Warren v. Garber

The demurrant’s objections to the declaration are founded upon two propositions, viz.: First. That section 5128 of the Revised Statutes is a penal law. or at least a law imposing a forfeiture; and. second, that it must, as such, be treated as if it had read before the 22d of June, 1874, as it has read since it was amended on that day, as to violations of it committed before the date of the amendment, and sued upon after-wards. Neither of these propositions is true. Section 5128 is not a penal law, nor does it impose a forfeiture. It creates a disability. It imposes a liability in case its disabling provisions are violated. It establishes upon that liability a right. And it gives a remedy for that right. The policy of the bankruptcy law being to distribute the assets of the bankrupt equally among his creditors, this section was inserted in aid of that purpose. As at common law an infant or a married woman could make no valid contract, so this section provides that insolvents shall not, within a defined period of their bankruptcy, be able to dispose of their property to persons who have reasonable cause to believe that they are insolvent, and are acting in contemplation of bankruptcy. If they do dispose of their property, under the circumstances defined by the section, the law declares that the transaction is void, and authorizes their assignees in bankruptcy to recover back the property so disposed of, or its value. If money be paid out by the insolvent under the circumstances detailed by the section, then the payment is void, the creditor who receives the money receives it under a void payment, which carries no title to him, just as the payment of money by a child to an adult person is a void payment, and an implied contract at once arises by which the person receiving the money becomes debtor to the person entitled to it, the law implying a promise on his part to return it. Section 5128, therefore, has two distinct characters: First, it declares void, among other things, a preferential payment of money, and raises an implied promise or contract as of the date of the transaction on the part of the receiver of the money, to repay it. Second, it authorizes the assignee of the bankrupt who paid the money, to sue for and recover it. Only in this last respect is section 5128 remedial. Only in this last respect can an amendment of the law affect the rights which arose or were vested before the passage of the amending law. On the other hand, that part of the section which defines the circumstances under which a payment shall be void, is declaratory and not remedial, creating a disability in the insolvent to pay within a certain period, creating a liability in the person receiving the money to repay it, making void the transaction, and doing all as of the date of the transaction itself. Any payment by this bankrupt which was made within four months before the date of its bankruptcy, the 14th of March, 1S74, under circumstances described by the law as it was during that period, was void, and void by virtue of the law as then in force.

It is very true on the general principles governing the construction of laws which have been amended, that where a penalty, forfeiture, or disability, is imposed, and that disability is narrowed by the amending law, the amended is held to prevail over the original law. Sedg. St. & Const. Law, 129, 130, and Cooley, Const. Lim. 381, and the numerous cases there cited. It is also true, that where a general clause of the amended law repeals all provisions of the *277original law inconsistent witii tliose of the new law, as in tins ease, it is, in general, construed to have the effect to substitute the new law for the old, retroactively as to penalties, forfeitures, and disabilities. But while this is the case as to mere disabilities, it is not so as to such disabilities as are coupled with liabilities, out of -which rights accrue to third persons, as in the case now before us. Here the disability to make a preferential payment within four months of the bankruptcy, imposed by the law upon the insolvent, was coupled with a corresponding liability of the receiver of the money to restore it, and an implied contract to restore it to a third person entitled, in equity, and upon principles of natural justice, to receive it. Judge Dillon, in Singer v. Sloan [Case No. 12,898], seems to have overlooked the distinction between a mere disability and a disability complicated with liabilities, and with resulting equitable and statutory rights. Notwithstanding the high authority of that eminent jurist, his decision in this case has been overruled in several eases subsequently decided, and I should not feel at liberty to follow it here even on general principles. See Singer v. Sloan [Cases Nos. 12,898 and 12,899]; Tinker v. Van Dyke [Case No. 14,058]; Van Dyke v. Tinker [Id. 16,849]; Barnewell v. Jones [Id. 1,027]; In re Lee [Id. 8,179]; Oxford Iron Co. v. Slafter [Id. 10,637]. For if any doubt were left on this head, it would be removed by section 13. Revised Statutes of the United States, which applies to all laws of congress, and which provides in express terms, that “the repeal of any statute shall not have the effect to release or extinguish any .... liability incurred under such statute, unless the repealing act shall so expressly provide, and such statute shall be treated as still remaining in force for the purpose of sustaining any proper action .... for the enforcement of such liability.” The Revised Statutes were enacted on the 22d of June, 1874, simultaneously with amended bankruptcy act. 1 hold, therefore, that those counts of the declaration are good which set forth the liability created by section 512S, as it was during the period four months before the 14th of March, 1874, which was the day of the filing of the petition in bankruptcy; they are sufficient in laying the payment sued upon within four months, and in averring that the defendant had reasonable cause to believe that the money was paid him in fraud of the provisions of the bankruptcy act. They need not lay the payment within two months, nor aver that the defendant knew that the payment was made in fraud of the provisions of the bankruptcy act. The demurrer, therefore, to the four special counts in the declaration is overruled. As to the general counts, it is proper to say in advance, that while the demurrer to them is overruled, the court will not permit any evidence to be given under them at the trial, of a liability, contract, promise, or obligation arising exclusively under section 512S.

Proceedings at the Trial.

Thereupon the case went to trial, the plaintiffs having filed the following bill of particulars, setting forth the items claimed; the first two items being for money received by the defendant, on his checks drawn before the beginning of the period of four months preceding the bankruptcy; the remaining four items being for money received on checks drawn within that period:

Bill of Particulars.

187.1

Oct. 30. To cash on your check of this date. $2016 72

Nov. 14. “ ♦’ •• “ 517 01

Nov. 15. 44 44 44 “ 133 10

Dec. 2. " 44 44 44 1034 60

Dec. 2. •* «■ 41 44 24 00

Dec. 4. “ 44 “ 44 84 57

The petition in bankruptcy having been filed at 9 a. m. on the 14th March. 1874, plaintiffs raised a question whether the 14th November, 1873, was not part of the four months so as to include the check paid on that day. But THE COURT ruled that that day should be excluded; first, because section 5013 expressly so provided; and second, because, on general principles, the law will presume that the payment was made while the person was competent to make it in cases of doubt.

Plaintiff's also contended that the president and cashier were not authorized to pay the two first cheeks to one depositor^ while the bank was unable to pay all depositors; but failed to show that these officers were forbidden to make such payments.

On the questions thus arising, THE COURT gave the following instructions to the jury;

First Instruction. The court instructs the jury that in order for the plaintiffs to recover back any payments made to the defendant within four months before the 14th of March, 1S74, the jury must believe from the evidence: 1st. That the Mutual Building Fund and Dollar Savings Bank was insolvent at the time of the payment. 2d. That the bank made the payment with a view to give a preference to the defendant. 3d. That the defendant had reasonable cause to believe that the bank was insolvent. 4th. And that the defendant also had reasonable cause to believe that the payment was made in fraud of the provisions of the bankrupt act. The jury must believe that all this was so, or else they should not find for the plaintiffs as to any such payment.

Second Instruction. The jury are further instructed that, in contemplation of the law of bankruptcy, insolvency consists in being unable to pay and not paying just and legal demands for money due and payable in the ordinary course of the debtor’s business.

Third Instruction. They are also instructed that before or on the 14th day of November, 1S73, the president and cashier of the bank had a right to make bona fide settlement of the indebtedness of the bank with its assets as they thought best for its interests subject to the control of the board of directors; and that upon and prior to the 14th day of March, 1S73, the bank had a right to make any bona fide pay*278ment to any of its creditors, whether the same was a preference or not, and that the acts of the cashier of the hank in any such payment while he occupied and filled, in fact, that office, are to be taken as the acts of the bank, unless they were forbidden by the bank, and such prohibition was known to the party receiving payment.

Fourth Instruction. If defendant teceived money, or property converted into money or its equivalent, which he was not entitled to receive, either by fraud or from any one not authorized to give or deliver the same to him, which was the money or property of the said bank, though it was more than four months before the filing of the petition in bankruptcy, the plaintiffs may recover the same or the value thereof in this case and on the common counts.

The jury found a verdict for the plaintiffs in the sum of $1276.17, the amount of the payments made within four months.