Court Opinion

ID: 6655203
Source: CourtListenerOpinion
Date Created: 2022-07-20 20:57:15.576324+00
Date Added: 2024-06-11T15:59:52.595835
License: Public Domain

The following opinion on rehearing was filed February 4, 1904. Judgment of affirmance adhered to:
2.-: -. Assuming that property was fraudulently conveyed by a husband to his wife, the same can not be recovered from a tona fide vendee of the wife.
Duffie, C.
This case grows out of a bankruptcy proceeding instituted against Julius M. Erlenborn, and the facts are fully stated in the opinion heretofore filed by Mr. Commissioner Hastings, and are briefly as follows: Erlenborn, within four months previous to the filing of a petition to have him declared a bankrupt, assigned to his wife a note for $290, taken by him on a sale of his grocery stock and fixtures, in payment, as he claims, of money borroAved from her prior to their marriage. At this time Erlenborn was owing the First National Bank of Lincoln $100, evidenced by his note for that amount. Mrs. Erlenborn, desiring to raise some money during her husband’s absence from home, requested the bank to purchase the $290 note received from her husband. The bank agreed to make such purchase proAdded she would accept as part payment her husband’s note for $100, held by the bank. She .consented to this arrangement and transferred the note to the bank, receiving her husband’s note for $100 and the balance in cash. The case Avas argued and submitted upon the theory that by the purchase of the $290 note from Mrs. Erlenborn the bank obtained payment in full of its claim against Julius M. Erlenborn, and thus secured a preference over the other creditors of the bankrupt, and that the transaction vas fraudulent.
Subdivision b, of section 60 of the bankruptcy act, is as follows: “If a bankrupt shall have given a preference Avithin four months before the filing of a petition, or after the filing of the petition and before the adjudication, and the person receiving it, or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it Avas intended thereby to give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person.”
*596Tins statute defines the rights of a trustee in bankruptcy-in avoiding a transaction by which one auditor of the bankrupt obtains a preference over other creditors. He may, in the words of the statute, “recover the property or its value from such person”; that is, from the preferred creditor. The act does not allow the trustee to follow the property or the value of the property by which the preference was secured, into the hands of third persons. The secured creditor, in our view, may use money or property coming from the bankrupt to him as he would any other money or property, even though its receipt by him constitutes a preference within the meaning of the bankrupt act. The property received is liable to be taken in his hands, or, if disposed of, its value may be recovered. But the trustee can not reach third parties to whom the money may have been paid or the property transferred, the act giving him an action against the preferred creditor alone. If Mrs. Erlenborn was a preferred creditor of her husband, the plaintiff should have proceeded against her and not against the bank, her assignee of the note. There is no authority, as we understand the bankruptcy law, for pursuing the assignee to recover property received from a preferred creditor. We have been unable to find any cases where this question was raised and decided, but Collier, in the fifth edition of his work on Bankruptcy, page 461, makes the inquiry, against whom shall the action be brought? and, in answer to the question, says: “Here the words of the statute are clear: ‘The person recovering it or to be benefited thereby.’ ” Again, at page 462 it is said: “Suits .to recover the property in specie should only be brought where it can be identified and is found in the hands of the person preferred.” It seems clear to us that if the specific property can be recovered only when found in the hands of the person preferred, suit for its value can only be maintained against the same person. Neither can the action be maintained upon the theory that the assignment of the note by Erlenborn to his wife was fraudulent as against creditors. While the rule is well established that *597property transferred by a debtor in fraud of the rights of his creditor may be recovered in the hands of any one having notice of the fraud, and while the transfer of this note might well be held to be fraudulent as between Mi. and Mrs. Erlenborn, there is no evidence whatever in the record to charge the bank or any of its officers with notice of such fraud. No 'attempt in this direction was made, and, so far as the evidence discloses,, the bank was a good-faith purchaser of the note prior to its maturity, without any knowledge or notice of any fraud in the assignment from Erlenborn to his wife.
We recommend that the former opinion be adhered to.
Kirkpatrick and Letton, CO., concur.
By the Court: For the reasons stated in the foregoing opinion, the former opinion in this case is adhered to.
Former judgment adhered to.