Benitez v. Bank of Nova Scotia

• Decision Date: 30 January 1942
• Docket Number: No. 3487.,3487.
• Citation: 125 F.2d 523
• Parties: BENITEZ v. BANK OF NOVA SCOTIA.
• Court: U.S. Court of Appeals — First Circuit

125 F.2d 523 (1942)

BENITEZ v. BANK OF NOVA SCOTIA.

No. 3487.

Circuit Court of Appeals, First Circuit.

January 30, 1942.

COPYRIGHT MATERIAL OMITTED

Francisco Capô Pagân, Ponce, P. R., for appellant.

Brown, Gonzâlez & Newsom, of San Juan, P. R., for appellee.

Before MAGRUDER, MAHONEY, and WOODBURY, Circuit Judges.

MAGRUDER, Circuit Judge.

This case is back with us again, upon remand from the Supreme Court, Carlota Benitez Sampayo v. Bank of Nova Scotia, 1941, 313 U.S. 270, 61 S.Ct. 953, 85 L.Ed. 1324. Our earlier opinion is found in, 1940, 109 F.2d 743. For related litigation, see Benitez v. Bank of Nova Scotia, 1 Cir., 1940, 110 F.2d 169; Benitez v. Bank of Nova Scotia, 1 Cir., 1940, 116 F.2d 359; People of Puerto Rico v. Bank of Nova Scotia, 1 Cir., 1940, 116 F.2d 379, certiorari denied, Oct. 13, 1941, 62 S.Ct. 56, 86 L. Ed. ___; Benitez v. Bank of Nova Scotia, 125 F.2d 519, decided by us this day.

Appellant seeks reversal of an order of the District Court of the United States for Puerto Rico dismissing her farmer-debtor petition under § 75 of the Bankruptcy Act. The controlling issue is whether appellant is a "farmer" within the definition of that word contained in subsection r of § 75, 11 U.S.C.A. § 203, sub. r.

Appellant was a member of the "Comunidad" Jose J. Benitez e Hijos, which had large holdings of land on the island of Vieques, Puerto Rico, used for growing sugar cane and for pasturage. The Comunidad also owned cattle, buildings, agricultural equipment, and held the capital stock of the Benitez Sugar Company, a corporation. The latter corporation owned a sugar factory, agricultural land, a large number of livestock, trucks, equipment, buildings, a railroad with locomotives and rolling stock, all on the island of Vieques, and devoted to the growing of sugar cane and the manufacture of raw sugar and molasses, and the transportation, marketing, and sale of such manufactured products. The corporation also extensively financed the growing of sugar cane by independent "colonos" or farmers under grinding contracts calling for the processing of such sugar cane at the corporation's sugar factory. Since 1917 the operations of the Comunidad and the Benitez Sugar Company had been conducted as a single and integrated enterprise devoted to the growing of sugar cane and the manufacture of that cane and cane grown by independent farmers into raw cane sugar and molasses, and to the sale and transportation of the sugar and molasses.

The Comunidad had been constituted by contract between the widower and the heirs of Carlota Sampayo Guzman in 1917, and by successive renewals extended to July 30, 1935. On July 1, 1933, the Bank of Nova Scotia, under the terms of a crop loan agreement with the Comunidad, took possession of the properties and operated them for the account of the Comunidad and the Sugar Company, applying the net proceeds to the repayment of the crop loans. When the contract regulating the Comunidad expired on July 30, 1935, no partition or liquidation of the business was had, but the Bank continued the operation of the business as theretofore, until a receiver took over.

On October 20, 1936, the Bank of Nova Scotia filed in the District Court of the United States for Puerto Rico a bill in equity against the Benitez Sugar Company, and various persons, including the present appellant, individually and as members of the aforesaid Comunidad, seeking foreclosure of certain securities and of a crop lien in satisfaction of various joint and several obligations of the corporation and the Comunidad.

Upon the filing of the bill for foreclosure a receiver was appointed. The receiver took possession of the properties of the integrated enterprise and operated the same under orders of the court. A final decree was rendered on August 22, 1938, in favor of the Bank. The decree adjudged that the Comunidad and the Sugar Company were jointly and severally indebted to the Bank for $673,569.82 with interest; that the members of the Comunidad were individually liable in proportion to their respective participations therein, that of the appellant being a one-twelfth interest; that the members of the Comunidad, in proportion to their respective liabilities, and the Benitez Sugar Company, must on or before September 1, 1938, pay to the Bank the said sum with interest, in default of which a special master was directed to sell at public auction the various pledged and mortgaged properties. Provision was made for an eventual deficiency judgment.

After entry of the equity decree just mentioned, appellant on October 13, 1938, one hour before the foreclosure sale pursuant to said decree, filed in the district court her petition as a farmer-debtor for composition or extension under § 75 of the National Bankruptcy Act, 11 U.S.C.A. § 203. She did this in the belief that the pendency of this petition, would operate, under § 75, subsections o and p, automatically to stay all further proceedings in the equity case and would, under § 75, subsection n, draw into the exclusive jurisdiction of the bankruptcy court all the real and personal property of the Comunidad, and of the corporation,¹ or at least her undivided fractional interest in this specific property. In addition to her relationship to the farming operations of the Comunidad, appellant based her claim to be a "farmer" on the fact that at her home in the city of Ponce, Puerto Rico, she had for several years engaged in raising and selling poultry and eggs.

The debtor's schedule of debts, filed with her petition, listed her pro rata liability for all the debts of the "integrated enterprise" — the Comunidad and Benitez Sugar Company; also a debt of $500 to her personal attorneys in this litigation, and a trivial debt on account of the poultry business. The schedule of the debtor's property listed all the specific real and personal property of the Comunidad and the Sugar Company, in which she claimed a one-twelfth interest. There was also listed an unspecified sum alleged to be owing the debtor by the "integrated enterprise," the amount of which could only be determined upon an accounting. In addition, petitioner listed certain personal property wholly owned by her — household effects, $1,850, chickens and pigeons, together with lofts, poultry houses, supplies, etc., $1,199.

The petition was presented ex parte, and on the same day the acting judge of the bankruptcy court issued an order approving it as properly filed under § 75, and referred the same to a Conciliation Commissioner. In due course, the debtor filed her inventory and proposal for extension.

Having failed to obtain from creditors the requisite assents to her proposal for extension, the debtor on November 30, 1938, amended her petition and asked to be adjudged a bankrupt under § 75, subsection s. The debtor further asked that her property be appraised, her exemptions set aside, and "that she be allowed to retain possession or be placed in possession of all of the remainder of her property" under the conditions provided in said subsection s.

On December 1, 1938, the Bank of Nova Scotia as a creditor filed a motion to dismiss the petition under § 75 on the grounds that the petitioner was not a "farmer"; that the petition was not filed in good faith but for the purpose of interfering with the pending equity proceedings; and that the proposal for extension was impracticable and was not presented in good faith.

The debtor objects that § 75 contains no provision for such a motion to dismiss. This is true but not important. The pro forma order of the court, on the day the petition was filed, approving the same as having been properly filed under § 75, does not preclude the court at a later stage of the proceedings from taking note of a possible lack of jurisdiction, on its own motion, even without a motion by an interested party. See Davis v. Shackleford, 8 Cir., 1937, 91 F.2d 148; McLaughlin Land & Livestock Co. v. Bank of America National Trust & Savings Ass'n, 9 Cir., 1941, 122 F.2d 193.

The district court held a hearing on the jurisdictional issues, after due notice to the debtor. On January 3, 1939, the court rendered an opinion, filed findings of fact and conclusions of law, and decreed that the petition of the debtor be dismissed with costs. Appeal was duly taken from this decree.

When the case was here before, appellant filed a petition for correction of the record so as to bring before us the full transcript of the hearing before the district court on the motion to dismiss. We denied the petition (109 F.2d 743, at page 750), and appellant insists that she was aggrieved thereby. But the purpose of getting before us the full transcript of the hearing was to show that the district judge made certain rulings beyond the scope of the hearing as he had repeatedly delimited it during the course of the proceedings. Particularly appellant objected to the fact that one of the grounds upon which the court below rested its decree of dismissal was lack of good faith on the debtor's part, whereas in the course of the hearing the court had specifically stated that the only question to be determined was whether the debtor was a "farmer" within the meaning of § 75. Even if we had allowed the enlargement of the record as requested, our conclusion would not in the slightest degree have been affected, and therefore we denied the petition for correction of the record. We rested our affirmance solely on the ground that appellant was not a farmer within the meaning of the Act. Further, we expressly ruled that appellant's farmer-debtor petition could not properly be dismissed, upon the facts here appearing, on the ground of lack of good faith on the debtor's part, citing John Hancock Mutual Life Insurance Co. v. Bartels, 1939, 308 U.S. 180, 60 S.Ct. 221, 84 L.Ed. 176, and we adhere to that ruling.

In our earlier opinion we held that the applicable definition of "farmer" was that contained in § 1(17) of the Bankruptcy Act, as...