1. The transfer by a debtor who is insolvent of his property or
a considerable portion of it to one creditor as a security for a
preexisting debt, without making any provision for an equal
distribution of its proceeds to all his creditors, operates as a
preference to such transferee, and must be taken as
prima
facie evidence that a preference was intended unless the
debtor or transferee can show that the debtor was at the time
ignorant of his insolvency, and that his affairs were such that he
could reasonably expect to pay all his debts.
2. Such a transfer, if made within four months before the filing
by the party of a petition in bankruptcy, is in fraud of the
Bankrupt Act and void.
Hall, assignee of Lakin, a trader in Brodhead, Green County,
Wisconsin, filed a bill in the court below against Wager &
Fales, merchants, of Troy, New York, to set aside a mortgage on
lands in the said Brodhead, given by the said bankrupt to them for
$3.000, to secure five payments, of $600 each, payable in six,
twelve, sixteen, twenty, and twenty-four months, which mortgage and
notes were executed December 15th, 1869, being twenty-four days
prior to his filing his petition in bankruptcy, on the ground that
it was given in violation of the Bankrupt Act. That act, in its
35th section, thus enacts: [
Footnote 1]
"If any person, being insolvent, or in contemplation of
insolvency, within four months before the filing of the petition by
or against him,
with a view to give a preference to any
creditor or
Page 83 U. S. 585
person having a claim against him, . . . makes any . . . pledge,
assignment, transfer, or conveyance of any part of his property, .
. . absolutely or conditionally, the person receiving such . . .
pledge, assignment, transfer, or conveyance, or to be benefited
thereby, . . . having reasonable cause to believe such person is
insolvent, and that such . . . pledge, assignment, or conveyance is
made in fraud of the provisions of this act, the same shall be
void, and the assignee may recover the property, or the value of
it, from the person so receiving it, or so to be benefited."
The admitted case, stated favorably for the bankrupt, seemed to
be thus:
Prior to 1854, Lakin was a clerk in Troy, and while there made
the acquaintance of Fales (one of the defendants), who was a clerk
at the same time. In 1854, Lakin went to Janesville, Wisconsin, and
for two years worked as a clerk in a grocery store. Then he was in
partnership with one Williston in the grocery business in
Janesville, until the spring of 1858. Then he was a clerk for two
years in Janesville and other places, during the last six months of
which he was in the hardware store of one Richardson of Janesville.
In 1860, Richardson started a branch hardware store at Brodhead,
about twenty miles west of Janesville, and put the same under the
control of Lakin, who received half of the profits for his
services.
After about sixteen months, Lakin bought out Richardson and
continued a general hardware business at Brodhead, making purchases
of stoves from a firm in Troy which his former fellow clerk at
Troy, Fales, had formed with one Wager under the name of Wager
& Fales. His sales in 1862 and 1863 were about $15,000 a year,
and from 1864 to 1870 from $20,000 to $28,000 per year. His invoice
of goods on hand, taken in 1864, was $10,393.67. His invoice of
goods taken September 13, 1865, was $8,450.77. Soon after that, he
set agoing a branch store at Juda, near Brodhead, and his whole
inventory, taken December 31, 1867, was $23,978.97.
In February, 1868, he sold out his entire stock of stoves and
tinware to Spaulding & Brown, of Brodhead, for $6,000,
Page 83 U. S. 586
but continued to deal in hardware and agricultural
implements.
Spaulding & Brown paid $2,000 cash down, and for the balance
gave their note of $4,000, payable as fast as the stoves should be
sold, and a considerable portion of this note remained unpaid
January, 1870.
Up to April 1, 1868, Lakin's stock was in a rented wooden
building, and then being in fear of fire, he resolved to build a
brick store, and for that purpose borrowed, at that time, on long
time, $3,000 of his father-in-law, Hayner, to be secured by
mortgage on the store, and began to build the store on lots which
he then owned. Hayner superintended the building of the store, and
it was completed near the close of the same year, costing, aside
from the lots, $8,500.
Hayner resided in Brodhead from April 1, 1868, to June, 1869,
when he moved to Woodstock, Illinois, but he did not receive his
mortgage until August 27, 1869.
Lakin commenced buying stoves of Wager & Fales (whose
mortgage it was now sought to set aside) as early as 1863, and
continued to buy from $300 to $4,000 per year from that time to and
including 1867.
The debt for which Lakin gave the mortgage to Wager & Fales
was mostly for stoves purchased by him in 1867 at four months'
credit. At the time of purchase, it was agreed that Lakin should
pay interest on all bills after maturity. Wager & Fales
permitted the account to run until the notes and mortgage were
given, he in the meantime making some small payments.
Lakin sold but few of the stoves bought of Wager & Fales
during 1867, nor until he sold out his stove business to Spaulding
& Brown, and the fact that he failed to realize on the stoves,
and that he desired to build a new brick block during 1868, induced
him to urge Wager & Fales to wait on him, and as their account
was on interest, and there was nothing else to be done amicably,
they consented.
When his store was completed, which was near the close of the
year 1868, he found it had cost about double what he
Page 83 U. S. 587
had expected, and as he had not realized on the stoves,
he
asked for further time, again promising to pay interest.
On the 1st of February, 1869, Lakin wrote Wager & Fales
hoping that they would "not get entirely out of patience with him
or lose confidence in him," excusing himself for nonpayment, and
telling them that he had "a good stock of goods, in a good brick
store, well insured, and was in a better and safer condition than
ever before."
On the 4th of March, 1869, Lakin, having again excused himself
for nonpayment, and begged patience, after repeated requests for
payment by Wager & Fales, who say they have already waited
"very patiently," requested Wager & Fales to send him a
statement of his account, and "several notes running as long a time
as they could afford to let them, and that he would stamp, sign,
and return them," and do his best to meet them when due. The matter
rested in this way until one Johnson who had for several years been
the traveling agent of Wager & Fales, and was then their
partner, came West and saw Lakin with a view of getting money from
him. Lakin asked for more time. Johnson told him he would give him
time, but if he gave him long time that he ought to give a mortgage
on his real estate. Lakin was reluctant to give a mortgage, and
stated that he was perfectly responsible, more so than when the
debt was incurred, and that if his matters were closed up under the
hammer, he would have $15,000 over and above his debts, and offered
to turn out notes against other parties, three dollars to one, but
said that the times were hard, and that he depended upon farmers
for collection. The matter was left open at Lakin's special request
and on his assurance that a mortgage would injure his credit, and
on his promise to pay certain stipulated sums monthly.
After Johnson got home, and about September, 1869, he gave Wager
& Fales a detailed account of his interview with Lakin, and
told them that he considered Lakin honest and responsible, that he
required some time to make him easy in his business matters, and
that he thought it was their duty to accommodate him by giving him
time, for the reasons
Page 83 U. S. 588
that he had bought a great many stoves of them, and paid them a
great deal of money, and probably would again, and was partly a
Trojan, and out of their friendship for him; and then if he would
give a ten percent mortgage, that would close up the account on the
books of the old firm of Wager & Fales, now about to be
reconstituted, with him, Johnson as a partner. In this Wager &
Fales concurred.
The matter remained in that way until some time in October or
November, 1869, when Wager & Fales sent the matter to
Richardson to put in shape; the same Richardson already mentioned
as the old principal of Lakin at Janesville, in 1860, and who was a
friend as well of their own. Richardson and Lakin agreed upon
terms, and Lakin was to get an abstract of title, execute the
papers, and return them; but upon Richardson's submitting the
proposition to Wager & Fales, they objected to certain portions
of it, and Richardson informed Lakin that the matter must rest
until he heard further from Wager & Fales. When he did hear,
Lakin consented to their terms, and on the 15th of December, 1869,
the mortgage and notes were given.
During the year 1869, including the last four months of that
year, Lakin was in the habit of stating to all who questioned him
in regard to his condition, that he was worth from $12,000 to
$15,000 over and above his debts and liabilities.
So far as to the mortgage sought by this bill to be set
aside.
Now as to the circumstances under which the petition in
bankruptcy was filed.
About the 1st of September, 1869 -- that is to say, four months
prior to filing it -- Lakin owed a certain Nazro about $2,400.
During that four months, Nazro sold him over $500 worth of goods,
and Lakin paid him during the same time over $400. His last
purchase was over $200, and made November 26, 1869, and his last
payment December 20, 1869.
On the 26th of December, 1869, a friend of Lakin, residing at
Brodhead, went to Woodstock with a letter which he
Page 83 U. S. 589
had just received from a friend in Chicago, saying that a report
had been sent by someone in Brodhead to the
Mercantile Agency
in Chicago, that Lakin had made an assignment of his property
to his father-in-law, Mr. Hayner. Lakin went to Janesville and told
his attorney of the report, gave him what, according to his own
account, he supposed, at the time, to be a true statement of his
affairs, that he owed about $12,000 besides what he owed Hayner on
the mortgage above mentioned, and that he had goods, notes,
accounts, and real estate, which in his opinion were worth $28,000
or $30,000, and asked for advice. His attorney advised him to make
a statement of his affairs to his creditors, ask them for an
extension, if necessary, telling them there was no truth in the
report of the assignment, and to get his friends to endorse for
him, the attorney saying that thus he thought there would be no
trouble in arranging matters. Almost immediately some of his
creditors, including an agent of Nazro, came to Brodhead to
investigate his concerns. He and Nazro's agent made a statement of
his condition, and on December 27 or 28, 1869, and after a
considerable investigation, found that his debts were much larger
than he had ever stated, and, as he alleged, much larger than he
had ever supposed, being at least $23,000. Lakin then saw his
attorney again, and told him how he had found matters, and was
advised to send a full printed statement of his condition to each
of his creditors. Lakin made and sent out such a statement, dated
January 1, 1870, and it showed his debts to be $26,447.73.
Lakin, then in company with Nazro's agent, again counseled with
his attorney, who advised him that as Nazro was one of his largest
creditors and a man of great business experience, he had better go
to Milwaukee with the agent, and confer with Nazro, and he did so.
Nazro then requested Lakin to go into voluntary bankruptcy. Lakin
expressed a wish to do what was best for his creditors, but told
Nazro he thought his creditors would get more money if they would
select someone as assignee, and that he would turn over everything
he had to such assignee for the benefit of
Page 83 U. S. 590
his creditors. Nazro told Lakin that the securities he had given
stood in the way of that, and unless he went into voluntary
bankruptcy, would himself file a petition and force him into
bankruptcy. Lakin then saw his attorney, and filed his petition in
bankruptcy January 8, 1870.
Lakin's books were in a bad condition, and had been kept very
loosely for years. The result was that his schedules in bankruptcy,
dated February 2, 1870, showed his debts to be $28,450.
Lakin's particular friend, Richardson was on his paper during
most of the last six months of the year 1869, and a company with
which he was connected was a general creditor at the time of the
failure. Lakin's father-in-law, Hayner, and his particular friend,
Williston, were on his paper to a considerable amount at the bank
at the time of his failure. A brother-in-law was a general creditor
for $1,083. Several of his most intimate friends were general
creditors.
So far as to the admitted case.
1. To show that Lakin was at the time of giving the mortgage to
Wager & Fales insolvent, and that he gave them the mortgage
with a view to give them a preference over his other creditors, the
assignee called five witnesses, whose evidence tended to show that
for one or two years prior to the failure, Lakin had found it
difficult to raise money to pay certain claims against him, and at
times had been unable to do so and been protested; that he used
moneys in his hands as treasurer of the school district, and also
as treasurer of the church, and also moneys held by him in trust
and in a fiduciary capacity, and that they and some others in
Brodhead regarded him irresponsible, but that during the same time
he was doing a business of from $15,000 to $30,000 per year, and
pretended to be worth $20,000 over and above all his debts. Two of
these witnesses had, during the time, reported him to mercantile
agencies as insolvent.
To rebut this evidence and to show that whatever might have been
Lakin's actual condition, he never, prior to his failure, had any
idea of stopping business or being unable
Page 83 U. S. 591
to pay all his debts, or that the mortgage would operate as a
preference to Wager & Fales, but that he gave the mortgage to
obtain a long extension so that he would not have to crowd his own
creditors, or sell property for less than it was worth to pay his
debts, and that this extension would give him more money to use in
his business and pay other debts, the defendants called nine
witnesses, whose evidence in addition to the facts, as above
stated, tended to show that Lakin as treasurer of the school
district and the church received no compensation, but by a sort of
consent of the board of trustees used the moneys as he pleased,
they drawing on him for the amounts as they might desire to use it;
that there was no defalcation with either.
2. To show that Wager & Fales at the time of receiving this
mortgage had reasonable cause to believe that Lakin was insolvent
and that the mortgage was made in fraud of the provisions of the
Bankrupt Act, the assignee called one witness. His evidence tended
to show that he had had a conversation with the defendant, Wager,
in November, 1869, in which Wager stated that he had made up his
mind that Lakin was insolvent, but that the witness stated that he
had recently been in Brodhead and that Lakin had assured him that
he had property enough to pay all his debts, and he thought Lakin
would pay dollar for dollar.
This testimony was contradicted by Wager.
In addition to this, there was the positive evidence of six
witnesses, that Lakin had all the time represented himself to be
worth from $12,000 to $15,000 over and above his debts, and that
they all believed it.
The court below decreed that the mortgage was fraudulent, and
should be discharged of record. The defendants appealed to this
Court.
Page 83 U. S. 595
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
Preferences as well as fraudulent conveyances, if made within
four months before the filing of the petition by or against the
bankrupt, are forbidden by the Bankrupt Act, but three things must
be proved in order that the transaction may come within that
prohibition and be affected by it as an illegal payment, security,
or transfer:
(1) That the payment, pledge, assignment, transfer, or
conveyance was made within four months before the filing of the
petition by or against the bankrupt and with a view to give a
preference to someone of his creditors, or to a person having a
claim against him or who was under some liability on his
account.
(2) That the person making the payment, pledge, assignment,
transfer, or conveyance was insolvent or in contemplation of
insolvency at the time the preference was given or secured.
(3) That the person receiving such payment, pledge, assignment,
or conveyance or to be benefited thereby had reasonable cause to
believe that the person making the payment or giving or securing
such preference was insolvent and that the payment, pledge,
assignment, transfer, or conveyance was made in fraud of the
provisions of the Bankrupt Act. [
Footnote 2]
On the 15th of December, 1869, the insolvent debtor named in the
bill of complaint executed to the respondents a certain deed of
mortgage of that date, of the following parcels of real estate,
situate in the town of Brodhead in that state, and known as the
north one-third of lot one in block one hundred and one, also all
of lot three in block one hundred and one, also the north half of
the south half of block seventy-nine, also the east half and the
southwest quarter of block two hundred and six, also all of block
one hundred and forty-two, it appearing that all of these several
parcels of real estate were conveyed by the insolvent debtor to
secure the payment of five notes which he gave to the respondents,
of the same date, payable to the respondents
Page 83 U. S. 596
or order as follows: one for $600, payable in six months; one
for $600, payable in twelve months; one for $600 payable in sixteen
months; one for $600, payable in twenty months, and one for $600
payable in two years, and all with interest at the rate of 10
percent.
Prior to that date, to-wit, on the 27th of August of the same
year, the insolvent debtor mortgaged the first-named parcel of real
estate, which is his new brick store and lot, to Andrew P. Hayner,
the father of his wife, to secure the payment of three notes of
that date which he gave to the mortgagee, of the following tenor:
one for $1,287.87, payable in three years; one for $1,000, payable
in two years, and one for $1000, payable in three years, all with
interest annually at the rate of 10 percent
Twenty-four days after he gave the mortgage to the respondents
he filed his petition in bankruptcy, and on the 2d of February
following he was adjudged a bankrupt. His creditors made an
examination into his affairs soon after he gave the mortgage to the
respondents, when it was made to appear that he was hopelessly
insolvent, which induced him to make an effort to compromise with
his creditors, but without any success, and he then filed the
petition to be adjudged a bankrupt, and on the 4th of March in the
same year the complainant was duly appointed the assignee in
bankruptcy of his estate.
All of the notes secured by the mortgage to the respondents were
given by the insolvent debtor for a debt which had been past due
more than two years, and which the insolvent contracted for stoves
purchased by him as stock in trade. His purchases were made on a
credit of four months, and the record shows that the respondents,
in repeated instances, called upon him for payment and had several
times sent their agent to effect that object without much success.
Small amounts were paid, but the insolvent debtor constantly asked
for further indulgence, offering as a reason for his failure to
meet his contracts that business was dull, and that it was
impossible to collect what wad due from his customers.
Page 83 U. S. 597
More than a year before the execution of this mortgage, he sold
out his stock of stoves to other parties and abandoned that
business, limiting his trade to that of a retail hardware merchant,
and during that same year he built the new brick store which he
mortgaged to his father-in-law three or four months before he gave
the mortgage to the respondents.
Precisely what sum the store cost does not appear, but it must
have been as much as $6000 or $8000, as the evidence shows that he
owed more than $14,000 when he gave the mortgage in question, a
large portion of which had been due for a long time.
Convincing evidence was also introduced showing that for a year
or two he had been hard pressed for money by many of his creditors,
and that his notes in repeated instances had been protested for
nonpayment, and it also appears that he had borrowed money at banks
by means of endorsers and been obliged to get the same renewed, and
he had used trust funds in his hands to pay pressing demands, and
when called upon to repay the amount he was obliged to ask for
delay.
Some of the notes given for the stock of stoves he had used to
secure past-due debts and such portion of the consideration as had
been paid he had expended in his business. Part of the money
required to build the store, to-wit, the sum of $3,000, he borrowed
of his wife's father, agreeing at the time to give him a mortgage
of the premises when the store was completed, but the mortgage was
not executed until the next season, and it appears that the
respondents, whey they heard of that mortgage through their agent,
also demanded a similar security, which the insolvent debtor for a
time refused to give, pleading as an excuse for declining the
request that it would injure his credit. Witnesses were also
examined to show that his credit was not in good repute, but it is
unnecessary to enter into those details, as the proofs are of the
most satisfactory character that he did not pay his debts when the
obligations fell due and that he suffered his notes to go to
protest.
Nothing need be added to show that the means of ascertaining the
condition of his affairs were at hand, as his other
Page 83 U. S. 598
creditors, when they instituted inquiries upon the subject,
shortly after the insolvent debtor gave the mortgage to the
respondents, found no difficulty in learning that he owed more than
the value of his property, and that he had been insolvent for two
years. Enough, and more than enough has been remarked to show that
the mortgagor was insolvent when he executed the mortgage to the
respondents, as the fact is admitted both by the mortgagor and the
mortgagees.
Preferences of one creditor over another are prohibited by the
Bankrupt Act, if made within four months before the filing of the
petition, and the complainant, as such assignee, prays that the
mortgage may be declared fraudulent and void, and that the same may
be decreed to be given up to be cancelled, or that the respondents
may be required, in due form of law, to execute and deliver to him,
as such assignee, a satisfaction, release, and discharge of the
mortgage. Proofs were taken, and the parties having been heard, the
circuit court entered a decree for the complainant, and the
respondents appealed to this Court.
Made, as the mortgage was, within twenty-four days next before
the petition in bankruptcy was filed, and for the express purpose
of securing to the respondents the payment of a large debt long
overdue, the first material allegation to be proved may be
considered, in view of the evidence already referred to, as fully
established. Discussion to show that the effect of the mortgage was
to secure a preference over all of the creditors of the bankrupt,
except his wife's father and the firm secured by one of the notes
given by the purchasers of the stoves, is unnecessary, as that
proposition is self-evident; and the allegation that the mortgagor
was insolvent as the time may also be considered established, as it
is fully proved and stands confessed. Sufficient has also been
remarked to show that the conveyance in mortgage was made with a
view to give a preference to the respondents over all his other
creditors, except such as he had previously secured in the modes
previously explained.
Page 83 U. S. 599
Evidence of the most satisfactory character was introduced to
show that the insolvent debtor had reasonable cause to believe that
he was insolvent, and in view of all the circumstances the
conclusion of the court is that he knew that he was insolvent in
the sense of the Bankrupt Act. Creditors were constantly pressing
him for payment, and he was notoriously unable to comply with their
just demands. Extensions were asked, which were sometimes granted
and sometimes refused, and it appears that considerable of his
paper went to protest. Such a conveyance, under such circumstances,
could hardly be made by one deeply insolvent unless with a view to
give the grantee a preference over other creditors, who were
without any security, as the law authorizes the presumption that a
person of ordinary intelligence intends what is the necessary and
unavoidable consequence of his acts.
Insolvency, as used in the Bankrupt Act, when applied to
traders, does not mean an absolute inability of the debtor to pay
his debts at some future time, upon a settlement and winding up of
his affairs, but a present inability to pay in the ordinary course
of his business, or, in other words, that a trader is insolvent
when he cannot pay his debts in the ordinary course of business as
men in trade usually do, and such much be the conclusion, even
though his inability be not so great as to compel him to stop
business. [
Footnote 3]
Reference is made by the respondents to the case of
Jones v.
Howland, [
Footnote 4]
which it is insisted lays down a different rule. Suppose it be
admitted that the opinion in that case affords some support to the
suggestion, still it is only an apparent inconsistency, which is
easily reconciled, as the case arose upon the prior Bankrupt Act,
which did not declare such a conveyance void, unless it was
made in contemplation of bankruptcy
and for the
purpose of giving the creditor a preference or priority over
the other creditors of the bankrupt. [
Footnote 5] What was said by the judge who gave the
opinion in that case,
Page 83 U. S. 600
which is supposed to be inconsistent with the more recent
opinions of the court upon the same general subject, was said in
construing the provision referred to in the prior law. He did say
in that case that if the debtor honestly believes he shall be able
to go on in his business, and with such belief pays a just debt
without a design to give a preference, such payment is not
fraudulent though bankruptcy should afterwards ensue; but the judge
admitted in the same case that if the debtor, being insolvent and
knowing his situation and expecting to stop payment, shall
then make a payment or give security to a creditor for a just debt,
with a view to give him a preference over other creditors, such
payment or giving security is fraudulent. But the present Bankrupt
Act avoids a conveyance, made with a view to give a preference, if
the debtor at the time be in fact insolvent, although he may not
contemplate bankruptcy in connection with the conveyance. [
Footnote 6] Such a conveyance,
if
made by a person actually insolvent or in contemplation of
insolvency, to secure a preexisting debt, said Hoar, J.,
"may be avoided by the assignee if the mortgagee had reasonable
cause to believe him insolvent at the time he took the mortgage,
and that the conveyance was made to impede the operation of the
insolvent laws,"
and he added that it is made
prima facie evidence of
such cause of belief if the conveyance is not made in the usual and
ordinary course of business of the debtor. [
Footnote 7]
Nothing remains, therefore, to be reexamined except the issue
whether the respondents had reasonable cause to believe that the
mortgagor was insolvent and that the conveyance was made in fraud
of the provisions of the Bankrupt Act. Proof that the respondents
had actual knowledge that the mortgagor was insolvent at that time
is not required to support the prayer for relief, but the
allegation in that behalf is sustained if it appears that they had
reasonable cause for such belief, as that is the language of the
Bankrupt Act. Actual knowledge of the alleged fact is not made the
criterion of proof in such an issue, nor is it necessary that
it
Page 83 U. S. 601
should appear that the respondents actually believed that the
mortgagor was insolvent, but the true inquiry is whether they, as
businessmen, acting with ordinary prudence, sagacity, and
discretion, had reasonable cause to believe that the debtor was
insolvent, in view of all the facts and circumstances known to them
at the time the conveyance was made. [
Footnote 8] Unless the debtor was in fact insolvent, it
cannot be held that such a grantee had reasonable cause to believe
the allegation, but if it appears that the debtor was in fact
insolvent as alleged, and that the means of knowledge were at hand,
and that such facts and circumstances were known to the grantee as
were clearly sufficient to put a person of ordinary prudence and
discretion upon inquiry, it is well settled that it would be his
duty to make all such reasonable inquiries to ascertain the true
state of the case. Purchasers are required to exercise ordinary
prudence in respect to the title of the seller, and if they fail to
investigate when put upon inquiry, they are chargeable with all the
knowledge which it is reasonable to suppose they would have
acquired if they had performed their duty in that regard. [
Footnote 9] Creditors have reasonable
cause to believe that a debtor, who is a trader, is insolvent when
such a state of facts is brought to their notice respecting the
affairs and pecuniary condition of the debtor as would lead a
prudent businessman to the conclusion that he is unable to meet his
obligations as they mature in the ordinary course of business.
[
Footnote 10] All experience
shows that positive proof of fraudulent acts, between debtor and
creditor, is not generally to be expected, and it is for that
reason, among others, that the law allows in such controversies a
resort to circumstances as the means of ascertaining the truth, and
the rule of evidence is well settled that circumstances altogether
inconclusive, if separately considered, may by their number and
joint operation, especially when corroborated by moral
coincidences, be sufficient to
Page 83 U. S. 602
constitute conclusive proof, which is a rule clearly applicable
to the facts and circumstances disclosed in this record. [
Footnote 11]
Apply those two rules to the present case and it may well be
said that the argument is concluded, as it is difficult to resist
the conclusion that the respondents had actual knowledge that "the
insolvent debtor was unable to meet his obligations as they matured
in the ordinary course of his business." [
Footnote 12] Such proof, however, is not required, as
the only issue in this behalf is whether the respondents had
reasonable cause to believe that the debtor was insolvent at the
time they received the conveyance, testing the question under the
rule prescribed by this Court. [
Footnote 13]
Much discussion of the question whether the respondents had
reasonable cause to believe that the conveyance was made in fraud
of the Bankrupt Act may well be omitted, as the whole issue is
substantially adjudged by the recent decision of this Court, which
is to the effect following: that the transfer by a debtor who is
insolvent of his property, or a considerable portion of it, to one
creditor as a security for a preexisting debt, without making any
provision for an equal distribution of its proceeds to all his
creditors, operates as a preference to such transferee and must be
taken as
prima facie evidence that a preference was
intended, unless the debtor or transferee can show that the debtor
was at the time ignorant of his insolvency, and that his affairs
were such that he could reasonably expect to pay all his debts, and
that a transfer by an insolvent debtor of his property, or any
considerable portion of it, with a view to secure it to one
creditor, and thus prevent an equal distribution among all his
creditors, is a transfer in fraud of the Bankrupt Act. [
Footnote 14]
Knowledge of a given fact may be proved by circumstances, even
in an ordinary equity suit, where, from the nature of the
pleadings, the testimony of a single witness
Page 83 U. S. 603
without corroboration would not be sufficient to establish the
alleged fact, and if so it cannot be doubted that circumstances in
a case like the present are sufficient to put the respondents upon
inquiry, or even to show that they had reasonable cause to believe
the alleged fact, that the conveyance was made in fraud of the
Bankrupt Act. Their debt had been overdue for two years, and
throughout that period they had pressed the insolvent debtor for
payment, both in person and through their agent, and it is not
doubted that if they had made the least inquiry they would have
been as successful as his other creditors were, a few days later,
in ascertaining that he was hopelessly insolvent. Beyond doubt they
knew that he had mortgaged his new brick store and lot to his
wife's father, and when he finally consented to give them a
mortgage on all or nearly all of his real estate, they were fairly
put upon inquiry, and having neglected to make such they are justly
chargeable with all the knowledge it is reasonable to suppose they
would have acquired if they had performed their duty as required by
law.
Decree affirmed.
[
See the last preceding case and also
Buchanan v.
Smith, supra, p.
83 U. S. 277.]
[
Footnote 1]
14 Stat. at Large 534.
[
Footnote 2]
Scammon v. Cole, 5 N.B.R. 259.
[
Footnote 3]
Vennard v. McConnell, 11 Allen 562;
Thompson v.
Thompson, 4 Cushing 134;
Barnard v. Crosby, 6 Allen
331.
[
Footnote 4]
8 Metcalf 377-385.
[
Footnote 5]
5 Stat. at Large 442.
[
Footnote 6]
Forbes v. Howe, 102 Mass. 435.
[
Footnote 7]
Nary v. Merrill, 8 Allen 452.
[
Footnote 8]
Coburn v. Proctor, 15 Gray 38.
[
Footnote 9]
Tiffany v.
Lucas, 15 Wall. 410;
Scammon v. Cole, 5
N.B.R. 263.
[
Footnote 10]
Toof v. Martin,
13 Wall. 40.
[
Footnote 11]
Castle v.
Bullard, 23 How. 187.
[
Footnote 12]
Toof v. Martin,
13 Wall. 40.
[
Footnote 13]
Coburn v. Proctor, 15 Gray 38.
[
Footnote 14]
Toof v. Martin,
13 Wall. 40;
Nary v. Merrill, 8 Allen 452;
Metcalf v.
Munson, 10
id. 491;
Scammon v. Cole, 5
N.B.R. 269.
