In re Aughenbaugh

• Citation: 125 F.2d 887
• Decision Date: 11 February 1942
• Docket Number: No. 7765.,7765.
• Parties: In re AUGHENBAUGH. Appeal of KUNKEL et al.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

125 F.2d 887 (1942)

In re AUGHENBAUGH. Appeal of KUNKEL et al.

No. 7765.

Circuit Court of Appeals, Third Circuit.

Argued October 10, 1941.

Decided February 11, 1942.

W. Burg Anstine, of York, Pa. (Robert I. Shadle and Anstine & Shadle, all of York, Pa., on the brief), for appellants.

Sidney G. Handler, of Harrisburg, Pa. (Douglass & Handler, of Harrisburg, Pa., on the brief), for appellee.

Before MARIS, JONES, and GOODRICH, Circuit Judges.

MARIS, Circuit Judge.

On February 15, 1938, Alpheus Aughenbaugh executed a bond and mortgage in favor of Blass-Meyers Mfg. Company, Inc., in consideration of a series of cash advances totalling $2,925 previously made him by that company. The mortgage was recorded April 13, 1938. On June 15, 1938, Aughenbaugh filed a voluntary petition in bankruptcy. Thereafter his real estate was sold by his trustee in bankruptcy. Blass-Meyers claimed priority in payment out of the proceeds of the sale by virtue of the lien of its mortgage. At the direction of the referee the trustee in bankruptcy filed exceptions to this claim. A hearing was held upon the exceptions by the referee, who found as a fact that Aughenbaugh was insolvent at the time of the transfer, and directed the mortgage to be disallowed as a priority claim. The District Court for the Middle District of Pennsylvania, upon petition for review, concluded that the referee's finding as to insolvency was not supported by the evidence, set aside the referee's order and entered an order allowing the mortgagee's claim as a priority claim. Twenty-three wage claimants have appealed from this order.

The appellants urge that the district court erred in setting aside as not supported by evidence the referee's finding that Aughenbaugh was insolvent¹ on April 13, 1938, the day upon which the mortgage he gave to Blass-Meyers was recorded.² In passing upon this question we may consider only the evidence which was presented to the referee at the hearing upon the trustee's exceptions to the mortgagee's priority claim. We may not consider other evidence which may have been in the files of the referee in the bankruptcy administration proceeding. To hold otherwise would be to violate the fundamental concept of procedural due process that a party to litigation is entitled to have the evidence relied on by his opponent presented at the hearing of his case so that he may have opportunity to cross-examine his opponent's witnesses and to offer evidence in rebuttal. As the Supreme Court said in Interstate Commerce Commission v. Louisville & Nashville R. Co., 227 U.S. 88, 93, 33 S.Ct. 185, 187, 57 L.Ed. 431, "manifestly there is no hearing when the party does not know what evidence is offered or considered, and is not given an opportunity to test, explain, or refute." And again as stated in United States v. Abilene & Southern R. Co., 265 U.S. 274, 288, 44 S.Ct. 565, 569, 68 L.Ed. 1016: "Papers in the Commissioner's files are not always evidence in a case. New England Divisions Case Akron, C. & Y. R. Co. v. United States, 261 U.S. 184, 198, note 19, 43 S.Ct. 270, 67 L.Ed. 605. Nothing can be treated as evidence which is not introduced as such." Particularly apposite is the statement of Chief Justice Hughes in Crowell v. Benson, 285 U.S. 22, 48, 52 S.Ct. 285, 291, 76 L.Ed. 598, that "Facts conceivably known to the deputy commissioner, but not put in evidence so as to permit scrutiny and contest, will not support a compensation order." If this is the rule as to administrative bodies which are expected to apply their expert knowledge in their special field a fortiori it applies to the proceedings of a purely judicial body such as a court of bankruptcy.

Although the exceptions of the trustee to the priority claim of the mortgagee were filed in the general bankruptcy proceeding they raised a distinct controversy for determination by the referee which it was his duty to treat as an independent litigation, summary in form it is true,³ and to consider solely upon the evidence presented at the trial of that issue. If the trustee desired to rely upon any papers already on file in the bankruptcy proceeding it was incumbent upon him to offer them at the hearing of his exceptions in order that the mortgagee might know that they were being relied upon and might have an opportunity to meet them with such other evidence as might be available to it.

Turning to the consideration of the record of this case we find that the only evidence offered at the hearing upon the exceptions was that given by Aughenbaugh who testified that in September, 1937 he owed the following debts:

                  Blass-Meyers Mfg. Co.  $2,925.00
                  George Wolf & Son       1,300.00
                  American Thread Co.       300.00
                  Mansfield Thread Co.      200.00
                  York Haven State Bank     850.00
                  Peter's Trucking Co.      900.00
                                         _________
                        Total            $6,475.00
                

In addition he owed a small balance to the Singer Sewing Machine Company which he paid in full by January, 1938. He also testified...