Court Opinion

ID: 7166176
Source: CourtListenerOpinion
Date Created: 2022-07-24 16:21:22.638497+00
Date Added: 2024-06-11T16:15:33.231160
License: Public Domain

NICHOLLS, J.
This case was tried and decided in the lower court upon the following statement of facts:
(1) That the defendant issued to plaintiff its policy of insurance on plaintiff’s stock of goods while contained in the one-story frame building with shingle roof at No. 409, block P, Sanborn’s map, in the town of Ruston, La., for the amount of $1,000 as alleged in plaintiff’s petition, which policy is herewith filed and marked “Exhibit A.”
(2) That plaintiff began to place his goods in the said store building on or about the 2d day of September, 1904, and began business as soon thereafter as his goods could be placed and straightened; that it is agreed that the affidavit of plaintiff hereto attached, and marked “A, 1,” shall be received in evidence without objection as to form or manner of taking. The book referred to in *443said affidavit is filed herewith and marked “Exhibit B.”
(8)That plaintiff from time to time entered into a book kept for that purpose the invoices for all the merchandise bought after opening up business at Ruston, La., as a merchant; said book being filed herewith, and marked “Exhibit C.”
(4) That said plaintiff kept a record or account of his daily cash sales made each day in a cash book; said cash book being filed herewith and marked “Exhibit D.”
(5) That on February 1, 1905, plaintiff filed a voluntary petition in bankruptcy in the United States District Court for the Western District of Kentucky, in the city of Louisville, Ky., and on said petition on said date said plaintiff was adjudicated a bankrupt. Certified copies of said petition and said decree adjudicating said plaintiff a bankrupt are filed herein, and marked “Exhibits E and F.”
(6) That on February 2, 1905, the stock of merchandise belonging to plaintiff while situated in said building was destroyed by fire, which originated in the building occupied by Freyer & Goldberg adjoining that occupied by plaintiff.
(7) That on February 3, 1905, George L. Martin was appointed and qualified as receiver of the plaintiff, bankrupt, and on February 15, 1905, the said Martin was appointed trustee, and on February 17, 1905, qualified by having his bond approved. Certified copies of said orders and decrees being filed herewith and marked “Exhibits G, H, I, and J.”
(8) That on May 13, 1905, a decree was entered by the judge of the United States District Court for the Western District of Kentucky, confirming a composition offered by plaintiff to his creditors; said decree being filed herewith, and marked “Exhibit K.’’
(9) That the policy sued on herein is and was a part of the assets of the plaintiff in the hands of the trustee, and reeonveyed to plaintiff by the trustee by virtue of the decree of confirmation of composition above referred to.
(10)That the stock of merchandise named in said policy and insured thereunder was worth at least $7,000 at the time of the fire, and that the total concurrent insurance, including the policy sued on herein, did not exceed $5,000.
The clause of the policy upon which the defendant relies reads with some inapplicable omissions as follows:
“The entire policy unless otherwise provided by agreement indorsed hereon or added hereto, shall be void * * * if the interest of the insured be other than unconditional and sole ownership * » * or if. any change other than by death of an assured fakes place in the interest, title or possession of the subject of insurance whether by legal process or judgment or by voluntary act of the insured or otherwise, or if this policy be assigned before a loss.”
Defendant contends that at the moment o-f the adjudication in bankruptcy the title to the property involved passes at once out of the bankrupt, and vests in the trustee to be appointed by the creditors, in due course under the provisions of the federal statute; that a transfer to an assignee by decree of court under the bankrupt laws of the United States, upon the bankrupt’s petition, divests the bankrupt of all title to his property, which title becomes immediately vested in the assignee. Defendant’s counsel say section 70 of the bankruptcy act of 1898 concerning the question at issue reads as follows (with certain unimportant omissions):
“The trustee of the estate of a bankrupt upon his appointment and qualification * * * shall be vested by operation of law with the title of the bankrupt as of the date he is adjudged a bankrupt * * to all * * * property which prior to the filing of the petition he could by any means have transferred.”
Construing the clause of the statute under consideration, the court said in Re Burka (D. C.) 104 Fed. 327:
*445“Properly interpreted the trustee is by operation of law vested with the title as of the date the bankrupt was adjudged to be a bankrupt.”
See, also, In re Elmira Steel Company (D. C.) 109 Fed. 472, and authorities there cited.
The court in Re Abrahamson, 1 Am. Bankr. Rep. 44, well said:
“From the time of filing the petition in a case of voluntary bankruptcy the bankrupt’s estate is ‘in custodia legis,’ and upon the general power and general jurisdiction conferred upon a court of bankruptcy, which powers are to be exercised by the referee to whom the matter in bankruptcy is referred, it is the duty of the court upon its own motion to take actual possession and custody of the bankrupt’s estate through a receiver or by direction to a marshal.”
See, to same effect, Carter v. Hobbs (D. C.) 92 Fed. 597.
Counsel quote Young v. Insurance Co., 14 Gray (Mass.) 150, 74 Am. Dec. 673, Adams v. Insurance Co., 29 Me. 292, and Perry v. Insurance Company, 6 Lans. (N. Y.) 201, as declaring:
“That the proceedings may be stayed, and thus the property become revested in him is a contingency too remote to be considered the foundation of a remaining insurable interest in the bankrupt. He has no power to reclaim the property, and has no right in law or equity by any contract executed or executory.”
And Dey v. Insurance Co., 23 Barb. (N. Y.) 623, and Hazard v. Insurance Company, 7 R. I. 429, as holding that “a voluntary assignment for the benefit of creditors is a transfer.”
Plaintiff’s counsel contend that a voluntary petition in bankruptcy and an adjudication thereon is nothing more nor less than an expression of willingness on the debtor’s part to consummate and deliver to the creditors his property already legally pledged to them; that the adjudication merely means the court’s willingness to accept it whenever a trustee shall have been appointed to take charge of it; that the mere expression on the part of the insured debtor to deliver to the trustee in bankruptcy and the assent of the court to accept it through the trustee when appointed does not and cannot operate either a change of ownership or possession until the trustee is actually appointed and takes charge; that during the interval between the adjudication and the appointment and qualification of the trustee the title must remain in somebody. The trustee is not in existence, and it cannot therefore be in the trustee. If the title be neither in the trustee nor in the bankrupt, there would be a hiatus in the title, a period during which the property would belong to nobody.
The title cannot pass to the trustee, though, when it does pass, it may be retroactive in' its effect, and date back to the adjudication.; But, if no trustee is ever appointed, the bankrupt does not part with the ownership of his property. There might be and are cases where it might never be necessary to appoint a trustee. If not there never was a change in the title, and if there was no change in the title, the policy was not void. Under the bankruptcy law there is no change of title until the trustee is actually appointed and qualified, whatever may be its retroactive effect when it is actually accomplished.
As to the possession of the propérty it must of necessity remain with the bankrupt until some one receiver or trustee is authorized to take charge; and even then it is universally held that the mere taking possession of property by a receiver under a decree of court is not a change of possession to void the policy. Plaintiff urges that the principle that a mere formal seizure of part of the goods insured which did not actually dispossess the insured does not carry with it as its result the avoiding of a policy under the clause which defendant relies on in this case finds application in this case, and that principle has been recognized in McClelland v. Insurance Company, 107 La. 124, 31 South. 691; Herman v. Katz, 101 Tenn. 118, 47 S. W. 86, 41 L. R. A. 700; Walradt v. Insurance Co., 136 N. Y. 382, 32 N. E. 1063, 32 Am. St. Rep. 752.
*447Plaintiff also urges that a transfer of tbe policy under bankrupt proceedings is witbin tbe prohibition wbicb makes its assignment vitiate tbe policy, citing 13 Am. & Eng. Ency. of Law, 187, 242.
Plaintiff particularly relies in this case upon Puller v. Jameson, 98 App. Div. 53, 90 N. Y. Supp. 456, and Fuller v. Insurance Company, 184 Mass. 12, 67 N. E. 879.
Counsel of plaintiff quote tbe court in tbe New York case as saying:
“In tbe interim, however, tbe title to tbe property, together with the incidents of interest and possession, were in the bankrupt, and the insurable rights which the bankrupt had in the policy of insurance were not in any way affected or impaired. .We think this is made clear by recalling — what we assume to be conceded — that during such interim between the adjudication and the appointment of the trustee the bankrupt, and no one else, could as owner insure the property. We think that the construction to be placed upon the provision in the policy as to the character of the change of title, interest, or possession which would render the policy void is such a change as would enable some one else having' the right and title to take out a new policy.”
It appears from tbe agreed statement of fact that plaintiff filed a petition in voluntary bankruptcy on February 1, 1905, and that on the same day be was adjudicated as a bankrupt,, but that on the very nest day, February 2, 1905, the property wbicb was covered by tbe insurance policy on wbicb tbe present suit was instituted was destroyed by fire.
This was before either a receiver or a trustee had been appointed or qualified. As a consequence, tbe possession of that property never passed from Gordon to either tbe one or tbe other. Had tbe property remained in existence up to tbe date of tbe appointment of tbe Martin trustee, title to the same could have been transferred from tbe bankrupt {Gordon) to him, but there was at that time no property to wbicb title could attach, nothing which the trustee could receive for tbe benefit of tbe creditors. The trustee is not bound to accept property tendered by the bankrupt to tbe creditors, even if it be in existence, unless such acceptance would be beneficial to them, a fortiori when it would be prejudicial to do so.
In this case, before the trustee could exercise any option on the subject, the property was destroyed. What bad been property in Gordon in a stock of goods no longer existed. All that remained from it of value to either himself or bis creditors was the money which be could derive himself from the policy of insurance upon it. By collection of the amount to be drawn from it the proceeds could be made to enure to tbe benefit of bis creditors. Tbe only hope wbicb the creditors bad of getting anything from tbe property would be through Gordon enforcing bis rights upon tbe policy. Where the trustee does not deem it of benefit to accept title to particular property when in fact it could not be applied to tbe payment of creditors, tbe title to it remains in tbe bankrupt as if it had not been tendered. It was to be expected under the circumstances that tbe creditors would consent to a composition with Gordon, and depend upon bis personal obligation to pay them, and this it appears was tbe fact.
The creditors made a composition with tbe debtor wbicb was confirmed by tbe court. Tbe effect of this was to place matters quoad tbe property covered by the policy as if it bad never been tendered to tbe creditors. In tbe interval between the adjudication in bankruptcy and tbe appointment of the trustee tbe title of tbe property tendered remains in the bankrupt. Tbe decree itself does not pass tbe title. Its date simply marks tbe point of time to which tbe title, if subsequently acquired by tbe trustee, relates back. Tbe title of tbe bankrupt in tbe interval exists. It may vest in tbe trustee, or it may not as circumstances should develop. No title could vest when there would be no property in existence when be was appointed to wbicb a title could be made to apply. We have not been able to refer to tbe cases from New York and Massachusetts from wbicb plain*449tiff’s counsel quote, but the remarks, as quoted, are in themselves forcible, and we think correct. Defendant does not set up any injury or harm to itself, in fact, from what has taken place in this matter. It is standing upon what it must admit to be the very strictest construction of the contract and the law in its favor. We do not concur with it as to what the rights and obligations of the parties springing from the situation are. The only question argued in the brief in behalf of defendant is that which we have discussed. The other position taken by it in the lower court we presume is not relied on.
We think the judgment brought up for review is correct; and it is hereby affirmed.