In re Cleveland Discount Co.

WESTENHAVER, District Judge. After issue joined by original petition and answer, a reference was made by consent to a master to hear the issue and make findings of fact and conclusions of law. The cause is now before me on two reports of the special master and exceptions thereto, one filed August 6, 1923, and the other October 9, 1923. The first report involves only a ruling upon the admissibility of evidence, the correctness of which was by counsel certified to me for review. After reference, and while the hearing was pending, the three origina;! petitioning creditors withdrew. Other petitioning creditors were permitted to intervene and adopt the original petition. These inter-veners, more than four months after the original petition was filed, sought leave to amend by setting up certain alleged acts of bankruptcy, said to be wholly new and independent and not within the purview of the original petition. Inasmuch as this cause was then pending before the special master, and had in part been heard by him, the propriety of allowing the requested amendments was likewise referred to him, with instructions to inquire fully and report whether it was proper to permit such amendments to be made. The second report is in response thereto, and inasmuch as the master’s action is advisory only, this court, on the hearing of the exceptions thereto, has permitted to be filed and considered additional evidence in affidavit form. Upon mature consideration, I am of opinion that an amendment should be allowed, [868] setting up that the Cleveland Discount Company committed acts of bankruptcy, in that, being insolvent, it applied for a receiver for its property in the court of common pleas of Cuyahoga county, Ohio, on or about the 23d day of February, 1923, and that, because of insolvency, a receiver has been put in charge of its property by said state court. This last branch of the alleged act of bankruptcy is in the original petition. The amendment goes only to the first alleged act. Upon examination of the original petition and answer, and various applications of defendant for extensions of time to answer, I am of opinion that the proposed amendment is not in substance the introduction after four months of an entirely new and independent act of bankruptcy, but is merely an amplification of the act originally alleged. Assuming, as I do, that all parties were at all times acting in good faith, the issue as thus amended is the issue which the parties were intending to make up and try. It was the issue which the court understood, and was warranted in understanding, the parties intended to make up and try when applications for extensions of time to answer were applied for and time given. The parties by their acts and conduct having thus framed and characterized the issue, it is not permissible, after four months’ time has thus been obtained, to place another and different interpretation thereon. If defendant’s position, that no evidence is admissible in support of the issue as framed by original petition and answer, except the pleadings and decree in the state receivership ease, is now tenable, then it was futile to apply for and obtain extensions of time to answer, on the ground that it could not be determined, until an audit was completed, whether or not the alleged bankrupt was insolvent. It was more than futile; it was wholly misleading to the petitioners and to the court. If the defendant is now right in its several contentions, this inquiry was immaterial, and an answer could and should have been filed, without asking for extensions of time to answer. In the present situation, and in view of these considerations, it is inequitable, after four months, to allow a change of attitude. To permit now the amendment will only require the parties to try an issue that the court and apparently both parties then thought was to he made up and tried. Compare Boehmke v. Traction Co., 88 Ohio St. 156, 163, 164, 102 N. E. 700. Conceding the rule that an entirely new and independent act of bankruptcy may not be set up after a lapse of four months, I deem it, under the stated circumstances, within the power of this court, sitting as a court of equity, to allow an amendment which will clear up on the record all technical insufficiencies, if any, in these issues as framed by the original petition and answer. The application to amend, by alleging preferential transfers more than four months old, will be denied. In my opinion, the correct rule is that wholly new and independent acts of bankruptcy cannot, by way of amendment, be set up more than four months after they were committed. Moreover, the alleged preferential transfers were, on the hearing before me, shown to be without substantial merit; indeed, the alleged preferences were reduced to a payment of $107.75 to the Ohio Desk Company,'made on or about December 6, 1922. The equities appear to be strongly against the introduction thereof into the case at this time. The exceptions to the special master’s report filed October 9,1923, will therefore be overruled to the extent necessary to permit the amendment above noted, and sustained in all other respects. This conclusion renders unnecessary a consideration of the legal correctness of the special master’s ruling certified in his first report. His ruling is approved. He is instructed to proceed with the reference upon the issues as framed after the above amendment is made, and by such further answer, if any, as the alleged bankrupt, in view thereof, may see fit to make to its' answer. All other equitable considerations, by way of estoppel or otherwise, urged by defendant in opposition to the intervening petitioners’ right to have the defendant adjudged a bankrupt, do not properly arise upon this hearing. Undoubtedly creditors may waive acts of bankruptcy, or may by their conduct estop themselves from invoking the jurisdiction of a court of bankruptcy. Whether the intervening creditors are or may be estopped by laches or otherwise, whether or not the number of creditors not waiving the alleged acts of bankruptcy are so few in number, or their claims so insignificant in amount, as to justify the bankruptcy court, in the exercise of its equitable powers, to refuse to take jurisdiction, are all matters which cannot now be considered or determined; but, if defendants resist adjudication upon the.se or other equitable considerations, it will be necessary first to make full inquiry and find the facts. It is sufficient to say that on this hearing the court cannot anticipate the result of such an inquiry. [869] Orders will be entered in conformity herewith. Proper exceptions will be allowed. The special master is instructed to proceed .with all convenient dispatch to execute the order of reference. Too great delay has already ensued, and should have been avoided. Delay may grievously' complicate the situation.