8 F. Cas. 1 | S.D.N.Y. | 1876
In this case, on the ISth of December, 1S70, a petition in involuntary bankruptcy was presented to and filed in this court, praying that William Butler Duncan, William Watts .Sherman and Francis H. Grain, copart-ners under the firm name of Duncan, .Sherman & Co., be adjudged bankrupts. The petition purported to be the petition of 205 creditors. It set forth the claims of those creditors, and was signed by them. It was properly verified. It averred that the debtors resided in the city of New York, and had carried on business in this district for more than six months next preceding the date of-filing the petition; that the demands of the petitioners were provable in accordance with the provisions of the Revised Statutes and the several amendments thereof; that the petitioners believed that the debtors, as such copartners, owed debts to an amount exceeding the sum of $300; that the petitioners’ demands each exceeded the amount of $250; that the petitioners constituted one- > fourth at least in number of all the creditors of the debtors, as such copartners, whose debts exceeded $250; and that the aggregate of the petitioners’ debts provable under the j said Revised Statutes, and the said several ' amendments thereof, amounted to at least one-third of all the debts so provable against said debtors, as such copartners. It averred properly acts of bankruptcy, and was accompanied by depositions as to such acts, and by depositions as to the claims of the first five signers of the petition. It was also accompanied by a paper signed and acknowledged by the three debtors, in which they stated that, “upon the filing of the petition,” they “severally appear in person and admit that the requisite number and amount of their creditors have petitioned for an adjudication of bankruptcy against them heroin; and waive service of a copy of the petition and of the order to show cause herein, and admit that they committed the acts of bankruptcy alleged in said petition and consent to the entry of said order of adjudication.” It was further accompanied by an affidavit made by Walter S. Carter, one of the attorneys for the petitioning creditors, setting forth, “that he has examined the statement of debts of said alleged bankrupts, and that the total number of creditors of said alleged bankrupts whose claims exceed $250 does not exceed 786, and that the aggregate of all the debts of said alleged bankrupts, provable under the Revised Statutes of Ihe United States, title 01. ‘Bankruptcy,’ and the several amendments and supplements thereof, does not exceed the amount of $3.400.0oo; that the number of creditors whose debts exceed the amount of $250, uniting in the petition herein, is 205, the aggregate of whose debts provable under said Revised Statutes, and said several amendments and supplements thereof, amounts to $2,168,142.49.” On the presentation and filing of these papers, the court made an order, on the Sth of December, 1S75, in these words: “Upon reading and filing the foregoing admission, also the affidavit of Walter S. Carter, and the court being satisfied that said admission was made in good faith, it is hereby adjudged, that the requisite number and amount of the creditors of the said William Butler Duncan, William Watts Sherman and Francis H. Grain, co-partners under the firm name of Duncan, Sherman & Co., have petitioned for an adjudication of bankruptcy against them, in the above-entitled matter, and that the same proceed without further steps on that subject.” Thereupon, on the same day, on the foregoing appearance in person and consent of the debtors, an order of adjudication in bankruptcy, in due form, was entered and filed.
Certain creditors of the bankrupts, six in number, had, prior to the filing of the petition in bankruptcy, obtained judgments against them, as copartners, in a court of the state, and three of those six had, prior to the filing of such petition, brought what are known as creditors' suits, in a court of the state, founded on such judgments, to reach assets alleged to have been transferred by the debtors in fraud of creditors. One other of the six had, prior to the filing of the petition in bankruptcy, made a levy under an execution issued on his judgment, on property alleged by him to be liable to such levy. Seven other creditors have recovered judgments against the debtors, as copart-ners, in a court of the state, since the petition in bankruptcy was filed. On the 24th of December, 1S75, this court, on the petition of the bankrupts, made an order staying the suits brought by the said thirteen creditors until the question of the discharge of the debtors shall have been determined, and staying the issuing of execution on the judgments, and further proceedings on executions issued. The creditors so stayed now present a petition to the court, praying that the adjudication of bankruptcy, and all the proceedings thereunder, be adjudged void and revoked.
One ground urged for setting aside the adjudication is. that the petition for adjudication, and the papers which accompanied it, do not show that the petition is the petition of creditors to one-third of the amount of the debts, but show that it is not the petition of creditors to one-third of the amount of the debts. Another ground urged is. that it may now be shown, by evidence aliunde the papers which were before the court when the adjudication was made, that one-third in amount of the creditors did not unite in the petition, and that sm-li fact has been shown.
The 12th section of the act of Juno 22, 1S74
A careful examination of these provisions i shows that congress intended that certain prescribed steps shall be taken to ascertain whether the petition presented is the petition of one or more creditors who constitute one-fourth, at least, of the creditors, in number, and whether the aggregate of the debts of the petitioning creditors provable under the act amounts to at least one-third of the debts so provable. In the first place, the petition must allege that fact That fact is alleged in the petition in this case. If such allegation is denied by the debtor, either as to number or amount, in writing, the court is required to ascertain, on notice to the creditors, whether one-fourth in number and one-third in amount as aforesaid, have petitioned. If they have not, time is to be given for others to join. If the required number join, the matter is to proceed. If not, the proceedings are to be dismissed. If, on the return day of the order to show cause, the court is satisfied that the requirement of the act as to the number and amount •of the petitioning creditors has been complied with, or if, within the time allowed, creditors sufficient in number and amount sign the petition, to answer such requirement, the court is required to “so adjudge,” and it is declared that such “judgment shall be final.” The foregoing provisions cover the cases where the debtor appears and denies the allegation in question, and the cases where he appears and makes no denial of it, and the cases where he does not appear at • all, but makes default But there remains another class of cases. The foregoing three classes are cases of action on the return day of the order to show cause. The remaining ■class comprises cases where the debtor, on the •filing of the petition, and without awaiting -the issuing and service of an order to show ■cause, admits in writing that the requisite number and amount of creditors have petitioned. If he does, the court, if satisfied that the admission is made in good faith, is required to “so adjudge,” and it is declared that such “judgment shall be final,” and that the matter shall “proceed without further steps on that subject.” It was under this latter provision that the proceedings in this case were taken. The debtor is clearly invited by the statute to make such admission, if the admission can be made in good faith, and he is'invited to do so on the filing of the petition, and before the order to show cause is issued or can be served, and when he can be advised of the existence-of the petition only by information communicated to him otherwise than in the due course of a legal proceeding. If, on the making of the admission. the court is satisfied that the admission :is made in good faith, the court is required to “so adjudge,” that is, to adjudge “that the requisite number and amount of creditors have petitioned;” and it is enacted that sueh judgment shall be final, and that the matter shall proceed without further steps on that subject.- The requirement in regard to so -ad
These provisions show that the judgment' is final not only as respects the debtor, but as respects all his creditors. It is final as respects his estate and all interested in it. It is in the nature of a judgment in rem in respect to the matter adjudged by it. These provisions further show that the requirement of the statute that the petition shall be the petition of one-fourth in number and one-third in amount of the creditors, is not a jurisdictional point, or a quasi jurisdictional point, in such wise that, when there is a proper allegation in the petition as to the number and amount of creditors, and when there is a judgment of the court that such allegation is true, the fact can be re-examined, either by the court which rendered the judgment, or in a collateral proceeding, unless fraud be alleged and proved. The observations of Judge Lowell, in Ex parte Jew-ett [Case No. 7,303] seem to me to be entirely sound. He says: “I cannot admit that the number and amount of petitioners have anything to do with the jurisdiction of the court. Congress has very carefully provided, that a want of parties shall be taken advantage of as a strictly dilatory plea, and be disposed of in a summary way, not for the purpose of ascertaining the jurisdiction of the court, but the sufficiency of the plaintiff’s petition, which is a very different thing. If the court should decide wrongly on that point, its decision would bind all the world. The district court has jurisdiction in bankruptcy of every person residing within the district, who owes three hundred dollars of provable debts; and, when a paper which purports to be a petition in bankruptcy, and which alleges such residence and indebtedness, is filed, and an order of notice has been duly served, there is and can be no jurisdictional fact remaining, if the residence and indebtedness to the extent of three hundred dollars are admitted. The court may then proceed to allow or refuse amendments, or do anything else proper for a court to do that has undoubted jurisdiction of the subject matter and the parties.” In that case, the petition was one in involuntary bankruptcy, and there had been no adjudication; but a resolution for a composition had been passed. It was objected that the petition was fatally defective, and gave no jurisdiction to tlio court, so that a case in bankruptcy could be said to be pending, because it averred that the petitioning creditors constituted the requisite number and amount of the creditors of one of the petitioning creditors instead of the person proceeded against The court, while of opinion that no amendment was necessary, granted a motion to amend in the above particular.
In the present case, the petition contains all the necessary jurisdictional allegations, and the further allegation that the petitioners constitute one-fourth, at least, in number, of all the creditors of the debtors, as co-partners in business in the city of New York, under the firm name of Duncan, Sherman & Co., whose debts exceed $250, and that the aggregate of the petitioners’ debts, provable under the statute, amounts to at least one-third of all the debts so provable against the debtors as such copartners. It then proceeds to set out the natures and amounts of the several claims of the petitioning creditors. It nowhere appears, in the petition.
As to any facts set forth in the affidavit of Walter S. Carter, presented to the court with the petition, to satisfy, the court that the admission of the debtors was made in good faith, such affidavit was no part of the petition. The court received it as evidence of the good faith of the admission, and acted upon it, and thereupon, upon it and upon the petition, adjudged that the requisite number and amount had petitioned. Any inquiry now into the truth of the facts set forth in such affidavit, or any re-examination of the fact adjudged by the court, is forbidden, as before shown, unless fraud or bad faith be alleged.
As to fraud or bad faith, there is not the slightest evidence that the petitioning creditors, or any of them, in signing the petition containing the allegations it does, did not, in good faith, believe those allegations to be true, or were parties to any fraud or imposition, in respect of any of such allegations. Nor is there any evidence that the debtors, in signing the admission they did, practised any fraud or imposition, or acted in bad faith; nor that Mr. Carter did so, in making the statements contained in his affidavit. Moreover, if I were now to entertain the forbidden inquiry as to whether the petitioning creditors did, when the petition was filed, constitute the requisite number and amount, the burden of proof, after an adjudication made on a petition regular on its face, would be on those who apply to set aside the adjudication; and, on the evidence now adduced on the question, I could not hesitate to say that the applicants had failed to make out that the petitioning creditors were not sufficient in number and amount
The adjudication is further attacked on the ground of what is called “collusion” by the debtors. This collusion is alleged to consist in the fact that the debtors gave their aid and assistance to the signing, presenting and filing of the petition filed against them, and followed that up by making the written admission and waiver of service of the order to show cause, before set forth. They solicited some of their creditors to join in the petition against them, and they sent a circular note signed by themselves to others of their creditors, saying that “a movement is now on foot among some of our leading creditors to put us into involuntary bankruptcy, and we feel assured that this course will realize the most to our creditors, and be the best for all concerned,” and asking for the signature of the creditor to an appended paper, authorizing the attorneys who represent the petitioning creditors in these proceedings to sign the creditor’s name to a petition in bankruptcy against the debtors. It is alleged that the debtors thus favored, instead- of resisting, what is, under the statute, a hostile proceeding, and thus made it ostensibly hostile when it was really not hostile; that what the debtors ought to have done was, to file a petition in voluntary bankruptcy; that, under this involuntary petition, they will, if otherwise entitled to a discharge, be enabled to procure it without paying the proportion of their debts, or obtaining the assent of creditors, required in respect of proceedings under a voluntary petition; and that they ought not to be allowed to obtain, by promoting the involuntary proceedings, an advantage which they would not have enjoyed if they had filed a voluntary petition.
No creditor who joined in the involuntary petition appears, to make any complaint in respect of any matter. The creditors who joined in it have rights which the court is bound to consider. They took these proceedings, as is very apparent, for the purpose of securing, as far as possible, an equal distribution of the property of the debtors among all their unsecured creditors, and for the purpose of preventing any more creditors besides those who might, by the proceedings in the state courts, have already acquired liens or rights of preference, from acquiring liens or rights of preference by proceedings in the state courts. This was a lawful motive and a lawful result. It is one of the results aimed at by the bankruptcy statute. Creditors who desire to secure such result, secure it by the mere filing of the proper petition in involuntary bankruptcy, if it be followed by an adjudication. No injunction to restrain such proceedings in the state courts is necessary, to make the filing of the petition effective to prevent after-acquired liens or rights of preference from attaching. If such injunction is desirable to prevent embarrassment in the future from such proceedings, it is granted on the application of the petitioning creditors as well as on the application of the bankrupts. U. S. v. Bancroft [Case No. 14,513]; In re Ulrich [Id. 14,328]; In re Clark [Id. 2,801]. The petitioning creditors in this case manifestly concurred and concur in the view expressed in the circular note of the debtors, that the administration of the estate of the debtors in bankruptcy would realize the most to their, creditors, and be the
I do not perceive that Mr. Elliot was a partner who should have been joined in the-proceedings.
As to the suggestion that certain conveyances, transfers and assignments, and a general assignment by the bankrupts, all made more than four months before the petition in bankruptcy was filed, could have been set aside by the assignee in bankruptcy as being in fraud of the bankruptcy statute, if the bankrupts had filed a voluntary petition within the time limited by the 35th section of the act of 1807 (now sections 5128 and 5129 of the Revised Statutes), as modified by section 10 of the act of 1874, after the transactions occurred, it is a sufficient answer to say, that the observation is equally true of the failure of creditors to file an involuntary petition within the time so limited, as the limitation in the statute is expressly applied to one and the same period before the filing of a petition against the debtor and before the filing of a petition by him. But the fact that both the creditors and the debtors failed to file any petition in bankruptcy until the one now under consideration was filed, and that thus certain transfers which might have been attacked as in fraud of the bankruptcy statute, cannot now be attacked, can in no manner bear on the question of the validity of the present proceedings in bankruptcy. Creditors were the persons most concerned in setting aside, under bankruptcy proceedings, transactions which could be set aside as in violation of the bankruptcy statute, and could not otherwise be set aside, and, if they did not choose to avail themselves of opportunities which the bankruptcy statute would have afforded in case they or the debtors had filed a petition in bankruptcy at an earlier day, that fact can be no objection to the filing of the present petition, with the other advantages to grow out of it, that are accorded by the statute to creditors and debtors.
It is alleged that certain conveyances, transfers and assignments made by one or more or all of the debtors prior to the filing of the petition, were, because of certain irregularities, defects and unlawful intents, void and of no effect, as having been made with intent to delay, defraud or hinder the creditors of the debtors, and for other reasons. and it is claimed that this court ought to allow the creditors who have commenced proceedings in the state courts to set aside such conveyances, transfers and assignments, to prosecute further such proceedings.
In the present case the suits already brought and those desired to be brought in the state court are numerous, and the case is one in which it is proper to continue the injunctions and stays granted until an as-signee in bankruptcy is appointed and can have an opportunity, on behalf of the creditors, to examine into the matters relating to the estate of the bankrupts, and determine what action he will take in respect to the property which it is alleged was transferred in fraud of creditors or was the property of the bankrupts when the petition in bankruptcy was filed.
As to the examination of the bankrupts in the bankruptcy proceedings, the provisions
[The Case of Mrs. Perrero (unreported) is governed by the decision of this court in Re Rosenberg [Case No. 12,054]. Her suit is really to recover the money she paid to the bankrupts on purchasing a bill of exchange, and is a provable debt, although it will not be dischargeable if it shall be shown to have been created by fraud. Such a suit and all •proceedings, in it are to be stayed, on the application of the bankrupts, until the question of their discharge is determined.]
1 have intended to cover all the questions raised in the voluminous papers and exhaustive briefs in this case and have considered them all, even though I may have failed to discuss some of them as fully as others. It results that all the applications must be denied, except that of the petitioning creditors, to continue in force, on their behalf, as against the persons heretofore enjoined on the application of the bankrupts, the injunctions so granted, and to restrain such persons from interfering with any property of the bankrupts, or any property which, by operation of law, will pass to their assignee in bankruptcy when appointed.
[From 14 N. B. R. 18.]