Morrison v. Rieman

249 F. 97 | 7th Cir. | 1917

ALSCHULER, Circuit Judge

(after stating the facts as above). [1,2] Respecting the errors alleged based on remarks by the court, and the charge to the jury, it appears that in appellant’s original answer jury trial was demanded, hut in his amended answer such demand was not renewed; and before the jury was called he moved the court for leave to withdraw his demand for a jury, and appellee joined in this request, which was denied by the court, and a jury was called notwithstanding. While the alleged bankrupt may demand a jury trial (Bankruptcy Act, § 19), these fads amounted to a waiver of jury trial, and the calling of the jury thereafter was upon the court’s own motion, just as would have been the case had the court called a jury without any demand therefor having ever been made. The verdict is therefore not of binding force, but is advisory to the court as in issues out of chancery (Carpenter v. Cudd, 174 Fed. 603, 98 C. C. A. 449, 20 Ann. Cas. 977; Oil Well Supply Co. v. Hall, 128 Fed. 875, 63 C. C. A. 343), and as in chancery this court will search the record to determine therefrom whether a proper order or decree has beep entered, regardless of the jury’s verdict, save only so far as the court may thereby be advised. In such case error is not predicable on the court’s remarks or its charge to the jury.

[3] On the question of Morrison’s solvency, if it be assumed that the title of the Sebor street property was all the time in Morrison, it is apparent that it alone would not rescue him from the charge of insolvency as against Rieman’s claim for over $90,000. The evidence of its value ranged from a maximum of $130,000 to a minimum, of $41,000, with but little, if anything, in the evidence corroborative of the one more than of the other figure. The finding was thus warranted that the Sebor street property was not worth enough to meet the Rieman claim; and of course all'his other property, which, as was testified, had been absolutely and irrevocably conveyed to Ward, could° have no bearing on appellant’s solvency.

[4] Assuming that Rieman was properly a petitioning creditor, was •the finding unwarranted that acts of -bankruptcy were committed through the conveyance to Ward? Ward and Morrison both testified that by the conveyance Ward and all other creditors of Morrison, except Rieman, were paid or to be paid. The amount of such debts is not certain under the evidence. Ward claims it was about $100,000, but, whatever the amount, the payment through the conveyance was clearly preferential as against Rieman, thus constituting an act of bankruptcy by Morrison. The fact that Ward signed the supersedeas bond and secured its approval in part consideration of the conveyance to him cannot as against a petition in bankruptcy be regarded as a consideration, which, as between Morrison and Rieman, would support the conveyance for the concededly large surplus in value of the property conveyed, over and above Morrison’s debts so discharged or assumed. As to such surplus in value, the conclusion was warranted that the conveyance was in hindrance and delay of Rieman, and an act of bankruptcy. That Morrison and Ward may have believed Rieman’s claim unconscionable, and that ultimately it will be defeated, is beside any question here.'

[5] The main contention of appellant is that through the lien of Rieman’s judgment upon all of Morrison’s real estate — the Sebor street property as well as that which was conveyed to Ward, and through tire supersedeas bond given in the Illinois Appellate Court, Rieman’s judgment was fully secured; that being a secured creditor within the meaning of the Bankruptcy Act, with security valued at more than the amount of his claim, he did not have a provable claim against the bankrupt, and not having such provable claim he was disqualified from being a petitioning creditor.

Section 59b of the Bankruptcy Act requires that the single petitioning creditor (where the creditors are less than 12) shall have a provable claim of $500 or more in excess of the value of securities held by him. Section la (23) provides that:

“ ‘Secured creditor’ stall include a creditor wto tas security for tis dett upon the property of tte bankrupt, of a nature to te assignable under tins act, or who owns such a debt for which some indorser, surety, or other persons secondarily liable for the bankrupt has such security upon the bankrupt’s assets.”

Whether the lién of this judgment, and the supersedeas bond, did constitute Rieman a secured creditor, within the meaning of the quoted section, may be unnecessary to be considered in view of certain other proceedings in the cause. It appears that after the verdict of the jury, and before the adjudication, by leave of court Rieman filed an amendment to his petition, undertaking to release and to waive the lien of his judgment against any property of the bankrupt subject thereto, presumably with the view of surrendering any security for his claim. If holding security rendered his claim unprovable, and himself therefore disqualified to be a petitioning creditor, may he by voluntarily surrendering the security make his claim provable, and thus qualify him to be a petitioning creditor ?

There is no section of the Bankruptcy Act which specifies that this may be done. Sections 56b and 57e, 57g, and 57h deal with the ascertainment of the amount of claims above the value of securities, and with the surrender of preferences, and the like. The surrender of securities is not dealt with. But we see no reason why one holding security may not surrender it and prove his whole claim. Collier states the rule as follows:

“A secured creditor may or may not surrender his security as he chooses. If he does, it inures to the benefit of all creditors, and his'Claim, if otherwise unobjectionable, is allowable at the full amount.” Collier on Bankruptcy (3914) pp. 721, 722.

Brandenburg says:

“A secured creditor may file proof of claim, at his option, hut unless a secured creditor surrenders his security, and proves his debt as unsecured, he is required to make proof of the whole debt as in the case of an unsecured debt, except a statement of all securities should be included in the proof.” Brandenburg, Bankruptcy (1917) § 631.

In the same section it is stated that a secured creditor has three alternatives : First, he may prove the amount of his claim, specifying the securities held; second, he may decline to make any proof and ■retain his security; and, third, he may either directly or indirectly waive his security and prove his claim as unsecured. Assuming that the judgment lien and the supersedeas bond constituted Rieman a secured creditor, the instant case illustrates the embarrassment and disadvantage which might ensue if he may not waive and surrender the security and proceed as an unsecured creditor. If, by the conveyance to Ward, Morrison preferred certain of his creditors, any creditor injured thereby, holding a provable claim, could within four months resort to bankruptcy for relief. The state law would not assist him, since in Illinois an insolvent debtor may with impunity give preference to some creditors over others. Farwell et al. v. Nilsson et al., 133 Ill. 45, 24 N. E. 74; Morriss et al. v. Blackman et al., 179 Ill. 103, 53 N. E. 547; Friedman v. Lesher, 198 Ill. 21, 64 N. E. 736, 92 Am. St. Rep. 255. But Rieman, if considered a secured creditor, and therefore not qualified to be a petitioner, could do nothing but take his -chances on maintaining his lien through affirmance of his judg1 ment. If this were reversed, and the cause remanded for a new trial, his security would at once vanish; but, his claim being founded in contract, he might still have a provable debt against Morrison. Section 63a(4). In the meantime, however, four months would have elapsed since the preferential payment through the conveyance, and he would then be wholly without relief against the preference, although his cláim might be eventually adjudged in his favor. This would in a sense be penalizing a creditor who reduces his claim to judgment, which may for the time being be a lien on the debtor’s real estate, through withdrawing from him the protection of the bankruptcy law against preferential payments — protection which is accorded to those creditors who had not yet proceeded so far as to obtain judgment which gave its holder a lien which would afford him sufficient security if the judgment remains unreversed.

[6-8] Appellant insists that, since the waiver or surrender was not made before or at the time the petition was filed, it could not subsequently be made by way of amendment or otherwise. We think the act manifests a policy of liberality in regard to amendment. Section 59f provides that creditors other than original petitioners may at any time enter appearance and join in the petition to file answer and be heard in opposition to it; and section 59g requires a notice to other creditors before any petition shall be dismissed for want of prosecution or by consent evidently in order that there may be no dismissal of a petition if as to any one it ought to be retained. Rule 86 makes provision for amendments. The general power to permit amendments within sound discretion inheres in bankruptcy as well as in other courts. Armstrong v. Fernandez, 208 U. S. 324, 330, 28 Sup. Ct. 419, 52 L. Ed. 514; Chicago Motor Vehicle Co. v. Am. Oak Leather Co., 141 Fed. 518, 72 C. C. A. 576 (7th C. C. A.); In re Shoe-smith, 135 Fed. 684, 68 C. C. A. 322 (7th C. C. A.). Instances are quite frequent where adjudications of bankruptcy or allowance of claims have been made contingent upon the petitioner or claimant doing things which in strictness should before have been done and set forth in petition or proof of claim. In re Murphy (D. C.) 225 Fed. 392; Stevens v. Nave-McCord Co., 150 Fed. 71, 80 C. C. A. 25; In re Gillette (D. C.) 104 Fed. 769. But even if the amendment, made when it was, were of no avail, and appellee must rely on his petition as first filed, the rule.seems well established that where a secured creditor deliberately, and not through error or inadvertence files his claim as unsecured, making no mention of his security, he thereby waives it in favor of the estate, and cannot, after adjudication, assert it. White v. Crawford (C. C.) 9 Fed. 371; In re Bloss, Fed. Cas. No. 1,562; Brandenburg, Bankruptcy (4th Ed.) p. 479; Collier, Bankruptcy (10th Ed.) pp. 726, 727.

The amendment, however, in our judgment falls short of its probably intended purpose of investing tire trustee in bankruptcy, for the benefit of the estate, with whatever right to the security which the petitioner in bankruptcy had. This is particularly so as to the second paragraph of the amendment, which seems to deal with other than the Sebor street property. Waiver and surrender alone might extinguish the lien without benefiting the estate; and unless the estate can have the benefit of the security, the waiver might serve only to increase the general claims against the estate without augmenting its assets. In the instant case we cannot assume that in a proceeding to set aside the conveyance to Ward, if such becomes necessary and is authorized, the trustee will prevail. In the event, therefore, that the Rieman judgment is affirmed, if Rieman should merely have waived his security, and the estate not become invested with it, Ward, holding the title to the property, might become the beneficiary, leaving the unsecured Rieman judgment a general claim against the estate, payable out of assets other than the bond and the lien on the property now held by Ward. If Rieman’s judgment is affirmed, it is possible that the Sebor street property plus what the trustee might then realize on the supersedeas bond, if available to him, would prove sufficient to meet the claims allowed for payment, without need to bring into the bankruptcy the property conveyed to Ward, with which, of course, the trustee has no business, save only in case it may become necessary to undertake resort to it in order to pay the debts. While it may be that the waiver and surrender would alone invest the trustee with Rieman’s title to the security thus surrendered, there should be no question in this regard.

If, therefore, within 30 days after this date appellee will file with the clerk of the District Court an instrument in writing conveying to the trustee in bankruptcy, hereafter to be named, for the benefit of this bankrupt estate, all interest of appellee in and to any and all lien and security which be holds for the payment of his said judgment, including the supersedeas bond, and the lien acquired through the rendition of the judgment and the execution issued thereon, the order of adjudication will be affirmed, with costs. Otherwise, the cause will be held for further consideration.