UNITED STATES v. KING, 26 F. Cas. 788

TILGHMAN, Chief Judge. AVe regret that so important a question should be brought up for determination, in the course of a trial, upon an objection to a witness. It must, however, receive an answer. Upon the best consideration which the circumstances will permit us to bestow on the point, we are of opinion, that debts due to the United States are not within the provisions of the bankrupt law; but that the debtor, his lands and effects, present and future, are liable to actions and remedies for the recovery, as before the passing of that act. The sixty-second

section of the law seems decisive. The consequence is, that the witness must be rejected, for it is plainly his interest that the United States should recover, in this action against James King, the moneys due on the judgments and executions against himself and partner. For, as against James King, (whose debt against the house will be revived) he may plead his certificate in bar; but should the United States fail to recover the debt in this way, his person and future effects may be made liable to their suit on the judgments. THE COURT gave no opinion on the other objection to the witness.

The question of fact litigated on the trial, was, whether the house of Johnson and King was insolvent on the 15th Hay, 1799, when the assignment of the wines was made to James King the defendant, in satisfaction of a precedent debt to him, for goods and moneys advanced to the house. On the part of the United States, it was asserted, that the house was in failing circumstances in the fall of 1798, and became insolvent, and stopped business in the course of the winter.

That this assignment was made to the father of one of the partners on the 15th May, 1799, after the date of the custom-house bonds to the United States, on which judgments had been obtained, and for which the executions had been levied on the wines in question. Hr.’ Rawle, for the United States, cited the several acts of congress which provide, that in cases of insolvency, &e. debts due to the United States, shall be first paid. See [1 Stat. 169, § 45; Id. 263, § 18; Id. 515, § 5; 2 Stat. 676, § 65].

By this last act, which seems to embrace the former provisions, and to define them, it is enacted, that where any bond for the payment of duties shall not be satisfied on the day it may become due, the collector shall, forthwith, cause a prosecution to be commenced for the'recovery of the money, &c. “And in all cases of insolvency, or where any estate in the hands of the executors, administrators or assignees, shall be insufficient to pay all the debts due from the deceased, the debt or debts due to the United States, on any such bond or bonds, shall be first satisfied; and any executor, administrator, or assignee, or other person, who shall pay any debt due by the person or estate from whom, or for which, they are acting, previous to the debi or debts due to the United States from such person or estate being first duly satisfied and paid, shall become answerable in their own person and estate, for the debt or debts, &c. and actions may be commenced, &c. and the cases of insolvency mentioned in this

section shall be deemed to extend as well to Cases in which a debtor, not having sufficient property to pay all his or her debts, shall have made a voluntaryassignment thereof, for the benefit of his or her creditors, or in which the estate and effects of an absconding, concealed or absent debtor, shall have been attacned by process of law, as to cases in which

an act of legal bankruptcy shall have been committed.” Several witnesses were examined on the part of the United States, who proved that in the fall of 1798 the house was greatly embarrassed, their notes at the bank protested, and renewed again by the same endorsers on small payments; previous to the assignment for some months, they made no purchases, and there remained on hand of goods at that time, but an inconsiderable stock.

They met with very great losses at sea, and from the whole evidence, it was pretty clear that the house was insolvent on the 15th May, 1799, when the assignment to the defendant in payment of his debt, was made. However, until the 1st June following, they continued to pay debts; and actually paid off, after the assignment, debts to the amount of near 8,000 dollars; but on the 1st June, 1799, they applied to their creditors for and obtained a letter of license, &c.

On the part of James King the defendant, it appeared, that he was a bona fide creditor to the amount of his assignment: it did not appear that he knew the house was actually insolvent, when he took the assignment: though he knew of their difficulties, and might reasonably apprehend his debt to be in danger, unless secured. Mr. Kawle, for the United States, stated that the only question for the jury was, whether the house of Johnson and King, we¿e solvent or insolvent, on the loth May, 1799, the date of the assignment.

If insolvent, then, he maintained the assignment was void as against the debt of the United States; being in destruction of their preference in such case, under the acts of congress; and from the whole evidence, said it was very clear that on the 15th of May, 1799, they were unable to pay their debts, and had been so ever since. Rawle cited the following cases: Cockshot v.

Bennett, 2 Term R. 763, that a subsequent promise, founded on a prior fraudulent consideration, was not good. 3 Term R. 551; 4 Term R. 167; 6 Term R. 146, where debts secured to particular creditors, in breach of confidence. and general rights of other creditors, who came into friendly accommodations with the debtor, were held void.

Ingersoll & Hallowell, contra, for defendant, argued, that admitting it could be ascertained with certainty, the house at that period stood debtor beyond its ability to pay; yet it was a misconstruction of the acts of congress, from thence to conclude, that all payments, assignments, and bona fide transfers of the debtor, were to be over-reached, in favour of the preference given to the debts of the United States.

That congress never intended to interpose a preference as against other creditors who received satisfaction from the debt- or in the course of trade and business, and before the debtor had become notoriously insolvent; by assignment of his effects to trustees for the benefit of his creditors; or had committed

an act of bankruptcy, or his property was attached, or some other decided, and unequivocal act of inability to pay, was manifested. The consequences of a different construction, they alleged, would be pernicious in the highest degree. As to the general right of a debtor, to prefer a particular creditor in such case, they said there was no doubt, and cited 8 Term R. 528, where an assignment to trustees to pay particular creditors was held to be valid. TILGHMAN, Chief Judge (charging jury). At common law, a debtor, though insolvent, may prefer a creditor.

He may assign all, or any part of his effects in satisfaction of a bona fide debt, in exclusion of all other creditors. The bankrupt laws, and particular statutes, however, in particular eases, have interfered in favor of the general creditors, or some particular description of debts; and taken from the debtor his right of preference. In this case, the right of the defendant under the assignment, as against the United States, is not affected by the bankrupt law.

But it has been contended, that the special acts of congress giving to debts due to the United States upon bonds for duties, a preference of payment in cases of insolvency of the debtor, will avoid the assignment: because at the time of the assignment, as it now appears from the evidence, the house was unable to pay its subsisting debts. We are clearly of opinion, that it is not every ease of actual insolvency, which is within the words or intent of the acts of congress. Traders in business, and continuing so, may be really insolvent: they may be so unknown to themselves, and frequently unknown to mankind.

It would be productive of the greatest injustice, and serve to embarrass and check mercantile transactions, if the right of a creditor to retain his payment, or transfer of property in payment, as against customhouse bonds, was to depend upon a future scrutiny on the part of the United States, into the actual condition of the debtor’s affairs, at the time of the payment, sale or assignment: it would lead to inextricable difficulties.

Our opinion is, that the act of the 2d March, 1799, in its terms and meaning, only gives a preference as against other creditors, on custom-house bonds, after a notorious act of insolvency; as where the debtor has assigned for the benefit of his «'editors; where he has absconded, and his property is attached. &c.

In the case before us, although when the assignment was made, it is probable the house was really insolvent, yet no act of bankruptcy had been committed; no assignment made to any one creditor of all the effects; no attachment had issued; no transfer made to assignees for the benefit of all, or any particular creditors;—the house continued in business, and, though greatly embarrassed, paid debts until the 1st June.

The defendant does not appear to have been privy to, or an agent in any fraud; but received the wines as a security for a bona fide debt: this, therefore, is not a case of insolvency within the acts of congress, under which the United States can claim a preference, so as to avoid the assignment made to the defendant. The jury found a verdict for the defendant.