Kemmerer v. Tool

1. One owning land subject to a lien purchased other land before the lien expired, and agreed, by amicable sci. fa., to revive the lien so as to bind the after-acquired land. "Within four months he was declared bankrupt. Held, that the agreement was not in fraud of the bankrupt law. 2. The circumstance that a debtor consents to do what was for his own advantage would not affect the creditor with knowledge of insolvency, which from other facts he had no reasonable cause to believe. 3. The bankrupt’s real estate was sold by the sheriff, who paid the judgment-creditor in the revived judgment. Held, that the Court of Common Pleas had jurisdiction to entertain a suit by the assignees in bankruptcy for the recovery of the money so paid, if the judgment had been in fraud of the bankrupt law.

Error to the Court of Common Pleas of Lehigh county: Of January Term 1875, No. 75. This was an action of assumpsit, brought July 6th 1872, by James I. Tool and Charles W. Romieh, assignees in bankruptcy of E. H. Knerr, against Martin Kemmerer. The action was brought to recover the amount received by the defendant from the proceeds of a judgment obtained by him against the bankrupt within four months of the commencement of the proceedings in bankruptcy; the plaintiffs alleging that the judgment was in fraud of the bankrupt law, as having been confessed when the bankrupt was insolvent, or in contemplation of insolvency, and the defendant having had reasonable cause to believe that the bankrupt was insolvent. The case was tried September 17th 1874, before Longaker, P. J. The plaintiffs, under objection and exception, gave in evidence the record of proceedings in bankruptcy, under which, on the 22d of June 1870, Knerr was declared a bankrupt. Also, under objection and exception, the record of a judgment, Martin Kemmerer against Edward H. Knerr, entered April 8d 1868, for $4000. They gave evidence that at the time of entering this judgment, the defendant owned a considerable quantity of real estate, amongst the rest, real estate in the First ward and other parts of the city of Allentown, and a body of ore land. On the 30th of May 1868, Knerr sold his ore land, and Kemmerer released this land from the lien of his judgment; and in the same year he sold his real estate in the First ward, Allentown; from the purchase-money he paid $1350 on the judgment, and Kemmerer released this property from its lien. In 1869 Knerr bought other real estate, called the Marx farm. Afterwards, Kemmerer, in order to obtain a lien on the Marx farm, took to Knerr an agreement, dated May 16th 1870, for an amicable scire facias for the revival of the lien of his judgment. Knerr signed the agreement; it was filed in the prothonotary’s office, and judgment entered upon it, May 17th 1870, a few days before the commencement of the proceedings in bankruptcy. To October Term 1870, an execution was issued against Knerr; under it the Marx farm was sold for $6300, and on the 8th of November 1870, Kemmerer received from the sheriff, out of the proceeds, the sum of $2583.27, in full of debt, interest and costs on his judgment. There was much evidence as to Knerr’s insolvency, and as to whether Kemmerer knew or had reasonable cause to believe that Knerr was insolvent when he executed the agreement to revive the judgment so as to make it a lien on the Marx farm. There was no evidence that Kemmerer had made inquiry as to Knerr’s solvency. The following were points of the defendants:— “ 1. This court has no jurisdiction in determining the validity of the payment of the money by the sheriff to the defendant, and the assignees of Knerr cannot recover it back in this action. “ 2. The assignees of Knerr should have claimed the fund from the sheriff or brought the same into court for distribution, and their allowing the money to be paid to the creditors, estops them from claiming it now. “ 8. The fund having been distributed and paid by the sheriff to the creditors of Knerr, it cannot now be recovered back.” These points were refused. The court charged:— * * * “ Knerr must have been insolvent, or was contemplating insolvency. Insolvency under the Bankrupt Act is not a total inability by Knerr to pay his liabilities for want of assets, but it is that condition financially when he is unable to pay his notes and other liabilities generally as they fall due. A failure to meet a note or two, or other indebtedness when due or demanded, is not enough if payment be made within a reasonable time thereafter, but if there be a general failure to pay, then the condition, of the law is satisfied, and insolvency has occurred, or the debtor may be said to be acting in contemplation of insolvency. A man being a trader may have property sufficient to pay all his debts, and yet, if there be a general failure to pay when due, he will, by the provisions of the Bankrupt Act, be insolvent, or acting in contemplation of insolvency. Insolvency is a question of fact and is not founded upon the actual knowledge of the debtor and creditor, a reasonable cause to induce belief is all that is required. “ Under these instructions you will inquire whether or not, on May 17th 1870, when the agreement to revive the judgment was given: Knerr was insolvent or contemplating insolvency. * * * “ You will then recur to the inquiry at the time of the revival, was Knerr insolvent, or contemplating insolvency ? You will, if found in the affirmative, have established the first requisite, and you will next inquire for the second condition, viz.: was the revival given with a view to prefer the defendant over the other creditors? This condition is satisfied if the object of the revival was to extend the lien of the judgment upon after-acquired property ; by operation of law the effect of the revival was to extend the lien on the after-acquired property, and there being after-acquired real estate proven, it may safely be found as a fact that the'revival was given with a view to prefer the defendant over the other creditors. “If you find-the first and second requisites established as facts, you will inquire for the third requisite, namely : that the defendant at the time of the revival had reasonable cause to believe that Knerr was insolvent, or was contemplating insolvency. [Reasonable cause to believe, is that condition of mind produced from facts and circumstances which would put a prudent and careful man upon inquiry, as to the solvency or insolvency of Knerr; it is a well-founded suspicion, based upon facts from which such suspicion will reasonably flow, it is a state of mind produced from facts less than actual knowledge, or less than a full conviction of the actual fact. Reasonable cause will also be presumed under a certain condition of facts. It is a fact that the debt sought to be secured by the revival was not created at that time, but was subsisting since January 1868, and whenever the debt is thus subsisting and a revival is taken merely to extend the lien thereof, it is an act done out of the usual course of business, and being so done, it was the duty of the defendant to make an inquiry as to the solvency or insolvency of Knerr, and on failure so to make the inquiry, the presumption follows that the defendant would have found reasonable cause to induce the belief that Knerr was insolvent or was contemplating insolvency. There being no evidence that such inquiry was made, you are instructed that this requisite has been established.] “ And, fourthly, was the act of revival intended to be a fraud upon the Bankrupt Act? This intent may be inferred from the legal effect of the act done. The legal effect of the revival was to give this preference, and this effect the debtor and the defendant were bound to know, and the revival and the extension of the lien of the judgment having occurred, the presumption follows that a fraud upon the Bankrupt Act was intended. This legal presumption, however, may be overcome, if from the evidence and all the surrounding circumstances of the case, you are satisfied that the condition of Knerr was not that of insolvency, or that he was not acting in contemplation of insolvency.” * * * The verdict was for the plaintiffs, for $3182.15. The plaintiffs took a writ of error, and assigned for error, amongst others:— The answers to their points above given, and the part of the charge in brackets.