Source: https://www.chanrobles.com/usa/us_supremecourt/213/223/case.php
Timestamp: 2020-07-11 12:19:56
Document Index: 9339922

Matched Legal Cases: ['§ 67', '§ 60', '§ 67', '§ 24', '§ 6', '§ 6', '§ 2', '§ 25', '§ 25', '§ 24', '§ 25', '§ 60', '§ 67', '§ 67', '§ 60', '§ 3', '§ 67', '§ 51', '§ 67', '§ 60', '§ 67', '§ 67', '§ 67', '§ 3', '§ 3', '§ 3']

CODER V. ARTS, 213 U. S. 223 (1909)
US Supreme Court Decisions On-Line> Volume 213 > CODER V. ARTS, 213 U. S. 223 (1909)
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An attempt to prefer is not necessarily an attempt to defraud, nor is a chanrobles.com-red
preferential transfer always a fraudulent one. The question of fraud depend upon the motive, and in order to invalidate a conveyance as one made to hinder, delay or defraud creditors within the meaning of § 67e of the Bankruptcy Act actual fraud must be shown.
152 F.9d 3 affirmed.
The facts, which involve the construction of certain provisions of the Bankruptcy Act, are stated in the opinion. chanrobles.com-red
It was alleged in the claim filed that the first four notes were secured by a real estate mortgage, dated May 2, 1904, covering 2,280 acres of land in Carroll County, Iowa, and the last note by a real estate mortgage of June 17, 1904, covering 615 1/2 acres of land in Monona County, Iowa. The claimant asked for the allowance of his notes against the estate, reserving all rights to his securities in every portion thereof. The trustee filed an answer and objections to the claim of Arts, attacking both the notes and the mortgage, alleging, in substance, that the bankrupt was not indebted to the claimant in the amount named; that two of the notes were really obligations of the sons of Armstrong, signed by Arts as surety; that the mortgage was chanrobles.com-red
The case is reported in the district court in 145 F.2d 2.
The trustee took the case to the Circuit Court of Appeals for the Eighth Circuit upon petition for a review and by appeal. That court dismissed the petition for review, and, after considering the appeal, sustained the findings of the district court and affirmed its judgment, except upon the matter of interest on the notes secured by the mortgage, wherein it differed from the district court, and held that Arts was entitled to interest on the notes, to be paid out of the fund. 152 F.9d 3. This correction of interest was made upon the petition of Arts for review. An appeal was then taken to this Court upon a petition for allowance of appeal, stating the allowance of the claim and the establishment of the lien thereof. The ground of appeal alleged was that the amount in controversy exceeded the sum of $2,000, and that it was a proper case to appeal from the court of appeals to the Supreme Court of the United States. The appeal was allowed within thirty days of the entry of the decree, and afterwards, within thirty days, an order was made chanrobles.com-red
"Conclusions of Law."
"1. The mortgage of May 2, 1904, is not voidable by the trustee under §§ 60a and 60b of the Bankruptcy Law, because neither Arts nor his agents acting therein had reasonable cause to believe that it was intended thereby to give a preference."
not, as a matter of law, constitute any evidence of any intent on the part of the bankrupt to hinder, delay, or defraud other creditors within the meaning of § 67e, notwithstanding the fact that its necessary effect was to hinder and delay other creditors, and to deprive them of an opportunity they might otherwise have had to collect larger portions of their claims."
"a. The Supreme Court of the United States, the circuit courts of appeals of the United States, and the supreme courts of the territories, in vacation in chambers and during their respective terms, as now or as they may be hereafter held, are hereby invested with appellate jurisdiction of controversies arising in bankruptcy proceedings from the courts of bankruptcy from which they have appellate jurisdiction in other cases. The Supreme Court of the United States shall exercise a like jurisdiction from courts of bankruptcy not within in any
A reference to the adjudications in this Court may assist in clearing the matter. Hewitt v. Berlin Machine Works, 194 U. S. 296, is an illustration of a controversy arising in bankruptcy proceedings (§ 24a) wherein the appeal is under § 6 of the act of March 3, 1891. In that case, the Berlin Machine Works chanrobles.com-red
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 possession 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 Machine Works case inconsistent with First National Bank v. Chicago Title & Trust Co., 198 U. S. 280. 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. Bank, supra, and ought to have dismissed the case.
He thus in effect presented to the trustee in bankruptcy a chanrobles.com-red
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 Hewitt v. Berlin Machine Works, supra; York Manufacturing Company v. Cassell, 201 U. S. 344; Security Warehousing Co. v. Hand, 206 U. S. 415, 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. 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 chanrobles.com-red
"Under the circumstances of this case, it seems to us that the petition [asserting the lien] was incident to the claim, Cunningham v. German Insurance Bank, 101 F.9d 7, S.C., 103 F.9d 2, 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 In re Whitener, 105 F.1d 0, 186; In re Worcester County, 102 F.8d 8, 813; In re Rouse, Hazard & Company, 91 F. 96; In re York, 4 N.B.R. 479, 483. If the question should be held to come up as incident to the appeal on the proof, Cunningham v. German Insurance 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 district 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 chanrobles.com-red
The appeal was taken within the thirty days. The circuit court of appeals made the findings of fact and conclusions of law part of the record by an order, made within thirty days, directing the same to be filed nunc pro tunc as of the date the judgment entered. It is insisted that this is not a compliance with the rule that requires the findings to be made at or before the time of entering its judgment or decree. But we think that the court must be presumed to have acted within its authority to correct the record by this order, made within the time allowed for an appeal, to make it show the findings at or before the time of entering the judgment. chanrobles.com-red
In an appeal of this character, we can look only at the facts chanrobles.com-red
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, 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. "
A consideration of the provisions of the bankruptcy law as to preferences and conveyances shows that there is a wide difference between the two, notwithstanding they are sometimes spoken of in such a way as to confuse the one with the other. A preference, if it have the effect prescribed in § 60, enabling one creditor to obtain a greater portion of the estate than others of the same class, is not necessarily fraudulent. Preferences are set aside when made within four months, with a view to obtaining an equal distribution of the estate, and in such cases it is only essential to show a transfer by an insolvent debtor to one who, himself or by his agent, knew of the intention to create a preference. In construing the Bankruptcy Act, this distinction must be kept constantly in mind. As was said in Githens v. Shiffler, 112 F.5d 5: "An attempt to prefer is not to be confounded with an attempt to defraud, nor a preferential transfer with a fraudulent one." In In re Maher, 144 F.5d 3-505, it was well said by the District Court of Massachusetts:
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 chanrobles.com-red
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; Huntley v. Kingman & Co., 152 U. S. 527.
We are of opinion that Congress, in enacting 67e, and using the terms "to hinder, delay, or defraud creditors," intended to adopt them in their well known meaning as being aimed at conveyances intended to defraud. In § 60 merely preferential transfers are defined, and the terms on which they may be set aside are provided; in 67e, transfers fraudulent under the well recognized principles of the common law and the statute of Elizabeth are invalidated. The same terms are used in § 3, subdivision 1, in which it is made an act of bankruptcy to transfer property with intent to hinder, delay, or defraud creditors. Such transfers have been held to be only those which are actually fraudulent. It was so held in Lansing Boiler & Engine Works v. Ryerson, 128 F.7d 1. Considering the language, chanrobles.com-red
which is identical with that in § 67e, the circuit court of appeals, speaking through Judge Severens, said:
"The language of subsection 1 of section 2 is the familiar language of statutes against conveyances fraudulent as against creditors, and we think there can be no doubt that Congress intended the words employed should have the same construction and effect as have for a long period of time been attributed to those words. Githens v. Shiffler, 112 F.5d 5. And, so construed, the test of the conveyances intended by subsection 1 of section 3 is that of the bona fides of the transfer. Loveland, Bank., 2d ed. § 51. For it is the well settled law that a conveyance made in good faith, whether for an antecedent or present consideration, is not forbidden by such statutes, notwithstanding the effect may be that it hinders or delays creditors by removing from their reach assets of the debtor."
And to the same effect is the decision of the Circuit Court of Appeals of the Second Circuit in In re Bloch, 142 F.6d 6, in which that court had occasion to consider the meaning of § 67e as applicable to 57g of the act as amended 1903, requiring the surrender of preferences voidable under § 60, subdivision b, or of fraudulent conveyances voidable under § 67e, in order to make proof of a claim, and, in considering § 67e, Judge Townsend, speaking for the court, said:
"We think Congress must be presumed to have intended by the introduction of § 67e to require a surrender only of such transfers as would have been fraudulent at common law, or would constitute an act of bankruptcy under § 3 of the act. In Githens v. Shiffler, supra, the bankrupt used the proceeds of a sale of property to prefer certain creditors. The court, upon a review of the authorities, held that § 3 applied only to those transfers which, according to the established course of authority, constituted a fraudulent transfer at the time of the passage of the Bankruptcy Act, and held that a mere preferential transfer, as distinguished from a fraudulent one, was not an act in bankruptcy under said § 3. "
How, then, stands the case at bar? As we have already said, we must decide this case upon the facts found in the circuit court of appeals, and it is therein found that, in making the mortgage in question, Armstrong had no intention to hinder, delay, or defraud his creditors. In view of the finding of the circuit court of appeals, it may be that Armstrong, though including in the conveyance a large amount of his property, acted in good faith, with a view to preserving his estate, and enabling him to meet his indebtedness. Such conveyances were valid at the common law and under the statute from which this feature of the law was taken, and while Congress, in the chanrobles.com-red