In re Long , 15 F. Cas. 812 ( 1868 )

CADWALADER, District Judge.

Whether an assignee in bankruptcy can establish, against others, the facts which the bankrupt states on his examination, cannot be determined at a hearing like the present, upon objections, to his discharge. As against himself, the truth of what he relates, where he has the means of knowledge, must be assumed. Its truth, where favorable to himself, should also be assumed, unless incredible or contradicted by proofs. Upon the facts admitted and those proved, I see no reason to doubt that the property in question is vested in the assignee in bankruptcy. It is true that Mr. Tasker and Mr. Lang had power to do as they pleased with what they respectively bought in under their executions. Mr. Tasker had such power whether he bought in his own name or in that of Price. After the sale by the sheriff under Tasker’s execution, the continuance of the former debtor in possession, as an agent of the purchaser, did not make the property liable to execution at the suit of other creditors. Unless it was thus liable to execution immediately before the commencement of the proceeumgs in bankruptcy, it has not passed under them to the assignee. In these respects, the law is correctly stated in the argument of- the counsel for the bankrupt.

The proceedings under Tasker’s execution were therefore effectual for their intended purpose. But what was this purpose? Lid it take effect, and, if so, how? Had the bankrupt, for the eleven succeeding years, the possession and control of the property, simply as agent of the successive persons in whose names he has professedly acted as agent? Were they in succession absolute owners, both nominally and beneficially? Or had he, on the contrary, an immediate, or a resulting beneficial interest of his own? If the purpose had been to make an immediate absolute gift to him, the property would, under the present proceedings, be vested in the assignee in bankruptcy. This would have been their effect if an absolute bill of sale had been made by the sheriff to Mr. Tasker, and- by Mr. Tasker to the bankrupt. It would not less have been their effect if the bill of sale to Price had been secretly for the absolute benefit of the bankrupt. There cannot, however, be a reasonable supposition that an immediate absolute beneficial interest was vested in the bankrupt in 1857. I say this, because Mr. Tasker was then, as yet, unpaid. The issue under the sheriff’s interpleader act was doubtless rightly determined against the opposing execution creditor, because, when this creditor’s levy was made, Mr. Tasker was still unpaid. But it by no means follows that, on the other hand, an absolute divestiture of the bankrupt’s proprietorship was intended. If he had a resulting beneficial interest, or an interest which was at first conditional or qualified, and if the condition was afterwards fulfilled, ^r the qualification removed, the property became beneficially his own, and is now vested in the assignee in bankruptcy. Here the question is whether the arrangement with Mr. Tasker was not such that the bankrupt retained a debtor’s privilege of redemption, with an ultimate beneficial interest in himself. If such was the arrangement, he became again the absolute beneficial owner so soon as Mr. Tasker was paid in full.³ The evidence, I think, shows clearly that-this was the case.

Before considering the proofs under this head, some remarks will be made upon the fact that a bond was taken by Mr. Tasker from Price for the amount bid at the sheriff's sale. This fact distinguishes the case from cases otherwise of the same kind, in which a defendant’s property is bid in by an execution creditor who has no such new debtor for the amount of the price. In such cases there may be an honorary understanding between the former creditor and the former debtor that the latter may, notwithstanding the extinction of his legal ownership, redeem his former property by the payment of his .former debt, or of so much of it as was bid.at the sale. When such an understanding has been executed by payment and acceptance, the property will re-vest in the former owner, although the understanding was at first without consideration, and not binding. Moreover, where the performance or execution has been partial only, by payment and acceptance of a part of the former debt, the understanding, though at first only honorary, may, upon such acceptance, become binding. But until such execution, or partial execution, the former debtor’s redemption of his former property depends, in ordinary cases, upon the mere benevolence of his former creditor. Though a privilege of redemption may have been accorded by word of mouth, or by writing unsealed, the concession is without consideration, and, like other gratuitous engagements, not binding while unexecuted. In the present case, the arrangement made with Mr. Tasker has been wholly executed, so far as he was concerned. The ultimate result, therefore, might here be the same as if no bond had been taken by him. from Price. But the taking of the bond made a material difference in the primary relations of the parties. It was a sufficient consideration to bind irrevocably Mr. Tasker from the first to carry into effect any arrangement under which the bond may have been received by liim. However worthless may have been the personal security of Price in the money market, and it certainly was, in this respect, of no value, the consideration was nevertheless legally sufficient, whatever the arrangement may have been. This may simplify the ease hereafter, when the effect, as to other creditors, of some of the subsequent occurrences will be considered. It will then be borne in mind that in the present case the privilege of redemption was not a mere honorary concession by the former creditor, but was a vested right of the former debtor, and not liable to derogation at the former creditor’s option. Another more important effect of his talcing this bond will also be mentioned hereafter.

In the meantime, the relations of the parties at the date of the bill of sale by the sheriff to Price may be defined very simply. Price was a trustee, first, for the security of Mr. Tasker, and, next, for the benefit of the bankrupt. The security to Air. Tasker was for Price’s bond of about §4,000, and for the balance of about §1,000 of the former judgment. The bankrupt’s declarations, made in 1857, to certain of his creditors, are evidence against him that an absolute divestiture of his ownership, through the sheriff’s sale of that year, was not intended. I am always very reluctant to attribute importance to what a man has said, or is supposed to have said, in private conversations. It is evidence which must be regarded often with suspicion, and almost always with caution. But evidence of this kind, when it is coincident, as here it is, with all the circumstances of a case which are in proof, cannot be altogether discarded. A remarkable coincidence may also be discovered in the bankrupt’s own account of what, while the present proceedings in bankruptcy were pending, he said to a collector of taxes.

There is other evidence which is of a decisive character, that Air. Tasker never acquired for himself, nor ever enabled Price to acquire, an absolute ownership, and that the sheriff’s bill of sale to Price was a mere security. As to Air. Tasker, he has never, since the debt was. many years ago, repaid, asserted any pretence of ownership or interest of any kind. But it may not be amiss to consider more particularly his relations to the property, and afterwards those of Price. If neither of them had an absolute interest, there must have been an ulterior beneficial interest in the bankrupt. If Air. Tasker was to have been the absolute owner, he would not have been the creditor of anybody for the amount bid at the sheriff's sale; and, in that case, could not have taken, as he did take, the bond of Price for this amount. Here the act of Air. Tasker, in taking this bond, is most important, if not conclusive. He took it, says the bankrupt, the same as mine. He cannot have relied upon the personal responsibility of Price, who was a person of no responsibility whatever. Air. Tasker must have considered himself secured on the property of which the nominal ownership was in Price, and, to the extent of such security, interested in the business conducted in Price’s name, by the bankrupt. The question, what was the extent of this beneficial interest of Air. Tasker, is answered by his own acts, and those of the bankrupt, and of Price, and by the examinations of every one of these three persons under the present proceedings. The only purpose of the security was repayment of the debt. Therefore, when it was repaid out of the proceeds of the business, Air. Tasker’s interest wholly ceased.

Let us next consider more particularly the relations of'Price. Had he any such present or ulterior beneficial interest as prevented the revesting of the bankrupt’s ownership when Tasker’s beneficial interest ceased? Had Price any independent interest whatever of his own? 1 think not. The question is not whether he might have had such an interest if matters had been so arranged with Air. Tasker, but whether they were in fact so arranged. Aloreover, it is altogether unimportant whether Price had a right to retain the legal title as a security till he should be indemnified against outstanding liabilities incurred by him in the course of the business. On his transfer to Aliss Walker, in 1859, he received her bond conditioned for his indemnification in this respect. There is no reason to believe that the condition of this bond was*ever broken. Nor is this a material inquiry. His previous right of retaining the legal title until thus indemnified was, in equity, not a proprietary interest, but, at most, a mere lien, or a right analogous to a lien.

Price, in truth, was, from first to last, a mere underling. If he wore, for a season or two, his employer’s outer garments, he was dressed in them to play a part under his employer’s orders; and, when it had been played out, was disrobed, and put back to his subordinate relation. Afterwards for bad habits or misbehaviour, he was turned out of doors by the same employer. This dismissal of Price from the establishment occurred some time after his bill of sale of 1859 to Aliss Walker. At the date of that bill of sale there was of record a judgment for §0,282.69 at her suit against the bankrupt. The bill of sale states that this judgment was received by Price from her as a part of the consideration for his transfer to her. The instrument was thus in effect a transfer of this judgment by her to fbuee. Aliss Walker’s relation of creditor on the judgment was therefore ended. This explains the fact that she gave to the bankrupt her note for a debt of §92, afterwards contracted, and also explains the omission of the judgment for §0.2S2.69 from the inventory of her estate. Now, her transfer of this judgment to Price must have operated in one or the other oí two ways. It either substituted Price for her, making him the equitable plaintiff in the judgment, on else operated as an equitable release or extinguishment of the judgment. If Price had the beneficial ownership of what was thus exchanged for the judgment, there must have been such a mutuality of consideration as to make him the equitable judgment credit- or. If, on the contrary, the beneficial ownership of the property which Price transferred to Miss Walker was in the bankrupt, the effect of the instrument was to vest the judgment in the bankrupt himself, and thus release or extinguish it. Of these two alternatives, the latter must be the truth, because, both Price and the bankrupt, in their examinations, depose that Price received no consideration except the bond of indemnity against outstanding liabilities. There is not the slightest probability tnat Price, if he had really been the bankrupt's creditor on a judgment for ?G,2S2.G9 would have suffered himself to be turned summarily out of the establishment, and never afterwards have asserted any adversary right as a creditor. The improbability is increased when we consider the terms and mode of the settlement with Messrs. Middleton, judgment creditors, to an amount comparatively small.

The conclusion is that Price, though once the nominal proprietor, never was a beneficial proprietor, in his own right, of what he transferred to Miss Walker. If so, Price could not, without the bankrupt’s participation, transfer any beneficial interest to her. But the transfer may be considered as having been made with the bankrupt’s participation; her letter of attorney to the bankrupt, and his acceptance of it, gave to Price’s transfer to her the same effect as if she had received the transfer directly from the bankrupt. Here the question arises, what was the title thus acquired by her? It was undoubtedly a valid one, as between her and the bankrupt himself. But the question is, was it a valid title as against creditors proceeding adversarily. Whatever adverse rights of creditors might, before the proceedings in bankruptcy, have been enforceable under executions, are now concentrated in the assignee in bankruptcy. As between him and any party deriving title under Miss Walker, there are two objections to her title, either of them fatal to it. It will be remembered that I am at present considering, not her title under Mr. Bang to the real estate, but only her title to the leasehold and other personal property.

One objection is that no sufficient consideration passed from her to support the transfer to her as against creditors proceeding adversarily. It is not pretended that anything beyond the consideration expressed in the transfer made by Price passed from her. It fully appears that she invested no capital of her own in the business, and, indeed, that she had none to invest. The twofold consideration expressed was the judgment against the bankrupt and the bond of indemnity. That they constituted a valid consideration, as between the bankrupt and herself, is not a sufficient answer to the objection. Though the judgment were upon a voluntary bond, and no liability but a contingent one was ever incurred on the bond of indemnity, either of them was a sufficient consideration as between the parties. But very different is the definition of a consideration which suffices to sustain a debtor’s transfer as against his creditors. As to the bond of indemnity, it was, in form, the assumption of a mere contingent liability. Independently of the form of the instrument, its manifest purpose was merely to insure payment of the debts of the establishment out of the future avails of its business. Then, as to the judgment, it is a rule of equity that, where an alleged purchaser asserts a right adverse to that of creditors, the burden of proof is on him to show that the consideration was for actual value. Recitals that it was for .value in deeds, or other writings under which he claims, are not alone sufficient for the purpose. See 1 Atk. 62, and [Boone v. Chiles] 10 Pet. [35 U. S.] 211, 212. If this were not tlie rale, the consanguinity of the parties to this judgment, and the proofs tending to show that the aunt was not possessed of means of her own, conduce to the conclusion that the bond on which the judgment was confessed was not for a full and valuable consideration. At all events, it must be presumed to have been a voluntary bond, unless the contrary were very clearly proved. But in the present case, if a sufficient consideration were proved, the second objection would prove fatal. The objection is the continuance of the bankrupt in possession after the revesting in him of his former beneficial ownership through the discharge of Tasker’s demands against himself and against Trice. The publicity attributed to an involuntary transfer of personal property, under an execution fairly levied, prevents the application of the general rule that continuance of possession by a debtor, after a transfer of his property, is a badge of such fraud as renders the transfer voidable by his creditors, though it was a transfer for valuable consideration. The present case was within the exception, so long as any part of Tasker’s demands were unpaid, but ceased to be within it so soon as they were fully discharged. Upon their discharge the general rule became applicable. It is unimportant whether they were finally discharged before the time of the transfer to Miss Walker. Price was to have retained the nominal ownership for the security of Task-er until their final discharge, and, as I understand the evidence, did not make the transfer to her until they were paid. They must, at all events, have been finally discharged very soon after it, if not before. But if, when the transfer was made, a balance were still due Tasker, the effect was the same whenever afterwards the final discharge occurred.

If, after this had occurred, inquiry were made as to the true character of the possession, and a true answer were given, the inquirer must have learned that possession under the sheriff’s sale of 1S5T had ceased, and that the possession retained was under another title derived through a transfer which was neither public nor involuntary. The possession of the former owner, though he was constituted the agent of his aunt, who had received the transfer, was therefore a badge of fraud. Her title was void as against creditors, and under St. 5 Eliz., as expounded in Twyne’s Case [3 Coke, 80], and many decisions in Pennsylvania, was ■thus void on the ground of constructive fraud, though no actual fraud were imputable, and though a valuable consideration had passed from her.

I have thus far said nothing as to Beck, the alleged purchaser from her administrator of most of the personal effects. This alleged purchaser has not been examined, nor has Snyder, who had, probably through the bankrupt, obtained assignments of the debts of her creditors, and to whom the dividends of her estate were awarded. We do not know whether money was actually paid by Beck, or actually received by Snyder. It is probable that no money passed, and that there was a mere exchange of receipts; but this, however it may have been, is unimportant. We know that the sale effected no change of actual possession or of apparent control. The control and possession have continued in the bankrupt as before.

vastly, as to the real estate which was the subject of the arrangement made by the bankrupt, in Miss Walker’s name, with Mr. Lang, who, under this arrangement, bought in this part of the property at the sale by the sheriff under his execution, it is quire certain that the moneys afterwards from time to time paid, in Miss Walker’s name, to him on account of the agreement to purchase, were derived exclusively from receipts of the business of the bankrupt carried on as above in her name. His examination shows that he supposed the right of completing this purchase to have been forfeited by default in the payment of the monthly instalments of the price agreed upon, which were; in the writings, designated as “rent.” This notion, that a forfeiture had resulted from such default, was a very natural mistake of a person ignorant of the principles and rules of equitable jurisprudence. The consequence of the mistake has, however, been a disclosure which would remove all doubt, if there had otherwise been any, that the interest under the agreement of purchase, though nominally his aunt’s, was controlled by him, and beneficially his own, and that the right of redemption which he supposed forfeited was in himself. Let us now recur to this disclosure. The taxes were always assessed on this property in his name, and had been previously paid by him. Payment of those of the year before his bankruptcy having been demanded, we have his own statement of his answer to the demand, with his own explanation. He says: “There was an agreement that this property should revert to my aunt. This agreement had been broken, as you know. In the event of getting through the bankrupt court, and being able to make an agreement with Mr. Lang similar to that made with my aunt, I, of course, would pay them.” I need not repeat that it was a mistake thus to suppose a new agreement with Mr. Lang necessary. I have already remarked that, on the contrary, the right of redemption, or of completing the purchase from him, which the bankrupt, through mistake, supposed to have been forfeited, still existed. The bankrupt’s own statements, when this mistake of law is corrected, show that, in fact, as this right existed, the control of it was in himself. He cannot then have had such control of it as agent of his aunt, because her death in May, 18G5, had revoked his previous nominal agency for her; nor had he the control as an agent of her administrator. The nominal agency for the administrator had ceased in May, 18GG. The control of the right was thus in the bankrupt for the benefit of no other person than himself; in other words, it was his own. He continued thus to have it until the commencement of the proceedings in bankruptcy. If so, the equitable ownership subject to the payment of the bal-( anee due on account of the purchase money,' and the right of completing the purchase, must be now vested in the assignee in bankruptcy, who, upon payment of such balance to Mr. Lang, with interest, may require a conveyance by that gentleman.

There is nothing to warrant a belief that any independent capital of the aunt was ever invested in the business conducted in her name by the bankrupt. The accounts of the administration of her estate show that for the year ending in May, 1SGG, after many deductions, including a so-called salary of himself, there was a profit, small, it is true, but still a profit, of the business of the establishment in Third street. There is evidence that the previous business, while carried on there in her name, had been profitable, except so far as embarrassments may have been incurred in it through the payments to Mr. Tasker, and afterwards to Mr. Lang, and possibly others, occasioned by pressure' of the bankrupt’s former creditors. We have seen that such a pressure by Messrs. Middleton may have either absorbed a part of the accruing profits, or involved her in a responsibility which the profits did not suffice to meet.

There can be no fair suggestion of supposed equities in favor of her estate against the interests of the general bodj' of the bankrupt’s creditors, or fair suggestion of considerations of supposed hardship to her creditors. The hardship seems to be rather on the other side. If she chose to suffer herself to be involved in debts incurred in carrying on his business in order to cover it against his former creditors, those former creditors ought not, for this reason, to be postponed in the distribution of his funds to other creditors whose debts may have been afterwards contracted in her name. To what extent, if to any, her liabilities to the creditors to whom she died indebted were thus contracted, is, upon the proofs before us, altogether conjectural. On the distribution by the orphans’ court of the estate called hers, these creditors have, since her death, received nearly $2,000 from proceeds of personal property of the establishment, in which, as I have said, no capital of her own appears to have been invested, and which, in truth, was not hers, but the bankrupt’s. Upon a distribution of the same fund by this court in bankruptcy, the same creditors would not thus have received the whole of it. The most favorable view for them would have been to consider their demands against her as equitable debts of the bankrupt. Such of these debts as might appear to have been truly contracted in the course of the business conducted by him in her name, for his own benefit, would perhaps have been so considered, and, if so, would have been entitled to a dividend; but in such a dividend his other creditors would participate equally. So far as the parties to whom distribution was awarded by the orphans’ court may have been distinctively her own creditors, they would have been excluded by this court from even a dividend. All such considerations of hardship, or of supposed equities and counter equities, are, however, out of place. They could not be entertained without a perversion of those principles of the law of debtor and creditor of which the application has been shown. The assignee does not appear to have as yet taken possession of the property, though it is not easy to surmise by whom, or for whom, possession, if demanded, could have been withheld from him. It certainly could not have been withheld by the bankrupt for himself, or for Price, or for the representatives of his aunt, nor does the assignee, though he seems to consider the possession withheld from him, appear to have instituted proceedings in equity, or at law, to recover it. Of this apparent remissness there may possibly be some explanation in the want of funds, and the unwillingness of parties interested to supply them. If so, whether the explanation suffices to excuse the assignee or not, the danger incurred by the bankrupt is increased, because the twenty-ninth section of the act of congress prohibits his discharge if he has been guilty of any fraud or negligence in the delivery to the assignee of property which ought to be available for the benefit of the creditors.

Heretofore the attitude of this bankrupt has, to all appearance, been that of hostility to his acknowledged creditors, — a hostility always unbecoming a debtor, but most especially unbecoming where, in asking a discharge, he alleges that he has absolutely no assets. Perhaps, however, this may not have been his true attitude. The appearance of it may possibly have been unavoidable from the course of the proceedings. It is to be hoped that he will, without further delay, promote the just interests of his creditors by placing the assignee in possession, and facilitating a profitable disposal by him of the property, including the good will, etc.-, of the business, and by accounting to him fairly for any money, etc., on hand, and credits outstanding at the commencement of the • proceedings, and for all subsequent profits. If he shall do so, the question to be decided, in a future stage of the proceedings, may be whether all claim to a discharge has, for the causes of objection heretofore specified, been already forfeited so absolutely that a discharge cannot hereafter be granted.

As at present advised, if I were finally to decide the case upon the present evidence, I would refuse a discharge; but whether it is too late for him to retrieve himself by adopting the course which I have indicated is a point which may, perhaps, be reserved. I think that the proceedings have not reached the stage in which his creditors can be required to abide by the objections to his discharge which have been specified. The reason is that there had not been a sufficient examination or disclosure before the time appointed for a hearing in court upon his application for a discharge. Unless the coun. sel of the creditors desire to be heard on the fourth point, the case will be recommitted.

Neither the assignee nor any creditor urging an immediate final decision, this point was not argued; and the case was recommitted to the register.

3 This proposition, resting, as it does, upon the simple foundation of common sense and common honesty, does not require the support of authority. But in Schott v. Chancellor, 8 Harris [20 Pa. St.] 199, Black, C. J., said: “If personal property is purchased at a sheriff’s sale, and left with the defendant in the execution, and it appears that the defendant himself furnished the money which paid for it, who can doubt that it might be taken again on another execution against the same person ? If the money was not furnished at the time, but paid aft-erwards, the ease would be equally clear, as showing either that the pretended purchaser was a mere agent of the defendant, or else that a contract existed between them by which the title was to revert to the original owner when he refunded the price. AVhere the plaintiff in the execution is the purchaser at the sale, and he gives no credit for the proceeds, and afterwards receives full satisfaction of his debt in another way, there is still stronger reason for believing that, the business was a sham from beginning to end.” ‘