STELLWAGEN v. CLUM, 218 F. 730

PER CURIAM. The ultimate question arising on the hearing here was whether the Bankruptcy Act operated to suspend certain applicable statutory provisions of Ohio (referred to below). We are disposed to hold 'that, if such provisions were suspended, appellant is entitled, in behalf of Margaret Zengerle, to recover; otherwise, the trustee in bankruptcy is entitled to hold the balance due from Schuette & Co. and the lumber rejected by them, and-administer the same as part of the estate of the bankrupt for the benefit of its general creditors. The reasons for these conclusions in substance are:

(1) As between Mrs. Zengerle and the general creditors of the Georgian Bay Company, there was sufficient delivery of possession of the lumber covered by the bill of sale to dispense with the necessity of depositing the instrument with the county recorder,- such possession having been given as the nature of the property and its situation would permit (Rev. Stat. Ohio, §§ 4150, 4151; Ann. Gen. Code Ohio, §§ 8560, 8561; Hunt v. Bode, Assignee, 66 Ohio St. 255, 269, 64 N. E. 126; Ward v. First Nat. Bank of Ironton, 202 Fed. 609, 613, 120 C. C. A. 655 [C. C.

A., 6th Cir.]; In re Cincinnati Iron Store Co., 167 Fed. 486, 491, 93 C. C. A. 122 [C. C. A., 6th Cir.]; Pattison v. Dale, 196 Fed. 5, 12, 13, 115 C. C. A. 639, and citations [C. C. A., 6th Cir.]; Dale v. Pattison, 234 U. S. 399, 409, 410, 411, 34 Sup. Ct. 785, 58 L. Ed. 1370); the sale subsequently made to Schuette & Co. upon the consent of Mrs.

Zengerle’s trustee was a distinct recognition of the intent and effect of the bill of sale and the marking of the piles of lumber; and the transfer of account made two days later was manifestly designed at once to execute the purpose of the transaction involved under the bill of sale and transpose the rights thereunder of Mrs. Zengerle, as well as of the Savings Bank, to the sales proceeds.

(2) Upon the hypothesis of suspension of the state statutes, since more than four months elapsed between the delivery of the bill of sale, as also of the transfer, of account, and the bankruptcy, the trustee cannot, in virtue alone of the Bankruptcy Act, question the validity of either of those instruments.

Section 67e of Bankruptcy Act; Mayer v. Hellman, 91 U. S. 496, 501, 23 L. Ed. 377. And see Randolph v. Scruggs, 190 U. S. 533, 537, 23 Sup. Ct. 710, 47 L. Ed, 1165.

(3) However, upon the theory that the pertinent state statutes were not so suspended, the general creditors acquired rights thereunder to nave the instruments in dispute set aside, because under the facts shown the company was not then able to meet its debts as they fell due and so was insolvent within the rule of judicial decision in Ohio (as distinguished from the rule of Bankr. Act, § 1, par. 15) defining insolvency (Mitchell v. Gazzam, 12 Ohio, 315, 336; Benson v. Columbia Ins. Co., 7 Ohio N. P. [N. S.] 113, 131; Cincinnati Equipment Co. v. Degnan, 184 Fed. 834, 840, 107 C. C. A. 158 [C. C.

A., 6th Cir.] and citations); and, further, because the instruments were in terms made to a trustee (Brinkerhoff v. Tracy, 55 Ohio St. 558, 571, 45 N. E. 1100; Gashe v. Young, 51, Ohio St. 376, 389, 38 N. E. 20; Dickson v. Rawson, 5 Ohio St. 218, 222; Bagaley & Co. v. Waters, 7 Ohio St. 359, 365; Justice v. Uhl, 10 Ohio St. 170, 175, 176; Conrad & Bro. v. Pancost Co., 11 Ohio St. 685). The rights so vested in the creditors are enforceable at any time within four years (Stivens v. Summers, 68 Ohio St. 421, 441, 442, 67 N. E. 884); and under

section 70e of the Bankruptcy Act these rights accrued to the trustee in bankruptcy (In re Mullen [D. C.] 101 Fed. 413, 416, decision by the late Judge Lowell, pointing out the course pursued in the enactment of these sections; In re Schenck [D. C.] 116 Fed. 554, 555, 556; In re Toothaker Bros. [D. C.] 128 Fed. 187, 188; Bush v. Export Storage Co. [C. C.] 136 Fed. 918, 921; Nye, Trustee, v. Hart, 22 Ohio Cir. Ct. R. 427, 431; Hull v. Burr, 153 Fed. 945, 950, 83 C. C. A. 61 [C. C. A., 5th Cir.] ; Gregory v. Atkinson [D. C.] 127 Fed. 183, 184; Hurley v. Devlin [D. C.] 149 Fed. 268, 270; Manning v. Evans [D.

C.] 156 Fed. 106, 110; In re Scrinopskie, 10 Am. Bankr. Rep. 221, 224; 1 Loveland on Bankruptcy [4th Ed,] § 381, p. 787; Collier on Bankruptcy [8th Ed.] p. 775). Such rights in the trustee cannot in any event be affected, as counsel claim, by the doctrine of York Mfg. Co. v. Cassell, 201 U. S. 344, 26 Sup. Ct. 481, 50 L. Ed. 782. The infirmity pointed out in the bill of sale was from the time of its delivery inherent, and the trustee in bankruptcy, in virtue of the rights of the creditors, was invested with distinct authority to avoid the instrument (Petition of Rouse, 208 Fed. 881, 882, 126 C. C. A. 90; Carey v.

Donohue, 209 Fed. 328, 333, 334, 126 C. C. A. 254 [C. C. A., 6th Cir.]). State Statutes- Claimed to be Suspended by the Bankruptcy Act.— The Ohio statutory provisions in force at the date of the bill of sale (February 2, 1910) and in terms vesting rights, if any existed, in the general creditors to have that instrument set aside, were sections 6343 and 6344 of the Revised Statutes, as amended April 30, 1908 (99 Ohio Laws, 241, 242).

These sections were each separated and their phraseology was rearranged, though without apparent change in effect, by the General Code of Ohio, approved February 15, 1910 (3 General Code of Ohio, pp. 2392, 2393 and 2982), where they appear as sections 11102, 11103, 11104, 11105, 11106, and 11107 (see, also, 5 Page & Adams, Ann. Ohio Gen. Code, pp. 449, 460, 461, 472); and although the transfer of account was made May 5, 1910, we think it sufficient to set out

section 6343 in whole, and

section 6344 in material parts (as the sections stood February 2, 1910), in the margin. The specific claim is that

section 6343, when considered in connection with the

chapter concerning insolvent debtors (of which the

section forms a part), is suspended by the Bankruptcy Act. We take it that counsel’s main reliance, although not distinctly stated, is grounded upon that portion of

section 6343 which provides: “A receiver may be appointed who shall take charge of all the assets of such debtor or debtors, including the property so sold, conveyed, transferred, mortgaged, or assigned, which receiver shall administer all the assets of the debtor or debtors for the equal benefit of the creditors of the debtor or debtors in proportion to the amount of their respective demands, including those which aré unmatured.” It is worthy of observation that

section 6343 was amended shortly before the passage of the Bankruptcy Act, to wit, April 26, 1898 (93 Ohio Laws, 290). Another amendment was made May 12, 1902 (95 Ohio Laws, 608) but it is not important.

By the amendment of 1898 it was provided that a sale, etc., whether made in trust or otherwise, with design to prefer one or more creditors to the exclusion of others or with intent to hinder, delay, or defraud creditors, should be declared void as to creditors at the suit of any creditor, and should— “operate as an assignment and transfer of all the property and effects of such debtor or debtors, and shall inure to the equal benefit of all creditors of such debtor or debtors in proportion to the amount of their respective demands, including those which are unmatured.” No legislation going this far was ever before enacted in the state.

Whether the change made in this provision by the amendment of

section 6343 on April 30, 1908, before quoted, was intended as a modification or not, does not appear; but it is not perceivable that the change so made was substantial. It is further to be observed that

section 6344 in terms confines the effect of the conveyance denounced to the particular property sold, etc.; in other words, the duties there imposed upon the receiver or assignee do not extend to the rest of the property of the debtor. This was in harmony with the provisions of both sections 6343 and 6344 as they stood prior to the enactment of April 26, 1898 (2 Rev. Stat. of Ohio [Ed. 1880] pp. 1514, 1515); and this policy is traceable to sections 16 and 17 of the act “regulating fhe mode of adminstering assignments in trust Cor the benefit of creditors,” passed April 6, 1859 (56 Ohio Laws, pp. 231, 235; see, also,

section 17 as amended February 2, 1863 [60 Ohio Laws, p. 8]); and as early as the act of March 14, 1838, and prior to the enactment of the Ohio Code of Civil Procedure, the same policy prevailed, although the instruments of conveyance were made “subject to the control of chancery” etc. (Swan’s Ohio Statutes [Ed. 1841] § 68, p. 717).

It is to be observed of these earlier statutory provisions that they operated to thwart the intent of the grantor in any such conveyance by diverting the property from the trustee he named, and from the creditors he intended *to prefer, to another trustee for the benefit of all his creditors. During this period it was held that the act regulating the mode -of administering estates of insolvent debtors, which we have seen included these special provisions as they existed prior to 1898, was not suspended by the Bankruptcy Act of 1867 (Mayer v. Hellman, 91 U. S. 496, supra, at page 502, 23 L. Ed. 377); Mr.

Justice Field saying: “The answer is that that statute of Ohio is not an insolvent law in any proper sense of the term.” This court followed that rule after the passage of the present Bankruptcy Act, and of course after the amendment of 1898 to

section 6343, though, since only a general assignment was there involved, it would now seem to have been unnecessary to pass upon the effect of

section 6343 (In re Farrell, 176 Fed. 505, 509, 100 C. C. A. 63); and it will be remembered that it is not sought in the instant case to recover any property of the debtor except only the lumber (or its equivalent) specifically described in the bill of sale and transfer of account. The questions, then, of ultimate control, would seem to be whether the change in statutory policy so pointed out offends against the Bankruptcy Act, especially sections 60 and 67; and, if so, whether the whole of

section 6343 is suspended, or only the portion which in effect appropriates, for the benefit of all the creditors, the property of the debtor not expressly embraced in the preferential or fraudulent deed. One view is that the Bankruptcy Act covers such a situation and so occupies the field, that it is paramount and exclusive, and that necessary conflict follows (counsel’s reliance being placed upon Butler v. Goreley, 146 U. S. 303, 13 Sup. Ct. 84, 36 L. Ed. 981; Tua v. Carriere, 117 U. S. 201, 6 Sup. Ct. 565, 29 L. Ed. 855; Ogden v. Saunders, 12 Wheat. 213, 6 L. Ed. 606; Baldwin v. Hale, 1 Wall. 223, 17 L.

Ed. 531; 5 Cyc. 240). These citations suggest, also, In re Edward Klein, 1 How. 277, note, 280, Fed. Cas. No. 7,865, and Globe Ins. Co. v. Cleveland Ins. Co., Fed. Cas. No. 5,486; Nor. Pac. Ry. v. Washington, 222 U. S. 370, 378, 32 Sup. Ct. 160, 56 L. Ed. 237. The opposing view in substance is that actual conflict must be shown before suspension can be said to prevail, and that the state law, in the present instance at least, operates in aid of the bankruptcy law and so is not in conflict with it (counsel relying on Miller v. New Orleans Acid Co., 211 U. S. 496, 505, 506, 29 Sup. Ct. 176, 53 L. Ed. 300).

This is suggestive of the related rule laid down in the Minnesota Rate Cases, 230 U. S. 352, 398, 402, 33 Sup. Ct. 729, 57 L. Ed. 1511 et seq., and the kindred decisions following that rule; also In re Watts & Sachs, 190 U. S. 1, 31, 32, 23 Sup. Ct. 718, 47 L. Ed. 933; Randolph v. Scruggs, supra, 190 U. S. at p. 533, 23 Sup. Ct. 710, 47 L. Ed. 1165; Missouri, Kansas & Texas R. Co. v. Harris, 234 U. S. 412, 417, 418, 34 Sup. Ct. 790, 58 L. Ed. 1377; Old Town Bank v. McCormick, 96 Md. 341, 53 Atl. 934, 60 L. R. A. 577, 94 Am. St. Rep. 577; and Herron Co. v. Superior Court, 136 Cal. 279, 68 Pac. 814, 89 Am. St.

Rep. 124. Finding ourselves unable to reach a satisfactory conclusion upon the question of suspension, it is ordered that the following questions of law be certified to the Supreme Court for its instructions thereon: (

a) Whether the Bankruptcy Act of the United States, in force on the dates herein mentioned, operated to suspend

section 6343 of the Revised Statutes of Ohio, as such

section stood February 2, 1910. (

b) Whether the Bankruptcy Act operated to suspend the sections into which

section .6343 was divided and numbered, February 15, 1910, by the General Code of Ohio, to wit, sections 11102, 11103, 11104, and 11105, as such sections existed May 5, 1910. (

c) If the Bankruptcy Act did not operate to suspend in their entirety the several sections of the Ohio statutes mentioned in the preceding questions, whether such suspension extended only to the portions thereof which in terms appropriated, for the benefit of all the creditors, the property of the debtor not specifically described in the bill of sale and transfer of account in dispute. A further order will be entered suspending ultimate decision of the cause until answers to such questions are received.