that it would be to the advantage of creditors and stockholders to have its affairs wound up. Nowhere in the bill is it asserted that the corporation is insolvent, as that term is defined by section 1, subdivision 15, of the Bankruptcy Act. In fact the bill contains an affirmative allegation that the defendant is solvent. Such averments, together with the admission by the corporation of their truth and its consent to the appointment of receivers of its property, undoubtedly vested the Circuit Court, in view of the diversity of citizenship of the parties, with power and authority to act in the premises. In re Metropolitan Kailway Receivership, 208 U. S. 90, 28 Sup. Ct. 219, 52 L. ed. 403.'

"The second question raises a question simply of pleading. To allege that a corporation is insolvent is to plead a conclusion. Facts must be pleaded, not conclusions."

Insolvency essential In general.- To same effect as original annotation, see In re Connecticut Brass, etc., Corp., (D. C. Conn. 1919) 257 Fed. 445.

Vol. I, p. 561, sec. 3a (5).

ed., 1912 Supp., p. 491.]

[First

Το

In general-Insolvency unnecessary.same effect as original annotation, see In re Dressler Producing Corp., (C. C. A. 2d Cir. 1919) 262 Fed. 257, wherein it was said:

"A solvent corporation, as a person, may have its property distributed among its creditors in the manner provided by the Bankruptcy Act. Hanover Nat. Bank v. Moyses, 186 U. S. 181, 22 Sup. Ct. 857, 46 L. ed. 1113. The claim of the appellants, that at the time the directors admitted that the company was insolvent, and unable to meet its obligations as they matured and arose, they were without authority to so act, and that, therefore, such a consent is of no value in the bankruptcy proceedings, is without force, and is not a reason why the motion to dismiss the petition should be granted. If there is a question whether a fraud has been perpetrated, and the authority cf the board of directors to sign the consent, which was filed in the voluntary proceedings in bankruptcy, is questioned, it is left open for trial by the order sought to be revised.

"We are of the opinion that the action of the board of directors here was justified upon the affidavits presented, and that the District Judge correctly disposed of the question presented in the court below. Matter of United Grocery Co. (D. C.) 239 Fed. 1016; Matter of Cohn (D. C.) 220 Fed. 956."

Admission by corporation - A letter by the clerk of a corporation to the corporation's creditors advising them that the only course open to them to secure payment of their claims is to bring involuntary proceedings in bankruptcy and that, if such proceedings are brought, the company will admit its insolvency, and its willingness

to be adjudged bankrupt on that ground, is not such an unqualified admission of insolvency as is required by this section. Nor does the fact that the stockholders of the corporation subsequently ratify the action of the directors in authorizing the clerk to write such letter, make it an "unqualified admission." In re Standard Shipyard Co., (D. C. Me. 1920) 262 Fed. 522.

Vol. I, p. 568, sec. 4a. [First ed.,

1912 Supp., p. 495.]

Necessity of insolvency.-"It has frequently been held that a creditor cannot intervene to oppose an adjudication under an ordinary voluntary petition in bankruptcy on the ground that the would-be bankrupt is insolvent. The act does not require that the bankrupt should be insolvent. A solvent person may have his property distributed among his creditors in the manner provided by statute, if he so desires. Hanover Nat. Bank v. Moyses, 186 U. S. 181, 22 Sup. Ct. 857, 46 L. ed. 1113, 8 Am. B. R. 1; In re Jehu (D. C. Iowa) 2 Am. B. R. 498, 94 Fed. 638; In re Ives (C. C. A. 6th Cir.) 7 Am. B. R. 692, 113 Fed. 911, 51 C. C. A. 541; In re Carleton (D. C. Mass.) 8 Am. B. R. 270, 115 Fed. 246; Collier on Bankruptcy, pp. 141, 840, 856.

"I am aware in the Carleton Case, supra, Judge Lowell states that in the District Court of Massachusetts, in an unreported case, it was held that a creditor may have an adjudication set aside, if the whole proceeding is a fraud on the act, and an abuse of process. Neither the facts nor the reason. ing in that case are disclosed, so it is impossible to say how the rule was applied, or what embarrassment to a particular creditor occasioned by a voluntary bankruptcy proceeding was deemed sufficient to require a court to set aside an adjudication.

"If an insolvent person owing more than one debt files a voluntary petition after his property has been attached by one of his creditors, the latter undoubtedly is embar rassed, for otherwise he might have collected his claim in full; still it would be impossible to regard the proceeding as a fraud on the act. An unworthy motive for the exercise of a legal right is not sufficient to extinguish the right." In re Pyatt, (D. C. Nev. 1918) 257 Fed. 362.

"Any person, except a municipal, railroad. insurance, or banking corporation, is entitled to the benefits of the Bankruptcy Act as a voluntary bankrupt. If such a person owes debts, however small, he may file a petition. It is not necessary for him to allege or prove insolvency; and, furthermore, his petition cannot be opposed by his creditors." In re Vadner, (D. C. Nev. 1918)

259 Fed. 614.

Corporations A public service corpora tion is included within the provisions of this section, and if actually bankrupt, its right to secure the benefits of the Bankruptcy Act is

not impaired or defeated because it is exercised at the instance of another corporation which holds the majority of its stock. Holland v. Holland City Gas Co., (C. C. A. 6th Cir. 1919) 257 Fed. 679, 168 C. C. A. 629.

Power of directors when corporation in hands of receiver.-After the issuance of an injunction by a state court enjoining a corporation, its directors and officers, from exercising any of its privileges and franchises, directors who meet and pass a resolution authorizing the filing of a voluntary petition in bankruptcy, and officers who execute such a petition are guilty of contempt. Moreover a state receiver appointed on the awarding of the injunction will be directed to appear in the federal court and move to strike from the files the petition in bankruptcy upon the ground that those purporting to act as directors had no power to act as such, and that their acts are in no respect binding on the corporation, and, the acts, the resolution, and proceedings being in violation of the order of a court of competent jurisdiction, they must be considered void. Cavagnario r. Indian Tire, etc., Co., (1919) 90 N. J. Eq. 532, 107 Atl. 643, wherein it was further held that the receiver might appear and not submit in any other particular to the jurisdiction of the federal

court.

as

Vol. 1, p. 569, sec. 4b. [First ed.,

1912 Supp., p. 495.]

I. GENERALLY (p. 569)

Computation of indebtedness.- In computing the total indebtedness of an alleged bankrupt in order to determine whether he owes debts amounting to not less than $1,000, claims paid by preferential or fraudulent transfers should be counted. Boston West Africa Trading Co. v. Quaker City Morocco Co., (C. C. A. 1st Cir. 1919) 261 Fed. 665, affirming (D. C. Mass. 1919) 255 Fed. 924. Regarding this question, the court said:

"The appellant's counsel has addressed to us an elaborate argument, asking us to overturn the established practice of nearly 20 years- that in computing the total indebtedness in order to determine whether the alleged bankrupt owes debts amounting to not less than $1,000, claims paid by preferential or fraudulent transfers shall be counted. It would require extraordinary reasons to justify us at this late day in attempting to change what has so long been regarded as the accepted interpretation of the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 544).

"We are not at all impressed with the soundness of the contention. If sustained, it would open a wide door to fraud. We regard it as inconsistent with the general principles of equality, which underlie the whole Bankruptcy Act. The question was carefully considered by Judge Dodge in the Massachusetts District Court in the case of In re Jacobson (D. C.) 181 Fed. 870.

We

are satisfied with that decision and with the reasoning upon which it is based. See, also, 7 Corpus Juris, 67, 68, § 96; In re Norcross, 1 Am. Bankr. Rep. 644; In re Cain, 2 Am. Bankr. Rep. 379; In re Tirre (D. C.) 95 Fed. 425; In re McMurtrey (D. C.) 142 Fed. 853."

Vol. I, p. 587, sec. 5f.

1912 Supp., p. 506.]

[First ed.,

Partnership tort. Where a tort is done in the course of partnership business, for the benefit of the firm and without benefit to the partners as individuals, and the firm and partners are put into bankruptcy, the tort claim is not provable against the partners. Schall v. Camors, (1920) 251 U. S. 239, 40 S. Ct. 135, 64 U. S. (L. ed.) (affirming (C. C. A. 5th Cir. 1918) 250 Fed. 6, 162 C. C. A. 178) wherein the court said:

"It is insisted by petitioners, further, that because the proofs of the individual claims establish the responsibility of each partner for the frauds, they are liable in solido not only as partners, but individually, and that, irrespective of whether the claims are provable in tort for the fraud, they are provable and were properly proved both against the individual partners and against the firm as claims in quasi contract or equitable debt. But as the basis of a liability of this character is the unjust enrichment of the debtor, and as the facts show that no benefit accrued to the individuals as a result of the frauds beyond that which accrued to the firm, the logical result of the argument is that out of one enrichment there may arise three separate and independent indebtednesses. Doubtless it would be conceded that a single satisfaction would discharge all of the claims; but we are dealing with a situation where by reason of insolvency it is not to be presumed that claims will be satisfied in full; and, as already pointed out, the effect of sustaining the right to double proof would be to give petitioners not only a right to share in the partnership assets on equal terms with other partnership creditors, but a participation in the individual assets on equal terms with other individual creditors and in preference to other partnership creditors. Section 5 of the Bankruptcy Act (30 Stat. 547, 548) establishes on a firm basis the respective equities of the individual and firm creditors. Hence the distinction between individual and firm debts is a matter of substance, and must depend upon the essential character of the transactions out of which they arise. And since in this case the tort was done in the course of the partnership business, for the benefit of the firm and without benefit to the partners as individuals, no legal or equitable claim as against the individuals that might be deemed to arise out of it, by waiver of the tort or otherwise, can displace the equities of other creditors, recognized in the Bankruptcy Act, and put petitioners in a position of equality with others who actually

were creditors of the individual partners, and of preference over other firm creditors. Reynolds v. New York Trust Co., 188 Fed. 611, 619, 620, 110 C. C. A. 409, 39 L. R. A. (N. S.) 391."

Creditors of individual partners.-" Where a bankrupt is a copartnership, the members or some of the members of which are themselves partnerships, the creditors of such a constituent firm are entitled to have their debts first paid out of its assets before the creditors of the bankrupt copartnership may participate therein, precisely as the individual creditors of an ordinary copartnership have the first claim upon his assets." Reidsville Bank t. Burton, (C. C. A. 4th Cir. 1919) 259 Fed. 218, 170 C. C. A. 286.

Vol. I, p. 590, sec. 5g. [First ed.,

1912 Supp., p. 507.]

Notes Firm notes signed or indorsed by partners. Every creditor who holds a note of a bankrupt firm upon which an individual member has, as joint maker, surety, or indorser, made himself individually liable, is entitled to prove his claim both against the partnership and the individual estate. Reidsville Bank v. Burton, (C. C. A. 4th Cir. 1919) 259 Fed. 218, 170 C. C. A. 286.

Vol. I, p. 591, sec. 5h. [First ed.,

1912 Supp., p. 508.]

Right of unadjudicated partner. The bankruptcy of a partner does not deprive the other partner of implied power to convey the firm real estate in settlement of the firm's business or to dispose of his own interest. Denny v. Lee, (Tex. 1920) 221 S. W. 947.

Vol. I, p. 592, sec. 6a. [First ed.,

1912 Supp., p. 508.]

III. Matters affecting right to exemption. IV. Recognition of state and federal exemption laws.

III. MATTERS AFFECTING RIGHT TO EXEMPTION (p. 596)

Breach of agreement with creditor.- In Peyton v. Farmers' Nat. Bank, (C. C. A. 5th Cir. 1919) 261 Fed. 326, it was held that the bankrupt was entitled to exemption of an automobile as a family carriage under Art. 3785 Texas Rev. Stat., as against the contention of an objecting creditor that the automobile had been bought with funds procured by the bankrupt from the sale of grain, which had been mortgaged by the bankrupt to the objecting creditor and the proceeds of the sale of which the bankrupt had agreed to pay to the objecting creditor. The court said:

"The bankrupt was entitled to have it set aside to him as exempt, unless the trustee in bankruptcy could assert the objecting creditor's claim. That claim was neither a trans

fer under section 70e of the act nor a lien obtained by legal proceedings, or at all, under section 67 of the act. It was therefore not vested in the trustee, and, being the right of the individual creditor alone, it could not interfere with the right of the bankrupt to have the automobile declared exempt from administration in the bankrupt court. The jurisdiction of the bankrupt court terminated when the automobile was set aside to the bankrupt. The right of the individual objecting creditor to follow the proceeds of the sale of the grain into the automobile would have to be asserted in the state court; the bankrupt's discharge having been stayed for that purpose. Lockwood v. Exchange Bank, 190 U. S. 294, 23 Sup. Ct. 751, 47 L. ed. 1061. The case of Parlin & Orendorff Implement Co. v. Moulden, 228 Fed. 111, 142 C. C. A. 517, L. R. A. 1917B, 130, was one in which the agreement of the bankrupt was with all his creditors, and not one alone, and so inured to the trustee."

IV. RECOGNITION OF STATE AND FEDERAL EXEMPTION Laws (p. 601)

Exemptions which are prescribed by the state laws." The bankruptcy court will follow the jurisprudence of the state in which it is administering, upon the matter of exemptions. Hence, where under the state law a debtor's exemptions may be charged with property that he conceals or withholds from his creditors at the time of a levy against him, the bankruptcy court will follow that rule in determining the bankrupt's exemptions. Libby v. Beverly, (C. C. A. 5th Cir. 1920) 263 Fed. 63. Commenting on the purpose of the rule, the court said:

unac

"The purpose of the rule is not to punish the bankrupt for committing fraud or for making preferential transfers, but it rests upon the theory that the unaccounted for assets are still in the possession of the bankrupt at the time of the filing of his petition, and should have been surrendered to his trustee for the benefit of his creditors, and that, if the bankrupt fails to make such surrender, he may be made to do so by the bankrupt court. To avoid circuity, his failure to surrender will be treated as a forced selection of the assets concealed or counted for, as a part of his exemptions. This principle justifies the action of the District Court with reference to the moneys wholly unaccounted for. The amount of $300 paid his wife, shortly before bankruptcy, is in a different attitude. It is conceded that it was paid to liquidate a just debt owing by the bankrupt to his wife. It was an unlawful preference under the Bankruptcy Law, having been made within four months of the filing of the petition, and while the bankrupt was insolvent. That alone would not justify a charge against the bankrupt's exemption in equal amount. The case of Florida Loan, etc.. Co. v. Crabb, 45 Fla. 306, 33 So. 523, holds that the concealment or removal beyond the

reach of his creditors of a part of his personal property by a debtor in an attachment as a preliminary to claiming his constitutional exemptions will, where the property remains so concealed, be treated as a selection pro tanto by the debtor of his exemptions."

State law adopted - Florida.- Libby v. Beverly, (C. C. A. 5th Cir. 1920) 263 Fed. 63. Homestead exemptions Teras.- To the same effect as first paragraph of original annotation, see Peyton t. Farmers' Nat. Bank, (C. C. A. 5th Cir. 1919) 261 Fed. 326, wherein it appeared that a house and lot claimed by the bankrupt, as a living homestead, was purchased by him immediately before the filing of his petition in bankruptcy, the deed having been executed two days before that event. The court said:

"The bankrupt, at the time of the purchase, had other property which was suitable for his homestead, and was therefore called upon to indicate his selection. No preparatory steps to occupy the purchased premises were taken by him before bankruptcy. The attitude of the case is therefore that of one claiming a homestead without occupancy or tangible preparation to that end, and without having declared his intention to occupy the premises as a home. The authorities are against the sufficiency of such a showing for a homestead exemption. Franklin v. Coffee, 18 Tex. 413, 70 Am. Dec. 292; Murphy v. Lewis (Tex. Civ. App.) 198 S. W. 1062; Blackwell . Lasseter (Tex. Civ. App.) 203 S. W. 620; Markum v. Markum (Tex. Civ. App.) 210 S. W. 841; Barnes v. White, 53 Tex. 628. In the case of Gardner v. Douglass, 64 Tex. 76, relied upon by petitioner, there was a showing of a declaration of intention, and a subsequent occupancy of the premises as a home, both of which are lacking in this case."

The bankrupt also claimed exemption of a building in which he was conducting his business on the ground that it was a business homestead, and of the machinery therein as tools and apparatus of his trade. Regarding these claims, the court said:

"The District Court allowed the building in which the bankrupt was conducting his mill business to him as a business homestead, but denied the bankrupt's exemptions in the machinery and accessories claimed by him as exempt because a part of it, or as tools and apparatus of his trade. The bankrupt was a miller, and conducted his business as a miller in a building on ground leased to him by the Cotton Belt Railroad Company. The District Court held that the building, though it was not realty, in view of the tenure by which it was held, was a business homestead as personalty. It further held that, being personalty, it did not carry its contents, though they were fixtures, as a part of it, and as exempt with it. The District Court relied upon the case of Cullers v. Henry & James, 66 Tex. 494, 1 S. W. 314,

as controlling, and it seems to us to be so. In that case a ginhouse, which was built on leased land, was allowed the debtor as a business homestead, though it was held to be personalty. . . . In the same case the Supreme Court said with reference to the claim that the machinery was exempt as tools of trade under article 2395, Revised Statutes of Texas: The proposition that the mill and gin machinery are exempt as tools of trade cannot be seriously insisted upon. That it was urged that they were part of the homestead ought to be a sufficient answer to a claim so diametrically opposite. No authority has been cited which has gone far enough to embrace as tools of trade this kind of property, and the analogies and reason of the law do not persuade us to pioneer such extreme doctrine.'. . . In the case at bar the mill machinery was propelled by an electric motor. The reason for the distinction and for the exclusion of machinery attached to a business homestead from the benefit of the exemption laws, because the business homestead consisted of personalty, may not be obvious; but we are bound by the decisions of the Supreme Court of Texas which construe the exemption provisions of its constitution and statute. The appurtenances of the mill, which were on the mill lot, but not contained in the mill building, are likewise to be excluded from the benefit of the business homestead."

Vol. I, p. 612, sec. 7a (8). [First ed., 1912 Supp., p. 520.]

excluded only if objection to its introduction is made by him. Bain v. U. S., (C. C. A. 6th Cir. 1920) 262 Fed. 664.

The section does not exempt a bankrupt from prosecution for perjury committed on his examination. State v. Frasier, (1919) 94 Ore. 90, 180 Pac. 520, 184 Pac. 848.

Vol. I, p. 630, sec. 11a. [First ed., 1912 Supp., p. 531.]

I. In general.

II. Discretion as to granting stays.

III. Stay as dependent on dischargeability of debt.

IV. Stay of proceedings on valid liens.

V. Where state court has complete jurisdiction.

I. IN GENERAL (p. 630) Stays after discharge. This section only applies to staying suits against a bankrupt prior to his discharge. Hence, after he has been discharged, a bankruptcy court will not issue an order under this section restraining further action in supplementary proceedings in a state court to discover property of the bankrupt so as to render it liable to execution under a judgment against him in the state court for breach of promise to marry. In re Madden, (D. C. N. J. 1919) 257 Fed. 581.

Bankruptcy as ground of removal. A person who is involved in litigation in which the decision has been, or is likely to be, adverse, cannot cause the suits against him to be removed to a federal court and there tried anew by filing a voluntary petition in bankruptcy. In re Vadner, (D. C. Nev. 1918) 259 Fed. 614.

II. DISCRETION AS TO GRANTING STAYS
(p. 631)

Stay discretionary.- To same effect as original annotation, see In re Vadner, (D. C. Nev. 1918) 259 Fed. 614.

Stay after adjudication.-" During the interval which elapses after petition filed and before adjudication or dismissal, the application to stay must be granted. The language is mandatory. After adjudication, whether a stay shall be granted is discretionary with the court. In the present case no application for a stay was made until long after the adjudication. The bankrupt, Vadner, therefore, was not entitled to a stay as a matter of right." In re Vadner, (D. C. Nev. 1918) 259 Fed. 614.

Suits for the recovery of fraudulently or preferentially conveyed property do not come within the provisions of this section and cannot be stayed. In re Vadner, (D. C. Nev. 1918) 259 Fed. 614.

III. STAY AS DEPENDENT ON DISCHARGEABILITY OF DEBT (p. 632)

Stay of actions on dischargeable debts.To same effect as original annotation, see In re Vadner, (D. C. Nev. 1918) 259 Fed. 614.

Stay of actions on nondischargeable debts. -A bankruptcy court is powerless to enjoin a state court from punishing a bankrupt for refusing to obey the order of the latter court to pay alimony, or to relieve him from his obligation to pay instalments of alimony, since alimony is a nondischargeable debt. In re Pyatt, (D. C. Nev. 1918) 257 Fed. 362. IV. STAY OF PROCEEDINGS ON VALID LIENS (p. 635)

Stay denied. To same effect as original annotation, see In re Brinn, (N. D. Ga. 1919) 262 Fed. 527, holding that the enforcement of a judgment of a state court rendered more than four months prior to the filing of the petition, would not be enjoined. The court said:

"In such cases the bankruptcy court will not ordinarily interfere by injunction, whether before or after actual levy, though in exceptional cases, such, for instance, as might authorize the interference of a court of equity where bankruptcy had not occurred, the bankruptcy court may properly intervene. The referee properly refused an injunction, if for no better reason than because the ground on which it was sought, to wit, that the judgments in question had been rendered within four months prior to the petition in bankruptcy, was not in fact true."

V. WHERE STATE COURT HAS COMPLETE JURISDICTION (p. 636)

Suit to replevy property not claimed by bankrupt's estate.-A court of bankruptcy is without jurisdiction to enjoin the prosecution in a state court of a suit to replevy certain bonds alleged to have been converted by the bankrupt, and as to which no claim of ownership is made by him. In re Amy, (C. C. A. 2d Cir. 1920) 263 Fed. 8.

Vol. I, p. 643, sec. 12a. [First ed.,

1912 Supp., p. 540.]

Consent by corporation to offer of composition by its trustees.- In In re O'Gara Coal Co., (C. C. A. 7th Cir. 1919) 260 Fed. 742, 171 C. C. A. 480, it was contended that a corporation adjudicated a bankrupt had no authority to elect officers and directors nor to consent to a reorganization and composi tion offered by its creditors, while its affairs were being conducted in the bankruptcy court. The court, in overruling this contention, said:

"The provisions in the Bankruptcy Act providing for a composition clearly indicate that the Congress did not intend to deny to corporations the right to protect their own interest, including the right to elect directors. To give the bankrupt companies the right to propose compositions is inconsistent with a denial of the right of stockholders and directors to maintain the corporate existence and to take action necessary to the submission of such proposals."