IN RE GUTWILLIG.
337
In re GUTWILLIG.
(Circuit Court of Appeals, Second Circuit. I,
January 25, 1899.)
BANKRUPTCy-FRAUDULENT TRANSFERS-ASSIGNMEKT FOR CREDITORS.
A voluntary general assignment for the benefit of creditors, with or without preferences, made by an insolvent debtor within four months prior to the filing of a petition in bankruptcy against him, is a fraud upon the bankruptcy act, and made with intent to "hinder, delay, and defraud his creditors," since its necessary effect is to defeat the operation of the bankruptcy act, and the right of creditors to such an administration of the assets as that act provides, and is therefore void, as against his subsequently appointed trustee in bankruptcy, under section 67 of the bankruptcy act (30 Stat. 564). Where an insolvent debtor makes a general assignment for the benefit of creditors, and within four months thereafter a petition in bankruptcy against him is filed, the court of bankruptcy has jurisdiction, pending the hearing on such petition, to enjoin the assignee from disposing of or interfering with the property transferred to him under the assignment.
2.
SAME-JURISDICTION-ENJOINING ASSIGNEE.
In Bankruptcy. Petition to review an order of the district court of the United States for the Southern district of :Xew York. In this case, a petition in involuntary bankruptcy having been filed against a debtor who had previously made a general assignment for the benefit of his creditors, the district court, on motion of the petitioning creditors, granted a restraining order forbidding the assignee to dispose of the assigned property or its proceeds until the adjudication upon the petition. 90 Fed. 475. And thereupon the assignee brought this petition for review of such order. George Fielder, for petition. Stillman F. Kneeland, for respondent. Before WALLACE, LA.COMBE, and Circuit .Judges. WALLACE, Circuit Judge. If the general assignment made by the alleged bankrupt would, in the event of an adjudication of bankruptcy, be treated as void as against the trustee of his estate, the order enjoining the assignee from disposing of or interfering with the property transferred pending the hearing was a proper and expedient exertion of the authority conferred upon courts of bankruptcy by clause 15, § 2, of the present act. The assignment, which was made November 9, 1898, recites the insolvency of the assignor, and transfers all his property and effects to an assignee for the benefit of creditors, upon the trusts to convert the same into money, and, after paying the expenses of executing the trust, to pay all creditors of the assignor ratably, and in proportion to their several demands. It is insisted for the appellant that whenever the question arises the assignment must be determined to be valid, because it was without preferences, and does not appear to have been made with any actual intent by the insolvent debtor to defraud his creditors. This contention rests upon the terms of that section of the act which enumerates what transfers of property by a person who afterwards becomes a bankrupt, and what liens upon such property, are void as against 92 F.-22
338
92 FEDERAL REPORTER.
the trustee of the estate. Section 67. The section declares, among other things, that "all conveyances, transfers, assignments, or encumbrances of his property" made or given by a person adjudged a bankrupt within four months prior to the filing of the petition "with the intent and purpose on his part to hinder, delay, or defraud his {'reditors, or any of them, shall be null and void as against his creditors, except as to purchasers in good faitB and for a present fair consideration," and all property transferred and incumbered "as aforesaid" shall remain a part of his estate, and pass to the trustee. We entertain no doubt that a VOluntary general assignment, with or without preferences, made by an insolvent debtor within the prescribed four months, is fraudulent, and intended by him to "hinder, delay and defraud" creditors, within the meaning of the section, because its necessary effect is to defeat the operation of the bankrnpt aet and the rights of the creditors to such an administration of the assets as that act is intended to provide. The reasons for this conclnsion, and the authorities in support of it, are so fully and satisfactorily set forth in the opinion of Judge Brown in the court below that we do not deem it necessary to enlarge upon them. 'rhey are summarized in the following extract from his opinion: "Since the time of George 11., and even prior, the current of English adjudications. followed by our own, has been that a voluntary assignment of all his property by an insolvent debtor to an assignee of his own choosing, though without preferences, is itself an act of bankruptcy, a fraud upon the act, and hence a fraud upon the creditors, as respects their rights in bankruptcy, and voidable at the trustee's option, even without an express provision to that effect in the statute."
The citations referred to by him amply sustain the general proposition. Among the most instructive are Barnes v. Rettew, 2 Fed. Cas. 8()8, and Globe Ins. Co. v. Cleveland Ins. Co., 10 Fed. Cas. 488. The general purpose of bankrupt laws, and of the present act, is not onlY to administer the assets of insolvent debtors on the basis of eqliality, but to secure that result by giving to the creditors, and not to the debtor, the selection of the person to be intrusted with the administration. 'To permit the administration to be committed by an insolvent debtor, who is on the heels of an adjudication of bankruptcy, to a trustee selected by himself, and thus be wholly withdrawn from the supervision of the bankrupt court, is irreconcilable with any reasonable view of the purpose of such legislation. Hence it has been almost uniformly adjudged that any disposition of his property by a debtor intended to accomplish that purpose is a fraud upon the creditors, who have a right to invoke its protection. That such disposition is not one which is fraudulent at common law is immaterial. It 'Suffices if its necessary effect is to defraud, hinder, or delay creditors in their rights and remedies under the bankrupt law. By the laws of New York and of many of the other states, general assignments by insolvent debtors for the benefit of creditors, if free from a.ctual fraud, are va.lid, notwithstanding they create preferences between creditors; and, if the contention urged upon this appeal is sound, such assignments, as well as those which are made to distribute the debtor's property ratably, are, by the terms of the section, good against the trustee in bankruptcy. The language applies unequiv-
33!}
ocally to all transfers or assignments, and declares those only null and void which are made with the intent and purpose to hinder, delay, or defr-aud creditors, and plaees an assignment with pref'rences on the same footing as one without, because it makes no distinction between them. The language also includes, not only assigmnents of every kind, but every kind of transfer or conveyance by whieh a debtor may eled to secure a creditor in preference to or exelusion of his other ereditors. If it is the meaning of the seetion to permit preferences by assignments or other conveyances if they are not fraudulent at common law, an anomaly has been introduced into the present act not found in any bankrupt law hitherto enacted in this country or England; and it exists in an act, and in the very seetion .of the act, which nullifies preferences obtained by legal proceedings. It is impossible to believe that congress, while precluding a creditor from obtaining preferences over other creditors by legal proceedings, however regularly and fairly employed, should have intended to permit the debtor to select one or more favored ereditors, and give him or them preference by his voluntary act. The seetion annuls "all levies, judgments, attadllllents or other liens obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him," and any "lien created by, or obtained in, or pursuant to any suit at lawaI' in equity .. .. .. begun against a person within four months before the filing of a petition in bankruptcy by or against such person .. .. .. (1) if it appears that said lien was obtained or permitted while the defendant was insolvent and that its existence and enforcement will work a preference, or (2) the party or parties to be benefited therebv had reasonable cause to believe the defendant was insolvent and in contemplation of bankruptey, or (3) that such lien was sought and permitted in fraud of the provisions of this act, .. .. .. provided that nothing herein contained shall have the effect to destroy or impair the title obtained by such levy, judgment, attaehment or other lien of a bona fide purchaser for value who shall have acquit-ed the same without notiee or reasonable eause of inquiry." These provisions manifest unmistakably the intention of eongress not only not to permit preferences to be aequired upon the bankruptcy of a debtor when he is about to beeome a bankrupt, but also to annul all dispositions of his property, exeept to innoeent purchasers, whieh will defeat the rights of creditors to a distribution by the instrumentalities and according to the seheme of the bankrupt act. The purchaser of a title under a lien aequired by legal process is not proteeted, unless he took it without notiee of its preferential origin. The purchaser under a voluntary conveyance must not only be a purehaser in good faith, but he must be one who has subtraeted nothing essentially from the value of the debtor's assets. They are wholly ineonsistent with an interpretation of the elause annulling voluntary eonveyanees whieh will permit sueh eonveyanees to stand when intended to defeat the operation of the bankrupt ad. This elause must be interpreted in a sense whieh harmonizes with the general intent of the section as gathered from the other clauses; and, thus read, it annuls any conveyance made to impair or defeat the remed.r of creditors
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under the bankrupt act, unless made to a purchaser not iu' complicity with the insolvent, and for a "present fair consideration." The order of the district court is affirmed, with costs.
In re SAPIRO. (District Court, E. D. Wisconsin. BANKRUPTCy-PRODUCTION OF CRIMINATING EVIDF.NCE.
January 30, 1899.) SELF
BANKRUPT'S BOOKS-PRIVILEGE AGAINST
A voluntary bankrupt cannot refuse to deliver the books of account kept by him in his business, and necessary to an investigation of his affairs, to his trustee, on the ground that matter contained therein might tend to criminate him. If the constitutional privilege extends to civil proceedings, the filing of a voluntary petition in bankruptcy operate>l both as a waiver of such privilege, in relation to the bankrupt's bool,>l, and as a transfer of the right of custody of the same to the court and its officers.
In Bankruptcy. Louis Sapiro, having been adjudged bankrupt on his voluntary petition. was ordered by the referee to deliver to his trustee in bankruptcy certain books of account kept in the business which the bankrupt was condnding at the time of filing his petition. Upon the failure of the bankrupt to comply with this order, proceedings were instituted against him for contempt of court. The bankrnpt contended that he should be excused from producing the account books, on the ground that matter contained therein, or the evidence thus furnished, might tend to criminate him, and claimed privilege UIldel' the fifth amendment to the constitution of the United States. 'l'he referee found, as facts, that the said books were in the possession or control of the bankrupt, and that they were necessary to enable the trustee to determine the state of the bankrupt's affairs and for his other purposes; and, as conclusions of law, that the title to said books vested in the trustee as of the date of his appointment, and that the bankrupt, in refusing to deliver them, was guilty of contumacious contempt of the orders and directions of the court. The referee's findings were certified to the judge for review.
Bloodgood, Kemper & Bloodgood, for trustee. Timlin & Glicksman, for bankrupt. SEAMAN, District Judge. Upon careful review of the authorities, I am satisfied that the bankrupt cannot be excused from production of the account books in question upon the ground of constitutional privilege. Whether the privilege exists in favor of a witness or party in a civil proceeding, as here presented, does not clearly appear from the decision of the supreme court in Counsel· man v. Hitchcock, 142 U. S. 547, 12 Sup. Ct. 195, or in the later case of Brown v. Walker, 16 Sup. Ct. 644; but I assume, for the purposes of this case, that it may be invoked in civil, as well as in criminal, proceedings. Although much stl'ess in these opinions is placed upon the distinction that the investigation by the grand jury is of criminal natUl'e there is fOl'ce in the argument that the l'easoning' of the opinions applies equally to any proceeding in which a witness is required to testify; and such view has the support of recent decisions cited by counsel and of In re Emel'y, 107 Mass. 172, cited with approval in the Counselman Case. But the privilege is