Wilson v. Alliance Life Ins. Co.

102 F.2d 365, 1939 U.S. App. LEXIS 3856

• Court: Court of Appeals for the Fifth Circuit
• Decided: March 16, 1939
• Docket: 8949
• Status: Published

Opinions

HOLMES, Circuit Judge.

This appeal is from an order setting aside a former order of adjudication in bankruptcy under Section 75(s) of the Bankruptcy Act, 11 U.S.C.A. § 203(s), and dismissing the proceedings, because the petition was not filed in good faith and there was no hope of rehabilitation.

During her lifetime, appellant’s intestate filed her petition to effect a composition or extension of her debts, and submitted her offer at the first meeting of creditors. The offer being refused, she filed her amended petition under Section 75 (s), praying to be adjudicated a bankrupt and afforded the relief therein provided. The order of adjudication was regularly entered, and proceedings for the collection of debts and enforcement of liens were stayed in accordance with the procedure prescribed in the act. Thereafter, the bankrupt died, and appellant, having qualified as administrator, petitioned to be allowed to proceed in behalf of her estate. Appellee entered its appearance in opposition to appellant’s petition, alleging that the order of adjudication was improvidently entered; that no offer of composition had been made in good faith prior to adjudication; that no feasible plan of liquidation had been submitted with the offer; that there was no reasonable hope of rehabilitation; that the land upon which appellee held a lien constituted the corpus of the estate and was worth less than the amount of the lien, leaving no equity for the estate; and prayed that the order of adjudication be set aside and the case dismissed.

_ , , . . _ On a reference to the Supervising Con-dilation Commissioner, a hearing was had, after which the Commissioner^ found that the proposed plan of composition and extension was not made m good faith; that neither the bankrupt nor appellant had any feasible plan of rehabilitation; and that the amount of the debt to appellee was m excess of the value of the security whereby further administration would be of no benefit to the estate. The court adopted the report of the Supervising Conciliation Commissioner set aside the order of adjudication, and dismissed the proceeding. Rely-mg principally upon the case of Benno Bartels v. John Hancock Insurance Co. 5 Cir., 100 F.2d 813, appdlant pr0secutes thls aP' p '

On the ground that the appeal was perfected under Section 24a of the Bankruptcy Act, 11 U.S.C.A. § 47 (a), whereas it should have been under Section 24b, II U.S.C.A. § 47 (b), appellee moves to dismiss the appeal. Since the record is sufficient to present questions of law which are determinative of the controversy, the motion to dismiss will be overruled, and the appeal will be allowed as if brought under Section 24b ■ for' the consideration of the questions of law only. Baxter v. Savings Bank of Utica, 5 Cir., 92 F.2d 404, 405, and cases cited.

Accepting the finding that the offer was not made in good faith and that there is no reasonable hope of rehabilitation, as we must on this appeal, appellant’s contention is reduced to the proposition that the district court was without authority to set aside the adjudication and dismiss the proceeding, but'wa,s bound to continue the stay provided for or to liquidate according to the procedure and subject to the limitations provided for in the act. Following what we conceive to be the correct interpretation of the case of Wright v. Vin-ton Branch of Mountain Trust Bank, 300 U.S. 440, 57 S.Ct. 556, 81 L.Ed. 736, 112 A. L.R. 1455, we have held that good faith and a reasonable hope of rehabilitation in the proceedings leading to, as well as in male-ing, the offer of composition and extension - under Section 75 of the act', 11 U.S.C.A. § 203(a)-(r) are necessary prerequisites to the benefits provided under subsection (s), 11 U.S.C.A. § 203 (s). Baxter v. Savings Bank of Utica, supra, 5 Cir., 92 F.2d 404, 406; In re John Beverly Henderson, 5 Cir., 100 F.2d 820.

. . .. . . ,, As to the contention that the authority t0 dismiss does not exist in the district courtj because not expressly conferred by the ^ it should be noted that the eral bankruptcy act contains no provision autllorizing a dlsmissai for fraud or lack of jurisdiction. It is true that the bankruptcy court is limited in its jurisdiction, being created by statute but even so> it is a court of equityj within its spherej and may pro. tect itself from being used as an instrument of hindering and deiaying creditors when the debtor in filing the petition, was acting in bad faith and without hope of re. habitation. To let the adjudication stand in such circumstances would be to sanction ^ continuation of an unwarranted imposition upon the jurisdiction of the court.

Furthermore, the petition to be adjudged a bankrupt under 75 (s) is merely an amendment to the prayer of the petition f0r a composition and extension under 75 (a)-(r), as to which there is express statutory authority to dismiss because not filed in good faith. The argument of appellant is reduced to this: that, although there is statutory authority to dismiss the original petition for lack of good faith, this author-jty is lost when the prayer of the petition is ¡amended by asking to be adjudged a bankrupt, even though the prayer is amended under a separate paragraph of the same act.

Added to the principle that the law will not do an idle thing we have, then, to sup-port the action of the court in dismissing the petition and amendment thereto: (1) the inherent power of a court of bankrupt-cy to protect its jurisdiction from abuse; (2) the express statutory power to dismiss the original petition under Section 75 (a)— (r) for lack of good faith, the prayer only of the petition being amended under paragraph (s) ; (3) the construction of the act by the supreme court in Wright v, Vinton Branch, supra, upholding its constitution-ality on the ground that the bankruptcy court has the power to put an end to the proceedings, if not filed in good faith; (4) the opinion of Mr. Justice Brandéis, that relief under 75 (s) may be obtained only by 'one who has made a bona fide attempt, and has failed, to effect a composition under Section 75 (a)-(r), followed by his statement that “if the debtor is beyond all reasonable hope of financial rehabilitation, and the proceedings under section 75 cannot be expected to have any effect beyond postponing inevitable liquidation, the proceedings will be halted at the outset.” 300 U.S. page 4(>2, 57 S.Ct. page 562. If further implication of power is needed, it is found in 75 (i), which provides that the court shall confirm the proposal if satisfied that the offer and its acceptance are in good faith.

The judgment of the district court is affirmed