In re Richards

• Decision Date: 04 October 1899
• Docket Number: 611.
• Citation: 96 F. 935
• Parties: In re RICHARDS.
• Court: U.S. Court of Appeals — Seventh Circuit

96 F. 935

In re RICHARDS.

No. 611.

United States Court of Appeals, Seventh Circuit.

October 4, 1899

On the 19th of June, 1899, John Richards, Thomas Caygill, and Samuel Treloar presented their petition to this court representing that they were judgment and execution creditors of the bankrupt by virtue of a judgment entered upon a judgment note given by the bankrupt to the petitioners on the 11th day of April, 1898, judgment whereon was rendered on the 9th day of February, 1899, in the circuit court of the state of Wisconsin for the county of Iowa, and under an execution upon such judgment levied on that day upon the goods of the bankrupt. On February 11, 1899, the bankrupt filed his petition in bankruptcy in the district court of the United States for the Western district of Wisconsin, and was upon that day adjudged a bankrupt. Afterwards, by stipulation between the judgment creditors and the trustee of the bankrupt, the property was sold and the proceeds covered into the registry of the district court, without prejudice to the rights of the judgment creditors, and subject to their lien if any, upon the goods. They thereupon petitioned the district court for the payment of their judgment, and the trustee answered thereto, which petition and answer are annexed to the petition to this court. Thereafter the matter came on to be heard upon such petition and answer, and upon testimony taken thereunder; and at some time thereafter-- but when does not appear by the petition or by the record-- the district court filed its opinion denying the prayer of the petition of the judgment creditors. In re Richards, 95 F. 258. The record does not exhibit any order made in pursuance of this opinion, nor does the petition to this court state such order. The petition alleges that the decision of the district court is erroneous and should be corrected, and prays that the trustee may be summoned to answer the petition, and to comply with such order and decree as this court may make in the premises. The facts, as stated by the district judge in his opinion with respect to the origin and the nature of the claim of the judgment creditors are as follows: Richard T. Richards, the bankrupt, in the spring of the year 1897 was elected treasurer of the town of Linden, in the county of Iowa, and state of Wisconsin. John Richards and Thomas Caygill, two of the petitioning creditors, became sureties upon his official bond. At the end of his term, in April, 1898, Richard T. Richards was found to be a defaulter to the amount of $1,350 in respect to the town tax. He was unable to pay that amount, and procured his bondsmen and the third petitioner, Samuel Treloar, to pay the amount due the town, and he gave them a judgment note, dated April 11, 1898, payable one day after date, for $1,400, and certain mortgages upon real estate, and also transferred to them as collateral one-half of his book accounts, and a separate mortgage on his homestead was given to Samuel Treloar, who was not a surety upon the bond, but who in fact paid in cash $450, the one-third part of the amount due to the town. The payees in this judgment note on February 9, 1899, entered judgment for the amount due issued execution thereon, and thereunder the sheriff levied upon the stock of goods belonging to the bankrupt. Five days after the entry of judgment, and on February 14, 1899, Richard T. Richards filed his petition in bankruptcy, and was duly adjudged a bankrupt. At the time of the execution of the note, as well as at the time of entering the judgment, Richard T. Richards was insolvent, and was so known to be by the petitioners, the judgment creditors, and the judgment was entered and levy made for the purpose of gaining a preference over other creditors.

A. L. Sanborn, for petitioner.

H. L. Butler, for respondent.

Before WOODS and JENKINS, Circuit Judges, and BAKER, District Judge.

JENKINS Circuit Judge, upon the foregoing statement of the case, .

We might properly dismiss this petition without consideration of the merits, both upon the ground that no order appears to have been entered by the district court determining the prayer of the petition, and upon the further ground that the practice adopted by the petitioners in seeking a review of the decision below is not conformable to law. We pointed out in Re Rouse, Hazard & Co., 63 U.S.App. 570, 33 C.C.A. 356, and 91 F. 96, that the bankrupt act authorized an appeal of controversies arising in bankrupt proceedings, and also invested the circuit courts of appeals with the power to superintend and revise in matter of law the proceedings of the several inferior courts of bankruptcy within their jurisdiction. In the case of an appeal the facts as well as the law are before this court for review. In the case of original petition this court has authority to review merely a matter of law arising in the course of the proceeding below. The latter is intended as a summary mode of reviewing any supposed erroneous holding upon a question of law, and does not contemplate a review of the facts. A similar conclusion was reached by the court of appeals of the Fifth circuit in Re Purvine, 96 F. 192. The petition in such case should state specifically the question of law which was involved and was ruled upon by the court below, and should be accompanied by a certified copy of so much of the record as will exhibit the manner in which the question arose, and its determination. Such question of law, so presented, is the question and the only question that can properly be ruled upon by this court upon an original petition. The petition here states no such question, but charges that the decision below, upon the facts as well as upon the law, is erroneous. We are careful to point out the defects of practice in this instance because we think a proper exercise of our jurisdiction under the bankrupt act requires a strict adherence to the requirements of the law. But the question of practice was not suggested at the hearing by the opposing counsel, and the question of law involved is important and was fully argued at the bar, and should have an early solution. We have therefore concluded to overlook the question of practice, and to determine the question of law presented. We do not, however, review the evidence, but take the facts stated in the opinion of the court below as the established facts.

The question, therefore, for determination, is whether the lien of a judgment obtained against a person who is insolvent upon a judgment note within four months prior to the filing of the voluntary petition in bankruptcy is protected by the bankrupt act. 30 Stat. 544, c. 541. Section 67 of the act deals with the subject of those liens which shall be preserved and enforced and those which shall be discarded. The subdivisions of that section which we need to consider are as follows:

'(c) A lien created by or obtained in or pursuant to any suit or proceeding at law or in equity, including an attachment upon mesne process or a judgment by confession, which was begun against a person within four months before the filing of a petition in bankruptcy by or against such person shall be dissolved by the adjudication of such person to be a bankrupt if (1) it appears that said lien was obtained and permitted while the defendant was insolvent and that its existence and enforcement will work a preference, or (2) the party or parties to be benefited thereby had reasonable cause to believe the defendant was insolvent and in contemplation of bankruptcy, or (3) that such lien was sought and permitted in fraud of the provisions of this act; or if the dissolution of such lien would mitigate against the best interests of the estate of such person the same shall not be dissolved, but the trustee of the estate of such person, for the benefit of estate, shall be subrogated to the rights of the holder of such lien and empowered to perfect and enforce the same in his name as trustee with like force and effect as such holder might have done had not bankruptcy proceedings intervened.'

'(f) That all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the bankrupt, unless the court shall, on due notice, order that the right under such levy, judgment, attachment, or other lien shall be preserved for the benefit of the estate; and thereupon the same may pass to and shall be preserved by the trustee for the benefit of the estate as aforesaid. And the court may order such conveyance as shall be necessary to carry the purposes of this section into effect; provided, that nothing herein contained shall have the effect to destroy or impair the title

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