Court Opinion

ID: 9450266
Source: CourtListenerOpinion
Date Created: 2023-08-04 16:40:48.521821+00
Date Added: 2024-06-11T17:32:13.921393
License: Public Domain

SETH, Circuit Judge
(concurring):
I concur in the foregoing opinion of the court as expressed by Chief Judge Murrah, and would like to state some considerations which I consider important in examining the action of the trial court and the referee.
The record shows that the bankrupt corporation began business in April 1960 with the appellant as a vice president, director, and stockholder. His two sons and a third party were the other stockholders and directors. The referee found that the appellant agreed to pay $10,000.-00 for the one thousand authorized shares of the company, that he caused the shares to be issued to himself, his two sons, and a third party. The two sons and the third party then pledged their shares to the appellant and such pledge was in effect when the bankruptcy proceedings commenced. He further found that none of the pledgors ever paid anything to the company or the appellant for the pledged shares. It appears that the shares that the two sons were to receive were to be in the form of a gift from the appellant. Appellant was a vice president and director until his resignation on October 30, 1960.
In April 1960 the bankrupt borrowed $40,000.00 from the American National Bank and gave a note upon which appellant asserts that he was an accommodation maker. In June 1960 the bankrupt borrowed $10,000.00 on a note from the North Denver Bank. This note bore the typewritten name of the bankrupt and the signature of the appellant and two other stockholders without further designation or description. Appellant claims *538he is not an accommodation maker or personally liable on this $10,000.00 note.
The bankrupt suffered in August 1960 a fire loss, and thereafter the collections of the bankrupt were placed in a so-called trust account in the name of and under the sole control of the appellant. The appellant paid on October 13, 1960, from corporate funds in this trust account the sum of $14,599.00 and on November 18, 1960, the sum of $10,137.50 on the $40,000.00 note given to the American National Bank above referred to. Appellant admitted these payments served to diminish his personal liability, and that he knew this when he made the payments. The appellant from this trust fund further paid in September 1960 the sum of $10,162.50 to the North Denver Bank on the note described above.
The appellant filed in the bankruptcy proceedings two claims, one in the amount of $4,625.00 for unpaid rent on the premises which he owned and which were occupied by the bankrupt, and the second claim in the amount of $5,000.00 representing a payment to the bank from claimant’s personal funds as an accommodation maker on the note of the corporate bankrupt given to the American National Bank described above.
The referee found that the payment of the corporate funds from the trust account on the bank notes constituted a preference received by the appellant, and repayment of the total of such payments was ordered. The referee further ordered the appellant to pay the amount of $10,000.00 as an unpaid subscription for the corporate stock.
Against this background of business dealings, family relationships, and participation in the management of the bankrupt, the appellant filed his claims. The appellant made this filing not only with his complete and intimate knowledge of the corporate transactions which were involved, but also with what we must assume to be his knowledge of the law pertaining to the filing of such a claim.
Appellant, we must also assume, had knowledge that his claim would be heard before the bankruptcy court, and the-scope of the hearing would include those subjects required by 11 U.S.C.A. §§ 96 and 93, sub. g. This scope and issues of the summary hearing necessarily included, and the referee was required by law, to determine whether or not the disbursements of corporate funds made by the appellant to the banks in partial payment of the notes on which his signature appeared constituted a preference. This is clearly a part of the substantive law of bankruptcy. The hearing necessarily had to include sufficient testimony and evidence in order that the referee could decide whether or not there had been a preference to appellant. Such a determination in any case of this character would be binding by res judicata or by equitable estoppel in any subsequent plenary action. The plenary suit would thus be reduced to a mere formality except as to the dollar amount of the preference, and perhaps not even that. Schwartz v. Levine & Malin, 111 F.2d 81 (2d Cir.), held such amount was just as important for the bankruptcy court to determine as the nature of the payment because the allowance of the claim was conditional on repayment of the preference.
Thus under the circumstances it is certainly reasonable to believe that the appellant expected when he filed his claim that at least other payments on the same note also remitted by himself would be considered, and that the whole matter was so interrelated that obviously the issue of preference would be litigated. This waiver is even clearer when made in a jurisdiction where Inter-State Nat’l Bank of Kansas City v. Luther, 221 F.2d 382 (10th Cir.), is the prevailing rule. There the question is exhaustively treated, and a claimant’s position is clearly stated. This scope of the hearing is not. a procedural matter but again is a matter of substantive bankruptcy law. The court cannot close its eyes to what the appellant did in the preference transaction and when considering what he did as: a claimant. Both are matters of substantive bankruptcy law and both are *539matters for determination by the same court to accomplish a complete disposition of the issues before the equity court. The appellant by his claim submitted the entire question to the bankruptcy court, not just a portion of it. This is the reason why the substantive law relating to .setoffs, fraudulent transfers, and similar transactions are handled in the manner they are. The claimant has a right to Ihave his claims and relationships with the bankrupt determined. This right carries with it the expectation of a complete adjudication of his claims and preferences like any other litigation he may be involved in outside the bankruptcy field. This again really differs from set-•offs, balancing of accounts, and fraudulent transfers only in the relative amounts involved. Any litigant or claimant when he enters any court room can expect to be met by counterclaims and by setoffs. The only choice such litigant has is whether or not he should become the moving party or wait and become a •defendant. This can be a difficult decision but one faced by litigants frequently. The decision here is whether to become a moving party and also to submit the adjudication of claims and preferences to the bankruptcy court without a jury, or whether to forego the filing of his claim and wait to become a defendant. The bankruptcy proceeding, like the right to trial by jury, has its origin in the Constitution and they are to that extent of equal dignity. There is no question that Congress under § 8 of Article 2 of the Constitution has the power to establish laws relative to the handling of claims and preferences. Since bankruptcy proceedings are of equitable nature, these claims, setoffs, voidable liens, and fraudulent transfers are handled by summary proceedings. This substantive law is such that when a claimant submits the disposition of his claim, he thereby submits to the adjudication by such court of all issues relating to his claim, and to any asserted preferences he may have received. His claim has to pass this statutory preference test.
As indicated above the determination of the issue of a preference is binding by res judicata on the parties in the event that plenary proceedings be commenced. Thus it would serve no useful purpose to try the same issue in such proceedings. This finality of decision in summary proceedings is an important factor in evaluating the issue before us at this time. The author of 3 Collier, Bankruptcy, 14th Ed., at ff 57.14, in discussion of allowance or disallowance of claims, states: “Where disallowance (pending surrender of preferences) is based on a voidable preference, the findings with regard to the preference are res judicata in the trustee’s suit to recover the preference.” The author further states on the issue of the power of the court: “But a litigated issue of jurisdiction, like other issues, may be conclusively adjudicated, and the fact that the court may exceed its jurisdiction, e. g., the referee rendering an affirmative judgment on the trustee’s counterclaim without the creditor’s consent, does not preclude the judgment from having the effect of res judicata: the judgment may be erroneous and subject to reversal on appeal, but it is not void and subject to collateral attack.” The Supreme Court in Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 83 L.Ed. 104, and in Baldwin v. Iowa State Traveling Men’s Ass’n, 283 U.S. 522, 51 S.Ct. 517, 75 L.Ed. 1244, has held that the determination by the court of bankruptcy of its jurisdiction is res judicata in subsequent proceedings. The Second Circuit in Schwartz v. Levine & Malin, 111 F.2d 81, stated that the determination or finding as to the preferential nature of a payment to the claimant made following the summary hearing on the claim is res judicata in a subsequent plenary action. In the cited case the court had before it such a plenary action and held that the trial court was correct in granting a summary judgment on the ground that the matter of the preferential nature of the payment had been determined in the bankruptcy court. The court there added, as above indicated in this opinion, *540that the amount of the payment was as important as the nature of the payment. Thus apparently the court would and did apply the doctrine of res judicata both as to the amount and character of the payment. The court concluded its opinion by stating: “All the conditions were fulfilled which made his findings res judicata, and there was nothing left to be decided in the action at bar,” citing Fayerweather v. Ritch, 195 U.S. 276, 25 S.Ct. 58, 49 L.Ed. 193. A similar holding appears in Giffin v. Vought, 175 F.2d 186 (2d Cir.), and in Johnson v. Wilson, 118 F.2d 557 (9th Cir.). A clear indication that the determination of the issue of preference during the hearing on the claim is not a matter of consent by the claimant, as indicated in In Re J. R. Palmenberg Sons, Inc., 76 F.2d 935, aff’d. sub nom. Bronx Brass Foundry v. Irving Trust Co., 297 U.S. 230, 56 S.Ct. 451, 80 L.Ed. 657, where the court refused to let the claimant withdraw his claim when the bankruptcy court was in the process of considering the preference issue. Res judicata was further carefully considered by the state court in Feiring v. Gano, 114 Colo. 567, 168 P.2d 901, 165 A.L.R. 1406. The bankruptcy court judgments have the same effect as those of other courts having general jurisdiction. The general principles relating to res judicata and equitable estoppel are applied. The issues which were or could have been adjudicated become significant. Professor Moore in his article on this subject in 68 Yale L.J. 33 states: “When, however, the trustee does interpose a section 57g defense and the issue is decided against him, allowance of the claim bars his subsequent action to recover on the theory of a voidable transfer. For similar reasons, a decision in the trustee’s favor on a section 57g defense concludes the issue against the creditor in a later plenary action brought by the trustee to recover the money or property preferentially or fraudulently transferred.”
The trustee seems to have little choice as to summary or plenary actions. The author of 2 Collier, Bankruptcy, states in a footnote to 23.08: “It is immaterial that the bankruptcy trustee does-not consent to the jurisdiction of the bankniptcy court with respect to a suit-against him by an adverse claimant, since he is merely the court’s officer and if the adverse parties consent that the matter be adjudicated by the bankruptcy court and the court so orders, the trustee’s consent follows such order. Section 23 has no application. (Citing several cases).”
The appellant has waived by the filing of his claims in this action any right to object to the nature or the scope of the summary hearing insofar as it may cover claims and preferences. Such subjects are clearly within the substantive bankruptcy law, and he must abide by the decision of the court.
I concur in the opinion of the court as-announced by Chief Judge Murrah on this point and also in its holding that there was no such waiver by the appellant as to the stock subscription, it being wholly outside the matter of claims and', preferences.