Mayer v. Hellman

ERROR to the Circuit Court of the United States for the Southern District of Ohio.

The plaintiff in the court below is assignee in bankruptcy of Bogen and others, appointed in proceedings instituted against them in the District Court of the United States for the Southern District of Ohio; the defendants are assignees of the same parties, under the assignment law of the State of Ohio; and the present suit is brought to obtain possession of property which passed to the latter under the assignment to them. The facts as disclosed by the record, so far as they are material for the disposition of the case, are briefly these: On the 3d of December, 1873, at Cincinnati, Ohio, George Bogen and Jacob Bogen, composing the firm of G. & J. Bogen, and the same parties with Henry M uller, composing the firm of Bogen & Son, by deed executed of that date, individually and as partners, assigned certain property held by them, including that in controversy, to three trustees, in trust for the equal and common benefit of all their creditors. The deed was delivered upon its execution, and the property taken possession of by the assignees.

By the law of Ohio, in force at the time, when an assignment of property is made to trustees for the benefit of creditors, it is the duty of the trustees, within ten days after the delivery of the assignment to them, and before disposing of any of the property, to appear before the probate judge of the county in which the assignors reside, produce the original assignment, or a copy thereof, and file the same in the Probate Court, and enter into an undertaking payable to the State, in such sum and with such sureties as may be approved by the judge, conditioned for the faithful performance of their duties.

In conformity with this law, the trustees, on the 13th of December, 1873, within the prescribed ten days, appeared before the probate judge of the proper county in Ohio, produced the original assignment, and filed the same in the Probate Court. One of the trustees having declined to act, another one was named in his place by the creditors, and appointed by the court. Subsequently the three gave an undertaking with sureties approved by the judge, in the sum of $500,000, for the performance of their duties, and then proceeded with the administration of the trust under the direction of the court.

On the 22d of June of the following year, more than six months after the execution of the assignment, the petition in bankruptcy against the insolvents was filed in the District Court of the United States, initiating the proceedings in which the plaintiff was appointed their assignee in bankruptcy. As such officer, he claims a right to the possession of the property in the hands of the defendants under the assignment to them. Judgment having been rendered against them, they sued out this writ of error.

Mr. W. T. Forrest for the plaintiffs in error.

Deeds of trust or assignments made in good faith, and for the common benefit of all the creditors of a debtor, are in aid of the provisions of the Bankrupt Law, and not contrary to its spirit. They have been said 'to carry out the equitable provisions of a bankrupt law through the medium of a private contract,' and are a cheap, expeditious, and convenient mode of arriving at the objects intended by that law. Sedgwick v. Place, 1 Nat. Bank. Reg. 204; Tiffany v. Lucas, 15 Wall. 410; Clark v. Iselin, 21 id. 360; Michael v. Post, id. 398; Langley v. Perry, 2 Nat. Bank. Reg. 180. The statute of Ohio, entitled 'An Act regulating the mode of administering assignments in trust for the benefit of creditors,' has none of the distinctive features of an insolvent or a bankrupt law. It does not purport or attempt to discharge the debtor either from arrest or imprisonment, or to free him from future liability. His after-acquired property is liable to his creditors to the same extent in every particular as if he had not made an assignment in trust for his creditors. Deeds of trust are not the creatures of that law. They existed in Ohio, and were constantly recognized and used for fifty years before it was passed. They derive their force and effect from the common law, and not from the statute. The statute does not give such deeds any power or validity. All it does is to prescribe a mode of enforcing the trust. It found them already established, and simply provided for the better security of the creditors by requiring that the trustees should give bond for the faithful discharge of their trusts, and should file statements showing what had been done, and provided a simple and speedy means of enforcing and regulating the trust, which, before that act was passed, had to be sought through a court of chancery. Cook et al v. Rogers, Am. Law Reg. July, 1875, 453; In re Hawkins, 2 Nat. Bank. Reg. 122.

Mr. Adam A. Kramer, contra.

The main question involved in this case is, whether the adjudication in bankruptcy had the effect of suspending the further operation of the State assignment laws. The jurisdiction of the United States courts under the Bankrupt Act cannot be concurrent with that of the State courts under the assignment laws of the State. It must be exclusive in that court, which only can and should administer the estate and adjust the affairs of a bankrupt. Sturges v. Crowningshield, 4 Wheat, 122; Ogden v. Sanders, 12 id. 213, 214; Griswold v. Pratt, 9 Met.; Larrabee v. Talbot, 5 Gill, 426; Ex parte Lucius Eames, 2 Story, C. C. 322; In re Reynolds, 9 Nat. Bank. Reg. 50; Allen & Co. v. Montgomery, 10 id 503. The Bankrupt Act was intended, and must be presumed, to afford the best mode of administering the estates of insolvents. It will not tolerate an attempt to carry into effect any other plan inconsistent therewith. Cookingham v. Morgan, 5 B. R. 16; 7 Blatch. 480.

It is not claimed, that, althought the assignment was a valid, legal, and fair one for the benefit of all the creditors, the subsequent adjudication in bankruptcy rendered it invalid, illegal, and unfair, but that it had the effect of suspending its further operation.

The Bankrupt Act of March 2, 1867, as soon as it went into operation, ipso facto suspended all action arising under State laws. Commonwealth v. O'Hara, 1 Nat. Bank. Reg. 19; In re Krogman, 5 id. 116.

It is immaterial whether the statute of Ohio, under which the assignment was made, is properly an insolvent law. It, however, certainly purports and contemplates the control and disposition of the estate of persons who are unable to pay their debts, and are therefore insolvent. It is an insolvent act, because it presumes the debtor to be unable to pay his debts; but it is not a bankrupt act in the strict sense, for it does not purport to discharge the debtor from paying them.

The most important authority on this question, the one containing the clearest reasoning, is the opinion of the court, per Blodgett, J., In re Merchants' Insurance Company, 6 Nat. Bank. Reg. 43:--

'It seems clear to us, that in so far as a State law attempts to administer on the effects of an insolvent debtor, and distribute them among his creditors, it is to all intents and purposes an insolvent law, although it may not authorize a discharge of a debtor from furthe liability;. . . and, when insolvency exists so as to make the debtor a proper subject for the operation of the Bankrupt Act, the exclusive jurisdiction of the Bankrupt Court attaches, and the State court and those acting under its mandate must surrender the control of its assets.'

By insolvency, as used in the provisions of the Bankrupt Act when applied to traders and merchants, is meant their inability to pay their debts as they become due in the ordinary course of their business.

This is the legal definition of the term, and such has been the universal construction of it by the Federal courts. In re Gold-schmidt, 3 B. R. 165; In re Freeman, 4 B. R. 64; In re Lutgens, 7 Pac. L. R. 89; In re Alonzo Pearce, 21 Vt. 611; In re Brodhead, 2 B. R. 278; Smith v. Ely, 1 N. Y. Leg. Obs. 343; Sawyer v. Turpin, 5 B. R. 339; In re Walton et al., Deady, 442; s. c., Wall. 584.

MR. JUSTICE FIELD delivered the opinion of the court.