(a) Of natural persons.
We find that the law provides that any natural person (as distinguished from corporations) may file a petition in bankruptcy. We shall hereafter see that this may not include infants or insane persons, but every sane, adult citizen, no matter what his occupation or business, may become a voluntary bankrupt.47 We find, however, that when we come to involuntary bankruptcy there are some exceptions, to-wit: wage earners and farmers or tillers of the soil. These we will now consider.
46. Vallely v. Northern Fire & Marine Ins. Co., 254 U. S. 348.
To be made an involuntary bankrupt, one must owe $1000 or over, but we shall take further note of this in a later section.
A wage earner, earning $1500 a year or less cannot be adjudged an involuntary bankrupt, but he may become a voluntary bankrupt.
A "wage earner" under the bankruptcy 'law is one who "works for wages, salary or hire, at a compensation not exceeding one thousand, five hundred dollars per year."48 Such a person may become a voluntary bankrupt, but involuntary proceedings cannot be maintained by his creditors.49
A wage earner is one who works for another for wages, salary or hire, as, a bookkeeper, a teamster, a school teacher. But one who is in business himself is not working for wages, salary or hire within this exception. Thus a lawyer earning less than $1500 a year in fees would not be exempt, but if he were working for another lawyer at a salary of $1500 a year, he would be within the exception. So it has been held that a music teacher giving lessons to various students at so much per hour or lesson is subject to involuntary proceedings, but such if teacher were employed at some home or school, he could not be proceeded against, unless making more than $1500 per year.50
47. B. A. 1898, Sec. 4
48. Id., SEC. 1, par. 27.
49. Id., SEC. 4b.
A person whose chief occupation is farming or tilling the soil cannot be made an involuntary bankrupt, no matter what his income is, but he may become a voluntary bankrupt.
(1) Purpose of this exception.
"The intent of congress to protect men engaged in agriculture who might fall behind from the failure of crops for one or two seasons, has always been recognized as the basis for this provision in the statute."51
Farmers may file voluntary petitions, but are not subject to involuntary proceedings by creditors.
(2) Who is person "engaged chiefly in farming or tillage of the soil."
A farmer is one who makes farming his chief livelihood. He may be a farmer within the meaning of the bankruptcy law, although he have other businesses or sources of revenue. The test is whether farming is of chief concern to him as an occupation of some permanence to which he looks for his chief source of revenue.
For example, B had two farms aggregating 240 acres which he managed himself, employing one assistant besides his son, and raising crops of wheat, oats, corn, hay, besides owning cows and selling milk. He also had a small store from which his income was $50 or $60 a year; and he sold $200 worth of fertilizers as agent for
50. First National Bank v. Barnum, (D. C. Pa.) 160 Fed. 245. 51. In re Doroski, (D. C. N. Y.) 271 Fed. 8.
a phosphate concern. Held, he was a farmer and not subject to involuntary bankruptcy proceedings.52
M had a farm of 122 acres, which he tilled, but also conducted a store in which he sold meats and produce. During the year he sold about $6,000 worth of meat of which about $850 was produced from his farm, the rest being purchased of others or sold on commission for others. Held, not a farmer within the meaning of the act.53
A person who buys and sells cattle as his main business is not a farmer although he owns a farm which he makes use of in the business.
Thus, B resided on a farm of 300 acres which he had purchased but upon which he had paid but little. He farmed 100 acres, but his chief activity was to buy cattle which he kept on the farm until he resold them at auction. In this business he became largely indebted. Held, not a farmer.54
But "stock farming" is as much farming as "grain farming." The distinction between stock dealing and stock farming seems to be whether he buys and sells stock as a drover or stock dealer, or as a stock farmer using his farm incidentally in the former case, but as a real farm for cattle or hog raising in the latter.55
Carrying on any business incidental to farming does not prevent one from being a farmer and so not subject to be made a bankrupt in involuntary proceedings.
W had a farm of 700 acres, which was devoted to cultivation and grazing. He kept about 100 cows which he fed principally from his farm products. He sold milk from these cows at retail by means of wagon deliveries, employing men to retail it. Held, to be a farmer and not subject to involuntary bankruptcy.56 A farmer may be a voluntary bankrupt.
52. Rice v. Bordner, (D. C. Pa.) 140 Fed. 566.
53. In re Mackey. (D. C. Del.) 110 Fed. 354.
54. In re Brown, (D. C. la.) 132 Fed. 706; see also similar case, Bank of Dearborn v. Mackey, (D. C. Mo.) 132 Fed. 75.
55. In re Dwyer, (C. C. A. 7th Cir.) 184 Fed. 880; In re Sutter, (D. C. Mo.) 270 Fed. 248.
The occupation at the time the alleged act of bankruptcy is committed governs whether he may be proceeded against in bankruptcy.
Whether one is in an occupation exempting him from involuntary bankruptcy depends upon what he was doing at the time of the act of bankruptcy complained of.
A merchant becomes insolvent and commits an act of bankruptcy. Thereafter and before his creditors act he changes his occupation and becomes a clerk on a salary of $1500 a year. The petition being filed in apt time, the bankrupt cannot plead he was not amenable to the act being a wage earner.57
Any corporation except a municipal, railroad, insurance or banking corporation, may become a voluntary bankrupt, and any moneyed, business, or commercial corporation, except a municipal, railroad, insurance or banking corporation is subject to involuntary bankruptcy.
(1) History of this section.
The Act of 1898, as originally drawn, did not permit corporations to file voluntary petitions, and limited involuntary petitions to corporations engaged principally in "manufacturing, trading, printing, publishing, or mercantile pursuits." By the amendment of 1903, mining corporations were added. This resulted in the necessity of determining in many cases whether a corporation was within the Act; and there were a great many corporations excluded as non-trading, or non-manufacturing, as hotel corporations, bond corporations, advertising corporations, etc. By the amendment of 1910, all corporations were made subject, except certain ones enumerated. This is the logical and less troublesome method.58
56. Gregg v. Mitchell, (C. C. A. 6th Cir.) 166 Fed. 735.
57. In re Crenshaw, (D. C. Ala.) 156 Fed. 638. In re Doroski, (D. C. N. Y.) 271 Fed. 8.
(2) Corporations which can file voluntary petitions.
Unless a corporation is a municipal, railroad, insurance or banking corporation, it may, whether it be commercial or non-commercial, for profit, or not for profit, file a petition in bankruptcy.
For example, an incorporated Odd Fellows Lodge, which is purely fraternal, can file a petition in voluntary bankruptcy.59 Such a corporation could not be forced into bankruptcy.
(3) Corporations which are subject to involuntary bankruptcy.
To be subject to involuntary bankruptcy a corporation
(a) Must be moneyed, business or commercial,
(b) Must not be a municipal, railroad, insurance or banking corporation.
58. The earlier decisions on these distinctions, construing the earlier law are of course obsolete.
59. Matter of Carthage Lodge, I. O. O. F., 36 A. B. R. 873.
(4) What are moneyed, business or commercial corporations.
To be an involuntary bankrupt a corporation must be "moneyed, business or commercial." This clause is very broad and includes practically all incorporations for profit except the corporations expressly excepted (municipal, railroad, insurance, banking).
(5) Public service corporations.
A public service corporation is a private corporation carrying on a business which is touched with a public use, as telegraph and telephone companies, electric light companies, street railway companies and the like. Are these subject to bankruptcy proceedings? Clearly no distinction" can be taken under the language of the law as to whether the proceedings are voluntary or involuntary as far as this question is concerned and we may simply inquire whether they are subject to bankruptcy jurisdiction be the proceedings voluntary or involuntary.
Railroad corporations are public service corporations which are exempt by express exception. But unless it be by implication other public service corporations are not excluded.
And it has been held that they are not excluded. In the cases of in re Grafton Gas Electric Light Company; in re Grafton Traction Company; and in re Grafton Light & Power Company; in consolidated proceedings 60 it was held that such corporations were within the act (the proceedings were voluntary) as not having been excepted therefrom.
The most serious question was in reference to the street electric railway line which might be construed to
6o. (D. C. W. Va.) 253 Fed. 668.
be a "railroad company," but the court thought that the congressional intention was to include all corporations except those specifically excluded, and thought that the reasons for excluding railroads did not exist in case of local street railways.
(6) Municipal corporations.
That a municipal corporation (a city or town) should be excluded from the act is apparent. Such municipalities must work out their financial problems.
(7) Railroad corporations.
Railroad corporations are not subject to bankruptcy proceedings either voluntary or involuntary. Such corporations may operate after insolvency under receiverships, and clearly present many problems that are peculiarly their own.
(8) Insurance corporations.
The problems of insurance corporations are peculiar. They are organized under laws that create state supervision, require deposits of money with the state, and other regulations. In case of insolvency, their liquidation requires another solution than that furnished by a court of bankruptcy. They can neither be voluntary or involuntary bankrupts.61
(9) Banking corporations.
A banking corporation, whether state or federal, if incorporated, is not subject to either voluntary or involuntary proceedings. The exclusion is made because state laws provide for the administration of and winding up of state banks, and the federal law provides for the administration and winding up of federal banks.
61. Vallely v. Northern Fire Ins. Co., 254 U. S. 348.
Unincorporated banks are subject to bankruptcy proceedings.