Alexandre Miller v. New Orleans Acid Fertilizer Company

• Decision Date: 04 January 1909
• Docket Number: No. 32,32
• Citation: 211 U.S. 496,53 L.Ed. 300,29 S.Ct. 176
• Parties: ALEXANDRE MILLER, Plff. in Err., v. NEW ORLEANS ACID & FERTILIZER COMPANY et al
• Court: U.S. Supreme Court

211 U.S. 496

29 S.Ct. 176

53 L.Ed. 300

ALEXANDRE MILLER, Plff. in Err.,

v NEW ORLEANS ACID & FERTILIZER COMPANY et al.

No. 32.

Argued December 1, 1908.

Decided January 4, 1909.

Mr. E. B. Dubuisson for plaintiff in error.

Messrs. William J. Sandoz and G. L. Dupre for defendants in error.

Mr. Justice White delivered the opinion of the court:

The law of Louisiana considers the property of the debtor as the common pledge of all his creditors. Civil Code, 1969. As a general rule, therefore, it contemplates an equality of right in all creditors as to all the property of the debtor, existing at the time an obligation against the debtor arises, unless a creditor, as the result of some lawful contract, or from the particular nature of the debt to which the law gives a preference, has acquired a higher and privileged right to payment than that which belongs to the general mass of creditors. Civil Code, 1968. Under that law the creditors of a partnership are preferred as to the partnership assets over the individual creditors of the members of the firm. Civil Code, 2823. This privilege does not, however, conversely exist, since it has been held from an early day in that state that individual creditors of members of the firm have no preference on the individual assets of the estate of the members of a firm, and therefore the partnership creditors and the individual creditors have a concurrent right to payment out of the individual estates. Morgan v. His Creditors, 8 Mart. N. S. 599, 20 Am. Dec. 262; Flower v. Their Creditors, 3 La. Ann. 189.

As a result of the common pledge which all creditors are presumed to have upon the property of their debtors, the law of Louisiana gives to every creditor an action to revoke any contract made in fraud of their common right of pledge. Civil Code, 1970-1977. As a consequence it is permissible to attack, even collaterally, any mere fraudulent and simulated (that is, fictitious and unreal) transfer of his property by a debtor. See authorities collected in 2 Hennen's Digest, verbo 'Obligations,' 7, p. 1031. This right, however, even in case of bad faith, does not enable a creditor to avoid a real contract of a debtor unless the act has operated to the injury and prejudice of creditors who were such at the time the act sought to be revoked was done. Civil Code, 1937. Every contract, however, is deemed to have been in fraud of creditors and prejudicial to their rights 'when the obligee knew that the obligor was in insolvent circumstances, and when such contract gives to the obligee, if he be a creditor, any advantage over other creditors of the obligor.' Civil Code, 1984. From this rule are excepted sales of property or other contracts made in the usual course of business, and all payments of a just debt in money. Civil Code, 1986. But this exception does not include the giving 'in payment to one creditor, to the prejudice of the others, any other thing than the sum of money due.' Civil Code, 2658.

In 1903 the commercial firm of O. Guillory & Company, composed of Olivrel Guillory, Olivrel E. Guillory, and Ambrois Lafleur, carried on business in the state of Louisiana. In 1904 the senior member, Olivrel Guillory, sold various parcels of real estate, which were his individual property, as follows: One sale to J. A. Fontenot, another to Alexandre Miller, and a third to John A. and Samuel Haas. All these sales were, apparently, on their face not susceptible of being assailed by creditors, because in form they were embraced within the excepted class to which we have referred.

On February 2, 1905, three corporations—which, for the sake of brevity, we shall designate as the wooden ware, the fertilizing, and the elevator companies—sued in a state district court the firm of O. Guillory & Company, the senior member, O. Guillory, individually, and the purchasers at the respective sales above mentioned. As to the first company, the cause of action was based upon an alleged open account for the purchase price of goods sold to the firm prior to the making of the sales by the senior partner of his individual property above mentioned. As to the two other corporations, the action was based upon notes held by the corporations, signed by the individual members of the firm, and averred to have been given for the price of merchandise bought, also prior to said sales, from the corporations by the firm, it being alleged that the notes signed by the individual members had been received by the corporations as cumulative, and not in any wise as a novation of the firm obligation to pay the price of the goods by it bought. The sales were attacked as fraudulent simulations, or, if not unreal, as subject to be revoked, because they were made at a time when the firm was notoriously embarrassed or insolvent, to the knowledge of the purchasers, and were not within the excepted class, because they were, in substance, not what they purported to be, but were givings in payment of the individual property of O. Guillory in order to prefer the purchasers.

The prayer was for a judgment for the amount of the debts, for a revocation of the sales, for a direction that they be sold by judicial decree to pay the judgments to be rendered, the payments to be made by preference out of the proceeds arising from the sale.

The cause was put at issue by general denials filed for the firm, for O. Guillory individually, and for the purchasers. Before trial, in consequence of an adjudication in bankruptcy as to Guillory & Company, made on April 28, 1905, a petition was filed in the cause by W. J. Sandoz, alleging himself to be 'the duly appointed and qualified trustee of the bankrupt estate of O. Guillory & Company.' It was alleged that 'since the institution of this suit the said O. Guillory & Company have made application for and been adjudged bankrupts in the district court of the United States for the western district of Louisiana.' And it was further averred that, under the bankrupt law of the United States, 'the trustee succeeds to the rights of the creditors who may have brought actions to annul any transactions affecting the property of the bankrupts, and the law makes it his duty to prosecute the same for the benefit of the said bankrupt estate in his capacity as trustee.' The prayer of the petition was that Sandoz, as trustee, 'be made a party plaintiff in this suit and duly authorized to prosecute the same to final judgment for the benefit of said bankrupt estate of O. Guillory & Company.' The state court, after notice to the parties, entered an order substituting Sandoz as party plaintiff in his capacity 'as trustee of the estate of O. Guillory & Company . . . with authority to prosecute the same to final judgment for the benefit of said bankrupt estate.'

Sandoz, trustee, was thereafter the sole plaintiff, and prosecuted an appeal to the supreme court to reverse a judgment of the trial court sustaining the sales. The supreme court, for reasons given in an elaborate opinion, held the sale to Fontenot to have been simulated, and sustained the validity of the Haas and Miller sales. It was found that Olivrel Guillory had made the sales of his individual property principally for the purpose of assisting the firm, which was embarrassed as the result of a decline in the price of cotton held by the firm; that, at the time, Guillory had no individual debts whatever, except one of $3,000, due to Miller, and another of $6,000, which was assumed and provided for in the Haas sale. Granting a rehearing asked by trustee Sandoz, a different conclusion was reached as to the Miller sale. The court found that, when that sale was made, Guillory owed Miller $3,000, and although the price of $7,500 was actually paid to Guillory, yet, as immediately after the sale Guillory had paid the three thousand dollar debt which he owed to Miller, 'the transaction was an indirect preference of the son-in-law (Miller) over other creditors by a disguised giving in payment.' 117 La. 821, 42 So. 329. This writ of error sued out by Miller was allowed by the chief justice of the state court.

By the assignments of error it is contended, first, that the court erred in testing, at the instance of Sandoz, trustee, the validity of the sale to Miller by the state law instead of by the bankrupt law of the United States, which was alone controlling; second, under the bankrupt law of the United States the court erred in holding that the transfer by Guillory of his individual property to pay Miller, his individual creditor, was revocable, although there was no other individual creditor to be prejudiced thereby ; and, third, that, in any event, the court erred in holding that prejudice could have resulted under the bankrupt law to individual creditors by the sale to Miller without ascertaining whether there were such creditors who could have been prejudiced. In other words, that the court erred in decreeing the sale to Miller to the extent of $3,000 to...