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In re Aughenbaugh

February 11, 1942


Appeal from the District Court of the United States for the Middle District of Pennsylvania; Albert W. Johnson, Judge.

Author: Maris

Before MARIS, JONES, and GOODRICH, Circuit Judges.

MARIS, Circuit Judge.

On February 15, 1938, Alpheus Aughenbaugh executed a bond and mortgage in favor of Blass-Meyers Mfg. Company, Inc., in consideration of a series of cash advances totalling $2,925 previously made him by that company. The mortgage was recorded April 13, 1938. On June 15, 1938, Aughenbaugh filed a voluntary petition in bankruptcy. Thereafter his real estate was sold by his trustee in bankruptcy. Blass-Meyers claimed priority in payment out of the proceeds of the sale by virtue of the lien of its mortgage. At the direction of the referee the trustee in bankruptcy filed exceptions to this claim. A hearing was held upon the exceptions by the referee, who found as a fact taht Aughenbaugh was insolvent at the time of the transfer, and directed the mortgasge to be disallowed as a priority claim. The District Court for the Middle District of Pennsylvania, upon petition for review, concluded that the referee's finding as to insolvency was not supported by the evidence, set aside the referee's order and entered an order allowing the mortgagee's claim as a priority claim. Twenty-three wage claimants have appealed from this order.

The appellants urge that the district court erredin setting aside as not supported by evidence the referee's finding that Aughenbaugh was insolvent*fn1 on April 13, 1938, the day upon which the mortgage he gave to Blass-Meyers was recorded.*fn2 In passing upon this question we may consider only the evidence which was presented to the referee at the hearing upon the trustee's exceptions to the mortgagee's priority claim. We may not consider other evidence which may have been in the files of the referee in the bankruptcy administration proceeding. To hold otherwise would be to violate the fundamental concept of procedural due process that a party to itigation is entitled to have the evidence relied on by his opponent presented at the hearing of his case so that he may have opportunity to cross-examine his opponent's witnesses and to offer evidence in rebuttal. As the Supreme Court said in Interstate Commerce Commission v. Louisville & Nashville R. Co., 227 U.S. 88, 93, 33 S. Ct. 185, 187, 57 L. Ed. 431, "manifestly there is not hearing when the party does not know what evidence is offered or considered, and is not given an oppaortunity to test, explain, or refute." And again as stated in United States v. Abilene & Southern R. Co., 265 U.S. 274, 288, 44 S. Ct. 565, 569, 68 L. Ed. 1016; "Papers in the Commissioner's files are not always evidence in a case. New England Divisions Case [Akron, C. & Y.R. Co. v. United States], 261 U.S. 184 ,198, note 19 ,43 S. Ct. 270, 67 L. Ed. 605. Nothing can be treated as evidence which is not introduced as such." Particulalrly apposite is the statement of Chief Jsutice Hughes in Crowell v. Benson, 285 U.S. 22, 48, 52 S. Ct. 285, 291, 76 L. Ed. 598, taht "Facts conceivably known to the deputy commissioner, but not put in evidence so as to permit scrutiny and contest, will not support a compensation order." If this is the rule as to administrative bodies which are expected to apply their expert knowledge in their special field a fortiori it applies to the proceedings of a purely judicial body such as a court of bankruptcy.

Althogh the exceptions of the trustee ot the priority claim of the mortgagee were filed in the general bankruptcy proceeding they raised a distinct controversy for determination by the referee which it was his duty to treat as an independant litigation, summary in form it is true,*fn3 and to consider solely upon the evidence presented at the trial of that issue. If the trustee desired to rely upon any papers already on file in the bankruptcy proceeding it was incumbent upon him to offer them at the hearing of his exceptions in order that the mortgagee might know that they were being relied upon and might have an opportunity to meet them with such other evidence as might be available to it.

Turning to the consideration of the record of this case we find that the only evidence offered at the hearing upon the exceptions was that given by Aughenbaugh who testified that in September, 1937 he owed the following debts:

Blass-Meyers Mfg. Co. $2,925.00

George Wolf & Son 1,300.00

American Thread Co. 300.00

Mansfield Thread Co. 200.00

York Haven State Bank 850.00

Peter's Trucking Co. 900.00

Total ...

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