145 F. 395 | M.D. Ala. | 1906
1. The Constitution vests broad power in Congress “on the subject of bankruptcies,” and it has a wide field of discretion as to the modes of procedure for ascertaining and declaring the status of bankruptcy. If a bankruptcy statute provides for proper notice and fair opportunity to the debtor to defend against adjudication in an involuntary proceeding, due process is not denied creditors, although no provision be made for giving them notice, or, for that matter, for allowing them to become parties to the proceeding. Congress, not being bound to provide for notice to creditors of the institution of involuntary proceedings, has made no provision for such notice, other than that which results by operation of law from the filing of the petition. The proceeding is in a large sense in rem. What is done therein is binding upon creditors, whether or not they have actual notice or knowledge of the pendency of the proceeding. The filing of the petition by proper parties, making the jurisdictional allegations, operates as lis pendens, and is notice to all the world. Bank v. Sherman, 100 U. S. 406, 25 L. Ed. 866; Mueller v. Nugent, 184 U. S. 14, 22 Sup. Ct. 269, 46 L. Ed. 405. Moreover, it seldom happens in these days of newspapers, and the activity of collection and commercial agencies, that creditors do not, in fact, have ample knowledge of the filing of the petition, in time to contest the adjudication against their debtor, if they so desire, within the 20 days allowed them, after the filing of the petition, in which to appear and “controvert the facts.”
Section 18, Bankr. Act. July 1, 1898, c. 541, 30 Stat. 551 [U. S. Comp. St. 1901, p. 3429], provides for service upon the alleged bankrupt of the petition with subpoena, etc., and subdivision “b” of the same section declares that any creditor may appear and plead to the petition within five days after the return day. Subdivision “d” provides, if the bankrupt or any of his creditors fail to appear within
The bankruptcy statute carefully selects and specifies the instances in which it intends to give the creditor the right to notice. The only instance in which any right to notice is given tlie creditor, as to the disposition of an involuntary petition, is when it is proposed to 'dismiss the proceeding by consent of parties, or for want of prosecution. Sections 58 and 59, 30 Stat. 561, 562 [U. S. Comp. St. 1906, pp. 31 it, 3445]. Controversies in bankruptcy would never end, and adjudications would amount to little more than mere interlocutory orders, if creditors, who did not make themselves parties, could afterwards come in, claiming they had no notice of the adjudication or petition, and then move to upset the judgment on the ground of error intervening after jurisdiction attached. Aside from this, the theory of the argument that when the bankrupt after making a contest subsequently withdraws it, the creditor has rights which he would not have if the bankrupt had not contested in the first instance, is wholly unfounded. The creditor has no vested interest or property rights in the debtor’s appearance and contest, and cannot prevent the debtor’s withdrawing his contest at any time he sees fit. The adjudication passes the debtor’s title, save as to his exempt property, to the trustee, and imposes certain duties upon the debtor, and may radically affect the rights of creditors as between themselves, and puts certain duties upon them if they desire to share in the insolvent’s estate. The lav/ makes the debtor the sole judge whether he will resist the adjudication, in order to avoid its consequences to him and his rights; and it likewise makes the creditor the sole judge whether he will resist the adjudication, in order to avoid its effect upon him and his rights. A creditor who wishes to prevent an adjudication but fails to contest the petition, is none the less in default, because the debtor, who has appeared and contested the petition, afterwards withdraws his contest, without notice to the creditor. The debtor’s contest, in the eye of the law, is for himself, and not for the creditor. The debtor is not
When an involuntary petition is filed and proper service made upon the bankrupt, and there is no appearance by the debtor or any of his creditors, the court must thereupon either pass an adjudication of bankruptcy or dismiss the petition. If the petition be unresisted, there is no question before the court except as to the sufficiency of the petition. That raises an issue of law. It must be tested solely by the averments of the petition, and the law does not permit, much less require, the taking of proof on such an issue. When, as here, the petition is filed by the proper parties, in the proper district, and makes all the jurisdictional allegations, and is uncontested, the failure to contest the petition by any person having the right, so to do, establishes the truth of the allegations of the petition. The law, thereupon, demands an adjudication of bankruptcy which, when thus rendered, is binding on all the world. Every creditor was conclusively charged with notice of the pendency of the proceeding and what was being done to bring about adjudication, and no creditor can be heard to -set up want of knowledge or notice of the proceeding as an .excuse for not controverting the petition before adjudication, or as a reason why it shall not bind him.
2. The District Court of the United States is a court of limited, but not inferior jurisdiction. Congress has conferred upon it original and exclusive jurisdiction to adjudge bankruptcies, and its judgments therein are supported by the same presumptions which are indulged in favor of the judgments of all superior courts of general jurisdiction. When jurisdiction is shown to have attached, the indisputable presumption, save when the question is raised by appeal or an attach upon the adjudication for fraud in its procurement, is that there was sufficient evidence to support the judgment. The petitioner here, who has not appeared, cannot, by indirection, by motion to vacate the adjudication, obtain the benefit of an appeal or other revisory writ, and thus compel the court to go behind the petition and the adjudication, and search the evidence to see if it justified the judgment. If, however, the petitioner were in position to raise the question in the way here attempted, it would not avail in the state of this record. The adjudication is based upon a finding of fact, on evidence reported by the referee as a special master. A motion to vacate the adjudication on the ground that the proof did not sustain the 'finding, must, necessarify, stand or fall upon the evidence taken and reported by the referee. Here, the insolvency was admitted. The execution and delivery of the conveyance charged to constitute an act of bankruptcy were proved. The bankrupt did not testify as to this matter. The books of the bank were put in evidence. No entry could be found in the cash account or elsewhere, concerning the receipt of the sum mentioned in the deed. No entry was discovered, which could be traced to the sale or to any transaction relating to it. It may be, as argued, that the bankrupt received the cash consideration mentioned in the deed, and failed to enter- its receipt upon the books of the bank.
3. Petitioner also assails the adjudication as collusive. The evidence does not sustain that charge. The provision of the statute giving a creditor a right to resist the petition of other creditors to force their common debtor, into bankruptcy, unless the debtor be insolvent, and has committed an act of bankruptcy, is part and parcel of the same
It is often vital to the interests of creditors that the debtor’s business, though in a critical condition, be not taken out of his control. The owner, left to the conduct of the business, may mend his fortunes, and save loss to the creditors, when a trustee or receiver could not take the business and do as well. In recognition of this interest of the creditor in his debtor’s remaining in control of his own affairs, the statute authorizes the creditor to intervene in involuntary proceedings,'to prevent his debtor from being put in bankruptcy, unless he be insolvent and has committed an act of bankruptcy. This provision intended to arm the creditor with effective means, placed directly in his own keeping, of assisting the debtor to resist an improper effort to force him into bankruptcy, and also to give the creditor like effectual means of preventing his debtor and petitioning creditors from colluding to bring about the adjudication, when the debtor is not insolvent and has not committed an act of bankruptcy, and is unwilling to institute voluntary proceedings. It was not within the contemplation of the statute, when the debtor is, in fact, insolvent, and has committed an act of bankruptcy, to give to the creditor the right to contest the adjudication, merely to keep alive a lien or levy, which would be destroyed if the petition be not defeated; for that is contrary to the spirit and purpose of the bankruptcy law. The contest of the petition for the latter purpose is an abuse of the statute. So long as he appears within the time prescribed by law, the creditor may wage his contest as to the insolvency and the act of bankruptcy, whatever his ulterior motive; but when, as here, it is not denied that the bankrupt was insolvent, and has committed an act of bankruptcy, a creditor who has not appeared within the time prescribed by law, ought never afterwards to be allowed to assail the adjudication, for anything short of fraud in its procurement, injurious to creditors generally, or for want of jurisdiction apparent on the face of the record in the court which rendered the adjudication.
It is neither immoral nor illegal nor contrary to public policy for petitioning creditors to urge upon their debtor, who is in fact insolvent, and has committed an act of bankruptcy, not to resist the adjudication in an involuntary proceeding, or for such a debtor to heed the importunity of creditors at any stage in the proceeding against him.. When such a debtor does no more than abandon resistance once begun to an effort to adjudicate him a bankrupt, and consents to be
4. There are other reasons equal!v fatal to the petitioner’s right to maintain this petition. The proceeding had been pending for nearly two years before the intestate died. Aside from the fact that the law
5. Again, the prime object of the statute is the speedy disposition of involuntary proceedings, and the prompt distribution of the estate of persons who are found to be insolvent. To that end, the statute exacts speedy decision upon the petition, and specifically requires that appeals from adjudications shall be taken within ten days. It would,be a palpable evasion of the letter, and a plain nullification of the spirit, of this provision to entertain a motion made to vacate months after the ad
For all these reasons the petition must be dismissed.