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HOUGHTON v. BURDEN.

decided: April 7, 1913.

HOUGHTON, RECEIVER
v.
BURDEN.



APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.

Author: Lurton

[ 228 U.S. Page 164]

 MR. JUSTICE LURTON delivered the opinion of the court.

This is an appeal from a decree determining a controversy arising in a bankruptcy proceeding. The origin of the matter was this: Canfield, the bankrupt, was a merchant in New York. He borrowed from Burden the sum of $10,000, and as security assigned to him certain book accounts, aggregating the sum of $14,000, and agreed to act as agent for Burden in their collection. Shortly afterwards he was adjudicated a bankrupt. The receiver obtained possession of the bankrupt's books and held on to the assigned accounts and proceeded to collect them upon the claim that the contract was usurious and void under the law of New York.

In this situation Burden intervened in the bankruptcy case and filed a petition, in which he asserted his title to the assigned accounts and to any proceeds collected by the receiver. The District Court, upon a final hearing, upheld the contention of the bankrupt's receiver, now the trustee, and dismissed the intervening petition. This decree was reversed by the Circuit Court of Appeals, that court holding that the defense of usury had not been satisfactorily made out.

The appellant contends that the controversy having been heard by the district judge without a jury, the Circuit Court of Appeals had no authority to review the facts. For this, § 566, Revised Statutes, is cited, and also the case of Campbell v. United States, 224 U.S. 99, which construes that section. But that provision only requires that the trial of issues of fact in the District Court, except in cases in equity and admiralty, and except as otherwise provided in proceedings in bankruptcy, shall be by jury. But the District Court, is, by § 2 of the Bankruptcy Act of 1898, July 1, 1898, 30 Stat. 544, c. 541, when sitting

[ 228 U.S. Page 165]

     as a bankruptcy court, given jurisdiction in law and equity for the purpose of collecting and distributing the estate of a bankrupt, and for the purpose of determining controversies relating thereto, except as otherwise provided. The exception has no application here, as Burden voluntarily came into the bankruptcy proceeding and submitted his claim to the adjudication of the bankruptcy court. Such an intervention for the purpose of asserting a title or claim to property in the possession of the bankrupt's trustee is an intervention in equity and a decree is reviewable by appeal to the Circuit Court of Appeals in the exercise of its general appellate powers in equity cases under § 24-a of the Bankruptcy Act. Loveland on Bankruptcy, 4th ed., §§ 826 to 829; Hewit v. Berlin Machine Works, 194 U.S. 296, 300; Knapp v. Milwaukee Trust Company, 216 U.S. 545. Upon such an appeal the law and the facts are open for reconsideration, and from the decree of the Circuit Court of Appeals, it not being final (§ 128, new Judicial Code), an appeal may be taken under § 241 of the same code.

Being an appeal from a decree in a controversy arising in a bankruptcy proceeding, and therefore, an appeal under § 24-a, and not under § 25-b, General Order XXXVI made under the latter section and requiring a finding of facts, has no application, and the appeal opens up the whole case as in other equity cases. Hewit v. Berlin Machine Works, supra; Coder v. Arts, 213 U.S, 223, and Knapp v. Milwaukee Trust Co., supra.

Coming now to the merits. The single question is one of usury in the contract. The lawful rate of interest in New York is 6 per cent. By § 373 of the General Business Law of New York it is provided:

"All . . . contracts whatsoever . . . whereupon or whereby there shall be reserved or taken or secured, or agreed to be reserved or taken any greater sum or greater value for the loan or forbearance of any money,

[ 228 U.S. Page 166]

     goods or other things in action, than as above prescribed, shall be void."

Canfield was a reputable merchant engaged in business in New York. Burden was a retired merchant and an experienced accountant, who wished to secure light employment. To secure such employment he advertised that he would lend from $10,000, to $20,000, at 6 per cent. to a merchant whose rating was good, if the loan would secure such employment. Through a broker, compensated by Canfield, negotiations were opened with Burden, who proposed the loan provided he could get light employment in Canfield's office as a financial man. But the financial statement of Canfield exhibited to Burden was nearly a year old, and this did not satisfy Burden, and the negotiations fell through partly for that reason, and partly because the parties could not agree upon the position Burden desired. Some weeks later the negotiations were resumed, the broker saying that he might get additional security through an indemnity bond, by which the validity of the book accounts which were agreed to be assigned might be guaranteed as well as the payment of collections made by Canfield as agent. Canfield agreed to furnish such a bond. The proposed bond required the obligee to watch the shipping receipts and to make monthly minute examinations of Canfield's books, showing the several assigned accounts. Finding this requirement to be a condition of such a bond, Burden demanded that he should be compensated for the service he would be required to render to ...


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