As a deed of general assignment for the benefit of creditors is
made by the Bankruptcy Act alone sufficient to justify an
adjudication in involuntary bankruptcy against the debtor making
such deed, without reference to his solvency at the time of the
filing of the petition, the denial of insolvency by way of defense
to a petition based upon the making of a deed of general assignment
is not warranted by the bankruptcy law.
Page 174 U. S. 591
The statement of the case will be found in the opinion of the
Court.
MR. JUSTICE WHITE delivered the opinion of the Court.
The facts stated in the certificate of the circuit court of
appeals are substantially as follows:
Lea Bros. & Co. and two other firms filed on December 18,
1898, a petition in the District Court of the United States for the
Eastern district of Virginia praying that an alleged debtor, the
George M. West Company, a corporation located in Richmond,
Virginia, be adjudicated a bankrupt because of the fact that it
had, on the date of the filing of the petition, executed a deed of
general assignment conveying all its property and assets to Joseph
v. Bidgood, trustee. The George M. West Company pleaded, denying
that, at the time of the filing of said petition against it, the
corporation was insolvent within the meaning of the Bankrupt Act,
and averring that its property, at a fair valuation, was more than
sufficient in amount to pay its debts. The prayer was that the
petition be dismissed. The court rejected this plea and adjudicated
the West Company to be a bankrupt. The cause was referred to a
referee in bankruptcy, and certain creditors secured in the deed of
assignment, who had instituted proceedings in the Law and Equity
Court of the City of Richmond, under which that court had taken
charge of the administration of the estate and trust under the deed
of assignment, were enjoined from further prosecuting their
proceedings in the state court under said deed of assignment. From
this decree an appeal was allowed to the Circuit Court of Appeals
for the Fourth Circuit. On the hearing of said appeal, the court,
desiring instructions, certified the case to this Court. The
certificate recites the facts as above stated and submits the
following question:
Page 174 U. S. 592
"Whether or not a plea that the party against whom the petition
was filed 'was not insolvent, as defined in the Bankrupt Act at the
time of the filing of the petition against him' is a valid plea in
bar to a petition in bankruptcy filed against a debtor who has made
a general deed of assignment for the benefit of his creditors."
The contentions of the parties are as follows: on behalf of the
debtor, it is argued that under the Bankrupt Act of 1898, two
things must concur to authorize an adjudication of involuntary
bankruptcy: first, insolvency in fact, and second, the commission
of an act of bankruptcy. From this proposition the conclusion is
deduced that a debtor against whom a proceeding in involuntary
bankruptcy is commenced is entitled, entirely irrespective of the
particular act of bankruptcy alleged to have been committed, to
tender, as a complete bar to the action, an issue of fact as to the
existence of actual insolvency at the time when the petition for
adjudication in involuntary bankruptcy was filed. On the other
hand, for the creditors it is argued that while solvency is a bar
to proceedings in bankruptcy predicated upon certain acts done by a
debtor, as to other acts of bankruptcy, among which is included a
general assignment for the benefit of creditors, solvency at the
time of the filing of a petition for adjudication is not a bar,
because the Bankrupt Act provides that such deed of general
assignment shall, of itself alone, be adequate cause for an
adjudication in involuntary bankruptcy, without reference to
whether the debtor by whom the deed of general assignment was made
was in fact solvent or insolvent.
A decision of these conflicting contentions involves a
construction of section 3 of the act of 1898 (30 Stat. 546). The
full text of the section in question is printed in the margin.
*
Page 174 U. S. 593
It will be observed that the section is divided into several
paragraphs, denominated as
a, b, c, d, and
e.
Paragraph
a is as follows:
Page 174 U. S. 594
"SEC. 3. Acts of Bankruptcy --
a. Acts of bankruptcy by
a person shall consist of his having (1) conveyed, transferred,
concealed, or removed, or permitted to be concealed or removed, any
part of his property with intent to hinder, delay, or defraud his
creditors, or any of them; or (2) transferred, while insolvent, any
portion of his property to one or more of his creditors with intent
to prefer such creditors over his other creditors; or (3) suffered
or permitted, while insolvent, any creditor to obtain a preference
through legal proceedings, and not having at least five days before
a sale or final disposition of any property affected by such
preference vacated or discharged such preference; or (4) made a
general assignment for the benefit of his creditors; or (5)
admitted in writing his inability to pay his debts and his
willingness to be adjudged a bankrupt on that ground."
It is patent on the face of this paragraph that it is divided
into five different headings, which are designated numerically from
1 to 5. Now the acts of bankruptcy embraced in divisions numbered 2
and 3 clearly contemplate not only the commission of the acts
provided against, but also cause the insolvency of the debtor to be
an essential concomitant. On the contrary, as to the acts embraced
in enumerations 1, 4, and 5, there is no express requirement that
the acts should have been committed while insolvent. Considering
alone the text of paragraph
a, it results that the
nonexistence of insolvency at the time of the filing of a petition
for adjudication in involuntary bankruptcy because of the acts
enumerated in 1, 4, or 5, which embrace the making of a deed of
general assignment, does not constitute a defense to the petition
unless provision to that effect be elsewhere found in the statute.
This last consideration we shall hereafter notice.
The result arising from considering the paragraph in
question
Page 174 U. S. 595
would not be different if it be granted
arguendo that
the text is ambiguous, for then the cardinal rule requiring that we
look beneath the text for the purpose of ascertaining and enforcing
the intent of the lawmaker would govern. Applying this rule to the
enumerations contained in paragraph
a, it follows that the
making of a deed of general assignment, referred to in enumeration
4, constitutes, in itself, an act of bankruptcy, which
per
se authorizes an adjudication of involuntary bankruptcy
entirely irrespective of insolvency. This is clearly demonstrated
from considering the present law in the light afforded by previous
legislation on the subject.
Under the English bankruptcy statutes (as well that of 1869 of
those upon which our earlier acts were modeled) and our own
bankruptcy statutes down to and including the act of 1867, the
making of a deed of general assignment was deemed to be repugnant
to the policy of the bankruptcy laws, and, as a necessary
consequence, constituted an act of bankruptcy,
per se.
This is shown by an examination of the decisions bearing upon the
point both English and American. In
Globe Insurance Co. v.
Cleveland Insurance Co., 14 N.B.R. 311, the subject was ably
reviewed, and the authorities are there copiously collected. The
decision in that case was expressly relied upon in
In re
Beisenthal, 14 Blatchford 146, where it was held that a
voluntary assignment, without preferences, valid under the laws of
the State of New York, was void as against an assignee in
bankruptcy, and this latter case was approvingly referred to in
Reed v. McIntyre, 98 U. S. 513.
So also in
Boese v. King, 108 U.
S. 379,
108 U. S. 385,
it was held, citing (page
108 U. S. 387)
Reed v. McIntyre, that whatever might be the effect of a
deed of general assignment for the benefit of creditors, when
considered apart from the Bankrupt Act, such a deed was repugnant
to the object of a bankruptcy statute, and therefore was, in and of
itself alone, an act of bankruptcy. The foregoing decisions related
to deeds of general assignment made during the operation of the
Bankrupt Act of 1867, March 2, 18767, c. 176, 14 Stat. 536, or the
amendments thereto of June 22, 1874, c. 390, and July 26, 1876, c.
234, 18 Stat. 180; 19 Stat. 102. Neither, however,
Page 174 U. S. 596
the act of 1867, nor the amendments to it contained an express
provision that a deed of general assignment should be a conclusive
act of bankruptcy. Such consequence was held to arise from a deed
of that description as a legal result of the clause in the act of
1867 forbidding assignments with "intent to delay, defraud or
hinder" creditors, and from the provision avoiding certain acts
done to delay, defeat, or hinder the execution of the act.
(Rev.Stat. 5021, pars. 4, 7.) Now when it is considered that the
present law, although it only retained some of the provisions of
the act of 1867, contains an express declaration that a deed of
general assignment shall authorize the involuntary bankruptcy of
the debtor making such a deed, all doubt as to the scope and intent
of the law is removed. The conclusive result of a deed of general
assignment under all our previous Bankruptcy Acts, as well as under
the English bankrupt laws, and the significant import of the
incorporation of the previous rule by an express statement in the
present statute, have been lucidly expounded by Addison Brown, J.,
in
In re Gutwillig, 90 F. 475, 478.
But it is argued that, whatever may have been the rule in
previous bankruptcy statutes, the present act, in other than the
particular provision just considered, manifests a clear intention
to depart from the previous rule, and hence makes insolvency an
essential prerequisite in every case. To maintain this proposition,
reliance is placed upon paragraph
c of section 3, which
reads as follows:
"
c. It shall be a complete defense to any proceedings
in bankruptcy instituted under the first subdivision of this
section to allege and prove that the party proceeded against was
not insolvent as defined in this act at the time of the filing the
petition against him, and if solvency at such date is proved by the
alleged bankrupt the proceedings shall be dismissed, and under said
subdivision one the burden of proving solvency shall be on the
alleged bankrupt."
The argument is that the words "under the first subdivision of
this section" refer to all the provisions of paragraph
a,
because that paragraph, as a whole, is the first part of the
section, separately divided, and, although designated by
Page 174 U. S. 597
the letter
a, it is nevertheless to be considered, as a
whole, as subdivision 1. But whether the words "first subdivision
of this section," if considered intrinsically and apart from the
context of the act, would be held to refer to paragraph
a
as an entirety, or only to the first subdivision of that paragraph,
need not be considered. We are concerned only with the meaning of
the words as used in the law we are interpreting. Now the context
makes it plain that the words relied on were only intended to
relate to the first numerical subdivision of paragraph
a.
Thus, in the last sentence of paragraph
c, the matter
intended to be referred to by the words "first subdivision of this
section," used in the prior sentences, is additionally designated
as follows, "and under said subdivision one," etc. -- language
which cannot possibly be, in reason, construed as referring to the
whole of paragraph
a, but only to subdivision 1
thereof.
This is, besides, more abundantly shown by paragraph
d,
which provides as follows:
"
d. Whenever a person against whom a petition has been
filed as hereinbefore provided under the second and third
subdivisions of this section takes issue with and denies the
allegations of his insolvency, it shall be his duty to appear in
court on the hearing with his books, papers and accounts and submit
to an examination, and give testimony as to all matters tending to
establish solvency or insolvency, and in case of his failure to so
attend and submit to examination the burden of proving his solvency
shall rest upon him."
This manifestly only refers to enumerations 2 and 3 found in
paragraph
a, which, it will be remembered, make it
essential that the acts of bankruptcy recited should have been
committed by the debtor while insolvent. Indeed, if the contention
advanced were followed, it would render section 3 in many respects
meaningless. Thus, if it were to be held that the words "first
subdivision of this section," used in paragraph
c,
referred to the first division of the section (that is, to
paragraph a as a whole), it would follow that the words "second and
third subdivisions of this section," used in paragraph
d,
would relate to the second and third divisions of
Page 174 U. S. 598
the section (that is, to paragraphs
b and
c).
But there is nothing in these latter paragraphs to which the
reference in paragraph
d could possibly apply, and
therefore, under the construction asserted, paragraph
d
would have no significance whatever. To adopt the reasoning
referred to would compel to a further untenable conclusion. If the
reference in paragraph
c to the "first subdivision of this
section" relates to paragraph
a in its entirety, then all
the provisions in paragraph
a would be governed by the
rule laid down in paragraph
c. The rule, however, laid
down in that paragraph would be then in irreconcilable conflict
with the provisions of paragraph
d, and it would be
impossible to construe the statute harmoniously without eliminating
some of its provisions.
Despite the plain meaning of the statute as shown by the
foregoing considerations, it is urged that the following provision
contained in paragraph
b of section 3 operates to render
any and all acts of bankruptcy insufficient, as the basis for
proceedings in involuntary bankruptcy, unless it be proven that, at
the time the petition was filed, the alleged bankrupt was
insolvent. The provision is as follows:
"A petition may be filed against a person who is insolvent and
who has committed an act of bankruptcy within four months after the
commission of such act."
Necessarily, if this claim is sound, the burden in all cases
would be upon the petitioning creditors to allege and prove such
insolvency. The contention, however, is clearly rebutted by the
terms of paragraph
c, which provides as to one of the
classes of acts of bankruptcy, enumerated in paragraph
a,
that the burden should be on the debtor to allege and prove his
solvency. So also, paragraph
d, conforming in this respect
to the requirements of paragraph
a, contemplates an issue
as to the second and third classes of acts of bankruptcy, merely
with respect to the insolvency of the debtor
at the time of the
commission of the act of bankruptcy. Further, a petition in a
proceeding in involuntary bankruptcy is defined in section 1 of the
act of 1898, enumeration 20, to mean "a paper filed . . . by
creditors
alleging the commission of an act of bankruptcy
by a debtor therein named."
Page 174 U. S. 599
It follows that the mere statement in the statute, by way of
recital, that a petition may be filed "against a person who is
insolvent and who has committed an act of bankruptcy" was not
designed to superadd a further requirement to those contained in
paragraph
a of section 3, as to what should constitute
acts of bankruptcy. This reasoning also answers the argument based
on the fact that the rules in bankruptcy promulgated by this Court
provide in general terms for an allegation of insolvency in the
petition, and a denial of such allegation in the answer. These
rules were but intended to execute the act, and not to add to its
provisions by making that which the statute treats in some cases as
immaterial a material fact in every case. Therefore, though the
rules and forms in bankruptcy provide for an issue as to solvency
in cases of involuntary bankruptcy, where by the statute such issue
becomes irrelevant, because the particular act relied on in a given
case conclusively imports a right to the adjudication in bankruptcy
if the act be established, the allegation of insolvency in the
petition becomes superfluous, or, if made, need not be
traversed.
Our conclusion, then, is that as a deed of general
assignment for the benefit of creditors is made by the Bankruptcy
Act alone sufficient to justify an adjudication in involuntary
bankruptcy against the debtor making such deed, without reference
to his solvency at the time of the filing of the petition, the
denial of insolvency by way of defense to a petition based upon the
making of a deed of general assignment is not warranted by the
bankruptcy law, and therefore that the question certified must be
answered in the negative, and it is so ordered.
*
"SEC. 3. Acts of Bankruptcy --
a. Acts of bankruptcy by
a person shall consist of his having (1) conveyed, transferred,
concealed, or removed, or permitted to be concealed or removed, any
part of his property with intent to hinder, delay, or defraud his
creditors, or any of them; or (2) transferred, while insolvent, any
portion of his property to one or more of his creditors with intent
to prefer such creditors over his other creditors; or (3) suffered
or permitted, while insolvent, any creditor to obtain a preference
through legal proceedings, and not having at least five days before
a sale or final disposition of any property affected by such
preference, vacated or discharged such preference; or (4) made a
general assignment for the benefit of his creditors; or (5)
admitted in writing his inability to pay his debts and his
willingness to be adjudged a bankrupt on that ground."
"
b. A petition may be filed against a person who is
insolvent, and who has committed an act of bankruptcy within four
months after the commission of such act. Such time shall not expire
until four months after (1) the date of the recording or
registering of the transfer or assignment when the act consists in
having made a transfer of any of his property with intent to
hinder, delay or defraud his creditors, or for the purpose of
giving a preference as hereinbefore provided, or a general
assignment for the benefit of his creditors, if by law such
recording or registering is required or permitted, or, if it is
not, from the date when the beneficiary takes notorious, exclusive,
or continuous possession of the property unless the petitioning
creditors have received actual notice of such transfer or
assignment."
"
c. It shall be a complete defense to any proceedings
in bankruptcy, instituted under the first subdivision of this
section, to allege and prove that the par y proceeded against was
not insolvent, as defined in this act at the time of the filing the
petition against him, and if solvency at such date is proved by the
alleged bankrupt, the proceedings shall be dismissed, and, under
said subdivision one, the burden of proving solvency shall be on
the alleged bankrupt."
"
d. Whenever a person against whom a petition has been
filed, as hereinbefore provided under the second and third
subdivisions of this section, takes issue with and denies the
allegation of his insolvency, it shall be his duty to appear in
court on the hearing, with his books, papers and accounts, and
submit to examination, and give testimony as to all matters tending
to establish solvency or insolvency, and, in case of his failure to
so attend and submit to examination, the burden of proving his
solvency shall rest upon him."
"
e. Whenever a petition is filed by any person for the
purpose of having another adjudged a bankrupt, and an application
is made to take charge of and hold the property of the alleged
bankrupt, or any part of the same, prior to the adjudication and
pending a hearing on the petition, the petitioner or applicant
shall file in the same court a bond with at least two good and
sufficient sureties, who shall reside within the jurisdiction of
said court, to be approved by the court or a judge thereof, in such
sum as the court shall direct, conditioned for the payment, in case
such petition is dismissed, to the respondent, his or her personal
representative, all costs, expenses and damages occasioned by such
seizure, taking and detention of the property of the alleged
bankrupt."
"If such petition be dismissed by the court or withdrawn by the
petitioner, the respondent, or respondents, shall be allowed all
costs, counsel fees, expenses and damages occasioned by such
seizure, taking or detention of such property. Counsel fees, costs,
expenses and damages shall be fixed and allowed by the court, and
paid by the obligors in such bonds."