In re Blount

• Decision Date: 06 January 1906
• Citation: 142 F. 263
• Parties: In re BLOUNT.
• Court: U.S. District Court — Eastern District of Arkansas

142 F. 263

In re BLOUNT.

United States District Court, E.D. Arkansas, Eastern Division.

January 6, 1906

S. D Johnston filed a petition to have the above-named bankrupt adjudicated as an involuntary bankrupt, alleging that he was the only creditor of the bankrupt, and setting up a conveyance of all his property for the benefit of his other creditors. The only question put in issue by the bankrupt was a denial that Johnston constituted the only creditor, but alleging that there were more than 12 creditors. No jury having been demanded, the matter was referred to M. L Stephenson, Esq., one of the referees in bankruptcy, as special master, with directions to take proofs, make findings of facts, and state his conclusions of law.

The referee made the following report:

'The undersigned, on the order of reference hereto attached respectfully reports:

'That on the 7th of October he caused the petitioners and respondent and M. H. Ford to appear before him, and examined the said Blount and Ford, whose testimony taken in shorthand and reduced to longhand by E. R. Crum is attached to this report as Exhibit A. That thereafter, on the 18th day of October, he caused notice to be given to all the creditors, disclosed by the answer and testimony of Blount and Ford, as required by section 59d (Act July 1, 1898, c. 541, 30 Stat. 561 (U.S. Comp. St. 1901, p. 3445)), by posting to their address as given by respondent, a copy of which notice is attached as Exhibit B. None of the creditors named have joined in the petition nor have taken any other steps to establish their claims. On the 27th of November, upon due notice, I attended at Marianna, Ark., and examined various parties relative to the subject, which evidence is attached as Exhibit C.

'From the examination of Blount and Ford, on the 7th of October it transpired that Blount on the 31st day of March, 1905, sold the entire business, including stock, book accounts, etc., to M. H. Ford for $4,845.53. Blount was indebted to Ford in the sum of $2,600, which was to be taken as part of the purchase price, and for the balance Ford was to assume and pay Blount's creditors, a list of whom with the amounts due them was made out, and formed a part of the transaction, the total amount being $2,245.53. From the evidence of Ford it appears that some doubt was entertained by him of the value of some of the outstanding accounts, and it was agreed between himself and Blount that the latter should give Ford his note for $500, with the understanding that, should collections on certain of the accounts exceed Ford's estimate of their value, Blount was to receive credit on his note for such excess. From the list of Blount's creditors filed with Ford's testimony, and from the evidence of both Ford and Blount, it would appear to have been the purpose of both to pay all the creditors of Blount except the petitioner Johnston. It is conceded that the sale to Ford on March 31st was, under the facts and circumstances attending it, an act of bankruptcy. It is admittedly a preference in favor of all the creditors excepting the petitioner Johnston. It was a payment of Ford's debt by the sale and delivery of the property, and, as to the other creditors named, he held the goods as trustee until they were paid. Ford says in his testimony (page 5) that he assumed to pay the creditors named in the list and wrote them all, and they all understood that he was responsible for it. At the hearing on the 7th of October I required Ford to file a list of accounts owed by Blount on March 31, 1905, and remaining unpaid on October 13, 1905; and also required Blount to file a list of his creditors remaining unpaid on the 18th of July, that being the date of the filing of Johnston's petition herein. I attach these lists as Exhibits D and E.

'From the evidence taken on the 27th of November at Marianna it appears that many of the creditors named in the reports of Blount and Ford (Exhibits D and E) have been paid since the filing of the petition, and in one or two instances the alleged creditor denies creditorship. It is insisted on the part of Blount that at the time of the filing of the petition (July 18th) by Johnston he had more than 12 unpaid creditors, and that it requires at least three creditors to join in a petition of involuntary bankruptcy; and they attack the validity of the two other petitioners who joined with Johnston. Whether these are bona fide claims against Blount, as I view the case, can make no difference in the result. It seems to be clear that all creditors accepting the preference in their favor, resulting from the sale to Ford and his agreement to pay their claims, cannot join in a petition in involuntary bankruptcy, without first surrendering their preference. In re Miner et al. (D.C.) 104 F. 520; In re Gillette et al. (D.C.) 104 F. 769.

'There is no proof from the preferred creditors themselves that they agreed to accept Ford in lieu of Blount; but I find the following as very persuasive circumstances that they did so: First. Ford wrote all of them, and those from whom he received replies agreed to it. (Ford's testimony, pp. 5, 6.) Second. To the notice sent out by me (Exhibit B) no responses have been received, and no action taken toward joining in the petition. Third.

Of the debts outstanding and unpaid October 13, 1905, as given in Ford's response (Exhibit D), Brown, Cross, Dupuy, Lee County Bank, and Lesser and Mixon have been paid. Gist denies that he is a creditor. Blount is a nephew of W. F. Blount and therefore not eligible under the law to join. Fourth. The allegations of Blount in his answer that Johnston, upon being apprised of the sale to Ford, ' proceeded by persuasion and every other inducement which he could originate to persuade other creditors than himself to join in the petition for involuntary bankruptcy against respondent. At the time there were some 35 or more creditors, but none of them, so far as respondent is advised, would consent to join in the petition with the said Johnston.'

'By the sale to Ford, all the debts of Blount, except that of the petitioner Johnston, were to be paid by Ford. With a few trifling experiences they have been paid by him. Under the law a creditor agreeing to the preference cannot join in the petition for involuntary bankruptcy unless he surrenders the preference. From the foregoing reasons, it is a fair presumption that all creditors did agree to the preference. If any in fact dissented they were notified of the pendency of the proceedings, as required by section 59d of the bankrupt act, and have neglected to avail themselves of the law. As a matter of law it is immaterial in this case at what time it is made to appear that there are more than 12 creditors and consequently a necessity for at least three petitioning creditors. The agreement of Ford on the 31st of March, 1905, constituted the creditors assenting to it preferred creditors, and therefore not to be counted. In re Miner (D.C.) 104 F. 520. The fact that most of them have accepted payment from Ford is conclusive that they at least are assenting creditors, and the further fact that those remaining have failed to join, since notice, is sufficient in my opinion to put upon them the burden of proving themselves dissentients. The date at which the number of creditors is to be counted under section 59 is that on which a preference appears to have been made. In this case it is March 31st. The fact that many of the debts have been paid since the filing of the petition is simply evidence of the fact that such creditors have accepted the preference, and, if it is at all necessary that the petition should show the fact, it will be considered as amended, or a supplemental petition can be filed as of course, setting out the fact. In re Miller (D.C.) 104 F. 764.

'Any other conclusion would result in making use of the bankrupt law, the primary object of which is to prevent preferences, as a means for securing a preference. All creditors except Johnston are secured to be paid by Ford. Nearly all have been paid in fact. They have no motive for rejecting their money in full, and joining in a proceeding, which on the face of the answer, would force a scaling of their debts. To count all of any part of these preferred creditors against him in computing the number, under section 59, would inevitably result in enabling one set of creditors to get their claims paid in full and in utterly defeating others. This in my opinion is not the law. Besides, I find as a fact that there are less than 12 creditors (bona fide) now remaining unpaid, and that at the date of the filing of the petition there were less than that number, who were eligible to join, without giving up their preference.

'I therefore find that the said W. F. Blount should be adjudged a bankrupt on the petition of said S.D. Johnston.'

Objections were made by the bankrupt to these findings of facts, as well as his conclusions of law.

P. D. McCulloch and Jacob Fink, for petitioner.

W. F. Compton and H. F. Roleson, for bankrupt.

TRIEBER, District Judge (after stating the facts).

The main object of the bankruptcy act is to secure an equal distribution of the assets of an insolvent among all his creditors and prevent preferences. Pirie v. Chicago Title & Trust Co., 182 U.S. 438, 449, 21 Sup.Ct. 906,...