Ex parte SHOUSE, 22 F. Cas. 27

RANDALL, District Judge. Several exceptions have been taken, by the counsel for the respondents, to the regularity of the proceedings in this case, which it may be well to consider before entering into any examination of the merits of the application, for, if well founded, they must put a stop to the present proceedings. It is said the petition is informal, inasmuch as it does not state the nature and character of the petitioning creditors’ debt. This, however, 1 apprehend to be wholly unnecessary.

It sets forth that the respondents owe them five hundred dollars and upwards; this is all which is required either by the act of congress or the rules of court; indeed, the form of petition prescribed by the court, has been literally followed by the petitioners, and is sufficient to institute the proceedings, although it may not be sufficient to entitle them to a dividend of the assets. The same general allegation of indebtedness-was made under the bankrupt law of 1800 [2 Stat. 19] (Coop. Bankr. Law, Append, vii.), and in England no other particulars are required. Ex parte Ward, 1 Atk. 153.

It is next said that the debts of the petitioning creditors were not due at the time of presenting their petition, and therefore it cannot be prosecuted. Without deciding whether it is or is not necessary that the debt should be due at the time of presenting the petition (which I strongly incline to doubt), it is sufficient to say that in this ease the question does not arise.

It is admitted that there was due to Meckie, Plate & Company, one firm of the petitioners, $373 47, being the amount of a promissory note drawn by the respondents, and which fell due on the 26th April, 1842; and that Carr & Hall were the owners of a note drawn by the respondents in favor of Edmund Grundy, dated the 5th October, 1841, at six months, for $4SS 4G.

But this last note, it is said, was not given by the respondents until the 2d or 3d of May, 1842, and was then purchased by Carr & Hall from Grundy; that this being after the acts of bankruptcy complained of, the amount cannot be computed in Carr & Hall’s claim; and that a creditor will not be permitted to purchase claims against a debtor, and thus enable himself to obtain a commission of bankruptcy. To this I cannot agree. The act of congress declares that the application shall be “upon the petition of one or more of their (the bankrupt’

s) creditors, to whom they owe debts amounting in the whole to not less than five hundred dollars.” The object of this was, no doubt, to prevent frivolous and vexatious applications by creditors holding trifling demands, and when perhaps the expense of the proceeding might equal the debt to the creditor. All, however, that is required by the act is, that the petitioners should be creditors to the amount of five hundred dollars at the time of presenting their petltión.

No.w it is admitted that the debt was justly due and owing to Grundy, and it is proved that the note was given to him to enable him to sell it to Carr & Hall; by the purchase they became the creditors in place of Grundy, and were as much entitled to join in this application, as he would have been before the sale of the note. Glaister v. Hewer, 7 Term R. 498; Ex parte Lee, 1 P. Wins. 782. There was also a debt of $176 due to Carr & Hall for money loaned by them to the respondents, and as collateral security therefor they held a note drawn by one Healy, not yet due.

The respondents, however, had also given their own note for the amount, payable on demand, and suit could have been maintained thereon at once; for though Healy’s note was not yet due, it had not been received as a payment, but as a pledge or security, to be surrendered when payment was made. Thus the amount due and owing to the petitioning creditors, on the 5th May, when the petition was filed, amounted to upwards of $1000, and the debts actually due by the respondents to more than $2500.

The exceptions to form being thus disposed of, let us examine what are the acts of bankruptcy complained of, and how they are supported by the evidence. The petition charges that the respondents became bankrupt on or about the 1st of April last: By a fraudulent dissolution of their partnership and transfer of all the interest of Henry Shouse in the assets of the firm, they being insolvent, for the purpose of enabling one William Shouse to enforce against the assets a separate debt of Jacob A.

Shouse to the said William Shouse to the amount of $6000, bearing interest, under a judgment bond executed the 15th January, 1S33, before the formation of the partnership; and also to enable him, the said Jacob A.

Shouse, to pay a certain other separate debt of his, the said Jacob's, to a large amount, in whole or part out of the assets of the said partnership, to the injury of the petitioners and the other creditors of the tirra; and by the said Jacob and Henry, or Jacob with the knowledge and consent of Henry, having made fraudulent transfers of evidences of debt to prefer divers creditors of the firm; to-wit: to Charles Hulse, to secure a debt of $149 90, and to John Shouse, to secure a debt of $100.

The answer of the respondents distinctly and unequivocally denies each of the allegations in the petition, and that any act of bankruptcy has been committed. From the evidence reported by the commissioner, it appears that the respondents entered into copartnership, in the dry goods and hosiery business, about the 1st August, 1840, and continued until the 1st April, 1842, when the partnership was dissolved by a verbal agreement, Henry TV.

Shouse retiring from the business, which was continued by Jacob, who took the assets and assumed the debts of the firm; he continued in business until the 2d May, 1S42, and during that time, sold goods to the amount of $2473 19, and paid debts of the firm amounting to about $1800; he also purchased goods on his individual account to the amount of $50G G7.

Prior to entering into copartnership with his brother, Jacob was indebted to his father, TVilliam Shouse, who resided in Easton, Pennsylvania, in the sum of $6000, for money borrowed in 1833, for which his father held his bond and warrant of attorney to confess judgment, and was also indebted to the firm of Shouse, Dickinson, and Company, of which he had been a member, in the sum of $4000, for which they held his notes. On the 2d of May, 1S42, the respondents called a meeting of the creditors of the firm, and stated their inability to pay their debts.

A committee of creditors was appointed to examine into their affairs, and on the 3d, reported that the liabilities of the firm amounted to $17,430 9G, and their assets to $1G,G92 28, showing a deficiency of $75S GS. They also reported tliat Jacob A. Shouse was indebted to Dickinson and Brother in $4000, for his proportion of the debt of Shouse, Dickinson & Company, and to his father in $0000, on the bond before mentioned, but they did not consider it just or proper that either of these debts should be paid out of the assets of the firm.

The respondents, however, insisted that the debt to their father should be first paid in full, and Dickinson and Brother be allowed to come in, pro rata, with the other creditors; or they proposed to pay forty per cent, on the amount of the claims in eight equal instalments at four, six, eight, ten, twelve, fourteen, sixteen, and eighteen mouths, in notes to be endorsed by William Shouse, and the further sum of five per cent, in their own notes, without endorsers, at twenty mouths. The committee recommended that this proposition be declined. At both of the meetings William Shouse was represented by his son.

John, who had the bond in his possession, and, on the 3d May, entered judgment thereon in the district court for the city and county of Philadelphia. The creditors declined acceding to the proposition of the respondents, and this petition was filed on the 5th of May. It has been insisted by the counsel for the petitioning creditors that the dissolution of copartnership, and assignment by Henry to Jacob of all the property of the former in the firm, was, in itself,

an act of bankruptcy, as it assigned all his property, he having no separate estate. To recognise this doctrine would be most disastrous to the business community. A member of a commercial firm could not retire from it, no matter with what motive, without making himself liable to a commission of bankruptcy, and his copartners subject to the contingency of having their business broken up and destroyed when they were in a flourishing condition. Such a dissolution cannot be considered as necessarily, in itself,

an act of bankruptcy in any of the co-partners; there is no intrinsic evidence of fraud on the face of it, and unless accompanied by fraudulent acts or intentions it is perfectly legitimate. But if the dissolution is a mere cover to conceal either actual or legal fraud, or with intent to give a preference to a separate creditor over those of the partnership, or to bring him in on an equality with them in the distribution of the assets of the firm, which could not have been if the partnership had continued, then there is such a fraud on the partnership creditors as will make it

an act of bankruptcy; for it matters not what may be the mode of conveyance, if the intent is fraudulent courts will guard against any evasion of the law.

The intent then with which the dissolution was agreed upon being the material point for consideration in this first charge, it is necessary to examine more minutely the details of the evidence as to the acts and doings of the parties, at and about the time it took place, and, as this is more a question of fact than of law, I would be-glad if I could at once refer it to a jury for determination, but as the act of congress has imposed on me the duty of deciding it in the first instance, I will do so according to the view I have taken of the evidence.

Much has been said as to the credibility of witnesses as well as in regard to their competency. I conceive it to be the duty of a judge, as of a jury, where there is a conflict of testimony to give such a construction to it as will, if practicable, reconcile the whole, or, if that cannot be done, to give more weight to direct and positive-than to negative testimony, but if the evidence be uncontradicted. and not improbable in itself, that full faith should be given to it by the court.

"With this view I have carefully examined the testimony exhibited to me, and am of opinion that the weight of it is in favor of the petitioning creditors. In coming to this conclusion I have less difficulty, as it is not obligatory on the respondents, who have- the right of appealing to a jury to determine the correctness of my decision, while a contrary course would be binding upon the petitioners. As the case will, without doubt, go to a jury, I will not enter into any detailed argument on the facts, but briefly state the principal grounds on which my conclusion is formed. The business of J. A. and H. W.

Shouse does not appear to have been very prosperous. A short time before the dissolution of the copartnership Mr. M’Henry called on them for the payment of a small bill: Jacob said they were unable to pay it; that he was sicli of the business and had made up his mind to quit it; that he then owed $10,000 in his individual capacity and had no property but his interest in the partnership concern. There is no evidence that Henry in his individual capacity owed a dollar.

Six thousand dollars of Jacob’s individual debt was owing to their father, who could have no claim on the property of the firm till the partnership debts were paid. Under these circumstances they dissolved partnership on the 1st April, and the property of the firm was assigned to Jacob. It is true some payments were made by him on account of the debts of the firm, but not equal to the amount of sales.

As early as the Sth April a note for $500 became due, of which only $150 was paid, and on several other notes which fell due. before the 20th of that month only partial payments were made; on the 20th, the note for $373 47, held by Meckie, Plate & Company, fell due, and no part of it was paid. It is evident that the firm was in difficulties at the time of the dissolution, but it is said that this step had been contemplated for some time, and that Henry, in consequence of ill health, wished to remove to the country.

The evidence is, however, that, notwithstanding the dissolution, Henry remained in town, continued about the store, and actually wrote the notices for the meeting of creditors on the 2d of May; at that meeting he took an active part, and when requested by one of the creditors to agree to the appointment of a receiver, acknowledged his authority to do so, but declined, and expressed his desire that the bond to his father should be paid.

It' is unnecessary at this time to enter into the various declarations made by the parties at the meeting of creditors, and about which contradictory testimony has been given; or to decide how far the acts and declarations of one partner may be given in evidence against the other. I consider the act of dissolution and transferring the joint property to Jacob as the act of both partners, and altogether different from the case of an individual transferring his property to a third person, which, of course, could not be considered

an act of bankruptcy in the grantee. The preference of Hulse I also consider as the act of both parties, being given by Jacob and approved by Henry. The money was borrowed on the 27th of April, and on the 2d May, the very day on which the first meeting of creditors was held, the preference was given, and, for aught that appears, was unsolicited. That they then contemplated bankruptcy can scarcely be denied.

If is true this preference was for money borrowed, and was not of very large amount; but, it matters not how meritorious the creditor or hard the case, the law considers all creditors as on an equal footing, and prohibits favor to any. The alleged preference to John Shouse strikes me differently. The security or preference was given at the same time the money was borrowed; it was not for a bygone or prior contracted debt; and it was surely competent for them to give the security on receiving the money.

Nor is it any answer to say that the money was borrowed for the purpose of paying another creditor who was thereby preferred; the allegation in the petition is that the preference was given to John Shouse, and that is the only charge the respondents are called upon to answer. Believing, however, that the petitioners have sustained their first and second changes, the decree prayed for is granted.