Baldwin v. Kingston

• Decision Date: 03 January 1918
• Citation: 247 F. 163
• Parties: BALDWIN v. KINGSTON.
• Court: U.S. District Court — District of New Jersey

247 F. 163

BALDWIN v. KINGSTON.

United States District Court, D. New Jersey.

January 3, 1918

Andrew Van Blarcom, of Newark, N.J., and J. Russell Sprague, of Inwood, N.Y., for plaintiff.

McCarter & English, of Newark, N.J., for defendant.

HAIGHT District Judge.

This is a suit by a trustee in bankruptcy to set aside a conveyance of certain real estate made by a bankrupt, through an intermediary, to his wife, the defendant, upon the ground that it was made to hinder, delay, and defraud his creditors. The transfer was made on September 4, 1914. The grantor, La Rue H. Kingston (hereinafter referred to as the 'bankrupt'), was adjudicated a bankrupt on December 26, 1914, as was also, at the same time, his partner in business, William A. Burnett, and the plaintiff was subsequently appointed trustee in bankruptcy of the individual estates of both partners, as well as their copartnership estate. The property in question was the individual property of Kingston, and had been occupied by him and the defendant as a dwelling. For about a year preceding the conveyance, the bankrupt and the defendant had not lived together. He had apparently become enamored of another woman with whom he lived in an adjoining city. The difficulties between him and his wife seem to have increased as the time passed, and latterly it had become very difficult for her to procure from him the money necessary for her support and maintenance. Before the conveyance was made, the bankrupt apparently without justification, advertised in one or more newspapers in Newark, where his wife resided, that he would no longer be responsible for her debts, and specifically notified two merchants, from whom she had theretofore been accustomed to procure supplies on his credit, to withhold further credit from her. This action on his part resulted in a conference between him and the defendant, at which she pointed out his obligation to support her, the fact that he was not doing so, that he was apparently trying 'to starve her out of house and home,' and her destitute condition, and she made a demand that he make some adequate provision for her support. Thereupon, at her suggestion or upon his initiative-- the evidence is not clear which-- but clearly in order to comply with the defendant's demand it was arranged that the property in question should be conveyed to her. This arrangement was accordingly carried out and resulted in the conveyance now under attack. Admittedly there was no consideration for the conveyance except the performance-- whole or partial-- of the bankrupt's obligation to support his wife, and possibly her relinquishment of any demand upon him for further or other support. I cannot find any evidence that the conveyance was made with any actual intent to defraud the bankrupt's creditors, either on his part or on that of the defendant.

Indeed, the plaintiff does not contend that there was any such intent. It is therefore clear that the conveyance in question cannot b avoided under the first paragraph of section 67e of the Bankruptcy Act, which requires that actual fraud must be shown. Coder v. Arts, 213 U.S. 223, 244, 29 Sup.Ct. 436, 53 L.Ed. 772, 16 Ann.Cas. 1008. Furthermore, the evidence is not even sufficient to justify a finding that the bankrupt was insolvent at the time the conveyance was made, although I must confess to a very strong suspicion that such was the case. The bankrupt and his partner, Mr. Burnett, had been conducting a profitable restaurant business in the city of Newark for a number of years preceding the bankruptcy, and the bankrupt's insolvency was due solely to the failure of the firm. The evidence of Burnett, which is the only evidence on this point, is hopelessly contradictory as to whether the firm's financial condition was the same at the time the conveyance was made as it was at the time the petition in bankruptcy was filed.

The trustee claims that it is immaterial to his right to relief whether or not the conveyance was the result of actual fraud, or whether or not the bankrupt was insolvent at the time it was made, because under the laws of New Jersey, applicable to the situation presented in this case, the conveyance might have been avoided by certain of the bankrupt's creditors, and consequently, by section 70e of the Bankruptcy Act, can be avoided by the trustee in bankruptcy. The defendant, on the other hand, insists that section 70e, when a state law is invoked, must be read with the second paragraph of section 67e, and that in such a case the limitations contained in the latter section must be held to be applicable to the former. Hence he argues that, as insolvency on the part of the bankrupt at the time of the conveyance is an essential element of the second paragraph of section 67e, and as such insolvency has not been proven in this case, the bill must be dismissed. It needs but a cursory examination of the two last-mentioned sections to see that there is an apparent inconsistency and overlapping in them. If section 70e is applicable to a conveyance invalid as to creditors under the law of a state, it manifestly covers cases which are included within the second paragraph of section 67e, yet it contains neither the limitation of time nor the requirement of insolvency which the last-mentioned provision does. Perhaps this apparent inconsistency may be avoided if section 70e is held to apply to conveyances which are voidable, as distinguished from void, and the second paragraph of section 67e held to cover conveyances which are void, as distinguished from voidable. It will be noted that in section 70e the language is that the trustee may 'avoid,' which indicates not a void conveyance but rather one which is voidable, while in the second paragraph of section 67e the language is that conveyances 'which are held null and void * * * shall be deemed null and void under this act. ' Or it may be that this overlapping and inconsistency can be explained, as Judge Lowell, in In re Mullen, 101 F. 413 (D.C. Mass.), appears to have thought, because section 67e became a part of the Bankruptcy Act subsequent to the incorporation of section 70 therein, and that neither was modified to conform to the other. However this may be, unless the plain terms of section 70e are to be disregarded, which, of course, is not permissible, it seems entirely clear that the trustee may avoid any transfer by the bankrupt which any creditor of the bankrupt might have avoided, under the laws of the state, had not bankruptcy intervened, irrespective of the time when the transfer was made and of the financial condition of the bankrupt at that time, provided only that conveyances to bona fide holders for value are protected. Such has been the uniform course of judicial decision, without dissent so far as I am aware. In the following cases, the right of a trustee in bankruptcy to set aside a conveyance made by the bankrupt more than four months before the filing of the petition in bankruptcy against him, and which could have been avoided under the laws of the state by creditors, is discussed and recognized: In re Julius Grahs, 1 Am.Bankr.Rep. 465, 469 (D.C. Ohio); In re Gray, 47 A.D. 554, 62 N.Y.Supp.

618, 3 Am.Bankr.Rep. 647; Mueller v. Bruss, 112 Wis. 406, 88 N.W. 229, 8 Am.Bankr.Rep. 442; In re Scrinopski, 10 Am.Bankr.Rep. 221, 224 (D.C. Kan.); Skillen v. Endelman, 39 Misc.Rep. 261, 79 N.Y.Supp. 413, 11 A.B.R. 766, 769; Pratt v. Christie, 95 A.D. 282, 88 N.Y.Supp. 585, 12 Am.Bankr.Rep. 1, 2; Thomas v. Roddy, 122 A.D. 851, 107 N.Y.Supp. 473, 19 Am.Bankr.Rep. 873; In re Mullen, 101 F. 413 (D.C. Mass.); In re Schenck, 116 F. 554 (D.C. Wash.); In re Toothaker Bros., 128 F. 187 (D.C. Conn.); In re Rodgers, 125 F. 169, 60 C.C.A. 567 (C.C.A. 7th Cir.); Bush v. Export Storage Co., 136 F. 918, 920 (C.C. tenn.); Ruhl-koblegard Co. v. Gillespie, 61 W.Va. 584, 56 S.E. 898, 10 L.R.A. (N.S.) 305, 11 Ann.Cas. 929, 22 Am.Bankr.Rep. 643; In re Standard Telephone & Electric Co., 157 F. 106 (D.C. Wis.); Fourth St. National Bank v. Milbourne Mills Co.'s Trustee, 172 F. 177, 96 C.C.A. 629, 30 L.R.A. (N.S.) 552 (C.C.A. 3d Cir.); Manders v. Wilson, 230 F. 536 (D.C. Cal.); Senft v. Lewis, 239 F. 116, 152 C.C.A. 158 (C.C.A. 2d Cir.): Holbrook v. International Trust Co., 220 Mass. 150, 107 N.E. 665, 33 Am.Bankr.Rep. 808. In the following cases, fraudulent conveyances, made more than four months before the filing of the petition in bankruptcy, have been set aside at the suit of a trustee, and in all of them, apparently, the right to do so has been taken for granted and not discussed: Cowan v. Burchfield, 180 F. 614 (D.C. Ala.); Jackson v. Sedgwick, 189 F. 508 (C.C.E.D.N.Y.); Kirkpatrick v. Johnson, 197 F. 235 (D.C. Pa.); Peterson v. Mettler, 198 F. 938 (D.C. Wash.); Andrews v. Mather, 134 Ala. 358, 32 So. 738, 9 Am.Bankr.Rep. 296; Phillips v. Kleinman, 23 Am.Bankr.Rep. 266; Thomas v. Fletcher, 153 F. 226 (D.C. Me.).

It is a necessary conclusion, of course,...