48 Minn. 120 | Minn. | 1892
This action was brought by the plaintiff, as assignee of the Page Flour Mills, under the fourth section of the insolvent law of 1881, (Laws 1881, ch. 148,) to set aside, as an unlawful preference, a judgment obtained by the defendant bank against the insolvent by default, and on the same ground to recover payments on the debt sued on, made by the insolvent after the commencement of -the action and before judgment. Our views as to the weight and effect of the evidence are so at variance with those of the learned judges who tried the case that it becomes necessary to state the testimony somewhat at length. The insolvent was a corporation engaged in the milling business at Fergus Falls. Henry G. Page was its president and treasurer and principal financial manager. He was also president of the defendant bank, having his office in the bank building, and being evidently also the controlling spirit of its financial policy. The mill company was a customer and depositor of the bank, and also a large borrower from it, being on September 25, 1890, indebted to it in about $45,000 on overdue paper executed by Page, as president, in its behalf. Its account with the bank had also been continuously overdrawn, since the previous May, from $1,000 to $2,000, and was then overdrawn to the amount of $1,777. It was at this date (September 25th) hopelessly insolvent, as the bank offi
On September 24th or 25th Page took up one of the overdue notes which his bank held against the mill company, by giving the check of the mill company on the bank for.the amount, which increased the overdraft of the mill company’s account to $7,159.47. Immediately upon the conclusion of the arrangement between the three local banks, the defendant bank employed counsel and commenced suit against the mill company for its entire claim, including this overdraft. The complaint in the action was filed by the attorney, with an injunction to the clerk of the court to keep it out of the newspapers, which was done; all other actions commenced during the week being, as usual, given out for publication, this one alone being suppressed. The attorney himself also served the summons on Page as president of the mill company, and made affidavit of service before the cashier of the bank. Page put the summons in his pocket, and never conferred about the suit with the other officers of the mill company, or even examined the summons to see whether the amount for which payment was demanded was correct. In fact, judgment was demanded for several hundred dollars too much. A bank in St. Paul held a note against the mill company for $5,000, which matured October 9th. On October 8th, Page, in behalf of the mill company, executed and sent to that bank a renewal note payable in 80 days, but made no mention of the commencement of the suit by the defendant bank. On the 10th of October a creditor of the mill company called on Page for payment of a note against the mill company. Page and the creditor disagree somewhat as to what passed, but Page admits that he told him to call again when he was in town about the middle of October, and did not mention to him the pend-ency of the suit by the bank. ' It also appears, without contradiction, that the officers of the three banks and of the mill company kept the suit a profound secret until judgment was entered. Between September 25th and October 15th the mill company, from time to time, made various deposits to the credit of its account at the bank,
On October 16th, and as soon as the 20 days from the service of the summons had expired, the bank entered judgment against the mill company on default of an answer, for nearly $16,000, immediately issued execution, and levied on virtually its entire property, personal and real. On October 25th, the mill company, by Page, its president, and Compton, its secretary, executed an assignment for the benefit of creditors to Wright, who, it will be remembered, was one of the parties to the arrangement already referred to, and who was enjoined to secrecy. Page on one occasion testified, although rather evasively, that the reason he did nothing after the suit was commenced was that the mill company had no defense; but at another time he testified that he agreed with Boyd that the bank should have judgment, and that his object in keeping the matter secret was that the bank should get judgment, and thus obtain a preference over other creditors. Boyd and Evans, the cashier of the bank, testify that there was no agreement between them and Page that the suit should be kept secret in order that the bank might obtain a preference by securing judgment, but that secrecy was enjoined in order “to prevent a run on the bank.” They also testified that there was nothing said about the mill company not making an assignment until after the bank obtained judgment, and on this point there is no evidence contradicting them. On this evidence the court found as facts that the action against the mill company was commenced at the instance of Boyd and Evans, without any consultation or arrangement in relation thereto with Page; that there was no agreement between the bank and the mill company that no assignment should be made by the latter until the former should obtain judgment, or that the mill company should not defend the action; but that the mill company simply permitted the action to proceed to judgment, without any action on' its part. And in its memorandum the court says that it is unable to find any evidence of any intention on part of the mill company to give a preference to the bank, or that
In arriving at this conclusion it seems to us that the learned court not only misconstrued the provisions of the insolvent law, but also failed to appreciate the force and effect of this evidence. It is not controverted, and cannot be, that a judgment suffered may be a “security given,” within the meaning of the fourth section of this act; and if suffered to be obtained in contemplation of insolvency, and with a view to give a preference to any creditor over another, it is ■void, the same as a mortgage would be, if given under like circumstances. In re Church & Graves Mfg. Co., 40 Minn. 39, (41 N. W. Rep. 241.) So, under the federal bankrupt act, to suffer one’s property to be taken on attachment, etc., with intent to give a preference, was synonymous with procuring it to be done. Any other construction would render the provisions of the law against preferences entirely nugatory. Of course, the mere fact that obtaining judgment results in a preference is not of itself enough to render it void; for, as is said in Re Church & Graves Mfg. Co., supra, the confessing or suffering the judgment to be obtained must be tainted with the intent to give the preference to make it obnoxious to the act; or, as said in Little v. Alexander, 21 Wall. 500: “When the issue to be decided .is whether a judgment against an insolvent was obtained with a view to give a preference, the intention of the bankrupt is the turning point in the case, and all the circumstances which go to show such intent should be considered.” As we view the evidence in this case, it conclusively establishes, not only an intention on part of the insolvent, in suffering this judgment to be obtained, to give the bank a preference, but also that there was actual collusion between the bank and it to accomplish that purpose. It is unnecessary here even to con
As there must be a new trial, it is unnecessary to consider the second branch of the case regarding the preferential payments. It may be said, however, that if the object of giving and receiving a check for an already overdrawn account in payment of the overdue note was to increase the overdraft sufficiently to absorb any possible deposits that the mill company might be able to make before it was closed up on execution, and thus obtain part payment of a pre-existing debt in a way that would have the appearance of being done in the regular course of business between banker and depositor, but which was in fact a device to evade the provisions of the law against preferential payments, the arrangement cannot stand. The action of the bank in continuing to pay checks drawn by the .mill company as evidence that the business was being done in good faith, in the regular course of affairs, loses much of its weight in view of the fact
Order reversed.
(Opinion published 50 N. W. Rep. 1030.)