In re Hines

• Decision Date: 05 February 1906
• Docket Number: 901.
• Citation: 144 F. 142
• Parties: In re HINES.
• Court: U.S. Court of Appeals — Ninth Circuit

144 F. 142

In re HINES.

No. 901.

United States District Court, D. Oregon.

February 5, 1906

Bauer &amp Greene, for petitioners.

J. H Guerry, for defendant.

WOLVERTON District Judge.

The single question presented by counsel for the creditors for consideration is: Was the defendant insolvent when the judgment was entered against him and levy made in pursuance of the execution issued thereon? If he was, he is guilty of the act of bankruptcy charged; if not, the petition should be dismissed. In re Rome Planning Mill (D.C.) 96 F 812.

By the first section (subdivision 15) of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 544 (U.S. Comp. St. 1901, p. 3419). See Collier on Bankruptcy (4th Ed.) p. 2) a person is deemed insolvent whenever the aggregate of his property, exclusive of any property that he may have conveyed, transferred concealed, or removed, or permitted to be concealed or removed, with intent to defraud, hinder, or delay his creditors, is not, at a fair valuation, sufficient in amount to pay his debts. As it respects property considered in a commercial sense, I can conceive of no better or surer standard by which to arrive at a fair valuation than the market value; that is, what the property will probably bring, or is worth in the general market, where everybody buys. It could not be what it is worth to one person or to another specially circumstanced, or having special use for a particular article, but what it is worth as a marketable commodity, at a given time, with no special conditions prevailing other than affect the market generally in the locality where the commodity is for sale. 'We think,' says Mr. Justice Gray, in an able and elaborate opinion rendered in the Circuit Court of Appeals for the Third Circuit, in the case of Duncan v. Landis, 106 F. 839, 858, 45 C.C.A. 666, 685, 'that the present market value of the property in question would be a fair valuation of the same. ' See, also, In re Bloch, 109 F. 790, 48 C.C.A. 650, and In re Coddington (D.C.) 118 F. 281.

The intendment of the statute could scarcely be otherwise, giving the language employed its usual and natural significance. The difficulty is, and perhaps always will be, in arriving at the market value. Unless the commodity has a value quotable in the current markets of daily or frequent sales, there is much of opinion that enters into the estimate, and from this must be deduced the probable market value, and consequently, under the bankruptcy act, a fair valuation. Nor is such valuation affected by any depreciation of property consequent upon the recovery of judgment against the debtor and a levy thereunder. The language of the act is: 'Having * * * suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings, etc. (section 3, subd. 3, Bankr. Act (30 Stat. 546; U.S. Comp. St. 1901, p. 3422); Collier on Bankruptcy (4th Ed.), p. 2, Sec. 3, p. 27)-- the intendment being that the insolvency must exist at the time of suffering the preference to be taken; for, if the debtor is solvent, it would be perfectly proper and legitimate for him to make any sort of preference that he might see fit. The fact of suffering the preference, therefore, unless it might be under circumstances indicating that he intended to hinder, delay, or defraud certain of his creditors, could not be permitted to affect the value of his assets. If such were the case, then a person, who was before perfectly solvent, might be rendered insolvent by an action, accompanied by an attachment, and his insolvency would depend upon whether he could pay his debts under the stress of the occasion, and not, under the simple inquiry prescribed by the bankruptcy act, whether the aggregate of his property, at a fair valuation, is sufficient in amount to pay his debts. Such is the rationale of the holding in Chicago Title & Trust Co. v. Roebling's Sons Co. (C.C.) 107 F. 71. That was an action by the trustee to recover on account of a preference alleged to have been obtained by a creditor attaching the manufacturing plant of the debtor, together with raw materials in store. The attachment destroyed the value of the plant as a going concern, and impaired also the value of the materials. It therefore became material to determine whether the valuation should be according to the worth of the property prior or subsequent to such attachment, and the conclusion was that the prior worth was the appropriate standard by which to make the estimate; Kohlsaat, District Judge, saying:

'While I regret to be forced to the conclusion, yet I am of the opinion that, under the wording of the present bankruptcy act, and especially the proper interpretation of the words 'being insolvent,' such action on the part of a judgment creditor would not create a preference recoverable by the trustee under the terms of the act.'

This decision, while not distinctly upon the point under discussion, is perfect in analogy, and its authority cannot be gainsaid. Nor should property exempt by the state law from execution be deducted from the debtor's assets in ascertaining whether they are, at a fair valuation, sufficient in amount to pay his debts. This has been directly decided in the case of In re Baumann (D.C.) 96 F. 946. The question came up on a construction of such subdivision 15, of section 1, of the bankruptcy act. Mr. Justice Hammond says, relative to the provision:

'This is probably as arbitrary a provision as is to be found in the statute. It was intended to wipe out, as with a sponge, all that confusion which is to be found in previous bankruptcy statutes and decisions as to the meaning of the word 'insolvency.' It had also the more comprehensive purpose of designating with absolute fixity the only class of persons upon whom the involuntary features of the bankruptcy statute should operate, namely, those whose property was not sufficient in amount to pay their debts. It does not proceed upon any theory that the debts will in fact be paid by the appropriation of the property to that end, nor upon the theory that as a matter of fact it is available for compulsory payment, but upon the theory that he chooses to do so. * * * Moreover the language of the above-quoted section is

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