Matthews v. Chaboya

Garoutte, J. This is an action brought by the assignee of an insolvent debtor to set aside a transfer of certain personal property, to wit, a merchandise business, made within one month prior to the filing of a creditor’s petition in insolvency. The appeal is by the assignee from the judgment and order denying his motion for a new trial. The defendant was a creditor of the insolvent debtor, and took a transfer of the business in satisfaction of her debt. It is now claimed that that transfer was violative of section 55 of the Insolvent Act.

In order that plaintiff may set aside this transfer, and recover the property transferred, under the provisions ■of the aforesaid section, he must establish four independent facts, to wit: 1. That the transfer was made within one month of the filing of the creditor’s petition in insolvency, and with a view to give a preference to defendant; 2. That the transferor was insolvent, or in contemplation of insolvency, at the date of the transfer; 3. That the transferee, the defendant, at the time, had reasonable cause to believe that the transferor was insolvent; 4. That the transferee had reasonable cause to believe that the transfer was made with a view of violating or evading one or more provisions of the Insolvent Act.

It is first claimed that the evidence is insufficient to support the verdict. A creditor’s petition for insolvency was filed within thirty days subsequent to the transfer; and it is beyond question that the transfer was made out of the ordinary and usual course of business. (Tapscott v. Lyon, 103 Cal. 313.) The transfer having been made out of the ordinary course of business, that fact was prima facie evidence that it was fraudulent. [438](See last clause of the aforesaid section.) And when coupled with the additional fact that it was made within one month of the filing of the petition in insolvency, a prima facie case for a recovery is made. For this rule of evidence declared by the section not only refers to the intent or view with which the acts are done, but assuredly covers the question of the belief of the transferee as to the debtor’s insolvency. That a transfer so made gives the transferee reasonable cause to believe the debtor insolvent was held in Ohleyer v. Bunce, 65 Cal. 544; Godfrey v. Miller, 80 Cal. 420; Chevalier v. Commins, 106 Cal. 580. See, also, Tuttle v. Truax, 1 Nat. Bank. Reg. 601; In re Dean, 2 Nat. Bank. Reg. 89; North v. House, 6 Nat. Bank. Reg. 365. Of course this prima facie evidence of fraud is simply prima facie, and may be rebutted by any competent evidence. In this case the defendant took the stand and testified to facts which, if believed by the jury, were sufficient to create a substantial conflict in the evidence as to the practice of any fraud upon the provisions of the Insolvent Act. The jury evidently believed her statements, and found a verdict accordingly. And we are not disposed to disturb its action upon this ground. As to cases of conflicting evidence in this regard see Bernheim v. Christal, 76 Cal. 567; Haas v. Whittier, 97 Cal. 412; Grunsky v. Parlin, 110 Cal. 179. It is further insisted that it was the duty of the defendant before purchasing to make an investigation as to the financial status of the insolvent. Cases sometimes arise where a party is put upon inquiry to this point, but the rule is not at all universal, and the true doctrine would appear to be, Has the transferee, in view of all the surrounding circumstances, reasonable cause to believe that the debtor is insolvent at the date of the transfer?