| S.D.N.Y. | Oct 15, 1913
It is undoubtedly a question of some un-. certainty whether an assignment for the benefit of creditors will bar-a.discharge, and if the bankrupts in this case had unconditionally assigned their assets for distribution among their creditors I should feel some doubt of the correctness of the master’s report. Reed v. McIntyre, 98 U.S. 507" court="SCOTUS" date_filed="1879-01-20" href="https://app.midpage.ai/document/reed-v-mcintyre-89896?utm_source=webapp" opinion_id="89896">98 U. S. 507, 25 L. Ed. 171. However, they did nothing of the sort. They sold their assets to a corporation made up of their relatives, and gave the purchase price to their attorney to distribute, upon condition that each creditor should compromise his debt on getting his dividend. If he refused, as these creditors did refuse, he was to be totally excluded, and in fact his share finally went to the bankrupts’ attorney. This is a wholly different thing from an assignment for the benefit of creditors, which leaves the debts outstanding precisely as' they were, save the amount paid as dividend.
It seems to me perfectly clear that such a transfer is fraudulent, however much the bankrupt may think he has the right to make it, because fraud is not synonymous with personal sin, and a man may honestly justify quite illegal purposes. Nor is it one’s inward justification of his conduct which counts, for this is not a court of conscience. It is wholly a question of whether the things proposed did in fact result in depriving the creditors of their rights. In re Condon (D. C.) 198 F. 947" court="S.D.N.Y." date_filed="1912-08-02" href="https://app.midpage.ai/document/in-re-condon-8784543?utm_source=webapp" opinion_id="8784543">198 Fed. 947. Of course the creditors must show that thef bankrupt knew the result of his act would deprive them of their rights —that is, the element of intent—but it is quite irrelevant, whether in his own mind he had an honest justification. If the authorities cited by the bankrupts must be interpreted as meaning that every bankrupt will be discharged, no matter what his conduct, provided he believes it honest, I shall not follow them, since none is authoritative in this district.
If, therefore, conscious wrongdoing be not necessary to fraud, and if the determination of guilty intent depends upon the actual effect of the actor’s purposes, then a fraudulent intent existed in this case, because the purpose was to coerce the creditors into a compromise under penalty of getting nothing at all. No bankrupt may exact of his creditors any such consideration as a condition upon giving them their dividend from his property. South Danvers National Bank v. Stevens, 5 App. Div. 392, 39 N. Y. Supp. 298.
Nor does it in the least matter that the bankrupts might be in any case entitled to a discharge in bankruptcy. Certainly it is one thing to get a discharge after one has submitted oneself to the bankruptcy court, and another to get it out of hand upon such statement and examination as one may accord sua sponte. No doubt an extortionate creditor has it in his power to abuse an honest bankrupt by insisting upon his getting his release from the bankruptcy court. That is a penalty for an unworthy bar, but a court cannot permit the creditors to be coerced into accepting the bankrupt’s statement of his resources, even when the statement eventually turns out to have been correct. The transfer was therefore in fraud of the creditors’ rights,
Finally, it is of no consequence that the plan was that of the attorney for the bankrupts and the creditors’ committee, and not the bankrupts’ plan-personally. Though they did as. he said, they knew what they did, and if the result, however well meaning, is not tolerable in law, they have done what the law will not tolerate. As between them and their creditors, his acts are theirs, unless he deceived them, which nobody claims.
Report confirmed, and discharge denied. No costs.