Seaman v. Stoughton , 3 Barb. Ch. 344 ( 1848 )

The Chancellor.

The plea in this case does not contain the necessary averments to show that the defendant, A. Kimball was legally declared a bankrupt, so -as to vest the assigned property in 0. C. Paine, the official assignee appointed by the district court. The plea merely states that the supposed bankrupt resided in the state of Massachusetts; ana that he presented a petition praying that he might be declared a bankrupt, pursuant to the act. To show that the court had jurisdiction to proceed upon his petition, under the voluntary provisions of the bankrupt act, he should have stated, in the plea, that his petition set out a list of his creditors, and an inventory of his property, and that it was duly verified. It should also distinctly appear that he owed' debts which had not been created in consequence of a defalcation as a public officer, or as an executor, administrator, guardian, cr trustee, or while acting in any other fiduciary capacity; so as to bring him within the description of persons who were authorized, by the first section of the bankrupt act, to apply for the benefit of that act as voluntary bankrupts. (Sackett v. Andross, 6 Hill’s Rep. 327. Salters v. Tobias, 3 Paige’s Rep. 338.) The plea being insufficient to show that Kimball was ever legally declared a bankrupt, so as to vest any of his property in the official assignee, the question arises, whether the assignment to the appellant, for the benefit of the creditors, was absolutely void for all purposes, so as to leave the whole title to the property in the assignor, as if no assignment had ever been made; or whether it was only void as against an assignee properly appointed under the bankrupt act.

This assignment,' upon its face, shows that it was made in contemplation of bankruptcy. And, as against an assignee duly appointed under the bankrupt act, or those who should claim under him, it would unquestionably be void; as a fraud upon the rights of creditors who should come in and prove their debts under the decree in bankruptcy. " And as congress has the power to establish an uniform system of bankruptcy throughout the United States, I am not prepared to say it has not authority, by the constitution, to prohibit any person, who has become a bankrupt, from assigning his property for the purpose of giving a preference to one class of creditors over another, where he has not the means of paying the whole; so as to leave all his creditors to a fair race of diligence, in obtaining a priority of payment, by due course of law. Such, however, does not seem to have been the intention of the framers of the recent bankrupt law. Although the act declares all payments, assignments, securities, conveyances, and transfers of property, made or given in contemplation of bankruptcy, for the purpose of giving preferences, utterly void, the residue of the sentence shows that they are only void in reference to proceedings under the bankrupt law; instituted by the petition of the bankrupt himself, or by an application of some of his creditors. For it declares such assignments a fraud upon the act; and authorizes the assignee in bankruptcy to claim, sue for, and recover the property, as a part of the assets of the bankrupt. And it prohibits the discharge of the bankrupt who has been guilty of such a fraud in reference to the contemplated proceedings under the act.

This question was presented directly to the supreme court of this state for decision, in October, 1843, in the case of Dodge & McClure v. Sheldon, (6 Hill’s Rep. 9;) and that court held that the assignment not being void by the state laws, and it not appearing that any proceedings had been instituted under the bankrupt act, while it was in existence, the assigned property was improperly seized by the sheriff, as belonging to the bankrupt, upon an execution against him. Indeed, it would be contrary to every principle of equity to permit a trustee, who has received the property of a debtor in trust to apply it to the payment of creditors, to set up the defence of fraud, in making and receiving the transfer for the benefit of such creditors, as a defence to a suit brought by them to compel a performance of the trust; without showing that the fund had been recovered from him by the parties intended to be defrauded, or even that they had ever made any claim to it.

The order appealed from must therefore be affirmed with costs. And the appellant must pay the costs of the appeal and the costs awarded by the vice chancellor, and answer the complainant’s bill within the forty days allowed by the order appealed from, after service of notice of the final decree, or the bill must be taken as confessed against him.