Missouri-American Electric Co. v. Hamilton-Brown Shoe Co.

• Decision Date: 16 November 1908
• Docket Number: 2,817.
• Citation: 165 F. 283
• Parties: MISSOURI-AMERICAN ELECTRIC CO. v. HAMILTON-BROWN SHOE CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

165 F. 283

MISSOURI-AMERICAN ELECTRIC CO. v. HAMILTON-BROWN SHOE CO. et al.

No. 2,817.

United States Court of Appeals, Eighth Circuit.

November 16, 1908

Syllabus by the Court

It is the duty of examiners, masters, referees, and the court taking evidence in controversies in bankruptcy, in the absence of a jury, to take, record, and, in case of an appeal, to return to the reviewing court, all the evidence offered by either party, that which they hold to be incompetent or immaterial as well as that which they deem competent and relevant, to the end that if the appellate court is of the opinion that evidence rejected should have been received it may consider it, render a final decree, and thus conclude the litigation without remanding the suit to procure the rejected evidence.

From this rule evidence plainly privileged, the testimony of a privileged witness, and evidence which clearly and affirmatively appears to be so incompetent, irrelevant, or immaterial that it would be an abuse of the process or power of the court to compel its production or permit its introduction, are excepted.

It is error for a court on a hearing of a controversy in which it is taking the testimony to refuse to take or to consider evidence which the losing party desires to offer, and to close the hearing before such evidence is presented to the court so that it can consider it and determine its admissibility.

The release of an entire debt for a sum certain upon the payment of a part of the amount due is without consideration and void.

A release of an entire debt in consideration of the payment of articles different from the thing due according to the terms of the contract, although those articles are of much less value than the thing due, is valid, because the legal presumption is that the articles had a special value to the recipient, and the transaction is an accord and satisfaction.

A transfer of the title to and the possession and control of substantially all the property of a debtor to an assignee in trust to convert it into money and distribute it among the creditors of an assignor is essential to constitute a general assignment for the benefit of creditors under section 3a(4) of the bankruptcy law (Act July 1, 1898, c. 541, 30 Stat. 546 (U.S. Comp. St. 1901, p. 3422)).

A debtor conveyed about three-fourths of its property and the proceeds of any sale it should make of the other fourth which consisted of real estate of which the assignor retained the possession and the right of use, control, and disposition, to its principal creditor, in consideration of the latter's discharge of the debtor's obligation to it and of the creditor's agreement to pay all the other obligations of the debtor out of the proceeds of the property conveyed.

Held The conveyance was not a general assignment for the benefit of creditors, because it did not transfer substantially all the property of the debtor, because the title, control, and power of disposition of the real estate remained in the assignor, because the assignor did not intend the instrument as a general assignment, and because its legal effect was not that of a general assignment but that of a sale of the property described in it to the assignee in consideration of its release of the debtor and of its contract to pay the debtor's other debts out of the proceeds of the property conveyed.

For other definitions, see Words and Phrases, vol. 4, pp. 3052-3054.)

A conveyance of his property by a debtor directly to his creditor or creditors for their benefit does not constitute a general assignment for the benefit of creditors, because it raises no trust.

W. R. Spooner (Joseph Barton, on the brief), for appellant.

Benjamin Schnurmacher (Harvey L. Christie and P. Taylor Bryan, on the brief), for appellees.

Before SANBORN and VAN DEVANTER, Circuit Judges, and W. H. MUNGER, District Judge.

SANBORN Circuit Judge.

This is an appeal from an adjudication in bankruptcy of the Missouri-American Electric Company, a corporation of the state of Missouri, upon a creditors' petition filed February 16, 1907, upon the grounds (1) that on October 7, 1906, the corporation, while insolvent, made a general assignment of all its property to the American Electric Company, a corporation of the state of New Jersey, and (2) that on October 17, 1906, the Missouri Company, while insolvent, paid to the American Company, one of its creditors, $18,000, with intent to prefer the latter to its other creditors, and that the latter company at that time had reasonable cause to believe that it was intended to give it a preference over other creditors similarly situated by this payment. There was no evidence of any payment of $18,000 or any like sum to the American Company within four months of the filing of the petition, except the transfer of the money and property which was subject to the written instruments executed on October 17, 1906, which the appellees insist constitute a general assignment for the benefit of the creditors of the Missouri Company under section 3a(4) of the bankruptcy law of 1898 (Act July 1, 1898, c. 541, 30 Stat. 546 (U.S. Comp. St. 1901, p. 3422)). The decision of the merits of the case turns upon the legal effect of those writings. The charges of the commission of the acts of bankruptcy were denied by the Missouri Company, the issues were tried by the district court, evidence which fills more than 200 pages of the printed transcript was adduced, the court closed the hearing while the Missouri Company was still introducing its evidence in defense and before it had rested, that company excepted to this premature closing of the case, and the court rendered a decree adjudging it a bankrupt.

The refusal of the court to hear and record the testimony which the defendant below was introducing before it, its premature closure of the case, and its decision of it against the defendant in the absence of the evidence it was seeking to introduce, was undoubtedly erroneous. A proceeding in bankruptcy is a proceeding in equity, and it is the duty of examiners, masters, referees, and the court, when taking evidence in controversies therein in the absence of a jury, to take, record, and, in case of an appeal, to return to the reviewing court, all the evidence offered by either party, that which they hold to be incompetent or immaterial as well as that which they deem competent and relevant, to the end that, if the appellate court is of the opinion that evidence rejected should have been received, it may consider it, render a final decree, and thus conclude the litigation without remanding the suit to procure the rejected evidence. From this rule evidence plainly privileged, the testimony of privileged witnesses, and evidence which clearly and affirmatively appears to be so incompetent, irrelevant, and immaterial that it would be an abuse of the process or power of the court to compel its production or permit its introduction, are excepted.

The evidence which the Missouri Company was seeking to introduce when the court closed the case did not fall under this exception, and it should have been taken and recorded. First National Bank v. Abbott (filed November 24, 1908) 165 F. 852; Dowagiac Mfg. Co. v. Lochren, 74 C.C.A. 341, 343, 344, 143 F. 211, 213, 214; Blease v. Garlington, 92 U.S. 1, 7, 8, 23 L.Ed. 521; In re De Gottardi (D.C.) 114 F. 328, 342; Dressel v. North State Lumber Co. (D.C.) 119 F. 531; In re Romine (D.C.) 138 F. 837, 839.

Moreover, the court could not have known what other evidence, which the defendant had not then presented, it might desire to offer before it rested its case, and it was plain error to close the hearing and decide the case against it before it had offered all its evidence. Sometimes when a party to a controversy, in whose favor the court perceives that it must decide, has made plenary proof of his case, the record conclusively proves that he has suffered no prejudice, and hence no reversal follows from a refusal to take and hear cumulative evidence on his behalf. But when a court refuses to take and to consider evidence which the losing party desires to offer before that evidence has been presented to it so that it can determine the question of its admissibility, the presumption that error produces prejudice necessarily prevails.

The petitioning creditors, however, were not prevented from introducing their evidence. They made no objection and took no exception to the premature close of the trial, and we turn to the evidence which was actually introduced to ascertain whether or not the decree of the district court is sustained by the competent and relevant evidence returned in the record. Blease v. Garlington, 92 U.S. 1, 8, 23 L.Ed 521; First National Bank v. Abbott (filed November 24, 1908) 165 F. 852. A careful examination and analysis of the evidence convinces that it established these facts beyond reasonable question: On October 17, 1906, the Missouri Company owned a lot in St. Louis which was worth about $18,000 and was subject to a trust deed to secure the payment of $10,000. It had other assets which were worth not less than $20,000, so that its...