Citizens Banking Company v. Ravenna National Bank of Ravenna, Ohio

• Decision Date: 08 June 1914
• Docket Number: No. 288,288
• Citation: 34 S.Ct. 806,58 L.Ed. 1352,234 U.S. 360
• Parties: CITIZENS BANKING COMPANY v. RAVENNA NATIONAL BANK OF RAVENNA, OHIO, and Cora M. Curtis
• Court: U.S. Supreme Court

234 U.S. 360

34 S.Ct. 806

58 L.Ed. 1352

CITIZENS BANKING COMPANY

v RAVENNA NATIONAL BANK OF RAVENNA, OHIO, and Cora M. Curtis.

No. 288.

Argued March 16, 1914.

Decided June 8, 1914.

Messrs. G. Ray Craig, Edward H. Rhoades, Jr., and John D. Rhoades for Citizens' Banking Company.

[Argument of Counsel from page 361 intentionally omitted] Mr. A. T. Brewer for Ravenna National Bank.

[Argument of Counsel from page 362 intentionally omitted] Mr. Justice Van Devanter delivered the opinion of the court:

Upon a petition filed in the district court for the northern district of Ohio by one of her creditors, Cora M. Curtis was adjudged a bankrupt. In addition to matters not requiring notice, the petition charged that within four months next preceding its filing the respondent committed an act of bankruptcy, in that (a), while insolvent, she suffered and permitted the Citizens Banking Company to recover a judgment against her for $1,598.78 and costs, in the common pleas court of Erie county, Ohio, and to have an execution issued under the judgment and levied on real estate belonging to her, whereby the company obtained a preference over her other creditors, and (b) at the time of the filing of the petition which was one day less than four months after the levy of the execution, she had not vacated or discharged the levy and resulting preference.

The company appeared in the bankruptcy proceedings and challenged the petition on the ground that it disclosed no act of bankruptcy, but the court, deeming that such an act was charged, overruled the objection, and, there being no denial of the facts stated in the petition, adjudged the respondent a bankrupt. The company appealed to the circuit court of appeals, and that court, having briefly reviewed the opposing views touching the point in controversy (121 C. C. A. 250, 202 Fed. 892), certified the case here, with a request that instruction be given on the following questions:

'(1) Whether the failure by an insolvent judgment debtor, and for a period of one day less than four months after the levy of an execution upon his real estate, to vacate or discharge such levy, is a 'final disposition of the property' affected by the levy, under the provisions of § 3a (3) of the bankruptcy act of 1898 [30 Stat. at L. 546, chap. 541, U. S. Comp. Stat. 1901, p. 3422].

'(2) Whether an insolvent debtor commits an act of bankruptcy, rendering him subject to involuntary adjudication as a bankrupt under the bankruptcy act of 1898, merely by inaction for the period of four months after the levy of an execution upon his real estate.'

It will be observed that no reference is made to an accomplished or impending disposal of the property in virtue of the levy, although the mode of disposal prescribed by the local law is by advertisement and sale. 2 Bates's Anno. Stat. (Ohio) §§ 5381, 5393.

The answers to the questions propounded turn upon the true construction of § 3a(3) of the bankruptcy act, which declares:

'Acts of bankruptcy by a person shall consist of his having . . . (3) suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings, and not having at least five days before a sale or final disposition of any property affected by such preference vacated or discharged such preference.' 30 Stat. at L. 544, chap. 541, U. S. Comp. Stat. 1901, p. 3418.

Looking at the terms of this provision, it is manifest that the act of bankruptcy which it defines consists of three elements. The first is the insolvency of the debtor; the second is suffering or permitting a creditor to obtain a preference through legal proceedings; that is, to acquire a lien upon property of the debtor by means of a judgment, attachment, execution, or kindred proceeding, the enforcement of which will enable the creditor to collect a greater percentage of his claim than other creditors of the same class; and the third is the failure of the debtor to vacate or discharge the lien and resulting preference five days before a sale or final disposition of any property affected. Only through the combination of the three elements is the act of bankruptcy committed. Insolvency alone does not suffice, nor is it enough that it be coupled with suffering or permitting a creditor to obtain a preference by legal proceedings. The third element must also be present, else there is no act of bankruptcy within the meaning of this provision. All this is freely conceded by counsel for the petitioning creditor.

The questions propounded assume the existence of the first two elements, and are intended to elicit instruction respecting the proper interpretation of the clause describing the third; namely, 'and not having, at least five days before a sale or final disposition of any property affected by such preference, vacated or discharged such preference.' It is to this point that counsel have addressed their arguments.

Without any doubt this clause shows that the debtor is to have until five days before an approaching or impending event within which to vacate or discharge the lien out of which the preference arises. What, then, is the event which he is required to anticipate? The statute answers, 'a sale or final disposition of any property affected by such preference.' As these words are part of a provision dealing with liens obtained through legal proceedings, and as the enforcement of such a lien usually consists in selling some or all of the property affected, and applying the proceeds to the creditor's demand, it seems quite plain that it is to such a sale that the clause refers. And as there are instances in which the property affected does not require to be sold, as when it is money seized upon execution or attachment, or reached by garnishment, it seems equally

See Turner v. Fendall, 1 Cranch, 117, 133, 2 L. ed. 53, 59; Sheldon v. Root, 16 Pick. 567, 28 Am. Dec. 266; Crane v. Freese, 16 N. J. L. 305; Green v. Palmer, 15 Cal. 411, 418, 76 Am. Dec. 492; 2 Bates's Anno. Stat. (Ohio) §§ 5374, 5383, 5469, 5470, 5483, 5531, 5548, 5555 plain that the words 'or final disposition' are intended to include the act whereby the debtor's title is passed to another when a sale is not required. No doubt, the terms 'sale or final disposition,' explained as they are by the context, are comprehensive of every act of disposal, whether by sale or otherwise, which operates as an enforcement of the lien or preference.

But we do not perceive...