Watson, Assignee v. Taylor
| Decision Date | 01 October 1874 |
| Parties | WATSON, ASSIGNEE, v. TAYLOR, |
| Court | U.S. Supreme Court |
ON certificate of division in opinion from the Circuit Court for the Western District of Pennsylvania. The case was thus:
Taylor, prior to the 4th of August, 1868, was, and at the time of this suit still continued to be, a wholesale drygoods merchant, in Pittsburg, Pennsylvania.
Sweeney, prior to the same day, was, and until January 13th, 1869, continued to be, a retail merchant, residing and doing business in Freeport, Pennsylvania. For some time prior to the said 4th of August, 1868, and up to January 1st, 1869, Sweeney was a customer of Taylor in the purchasing of merchandise on credit, according to the usual course of the business.
On the 4th of August, 1868, Sweeney was in debt to Taylor in an account then due, for merchandise previously purchased in the ordinary course of business; and on that day, according to the custom of said Taylor, and in the ordinary course of business, closed the account by executing and delivering to Taylor a note, with warrant of attorney, for $800, the balance of the account, embracing the amount of a small bill of goods, about $13, that day sold said Sweeney, payable four months after date, with interest. After this Sweeney continued to purchase from Taylor merchandise as before, all of which had now been paid for, but he paid nothing on the note.
It was the regular custom of Taylor to close such accounts by taking notes with warrant of attorney.
The note remained unpaid, and on the 1st of January, 1869, was, by an agent of Taylor, delivered to Taylor's attorneys for collection (he having demanded payment a day or two before), and was by them entered of record and judgment confessed by virtue of the warrant of attorney, and on the same day a writ of fieri facias was issued thereon and delivered to the sheriff, which became a lien under the laws of Pennsylvania upon the goods and chattels of Sweeney, and upon the 4th day of January, 1869, an actual levy was made in pursuance of said writ upon the personal estate of Sweeney, consisting of drygoods, groceries, & c., in his store at Freeport, being all he had, the store being closed and sold out on the execution (he having no real estate), and, in accordance with said law, the goods and chattels were sold by the sheriff on the 13th day of January, 1869, and on the 18th of January, 1869, the sum of $860 paid over by the sheriff to Taylor's attorneys, who paid it to him, Taylor. Neither Taylor nor his counsel became the purchasers of any property thus sold by the sheriff.
It appeared from the evidence that at the time of taking the note and confessing judgment thereon there was no fraud or collusion intended by either Taylor or Sweeney, and Taylor testified that he did not know or have any reasonable cause to believe that Sweeney was bankrupt or insolvent, or contemplated bankruptcy or insolvency, or any fraud on the Bankrupt law.
On the 15th of January, 1869, two days after the sale, a petition in bankruptcy was filed in the United States District Court, at Pittsburg, against Sweeney, by Hanlon and others, his creditors, and on the same day an injunction was awarded, which was never served personally on Taylor, or in any manner upon his attorneys, but was served on the sheriff on the 18th January, 1869, after the money had been paid over. There was no evidence given to show that at the time of receiving the money, either Taylor, his attorney, or the sheriff had any notice of said writ of injunction or proceedings in bankruptcy.
On the 2d of February, 1869, Sweeney was adjudged bankrupt, in default of appearance to the rule to show cause, and on the 30th day of March, 1869, Watson was chosen his assignee, to whom an assignment was duly made by the register.
Watson, the assignee, now brought assumpsit in the court below, to recover the value of the personal property sold under the confession of judgment; and on the trial these questions occurred and were certified to this court:
1. Whether the confession of judgment, execution, levy, and sale, as proved, constituted an indirect transfer of the property with a view to give a preference, within the meaning of the thirty-fifth section of the Bankrupt Act.
2. Whether the confession of judgment, execution, levy, and sale aforesaid, constituted a transfer or other disposition of the property, with a view to give a preference.
3. Whether, if the facts aforesaid constituted a transfer or other disposition within the meaning of the Bankrupt Act, it was made at the date of the warrant of attorney, or at or after the time of confessing the judgment.
4. Whether, from the debtor's default in payment of the debt, the warrant of attorney, the confession of judgment, execution, and levy, as aforesaid, the execution creditor had reasonable cause to believe that the debtor was insolvent, and that the proceedings were in fraud of the Bankrupt Act.
5. Whether the entry of judgment in the State court and the proceedings therein, as aforesaid, constitute a bar to the present suit.
No counsel for Watson, the assignee; Messrs. E. S. Golden and G. W. Guthrie, for the creditor, Taylor.
In this case the proceedings in bankruptcy were commenced on the 15th of January, 1869. On the 4th of August, 1868, more than five months before the petition was filed, the bankrupt gave to the defendant his promissory note containing a warrant to confess a judgment thereon. By virtue of the warrant a judgment was entered on the 1st day of January, 1869, and the execution, levy, and sale immediately followed. Were there nothing more in the case, what we have just decided in Clark v. Iselin would determine that no preference within the meaning of the Bankrupt Act was given. The case, however, shows affirmatively that no fraud or collusion was intended, either at the time when the note was given or when the judgment was entered, and that the creditor had no reason to believe the debtor was insolvent.
The first, second, and fourth questions are, therefore, answered in the negative, and, being thus answered, the other questions become immaterial.
The importance of the principle involved in the decision of these cases justifies a statement of the position of those who do not concur in the decision.
Stated in brief words the decision is this: A merchant in solvent circumstances may give his creditor a warrant to confess a judgment, which may be held by him, concealed from the knowledge of every other person; the debtor may continue his business for an indefinite time, buying other goods of the same creditor, paying for the new purchases, but paying nothing on the judgment debt, and when he becomes insolvent, judgment may be perfected on the warrant of attorney so given, execution issued, and the proceeds of the property sold paid to the judgment creditor in preference to and in exclusion, if need be, of all other creditors.
In the case of Iselin the warrant of attorney was held by him unacted upon for two months, and in the case of Taylor for five months. The precise time is not important. If the power to enter the judgment may remain unexercised for five months, and be enforced after insolvency has occurred, there is no limit to the time, except such as may arise from the statute of limitations. In the case of Iselin the confession was given to secure a debt then created. In the case of Taylor it was given to secure an antecedent debt. The decision, therefore, embraces as well the case of a debt past due at the time of giving the confession as of a debt then created.
1st. This decision impresses me as being in violation of the whole spirit and intent of the Bankrupt law, and as calculated to destroy its beneficial effect.
The first principle of this law is to secure an equal distribution of the property of a bankrupt among all his creditors. Its first intent was to destroy the...
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