Wilson Brothers v. Cassius Nelson

• Decision Date: 20 March 1901
• Docket Number: No. 31,31
• Parties: WILSON BROTHERS, a Corporation, and Jacob Kahn, Henry Kahn, Jacob Wohlbach, Copartners under the Name of Kahn Brothers & Company, and A. W. Becker, Harry L. Mayer, Joseph Mayer, and Henry B. Mayer, Copartners under the Firm Name of Becker, Mayer, & Company, Appts. , v. CASSIUS B. NELSON
• Court: U.S. Supreme Court

183 U.S. 191

22 S.Ct. 74

46 L.Ed. 147

WILSON BROTHERS, a Corporation, and Jacob Kahn, Henry Kahn, Jacob Wohlbach, Copartners under the Name of Kahn Brothers & Company, and A. W. Becker, Harry L. Mayer, Joseph Mayer, and Henry B. Mayer, Copartners under the Firm Name of Becker, Mayer, & Company, Appts.,

v CASSIUS B. NELSON.

No. 31.

Argued March 20, 1901.

Restored to Docket with Leave to Submit on Briefs April 8, 1901.

Submitted April 22, 1901.

Decided December 9, 1901.

The circuit court of appeals for the seventh circuit certified to this court the following statement of facts and questions of law:

'On February 5, 1885, Cassius B. Nelson executed and delivered to Sarah Johnstone his promissory note in writing for the sum of $8,960, payable 'five years or before after date,' with interest at the rate of 4 per cent per annum until paid. To this note was attached an irrevocable power of attorney, duly executed by the said Nelson under his hand and seal in the usual form, authorizing any attorney of any court of record in his name to confess judgment thereon after maturity of the note. This note was given for so much money at the time loaned to Nelson, and the interest on the note was paid from time to time up to November 1, 1898. Nelson was a trader, and entered into business as such at the city of Madison, Wisconsin, soon after the giving of the note, and carried on such business until his stock in trade was levied upon by the sheriff under execution, as hereinafter stated. On November 1, 1898, Nelson, as he well knew, was and had long been insolvent, and thereafter continued to be and is now insolvent, his liabilities largely exceeding his assets.

'On November 21, 1898, Sarah Johnstone caused judgment to be duly entered in the circuit court of the state of Wisconsin for the county of Dane against said Nelson upon the note and warrant of attorney aforesaid for the sum of $8,975, damages and costs, being the face of the note and $15 costs. Upon that judgment execution was immediately thereafter issued out of the court to the sheriff of that county, who thereunder and by authority thereof on the same day levied upon the stock and goods of Nelson, and thereafter and on December 15, 1898, sold the same at public auction, and applied the proceeds thereof, to wit, the sum of $4,400, upon and in part payment of the judgment so rendered. This proceeding left the said Nelson without means to meet any other of his obligations. The judgment was so entered and the levy made without the procurement of Nelson and without his knowledge or consent. Such judgment was not subject to attack by Nelson, and could not have been vacated or discharged by any legal proceedings which might have been instituted by him in that behalf; nor could the levy under the execution issued upon such judgment have been set aside or vacated by Nelson, except by his filing his voluntary petition in bankruptcy prior to the sale, and obtaining an adjudication of bankruptcy thereunder, or by payment of the judgment.

'On December 10, 1898, creditors of the said Nelson, of the requisite number and holding debts against him to the requisite amount, filed their petition against the said Nelson in the district court of the United States for the western district of Wisconsin, sitting in bankruptcy, to procure an adjudication against him as a bankrupt. The act of bankruptcy therein alleged was in substance that while insolvent he suffered and permitted the said Sarah Johnstone, one of his creditors, to obtain preference upon his property, through legal proceedings, by the entry of the said judgment and the levy thereunder upon his stock of goods, and failed to vacate or discharge the preference obtained through such legal proceedings at least five days before the sale of the property under such judgment and execution. Upon issue joined, the district court ruled that the said Nelson had not, by reason of the premises, committed an act of bankruptcy, and this ruling is before us for review.

'The questions of law upon which this court desires the advice and instruction of the Supreme Court are:

'1. Whether the said Cassius B. Nelson, by failure to file his voluntary petition in bankruptcy before the sale under such levy, and to procure thereon an adjudication of bankruptcy, or by his failure to pay and discharge the judgment before the sale under such levy, committed an act of bankruptcy, within the meaning of § 3a, subd. (3), of the bankrupt act.

'2. Whether the judgment so entered and the levy of the execution thereon was a preference 'suffered' or 'permitted' by the said Nelson within the meaning of clause (3) of § 3a of the bankrupt law.

'3. Whether the failure of Nelson to vacate and discharge the preference so obtained, if it was one, at least five days before the execution sale, was an act of bankruptcy.'

Messrs. Harrison Musgrave, J. M. Flower, and D. K. Tenney for appellants.

Messrs. Wm. F. Vilas and R. M. Bashford for appellee.

Mr. Justice Gray delivered the opinion of the court:

On February 5, 1885, Nelson, in consideration of so much money then lent to him by Sarah Johnstone, executed and delivered to her his promissory note for the sum of $8,960, payable in five years, with interest until paid. Attached to that note was an irrevocable power of attorney, executed by Nelson, in the usual form, authorizing any attorney of a court of record in his name to confess judgment thereon after its maturity. The interest on the note was paid until November 1, 1898. At that date Nelson, as he well knew, was, and long had been, and ever since continued to be, insolvent. On November 21, 1898, Sarah Johnstone caused judgment to be duly entered in a court of Wisconsin upon the note and the warrant of attorney for the face of the note and costs. Upon that judgment, execution was issued to the sheriff, who on the same day levied on Nelson's goods, and on December 15, 1898, sold the goods by auction, and applied the proceeds thereof in part payment of the judgment. This proceeding left Nelson without means to meet any other of his obligations. The judgment was entered and the levy made without the procurement of Nelson and without his knowledge or consent. The judgment and levy were unassailable in law, and could not have been vacated or discharged by any legal proceedings, except by his voluntary petition in bankruptcy. On December 10, 1898, a petition in bankruptcy was filed against Nelson; and the questions certified present, in various forms, the question whether Nelson committed an act of bankruptcy within the meaning of § 3, cl. 3, of the bankrupt act of 1898.

In considering these questions, strict regard must be had to the provisions of that act, which, as this court has already had occasion to observe, differ in important respects from those of the earlier bankrupt acts. Bardes v. First Nat. Bank, 178 U. S. 524, 44 L. ed. 1175, 20 Sup. Ct. Rep. 1000; Bryan v. Bernheimer, 181 U. S. 188, 45 L. ed. 814, 21 Sup. Ct. Rep. 557; Wall v. Cox, 181 U. S. 244, 45 L. ed. 845, 21 Sup. Ct. Rep. 642; Pirie v. Chicago Title & T. Co. 182 U. S. 438, 45 L. ed. 1171, 21 Sup. Ct. Rep. 906.

In § 3 of the bankrupt act of July 1, 1898, chap. 541, acts of bankruptcy are defined as follows: 'Acts of bankruptcy by a person shall consist of his having (1) conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, any part of his property with intent to hinder, delay, or defraud his creditors, or any of them; or (2) transferred, while insol- vent, any portion of his property to one or more of his creditors, with intent to prefer such creditors over his other creditors; or (3) suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings and not having, at least five days before a sale or final disposition of any property affected by such preference, vacated or discharged such preference; or (4) made a general assignment for the benefit of his creditors; or (5) admitted in writing his inability to pay his debts and his willingness to be adjudged a bankrupt on that ground.' [30 Stat. at L. 544.]

In the first and second of these an intent on the part of the bankrupt, either to hinder, delay, or defraud his creditors, or to prefer over other creditors, is necessary to constitute the act of bankruptcy. But in the third, fourth, and fifth no such intent is required.

The third, which is that in issue in the case at bar, is in these words: '(3) suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings, and not having, at least five days before a sale or final disposition of any property affected by such preference, vacated or discharged such preference.'

By the corresponding provision of the bankrupt act of 1867, any person who, being bankrupt or insolvent, or in contemplation of bankruptcy or insolvency, 'procures or suffers his property to be taken on legal process, with intent to give a preference to one or more of his creditors,' 'or with the intent, by such disposition of his property, to defeat or delay the operation of this act,' was deemed to have committed an act of bankruptcy. Act of March 2, 1867, chap. 176, § 39, 14 Stat. at L. 536; Rev. Stat. § 5021.

The act of 1898 differs from that of 1867 in wholly omitting the clauses, 'with intent to give a preference to one or more of his creditors' or 'to defeat or delay the operation of this act;' and in substituting for the words 'procures or suffers his property to be taken on legal process,' the words 'suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings,' and not having, five days before a sale of the property affected, 'vacated or discharged such preference.'

There is a similar difference in the two statutes in regard to the preferences declared to be avoided.

The act of 1867 enacted that if any person, being insolvent, or in contemplation of insolvency,...