Court Opinion

ID: 8629229
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:34:59.007469+00
Date Added: 2024-06-11T16:55:42.680325
License: Public Domain

DYER, District Judge.
It is alleged in support of the demurrer: First, that an as-signee in bankruptcy cannot maintain an action to set aside or avoid a transfer of property made by the bankrupt prior to the time limited by the bankrupt law itself; in other words, that to enable an assignee to avoid a transfer or conveyance of property made by the bankrupt in fraud of creditors, it must be alleged and shown, that such transfer or conveyance was made within the period prescribed by section 5129, Rev. St; and thát if such transfer or conveyance is made more than six months beforé the filing of the petition in bankruptcy, the assignee is without authority or right to maintain an action in behalf of creditors, to set aside such transfer and to recover the property.
It is true, that by the section of the statutes referred to, it is provided, that if an insolvent person, within six months before the filing of a petition in bankruptcy against him, makes any transfer or disposition of any part of his property to any person who then has reasonable cause to believe him to be insolvent, and that such transfer or conveyance is made with a view to prevent the property from coming to his assignee in bankruptcy, or to prevent the same from being distributed under the act, or to defeat the object of, or in any way impair, impede or delay the operation and effect of the act, then the transfer or conveyances shall be void, and the assignee may recover the property or the value thereof, as assets of the bankrupt. But it does not follow that the assignee in bankruptcy can only avoid such a fraudulent transfer of property made by the bankrupt, as comes within the purview of this section. This section deals only with frauds on. the act itself, and by reference to section 5040, it is found, that property conveyed by the bankrupt in fraud of his creditors, is, in virtue of the adjudication of bankruptcy, and the appointment of an as-signee, vested in such assignee, subject only to the exceptions stated in section 5045, which relate to property exempt from seizure for the payment of debts.
The point under consideration has been so fully settled, that without further discussion, I regard it only necessary to refer to two or three cases in which the question has been passed upon. In Pratt v. Curtis [Case No. 11.375] it was held that land conveyed in fraud of creditors passed to the assignee in bankruptcy of the grantor, by virtue of section 14 of the bankrupt act [14 Stat. 522], now section 5946, Rev. St., though conveyed more than six months before the bankruptcy, and was therefore, not a transfer within section 35 of that act, now section 5129, Rev. St.
In Carrv. Hilton [Case No. 2,436] it was held under the bankrupt act of 1841 [5 Stat. 442], that an assignee could maintain a bill to avoid and set aside a fraudulent conveyance of lands by the bankrupt to a third person, although such conveyance was made before the passage of the bankrupt act.
This question has also been considered and passed upon in this circuit, in case of Bradshaw v. Klein [Case No. 1,790]. In his opinion in that case, Judge McDonald says: “Counsel for the defendant insist that the 35th section of the act modifies the language of the 14th section, and limits the right of action to set aside fraudulent conveyances, to four, or at most, six months'; but I cannot assent to this construction. I think the provision above cited from the 14th section refers to the state statutes against fraudulent conveyances, and to this only; and that the 35th section of the bankrupt act [14 Stat. 534] has no reference to those statutes, but is only intended to reach frauds on the bankrupt act. The two sections relate to different subjects, neither of them therefore, can be construed as explaining, modifying or limiting the operation of the other.” And the conclusion is, that an assignee in bankruptcy may maintain an action to set aside fraudulent conveyances made by the debtor before he is adjudged a bankrupt, and even before me bankrupt act was passed, provided the person to whom the transfer was made was a party to the fraudulent intent, or received the transfer without valuable consideration, and provided the action is not barred by the statute of limitations.
Other authorities of the same purport might be cited, but these are sufficient.
The second point urged in support of the demurrer is, that as to the personal property mentioned in the bill, the complainant has ample remedy at law; that no discovery is needed, and therefore, that the complainant cannot, as to such personal property, come into equity.
It is to be borne in mind that the claim on the part of the complainant is, that the defendant, James M. Whaling, in fraud of his creditors, appropriated moneys, belonging in equity’ to the creditors of Peirce & Whaling, and part of the assets of that firm, and with such moneys purchased the property in question. and undertook, while in a condition of insolvency, to transfer the property to, and vest the title thereof, in his wife.
Here upon complainant’s claim is involved the avoidance of a voidable legal title vested in the wife, and the case seems to be one of a class in which the rule frequently asserted *993has been applied, — that courts of equity possess a general concurrent jurisdiction with courts of law, in cases of fraud cognizable in the latter. This is decided in the case of Spalding v. McGovern [Case No. 13,217]. In that case the court said: “Although the complainant claims title under proceedings in bankruptcy, the cause of action is not created by the bankrupt act: It is in the nature of a creditor’s bill to reach assets placed by the debtor in the hands of third parties, in order to hinder, delay and defraud the creditors. An equitable jurisdiction exists in the court over the case, wholly independent of the bankrupt law.”
In the case just cited, a bill in equity was filed to collect certain moneys and property, alleged to have been fraudulently paid and transferred by the bankrupt to his wife, after his insolvency, and also to set aside a conveyance of real estate made through the medium of one of the defendants, to hinder, delay and defraud the creditors of the bankrupt; and the bill was entertained, a demurrer thereto being overruled.
In Traders’ Nat. Bank v. Campbell. 14 Wall. [81 U. S.] 87, a suit in equity by the assignee, to recover the proceeds of goods sold under judgment in a state court against the bankrupt, taken by confession, where both parties knew of the insolvency, was maintained, notwithstanding the proceeds were money in the possession of the bank, and a suit at law would seem to have been an adequate remedy.
The precise point under consideration was presented in the case of Flanders v. Abbey [Case No. 4.S51], a ease which arose and was decided in this district. In that case there was a demurrer to a bill, one of the causes of demurrer assigned being that the complainant had complete remedy at law, and the demurrer was overruled.
My conclusion is, that the second ground urged in support of the demurrer in the case at bar, is untenable.
The third and last point insisted upon by counsel for the defendants, and to be considered is, whether the complainant as as-signee. can maintain this bill for and on behalf of general creditors, who have no specific lien by judgment, levy or otherwise, upon the property in question.
In support of the demurrer upon this point, it is urged, that the assignee in bankruptcy took no other rights of property than the bankrupt himself possessed, and that he cannot pursue, for the benefit of general creditors, property that may have been fraudulently conveyed by the bankrupt; that is, that as between the parties, the title to the property given, transferred or conveyed, is good as against the assignee and cannot be impeached in behalf of general creditors.
Support for this position is found in Be Collins [Id. 3,007], decided by Justice Hunt, and that case is relied upon by counsel for the defendants. In his opinion in the case, Justice Hunt holds, that “in a case of a fraudulent incumbrance upon personal property, a general debt will not authorize a proceeding to vacate it. There must be a bill of sale, or mortgage, or execution, or a judgment levy, or its equivalent, constituting a lien upon the specific chattel. The cases are all based upon the theory, that the party attacking the fraudulent act, must have an interest in, or a lien upon the specific property thus incumbered. This is an indispensable requisite; the assignee gains no additional rights over those possessed by the bankrupt, by a conveyance from him, or by his authority. The bankrupt can transfer no lien upon this specific property, because he possesses none; the creditors can give to the assignee no such lien, for the same reason.”
This case is certainly strong authority to sustain the position taken by the learned counsel for the defendants, upon this demurrer, but I do not feel at liberty to follow it as an authority, in view of the fact that it has been virtually dissented from by Mr. Justice Strong, in Miller v. Jones [Id. 9,576], and its soundness expressly denied by the circuit judge of this circuit, in an opinion delivered by him at the present term, in Be Gurney [Id. 5,873]. In the case of Miller v. Jones, supra, it was held that an assignee has the rights of a judgment creditor, as against a chattel mortgage not properly recorded. In his opinion, Justice Strong says, that “notwithstanding some decisions to the contrary, an assignee in bankruptcy of mortgagors stands in the position of such creditor's, with equal rights; the adjudication of bankruptcy being equivalent to the recovery of a judgment and a levy.”
In his opinion in Be Gurney, supra, Judge Drummond holds, that an assignee does not, as to creditors, stand precisely in the place of the bankrupt; that he can contest rights-to property which the bankrupt cannot contest, and he says that in this circuit it has been uniformly held that the assignee occupies a stronger position as the representa-tivo of creditors, than the bankrupt. “That he is the agent of the creditors for the protection of their rights; that the assignee stands in the place of an attaching or execution creditor, and that he has all their rights.”
In Bradshaw v. Klein, supra, it was argued that the assignee took such right of action only, as the debtor had before he was adjudged a bankrupt, and that as he could not have sued before the adjudication to recover property conveyed by him in fraud of his creditors, so his assignee cannot after-wards maintain such action; but it was held, that although the transfer of property, made with intent to defraud creditors in that case, was valid as between the parties to it. nevertheless, the assignee, representing the rights of creditors, could maintain an action to have the alleged fraudulent con*994veyance set aside, and the property subjected to the payment of debts due to creditors, who 'by virtue of the bankrupt act, were represented by the assignee.
See preceding case. 7 Biss. 420 fin re Pierce, Case No. 11,131)]. as to status of assignee.
In view of the rulings of the courts upon this question, which I have cited, and especially in view of such as have been recently made, I must hold the third ground upon which this demurrer is urged, as equally untenable with those before considered.
Demurrer overruled, with leave to the defendants to answer that portion of the bill demurred to within thirty days.