Case ID: ad_96/html/0413-01.html
Source: Caselaw Access Project
Author: {"author": "Laughlin, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Ezekiel C. M. Rand, Appellant, v. Iowa Central Railway Company, Respondent.
    
      Action by a plaintiff on a claim accruing before, which is sued upon after, the claimant's discharge in bankruptcy — the suit is not maintainable if the claim is not disclosed in the bankruptcy proceeding — a discharge is not conclusive as to the bankrupt’s having accounted for all his property — a trustee'will be appointed where assets are subsequently discovered—title to the claim until the trustee is
    
    In an action brought to recover for services rendered by the plaintiff to the defendant, it appeared that, after the plaintiff’s alleged cause of action accrued, he presented a voluntary petition in bankruptcy, and that prior to the commencement of the action he obtained a discharge in bankruptcy. In the bankruptcy proceedings, the plaintiff did not disclose the existence of the claim in suit or any other asset, and consequently no trustee was appointed. The plaintiff testified that the claim was not fraudulently concealed, but that it was omitted in good faith by advice of counsel.
    
      Held, that the plaintiff could not maintain the action, and that his complaint was properly dismissed.
    
      Semble (per Laughlin and O’Brien, JJ.), that a discharge in bankruptcy is not conclusive evidence that the bankrupt has accounted for all his property.
    
      Semble (per Laughlin and O’Brien, JJ.), that if no trustee in bankruptcy is appointed because no assets are shown, a trustee may and should be appointed . if assets are subsequently discovered; that even if the legal title to the claim in suit remained in plaintiff, he held it as trustee, and that the equitable title passed to the creditors, and that the custody and control passed to the court to be administered for their benefit through a trustee to whom the legal title to the chose in action would pass upon his appointment.
    Appeal by the plaintiff, Ezekiel O. H. Rand, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of' the county of New York on the 29th day of January, 1904, upon the dismissal of the complaint by direction of the court after a trial at the New York Trial Term, questions of fact having theretofore been submitted to a jury, and a verdict having been rendered in favor of the plaintiff; and also (as stated in the notice of appeal) from two orders entered in said clerk’s office on the 15th day of January, 1904, and on the 26th day of January, 1904, respectively, granting the- defendant’s motion to set aside the said verdict theretofore rendered in favor of the plaintiff, and directing the dismissal of the plaintiff’s complaint.
    
      
      Aaron P, Jetmore, for the appellant.
    
      Arthur H. Van Brunt, for the respondent.
   Laughlin, J.:

This is an action to recover $2,000 for services upon a quantum meruit. At the close of the evidence counsel for defendant moved for a dismissal of the complaint. The court reserved decision of the motion and submitted the case to the jury. A verdict was rendered in favor of the plaintiff for the entire amount claimed. We regard the verdict as against the weight of the evidence, but that view would require that the verdict be set aside and a new trial be awarded. This was not done by the trial court, but, as already appears, the motion to dismiss the complaint was granted after the rendition of the verdict. It appeared that after the plaintiff’s alleged cause of action against the defendant accrued he made a voluntary petition in bankruptcy to the District Court for the southern district of New York, and prior to the commencement of the action was duly adjudged a bankrupt and obtained a discharge in bankruptcy. These facts are uncontroverted, and it further appeared that the plaintiff did not in the bankruptcy proceedings disclose the existence of the claim upon which this action is founded or any other asset, and consequently no trustee was appointed. The dismissal of the complaint can only be sustained, if at all, on the theory that by operation of law, by virtue of the bankruptcy proceedings, the plaintiff was divested of the right to maintain an action upon this chose in action. The plaintiff contends that the title and right to maintain the action remained in him until the appointment of a trustee in bankruptcy, and, since one was hot appointed, his title and right have not been divested. This contention on the part of the plaintiff seems so extraordinary and fraught with consequences so disastrous to the rights of creditors that a court should hesitate to so declare the law, unless there be no avenue of escape. At ijrst blush it would seem that the plaintiff not only perpetrated a fraud upon the Bankruptcy Court, but having, by the bankruptcy proceedings, lulled his creditors into acquiescence, now claims the right to recover upon this claim, upon the theory that the adjudication in bankruptcy discharges him from all liability to his creditors. It should be stated, however, that the testimony of the plaintiff in his own behalf tends to show that this claim was not fraudulently concealed but that it was omitted in good faith by advice of counsel. However that may be in this particular case, it is manifest that if the court decides that the plaintiff may maintain this action, fraudulent bankruptcy proceedings will be multiplied manifold and causes of action will be concealed with a view to being prosecuted by the bankrupt in his own right after obtaining his discharge. It will be but little protection to creditors to hold that they may apply to the Bankruptcy Court for the appointment of a trustee to whom the plaintiff would be obliged to account for the proceeds of the litigation. The decision of the question requires a review of the provisions of the different bankruptcy acts relating to the divestment of the bankrupt’s title. Section 3. of the Bankruptcy Law of 1841 (5 U. S. Stat. at Large, 442) provided as follows: “ That all the property and rights of property of every name and nature, and whether real, personal or mixed, of every bankrupt, except as is hereinafter provided, who shall, by a decree of the proper court, be declared to be a bankrupt within this act, shall, by mere operation of law, ipso facto, from the time of such decree, be deemed to be divested out of such bankrupt without any other act, assignment or other conveyance whatsoever, and the same shall be vested by force of the same decree in such assignee as from time to time shall be appointed by the proper court for this purpose. * * * ”

It is clear and' is conceded that by virtue of this statutory provision the bankrupt upon being declared a bankrupt, was, by operation of law, divested of all title, regardless of the question as to whether there was an assignee to whom the title passed. Section 14 of the Bankruptcy Law of 1867 (14 U. S. Stat. at Large, 552) provided as follows: “ That as soon as said assignee is appointed and qualified, the judge, or, where there is no opposing interest, the register, shall, by an instrument under his hand, assign and convey to the assignee all the estate, real and personal, of the bankrupt, with all his deeds, books and papers relating thereto, and such assignment shall relate back to the commencement of said proceedings in bankruptcy, and thereupon, by operation of law, the title to all such property and estate, both real and personal, shall vest in said assignee.”

In the case of Hampton v. Rouse (22 Wall. 263) it was held that under this provision of law the title remained in the bankrupt •until the execution of the assignment and conveyance as therein provided. This also seems to have been the construction placed upon the same provision by the courts of our own and other States (McDonnell v. Bauendahl, 4 Hun, 265; Sutherland v. Davis, 42 Ind. 26.) The corresponding provision of the Bankruptcy Law of 1898 is section 70 (30 U. S. Stat. at Large, 565) which provides as follows:

“ Sec. 70. Title to Property.— a The trustee of the estate of ' a bankrupt upon his appointment and qualification, and his successor or successors, if he shall have one or more, upon his or their appointment and qualification, shall in turn be vested by operation, of law with the title of the bankrupt as of the date he was adjudged ,a bankrupt, except in so far as it is to property which is exempt, to all * * * (6) rights of action arising upon contracts, or from the unlawful taking or detention of, or injury to, his property. * * *
“d Whenever a composition shall be set aside or discharge revoked, the trustee shall upon his appointment and qualification be vested as herein provided with the title to all of the property of the bankrupt as of the date of the final decree setting aside the composition or revoking the discharge. * * *
“ f Upon the confirmation of a composition offered by a bankrupt, the title to his property shall thereupon revest in him.”

It will be seen that the Bankruptcy Law of 1867 differed from the present Bankruptcy Law in that under the former a formal conveyance or assignment of the property of the bankrupt was essential to vest title in the assignee, whereas under the present act title vests by operation of law as under the act of 1841, the only difference between the act of 1841 and .the present act in that regard being that under the former it was expressly declared that upon being decreed a bankrupt the title of the bankrupt should be divested by mere operation of law from the time of such decree, and under the present act it is declared that, the trustee upon his.appointment and qualification shall-be vested by mere operation of law with the title of the bankrupt as of the date of the adjudication in bankruptcy.

Section 17 of the present act: (30 U. S. Stat. at Large, 550) provides that “ a discharge in bankruptcy shall release a bankrupt from all of his provable debts.” Subdivision f of section 21 (Id. 552) provides that “ a certified copy of an order confirming or setting aside a composition or granting or setting aside a discharge, not revoked, shall be evidence of the jurisdiction of the court, the regularity of the proceedings and of the fact that the order was made.” Section 15 (Id. 550) provides that the judge may upon the application, made within one year after the discharge in bankruptcy, of parties in interest who have not been guilty of undue laches, revoke it upon the trial if it shall be established that it was obtained through fraud on the part of the bankrupt and that the knowledge of the fraud has come to the petitioners since the granting of the discharge and that the actual facts did not warrant the discharge. In Matter of Shaffer (4 Am. Bank. Rep. 728) it was held that this section operated as a statute of limitations and that the decree became final after the lapse of one year. 1 do not understand, however, that these provisions relating to the discharge or to an application to vacate it have any natural bearing on the question as to the right of the bankrupt to maintain subsequently an action on a cause of action which accrued prior to the time his petition was presented. I find no provision of law and no decision is cited to the effect that the discharge is conclusive evidence that the bankrupt has accounted for all his property. The settlement of the estate in bankruptcy appears to be independent of the discharge ; and the discharge may be and often is granted before the estate has been settled. (See 30 U. S. Stat. at Large, 550, § 14; Id. 560, § 55, subd. f.) Where a trustee has been appointed and the estate settled it may be reopened upon its appearing that other assets have been discovered which have not been administered. (Id. 546, § 2, subd. 8.) If the bankrupt, either before or after his discharge, knowingly and fraudulently conceals assets from his trustee he is guilty of a crime and liable to not more than two years’ imprisonment. (Id. 554, § 29, subd. b.) The petition must show that the bankrupt is willing to surrender all his property not exempt. (Gren. Orders Bank., Ord. 38, form 1; see Collier Bankr. [4th ed.] 565, 569.) I think that it is the fair intent and true construction of the Bankruptcy Law and orders that if no trustee be .appointed because assets are not shown, yet that a trustee may and should be appointed upon the discovery of assets. It may be that the legal title to this, chose in action remained in the bankrupt; but it is clear, I think, that he holds it as trustee and that the equitable title passed to the creditors and the custody and control passed to the court for their benefit to be administered through a trustee to whom the legal title will pass upon his appointment and qualification, and that, therefore, the plaintiff is not the real party in interest and cannot maintain this action. It follows that the judgment should be affirmed, with costs.

O’Brien, J., concurred; McLaughlin and Hatch, JJ., concurred in result.

Judgment affirmed, with costs.