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I think it would be a "fraudulent preference, contrary to the provisions of the act” within the meaning of the 29th section, and a good ground on which to refuse a discharge.
But was this payment in fact made on the 28th of May 1867 ? The evidence shows that on the 4th of January 1867, the bankrupt sold to his uncle, Isaac Rosenfeld, certain real estate for the sum of $10,000, and that he was at that time indebted to his uncle in the sum of $2411. On the 28th of May 1867, a settlement was had between the bankrupt and Moses B. Maclay, Esq., the agent of his uncle, and in that settlement this debt of $2411 was deducted from the amount of the purchase-money, and the balance paid in cash. Now it is insisted, that inasmuch as “the purchase-money was not appropriated nor disposed of before the 28th of May 1867," therefore this payment of $2411 must be considered as having been made on that day. But it seems to me there is not the slightest foundation for such an idea. The doctrine of appropriation of payments has no reference to a transaction of this kind. The payment was really made at the time of the purchase of the real estate. From that time, the bankrupt could have had no claim to anything but the balance of the purchase-money after the payment of the debt. When the settlement took place on the 28th of May 1867, it was not for him to say whether this debt should be deducted from the purchase-money or not. He had no power to prevent it.. Such would have been the legal effect of the transaction, if nothing had been said or done by either of the parties in relation to it. But the evidence would seem to show, that in point of fact, Isaac Rosenfeld, the purchaser, at the time of the sale, credited the bankrupt on his books with the amount of the purchase-money, and charged him with this debt of $2411, leaving a balance due to him, which was paid on the 28th of May 1867. It was a legitimate transaction, and I see nothing in it to sustain the charge of a fraudulent preference within the meaning of the Bankrupt Act.
2. The second specification is, that after the passage of the act, being insolvent and knowing himself to be so, and in contemplation of bankruptcy, he paid to W. B. Ticknor & Co., a debt of $154.30.
The answer to this is, that this specific debt was paid in 1866, and not after the passage of the Bankrupt Act. But it is insisted that there were bills of W. B. Ticknor & Co. paid in May and
June 1867, and that these bills amounted in the aggregate to more than $154.30, and therefore that the charge contained in the specification has been substantially sustained. That is, the specification charges that a particular debt was paid after the passage of the Bankrupt Act; and when it was shown that this debt was paid in 1866, then proof is offered that there were other debts not mentioned in the specification, that were paid after the passage of the act. Such proof is inadmissible. The opposing creditors are bound by their specifications. They cannot go beyond them, or produce evidence outside of them. Where would be the use of specifications if this were not so? Instead of apprising the bankrupt of the specific grounds upon which his discharge was to be opposed, they would only tend to deceive and mislead him.
3. The fifth specification is, that a debt of $158.44, due to J. C. Harden, was paid after the passage of the Bankrupt Act.
But the evidence shows that this debt too was paid in 1866. And then it is said, there was another debt of $66.45, that was paid March 30th 1867. All that I have said with regard to the second specification, is applicable to this.
4. So too with regard to the sixth and seventh specifications, they charge that certain debts were paid after the passage of the Bankrupt Act, while the evidence is that they were paid in 1866.
5. The eighth specification is, that after the passage of the Bankrupt Act, he paid servants' wages, to the amount of $1400.
This charge is not sustained by the evidence. The bankrupt testified, both before the register and in court, that this $1400, mentioned in his schedule as servants' wages, covered a period of about fourteen months: that while it was not the same during the whole time, yet the average amount was something like $100 a month; and that it was paid from month to month as it fell due. No attempt has been made to discredit his testimony.
It seems, then, that instead of paying $1400 for servants’ wages after the passage of the Bankrupt Act, he paid but $400. It was paid from month to month as it became due. It was a part of his necessary family expenses.
But it is said Mr. Rosenfeld had no right to pay even $400 for servants' wages, after the passage of the Bankrupt Act. As he intended to apply for its benefit and avail himself of its provisions, he ought at once to have reduced his establishment, retrenched his expenses, discharged his servants, and adopted an entirely
different style of living from that in which he had previously indulged. Now, if the specific charge had been that the sum of $400 for servants' wages, for a period of four months, was an extravagant sum for a man situated as Mr. Rosenfeld wąs, to pay, that it could not be fairly regarded as coming under the head of necessary family expenses, and must be treated as a fraudulent preference, or payment or transfer of property contrary to the provisions of the act, there might have been force and pertinence in these observations. But the specification charges an entirely different thing. It charges that the bankrupt, after the passage of the act, paid $1400 for servants' wages, that is not only the $400 which accrued after the 2d of March 1867, but also $1000 which had accrued prior to that day. Had this charge been true, such a payment might well have been considered a fraudulent preference. This was the charge that the bankrupt was called upon to meet, and no other. He has met it, and has shown that it is entirely unfounded.
6. The ninth and tenth specifications may be classed together. They charge the bankrupt with having paid, after the passage of the act, to Moses B. Maclay, Esq., the sum of $1000, and to Messrs. Abbett & Fuller the sum of $1608.77, part of which sums were for past professional services.
The charge contained in these specifications is somewhat vague, it not being stated how much was paid for past and how much for future services. It appears, however, from the evidence, that of the $1000 paid to Mr. Maclay, $250 were for past services, and of the $1608.77 paid to Abbett & Fuller, $608.77 were for past services. The bankrupt had a right to employ counsel. Their professional services were absolutely necessary for him. It was natural that he should resort to those whom he knew and had formerly employed and in whom he had confidence. And it was natural, that before consenting to act in a case which would necessarily require much time and labor, they should insist upon being paid an amount that would cover both past and future services. Mr. Abbett, in his testimony before the court, stated that before he consented to take charge of the case in bankruptcy, he told Mr: Rosenfeld that he would have to pay him for what he had already done for him, and also the sum of $1000. And Mr. Maclay says he “charged him $1000 for services rendered and to be rendered.” The bankrupt was obliged to comply with these demands or forego the services of these gentlemen and employ other counsel. This, no doubt, he might have done, and strictly speaking, he had no right to pay them a debt due for past services. But I see no evidence of fraud upon the part of the bankrupt in these transactions, and I think it would be a harsh construction of the Bankrupt Act to pronounce them fraudulent preferences within the meaning of the 29th section, and on this account alone refuse a discharge. If the strict rule contended for by the counsel of the opposing creditors were to prevail, the payment of a debt, however small, through inadvertence or under a mistaken sense of duty, and without any fraudulent intent whatever, would be sufficient in all cases to deprive a bankrupt of his discharge-I do not believe that the framers of the act ever intended that it should receive so rigid a construction.
7. The 11th specification is, that the bankrupt, on the 1st of June 1867, knowing himself to be insolvent, and in contemplation of bankruptcy, invested $641, as the premium for one year, on two policies of insurance on his life, taken by him for the benefit of his wife and children.
The facts alleged in this specification are fully proved, and are not disputed. The explanation given by the bankrupt of this transaction is in substance as follows: “On the 22d day of May 1866, he had made an assignment for the benefit of his creditors. In May 1867 he entered into a negotiation with the assignees for the sale of his wife's right of dower in certain real estate included in the assignment. They agreed to give him $4000 for it, and he determined to invest the money thus obtained in payment of premiums upon a life insurance for the benefit of his wife. Believing that this agreement would be carried out by the assignees, and desirous of having the insurance effected with as little delay as possible, he advanced $640 of his own money in payment of the premiums, intending to replace it out of the $4000 as soon as received. He further stated that he had consulted his counsel, Mr. Maclay, in relation to the matter, and understood him to say that there was nothing wrong or improper in the transaction. Mr. Maclay, says, however, that Mr. Rosenfeld must have misapprehended him, and that he gave him no such advice or opinion. It turned out that the $4000 was never received from the assignees. They refused to consummate the bargain, and allowed the
real estate to be sold subject to the right of dower. But the $640 had been paid, and Mr. Rosenfeld was unable to replace it.
If this is a correct account of the affair, while I see in it no evidence of fraud on the part of the bankrupt, still I have no hesitation in saying that it was an improper transaction, and one of which the creditors have a right to complain. The bankrupt clearly had no right to withdraw this money from the estate. It belonged to his creditors. His counsel says that this cannot be considered as a fraudulent gift or conveyance of any part of his property. It was a mere loan to his wife, with the prospect of having speedily in his own hands the means of repayment. But the answer given to this, by the counsel of the creditors, is a correct one.
If it were a loan to his wife to be replaced out of her dower, then she is indebted to the estate to that amount, and the bankrupt ought to have included the claim in his schedule of assets. This, however, I understand the bankrupt virtually admits, and his counsel now consents that the court shall order the schedule to be amended in such a way as to include this $641 in the assets of the bankrupt. I see no objection to this course being taken, and then there will have been not only no intention on the part of the bankrupt to defraud, but no one in fact will be defrauded.
8. The 12th specification is, the payment of $118.80 for insurance on the house and furniture at Orange.
The answer given to this is, that the payment of the insurance was made in pursuance of a covenant contained in the lease. It was a part of the rent, and if it had not been paid the lease would have been forfeited. The counsel of the creditors suggests, as worthy of remark, that the bankrupt had a term yet unexpired, in this Orange property, which might have been a valuable asset in the hands of the assignee. If this were so, then it was his duty to pay the insurance, and instead of being a fraud upon the creditors, it was for their benefit, for otherwise the lease would have been forfeited, and there would have been no longer an unexpired term to dispose of. This view of the case is not at all altered by what the counsel further suggests, namely, that the bankrupt, by the deed and release, which Mr. Maclay insisted upon his executing, extinguished this term of years, and thereby deprived his creditors of the benefit of it, for such a charge is nowhere contained in