Wakeman v. Hoyt

| U.S. Circuit Court for the District of Connecticut | Sep 24, 1841

THOMPSON, Circuit Justice,

delivered the opinion of the court, in substance as follows: The first question presented for the opinion of the court is, whether this party is a trader or dealer in merchandise, within the meaning of the act of congress. We think the meaning to be attached to the words used, is, that when the party is engaged in a kind of business that necessarily requires the purchase of articles for the purpose of carrying on that business, he is a pe son “using the trade of merchandise” within the intention of the act. The great object is, to provide for cases where credit is required. The case of a handicraftsman whose business is confined to the produce of his own labor merely, is different. The words of the act are, “a merchant or using the trade of merchandise.” If a person is engaged in a business requiring the purchase of articles to be sold again, either in the same, or in an improved state, he must be regarded as “using the trade of merchandise.” This person was a carriage maker, carrying on an extensive business, in the manufacture and sale of carriages. These may be fairly considered as merchandise; and in the transaction of his business it was necessary for him to contract debts, and use credit. When a person sells the mere produce of his own labor, he is only a seller. His business requires no purchases, and he has no occasion for credit. But Hr. Hoyt, in the transaction of his business, was necessarily both a buyer and seller. We think, therefore, that he is liable to a decree of bankruptcy, if his conduct has been such as to subject him to it.

The next question is, whether he has committed an act of bankruptcy? In order to be so declared, he must be in one of the five predicaments specified in the act of congress. These are either (1) departing from the state, &e., with intent tc defraud his creditors; (2) concealing himseif to avoid being arrested; (3) willingly or fraudulently procuring himself to be arrested, or his goods and chattels, lands, &c., to be attached oi taken in execution; (4) removing or concealing his goods, &c., to prevent their being levied upon; or (5) making any “fraudulent conveyance, assignment, sale, gift or other transfer of his lands, tenements, goods or chattels, credits or evidences of debt.” In the case of an attachment in which the debtor willingly aids, it is not necessary that it should be fraudulent, in order to render it an act of bankruptcy. “Willingly or fraudulently” is the language of the act. The debt secured by the attachment or execution may be bona fide and justly due. Nevertheless, if the debtor being a merchant, &e., willingly procures himself to be attached, or his property to be taken in execution, it is an act of bankruptcy. W’hat is there in such a transaction that partakes of fraud? Nothing, if it is an honest debt. All that the debtor does is to procure the execution to be levied on his goods, &c. Why is this an act of bankruptcy? It can be for this reason only, that he thereby does an act contrary to the policy of the bankrupt law. That policy is, in cases of hopeless insolvency, to cause an equal distribution of the trader’s effects. It is on no other principle that it is made an act of bankruptcy, for a trader to aid a creditor in securing his debt, by attachment or execution. He gives thereby a preference to the creditor whom he so assists, over his general creditors. Then, if that be so, how does it differ from the act of bankruptcy last specified, in making a “fraudulent conveyance, assignment, &c.” Does the word “fraudulent” there used, necessarily import moral turpitude? or may it be satisfied with a fraud in law, counteracting the policy of this act, and preventing a general distribution of his property among the creditors of the bankrupt, by applying it exclusively to the benefit of such of them as he may choose to prefer? Whether such preference is given to a single creditor, or to two or more, is wholly immaterial. It equally counteracts the policy of the law.

If we look to the second section, it appears to me that it serves to explain what shall be deemed the kind of fraud which may render a conveyance fraudulent, within the meaning of the first section. “All future payments. securities, conveyances, or transfers of property, or agreements made or given by any bankrupt, in contemplation of bankruptcy, and for the purpose of giving any creditor, indorser, surety, or other person, any preference or priority over the general creditors of. such bankrupt, &c., shall be deemed utterly void, and a fraud upon this act.” From the argument as to the meaning of the word “bankrupt” a little doubt ■was at first created in my mind whether this applied to involuntary bankrupts at all. _ But I do not think the word “bankrupt,” as there used, can be confined to a person who has been declared a bankrupt.' It means the same as if the word “person” had been used instead of “bankrupt,” so that it would read, “all future payments, securities, &c., made by any [person] in contemplation of bankruptcy and for the purpose of giving any creditor, &c., any preference, &c. The preference is made by a person in contemplation of bankruptcy, and not by a bankrupt after he has been declared such. And all such conveyances are declared to be “utterly void,'and a fraud upon this act.” This must refer to the acts before specified as ‘‘acts of bankruptcy.” Why is giving a preference to be considered a fraud on this act? Because the act contemplates an equal distribution. It is a fraud because it counteracts the policy of the law. Though it may not be fraudulent in a moral point of view, it must be fraudulent if it contravenes the policy of the law. So when the trader procures the levy of an execution on his property, it is favoring one creditor over the others. This would not be a fraud, if it were not for the bankrupt law. It is precisely as honest an act for the debtor to. procure an attachment or execution, to be levied on his property by a creditor, as it is to secure to him a preference by means of a conveyance. It is fraudulent only because it counteracts the policy of the law; and this is equally true in the one case as in the other. I am, therefore, in this view of the case, of opinion. that a conveyance or assignment by a trader of all his property, to secure a preference to particular creditors, is. per se, a fraud upon the act of congress and an act of bankruptcy. When a part only of a trader’s property has been paid or secured to a creditor, whether or not it shall be deemed an act of bankruptcy, will depend on the motive with which such payment or security was made, and the circumstances attending the transaction.

The circuit court therefore, advise that under the circumstances of this case, Rufus Hoyt has committed acts of bankruptcy, and ought to be declared a bankrupt by the district court.