In re Douglas Coal & Coke Co.

CLARK, District Judge. In regard to this case, it is only necessary to say shortly that in view of the language of the act of Congress, and the changes which were deliberately made in the provisions of the act while it was before the Senate judiciary committee, I am constrained to affirm the ruling of the referee, and for the reasons which he states. There is no doubt in this case about insolvency being established, in the legal sense; but Congress has used such language as makes it necessary that a receivership in a state court, in order to constitute an act of bankruptcy, must have been established, or the receiver appointed, on the ground of the corporation’s insolvency. It is very much open to doubt whether Congress has not here used language which makes necessary a result which Congress itself intended to avoid. Looking to the practical bearing of the question, there is much reason to believe that Congress intended to make the appointment of a receiver in a state court conclusive as a ground of bankruptcy, without requiring this court to inquire into the grounds on which the receivership was created; but the language of the amendatory act is perfectly plain, in requiring that the existence of a receivership in a state court, in order to be a ground of bankruptcy, must have been on account of the insolvency of the corporation, and this leaves open in any case to inquiry by this court the grounds on which the appointment of a receiver was made, and, if the appointment was made on any other ground than that of insolvency, it does not constitute an act of bankruptcy. Now, in the case here considered, the appointment was on account of breaches of covenants — covenants like the covenant to keep down taxes, and the like — and, although these particular acts or defaults strongly tend to show insolvency, they justify the appointment of a receiver, regardless of insolvency; and it seems that, in form, at least, the receivership was established on the ground of breaches of these covenants. I do not think the payments which were made, and which are here called in question, constitute a preference or an act of bankruptcy. The ruling of the referee is accordingly affirmed, in view of the natural and necessary construction which must be placed upon the language used in the act of Congress. It is accordingly so ordered. NOTE. Since the decision in the principal case of In re Douglas Coal & Coke Company the opinion of the Circuit Court of Appeals for the Fourth Circuit in the Case of Blue Mountain Iron & Steel Co., 131 Fed. 57, has been published, and the doctrine of the opinion in this case appears to be in substantial accord with the ruling in Be Douglas Coal & Coke Company.