McDaniel v. Stroud

• Decision Date: 07 February 1901
• Docket Number: 380.
• Citation: 106 F. 486
• Parties: McDANIEL et al. v. STROUD.
• Court: U.S. Court of Appeals — Fourth Circuit

106 F. 486

McDANIEL et al. v. STROUD.

No. 380.

United States Court of Appeals, Fourth Circuit.

February 7, 1901

Purnell District Judge, dissenting.

H. J Haynsworth and L. O. Patterson, for appellants.

Jos. A McCullough, for appellee.

Before SIMONTON, Circuit Judge, and PURNELL and WADDILL, District judges.

SIMONTON Circuit Judge, and WADDILL, District Judge.

The question at the threshold of this case is upon the motion to dismiss the appeal. Proceedings in involuntary bankruptcy were begun against A. M. Hayes and W. H. Murff, co-partners as Hayes & Murff, in the Western district of South Carolina. The petition was filed in the name of a large number of creditors. It was duly referred to a referee. By consent of all parties the respondents were declared bankrupts. A trustee was appointed, and creditors were called in. Among other claims was one by H. T. Stroud, who set up a claim for $1,000, with interest at 8 per cent. per annum from November 1, 1897, with 10 per cent. attorney's fees if the note be collected by process of law or through an attorney. The referee took testimony on this claim, among others, and made his report disallowing it. Exceptions were taken, and the matter carried before the district court. The court sustained the exceptions and allowed the claim. At the references and before the court the contest against the claim was conducted by the attorneys for the petitioning creditors. When this decree was filed (May 23, 1900), the attorneys for the petitioning creditors went to the trustee (James A. McDaniel), and requested permission on behalf of the petitioning creditors to appeal from this part of the decree in his name. The trustee at first said that he had no objection, but afterwards said that he wished to consult his counsel. Subsequently he informed the attorneys for the petitioning creditors that his counsel had advised him that the matter did not concern him, and he therefore declined to permit the appeal to be brought in his name. While this was going on, the 10 days within which an appeal could be brought had nearly expired. There not being sufficient time to go before the court and to get an order compelling the use of the name of the trustee in carrying up the appeal, the petitioning creditors on June 2, 1900, filed a petition for appeal in their own names, accompanied by assignments of error, and the appeal was allowed, the papers having been placed on file. On 16th July the district court, hearing the affidavit of the attorney for the creditors stating the facts above set forth, granted an order that the appeal heretofore taken by them in this case be continued in the name of J. A. McDaniel, as trustee, in connection with said creditors, and that the record be amended accordingly. At the same time the creditors were required to file a bond for costs within 30 days. The appeal is here in that shape.

The motion to dismiss the appeal proceeds on two grounds: The petitioning creditors have no right to appeal. This right belongs to the trustee alone. This being so, no appeal in the name of the trustee was presented or allowed within 10 days after the entry of the decree. Section 25 of the bankrupt act. It will be noted that the trustee did not put his refusal on the ground that the decree, in his opinion, was correct, and that an appeal would be useless, resulting only in costs to the estate. He put it on the extraordinary ground that the matter did not concern him. Had the creditors a right to appeal? This depends upon the construction of the bankrupt act. The rule governing questions of this kind is stated by Taney, C.J., in U.S. v. Curry, 6 How. 106, 12 L.Ed. 363:

'It has been said that this objection is a mere technicality, and may be regarded rather as a matter of form than of substance. But this court does not feel authorized to treat the directions of an act of congress as it might treat a technical difficulty growing out of ancient rules of the common law. The power to hear and determine a case like this is conferred on the court by acts of congress, and the same authority which gives the jurisdiction has pointed out the manner in which the case shall be brought before us. And we have no power to dispense with any of these provisions, nor to change or modify them. And if the mode prescribed for removing cases by writ or error or appeal be too strict and technical, and likely to produce inconvenience or injustice, it is for congress to provide a remedy by altering the existing laws; not for the court. And as this appeal has not been prosecuted in the manner directed, within the time limited by the acts of congress, it must be dismissed for want of jurisdiction.'

Under the bankruptcy act of 1867 an assignee who was dissatisfied with the allowance of a claim upon the bankrupt estate was given the right to appeal. The language of the act (Rev. St. 4980) is:

'And any supposed creditor whose claim is in whole or part rejected or any assignee who is dissatisfied with the allowance of a claim may appeal,' etc.

It was held that this precluded the creditors from appealing in their own names, if a claim has been allowed. In re Troy Woolen Co., 24 F. Cas. 244 (No. 14,202); In re Joseph, 13 F. Cas. 1124 (No. 7,532); In re Place, 19 F. Cas. 790 (No. 11,200). The bankrupt act of 1898 is not so explicit. All that it says is, the trustees shall not be required to give bond when they take appeals or sue out writs of error.

The precise question now before this court has come up in two circuit courts of appeal. The court of the Eighth circuit, in Chatfield v. O'Dwyer, 42 C.C.A. 30, 101 F. 797, held that the act of 1898 must be construed as was the act of 1867, and that no one but the trustee can take up an appeal from a claim allowed; and that, if he will not do so of his own volition, the court will require him to do so at the instance of creditors. The circuit court of appeals for the Fifth circuit, on the other hand, in Re Roche, 42 C.C.A. 115, 101 F. 956, decided that the omission of the provision of the act of 1867 in the act of 1898 was intentional, showing the desire of congress to leave appeals under the general rule, and that any one affected or injured by a decree or judgment may appeal; and so held in a case of a creditor dissatisfied with the allowance of another claim. The circumstances of this case make a strong inclination to follow this decision from the Fifth circuit. The trustee, for no other reason than that the matter did not concern him, so conducted himself as not only to deprive the dissatisfied creditors of the use of his name, but to prevent them from applying to the court for an order compelling this use. There is nothing in the record showing bad faith on the part of this trustee. The most that can be said of him is that he showed bad judgment. But if a trustee, by action like this, can defeat the effort of creditors to assert their rights, he not only assumes the functions of this court; he opens the door for great fraud. The decision in the Fifth circuit does not change or modify the act of congress. It construes it, and its construction is reasonable.

What was the effect and purpose of the order of July 16, 1900? It certainly was not the granting of another leave to appeal. The language of the order is 'that the appeal heretofore granted in this case be continued in the name of J. A. McDaniel as trustee, in conjunction with the creditors. ' There is no question that the court would, in the first instance, have directed the trustee to allow the use of his name to conduct the appeal if it was thought necessary; and that authority it could exercise at any time, provided that no change was wrought in the status quo which could be detrimental to the appellee. In this case this certainly did not occur. If this appeal be dismissed on this ground, it will be for a mere defect of form. 'A decree of the circuit court ought not to be reversed for a defect of form in the process which is amendable. ' Semmes v. U.S., 91 U.S. 21, 23 L.Ed. 193. An appeal in the name of an individual when the real appellant is a firm is amendable. Moore v. Simonds, 100 U.S. 146, 25 L.Ed. 590. It seems that this motion to dismiss the appeal should not be granted.

As to the Merits.

H. T Stroud presented a claim against the bankrupt estate as follows: A debt of $1,000, from November 1, 1897, and 10 per cent. thereon for counsel fees, interest on which was paid to March 4, 1898, secured by mortgage of a lot of land, with buildings thereon, in the city of Greenville. The history of this claim is this: The National Bank of Greenville held a note signed by A. M. Hayes and W. H. Murff, and also by Hayes & Murff, for $1,000, dated February 27, 1897, payable November 1, 1897, interest after maturity at 8 per cent., and 10 per cent. attorney's fees in case of collection through an attorney. This note was secured by the mortgage of this lot in Greenville. The lot had been conveyed to A. M. Hayes and W. H. Murff. When this note became due, it was not paid. On April 18, 1898, Murff executed to the bank a mortgage of a lot of land, his individual property, securing the sum of money due on this note, and thereupon the bank on that day assigned to Murff the original note. This assignment of the note carried with it the mortgage. Wright v. Eaves, 10 Rich. Eq. 582; Walker v. Kee, 14 S.C. 143. Murff's individual note was given in substitution of the original note. This being its object, the mortgage was not satisfied by the transaction. Burton v. Pressly, Chev. Eq. 1; Carter v. Burr, 113 U.S. 740, 5 Sup.Ct. 713, 28 L.Ed. 1146. On April 17, 1899,-- nearly a year after the note was assigned to him by the bank,-- Murff assigned it to H. T. Stroud, to secure a loan of $500 to Hayes & Murff. On June 7th, Stroud...