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108

Statement of the Case.

8. If, for any reason, there occurs a vacancy in the commissionership when the Court is not in session, the same may be filled by the designation of a new commissioner by the Chief Justice.

9. All the costs of the cause, including the compensation and expenses of the commissioner, shall be borne in equal parts by the State of New Mexico and the State of Colorado.

MAY, AS TRUSTEE IN BANKRUPTCY OF GEO. W. COWEN CO., INC., BANKRUPT, v. HENDERSON, ET AL.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE

NINTH CIRCUIT.

No. 126. Argued March 5, 1925.—Decided April 13, 1925. Within four months prior to the filing of the petition in bankruptcy

against it, the bankrupt made a general assignment for the benefit of creditors to two trustees, one of whom, H., was the president of a bank to which the assignor was then indebted on a promissory note, and with which it carried a deposit account. The account was transferred, after the assignment, to the names of the trustees, as such, and afterwards augmented by deposits of money collected by them in carrying on the assignor's business. Partly before the date of the bankruptcy petition and partly thereafter, H., having control of the account, caused it to be applied to the note, with the tacit consent of the other assignee. The bank, as well as the assignees, had executed the creditors' agreement under which the assignment was made, providing for a pro rata distribution among all creditors and expressly extending the time of payment of all indebtedness of the assignor for the period of one year. Held, that the assignees were properly directed by the Bankruptcy Court, in a summary prcceeding, to pay over to the trustee in bankruptcy an amount equal to the deposits, including the part paid the bank before the filing of the petition as well as the part

paid thereafter. P. 115. 289 Fed. 192, reversed.

CERTIORARI to a judgment of the Circuit Court of Appeals, on petition to revise, reversing a judgment entered Opinion of the Court.

268 U.S.

by the District Court summarily in a bankruptcy proceeding, which required the present respondents to pay over a sum of money to the trustee in bankruptcy.

Mr. H. A. Jacobs, with whom Messrs. Henry G. W. Dinkelspiel, G. B. Blanckenburg and Martin J. Dinkelspiel were on the briefs, for petitioner.

Mr. A. A. DeLigne, with whom Mr. Archibald M. Johnson was on the brief, for respondents.

MR. JUSTICE STONE delivered the opinion of the Court.

This is a writ of certiorari to the Circuit Court of Appeals for the Ninth Circuit to review its action (reported 289 Fed. 192) on a petition to revise an order of the District Court confirming the order of a referee in bankruptcy, summarily directing the respondents to pay over a sum of money to the trustee in bankruptcy.

On September 15, 1920, prior to but within four months of the filing of the petition, the bankrupt made to respondents, Henderson and Scannell, a general assignment for the benefit of creditors. At the time of the assignment the assignor was indebted on a promissory note in the sum of $15,000 to the Fort Sutter National Bank, of which respondent: Henderson was president, and in which the assignor carried a deposit account. The referee found, on sufficient evidence, that the respondents accepted the trust under the assignment to them and continued the business of the assignor until the appointment of the receiver in bankruptcy on November 4, 1920, the petition in bankruptcy having been filed on October 9, 1920. In the meantime, the deposit account of the assignor with the bank, with the knowledge and assent of the assignees, was changed from the name of the assignor to the names of the assignees, as " trustees,” and further deposits were from time to time made by them to the

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credit of the account, in the course of their management of the business of the assignor. The assignor was duly adjudicated a bankrupt and, thereafter, the trustee in bankruptcy petitioned the Bankruptcy Court for an order directing the respondents, as assignees, to account for and pay over all moneys received by them from the date of the assignment to the date of the appointment of the receiver. Proceedings on the petition resulted in the order of the District Court directing respondents to pay over to the trustee an amount which would have stood to the credit of the assignees in their deposit account with the bank had the account not been closed in the following manner:

On September 30, 1920, ten days before the filing of the petition, the deposit account of the assignees with the bank was debited with the sum of $4,516.43, which amount was credited on the note of the bankrupt held by the bank, and on October 13, 1920, subsequent to the filing of the petition, and on various dates thereafter to and including October 25, 1920, further debits were made in the account which were credited on the note. These credits, including the first mentioned, amounted to the sum of $12,883.81, which was the amount directed to be paid over by respondents by order of the District Court. These debits and credits were made by direction of the respondent, Henderson, who throughout the period in question acted as one of the assignees and was also president of the bank. Although there was no explicit finding on the subject, the debits appear to have been made with the tacit assent of Scannell, the other assignee, who in any event appears to have left the management of the financial operations of the assignees to Henderson and made no objection or protest with respect to this use of the account standing to his credit as an assignee. We think that the finding of the Circuit Court of Ap

Opinion of the Court.

268 U.S.

peals that this application of the bank deposit on the note of the bankrupt constituted a “partial payment of the note as fully as if the assignees had given their check or withdrawn the money from the bank and paid it over the counter" is correct, and that both the assignees must be held legally responsible for this result. Where one of two co-trustees assents to a breach of trust by the other without objection, he is legally chargeable with liability for the breach. Bermingham v. Wilcox, 120 Cal. 467, 472; Adair v. Brimmer, 74 N. Y. 539; Matter of Niles, 113 N. Y. 547; Hill v. Hill, 79 N. J. Eq. 521.

The referee found that respondent Henderson was at all times from September 24, 1920, until the appointment of the receiver in bankruptcy, in control of the assignees' deposit account; and that he was the only officer of the bank who at any time exercised any control over the account, and that as president of the bank he at all times until the filing of the referee's report, had personal control of the funds deposited in the account; that the original ledger sheet of the bank showing the account standing in the names of the respondents as assignees, was destroyed by officials of the bank some time after the filing of the petition in bankruptcy and then an attempt was made to restore this account to the name of the bankrupt by rewriting the ledger sheets. He also found that on and after September 24, 1920, both the respondents and the Fort Sutter National Bank, which with respondents had on that date executed the creditors' agreement under which the assignment to respondents for the benefit of creditors was made, had actual knowledge of the insolvent condition of the bankrupt.

On the petition to revise, the Circuit Court of Appeals held that, when the money on deposit with the bank was applied on the note of the bankrupt, “the money passed into the possession and under the control of the bank and out of the possession and beyond the control of the re

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Opinion of the Court.

spondents .; that the funds in the bank are not the funds of the president nor are they subject to his order and control, and an order directing him to pay over the money is not an order against the bank and is not binding upon the bank.” The court accordingly held that the bank, which was not a party to this proceeding, held the funds received by it in its own right adversely to any claim of the assignees or the trustee in bankruptcy and could not be reached by a summary proceeding and it reversed the judgment and order of the District Court.

It is well settled that property or money held adversely to the bankrupt can only be recovered in a plenary suit and not by a summary proceeding in a Bankruptcy Court. Louisville Trust Co. v. Comingor, 184 U. S. 18; First National Bank of Chicago v. Chicago Title & Trust Co., 198 U.S. 280; Gailbraith v. Vallely, 256 U. S. 46. But property held or acquired by others for account of the bankrupt is subject to a summary order of the court, which may direct an accounting and a payment over to the trustee or receiver appointed by the Bankruptcy Court. White v. Schloerb, 178 U. S. 542; Mueller v. Nugent, 184 U. S. 1; Babbitt v. Dutcher, 216 U. S. 102; Chicago Board of Trade v. Johnson, 264 U. S. 1. Such is the rule with respect to assignees for the benefit of creditors within four months of filing of the petition. In re Stewart, 179 Fed. 222; In re Rathman, 183 Fed. 913; In re Neuburger, Inc., 240 Fed. 947; In re Diamond's Estate, 259 Fed. 70, 74, and see Bryan v. Bernheimer, 181 U. S. 188. See Louisville Trust Co. v. Comingor and Gailbraith v. Vallely, supra, where, however, the jurisdiction was defeated by the adverse claim of the assignee arising before the filing of the petition; and see Randolph v. Scruggs, 190 U. S. 533, as to the nature of the title of the assignee for the benefit of creditors when bankruptcy ensues. See also Taubel, etc. Co. v. Fox, 264 U. S. 426, 433 and note. Courts of Bankruptcy do not permit themselves to be

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