Otis v. Hadley , 112 Mass. 100 ( 1873 )

Gray, J.

The bankrupt act of 1867, e. 176, § 35, provides that if any person, being insolvent or in contemplation of insolvency, makes any payment, pledge, assignment, transfer or conveyance of any part of his property, within four months before the commencement of proceedings in bankruptcy, with a view to give a preference to a creditor, the person receiving the same having reasonable cause to believe that the debtor is insolvent, and that the same is made in fraud of the provisions of this act; or any sale, assignment, transfer, conveyance or other disposition of any part of his property, within six months, to any person having reasonable cause to believe him to be insolvent or to be acting in contemplation of insolvency, and that the same is made with a view to defeat, delay or evade any of the provisions of this act; the same shall be void, and the assignee may recover the property or its value. Then follows this clause : “ And if such sale, assignment, transfer or conveyance is not made in the usual and ordinary course of business of the debtor, the fact shall be prima, facie evidence of fraud.”

The present action is brought by the assignees of a boot and shoe manufacturer to recover back property alleged to have been conveyed by him to the defendants, his creditors, with a view to give them a preference.

The motion to dismiss for want of jurisdiction was rightly overruled. The provision of the bankrupt act, on which the plaintiffs rely, is not a foreign law, nor in the nature of a penal statute, but an act passed by Congress in the exercise of the powers conferred upon it by the Constitution, binding throughout the United States, and conferring upon the assignees of the bankrupt, as representatives of all his creditors, rights in his property which may be enforced by suit in the state courts. Ward v. Jenkins, 10 Met. 583. Ammidown v. Freeland, 101 Mass. 303, 312. Rohrer's Appeal, 62 Penn. State, 498, 503. Actions by assignees appointed under the bankrupt acts of 1841 and 1867, to recover property conveyed in fraud of those acts, have been frequently maintained in the courts of this Commonwealth. Jones v. Howland, 8 Met. 377. Beals v. Quinn, 101 Mass. 262. Forbes v. Howe, 102 Mass. 427. Knowlton v. Moseley, 105 Mass. 136. Shearman v. Bingham, 1 Lowell, 575, 578.

To support the present action, the plaintiffs must establish two propositions: 1st. That the bankrupt, at the time of making the conveyance to the defendants, was insolvent or in contemplation of insolvency, and made it with a view to give them a preference ; 2d. That the defendants, at the time of receiving the conveyance, had reasonable cause to believe him to be insolvent and that the conveyance was made in fraud of the bankrupt act.

The testimony offered by the plaintiffs, and admitted against the defendants’ objections, was all competent to be submitted to the jury in support of the first proposition. The evidence of the amount of the property found and taken possession of by the attaching officer in the bankrupt’s shop three or four days after the conveyance to the defendants, and afterwards delivered by him to the assignees, bore upon the question whether the bankrupt was insolvent at the time of that conveyance. The questions asked of the bankrupt were competent as affecting the issue whether at the time of the conveyance he was insolvent or contemplated insolvency, and intended a preference. The mortgage made by him to Whittier about the same time was admissible for the same purpose.

The defendant has no ground of exception to the exclusion of the question put by him to one of the plaintiffs on cross-examination, because the bill of exceptions does not show the purpose of the question, or that it had a material bearing upon any point in controversy. Gates v. Mowry, 15 Gray, 564, 567. Burke v. Savage, 13 Allen, 408.

The clause of the bankrupt act, that if a conveyance “ is not made in the usual and ordinary course of business of the debtor, the fact shall be prima facie evidence of fraud,” manifestly applies to both classes of conveyances previously mentioned in the same section; as well to those made within four months with a view to give a preference, as to those made within six month» with a view in any manner to defeat, delay or evade the provisions of the act. The instruction given to the jury was therefore correct. Nary v. Merrill, 8 Allen, 451. Metcalf v. Munson, 10 Allen, 491. Scammon v. Cole, 3 Bankr. Reg. 100. Walbrun v. Babbitt, 16 Wall. 577, 581. Wager v. Hall, lb. 584, 600 & seq. The instruction requested was rightly refused. If the transaction between the bankrupt and the defendants was not in the ordinary course of his business, that fact was prima facie evidence against them of the first proposition which the plaintiffs were bound to prove, namely, fraud on the part of the bankrupt. The other proposition to be established was not, as implied in the instruction requested, that the defendants knew of that fraud, but that they had reasonable cause to believe it. Same cases. Coburn v. Proctor, 15 Gray, 38. Beals v. Quinn, 101 Mass. 262. The instructions given to the jury upon that issue are not stated in the bill of exceptions, and must be presumed to have been accurate and sufficient.

The question being whether the transaction was fraudulent because made out of the ordinary course of business of this bankrupt, the evidence that the defendants had bought unmanufactured stock of other manufacturers of boots and shoes, was rightly rejected as immaterial. The testimony that sales or offers of sales of such stock by such a manufacturer would not be a suspicious circumstance which would affect his reputation for solvency was also rightly rejected, because that was not a matter upon which the opinions of witnesses were competent evidence.

But the evidence that it was a general custom and within the ordinary course of business for persons engaged in the same manufacturing business as this bankrupt to sell unmanufactured stock, and that this was a custom generally known to such manufacturers and to dealers in leather, should have been admitted, as bearing upon the question whether the conveyance to the defendants was made in the usual and ordinary course of the bankrupt’s business, as well as upon the question whether the defendants had reasonable cause to believe him to be insolvent, and the conveyance to be made in fraud of the bankrupt act. The rejection of this evidence requires the Exceptions to be sustained.