Source: http://en.wikisource.org/wiki/Coder_v._Arts/Opinion_of_the_Court
Timestamp: 2013-06-18 05:07:24
Document Index: 573833638

Matched Legal Cases: ['§ 24', '§ 6', '§ 6', '§ 2', '§ 25', '§ 25', '§ 24', '§ 25', '§ 709', '§ 709', '§ 13', '§ 67', '§ 67']

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Coder v. Arts/Opinion of the Court
< Coder v. Arts
Coder v. Arts by William R. Day
Coder v. Arts — Opinion of the Court William R. Day
Argued: January 26, 1909. --- Decided: April 5, 1909
It is contended by the appellee that the case should be dismissed for want of jurisdiction of the circuit court of appeals and of this court. Questions of the jurisdiction in bankruptcy, particularly of the appellate courts, have given rise to numerous and not altogether reconcilable decisions. The bankruptcy act, as originally passed, did not give the bankruptcy courts jurisdiction over plenary suits to recover the property alleged to belong to the trustee in bankruptcy, except with the consent of the defendant. This was the subject of full consideration and determination in Bardes v. First Nat. Bank, 178 U.S. 524, 44 L. ed. 1175, 20 Sup. Ct. Rep. 1000. Subsequent decisions of this court construed the act to give the bankruptcy courts jurisdiction over controversies concerning the property in possession of the bankruptcy courts. Whitney v. Wenman, 198 U.S. 539, 49 L. ed. 1157, 25 Sup. Ct. Rep. 778; Murphy v. John Hofman Co. 211 U.S. 562, 53 L. ed. --, 29 Sup. Ct. Rep. 154.
'b. The several circuit courts of appeal shall have jurisdiction in equity, either interlocutory or final, to superintend and revise in matter of law the proceedings of the several inferior courts of bankruptcy within their jurisdiction. Such power shall be exercised on due notice and petition by any party aggrieved.' [30 Stat. at L. 553, chap. 541, U.S.C.omp. Stat. 1901, p. 3431.]
A reference to the adjudications in this court may assist in clearing the matter. Hewitt v. Berlin Mach. Works, 194 U.S. 296, 48 L. ed. 986, 24 Sup. Ct. Rep. 690, is an illustration of a controversy arising in bankruptcy proceedings (§ 24a) wherein the appeal is under § 6 of the act of March 3, 1891. [26 Stat. at L. 828, chap. 517, U.S.C.omp. Stat. 1901, p. 549.] In that case the Berlin Machine Works asserted title to the property in the possession of the trustee, and intervened in the bankruptcy proceedings, raising a distinct and separable issue as to the title to property in the posession of the trustee. This court, speaking through the chief justice, held that the case presented a controversy arising in bankruptcy proceedings, appealable to the courts of appeal as other cases under § 6 of the act of March 3, 1891. Nor is the decision in the Berlin Mach. Works Case inconsistent with First Nat. Bank v. Chicago Title & T. Co. 198 U.S. 280, 49 L. ed. 1051, 25 Sup. Ct. Rep. 693. In that case there was an attempt on the part of the trustee to invoke an adjudication as to the title to property which the district court found not to be in the possession of the trustee, notwithstanding the petition of the trustee had averred possession, and it was held that, when this fact appeared, the district court had no longer jurisdiction of the case, under the doctrine laid down in Bardes v. First Nat. Bank, supra, and ought to have dismissed the case.
He thus in effect presented to the trustee in bankruptcy a claim upon his notes, joined with the statement that he had security upon the estate which it was his purpose to maintain, and upon which he was entitled to priority in the distribution of the assets. He did not, as was the case in Hewit v. Berlin Mach. Works, supra; York Mfg. Co. v. Cassell, 201 U.S. 344, 50 L. ed. 782, 26 Sup. Ct. Rep. 481; Security Warehousing Co. v. Hand, 206 U.S. 415, 51 L. ed. 1117, 27 Sup. Ct. Rep. 720, 11 A. & E. Ann. Cas. 789, intervene in the bankruptcy proceedings for the purpose of asserting an independent and superior title to the property held by the trustees, claiming the right to recover the property and to remove it from the jurisdiction of the bankruptcy court as a part of the estate to be administered. Arts appeared in the bankruptcy court, recognizing the title and possession of the trustee in bankruptcy, asserted his claim upon the notes, and his right to have the assets so administered and paid as to recognize the validity of the lien for the security for his claim. We are of opinion that he thus instituted a proceeding in bankruptcy as distinguished from a controversy arising in the course of bankruptcy proceedings. This being the character of the proceeding, its subsequent disposition and the appropriate appellate jurisdiction are to be determined by the provisions of the bankruptcy act governing bankruptcy proceedings.
It is true that Arts asserted both a debt and a lien to secure the same. In such cases the procedure as to the debt or claim governs, with incidental right to consider and determine the validity and priority of the lien asserted upon the property in the hands of the bankrupt's trustee. This method of procedure was recognized in Hutchinson v. Otis, 190 U.S. 552, 47 L. ed. 1179, 23 Sup. Ct. Rep. 778. In that case Otis, Wilcox, & Company, having a claim for $4,421.64, had sued and attached the bankrupt's property within four months of filing the petition in bankruptcy. Otis, Wilcox, & Company, supposing their attachment good, took judgment by default, and collected their debts from the attached parties, the trustee agreeing to save them harmless from liability; satisfaction was entered in each suit. Subsequently the trustee demanded payment of these debtors of the bankrupt, and, as they had no defense, Otis, Wilcox, & Company paid to the trustee the amount of the debts. Otis, Wilcox, & Company then filed a claim in bankruptcy, which was allowed in the lower court; and they asserted a lien upon the bankrupt estate. After disposing of the question of the effect of the satisfaction, and deciding that the claim was provable, speaking of the asserted lien, this court said:
'Under the circumstances of this case it seems to us that the petition [asserting the lien] was incident to the claim (Cunningham v. German Ins. Bank, 41 C. C. A. 609, 101 Fed. 977, S.C.. 43 C. C. A. 377, 103 Fed. 932, 4 Am. Bankr. Rep. 192), and was a bankruptcy proceeding under § 2, cl. 7, within the meaning of § 25, regulating appeals in bankruptcy proceedings, and that the decree upon it was not 'a judgment allowing or rejecting a debt or claim of five hundred dollars or over,' within § 25a, 3, and was not an independent ground of appeal. See Re Whitener, 44 C. C. A. 434, 105 Fed. 180, 186; Re Worcester County, 42 C. C. A. 637, 102 Fed. 808, 813; Re Rouse, H. & Co. 33 C. C. A. 356, 63 U.S. App. 570, 91 Fed. 96; Re York, 4 Nat. Bankr. Reg. 479, 483. If the question should be held to come up as incident to the appeal on the proof (Cunningham v. German Ins. Bank, supra), we see no error in the decree of the district court.'
It is insisted, however, that inasmuch as the trustee in the case at bar made no objection to the amount found due upon the notes by the dictrict court, and only sought by his appeal to further contest the right to the security asserted by Arts, that his sole remedy was under § 24b,-to have a revision in the circuit court of appeals by a petition filed for that purpose, and that the circuit court of appeals should have dismissed the attempted appeal. But we are of opinion that the character of the proceeding must be determined by the nature of the claim set up against the trustee in bankruptcy, and as § 25a, 3, gives an appeal to the court of appeals from a judgment allowing or rejecting a debt or claim of $500 or over, that the appeal was properly allowed in this case, and brought before the circuit court of appeals the validity of the claim and the lien asserted securing the debt.
Is the case one which might have been taken to this court upon appeal or writ of error from the highest court of the state? We are of opinion that it is. In determining the validity of the lien asserted to secure the claim, a construction of the bankruptcy act is directly involved. A construction of the act is insisted upon by the appellant which would defeat the lien. On the other hand, the construction contended for by the appellee would give the lien validity. In such a case, had the case been in the state court, it might have been brought here for review under § 709 of the Revised Statutes (U.S.C.omp. Stat. 1901, p. 575). Rector v. City Deposit Bank Co. 200 U.S. 405, 50 L. ed. 527, 26 Sup. Ct. Rep. 289; St. Louis, I. M. & S. R. Co. v. Taylor, 210 U.S. 281, 293, 52 L. ed. 1061, 1067, 28 Sup. Ct. Rep. 616. It is contended that a contrary ruling was made in Chapman v. Bowen, 207 U.S. 89, 52 L. ed. 116, 28 Sup. Ct. Rep. 32. But, in concluding the opinion of the court in that case, Mr. Chief Justice Fuller said:
'The decision below proceeded on well-settled principles of general law, broad enough to sustain it without reference to provisions of the bankruptcy act. And, moreover, even if it could be held that by his claim Bowen asserted any right within the meaning of § 709, Rev. Stat., the decision was in his favor, and the trustee's bare denial of the claim could not be relied on under that statute. Jersey City & B. R. Co. v. Morgan, 160 U.S. 288, 40 L. ed. 430, 16 Sup. Ct. Rep. 276.'
In an appeal of this character we can look only at the facts* found by the circuit court of appeals. General orders in bankruptcy 36, paragraph 3. The question before us is, Upon the findings of fact made by the circuit court of appeals, should the mortgage to Arts of May 2, 1904, securing the sum of $98,503.32, have been invalidated? The mortgage was placed on a large tract of land in Carroll county, Iowa. The record discloses that this was not all the property of the bankrupt. Just what the other property was worth above encumbrances does not definitely appear. It does appear, however, that the bankrupt owned a residence and business lot in Glidden, Iowa, 200 or 300 head of cattle, 30 horses, a large number of hogs, and some farm machinery, unencumbered. And it is specifically found that although Armstrong was insolvent on May 2, 1904, and knew that he was insolvent, neither the mortgagee nor any of his agents knew or had reasonable cause to believe that Armstrong was then insolvent; nor did Arts or any of his agents then have reasonable cause to believe that it was intended thereby to give a preference over other creditors by the execution of the mortgage. It is further specifically found that Armstrong did not make the mortgage in question with any intent or purpose on his part to hinder, delay, or defraud his creditors, or any of them. The decision of the case requires consideration of certain sections of the bankruptcy act. Section 60, subdivision a [as amended by § 13, 32 Stat. at L. 799, chap. 487, U.S.C.omp. Stat. Supp. 1907, p. 1031], provides:
'e. That all conveyances, transfers, assignments, or encumbrances of his property, or any part thereof, made or given by a person adjudged a bankrupt under the provisions of this act, subsequent to the passage of this act, and within four months prior to the filing of the petition, with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in good faith and for a present fair consideration; and all property of the debtor conveyed, transferred, assigned, or encumbered as aforesaid shall, if he be adjudged a bankrupt, and the same is not exempt from execution and liability for debts by the law of his domicil, be and remain a part of the assets and estate of the bankrupt, and shall pass to his said trustee, whose duty it shall be to recover and reclaim the same by legal proceedings or otherwise for the benefit of the creditors.' [30 Stat. at L. 564, chap. 541, U.S.C.omp. Stat. 1901, p. 3449.]
Is the conveyance voidable under subdivision e, § 67? Under the terms of that subdivision a fraudulent conveyance is made void as to creditors, except as to grantees in good faith and for a present fair consideration. The provision saving conveyances to purchasers in good faith and for a present fair consideration prevents such conveyances from being declared void by the act, although they have been made by the bankrupt with the intent on his part to hinder, delay, or defraud his creditors. But the act does not dispense with the necessity of showing, to avoid a conveyance or transfer under § 67e, that the bankrupt had the actual intent to hinder, delay, or defraud creditors. What is meant when it is required that such conveyances, in order to be set aside, shall be made with the intent on the bankrupt's part to hinder, delay, or defraud creditors? This form of expression is familiar to the law of fraudulent conveyances, and was used at the common law, and in the statute of Elizabeth, and has always been held to require, in order to invalidate a conveyance, that there shall be actual fraud; and it makes no difference that the conveyance was made upon a valuable consideration, if made for the purpose of hindering, delaying, or defrauding creditors. The question of fraud depends upon the motive. Kerr, Fraud & Mistake, 196, 201. The mere fact that one creditor was preferred over another, or that the conveyance might have the effect to secure one creditor and deprive others of the means of obtaining payment, was not sufficient to avoid a conveyance; but it was uniformly recognized that, acting in good faith, a debtor might thus prefer one or more creditors. Stewart v. Dunham, 115 U.S. 61, 29 L. ed 329, 5 Sup. Ct. Rep. 1163; Huntley v. Kingman & Co. 152 U.S. 527, 38 L. ed. 540, 14 Sup. Ct. Rep. 688.
In dealing with this question this court said, in Thompson v. Fairbanks, 196 U.S. 516, 49 L. ed. 577, 25 Sup. Ct. Rep. 306:
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