Court Opinion

ID: 6900284
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:54:18.19883+00
Date Added: 2024-06-11T16:06:08.930367
License: Public Domain

KALODNER, Circuit Judge
(dissenting)-
The majority’s position is that while the transaction under review “may well have involved the commission of a criminal offense” there was no crime committed within the purview of Section 29, sub. a, of the Bankruptcy Act.1 Pointing out that under the plan of reorganization the stockholders had no rights whatever and that the creditors received all the benefits allotted to them by the.reorganization plan and were not affected by the transaction in any respect, the majority takes the position that the $3,000 payment by the Maxi Company to the Trustee “was a purely voluntary payment out of its own funds of a sum upon which the estate of the Forging Company (the bankrupt) had no claim.’1 (emphasis supplied). In the latter statement, in my view, lies the error of the' majority.
The estate of the bankrupt was trust property. As such it was a distinct and separate res, corpus or entirety. It was a dynamic unit with established content. That it was so is evidenced by the provisions of the Bankruptcy Act, as amended by Section 1, sub. a, of the Act of June 22, 1938, c. 575, 11 U.S.C.A. § 110 sub. a, which, in providing that title to the property of the bankrupt shall “be vested by operation of law” in the trustee, designated the entrusted property as the “estate of a bankrupt”.2
The continued existence of the estate of a bankrupt as a distinct and separate res, corpus, entirety or unit in bankruptcy is similar in every respect to that of the ordinary trust property. As under the law of trusts, the trustee of the -bankrupt estate is under a duty to keep the trust property separate from his individual property, to see that it is designated as property of the trust, and to so treat it. Just as under the law of trusts, trust property is earmarked “property of the trust” in order to identify its separate existence, so has Congress designated the trust property here involved as the “estate of the bankrupt.” Equity has long recognized the nature of a trust estate as an entirety and safeguarded its existence, as for example, by impressing with the trust property transferred by the trustee in violation of his *1007trust to a person who knows the circumstances even though he paid a consideration for the transfer. Restatement of the Law of Trusts, Section 288.
It was the duty of the trustee to preserve the bankrupt estate. The $23,534.50 of accounts receivable or the proceeds received in their collection constituted part and parcel of the estate of the bankrupt. It was the integrity of the estate which Section 29, sub. a, was designed to protect. When the arbitrary, unjustified and unexplained $3,000 reduction was made in the total of accounts receivable and the estate received $3,000 less as a result from the Maxi Company, and the Trustee was paid the $3,000 in consideration of that reduction, there was a misappropriation of the assets of the estate. The mere circumstance that the creditors and stockholders were not affected under the existing reorganization plan is entirely beside the point. The mere fact that there was no net change in the disbursements to any of the individuals concerned in the administration of the estate is also of no consequence. What is in point is that the bankrupt estate was defrauded of $3,000, which would otherwise have been available for distribution.
On January 1, 1942, when Michael took over as Trustee, the estate had accounts receivable of $23,534.50. In his April 14, 1942, report he falsified the amount of the accounts receivable, placing them at $20,-534.50. No explanation of the reduction was attempted. There was no evidence of any actual shrinkage in the total of the accounts receivable as a result of uncollectibility. As a matter of fact, as pointed out in the majority opinion, there was evidence "that most, if not all of those accounts receivable were collected between December 31, 1941, and April 24, 1942.”
The bankrupt estate was entitled to possession of the proceeds of whatever accounts receivable were collected, and if any of the latter remained uncollected, to the accounts themselves.
That the right of possession was violated with an attending fraudulent misappropriation within the meaning of Section 29, sub. a, as was found by the jury and the District Judge in denying the defendant s motion m arrest of judgment and for a new trial is crystal clear.
I can see no merit in the appellant’s remaining contentions and for that reason would affirm.

 Section 29 sub. a, of the Bankruptcy Act, as amended, 11 U.S.C.A. § 52 sub. a provides:
“a. A person shall be punished by imprisonment for a period of not to exceed five years or by a fine of not more than $5,000, or both, upon conviction of the offense of having knowingly and fraudulently appropriated to his own use, embezzled, spent, or unlawfully transferred any property or secreted or destroyed any document belonging to the estate of a bankrupt which came into his charge as trustee receiver, custodian, marshal, or other officer of the court.” (Emphasis supplied)

 Subsection e(2) of Section 1 of the Act of June 22, 1938, 52 Stat. 879 refers to the “estate”; subsection f refers to “items of real and personal property belonging to the bankrupt estate”; subsection g refers to “the title to property of a bankrupt estate.” 11 U.S.C.A. § 110, subs. e(2), f, and g.
Section 2 of the Bankruptcy Act, as amended, 11 U.S.O.A. § 11, which provides for the “Creation of courts of bankruptcy and their jurisdiction”, refers in subsection a (2) to “bankrupt estates”; subsection a (3) authorizes appointment of receivers, etc. “to preserve the estate’; subsection a(7) empowers the bankruptcy courts to “cause the estates of bankrupts to be collected,” etc.; subsection a (8) empowers the bankruptcy courts to'“close estates” and to “reopen estates”.
Section 29, s.ub. a specifically prohibits the misappropriation of property “belonging to the estate of a bankrupt See note 1, supra.