Williams v. Cohen

Deed made in contemplation of Insolvency : Acts and Deeds of Debtor where void or voidable. — Art. 48, sec. 7 of the Code, is in the following words: “Any confession of judgment, and any conveyance or assignment made by any insolvent under this Article for the purpose of defrauding his creditors, or giving an undue preference, shall be void, and the property or thing conveyed or assigned shall vest in the trustee, and all acts done by a petitioner before his application, when he shall have had no reasonable expectation of being exempted from liability to execution, on account of his debts or responsibilities, without petitioning for the benefit of the insolvent laws, shall be deemed- to be within the meaning- and purview of this suction.” On an appeal from a decree dismissing a bill filed to set aside a deed of release as an undue preference within the meaning- of the above Art. and section. — -Held- : 1st. That this section, taken as a whole, unquestionably contemplates a class of cases in which the acts of an insolvent, before his application, cannot be avoided, notwithstanding his actual insolvency at the time the acts were done. 2nd. That the words “no reasonable expectation of being exempted,” &c.3• clearly imply a knowledge or belief on the part of the insolvent of his inability to pay his debts; for without such knowledge or belief, he-would necessarily be presumed to have a reasonable expectation of being' exempted from execution, without applying for the benefit of the insolvent laws. 8rd. If, however, a conveyance of property is made by a debtor to a creditor to satisfy or secure a debt, at a time when the debtor knows or believes himself to be insolvent, and does not expect to be relieved from execution for his debts without the aid of the insolvent laws, the necessary presumption would be, that the conveyance was executed with a view of applying for the benefit of the insolvent laws; and in such a case the conveyance would be void within the meaning of this provision of the Code. 4th. That this section contemplates as void or voidable only such acts of a debtor in derogation of the lights of his creditors as may he done by him when he knows or believes himself to be insolvent, and has no reasonable expectation of exempting himself from execution, without the aid of the insolvent laws; or in other words, only such acts as the debt- or may be presumed to have done in derogation of the rights of his creditors, with a view of applying for the benefit of the insolvent laws.

Appeal from the Superior Court of Baltimore city, as a Court of Equity: The object of the bill in this case was to set aside a deed or release of a bond of conveyance made, as is alleged, in contemplation of insolvency, by Pollack to Cohen, on the 26th of December, 1850. It states the purchase by Pollack of the defendant, Cohen, of a warehouse in Gay street in Baltimore city, for the sum of $8,000, of which $3,700 was paid, and $4,300 remained due; and that Pollack, with the knowledge and co-operation of Cohen, expended $3,781.91 thereon in repairs, &c.; that Pollack being betrothed to the daughter of Cohen, the intercourse between them was so confidential, that the latter knew and was apprized of the in solvency of Pollack, and under the pretence of procuring a security for debts due to him from Pollack, for purchases of dry goods, obtained his signature to a release of the bond given to him by Cohen, obliging the latter to convey to him the property on full payment; that at the time of signing' said release, Pollack was insolvent, and Cohen told him he could not “get throughthat no consideration then passed,, and the recital thereof was false, and that said Cohen did not even give irp the unpaid promissory notes which remained of those given for the purchase of the property;. and further, that the release was obtained by the unbounded confidence which Pollack had in Cohen, and without his even reading it, and at a time when Pollack “had no reasonable' expectation of being exempted from liability to execution on account of his debts or responsibilities, without petitioning for the benefit of the insolvent laws,” and that Cohen knew it; and that the release is therefore void, and that the title to the property hath become vested in the complainant as trustee in insolvency. The bill further states, that shortly after said release, Pollack failed, and he could not pay thirty cents on the dollar,, and to dispose of the remnant of his goods to advantage, he sent them, with Cohen’s knowledge and approbation, to Wheeling, when he, Cohen, attached them in transitu for a pretended balance of indebtedness, and so, in fact, possessed himself of all of Pollack’s assets, to the exclusion of all other creditors, and that Pollack applied in insolvency, and the complainant was- duly appointed his trustee. The prayer of the bill was, that the release should be declared void, the property sold, and that Cohen should receive no dividend until he should bring into account the proceeds of the attach-merit. ‘With the bill were filed as exhibits the bond of conveyance and its release designated respectively as Exhibits H. P., No. 1, and H. P., No. 2, and the insolvent and Cohen •were made defendants. The answer of Cohen insists, that the said property was bought by him for the insolvent, at bis instance and request* for a place of business, but denies that the repairs and improvements alleged in the bill were made with his co-operation ; it admits the betrothal, but avers that tbe property was re-purchased by him at the request of Pollack, because of the difficulty of collections, and to give Mm financial ease 5 that he agreed to buy tbe property at $10,000, or for $7,000 over and above the $3,000 due on the mortgage upon it, and which $7,000 was to be paid by crediting the balance due on tbe property, then by crediting notes of Pollack held by him, and the balance in payments as they might be needed; that all these were made, leaving unpaid and unsecured a considerable amount on open account for merchandise sold him; that he had not, until some time afterwards, any suspicion of the pecuniary insufficiency of said Pollack, and continued to sell to him without distrust; and for that reason the agreement of re-purchasing was not put in writing until the 26th of December, 1860, and after all the purchase money had been paid. He denies that at said time Pollack was insolenf, on the contrary, he avers that he expected him to be able to meet all Ms engagements, and he bought the property with that assurance. The answer, however, admits, that at the time of this transaction, the unpaid notes were not returned, but that they were not withheld from any fraudulent design, but were considered as extinguished. That the price paid was a full price, and as much as any one would have given, and that he has since been obliged to pay two mechanic’s liens thereon for $360. He denies that Pollack signed the release of the bond without reading it; on the contrary, he avers that it was fully read and explained to him at the time of its execution and delivery; that in February, 1861, he found that Pollack required an extension, and though a creditor for $4,000, he would, from Pollack’s representations, have given it, had other creditors assented; that he afterwards discovered these representations to be untrue,- and he told him he had lost confidence in him, and would give him no* further credit; that his daughter had determined to break the engagement, and he approved the determination,¡because of the loss of confidence; but not desiring to prosecute or annoy, he signed a composition paper, the agreement therefor being provisional, and others not signing, it “ fell through; ” that being in Pittsburg in May, 1861, he received a letter from his son, stating that Pollack was moving his goods, and that he believed they had been forwarded to Pittsburg, and on the basis of this information he attached, as he had a right to do, and that it is for the Court in Pittsburg to say whether the same was or not properly brought; and he puts the complainants to the proof as to the application in insolvency, of which he knows nothing. ■ Pollack answers, admitting all the allegations of the bill» A [commission was issued, and before the commissioner the insolvency of Pollack was admitted, and the appointment of the^complainant as trustee; also the assignment by Pollack "of all surplus of his estate, who was then examined as a witness. He proved the purchase of the property, the amount expended on repairs and improvements, amounting to $3,781.98_thereon, under Cohen’s advice. He also proved his betrothal to Cohen’s daughter, and that he was then worth aboub$6,000;_ thathe afterwards became embarrassed ,-and gave Cohen a statement in writing of his affairs, and shewed him his books, prior to which Cohen had loaned him money; that at the time of said loans he' gave Cohen, as security, the bond of conveyance for the property and the notes he had paid on account of the purchase; that about the end of’ He-©ember, I860, Cohen gave him a statement of his Indebtedness to him, amounting to $13,000, and he proposed to take the property at $10,000 as security, and give him a lease of five years on it, after which it was to be returned ; that he, Pollack, was satisfied, and executed what he supposed to be such a paper, complainant’s exhibit H. P., No. 2, without reading it; that this paper was already prepared at the office of Cohen’s attorney, and from Cohen’s statements, he, Pol-back, supposed it a security, and was not aware he had signed a deed; that at the time of executing said paper, he owed $29,000, on which he then could not have paid fifty cents on the dollar; that Oohen was aware of his condition, and remarked, that he feared he could not get through, and at ono time mentioned that he thought he was solvent. The following interrogatory was then propounded to the witness: “At the time of the execution of the said paper, the complainant’s exhibit II. P., No. 2, bad you any reasonable expectation of being exempted from liability to execution, on account of your debts or responsibilities, without petitioning for the benefit of the insolvent laws ?” To which he replied, “I had none; I had no money to pay any liabilities, all that I had was invested in this property, (that conveyed in li. P., No. 2.,) and in old stock, and old debts,” &c. The witness further proved, that Cohen retained the bond, and the twenty-seven notes which were paid on account of the purchase; that the recital of the consideration in exhib: it II. P., No. 2, is not true, and that nothing, at the time of the execution thereof, was delivered or tendered to him by said Cohen or any one else; that bis inducement to execute it was, that be supposed it a security for money lent, and from the relationship existing between them, he supposed Cohen would extricate him from his difficulties; that the object of improving the property under Cohen’s advice was, that he might also live there after he was married, and Cohen refused to consent to the marriage because of embarrass-: ments; and that his condition grew worse, and it ended in insolvency. On cross-examination he stated, that Cohen bought the property for him at his request. William Geahrmg, book-keeper to Pollack, proved that Pollack was insolvent in August, 1860, and December, 1860; that Cohen, in October, 1860, examined Pollack’s books and into his affairs; that the expenditures on the property were on account of the intended marriage, and made under Cohen’s supervision; that Cohen sold Pollack trash as goods, and charged the highest prices for them; and that, and his confidence in Cohen, caused Pollack’s insolvency; that he had often warned Pollack, but the acquaintance with the daughter induced the confidence. On cross-examination he stated, that in October, I860, Cohen knew Pollack’s assets better than Pollack himself; and that he, or a member of his family, examined the stock on hand every week. James M, Gwrmingham, a witness produced by Cohen, proved that Pollack was insolvent in the summer and autumn of 1860; that he went into his service as clerk in February, 1860, and he thought him insolvent a very short time after-wards. Jamies Hodges proved, that on the 7th of February, 1861, Pollack’s paper was sold at two per cent, a month, a heavy ®nd extraordinary rate at that time. A mass of other testimony was taken which becomes immaterial in consequence of this Court’s considering in its decision the single question of Pollack’s solvency or insolvency on the 26th of December, 1860, the date of the release of the bond of conveyance, exhibit H. P., No. 2. The Court below, (Martin, J.,) dismissed the complainant’s bill with costs, and filed the following opinion : “It is apparent that j there is to be found in the case no evidence of fraud, in fact, and a careful examination of the .testimony has satisfied me, that the complainant has failed' io establish the proposition that Herman Pollack, at the time he executed the deed of release in question, liad no reasonable expectation of being exempted from liability from execution on account of his debts or responsibilities, without petitioning for the benefit of the insolvent laws. As this proposition lies at the foundation of the case as presented by the complainant, and he has failed to establish it, the bill must be dismissed irrespective of various questions which were raised in the argument, and in reference to which it is not necessary to express an opinion.” From the decree dismissing the bill, the complainant appealed*