A payment by an insolvent which would otherwise be void as a
preference under sections thirty-five and thirty-nine of the
Bankrupt Law is not excepted out of the provisions of those
sections because it was made to
a holder of his note overdue, on which there was a solvent
endorser whose liability was already fixed.
Kintzing & Co. (a firm composed of one Kintzing and a
certain Lindsley) were grocers in St. Louis, and kept a bank
account with Bartholow & Co., bankers in the same city. On the
15th of January, 1869, these last discounted a note for $2,500 of
their customers, the said Kintzing & Co., endorsed by J. B.
Wilcox, and maturing on the 15-18th of March, 1869.
On the 15th of February, 1869, Kintzing & Co. called a
meeting of their creditors. These assembled and "most of them"
signed a deed of composition, by which they agreed to take seventy
cents on the dollar, in notes of Kintzing, payable in six, twelve,
and eighteen months. But there was a provision in the deed that it
should not be binding on
Page 85 U. S. 636
any creditors unless agreed to and signed by all. Some did not
sign. Some who signed took the composition notes [the amount so
taken having been (apparently) $75,000]. [
Footnote 1]
Among the few who did not sign were Bartholow & Co. They
well knew, however, that an agreement such as above described had
been entered into by the other creditors.
On the 27th of February, Kintzing & Co. dissolved their
partnership, Lindsley retiring and Kintzing taking all the assets
and assuming all the debts of the firm.
Before the day when the note of Kintzing & Co. matured,
Wilcox, he, as already said, being confessedly solvent, waived
protest and notice, and the note remained unpaid till August 9, on
which day Kintzing, being then "hopelessly insolvent even under the
terms of the agreement," paid it.
On the 18th of August, 1869, "the paper given by said Kintzing,
pursuant to the terms of said compromise, to the amount of about
$25,000, became due," and on the 17th of September a petition in
bankruptcy was filed against him, on which he was decreed a
bankrupt, and one Bean appointed his assignee in bankruptcy.
Bean brought this suit against Bartholow & Co. to recover
the money which Kintzing had paid to the said bankers in discharge
of the note, alleging that he made the payment "with a view to give
a preference to them" and in fraud of the provisions of the
Bankrupt law.
The thirty-fifth and thirty-ninth sections of the Bankrupt law,
which were relied on by the assignee as giving him the right in law
to recover, are thus: [
Footnote
2]
"SECTION 35. If any person being insolvent, or in contemplation
of insolvency, within four months before the filing of the
Page 85 U. S. 637
petition . . . against him, with a view to give a preference to
any creditor or person having a claim against him, or who is under
any liability for him, . . . makes any payment, pledge, assignment,
transfer or conveyance of any part of his property, either directly
or indirectly,
the person receiving such payment, pledge,
assignment, transfer or conveyance, or to be benefited thereby,
having reasonable cause to believe such person is insolvent, . . .
and that such . . . payment, 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. . .
."
"And if any person being insolvent, or in contemplation of
insolvency or bankruptcy, within six months before the filing of
the petition . . . against him makes any payment, sale, assignment,
transfer, conveyance, or other disposition of his property, to any
person
who then has reasonable cause to believe him insolvent,
or to be acting in contemplation of insolvency, and that such
payment, sale, assignment, transfer, conveyance, or other
disposition &c., is made with a view to prevent his property
from coming to his assignee in bankruptcy, or to prevent the same
being distributed under this act, or to defeat the object of, . . .
or to evade any of the provisions of this act, the sale,
assignment, transfer, or conveyance shall be void, and the assignee
may recover the property, or the value thereof, as assets of the
bankrupt."
"SECTION 39. Any person . . . who being bankrupt or insolvent,
or in contemplation of bankruptcy or insolvency, shall make any
payment, grant, sale, conveyance, or transfer of money, or other
property or estate, . . . with intent to give a preference to one
or more of his creditors, or to any person . . . who . . . is or
may be liable for him as endorser . . . shall be adjudged a
bankrupt on the petition of one or more of his creditors. . . . And
. . . the assignee may recover back the money . . . so paid . . .
provided the person receiving such payment, or conveyance, had
reasonable cause to believe that a fraud on this act was intended,
or that the debtor was insolvent."
The court below, on the case found, gave judgment for the
assignee. Bartholow & Co. brought the case here.
Page 85 U. S. 639
MR. JUSTICE MILLER delivered the opinion of the Court.
The plaintiffs in error were bankers in the city of St. Louis,
with whom Kintzing & Co. kept a bank account, and they had
discounted the note of Kintzing & Co. for $2,500, dated July
15, 1869, payable in sixty days, endorsed by J.
Page 85 U. S. 640
B. Wilcox. Before its maturity Wilcox, who was solvent, waived
protest and notice, and the note remained unpaid until August 9,
when Kintzing paid the amount to plaintiffs in error. In the
meantime Kintzing & Co. failed in business, and in February
attempted a composition with their creditors at seventy cents on
the dollar, in notes payable in six, twelve, and eighteen months.
The plaintiffs in error did not sign this agreement, though they
knew of it, and that effort seems to have failed. It must be
conceded that Kintzing was utterly insolvent when he paid the note,
and this must have been known to plaintiffs in error. A petition in
bankruptcy was filed against Kintzing within less than four months
after the payment of the note, and Bean, the defendant in error,
having been appointed assignee, brought the present suit to recover
the money so paid, as being a preference of a creditor forbidden by
the Bankrupt law.
If it were a transaction solely between Kintzing and the bankers
there seems to be no reason to doubt that the payment was such a
preference as would enable the assignee to recover it back. But the
case is not a little embarrassed by the fact that the endorser,
Wilcox, was solvent, and was liable on the note to the bankers, and
the question arises whether, under such circumstances, they were at
liberty to refuse to receive payment of the principal without
losing their claim upon the endorser, who was probably a mere
accommodation surety. It is a question not without difficulty.
It is very true that an ingenious argument is made to show that
by an arrangement between Kintzing and his partner the former
assumed all the debts under the attempted compromise, and took all
the property of the former, and that, by reason of the partial
success of the compromise, Kintzing was no longer insolvent. But
the facts in the finding of the court leave no room to doubt that
Kintzing was, after the failure, always insolvent, in the sense of
being unable to pay his current overdue debts, and of this
plaintiffs could not be unaware, since they held the note, on
Page 85 U. S. 641
which they received the money now sued for, about five months
after its maturity, without payment, and without their signing the
compromise paper. They must, therefore, have known that, in the
sense of the Bankrupt Law, Kintzing had been insolvent for months
before they received payment.
Does the fact that Wilbox, the endorser, was solvent, and was
liable, change the rule as to payment as a preference?
The statute in express terms forbids such preference, not only
to an ordinary creditor of the bankrupt, but to any person who is
under any liability for him, and it not only forbids payment, but
it forbids any transfer or pledge of property as security to
indemnify such persons. It is therefore very evident that the
statute did not intend to place an endorser or other surety in any
better position in this regard than the principal creditor, and
that if the payment in the case before us had been made to the
endorser, it would have been recoverable by the assignee. If the
endorser had paid the note, as he was legally bound to do, when it
fell due, or at any time afterwards, and then received the amount
of the bankrupt, it could certainly have been recovered of him. Or
if the money had been paid to him directly instead of the holder of
the note it could have been recovered, or if the money or other
property had been placed in his hand to meet the note or to secure
him instead of paying it to the bankers, he would have been liable.
He would not, therefore, have been placed in any worse position
than he already occupied if the holders of the note had refused to
receive the money of the bankrupt. It is very obvious that the
statute intended, in pursuit of its policy of equal distribution,
to exclude both the holder of the note and the surety or endorser
from the right to receive payment from the insolvent bankrupt. It
is forbidden. It is called a fraud upon the statute in one place
and an evasion of it in another. It was made by the statute equally
the duty of the holder of the note and of the endorser to refuse to
receive such a payment.
Under these circumstances, whatever might have been
Page 85 U. S. 642
the right of the endorser, in the absence of the Bankrupt law,
to set up a tender by the debtor and a refusal of the noteholder to
receive payment, as a defense to a suit against him as endorser, no
court of law or equity could sustain such a defense, while that law
furnishes the paramount rule of conduct for all the parties to the
transaction; and when in obeying the mandates of that law the
endorser is placed in no worse position than he was before, while
by receiving the money the holder of the note makes himself liable
to a judgment for the amount in favor of the bankrupt's assignee,
and loses his right to recover, either of the endorser or of the
bankrupt's estate.
We are of opinion, therefore, notwithstanding the hardship of
the case, which is more apparent than real, that the payment must
be held to be a preference within the Bankrupt law, and that the
judgment of the court below, that the assignee should recover it,
must be
Affirmed.
[
Footnote 1]
The case as found by the district court did not state what the
debts of Kintzing & Co. were, nor what their assets, nor what
proportion of creditors signed and took notes. But it stated that
"on the 18th day of August, 1869, the paper given by the said
Kintzing, pursuant to the terms of the compromise, to the amount of
about $25,000 became due." This must have been the six months'
paper, and therefore, as the Reporter supposes, one-third of the
whole of the compromise notes given.
[
Footnote 2]
14 Stat. at Large 534, 536.
