In re Goldberg

• Decision Date: 06 November 1931
• Docket Number: No. 5720.,5720.
• Citation: 80 ALR 399,53 F.2d 454
• Parties: In re GOLDBERG et al. ISBERG v. BUTLER BROS.
• Court: U.S. Court of Appeals — Sixth Circuit

80 ALR 399, 53 F.2d 454 (1931)

In re GOLDBERG et al. ISBERG v. BUTLER BROS.

No. 5720.

Circuit Court of Appeals, Sixth Circuit.

November 6, 1931.

Lee E. Joslyn, Sr., of Detroit, Mich. (Joslyn, Joslyn & Joslyn, of Detroit, Mich., on the brief), for appellant.

Cyril E. Bailey, of Detroit, Mich. (John McNeil Burns, of Detroit, Mich., on the brief), for appellee.

Before DENISON, HICKS, and HICKENLOOPER, Circuit Judges.

HICKS, Circuit Judge.

The question for decision is, whether confirmation of a composition in bankruptcy bars a later confirmation of composition within six years. The District Judge thought it did. We cannot accept this view.

The matter is of primary impression. Congress for the first time provided for composition in bankruptcy by the amendment of June 22, 1874 (18 Stat. 178), to the Bankruptcy Act of 1867 (14 Stat. 517). Neither that act nor any amendment thereto limited the number of compositions a bankrupt might obtain within any given period, nor does the present act expressly do so. The applicable portion thereof is section 12d (11 USCA § 30 (d), to wit, that "the judge shall confirm a composition if satisfied that (1) it is for the best interests of the creditors; (2) the bankrupt has not been guilty of any of the acts or failed to perform any of the duties which would be a bar to his discharge; and (3) the offer and its acceptance are in good faith." This paragraph originated with the act, and Congress has never disturbed it. It is not difficult to determine what "acts" and "duties" were referred to in clause (2). They are those acts and duties found in clauses (1) and (2) of section 14b of the original act.¹ Section 14b has been amended from time to time until it now stands as printed in the margin.² By its provisions, a discharge is denied if the bankrupt has committed any of the offenses or failed to perform any of the duties specified in its numbered clauses. See Bluthenthal v. Jones, 208 U. S. 64, 65, 28 S. Ct. 192, 52 L. Ed. 390; In re Jacobs, 241 F. 620, 624 (C. C. A. 6). Section 12d (2) denies composition upon the same grounds; that is, if the bankrupt has been guilty of any of the acts or failed to perform any of the duties specified in section 14b, as it now stands, which would be a bar to his discharge. If appellant is denied confirmation of the composition he has made with his creditors, it can only be because he is guilty of the offense of applying for such an order within six years after he "has been granted a discharge in bankruptcy." See clause (5) of section 14b. But he has not "been granted a discharge in bankruptcy" within that period, unless the confirmation of a composition is tantamount thereto.

The argument is that section 14c of the act³ renders a composition equivalent to a discharge within the meaning of the term "discharge" as found in section 12d, (2) and section 14b, (5). The difficulty, however, is, that Congress has failed to declare aptly and definitely any such intention or effect. The matter could hardly have escaped attention when clause (5) was added to section 14b in 1903, or when clause (5) was amended in 1926.

If the argument is sound, it follows that appellant is denied a composition because he is guilty of committing an offense not explicitly denounced, and having no firmer basis than judicial construction. We do not think such a result is justified by any legislative policy of which we are aware. The word "guilty" used in clause (2) of paragraph (d), § 12 denotes intentional wrongdoing. See Firestone v. Harvey, 174 F. 574, 577 (C. C. A. 6); In re Rosenthal, 231 F. 449, 450 (C. C. A. 2); Gilpin v. Merchants' Natl. Bank, 165 F. 607, 20 L. R. A. (N. S.) 1023 (C. C. A. 3). Before the bankrupt should be charged with fraudulent misconduct and penalized therefor, the statute which authorizes the penalty should be free from the necessity of interpretation. If it is ambiguous, the bankrupt might proceed upon one conception of his rights and the courts upon another, or different courts might entertain divergent views.

In any event, we do not think the legislative declaration that "the confirmation of a composition shall discharge the bankrupt from his debts * * *" was intended to mean that such confirmation is in all respects the equivalent of a "discharge in bankruptcy" in the contemplation of either section 12d (2) or section 14b (5). It is similar to a discharge in that, in effect, it operates to discharge the bankrupt from certain debts (Sec. 14c; see, also, Cumberland Glass Co. v. DeWitt, 237 U. S. 447, 452, 35 S. Ct. 636, 59 L. Ed. 1042; and Nassau Smelting & R. Works v. Brightwood B. Fdry. Co., 265 U. S. 269, 271, 44 S. Ct. 506, 68 L. Ed. 1013), but this is only one characteristic. Composition has many attributes peculiar to itself. As pointed out in the Nassau Case, supra, it is a settlement by the bankrupt with his creditors; it in a measure supersedes and is outside of the bankruptcy proceedings. See Greenbaum v. U. S., 280 F. 474, 477 (C. C. A. 6). It follows a voluntary offer by the bankrupt and its acceptance by a majority of creditors representing a majority in amount of claims, and, unless it is so accepted, it cannot be confirmed at all. It partakes of the nature of a contract. See Myers v. International Trust Co., 273 U. S. 380, 383, 47 S. Ct. 372, 71 L. Ed. 692; In re Lane (D. C.) 125 F. 772, 773. Upon its confirmation, settlement immediately follows, and the case is dismissed. It cannot be confirmed at all unless the judge is satisfied that confirmation is for the best interests of creditors and in good faith. Bankr. Act § 12d (1) (3), 11 USCA § 30 (d) (1) (3). The procedure under it is both speedy and inexpensive, and is designed to prevent injury incident to delay. Section 12a was amended in 1910 (11 USCA § 30 (a) to provide for composition before adjudication. See Phelan v. Parsons, 23 F.(2d) 7, 9 (C. C. A. 1). A discharge cannot precede adjudication. Composition is advantageous to the creditor because it permits him to bargain, and assures him that he will get what he bargains for. Myers v. Trust Co., supra; In re Joseph (C. C.) 24 F. 137. It is an advantage to the bankrupt, in that upon confirmation he is revested with the title to his property and takes it into his own control. In re Frischknecht, 223 F. 417 (C. C. A. 2); Phelan v. Parsons, supra. The procedure under it differs from the ordinary procedure in bankruptcy to the extent that, under given circumstances (section 12a), the progress of the case may be halted and delayed, but if composition fails the administration of the estate proceeds in bankruptcy to a discharge. There are other striking differences which the statute makes obvious, but which it will serve no good purpose to particularize.

Upon full consideration, we cannot say, until there shall be more explicit legislative pronouncement, that Congress has intended to deny a bankrupt and his creditors the privilege of more than one beneficial good faith settlement within any six-year period. The reason for such a denial is not apparent. It has been uniformly held that the bankrupt is entitled to a liberal construction of the act in his favor. See In re Jacobs, 241 F. 620, 624 (C. C. A. 6). There is nothing to indicate that Congress ever considered such settlements as a public evil or that it was ever confronted with the particular question. Judged by the reported decisions, this is its first appearance in the courts.

It is urged upon us that it was the intention of Congress to circumvent fraud; that is, to prevent a bankrupt who cannot get a discharge, from securing its equivalent through composition. This argument does not convince. The statute amply forestalls any such attempt by the provision that the judge must be satisfied that (section 12d (3) the offer and its acceptance are in good faith. Appellee relies upon the cases of Rosenberg v. Borofsky, 295 F. 500 (C. C. A. 1), and the District Court cases, In re Radley, 252 F. 205, and In re Massell, 285 F. 577. The question in those cases was whether an application for a discharge rather than a confirmation of composition was properly denied when a composition had been confirmed within six years. Although these questions are somewhat analogous, they are not identical with the question here.

Our attention has been called to United States v. Hammond, 104 F. 862 (C. C. A. 6), wherein it was held that under section 25, Bankr. Act 1898, allowing appeals from a judgment granting or denying a discharge, an appeal lies from a refusal to confirm a composition. There the court said that a "discharge" was the equivalent of a composition for the "purposes of the Act"; but it was dealing with section 25 as it was then, (1900) written and not with section 12d (2) or section 14b as it now stands, or with the question for decision here.

The order of the District Court is reversed, and the case remanded for further proceedings consistent herewith.

HICKENLOOPER, Circuit Judge (dissenting).

Section 14b of the Bankruptcy Act, as amended (title 11, U. S. C., § 32 11 USCA § 32), provides that the District Judge shall hear an application for discharge and investigate its merits, and shall discharge the applicant unless he "(5) has been granted a discharge in bankruptcy within six years." Subdivision c of section 14 provides that: "The confirmation of a composition shall discharge the bankrupt from his debts, other than those agreed to be paid by the terms of the composition and those not affected by a discharge." It has accordingly been generally accepted that for the purpose of applying the provisions of the Bankruptcy Act the prior confirmation of a composition is to be regarded as the true equivalent of a prior discharge. Compare, U. S. v. Hammond, 104 F. 862, 864 (C. C. A. 6). A bankrupt is thus powerless to secure a discharge under this section if he has made a composition within six years. See In re Radley, 252 F. 205 (D. C., N. D. N. Y.); In re Massell, 285 F. 577 (D....