106 F. 839 | 3rd Cir. | 1901
Lead Opinion
In the court below an issue was tried by a jury to determine whether Bailie E..Duncan, the appellant, who is one of the plaintiffs in error, had committed a certain act of bankruptcy charged against her.
At the opening of the argument in this court a motion was made by the appellees and defendants in error to quash the writs of error. This was argued at great length and with much ingenuity by counsel for appellees; the substantive proposition of the argument being that while admitting that the rulings of a trial court in a jury trial cannot he reviewed in an appellate court upon appeal, but can only be reached by a writ of error, no writ of error in such a. case as this could be sued out except pursuant to some express authority of an act of congress; the contention being that neither the act of congress of 1898, creating the uniform system of bankruptcy, nor the act of March 3, 1891, establishing and conferring jurisdiction on the court of appeals, had authorized a writ of error in the case of a jury trial as provided for by the bankrupt act. The jury trial in this case was asked for and ordered under the provisions of section 19 of the bankrupt act, which is as follows; .
*842 “Sec. 19. Jury Trials, (a) A person against whom an involuntary petition has been filed, shall be entitled to have a trial by jury, in respect to the question of his insolvency, except as herein otherwise provided, and any act «of bankruptcy alleged in such petition to have been committed, upon filing a written application therefor at or before the time within which an answer may be filed. If such application is not filed within such time, a trial by a jury shall be deemed to have been waived, (b) If a jury is not in attendance upon the court, one may be specially summoned for the trial, or the case may be postponed, or, if the case is pending in one of the district courts within the jurisdiction of a circuit court of the United States, it may be certified for trial to the circuit court sitting at the same place, or by consent of parties, when sitting at any other place in the same district, if such circuit court has or is to have a jury first in attendance, (c) The right to submit matters in controversy, or an alleged offense under this act, to a jury shall be determined and enjoyed, except as provided by this act, according to the United States laws now in force or such as may hereafter be enacted in relation to trials by jury.”
The issue to be determined by the jury was made by the petition of the creditors charging the alleged bankrupt with certain acts of bankruptcy, and by the denial thereof on the part of the alleged bankrupt, and by the answer and plea of Theodore H. G-ehly, an execution creditor, to the said petition. The case was tried by a jury in the court below, and exceptions taken and bills sealed both as to the admission of evidence and as to the instructions to the jury. This trial by jury was a matter of right, and could not be denied if seasonably demanded. The verdict of the jury was conclusive of the issue of fact, and binding upon the court. Final judgment must be entered upon such verdict, either adjudging or refusing to .adjudge the ‘defendant to be a bankrupt. The. trial, therefore, proceeded according to the course of the common law.
(Section 6, cl. 1, of the act to establish circuit courts of appeals (26 Stat. 828), provides as follows:
“See. 6. Tbe circuit courts of appeals established by this act shall exercise appellate jurisdiction to review, by appeal or writ of error, final decisions in the district court and the existing circuit courts in all cases other than those provided for in the preceding section of this act, unless otherwise provided by law.”
The language here used indicates an intention to extend the reviewing authority of the court of appeals widely enough to include all final decisions in the district courts not otherwise provided for by law; and the writ of error referred to in this provision is applicable alike to judgments of the district court and of the circuit court, where such a writ is necessary'and appropriate to invoke the reviewing authority of the appellate court. In addition to this general and comprehensive provision of the statute establishing the circuit court of appeals, which we think sufficiently warrants the writ of error in this case, the bankrupt act of 1898 provides, in section 24, c. 4, as follows:
“See. 24. Jurisdiction of Appellate Courts, (a) The supreme court of the United States, the circuit courts of appeals of the United States, and the supreme' courts of the territories, in vacation in chambers and during their respective terms, as now or as they may be hereafter held, are hereby invested with appellate jurisdiction of controversies arising in bankruptcy pro-*843 (•' i'slii'.ps from the courts of banlu'iqjicy from which they have appellate juri&~ di(-tion in otlier casos. The supreme court of Uie United. States shall exercise a like jurisdiction from courts of bankruptcy not within any organized' circuit of the United States and from the supreme court of the District of' I’olumbia.”
Vie perceive nothing in the provisions of this section inconsistent with or which supersedes the provisions of section tí, cl. 1, of the not establishing circuit courts of appeals, above referred to. The language of the section conferring upon the circuit courts of appeal; ‘‘appellate jurisdiction of .controversies arising in bankruptcy proceedings from the courts of bankruptcy over which they have appellate jurisdiction in other cases,” is broad and applicable to all1 “controversies arising in bankruptcy proceedings,” etc. If there could have been any doubt in construing section 6 of the judiciary act of 1891, above quoted, that “final decisions in the district court” included final decisions in such a court when acting as a court of bankruptcy, it lias been removed by section 24 of the bankrupt act, as above quoted. For this purpose, among others, this provision seems to have been inserted. At ail events, there can be no doubt now, in view of this provision, that inasmuch as the circuit eourit of appeal have appellate jurisdiction over district courts in other-cases, so, also, they have the same jurisdiction over those courts when acting as courts of bankruptcy. That a jury trial has heei?-ordered under the provisions of section 19 of the bankrupt act does' not remove the controversy from this appellate jurisdiction. Section 24 does not state, nor was it necessary to state, bow the appellate jurisdiction provided for should be invoked. The practice of ¡he courts, but especially the act of congress establishing the court of appeals, already referred to, liad designated “writs of error’7 ane “appeals,” as those terms are used and understood in our jurisprw deuce, as the appropriate methods for invoking the' appellate juris dietion. The form, scope, and peculiar function of these two several methods of exercising appellate jurisdiction are well understood, and their peculiar and separate functions clearly established; by the decisions and practice of the courts. This practice has sc shaped itself that the rulings of a trial court in a jury trial cam only be reviewed in ail appellate court by a writ, of error, while an appeal is peculiarly fitted to equity proceedings, where it brings "or review to the appellate court both the law and the facts. On ¡he other hand, where Hie right to trial by jury exists and has been invoked, neither the appellate court nor the court: below can review the facts, but can only control in matters of law, which a writ of error is peculiarly,fitted to raise in an appellate court. Indeed, the provision of the constitution that “no- fact tried by a jury shall bf-otherwise re-examined .in any- court of the United Htates, than according to the common law,” is decisive on this point; and since.’ the case of Parsons v. Bedford, 3 Pet. 433, 7 L. Ed. 732, no question can be made but that such a case as the present, in which there, iuii been a trial by jury, as authorized by section 1» of the bankrupt aefy is a trial according to the course of the common law, and cannot
“But- the other clause of the amendment is still more important, and we read it as a substantial and independent clause: ‘No fact tried by a jury shall be otherwise re-examinable, in any court- of the United States, than according to the rules of the common law.’ This is a prohibition to the courts of the United States to re-examine any facts tried by a jury in any other manner. The only modes known to the common law to re-examine such facts are the granting of a new trial by the court where the issue was tried or to which the record was properly returnable, or the award of a venire facias de novo by an appellate court for some error of law which intervened in the proceedings. The judiciary act of 17S9. c. 26, § 17, has given to all the courts of the United States ‘power to grant new trials in cases where there has been a trial by jury, for reasons for which new trials have usually been granted in the courts of law.’ And the appellate jurisdiction has .also been amply given by the same act (sections 22, 24) to this court, to redress errors of law, and for such errors to award a new trial, in suits at law which have been tried by a jury.”
Prior to the statute of Westminster (.1.3 Edw. I. c. 31) a writ of error at common law could be bad only for an error apparent on the face of the record or for an error in fact, but by that ancient statute it was provided that exceptions to the opinion and direction of the court might, by bills of exception, be made a part thereof, and therefore be reached by the writ of error. In this way so much of the facts of the case as were necessary to make plain the question of law on which the exception was founded are incorporated in the record.
It seems, also, to be the contention of the appellees (although on this point the argument of their brief is obscure) that the rulings of the court at the trial could not be made part of the record by bills of exception, except by statute, inasmuch as at common law, before the statute of Westminster, such matters could not appear in the record. The statute of Westminster (13 Edw. I. c. 31), as an ancient statute, has become a part of the common law in this country, and under it the right to a bill of exceptions in civil cases at law and in superior courts has been firmly established. It would seem that in most of the slates the practice depends upon and is regulated by special statutes, which must, of course, measure and control the same. The only regulation made by congress as to bills •of exception is that contained in section 953 of the Revised ¡Statutes, which provides that they shall be sufficiently authenticated by the signature of the presiding judge, without any seal. In re Chateaugay Ore & Iron Co., 128 U. S. 555, 9 Sup. Ct. 150, 22 L. Ed. 508. But the right to bills of exceptions in a civil case at law has always been recognized in the federal courts, and it is never questioned that when allowed they constitute a part of the record brought up to an appellate court by a writ of error. Mr. Justice Story, in Parsons v. Bedford, uses this language:
*845 “Nor is there any inconvenience from this construction; for the party has still his remedy, by bill of exceptions, to bring the facts in review before the appellate court, so far as those facts bear upon any ipiestion of law arising at the trial; and if there be any mis lake of the facts, the court below is competent to redress it, by granting a new trial.”
See Rule 4 of the supreme court regulating bills of exception.
No sufficient reason can be given why, if the present case is properly before this court by a writ of error, as we think it is, the record should not. include bills of exception sealed by the court below.
Tlie act of 1867, in its forty-first section, by a provision analogous to that-on ihe same subject in the present act, granted, under certain circumstances, a jury trial to a debtor against whom the petition in involuntary bankruptcy had been filed. In the case of Insurance Co. v. Comstock, 16 Wall. 258, 21 L. Ed. 493, already referred to, a motion was made in tlie supreme court to dismiss a writ of error to the court of bankruptcy on a judgment in a case tried by a jury before said court. Objection was made there, as here, that the writ of error would not He, because not specially provided for. The supreme court, however, held that the writ of error was properly taken; and, in an interesting opinion, which assumes that bills of exception were properly allowed by the court below, decided, ou the ground that the proceeding below was a case at law, that a writ; of error was properly issued to bring Ihe case within the reviewing authority of the circuit court. In the course of its opinion the court said:
“Such a provision is certainly entitled to a reasonable construction, and it seems plain, when it is read in the light of Ihe principles of the constituí ion and of analogous enactments, and when tested by the general rules of law applicable in controversies involving the right, of trial by jury, that the process, pleadings, and proceedings must be regarded as governed and controlled by the rules and regulations prescribed in the trial of civil actions at common law. Congress, it must be assumed, in conceding to tlie debtor the right to demand a trial of ihe issue by a jury, intended to confer a right of some value, which would be comerted into a mockery if 1he judge presiding over the trial may exclude by his rulings all the evidence which the debtor offers to disprove the charges set forth in the petition, and he (the debtor) be left without any power to resort to an appellate tribunal to correct tlie errors committed by the bankrupt court. ⅜ * * Apply these rules to the case before the court, and it is clear beyond doubt that the circuit court erred in disnrssing the writ of error for the want.of jurisdiction, as it was the rigid: of ihe excepting party to have tlie questions, if duly presented in tlie bill of exceptions, re-examined by the circuit court.”
We are of opinion, (herefore, that ihe writ of error in this case was authorized, and that the record brought up to this court in obedience to the said writ properly contained the bills of exception therein stated. The motion to quash the writ must be denied.
Bailie E. Duncan, the appellant, did business in the city of Wil-liamsport, Pa., under the name of the Duncan Department Store; her husband, James M. Duncan, being her general agent and business manager. In April, 1896, certain promissory notes in favor of Theodore H. G-ehly, Grandor & Munson, and the First National Bank of Williamsport, with warrants of attorney to confess judgment, were executed and given by Sallie E. Duncan to the parties
The record in this case contains 12 assignments of error. Of these, the eighfh, tenth, and twelfth challenge our consideration as raising not only an important, but, in the view we take of it, a controlling, question in the case. This question arises upon the following instruction given by the learned judge of the district court to the jury:
“SVacli an issue was framed, and you have been sworn to try tlio issues naif-oil in that case. Those issues are two in number: Eirst, was Saliie E. Imuran insolvent? And, second, did she give undue preference to those exe-cutiou creditors? Now, I may say to you in this case that, if you find that Sallie II. Ihtncau was insolvent at the time when those judgments were entered and execution issued, then, as a matter of law, she has given an undue preference to Gelily and the First National Bank, by neglecting- to take proper steps to avoid that preference. So that it is for you to determine in tliis case whether, at or about the time of the filing of the petition in this case, to wit, early in January, 1899, Sallie E. Duncan was insolvent.”
The evidence, as already stated, and not disputed, shows that Sallie E. Duncan, for good and valuable consideration, executed and gave ihe judgment notes involved in these alleged acts of bankruptcy on the 1st day of April, 1896, and that the alleged preference was ¡created by having judgments entered upon them and execution
“In a more technical sense, it means something done voluntarily by a person, and of such a nature that certain legal consequences attach to it. Thus, a grantor acknowledges a conveyance to be his ‘act and deed,’ the terms being synonymous.”
The act with which we are here concerned is the debtor’s having suffered or permitted, while insolvent, a creditor to obtain a preference, etc. Both the words, “suffer” and “permit,” while they dp .not necessarily connote strong affirmative action, do involve such
It seems to us that the learned judge in the court below, in the instruction to the jury above quoted, lias entirely failed to give force and effect to the plain English words of section 3 of the bankrupt act just commented on. He in fact makes the act of bankruptcy consist entirely of the debtor not vacating or discharging a preference, however obtained, whereas in this third clause of the third section the act of bankruptcy is made to consist of the voluntary act connoted by “suffer” or “permit,” as already explained, coupled with the failure of the debtor to vacate or discharge within five days, etc., the preference thus suffered or permitted; the plain and obvious meaning of this clause being that, even though the debtor has suffered or permitted a preference to be obtained, it still will not be considered an act of bankruptcy, if within the flve days, etc., he “vacates or discharges” the same. In making this contention that the failure of the debtor'to vacate or discharge a preference, how
“If neither of these weapons is available, he has still at command one sufficient weapon, of which he cannot be deprived: He can apply promptly to the court of bankruptcy, and ask that his property shall be ratably divided among his creditors. If he fails to- move, his inaction is properly regarded as a confession' that he is hopelessly insolvent, and as conclusive proof that he consents to the preference that he has declined to strike down.”
It may be remarked in passing that in the case of a corporation the “weapon” of voluntary bankruptcy is not available.
There is in the language above quoted the implication of a further, somewhat inconsistent, admission that, in view of the natural and ordinary meaning of the words “suffer or permit,” there was a necessity to seek for some evidence of the exercise of the debtor’s will; and this, it is asserted, is found in the debtor’s failure to voluntarily ask to be declared a bankrupt, in order to vacate or discharge the preference obtained, in cases where no other way of discharging such preference is open to him. If the element of the debtor’s will be necessary to the “vacating or discharging” of the preference, it is hard to see why it should be taken away from the words “suffer or permit,” as used in the former part of the clause under consideration. It would be more consistent to eliminate it in both cases. The construction of clause 3, according to the contention of the appellees, would then be that the bankruptcy of the debtor has no relation to his act, but depends alone upon the result and effect of the creditor’s act in obtaining a preference, and likewise upon the result or effect of the preference not having been discharged by the debtor, irrespective of his ability to so discharge the same. But, as already explained, the appellees admit the necessity of importing the will of the debtor into the failure to discharge or vacate, by the suggestion that, if there are ho other means to legally vacate or discharge the preference, still it is open to him to exercise his volition to become a voluntary bankrupt. As we cannot hold the debtor as for a duty to “vacate or discharge,” where he has no ability to do either, so as to avoid the consequence of bankruptcy, no more can we hold that he “suffered or permitted” the obtaining of a preference which he could not legally have hindered or prevented. In its last analysis, the contention of the ap-pellees, and of those decisions which support their contention, is
“We have already said that there is no moral obligation on the part of the insolvent to do this, unless the statute requires it, and then only because it is a dirty imposed by the law. It is equally clear that there is no such duty imposed by that act in express terms. * ⅞ As before remarked, the voluntary clause is wholly voluntary. No intimation is given that the bankrupt must file a petition under any circumstances. While Ins right to do so is without any other limit than his own sworn averment that he is unable to pay all his debts, there is not a word from which we can infer any legal obligation on him to do so. Snell an obligation would take from the right (he character of a privilege, and confer on it that of a burdensome and often ruinous duty. Et is, in its essence, Involuntary bankruptcy. But the initiation in this kind of bankruptcy is by the statute given to the creditor, and is not imposed on the debtor. And it is only given to the creditor ill a limited class ol' cases.”
Though the act of 1867, in its corresponding provision, which is section 89 of the act, speaks of the “procuring or suffering” by the debtor of his property to be taken on legal process, with intent to give a preference, etc., we do not think the reasoning of the supreme
We conclude, then, both upon reason and authority, that there is no duty imposed upon the debtor to file a voluntary petition in bankruptcy for the purpose of discharging a preference, however obtained, where no other way of doing so is open to him, and that his mere failure to file such a petition will not warrant an inference either that he is hopelessly insolvent, or that he consents to the preference which his creditor has obtained. There is no such contradiction of terms involved in the practical administration of the bankrupt act.- The failure to vacate or discharge, as mentioned in the act, means, evidently, a failure to do something which would relieve the debtor from the consequence of his act, in having “suffered or permitted,” etc., and not a failure to do something which would only anticipate those consequences. The section in the act of 18G7 defining acts of bankruptcy, and corresponding to section 3 of the present act, is section 39, and the provision analogous to clause 3 of section 3 reads as follows:
“Sec. 39. That any person residing and owing debts, as aforesaid, wlio, after the passage of this act shall * * * procure or suffer his property to be taken on legal process, with intent to give a preference to one or more of his creditors, * * * shall be adjudged a bankrupt on the petition of one or more of his creditors * ⅛ *. provided such petition is brought within six months after the act of bankruptcy shall have been committed.”
Without laying too much stress on the distinction, it is to be observed that the action of the debtor, as described in this section, is the procuring or suffering his property to be taken on legal process. This denotes in itself a complete act of the debtor, and it was necessary to limit its universality by attaching to it the specific intent to give a preference, etc., as clearly there may have been on the part of the debtor a procuring or suffering of legal proceedings that had no reference to or bearing upon the preference of a creditor. In clause 3 of the present act, however, as already quoted, the act of “suffering or permitting” goes at once to the preference of creditors, and there is no necessity of such a limitation of the act as is contained in the bankrupt law of 1867. To suffer or permit a preference implies an intentional act on the part of the debtor. The coupling of the specific intent as to a preference to the act of procuring or suffering a judgment, etc., in the act of 1867, does not .malee such an intent more necessary than do the words “suffer or permit a preference” in the present act. While the act of 1867 requires a specific intent on the part of the debtor to give a preference, in order that an act of bankruptcy may be established, the act of 1898 no less involves an intent on his part that a preference should be obtained. Any voluntary procurance or connivance, as connoted by the words “suffer or permit,” on the part of the debtor in the obtaining by a creditor of a preference, is the equivalent of
“The thirty-fifth section of the act, which is designed to prevent fraudulent, preferences of a person in contemplation of insolvency or bankruptcy, declares that any attachment or seizure under execution of such person’s property, procured by him with a view to give such a preference, shall be void if ¡he act be done within four months preceding the filing of the petition in bankruptcy by or against him. Though the main purpose of the thirty-ninth section is to define acts of the trader which make him a bankrupt, and that of the thirty-fifth is to prevent preferences by an insolvent debtor in view of bankruptcy, both of them have the common purpose of making such preferences void, and enabling the assignee of the bankrupt to recover the property; and both of them make this to depend- on the intent with which the act was done by the bankrupt, and the knowledge of the bankrupt’s insolvent condition by the other party to the transaction. Both of them describe, substantially, the same acts of payment, transfer, or seizure of property so declared void. It is therefore very strongly to be inferred that the act of suffering the debtor’s property to be taken on legal process in section 89 is precisely the same as procuring it to he attached or seized on execution in section 35. Indeed, the words ‘procure’ and ‘suffer’ are both used in section 39.”
“The facts of the case before ns do not show any positive or affirmative act of the debtors from which such intent may be inferred. Through the whole of the legal proceedings against them they remained perfectly passive. They owed a debt which they were unable to pay when it became due. The creditor sued them and recovered judgment, and levied execution on their property. They afforded him no facilities to do this, and they interposed no hindrance. It is not pretended that any positive evidence exists of a wish or design on their part to give this creditor a preference, or oppose or delay the operation of the bankrupt act. There is nothing morally wrong in their course in this matter. They were sued for a just debt. They had no defense to it, and they made none. To have made an effort by dilatory or false pleas, to delay a judgment in the state court would have been a moral wrong, and a fraud upon the due administration of the law. There was no obligation on them to do this, either in law or in ethics. Any other creditor whose debt was due could have sued as well as this one, and any of them could have instituted compulsory bankrupt proceedings. The debtor neither hindered nor facilitated any one'of them. How is it possible from this to infer, logically, an actual purpose to prefer one creditor to another, or to hinder or delay the operation of the bankrupt act?”
The following language in the same opinion is also pertinent:
“The general legal proposition is true, that where a person does a positive act, the consequences of which he knows beforehand, then he must be held to intend those consequences. But it cannot be inferred that a man intends, in the sense of desiring, promoting, or procuring it, a result of other persons’ acts, when he contributes nothing to their success or completion, and is under no legal or moral obligation to hinder or prevent them. Argument confirmatory of these views may be seen in the fact that all the other acts or modes of preference of creditors found in both the sections we have mentioned, in direct context with the one under consideration, are of a positive and affirmative character, and are evidences of an active desire or wish to prefer one creditor to others. Why, then, should'a passive indifference and inaction, where no action is required by positive law or good morals, be construed into such a preference as the law forbids? The construction thus contended for is, in our opinion, not justified by the words of either of the sections referred to, and can only be sustained by imputing to the general scope of the bankrupt act a harsh and illiberal purpose, at variance with its true spirit and with the policy which prompted its enactment.”
This case was followed in the supreme court by the case of Clark v. Iselin, 21 Wall. 360, 22 L. Ed. 568, in which the question arose under the 35th section of the act of 1867. It was a suit by an as-signee in bankruptcy to recover certain assets which the bill charged were made over to the defendants in fraud of the bankrupt law. The court, by an opinion delivered by Mr. Justice Strong, confined itself to the construction of this thirty-fifth section, which, as we have seen above, provides for the making- void of certain acts of the debtor done by him with the view to give a preference, etc., but, as we have seen in the prior case of Wilson v. Bank, the same construction is to be applied to both the thirty-fifth and the thirty-ninth sections of the act. Although'the word “procure,” in this thirty-fifth
“Xow, in a case where a creditor, holding a confession of judgment per-Ecu ¡y lawful when it was given, causes the judgment to be entered of record, hovv'ttin if he said the debtor procures the catty at the time it is made? It is true, the judgment is entered in virtue of his authority, — an authority given when the confession was signed. That may have been years before, or, if not, it may have been when the debtor was perfectly solvent. But no consent is given when the entry is made, where the confession becomes', an actual judgment, and when the preterence, if it be a preference,, is obtained. The & btor has nothing to do viih the entry. As to that ho is entirety passive. Ordinarily he knows nothing of it, and he could not prevent it if lie would. It is impossible, therefore, to maintain that such a judgment is obtained by him when his confession is placed on record. Such an assertion, if made, must rest on a mere fiction. And so- it has been decided by the supreme court of Pennsylvania.”
That the court here was dealing alone with the meaning of the word "procure,” or "procure or suffer,” and not with the provision referring to a specific intent, is shown by the fact that the court introduced a discussion oí this provision oí the statute by immediately saying, after what has been quoted above:
“More Uam tills, as we hace soon, in order to make a judgment and execution again:-! an insolvent debtor a preference fraudulent under the law, tlie debtor must have, procured them with a view or intent to- give a preference.”
The construction in this regard of the act oí 1867 previously given by the district courts was entirely overthrown and reversed by the -supreme court in this and other cases. Under the present act the decisions of the district courts have been in line with the holding of the court below in this ease, upon the assumption that these decisions of the supreme court turned upon the proposition that intent was essential under the act of 1867, and upon the further assumption that intent was not essential under the act of 1898. To this, with the utmost respect for the courts so deciding, we cannot agree. If it had been the iuierdiou of coiu>/:»::s, ⅛ framing the present law, ¡o make the mere obtaining by a creditor of a -preference by judicial proceedings, apart from any exorcise of the vil' or action of the debtor, vioik 1⅛ ban'a up toy of the Jailer, it could1 easily have been done by using fewer words than have been used. They would not have spoken of acts of bankruptcy by,the debtor at all. They would have omitted the words “suffered or permitted,” as denoting an action of the debtor, and have merely provided that any obtaining by a creditor of a preference by means of judicial proceeding's against a debtor should result in Ms being declared a bankrupt. This’ was jicfiially ammipmhod in the late English and Canadian acts, but it was accomplished by express and unequivocal language, which left nothing to construction. The English act of 1890, referred to, is in this regard as follows:
“A debtor commits an act of bankruptcy if execution against Mm has been levied by seizure of his goods, under process, in any action in any court, or*856 in any civil proceeding in the high court, and the goods have heen either sold or held by the sheriff for twentj^-one days.”
To hold tliat the present act has done this, even to give effect to a supposed general policy of the law, in face of the clear and easily understood meaning of the language employed, would be, in our opinion, nothing short of judicial legislation. The construction of clause 3 of section 3 contended for by the appellees is so harsh in its consequences that we are unable to believe that it represents the will of congress. Under that construction a person while solvent may give a judgment bond for full and bona fide consideration, and years thereafter, becoming insolvent and being temporarily abroad, judgment may be entered against him, and his property levied on, without the slightest knowledge or suspicion on his part; yet, because he fails to have the lien of the execution vacated or discharged at' least five days before a sale or final disposition of the property levied on, he can be forced into involuntary bankruptcy. In such case the bankrupt act would either require the debtor to perform an impossibility to avoid bankruptcy, or cause him to be adjudged, a bankrupt practically and substantially on the ground of his insolvency alone, which is only one of the several elements or conditions required by the bankrupt act to co-exist before he can legally be adjudicated a bankrupt.
Aside from the reasons heretofore given in support of the conclusion we have reached, the act discloses on its face certain expressions strongly suggestive of the will of the debtor as involved in the suffering or permitting a creditor to obtain a preference. We find language which must be deemed to have been used on the assumption that the act of bankruptcy cannot wholly consist of the act of the creditor, but must include an act, whether by way of positive procurement or of connivance, on the part of the debtor, which will justify an adjudication of his having committed an act of bankruptcy. Thus, in section 19 it is provided that “a person against whom an involuntary petition has been filed, shall be entitled to have a trial by jury, with respect to the question of his insolvency, * * * and any act of bankruptcy alleged in such petition to have been committed,” etc. This provision seems to require the commission of an act by the alleged bankrupt, and not merely passivity or inaction on his part. So in section 60, cl. “a,” it is provided that “a person shall be deemed to have given a preference if being insolvent, he has procured or suffered a judgment to be entered against himself,” etc. Thus, while this section deals with the treatment of preferences, it may fairly be inferred that the procuring or suffering lay a debtor of a judgment to be entered, when the effect of its enforcement 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,” was treated by congress as giving a preference, which involves a voluntary act on the part of the debtor. Section 67, cl. “f,” is as follows:
“That all levies, judgments, attachments, or other liens, obtained through legal proceedings against a personr -who is insolvent, at any time within four months prior .to the filing of a petition in bankruptcy against him, shall be*857 deemed null and void in case he is adjudged a bankrupt and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same,” etc.
This clause provides for making invalid liens obtained through, legal proceedings against an insolvent person, within four months of the filing of the petition, on which the debtor is adjudged a bankrupt. It does not relate to acts of bankruptcy, but is predicated upon the fact that an adjudication of bankruptcy has intervened, and the status of the bankrupt and of bis estate have become established. It by no means follows that the obtaining of any of the liens referred to in clause “f” involves an act of bankruptcy. A lien obtained through legal proceedings, denounced by clause “f,” may not have been “suffered or permitted,” within the meaning of section 8. If congress intended by the words “suffered” and “permitted,” or either of them, mere passivity or inaction, it is somewhat remarkable that they were employed instead of the simpler phrase “obtained through legal proceedings,” as used in section 67, cl. “f.” The distinction in meaning between the words “suffered and permitted,” as used in section 3, and the word “obtained,” as used in section 67, cl. “f,” is not only evident, but has been clearly recognized- judicially. In re Richards, 96 Fed. 935, 37 C. C. A. 634, decided by the circuit court of appeals for the Seventh circuit, it appeared that a judgment: note was given by a debtor ten months before he became a voluntary bankrupt, and that judgment on the note was entered within four months of the filing of the petition in bankruptcy, and a levy made upon the property of the debtor. The case related to the validity of the preference thus obtained in violation of section 67, cl. “f.” In the course of a carefully prepared opinion the court recognized the distinction above referred to, saying while treating of the relation of clause “c” to clause “f” of section 67:
“But subdivision ‘t’ is broader in its scope, and avoids all liens obtained through legal proceedings within the time stated against a person who is insolvent within the meaning of the subdivision, irrespective of knowledge on the part of the creditor of the fact of insolvency, and irrespective of the question whether the obtaining of the lien was in any way suffered and permitted by the debtor. s * ⅜ We are of opinion, therefore, under the rule stated, corroborated and justified by the action of congress, that the provisions of subdivision ‘f’ must prevail over those of subdivision ‘c,’ and that all liens obtained through legal proceedings within the time stated against a person who is insolvent, and Irrespective of any sufferance or permission thereof by the debtor and, of any knowledge by the creditor of the debtor’s insolvency, are avoided if that subdivision can be held to apply to voluntary proceedings in bankruptcy, and if another objection hereinafter considered is unavailing. ⅞ ⅜ * The validity of the lien depends upon the terms of the act speaking to that subject, but not upon the question whether the acts which resulted in the lien were acts which subjected the debtor to proceedings in bankruptcy. It is doubtless true that the debtor could not have been forced into bankruptcy because of the acts done by him; but, under the law, when for any reason bankruptcy has supervened, and adjudication has been determined by the court, all liens which fall under the ban of section 67 are avoided, whether the debtor has been or could have been adjudicated a bankrupt for his acts -with reference to any specific lien.”
We have quoted at length from the foregoing opinion for the reason that the court has clearly emphasized and set forth the con
In tbe view that we have been compelled to take of this third 'clause of tbe third section of tbe present act, tbe instruction given to tbe jury by tbe court below, and above quoted, constitutes reversible error. It is proper, however, that we should consider other assignments of error, founded upon exceptions to rulings and to tbe charge of tbe court below. Section 1, cl. 15, of tbe bankrupt act of 1898 provides:
“A person shall be deemed insolvent within the provisions of this act, whenever the aggregate of his property * ⅜ * shall not, at a fair valuation, be sufficient in amount to pay his debts.”
This is a statutory definition of insolvency, and differs somewhat from tbe ordinary and popular definition, and must be strictly adhered to. Tbe court, in commenting to tbe jury upon this definition, proceeds to instruct them as follows: . '
“The question then for you to determine was whether the aggregate of her property was or was not sufficient, at a fair valuation, to pay the amount of her debts. Now, gentlemen, what a fair valuation is, under the provisions of this act, seems to me to be this: The law contemplates that, where a man has-property of his own which is sufficient for him to realize from and meet his obligations, he is solvent; and it is only when that cannot be done that the law will proceed to liquidate that property, turn it into cash, and pay off his indebtedness. * * * Now, we think that the fair criterion of the value of that stock was what it would have brought from a purchaser who desired a stock of that kind at that time. Now, if that stock would have brought sufficient to pay all the indebtedness, — to meet all these obligations, — then it is quite evident that Mrs. Duncan was not insolvent. But if, under her situation, and the number and amounts of obligations owing by her, the time when they were due, which, of course, are elements regarded by the purchaser of property, — if, under all these circumstances (even if a purchaser had been found who wanted the stock for the price, and who acted in fairness and with due regard and consideration for the value of the property), the stock would not have appeared sufficient to pay off this indebtedness, then she was insolvent, under the act, and your verdict should be to that effect.”
We think tbe learned judge of the court below, in thus charging, gave to tbe jury an erroneous impression as to bow a “fair valuation”' of tbe property of tbe debtor was to be arrived at. We think that tbe present market value of tbe property in question would be a fair valuation of tbe same, but there is nothing in this section of tbe act that authorizes that market value to be ascertained by what a purchaser would give who desired to take advantage of the necessities and embarrassments of tbe owner, in order to procure
Another question embraced in the assignments of error, and arising out of the exceptions to the admission of testimony as to the si a foments made by the husband of Bailie E. Duncan bearing on the inquiry as to her insolvency, should be adverted to. It appears from the testimony contained in the record that James M. Duncan, the husband of the alleged bankrupt, was the general manager of her department store. There was no written authority or power of attorney conferring this general agency or defining its scope. The power of attorney produced in evidence was a special one, and-was confined to authorizing the husband to sign and indorse commercial paper in the name and behalf of his wife. Several witnesses were admitted, over objection, to testify to statements made to them by Janies M. Duncan, not in the presence of his wife, which were claimed to be in the nature of admissions of, or as tending to prove, the insolvency of Bailie E. Duncan. This testimony was, as has been already stated, in substance, that the witnesses, as attorneys of different parries, called at various times at the department store, on James M. Duncan, to demand payment of overdue accounts of their several clients; that the said Duncan expressed his inability to pay the accounts at the time, and said that, if she was pressed, others would do likewise, and it might or would result in the store being-closed. To one or more, he added the statement that, with time, the accounts would he paid. An act of congress embodied in section 858 of the Revised Statutes, after prescribing rules as to the competency of certain witnesses and testimony, provides that:
“In all other respects, the laws of the state In which the court is held shall he the rules of decision as to the competency of witnesses in the courts of the United States in trials at common law, and in equity and admiralty.”
We are therefore properly referred to the act of assembly of the commonwealth of Pennsylvania of May 23, 1887 (P. L. p. 158, § 5), which is as follows:
*860 “Nor shall husband and wife be competent or permitted to testify against each other, except in those proceedings for divorce in which personal service of the subpoena or of a rule to take depositions has been made upon the opposite party, or in which the opposite party appears and defends, in which case either may testify fully against the other, and except also in any proceedings for divorce either party may be called merely to prove the fact of marriage.”
The incompetency of husband and wife to testify against each other had been the policy of the law of Pennsylvania prior to this enactment, as evidenced by frequent judicial decisions of her highest courts. The language of this statute is positive and peremptory, and is emphasized by the single exception which relates exclusively to actions for divorce.' Clearly the testimony as to the statements of the husband of Sallie E. Duncan, admitted by the court below,came within the inhibition of this provision of the law of Pennsylvania. If the law does not permit the direct testimony of the husband against his wife, a fortiori it cannot permit his indirect testimony against her. It is nevertheless contended by the appellees that the testimony as to the statements of the husband, in question, does not come within the meaning of the statute, because the husband was acting as his wife’s agent, and his declarations were part of the res gestas. The reason for claiming such an exemption from this positive rule of law, presumably, is that the wife, by constituting her husband her agent, has consented that his declarations, made within the scope of his authority, shall bind her, .and therefore are not within the purview of the statute. No decision of the courts of Pennsylvania establishing such a proposition in the face of the plain words of this provision has been cited to us. Cases decided before the statute do not sufficiently meet the situation. - Admitting, however, for the sake of the argument, that the contention of the appellees above stated is sound, we are of opinion that the statements of James M. Duncan as disclosed in the record, and above referred to, were not within the scope of his authority as general manager of the department store for his wife. We may concede that his authority as such general manager extended to the buying and selling of the goods pertaining to the business of such a store, and that his wife would be bound by his relevant statements to one from whom he was buying or to one to whom he was selling, or by those made to her employés about their contract of service, etc. But the declarations here testified to are not of this kind. They were not part of the res gestae of any business which his wife had, by any rational construction of the scope of his agency, committed to him to transact. He was not speaking in the course of a negotiation to buy or to sell on her behalf. The accounts for the goods he had bought had matured and were overdue, and the business of his agency, as far as these creditors were concerned, was closed. .We think, therefore, that the testimony as to James M. Duncan’s statements above referred to was inadmissible. For the reasons stated, the judgment of the court below is reversed, and a venire de novo awarded.
Concurrence Opinion
I concur in the conclusion arrived at in this case, but not in the construction put by the majority of the