discharge as the law of this case, nor am I inclined so to do-. [2] Under section 14 of the Bankruptcy Act (relating to discharge), it is, however, possible that a discharge m'ay be denied, yet that which' was conveyed in fraud cannot be recovered. This because section 67e only pronounces such conveyances “null and void” when not made to “purchasers in good faith and for a present fair consideration.” In my judgment the conveyance of Julius Bros, “property to the corporation of Julius Bros. Company was plainly not made for a present fair consideration.” [3, 4] The good faith of the transaction is to be measured by the same standard of care that must be applied to a creditor in accepting payments or transfers as payments from an insolvent debtor. Transactions known by the purchaser to be out of the usual and ordinary course of business tend to negative good faith. Remington on Bankruptcy, vol. 1, § 1496, and cases cited. [5] The conveyance, therefore, is not within the saving clause of section 67e. Complainant is entitled to a decree'as prayed for to the effect that the bill of sale made on June 7, 1910, be declared null and void. He is also entitled to a decree that the property transferred or the proceeds thereof be paid over to him if in the possession o-r under the control of any of the defendants in this cause. The limits of this doctrine are, I think, properly set forth in Standard National Bank v. Garfield National Bank, 70 App. Div. 46, 75 N. Y. Supp. 28, and cases cited. Therefore complainant may further take decree awarding to him everything in the possession of Pressman, as trustee [229] in bankruptcy, for it is plain that Pressman has nothing that did not come out of the fraudulent conveyance. [6] At the trial I was disposed to think that the rights of creditors of Julius Bros. Company should be considered, but this suit was begun before the corporation became bankrupt; the trustee of Julius Bros, has all the rights of a creditor, armed with execution unsatisfied, and the institution of a suit in equity is notice to all the world. Therefore the present complainant is entirely within the rule laid down by the case last cited. I am not, however, able to see that complainant is entitled to recover any of the insurance moneys on policies issued to Julius Bros. & Co. Let it be conceded that that corporation was a fraudulent grantee. Nevertheless it had title, and, having title, it had an insurable interest in the goods of or in the possession of the corporation. When it insured those goods, a personal contract was made between the corporation and the. insurers ¿ neither the insurance nor the proceeds thereof can be called proceeds of conveyed or transferred goods. At the hearing I was inclined to look upon insurance as proceeds of the goods insured, but the decisions since brought to my attention are wholly the other way. They are all cited in Forrester v. Gill, 11 Colo. App. 410, 53 Pac. 230, and the best discussion of the matter is under the great name of Chief Justice Sharswood of Pennsylvania, in Nippes’ Appeal, 75 Pa. 472. Nor is there (after all) anything novel in this doctrine; it is entirely in line with the rule that a shipowner, when claiming limitation of liability under the act of 1851, is not bound to bring into the limitation proceedings the insurance on his vessel. The reasoning by which this result has long been reached is the same as that of Sharswood, C. J., in the case last cited. It results that complainant may take a decree against Pressman as trustee, and also against the bankrupts for any difference between what Pressman has and the asserted value of that which was conveyed, to wit, $1,550; but he cannot recover against any one, nor more particularly from Levy and Julius, the proceeds of the insurance moneys. There will be no costs.