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In re Linda Coal and Supply Co.

decided.: May 19, 1958.

IN THE MATTER OF LINDA COAL AND SUPPLY COMPANY, A CORPORATION, ALLEGED BANKRUPT. L. H. HABERMAN & SON, ELLSWORTH MEEDER, RALPH BARKLEY AND ROBERT J. CUNNINGHAM, JR., APPELLANTS.


Author: Mclaughlin

Before GOODRICH, McLAUGHLIN and KALODNER, Circuit Judges.

McLAUGHLIN, Circuit Judge.

This case started with the filing of a petition by certain general creditors of Linda Coal and Supply Company praying that the corporation be adjudged a bankrupt. The relevant portions of the Bankruptcy Act are set out in the margin.*fn1 After a hearing in which the evidence dealt only with the circumstances of the disposition of a certain dragline, the court below stated that "* * * there was but one issue and it is, as stated in the Complaint, that '* * * said Linda Coal and Supply Company * * * made a * * * transfer of one Model 2400 Lima Dragline without fair consideration, while insolvent, * * *'". The court found that the dragline was sold "* * * for a fair and reasonable consideration and for a price equivalent to its then market value." The court concluded as a matter of law that in selling the dragline on the terms it did, the company did not commit an act of bankruptcy.

Our study of the record leads us to doubt whether we would have reached that result with the same alacrity. That doubt is engendered by the evidence of a number of offers higher than the price ultimately received, of the president's cavalier rejection of such offers without referring them to the directors or the stockholders,*fn2 of the president's attempt to obtain the machine for himself at a price some $26,000 less than the final one, and of the president's association with the group which ultimately bought the dragline. There was evidence also of somewhat surprising subordination by the other two directors to the president in the face of evident lively interest in the machine on the part of the representative of the fourth stockholder in behalf of a prospective buyer. Nor would we have relied too heavily on the opinion of the expert, Ragner, that the ultimate $66,100 price was fair when elsewhere it had been developed that the machine had been valued as high as $100,000 by the manufacturer's representative, and at $75,000 by Ragner himself with the machine having remained idle between the times of these estimates and its ultimate sale. However, since it is not our function to weigh evidence, the findings of fact must, if supported by the evidence, be accepted. F.R.Civ.Proc. Rule 52(a), 28 U.S.C. In the situation we leave undisturbed the district court's determination that the company did not commit an act of bankruptcy by a transfer of the dragline without fair consideration.

Appellants' present argument relies chiefly on an assertion that the evidence shows an act of bankruptcy by the defendant in removing the dragline, with intent to hinder, delay, or defraud its creditors.*fn3 Appellee, however, contends that only the issue passed on by the court was raised in the petition, that the hearing was subsequently and expressly limited to that one issue, and that no other issue can now be raised.*fn4

The wording of the petition does not on its face charge that the dragline was removed with intent to delay or hinder creditors. An allegation of that kind was made in paragraph six as to certain other machinery and materials, but was expressly disclaimed at trial as matter on which plaintiffs intended to erect their case. Paragraph six of the petition incorporates the first reference to the dragline, which was the subject of the trial, by stating as follows:

"* * * The said Linda Coal and Supply Company further made a transfer of its property fraudulent under the provisions of Section 67 of the Federal Bankruptcy Act by making transfer of one Model 2400 Lima Dragline without fair consideration, while insolvent, said transfer not having yet become so far perfected that no bona fide purchaser from the debtor can acquire any rights in the property so transferred superior to the rights of the transferee. * * *"

Unless it is possible to read the petition as including the allegation concerning intent to delay and hinder creditors in the above-quoted allegation, it can fairly be said that the issue of intent to delay and hinder creditors by the transfer of the dragline is not raised by the petition.

If the only circumstance concerning petitioners' right to rely on a demonstration of intent to hinder and delay creditors involved a construction of the pleading, the policy of broadly construing and generously amending pleadings might permit (if it did not require) the indulgent reading suggested in the preceding pargraph. But counsel for the petitioners repeatedly declared that the sole issue raised by them for resolution at the trial was whether the transfer of the dragline was effected for a fair consideration. At the opening of the trial counsel declared:

"Now our petition, Your Honor, avers three acts of conduct on the part of the company which we feel constitute acts of bankruptcy, and we anticipate that the evidence will develop perhaps several other acts of bankruptcy, but for the purpose of this proceeding will confine ourselves primarily to the conduct with respect to the sale of one Model 2400 Lima Dragline. * * *"

The Court: "Now, with regard to that, what is the point there, the point at issue with regard to that dragline? * * *"

Counsel for petitioner: "Your Honor, we feel the circumstances surrounding the sale and the actual sale of the dragline constitutes fraud upon the creditors, as a matter of fact, a fraud upon the creditors as defined under Section 67 of the Bankruptcy Act, having been sold while insolvent for inadequate consideration."

In an interchange between court and counsel at the close of the petitioners' case, the court asked:

"So you have the question then simply whether or not you made this transfer for lack of fair ...


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