Page images
PDF
EPUB

In re Merchants' Insurance Co.

purposes an insolvent law, although it may not authorize a discharge of the debtor from further liability.

We have no doubt that the proceeding in the state court, to forfeit the charter and corporate franchises of this company is entirely valid and within the powers and jurisdiction of that court-perhaps exclusively so. The state having created the corporation may undoubtedly dissolve it in its own way, consistent with the terms of the grant.

The fallacy of the respondent's argument seems to us to consist in the assumption that, because the state court had jurisdiction for the dissolution of the corporation, it can therefore hold jurisdiction under all circumstances for the distribution of the assets. If the fact of insolvency had not existed, the state court would probably have had the right to administer the assets, if once within its control, as an incident to the principal object of the proceeding, which was the dissolution of the corporation. But, as before stated, when insolvency intervenes so as to make the debtor a proper subject for the operation of the bankrupt act, the exclusive jurisdiction of the bankrupt court attaches, and the state court, and those acting under its mandate, must surrender the control of the assets, whatever may be the final decree in regard to the continuance of the corporation. When the corporation found itself insolvent, or was certified to be insolvent by the state auditor, acting under the state law, and proceedings were instituted for the dissolution of the corporation and the administration of its assets, it was the duty of the corporation at once to voluntarily file its petition to be adjudged a bankrupt in the federal court, and its failure to do so, and its acquiescence in the proceedings by which its assets were placed under the control of the state court, is in itself an act of bankruptcy.

This is not a case of concurrent jurisdiction between the state and federal courts. In all cases where the state and federal courts have concurrent jurisdiction, the court which first obtains control of the parties and property by judicial proceedings will retain it, and the authorities cited by the

In re Merchants' Insurance Co.

counsel from the 8 How. and later cases, are full in point, conceive they do not apply to this case, inasmuch as the court has exclusive jurisdiction in causes of bankruptcy..

In our view, then, the admitted facts show the respondent guilty of the act of bankruptcy charged in the petition, and nothing in the proceedings had before the state court, tends to oust this court of its jurisdiction and authority to adjudicate the respondent a bankrupt.

The precise steps by which the officers of this court shall hereafter obtain possession of the assets of the bankrupt need not now be indicated, as the action of this court in that regard will be governed by circumstances as they may hereafter arise.

In thus announcing our conclusions we do not consider that we are adopting any new rule or making even a new application of an old one, as the pathway we are treading appears to us to be well beaten by precedents and authority. Nor should we have taken pains to so fully state our views, but for the fact that the overwhelming calamity which befel this city on the 9th of October last brought financial ruin upon a large number of insurance companies doing business here, and makes it seem desirable that a tolerably full exposition should be given of the law governing the rights and duties of insurers and insured.

It is also proper to add that the petition in this case charges a further act of bankruptcy: in that said insurance company, on or about the thirty-first day of October last, being then insolvent, paid one of its creditors in full, thereby giving such creditor a preference over other creditors. And it is admitted in the answer that after the company became insolvent a large sum of money fell due one Tuthill King for rent of the lot on which the company had erected a valuable building. And as this lease was deemed a valuable asset, and would be forfeited unless the rent was paid at maturity, the company paid the same, deeming that it was thereby subserving the best interests of its creditors.

We have no doubt but what the admitted facts applicable to this charge make out a technical act of bankruptcy. But

Toof et al. v. Martin.

no stress was laid upon it in the argument, as all parties seemed desirous of a decision upon the first charge.

The expenditure complained of seems to have been judicious and made in good faith, and this court would probably, on the facts stated, have authorized it, but this does not change the character of the act under the law.

DRUMMOND, C. J., sat with BLODGETT, J., on the hearing of this case and concurred in the decision.

ELDRIDGE & TOURTELOTTE for petitioner. SCAMMON, MCCAGG & FULLER for respondent.-December 18, 1871.

By insolvency,

SUPREME COURT OF THE UNITED STATES-DECEMBER TErm, 1871. [Appeal from the United States Circuit Court for the District of Arkansas.] as used in the bankrupt act, when applied to traders and merchants, is meant inability of a party to pay his debts as they become due in the ordinary course of business. The transfer by a debtor of a large portion of his property, while he is insolvent, to one creditor, without making provision for an equal distribution of its proceeds to all his creditors, necessarily operates as a preference to him, and must be taken as conclusive evidence that a preference was intended, unless the debtor can show that he was at the time ignorant of his insolvency, and that his affairs were such that he could reasonably expect to pay all his debts. The burden of proof is upon him in such a case, and not upon the assignee or contestant in bankruptcy,

A creditor has reasonable cause to believe a debtor, who is a trader, to be insolvent, when such a state of facts is brought to the creditor's notice respecting the affairs and pecuniary condition of the debtor as would lead a prudent business man to the conclusion that he is unable to meet his obligations as they mature in the ordinary course of business.

A transfer by an insolvent debtor with a view to secure his property, or any part of it, to one creditor, and thus prevent an equal distribution among all his creditors, is a transfer in fraud of the bankrupt act.

TOOF et al. v. MARTIN, Assignee.

FIELD, J.-This is a suit brought by the assignee in bankruptcy of Haines and Chetland to cancel certain conveyances alleged to have been made by them in fraud of the bankrupt act. As appears from the evidence in the case, Haines and Chetlain were, in February, eighteen hundred and sixty

VOL. VI.-4

Toof et al. v. Martin.

eight, and had been for some years before, merchants, doing business under the firm name of W. P. Haines & Company, at Augusta, in the state of Arkansas. On the twenty-ninth of that month they filed a petition for the benefit of the bankrupt act, and on the twenty-eighth of May following they were adjudged bankrupts, and the complainant was appointed assignee of their estates. On the eighteenth of the previous January, which was about six weeks before the filing of their petition, they conveyed an undivided half-interest in certain parcels of land owned by them at Augusta, to Toof, Phillips & Company, a firm doing business as merchants at Memphis, in Tennessee, for the consideration of one thousand eight hundred and seventy-six dollars, which sum was to be credited on a debt due from them to that firm. At the same time they assigned to one Mahan, a member of that firm, a titlebond which they held for certain other real property at Augusta, upon which they had made valuable improvements. The consideration of this assignment was two drafts of Mahan on Toof, Phillips & Company, each for three thousand and thirty-four dollars, one drawn to the order of Haines and the other to the order of Chetlain. The amount of both drafts was credited on the indebtedness of Haines & Company to Toof, Phillips & Company, pursuant to an understanding to that effect made at the time. There was then due of the purchase money of the property, for which the title bond was given, about seven hundred dollars. This sum Mahan paid and took a conveyance to himself from the obligor who held the fee.

The bill of complaint charges specifically that at the time these conveyances were made the bankrupts were insolvent. or in contemplation of insolvency; that the conveyances were made with a view to give a preference to Toof, Phillips & Company, who were the creditors of the bankrupts; that Toof, Phillips & Company knew or had reasonable cause to believe that the bankrupts were then insolvent, and that the conveyances were made in fraud of the provisions of the bankrupt act.

Toof et al. v. Martin.

The bill also charges that the assignment of the title-bond to Mahan was in fact for the use and benefit of Toof, Phillips & Company, for the purpose of securing the property or its value to them in fraud of the rights of creditors, and that this purpose was known and participated in by Mahan.

The district court, by its decree, ordered that the conveyances be annulled and that the title of the property be vested in the assignee, the latter to refund the amount of the purchase money advanced by Mahon to obtain the deed of the land described in the title-bond, less any rents and profits received by him or Toof, Phillips & Company from the property. This decree the circuit court affirmed, and from that affirmance the case is brought before us on appeal.

The bill presents a case within the provisions of the first clause of the thirty-fifth section of the bankrupt act. That. clause was intended to defeat preferences to a creditor made by a debtor when insolvent or in contemplation of insolvency. It declares that any payment or transfer of his property made by him whilst in that condition, within four months previous to the filing of his petition, with a view to give a preference to a creditor, shall be void if the creditor has at the time reasonable cause to believe him to be insolvent, and that the payment or transfer was made in fraud o the provisions of the bankrupt act. And it authorizes, in such cases, the assignee to recover the property or its value from the party who receives it.

Under this act it is incumbent on the complainant, in order to maintain the decree in his favor, to show four things:

1st. That at the time the conveyances to Toof, Phillips & Co. and Mahan were made, the bankrupts were insolvent or contemplated insolvency;

2d. That the conveyances were made with a view to give a preference to these creditors:

3d. That the creditors had reasonable cause to believe the bankrupts were insolvent at the time; and,

« PreviousContinue »