207 F. 705 | 1st Cir. | 1913
Lead Opinion
This is a petition in bankruptcy filed November 9, 1912, in the United States District Court for the District of Massachusetts, -by three creditors praying that William S. Butler & Co., Incorporated, be adjudged a bankrupt. The grounds stated in the petition upon which it is claimed that the defendant should be adjudged a bankrupt are the following:
“(1) That said William S. Butler & Co., Incorporated, is insolvent, and that within four months next preceding the dale of this petition * * committed an act of bankruptcy in that it did * * * on the 7th day of November, 1912, because of insolvency, have put in charge of its property two receivers, * * * under the laws of the United ¡States, by virtue of proceedings in equity in the United States District Court for the District of Massachusetts; and
“(2) Committed an act of bankruptcy in that it did * * * on the 7th day of November, .1912, * * » being insolvent, apply to the United States Disirict Court for the District of Massachusetts, sitting in equity, for the appointment of a receiver, by virtue of which proceedings two receivers * * * were appointed.”
On the date alleged in the petition, a bill in equity was filed in the District Court for the District of Massachusetts, in which Isaac McDean Sons Company appeared as plaintiff and William S. Butler & Co., Incorporated, as defendant. It was in form a creditors’ bill, and after setting out the debt due the plaintiff it alleged in substance:
(1) That the defendant is otherwise indebted to an amount approximating .Si700,000, a large amount of which is now due.
(2) That tile defendant is unable.to meet its liabilities as they mature in the ordinary course of business, and that it would be unjust and inequitable for the plaintiff or other creditors to attempt to gain a preference in the time or manner of settlement of their claims.
(:>) That the defendant is engaged in the retail dry goods business in Boston; has invested more than ¡)250,000 In stocks of new merchandise which are immediately available for sale at a profit if the business can lie carried on without interruption; and that the store occupied by it has recently been refitted with expensive fixtures, which are of great value to a going concern.
(4) That it holds a lease of the premises it occupies, which is of great value, and would be of great value to any purchaser of its business as a going concern, but that if attachments should be placed upon its property, and the defendant should be adjudicated a bankrupt, the value of its lease would be wholly lost.
*708 (5) That the defendant and its predecessors during many years of continuous business have built up a good will of great value which would be almost wholly lost if the business should be closed up.
(6) That, unless a receiver is appointed and empowered to borrow money upon receiver’s certificates, the store will have to be closed and its assets sacrificed because of its lack of quick assets and its inability to raise money needed for carrying on its business.
(7) That for these reasons the plaintiff is without adequate remedy for the collection of its indebtedness without the intervention of a court of equity and the appointment of a receiver to continue the business of the defendant and protect the value of its assets until sufficient sums can be realized, either from the continuance of the business or the sale of its assets, to discharge the defendant’s indebtedness or to distribute its assets ratably among its creditors.
The bill contained two prayers:
“(1) That receivers be forthwith appointed to take possession of and administer the assets of the defendant with power to manage and operate the property, to continue its business, employ agents and employes, and with the approval of the court to borrow money and issue receiver’s certificates therefor ; and
“(2) That the debt of the plaintiff and the debts of all other creditors who join in the proceedings be established, and that the assets of the defendant be equitably applied as the court may direct in satisfaction thereof.”
On the date of the filing of the bill the defendant answered, admitting that the matters and things stated in the bill were true, and thereupon the following decree was entered:
“On this 7th day of- November, 1912, comes the plaintiff in this cause, by its attorney, and upon consideration of the bill of complaint and the answer thereto, and on motion of counsel for the plaintiff, the respondent, by its attorney, consenting- thereto, it is ordered, adjudged, and decreed that Charles F. Weed, of Brookline, and Millory H. Gibson, of Boston, both in Massachusetts, be and hereby are appointed receivers of all the assets and property of the respondent, wheresoever situated, and the moneys, contracts, debts, choses in action, books of accounts, deeds, and documents belonging to the respondent or relating to or arising from its property or business; and they are directed to file with the clerk of this court within two days from this date their several bonds, with sureties to be approved by the clerk, in the sum of $50,000 each. Said' receivers are hereby authorized and directed to take into their possession forthwith all the assets and property of the respondent wheresoever situated, carrying on the business of the respondent until further order of the court, and for that purpose to purchase such materials and sup-’ plies, employ and pay such counsel, servants, and agents, Contract for such labor, ..and, subject to the direction and approval of this court, take such other steps, and enter into such obligations and agreements, as shall be reasonably necessary; to insure any property of the respondent which they may think proper; to collect and receive all sums due or payable to the respondents, or arising from the conduct of its business by the receivers; to pay any accrued rent for the preservation of leases; and under the direction of the court to institute and prosecute all such actions, suits, and proceedings as they may think proper and for the protection and preservation of the respondent’s assets or for recovering possession thereof; to defend any and all actions, suits, and proceedings against the respondent or against the receivers in respect of their acts or management as such; and out of the moneys to be received by them, as aforesaid, to pay all taxes and assessments lawfully laid or assessed upon or in respect to the property or business of the respondent, and all expenses and obligations properly incurred by them in carrying on said business, or otherwise in connection with the premises. The said receivers shall deposit all moneys coming into their hands as aforesaid in some suitable bank or trust company in the city of Boston.”,
In the District Court it was found that the proceeding in equity was brought about by Butler & Co., and that, although the bill was in form a creditor's bill, it was in fact an application by the debtor for the appointment of receivers. It was also found that the debtor was insolvent in fact (that is, in the bankruptcy sense of the term) at the time of the filing of the bill and at the time of the filing of the petition in bankruptcy. The company was adjudged a bankrupt on both the grounds set out in the petition, and the receivers and intervening creditors appealed.
“Or. being insolvent, applied for a receiver or trustee of his property or because of insolvency a receiver or trustee lias been put in cliarge of his property under the laws of a state, or of a territory, or of the United States.” Section 3a, cl. 4, of the Act of .Inly 1, 1898, c. 541, SO Stat. 546 (U. S. Comp. St. 1901, p. 3419), as amended by the Act of February 5, 1903, c. 487, § 2, 32 Stat. 797 (U. S. Comp. St. Supp. 1011, p. 1493).
In section 1, cl. 15, of the act, it is provided that:
“A person shall be deemed insolvent within tire provisions of this act whenever the aggregate of his property * * * shall not, at a fair valuation, be sufficient in amount to pay his debts.”
This section undoubtedly sets forth the meaning Congress intended should be given to the words “insolvent” and “insolvency” as used in section 3a, cl. 4, and seems to be the one either directly or impliedly attributed to them by the courts in considering these provisions of the law. In re Golden Malt Cream Co., 164 Fed. 326, 90 C. C. A. 258; Duncan v. Landis, 106 Fed. 839, 45 C. C. A. 666; In re Boston & Oaxaca Mining Co. (D. C.) 181 Fed. 422; In re Perry Aldrich Co. (D. C.) 165 Fed. 249; Beatty v. Andersen Coal Mining Co., 150 Fed, 293, 80 C. C. A. 181; Hooks v. Aldridge, 145 Fed. 865, 76 C. C. A. 409; Blue Mt. Iron & Steel Co. v. Portner, 131 Fed. 57, 61, 65 C. C. A. 295; In re Edward Ellsworth Co. (D. C.) 173 Fed. 699. No case has been called to our attention in which a different conclusion has been reached. If any inference as to the question is to be drawn from, the decision in Re Kennedy Tailoring Co. (D. C.) 175 Fed. 871, relied on by the appellees, it would seem to be that the insolvency there contemplated was insolvency in the bankruptcy sense, and in the Beatty Case it was specifically alleged in the bill of complaint that the debtor was insolvent in fact, as its assets were less than its liabilities. The decision in Re Golden Malt Cream Company, 164 Fed. 326(90 C. C. A. 258, is directly in point, and to the effect that insolvency, as used in clause 4, means insolvency as defined in the bankruptcy act.
With regard to the first act of bankruptcy alleged in the petition (that on the 7th of November, 1912, receivers were put in charge of the debtor’s property because of insolvency), the only evidence in its support presented at the trial was the bill, answer, and decree in the equity proceeding; and the question is presented whether the decree
In Russell v. Place, 94 U. S. 606, 608 (24 L. Ed. 214), the court, in considering the effect of'a judgment when pleaded as a bar or offered as evidence in a subsequent suit between the same parties or their privies and for a different cause of action, said:
“It is undoubtedly settled law that a judgment of a court of competent jurisdiction, upon a question directly involved in one suit, is conclusive as to that question in another suit (for a different cause of action) between the same parties. But to this operation of the judgment it must appear, either upon the face of the record or be shown by extrinsic evidence, that the precise question was raised and determined in the former suit. If there be any uncertainty on this head in the record (as, for example, if it appear that several distinct matters may have been litigated, upon one or more of which the judgment may have passed, without indicating which of them was thus litigated, and upon which the judgment was rendered), the whole subject-matter of the action will be at large and open to a new contention unless this uncertainty be removed by extrinsic evidence showing the precise point involved and determined. To apply the judgment and give effect to the adjudication actually made, when the record leaves the matter in doubt, such evidence is admissible.”
And again, on page 610 of 94 U. S. (24 L. Ed. 214), the same court says:
“If upon the face of a record anything is left to conjecture as to what was necessarily involved and decided, there is no estoppel in it when pleaded, and nothing conclusive in it when offered as evidence.”
See, also, on this question, Beatty v. Andersen Coal Mining Co., 150 Fed. 293, 80 C. C. A. 181; In re Kennedy Tailoring Co. (D. C.) 175 Fed. 871, 873; Cromwell v. County of Sac, 94 U. S. 351, 24 L. Ed. 195; In re Watts, 190 U. S. 1, 35, 23 Sup. Ct. 718, 47 L. Ed. 933; Metcalf v. Gilmore, 63 N. H. 174, 189.
The decree does not state the ground oi; grounds upon which 'the receivers were appointed, and its terms are not coextensive with the allegations and prayers of the bill. It states that it was entered “upon
Then, again, the prayers of the bill were granted only to the extent that they contemplated and sought the appointment of receivers to assume control of the business and conduct the company’s affairs until otherwise ordered by the court. The prayer wherein it was asked that the plaintiff’s indebtedness and that of other creditors be determined, and that the assets of the company, if they were insufficient ho pay its indebtedness in full, should be equitably distributed, was not covered by the decree. This being so, the decree is alone consistent with the idea that it was made with a view to the preservation of the value of the defendant’s assets as a going concern and of enabling the debtor, through an extension of credit and a continuation of its business, to realize a sum sufficient to pay its debts in full and to avoid insolvency if possible. In fact, all the allegations of the bill, so far as they were recognized by the decree, are consistent with the main allegation that the defendant was unable to meet its obligations in the ordinary course of business, and it seems to us that it would be putting upon them a strained construction to hold that the debtor, by admitting in its answer that its property was of great value, thereby admitted that it was insolvent in fact (that is, in the bankruptcy sense), and that the court made use of it as one of the grounds on which to base its decree appointing receivers.
In-the bill in equity the plaintiff alleges: (1) That it is a citizen and resident of the state of Maine and brings the bill in behalf of itself and other creditors of the defendant, a citizen and resident of Massachusetts ; and (2) that the defendant is indebted to the plaintiff in a sum not less than $25,000, a large part of which is overdue, and, though often demanded, remains wholly unpaid.
Both of the above allegations were essential to establish a case cognizable under the judiciary act of the United States by the federal court. The second allegation was also material to the establishment of the plaintiff’s right to equitable relief.
The defendant in its answer admitted both allegations and by so doing waived its right to object to any insufficiency in the second allegation and material to the equitable relief desired in that it was not there alleged that the claim had been reduced to a judgment, and that execution had issued and been returned unsatisfied. Matter of Reisenberg, 208 U. S. 90, 28 Sup. Ct. 219, 52 L. Ed. 403; Hollins v. Brierfield Coal & Iron Co., 150 U. S. 376, 14 Sup. Ct. 127, 37 L. Ed. 1113:
Moreover, it does not seem reasonable that Congress, in the enactment of clause 4, could have 'contemplated that a decreé in an 'equity proceeding, determining who the applicant'for receivers was, should be subject to attack when offered as evidence in a bankruptcy proceeding, unless it be for fraud or collusion. In this case it is expressly found that there was no fraud or collusion, and it was therefore not open to the bankruptcy court to disregard the decree and undertake to determine the question anew. Matter of Reisenberg,
If procuring a creditor to make an application for receivers can be found to be the application of the corporation and an act of bankruptcy, it can only be so when there is proof that the agents had authority to take such a course of action. In this case the evidence discloses that there was no vote of the board of directors, or of the stockholders, authorizing the action, and no agreement of all the. stockholders.
It is urged by the appellees that the directors and stockholders acquiesced in the action taken by these agents and ratified their conduct. But the directors of the corporation, having no authority to act singly, could not, except as a board, ratify action which they could not have authorized, except as a board. And the stockholders could not be found to have acquiesced in and ratified the action of the agents in question without proof that they knew what action was taken and that it wras in behalf of the corporation. There was no evidence that all the stockholders knew what action these agents had taken. The equity proceeding, so far as the records would disclose, was the application of a creditor and would give no information as to what these agents had done. And the knowledge possessed by the agents of action taken by themselves in excess of their authority would not be imputable to the corporation or the stockholders.
The situation in this case resolves itself into this: -That Butler & Co., being insolvent in the bankruptcy sense, was put into the hands of receivers. This, however, is not an act of bankruptcy as defined in clause 4, as amended in 1903, and it is apparent that Congress did not intend to make it one. The amendment when introduced read:
“Being insolvent, applied for or was put in the hands of a receiver.”
In the Senate its language was changed to read as finally enacted. Had it become a law as originally introduced, the facts in this case would disclose an act of bankruptcy, but, by enacting the clause as amended by the (senate, Congress manifested an intention to leave the situation presented by this case unprovided for, and it is not for the coult to. enlarge the meaning of the statute by construction and attempt to provide for the omitted situation by holding that the phrase, “because of insolvency,” means insolvency other than as defined' in section 1, cl. 15.
The power exercised by the court in extending the time for filing answers, and in allowing the receivers to appear, was discretionary. In re Everybody’s Store, Inc.
In each case the decree will be as follows:
The decree of. the District Court is reversed, and the case is remanded to that court for further proceedings not inconsistent with the opinion passed down the 10th day of September, 1913; and the appellants recover cost of appeal.
Dissenting Opinion
(dissenting). The burden of the- litigation in this case is over the definitions given to the words “insolvent” and “insolvency” incorporated in the Bankruptcy Statutes by the amendment of 1903, so far as they relate to these appeals. A careful perusal of text-books and of the decisions of the courts bearing on the definitions to be given these words as applied here fails to show any authority for giving the peculiar definition to the words in question as applied here, except the Golden Malt Co., 164 Fed. 326, 90 C. C. A. 258. This case was much like many of the early decisions with reference to the bankruptcy statutes, where the conclusions were apparently reached without much consideration. The text was so hastily drawn that, on page 328, it declared the provision in question here was a part of the statute of July 1, 1898, when it came in by the Acts of 1903, 32 Stat. 797, as an entirely new topic; a fact which must be regarded in interpreting statutes, which must alwáys be interpreted from an historical point of view in order to be correctly understood. It is true that the amendatory act of 1903 was strictly amendatory in such way as to embody the amendment into the original act of 1898; but, whatever the circumstances under which an amendment comes in, or the form which it takes, the courts are -always at liberty to make a broad investigation and to
By giving the words “insolvent” or “insolvency,” as found in the amendment of 1903, the peculiar definition given them by the body of the act of 1898, we would practically defeat the purpose of the amendment, and the amendment would be inapplicable. No proceeding in either courts of equity or common law has ever yet, in appointing receivers or otherwise, used the words “insolvent” or “insolven-cy” in the special sense declared by the Bankruptcy Act of 1898. Giving these words the force which the opinion of the court gives them would be in substance declaring that no adjudication in bankruptcy based on the appointment of a receiver by a court of equity or common law was in fact and in substance justifiable, because there never has been any case where such an adjudication was secured in which the court which appointed the receiver has ever given to those words the peculiar definition given them by the Bankruptcy Act of 1898, or was ever asked to do so. In the Golden Malt Co. Case, to which we have referred, the adjudication in bankruptcy was finally refused. Not only has there never been any adjudication in bankruptcy based on the appointment of a receiver under circumstances like those stated in the opinion of the court, but there is no reasonable probability that there ever will be, as not only has no court of common law or equity ever accepted the definition of “insolvency” embodied in the bankruptcy statutes, but there is no reasonable probability that such courts ever will do so.
None of the cases cited in the opinion of the court seems to sustain its propositions. In order to avoid unnecessary prolixity, we refer to them only by the volumes and pages of the decisions. 106 Fed. 839, 45 C. C. A. 666, was decided before the amendment of 1903; 181 Fed. 422, was in the District Court, and turned on a question of fraud and collusion; 165 Fed. 249, has the same features as the case last referred to; 150 Fed. 293, 80 C. C. A. 181, the Beatty Case, quite well known, showed expressly that the proceeding in the state court declared only that the parties proceeded against were unable to meet their obligations as they came due; in 145 Fed. 865, 76 C. C. A. 409, the question we have here was referred to at page 868 but ivas not decided either there or at page 871; in 131 Fed. 57, 65 C. C. A. 295, the case was submitted to the jury in the District
Therefore, while disposed to give full effect to the rule in this circuit with regard to following decisions of- Circuit Courts of Appeals of other circuits, we cannot go so far as to adopt the Golden Malt Co. Case, which is inconsistent with the settled practice, and which practically nullifies the statute to which we are asked here to give effect. Therefore, as this is really the only substantial proposition which stands in' the way of affirming the judgment of the District Court, we are of the opinion that that judgment should be affirmed.
We think some additional exposition is necessary with reference ' to the power of the court to permit the intervention of receivers for the purpose of resisting adjudications in bankruptcy. This matter is pertinent with reference to this case and with reference to the two cases on appeal concerning Everybody’s Store, Incorporated. The basis of the argument in opposition to permitting the receivers to intervene rests on the mere letter of the statute, found in subsection “b” of section 18 of the Bankruptcy Act of 1898. That limited the_ right of opposition to the bankrupt or some creditor. The pláin purpose of this subsection was to fix a limited time in order that .-the proceedings might be expedited. It would be an extraordinary-proposition that any general provision of law of this character, or .of any other character, unless unusually specific, should ■pulí up by the roots in any particular case the application of a fundamental rule governing courts proceeding on equitable principles, including. bankruptcy courts, and so denying the power permitting the intervention of receivers or anybody else having a title of any kind whatsoever. The power to intervene has been construed in equity in the most liberal manner where the rights of third parties are involved. This point was authoritatively determined under the 'present Bankruptcy Statutes in the Second Circuit, with the approval of the Circuit’Court of Appeals for that circuit, in 183 Fed. 703, 106 C. C. A. 139, 33 L. R. A. (N. S.) 454, of the decision of the District Court in Hudson River Power Co., 173 Fed. 934. We think the uniform practice in this particular is in harmony with the general rules of equity, so that- we would not be justified in disturbing it.
