Henkelman v. Smith

Grason, J.,

delivered the opinion of the Court.

It appears from the record in this case that the appellants, ou the 14th day of April, 1873, caused an attachment on warrant to be issued against the goods and chattels of Frederick Witte, returnable to the May Term of the Court of Common Pleas of Baltimore City, to he held on the 9th day of May, and that on the 24th day of April, an. order was passed by said Court for the sale of the goods, and that from said sale the sum of fire hundred and ninety-one dollars and forty cents was realized, and that said proceeds of sale, less the cost and expenses of sale, were paid into Court. On the 13th May, judgment of condemnation was duly entered and said proceeds were paid to the appellants on the fifth day of June following, under an order of Court passed on the -4th day of the same month. It further appears that, on the 26th day of May, 1873, a petition in bankruptcy was filed against Frederick Witte, by some of his creditors and that, on the 5th June, he was adjudicated a bankrupt and that, on the 21st day of July, the appellee was elected assignee of the estate of the bankrujit. On the 6th day of December, 1873, the appellee instituted this suit in the Court of Common Pleas to recover from the appellants the whole proceeds of the sale, which had been paid to them under the order of that Court. The case was tried before the Court on an agreed statement of facts, and at the trial three prayers were offered by the appellee, and two by the appellants, the former of which were granted and the latter refused. The appellants excepted to the granting of the appellee’s prayers and to the rejection of their own, and the judgment being against them they have taken .this appeal.

It was contended by the appellee’s counsel that the appellee, under the agreed statement of facts, had a right to recover under either the 14th, 35th or 39th sections of the Bankrupt Act, and that his three prayers were properly granted. The 35th section provides that if any person, being insolvent, or in contemplation of insolvency, within four months before tbe filing of the petition by or against him, with a view to give a peference to any creditor, or person having a claim against him, or who is under any liability for him, procures any part of his property to be attached, sequestered or seized under execution, &c., the person to he benefited by such attachment having reasonable canse to believe such person insolvent, and that such attachment is in fraud of the provisions of the Act, the same shall he void and the assignee may recover the property or its value.

The 39th section declares what shall be an Act of Bankruptcy, and provides, among others, that if a person, being insolvent, or in contemplation of bankruptcy or insolvency, shall give a warrant to confess a judgment, or procure or suffer liis property to he taken on legal process, with intent to give a preference to one or more of his creditors, or with intent, by such disposition of his property, to defeat or delay the operation of the Bankrupt Act, he shall he deemed to have committed an act of bankruptcy, and the assignee may recover the money or property if the person shall he adjudged a bankrupt, provided the person taking the property had reasonable cause to believe that a fraud on the Act was intended, or that the debtor was insolvent. It will he observed that by the 35th section, in order to render the attachment void and enable the assignee to recover, the debtor must be insolvent, or contemplating bankruptcy, must procure his property to be attached, within four months before the petition in bankruptcy is filed, with a view to give a preference, and the plaintiff in the attachment must have reasonable cause to believe the debtor insolvent, and that the attachment is in fraud of the provisions of the Bankrupt Act. And under the 39th section to render the legal process void and to enable the assignee to recover, the debtor must be bankrupt or insolvent, or contemplating bankruptcy, and must procure or suffer his property to he taken on legal process with intent to give a preference, or to defeat or delay the operation of the Act. And if the party be adjudged a bankrupt the assignee may recover provided the party taking the property had reasonable cause to believe that a fraud on the Act was intended, or that the debtor was insolvent. It does not appear from the statement of facts in this case that Frederick Witte, the debtor, has done any act to procure the attachment or to procure or suffer his property to be taken on legal process with intent to give the appellants a preference over his other creditors, or with intent to defeat or delay the operations of the Bankrupt Act. So far as the statement of facts discloses, he has done absolutely nothing. But it was contended that, as the defendant did not appear to the attachment suit, when it was in his power to do so and prevent the judgment of condemnation, he is to be considered as having suffered his property to be condemned with intent to give a preference to the appellants. In this view we cannot concur. The Bankrupt Act clearly contemplates some act to be done by the debtor to procure or to suffer his property to be taken under attachment or legal process, and this view is sanctioned hy the highest authority, that of the Supreme Court in the case of Wilson vs. City Bank, 17 Wallace, 487, 488. The City Bank obtained a judgment against Vanderhoof Brothers by default, and the same day issued execution, which was levied on their whole stock in trade> which was sold. After the levy of the execution and'before sale, Vanderhoof Brothers were adjudged bankrupts on the petition of other creditors.

Vanderhoof Brothers were insolvent at the time they were sued by the bank, and the latter had reasonable cause to believe that they were, and that they had committed an act of bankruptcy, and that they had no property other than their stock in trade. The money arising from the sale under the execution was in the bankrupt Court awaiting the termination of the suit between the assignee and the bank. These facts were found by the Court, and are much stronger in favor of the assignee’s right, than are those contained in the agreed statement in this case. In that case, as in this, it was contended that the failure of the debtor to appear and defend the suit furnished evidence of his procuring or suffering his property to he taken on legal process with intent to give the creditor a preference, or to defeat or delay the operation of the law. Mr. Justice Miller, in delivering the opinion of the Court, says, in referring to the words “procure” and “procure and suffer,” as used in the 3oth and 39th sections respectively: “In both there must, he the positive purpose of doing an act forbidden by the statute, and the thing described must be done in the promotion of this unlawful purpose. The facts of the case before us do not show any positive or affirmative act of the debtors, from which such intent may be inferred. Through the whole of the legal proceedings against them, they remained perfectly passive. They owed a debt which they were unable to pay when it became due. The creditor sued them and recovered judgment and levied execution on their property. They afforded him no facilities to do this, and they interposed no hindrance. It is not pretended that any positive evidence exists of a wish or design on their part to give this creditor a preference, or oppose or delay the operation of the Bankrupt Act. There is nothing morally wrong in their course in this matter. They were sued for a just debt. They had no defence to it, and they made none. To have made an effort by dilatory or false pleas to delay a judgment in the State Court, would have been a moral wrong and a fraud upon the-due administration of the law.”

In that case the Supreme Court decided:

1. That something more than passive non-resistance of an insolvent debtor to regular judicial proceedings, in which a judgment and levy on his property are obtained, when the debt is due and' he is without just defence to the action, is necessary to show a preference to a creditor, or a purpose to defeat or delay the operation of the Bankrupt Act.

2. That the fact that the debtor, under such circumstances, does not file a petition in bankruptcy is not sufficient evidence of sucli preference, or of intent to defeat the operation of the Act.

8. That, though the judgment creditor in such case may-know the insolvent condition of the debtor, his levy and seizure are not void under the circumstances, nor any violation of the Bankrupt Act.

4. That a lien, thus obtained by him, will not be displaced by subsequent proceedings in bankruptcy against the debtor, though within four months of the filing of the petition. In the case now under consideration there is no more evidence to show that Frederick Witte procured this property to be taken under the attachment, ox procured or suffered it to be taken on legal process with intent to give a preference to the appellants, or to defeat or delay the operation of the Bankrupt Act, than there was in the case of Wilson vs. City Bank, above referred to, and we think it clear that the appellee has no right to recover from the appellants under either section 35 or 39.

But it was contended that the appellee had a right of 'recovery under section 14. That section provides that as soon as an assignee is appointed and qualified, the judge or register shall assign and convey to the assignee all the estate of the bankrupt, and such assignment shall relate back to the commencement of the proceedings in bankruptcy, and thereupon, by operation of law, the title to such property shall vest in the -assignee, although the same is then attached on' mesne process, as the proj)erty of the debtor, and shall dissolve such attachment if made within four months next preceding the commencement of said proceedings. We are of opinion that the appellee has no better foundation for his claim to recover under this section than under the 35th and 39th. This section refers, and can only refer to attachments, which are pending at the time the petition in bankruptcy is filed. The petition against Witte was filed on the 26th May, 1813, he was adjudged a bankrupt on the 4th June, and the assignee was elected on the 21st July, following. The assignment to him then related hack to the 26th May, and vested in him the title to all the property which belonged to the bankrupt at that date. But the property, which is the subject of this suit, had been attached on the 14th day of April, was sold under the order of the Court on the 24th day of the same month, and the attachment was prosecuted to judgment on the 13th day of May, thirteen days before the petition in bankruptcy was filed, and by that judgment the proceeds of the sale of the property had been vested in the appellants. The attachment having been properly issued and prosecuted to judgment, that judgment is final, imports absolute verity, is conclusive with respect to the subject-matter adjudicated, and cannot be re-examined or impeached in a collateral proceeding. Gordon’s Ex’r vs. Mayor and City Council of Baltimore, 5 Gill, 242; Walters & Harvey vs. Munroe, 17 Md., 506. The judgment in this case cannot, therefore, be affected by the proceedings in bankruptcy. Appleton vs. Bowles, 2 N. Y. (S. C.) Reps., 569.

(Decided 12th March, 1875.)

As we have shown that the appellee has no right to recover in this case under either of the sections of the Bankrupt Act before referred to, for the reasons stated, it is unnecessary to notice in this opinion the further question, which was argued in this Court, whether it is the duty of the assignee in bankruptcy to make known by proper proceedings to the State Court the fact that the defendant in an attachment has been adjudged a bankrupt. As there was error in granting the appellee’s prayers and in refusing to grant those of the appellants, the judgment appealed from will be reversed, and as the plaintiff can in no event recover in this case, a new trial will not be awarded.

Judgment reversed.