In re Bridge

• Decision Date: 24 February 1916
• Docket Number: 5570.
• Citation: 230 F. 184
• Parties: In re BRIDGE.
• Court: U.S. Court of Appeals — Ninth Circuit

230 F. 184

In re BRIDGE.

No. 5570.

United States District Court, W.D. Washington, Northern Division.

February 24, 1916

De Roy & Sladkus and Leopold M. Stern, of Seattle, Wash., for trustee.

Oldham & Goodale, of Seattle, Wash., for assignee.

NETERER District Judge.

On December 7, 1915, Alexander Bridge was adjudicated bankrupt. In the creditor's petition it was alleged that he, while insolvent, did, within four months, commit an act of bankruptcy, in that, on October 8, 1915, he suffered and permitted P. B. Truax, assignee of a former business, to take 'all his goods away from him,' and 'did not within five days * * * before a final disposition of the property affected, * * * vacate * * * such preference,' and obtain a preference through legal proceedings, etc. On August 13, 1913, bankrupt and his wife made an assignment to P. B. Truax of all of their property for the benefit of creditors. The assignment was assented to by all of the then existing creditors. The assignee took possession, and from time to time sold portions of the property and paid dividends to creditors to the amount of 65 per cent. of the indebtedness, and is now proceeding to sell the remaining assets for the purpose of prorating the proceeds among the creditors entitled to share therein. The trustee in bankruptcy has petitioned this court for an order requiring the assignee to account for and surrender all of the assigned property, to which the assignee has answered, praying dismissal of the petition upon the ground that the assignment was made more than four months prior to bankruptcy.

The trustee contends that the Washington statute was suspended by the passage of the federal Bankruptcy Act, and that proceedings instituted thereunder are void. Numerous authorities are presented, and there appears to be some diversity of opinion among the various courts with relation to this issue. It may be said, however, that irrespective of statute a party, under the common law, has a right to do what he wills with his property, so long as he acts fairly and does not jeopardize the rights of others, and may carry this privilege to transferring all of his property to another for the purpose of converting it into money and paying the same to all of the creditors in proportion as the respective claims may bear to the value of the estate. Brashear v West, 7 Pet. 608, 8 L.Ed. 801. The statutory enactments providing for assignments for the benefit of creditors have their basis upon the common-law right of disposition, and a proper construction of such statutory enactments can only be made by keeping in mind this fundamental basis of such superstructure; and where assignments for benefit of creditors are not invalid under state statutory enactments they are 'entitled to commendation.' Mayer v. Hellman, 91 U.S. 496, 23 L.Ed. 377.

The Washington statute (chapter 5, Secs. 1086-1103, Remington & Ballinger's Code) providing for the assignment by a failing debtor of all of his property for the benefit of his creditors, requires the giving of notice to the creditors, and provides for all proceedings, including the filing of claims, payment of dividends, and the final closing of the estate and discharge of the assignee, and also provides for the discharge of the debtor from debts existing at the time of the assignment, where he has been guilty of no act denounced by this law. It cannot be seriously urged that the provisions of the state statute providing for the discharge of the debtor are operative. Boese v. King, 108 U.S. 379, 2 Sup.Ct. 765, 27 L.Ed. 760. This law is voluntary, and is designated 'assignment for the benefit of creditors. ' It does not compel assignment, but prescribes a mode by which the trust created by assignment shall be administered.

With relation to the act as a whole, the state Supreme Court, in Jensen-King-Byrd Co. v. Williams, 35 Wash. 161, 164, 76 P. 934, 935, said:

'So that it will be seen that the vital question to be determined in this case is whether or not the bankruptcy law, which was passed by the United States Congress and approved on July 1, 1898, * * * supersedes or suspends the state insolvency law which was in existence at the time of the passage of said Bankruptcy Act. There is some conflict in judicial decisions on this question, but it was decided by this court, in State ex rel. Strohl v. Superior Court, 20 Wash. 545, 56 P. 35, 45 L.R.A. 177, that the enactment of the federal Bankruptcy Law of July 1, 1898, did not suspend the jurisdiction of state courts in insolvency cases, where there had been no proceedings in bankruptcy instituted respecting the matter in controversy. * * * This case falls within the rule announced in the cases just cited, and the motion of the appellant should have been sustained.'

The Supreme Court of Oregon, in Pelton v. Sheridan, 74 Or. 176, 144 P. 410, in passing on an assignment law similar to the Washington statute, by a divided court, held that such law was suspended by the Bankruptcy Act of 1898 (30 Stat. 544, c. 541), and confirmed an attachment lien upon property included in a deed of assignment. In State ex rel. Strohl v. Superior Court of King County, 20 Wash. 545, on page 552, 56 P. 35, on page 37 (45 L.R.A. 177), the Washington Supreme Court held that 'until adjudication by the proper tribunal' the remedies provided by existing state law were available to all parties, and said: 'Unquestionably upon such adjudication the power of the state court to proceed further ceases. ' In this case the court was determining an issue involving a receivership of a corporation which was insolvent or in imminent danger of insolvency, and the trust fund doctrine having been frequently affirmed by the court, proceeded under the provisions of the Washington Code of Procedure, Sec. 326, subd. 5; Ballinger's Code, section 5456.

A party is insolvent when the aggregate of his property shall not, at a fair valuation, be sufficient in amount to pay his debts. Section 1, subd. 15, Bankruptcy Act (Comp. St. 1913, Sec 9585). Section 3, subd. 4, of the Bankruptcy Act as amended in 1903 (section 9587), provides that an act of bankruptcy shall consist of having 'made a general assignment for the benefit of his creditors. * * * (b) A petition may be filed against a person who is insolvent and who has committed an act of bankruptcy within four months after the commission of such act. ' Two conditions must exist: First, insolvency; second, an act of bankruptcy. Under the laws of Washington an individual, although insolvent or in failing circumstances, may pay or secure one or more creditors to the exclusion of all others equally meritorious, even if by so doing he exhausts the whole of his property (Victor v. Glover, 17 Wash. 37, 48 P. 788, 40 L.R.A. 297; McAvoy v. Jennings, 44 Wash. 79, 87 P. 53); and in the latter case the court held that a debtor had a right to stipulate in the deed, as a condition to receiving his pro rata from the property transferred, that a creditor shall...