Court Opinion

ID: 7169347
Source: CourtListenerOpinion
Date Created: 2022-07-24 16:24:42.13751+00
Date Added: 2024-06-11T16:15:40.308821
License: Public Domain

On Rehearing.
SOMMERVILLE, J.
The firm of' Martin W. Harvey & Co. was organized February 1, 1907, to engage in owning and operating a sawmill in St. Tammany parish, La.;. and it went into operation April 1st of the same year. The partners were Martin W. Harvey, who had a one-half interest, Dr. Louis Heintz and James L. Reid, with a one-fourth interest each. Harvey contributed a secondhanded boiler and some machinery, together with a small amount of lumber, valued at about $2,000, to the partnership ; and the other two partners contributed $1,000 each. Oscar Gartner, the principal defendant in this suit, made loans and advances to the firm in the sum of about $6,696.23, under a written contract, of date February 21, 1907, wherein the firm pledged to him, as security, “all lumber and logs on hand at the said mill, or adjacent thereto, or to be manufactured thereat, and also the mill buildings, mill machinery, dry kilns, teams, etc., used in conjunction with said sawmill.”
In August, 1907, Heintz and Reid withdrew from the firm, after they received from the firm a cheek for $625 and a note for $1,-875, making $2,500, for their interests. Howard A. Segrave became a partner in the firm, to the extent of a one-eighth interest, in August, 1907; M. W. Harvey being the owner of the other seven-eighths. James L. Reid testified that he sold his interest to Se-grave for $1,250, although, according to his testimony, he, together with Dr. Heintz, had received $2,500 for their joint interest in said partnership from that partnership. The new firm retained the name of the old firm.
October 10, 1907, the new firm sold to James L. Reid and Dr. Louis G. Heintz all of the standing timber around the mill, all the contracts and leases that it held from the Greenlaw Lumber Company, the ox teams and wagons, all of which were used in connection with the sawmill, for $1,875, the amount of the promissory note which was formerly issued to these gentlemen .by said firm, in part payment of what they had invested in the firm as partners; and they acknowledged due delivery of the property sold to them. This act of sale contained a right of redemption within six months by paying to the purchasers the purchase price, with interest at the rate of 8 per cent., and all costs of transfer. The act provided:
“If said property is not redeemed within six months the said purchasers are to be the absolute owners of said property.”
The property was not redeemed within the specified time. October 18, 1907, Heintz and Reid sold this same property to Jos. Rauch for $1,875, subject to the right of redemption reserved to M. W. Harvey & Co. October 19, 1907, the firm entered into a contract with some of its creditors, wherein it was stated that the firm is “financially embarrassed and is temporarily unable to pay its debts and comply with its obligations.” And it was agreed that a trustee should be appointed to take charge of the business of said firm and administer its affairs. This agreement was not to be binding or effective until all creditors of the firm had signed it. All the creditors did not sign, although Mr. Gartner, the largest creditor, went into possession of the property temporarily as trustee for all concerned. 1-Ie was required to take an inventory of all the assets of the business; he was to operate the mill and sell the output of lumber to the best advantage; but the creditors of the firm were not informed that the firm had already parted with most of its assets by transferring to the two retiring partners, Heintz and Reid, all of the assets, except *425the sawmill and about $500 worth of lumber. The mill was not operated by Mr. Gartner, the trustee. An offer was made to him, while acting as trustee, which he thought advantageous to the creditors of the concern, whereby a lease might be effected, with an option to purchase for $7,500 the entire property, including the standing timber, etc., which had been sold to Reid and Heintz, which, in turn, had been sold to Rauch. But Reid and Heintz refused to return the property transferred to them without payment of the $1,875; and the offer could not be accepted.
February 22, 1908, M. W. Harvey & Co., alleging their “inability to collect accounts due them promptly, and by reason of the unusual depression and stagnation in business (the panic of 1907 was on), and their inability to dispose of their stock in trade and other assets rapidly enough in due course of business to meet maturing obligations, and by reason of losses sustained by them in the course of said business, petitioners are not at present able to meet their obligations;” and they asked for a respite of one year. To their petition they attached a schedule óf assets amounting to $14,200, and of liabilities amounting to $12,767.04. In the list of assets were placed the standing timber, valued by them at $3,000, and the oxen and wagons at $1,200, which had been sold to Heintz and Reid nearly a year before; and the time for redeeming them had expired. And among the liabilities were placed Reid and Heintz for $1,875, although they had been settled with. Harvey advanced the costs of the respite proceeding.
Before the order for respite was granted, March 9, 1908, five of the creditors of the firm of M. W. Harvey & Co., among whom was Oscar Gartner, petitioned the United States District Court to adjudge the firm, and the members thereof, bankrupts. All of the members of the old firm of M. W. Harvey & Co., as well as the members of the new firm, were made parties defendant. There was a trial, with the verdict that:
“We, the jury, find that the firm of M. W. I-Iarvey & Co., composed of Martin W. Harvey and Howard A. Segrave, was solvent, within the intent and meaning of the bankruptcy law, on the 9th day of March, 1908, and had not committed an act of bankruptcy within the intent and meaning of the bankruptcy law.”
There was judgment holding that the original firm of M. W. Harvey & Co. had been dissolved August 10, 1907, and that the new firm of Martin W. Harvey & Co. was formed subsequently, consisting of Martin W. Harvey and Howard A. Segrave, of which neither Reid nor Heintz were members; and it was decreed that the petition of the plaintiffs be dismissed, with costs, reserving to respondents their rights to sue for damages, if any they had.
In their petition to have the firm of M. W. Harvey & Co. and the individual members thereof declared bankrupts, the petitioners set forth the different acts of the firm hereinbefore mentioned, and introduced documentary evidence in support thereof. And, in addition thereto, there was filed an answer by Howard A. Segrave, one of the members of said firm, in which he admitted the inability of said firm, and the individual members thereof, including himself, to pay their debts; and he expressed a willingness that he and the partnership should be adjudged bankrupts; and he joined in the prayer of the petitioners.
This written admission on the part of Segrave for himself and his firm was an act of bankruptcy; but the jury and the court neglected to adjudge him a bankrupt.
Martin W. Harvey, individually, and Martin W. Harvey & Co., composed of Martin W. Harvey and Howard Segrave, bring this suit sounding in damages against Oscar Gartner and four others, all of whom were creditors and petitioners in the bankruptcy proceed*427ing before referred to. They allege that these defendants petitioned the United States District Court to have them declared bankrupts, and asked for the appointment of a receiver, who took possession of their property; and that they opposed the bankruptcy proceedings. And they further allege that defendants filed said proceedings “wantonly and with malice” ; and that the petition therein filed “constitutes a libel and slander upon the reputation of your petitioners as well as upon the business reputation, credit, and character of your petitioners, and your petitioners show that the allegations of the said petition and affidavit are untrue and unfounded,” and they claim damages in the sum of $24,000, divided as follows: For loss of property, $12,000; loss of profits, $5,000; fees of counsel in the bankruptcy court, $2,-000; and for damages to petitioners’ credit, character, reputation, and business standing, $5,000. A supplemental petition was filed by the same parties reciting that a verdict and judgment had been rendered in the bankruptcy proceeding dismissing same.
The record shows that the partnership of M. W. Harvey & Co. has been" dissolved. The object of the partnership was the running of a sawmill, and that sawmill has been destroyed by fire; all the assets of the firm have been disposed of; and one of the partners, Howard Segrave, is a bankrupt, as declared by him in the bankruptcy proceeding in his answer to the petition filed in that cause. The only real party plaintiff is M. W: Harvey.
Petitioners do not set forth any averment of the petition in bankruptcy filed by these defendants which was libelous and slanderous. And it does not contain such.. The language therein used is decorous and proper; the allegations thereof are material; and the lines of the statute were followed very closely. But plaintiffs allege that the filing of said petition was done “wantonly and with malice, and constitutes a libel and slander against the reputation of your petitioners,” etc. And it is argued by them, that it is unnecessary to showi malice on the part of defendants to sustain their suit for damages.
They are not proceeding under section 3e of the bankruptcy law, which provides in part that:
“If such petition be dismissed by the court or withdrawn by the petitioner, the respondent or respondents shall be allowed all costs, counsel fees, expenses, and damages occasioned by such seizure, taking, or detention of such property. Counsel fees, costs, expenses and damages shall be fixed and allowed by the court, and paid by the obligors in such bond.”
The section further provides that, where the petition asks that the property of defendant be taken charge of and held pending a hearing of the petition, the petitioner must give bond with good and sufficient surety.
The petitioners in the bankruptcy court did not ask, in their petition to have the now plaintiffs declared bankrupts, that the property should be taken charge of by the marshal; and no bond was given by them for such an order. The petitioners there pursued the usual course of filing a separate petition, on the same day that the original petition was filed, in which they, asked that a receiver might be appointed. This receiver was appointed by the court, and he took possession of the property of the defendants, without the plaintiffs in the suit being required tO' give any bond.
Petitioners are proceeding under the state law which provides that whatever act of man that causes damage to another obliges him by whose fault it happened to repair it; and they are asking for alleged actual damages and attorneys’ fees for defending them in the bankruptcy court.
The bankruptcy court is authorized in the bankruptcy law of July 1, 1898, to “appoint receivers or the marshals, upon application of *429parties in interest, in ease the courts shall find it absolutely necessary, for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified.” Section 2 (3) (U. S. Comp. St. 1913, § 9586). The statute does not require, although the court may order, that petitioners shall give bond when a receiver is applied for and appointed; but a bond is required of the petitioners when they ask that the marshal be put in possession of the property of the alleged bankrupt. Section 3e and section 69a (sections 9587, 9653).
If this suit for damages and counsel fees were in the bankruptcy court, and on a bond given by the petitioners there in accordance with the bankruptcy law and an order of court, the cause of plaintiffs would be controlled by the terms of that statute. It has been held by the Supreme Court of Illinois in Hill v. U. S. Fidelity & Guaranty Co., 250 111. 242, 95 N. E. 150, that damages were recoverable on a bond given by a creditor on the appointment of a receiver in bankruptcy, who had been appointed on an order wrongfully obtained. The court held that the law applied alike to the bonds given by petitioners for receivers and for marshals in bankruptcy proceedings.
A decision to the contrary was rendered In Re Moeks & Rechnitzer (D. C.) 174 Fed. 165, in a suit on a bond given for the appointment of a receiver, where the petitioners acted without malice and with probable cause.
This present suit is not on a contract or bond given in a bankruptcy proceeding. The provisions of the bankruptcy law are not invoked by plaintiffs. Congress has authorized the courts of bankruptcy to allow to respondents in bankruptcy suits, where the petition is dismissed or withdrawn, “all costs [counsel fees], expenses, and damages occasioned by such seizure, taking and detention of such property,” where bonds have been required and given for such seizure.
And the action of Congress in allowing damages in the case referred to is persuasive with the court, but the statutes and jurisprudence of this state must govern in disposing of this cause.
We do not think that plaintiffs can recover under the state statutes. And it has been held, with direct reference to the bankruptcy act, by the District Court, S. D. New York, in Re Ghiglione, 93 Fed. 186,' that counsel fees could not be recovered in the case where application was made for a receiver and was denied.
[1] Plaintiff alleged that the defendant acted wantonly and with malice. The allegation is necessary to sustain the action. Malice, express or implied, and the want of probable cause, must both concur in actions of this kind. The suit is in the nature of a suit for damages for a malicious prosecution; and an action for instituting a civil suit of that nature requires not less for its maintenance than an action for a malicious prosecution of a criminal proceeding. The trial judge ignored totally the question whether the conduct of the now defendants had been attended by malice, though the now plaintiffs charge malice in their petition; and he denied all importance to the necessary inquiry, whether the now defendants had probable cause for their action or not.
The plaintiffs in the bankruptcy court proceeded with firm and reasonable belief that they had a just claim, a lawful right to resort to that court; and their failure in that court cannot render them responsible in damages for the consequences of their acts. Their conduct must be weighed in view of what appeared to them when they filed their petition, in the bankruptcy court, not in the light of subsequently appearing facts. If they had reasonable cause for their action *431they cannot be held in damages because of their failure. That they had reasonable cause to believe that acts of bankruptcy had been committed must be conceded in view of the statements in the answer of Howard Se-grave, a partner in the partnership of Martin W. Harvey & Co., before narrated. It was proved that the partnership was actually dissolved by the withdrawal of two partners, and by their taking assets of the firm, amounting to $3,000 or over, in return for what they had put into the firm, the sum of $2,000. That property was the pledge of the firm’s creditors, and they should not have taken it from the firm of which they were members. That act, although concealed from the creditors of the firm, may not have been a technical act of bankruptcy, inasmuch as it occurred October 10, 1907, more than four months before the date of the bankruptcy proceeding, March 9, 1908. Such action would have been an act of insolvency under the state law, for it was passed within less than a. year of the date of the bankruptcy proceeding.
The act of sale, with the redemption provision, just referred to, is called by the parties an act of security. If it was intended to act as an act of security, and the property did not actually become the property of Reid and I-I eintz until the period of redemption had expired, April 10, 1908, then plaintiff “transferred, while insolvent, any (a) portion of his property to one or more creditors with intent to prefer such creditors over his other creditors,” and such was an act of bankruptcy, under the provisions of the bankruptcy law.
Again, it was shown that the plaintiff firm entered into a contract with a trustee, to whom it assigned all of its property and assets for the benefit of its creditors, some five months before the date of bankruptcy; and this transfer was made to said trustee, who is the main defendant in this cause, and the principal creditor of the firm, without informing him and the other creditors that the standing timber, contracts, etc., upon which the sawmill depended for its existence, and much of which had been pledged to him for money advanced, had been transferred to the two retiring members of the firm. But this was not within four months of the bankruptcy proceeding.
The evidence shows that a petition of respite was filed in the state court of St. Tammany parish within one month before the bankruptcy proceedings were filed. In that petition, as well as in the agreement to appoint a trustee, it was recited:
“That owing to the inability to collect accounts due them promptly, and by reason of the unusual depression and stagnation in business, and their inability to dispose of their stock in trade and other assets rapidly enough in due course of business to meet maturing obligations, and by reason of losses sustained by them in the course of said business petitioners are not at present able to meet their obligations, but that they have ample means to do so, and their liabilities (assets) largely exceed in value the amount of their liabilities.”
The stringency of the money market in 1907; the fact that M. W. Harvey & Co., a new firm, depended upon Oscar Gartner, defendant here, to advaiice it more than $6,000, where he had contracted to advance $3,000; the transfer of the property pledged to Gartner for money advanced by him; the withdrawal of two partners from the firm and taking by them of $3,000 worth of property, when their interest in that firm was only $2,000, and the creditors were not paid; the declaration of the firm that they were unable to meet their obligations; the listing of certain property in respite proceedings as assets after the said property had been sold to the two retiring partners; the absolute knowledge on the part of Gartner that the firm was insolvent; the written admission by one of the partners that he and the firm were insolvent; that under section 1804, R. S., these acts constituted presumptive evidence of fraud, on the part of the firm, taken together with the testimony of Edgar M. *433Calm and Gustave Lemle, two reputable members of the state bar, to the effect that they, after consideration and consultation, advised these defendants that plaintiffs had been guilty of acts of bankruptcy — are, taken together, convincing that defendants here proceeded in the court of bankruptcy against plaintiffs here without malice, believing their allegations to be true, and with reasonable and probable cause.
In a somewhat similar suit for damages because of an involuntary proceeding in bankruptcy which was dismissed, the Supreme Court held, prior to the adoption of the bankruptcy law of 1898, that, the defendants having acted bona fide upon legal advice, their defense was perfect. Stewart v. Sonneborn, 98 U. S. 187, 197, 25 L. Ed. 116.
Plaintiffs here were really insolvent at the date of the bankruptcy proceeding under the definition of insolvency in the bankruptcy law. It says in section 1 (15) (U. S. Comp. St. 1918, § 9585):
“A person shall be deemed insolvent within the provisions of this' act whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, with intent to defraud, hinder, or delay his creditors, shall not, at a fair valuation, be sufficient in amount to pay- his debts.”
Petitioners filed a schedule of their assets and liabilities February 22,1908, which showed their liabilities to be $12,767.04 and their assets $14,200. But they had conveyed timber and ox teams appearing in the list of assets at a valuation of $4,200, which had been conveyed to Reid and Heintz. The sawmill was valued at $8,000, which did not apparently cost quite $4,000, and which was worth much less after the sale of the standing timber around it; and the ox teams. The mill was not being operated at the time of the filing of the bankruptcy proceeding; and its value was very small. Plaintiffs did not have property sufficient to pay their debts, at a fair valuation. They were insolvent.
[2] Plaintiffs argue that a bankruptcy proceeding, amended by an application for the appointment of a receiver, carries with it the same responsibility as where an attachment was wrongfully issued on an application to the courts of this state.
In this state, the law with reference to the issuance of attachments is not the same as that with reference to the appointment of receivers. The writ of attachment is usually taken against absconding, concealed, or fraudulent debtors, and the sheriff is directed to take possession of the property and hold it for the plaintiff in the cause.
The law with reference to receivers is different. A receiver may be appointed on the request of the majority of the stockholders of a corporation, or for mismanaging the business, for committing acts ultra vires, for wasting, misusing, or misapplying the property of a corporation, or where the property of the corporation is abandoned, or for insolvency, or where the property has been seized, or is under judicial process by fraud or collusion, or where the corporation has been adjudged not organized according to law, and for other reasons.
[4] It is not necessary for the appointment of a receiver that a creditor shall have absconded, or concealed his property, or committed fraud. The receiver is the arm of the court He represents the debtor and all of Ms creditors, as well as the court. Such appointment does not necessarily carry disgrace with it, or disaster, or even damage to business.
The appointment of receivers may be lik-ened to the judicial sequestration ordered ex officio by the judge, under article 274, O. P. Receivers are appointed in the interest of all parties to the litigation; and the right to appoint is vested in the court for the purpose of preserving the property in dispute.
The receiver in this case was appointed without requiring a bond to be given by the petitioners; and the property of the defend*435■ants in the canse was given into the possession of said receiver. All was done by the judge of the bankruptcy court in the exercise of the discretion vested in him. And, as the defendants were insolvent, no bond would have been required for the issuance of a writ of sequestration in the state court. O. P. 278.
It is observed that the jury in the bank-' ruptcy court found that M. W. Harvey & Co. were solvent. But the evidence in the record before us is quite conclusive of their insolvency at the time that the bankruptcy proceeding was filed. The remedy sought by plaintiff in the bankruptcy court was invoked in good faith, without malice, with probable cause, and upon legal advice; and no injury resulted for which the petitioners ' are responsible, though the jury there found that plaintiffs did not present sufficient cause, 'and that suit failed.
[3] Parties are not permitted to recover damages for setting aside conservatory writs, which may have been acquired in good faith, upon reasonable grounds, and for probable cause. Nuzum v. Gore, 24 La. Ann. 208; Duncan v. Wise, 39 La. Ann. 74, 6 South. 13.
It is therefore ordered, adjudged, and decreed that the judgment appealed from in favor of plaintiff be reversed; that there be judgment in favor of defendants and against plaintiffs, dismissing their suit; and that there be judgment in favor of defendants on their reeonventional demands as prayed for by them — costs to be paid by plaintiff.