Opinion
(December Term, 1847.)
1. As a certificate of bankruptcy may be pleaded in all courts, it may be impeached for fraud in any court in which it may be set up as a bar.
2. Where a son, being insolvent, conveyed property to his father for an apparently valuable consideration, and was permitted to remain in the continued possession and exercise of ownership over it for a number of years, a presumption of fraud is raised, either that the conveyance, though absolute upon its face, was not bona fide for the benefit of the father, but upon some secret trust for the insolvent vendor or donor, or, at the least, that there was intention to give the son a false credit. The presumption is not a conclusive legal one establishing the fraud, but must be submitted to a jury.
3. It is not every omission of property in the schedule of a bankrupt that invalidates the decree of discharge, but only a fraudulent conveyance or willful concealment of it.
APPEAL from the Superior Court of Law of MOORE, at Fall Term, 1847, Caldwell, J., presiding.
No counsel in this Court for plaintiff.
Strange, with whom was Kelly, for defendants.
This is a scire facias to revive a judgment. The defendant McNeill pleaded a certificate of bankruptcy granted on his application by the District Court of the United States for this district. Replication, that the said defendant had (140) fraudulently conveyed to certain persons his lands, goods and credits, with intent to hinder the relator and his other creditors of their debts, and that he did not make a true and accurate inventory of his property, rights and credits, in his petition, but was guilty of the fraudulent and willful concealment thereof; and it then specifies sundry tracts of land and chattels which the defendant then owned and did not include in his inventory, and willfully concealed, and had before that time conveyed with the intent to defraud the relator. Rejoinder, and issue.
The original judgment was rendered in August, 1838, in a suit commenced in November, 1836. The petition in bankruptcy was filed in July, and the certificate granted in October, 1842. On the part of the plaintiff evidence was given that in February, 1838, the defendant conveyed to his father three tracts of land and a wagon, four horses, and gear; and that no part of that property was included in the defendant's inventory. Evidence was further given on the part of the plaintiff, tending to show that the conveyance to the father was made without any valuable consideration, or, if for any, for an inadequate one, and that the defendant continued in the possession and enjoyment of all the land, the wagon, horses and gear, up to the time of the trial in August, 1847, using them as his own. On the part of the defendant evidence was then given, tending to show that the conveyance from him to his father was founded upon a real sale for a fair price. Evidence was further given on the part of the defendant that in 1840 the lands which he had conveyed to his father were sold under a fieri facias against the defendant's property, and were purchased by one Morrison, who, however, had never taken a deed or possession.
Upon that evidence the counsel for the defendant insisted that the conveyance to the defendant's father was made in good faith and upon a sale for an adequate valuable (141) consideration; and, further, that the sheriff's sale to Morrison divested any title that might then have been in the defendant, or, at least, excused him for not including the property in his schedule; and, finally, that the certificate of bankruptcy was a conclusive discharge from this debt. Upon these points the court instructed the jury that the certificate of bankruptcy was not conclusive, but might be impeached in this suit for fraud in the defendant's conveying his property without a valuable consideration, and to hinder his creditors, and willfully concealing the same in his proceedings in bankruptcy; that if the defendant retained the possession and enjoyment of the property after he had conveyed it to his father, as deposed to by the witnesses, it raised a presumption that the conveyance was fraudulent; but such presumption would be repelled if the jury believed that the conveyance was executed bona fide and for the considerations stated by the witnesses on the part of the defendant. And lastly, that the purchase of Morrison did not divest the title of the defendant, if he had any, and that the case was not affected by that transaction.
The jury found that the conveyance from the defendant to his father was made to defraud the defendant's creditors, and that the defendant did not make a full and fair surrender of his property and estate in his schedule, but willfully and fraudulently concealed parts thereof, to wit, the land, the wagon, horses and gear that had been so conveyed to his father, and, by means thereof, fraudulently obtained the certificate of bankruptcy. Judgment was rendered thereon for the plaintiff, and the defendant appealed.
The instruction, respecting the operation of the decree and certificate of bankruptcy, is sustained by the express provisions of the act of Congress of 19 August, 1841. The first section provides for both a voluntary application of all debtors to be declared bankrupts and for an application by creditors of certain classes of debtors, to have them so declared. In a case of the latter kind it is, contrary to the rule in England, enacted in the close of the section that the decree passed by the court, as therein directed, "shall be deemed final and conclusive as to the subject-matter thereof." But the provision is different as to a case of the former kind. Though it may be in the power of Congress to discharge insolvents from their debts, at their own instance, it was, we believe, a new principle in the law of bankruptcy, and so strongly tends to encourage men dishonestly to contract debts which they do not expect nor mean to pay, as to make it highly proper, as far as possible, to guard the courts from imposition and protect creditors from fraud in obtaining a discharge. It is enough to put it in the power of a man, after running in debt, to spend all his property and then, upon his own motion and upon his own oath, free himself and his future acquisitions from liability to his creditors. The law should therefore see, at least, that the party had no property, or that he had freely surrendered all that ought to go towards the satisfaction of his debts. It is a just and fitting requital to one who attempts to get (143) a discharge by denying that he owns property, when in fact he does, or by purposely concealing any part of what he does own, to refuse him, in the first place, the discharge upon any terms, and, in the next place, to hold a discharge obtained by such means ineffectual and void, whenever the fraud shall appear. Accordingly, the act of Congress contains several provisions intended to counteract the mischiefs that might arise from this new principle. The first section requires the debtor to set forth in his petition "an accurate inventory of his property, rights and credits of every name, kind and description, and the location and situation of each and every parcel and portion thereof." The fourth section enacts "that every bankrupt who shall bona fide surrender all his property" (with certain exceptions, not material here) "for the benefit of his creditors, and shall comply with the orders of the court, shall be entitled to a full discharge from all his debts, to be decreed and allowed by the court which has declared him a bankrupt, and a certificate thereof granted to him by such court accordingly, upon his petition filed for that purpose. And if any such bankrupt shall be guilty of any fraud or willful concealment of his property or rights of property, or shall have preferred any of his creditors, contrary, etc., he shall not be entitled to any such discharge or certificate." Thus far the act provides only for the grant or the refusal of the certificate by the court of the United States proceeding in bankruptcy. One who has been guilty of fraud or the willful concealment of property "shall not be entitled to a discharge or certificate." The bar to the discharge is not temporary, or until the debtor shall supply the omission in his inventory, or make a further and full disclosure, but it is peremptory and perpetual, at least, in respect of that application, as a penalty for the attempt to commit a fraud on the act by a fraudulent conveyance or willful concealment of property. But that is not all; for the Legislature (144) was aware that such dishonest practices might escape the vigilance of the most cautious judge, and intended, if they should, that notwithstanding the success in his application, the dishonest party should not permanently have the immunities meant for honest insolvents; and, therefore, it was provided further "that such discharge and certificate, when duly granted, shall, in all courts of justice, be deemed a full and complete discharge of all debts, etc., and may be pleaded as a full and complete bar to all suits brought in any court of judicature whatever, and the same shall be conclusive evidence of itself in favor of such bankrupt, unless the same shall be impeached for some fraud or willful concealment by him of his property or rights of property as aforesaid, contrary to the provisions of this act, on prior reasonable notice, specifying in writing such fraud or concealment." The remedy of the creditor is not, therefore, an application to the court of bankruptcy, upon the ground of fraud newly discovered, but it is by replying the fraud of the bankrupt to his plea of the certificate, so as thereby to avoid the bar. As the certificate may be pleaded in all courts, it follows that it may be impeached in any court in which it may be set up as a bar. There was, therefore, no error in this part of the instructions to the jury.
The Court concurs, also, in the opinion with respect to the inference to be drawn from the continued possession and use by the defendant of the property he conveyed to his father. The whole was conveyed at once, and the personalty consisted of the perishable articles of a wagon and team. There was a conflict of testimony as to the consideration and purposes of the conveyance, whether there was an adequate or even any valuable consideration or not. In that state of facts, and when it appears that the defendant was at the time indebted in sums which remain unpaid to this day, and which, the defendant (145) says, he is unable to pay, a continued possession and exercise of ownership for upwards of nine years over all the property conveyed to his father, and, as far as appears, without any act or claim of ownership by the father, do surely raise a presumption of a fraud; that is to say, either that the conveyance, though absolute upon its face, was not bona fide for the benefit of the father, but upon some secret trust for the insolvent vendor or donor, or, at the least, that there was an intention to give the son a false credit upon his continuing apparent ownership of the property. The presumption is not, indeed, a peremptory and conclusive legal one, establishing per se the fraud. But, in the language of his Honor, those facts "raised a presumption" that the conveyance was fraudulent, which, however, would be repelled if upon the whole evidence, including the continued possession and enjoyment of the property, the jury thought that the conveyance was executed for an adequate valuable consideration and bona fide. Formerly, indeed, it was held that the continued possession of personal chattels by a vendor, after an absolute conveyance, was per se fraudulent in law — so strong was the presumption then supposed to be. It is true, Edwards v. Harben, 2 Term, 587, and that class of cases have not been sustained in their whole extent for many years past. Yet they are not so far departed from as to authorize the Court to say that such continued possession and enjoyment do not create a presumption of covin, either by way of a secret trust or the giving of false credit. On the contrary, the ground on which such facts are allowed to go to the jury is that a presumption of fraud does arise from them, though it may or may not be sufficient to authorize the finding of the fraud, as it may be fortified or impaired by other evidence. Indeed, in the present case, the presumption of a fraud was cogent, considering the relation of the parties and the duration of the enjoyment; for a possession, derived from a father, of the wagon and team, and continued so long, is, by presumption (146) of law, a gift, unless the contrary be clearly proved; and a principal ground for that rule is the security of the son's creditors. Carter v. Rutland, 2 N.C. 97.
The purchase of Morrison, without taking a deed, did not divest the defendant's title to the land. Yet, it is not every omission of property in the schedule that invalidates the decree of discharge, but only a fraudulent conveyance or willful concealment of it. It might have been an honest mistake in the defendant in supposing that he ought not to inventory the land which Morrison had purchased. On the other hand, the delay of the purchaser for seven years to take a deed from the sheriff, and the enjoyment during that period by the defendant, afford reasonable grounds for suspecting the fairness of the purchase, and that some interest remained with the defendant. It was, therefore, as we think, a proper point to be left to the jury, whether the defendant had not some interest in the land and willfully concealed it; and, if the case depended on that point, the Court would feel obliged to award a venire de novo. But the point in respect to that land became immaterial by the finding of the jury as to the wagon, horses and gear; for, although the defendant may have innocently omitted his naked legal title to the land, if it was purchased bona fide by Morrison, yet that did not excuse the omission of the chattels, which Morrison did not buy, but which belonged to the defendant for the purposes of his creditors, and, as the jury found, were willfully concealed by him. Such concealment of those articles as effectually excludes the party from the benefit of the certificate as if he had also fraudulently concealed the land; and, therefore, the presiding judge was right, as it turned out, in saying that Morrison's purchase of the land did not affect the case; and the judgment must be affirmed.
PER CURIAM. Judgment affirmed.
Cited: McCanless v. Flinchum, 89 N.C. 375; Laffoon v. Kerner, 138 N.C. 287.
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