Beattie v. Gardner

| N.D.N.Y. | Jan 15, 1871

HALL, District Judge,

(after stating the-case as above.) It is obvious that the efforts of the parties upon t.he hearing before the referee, as well as on the hearing here, were mainly, if not wholly, directed to the single-purpose of showing, on behalf of the plaintiff, that the case was within the express provisions of the 35th section of the bankruptcy act, and the judgments and executions of the defendants therefore void; and on behalf of the defendants, that the case did not fall within the provisions of that section. The finding of the referee upon the questions of fact deemed most material under these provisions, was adverse to the plaintiff; and as the case will be first considered in connection with such provisions, the evidence-bearing upon these questions will first be discussed.

It cannot be doubted that the acts of Ely, in informing the attorneys of the four principal defendants in this suit that Morse would he at Elgin, aDd offering to take and taking the summonses and other papers to serve upon Morse, and afterwards procuring the momentary return of Morse to the state of New York that he might serve such summonses upon him, and then serving the same, were intended on his part, as well as on the part of the attorneys who furnished him the papers, to give to these four defendants who had attached the property of Morse a right to enter judgments, issue executions, and seize his property thereon, ini such manner as would secure to the plaintiffs in such executions a preference over the other creditors of Morse. Nor can it be doubted that if in so doing he acted with the assent and approval of Morse, so that his acts are in law to be regarded as the acts of Morse, the latter must be held to have procured his property to be seized on execution, so as to render the seizure illegal and void, under' the express provisions of said 35th section.

In this view of the case, it becomes important to consider whether Ely was, in fact, so acting with the assent and approval of Morse, or was guilty of treachery to his client, in thus endeavoring to give preference to the defendants in this suit, and thus defeat the operation and effect of the provisions of the bankruptcy act.

In considering this question, and the general question whether Morse intended to aid in securing such preference to the defendants, it is to be observed that it would necessarily be the policy of Morse and Ely, as well as of the favored creditors, to proceed with the utmost caution, and, as far as pos.sible, to avoid or conceal every act, declaration or proceeding which' would furnish evidence to defeat their purpose. Their conversation and correspondence, and, as far as possible, their acts, would be regulated by this policy; and therefore, in respect to this question, their acts, their omissions to act, and their silence, are more significant than any express declaration of theirs, and must-necessarily be most relied upon in determining the questions of Ely’s authority and Morse’s intentions.

The proof shows that Morse was a banker, and as he was also a doctor, he was doubtless an educated and intelligent person. On or before the 2d of April, 1868, he reached the conclusion that his hopeless insolvency required some action on his part, although it does not appear that, up to that time, his creditors had taken, or contemplated taking, any proceedings against him. Mr. Ely had before been sometimes consulted by him as his legal adviser, and had lately, or at least within three months, been employed by him to bring a suit in his favor. On the 2d of April, and in view of his insolvent condition, Morse again sought the counsel of Ely as his legal adviser. Their consultation was privileged, and what then occurred between them could not be given in evidence. The condition and circumstances of Morse, as shown by the evidence, would naturally lead to the obvious conclusion that the result of such consultation would be a determination on the part of Morse to apply for the benefit of the bankruptcy act. and secure a fair and equal distribution of all his property among all his creditors; unless he desired to give a preference to some or one of them over the others. If he desired to give such preference, Ely could inform him that the bankruptcy act would invalidate any act of his clearly intended to produce that result, and tvat to effect that object some measure must be taken ~y the creditors in which he (Morse) should not appear to co-operate. What occurred at this consultation can only be strongly suspected; for it is evident that no entirely reliable conclusion in regard to it can be based upon the then existing circumstances, and the subsequent conduct of the parties.

On the very next day, and possibly without being influenced by anything which occurred at such consultation, Dr. Morse absconded from Lockport; and before three o’clock in the afternoon of that day, the suits of Gardner and Scoville were commenced against him by the delivery of the summonses therein, and attachments against his property, although the publication of said summonses was not commenced until the 18th. It does not appear whether Ely or Morse had or had not communicated to these parties, or their attornéys, the fact of the intended or actual departure of Morse; but they were creditors that Morse or Ely, or both, then or subsequently, intended to prefer, ¿and care was subsequently taken that their judgments should be docketed, and their executions issued, a few minutes in advance of those of Harwood and Stone, although the services on which the judgments were entered were all made at the same time. Indeed, this matter of preference, even between those four judgment creditors, seems to have been carefully regulated and guarded. Gardner was the favorite; Sco-ville came next, Stone next, and Harwood the last of all. Consequently, Gardner’s judgment was docketed one minute before that of Scoville, so as to give him a preference as against Morse’s real estate; that of Scoville half an hour before that of Stone; and that of Stone one minute before that of Harwood; and the executions in Gardner and Seoville’s cases were delivered to the sheriff ten minutes before the executions in the cases of Stone and Harwood.

The levying of the attachments in these cases did not secure the desired preferences to these favored creditors as against proceedings in bankruptcy commenced within four months after such levy, although it was only by such proceedings that the lien of such attachments could be dissolved, and their object defeated. To fully secure- a preference, a levy on final executions on judgments obtained after personal service upon the defendant, or his appearance in the suits, was necessary; but a voluntary appearance, without such previous service, would, of itself, be almost certain to defeat the attempt to secure such preferences. This was doubtless well known to Ely and Morse, as well as to Gardner, and the attorneys of Harwood and Stone. Prior to the 30th of April, Ely had some correspondence with Morse about appearing' for him in these suits, and had received the summonses which had been sent to Morse by mail; but this correspondence being privileged, its precise contents and exact purpose are unknown. But it is apparent that, for some reason, Ely decided not to appear in the suits, at least before personal service of the summonses upon Morse, and that his thoughts had been turned towards some other means of securing a preference to the parties who had prosecuted his unfortunate client. When this correspondence commenced, or when it ended, does not appear; but before the 30th of April, and probably before the 29th, Ely learned by a telegram from Morse himself, that the latter would be at Elgin on the 30th, although Morse swears that he went there of his own act, and without communicating with any person in relation to his going there. Ely then gave notice of that fact to the attorneys who had commenced the suits against Morse, and he procured from them, for the purpose of such service, the summonses which he subsequently served. Ely then went with Gardner, and met Morse at Elgin. It is assumed that he went there to consult Morse in reference to Judge Bowen becoming guardian for Morse’s children; but it does not appear that he had any such consultation, or why it was necessary or desirable that he should have one. Ely left Gardner and Morse alone, almost immediatey after they met Morse; and although Gardner had, within the same month prosecuted Morse, and had attached his property in two suits which were yet pending, and there met him for the first time after such suits were commenced, it appears that these parties were careful not to speak of these suits, or either of them, during the half hour they were together. This silence can only be accounted for by the supposition that these parties understood each other, and deemed it most discreet, in view of their common object, to say nothing upon the matters apparently most likely then to be the subject of conversation unless there was some understanding that the matter was in the hands of Ely, and that it was not discreet to interfere with his plans and purposes.

The proof in reference to the alleged motive of Morse in coming momentarily into this state; — his yearning after the society of his Lockport friends, from whom he had been separated nearly a whole month, one of whom had in the meantime attached his property in two different suits, on the ground that he had departed from the state with intent to defraud his creditors, and had not mentioned this circumstance during their half hour’s interview, and the other, his legal adviser, the day or day before he so departed, and who was there at his request as his legal adviser in respect to the guardianship of his children, but who was preparing, as it is alleged,, in collusion with those who had prosecuted his client, and charged him with an intent to defraud his creditors, to effect a personal service of the summonses in those suits, so as to give such creditors a preference against the will of Morse- and the proofs in respect to the service upon Morse, and what then and there occurred, — have already been sufficiently set forth.

When these papers were served, Morse either knew, or by a single glance at them might easily have ascertained their character. Though served by his own attorney, he made no inquiry as to the meaning and purpose of such service, and manifested neither indignation nor surprise that his own attorney and confidential adviser should have thus lent himself to the opposing parties, and by treachery and trick had induced him to enter the state in order that he might consummate his alleged treachery. He does not appear to have made any effort to avoid the effect of such service, or to have expressed any dissatisfaction with the conduct of his attorney. He did not seek to avoid the effect of the service by voluntarily going into bankruptcy, nor did he give notice of this service to any other of his creditors in order that they might proceed against him in bankruptcy within the twenty days allowed for pleading; and he does not appear to have consulted with any one in regard to any measure to counteract the efforts of Ely, and of the creditors by whom he had been prosecuted.

He was not an ignorant man, unaccustomed to business, and he had consulted counsel upon other and recent occasions. It is assumed that he required the legal advice of Ely even in his consultation with Judge Bowen in regard to the guardianship of his children, and unless he was a willing participant in these proceedings, through Ely, his attorney, it is passing strange that he neither did, nor attempted to do, nor even said anything in disaffirmance or disapprobation of the conduct of Ely, nor consulted with any one in respect to the measures proper to be taken to defeat the purposes of those who had prosecuted him.

“Acta exteriora indicant interiora secreta;” the law judges of a man’s previous intentions by his subsequent acts, (Broom, Leg. Max. 139;) “Omnis ratihabitio retro trahitur et mandato priori aequiparatur:” subsequent assent given to what has already been done has a retrospective effect, and is equivalent to a previous command, (Id. 380;) “Qui non pro-hibet quod prohibere potest assentire vide-tur:” he who does not prevent that which he can prevent is held to assent, (2 Co. Inst. 308;) “Qui tacet consentiré videtur:” silence implies consent, and such consent may be inferred from the parties’ subsequent conduct, (Id. 3G0;) “Qui facit per alium facit per se:” he who does a thing by another does it himself, (Id. 373,) — are ancient, reasonable and well-established legal maxims, and may be properly applied in this case.

If the services made upon Morse on the Suspension bridge were brought about by the fraud and treachery of his attorney, acting in collusion with the attorneys of the-opposite parties, and in opposition to the will of Morse, the supreme court, in which the actions were pending, would doubtless have set aside the services. Grah. Pr. (2d Ed.) 137; Williams v. Bacon, 1 Wend. 636; 2 Kent, Comm. 483, note b. Morse, by filing his own petition as a bankrupt, might have avoided the effect of such services; or he might, by communicating the facts to some of his other creditors, have enabled them to effect the same object by filing a petition against him during the twenty days allowed him to plead. But he did nothing of the kind, and seems to have rested in perfect contentment with the preference which he supposed Ely had secured to the four creditors who had prosecuted him.

In short, the conduct of Morse and Ely, before, and at, and after the time of the service of the summonses upon Morse, satisfies me that Ely was acting as the attorney and agent of Morse, without special instructions to do certain specific acts, but with the uhderstanding and assent of Morse, that a preference should, in some way, be secured to these judgment creditors; Morse relying upon Ely to engineer the matter, and consenting to do what Ely requested. Ely, when he gave the information of Morse’s expected visit to Elgin, and obtained the summonses, doubtless relied upon Morse’s willingness to aid his purposes, and come momentarily into Niagara county, if he requested it, and he expected him to so act that these creditors, and no others, should obtain service of their process upon Morse.

The .conclusions just stated, were resisted by the counsel for the defendants upon the ground that they were disproved by the testimony of Ely and Morse; and it was doubtless upon their testimony that the opposing conclusions of the referee were based. But their testimony does not fully meet the question, and is not, necessarily, a denial of what has been assumed. Their language seems to have been well considered, and what they have each sworn to in very nearly the same language, in respect to the service of the summonses, may be literally true, notwithstanding that Morse desired and intended that Ely should in some way secure the preference attempted to be given, and therefore accompanied Ely, at his request, until he reached the New York portion of Suspension bridge, to enable Ely to take such action as he desired to produce that result.

These views require a modification of the referee’s report, but there is, perhaps, no necessity for a formal allowance of the exceptions. The second, seventh, eighth and tenth exceptions are, however, considered to be well taken, and as the allowance of these will correct the report so far as it may be necessary, the other exceptions may be considered as disallowed.

Of course, under the views already expressed, the plaintiff is entitled to a decree, but there is another and most important question involved in the case, upon which, in view of its great and general importance, I should probably have ordered an argument if the plaintiff had not been entitled to a decree upon other grounds.

It can scarcely be doubted that an act which directly and manifestly tends to defeat the purposes and policy oí the bankruptcy act, and which was done in contravention of, and with the intention to defeat, such purposes and policy is, for that reason, fraudulent and void. “A fraudulent contrivance,” said Lord Mansfield in Rust v. Cooper, Cowp. 629, “with a view to defeat the bankrupt laws is void, and annuls the act.” And, in Foster v. Goulding, 9 Gray, 50-52, it was said by Thomas, J., after quoting the above language of Lord Mansfield: “This is well-settled doctrine, and, diligently and faithfully applied, would defeat most of the contrivances and indirections by which the just and equal operation of the insolvent laws is prevented.” And see the cases cited by Judge Thomas, on page 53.

In this case the acts of Morse, upon which the attachments issued against him in favor of the defendants, were acts of bankruptcy under the bankruptcy act, and in the case of Shawhan v. Wherritt, 7 How. [48 U. S.] 627, Mr. Justice Grier, in delivering the unanimous opinion of the supreme court of the United States, said: “The chief and important question involved in this case is whether the appellants, after' an act of bankruptcy, of which they had full knowledge, could, by proceeding in a state court, obtain a valid lien and seize the property of the bankrupt to the exclusion of his other creditors, or whether such a proceeding would not be a fraud on the bankrupt law, and therefore void.”

In discussing that question he further said, among other things: “The acts thus enumerated (acts which were deemed acts of bankruptcy under the act of 1841, [5 Stat. 440]) are usually termed acts of bankruptcy, and may be considered as tests of insolvency, showing conclusively the inability of the trader to pay his debts, or carry on his trade. The policy and aim of bankrupt laws are to compel an equal distribution of the assets of a bankrupt among all his creditors. Hence, when a merchant or trader, by any of these tests of insolvency, has shown his inability to meet his engagements, one creditor cannot, by collusion with him, or by a race of diligence, obtain a preference to the injury of others. Such conduct is considered a fraud on the act, whose aim is to divide the assets equally, and therefore equitably.” Again: “A creditor may always recover and receive payment of his debt, or security for it, from his debtor, unless he has notice or knowledge that his debtor has committed an act of bankruptcy, and then he is forbidden to receive payment of his debt, or to obtain any other priority or advantage over the other creditors of the bankrupt. And if notice of this fact to the creditor makes a payment by the debtor void, it is obvious that a security or priority gained by a suit in a state court after such notice could have no better claim to protection, for notice of the act of bankruptcy to the creditor is the test of mala tides which vitiates the transaction.”

In Shawhan v. Wherritt, the lien asserted was based upon the filing of a bill in equity against the bankrupt and his assignee under a voluntary assignment professedly made for the benefit of creditors, and a subsequent decree upon the bill so filed. The bill was filed on the 2d of May, 1842, and the petition in bankruptcy was not filed until the 24th of the next September. A decree in favor of the complainants in the state court was entered on the 22d of the succeeding month of October, and on the 4th of the next month the adjudication in bankruptcy was made in the bankruptcy court. The bill of the as-signee in bankruptcy, under which the decision of the supreme court of the United States was made, was not filed until August, 1843. The bill was filed in the district court, and that court entered a decree in favor of the complainant. This decree the circuit court affirmed on appeal in November, 1844, [Shawhan v. Wherritt, Case No. 12,728,] and the decision of the circuit court was affirmed by the supreme court in 1849. The case was ably argued in that court, and the opinion of Mr. Justice Grier appears to have had the full concurrence of all the judges of that court.

The lien asserted in that case was based upon proceedings in equity, and the liens asserted in this case are based upon proceedings at law. That case arose under the act of 1841, and this under the act of 1867. But I have not been able to discover, in the reasoning of Mr. Justice Grier, or in the somewhat different language of the two acts, any ground for assuming that the liens insisted upon in this case are not void under the decision made in the case of Shawhan v. Wherritt. Indeed, the learned judge of the southern district of New York, in his well-considered opinion in the Case of Black and Secor, [Case No. 1,457,] applied the doctrine of Shawhan v. Wherritt, in a case where the creditor had obtained a judgment, execution and levy by the neglect of the bankrupt to file a voluntary petition in bankruptcy, and he declared that the doctrines of Shawhan v. Wherritt, held to be applicable to the act of 1841, are much more applicable to the act of 1867. The Case of Black and Secor is, in fact, an authority in point against the defendants, and there are other cases which tend to support the same doctrine. In re Belden, [Case No. 1,240;] In re Black and Secor, [Id. 1,458;] Fitch v. McGie, [Id. 4,835;] In re Wells, [Id. 17,388.]

The plaintiff will have a decree in accordance with this opinion.