
    IN THE MATTER OF FELIPE RAMIREZ-QUINONES, Bankrupt.
    Ponce,
    Bankruptcy,
    No. 40.
    Priority by Public Instrument.
    Preference Under Bankruptcy Act.
    1. A notarial instrument executed within four months prior to bankruptcy, which creates a priority under the local laws, is a transfer granting a preference within the provisions of § 60 (a) of the Bankruptcy Act.
    Preference or Priority under § 1825 (4) (a), Civil Code.
    2. A notarial instrument recognizing the validity of anterior promissory notes does not create a preference or priority under § 1825 (4) (a) of the Civil Code; this section only applies to notarial instruments executed for a present consideration.
    Opinion filed July 16, 1915.
    
      Mr. B. V. Perez-Marchand attorney for Ermelindo Vidal.
    
      Mr. Harry F. Besosa attorney for majority creditors.
   HamiltoN, Judge,

delivered tbe following opinion:

It seems that petitioner Vidal is tbe son-in-law of the bankrupt Quiñones, and claims in bis petition to have loaned tbe bankrupt sums of money at different times, evidenced by promissory notes, amounting in all to $5442.85. Quinones filed a voluntary petition in bankruptcy on February 28, 1915, and petitioner Vidal at tbe first meeting of creditors filed a claim for tbe debt, and claimed priority tberefor, as an indebtedness, wbicb, without a special privilege, appears in a public instrument. Section 1825 (4) (a) of tbe Civil Code of Porto Rico. Tbe facts upon tbe bearing before the' referee developed that tbe debt was evidenced by a notarial act executed by tbe bankrupt in favor of petitioner November 21, 1914, authenticating tbe three promissory notes then due by him to petitioner. Tbe referee disallowed tbe priority, and tbe bankrupt files this petition for review.

Tbe alleged public instrument is not made a part of tbe petition, but tbe claim of priority is made under Civil Code, § 1825 (4) (a), as a priority allowed by tbe Bankruptcy Act, § 64b (5), as to “debts owing to any person who by tbe laws of tbe state or of tbe United States is entitled to priority.” In § 1 (24) of tbe Bankruptcy Act on definitions “states shall include tbe territories,” and this has several times been held to apply to Porto Rico.

It seems that tbe notes originally evidencing tbe debt were more than four months prior to tbe bankruptcy, but tbe reduction of tbe obligation to an authentic act was within tbe four months prior to tbe bankruptcy.

1. Under § 60 (a) of tbe Bankruptcy Law, “a person shall be deemed to bave given a preference if, being insolvent, be bas, witbin four months before tbe filing of tbe petition, or after tbe filing of tbe petition and before tbe adjudication, procured or suffered a judgment to be entered against bimself in favor of any person, or made a transfer of any of bis property, and tbe effect of tbe enforcement of sucb judgment or transfer will be to enable any one of bis creditors to obtain a greater percentage of bis debt than any other of sucb creditors of tbe same class. Where tbe preference consists in a transfer, sucb period of four months shall not expire until four months after tbe date of tbe recording or registering of tbe transfer, if by law sucb recording or registering is required.” [30 Stat. at L. 562, chap. 541, as amended by 32 Stat. at L. 799, chap. 487, § 13, Comp. Stat. 1913, § 9644.]

It is argued that in this case there is no insolvency, judgment, or transfer. Tbe referee, however, reports that tbe inference be drew from tbe evidence was that tbe bankrupt was insolvent at tbe time of executing'the instrument in question, and no reason is shown to tbe court to disturb bis conclusion on this point.

2. Literally, it is true that executing tbe public instrument was not procuring or suffering tbe judgment to be entered against bimself, but if tbe contention of tbe bankrupt is con rect, that tbe execution of this public instrument confers a preference for tbe indebtedness recited, even without a new consideration, it is to all intents and purposes a lien, and is witbin tbe spirit of this inhibition against judgments. Tbe object of tbe Bankruptcy Law is equality among creditors, and tbe act of which tbe petitioner now seeks to take advantage, whether technically a judgment or not, operates as a preference, if it bas any effect at all. Re Nido y Mayo, 6 Porto Rico Fed. Rep. 296. In tbe same manner, technically, the transaction may not have been a transfer of property, but in the meaning of the law it was creating an encumbrance upon property, and so within the spirit of the bankruptcy inhibition against transfers. When a person owns the entire title of property and by any instrument, no matter what its form or name, creates an interest in that property in favor of a creditor, which will give that creditor a right against himself and against other creditors, he is making a transfer within the purview of the Bankruptcy Law. So far as he does anything, he parts with a portion of the property right which he had before “and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.” Bankruptcy Act, § 60 (a).

It follows, therefore, that, if the Civil Code, § 1825 (4) (a), creates a priority, it is one which, under circumstances such as in the case at bar, is forbidden by the Bankruptcy Law.

3. It has also been decided in this court (Re Boucet, 1 Porto Rico Fed. Rep. 403, January 4, 1915), that Civil Code § 1825 (4) (a), does not apply to promissory notes. Promissory notes are covered by the Code of Commerce, and not by the Civil Code, and merely reciting them in an instrument executed before a notary does not change the obligation in any respect. No new obligation is created. To come within the meaning of § 1825 (4) (a) there must be an instrument for a present consideration which creates some right. Unless this is so, the transaction is not protected under the terms of the Bankruptcy Act as to local liens.

4. If the natural result of a transaction is to create a preference, the law will impute the intention to the debtor. Wilson v. Mitchell-Woodbury Co. 31 Am. Bankr. Rep. 837. The intent to prefer need not be> proved by direct evidence, but may be presumed from circumstances. Utah Asso. v. Boyle Furniture Co. 31 Am. Bankr. Rep. 488. An advantage given by a bankrupt to a creditor, without a present consideration, does not cease to be a preference because it is given in the form of a lien. Stern v. Louisville Trust Co. 7 Am. Bankr. Rep. 305. Contracts without consideration have no effect whatever under the Porto Pican law, even without regard to bankruptcy. Civil Code, § 1242.

It is not intended hereby to define what the bankruptcy Law will enforce under Civil Code § 1825 (4) (a), but to decide that transactions like the one at bar are not those which are protected by the double shield of the Civil Code and the Bankruptcy Law. If a debtor and a favored creditor can go before a notary a short time antecedent to a petition of voluntary bankruptcy, and by a written agreement in the shape of a public instrument give this creditor’s old debts a priority over all others, it will be within the option of the debtor to give such preferences as he pleases, and the Bankruptcy Law would practically be nullified. This court is not prepared to construe the Bankruptcy Act in a manner which will produce this result. What bearing § 1825 (4) (a) may have it is unnecessary to determine. It certainly does not have the effect contended by the petitioner in this case. The local law cannot give a lien for something which contravenes the spirit of the Bankruptcy Act. Randolph v. Scruggs, 190 U. S. 533, 47 L. ed. 1165, 23 Sup. Ct. Rep. 710.

It follows, therefore, that the decision of the referee was correct, and the petition of review is denied. It is so ordered.  