Case Name: Lester v. Thomas
Court: Arkansas Supreme Court
Jurisdiction: Arkansas
Decision Date: 1927-06-13
Citations: 174 Ark. 351
Docket Number: 
Parties: Lester v. Thomas.
Judges: 
Reporter: Arkansas Reports
Volume: 174
Pages: 351–357

Head Matter:
Lester v. Thomas.
Opinion delivered June 13, 1927.
''' George M: Gibson and Moóre, Gray, Burrow & McDonnell, for Lester.
H. L:-"PovCdér alad Cooley, ‘Adams & 'Fuhr, for Thomas.

Opinion:
Hart, C. J.,
(after statiiíg the facts). Counsel'for appellant rely for a reversal of the decree upon the decision of' the United States Supreme Court in Liberty Bank v. Bear, 265 U. S. 365, 44 S. Ct. 499, 68] L. ed. 1057. In that case it was held:
"1. To invalidate the lien o'f a judgment under' § 67f of the Bankruptcy Act, he who challenges it must show not only that the judgment was recovered' within four months prior to the' filing of the petition in bankruptcy, but also, by pleading and proof, that the judgment debtor was insolvent when the lien was obtained.
"2. Assuming (but not deciding) that the adjudication of the bankruptcy of a partnership necessarily adjudges the partners, as individuals, bankrupt, it raises no presumption that théy were insolvent for ¡any ¡period before the petition in bankruptcy was filed.
"3. Nor does the fact that sales of the property' of the partnership and partners,, made some months later by .the trustee in bankruptcy, did not realize enough to pay for the ¡partnership or individual debts, establish that the partners were insolvent at a time anterior to the filing of the bankruptcy petition'. "
Under this decision, in order to set aside the garnishment lien obtained by the grocer company before the petition in bankruptcy, was filed, it was necessary for the trustee in bankruptcy',, W. E. Thomas, to allege and prove that the mercantile company was insolvent at the time, the grocer company sued out its writs of garnishment and obtained a lien on the insurance funds of the mercantile company. It is our duty to follow the decisions of the Supreme Court of the United States in the construction of the .bankruptcy statute; and in this connection! it. may be stated that the decision in Garrett v. Big Bend Plantation Co., 150 Ark. 180, 233 S. W. 1079, is modified and overruled in so far as it is in conflict with the decision of the United States Supreme Court' above cited."
It follows that no presumption arises from the adjudication' in bankruptcy that the bankrupt'was insolvent for four months before the petition was filed. Under the decision above cited it was incumbent upon the trustee to allege and prove- insolvency at the time the garnishment lien was obtained. While the complaint itself does not, in express terms, allege insolvency at the- time the garnish^ ments were sued out, it specifically makes the report of the special master a part of the complaint as if incorporated in it, and the report is exhibited with the complaint. Section 3 of that report contains a'specific allegation that said, mercantile company, within- four months prior to the filing of the petition in-bankruptcy, while insolvent, permitted certain creditors-to obtain a preference by- reason of garnishments on.certain insurance-funds.- Under our system of pleading, an ^exhibit is not a part of the complaint at law and cannot be made so by reference, still the exhibit may be' referred to as. explanatory of the allegations of the complaint. Abbott v. Rowan, 33 Ark. 593, and Louisiana Northwestern Rd. Co. v. McMorella, 170 Ark. 921, 282 S. W. 6. When the whole complaint is.considered with t-he exhibit' just referred to, we are of the opinion that insolvency at the-time the garnishments were obtained is inferentially alleged.
The trouble, however, is that there is no proof of insolvency. • The' question of insolvency is one of fact and not of law. It cannot be established, by mere belief without evidence.- It is true that the report of. the special master shows insolvency at the time the garnishments were obtained, but the report itself is not evidence of the fact of insolvency. The garnishments were sued out on. the 23rd day of December, 1925, and the petition was not filed until the 11th day of February, 1926. There is nothing in thé record whatever to establish the fact that the alleged, bankrupt's debts were, more than the value, of. his assets at the time the writs of garnishments were sued out. Of course, if the matters sat forth in the report of the special master are true, the mercantile company was insolvent at the time the writs of garnishment were sued out and served on the insurance companies; but, as we have already seen, the recitation'of purported facts in the report of the special master is hot proof of these alleged facts. The facts themselves must be shown by direct or circumstantial evidence. There was no attempt whatever to show that the mercantile company was insolvent at the time the garnishments were obtained.
For this reason the judgment in 'the case number 9955 must ¡be affirmed, and that in case No. 131' must be reversed, and-the cause will be remanded for further proceedings not inconsistent with the opinion of this court.