Court Opinion

ID: 9301117
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:07:30.63656+00
Date Added: 2024-06-11T17:13:41.396695
License: Public Domain

DRUMMOND, Circuit Judge.
The 39th section of the bankrupt law as amended by the act of July 14, 1870 [16 Stat 276], declares that any one who “being a banker, broker, merchant, trader, manufacturer or miner, has fraudulently stopped payment, or who has stopped or-suspended and-not resumed payment of his commercial paper within a period of fourteen days,” has committed an act of •bankruptcy, and may be adjudged a bankrupt on the petition of one or more of his creditors.
' The 39th section sets forth various acts which constitute bankruptcy, one clause of which.'has just been cited. There was a difference among judges as to the true construction of the original clause of the 39th section, and to remove this doubt it was amended by the act of 1870, and the question is now presented whether the petition brings the parties, both creditor and debtor, within this amended clause of the 39th section.
It has in several eases been stated that there may. be a suspension of payment of com: mercial paper for a period of fourteen days, which does not of itself constitute an act of bankruptcy. For instance, the paper may not be valid, or there may be a set-off against it; or, from some cause, the party may not be legally bound to pay It In such cases the courts have held that the suspension of payment does not constitute an act of bankruptcy, because in point of fact there is actually no indebtedness, , or if there is, it is offset by an indebtedness on the other side, , so that there is no legal' obligation to pay.3
The ground upon which, the district judge -decided the. case was that.the fact .of...one piece of-commercial paper being unpaid was no sufficient proof of insolvency. . The question then arises, whether on that' ground .can be based the refusal of a rule to show cause.
The point, it will -be observed, is, whether a .party has, prima facie upon the paper's as they appear, committed an act of bankruptcy within the meaning of the 39th section, and whether insolvency is an indispensable -element entering into and constituting the act of bankruptcy. I think it is not
The real question is, whether,-being a merchant or trader, he has suspended payment of his commercial paper for fourteen days, within the meaning of the law. Of the various acts which the 39th section declares, to constitute acts of bankruptcy, most of them do .not refer, to-insolvency at all For instance, the departure from the state, district or territory of which the debtor is an inhabitant, with intent to defraud his creditors, is an act of bankruptcy. Where a debtor conceals himself to avoid the service of legal process in an action for the recovery of a debt or demand provable under the bankrupt act, he commits an act of bankruptcy. The concealing or removing any of his property to avoid its being attached, taken, or sequestered on legal process, is an act of bankruptcy. So with many other acts declared to constitute bankruptcy, as where the debtor has been actually imprisoned for more than seven days in a civil action founded on a contract for the sum of one hundred dollars or upward. In all these cases insolvency is not an element.
Then comes the- further definition which the district judge has apparently applied by analogy to the particular circumstances of this case: “Or who being bankrupt or insolvent, or in contemplation of bankruptcy or insolvency, shall make any gift, grant,' sale, conveyance,” etc..
Some of the courts have intimated that “suspension of payment” means a general suspension of payment, and not the suspension of payment of a single piece of commercial *90paper; and it is in carrying out that view that the district judge has held there must be an allegation of insolvency.4 But the question is, whether it is competent for a man, being a merchant, to suspend payment of any of his commercial paper and bid a creditor defiance, and then to turn round and allege in answer to an application to declare him- a bankrupt, that he is solvent and therefore a proceeding in bankruptcy can not- be instituted against him.
By section 12 of the amendment to the bankrupt act passed June 22, 1874 [18 Stat. 178], section 39 of the original act is so changed aB to-require a suspension of payment of commercial paper forty days to constitute an act of bankruptcy.
■ - [NOTE. The following case, -entitled “In re- Kenyon & Fenton,” cited in the brief of •McClellan & Hodges in the principal case, is reported from 6 N. B. R. 238, by permission:]
I hold that allegation to be no answer-to a petition in bankruptcy under such circumstances. It is not enough for him to show as a reason why a decree in bankruptcy should not go against him, that he is solvent, and because of spite or caprice, or some other similar cause, he does not choose to pay his commercial paper. The reason which alone can prevent the non-payment of commercial paper and its continuance for fourteen days, from constituting an act of bankruptcy, must be a legal reason, such as to enable a court to say that it is not within the scope and meaning of the bankrupt law, because the debtor was legally justified in not making payment.
Upon the face of this petition no legal reason appears for the non-payment of this commercial paper within fourteen days after maturity, and the petitioners-say they know of none. If there is any legal reason, it is for the debtor to show it before the bankrupt court. Prima facie a case is made out against the respondent, and the question of solvency or insolvency is not material
A solvent merchant cannot, therefore, refuse, to pay his commercial paper, and then defend himself from a petition in bankruptcy on the ground that he is solvent. One of the very objects of the bankrupt law was to compel merchants to pay their commercial paper as it fell due, by holding over them the consequences of its non-payment, if continued for fourteen days.
Possibly there should be a different rule, because if a man is solvent he can be proceeded against in the ordinary way, but the bankrupt law has not so provided. Insolvency does not constitute an element of the act of bankruptcy in this case, as it does not in most of the cases set forth in the 39th section.
If it be said that we can suppose a suspension of payment of commercial paper for fourteen days which does not constitute an act of bankruptcy, the answer is that it is not possible for the petitioner to recapitulate all the various circumstances which might negative any supposed case, and thereby exclude it from the operation of the bankrupt law.
The district judge has required an allegation of insolvency. Something else might be required to be negatively set forth in the petition, which, if it existed in point of fact, would show that the act was not one of bank.ruptcy.
We cannot, therefore, require that-the petitioner should set forth by negative allegations, all the particular circumstances which by possibility might show the non-payment to be within the meaning of this clause of the bankrupt law. It is sufficient that a prima facie case is made upon the petition.
It is for the debtor to make explanation or defense.
Again, if it be said that the non-payment for the given period must be a “general” suspension, where is the line to be drawn? On how many pieces of commercial paper must payment be suspended in order to constitute an act of bankruptcy? The statute has not declared that suspension of payment on any particular number of notes or bills of exchange shall constitute an act of bankruptcy, but the language is, “his commercial paper,” -and it will be found impncticable to adopt a rule which limits the non-payment to some certain .number of notes or bills of exchange in order to constitute-an act of bankruptcy.
. For these reasons I think the order of the-district judge was erroneous and must be reversed; and that the petitioners are entitled to a rule to show cause.

 For such cases consult In re Thompson [Case No. 13,936]; In re Chandler [supra]; M. & M. Nat. Bank of Pittsburgh v. Brady’s Bend Iron Co., [Id. 9,018]; In re Munn [supra].

 For such case, see In re John Clemens [Case No. 2,878].