Forbes v. Howe

| Mass. | Oct 15, 1869

Wells, J.

In order to invalidate a conveyance of property, under the bankrupt law of the United States, § 35, on the ground that it was made as a preference in fraud of the act, it is requisite that it should appear, 1st, that the debtor was insolvent at the time of the conveyance, or that he made it in contemplation of insolvency; 2d, that he did it with a view to give a preference to a creditor; 3d, that the party taking the conveyance, or to be benefited by it, had, at that time, reasonable cause to believe him to be insolvent; and 4th, that such party had reasonable cause to believe the conveyance to be made in fraud of the provisions of the act. The first instruction prayed for embraced all these requisites, and was given by the judge at the trial.

The defendants might have been entitled to the second instruction prayed for, if it had been supported by the facts of the case. Stevens v. Blanchard, 3 Cush. 169. But it did not appear that the mortgage of October 1 was given to replace any other security then given up; nor that the property, then for the first time covered by mortgage, was merely substituted for other property which was at the same time released from the mortgage of August 21. The defendants attempted to maintain the position that, although certain property covered by the previous mortgage had been sold and delivered by the mortgagor, yet the defendant Upham had not released it from his mortgage, and that he still had a lien upon it, or upon the unpaid price of sale and that the new mortgage was given in consideration of a release of this claim, by way of substitution for security thus surrendered. But the jury found upon this question, specially submitted to them, that the sale of that property was made “ with the express or implied permission and consent on the part of Upham.” If so, his lien under the mortgage of August 21 was gone, and the mortgage of October 1 was a new security, and not a mere substitution of securities. It results from this finding of the jury that the defendants were not prejudiced by the refusal of this prayer.

The third instruction, prayed for includes the main fact upon which the whole case depended, to wit, the intent to give a preference. By refusing to give that instruction, in the form in which it was presented, the court did not intend, and could not fairly be understood, to rule to the contrary of the proposition it contained. The presiding justice, having already instructed the jury that the plaintiff must show an intent to give a preference, on the part of the debtor, might well have regarded a repetition of the proposition in another form unnecessary.

The fourth prayer stands in the same position as the third, so far as it rests upon the element inserted among its propositions, that the transaction was “ not with the intent to prefer; ” and in the same position with the second, so far as it rests upon the proposition that it was merely “ a substitution of one security for another released and given up.” That this mortgage “ was given in the usual and ordinary course of the business of the parties ” would not save it, if the intent to prefer existed; and would not exclude the inference of such intent, which might be drawn from all the circumstances under which it was given. That a payment or transfer of the property was made out of the ordinary course of business of the party making it, is sometimes ground for inference of intent to prefer or to defraud. We do not think that the mortgage of his brick kiln by the debtor, in this case, gave ground for any inferences, or derived any character from the usual and ordinary course of the business of the parties, which required the court to give the instruetio asked for.

The instruction that an agreement for future security “ would be a mere executory contract, and not a conveyance,” was correct, as well as that the validity of such new mortgage “ would depend entirely upon the circumstances under which it was made, and the state of things existing at that time.” Blodgett v. Hildreth, 11 Cush. 311. Paine v. Waite, 11 Gray, 190. Simpson v. Carleton, 1 Allen, 109. So also was the instruction that if the new mortgage covered, or was intended to secure, anything due for advances made previous to its date, it would be a mortgage to secure a preexisting debt, and open to all objections which could be taken to it on that ground. The fact that the debtor was induced to give such security for debts previously contracted, by the hope and expectation of thereby obtaining further credit and means for the continued prosecution of his business, does not make it any the less a preference; nor does it rebut the inference, otherwise deducible from the facts, that it was intended to be a preference. Denny v. Dana, 2 Cush. 160. If so intended, it would make no difference that it was the purpose of the parties merely to renew or make up the security which had been reduced by previous sales of property included in the earlier mortgage; nor that it was done in fulfilment of previous agreements that it should be done. An agreement to give security for a debt due, or to be contracted, imposes no higher legal obligation upon the debtor than his promise of payment, involved in the contracting of the debt. And his fulfilment of the one is equally open to objection as a preference as is his fulfilment of the other. The instructions were correct in these particulars.

The case of Jones v. Howland, 8 Met. 377, relied on by the defendants, turned upon the question whether the sales which it was sought to avoid were made “ in contemplation of bankruptcy,” in the sense of the United States bankrupt act of 1841. The terms of that statute were held to require that the intent which would make void a sale must be an intent to give a preference in contemplation of bankruptcy. But the present bankrupt act avoids a sale made with a view to give a preference, if the debtor at the time be in fact insolvent, although he may not contemplate bankruptcy. Under this statute, we think the phrase “ with a view to give a preference ” must be construed somewhat less strictly, so as to include an intent to give one creditor any advantage over others in respect of payment or security of his debt.

The instructions prayed for, after the charge had been made, present the same questions in a different form. The position of the defendants appears' to be, that if the debtor was influenced to give the mortgage by some other consideration or inducement, beyond and aside from the purpose to secure an existing debt, such circumstance will repel the inference that he intended to give his creditor a preference. But this is directly opposed to the opinion of the court as given in Denny v. Dana, before referred to. Besides, the assumption contained in these prayers, that the new mortgage was given in consideration of the release of a claim, under the prior mortgage, upon bricks sold and removed, but not paid for, is shown by the special finding of the jury, to have been without foundation; and thus all ground of exception for their refusal is removed.

The evidence of Josselyn’s financial condition and reputation in 1866 was competent upon the question of his solvency or insolvency a year later, and as tending to show what means the defendants had to know, or cause to believe, that he was insolvent in October 1867.

If the mortgagee had reasonable cause to believe that Josselyn was insolvent, it is immaterial whether he did in fact believe it or not. The same is true of his belief as to Josselyn’s intention in making the mortgage. The question to Upham, as to his actual belief in regard to those particulars, was therefore properly excluded.

It is contended that the instructions set forth in the last clause of the bill of exceptions are obnoxious to the objection of being in the nature of a charge “with respect to matters of fact.” But we think it is so in appearance only, and not in substance or effect. The proposition of “ reasonable cause to believe ” is one of fact, to be established by proof and found by the jury. In order to render a verdict for the plaintiff, it was necessary for the jury to find that the defendants had reasonable cause to believe that Josselyn intended the mortgage as a preference. His intention could be known only by inference from his conduct. It is a principle of law, often stated to a jury by the court, that a man may ordinarily be presumed to intend that which is the natural and probable consequence of his acts. The intent to prefer, on the part of Josselyn, might therefore be properly inferred from the fact of preference. It was competent for the jury to find that that intent was so plainly inferrible from the acts of Josselyn, known to the defendants, as to amount to reasonable cause to believe. If so, they might properly impute to the defendants such reasonable cause to believe that the mortgage was intended by Josselyn as a preference to them. We do not perceive that anything more than this was conveyed by the somewhat vague terms in which this instruction is expressed.

Exceptions overruled.