In re Chappell

Decision Date31 December 1901
Citation113 F. 545
PartiesIn re CHAPPELL.
CourtU.S. Court of Appeals — Fourth Circuit

Wm. B McIlwaine, for trustee.

Wm. &amp Henry Flegenheimer, Wm. R. McKanney, Hamilton & Mann, Davis &amp Davis, Bartlett Roper, Jr., Williams T. Davis, George Mason and Thos. G. Watkins, for opposing creditors.

The following is the report of George S. Bernard, Referee:

The undersigned referee respectfully reports to your honor that after the supreme court of the United States rendered its decision in the case of Pirie v. Trust Co., 182 U.S 438, 21 Sup.Ct. 906, 45 L.Ed. 1171, touching preferences, and there was no longer reason for deferring the consideration of the matter of controversy between R. D. Gilliam, the trustee representing the general creditors of the bankrupt, and the nineteen several creditors who were alleged in the petition filed by the trustee to have received from the bankrupt, in part payment of their respective claims, sundry sums of money as preferences, within the meaning of the bankruptcy act, and who said trustee prayed might be required to surrender said preferences before being permitted to receive their dividends from the bankrupt's estate, the referee, on the 26th day of June, 1901, made an order directing that said nineteen creditors appear before him at a time and place in the order mentioned, to show cause, if any they could, why the prayer of said petition should not be granted. A copy of this order, and of the extract from said petition served upon said nineteen creditors, marked 'O,' is filed with this report, from which it will be seen that these creditors had proved claims aggregating the sum of $3,938.42, and at different dates from July 13 to November 1, 1900, received sundry payments, aggregating the sum of $2,914.42. Upon inspection of the record in this cause, it will be seen that the dividends of these creditors, aggregating fifty-five and one-third (55 1/3) per centum of their said claims so proved, are held to await the decision of the questions raised by said petition, except the parts of said dividends which in the cases of six creditors exceed the amounts so received. With a few exceptions, not necessary to be mentioned, all of these creditors filed answers to the trustee's petition, in each of which the respondent or respondents gave as a reason why the prayer of the petition should not be granted that the bankrupt was not insolvent at the time he made the alleged payment or payments. Other reasons were also given in said answers, not necessary to be stated, under the view taken of this case.

At the hearing of the issues joined between the parties, the creditors to whom said payments were made contended that on the trustee rested the burden of proving the insolvency of the bankrupt at the time he made them. The trustee, on the other hand, contended that, as the bankruptcy act fixes four months preceding the filing of a petition for or against a bankrupt as the period, all preferences given within which are voidable by the trustee, this raises the presumption of insolvency during that period, and that creditors receiving such preferences must accordingly show that the bankrupt was solvent at the time the preferences here given.

Under a well-settled rule of pleading, in legal proceedings of all kinds, a party making an allegation of a fact necessary to sustain his case must prove the truth of the allegation; and this rule, in the absence of any statutory provision affecting it, governs the allegations made in the trustee's petition. He must prove that the bankrupt was insolvent when he made the payments in the petition alleged. Is his contention that there is a presumption of insolvency within the four months preceding the filing of the petition by or against the bankrupt correct? Clearly, in the case under consideration,-- that of an adjudication on a petition filed by, and not against, the bankrupt,-- there is no such presumption. In an involuntary proceeding, wherein the allegation is that at a certain date the defendant 'while insolvent,' did some one of the acts declared by subdivisions 2 and 3 of section 3 of the bankruptcy act to be acts of bankruptcy, as, for instance, the making of a general assignment for the benefit of creditors,-- does not establish insolvency, insolvency in such case not being an issue. This is apparent upon examination of the opinion of the court in the case referred to. Mr. Justice White, delivering the opinion, having quoted paragraph 'a' of section 3 of the act, says' 'It is patent on the face of this paragraph that it is divided into five different headings, which are designated numerically from 1 to 5. Now, the acts of bankruptcy embraced in divisions numbered 2 and 3 clearly contemplate not only the commission of the acts provided against, but also cause the insolvency of the debtor to be an essential concomitant. On the contrary, as to the acts embraced in enumerations 1, 4, and 5, there is no express requirement that the acts should have been committed while insolvent. Considering alone the text of paragraph 'a,' it results that the nonexistence of insolvency at the time of the filing of a petition for adjudication in involuntary bankruptcy, because of the acts acts enumerated in 1, 4, or 5, which embrace the making of a deed of general assignment, does not constitute a defense to the petition, unless provision to that effect be elsewhere found in the statute. This last consideration we shall hereafter notice. ' Justice White, in a subsequent paragraph of this opinion, referring to paragraph 'c' of section 3, which provides that 'it shall be a complete defense to any proceedings in bankruptcy instituted under the first subdivision of this section to allege and...

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