In re McKeehan Furniture Co. , 24 F.2d 870 ( 1927 )

CLAYTON, District Judge.

This matter came on to be heard upon an involuntary-petition in bankruptcy filed by Delker Bros. Manufacturing Company, Chesapeake Furniture Company, and Metropolitan Chair Company, unsecured creditors of MeKeehan Furniture Company, a Florida corporation, located at Miami, Fla., and on answers to the involuntary petition, as amended, filed by the alleged bankrupt, the equity receivers appointed by this court, Arthur G. Feehan and Lee M. Gerstel, and numerous intervening creditors, denying the several aets of bankruptcy set forth, and maintaining the solvency of the MeKeehan Furniture Company. Testimony was adduced at length in behalf of all parties.

The involuntary petition was amended by setting up the following aet of bankruptcy: “That the said MeKeehan Furniture Company filed its answer to the petition of Weser Bros. Company v. McKeehan Furniture Company in this court, being equity No. 81, and in such answer set out that the corporation has duly authorized the making of the same and joins in the prayer of bill of complaint for appointment of receiver and other relief therein prayed for, and that among the prayers for relief the following: That the property and assets of defendant be converted into money and distributed among its creditors as they may be legally entitled thereto, and that the balance thereof be distributed among respective stockholders and/or the defendant as it may be legally entitled thereto. The legal effect of such answer being the making of a general assignment for the benefit of its creditors, in violation of the fifth act of bankruptcy (11 USCA § 21 [a] [5]).”

Previous to the amendment of the Bankruptcy Aet in 1903, there was no act of bankruptcy sueh as is now defined, relating to the appointment of a receiver of an insolvent debtor constituting an aet of bankruptcy, and the faets set up in the petition as amended would not, in the court’s opinion, as a matter of law, have constituted an act of bankruptcy, prior to the amendment in 1903, and does not constitute an aet under the present law. The court holds, in line with prevailing authorities, that the appointment of a receiver of MeKeehan Furniture Company and the consent thereto, even for the purpose set forth, does not constitute a general assignment to creditors within the purview of the -National Bankruptcy Aet (11 USCA).

The first case of the series upon which the court relied in reaching this conclusion is In re Empire Metallic Bedstead Co. (C. C. A.) 98 F. 981. This case held that the voluntary application of an insolvent corporation for dissolution under the laws of the state of its domicile, in the absence of a showing that such an application was made for the purpose c-f hindering, delaying, and defrauding creditors, so as to bring it within the first aet of bankruptcy (11 USCA § 21, subsee. (a), subd. 1), did not in itself, as a matter of law, constitute an aet of bankruptcy.

This ease was followed by In re Harper & Bros. (D. C.) 100 F. 266. In this ease the petition for adjudication of bankruptcy alleged that in equity proceeding in the state court receivers were appointed and consented to by the insolvent debtor “to hinder, delay, and defraud creditors,” and the court held that this was not in itself, as a matter of law, an act of bankruptcy, and held that, inasmuch as 98 per cent, of the creditors approved of the state court proceedings, the court would refuse to entertain jurisdiction in bankruptcy.

The case of Scheuer v. Smith (C. C. A.) 112 F. 407, the next case in this series, is frequently cited for the holding that the appointment of and consent thereto by the insolvent debtor, constituted an act of bankruptcy. In that case, the record disclosed a preferential transfer to certain creditors, and the subsequent appointment of receivers, which operated as a matter of law to prevent preferences from being set aside, and the adjudication in bankruptcy was made upon the ground of the third act of bankruptcy, to wit, a preferential transfer.

The first authority above cited is in accord with the federal District Court of Massachusetts, in the ease of In re Baker-Rieketson, 97 F. 489, and was followed by the decision of the Circuit Court of Appeals, rendered by Circuit Judge Lurton, later Mr. Justice Lurton, of the Supreme Court of the United States, in the ease Vaccaro v. Security Bank, 103 F. 436. Davis v. Stevens (D. C.) 104 F. 235, and In re Gilbert (D. C.) 112 F. 951, are also authorities of our' view.

This line of cases is concluded by In re Burrell (C. C. A.) 123 F. 414, where the court had before it such a case as is now in view, and held that, inasmuch as the amendment of 1903 had specifically dealt with the question of appointment of receivers as an act of bankruptcy, the question could not arise as to whether the appointment of receivers under the circumstances mentioned above constitutes a general assignment. If there were any doubts still remaining upon the question, the'‘case of Nolte v. Hudson Nav. Co. (C. C. A.) 8 F.(2d) 859, settles the point.

The evidence adduced in this case is voluminous, and, in view of the conclusion which I shall presently express, it is unnecessary to diseuss whether the petitioning creditors have sustained the allegations of the petition as amended with regard to any other acts of bankruptcy, excepting that relating to appointment of receivers of the alleged bankrupt while it was insolvent.

Without going into the statement of facts in detail, the court is satisfied from the evidence that the MeKeehan Furniture Compaq ny ,was insolvent at the time the receivers were appointed by this court in the equity proceedings, and that the allegations of the petition as amended are therefore substantially proven in regard to this act of bankruptcy.

Order of adjudication will be entered in harmony with this opinion.