In re Fernandez , 7 P.R. Fed. 296 ( 1914 )

HamiltoWj Judge,

delivered tbe following opinion:

On July 30, 1914, creditors of Andres Fernandez of San Juan filed a petition against him of involuntary bankruptcy, representing that the “said Andres Fernandez is insolvent, and that within four months next preceding the date of this petition, the said Andres Fernandez committed an act of bankruptcy, in that, heretofore, to wit, on the 15th day of July, 1914, he admitted in writing his inability to pay his debts and his willingness to be adjudged a bankrupt on that ground, thus committing the fifth act of bankruptcy.” Twenty-one days later he filed an answer admitting all allegations except that of insolvency. The case went to trial, and it was shown that the alleged bankrupt had on July 15 written to the creditors’ attorneys that it was impossible to pay his debt to one of the creditors “por encontrarme insolvente ” and going on to agree that the creditor should obtain a declaration of bankruptcy in the Federal court.

1. The petition, dated July 30, 1914, alleges that “Fernandez is insolvent.” This must be held to mean insolvent at the time of the filing of the petition.. The question is raised whether it is necessary to allege and prove insolvency at the time of committing the act of bankruptcy complained of, — in this case, the fifth act of bankruptcy. It would seem that the question of insolvency comes up in different ways. The second, third, and in part the fourth acts of bankruptcy set out in § 3 require that the alleged bankrupt be insolvent at the time the act is committed. This is not required by the words of the statute under the first and fifth grounds of bankruptcy, and the fifth is the one now in question. On the other hand, subdivision b •of § 3 says that a petition may be filed against a person wbo is insolvent, that is, at the date of the petition, and who has «committed an act of bankruptcy, the limitation being four months after the commission of the act. It would seem, therefore, that in any case the person proceeded against must be insolvent at the time of the filing of the petition, but that this insolvency need not have existed at the time of the committal of certain three of the five grounds of bankruptcy. Re Duplex Radiator Co. 15 Am. Bankr. Rep. 324; Acme Food Co. v. Meier, 18 Am: Bankr. Rep. 550. There may be some exceptions to this rule, but the above would seem to be the general principle. In the case at bar, therefore, it is not necessary to •allege or prove insolvency at the time of committing the act of bankruptcy, that is to say, the fifth act under § 3 of the law; ■but it is necessary to allege and prove insolvency at the time •of the filing of the petition. Petitioner claims that he has proved his allegation by the admission of the alleged bankrupt himself made a few days before the filing of the petition. There •certainly has been no proof that his financial condition improved •after the letter in question. A condition once proved is presumed to continue unless there is some proof to the contrary.

2. It is contended on behalf of the alleged bankrupt, that his admission of insolvency means that he could not pay his ■debts, and is not an admission under the definition of insolvency .•given by the present bankruptcy law. Section 1 (15) declares that “a person shall be deemed insolvent within the provisions ■of this act whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed or removed, . . . with intent to defraud, hinder or delay his creditors, shall not, at a fair valuation, be sufficient in amount to pay bis debts.” [30 Stat. at L. 544, cbap. 541, Comp. Stat. 1913, § 9585.] Tbe common use of tbe word “insolvency” relates to inability to pay one’s debts, not necessarily to having less property than debts, and tbe present bankruptcy act departs from tbe policy of previous bankruptcy acts in this respect. Collier, Bankr. pp. 8, 9. Tbe alleged bankrupt on tbe stand testified that be used tbe word insolvent in tbe common, and not in tbe technical, sense, and he submitted a list of bis property, as valued by himself, tending to show this. A large part of bis assets, however, consisted of better-ments of a leased place of business, now closed, but to be valued, if at all, as of a date prior to tbe petition. Tbe law of Porto Rico, Civil Code, § —, gives an away-going tenant tbe right to remove trade fixtures, but substituting iron columns for walls is not such a trade fixture. It becomes a part of tbe land. It is true that it may make tbe premises more desirable, and hence more easily rented, but it is not satisfactorily shown that any increase of market value actually has accrued to tbe bankrupt or bis estate. It may be doubtful also whether any such evidence is applicable to explain a formal admission of insolvency, prepared by tbe attorney of tbe alleged bankrupt and addressed to tbe attorney of tbe creditor. Ordinarily tbe circumstances under which letters are written can be shown so as to clear up any doubt arising in them, but the letter in question is very nearly a legal document, and the evidence is offered not so much to explain as to generate a doubt. Apart from this, however, tbe evidence is not at all convincing, and it would seem that, in point of fact, tbe alleged bankrupt was on tbe date of tbe letter in question insolvent, and has so remained.

3. It is shown, however, that on October 30, 1914, and therefore subsequent to the submission above, the said Andres. Fernandez has filed a voluntary petition in bankruptcy in the usual form, but omitting any reference to insolvency. It is now contended that under the present bankruptcy law the subsequent voluntary petition supersedes the previous involuntary petition. There is no doubt that the “debtor has the right to avail himself of the benefits of the bankruptcy law on his own application, and this right cannot be forfeited or rendered ineffectual merely because the creditors’ petition is first filed and pending undetermined when the debtor files his petition.”' Collier, Bankr. 10th ed. p. 766. Nevertheless, the rule would seem to be that this must be done before the involuntary petition is tried. In this case the involuntary petition was filed, answered, tried, and submitted before the voluntary petition was filed. In Be Stegar, it was held that the proper procedure is in some cases to consolidate the two applications, reserving the right of the creditors in the involuntary proceedings. 113 Fed. 978. In the case at bar, however, it would seem that the proper course is to decide the case which is first submitted. In fact, legally, upon submission, the case is out of the hands of the parties, and nothing can change it so far as they are concerned. The subsequent filing of any paper is ineffectual. It is difficult to say what function can be played by the voluntary proceeding under such circumstances.

It follows, therefore, that the petition in the involuntary proceedings must be granted, and an order will be entered adjudicating Andres Fernandez a bankrupt, and referring the matter to the referee to proceed in the usual maner. The voluntary petition in bankruptcy is denied.

It is so ordered.