131 Va. 325 | Va. | 1921
after making the foregoing state-.,ent, delivered the following opinion of the court:
2. The sole question presented. for our decision by the assignments of error is whether, upon this statement of facts, the conveyances in question were made with the intent and purpose on his (the bankrupt’s) “part to hinder, delay or defraud his creditors or any of them,” within the meaning of section 67-e of the bankrupt act of 1898, as amended in 1903, 1906, 1910 and 1917?
This question must be answered in the negative.-
' The question under consideration is one of some nicety, but it is unattended with any real difficulty in so far as the principles involved are concerned. Difficulty often arises in the application of such principles to the facts of particular cases; but in view of the circumstances of this particular case which appear in evidence, we have found no difficulty in such application.
The question we have to deal with was the subject of consideration by this court in Webb v. Lynchburg Shoe Co., 106 Va. 726, 56 S. E. 581, and again upon the rehearing of that case, reported in 107 Va. 807, 60 S. E. 130. In that case the facts adverted to in the opinion were that the bankrupt on October 1st sold the whole of her property, except household goods amounting to $250, which she claimed as exempt (the property sold consisting of a stock of goods and book accounts), for $7,500, $7,100 of which she distributed among three creditors, and paid the residue in small sums upon certain other debts, leaving other creditors’ debts amounting to $5,864.47 on which nothing
As said by Lord Mansfield in Codogan v. Kennett, 2 Cowp. 432, concerning the statute 13 El. c. 5, and the com
And such is the holding in the case of Coder v. Arts, 213
What the Supreme Court says in the unanimous opinion of the court in the Coder Case is so exhaustive and conclusive upon the subject we have under consideration, that we shall quote at length from the opinion as follows:
“The decision of the case requires consideration of certain sections of the bankruptcy act. Section 60, subdivision a (as amended by sec. 13, 32 Stat. at L. 799, chap. 487, U. S. Comp. Stat. Supp. 1907, p. 1031), provides:
“ ‘A person shall be deemed to have given preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition, and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or 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 same class.’
“Such preferences may be set aside under the condition named in subdivision b of sec. 60 (as amended by sec. 13), which is as follows:
“Manifestly, this conveyance could not be set aside under the provisions of sec. 60-b. For, while it is true that under the facts found, the conveyance might be deemed a preference, as a transfer of property which would have the effect of enabling one creditor to obtain a larger percentage of his debt or claim than other creditors of the same class, yet, as it is distinctly found that neither the mortgagee nor his agent had any reasonable cause to believe that it was intended to give a preference, the same could not be avoided under sec. 60-b.
“The reliance in this case is upon sec. 67-e of the act. This section, so far as it is necessary to consider it, reads as follows:
“ ‘d. Liens given or accepted in good faith, and not in contemplation of or in fraud upon this act, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall not be affected by this act.
“ ‘e. That all conveyances, transfers, assignments, or encumbrances of his property, or any part thereof, made or given by a person adjudged a bankrupt under the provisions of this act, subsequent to the passage of this act, and within four months prior to the filing of the petition, with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in good faith and for a present fair consideration; and all property of the debtor conveyed, transferred, assigned, or encumbered as aforesaid shall, if he be adjudged
“It is the contention of the appellant that, as the necessary consequence of the giving of the mortgage under consideration was to hinder, delay, or defraud creditors of the bankrupt in the collection of their debts, Armstrong must be presumed to have intended such consequences, and the mortgage is therefore voidable.
“A consideration of the provisions of the bankruptcy law as to preferences and conveyances shows that there is a wide difference between the two, notwithstanding they are sometimes spoken of in such a way as to confuse the one with the other. A preference, if it have the effect prescribed in sec. 60, enabling one creditor to obtain a greater portion of the estate than others of the same class, is not necessarily fraudulent.' Preferences are set aside when made within four months, with a view to obtaining an equal distribution of the estate, and in such cases it is only essential to show a transfer by an insolvent debtor to one who, himself or by his agent, knew of the intention to create a preference. In construing the bankruptcy act this distinction must be kept constantly in mind. As was said in Githens v. Shiffler, 112 Fed. 505: ‘An attempt to prefer is not to be confounded with an attempt to defraud, nor a preferential transfer with ;a fraudulent one.’ In re Maher, 144 Fed. 503-505, it was well said by the district court of Massachusetts:
“Is the conveyance voidable under subdivision e, sec. 67 ? Under the terms of that subdivision a fraudulent conveyance is made void as to creditors, except as to grantees in good faith and for present fair consideration. The provisions saving conveyances to purchasers in good faith and for a present fair consideration prevents such conveyances from being declared void by the act, although they have .been made by the bankrupt with the intent on his part to hinder, delay, or defraud his creditors. But the act does not dispense with the necessity of showing, to avoid a conveyance or transfer under section 67-e, that the bankrupt had the actual intent to hinder, delay, or defraud creditors. What is meant when it is required that such conveyances, in order to be set aside, shall be made with the intent on the bankrupt’s part to hinder, delay or defraud creditors ? This form of expression is familiar to the law of fraudulent conveyances, and was used at the common law, and in the statute of Elizabeth, and has always been held to require, in order to invalidate a conveyance, that there shall be actual fraud; and it makes no difference that the conveyance w;as made upon a valuable consideration, if made for the purpose of hindering, delaying, or defrauding creditors. The question of fraud depends upon the motive. Kerr, Fraud & Mistake, 196, 201. The mere fact that one creditor was preferred over another, or that the conveyance might have the effect to secure one creditor and deprive others of the means of obtaining payment, was not sufficient to avoid a conveyance; but it was uniformly recognized that, acting in good faith, a debtor might thus prefer one or more creditors. Stewart v. Dunham, 115 U. S. 61, 20 L. Ed. 329, 5 Sup. Ct. Rep. 1163; Huntley v. Kingman & Co., 152 U. S. 527, 38 L. Ed. 540, 14 Sup. Ct. Rep. 688.
“ ‘The language of subsection 1 of sec. 3 is the familiar language of statutes against conveyances • fraudulent as against creditors, and we think there can be no doubt that Congress intended the words employed should have the same construction and effect as have for a long period of time been attributed to those words. Githens v. Shiffler (D. C.), 112 Fed. 505. And, so construed, the test of the conveyances intended by subsection 1 of section 3 is that of the bona fides of the transfer. Loveland, Bankr., 2d ed. sec. 51. For it is the well settled law that a conveyance made in good faith, whether for an antecedent or present consideration, is not forbidden by such statutes, notwithstanding the effect may be that it hinders or delays creditors by removing from their reach assets of the debtor/
“And to the same effect is the decision of the circuit court of appeals of the second circuit in Be Bloch, 74 C. C. A. 250, 142 Fed. 676, in which that court had occasion to consider the meaning of sec. 67-e as applicable to 57-g of the act as amended 1903, requiring the surrender of preferences void
“ ‘We think Congress must be presumed to have intended by the introduction of sec. 67-e to require a surrender only of such transfers as would have been fraudulent at common law, or would constitute an act of bankruptcy under section 3 of the act. In Githens v. Shiffler, supra, the bankrupt used the proceeds of a sale of property to prefer certain creditors. The court, upon a review of the authorities, held that sec. 3 applied only to those transfers which, according to the established course of authority, constituted a fraudulent transfer at the time of the passage of the bankruptcy act, and held that a mere preferential transfer, as distinguished from a fraudulent one, was not an act in bankruptcy under said sec. 3.
“ ‘The question as to whether a transfer is made with intent to hinder, delay or defraud depends upon whether the act done is a bona fide transaction. Loveland, Bankr. 391; Cadogan v. Kennett, 2 Cowp. 435; Lansing Boiler & Engine Works v. Ryerson, supra. An intent to defraud is the test of the right to avoid a transfer under sec. 67-e.’
“In dealing with this question this court said, in Thompson v. Fairbanks, 196 U. S. 516, 49 L. Ed. 577, 25 Sup. Ct. Rep. 306:
“ ‘There is no finding that, in parting with the possession of the property, the mortgagor had any purpose of hindering, delaying, or defrauding his creditors or any of them. Without a finding to the effect that there was an intent to defraud, there was no invalid transfer of the property within the provisions of sec. 67-e of the bankruptcy law.’
“That it is essential to show actual fraud in order to invalidate conveyances under sec. 67-e, is the view of the text-writers upon this subject. Loveland, Bankr., 3d ed., 476;
It is true the Coder Case was decided upon the finding of facts by the court below; the opinion more than once, in parts not quoted, alludes to that situation. And that finding of facts certified that the bankrupt did not make the transfer in question “with any intent or purpose on.his part to hinder, delay or defraud his creditors or any of them.” But if the Supreme Court, in the Coder Case, had had a case before it in which that actual intent existed at the time the transfer was made (the conveyance not having been made for a present consideration), there can be no doubt that the court would have held that the transfer was void under sec. 67-e of the bankrupt act. But this does not in any way impair the fact that the holding of the Supreme Court is precisely what we have set forth above as our understanding of the holding of our own court in the Webb Case.
It is true that in Dean v. Davis, 242 U. S. 438, at p. 444, 61 L. Ed. 419, at p. 444, 37 Sup. Ct. 130, at p. 131, which is cited and relied on by appellee, in the opinion of the Supreme Court, delivered by Mr. Justice Brandéis, this is said: “A transfer, the intent (or obviously necessary effect) of which is to deprive creditors of the benefits sought to be secured by the bankrupt act ‘hinders, delays, or defrauds creditors/ within the - meaning of sec. 67-e.” But the court is there referring to the obviously necessary effect which the debtor actually had in mind, or in contemplation, at the time of the transfer. In that case the facts were, as stated in the opinion of the court, that the debtor not only knew that he was insolvent and that he was making a preferential payment, but that he made such preferential payment to avoid a threatened criminal prosecution, and the court said that he must have known that suspension of his business and bankruptcy would result from the giving and recording of such a mortgage. That is to say, he must have made the transfer in actual contemplation of bankruptcy. And although this was true, the court does not even then hold that such facts per se show that the case comes-within section 67-e aforesaid: but, immediately following the quotation next above, the opinion proceeds as follows:
‘‘Van Iderstein v. National Discount Co., 227 U. S. 575, 582, 57 L. Ed. 652, 654, 33 Sup. Ct. Rep. 348, points out the distinction between the intent to prefer and the intent to defraud. * * * making a mortgage to secure an advance with which the insolvent debtor intends to pay a pre-existing debt does not necessarily imply an intent to hinder, delay or defraud creditors. * * (On the other hand) —
This is made still plainer by reference to the case of Van Iderstein v. National Discount Co., 227 U. S. 575, 33 Sup. Ct. 343, 57 L. Ed. 652. The Supreme Court affirmed the circuit court of appeals in that case. In the opinion of the circuit court of appeals, reported in 23 A. B. R. 345, 174 Fed. 518, 98 C. C. A. 300, this is said: “There is a marked distinction between a preferential payment and a fraudulent conveyance. Every preferential payment must to some extent hinder and delay creditors, but it is not necessarily a fraudulent conveyance.”
The Coder Case is here referred to and quoted from. The opinion then continues as follows:
“A preferential payment may be constructively fraudulent, but it is not in and of itself a fraudulent conveyance. It can only become the latter in the unusual case where actual fraud in addition to the preference is established. Thus a secret trust in favor of a person making such payments might turn a mere preference into a fraudulent conveyance. But there is no proof in this case of any intent to hinder or defraud creditors more than the preferential payments in themselves would have hindered them.”
In the opinion of the Supreme Court in the case last cited, (227 U. S. at p. 582, 33 Sup. Ct. at p. 345, 57 L. Ed. at p. 654), this is said:
“There is no necessary connection between the intent to defraud and that to prefer, but inasmuch as one of the common incidents of a fraudulent conveyance is the purpose on the part of the grantor to apply the proceeds in such manner as to prefer his family or business connections, the existence of such intent to prefer is an important matter to be consid*346 ered in determining .whether there was also one to defraud. But the two purposes are not of the same quality, either in conscience or in law, and one may exist without the other. The statute recognizes the difference between the intent to defraud and the intent to prefer and also the difference between a fraudulent and a preferential conveyance. One is inherently and always vicious; the other innocent and valid, except when made in violation of the express provisions of a statute.”
The decrees under review must therefore be reversed, and we will enter a decree dismissing the bill with costs to applicants.
Reversed and dismissed.