223 Mass. 227 | Mass. | 1916
This case was considered in 220 Mass. 156, where the facts as they then appeared are stated at length. In accordance with the rescript there ordered, a new trial has been had upon certain issues. The facts now disclosed, new or different from those there set forth and material to the present decision, will be adverted to, so far as necessary. Several questions are presented.
1. Were the book accounts assigned to the defendant the property at that time of Setlin, the bankrupt, or of the firm of Setlin and Smith, of which he was a member? The trial judge,
2. The second question is, whether Setlin was insolvent at the time of the assignment of these book accounts. The trial judge found that he was. This finding is assailed on the ground that in making the account of Setlin’s assets and liabilities, the debts of the partnership of Setlin and Smith, of which Setlin was a member, for the debts of which he of course was liable jointly with his partner, and whose debts on its dissolution he had agreed to pay, were added to Setlin’s personal debts. In this there was no error of law. It was the correct way to ascertain the entire indebtedness of Setlin. Francis v. McNeal, 228 U. S. 695, 700.
It was held, when the case was here before, that individual creditors and partnership creditors were not of the same class. Following and applying that decision, the trial judge found that “If the effect of the enforcement of the transfer to Lottow be determined as of July 30, I find that Lottow would not obtain a greater percentage of his debt than other creditors of the same class. If the said effect is to be determined as of October 3, I find that it would be to enable Lottow to obtain much greater percentage.” An examination of the evidence discloses no reason why this finding of fact should be overturned. The question of law Which arises in the light of these facts is whether in bankruptcy the preferential character of a transfer of property is to be determined' as of the date of the transfer, July 30, 1912, or as of the date of the filing of the petition in bankruptcy, October 3, 1912.
We are of opinion that the judge ruled rightly that the decisive date was that of filing the petition.
As a matter of verbal construction, the governing section of the bankruptcy act leads to this conclusion. The pertinent words of the bankruptcy act are in a footnote.
The bankruptcy court necessarily decides what the percentage then due to other creditors of all classes will be. That is one of the essential, steps in its procedure. It would seem a strange anomaly to compel that court to try and decide another question of percentages relating to another time. If the defendant’s contention is sound, the bankruptcy court well might be required, in the case of successive preferences, to enter into prolonged investigations as to the precise ratio to each other of the bankrupt’s debts and liabilities at numerous different dates within the four months’ period preceding the filing of the petition. Such judicial investigations inevitably would cause expense to the public and to the trustee representing the other creditors, and could confer no advantage on the debtor. They could benefit no one except a creditor who had accepted a preference, having reasonable cause to believe that he thereby was securing a preference from a bankrupt debtor. It cannot be presumed that such extreme solicitude at such
The interpretation urged would result in inequality of. distribution of the debtor’s assets among his creditors. Equality of distribution is one of the fundamental objects of a bankrupt law. The indebtedness of a business man often gradually progresses from a nascent state of insolvency to the point where a petition in bankruptcy is filed. Beginning with a bare excess of debts over assets, he may go through the gamut to a very large and disproportionate excess in this respect. Preferences during such a period of declining ratio of assets to debts, adjusted according to the theory of the law now put forward, would result in a sliding scale of inequality between the various preferred creditors, as well as inequality between all creditors who have obtained preferences and the general creditors who depend upon the equality of the law to protect their interests against the alertness of creditors seeking unequal advantages through their own keenness in scenting approaching bankruptcy.
• A plausible argument in favor of the defendant’s contention is grounded on the provision in § 60 b, that one element of a voidable preference is that the person receiving the transfer “ shall then have reasonable cause to believe that the enforcement of such . . . transfer would effect a preference.” U. S. St. June 25, 1910, c. 412, § 11, (36 U. S. Sts. at Large, 842). In this connection the intent of the debtor is not now significant. The only elements required by the act are the fact of insolvency at the time of the transfer and the excessive percentage of his debt acquired by the creditor in enforcing the transfer. Wilson v. Mitchell-Woodbury Co. 214 Mass. 514. But it is urged that a creditor cannot have a reasonable cause to believe that his conduct in receiving a transfer would effect a preference in the future, and that such cause to believe can be predicated only upon a then present and existing state of affairs. It seems to us that the answer is that a reasonable cause to believe that the transfer will result in a preference if enforced at the time of bankruptcy is the precise meaning of this provision. A creditor, conceivably in accordance with facts, might believe that the transfer would give him only an equal share with other creditors of the same class of the estate of his debtor upon immediate bankruptcy,
It follows that the standard established by the words of the' act in this connection is that of practical results. It does not justify resort to the uncertainties of theoretical inquiry as to what might have happened if bankruptcy had come at a different time from that when it actually did come.
The conclusion drawn from an examination of the words of § 60 is confirmed by general considerations. The great aim of the bankruptcy law is to provide a simple and expeditious method of distributing the assets of a bankrupt equally among his creditors as inexpensively to all parties in interest as is consistent with the accomplishment of the end in view. That aim would be frustrated in almost every particular by adopting the construction of the law urged by the defendant. It necessarily would involve complexity of inquiry, delay, inequality of distribution among creditors of the same class dependent upon the precise state of the bankrupt’s financial condition at the date of each preference, and added expense both to the public and to the parties in interest.
This conclusion does not in any degree conflict with general expressions to be found in many decisions relied on by the defendant, which need not here be reviewed, to the effect that whether there has been a preference or not is to be determined as of the date of the transfer or payment. Of course that is the crucial moment in determining other factors which go to make up a preference, as, for example, whether the debtor was bankrupt and whether the creditor had reasonable cause to believe him to be bankrupt. • Such expressions in judicial opinions were not directed to the point here
While the precise point here presented does not appear to have been decided, the result we have reached is in harmony with what has been assumed in numerous cases. Clarke v. Rogers, 228 U. S. 534. Swarts v. Fourth National Bank, 54 C. C. A. 387. Kimmerle v. Farr, (111 C. C. A. 27) 189 Fed. Rep. 295, 298. Brittain Dry-Goods Co. v. Bertenshaw, 68 Kans. 734.
4. The fourth question is, whether, at the time of the transfer to him, the defendant had reasonable cause to believe that its enforcement would effect a preference. The trial judge found that he did. The law is plain. The defendant must have had reasonable cause to believe. Mere ground for suspicion is not enough. Batchelder v. Home National Bank, 218 Mass. 420, 422. Putnam v. United States Trust Co., ante, 199. Grant v.National Bank, 97 U.S. 80. The question, whether he had such reasonable cause to believe, is one of fact. Ascertainment of the ultimate fact depends upon all the circumstances disclosed by the credible evidence and the inferences of which it rationally is susceptible. An elaborate and able argument has been addressed to us, undertaking to demonstrate that the evidence does not support this finding. But a careful examination of the record satisfies us that it must stand. It is not necessary to go through the testimony in detail and allude to all the reasonable inferences which flow therefrom. It is enough to say that the defendant was the uncle of the bankrupt, had aided him.in business ventures, had made frequent examinations of his books of account, through his trusted agent had advanced money to him on an assignment of accounts during the four months immediately preceding the bankruptcy and, in general, appears to have been intimately familiar with the bankrupt’s commercial standing.
5. The defendant has argued that the paragraph (3)
Decree affirmed with costs.
Morton, J.
The ruling and finding of Morton, J., were as follows: “I rule as matter of law that the effect of the enforcement of said transfer is to be determined as of October 3. I further rule and find that the effect of its enforcement, will be, to enable Lottow to obtain a greater percentage of his debt than any other of Setlin’s creditors of the same class. Said transfer then operated as a preference, and Lottow on July 30, 1912, knew or had reasonable cause to believe that this transfer did, and the enforcement thereof would, effect such a preference on October 3, 1912.”
U. S. St. 1898, c. 541 (30 U. S. Sts. at Large, 544), as amended, (32 U. S. Sts. at Large, 797, 34 U. S. Sts. at Large, 267, 36 U. S. Sts. at Large, 838,) “ Sec. 60. Preferred Creditors.—a A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, ... made a transfer of any of his property, and the effect of the enforcement of such . .. transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.”
The paragraph referred to is as follows: “(3) That the defendant, Louis Lottow, be, and he is hereby ordered to pay to the plaintiff the sum of $648.63 with interest thereon from December 3, 1912, amounting to $100.32 or a total of $748.95; and that within ten days from the date of this decree he assign to the plaintiff so much of the book accounts assigned to William Sedlis by Julius Setlin as are now uncollected, and not assigned by Sedlis in accordance with a decree of this court dated May 7th, 1915, which uncollected