Magnus v. Ketcham, 112 F. 752

112 F. 752 | 7th Cir. | 1902

BUNN, District Judge,

upon the above statement of facts, delivered the opinion of the court.

. This is a contest on the part of appellants Magnus to gain a preference by judicial proceeding against the bankrupt taken within four months prior to the adjudication in bankruptcy, contrary to the letter and spirit of the bankrupt law. The avowed purpose of taking the judgment notes, with power to enter judgment at any time by confession, was to secure appellants against the claims of other creditors, and to give them a preference. That would be legitimate and proper if no bankrupt law were in force, and a race of diligence in priority were allowable. But one purpose and effect of the bankrupt law is to put a'n end to such a race of diligence, and to divide the estate ratably among creditors. The essential ethics of that law is. that “equality is equity.” It is true, however, that under the law a limit must be fixed when this contest for priority by legal proceedings must cease. The time fixed is four months prior to an adjudication in bankruptcy. The appellants’ judgment by confession was obtained on February 27, 1899. On that same day the brewing company, by its board of directors, resolved to immediately cease doing business, and thereby abandoned its corporate franchises. On the' day previous (February 26th) the American Brewing Company, through its president, George A. Weiss, conveyed to the Gottfried Brewing Company, of which John H. Weiss, á brother of George A.Weiss, was president, a valuable part of the property of the American Brewing Company, consisting of its good will, trade, and customers, worth $350,000, without any consideration, and with the intention, as is alleged in its petition, to put the. brewing company into bankruptcy, and to hinder, delay, or defraud its creditors. But a little more than a month afterwards, on April 5, 1899, the American Brewing Company was adjudged a bankrupt upon a petition alleging various acts of bankruptcy, and, among the rest, suffering judgment to be entered in favor of appellants on February 27th. Of course, if the appellants, by their judgment and levy of execution upon the property of the brewing company,—this being a legal proceeding,—obtained a preference, it was clearly void, within the provisions of the bankrupt law, as being within four months previous to the adjudication in bankruptcy, unless by some plausible scheme or device it can be made to appear that the American Brewing Company was not insolvent at the time such supposed preference was gained. See In re Richards (decided by this court) 37 C. C. A. 634, 96 Fed. 935. So that the struggle in this case has been and is to make good this proposition. This, at first, would seem a rather difficult task, as it involves the opening up or practical setting aside of the adjudication in bankruptcy, which was held by the referee to be conclusive upon the question of insolvency, and without a particle of proof anywhere in the record or before the court to show solvency. Supposing it should be held that the adjudication is not conclusive upon all the' matters charged in the petition, still it must be conceded to be presumptively true as to all those allegations. If a judgment does not conclude anything even prima facie, it would be of little use to enter one. But if the judgment is only presumptively correct and binding, still the appellants were given the opportunity upon the re-reference by the court, upon their own petition, alleging solvency on February 27th, to the referee, to enable them to prove solvency, to introduce evidence upon that question, which, after the case was held for some time, they declined to offer, and the referee so reported to the court. Having had that opportunity, wdiich they sought from the court, it would seem inconsistent now that they should be able to avail themselves of all the benefit they could have derived from sustaining their allegations of solvency at the time the judgment by confession was rendered, when opportunity was given. The maxim, “Who seeks and will not take when once 'tis offered shall never find it more,” is sometimes good in law.

But we are of opinion that the decision of the referee was correct, in holding that the adjudication in bankruptcy was binding upon the appellants, and conclusive upon the question of insolvency. The appellants, as well as the brewing company, were essentially parties to the petition. In that petition, as one of the grounds of bankruptcy, it was alleged that the American Brewing Company was insolvent, and was indebted in the sum of over $900,000,. and that within four months next preceding the date of the filing of the petition it committed an act of bankruptcy, in that it did on February 27,1899, suffer or permit, while -insolvent, Albert Magnus and August Mag-nus, partners doing business under the firm name of Magnus’ Sons, to obtain a preference through legal proceedings, which preference consisted in the procurement by confession on the date aforesaid by said A. Magnus’ Sons of a judgment in the superior court of Cook county, Ill., against said American Brewing Company, for the sum of $10,050 and costs of suit; that upon said judgment an execution was issued out of said court to the sheriff, and was levied upon' a _ large amount of personal property of said brewing company. An injunction was issued on March 10th, when the petition in bankruptcy was filed, expressly ordering that the sheriff and Magnus’ Sons be restrained from further interfering with the property, or from proceeding any further in the matter of said execution. The appellants had an opportunity of answering this petition, but neither they nor the American Brewing Company made any appearance or answer, and judgment went by default in accordance with the law and the forms and practice prescribed by the supreme court in such cases. To say now that the judgment is not binding upon the question of ' insolvency is to run counter to well-established principles of law applicable to judgments. If it were necessary, in order to bind creditors by a judgment in bankruptcy, that they should appear and answer, as they always have a right to do, then an adjudication could be prevented simply by creditors abstaining from appearing in the proceedings. But it is well settled that the proceedings are in a large sense in rem, and are binding whether the bankrupt or creditors appear of not. In re Skinner (D. C.) 97 Fed. 190; In re Henry Uhlfelder Clothing Co. (D. C.) 98 Fed. 409; In re McKinley, 7 Ben. 562, Fed. Cas. No. 8,864; Shawhan v. Wherritt, 7 How. 627, 12 L. Ed. 847; In re Wallace, Deady, 433, Fed. Cas. No. 17,094; In re Banks, Fed. Cas. No. 958; Morse v. Godfrey, 3 Story; 364, Fed. Cas. No. 9,856; Rayl v. Lapham, 27 Ohio St. 452; Lewis v. Sloan, 68 N. C. 557; Thornton v. Hogan, 63 Mo. 143.

• The bankrupt act (section 18b) provides that the bankrupt or any creditor may appear and plead to the petition within 10 days after the return day, or within such further time as the court may allow. And it is further provided, in subdivision “d,” that, if the bankrupt or any of his creditors shall appear within-the time limited and controvert the facts alleged in the petition, the judge shall determine, as soon as may be, the issues presented by the pleadings. And by. subdivision “e” it is further provided that if, on the last day within which pleadings may be filed, none are filed by the bankrupt or any of his creditors, the judge shall on the next day, if present, or as soon thereafter as practicable, make the adjudication or dismiss the petition. From this provision it is quite clear that, in order to bind creditors by an adjudication, it is not essential that they should appear. It is enough that they have the right and opportunity to appear, whether they appear or not. It was. clearly the privilege, as well as the duty, of the appellants, if they wished to dispute the allegation in the petition that the confession of judgment on February 27th was an act of bankruptcy, to appear and controvert the facts so alleged. Not having done so, we think the return of the referee was right,—that the judgment was binding upon them. They were not interested in several other acts of bankruptcy alleged, but they were interested ia that, and it was their duty, as well as privilege, to defend against it. From all the allegations and proceedings in the record, it would seem quite manifest that the true reason for the appellants not appearing was that the brewing company was hopelessly in debt and insolvent at the time Magnus’ Sons obtained their judgment, and was not only not a going concern, hoping and striving to pull through and pay its debts, but had already resolved to cease doing business at all.

A judgment by default is just as conclusive an adjudication between parties of whatever is essential to support the judgment as one rendered after answer and contest, and in such case facts are not open to further controversy if they are necessarily at variance with the judgment on the pleadings. Last Chance Min. Co. v. Tyler Min. Co., 157 U. S. 683, 15 Sup. Ct. 735, 39 L. Ed. 859. And in Garner v. Bank (C. C.) 89 Fed. 636, it was held, in full accordance with the general doctrine of the cases, that a judgment which determines the right of a party, though by default, is a judgment on the merits, and is conclusive as to such right and all matters which properly belonged to the subject, and which the parties, in the exercise of reasonable diligence, might have brought forward therein. These cases are in line with the general doctrine on this subject, as appears by the adjudged cases. In re Skinner (D. C.) 97 Fed. 190; Barton v. Anderson, 104 Ind. 578; 4 N. E. 420; Greeley v. Sample, 22 Iowa, 338; Briggs v. Richmond, 10 Pick. 391, 20 Am. Dec. 526; Creamer v. Dikeman, 39 N. J. Law, 195; Newton v. Hook, 48 N. Y. 676; Marks v. Sigler, 3 Ohio St. 359; Doyle v. Hallam, 21 Minn. 515; 2 Black, Judgm. 697; 1 Herm. Estop. § 54; 6 Enc. Pl. & Prac. 115; In re Columbia Real Estate Co. (D. C.) 101 Fed. 965; Voorhees v. Bank, 10 Pet. 449, 9 L. Ed. 490; In re Henry Uhlfelder Clothing Co. (D. C.) 98 Fed. 409.

We are of opinion, therefore, that the decision and report of the referee to the effect that the claim of appellants should be disallowed, and the funds in the hands of the clerk derived from the sale upon execution, amounting to the sum of $9,756.69, be paid over to the trustee in bankruptcy, to become a part of the general estate of the bankrupt, is correct; and the order and decree of the district court affirming the referee’s report, and dismissing appellants’ petition, and ordering the said money to be paid over, are hereby affirmed.