Court Opinion

ID: 8774467
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:56:27.798299+00
Date Added: 2024-06-11T17:02:26.764990
License: Public Domain

GROSSCUP, Circuit
Judge (after stating the facts as above), delivered the opinion.
1. Error is assigned that the District Court did not have jurisdiction to determine the amount due from appellants to the bankrupt’s estate under tlie purchase contract of August 17, 1907, and to enter judgment and order execution thereon. 'L'his assignment is based on section 28, subsection b, of the Bankruptcy Act (Act July 1, 1898, c. 5 11, 80 Stat ,552 [U. S- Comp. St. 1901, p. 3-131]), as follows;
"Suits by the trustee shall only he brought or prosecuted in the courts where the bankrupt, whose estate, is being administered by such trustee, might, have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of ihe proposed defendant, except suits for the recovery of property under section sixty, subdivision b, and section sixty-seven, subdivisión o”
*196—the argument being that the facts stated do not constitute “consent” of the appellants within the meaning of the section.
This assignment of error is not well taken. Had appellants filed their claim for the total amount, leaving the bankrupt's estate to pursue them as debtors of the estate for the purchase price, there would have been no consent that such proceeding should be brought in any other Court than had jurisdiction provided there “had been no bankruptcy proceedings.” But the appellants chose, not only to file their claim in the bankruptcy Court, hut to ask the Court to credit, as payment pro tanto, the amount of the purchase price. This raised the question whether appellants were entitled to such credit — an issue distinctly put forward bj^ the trustee in bankruptcy in the objections filed, setting forth in detail the facts out of which the purchase, by appellants, of the restaurant arose. And issue thus joined, appellants chose to press to judgment in the bankruptcy Court the claim made. These being the facts, the appellants were thereby put in a position, in our judgment, where they were called upon to elect, either to withdraw the claim with the credit attached, presenting it as a simple claim against the estate without reference to’ the purchase money, or consent that the Court, that was thus called upon to settle the rightfulness of the set-off, should have jurisdiction to make effective the judgment that would follow.
2. The remaining assignment of error that we deem it necessary to discuss, is in the finding of the District‘Court that the allowance of the credit claimed would constitute a preference. Section 60, subd. a, of the Bankruptcy Act, provides as follows:
“A person shall he deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and before the adjudication. * * * made a transfer of any of his property, and the effect of the enforcement of such * * * transfer will be to enable any one of his creditors to obtain a greater percentage of bis debt than any other of such creditors of the same class.”
The transaction, it seems to us, must be one of these two alternatives: (a) that the estate of the bankrupt, in April preceding the adjudication of bankruptcy, was taken by the committee of creditors, who thereafter became directors (appellant Froehling included), as a trust estate for the creditors, to be disposed of and distributed ratably among the creditors — the circumstance that one of the restaurants was sold to appellants not making this feature of the transaction any different from the sale of the other restaurants — from which it follows that, by their contract of purchase, appellants are prohibited from using the remainder of the purchase price as a credit or set-off that would have the effect, to that extent, of paying their claim in full; or (b) the bankrupt was insolvent at the time of the transfer of the restaurant to appellants; the then directors of the Burton White company knew it was so insolvent, and knew that the effect of the transaction (assuming that they did not rely upon the feature above set forth) would result in a preference to appellants; appellants knowing, also, through Froehling, one of the members of the partnership, that the bankrupt was then insolvent, and that the effect would be to give them a preference; thereby, the transaction having occurred within four months *197before the adjudication of bankruptcy, fastening upon the transaction the status of a preference, within the meaning of the foregoing sec-? tion.
This view of the case makes it unnecessary to discuss the other assignments of error, the principal one of which relates to what character of claims can be set off against each other; for it is not because the claims might, within the purview of the bankruptcy law (other considerations laid aside) be set off the one against the other, hut because, under the state, of facts disclosed, to so set them off would he either to run counter to the contract between the parties, or to give the appellants a preference, that the decree below disallowed to set off. Upon the grounds stated, that order, we think, is without error.
The order appealed from is affirmed.