(IJornpU ICaui i>ri|nnl ICibrary Cornell University Library KF 1524.B62 1922 A treatise on the law and practice ot ba 3 1924 019 293 301 Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019293301 A TREATISE ON THE LAW AND PRACTICE OF BANKRUPTCY UNDER THE ACT OF CONGRESS OF 1898 AND ITS AMENDMENTS BY HENRY CAMPBELL B^ACK, LL. D. AUTHOR OF black's LAW DICTIONARY AND OF TREATISES ON JUDGMENTS, CONSTITUTIONAL LAW, INTERPRETATION OF LAWS, JUDICIAL PRECEDENTS. INCOME TAXES, RESCISSION OF CONTRACTS, ETC. THIRD EDITION KANSAS CITY, MO. VERNON LAW BOOK COMPANY 1922 /3/z c c^. OOPTBtGHT, 1914 BT VERNON LAW BOOK COMPANX COPYEIGHT, 1922 BT VERNON LAW BOOK COMPANY (Blk.Bkr.3d Ed.) PREFACE TO THE THIRD EDITION* Eight years having passed since the publication of the former edition of this book, a' very considerable expansion and development of the law and practice in bankruptcy having ''come about in the interval, and many demands for a new edition having been presented by members of the Bar, the author has subjected the entire work to a complete and systematic revision, giving full attention to the changes in the law and the applications of it to new states of fact, and incorporating at the same time the doctrines and principles of the decisions which have been rendered from the date of the last edition to the printing of the pres- ent volume. An idea of the amount of the new material thus added can be gathered from the fact that it covers the bankruptcy c^ses re- ported in the last sixty-seven volumes of the Federal Reporter. That this treatise, in its present form, may deserve, and may continue to receive, the very gratifying measure of favor which has hitherto been accorded to it by the Bench and Bar is the sincere hope of the author. Henry Campbell, Black. Washington, D. C, January, 1922. (iii)* TABLE OF CONTENTS CHAPTER I THE NATIONAL BANKRUPTCY ACT AND ITS EFFECT ON STATE LAWS Sec. 1. Constitutional and Statutory Provisions. 2. Constitutionality of National Bankruptcy Law. 3. Policy and Purpose of Act. 4. Interpretation and Construction of Bankruptcy Act 5. Time of Taking Effect. 6. Validity of State Insolvency Laws. 7. State Insolvency Laws Suspended by National Bankruptcy Law. 8. Same ; What State Laws Affected. 8. Same; Oases Not Covered by Bankruptcy Law. 10. Same; Laws Regulating Assignments for Creditors. 11. Practical Effect of Suspension of State Insolvency Laws. 12. Pending Proceedings Under State Laws. 13. Nature and Effect of Proceedings in Bankruptcy. 14. Foreign Bankruptcy. CHAPTER II • COURTS OF BANKRUPTCY, THEIR JURISDICTION AND POWERS 15. Courts of Bankruptcy. 16. General Jurisdiction of Courts of Bankruptcy. 17. Jurisdiction of Bankruptcy Courts Exclusive. 18. Territorial Limits of Jurisdiction. 19. Jurisdiction as Dependent on Residence or Domicile. 20. Jurisdiction Dependent on Amount of Debts. 21. Jurisdiction of Bankrupt's Person. 22. Summary Jurisdiction. 23. Equitable Powers and Jurisdiction. 24. Ancillary Jurisdiction. 25. Jurisdiction to Reverse or Set Aside Former Proceedings, 26. Conflicts of Jurisdiction With State Courts. 27. Same ; Effect of Appointment of Receiver by State Court. 28. Same; Property in Possession of Sheriff. 29. Power to Enjoin Proceedings in State Courts. 30. Rules of^Practice. 31. Practice in Bankruptcy. 32. Powers and Authority of Judge. ■ 33. Priority of Petitions and Transfer of Causes, Blk.Bkb.(3d Ed.) (v) TABLE OF CONTBNT8 CHAPTER III APPELIiATE JURISDICTION AND PROCEDURH 8eo. 34. Statutory Provisions. 35. Jurisdiction of United States Supreme Court 36. Same; On Certification of Questions. 37. Same; Certiorari. 38. Same; Writ of Error to Supreme Court of State. 39. ' Rules Governing Appeal to Supreme Court. 40. Jurisdiction of Circuit Court of Appeals on Writ of Error. 41. Appellate Jurisdiction of Circuit Court of Appeals. 42. Same; Adjudication of Bankruptcy. 43. Same; Decision on Discharge or Composition. 44. Same; AUovpance or Rejection of Claim. 45. Revisory Jurisdiction of Circuit Court of Appeals. 46. Appellate and Revisory Jurisdiction Contrasted ; Choice of Remedies. 47. "Controversies" and "Proceedings in Bankruptcy" Distinguished- 48. Reviewing Discretionary Action of District Court. 49. Time of Taking Appeal or Petition for Review. 50. Parties to Appeal or Review. 51. Practice on Appeal. 52. Practice on Petition for Revision. 53. Assignment of Errors. 54. Record on Appeal. 55. Scope of Review ; Law and Facts. 56. Same; Questions Not Raised Below. 57. Review of Evidence and Findings. 58. Determination on Appeal or Review and Effect Thereof, 59. Jurisdiction of Territorial Supreme Courts. CHAPTER IV HEFEREES IN BANKRUPTCY, THEIR APPOINTMENT AND QUALIFI- CATIONS 60. Appointment of Referees. 61. Qualifications, Oath, and Bond. 62. Disqualification by Interest. 63. Removal of Referees. CHAPTER V POWERS AND DUTIES OF REFEREES 64. Reference and Transfer of Causes. 65. Jurisdiction and Powers of Referees. 66. Specific Powers and Authorities of Referees. 67. Same; Surrender or Reclamation of Property. 68. Same; Grant of Injunction. 69. Same; Appointment of Receiver. 70. Duties of Referees. 71. Proceedings Before Referees. 72. Same ; Taking and Preservation of Evidence, 73. Same ; Review and Reopening of Case. TABLE OF CONTBNTa Vli See. 74. Certifying Questions tor Review by Judge. 75. Review of Proceedings by Judge. 76. Same ; Effect of Referee's Findings of Fact 77. Records and Accounts of Referees. 78. Contempts Before Referees. CHAPTER VI ACTS OF BANKRUPTCX 79. Acts of Bankruptcy Enumerated and Defined. 80. Nature and Effect of an Act of Bankruptcy. 81. Insolvency as an Element in Acts of Bankruptcy. 82. Fraudulent Conveyances. 83. Concealment or Removal of Property. 84. Giving a Preference. 85. Same; Intention of Debtor Presumed. 86. Suffering Preference Through Legal Proceedings. 87. Same; Attachment 88. Same; Failure to Vacate or Discharge. 89. Same; Meaning of "Suffer or Permit." 90. Warrant of Attorney; Confession of Judgment. 91. Assignment for Creditors. 92. Same; What Constitutes "General" Assignment. 93. Same; Invalid Assignment 94. Same; Solvency No Defense. 95. Appointment of Receiver or Trustee. 96. Confession of Insolvency. CHAPTER VII WHO ARE SUBJECT TO BANKRUPTCY LAW 97. Voluntary Bankruptcy. ' ^8. Involuntary Bankruptcy ; General Considerations. 99. Aliens. 100. Married Women. 101. Insane Persons. 102. Infants. 103. Decedents' Estates. 104. Executors and Other Trustees. 105. Wage-Earners. 106. Farmers. 107. Second Bankruptcy. CHAPTER VIII BANKRUPTCY OF PARTNERSHIPS 108. Jurisdiction in Partnership Cases. 109. Same ; Minority or Insanity of One Partner. 110. Proceedings in Partnership Cases. 111. What Constitutes Partnership. 112. Secret and Presumptive Partners. Vm TABLE OF CONTENTS Sec. 113. Acts of Bankruptcy by Partners. 114. Same; Insolvency of Firm and of Partners. 115. Involuntary Proceedings Against Firm. 116. Effect of Dissolution of Firm. 117. Dissolution of Firm by Death of Partner. 118. Bankruptcy of Firm Without Adjudication of Any Partner. 119. Voluntary Petition by One or More Partners. 120. Individual Bankruptcy of One or More Partners. 121. Effect of Adjudication of One or More Partners. 122. Continuing or Liquidating Partner. 123. Distribution of Estate. 124. Marshalling Assets. 125. Partnership Asf^ets. 126. Individual Assets. 127. Partnership Debts and Claims. 128. Separate Debts of Partners. 129. Joint and Several Liability; Double Proof. 130. Claims of Partners Inter Sese and Against the Firm, 131. Discharge of Partners. CHAPTER IX BANKRUPTCY OF CORPORATIONS 132. Jurisdiction of Corporations. 133. Same ; Effect of Proceedings for Dissolution Under State Law. 134. Corporations Amenable to Bankruptcy Law. 135. Trading and Mercantile Corporations. 136. Manufacturing Corporations. 137. Banks and Bankers. 138. Railroad and Insurance Companies. 139. Mining and Quarrying Companies. 140. Public-Service Corporations. 141. Amendment of 1910 ; Business and Commercial Companies. 142. Religious, Charitable, Educational, and Other Corporations Not for Profit. 143. Unincorporated and Joint Stock Companies. 144. Acts of Bankruptcy by Corporations. 145. Same; Admission of Insolvency and Willingness to be Adjudged Bankrupt. 146. Effect of Adjudication on Status of Corporation. 147. Franchises as Assets. 148. Assessment on Unpaid Stock. 149. Statutory Liability of Stockholders and Directors. 150. Discharge of Corporations. CHAPTER X PETITION AND ADJUDICATION 151. Voluntary Petition and Adjudication Thereon. 152. Same; Opposition by Creditors. 153. Involuntary Bankruptcy; Creditors Entitled to File Petition. 154. Same; Preferred Creditors. 155. Same; Creditors Estopped to Petition. TABLE OF CONTENTS IX Sec. 156. Same; Requisites as to Number and Amount. 157. Same ; Solicitation, Procurement, or Purchase of Claima. 158. Same; Withdrawal of Petitioners. 159. Petition in Bankruptcy; Formal Requisites. 160. Same; Allegations. 161. Same; Multiftirious and Mlsjoined Matter. 162. Signature and Verification of Petition. 163. Amendment of Petition. 164. Limitation of Time for Filing Petition. 165. Filing and Presenting Petition. 166. Service of Process. 167. Notice to Creditors. 168. Parties. 169. Same; Intervention and Substitution of Parties. 170. Same; Persons Entitled to Oppose Adjudication. 171. Answer and Other Pleadings. 172. Defenses and Grounds of Opposition. 173. Issue of Insolvency. 174. Proof of Solvency or Insolvency. ivr,. Examination of Debtor as to Solvency. 176. Burden of Proof and Evidence. 177. Discontinuance and Dismissal of Proceedings. 178. Death or Insanity of Bankrupt Before Adjudication. 179. Trial by Jury. 180. Trial or Hearing; Conduct of Proceedings. 181. Adjudication. 182. Conclusiveness and Effect of Adjudication. 183. Vacating and Setting Aside Adjudication. 184. Clerk's Docket CHAPTER XI SUITS BY AND AGAINST THE BANKRUPT 185. Effect of Bankruptcy on Pending Suits. 186. Stay of Pending Suits by State Court. 187. Stay by Injunction or Order from Federal Court. 188. Leave to Continue Suit in State Court. 189. What Actions May be Stayed. 190. Foreclosure of Mortgages and Other Liens. 191. Proceedings Subsequent to Judgment. 192. Proceedings Supplementary to Execution. 193. Proceedings on Appeal. 194. Contempt Proceedings. 195. Effect of the Stay. 196. Effect of Grant or Denial of Discharge. 197. Pending Actions by Bankrupt as Plaintiff. 198. Intervention of Trustee in Pending Suits. 199. Suits Begun After Adjudication. TABLE OF CONTENTS CHAPTER XII CUSTODY AND PROTECTION OF PROPERTY BEFORE APPOINTMENT OF TRUSTEE Sec. 200. Custody and Control of Property. 201. Warrant and Seizure Before Adjudication. 202. Seizilre of Property In Hands of Third Person. 203. Remedies Against Marshal Seizing Property of Stranger. 204. Restraining Waste or Disposition of Property by Bankrupt 205. Restraining Interference with Property by Third Persons. 206. Enjoining Levy, Judicial Sale, or Replevin. 207. Restraining Proceedings in State Courts. 208. Indemnity Bond by Petitioning Creditors. 209. Forthcoming Bond by Bankrupt. 210. Appointment of Receiver. 211. Povfers and Duties of Receiver. 212. Continuing Bankrupt's Business. 213. Claims of Third Persons Against Receiver or Estate. 214. Actions By and Against Receiver. 215. Ancillary Receiverships. 216. Accounts and Compensation of Receiver. 217. Sale of Property Pending Proceedings. CHAPTER XIII THE BANKRUPT, HIS RIGHTS AND DUTIES 218. Status of Bankrupt During Proceedings. 219. Bankrupt Subject to Orders of Court. 220. Duties With Relation to Estate, and Assistance to Trustee, 221. Schedule of Assets ; Preparation and Filing. 222. Form anfl Contents of Schedule. 223. Preparation of Schedule on Bankrupt's Default 224. Mistakes and Omissions in Schedule. 225. List of Creditors. 226. Amendment of Schedule and List. 227. Surrender of Money or Assets to Trustees ; Jurisdiction and Power to Order. 228. Same; Petition, Order, and Proceedings Thereon. 229. Same; Evidence to Sustain Order. 230. Same; Excuses, Defenses, and Allowances. 231. Same; Commitment for Contempt. 232. Detention and Extradition of Bankrupts. 233. Privilege from Arrest on Civil Process. 234. Release from Imprisonment. 235. Arrest Prior to Bankruptcy Proceedings. 236. After-Acquired Property. 237. Right to Surplus of Estate. TABLE OF CONTENTS ** CHAPTER XIV EXEMPTIONS OF BANKRUPT Sec. 238. Exemptions Under Federal Laws. 239. Pension Money. 240. Exemption Under State Laws. 241. Same; Exemption by Value. 242. Same; Exemption of Specific Property. 243. Policies of Life Insurance. 244. Homestead Exemption. 245. Title to Exempt Property. 246. Forfeiture of Exemptions. 247. Abandonment and Waiver of Exemptions. 248. Same; Rights and Remedies of Creditors Holding Waivers. 249. Liens on and CJaims Against Exempt Property. 250. Same ; Claims for Unpaid Purchase Money. 251. Jurisdiction of Bankruptcy Court. 252. Claim of Exemptions. 253. Setting Apart Exempt Property. 254. Sale of Property and Allowance of Exemptions Out of Proceeds. 255. Exemptions in Partnership Cases. 256. Dower and Allowances to Bankrupt's Widow. CHAPTER XV EXAMINATIONS IN BANKRUPTCY 257. When Examination May be. Ordered. 258. Who May Apply for Examination. 259. Application and Order for Examination and Notice. 260. Process to Secure Attendance of Witness. 261. Examination of Non-Resident Witnesses. 262. Who Subject to Examination; The Bankrupt. 263. Same; The Bankrupt's Wife. 264. Same; Other Witnesses. 265. Second Examination of Bankrupt. 266. Conduct of the Examination. 267. Same ; Right to Counsel. 268. Objections to Questions and Rulings Thereon. 269. Scope of the Inquiry. 270. Privileged Communications. 271. Privilege Against Self-Criminating Testimony. 272. Use and Effect of Evidence. 273. Witness Fees and Costs of Examination. 274. Contempts by Witnesses. CHAPTER XVI RIGHTS AND DUTIES OF CREDITORS 275. Notices to Creditors. 276. Designation of Newspapers. 277. Meetings of Creditors. 278. Same; Special and Final Meetings. 279. Representation by Attorney or Proxy. 280. Assignment of Claims. Xll TABLE OF CONTENTS Sec. 281. Participation of Creditors in the Proceedings. 282. Advising Trustea 283. Furnishing Indemnity for Expenses. 284. Right to Information as to Estate. CHAPTER XVII APPOINTMENT, QUALIFICATION, AND TENURE OF TRUSTEES 285. Qualifications of Trustees. 286. Election of Trustee. 287. Same; Cases Where No Trustee Appointed. 288. Same; Rights of Creditors as Voters. 289. Same; Representation by Agent or Attorney. 290. Same; Corrupt Practices and Improper Inlluences. in Election, 291. Confirmation or Disapproval by the Court 292. Appointment of Trustee by Court. 293. Acceptance and Resignation of Trustee. 294. Bonds of Trustees. 295. Death of Trustee. 296. Removal of Trustee. CHAPTER XVIII POWERS AND DUTIES OP TRUSTEE 297. Effect of Appointment and Qualification of Trustee. 298. Trustee as Representative of Creditors. 299. Instructions of Court or Referee. 300. Inventory and Appraisal of Property. 301. Custody and Care of Property. 302. Carrying On Bankrupt's Business. 303. Collection of Assets. 304. Arbitration and Compromise. 305. Redemption of Property. 306. Performance of Banlirupt's Contracts and Obligations. 307. Leased Property and Leasehold Interests of Bankrupt 308. Expenditures. 309. Employment and Compensation of Attorney for Trustee. 310. Deposit and Disbursement of Funds. 311. Responsibility for Negligence or Misconduct 312. Joint Trustees. 313. Accounts and Reports of Trustee, 314. Discharge of Trustee. 315. Closing and ReopeAlng Estate CHAPTER XIX PROPERTY VESTING IN TRUSTEE 316. Nature and Origin of Trustee's Title, 317. Date of Accrual of Trustee's Title. 318. Assets in Bankruptcy in General. 319. Situation of Property. 320. Burdensome Interests. TABLE OF CONTENTS Xlll Sec. 321. Same; Trustee's Election to Accept or Abandon Property. 322. Property In Bankrupt's Possession. 323. Property in Custody of the Law. 324. Interests In Eeal Estate. 325. Same ; Equity of Redemption. 326. Same ; Leased Property. 327. Same ; Remainders and Expectant Estates. 328. Same; Estates by Curtesy and Community Property. 329. Shme; Estates of Vendor and Vendee Under Executory Contract 330. Same; Settlers' Rights and Improvements on Public Lands. 331. ' Same ; Resulting Trusts. 332. Same; Powers. 333. Growing Crops. 334. Patents and Copyrights. 335. Trade Marks and Trade Names. 336. Franchises and Licenses. 337. Membership in Stock Exchange. 338. Executory Contracts. 339. Good- Will of a Business. 340. Debts Due to Bankrupt. 341. Same; Claims Against Government. 342. Rights of Action. 343. Same; For Personal Injuries and Other Torta. 344. Same ; For Usury. 345. Legacies and Inheritances. 346. Property Held in Trust for Bankrupt. 347. Same; Testamentary Trusts and Annuities. 348. Policies of Life Insurance. 349. Wifele Personalty and Choses in Action. 350. Acquisitions of Minor Children. 351. Dower Rights. 352. Property of Third Persons in Bankrupt's Possession, 353. Same ; Remedies of Owner. 354. Property Held by Bankrupt as Trustee. 355. Same; Deposits in Bank. 356. Property Held by Bankrupt as Agent or Bailee. 357. Money or Collateral in Hands of Bankrupt as Stock-Broker. 358. Property Held Under Contract of Conditional Sale. 359. Property Held Under Executory and Option Contracts of Sale. 360. Property Procured by Bankrupt by Fraud. 361. Property Sold or Pledged by Bankrupt. 362. Equitable Rights of Third Persons. CHAPTER XX EFFECT OF BANKRUPTCY ON EXISTING LIENS 363. Statutory Provisions. 364. Validity of Liens as Against Trustee. 365. Liens Invalid as Against Creditors. 366. Mortgages of Real Property. 367. Chattel Mortgages. 368. Pledges and Assignments of Collateral. 369. Maritime Liens. 370. Attorneys' Liens for Services. 371. Vendors' Liens. XIV . TABLE OF CONTENTS Sec. 372. Statutory Liens. 373. Landlord's Lien for Rent. 374. Liens of Meclianics and Materialmen. 375. Liens Acquired by Legal Proceedings Before Bankruptcy. 376 Same ; Attachment or Garnishment. 377. Same ; Judgment or Execution. 378. Dissolution of Liens by Adjudication, 379. Insolvency of Debtor. 380. Date of Attaching of Lien as Affecting Dissolution. 381. Rights of Bona Fide Purchasers. 382. Rights of Trustee as to Property Affected by Liens. 383. Conveyance or Surrender of Property Under Order of Court 384. Subrogation of Trustee to Rights of Lienholders. 385. Rights and Remedies of Creditor on Dissolution of Lien. 386. Costs and Fees Incurred Under Dissolved Lien. 387. Proceedings to Establish or Enforce Lien.s. 388. Same; Proceedings in State Courts. 389. Same; Restraining Proceedings in State Courts. 390. Same; Foreclosure of Mortgages. 391. Same; Proceedings Out of Court. CHAPTER XXI / SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY 392. Trustee's Right of Action in General. 393. Trustee's Right of Action Exclusive. 394. Leave or Direction to Sue. 395. Suit by Foreign Assignee in Bankruptcy. 396. Suits Against Trustee. 397. Same; Leave of Court. 398. Enjoining Proceedings Against Trustee. 399. Garnishment of Trustee. 400. Nature and Form of Remedy. 401. Suits in Equity by Trustee. 402. Summary Proceedings in Court of Bankruptcy. 403. Same; Against Adverse Claimants. 404. Same; Determination of Character of Claim. 405. Joinder of Causes of Action. 406. Jurisdiction; Statutory Provisions. 407. Same; Jurisdiction of Court of Bankruptcy. 408. Same ; Claims on Property in Possession of Trustee or Custody of Court. 409. Same; Independent Suits Against Third Persons. 410. Same; Preferences and Fraudulent Conveyances. 411. Same; Suits Which Bankrupt Could Not Have Maintained. 412. Same; Consent or Waiver of Objections. 413. Same; Federal Courts in Other Districts. 414. Same; Jurisdiction of State Courts. 415. Same; Conflicting Jurisdiction. 416. Limitation of Actions. 417. Same ; What Suits and Proceedings Barred. 418. Same; Ignorance of Cause of Action and Concealed Frauds. 419. Same; Parties Affepted by Statute. 420. Same; Pleading the Statute. TABLE OF CONTENTS XV Seo. 421. Same; Laches of Trustee. 422. Same; EfCect of Beopening E]state. 423. Parties. 424. Same; Joinder of Bankrupt. 425. Representation of Trustee by Counsel for Bankrupt 426. Injunction and Receivership. 427. Pleading; Allegations of Trustee's Bill or Complaint 428. Pleading; Defenses to Trustee's Bill or Complaint 429. Pleadings in Suits Against Trustees. 430. Burden of Proof and Evidence in Trustee's Suit 431. Evidence in Actions Against Trustee. 432. Liability of Trustee for Costs. CHAPTER XXII RIGHTS OF TRUSTEE AS AGAINST PRIOR ASSIGNEE FOE CREDITORS 433. Assignment an Act of Bankruptcy. 434. Effect of Adjudication in Bankruptcy on Previous Assignment 435. Assignment More Than Pour Months Before Banliruptcy. 436. Enjoining Action by Assignee. 437. Trustee's Proceedings to Avoid or Set Aside Assignment 438. Recovery of Assets by Trustee. 439. Same ; Summary Proceedings and Attachment for Contempt 440. Nature of Trustee's Title to Property Jissigned. 441. Estate Partly Settled by Assignee. 442. Rights of Purchasers from Assignee and Paid Creditors. 443. Appointment of Assignee as Trustee. 444. Credits and Allowances to Assignee. CHAPTER XXIII FRAUDTJLE:In re Cohn, 171 Fed. 568, 22 Am. Men v. Boyle Furniture Co., 43 Utah, 523, Bankr. Rep. 761. 136 Pac. 572. But it is also the purpose soin re SwoffordBros. Dry Goods Co., of the law to preserve, rather than to 180 Fed. 549, 25 Am. Bankr. Rep. 282; destroy, rights and advantages enjoyed In re Mvmford (D. C.) 255 Fed. 108, 43 by creditors under state laws, save to the Am. Bankr. Rep. 218; Schexnailder v. extent they are repugnant to or incon- Fontenot, 147 La. 467, 85 South. 207. sistent with the specific provisions of the 21 Pirie v. Chicago Title & Trust Co., bankruptcy law. Schexnailder v. Fon- 182 U. S. 438, 21 Sup. Ct 906, 45 L. Ed. tenot, 147 La. 467, 85 South. 207. 1171, 5 Am. Bankr. Rep. 814; In re 22 In re Blount, 142 Fed. 263, 16 Am. Blount, 142 Fed. 263, 16 Am. Bankr. Rep. Bankr. Rep. 97. 97; In re SwofCord Bros. Dry Goods Co., 23 in re Kepecs, 123 N. Y. Supp. 872; 180 Fed. 549, 25 Am. Bankr. Rep. 282; Brenen v. Dahlstrom Metallic Door Co.', Webb's Trustee v. Lynchburg Shoe Co., 189 App. Div. 685, 178 N. Y. Supp. 846. NATIONAL BANKRUPTCY ACT JEFFBCT ON STATE LAWS § 4 should be ground for discharging him, was held to be superseded and invalidated by the bankruptcy law, in so far as it affected debts of a fireman which would be dischargeable in a bankruptcy proceeding pend- ing against him.** No more can a debtor voluntarily engage himself in advance to renounce the benefit of the act. Thus, the maker of a judg- ment note containing a waiver of "all rights under the bankruptcy laws of the United States" is not thereby estopped from setting up a sub- sequent discharge in bankruptcy as a defense to his liability, since the waiver is void as contrary to public policy.*^ § 4. Interpretation and Construction of Bankruptcy Act. — The bankruptcy law is a remedial statute and should not be subjected to a narrow or illiberal interpretation; it should be construed reasonably and according to the fair import of its terms, with a view to effect its objects and to promote justice.*® "It is true that laws relating to bankruptcy and insolvency operate with severity upon the debtor, since = 4 In re Hicks, 133 Fed. 789, 13 Am. Bankr. Rep. 654. 2 5 May V. Merchants' & Mechanics' Bank, 109 Pa. St. 145. 2 6 Botts V. Hammond, 99 Fed. 916, 40 C. C. A. 179, 3 Am. Bankr. Rep. 775; Blake, Moflatt & Towne v. Francis- Val- entine Co., 89 Fed. 691, 1 Am. Bankr. Rep. 372; Norcross v. Nathan, 99 Fed. 414, 3 Am. Bankr. Rep. 613; Southern Loan & Trust Co. v. Benbow, 96 Fed, 514, 3 Am. Bankr. Rep. 9 ; In re Muller, Deady, 513, 3 N. B. R. 329, Fed. Cas. No. 9,912 ; . In re Mallory, 1 Sawy. 88, Fed. Cas. No. 8,991, 6 N. B. R. 22 ; Mims v. Lockett, 20 Ga. 474; Campbell v. Per- kins, 8 N. T. 430. There is an English decision and there are some cases In the state courts holding that bankruptcy or insolvency laws must be strictly con- strued, but these cases are not author- itative upon the interpretation of the national bankruptcy law. See Calladay V. Pilkington, 12 Mod. 513 ; Salters v. Tobia-s, 3 Paige (N. T.) 338; People v. Sutherland, 16 Hun (N. Y.) 192. In the case of In re Muller, supra, it was said by Judge Deady: "Counsel have Insist- ed that this is a special proceeding, pure- ly statutory, and that the act must be taken most strictly against the credi- tor and in favor of the bankrupt. In my judgment, this view of the -matter is not supported by reason or authority. The act does not attempt to punish the bank- rupt, but to distribute his property fair- ly and impartially between his creditors, to whom in justice it belongs. It is rem- edial, and seeks to protect the honest creditor from being overreached and de- frauded by the unscrupulous. It is in- tended to relieve the honest but unfor- tunate debtor from the burden of lia- bilities which he cannot -discharge, and allow him to commence the business of life anew. The power to pass bankrupt- cy laws is one of the express grants of power to the national government; and history teaches that the want of a uni- form law on this subject throughout the states was one of the prominent causes which led to the assembling of the con- stitutional convention and consequent formation and adoption of the federal constitution. Such a statute is not to be construed strictly, as if it were an ob- scure or special penal enactment, and this were the sixteenth instead of the nineteenth century. The act establishes a system and regulates, in all their de- tails, the relative rights and duties of the debtor and creditor. Such an enact- ment must be construed — as indeed should all acts — according to the fair import of its terms, with a view to ef- fect its objects and to promote justice." But at the same time the Act must re- ceive a construction which will effec- tuate its purpose, and it must not be so interpreted as to permit debtors to re- tain their property free from the claims of creditors. In re Evans (D. O.) 235 Fed. 956, 38 Am. Bankr. Rep. 361. § 4 LAW OF BANKEUPTCX ' 10 they deprive him of the control and disposition of all his property and subject him to heavy penalties for any fraud, concealment, or false dealing. It is true also that they restrict the creditors to one particular mode of obtaining payment of their claims, and often compel them to accept less than the full amount in discharge and satisfaction of their debts ; and in these respects, such statutes ought not to be enlarged by intendment or implication beyond the clear expression of the legislative meaning. But yet such laws are founded in a sound and wise public pol- icy, and are designed to accomplish beneficent results, and it would be an abuse of the power of interpretation if they were subjected to so nar- row and severe a construction as to defeat the very objects which they are intended to promote. The construction should be strict as to the imposition of penalties, liberal as to the powers of the trustee and as to the rights of the creditors, and liberal also as to the discharge of an honest debtor."^' Former bankruptcy acts may be resorted to as an aid in the con- struction of the present statute only in cases of doubt or ambiguity, not in any case where the present meaning of Congress is plain and free from doubt, as derived from the words employed. But in cases where the present act is vague, inexplicit, or general in its terms, while the former act, in relation to the same matter, gave minute and specific directions, it would appear that the earlier statute might be resorted to, as explaining more fully the mind of Congress, provided there is no inconsistency between the general terms of the new act and the specific language of the old. Of course, where words and phrases are used in the new act which had acquired a settled meaning as employed in the old statute, by the construction of the courts, they are to be taken as having been used in the same sense. This is in accordance witli a well- known rule of statutory interpretation.^* 27 Black, Interp. Laws (2d edn.) p. 479. note in loco. But it is now held that The earlier English statutes on this sub- statutory provisions as to the conditions ject were not only extremely severe in on which bankrupts may be discharged their application to debtors, but their are remedial, and the strict rules of original design appears to have been to construction appropriate to retrospective prevent and defeat the frauds of crim- laws are not applicable to them. In re inal debtors. "The bankrupt being deem- Scott, 126 Fed. 981, 11 Am. Bankr. Rep. ed an offender and being completely di- 327. vested of the disposition of his property, 28 First Nat. Bank v. Chicago Title & these statutes would naturally at the Trust Co., 198 U. S. 280, 25 Sup. Ct. 693, first be considered penal statutes ; for 40 L. Ed. 1051, 14 Am. Bankr. Rep. 102 ;' this reason, I presume, the statute 21 Audubon v. Shufeldt, 181 U. S. 575 21 Jac. I, c. 19, begins by declaring that Sup. Ct. 735", 45 L. Ed. 1009, 5 Am. 'the aforesaid statute shall be largely Bankr. Rep. 829; Hiscock v. Mertens and beneficially construed and expound- 205 U. S. 202, 27 Sup. Ct. 488, 51 L. Ed! ed for the aid and relief of the credi- 771, 17 Am. Bankr. Rep. 483; In re Lev- tors.' " 2 Black. Comm. 472, Christian's in, 176 Fed. 177, 99 C. C. A. 531, 23 Am. 11 NATIONAL BANKRUPTCY ACT EFFECT ON STATE LAWS § 4 With reference to the construction of particular clauses of the bank- ruptcy act, it should be remarked, in the first place, that those provi- sions which confer jurisdiction and power upon the courts of bankruptcy- are to be interpreted liberally, not narrowly, in order that the act may have the beneficial eflfect intended by Congress and be capable of har- monious execution.'* But on the other hand, it has been. held that the provisions of the act prescribing the requisites of a composition with creditors are to be strictly construed as against those who seek by this means to deprive non-assenting creditors of their right to have the debtor's property administered upon and distributed in the ordinary course of bankruptcy proceedings.^" To a considerable extent, possi- ble ambiguities in the act of 1898 are cleared up by the definitions con- tained in the first section. But this "interpretation clause," like all the other parts of the act, is itself subject to construction by the courts. And while the definitions and rules of construction contained in the first section are a part of the law and are binding on the courts, yet they will not be extended beyond their necessary import, nor will they be al- lowed to defeat the intention of the legislature otherwise clearly mani- fested in the act.^^ Thus, a provision in the first section that a given word shall "include" a certain thing does not necessarily exclude other meanings.** But on questions of the construction of the bankruptc]^ act, opinions expressed by individual members of Congress in the debates on the passage of the act, as to the object and effect of its particular clauses, are entitled. to little or no weight.** The. proceeding contemplated by the bankruptcy act is not a mere personal action against the bankrupt for the collection of debts, but is also a proceeding in rem to impound all of his nonexempt property and to distribute it equitably among his creditors ; and hence the court must, if possible, so construe the act as to secure uniformity .in its adminis- tration.** Further the construction of the law ought in theory to be exactly the same throughout the United States. At any rate, it cannot be varied in each state of the Union by the local law. And therefore, in Bankr. Kep. 845; Woolsey v. Cade, 54 si See Black, Interp. Laws (2d edn.) pp. Ala. 378, 25 Am. Rep. 711 ; Whitcomb 269-274, for a general discussion of "In- V. Rood, 20 Vt. 49 ; Black, Interp. Laws terpretation clauses," their legal effect, (2d edn.) p. 607. and their interpretation. 2 9 Murray v. Beal, 97 Fed. 567, 3 Am. a 2 in re Plarper, 175 Fed. 412, 23 Am. Bankr. Rep. 284 ; Southern Loan & Bankr. Rep. 918. Trust Co. V. Benbow, 96 Fed. 514, 3 Am. ss Carter v. Hobbs, 92 Fed. 594, 1 Am. Bankr. Rep. 9 ; In re California Pac. R. Bankr. Rep, 215. And see Black, Interp. Co., 3 Sawy. 240, 11 N. B. R. 193, Fed. Laws (2d edn.) p. 312, and cases there Gas. No. 2,315. cited. 30 In re Rider, 96 Fed. 808, 3 Am. s* Hills v. F. D. McKinniss Co., 188 Bankr. Rep. 178. Fed. 1012, 26 Am. Bankr. Rep. 329. § 5 LAW OF BANKEUPTCT 12 construing- its terms giving or excluding its benefits, resort must be had to their meaning in the common law, rather than in the local law of the state where the proceedings are had.'^ In construing the bank- ruptcy law, the federal courts are not bound by decisions of state courts upon similar terms in the insolvency law of the state.*® But on the other hand, the construction or interpretation of the various provisions of the bankruptcy act, as settled by the decisions of the federal courts, particularly the Supreme Court, will be accepted and applied by the state courts, in all cases before them arising under or involving that statute, without an independent consideration of the question presented, if applicable rulings of the federal courts are brought to their notice.*'' It may be here added that the forms prescribed by the General Orders in bankruptcy are not absolutely binding, but may be altered to suit circumstances. For instance, in making proof of a claim, if the creditor cannot make the deposition exactly as prescribed in the form, it does not follow that his claim must be rejected.** I § 5. Time of Taking Effect. — The concluding section of the bank- ruptcy law of 1898 is as follows: "This act shall go into full force and effect upon its passage; Provided, however, that no petition for volun- tary bankruptcy shall be filed within one month of the passage thereof, and no petition for involuntary bankruptcy shall be filed within four months of the passage thereof. Proceedings commenced under state insolvency laws before the passage of this act shall not be affected by it." The act was approved on the first day of July, 18S'8. The bankruptcy act of 1867 provided: "This act shall commence and take effect, as to the appointment of officers and the promulgation of rules, from and after the date of its approval, provided that no petition or other proceeding under this act shall be filed, received, or commenced before the first day of June," which was three months after its passage. It was held that, as to its effect in suspending state insolvency laws and depriving state courts of jurisdiction to proceed under such laws, the federal stat- ute took effect, not from the day of its approval, but from June 1st. Con- sequently, where a state court had acquired jurisdiction of a proceeding 3 5 Austin V. Crawford, 7 Ala. 335. N. J. Eq. 211, 3 Atl. 726; Wagner v. 8 8 In re Knight, 2 Biss. 518, 8 N. B. Burnham, 224 Pa. 586, 78 Atl. 990; Fer- R. 436, Fed. Cas. No. 7,880; In re Plot- rell v. Madigan, 76 Va. 195; Bank of ke, 104 Fed. 964, 44 O. O. A. 282, 5 Am. Garrison v. Malley, 103 Tex. 562, 131 S. Bankr. Rep. 171. W. 1064; Broadnax v. Bradford, 50 37 Rugely V. Robinson, 19 Ala. 404; Ala. 270; Russell v. Cheatham, 8 Smedes Burnham v. Ft. Dodge Grocery Co., 144 & M. (Miss.) 703; Kreitz v. EgelhofC, Iowa, 577, 123 N. W. 220; Stewart v. 231 Mo. 694, 132 S. W. 1124. HofCman, 31 Mont. 184, 77 Pac. 689, 81 ss in re Strachan, 3 Biss. 181, Fed. Pac. 3; Mount v. Manhattan Co., 41 Cas. No. 13,519. 13 NATIONAL BANKRUPTCY ACT — EFFECT ON STATE LAWS § 5 in insolvency after the date of the passage of the bankruptcy act, but before the first of June, its jurisdiction to proceed with the case was not ousted.** But this rule does not apply under the present act. In view of its declaration that it "shall go into full force and efifect upon its passage," and that proceedings under state insolvency laws commenced "before the passage of this act" shall be saved, it is held that its opera- tion in suspending the insolvency laws of the states, and depriving the courts of jurisdiction thereunder, is to be dated from the day of its ap- proval, July 1st, and not from November 1st, the day when petitions in involuntary cases could first be filed.** It is also held under the present statute, as it was under the law of 1867,*^ that the statute took efifect from the date of its approval, rather than from the date when proceedings under it might be commenced, as to all acts done in fraud of the purpose of the statute, such as the giv- ing of preferences or the transfer or conveyance of property in fraud of creditors, or the commission of an act of bankruptcy.** Further, it was held under the former law that, for the purpose of dissolving liens acquired within four months before the commencement of proceedings in bankruptcy, the act of 1867 was to be considered as having gone into operation on the day of its passage, although the right to file pe- titions under it was postponed for three months thereafter,** and the same rule will apply under the present act. Where the endeavor is made to save the validity of a transfer or mort- gage of property recorded on the same day on which the bankruptcy act was approved, evidence is admissible to show that the instrument in question was actually placed on the record several hours before the President approved the act by his signature.** But in the absence of s» Martin v. Berry, 37 Cal. 208, 2 N. and not a denial or impairment of tlie B. R. 629; Day v. Bardwell, 97 Mass. rights of suitors. And see Parmenter 246, 3 N. B. R. 455 ; Chamberlain v. Per- Mfg. Co. v. Hamilton, 172 Mass. 178, 51 kins, 51 N. H. 336 ; Augsbury v. Cross- N. E. 529, 70 Am. St. Rep. 258. man, 10 Hun (N. Y.) 389. The same "Traders' Bank v. Campbell, 14 ruling was made under the bankruptcy Wall. 87, 6 N. B. R. 353; In re Louis, act of 1841. Larrabee v. Talbott, 5 Gill 3 Ben. 153, 2 N. B. R. 449, Fed. Cas. No. (Md.) 426, 46 Am. Dec. 637. 8,527 ; Perry v. Langley, 1 N. B. R. 559, *o In re Bruss-Ritter Co., 90 Fed. 651, Fed. Cas. No. 11,006. 1 Am. Bankr. Rep. 58, holding also that *2 Leidlgh Carriage Co. v. Stengel, 95 the postponement of the right to file pe- Fed. 637, 37 C. C. A. 210, 2 Am. Bankr. titions in involuntary cases until four Rep. 383; Blake, Moffitt & Towne v. months after the passage of the bank- Francis- Valentine Co., 89 Fed. 691, 1 Am. ruptcy act did not authorize state courts, Bankr. Rep. 372. in the interval, to take jurisdiction of *s Comer v. Miller (Md. Com. Pleas) 1 proceedings begun under state insolven- N. B. R. 403. cy laws (on the ground that the creditor ** In re Wynne, Chase, 227, 4N. B. R. would otherwise be without a remedy), 23, Fed. Cas. No. 18,117. being a mere regulation of procedure, § 5 LAW OF BANKRUPTCY 14 evidence to show at what hour on the first day of July, 1898, the Presi- dent signed his approval to the bankruptcy act, it will be presumed to have taken effect from the earliest moment of that day ; and therefore, under the provision that "no petition for involuntary bankruptcy shall be filed within four months of the passage" of the act, such a petition, filed on the first day of November, 1898, was not premature.*** The amendments to the present statute, passed respectively on Feb- ruary 5, 1903, and June 25, 1910, are not retroactive in their operation.** § 6. Validity of State Insolvency Laws. — Insolvency laws may be passed by the several states, regulating the distribution of the estates of insolvent debtors, on their own petition or on compulsory proceed- ings against them, and authorizing the discharge of debtors from their obligations and liabilities on just and reasonable terms, and the same will be operative in the absence of a national bankruptcy law.*' But these state laws are subject to three important limitations. First, they cannot have any effective operation while a national bankruptcy law is in force, except, perhaps, as to persons or cases not covered by the fed- eral statute., Whether the federal law is enacted before or after the passage of the state law, it suspends all state statutes on the same sub- ject so long as it continues in effect. Second, state laws of this kind cannot apply to citizens of other states having claims against the debt- or, for the state ha,s no jurisdiction over them, unless they voluntarily submit their claims to the jurisdiction and agree to participate in the distribution of the estate. Third, such state laws cannot apply to con- tracts entered into before their enactment, for that would impair the obligation of such contracts.** But the fact that the constitution vests in Congress the exclusive power to enact bankruptcy laws uniform throughout the United States does not deprive the states of authority to 40 Leidigh Carriage Co. v. Stengel, 95 " Butler v. Goreley, 146 U. S. 303, 13 Fed. 637, 37 C. C. A. 210, 2 Am. Bankr. Sup. Ot. 84, 36 L. Ed. 981. Eep. 383. *8 Ogden v. Saunders, 12 Wheat. 213, 6 48 Holt V. Henley, 232 U. S. 637, 34 L. Ed. 606; Baldwin v. Hale, 1 Wall. Sup. Ct. 459, 58 L. Ed. 767, 32 Am. 223, 17 L. Ed. 531 ; Oilman v. Lockwood, Bankr. Rep. 161; In re Docker-Foster 4 Wall. 409, 18 L. Ed. 432; Brown v. Co., 123 Fed. liSO, 10 Am. BanUr. Eep. Smart, 145 U. S. 454, 12 Sup. Ct 958, 36 584 ; lii re Gartman, 186 Fed. 349 ; In re L. Ed. 773 ; Hempsted v. Bank, 78 Wis. Calhoun Supply Co., 189 Fed. 537, 26 375, 47 N. W. 627. That a discharge un- Am. Bankr. Rep. 528; In re New Am- der a state insolvency law is no bar to an sterdam Motor Co., 180 Fed. 943, 24 action by a citizen of another state who Am. Bankr. Rep. 757; Breck v. Brew- did not appear or take part in the in- ster, 153 App. Div. 800, 138 N. Y. Supp. solvency proceedings, see Newton v. 821. But compare In re Farmers' Co- Hagerman, 22 Fed. 525 ; Roberts v. Ath- operative Co., 202 Fed. 1008, 30 Am. erton, 60 Vt. 563, 15 Atl. 159, 6 Am. St. Bankr. Eep. 190. Rep. 133. Compare Orr v. Lisso, 33 La. Ann. 476. 15 NATIONAL BANKRUPTCY ACT EFFECT ON STATE LAWS § 7 make and enforce insolvency laws until Congress acts. "It is well set- tled that the power granted to Congress by the constitution, to estab- lish uniform laws on the subject of bankruptcies throughout the United States, does not, until the power is exercised and such laws are put into operation by Congress, exclude the right of the states to pass similar laws ; and' that the operation of state insolvency laws is therefore super- seded and suspended, so far, at least, as the two are applicable to the same persons, as soon as a national bankruptcy law has taken effect, and not before." *» § 7. State Insolvency Laws Suspended by National Bankruptcy Law. — It is well settled by a multitude of incontestible authorities that the passage of a national bankruptcy law by Congress renders it the supreme law of the land, binding alike upon state and federal tribunals. All state insolvency laws in force at the time must yield to it, and can no longer operate upon persons or cases within the purview of the federal statute. The latter does not, indeed, repeal or destroy the state laws on the same subject, but it supersedes them and suspends their operation for the time being.^ Territories are included in this rule; 4 9 Day V. Bard well, 97 Mass. 246, 3 N. b; R. 455. See also Pettit v. Seaman, 2 Root (Conn.) 178; Pugh v. Bussel, 2 Blackf. (Ind.) 394. 5 Sturges V. Crowninshield, 4 Wheat. 122, 4 L. Ed. 529; Ogden v. Saunders, 12 Wheat. 213, 6 L. Ed. 606 ; Baldwin v. Hale, 1 Wall. 223, 17 L. Ed. 531; In re Brinn (D. C.) 262 Fed. 527, 45 Am. Bankr. Rep. 74 ; In re Pickens Mfg. Co., 158 Fed. 894, 20 Am. Bankr. Rep. 202; In re F. A. Hall Co., 121 Fed. 992, 10 Am. Bankr. Rep. 88; Carling v. Sey- mour Lumber Co., 113 Fed. 483, 51 C. C. A. 1, 8 Am. Bankr. Rep. 29 ; In re Curtis, 94 Fed. 630, 36 C. C. A. 430, 2 Am. Bankr. Rep. 226; Torrens v. Hammond, 10 Fed. 900; In re Smith, 92 Fed. 135, 2 Am. Bankr. Rep. 9 ; In re John A. Etheridge Furniture Co., 92 Fed. 329, 1 Am. Bankr. Rep. 112; In re Bruss- Ritter Co., 90 Fed. 651, 1 Am. Bankr. Rep. 58; In re Richard, 94 Fed. 633, 2 Am. Bankr. Rep. 506; In re Langley, 1 N. B. R. 559, Fed. Cas. No., 11,006 ; In re Mallory, 1 Sawy. 88, 6 N. B. R. 22, Fed. Cas. No. 8,991; In re Atkinson, 7 N. B. R. 143, 3 Pittsb. 423, Fed. Cas. No. 606; In re Temple, 6 Sawy. 77, Fed. Cas. No. 13,826; Ex parte Eames, 2 Story, 322, Fed. Cas. No. 4,237; In r.e Barrow, 1 N. B. R. 481, Fed. Cas. No. 1,057 ; In re Bunster, 5 Ben. 242, 5 N. B. R. S2 ; Fed. Cas. No. 2,136 ; In re Mer- chants' Ins. Co., 3 Biss. 162, 6 N. B. R. 43, Fed. Cas. No. 9,441 ; In re Independ- ent Ins. Co., Holmes, 103, 6 N. B. R. 260, Fed. Cas. No. 7,017 ; in re Safe-Deposit & Sav. Inst., 7 N. B. R. 392, Fed. Cas. No. 12.211; Freelander v. HoUoman, 9 N. B. R. 331, Fed. Cas. No. 5,081 ; In re Green Pond R. Co., 13 N. B. R. il8, Fed. Cas. No. 5,786; Capital Lumber Co. v. Saunders, 26 Idaho, 408, 143 Pac. 1178; Harbaugh v. Costello, 184 111. 110, 56 N. E. 363, 75 Am. St. Rep. 147 ; First Nat. Bank v. Ware, 95 Me. 388, 50 Atl. 24; Parmenter Mfg. Co. v. Hamilton, 172 Mass. 178, 51 N. E. 529, 70 Am. St. Rep. 258; Foley-Bean Lumber Co. v. Saw- yer, 76 Minn. 118, 78 N. W. 1038; Ar- mour Packing Co. v. Brown, 76 Minn. 465, 79 N. W. 522 ; E. C. Wescott Co. v. Berry, 69 N. H. 505, 45 Atl. 352 ; Potts V. Smith Mfg. Co., 25 Pa. Super. Ct. 206; Hickman v. Parlin-Orendorf Co., 88 Ark. 519, 115 S. W. 371; Rosenfeld v. Sieg- fried^ 91 Mo. App. 169;. Mauran v. Crown Carpet Lining Co., 23 R. I. 324, 50 Atl. 331 ; ' Hoover v. Ober, 42 Pa! Super. Ot. 308; Martin v. Berry, 37 Cal. 208; Barber v. Rodgers, 71 Pa. St. 362; Hudson v. Bigham, 12 Helsk. (Tenn.) 58, 8 N. B. R. 494; Rowe v. §7 LAW OF BANKRUPTCT 16 and 'under the Organic Act for Porto Rico, declaring that federal stat- utes not locally inapplicable shall be effective in Porto Rico, local laws relating to the distribution of insolvent estates are unavailing, in so far as the matter is governed by the Bankruptcy Act, and those pro- visions which are contrary to that act are of no effect." The reason for this rule is found in the inevitable conflict between two statutes af- fecting, for similar purposes, the same subject-matter, the same prop- erty, the same rights, and the same persons. Since they could not subsist together without direct and positive collision, the federal en- actment must prevail ; for a valid act of Congress is declared by the con- stitution to be the "supreme law of the land." We have said that the bankruptcy act, while it suspends the opera- tion of state insolvency laws, does not repeal or destroy them. Several important consequences follow from this doctrine. In the first place, no legislation by the state is necessary to put its insolvency law into abeyance during the life of the bankruptcy act, or to justify its courts in refusing to take jurisdiction of cases under such law; the suspension is accomplished by the mere supremacy of the act of Congress and its paramount authority. Secondly, a state insolvency law which was in force at the, time a national bankruptcy law was passed, or which has been enacted during the time the latter continues effective, is revived by the repeal of the federal statute, and at once resumes all its original force and operation, and this without any new legislation by the state. In other words, there is no necessity of re-enacting a state insolvency law; it did not cease to be a law of the state; and the repeal of the bankruptcy act suffices to remove the bar to its enforcement.^* Nor does Page, 54 N. H. 190, 13 N. B. E. 366 ; In Am. Dec. 782 ; Lavender v. Gosnell, 43 re McKee (Ky.) 1 Nat. Bankr. News, Md. 153, 12 N. B. E. 282 ; Orr v. Lisso, 139 ; In re Eeynolds, 8 R. I. 48.5, 9 N. 33 La. Ann. 476. In some of the earlier B. E. 50, 5 Am. Eep. 615 ; Lavender v. cases there was a disposition to regard Gosnell, 43 Md. 153, 12 N. B. E. 282 ; the effect of a national bankruptcy law Steelman v. Mattix, 36 N. J. Law, 344 ; upon state insolvency laws as that of an Fisk v. Montgomery, 21 La. Ann. 446; actual repeal. See Adams v. Storey, 1 Van Nostrand v. Oarr, 30 Md. 128 ; Paine, 79, Fed. Cas. No. 66. In Meekins Boese V. Locke, 53 How. Prac. (N. Y.) v. Creditors, 19 La. Ann. 497, 3 N. B. E. 148; Commonwealth v. O'Hara, 6 Phila. 511, it was said that the effect of the (Pa.) 402, Contra, In re Scholtz, 106 enactment of a bankruptcy law was. to Fed. 834, 5 Am. Bankr. Eep. 782. "repeal" the insolvency law of the state ; 61 In re Vidal, 233 Fed. 733, 147 O. 0. and that this doctrine had been recog- A. 499, 36 Am. Bankr. Eep. 783. nized by the legislature of Louisiana, 02 Butler V. Goreley, 146 U. S. 303, 13 which passed an act in 1843 to "revive'' Sup. Ct. 84, 36 L. Ed. 981 ; Tua v. Car- the insolvency law of the state, appar- riere, 117 U. S. 201, 6 Sup. Ct. 565, 29 ently considering that, when the federal L.Ed. 855; In re Wright, 95 Fed. 807, bankruptcy act of 1841 was repealed, if 2 Am. Bankr. Eep. 592; Lothrop v. was necessary to revive the state law' by Highland Foimdry Co., 128 Mass. 120; re-enactment. But as early as the case Ward V. Proctor, 7 Mete. (Mass.) 318, 39 of Sturges v. Crownlnshield, 4 Wheat. 17 NATIONAL BANKRUPTCY ACT EFFECT ON STATE LAWS § 8 the legislation of Congress annul that of the state in any such sense that the state law may not be amended without re-enactment after its operation is revived by the repeal of the national law. So also, where the court of bankruptcy refuses to grant a discharge to a bankrupt before it, his creditors, after the repeal of the bankruptcy law, may take proceedings against him under the state insolvency law and prove their claims against his estate.^ And again, a state insolvency law, suspended during the operation of a national bankruptcy law and re- vived by its repeal, may take cognizance of all acts within its provisions done while it was so suspended, and will apply to contracts made dur- ing that time.^ Moreover, it is competent for a state legislature to enact, amend, or repeal a state insolvency law while the bankruptcy act is in force. A state law of this character, passed while the federal act is operative, will not come into effect at once, but this does not make it void ab initio. The legislature has the power to make the time when its enactment shall take effect depend upon the happening of some future event. This event being the repeal of the bankruptcy law, the postponement of the efficiency of the state law until it occurs may be implied, and until that time the insolvency law Will remain in abey- ance.^ § 8. Same; What State Laws Affected. — In connection with the question of the validity of national bankruptcy laws and of the insol- vency laws of the several states, and the effect of the one upon the other, numerous attempts have been made (but without any marked 122, 196, 4 L. Ed. 529, Chief Justice Mar- by an insolvent debtor, in contravention shall had said: "It has been said that of the provisions of the insolvency law Congress has exercised this power, and of the state, while the federal bankrupt- by doing so has extinguished the power cy act is in force, is a sufficient cause of the states, which cannot be revived for instituting proceedings In insolvency by the repeal of the law of Congress. against the debtor after the repeal of We. do not think so. If the right of the the bankruptcy act. Lothrop v. High- states to pass a bankrupt law is not tak- land Foundry Co., 128 Mass. 120. en away by the mere grant of that power es Tua v. ^arriere, 117 U. S. 201, 6 to Congress, it cannot be extinguished — Sup. Ct 565, 29 L. Ed. 855 ; In re Wright, it can only be suspended — by the enact- 95 Fed. 807, 2 Am. Bankr. Eep. 592 ; ment of a general bankrupt law. The Damon's Appeal, 70 Me. 153; Boedefeld repeal of that law cannot, it is true, v. Reed, 55 Oal. 299; Lewis v. County confer the power on the states, but it Clerk, 55 Cal. 604; Seattle Coal Co. v. removes a disability to its exercise Thomas, 57 Cal. 197 ; In re Peckham's which was created by the act of Con- Assigned Estate, 35 Pa. Super. Ct. 330. gress." =s In the case of Adams v. Storey, 1 5 3 Torrens v. Hammond, 4 Hughes, Paine, 79 Fed. Cas. No. 66, will be found 596, 10 Fed. 900; Fisher v. Currier, 7 a detailed discussion of the nature of Mete. (Mass.) 424. bankruptcy and insolvency laws and the 64 Palmer v. Hixon, 74 Me. 447. A differences between them, and the con- conveyance by way of preference, made stitutional power of the states with ref- Bi,k.Bkr.(3d Ed.)— 2 § 8 LAW OF BANKRUPTCY 18 success) to draw a sharp line of distinction between a bankruptcy law, properly so called, and an insolvency law.''® But in truth, as regards the matter under discussion, the question is not whether a particular law of a state is a "bankruptcy" law or an "insolvency" law, but whether the statute, without regard to its being called by one or the other of those names, or by neither of them, is incompatible with the effective administration of the national bankruptcy act, by invading the special field which the latter covers, or by usurping for the courts of the state the exclusive province of the bankruptcy courts to collect and distribute the assets of an insolvent debtor who is amenable to the act of Con- gress. For 'example, the test of the validity of proceedings under a state law does not lie in the question whether or not it purports to release the insolvent from his obligations. "In so far as a state law attempts to administer on the effects of an insolvent debtor and distribute them among creditors, it is to all intents and purposes an insolvent law, al- though it may not authorize a discharge of the debtor from further liability." ®' Thus, a statute of Georgia which provides for the dis- tribution of the assets of insolvents, is held to be in effect a bankruptcy law, and as such siispended' by the act of Congress, although it only authorizes the chancellor to recommend to the creditors of the defend- ant that they should release him from further liability.^* This distinc- tion is further brought out by a consideration of the statute law of Louisiana with reference to "respite proceedings" and the "cessio bonor- um." Under these statutes, where a debtor believes himself to be solvent or able to recover his solvency, he may ask a respite (or general extension of time for payment of his debts), and thereupon pending pro- ceedings against him may be stayed and a meeting of his creditors con- voked to vote on the question of accepting his proposition and grant- ing the respite. If their action is affirmative, the proceedings are not in the nature of insolvency proceedings, and there is no conflict with the bankruptcy law. But if they reject the debtor's proposals and vote for the appointment of a syndic (or trustee) to collect and administer erenee to tbe enactment of such laws, ent act of Congress) embodies provisions But in fact, as pointed out in Martin v. for both voluntary and involuntary pro- Berry, 37 Oal. 208, 2 N. B. E. 629, the ceedings is in effect both a bankruptcy only substantial difference between a law and an insolvency law. bankruptcy law and an insolvency law »' In re Merchants' Ins. Co., 3 Biss. lies in the circumstance that the former 162, 6 N. B. R. 43, Fed. Cas. No. 9,441. affords relief upon the application of Compare Ex parte Rank, Crabbe, 493, the creditor, and the latter upon the ap- Fed. Oas. No. 11,566. And see, contra, plication of the debtor. In the general Greene v. Rice, 32 Idaho, 504, 186 Pac. character of the remedy, there is no dif- 249. f erenee, however much the modes in "^s Carling v. Seymour Lumber Co., which the remedy may be administered 113 Fed. 483, 51 C. C. A. 1, 8 Am. Bankr. may vary. An act which (like the pres- Rep. 29. t9 NATIONAL BANKRUPTCY ACT EFFECT ON STATE LAWS § 8 his property under the state insolvency law, this is incompatible with the bankruptcy law, and the state law in such a case must give way.®" In regard to the winding-up of insolvent corporations, there has been some hesitation and some difference of opinion. But the rule has been finally settled by the Supreme Court of the United States, substan- tially as follows: The bankruptcy act does not interfere with the gen- eral equity powers of state courts to appoint receivers for corporations in that condition, nor does it actually suspend the operation of a svate statute authorizing the appointment of receivers in such circumstances. But the nomination of a receiver "on the ground of insolvency" consti- tutes an act of bankruptcy,** and gives to creditors the opportunity of filing a petition in the proper federal court. And when proceedings Degun under the state statute take the form of proceedings to dissolve the corporation or forfeit its charter, and to wind up its affairs and dis- tribute its assets, then the attempt is made to cover the same ground and administer the same relief that would be obtained under the bank- ruptcy law. That this would be enough by itself to terminate the jurisdiction of the state court and make its further proceedings void has not been authoritatively decided. But it is settled that if a pro- ceeding in bankruptcy against the corporation is thereupon commenced, in the proper federal court and on a proper petition, this will displace the proceedings in the state court and put an end to its jurisdiction. "The operation of the bankruptcy laws of the United States cannot be defeated by insolvent commercial corporations applying to be wound up under state statutes. The bankruptcy law is paramount, and the jurisdiction of the federal courts in bankruptcy, when properly invoked, m the administration of the affairs of insolvent persons and corpora- tions, is essentially exclusive." *^ It follows also that the persops whom the .itate court has placed in charge of the corporation for the pur- pose of winding it up, whether called receivers, commissioners, liqui- B9 Duffy V. His Creditors, 122 La. 600, No. 2,594; French v. O'Brien, 52 How. 48 South. 120, construing La. Civ. Code, Prac. (N. Y.) 394; Barber v. Interna-, art. 3098. tional Co., 73 Conn. 587, 48 Atl. 758 ; 60 Bankruptcy Act 1898, § 3a, clause 4, Moody v. Port Clyde Development Co.', as amended by Act Congress Feb. 5, 1903, 102 Me. 365, 06 Atl. 967; Watson v. Citi- 32 Stat. 797. zens' Sav. Bank, 5 Rich. (S. C.)" 159 ; 01 In re Watts, 190 U. S. 1, 23 Sup. Ct. State v. Superior Court of King County' 718, 47 L. Ed. 933, 10 Am. Bankr. Rep. 20 Wash. 545, 56 Pac. 35, 45 L. R. A. 177 ;' 113. And see In re Standard Fuller's In re Weedman Stave Co., 199 Fed. 948 Earth Co., 186 Fed. 578, 26 Am. Bankr. 29 Am. Bankr. Eep. 460; Continental Rep. 862 ; In re Standard Cordage Co., Building & Loan Ass'n v. Superior Court 184 Fed. 156, 30 Am. Bankr. Eep. 448; '163 Cal. 579, 126 Pac. 476; Lyon v. Rus- In re Storck Lumber Co., 114 Fed. 860, ;sell, 41 App. D. 0.'554; Carter, Carter 8 Am. Bankr. Rep. 86 ; Chandler v. Sid- & Meigs Co. v. Stewart Drug Co 115 die, 3 Dill, 477, 10 N. B. R. 236, Fed. Cas. Me. 289, 98 Atl. 809. § 8 LAW OF BANKRUPTCT 20 dators, or by Jtny other name, cannot successfully oppose its adjudi- cation in bankruptcy on the ground of the pending proceedings in the state court; and indeed, if the state law is to be regarded as an insol- vency law, their appointment must be treated as void by the bankruptcy court, and they have no standing in the latter court to be heard on the petition for adjudication in bankruptcy.** Further, to determine the jurisdiction of a state court in all such cases, the real object of the proceeding must be regarded, rather than its mere form. Thus, there is nothing in the bankruptcy act to prevent a mortgage creditor from foreclosing his security, supposing that it is not impeachable as a preference or as given in fraud of other creditors ; and clearly also he has the right to ask for the appointment of a re- ceiver on alleging the inadequacy of the security and the insolvency of the mortgagor. Hence, where the main purpose of a suit is to fore- close a mortgage, and there is also an incidental prayer for relief appro- priate to insolvency proceedings, a receiver's possession thereunder will not be affected by a subsequent adjudication in bankruptcy. But on the other hand, where the main purpose is to obtain relief appropriate only in insolvency proceedings, the fact that a mortgage may be fore- closed as an incident thereto will not save the case from the nullifying effect of bankruptcy proceedings on pending insolvency proceedings.** But a state law which merely protects the person of a debtor from imprisonment, without affecting the debt or contract or the other means for its enforcement, or which provides only for the release of poor debtors arrested on civil process, is not of such a nature as to be sus- pended by the bankruptcy law.** And of course the latter act does not affect the general laws of the states providing for the settlement of the estates of insolvent persons deceased.*^ Nor, it is said, does the bankruptcy law suspend a state law enabling a creditor to prevent the departure of his debtor from the state,** or one which authorizes the arrest and imprisonment of a judgment debtor on a showing that he is about to remove or has concealed property with intent to defraud his creditors, although it also provides that he may be released on giving bond to apply for the benefit of the state insolvency law and comply with its requirements.*' And a statute designed to prevent debtors, in 6 2Thornliill v. Bank of Louisiana, 1 Fed. Oas. No. 13,594; Ex parte Jacobs, Woods, 1, 5 N. B. B. 367, Fed. Cas. No. 12 Abb. Prac. (N. Y.) N. S. 273; Jordan 13,992. And see In re Salmon & Salmon, v. Hall, 9 R. I. 220, 11 Am. Rep. 245. 143 Fed. 395, 16 Am. Bankr. Rep. 122. ob Hawkins v. Learned, 54 N. H. 333. 8 3 Merry v. Jones, 119 Ga. 643, 46 S. «« Gottschalk v. Meyer, 28 La. Ann. H. 861. And see Virginia-Carolina Cliem- 885. ical Co. V. Rylee, 139 Ga. 669, 78 S. B. 27. o? Ex parte Crawford, 154 Fed. 769, 64 Sullivan v. HeisUell, Crabbe, 525, 83 0. 0. A. 474, 18 Am. Bankr. Rep. 618. 21 NATIONAL BANKRUPTCY ACT EFFECT. ON STATE LAWS § 9 contemplation of insolvency, from giving preferences to favored credi- tors, is not a bankruptcy law and is not suspended by the act of Con- gress.** So also of a statute which confers on resident creditors pri- ority in the distribution of the assets of foreign corporations doing busi- ness within the state.*® And the opinion has been expressed that an ac- tion brought by a receiver in proceedings supplementary to execution is not a proceeding commenced under a state insolvency law, within the meaning of the saving clause of the bankruptcy act regarding such proceedings pending at the time of its taking effect.'" § 9. Same; Cases Not Covered by Bankruptcy Law. — While the state insolvency laws are suspended by the enactment and administra- tion of a national bankruptcy law, as to all matters and cases coming within the purview of the latter, it does not necessarily follow that they are wholly annulled. On the contrary, they remain operative within a limited range. The federal statute provides only for particular cases, and the state laws are suspended only in so far as they conflict with the act of Congress. But as to any cases not covered by the bankruptcy law. or expressly or impliedly omitted from its operation, it may be pre- sumed that Congress did not intend to interfere with the laws of the sev- eral states, and they may therefore still be pvit into effect.'^ For exam- ple, the present bankruptcy law, in its original form and until the amend- ment of 1910, made no provision for the voluntary bankruptcy of cor- porations, but expressly excluded them from taking the benefit of the act in that form. Hence it was held that the act did not preclude a state court from taking jurisdiction of a stockholder's suit for the ap- pointment of a receiver and for winding up the affairs of the corporation, at least in the absence of proceedings in involuntary bankruptcy begun by creditors.''* Again, the compulsory features of the present act are not applicable to all classes of corporations, but only (under the amend- s' Stellwagen v. Clum, 245 TJ. S. 605, Bankr. Rep. 496; In re Reynolds, 8 R. i. 38 Sup. Ot. 215, 62 L. Ed. 507, 41 Am. 485, 9 N. B. R. 50, 5 Am. Rep. 615 ; Sing- Bankr. Rep. 1 ; Irwin v. Maple, 252 Fed. er v. National Bedstead Mfg. (So., 65 N. 10, 164 C. C. A. 122, 41 Am. Bankr. J. Eq. 290, 55 Atl. 868 ; Appeal of Geery, Kep. 532; Grunsfeld Bros. v. Brown- 43 Conn. 289, 21 Am. Rep. 653; Pitcher nell, 12 >few Mex. 192, 76 Pac. 310. v. Standish, 90 Conn. 601, 98 Atl. 93, L. 6 » In re Standard Oak Veneer Co., 173 ?" \ 1»1'7A, 105 ; Pugh v. Bussel, 2 Fed. 103, 22 Am. Bankr. Rep. 883. Blackf. (Ind.) 394 ; Fisk v. Montgomery, ,„ T Ar ■< -NT 4. -D , -NT 2^ ^"- -*-°°- ■^^S ; Simpson v. City Sav. TO In re Meyers, 1 Nat. Bankr. News, B^nk, 56 N. H. 466, 15 N. B. R 385 22" 293, per Hotchkiss, Referee. »„ t,o^ ^oi . cn-„^^^ tr ^^- 7Z ^ Am. Rep 491; Steelman v. Mattix, 36 71 Johnson v. Crawford, 154 Fed. 761, N. J. Law, 344. 18 Am, Bankr. Rep. 608 ; In re Wilming- 72 Robej-ts Cotton Oil Co. v. F. E. ton Hosiery Co., 120 Fed. 180, 9 Am. Morse & Co., 97 Ark. 513, 135 S. W. 334 ; Bankr. Rep. 581 ; In re Worcester Coun- Keystone Driller Go. v. Superior Court of ty, 102 Fed. 808, 42 C. C. A. 637, 4 Am. San Francisco, 138 Cal. 738, 72 Pac. 398. § 9 LAW OF BANKRUPTCY ' ' 22 ment of 1910) to "any moneyed, business, or commercial corporation, except a municipal, railroad, insurance, or banking corporation." Hence if proceedings under a state insolvency law, or wider a law for the wind- ing up of insolvent corporations, are commenced against a corporation which is not amenable to the bankruptcy law, but which is within the terms of the state law, it is difficult to see on what grounds they are to be held invalid, for there is no possibility of conflict between the two statutes. And in effect it is held that the states are left free to deal in their own courts with those classes of corporations which are expressly excepted from the operation of the bankruptcy law or which do not come within its general terms.'"* This would apply not only to railroads, insurance companies, and incorporated banks and savings institutions, but also to educational, charitable, benevolent, and religious corpora- tions, and to any others coming within the terms of the state statute but not included in the class of "moneyed, business, or commercial cor- porations.", Again, the act of Congress forbids the institution of in- voluntary proceedings against "a wage earner or a person engaged chiefly in farming or the tillage of the soil." As to such persons, thercr fore, the insolvency law of the state is not suspended, but may be put into effective operation, if they come within its terms.'* Again, the bankruptcy act authorizes proceedings in involuntary bankruptcy against a debtor only in case he owes debts to the amount of $1,000 or over. But if the state insolvency law permitted compulsory proceedings against a person whose debts amounted to less than that sum (so that he would not at all be subject to the federal law, unless he chose volun- tarily to apply for its benefits), it would certainly appear that the state law might be put in force in such a case ; and it is generally so held.'''' Further, it is held that the act of Congress does not suspend state in- solvency laws so far as concerns debts and claims of a nature not to be dischargeable in bankruptcy.''® This is illustrated by a case in Pennsyl- 78 State Nat. Bank v. Syndicate Co. of v. Jackson, 34 Pa. Super. Ct. 31 ; In re Eureka Springs, 178 Fed. 359; Dille v. Rittenhouse's Insolvent Estate, 30 Pa. People, 118 111. App. 426; Rogers v. Super. Ct. 468; Lace v. Smith,' 34 R. I. Boston Club, 205 Mass. 261, 91 N. E. 321, 1, 82 Atl. 268; Pitcher v. Standish, 90 28 L. R. A. (N. S.) 743 ; R. H. Herron Conn. 601, 98 Atl. 93, L. R. A. 1917A, 105 ; Co. V. Superior Court of San Franciso, Rockville Nat. Bank v. Latham, 88 Conn 136 Cal. 279, 68 Pac. 814, 89 Am. St. Rep. 70, 89 Atl. 1117. 124; Simpson v. City Say. Bank, 56 N. 'o Appeal of Shepardson, 36 Conn 23- ■H. 466, 15 N. B. R. 385, 22 Am. Rep. 491. Corner v. Miller (Md.) 1 N. B. R. 403! '1 Old Town Bank v. McCormick, 96 Contra, Littlefield y. Gay, 96 Me 422 52 Md. 341, 53 Atl. 934, 60 L. R. A. 577, 94 Atl. 925. Am. St. Rep. 577; Hoover v, Ober, 42 'e Johnson v. Crawford, 154 Fed 761 Pa. Super. Ct. 308 ; Citizens' Nat. Bank 766, 18 Am. Bankr. Rep. 608, citing Scul- V. Gass, 29 Pa. Super. Ct. 125 ; Miller ly v. Kirkpatrick, 79 Pa. St.' 324, 21 Am 23 NATIONAL BANKRUPTCY ACT EFFECT ON STATE LAWS § 9 vania, where a debtor. had gone through bankruptcy and obtained his discharge. Afterwards he was taken on a ca. sa. from a state court, issuing on a debt contracted in actual fraud, and therefore not affect- ed by the discharge in bankruptcy, and on this process he was incarcer- ated. He applied for the benefit of the insolvency law of the state, whereby he could obtain his release from imprisonment. It was ob- jected that, the national bankruptcy law being still in force, the state law was in suspense and could afiford no relief to the debtor. But it was held that this was a case not covered by the act of Congress, but expressly excepted from it, and there being no possibility of conflict between the two statutes, the state law was not suspended quoad hoc, and the debtor might take the benefit of its provisions." So also, the act of Congress does not supersede or suspend the operation of "poor debtor laws and those which provide for the release of insolvent con- victs, the bankruptcy law having n6 provision adapted to these cases, and the parties to whom they apply being otherwise left without rem- edy." ''8 Another illustration of the point here in question is found in the effect of the bankruptcy act of the statute of Pennsylvania relating to domestic attachments. This law provides for the sequestration of the entire estate of an absconding or concealed debtor, on a writ of attach- ment, for the appointment of trustees to be vested with title to such estate, and for its distribution to creditors. Now the bankruptcy act of 1867 declared that it should be an act of bankruptcy if a debtor should depart from the state with intent to defraud his creditors, or should conceal himself to avoid service of legal process; and in view of this provision it was held that the state domestic attachment law was sus- pended while the federal act of 1867 remained in force.'* But the bank- ruptcy act of 1898 does not contain any provision relating to abscond- ing or concealed debtors, and the opinion is now advanced that it does not in any way conflict with the state -law, and therefore does not sus- pend or supersede it,** although proceedings begun under the state stat- ute might be superseded by an adjudication in bankruptcy against such a debtor. Rep. 62; Hubert v. Horter, 81 Pa. St. 39; 766, 1§. Am, Bankr. Rep. 608, citing Jor- Ex parte Winternltz, 7 Phila. (Pa.) 380, dan v. Hall, 9 R. I. 219, 11 Am. Rep. 245. 18 Pittsb. Leg. J. (N. S.) 61. And see 7 9 Tobin v. Trump, 7 Phila. (Pa.) 123, Landis Machine Co. v. Cooper, 53 Pa. 3 Brewst. 288. Super. Ct. 416. so McCuUough v. Goodhart (Pa. Com. T! In re Winternitz, 7 Phila. (Pa.) 380, Pleas) 1 Nat. Bankr. News, 512. And 18 Pittsb. Leg. J. (N. S.) 61. see Scully v. Kirkpatrick, 79 Pa. St, 324, T8 Johnson v. Crawford, 154 Fed. 761, 21 Am. Rep. 62. § 10 LAW OF BANKEUrTCT 24 § 10. Same; Laws Regulating Assigijments for Creditors.— In this branch of our subject, the most difficult questions arise in connection with the effect of the bankruptcy law upon state statutes which author- ize or regulate assignments for the benefit of creditors. Notwithstand- ing a considerable difference of opinion, the following principles appear to be fairly well settled upon the authorities. First, the common law relating to such assighments is not a part of the state insolvency law, since it neither places the administration of the state under the control of the courts, nor exonerates the debtor from personal liability, nor re- leases him or his future acquisitions from the unpaid balance of his debts. And hence it is not suspended by the enactment of a bankruptcy law. That is, an assignment made as at common law will be valid un- less it is impeached and overthrown by proceedings in bankruptcy be- gun within the statutory time.*^ In the next place, we are to consider the statutes, in force in several of the states, which are designed to prevent fraudulent assignments and strike down preferences. These laws provide that any assignment, mortgage, or deed of trust, made by a debtor in contemplation of insolvency and for the purpose of giving a preference, shall operate as an assignment and transfer of all his property and inure to the benefit of all his creditors pro rata, if pro- ceedings for that purpose are begun within a limited time. It is held that these statutes are not insolvency laws in such sense as to be sus- pended or superceded by the bankruptcy law.** In the next place there are laws in many of the states which regulate the administration of es- tates voluntarily assigned for the benefit of creditors. Differing large- ly in details, these laws yet present the following usual features. They require such an assignment to be recorded and give to some court of the state the control of the settlement and administration of the estate. They require the assignee to give a bond, and to file an inventory of the property. They require creditors who wish to claim under the assign- ment to present their claims within a stated time. They authorize the 81 In re Sievers, 91 Fed. 366, 1 Am. to a petition in bankruptcy as a means Bankr. Rep. 117; Pogue v. Rowe, 236 of avoiding it. Moore v. Gushing, 116 111. 157, 86 N. E. 207 ; Danville Auburn Minn. 142, 133 N. W. 561, Ann. Gas. Auto Co. V. National Trust & Gredit Co., 1913A, 816. 212 111. App. 116 ; Thompson v. Shaw, 82 Bell v. Blessing, 225 Fed. 750, 141 104 Me. 85, 71 Atl. 370; Cook v. Sogers, O. C. A. 34, 35 Am. Bankr. Rep. 672; 31 Mich. 391, 13 N. B. R. 97 ; In re Haw- Llnthicum v. Fenley, 11 Bush (Ky.) 131 ; kins, 34 Conn. 548, 2 N. B. R. 378 ; Haas Ebersole v. Adams, 10 Bush (Ky.) 83, 13 V. O'Brien, 66 N. T. 597, 16 N. B. R. N. B. R. 141; Downer v. Porter, 116 508; Von Rein v. ElkUs, 15 N. B. R. 194. Ky. 422, 76 S. W. 135; louisvIUe' Dry A creditor who does not assent to an as- Goods Co. v. Lanman, 135 Ky. 163, 121 signment for the benefit of creditors is S. "W. 1042, 28 L. R. A. (N. S.) 363] 135 entitled to attack it in any appropriate Am. St. Rep. 451. See Martin v. Haus- proceeding,. and is not required to resort man, 14 Fed. 160. 25 NATIONAL BANKRUPTCY ACT EFFECT ON STATE LAWS § 10 collection of assets by the assignee by suit, and his discharge upon the settlement of the trust. And they provide for the distribution of the proceeds of the assigned estate among the creditors pro rata. If the law of the state goes no further than this, it is not to be considered an insolvency law; and proceedings commenced under it are not abso- lutely void merely by reason of the existence of a national bankruptcy law, although they are liable to be avoided at the instance of a trustee in bankruptcy of the insolvent assignor subsequently appointed in bankruptcy proceedings in the proper federal court.** But there are laws, in some of the states which are not confined to regulating the administration of an assigned estate on just and equitable principles, but embrace features cljaracteristic of an insolvency law properly so called. Without compelling any debtor to make an assignment, they treat such an assignment as an act of insolvency, and direct the admin- istration of the estate to proceed substantially as would be the case in voluntary proceedings under an insolvency act, and in particular, they provide that any creditor who has proved his claim shall be thereafter debarred from prosecuting an action on it; in other words, they grant the insolvent a discharge from his provable debts. As to statutes of this character, the authorities hold that their operation must be con- sidered as suspended by the enactment of the national bankruptcy law.** 8s Mayer v. Hellman, 91 XJ. S. 496, 13 the security of the creditors by exacting N. B. R. 440, 23 L. Ed. 377 ; In re Gut- a bond from the trustees for the dis- willig, 90 Fed. 475, 1 Am. Bankr. Ifep. charge of their duties; it requires them 78 ; In re Sievers, 91 Fed. 366, 1 Am. to file statements showing what they Bankr. Rep. 117; In re Farrell, 176 Fed. have done with the property, and affords, 505, 100 C. C. A. 63, 23 Am. Bankr. Rep. in various ways, the means of compelling 826; Peck v. Parker, 65 Pa. St. 262, them to carry out the purposes of the 3 Am. Rep. 625; Strong v. Carrier, conveyances. There is nothing in the 17 Oonn. 319; Duryea v. Guthrie, 117 act resembling an insolvent law. It Wis. 399, '94 N. W. 365; Binder v. Mc- does not discharge the insolvent from Donald, 106 Wis. 332, 82 N. W. 156; arrest or imprisonment; it leaves his Patty-Joiner & Eubank Co.! v. Cummins after-acquired property liable to his (Tex. Civ. App.) 59 S. W. 297. In the case creditors precisely as though no assign- of Mayer v. Hellman, supra, it was said: ment had been made. The provisions "In the argument of the plaintiff's coun- for enforcing the trust are substantially sel, the position is taken that the bank- such as a court of chancery would apply rupt act suspends the operation of the in the absence of any statutory provision, act of Ohio regulating the mode of ad- The assignment in this case must there- mihistering assignments for the benefit fore be regarded as though the statute of creditors, treating the latter as an in- of Ohio, to which reference is made, had solvent law of the state. The answer no existence. There is an insolvent law is that the statute of Ohio is not an in- in that state but the assignment in ques- solvent law in any proper sense of the tion was not made in pursuance of any term. It does not compel, or even in of its provisions." terms authorize, assignments; it as- '* First Nat. Bank of Bandon v. lian- sumes that such instruments were con- assa, 80 Or. 53, 150 Pac. 258; Pelton V. veyances previously known and only pre- Sheridan, 74 Or. 176, 144 Pac. 410. See scribes a mode by which the trust creat- In re Curtis, 91 Fed. 737, 1 Am. Bankr. ed shall be enforced. It provides for Rep. 440 ; In re Smith, 92 Fed. 135, 2 § 10 LAW OP BANKRUPTCy 26 Under the former class of statutes certainly, and probably also under the la,tter, an assignment for the, benefit of creditors, though voidable at the instance of a trustee in bankruptcy subsequently appointed, is not void ab initio. Though it constitutes an act of bankruptcy under the federal statute, and though it was made for the very purpose of giving preferences and otherwise evading the provisions of that law, it is not a mere nullity, in any such sense as to leave the title to the property in the assignor as if no assignment had been made. If no proceedings are instituted in a court of bankruptcy within the time limited, for the adjudication of the assignor as a bankrupt, and for the purpose of se- curing the administration of the property in that court, the assignment will be valid, at least for the purpose of securjng an equal distribution^ of the estate among the creditors ; that is, it will be valid as at common law, though not as an attempt to invoke the state insolvency law.** Nevertheless, a general assignment by an insolvent debtor, though made for the equal and common benefit of all his creditors, without pref- erences, and without any actual fraudulent intent, either as to creditors or as to the evasion of the bankruptcy law, is an act of bankruptcy, upon which the assignor may be adjudged bankrupt, if proceedings are be- gun within four months thereafter, and if the other requisites as to jurisdiction are found to exist.*® Moreover, the complete jurisdiction • Am. Bankr. Eep. 9 ; In re McKee, 1 Nat. Cumner, 187 Mass. 296, 72 N. E. 956 ; Bankr. News, 139; Lyman v. Bond, 130 Louisville Dry Goods Co. v. Lanman, Mass. 291. A decision of the supreme 135 Ky. 163, 121 S. W. 1042, 28 L. R. A. court of a state that a statute of that (N. S.) 3.63, 135 Am. St. Eep. 451 ; Lucas state regulating the administration and v. Lucas' Assignee, 76 S. W. 371, 25 -^y. distribution of estates under general as- Law Eep. 822; Barnes v. Eettew, 8 Phila. signinents for the benefit of creditors is (Pa.) 133, Fed. Cas. No. 1,019; Sparhawk an insolvency law, will be followed by v'. Drexel, 12 N. B. E. 450, Fed. Cas. No. the federal courts of bankruptcy in de- 13,204 ; Seaman v. Stoughton, 3 Barb. Ch. ciding upon the effect of the enactment (N. Y.) 344; Strong v. Carrier, 17 Conn, of the national bankruptcy law upon the 319 ; Cook v. Rogers, 31 Mich. 391 ; Best- operation of such a statute. In re Cur- wick v. Burnett, 74 N. Y. 317 ; Maltbie tis, 91 Fed. 737, 1 Am. Bankr. Eep. 440. v. Hotehkiss, 38 Conn. SO, 5 N. B. E. 485, 85 Boese v. King, 108 U. S. 379, 2 Sup. 9 Am. Rep. 364; Atkins v. Spear, 8 Mete! Ct. 765, 27 L. Ed. 760; In re Romanow, (Mass.) 490; Sadler v. Immel, 15 Nev. 92 Fed. 510, 1 Am. Bankr. Rep. 461; 265; Thrasher v. Bentley, 59 N. T. 649; Johnson v. Crawford, 154 Fed. 761, 18 Williams v. Pitts, 55 How. Prac. 331; Am. Bankr. Eep. 608 ; Ostrander v. Sabin v. Chrisman, 79 Or 191 154 Pae' Meunch, 2 McCrary, 267, 12 Fed. 562; 908. Wald V. Wehl, 18 Blatchf. 495, 6 Fed. se Boese v. King, 108 U. S. 379, 2 Sup 163; Boese v. IClng, 78 N. Y. 471; Pogue Ct. 765, 27 L. Ed. 760; Davis v' Bohle V. Eowe, 236 111. 157, 86 N. E. 207; Arm- 92 Fed. 325, 34 C. C. A. 372, 1 Am! our Packing Co. v. Brown, 76 Minn. 465, Bankr. Sep. 412; In re Sievers! 91 Fed' 79 N. W. 522; Binder v. McDonald, 100 366, 1 Am. Bankr. Eep. 117; Cragin v' Wis. 332, 82 N. W. 156; Patty-Joiner & Thompson, 2 Dill. 513, 12 n! B. E. 81! Eubank Co. v. Cummins, 93 Tex. 598, 57 Fed. Cas. No. 3,320; Perry v. Langley, 1 S. W. 566; Hilllard v. Burlington Shoe N. B. E. 559, Fed. Cas. No. 11,006; InW Co., 76 Vt. 57, 56 Atl. 283; Hoague v. Pierce, 3 N. B. E. 258, Fed. Cas. No. 27 NATIONAL BANKEUPTCY ACT EFFECT ON- STATE LAWS § 11 of the court of bankruptcy over the estate of the bankrupt is not af- fected by the fact that an assignment for the benefit of creditors under the state law had been made prior to the adjudication. The trustee in bankruptcy takes title to the whole of the estate, including that as- signed ; the assignipent is voidable at his instance ; and he may recover the property or its proceeds from the assignee.*' The assignment, how- ever, will be saved by the lapse of four months without the institution of bankruptcy proceedings. That is to say, if the debtor is adjudged bankrupt, and a trustee appointed, but not until more than four months from the making of the assignment, the latter will not have the right to set aside the assignment, nor will he be entitled to the possession and administration of the estate as against the voluntary assignee. In such a case, the trustee in bankruptcy, saving questions of fraud, will take only such rights as the bankrupt had and could himself claim at the time of the bankruptcy.** § 11. Practical Effect of Suspension of State Insolvency Laws. — ^Al- though there is no dispute as to the general rule above stated, that state insolvency laws are superseded or suspended in their operation by the enactment of a national bankruptcy law, yet there is much uncertain- ty as to the practical working of this principle, especially where the validity of proceedings under the state laws is questioned collaterally. If the bankruptcy law gives to the courts of the United States exclusive jurisdiction of all proceedings for winding up the estate of an insolvent debtor, and suspends the operation of .all state laws having the same general character, it would seem that, such a federal statute being in existence, it is the right and duty of state courts to refuse, to take juiris- 11,141 ; In re Smith, 4 Ben. 1, 3 N. B. R. willig, 90 Fed. 475, 1 Am. Bankr. Rep. 377, Fed. Cas. No. 12,974 ; Barnes v. Ret- 78 ; In re Smith, 92 Fed. 185, 2 Am. tew, 8 Phila. 133, Fed. Cas. No. 1,019 ; BanKr. Rep. 9 ; In re Troth, 1 Fed. 405 ; Barton v. Tower, Fed. Cas. No. 1,085; In Pool v. McDonald, 15 N. B. R. 560, Fed. re Burt, 1 Dill. 439, Fed. Cas. No. 2,210 ; Cas. No. 11,268 ; Cragin v. Thompson, 2 In re Chamberlain, 3 N. B. R. 710, Fed. Dill. 513, 12 N. B. R. 81, Fed. Cas. No. Cas. No. 2,574; In re Croft, 8 Biss. 18S, 3,320 ; In re Temple, 4 Sawy. 92, 17 N. 17 N. B. R. 324, Fed. Cas. No. 3,404; B. R. 345, Fed. Cas. No. 13,825 ; Macdon- Jones V. Sleeper, Fed. Cas. No. 7,496 ; In aid v. Moore, 8 Ben. 579, 15 N. B. R. 26, re Kasson, 18 N. B. R. 379, Fed. Cas. No. Fed. Cas. No. 8,763 ; Boese v. Locke, 17 7,617 ; In re Romanow, 92 Fed. 510, 1 Am. Hun (N. Y.) 270. Compare Morning Tel- Bankr. Rep. 461 ; Spicer v. Ward, 3 N. egraph Puh. Co. v. S. B. Hutchinson Co., B. R. 512, Fed. Cas. No. 13,241; In re 146 Mich. 38, 109 N. W. 42 ; Scott v. Grin- Randall, Deady, 557, 3 N. B. R. 18, Fed. stead, 4 Ky. Law Rep. 614. Cas. No. 11,551. 8 8 Mayer v. Hellman, 91 U. S. 496, 13 87 Davis V. Bohle, 92 Fed. 325, 34 C. O. N. B. R. 440, 23 L. Ed. 377; In re Ar- A. 372, 1 Am. Bankr. Rep. 412 ; In re «ut- ledge, 1 N. B. R. 644, Fed. Cas. No. 533; willig, 92 Fed. 337, 34 C. C. A. 377, 1 Am. In re Kimball, 16 N. B. B. 188, Fed. Cas. Bankr. Rep. 388 ; In re Sievers, 91 Fed. No. 7,770. S66, 1 Am. Bankr. Rep. 117; In re Gut- § 11 LAW OF BANKRUPTCY 28 diction of proceedings attempted to be instituted under the state law, and that when an insolvent files a petition in a state court seeking the benefit of that law, the court should dismiss the petition; and it has been so held.** But not all the state courts agree in this proposition, By some it is held that they will not be ousted of jurisdiction over an insolvency case unless proceedings in bankruptcy are instituted ag.ainst the same debtor. But they concede that when such a conflict actually arises, then the state court must decline to proceed further with the action pending before it.** On the same line, the federal courts hold that in a case where proceedings are pending in the two courts under the two statutes, the federal court may stay the action in the state court, or, if an assignee has been appointed under the state law, he may be enjoined from taking possession of the property of the insolvent, or required to surrender it up to the trustee in bankruptcy.*^ But the really difficult question arises when no proceedings under the bankruptcy act have been taken, so that there is no conflict between courts, but only the mere existence of the bankruptcy act stands in the way of the proceedings under the state law. Here we have to inquire whether any validity can be predicated of the action of the state court under the state law, or of the title of the assignee thereunder, or of the title of a purchaser at a sale made by such assignee. Are these pro- ceedings valid, void, or voidable; and if the latter, at whose instance may they be avoided? Some cases have gone so far as to hold that all proceedings under a state insolvency law, the bankruptcy act being in force, are absolutely null and void for all purposes.** Thus, they rule that a discharge granted to the insolvent under the state law, as the result of proceedings had while the national bankruptcy law was opera- tive and would have been applicable to his case, is entirely inoperative and constitutes no defense to an action subsequently brought against so Olosser v. Strawn (D. 0.) 227 Fed. tors applied for an order requlrln;,' tlu? 139, 35 Am. Bankr. Bep. 864; Van No- insolvent to appear before the state strand v. Carr, 30 Md. 128, 2 N. B. R. court and submit to an exaralnatloii 485; Harbaugh v. Costello, 184 111. 110, touching his estate, as authorized by the 56 N. E. 363, 75 Am. St. Rep. 147; I'.ur- state law, but on his filing an affidavit ber V. International Co. of Mexico, 73 setting forth the pendency of the bank- Conn. 587, 48 Atl. 758. In Baxter Coun- ruptcy proceedings at'ulnst him, the state ty Bank v. Copeland, 114 Ark. 316, 169 S. court denied the motion for examination. W. 1180, it Is held that a state court 9a Bx parte Bames, 2 Story, 322, Fed. should not assume jurisdiction of a gnn- Cas. No. 4,237. eral assignment for creditors within oa ThornhlU v. Bank of liOulslana, 1 four months after the date of the as- Woods, 1, 5 N. B. R. 307, Fed. Cas. No. slgnraent, since within that time it may 12,992; Llttlefleld v. Gay,' 96 Me. 422, 52 be Invalidated by a proceeding In bank- Atl. 925 ; Martin v. Berry, 37 Ca'l. 'Zfk 2 i^Ptfiy. N. B. R. 629; Comm. v. O'Hara, 1 N B BO In re McKee (Ky. County Ot.) 1 Nut. R. 86. Bankr. News, 139. In this case, eredl- 29 NATIONAL BANKRUPTCY ACT EFFECT ON STATE LAWS § 11 him by a domestic creditor.®* Decisions are to be found going much further even than this. A case in Massachusetts rules that an assignee under the state law has no title or claim to the property of the debtor such as will enable him to maintain an action for its recovery against a third person, the existence of the bankruptcy law, which would be applicable to the debtor, being a full defense to such an action ; and this, although no proceedings under the federal statute are ever had against the insolvent.** So there is a decision in Connecticut to the effect that, in similar circumstances, the trustee in insolvency acquires no such interest in the insolvent's estate as will entitle him to maintain an action to set aside a fraudulent and preferential conveyance, although no adjudication of bankruptcy has been had against the insolvent in the federal courts.**" Again, it is held that the invalidity of proceedings had under a state insolvency law, including the invalidity of the pretended title of the assignee under such law, by reason of the exist- ence at the time of a national bankruptcy law, may be asserted, with effect, in a contest between attaching creditors and such assignee.** But all these positions are controverted by authorities of equal im- portance. Numerous cases hold that proceedings may be had and jurisdiction exercised under the state laws until their authority is called in question by the bankruptcy courts; that judicial action taken, and titles accruing, under the insolvency laws are voidable at the most ; and that they are not to be avoided unless proceedings in bankruptcy are instituted, and then only at the instance of the trustee in bankruptcy.*' In one of the cases it was said: "So far as the state insolvency laws may prevent or even impede the operation of the bankruptcy law, they must yield to it in order that it may accomplish its object of establishing a uniform system of bankruptcy throughout the United States ; but while the state laws thus yield, they are not entirely abrogated. They exist 93 Shears v. Solhinger, 10 Abb. Prac. Rep. 29; Boston Mercantile Co. v. Ould- (N. Y.) N. S. 287; Cassard v. Kroner Carter Co., 123 Ga. 458, 51 S. E. 466; (Md.) 4 N. B. R. 569. Patty-Joiner & Eubank Co. v. Cummins, 94 Grlswold V. Pratt, 9 Mete. (Mass.) ^3 Tex. 598, 57 S. W. 566 ; State v. Su- 16. Compare Shryock v. Basehore, 82 perior Court of King County, 20 Wash. Pa. St. 159, 15 N. B. R. 283. 545, 56 Pac. 35, 45 L. R. A. 177 ; Jensen- 95Ketchanj v. McNamara, 72 Oomi. f^f^^lt^V™^'^%^^^,^^hl^l' 709, 46 Atl. 146, 50 L. R. A. 641. IL^iom t' ^^IZ J' ^"^""^^^'^f !^^- 158, 12 N. B. R. 282 ; Steelman v. Mattlx, 96 Rowe V. Page, 54 N. H. 190, 13 N. gg n: J. Law, 344; Reed v. Taylor, 32 B. R. 366; Shryock v. Basehore, 82 Pa. lowa, 209, 4 N. B. R. 710, 7 Am. Rep. St. 159, 15 N. B. R. 283. Compare Cook igQ. cook v. Rogers, 31 Mich. 391, 13 N. V. Rogers, 31 Mich. 391, 13 N. B. R. 97; g. R. 97; Ebersole v. Adams, 10 Bush Reed V. Taylor, 32 Iowa, 209, 4 N. B. R. (gy.) §3, 13 n. B. R. 141; Maltbie v. 710, 7 Am. Rep. 180. Hotchkiss, 38 Conn. 80, 5 N. B. R. 485, 9 97 Carllng v. Seymour Lumber Co., Am. Rep. 364; Shaw v. Standard i'iano 113 Fed. 483, 51 C. O. A. 1, 8 Am. Bankr. Co., 87 N. J. Eq. 350, 100 Atl. 167. § H LAW OF BANKRUPTCY 30 and operate with full vigor until the bankruptcy law attaches upoti the person and property of the bankrupt, and that is not until it is judicial- ly ascertained that the petitioner is a person entitled to the benefit of the bankruptcy law by his being declared a bankrupt by a decree of the court. Before that time, upon a sound construction of the bank- ruptcy act, it does not necessarily come in conflict with the insolvency laws of the state."** Notwithstanding the existence of a bankruptcy law which would be applicable to the case (it is held in another de- cision), the parties interested may, by consent, use the state law as a means of collecting and distributing the debtor's estate. Should pro- ceedings in bankruptcy be instituted, and the federal court claim the administration of the estate, the state courts would yield; but in the absence of such a claim, the mere fact that a federal law is in existence, under which proceedings might be taken, is no objection to the juris- diction of the state court.** And again, even as against an adjudication in bankruptcy, the state insolvency law may have a limited applica- bility and effect. Thus, where such a law gives priority of payment out of insolvents' estates to a certain class of debts, the same debts will be entitled to priority of payment out of bankrupts' estates.^*'*' And again, where the main purpose of a suit is to foreclose a mortgage, and there is also an incidental prayer for relief appropriate to insolvency proceedings, a receiver's possession of the property mortgaged will not be affected by a subsequent adjudication in bankruptcy.'^*^ Finally, a case may arise where the debtor refuses to file his volun- tary petition in bankruptcy, and yet refrains from committing' any act of bankruptcy on which his creditors could proceed. Here there is no possibility of conflict between courts; and it is held that proceedings under the state law, even though compulsory in their nature, may be sustained, for the purpose of securing an equal distribution of the debt- or's property among his creditors."* § 12. Pending Proceedings Under State Laws. — The concluding section of the bankruptcy act of 1898 provides as follows: "Proceed- ings commenced under state insolvency laws before the passage of this act shall not be affected by it." The effect of this is that the bankrupt- cy law does not deprive the state courts of the jurisdiction necessary to the final administration of the estate of an insolvent against whom, or 98 Ex parte Ziegenfuss, 24 N. O. 463. loi Nelson v. Spenee, 129 Ga. 35, 58 S. B9 Maltble v. Hotchkiss, 38 Conn. 80, 5 E. 697. N. B. R. 485, 9 Am. Rep. 364. 102 Appeal of Geery, 43 Conn. 289, 21 100 In re Worcester County, 102 Fed. Am. Rep. 653. 808, 42 C. C. A. 637, 4 Am. Bankr. Rep. 496. .31 NATIONAL BANKRUPTCY ACT EFFECT ON STATE LAWS § 13 by whom voluntarily, proceedings under the state insolvency law had been instituted before the passage of the federal statute, but the state court may proceed with the case to its final conclusion, and its action in the matter will be as valid as if no national bankruptcy law had been enacted."* But it is only as to pending cases that the state law remains operative; as to all others it is suspended. Hence when such a law provides that the insolvent, on being- convicted of fraud, shall be "for- ever" deprived of the benefit of laws passed in favor of insolvent debt- ors in the state, the most that can be adjudged against an insolvent in this situation is to deprive him of the benefit of the particular state law under which the proceedings are had,. that is, to deny him a discharge."* It is held that the pendency of proceedings in insolvency under a state law, on the debtor's voluntary petition, begun before the passage of the bankruptcy act, will not be ground for dismissing the debtor's subse- quent voluntary petition in bankruptcy, although he has contracted no new debts, where it appears that one or more of the creditors scheduled by the bankrupt are citizens of other states than that in which the in- solvency proceedings were instituted, because in this case the bank- ruptcy law can afford the debtor a more extensive relief than he could obtain under the state law."^ Where proceedings in insolvency against a partnership and the individuals composing it were begun in a state court, before the passage of the bankruptcy act, and remained pending at the time one of the partners was individually adjudged bankrupt, but no discharge had been granted or applied for under the state law, it was held that a debt of the partnership was provable in the bankruptcy proceedings, notwithstanding the fact that it had been proved and al- lowed in the insolvency proceedings and that there were assets of the firm for distribution in the state court ; but such debt could not share in the individual assets of the bankrupt until his separate creditors had been paid.^** ' § 13. Nature and Effect of Proceedings in Bankruptcy. — A pro- ceeding against a debtor to have him adjudged a bankrupt is a civil proceeding and not a criminal proceeding."'' And further it is a pro- 103 First Nat. Bank v. Ware, 95 Me. No. 6,633; In re Horton, 5 Law Rep. 462, 388, 50 Atl. 24 ; Hood v. Blair State Fed. Oas. No. 6,708. Bank, 3 Neb. (Unof.) 432 91 N^ W. 701 ; ,,, ^o^gj, ^. Creditors, 20 La. Ann. 15. Osborn v. Fender, 88 Minn. 309, 92 N. W. 1114; Meekins v. Creditors, 19 La. "° I'l ''^ Mussey, 99 Fed. 71, 3 Am. Ann. 497, 3 N. B. E. 511 ; Martin v. Ber- ^ankr. Kep. 592. ry, 87 Cal. 208, 2 N. B. R. 629; Lavender loe In re Bates, 100 Fed. 263, 4 Am. V. Gosnell, 43 Md. 153, 12 N. B. R. 282 ; Bankr. Rep. 56. Longis V. Creditors, 20 La. Ann. 15; In lor In re De Forest, 9 N. B. R. 278. re Holmes, .5 Law Rep. 360. Fed. Cas. Fed. Cas. No. 3.745. § 13 LAW OF BANKEUPTCT 32 ceeding in rem, or at least quasi in rem. It .is not a personal action against the debtor, but a proceeding to deterniine the question of his status, as bankrupt or not, and, upon his adjudication, to sequester his property and distribute it among those entitled. Hence the proceedings may be perfectly valid and effective although the bankrupt himself has no notice or knowledge of them. For it is held that an adjudication may be made against an absent and absconding debtor upon such no- tice by publication as the statute directs.^** Hence, jurisdiction of the res having attached, an adjudication of the court in bankruptcy has all the effect of a judgment 'in rem, and is of itself notice to all concerned, and is binding and conclusive not only upon the parties immediately before the court but upon all the world.^*® Also, the further proceed- ings in a baiikruptcy case are, generally speaking, in the nature of pro- ceedings in rem, so that creditors may be bound by the proceedings -for the distribution of the estate and for the discharge of the debtor, with- out personal service of notice on them, and on such notice by mail or by publication as may be prescribed by the statute."" Again, the adju- dication is a judicial determination, not a mere administrative order, and has all the sanctity attaching to ordinary judgments at law, so that it cannot be set aside or recalled, or in any way modified, by the legis- lative department of the government.^" The decree in bankruptcy also divests the bankrupt of his title to all his property, and the same is transferred by operation of law to his trustee."* Again, the proceeding in bankruptcy is equivalent to the general creditors' bill in chancery, and is a plenary proceeding, its practice being prescribed by the stat- ute, and to that extent varying from the chancery practice obtaining in creditors' bills."* Bankruptcy proceedings are matters of record, though not required to be recorded at large, and copies of such records, duly certified by the clerk of the court under the seal of the court, are, in all cases and in all courts of the country, prima facie evidence of the facts therein stated."* The national bankruptcy law, as above stated, 108 Sidney L. Bauman Diamond Co. 'v. 9.856; Markson v. Heaney, 1 Dill. 497, Hart, 192 Fed. 498, 27 Am. Bankr. Rep. Fed. Cas. No. 9,098 ; Downer v. Rowell, 632; In re Oldstein, 182 Fed. 409, 25 Am. 25 Vt. 336. Bankr. Rep. 138. ii» Hanover Nat. Bank v. Moyses, 186 ion Shawhan v. Wherrltt, 7 How. 627, U. S. 181, 22 Sup. Ct. 857, 46 L. Ed. 1113, 12 L. Ed. 847 ; Michaels v. Post, 21 Wall. 8 Am. Bankr. Rep. 1. 398, -22 L. Ed. 520; Johnson v. United m In re Raffauf, 6 Biss. 150, 10 N. States, 163 Fed. 30, 89 0. C. A. 508, 20 3. R. 69, Fed. Cas. No. 11,525. Am. Bankr. Rep. 724; Whitney v. Wen- 112 May v. New Orleans & 0. R. Co., man, 140 Fed. 959, 14 Am. Bankr. Rep. 44 La. Ann. 444, 10 South. 769. 591; In re Wallace, Deady, 433, 2 N. B. us In re Anderson, 23 Fed. 482. R. 134, Fed. Cas. No. 17,094 ; Morse v. ii* TurnbuU v. Payson, 95 U. S. 418, Godfrey, 3 Story, 391, Fed. Oas. No. 16 N. B. R. 440, 24 L. Ed. 437. 33 NATIONAL BANKEUPTCT ACT— EFFECT ON STATE LAWS § 14 is the supreme law of the land, being enacted in pursuance of an express grant of power to Congress by the constitution, and state courts, being no less bound to follow and obey it than the courts of the United States, will take judicial notice of its existence and of its provisions."® § 14. Foreign Bankruptcy. — The American rule as to the effect of foreign bankruptcy proceedings on the property of the bankrupt, as stated by Story, is that an adjudication abroad is not regarded as vest- ing the trustee with title to the property of the debtor wihch may be without the jurisdiction of the country where the proceedings take place, or that, if it is recognized as having that effect (which is the case with some of our courts), at least it is universally held that we are not bound by comity to give effect to foreign bankruptcy laws to the ex- tent of impairing the remedies, or lessening the securities, which our laws have provided for our own citizens."® "It seems to be the settled law of this state," says a court in New York, "that our courts will not recognize or enforce a right or title acquired under foreign bankrupt law or foreign bankrupt proceedings, so far as afl'ects property within their jurisdiction or demands against residents of this state." "' It was probably in view of this doctrine that Congress provided, in the present bankruptcy act, that the courts of bankruptcy shall have jurisdiction to adjudge persons bankrupt "who have been adjudged bankrupts by courts of competent jurisdiction without the United States and have • property within their jurisdictions," ^** and that "whenever a person 115 Mims V. Swartz, 37 Tex. 13, 10 N. us Bankruptcy Act 1898, § 2, cl. 1. B. E. 305. This means that although a debtor has 116 Story, Confl. Laws (8th edn.) pp. already been adjudicated a bankrupt by 565, 575. And see Harrison v. Sterry, 5 a foreign court, yet, If he has property Cran'^h. 289, 3 L. Ed. 104; Ogden v. within the jurisdiction of a United Saunders, 12 Wheat. 218, 6 L. Ed 606: States court of bankruptcy, he may be Milne v. Moreton, 6 Binn. (Pa.) 353, 6 adjudged bankrupt by the latter court Am. Dec. 466; Merrick's Estate, 5 Watts also. In this case, it would seem that & S. (Pa.) 9; Mosselman V. Caen, 34 Barb. the jurisdiction of the United States (N. T.) 66 ; Blane v. Drummond, 1 Brock. court would in effect be ancillary only 62, Fed. Cas. No. 1,531; Chicago Lumber- to that of the foreign court, and limited ing Co. V. Powell, 120 Mich. 51, 78 N. to the administration of the assets with- W. 1022; Smith v. Baton, 36 Me. 298, 58 in its territorial jurisdiction. For al- Am. Dec. 746 ; Abraham v. Plestoro, 3 though the statute also makes it the du- Wend. (N. T.) 538, 20 Am. Dec. 738. The ty of a bankrupt to "execute to his trus- assignee of a bankrupt under the bank- tee transfers of all his property in for- ruptcy law of a foreign country is not en- eign countries" (§ 7a, ,cl. 5), yet the court titled to an injunction in the courts of of bankruptcy could not empower the this country, to restrain the transfer of trustee, or require the bankrupt, to act property by the bankrupt, before the re- with reference to any assets already covery of judgment by such assignee, within the judicial control of the foreign Abraham v. Plestoro, supra. court. Yet the law does not intend that, 117 Mosselman v. Caen, 1 Hun (N. Y.) in such a case as this, the estate within 647, 10 N. B. R. 512. the jurisdiction of the American court Blk.Bkb.(3d Ed.)— 3 §, 14 LAW OF BANKRUPTCY 34 shall have been adjudged a bankrupt by a court without the United States and also by a court of bankruptcy, creditors residing within the United States shall first be paid a dividend equal to that received in the court without the United States by other creditors, before creditors who have received a dividend in such court shall be paid any amounts." "' Since bankruptcy laws have no ex-territorial operation, it follows that a discharge in bankruptcy, granted under the laws and by the courts of one country, cannot be effective against a creditor who is a citizen of another country or his claim.^^* But to this rule there are two well-recognized exceptions. First, if the contract in question was made and to be performed in the country where the bankruptcy pro- ceedings take place, or the debt in question is payable there, it will be released by the discharge, being otherwise within its terms, without ref- erence to the citizenship of the creditor in another country.**^ Second, a creditor who voluntarily appears in bankruptcy proceedings in a for- eign state, and receives a dividend on his debt, thereby waives his ex- territorial immunity from the operation of the bankruptcy law of such state and will be barred by the debtor's discharge.^** Conversely, a dis- charge in bankruptcy granted by a court of the United States will not prevent an alien creditor from suing the bankrupt on his debt in the courts of his own country.^** But a bankrupt within the United States should be divided up among domestic no Bankruptcy Act 1898, § 65d. creditors alone. For it appears from 120 Munroe v. Guilleaume, 3 Abb. Dec the statute (§ 65d) that foreign creditors (N. Y.) 334 ; McMillan v. McNeill, 4 may prove their claims and participate Wheat. 209, 4 L. Ed. 552; Green v. in the distribution of the estate here; Sarmiento, 3 Wash. C. C. 17, Fed. Gas. for it is there provided that domestic No. 5,760; Long v. Hammond, 40 Me. creditors shall first be paid dividends 204. See Mansfield v. Andrews, 41 Me. equal in amount to any dividends paid 591; Philipe v. James, 1 Abb. Prac. (N. in the foreign court to other creditors, Y.) N. S. 311 ; Peck v. Hibbard, 26 Vt before creditors who have received dl- 698, 62 Am. Dec. 605. vidends in such foreign court shall be 121 Very v. McHenry, 29 Me. 206; entitled to receive any sum whatever. Long v. Hammond, 40 Me. 204; May v. This evidently means that if the foreign Breed, 7 Gush. (Mass.) 15, 54 Am. Dee. court has paid any dividends to credi- 700; Peck v. Hibbard, 26 Vt. 698, 62 Am. tors, whether foreign or domestic, domes- Dee. 605 ; Marsh v. Putnam, 3 Gray tic creditors who have not participated (Mass.) 551; Potter v. Brown, 5 East, in the foreign proceedings, and there- 124. fore have not received anything from 122 Clay v. Smith, 3 Pet. 411, 7 L. Ed. the foreign court, shall first be entitled 723; Phelps v. Borland, 103 N. Y. 406, ft to be made equal to those who have been N. E. 307, 57 Am. Rep. 755 ; Philipe v. partially paid, and that the American James, 26 N. Y. Super. Ct. 720. See Mor- assets are to be used for this purpose ; el v. Garelly, 16 Abb. Prac. (N. Y.) 269. and if, after this is done, anything re- izs Moore v. Horton, 32 Hun (N. Y.) mains for distribution, it is to be divided 393 ; Ritchie v. Garrison, 10 Abb. Prac. equally among all creditors who have (N. Y.) 246; Lizardi v. Cohen, 3 Gill proved their claims. (Md.) 430 ; McDougall v. Page, 55 Vt 35 NATIONAL BANKRUPTCY ACT — EFFECT ON STATE LAWS § 14 cannot, in violation of the provisions of our bankruptcy law, transfer to an alien creditor property within the United States. Although the bankruptcy law cannot be enforced as to an alien beyond the territorial limits of the United Slates, yet, for a violation of the law within the United States, the courts will enforce its provisions if jurisdiction of the violators of the law is obtained, even though they are aliens.^** 187, 45 Am. Rep. 602; McMenomy v. Mur- m Olcott v. McLean, 50 How. Prac. ray, 3 Johns. Ch. (N. Y.) 435. (N. T.) 455, 14 N. B. R. 379. § 15 LAW OF BANKETJPTCX 36 CHAPTER II COURTS OF BANKRUPTCY, THEIR JURISDICTION AND POWERS Sec. 15. Courts of Bankruptcy. 16. General aurisdictlon of Courts of Bankruptcy. 17. Jurisdiction of Bankruptcy Courts Exclusive. 18. Territorial Limits of Jurisdiction. 19. Jurisdiction as Dependent on Residence or Domicile. 20. Jurisdiction Dependent on Amount of Debts. 21. Jurisdiction of Bankrupt's Person. 22. Summary Jurisdiction. 23. Equitable Powers and Jurisdiction. 24. Ancillary Jurisdiction. 25. Jurisdiction to Reverse or Set Aside Former Proceedings. 26. Conflicts of Jurisdiction With State Courts. 27. Same ; Effect of Appointment of Receiver by State Court. 28. Same ; Property in Possession of Sheriflf. 29. Power to Enjoin Proceedings in State Courts. 30. Rules of Practice. 81. Practice in Bankruptcy. 32. Powers and Authority of Judge. 33. Priority of Petitions and Transfer of Causes. § 15. Co,urts of Bankruptcy. — The courts of bankruptcy, as defined by the statute, include "the district courts of. the United States in the several states, the supreme court of the District of Columbia, the dis- trict courts of the several territories, and the United States courts in the Indian Territory and the District of Alaska." ^ To these must now be added the United States district courts in Hawaii and Porto Rico. The bankruptcy act, it has been ruled, intends and provides for only one court of bankruptcy within the territory prescribed, although there may be several district judges attached to, or authorized to hold, the court.^ A district court does not cease to exist because of a vacancy in the of- fice of judge, in such sense that proceedings in bankruptcy may not be instituted therein; but in such a case it is the duty of the clerk to re- ceive and file the petition when offered, and it seems that he may also issue a subpoena thereon, tested in his own name.* It should further be observed that the term "court," as used throughout the act, is defined to mean "the court of bankruptcy in which the proceedings are pending, and may include the referee." * In actual practice, as will fully appear 1 Bankruptcy Act 1898, § 2. Co., 132 Fed. 140, 12 Am. Bankr Rep. 2 In re Steele, 161 Fed. 886, 20 Am. 687. Bankr. Rep. 446. * Bankruptcy Act 1898, § 1, clause 7. a In re Urban & Suburban Realty Title 37 COURTS OF BANKEUPTCT, THEIR JURISDICTION AND POWERS § 16 from the following pages in general, the referees in bankruptcy exercise most of the powers and perform most of .the functions of the courts of bankruptcy, except as to certain matters specially reserved by the stat- ute. for the consideration and determination of the judge. § 16. General Jurisdiction of Courts of Bankruptcy. — A court of bankruptcy derives all its jurisdiction from the statute which creates it,^ and its proceedings are open to collateral impeachment on qiiestions of jurisdiction.® Though the district courts of the United States, on the bankruptcy side, are courts of record, and not inferior courts in any proper sense, yet they are courts of statutory and limited jurisdiction, and it has been held that the record of a bankruptcy court must dis- close the facts necessary to confer jurisdiction in any particular case, but that, when its jurisdiction is shown to have attached, the subse- quent proceedings are presumed to have been regular, and the decision of the court, whether correct or otherwise, upon every question prop- erly arising in the case, is binding and conclusive on all other courts until reversed on appeal.'' The strictness of the rule requiring juris- diction to appear on the face of the record has been relaxed by the stat- ute in one particular,* and has been seriously questioned, and indeed positively denied, in its application to the judgments and decrees of the courts of bankruptcy.* 5 Jobbins v. Montague, 6 N. B. R. 509, that "a certified copy of an order con- Ped, Gas. No. 7,330; In re Williams, firming or setting aside a composition, 120 Fed. 38, 9 Am. Bankr. Rep. 741; or granting or setting aside a discharge, Houston V. Shear (Tex. Civ. App.) 210 not revolsed, shall be evidence of the ju- S. W. 976. For the extent of the juris- risdictiou of the court, the regularity of diction granted to the courts of bank- the proceedings, and of the fact that the ruptcy, see Bankruptcy Act 1898, § 2. order was made." See also Federal Judicial Code 1911, § » In re Columbia Real Estate Co., 101 24, as follows: "The district courts shall Fed. 965, 4 Am. Bankr. Rep. 411; Allen have original jurisdiction as follows: v. Thompson, 10 Fed. 116. In the case * * * Nineteenth. Of all matters and last cited, it was said: "It is sometimes, proceedings in bankruptcy." indeed very often, said loosely that it is 8 Adams v. Terrell, 4 Woods, 337, Fed. never too late to take objection to the Cas. No. 796. jurisdiction of a federal court; and there 7 Smith V. Engle, 44 Iowa, 265, 14 N. is not wanting a kind of judicial sanc- B. R. 481; In re Columbia Real Estate tion for the notion that, in determining Co., 101 Fed. 965, 4 Am. Bankr. Rep. 411; questions of jurisdiction in these courts, In re Marion Contract & Construction a more strict rule is to be applied than Co., 166 Fed. 618, 22 Am. Bankr. Rep. 81; to other courts, and that they must be In re Williams, 120 Fed. 38, 9 Am. Bankr. treated with that degree of scrutiny that Rep. 741. A court of bankruptcy has is applied to jurisdiction obtained by ex- unlimited jurisdiction In respect of its traordinary process, or that belonging powers over proceedings In bankruptcy, / to courts of extraordinary powers. I conferred by the Bankruptcy Act. Sabin dissent entirely from this view; and V. Larkin-Green Logging Co. (D. C.) 218 while we are constrained by authority in Fed. 984, 34 Am. Bankr. Rep. 210. that class of cases where jealousy of 8 Bankruptcy Act 1898, § 21f, provides these courts has resulted in very strict § 16 LAW OF BANKRUPTCY 38 The grants of jurisdiction in bankruptcy are found in the second sec- tion of the act of 1898. In the nineteen clauses of this section are enu- merated most of the steps which occur in the course of an ordinary pto- ceeding in bankruptcy, from the adjudication of the bankrupt to the final discharge of the Isrustee. But the section also contains some com- prehensive provisions, among which the most important are those which give to the courts of bankruptcy authority to "bring in and substitute additional persons or parties in proceedings in bankruptcy when neces- sary for the complete determination of a matter in controversy" ; ^^ cause the' estates of bankrupts to be collected, reduced to money, and distributed, and determine controversies in relation thereto, except as herein otherwise provided ; enforce obedience by bankrupts, officers, and other persons to all lawful orders by fine or imprisonment; and "make such orders, issue such process," and enter such judgments, in addition to those specifically provided for, as may be necessary for the enforce- ment of the provisions of this act." It will be observed that the bank- ruptcy law gives to courts of bankruptcy full power to enjoin all per- sons within their jurisdiction' from doing any act that will interfere with or prevent its due administration, whether such persons are par- ties to the proceedings or not; and where they are litigants in a state construction of their jurisdiction and the mode of obtaining it, the principle does not at all apply in bankruptcy, ad- miralty, and other proceedings of which they have exclusive cognizance, so far as pertains to jurisdiction over persons or res involved in the litigation." In the case of Reed v. Vaugn, 10 Mo. 447, it was held that, in a bill filed by a bank- rupt to enjoin a judgment which had been included in his schedule, it was not necessary to plead the jurisdiction of the court which granted the discharge, as the district courts of the United States are not courts of inferior jurisdiction whose authority to render a judgment must be made to appear. And see In re Oasey, 195 Fed. 322, 28 Am. Bankr. Rep. 353. 10 Under the broad powers conferred by Bankruptcr Act 1898, § 2(7), when property has become subject to a bank- ruptcy court, jurisdiction exists to deter- mine the extent and character of liens thereon and rights therein, and to bring in additional parties when necessary to a complete determination of a matter in controversy. In re National Boat & En- gine Co. (D. C.) 216 Fed. 208, 33 Am. Bankr. Rep. 154. And see In re Bau- douine (D. C.) 96 Fed. 536, 3 Am. Bankr. Rep. 55. 11 This clause, taken in connection with the general grant of power to issue writs given by Rev. Stat. U. S. § 716, and Federal Judicial Code 1911, § 262, confers a very broad authority. The section of the Code referred to provides that "the Supreme Court and the district courts shall have power to issue writs of scire facias. The Supreme Court, the circuit courts of appeals, and the district courts shall have power to issue all writs not specifically provided for by statute, which may be necessai-y for the exercise of their respective jurisdictions, and agreeable to the usages and principles of law." With particular regard to injunc- tions, it is provided that "the writ of in- junction shall not be granted by any court of the United States to stay pro- ceedings in any court of a state, except in cases where such injunction may be authorized by any law relating to pro- ceedings in bankruptcy." Federal Ju- dicial Code 1911, § 265; Rev. Stat. U S. § 720. 39 COURTS OF BANKRUPTCY, THEIR JURISDICTION AND POWERS § 16 court, no rule of comity requires the court of bankruptcy to compel per- sons whose rights under the bankruptcy law are jeopardized by such litigation to resort to the state court for protection.^* The statute also provides that "nothing in this section contained shall be construed to deprive a court of bankruptcy of any power it would possess- were cer- tain specific powers not herein enumerated." ^* The purpose of the bankruptcy law is to bring all the property of the bankrupt into the court of bankruptcy for administration, and that court is furnished with all the needful power to collect the assets, settle all conflicting claims or liens upon such property, and cause it to be distributed to those who are entitled to share in it." All the property and estate of the bankrupt are considered as in custodia legis from the date of the adjudication,*" if not from the time of filing the petition,** and are under the jurisdic- tion and control of the court of bankruptcy, in which court alone all per- sons who claim rights in the property so sequestrated or who seek to participate in its distribution, must assert their claims, the jurisdiction of the federal court in this particular, being not only paramount but ex- clusive.*' ■ The fact that a state is a creditor, and therefore in a certain sense a party to the proceeding, does not affect the jurisdiction of the bank- ruptcy court.** Where proceedings in bankruptcy aflfect property not embraced in the assets of the bankrupt, they can bind only such per- sons in interest as have actual notice of them ; but in so far as the pro- ceedings affect only the assets in bankruptcy, they are in the nature of proceedings in remand conclusive upon all persons, actual notice not being essential to the jurisdiction of the court.*® Even if there are technical defects in the jurisdiction of the court in 12 In re Homstein, 122 Fed. 266, 10 igh Carriage Co. v. Stengel, 95 Fed. 637, Am. Bankr. Kep. 308. 37 C. C. A. 210, 2 Am. Bankr. Rep. 383. 13 Bankruptcy Act 1898, § 2. -*• ^^^^ in t^^e hands of the bankruptcy 1* In re Sacchi, 10 Blatchf. 29, 6 N. B. 1°^^ T"^ be, detained pending suits to E 497, Fed Cas. No. 12,200. determine adverse claims to Its owner- ' , ^ ^ ^ . „ ship. In re Sabin, 18 N. B. R. 151, Fed. 1 5 Beekman Lumber Co y. Acme Har- q^s. No. 12,195. Custody of property by yester Co 215 Mo. 221 114 S. W^1087; the bankruptcy court, though acquired by In re Wells, 114 Fed. 222, 8 Am. Bankr. agreement of the person in possession, '^^P- '^^- nevertheless confers jurisdiction to hear 16 In re Weinger, Bergman & Co., 126 and determine claims to the ownership Fed. 875, 11 Am. Bankr. Rep. 424; Zeig- thereof. In re Traunstein (IJ. C.) 225 ler V. Shomo, 78 Pa. St. 357. Fed. 317, 34 Am. Bankr. Rep. 462. t7 Carter v. Hobbs, 92 Fed. 594, 1 Am. is in re Greenville & C. R. Co., Fed. Bankr. Rep. 215; Davis v. Anderson, 6 Cas. No. 5,787. N. B. R. 145, Fed. Cas. No. 3,623; In re i9 in re Judklns, 2 Hughes, 401, Fed. Anderson, 23 Fed. 482; In re Fisher, 98 Cas. No. 7,560; Rayl v. Lapham, 27 Ohio Fed. 89, 3 Am. Bankr. Rep. 406; Zeigler St. 452; Hanover Nat. Bank v. Moyses, V. Shomo, 78 Pa. St. 357;' In re Smith, 186 U. S. 181, 22 Sup. Ct. 857, 46 L. Ed! 92 Fed. 135, 2 Am. Bankr. Rep. 9; Leid- 1113, 8 Am. Bankr. Rep. 1. § 16 LAW OF BANKEUPTCI 40 a particular case, these may be waived by the conduct of parties con- cerned. Thus, an alleged bankrupt who files a motion to dismiss the petition against him, and appears in court to testify in support of alle- gations made therein, thereby waives any merely technical objection to the jurisdiction of the court over his person and estate.*" So, in a proceeding in bankruptcy against stockholders of a corporation to com- pel the delivery of their stock to the bankrupt's trustee, the stockhold- ers, by answering to the merits, will waive any objection to the juris- diction of the court to determine the issue of title to the stock.^*^ The important subject of the jurisdiction of the court of bankruptcy over controversies between the trustee in bankruptcy and adverse claim- ants of the property alleged to belong to the estate may properly be reserved for discussion in another chapter. At present it may be suffi- cient to point out that the general policy of the act is to distinguish be- tween matters and proceedings in bankruptcy and controversies aris- ing in the course of the proceedings. The former include the ordinary steps in a bankruptcy case, and the court has jurisdiction of the settle- ment of all claims to property within its custody or which is in such a situation that it can summarily order its surrender. But the latter, be- ing controversies between the trustee as the representative of the es- tate, on the one hand, and adverse claimants in good faith and with a colorable title, on the other hand, are generally remitted to the juris- diction of the state courts, except in cases where the bankrupt and the adverse claimant are citizens of different states, and except in cases where the suit is brought in a federal court by the consent of the pro- posed defendant, and except in the case of suits by the trustee to avoid a preference or to recover property conveyed in fraud of creditors.** § 17. Jurisdiction of Bankruptcy Courts Exclusive. — The jurisdic- tion vested in the courts of the United States in all matters and pro- ceedings in bankruptcy is expressly declared by law to be "exclusive of the courts of the several states." ^^ In all matters, therefore, which properly concern the administration of an estate in bankruptcy, the ju- risdiction of the proper federal court is exclusive and not to be shared with any state court, and is plenary and not to be interfered with.** 2 In f e Smith, 117 Fed. 961, 9 Am. ruptcy any jurisdiction over independent Bankr. Rep. 98. suits at law or in equity. Maryman v. 21 In re Mills, 179 Fed. 409, 25 Am. Dreyfus, 117 Ark. 17, 174 S. W. 549. Bankr. Rep. 278. 23 Federal Judicial Code, 1911, § 256. 22 Bankruptcy Act 1898, § 23, as amend- And see Denison-Gholson Dry Goods Co. ed by Act Cong. Feb. 5, 1903 (32 Stat. v. Simmons (Mo. App.) 227 S. W. 855; 797) and Act Cong. June 25, 1910 (36 Norin v. Scheldt Mfg. Co., 297 111. 521, Stat. 838). The Bankruptcy Act does not 130 N. E. 791. of itself confer upon the courts of bank- 24 in re MuUings Clothing Co., 238 Fed. 41 COURTS OF BANKRUPTCY, THEIR JURISDICTION AND POWERS § 17 "The jurisdiction of a district court of the United States sitting as a court of bankruptcy is superior and exclusive in all matters arising un- der the statute. The estate surrendered is placed in the custody of the court so sitting in bankruptcy, and the officer appointed to manage it is accountable to the court appointing him, and to that court alone. No court of an independent state jurisdiction can withdraw the property surrendered, nor determine, in any degree, the manner of its disposi- tion." ^^ Thus, all the property which is brought within the adminis- tration of the court is subject to its sole orders and disposition and so remains during the entire time the proceeding in bankruptcy is pend- ing."® In general, an adjudication of bankruptcy vests the bankruptcy court with exclusive jurisdiction to administer the property of the bank- rupt, as against any state court which may have obtained possession of such property through proceedings instituted within four months prior to the adjudication, and it is immaterial that the proceedings in the state court were for the enforcement of valid lienB not affected by the bankruptcy act.^' Thus, when the lien of an attachment from a. state court is annulled by an adjudication in bankruptcy, such court loses jurisdiction of the property, which passes into the exclusive juris- diction of the court of bankruptcy, and the question of comity cannot arffect such jurisdiction.** So, when a general assignment for the bene- fit of creditors is made by a debtor, the same being an act of bankruptcy,, the right immediately arises in his creditors to have the estate adminis- tered under the bankruptcy law ; and where the enforcement of this right is demanded by a proper proceeding within four months, after its inception, no action by any court in any suit brought after the commis- sion of the act of bankruptcy can defeat it, without the consent of the 58, 151 C. C. A. 134, L. R. A. 1918A, 539, ing claims. In re Cobb's Consol. Cos. 38 Am. Bankr. Rep. 189; Commercial (D. C.) 233 Fed. 458, 36 Am. Bankr. Rep. Trust & Savings Bank v. Busch-Grace 812. Produce Co., 228 Fed. 300, 142 C. C. A. 25 in re Bi^rrow, 1 N. B. R. 481, Fed. 592, 36 Am. Bankr. Rep. 385; In re Graf- cas No li057 ^^l ^Ztfr^"'^ Ligbt Co. (DC.) 253 ., ■ j^ ;^ McAusland (D. C.) 235 Fed. Fed. 668, 42 Am. Bankr Rep. 567; In re ^^3 ^^ 3^^^^ ^ ^ l^^^ ?oa%^^ ^"^- M ' ^ ^n-. T ; Bros. v. Continental Coal Corp. (D. C.) f^f-^^^'' .n^'^T.^ \r'' ^^ im 235 Fed. 343, 38 Am. Bankr. Rep. 31 '^tl''t'''4. 21™J- 5l"'ii' Darrougb v. First Nat. Bank of Clare- Wash. 279, 174 Pac. 18; In re Barrow, 1 N. B. R. 481, Fed. Cas. No. 1,057; New man v. Fisher, 37 Md. 259; In re Ander- more, 56 Okl. 647, 156 Pac. 191; Mark- son V. Haney, 47 Ind. 31. son (D. C.) 23 Fed. 482. Where the trus- " ^^ ""^ Knight (D. C.) 125 Fed. 35, tee of a bankrupt corporation had in his ^1 ^™- Bankr. Rep. 1; State of Mis- possession a fund claimed by corporate so"ri v. Angle, 236 Fed. 644, 149 C. 0. creditors, and also by creditors of an in- ^- 640, 38 Am. Bankr. Rep. 394. solvent firm, the bankruptcy court has 28 in re Tune, 115 Fed. 906, 8 Am. exclusive jurisdiction to decide conflict- Bankr. Rep. 285, § 18 LAW OF BANKKUPTCT 42 court of bankruptcy, whose jurisdiction is exclusive, and, on the mak- ing of the adjudication, relates back to the act of bankruptcy.*® : § 18. Territorial Limits of Jurisdiction. — Although the jurisdiction of a court of bankruptcy to take cognizance of a petition, whether volun- tary or involuntary, and make an adjudication thereon, depends upon the residence of the debtor, or his having his principal place of business, within the hmits of its district, yet, when jurisdiction has once attached, the authority of the court in respect to assets or claims is not territo- rially i-estricted to the boundaries of the judicial district or of the state. It was the intention of Congress to make the act operative throughout the United States ; it does not stop at state lines. The bankruptcy court has jurisdiction of the debtor's entire estate. Property, wherever sit- uated, which is not exempt, passes to and vests in the trustee, who is an officer of the court, and thus is in the custody or under the control of the court. So also debts, wherever payable, and creditors, wherever they reside, are subject to the jurisdiction of the court, and it has power and authority to determine all questions concernir^ liens upon the bank- rupt's property or interests affecting it.^** The court may also issue citations to persons in another jurisdiction to appear before it in re- spect to such matters.^^ It is true, the act confers jurisdiction upon the several courts of bankruptcy "within their respective territorial limits," but this rather designates the place where the jurisdiction is to be exer- cised than the limits of the jurisdiction itself. There was a similar clause in the bankruptcy act of 1867, where Original jurisdiction in bank- ruptcy was conferred upon the district courts "in their respective dis- tricts." But upon this language it was remarked by the Supreme Court of the United States : "Their jurisdiction is confined to their respective districts, it is. true; but it extends to all matters and proceedings in bankruptcy without limit. When the act says that they shall have ju- risdiction in their respective districts, it means that the jurisdiction is to be exercised in their 'respective districts. Each court, within its own 2 In re Knight, 125 Fed. 35, 11 Am. 151 Fed. 732, 81 O. C. A. 116, 18 Am. Bankr. ReP. 1. Bankr. Rep. 56; Guardian Trust Co. v. 80 Babbitt v. Dutcher, 216 U. S. 102, Kansas City Southern Ry. Co., 171 Fed. 30 Sup. Ct. 372, 54 L. Ed. 402, 17 Ann. 43, 96 C. C. A. 285; In re Granite City Gas. 969, 23 Am. Bankr. Rep. 519; Wood Bank, 137 Fed. 818, 70 C. C. A. 316, 14 V. Henderson, 210 U. S. 246, 28 Sup. Ct. Am. Bankr. Rep. 404; Markson v. Hean- 621, 52 L. Ed. 1046, 20 Am. Bankr. Rep. ey, 1 Dill. 497, 4 N. B. B. 510, Fed. Gas. 1; Thomas v. Woods, 173 Fed. 585, 97 C. No. 9,098; Whitridge v. Taylor, 66 N. C. 0. A. 535, 23 Am. Bankr. Rep. 132; Staun- 273. ton V. Wooden, 179 Fed. 61, 102 C. C. A. si Staunton v. Wooden, 179 Fed. 61, 355, 24 Am. Bankr. Rep. 736; In re Demp- 102 O. C. A. 355, 24 Am. Bankr. Rep' ster, 172 Fed. 358, 97 0. C. A. 51, 22 Am. 736. Bankr. Rep. 751; In re Muncie Pulp Co., 43 COURTS OF BANKRUPTCY, THEIR JURISDICTION AND POWERS § 19 district, may exercise the powers conferred; but those powers ^xtend to all matters of bankruptcy without limitation." *" But according to the highest authority at present available, a court of bankruptcy cannot issue process to be enforced in another territorial jurisdiction, nor make a summary order for the delivery of property which must be there en- forced. Such an order can only be obtained by ancillary proceedings by the trustee in the court of the district where it must be executed.*^ § 19. Jurisdiction as Dependent on Residence or Domicile. — ^The statute confers upon the courts of bankruptcy authority "to adjudge persons bankrupt who have had their principal place of business, re- sided, or had their domicile within their respective territorial jurisdic- tions for the preceding six months, or the greater portion thereof." '* This enactment must be understood as making an exception to the gen- eral provisions of the act of August 13, 1888 (25 Stat. 433) that "no civil suit shall be brought before either of said courts [circuit or district courts] against any person by any original process or proceeding in any other district than that whereof he is an inhabitant.'.' For the "principal place of business" of a bankrupt may be in a district other than that where he resides or is an "inhabitant." But whether the jurisdiction is invoked on the ground of residence, domicile, or place of business, it must be within the judicial district where the petition is filled. It is not enough that it should be within the same state. Thus, if a debtor resides or has his principal place of business in the northern district of New York, he cannot file his petition in the southern dis- trict of New York.^* Further, the residence or domicile of the bank- rupt within the territorial jurisdiction of the court, or his having car- ried on business within the district, for the prescribed period of time before the filing of a petition by or against him, is an essential juris- dictional fact, without the existence of which the court will have no authority to proceed, as it is the fact which determines the court in which the proceedings are to be taken.** And this essential fact 82 Lathrop v. Drake, 91 U. S. 516, 23 Schwartz, 204 Fed. 326, 30 Am. Bankr. L. Ed. 414. Eep. 344. 33 Orinoco Iron Co. v. Metzel, 230 Fed. 84 Bankruptcy Act 1898, § 2, clause 1. 40, 144 C. C. A. 388, 36 Am. Bankr. Kep. sb in re Palmer, 1 N. B. E. 213, Fed. 247; Staunton v. Wooden, 179 Fed. 61, Cas. No. 10,680; Fogarty v. Gerrlty, 1 102 C. O. A. 355, 24 Am. Bankr. Rep. Sawy. 233, 4 N. B. R. 450, Fed. Cas. No. 786; In re Waukesha Water Co., 116 4,895. But see Clark-Herrin-Campbell Fed. 1009, 8 Am. Bankr. Rep. 715; In re Co. v. H. B. Claflin Co., 218 Fed. 429, Williams, 120 Fed. 38, 9 Am. Bankr. Rep. 134 C. C. A. 229, 33 Am. Bankr. Rep. 414. 741; In re Steele, 161 Fed. 886, 20 Am. 86 Pogarty v. Gerrity, 1 Sawy. 233, 4 Bankr. Eep. 446; In re Alphln & Lake N. B. R. 450, Fed. Cas. No. 4,895; " In re Cotton Co., 131 Fed. 824, 12 Am. Bankr. Leighton, 4 Ben. 457, 5 N. B. B. 95, Fed. Rep. 653. And see In re J. & M. Cas. No. 8,221; In re Little, 3 Ben. 25, 2 § 19 LAW OF BANKEDPTCT 44 must appear affirmatively and distinctly and not be left to presump- tion or conjecture.*'' Nor can this requirement as to jurisdiction be waived by the bankrupt or the creditors. Neither consent nor failure to object can confer authority to proceed upon a court which would not have jurisdiction under the express language of the statute.*' But a bankrupt who has procured the dismissal of involuntary proceedings against him, on his sworn plea denying his residence within the district and asserting it to be within another district which he names, may be estopped to object to the jurisdiction of the court in the latter district, when fresh proceedings are commenced against him there by the same creditors.^" "Residence" and "domicile" do not mean the same thing, and careful attention should be given to the difference in their signification in order to understand the full scope of this clause of the bankruptcy act. "The act of residence does not alone constitute the domicile of a party, but it is the fact of residence, accompanied by an intention of remaining, which constitutes domicile. The distinction between domicile and mere residence may be shortly put as that between residence animo manendi and residence animo revertendi. Mere residence may be for a transient purpose, as for business, for a fixed period, or limited by an expected future event, upon the happening of which there is a purpose to return iir remove. The two elements of residence and the intention that such residence shall be permanent must concur to make citizenship [domi- cile]. It has consequently been held from the beginning that an aver- ment of residence is not the equivalent of an averment of citizenship [domicile] for the purpose of supporting jurisdiction in the courts of the United States." ** Hence a court of bankruptcy has jurisdiction of a petition filed by a debtor who has had his domicile within the dis- N. B. R. 204, Fed. Cas. No. 8,301; In re tioii, was heW to have waived Its objec- Palmer, 1 N. B. R. 213, Fed. Oas. No. tion that the proceeding was not brought 10,680; In re Boston-Cerillos Mines Corp. In thiit divisidn of the federal district in (D. 0.) 206 Fed. 794, 30 Am. Banlcr. Rep. which it had Its domicile. 7.3rt. loLonK V. Locknian (1). C.) 135 Fed. 37 In re Plotlte, 104 Fed. 964, 44 0. 0. 197, 14 Am. BanUr. Rep. 172. A. 282, 5 Am. Bankr. Rep. 171. 4o Marks v. Miirks, 70 Fed. 321. And 88 Finn v. (Carolina Portland Cement see In re Watson, 4 N. B. It. 613, Fed. Co., 232 Fed. 815, 147 C. 0. A. 9, 37 Am. Cas. No. 17,'J72; Haskell v. Bailey, 63 Bankr. Uep. 449; Fogarty v. Gerrlty, 1 Fed. 873, 11 C. C. A. 476; Danahy v. Na- Sawy. 2:!.'!, Fed. Cas. No. 4,895; In re tional Bank of Denlson, (14 Fed. 148, 12 Palmer, 1 N. B. R. 213, Fed. Cas. No. 10,- C. C. A. 75; Poppenhauser v. India RuIj- 680. But compare Clark-Herrln-Camp- ber Comb Co., 14 Fed. 707; McDonald v. bell Co. V. H. B. Claflln Co., 218 Fed. 429, Salem Flour Mills Co., 31 Fed. 577; Bart- 134 C. C. A. 229, '33 Am. Bankr. Rep, 414, lett v. New York, 5 Sandf. (N. X.) 44; in which an alleged bankrupt corporation. In re (Jarneau, 127 Fed. 077, 62 C. C. by pleading to the merits In Its answer A. 403, 11 Am. Bankr. Rep. 679; Ander- and otherwise submitting to the .lurlsdlc- son v. Anderson, 42 Vt. 3.'j0, 1 Am. Rep. 45 COURTS OF BANKRUPTCY, THEIR JURISDICTION AND POWERS § 19 trict for the preceding six months, although, during the greater portion of that time he has resided elsewhere, either in another state or in for- eign countries, provided there was no abandonment of the original domi- cile, nor acquisition of a new one, and the debtor returned to the dis- trict, before the filing of the petition, with the intention of making his permanent home there." It should also be noted, as further empha- sizing the distinction between residence and domicile, that whereas ei- ther may confer jurisdiction to make an adjudication of bankruptcy, yet the exemptions of the bankrupt are to be regulated by the laws of the state wherein he has had his domicile (not residence) for the six months or the greater portion thereof immediately preceding the filing of the pe- tition.*^ Hence one may be adjudicated a bankrupt, as residing Qr doing business, in one state, and have his exemptions determined by the laws of another state. Since adjudications are occasionally made against married women and infants, it is important to remark that the domicile of a wife follows that of her husband during the continuance of thcTnarriage relation, but a divorce leaves the wife at liberty to choose and fix her own domicile.*^ A minor may acquire a separate domicile from that of his father during the latter's life-time. But that result can be accomplished only by the emancipation of the minor and a complete surrender of the parental control either to the minor himself or to some one standing in the place of the parent as to the choice of domicile." It is further requisite to give jurisdiction of proceedings in bank- ruptcy that residence within the district should be bona fide; and the removal of a person from one district to another for the express .pur- pose of filing a petition in bankruptcy therein and with the intention of leaving the district as soon as he obtained a discharge, does not make him a resident so as to confer jurisdiction on the court.*" In view of 334; Salem v. Lyme, 29 Conn. 74; In re a permanent residence in the district to Lemen, 208 Fed. 80, 30 Am. Bankr. Kep. which the removal is made, it is no suffi- 638. cient reason for refusing to take juris- *i In re Williams, 99 Fed. 544, 3 Am. diction that the party was primarily ac- Bpnkr. Rep. 677; In re Walker, 1 Low. tuated by a desire to file his petition in 237, 1 N. B. E. 386, Fed. Cas. No. 17,061. bankruptcy in that particular court, or, *2 Bankruptcy Act 1898, § 6. generally speaking, to get a case into a *3 Bennett v. Bennett, 1 Deady, 299, federal court which otherwise would not Fed. Cas. No. 1,318; Knickerbocker Life have had jurisdiction of it. See Gardner Ins. Co. V. Gorbach, 70 Pa. St. 150. v. Sharp, 4 Wash. C. C. 609, Fed. Cas. ** Woolridge v. McKenna, 8 Fed. 650; No. 5,236; Robertson v. Carson, 19 Wall. Dresser v. Edison Illuminating Co., 49 94, 22 L. Ed. 178; Catlett v. Pacific Ins. Fed. 257. See In re Kingsley, 160 Fed. Co., 1 Paine, 594, Fed. Cas. No. 2,517; 275, 20 Am. Bankr. Rep. 427. Briggs v. French, 2 Sumn. 251, Fed. Cas. 4s In re Garneau, 127 Fed. 677, 62 C. No. 1,871; Case v. Clarke, 5 Mason, 70, C. A. 403, 11 Am. Bankr. Rep. 679. Yet Fed. Cas. No. 2,490; Johnson v. Monell, if there is an actual intention to take up ' Woohv. 390, Fed. Cas. No. 7,399. § 19 LAW OF BANKRUPTCY 4^6 the very comprehensive language of the statute, cases must be extreme- ly rare in which it cannot be said that a person has either resided or had his domicile or had his principal place of business within any given district for the greater portion of the preceding six months. Yet such a case occurred, where the court refused to take jurisdiction of proceed- ings against an itinerant gambler who was shown to have resided with- in the district for only about two months before the filing of the peti- tion, although admitting that the same conditions might be found to exist in any other district, so that the debtor might altogether escape from the law.** Under the statute, proceedings in bankruptcy may be instituted in the district either of the debtor's residence or domicile or of his prin- cipal place of business,*'' and in the latter case, the place of his resi- dence or domicile is immaterial.** But if he is not shown to have any place of business, or to have had a place of business within the district for the requisite length of time, then jurisdiction must depend upon ei- ther residence or domicile.*® The "business" intended by the statute may be of almost any nature. One may have a place of business though the only business carried on there is that which he transacts as agent and attorney for another person,®* or although he merely works there as clerk to the sucqessors in the business in which he had previously failed.^^ Under the act of 1867 it was held that one whose only occupa- tion was that of a book-keeper could not be said to be "carrying on business." ®* But the case is of very doubtful authority. If, as often happens, the same person is engaged in various occupations or pur- suits, then it becomes necessary to determine as a question of fact which is his "principal" business, or that in which the major part of his capital is invested, which engages the chief part of his time and efforts, or on 48 In re Williams, 120 Fed. 34, 9 Am. BlatcM. 390, 6 N. B. R. 107, Fed. Cas. Bankr. Rep. 736. "It is true," said the No. 124. court, "that in cases of this kind, where *o in re Plotke, 104 Fed. 964, 44 C. C. the debtor belongs to that roving class A. 282, 5 Am. Bankr. Rep. 171; In re which never remains but for a short time Lipphart, 201 Fed. 103, 28 Am. Bankr. in one place, as is the case in this pro- Rep. 705. A traveling salesman has no ceeding, there can be no adjudication of place of business which gives jurisdic- bankruptcy. These considerations, not tlon of his petition in voluntary bank- without weight so far as the policy of ruptcy to a District Court of a district legislation is concerned, are properly to in which he does not reside. In re be addressed to Congress, but they can- Price (D. C.) 231 Fed. 1001, 36 Am. not control the interpretation of the Bankr. Rep. 656. statute where its words are so plain and oo in re Baily, 2 Ben. 437, 1 N. B. R. unambiguous as to exclude the consld- 613, Fed. Cas. No. 753. eration of extraneous circumstances." oi in re Belcher, 2 Ben. 468, 1 N. B. B. *7 Ex parte Hall, 5 Law Rep. 269, Fed. 666, Fed. Cas. No. 1,237. Cas. No. 5,919. " in re Magie, 2 Ben. 369, 1 N. B. 48 In re Alabama & 0. R. Co., 9- R. 522, Fed. Cas. No. 8,951. 47 COURTS OP BANKRUPTCY, THEIR JURISDICTION AND POWERS § 19 which he principally depends. for his income.*' Thus, where a petition- er in voluntary bankruptcy resides in one district and is there employed as a clerk in a store, but is engaged in trade on his own account, as a general merchant, in another district, the court in the latter district has jurisdiction of his petition, the bankrupt's principal place of business being within its territorial limits.** Though a corporation may have its "home office" in one state, where its officers are to be found, and where its directors meet, its records are kept, and its finances adminis- tered, this is not its principal place of business if its actual operations are conducted in another state, where its shops, factories, mills or other works are located.** But if a corporation shuts down its factory, or ceases to do any active business at the place where its plant is located, but still maintains a head office in another state or district, where its executive and financial business is transacted, the latter becomes its principal place of business, so as to give jurisdiction to the federal court there.** In regard to the requirement that the residence or domicile of the debtor, or his maintenance of a principal place of business within the district, shall have continued for "the preceding six months or the great- er portion thereof," it is logically necessary to understand that the pe- riod of six months must be referred to the time of the filing of the pe- tition in bankruptcy. A strict construction would make it refer to the date of adjudication, since the language quoted occurs in a sentence be- ginning "to adjudge persons bankrupt," and no other point of time is there fixed. But practically the courts have proceeded on the assump- tion that the time of filing the petition was meant. In the early days of the operation of the present statute, it was thought to mean that the debtor must have established his residence or domicile within the territorial jurisdiction at least six months before th'e filing of the petition, and that, during such period of six months, he should not have absented himself, unless it were for a time of less than three months. The requirement was thought to be similar to that in Bs In re Mackey, 110 Fed. 355, 6 Am. Alabama & C. R. Co., 9 Blatchf. 390, 6 Bankr. Rep. 577. See In re Foster, 3 N. B. R. 107, Fed. Cas. No. 124. As to Ben. 386, 3 N. B. R. 236, Fed. Cas. No. jurisdiction of corporations depending 4,962. on their residence or place of business. Hi In re Brlce, 93 Fed. 942, 2 Am. see more fully, infra, Ch. IX, § 132. Bankr. Rep. 197. ^° In re Marine Machine & Conveyor OS In re B. & G. Theatre Co. (D. C.) Co., 91 Fed. 630, 1 Am. Bankr. Rep. 421 ; 223 Fed. 657, 35 Am. Bankr. Rep. 255 ; In re Munger Vehicle Tire Co., 159 Fed. In re Monarch Oil Corp. (D. C.) 272 901, 87 C. C. A. 81, 19 Am. Bankr. Rep. Fed. 524, 46 Am. Bankr. Rep. 65 ; In re 785. Compare In re Little, 3 Ben. 25, 2 Devonian Mineral Spring Co. (D. C.) 272 N. B. R. 294, Fed. Cas. No. 8,391. Fed. 527, 47 Am. Bankr. Rep. 82 ; In re § 19 LAW OF BANKRUPTCX 4S the divorce laws of most of the states, requiring the complainant to have resided within the state for a given perioS.^" Also it was thought that the petition must be filed in the district where the debtor had made the longest residential stay during the preceding six months, no matter how short a time that might cover, the statute not intending that his resi- dence in the district should necessarily have extended over threte months.^ l^his was in analogy to the decisions under the act of 1867, where it was held that the petition might be filed on the very day after the establishment of the debtor's residence in a given district, as in the case of an American citizen returning from abroad. "If a person re- sides within the United States, and no district can be shown in which he has had a longer residence (within six months) than that in which he petitions, he has chosen the proper district." ®* Both these views, how- ever, have been abandoned, and it may now be regarded as settled, first, that it is not necessary that the residence or domicile should have begun six months before the petition in bankruptcy, but it is sufficient if it commenced at such a time that it may be said to have included "the greater portion thereof," that is, the greater portion of the preceding six months, and second, that it must have continued in the particular district for at least one or more days over three months, for it is not sufficient that the debtor should have resided within the district for a longer time than he has resided in any other district; in addition to that his residence must have continued more than three months; and if during the period of the preceding six months the debtor has neither resided, had his domicile, nor maintained a principal place of business in any one district for so long a period as three months, then there is no court in which a petition by or against him can be filed.*" The case of a citizen returning from abroad will depend, not on residence, but on domicile, and the domicile of origin may have been preserved notwith- standing the residence abroad, so that the court at that place may have jurisdiction.^ This consideration is applicable to the case of a fugitive from jus- tice, or an absconding debtor, whose present residence is unknown. 57 In re Stakes, 1 Nat. Bankr. News, Fed. 34, 9 Am. Bankr. Rep. 7.36 ; In re 106. Berner, 2 Nat. Bankr. News, .330 ; Long- s' In re Bay, 1 Nat. Bankr. News, ley Bros. v. McCann, 90 Ark. 252, 119 336. S. W. 268; In re Leighton, 4 Ben. 457, 59 In re Goodfellow, 1 Low. 510, 3 5 N. B. R. 95, Fed. Cas. No. 8,221. And N. B. R. 452, Fed. Cas. No. 5,536. see In re Hurley, 204 Fed. 126, 29 Am, eo In re Fackelman (D. C.) 248 Fed. Bankr. Rep. 567. 565, 41 Am. Bankr. Rep. 14 ; In re Plot- «i In re Williams, 99 Fed. 544, 3 Am ke, 104 Fed. 984, 44 C. C. A. 282, 5 Am. Bankr. Rep. 677. Bankr. Rep. 171; In re Williams, 120 49 COURTS OF BANKEUPTCX, TI-IBIR JURISDICTION AND POWERS § 20 Since the statute does not require the personal presence of the debtor in involuntary proceedings, nor personal service upon him, nor his resi- dence within the district, but only his domicile there, an adjudication may be made against a person in this situation, upon a petition filed in the court of bankruptcy at the place where he was domiciled at the time of his departure, provided the domicile was established at least six months before the filing of the petition, unless there was an intention on his part to change his domicile and acquire a new one elsewhere, and the burden of proving that fact is on those who object to the juris- diction.®* The act also confers jurisdiction upon the proper courts to adjudge persons bankrupt "who do not have their principal place of business, re- side, or have their domicile within the United States, but have prop- erty within their jurisdictions, or who have been adjudged bankrupts by courts of competent jurisdiction without the United States and have property within their jurisdictions." ** The latter of these two clauses was probably meant to apply to American citizens who have been ad- judged bankrupts in foreign courts. But both clauses plainly apply to aliens. In this respect the present statute. is* wider than the act of 1867,®* and in the case here contemplated jurisdiction depends solely up- on the presence within the district of property available to the creditors through the instrumentality of proceedings in bankruptcy. § 20. Jurisdiction Dependent on Amount of Debts. — In the case of a voluntary petition in bankruptcy, the amount of the petitioner's in- debtedness is immaterial. But when the proceedings are involuntary and instituted by creditors, it is made a jurisdictional requisite that the person or corporation proceeded against should "owe debts to the amount of one thousand dollars or over." ®^ Arid the statute defines "debts" as including "any debt, demand, or claim provable in bank- ruptcy." ®® There must therefore be an aggregate of one thousand dol- lars of debts directly owing by the alleged bankrupt and provable against his estate. In one case, where a petition wais filed against a partner- ship after its dissolution, and its indebtedness was not shown to reach • 62 Hills V. F. D. McKinniss Co., 188 rupt or his creditors, or both, are aliens ; Fed. 1012, 26 Am.Bankr. Eep. 329; and a deposit in bank, to the credit of In re Oldstein, 182 Fed. 409, 25 Am. an alien, is property having its situs Bankr. Rep. 138; In re Filer, 108 Fed. within the district where the bank is 209, 5 Am. Bankr. Kep. 332; Cobb v. situated. In re, Berthoud (D? C.) 231 Rice, 130 Mass. 231. Fed. 529, 36 Am. Bankr. Rep. 555. » 3 Bankruptcy Act 1898, § 2, clause 1. «* See In re Burton, 9 Ben. 324,. 17 Under this provision, bankruptcy courts N. B. R. 212, Fed. Cas. No. 2,214. have jurisdiction if there is property es Bankruptcy Act 1898, § 4. within the jurisdiction, though the bank- ee Bankruptcy Act 1898, § 1, clause 11. Blk.Bkb.C3d Ed.)— 4 i § 20 LAW OF BANKltUPTCY 50 the required amount, except by including some debts which accrued after the dissolution and which became obligations of the firm only on the ground of estoppel in favor of such creditors as had no notice of the dissolution, the court refused to make an adjudication of bankruptcy.®' The opinion was advanced (under the act of 1867) that the jurisdic- tion, in so far as it depended upon the amount of indebtedness, must exist at the time of the trial and adjudication, and that, although the debts might amount to the requisite sum at the time of filing the peti- tion, yet if they were thereafter reduced by payments made, so as to amount to less than the jurisdictional sum, the court lost jurisdiction and could not make an adjudication.** But under the present statute, the opinion appears to prevail that it is enough if this jurisdictional fact, like others, exists at the time of filing the petition. And some courts have thought that the statute should be construed as having reference to the amount of indebtedness at the time of the commission of the act of bankruptcy charged, on the ground that, when a debtor commits an act of bankruptcy denounced by the statute, his creditors immediately acquire a vested right to avail themselves of it, to file a petition, and to have the estate administered by the court of bankruptcy.*® At any rate, a payment made to a creditor after the commission of an act of bank- ruptcy would almost certainly amount to a voidable preference. And the authorities are unanimous in holding that, in computing the amount of indebtedness of the alleged bankrupt, the claims of preferred credi- tors must be included, if their preferences were given under such cir- cumstances as to be voidable, since they will be entitled to prove their claims in the bankruptcy proceedings when they have surrendered their preferences or when the same have been voluntarily relinquished."* This doctrine was applied in a case where the act of bankruptcy charged was the making of a general assignment by a debtor who, at the time, owed much more than the required amount. Some of the creditors as- sented to the assignment and released the debtor on receiving their pro- portional part of the assets covered by the assignment. But other cred- itors, refusing to assent, filed a petition in bankruptcy. The settlement with assenting creditors had then reduced the amount of unreleased in- debtedness below the sum of one thousand dollars. Nevertheless the court held that it had jurisdiction and that an adjudication should be OTIn re PInson & Co., 180 Fed. 787, 'oin re McMurtrey & Smith, 142 Fed. 24 Am. BanUr. Rep. 804. 853, 15 Am. Bankr. Bep. 427 ; In re 88 In re Skelley, 3 Bias. 260, 5 N. B. Tirre, 95 Fed. 425, 2 Am. Bankr. Rep. R. 214, Fed. Cas. No. 12,921. 493 ; In re Norcross, 1 Am. Bankr. Bep. In re Jacobson, 181 Fed. 870, 24 644, 1 Nat. Bankr. News, 257; In re Am. Bankr. Rep. 927. Cain, 2 Am. Bankr. Rep. 379. 51 COUETS OF BANKRUPTCY, THEIK JURISDICTION AND POWERS § 22 made, on the ground that the released debts should be regarded as still existing and unpaid, at least for the purpose of the present proceeding and in order to secure to the non-assenting creditors the rights and rem- edies with which they became vested upon the commission of the act of bankruptcy.'^ § 21. Jurisdiction of Bankrupt's Person.. — In voluntary cases, the bankrupt submits himself to the jurisdiction of the court by filing his petition and asking an adjudication. In involuntary cases, jurisdiction of his person is acquired by the filing of the petition against him and the due service upon him of a copy of the petition and of a subpoena.'* In either case, jurisdiction once attaching is retained until the bank- rupt's application for a discharge is heard and determined. During all this period, he remains, as it were, in the custody of the court, and his obedience to all its lawful orders may be promptly and efifectively en- forced. He may be summarily ordered to pay over to his trustee money found to be. in his possession or control and properly belonging to his estate in bankruptcy, and to transfer any other property to which the trustee is entitled.'* His death or supervening insanity does not abate the proceedings, but the same are to be conducted, and concluded, so far as possible, in the same manner as if no such event had occurred.'* Moreover, for the purpose of securing his attendance whenever it shall be necessary for the purpose of examining him touching his property and affairs, or for enforcing the other duties laid upon him by the act, the court is invested by the statute with full authority to protect him from arrest on civil process except in certain specified cases, to place him under arrest when it is shown that he is about to leave the dis- trict, and to procure his return to the district, when he has escaped therefrom, by extradition proceedings.'® § 22. Summary Jurisdiction. — From the fact that they are invest- ed with jurisdiction in equity as well as at law, and that this jurisdic- tion may be exercised in vacation in chambers, as well as during a stat- ed term, and from the general purpose and policy of the bankruptcy law to settle up estates with expedition and without unnecessary expense, the courts of bankruptcy have deduced the doctrine that controversies arising in the course of a proceeding in bankruptcy may, in many in- 71 In re Jacobson, 181 Fed. 870, 24 ts in re Pevear, 21 Fed. 121; In re Am. Bankr. Rep. 92T. Pnrvine, 96 Fed. 192, 2 Am. Bankr. Rep. 72 In re Brett, 130 -Fed. 981, 12 Am. 787. Bankr. Rep. 492. As to service of pro- 74 Bankruptcy Act 1898, § 8. cess, and jurisdiction as dependent there- '» Bankruptcy Act 1898, §§ 9, 10. on, see infra, § 166. , § 22 LAW OF BANKRUPTCY 52 stances, be determined summariiy, that is, upon petition and rule to show cause in the bankruptcy proceeding itself, instead of by plenary suit at law or bill in equity. It has, ind.eed, been broadly stated that the district courts in bankruptcy are authorized by summary proceedings to administer all the relief which a court of equity could administer under like circumstances upon regular proceedings.'® It may not be necessary to accept this statement in its widest extent. And yet the nature of a bankruptcy case is such that most of the questions inci- dentally contested in its progress may be heard and determined sum- marily without injustice and without, violating the requirement of due process of law. Thus, where persons have forcibly and unlawfully seized and taken out of the judicial custody of a court of bankruptcy property which had lawfully come into its possession as part of a bank- rupt's estate, the court has power summarily to require them to restore the property," and the possession of a receiver appointed by the court, or its marshal, or a trustee in bankruptcy is the possession of the court, for the purposes of this rule.'* And it is held that property which is in the actual possession of the bankrupt at the time' of the-filing of the pe- tition and the appointment of a receiver is constructively in the pos- session of the bankruptcy court, so that a stranger who thereafter takes the property on a writ of replevin from a state court may be cited be- fore the referee and his rights determined in a summary proceeding.'® So also, where a mortgage held by a creditor, and alleged to have been given by way of preference, is foreclosed, the property sold, and the pro- ceeds deposited in the bankruptcy court, that court may determine the validity of the mortgage on a petition filed by the trustee.** Again, the court of bankruptcy has summary jurisdiction over all contracts made with itself respecting the bankrupt's property, and where a forthcoming bond has been given for the release of goods under seizure, the court may summarily order the goods, or their value, to be brought into court by the parties to the bond." And the bankrupt himself is always sub- 7 8 In re Wallace, Deady, 433, 2 N. B. and the trustee was not thereafter enti- R. 134, Fed. Cas. No. 17,094. tied to recover the value of the prop- 7 7 White V. Schloerb, 178 U. S. 542, 20 erty against the claimant in summary Sup. Ot. 1007, 44 L. Ed. 1183, 4 Am. proceedings on an order to shovr cause. Bankr. Bep. 178. Hinds v. Moore, 134 Fed. 221, 67 C. 0. A. 78 In re Landis, 151 Fed. 896, 18 Am. 149, 14 Am. Banlir. Rep. 1. Bankr. Rep. 483. But where a receiver roin re Briskman, 132 Fed. 201, 13 in bankruptcy delivered certain goods in Am. Bankr. Rep. 57. the possession of the bankrupt to a so in re Noel, 137 Fed. 694, 14 Am. claimant, on the ground that the tifle to Bankr. Rep. 715. the property was in the claimant and not si Rosenbaum v. Garnett, 3 Hughes, in the bankrupt, the court's custody of 662, 19 N. B. R. 370, Fed. Cas. No. 12,- the property was thereby surrendered, 053. , 53 COURTS OW BANKRUPTCY, TIIBIE JURISDICTION AND POWERS § 22 ject to the orders of the court, and a proceeding to compel him to sur- render property or money which is claimed as assets of his estate need not be by a bill in equity; a summary petition is sufficient.** And the same is true where the property is held for him by an agent, trustee, or other representative, not setting up an independent claim of title thereto.** Again, the trustee in bankruptcy is an officer of the court, and his possession is that of the court, and hence any claimant may pro- ceed, if he so chooses, by summary petition against the trustee in re- spect to any property or funds in the latter's hands.** This is true, not only of an application for the allowance of a claim against the bank- rupt's estate which the trustee disallows, but also where property which has been seized as the property of the bankrupt, and has thus come to the trustee's hands, is claimed by a stranger as his own. In such case it- is proper foi- the claimant to proceed for its recovery in specie by peti- tion to the court of bankruptcy.*® But the converse of this rule does not always hold good. Summary process of the court of bankruptcy may be invoked by the trustee where the property to which he lays clairrt, and which he seeks to recover in this manner is in the possession of the bankrupt himself or of some one who holds it as his agent or representative. And it is also true that the trustee cannot be compelled to resort to a suit to recover the possession of property where his right is not contested, but any one withholding the possession, while making no claim to the property for himself, may be dealt with summarily.*® But where the trustee claims, as assets of the estate, property which is in the actual possession of a third person who asserts his own title thereto in opposition to the bankrupt or the trustee, whether such title 8 2 In re Ettinger, 18 N. B. E.. 222, . trustee executed a deed to the bank- Fed. Cas. No. 4,543. And see infra, § rupt's property to carry out a sale, con- 227. tingent on confirmation of the compo- 8 3 In re Baudouine, 96 Fed. 536, 3 Am. sition, and the matter was refen-ed to Bankr. Rep. 55 ; Clay v. Waters, 178 a special referee, after an increased of-. Fed. 385, 101 C. C. A. 645, 24 Am. Bankr. fer, it was held, on exceptions to such Bep. 293. referee's report, that the court had no 8 4 See Ex parte Christy, 3 How. 292, jurisdiction to order the trustee's deed 11 L. Ed. 603; Ferguson v. Peckham, expunged from the records, it having 6 N. B. R. 569, Fed. Cas. No. 4,741; In been recorded without authority. In re re Evans, 1 Low. 525, Fed. Cas. No. 4,- Kligerman (D. C.) 253 Fed. 778, 42 Am. 551. Compare Hurst v. Teft, 12 Blatchf. Bankr. Rep. 670. 217, 13 N. B. R. 108, Fed. Cas. No. 6,939. 85 in re Clark, 9 Blatchf. 379, 6 N. B. Jurisdiction to foreclose a mortgage on R. 410, Fed. Cas. No. 2,802; In re MoS- the estate of the bankrupt, at the in- es, 1 Fed. 845 ; Krippendorf v. Hyde, 110 stance of the mortgagee or holder, is U. S. 276, 4 Sup. Ct..27, 28 L. Ed. 145; not included in the powers to be exer- In re Harthill, 4 Ben. 448, 4 N. B. R. cised summarily by the court of bank- 392, Fed. Cas. No. 6,161; Keegan v. ruptcy. In re Casey, 10 Blatchf! 376, 8 King, 96 Fed. 758,- 3 Am. Bankr. Rep. 79. N. B. K. 71, Fed. Cas. No. 2,495. Where, ss in re Moore, 104 Fed. 869, 5 Am. pursuant to an offer of composition, the Bankr. Rep. 151. § 22 LAW OF BANICEUPTCY 54 was derived from the bankrupt himself before the proceedings, or from an independent source, the rights of such adverse claimant cannot be adjudicated in a summary manner in the bankruptcy proceeding, but only in a plenary suit brought against him by the trustee.*' On this subject it has been well and forcibly said: '"If in a proceeding in bank- ruptcy proper the trustee could intrude a separate suit against every debtor of the bankrupt, no difference what the demand might be, we should have a conglomeration of issues of the most remarkable extent and character in a bankruptcy proceeding. Nothing of the sort was contemplated by Congress, nor provided for by the act. On the con- trary, the trustee, if he succeeds to the rights of the bankrupt, must do as the latter would have been compelled to do, and if he have any claim -to property or any right to recover upon any indebtedness, alleged to be due from another person, he must, like every other litigant, institute his own separate and independent action in a court having jurisdiction of the subject-matter, and have his claim regularly adjudicated in due course of law. Being a trustee in bankruptcy gives him no special priv- ileges in the courts. He stands there like other people. These general propositions seem to admit of no doubt. There are cases, however, which are exceptional, and in them summary proceedings may be re- sorted to, for example, in cases where property is in the possession of the trustee and therefore in custodia legis. If that possession is inter- fered with, summary action is admissible, and where, the bankrupt re- fuses, or some agent of his refuses, to deliver to the trustee property be- longing to the estate, a similar course is open. But these exceptions do not embrace cases where there are adverse claims to the property made in good faith, nor those in which there is an outstanding indebtedness of any character. Nor do they embrace a case where a third person has the property in his possession claiming it adversely, nor a case where a recovery, on a contract is sought, for in respect fo all such cases it can- not be said that the debtor is in possession of any property of the estate within the rule as to summary proceedings." ** 87 Marshall v. Knox, 16 Wall. 551, 21 flth, 1 Nat. Bankr. News, 546; In re L. Ed. 481 ; Smith v. Mason, 14 Wall. Fowler, 1 Nat. Bankr. News, 215 ; In re 419, 20 L. Ed. 748; In re Abraham, 93 Carter, 1 Nat. Bankr. News, 162; In Fed. 767, 35 C. 0. A. 592, 2 Am. Bankr. re Staib, 3 Fed. 209 ; In re Waltzf elder. Rep. 266 ; Camp v. Zellars, 94 Fed. 799, 18 N. B. R. 260, Fed. Cas. No. 17.048 ; 36 O. 0. A. 501; In re Rockwood, 91 In re Stevens, Fed. Gas. No. 13,390; In Fed. 363, 1 Am. Bankr. Rep. 272 ; In re re Evans, 1 Low. 525, Fed. Cas. No. Kelly, 91 Fed. 504, 1 Am. Bankr. Rep. 4,551. And see infra, § 402. 306; In re Brodbine, 93 Fed. 643, 2 Am. ss in re Howe Mfg. Co. (D. C.) 193 Fed. Bankr. Rep. 53; In re Cohn, 98 Fed. 524, 27 Am. Bankr. Rep. 477. 75, 3 Am. Barikr. Rep. 421; In re Grif- 55 COURTS OF BANKRUPTCY, THEIR JURISDICTION AND POWERS § 23 § 23. Equitable Powers and Jurisdiction. — The act of Congress in- vests the courts of bankruptcy with "such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings."** Within the limits of their own particular subject- matter they therefore possess the powers of courts of equity and may take cognizance of equitable rights and claims, follow equitable modes of procedure, and administer equitable relief.** "A proceeding in bank- ruptcy is a proceeding in equity, and for the purpose of enforcing an4 protecting its jurisdiction a court of bankruptcy has all the inherent powers of a court of equity. This being the case, it may be appealed to by supplemental and ancillary bill to enforce its orders, sustain its jurisdiction, and protect parties before it in the enjoyment of rights se- cured through and under it ; and, this is always true where jurisdiction is reserved or still retained, and even afterwards where the result would be a re-litigation of the same subject-matter between the same parties. A bill addressed to this power of the court is essentially supplemental and ancillary in its nature and inheres in the general equity jurisdic- tion of the court." ** Although there was no provision in the act of 1867 authorizing the appointment of receivers by the bankruptcy court, yet it was held to be within the general equity powers of a court of bank- ruptcy, after the adjudication and before the appointment of a trustee, to appoint a receiver for the temporary care and custody of the estate, when special circumstances rendered it desirable.*^ This authority is 8» Bankruptcy Act 1898, § 2. Bankr. Rep. 351; In re Rocliford, 124 00 Grief Bros. Cooperage Co. v. Mul- Fed. 182, 59 0. C. A. 388. 10 Am. Bankr. Unix (C. C. A.) 264 Fed. 391 ; Bridgeton Eep. q08 ; In re Fendley, 10 N. B. B.. 250, Nat. Bank v. Way, 253 Fed. 731, 165 C. Fed. Cas. No. 4,728 ; Fowler v. Dillon, 1 C. A. 35, 4 Am. Bankr. Rep. 204 ; Clark Hughes, 232, 12 N. B. R. SOS, Fed. Cas. V. Johnson, 245 Fed. 442, 157 C. C. A. No. 5,000 ; Ex parte Foster, 2 Story, 131 e04, 40 Am. Bankr. Rep. 330; Ogden v. Fed. Cas. No. 4,960; In re Wallace, Gilt Edge Oonsol. Mines Co., 225 Fed. Deady, 433, 2 N. B. R. 134, Fed. Cas. No. 723, 140 C. C. A. 597, 34 Am. Bankr. Rep. 17,094 ; In re Anderson, 23 Fed. 482. "In 893; In re Seal (D. C.) 261 Fed. 112, 44 equity, and in bankruptcy, which is a Am. Bankr. Rep. 556 ; In re Connecticut . branch of equity, names and forms are Brass & Mfg. Corp., (D. C.) 257 Fed. unimportant where the truth is evident." 445, 43 Am. Bankr. Rep. 376; In re As- Swarts v. Siegel, 117 Fed. 13, 16, 54 O. soclation Dairy Co. (D. C.) 251 Fed. 749, O. A. 399, 8 Am. Bankr. Rep. 689. A court 42 Am. Bankr. Rep. 321 ; In re Ohio of bankruptcy is a court of equity, and Copper Mining Co. (D. C.) 241 Fed. 711, ought not to permit itself to be used for 39 Am. Bankr. Rep. 284 ; In re Syracuse the purpose of perpetrating a fraud or Gardens Co. (D. C.) 231 Fed, 284, 37 attaining an inequitable result which a Am. Bankr. Rep. 354 ; In re Gillaspie, state court Is successfuly endeavoring to 190 Fed. 88, 27 Am. Bankr. Rep. 59 ; In prevent. Martin v. Oliver, 260 Fed. 89, re Swofford Bros. Dry Goods Co., 180 171 C. O. A. 125, 43 Am. Bankr. Rep. 739. Fed. 549, 25 Am. Bankr. Rep. 282; In re »i In re Swofford Bros. Dry Goods Co., Appel, 163 Fed. 1002, 90 O. C. A. 172, 20 180 Fed. 549, 25 Am. Bankr. Rep. 282. Am. Bankr. Rep. 890; In re Siegel-Hill- 92 Lansing v. Manton, 14 N. B. R. 127, man Dry Goods Co., Ill Fed. 980, 7 Am. Fed. Cas. No. 8,077. § 23 LAW OF BANKRUPTCY 56 now expressly given by the present statute, but it is also held that the court may exercise its general equity jurisdiction to protect its re- ceivers and enforce contracts made by them.*^ So again, the court has full equity powers in dealing with partnership matters, and may do as a court of equity would do in marshalling partnership property for the benefit of firm creditors and so on.®* So the jurisdiction of the courts of bankruptcy extends to bills in equity in behalf of the trustee, in regard to the recovery of assets, as well as to actions at law.** And such a court will have jurisdiction to entertain a suit in equity to es- tablish a trust in funds claimed to belong. to the bankrupt's estate.'* And generally, "property in the custody of a court of equity for admin- istration is always held by it in trust for those to whom it rightfully belongs. The jurisdiction to inquire and determine who are the law- ful owners of it, and to that end to call before it all claimants by a rea- sonable notice or order to present their claims to the court within a reasonable time, or to be barred of any right or interest in the property, is a power inherent in every court of equity, incidental and indispensa- ble to the authority to administer the property in its possession and to distribute its proceeds." " The plenary form of proceedings common to suits in equity is not always necessary in the exercise of the equity powers of a court of bankruptcy.** In many instances the more simple and expeditious procedure by petition and rule to show cause will be applicable, although, as stated in the preceding section, this is not a proper method of determining the rights of strangers to the proceeding in bankruptcy, who claim adversely to the bankrupt and the trustee. A court of bankruptcy, in virtue of the peculiar nature of its jurisdiction, may entertain proceedings in equity, although an action at law could have been maintained.*® But when a distinct suit is brought in the court of .bankruptcy, it must be determined whether it properly belongs on the law side or the equity side, and if the latter, it must proceed ac- cording to the proper practice of the federal courts in equity cases, and relief rnust be administered in accordance with the general principles and 03 Meson V. Wolkowich, 150 Fed. 699, 55 O. C. A. 579, 9 Am. Bankr. Rep. 444; 80 C. O. A. 435, 10 U R. A. (N. S.) 765, Searle v. Mechanics' Loan & Trust Co.. 17 Am. Bankr. Rep. 709. 249 Fed. 942, 162 C. C. A. 140, 41 Am. »* In re Filmar, 177 Fed. 170, 100 C. 0. Bankr. Rep. 786. A. 632, 24 Am. Bankr. Rep. 194. »s In re Wallace, Deady, 433, 2 N. B. 05 Flanders v. Abbey, 6 Biss. 16, Fed. J!' 1";^- /ed^ Cas. Na 17.094; Interna- Cas. No. 4,851. f °"'^' ^^^•- .^'''^^^ \^^'/' ^^0 Fed. 101, „ „„ „ 153 C. C. A. 137, 38 Am. Bankr. Rep. 8 Sbainwald v. Davids, 69 Fed. 687. 753, »7 In re Rocbford, 124 Fed. 182, 59 O. "o Chemung Canal Bank v. Judson, S C. A. 388, 10 Am. , Bankr. Rep. 608 ; N; Y. 254. But see Sessler v. Nemcof, Chauncey v. Dyke Brothers, 119 Fed. 1, 183 Fed. 656, 25 Am. Bankr. Rep. 618. 57 COURTS OF BANKRUPTCY, THEIR JURISDICTION AND POWERS § 24 practices of equity. Thus, a proceeding by a trustee in bankruptcy to set aside a fraudulent conveyance or an illegal preference, when brought in a federal court, is a suit in equity, and must be governed by the rules of pleading and practice in equity which obtain in the United States courts, independently of the practice in the courts of the particular states.^*' But generally speaking, proceedings in bankruptcy proper are governed by the rules of practice in equity where the act of Congress and the general orders do not prescribe a specific course of procedure."^ But it should not be forgotten, in this connection, that a court of bank- ruptcy, as such, does not possess the chancery powers of a court of un- limited jurisdiction, its equity jurisdiction being limited to that con- ferred by the act of Congress, namely, such as is necessary to "enable them to exercise original jurisdiction in bankruptcy proceedings." ^"^ § 24. Ancillary Jurisdiction. — ^As originally interpreted, the present bankruptcy act was thought to have made no provision for any ancil- lary or auxiliary proceedings in any district court other than that in which the bankruptcy proceeding was pending. But a clause was in- serted in the amendatory act of 1910 which provides that the courts of bankruptcy may "exercise ancillary jurisdiction over persons or property within their respective territorial limits in aid of a receiver or trustee appointed in any bankruptcy proceedings pending in any other court of bankruptcy." (Act Cong. June 25, 1910, 36 Stat. 838, § 2.) Such ancillary jurisdiction carries with it power for the ancillary tribunal ■ to decide questions of liens and priorities to property over which it exercises jurisdiction.^*^ But a claim for attorney's fees for services rendered after the institution of the bankruptcy proceedings must be determined by the court having jurisdiction of the administration of the estate, and cannot be determined by a bankruptcy court exercising an- cillary jurisdiction.'-"* And a bankruptcy court of ancillary jurisdic- tion which has taken possession of mortgaged property, is without au- 100 Westall V. Avery, 171 Fed. 626, 96 are created by separate and-distinct acts C. C. A. 428, 22 Am. Bankr. Rep. 673. of Congress, passed in pursuance of con- 101 In 're Irwin, 177 Fed. 284, 22 Am. stitutional powers entirely different from Bankr. Kep. 165 ; In re Gillaspie, 190 each otlier. EJach court has its own ju- Fed. 88, 27 Am. Bankr. Rep. 59; In re risdiction and its own method of proce- Hawks, 204 Fed. 309, 30 Am. Bankr. Rep. dure. McKenna v. Randle, 5 Alaska, 365. 590. 102 Nelson v. Svea Pub. Co. (D. C.) 178 los Emerson v. Castor, 236 Fed. 29, Fed. 136. Thus, for instance, the general 149 C. O. A. 239, 37 Am. Bankr. Rep. equity jurisdiction of the United States 719. District Court for Alaska is not to be loiln re A. Musica & Son (D." C.) 205 confounded with the equity jurisdiction Fed. 413, 30 Am. Bankr. Rep. 555, af- of the United States District Court for firmed, 211 Fed. 326, 127 C. C. A. 575, Alaska in bankruptcy. These courts 31 Am. Bankr. Rep. 687. have one and the same name, but they § 24 LAW OF BANKRUPTCY 58 thority, regardless of the court of primary jurisdiction, to release such property to the mortgagee for the purpose of an independent foreclosure suit.^*^ It is very doubtful whether a suit can be maintained by a trustee in bankruptcy, to recover assets or to set aside preferences or fraudulent conveyances, in any district court other than the one in which the proceedings in the particular bankruptcy are pending and from which he derives his authority. If the latter court has jurisdiction of an action of this kind against a stranger (which has been both affirmed and denied under the present statute) it can only be on the ground that the suit is an incident of the main proceeding and is drawn within the jurisdic- tion of the court by its relation to the general business of collecting the assets of the, bankrupt. But if the trustee is obliged to go beyond the bounds of the district to seek his adversary, it would seem that he must have recourse to a state court of competent jurisdiction,^*** except in cases where a federal court would have cognizance of the action on account of the presence of jurisdictional facts, such as the diverse citi- zenship of the bankrupt and the defendant; but in that case of course, its jurisdiction would not be ancillary but original. § 25. Jurisdiction toi Reverse or Set Aside Former Proceedings. — By the ordinary rules of law a, court loses control over its judgments at the expiration of the term at which they were rendered and cannot thereafter revoke or modify them. But it is not 'so with the United States district courts sitting in bankruptcy. For the exercise of this ju- risdiction they are considered as always open and as having no sepa- rate terms, and a case in bankruptcy is one continuous proceeding from its inception. to the closing of the estate and discharge of the trustee. Therefore any order, decision, or decree made in the progress of such a cause remains subject to the control of the court until the final close of the case, and, saving only vested rights which may have accrued un- der it, may be corrected if found to he erroneous, modified to suit the facts, or vacated and set aside, without regard to the fact that one or more of the periods appointed for the stated terms of the coprt may have elapsed.^"'' And an application for the re-examination of an order !»= In re Patterson Lumber Co. (D. C.) Bingham, 3 Cliff. 552, 7 N. B. R. 490. 247 Fed. 578, 40 Am. Bankr. Rep. 545. Fed. Cas. No. 12,762 ; Payson v. Dietz',. io« See Jobbins v. Montague, 6 N. B. 2 Dill. 504, 8 N. B. R. 193 Fed Cas No' E. 509, Fed. Cas. No. 7,330; Lamb v. 10,861. Damron, 7 N. B. R. 509, Fed. Cas. No. 8,- lo? Sandusky v. Bank, 23 Wall. 289,. 014 ; Markson v. Heaney, 1 Dill. 497, 4 N. 23 L. Ed. 155 ; In re Ives, 113 Fed. 91l[ B. R. 510, Fed. Cas. No. 9,098. Compare 51 O. 0. A. 541, 7 Am. Bankr. Rep. 692 ', Goodall V. Tuttle, 3 Biss. 219, 7 N. B. R. In re Tucker, 153 Fed. 91, 18 Am. Bankr'. 193, Fed. Cas. No. 5,533; Sherman v. Rep. 378; In re feenschel, 114 Fed. 968 59 COURTS OF BANKRUPTCY, THBIK JURISDICTION AND POWBRS § 26 or decree in bankruptcy may be made by motion or petition, according to the circumstances of the case ; and such a motion or petition will not have the effect of a new suit, but of a proceeding in an old one.^"* But this power of the court can only be exercised in the same bankruptcy case in which the previous order or decision was made. Each bank- ruptcy is a distinct proceeding from every other. And a decision or or- der made in one case is final and conclusive when the rights of the same parties to the same property, or growing out of the same transaction, shall come up for decision in a subsequent and distinct case. Though the court may, in the mean time, have changed its mind regarding the title to the property or the legal effect of the transaction in question, still it has no rightful authority, in the subsequent case, to make an order inconsistent with, or substantially vacating, its order made in the earlier case. This can only be done by a proceeding taken directly for the purpose in the same bankruptcy case in which the order was made.^** § 26. Conflicts of Jurisdiction with State Courts. — The bankruptcy law provides that the courts of bankruptcy shall have authority to or- der a stay of proceedings in suits pending against a bankrupt in the state courts, and this power may be exercised, if need be, by the writ of injunction. Moreover, their jurisdiction is by law made exclusive in all mat|;ers and proceedings in bankruptcy. Hence "the jurisdiction of a district court of the United States, sitting as a court of bankruptcy, is superior and exclusive in all matters arising under the statute. The es- tate surrendered is placed in the custody of the court so sitting in bank- ruptcy, and the officer appointed to manage it is accountable to the court appointing him, and to that court alone. No court of an independ- ent state jurisdiction can withdraw the property surrendered, nor deter- mine in any degree the manner of its disposition." "* And when the bankruptcy law cannot be properly administered by the court of bank- ruptcy, in consequence of the interference of a state court and its de- termination to adjiidicate upon the rights of parties and property in 8 Am. Bankr. Rep. 201 ; Mahoney v. 357 ; Hall v. Chicago, B. & Q. K. Co., 88 Ward, 100 Fed. 2T8, 3 Am. Bankr. Bep. Neb. 20, 128 N. W. 645 ; In re Ross, U 770. R. I. 427. A bankruptcy court having 10 8 Sandusky v. Bank, 23 Wall. 289, first acquired jurisdiction of the bank- 23 L. Ed. 155. ' rupt's estate by the filing of a petition in 108 In re Lemmon & Gale Co., 112 bankruptcy, such jurisdiction is exclu- Fed. 296, 50 C. C. A. 247, 7 Am. Bankr. sive of the right of a state court to Rep. 291. entertain jurisdiction of an action in det- 110 Orinoco Iron Co. v. Metzel, 230 Fedi inue by a claimant to recover property 40, 144 C. O. A. 338, 36 Am. Bankr. Bep. alleged to belong to the estate. Corbett 247 ; In re Barrow, 1 N. B. B. 481, Fed. v. Riddle, 209 Fed. 811, 126 C. C. A. 535, Oas. No. 1,057; Zeigler v. Shomo, 78 Pa. 31 Am. Bankr. Bep. 330. § 26 LAW OF BANKEUPTCX 60 the bankruptcy court, the latter ought not to hesitate to assert its au- thority; for in this matter they are not independent, but the federal court is the superior.^" It does not appear that the mere filing of a petition in bankruptcy is sufficient to withdraw from creditors and from the process of the state courts all the administrable property of the debtor. The statute pro- vides that the trustee shall be vested with title to the bankrupt's prop- erty "as of the date he was adjudged bankrupt." ^^* It is therefore the adjudication, and not the filing of a petition, which places the property in the custody or constructive possession of the bankruptcy court, and prevents the state courts from interfering with it. Hence a writ of re- plevin, issued from a state court and executed after the filing of a peti- tion in bankruptcy, but before the federal court takes any action there- on, draws the property into the custody and control of the state court, which may proceed and determine the replevin suit free from the inter- ference of the federal court.^^* But an adjudication of bankruptcy fixes the status of the bankrupt and brings both his person and his property under the jurisdiction and control of the bankruptcy court. Thereupon the property is to be considered as sequestrated and set apart for a spe- cific purpose and a specific course of administration. "Such property is then brought into the bankruptcy court in its entirety and under its protection as fully as if actually brought into the visible presence of the court. No other court, and no person acting under process; can, without the permission of the bankruptcy court, interfere with it, and so to interfere is a contempt." ^" Even in the case of a third person who claims that particular items of property are his, and not the bank- rupt's at all, a writ of replevin issuing from a state court is void process, and a seizure under it is unlawful and a contempt of the bankruptcy court, which bas authority summarily to order the restoration of the property. These principles are fully and completely established by the authorities in cases where the prppert)' in question, at the time of its 111 In re Miller, 6 Blss. 30, Fed. Gas. W. 878. But compare In re Iron Clad No. 9;551. Mfg. Co., 193 Fed. 781. See, also, Aus- 112 Bankruptcy Act 1898, § 70. And it tin v. Hayden, 171 Mich. 38, 137 N. W. has been held that b^ankruptcy proceed- 317; Texas Fidelity & Bonding Oo. v. ings in which there has been no adjudica- First State Bank of Ohanning (Tex. Civ. tion or appointment of a receiver do not App.) 149 S. W. 779. * deprive a state court of jurisdiction of m In re Cobb, 96 Fed. 821, 3 Am. a general creditors' bill. Morgan Bros. Bankr. Rep. 129. Property in the pos- V. Dayton Coal & Iron Co., 134 Tenn. session of the bankrupt's trustee cannot 228,' 183 S. W. 1019, Ann. Cas. 1917B, 42. be taken on replevin without the consent lis In re Wells, 114 Fed. 222, 8 Am. of the bankruptcy court. In re Brockton Bankr. Rep. 75; McFarlan Carriage Ideal Shoe Co. (D. C.) 212 Fed. 764, 32 Co. V. Wells, 99 Mo. App. 641, 74 S. Am. Bankr. Rep. 377. 61 COUETS OF BANKEUPTCY, THEIE JURISDICTION AND POWERS § 26 seizure, was in the actual or constructive possession of a receiver ap- pointed by the bankruptcy court or of the trustee in bankruptcy.^^^ And even in advance of the appointment of a receiver or trustee, if an adjudication has been made, and the court, through any of its officers, has made any motion towards taking possession of the property, its cus- tody cannot rightfully be interfered with under color of process from any other court. This was ruled in a case where the referee, to whom the case had been referred after the adjudication, ordered the store which contained- the bankrupt's stock of goods to be locked. It was considered that the property was then in the custody of the referee, as the representative of the court; and the action of a sheriff, armed with a writ of replevin from a state court, in breaking into the store and seizing the goods was held unlawful.'^'^^ Of course this does not mean that an adverse claimant in good faith must lose his property, or that he is without a remedy for its recovery. He has a simple and eflective remedy by petition to the court of bank- ruptcy.^" But it is to that court, and that alone, that he must apply. No state court can entertain his suit or petition. It has indeed been thought that such a claimant might maintain an action in a state court m.erely for the purpose of establishing his title to the property in ques- tion.^^* But its judgment could not be followed by any effective pro- cess; and even the right to maintain such an action is denied where its object (in addition to establishing title) is to restrain the trustee in bankruptcy from selling the property."® Thus, a state court may set aside a fraudulent conveyance in the trustee's suit therefor, but it can- not enter a personal judgment against the bankrupt, and it has no jurisdiction to order a sale of the property and an application of the proceeds on the bankrupt's debts. ^^^ The rule is not restricted to actions of replevin, but applies equally to any proceeding or process from a state court which would involve 115 White V. Schloerb, 178 TJ. S. 542, man Co. v. Murphy, 116 N. T. Supp. 506; 20 Sup. Ct. lOOT, 44 L. Ed. 1183, 4 Am. Crosby v. Spear, 98 Me. 542, 57 Atl. 881, Bankr. Rep. 178 ; Murphy v. John Hof- 99 Am. St. ' Rep. 424. man Co., 211 TJ. S. 562, 29 Sup. Ot. 154, no White v. Schloerb, 178 IF. S. 542, 53 L. Ed. 327, 21 Am. BanUr. Rep. 487'; 20 Sup. Ct. 1007, 44 L. Ed. 1183, 4 Am. Freeman v. Howe, 24 How. 450, 16 L. Ed. Bankr. Rep. 178. r^'^i.^oS \ ^°^^^^'J Ji\ ^f.'K ^o '" K«egan V. King, 96 Fed. 758, 3 Am. L. Ed. 257; In re Endl, 99 Fed. 915, 3 Bankr Rep 79 Am. Bankr. Rep. 813; In re Cobb, 96 ,,„!, ,' ' „„,, Fed. 821, 3 Am. Bankr. Rep. 129; Kee- , " «5™t'' Z' ^^ri ^^f/' ^'^' ^^ gan V. King, 96 Fed. 758, 3 Am. Bankr. ^"- ^Sl- 99 Am. St. Rep. 424. Rep. 79 ; In re Rosenberg, 3 Ben. 366, 3 "" Keegan v. King, 96 Fed. 758, 3 Am. N. B. R. 130, Fed. Oas. No. 12,055 ; Mis- Bankr. Rep. 79. hawaka Woolen Mfg. Co. v. Powell, 98 120 Douthat v. Roberts, 73 W. Va. 358, Mo. App. 580, 72 S. W. 723 ; John Hof- 80 S. E. 819. § 26 LAW OF BANKRUPTCY 62 taking property from the custody of the bankruptcy court or its officers, such as the writ of attachment,^*^ or execution, although it is said that a mere threat by a judgment creditor of a bankrupt to levy execution on his property, pending the bankruptcy proceedings, does not consti- tute a contempt of the court, of bankruptcy or its process, where there has been no actual levy made on such property, nor any interference with it by the creditor after the adjudication in bankruptcy.^** Neither is the rule restricted to property in specie, but it extends also to the proceeds of its sale. Thus, dividends declared by a bankrupt's trustee, while still in his possession and unpaid to the claimants, are in the cus- tody of the court, and cannot be reached by attachment, garnishment, or any other process from a state court.^** So also as to the status of the bankrupt. After the institution of proceedings in involuntary bank- ruptcy against a corporation, the proceedings cannot be stayed or af- fected by a decree entered in a state court dissolving the corporation.^** On the other hand, the bankruptcy court will not attempt to seize property which was lawfully in the custody of a state court at the time of the adjudication.^*® But where property of a bankrupt is held ad- versely to his estate under a claim of seizure under process from a state court, the court of bankruptcy has jurisdiction to inquire and determine, summarily, whether the adverse claim has an actual basis or is merely colorable; and if it decides that the seizitre was effected by an abuse of process it has power to order the surrender of the property by the person in possession to. its own receiver or the trustee in bankruptcy.^" It is no objection to the exercise of jurisdiction by a court of bank- ruptcy over specific property that it is already in course of administra- tion by a probate court of a state as in the case of a proceeding in bank- ruptcy against a firm where one of the partners is dead.**' And where a debtor has made an assignment for the benefit of his creditors and 121 French v. White, 78 Vt. 89, 62 Atl. stockholders of the right to institute pro- 35, 2 L. R. A. (N. S.) 804, 6 Ann. Cas. ceedings in bankruptcy. In re Dressier 479. Producing Corporation (C. C. A.) 262 122 In re McBryde, 99 Fed. 686, 3 Am. Fed. 257, 44 Am. Bankr. Rep. 457. ^"fin'^rTArSnaut Shoe Co., 187 Fed. 239^;^ lOielq A^'rTT ''p ^-.m' 784, 109 C. C. A. 632, 26 Am. Bankr. Rep. f Va LS'f ct'v.^lhS Sedi o^ 584; Gilbert y. Quimby, 1 Fed. Ill; 144 La. 919, 81 South 399 Cowart V. W. E. Caldwell Co., 134 Ga. ' ' *^''''- 544, 68 S. E. 500, 30 D. R. A. (N. S.) 720. ^^e in re Weinger, Bergman & Co. (D. 12* In re White Mountain Paper Co., ^-^ ^^ Fed.«75. 127 Fed. 180, 11 Am. Bankr. Rep. 491. i2 7 in re Pierce (D. C.) 102 Fed. 977, The institution by a stockholder of a 4 Am. Bankr. Rep. 489 ; E. R. Hawkins corporation of a suit for its dissolution & Co. v. Qulnette, 156 Mo. App. 153 136 In a state court does not deprive other S. W. 246. 63 COURTS OF BANKEUrTCY, THEIR JURISDICTION AND POWERS § 26 the assignee is proceeding under the orders or directions of a state court and the debtor is thereupon adjudged bankrupt, the assignee can- not retain the property and its custody, but must surrender the same to the trustee in bankruptcy on the order of the court of bankruptcy. This, it is said, is not a case of concurrent jurisdiction, where that court which first obtains possession of the estate is entitled to continue in its admin- istration, but the jurisdiction of the federal court in bankruptcy is para- mount to that of the state court and is exclusive.^** And the jurisdic- tion of the state court over the property of an insolvent corporation, assumed in a creditors' suit more than four months before the petition in bankruptcy does not deprive the bankruptcy court of jurisdiction on a petition filed within four months after the commission of the act of bankruptcy relied on.**' But a judgment of a state court of competent jurisdiction, regular and valid on its face, must be accorded full faith and credit, and can- not be assailed in the bankruptcy court, but the trustee and creditors must resort to the state court to test its validity.'** Thus, the validity of a decree of a state court, rendered in a suit by judgment credit6rs against their debtor and his assignee, setting aside the assignment as fraudulent and void, establishing the liens of the plaintiffs on the prop- erty, and ordering its sale, cannot be impeached by the debtor's trustee in bankruptcy, in a proceeding in the court of bankruptcy to obtain possession of the property and have it sold by the trustee, on the ground- of fraud and collusion between the parties to the suit in the state court, at least where the trustee had opportunity to intervene in that suit and there allege such fraud.-**^ Where particular property of a bankrupt is covered by a lien, not fraudulent or preferential, but valid and enforce- able notwithstanding his bankruptcy, a state court has concurreat ju- risdiction with the bankruptcy court to foreclose the lien and satisfy the debt. The trustee in bankruptcy may indeed elect and claim the right to sell the property, for the sake of saving for general creditors what- ever may remain out of its proceeds after satisfying the lien claim- ant. But if he does not take this course, he is considered as abandon- ing the property to the lienor, and there is then nothing to prevent a i2 8Lei(iigh Carriage Co. v. Stengel, 95 hontas Coal Co., 238 Fed. 488, 151 C. O. Fed. 637, 37 0. O. A. 210, 2 Am. Bankr. A. 424, 38 Am. Bankr. Sep. 118. Hep. 383; In re Scholtz, 106 Fed. 834, looin re Burns, 1 N. B. R. 174, Fed. 5 Am. Bankr. Rep. 782; In re Smith, 92 Cas. No. 2,182; In re Lodi Land & Lum- Fed. 135, 2 Am. Bankr. Rep. 9. And see ber Co., 5 Sawy. 286, Fed. Cas. No. 8,461. infra, Ch. XXI. isi Frazier v. Southern Loan & Trust 128 Graham Mfg. Co. v. Davy-Poca- Co., 99 Fed. 707, 3 Am. Bankr. Eep. 710. § 27 LAW OF BAXKRUI'TCY 64 State court from entertaining a foreclosure suit or other proper proceed- ing.^** § 27. Same; Effect of Appointment of Receiver by State Court — It is a well-settled general rule that, when property is seized and held under mesne or final process of either a state court or a court of the United States, it is in the custody of the law and within the ex- clusive jurisdiction of the court from which the process has issued, for the purposes of the writ, and the possession of the officer having it in custody cannot be disturbed by another court of co-ordinate ju- risdiction, or its officers, by attachment, levy of execution, replevin, or otherwise; and also that, as between a federal and a state court, when the one court has appointed a receiver of property and he has taken possession, the other court will not interfere with his custody and control of the property, by the appointment of another receiver or oth- erwise.^** But difficulty arises in the application of these rules when the contest for the possession of property is between a trustee in bank- ruptcy and a receiver appointed by a state court. In the first place, it is settled that although an insolvent corporation may be in the hands of a receiver appointed by a state ccTurt, or although such a court may have appointed a receiver to wind up the affairs of a partnership, or to foreclose a mortgage, this fact will not deprive the federal court of jurisdiction of proceedings in bankruptcy against the corporation or persons concerned, for any other rule would entirely defeat the opera- tion of the bankruptcy act.^** And indeed, since the amendment of 132 In re Zehner, 193 Fed. 787, 27 Am. Co. (D. C.) 253 Fed. 668, 42 Am. Bankr. Bankr. Rep. 536 ; In re Pennell, 159 Fed. Rep. 567 ; In re Yaryan Naval Stores 500, 18 Am. Bankr. Rep. 909 ; In re Vogt, Co., 214 Fed. 563, 131 C. C. A. 15, 32 Am. 163 Fed. 551, 20 Am. Bankr. Rep. 457; Baukr. Rep. 269; Bank of Andrews v. In re Kavanaugh, 99 Fed. 928, 3 Am. Gudger, 212 Fed. 49, 128 C. C. A. 505, 33 Bankr. Rep. 832. Proceedings in bank- Am. Bankr. Rep. 11 ; In re McKinnon ruptcy against a tenant are not a bar to Co. (D. C.) 237 Fed. 869, 38 Am. Bankr. an action in a state court by the landlord Rep. 727 ; Lea v. George M. West Co. against one who purchased property of 91 Fed. 237, 1 Am. Bankr. Rep. 261; In the tenant upon which the landlord had re C. Moench & Sons Co., 130 Fed. 685 a landlord's lien. Boles v. Missouri 66 C. C. A. 37, 12 Am. Bankr. Rep. 240; Valley Elevator Co., 183 Iowa, 517, 166 In re Sterlingworth Ry. Supply Co., 164 N. W. 1057. Fed. 591, 21 Am. Bankr. Rep. 341; Scheu- 13 8 Wallace v. McConnell, 13 Pet. 136, er v. Smith & Montgomery Book & Sta- 10 L. Ed. 95 ; Taylor v. Carryl, 20 How. tionery Co., 112 Fed. 407, 50 C. C. A. 312, 583, 15 li. Ed. 1028 ; Covell v. Heyman, 7 Am. Bankr. Rep. 384 ;' In re Kersten' 111 U. S. 176, 4 Sup. Ot. 355, 28 L. Ed. 110 Fed. 929, 6 Am. Bankr. Rep. 516 ;' .390; Penle v, Phipps, 14 How. 368, 14 L. In re Green Pond R. Co., 13 N. B R 118 Ed. 459; Porter v. Sabin, 149 U. S. 473, Fed. Cas. No. 5,786; In re Safe Deposit 13 Sup. Ct. 1008, 37 L. Ed. 815 ; Shields & Sav. Inst., 7 N. B. R. 392, Fed. Cas No V. Coleman, 157 U. S. 168, 15 Sup. Ot. 12,211; In re Washington Marine Ins 570, 39 L. Ed. 660. Co., 2 Ben. 292, Fed. Cas. No. 17,246 ; In 184 In re Grafton Gas & Electric Light re Merchants' Ins. Co., 3 Biss. 162, Fed. 65 COURTS OF BANKRUPTCY, THEIR JURISDICTION AND POWHES § 27 1903, the very fact of the appointment of a receiver "because of in- solvency" is an act of bankruptcy and the starting point for the juris- diction of the court of bankruptcy .^*^ Even though the state court should thus have acquired possession of all the assets which would be administrable in bankruptcy, still it cannot be said that an adjudica- tion in bankruptcy would be futile and-unnecessary. On this point it has been said: "In opposition to the adjudication, it has been very vigorously insisted in this court that the adjudication in bankruptcy should not be rendered because the state chancery court, through its receiver and under the judgment of dissolution, has taken possession of all the property of the corporation, and that by reason of the comity which does and- ought to prevail between courts of the states and courts of the United States, the adjudication in bankruptcy can result in no administration or other beneficial effect. For the purposes of this case we may concur with the learned counsel in his views on this matter of comitygkbut we are of opinion, notwithstanding, that the petitioning creditors have the right to have their insolvent debtor adjudged a bank- rupt, if for no other reason, still for the purpose of insisting upon the application of the provisions of the bankruptcy law annulling prefer- ences in certain cases." ^** It is clear, therefore, that there is nothing in the situation supposed which should prevent the making of an adjudication of bankruptcy. If an undoubted act of bankruptcy is made out, and a petition is filed by a sufficient number of- creditors having the requisite amount of prova- ble claims, it is their right to have the relief demanded. But if the case is doubtful, and specially if the commission of an act of bankruptcy can be made out only by implication or by straining the construction of the statute, the fact of an existing receivership in a state court, which promises to work out all the equities in the case and result in benefit to the creditors may well incline the federal court to refrain from tak- ing jurisdiction. This was the ground of the decision in a notable case in New York, where an insolvent corporation, engaged in the publish- ing business, had applied to a state court for a decree for its dissolution and the settlement of its affairs, and thereupon a receiver was appointed Cas. No. 9,441 ; In re National Life Ins. "s Bankruptcy Act 1898, § 3a, as Co., 6 Biss. 25, Fed. Cas. No. 10,046 ; In amended hy Act Cong. February 5, 1903, re Noonan,. 3 Blss. 491, 10 N. B. R. 330, 32 Stat. 797. Fed. Cas. No. 10,292; In re Ha thorn, 2 isa Scheuer v. Smith & Montgomery. Woods, 73, Fed. Cas. No. 6,214 ; Doyle- Book & Stationery Co., 112 Fed. 407, 50 Kidd Dry Goods Co. v. Sadler-Lusk Trad- C. C. A. 312, 7 Am. Bankr. Rep. 384; In ing Co., 206 Fed. 813, 30 Am. Bankr. Rep. re Maplecroft Mills (D. O.) 218 Fed. 659, 604. 33 Am. Bankr. Rep. 815. Blk.Bkb.(3d Ed.)— 5 § 27 LAW OF BANKRUPTCY 66 who took charge of the assets and entered upon the discharge of his duties.. Ninety per cent, of the creditors, representing more than three million dollars, approved of the proceedings as the best possible course for the benefit of the creditors in general. The interests involved were very large and the administration of the property required exceptional care and competency. No actual fraud was shown, and the federal court entertained serious doubts as to whether the act of the corpora- tion constituted an act of A)ankruptcy under the law as it then stood. For these reasons an adjudication of bankruptcy was refused.^" It should also be remarked that if the appointment of a receiver by the court of bankruptcy is asked for, to be m.ade at the same time with the adjudication, and the property is already in the possession of a receiver of a state court, notice of the application should be given to the latter.-'** In the next place, the authorities sustain the doctrine that a court of bankruptcy is not prevented from taking jurisdiction of a petition against a debtor, and taking possession of his estate for the, purpose of administration in bankruptcy, by the mere fact that proceeOTigs are already pending in a state court, in which a receiver has been asked for, if no appointment has yet been made, nor even by the appointment of a receiver by the state court, if he has not reduced the property in question to his possession nor taken any steps to do so.**' But the crucial question arises when a state court has appointed a receiver, — whether in proceedings supplementary to execution, or on a creditor's bill, or in a partnership or corporation case, or otherwise, — and he has obtained actual possession of the property committed to his charge, and thereafter the debtor is adjudged bankrupt, and a trustee in bank- 137 In re Harper & Brothers, 100 Fed. grantor, and the latter is afterwards ad- 266, 3 Am. Bankr. Rep. 804. And see, Judicated a bankrupt, the possession as a somewhat similar case, In re Hud- and administration of the property be- son River Electric Power Co., 173 Fed. longs to the court of bankruptcy, and the 934, 23 Am. Bankr. Rep. 191. receiver cannot retain the custody there- 138 Sidney L. Bauman Diamond Co. v. of as against that court. In re Brown, Hart, 192 Fed. 498, 113 C. C. A. 104, 27 91 Fed. 358, 1 Am. Bankr. Rep. 107. A Am. Bankr. Rep. 632. decree of bankruptcy overrides all rights 139 Brown V. Crawford (D. C.) 254 Fed. sought to be acquired by the appoint- 146, 42 Am. Bankr. Rep. 677; Southern ment of a receiver in a state court after Loan & Trust Co. v. Benbow, 96 Fed. 514, the filing of the petition in bankruptcy. 3 Am. Bankr. Rep. 9; In re Bruss-Rit- Smith v. Buchanan, 8 Blatchf. 153, 4 ter Co., 90 Fed. 651, 1 Am. Bankr. Rep. N. B. R. 397, Fed. Cas. No. 13,016. But 58; In re Nolan, 8 Ben. 559, Fed. Cas. No. contrary to the rule stated in the text, 10,289. Where creditors have brought see Frazier v. Southern Loan & Trust suit to set aside a fraudulent conveyance Co., 99 Fed. 707, 40 C. C. A. 76, 3 Am. of property, and procured the appoint- Bankr. Rep. 710, where it was held that ment of a receiver, who has obtaihed pos- the order of the state court appointing session of the property in question, but a receiver brought the property within in the meantime the fraudulent grantee the custody and control of that court, has voluntarily restored the title to the 67 COURTS OF BANKRUPTCY, THEIR JURISDICTION AND POWERS § 27 ruptcy or a receiver appointed. Is it within the jurisdiction of a court of bankruptcy to order the state court receiver to surrender the prop- erty in his hands to such trustee or receiver in bankruptcy? Very few cases have answered this question in the affirmative.^*** Certain other decisions have maintained that where the very act of bankruptcy al- leged is the appointment of a receiver by the state court, on the debtor's own application or "because of his insolvency," under the bankruptcy act as amended in 1903, the federal court should not be deterred from requiring the surrender of the entire estate by the receiver of the state court', since otherwise the purpose of Congress in adding the new act of bankruptcy to the existing list would be automatically defeated; that is, the appointment of a receiver would constitute an act of bank- ruptcy, but would at the same time prevent a court of bankruptcy from taking jurisdiction and administering the estate."^ But aside from these cases, it may be considered as definitely settled, by a great preponder- ance of authority, that where property of an estate in bankruptcy is in the actual custody and control of a state court of competent jurisdic- tion, through its receiver, its possession of the property will not be in- terfered with, nor its disposition of the same restrained, by any pro- cess from the court of bankruptcy."* Further, if property has been mo In re Diamond's Estate, 259 Fed. 70, 170 C. C. A. 138, 44 Am. Bankr. Rep. 268. In re J. W. Zeigler Co., 189 Fed. 259, 26 Am. Bankr. Rep. 761; In re Len- gert Wagon Co., 110 Fed. 927, 6 Am. Bankr. Rep. 535; In re Whipple, 6 Biss. 516, 13 N. B. R. 373, Fed. Cas. No. 17,512; Lea r. George M. West Co., 91 Fed. 237, 1 Am. Bankr. Rep. 261. In the case last cited it was held that, where a corpora- tion has made a general assignment for the benefit of its creditors, and a state court, on a bill in equity, has appointed the assignee as receiver to take charge of the assigned estate and wind up the affairs of the assignor, and the corpora- tion is afterwards adjudged bankrupt, jurisdiction to administer and distribute the entire estate belongs to the court of bankruptcy, to the exclusion of the state court, and the former court may enjoin all parties from further proceedings in the latter court. But this decision was based expressly on the ground that the assignment was an act of bankruptcy by the statute, and that the purpose of the bankruptcy law would be defeated if the assignment, the basis of the receiver's title, were allowed to stand, 141 Pugh V. Loisel, 219 Fed. 417, 135 C. C. A. 221, 33 Am. Bankr. Rep. 580. In re Knight, 125 Fed. 35, 11 Am. Bankr. Rep. 1; Hooks V. Aldridge, 145 Fed. 865, 76 C. C. A. 409, 16 Am. Bankr. Rep. 658. In the latter case, while the authority of the bankruptcy court in such a situation was strongly maintained, the court found it unnecessary to make a ruling as to the propriety of imperatively com- manding the surrender of the property by the receiver appointed by the state court, as the trustee and the receiver had mutually agreed to abide the deci- sion, as to who was entitled to the pos- session, and both courts had approved their agreement. 142 In re Williams (D. C.) 240 Fed. 788, 38 Am. Bankr. Rep. 762. In re Kavan- augh, 99 Fed. 928, 3 Am. Bankr. Rep. 832; Southern Loan & Trust Co. v. Ben- bow, 96 Fed. 514, 3 Am. Bankr. Rep. 9; In re Heckman, 140 Fed. 859, 72 0. 0. A. 8, 15 Am. B^nkr. Rep. 500; In re Bay City Irr. Co., 135 Fed. 850, 14 Am. Bankr. Rep. 370; Carling v. Seymour Lumber Co., 113 Fed. 483, 51 C. C. A. 1, 8 Am. Bankr. Rep. 29; In re Price, 92 Fed. 987, 1 Am. Bankr. Rep. 606; Alden § 27 LAW OP BANKEUPTCT 68 unlawfully taken from the custody of the receiver, the court of bank- ruptcy will not summarily order its sale by the trustee against the pro- test of the receiver,"* and it has .even been held that, if such a sale has been made, it will be set aside, at least as against one having notice of the illegality, and the purchase money ordered refunded."* It is evident, therefore, that if the court of bankruptcy cannot aid the trustee, when he finds the assets in the possession of a receiver, his claims must be made in the state court which appointed the re- ceiver. It is clearly open to the trustee to file his petition in the state court and ask for an order requiring the receiver to surrender tq him the property in his possession,"^ and this course is approved by the authorities. But the course which the state court will take is by no means certain. So far as can be judged from the earlier cases, the state courts were disposed to regard applications of this kind with extreme disfavor, and invariably refused them.-'*® More recent .cases, however, show a strong tendency to recognize the jurisdiction of the bankruptcy court as paramount, although, as a rule, they hold only that the state court "should" direct its receiver to yield up the property to the trustee in bankruptcy, or that it "may" do so, or that "it is not error" for the court to make such an order."'' But if the trustee has a legal right to V. Boston, H. & E. R. Co., 5 N. B. R. 230, Fed. Cas. No. 152; Goodrich v. Reming- ton, 6 Blatchf. 515, Fed. Cas. No. 5,546; Bradley v. Healey, Holmes, 451, Fed. Cas. No. 1,781; In re Clark, 4 Ben. 88, 3 N. B. R. 491, Fed. Cas. No. 2,798; Davis V. Railroad Co., 1 Woods, 661, 13 N. B. R. 258, Fed. Cas, No. 3,648; Sedgwick V. Menck, 6 Blatchf, 156, 1 N. B. R. 675, Fed. Cas. No. 12,616; Appleton v. Bowles, 2 Tliomp. & C. 568, 9 N. B. R. 354. 148 Frazier v. Southern Loan & Trust Co., 99 Fed. 707, 40 C. C. A. 76, 3 Am. Bankr. Rep. 710; In re Hulst, 7 Ben. 17, Fed. Cas. No. 6,863. But see Union Electric Co. v.. Hubbard, 242 Fed. 248, 155 C. C. A. 88, 39 Am. Bankr. Rep. 529. m Davis V. Railroad Co., 1 Woods, 661, 13 N. B. R. 258, Fed. Cas. No. 3,648. i*B In re Price, 92 Fed. 987, 1 Am. Bankr. Rep. 606; In re Lesser, 100 Fed. 433, 3 Am. Bankr. Rep. 815; McGahee V. Oruickshank, 133 6a. 649, 66 S. E. 776; Ex parte Waddell, Fed. Cas. No. 17,027; Loudon v. Blandford, 56 Ga. 150. But compare Southwell v. Church, 51 Tex. Civ. App. 547, 111 S. W. 969. i4» State V. Superior Court of King County, 28 Wash. 35, 68 Pac. 170, 92 Am. St. Rep. 826; Porter v. Cummings, 108 Ga. 797, 33 S. B. 986; Myer v. Crystal Lake Pickling Works, 14 N. B. R. 9 (decision by an inferior court in Illinois) ; Freeman v. Fort, 52 Ga. 371, 14 N. B. R. 46; Watson v. Citizens' Sav. Bank, 5 S. C. 159, 9 N. B. R. 458. And see Carr v. Hardeman & Phinizy, 144 Ga. 54, 86 S. E. 215; State v. Sage, 267 Mo. 493, 184 S. W. 984; Lambert v. Nattonal Hog Co., 263 Pa. 354, 106 Atl. 541. 147 Hanson v. Stephens, 116 Ga. 722, 42 S. B. 1028; McGahee V. Cruickshank, 133 Ga. 649, 66 S. B. 776; Davis v. Coe, 19 Ohio Cir. Ct. E. 639; I. Trager Co. v. Cavaroc Co., 123 La. 319, 48 South. 949; First Nat. Bank v. Zangwill, 61 Fla. 596, 54 South. 375; Bloch v. Bloch, 42 Misc. Rep. 278, 86 N. Y. Supp. 1047; Gay v. Ray, 195 Mass. 8, 80 N. E. 693; Mauran r. Crown Carpet Lining Co., 23 R. I. 324, 50 Atl. 331. And see Carter-MuUaly Transfer Co. v. Robertson (Tex. Civ. App.) 198 S. W. 791; Lambert v. Na- tional Hog Co., 72 Pa. Super. Ct. 378. But an order b^ the state court for the delivery, to the receiver in bafakruptcy of the defendant corporation, of posses- sion of land, the title to which was in 69 COURTS OP BANKRUPTCY, THEIR JURISDICTION AND POWERS § 27 the property (as, where the title of the receiver is impeachable under the bankruptcy act) and this right is not regarded by the state court, he has a remedy by carrying the case to the highest court of the state, and thence to the Supreme Court of the United States."* On the other hand, resistance by the state court and its officers to the jurisdiction of the court of bankruptcy may sometimes be proper. Thus, the state court may make an order directing its receiver to ap- pear in the bankruptcy proceedings and oppose the adjudication of the defendant, and this is not a surrender by the state court to the bank- ruptcy court of its jurisdiction of the property.""' So, where the offi- cers and directors of a corporation filed a voluntary petition in bank- ruptcy for it, but this was in violation of the orders of a state court which had already appointed a receiver,, but the referee in bankruptcy appointed a receiver on the petition, it was held that the receiver of the state court should be directed to apply to the judge of the federal court to vacate the order appointing the receiver.^**' And so, where a re- ceiver appointed by a state court has voluntarily surrendered property to the receiver in bankruptcy, either through a mistake as to hi_s rights in the matter or in pursuance of an order of the court which appointed him, but which order is afterwards revoked or overruled, he may be directed to apply to the bankruptcy court for restoration of the prop- erty,^®'^ though it seems that such an application may properly be de- nied by the court of bankruptcy.^®^ If the state court decides to yield to the jurisdiction of the court of bankruptcy and surrender the assets, its course is then to settle its re- ceiver's accounts, order the transfer of the assets, and close its con- nection with the matter.^^* But there is an unsettled question as to the payment of the receiver's compensation arid the other expenses. Some of the decisions maintain that it is in the rightful authority of the state court to deduct from the assets to be surrendered a sum sufficient to cover the commissions or fees of its receiver and the other expenses issue in an Insolvency action brought ber Co., 90 N. J. E,, i..,- ^ f.oo 351. Some cases go so far sMto hold F.r4°/.^ Tr a'%4 T R^^Q18A '''^' '"^^ ™^« ^^''^I'l '^PP^y eX Where «a i 'a « ; 1, ^' ^fio ' *^ "«° *« dissolved by the adjudication 589, 38 Am. Bankr. Rep. 189. j^. bankruptcy. See Johnson v. Bishop, 164 Marshall v. Knox, 16 Wall. 551, 21 Woolw. 324, 8 N. B. R. 533, Fed. Cas. No. L. Ed. 481; Townsend v. Leonard, 3 Dill. 7,373. But compare the cases cited in 370, Fed. Cas. No. 14,117; _Goddard v. the next note. § 28 I-AW OF BANKRUPTCY 74 pendent tribunal, why he should" not be required, like any other cus- todian, to surrender it to the person having a paramount right to it. Therefore, if an action is begun in a state court and a writ issued and levied on property of an insolvent debtor, within four months before the institution of proceedings in bankruptcy against him, the trustee is entitled to recover possession of such property from the sheriff holding the same under the levy; and the court of bankruptcy has jurisdiction to order the surrender of the property on a petition by *he trustee.^** But the section above referred to applies only to goods which are ac- tually the property of the bankrupt. It does not profess to vest in the trustee title to any property which was in the hands of the bankrupt at the time of the adjudication, but to which a third person had a para- mount right, as, for instance, property sold to the bankrupt under an uncompleted conditional sale reserving title in the vendor, or property which the bankrupt had procured by fraud and false representations. Hence if the claimant of such property has procured its seizure on a writ of replevin or in an action of claim and delivery, and it remains in the hands of the sheriff, the court of bankruptcy has no jurisdiction to compel him, by a summary order, to deliver it to a receiver or trustee in bankruptcy.^** The same principles apply where the sheriff has sold the property under his writ, but still has the proceeds in hand at the time the trus- tee in bankruptcy demands them. Although the Bankruptcy Act (§ 67f) provides that the title of a bona fide purchaser at the sheriff's sale, without notice, shall not be impaired or destroyed, this does not affect the disposition of the money paid by him and remaining in the hands of the officer ; and it is held that this fund does not belong to the cred- itor suing out the writ, if the lien was dissolved by the adjudication in bankruptcy, but to the estate of the bankrupt, and may be recovered by the trustee.^*' There is, however, some difference of opinion as to 'i6Din re Francis- Valeirtine Co., 94 receiver will not be ordered to restore Fed. 793, 36 C. C. A. 499, 2 Am. Bankr. the possession to the sheriff. Covington Rep. 522; In re Fellerath, 95 Fed. 121, 2 v. Barber, 147 Ga. 804, 95 S. E. 705. Am. Bankr. Rep. 40; In re Richards, 95 loe in re L. Rudnick & Co., 160 Fed. Fed. 258, 2 Am. Bankr. Rep. 518; In re 903, 88 C. C. A. 85, 20 Am. Bankr. Rep. Francis-Valentine Co., 93 Fed. 953, 2 Am. 33 ; Rock Island Plow Co. v. Western Bankr. Rep. .188; In re Schnepf, 2 Ben. Implement Co., 21 N. D. 608, 132 N. W. 72, 1 N. B. R. 190, Fed. Cas, No. 12,471; 351. GoodnoAh Mercantile Co. v. Galloway, lo'In re Kenney, 95 Fed. 427, 2 Am. 48 Or. s9, 84 Pac. 1049; Lindner v. Bankr. Rep. 494, same case on rehearing. Brock, 40 Mich. 618. Where a sheriff 97 Fed. 5.'>4, 3 Am. Bankr. Rep. 353; In levied a distress warrant and took pos- re Richards, 95 Fed. 258, 2 Am. Bankr. session of goods, and with consent of Rep. 518; In re Fellerath, 95 Fed. 121, 2 plaintiff's attorney delivered them to the Am. Bankr. Rep. 40; In re Franks, 95 receiver of the defendant bankrupt, who Fed. 635, 2 Am. Bankr. Rep. 634. had been directed to take possession, the • 75 COUKTS OF BANKKUPTC^, THEIR JURISDICTION AND POWERS § 29 the method in which the trustee should proceed to claim the fund. Certain cases hold that if the sale was made before the commencement lOf the bankruptcy proceedings, the proceeds, remaining in the hands of the sheriff, are beyond the jurisdiction of the court of bankruptcy, and that it has no power to enjoin him from paying over the fund to the creditor ; also that the sheriff cannot be ordered to pay over the money to the trustee on a summary petition in the court of bankruptcy, but that the trustee must apply for such an order to the state court from which the writ issued, and if refused there, his remedy is to sue the sher- iff for money had and received.^** But these decisions are contrary to the weight of authority. The majority of the cases hold that, since the officer holds the proceeds of a sale merely in the place of the goods sold, and holds either the goods or the money as a mere custodian for the bankrupt, to whose estate they belong, and not by an independent and adverse title, there is no necessity for resorting to plenary proceedings for their recovery, but the same may be ordered by the court of bank- ruptcy upon the summary petition of the trustee.*®** The pendency of proceedings in bankruptcy, unknown to any of the parties concerned or to the court, does not prevent a territorial court having the custody of perishable property through its receiver appointed under an attachment levied before the petition in bankruptcy was filed, from ordering a sale thereof, on finding that (in the words of the local statute) "the interests of both plaintiff and defendant will be promoted by the sale," but such sale is valid and the claim of the trustee in bank- ruptcy is transferred to the proceeds."" § 29. Power to Enjoin Proceedings in State Courts.^The federal statutes provide that "the writ of injunction shall not be granted by any court of the United States to stay proceedings in any court of a state, except in cases where such injunction may be authorized by any law relating to proceedings in bankruptcy." *'* The present bankruptcy act directs that "a suit which is founded upon a claim from which a discharge would be a release, and which is pending against a person at the time of the filing of a petition against him, shall be stayed until after an adjudication or the dismissal Of the petition; if such person is ad- judgec0a bankrupt, such action may be further stayed until twelve 16 8 In re Easley, 93 Fed. 419, 1 Am. Valentine Co.,, 94 Fed. 793, 36 C. 0. A. Bankr. Rep. 715; In re Franks, 95 Fed. 499, 2 Am. Bankr. Kep. 522 ; Mills V. Da- 635, 2 Am. Bankr. Eep. 634; People v. vis,. 3 Jones & S. (N. Y.) 355. Brennan, 3 Hun (N. Y.) 666, 12 N. B. R. I'o Jones v. Springer, 226 U. S. 148, 567. 33 Sup. Ct; 64, 57 L. Ed. 161, 29 Am. 169 In re Kenney, 97 Fed. 554, 3 Am. Bankr. Rep. 204. Bankr. Bep. 353; In re Fellerath, 95 Fed. i7i Rev. Stat. U. S. § 720; Federal Ju- 121, 2 Am. Bankr. Rej>. 40; In re Francis- dicial Code 1911, § 265. § 29 LAW OF BANKRUPTCY 76 months after the date of such adjudication, or if, within that time, such person applies for a discharge, then until the question of such dis- charge is determined." ^"^ Moreover, the courts of bankruptcy are au- thorized to "make such orders, issue such process, and enter such judg- ments, in addition to those specifically provided for, as may be necessary for the enforcement of the provisions of this act." "* These statutory provisions amply support the jurisdiction of a court of bankruptcy to stay or suspend all proceedings in the state courts, founded on claims of the character mentioned (or, without reference to the nature of the claim, where the object of the proceeding is to withdraw from the custody and administration of the bankruptcy court any part of the assets of the bankrupt), either then pending or thereafter commenced by any creditor or any person having an adverse interest, to enforce his rights, or to obtain redress against the bankrupt or his assets after the bankruptcy, — not, indeed, by acting on the courts, over which it possesses no authority, but by acting on the parties through the in- strumentality of an injunction or restraining order, upon due applica- tion made by the bankrupt or his trustee, and a proper case being laid before the court for such interference.-*^'* Thus, for instance, where proceedings supplementary to execution against the bankrupt, in a state court, begun within four months before the commencement of pro- ceedings in bankruptcy, are pending at the time of the adjudication therein, the court of bankruptcy will, by injunction, stay all further pro- ceedings in the action in the state court.-"® A court of bankruptcy has jurisdiction to stay the prosecution of an action against the bankrupt in a state court, on a debt from which his discharge would be a release, pending the determination of the question of his discharge, although the action was begun after the filing of the petition. Although the act of Congress explicitly authorizes such a stay only in cases where the action is "pending at the time of the filing 172 Bankruptcy Act 1898, § 11. Bankr. Rep. 479; In re Jackson, 9 Fed. 17 3 Bankruptcy Act 1898, § 2, clause 15. 493; In re Lady Bryan Min. Co., 6 N. 174 Ex parte Christy, 3 How. 292, 11 B. R. 252, Fed. Cas. No. 7,980; In re L. Ed. 603; Roger v. J. B. Levert Co., Atkinson, 3 Pittsb. 423, 7 N. B. R. 143, 237 Fed. 737, 150 C. C- A. 491; Blake v. Fed. Cas. No. 606; In re Citizens' Sav. Francis-Valentine Co., 89 Fed. 691, 1 Am. Bank, 9 N. B. R. 152, Fed. CaA No. 2,- Bankr. Rep. 372; Penny v. Taylor, 10 N. 735; In re Duryea, 17 N. B. R. 495, Fed B. R. 200, Fed. Oas. No. 10,957; In re Cas. No. 4,196; Samson v. Burton, 5 Ben Mallory, 1 Sawy. 88, 6 N. B. R. 22, Fed. 343, 5 N. B. R. 459, Fed. Cas. No. 12,286: Cas. No. 8,991; Piatt v. Archer, 9 Fowler v. Dillon, 1 Hughes, 232, 12 N Blatchf. 559, 6 N. B. R. 465, Fed. Cas. B. R. 308, Fed. Cas. No. 5,000; More No. 11,213; In re Schwartz, 14 Fed. 787; house v. Giant Powder Co., 206 Fed. 24 Southern Loan & Trust Co. v. Benbow, i75 In re Kletchka, 92 Fed. 901, 1 Am 96 Fed. 514, 3 Am. Bankr. Rep. 9; In re Bankr. Rep. 479; In re Cefola (D. C.) 222 Kimball, 97 Fed. 29, 3 Am. Bankr. Rep. Fed. 171. 161; In re Kletchka, 92 Fed. 901, 1 Am. 77 COURTS OF BANKRUPTCY, TI-IBIR JURISDICTION AND POWERS § 29 of the petition," yet the power to stay suits thereafter commenced is essential to the due administration of the law, and its exercise is justi- fied by the consideration that the creditor could gain no lawful or prop- er advantage by being allowed to prosecute such a suit to judgment.^''* Nor is the power to stay pending suits confined to such as are in form against the bankrvipt himself. It may be exercised in proper cases where the right of the bankrupt to certain property is involved in a suit pending in a state court between two parties who are not parties to the proceedings in bankruptcy, at least where the trustee cannot ob- tain leave to intervene in such suit."' When it is desired to obtain an injunction from the court of bank- ruptcy to restrain creditors from levying execution on property of the estate or otherwise interfering with it, or from proceeding against the bankrupt in the state court, it is not necessary that resort should be had to the formal and plenary proceedings common to suits in equity in the federal courts. A petition stating the facts and praying for the order or relief sought for will be sufHcient. Nor need notice be given of the application for an injunction unless directed by the court. For similar reasons, any party who desires to obtain the dissolution of an injunction so granted may apply therefor by motion."* But the power to enjoin pending suits should be exercised circumspectly, and only where it appears to be necessary for the conservation of the rights of parties in interest. In a case where a petition in involuntary, bank- ruptcy charged that certain creditors of the alleged bankrupt had gained ^ an unlawful preference by attachments on his property, and had pro- cured the appointment of a receiver by a state court, who had sold the property and held the proceeds, and prayed for an injunction against such creditors and the receiver, forbidding them to take proceedings in the state court for the distribution of the fund so held, but it was not shown that such creditors were insolvent, or that, for any other reason, a suit against them by the trustee in bankruptcy, -subsequently to be appointed, would not be an adequate remedy for the avoidance of the 176 In re Basch, 97 Fed. 761, 3 Am. bankruptcy court, is not ani "appear- Bankr. Rep. 235. ance." But such injunctions may be 17 7 "Wilkinson v. Barnard, 9 Ben. 249, issued against one wtio has been permit- Fed. Cas. No. 17, 669. A party who was ted, on his own motion, to intervene in denied leave to intervene in a bank- the bankruptcy proceedings. In re Ohio ruptcy proceedings but who on various Copper Mining Co. (D. C.) 241 Fed. 711, occasions addressed the court, did not 39 Am. Bankr. Rep. 284. thereby become a "party" so as to au- I's in re Wallace, Deady, 433, 2 N. B. thorize the bankruptcy court to restrain E. 134, Fed. Cas. No. 17,094 ; Ex parte him from taking proceedings affecting Carlton, 5 Law Rep. 120, Fed. Cas. No. the orders or decrees of the bankruptcy 2,415. Compare In re Oglea, 93 Fed. court in other courts, since the casual 426, 1 Am. Bankr. Rep. 671. presence of a litigant or attorney in the § 29 , LAW OF BANKRUPTCY 78 alleged preference and the recovery of its fruits, it was intimated that the injunction should be refused and the parties left to work out their rights through the trustee when appointed."* But the power to stay actions against the bankrupt, by injunction, is vested only in that court in 'which the proceedings in bankruptcy are pending. A federal district court cannot enjoin proceedings in a state court on the ground that proceedings in bankruptcy are pending in some other court of bankruptcy.^*** Moreover, this species of control over the state courts can be exercised only in connection with some proceeding in bankruptcy and in aid thereof. Thus, where a petition in bankruptcy was filed against a defendant, and an injunction was issued to restrain a plaintiff from prosecuting a garnishment action against him in a state court, but no adjudication of bankruptcy was made and the pro- ceedings for that purpose were abandoned, it was thereafter held that the injunction was not a bar to the action in the state court.*** It should also be remarked that the court of bankruptcy has ample authority to protect the estate of the bankrupt and keep it together, after the filing of the petition and pending the appointment of a trustee, or until the latter has opportunity to take possession, by enjoining all persons from attempting to get possession of particular assets by levy of execution or attachment, or from selling the property under such writs already levied.*** § 30. Rules of Practice. — The thirtieth section of the Bankruptcy Act of 1898 provides that "all necessary rules, forms, and orders as to procedure and for carrying this act into force and effect shall be pre- scribed; and may be amended from time to time, by the Supreme Court of the United States." That court has performed the duty thus im- posed upon it, and promulgated a series of thirty-eight "General Orders in Bankruptcy." These orders, being ordained by the Supreme Court in pursuance of an express grant of authority, are of binding force. They may be amended, in its discretion, by the same court which enacted them, or they might be superseded, in any particular, by a legislative amendment of the statute itself. But so long as they remain in force, they possess exactly the same imperative and binding effect as if in- corporated in the statute, provided, of course, that there is no conflict between the statute and the rule. In case of disagreement or incon- "8 In re Ogles, 93 Fed. 426, 1 Am. 2 Ben. 493, 2 N. B. R. 3, Fed. Cas. No. Bankr. Rep. 671. 6,529. 180 In re Richardson, 2 Ben. 517, 2 N. isi Beekman Lumber Co. v. Acme B. R. 202, Fed. Cas. No. 11,774; Mark- Harvester Co., 215 Mo. 221, 114 S. W son V. Heaney, 1 Dill. 497, 4 N. B. R. 1087. 510, Fed. Cas. No. 9,098; In re Hirsch, 1 82 See Infra, §§ 204r-206. 79 COURTS OP BAXKKtirTCY, THEIR JURISDICTION AND POWERS § 30 sistency, the act of Congress must prevail and the general order give way.^** As to the authority of the courts of bankruptcy to adopt rules of practice for bankruptcy proceedings, it has been said that a district court has no power to make general rules in bankruptcy, such power being vested by the act in the Supreme Court alone. ^** But Rev. Stat. U. S. § 918, provides that "the several circuit and district . courts may from time to time, and in any manner not inconsistent, with any law of the United States, or with any rule prescribed by the Supreme Court, make rules and orders directing the returning of writs and processes, the filing of pleadings, the taking of rules, the entering and making up of judgments by default, and other matters in vacation, and otherwise regulate their own practice as may be necessary or convenient for the advancement of justice, and the prevention of delays in proceedings." This would undoubtedly confer upon the district courts authority to make general rules of practice in bankruptcy, — general, in the sense of being applicable to all Cases in bankruptcy instituted in such courts, — subject of course to the general orders prescribed by the Supreme Court and not inconsistent with any provision of the act itself. And indica- tions of such an authority are not wanting in the act. Thus, section 38 declares that the referees in bankruptcy are to perform such duties as shall be prescribed "by rules or orders of the courts of bankruptcy of their respective districts." It is the evident intention of this section that the district courts should regulate the jurisdiction and duties of referees, in so far as the same are left undefined by the act itself and by the general orders.**^ As to the forms in bankruptcy promulgated by the Supreme Court with the direction that "the several forms annexed to these orders shall be observed and used, with such alterations as may be necessary to suit, the circumstances of any particular case," "* they are commended 183 Sabin v. Blake-McFall Co., 223 is 5 Under the Act of 1867, it was Fed. 501, 139 C. C. .A. 49, 35 Am. held that the proceedings in bankrupt- Bankr. Rep. 179; In re Jaffe (D. C.) cy, when not controlled by the statute 272 Fed. 899, 46 Am. Bankr. Rep. 714; and the rules of the Supreme Court, In re Baker (D. O.) 96 Fed. 954, 3 Am. must be prescribed by the district Bankr. Rep. 101 ; In re Gerber, 186 Fed. courts sitting in bankruptcy. In re 693, 108 O. C. A. 511, 26 Am. Bankr. Rep. Kerosene Oil Co., 3 Ben. 35, Fed. Cas. 608. In bankruptcy cases the proceed- No. 7,725. A rule of court fixing the ings are governed by the equity rules, fees in case of reference to the referee except where prescribed by the statute. as a special master cannot be changed In re Fosgate (D. C.) 268 Fed, 985, 45 nunc pro tunc after reference so as to Am. Bankr. Rep. 596. But compare In allow him greater fees. In re Growe re Hughes (C. C. A.) 262 Fed. 500. Const. Co. (D. 0.) 253 Fed. 981, 42 Am. 184 In re Kennedy. 7 N. B. R. .337, Bankr. Rep. 654. Fed. Cas. No. 7.600. iso General Order No. 38. § 31 LAW OF BANKRUPTCY 80 for their simplicity, and it is said that they should be followed, and that there should be no unnecessary departures from them by falling into a habit of using the more costly, prolix, and less suitable forms of spe- cial pleadings and procedure used ih chancery cases.^*' When a rule made by a district court in bankruptcy is found to be in conflict with one of these official forms, the rule is void and must give way.^** § 31. Practice in Bankruptcy .^It is directed that "in proceedings in equity, instituted for the purpose of carrying into effect the provi- sions of the act, or for enforcing the rights and remedies given by it, the rules of equity practice established by the Supreme Court of the United States shall be followed as nearly as may be. In proceedings at law, instituted for the same purpose, the practice and procedure in cases at law shall be followed as nearly as may be. But the judge may, by special order, in any case, vary the time allowed for return of process, for appearance and pleading, and for' taking testimony and publication, and may otherwise modify the rules for the preparation of any particular case so as to facilitate a speedy hearing." '** "A review of the bank- ruptcy law as a whole, and of the general orders promulgated under and in pursuance of it, and to carry its provisions into effect, will show that, ample as are the powers vested in the courts and in the judges who are to administer it, these powers are to be exercised, so far as may be, and when no special provision is otherwise made, in accordance with settled and well-known forms of judicial procedure." "" But state laws regulating practice have no reference to proceedings in bankruptcy and cannot control them.^^^ The proceeding in bankruptcy, it is said, is equivalent to a general creditors' bill in chancery, and is a plenary pro- ceeding, its practice being prescribed by the statute, and to that extent variant from the chancery practice obtaining in creditors' bills. So far as not varied by statute, the practice should be the same. The collat- eral proceedings incident to and arising in the course of a bankruptcy proceeding, in the form of petitions and motions nisi, against persons already parties to the bankruptcy proceeding, are of the same character as like collateral proceedings incident to and arising in a creditor's bill 187 w. A. Gage & Co. v. Bell, 124 Fed. risdiction of a bankruptcy court to grant 371, 10 Am. Bankr. Kep. 696. an injunction on motion to vacate is not 188 In re Johnson, 158 Fed. 342, 19 Am. affected by the fact that an earlier re- Bankr. Rep. 814. straining order was made without no- ise General Order No. 37. tice. Orinoco Iron Co. v. Metzel, 230 in» In re Hunt, 2 N. B. R. 539, Fed. Fed. 40, 144 O. C. A. 338, 36 Am. Bankr. Cas. No. 6,881. See Fitts v. Custer Slide Rep. 247. Mining & Development Co. (C. C. A.) 266 i»i In re Baudouine, 96 Fed. 536, 3 Fed. 864, 46 Am. Bankr. Rep. 101. Ju- Am. Bankr. Rep. 55. 81 COURTS OF BANKEUPTCY, THEIR JURISDICTION AND POWERS § 32 in chancery, and are summary only where they would be so in a cred- itor's bill, except where allowed by the statute."" Also it is provided that the statutory jurisdiction of the courts of bankruptcy may be exer- cised "in vacation in chambers and during their respective terms." The effect of this clause is that there are no separate "terms" of a court of bankruptcy, and consequently the general rule that a court has no power to set aside or modify its judgments or decrees after the term at which they were rendered does not apply to orders and decrees in a bankruptcy proceeding."^ On the contrary the courts of bankruptcy are always open for the transaction of bankruptcy business, and may at any time hear petitions and motions in bankruptcy proceedings proper. In fact, a proceeding in bankruptcy, from the filing of the peti- tion until the final settlement of the estate, is but one suit; and the dis- trict court, for all purposes of its bankruptcy jurisdiction, is always open. Therefore proceedings in any pending suit are at all times open for re-examination upon proper application being made, and any order made in the progress of a cause may be subsequently set aside or modi- fied upon cause shown, provided rights have not become vested under it which would be disturbed by such action."* For the same reason, it is not necessary for the clerk of a district court to make an entry showing the opening and closing of the court on days when he enters proceedings in bankruptcy cases."® § 32. Powers and Authority of Judge. — It is provided by the bank- ruptcy act that the word "judge," as used in the statute, "shall mean a judge of a court of bankruptcy, not including the referee." "" And va- rious specific duties are imposed by the act upon the judge, exclusive of the referee, such as appointing referees, making adjudications or dis- missing petitions therefor, and hearing applications for discharge. And it has been held that where there are two judges in the same district, either may hold a court of bankruptcy and perform all the duties there- of, at the same place or a different place within the district, while the other judge is also holding a coitrt of bankruptcy.^®' But the new Judi- 192 In re Anderson, 23 Fed. 482. Fed. Oas. No. 1,708; In re Peabody, 16 193 In re Burr Mfg. & Supply Co., 217 N. B. B. 243, Fed. Cas. No. 10,886. And Fed. 16, 133 C. C. A. 126 ; In re Boches- see Hume v. Myers, 242 Fed. 827, 155 ter Sanitarium & Baths Co., 222 Fed. C. C. A. 415, 39 Am. Bankr. Eep. 401. 22, 137 O. C. A. 560, 34 Am. Bankr. Eep. iss Keatley v. United States, 45 Ct. 355; In re Barker Piano Co., 233 Fed. CI. 36. 522, 147 C. C. A. 408, 37 Am. Bankr. Eep. is a Bankruptcy Act 1898, § 1, clause 16. 271. 107 Ex parte Steele, 162 Fed. 694, 20 19* Sandusky v. First Nat. Bank, 23 Am. Bankr. Eep. 575. But compare Ex Wall. 289, 12 N. B. E. 176, 23 L. Ed. 155 ; parte Steele, 161 Fed. 886, 20 Am. Bankr. Boutwell V. AUderdice, 2 Hughes, 121, Eep. 446. Blk.Bkb.(3d Ed.)— 6 § 32 LAW OF BANKRUPTCY 82 cial Code provides (§ 23) that, "in districts having more than one. dis- trict judge, the judges may agree upon the division of business and as- signment of cases for trial in said district; but in case they do not so agree, the senior circuit judge of the circuit in which the district lies shall make all necessary orders for the division of business and the as- signment of cases for trial in said district." A judge who was a creditor of the bankrupt at the time of his fail- ure, but who has since sold and assigned his claim, and has taken no part in the proceedings other than to prove such claim, is not thereby disqualified from sitting in the bankruptcy case, although the motive on the part of the purchaser of the claim may have been to remove the dis- qualification and enable the particular judge to act.^^* § 33. Priority of Petitions and Transfer of Causes. — 'If two or more petitions in involuntary bankruptcy are filed against the same debtor in the same court of bankruptcy, and he appears and defends against them, that petition is to be first tried which alleges the commission of the earliest act of bankruptcy. If the several acts of bankruptcy are alleged in the different petitions to have been committed on the same day, the petitions may be consolidated. If an adjudication is made on either pe- tition, it shall not be necessary to proceed to a hearing upon the remain- ing petitions, unless proceedings are taken by the debtor for the pur- pose of causing the adjudication to be annulled or vacated. "^^^ A similar rule obtains in the case of two or more voluntary petitions by the same debtor. If a bankrupt files two petitions setting forth the same debts, arid the first is still pending, proceedings under the second will be stayed.^*" The Act of Congress also provides that, if two or more invol- untary petitions are filed against the same debtor (or against different members of a partnership) in different courts of bankruptcy, each of which has jurisdiction, "the cases shall be transferred by order of the courts relinquishing jurisdiction, to and be consolidated by the one of such courts which can proceed with the same for the grccitest con- venience of parties in interest." ^"^ And another clause gives to the courts of bankruptcy jurisdiction to "transfer cases to other courts of bankruptcy." ^"^ The general order framed by the Supreme Court for carrying these provisions into effect directs that, "in case two or* more petitions. shall be filed against the same individual in different dis- 108 In re Sime, 2 Sawy. 320, 7 N. B. R. 200 In re Wielarski, 4 Ben. 468, 4 N. B. 40r, Fed. Cas. No. 12,860. R. 390, Fed. Oas. No. 17,619. 109 General Order in Bankruptcy, ,201 Bankruptcy Act 1898, § 32. No. 7. =»= Bankruptcy Act 1898, § 2, clause 19. 83 COURTS OF BANKRUPTCY, THEIR JURISDICTION AND POWERS § 33 tricts, the first hearing shall be. had in the district in which the debtor has his domicile * * * and in case of two or more petitions against the same partnership in different courts, each having jurisdiction over the case, the petition first filed shall be first heard * * * ^nd in either case the proceedings upon the other petition may be stayed until an adjudication is made upon the petition first heard; and the court which makes the first adjudication of bankruptcy shall retain jurisdic- tion over all proceedings therein until the same shall be closed. * * * But the court so retaining jurisdiction shall', if satisfied that it is for the greatest convenience of parties in interest that another of said courts should proceed with the cases, order them to be transferred to th^t court." ^"^ Although both the statute and the general order speak of petitions filed "against" the same debtor, thus implying that they relate only to compulsory proceedings, yet it is held, by analogy, that the pro- visions just quoted are equally applicable to a case where an involuntary petition is presented in pne district and the debtor's own voluntary peti- tion in another.*** Under the act of 1867, it was generally held that, where petitions for adjudication were filed in two or more district courts, each having jurisdiction, the court in which the petition is first filed ought to be accorded exclusive jurisdiction over the case.'*® And some of the decisions under the present statute rule that priority of jurisdiction is determined by the date of the filing of the petition, rath- er than by the date of the adjudication.*** But it will be observed that the general order apparently restricts this rule to petitions against a partnership, and directs that, in the case of an individual, the first hear- ing shall be had in the district where the debtor has his domicile, with- out regard to actual priority as between the petitions. As to the provision of the general order that jurisdiction shall be retained by the court which makes the "first adjudication," the adjudi- cation referred to must have been made in accordance with the other provision of the order as to the place of first hearing. Hence creditors, by filing a second petition against an individual in another district, and obtaining a first hearing and adjudication thereon, cannot thereby oust the jurisdiction of the court in the district of the bankrupt's domicile, 203 General Order in Bankruptcy, No. Brown, 19 N. B. R. 270, Fed. Gas. No. 6. See Fogarty v. Gerrity, 1 Sawy. 233, 1,982. 4 N. B. B.. 450, Fed. Gas. No. 4,895. 206 in re Elmira Stefel Co., 109 Fed. 20* In re Waxelbaum, 98 Fed. 589, 3 456, 5 Am. Bankr. Rep. 484; In re Ty- Am. Bankr. Rep. 392. bo Mining & Reduction Co., 132 Fed. 697, 205 In re Boston, H. & E. R. Co., 9 13 Am. Bankr. Rep. 62; In re Conti- Blatchf. 409, 6 N. B. R. 222, Fed. Cas. nental Coal Corp;, 238 Fed. 113, 151 C. C. No. 1,678 ; In re Leland, 5 Ben. 168, 5 N. A. 189, 38 Am. Bankr. Rep. 168. B. R. 222, Fed. ,Cas. No. 8,228; In re § 33 LAW OF BANKRUPTCY 84 in which a petition had been first filed by other creditors.**'' Where two petitions have been filed against the same person, one in the district in which he has resided for the greater portion of the preceding six months, and the other in a district to which he has recently removed and established his residence there, the former is the "district of his domicile," within the meaning of the general order.^** It is also held that the word "individual" is used in the order in the sense of a single person, and as a corporation is a person under the statute, so it is also an individual under the order.^** And where two petitions are filed against a corporation, one in the state by which it was incorporated, and one in a district in which it does bus.iness, the first hearing should be had at the former place, as that is the place of its domicile, and pro- ceedings in the other court will be stayed to await such hearing and the decision thei-eon.*"^" In case there is substantial doubt as to the domicile or place of residence of a debtor, against whom petitions are filed in different districts, the court having jurisdiction of the petition earliest in date should be allowed to hear and determine the question of juris- diction as depending on domicile, and the other court, without dismiss- ing the petition before it, will stay proceedings thereon to await the result.'" The provision of the statute which allows the transfer of causes to the court which can proceed therein with the greatest convenience to the parties in interest is of great importance. And the provision of the general order, that the court which makes the first adjudication shall "retain jurisdiction over all proceedings," is of course to be taken sub- ject to the direction of the statute.^^" This provision is not to be read as narrowly restricted to the bankruptcy of single debtors, but it ap- plies equally to cases where different petitions are filed against a part- nership.*^* The "parties in interest" whose convenience is to be con- 207 In re Blmira Steel Co., 109 Fed. the earlier filing of an involvmtary peti- 456, 5 Am. Bankr. Kep. 484. But com- tion in another district, in which it was pare In re Vanoscope Co., 233 Fed. 53, claimed to have a place of business. In 147 0. C. A. 123, 36 Am. Bankr. Rep. re E. H. Pennington & Co. (D. O.) 228 778. Fed. 388, 35 Am. Bankr. Rep. 832. . 208 In re Isaacson, 161 Fed. 779, 20 2" In re Waxelbaum, 98 Fed. 589, 3 Am. Bankr. Rep. 430. Am. Bankr. Rep. 392. 200 In re United Button Co., 137 Fed. 212 in re Isaacson (D. C.) 161 Fed. 668, 13 Am. Bankr. Rep. 454 ; In re 779, 20 Am. Bankr. Rep. 430. The ques- Globe Sec. Co., .132 Fed. 709. tion of the convenience of the parties 210 In re Globe Sec. Co., 132 Fed. 709 ; should be determined by the court bav- in re United Button Co., 132 Fed. 378, ing preferred jurisdiction. In re New 12 Am. Bankr. Rep. 761. A court of Era Novelty Co. (D. C.) 241 Fed. 298, 39 bankruptcy may rightly take jurisdic- Am. Bankr. Rep. 80. tion of a voluntary proceeding by a cor- 213 in re Sears (D. C.) 112 Fed. 58, 7 poration having its domicile and resi- Am. Bankr. Rep. 279. dence in the district, notwithstanding 86 COURTS OF BANKEUPTCT, THEIR JURISDICTION AND POWERS § 33 suited, are not limited to unsecured creditors of the bankrupt, but the term is intended to include all persons whose pecuniary interests may be directly affected by the bankruptcy proceedings.*" The burden of proof, however, as to the place where the proceedings will be most con- venient for parties in interest rests upon those who ask for a transfer. And where the applicants are a minority of the creditors, and represent only a small part of the indebtedness, a transfer will not be warranted by the single fact that the greater part or all of the bankrupt's property is in the other district, as the covrrt has power to order its sale there if deemed best.*^® So a transfer will not be ordered where the request therefor is presented by creditors who have received preferences which they do not offer to surrender, and it is doubtful whether the transfer will be for the greater convenience of the creditors who have not been preferred.*^* Proximity of the place of business of a bankrupt to the court entertaining proceedings in bankruptcy, -and proximity of a ma- jority of the bankrupt's creditors in number or amount of claims, is per- suasive, but not conclusive, in determining the court which shall assume final jurisdiction.'^*-'' Thus, where a petition in involuntary bankruptcy against a debtor was filed in Georgia, and, pending a hearing thereon, he filed his voluntary petition in New York, alleging that he was a resi- dent of the latter state, but it appeared that he had formerly been en- gaged in business in Georgia, that the debts to be affected were all con- tracted there, that his presenf business was as an agent or employe of the corporation which succeeded his former firm, that he was accus- tomed to spend a part of his time in Georgia, and that his creditors de- sired that the bankruptcy proceedings should be conducted in the lat- ter state, it was held that it would be for the "greatest convenience of 21* In re United Button .Co. (D. O.) gages on the bulk of its assets, it was 137 Fed. 668. The term "parties in in- held that the proceedings would not be terest" includes not only general ered- transferred to the federal court in an- itors, but also prior and secured cred- other state, where an involuntary peti- itors, and also the bankrupt and every tlon in bankruptcy was pending against other party wihose pecuniary interest it, although a majority in amount and is affected by the proceedings, and the number of its general creditors lived "greatest convenience" depends on all the there, and also the majority of stock- circumstances — proximity of creditors holders and many witnesses as to claims, of every kind to the court, proximity to In re Devonian Mineral Spring Co. (D. the court of bankrupts and witnesses 0.) 272 Fed. 527, 47 Am. Bankr. Rep. 82. necessary to proper administration, the 215 In re Tybo Mining & Redaction Co. location of the assets, etc. And where, (D. 0.) 132 Fed. 978, 13 Am. Bankr. Rep. in the district of voluntary adjudication, 68. there were practically all the assets of 216 in re Sears (D. C.) 112 Fed. 58, 7 the bankrupt corporation, its official Am. Bankr. Rep. 279. headquarters, its books and records, and 217 In re United Button Co. (D. C.) there was pending in the state court in 137 Fed. 668, 13 Am. Bankr. Rep. 454. such district an action to foreclose mort- § 33 LAW OF BANKRUPTCY 86 the parties in interest" that the court in Georgia should proceed with the case.^" Relationship between the bankrupt and the deputy clerk of the dis- trict court in whose office the petition was filed will be cause for trans- ferring the case to another seat of the court in the same district and divi- sion and ordering the record to be filed and docketed in the office of the clerk of the court at the latter place.^^* 218 In re Waxelbaum, 98 Fed. 589, 3 Metals Co., 133 Fed. 84, 12 Am. Bankr. Am. Bankr. Rep. 392. And see further Rep. 770; In re Okmulgee Producing & as to considerations affecting question of Refining Co. (D. C.) 265 Fed. 736, 45 "greatest convenience," In re Southwest- Am. Bankr. Rep. 631. ern Bridge & Iron Co., 133 Fed. 568, 13 218 Bray v. Cobb, 91 Fed. 102, 1 Am. Am. Bankr. Rep. 304; In re General Bankr. Rep. 153. 87 APPELLATE JURISDICTION AND PROCEDURE § 34 CHAPTER III APPELLATE JURISDICTION AND PKOCEDURB Sec. 34. Statutory Provisions. 35. Jurisdiction of United States Supreme Court 36. Same; On Certification of Questions. 37. Same; Certiorari. 38. Same; Writ of Error to Supreme Court of State. 39. Rules Governing Appeal to Supreme Court. 40. Jurisdiction of Circuit Court of Appeals on Writ of Error. 41. Appellate Jurisdiction of Circuit Court of Appeals. 42. Same; Adjudication of Bankruptcy. 43. Same; Decision on Discharge or Composition. 44. Same; Allowance or Rejection of Claim. 45. Revisory Jurisdiction of Circuit Court of Appeals. 46. Appellate and Revisory, Jurisdiction Contrasted; Choice of Remedies. 47. "Controversies" and "Proceedings in Banliruptcy" Distinguished. 48. Reviewing Discretionary Action of District Court 49. Time of Taking Appeal or Petition for Review. 50. Parties to Appeal or Review. 51. Practice on Appeal. 52. Practice on Petition for Revision. 53. Assignment of Errors. 54. Record on Appeal. 55. Scope of Review; Law and Facta. 56. Same; Questions Not Raised Below. 57. Review of Evidence and Findings. 58. Determination on Appeal or Review and Effect Thereof. 59. Jurisdiction of Territorial Supreme Courts. § 34. Statutory Provisions. — The Bankruptcy Act of 1898 provides (§ 24a) that "the Supreme Court of the United States, the circuit courts of appeals, of the United States, and the supreme courts of- the terri- tories" shall have "appellate jurisdiction of controversies arising- in bankruptcy proceedings from the courts of bankruptcy from which they have appellate jurisdiction in other cases," and "the Supreme Court of the United States shall exercise a like jurisdiction from courts of bankruptcy not within any organized circuit of the United States and from the supreme court of the District of Columbia." This jurisdic- tion may be exercised "in vacation in chambers and during their re- spective terms as now or as they may be hereafter held." The next clause of the same section, marking a sharp distinction between appel- late and revisory jurisdiction, and conferring the latter only upon the circuit courts of appeals, provides that those courts "shall have juris- diction in equity, either interlocutory or final, to superintend and re- vise in matter of law the proceedings of the several inferior courts of bankruptcy within their jurisdiction. Such power shall be exercised on § 34 LAW OP BANKRUPTCY 88 due notice and petition by any party aggrieved." Specifically as to appeals, the act provides (§ 25) that "appeals, as in equity cases, may be taken in bankruptcy proceedings from the courts of bankruptcy to the circuit court of appeals of the United States, and to the supreme court of the territories, in the following cases, to wit, (1) from a judg- ment adjudging or refusing to adjudge the defendant a bankrupt; (2) from a judgment granting or denying a discharge; and (3) from a judgment allowing or rejecting a debt or claim of five hundred dollars or over." Out of the three specific cases thus enumerated, in which the review may be had on an appeal proper, only one admits of being carried up to the Supreme Court. For the act provides (§ 25b) that "from any final decision of a court of appeals, allowing or rejecting a claim under this act, an appeal may be had, under such rules and within such time as may be prescribed by the Supreme Court of the United States, in the following cases and no other: (1) Where the amount in controversy exceeds the sum of two thousand dollars, and the question involved is one which might have been taken on appeal or writ of error from the highest court of a state to the Supreme Court of the United States ; or (2) where some justice of the Supreme Court of the United States shall certify that in his opinion the determination of the question or questions involved in the allowance or rejection of such claim is essential to a uniform construction of this act throughout the United States." But another statute, not repealed by the Bank- ruptcy Act provides that "appeals and writs of error may be taken from the district courts, including the United States district court for Hawaii, direct to the Supreme Court in the following cases: In any case in which the jurisdiction of the court is in issue, in which case the question of jurisdiction alone shall be certified to the Supreme Court from the court below for decision; * * * in any case that involves the construction or application of the Constitution of the United States ; in any case in which the constitutionality of any law of the United States, or the validity or construction of any treaty made under its authority is drawn in question; and in any case in which the constitu- tion or law of a state is claimed to be in contravention of the Consti- tution of the United States." ^ It is also provided by the Bankruptcy Act (§ 25d) that "controversies may be certified to the Supreme Court of the United States from other courts of the United States, and the former court may exercise jurisdiction thereof and issue writs of cer- tiorari pursuant to the provisions of the United States laws now in 1 Federal Judicial Code 1911', § 238. 89 APPELLATE JURISDICTION AND PBOCBDURB § 35 force or such as may be hereafter enacted." " As to the general appel- late jurisdiction of the circuit courts of appeals, which may be some- times invoked in regard to controversies which originate in a court of bankruptcy, it is provided that "the circuit courts of appeals shall exer- cise appellate jurisdiction to review by appeal or writ of error final de- cisions in the district courts, including the United States district court for Hawaii, in all cases other than those in which appeals and writs of error may be taken direct to the Supreme Court." ^ § 35. Jurisdiction of United States Supreme Court.— The Bankrupt- cy Act of 1898, recognizing the policy and purpose of 'the act creating the circuit courts of appeals, has restricted the appellate jurisdiction of the Supreme Court of the United States, in bankruptcy matters, within very narrow limits. In the first place, that court is made the proper forum for appeals, in controversies arising in bankruptcy proceedings, "from courts of bankruptcy not within any organized circuit of the United States*"* The obvious reason is that, in such a case, there is no circuit court of appeals in which a review could properly be sought. Under this provision, an appeal may be taken directly to the Supreme Court from the United States district court for Porto Rico.'' But it should be noted that this appellate jurisdiction is restricted to "contro- versies" arising in the course of a proceeding in bankruptcy, as dis- 2 For the general rule on this point, the Supreme Court for its review and see Federal Judicial Code 1911, §§ 239, determination, with the same power and 240, where it is provided : "In any case authority in the case as if it had been within Its appellate jurisdiction as de- carried by appeal or writ of error to the fined in section 128, the circuit court of Supreme Court." appeals at any time may certify to the s Federal Judicial Code 1911, § 128. Supreme Court of the United States any These statutory provisions are exclusive, questions or propositions of law con- A federal District Court will not en- ceming which it desires the instruction tertain a bill in equity to adjudicate any of that court for its proper decision ; matter or review any proceeding in the and thereupon the Supreme Court may course of administration in a bankrupt- either give it instruction on the ques- cy court, since the jurisdiction of the tions and propositions certified to it, latter is exclusive. Gibbons v. Dexter which shall be binding upon the circuit Horton Trust & Savings Bank (D. C.) 225 court of appeals in such case, or it may Fed. 424, 35 Am. Bankr. Kep. 632. require that the whole record and cause * Bankruptcy Act 1898, § 24a. Under be sent up to it for its consideration, the act of 1841, it was held that no ap- and thereupon shall decide the whole peal would lie, in a bankruptcy case, to matter in controversy in the same man- the Supreme Court of the United States ner as if it had been brought there for from a district court, although held in a review by writ of error or appeal. In district where no circuit court was es- any case, civil or criminal, in which the tablished by law. Crawford v. Points, judgment of the circuit court of appeals 13 How. U, 14 L. Ed. 29. is made final by the provisions of this = Tefft v. Munsuri, 222 U. S. 114, 32 title, it shall be competent for the Su- Sup. Ct. 67, 56 L. Ed. 118, 27 Am. Bankr. preme Court to require, by certiorari or Rep. 338. And see Munsuri v. Fricker, otherwise, upon the petition of any party 222 U. S. 121, 32 Sup. Ct. 70, 56 L. Ed. tjiereto, any such case to be certified to 121, 27 Am. Bankr. Rep. 344. § 35 LAW OF BANKRUPTCY 90 tinguished from steps taken in the 'ordinary course of the bankruptcy proceeding. A ruling of the lower court allowing or rejecting a claim against the bankrupt's estate is not such a "controversy;" it is a "pro- ceeding in bankruptcy," and therefore is not appealable.® The. Supreme Court is also invested with appellate jurisdiction, under like restric- tions, over the supreme court of the District of Columbia.'' In the next place, the bankruptcy statute does not repeal the fifth section of the act of 1891, by which it is enacted that appeals or writs of error may be taken from a district court direct to the Supreme Court "in any case in which the jurisdiction of the court is in issue, in any case that involves the construction or application of the Constitution of the United States, in any case in which the constitutionality of any law of the United States is drawn in question, and in any case in which the constitution or law of a state is claimed to be in contravention of the Constitution of the United States." * Under this provision, the cir- cuit courts of appeals have decided that they have no jurisdiction of a writ of error from the district court when the jurisdiction of that court is in question for review.* And the fact that the ruling of the district court, involving a question of jurisdiction, has been affirmed by the circuit court of appeals on a petition for revision, will not preclude a writ of error from the Supreme Court to the district court to review the final decision in the case."^* But it is essential that the jurisdiction of the inferior court should be actually and necessarily in issue. Thus, the question whether the petition in a case of involuntary bankruptcy alleges an act of bankruptcy does not go to the jurisdiction of the court, and therefore the decision is reviewable by the circuit court of appeals 6 Tefft V. Munsuri, 222 U. S. 114, 32 proceedings, within the provision for ap- Sup. Ct. 67, 56 L. Ed. 118, 27 Am. Bankr. pellate jurisdiction over the Supreme Rep. 338. And see Munsuri v. Fricker, Court of the District of Columbia. 222 U. S. 121, 32 Sup. Ct. 70, 56 L. Ed. Swift. & Co. v. Hoover, 242 U. S. 107, 37 121, 27 Am. Bankr. Rep. 344. Sup. Ct. 56, 61 L. Ed. 175, 36 Am. Bankr. ^ Bankruptcy Act 1898, § 24a. The Rep. 429. i'««T «"'%°'-fJ""lr™'^^'iiw TJ^ '^^t ^''"^- M'^-^'^^ 3, 1891, 26 Stat, of r If ^fo ^•.M^^O'i'.l^ ^^"- 419- 826, § 5; Federal Judicial Code 1911, § 20 L. Ed. 748. This provision appears 23s to ignore the Court of Appeals of the District of Columbia, which otherwise " I" I'e Abbey Press, 134 Fed. 51, 67 has appellate jurisdiction over the Su- C. C. A. 161, 13 Am. Bankr. Rep. 11; preme Court of the District. But it can- U'nited States v. Sutton, 47 Fed. 129; not be thought to have been inserted ^"'^'is ^ Rankin Bldg. Co. v. Barber, 60 through inadvertence, since the same ^^^- ^^^' ^ C. C. A. 79 ; Cabot v. McMas- language is repeated in the Fedpral Judi- ^^^' ^ 'P&i. 533, 13 C. C. A. 39. cial Code of 1911, § 252. And see SuUi- 10 Frederic L. Grant Shoe Co. v. W. van v. Goldman, 38 App. D. C. 319. A M. Laird Co., 212 U. S. 445, 29 Sup. Ct! decree adjudging a person u^t a bank- ?,?>-2. 53 L. Ed. 591, 21 Am. Bankr. Rep! rupt i.s not a controversy arising in those 484. 91 APPELLATE JURISDICTION AND PROCEDURE § 35 rather than by the Supreme Court." So also, the question whether a corporation against which a petition is filed comes within one of the classes of corporations made amenable to the bankruptcy law is a ques- tion upon which the jurisdiction may depend, but it is an issue which the district court has jurisdiction to determine, and hence an appeal cannot be taken direct to the Supreme Court.^* So again, since the act confers upon courts of bankruptcy jurisdiction, to determine all claims of bankrupts to their exemptions, the decision of such a court that it has authority to adjudicate the validity of ,an alleged equitable lien upon property which it decides to be assets of the estate in bankruptcy and not exempt property, does not create a question of jurisdiction which will sustain a direct appeal to the Supreme Court.^* It has also been ruled that the acts of Congress do not authorize a district*court to certify questions of its jurisdiction to the Supreme Court for decision, in order to obtain the instruction of that coUrt for its guidance, before deciding the case; and such a certificate, made before the final judg- ment or decree in the case, will be dismissed." In the next place,- although the statute provides in general terms that the Supreme Court of the United States, as well as the circuit courts of appeals, "are hereby invested with appellate jurisdiction of controversies arising in bankruptcy proceedings from the courts of bankruptcy from which they have appellate jurisdiction in other cases," this does not broaden the jurisdiction of the Supreme Court, and has no relation to appeals from the circuit court of appeals. This grant, in other words, does not give authority to entertain an appeal from every decision in bankruptcy rendered by the intermediate courts, the same being specifically limited by other provisions of the statute.^^ As the Bankruptcy Act of 1898 stood originally, it gave the Supreme Court a considerable appellate jurisdiction over the final decisions of the circuit courts of appeals. But this was somewhat abruptly termi- 'nated by an Act of Congress approved January 28, 1915 (38 Stat. 804, ch. 22) which provides : "That the judgments and decrees of the cir- cuit courts of appeals in all proceedings and cases arising under the Bankruptcy Act and in all controversies arising in such proceedings 11 Exploration Mercantile Co. v. Pa- n Bardes v. Ha warden Bank, 175 tJ. dflc Hardware & Steel Co., 177 Fed. 825, S. 526, 20 Sup. Ct. 196, 44 L. Ed. 262, 3 101 C. C. A. 39, 24 Am. Bankr. Kep. 216. Am. Bankr. Rep. 680. 12 Columbia Ironworks v. National is Hutchinson v. Otis, 123 Fed. 14, 59 Lead Co., 127 Fed. 99, 62 C. C. A. 99, 64 C. C. A. 94, 10 Am. Bankr. Rep. 275. L. R. A. 645, 11 Am. Bankr. Rep. 340. And see Nelson v. Garland, 1 How. 265, 13 Lucius V. Cawthon-Coleman Co., 196 11 L. Ed. 126. U. S. 149, 25 Sup. Ct. 214, 49 L. Ed. 425, 13 Am. Bankr. Rep. 696. § 36 LAW OF BANKRUPTCT 92 and cases shall be final, save only that it shall be competent, for the Supreme Court to require by certiorari, upon the petition of any party thereto, that the proceeding, case, or controversy be certified to it for review and determination, with the same power and authority as if taken to that court by appeal or writ of error; but certiorari shall not be allowed in any such proceeding, case, or controversy unless the petition therefor is presented to the Supreme Court within three months from the date of such judgment or decree." This statute, it is declared by the Supreme Court, "rnanifested the purpose of Congress to relieve this court from the necessity of considering cases of this character, ex- cept w:hen brought here by writ of certiorari." ^^ The writ of certiorari, it will be remembered, is not a writ of right, but the granting of it is in the sdtind discretion of the court. The effect of this statute is there- fore to make the judgments and decrees of the circuit courts of ap- peals absolutely final in all bankruptcy matters, except when the Su- preme Court, in its discretion, will permit the bringing up of a case on certiorari. . § 36. Same; On Certification of Questions. — ^A further provision of the bankruptcy act is that "controversies may be certified to the Su- preme Court of the United Sfates from other courts of the United States, and the former court may exercise jurisdiction thereof and issue writs of certiorari pursuant to the provisions of the United States laws now in force or such as may be hereafter enacted." '^' This is to be read in connection with the act creating the circuit courts of appeals, which directs that, "in any case within its appellate jurisdiction, the cir- cuit court of appeals at any time may certify to the Supreme Court of the United States any questions or propositions of law concerning which it desires the instruction of that court for its proper decision; and thereupon the Supreme Court may either give its instruction on the questions and propositions certified to it, which shall be binding upon the circuit court of appeals in such case, or it may require that the whole record and cause be sent up to it for its consideration, and thereupon shall decide the whole matter in controversy in the same manner as if it had been brought there for review by writ of error or appeal." ^* The latter of these two statutory provisions is a limitation upon the former. Although the former provides for certification of 16 William R. Staats Co. v. Security is Act Cong. March 3, 1891 26 Stat Trust & Savings Bank, 243 XJ. S. 121, 3T 826, § 6; Federal Judicial Code 1911 s Sup. Ct. 336, 61 L. Ed. 632. 239. 17 Bankruptcy Act 1898, § 25d ; Federal Judicial Code 1911, § 252. 93 APPELLATE JURISDICTION AND PROCBDTJRH § 37 questions "from other courts of the United States," the latter shows that only the circuit courts of appeals are intended. Hence a district court sitting in bankruptcy is not authorized to certify to the Supreme Court a question concerning its jurisdiction in the case before it, be- fore deciding the case>* Certifications of questions under this provi- sion have not been numerous, but an instance may be cited where a circuit court of appeals certified, with a request for instructions, the question whether the making of a general assignment for the benefit of creditors would constitute an act of bankruptcy notwithstanding the fact that the debtor was solvent at the time of the filing of the petition against him.** But it is probable that this provision also is restricted if not re- pealed by the Act of January 28, 1915 (38 Stat. 804) which makes the decisions of the circuit courts of appeals final in all bankruptcy cases, "save only that it shall be competent for the Supreme Court to re- quire by certiorari, upon the petition of any party thereto, that the proceeding, case, or controversy be certified to it for review and deter- mination." In other words, a case can now be certified for review only when the Supreme Court, on the petition of a party in interest, shall so "require." § 37. Same; Certiorari. — In connection with the provisions of the bankruptcy act (§ 25d) authorizing the Supreme Court to "issue writs of certiorari" pursuant to the laws of the United States, should be read the section of the Judicial Code (§ 240) which directs that, "in any case, civil or criminal, in which the judgment or decree of the circuit court of appeals is' made final by the provisions of this title, it shall be competent for the Supreme Court to require, by certiorari or other- wise, upon the petition of any party thereto, any. such case to be cer- tified to the Supreme Court for its review and determination, with the same power and authority in the case as if it had been carried by ap- peal or writ of error to the Supreme Court." *^ It is evident that, so far as concerns proceedings in bankruptcy, these provisions are meant to be supplementary to those which allow appeals to the Supreme Court in specified cases. Thus, a decree rendered by the circuit court of appeals in the exercise of its jurisdiction to "superintend and revise 19 Bardes v. Hawarden Bank, 175 V. S. 590, 19 Sup. Ct. 836, 43 L. Ed. 1098, 2 S. 526, 20 Sup. Ct. 196, 44 L. Ed. 262, 3 Am. Bankr. Eep. 463. Am. Bankr. Rep. 680. Compare In re 21 go far as concerns controversies and Jacobs, 99 Fed. 539, 39 O. C. A. 647, 3 proceedings In bankruptcy, this language Am. Bankr. Eep. 671. is repeated in the Act of Congress of 20 George M. West Co. v. Lea, 174 TJ. January 28, 1915, 38 Stat. 804. § 38 LAW OF BANKRUPTCY 94 in matter of law" the proceedings of the inferior courts of bankruptcy, and not in the way of allowing or rejecting a claim, is not the proper subject for an appeal to the Supreme Court, but it may be reviewed by that court on writ of certiorari.^* § 38. Same; Writ of Error to Supreme Court of State. — Nothing contained in the present bankruptcy act impairs or in any way affects the jurisdiction vested in the Supreme Court of the United States, by the original judiciary act, to review a final judgment or decree of the highest court of a state, by means of a writ of error, when the decision of such state court is against the validity of a statute of the United States or an authority exercised thereunder, "or where any title, right, privilege, or immunity is claimed under the constitution, or any treaty or statute of, or commission held or authority exercised under, the United States, and the decision is against the title, right, privilege, or immunity specially set up, or claimed by either party under such con- stitution, treaty, statute, commission, or authority." ** This power of the Supreme Court may be exercised in cases where a decision is ren- dered against a title, right, or authority claimed under the national bankruptcy law. For example, where the only controversy in a case in a state court is as to the effect to be given to an order of a dis- trict court of the United States sitting in bankruptcy, for the sale of mortgaged property free from liens, a writ of error will lie from the federal supreme court to review a decision denying the right claimed by one of the parties.** So when a state court decides against the claim of a trustee in bankruptcy to certain property of the bankrupt, the de- cision is against a right or title claimed under a statute of the United States, within the meaning of the judiciary act, and the judgment of the court of last resort of the state is subject to review by the United States Supreme Court.*^ Agairl, where the issue is as to the validity of a transfer by a trustee in bankruptcy, and whether the suit is barred by the limitation of the bankruptcy act, the Supreme Court has juris- diction on writ of error to the highest court of the state.** On the 2 2 Holden v. Stratton, 191 U. S. 115, tion of this statute, see Black. Const. 24 Sup. Ct. 45, 48 L. Ed. 116, 10 Am. Law (3d edn.) pp. 177-179. Bankr. Rep. 786; Bryan v. Bernlieimer, =* Factors' & Traders' Ins. Co. v. Mur- 175 U. S. 724, 21 Sup. Ct. 557, 44 L. Ed. pliy, 111 U. S. 738, 4 Sup. Ct. 679, 28 L. 338, 5 Am. Bankr. Rep. 623 ; Louisyille Ed. 582 ; New Orleans, S. F. & L. R. Co. Trust Co. V. Comingor, 181 U. S. 620, 22 v. Delamore, 114 U. S. 501, 5 Sup-. Ct. Sup. Ct. 293, 45 L. Ed. 1031, 7 Am. 1009, 29 L. Ed. 244. Bankr. Rep, 421; Kyle v. Hammond, a o Williams v. Heard, 140 U. S. 529, 192 Fed. 559. 11 Sup. Ct. 885, 35 L. Ed. 550. 2 3 Rev. Stat. V. S. § 709, Federal Judi- =0 Traer v. Clews, 115 V. S. 528, 6 Sup. cial Code 1911, § 237. On the construe- Ct. 155, 29 L. Ed. 467. 95 APPELLATE JURISDICTION AND PROCEDURE § 39 other hand, where the question actually decided by the. state court was whether the bankrupt had title to certain property, and not whether the title would pass to the trustee in bankruptcy by operation of the bankruptcy law, this is not such a decision as can be reviewed on er- ror.'*'? Again, the United States Supreme Court, has no juHsdiction to review the decision of a state court dismissing a bill brought by cred- itors against a bankrupt to set aside his discharge, and to which the defendant demurred on the ground of staleness ; for if the state court made any decision on the bankruptcy act, it must have sustained, not denied, the privilege claimed by the bankrupt.** § 39. Rules Governing Appeal to Supreme Court. — It is ordered that an appeal to the Supreme Court of the United States under the bankruptcy act "shall be taken within thirty days after the judgment or decree, and shall be allowed by a judge of the court appealed from or by a justice of the Supreme Court of the United States." Further, "in every case in which either party is entitled by the act to take an appeal to the Supreme Court of the United States, the court from which the appeal lies shall, at or before the time of entering its judgment or de- cree, make and file a finding of the facts, and its conclusions of law thereon, stated separately; and the record transmitted to the Supreme Court of the United States on such an appeal shall consist only of the pleadings, the judgment or decree, the finding of facts, and the conclu- sions of law." *® As to the limitation of time prescribed by this order, it is held that it relates only to appeals taken expressly under the bankruptcy statute, and not to an appeal from a decision rendered on a formal appeal from the district court in a controversy arising in a bankruptcy proceeding.** But the fact that an appeal is allowed from a circuit court of appeals in a bankruptcy case, on the certificate of a justice of the Supreme Court, cannot operate as an adjudication that the appeal was taken in due time.*^ In regard to the requirement of a finding of ,facts and a separate statement of the conclusions of law, it is said that this does not require a circuit court of appeals, of its own motion, to ascertain and determine in advance of its decision, whether a question is raised on which a party is entitled to the allowance of an appeal to the Supreme Court, but such 27 Scott V. Kelly, 22 Wall. 57, 22 L. so Hobbs v. Head & Dow«t Co., 191 Bd. 729. Fed. 811, 112 C. 0. A. 325, 27 Am. Bankr. 2s Calcote v. Stanton, 18 How. 243, 15 Rep. 484. L. Ed. 348. 81 Conboy v. First Nat. Bank, 203 TJ. 2 9 General Order in Bankruptcy, No. S. 141, 27 Sup. Ot. 80, 51 L. Ed. 128, 16 36. Am. Bankr. Rep. 773. § 40 LAW OF BANKRUPTCY 96 right, if claimed, should be called to the court's attention in advance of its decision, by a request for findings in the event of an adverse rilling on the question claimed to be appealable.*^ Further, this requirement as to findings does not apply where the appeal is from a "controversy arising in bankruptcy proceedings," as distinguished from a proceeding in the bankruptcy case propei', since, in such a case, the manner of re- view in the Supreme Court is not governed by the bankruptcy statute but by the act creating the circuit court of appeals.** When a party appeals from a decision of the circuit court (now the circuit court of ap- peals) to the Supreme Court of the United States, the allowance of the appeal is to relate back to the time when the original application was made for an appeal to the judge of the circuit court, and entitles a party to a stay of proceedings.** The provision of the bankruptcy act (§ 2Sc) that "trustees shall not be required to give bond when they take appeals or sue out writs of error," appears to be applicable to 'appeals to the Supreme Court. § 40. Jurisdiction of Circuit Court of Appeals on Writ of Error. — As a general riile, a proceeding in bankruptcy is in the nature of a pro- ceeding in equity, and orders and decrees made therein cannot be re- viewed by writ of error.*® But there are some exceptional cases in which this is the appropriate and exclusive method of obtaining a revision of the judgments of the court of bankruptcy. One is the case where the defendant in a petition in involuntary bankruptcy demands as of right, and receives, a trial by jury. This is not like the trial of an issue sent out of chancery, but is a trial according to the course of the common law, and therefore, under the well-settled principles of the common law, as well as the constitution and laws of the United States, the judgment cannot be reviewed by what is technically known as an "appeal," but must be the subject of a writ of error, as that writ was known at the common law.*® Now there is no provision of the present bankruptcy statute which authorizes the review of an adjudication of bankruptcy, or of a judgment dismissing the petition, following a trial by jury, by means of a writ of error. It is true that the twenty-fifth section gives jurisdiction to review "a judgment adjudging or refusing to adjudge 8 2 Knapp V. Milwaukee Trust Co., 162 s" Lockman v. Lang, 128 Fed. 279, 62 Fed. 675, 89 C. C. A. 467, 20 Am. Bankr. O. C. A. 550, 11 Am. Bankr. Rep. 597. Rep. 671; Orueible Steel Co. v. Holt, 174 so Duncan v. Landis, 106 Fed. 839, 45 Fed. 127, 98 C. O. A. 101, 23 Am. Bankr. C. C. A. 666, 6 Am. Bankr. Rep. 649 • El- Rep. 302. liott V. Toeppner, 187 XJ. S. 327, 23 Sup. 8 8 Knapp V Milwaukee Trust Co., 216 Ct. 133, 47 L. Ed. 200, 9 Am. Bankr. Ren U. S. 545, 30 Sup. Ct. 412, 54 L. Ed. . 50. 8 4 Thornliill v. Bank of Louisiana, 5 N. B. R. 377, Fed. Cas. No. 13,991. 97 APPELLATE JUEISDICTION AND PROCEDUKB § 40 the defendant a bankrupt ;" but this is explicitly by means of an "appeal as in equity cases." So also, the superintending and revisory power of the circuit courts of appeals, granted by the twenty- fourth section, is confined to "matter of law," and is described as a "jurisdiction in equi- ty." Besides, the seventh amendment to the federal constitution pro- vides that "no fact tried by a jury shall be otherwise re-examined in any court of the United States than according to the rules of the common law." The bankruptcy act, therefore, does not permit of a writ of er- ror in this particular case.*' But the sixth section of the act creating the circuit courts of appeals,®* which is not repealed by the bankruptcy act,*® provides that "the circuit courts of appeals shall exercise appellate jurisdiction to review by appeal or writ of error -final decisions in the district courts, in all cases other than those in which appeals and writs of error may be taken direct to the Supreme Court, unless otherwise provided by law." And it is held that the reviewing authority here con- ferred is wide enough to authorize a review of a judgment of the dis- trict court, entered on the verdict of a jury, upon a petition for adjudi- cation in involuntary bankruptcy, and the granting of a writ of error therefor.*** Accordingly it is now well settled that, in this specific case, a writ of error as at common law is not only a proper means of bring- ing up for review the judgment of the bankruptcy court, but is the ex- clusive remedy." Another instance is found in the case of an order of the district court in bankruptcy adjudging a defendant in contempt for disobeying a pre- vious order whereby he was requij-ed to surrender certain property to the trustee in bankruptcy, and imposing a fine payable to the United States as a punishment, and not as compensation to the trustee for dam- ages. This is in effect a criminal judgment, although made as a part of the proceeding in bankruptcy, and is therefore reviewable by a writ of error, and not by a petition for revision.** On the other hand, proceed- 87 Elliott V. Toeppner, 187 U. S. 327, Ct. 133, 47 L. Ed. 200, 9 Am. Bankr. Rep. . 23 Sup. C?t. 133, 47 L. Ed. 200, 9 Am. 50 ; Knickerbocker Ins. Co. v. Oomstock, Bankr. Eep. 50. 16 Wall. 258, 21 L. Ed. 493; Bower v. 8 8 Act Cong. March 3, 1891, § 6, 26 Holzworth, 138 Fed. 28, 70 C. C. A. 396, Stat. 826 ; Federal Judicial Code 1911, 15 Am. Bankr. Rep. 22 ; In re Neasmith, § 128. 147 Fed. 160, 77 O. C. A. 402, 17 Am. 3 Elliott V. Toeppner, 187 U. S. 327, Bankr. Rep. 128; Lennox v. Allen-Lane 23 Sup. Ct. 133, 47 L. Ed. 200, 9 Am. Co., 167 Fed. 114, 92 C. O. A. 566, 21 Am. Bankr. Rep. 50. Bankr. Rep. 648 ; Duncan v. Landis, 106 4« Duncan v Landis, 106 Fed. 839, 45 Fed. 839, 45 C. O. A. 666, 5 Am. Bankr. C. C. A. 666, 5 Am. Bankr. Rep. 649. Rep. 649. «i Frederick L. Grant Shoe Co. v. W. *= Brown v. Detroit Trust Co., 193 Fed. M. Laird Co., 203 U. S. 502, 27 Sup. Ct. 622, 113 C. C. A. 490. So also of a suit 161, 51 L. Ed. 292, 17 Am. Bankr! Rep. 1 ; brought by a trustee in bankruptcy Elliott V. Toeppner, 187 V. S. 327, 23 Sup. against a third person to enjoin him Blk.Bkr.(3d Ed.)— 7 § 41 LAW OF BAXKEUPTCY 98 ings for contempt in a court of bankruptcy for refusal to obey an order to turn over property to a bankrupt's receiver or trustee, wliere no such fine or penalty is contemplated, but only enforcing obedience to the order, are for a civil and not for a criminal contempt, and are not re- viewable on a writ of error, although, in such a case,- the court may treat the writ of error as a "petition to revise" where the latter remedy would have been appropriate if taken in time.** A plenary action by a trustee in bankruptcy to recover money only, alleged to have been paid as a preference in favor of a surety and his principal, is an action at law, reviewable on writ of error instead of appeal.** § 41. Appellate Jurisdiction of Circuit Court of Appeals. — Appeals may be taken from the district courts, sitting as courts of bankruptcy, to the circuit courts of appeals, in three specified classes of cases. These are (1) "from a judgment adjudging or refusing to adjudge the de- fendant a bankrupt;" (2) "from a judgment granting or denying a dis- charge ;" and (3) "from a judgment allowing or rejecting a debt or claim of five hundred dollars or over." *® In these particular cases, appeal is the proper and only method of obtaining a review of the judgment of the court of bankruptcy.*® So far as regards "proceedings in bankruptcy," that is, the successive steps in the ordinary administration of an estate in bankruptcy, the specification of these three classes of appealable judg- ments implies an exclusion of all others, and in matters of this kind no appeal lies from any order or decree of the court of bankruptcy, un- less it comes within one of the specified classes.*' But the twenty- fourth section of the act invests the circuit courts of appeals with "ap- pellate jurisdiction of controversies arising in bankruptcy proceedings from interfering with the alleged pos- Fed. 29, 149 C. C. A. 239, 37 Am. Bankr. s.ession by the trustee of property claim- Rep. 719. ed by both parties. Stelling v. G. W. *» Cook Inlet Coal Fields Co. v. Cald- .Tones Lumber Co., 116 Fed. 261, 53 C. C. well, 147 Fed. 475, 78 O. O. A. 17, 17 Am. A. 81, 8 Am. Bankr. Rep. 521. And so Bankr. Rep. 136. of a suit by the trustee to recover prop- *' Bank of Clinton v. Kondert, 159 erty alleged to have been transferred in Fed. 703, 86 C. C. A. 571, 20 Am. Bankr. fraud of creditors. Delta Nat. Bank v. Rep. 178 ; In re Whitener, 105 Fed. 180, Easterbrook, 133 Fed. 521, 67 C. C. A. 44 C. C. A. 434, 5 Am. Bankr. Rep. 198; 236, 13 Am. Bankr. Rep. 338. Ogden v. Gilt Edge Consol. Mines Co., *3 Freed v. Central Trust Co. of Illi- 225 Fed. 723, 140 C. C. A. 597, 34 Am. nois, 215 Fed. 873, 132 C. C. A. 7, 33 Am. Bankr. Rep. 893. "While doubtless the Bankr. Rep. 64. circuit court of appeals has power to *t Turner v. Sehaeffer, 249 Fed. 654, revise even interlocutory proceedings in 161 C. 0. A. 564, 40 Am. Bankr. Rep. 829. bankruptcy, such procedure is not favor- ''6 Bankruptcy Act 1898, § 25a. Except ed when the matter can be raised by ap- as to this one matter of allowing or re- peal or petition from the order or decree .iecting a claim, the right of appeal In finally disposing of the matter. In re bankruptcy proceedings given by § 24a of Horowitz, 250 Fed. 106, 162 C. C. A, the act is not affected by the amoimt in 278, 41 Am. Bankr. Rep. 369. controversy. Emerson v. Castor, 236 99 APPELLATE JURISDICTION AND PKOCEDUEB § 41 from the courts of bankruptcy from which they have appellate juris- diction in other cases." This is a dififerent provision and relates to a diflerent class of judgments. It is not revoked or limited by the sub- sequent enumeration of the three kinds of appealable orders, all of which are "proceedings in bankruptcy," as distinguished from "con- troversies arising in bankruptcy proceedings." ** Under this grant, therefore, appellate jurisdiction may be exercised in other classes of cases, as, for instance, to review a decision on an application to transfer the bankruptcy proceeding from one district court to another.** So a decree in a suit by a bankrupt's trustee to set aside an instrument, in form a deed, from- the bankrupt conveying certain described real estate is reviewable by appeal rSther than by writ of error.^* And a proceed- ing on a petition by the trustee to sell lands, on the theory that a vs^ar- ranty deed evidenced an equitable mortgage, opposed by the grantee, is a "controversy" arising in bankruptcy proceedings, rather thdn a "pro- ceeding in bankruptcy," and hence an appeal to review the judgment therein lies under the general appellate jurisdiction of the circuit court of appeals.®* And the appearance of the mortgagees, on notice of a petition by the mortgagor's trustee in bankruptcy, and their assertion of conflicting rights, may be- held equivalent to an affirmative interven- tion in connection with the trustee's petition so as to raise an appealable controversy in bankruptcy.** But the section under consideration must be read in connection with the act creating -the circuit courts of appeals wherein is found a de- scription of the judgments and decrees of the district courts from which an appeal may be taken.^ In the first place, all cases are excluded in which an appeal may be taken direct to the Supreme Court of the United States. In the second place, there are a few exceptional cases (as shown in the preceding section) in which a writ of error, and not an appeal, is the appropriate remedy. And thirdly, an appeal lies only from a "final decision" of the district court. For this reason an order denying to a stranger the right to intervene in a bankruptcy proceeding, *8 Dodge V. Norlin, 133 Fed. 363, 66 Fed. 642, 160 C. C. A. 542, 41 Am. Bankr. '0. C. A. 425, 13 Am. Bankr. Rep. 176 ; Rep. 281. In re Mueller, 135 Fed. 711, 68 C. C. A. 52 Robert Moody & Son v. Century Sav. 349, 14 Am. Bankr. Rep. 256. Bank, 239 U. S. 374, 36 Sup. Ct. Ill, 60 *» Kyle Lumber Co. v. Bush, 133 Fed. L. Ed. 336, 36 Am. Bankr. Rep. 95. 688, 66 C. C. A. 592, 13 Am. Bankr. Rep. o a in re Columbia Real Estate Co., 112 ■535. Fed. 643, 50 C. C. A. 406, 7 Am. Bankr. 50 Carey v. Donohue, 209 Fed. 328, 126 Rep. 441; Act Cong. March 3, 1891, § 6, •O. C. A. 254, 31 Am. Bankr. Rep. 210. 26 Stat. 828. And see In re Strauss, 211 Bi Sauve V. M. L. More Inv. Co., 248 Fed. 123, 127 0. O. A. 521, 32 Am. Bankr. Rep. 237. § 41 LAW OP BANKRUPTCY lOO not being a final decision upon the merits of his case, is not appealable.*** So an order enjoining the prosecution of an action of replevin, brought in a state court against a trustee in bankruptcy by a third person claim- ing goods in his possession, and referring the claim of such party to a referee in bankruptcy to ascertain and report the facts, is not a final decision nor appealable.®* And so of an interlocutory order entered by a court of bankruptcy, reversing a ruling of the referee, made during the examination of the bankrupt, refusing to require him to produce his books.*® ■ An exception to this rule is created by the seventh section of the circuit court of appeals act,®' in reference to an interlocutory order granting an injunction. Such an order, made by a district court in bankruptcy, is reviewable on appeal where the nature of the cause or proceeding is such that the final decree therein would be reviewable by appeal under the provisions of the act; but it is not appealable where the final decree or order would be one in a "proceeding in bankruptcy," reviewable only on petition to "revise in matter of law." ®* But an appealable controversy in bankruptcy was held not to have been initiated by an attempted intervention in a summary proceeding in a court of ancillary jurisdiction to restore certain property of the bankrupts, in the custody of those having no right to it, to the bankruptcy court, where the interveners claimed under an assignment made after the fil- ing of the petition in bankruptcy.®' And an order of thfe referee re- quiring the bankrupt to answer a petition for an order for the payment of money in his possession is not such an order as can be reviewed be- fore final judgment.®** The same is true of an order merely granting leave to the trustee in bankruptcy to institute a suit.*^ But in a bank- ruptcy proceeding, where stockholders are contesting the right to levy assessments against them, in which some were not formally made par- ties, the circuit court of appeals will nevertheless proceed to the merits, where both sides have assumed that the order of assessment was a final and appealable order.®^ 0* In re Columbia Real Estate Co., 112 bt Act Cong. March 3, 1891, § 7, 26 Fed. 643, 50 C. 0. A. 406, 7 Am. Bankr. Stat. 828. Rep. 441. A decree or order does not ss O'Dell v. Boyden, 150 Fed. 731, 80 take effect, for the purpose of an appeal 0. C. A. 307, 10 Ann. Cas. 289, 17 Am. or a petition to revise, while a motion Bankr. Rep. 751. for rehearing is pending. Taryan Rosin =» Lazarus, Michel & Lazarus v. Pren- & Turpentine Co. v. Isaac (C. C. A.) 270 tice, 234 V. S. 263, 34 Sup. Ct. 851, 58 Fed. 710, 46 Am. Bankr. Rep. 421. L. Ed. 1305, 32 Am. Bankr. Rep. 559. 6 » In re Russell, 101 Fed. 248, 41 0. C. «o In re Graboyes (D. C.) 228 Fed. 574, A. 323, 3 Am. Bankr. Rep. 658. And see 36 Am. Bankr. Rep. 29. In re Consumers' Packing Co. (C. C. A.) oi Board of Road Com'rs of Monroe 268 Fed. 198, 46 Am. Bankr. Rep. 338. County v. Keil, 259 Fed. 76, 170 O. C. A. 5 Goodman v. Brenner, 109 Fed. 481, 144, 44 Am. Bankr. Rep. 259. 48 C. 0. A. 516, 6 Am. Bankr. Rep. 470. e^ Thorns & Brenneman v. Goodman, 101 APPELLATE JURISDICTION AND PKOCBDURH § 4:2 ■'\ ' § 42. Same; Adjudication of Bankruptcy. — The pro'vi^i6n, of the bankruptcy act allowing an appeal from a "jfl'dgment adjudging or re- fusing to adjudge the defendant a banJirupt," is to be understood as applying to cases of involuntary bankruptcy, for the use of the word "defendant" .implies that the proceeding is instituted against him by creditors. Hence it would appear that an order of the district court vacating (or refusing to vacate) an adjudication of bankruptcy made upon the voluntary petition of the debtor would not be subject to ap- peal.®^ Under the former statute, the Vule was that if a petition in in- voluntary bankruptcy was tried by the district court without a jury, and an adjudication made, its decision might be reviewed by the ap- pellate court under its superintending and revisory power, but not on appeal.** But this rule is exactly reversed by the express terms of the present act, and it is held that such an adjudication can be reviewed only on appeal, and not on a petition for revision.*^ But if the case is tried by a jury, the method of obtaining a review, both under the act of 1867 and the present statute, is not by appeal but by writ of error.** When an appeal is taken from such an adjudication, it is an "appeal as in equity cases," under the terms of the statute, that is to say, both the facts and the law are brought before the reviewing court.*' An order of the district court dismissing a petition in involuntary bankruptcy, on the ground that it does not state facts sufficient to constitute an act of bankruptcy, is a judgment "refusing to adjudge the defendant a bankrupt," and is therefore appealable under the statute.** But it seems that an order sustaining a demurrer to a petition filed for the purpose of vacating an adjudication in bankruptcy is not a judgment from which an appeal will lie under this. provision of the statute.** And it may in f;ict be said to be the settled rule that an order made upon an applica- tion or motion to vacate or set aside an adjudication in bankruptcy, whichever way it is. decided (whether, for instance, the court vacates 254 Fed. 39, 165 C. O. A. 449, 42 Am. mand was withdrawn and a hearing had Bankr. Rep. 688. without a jury. Marine Nat Bank v. 63 See In re Hall, 1 Dill. 587, Fed. Gas. Swigart (C. C. A.) 262 Fed. 854, 45 Am. No. 5,920. Bankr. Rep. 162. 64 In re Picton, 2 Dill. 548, 11 N,.B. R. 6 7 in re Neasmith, 147 Fed. 160, 77 0. 420, Fed. Oas. No. 11,136; In re O'Brien, 0. A. 402, 17 Am. Bankr. Rep. 128. 1 N. B. R. 176, Fed. Cas. No. 10,397. es Stevens v. Nave-McCord Mercantile 60 In re Good, 99 Fed. 389, 39 C. 0. Co., 150 Fed. 71, 80 C. C. A. 25, 17 Am. A. 581, 3 Am. Bankr. Rep. 605 ; Cook In- Bankr. Rep. 609. let Coal Fields Co. v. Caldwell, 147 Fed. 6 9 in re Ives, 113 Fed. 911, 51 0. C. A. 475, 78 C. C. A. 17, 17 Am. Bankr. Rep. 541, 7 Am. Bankr. Rep. 692 ; B. R. Elec- 136. trie & Telephone Mfg. Co. v. ..Etna Life 6,6 Supra, § 40. But appeal, and not a Ins Co., 206' Fed. 885, 124 C. 0. A. 545, writ of error, is. the proper remedy, 30 Am. Bankr. Rep. 424. though a jury was demanded, if the de- § 43 LAW or BANKKUPTCT 102 the adjudication and dismisses tlie petition for want of jurisdiction Of for any other reason, or whether the order dismisses a creditor's petition to vacate the adjudication for fraud) is not appealable, though it rnay be reviewed on a petition to revise.'* And an order that, if the alleged bankrupt shall appear and plead to the petition within five days, the adjudication will be set aside and the motion to quash service of sub- poena granted, cannot be appealed, because it is conditional and therefore not final. '^ Nor does an order come within the description of appeala- ble judgments which simply adjudges an individual to be a member of a bankrupt partnership and to be liable for its debts.'* § 43. Same; Decision on Discharge or Composition. — The bank- ruptcy act provides that an appeal may be taken from an order grant- ing or denying a discharge. This clause will of course apply equally to voluntary and involuntary cases, and the right of appeal may be claimed by the bankrupt when his application for discharge is denied, and by the creditors who have filed specifications in opposition to the discharge, when the same is granted.'^ An order of a court of bankruptcy dis- missing an application for discharge on the ground of want of prose- cution is, in substance and effect, one denying a discharge and is there- fore appealable.'* But where a creditor applies for an order to set -aside the discharge of the bankrupt, and it is denied on the ground that, if all the facts claimed by the creditor were established, they would not ■warrant the court in refusing a discharge, this action of the court is more properly reviewable on a petition for revision.'^ Where a bank- '"> Vallely v. Northern Fire & Marine ing or denying a discharge," and there- Ins. Co., 254 tr. S. 348, 41 Sup. Ct. 116, fore is not appealable. Ragan, Malone & '65 L. Ed. ■ — , 46 Am. Bankr. Rep. 340; Co. v. Cotton & Preston, 195 Fed. 69, In re De Camp Glass Casket Co. (C. C. 115 C. C. A. 576, 28 Am. Bankr. Rep. 246 ; A.) 272 Fed. 558, 47 Am. Bankr. Rep. 1 ; Id., 200 Fed. 546, 118 C. C. A. 640, 29 Bank of Elberton v. Swift (C. C. A.) Am. Bankr. Rep. 597. And review of an 268 Fed. 305, 46 Am. Bankr. Rep. 75; order overruling objections to a bank- Hart-Parr Co. v. Barkley, 231 Fed. 913, rupt's discharge will be denied until the 146 C. C. A. 109, 36 Am. Bankr. Rep. order is amended so as to show whether 540; In re Vanoscope Co., 233 Fed. 53, the objections were overruled on the 147 C. C. A. 123, 36 Am. Bankr. Rep. merits, or under the Impression that a 778 ; B-R Electric & Telephone Mfg. Co. proposed compromise had made them im- v. .SItna Life Ins. Co., 206 Fed. 885, 124 material. In re Doyle, 220 Fed. 434, 137 C. C. A. 545, 30 Am. Bankr. Rep. 424. C. C. A. 28, 34 Am. Bankr. Rep. 28. ' 71 In re Sutter Hotel Co., 241 Fed. 367, 74 in re Kuffler, 127 Fed. 125, 61 0. 154 C. C. A. 247, 39 Am. Bankr. Rep. 620. C. A. 259, 11 Am. Bankr. Rep. 469. A " Francis v. McXeal, 170 Fed. 445, 95 denial of a motion to dismiss an applica- C. C. A. 168, 22 Am. Bankr. Rep. 337. tion of a bankrupt for a discharge on un- 78 Feder v. Goetz (C. C. A.) 264 Fed. disputed facts presents a question of law 619, 45 Am. Bankr. Rep. 57. But an reviewable by petition to rerise. Lin- order simply affirming the report of a deke v. Converse, 198 Fed. 63.8, 117 C. special master on a contested application C. A. 322, 28 Am. Bankr. Rep. 596. for a discharge is not a "judgment grant- '= In re White, 248 Fed. 115, 160 C. 103 APPELLATE JURISDICTION AND PROCBDURH § 43 rupt*S li|)'plication for discharge was dismissed for a technical error, but no ofder was entered on the judge's minutes, and new proceedings were instituted, in which the former denial was pleaded as res judicata, it Was held that the bankrupt was still entitled to have an order entered oa the prior decision and to appeal therefrom.'"' An order denying an ap- plication for discharge will be reversed on appeal where clearly incon- sistent with the testimony in the case and the referee's report over- ruling the specifications of objection." Since the statute provides (§ 14c) that "the confirmation of a com- position shall discharge the bankrupt from his debts, other than those agreed to be paid by the terms of the composition and those not afifected by a discharge," a judgment confirming a composition is in efifect a Jtiidgmietit gratiting a discharge, and is therefore reviewable on appeal under this provision of the act.'® On the same principle, an appeal lies Srom an order of the district court refusing to confirm a composition ten- 'dered by the -debtoT and accepted by the required number of creditors. The right of appeal given by this section, it is said, is reciprocal, and :as the 'CorifirAiation of a composition discharges the bankrupt", opposing ''Creditors clearly have a right to appeal from such an order, and the bank- rupt ihas an eqnal ri-ght to appeal from an order refusing the confirma- 'tion. 'Such an appeal, moreover, is within the spirit of the provisions for review, since the order in either case is a final termination of the com- position proceedTn^-s which are provided for by the act as one of the •-methods for t'he settlement of the bankrupt's debts, and the effecting of (his discharge from further liability thereon.''* O. A. 255, 411 Am. Bailkr. Rep. 458; In 44 Am. Bankr. Rep. 464, 45 Am. Bankr. re Louisville Nat. Banking Co., 158 Fed. Rep. 180. 403, 85 C. C. A. 1513, 19 Am. Bankr. Rep. 7 9 United States y. Hammond, 104 Ffed., •'309. See ■'Commercual Bank of Manches- 862, 44 C. C. A. 229, 4 Am. Bankr. Rep. ter V. Buckner, 20 How. , 108, 15 L. Ed. 736, reversing In re Adler, 103 Fed. 444,. 862. A petition to revise, and not an 4 Am. Bankr. Rep. 583. But see In re' : appeal, :iB the proper mode of reviewing McVoy Hardware Co. (C. C. A.) 200 Fed.. an order setting aside a discharge. In 9^9, 29 Am. Bankr. Rep. 322. Where an re Jacobs, 241 Fed. 620, 154 C. C. A. 378, order dismissing a petition for conflrma- .39 Am/Bankr. Rep. 385. tion of a composition was predicated Train .-re Elkind, 175 i'ed. 64, 99 O. C. wholly on the proposition of law that the -A. 86, 23 Am. Bankr. Rep. 166. proposed offer was not a "composition," ^, r> ^ . ,., ^v.r^ -m ^ -, err ^n ^^^ ™ ^^^ manner Involved the question *In re Mertens, 144 Fed. 818, 75 C. 497; New Hampshire Savings Bank v. A. 548, 15 Am. Bankr. Rep. 362. Varner, 216 Fed. 721, 132 C. C. A. 631, 05 Coder v. Arts, 213 U. S. 228, 29 Sup. 33 Am. Bankr. Rep. 1. Compare Hutch- Ct. 436, 53 L. Ed. 772, 16 Ann. Cas. inson v. Otis, 190 U. S. 552, 23 Sup. Ct. 1008, 22 Am. Bankr. Rep. 1; Matter of 778, 47 L. Ed. 1179, 10 Am. Bankr. Rep. Loving, 224 U. S. 183, 32 Sup. Ct. 446, 56 135 ; Gaudette v. Graham, 164 Fed. 311, li. Ed. 725, 27 Am. Bankr. Rep. 852 ; 90 C. C. A. 243 ; Emerson v. Castor, 236 Bell V. Arledge, 192 Fed. 887, 113 C. C. Fed. 29,. 149 C. C. A. 239, 87 Am. Bankr. A. 161, 27 Am. Bankr. Rep. 778 ; In re Rep. 719. In re York, 1 Abb. U. S. 503, Doran, 154 Fed. 467, 83 C. C. A. 265, 18 4 N. B. R. 479, Fed. Cas. No. 18,139. It Am. Bankr. Rep. 760; Nauman Co. v. is very difficult to reconcile the rulings Bradshaw, 198 Fed. 350, 118 O. C. A. of the Supreme Court in the three eases 274, 27 Am. Bankr. Rep. 565; In re above cited, but the doctrine stated in Streator Metal Stamping Co. (C. 0. A.) the text appears to be in accordance 205 Fed. 280, 80 Am. Bankr. Rep. 55 ; with its latest decisions. Wuerpel v. Commercial Gei-manla Trust os In re Cosmopolitan Power Co., 137 & Savings Bank, 238 Fed. 269, 151 C. C. Fed. 858, 70 C. C. A. 888, 14 Am. Bankr. A. 285, 38 Am. Bankr. Rep. 223 ; In re Rep. 604 ; Courier-Journal Job Printing Hartzell, 209 Fed. 775, 126 C. C. A. 499, Co. v. Schaefer-Meyer Brewing Co., 101 31 Am. Bankr. Rep. 356; Bernard v. Fed. 699, 41 C. C. A. 614, 4 Am. Bankr. Lea, 210 Fed. 583, 127 C. C. A. 219, 31 Rep. 183; Cunningham v. German Ins. Am. Bankr. Rep. 436; Sterne v. Mer- Bank, 103 Fed. 932, 43 C. C. A. 377, 4 chants' Nat. Bank, 216 Fed. 862, 133 C. Am. Bankr. Rep. 192; In re Hartzell, C. A. 66, 38 Am. Bankr. Rep. 205 ; Home 209 Fed. 775, 126 C. C. A. 499, 31 Am. Bank for Saving v. Lohm, 223 Fed. 633, Bankr. Rep. 356 ; Morris v. Brush, 2 139 C. C. A. 179, 34 Am. Bankr. Rep. Woods, 354, 14 N. B. R. 371, Fed. Cas. 624 ; In re Lane Lumber Co., 217 Fed. No. 9,828. 546, 133 C. O. A. 398, 33 Am. Bankr. Rep. § 45 LAW OF BANKEDPTCT 108 cuted in the latter court must be the same one which was rejected by the former ; and it is not permissible, under cover of an appeal, to trans- form the claim into a new and distinct cause of action.*' The right of appeal in cases. of this kind is not confined to the trustee and the credi- tor whose claim is in question, but may be exercised by a creditor who has opposed its allowance.®* A trustee in bankruptcy may also appeal from an order denying his motion to expunge a claim allowed, unless further preferences were surrendered, and directing a return of a pref- erence previously surrendered by the creditor.^® § 45. Revisory Jurisdiction of Circuit Court of Appeals. — By the language of the statute, "the several circuit courts of appeal shall have jurisdiction in equity, either interlocutory or final, to superintend and revise in matter of law the proceedings of the several inferior courts of bankruptcy within their jurisdiction. Such power shall be exer- cised on due notice and petition by any party aggrieved." (Bankruptcy Act 1898, § 24b.) It will be observed that the proceeding thus au- thorized to be taken is not an appeal. The jurisdiction of. the review- ing court is original and not appellate, and is to be invoked simply by a petition filed by the party seeking a review. In fact, as will be shown in the next section, many decisions hold that th^ provisions of the act relating to appeals and to petitions for review are mutually ex- clusive. And the two remedies are neither dumulative nor is one in- tended as a substitute for the other.'^'" The revisory jurisdiction, it is held, extends only to orders made in the bankruptcy proceedings proper, and does not embrace proceed- ings in plenary suits by the trustee against third parties which might have been maintained in a state court.^'^ But it is otherwise as to or- ders made respecting funds or property in the control or custody of the court of bankruptcy, since these matters are subject to its summary jurisdiction. Thus, a petition lies under this clause of the act to review an order requiring the bankrupt to surrender to his trustee money or 07 In re Jaycox, 12 Blatchf. 209, 13 N. loi In re Rusch, 116 Fed. 270, 53 C. C. B, K. 122, Fed. Cas. No. 7,237. A. 631, 8 Am. Bankr. Rep. 518; lu re 8 In re Joseph, 2 Woods, 390, Fed. Jacobs, 90 Fed. 539, 39 C. C. A. 647, 3 Cas. No. 7,532. Am. Bankr. Rep. 671. Compare In re 8 Livingstone v. Helneman, 120 Fed. Bonesteel, 7 Blatchf. 175, 3 N. B. B. 517, 786, 57 C. C. A. 154, 10 Am. Bankr. Fed. Cas. No. 1,627. Where a court of Rep. 39. bankruptcy has erroneously retained ju- 100 Matter of Loving, 224 U. S. 183, 32 rlsdiction to adjudicate the rights of an Sup. Ct. 446, 56 L. Ed. 725, 27 Am. adverse claimant, its judgment may be Bankr. Rep. So2. ^Vud .see In re Charles reviewed on petition to^revlse. Shea v. Knosher & Co., 197 Fed. 136, 116 C. 0. Lewis, 206 Fed. 877, 124 C. C. A. 537, A. 560, 28 Am. Bankr. Rep. 747. 30 Am. Bankr. Rep. 436. 109 APPBLLATB JURISDICTION AND PEOCBDURIl § 45 property alleged to be in his possession and to belong to his estate in bankruptcy,"* an order adjudging him in contempt for disobeying an order requiring him to pay over money to his trustee,"* an order re- quiring him to indorse a liquor license so that it may be transferred to the trustee,"* an order requiring the surrender of property by the bankrupt's voluntary assignee for creditors, or by his alienee."® So also, the decision of a court of bankruptcy on a petition claiming own- ership' of funds in the hands of a bankrupt's trustee, may be reviewed on petition where the facts are not in dispute,"" and where a mortgagee in possession of property of the bankrupt surrenders it to the trustee, reserving the right to assert his lien 'against the proceeds of its sale, the proceeds are held by the court as assets of the bankrupt estate, and in dealing with the fund it acts as a court of bankruptcy, and its action on the claim of the mortgagee is subject to review on petition."'' And this is also the proper method of reviewing a decision as to the effect of the adjudication in bankruptcy upon a judgment lien acquired with- in four months prior thereto."* Generally speaking, any order made by the district court in the exercise of its summary jurisdiction may be reviewed in this manner,"® as also the various steps, taken in the ordi- nary and usual administration of estates. Thus, a petition lies to revise 10 2 In re Purvine, 96 Fed. 192, 37 O. hold (C. C. A.) 269 Fed. 139, 46 Am. C. A. 446, 2 Am. Bankr. Kep. 787; In Bankr. Rep. 246. re Shidlovsky, 224 Fed. 450, 140 C. C. A. io7 in re Antigo Screen Door Co., 123 654, 34 Am. Bankr. Rep. 861 ; Henkin Fed. 249, 59 C. C. A. 248, 10 Am. Bankr. V. Fousek, 346 Fed, 285, 159 0. 0. A. 15, Rep. 359. And see In re Flatland, 196 40 Am. Bankr. Rep. 701. Fed. 310, 116 C. C. A. 130, 28 Am. Bankr, 103 In re Cole, 163 Fed. 180, 90 C. C. Rep. 476. A. 50, 23 L. R. A. (N. S.) 255, 20, Am. los in re Riclaards, 96 Fed. 935, 37 C. Bankr. Rep. 761 ; Henkin v. Fousek (C. C. A. 634, 3 Am. Bankr. Rep. 145 ; Moore C. A.) 267 Fed. 557, 46 Am. Bankr. v. Green, 145 Fed. 472, 76 C. C. A. 242, Rep. 97. 16 Am. Bankr. Rep. 648. 104 Fisher v. Cuishman, 103 Fed. 860, io9in re Casey, 10 BlatcM. 376, 8 43 C. O. A. 381, 51 L. R. A. 292, 4 Am. N. B. R. 71, Fed. Cas. No. 2,495; Hurst Bankr. Rep. 646. v. Teft, 12 Blatchf. 217, 13 N. B. R. 108, 105 In re Abraham, 93 Fed. 767, 35 C. Fed. Cas. No. 6,939 ; In re Goldstein, C. A. 592,- 2 Am. Bankr. Rep. 266 ; Da- 216 Fed. 887. Orders upon the allow- vis V. Bohle, 92 Fed. 325, 34 C. C. A. 372, ance of counsel fees in connection with 1 Am. Bankr. Rep. 412 ; In re Gutwillig, a proposed composition are reviewable 92 Fed. 337, 34 C. 0. A. 377, 1 Am. by petition to revise. In re Kinnane Bankr. Rep. 388. Co.'s Estate, 242 Fed. 769, 155 C. C. A. 108 Hutchinson v. Le Roy, 113 Fed. 357, 39 Am. Bankr, Rep. 593. And an 202, 51 C. C. A. 159, 8 Am. Bankr. Rep. order allowing fees to the counsel for 20. A summary order adjudicating an the trustee is reviewable by petition to adverse claim, of which the court was revise, and not by appeal. Yaryan Rosin without jurisdiction in such proceeding, & Turpentine Co. v. Isaac (C. C. A.) 270 is reviewable ' by petition to revise. Fed. 710, 46 Am. Bankr. Rep. 421. Charles H. Brown Paint Co. v. Rock- § 45 LAW OF BANKRUPTCY HO in matter of law an order appointing a referee in bankruptcy ,^^* an or- der removing or refusing to remove a trustee in bankruptcy from his office,^^'- an order refusing to a bankrupt the right to amend his schedule in order to supply an accidental omission and claim his exemptions,"'' an order made on petition of a creditor directing the sale of property which had previously been set apart to the bankrupt as a homestead/^* a decision upon an application to confirm a sale of the bankrupt's es- tate,"* an order directing the distribution of the proceeds of a sale of real estate made by a triistee in bankruptcy,"® a decision of the court of bankruptcy upon an application for the confirmation of a composi- tion,^" and an order directing that a set-off of mutual debts be al- lowed.-'^'' So also, where a proceeding in bankruptcy is dismissed for want of jurisdiction, the trustee, having duly excepted, is entitled to have the order of dismissal reviewed, for error in matters of law, on an original petition in the circuit court of appeals."* But the latter court will not ordinarily review a mere incidental question of practice in the district court. ^^' And the reviewing court is not required to revise ev- ery interlocutory order in a bankruptcy proceeding, but only such de- crees as have a certain degree of definiteness and finality.-'*" It should be remarked, that the jurisdiction of the circuit court of appeals to review the proceedings of the district courts in bankruptcy, under this provision of the statute, is not limited by any measure of the amount in controversy or the value of the property involved.-'*^ But pro- ceedings for review do not operate to transfer to the appellate court the entire bankruptcy proceeding, to be continued there as in a court of first instance. The proceeding is not a removal of the case to the ap- pellate court, and the statute confers no power to execute the decrees 110 Ex parte Steele, 162 Fed. 694, 20 Bankr. Eep. 124. And see In re Seebold, Am. Bankr. Eep. 5T5. 105 Fed. 910, 45 O. C. A. 117, 5 Am. 111 In re Briggs, 61 Fed. 498, 9 C. C. A. Bankr. Rep. 358. 585. ^ .. ,„, T, ^ ».. 119 In re Robinson, 6 Blatchf. 253, 2 112 Goodman v. Curtis, 171 Fed. 644, n. B. II.-341, Fed. Oas. No. 11,939. 98 0. O. A. 398, 23 Am. Bankr. Eep. 504. 113 Ingram v. Wilson, 125 Fed. 913, "° ^^^ ''^ Ohotiner, 218 Fed. 813, 134 60 C. C. A. 618, 11 Am. Bankr. Eep. 192. ^- C. A. 501, 33 Am. Bankr. Eep. 288. 1" In re York, 1 Abb. U. S. 503, 4 N. '^^^^^' ^ ^^""^ ^''^er of the District Court, B. E. 479 Fed. Oas. No. 18,139. allowing the trustee to amend his spec- ie In re Groetzinger & Sons, 127 Fed. ideations of objection to the discharge 124, 62 C. 0. A. 124, 11 Am. Bankr. Eep. °^ ^^^ bankrupt, has not the finality nec- ^Qrj^ essary for review. In re Pechin, 227 110 In re South Boston Iron Co., 4 ^^- ^53, 142 0. C. A. 377, 35 Am. Bankr. Cliff. 343, Fed. Cas. No. 13,183. '^^^P- '^'^^■ 117 Wilson V. National Bank of EoUa, 121 In re Clark, 9 Blatchf. 379, 6 N. 1 McCrary, 588, 3 Fed. 391. B. E. 410, Fed.- Cas. No. 2,802 ; In re lis In re New England Breeders' Club, Eouse, Hazard & Co., 91 Fed. 96, 33 C. C. 169 Fed. 586, 95 0. 0. A. 84, 22 Am. A. 356, 1 Am. Bankr. Eep. 234. Ill APPELLATE JURISDICTION AND PROCEDURE §46 of the district court, or to assume primary exercise of the jurisdiction conferred on the latter as a court of bankruptcy.^** § 46. Appellate and Revisory Jurisdiction Contrasted; Choice of Remedies. — Several of the circuit cburts of appeals have held that the two grants of appellate jurisdiction to those courts contained in the bankruptcy act — that which gives them authority to review by appeal a controversy in bankruptcy, and that which gives them authority to superintend and revise in matter of law the proceedings of the several inferior courts of bankruptcy — are not exclusive of each other, but are concurrent or cumulative grants, .the former allowing a review of both questions of law and questions of fact, and the latter being restricted to the review of matters of law only, and that consequently an ag- grieved party often has, and may exercise, a choice of remedy as be- tween -these two methods of bringing his contention before the appel- late court.^** And this view obtains some support from a decision of the Supreme Court of the United States on a question certified to it by the circuit court of appeals in the eighth circuit. A petition for re- vision had been filed in the latter court, bringing up for review an or- der of the district court dismissing an involuntary petition in bank- ruptcy. This was clearly a "judgment refusing to adjudge the defend- ant a bankrupt," and therefore certainly an appealable order under the statute. The circuit court of appeals requested the instruction of the Supreme Court on the question whether it had jurisdiction to review the order on original petition, and the question was answered in the affirmative. But the point actually decided by the Supreme Court was that the circuit court of appeals in the eighth circuit had jurisdiction to review on original petition the proceedings in bankruptcy in the dis- trict courts of Oklahoma (then a territory), although the appellate ju- risdiction, properly so called, over those courts was vested in the su- preme court of the territory.^** In accordance with this view of the statute, it has been held that the circuit court of appeals should not decline to take jurisdiction of a petition for revision, notwithstanding the fact that the controversy is one which ought to have been brought up by appeal, where no objec- tion to the method of seeking a review is presented by the parties, 122 In re Bininger, 7 Blatchf. 165, 3 N. Bankr. Rep. 689; Dodge v. Norlin, 133 B. R. 487, Fed. Gas. No. 1,418. Fed. 363, 66 O. C. A. 425, 13 Am. Bankr. 123 In re McKenzie, 142 Fed. 383, 73 Rep. 176. C. C. A. 483, 15 Am. Bankr. Rep. 679; 12* Plymouth Cordage Co. v. Smith, In re Lee, 182 Fed. 579, 105 C. C. A. 117, 194 U. S. 311, 24 Sup. Ct. 725, 48 L. 25 Am. Bankr. Rep. 436 ; In re Holmes, Ed. 992. 142 Fed. 391, 73 C. O. A. 491, 15 Am. § 46 LAW OF BANKEUPTCT 112 and where only questions of law are presented for its consideration.^** So there is a decision that a party who has made a mistake in appeal- ing from an order which is not appealable may be permitted, in lieu of his appeal, to file a petition for revision.^^" And several rulings may be noted to the effect that, where a party has duly tiken an appeal from an (Order in bankrup'tcy, which is not appealable, the apipellate court need not dismiss the appeal and put the party to the necessity of commencing anew with a petition for revision, but may simply treat the appeal as if it were a petition for revision, and proceed to decide the controversy, provided that questions of fact are not involved;^*' Further, the doubt and confusion- which has hitherto prevailed as to the proper method of seeking a review of particular kinds of orders, increased by many conflicting decisions in different courts, has led coun- sel, in numerous instances, to take an appeal and at the same time file a petition for revision, in the same case and on the same question, in order to make sure of being heard by the appellate court. And sev- eral of the courts have held that taking this course does' not defeat the right to have the matter determined on the merits in whichever pro- ceeding ia- held- to be appropriate, so that the circuit court of appeals, having both an appeal and a petition before it, may dismiss the one which it deems improper and retain and adjudicate upon the other, or, indeed, according to some of the authorities, it may retain both pro- ceedings and hear both and grant relief upon either or both, accord- ing ,to its view of the justice and necessity of the case.^** But with the possible exception of the principle last stated, a gen- erally .contrary rule has come to prevail. In numerous cases it has been j 12.5 In re Endlar, 192 Fed. 763, 113 C. 496; Fisher, v. Cushman, 103 Fed. 860, C. A. ,48. And see Samson v. Blake,' 6 43 0. C. A. 381, 51 L. R. A. 292, 4 Am. N. B. E. 401, Fed. Oas. No. 12;284. Bankr. Rep. 646; Nauman Co. v. Brad- 126 In re Abraham, 93 Fed. 767, 35 C. shaw, 193 Fed. 350, 113 C. C. A. 274, 27 0. 4. 592, 2 Am. Bankr. Rep. 266. Am. Bankr. Rep. 565; Hendricks v. • 1^7 Chesapeake Shoe Co. v. Seldner, Webster, 159 Fed. 927, 87 C. C. A. 107, 20 12a Fed. 593, 58 O. C. A. 261, 10 Am. Am. Bankr. Rep. 112; In re Creech Bros. Bankr. Rep. 466; Gaudette v. Graham, Lumber Co., 240 Fed. 8, 153 C. C. A. 44, 164 FeS.\ 311, 90 O. C. A. 243; In re 39 Am. Bankr. Rep. 487; Fourth Nat. Williams' Estate, 156 Fed. 934, 84 C. Bank of Wichita v. Smith, 240 Fed. 19, C. A. 434, 19 Am. Bankr. Rep. 389 ; In 153 C. C. A. 55, 38 Am. Bankr. Rep. 771. re Abraham, 93 Fed. 767, 35 C. C. A. If a claimant whose demand has been 592, 2 Am. Bankr. Rep. 266. But this rejected by the District Court brings course cannot be taken where the ques- both an appeal and a petition to revise, tions presented for review all involve and on the appeal obtains reversal of the matters of fact. In re Wliitener, 105 judgment below, he has then exhausted Fed. ISO, 44 Xi. C, A. 434, 5 Am. Bankr. his remedies, and the petition should be Rep. 198. thereupon dismissed. Union Nat. Bank 128 In re Worcester County, 102 Fed. v. Neill, 149 Fed. 720, 79 0. 0. A. 426, 808, 42 C. C. A. 637, 4 Am. Bankr. Rep. 17 Am. Bankr. Rep. 853. 113 APPELLATE JURISDICTION AND PROCEDURE § 46 held that the right of appeal and the right of review on petition to re- vise are mutually exclusive; that an appealable judgment cannot be brought up on petition, and a question properly subject to be reviewed on petition cannot be made the subject of an appeal; that an appeal erroneously brought cannot be heard and determined as if it were a petition, and vice versa; and consequently, that a party who has mis- taken his remedy must be dismissed and put to the institution of a new proceeding in the proper form.*^' The rule as now established recog- nizes the distinction between questions of law and questions of fact as the criterion by which to determine whether a petition or an appeal is the proper remedy. If the order pr decision of the bankruptcy court sought to be reviewed resulted from a consideration of disputed facts and depended on findings made thereon, it is reviewable only by appeal, and not by petition to revise.'^^* Thus, for example, an order based on a finding that a certain deed of trust' had been paid involves a question of fact and can be reviewed only on appeal.-'^^'^ So, questions of fact concerning the rejection of a claim offered as a preferred claim, the chattel mortgage relied on being declared fraudulent, cannot be reviewed on petition for revision, but only by appeal.*** And the allowance by the bankruptcy court for the services of attorneys of the petitioning creditors instituting involuntary bankruptcy proceedings, involves ques- tions of fact only, so that a petition to revise should be denied.*'* But on the other hand, if only questions of law arise, no dispute as to facts being involved, appeal is not the proper remedy, but a petition for re- vision will He.*** And this is the case also where the facts upon which . 12 » Matter of Loving, 224 U. S. 183, 32 v. Fitzgerald, 219 Fed. 408, 135 C. C. A. gup. Ct. 446, 56 L. Ed. 725, 27 Am. Bankr. 212, 84 Am. Bankr. Rep. 261; In re Rep. 852; In re Mueller, 135 Fed. 711, 68 Thompson (0. C. A.) 264 Fed. 913, 45 Am. C. C. A. 349, 14 , Am. Bankr. Rep. 256; Bankr. Rep. 500; Feder v. Goetz (C. C. Brady v. Bernard, 170 Fed. 576, 95 C. C. A. A.) 264 Fed. 619, 45 Am. Bankr. Rep. 57. 656, 22 Am. Bankr. Rep. 342; Dickas v. iso In re Leigh (O. C. A.) 272 Fed. 678, Barnes, 140 Fed. 849, 72 C, C, A. 261, 47 Am. Bankr. Rep. 72; In re Prudential 5 L. R. A. (N. S.) 654, 15 Am. Bankr. Lithograph Co. (0. C. A.) 270 Fed. 469, Rep. 566; In re Kuffler, 127 Fed. 125, 61 46 Am. Bankr. Rep. 345; T. E. Wells C. C. A. 259, 11 Am. Bankr. Rep. 469; & Co, v. Sharp, 208 Fed. 399, 125 C. C. First Nat. Bank v. State Nat. Bank, 131 A. 615, 31 Am, Bankr. Rep. 348 ; Hender- Fed. 430, 65 C. C. A. 414, 12 Am. Bankr. son v. Morse, 235 Fed. 518, 149 0. C. A. Rep. 440; In re Friend, 134 Fed. 778, 67 64, 38 Am. Bankr. Rep. 22; Henkin C. C. A. 500, 13 Am. Bankr. Rep. v. Fousek, 246 Fed. 285, 159 Q. C. A. 15, 595; Salsburg v. Blackford, 204 Fed. 40 Am. Bankr. Rep. 701. 438, 122 0. C, A. 624, 29 A™- Bankr. isi Rison v. Parham, 219 Fed. 176, 134 Rep. 320; In re Martin, 201 Fed. 31, 119 C, C. A. 550, 35 Am. Bankr. Rep. 571. O. 0. A. 363, 29 Am. Bankr. Rep. 935; iss In re Russell, 247 Fed. 95, 159 C. Kirsner v. Taliaferro, 202 Fed. 51, 120 C. C. A. 313, 41 Am. Bankr. Rep. 234. O. A. 305, 29 Am. Bankr. Rep. 832; Court- 133 gall v. Reynolds, 224 Fed. 103, 139 ney v. Shea, 225 Fed. 358, 140 C. C. A. 0. C, A. 659, 34 Am. Bankr. Rep. 707. 382, 34 Am. Bankr. Rep. 753; Bothwell is* In re Hawley Down-Draft Furnace Blk.Bkr. (8d, Ed.)— 8 § 47 LAW OF BANKRUPTCY 114t the order of the bankruptcy court was based were stipulated by the parties, so that the order involves only questions of law.^*^ § 47. "Controversies" and "Proceedings in Bankruptcy" Distin- guished.'*— The present bankruptcy act, in its twenty-third, twenty- fourth, and twenty-fifth sections, establishes a clear distinction between "^proceedings in bankruptcy" and "controversies at law and in equity arising in bankruptcy proceedings." The statute also, in connection with that creating the circuit courts of appeals, prescribes the manner in which judgments or orders in each class of cases are reviewable, and such particular mode is exclusive. A judgment or decree in a con- troversy at law or in equity arising in bankruptcy proceedings is re- viewable by the circuit court of appeals under its organic act and under § 24a of the bankruptcy law by appeal or on writ of error, as may be appropriate, while a judgment or order in a proceeding in bankruptcy, if one of those specifically enumerated in § 2Sa, is reviewable only by appeal, and, if not within such excepted cases (save a judgment ren- dered on the verdict of a jury, which may be reviewed on writ of error), can only be reviewed on original petition for revision in matter of law, as provided in § 24b of the bankruptcy act.'^*^ It therefore becomes important to ascertain the nature of the dis- tinction between these two classes of cases. And first, it is said that the term "proceedings in bankruptcy" includes "all questions arising in the administration of the bankrupt's estate, such as the appointment of receivers and trustees, orders requiring the bankrupt to surrender prop- . erty of the estate in bankruptcy, orders requiring the bankrupt's volun- tary assignee to surrender property of the. estate, orders giving priority to the claim of a creditor, orders directing a set-off of mutual debts, and orders confirming a composition. These are questions which, with a view to the prompt administration and distribution of the assets of the bankrupt, the law permits to be summarily disposed of by revi- sion." ^^^ Or as otherwise stated, proceedings in bankruptcy are con- Co., 238 Fed. 122, 151 O. C. A. 198, 38 peal, and not by petition to revise. In Am. Bankr. Rep. 219; Weidhorn v. Levy, re Eilers Music House (O. C. A.) 270 Fed. 252 U. S. 268, 40 Sup. Ct. 534,' 64 L. Ed. 915, 46 Am. Bankr. Rep. 526. 898, 45 Am. Bankr. Rep. 493; Yaryan i3d in re J. B. Judkins Co., 205 Fed. Rosin & Turpentine Co. v. Isaac (C. O. 892, 124 C. C. A. 205, 30 Am. Bankr. Rep. A.) 270 Fed. 710, 46 Am. Bankr. Rep. 421; 529. Petition of Stuart (C. C. A.) 272 Fed. iso in re Friend, 134 Fed. 778, 67 C. 938; Nelson v. Heckslier, 219 Fed. 682, 0. A. 500, 13 Am. Bankr. Rep. 595. And 135 C. C. A. 354; In re Reilly, 258 Fed. see In re O'Gara Coal Co., 260 Fed. 742, 121, 169 C. C. A. 207, 43 Am. Bankr. 171 C. O. A. 480, 44 Am. Bankr. Rep. Rep. 159. Where a decision of a district 206. court involves both questions of law and isf Morehouse v. Pacific Hardware & questions of fact, it Is reviewable by ap- Steel Co., 177 Fed. 337, 100 C. C. A. 647 115 APPELLATE JURISDICTION AND PROCEDURE 47 fined to questions arising between the bankrupt and his creditors, and are the subject of administrative orders and judgments of the district court, from the petition for adjudication to the discharge, including inter- mediate administrative steps, and such controversies as arise between the parties to the bankruptcy proceedings as are involved in the allowing of claims and fixing their priorities, sales, allowances, and other matters which are disposed of summarily.^^* On the other hand, the "contro- versies'' spoken of in the act are distinct and' separable issues, raised between intervening parties, involving substantial rights, and such as might arise at common law or in equity, and of which the circuit courts of appeals would have had jurisdiction if those controversies had arisen in the federal courts in other cases outside of bankruptcy proceedings.-'^® They are "those independent or plenary suits which concern the bank- rupt's estate, and arise by intervention or otherwise between the trus- tees representing the bankrupt's estate and claimants representing some right or interest adverse to the bankrupt or his general creditors." "* 24 Am. Bankr. Rep. 178; Barton Lum- ber & Brick Co. v.. Prewitt, 231 Fed. 919, 146 C. C. A. 115, 36 Am. Bankr. Rep. 718; in re John W. Farley & Co., 227 Fed. 378, 142 C. C. A. 74, 36 Am. Bankr. Rep. 88. An order of the bankruptcy court refusing leave to intervene to stockhold- ers of a corporation defendant in invol- untary bankruptcy, is reviewable on pe- tition to revise. Ogden v. Gilt Edge Con- sol. Mines Co., 225 Fed. 723, 140 C. C. A. 597, 34 Am. Bankr. Rep. 893. So of an order overruling objections to its juris- diction of the parties and the matter set forth in a petition by the trustee in bankruptcy for instructions to begin a suit. Board of Road Oom'rs of Monroe County V. Keil, 259 Fed. 76, 170 C. C. A. 144, 44 Am. Bankr. Rep. 259. And a pe- tition to revise is the proper remedy for revievring an order enjoining the prose- cution of a suit Involving a fund over which the bankruptcy court has exclu- sive jurisdiction. Orinoco Iron Co. v. Metzel, 230 Fed. 40, 144 C. 0. A. 338, 86 Am. Bankr. Rep. 247. And so of an or- der fixing the fees of counsel for peti- tioning and intervening creditors. In re Jacobson, 239 Fed. 79, 152 C. 0. A. 129, 38 Am. Bankr. Rep. 425. . 13 8 Thompson v. Mauzy, 174 Fed. 611, 98 C. C. A. 457, 23 Am. Bankr. Rep. 489; In re Monarch Acetylene Co., 245 Fed. 741, 158 C. C. A. 143, 39 Am. Bankr! Rep. 381, 818; J. M. Radford Grocery Co. v. Powell, 228 Fed. 1, 142 C. C. A. 457, 35 Am. Bankr. Bep. 790; In re Weidhorn, 253 Fed. 28, 165 C. C. A. 48, 41 Am. Bankr. Rep. 592. See Jones v. Ford, 254 Fed. 645, 166 C. C. A. 143, 43 Am. Bankr. Rep. 88; Emerson v. Castor, 236 Fed. 29, 149 C. C. A. 239, 37 Am. Bankr. Rep. 719. Compare In re Leterman, Becher & Co., 260 Fed. 543, 171 G. C. A. 327, 44 Am. Bankr. Rep. 115. An order fixing the compensation of a referee in bank- ruptcy Is reviewable by petition to revise and not by appeal. Kinkead v. J. Bacon & Sons, 230 Fed. 362, 144 C. C. A. 504, 36 Am. Bankr. Rep. 390. And so of .an order made by the court of bankruptcy directing a trustee to qp.rry out a settle- ment previously made pursuant to au- thority given to him on his petition. Pe- tition of Baxter (C. C. A.) 269 Fed. 344, 46 Am. Bankr. Rep. 453. 130 In re Prudential Lithograph Co. (0. C. A.) 270 Fed. 469, 46 Am. Bankr. Rep. 345; Burleigh v. Foreman, 125 Fed. 217, 60 C. C. A. 109, 11 Am. Bankr. Rep. 74; Dodge v. Norlin, 133 Fed. 363, 66 C. C. A. 425, 13 Am. Bankr. Rep. 176; In re Breyer Printing Co., 216 Fed; 878, 133 C. C. A. 82. A question of liability of petitioning creditors for costs of a re- ceivership had in a bankruptcy proceed- ing is a controversy arising in bankrupt- cy between such creditors and adverse interests, so that an appeal, and not a petition to revise, is the proper remedy to review an order relating thereto. In re Veler, 249 Fed. 633, 161 C. C. A. 543, 41 Am. Bankr. Rep. 736. 140 Barnes v. Pampel, 192 Fed. 525, § 47 LAW OF BANKRUPTCY lie Among the class of "pfoceedings in bankruptcy," which are of a summary nature and are reviewable by petition for revision, we may include an order of the court of bankruptcy requiring a bankrupt to assign and turn over to his trustee certain property of his estate,""- an order similarly made requiring the members of a bankrupt partnership to schedule and surrender their individual property,"* and an order, made in the exercise of the summary jurisdiction, directing the turn- ing over of money or property by any third person to a trustee in bank- ruptcy,"* as, for instance, one to whom the bankrupt had previously made a general assignment for the benefit of his creditors, and who has possession of the property,"* or a receiver of a state court similarly in possession of assets of the estate."* This is also true of an order requiring a creditor of the bankrupt to return property which was mis- takenly surrendered to him by a receiver in bankruptcy,*'"' or one re- quiring such creditor to pay to the trustee the amount of an unlawful preference.**" It may also be noted that orders of a court of bank- ruptcy relating to the sale of property of the bankrupt's estate are regu- lar steps in the proceedings, and not "controversies" within the mean- ing of the act."* And so of decisions concerning the validity of mort- 113 C. 0. A. 81, 27 Am. Bankr. Eep. 192. A petition asserting a lien on property In possession oJt the banlcruptcy court presents a controversy in a banliruptcy proceeding, reviewable by appeal. In re Sola e Hijo (0. O. A.) 261 Fed. 82L!, 44 Am. Bankr. Eep. 372. But a question raised by the claimant of property ad- verse to a trustee In bankruptcy, wheth- er the bankruptcy court had jurisdiction to determine that claim, Is a question in a proceeding in banliruptcy, reviewable by petition to revise. Gibbons v. Gold- smith, 222 Fed. 826, 138 f). 0. A. 252, .'{5 Am. Bankr. Rep. 40. An order made In a common-law action wherein the bank- rupt was a defendant cannot, after bank- ruptcy, be reviewed on ii petition to ra- vine orders in bankruptcy. Xu re Van- oscope (Jo., 233 Fed. 5:i, 147 C. C. A. VS.',, 36 Am. Bankr. Rep. 778. 111 In re Mertens, 112 Fed. 445, 73 0. 0. A. r,r,], 15 Am. Bankr. Hop. 701; Ifoi- ton v. Mendelsohn, 240 Fed. 1S.5, 161 C. 0. A. ;i21, 41 Am. Bankr. Rep. 648. But see Galbralth v, RoscriHteln, 250 Fed. 415, 102 C. C. A. 515, 42 Am. Bankr. Itep. !>]. And compare Jones v. Blair, 242 Fed. 78."., 155 0. 0. A. 371, 30 Am. Bankr. Rep. 569. 112 Dlckas V. Barnes, 140 Fed. 849, 72 0. C. A. 261, 5 L. R. A. (N. S.) 654, 15 Am. Bankr. Rep. 500. i*s In re Rose Shoe Mfg. Co. (0. 0. A.) 168 li'eil. 39, 21 Am. Bankr. Itcp. 725; O'Dell V. Boyden, 150 Fed. 731, 80 0. (!. A. 397, 17 Am. I'.unUr. Itcp. 751; Board of Education of Salt Lake City v. Leary, •2:;r, j.',.||. .521, 1^9 0. 0. A. 573, 38 Am. Bankr. Itcp. 280. Ill In re, Farrell, 176 Fed. 505, 100 0. ,C. A. (i:j, 23 Am. Bankr. Itcii. 826; In re Aljrahuni, 93 J''cd. 7(i7, .•!5 C. 0. A. 592, 2 Am. Bankr. Rep. 201;. See Orecy v. DocIc(M](lorl'f, 231 U. S. 51."!, 34 Suri. Ct. Wk 58 L. Ed. 339, ;)1 Am. Bankr. Rep. 407. iio In re Mecox (C. O. A.) 164 Fed. 82:!, 21 Am. Bankr. Itcp. :(14; State of Mis- souri V. Angle, 2:!(i Fed. (ill, 149 0. C. A. (ilO, .38 Am. Baiilcr. Rep. 391. 110 In re StroI)el (fi. (',. A.) 160 Fed. 910, 20 Am. Bankr. Rep. 22. Mr In re First Nat. BiiuU, ].55 Fed. 100, 84 C. 0. A. 10, 18- Am. nnnkr. Ilcii. 766; Wueriicl v. Oanal-Loulslana Bank & Trust Co., 231 Fed. 934, 146 C. 0. A. l.'iO, :»; Am. Bankr. Rep. 802. i<" Schuler v. HassinKcr, 177 Fed. 119, 100 C. C. A. .5;!9, 24 Am. Bankr. Rep. 184; First Nat. Kuiik v. CIiIchko Title & Trust Co., 198 U. S. 280, 25 Sup. Ct. 117 APPELLATE JURISDICTION AND PROCEDURE § 47 gages or deeds of trust on his property made by the bankrupt,**' And an order allowing or rejecting the claim of a creditor offered for proof in the bankruptcy proceedings is not a "controversy" but a "proceeding in bankruptcy."*^ And so of the decision on objections by creditors to the accounts f-endered by the trustee,*^* and of an order dismissing a petition for the revocation of the bankrupt's discharge.*®^ But on the other hand, a separate and independent litigation, wheth- er instituted by petition in the bankruptcy court in the nature of a bill in equity or by intervention or by a plenary suit at law, conceirning property alleged to belong to the estate in bankruptcy, and maintained between the trustee in bankruptcy, as representing the estate, and an adverse claimant representing some right or interest adverse to the bankrupt or his general creditors, is a "controversy arising in bank- ruptcy proceedings." "* Thus, where a trustee instituted proceedings 693, 49 L. Ed. 1051, 14 Am. Bankr. Rep. 102; In re McMahon (C. C. A.) 147 Fed. 684, IT Am. Bankr. Rep. 530; Pindel v. Holgate, 221 Fed. 342, 137 C. 0. A. 158, Ann. Cas. 1916C, 983, 34 Am. Bankr. Rep. 600; In re Veler, 249 Fed. 633, 161 0. G. A. 543, 41 Am. Bankr. Rep. 736; Griffin v. Lenhart (C. C. A.) 266 Fed. 675, 46 Am. Bankr. Rep. 134. On petition to revise an order confirming a sale of a homestead, the allowance of a claim will be reviewable, where the necessity of a sale was mainly dependent upon the validity of such claim. Pindel v. Hol- gate, 221 Fed. 342, 137 0. 0. A. 158, Ann. Cas. 1916C, 983, 34 Am. Bankr. Rep. 600. An order sustaining the referee's dismiss- al of a rule to compel the trustees to convey land to the highest bidder, is not reviewable by appeal. Untereiner v. Camors, 228 Fed. 890, 143 C. 0. A. 288, 36 Am. Bankr. Rep. 122. An appeal can- not be taken from an order of sale of the bankrupt's real estate freed and dis- charged of the wife's right of dower, such order being reviewable only 'on petition to revise. Kelly v. Minor, 252 Fed. 115, 164 0. C. A. 227, 41 Am. Bankr. Rep. 275. 140 Morgan v. First Nat. Bank, 145 Fed. 466, 76 C. C. A. 236, 16 Am. Bankr. Rep. 639; Ritchie County Bank v. McFar- land, 183 Fed. 715, 106 C. O. A. 153, 24 Am. Bankr. Rep. 893. And so of an or- der determining the right to participate in the proceeds of admittedly valid se- curities. Snow V. Dalton, 203 Fed. 843, 29 Am. Bankr. Rep. 240. And see Hutt- ing Sash & Door Co. v. Stitt, 218 Fed. 1, 133 C. 0. A. 641, 33 Am. Bankr. Rep. 251; Luck v. Staples, 255 Fed. 637, 167 O. C. A. 13, 42 Am. St. Rep. 198; Whit- ney Central Trust & Savings Bank v. United States Const. Co., 250 Fed. 784, 163 C. C. A. 116, 41 Am. Bankr. Rep. 381. But appeal is the proper remedy to review an order in bankruptcy setting aside a deed as a voidable preference. Bridgeton Nat. Bank v. Way, 253 Fed. 731, 165 C. C. A. 325, 42 Ain. Bankr. Rep. 204. And see City Nat. Bank v. Slocum (C. C. A.) 272 Fed. 11, 47 Am. Bankr. Rep. 47. 150 TefEt V. Munsuri, 222 U.S. 114, 32 Sup. Ct. 67, 56 L. Ed. 118, 27 Am. Bankr. Rep. 338. 151 In re Moore, 166 Fed. 689, 92 C. C. A. 285, 21 Am. Bankr. Rep. 651; In re ICuhn Bros., 234 Fed. 277, 148 C. C. A. 179. 152 Thompson v. Mauzy, 174 Fed. 611, 98 C. 0. A. 457, 23 Am. Bankr. Rep. 489. An order of a court of bankruptcy deny- ing to a creditor a motion to set aside an order of adjudication is reviewable on petition to revise. Armstrong v. Nor- rls, 247 Fed. 253, 159 C. C. A. 347, 40 Am. Bankr. Rep. 735. See Youtsey v. Niswonger, 258 Fed. 16, 169 C. C. A. 154, 44 Am. Bankr. Rep. 109. 15 3 Hewit V. Berlin Machine Works, 194 U. S. 296, 24 Sup. Ct. 690, 48 L. Ed. 986, 11 Am. Bankr. Rep. 709; Coder v. Arts, 213 U. S. 223, 29 Sup. Ct. 436, 53 L. Ed. 772, 22 Am. Bankr. Rep. 1; Tefft V. Munsuri, 222 U. S. 114, 32 Sup..Ct. 67, § 47 LAW OF BANKRUPTCY 118 to set aside certain conveyances of real estate alleged to have been made in fraud of the bankrupt's creditors, and also to vacate the lien of a mortgage thereon as against the mortgagee, who was not a party to the bankruptcy proceedings and not a creditor of the estate, but a stranger thereto, asserting rights paramount to and independent of those of the estate, the proceeding was held to be a "controversy," as distinguished from a "proceeding in bankruptcy," within the meaning of the statute.'^"* And so of a petition by a trustee to have certain ad- verse claims and liens on property belonging to the estate declared void, and :^r a sale of the property free and clear of the same,'®* and of a decision that a chattel mortgage on the property of the bankrupt is void- able by the trustee, and that the mortgagee has no lien and no prefer- ence in payment out of its proceeds.'*® So, where proceedings are in- stituted by the trustee to compel the payment to him of the proceeds of a sale of the bankrupt's assets, this is a controversy arising in bank- ruptcy proceedings,'*' and the same is true of a proceeding on a petition' filed by an adverse claimant to recover property from a trustee in 56 L. Ed. 118, 27 Am. Bankr. Eep. 338; Barnes v. Pampel, 192 Fed. 525, 113 C. C. A. 81, 27 Am. Bankr. Rep. 192; Dero- show V. Ott, 134 Fed. 740, 67 C. C. A. 644, 14 Am. BaDkr. Rep. 34; Hinds v. Moore, 134 Fed. 221, 67 C. C. A. 149, 14 Am. Bankr. Rep. 1; Mound Mines Co. v. Hawthorn, 173 Fed. 882, 97 C. C. A. 394, 23 Am. Bankr. Eep. 242; Loeser v. Sav- ings Deposit Bank & Trust Co., 163 Fed. 212, 89 C. C. A. 642, 20 Am. Bankr. Rep. 845; Knapp v. Milwaukee Trust Co., 162 Fed. 675, 89 C. C. A. 467, 20 Am. Bankr. Rep. 671; Security Warehousing Co. v. Hand, 143 Fed. 32, 74 C. C. A. 186, 16 Am. Bankr. Rep. 49; Dodge v. Norlln, 133 Fed. 363, 66 C. C. A. 425, 13 Am. Bankr. Rep. 176; John Deere Plow Co. V. McDavid, 137 Fed. 802, 70 C. C. A. 422, 14 Am. Bankr. Rep. 653; In re First Nat. Bank, 135 Fed. 62, 67 C. C. A. 536, 14 Am. Bankr. Rep. 180; Walter Scott & Co. V. Wilson, 115 Fed. 284, 53 C. C. A. 76, 8 Am. Bankr. Rep. 349; Warren v. Tenth Nat. Bank, 9 Blatchf. 193, Fed. Cas. No. 17,201. But see In re Petroulo, 220 Fed. 269, 136 C. C. A. 285, 34 Am. Bankr. Rep. 470. A decree re.1ecting a landlord's claim against a bankrupt, but allowing a lien covering a portion of tlie rent Is reviewable by appeal. Courtney V. Fidelity Trust Co., 219 Fed. 57, 134 C. C. A. 595, 33 Am. Bankr. Rep. 400. An action on the bond of a trustee in bankruptcy is a plenary action^ and the judgment therein Is not reviewable by petition to revise. United States v. Rug- gles, 221 Fed. 256, 137 C. C. A. 109, 34 Am. Bankr. Rep. 91. 164 Barnes v. Pampel, 192 Fed. 525, 113 C. C. A. 81, 27 Am. Bankr. Rep. 192. And see McCarty v. Coffin (0. C. A.) 150 Fed. 307, 18 Am. Bankr. Rep. 148. See Bassett v. Evans, 253 Fed. 532, 165 C. C. A. 202, 42 Am. Bankr. Rep. 587. Where, on a petition by the trustee to sell the property of the bankrupt, a lien claim- ant files an intervening petition assert- ing the priority of his lieu over a deed of trust, and the trustee under the trust deed flies an answer, the question' of priority thus raised is a controversy arising in a bankruptcy proceeding, and reviewable only by appeal. Feiek v. Stephens, 250 Fed. 191, 162 C. C. A. 327, 41 Am. Bankr. Rep. 333. 155 Thomas v. Woods, 173 Fed. 585, 97 C. O. A. 535, 26 L. R. A. (N. S.) 1180, 19 Ann. Cas. 1080, 23 Am. Bankr. Rep. 132. See In re Streator Metal Stamping Co., 205 Fed. 280, 123 C. C. A. 444, 30 Am. Bankr. Rep. 55. 150 Dodge V. Norlin, 133 Fed.i^363, 66 C. C. A. 425, 13 Am. Bankr. Rep. 176. 15 7 Mason v. Wolkowich, 150 Fed. 699, 80 C, C. A. 435, 10 I.. R. A. (N. S.) 765, 17 Am. Bankr. Rep. 709. 119 APPELLATE JURISDICTION AND PEOCEDUEB | 48' bankruptcy.^^* So also is a dispute between a receiver in bankruptcy and an outside person as to whether a contract was made between them for the sale and purchase of property of the estate, brought before the bankruptcy court for determination,^**® and an order of the court of bankruptcy requiring the bankrupt's attorney to account for a payment received in contemplation of bankruptcy,*"" and an order to show cause why petitioners should not be punished for contempt for violating an injunction of the court of bankruptcy in a collateral matter."* And where a claim to personal property sold by the claimant to the bank- rupt under a conditional sale was denied, because not filed within a year after the adjudication in bankruptcy, and also because the state law regulating such sales had not been complied with, the decision of the district court may be reviewed on appeal, as being a "controversy arising' in bankruptcy." "* § 48. Reviewing Discretionary Action of District Court. — In the ordinary course of a proceeding in bankruptcy, there are many matters which are not governed by fixed and invariable rules, but are necessarily confided to the sound judicial discretion of the judge of the bankruptcy court, to be exercised upon a consideration of the peculiar facts and cir- cumstances of the case and in accordance with equitable principles. His decisions upon these matters may be brought before the circuit court of appeals for review, either by appeal or petition for revision, ac- cording as the one procedure or the other is appropriate. But the ap- pellate courts have established and will apply the rule that, in cases of this kind, they will not reverse the decision of the court below unless it is unmistakably wrong, or unless a plain abuse of discretion is IBS Smith V. Means, 148 Fed. 89, 78 C. 519, 147 C. C. A. 405, 37 Am. Bankr. Bep. O. A. 10, 17 Am. Bankr. Rep. 433; Lid- 10. Denial of a petition filed by a don & Bro. v. Smith, 135 Fed. 43, 67 claimant of money which had been tum- C. C. A. 517, 14 Am. Bankr. Rep. 204; ed over to the court of bankruptcy, ask- American Piano Co. v. Heazel, 240 Fed. ing to intervene against the tnistee, was 410, 153 C. C. A. 336, 38 Am. Bankr. Rep. held reviewable only by petition to re- 677; Howard 0. Thomas Co. v.'Behar- vise, and not by appeal. In re Consum- rell, 229 Fed. 691, 144 C. C. A. 101, 36 ers' Packing Co. (C. C. A.) 268 Fed. 198, Am. Bankr. Rep. 688; Gibbons v. Gold- 46 Am. Bankr. Rep. 338. smith, 222 Fed. 826, 138 C. C. A. 252, iss In re J. Jnngmann, Inc., 186 Fed. 35 Am. Bankr. Rep. 40; In re H. L. Her- 302, 108 C. C. A. 380, 26 Am. Bankr. Rep. bert & Co. (C: C. A.) 263 Fed. 351, 45 401. An4 see Dalton v. Humphreys, 242 Am. Bankr. Rep. 20; In re Gold, 210 Fed. 777, 155 C. C. A. 365, 39 Am. Bankr. Fed. 410, 127 C. C. A. 142, 31 Am. Bankr. Rep. 360. Rep. 18; Scandinavian -American Bank loo in re Raphael (C. C. A.) 192 Fed. V. Sabin, 227 Fed. 579, 142 C. C. A. 211, 874. 36 Am. Bankr. Rep. 151; Petition of Na- loi Morehouse v. Pacific Hardware & tional Discount Co. (C. C. A.) 272 Fed. Steel Co., 177 Fed. 337, 100 C. C. A. 647, 570, 47 Am. Bankr. Rep. 12; In re Toole 24 Am. Bankr. Rep. 178. (C. C. A.) 270 Fed. 195, 46 Am. Bankr. lea Nauman Co. v. Bradshaw (C. C. A.) Rep. 243. See In re Pierson, 233 Fed. 193 Fed. 350, 27 Am, Bankr. Rep. 565. § 48 LAW OF BANKRUPTCY 120 shown.^®* Thus, a circuit courj: of appeals will not attempt to control the discretion of the district court in the matter of appointing and re- moving referees.^** And where the trustee selected by the creditors has been approved by the district judge, the appointment will not be dis- turbed unless an abuse of discretion is shown."" Again, the bank- ruptcy act provides that suits pending against a bankrupt "may be stayed" for a period of twelve months or until the question of his dis- charge is determined. This invests the bankruptcy court with authority, but does not impose upon it an invariable duty ; and the granting or re- fusing of an order staying a pending suit rests in the discretion of the district court, and its action will not be interfered with by the appellate court unless it is plain that such discretion has been abused.^^ So, in the examination of third persons as witnesses in bankruptcy proceed- ings and the scrutiny of their books and papers, the court of bankruptcy should see to it that the examination is confined to the legitimate ob- jects of such an investigation, that is, the discovery of assets of the bankrupt or of grounds of opposition to his discharge. But in this mat- ter it is invested with a wide discretion, and a manifest abuse of such discretion must be shown before the appellate court will interfere."' The same rule has been applied on review of the action of the court of bankruptcy in refusing to permit an amendment of a petition in involun- tary bankruptcy for the purpose of inserting additional alleged acts of bankruptcy,^^ its denying to a creditor the right to amend his specifica- ics In re J. B. Judklns Co. (C. O. A.) 555, 135 0. 0. A. 323, 33 Am. Bankr. Rep. 205 Fed. 892, 30 Am. Bankr. Rep. 529; 616. Blackstone v. Everybody's Store (C. C. loo In re Lesser, 99 Fed. 913. 40 C. A.) 207 Fed. 752, 30 Am. Bankr. Rep. C. A. 177, .S Am. Bankr. Rep. 758; 497; Fallows v. Continental & Commer- New River Coal Land Co. v. RufCner cial Trust & Savings Bank, 235 U. S. 300, Bros., 165 Fed. 881, 91 C. C. A. 559, 20 35 Sup. Ct. 29, 59 L. Ed. 238; In re Am. Bankr. Rep. 100; In re Guanacevi Graflf, 250 Fed. 997, 163 C. C. A. 247, Tunnel Co. (C. C. A.) 201 Fed. 316, 29 41 Am. Bankr. Rep. 32; Babbitt v. Read, Am. Bankr. Rep. 229. And the deter- 240 Fed. 694, 153 C. 0. A. 492, 39 Am. mination of the district judge as to Bankr. Rep. 508; In re Margolies (O. C. whethei* administration of a mortgaged A.) 266 Fed. 203, 45 Am. Banjir. Rep. stock of merchandise shall be left to the 412. Thus, rejection of charges against state court, which had taken jurisdlc- a receiver in bankruptcy for expenses tion, or be brought into bankruptcy, will incurred under receiver's orders or con- not be reviewed unless his diseretipn tracts for the preservation or care of the was clearly abused. Bank of Dillon v. bankrupt's estate is within the discre- Murchison, 213 Fed. 147, 129 C. C. A. 499, tion of the bankruptcy court, and its ac- 31 Am. Bankr. Re]). 740. ti(in thereon will not be reviewed on ap- i».f In re Horgan, OS Fed. 414, 39 0. C. peal. O'Brien v. Ely (C. C. A.) 195 Fed. A. 118, ."> Am. Bankr. Rep. 253. 64, 28 Am. Bankr. B«p. 247. ics Pittsburgh Laundry Supply Co. v. 104 Birch v. Steele, 165 Fed. 577, 91 0. Imperial Laundry Co-, 154 Fed. 662, 83 C. A. 415, 21 Am. Bankr. Rep. 539. C. C. A. 486, 18 Am. Bankr. Rep. 756. 106 In re Merritt Const. Co., 219 Fed. And see Sabin v. Blake-McFall Co., 223 121 APPELLATE JURISDICTION AND PEOCEDUHB § 48 tions in opposition to the bankrupt's application for discharge,^*® its action in granting an alleged bankrupt more than the statutory five days in which to answer,"** or in taking off the trustee's default in respect to opposing the bankrupt's discharge and allowing him to file objections,"^ the dismissal of a petition in involuntary bankruptcy for want of prose- cution,^''* the refusal of a judge sitting in bankruptcy to sanction an ar- rangement between the bankrupt and certain of his creditors and per- sons who had received preferential transfers,^'* the refusal to allow a commission to a broker who had negotiated a sale of property of the bankrupt,"* the action of the district court in fixing the time; terms, and conditions of a sale of the bankrupt's pi-operty,"*" and its adoption or rejection of a verdict of a jury which was taken as advisory only."* Even on the hearing of an application for discharge there may be room for the exercise of a judicial discretion which should not be interfered with on appeal. Thus, where the granting of a discharge to a bankrupt was objected to on the ground that he had fraudulently concealed the proceeds of property sold, and there was reasonable ground for the action of the district judge in discrediting his testimony given in ex- planation, the exercise of his discretion will not be reviewed.-*^" In view of the wide discretionary power of the court of bankruptcy over the allowance and fixing of fees to counsel, receivers, and others, its' decisions on these matters will not be reversed on review unless a plain abuse of discretion appears."* Thus, on a petition to revise an order making certain allowances to a bankrupt's receiver and his coun- sel, where the record merely showed the receipts and disbursements and that nearly half of the assets were used for expenses of administration, this was held not sufficient to show an abuse of the discretion vested in the court of bankruptcy.*'* Fed. 501, 139 0. C. A. 49, 35 Am. Bankr! 100 C. C. A. 539, 24 Am. Bankr. Eep. Kep. 179. 184; In re Throckmorton, 196 Fed. 656, 10 8 In re Carley, 117 Fed. 130, 55 0. 116 C. C. A. 348, 28 Am. Bankr. Bep. 487. O. A. 146, 8 Am. Bankr. Rep. 720. The discretion of the bankruptcy court 17 Blackstone v. Everybody's Store, in approving or setting aside a public 207 Fed. 752, 125 C. 0. A. 290, 30 Am. sale of the bankrupt's property will not Bankr. Rep.. 497. be disturbed or interfered with unless 171 In re Horowitz, 250 Fed. 106, 162 abused.' Jacobsohn v. Larkey, 245 Fed. C. C. A. 278, 41 Am. Bankr. Rep. 369. 538, L57 C. C. A. 650, L. R. A. 19180, 17 2 In re Levi & Klauber, 142 Fed. 1176, 40 Am. Bankr. Rep. 563. 962, 74 C. C. A. 132, 15 Am. Bankr. Rep. "e oil WeU Supply Co. v. Hall, 128 294. Fed. 875, 63 C. C. A. 343, 11 Am. Bankr. 17 3 Mulford V. Fourth Street Nat. Rep. 738. Bank, 157 Fed. 897, 85 0. C. A. 225, 19 "7 Seigel v. Cartel, 164 Fed. 691, 90 C. Am. Bankr. Rep. 742. 0. A. 512. 174 Gold v. South Side Trust Co., 179 its in re Grant, 238 Fed. 132, 151 C. Fed. 210, 102 C. C. A. 476, 24 Am. Bankr. C. A. 208, 88 Am. Bankr. Rep. 210; In re Rep. 578. Kinnane Co.'s Estate, 242 Fed. 769, ,155 176 Schuler v. Hassinger, 177 Fed. 119, C. O. A. 357, 39 Am. Bankr. Rep. 593! 17 In re Cash-Papworth Grow-Sir, 210 § 49 LAW OF BANKRUPTCY 122 § 49. Time of Taking Appeal or Petition for Review. — ^As to ap- peals to the Supreme Court of the United States, it is provided by Gen- eral Order No. 36 that an appeal to that court "from a circuit court of appeals, or from the supreme court of a territory, or from the supreme court of the District of Columbia, or from any court of bankruptcy whatever, shall be taken within thirty days after the judgment or de- cree." But it is held that this limitation does not apply to a writ of error from the federal supreme court to a court of bankruptcy, present- ing the question of the jurisdiction of the latter to make an adjudication of bankruptcy, but such proceeding is governed by the two-year limita- tion fixed by other statutes.^** But where the limitation of thirty days is applicable, the time cannot be extended by filing a petition for re- hearing after the thirty days have expired.'^*^ The same order requires that the court below, at or before the time of entering the judgment, shall make and file findings of fact and conclusions of law. A sufficient compliance with this direction is shown where, the appeal having been taken within the thirty days, the circuit covtrt of appeals made its find- ings of fact and conclusions of law a part of the record by an order made within the thirty days, directing the same to be filed nunc pro tunc as of the date of the judgment."^ As to appeals from a court of bankruptcy to a circuit court of appeals, in the three cases specified in the twenty-fifth section of the bankruptcy act, the requirement is that "such appeal shall be taken within ten days after the judgment appealed from has been rendered." In connection with this provision is to be read another section of the act, which di- rects that "whenever time is enumerated by days in this act, the number of days shall be computed by excluding the first and including the last, unless the last fall on a Sunday or holiday, in which event the day Fed. 24, 126 C. C. A. 604, 31 Am. Bankr. Sup. Ct. 650, 54 L. Kd. 967, 29 L. K. A. Rep. 709. (N. S.) 250. In effect, the limitation of 180 Frederic L. Grant Shoe Co. v. W. time in the bankruptcy act and in the M. Laird Co., 212 U. S. 445, 29 Sup. Ct. general orders relates only to appeals 332, 53 L. Ed. 591, 21 Am. Bankr. Rep. taken expressly under the bankruptcy 484. So an appeal to the Supreme Court statute, and does not apply to an appeal from a decree of a circuit court of ap- from a decision rendered on a formal peals on a bill in equity brought by a appeal taken under section 24a of the trustee in bankruptcy to set aside a act in a "controversy" arising in a bank- transfer of property by the bankrupt, al- ruptcy proceeding. Hobbs v. Head & leged to have been made in fraud of Dowst Co. (C. C. A.) 191 Fed. 811, 27 creditors, need not be taken within the Am. Bankr. Rep. 484. thirty days prescribed by the general or- i8i Conboy v. First Nat. Bank, 203 U. ders, but as the appellate jurisdiction is S. 141, 27 Sup. Ct. 50, 51 L. Ed. 128, 16 under, or the same as that under, the Am. Bankr. Rep. 773. circuit court of appeals act of 1891, the i*^ Coder v. Arts, 213 U. S. 223, 29 appeal is In time if taken within a year. Sup. Ct. 436, 53 L. Ed. 772, 16 Ann. Cas. Thomas v. Sugai-man, 218 U. S. 129, 30 1008, 22 Am. Bankr. Rep. 1. 123 APPELLATE JURISDICTION AND PEOCEDURH § 49 last included shall be the next day thereafter which is not a Sunday or a legal holiday." ^** A judgment of a court of bankruptcy is presump- tively "rendered" on the date of its filing with the clerk, and the' ten days for taking an appeal will begin to run from that time, notwith- standing the order bears an earlier date.^** Where an appeal in a prop- er case is prayed and allowed within the ten days, as prescribed by the statute, the failure to file a bond and serve the citation until a few days after such- period will not necessitate a dismissal of the appeal, no mate- rial prejudice being shown.^** But the requirement as to the time of tak- ing the appeal itself is imperative. If the appeal is not taken within the ten days limited, the appellate court will have no jurisdiction of the case and must dismiss the attempted appeal.^** An appeal from an ad- judication of bankruptcy does not stay further proceedings in the case (such as ruling the bankrupt to file his. schedules), unless a supersedeas is also taken.^*' The very short time allowed for taking an appeal in these cases has led to numerous attempts to obtain a review by some indirect method 183 Bankruptcy Act 1898, § 31. See In re York, 1 Abb. U. S. 503, 4 N. B. R. 479, Fed. Cas. No. 18,139. The word "holi- day" includes "Christmas, the fourth of July, the twenty-second of February, and any day appointed by the President of the United States or the Congress of the United States as a holiday or as a day of public fasting or thanksgiving." Bankruptcy , Act 1898, § 1, clause 14. 184 Peterson v. Nash Bros., 112 Fed. 311, 50 C. C. A. 260, 55 L. R. A. 344, 7 Am. Bankr. Rep. 181; First Nat. Bank of Paris v. Yerkes, 238 Fed. 278, 151 C. O. A. 294, 38 Am. Bankr. Rep. 136. The time for taking an appeal from a judg- ment entered nunc pro tunc as of an earlier date runs from the actual entry of the judgment, not from the earlier date. In re Stafford (D. C.) 240 Fed. 155, 39 Am. Bankr. Rep. 469. Where an or- der of adjudication was set aside on mo- tion, from which no appeal was taken, and a subsequent independent order of adjudication was made after further hearing, the time for taking an appeal was held to run from the date of the second order. Cameron v. National Surety Co. (C. C. A.) 272 Fed. 874, 47 Am. Bankr. Rep. 67. 185 Columbia Ironworks v. National Lead Co., 127 Fad. 99, 62 C. C. A. 99, 64 L. R. A. 645, 11 Am. Bankr. Rep. 340; Morris v. Brush, 2 Woods, 354, 14 N. B. R. 371, Fed. Cas. No. 9,828; Fellows v. Burnap, 14 Blatchf. 63, Fed. Cas. No. 4,721. Compare Norcross v. Nave & Mc- Cord Mercantile Co., 101 Fed. 796, 42 C. C. A. 29, 4 Am. Bankr. Rep. 317. An ap- peal is taken in time where the petition for appeal was filed within ten days and promptly presented, though allowed more than ten days after the decree. Robert- son Banking Co. v. Chamberlain, 228 Fed. 500, 143 C. C. A. 82, 36 Am. Bankr. Rep. 198. ISO Williams Bros. v. Savage, 120 Fed. 497, 56 C. C. A. 647, 9 Am. Ba,nkr. Rep. 720; Nazima Trading Co. v. Martin (C. C. A.) 164 Fed. .838, 21 Am. Bankr. Rep. 159; Sedgwick v. Fridenberg, 11 Blatchf. 77, Fed. Cas. No. 12,611; In re Alexan- der, Chase, 295, 3 N. B. R. 29, Fed. Cas. No. 160; In re Kyler, 6 Blatchf. 514, 3 N. B. R. 46, Fed. Cas. No. 7,957; In' re Place, 8 Blatchf. 302, 4 N. B. R. 541, Fed. Cas. No. 11,200; Ex parte Woollen, 104 U. S. 300, 26 L. Ed. 768; Wood v. Bailey, 21 Wall. 640, 12 N. B. R. 132, 22 L. Ed. 689. And see Rhame v. South- ern Cotton Oil Co., 230 Fed. 403, 144 C. C. A. 545, 35 Am. Bankr. Rep. 732. But it seems that an appeal not taken in time may be treated as a petition to re- vise (which would be in time), where the only question raised is one of law. Gra- ham v. Faith, 253 Fed. 82, 165 0. C. A. 52, 41 Am. Bankr. Rep. 590. 18 7 In re Brady, 169 Fed. 152, 21 Am. Bankr. Rep. 364. § 49 LAW OF BANKRUPTCY 124 of proceeding after the expiration of the time. But the courts have gen- erally disapproved such devices. Some have gone so far as to declare that the time limited by the statute cannot be extended or revived by any subsequent proceeding whatever.*** Thus, when the right to appeal from an adjudication of bankruptcy has been lost by the expiration of the ten days, it cannot be revived by moving to vacate the adjudica- tion,*** nor by the subsequent entry of an alias adjudication.**** But the favorite method of seeking to recover a right of appeal lost by the ex- piration of the limited time has been to move for a rehearing. In a case under the act of 1867, where the omission to take an appeal in due time arose from a mistake in the selection of the remedy (the appellant thinking that he should take a petition for review), the Supreme Court of the United States suggested that perhaps the district court would grant a review of its own decree, in order that a regular appeal might, if necessary, be taken.*** And in one of the earlier decisions under the present statute this course was taken, the district court granting a re- hearing to a trustee in bankruptcy who had lost his right of appeal by the expiration of the time prescribed, but without culpable neglect on his part, for the mere purpose of reviving such right.*** But the general weight of opinion is against this practice. The doctrine is apparently established that, while the district court has power to grant a rehearing for the sole purpose of reviving a right of appeal, the effect is to nullify the explicit provisions of the statute, which, no doubt, were inserted for very good reasons, and therefore if the court is of opinion that there is no sufficient ground for a rehearing on the merits (aside from any ques- tion of appealing) it should not be granted on a mere pretense and for the real purpose of permitting an appeal to be taken.*** But if a peti- tion for rehearing is filed within ten days after the judgment or order complained of, an appeal taken within ten days after the court's ruling on the petition will be in time.*** i88Bra, ^ A coo OA a™ tj' ,„ 261 Cook Inlet Coal Fields Co. V. Cald- well, 147 Fed. 475, 78 C. O. A. 17, 17 Am. Fed. 735, 85 C. C. A. 633, 20 Am. Bankr. Rep. 53. See In re Witherbee (C. C. A.) ^"",' "U'^^'iJ^" 202 Fed. 896, 30 Am. Bankr. Rep.. 314 ; '^^''^''- "-^^^ ^'^^• In re Wood, 248 Fed. 246, 160 C. C. A. '"' In re A. L. Robertshaw Mfg. Co., 324, 40 Am. Bankr. Rep. 810. 135 Fed. 220, 14 Am. Bankr. Rep. 341; 260 Ross V. Stroh, 165 Fed. 628, 91 0. '^^^Se v. Norlin, 133 Fed. 363, 66 G. C. 0. A. 616, 21 Am. Bankr. Rep. 644. ■*■• ^25, 13 Am. Bankr. Rep. 176. See In 267 Rule 14. See 150 Fed. xxviii. ""e Watkinson, 205 Fed. 145, 123 C. C. A. 268 C!ook Inlet Coal Fields Co. v. Cald- 377, 30 Am. Bankr. Rep. 48. well, 147 Fed. 475, 78 C. C. A. 17, 17 Am. 26 3 in re A. L. Robertshaw Mfg. Co., Bankr. Rep. 135. And see Synnott v. 135 Fed. 220, 14 Am. Bankr. Rep. 341. § 54 LAW OP BANKRUPTCY 136 are unable to do so, it is the duty of the appellant to file a praecipe with the clerk pointing out specifically what records, in his judgment, should be certified, leaving the appellee, if he thinks the records certified are insufficient, to suggest a diminution of the record and ask for a cer- tiorari.'** The appellate court will not travel outside the record, nor pass upon questions which it does not raise or which are not clearly defined by the facts and data included,**'^ except in so far as it may be aided by the presumptions usual and proper in such cases. ^*® On a petition to superintend and revise in matter of law, the rules in some circuits require that a record shall be filed the same as in case of an appeal.'*'' And at any rate the record brought up must contain a finding of facts, or so far disclose the facts as clearly to show the ques- tion of law which was raised and passed upon by the district court, and also show whether the particular question sought to be reviewed was decided by the district court as one of fact or of law.'** The want of such findings or statements of the facts cannot be supplied by the mere opinion rendered by the district court in deciding the case.'*® But still the opinion may be looked to for the purpose of determining in a gen- eral way the propositions on which the case was disposed of, and es- pecially the questions of law which were passed upon.'" Where questions of fact or of mixed law and fact are sought to be reviewed on an appeal in bankruptcy, the evidence must be brought up,"^ otherwise, it will be presumed that the facts disclosed were suffi- cient to sustain the decision of the court below, and only such matters of law as are apparent on the face of the record can be considered.'^- 2 6* In re A. L. Robertshaw Mfg. Co., C. O. A. '338, 14 Am. Bankr. Rep. 757; 135 Fed. 220, 14 Am. Bankr. Rep. 341. In re Boston Dry Goods Co., 125 Fed. 2 85 Buckingham v. Estes, 128 Fed. 584, 226, 60 C. 0. A. 118, 11 Am. Bankr. Rep. 63 C. C. A. 20, 12 Am. Bankr. Rep. 171 ; 97 ; In re Throckmorton, 196 Fed. 656, In re Oakland Lumber Co., 174 Fed. 634, 116 C. C. A. 848, 28 Am. Bankr. Rep. 487; 98 O. C. A. 388, 23 Am. Bankr. Rep. 181; Johansen Bros. Shoe Co. v. AUes, 197 In re Myer, 14 N. M. 45, 89 Pac. 246; In Fed. 274, 116 0. C. A. 636, 28 Am. Bankr. re Grant, Fed. Cas. No. 5,690. Rep. 299. 208 Shaffer v. Koblegard Co., 183 Fed. 268 in re Boston Dry Goods Co., 125 71, 105 C. C. A. 363, 24 Am. Bankr. Rep. Fed. 226, 60 0. O. A. 118, 11 Am. Bankr. 898 ; In re National Pressed Brick Co., Rep. 97 ; In re Pettingill & Co., 137 Fed. 212 Fed. 878, 129 C. C. A. 398. 840, 70 O. O. A. 338, 14 Am. Bankr. Rep. 2 07 Cook liilet Coal Fields Co. v. Cald- 757. . well, 147 Fed. 475, 78 C. C. A. 17, 17 Am. 270 Samel v. Dodd, 142 Fed. 68, 73 C. Bankr. Rep. 135. C. A. 254, 16 Am. Bankr. Rep. 163; In 208t,andry v. San Antonio Brewing re Pettingill & Co., 137 Fed. 840, 70 C. Ass'n, 159 Fed. 700, 86 C. C. A. 568, 20 C. A. 338, 14 Am. Bankr. Rep. 757. Am. Bankr. Rep. 226; Hegner v. Am^r- 2^1 in re Murphy, 229 Fed. 988, 144 C. ican Trust & Sav. Bank, 187 Fed. 599, 0. A. 270, 36 Am. Bankr. Rep. 712 ; In re 109 0. O. A. 429, 26 Am. Bankr. Rep. 571 ; Myer, 14 N. M. 45, 89 Pac. 246. In re Pettingill & Co., 137 Fed. 840, 70 272 in re Baum, 169 Fed. 410, 94 C. C. 137 APPELLATE JURISDICTION AND PEOCEDUEH § 55 If the record does not contain all the evidence, a motion to include ad- ditional matter may be granted, reserving the right to determine vi^hich party shall ultimately bear the expense thereof.*'^ But the failure to incorporate any evidence in the record on an appeal from an adjudica- tion of bankruptcy will not be ground for dismissal where it does not appear from the record that any evidence was taken, but rather that the case was submitted on petition and answer."'* As the testimony is ordinarily taken before referees in bankruptcy, it becomes important to notice that, when a referee has certified to the district judge the ques- tion presented before him and his decision thereon, with a "summary of the evidence relating thereto," as directed by General Order No. 27, and the matter has been heard and determined by the district judge on the record so made, it is that summary, and not the original evidence before the referee, which should be included in the recoi'd on appeal to the circuit court of appeals.^'* It has also been laid down that examiners, masters, referees, and the court taking evidence in bankruptcy in the absence of a jury, should record, and in case of appeal, return, all the' evidence, so that, if the appellate court thinks that the evidence re- jected should have been received, it may consider it and render a final decree without remanding the suit. But from this rule should be ex- cepted evidence plainly privileged and evidence so clearly irrelevant or immaterial that it would be an abuse of process to compel its produc- tion.^'® § 55. Scope of Review; Law and Facts. — ^An appeal in bankruptcy (as distinguished from a petition for revision) is subject to the rules governing appeals in equity, and therefore, on such an appeal, the facts as well as the law are before the appellate court, if proper assignments of error have been filed, and it is its duty to review questions of fact as well as of law.^'' But since the statute explicitly provides that an A. 632, 22 Am. Bankr. Rep. 295. And see Kep. 192. And see In re French & Chestertown Bank v. Walker (O. C. A,) Holmes, 13 Okl. 549, 75 Pae. 278. 163 Fed. 510, 20 Am. Bankr. Kep. 840. a^e Missouri-American Electric Co. v. 273 Herman Keck Mfg. Co. v. I^orsch, Hamilton-Brown Shoe Co., 165 Fed. 283, 179 Fed. 485, 103 C. C. A. 65, 24 Am. 91 C. C. A. 251, 21 Am. Bankr. Rep. 270 ; Bankr. Rep. 705. A court of bankruptcy First Nat. Bank v. Abbott, 165 Fed. 852, in a proceeding on its equity side may 91 C. G. A. 538, 21 Am. Bankr. Rep. 436. allow and certify a bill of exceptions 277 Ross v. Stroh, 165 Fed. 628, 91 C. nunc pro tunc to bring on the record C. A. 616, 21 Am. Bankr. Rep. 644 ; evidence introduced on a prior hearing. Hatch v. Curtin, 154 Fed. 791, 83 C. C. Freed v. Central Trust Co., 215 Fed. 873, A. 495, 19 Am. Bankr. Rep. 82 ; Rush v. 132 C. C. A. 7, 33 Am. Bankr, Rep. 64. Lake, 122 Fed. 561, 58 C. O, A. 447, 10 27* C. C. Taft Co. v. Century Sav. Am. Bankr. Rep. 455; Courier-Journal Bank, 141 Fed. 369, 72 C. C. A. 671, 15 Job Printing Co. v. Schaefer-Meyer Am. Bankr. Rep. 50.4. Brewing Co., 101 Fed. 699, 41 C. C. A. 275 Cunningham v. German Ins. Bank, 614, 4 Am. Bankr. Rep. 183; Simonson 103 Fed. 932, 43 C. C. A. 377, 4 Am. Bankr. v. Sinsheimer, 100 Fed. 426, 40 C. O. A. § 55 LAW OF BANKRUPTCY 138 appeal may be taken from a "judgment adjudging or refusing to ad- judge the defendant a bankrupt," such an adjudication may be reviewed on appeal, although only questions of law are presented for the con- sideration of the appellate court.*'* But it is otherwise in the case of a petition for revision of the pro- ceedings of the court of bankruptcy. Since jurisdiction for thi^ pur- pose is given only as to "matter of law," it is held that the statute does not contemplate any review of the facts by the appellate court, and only questions of law decided by the court below can be brought up for revi- sion in this mode.*"* Thus, for instance, the issue whether an order should be made requiring the bankrupt to turn over money or property to his trustee is purely of a civil character, determinable on a prepon- derance of evidence, and at least partially dependent on the question of fact whether the money or property is in the possession or under the control of the bankrupt, and the finding thereon cannot be reviewed by the circuit court of appeals on a petition for revision in matter of law, unless so wholly unsupported by the proofs that the court would be justified, on a writ of error, in setting aside a verdict of a jury for 474, 3 Am. Bankr. Rep. 824 ; In re Rich- ards, 96 Fed. 935, 37 O. O. A. 634, 3 Am. Bankr. Rep. 145; Feder v. Goetz (C. C. A.) 264 Fed. 619, 45 Am. Bankr. Rep. 57 ; Marine Nat. Bank v. Swigart (C. C. A.) 262 Fed. 854, 45 Am. Bankr. Rep. 162. 278 0. C. Taft Co. V. Century Sav. Bank, 141 Fed. 369, 72 C. C. A. 671, 15 Am. Bankr. Rep. 594. 279 Feder v. Goetz (C. C. A.) 264 Fed. 619, 45 Am. Bankr. Rep. 57; In re De Ran, 260 Fed. 732, 171 C. O. A. 470, 44 Am. Bankr. Rep. 409 ; In re A. Bolognesi & Co., 254 Fed. 770, 166 C. C. A. 216, 42 Am. Bankr. Rep. 548 ; King Lumber Co. V. National Exchange Bank of Roanoke, 253 Fed. 946, 165 C. C. A. 388, 42 Am. Bankr. Rep. 651; Gardner v. Gleason, 259 Fed. 755, 170 C. C. A. 555; In re Canister Co., 252 Fed. 70, 164 C. C. A. 182, 42 Am. Bankr. Rep. 278 ; Sauve v. M. L. More Inv. Co., 248 Fed. 642, 160 0. C. A. 542, 41 Am. Bankr. Rep. 281; Hunter, Walton & Co. v. J. G. Cherry Co., 247 Fed. 458, 159 C. C. A. 512, 40 Am. Bankr. Rep. 732 ; In re Armann, 247 Fed. 954, 160 C. C. A. 618, 41 Am. Bankr. Rep. 50; In re Pierce, Butler & Pierce Mfg. Co., 246 Fed. 814, 159 C. C. A. 116, 40 Am. Bankr. Rep. 445 ; Wm. B. Moore Dry Goods Co. v. Brooks, 240 Fed. 943, 153 0. 0. A. 629, 39 Am. Bankr. Rep. 617 ; Lott V. Salsbury, 237 Fed. 191, 150 C. 0. A. 337, 37 Am. Bankr. Rep. 796; Kin- kead v. J. Bacon & Sons, 230 Fed. 362, 144 C. C. A. 504, 36 Am. Bankr. Rep. 390; In re Stearns Salt & Lumber Co., 225 Fed. 1, 140 C. C. A. 461, 35 Am. Bankr. Rep. 264; Hall v. Reynolds, 224 Fed. 103, 139 C. C. A. 659, 34 Am. Bankr. Rep. 707; Synnott v. Tombstone Consol. Mines Co., 207 Fed. '544, 125 C. C. A. 596, 31 Am. Bankr. Rep. 124 ; Whitla & Nelson v. Boyd, 213 Fed. 587, 130 O. O. A. 167; Williamson v. Richardson, 205 Fed. 245, 123 O. C. A. 427, 30 Am. Bankr. Rep. 559; Stuart v. Reynolds, 204 Fed. 709, 123 C. C. A. 13, 29 Am. Bankr. Rep- 412 ; In re Witherbee, 202 Fed. 896, 12] C. C. A. 254, 30 Am. Bankr. Rep. 314; In re Holden, 203 Fed. 229, 121 C. C. A. 435, 29 Am. Bankr. Rep. 387; In re J. B. Judkins Co., 205 Fed. 892, 124 C. C. A. 205, 30 Am. Bankr. Rep. 529 ; In re Zinner, 202 Fed. 197, 120 C. C. A. 411, 29 Am. Bankr. Rep. 860 ; B-R Electric & Telephone Mfg. Oo. v. .^tna Life Ins. Co., 206 Fed. 885, 124 C. C. A. 545, 30 Am. Bankr. Rep. 424; In re Donnelly, 187 Fed. 121, 109 C. O. A. 39 ; In re Stewart, 179 Fed. 222, 102 C. C. A. 348 ; Ryan v. Hendricks (C. C. A.) 166 Fed. 94, 21 Am. Bankr. Rep. 570; Ross v. Stroh, 165 Fed. 628, 91 C. C. A. 616, 21 Am. Bankr. Rep. 644 ; Lesaius v. Goodman, 165 Fed. 889, 91 C. C. A. 567, 21 Am. Bankr. Rep. 446 : 139 APPBLLATB JURISDICTION AND PEOCBDUBE § 56 want of any evidence whatever to sustain it.^** As further illustrations of questions which are not reviewable on petition to revise, because wholly or partly depending on matters of fact, we may mention the following: The question whether money deposited by a bankrupt in a bank in his own name as attorney belonged to him or to his wife ; ^*'- whether or not the bankrupt was guilty of fraud in a given transaction, where, so far as appears from the record, there may have been a con- flict of testimony as to the facts ; ^** whether a certain sum was a reasonable allowance for an attorney's fee in a case of voluntary bank- ruptcy ; ^** whether a creditor of the bankrupt did or did not have rea- sonable ground to believe his debtor to be insolvent at the time he ob- tained security for his debt ; *** whether the lien claimed by a creditor of the bankrupt under a trust deed constituted a valid preference under the bankruptcy law ; ^*^ and the question whether the court below erred in ordering a sale of property free from incumbrances, on the ground that it was covered by a mortgage which left no equity of redemption of value to the estate.**" The court will not undertake to decide issues which are, or have become, merely moot questions.**' Nor will it reverse for error not prejudicial to the complaining party.*** § 56. Same; Questions Not Raised Below. — On appeals in bank- ruptcy, as in other cases, the general rule obtains that the appellate court will review only those issues and questions which were raised in the court below and passed on and decided by it. In other words, par- In re Graessler & Reichwald, 154 Fed. Silverman, 250 Fed. 75, 162 0. C. A. 247, 478, 83 C. O. A. 304, 18 Am. Bankr. Rep. 42 Am. Bankr. Rep. 24. 694; In re Throckmorton, 149 Fed. 145, 2 si in re Donnelly, 187 Fed. 121, 109 79 C. C. A. 15, 17 Am. Bankr. Rep. 856 ; O. C. A. 39. Kenova Loan & Trust Co. V. Graham, 135 282 in re Letson,"'157 Fed. 78, 84 C. Fed. 717, 68 C. C. A. 355, 14 Am. Bankr. C. A. 582, 19 Am. Bankr. Rep. 506. Rep. 313; In re Antigo Screen Door Co., 283 in re Irwin, 174 Fed. 642, 98 0. C. 123 Fed. 249, 59 C. C. A. 248, 10 Am. A. 396, 23 Am. Bankr. Rep. 487. Bankr. Rep. 359 ; Courier- Journal Job 2 84 in re Bggert, 102 Fed. 735, 43 O. C. Printing Co. v. Schaefer-Meyer Brewing A. 1, 4 Am. Bankr. Rep. 449; Whitmore Co., 101 Fed. 699, 41 C. C. A. 614, 4 v. Swank, 252 Fed. 135, 164 O. 0. A. 247, Am'. Bankr. Rep. 183; In re-Rosser, 101 41 Am. Bankr. Rep. 378. Fed 562 41 C. C. A. 497, 4 Am. Bankr. 285 Kenova Loan & Trust Co. y. Gra- Rep. 153 ; In re Richards, 96 Fed. 935, ham, 135 Fed. 717, 68 C. O. A. 355, 14 37 O. G. A. 634, 3 Am. Bankr. Rep. 145 ; Am. Bankr. Rep. 318. In re Purvlne, 96 Fed. 192, 37 CCA. 286 in re Union Trust Co., 122 Fed. 446, 2 Am. Bankr. Rep. 787 ; In re Great 937, 59 C. C A. 461. Western Tel Co, 5 Biss. 359, Fed. Gas. 237 Ward v. Central Trust Co. of 1111- No. 5,739 ; In re Salkey, 6 Biss. 280, 11 nois, 252 Fed. 127, 164 0. C. A. 239, 42 N. B. R. 516, Fed. Cas. No. 12,254. Am. Bankr. Rep. 65 ; Lawhead v. Mon- 280 In re Cole 144 Fed. 392, 75 C O. A. roe Bldg. Co., 252 Fed. 758, 164 C O. A. 380, 16 Am. Bankr. Rep. 302; Ellis v. 598, 41 Am. Bankr. Rep. 800. Krulewitch, 141 Fed. 954, 73 C. C. A. 270, ^s' BergdoU v. Harrigan, 217 Fed. 943, 15 Am Bankr. Rep. 615; Frederick v. 133 C. 0. A. 615, 83 Am. Bankr. Rep. 394. § 56 LAW OF BANKEtTPTCY 140 ties will not be permitted to urge for the first time, on appeal, objec- tions or contentions which they neglected to take advantage of in the court below when they might have done so;'*** Thus, on appeal from a district court's decree in a controversy arising in bankruptcy pro- ceedings, the only objection as to a want of jurisdiction available to the appellant, when raised for the first time in the court of appeals, is that the district court had no jurisdiction to render the decree appealed from.^*"* A court of bankruptcy, for instance, has jurisdiction of a suit in behalf of the bankrupt's estate to recover an alleged preference, if the defendant consents; and after a hearing on the merits, without any objection by the defendant on the ground of a want of jurisdiction, he cannot raise that objection for the first time on an appeal.^*^ So on an appeal from an adjudication of bankruptcy, where creditors appeared and contested the adjudication solely on the ground that the occupa- tion of the alleged bankrupt was such as to exempt him from the stat- ute, and they appeal from the decree, they cannot be heard to raise the objection of a want of evidence or of findings as to the alleged act of bankruptcy. ^*^ So, where the capacity of a trustee in bankruptcy to sue, on account of alleged defects in the petition for adjudication and the proofs on which it was based, was not challenged at the trial, the question cannot be raised on appeal.*"^ And where it was not objected in the court below that property of a bankrupt ordered to be sold had 2 89 Dean v. Davis, 242 U. S. 438, 37 191 Fed. 31, 111 C. C. A. 89. But, see In Sup. Ct. 130, 61 K Ed. 419, 38 Am. Bankr. re Cole (C. C. A.) 163 Fed. ISO, 20 Am. Rep. 664 ; Wartell v. Moore (C. 0. A.) Bankr. Eep. 761 ; Bramble v. Brett, 230 261 Fed. 762, 44 Am. Bankr. Rep. 624 ; Fed. 385, 144 C. C. A. 527, 36 Am. Bankr. Feick V. Stephens, 250 Fed. 185, 162 Kep. 526. C. O. A. 321; Moody-Hormann-Boel- ^^o Knapp v. Milwaukee Trust Co., 162 hauwe v. Clinton "^ire Cloth Co., 246 Fed. 675, 89 O. C. A. 467, 20 Am. Bankr. Fed. 653, 158 C. C. A. 609, 40 Am. Rep. 671. On petition to revise an order Bankr. Rep. 441; Sanborn-Outting Co. in summary proceedings requiring the V. Paine, 244 Fed. 072, 157 C. C. A. 120, bankrupt's wife to turn over money to 40 Am. Bankr. Rep. 525 ; Household Sup- the trustee, it is too late to object that a ply Co. V. Whiteaker, 236 Fed. 730, 150 plenary suit should have been brought. C. C. A. 62, 38 Am. Bankr. Rep. 408; In re Hopkins, 229 Fed. 378, 143 C. C. In re O'Gara Coal Co., 235 Fed. 883, 149 A. 498, 36 Am. Bankr. Rep. 158. C. C. A. 195, 38 Am, Bankr. Rep. 131; 2»i Boonville Nat. Bank v. Blalcey, 107 Ohio Motor Car Co. v. Wiseman Magneto Fed. 891, 47 C. C. A. 43, 6 Am. Bankr. Co., 230 Fed. 370, 144 C. C. A. 512, 36 Rep. 13; In re Canfield, 193 Fed. 93*, Am. Bankr. Rep. 237 ; In re Friedman 113 C. C. A. 562. (C. C. A.) 161 Fed. 260, 20 Am. Bankr. 202 Annstrong v. Fernandez, 208 U. S. Kep. 37; In re Bacon, 159 Fed. 424, 86 324, 28 Sup. Ct. 419, 52 L. Ed. 514, 19 C. C. A. 404, 20 Am. Bankr. Rep. 107; Am. Bankr. Rep. 746. Love V. Export Storage Co., 143 Fed. 1, 20s Knapp v. Milwaukee Trust Co. 74 O. 0. A, 155, 16 Am. Bankr. Rep. 171 ; 162 Fed. 675, 89 C. C. A. 467, 20 Am. In re O'Connell, 137 Fed. 838, 70 C. C. A. Bankr. Rep. 671 ; Fairbanks Steam 336, 14 Am. Bankr. Rep. 237 ; Bucking- Shovel Co. v. Wills, 240 U. S. 642, 36 ham V. Estes, 128 Fed. 584, 6:i C. C. A. Sup. Ct. 466, 6 L. Ed. 841, 36 Am. Bankr. 20, 12 Am. Bankr. Rep. 182 ; In re Gale, Rep. 754. 141 APPELLATE JURISDICTION AND PROCEDDEH § 57 not been inventoried in the manner required by the statute, the objec- tion will not be considered on a revisory petition.*** The same rule pre- vails on appeals from orders granting or refusing a discharge to the bankrupt. An appeal from an order discharging a bankrupt will be dismissed on the motion of the appellee, when the record does not show that the question of law suggested in the assignment of errors on which the appeal is based was ruled by the court below.*"^ Where a referee passed upon only one of a number of objections filed to the discharge of the bankrupt, which objection he sustained, and his report was confirmed by the district court, an appeal from the order denying the dis- charge brings only that specific objection before the appellate court for consideration.^*® So where creditors appear in opposition to the bank- rupt's application for discharge and file their specifications of objec- tion, as provided by the act, objections to the sufficiency of such speci- fications must be presented to and decided by the district court, and if no objection is there made, no criticism of the specifications will be heard on appeal.*"' § 57. Review of Evidence and Findings. — On an appeal in bank- ruptcy (as distinguished from a petition for revision), where the evi- dence is in the record, it is within the province of the appellate court to review the same and thereupon to scrutinize the correctness of the de- cisions of the court below on questions of fact or evidence, proper as- signments of error having been made.*®* But it will not, of course, hear additional evidence.*^* Where the proceedings to be reviewed are had, in the first instance, before a referee, parties who desire a review of the evidence should either have the testimony before the referee taken down stenographically, and by him certified to the judge, or they should 294 In re Shoe & I/eather Reporter, A. 402, 17 Am. Bankr. Rep. 128; In a 129 Fed. 588, 64 0. C. A. 156, 12 Am. suit by the trustee in bankruptcy to re- Bankr. Rep. 248. cover an alleged preferential payment, 295 Fidelity Trust Co. v. Robinson, 192 where the circumstances under which Fed. 562, 27 Am. Bankr. Rep. 784; Ve- the payment was made were set out in hon V. UUman, 147 Fed. 694, 78 O. C. the agreed statement of facts, and the A. 82, 17 Am. Bankr. Rep. 435. parties proceeded in the submission of 29e'shaffer v. Koblegard Co., 183 Fed. the facts upon the idea that the court 71, 105 C. O. A. 363, 24 Am. Bankr. Rep. should draw such inferences as were 898 warranted and necessary, the court of 297 Osborne v. Perkins, 112 Fed. 127, appeals may disposte of the case by 50 C. C. A. 158, 7 Am. Bankr. Rep. 250 ; drawing such inferences as are neces- t. H. Godshalk Co. v. Sterling, 129 Fed. sary. Watchmaker v. Barnes, 259 Fed. 580, 64 C. C. A. 148, 12 Am. Bankr. Rep. 783, 170 O. C. A. 583, 43 Am. Bankr. Rep. 302'; In re Singer, 251 Fed. 51, 163 C. 632. 0. A. 301, 41 Am. Bankr. Rep. 503. ^o» In re Great Western Tel. Co., 5 298 Bernard v. Lea, 210 Fed. 583, 127 Biss. 359, Fed. Cas. No. 5,739.. See Hey- 0. C. A. 219, 31 Am. Bankr. Rep. 436; ward v. Goldsmith (0. C. A.) 269 Fed. In re Neasmith, 147 Fed. 160, 77 C. C. 946, 46 Am. Bankr. Rep. 722. § ,57 LAW OF BANKRUPTCY 142 specifically point out to the referee the particular evidence which they wish summarized and should ask him to certify specific findings of fact.*"* Where the evidence is not in the record, the appellate court will presume that it was sufficient to establish the particular facts on which the decision was based,*"^ and where an application for discharge was heard by the referee, and the court affirmed his report and ordered the discharge, it will be presumed in support of the order that the court investigated objections made thereto and overruled the same on the merits.*"* Where the decision complained of was based on the court's opinion of the weight and tendency of conflicting evidence, it will not be reversed on appeal unless some error of law has intervened, or unless a serious mistake of fact^is plainly apparent.*"* The same rules apply on an appeal to the Supreme Court of the United States. Where the question is one of fact, as, concerning the existence of a partnership, the concurring decisions of the two courts below will not be reversed on appeal if the evidence fairly tends to support them.*"* Generally speaking, when it is sought, on appeal to the circuit court of appeals, to reverse an order made by the district court on a question of fact, the appellant must very clearly satisfy the appellate court that the decision of the court below was erroneous; it will not be reversed unless plain and manifest error appears, or unless plainly contrary to the weight of the evidence.*"® On a parity of reasoning, findings of 3 00 In re Cohen (D. C.) 131 Fed. 391, Mass. 438, 117 N. B. 833; First Nat. 11 Am. Bankr. Rep. 439. Bank v. Abbott, 165 Fed. 852, 91 C. C. 3 01 Gray v. Gudger, 260 Fed. 931, ITl A. 538, 21 Am. Bankr. Rep. 436; In re C. C. A. 573, 44 Am. Bankr. Rep. 228 ; Sullivan, 14 Okl. 400, 78 Pac. 85 ; In re In re Stitt, 252 Fed. 1, 164 C. C. A. 113, Straschnow, 181 Fed. 337, 104 C. C. A. 41 Am. Bankr. Rep. 777 ; International 167, 24 Am. Bankr. Rep. 948. See Walk- Agr. Corp. v. Gary, 240 Fed. 101, 153 C. er Grain Co. v. Gregg Grain Co. (C. C. C. A. 137, 38 Am. Bankr. Rep. 753 ; In A.) 268 Fed. 510, 46 Am. Bankr. Rep. 121. re Vidal, 233 Fed. 733, 147 C. C. A. 499, 3 04 Manson v. Williams, 213 D. S. 453, 36 Am. Bankr. Rep. 783 ; Bunch v. Ma- 29 Sup. Ct. 519, 53 L. Ed. 869, 22 Am. loney, 233 Fed. 967, 147 C. C. A. 641, 37 Bankr. Rep. 22. Am. Bankr. Rep. 369; First State Bank 305 Cutler v. Nu-Gold Ring Co. (C. C. V. Haswell, 174 Fed. 209, 98 C. O. A. 217, A.) 264 Fed. 836, 45 Am. Bankr. Rep. 23 Am. Bankr. Rep. 330. 505 ; Henkin v. Fousek, 246 Fed. 285, 159 3 02 Kentucky Nat. Bank V. Carley, 127 C. C. A. 15, 40 Am. Bankr. Rep. 701; Fed. 686, 62 C. C. A. 412, 12 Am. Bankr. In re O'Gara Coal Co.,' 235 Fed. 883^ Rep. 119. 149 C. C. A. 195, 38 Am. Bankr. Rep. 808 Peeples v. Georgia Iron & Coal Co., 131; In re Hopkins, 229 Fed. 378, 143 248 Fed. 886, 160 C. C. A. 644 ; Lake C. C. A. 498, 36 Am. Bankr. Rep. 158 ; View State Bank v. Jones, 242 Fed. 821, Owens v. Farmers' Bank of Abbeville, 155 O. C. A. 409, 40 Am. Bankr. Hep. 228 Fed. 508, 143 C. C. A. 90, 36 Am! 148; In re Kaplan, 234 Fed. 866, 148 C. Bankr. Rep. 324; Ft. Worth Heavy C. A. 464, 37 Am. Bankr. Rep. 104; Hardware Co. v. Shapleigh Hardware Flower v. Central Nat. Bank, 223 Fed. Co., 221 Fed. 257, 137 C. C. A. 110, 34 323, 138 C. C. A. 585, 35 Am. Bankr. Rep. Am. Bankr. Rep. 21 ; In re Schulman, 79 ; Abele v. Beacon Trust Co., 228 177 Fed. 191, 101 C. 0. A. 361, 23 Am' 143 APPELLATE JURISDICTION AND PROCEDURE § 57 fact made by a referee in bankruptcy upon the testimony of witnesses examined before him, especially if the evidence was conflicting, have every reasonable presumption in their favor, and (particularly after they have been approved or confirmed by the district court) will not be dis- regarded or set aside on appeal, unless it very clearly appears fhat there was error or mistake on his part, but in the absence of such plain error, they will be accepted without review by the appellate court.*'® But Bankr. Rep. 809 ; In re Noyes Bros., 127 Fed. 286, 62 C. C. A. 218, 11 Am. Bankr. liep. 506; Osborne, v. Perkins, 112 Fed. 127, 50 C. C. A. 158, 7 Am. Bankr. Rep. 250 ; In re D. Levy & Co., 142 Fed. 442, 73 C. C. A. 558, 15 Am. Bankr. Rep. 166; Adler V. Jones, 109 Fed. 967,' 48 C. O. A. 761, 6 Am. Bankr. Rep. 245; In re Mooney, 14 BlatcM. 204, 15 N. B. R. 456, Fed. Cas. No. 9,748; In re Dorr, 196 Fed. 292, 28 Am. Bankr. Rep. 505. 30 8 Page V. Rogers, 211 U. S. 575, 29 Sup. Ct. 159, 53 I>. Ed. 332, 21 Am. Bankr. Rep. 496; Dodge Sales & En- gineering Co. V. First Nat. Bank (C. C. A.) 266 Fed. 364, 46 Am. Bankr. Rep. 36; liibby v. Beverly (C. C. A.) 268 Fed. 63, 44 Am. Bankr. Rep. 605 ; In re Mor- rison (C. C. A.) 261 Fed. 355, 44 Am. Bankr. Rep. 321; Rosenberg v. Semple, 257 Fed. 72, 168 C. C. A. 284, 43 Am. Bankr. Rep. 671; In re Lake Chelan Land Co., 257 Fed. 497, 168 C. O. A. 501, 5 A. L. R. 557, 44 Am. Bankr. Rep. 14; Dothan J^at. Bank v. Jones, 255 Fed. 332, 166 C. C. A. 502, 43 Am. Bankr. Rep. 251 ; Luck v. Staples, 255 Fed. 637, 167 C. O. A. 13 ; In re Model Incubator Co., 255 Fed. 76, 166 C. C. A. 404, 42 Am. Bankr. Rep. 743; Hagan v. Mc- Niel, 253 Fed. 716, 165 C. C. A. 310, 41 Am. Bankr. Rep. 792; Manson v. Mesi- rov, 254 Fed. 799, 166 C. C. A. 245, 43 Am. Bankr. Rep. 115; Whitney Central Trust & Savings Bank v. United States Const. Co., 250 Fed. 784," 163 C. C. A. 116, 41 Am. Bankr. Rep. 381; In re Turpln Hotel Co., 248 Ted. 25, 160 C. C. A. 165 ; In re Johnson (D. 0.) 247 Fed. 135, 40 Am. Bankr. Rep. 687 ; In re Fackler (D. 0.) 246 Fed. 864, 39 Am. Bankr. Rep. 742; In re Nankin, 246 Fed. 811, 159 C. C. A. 113, 40 Am. Bankr. Rep. 459; Stephen Putney Shoe Co. v. Dashiell, 246 Fed. 121, 158 C. C. A. 347, 40 Am. Bankr. Rep. 375; International Trust Co. v. Myers, 245 Fed. 110, 157 C. C. A. 406, 40 Am. Bankr. Rep. 71; In re Shelley, 242 Fed. 251, 155 C. C. A. 91, 39 Am Bankr. Rep. 519 ; Continental Coal Corp, V. Roszelle Bros., 242 Fed. 243, 155 C. 0, A. 83, 39 Am. Bankr. Rep. 562; Shein- berg V. Hoffman, 236 Fed. 343, 149 C C. A. 475, 38 Am. Bankr. Rep. 24; 'Hen derson v. Morse, 235 Fed. 518, 149 C. 0, A. 64, 38 Am. Bankr. Rep. 22 ; Wilson V. Continental Bldg. & Loan Ass'n, 232 Fed. 824, 147 C. C. A. 18, 37 Am. Bankr. Rep. 444; Walter A. Wood Mowing & Reaping Mach. Co. v. CroU, 231 Fed. 679, 145 C. C. A. 565, 36 Am. Bankr. Rep. 610 ; Aller-Wilmes Jewelry Co. v. Osbom, 231 Fed. 907, 146 C. C. A. 103, 36 Am. Bankr. Rep. 714 ; Schmid v. Rosenthal, 230 Fed. 818, 145 C. 0. A. 128, 36 Am. Bankr. Rep. 548; Carroll v. Stern, 223 Fed. 723, 139 C. C. A. 253, 34 Am. Bankr. Rep. 570 ; Deupree v. Watson, 216 Fed. 483, 132 C. C. A. 543 ; In re Pennell, 214 Fed. 337, 130 C. C. A. 645, 32 Am. Bankr. Rep. 241; Wells v. Lincoln, 214 Fed. 227, 130 C. C. A. 641, 32 Am. Bankr. Rep. 620 ; Epstein v. Stelnfeld, 210 Fed. 236, 127 C. C. A. 54, 32 Am. Bankr. Rep. 6; In re Bradley (C. C. A.) 269 Fed. 784; Canner v. Webster Tapper Co. (C. C. A.) 168 Fed. 519, 21 Am. Bankr. Rep. 872; Ellsworth v. Lyons (C. C. A.) 181 Fed. 55; Stephens v. Merchants' Nat. Bank, 154 Fed. 341, 83 0. C. A. 119, 18 Am. Bankr. Rep. 560; John Naylon & Co. V. Christiansen Harness Mfg. Co., 158 Fed. 290, 85 C. C. A. 522, 19 Am. Bankr. Rep. 789; Southern Pine Co. v. Savannah Trust Co., 141 Fed." 802, 73 C. C. A. 60, 15 Am. Bankr. Rep. 618; In re Sweeney, 168 Fed. 612, 94 C. C. A. 90, 21 Am. Bankr. Rep. 866 ; In re Cajl- onlgrl, 183 Fed. 307, 105 O. C. A. 519, 25 Am. Bankr. Rep. 509 ; Slcard v. Buffalo, N. T. & P. R. Co., 15 Blatchf . 525, -Fed. Cas. No, 12,831; Lumpkin v. Foley (C. C. A.) 204 Fed. 372, 29 Am. Bankr. Rep. 673; Salisburg v. Blackford (C. C. A.) 204 Fed. 438, 29 Am. Bankr. Rep. 320; In re Coney Island Lumber Co., 199 Fed. § 57 LAW OF BANKRUPTCY 144 where the findings of fact of the bankruptcy court, which are in con- flict with those of the referee, are based on deductions from uncontra- dicted evidence, the appellate court need not follow them, but may de- duce its own conclusions, just as the trial court can disregard the find- ings of the referee.^*' And if there are no findings of fact by either the referee or the district court, the court of appeals, lacking the aid of the presumj^tlon which ordinarily attaches to such findings, must deter- mine the questions of fact for itself upon a review of the evidence.*"* Dn a petition for revision, the appellate court will not review find- ings of fact on which the order of the lower court was based, and the evidence will be considered only for the purpose of ascertaining wheth- er the order complained of was wholly unsupported by the evidence.*** § 58. Determination on Appeal or Review and Effect Thereof. — Where an appeal has been duly taken and perfected under the bankrupt- cy act, the district court is thereby deprived of jurisdiction to consider further or act upon any matters involved in the appeal.*"^** But the pro- ceeding is still pending in the court of first instance while the case stands on appeal in the appellate court, and the appeal bond does not operate to stay proceedings, unless a supersedeas is also taken, so that, as to other steps or proceedings in the cause, it is still competent for the court of bankruptcy to act.*^^ It is indeed within the authority of the circuit court of appeals to order a stay of proceedings pending the ap- peal, on an application made to the court, not to a judge,*^'' but it ought 803 ; In re San Miguel Gold Min. Co., 19 ; In re Bean, 230 Fed. 405, 144 C. C. 197 Fed. 126, 27 Am. Bankr. Rep. 901 ; A. 547 ; Stuart v. Reynolds, 204 Fed. In re J. Jungmann, 197 Fed. 159, 116 O. 709, 123 C. C. A. 13, 29 Am. Bankr. Rep. C. A. 596 ; In re Walden Bros. Clothing 412 ; In re Frank, 182 Fed. 794, 105 C. Co., 199, Fed. 315, 29 Am. Bankr. Rep. C. A. 226, 25 Am. Bankr. Rep. 486 ; In re 80. Though a finding of facts in a pro- Pettingill & Co., 137 Fed. 840, 70 O. 0. ceedlng in bankruptcy submitted to a A. 338, 14 Am. Bankr. Rep. 757. The special master was, in his report, stated appellate court may reverse an order as a conclusion of law, his method of on an application to punish the bankrupt statement cannot affect the binding na- for contempt, where the trial court made tare of the finding as a finding of fact no sufficient examination of the bank- In re fierce, Butler & Pierce Mfg. Co., rupt's ability to comply, but denied the 246 Fed.. .814, 159 C. O. A. 116, 40 Am. application on an erroneous ground. In Bankp. Rep. 445. re Sobol, 242 Fed. 487, 155 O. O. A. 263, 3»7 Walter v. Atha (C. C. A.) 262 Fed. 39 Am. Bankr. Rep. 252. 75, 45 Am, Bankr. Rep. 150. 3i» First Nat. Bank v. State Nat. SOS Burleigh v. Foreman, 130 Fed. 13, Bank, 131 Fed. 430, 65 C. O. A. 414, 12 64 C. O. A. 381, 12 Am. Rankr. Rep. 88. Am. Bankr. Rep. 440. 800 Shea v. Lewis, 203 Fed. 877, 124 sii In re Barton's Estate, 144 Fed. 540, C. C. A. 537, 30 Am. Bankr. Rep. 436; 16 Am. Bankr. Rep. 56^; In re Chand- Olmsted-Stevenson Co. v. Miller, 231 ler, 135 Fed. 893, 13 Am. Bankr. Rep Fed. 69, 145 C. C. A. 257, 36 Am. Bankr. 614. Rep. 816 ; Good v. Kane, 211 Fed. 936, ^la in re Ironclad Mfg. Co. (O. C. A.) 128 C. C. A. 454, 32 Am. Bankr. Rep. 190 Fed. 320; In re Oregon Bulletin Co., 145 APPELLATE JURISDICTION AND PROCEDURE § 58 not to be granted where it does not appear that the rights of the party applying will be prejudiced or seriously endangered if the proceedings in the court below are allowed to continue in their ordinary course.^*^ In a case arising under the bankruptcy act of 1867, where two partners had been jointly adjudged bankrupt in the district court, and one of them had brought the decree of adjudication before the circuit court for review, and was, at the same time, prosecuting suits in the state courts against his co-partner in respect to the firrn property, the circuit court held that it had no authority to issue a writ of prohibition to the state court to forbid it from further entertaining such suits ; for the power of the federal courts to issue the writ is. limited to cases where it is neces- sary for the exercise of their jurisdiction, and in the present instance, thaf jurisdiction being merely revisory, the writ Was not essential to its exercise.*'^* The appellate court is not bound to act upon the appeal where nei- ther justice nor practical considerations require it to consider and de- cide the points presented.^*" Thus, the appeal will be dismissed where the same question has previously been fully determined in another ap- peal in the same case,^^® or •whtre the question has become merely aca- demic, as where, pending an- appeal from an order dismissing a petition in involuntary bankruptcy, the defendant has been adjudged bankrupt in the district court of another district,*" or where a person appeals from an order made in summary proceedings requiring him to indorse a liquor license, held by him jointly with the bankrupt, in order that it may be sold, with which order he has nevertheless complied.*^* But it was held under the former statute that if an order of the district court, removing a trustee in bankruptcy, was right when made, it cannot be reversed on appeal, notwithstanding the only creditors ,who were com- petent to move against the trustee have since withdrawn from the pro- ceedings and are no longer in the case.*** If the appellate court pro- ceeds with the appeal, it is not bound to reverse on strictly legal 3 Sawy. 529, 14 N. B. K. 394, Fed. Gas. v. Macon Grocery Co., 120 Fed. 736, 57 No. 10,560. G. C. A. 150, 9 Am. Bankr, Rep. 762. 313 In re Oregon Bulletin Co., 3 Sawy. ^" In re Sears, Humbert & Co., 128 529, 14 N. B. R. 394, Fed. Gas. No. 10,- Fed. 275, 62 C. C. A. 623. A petition to 560. revise an order setting a bankrupt's pe- 31^ In re Bininger, 7 Blatcbf. 159, 3 tition for discliarge for hearing at a fu- N. B. E. 481, Fed. Gas. No. 1,417. ture date will be dismissed wbere that 315 Lawhead v. Monroe Building Co., date has passed. Allen v. Sweeney, 238 252 Fed. 758, 164 C. C. A. 598, 41 Am. Fed. 563, 151 C. 0. A, 499, 38 Am. Bankr. Bankr. Rep. 800 ; In re Donnelly, 211 Rep. 442. Fed. 118, 128 G. O. A. 20, 32 Am. Bankr. sis Fisher v. Cushman, 103 Fed. 860, Rep. 232. 43 C. 0. A. 381, 51 L. R. A. 292, 4 Am. 316 In re Kehler, 162 Fed. 674, 89 O. C. Bankr. Rep. 646. A. 466, 20 Am. Bankr. Rep. 669 ; Beach 3" In re Prouty, 24 Fed. 554. Blk.Bku.(3d Ed.)— 10 58 LAW OF BANKRUPTCY 146 grounds, if satisfied that the facts were correctly found and that no in- justice has been done.^^" Thus, if an adjudication of bankruptcy is sup- ported by a sufficient allegation and proof of an act of bankruptcy, it cannot be set aside on appeal because other acts alleged were neither properly pleaded nor sufficiently proved.*^^ The motion of a bankrupt to dismiss an appeal from a judgment allowing certain exemptions, for want of jurisdiction, may be denied without consideration on the merits, when the bankrupt fails to -take a cross appeal.*"* In disposing of the ' appeal, the court of appeals may reverse or modify the judgment of the court below, or remand the cause with specific instructions as to the further steps to be taken,*** or may shortcut a situation where the rights of the parties are perfectly plain, by issuing its own order to a receiver or trustee in bankruptcy to perform the duty which it decides to be incumbent on him.*** It is of course, the duty of the district court to make such orders or take such action as may be directed by the mandate of the appellate 32 In re Clark, 9 Blatchf. 379, 6 N. B. K. 410, Fed. Cas. No. 2,802; Lazarus, Michel & Lazarus v. Harding, 223 Fed. 50, 138 C. C. A. 414, 35 Am. Bankr. Rep. 271. That petitioner was denied the right to vote for trustee is harmless error where his claim was so small that had the right not been denied, the selec- tion of the trustee could not have been afCected. National Bank of San Francis- co V. Continental Bldg. & Loan Ass'n, 232 Fed. 828, 147 C. C. A. 22, 37 Am. Bankr. Rep. 439. 321 In re Lynan, 127 Fed. 123, 62 0. O. A, 123, 11 Am. Bankr. Rep. 466. 3 22 McGahan v. Anderson, 113 Fed. 115, 51 C. C. A. 92, 7 Am. Bankr. Rep. 641. 323 White V. Thompson, 119 Fed. 868, 56 C. C. A. 398, 9 Am. Bankr. Rep. 653. And see In re Medina Quarry Co., 197 Fed. 308, 117 C. C. A. 54 ; In re Frank- lin Brewing Co. (D. C.) 265 Fed. 301, 45 Am. Bankr. Rep. 719; In re Blum, 244 Fed. 417, 157 C. C. A. 43, 40 Am. Bankr. Rep. 365; In re Braun, 239 Fed. 113, 152 O. C. A. 155, 38 Am. Bankr. Rep. 651; In re Mossier Co., 239 Fed. 262, 152 C. C. A. 250, 38 Am. Bankr. Rep. 604. Dismissal of an appeal from so much of an order as disallowed a general claim, because not taken within ten days, does not require dismissal of an appeal from so much of the order as dis- allowed a claim of lien. Massachusetts Bonding & Ins. Co. v. Kemper, 220 Fed. 847, 136 C. C. A. 593, 34 Am. Bankr. Eep. 80. On petition to revise an order fixing 'compensation of referee, the ap- pellate court cannot make or direct- a complete apportionment of commissions between two referees in advance of ac- tion by the court below. Kinkead v. J. Bacon & Sons, 230 Fed. 362, 144 C. C. A. 504, 36 Am. Bankr. Rep. 390. The circuit court of appeals cannot, on peti- tion to revise an order approving a com- promise between the trustee in bank- ruptcy and stockholders of the bankrupt corporation, direct a modification of the order, so as to permit the petitioners for revision to obtain in the court below .an adjudication of their claimed priorities over other creditors, based on the claim that petitioners were ignorant of the terms of the sale of stock, notwithstand- ing the defense that other stockholders had extended credit with knowledge of the terms of such sale. Petition of Stu- art (0. C. A.) 272 Fed. 938. 324 Sprague Canning & Machinery Co. V. Fuller, 158 Fed. 588, 86 O. O. A. 46, 20 Am. Bankr. Rep. 157. But where a claimant in bankruptcy did not appeal from an order allowing him only a small portion of his claim as filed, he cannot be allowed more on the appeal of object- ing creditors. Spencer v. Lowe, 198 Fed. 901, 117 C. C. A. 497, 29 Am. Bankr. Rep. 876. See Empress Theater Co. y. Hor- 147 APPELLATE JUKISDICTION AND PKOCEDUEE § 59 court in sending the case back.s*^ But, except as so directed, it has no further power to deal with the judgment or order appealed from. If reversed, it is annulled for all purposes. If affirmed, it must stand as made. In neither case, has the district court any authority to change or modify or amend the judgment or order or to grant a rehearing,*^* On an appeal in a bankruptcy proceeding, findings of fact and con- clusions of law will not ordinarily be stated by the circuit court of ap- peals, unless notice is given of an intended appeal to the Supreme Court, or unless they are requested, and in that case the request shotild be made at the time of the argument.**' § 59. Jurisdiction of Territorial Supreme Courts. — ^Appellate ju- risdiction of "controversies arising in bankruptcy proceedings" is con- ferred by the twenty-fourth section of the act on the supreme courts of the territories, "from the courts of bankruptcy from which they have appellate jurisdiction in other cases." The following section gives these courts appellate jurisdiction in three specified classes of cases, which are regarded as "proceedings" in bankruptcy rather than "controversies" in bankruptcy, namely, judgments making or refusing an adjudication of bankruptcy, judgments granting or refusing a discharge, and judgments allowing or rejecting a debt or claim- of five hundred dollars or over.*** But the authority to "superintend and revise in matter of law the pro- ceedings of the several inferior courts of bankruptcy within their juris- diction," given by section 24b of the act, is explicitly confined to "the several circuit courts of appeal." The supreme courts of the territories, therefore, have no jurisdiction of these special proceedings for review on petition for revision,*** but they must be brought in the proper cir- cuit court of appeals. It may seem a curious anomaly that appellate ju- risdiction over territorial district courts should thus be divided be- tween a federal court and the territorial supreme court. But the United States Supreme Court has declared that the law must be taken as it is ton (C. C. A.) 266 Fed. 657, 46 Am. 633; Lumpkin v. Foley (C. C. A.) 204 Bankr. Rep. 80. Fed. 372, 29 Am. Bankr. Rep. 673 ; In 32 6 Brown v. Persons, 122 Fed. 212, 58 re Martin (C. C. A.) 201 Fed. 31, 29 Am. C. C. A. 658, 10 Am. Bankr. Rep. 416; Bankr. Rep. 157. Ex parte First Nat. Bank of Chicago, sas gee In re McCasland, 16 Okl. 499, 207 U. S. 61, 28 Sup. Ot. 23, 52 L. Ed. 85 Pac. 1118. An appeal does not lie 103, 19 Am. Bankr. Rep. 542. from a judgment allowing or rejecting 828 In re Lesaius (0. C. A.) 181 Fed. a debt or claim of less than five hnn- 690, 25 Am. Bankr. Rep. 102 ; In re I^n- dred dollars. Ex parte Stumpff, 9 Okl. nox, 181 Fed. 428, 24 Am. Bankr. Rep. 639, 60 Pac. 96. 922; In re Hudson River Electric Co., S29 Ex parte Stumpfe, 9 Okl. 639, 60 184 Fed. 970, 25 Am. Bankr. Rep. 873. Pac. 96 ; In re American Copper Co., 11 327 Washington v. Tearney, 197 Fed. Ariz. 36, 89 Pac. 516. 307, 117 C. C. A. 53, 28 Am. Bankr. Rep. § 59 LAW OF BANKEUPTCT 148 written, and that there is no reason for thinking that it does not, in this particular, express the real intention of Congress.^*" It was held, in the case cited, that jurisdiction to "superintend and revise in matter of law" the proceedings in bankruptcy in a district court of Oklahoma (then a territory) was vested in the circuit court, of appeals of the eighth circuit, to which the territory had been judicially assigned, notwith- standing that jurisdiction on appeal or writ of error was vested in the territorial supreme court. But the circuit courts of appeals possess this revisory jurisdiction only over the inferior courts of bankruptcy "within their jurisdiction," and it is held that this phrase is meant to designate the inferior courts which were within their respective jurisdictions at the time of the pasfeage of the bankruptcy act. For this reason, the cir- cuit court of appeals of the eighth circuit holds that it has no revisory jurisdiction over the proceedings of the courts of bankruptcy in the In- dian Territory, the court of appeals for the territory alone having ap- pellate jurisdiction over such courts since its creation three years be- fore the enactment of the bankruptcy law.*^"^ 3 30 Plymouth Cordage Co. v. Smith, 33iin re Blair, 106 Fed. 662, 45 C. O. 194 U. S. 311, 24 Sup. Ct. 725, 48 L. Ed. A. 530, 5 Am. Bankr. Rep. 793; In re 992. Crawford, 152 Fed. 169, 81 C. C. A. 419, IS Am. Banltr. Kep. 258. 149 EEFBEEES IN BANKRUPTCY, APPOINTMENT, ETC. § 60 CHAPTER IV KEFEREES IN BANKRUPTCY, THEIR APPOINTMENT AND QUALIFI- CATIONS Sec. 60. Appointment of Referees. 61. Qualifications, Oath, and Bond. 62. Disqualification by Interest. 63. Removal of Referees. § 60. Appointment of Referees. — The office of "referee in bankrupt- cy," created by the bankruptcy act of 1898, corresponds to that of "reg- , ister" under the act of 1867. The present statute provides that the several courts of bankruptcy, within their respective territorial limits, shall have power to appoint referees in bankruptcy, each for a tetm of two years. Such a number of referees are required to be appointed as may be necessary to assist in expeditiously transacting the bankruptcy business pending in the various courts of bankruptcy ; and those courts are given the authority to designate, and from time to, time change, the limits of the districts of referees, so that each county, where the services of a referee are needed, may constitute at least one district.^ Whenever the office of a referee is vacant, or its occupant is absent or disqualified to act, it is provided that the judge himself may act, or he may appoint another referee, or designate another referee, holding his appointment from the same court, to fill the vacancy temporarily. Under this provision it is held that, when the referee to whom a case in bankruptcy would regularly be referred is absent or disqualified, the judge may appoint a special referee and send the case to him; and this may be done before the answer of the alleged bankrupt is filed, and does not require the consent or approval of the respondent or his at- torney.^ Appointment to office is ordinarily an e^cutive function, rather than legislative or judicial. But the Constitution authorizes Congress to vest the appointment of such inferior officers as they. think proper in the 1 Banliruptcy Act 1898, §§ 34, 37. "Tlie convenience, or in which he cannot hold word 'county' includes a parish, or any sessions whenever business may require other equivalent subdivision of a state them, or cannot continue them at Con- or territory of the United States." Rev. venienfc intervals ; nor can he fulfill the Stat. U. S. § 2. The state of Louisiana requirements of his oflScial duty as to is divided into parishes. The District any county in which the books and pa- of Columbia might be considered a coun- pers of his office are not open to inspec- ty within the meaning of this act, al- tion at the local seat of justice. In re though it is not so denominated in law. Sherwood, 1 N. B. R. 344, Fed. Cas. No. A referee in bankruptcy, it has been held, 12,774. cannot fulfill the duties of his appoint- 2 Bankruptcy Act 1898, § 43 ; Bray v. ment for any county in which the busi- Cobb, 91 Fed. 102, 1 Am. Bankr. Rep. 153. ness in bankruptcy must wait upon his § 61 LAW OF BANKETJPTCT 150 courts of law. (Art. 2, section 2.) This is held to justify the provision of the bankruptcy act which delegates to the several courts of bank- ruptcy the appointment of the necessary referees.* Where there are two district judges for the same federal judicial district, both authorized to hold the district court and sit in bankruptcy cases, either one of them, holding the court at the time, has power to appoint or remove a referee in bankruptcy, and such action does not require the concurrence of the two judges.* While probably the action of a district court in appointing a referee in bankruptcy may be subject' to review by the circuit court of appeals on petition to revise, yet the latter court will not in any way attempt to control the discretion of the district court in, making an appointment to an office so intimately connected with its own functions, and where the qualifications of the nominee are so pe- culiarly within its own knowledge.** § 61. Qualifications, Oath, and Bond. — The thirty-fifth section of the bankruptcy act provides that "individuals shall not be eligible to appointment as referees unless they are respectively (1) competent to perform the duties of that office; (2) not holding any office of profit or emolument under the laws of the United States or of any state other than commissioners of deeds, justices of the peace, masters in chancery, or notaries public ; « (3) not related by consanguinity or affinity, with- in the third degree as determined by the common law, to any of the judges of the courts of bankruptcy or circuit courts of the United States, 3 Birch V. Steele, 165 Fed. 577, 91 C. gain, public or private." This definition C. A. 415, 21 Am. Bankr. Rep. 5.39. is adopted in Apple v. Crawford Co., 105 i Birch V. Steele, 165 Fed. 577, 91 C. Pa. St. 300, 51 Am. Kep. 205. The ofiice C. A. 415, 21 Am; Bankr. Rep. 539. And of postmaster is an office both of profit see In re Steele, 161 Fed. 886, 20 Am. and trust under the authority of Con- Bankr. Rep. 446; In re Steele, 156 Fed. gress. McGregor v. Balch, 14 Vt. 434, 39 858, 19 Am. Bankr. Rep. 671 ; Ex parte Am. Dec. 231 ; Foltz v. Kerlin, 105 Ind. Steele, 162 Fed. 694, 20 Am. Ba«r. Rep. 221, 4 N. E. 439, 5 N. E. 672, 55 Am. Rep. 575. 197. A member of the state legislature 6 Birch V. Steele, 165 Fed. 577, 91 C. holds an office of profit as well as of hon- C. A. 415, 21 Am. Bankr. Rep. 539. or. State v. Valle, 41 Mo. 29. The offices 8 The term "office of profit" is frequent- of county recorder and county commls- ly used to designate offices otherwise sloner are lucrative offices within the known as "lucrative" offices. It de- meaning of the state constitution. Dail- scribes an office to which salary, com- ey v. State, 8 Blackf. (Ind.) 329. So is pensation, or fees are attached, and the the office of Inspector of customs. Craw- nmount of the salary or compensation is ford v. Dunbar, 52 Cal. 36. So is the of- not material. Baker v. Board of Crook fice of surveyor general. People v. County Com'rs, 9 Wyo. 51, 59 Pac. 797. Whitman, 10 Cal. 38. An officer of the "Emolument" Is defined by Webster as United States army on the retired list the profit arising from office or employ- holds an office of "trust or profit" under ment ; that which is received as a com- the United States. State v. De Gress, 53 pensation for services or which is an- Tex. 387. And see In re Corliss, 11 R. I. nexed to the possession of an office as ' 638, 23 Am. Rep. 538. salary, fees, and iterquisites ; advantage ; 151 REFEREES IN BANKRUPTCY, APPOINTMENT, ETC. § 61 or of the justices or judges of the appellate courts of the districts where- in they may be appointed ; ' and (4) residents of, or having their offices in, the territorial districts for which they are to be appointed." It will be observed that the act does not require that a referee in bankruptcy should be an attorney at law, but only that he should be "competent" to perform the duties of the office; and probably this word is to be taken in a popular sense, and as involving a certain degree of intelli- gence and familiarity with affairs. But the duties of a referee, though partly clerical, and requiring a measurable degree of knowledge of book-keeping, accounts, and other business details, are, in their most important aspect, quasi-judicial. Difficult questions of law often come before them for solution, and though their determinations are -subject to review by the court, the expeditious admfnistration of estates in bankruptcy demands that referees should be men of legal training and experience.* Referees in bankruptcy are required by law to take the same oath, of office as that prescribed for judges of the United States courts, be- fore proceeding to perform the duties of their office.® The referee must T Consanguinity is the relationship be- tween persons who are descended from the same stock or common ancestor. The method of determining degrees of rela- tionship by the common law is the same as that prevailing in the, canon law, and is as follows : To begin at the common ancestor and reckon downward, one de- gree for each i)erson, until the compu- tation reaches that one of the two per- sons whose relationship is to be deter- mined who is the more remote from the common ancestor, or until they are both reached If they are equally distant from that ancestor; and the number of de- grees thus reckoned will be the degree in which they are related. 2 Bl. Comm. 206. According to this method of com- putation, first cousins are related in the second degree, and second cousins in the third degree. Tlie other method of com- putation is that of the civil (Roman; law, which is to count upward, from ei- ther of the persons related, to the com- mon stock, and then downward to the other, reckoning a degree for each i)er- son both ascending and descending. In other words, the canon or common-law rule takes the number of degrees in the longest line; the civil law, the sum of the degrees in both lines. "Affinity" means the relationship or connection which arises from a marriage, between the husband and the blood relations of the wife, and between the wife and the blood relations of the husband. Its de- grees are reckoned in the same way as degrees of consanguinity. In this con- nection, see also Federal Judicial Code 1911, § 67, providing that "no person shall be appointed to or employed in any office or duty in any court who is re- lated by affinity or consanguinity within the degree of first cousin to the judge of such court." 8 It appears that there is nothing in the statute to prevent a woman from being appointed a referee in bankruptcy, if the requirements as to competence, residence, relationship to the judges, and the holding of other offices are met. Since women who are otherwise qualified may now be admitted to practice as at- torneys before the Supreme Court of the United States (Federal Judicial Code 1911, § 255), there is apparently no rea- son why they might not hold the office in question. Bankruptcy Act 1898, § 36. This oath is as follows: "I do solemnly swear (or affirm) that I will administer justice without respect to persons, and do equal right to the poor and to the rich, and that I will faithfully and Im- partially discharge and perform. all the duties incumbent on me as referee; in § 62 I/AW OF BANKRUPTCY 152 also qualify by entering into a bond to the United States, in such sum as shall be fixed by the court, but not exceeding $5,000, with such sure- ties as the court shall approve, conditioned for the faithful performance of his official duties." There must be at least two sureties upon the bond, and the court shall require evidence as to the actual value of their property, which, over and above their liabilities and exemptions, must at least equal the amount of the bond; but bonding or surety companies may be accepted as sureties by the court. The bond is to be filed of record in the office of the clerk of the court and may be sued on in the name of the United States for the'use of any person injured by a breach of its condition ; but suit on such bond shall not be brought subsequent to two years after the alleged breach of condition." The court is to fix the time within which the referee must qualify by executing his bond, and it is provided that if any referee shall fail to give the bond within the time limited, he shall be deemed to have declined his appointment, and such failure shall create a vacancy in the office.^* § 62. Disqualification by Interest. — If the ,referee to whom a case would ordinarily be referred is "disqualified to act," the judge may him- self act, or appoint another referee, or send the cause to another referee holding his appointment under the same court.^* The statute expressly declares that "referees shall not act in cases in which they are directly or indirectly interested," and that if a referee knowingly acts in such a. case, it shall be a criminal offense, punishable by fine, and shall also vacate his office." The object of statutory provisions disqualifying ju- dicial officers from acting in causes in which they are interested is to secure the utmost fairness and impartiality, and hence they ought to 1 be construed liberally to effect that object, and any doubt as to the qualification of the officer in a particular case should be resolved against his right to sit.''® But the interest which disqualifies a judicial officer "is not the kind of interest which one feelg in public proceedings or public measures. It must be a pecuniary or property interest, or one affecting his individual rights, and the liability or pecuniary gain or relief to the judge must occur upon the event of the suit, not result bankruptcy, according to the best of my form all the duties pertaining to the of- abilities and understanding, agreeably to lice of referee in bankruptcy." Official the Constitution and laws of the United Form Xo. 17. States." Official Forms In Bankruptcy, n Bankruptcy Act 1898, § 50. No. Ifi ; Rev. Stat. TJ. S. § 712. As to 12 Bankruptcy Act 1898, § 50k. who may administer this oath, see Bank- is Bankruptcy Act 1898, § 43. ruptcy Act 18;98, § 20. 14 Bankruptcy Act 1898, § 39, clause 10 The condition of the bond of a ref- b; § 29, clause 1. eree in bankruptcy is this; that he shall is Dodd v. Northrop, 37 Conn. 216. "well and faithfully discharge and per- 153 REFEREES IN BANKRUPTCY, APPOINTMENT, ETC. § 63 remotely, in the future, from the general operation of laws and govern- ment upon the status fixed by the decision." i* The statutory restric- tion as to referees acting in cases in which they are interested does not apply to the interest of a referee by way of commissions on sums paid to creditors as dividends; This is a necessary interpretation of the law, since a contrary construction would disqualify referees from acting in any cases at all, and would in fact abolish the office and put an end to all procedure under the present machinery of the act.^' It has also been decided that a referee is not disqualified by interest from acting in a particular case because he is a debtor to the bankrupt. The in- terest which will disqualify is an interest either in the proceedings in bankruptcy or in the estate of the bankrupt ; and the bankrupt's debtor cannot be said ,to be "interested" in this way, since his liability is not increased, diminished, or. in any way changed by the proceedings. At the same time it is said that the judge, on being apprised of the fact that the referee is a debtor of the bankrupt, may, in his discretion, revoke the order of reference and send the case to another referee." § 63. Removal of Referees. — It is provided in the law, that a court of bankruptcy may, in its discretion, remove from office the referees holding their appointment under such court, "because their services are not needed or for other cause." ^^ No case is found in the reports in which a referee or register in bankruptcy was removed from office for causes affecting his character or competency, though in one case there is an intimation that a register who is habitually careless and negligent should be removed, and that if he makes a practice of signing and fur- nishing in blank certificates or other papers which are required to be issued by him in his official, capacity, it will be cause for his removal.'" Although the power of removal given to the judge in the language quoted above is discretionary and almost unlimited, and although the authority and control which a court possesses over its own officers may be exercised summarily, yet, on general principles of law and justice, an order removing a referee for "other cause" than his superfluity should not be entered without due notice to him nor without according him a full and fair opportunity to defend or exculpate himself. Still the 18 Foreman v. Town of Marianna, 43 Diego, 126 Cal. 303, 5S Pac. 700, 59 Pac. Ark. 324. And see Sjoberg v. Nordin, 26 209 ; Bennett v. State, 4 Tex. App. 72. Minn. 501, 5 N. W. 677; Ellis v. Smith, i^ in re Abbey Press, 134 Fed. 51, 67 42 Ala. 349; Pearce v. Atwood, 13 Mass. C. C. A. 161, 13 Am. Bankr. Rep. 11. 324; State v. Sutton, 74 Vt. 12, 52 Atl. is Bray v. Cobb, 91 Fed. 162, 1 Am. 116; Taylor v. Williams, 26 Tex. 583; Bankr. Rep. 153. (jity of Austin v. Nalle, 85 Tex. 520, 22 i9 Bankruptcy Act 1898, § 34. S. W 668 960; Higgins v. City of San s" In re Jay cox, 7 N. B. R. 303, Fed. Cas. No. 7,240. § 63 " LAW OF BANKRUPTCY 154 discretion of the district court in this particular will not be reviewed or controlled by the circuit court of appeals. In one case in which such relief was sought, it was said: "We find neither in the statute nor in the adjudged cases any authority conferred on this court to control the court of bankruptcy, on the facts alleged in the petition, in the exercise of its discretion in making the order of removal. Congress, exercising an authority conferred by the constitution, has vested the power to appoint referees exclusively in the courts of bankruptcy, and, when appointed, the referee holds the ofifice at the discretion of the court that appointed him. It follows, we think, that this court can have no con- trol over the appointment or removal, nor can it make inquiry into the grounds of removal." ^^ ■21 Birch V. Steele, 165 Fed. 577, 587, 91 O. C. A. 415, 21 Am. Bankr. Rep. 539. 153 POWERS AND DUTIES OF REFEREES § 64 CHAPTER V POWERS AND DUTIES OF REFEREES Sec. 64. Reference and Transfer of Causes. 65. Jurisdiction and Powers of Referees. 66. Specific Powers and Authorities of Referees. 67. Same; Surrender or Reclamation of Property. 68. Same; Grant of Injunction. 69. Same ; Appointment of Receiver. 70. Duties of Referees. , 71. Proceedings Before Referees. 72. Same ; Taking and Preservation of Evidenc& 73. Same; Review and Reopening of Case. 74. Certifying Questions for Review by Judge. 75. Review of Proceedings by Judge. 76. Same ; Effect of Referee's Findings of Fact 77. Records and Accounts of Referees., 78. Contempts Before Referees. § 64. Reference and Transfer of Causes. — The jurisdiction of a referee in bankruptcy over a particular case is founded upon the order by which the case is referred to him. This order is to be made, in some cases, by the clerk of the court ; in others, by the judge. The act pro- vides, in the case of a petition in involuntary bankruptcy, that "if the judge is absent from the district, or the division of the district, in which the petition is pending, on the next day after the last day on which plead- ings may be filed, and none have been filed by the bankrupt or any of his creditors, the clerk shall forthwith refer the case to the referee." ^ And when a petition in voluntary bankruptcy is filed, if the^ judge is absent from the district or division "at the time of the filing," the clerk shall forthwith refer the case to the referee.* When a petition is thus referred by the clerk, another part of the act confers upon the referee authority and jurisdiction to "make the adjudication or dismiss the petition," although in this respect his action is subject to review by the judge.' It has been ruled, under the present bankruptcy act, that the 1 Bankruptcy Act 1898, § 18, clause f. the judge. Section 18 of the act requires The form to be used by the clerk in mak- the "judge" to make the adjudication, ing this order of reference is Form No; unless he is absent from the district. 15. It Is under the hand of the clerk This duty cannot be delegated by the and the seal of the court. See In re judge to the referee, if the former is Murray, 96 Fed. 600, 3 Am. Bankr. Rep. within the district ; for the specific term 601, "judge," used in this connection, is 2 Bankruptcy Act 1898, § 18, clause g. plainly defined in another part of the act 3 Bankruptcy Act 1898, § 38. The ref- as not including the referee. Section 1, eree has jurisdiction to consider a petl- clause 16. See In re De Ford, 18 N. B. tion and make an adjudication or ,dis- R. 454, Fed. Cas. No. 3,744. Also it is miss the petition only in the single case held in some of the cases that the ref- where the petition has been thus refer- eree cannot act at all on a petition thus red to him by the clerk in the absence of sent to him if it is contested, and issues § 64 LAW OF BANKRUPTCY 156 authority to refer a petition in bankruptcy to the referee, in the absence of the judge, has not been conferred upon a deputy clerk of the court, but can be exercised only by the clerk in person.* If the judge is within the district, the case will take the more usual course; and "after a person has been adjudged a bankrupt, the judge may cause the trustee to proceed with the administration of the estate, or refer it generally to the referee, or specially with only limited au- thority to act in the premises or to consider and report upon specified is- sues, or to any referee within .the territorial jurisdiction of the court, if the convenience of parties in interest will be served thereby, or for cause, or if the bankrupt does not do business, reside, or have his domicile in the district."^ This section of the act, it is held, does not permit of a reference of the case to a referee until after an adjudication has been made.® That is, if the judge is present in the district, it is his duty to hear the petition and make the adjudication or dismiss the petition, as the case may be, and it is only after an adjudication that the case can be sent to a referee. But the judge may then exercise his discretion as to which of the ref- erees within his jurisdiction shall be placed in charge of the case, sup- posing none of them to be personally disqualified, and in so doing he should consider what will best subserve the convenience of the parties are raised by the bankrupt or any of the bankruptcy "or with the clerk or deputy creditors on the facts stated, but he must clerk," and clause 18 of the same section, certify the case to the judge. In re L. which provides that the imposing of a Humbert Co., 100 Fed. 439, 4 Am. Bankr. duty uoon any officer "shall include any Rep. 76 ; In re Murray, 96 Fed. 600, 3 person authorized by law to perform the Am. Bankr. Rep. 601. duties of such officer." And see Gilbert- * Bray v. Cobb, 91 Fed. 102, 1 Am. son v. United States, 168 Fed. 672, 94 C. Bankr. Rep. 153. The clerk, says the C. A. 158, 22 Am. Bankr. Rep. 32. court, "has n» judicial powers in bank- s Bankniptcy Act 1898, § 22. ThQ ruptcy, but is a ministerial officer sub- form to be used for a reference after ad- ject- to the orders of the district judge, judication is Form No. 14. and a deputy clerk is not mentioned in » In re Back Bay Automobile Co., 158 the act. The deputy's authority and Fed. 679, 19 Am. Bankr. Rep. 835. But power are confined to those conferred by see In re Euos, 164 Fed. 749, 21 Am. Rev. Stat. § 558. An order signed by the Bankr. Rep. 257. But where answers judge and attested by the deputy clerk are filed to a petition in involuntary with the seal of the court is valid, but bankruptcy, it is proper for the court to alone a deputy clerk cannot make an or- refer the case to the referee (In the char- der of reference in bankruptcy. Wheth- acter of a special commissioner or mas- or he can, do so in the name of the clerk, ter) to take and return the evidence and (juiEre?" Notwithstanding the foregoing report upon the questions presented, decision, however, it seems clear, from Clark v. American Mfg. l& E. Co., 101 the terms of the baiikruptcy act itself. Fed. 962, 42 C. C. A. 120, 4 Am. Bankr. that a deputy clerk may. receive the pe- Rep. 351; In re Lacov, 134 Fed. 237, 67 tition for filing, and in a proper case re- C. C. A. 19, 13 Am. Bankr. Rep. 400. fer it to the referee. This is shown by But compare, as to this point. In re section 1, clause 20, where a petition is King, 179 Fed. 694. 103 C. C. A. 240, 24 defined as a paper filed in a court of Am. Bankr. Rep. 606. 157 POWERS AND DUTIES OF EBFERBBS § 64 interested in the estate.' But this section refers only to referees ap- pointed within the district where the case is pending, and the court has no jurisdiction to refer a case, for any purpose whatever, to a ref- eree appointed and residing in another district." As to referring a case specially, it is stated to be the general practice, when petitions are pre- sented for the reclamation of property by or from a trustee, or r.equiring the determination of questions respecting assets claimed as a part of the bankrupt's estate, to refer them to a special master, or to a referee in bankruptcy acting as special master, to take the testimony and report his conclusions of fact and law thereon." The powers of a special ref- eree, appointed on the petition of a receiver for the property of an al- leged bankrupt pending a hearing on the petition, with authority to ex- amine the bankrupt and other witnesses in relation to the property and assets of the bankrupt, and for that special purpose, with a view to dis- cover what had become of the bankrupt's property, are superseded on the making of an adjudication and an order of general reference.^* It should further be observed that, according to the provision of the statute, "the judge may, at any time, for the convenience of parties or for cause, transfer a case from one referee to another." " The general orders in bankruptcy, (No. 12) provide that "the order referring a case to a referee shall name a day upon which the bankrupt shall attend before the referee; and from that day the bankrupt shall be subject to the orders of the court in all matters relating to his bank- ruptcy. A copy of the order shall forthwith be sent by mail to the ref- eree, or be delivered to him personally by the clerk or other ofiEcer of the court. . And thereafter all the proceedings, except such as are re- quired by the act or by these general orders to be had before the judge, shall .be had before the referee." The fact that the order of reference designates a day "on" which the bankrupt shall attend before the referee does not prevent that officer from taking proper proceeTiings when the bankrupt appears within a reasonable time after the day fixed. His ' In re Western Inv. Co., 170 Fed. 677, s in re Schenectady Engineering & 21 Am. Bankr. Rep. 367. Wliere the Construction Co., 147 Fed. 868, 17 Am. place of business of a bankrupt firm, Bankr. Rep. 279. and also the residence of one of its mem- » In re Tracy, 179 Fed. 366, 102 C. C. bers, were in one of the counties com- A. 644, 24 Am. Bankr. Rep. 539; In re prised witliin the federal judicial district Thomas, 35 Fed. 337. And see U. S. v. where the adjudication was made, but Ward, 257 Fed. 372, 168 C. C. A. 412, 43 the other partners resided in two other Am. Bankr. Rep. 711. counties in the same district, it was held i o In re Ruos, 164 Fed. 749, 21 Am. to be within the discretion of the court Bankr. Rep. 257. of bankruptcy to send the case to the ii Bankruptcy Act 1898, § 22. referee in either one of the three coun- ties. In re Watkinson, 205 Fed. 145, 123 C. C. A. 377. § 65 LAW OF BANKRUPTCY 158 failure to appear on or before the appointed day will not make it neces- sary to obtain a new order of reference.** § 65. Jurisdiction and Powers of Referees. — Referees in bankruptcy, although they are not strictly speaking "judges," are by no means merely ministerial officers. They are commissioners or aides of the district court, clothed by law with extensive judicial powers, and invested with a large measure of judicial discretion.*^ "Referees are important offi- cers in the administration of the bankrupt law, and great weight should be given to their decisions. *• * * Referees are not only judicial of- ficers charged with the performance of the duties prescribed in the stat- ute, for the faithful performance of which they take and subscribe an official oath, but are also required to give bond to insure the observance of the oath. This is an unusual requirement of a quasi judicial officer." ** Under the act of 1867, the jurisdiction of a register in bankruptcy (ex- cept as to administrative details) was expressly confined to such matters and cases as were not contested; upon the raising of a contested issue of law or fact in any case before a register, he was required to adjourn it into the court.** No such distinction is made by the present statute ; and, as will more fully appear in the following sections, the jurisdiction of a referee in bankruptcy extends to almost every matter which is with- in the power of the court itself, save in a few specially excepted cases, and subject at all times to review by the judge.*® The jurisdiction of referees, however, is territorially restricted; for the same section of the law which confers it provides that their powers shall be exercised "with- in the limits of their districts as established from time to time." *' This 12 In re Hatcher, 1 N. B. R. 390, Fed. Bank of North Carolina, 19 N. B. R. 164, Cas. No. 6,210. But if the petitioner Fed. Cas. No. S96. And see Rev. Stat, does not appear before the referee at the TJ. S. §§ 4998, 5009. time irxed in the order, or within a rea- lo When a District Court has enter- sonable time thereafter, excusing his de- tained ancillary proceedings in bank- lay, the petition may be dismissed. Id. ruptcy, a referee to whom the matter is 13 But the Supreme Court, in a recent refen-ed to proceed under the order has decision, has rather pointedly called at- no authority to determine that the court tention to the fact that the referee in was without jurisdiction to make such bankruptcy is not a separate court, nor order. In re Flaherty (D. C.) 265 Fed. is he endowed with any independent ju- 741, 45 Am. Bankr. Rep. 638. dicial authority, but is merely an officer it Bankruptcy Act 1898, § 38. See In of the court of bankruptcy, with no pow- re Schenectady Engineering & Construc- er except as conferred by the order of tlon Co., 147 Fed. 868, 17 Am. Bankr. reference. Weidhorn v. Levy, 253 TJ. S. Rep. 279. In an early decision by a ref- 268, 40 Sup. Ct. 534, 64 L. Ed. 898, 45 eree it was held that such referee, after Am. Bankr. Kep. 493. adjudication, has jurisdiction to enjoin 1* In re Covington, 110 Fed. 143, 6 Am. a sale of the bankrupt's real estate on Bankr. Rep. 373. foreclosure of a mortgage in a state IS See In re Gettleston, 1 N. B. R. 604, court, although such real estate is sit- Fed. Cas. No. 5,373 ; In re Lanier, 2 N. uated in another county than that for B. R. 154, Fed. Cas. No. 8,070; In re which the referee was appointed, pro- 159 POWERS AND DUTIES OF REFEREES § 66 is a different matter from the determination of jurisdiction by reference to the bankrupt's domicile. Ordinarily a case will be sent to that referee within whose district the bankrupt lives, but the judge may refer the case to any referee within the territorial jurisdiction of the cotlrt, if the convenience of parties in interest will be served thereby, or for other cause.^* § 66. Specific Powers and Authorities of Referees. — The powers and duties of referees in bankruptcy are prescribed by the act, and still further defined by the general orders in bankruptcy.^* Speaking gener- ally, it may be said that a referee has jurisdiction and authority, in the cases referred to him, and within the limits of his district, and subject to a review by the judge, of all matters and proceedings in bankruptcy ex- cept, first, an adjudication of bankruptcy or other final action upon a pe- tition when the judge is within the district ; *• second, the determination of questions arising out of an application for a discharge or for the con- firmation of a composition ; and third, certain matters which, by the terms of the law, are confided to the judge alone. The statute, it should be observed, in its grants of authority and directions as to detail, some- times speaks of the "court" or "court of bankruptcy," and sometimes of vided it is within tlie federal judicial district where the adjudication was made and the referee appointed. In re Sabine, 1 Nat. Bankr. News, 45, per Kef- eree Hotchkiss. 18 Bankruptcy Act 1898, § 22. 10 Bankruptcy Act 1898, § 38, reading as follows: "Referees respectively are hereby invested, subject always to a re- view by the judge, within the limits of their districts as established from time to time, with jurisdiction to (1) consider all petitions referred to them by the clerks and make the adjudications or dismiss the petitions; (2) exercise the powers vested in courts of bankruptcy for the administering of oaths to and the exam- ination of persons as witnesses and for requiring the production of documents in proceedings before them, except the power of commitment; (3) exercise the powers of the judge for the taking pos- session and releasing the property of the bankrupt in the event of the issuance by the clerk of a certificate showing the absence of a judge from the judicial district, or the division of the district, or his sickness, or inability to act ; (4) perform such part of the duties, except as to questions arising out of the applica- tion of bankrupts for compositions or dis- charges, as are by this act conferred on courts of bankruptcy and as shall be prescribed by rules or orders of the courts of bankruptcy of their respective districts, except as herein otherwise pro- vided ; and (5) upon the application of the trustee during the examination of the bankrupts, or other proceedings, authorize the employment of stenogra- phers at the expense of the estates at a compensation not to exceed ten cents per folio for reporting and transcribing the proceedings." As to the authority of a referee to administer oaths, see also § 20. And see In re Dean, 2 N. B. R. 89, Fed. Cas. No. 3,700. In regard to requir- ing the production of documents in cases before them, another part of the act provides that the term "document" shall include any book, deed, or instrument In writing. § 1, cl. 13. General Order No. 12. provides that, after the reference of the case, "all the proceedings, except such as are required by the act or by these general orders to be before the judge, shall be had before the referee." 2» See Bankruptcy Act 1898, §§ 18, 38. And see In re De Ford, 18 N. B. R. 454, Fed. Cas. No. 3,744. § 66 , LAW OF BANKRUPTCT 160 the "judge." And it is provided (section 1, clause 7) that the former term "may" include the referee, but that the word "judge" shall not in- clude the referee. From the general policy of the act, and from its inter- pretation 'by the Supreme Court, in the general orders, it is evident that the word "court" must be held to include the referee in every case where it occurs, unless the context plainly shows that only the judge is meant.' The following are the principal occurrences of the word "court" and the word "judge" in the act, which are significant in this connection: Section 3e provides that the bond to be given upon the seizure of the bankrupt's property before adjudication shall be approved by "the court or a judge thereof." But section 69, which is in pari materia with this clause, directs that a warrant to the marshal to seize the bankrupt's property may be issued by a "judge" only; and section 38 permits the referee to exercise the powers of the judge in this matter only upon a certificate from the clerk showing that the judge is absent, ill, or unable to act. Section 7 provides that the bankrupt shall attend the first meeting of his creditors, if directed by "the court or a judge thereof" to do so, and that he shall then, and at such other times as "the court" shall order, submit to, an examination. That an order for the examination of the l)ankrupt may be made by the referee appears from Form No. 28. Section 9 provides for the arrest and detention of a bankrupt who is about to leave the district. The warrant for that purpose may be is- sued only by the "judge", not including the referee. But apparently an order to the marshal to keep the, bankrupt in custody after his arrest upon such warrant and after a hearing, may be made either by the judge or the referee. And, on the other hand, by General Order No. 12, the bankrupt "may receive from, the referee a protection against arrest, to continue until the final adjudication on his application for a dis- charge, unless suspended or vacated by order of the court." Section 11 provides that "the court" may order a trustee in bankrupt- cy to defend pending suits against the bankrupt or to prosecute suits commenced by him. Such orders may clearly be made by the referee.*^ But applications for "an injunction to stay proceedings of a court or officer of the United States or of a state shall be heard and decided by the judge ; but he may refer such an application, or any specified issue arising thereon, to the referee to ascertain and report the facts." Gen- eral Order No. 12. 21 The referee, in case there Is delay propriety of making progress, and in- in winding up the estate in bankruptcy, dlcate what steps the trustee should may properly inquire why a settlement take. In re Bank of North Carolina, 19 has not been made, and suggest the N. B. E. 164, Fed. Gas. No. 896. 161 POWERS AND DUTIES OF EBFBEEBS § 66 By sections 12-15 jurisdiction to confirm or reject a composition, and to set it aside after confirmation, and to grant or refuse, or revoke, a discharge is vested in the judge alone. But he may refer an applica- tion for a discharge or for the confirmation of a composition, or any specified issue arising thereon, to the referee to ascertain and report the facts. General Order No. 12.^" . Power to make the initiatory process in a proceeding in bankruptcy returnable later than fifteen days from its issue is given to the "judge," (section 18), for the obvious reason that the jurisdiction of the referee does not attach (except in the case where a petition is referred to him by the clerk in the judge's absence) until after adjudication. By section 21, power to order persons other than the bankrupt to ap- pear and be examined is vested in the "court of bankruptcy." The ref- eree may clearly authorize the issuance . of a summons to a witness (Form No. 30), and he is specially invested with power to examine the witness and require the production of documents ; but has no authority to commit persons for disobedience to such process. Section 38. Sections 26 and 27 provide ^that the trustee, in the course of settle- ment of the estate, may submit any controversy to arbitration pursuant to the direction of the "court," and may compromise any conti^oversy with the approval of "the court." Undoubtedly the term must here be taken as including the referee. As to the appointment of a trustee in bankruptcy by the • "court" when the creditors fail to make an appointment, the approval of a trus- tee's bond, and the power to order that no trustee be appointed (in the case provided for in General Order .No. IS), the forms promulgated by the Supreme Court show that these are all matters within the jurisdic- tion of the referee, though of course his action is subject to review by the judge. The same remark applies to the order allowing the final account of a trustee and discharging him, and to the order for the ap- pointment of a new trustee upojti the death, removal, or resignation 6i the former one.^* But an order for the removal of a trustee for cause can be made by the judge only.^* Meetings of creditors are to be called by the "court." *^ This plain- ly includes the referee. 2 2 The referee has power to make an 20 Forms 23, 26, 27, 51, and 55. order requiring the trustee to give the 24 General Order No. 13 ; Form No. 54. bankrupt a certificate of the names and 25 Bankruptcy Act 1898, § 55; General addresses of the creditors who have Order No. 25. The referee has authority- proved their claims, to enable him to ap- to order notice to creditors of a meeting ply for his discharge. In re Blaisdell, to authorize the trustee to oppose the 5 Ben. 420, 6 N. B. R. 78, Fed. Oas. No. bankrupt's application for discharge. In 1,488. re Hockman, 205 Fed. 330. Blk.Bkb.(3d Ed.)— 11 66 LAW OF BANKRUPTCY 162 By section 57 of the act it is provided that fclaims of creditors which have been duly proven may be allowed by the "court;" that thereafter the "court" may allow the withdrawal of the instrument on which the debt is founded ; that the consideration of the allowance of a claim may be continued by the "court" for cause upon its own motion, and that the claims which have been allowed may be reconsidered for cause, and reallowed, reduced in amount, or expunged. In all these matters, the referee may be, and primarily is, the court.^® By the express terms of the statute, dividends are to be declared by the referee (section 39), but by a later section, if they are to be declared oftener or in smaller portions than the act directs, power to do this is given to the "judge" only. Section 6Sb. Orders empowering the trustee to sell real estate at auction, to re- deem property of the bankrupt from liens upon it, to sell the property subject to such liens, to dispose of property at private sale, or to sell ■perishable property immediately, are to be made by the referee.*' It may be added that, by the twentieth section of the act, referees have authority to administer all oaths required by the statute, except in the case of a hearing in court; and they may therefore administer the oath to witnesses appearing for examination or in any hearing before them.** In the case whei-e a petition in involuiitary bankruptcy is sent to a referee by the clerk of the court on account of the absence of the judge, the referee may either make an adjudication or, if the facts do not warrant it, may dismiss the petition. But this is the only instance in which he has power to take the latter course. He has no authority to dismiss the bankruptcy proceeding generally, or any particular mat- ter in bankruptcy referred to him, after the adjudication.** It is also within the jurisdiction and the discretion of a referee in bankruptcy to order amendments to be made in the petition and schedules of a volun- tary bankrupt referred to him, in particulars as to which he finds them defective or insufficient, and to refuse to call a first meeting of creditors 2 Bankruptcy Act 1898, § 55, clause b; petition to sell mortgaged property free General Order No. 21, par. 6 ; Forms from the lien and transfer the same to Nos. 38, 39. the proceeds, there being no allegation in 2 7 Forms Nos. 42, 43, 44, 45, 46. See the petition nor in the notice that an In re Matthews, 109 Fed. 603, 6 Am. attack was made on the validity of the Bankr. Eep. 96; In re T. L. Kelly Dry mortgage, the referee has no jurisdic- Goods Co., 102 Fed. 747, 4 Am. Bankr. tion to adjudge it void. In re Martin, Rep. 528. By section 70 of the act, "all 210 Fed. 620, 127 O. C. A. 256, 32 Am. real and personal property belonging to Bankr. Rep. 29. bankrupts' estates shall be appraised by 2 s United States v. Simon, 146 Fed. three disinterested appraisers ; they shall 89, 17 Am. Bankr. Eep. 41 ; In re Dean, be appointed by and report to the court." 2 N. B. R. 89, Fed. Oas. No. 3,700. That the word "court" here means "ref- 20 In re Elby, 157 Fed. 935, 19 Am. eree" appears from Form No. 13. On a Bankr. Rep. 734. 1.63 POWERS AND DUTIES OF EEFEEBES § 67 until such amendments are made.*" But he has no authority to collect or receive money belonging to an estate in bankruptcy.*^, And although courts of bankruptcy have jurisdiction and authority to authorize the business of the bankrupt to be continued for a limited time, when that is for the best interests of the estate, yet a referee in bankruptcy should not take it upon him to exercise such authority, where it involves trans- actions of considerable magnitude, especially since the amount of his own compensation may be directly involved, nor in any case should he authorize the issue of trustee's certificates to raise money to accomplish that end.*« § 67. Same; Surrender or Reclamation of Property. — A referee in bankruptcy has jurisdiction of an application by a trustee in bankruptcy for an order requiring the bankrupt to surrender money or property of his estate alleged to be in his possession or control and to be withheld or concealed from the trustee, to cite the bankrupt before him to show cause, and to make an order in accordance with his findings.** His action is of course subject to review by the judge of the court of bank- ruptcy, but his decision will not be reversed unless plainly erroneous or based on clearly insufficient evidence.** If, however, the order of the referee requiring a surrender of property was based on a mistake of fact, the referee has power, on petition of the bankrupt, filed within the time limited for review of his decision, to reopen and reconsider the mat- ter, and, the mistake being shown, to set aside the order.*® If the bank- rupt fails or refuses to obey an order of this kind, lawfully made, the referee may enter the fact on his record, and it is then his duty to cer- tify the facts to the judge, as the latter alone has the authority to ad- judge the bankrupt in contempt and impose a punishment therefor.** Similarly, the referee has power in the first, instance to enter an or- der against a third person to show cause why he should not be required »o In re Brumelkamp, 95 Fed. 814, 2 between the trustee and the bankrupt Am. Bankr. Rep. 318. whereby the trustee accepts a less amount 81 In re Pierce, 111 Fed. 516, 6 Am. than the bankrupt was ordered by the Bankr. Rep. 747. court to pay as the amount the court »2 Bray v. Johnson, 166 Fed. 57, 91 O. found the bankrupt was concealing C. A. 643, 21 Am. Bankr. Rep. 383. where such compromise is for the best us In re Oliver, 96 Fed. 85, 2 Am. interests of the estate. In re Goldman Bankr. Rep. 783 ; In re Tudor, 96 Fed. (C. O. A.) 241 Fed. 385, 39 Am. Bankr. 942, 2 Am. Bankr. Rep. 808 ; In re May- Rep. 58. er, 98 Fed. 839, 3 Am. Bankr. Rep. 533; " In re Tudor, 96 Fed. 942, 2 Am. In re Miller, 105 Fed. 57, 5 Am. Bankr. Bankr. Rep. 808. Rep. 184 ; Prather v. Prather, 4 Ky. Law »= In re Brenner,'*190 Fed. 209, 26 Am. Rep. 454 ; In re Kramer (D. G.) 209 Fed. Bankr. Rep. 646. 627, 31 Am. Bankr. Rep. 377. The ref- =« In re Miller, 105 Fed. 57, 5 Am. eree has power to Approve a compromise Bankr. Rep. 184. § 67 LAW OB" BANKRUPTCY 164 to surrender or pay over to the trustee property or money in his hands, alleged to belong to the estate in bankruptcy, and, upon a hearing, to make an order requiring such surrender or payment within a limited time.*'" Thus he may compel a creditor to return money received from the bankrupt after the institution of the proceedings,** or order the of- ficers of a bankrupt corporation to pay over the proceeds of sales of its stock alleged to belong to the corporation, and also to pay an amount assessed against them for unpaid shares.** But the referee has no power or jurisdictioii to order third persons, in possession of property claimed by the trustee, to deliver it to the latter, where the possession of the third person is not admitted to be in subordination to the bankrupt's title, but is based on a bona fide adverse claim.** This is the rule which may now be regarded as definitely settled. For although there had been a disposition to enlarge the jurisdiction of referees in these mat- ters, and some cases had gone so far as to hold that a referee in bank- ruptcy had jurisdiction of a bill in equity by the trustee to avoid a transfer alleged to have been in fraud of creditors,*^ yet in 1920 the Supreme Court of the United States, reversing the most important of the decisioiis so holding, took occasion to define rather sharply the powers of referees, and put a conclusive negative upon the claim for any such extensive, jurisdiction. The court pointed out that "the ref- eree is not in any sense a separate court, nor endowed with any inde- pendent judicial authority, and is merely an oiifiicer of the court of bank- ruptcy, having no power except as conferred by the order of reference, reading this of course in the light of the act; and that his judicial functions, however important, are subject always to the review of the bankruptcy court." And on the merits, it was said: "We find nothing ST Mueller v. Nugent, 184" U. S. 1, 22 v. Ellis, 75 Misc. Rep. 255, 133 N. T. Supp. Sup. Ct. 269, 46 L. Ed. 405, 7 Am. Bankr. 425. Rep. 224; In re Famous Clotliing Co., *» In re Blum (C. O. A.) 202 Fed. 883, 179 Fed. 1015, 24 Am. Bankr. Rep. 780. 29 Am. Bankr. Rep. 332 ; In re Gill, 190 Compare Woodward v. McDonald, 116 Fed. 726, 111 O. C. A. 454, 26 Am. Bankr. Ga. 748, 42 S. E. 1030. See also In re Rep. 883; In re Peacock, 178 Fed. 851, Logan, 196 Fed. 678, 28 Am. Bankr. Rep. 24 Am. Bankr. Rep. 159 ; In re F. M. & 543. The referee has no jurisdiction of S. Q. Carlile, 199 Fed. 612, 29 Am. Bankr. a suit by the trustee to collect a debt Rep. 373; In re Bacon, 196 Fed. 986, 28 nor of a suit to enforce specific perform- Am. Bankr. Rep. 565. As to consent of ance of a contract between the bankrupt defendant conferring jurisdiction in such and a third person. In re Ballou (D. O.) cases, see Kilgore v. Barr, 114 Va. 70, 215 Fed. 810, 33 Am. Bankr. Rep. 21. 75 S. E. 762. 3 8 Knapp & Spencer Co. v. Drew, 160 *i Graham v. Faith, 253 Fed. 32, 165 Fed. 413, 87 C. C. A. 365, 20 Am. Bankr. 0. C. A. 52, 41 Am. Bankr. Rep. 590; Rep. 355. In re Weidhorn, 253 Fed. 28, 165 C. C. 8 8 In re Kornit Mfg. Co., 192 Fed. 392, A. 48, 41 Am. Bankr. Rep. 592. And see 27 Am. Bankr. Rep. 244. And see Bilder In re Looschen Piano Case Co. (D. O.) 261 Fed. 93, 44 Am. Bankr. Rep. 190. 165 POWERS AND DUTIES OF. REFEREES § 67 in the provisions of the Bankruptcy Act that makes it necessary or rea- sonable to extend the authority and jurisdiction of the referee beyond the ordinary administrative proceedings in bankruptcy and such con- troversial matters as arise therein and are in effect a part thereof, or to extend the authority of the referee under the general reference so as to include jurisdiction over an independent and plenary suit such as the one under consideration. * * * Reviewing the entire matter, we conclude that, under the language of the Bankruptcy Act and of the gen- eral orders in bankruptcy, a referee, by virtue of a general reference un- der Order XII (1), has not jurisdiction over a plenary suit in equity against a third party to set aside a fraudulent transfer or conveyance un- der section 70e, and affecting property not in the custody or control of the court of bankruptcy." ** But when property demanded by the trustee is in the possession of a third party, who claims it as his own, it is proper for the referee to hear the testimony, in order to determine whether the third per- son's claim is read or pretended. If he finds that the claim is made in good faith and is probably real, but of doubtful validity or questionable faith, it should then be determined in a plenary suit; but if he finds that the claim is without any actual merit .or legal foundation, he should require a surrender of the property to the trustee.** A referee also has jurisdiction to entertain and determine a claim set up by a third person, by intervening petition or otherwise, assert- ing a lien upon or interest in property which is lawfully in the posses- sion of the trustee, or asserting that it is the property of the petitioner and not of the estate in bankruptcy.** And likewise he has jurisdic- tion to determine whether a preference has been received by a secured creditor.*® 42 Weidhorn v. I/evy, 253 V. S. 268, 40 In re Petronio, 220 Fed. 269, 136 O. C. A. Sup. Ct. 534, 64 L. Ed. 898, 45 Am. 285, 34 Am. Bankr. Eep. 470. Bankr. Rep. 493, reversing In re Weid- *' In re Holbrook Shoe & Leather Co., horn, 253 Fed. 28, 165 0. C. A. 48, 41 Am. 165 Fed. 973, 21 Am. Bankr. Rep. 511. Bankr. Rep. 592, and therefore sustain- *« In re Rochford, 124 Fed. 182, 59 C. ing the position originally taken in this 0. A. 388, 10 Am. Bankr. Rep. 608 : In case in the District Court, In re Weid- re Drayton, 135 Fed. 883, 13 Am. Bankr. horn (D. C.) 243 Fed. 756, 39 Am. Bankr. Rep. 602. The referee in bankruptcy has Rep. 338. And see further, in support of power to fix a time limit for customers the general proposition stated in the and creditors of a bankrupt stockbroker text. In re Continental Producing Co. to file petitions for the reclamation of (D. C.) 261 Fed. 027, 44 Am. Bankr. Rep. secui-ities and claims to establish liens 216 ; Charles H. Brown Paint Oo. v. on cash in the possession of the trustee. Rockhold (C. C. A.) 269 Fed. 139, 46 Am. In re Gay & Sturgis (D. C.) 224 Fed. 127, Bankr Rep. 246 ; In re Vallozza (D. C.) 35 Am. Bankr. Rep. 417. 225 Fed 334 34 Am. Bankr. Rep. 409; "In re Keystone Press, 203 Fed. 710, 29 Am. Bankr. Rep. 715. § 68 LAW OF BANKRDPTCI 160 § 68. Same; Grant of Injunction. — The General Orders provide that "applications for an injunction to stay proceedings of a court or officer of the United States or of a state, shall be heard and decided by the judge, but he may refer such an application, or any specified issue arising thereon, to the referee to ascertain and report the facts." ** In this particular case, therefore, -it is clear that a referee in bankruptcy has no power to award an injunction. The provision has been assailed as invalid, because it is thought to put a limitation upon the powers of referees as defined and granted by the act itself; but this contention has not been sustained.*' But aside from an application to stay pro- ceedings, it may be stated as the general result of the authorities that it is within the power of a referee, in a proper case, to issue a restrain- ing order or an order having the force of an injunction.** And this appears to accord well with the general purpose of the act to commit to the referee the judicial administration of the whole proceeding in bankruptcy, after the adjudication, with the exception of a very few specific matters reserved for the decision of the judge himself, and also to be necessary for the prompt and efficient working of the act. Thus in a case before the United States District Court in Connecticut, a trustee in bankruptcy was entitled to the possession of premises leased by the bankrupt, as against persons to whom the landlord had granted a lease after the adjudication^ and it was held that the referee had power to enjoin those persons from interfering with the possession of the trustee. "In his injunctive order,", said the judge, "I do not think that the referee exceeded the power which the act confers upon him. It would be a sad state of things if, in such emergencies, the referee should be compelled to discover the judge in time to save the situation. The matter in hand was peculiarly within the knowledge of the referee, and the court will, in advance, thank all like officers who shall relieve it from an unnecessary burden." *® And whatever may be the limits of the referee's authority in such cases, the courts refuse to interfere with 46 General Order No. 12, par. 3. re Rogers, 1 Am. Bankr. Rep. 541, 1 47 In re Berkowitz, 143 Fed. 598, 16 Nat. Bankr. News, 211 ; In re Kilian, 1 Am. Bankr. Rep. 251 ; ' In re Siebert, 133 Nat. Bankr. News, 267 ; In re Kerskl, Fed. 781, 13 Am. Bankr. Rep. 348. 2 Am. Bankr. Rep. 79. But a referee in 48 In re Matthews, 109 Fed. 603, 6 bankruptcy has no jurisdiction to re- Am. Bankr. Rep. 96, 5 Am. Banltr. Rep. strain the trustee from proceeding for 720; In re Booth, 96 Fed. 943, 2 Am. the commitment of the bankrupit for Bankr. Rep. 770; In re Steuer, 104 failure to comply with, an order for the Fed. 976, 5 Am. Bankr. Rep. 209; In surrender of assets. In re Epstein (D. re Wilkes, 112 Fed. 975, 7 Am. Bankr. C.) 219 Fed. 635, 33 Am. Bankr. Rep. Rep. 574 ; In re Northrop, 1 Am. Bankr. 606. Rep. 427 ; In re Adams, 1 Am. Bankr. *<> In re Adams, 134 Fed. 142, 14 Am. Rep. 94, 1 Nat. Bankr. News, 167; In Bankr. Rep. 23. 167 POWERS AND DUTIES OF REFEEEBS § 70 his action in granting an injunction where the parties in interest have voluntarily appeared before him and submitted the questions at issue to his determination, as, for instance, where his decision is that incum- bered property of the bankrupt estate shall be taken in charge by the trustee and sold free of liens, and the proceeds distributed among those entitled, and this includes an order enjoining the incumbrancer from making a sale.^" But where a referee has already decided that certain property does not belong to the estate in bankruptcy, but to a third person, he has no further jurisdiction over it, and therefore cannot en- join its seizure by a sheriff under a writ of replevin issued from a state court, in an action brought therein by the trustee against such third fii ' person. § 69. Same; Appointment of Receiver. — The general grant to ref- erees in bankruptcy of the powers and functions of the court, except in the few particulars where the decision of specific questions is reserved for the judge, is broad enough to include the authority to appoint a receiver to take charge of the property of a bankrupt until the appoint- ment and qualification of a trustee, in the case provided for by the stat- ute, viz., where it is absolutely necessary for the preservation of the estate: And this authority is not limited by the provision of the act which gives the referee power to exercise the functions of the judge in regard to taking possession of or releasing the bankrupt's property in the event of the judge's absence, sickness, or inability to act, to be shown by the certificate of the clerk of the court. But the referee's authority to appoint a receiver dates from the time the order of court referring the case to him is actually placed in his hands, and not from the time of its signing or filing. Hence the action of a referee in appointing a receiver before the delivery of the order of reference to him, and immediately upon his being informed by a telephone message that such an order had been made, would be improvident and unauthorized. All the foregoing points were ruled in the case cited in the margin.^* § 70. Duties of Referees. — The duties of a referee in bankruptcy depend, in a large measure, upon the exigencies of the particular case, since it is committed to his general oversight and control. But there are certain specific duties imposed upon him by the act and the General Orders which must be noticed in this connection. In the first place, he is to send out all notices to creditors,^* to call the first meeting of credi- Bo In re Matthews, 109 Fed. 603, 6 =2 In re Florcken, 107 Fed. 241, 5 Am. Am. Bankr. Rep. 96; In re Benjamin, Bankr. Rep. 802. 140 Fed. 320, 15 Am. Bankr. Rep. 351. 13 Bankruptcy Act 1898, §§ 39, 58, 51 In re Berkowitz, 143 Fed. 598, 16 Am. Bankr. Rep. 251. § 70 LAW OP BANKRUPTCY 168 tors and preside at such meeting,^* to confirm the trustee chosen by the cl-editors, or, if they fail to make a choice, to appoint a trustee, or, in the case where the schedule of a voluntary bankrupt discloses no assets and no creditor appears at the meeting, to make an order that no trustee be appointed,^^ and further, "it shall be the duty of the referee immedi- ately upon the appointment and approval of the trustee, to notify him in person or by mail of his appointment; and the notice shall require the trustee forthwith to notify the referee of his acceptance or rejection of the trust, and shall contain a statement of the penal sum of the trus- tee's bond." «« It is also the business of the referee, in case the bankrupt complies with his duty and files, a schedule of his property and a list of the credi- tors, to examine the same, and cause them to be amended if they are incomplete or defective ; and if the bankrupt fails, refuses, or neglects to file the schedule or list, then it is made the duty of the referee to pre- pare and file these papers, or to cause it to be done.^'' It is further the duty of the referee to transmit to the clerk of the court, "forthwith, a list of the claims proved' against an estate, with the names and addresses of the proving creditors." ^ Also he is to transmit to the clerk "such papers as may be on file before him whenever the same are needed in any proceedings in courts, and in like manner secure the return of such papers after they have been used, or, if it be impracticable to. transmit the original papers, to transmit certified copies thereof by mail," and upon the conclusion of each case in bankruptcy, to transmit to the clerk his record thereof."® The further duties of these officers are thus specified in the statute: "Referees shall declare dividends, and prepare and deliver to trustees dividend sheets showing the divi- oi Bankruptcy Act 1898, § 55, clause b. by the referee In this respect, with the 5 B Bankruptcy Act 1898, § 44; Gen- aid of such information as the creditors eral Orders Nos. 13 and 15 ; Official themselves furnish him ; for all notices Forms Nos. 22, 23, 27. to creditors are to be sent "to their re- 66 General Order No. 16. spective addresses as they appear in the 57 Bankruptcy Act 1898, § 39. It is list of creditors of the bankrupt, or as within the jurisdiction and the discre- afterwards filed with the papers in the tion of a referee in bankruptcy to order' case by the creditors." Bankruptcy Act amendments to be made in the petition 1898, § 58a. If the referee needs any and schedule of a yoluntary bankrupt further information as to the bankrupt's referred to him, in particulars as to assets, the liens on his property, the which he finds them defective or insuffi- state of the title, etc., to enable him to cient, and to refuse to call a first meet- prepare or complete the schedule and ing of creditors until such amendments list, he can cause a summons to be is- are made. In re Brumelkamp, 95 Fed. sued requiring any designated person to 814, 2 Am. Bankr. Rep. 318. If the list appear before him and be examined, of creditors is incomplete or imperfect Idem. § 21a. in not giving their addresses, or giving ^ s General Order No. 24. them wrongly, it should be corrected ss Bankruptcy Act 1898, § 39. 169 POWERS AND DUTIES OP RBFBEEBS § 71 dends declared and to whom payable; furnish such information con- cerning the estates in process of administration before them as may be requested by the parties in interest; make up records embodying the evidence, or the substance thereof, as agreed upon by the parties in all contested matters arising before them, whenever requested to do so by either of the parties thereto, together with their findings thereon, and transmit them to the judges ; upon application of any party in in- terest, preserve the evidence taken, or the substance thereof as agreed upon by the parties, before them when a stenographer is not in at- tendance; and whenever their respective offices are in the same city or town where the court of bankruptcy convenes, call upon and receive from the clerks all papers filed in courts of bankruptcy which have been referred to them." "" Three important prohibitions ' are laid upon the referees. They must not act in cases in which they are directly or indirectly interested. They may not practice as attorneys or counselors at law in any bank- ruptcy proceeding. They must not purchase, either directly or indirect- ly, any property of an estate in bankruptcy. If a referee violates this last prohibition, it is a punishable offense, and conviction thereof will vacate his office.®^ § 71. Proceedings Before Referees. — The proceedings before a ref- eree in bankruptcy are, generally speaking, under his own regulation and control, and if there is any irregularity it should be complained of in due season. Thus, where the administrator of an estate appeared in bankruptcy proceedings in response to an order of the referee to show cause, and went to trial upon the merits without questioning the ju- risdiction, it was considered that he had waived his right to insist that the referee should have proceeded against him by an action."* In pur- suance of the general policy of the act, all proceedings before the referee should advance with reasonable expedition. There should be no unrea- sonable delays, nor any dilatory proceedings. In regard to allowing postponements and adjournments, no inflexible rule can be laid down ; the, referee must exercise a proper legal discretion ; but it may be said that he should not grant adjournments except for good cause properly substantiated. "The common practice of granting adjournments for convenience only should not be imitated, but progress with diligence be enforced by short adjournments only, except for good cause." "^ With regard to petitions and other pleadings before referees, no special rules eo Bankruptcy Act 1898, § 39. "^ In re F. W. Hfill & Sons (D. C.) 208 81 Bankruptcy Act 1898, §. 39b ; Idem. Fed. 578, 31 Am. Bankr. Rep. 484. § 29c (2). "^ In '"6 Finkelstein, 93 Fed. 989; In re Morris, 154 Fed. 211, 18 Am. Bankr. § 72 LAW OF BANKRUPTCY 170 have been laid down, with the exception of such as may be found in the general orders and official forms. It is in the discretion of a referee to allow or refuse a proposed amendment to a pleading in a case before him, on the same terms and in the same circumstances as would ordi- narily be operative in a court of justice,^* and he should dismiss a peti- tion presented to him by a trustee in bankruptcy but not filed in the ofifice of the clerk of the court where such filing is necessary,*® or one which is not supported by sufficient evidence to enable the referee to find the facts to sustain the order prayed for.^ While the referee is to pre- side at the first meeting of the creditors, when a trustee is to be chosen, and the choice of the creditors is subject to his approval, it is highly im- proper for him to interfere in any way with their election of a trustee or to attempt to influence them in their choice, and on a petition by credi- tors alleging such interference the cause will be sent to another referee.®' It is provided that, "in all orders made by a referee, it shall be recited, according as the fact may be, that notice was given and the manner thereof, or that the order was made by consent, or that no adverse in- terest was represented at the hearing, or that the order was made after hearing adverse interests." ®* And where there is an appearance in a contest before a referee, the litigating parties should be notified of his decision; but where creditors do not appear, or they appear and their appearance is not noted, no duty rests upon the referee to give notice of his decisions, especially where claims are presented and no objection is made.** § 72. Same; Taking and Preservation of Evidence. — The General Order (No. 22) provides that "the examination of witnesses before Rep. 828; In re Hyman, 3 Ben. 28, Fed. "s General Order No. 23. An order of Cas. No. 6,984, 2 N. B. R. 333. the referee, pursuant to a petition in 0* Knapp & Spencer Co.«v. Drew, 160 the proceeding, affecting a third person, Fed. 413, 87 C. O. A. 365, 20 Am. Bankr. is not necessarily invalid because it was Rep. 355. Where part of the subject- based on an order to show cause which matter of a petition filed by a trustee was mailed to that person, instead of before a referee is within the jlirisdic- being personally served upon him. tion of the court, and a part is not, Courtney v. Youngs, 202 Mich. 384, 168 it should be retained, and an amend- N. W. 441. In a proceeding before a ment allowed limiting it to the matter referee to compel the delivery of prop- within the jurisdiction. In re New- erty by a third person to the trustee, It foundland Syndicate, 196 Fed. 443, 28 was irregular to receive and hear the Am. Bankr. Kep. 119. evidence before the trustee's petition 6 In re Gerdes, 102 Fed. 318, 4 Am. was filed and before an order to show Bankr. Rep. 346. cause had been issued to the third per- In re Canister Co. (D. C.) 248 Fed. son. In re Ballou (D. O.) 215 Fed. 810, 587, 41 Am. Bankr. Rep. 625. 33 Am. Bankr. Rep. 21. 07 In re Smith, 2 Ben. 113, 1 N. B. R. «<> In re Nichols, 166 Fed. 603, 22 Am. 243, Fed. Cas. No. 12,971. Bankr. Rep. 216. 171 POWERS AND DUTIES OP REFEREES § 72 the referee may be conducted by the party in person or by his counsel or attorney, and the witnesses shall be subject to examination and cross- examination, which shall be had in conformity with the mode now adopt- ed in courts of law. A deposition taken upon an examination before a referee shall be taken down in writing by him, or under his direction, in the form of narrative, unless he determines that the examination shall be by question and answer. When completed it shall be read over to the witness and signed by him in the presence of the referee. The referee shall note upon the deposition any question objected to with his decision thereon; and the court shall have power to deal with the costs of incompetent, immaterial, or irrelevant depositions, or parts of them, as may be just."" It is clearly the duty of the referee to be pres- ent in person throughout the progress of an examination and hear the evidence, unless, perhaps, where his presence is waived by the parties. It is not at all a proper practice to' administer the oath to a witness, and then leave the parties to proceed with a stenographer.''" It is further the duty of the referee to take and preserve all the evidence offered upon the examination, and the remedy for his refusal to do so is by application to the district court, and, failing, there, to the circuit court of appeals, for an order that it be, taken and preserved.'"- There has been some uncertainty as to the duty of a referee where formal objection is taken to a particular question or line of testimony, and, in his opinion, the objection is well founded. He is required, as above stated, to note upon the deposition any question objected to and -his decision thereon. And some courts have thought that this gives him authority to exclude altogether any question or line of ques- tions which he decides to be inadmissible.'"* But the better opinion, and that supported by the weight of authority, is otherwise. Expedi- tion in the settlement of bankruptcy cases is the great purpose of the act, and it would be very ill served in this respect if it were necessary to remand a proceeding to the referee every time the judge differed from the referee in regard to the admissibility of evidence. Besides, upon a review of the referee's decision, the judge is not bound to reverse because of the erroneous admission or exclusion of evidence, but it is his duty to determine the issue do novo upon all the evidence in the record which he decides to be competent.'"* Therefore, when an objection is interposed, it is the duty of the referee to incorporate in the deposition 70 In re Wilde's Sons, 131 Fed. 142, ^2 In re Graves, 182 Fed. 443, 25 Am. 11 Am. Bankr. Rep. 714. Bankr. Rep. 3T2; In re Wilde's Sons, 71 First Nat. Bank v. Abbott, 165 Fed. 131 Fed. 142, 11 Am. Bankr. Rep. 714. 852, 91 C. C. A. 538, 21 Am. Bankr. Rep. 's In re De Gottardi, 114. Fed. 328, 7 43g_ Am. Bankr. Rep. 723. § 73 LAW OF BANKRUPTCY 172 the question asked, the fact of objection and the reasons given for ob- jection, and his ruling on the objection, and then, even though he de- cides the question to be improper, to allow and require it to be answered and the answer to be entered in the deposition.'* From this rule, how- ever, should be excepted evidence attempted to be extracted from a witness who is privileged against testifying, also particular items of evidence as to which privilege is claimed and where the claim should clearly be allowed, and further, evidence which is clearly and unmistaka- bly incompetent, irrelevant, or immaterial, in so much that it would be an abuse of process or of the power of the court to compel its production or permit its introduction.'® § 73. Same; Review and Reopening of Case. — Some of the author- ities hold that the mode of reviewing an order or decision of a referee provided by the General Order No. 27, that is to say, by petition to the district court, is exclusive, and that a referee cannot review or revoke his own orders after the expiration of the time fixed for filing a petition for such review by the court.'® Within that time, however, it is clear that an order is still within the control of the referee, and that he may set it aside, reconsider the case, and make a new order, for cause shown, as, for instance, that the original order was based on a mistake of fact." And without special reference to the lapse of time, other authorities hold that a referee may revise and change his findings and orders on proper application and for sufficient reasons, such as mistake, misunder- standing of counsel, or new evidence, though in such a case it is the proper practice to give notice to counsel, so that they may be reheard on the question if they desire.'* But where a party has had an oppor- tunity to call and examine his witnesses in a proceeding before a referee, and the matter is closed, he should not be permitted to reopen the case for the purpose of introducing omitted evidence, unless there is a spe- cial reason therefor.'" And it has been said that "referees, in their hear- T* Bank of Ravenswood v. Johnson, Bankr. Hep. 427 ; In re Krug (D. C.) 143 Fed. 463, 74 C. C. A. 597, 3.6 Am. 218 Fed. 860. Bankr. Rep. 206; In re Sturgeon (C. C. " First Nat. Bank v. Abbott, 165 Fed. A.) 139 Fed. 608, 14 Am. Bankr. Rep. 852, 91 C. O. A. 538, 21 Am. Bankr. Rep. 681; In re Harrison, 197 Fed. 320, 28 436. Am. Bankr. Rep. 293; In re Bomine, ^e in re Marks, 171 Fed. 281, 22 Am. 138 Fed. 837. 14 Am. Bankr. Rep. 785; Bankr. Rep. 568; In re Greek Mfg. Co., In re De Gottardi, 114 Fed. 328, 7 Am. 164 Fed. 211, 21 Am. Bankr. Rep. HI. Bankr. Rep. 723 ; In re Lipset, 119 Fed. '' In re Brenner. 190 Fed. 209, 26 379, 9 Am. Bankr. Rep. 32; Dressel v. 4in. Bankr. Rep. 646. North State Lumber Co., 119 Fed. 531, 9 ts in re Hawley, 116 Fed. 429, 8 Am. Am. Bankr. Rep. 541 ; First Nat. Bank Bankr. Rep. 029 ; In re Porter, 14 Phila. V. Abbott, 165 Fed. 852, 91 O. 0. A. 538, 449. 21 Am. Bankr. Rep. 436. And see In re 's in re Booss, 154 Fed. 494, 18 Am. Neuman (D. C.) 251 Fed. 667, 40 Am. Bankr. Rep. 658. 173 POWERS AND DUTIES OF REFEREES § 74 ings, within the scope of their power, are clothed with the authority of judges, and their orders and decrees are to be reviewed, reversed, or an- nulled under the same rules and conditions as those governing other courts of equity, subject always to the express provisions of the bank- ruptcy act." And accordingly it was held that a petition filed before a referee to review an order previously entered by him after a hearing is in the nature of a bill of review in equity and governed by the same rules of procedure. It can only be filed for error of law apparent upon the face of the decree, or because of the discovery of new evidence since the hearing, and, when on the latter ground, it can only be filed by express leave, and the evidence relied on must be relevant, material, and such as would have produced a dififerent result, and it must have been un- known to the petitioner at the time of the hearing and such as he could not have discovered by the exercise of due diligence.** Where a pro- ceeding before a referee is dismissed by the court for want of jurisdic- tion, all that has been done in the proceeding is necessarily annulled, in- cluding the findings of the referee and the taking of evidence by him ; and he cannot thereafter, in a new proceeding, base a determination of the same issues on the findings made in the prior proceeding, or con- sider the evidence taken therein, unless by stipulation of the parties.*' § 74. Certifying Questions for Review by Judge. — The bankruptcy law provides that the exercise by referees of the jurisdiction conferred upon them shall be "subject always to a review by the judge." Courtn' of bankruptcy are invested with jurisdiction to "consider and confirm, modify or overrule, or return, with instructions for further proceedings, records and findings certified to them by referees." And by another sec- tion, for the purposes of such a review, it is made the duty of referees, whenever requested thereto by either of the parties, to make up the rec- ord in any contested matter and transmit it to the judge.*'' In addition, General Order No. 27 provides that "when a bankrupt, creditor, trustee, or other person shall desire a review by the judge of any order made by the referee, he shall file with the referee his petition therefor,' setting out the error complained of, and the referee shall forthwith certify to the judge the question presented, a summary of the evidence relating there- to, and the findings and order of the referee thereon." Compliance with the practice here prescribed is imperative. A party desiring the judge to review an order of the referee must file his petition as required by the General Order, in default of which the application for review will be 80 In rp Mclntire 142 Fed. 593, 16 si in re Rosenberg, 116 Fed. 402, 8 Am. Bankr. Eep: 80.' A™- Bankr. Bep. 624. 8 2 Bankruptcy Act 1898, §§ 38, 2, 39. § 74 LAW OF BANKEUPTCT 174 dismissed.** On a similar principle, the decision of the referee on a contest between the bankrupt and one of his creditors cannot be certified to the judge for review when the referee's finding is not followed by any order made by him.** In order to be properly certified to the judge, the question must arise regularly in the course of proceedings before the referee, and be- tween parties having the legal right to raise it. No opinion can be asked, or will be given, upon merely abstract questions or hypothetical ques- tions, nor upon such as are merely anticipated or likely to arise. The question must be one actually arising and existing on issues of law or fact in proceedings had. Questions stated by consent must be by par- ties in a particular case upon proceedings actually had.*® Under the bankruptcy act of 1867, the only "parties" who were en- titled to have the register certify a question and decision for review by the judge were the bankrupt and the creditors; and it was held that a witness under examination was not a "party" in this sense, and could not have a review of the register's decision on the question of .his being subject to examination.** But while the present statute speaks only of the "parties," it will be observed that the General Order gives this right of applying for review to "a bankrupt, creditor, trustee, or other per- son." But the review must be asked for by some person entitled. The referee should not certify any question to the court until requested to , do so in a proper manner.*' And where no party in interest has asked 83 In re Avoca Silk Co. (D. C.) 241 Fed, 607, 39 Am. Bankr. Rep. 391; In re Zartman (D. C.) 242 Fed. 595, 39 Am Bankr. Rep. 544 ; In re Petersen (D. C.) 252 Fed. 846, 40 Am. Bankr. Rep. 637 In re Home Discount Co., 147 Fed. 538, 17 Am. Bankr. Rep. 168 ; Craddock-Ter ry Co. V. Kaufman, 175 Fed. 308, 23 Am. Bankr. Rep. 724 ; In re Sharick, 1 Alas ka, 398 ; In re Smith, 93 Fed. 791, 2 Am Bankr. Rep. 190; In re Schiller, 96 Fed. 400, 2 Am. Bankr. Rep. 704. Spe- cific questions arising in proceedings be- fore a referee m bankruptcy, and upon which the opinion of the district judge is desired, should be presented on the certificate of the referee;, or, in the case of orders entered, on petition for review, and not in the form of an as- signment of errors. In re T. L. Kelly Dry-Goods Co., 102 Fed. 747, 4 Am. Bankr. Rep. 528. Counsel desiring to be heard by the court must file exceptions to the findings of the referee, as requir- ed by the rule of the court. In re Car- olina Cooperage Co., 96 Fed. 604. 84 In re Smith, 93 Fed. 791, 2 Am. Bankr. Rep. 190. An order of a referee denying a motion to dismiss a petition by the trustee to require the bankrupt to turn over property is not reviewable because not a final order. In re Schim- mel, 203 Fed. 181, 29 Am. Bankr. Rep. 361. 8 s In re Pulver, 1 Ben. 381, 1 N. B. R. 46, Fed. Cas. No. 11,466 ; In re Wright, 1 N. B. R. 393, Fed. Cas. No. 18.069; In re Sturgeon, 1 N. B. R. 498, Fed. Cas. No. 13,564; In i-e Bray, 2 N. B. R. 139, Fed. Cas. No. 1,818 ; In re Peck, 3 N. B. R. 757, Fed. Cas. No. 10.887; In re Haskell, 4 N. B. R, 558, Fed. Cas. No. 6,191. 80 In re Fredenberg, 2 Ben. 133, 1 N. B. R. 268, Fed. Cas. No. 5,075. 87 In re Ruos, 159 Fed. 252, 20 Am. Bankr. Rep. 281; In re Clark Coal & Coke Co., 173 Fed. 658, 23 Am. Bankr. Rep. 273. But where other creditors were not parties to a petition by the trustee for leave to transfer a part of the bankrupt's property pursuant to a contract made before bankruptcy, such creditors, though they did not appeal 175 POWERS AND DUTIES OF REFEREES § 74 that an order of the referee be certified for review, it is not reviewable merely on a report by the referee of his proceedings in the case, includ- ing the order.** And the referee himself has no jurisdiction, of his own motion, to certify a question not raised by the parties to the bankruptcy proceeding, but which the referee anticipates may arise, and on which he desires to be advised.*® It is not necessary for the purpose of obtaining a review that formal exceptions should have been taken to the decision and ruling of the ref- eree; the want of them will not prevent the court from reviewing the matter in question, unless they are required by a local rule of court.®* But if exceptions are taken before a referee in bankruptcy, they must be specific, as required by the settled practice of the federal courts.®^ And in the absence of such exceptions, the specific errors of law complained of must be clearly and distinctly pointed out in the petition for re- view.®* The petition for review is not to be filed in the office of the clerk of the court, but with the referee, but if it is wrongly filed, by inadvertence, it rests within the discretion, of the court, in the absence of any rule on the subject, to permit the mistake to be corrected, even though the time ordinarily limited for the filing of such petitions has elapsed.®* Since neither the statute nor the rules prescribed by the Supreme Court fix any particular time within which a party aggrieved by a ruling or order of a referee must file his petition for review, the time may, be limited by a rule of the particular court, and if this is not done, the only limitation is that the petition must be filed within a reasonable time.®* from the decision of the referee wherein os in re Nippon Trading Co., 182 Fed. he found that one objecting to the order 959, 25 Am. Bankr. Rep. 695. had a lien on the property, are not »4ln re Verdon Cigar Co., 193 Fed. Bound, and may subsequently question 813, 27 Am. Bankr. Rep. 56 ; In re Foste, the objector's interest. In re Collins (D. 147 Fed. 790, 17 Am. Bankr. Rep. 439 ; In C.) 235 Fed. 937, 37 Am. Bankr. Rep. re Rome, 162 Fed. 971, 19 Am. Bankr. 692. Rep. 820; Bacon v. Roberts, 146 Fed. 88 In re Kimmel, 183 Fed. 663, 25 Am. 729, 77 C. C. A. 155, 17 Am. Bankr. Rep. Bankr. Rep. 595. 421 ; In re Grant, 143 Fed. 661, 16 Am. 8 9 In re Reukauff, Sons & Co., 135 Bankr. Rep. 256; In re Sharick, 1 Alas- Fed. 251, 14 Am. Bankr. Rep. 344. ka, 398 ; Crim v. Woodford, 136 Fed. 90 In re Peoples' Department Store 34, 68 C. O. A. 584, 14 Am. Bankr. Rep. Co., 159 Fed. 286, 20 Am. Bankr. Rep. 302 ; In re Nichols, 166 Fed. 603, 22 Am. 244'; In re Swift, 118 Fed. 348, 9 Am. Bankr. Rep. 216. But where a local rule Bankr. Rep. 237 ; In re Miner, 117 Fed. of court requires a petition for review 953, 9 Am. Bankr. Rep. 100. to be filed within a limited time (as, 10 91 Dressel v. North State Lumber Co., days), it is imperative and must be com- 119 Fed. 531, 9 Am. Bankr. Rep. 541. plied with. In re Isert (D. C.) 232 Fed. 92 In re Carver, 113 Fed. 138, 7 Am. 484, 36 Am. Bankr. Rep. 431; In re Bankr. Rep. 539 ; In re Covington, 110 Kruse (D. C.) 234 Fed. 470, 37 Am. Bankr. Fed. 143, 6 Am. Bankr. Rep. 373. Rep. 687 ; In re Stringer (D. C.) 244 Fed. § 74 LAW OF BANKRUPTCY 176 Whether or not this requisite has been complied with is a question to be determined by the district court in the exercise of a sound judicial discretion, having regard to the general policy of the act to expedite proceedings and to the circumstances of the case, especially such as may offer a good excuse for the delay, or, on the other hand, charge the party with laches. And its decision will not be reversed by the appel- late court except for an abuse of discretion or manifest error.*® Some of the courts have defined the term "reasonable time," for this purpose, as the same time fixed by law for taking an appeal from the same class of orders.^ But, generally speaking, no arbitrary time has been lim- ited, the courts preferring to decide each case on its own facts, but with a generally observable tendency to regard thirty days as the limit of a "reasonable tiine," unless there are special and peculiar circumstances to excuse a longer delay. Thus, it is said: "In view of the general aim and purpose of the bankruptcy act to facilitate and expedite the pro- ceedings in the settlement of the estates of bankrupts, and in view of analogous provisions requiring prompt and speedy action, it may be stated with certainty that the circumstances and conditions must be ex- trettie which will excuse a delay of more than thirty days in asking for a review of an order of the referee." *' In one case, it was held that an order dismissing a petition for review filed fifty days after the mak- ing of the order sought to be reviewed, on the ground of unreasonable delay, was not an abuse of discretion, where no good reason for the delay was shown.®* In another case, a petition filed more than three months after the order was made, and on the day fixed for the declar- ing of a dividend, was held to be' unreasonably late, especially as the re.feree had repeatedly called the attention of counsel to the matter, and it was held that, on the objection of the trustee, the referee was justified in refusing to certify the rnatter to the court."'' A petition filed six months after the date of the order complained of is clearly and certainly too late and should be dismissed.^"" But this rule does not apply to a motion to vacate an order made by a referee in bankruptcy, on the ground that he had no jurisdiction to make it. Such a motion should ; , 629, 40 Am. Bankr. Rep, 474 ; In re El 813, 27 Am. Bankr. Rep. 56. And see In Sevilla Restaurant (D. 0.) 253 Fed. 410, re'Foss, 147 Fed. 790, 17 Am. Bankr. 41 Am. Bankr. Rep. 608. Rep. 439; In re Rome, 162 Fed. 971, 8 6 Bacon v. Roberts, 146 Fed. 729, 77 19 Am.' Bankr. Rep. 820; In re Wink, C. C. A. 155, 17 Am. Bankr. Rep. 421. 206 Fed. 348, 30 Am. Bankr. Rep. 298. 9« In re Nichols, 166 Fed. 603, 22 Am. os Bacon v. Roberts, 146 Fed. 729, 77 Bankr. Rep. 216; In re Nippon Trading C. C. A. 155, 17 Am. Bankr. Rep. 421. Co., 182 Fed. 959, 25 Am. Bankr. Rep. »» In re Grant, 143 Fed. 661, 16 Am. 695. ' Bankr. Rep. 256. 9T In re Verdon Oigar Co., 193 Fed. loo In re Sharick, 1 Alaska, 398. 177 POWERS AND DUTIES OF KEli'EKEBS § 74 be entertained at any time and disposed of on the merits, as the doc- trine of laches does not apply in such a case.^**^ It should also be re- marked that a referee is not required to stop proceedings before him and certify to the court for decision questions raised on objections to evidence.^** In the absence of any provision in the statute or the rules of the court, a petition to review an order of a referee in bankruptcy does not of itself operate as a supersedeas, and whether or not it shall have that effect rests in the discretion of the reviewing or reviewed authority in the particular case ; but the district court may provide by rule that such a petition for review shall not operate as a supersedeas, unless a bond be given to indemnify the opposite party in such sum as may be pre- scribed by the referee or the judge, or it may require the petitioner to give security for the costs of the review.'** The duty of the referee, on the filing of such a petition, is to "cer- tify to the judge the question presented, a summary of the evidence re- lating thereto' and the finding and order of the referee thereon." (Gen- eral Order No. 27.) Referees should strictly observe these directions. In one case, where the referee transmitted to the clerk of the court the creditor's petition for review, the notes of the testimony, and his own ' opinion, it was held that this was not a compliance, with the order. It was said : "There is no attempt to certify the precise question that was ruled upon, and there is no summary of the evidence relating there- to. Both these provisions are important and should be carefully ob- served. The certification of the question prevents disputes among counsel concerning the point presented and decided, and the summar)^ of the evidence is required in order to save the judge the labor of ex- amining what is often a mass of testimony on many different ques- tions and of extracting so much as may be relevant to the point imme- diately in hand. The summary may also be valuable as showing what evidence has been considered by the referee before coming to a con- clusion." "* And where any matter is referred to a referee in bank- 101 In re Willis W. Russell Card Co, In another case, where it appeared that 174 Fed. 202, 23 Am. Bankr. Eep. 300. the referee, instead of making a sum- 102 Bank of Ravenswood v. Johnson, mary of the evidence, returned all the 143 Fed. 463, 74 C. C. A. 597, 16 Am. evidence that ^las taken, and the mat- Bankr. Rep. 206. ter was determined by the judge without 10 J In re Home Discount Co., 147 Fed. any motion having been made to require 588, 17 Am. Bankr. Rep. 168. the evidence to be summarized, It was 104 In re Kurtz, 125 Fed. 992, 11 Am. held that the proceeding for review was Bankr. Rep. 129 ; In re Turetz, 205 Fed. not invalidated, where it involved sub- 400, 29 Am. Bankr. Rep. 752. And see stantlal matters, because the rule was Gardner v. Gleason, 259 Fed. 755, 170 C. not observed by the referee. Orim v. C. A. 555, 43 Am. Bankr. Rep. 644. But Woodford, 136 Fed. 34, 68 C. C. A. 584, 14 Blk.Bkr.(3d Ed.)— 12 § 75 LAW OF BANKRUPTCY I'^S ruptcy to find the facts, it is proper for him in his report to state his conclusions on the facts found.^*" § 75. Review of Proceedings by Judge. — Jurisdiction to review the orders and rulings of referees in bankruptcy is confided exclusively to the district courts.^** It is only after a decision by the district court that the matter can be brought before the circuit court of appeals, not by petition or appeal directly from the referee."' On such a petition, the district court is given authority to "consider records and findings certified to it by referees," and either to confirm the decision of the referee, to modify or overrule it, or to return the case to him with instructions for further proceedings."* This does not contemplate a general review of the entire proceeding before the referee,^"* nor a Am. Bankr. Kep. 302. Where objections to evidence offered before a referee were sustained, the referee, at the request of the party offering the same, was not required to certify the objections made to the court for revision. In re Komine, 138 Fed. 837, 14 Am. Bankr. Rep. 785. An order of a referee In a matter in which there is a dispute of fact must be supported by a finding of the ultimate facts; the specific facts to be found de- pending on the particular case. In re Canister Co. (D. C.) 248 Fed. 587, 41 Am. Bankr. Rep. 625. 10 5 In re Baker (D. C.) 212 Fed. 765, 32 Am. Bankr. Rep. 378. 106 The judicial functions of a referee in bankruptcy, however important, are always subject to the review of the bank- ruptcy court. WeUlhorn v. Levy, 253 U. S. 268, 40 Sup. Ct. 534, 64 L. Ed. 898, 45 Am. Bankr. Rep. 493. i 107 Knapp & Spencer Co. v. Drew, 160 Fed. 413, 87 C. O. A. 365, 20 Am. Bankr. Rep. 355; In re Octave Mining Co. (D. C.) 212 Fed. 457. 108 Bankruptcy Act 1898, § 2, clause 10. Where a court of bankruptcy, on a petition for review of an order of a ref- eree requiring a bankrupt to turn over certain property to his trustee, or to pay its value, made an order giving the bank- rupt a stated time within which to com- ply with the order of the referee, it was impliedly an affirmance of such order, and it is not again subject to review in subsequent proceedings. In re Hersh- kowitz, 136 Fed. 950, 14 Am. Bankr. Rep. 86. But the fact that the court, in af- firming such order, struck out a provi- sion for the commitment of the bankrupt in case of his default, and gave him ad- ditional time, is not an adjudication that he should not be so punished, but leaves that matter to be brought up anew by motion in case the bankrupt fails to obey the order within the time allowed. Idem. As to remanding a case to the referee with instructions for further proceedings, see Knapp & Spencer Co. v. Drew, 160 Fed. 413, 87 C. C. A. 365, 20 Am. Bankr. Rep; 355. Where a referee's findings were not sufliciently definite to enable the court on a petition for review to determine the legal questions involved, the proceeding will be remanded to the referee for further hearing and addition- al findings. In re Hawley Down Draft Furnace Co. (D. C.) 214 Fed. 500, 32 Am. BanUr. Rep. 635. 109 In re T. D. Kelly Dry-Goods Co., 102 Fed. 747, 4 Am. Bankr. Rep. 528. In re Stokes, 185 Fed. 994, 26 Am. Bankr. Rep. 255. And see In re Tudor, 96 Fed. 942, 2 Am. Bankr. Rep. 808. Where the only matter certified to the district court for review by the referee was an order overruling a demurrer to and denying a motion to strike out portions of a motion filed by a trustee, a subsequent order made by the referee on such mo- tion was not before the district court for review. Ellis v. Krulewitch, 141 Fed. 954, 73 C. C. A. 270, 15 Am. Bankr. Rep. 615. On a petition to review an order of a referee, the court will not review the order under which the mat- ter was referred to the referee for hear- ing. In re Graff (D. C.) 255 Fed. 239, 43 Am. Bankr. Rep. 164. 179 POWERS AND DUTIES OF REFEREES § 75 trial de novo,"* but only a consideration and review of the particular question certified up, in the light of the record and evidence transmitted. Still, the provision is very broad, and the courts are not disposed to be overstrict in limiting the scope of the review. It is said, for instance, that the court may properly consider any point presented by the record before it, whether or not such point was discussed before or by the referee."^ And it has even been held that it is perfectly permissible for the judge to take new testimony if it is offered before him.^^* But generally speaking, on the analogy of appeals properly so called, the judge will restrict his consideration of the case to the specific errors complained of in the petition, and to such objections and exceptions as were raised in the proceedings before the referee, and matters not then pressed, or not mentioned in the petition, will be considered as waiv- ed.^^* Yet this rule will not be applied with inflexible severity. A pro- ceeding in bankruptcy, as it is often remarked, is a proceeding in equity ; and substantial rights will not be sacrificed to technicalities. Thus, on petition to review an order of the referee, the court is authorized to protect and secure to the bankrupt any substantial right of his which may have been overlooked by the referee, though there may be no spe- cific assignment of error in relation thereto."* In matters which are within the sound discretion of the /eferee, such as questions concerning the best interests of the estate as involved in the sale of the bankrupt's assets or the performance of his contracts, the referee's decision is either not subject to review at all, or if it is, will not be reversed unless clearly improvident."^ As to the result of the review by the court, it is to be observed that creditors who petition for such a review and obtain a reversal of the referee's order are not 110 In re Home Discount Co., 147 Fed. compare In re Goldman (C. C. A.) 241 538, 17 Am. Bankr. Rep. 168. Where the Fed. 385, 39 Am. Bankr. Rep. 58. evidence before a referee is not in serl- "a In re Leech, 171 Fed. 622, 96 C. C. ous conflict, the court may hear the mat- A. 424, 22 Am. Bankr. Rep. 599. ter de novo and consider questions not "s In re McOann Bros. Ice Co., 171 raised by formal exceptions to the ref- Fed. 265, 22 Am. Bankr. Rep. 555; In re eree's decision. In re Elmore Cotton Rome, 162 Fed, 971, 19 Am. Bankr. Rep. Mills (D. C.) 217 Fed. 810, 33 Am. Bankr. 820 ; In re Scott, 99 Fed. 404, 3 Am. Rep. 544. < Bankr. Rep. 625; In re Carolina Cooper- 111 In re Samuel Wilde's Sons, 144 age Co., 96 Fed. 604; In re Cohn, 171 Fed. 972, 75 C. C. A. 601, 16 Am. Bankr. Fed. 568, 22 Am. Bankr. Rep. 761; In re Rep. 386 ; In re Mills Tea & Butter Co. Bayford Truck '& Tractor Co. (D. C.) 250 (D. C.) 235 Fed. 815, 37 Am. Bankr. Rep. Fed. 634, 41 Am. Bankr. Rep. 616 ; In re 711. See In re French, 250 Fed. 644. In Stucky Trucking & Rigging Co. (D. C.) a summary proceeding before a referee 240 Fed. 427 ;- In re Levy (D. C.) 261 Fed. to enforce performance of the bankrupt's 432, 44 Am. Bankr. Rep. 248. contract, it is not too late to question the "* In re Monongahela Distillery Co., referee's jurisdiction on a petition to re- 186 Fed. 220. view his order, In re Ballou (D. C.) 215 "= In re Knox Automobile Co. (D. C.) Fed 810 33 Am. Bankr. Rep. 21. But 210 Fed. 569, 32 Am. Bankr. Rep. 67 ; In § 76 LAW OF BANKRUPTCY 180 thereby placed in a position of any preference or priority over other creditors (with similar rights) who did not join in the petition for review.^'® § 76. Same; Effect of Referee's Findings of Fact. — On review of a ruling or order of a referee in bankruptcy, his decision upon a question of fact will be entitled to respectful consideration, but will not possess any conclusive or constraining force, where it is a deduction or infer- ence from admitted or established facts, of which the judge may take a different view."'' But if his findings of fact are based upoti a review of conflicting evidence, or have involved the necessity of weighing the credibility of witnesses, they are entitled to very great weight, and will not be rejected or disregarded by the court unless clearly and manifestly erroneous."*. It has indeed been said that the findings of re Schilling (D. O.) 251 Fed. 966, 41 Am. Bankr. Rep. 705. 118 In re Jamison Bros. & Co., 209 Fed. 541, 126 C. O. A. 363, 38 Am. Bankr. Rep. 972. 117 In re McCrary Bros., 169 Fed. 485, 22 Am. Bankr. Rep. 161; Ohio Valley Bank Co. v. Mack, 163 Fed. 155, 89 C. 0. A. 605, 20 Am. Bankr. Rep. 40 ; In re Peoples'^ Pepartment Store Co., 159 Fed. 286, 20 Am. Bankr. Rep. 244 ; In re Geor- gia Steel Co. (D. C.) 240 Fed. 473, 39 Am. Bankr. Rep. 426 ; In re Aboudara (D. C.) 246 Fed. 469, 40 Am. Bankr. Rep. 166; In re Blanchard (D. C.) 253 Fed. , 758, 42 Am. Bankr. Rep. 177 ; Walter v. Atha (C. C. A.) 262 Fed. 75, 45 Am. Bankr. Rep. 150. The referee's findings of fact, while presumptively correct, are not as conclusive as the verdict of a jury, or as findings of fact made by a judge in an action at lave, where a jury has been waived. In re Hawks, 204 Fed. 309, 30 Am. Bankr. Rep. 365. lis In re Booth, 96 Fed. 943, 2 Am. Bankr. Rep. 770: In re Rome Planing Mill Co., 99 Fed. 937, 3 Am. Bankr. Rep. 766 ; In re Waxelbaum, 101 Fed. 228, 4 Am. Bankr. Rep. 120; In re Stout, 109 Fed. 794, 6 Am. Bankr. Rep. 505; In re Covington, 110 Fed. 143, 6 Am. Bankr. Rep. 373; In re Miner, 117 Fed. 9.53, 9 Am. Bankr. Rep. 100; In re Williams, 120 Fed. 542, 9 Am. Bankr. Rep. 731; In re Shults, 135 Fed. 623, i4 Am. Bankr. Rep. 378 ; In re Benjamin, 140 Fed. 320, 15 Am. Bankr. Rep. 351 ; In re Simon & Sternberg, 151 Fed. 507, 18 Am. Bankr. Rep. 204; In re Kenyon, 156 Fed. 863, 19 Am. Bankr. Rep. 194; In re Littman, 159 Fed. 233, 20 Am. Bankr. Rep. 300; In re Hatem, 161 Fed. 895, 20 Am. Bankr. Rep. 470; Ohio Valley Bank Co. V. Mack, 163 Fed. 155, 89 C. C. A. 605, 20 Am. Bankr. Rep. 40; In re Brasel- ton, 169 Fed. 960, 22 Am. Bankr. Rep. 419; In re MacKissic, 171 Fed. 259, 22 Am. Bankr. Rep. 817; Fouche v. Shear- er, 172 Fed. 592, 22 Am. Bankr. Rep. 828; In re HofCman, 173 Fed. 234, 23 Am. Bankr. Rep. 19; In re C. K. Hut- chins Co., 179 Fed. 864, 24 Am. Bankr. Rep. 647; In re Schwartz, 179 Fed. 767, 23 Am. Bankr. Rep. 3f ; In re Baum- haiier, 179 Fed. 966, 24 Am. Bankr. Rep. 750; In re Boner, 189 Fed. 93, 26 Am. Bankr. Rep. 321; In re Brenner, 190 Fed. 209, 26 Am. Bankr. Rep. 646; In re Amer- ican National Beverage Co., 193 Fed. 772; In re Silverman. 206 Fed. 960: Couts V. Townsend, 126 Fed. 249, 11 Am. Bankr. Rep. 126; In re Soloway & Katz, 195 Fed. 103, 28 Am. Bankr. Rep. 228; In re Charlestown Light & Power Co., 199 Fed. 846, 29 Am. Bankr. Rep. 721; In re Cox, 199 Fed. 952, 29 Am. Bankr. Rep. 456 ; In re Malschlek & Lev- in (D. C.) *206 Fed. 71, 30 Am. Bankr. Rep. 237 ; In re HefCron Co. (D. O.) 216 Fed. 642, 33 Am. Bankr. Rep. 443 ; In re Cozatsky (D. C.) 216 Fed. 920, 33 Am. Bankr. Rep. 323 ; In re Kligerman (D. C.) 219 Fed. 758, 33 Am. Bankr. Rep. 60S : In re Gay & Sturgis (D. C.) 224 Fed. 127, P.n Am. Bankr. Rep. 417 ; In re Ros- enfeld-Goldman Co. (D. C.) 228 Fed. 921, 36 Am. Bankr. Rep. 520: In re Ylia (D. C.) 233 Fed. 476; In re Aronson (D. 0.) 181 POWERS AND DUTIES OF REFEREES § 76 a referee have the same effect as if rendered by any court of general jurisdiction."" But it is probably a better statement of the rule to say that, while no arbitrary rule can be laid down for determining the weight which should be attached to a finding of fact by a referee in bankruptcy, yet, as his position and duty are analogous to those of a special master, the rules applicable to a master's report apply to a ref- eree's finding of facts, and if it is based on conflicting evidence, involv- ing questions of credibility, and the referee has heard the witnesses, the District Judge should not disturb his findings unless there is most cogent evidence of . mistake.'^**' Still, they are not absolutely conclusive, and if the judge t'eaches a different conclusion upon the whole record before him, it is certainly within his province to do so. This is explained by a circuit court of ap- peals in the following terms : "Although, in a loose sense, parties who are dissatisfied with the conclusions of the referee are said to appeal to the district court, yet the action of that court on the findings of the referee did not assume the formalities of an appellate tribunal. Neither, according to the usual practice, are the proceedings before the referee brought before the court on exceptions, and thus made a part of the record, as in the case of a master in chancery. The relations between the court and the referee are usually of an informal character." Sec- tion 38 of the Bankruptcy Act and General Order No. 27 "provide for review by the court of the orders of referees in the most general terms, and are far from limiting the court to the rules which govern a chan- cery suit. Therefore, according to the common practice, the district court was authorized to disregard the findings of the referee entirely if it saw fit so to do, and proceed de novo, or reject them for rea- sons of law, or refuse to accept them in whole or in part, without as- signing reasons therefor. The position of the petitioner in this par- ticular would require this court [the circuit court of appeals] to be 233 Fed. 1022, 37 Am. Bankr. Kep. 385; In re Mullings Clothing Co. (D. C.) 252 In re Farmers' Dairy Ass'n (D. C.) 234 Fed. 667, 41 Am. Bankr. Rep. 756 ; In re Fed. 118, 37 Am. Bankr. Rep. 672 ; Cliam- Campion (D. C.) 256 Fed. 902, 43 Am. bers V. Continental Trust Co. (D. 0.) 235 Bankr. Rep. 625; In re Wilson-Nobles- Fed. 441, 38 Am. Bankr. Rep. 78; In re Barr Co. (D. C.) 256 Fed. 966, 42 Am. Schultz & Guthrie (D. C.) 235 Fed. 907, Bankr. Rep. 252; In re Rosen's Estate, 37 Am. Bankr. Rep. 604 ; In re Biehl (D. (C. C. A.) 263 Fed. 704, 45 Am. Bankr. 0.) 237 Fed. 720, 38 Am. Bankr. Rep. Rep. 5; In re Prentice (D. C.) 267 Fed. 150 ; In re Atkinson-Kerce Grocery Co. 1019, 46 Am. Bankr. Rep. 38. (D. C.) 245 Fed. 481, .39 Am. Bankr. Rep. "s McCuUoch v. Davenport Savings 819, 40 Am. Bankr. Rep. 411 ; In re Gol- Bank (D. C.) 226 Fed. 309, 35 Am. Bankr. ub (D. C.) 245 Fed. 512, 39 Am. Bankr. Rep. 765. Rep. 810; In re iSTajour (D. C.) 246 Fed. 120 Sternburg. v. M. Cohen & Co.,: 254 167 ; In re Association Dairy Co. (D. C.) Fed. 1, 165 0. C. A. 411, 42 Am. Bankr. 251 Fed. 749, 42 Am. Bankr. Rep. 321; Rep. 456. § 77 LAW OF BANKRUPTCY 182 bound conclusively by the finding's of the referee of the preliminary and ultimate facts, although the district court was not so bound, a po- sition which defeats itself on its very face." ^*^ Moreover, there are exceptional cases in which the rule does not apply. Thus, .on review by the district judge of an order made by the referee in bankruptcy, requiring the bankrupt to surrender to his trustee money or property alleged to be in his possession and to constitute assets of his estate, the ordinary rule as to the force of the referee's findings of fact is not applicable, because the determination is not governed by the weight of testimony, but it is the duty of the judge to ascertain that cause is shown for making such an order beyond a reasonable doubt.*** § 77. Records and Accounts of Referees. — The Bankruptcy Act makes it the duty of the referee, when his office is in the same city or town where the court of bankruptcy convenes, to call upon and receive from the clerk all papers filed in the court which have been referred to him, and the duty of the clerk to deliver to the referee such papers on his application ; but if the office of the referee is not in the same city or town as the office of the clerk, then the latter is to transmit such papers to the former by mail.*** Among the papers referred to must be included the schedule of the bankrupt, for another clause of the act re- quires this document to be executed in triplicate, and provides that one copy thereof shall be "for the referee." *** It is further the duty of the referee to "indorse on each paper filed with him the day and hour of filing, and a brief statement of its character." **^ He is to keep a rec- ord of the proceedings in each case in a separate book or books, and these shall, together with the papers on file, constitute the records of the case. The records of all proceedings before the referee are to be kept, as nearly as may be, in the same manner as records are kept in equity cases in the federal courts. And when a case is concluded be- fore the referee, the book or books containing the record of it are to be certified to by him, and, together with such papers as are on file be- fore him, be transmitted to the court of bankruptcy, there to remain as a part of the records of that court.*** The provisions of the statute do not constitute the referee the keeper of the records, or authorize 121 In re Pettlngill, 137 Fed. 840, 70 Bankr. Rep. 280. And see In re Hey- C. C. A. 338, 14 Am. Bankr. Rep. 757. man (D. C.) 214 Fed. 491. 122 In re Mayer, 98 Fed. 839, 3 Am. 123 Bankruptcy Act 1898, §§ 39, 51, Bankr. Rep. 533. But where the referee clause 3. has considered carefully the evidence on 124 Bankruptcy Act 1898, § 7, clause 8. the issue of whether the bankrupt is con- i2b General Order No. 2. cealing assets, his findings should not be 120 Bankruptcy Act 1898, § 42. See In disturbed in the absence of a demonstra- re Graves, 182 Fed. 443, 25 Am. Bankr. tion that a plain mistake has been made. Rep. 372. In re Bass (D. C.) 257 Fed. 137, 43 Am. 183 POWERS AND DUTIES OF REFEREES § 77 him to certify records directly to a circuit court of appeals.^^' It is further provided that certified copies of proceedings before a referee, or of a paper issued by the referee, "shall be admitted as evidence with like force and effect as certified copies of the records of district courts of the United States are now or may hereafter be admitted as evi- dence." ^** A referee must permit a. reasonable opportunity for the in- spection of the accounts relating to the afifairs of, and the papers and records of, estates in his charge by parties in interest. If he refuses to do so, application should be made to the court for an order requiring him thereto. If he refuses when directed by the court, it is a punish- able offense, and conviction thereof will vacate his office.^*® But a ref- eree, while he must permit inspection and furnish information, is not required to furnish copies of the papers or proceedings before him; and the jurisdiction of a referee to proceed with a hearing on a reference made by the court is not affected by his refusal to furnish to a party, on demand, a copy of the petition on which the hearing is based and of the order of reference.^** Original papers referred to in the bankrupt's depo- sition and annexed thereto cannot be withdrawn from the files at the option of the bankrupt, but the court may order a withdrawal for good reason shown by a party interested. "^^^ The provision as to the accounts of referees is that "every referee shall keep an accurate account of his traveling and incidental expenses, and of those of any clerk or other officer attending him in the perform- ance of his duties in any case which may be referred to him ; and shall make return of the same under oath to the judge, with proper vouchers when vouchers can be procured, on the first Tuesday in each month." ^^^ Exceptions to the referee's charges against the estate in bankruptcy for his expenses therein will not be heard by the court, when the ref- eree's account of such expenses has been duly kept and returned to the court under oath with vouchers, as required by law, and approved by the court, and especially when distribution of the estate has already been made before such exceptions are presented.^*^ Finally, it is made the duty of "officers," including the referees,^** to "furnish in writing and transmit by mail such information as is within their knowledge, 127 Cook Inlet Coal Fields Co. v. Cald- 132 General Order No. 26. And see weU, 147 Fed. 475, 78 C. C. A. 17, 17 Am. Bankruptcy Act 1898, § 62. Bankr. Eep. 135. 133 in re Tebo, 101 Fed. 419, 4 Am. 128 Bankruptcy -Act 1898, § 21, clause d. Bankr. Kep. 235. 129 Bankruptcy Act 1898, § 39, clause 134 The term "officer" includes the 3 ; § 29, clause c, S. clerk, marshal, receiver, referee and ISO In re Lewin, 103 Fed. 850, 4 Am. trustee. Bankruptcy Act 1898, § 1, Bankr. Rep. 632. clause 18. 131 In re McNair, 2 N. B. R. 343, Fed. Cas. No. 8,908. § 78 LAW OF BANKRUPTCY 184 and as may be shown by the records and papers in their possession, to the attorney general, for statistical purposes, within ten days after be- ing requested by him to do so." ^*^ • § 78. Contempts before Referees. — It is provided by the statute that no person, in proceedings before a referee, shall (1) "disobey or resist any lawful' order, process, or writ; (2) misbehave during a hear- ing or so near the place thereof as to obstruct the same; (3) neglect to produce, after having been ordered to do so, any pertinent document ; or (4) refuse to appear after having been subpoenaed, or, upon ap- pearing, refuse to take the oath as a witness, or, after having taken the oath, refuse to be examined according to law." The referee himself has no power to punish for contempt; but he ''shall certify the facts to the judge, if any person shall do any of the things forbidden in this section. The judge shall thereupon, in a summary manner, hear the evidence as to the acts complained of, and, if it is such as to warrant him in so doing, punish such person in the same manner and to the same extent as for a contempt committed before the court of bank- ruptcy, or commit such person upon the same conditions as if the doing of the forbidden act had occurred with reference to the process of, or in the presence of, the court." ^^* Since it is the court alone that pos- sesses the power of punishment for contempt, it is error to leave the question of commitment by way of punishment, or as a means of en- forcing obedience, to the discretion of the referee.^*' At the same time, the contempts which are within the purview of this section are commit- ted against the court as represented by the referee, not the court as rep- resented by the judge. Hence, for example, in the case of disobedience to an order, it is the order as made by the referee, not the order as finally approved by the judge, which must be obeyed under penalty of punish- 135 Bankruptcy Act 1898, § 54. resistance by any such oflScer, or by any 130 Bankruptcy Act 1898, § 41. As party, juror, witness, or other person, to the general power of the federal to any lawful writ, process, order, rule, courts to punish for contempts, the acts decree or command of the said courts." of Congress provide that they "shall Rev. Stat. U. S. § 725, Federal Judicial have power to impose and administer all Code 1911, § 2G8. The provision of the necessary oaths, and to punish, by fine Bankruptcy Act above referred to does or imprisonment, at the discretion of not apply to a proceeding in contempt the court, contempts of their authority: against a bankrupt for violation of an Provided, that such power to punish con- order of the court, which may be prose- tempts shall not be construed to extend cuted in the usual form by his trustee, to any cases except the misbehavior of Biderman v. Cooper (C. C. A.) 273 Fed. any person in their presence, or so near 683. thereto as to obstruct the administration is? Smith v. Belford, 106 Fed. 658, 45 of justice, the misbehavior of any of the C. C. A. 520, 5 Am. Bankr. Rep. 291; In otficers of said lourts in their official re Haring, 193 Fed. 168, 27 Am. Bankr. transactions,, and the disobedience or Rep. 2S5. 185 POWERS AND DUTIES OF KEFBREBS § 78 meht for contempt. In other words, if a party affected by an order of the referee, requiring him to take certain action forthwith, files a peti- tion for review by the judge, but does not secure a supersedeas, the referee's order continues operative, and the failure to obey it is a con- tempt, which cannot be justified on the theory that it is not an offense to disobey the order until after it has been confirmed by the court."'** All classes and kinds of orders made by referees fall within this rule, provided that they are not unlawful or entered without jurisdiction, but perhaps the most usual examples are found in the case of orders reqviiring the bankrupt or some third person to surrender money or property to the trustee in bankruptcy.^^* The case of misbehavior or contumacy on the part of witnesses summoned for examination in bank- ruptcy proceedings will be more fully considered in the chapter relat- ing to examinations in bankruptcy."' As to the procedure in cases of this kind, it is held that the direc- tions of the statute must be strictly observed. "In order that the court may take cognizance of the offense and punish the offender, he must be proceeded against strictly in accordance with the mode pointed out by the bankruptcy act, and any deviation from that procedure the bank- rupt [respondent] may take advantage of on a motion to dismiss the proceedings. The statutory procedure, being full and complete, must be strictly followed, and a failure to do so will be fatal." Accordingly, in the case from which this quotation is taken, the court dismissed a proceeding to punish a bankrupt for contempt because it was instituted by a petition filed by the trustee, for a rule on the bankrupt to show cause, instead of being based on a certificate of the referee, as the law 13 8 In re Home Discount Co., 147 Fed. 195 Fed. 100, 28 Am. Bankr. Rep. 225. 538, 17 Am. Bankr. Bep. 168. But see Where the referee ordered the trustee to Brown V. Detroit Trust Co., 19.3 Fed. make a demand upon his own attorney for 622, 113 C. C. A. 490, holding that where money in the latter's hands, claimed to a third person was ordered by the ref- be assets of the estate, and the trustee eree to surrender property of the bank- obeyed the order, he cannot be charged rupt in his possession within a limited with contempt for failing to secure the time, and, before the expiration of such money, where the attorney refused to time, he took proceedings to review the surrender it. In re Stemper (D. C.) 222 order of the referee, those proceedings Fed. 690, 34 Am. Bankr. Rep. 806. suspended the operation of the referee's Where the referee orders a private sale order, and therefore a judgment impos- of property of tbe bankrupt, if the bank- ing a fine on defendant for contempt in rupt and a creditor induce the bidder to failing to comply with the order was er- withdraw his bid, in order that another rfeeous. ™ay purchase at a lower price, they are 13 9 See In re Graessler & Reifchwald, punishable as for contempt. In re Boyd 154 Fed. 478, 83 C. C. A. 304, 18 Am. (D. C.) 228 Fed. 1003, 36 Am. Bankr. Bankr. Rep. 694; In re Home Discount Rep. 497. Co. (D. C.) 147 Fed. 538, 17 Am. Bankr. i*" The refusal to be examined, for Rep. 168; In re Soloway & Katz (D. C.) which a bankrupt may be committed, in- § 78 LAW OF BANKRUPTCT 186 requires."^ The referee may certify contumacious behaviour on the part of the bankrupt to the court for punishment as for contempt, without notice to him, as he will have notice and an opportunity to be he'ard in the proceedings before the court."^ The proceedings in the court are to be "summary," and this applies to the pleadings. But while it is probable that no pleading on the part of th^ respondent is strictly necessary, yet it is said that it is often advantageous to set out the defense in a definite manner, with a view of bringing the issues clearly before the court."* But it has also been ruled that the statute does not invest courts of bankruptcy with broader powers in the matter of punishment for contempt than are possessed by other federal courts ; and the mode of proceeding in such courts to determine whether a con- structive contempt- has been committed should conform to the estab- lished practice in like cases in other courts of the United States, as near as may be."* An order of commitment of a bankruptcy court is not invalid because it does not run in the name of the United States."® As to the defenses available at the hearing before the court, it may be said, in the first place, that the referee's order must be based upon a sufficient finding of the facts to inform the party affected, fully and completely, of the action which he is required to take; otherwise he cannot be held in contempt."® But he will not ordinarily be heard to allege in defense matters which were set up and contested in the pro- ceedings before the referee, as such contentions are res judicata."'' And intentional and willful disobedience of an order clearly within the ju- risdiction of the referee to make, persistently continued, cannot be jus- tified as having been under the advice of counsel."* But it has been held that, in a proceeding to punish a bankrupt for failure or refusal to obey an order of the referee requiring him to surrender to his trustee property alleged to be in his possession and to constitute assets of his estate in bankruptcy, the order of the referee is not conclusive as to volves contumaciousness, and must be i*s In re Goodrich, 184 Fed. 5, 106 C. distinguished from lack of candor, un- 0. A. 207, 25 Am. Bankr. Rep. 787. truthfulness and perjury. In re Blitz m Boyd v. Glucklich, 116 Fed. 131, (D. 0.) 232 Fed. 276, 36 Am. Bankr. Rep. 53 C. C. A. 451, 8 Am. Bankr. Rep. 393. 863. 1" Mueller v. Nugent, 184 U. S. 1, 22 141 In re Gitkin, 164 Fed. 71, 21 Am. Sup. Ct. 269, 46 L. Ed. 405, 7 Am. Bankr. Bank!-. Rep. 113. Rep. 224. 142 In re Magen, 179 Fed. 572, 24 Am. ne in re Rogowski, 166 Fed. 165, 21 Bankr. Bep. 63. But where the referee Am. Bankr. Rep. 553. * does not act on his own motion. In con- tir in re Home Discount Co., 147 Fed. tempt proceedings against a bankrupt, 538, 17 Am. Bankr. Rep. 168; In re but on the motion or petition of some Strobel, 163 Fed. 380, 20 Am. Bankr. one else, the bankrupt should be accord- Rep. 754. ed notice and a hearing before the ref- "s In re Home Discount Co., 147 Fed. eree. Idem. 538, 17 Am. Bankr. Rep. 168. 187 POWERS AND DUTIES OF REFBEBBS § 78 the existence of the facts which would justify it, or as to the ability of the bankrupt to comply.^** In the case cited, in an opinion distin- guished by much learning and by convincing reasoning, it was con- cluded that, in the case supposed, it is the imperative duty of the court to make an independent investigation of the facts disclosed by the entire evidence in the case, and to make its own independent decision as the result of such investigation. i*» In re Harlng (D. C.) 193 Fed. 168, 27 Am. Bankr. Rep. 285. § 79 LAW OF BANKRUPTCY 188 CHAPTER VI ACTS OF BANKRUPTCY Bee. 79. Acts of Bankruptcy Enumerated and Defined. 80. Nature and E^fCect of an Act of Bankruptcy. 81. Insolvency as an Element in Acts of Bankruptcy. 82. Fraudulent Conveyances. 83. Concealment or Removal of Property. 84. Giving a Preference. 85. Same; Intention of Debtor Presumed. 86. SufCering Preference Through Legal Proceedings. 87. Same; Attachment. 88. Same; Failure to Vacate or Discharge. 89. Same; Meaning of "Suffer or Permit." 90. Warrant of Attorney ; Confession of Judgment, 91. Assignment for Creditors. 92. Same; What Constitutes "General" Assignment. 93. Same; Invalid Assignment. 94. Same; Solvency No Defense. 95. Appointment of Receiver or Trustee. 96. Confession of Insolvency. § 79. Acts of Bankruptcy Enumerated and Defined. — ^An act of bankruptcy is an act committed by a debtor which will render him liable to be proceeded against in involuntary bankruptcy by his cred- itors, and will warrant the court in adjudging him bankrupt on a proper petition in that behalf. Five acts of bankruptcy are enumerated by the present statute. It is declared by the third section of the statute that such an act shall be deemed to have been committed by a person who , has : 1. "Conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, any part of his property with intent to hinder.t delay, or defraud his creditors, or any of them, or 2. Transferred, while insolvent, any portion of his property to one or more of his creditors with intent to prefer such creditors over his other creditors, or 3. Suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings, and not having at least five days before a sale or final disposition of any property affected by such pref- erence vacated or discharged such preference, or 4. Made a general assignment for the benefit of his creditors, or, being insolvent, applied for a receiver or trustee for his property or because of insolvency a receiver or trustee has been put in charge of 189 ACTS OF BANKRUPTCY § 80 his property under the laws of a state, of a territory, or of the United States,^ or 5. Admitted in writing his inability to pay his debts and his will- ingness to be adjudged a bankrupt on that ground." * This provision of the statute, though remedial as to creditors is penal as to the bankrupt, and must be construed with a reasonable measure of strictness. No one can be adjudged bankrupt on the ground of his having committed an act which, though not among those enumerated by the statute, produces equivalent results. The acts of bankruptcy defined and classified by the statute cannot be enlarged by construction so as to include transactions similar or analogous to, but not identical with, those specified.* In the present chapter we are concerned with the commission of acts of bankruptcy by individuals. Acts of bankruptcy committed by partnerships and by corporations will be separately considered in the chapters relating to the bankruptcy of those organizations.* § 80. Nature and Effect of an Act of Bankruptcy. — In this, as in many other cases, when the prohibited act has been done, ignorance of the law is no excuse. A debtor who has committed one of the enu- merated acts of bankruptcy cannot save .himself from the consequences by alleging that his action was taken unwarily or without any thought of the bankruptcy law, or without any contemplation of bankruptcy, or even that he did not know that there was any such law in existence as the bankruptcy statute.^ Neither can the legal liability for an act of bankruptcy be discharged or evaded by a subsequent rescission of the transaction.® Nor is the motive or intention-of the debtor material, 1 The provision as to the making of an bankruptcy, but simply institutes a pro- assignment for the benefit of cteditors ceeding in which the court acquires ju- was in the act of 1898 as originally pass- risdiction to adjudge bankruptcy if the ed, but the provision making the appoint- facts warrant it. In re J. M. Oeballos ment of a receiver, in the cases specified, & Co., 161 Fed. 445, 20 Am. Bankr. Rep. an act of bankruptcy was added by an 459. amendment passed February 3, 1903, 32 » In re Empire Metallic Bedstead Co. Stat. 797. Prior to this amendment, it (C. C. A.) 98 Fed. 981, 3 Am. Bankr. Kep. was held that obtaining the appointment 575. See McLean v. Brown, 4 N. B. K. of a receiver by an insolvent partnership, 585, Fed. Cas. No. 8,880. Compare Con- through dissolution procee4ings in a state tinental Building & Loan Ass'n v. Su- court, was not an act of bankruptcy, perior Court of San Francisco, 163 Cal. though such action was taken for the 579, 126 Pac. 476. very purpose of preventing the bankrupt- * As to acts of bankruptcy by partner- cy court from obtaining possession of the ship, see infra, § 113. Acts of bankrupt- assets. In re Varick Bank, 119 Fed. 991, cy by corporation, see infra, § 144. affirmed In re Burrell, 123 Fed. 414, 59 C. <■' In re Craft, 2 Ben. 214, 1 N. B. R. C. A. 508, 9 Am. Bankr. Rep. 625. 378, Fed. Cas. No. 3,316. 2 The filing of a voluntary petition in » In re Ryan, 2 Sawy. 411, Fed. Cas. bankruptcy is not of itself an act of No. 12,183. § 81 LAW OF BANKRUPTCY 190 except where the law makes it an ingredient of the act. Thus, where the execution of a general assignment is proved or admitted, an adjudi- cation of bankruptcy will follow although the respondent denies that he had any actual intention to defeat or delay the operation of the bank- ruptcy act.' So in the case of giving a preference, a payment of money by an insolvent debtor, made the basis of a petition on this ground, is none the less a preference because it was made in good faith, and was a judicious action and necessary to preserve valuable property.* And it is not sufficient ground for dismissing a petition in involuntary bankruptcy, against a debtor who has given a preference, that he only yielded to the pressure or urgent solicitation of the creditor, or to threats of legal process or arrest and to the fear of disgrace.* But a man can- not be made bankrupt for an act done by another which he did not authorize and in which he did not participate, except in the case of a copartnership. Thus, an act of ba,nkruptcy by one of two persons who are jointly and severally liable for a debt, but are not partners, is no ground for an adjudication of bankruptcy against the other.^" § 81. Insolvency as an Element in Acts of Bankruptcy. — In con- sidering the question of a debtor's solvency or insolvency as bearing on his liability to be adjudged, bankrupt, we are to remember that the term "insolvency" has been specially defined in the bankruptcy act. In the first section of the statute it is provided that "a person shall be deemed insolvent, within the provisions of this act, whenever the ag- gregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be con- cealed or removed, wiih. intent to defraud, hinder, or delay his cred- itors, shall not, at a fair valuation, be sufficient in amount to pay his debts." It is in this sense that the word is used throughout the statute, and it is to be so understood in determining the question of the com- mission of an act of bankruptcy." A comparison of the first four paragraphs of the third section of the bankruptcy act will show that, in so far as the liability to be ad- 7 In re Smith, 4 Ben. 1, 3 N. B. R. 377, lo James v. Atlantic Delaine Co., 11 Fed. Cas. N6. 12,974.- N. B. R. 390, Fed. Gas. No. 7,179. s In re Merchants' Ins. Co., 3 Hiss. n Lansing feoiler & Engine Works, v. 162, 6 N. B. R. 43, Fed. Cas. No. 9,441. Joseph T. Ryerson & Son, 128 Fed. 701, Clarion Bank v. Jones, 21 Wall. 325, 63 CCA. 253, 11 Am. Bankr. Rep. 558; 22 L. Ed. 542 ; In re Batchelder, 1 Low, In re Golden Malt Cream Co. (C. C. A.) 373, 3 N. B. R. 150, Fed. Cas. No. 1,098 ; 164 Fed. 326, 21 Am. Bankr. Rep. 36 ; In re Dibblee, 3 Ben. 283, 2 N. B. R. aiewltt v. Boston Straw Board Co., 214 617, Fed. Cas. No. 3,884 ; Campbell v. Mass. 260, 101 N. E. 424. Traders' Nat. Bank, 2 Biss. 423, 3 N. B. R. 498, Fed. Cas. No. 2,370. 191 ACTS OF BANKRUPTCY § 81 judged bankrupt depends upon the insolvency of the debtor at the time of the commission of an act of bankruptcy, or at the time a peti- tion against him is filed, there are important differences between the several acts of bankruptcy enumerated. In respect to the first of these, viz., the transfer, concealment, or removal of property with intent to delay or defraud creditors, the test of- liability to be adjudicated a bank- rupt is insolvency at the time of the filing of the petition. If the debtor was insolvent at the time the fraudulent conveyance or concealment was made, yet regains a condition of solvency before a petition is filed, the petition must be dismissed. Conversely, if he was not insolvent at the time of the fraudulent transfer or concealment, yet becomes insolvent within the next four months, and is insolvent at the time creditors file a petition, he may be adjudged bankrupt.-'* In regard to the second and third acts of bankruptcy, (giving a preference by a conveyance or transfer, or suffering a creditor to obtain a preference through legal pro- ceedings), these can be committed only "while insolvent," and fur- ther, the act declares that a petition may be filed against a person who is insolvent and who has committed an act of bankruptcy. Hence, as to these acts of bankruptcy, insolvency must have existed at the time of the preference and must have continued to the time of the filing of a petition, or, at any rate, must exist at these two particular times, though there might possibly be cases where a debtor, hovering on the verge of insolvency, and sometimes on one side of the line and sometimes on the other, might, in the interval, have periods of solvency. But he cannot be adjudged on these grounds if he was solvent at the time the preference was given, although insolvent at the time of the filing of the petition, nor, probably, when he is solvent at the date of the peti- tion, though insolvent when the act of bankruptcy was committed, since the act is explicit in declaring that a petition may be filed only against a "person who is insolvent and who has committed an act of bankruptcy." ^* As to the fourth act of bankruptcy, (making a general assignment for the benefit of creditors) the rule apparently settled is that it is not necessary to show- that the debtor was insolvent either at the date of the assignment or at the time of the filing of the peti- 12 George M. West Co. v. Lea, 174 TJ. Rep. 463 ; In re Dunham, 2 Ben. 488, 2 S. 590, 19 Sup. Ct. 836, 43 L. Ed. 1098, 2 N. B. R. 17, Fed. Cas. No. 4,143. But see Am. Bankr. Rep. 463; Acme Food Co. -v. Acme Food Co. v. Meier, 153 Fed. 74, 82 Meier, 153 Fed. 74, 82 C. C. A. 208, 18 C. C. A. 208, 18 Am. Bankr. Rep. 550, Am. Bankr. Rep. 550. holding that; if the act of bankruptcy 13 In re Rome Planing Mill Co., 96 charged is the giving or permitting a Fed. 812, 3 Am. Bankr. Rep. 123; George preference, insolvency must have existed M. West Co. V. Lea, 174 U. S. 590, 19 at the time of the preference but that Blip. Ct. 836, 43 L. Ed. 1098, 2 Am. Bankr. solvency or insolvency at the time of the § 81 LAW OF BANKRUPTCt 192 tion." But as to the new or supplemental provision respecting the ap- pointment of a receiver, it is clear that insolvency at the time of the act is necessary, since the statute makes it an act of bankruptcy if a person, "being insolvent," applies for a receiver, or if a court appoints a receiver "because of insolvency." As to the fifth act oi bankruptcy, which is committed where a person makes a written admission of his "inability to pay his debts" and his willingness to be adjudged a bank- rupt on that ground, the words quoted may be taken as equivalent to a confession of "insolvency," and it is scarcely conceivable that a per- son who was actually solvent would commit this act of bankruptcy. To render a transfer of property void under the bankruptcy act, it is not necessary that the debtor should have known or believed himself to be insolvent. The act treats insolvency as a condition of fact, not of belief; and he is chargeable in law with the knowledge of it and of its consequences. Hence when a man, insolvent in fact, gives a mortgage to an existing creditor, he necessarily does so with a view to giving him a preference. ^^ § 82. Fraudulent Conveyances. — It is an act of bankruptcy if a debtor shall have "conveyed or transferred any part of his property with intent to hinder, delay, or defraud his creditors, or any of them."*® These words are clearly applicable to 6very conveyance which would be fraudulent at common law or under the state statutes relating to fraudulent conveyances. But they go beyond this. It is held that any conveyance is an act of bankruptcy which contravenes the provi- sions and objects of the bankruptcy law, though it would not be im- filing of the petition can have only a re- mJt acts . of bankruptcy, by absconding flex importance as evidence. Compare and the like, while their effects are more Johansen Bros. Shoe Co. v. AUes, 197 than sufficient to pay their creditors. Fed. 274, 116 0. O. A. 636, 28 Am. Bankr. And If, any suspicious or malevolent Rep. 299. creditor will take the advantage of such 1* George M. West Co. v. Lea, 174 U. acts, and sue out a commission, the S. 590, 19 Sup. Ct. 836, 43 L. Ed. 1098, 2 bankrupt has no remedy, but must quiet- Am. Bankr. Rep. 463 ; Leidigh Carriage ly submit to the effects of his own im- Co. V. Stengel, 95 Fed. 637, 37 O, C. A. prudence, except that, upon satisfaction 210, 2 Am. Bankr. Rep. 383 ; Bray v. made to all the creditors, the commission Cobb, 91 Fed. 102, 1 Am. Bankr. Rep. may be superseded." 2 Bl. Comm. 488. 153. The possibility of the commission is Hall v. Wager, 8 Blss. 28, 5 N. B. R. of an act of bankruptcy by a perfectly 181, Fed. Oas. No. 5,951. solvent person, even under the oldest lo Bankruptcy Act 1898, § 3a, clause 1. statutes, is shown by the following pas- A. conveyance or transfer of property by sage: "If any surplus remains after a debtor with Intent to hinder, delay, or selling his estates and paying every cred- defraud his creditors, or any of them, Itor his full debt, it shall be restored to constitutes an act of bankruptcy, al- the bankrupt. This is a case which though he may have been solvent at the sometimes happens to men in trade, who time. In re Larkin, 168 Fed. 100, 21 Am. involuntarily or at least unwarily com- Bankr. Rep. 711. 193 ACTS OF BANKEUPTCI § 82 peachable for fraud at common law or under the state statutes. The reason is that the bankruptcy law confers certain peculiar rights and privileges upon creditors, which were unknown to the common law and are not recognized by the state statutes, such as the right to choose their own trustee, to examine the bankrupt, to have notice of all im- portant steps in the administration of the estate, and to have the as- sets converted into money and distributed under the supervision and control of a court of bankruptcy ; and a conveyance by the debtor which would defeat these rights of the creditors (such as a deed of trust di- recting the trustee to convert all the debtor's property into money and pay his debts according to the state law) must be considered as made with the intent to "hinder, delay, and defraud" them, and is therefore an act of bankruptcy.-^' The bankruptcy act provides that the word "trfinsfer" shall "include the sale and every other and different mode of disposing of or parting with property, or the possession of property, absolutely or condition- ally, as a payment, pledge, mortgage, gift, or security." ^* Hence a gift by an insolvent debtor of all his property to his wife is an act of bank- ruptcy.-" So is a deed of valuable property to any person made with- out consideration.^" So is a conveyance of property by a father to his sons in consideration of their agreement to support him.*^ So is the giving of a mortgage of the whole of a debtor's estate and effects to one creditor, with intent to hinder and delay the others.** But on the other hand, a conveyance made in good faith and intended only as se- curity for an existing debt, or to secure the grantee as a surety for the grantor, does not constitute an act of bankruptcy.*^ So, where a 17 Kumsey & Slkemler Co. v. Novelty Hughes, 183 Fed. 872, 25 Am. Bankr. & Machine Mfg. Co., 99 Fed. 699, 3 Am. Rep. 556. Bankr. Rep. 704; In re Gutwillig, 92 20 in re Leland, 185 Fed. 830, 25 Am. Fed. 387, 34 C. C. A. 377, 1 Am. Bankr. Bankr. Rep. 209. And see In re Donnel- Rep. 388 ; Gassett v. Morse, 21 Vt. 627, ly, 193 Fed. 755, 27 Am. Bankr. Rep. 504. Fed. Cas. No. 5,264. But see Githens v. ,_^ ^^^^^ ^ Johann, 3 N. B. B. 144, Shiffler, 112 Fed. 505, 7 Am. Bankr. Rep. pg^ Q^g -j^^ g^g 453 18 Bankruptcy Act 1898, § 1, clause 25. '' ^^aldwin v. Rosseau, Fed. Cas. No. Where property conveyed by an alleged 803 ^ In re Oow es, IN. BR. 280, Fed. t, 1 ill „„^„A^A i^v.,^ Aaht-c ac Cas.No. 3,297 In re McKibben, 12 N. B. bankrupt largely exceeded the debts as- _ ' ' smned or discharged by the grantee, the ^- ^' ^^^- ^as. No. 8,859. conveyance must be deemed an act of 23 Acme Food Co. v. Meier, 153 Fed. bankruptcy, and intended to hinder and 74, 82 C. C. A. 208, 18 Am. Bankr. Rep. delay the petitioning creditor, whose 550. Paying a bonus to secure a loan claim was not assumed. Morrison v. on chattel mortgage, the proceeds of Rieman, 249 Fed. 97, 161 C. C. A. 149, 41 which are used to pay off a prior mort- Am. Bankr. Rep. 325. gage, is not an act of bankruptcy. In re 19 In re Alexander, 1 Ix)w. 470, 4 N. Hallin, 199 Fed. 806, 28 Am. Bankr. Rep. B. R. 178, Fed. Cas., No. 161; In re 708. Blk.Bkb.(3d Ed.)— 13 § 82 LAW OF BANKEUPTCT 194; bill in equity asking for the appointment of a receiver is brought against a corporation, and the defendant makes no opposition to the suit, but tacitly permits the receiver to be appointed and to take charge of its property, this cannot be said to be a transfer or conveyance within the meaning of the bankruptcy law,** though it may, under the amendment of 1903, constitute an act of bankruptcy on another and independent ground. Again, the exchange of goods covered by a warehouse re- ceipt in the warehouse of the vendor for others of equal or less value is not an act of bankruptcy,*^ nor is the transfer of firm property from one member of a solvent firm to another.*^ And a transfer of property by an individual member of a firm, although with intent to defraud in- dividual and firm creditors, is not an act of bankruptcy on the part of the partnership which will sustain a petition in bankruptcy against it.*' So, where a retail merchant had ordered goods for a customer, but the latter, on inspection, refused to accept them, whereupon the merchant returned- them to the seller, it was held that this was not an act of bankruptcy, not being done with a view of giving a preference or defrauding his creditors, but as a prudent and proper business trans- action.** An actual wrongful or fraudulent intent to hinder and delay cred- itors, or to defraud them, is an essential element of this act of bank- ruptcy.*® And an intent to hinder and delay creditors involves a pur- pose wrongfully or unjustifiably to prevent, obstruct, embarrass, or postpone them in the collection or enforcement of their claims.*" And 24 In re Baker-Ricketson Co., 97 Fed. both partners, which constituted an act 489, 4 Am. Bankr. Rep. 605 ; In re Henry of bankruptcy. In re Shapiro, 106 Fed. Zeltner Brewing Co., 117 Fed. 799, 9 Am. 495, 5 Am. Bankr. Rep. 839. Bankr. Rep. 63; In re Harper & Bros., 27 in re Stovall Grocery Co., 161 Fed. 100 Fed. 266, 3 Am. Bankr. Rep. 804. An 882, 20 Am. Bankr. Rep. 537. instrument appointing trustees to wind ^sDoan v. Compton, 2 N. B. R. 607, up a corporation's affairs was held not Fed. -Cas. No. 3,940. a conveyance or transfer with intent to 29 in j-e Wilmington Hosiery Co., 120 defraud creditors within the Bankruptcy Fed. 180, 9 Am. Bankr. Rep. 581 ; In re Act, in In re Ambrose Matthews & Co. McLoon, 162 Fed. 575, 20 Am. Bankr. (D. 0.) 229 Fed. 309, 36 Am. Bankr. Rep. Rep. 719. Creditors of an alleged bank- 501. rupt cannot complain of the transfer of 2 5 Sharp V. Philadelphia "Warehouse a homestead interest of the bankrupt and Co., Fed. Cas. No. 12,709a. a dower interest of his wife, to a cor- 20 In re Munn, 3 Biss. 442, 7 N. B. R. poration organized by him, and the 468, Fed. Cas. No. 9,925. But the with- fraudulent intent necessary, to render drawal of moiiey from an Insolvent firm such a transfer an act of bankruptcy by one of the partners, and its secret could not be predicated thereon. Marine transfer to a third person, In connection Nat Bank v. Swigart (C. C. A.) 262 Fed. with other concurrent transactions be- 854, 45 Am. Bankr. Rep. 162. tween the partners, was held a convey- so in re Wilmington Hosiery Co., 120 ance and transfer of property with in- Fed. 180, 9 Am. Bantr. Rep. 581. tent to hinder and delay creditors, by ^ 195 ACTS OF BANKRUPTCY § 82 it is to be noted that, as the language of the statute is in the disjunc- tive, an intent either to hinder or to delay or to defraud creditors is enough. Hence an act of bankruptcy is committed by the making of a transfer or conveyance with the intention of obstructing creditors in their endeavor to collect their claims, or of putting the property tem- porarily out of their reach, although there is no intention to defraud them, and although it is the intention of the debtor that, ultimately, all creditors shall receive full satisfaction of their claims.*"- But it is not necessary to show that any creditor actually was hindered or de- layed by the debtor's proceedings.** Under the former act, the intent required was an intent to delay or defraud creditors generally; but it was held that, if the conveyance was made with- the intent to delay one particular creditor, but its necessary effect was to delay all, it was an act of bankruptcy.** But it will be observed that the present la-vv is satisfied with an intent to hinder or defraud "his creditors or any of them." But a conveyance of property by a debtor to certain creditors cannot be charged as an act of bankruptcy, -where he had at the time no other creditors.** The intent with which the transfer or conveyance was niade is seldom susceptible of explicit proof, but it may be made out by inference from the circumstances of the transaction, attention being given to all the acts done and all the circumstances surrounding the transaction ; *^ and an intention to delay or defraud creditors may be inferred from the fact that that is the natural and necessary result of the transfer in question.*^ But conversely, the presumption of a wrongful intent may also, be rebut- ted by inferences drawn from the facts and circumstances. Thus, where a partnership is dissolved, and the whole stock in trade transferred to the only solvent partner, for the purpose of settling the affairs of the firm, a sale of the whole stock by such partner is not an act of bankruptcy, for the circumstances rebut any presumption of fraud.*'' So again, the sale of a stock of goods will not be considered an act of bankruptcy where there is no evidence of the seller's insolvency at the time of the sale, and it appears that his only object in making the sale was to change his SI In re Hughes, 183 Fed. 872, 25 Am. Bankr. Rep. 711; In re Minard, 156 Fed. Bankr. Rep. 556. And see In re Muir, 377, 19 Am. Bankr. Rep. 485 ; Merchants' (D. C.) 212 Fed. 495, 31 Am. Bankr. Rep. Nat. Bank v. Cole, 149 Fed. 708, 79 O. C. 528. ■^- 414, 18 Am. Bankr. Rep. 44. 82 Williams V. Nunn, 1 Taunt. 270. so Bean-Chamberlain Mfg. Co. v. 8 8 In re Williams, 1 Low, 400, 3 N. B. Standard Spoke & Nipple Co., 131 Fed. R. 286, Fed. Cas. No. 17,703. 215, 65 O. 0. A. 201, 12 Am. Bankr. Rep. 84 Brake v. Callison, 129 Fed. 201, 63 610. O. C. A. 359, 11 Am. Bankr. Rep. 797. 3? In re Weaver, 9 N. B. R. 132, Fed. 8 5 In re Larkin, 168 Fed. 100, 21 Am. Cas. No. 17,307. § 83 LAW OF BANKRUPTCY 196 business.*' An indorsement of a bill of lading to a third person, to pro- tect the property from attachment and save it for the benefit of all the creditors, is not an act of bankruptcy.^' Nor is it an act of bankruptcy for a person to transfer property, after he has become involved, in pur- suance of an agreement made while he was in prosperous circumstances, to transfer specific property as collateral security for advances made.** Again, an intent to prefer is not to be confounded with an intent to de- fraud, nor a preferential transfer with a fraudulent one. Hence, while a man may not connive with others to get his property out of the way by sale or otherwise, yet a fair and open disposition of it on a full consid- eration cannot be given a fraudulent character, although it may inci- dentally have the effect of leaving nothing which creditors can reach, and even though the debtor does this in order to meet some of his obli- gations rather than others." Finally the statute nowhere denounces a mere intent on the part of an insolvent debtor not to become a bank- rupt; and the doing or permitting of any of the things specified in this section of the act, for the purpose and with the intention of escaping being thrown into bankruptcy, is not necessarily doing or permitting them with an intent to hinder, delay, or defraud creditors.** § 83. Concealment or Removal of Property. — The bankruptcy act of 1867 made it an act of bankruptcy for a debtor to "conceal or remove any of his property to avoid its being attached, taken, or sequestered on legal process." ** The present statute uses the words "concealed or removed or permitted to be concealed or removed, any part of his prop- erty with intent to hinder, delay, or defraud his creditors or any of them." ** This .language is plainly more comprehensive than that of the earlier act; and a secreting of goods by an insolvent debtor, to prevent their being seized on an attachment, would certainly be held to be a concealment of them with intent to delay or defraud his creditors gen- erally, or at least the attaching creditors.*^ On the other handj where a debtor sells hjs property for the purpose of investing the proceeds in 8«In re Valliquette, 4 N. B. R. 307, constitute an act of bankruptcy as a con- Fed. Gas. No. 16,823. veyance in fraud of creditors, this clause 8 9 Ex parte Potts, Crabbe, 469, Fed. of the Bankruptcy Act having the same Cas. No. 11,344. And see In re McLoon, construction as the Statute of Elizabeth. 162 Fed. 575, 20 Am. Bankr. Eep. 719. Johnson-BaiUie Shoe Co. v. Bardsley, *» Ex parte Potts, Crabbe, 469, Fed. Elmer & Nichols, 237 Fed. 763, 150 0. C. Cas. No. 11,344. A. 517, 38 Am. Bankr. Rep. 492. 41 Glthens v. Shiffler, 112 Fed. 505, 7 *^ In re Wihnington Hosiery Co., 120 Am. Bankr. Rep. 453. The execution of Fed. 180, 9 Am. Bankr. Rep. 581. a chattel mortgage by the debtor, where *s Rev. Stat. V. S. § 5021. the only intent as to hindering, delaying, ** Bankruptcy Act 1898, § 3a, clause 1. or defrauding creditors was to give the " See Anonymous, 1 Pac. Law Rep. chattel mortgagee a priority, does not 173, Fed. Cas. No. 466. 197 ACTS OF BANKRUPTCY § 83 a legitimate business enterprise, into which he expects to enter, and shows good faith in respect to the care of the money received therefor, he is not to be adjudged bankrupt simply because he kept the proceeds in cash in his own hands, instead of converting the fund again into tangible property such as could have been levied on under legal process ; for this is not a "concealment" of his property with intent to defraud creditors.** But consigning property to a person out of the district, by one who contemplates bankruptcy, and with the intent to keep the prop- erty from the trustee, ampunts to removing it from the district with intent to defraud his creditors.*' ,A more serious question is whether the words of the statute must be restricted to a physical concealment or removal of property, or may be made to extend to a concealment of the actual title and possession of the property.** Under the former statute it was held that, if the debtor procured an attachment to issue upon a fictitious debt and to be levied on the property, for the purpose of preventing the levy of an attachment by a genuine creditor, this amounted to a concealment of the property.** But, there are also deci- sions to the effect that the concealment or removal of property, as dis- tinct from a fraudulent conveyance of it, must be actual and not con- structive, that is, must involve an actual or physical change in the posi- tion or locality of the property ; ^^ and hence the mere taking possession of property by a receiver appointed by competent authority is not such a "removal" of it as constitutes an act of bankruptcy, and the failure of the debtor to oppose and contest the appointment of a receiver is not "permitting" his property to be concealed or removed.^^ On similar principles, where a partner of an insolvent firm withdrew from the firm's bank account a certain sum of money, by a check which he at once de- posited to his personal account in another bank, but thereupon drew a larger check upon that bank and deposited it to the firm's credit in its 46 Fox V. Eckstein, 4 N. B. B. 373, Fed. concealment of property constituting an Cas. No. 5,009. act of bankruptcy when the debtor, asked 47 In re Hammond, 1 Low. 381, 3 N. B, by a creditor what he had done with cer- R. 273, Fed. Cas. No. 5,999. tain money, said he had left It in a safe 4 8 See In re Glazier, 19S Fed. 1020, place, but that he had offsets exceeding 28 Am. Bankr. Rep. 391. the creditor's claim. In re Biirg (D. 0.) 48 In re Williams, 1 Low. 406, 3 N. B. 245 Fed. 173, 40 Am. Bankr. Rep. 126. R. 286, Fed. Cas. No. 17,703; In re Huss- so in re Wilmington Hosiery Co., 120 man, 2 N. B. R. 437, Fed. Cas. No. 6,951. Fed. 180, 9 Am. Bankr. Rep. 581 ; Liv- "Ooncealment is the doing of an act, ermore v. Bagley, 3 Mass. 487 ; Fox v. whether by way of conveyance or trans- Eckstein, 4 N. B. R. 373, Fed. Cas. No. fer, by which the true title and owner- 5,009. ship of the debtor is kept from the view ^i Vaccaro.v. Security Bank, 103 Fed.^ of the creditor, when done with the intent 486, 43 C. 0. A. 279, 4 Am. Bankr. Rep. and purpose of preventing its being at- 474 ; In re Wilmington Hosiery Co., 120 tached or taken on execution." O'Neil v. Fed. 180, 9 Am. Bankr. Rep. 581. Glover, 5 Gray (Mass.) 144. There was a § 83 LAW OF BANKRUPTCY 198 bank, the transaction was held not to constitute a withdrawal of firm funds nor an act of bankruptcy.*** And where no depletion of his estate occurs as a result of the debtor's removal of his property from one place to another, such removal is not an act of bankruptcy of which creditors can complain.®* Under the provisions of the former bankruptcy act, it was an act of bankruptcy if the debtor departed from the state, district, or territory of which he was an inhabitant, with intent to defraud his creditors, or if, being absent, he should, with such intent, remain absent, or if he concealed himself to avoid the service of legal process. There is no corresponding provision in the present act. But if a debtor should abscond with his available assets, it is very clear that he may be ad- judged bankrupt on the ground of having "removed" his property, with intent to defraud his creditors.®* But it is not an act of bankruptcy on the part of one partner to influence or procure the departure of an- other from the state, although the circumstances are such that the ab- sconding partner makes himself liable to the law.®® It should be observed that the present statute denounces not only the act of a debtor who has "concealed or removed" his property with intent to delay or defraud creditors, but also the act of one who has "per- mitted" this to be done, with like intent. But one does not permit a removal of property who has neither the power nor the right to prevent its being taken away.®® And hence, where a creditor of a bankrupt re- moved goods from the bankrupt's store during the latter's absence, and retained possession of them against his protest, the bankrupt's failure to take legal proceedings to recover the possession of the goods did not amount to "permitting" their removal, so as to constitute an act of bankruptcy, at least in the absence of any evidence of collusion.®' § 84. Giving a Preference. — It is an act of bankruptcy if an insol- vent debtor shall have "transferred any portion of his property to one or more of his creditors with intent to prefer such creditors over his other creditors;" and a preference is deemed to have been given when "the effect of the enforcement of such transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class." ®* The bankruptcy law, it is said, 02 In re Perlhefter, 177 Fed. 299, 25 oe In re Wilmington Hosiery Co., 120 Am. Bankr. Eep. 576. Fed. 180, 9 Am. Banltr. Eep. 581. 3 In re McGraw (D. C.) 254 Fed. 442, o 7 in re Bellmap, 129 Fed. 646, 12 Am. 43 Am. Bankr. Kep. 38. Bankr. Rep. 326. 4 In re Filer, 108 Fed. 209, 5 Am. os Bankruptcy Act 1898, § 3a, clause 2; Bankr. Eep. 332. , Idem, § 60a. See Folger v. Putnam, 194 In re Terry, 5 Biss. 110, Fed. Cas. Fed. 793, 114 O. C. A. 513, 28 Am. Bankr. Wo. 13,836. • Eep. 173. Payments by an insolvent per- 199 ACTS OF BANKRUPTCY § 84 does not proiiibit an insolvent debtor from dealing with or exchangiiig his property before proceedings in bankruptcy are instituted against him, provided there is no purpose to defraud or delay his creditors, or to give a preference to any one, and the value of his estate is not there- by impaired.®" According to the language of the clause in question, there are several ingredients, all of which are essential to the commission of this act of bankruptcy. First of all, there must be an intention on the part of the debtor to prefer one or more crediljors over others ; with- out this, there is no act of bankruptcy.*" Next, the transfer or payment must have been made at a time when the debtor was insolvent.*^ Next, it must have been made within four months before the filing of a petition in bankruptcy against him.®^ Again, it must operate to the disadvan- tage of some other creditor or creditors. Thus, a transfer of property, though made by an insolvent person to a creditor, is not an act of bank- ruptcy, unless there was, as the time of the transfer, some other creditor holding a claim or demand against the insolvent such as would be prov- able in bankruptcy.** And of course the person to be benefited by the transfer must occupy the position of a "creditor." A trustee for credi- tors, however, is in the same position as a creditor. Thus, where an alleged bankrupt was a stockholder in an insolvent bank, which was in the hands of the bank commissioner, and he executed a note to the commissioner for the amount of his double liability, secured by a mort- gage on nonexempt real property, it was held that he was guilty of an son to certain creditors of 25 per cent, priority under the laws of the state, of their claims, pursuant to an arrange- third, the claims of the creditors of the ment made by a creditors' committee, company, whose names, with the amounts approved by most of them, for the settle- due them, are all set forth in the deed, ment of all his Indebtedness on that and fourth, to pay over to the grantor basis, where he had secured funds to any balance which may remain, the deed complete the settlement, do not consti- does not effect a preference to any cred- tute an act of bankruptcy as the giving itor, since all are treated alike, and it of a preference. In re Bloomberg (D. C.) cannot be made the basis of a petition 253 Fed. 94, 42 Am. Bankr. Rep. 115. in involuntary bankruptcy on allegations Further, the preference must have been of preferences. Rumsey & Sikemier Co. given by the bankrupt. The settlement v. Novelty & Machine Mfg. Co., 99 Fed. of a suit brought on a note, by the attor- 699, 3 Am. Bankr. Rep. 704. But com- ney for the alleged. bankrupt, who him- pare In re Cutler & John (D. C.) 228 Fed. self paid the money and had not been 771, 36 Am. Bankr. Rep. 420. repaid when the petition was filed, was «» Goodlander-Robertson Lumber Co. v. held not an act of bankruptcy. In re Atwood, 152 Fed. 978, 82 C. C. A. 100, 18 Kerlin, 209 Fed. 42, 126 O. O. A. 184, 31 Am. Bankr. Rep. 510. Am. Bankr. Rep. 12. • " Wilder v. Watts, 138 Fed. 426, 15 6 9 Stewart v. Piatt, 101 V. S. 731, 25 Am. Bankr. Rep. 57. L. Ed. 816. Where a corporation con- "2 in re Bogen, 134 Fed. 1019, 13 Am. veys all its property in trust, with direc- Bankr. Rep. 529. tions to the. trustee to sell the same, and, "^ Beers v. Hamlin, 99 Fed. 695, 3 Am. out of the proceeds,- to pay first the costs Bankr. Rep. 745. and expenses, second, debts entitled to § 84 LAW OF BANKRUPTCY 200 act of bankruptcy.** But it makes no difference that the yeditor is the wife of the bankrupt; it is equally against the law to give her a pref- erence as to prefer any other creditor.*'' An accommodation indorser of notes, even before payment, is a creditor of the maker,*® and so is a surety on the bond of a contractor for government work, who, under the federal statute, is directly liable to laborers to whom the contractor is indebted for labor performed under the contract.*' Next, it is nec- essary that the property or money transferred should amount to some- thing substantial, and not be such a mere trifle as to be beneath the con- sideration of the law. Thus, it is held that the payment of a debt of three dollars by a firm engaged in trade is not such a substantial pref- erence as will constitute an act of bankruptcy sufficient in itself to sus- tain an involuntary petition.** Finally, there must be some actual ad- vantage accruing to the creditor preferred. Thus, where a debtor sold some of his property, for nearly its full value, for the purpose of raising money to satisfy a creditor who was threatening him with a criminal prosecution, but the creditor refused to receive the money, the mere sale, though made with the intention of preferring that creditor, was not an act of bankruptcy.*" It is evident that many transactions may oc- cur, involving the sale or transfer of property, which do not amount to acts of bankruptcy because they involve some, but not all, of the neces- sary elements mentioned. For instance, where a debtor, being the own- er of a leasehold interest in land having a term of years to run but not assignable without the consent of the landlord, sells the same and applies part of the proceeds in paying the arrears of rent due, taxes on the property, and the incidental expenses of the sale, such payment does not constitute a preference of the creditors paid, but merely a means of real- izing the value of the leasehold, and therefore is not an act of bankruptcy on which a petition against the debtor may be maintained.'* Again, the retirement of one partner from the firm, and the consequent transfer of assets and liabilities to the other, are not necessarily acts of bankruptcy 4 Fulkerson v. Shaffer, 217 Fed. 355, mobile which he had bought in good 133 0. O. A. 2T1, 33 Am. Bankr. Bep. 526. faith, and to which he had added ac- 6 6 In re McCartney, 188 Fed. 815, 26 cessories which he paid for, Is a transfer Am. Bankr. Rep. 548. of property and an act of bankruptcy, o»In re O'Donnell, 131 Fed. 150, 12 although in fact the automobile had been Am. Bankr. Rep. 621. stolen and the banki-upt did not acquire «r United Surety Co. v. Iowa Mfg. Co., the legal title. In re Schenderlein (D. 179 Fed. 55, 102 C. C. A. 623, 24 Am. ' C.) 268 Fed. 1018, 46 Am. Bankr. Rep. Bankr. Rep. 726. 128. 88 In re Stovall Grocery Co., 161 Fed. 69 in re Belknap, 129 Fed, 646, 12 Am. 882, 20 Am. Bankr. Rep. 537. And see Bankr. Rep. 326. In re Hallin, 199 Fed. 806, 20 Am. 7o in re Pearson, 95 Fed. 425, 2 Am. Bankr. Rep. 708. A transfer by an al- Bankr. Rep. 482. leged bankrupt to a creditor of an auto- 201 ACTS OF BANKRUPTCY § 84 by the partnership, but may be so if intended to give a preference to sepa- rate creditors over partnership creditors, or in any other way to cover actual or legal fraud.'^ As to the intention of the debtor, this may sometimes be imputed to him from the acts of his subordinates or agents. For example, if a wife is the owner of a business, but intrusts its entire management and con- trol to her husband, his acts and intentions, in the giving of preferences to creditors and the like, may constitute acts of bankruptcy on which she may be adjudged bankrupt." So a payment made, in the establish- ment of an insolvent partnership, out of its funds, by the recognized agent of the partners, without objection on their part, which has the effect to produce a preference, will be regarded as having been made by the partnership with the intention of giving a preference.'* In this connection, it is important to observe that, where a transfer of property by an insolvent debtor with intent to prefer a creditor, is made the basis of a petition in involuntary bankruptcy against him, the intent of the debtor is alone material; it is not necessary to show the intent with which the creditor received the transfer, nor that he had reasonable cause to believe a preference was intended.'* It is true that, when a trustee in bankruptcy sues to set aside a conveyance of property on the ground of its being an unlawful preference, he must show, not only that the bankrupt intended to give a preference, but also that the creditor receiving it had reasonable cause to believe that a preference was in- tended. But as regards the commission of an act of bankruptcy, no such knowledge or belief on the part of the creditor is required, nor an}- unlawful intent on his part. In this case, the law looks only to the in- tention of the debtor. Hence it follows that a transaction may con- stitute an act of bankruptcy, such as to warrant an adjudication against the debtor, although the conveyance is not voidable under the law.'* Under the comprehensive meaning of the word "transfer," as defined 71 Ex parte Shouse, Orabbe, 482, Fed. " Alter v. Clark, 193 Fed. 153; In re Gas. No. 12,815; In re Waite, 1 Low. 207, Drummoud, 1 N. B. R. 231, Fed. Gas. No. 1 N. B. R. 373, Fed. Gas. No. 17,044. 4,093 ; In re Williams, 1 Low. 406, 3 N. 72 Graham v. Stark, 3 Ben. 520, 3 N. B. R. 286, Fed. Gas. No. 17,703 ; In re B. R. 357, Fed. Gas. No. 5,676. And see Locke, 1 Low: 293, 2 N. B. R. 382, Fed. In re Berkebile, 144 Fed. 572. Gas. No. 8,439 ; In re Beck, 6 Phlla. 475, 73 Se. R. A. 106, have contracted joint debts, see In re 11 Am. Bankr. Rep. 800. Ray, 1 Nat. Bankr. News, 276. 3* In re Goodman, 5 Biss. 401, 8 N. B. R. 380, Fed. Cas. No. 5,540. Missing Page Missing Page § 102 LAW OF BANKEUPTCY 236 majorit}', and, by presenting a petition to that effect, ratify and confirm involuntary proceedings begun against him during his minority. If the court never acquired jurisdiction of his person, jurisdiction cannot be conferred upon it by any such retroactive process.** It must be stated, however, that exceptions have sometinjes been made to the rule above given. An English decision holds that if an infant, representing himself to be of full age, engages in trade and in- curs debts, his creditors relying on such representations, he may be adjudged bankrupt and such debts are provable against his estate.*® And in a recent American case, the state statute relating to the liabili- ties of a minor was made the test of his being subject to the bankruptcy law. This statute provides that a minor may not disaffirm his contracts on reaching full age when, "from his having engaged in business as an adult, the other party has good reason to believe him capable of con- tracting." ** And it was held that if a minor engages in business as a merchant, and parties consequently assume that he is of full age and deal with him in that belief, no inquiry or representation being made as to his minority, he becomes absolutely liable for the debts contracted in such business, and may be adjudged bankrupt on his own petiiion, though still an infant.*' And generally, there is respectable authority for the proposition that the bankruptcy act does include an infant when be owes debts for which his property is legally chargeable.** A somewhat different question arises when proceedings in involun- tary bankruptcy are instituted against a firm, and it appears that one of the partners- is a minor, but that the latter has taken no action to repu- diate the partnership relation. The authorities on this point teach that an adjudication. .may be made against the adult partners and against the firm as such, but as to the infant partner, no adjudication can be made, but the petition must be dismissed. The assets of the firm and the sep- arate estates of the adult partners may be administered in the bank- ruptcy proceedings, and must be applied to the payment of the partner- ship debts in full, before the infant partner is entitled to receive any portion of the firm's assets.** *i In re Derby, 6 Ben. 232, 8 N. B. R. re Duguid, 100 Fed. 274, 3 Am. Bankr. 106, Fed. Oas. No. 3,815. Rep. T94; In re Dimnigan, 95 Fed. 428, lo Ex parte Unity Banking Ass'n, 3 2 Am. Bankr. Rep. 628 ; Lovell r. Beau- De Gex & J. 6S. rhnmp [1894] App. Cas. 607. See In re *e Code Iowa, 1897, § 3190. Minor, 11 Fed., 406. A person against 47 In re Brice, 93 Fed. 942, 2 Am. whom and his partner proceedings in in- Bankr. Rep. 197. solvency have been instituted under the 4 8 In re Walrath, 175 Fed. 243, 24 Am. state law, cannot avoid them on the Bankr. Rep. 541. ground that his partner was an Infant *t> Jennings v. Stannus (C. O. A.) 191 when the proceedings were begun, if the Fed. 347, 27 Am. Bankr. Rep. 384 ; In infant was then represented by a guard- 237 WHO ARE SUBJECT TO BANKRUPTCY LAW § 105 § 103. Decedents' Estates. — The bankruptcy act does not authorize the institution of proceedings against the estate of a deceased person, nor provide for the administration of such an estate in the court of bankruptcy; nor does the court acquire jurisdiction of the estate of a decedent by proceedings against a partnership of which he was a mem- ber.** And it has been held that an adjudication against a firm, on the voluntary petition of one of the partners, is void when it appears that • the firm had been dissolved by the death of the co-partner." § 104. Executors and Other Trustees. — Executors, administrators, guardians, and other trustees are not generally liable to be proceeded against in bankruptcy in their representative capacity. In one of the cases it appeared that a testator, who was engaged in business as^ private banker, made his wife his general executrix, but, by a codicil to his will, nominated two other persons as his executors for the lim- ited purpose of winding Up his business, and clothed them with the powers necessary to carry on the business to effect that object without injury to* his estate or to his customers. These persons qualified, and carried on the business for some time, until forced by a financial panic to suspend business and stop payment. A petition in bankruptcy was filed against them, but was dismissed on the ground that they were not subject to the operation of the law. The court observed that the bankruptcy act did not in general embrace trustees, such as executors, administrators, and guardians, and Others acting strictly in a fiduciary capacity; that under the English law there were instances in: which executors had been adjudged bankrupt, but it was where they were directed by the will to carry on trade in partnership with others, or where a specific sum was placed in their hands to be employed in- trade, and was so employed, and acts of bankruptcy were committed; but in all such cases the business was conducted not for the purpose of winding it up, but for the purpose of employing the capital for the acquisition of profits and the benefit of the beneficiaries under the will ; and that this was not one of the class of executorships designed to be administered under the bankruptcy act.^^ § 105. Wage-Earners.— •These persons, by the express terms of, the act, are exempt from liability to be, adjudged bankrupts. The word ian ad litem and has ratified the proceed- (D. 0.) 248 Fed. 565, 41 Am. Bankr. Rep. ings after coming of age. Winchester v. 14. . \ Thayer, 129 Mass. 129. 51 in re Temple, 4 Sawy. 92, 17 N. Bi. 50 Adams v. Terrell, 4 Woods; 337, 4 R. 345, Fed. Cas. No 13,825. Fed. 796; In re Daggett, 8 N. B. R. 287. =2 Graves v. Winter, 9 N. B. R. 357, Fed. Cas. No. .3,535 : In re Fackelman Fed. Oas. No. 5,7lO. ' § 105 LAW OP BANKRUPTCY 238 "wage-earner" is not a technical term of the law, but has come to be much used of late years, especially by writers on political and social economy, as a substitute for the term "laborer" or the phrase "laboring class." It might be expected that difficulties would arise in its construc- tion in view of the complex conditions of modern business life and the manifold nature of the relation of employer and employed. The first section of the statute provides that the term "wage-earner" shall mean an "individual who works for wages, salary, or hire, at a rate of com- pensation not exceeding one thousand five hundred dollars per year." But obviously the terms of this definition require explanation, and especially the v/ords "wages" and "salary." According to Webster, the former expression means "hire, reward, that which is paid or stip- uti^ted for services, but chiefly for services by manual labor, or for military and naval services.' We speak of servants' wages, a laborer's wages, or soldiers' wages; but we never apply the word to the re- wards given to men in office, which are called fees or salary." Another authority defines wages as "the agreed compensation for services ren- dered in a menial or subordinate capacity." ** Bouvier defines the same term as "a compensation given to a hired person for his or her serv- ices."-^ In a recent work of high authority, "wages" is defined as "that which is paid for a service rendered; what is paid for labor; hire. In common use the word 'wages' is applied specifically to the payment made for manual labor or other labor of a menial or mechan- ical kind, distinguished (but somewhat vaguely) from 'salary' and from 'fee,' which denotes compensation paid to professional men, as lawyfers and physicians." And a wage-earner is "one who receives stated wages for labor." ?^ "The word 'wages,' in its popular use, signifies the re- muneration of hired labor. As so used, it is more or less disparaging, being commonly placed in contrast with the words 'salaries,' 'fees,' 'honorarium,' etc., by which it is sougiyt to dengte the remuneration of services of a higher or more intellectual character."^* In a case in Pennsylvania, Chief Justice Sharswood observed: "The truth is, and this the lexicographers seem to hold, that if there is any difference in the popular sense between 'salary' and 'wages,' it is only in the appli- cation of them to more or less honorable services. A farmer pays his farni hand, in common speech, wages, whether by the day, the week, the harvest, or the year. If for any reason he has occasion to employ 8 Abbott, Law Diet.; Ryan v. Hook, fessional men are not to be classed as 34 Hun (N. T.) 185. "wages." Vane v. Newcombe, 132 V. 04 Bouvier, Law Diet. S. 220, 10 Sup. Ct. 60, 33 L. Ed. 310. 5 6 Century Diet., s. v. The fees of so f. A. Walker, in Lalor's Polit Cy- lawyers, physicians, and other like pro- clop. 239 WHO ARE SUBJECT TO BANKEUPTCT LAW § 105 an overseer, his compensation, no matter how measured, is called a 'salary.' An ironmaster pays his workmen wages ; 'his manager receives a salary. A merchant pays wages to his servant who sweeps the floor, makes the fire, and runs his errands ; but he compensates his salesman or clerk by a salary."®'* In another case it is said:. " 'Fees' are com- pensation for particular acts or services, as the fees of clerks, sheriffs, lawyers, physicians, etc. 'Wages' are the compensation paid or to be paid for services by the day, week, etc., as of laborers, commissioners, etc. 'Salaries' are the compensation per annum to men in official arid some other situations." ^ But according to other opinions, "this com- pensation to a laborer may be a specified sum for a given time of serv- ice, or a fixed sum for specified work; that is, payment jnay be made by the job. The word 'wages' does not imply that the compensation is to be determined solely upon the basis of time spent in service; it may be determined by the work done. It means compensation esti- mated in either way." ®* 5 7 Com. V. Butler, 99 Pa. St. 542. And see South & North Alabama K. Co. v. Falkner, 49 Ala. 118 ; People v. Rem- ington, 45 Hun (N. Y.) 388. In First Nat. Bank v. Barnum, 160 Fed. 245, 20 Am. Bankr. Rep. 439, it was said: "The terms 'wages,' 'salary,' and 'hire' mean much the same thing, and are no doubt collectively used in order to cover the different possible kinds of employment comprehended within the general idea. Wages, as distinguished from salary, are commonly understood to apply to the compensation for manual labor, skilled or unskilled, paid at stated times, and measured by the day, week, month, or season, and also by the piece, but not by the job nor including profits on the services of others. Neither is it so broad a term as 'earnings,' which comprehend the returns from skill and labor in what- ever way acquired. Indeed the act It- self, in exempting wage-earners, recog- nized that there are other kinds. Salary, on the other hand, has reference to a superior grade of services, and implies a position or office. By contrast, therefore, 'wages' indicate inconsiderable pay for a lower and less responsible character of employment, where 'salfiry' is sug- gestive of something higher, larger, and more permanent. The word 'hire' is rather associated with the act of em- ployment than the reward for services done; and in the latter connection is more on the plane of wages than of sal- ary, although in a certain sense it com- prehends both, and is also applied to engaging the use of property. We hire a coachman, a gardner, or a cook, or a carriage to take a ride. And we may also be said to hire a superintendent, a bookkeeper, or a clerk, although it would seem more correct, in the latter in- stances, to say 'engage' or 'employ.' And coming up from the people, as the word thus does, it is sometimes applied, out of place, to the securing of professional services, as where one is said to hire a lawyer, a doctor, or a person of that class." 08 Cowdin V. Huff, 10 Ind. 85. 5 8 Ford V. St. Louis, K. & N. W. B. Co., 54 Iowa, 728, 7 N. W. 126 ; In re Gure- witz, 121 Fed. 982, 58 C. C. A. 320, 10 Am. Bankr. Rep. 350; Swift Mfg. Co. V. Henderson, 99 Ga. 136, 25 S. B. 2T. "Wages" includes compensation for la- bor performed under a contract by which the laborer is to have the price of his services applied on a lot of ground which his employer contracts to sell to him, though the contract is broken by the employer. Scott v. Watson, 36 Pa. St. 342. But one who threshes out grain by the job does not work for "wages." Johnston v. Barrills, 27 Or. 251, 41 Pac. 656, 50 Am. St. Rep. 717. And debts due by customers to a blacksmith for work done by him in carrying on an independ- ent business for himself as the propri- etor of a blacksmith shop are not ex- § 105 LAW OP BANKRUPTCY 240 A fixed annual compensation paid to the secretary of a business cor- poration is a salary ; it is not wages.'* Where the receiver of a railroad corporation is directed by the order of the court to pay "wages of em- ployes" out of the income of the road, this term does not include the services of counsel employed for special purposes.®^ So, it is held that the term "wages'' does not include the salary of the president, manager, or superintendent of a business corporation; nor sums payable to attorneys at law for professional services rendered to the corporation upon occasional retainers; nor the. compensation of a person who i^ employed by the company to sell its goods in a foreign^ country, at a fixed annual salary, with the addition of a commission and his travel- ing expenses.*^ Again, the term "wages" is not applicable to the com- pensation of the public officers of a municipal corporation, who receive annual salaries, which are not due until the end of the year, and who are entitled to be paid so long as they hold their offices without regard to the services rendered.'* So also, a person who takes a contract to perform a specified work, as, to build a house according to plans and specifications, to execute a cutting on a line of railway at a given sum per cubic yard, or the like, and who .employs men under him. to do the actual work or to assist him in doing it, is not a "Workman" or "la- borer," although he does a portion of the work himself, and his com- p!ensation is not "wages." '* So again, where manufacturers receive ralw material from another, and work it up for him into a finished or partly finished product, by the use of their machinery and the labor of their employes, under a contract specifying a fixed rate of payment, the money due them therefor is not wages.*® But on the other hand, in one state, under a constitutional and statutory provision that "currsnt wages for personal service" shall not be subject to garnishment, it has been. held that the exemption might be claimed by one who was em- ployed' by a live-stock company as manager, at a monthly salary of $200, though he was also a stockholder of the company.®' einpt from garnishment as "wages." os People v. Meyers, 25 Abb. New Gas. Tatum V. Znchry, 86 6a. 573, 12 S. E. 368, 11 N. Y. Supp. 217. 940. »* RHey v. Warden, 2 Exch. 59 ; Heard 60 Gordon v. Jenntogs, 9 Q. B. Div. 45. v. Crura, 73 Miss. 157, 18 South. 934, 55 81 Louisville, E. & St. L. R. Co. v. Am. St. Rep. 520; Smith v. Brooke, 49 WilSOnV 138 U. S. 505, 11 Sup. Ct. 405, Pa. St. 147; Diller v. Frantz, 17 Pa. 34 L. Ed. 1023. Co. Ct. R. 806 ; Henry v. Fisher, 2 Pa. «2 People V. Remington, 45 Hun (N. T.) Dist. R, 71. But see Howell v. McDow- 329. But as to the latter part of the ell, 47 N. J. Law, 359, 1 Atl. 474 ; Moore proposition stated in the text, compare v. Heaney, 14 Md. 558. Hamberger v. Marcus, 157 Pa. St. 133, <"! Lang v. Simmons, 64 Wis. 525, 25 27 Atl. 681, 37 Am. St. Rep. 719; In re N. W. 650; Campfleld v. Lang, 25 Fed Luxton & Black Co., 35 App. Div. 243, 128. 54 N. T. Supp. 778.. s6 Bell v. Indian Live Stock Co. (Tex) 11 S. W. 344, 3 L. R. A. 642. 241 WHO ARE SUBJECT TO BANKRUPTCT LAW § 105 If it were not for the definition contained in the bankruptcy act it- self, we should be justified in concluding, froni these authorities, that "wage-earner" must be taken as synonymous with "laborer," as the latter term is ordinarily employed in statutes and in legal speech, or as denoting one who subsists by his physical labor, as distinguished from one who subsists by professional skill.*' But since the statute makes the term "wage-earner" include not only a person who works for wages, but also one who works for "salary" or "hire," it is generally held to include almost all classes of employes, whatever be the nature of their labor, who are compensated at a fixed rate not exceeding $1,500 per annum, but excluding independent contractors and all those per- sons whose remuneration is given for specific services rendered upon an occasional employment, and not under a permanent engagement, and who are employed in such occupations as require something more than mere physical labor or mere clerical ability. For example, a teacher receives compensation for his instruction which cannot prop- erly be described as either "wages" or "hire." And if he charges so much per lesson or per hour of instruction, it is not "salary." But one who teaches in the public schools at a fixed monthly or annual salary comes squarely within the bankruptcy law.** So one who owns a team of horses and wagons and a plow, and who works by the day for different employers as he can obtain work, earning usually not more than $15 per week, and who works alone when he cannot find work for his team, is not an independent contractor but a wage-earner.*® The tendency of the later decisions is to construe this part of the statute according to its spirit and purpose, without too great technicality. And as to this, it has been said: "It is evidently intended to relieve from adverse proceedings those who, not being engaged in business or trade, depend for a living upon the result of individual labor or effort, with- out the aid of property or capital."'" Thus, it is held that one who is engaged in manufacturing and trading pursuits, does not become a wage-learner, so as to be exempt from compulsory bankruptcy, merely because, while so engaged, he also earns wages by working for another in a°diflFerent occupation.'^ Neither is one to be included in the exempt class merely because he receives a small salary, when the greater part of 67 Weymouth v. Sanborn, 43 N. H. 173, ^o First Nat. Bank v. Bavnum, 160 80 Am. Dec. 144 ; Pennsylvania & D. R. Fed. 245, 20 Am. Bankr. Jlep. 439. And Co. V. Leuffer, 84 Pa. St. 168, 24 Am. see In re Wakefield, 18^ Fed. 247, 25 Rep. 189. Am. Bankr. Rep. 118. 8 8 First Nat. Bank v. Barnum, 160 7 1 in re Naroma Chocolate Co., 178 Fed. 245, 2b Am. Bankr. Rep. 439. Fed. 383, 24 Am. Bankr. Rep. 154. no In re Yoder, 127 Fed. 894, 11 Am. Bankr. Rep. 445. Blk.Bke.(3d Ed.)— 16 106 LAW OF BANKRUPTCY 243 his income is derived from independent business or from investments. "Every individual who is paid a salary of less than $1,500 a year is not necessarily therefore a wage-earner within the meaning of the law. A person extensively engaged in some mercantile or qianufacturing busi- ness might at the same time incidentally earn a salary oftess than $1,500 a year in some collateral employment; or the individual owner of a large business might incorporate it, and, being entitled as the holder of a great majority of the stock to practically all of the divi- dends earned, might prefer that his salary as president and head of the business should be placed at a nominal figure, or at a figure less than $1,500 a year, and much less than he would expect to draw for his services in the management of the business. Manifestly Congress did not intend to exempt such persons as these from the operation of the law." '* But in another case the court refused to make an adjudica- tion of bankruptcy against a person whose occupation was that of secretary and financial manager for a corporation at a salary of $100 a month, and who had no other business. He was also a stockholder in the company, but apparently derived no income from his stock, as the corporation was stated to be bankrupt. The court held that his own- ership of stock in the company could not be treated as a separate busi- ness or occupation, and that it would not affect his exemption.''' In a case where the alleged bankrupt was a traveling salesman and received a salary of $100 a month and also his expenses while traveling, and it was proved that his employer's agreement to pay his expenses was worth $40 a month to him, it was held that 'his total compensation exceeded $1,500 a year, and therefore he was not exempt from adjudi- cation in bankruptcy."* § 106. Farmers. — By the express terms of the bankruptcy law (§ 4b) a petition in involuntary bankruptcy Will not lie against "a person engaged chiefly in farming or the tillage of the soil." Such a person cannot commit an act of bankruptcy, and does not become subject to the statute by making a general assignment for the benefit of his credi- tors.''® But one engaged in trade or some other nonexempt pursuit and who com;mits an act of bankruptcy cannot be permitted to evade the provisions of the statute by engaging in farming and making that his chief occupation, after the act of bankruptcy and before the filing of a 72 Carpenter v. Oudd, 174 Fed. 603, t* in re Hurley, 204 Fed. 126, 29 Am. 98 O. C. A. 449, 23 Am. Bankr. Eep. Bankr. Rep. 567. 463. ' '5 Olive v. Armour, 167 Fed. 517, 21 7 3 In re Pllger, 118 Fed. 206, 9 Am, Am. Bankr. Rep. 901; In re Doroski (D. Bankr. Rep. 244. C.) 271 Fed. 8, 46 Am. Bankr. Rep. 549.. 243 WHO ARE SUBJECT TO BANKRUPTCY LAW § 106 petition against him.'"' It is also to be noted that this clause of the statute is construed as applying only to natural persons and not to cor- porations.'" As to what constitutes farming, it is said that "a farmer is one who is devoted to the tillage of the soil, and persons who follow this occu- pation may call themselves horticulturists, viticulturists, ox gardeners, but they are farmers." '* But the operation of farming plainly must mean something more than the cultivation of a small plot of ground. It has been remarked that a person may be said to be "engaged in the science of agriculture when he derives the support of himself and his family, in whole or in part, from the tillage and cultivation of fields. He must cultivate something more than a garden, though it may be much less than a farm. If the area cultivated can be called a field, it is agriculture."''* Primarily the mention of farming suggests the raising of crops of grain and hay, though it may be observed, in passing, that the operation of a grist mill is not farming, at least in so far as it con- sists in grinding grain produced on the land, and by the labor, of oth- ers.*" But of course farming is not restricted, either in scientific or in popular language, to these products.' 'The cultivation , of vegetables for the market and of berries and small fruits is called "truck farming." And undoubtedly one whose land was devoted* entirely to the purpose of an orchard would be within the statute; for if fruit-raising is not "farm- ing," certainly it is "tillage of the soil." But there is a more serious question as to whether the terms of the statute include the business of stock-raising, or of maintaining and operating ranches for the raising of horses or cattle for the market, or the business which is commonly described' as operating a "dairy-farm." If the words "tillage of the soil" are to be understood as a definition or explanation of what is meant by "farming," then they operate as a limitation upon the broader senses of which the latter word is capable. But the authorities generally hold that this is not the true construction of the statute.**- And although 76 In re Mackey, 110 Fed. 355, 6 Am. S. E. 47; Bachelder v. Bickford, 62 Me. Bankr. Kep. 577; In re Luckhardt, 101 526. One who Is chiefly engaged in Fed. 807, 4 Am. Bankr. Rep. 307. threshing for hire grain raised by others "In re Lake Jackson Sugar Co., 129 is not engaged chiefly in farming or till- Fed. 640. But it seems that a partner- age of the soil, so as to be exempt from ship engaged chiefly in farming is not involuntary bankruptcy. Hart-Parr Co. subject to adjudication in bankruptcy, v. Barliley, 281 Fed. 918, 146 C. C. A. 109, H. D. Still's Sons v. American Nat. 36 Am. Bankr. Rep. 540. Bank, 209 Fed. 749, 126 O. C. A. 473, 31 si In re Thompson, 102 Fed. 287, 4 Am. Bankr. Rep. 320. Am. Bankr. Rep. 340; In re Dwyer, 184 7 8 In re Slade's Estate, 122 Cal. 434, Fed. 880, 25 Am. Bankr. Rep. 913; In re 55 Pac. 158. Brown (I>. C.) 251 Fed. 365, 41 Am. 79 Springer v. Lewis, 22 Pa. St. 191. Bankr. Rep. 549. 80 State V. Patterson, 98 N. C. 657, 4 106 LAW OF BANKRUPTCY 244 there is some difiFerence of opinion, tiie accredited rule appears to be that a person whose principal occupation is the raising of cattle, sheep, hogs, or other live stock for the market, his farm being devoted to use as pas- ture land and for raising grass, hay, and corn with which to feed and fatten the stock, is exempt from the bankruptcy law, being a "farmer" though not a tiller of the soil, and does not lose this character by the fact that he incidentally supplements the products of his own farm by the purchase of fodder for the stock, nor by the fact that he does not entirely restrict his operations to cattle raised on his own land.*' But on the other hand, one whose chief occupation is the purchase and sale of live stock, and who uses his lands as a mere feeding station, and, even for the maintenance of the cattle while on his lands, relies chiefly on pur- chased supplies, is not engaged in either farming or the tillage of the soil, but is a trader.*^ Much the same principles apply to the business of dairy-farming. It is held that a farmer does not cease to be "engaged chiefly in farming," within the meaning of the statute, because he estab- lishes a dairy as one of the branches of his industry, to utilize the prod- ucts of his farm and convert them to profitable, uses, nor because he may sell the products of his dairy at retail; but that one is not exempt as 82 In re Dwyer, 184 Fed. 880, 25 Am. Bankr. Kep. 913; In re Sutter (D. C.) 270 Fed. 248, 46 Am. Bankr. Rep. 267; In re Thompson, 102 Fed. 287, 4 Am. Bankr. Kep. 340 ; State v. Patterson, 98 N. C. 657, 4 S. B. 47 ; Simons v. Lovell, 7 Heisk. (Tenn.) 510. The farmer "may also include breeding, feeding, and rear- ing of live stock, embracing cattle, hors- es, mules, sheep, and hogs, for domestic use and for market. If he find it more profitable to feed his agricultural prod- ucts or his grasses to live stock than to rely upon marketing the surplus, he may not be limited to the quantity of live stock for such purpose to what he may breed or rear on his farm. For this purpose he may rely entirely upon the purchase of such live stock from his neighbors or on t!he market, and utilize his farm products in feeding and fatten- ing such 'feeders' for market. Neither, in my opinion, should the act be so con- strued as to restrict the farmer entirely, under all circumstances' and conditions, to the corn and hay and grasses he may produce for rearing such feeders and preparing them for market. In other words, where he relies largely upon his pasture lands for gi'azing his cattle, and his crops of corn may not be sutficient to carry them through the particular win- ter and the feeding season, he may sup- plement these by purchasing from with- out sufficient corn and the like to meet the requirement But certainly there should be apparent such relation be- tween his method of farming and the buying and feeding of cattle, hogs, and the like, for market, as to reasonably indicate that his farming is not made principally subsidiary to the business of buying and selling cattle. So that, if his chief business is that of thus trading in cattle, using his, lands as a mere feed- ing station, relying upon the purchase feed from the market for preparing them for sale much more than on his agricul- tural products, he may cross the divid- ing line between farming as his chief business and trading in cattle as his chief source of livelihood. No hard and fast rule can safely be laid down by the courts indifferently applicable to aU cas- es. Each must depend more or less upon its own particular facts." Bank of Dearborn v. Matney, 132 Fed. 75, 12 Am. Bankr. Rep. 482, per PhUips, J. 8 8 Bank of Dearborn v. Matney, 132 Fed. 75, 12 Am. Bankr. Rep. 482; In re Brown, 132 Fed. 706, 13 Am. Bankr. Rep. 140; Trustees of Rochester v. Pet- tinger, 17 Wend. (N. T.) 265. 245 WHO ARE SUBJECT TO BANKllUPTCY LAW § 106 a farmer whose business is to maintain a herd of cows and sell the milk, owiiing no farm but only the barn in which they are kept and buying from others the grain and other forage to maintain them.'* It is next necessary that the person claiming to be exempt should be "engaged" in farming, and this necessarily implies either the expendi- ture of one's personal labor on the farm or the direction and control of farm laborers.** I^or this reason, where the title to a farm stood in the name of a wife, and she performed only such services as are generally performed by the wives of farmers, the husband taking full charge of the farming operations, it was held that the wife was not "engaged chiefly in farming." ** On the same principle, the owner of a farm, who does not work it himself, but lets it to a tenant, retaining a general supervi- sion to the extent of seeing that the tenant carries on the work as agreed, but taking no active direction or control, and who has no active busi- ness of any kind except looking after his investments, is not "engaged in farming" so as to be exempt from involuntary bankruptcy.*' At the same time, it is certainly not necessary that the farmer should labor with his own hands. If a man's principal occupation is the management and control of a large plantation, which he owns, upon which he resides, and upon which he relies for his income, he is engaged chiefly in farming, and it is not material that part of the property is rented to tenants, the owner exercising supervision and control of their operations, nor that,' as to the rest, the manual labor is performed by hired servants, the owner himself not persorially working on the land.** Further, it is essential that the person should be engaged "chiefly" in farming or the tillage of the soil. From the use of the word quoted, it was evidently the intention of Congress to exclude from the compul- sory features of the law persons whose principal occupation is agricul- ture, and whose main support is derived from husbandry, although they may, at the samie time, be engaged in other kinds of business, but only incidentally or as a temporary or occasional matter. Each such case must be determined on its own facts, and by a comparison of the relative importance to the individual of the various pursuits or lines of business 84 Gregg V. Mltcliell, 166 Fed. 725, 92 re Driver (D. C.) 252 Fed. 956, 42 Am. C. C. A. 415, 20 L; E. A. (N. S.) 148, 21 Bankr. Rep. 106. Am. Bankr. Rep. 659. se in re Johnson, 149 Fed. 864, 18 Am. 8 5 A so-called "retired" farmer, who Bankr. Rep. 74. incurred considerable indebtedness in '^ In re Leland, 185 Fed. S.SO,. 25 Am.. purely commercial ventures, is not a Bankr. Rep. 209 ; In re Matson, 123 Fed. person engaged chiefly in farming, so as 743, 10 Am. Bankr. Rep. 473. And see to be exempt from involuntary bank- In re Hoy, 137 Fed. 175, 14 Am. Bankr. ruptcy, though at times he assisted his Rep. 648. son to whom he had rented his farm. In ss Wiilbern v. Drake, 120 Fed. 493, 56 O. C. A. 643, 9 Am. Bankr. Rep. 695. 107 LAW OP BANKRUPTCY 246 which he may be carrying on.*' But the general rule emerges that a person's chief occupation is that which is of principal concern and im- portance to him, which is his permanent pursuit and not merely transi- tory, and upon which he mainly depends for his living and support, and if this main occupation is some form of agriculture, he is exempt from the bankruptcy law, though he may devote some minor part of his time arid energy to side lines or incidental pursuits, and thereby supplement his income.*"* Thus, one who resides with his family on a farm and cul- tivates it, and derives his main support from it, is a farmer, though he is also the publisher of a weekly newspaper and the proprietor of pat- ent medicines,*"^ or the owner of a small store, from which he derives a profit, but very small in comparison with the income from his farm.*^ But one having regular clerical employment in a city, but whose home is upon a farm, where he spends his Sundays and one night in each week, the management of which is, in his absence, in the hands of men hired by him for the purpose, is not a farmer."* § 107. Second Bankruptcy. — There is nothing in the bankruptcy act which prevents a person who has received his discharge as a bank- rupt from applying a second time for the benefits of the law, if he has 8 8 American Agricultural Ohemical Ck). V. Brinkley, 19i Fed. 411, 114 C. C. A. 373, Auu. Cas. 191SC, 100, 27 Am. Bankr. Eep. 438. Where an alleged bankrupt is engaged in several occupa- tions at the same time, what constitutes his principal occupation is to be deter- mined from all the circumstances of the particular case. Harris v. Tapp (D. C.) 285 Fed. 918, 37 Am. Bankr. Rep. 564. A man who regularly follows two occupa- tions is not, at the time of the commission of an act of bankruptcy, chiefly engaged in one of them merely because at that time he is giving his principal attention to it rather than to his other pursuit. In re Disney (D. C.) 219 Fed. 294, 33 Am. Bankr. Rep. 656. In determining wheth- er an alleged bankrupt is chiefly engaged in farming, all his activities are to be taken into consideration, the relative amount of time devoted to each, and the comparative amount of revenue re- ceived and indebtedness incurred in each. And an alleged bankrupt who, al- though conducting a large farm, also built and operated a packing house, creamery, and poultry yards, buying live stock and poultry, and who contracted the larger part of his indebtedness in connection with business other than farming, is not chiefly engaged in farm- ing. In re Brown, 253 Fed. 357, 165 C. G. A. 139, 42 Am. Bankr. Rep. 452. One who cultivates about two acres of land and has a few farming implements, but who has various outside pursuits, cannot be said to be "chiefly engaged" in farm- ing. In re Spengler (D. C.) 238 Fed. 862, 39 Am. Bankr. Rep. 64. In determining the question of a person's chief or prin- cipal occupation, all his pursuits must be c. R. A. 21 In re Blumer, 12 Fed. 489; ^In re 19i5E, 706, 30 Am. Bankr. Rep. 244; Smith, 13 N. B. R. 500, Fed. Gas. No. § 111 LAW OF BANKKUPTCT 254 § 111. What Constitutes Partnership. — The fifth section of the bankruptcy act, relating to "partners," does not apply to limited part- nerships, unless the members of such a partnership remain individually liable for the debts of the firm; for the first section declares that the term "corporation" (as to which there are special provisions) "shall include limited or other partnership associations organized under laws making the capital subscribed alone responsible for the debts of the association." If, however, persons who attempt to organize a limited partnership fail in law to accomplish that result, for lack of compliance with the statutory provisions governing such associations, then they may be put into bankruptcy as general partners.*^ And for a similar reason, where persons associate themselves together, intending to form a corporation, or assuming to be a corporation and using a corporate name, but without authority of law, they are individually liable as part- ners for the debts of the association, and a cr^editor who has dealt with them as a corporation is not thereby estopped from setting up his claim against them individually in bankruptcy.^* But the directors or stock- holders of a corporation, who have made themselves personally liable for its debts, by failure to obey the laws governing corporations of that class, are not subject to be proceeded against in bankruptcy as part- 24 • ners.''* To warrant an adjudication of bankruptcy against an alleged part- nership, or against an individual as a member of a partnership, the ex- istence of a partnership in fact must be shown, and the burden of proof on this issue rests upon the petitioning creditors.*^ A mere "holding out," by which one may have become liable to some creditors on the principle of estoppel, is not sufficient ; "otherwise a bankrupt might be- come liable to some creditors and not liable to others, and the proceed- ings in bankruptcy might be good as to some and void as to others. Partnership in fact must be actually proven in order to sustain an adju- dication."^* But whether a partnership exists as' between the parties themselves depends on their intention, and that intention must be as- 12,987; In re Ingalls, 5 Law Kep. 401, 20 Buffalo Milling Co. v. Lewisburg Fed. Gas. No. 7,032. And see In re Gay, Dairy Co., 159 Fed. 319, 20 Am. Bankr. 98 Fed. 870, 3 Am. Bankr. Kep. 529. Rep. 279 ; Jones v. Burnham, Williams & 22 In re Merrill, 12 Blatchf. 221, 13 N. Co., 138 Fed. 986, 71 C. C. A. 240, 15 B. K. 91, Fed. Cas. No. 9,467. Am. Bankr. Rep. 85; In re Beckwith & 2s Manson v. Williams, 153 Fed. 525, Co. 130 Fed. 475, 12 Am. Bankr. Rep. 453. 82 C. C. A. 475, 18 Am. Bankr. Rep. 674; ae in re Beckwith & Co., 130 Fed. 475, In re Hudson Clothing Co., 148 Fed. 805, 12 Am. Bankr. Rep. 453; In re Hudson 17 Am. Bankr. Rep. 826 ; In re Menden- Clothing Co., 148 Fed. 305, 17 Am. Bankr hall, 9 N, B. R. 497, Fed. Cas. No. 9,425. Rep, 826. 2* James v. Atlantic Delaine Co., 11 N. B. R. 390, Fed. Cas. No. 7,179. 255 BANKRUPTCY OF PAETNERSHIPS § HI certained from the whole evidence and the circumstances in the case.-' "The existence of a partnership may be deduced from facts and circum- stances, and does not have to be established by proof of an express agreement, either oral or written. Where two or more parties are en- gaged in a joint business enterprise, to which they contribute their capital, skill, or labor, upon an understanding, tacit or otherwise, that they will share in common the profits accruing therefrom, they are partners in fact and in law, both between themselves and as to credi- tors." «* When an issue is raised as to the persons who constitute a bankrupt partnership, the court of bankruptcy has power and jurisdiction to deter- mine it.^* A person who is not actually a member of the* iirm cannot properly be adjudged bankrupt in proceedings by or against the firm.*" But the proceedings will not be rendered invalid as to the actual part- ners by the inclusion of persons who are not partners; but on the ap- plication of a person thus wrongfully included, the proceedings may be vacated so far as they relate to him,*^ unless, perhaps, in cases where there has been a slothful acquiescence in the proceedings for such a length of time that rights and interests of third persons have grown up under the adjudication and been adapted to.it.^* For the purposes of an adjudication in bankruptcy, participation in the profits of a business is presumptive or primary piroof that the participator is a partner in such business, and in the absence of other proof, is suiScient evidence thereof ; but such presumption may be overcome by showing that such profits were received by the party simply as wages for services per- formed, or interest for money loaned to the persons carrying on the business.** In an action by the trustee in bankruptcy of a partnership, the issue being as to whether all the persons composing the firm were included in the adjudication of bankruptcy, the trustee is not bound or concluded by the record of a prior judgment wherein the persons 27 In re Hirth, 189 Fed. 926, 26 Am. 224 Fed. 104, 139 C. C. A. 660. Under Bankr. Rep. 666. Civ. Code S. J%.k. § 1723, which provides 2 s In re Beckwith & Co., 130 Fed. 475, that a partnership is the association of . 12 Am. Bankr. Kep. 453. two or more persons for the purpose of 2 9 In re Griffith, 18 N. B. R. 510, Fed. carrying on business together and divid- Gas. No. 5,820. ing its profits between them, a business 30 In re Berry man, 2 Hask. 293, Fed. conducted in the name of a bankrupt and Gas. No. 1,360. liis brother as partners, was not a part- si Hanson v. Paige, 3 Gray (Mass.) nership business, but the Individual busi- 239. ness of the bankrupt, where his brother 32 In re Griffith, 18 N. B. R. 510, Fed. had no capital invested and worked for Gas. No. 5,820; In re Gilbert, Fed. Cas. a salary, and there was no agreement No. 5,411. between them that he should share in 33 In re Francis, 2 Sawy. 286, 7 N. B. either profits or losses. In re Gibson, R. 359, Fed. Cas. No. 5,031; In re Kobre, 191 Fed. 665, 27 Am. Bankr. Rep. 401. § 111 LAW OF BANKKUPTCT 256 composing the firm were ascertained and determined, although he, in his private capacity, was a party to that judgment.^ r The bankruptcy law is applicable not only to general partnerships, and to the rare instances of "universal partnerships," *^ but also to the case of what is sometimes called a "special" partnership, that is, a part- nership formed for the single purpose of prosecuting some special ad- venture or enterprise.*® But where two firms shared in a certain ven- ture, and kept an account in a bank in the name of one firm with the addition of the word "Co.," and so signed the checks, it was held that these checks did not establish a copartnership between the two firms, and that a holder of a check so signed could not file a petition in bank- ruptcy against the members of both firms.*'' A judgment procured against three persons as partners may be proved against the estate of two, regarding the other as a surety, where the third has been held, in the bankruptcy proceedings, not a partner.** § 112. Secret and Presumptive Partners. — It is not essential to the validity of an adjudication in bankruptcy against a partnership that a secret or dormant partner should have been made a party defendant; where .only the ostensible partners are served and proceeded against, this will at least bind the partnership property.** But a secret partner may be included in the adjudication under proper circumstances. Thus, where the petitioning creditors, at the time the indebtedness was in- curred, knew that a person was a secret partner in a firm, and such partner is a guarantor on commercial paper of the firm, he may, although solvent, and having personally committed no acts of bankruptcy, be adjudged a bankrupt on a petition filed against him ind his partners.** There is, however, a decision by a circuit court of appeals that a bank- ruptcy court, in proceedings against a partnership, has no jurisdiction to administer on the estate of an alleged secret partner without declar- ing him a bankrupt or finding him to be insolvent; that neither under the provision relating to examinations in bankruptcy nor independently of it, has the bankruptcy court any jurisdiction of a creditors' petition in proceedings against a firm to try the question of an alleged secret Hi Abendroth v. Durant, 1 Fed. 849. Bankr. Eep. 401 ; In re Harris, 108 Fed. 35 See In re Culver, 176 Fed. 450, 23 517; Metcalf v. Officer, 5 Dill. 565, Fed. Am. Bankr. Rep. 779. Oas. No. 9,496; In re Kenney, 97 Fed. 8 See Thrall v. Orampton, 9 Ben. 218, 554, 3 Am. Bankr. Rep. 353; In re Lame, 16 N. B. R. 261, Fed. Cas. No. 14,008. 2 Low. 333, 10 N. B. R. 135, Fed. Cas. 8 7 In re Warner, 7 N. B. R. 47, Fed. No. 8,044. And see In re Samuels & Cas. No. 17,178. Lesser, 207 Fed. 195, 30 Am. Bankr. Rep. 38 In re Kitzinger, 19 N. B. R. 152, Fed. 293. Oas. No. 7,861. *" In re Ess, 3 Biss. 301, 7 N. B. R. 133, 3 9 In re Gibson, 191 Fed. 665, 27 Am. Fed. Cas. No. 4,58(j. 257 BANKETJPTCy OF PARTNERSHIPS § 112 partner's membership in the firm against his will, or to compel him to file schedules of assets and liabilities; and that, if no petition in bank- ruptcy has been filed against him as an individual, and he asserts under oath that he is not a partner, he cannot be summarily adjudged such on an inquiry before a referee in bankruptcy to which he does not con-* sent.*'^ At any rate, it is necessary, to charge a person as a silent part- ner in the business of a bankrupt, so as to debar him from the rights of a creditor of the estate where there has been no holding out as such, an actual and definite agreement must be proved binding on all the par- ties thereto.** The trustee in bankruptcy of a dormant partner is not entitled to the possession of the partnership effects, as against attaching creditors of the partnership.** But on the other hand, where the adju- dication in bankruptcy has been made against the ostensible partner, his trustee cannot be kept out of possession of property of the firm by one who claims title under a mortgage given by the secret partner.** Although a person who is not actually a partner in a firm may incur liabilities by holding himself out to the world as a partner, or permitting this to be done, and may so found a claim against him on the part of those who are thereby induced to do business with the firm and become its creditors, this does not render him liable to be adjudged bankrupt as ■a partner in the firm. The law applies only to actual partners, not to those who may have incurred responsibilities to particular creditors on the principle of estoppel.*® On the other hand, where a partner has retired from the firm, but permits his name to remain in the style of the firm and to be used for the benefit of the other partners, he is liable 41 In re Samuels, 215 Fed. 845, 132 to the liability of certain of the respond- 0. C. A. 187, reversing In re Samuels ents to be adjudged bankrupt with the & Lesser (D. C.) 207 Fed. 195, 30 Am. rest. The court said that, even if, by Bankr. Rep. 293. failing publicly to disclaim a printed *2 In re Clark, 111 Fed. 893, 7 Am. statement that they were directors of Bankr. Rep. 96. This decision was re- the bank, and by allowing their neigh- versed in Rush v. Lake, 122 Fed. 561, 58 bors to believe that they were in some C. 0. A. 447, 10 Am. Bankr. Rep. 455, manner interested in the bank, the re- but on the evidence and not on the prop- spondents would be estopped from deny- osition of law laid down. And see In re ing their liability to those who trusted Kaplan, 234 Fed. 866, 148 C. 0. A. 464, 37 the bank in reliance upon their sup- Am. Bankr. Rep. 104. posed connection with it, yet a resort to 43 Talcott V. Dudley, 5 111. (4 Scam.) a court of bankruptcy would not be 427. proper. For, to declare such parties 44 White V. Farpham, 99 Me. 100, 58 bankrupt would render them liable not Atl. 425, 105 Am. St. Rep. 261. only to those actually deceived, but to 45 Moore V. Walton, 9 N. B. R. 402, fill who had claims against the bank, Fed. Gas No. 9,779; In re Murray, 13 whether they were deceived or not ; and Fed. 530. In the case last cited, there those who were actually deceived . had was a petition in bankruptcy against a a perfect remedy in the state courts, partnership conducting the business of And see, supra, § 111. private bankers. The question was as Bi,k.Bkb.(3d iS,B.)—n §113 LAW OF BANKRUPTCY 258 to a person who takes notes of the new firm, or gives it credit, in igno- rance of the dissolution and in reliance en the name of the retiring part- ner; and on the petition of such creditors for an adjudication of bank- itruptcy against the firm, the retiring partner will be made bankrupt with ^the others.*® But "bankruptcy, like the death of a partner, dissolves the partnership, and as it is a public, notorious proceeding, all creditors are bound to take notice of it, and no further notice need be given. The publication of bankruptcy or insolvency proceedings is legal notice to all persons, by which they are bound." Consequently, where a mem- ber of a firm withdraws and subsequently becomes insolvent, and re- ceives his discharge in insolvency (or bankruptcy), a creditor of the firm cannot maintain an action . against him on a debt incurred by the firm subsequent to his insolvency, although, at the time of his withdrawal, no notice was given to the creditor, who was then also a creditor of the firm.« § 113. Acts of Bankruptcy by Partners. — In considering the com- mission of acts of bankruptcy on which an inyoluntary petition against a partnership may be founded, it is necessary to discriminate between the acts of the firm and the acts of the partners. Under the bankruptcy law, a partnership is so far a "person" or entity that it can commit an act of bankruptcy and be adjudged bankrupt, irrespective of any adju- dication of the individual partners as bankrupts ; and the act of the firm does not necessarily imply the concurrence of all the partners. Con- sequently, when an act of bankruptcy has been committed by an insol- vent firm, as such, it may be made bankrupt on the petition of its credi- tors, although some of the partners have not committed, nor participated in committing, any act upon which they, as individuals, could, be ad- judged bankrupt. Thus, where the liquidating partner makes a gen- eral assignment of the firm's property for the benefit of its creditors, the other partner making no attempt to prevent such assignment, it is an act of bankruptcy upon which the firm as such may be adjudged bank- rupt. Moreover, in such a case, the liquidating partner may also be ad- judged bankrupt, as an individual, since the assignment tends to hinder, delay, and defraud his individual creditors. But no adjudication can be made against a partner who has not committed, nor participated in committing, any of the acts specified in the statute as acts of bank- ruptcy, although, if a petition is filed against the firm, he is within the 4 « In re Krueger, 2 Low. 66, 5 N.3. E. i^ Eustis v. Bolles, 146 Mass. 413, 16 439, Fed. Cas. No. 7,941. See also Lyon N. E. 286, 4 Am. St. Rep. 327. V. Johnson, 28 Conn. 1; Dickinson v. Dicldnson, 25 Gratt. (Va.) 321. 259 BANKRUPTCY OF PAKTN^KSHIPS § 113 jurisdiction of the court, and is a proper party tc* the proceedings and entitled to the rights of a party.** So also, where a petition in bank- ruptcy is filed by one member of a firm against the firm and his partners, it is involuntary in so far as it affects the non-consenting partners, and they cannot, as individuals, be adjudged bankrupts, unless it is alleged and shown that they personally have committed acts of bankruptcy within four months before the petition was filed.** Pursuing the distinc- tion between the acts of the firm and' of the partners one step further, it has been held that a conveyance by one partner of his individual prop- erty, although an act of bankruptcy as against him, will not sustain a proceeding in bankruptcy against the firm, even though such conveyance was made with intent to hinder, delay, or defraud firm creditors, or with a view to give a preference to a firm creditor. In such case, the proceedings must be against such partner alone, not against the firm.^" But where the members of a firm jointly owning real estate convey or incumber the same, without consideration, in fraud of the creditors of the firm, such transaction is an act of bankruptcy by the firm." And when a firm is insolvent, it is an act of bankruptcy for a member thereof to suffer the partnership property to be taken on legal process, with intent to prefer a creditor of the firm.*"* The taking of firm property, when the firm is insolvent, to pay a debt not a debt of the firm, is an act of bankruptcy, although each of the partners may be liable therefor.''^ A sale by one partner to his copartner when the firm is insolvent and on the eve of bankruptcy is presumptively fraudulent as to firm creditors, the eflfect of such transfer being to change the order of payment and prefer private creditors to partnership creditors, and the court should set it aside and distribute the property as firm property.®* But the filing of a petition in bankruptcy by one partner against his copartners is not *8 The foregoing principles were set- is insolvent and without assets, who ap- tled In the important case of Chemical plies his whole separate estate to the Nat. Bank v. Meyer, 92 Fed. 896, 1 Am. payment of a creditor of the firm, there- Bankr. Rep. 565, aflBrmed on appeal in by gives such creditor a preference over Ee Meyer (O. O. A.) 98 Fed. 976, 3 Am. others of the same class, and commits Bankr. Rep. 559. Compare Ex parte Gal- an act of bankruptcy which may be made braith, Fed. Oas. No. 5,187; Fisher v. the basis of a petition against him in- Ourrier, Fed. Cas. No. 4,818. _ See In re divldually. Mills v. J. H. Fisher & Co., Kobre (D. C.) 224 Fed. 106, 35 Am. supra. Bankr. Rep. 389. oiLagtrapes v. Blanc, 3 Woods, 134, 49 In re J. M. Ceballos & Co., 161 Fed. Fed. Cas. No, 8,100. 445, 20 Am. Bankr. Rep. 459. 62 In re Black. 2 Ben. 196, 1 N. B. R. BO Hartman v. John Peters & Co., 146 353, Fed. Cas. No. 1,457. Fed. 82, 17 Am. Bankr. Rep. 61; Mills ss In re Matot, 16 N. B. R. 485, Fed. V. J. H. Fisher & Co., 159 Fed. 897, 87 O. Cas. No. 9,282. C. A. 77, 20 Am. Bankr. Rep. 237; In re s* In re Cook, 3 Biss. 122, Fed. Cas. Redmond, 9 N. B. R. 408, Fed. Cas. No. No. 3,150; Collins v. Hood, 4 McLean, 11,632. But one member of a Ann which 186, Fed, Oas. No. 3,015. § 113 tiAW OF BANKRUPTCY 260 an act of bankruptcy on the part of the firm."* And a written admission by one of the three partners composing a firm, that the firm is unable to pay its debts and is willing on that ground to be adjudged a bankrupt, is not an act of the partnership, and is therefore insufficient to support an adjudication against the opposition of the other partners.®^ It should also be remarked that an assignment by a partnership for the benefit of its creditors, purporting to transfer all the property of the firm, is a "general'' assignment, such as to constitute an act of bank- ruptcy by the firm and on which the firm may be adjudged bankrupt, although, considered as an assignment by the individual partners, it would be but partial, by reason of not including their separate proper- ty.^' So, a voluntary assignment of all the property and assets of a firm operating a private bank constitutes an act of bankruptcy, though done by one of the partners and not participated in by the other.^* And where a partnership and the individuals composing it make an assignment for the benefit 'of creditors, the act of bankruptcy is committed by all.®* § 114. Same; Insolvency of Firm and of Partners. — Following out the "entity" doctrine of partnership under the bankruptcy law, some of the courts have held that, in so far as insolvency is necessary to constitute an act of bankruptcy and to warrant an adjudication, it is enough to allege and show the insolvency of the firm, without inquiry into the solvency of the individual partners."" But this doctrine is opposed to the weight of authority. It is more generally held that, insolvency be- ing a necessary element of the particular act of bankruptcy charged, the firm cannot be adjudged bankrupt unless all its members are also shown to be insolvent, or that it is not enough to show that the assets of the firm, as such, are insufficient to pay its debts, if some or all of the part- ners, residing within the jurisdiction, are personally solvent."^ In one B5 In re J. M. Ceballos & Co., 161 Fed. Rep. 577; In re Solomon & Carvel, 163 445, 20 Am. Bankr. Eep. 459. Fed. 140, 20 Am. Bankr. Rep. 488 ; In re 5 6 In re Wellesley (D. C.) 252 Fed. 854, Morgan & Williams, 184 Fed. 938, 25 Am. 40 Am. Bankr. Rep. 597, 42 Am. Bankr. Bankr. Rep. 861 ; Peterson v. Peregoy & Rep. 412. Moore Co., ISO Iowa, 325, 163 N. W. 224. 5T In re Meyer (C. C. A.) 98 Fed. 976, ei Vaccaro v. Security Bank, 103 Fed. 3 Am. Bankr. Rep. 559. And see Moss 436, 48 C. C. A. 279, 4 Am. Bankr. Rep. Nat. Bank v. Arend, 146 Fed. 351, 76 C. 474 ; Tumlin v. Bryan, 165 Fed. 166, 91 C. A. 629, 16 Am. Bankr. Rep. 867. C. C. A. 200, 21 L. R. A. (N. S.) 960, 21 5 8 Yungbluth v. Slipper (O. C. A.) 185 Am. Bankr. Rep. 319; In re Perlhefter, Fed. 773, 26 Am. Bankr. Eep. 265. 177 Fed. 299, 25 Am. Bankr. Rep. 576 ; BO Green River Deposit Bank v. Craig, Washington Cotton Co. v. Morgan, 192 110 Fed. 137, 6 Am. Bankr. Rep. 381. Fed. 310, 112 C. C. A. 568, 27 Am. Bankr. 60 In re Everybody's Grocery & Meat Rep. 638; In re Perley & Hays, 138 Fed. Market, 173 Fed. 492, 21 Am. Bankr. 927, 15 Am. Bankr. Rep. 54; Davis v. Rep. 925 ; In re McMurtrey & Smith, 142 Stevens, 104 Fed. 235, 4 Am. Bankr. Rep. Fed. 853, 15 Am. Bankr. Rep. 427; In re 763; Francis v. McNeal, 186 Fed. 481, 108 Bertenshaw, 157 Fed. 363, 19 Am. Bankr. C. C. A. 459, 26 Am. Bankr. Rep. 555 ; 2G1 BANKRUPTCY OF PARTNERSHIPS § 115 of the cases so holding it was said: "A partnership cannot be adjudged a bankrupt in an involuntary proceeding unless it has committed an act of bankruptcy. If the act charged be one involving insolvency, since every partner is liable in solido for all the partnership debts, the adjudica- tion against the partnership must be based on allegations and proofs that the assets of its members, in. excess of their individual debts, plus the assets of the partnership, are insufficient to pay the partnership debts. Otherwise there is no partnership insolvency, notwithstanding the entity doctrine. That doctrine furnishes a direct proceeding against the part- nership as a legal entity, but it does not authorize an adjudication of bankruptcy against a partnership, where the act of bankruptcy charged is one involving insolvency, unless, as above stated, it is shown that there is an insufficiency of partnership and individual assets to pay the partnership debts. If a partnership is insolvent in the sense above ex- plained, all the assets of the partnership and its members are needed for -the proper winding up of the partnership affairs." *^ § 115. Involuntary Proceedings Against Firm. — It is not necessary that involuntary proceedings in bankruptcy against a firm should be instituted by its creditors. A court of bankruptcy has jurisdiction to adjudge a partnership bankrupt on the petition of one of its members and against the objection of the others.®* But when involuntary pro- ceedings are instituted against a partnership, all the partners must be joined as parties defendant. A firm cannot be adjudged bankrupt in a proceeding to which one of its members is not a party ; and the petition cannot be amended by adding a new party after all the testimony has been taken and the case is on hearing before the court.** Further, an adjudication of bankruptcy against a firm must be made in one proceed- ing and on one petition. The adjudication of one member of a firm in one proceeding, and of the remaining member or members of it in a separate proceeding, with such effect as to bring the firm into bankrupt- cy, is a thing not contemplated by the statute.®^ For similar reasons, distinct firms, consisting of three persons, one of whom was a partner in both, cannot be joined in one proceeding, though one was the successor # affirmed, 228 U. S. 695, 33 Sup. Ct. 701, L. Ed. 1029, L. E. A. 1915B, 706, 30 Am. 57 L. Ed. 1029, L. R. A. 1915B, 706, 30 Bankr. Rep. 244. Am. Bankr. Rep. 244; Abbott v. Ander- ss In re J. M. Ceballos & Co., 161 Fed. son, 265 111. 285, 106 N. E. 782, L. R. A. 445, 20 Am. Bankr. Rep. 459. • 1915F, 668, Ann. Cas. 1916A, 741; In re «* In re Pitt, 8 Ben. 389, 14 N. B. R. Samuels, 215 Fed. 845, 132 0. C. A. 187. 59, Fed. Cas. No. 11,188. 62 Francis v. McNeal, 186 Fed. 481, 108 es in re Plumb, 9 Ben. 279, 17 N. B. R. C. C. A. 459, 26 Am. Bankr. Rep. 555, af- 76, Fed. Cas. No. 11,231. Compare In re firmed, 228 U. S. 695, 33 Sup. Ct. 701, 57 Kelley, 19 N. B. R. 326, Fed. Cas. No. 7,656. § 116 LAW OF BANKEUPTCY 2G« of the other and undertook to pay its debts.*" When the requisite num- ber of creditors join in a petition against a firm, it is not necessary that they should all be creditors of the partnership, if they are creditors of the partners.*" In a petition in involuntary bankruptcy against a firm it is not sufficient merely to allege that "the partnership is insolvent," but there must also be an averment as to the insolvency of each of the partners.** * § 116. Effect of Dissolution of Firm. — Although a partnership has been dissolved by mutual consent, yet if the members continue to treat each other as partners after the alleged dissolution, and to act as such in their business transactions with third parties, a petition in bankruptcy may be filed against the firm as if there had been no dissolution.®* Fur- ther, under the act of 1867, it was held that a formal dissolution of a partnership would not prevent the bankruptcy court from taking' juris- diction ol proceedings against the firm so long as any unfinished busi- ness, debts,' credits, or assets remained.''*' This rule has been formally' enacted in the present bankruptcy statute, which declares that a part- nership may be adjudged bankrupt "during the continuance of the part- nership business, or after its dissolution and before the final settlement thereof." '^ And the courts have decided that there can be no final settlement of the affairs of a firm until its debts are paid or in some oth- er way extinguished; and consequently an adjudication may be made upon the voluntary petition of the partners, or in involuntary proceed- ings against them, when it appears that there are any firm debts re- m.aining unsatisfied, although the assets of the firm have been entirely consumed, and although it has long since ceased to do business and has been dissolved by the partners.'^ But it has been held that the "con- tinuance" of a partnership, within the meaning of the act, is its actual 6 6 In re Wallace, 12 N. B. B. 191, Fed. pare (under the act of 1841) Ex parte Cas. No. 17,095. Hartz, Fed. Cas. No. 6,174. 67 In re Matot, 16 N. B. R. 485, Fed. 'i Bankruptcy Act 1898, § 5a. But a Oas. No. 9,282. partnership cannot be adjudged bank- 6 8 In re Blair, 99 Fed. 76, 3 Am. Bankr. rupt after its dissolution, even under § Rep. 588.- And see, supra, § 114. 5a of the Bankruptcy Act, so long as 9 In re McFarland, 10 N. B. R. 381, there is a solvent former partner. In re Fid. Cas. No. 8,788 ; In re Tomes, 19 N. Young (D. C.) 223 Fed. 659, 35 Am. B. R. 36, Fed. Cas. No. 14,084. Bankr. Rep. 200. 70 In re Crockett, 2 Ben. 514, 2 N. B. 72 Holmes v. Baker & Hamilton, 160 R.'«08, Fed. Cas. No. 3,402 ; In re Noo- Fed. 922, 20 Am. Bankr. Rep. 252 ; In re nan, 3 Biss. 491, 10 N. B. R. 330, Fed. Hirsch, 97 Fed. 571, 3 Am. Bankr. Rep. Cas. No. 10,292 ; In re Williams, 1 Lovi?. 344 ; In re Levy, 95 Fed. 812 ; In re Web- 406, 3 N. B. R. 286, Fed. Cas. No. 17,703 ; ster, 2 Nat. Bankr. Nevs-s, 54. Where an Hunt V. Pooke, 5 N. B. R. 161, Fed. Cas. agreement that the accounts of a firm No. 6,896; In re Gorham, 9 Biss. 23, 18 should be used to pay firm debts was N. B. B. 419, Fed. Cas. No. 5,624. Com- not incorporated in a partnership dis- 263 BANKRUPTCY OF PARTNERSHIPS § 117 status as a firm, as distinguished from a status created by estoppel against a partner, and it is therefore essential that the partnership should exist as such, or that its affairs should -be still unsettled at the time of the filing of a petition, in order to subject it to adjudication. And further, although the affairs of a partnership are "unsettled," so as to subject it to adjudication, so long as the partnership debts are unpaid, yet debts which are binding on partners only by way of estoppel as to creditors without notice of dissolution, are not firm debts in tl>is sense." § 117. Dissolution of Firm by Death of Partner. — As to the power to make an adjudication of bankruptcy in the case of a partnership which has been dissolved by the death of one of its members, the author- ities are not in agreement. Clearly, a court of bankruptcy can have no jurisdiction to adjudge a dead man bankrupt, nor to administer upon his estate, whether solvent or insolvent. And in at least one case it has been held that where one partner, on his voluntary petition, obtained an adjudication agaipst a firm of which he had been a member, but which had been dissolved by the death of his copartner, the adjudication was void.'* But the preponderance of judicial opinion appears to be that the surviving partner may file his petition, and that, if it is prop- erly framed for that purpose, the court may adjvidge him bankrupt both as an individual and also in his capacity as surviving partner ; that the same decree may be made upon an involuntary petition, when the re- spondent has committed an act of bankruptcy in administering the part- nership assets ; and that, under such an adjudication, the court will have jurisdiction of the partnership property which remains in the hands of the surviving partner, as well as of his individual' estate,'^ though it will not attempt to take from the custody and control of the executor of the deceased partner the individual estate of the latter, nor any of the partnership assets which may have been committed to the hands of solution agreement, an outgoing partner by the death of one of the members can is not entitled to enforce such provision be treated as still subsisting so as to be as against partnership creditors in bank- subject to the provisions of the bank- ruptcy. In re Wilson, 194 Fed. 564, 27 ruptcy law. The status of a deceased Am. Bankr. Rep. 867. person cannot be passed upon by a bank- 73 In re Pinson & Co., 180 Fed. 787, 24 ruptcy court, nor has he any property Am. Bankr. Eep. 804. the title to -which can vest in an assignee 74 In re Temple, 4 Sawy. 92, 17 N. B. appointed In a proceeding by or against R. 345, Fed. Cas. No. 13,825. In this case, the surviving partner!" it was said: "Although partners are 7 5 in re Ooe, 157 Fed. 308, 19 Am. deemed to continue to be such quoad Bankr. Rep. 618; In re Stevens, 1 Sawy. creditors, notwithstanding a formal dis- 397, 5 N. B. R. 112, Fed. Oas. No. 13,393 ; solution inter sese, where there are joint Briswalter v. Long, 7 Sawy. 74, 14 Fed. assets and joint creditors, it has never 153. Contra, In re Evans, 161 Fed. 590, been held that a partnership dissolved 20 Am. Bankr. Rep. 406. § 118 LAW OF BANKRUPTCY 264 such executor for administration.'* Though a deceased partner's in- terest in a partnership claim vests in the surviving partner, it does not pass to the latter's trustee in bankruptcy, so that the surviving partner can maintain an action thereon in his own name." But a surviving partner, after the adjudication, has no power to consent to an allowance to the widow and children of the deceased partner out of the assets of the firm prior to the payment of the firm debts.'* And the trustee in bankruptcy of the surviving partner is not entitled, as against judgment creditors of the latter suing on firm obligations, to a surplus arising from a foreclosure against firm property." Where a partner carries on business with the consent of the personal representatives of the de- ceased partner, upon the surviving partner being adjudged bankrupt, there is no priority of payment between debts contracted before, and those contracted after, the death of the partner.*" § 118. Bankruptcy of Firm Without Adjudication of Any Partner. — It is clear beyond question, from the explicit terms of the present bankruptcy act, that a partnership, as such, may be adjudged bankrupt without any adjudication being made against any one of the members of the firm. But in such a case, is the jurisdiction of the court of bank- ruptcy restricted to the partnership property, or may it be extended to the individual estates of the partners? In case of an insufficiency of assets of the partnership, may the creditors work out their claims against the separate estates of the partners through the instrumentality of the trustee in bankruptcy of the firm, or are they left to their ordinary remedies at law? These questions are not yet fully settled. But there is a decision of the Supreme Court that an individual partner who has not been adjtidged a bankrupt may be required to turn over his sepa- rate estate for administration to the trustee in bankruptcy of the firm, where the partnership and individual estates together are not enough 7 6 In re Daggett, 8 N. B. K. 287, Fed. the benefit of whom it may concern," Cas. No. 3,535, affirmed, 3 Dill. 83, 8 N. funds made up of cash on hand belong- B. R. 433, Fed. Cas. No. 3,536 ; French ing to the firm and of sums belonging to V. Grenet, 57 Tex. 273. But compare the firm as proceeds of its property, or Hewitt V. Hayes, 204 Mass. 586, 90 N. as commissions due to it, or otherwise, E. 985, -27 I/. R. A. (N. S.) 154, where it the trustee In bankruptcy of the survlv- was held that the trustee in bankruptcy ing partner was entitled to the fund, of a surviving partner may sue the ex- '^McCandless v. Hadden, 9 B. Mon. ecutors of the deceased partner for what- (Ky.) 186. ever firm assets and property have come 7 8 in re F. Dobert & Son, 165 Fed. 749, into their hands; and that, where the 21 Am. Bankr. Kep. 634. executors of a deceased partner acted in- to Moses v. Pond, 32 Misc. Rep. 406, dlviduaUy under a power of attorney- giv- 66 N. Y. Supp. 600. en by the surviving partner, and they so in re Mills, 11 N. B. R. 74, Fed. Gas. deposited in a bank in their names, "for No. 9,611. 265 BANKRUPTCY OP PAETNERSUIPS § 118 to pay the partnership debts, and especially where such partner has not objected that he should have been put into bankruptcy along with the firm.*^ Likewise, some of the inferior federal courts have held that the adjudication of a partnership as a bankrupt draws to the court of bank- ruptcy for administration the individual estates of the partners, although they, personally and individually, are not adjudged bankrupts, and that the court may compel any partner to transfer his individual property to the trustee.** Against these decisions may be placed a very able opin- ion of the circuit court of appeals in the eighth circuit, in which it was held that, in the case supposed, the court of bankruptcy has no juris- diction to order the surrender of his separate property by a partner who has not been adjudged bankrupt and who is not shown to be in- solvent.** To a certain extent, the latest decisions on the point attempt to reconcile these contrary views, in holding that the property of a solvent partner is not drawn into the administration, where only the firm is adjudged bankrupt, but that if the adjudication is based upon or involves the insolvency of the firm (which necessarily impjies the insolvency of each of the partners as well), then even unadjudicated partners may be compelled to turn over their separate estates to the trustee. "In our opinion," says the circuit court of appeals in the third circuit, "the subdivisions of section 5 preceding subdivision 'h' mean that a partnership is a legal entity that may be adjudged a bankrupt, irrespective of an adjudication against any of its members ; that it may be so adjudged either in a voluntary or an involuntary proceeding; that in an involuntary proceeding, where the act of bankruptcy charged does not involve insolvency of the partnership, and where there is an adjudication against the partnership only, probably nothing is in- volved but partnership assets ; that in an involuntary proceeding, where the act of bankruptcy charged is one that does involve insolvency of the partnership, there can be no adjudication against the partnership unless it and all its members are insolvent ; and that in such a case, though the adjudication be against the partnership only, or against the partnership 81 Francis v. McNeal, 228 TJ. S. 695, 0. A. .321, 38 Am. Bankr. Rep. 566; In re 33 Sup. Ot. 701, 57 L. Ed. 1029, L. E. A. Laltimer (D: 0.) 174 Fed. 824, 23 Am. 1915E, 706, 30 Am. Bankr. Rep. 244, af- Bankr. Rep. 388; In re Stokes (D. C.) firming 186 Fed. 481, 108 C. C. A. 459, 106 Fed. 312, 6 Am. Bankr. Rep. 262. 26 Am. Bankr. Rep. 555. ss In re Bertenshaw, 157 Fed. 363, 85 8 2 Vaccaro v. Security Bank, 103 Fed. C. C. A. 61, 19 Am. Bankr. Rep. 577. 436, 43 C. 0. A. 279, 4 Am. Bankr. Rep. But this decision was spoken of with 474; Armstrong v. Fisher, 224 Fed. 97, disapproval by the Supreme Court in 139 C. C. A. 653, 34 Am. Bankr. Rep. 701 ; Francis v. McNeal, 228 TJ. S. 695, 33 In re Hansley & Adams (D. C.) 228 Fed. Sup. Ot. 701, 57 J.. Ed. 1029, L. R. A. 564; 36 Am. Bankr. Rep. 1 ; Ft. Pitt Coal 1915E, 706, 30 Am. Bankr. Rep. 244. & Coke Co. y. Diser, 239 Fed. 443, 152 O. § 119 LAW OF BANKRUPTCY 266 and some, but not all, of its members, the estates of all the members are drawn into the proceeding for administration." ** § 119. Voluntary Petition by One or More Partners. — Under the bankruptcy act of 1841, it was held that a decree in bankruptcy could not be rendered against a firm on a voluntary application therefor, un- less all the partners united in the petition.*^ But under the act of 1867, the rule prevailed that a partnership might be adjudged bankrupt on the voluntary petition of one or more of the partners,** provided that those who did not join in the petition were either formally made par- ties to the proceeding or given an opportunity to contest the adjudica- tion, or assented to the decree of bankruptcy.*'' It was held, in fact, that the right of one partner to have the firm adjudged bankrupt was co-extensive with the right of the firm creditors or of another part- ner.** The present statute and the general orders in bankruptcy pro- mulgated by the Supreme Court contemplate the adjudication of a part- nership as such (not merely of the individual petitioner) upon a volun- tary application by one or more members of the firm without the joinder of the rest. But it is provided that "any member of a partnership who refuses to join in a petition to have the partnership declared bankrupt shall be entitled to resist the prayer of the petition in the same manner- as if the petition had been filed by a creditor of the partnership, and notice of the filing of the petition shall be given to him in the same manner as provided by law and by these rules in the case of a debtor petitioned against; and he shall have the right to appear at the time fij^ed by the court for the hearing of the petition, and to make proof, if he can, that the partnership is not insolvent or has not committed an act of bankruptcy, and to make all defenses which any debtor pro- ceeded against is entitled to make by the provisions of the act; and in case an adjudication 'of bankruptcy is made upon the petition, such partner shall be required to file a schedule of his debts and an inventory of his property in the same manner as is required by the act in cases of debtors against whom adjudication of bankruptcy shall be made." *• 84 Francis V. McNeal, 186 Fed. 481, 108 Fed. Cas. No. 9,656; In re Stowers, ] 0. C. A. 459, 26 Am. Bankr. Rep. 555, af- Low. 528, Fed. Cas. No. 13,516. firmed 228 II. S. 695, 33 Sup. Ct. 701, 57 sr in re Lewis, 2 Ben. 98, 1 N. B. R. L. Ed. 1029; Menke v. Sunderman (0. C. 239, Fed. Cas. No. 8,311; In re Crockett, A.) 186 Fed. 486. 2 Ben. 514, 2 N. B. R. 208, Fed. Cas! SB Ex parte Hartz, Fed. Oas. No. 6,174. No. 3,402; In re Moore, 5 Biss. 79, Fed. «o In re Smith, 16 Fed. 465 ; In re Fos- Cas. No. 9,750. ter, 3 Ben. 386, 3 N. B. R. 236, Fed. Cas. ss in re Gorham, 9 Biss. 23, 18 N. B. No. 4,962; In re Mitchell, 3 N. B. B. 441, R. 419, Fed. Cas. No. 5,624. so General Order No. 8. And see In re 267 BANKRUPTCY OF PARTNERSIIirS § 119 Hence it appears that, when some of the members of a partnership file their petition in bankruptcy asking for an adjudication against the firm, the other partners not joining, the proceeding is, in its inception, a voluntary proceeding in bankruptcy, and it will remain so in its entirety unless the other partners, on due notice, dissent from the petition and contest the adjudication, in which case the proceeding becomes, as to those partners, an involuntary one.*' In consequence of the original voluntary nature of the proceeding, it is not necessary that the peti- tioning partner should allege acts of bankruptcy to have been commit- ted by the firm, though the absence of such acts will be a defense to the partners who do not join.'^ And, as it is expressly provided in the general order, the dissenting partner may show that the firm is not in- solvent.®* Where one of the partners files his petition in bankruptcy, with the object of obtaining a discharge from debts of the firm as well as his individual debts, the petition should set forth the names of the partners and pray for a discharge from partnership debts, the schedules should list both the petitioner's individual property and debts and the prop- erty and debts of the firm, notices to creditors should inform them that firm creditors are affected and that the bankrupt seeks a discharge from their debts, and-notice of the filing of the petition and of creditors' meet- ings should be sent to the partners who have not joined.®* Notice to the Junck & Balthazard, 169 Fed. 481, 22 not act upon the petition (it being then Am. Bankr. Rep. 298; In re Hansley & an involuntary case), but must certify Adams (D. C.) 228 Fed. 564, 36 Am. the case to the judge, before whom the Bankr. Rep. 1. issue will be heard and determined. See »o In re Junck & Balthazard, 169 Fed. also In re Wilson, 2 Low. 453, 13 N. B. 481, 22 Am. Bankr. Rep. 298; In re R. 253, Fed. Cas. No. 17,784. If the non- Carleton, 131 Fed. 146, 12 Am. Bankr. joining partner afterwards comes in and Rep. 475; In re Murray, 96 Fed. 600, 3 confesses himself a bankrupt, and is so Am. Bankr. Rep. 601. In the case last adjudged, it is a case of involuntary cited it was also held that where a pe- bankruptcy. Metsker v. Bonebrake, 108 tition in bankruptcy is filed by certain U. S. 66, 2 Sup. Ct. 351, 27 L. Ed. 654. of the members of a partnership, pray- si In re Junck & Balthazard, 169 Fed. ing an adjudication against the' firm and 481, 22 Am. Bankr. Rep. 298; In re Noon- averring that the partner who has not an, 3 Biss. 491, 10 N. B. R. 330, Fed. Cas. joined in the petition is not a resident No. 10,292. But compare In re Forbes, of the district and that his residence is 128 Fed. 137, 11 Am. Bankr. Rep. 787. ' unknown to the petitioners, if the judge "^ In re Fowler, 1 Low. 161, 1 N. B. of the court of the bankruptcy is absent R. 680, Fed. Cas. No. 4,998. from the district, or the division of the »8 in re Laughlin, 96 Fed. 589, 3 Am. district in which the petition is filed, at Bankr. Rep. 1; In re Hartman, 96 Fed. the time of its filing, the clerk should 593, 3 Am. Bankr. Rep. 65. If the peti- forthwith refer the case to the proper tion and schedule as originally filed do referee; but that if partners who did not not conform to these requirements, they join in the petition shall, upon notice, should be amended before an adjudica- enter their appearance and contest the tion is made. If adjudication has al- adjudication of the firm, the referee can- ready passed, it may be set aside, and § 119 LAW OF BANKRUPTCY 268 partners not joining is absolutely essential to any adjudication against the firm as such. No adjudication can be made until the non-joining members of the firm have had due notice of the filing of the petition and a proper opportunity to defend against the same; or, if an adjudi- cation has been made without such notice, it will be vacated and set aside on motion.®* If the partners who have not joined in the petition can be found, whether within the district or without it, personal serv- ice of such notice must be made upon them. But if personal service cannot be had, then, upon the filing of an affidavit showing the fact, the court will order publication of the notice in the same manner as in eq- uity cases.®^ A petition by a partner of a dissolved firm against his copartners will be dismissed where it appears that the firm was dissolved by judi- cial decree, and all its assets transferred to a receiver.*® It should also be remarked that where one of the partners files his voluntary petition in bankruptcy, as an individual, and does not seek an adjudication against the firm nor a release from firm debts, the proceeding cannot be turned into a partnership proceeding by the voluntary joinder therein of the other partners."' And if the bankrupt lists only his individual leave granted, to the petitioner to amend, and thereupon an adjudication sliould be again entered and the case proceeded with da novo. Idem. Si In re Altman, 95 Fed. 263, 2 Am. Bankr. Rep. 407; In re Murray, 96 Fed. 600, 3 Am. Banlir. Bep. 601; In re Rus- sel, 97 Fed. 32, 3 Am. Bankr. Rep. 91; In re Gorham, 9 Biss. 23, 18 N. B. R. 419, Fed. Cas. No. 5,624. Where certain of the members of a partnership file their voluntary petition in bankruptcy, asking for an adjudication of the firm, but the other partners do not join and are not notified of the proceedings, the defect is not cured by filing in court, after the adjudication, a paper purporting to em- body the consent of the non-joining part- ners, but which is unverified, qualified in its terms, and signed only by their at- torneys. In re Altman, 95 Fed. 263, 2 Am. Bankr. Rep. 407. 05 In re Murray, 96 Fed. 600, 3 Am. Bankr. Rep. 601. Under the act of 1S67, it was held that there was no jurisdic- tion over the firm, as such, if the nou- joining partners did not reside or have their places of business within the ju- dicial district, or if service of the, notice was made upon such a partner beyond the territorial jurisdiction of the court. Isett V. Stuart, 80 111. 404, 22 Am. Bankr. Rep. 194, 16 N. B. R. 191; In re Martin, 6 Ben. 20, Fed. Cas. No. 9,150; In re Prankard, 1 N. B. R. 297, Fed. Cas. No. 11,366. But this objection is now met by the provision of the present act that "the court of bankruptcy which has ju- risdiction of one of the partners may have jurisdiction of all the partners and of the administration of the partnership and individual property." Bankruptcy Act 1898, I 5c. But a firm having failed more than eight years before a member thereof petitioned individually to be ad- judged a bankrupt, and more than nine years before the other partner was cited, without any proof of bankruptcy, a rule on the latter to show cause why he and the partnership should not be adjudged bankrupt was held properly dischargeil. Royston v. Weis, 112 Fed. 962, 50 C. C. A. 638, 7 Am. Bankr. Rep. 584. 08 In re Oehninfjer, 8 Ben. 487, Fed. Cas. No. 10,441; Hopkins v. Carpenter, 18 N. B. E. 339, Fed. Cas. No. 6,686. Compare In re Hathorn, 2 Woods, 37, Fed. Cas. No. 6,214. 07 In re Boylan, 1 Ben. 266, 1 N. B. R. 2, Fed. Cas. No. 1,757. See In re Lewis, 2S : Frederick t. Citizens' bers of the firm, as sureiies. and was the Xat Bask, i:,! Fed. OCT. 145 CCA. -5-5.S, joint and aereral note of all and not tliv- ST Am, Bankr. Etp. 22. joint note of less than alL -"> In re L. B. Weisec'i'erg & Co., 131 is« Beyn^ds v. New York Tmst Co., Fei -517. 12 Am. EE_i_>r. B^. 417. cidng ISS Fed. 611. 110 a C. A. 409, 26 Am. In re Wamen, 2 Ware, S22. Fed. Gas. Xo. Bankr. Bep. fii^S. 17.ir:<: : In re Tbomas, 8 Biss. 139. 17 X. isx in re Jones, 116 Fed. 431, 8 Am B. B. .54, F^i Cas. Xo. 13^86; Davis t. Bankr. Bep. 626. Tomer, 120 Frf. 6(6, .56 C C A. 0«59, 9 iss in j-e sierens. 104 I^d. .323. 5 Am. Am Bankr. B^. 704. There are some Bankr. B^. 9. The right of Mie who aotboritiies to tbe contrary, as, for in- advanced securities, to assist a partner- stance. In re Bocyms Uadiine Co.. 5 ship, to iwove the daim against the firm X. B. E. 303, Fed. Cas. Xo. 2400; In re is not affected by the fact that the loan Btdbrook, 2 Law. 2a9, Fed. Cas. Xo. was entered on the firm's books as a i<»n 6,5SS; In re Herri*, 13 X. B. B. 312. to one of the partners and not to the Fed. Cas. Xo. 6,430; Strause v. Hooper, firm. In re Stringer (D. C) 234 Fed. 454, 105 F«i 390, 5 Am. Bankr. B^. ^; 37 Am. Bankr. Bep. 713. But see this In re Jones, 116 Fled. 431, 8 Am. 'Bajikr. case on appeal. Stringer v. Stevaison, Eqj. 636. But it was pointed out in flie 240 Fed. S92. 153 CCA. 578, 39 Am. Case fliat at least two of the Bankr. Bep. 170. § 128 LAW OF BANKRUPTCY 286 Thus, in one case, it appeared that a bank made a loan of money to each of the two members of a firm, taking in each case a note signed by both partners. The proceeds were passed to the individual accounts of the partners respectively, but they thereupon, by their checks, transferred the money to the partnership account and it was used in the firm's busi- ness. But it was held that the notes did not constitute debts of the firm provable against its estate in bankruptcy, because it had received the money from the partners and not from the bank.*** But a firm note sep- arately indorsed by one of the partners is a firm obligation, whether the indorser's liability has become fixed or not, and cannot be made the basis of a claim against his estate in bankruptcy as an individual debt.*** The mortgagee in a chattel mortgage of a stock of goods cannot prove his claim against a partnership formed after the making of the mortgage and before its maturity.*** And an agreement between two traders to unite their stocks in trade as the capital of a partnership to be formed between them, and to convert the separate business debts of either into joint debts of the firm, will not entitle a separate creditor who has not acceded in any way to the arrangement before the bankruptcy of the firm to prove his claim as a joint creditor of the firm against the partnership estate.**" A bank holding a draft drawn by one firm and accepted by another, where both are adjudged bankrupts, cannot share with the in- dividual creditors in the separate assets of one who was a partner in both firms.**' Proof of a debt in the case of a bankrupt firm should show with reasonable certainty whether it was contracted by the firm or the individual partners; and proof against the partnership should not be joined with proof of a debt against an individual partner.*** § 128. Separate Debts of Partners. — Where a member of a firm gives his individual note, bond, or mortgage (not executed in the name of the firm nor by the other partner), to secure an existing creditor of the firm, or to secure the future payment of the price of goods purchased for the firm's stock in trade, it is his separate debt, and the creditor can- not come upon the partnership assets in competition with partnership creditors.**" So, where a creditor of a firm, holding its promissory note 183 In re L. B. Weisenberg & Co., 131 92, Fed. Oas. No. 7,093. But compare Fed. 517, 12 Am. Bankr. Rep. 417. In re Sickman <& Glenn, 155 Fed. 508, 19 184 Lamoille County Nat. Bank v. Am. Bankr. Rep. 232. Stevens' Estate, 107 Fed. 245, 6 Am. ist in re Dunkerson, 4 Biss. 277, Fed. Bankr. Rep. 164 ; In re Speer Bros., 144 Cas. No. 4,158. Fed. 910, 16 Am. Bankr. Rep. 524. iss in re Walton, Deady, 510, Fed. Cas. 18B In re Forbes, 5 Blss. 510, Fed. Cas. No. 17,129. No. 4,922. See In re Van Buren, 2 Fed. i89 in re Forse, 184 Fed. 85, 25 Am. 647. Bankr. Rep. 843 ; In re Stevens, 104 Fed. ISO In re Isaacs, 3 Sawy. 35, 6 N. B. R. 323, 5 Am. Bankr. Rep. 9 ; In re Dobson, 287 BANKRUPTCY OF PAUTNERSUIPS § 128 for money loaned, surrendered the same and accepted in lieu thereof the individual note of a member of the firm for the same amount, the as- sumption of the debt by that partner being part of the consideration for the purchase of an interest in the firm for her son-in-law, and the latter note was twice renewed and was finally reduced to a judgment against the maker and within four months thereafter the partnership and its members became bankrupt, it was held that the debt was that of the in- dividual partner, not of the firm, notwithstanding the fact that the inter- est on the new note had always been paid by the firm.^** Again, an indebtedness contracted by a member of a partnership individually, before the partnership was formed, cannot be converted into a firm obligation by its entry as such on the books without the creditor's knowl- edge, or by making payments thereon by checks of the firm.^*^ So, where one member of a firm gives a note signed in the -firm name, but in fraud of his copartners and for his private benefit, or even, as some of the cases hold, without the consent of the other partners, the firm being insolvent, and the transaction not being in any way for the benefit of the firm, it does not create a debt provable against the assets of the partner- ship,^®* except in the hands of a bona fide holder for value, who has no knowledge or notice of the fraud or want of authority, or of any intended misapplication of the proceeds."^ It has even been held that a mort- gage given by one partner on partnership property, although with the consent of his copartner, cannot be enforced as against firm creditors in bankruptcy,"* at least where given to secure his individual debt. So, a note given by the bankrupt firm to a member for his contribution to the capital stock, and by him turned over to his wife, who furnished the money, is evidence only of the individual debt of such member, and not provable against the firm."® On the other hand, where, after the failure of a firm and while they were endeavoring to settle with their creditors, one partner, at the request of the holder of a firm obligation, guaranties 2 Nat. Bankr. News, 514 ; In re Linforth, burden rests upon the creditor seeking to 87 Fed. 386. prove the same against the partnership 180 In re Lehigh Lumber Co., 101 Fed. estate in bankruptcy to show that the 216, 4 Am. Bankr. Rep. 221. other partner knew of the transaction isiHibberd v. McGill, 129 Fed. 590, and assented thereto. In ro Mclntire, 64 C.- C. A. 158, 12 Am. Bankr. Rep. 101. 132 Fed. 295, 12 Am. Bankr. Rep. 78T. 192 First Nat. Bank v. Sta:te Nat. Bank, iss In re White, 183 Fed. 310, 105 C. C. 131 Fed. 422, 65 C. 0. A. 406, 12 Am. A. 522, 25 Am. Bankr. Rep. 541; Bush Bankr. Rep. 429 ; In re Forsyth, 7 N. v. Crawford, 9 Phila. 392, 7 N. B. R. 299, B. R. 174, Fed. Gas. No. 4,948; In re Fed. Cas. No. 2,224; In re Dunkle, 7 N. Colder, 2 Hask. 28, Fed. Oas. No. 5,510; B. R. 107, Fed. Cas. No. 4,161. In re Irving, 17 N. B. R. 22, Fed. Cas. is* In re Blanchard, 161 Fed. 793, 20 No. 7,074. A partner cannot bind the Am. Bankr. Rep. 417. firm by notes given in the firm name in los in re Frost, 3 N. B. R. 736, Fed. renewal of his individual notes, and the Cas. No. 5,135. § 129 LAW OF BANKRUPTCY 288 its payment, such guaranty is without legal effect and does not entitle that creditor to prove against the separate estate of the guarantor upon a subsequent adjudication of bankruptcy."^ A judgment against part- ners and others jointly is a several claim as against the bankrupt part- ners, and cannot receive a dividend from the joint estate."' But a credi- tor holding a claim against the partners jointly, which is not a firm debt, may file separate proofs of the same claim to its full amount against each of the members of the firm.^"* In one case, where a firm, failing without assets, resumed business under the name of one of its members as "agent," and again failed, it was held that the debts contracted under the former name were not entitled to share in the assets of the second failure."* In some states, by a peculiarity of the local law, taxes assess- ed against a firm are individual liabilities of the several partners, and where this is the- case they may be proved against the separate estates in bankruptcy.^"** § 129. Joint and Several Liability ; Double Proof. — There are some instances in which a creditor will be entitled to prove his claim against both the bankrupt partnership and the several members of the firm, and to receive dividends from both sources until satisfaction. Thus, a creditor who holds commercial paper made by the bankrupt firm and indorsed by an individual member of the firm, also a bankrupt, may prove his debt against both estates and share in the dividends of each. For he would have a right of action against each, though entitled to only one satisfaction.^'^ This rule is of course subject to modification i9« In re Blumer, 13 Fed. 622. In re McCoy, 150 Fed. 106, 80 C. C. A. 60, 19T In re Herrick, 13 N. B. R. 312, Fed. 17 Am. Bankr. Eep. 760 ; In re Thomas, Gas. No. 6,420. A debt founded on a 8 Biss. 139, 17 N. B. R. 54, Fed. Cas. No. judgment against the two members of a 13,886 ; Emery v. Canal Nat. Bank, 3 firm jointly, in a suit on a partnership Cliff. 507, 7 N. B. R. 217, Fed. Cas. No. note, does not entitle the creditor to 4,446; In re Bigelow, 3 Ben. 146, 2 N. dividends out of the separate estate of B. R. 371, Fed. Cas. No. 1,397; In re each member of the firm, on an equal Howard, 4 N. B. R. 571, Fed. Cas. No. footing with the separate creditors of 6,750; Stephenson v. Jackson, 2 Hughes, each member. In re Berrian, 6 Ben. 297, 204, 9 N. B. R. 255, Fed. Cas. No. 13,374 ; Fed. Gas. No. 1,351. In re Farnum, 6 Law Rep. 21, Fed. Gas. 19 8 In re Beers, 5 N. B. R. 211, Fed. No. 4,674; In re Bradley, 2 Biss. 515, Cas. Xo. 1,229. Fed. Cas. No. 1,772. Where a firm com- 109 In re Nims, 16 Blatchf. 439, Fed. posed of three persons gave, in settle- Cas. No. 10,269. And see In re Cobb's ment of part of a debt due to one credi- Consol. Cos. (D. C.) 233 Fed. 458, 36 Am. tor, the note of the copartnership with Bankr. Rep. 812. the indorsement of one of the partners, 209 In re Green, 116 Fed. 118, 8 Am. and, for other parts of it, severally, three Bankr. Rep. 553. notes, each made by one of the partners 201 Buckingham v. First Nat. Bank, and indorsed by the others, and the firm 1.31 Fed. 192, 65 C. C. A. 498, 12 Am. was adjudged bankrupt, and the creditor Bankr. Rep. 465 ; Bank of Reldsville v. proved his debt against the makers alone Burton, 259 Fed. 218, 170 G. C. A. 286. of the four notes, it was held that he was 289 BANKRUPTCY OF PARTNERSHIPS § 129 in cases where either the making of the note or its indorsement would constitute a fraudulent preference under the bankruptcy act,**^ and its operation may in some instances be restrained by the principle of the marshalling of assets, discussed in a preceding section.*"* But gener- ally speaking, a joint and several obligation given by a partnership is also provable as an individual obligation against the estate of either of the parties.*'* A joint and several note, given for money borrowed by a firm and signed in the firm name, with other names following, may be proved against the joint assets of the firm; but not one which is signed individually by certain of the partners and by others as sure- ties.**'' On similar principles, where one member of a firm, with the knowledge and assent of his copartners, misappropriates trust funds (as, the money of an estate of which he is executor, or the money of a cor- poration of which he is the treasurer or agent) and invests the same in the business of the 'firm, the obligation thus created is both joint and several; and proof of the claim may be made against the partnership as well as against the individual partner.*** A parallel rule applies to the case of a liability to the United States, incurred by a fraudulent undervaluation of goods' entered at the custom house ; the claim of the government against the firm for the tort is joint and several and may be proved against both estates.**' And in general, and notwithstanding some vigorous dissent, the rule may be said to be fairly well established that the commission of a tort by a partnership makes the partners also jointly and severally liable, and the party injured may prove his claim both against the estate of the firm in bankruptcy and against the sep- entitled to dividends according to such proved a joint and several claim >igainst proofs out of the several estates, joint the bankrupt members of a firm sep- or separate, against which the proofs arately, and not against the firm, is en- were made. Mead v. Nat. Bank of Fay- titled to dividends out' of the several etteville, 6 Blatchf. 180, 2 N. B. R. 173, assets of the individual partners. In re Fed. Cas. No. 9,366. Bigelow, 3 Ben. 146, 2 N. B. E. 371, Fed, 202 In re Jones, 2 Nat. Bankr. News, Cas. No. 1,397. 193. 2 00 In re Holbrook, 2 Low. 259, Fed. 203 Supra, § 124. If a creditor having Cas. No. 6,588 ; Robinson v. Seaboard a firm note indorsed by one partner, and Nat. Bank of New York, 247 Fed. 667, holding property of that partner as se- 159 O. C. A. 569, 10 A. L. R. 842, 41 Am. curity, obtains payment by a sale of the Bankr, Rep. 263 ; In re W. S. Kuhn & security after the commencement of the Co. (D. C.) 241 Fed. 935; Anderson v. proceedings in bankruptcy, the separate Stayton State Bank, 82 Or. 357, 159 Pac. creditors are entitled to receive from the 1033. joint fund a sum equal to the dividend 206 in re Baxter, 18 N. B. R. 62, Fed. on the note. In re Foot, 8 Ben. 228, 12 Cgs. No. 1,119 ; In re Tesson, 9 N. B. R. N. B. R. 337. Fed. Oas.No. 4,906. 378, Fed. Cas. No. 13,844; In re Jordan, 204 In re Biehl (D. 0.) 237 Fed. 720, 2 Fed. 319." 38 Am. Bankr. Rep. 150 ; Ex parte Miller, 20^ In re Vetterlein, 20 Fed. 109. Fed. Cas. No. 9,550. A creditor who has Bi,k:.Bkb.(3d Ed.)— 19 § 130 LAW OF BANKRUPTCY 290 arate estates of the partners.*** But merely because proofs of individ- ual claims for fraud against bankrupt partners have established the re- sponsibility of each partner for the fraud, so that they are liable in, solido, not only as partners, but individually, it does not follow that the unliquidated, unprovable claims in tort for the fraud are provable both against the individual partners and against the firm as claims in quasi contract or equitable debt, the basis of such a liability being un- just enrichment, where the facts show that no benefit accrued to the individuals as a result of the fraud beyond what accrued to the firm.**® § 130. Claims of Partners Inter Sese and Against the Firm. — It is provided by the present bankruptcy act that "the court may permit the proof of the claim of the partnership estate against .the individual estates, and vice versa." ''^* In respect to the allowance of such claims, the authorities under the act of 1867 "were not entirely clear. It ap- pears to have been settled that if a member of an insolvent partnership fraudulently misappropriated the funds of the firm, for the purpose of paying off his private debts, the trustee in bankruptcy of the firm would be entitled to recover the amount so diverted or prove a claim therefor against the estate of that partner.*^^ But some of the authorities main- tained that no such proof could be made for money withdrawn from the assets of the firm by one of the partners, if this was done without fraud against his copartners, or with their consent or privity.*^* On the other hand, there were decisions that money advanced by a firm to one of its members beyond his share of the capital was a separate debt of the firm against such member, and that the trustee of the firm might prove it ; *^* and that the claim of a firm against one of its bank- rupt members, who acted as treasurer under the articles of copartnership, 208 In re Farters, 19 Q. B. Div. 84; was held that, when all the partners are Blyth V. Fladgate, L. R. Ch. Div. (1891) in bankruptcy, the separate estate of 337; In re Blackford, 35 App. Div." 330, one partner could not claim against the 54 N. Y. Supp. 972; In re Baxter, 18 N. joint estate of the partnership in com- B. R. 62, Fed. Cas. No. 1,119 ; In re Jor- petition with the joint creditors, nor the dan, 2 Fed. 319; In re Coe, 169 Fed. joint estate against the separate estate 1002, 22 Am. Bankr. Rep. 384. The last- in competition with the separate credl- cited case was affirmed on appeal, In re tors. In re Lloyd, 22 Fed. 90. Coe, 183 Fed. 745, 106 C. C. A. 181, 26 =ii Brecher v. Fox, 1 McCrary, 48, 1 Am. Bankr. Rep. 352. Fed. 273 ; Ryan v. Cavanagh (D. C.) 238 200 Schall V. Camors, 251 U. S. 239, Fed. 604, 39 Am. Bankr. Rep. 44. 40 Sup. Ct. 135, 64 L. Ed. 247, 45 Am. 21-2 in re May, 19 N. B. R. 101, Fed. Bankr. Rep. 599. And see Reynolds v. Cas. No. 9,328 : In re Lane, 2 Low. 333, New York Trust Co., 188 Fed. 611, 110 0. 10 N. B. R. 135, Fed. Cas. No. 8,044 ; In C. A. 409, 39 L. R. A. (N. S.) .391, 26 Am. re McEwen, 6 Biss. 294, 12 N. B. R. 11, Bankr. Rep. 698. Fed. Cas. No. 8,783. 210 Bankruptcy Act 1898, § 5g. In at 213 In re Mclean, 15 N. B. R. 333, least one case under the act of 1867, it Fed. Cas. No. 8,879. 291 BANKEUPTCY OF PAETNERSHIPS § 130 might be proved against his separate estate.*" Under the present stat- ute, providing that the court "may" permit the proof of such a claim, the question of its allowance would appear to rest always in the sound discretion of the court, to be determined on equitable principles, and by the application of a just and fair judgment to the circumstances of the particular case. But it is held that, while the trustee of a partnership estate may prove a claim against the individual estate of one partner, such claim is not entitled to payment pro rata with the claims of in- dividual creditors, but only from the surplus, if any, remaining after the individual claims have been paid.*^® The converse case — that of a claim by one of the partners against the firm — is chiefly met with in instances where one of the partners has made advances of goods or money to the firm or used his private means in paying off the debts of the insolvent or embarrassed partnership. The authorities clearly recognize the rule that a claim of this character may be proved by the partner against the partnership estate in bankruptcy, when its amount has been definitely fixed by an accounting and settle- ment of the partnership affairs, which, however, may be had in the bankruptcy proceedings before the referee,*^® but they also maintain that the partner is not entitled to share in the distribution of the partner- ship estate, under the quoted provision of the bankruptcy act, or at all, until all the other creditors of the partnership have been paid.**^' But this does not apply to a debt which was due from the firm to the particular partner before he entered into the partnership, and which was not brought into the firm's capital, but was overlooked and re- mained unpaid until after the bankruptcy.*"^* But the act of a partner in advancing money o*r paying off debts may be regarded as creating separate claims against his copartners for their proportionate shares, and thus entitle him to prove against their separate estates in the bank- si* Brown v. Curtis, 5 Mason, 421, Fed. 21s in re Hirth, 189 Fed. 926, 26 Am. Cas. No. 2,000. Where a surviving part- Bankr. Rep. 666. ner converts the property of the deceased 2" In re Efflnger, 184 Fed. 728, 25 Am. partner to his own use, and the admin- Bankr. Rep. 9.30 ; In re Denning, 114 Fed. istrators of the latter consent, they may 219, 8 Am. Bankr. Rep. 133; In re Rice, prove a claim therefor against the es- 164 Fed. 509, 21 Am. Bankr. Eep. 205; tate of the former in bankruptcy. In re Wallerstein v. Brvin, 112 Fed. 124, 50 O. Mills, 11 N. B. R. 74, Fed. Cas. No. 9,611. C. A. 129, 7 Am. Bankr. Rep. 256 ; In re One partner, as between himself and the Carmichael, 96 Fed. 594, 2 Am. Bankr. firm creditors, cannot estop himself by Rep. 815; In re Ervin, 109 Fed. 135, 6 any dealings with the other partner Am. Bankr. Rep. 356. See In re Lough from claiming partnership assets. In (C. C. A.) 182 Fed. 961, 25 Am. Bankr. re Gorham, 9 Biss. 23, 18 N. B. R. 419, Rep. 597. Fed. Cas. No. 5,624. 2 is in re Ervin, 114 Fed. 596. 215 In re Telfer, 184 Fed. 224, 106 O. 0. A. 366. § 130 LAW OF BANKRUPTCY 292 ruptcy proceedings. Thus, where judgments against a firm, in favor of certain of its creditors, were bought up by one of the partners, who took assignments of the judgments to himself, it was held that he thereby became a creditor of each of his copartners for their respective shares of the money advanced by him in purchasing the judgments, and was entitled to prove a claim for such share against the individual es- tate of one of the copartners in bankruptcy.*^' So, where a partnership is dissolved by consent, one partner buying the assets and assuming all the debts and liabilities of the firm, from which he agrees to save the other harmless, the relation of the former partners becomes that of principal and surety, and if the retiring partner is compelled to pay a debt of the firm, after an adjudication in bankruptcy against the con- tinuing partner, the former may prove the amount so paid as a claim against the latter's estate in bankruptcy, making such proof in the name of the creditor ; or if the creditor has already proved the debt, the part- ner paying it may have himself subrogated to the rights of such cred- itor.**" In another case it appeared that, out of a firm consisting of four partners, two were insolvent, one was a bankrupt, and the fourth paid off and discharged all the firm debts out of his separate estate. It was held that he was entitled to prove against the separate estate of the bankrupt one-half of the amount so paid by him.**^ But a partner vi^ho has taken notes on the sale of his interest to his copartner cannot receive a dividend from the estate of the latter in bankruptcy until all partnership debts have been paid.*** Where a member of a bankrupt firm is also a member of another firm, his partner, as the remaining member of the latter firm settling its affairs, may prove a debt against the bankrupt firm.*** But the fact that two firms, carrying on business under different names in different places, are composed of identically the same persons, will not operate to give the claims of one firm against another firm the character of individual demands, as distinguished from partnership demands, against the others.*** 210 In re Carmlchael, 96 Fed. 594, 2 I'Mwards (D. C.) 224 Fed. 611, 35 Am. Am. Bankr. Rep. 815. See In re Mason, Bankr. Rep. 469. 1 Nat. Bankr. News, 331; In re Eagles, 221 In re Deil, 5 Sawy. 344, Fed. Cas. 99 Fed. 695, 3 Am. Bankr. Rep. 733. As No. 3,774. to the right of the partner paying the 222 in re Jewett, 1 N. B. B. 495, Fed. debt to be subrogated to the rights of Cas. No. 7,309. the creditor, see In re Smith, 16 N. B. 22s in re Buckhause, 2 Low. 331, 10 B. 113, Fed. Oas. No. 12,991. N. B. R. 206, Fed. Cas. No. 2,086. <22o In re Dillon, 100 Fed. 627, 4 Am. 224 in re Stanton, Fed. Cas. No. 13,295. Bankr. Rep. 63. And see In re Baker & And see In re Vetterlein, 5 Ben. 311, Fed. Cas. No. 16,927. 293 BANKRUPTCY OF PAKTNERSIIirS § 131 § 131. Discharge of Partners.r— Where a firm and its members have been adjudged bankrupt on the voluntary petition of the partners com- posing it, either partner, without reference to the others, may present his individual petition for a separate discharge; and the petition should recite the adjudication of the firm and of the petitioner as a member of it, and should pray for a discharge from both firm and individual debts, and the notice to creditors should advise them of the same facts.^*^ And while the trial of objections to the discharge of partners may be joint, the decrees thereon must be several.*^® The grounds of objection to an application for discharge will be fully discussed in an- other chapter. At present it will suffice to remark that the failure to keep proper books of account may prevent the discharge of both part- ners, although the fault was wholly that of one of them.*^' The dis- charge of one* partner cannot be made operative in favor of the other ; that is, it will not release the other from the indebtedness of the firm.*** And a discharge in bankruptcy of two general partners cannot be set up in favor of a special partner in an action against the three as general partners, on the ground that the special partner had made him- self liable as a general partner.*** A discharge in bankruptcy granted to a member of a firm, in proceedings based on a voluntary petition in which both the firm and the individual partners joined, and on which the petitioners were adjudged bankrupt as prayed, should be made to cover his liability on the debts of the firm and also his individual in- debtedness.**" But when the partnership as such is not in bankruptcy, but only the individual partners on their separate voluntary petitions, they are not entitled to a discharge which will release them from the debts of the firm.**^ And conversely, when the proceeding in bank- 225 In re Meyers, 97 Fed. 757, 3 Am. 228Payne v. Able, 7 Bush (Ky.) 344, Bankr. Rep. 260. Where a member of a 3 Am. Rep. 316, 4 N. B. R. 220. firm filed a petition individually to be 22 s Abendroth v. Van Dolsen, 131 tJ. adjudged a bankrupt, and the petition S. 66, 9 Sup. Gt. 619, 33 L. Ed. 57. was silent as to any partnership assets 230 in re Gay, 98 Fed. 870, 3 Am. or liabilities, though the schedule dis- Bankr. Rep. 529. See Keeler v. Snod- closed individual and partnership debts, grass, 8 Wkly. Law Bui. (Ohio) 219: and the creditors of the firm -were not Curtis v. Woodward, 58 Wis. 499, 17 N. notified, the bankrupt was not entitled to W. 328, 46 Am. Rep. 647. A discharge a discharge from firm debts, though the purporting on its face to release one firm had been dissolved and was without member of a firm from his Individual assets, and the firm debts were barred by debts will not discharge him from the limitation. In re Morrison, 127 Fed. 186, firm liabilities. Honegger v. Wettstein, 11 Am. Bankr. Rep. 498. 47 N. Y. Super. Ct. 125. 226 In jre George, 1 Low. 409, Fed. 231 In re Meyers, 96 Fed. 408, 2 Am. Cas. No. 5,325. Bankr. Rep. 707. ■227 In re George, 1 Low. 409, Fed. Cas. No. 5,325. § 131 LAW OF BANKRUPTCY 294 ruptcy is against the firm, as a legal ei;itity, but does not include adjudi- cations against the partners separately, it is only the firm which is en- titled to a discharge, and the court cannot grant discharges to the part- ners as individuals.*** 2 32inreNeyland, 184Fed. 144, 24 Am. Bankr. Bep. 879; In re Hale, 107 Fed. 432, 6 Am. Bankr. Rep. 35. 29S BANKRUPTCY OP CORPORATIOKS § 132 CHAPTER IX BANKRUPTCY OF CORPORATIONS See. 132. Jurisdiction of Corporations. 133. Same ; Effect of Proceedings for Dissolution Under State Law. 134. Corporations Amenable to Bankruptcy Law. 135. Trading and Mercantile Corporations. 136. Manufacturing Corporations. 137. Banks and Bankers. 138. Railroad apd Insurance Companies. , 139. Mining and Quarrying Companies. 140. Public-Service Corporations. 141. Amendment of 1910 ; Business and Commercial Companies. 142. Religious, Charitable, Educational, and Other Corporations Not for Profit. 143. Unincorporated and Joint Stock Companies. 144. Acts of Bankruptcy by Corporations. 145. Same; Admission of Insolvency and Willingness to be Adjudged Bankrupt. 146. Effect of Adjudication on Status of Corporation. 147. Franchises as Assets. 148. Assessment on Unpaid Stock. 149. Statutory Liability of Stockholders and Directors. 150. Discharge of Corporations. § 132. Jurisdiction of Corporations. — Under the present Bankruptcy Act, as amended in 1910, all kinds of private corporations, including lim- ited partnerships and other quasi corporate organizations, may file vol- untary petitions in bankruptcy, except only railroad, insurance, and bank- ing companies. Whether the directors of a corporation, without au- thority from the stockholders, have power to file a voluntary petition in bankruptcy, m:ust be determined by the law of the state in which the corporation is organized. But under the general law, and in the absence of any provision on the subject in the statutes of the state, or in its arti- cles of incorporation or its by-laws, the directors of a corporation have authority to execute a general assignment of its property for the benefit of its creditors; and such power may well be extended to the filing of a petition in voluntary bankruptcy.^ A state court has no power, by any form of order or injunction, to limit the operation of the Bankruptcy Act, and therefore cannot enjoin a corporation from filing its petition 1 In re Ann Arbor Mach. Corporation thorlty of the law of the state, with pow- (0. O. A.) 274 Fed. 24; In re De Cainp er to take possession of and hold the Glass Casket Co. (C. C. A.) 272 Fed. 558, property of the corporation, its directors 47 Am. Bankr. Eep. 1; Fitts v. Custer are without power to authorize the filing Slide Mining & Developipent Co. (0. 0, of a petition in voluntary bankruptcy A.) 266 Fed. 864, 46 Am. Bankr. 101. and the surrender of its property to the After a receiver has been appointed for bankruptcy court. In re Associated Oil a corporation by a state court, under au- Co. (D. C.) 271 Fed. 788, 46 Am. Bankr. § 132 LAW OF BANKRUPTCY • 29C in voluntary bankruptcy.' But a court of bankruptcy cannot be com- pelled to exercise its jurisdiction in aid of a fraud, and it has power to permit the intervention of stockholders to contest a voluntary petition filed on behalf of tlie corporation by its officers and directors, upon a showing that the object of the proceeding was to avoid the effect of a judgment obtained by stockholders against the corporation and its di- rectors for the appointment of a receiver for the corporation, and for an accounting by the directors for fraudulent mismanagement.* As to compulsory or involuntary proceedings, the present provision is that an adjudication may beunade in such proceedings against "any unincorporated company, and any moneyed, business, or commercial corporation,, except a municipal, railroad, insurance, or banking corpora- tion, owing debts to the amount of one thousand dollars or over." A petition in involuntary bankruptcy against a corporation which does not show that it belongs to one or other of the enumerated classes Js not sufficient to support an adjudication.* It is within the jurisdiction of the court of bankruptcy to determine whether the respondent is amenable to involuntary bankruptcy or not, in view of the nature of its business or occupation.®. In other respects, the proceeding against a cor- poration is the same as in the case of an individual debtor. The same proportion of creditors, in number and amount, must join in a proceed- ing to force a corporation into bankruptcy that is required in the case of a natural person.® In regard to the jurisdiction of the courts of bankruptcy over the Rep. 482. There is no presumption of for the corporation, were attempting a authority in an officer of a corporation fraud on the stockholders, to make and file a voluntary petition in s Zeltinger v. Hargadine-McKittrick bankruptcy for it, and he may not do Dry Goods Co., 244 Fed. 719, 157 C. C. so without the consent of the directors. A. 167, 40 Am. Bankr. Rep. 324. Regal Cleaners & Dyers v. Merlis (C. G. * In re Oregon Bulletin Printing & A.) 274 Fed. 915. But a petition in volun- Pub. Co., 3 Sawy. 614, Fed. Gas. No. tary bankruptcy filed by the attorney of 10,561. a corporation, whose action was ratified s T. E. Hill Go. v. Contractor's Supply by a majority of the stockholders and & Equipment Co., 156 111. App. 270. by all the directors who were competent Though a company against which a peti- te act for it, the other directors having tion in involuntary bankruptcy was filed claims against it, was held suflJcient to may not have been subject to adjudica- give the court jurisdiction. In re Peo- tion, yet a court of bankruptcy which en- ple's Warehouse Co. (D. C.) 273 Fed. 611. tertained the petition and appointed a 2 In re Hargadine-McKittrick Dry receiver had jurisdiction over the parties Goods Co. (D. G.) 239 Fed. 155, 39 Am. and the subject-matter. In re Wilkes- Bankr. Rep. 142. The decree in this Barre Light Go. (D. C.) 235 Fed. 807, 38 case was reversed on appeal (Zeltinger v. Am. Bankr. Rep. 99. Hargadine-McKittrick Dry Goods Co., o In re Leavenworth Sav. Bank, 4 Dill. 244 Fed. 719, 157 C. C. A. 167, 40 Am. 363, 14 N. B. R. 92, Fed. Gas. No. 8,165; Bankr. Rep. 324, but not on th6 proposl- In re Oregon' Bulletin Printing & Pub. tion stated in the text, but because the Co., 3 Sawy. 614, 14 N. B. R. 405, Fed. directors, in filing a voluntary petition Gas. No. 10,561. 297 BANKKUPTCY OF COIiPOEAXIONS § 132 person of the debtor, the terms of the act are very broajd. They have authority to make an adjudication in bankruptcy against persons (in- cluding corporations) who "have had their principal place of business, resided, or had their domicile, within their respective territorial juris- dictions for the preceding six months, or the greater portion thereof." (Section 2, clause 1.) It is now reasonably well settled that the residence or domicile of a corporation can be only in that state from which it de- rives its charter or under whose laws it was organized. For purposes of federal jurisdiction, it does not become a "citizen" or a "resident" of any other state by maintaining a place of business in such other state, even though that may be its principal or exclusive place of business.'" But the terms of the bankruptcy act are much wider than this, and, indeed, it would be singularly lacking in efficiency if an adjudication could only be made in the district where a corporation was ofiQcially a "resident" or had its "domicile." And it is now well settled that, in the case of a corporation organized under the laws of one state but which carries on business in another state or in several other states, it is not necessary that proceedings in bankruptcy should be instituted in the federal court in the state from which it derives its charter (though that court would have jurisdiction by reason of the "domicile" of the cor- poration), but may be maintained in that district, wherever it may be, in which the company has its chief or principal place of business.* The whereabouts of the principal place of business of a corporation, for the purposes of jurisdiction in bankruptcy proceedings against it, is a ques- tion of fact, and the decision of it is not controlled either by the place J ^, of incorporation or by any provision in the charter of the company as 7 In re Mathews Consol. Slate Co., 144 107 Fed. 255, 5 Am. Bankr. Rep. 744; In Fed. 724, 15 Am. Bankr. Rep. 779, 16 re Magid-Hope Silk Mfg. Co., 110 Fed. Am. Bankr. Rep. 350; Germanla Fire 352, 6 Am. Bankr. Rep. 610; Tiffany v. Ins. Co. v. Francis, 11 Wall. 210, 20 L. La Plume Condensed Milk Co., 141 Fed. Ed. 77; Shaw v. Mining Co., 145 U. S. 444, 15 Am. Bankr. Rep. 413; tlome 444, 12 Sup. Ct. '935, 36 L. Ed. 768; Powder Co. v. Geis (C. C. A.) 204 Fed. ■Southern Pacific Co. v. Denton, 146 U. 568, 29 Am. Bankr. Rep. 580. But in S. 202, 13 Sup. Ct. 44, 36 L. Ed. 942; determining in what jurisdicfiioa the Ward V. Blake Mfg. Co., 56 Fed. 437, 5 principal place of business of a bankrupt C. C. A. 538; National Typographic Co. corporation is located, doubt should be V. New York Typographic Co., 44 Fed. resolved in favor of that Jurisdiction 711; Overman Wheel Co. v. Pope Mfg. where it obtained its corporate existence. Co., 46 Fed. 577; Hatch v. Chicago, R. I. and where it is usually required to main- & P. R. Co., 6 Blatchf. 105, Fed. Cas. tain an office. In re Tennessee Const. No. 6,204; Guinn v. Iowa Cent. Ry. Co., Co., 207 Fed. 203. The court of the dis- 14 Fed. 323. trict in which the corporation has its s In re Munger Vehicle Tire Co., 159 domicile has priority of jurisdiction over Fed. 901, 87 C. C. A. 81, 19 Am. Bankr. the court of the district in which it has Eep. 785; In re Alaslgi American Fish its chief place of business. In re New Co., 162 Fed. 498, 20 Am. Bankr. Rep. Bra Novelty Co. (D. C.) 241 Fed. 298, 712; Dressel v. North State Lumber Co., 39 Am. Bankr. Rep. 80. § 132 LAW OF BANKRUPTCY 298 to where its principal office shall be located.^ It is likewise immaterial that a corporation which maintains its principal place of business in a state other than that in which it was incorporated has not complied with the laws of the foreign state, as to filing its articles of incorporation, obtaining a certificate, paying a license fee, or other requirements nec- essary to its lawful right to do business therein.^" Actual maintenance of a principal place of business therein is sufficient to give jurisdiction, though it be unlicensed or otherwise contrary to law. But questions of great difficulty sometimes arise in determining what is the "principal" place of business. There are some decisions to the efifect that, although a company may have its home office in one state, where its officers are and where its directors meet, and where its records are kept and its fi- nances administered, this is not the place where it is "carrying on busi- ness" if its actual operations are conducted in another state, where its mines, shops, factories, mills, or railroad are located.^^ But the modern decisions have generally abandoned this rule, probably in view of the change in methods of corporate management and the tendency to sepa- rate the office from the factory and to establish the executive administra- tion in the larger cities, and probably also in view of the fact that it is ordinarily much more convenient to settle the affairs of an insolvent cor- poration at the place where its records are kept and its financial business transacted. Accordingly, it is generally held that where a corporation operates factories, mills, mines, or other works in one state, but maintains a head office in another state, from which supreme direction and control are exercised over all its business, and where its directors hold their meetings, its records and accounts are kept, its correspondence conduct- ^ ed, and its banking business mainly done, it is the latter place, and not the former, which constitutes the comipany's principal place of business, and where proceedings in bankruptcy against it may be instituted. ^^ « In re Pennsylvania Consol. Coal Co., 242 Fed. 243, 155 O. C. A. 83, 39 Am. 163 Fed. 579, 20 Am. Bankr. Rep. 872; Bankr. Rep. 562; Roszell Bros. v. Con- In re GuanacevI Tunnel Co. (C. C. A.) tlnental Coal Corp. (D. C.) 235 Fed. 343, 201 Fed. 316, 29 Am. Bankr. Rep. 229; 38 Am. Bankr. Rep. 31; In re Beier- In re Wenatchee-Stratford Orchard Co., meister Bros. Co. (D. C.) 208 Fed. 945, 31 205 Fed. 964, 30 Am. Bankr. Rep. 540; Am. Bankr. Rep. 474. In re R. H. Pennington & Co. (D. C.) 228 12 Burdiek v. Dillon, 144 Fed. 737, 75 Fed. 388, 35 Am. Bankr. Rep. 832; In re C. C. A. 603; In re Marine Machine & San Antonio Land & Irrigation Co. \I>. Conveyor Co., 91 Fed. 630, 1 Am. Bankr. (C.) 228 Fed. 984, 36 Am. Bankr. Rep. 512. Rep. 421; In re Mathews Consol. Slate 10 In re Duplex Radiator Co., 142 Fed. Co., 144 Fed. 724, 15 Am. Bankr. Rep. 906, 16 Am. Bankr. Rep. 324; In re Per- 779, 16 Am. Bankr. Rep. 350; In re ry Aldrich Co., 165 Fed. 249, 21 Am. Pennsylvania Consol. Coal Co., 163 Fed. Bankr. Rep. 244. 579, 20 Am. Bankr. Rep. 872. Compare 11 In re Alabama & C. R. Co., 9 Blatchf . In re Elmira Stiel Co., 109 Fed. 456, 5 390, 6 N. B. R. 107, Fed. Cas. No. 124; Am. Bankr. Rep. 484; In re Tygarts Iliv- Continental Coal Corp. v. Roszelle Bros., er Coal Co., 203 Fed. 178, 30 Am. Bankr. 299 BANKUUPTCY OF COEPORATIONS § 133 But where a company having both its executive offices and its plant in one state ceases to manufacture any products, the fact that it con- tjnues to make sales of its finished goods through an agent in another state does not operate" to transfer its principal place of business to the latter state. ^* And so, where a company, incorporated in one state and doing business in another, sold most of its stock and gave up its place of business, and went into the hands of receivers appointed by a court of the state of its domicile, who took charge of the remaining prop- erty in the other state, all about six months before the filing of a petition in bankruptcy against it, it was held that a federal court in the latter state had no jurisdiction of the petition.^* Returning to the subject of residence or domicile, it may be observed that if a corporation, already enjoying corporate existence under the laws of one state, receives also a charter from another state, it becomes, for purposes of jurisdiction, a resident or citizen of either state and of both.^® And where the same corporation thus enjoys a corporate ex- istence by legislative recognition in two states at once, and successive petitions in bankruptcy are- filed against it in the federal courts within each of those states, that court which first acquires jurisdiction by the filing of the petition will retain it, and must be permitted to exercise it to the fullest extent, without interference by any other court." And so, where a bankrupt corporation has its domicile in one judicial district, and its principal place of business in another, the courts of bankruptcy of both districts will have concurrent jurisdiction of involuntary pro- ceedings in bankruptcy against it.^' § 133. Same; Effect of Proceedings for Dissolution Under State Law. — ^A corporation which is subject to the provisions of the act, and has committed an act of bankruptcy, and which is in existence when the petition against it is filed and when the proper papers are served on its proper officer, cannot oust the jurisdiction of the court of bankruptcy to proceed to an adjudication on the return day, because a decree dis- solving the corporation has been made after such service and before such Kep. 183. And see In re Worcester Foot- 27 L. Ed. 518; MInot v. Philadelphia, wear Co. (D. C.) 251 Fed. 760, 41 Am. W. & B. R. Co., 2 Abb. U. S. 323, Fed. Bankr. Rep. 695. Cas. No. 9,645; Home v. Boston & M. R. 13 In re Elmira Steel Co., 109 Fed. 456, Co., 18 Fed. 50. 5 Am. Bankr. Eep. 484. i« In re Boston, H. & E. R. Co., 9 "In re Perry Aldrich Co., 165 Fed. Blatchf. 101, 6 N. B. R. 209, Fed. Cas. 249, 21 Am. Bankr. Rep. 244. And see No. 1,677. In re Thomas McNally Co. (D. C.) 208 i^'in re United Button Co., 137 Fed. Fed 291 31 Am. Bankr. Rep. 382. 668, 13 Am. Bankr. Rep. 454; In re New 15 Railroad Co. v. Harris, 12 Wall. 65, Era Novelty Co. (P. C.) 241 Fed. 298, 20 L. Ed. 354; Memphis & C. R. Co. v. 39 Am. Bankr. Rep. 80. Alabama, 107 U. S. 581, 2 Sup. Ct. 432, .§ 133 LAW OF BANKRUPTCY 300 return day.^* And it is even held that the federal court has power to declare a corporation bankrupt, notwithstanding its dissolution by de- cree of a state court, and the appointment of a receiver to wind up its af- fairs, before the commencement of the proceedings in bankruptcy, pro- vided, that such proceedings are begun within four months after such dis- solution, that being the time within which an act of bankruptcy must be alleged.** At any rate it seems clear that where a corporation, being insolvent, commits an act of bankruptcy by preferring certain of its creditors, the jurisdiction of a court of bankruptcy to adjudge it bank- rupt and administer its property attaches, and the company cannot avoid such jurisdiction and validate its preferences by instituting pro- ceedings for its dissolution in a state court before proceedings in bank- ruptcy against it are commenced.'**' It is also held that proceedings tak- en by a state to forfeit the charter of one of its corporations for non- payment of state tajces, or to suspend it or enjoin it from all corporate activity until such delinquency shall be removed, do not destroy the corporation so as to prevent the institution of proceedings in bank- ( 18 Piatt V. Archer, 9 Blatchf. 559, 6 N. B. R. 465, Fed. Gas. No. 11,213. "It is argued that, as the dissolution of the corporation has been adjudged and de- creed in the state court prior to the hearing, although since the institution of the proceedings in the bankruptcy court, such proceedings abated, and no adjudication in bankruptcy should be rendered, as the corporation is dead, and no judgment can be rendered against a dead man. As to this, we think it only necessary to refer to section 8 of the bankruptcy act in relation to the death or insanity of the bankrupt, and by anal- ogy hold that the section applies to a corporation that seeks by suicide to de- feat properly instituted proceedings in bankruptcy." Scheuer v. Smith & Mont- gomery Book & Stationery Co., 112 Fed. 407, 50 C. 0. A. 312, 7 Am. Bankr. Rep. .^84. 18 Morehouse v. Giant Powder Co. (0. C. A.) 206 Fed. 24; In re Hunger Vehicle Tire Co., 159 Fed. 901, 87 C. C. A. 81, 19 Am. Bankr. Rep. 785; Tiffany v. La Plume Condensed Milk Co., 141 Fed. 444, 15 Am. Bankr. Kep. 413; In re Belfast Mesh Underwear Co., 153 Fed. 224, 18 Am. Bankr. Rep. 620; White Mountain Paper Co. v. Morse, 127 Fed. 64.3, 62 C. C. A. 369, 11 Am. Bankr. Rep. 633; In re Independent Ins. Co., 2 Low. 97, 6 N. B. R, 169, Fed. Cas. No. 7,018; In re Green Pond R. Co., 13 N. B. R. 118, Fed. Cas. No. 5,786; In re Safe Deposit & Sav. Inst., 7 N. B. R. 392, Fed. Cas, No. 12,211; In re Washington Marine Ins. Co., 2 Ben. 292, 2 N. B. R. 648, Fed. Cas. No. 17,246; Thornhill v. Bank of Louisiana, 1 Woods, 1, Fed. Cas. No. 13,992; In re Merchants' Ins. Co., 3 Biss. 162, Fed. Cas. No. 9,441; In re New Am- sterdam Ins. Cq., 6 Ben. 368, Fed. Cas. No. 10,140. And see In re Storck Lum- ber Co., 114 Fed. 360, 8 Am. Bankr. Rep. 86, where it was said: "Upon the broad principle that the national bankrupt law is to govern the administration of the estates of all insolvent debtors, and su- persedes all the state laws having a like object, when its provisions are invoked by the requisite creditors and acts of bankruptcy are proven, a motion made by the receiver of a corporation, ap- pointed under a suit [statute?] for wind- ing up insolvent corporations, which is in the nature of a proceeding in insol- vency, to quash the petition in involun- tary bankruptcy theretofore filed against the corporation, upon the ground that the state court had full jurisdiction when it entered its decree dissolving the corporation, and that, when said peti- tion was filed, the corporation was no longer in existence, must be overruled." -0 In re Adams & Hoyt Co., 164 Fed. 480, 21 Am. Bankr. Rep. 161; Scheuer v. 3(31 BANKRUPTCY OF COEPOEATIONS § 134 ruptcy against it or its appearance by attorney therein. '^ The same is true of the proceedings taken under a statute of Pennsylvania, by which all the property of an insolvent corporation is sold under a special writ of fieri facias for distribution among its creditors. This does not work a dissolution of the corporation so as to defeat subsequent bankruptcy proceedings against it, based on such proceedings as an act of bank- ruptcy.^ Neither is the court of bankruptcy deprived of jurisdiction by the appointment of receivers for a manufacturing corporation and its ceasing to do business in consequence, before the filing of a petition in bankruptcy against it,** nor by its election of liquidating; trustees, as authofized by a state statute, which further provides that, upon their giving notice by publication, the company "shall cease to carry on its business, except so far as may be required for the beneficial winding up thereof." ** Some of the state courts have held that, under state laws empower- ing them to dissolve a corporation which has abandoned its business and neglected to wind up its affairs, they are not preclude^ from doing so because a federal court has obtained control of the corporation's prop- erty by proceedings in bankruptcy.*^ This may be correct -doctrine, so far as regards a mere decree of dissolution. But no federal court- could be expected to admit that the process of the state court could extend to the property within its own control, or in any manner regulate its ad- ministration or distribution. For the jurisdiction of a federal court, once attaching in bankruptcy proceedings, is not co-ordinate livith that of the state courts, but superior and exclusive. § 134. Corporations Amenable to Bankruptcy Law. — As originally enacted the Bankruptcy Act of 1898 provided for proceedings in invol- untary bankruptcy against "any corporation engaged principally in manufacturing, trading, printing, publishing, or mercantile pursuits,'' •with the further provision that "private bankers, but not national banks or banks incorporated under state or territorial laws, may be adjudged involuntary bankrupts." Section 4. Doubts having arisen whether companies engaged in the business of mining should be considered as Smith & Montgomery Book & Stationery Cresson & Clearfield C!oal & Coke Co. v. Co., 112 Fed. 407, 50 C. C. A. 312, 7 Am. Stauffer, 148 Fed. 981, 78 O. C. A. 609, Bankr. Rep. 384. 17 Am. Bankr. Rep. 573. 21 In re Hunger Vehicle Tire Co., 159 23 In re C. Moench & Sons Co., 130 Fed. 901, 87 C. C. A. 81, 19 Am. Bankr. Fed. 685, 66 C. C. A. 37, 12 Am. Bankr, Rep. 785; In re Double Star Brick Co. Rep. 240. (D. C.) 210 Fed. 980, 32 Am. Bankr. Rep. 24 in re Hercules Atkin Co., 133 Fed. 149. 813, 13 Am. Bankr. Rep. 369. 22 In re International Coal Min. Co., 25 Hart v. Boston, H. & E. R. Co., 40 143 Fed. 665. 16 Am. Bankr. Rep. 309; Conn. .524. § 134 LAW OF BANKRUPTCY 302 within the terms of the act/* they were expressly included by an amend- ment adopted in 1903.^' But seven years later, this section of the act underwent a drastic revision, and there was substituted for the language above quoted a provision bringing within the terms of the law, as to involuntary proceedings, "any moneyed, business, or commercial cor- poration, except a municipal, railroad, insurance, or banking corpora- tion." ^* The statute, it is held, is not lacking in the "uniformity" re- quired by the Constitution although it discriminates between different classes of corporations, nor is the classification adopted by Congress un- reasonable or beyond the limits of its discretion.^' But it is to be strict- ly construed in this regard, and cannot be held to include any corpora- tion not clearly within the enumeration.^* The court of bankruptcy has jurisdiction to determine whether or not a given corporation comes within the terms of the law.*-*^ There has been some doubt as to whether it was a jurisdictional requisite that the corporation should be actually carrying on one of the enumerated, lines of business, at the time of the institution of proceed- ings against it, chiefly in view of the original provision giving jurisdic- tion over corporations "engaged principally" in manufacturing, etc. Some -of the cases hold that a corporation chartered for a certain pur- pose is to be regarded (in bankruptcy proceedings) as engaged in the business contemplated by the charter from the time it starts to put it- self in shape to pursue the object for which it was incorporated, and is amenable to bankruptcy proceedings although it has not yet completed its plant, or started its works, or turned out any finished product.** But perhaps the better reason as well as the preponderance of authority is with the decisions which maintain that, to authorize an adjudication against a corporation on the ground of its being "engaged principally" in some line of business within the terms of the statute, it is not suffi- cient that its charter authorizes it to engage in such business, nor that it may have the intention of so engaging. If, up to the time of the filing of a petition against it, it has never done any business, except of a 2 See Infra, § 139. E. 544. See In re Broadway Savings 2 7 Act Cong. Feb. 5, 1903, 32 Stat. 797. Trust Co. (C. O. A.) 152 Fed. 152, 18 Am. 28 Act Cong. June 25, 1910, 36 Stat. Bankr. Rep. 254. 838. 32 Bollinger v. Central Nat. Bank, 177 2 Leidigh Carriage Co. v. Stengel, 95 Fed. 609, 101 C. C. A. 235, 24 Am. Bankr. Fed. 637, 37 O. C. A. 210, 2 Am. Bankr. Rep. 44 ; In re Bloomsburg Brewing Co., Rep. 383. 172 Fed. 174, 22 Am. Bankr. Rep. 625; 3 In re New York & New Jersey Ice White Mountain Paper Co. v. Morse, 127 Lines, 147 Fed. 214, 77 C. C. A. 440, 16 Fed. 643, 62 C. C. A. 369, 11 Am. Bankr. Am. Bankr. Rep. 832. Rep. 633 ; In re White Mountain Paper BIT. B. Hill Co. V. Contractors' Sup- Co., 127 Fed. 180, 11 Am. Bankr. Rep, ply & Equipment Co., 249 111. 304, 94 N. 491. 303 BANKRUrTCX OF CORPORATIONS § 135 preparatory kind, it is not subject to adjudication.*^ It is further to be remarked that the liability of a corporation to bankruptcy proceedings depends on the business it actually transacts, and not on the business it is empowered by its charter to do.** And if the occupation which it pursues is one that brings it within the terms of the act, it is no defense to- a petition against it that such business was ultra vires.*® There is also to be considered the case where a corporation is engaged in two or more distinct lines of business, one of which would subject it to the operation of the bankruptcy act, while the other or others would not. Here it is held that the question of the liability of the company to in- voluntary proceedings depends on the nature of that business which is Its chief or principal pursuit.*® But if it is carrying on two lines of business, both of which are within the terms of the act, it is of course immaterial which is to be considered its "principal" business.*' And if the business of the corporation was of one of the kinds enumerated in the statute, it is none the less liable to be adjudged bankrupt because it has ceased to operate before the commencement of the proceedings.** § 135. Trading and Mercantile Corporations. — Though the original provision of the statute in regard to companies engaged in "trading or mercantile pursuits" has now been superseded by the wider provision as to "moneyed, business, or commercial corporations," it is important to consider the judicial constructions given to the earlier clause, because the amendment of 1910 was probably adopted in view of the fact that many corporations were escaping from bankruptcy proceedings, by reason of such constructions, which, in the judgment of Congress, should be made amenable to the law. 33 In re Coolidge Refrigerator & Car and therefore a company whose only au- Co., 190 Fed. 908, 27 Am. Bankr. Eep. thorized business is that of a carrier is 209 ; In re New England Breeders Club, not liable to bankruptcy on the ground 165 Fed. 517, 21 Am. Bankr. Rep. 349 ; that its principal business is in fact that In re Chicago-Joplin Lead & Zinc Co., of a trader. 104 Fed. 67, 4 Am. Bankr. Rep. 712; 35 in re Kingston Realty Co., 157 Fed. In re Tontine Surety Co., 116 Fed. 401, 299, 19 Am. Bankr. Rep. 465. S Am. Bankr. Rep. 421; In re Toledo «« Gate v. Connell, 173 Fed. 445, 97 C. Portland Cement Co., 156 Fed. 83, 19 C. A. 647 ; In re Interstate Paving Co., Am. Bankr. Rep. 117. 171 Fed. 604, 22 Am. Bankr. Eep. 572. 3* In re Kingston Realty Co., 160 Fed. See In re Humphrey Advertising Co., 445, 87 C. C. A. 406, 19 Am. Bankr. 177 Fed. 187, 101 C. C. A. 1, 24 Am. Rep. 845. But see In re H. J. Quimby Bankr. Rep. 41. Freight Forwarding Co., 121 Fed. 139, s? Burdick v. Dillon, 144 Fed. 737, 75 10 Am. Bankr. Rep. 424, holding that, C. C. A. 603. while the susceptibility to bankruptcy bs Robertson v. Union Potteries Co., of a corporation does not depend wholly 177 Fed. 279, 22 Am. Bankr. Rep. 121. on its charter, yet it can hardly be See J. W. Calnan Co. v. Doherty, 174 brought within the scope of the act by Fed. 222, 98 C. O. A. 130, 23 Am. Bankr. a principal business outside its charter ; Rep. 297. § 135 LAW OF BANKRDPTCT 301 At the present day it cannot be said that there is any practical dis- tinction between a "trader" and a "merchant," or between "trading" and "mercantile pursuits." Although, in a very colloquial sense, "trade" means the exchange of comniodities, its legal signification is ilot so re- stricted. A merchant or trader is a person who pursues the business of buying commodities, either for money or in exchange for other com- modities, for the purpose and with the intention of selling them again at a profit. He is, in fact, one whose avocation is to buy goods, wares, and merchandise to sell again, and who does both, not occasionally or incidentally, but habitually and as a business.** Both the elements of purchase with a view to sale, and of habit or continuity in the business, are necessary to constitute a trader. The mere purchase of articles and their subsequent sale will not make one a merchant or trader, within the meaning of the law, if the commodities were not bought for the purpose of being sold again.*" And again, occasional or incidental deal- ings in the way of trade will not fix this character upon him. He must pursue it as a business. This is especially true under the provision of the act that proceedings in bankruptcy would lie against a corporation engaged "principally" in trading or mercantile pursuits. To illustrate, a person whose business is that of farming is not a trader, though he may occasionally buy and sell horses, cattle, and hay." Nor is a team- ster who, even to a very considerable extent, buys and sells hay and straw, for the bona fide purpose of keeping his teams from standing idle,*" nor a theatrical manager who buys costumes and machinery for use in his business, and who on a few occasions has sold some such property,** nor a bank cashier who buys paintings ffom time to time, and sells them at auction.*^ So, although a water company may be authorized by its charter to "buy, sell, use, and deal in water for power, manufacturing, and hydraulic purposes," yet if its business is actually confined to supplying water for domestic consumption and to municipal fire departments, it cannot be said to be "engaged principally in trading or mercantile pursuits." *" 39 Zugalla V. International Mercantile *» In re Rogers, 1 Low. 423, 3 N. B. R. Agency, 142 Fed. 927, 74 C. 0. A. 97, 16 564, Fed. Cas. No. 12,001. Am. Bankr. Rep. 67; In re H. J. Quim- *iln re Cote, 2 Low. 374, 14 N. B. R. by Freiglit Forwarding Co., 121 Fed. 503, Fed. Gas. No. 3,267; In re Rags- 13§, 10 Am. Banlcr. Rep. 424; In re dale, 7 Biss. 154, 16 N. B. R. 215, Fed. Tontine Surety Co., 116 Fed. 401, 8 Am. Cas. No. 11,530. Bankr. Rep. 421; Com. v. Natural Gas *2 In re Kimball, 7 Fed. 461. Co., 32 Pittsb. Leg. J. 309; State v. 43 in re Duff, 4 Fed. 519. Smith, 5 Humph. (Tenn.) 394 ; Lansdale ** In re Chapman, 9 Ben. 311, Fed. V. Brashear, 3 T. B. Mon. (Ky.) 330; Cas. No. 2,601. In re Tyler, 4 N. B. R. 104, Fed. Cas. 45 in re New York & W. Water Co., 98 No. 14,305 ; "Wakeman v. Hoyt, 5 Law Fed. 711, 3 Am. Bankr. Rep. 508. Rep. 309, Fed. Cas. No. 17,051. 305 , BANKRUPTCY OF COEPORATIOXR § 135 The following persons have been held to be "merchants" or "trad- ers," within the meaning of former bankruptcy statutes: A dealer in natural ice ; ** a person engaged in the manufacture iind sale of lum- ber ; *'' one engaged in the operation of a planing mill ; ** a person who buys and sells furniture on his own account and has a shop where his goods are displayed;** a tin-smith who also keeps a stock of hard- ware ; ^ a baker who buys flour, which he makes into bread, and sells the bread to daily customers ; ®^ a man who boards horses ; ®* a person who keeps a bar or an inn and sells there, for cash and on credit, cigars and liquors bought in quantity ; ^? a stair-builder who buys lumber, nails, and other necessary materials, and works them up into stairs for per- sons who give hira orders therefor and pay him a gross price therefor delivered and completed;®* a butcher who buys cattle on the hoof, and sells some of them, and converts the rest into money by slaughtering and disposing of the product as meat.^ It has also been held, under the present statute, that a corporation which owns and maintains a private hospital for consumptives, conducting its business for profit and not as a charity, furnishing to its patients the usual accommoda- tions of a hotel, and treating their disease chiefly by the inhalation of an antiseptic vapor chemically prepared on the premises, though it is not a "manufacturing" corporation, within the meaning of the statute, is "engaged principally in trading or mercantile pursuits," and may therefore be adjudged bankrupt in involuntary proceedings against it.^ A similar ruling has been made in regard to a corporation conducting the business of a mercantile agency, and chiefly occupied in gathering information and printing and publishing a book of ratings with respect to the standing of merchants.®' Also, On the theqry that electricity generated for the purpose of light, heat, and power is a product of "manufacture" and a commercial commodity, it has been held that a corporation whose business is to buy electricity and resell it to consum- *6 City of Kansas v. Vmclquest, 36 Mo. Us Cab & Automobile Co., 178 Fed. 113, App. 584. 23 Am. Bankr. Rep. 593. " In re Cowles, 1 N. B. R. 280, Fed. =3 in re Sherwood, 9 Ben. 66, 17 N; B. Cas. No. 3,297. R. 112, Fed. Oas. No. 12,773 ; In re *8 Baldwin v. Rosseau, Fed. Oas. No. Ryan, 2 Sawy. 411, Fed. Cas. No. 12,- 803. 183. *» In re Newman, 3 Ben. 20, 2 N. B. ^4 in re Garrison, 5 Ben. 430, 7 N. B. R. 302, Fed. Cas. No. 10,175. R. 287, Fed. Cas. No. 6,254. 50 In re Sawyer, 2 Hask. 387, Fed. Cafe. ss In re Bassett, 8 Fed. 266. No. 12,394. 5 s In re San Gabriel Sanatorium Co., 51 In re Coc&s, 3 Ben. 260, Fed. Cas. 95 Fed. 271, 2 Am. Bankr. Rep. 408. No. 2,933. 6 7 In re Mutual Mercantile Agency, B 2 In re Morton Boarding Stables, 108 111 Fed. 152, 6 Am. Bankr. Rep. 607. Fed. 791, 5 Am. Bankr. Rep. 763 ; In re But compare Zugalla v. International Odell, 9 Ben. 209. 17 N. B. R. 73, Fed. Mercantile Agency, 142 Fed. 927, 74 C. Cas. No. 10,426. But compare In re Wil- 0. A. 97, 16 Am. Bankr. 67. Bt,k.Bke.(3dEd.)— 20 § 135 LAW OF BANItRUPTCY 300 ers for such purposes at a profit is engaged in "trading," within the meaning of the statute.^* On the other hand, in regard to the following, it has been held that they are not to be accounted merchants or traders within the mean- ing of the law: An owner of oil lands, who divides them into lease- holds and receives the rent in oil, as he deals only in the product of his land ; ® a water-supply company, engaged in the business of obtaining, transporting, and supplying pure water for municipal and domestic use ; ** a man who speculates in stocks, buying and selling them through brokers, but not keeping an office for that purpose nor acting as a com- mission broker for others ; ^^ a corporation whose charter authorizes it to deal in notes, loans, and bonds ; ** one who contracts with a railroad company to grade and build its road ; ®* the keeper of a livery stable ; ®* one who superintends the running of a steamboat, and, as treasurer of the corporation owning her, receives and disburses the money earned by the vessel ; ^ a corporation engaged in conducting a general fire in- surance agency; *® one occupied in buying and selling improved and un- improved real estate ; *' one operating, for profit, a circulating libra- ry ; ®* a building and loan association ; *® a corporation conducting a public warehouse ; '•* one engaged in the business of soliciting advertise- ments and placing them in newspapers at rates previously obtained ; '^ a company incorporated for the purpose of giving theatrical perform- ances and engaged solely in that business ; '* a common carrier ; '* a cor- es In re Charles Town Light & Power «? In re Kingston Eealty Ck)., 160 Fed. Co., 183 Fed. 160, 25 Am. Bankr. Rep. 445, 87 C. C. A. 406, 19 Am. Bankr. Eep. 687. 845. 5 9 In re Woods, 7 N. B. E. 126, Fed. sa In re Pamielee Library, 120 Fed. Cas. No. 17,990. • 235, 56 C. 0. A. 583, 9 Am. Bankr. Rep. In re Pacific Coast Warehouse Co.. 03 In re Smith, 2 Low. 69, Fed. Cas. 123 Fed. 740. No. 12,981; In re Minnesota & A. Const. ^i in re Snyder & Johnson Co., 133 Co., 7 Ariz. 137, 60 Pac. 881. Fed. 806, 13 Am. Bankr. Rep. 325. 64 Hall V. Cooley, Fed. Cas. No. 5,928 ; ^ 2 in re "Oriental Society, 104 Fed. 975, Gallagher v. De Lancey Stables Co., 5 Am. Bankr. Rep. 219. So as to a 158 Fed. 381, 19 Am. Bankr. Rep. 801. corporation whose business is renting «5 In re Merritt, 7 Fed. 853. films for moving pictures. In re Impe- es In re Moore & Muir Co., 173 Fed. rial Film Exchange, 198 Fed. 80, 117 C. 732, 23 Am. Bankr. Rep. 122. C. A. 188, 28 Am. Bankr. Rep. 815. "In re Philadelphia & Lewes Transp. 307 BANKRUPTCY OF CORPORATIONS § 136 poration engaged in conducting a hotel, a restaurant, or a saloon ; '''* and one operating a laundry.'^ But it is very essential to notice that most, if not all, of the avoca- tions or pursuits mentioned in the preceding paragraph would come within the terms of the law as it now stands. That is to say, a corpo- ration engaged in carrying on any one of those various lines of business would almost certainly be held to be within the description of "mon- eyed, business, or commercial corporations." § 136. Manufacturing Corporations. — For the reasons stated in the preceding section, it is necessary also to pay some attention to the previous decisions construing the term "manufacturing." For while a manufacturing corporation may or may not be also describable as a "commercial" corporation, it is certainly a "moneyed" or a "business" company; and on the other hand, many companies which were held not to be "engaged principally in manufacturing" would clearly come within the broader language of the amendment of 1910. And first, it is necessary to advert to the distinction between "manufacturing" and "mercantile pursuits." In the case of a merchant, as well as a manu- facturer, there is a common element of purchasing personal property with a view of making a gain or profit. But a manufacturer attains the object "by adding to the value of the property after purchase, by some process or combination with other materials, while the merchant is supposed to get his advanced price or profit by selling the article as it is, without subjecting it to any change by hand, by machinery, or by art. The material entering into the manufactured article may be modi- fied more or less in its identity, as it passes through the several stages of a manufacturing process, but the merchant deals in the manufactured article itself, or its constituents, by buying and selling them in the same condition in which he purchases them. His business is that of exchanges, and not of making or fabricating from raw materials." '^ * Co., 114 Fed. 403, 7 Am. Bankr. Kep. Am. Bankr. Kep. 173 ; In re Barton Ho- 707; In re H. J. Quimby Freight For- tel Co., 12 Am. Bankr. Rep. 335. warding Co., 121 Fed. 139, 10 Am. Bankr. J s in re Eagle Steam Laundry Co., 184 Rep. 424. Fed. 949, 25 Am. Bankr. Rep. 868. '* Toxaway Hotel Co. v. J. L. Smath- ?« Bngle v. Sohn, 41 Ohio St. 691, 52 ers & Co., 216 U. S. 439, 30 Sup. Ct. 263, Am. Bankr. Rep. 103. And see further, 54 L. Ed. 558, 23 Am. Bankr. Rep. 626 ; People v. Roberts, 90 Hun, 533, 36 N. X. Nollman & Co. v. Wentworth Lunch Supp. 73; Eaton v. Walker, 76 Mich. 579, Co., 217 U. S. 591, 30 Sup. Ct. 694, 54 43 N. W. 638, 6 L. R. A. 102; Walker L. Ed. 895; In re United States Hotel Roofing & Heating Co. v. Merchant & Co., 134 Fed. 225, 67 C. C. A. 153, 13 Am. Evans Co., 173 Fed. 771, 97 C. C. A. 495, Bankr. Rep. 403; In re Wentworth 23 Am. Bankr. Rep. 185; In re Church Lunch Co., 159 Fed. 413, 86 O. C. A. 393, Const. Co., 157 Fed. 298, 19 Am. Bankr. 20 Am. Bankr. Rep. 29; In re Chesa- Rep. 549. peake Oyster & Fish Co., 112 Fed. 960, 7 § 136 LAW OF BANKRUPTCY 308 Proceeding now to specify examples of these questions, we find de- cisions to the effect that the production of illuminating gas and sup- plying it to consurriers is a manufacture, and that corporations organized for this purpose and engaged in this business are "manufacturing com- panies."" Not so, however, with natural gas. A company engaged in supplying natural gas to customers for light and heat is not a manu- facturing company.'* As to electric companies, the decisions are square- ly opposed. In some states, it is held that a company generating elec- tricity and selling it to consumers for power, illuminating, or heating purposes, is not a manufacturing company, within the meaning of stat- utes exempting the capital stock of such companies from taxation.'* But in other states, it is as decidedly held that such a corporation is with- in the terms of a similar statute.** Again, a corporation engaged in sup- plying its tenants with steam power, to enable it the more readily to rent its buildings and rooms, has been adjudged not a manufacturer.*^ And on the same principle which was held to determine the case of nat- ural gas, that it is a product of nature and not of any manufacturing process, it has been ruled that hay is not a "manufactured article." ** As to natural ice, there is again a difference of judicial opinion. It was very sensibly said by the Supreme Judicial Court of Massachusetts : "The cutting of ice produced by the agencies of nature, on the surface of a pond, into pieces of a size convenient for handling, and storing the pieces in a building, cannot in any proper sense be called a maufacture. The material is in no way changed or adapted to any new or different use ; it still remains ice, to be used simply as ice; it is no more a manufacture than putting the water from the pond into casks for transportation and use would be a manufacture." ** And a similar conclusion has been reached by the courts in New York.** On the other' hand, in Michigan, it is ruled that the business of cutting natural ice from a river or lake and preparing it for use as an article of consumption, by clearing it from "Nassau Gas-Light Co. v. City of so People v. Wemple, 129 N. X. 543, 29 Brooklyn, 89 N. T. 409. But see Shreve- N. E. 808, 14 L,. R. A. 708; People v. port Ga.s Co. v. As.sessor, 47 La. Ann. 65, Campbell, 88 Hun, 527, 34 N. Y. Supp. 16 South. 650; Ottawa Gas-Light Co. v. 711. Downey, 127 111. 201, 20 N. E. 20. si Com. v. Arrott Steam-Power Mills 7 8 Emerson v. Com., 108 Pa. St. 111. Co., 145 Pa. St. 69, 22 Atl. 243. And see Com. v. Natural Gas. Co., 32 ss Frazee v. Moffltt, 20 Blatchf. 267, 18 Pittsb. Leg. J. 309. Fed. 584. 70 Com. V. Northern Electric L. & P. ss Hittinger v. Westford, 135 Co., 145 Pa. St. 105, 22 Atl. 839, 14 L. 258. R. A. 107; Com. v. Edison Electric L. s* People v. Knickerbocker Ice Co., 99 & P. Co., 170 Pa. St. 231, 32 Atl. 419; N. Y. 181, 1 N. E. 669. And see In re Frederick Electric L. & P. Co. v. Fred- New York & New Jersey Ice Lines, 147 erick City, 84 Md. 599, 36 Atl. 362, 36 Fed. 214, 77 C. 0. A. 440, 16 Am. Bankr. L. R. A. 130; Com. v. Brush Electric Rep. 832. Light Co., 145 Pa. St. 147, 22 Atl. 844. 309 BANKEUrTCY OF CORrOKATIONS § 136 snow and reducing it to blocks of a convenient size, is manufacturing.*^ And however this may be, a company carrying on a wholesale and retail ice business, and selling not only ice of its own harvesting, but also large quantities which it buys from third parties, is certainly engaged in "mercantile pursuits," and liable to adjudication in bankruptcy.** And it is also clear that the production of artificial ice by frigorific processes, as an article of commerce, is within the description of "manufactur- ing." *' In this connection it may be mentioned that an aqueduct com- pany is not a manufacturing corporation, although it purifies the water before distributing it by means of filters and screens.** The business of slaughtering cattle and refrigerating the carcasses and shipping them to points for sale is not manufacturing,** though it seems that a company which buys and slaughters hogs, and subjects them to certain processes and combinations with other materials, requiring the application of skill, labor, and capital, and converts them into lard and cured meats, for the purpose of adding to the value thereof, with a view of making gain or profit, is engaged in manufacturing.®" And so of a company carrying on the business of catching fish, and preserving them by salt and market- ing them, and which owns and operates a plant for the preparing, pre- serving, and packing of the fish.**- It is also held that the term "manu- facturing" includes the business of refining and preparing for use oil, coal, and other minerals.*^ But the business of converting trees and logs into marketable lumber, in a saw mill, is not manufacturing,*^ though it seems that a corporation whose business is the production of kindling-wood from slabs, by the use of machinery, skill, capital and labor, which article is different in form and condition from the material out of which it was made, being specially prepared for use as a kindler for anthracite coal, and known under a distinctive name, is engaged in the business of manufacturing.** On the other hand, it has been held that a planing mill, engaged in dressing rough lumber into plain and 8 5 Attorney General v. Lorman, 59 o" Engle v. Sohn, 41 Ohio St. 691, 52 Mich. 157, 26 N. W. 311, 60 Am. Rep. Am. Rep. 103. And see State v. Whit- 287. taker, 33 Mo. 457; In re Bassett, 8 8 First Nat. Bank v. Wyoming Valley Fed. 266. Ice Co.. 136 Fed. 466, 14 Am. Bankr. 'i In re Alaska-American Fish Co., 162 Rep. 448 ; City v. Kansas v. Vindquest, Fed. 498, 20 Am. Bankr. Rep. 712. 36 Mo. App. 584. "' Hawes v. Anglo-Saxon Petroleum 87 People V. Knickerbocker Ice Co., 99 Co., 101 Mass. 385. N. Y. 181, 1 N. E. 669. Compare Green- »3 Jones, v. Raines, 35 La. Ann. 996. ville Ice & Coal Co. v. City of Green- Compare In re Chandler, 1 Low. 478, ville, 69 Miss. 86, 10 South. 574. 4 N. B. R. 213, Fed. Cas. No. 21591. 88 Dudley v. Jamaica Pond Aqueduct »* People v. Roberts, 20 App. Div. 514, Corp., 100 Mass. 183. 47 N. Y. Supp. 122. Compare Correio v. 8 9 People V. Roberts. 155 N. Y. 408, 50 Lynch, 65 Cal. 273, 3 Pac. 889. N. E. 53. 41 L. R. A. 228. § 136 LAW OF BANKEUPTCr 310 tongued and grooved -vveatherboarding, flooring, and ceiling, and also in making mouldings, ^oor and window casings, baseboards, and wains- coting, is not a manufacturing concern such as to be entitled to be ex- empt from taxation.**" But a corporation which buys lumber, iron, and other materials in the rough, and at its own shops finishes, shapes, de- signs, and makes such materials, suitable for use, and puts the same to- gether in the erection of bridge, roofs, and other structures, is a. manu- facturing company.^* And generally, a construction company is to be regarded as engaged in manufacturing, whether its products be ships and vessels, concrete piers, waterworks and sewers, bridges, houses, or other structures.''" But not one which merely constructs houses on its own land."* A company operating a steam flouring mill is a manufactur- ing corporation,"' but not a grain elevator company engaged in buying, selling, and storing grain, building and operating grain warehouses, and incidentally dealing in coal, lime, and cement."* A book-binder who also makes blank books has been held to be a manufacturer,"^ but not one who prints bill-heads, orders, and other forms for commercial pur- poses, on paper bought by him, and who cuts and folds the paper into shapes for such purposes, as well as to serve for ledgers and other com- mercial books."^ A company engaged in mixing teas and in roasting, grinding, and mixing coffee is not a manufacturing corporation."* Nor is the making of soda, vichy, seltzer, and similar drinks, a manufacture of chemicals, within a statute granting exemption from taxation."* But the building and construction of locomotive engines is manufacturing, and not the less so because a portion of the materials used in the con- 05 Whited v. Bledsoe, 49 La. Ann. 325, 72 C. C. A. 252, 15 Am. Bankr. Rep. 515, 21 South. 538. aflSrming In re MacNichol Const. Co., 8 6 Com. V. Keystone Bridge Co., 156 134 Fed. 979, 14 Am. Bankr. Rep. 188; Pa. St. 500, 27 Atl. 1. In re New York Tunnel Co., 166 Fed. 07 Friday v. Hall & Kaul Co., 216 TJ. 284, 92 C. C. A. 202, 21 Am. Bankr. Rep. S. 449, 30 Sup. Ct. 261, 54 L. Ed. 562, 26 531. L. R. A. (N. S.) 475, 23 Am. Bankr. Rep. os in re Kingston Realty Co., 160 Fed. 610 ; United Surety Co. v. Iowa Mfg. Co., 445, 87 C. C. A. 406, 19 Am. Bankr. Rep. 179 Fed. 55, 102 C. C. A. 623, 24 Am. 845. Bankr. Rep. 726 ; In re First Nat. Bank, "a Carlin v. Western Assur. Co., 57 152 Fed. 64, SI 0. C. A. 260, 18 Am. Md. 515, 40 Am. Rep. 440. Bankr. Rep. 265 ; In re Marine Construe- looMohr v. Minnesota Elevator Co., Uon & Dry Dock Co., 130 Fed. 446, 64 O. 40 Minn. 343, 41 N. W. 1074. C. A. 648, 11 Am. Bankr. Rep. 640; Co- loi Seeley v. Gwilllm, 40 Conn. 106. lumbia Ironworks v. National Lead Co., i<>2 Patterson v. City of New Orleans, 127 Fed. 99, 62 C. C. A. 99, 64 L. R. A. 47 La. Ann. 275, 16 South. 815. 645, 11 Am. Bankr. Rep. 340; In re Nl- los People v. Roberts, 145 N. Y. 375, agara Contracting Co., 127 Fed. 782, 11 40 N. E. 7. Am. Bankr. Rep. 643. But compare In io4 Crescent City Seltz & M. W. Co. re T. E. Hill Co., 148 Fed. 832, 78 C. C. v. City of New Orleans, 48 La. Ann. 68, A. 522, 17 Am. Bankr. Rep. 517; Butt v. 19 South. 943. C. F. MacNichol Const. Co., 140 Fed. 840, 311 BANKRUPTCY OF CORPORATIONS § 137 struction of the engines is bought by the manufacturers in such a state of progress as to be adapted to the purpose designed with less labor than the raw material would require."" Under the former bankruptcy laws, there was some doubt as to whether a corporation engaged in the busi- ness of printing and publishing a newspaper was a manufacturer."® But it would clearly come within the present statute as a "business cor- poration." The following kinds of corporations were held not to be "engaged principally in manufacturing," and therefore not to be subject to the bankruptcy law, although all of them wpuld now be properly described as "business or commercial corporations," viz., a corporation engaged in producing plays and giving theatrical entertainments ; "' one conducting the business of a cold storage warehouse ; *** one en- gaged in running a laundry ; "® and one operating a restaurant."" § 137. Banks and Bankers. — The original provision of the bank- ruptcy law on this point was that "private bankers, but not national banks or banks incorporated under state or territorial laws, may be adjudged involuntary bankrupts." (Section 4.) The amendment of 1910 excludes from the operation of the "act "banking corporations," which apparently leaves the matter much as it stood before. It had already been held under the act of 1867, which contained no such excep- tion, that a national bank was not liable to be proceeded against in bank- ruptcy.-*^" And under the present statute, the ruling is that no corpo- ration organized under the laws of a state can be adjudged an involun- tary bankrupt under the description of a "private banker." For this term had, "long before the passage of the bankruptcy law, received a definite and settled meaning. A private banker is a person or firm, not a corporation, engaged in banking without having special privileges or authority fr im the state." "* And even a private person cannot be ad- judged bankrupt, although he carries on the business of a private banker, if his chief occupation is farming."* But an association of in- 105 Norris v. Com., 27 Pa. St. 494. no In re Wentworth Lunch Co., 159 106 See In re Capital Publishing Co., Fed. 413, 86 C. C. A. 393, 20 Am. Bankr. 3 MacArthur (D. C.) 405 ; In re Kenyon, Rep. 29. 6 N. B. R. 238. m In re Manufacturers' Nat. Bank, 107 In re J. J. Reisler Amusement Co., 5 Biss. 499, Fed. Cas. No. 9,051; Smith 171 Fed. 283, 22 Am. Bankr. Rep. 501. v. Manufacturers' Nat. Bank, 9 N. B. los In re Philadelphia Freezing Co., B. 122, Fed. Cas. No. 13,076. 174 Fed. 702, 23 Am. Bankr. Rep. 508. 112 In re Surety Guarantee & Trust 109 In re Eagle Steam laundry Co., Co., 121 Fed. 73, 56 C. C. A. 654, 9 Am. 178 Fed. 308, 24 Am. Bankr. Rep. 457; Bankr. Rep. 129, citing People' v. Doty, In re White Star Laundry Co., 117 Fed. 80 N. Y. 225 ; Perkins v. Smith, 116 N. 570, 9 Am. Bankr. Rep. 30. But see In Y. 441, 23 N. E. 21 ; In re Sage (D. C.) re Troy Steam Laundering Co., 132 Fed. 224 Fed. 525, 35 Am. Bankr. Rep. 436. 266, 13 Am. Bankr. Rep. 97. ns Couts v. Townsend, 126 Fed. 249, 11 Am. Bankr. Rep. 126. § 138 LAW OF BANKRUPTCY 312 dividuals, formed to carry on the business of a private bank, as author- ized by a state statute, but not incorporated, is a partnership, and as such is subject to be adjudged a bankrupt, though entitled to exercise some of the attributes of a corporation.^" But the exception in the statute applies to a corporation organized for the purpose of carrying on a bank- ing business under the general incorporation laws of a state which has no special laws relating to the formation of banking corporations."^ An interesting question, which does not appear to have arisen as yet, would be in regard to a trust company, organized under a charter broad enough to give it the powers of a bank, and which does in fact carry on a general banking business. Instances are not wanting in which almost the whole revenue of such a company is derived from its banking de- partment, the proper business of a trust company constituting but a small part of its activity. If such an institution is a "banking corpora^ tion," it would not be liable to proceedings in. involuntary bankruptcy. If it is to be regarded as a "moneyed corporation" other than a banking corporation, it would be so liable. The solution of this question by the courts cannot be anticipated,. But it is suggested that the general pur- , pose of the statute (more clearly made manifest by the amendment of 1910) is to bring within the jurisdiction of the bankruptcy courts all forms of corporations which properly ought to be subject to the statute, and which can conveniently be wound up and their affairs settled by the means of a proceeding in bankruptcy. If this is so, the clause ex- cepting certain classes of corporations ought to be strictly construed; and a strict construction of it would not save from the statute a corpora- tion engaged in banking merely as one branch of its business, but or- ganized for various other forms of business as well. § 138. Railroad and Insurance Companies. — It will be observed that the amendment of 1910 (36 Stat. 838), while extending the com- pulsory features of the bankruptcy law to "moneyed, business, or com- mercial corporations," expressly excepts railroad and insurance corpo- rations. Under the act of 1867, which contained identically the same language quoted above, but without the exception, it was held by the circuit courts that a railroad company was amenable to proceedings in involuntary bankruptcy, and the Supreme Court of the United States refused to change the rule which their decisions had established."® It 114 Btrrkhart v. Gernian-Ainevican r>elaniore, 114 TJ. S. 501, 5 Sup. Ct. 1009, Bank, 137 Fed. 958, 14 Am. Bankr. Rep. 29 L. Ed. 244 ; In re Alabama & O. R. 222. Co.. 9 Blatchf. 390, 6 N. B. R. 107, Fed. 110 In re Oregon Trust & Sav. Bank, Cas. No. 124; Alabama & C. R. Co. v, 156 Fed. .^19, 19 Am. Bankr. Rep. 484. .Tones. 5 N. B. R. 97, Fed. Cas. No. 126; jm New Orleans, S. F. & L. R. Co. v. Rankin v. Florida, A. & G. O. R. Co., 1 313 BANKRUPTCY OF COEPOEATIONS § 139 was also settled that an insurance company came within the law, as a "business" corporation, and was therefore liable to be adjudged bank- rupt.^*' But under the act of 1898, as it stood originally, it was de- cided that a petition in involuntary bankruptcy could not be maintained against an incorporated mutual fire insurance company, such a cor- poration not being "engaged principally in manufacturing, trading, or mercantile pursuits," within the meaning of the statute."* It woiild be interesting to inquite whether a street railway, operated by elec- tricity, cable, or horse power, comes within the designation of "railroad corporations." Although the authorities are not entirely harmonious, it may be said that the tendency of modern decisions is to hold that the term in question, as used generally in statutes of various kinds, does not include street railways.*** On the other hand, the operation of a street railway is a "business," within the meaning of a statute re- quiring the payment of a license fee for carrying on business,**** and corporations of this kind must certainly be classed as "business cor- porations." But as will be shown in a later section, there is also a ten- dency to hold that the bankruptcy act should not be so construed as to authorize compulsory proceedings against any kind of public-service corporations. N. B. R. 647, Fed. Cas. No. 11,567; In re Southern Minn. K. Co., 10 N. B. R. 86, Fed. Cas. No. 13,188; In re California Pac. R. Co., 3 Sawy. 240, 11 N. B. R. 193, Fed. Cas. No. 2,315; In re Green- ville & C. R. Co., Fed. Cas. No. 5,787. iiT In re Merchants' Ins. Co., 3 Biss. 162, 6 N. B. R. 43, Fed. Cas. No. 9,441 ; In re Hercules Mut. Life Assur. Soc, 6 Ben. 35, 6 N. B. R. 338, Fed. Cas. No. 6,402; In re Independent Ins. Co., Holmes. 103, 6 N. B. R. 260, Fed. Cas. No. 7,017. lis In re Cameron Town Mut. Fire Ins. Co. (D. C.) 96 Fed. 756, 2 Am. Bankr. Rep. 372. Under the act as it now stands, there is no power in a court of bankruptcy to make an adjudication of bankruptcy against any insurance cor- poration. Vallely v. Northern Fire & Marine Ins. Co., 255 U. S. , 41 Sup. Ct. lie, 65 Iv. Ed. , 46 Am. Bankr. Rep. 340. 110 See Funk v. St. Paul City Ry. Co., 61 Minn. 435, 63 N. W. 1099, 29 L. B. A. 208. 52 Am. St. Rep. 608; Bloxham v. Consumers' Electric Light & Street R. Co., 36 Fla. 519, 18 South. 444, 29 L. R. A. 507, 51 Am. St. Rep. 44 ; State v. Du- luth Gas & Water Co., 76 Minn. 96, 78 N. W. 1032, 57 L. R. A. 63; Board of Railroad Com'rs v. Market Street Ry. Co., 132 Cal. 677, 64 Pac. 1065; Man- hattan Trust Co. V. Sioux City Cable Ry. Co., 68 Fed. 82 ; Riley v. Galveston City Ry. Co., 13 Tex. Civ. App. 247, 35 S. W. 826 ; City of Newark v. Merchants' Ins. Co.. 55 N. J. Law, 145, 26 Atl. 137; Fi- delity Loan & Trust Co. v. Douglas, 104 Iowa, 532, 73 N. W. 1039; Massillon Bridge Co. v. Cambria Iron Co., 59 Ohio St. 179, 52 N. E. 192 ; Montgomery's Ap- peal, 136 Pa. St. 96, 20 Atl. 399, 9 L. R. A. 869; Sams v. St. Louis & M. R. Co., 174 Mo. '53, 73 S. W. 686, 61 L. R. A. 475; Lincoln St. Ry. Co. v. McClellan, 54 Neb. 672, 74 N. W. 1074, 69 Am. St. Rep. 736 ; Ferg;nson v. Sherman, 116 Cal. 169, 47 Pac. 1023, 37 L. R. A. 622; Thompson- Houston Electric Co. v. Simon, 20 Or. 60, 25 Pac. 147, 10 L. R. A. 251, 23 Am. St. Rep. 86. 120 City of New Orleans v. New Or- leans City & L. R. Co., 40 La. Ann. 587, 4 South. 512. § 139 LAW OF BANKRUPTCY 314 § 139. Mining and Quarrying Companies. — Under former bank- ruptcy statutes, as also under the act of 1898 in its original form, it was held that corporations engaged in the business of mining gold, silver, or other metals, or coal, were not amenable to proceedings in involun- tary bankruptcy, because their business could not be described as "manufacturing," ^*^ nor as "trading or mercantile pursuits." ^^* There was, however, some doubt as to companies operating quarries for the extraction of marble, stone, or slate, the general tendency being to hold that they were "manufacturing corporations" if the principal part of their business consisted in dressing the output of their quarries into specified sizes and shapes, or into such as would be generally convenient to the trade, and marketing the product thus finished.^^* But in 1903, proba- bly in consequence of these decisions, Congress adopted an amendment to the bankruptcy act which, inter alia, added to the enumeration of the kinds of corporations which should be subject to involuntary bankruptcy those engaged in "mining." ^** And it was held that this term was to be taken in a broad and general sense, and therefore would include the extraction of stone or slate from an open quarry.^^^ This portion of the statute was again revised in 1910,' and while specific reference to such pursuits as manufacturing, mining, or trading, was dropped, there was substituted a general provision that the compulsory features of the law should be applicable to "moneyed, business, or commercial corpora- tions." ^^^ Undoubtedly this phrase, much broader than its predeces- sors, will be held to include both mining companies and quarry com- panies. 121 Horn Silver Min. Co. V. New York, 124 Act CJong. Feb. 5, 1903, 32 Stat. 143 U. S. 805, 12 Sup. Ct. 403, 36 K Ed. 797. A corporation chartered for the 164; In re Rollins Gold & Silver Min. purpose of mining and dealing in coal, Co., 102 Fed. 982, 4 Am. Bankr. Rep. and vphich for a time engaged in such 327 ; Com. v. Lackawanna Iron Co., 129 business, but which for more than two Pa. St. 346, 18 Atl. 133; People v. Horn years had neither mined nor purchased Silver Min. Co., 105 N. Y. 76, 11 N. B. coal, but which was engaged solely in 155; Byers v. Franklin Coal Co., 106 transporting coal for others, was not Mass. 131. But see In re Teeopa Min- subject to involuntary bankruptcy, un- ing & Smeltine Co., 110 Fed. 120, 6 Am. der the 1903 amendment, as a "corpora- Bankr. Rep. 250. tion engaged principally In mining or 122 In re Keystone Coal Co., 109 Fed. mercantile pursuits." In re C. Jutte & 872, 6 Am. Bankr. Rep. 377; In re Wood- Co. (C. C. A.) 266 Fed. 357, 46 Am. side Coal Co., 105 Fed. 56, 5 Am. Bankr. Bankr. Rep. 28. Rep. 186; In re Elk Park Mining & Mill- 125 Burdick v. Dillon, 144 Fed. 737, ing Co., 101 Fed. 422, 4 Am. Bankr. Rep. 75 C. C. A. 603 ; In re Mathews Consol.' 131; In re Cliicago-Joplin Lead & Zinc Slate Co., 144 Fed. 724, 15 Am. Bankr. Co., 104 Fed. 67, 4 Am. Bankr. R«p. 712. Rep. 779, 16. Am. Bankr. Rep. 350. 123 In re Mathews Consol. Slate Co., iseAct Cong. June 25, 1910, 36 Stat 144 Fed. 724. 15 Am. Bankr. Rep. 779, 16 838. Am. Bnnkr. Rep. 350 ; Com. v. East Ban- gor Slate Co., 162 Pa. St. 599, 29 Atl. 706. 315 , BANKKUPTCX OF CORPORATIONS § 140 § 140. Public-Service Corporations. — Under this description may be included street railway companies, gas companies, water companies, electric light and power companies, and perhaps telegraph and tele- phone companies. It is doubtful whether a corporation engaged in any of these activities is liable to be proceeded against in involuntary bank- ruptcy. They were generally held to be exempt from such proceedings under the act of 1898 as it stood originally, on the ground that their business could not properly be described as "manufacturing, trading, or mercantile pursuits." We find decisions to this effect in the case of a water company, engaged in the business of obtaining, transporting, and supplying pure water for domestic and municipal use,^*' a company en- gaged in making and distributing illuminating gas and also in generat- ing, transmitting, and selling electricity for light and power,^^* and a company organized to furnish water for irrigation.^** But unques- tionably these and all other such companies are "moneyed, business, or commercial corporations" within the meaning of the 1910 amendment to the statute. But the question arises whether such companies ought not to be held exempt on the ground of public policy. To maintain this position, however, it is necessary to imply an exception to the gen- eral terms of the statute in addition to those exceptions which are speci- fied, — a procedure which is contrary to the generally accepted canons of statutory construction.^** Yet the argument from public convenience, as involving public policy, is a very strong one. Its force was recog- nized in the case of the irrigation company,^*^ and later, in that of a gas and electric light company, wherein it was remarked by the cir- cuit court of appeals in the second circuit: "Without considering these several arguments, we find sufficient reason to sustain the decrees in the peculiar character of these companies. If they do manufacture and do trade, they do much more. Under authority conferred by the state and by various local authorities, they are 'principally engaged' in sup- izT In re New York & Westchester of Holland v. Holland City Gas Co., 257 Wafer Co., 98 Fed. 711, 3 Am. Bankr. Fed. 679, 168 O. C. A. 629, 44 Am. Bankr. Rep. 508, affirmed. In re Morris, 102 Fed. Rep. 66 ; In re Grafton Gas & Electric 1004, 43 C. C. A. 91. Llgbt Co. (D. C.) 253 Fed. 668, 42 Am. 3 28 In re Hudson River Electric Pow- Bankr. Rep. 567. In these two cases a er Co., 173 Fed. 934, 23 Am. Bankr. Rep. gas company and an electric light com- 191 ; In re Wilkes-Barre Light Co. (D. C.) pany were allowed to go into voluntary 224 Fed. 248, 34 Am. Bankr. Rep. 697. bankruptcy. But see In re Charles Town Light & iso In re Bay City Irrigation Co., 135 Power Co., 183 Fed. 160, 25 Am. Bankr. Fed. 850, 14 Am. Bankr. Rep. 370. Rep. 687, in which an electric light and iso See Black, Interp. Laws (2d edn.) power company was adjudicated bank- pp. 219-222. nipt on the ground of its being engaged isi In re Bay City Irrigation Co., 135 principally in "trading.'"' And see City Fed. 850, 14 Am. Bankr. Rep. 370. § 140 LAW OF BANKltUX'TCT 316 plying the means whereby streets, avenues and public places in the state are lighted and the public safety and comfort thereby promoted. They are corporations of public utility, and if they did not themselves light these localities, the public authorities would no doubt be con- strained to do so themselves. By reason, moreover, of the circumstance that they are given this authority, with, to a certain extent, the right of exercising eminent domain, they are correlatively charged with a duty to the public, which is no part of the obligations of ordinary corpora- tions engaged in 'manufacturing, trading, printing, publishing, mining, or mercantile pursuits.' And as a result, when financial adversity over- takes them, there are interests which have to be considered other than those which require attention when the ordinary corporation of the enu- merated classes becomes insolvent. In the case of an ordinary manu- facturing or trading corporation, the matters presented for disposition are in their last analysis merely the disposition of dollars and cents. The assets are to be realized and their proceeds distributed among creditors of dififerent classes and the residue, if any, to the owners. But in the case of a public utility corporation, such as these, the pub- lic itself, the community in which the corporation is rendering service, has a right superior even to creditors of every class, and which right cannot be extinguished by the payment of a dividend in money. With the power to terminate franchises for failure to discharge the obligation inherent in their grant, the state or local authorities can destroy what is usually the most valuable asset of the defaulting company, against the wishes of all creditors and before the latter might succeed in find- ing an assignee of the franchise satisfactory to local authorities who would assume the burden and perhaps pay something for the transfer. Moreover, the public safety and comfort imperatively demand that, whatever else may happen, the corporation, devoid of ready cash though it be, shall not make default on its public obligations, with the result of plunging the community in darkness or stopping the transportation of passengers, and that in some way or other the public service shall be rendered while the financial affairs of the company are being wound up. There are no indications in the bankrupt act that Congress in- tended to arrange any administrative machinery competent to accom- plish these results. On this branch of the case the opinion of Judge Ray is especially illuminative when it is remembered that he was chair- man of the House judiciary committee when the bankrupt act .was passed. He says: 'There was a serious and wide difference of opinion in the committee on the judiciary and in the Congress itself whether corporations, any corporation, should be brought under the operation 317 BANKRUPTCY OF CORPORATIONS § 141 of the law. There was a feelingf on the part of some that railroad cor- porations should be included, if any were. But when it was considered that railroads are the arteries of commerce and transportation, state and interstate, created by state laws in the main, and extending with their connecting lines from state to state and lakes to gulf, under consolida- tion and merger agreements, it was seen that, to properly administer the property of such corporations in the bankruptcy courts and under a bankruptcy law, it would be necessary to make many special and extraordinary provisions for those cases, if the public service was to be considered and the interests of the public conserved.' " ^** On the other hand, there is a decision, of perhaps quite equal authority, to the effect that a corporation, otherwise amenable to the ,bankruptcy law, is not exempt from its operation on the ground of being a quasi- public corporation and subserving a public use, if its franchise is as- signable, so that its functions might be exercised by any transferee to whom its powers might pass through proceedings in bankruptcy.-'** On the whole, and notwithstanding the possible inconvenience of ad- ministering the affairs of such a company in bankruptcy, it seems prob- able that the courts will eventually decide that public-service companies are not exempt from the statute, and that they will reach this conclu- sion on the ground that they have no authority to add any exceptions to those specifically created by Congress in the statute itself. § 141. Amendment of 1910; Business and Commercial Companies. — In 1910 the bankruptcy act was amended so as to make its compul- sory features applicable to "any moneyed, business, or commercial cor- poration, except a municipal, railroad, insurance, or banking corpora- tion." ^** This language is much broader than the corresponding pro- vision in the amended act, and from this circumstance the courts have rightly inferred that the intention of Congress was to bring within the terms of the statute some classes of corporations which would not have been subject to involuntary proceedings theretofore.^*^ But it is held that the amendment is not retroactive, and hence a corporation which was not subject to involuntary bankruptcy under the original act of 1898 (such as one engaged in conducting a restaurant) cannot be sub- 132 In re Hud.son Eiver Power Trans- 508, affirmed, In re Morris, 102 Fed. mission Co., 183 Fed. 701, 106 C. C. A. 1004, 43 C. C. A. 91. 139, 25 Am. Bankr. Kep. 504. 134 Act Cong. June 25, 1910, 36 Stat. 133 In re New York & Westchester Wa- 838. ter Co., 98 Fed. 711, 3 Am. Bankr. Rep. 13= In re H. J. Quimby Freight For- warding Co., 121 Fed. 139, 10 Am. Bankr. Rep. 424. § 141 LAW OF BANKRUPTCY 318 jected to proceedings in bankruptcy because of an act of bankruptcy committed prior to the adoption of the amendment.^^* The phrase "moneyed, business, or commercial corporations" (but not the exception which follows) was directly copied from the bank- ruptcy act of 1867, showing the intention of Congress that it should have the same interpretation which it then bore.**'' Hence the defini- tions and decisions made concerning it by the federal courts when ad- ministering the earlier statute are now of binding authority.*** And first, "moneyed" corporations are, properly speaking, those dealing in money or in the business of receiving deposits, loaning money, and ex- change ; but in a wider sense the term is applied to all business corpora- tions having a money capital and employing it in the conduct of their business.*** Thus, the term, as used in a state statute concerning ac- tions against directors and stockholders of moneyed corporations, is broad enough to include a mortgage trust company of another state authorized to issue and sell its bonds secured by mortgages.**" It may also include a building and loan association. In the course of an opin- ion holding that such a company was not engaged in "trading or mer- cantile pursuits," it was said by one of the federal courts : "By the law of New York, building and loan associations are ranked as moneyed corporations, and are made subject to the supervision of the banking de- partment, the law relating to them having been in the last revision in- cluded in the general banking law. Undoubtedly, a building and loan association is not a bank, or a savings bank, and does not conduct a banking business. It constitutes a corporation in a class by itself, car- rying on a business which is peculiar and distinct from all other cor- porations. But the fact that the state of New York regards it as a mon- eyed corporation, performing functions somewhat analogous to those performed by savings banks, and therefore to be included in the same general department and to be subjected to the same general super- vision, is entitled to such consideration in determining the general character of the corporation."*** Again, a corporation engaged in leasing its own property and collecting the rents, having also power to sue and be sued, to contract debts, and to dispose of its property is 1S8 In re United States Restaurant & 2,315; Hobbs v. National Bank, 101 Fed. Realty Co. (C. C. A.) 187 Fed. 118, 25 75, 41 O. 0. A. 205; Mutual Ins. Co. v. Am. Bankr. Rep. 915. Erie County, 4 N. Y. 444; GlUet v. 13 7 See Black, Interp. Laws (2d edn.) Moody, 3 N. X. 487. P. 607. 1^0 Hobbs v. National Bank of Com- 138 In re R. L. Radke Co., 193 Fed. 735, merce, 101 Fed. 75, 41 C. C, A. 205. 27 Am. Bankr. Rep. 950. i*i In re New York Building-Loan ISO In re California Pac. B. Co., 3 Banking Co., 127 Fed. 471, 11 Am. Bankr. Sawy. 240, 11 N. B. R. 193, Fed. Gas. No. Rep. 51. 319 BANKRUPTCY OF CORPORATIONS § 141 a "moneyed business" corporation, although it may not be a "commer- cial corporation," and is therefore liable to adjudication in proceedings in involuntary bankruptcy.^** A "business" corporation is one formed for the purpose of transact- ing business in the widest sense of that term, including not only trade and commerce, but manufacturing, mining, banking, insurance, trans- portation, and practically every form of commercial or industrial ac- tivity, where the purpose of the organization is pecuniary profit. These are contrasted with religious, charitable, educational, and other like or- ganizations, which are sometimes grouped in the statutory law of a state under the. general designation of "corporations not for profit." ^*^ And in fact, as the term "business" is used in a state statute authorizing the formation of corporations for the purpose of engaging in any lawful enterprise, "business," pursuit, or occupation, it is not restricted in meaning to a scheme for making money, but includes any object which is consistent with the interests of society and may engage the attention of men and invite their co-operation. Hence a corporation may lawfully be organized under such a statute for the purpose of guarantying bonds of an educational institution to strengthen its credit.^** Again, as busi- ness is not limited to trade it may include agriculture, or the cultivation of a farm, ranch, or truck garden.^*^ Hence if a corporation is "engaged chiefly in farming or the tillage of the soil," it is liable to proceedings in involuntary bankruptcy in the character of a "business corporation," though a natural person in the same circumstances would' not be. So, also, the work of a contractor who engages for the erection or construc- tion of buildings and other such works is "business" within the ordinary meaning of the word."* But a trades council is not a business institu- tion, where the only element of business in which it engages is the fur- nishing to tradesmen of printed cards certifying that they are proper persons for the members of trades unions to deal with, the cards being suitable for display in a shop or store, and being supplemented by a small pamphlet giving the names and addresses of tradesmen in the 142 In re R. I-i. Radke Co., 193 Fed. 735, Independent Ins. Co., 13 Fed. Cas. 13; 27 Am. Bankr. Kep. 950. Such a compa- MoLeod v. College, 69 Neb. 550, 96 N. ny would not have been subject to adju- W. 265, 98 N. W. 672. dlcation under the act as it stood before i^* Maxwell v. Aldn, 89 Fed. 178. the amendment of 1910. See Alton wood 1*5 Snow v. Sheldon, 126 Mass. 332, 30 Park Co. v. Gwynne, 160 Fed. 448, 87 C. Am. Rep. 684; Hickey v. Thompson, 52 C. A. 409, 20 Am. Bankr. Rep. 31. Ark. 234, 12 S. W. 475; Waggener v. 1*3 Black's Law Diet., citing Winter v. Haskell, 89 Tex. 435, 35 S. W. .1. Iowa, M. & N. P. R. Co., 2 Dili. 487, 1 "o Brown v. German- American Title N. b'r 289, Fed. Cas. No. 17,890; In re & Trust Co., 174 Pa. St. 443, 34 Atl.^35. § 141 LAW OF BANKRUPTCY 320 town, but no compensation being either required or received by the trades council from the tradespeople for granting such indorsements.^*'' Finally, a "commercial" corporation is one engaged in commerce in the widest sense of that term, including not only trade or the marketing of commodities, but also their transportation. Hence it would include a railroad company,^*® and these corporations would thus become subject to the bankruptcy law, if it were not for the specific exception in their favor. § 142. Religious, Charitable, Educational, and Other Corporations Not for Profit. — In construing the corresponding provision of the act of 1867, it was held to be the clear intent of Congress to bring within the scope of the statute all corporations except those organized for re- ligious, charitable, literary, educational, municipal, or political purposes. As to the latter, it was said : "These may all be in one sense moneyed or business corporations, for they must all have and use money and transact business, to some extent, in order to carry out their objects. But we do not call them moneyed corporations as we would a bank, nor do we call them business corporations as we would a manufacturing or mining company or express company, because their chief and primary object is not to transact business or make gain. They necessarily trans- act business in order to accomplish other ends than the mere doing of business and making profit." "' Religious societies in the United States are almost .invariably corporations, and although they may buy and hold real and personal property and perhaps sell some of it again, and though they may raise money for church purposes by fairs and enter- tainments, conduct parochial schools, and enter into business contracts with those employed in their service, yet they are clearly not to be classed as business corporations, for the reasons above given-^^** So the fact that a college may acquire and convey property necessary to the accomplishment of its object, and may charge fees for tuition or in- struction, does not make it a business or trading corporation.^®^ And 147 Barr v. Essex Trades Council, 53 spect to the steps necessai-y to secure a N. J. Eq. 101, 30 Atl. 881. corporate existence, might be proceeded 148 gweatt V. Boston, H. & E. R. Co., against as an "unincorporated company," 3 Cliff. 339, 5 N. B. R. 234, Fed. Cas. provided it did not have "any of the No. 13,684. powers and privileges of private corpo- 149 Alabama & C. R. Co. v. Jones, 5 rations not possessed by individuals or N. B. R. 97, Fed. Cas. No. 126. partnerships" (which would bring it 160 See Parker v. May, 5 Gush. (Mass.) within the definition of a corporation in 336, 345, as to the charapter and status the first section of the bankruptcy act), of religious corporations. It seems, how- and provided it owed debts to the ever, that an association of persons or- amount of $1,000. ganized for religious; or ecclesiastical I'l McLeod v. Lincoln Medical College, purposes, but which has not complied 69 Neb. 550, 96 N. W. 265, 98 N. W. 672. with the statutes of the state with re- 321 BANKRUPTCY OF CORPOEATIONS § 143 again, an incorporated club, of which the principal object is social in- tercourse, any business conducted by it being merely incidental, is not subject to proceedings in involuntary bankruptcy .^''^ § 143. Unincorporated and Joint Stock Companies. — In the pres- ent bankruptcy law, the term "unincorporated company" is put in con- trast with the term "corporation." The fourth section of the act pro- vides that "any natural person" except such as follow certain enumerated pursuits, "any unincorporated company," and "any moneyed, business, or commercial corporation," with certain exceptions, may be adjudged an involuntary bankrupt, thus making three classes or groups subject to the law. But the introductory section of the act makes the word "cor- poration" include "all bodies having any of the powers and privileges of private corporations not possessed by individuals or partnerships," and "limited or other partnefrship associations organized under laws making the capital subscribed alone responsible for the debts of the associa- tion." Now if the term "corporation," in the clause relating to invol- untary bankruptcy, is to be taken in this comprehensive sense, then, being contrasted with "unincorporated company," it will include, and "unincorporated company" will not include, limited partnerships and joint stock associations. The effect of this reading will be that such partnerships and associations are not amenable to the law unless de- scribable as "moneyed, business, or commercial," while any other form of unincorporated company is subject to the law without reference to the nature of its business.^** Proceedings in bankruptcy may be brought against an unincorporated company in the name which it has adopted and under which it carries on its affairs, and with proper no- tice to its officials, though it 'is not a legal entity nor suable as a coTpora- tion.^^* A trust association for investment purposes, created by an in- strument of trust, and in which the shareholders have the power to amend such instrument and to terminate the trust, is an "unincorpo- rated company," within the meaning of the Bankruptcy Act and subject 152 In re Fulton Club, 113 Fed. 997, T cars to ships at tidewater, etc., involving Am. Banbr. Rep. 670. a general pooling arrangement for coal, 15 3 In re Seaboard Fire Underwriters with debit and credit charges against (D. C.) 137 Fed. 987, 13 Am. Bankr. Rep. and for each member, was held an "unin- 722, holding that an unincorporated corporated company" within the mean- Lloyd's association of fire underwriters ing of the Bankruptcy Act, so as to give a was subject to adjudication. The Tide- federal court jurisdiction of a petition in water Coal Exchange, which was an as- Involuntary bankruptcy against it. In sociation organized by shippers of bitumi- re Tidewater Coal Exchange (D. C.) 274 nous coal during the war with Germany, Fed. 1008. formed at the instance of the Council of 154 in re Order of Sparta, 242 Fed. National Defense, for the purpose of 235, 155 C. C. A. 75, 39 Am. Bankr. Rep. speeding the transshipment of coal from 523. BLK.iBKR.(:^n Ed.)— 2t § 143 LAW OF BANKBDPTCr 322 to adjudication as a bankrupt.^®^ But a partnership engaged chiefly in farming is not subject to adjudication in bankruptcy as an unincor- porated company.^®* A limited partnership is "a partnership consisting of one or more general partners, jointly and severally responsible as ordinary partners, and by whom the business is conducted, and one or more special partners, contributing in cash payments a specific sum as capital to the common stock, and who are not liable for the debts of the partnership beyond the fund so contributed." ^^^ If the statute authorizing the formation of such concerns goes no further than this, it is evident that the asso- ciation could not be brought within the definition of a "corporation" in the bankruptcy law, nor could it even be regarded as an "unincorporated company." For all purposes of bankruptcy law it is simply a partner- ship and nothing more. But in some of the states, the laws provide that a "limited partnership" or "joint stock association limited," may be organized by a certain number of persons, who subscribe and contribute capital thereto, "which capital shall alone be liable for the debts of such associations," thus bringing them exactly within the terms of the bank- ruptcy act. Such, for example, is the statute of Penpsylvania,^^* and an association formed under it, having some of the characteristics of a partnership and some of a corporation, including the right to a common seal, the ownership of property real and personal by the association, and i-he right to sue and be sued by the corporate name, is regarded as a new artificial person, and one which may be described as a "citizen" of the state for purposes of federal jurisdiction.^®* Such an association, or- ganized under the statute mentioned, is subject to be adjudged an in- voluntary bankrupt, whether regarded as an unincorporated company or a corporation.'-®" 15 5 In re Associated Trust (D. C.) 222 in the property and profit of the firm. Fed. 1012, 34 Am. Bankr. Kep. 851. but it will not limit the liability of any 156 H. D. Stills Sons v. Ameriiiiu Nat. for the firm debts. Each member will Bank, 209 Fed. 749, 126 C. O. A. 473, 31 be liable individually for the entire in- Am. Bankr. Rep. 320. debtedness of the firm. The act of 1874 137 Black, Law Diet, voc. "Partner- was passed to relieve against the risk and ship." And see Moorehead v. Seymour, inconvenience attending general partner- 77 N. Y. Supp. 1054; Taylor v. Webster, ships, by providing a mode by which in- 39 N. J. Law, 104. dividuals might invest a fixed sum in a 15 8 Laws Penna. 1874, c. 153, p. 271. business enterprise, without liability to i58Bushnell v. Park Bros. & Co., 46 loss beyond the sum so invested. The Fed. 209; Youngstown Coke Co. v. An- method provided is the creation of a new drews Bros. Co., 79 Fed. 669. Compare artificial person, to be called a 'joint Carnegie v. I-Iulbert, 53 Fed. 10, 3 C. C. stock association,' having some of the A. 391. "The persons composing a part- characteristics of a partnership and nership may agree with each other to some of a corporation." lliU v. Stetlev, invest a certain fixed sum each in the 127 Pa, St. 161, 13 Atl. 306, 17 Atl. 887. common venture and no more. Such an loo in re Hercules Atkin Co., 133 Fed. agreement may limit the Interest of each 813, 13 Am. Bankr. Rep. 869. 323 BANKRUPTCY OF CORPORATIONS § 143. A joint stock association is an unincorporated association of individ- uals for' business purposes, of a hybrid character, as it resembles a part- nership in many respects, but is like a corporation in other respects, pos- sessing a common fund or capital stock, divided into shares, which are apportioned among the members according_to their respective contribu- tions, and which are assignable by the owner without the consent of the other members.**^ In the absence of legislation to the ccmtrary, the members of a joint stock company, like the members of a partnership, are lia,ble for all the debts of the association. Hence, unless the rule of liability is changed by a statute of the state, such an association is not a "corporation," within the meaning of the bankruptcy law though it is an "unincorporated company." In some states (as New York) the laws authorize such associations to sue and be sued in the name of the president for the time being,^*'^ and in some other respects distinguish them from ordinary partnerships ; and it is possible that their posses- sion of some of the "powers and privileges of private corporations not possessed by individuals or partnerships" might be held to bring them within the terms of the bankruptcy law. But it has been held that a joint stock company, organized under such a statute as that of New York, is not a corporation, and hence cannot be a "citizen" of that state, but, for all purposes of federal jurisdiction, is to be regarded as a partner- ship.^®' On this view, such an association might file its voluntary pe- tition in bankruptcy, as a partnership, and would be liable to involuntary proceedings without reference to the nature of the business in which it was employed. [t should also be remarked that persons who. associate themselves together for business purposes, if their organization is so defective as to fall short of creating a corporation within the statute, become in legal effect partners, and may be proceeded against under the bankruptcy law as an unincorporated company.^®* If the respondent in bankruptcy claims the right to exist as a corporation, and actually carries on business under a corporate form of organization, it is probable that the validity of its incorporation could not be inquired into. There is a decision to the effect that proceedings in bankruptcy may be had against a corpora- tion which is only so de facto, and the validity of a de facto corporation cannot be questioned collaterally, but only in a direct suit for that pur- lei See In re Jones, 28 Misc. Rep. 356, lea Laws New York 1849, c. 258; Rev. 59 N. Y. Supp. 983; Allen v. Long, 80 St. Wis. § 3210. Tex 261 16 S W. 43, 26 Am. St. Rep. "s Chapman v. Barney,, 129 U. S. 677, 735; Adams Expr. Co. T. Schofield, 111 9 Sup. Ot. 426, 32 L. Ed. 800. See 1 Ky.' 832, 64 S. W. 903; Kossakowski v. Pars. Contr. 144, 214. People, 177 111. 563, 53 N. E. 115; Willis is* Whipple v. Parker, 29 Mich. 369. V. Chapman, 68 Vt. 459, 35 Atl. 459. _ § 143 LAW OF BANKRUPTCY 324 pose. But even a de facto corporation can only exist by color of law; and an association of persons cannot claim to be even a de facto corpora- tion, unless there was a statute under which they might have been in- corporated for their particular purpose. Hence, if, for example, the laws of the state made no provision for the incorporation of banks, an asso- ciation of persons claiming to be incorporated as a bank, and which con- ducts a backing business under the corporate name assumed, is not'a corporation within the meaning of the bankruptcy law, but may be pro- ceeded against as a partnership.^** A voluntary association of persons organized for moral, social, be- nevolent, or charitable purposes, might be considered as amenable to the bankruptcy law, under the character of an "unincorporated company," but the cases must be rare in which such a society would owe debts to the amount of a thousand dollars and commit an act of bankruptcy. Moreover, if within the letter, they are not within the spirit and policy of the bankruptcy law."' Such an association is regarded as a charity within the jurisdiction of equity, and its members are not partners as between themselves, whatever may be their relation as to third per- sons."' It has been held, however, that an unincorporated fraternal beneiicial association, having no capital stock and practically no assets except those derived from assessments paid by members, but issuing to its members benefit certificates payable from the contributions of mem- bers, which requires. members to pass a medical examination, and whose principal object is beneficial rather than social, is subject to be adjudged bankrupt under the act as amended in 1910, since the word "company," as there used, at least includes any unincorporated association or group of individuals, whose object and purpose are either wholly or chiefly of the same kind as the object and purpose of a "moneyed, business, or commercial corporation." "* § 144. Acts of Bankruptcy by Corporations. — As to the commission of acts of bankruptcy, upon which involuntary proceedings may be founded, the law makes no distinction between corporations and natural persons. And it is no defense to a proceeding in bankruptcy against a corporation that the act of bankruptcy charged was ultra vires, or not within its charter powers, and therefore not a corporate act."* Each 18 B Davis V. Stevens, 104 Fed. 235, 4 235, 155 C. C. A. 75, 39 Am. Bankr. Rep. Am. Bankr. Rep. 768. 523; In re Grand Lodge A. O. U. W. (D. 186 See Alabama & 0. R. Co. v. Jones, C.> 232 Fed. 199, 30 Am. Bankr. Rep. 634. 5 N, B. R. 97, Fed. Cas. No. 126. And so of a lodge of Odd Fellows. In re 187 Lafond v. Deems, 81 N. Y. 507; Carthage Lodge No. 365, I. O. O. F. (D. Thomas v. BUmaker, 1 Pars. Sel. Oas. C.) 230 Fed. 694, 36 Am. Bankr. Rep. (Pa.) 98. 873. 168 In re Order of Sparta, 242 Fed., leo Badders Clothing Co. v. Burnham- •325 BANKRUPTCY OF CORPORATIONS § 144 of the five acts of bankruptcy enumerated- in the statute can be as well committed by a corporate body as by an individual. For instance, it is an act of bankruptcy to make a general assignment for the benefit of creditors. This can be committed by a corporation without a formal deed of assignment, but some corporate act purporting to transfer all the property of the corporation must be shown, and the mere adoption of resolutions authorizing the treasurer to convert the property into cash and deposit it with a trustee for the creditors does not constitute an act of bankruptcy where the plan was not executed.^'"' An assign- ment by the corporation does not require the unanimous consent of the stockholders ; it constitutes an act of bankruptcy if directed by a ma- jority vote at a stockholders' meeting, and then by resolution of the board of directors.'*'^ Where a corporation, under the provisions of a state statute, files in a state court its voluntary application for dissolution and for the appointment of a receiver to wind up its affairs and distribute its assets, on the ground of its insolvency, and procures the appointment of a receiver thereon, such application is not a "general assignment for the benefit of its creditors," within the meaning of tlje bankruptcy law. Nor can such a proceeding be held to be an act of bankruptcy on the ground that it produces results equivalent to those brought about by a general assignment for creditors ; for the acts of bankruptcy enumerated and classified by the statute cannot be enlarged by construction so as to include transactions similar or analogous to, but not identical with, those specified.^''* But it will be observed that the amendment of 1903 makes just such a proceeding an independent act of bankruptcy. And it is accordingly held that, where a suit is brought against a corporation in which the court is asked to appoint a receiver on the ground that it is insolvent and cannot meet its obligations, and on other grounds, and the corporation admits such averments and either consents to or joins in the prayer for a receiver, and one is accordingly appointed, it is an act of bankruptcy on which an adjudication may be based. ^'^ But the Hunger- Root Dry Goods Co., 228 Fed. "^ Stewart Petroleum Co. v. Board- 470, 143 C. C. A. 52, 36 Am. Bankr. Rep. man (C. C. A.) 264 Fed. 826, 45 Am. lig' Bankr. Rep. 573; Doyle-Kidd Dry Goods 170 In re Federal Lumber Co., 185 Fed. Co. v. Sadler-l.usk Trading Co. (D. C.) 926, 26 Am. Bankr. Rep. 438. As to as- 206 Fed. 813, 30 Am. Bankr. Rep. 604. signments for the benefit of creditors as An insolvent corporation commits an act acts of bankruptcy in general, see supra, of bankruptcy by procuring the appoint- s 91. ment of a receiver through an applica- 171 Clark V. American Mfg. & Enamel- tion by its president in a suit in which ing Co., 101 Fed. 962, 42 C. C. A. 120, the corporation and the president are de- 4 Am. Bankr. Rep. 351. fendants. Graham Mfg. Co. v. Davy- 172 I^ re Empire Metallic Bedstead Pocahontas Coal Co., 238 Fed. 488, 151 Co., 98 Fed. 981, 39 O. C. A. 372, 3 Am. O. C. A. 424, 38 Am. Bankr. Rep. 118. Bankr. Rep. 575. § 144 LAW OF BANKRUPTCY 326 mere institution by minority stockholders of a suit to dissolve the cor- poration, in which the appointment of a receiver is asked, does not entitle creditors to relief in the bankruptcy court until the corporation becomes insolvent and commits an act of bankruptcy.^''* Again, a trust to sell all the debtor's property and divide the pro- ceeds ratably among his creditors may be an act of bankruptcy. But it has been held that it is not an act of bankruptcy for a corporation to convey its property in trust to secure bonds to be issued and sold, and the proceeds to be applied to pay all its unsecured debts, the same be- ing done in good faith and with a view to enable the company to con- tinue its legitimate business, though it may be technically insolvent or likely soon to be so.-^'® As to transfers of property, it has been doubted whether the act of an insolvent corporation in voluntarily applying to a state court for a decree dissolving the corporation and winding up its affairs, pursuant to a state law, through the agency of a receiver, is a transfer of its property with intent to hinder and defraud its creditors, because operating to deprive them of the remedies provided by the bankruptcy law.-'''^ But the question is not of much practical importance at present, because this would clearly constitute an act of bankruptcy under the provisions of the amendment of 1903, relating to the appointment of receivers on voluntary application or "because of insolvency." ■'^" How- ever, it is held that the sale of property by an insolvent corporation, and the use of the proceeds in paying the current salary of its presi- dent, is not a transfer with intent to prefer a creditor, such salary be- ing a legitimate current expense so long as the corporation is a going concern."^'* Nor does an insolvent corporation occupying leased prem- ises commit an act of bankruptcy by permitting its property on such premises, which is subject to a mortgage given to secure its bonds, to be sold under a distress warrant lawfully issued for rent past due, which by the state statute is made a lien on such property; this does 174 Bank of Andrews v. Gudger, 212 O. O. A. 409, 16 Am. Bankr. Rep. 658. Fed. 49, 128 C. C. A. 505, 32 Am. Bankr. And see supra, § 95. Kep. 11. And see Standard Warehouse its Kielimond Standard Steel Spike & & Compress Co. v. George H. McFadden Iron Co. v. Allen, 148 Fed. 657, 78 O. C. Bros. Agency (C. C. A.) 272 Fed. 251; A. 389, 17 Am. Bankr. Rep. 583. The W. H. Baker, Inc. v. Monarch Whole- owner of the stock of a solvent corpo- sale Mercantile Co. (C. O. A.) 269 Fed. ration does not necessarily commit an 794, 46 Am. Bankr. Rep. 309. act of bankruptcy on the part of the 17B In re Union Pac. R. Co., 10 N. B. corporation by selling its property and R. 178, Fed. Cas. No. 14,376. depositing the proceeds to his own credit. 176 In re Harper & Bros., 100 Fed. 266, In re M. S. Fersko, Inc., 250 Fed. 357, 3 Am. Bankr. Rep. 804. 162 O. G. A. 427, 41 Am. Bankr. Rep. 177 Hooks V. Aldrldge, 145 Fed. 865, 76 395. 327 BANKRUPTCY OF CORPORATIONS § 145 not operate to give any creditor a "preference through legal proceed- ings." "9 § 145. Same; Admission of Insolvency and Willingness to be Ad- judged Bankrupt. — It is an act of bankruptcy for a person (including a corporation) to "admit in w^riting his inability to pay his debts and his willingness to be adjudged a bankrupt on that ground." ^*' ' This is the ground on which proceedings in bankruptcy have been most usually taken against corporations, and indeed the impression has pre- vailed that this method was sometimes resorted to by corporations, as a means of evading the provision of the statute (as originally enacted) which forbade them to file a voluntary petition in bankruptcy. It was said that, where it is apparent that the admission of insolvency was made for the very purpose of inducing creditors to take the action which the corporation itself was forbidden to take, and that the real motive was the desire of the managers of the company to liquidate its affairs through the court of bankruptcy, that court should discourage the attempt to evade the law.'^*^ Since insolvency is not a necessary element of this particular act of bankruptcy, the question whether the company is actually unable to pay its debts or not is immaterial, and a creditor intervening to oppose the petition cannot prove its solvency as a defense.^** The admission of insolvency need not be made in the form of a resolution of the directors or stockholders. A published notice or letter to creditors will be sufficient. But in any case it must be explicit and unqualified. Thus, a letter written by the clerk of a corporation, by. authority of its directors, stating its inability to pay its debts in full and that the only course open to non-attaching credi- tors was to bring involuntary proceedings in bankruptcy, in which case the company would admit its insolvency and its willingness to be adjudged bankrupt, is not such an unqualified admission as to consti- tute an act of bankruiptcy."^ Where the company itself files a bill in a state court asking for the appointment of a receiver, this m'ay con- stitute an effectual admission of insolvency.^** And so, where hostile 17 8 Hichmond Standard Steel Spike & Fed. 906, 15 Am. Bankr. Rep. 324 ; In re Iron Co. V. Allen, 148 Fed. 657, 78 C. O. 0. Moench & Sons Co., 130 Fed. 685, 66 A. 389, 17 Am. Bankr. Eep. 583. C. C. A. 37, 12 Am. Bankr. Eep. 240, af- 180 Bankruptcy Act 1898, § 3. And see firming 123 Fed. 965, 10 Am. Bankr. Eep. supra, § 96. ^^^ '• ^° ^^ Eussell Wheel & Foundry 181 in re Bates Machine Co., 91 Fed. Co. (D. C.) 222 Fed. 569, 35 Am. Bankr. 625, 1 Am. Bankr. Bep. 129. But see Eep. 66. In re C. Moench & Sons Co., 130 Fed. iss In re Standard Shipyard Co. (D. 685, 66 C. C. A. 37, 12 Am. Bankr. Eep. C.) 262 Fed. 522, 45 Am. Bankr. Eep. 67. 24o'; In re T. L. Kelly Dry-Goods Co., is* Moody v. Fort Clyde Development 102 Fed. 747, 4 Am. Bankr. Eep. 528. Co., 102 Me. 365, 66 Atl. 967. 182 In re Duplex Badlator Co., 142 § 145 LAW OF BANKRUPTCY 328 proceedings are instituted against it in a state court, its answer may constitute an act of bankruptcy if it thereby admits both its insol- vency and its willingness to be adjudged bankrupt, though the former admission is not enough without the latter.^*® And so, if a petition in involuntary bankruptcy is filed by creditors against the corporation, and its answer waives process, admits the allegations of the petition, and declares its willingness to be adjudged bankrupt, it is an act of bankruptcy within the meaning of the statute,^*® though the opinion has been advanced that such an admission cannot be availed of as a ground of adjudication on the pending petition, but may constitute the foimdation for a new petition.^*' Where a petition in bankruptcy is filed against a corporation, it is not necessary, in order to authorize counsel to appear and admit the acts of bankruptcy charged, that the corporators or stockholders should previously vote to authorize that act or direct it to be done.^** As to where the authority resides to commit the corporation to bankruptcy by making an admission of this kind, the authorities differ materially. In the first place, it is clear that no officer of a corpora- tion can commit an act of bankruptcy in its name and behalf, by ad- mitting its inability to pay its debts and its willingness to be adjudged bankrupt, without express authority from some competent source,'^*® nor, it is said, can his unauthorized admission be made effective by subsequent ratification by the directors. '^'** As to the authority of the board of directors, much depends on the statute law of the state in respect to the distribution -of corporate power between the directors and the stockholders. Thus, it has been ruled that, under the laws of Massachusetts and of Maine, the directors of a manufacturing corpora- tion have no authority to make a written admission of its inability to pay its debts and its willingness to be adjudged bankrupt. Such an admission is in excess of their authority, and therefore does not con- 185 In re Wilmiugton Hosiery Co., 120 i^r in re Baker-Eicketson Co., 97 Fed. Fed. 179, 9 Am. Bankr. Bep. 579. 489, 4 Am. Bankr. Eep. 605. 186 In re Columbia Real Estate Co., iss Lelter v. Payson, 9 N. B. R. 205, 101 Fed. 965, 4 Am. Bankr. Rep. 411. Fed. Cas. No. 8,226. But where a corporation authorizes one i89 in re Southern Steel Co., 169 Fed. of its officers to appear on behalf of the 702, ^2 Am. Bankr. Rep. 476 ; In re Jef- company in the federal court and make ferson Casket Co., 182 Fed. 689, 25 Am. the admission of insolvency contemplat- Bankr. Rep. 663. And a written admis- ed by the statute, "in the event of an sion signed by a majority of the direc- involuntary petition in bankruptcy being tors, but individually and not in their filed against said company," this is not official capacity, is ineffective. In re in itself such an unqualified admission Gold Run Mining & Tunnel Co., 200 Fed. as is required by the act, and is therefore 162, 29 Am. Bankr. Rep. 563. not an act of bankruptcy on the part of loo in re Burbank Co., 168 Fed. 719, the com'iiany. In re Baker-Rick;ptson 21 Am. Bankr. Rep. 838. Co., 97 I'Vd. 489, 4 Am. Bankr. Eep. 605. :;2!» BANKRUPTCY OF CORPORATIONS § 145 stitute an act of bankruptcy; nor will a vote, of the stockholders ratify- ing the action of the directors, but taken after the filing of the petition, relate back so as to validate it, at least where creditors other than the petitioners have already entered an appearance and opposed the adjudi- cation.^*^ And a similar ruling has been made in the case of an Ore- gon corporation.^®^ On the other hand, the federal courts in New York have decided that the directors of a New York corporation have power and authority to put it into bankruptcy in this way, without the con- currence or authorization of the stockholders, and have generalized the rule that this is not a corporate function, to be exercised by the whole body of corporators, but an administrative act, and that the act of "bankruptcy in question may be committed by the board of directors alone, vtnless there is something in the statute law of the particular state to forbid it.^®^ And the same doctrine is held in Minnesota and several other states with regard to corporations of those states.-'®* If this rule prevails, it is further held that the appointment of receivers for an insolvent corporation does not dissolve it nor vacate the offices of the directors to such an extent as to make it legally impossible for them to make the admission of insolvency contemplated by the bank- ruptcy act."^*® But they may be otherwise disqualified or restrained from taking such action, as in a case where the court appointing the receivers granted an injunction restraining the officers of the company from commencing or prosecuting any proceeding "involving in any way the property or property rights" of the corporation, or incumbering or embarrassing the same. Here it was held that the subsequent action of the board of directors in adopting a resolution confessing the in- solvency of the company and its willingness to be adjudged bankrupt was a violation of the injunction and unauthorized, and therefore did 191 In re Bates Machine Co^, 91 Fed. Kenwood Ice Co. (O. C. A.) 204 Fed. 577, 625, 1 Am. Bankr. Rep. 129 ; In re Stand- 29 Am. Bankr. Rep. 586 ; In re Russell ard Sliipjard Co. (D. O.) 202 Fed. 522, 45 Wheel & Foundry Co. (D. C.) 222 Fed. Am. Bankr. Rep. 67. 569, '35 Am. Bankr. Rep. 66; Home Pow- 192 In re Quartz Gold Min. Co., 157 der Co. v. Geis, 204 Fed. 568, 12.3 C. C. A. Fed. 243, 19 Am. Bankr. Rep. 667; Van 94, 29 Am. Bankr. Rep. 580; Rudebeck v. Emon V. Veal, 158 Fed. 1022, 85 C. C. Sanderson, 227 Fed. 575, 142 C. 0. A. 207, A. 547. 36 Am. Bankr. Rep. 146 ; In re Foster 10 3 In re C. Moench & Sons Co., 130 Paint & Vairnish Co. (D. O.) 210 Fed. 652, Fed. 685, 66 C. C. A. 37, 12 Am. Bankr. 31 Am. Bankr. Rep. 548 ; Bell v. Bless- Rep. 240; In re Rollins Gold & Silver ing, 225 Fed. 750, 141 C. C. A. 34, 35 Am. Min. Co., 102 Fed. 982, 4 Am. Bankr. Rep. Bankr> Rep. 672 ; In re United Grocery 327 ; In re Mutual Mercantile Agency, Co. (D. 0.) 239 Fed. 1016, 39 Am. Bankr. Ill Fed. 152, 6 Am. Bankr. Rep. 607 ; Rep. 501 ; In re S. & S. Mfg. & Sales Co. In re Guanacevi Tunnel Co. (C. C. A.) (D. C.) 246 Fed. 1005, 39 Am. Bankr. Rep. 201 Fed. 316, 29 Am. Bankr. Rep. 229, 786. 194 In re Kenwood Ice Co., 189 Fed. las Cresson & Clearfield Coal & Coke 625. 26 Am. Bankr. Rep. 499 ; Dodge v. Co. v. StaufCer, 148 Fed. 981, 78 0. C. A. § 146 LAW OP BANKRUPTCY 330 not constitute an act of bankruptcy.*'* Although ordinarily a majority of the directors of a corporation have no power to hold a meeting for the transaction of business affecting the corporation without giving notice to the minority, yet such notice may, in some circumstances, be dispensed with, and the action of the majority in putting the cor- poration into bankruptcy may be valid without notice to the minority directors, as, where the latter resided in a distant state and could not have attended the meeting, and there does not appear to have been any fraud or collusion,*^'' where the directors not notified were only nominal members of the board and had never taken part in the meetings of the directors or given any attention to the affairs of the company,*** or where one single director constituted the minority, and it appears that notice to him would have been entirely perfunctory and of no avail in the way of securing his attendance at the meeting or his con- currence in the views of the majority, as he had had a violent quarrel with the other directors, and had instituted a suit to rescind his con- tract for the purchase of stock in the company on the ground of fraud, and would have resisted the proceeding to put the company into bank- ruptcy in order to sustain an attachment of the company's property in his own favor.*^ It remains to be added that a resolution adopted at meetings both of the board of directors and of the stockholders of a corporation, admitting its insolvency and its willingness to be adjudged bankrupt, will unquestionably constitute an act of bankruptcy.**** § 146. Effect of Adjudication on Status of Corporation. — On the question whether or not a corporation is dissolved by its adjudication in bankruptcy, the authorities are not in harmony. On the one hand, it has been said that a corporation, for all essential purposes, is as effec- tually dissolved by the commencement of proceedings in bankruptcy against it as if a solemn judgment were pronounced to that eflfect. It is such a dissolution, it is said, as will afford creditors a remedy against the individual shareholders where they are made liable upon the "dis- solution" of the company.^** And a federal court has declared that, 609, 17 Am. Bankr. Rep. 573; In re C. 200 in re American Guarantee & Secu- Moench & Sons Co., 130 Fed. 685, 66 C. rity Co. (C. C. A.) 192 Fed. 405, 27 Am. C. A. 37, 12 Am. Bankr. Rep. 240. Bankr. Rep. 640. ISO In re Hudson River Electric Power 201 State Savings Ass'n v. Kellogg, 52 Co., 173 Fed. 934, 23 Am. Bankr. Rep. Mo. 583. And see Slee v. Bloom, 19 191. Johns. (N. Y.) 456, 10 Am. Dec. 273; 107 In re Llsk Mfg. Co., 167 Fed. 411, Pennlman v. Briggs, Hopk. Ch. (N. Y.) 21 Am. Bankr. Rep. 674. 300 ; In re Washington Marine Ins. Co., 10 8 In re Marine Machine & Conveyor 2 Ben. 292, 2 N. B. R. 64S, Fed. Cas. No. Co., 91 Fed. 630, 1 Am. Bankr. Rep. 421. 17,246. 100 In re Kenwood Ice Co., 189 Fed. 525, 26 Am. Bankr. Rep. 499. 331 BANKRUPTCY OF CORPOIIATIOXS § 146 under a state statute providing that upon the "dissolution" of a corpo- ration its president and directors or managers shall be in law trustees for the settlement of its afifairs and personally responsible to creditors to the extent of the property which may come to their hands, the mere insolvency of the concern, known to the president and directors, works a practical dissolution, so as to impose upon them the statutory con- sequences.*** But there is strong authority the other way. The adjudi- cation in bankruptcy, it is argued, does not necessarily destroy the life of the corporation any more than that of a natural person. It is true the bankrupt, while under the control of the court, is said to be civiliter mortuus; and of course all corporate functions, or at least all control of the business of the corporation, must be regarded as suspended dur- ing the continuance of the proceedings in bankruptcy.**** But there is nothing in the language of the act, nor in the necessary consequences of such a proceeding, to prevent the corporation from resuming its busi- ness and the exercise of all its corporate functions, after it shall have obtained a discharge; and so long as that is possible, it cannot with any propriety be said that the company is dissolved.*"* This view has been picturesquely expressed by the court in Georgia in the following terms: "The bankruptcy of a corporation does not put an end to its corporate existence nor vacate the ofHce of its directors. A corporation of this state cannot be dissolved by an act of Congress, nor by the ad- ministration thereof through the federal courts. Georgia created, and she alone can destroy. Besides, it is not the purpose of the bankruptcy law to dissolve corporations. The assets are seized, but the franchise is spared. 'Your money,' not 'your life,' is, the demand made by the bankruptcy act." **® The same view has been maintained by eminent courts in considerating the efifect of proceedings under the state insolv- ency laws upon the existence of corporations.*"* However this may be, it is settled that a decree adjudging a corporation bankrupt is in the 2 02 Sprague-Brimmer Mfg. Co. v. Mur- celver do not effect a dissolution of the phy burnishing Goods Co., 26 Fed. 572. corporation, see Chemical Nat. Bank "v. 208 But it is said that, in view of the Hartford Deposit Co., 161 U. S. 1, 16 Sup. provisions of the Bankruptcy Act for Ct. 439, 40 L. Ed. 595; State v. Mer- compositions, a corporation, though bank- chant, 37 Ohio St. 251. rupt, may elect officers and directors ^"^ Holland v. Heyman, 60 Ga. 174. while Its affairs are being conducted in And see National Surety Co. v. Medlock, the bankruptcy court, and such officers 2 Ga. App. 665, 58 S. E. 1131 ; Chamber- and directors may agree to a settleme^t lin v. Huguenot Mfg. Co., 118 Mass. 532 ; and distribution of assets in the nature Shenandoah Valley R. Co. v. Griffith, 76 of a composition. In re O'Gara Coal Co., Va. 913. 260 Fed. 742, 171 0. C. A. 480, 44 Am. ^"^ Coburn v. Boston Papier-Machfi Bankr. Eep. 206. Mfg. Co., 10 Gray (Mass.) 243; Boston 204 Morley v. Thayer, 3 Fed. 737. That Glass Manufactory v. Langdon, 24 Pick, insolvency and the appointment of a re- (Mass.) 49, 35 Am. Dec. 292. § 147 LAW OF BANKRUPTCY 332 nature of a decree in rem as respects the status of the corporation, and if the court rendering it had jurisdiction, it can be assailed only by a direct proceeding in a compe'tent court, unless it appears that the de- cree is void in form, or that due notice of the petition was not given.^^' § 147. Franchises as Assets. — ^Are the franchises of a corporation, including that by which it enjoys corporate existence, property such as will vest in its trustee in bankruptcy, and which may be sold by him in the administration of, his trust? It appears that the act of 1867 con- templated an affirmative answer to this question. For No. 21 of the Gen- eral Orders framed under that act provided that, "in making sale o^f the franchise of a corporation, it may be offered in fractional parts or in cer- tain numbers of shares corresponding to the number of shares in the bankrupt corporation." And the courts accordingly held that the fran- chises of the corporation vested in the assignee in bankruptcy, as other property, and were subject to sale by him.""* There is no such provi- sion in the present statute nor in the present General Orders. But it is enacted that the trustee in bankruptcy shall be vested, by operation of law, with the title of the bankrupt to "property which, prior to the filing of the petition, he could by any means have transferred or which might have been levied upon and sold under judicial process against him." ^'"* And "transfer," according to the definitions given in the first section of the law, "shall include the sale and every other and different mode of disposing of or parting with property, or the possession of property, absolutel)'' or conditionally, as a payment, pledge, mortgage, gift, or security." ^■'** Now it is a general rule, settled by the preponder- ance of authority, that a corporation cannot sell, mortgage, or other- wise alienate its franchise^, particularly the franchise of corporate exist- ence, unless power to do so has been expressly conferred upon it,- and, consequently, that such franchises are not subject to levy and sale on execution to satisfy the debts of the corporation. But this rule will be found to have been established, and to be almost exclusively applied, in the case of such corporations as have duties to fulfill, or services to render, towards the public, where the reason for the rule is very ap- parent. Public corporations, properly so called, are not subject to the 207 New Lamp Co. v. Ansonia Brass tlierelj.v become its corporators and ac- Oc, 91 U. S. 656, 23 L. Ed. 336. quire the corporate entity. Metz v. Buf- 208 Adams v. Boston, H. & E, R. Co., 1 falo, C. & P. R. Co., 58 X. Y. 61, 17 Am. Holmes, 30, 4 N. B. R. 314, Fed. Cas. No. Rep. 201, 12 N. R. R. 559. 47; Sweatt v. Boston, H. & E. U. Co., n 200 Bankruptcy Act 1S98, § 70a, clause Cliff, 339, 5 N. B. R. 234, Fed. Cas. No. 5. 13,684. But parties who purchase the 210 Bankruptcy Act 1898, § 1, clause Pfoperty and franchises of a corjKiration 25. from its assignee in bankruptcy do not 333 BANKRUPTCY OF CORPORATIONS § 148 bankruptcy law. As to quasi-public corporations, or those which are organized for purposes of private gain by individuals, though they serve a public use or render service to the public generally, they may prob- ably be adjudged bankrupt in a proper case ; ^^^ and it would seem that their franchises might be sold by the trustee in bankruptcy, provided the public service to be rendered could be equally well performed by any purchaser and did not involve the element of a personal trust.*^^ As to corporations of other kinds, it is almost universally the case that their franchises, as such, have little or no pecuniary value. Where, however, such a corporation has authority to mortgage or sell its fran- chises, they would seem to come clearly within the description of prop- • erty vesting in the trustee under the bankruptcy law. § 148. Assessment on Unpaid Stock. — When the assets of a bank- rupt corporation are not sufficient to pay its debts, the court of bank- ruptcy has power and authority to levy an assessment upon the stock- holders and call upon them to make good the unpaid balance of their subscriptions to the capital stock of the company, to an amount not ex- ceeding in the aggregate the deficiency of the other assets as compared with the debts ; it has, in fact, all the powers of a court of equity in the premises. *^^ A provision in the subscription and in the stock certificate that the unpaid balance was to be paid on the call of the directors "when ordered by a vote of a majority of the stockholders themselves," does not prevent the effectual exercise of this power by the court of bank- ruptcy ; for, as a court of equity, it has all the power of the directors or 211 See supra, § 140. powers might pass through proceedings in 212 It has been held that a franchise bankruptcy. to construct a turnpike road or a toll 213 Ogilvie v. Knox County Ins. Co., 22 bridge, and collect tolls thereon, or to How. 380, 16 L. Ed. 349 ; Sanger v. XJp- run a ferry, is a personal trust and not ton, 91 U. S. 56, 23 L. Ed. 220 ; Scovlll assignable, and will not vest in a trustee v. Thayer, 105 U. S. 155, 26 L. Ed. 968; in bankruptcy. In re Scott, 6 Sawy. 234, TurnbuU v. Payson, 95 U. S. 418, 24 L. 11 Fed. 133. But this view has been Ed. 4.^7 ; In re Hunger Yehicle Tire Co., squarely denied. See Stewart v. Har- 168 Fed. 910, 94 C. C. A. 314, 21 Am. grove, 23 Ala. 429. And in the case of In Bankr. Kep. 395 ; In re Remington Auto- re New York & W. Water Co., 98 Fed. mobile & Motor Co., 153 Fed. 345, 82 C. 711, 3 Am. Bankr. Rep. 508, the opinion C. A. 421, 18 Am. Bankr. Rep. 389; In re is expressed that a corporation otherwise Miller Electrical Maintenance Co., Ill amenable to the bankruptcy law (such as Fed. 515, 6 Am.. Bankr. Rep. 701 ; In re a water-supply company, engaged in the Eureka Furniture Co., 170 Fed. 485, 22 business of obtaining, transporting, and Am. Bankr. Rep. 395 ; In re Monarch supplying pure water for municipal and Corporation, 177 Fed. 464, 24 Am. Bankr. domestic use) is not exempted from the Rep. 428; Glenn v. Soule, 22 Fed. 417; operation of the law on the ground of Its In re Crystal Spring Bottling Co., 96 being a quasi public corporation and sub- Fed. 945, 3 Am. Bankr. Rep. 194 ; In re serving a public use, if its franchise is- Republic Ins. Co., 3 Biss. 452, Fed. Cas. assignable, so that its functions might be No. 11,704; Payson v. Stoever, 2 Dill, exercised by any transferee to whom its 427. Fed. Cas. Xo. 10,863 ; Upton v. § 148 LAW OF BANKRUPTCY 334 the stock,holders or both collectively.*" And the directors of the cor- poration cannot relieve the stockholders from this liability by refusing to issue a call ; and where the charter provided that the company should commence business with the full amount of its capital stock paid in, the fact that it actually commenced business is enough for the trustee in bankrptcy to show, in an action against stockholders for unpaid bal- ances, without showing any call for their subscriptions.*^^ It should be observed that this liability of subscribers for unpaid balances, up to the full par value of their stock, is an asset of the corpo- ration itself, not a remedy available to creditors. It is in the character pi an asset of the corporation that it vests in the trustee in bankrupcy, and he is thereupon solely invested with the right to maintain actions against the stockholders who are in arrear.**® Such actions cannot be maintained either by the corporation or by the creditors. But it is nec- essary to distinguish carefully between a liability of this kind and one which is made by law directly available to creditors. For instance, where the statute provides (as in New York) that holders of stock in a corporation which is not fully paid shall be personally liable to certain classes of creditors to the extent of the amount unpaid on their stock, this gives the corporation itself no claim or right of action against such stockholders, and therefore no right of action thereunder passes to the Burnham, 3 Biss. 520, Fed. Cas. No. 16,- v. Cowles, 157 Cal. 625, 108 Pae. 711, 30 799; Upton v. Jackson, 1 Flip. 413, Fed. L. R. A. (N. S.) 283, 137 Am. St. Rep. Cas. No. 16,802; Wilbur v. Stockholders, 158; Bernard v. Carj, 167 N. C. 481, 83 13 Phlla. 479, 18 N. B. R. 178, Fed. Cas. S. E. 816 ; Babbitt v. Read (D. C.) 215 No. 17,636; Myers v. Seeley, 10 N. B. Fed. 395; Mills v. Friedman, 111 Misc. R. 411, Fed. Cas. No. 9,994 ; Upton v. Rep. 253, 181 N. Y. Supp. 285 ; Petition Hansbrough, 3 Biss. 417, 10 N. B. R. of Stuart (C. C. A.) 272 Fed. 938 ; Bab- 368, Fed. Cas. No. 16,801 ; Lane v. Nick- bitt v. Read (D. C.) 215 Fed. 895 ; De erson, 99 111. 284. Muth v. Faw, 103 Wash. 279, 174 Pac. 214 Upton V. Hansbrough, 3 Biss. 417, 18. But see Kelley v. Abbott (Cal.) 196 10 N. B. R. 368, Fed. Cas. No. 16,801. Pac. 39. If a subscriber for stock in a 216 Rathbone v. Ayer, 84 App. Div. corporation has given his note in part 186, 82 N. Y. Supp. 235. payment of the price, the corporation's 218 Rathbone v. Ayer, 84 App. Div. 186, trustee in bankruptcy may sue and re- 82 N. Y. Supp. 235 ; Stoddard v. Lum, cover on the note. Bailey v. Anderson, 159 N. Y. 272, 53 N. E. 1108, 45 L. R. A. 142 Ga. 11, 82 S. E. 290. Under the laws 551, 70 Am. St. Rep. 541; Stocker v. of Minnesota, however, a stockholder of Davidson, 74 Kan. 214, 86 Pac. 136, 118 a corporation of that state is liable for Am. St. Rep. 315 ; Harris v. Wells, 57 the difference between the par value of Misc. Rep. 172, 108 N. Y. Supp. 1078; his stock and the agreed amount he paid Falco V. Kaupisch Creamery Co., 42 Or. therefor only to those who have given 422, 70 Pac. 286 ; In re Remington Auto- credit to the corporation on the faith of mobile & Motor Co., 153 Fed. 345, 82 0. its capital stock, and consequently such 0. A. 421, 18 Am. Bankr. Rep. 389 ; Foote liability cannot be enforced by the trus- V. Greilick, 166 Mich. 636, 132 N. W. 473 ; tee in bankruptcy. Courtney v. Croxton, Commercial Bank of Augusta v. War- 239 Fed. 247, 152 0. C. A. 235, 38 Am' then, 119 Ga. 990, 47 S. E. 536 ; Perkins Bankr. Rep. 560. 335 BANKRUPTCY OF CORPORA'l'IONS § 148 trustee in bankruptcy of the corporation.^" So, if stock was issued in exchange for patent rights or other property, and the corporation itself cannot claim that it was not fully paid, neither can its trustee in bank- ruptcy.*** It has been held that the trustee in bankruptcy cannot levy an as- sessment for unpaid stock of his own motion. There must have been either corporate action to fix the liability of the stockholders or a judi- cial ascertainment of their liability.*'* And where a formal assessment and call are necessary, the proper practice is for the trustee to file his petition in the court of bankruptcy, asking for an order directing him to make an assessment and call upon the unpaid stock of the corporation for the purpose of paying its debts.*** On the hearing of this petition, the court will decide the necessary preliminary questions, such as the question whether particular stock has or has not been fully paid, wheth- er the corporation is indebted in excess of its assets, and what is the amount of its indebtedness. But the order should not be so framed as to authorize the issue of an execution against any named stockholder for the amount considered to be due from him. The trustee should pro- ceed against each in a plenary action.*** But the authorities favor the view that a formal assessment or call is necessary only in two cases : First, where it is not certain that the whole amount of the unpaid sub- scriptions to stock will be needed to pay the debts of the company, for in this case some preliminary investigation and order are necessary to determine what percentage the delinquent subscribers should be called on to pay, for they are not liable in the total sum unless it is all re- quired to satisfy creditors.*** Second, when no time was fixed for the payment of the successive installments on the stock, but they were to be called in by order of the directors from time to time. Here it could not be said that any stockholder is delinquent until something equiva- lent to such a call as the directors might have issued has been in effect issued.*** 217 In re Jassoy Co., 178 Fed. 515, 101 18 Am. Bankr. Eep. 389 ; citing Seovill "c. C. A. 641, 23 Am. Bankr. Hep. 622. v. Thayer, 105 tJ. S. 143, 26 L. Ed. 968 ; 218 Sternbergh v. Duryea Power Co. Bergdoll v. Harrigan (C. C. A.) 263 Fed. (C. C A.) 161 Fed. 540, 20 Am. Bankr. 279, 44 Am. Bankr. Rep. 633. But see Rep 625 And see In re Beachy & Co., Kaye v. Metz (Cal."i 198 Pac. 1047. ■ 170 Fed 825, 22 Am. Bankr. Rep. 538; 222Kelley v. Aarons (D. C.) 238 Fed. In re Jassoy Co., 178 Fed. 515, 101 C. C. 996, 39 Am. Bankr. Rep. 115. A 641 23 Am. Bankr. Rep. 622. "3 See Rathbone v. Ayer, 84 App. Div. 2i9Payson v. Brooke, 1 Wkly. Notes 186, 82 N. Y. Supp. 235; Phoenix Ware- Cas (Pa) 89, Fed. Cas. No. 10,857. housing Co. v. Badger, 67 N. Y. 294; 220 Bergdoll v. Harrigan (C. C. A.) 263 Boss-Mehan Brake Shoe Foundry Co. v. Fed 279 44 Am.' Bankr. Rep. 633. Southern Malleable Iron Co., 72 Fed. 2 21 In' re Remington Automobile & 957; Scovlll v. Thayer, 105 U. S. 143, 20 Motor Co 153 Fed. 345, 82 C. C. A. 421, L. Ed. 968; Citizens' & Miners' Sav. § 148 LAW OF CAXKUUFTCY 33C Compliance with the call may be enforced by a suit in equity in the federal district court in which the estate of the bankrupt corporation is being administered,*^* or the trustee may proceed against the stock- holders severally in the proper state courts. In suits to enforce the collection of the assessment, the validity of the action of the bankruptcy court in making the levy cannot be brought into question.*^® Nor can a stockholder defend himself against such an action on the ground that the proceedings to increase the stock of the corporation (his subscrip- tion beiiig made for such increase) were irregular or invalid,^*® nor on the ground that his subscription for the stock and agreement to pay for it were based on an express understanding that he was to receive the stock for two-thirds of its par. value,**' nor on the ground that he was ignorant of the condition of the company at the time the subscription was made,*** nor on the ground that he was fraudulently misled and induced to believe that there was no personal liability for the unpaid balance, and that the amount thereof could not be , assessed against him,*** or that the word "non-assessable" was written across the face of his certificate of stock.*^" Further, the fact that a call for unpaid sub- scriptions was for more than was necessary to pay the debts of the com- pany cannot be tried in an action by the trustee against an individual stockholder.*^^ The fact that the defendant's name appears on the books of the corporation as a stockholder is presumptive proof that he is the owner of the stock, and proof that he received a dividend on the Bank V. Gillespie, 115 Pa. St. 564, 9 Atl. Biss. 420, 13 N. B. R. 17, Fed. Cas. No. 73 ; Tiger Shoe Mfg. Co.'s Trustee v. 8,018. As to contest by nonresident Shanklin, 102 S. W. 295, 31 Ky. Law Rep. stockholder, see In re Newfoundland 298. Syndicate (C. C. A.) 201 Fed. 917, 29 Am. ,224 In re Crystal Spring Bottling Co., Bankr. Rep. 858. 96 Fed. 945, 3 Am. Bankr. Rep. 194; 22« Chubb v. Upton, 95 XJ. S. 665, 24 Shifter v. Akenbrook (Ind. App.) 130 N. L. Ed. 523. E. 241; ICelley v. Abbott (Cal.) 196 Pac. 227 Flinn v. Bagley, 7 Fed. 785. .39. A referee in bankruptcy has juris- 2 28Payson v. Withers, 5 Biss. 269. diction of a proceeding to compel the of- Fed. Cas. No. 10,864. fleers of a bankrupt corporation to pay 2129 tJpton v. Tribilcok, 91 U. S. 45, 23 over the proceeds of sales of its stock L. Ed. 203 ; Michener v. Payson, 13 N. alleged to belong to the corporation, and B. R. 49, Fed. Cas. No. 9,524. also to pay an amount assessed against 230 Upton v. Burnham, 3 Biss. 520, them foi* iinpaid shares. In re Kornit Fed. Cas. No. 16,799. But under the Mfg. Co., 192 Fed. 302, 27 Am. Bankr. laws of Minnesota, where a corporation Rep. 244. agreed that its stock would be non-as- 32scievenger v. Moore, 71 N. J. Law, e.ssable, the unpaid balance of the par 148, 58 Atl. 88; Payson v. Stoevi^r, 2 value of stock of any given stockholder Dill. 427, Fed. Cas. No. 10,863 ; Michener is not recoverable by the trustee in bank- V. Payson, 13 N. B. R. 49, Fed. Caw. No. ruptcy. Courtney v. Georger, 228 Fed. 9,524; .TefCery v. Selwyn, 220 N. Y. 77, S59, 143 C. C. A. 257, 36 Am. Bankr. Rep. 115 N. E. 275, 6 A. L. R. 1111 ; Mills v. 20. Friedman, 111 Misc. Rep. 253, 181 N. Y. 23] Upton v. Hansbrough, 3 Biss. 417, Supp. 285. Compare Lamb v. Lamb, 6 10 N. B. R. 368, Fed. Cas. No. 16,801. 337 BANKRUPTCY OF CORrORATIOXS § 149 Stock renders the presumption conclusive.*^'* Tlie transferee of stock is liable on such an assessment, unless it appears that the transfer has not been accepted by him, in which case the transferror alone is lia- ble.*^* The provision of the statute that "suits shall not be brought by or against a trustee of a bankrupt estate subsequent to two years after the estate has been closed" *** applies to an action by a trustee to en- force against stockholders the payment of their unpaid shares.*'" Under the doctrine that the capital of a corporation c6nstitutes a trust fund for the benefit of its creditors, it is held that a stockholder who is indebted to the bankrupt corporation for unpaid shares can- not set off against his liability thereon a debt due to him by the cor- poration. The fund arising from such unpaid stock must be equally divided among all the creditors."*^ Thus the fact that stockholders of a bankrupt corporation are also holders of its bonds, and as such entitled to share in the distribution of its estate, does not entitle them to set off their claims on the bonds in a suit against them by the trustee to re- cover unpaid subscriptions. *'' Nor will a delinquent stockholder be permitted to prove his claim against the estate of the corporation in bankruptcy until he has paid the balance remaining due on his subscrip- tion.*^* § 149. Statutory Liability of Stockholders and Directors. — In many of the states, statutes impose upon stockholders in certain classes of corporations a personal liability for the debts of the company, to an ex- tent equal to the amount of stock held by them, and there are also lawa making the directors of a corporation liable for its debts when they have transacted business before the capital was paid in, failed to make annual reports to state officers, incurred debts in excess of the amount allowed by law, or declared dividends when the company was insolvent or when there were no real profits to be divided. Such a liability is a collateral obligation for the benefit of the creditors of the corporation, by which the stockholders or directors become sureties to the creditors for the debts of the company.*^' But it is not an asset, legal or equi- 2 32TurnbuU v. Payson, 95 U. S. 418, L. Ed. 731; Jenkins v. Armour, 6 Biss. 24 L. Ed. 437. * 312, 14 N. B. R. 276, Fed. Cas. No.7,260 ; '233 Wilbur V. Stockholders, 13 Pliila. Kaye v. Metz (Gal.) 198 Pac. 1047. 479, 18 N. B. E. 178, Fed. Cas. No. 17,636. 23t Babbitt v. Read, 173 Fed. 712, 23 234 Bankruptcy Act 1898, § lid. Am. Bankr. Rep. 254. 235 Walker v. Towner, 4 Dill. 165, 16 238 in re Wiener & Goodman Shoe Co., X. B. R. 285, Fed. Cas. No. 17,089 ; Pay- . 96 Fed. 949, 3 Am, Bankr. Rep. 200. son V. Coffin, 5 Dill. 473, Fed. Cus. No. 230 The pendency of bankruptcy pro- 10,859 ; Scoyill v. Shaw, 4 Cliff. 549, Fed. ceedings against a corporation do not Cas. No. 12,552. stand in the way of a resort to a method '286 Sawyer v. Hoag, 17 Wall. 610, 21 provided by the laws of the state for en- Blk.Bke.(3dEd.)— 22 § 149 LAW OF BANKEUPTCT 338 table, of the corporation, nor is it a right of action which the corporation itself could have enforced. Hence, upon the bankruptcy of the corpora- tion, the trustee does not acquire any right to enforce such a liability for the benefit of the creditors. It is true he represents the creditors as well as the bankrupt, but his trust relates only to the corporate assets.**" And the fact that directors of the bankrupt corporation have made them- selves thus liable under the state law is not a circumstance which will prevent the trustee from calling upon stockholders for the unpaid bal- ance of their stock.*" Further, proceedings in bankruptcy against a corporation will not prevent a judgment creditor of the corporation from pursuing in a state court his remedy upon the statutory individual liability of stockholders or directors.*** But the case is altogether different where the officers or directors of a corporation are alleged to have "looted" it, to have divided its prop- erty among themselves, to have made a private and secret profit out of a transaction with their own company, or to have wasted or lost its assets by a violation of their duties or abuse of their powers. In such a case, whether the right of action against them be founded on a statute or considered as arising at common law, it- is a right of action in favor of the corporation, not the creditors, and therefore it vests in the corpo- forcing the liability of a stockholder for corporate debts. Sellg v. Hamilton, 234 tr. S. 652, 34 Sup. Ct. 926, 58 U Ed. 1518, Ann. Cas. 1917A, 104. 2*0 In re Beachy & Co., 170 Fed. 825, 22 Am. Bankr. Rep. 538; In re Crystal Spring Bottling Co., 96 Fed. 945, 3 Am. Bankr. Kep. 194; Jacobson v. Allen, 20 Blatchf. 525, 12 Fed. 454 ; Bristol v. San- ford, 12 Blatchf. 341, 13 N. B. R. 78, Fed. Cas. No. 1,893 ; Dutcher v. Marine Bank, 12 Blatchf. 435, 11 N. B. R. 457, Fed. Cas. No. 4,203; Rathbone v. Ayer, 84 App. Div. 186, 82 N. Y. Supp. 235 ; John V. Farwell Co. v. Jackson Stores, 137 Ga. 174, 73 S. E. 13; Tiger Shoe Mfg. Co.'s Trustee v. Shanklin, 31 Ky. Law Rep. 298, 102 S. W. 295 ; Babbitt v. Read, 236 Fed. 42, 149 C. C. A. 252, 38 Am. Bankr. Rep. 303 ; Lummis v. Crosby, 176 App. Div. 315, 162 N. Y. Supp. 444 ; Seeg- miller v. Day, 249 Fed. 177, 161 C. C. A. 213, 41 Am. Bankr. Rep. 317 ; In re Huflf- man-Salvar Roofing Paint Co. (D. C.) 234 Fed. 798, 37 Am. Bankr. Rep. 426;' Smith V. Kastor, 195 111. App. 458; Abele V. S. A. Meagher Co., 227 Mass. 427, 116 N. E. 805; State Bank of Commerce v. Kenney Band Instrument Co., 143 Minn. 236, 173 N. W. 560. But see, per con- tra, Cardozo v. Brooklyn Trust Co., 228 Fed. 333, 142 C. C. A. 625, 36 Am. Bankv. Rep. 351 ; E. L. Moore & Co. v. Murchi- son, 226 Fed. 679, 141 C. C. A. 435; Cole- man V. Booth, 268 Mo. 64, 186 S. W. 1021 ; Mohr v. Minnesota Elevator Co., 40 Minn. 343, 41 N. W. 1074. In the case of Main v. Mills, 6 Biss. 98, Fed. Cas. No. 8,974, it was held that if the direc- tors of a corporation spend its capital stock in declaring and paying dividends, when there are no actual profits to be di- vided, and the company is adjudged bankrupt, the trustee in bankruptcy may recover the amount so paid in dividends, at least from any officer of the corpora- tion who was bound to know the condi- tion of its affsirs, and that he had no right to receive the dividends. And see Mackall v. Pocock, 136 Minn. 8, 161 N. W. 228, L. R. A. 1917C, 390. 2 41 In re Crystal Spring Bottling Co. (D. C.) 96 Fed. 945, 3 Am. Bankr. Rep. 194. 2 42 Allen V. Ward, 4 Jones & S. (N. Y.) 290, 10 N. B. R. 285. And see Jacob- son V. Allen, 20 Blatchf. 525, 12 Fed. 454. 339 BANKEUPTCY OF CORPORATIONS § 150 ration's trustee in bankruptcy as part of its assets, and may be enforced by him.*** , § 150. Discharge of Corporations. — The former bankruptcy law did not allow the granting of a discharge, under any circumstances, to a bankrupt corporation.^** And as a consequence of this it was held that the provision of the statute for staying any pending suit or proceeding against the bankrupt, to await the determination of the court of bank- ruptcy on the question of discharge, did not apply to the case of a corporation,**^ and that the act of a creditor in proving his debt and re- ceiving dividends in bankruptcy prgceedings against a corporation was no bar to his recovering judgment for the balance in a state court.*** But this appears to be changed by the present statute, which enacts that "any person" who has been adjudged a bankrupt "may file an applica- tion for a discharge in the court of bankruptcy in which the proceedings are pending" (section 14a), and that the word "person" as used in the act "shall include corporations except where otherwise specified" (sec- tion 1, clause 19). In the absence of any provision in the law necessa- rily making the discharge of a corporation impossible or inconsistent with the act, the irresistible inference from the clauses quoted is that a corporation which has been thrown into bankruptcy may have its dis- charge on the same conditions, and attended with the same conseqyenc- es, as in the case of a natural person ; and especially in view of the fact that the earlier drafts of the present bankruptcy law, in the section re- lating to discharges, began with the words "any person not a corpora- tion," and that the words "not a corporation" were afterwards stricken out. There is also an explicit decision that a corporation is entitled to a discharge,**' though in the same case it was held that such a discharge would not prevent creditors from subsequently taking a judgment against the corporation in a state court in such limited form as might enable them to enforce the secondary liability of the directors under the state statute, to which, by the terms of the statute, a judgment against the corporation would be a prerequisite. 248 Kathbone v. Ayer, 84 App. Div. Brass & Copper Co., 91 U. S. 656, 666, 23 184, 82 N. T. Supp. 239 ; In re Swofforfl L. Ed. 336. Bros. Dry Goods Co., 180 Fed. 549, 25 2^5 Meyer v. Aurora Ins. Co., 7 N. B. Am. Bankr. Rep. 282. Sherwood v. Hoi- B. 191. brook, 98 Misc. Bep. 668, 163 N. Y. Supp. 2*0 Ansonia Brass & Copper Co. v. 326; McCuUam v. Buckingham Hotel New Lamp Chimney Co., 53 N. T. 123, Co., 198 Mo. App. 107, 199 S. W. 417. 13 Am. Kep. 476, 10 N. B. R. 355. 2** Rev. Stat. U. S. § 5122. And see 2^7 in re Marshall Paper Co., 102 Fed. New Lamp Chimney Co. v. Ansonia 872, 43 C. C. A. 38, 4 Am. Bankr. Rep. 468. § 151 LAW OF BANKEUPTCY 340 CHAPTER X PETITION AND ADJUDICATION Sec. 151. Voluntary Petition and Adjudication Thereon. 152. Same ; Opposition by Creditors. 153. Involuntary Bankruptcy; Creditors Entitled to File Petition. 154. Same; Preferred Creditors. 155. Same; Creditors Estopped to Petition. 156. Same ; Requisites as to Number and Amount. 157. Same ; Solicitation, Procurement, or Purchase of Claims. 158. Same; Withdrawal of Petitioners. 159. Petition in Bankruptcy; Formal Requisites. 160. Same; Allegations. 161. Same ; Multifarious and Misjoined Matter. 162. Signature and Verification of Petition. 163. Amendment of Petition. 164. Limitation of Time for Filing Petition. 165. Piling and Presenting Petition. 166. Service of Process. 167. Notice to Creditors. 168. Parties. 169. Same ; Intervention and Substitution of Parties. 170. Same; Persons Entitled to Oppose Adjudication. 171. Answer and Other Pleadings. 172. Defenses and Grounds of Opposition. 173. Issue of Insolvency. 174. Proof of Solvency or Insolvency. 175. Examination of Debtor as to Solvency. 176. Burden of Proof and Evidence. 177. . Discontinuance and Dismissal of Proceedings. 17S. Death or Insanity of Bankrupt Before Adjudication. 179. Trial by Jury. 180. Trial or Hearing ; Conduct of Proceedings. 181. Adjudication. 182. Conclusiveness and Effect of Adjudication. 183. Vacating and Setting Aside Adjudication. 184. Clerk's Docket. § 151. Voluntary Petition and Adjudication Thereon. — ^The fifty- ninth section of the act provides that "any qualified person may file a petition to be adjudged a voluntary bankrupt;" and under the amend- ment of 1910, "any person," including a corporation, "except a munici- pal, railroad, insurance, or banking corporation, shall be entitled to the benefits of this .act as a voluntary bankrupt." It appears, there- fore, to be the absolute and indefeasible right of any qualified person to file his voluntary petition, and in this he cannot be hindered or restrained by injunction or otherwise.^ On the other hand, there is 1 See supra, § 3. Although a person prevent him from voluntarily having his may be actually solvent, this does not property distributed among his creditors .Ml PETITION AND ADJUDICATION § 151 no legal obligation on an insolvent debtor to file a voluntary petition in bankruptcy,* except perhaps in the case where he has no other means of vacating or discharging a lien which will otherwise ripen into a preference.* So also, a voluntary petition may be withdrawn and all further proceedings stayed on the application of the petitioner, before an adjudication has been made, upon proper cause shown and the pay- ment of costs,* unless such a course is opposed by creditors, in which event the petitioner must show very substantial grounds for leave to withdraw ; ® but after the decree of bankruptcy has been passed, it is not open to the bankrupt to withdraw and 'obtain a dismissal of the proceedings without the concurrence of all whose interests may be aflfected.® In these cases, the operation of the law is almost automatic. It is indeed directed (section 18g) that the judge shall "hear the petition, and make the adjudication or dismiss the petition," but the hearing is merely ex parte and no provision is made for notice to creditors or others. "The filing of the petition is of itself an act of bankruptcy, and the debtor then surrenders all his estate and effects for the benefit of his creditors, and is at once, without any hearing, adjudged a bank- rupt. The district court is thereby, clothed in such cases, upon the filing of the petition, with jurisdiction over the debtor and his prop- erty." ' under the Bankruptcy Act. In re Pyatt (D. C.) 257 Fed. 362, 42 Am. Bankr. Rep. 462. On the other hand, to entitle a petitioner to be adjudged a bankrupt in voluntary proceedings, it is not essen- tial that he should own any property, or that his property, if he has any, should be subject to administration in bankrupt- cy. In re Hargadine-McKittrick Dry Goods Co. (D. C.) 239 Fed. 155, 39 Am. Bankr. Rep. 142. This last case was reversed on appeal, but on other grounds. Zeitlnger v. Hargadine-McKittrick Dry Goods Co., 244 Fed. 719, 157 C. C. A. 167, 40 Am. Bankr. Rep. 324. The fact that a voluntary bankrupt, who had practically no assets, filed his petition for the purpose of protecting from his creditors a legacy which he expected shortly to receive from his mother, does not warrant setting aside his adjudica- tion as a bankrupt, for it is one of the purposes of the Bankruptcy Act to pro- tect after-acquired property from credi- ■tors,i and the fact that the bankrupt had some special property in view does not change his rights. Bank of Blberton v. Swift (C. C. A.) 268 Fed. 305, 46 Am. Bankr. Rep. 75. 2 Richmond Standard Steel Spike & Iron Co. v. Allen, 148 Fed. 657, 78 C. C. A. 389, 17 Am. Bankr. Rep. 583; Sum- mers V. Abbott, 122 Fed. 36, 58 C. C. A, 352, 10 Am. Bankr. Rep. 254. 3 See supra, § 88. * Ex parte Randall, 5 Law Rep. 115, Fed. Cas. No. 11,550. 5 Bx parte Harris, 3 N. Y. Leg. Obs. 152, Fed. Cas. No. 6,110. But where, upon the institution of proceedings in composition, it appeared that no adjudi- cation had yet been made upon the baiilc- ruptcy petition, which was voluntary, it was held that an adjudication ought not to be made merely because certain cred- itors asked it, if the debtor did not de- sire it. In re Alsberg, 9 Ben. 17, Fed. Cas. No. 260. 6 In re Gile, 5 Law Rep. 224, Fed. Cas. No. 5,423. ' Blake V. Francis- Valentine Co., 89 Fed. 691, 1 Am. Bankr. Rep. 872. § 151 LAW OF BANKRDPTCY 342 Voluntary bankruptcy must be upon the debtor's own initiative. Thus, where a petition in involuntary bankruptcy is filed, the default of the defendant, through failure to appear, does not convert the pro- ceeding into one of voluntary bankruptcy,* though it has been held that if the defendant, being a corporation, adopts a resolution consenting to an adjudication being made in the compulsory proceedings begun against it, such proceedings substantially become voluntary, though involun- tary in form.' But where a petition is filed by one member of a firm against the firm and his partners, it is involuntary in so far as it affects the partners who do not assent, and hence they cannot be adjudged bankrupt' except upon proof of the commission of an act of bankruptcy within the statutory time.^* It sometimes happens that both a voluntary petition and an in- voluntary petition against the same debtor will be pending at the same time. It is held that the pendency of the one is no bar to the filing of the other. And the question whether the court should pro- ceed under the one petition or the other is not a question of jurisdic- tion or of right in the parties, but one of practice; and the adjudica- tion should be made in that proceeding in which, under all the cir- cumstances, it appears to be for the best interests of the entire estate. As a general rule, it should be made in the voluntary case, with proper protection to the rights of prior petitioning creditors, because quicker, less expensive, and less likely to lead to costly litigation; and the court is not precluded from acting under this general rule by the fact that the debtor may have appeared and participated in the involuntary pro- ceeding under such circumstances as might ordinarily create an estop- pel if his own interests alone were involved." § 152. Same; Opposition by Creditors. — The present bankruptcy act does not authorize creditors of a proposed voluntary bankrupt to file answers in opposition to his petition for adjudication.^* Thus, a 8 In re Taylor, 102 Fed. 728, 42 C. O. Rep. 415, Fed. Cas. No. 2,3S0 ; In re A. 1, 4 Am. Bankr. Rep. 515. Flanagan, 5 Sway. 312, 18 N. B. R. 439, 9 In re New Amsterdam -Motor Co., Fed. Cas. No. 4,850. Compare In re 180 Fed. 943, 24 Am. Bankr. Rep. 757. Stewart, 3 N. B. R. 108, Fed. Oas. No. 10 In re J. M. Ceballos & Co., 161 Fed. 13.419; In re Lachenmaler (O. C. A.) 445, 20 Am. Bankr. Rep. 459. 203 Fed. 32, 29 Am. Bankr. Rep. 325. 11 In re New Chattanooga Hardware 12 In re Jehu, 94 Fed. 638, 2 Am. Co., 190 Fed. 241, 27 Am. Bankr. Rep. Bankr. Rep. 498; In re R. H. Penning- 77; International Silver Co. v. New ton & Co. (D. C.) 228 Fed. 388, 35 Am. York Jewelry Co., 233 Fed. 945, 147 C. Bankr. Rep. 832; In re Greer (D. C.) C. A. 619, 37 Am. Bankr. Rep. 91. And 248 Fed. 131, 40 Am. Bankr. Rep. 797 ; see In re Stegar, 113 Fed. 978, 7 Am. In re Ann Arbor Machine Corp. (G. C. Bankr. Rep. 665 ; In re Canfleld, 5 Law A.) 274 Fed. 24. 343 PETITION AND ADJUDICATION § 15.'i creditor will not be heard to allege that the petitioner is not in reality insolvent and therefore not entitled to the benefits of the act.*^ Nor will the giving of preferences, fraudulent transfers of property, con- cealment of assets, or other acts done in contravention of the statute avail as grounds of objection to an adjudication on a voluntary peti- tion/* There is, however, one single ground on which creditors may interpose to prevent the granting of the petition, namely, a want of ju- risdiction in the particular court. Before an adjudication is made on a voluntary petition, creditors may move to set aside the petition or dismiss it, on the ground that the petitioner has not resided or had his domicile or his principal place of business within the jurisdiction of the court for the requisite length of time, or at all, and thereupon the court may inquire into the facts of jurisdiction, and make the ad- judication or dismiss the petition according to the result.^® Even after the adjudication has been made, it is not too late for creditors to ob- ject on this ground their proper course being to move the court to vacate the adjudication. But they must act promptly. If they prove their debts, choose a trustee, and otherwise participate in the proceed- ings so as to recognize their validity, they will be considered as hav- ing waived this objection. They cannot first set it up in opposition to the bankrupt's application for discharge.^* § 153. Involuntary Bankruptcy; Creditors Entitled to File Peti- tion. — To sustain a petition in involuntary bankruptcy, it is necessary that it should be brought by not less than three of the creditors, except in the case where the debtor has less than twelve creditors in all, in which event one alone may file the petition. In either case it is re- quired that the petitioning creditor or creditors should have provable claims against the debtor amounting to a minimum of five hundred dollars, over and above the value of any securities held by them. It is absolutely necessary, therefore, that each creditor joining in the peti- tion should be the owner of a demand or claim "provable" against the bankrupt within the provisions of the act." But it is not material to 13 In re Carleton, 115 Fed. 246, 8 Am. tary petition Is filed in a court of anoth- Bankr. Rep. 270 ; In re Fowler, 1 Low. er district after the filing of an involun- 161, 1 N. B. E. 680, Fed. Cas. No. 4,998. tary petition, the petitioning creditors 1* In re Houghton, 4 Law Rep. 482, are entitled to notice. In re Continental Fed. Oas. No. 6,72T; Ex parte Paget Coal Corp., 238 Fed. 113, 151 O. O. A. Fed. Cas. No. 10,670; In re United Gro- 189, 38 Am. Bankr. Rep. 168. eery Co. (D. C.) 239 Fed. 1016, 39 Am. lo Allen v. Thompson, 10 Fed. 116; In Bankr. Rep. 501. Compare In re Bailey, re Mason, 99 Fed. 256, 3 Am. Bankr. Rep. 1 N. r. Leg. Obs. 18, Fed. Cas. No. 726. 599. 15 In re Waxelbaum, 98 Fed. 589, 3 i7 In re Howell, 215 Fed. 1, 131 C. C. Am. Bankr. Rep. 392. Where a volun- A. 309, 32 Am. Bankr. Rep. 572. In re § 153 LAW OF BANKItUl'TCY 344 inquire when the debt or claim accrued. A debt contracted before the passage of the bankruptcy statute is within its operation and will sup- port a petition, and it is no objection that the statute is thus made to retroact by giving the creditor a remedy which was not available to him when the claim accrued.** But it has been thought by some of the authorities that only those creditors could bring or join in the petition who had provable claims against the bankrupt at the time of the commission of the alleged act of bankruptcy.*^ But these deci- sions proceed upon the mistaken theory that a petition in bankruptcy is analogous to a creditor's bill to set aside fraudulent conveyances, and hence maintainable only by those directly injured or defrauded. On the contrary, the whole purpose of the statute is to secure the equal distribution of the debtor's property among all his creditors alike, not to reward those whose superior activity has enabled them to unearth concealed assets or secure Hens. When the bankrupt's estate shall have been collected by the trustee, it is for distribution among all the cred- itors whose claims have been proved and allowed, and the petitioning creditors have absolutely no higher rights than any other creditors. Further, there are acts of bankruptcy upon which a petition may be maintained which have nothing to do with the giving of preferences or the transfer or concealment of assets, and as to which, therefore, the supposed analogy breaks down. Finally the courts are not justi- fied in adding to the statute a qualification or condition which it does not express. It merely provides that "three or more creditors who have provable claims" may petition; it does not require that the claims should have been in existence and should have been provable at a time anterior to the filing of the petition. We think therefore that the better reason is clearly with those authorities which reject this qualification, and hold that it is only necessary that the petitioning Crafts-Riordon Shoe Co., 185 Fed. 931, the proceeding is brought. In re B, L. 26 Am. Banljr. Rep. 449, Bankruptcy Act Radke Co., 193 Fed. 735, 27 Am. Banlcr. 1898, §§ 59b, 63. Persons related to the Rep. 950. But persons who extended alleged bankrupt within the third de- credit to a coiiioration, in violation of gree of consanguinity may bring a peti- the express provisions of the statute un- tion in involuntary bankruptcy against der which it was organized that it him, although it is 'provided that they should neither give nor receive credit, are not to be included in computing the have no claims which could be proved in total number of his creditors for the bankruptcy against it, and cannot main- purpose of ascertaining whether a sufB- tain a petition to have it adjudged an cient proportion have joined in the peti- in\ oluntary bankrupt. In re Wyoming tion. Perkins v. Dorman, 206 Fed. 858. A'alley Co-op. Ass'n, 198 Fed. 436, 28 Am. A corporation of another state may be a Baiikr. Rep. 462. petitioning cioditor, and it is not neces- " Kx p;irte Hull, Fed. Cas. No. 6,856. sary fo allege that it has obtained the m Brake v. Callison, 129 Fed. 201, 63 right to do business in the state where C. C. A. 359, 11 Am. Bankr. Rep. 797; 345 PETITION AND ADJUDICATION § l.J.'J creditors should have provable claims at the time they sign the peti- tion.«« But a creditor who has sold and assigned his claim has no standing to bring or join in the petition,^^ and this applies to one who was quali- fied at the time the original petition was filed, but ceased to be a cred- itor before the filing of an amended petition, the first having been dis- missed for insufficiency.** But it is immaterial that he has contracted to sell his claim, agreeing, as a condition, first to join in a petition in bankruptcy against the debtor, if the transfer is not made until after the petition is filed.** Nor is the bankruptcy proceeding defeated by the fact that one of the petitioning creditors has received payment of his claim from the debtor after the filing of the petition.** But a peti- tioner must be the real owner of a provable claim, entitled to sue on it, and, if not the beneficial owner of the claim, at least he must be the representative or trustee of one who is the beneficial owner of a genuine and provable debt.*® Under ordinary circumstances, the as- signee of a claim succeeds to the rights of his assignor, including the right to join m a petition in bankruptcy against the debtor, unless where the assignment was taken as part of an unlawful or oppressive scheme ; *" but one is not qualified as a petitioner to whom a claim has been trans- ferred without consideration and as a mere subterfuge to avoid a pos- sible set-off or counterclaim.*' This condition being fulfilled it is not necessary that the claim should be immediately enforceable. The statute only requires that it should be "a fixed liability absolutely owing at the time of the filing of the petition, whether then payable or not." (Section 63.) Consequently a debt payable in the future, but upon which the debtor's liability is fixed and not contingent, will support a In re Callison, 130 Fed. 987, 12 Am. Sawy. 190, 17 N. B. R. 413, Fed. Oas. Bankr. Rep. 344; In re Brinkman, 103 No. 17,442. Fed. 65, 4 Am. Bankr. Rep. 551 ; Beers 23 Lr-vven.stein v. Henry McShane Mfg. V. Hamlin, 99 Fed. 695, 3 Am. Bankr. Co., 130 Fed. 1007, 12 Am. Bankr. Rep. Rep. 745 ; In re MuUer, Deady, 513, 3 N. 601. B. R. 329, Fed. Gas. No. 9,912. 2* In re Lutfy, 156 Fed. 873, 19 Am. ^0 In re Hanyan, 180 Fed. 498, 24 Am. Bankr. Rep 614. Bankr. Rep. 72, affirmed without opin- ..f '"/^?=^'l^^ fr'"L^TT*f Sf«' ion in (C. C. A.) 181 Fed. 1021, 24 Am. 163 Fed. 118, 20 Am. Bankr. Rep.' 738. Bankr. Rep. 9.54 ; , In re Lewis F. Perrj- O"^ ^^^If ^^S f «f e of the bankrupt as & Whitney Co., 172 Fed. 745, 22 Am. an age^t or trustee of another is com- Bankr. Rep. 772; Ex parte Shouse, ^'^^^""^ ^^^^^Z""^ TaT\^a^ n r''^' Crabbe, 482 Fed. Cas. No. 12,815; In re I'^'^Jf^''^''^, ^'^ ^^^' f ^ ^- °- ^• ■Van Horn, 246 Fed. 822, 159 C. C. A. 5^3 41 Am Bankr. Rep^ 736. -„, .^ ' _ , „ „ i„ 28 In re 11. E. Page Motor Car Co. (D. 124, 41 Am. Bankr. Rep. 12. ^ <„,-.. t-, ■, o.. o ;.. » t> i -o C.) 251 Fed. 318, 41 Am. Banljr. Rep. 21 In re Burlington Malting Co., 109 g^g Fed. 777, 6 Am. Bankr. Rep. 369. 2; i„ ^e Pangborn, 185 Fed. 673, 26 22 In re Western Savings & T. Co., 4 Am. Bankr. Rep. 40. § 153 ■ LAW OF BANKUUPTCY 346 petition in bankruptcy, such as a promissory note not yet due.** Where there has been presentment of a note for payment, dishonor, and no- tice, the payee may file a petition in involuntary bankruptcy against the indorser.*** But if the debtor's liability, as distinguished from the date of payment, is uncertain or conditional, it will not suffice. Thus, a surety who has not paid the debt is not a creditor in such sense as to be entitled to file a petition in bankruptcy against the principal debtor,** nor. a subcontractor whose claim against the contractor was not t.o be- come fixed until the latter should have been paid by the owner, the latter event not having occurred at the time of the filing of the peti- tion.*^ So, where the law of the state provides that a tax collector may su6 for the recovery of dflinquent taxes only after they have remained unpaid for three months, he cannot maintain a petition in bankruptcy against the taxpayer without showing that the prescribed time has elapsed.*" The claims of several joint makers of a note, who have dis- charged the same, are provable debts against the maker, who refuses to pay his pro rata share, so as to sustain a petition in bankruptcy against him.** ^ Secured creditors, as well as those who are unsecured, may file a petition in involuntary bankruptcy, although, in making up the requisite amount of debts, their claims are to be counted only to the extent to which they may exceed the value of the secui^ties.** A state may be a petitioning creditor.** And a married woman may file a petition against her own hus'band, if the law of the state permits the creation of enforcea- ble debts as between man and wife, and she is an actual creditor of her 28 In re Rothenberg, 140 Fed. 798, 15 32 In re Corwin Mfg. Co., 185 Fed. Am. Bankr. Eep. 485 ; Linn v. Smith, N. 976, 26 Am. Bankr. Rep. 269. B. R 46, Fed. Cas No. 8,375 ; In re Al- 33 Wright v. Rumph, 238 Fed. 188, 151 exander, 1 Low^ 470, 4 N. B. R. 78 Fed. q. C. A. 214, 38 Am. Bankr. Rep. 235. Cas. No. 161; Phelps v. Clasen, Woolw. 204, Fed. Cas. No. 11,074 ; In re Muller, ^ 4 in re Bless, 4 N. B. E. 147, Fed. Cas. Deady, 513, 3 N. B. R. 329, Fed. Cas. ^°- 1'562; In re Stansell, 6 N. B. R. No. 9,912 ; In re Ouimette, 1 Sawy. 47, ^^^' ^^^- ^'as. No. 13,293 ; In re Alex- Fed. Cas. No. 10,662 ; Barton v. Tower, ander, 1 Low. 470, 4 N. B. R. 178, Fed. Fed. Cas. No. 1,085; In re King, Fed, ^^s. No. 161; In re California Pac. R. Cas, No. 7,785. Compare In re Morse, 17 ^°' ^ ^awy. 240, 11 N. B. R. 193, Fed. Blatchf. 72, Fed. Cas. No. 9,851. <^as. No. 2,315 ; Morrison v. Rieman, 249 2» Doty V. Mason (D. C.) 244 Fed. 587, ^^^- ^'^' I^^ C. C. A. 149, 41 Am. Bankr. 40 Am. Bankr. Rep. 58. I^^P- *^25. As to the case of a creditor 8 Phillips V. Dreher Shoe Co., 112 "^^^ ^^^ already attached property of Fed. 404, 7 Am. Bankr. Rep. 326. See **i® debtor, see In re Automatic Type- Boyce v. United States Fidelity & Guar- writer & Sei-vice Co. (C. O. A.) 271 Fed. anty Co., Ill Fed. 138, 49' C. C. A. 276, ^' ^6 Am. Bankr. Rep. 377. See In re 7 Am. Bankr. Rep. 6. Hazens, 4 Dill. 549, Fed. Cas. No. 6,285. 31 In re Ellis, 143 Fed. 103, 74 C. C. A. so in re Chamberlln, 9 Ben. 149, 17 297, 16 Am. Bankr. Rep. 221. N. B. R. 49, Fed. Cas. No. 2,580. 34-7 PETITION AND ADJUDICATION § 153 husband in good faith, having a .provable claim.*" -And creditors of a corporation, who happen also to be stockholders and directors in the company, are not precluded by reason of that relation, from commenc- ing proceedings in involuntary bankruptcy against the corporation.*' A creditor of a partnership is also a Creditor of each member of the firm, and is entitled as such to join in a petition in bankruptcy brought against one of the partners individually,** and one partner may file a petition against the firm and his co-partners,*® bvit not, it seems, where his only claim is for a share in the assets of the firm, growing out of unsettled partnership transactions, because in that case he could not compete with firm creditors, his right being subordinate to their claim to full sat- isfaction out of firm property.*' As to the nature of the claim in general, so long as it is a "fixed lia- bility," it is not necessary that it should be an obligation cognizable strictly at law ; it may be an equitable demand." Or it may be a stat- utory liability, such as the liability of a stockholder in a corporation to pay the debts of the corporation to the extent of the unpaid balance on his stock,*^ or the liability of directors in certain kinds of corporations (such as savings banks) to creditors when the funds of the company have been embezzled or misappropriated by its officers.** Further, since the statute provides (section 63b) that unliquidated claims against the bank- rupt may be liquidated in such manner as the court of bankruptcy shall direct, and may thereafter be proved and allowed against his estate, it is held that where the claim constitutes a fixed liability and only the amount of damages remains unliquidated, it will support a petition in bankruptcy, the sufficiency of the claim in respect to its amount being determinable on the trial of the petition.** Such is a claim for damages for breach of an executory contract,*' or for damages arising out of a breach of wan-anty on the sale of personal property,** though it is held 36 In re Novak, 101 Fed. 800, 4 Am. 42 in re Putnam, 193 Fed. 464, 27 Am. Bankr. Rep. 311. Bankr. Rep. 923; Walker v. Woodside, 37 In re Rollins Gold & Silver Min. 164 Fed. 680, 21 Am. Bankr. Rep. 182. Co., 102 Fed. 982, 4 Am. Bankr. Rep. 4 3 in re Brown, 164 Fed. 673, 21 Am. 327 ; Home Powder Co. v. Gels (0. 0. A.) Bankr. Rep. 123. 204 Fed. 568, 29 Am. Bankr. Rep. 580 ,, j^ ^^ Frederick U Grant Shoe Co., 38 In re Mercur, 95 Fed. 634, 2 Am. ^^^ ^^^ g^g^ ^^ j^^ B^^^^ j^^p 48 Bankr. Rep. 626 .,«-, ^ ^ But see In re Big Meadows Gas Co., 113 3i. In re J. M. Ceballos & Co., 161 Fed. j,^^ g^^ ^ j^^ ^^^^^ ^ gg^^ ^^ t„ 445, 20 Am. Bankr. Rep 459. But see ^^ unliquidated claim the validity of Robinson v. Hanway, 19 N. B. R. 289, ^j^.^j^ . ^^^ admitted, but disputed. Fed. Cas. No. 11,953. _^ _,^ ^^a ^ ^ ar^A ka r, r, - Sigsby V. Willis, 3 Ben. 371, 3 N. B. ^ " I" ^e Stern, 116 Fed. 604, 54 0. C. R. 207, Fed. Cas. No. 12,849; In re A. 60, 8 Am. Bankr. Rep. 569. Schenkein, 113 Fed. 421. *» Frederick L. Grant Shoe Co. v. W. 41 Sigsby V. Willis, 3 Ben. 371, 3 N. B. M. Laird Co., 212 U. S. 445, 29 Sup. R. 207, Fed. Cas. No. 12,849. Ot. 332, 53 L. Ed. 591, 21 Am. Bankr. § 153 LAW OXi' BANKKLTTCZ S48 that one whose claim is for unliquidated damages growing out of an alleged tort is not qualified as a petitioning creditor.*' A debt outlawed by the statute of limitations is not a provable claim within the meaning of the bankruptcy act,** nor can one person force another into bankruptcy by the use of alleged debts which, by operation of law, would be extinguished by the adjudication,** nor where the debtor has counterclaims against the petitioning creditor, of such a nature as are provable in bankruptcy, sufficient to reduce his claim below the ju- risdictional amount.^" Creditors who have proved their claims in bank- ruptcy are not entitled, while the estate is still in process of administra- tion, though after the bankrupt has been refused a discharge, to maintain proceedings to have him adjudged a bankrupt a second time on account of the same debts, on the ground that he has acquired property after the first adjudication which he is alleged to haye conveyed in fraud of his creditors."*^ And one is not a creditor of a corporation, within the mean- ing of the law, merely because goods furnished by him^vere shipped to and used by the company, where they were billed and charged to another corporation, though the latter owns the stock and controls the business of the former company.®* § 154. Same; Preferred Creditors. — There are numerous and re- spectable authorities to the effect that a creditor who has received a pref- erence is not thereby disqualified from bringing a petition in involuntary bankruptcy against his debtor.*^ According to these cases, the bank- ruptcy act maintains a clear distinction between the proof and the al- lowance of claims. That section which relates to the filing of petitions Eep. 484. Compare In re Morales, 105 ei in re Barton's Estate, 144 Fed. 540, Fed. 761, 5 Am. Bankr. Kep. 425. 16 Am. Bankr. Rep. 569. *7 In re Briuckman, 103 Fed. 65, 4 ^2 in re Hudson River Electric Power Am. Bankr. Rep. 551, citing Beers v. Co., 173 Fed. 934, 23 Am. Bankr. Rep. Hanlin, 99 Fed. 695, 8 Am. Bankr. Rep. 191. And see In re Eclipse Poulti-y Co., 745 ; Ex parte Charles, 14 East, 197, 16 250 Fed. 96, 162 C. O. A. 268, 42 Am. Ves. 256. But otherwise when a claim Bankr. Rep. 49. for damages has been reduced to judg- ss in re Hornstein, 122 Fed. 266, 10 ment. In re Putman, 193 Fed. 464, 27 Am. Bankr. Rep. 308 ; In re Herzikopf, Am. Bankr. Rep. 923. 118 Fed. 101, 9 Am. Bankr. Rep. 90; *8 In re Putman, 193 Fed. 464, 27 Am. In re Norcross, 1 Nat. Bankr. News, Bankr. Rep. 923 ; In re Lipman, 94 Fed. 257, 1 Am. Bankr. Rep. 644 ; In re Cain, 353, 2 Am. Bankr. Rep. 46 ; In re Resler, 1 Nat. Bankr. News, 389, 2 Am. Bankr. 95 Fed. 804, 2 Am. Bankr. Rep. 602; Rep. 378; In re Bloss, 4 N. B. R. 147, In re Cornwall, 9 Blatchf. 114, 6 N. B. Fed. Gas. No. 1,562; In re CalilTornia R. 305, Fed. Cas. No. 3,250. Pac. R. Co., 3 Sawy. 240, 11 N. B. R. 4 In re Windt, 177 Fed. 584, 24 Am. 193, Fed. Cas. No. 2,315; In re Stan- Bankr. Rep. 536. sell, 6 N. B. R. 188, Fed. Cas. No. 13,- s" In re Osage Valley. & S. K. R. Co., 9 293 ; Rankin v. Railway Co., 1 N. B. R. X. B. R. 281, Fed. Cas. No. 10,592. And ()47, Fed. Cas. No. 11,567 ; Coxe v. Hale, see Cutler v. Nu-Gold Ring Co. (C. C. A.) 10 Blatchf. 56, 8 N. B. B. 562, Fed. Cas. 264 Fed. 836, 45 Am. Bankr. Rep. 50.j. No. 3,310. 349 . PETITION- AND ADJUDICATION § 154 only requires that the creditor's claim should be "provable," and the claim of a creditor is provable, so as to entitle him to join in the petition, notwithstanding the fact that he has received a. preference, which he will be required to surrender before his claim is allowed. But the pre- ponderance of authority is the other way. The majority of the decisions hold that a creditor having a preference, which he does not surrender or disclaim, is not entitled to join in the petition, and that if his elimination reduces the number of creditors (or the amount of their claims) below what the statute requires, the defect is jurisdictional and the petition must be dismissed. °* This rule has been applied even in a case where the preferred creditor based his petition on an entirely separate and dis- tinct debt, as to which he had received no preference.®* The last posi- tion, however, is open to very serious doubt, as it appears to inject an ^tirely unnecessary limitation into the statute. At the same time, it must be conceded that there is very strong reason in favor of the view adopted by some of the courts, that a preferred creditor cannot proceed for adjudication against his debtor when he alleges as the act of bank- ruptcy on which his petition is founded the very act of preference to which he was a party, as he is estopped on every principle of equity, and the law should discourage a course of procedure which would amount to laying a trap for an embarrassed and unwary debtor.®* But if the preferred creditor, in his petition, disclaims or abjures the preference which he has received, or offers to surrender or vacate it, or to bring the money into court, if it was a payment in money, or if he will otfierwise, according to its nature, renounce all benefit or advantage from it, then he may join in the petition as an ordinary creditor.®' And it should be noted that a creditor is not disqualified from petitioning, because of the receipt of a payment more than four months previously, which, if .made within that time, would have been preferential, but under the actual cir- cumstances is not.®* 1* In re Fishblate Clothing Co., 125 ing no surrender value. In re Blount, Fed. 9S6, 11 Am. Bankr. Rep. 204 ; In 142 Fed. 263, 16 Am. Bankr. Eep. 97. re Schenkeln, 113 Fed. 421; In re Bur- 5 5 in re Bogers Milling Co., 102 Fed. lington Malting Co., 109 Fed. 777, 6 687, 4 Am. Bankr. Rep. 540. Am. Bankr. Rep. 369; In re Rogers ee in re Currier, 2 Low. 436, 13 N. B. Milling Co., 102 Fed. 687, 4 Am. Bankr. B. 68, Fed. Cas. No. 3,492 ; In re Wil- Rep. 540 ; In re Gillette, 104 Fed. 769, 5 liams, 14 N. B. R. 132, Fed. Cas. No. Am. Bankr. Rep. 119; Buckingham v. 17,706. Schuylkill Plush & Silk Co., 38 Misc. "in re Vastbinder, 126 Fed. 417, 11 Rep. 305, 77 N. Y. Supp. 857; In re Am. Bankr. Rep. 118; Stevens v. Nave- Hunt, 5 N. B. R. 433, Fed. Cas. No. 6,882 ; McCord Mercantile Co., 150 Fed. 71, 17 In re Rado, 6 Ben. 230, Fed. Cas. No. Am. Bankr. Rep. 609; In re Marcer, 6 11,522; Ecker v. McAllister, 45 Md. 290. N. B. R. 351, Fed. Cas. No. 9,060; In re But a creditor will not be considered as Murphy (D. 0.) 225 Fed. 392, 35 Am. preferred because he holds as security Bankr. Rep. 635. for his debt a life insurance policy hav- =8 in re Girard Glazed Kid Co., 129 Fed. 841, 12 Am. Bankr. Rep. 295. § 155 LAW OF BANKRUPTCY 350 § 155. Same; Creditors Estopped to Petition. — It is well settled that where the act of bankruptcy relied on in an involuntary petition is the making of a general assignment for the benefit of creditors, no creditors will be entitled to join in the petition who have recognized and assented to the assignment and participated in the proceedings under it, so as to m.ake themselves parties to it, being estopped by the election between their rights under the assignment and those under the bankruptcy law.^ This rule is applied as against creditors who have received and accepted dividends on their claims under the assignment,*" who have filed their claims and permitted the assignee to sell the property, and collect the proceeds, involving considerable delay and the incurring of expenses,*^ or who have simply allowed four months to elapse without attempting to institute or join in bankruptcy proceedings.** But there are numerous exceptions or qualifications of the rule. Thus, it is said not to apply t6 a creditor who merely offered to assent to the assignment if the assignee should be changed, which was not done,** or who applied to the state court to have the bond of the assignee increased,** or who merely filed his claim in the assignment proceedings, but derived no benefit from it,*^ particularly if it was done in ignorance of facts tending to show that the assignment was fraudulent and that the debtor had disposed of property in fraud of his creditors.** In one of the leading cases, it was ruled that creditors were not estopped to maintain a petition in involun- tary bankruptcy on any or all of the following grounds: (1) That, hav- ing knowledge of the assignment and of the acts of the assignee there- under in conducting the business and selling the stock on hand, they delayed instituting proceedings for two months ; (2) that, pending a prop- osition for compromise, they sold to such assignee for cash small bills of BO In re Lewis F. Perry & Whitney instrument, which was in fact a general Co., 172 Fed. 745, 22 Am. Bankr. Rep. assignment, constitutes an act of bank- 772; Mouiton v. Coburn, 131 Fed. 201, ruptcy. Doty v. Mason (D. C.) 244 Fed. 66 C. O. A. 90, "12 Am. Bankr. Rep. 553 ; 587, 40 Am. Bankr. Rep. 58. In re Eomanow, 92 Fed. 510, 1 Am. oo in re Brokaw, 11 Fed. 704. Bankr. Rep. 461 ; Durham Paper Co. v. ei Simonson v. Sinsbeimer, 95 Fed. 948. Seaboard Knitting Mills, 121 Fed. 179, 37 c. c. A. 337; Utz & Dunn Co. v. Regu- 10 Am. Bankr. Rep. 29 ; In re Kraft, 3 lator Co., 213 Fed. 315, 130 C. C. A. 17, Fed. 892 ; Despres v. Galbraith, 213 Fed. 32 Am Bankr. Rep. 167 190, 129 C. O. A. 534, 32 Am. Bankr. ,^ ^ ^e Lewis F. Perry & Whitney Co., Rep. 170; In re Henry Campe & Co. ^^g Fed. 752, 22 Am. Bankr. Rep. 780. (D. C.) 240 Fed. 433, 38 Am. Bankr. Rep. ^^ 3 N B R 512 Fed 792. But while knowledge and assent No 13241 will preclude a creditor from urging the ■ • > • debtor's general assignment as an act " ^^^ i"« Langley, 1 N. B. R. 559, Fed. of bankruptcy, yet the creditor's knowl- ^^^- No. 11,006. edge of and assent to the execution of "'In re Curtis, 91 Fed. 737, 1 Am. an instrument which did not amount Bankr. Rep. 440. to a "general" assignment will not pre- as In re Curtis, 94 Fed. 630, 36 C. C. vent him from urging that a subsequent A. 430, 2 Am. Bankr. Rep. 226. 351 PETITION AND ADJUDICATION § 155 goods to replenish the stock and make it more salable ; (3) that they sub- mitted to the assignee, at his request, unverified statements of their claims, for the specific purpose of Comparing the same with the entries in the insolvent's books; (4) that an order made by the state court for the sale of the assignor's goods was submitted to the attorneys for the said creditors and by them indorsed "seen." *'' Again, where the secretary and treasurer of a corporation, which was a creditor of the bankrupt, agreed to act as the bankrupt's assignee in his capacity as an individual only, this did not estop the corporation from joining in the bankruptcy petition.** For even stronger reasons, a creditor should not be held to be estopped who went into the state court only for the pur- pose of attacking certain alleged preferences as fraudulent,®* or for the purpose of preventing a distribution of the assets until proceedings in bankruptcy could be begun." Nor does the rule apply to creditors who were induced to assent to the assignment by the debtor's fraud or mis- representations ; in this case, they may repudiate it and allege it as an act of bankruptcy.''^ And so, there is no estoppel where the act of bank- ruptcy relied on is a conveyance of property not included in the assign- ment nor drawn into the proceedings in the state court thereunder." And even where a creditor would be thus estopped in respect to a particular debt or claim, it will not preclude him from joining in the petition in bankruptcy in respect to an entirely different claim.'^ And it is said that the rule of estoppel does not apply where the state court in which the proceedings were had was entirely without jurisdic- tion, because operating under a statute annulled or suspended by the bankruptcy law."* On analogous principles, an arrangement effected between an in- solvent debtor and his creditors for the conversion of his stock in trade and accounts into cash, through the agency of a trustee, and the pro- portional distribution of the proceeds among the creditors, to be accepted by them in full payment, will estop creditors who participated in the agreement from petitioning in bankruptcy, when the plan has been so far carried out that a sale of the property has been accomplished.'^ And 8" Slnsheimer v. Simonspn, 96 Fed. 'i Canner v. Webster Tapper Co., 168 579, affirmed Simonson v. Sinshelmer, Fed. 519, 21 Am. Bankr. Rep. 872. 100 Fed. 426, 40 O. C. A. 474, 3 Am. ^2 in re Salmon c&r Salmon, 143 Fed. Bantr. Rep. 824. 395, 16 Am. Bankr. Rep. 122. 6 8 In re Winston, 122 Fed. 187, 10 Am. 's Hays v. Wagner, 150 Fed. 533, 80 C. Bankr. Rep. 171. C- A. 275, 18 Am. Bankr. Rep. 163; Jolm- 6 9Leidlgh Carriage Co. v. Stengel, 95 son r.' Rogers, 15 N. B. B. 1, Fed. Cas. Fed. 637, 37 C. O. A. 210, 2 Am. Bankr. No. 7,408. Rey. 383. ' '* In re Weedmau Stave Co., 199 Fed. ^oLeidigh Carriage Co. v. Stengel, 95 948, 29 Am. Bankr. Rep. 460. Fed. 637, 37 C. C. A. 210, 2 Am. Bankr. " Clark v. Henne & Meyer, 127 Fed. Eep 383 288, 62 C. C. A. 172, 11 Am. Bankr. Rep. § 155 LAW OF BANKETJPTCY 352 SO as to creditors of a corporation who intervened in a suit against it in a state court and assisted in having receivers appointed.'* Nor is there anything in the law to prevent the creditors of an embarrassed debt- or from uniting in granting him an extension of time for payment. And it would seem that creditors who had signed such an agreement should not be allowed to maintain a petition in bankruptcy while the agreement was circulating among creditors for their signature, or until a reasonable time had been given the debtor to procure their signatures. Yet where such an agreement is not to be binding unless all the creditors will unite in it, an unequivocal dissent by any creditor will release others who had already signed, and remove any impediment to their petitioning in bank- ruptcy.''' It should probably be a defense to such a petition that the creditor maintaining it had previously agreed to compromise with his debtor on receiving a certain proportion of his claim ; but not where the composition was not carried into effect, and it is not shown that such an agreement on the part of one creditor was made the basis for a similar agreement by another.'* A release of his debt would put the creditor in a position where he would no longer be entitled to petition in bank- ruptcy; but a release obtained by fraud and deceit may be repudiated.'" Also an estoppel against a creditor may be based on his having con- sented to the giving of a preference to another creditor, at least so far as to preclude him from alleging that preference as an act of bank- ruptcy.*" But obtaining the consent of an insolvent corporation to be thrown into bankruptcy (by a resolution declaring its inability to pay its debts and its willingness to be adjudged bankrupt) is not necessarily collusion such as to defeat the petition, where the object of the creditor was not to obtain an advantage for himself, but to secure the equal dis- tribution of its property among all the creditors.*^ Since a proceeding in involuntary bankruptcy is not one for the re- covery of a debt, but to secure an equitable division of the debtor's 583. But otherwise where, after such a ^7 Ex parte Potts, Crabbe, 469, Fed. transfer and sale, the proceeds were di- Cas. No. 11,344. verted by the debtor to other purposes '8 Simonson v. Sinsheimer, 95 Fed. than that proposed. In re Gillette, 104 048, 37 C. C. A. 337; In re Simonson, Fed. 769, 5 Am. Bankr. Bep. 119. 92 Fed. 904, 1 Am. Bankr. Rep. 197. 7 6 Lowenstein v. Henry McShane Mfg. 7 o Michaels v. Post, 21 Wall. 398, 22 Co., 130 Fed. 1007, 12 Am. Bankr. Rep. L. Ed. 520. 601; In re Gold Run Mining & Tunnel so in re Massachusetts Brick Co., 2 Co., 200 Fed. 162, 29 Am. Bankr. Rep. Low. 58, 5 N. B. R. 408, Fed. Cas. No. 563; Ohio Motor Car Co. v. Biseman 9,259. And see In re Taylor House Ass'n Magneto Co., 230 Fed. 370, 144 C. C. A. (D. C.) 209 Fed. 924, 31 Am. Bankr. Eep. 512, 36 Am. Bankr. Rep. 237; In re Com- 727. monwealth Lumber Co. (D. C.) 223 Fed. si in j-e o. Moench & Sons Co., 123 667, 35 Am. Bankr. Rep. 202; In re Mc- Fed. OO-o, 10 Am. Bankr. Rep. 656, afflrm- Kinnon Co. (D. O.) 237 Fed. 869, 38 Am. ed 130 Fed. 685, 66 0. C. A. 37, 12 Am. Bankr. Rep. 727. Banla-. Rep. 240. 353 PETITION AND adj-udicati6n § 156 property, the fact that a particular creditor has brought suit for the recovery of his debt, or, the pendency of such an action, is not a bar to his filing a petition in bankruptcy against the debtor,*^ and certainly not where he bases his bankruptcy petition on a distinct and independent demand.*^ Even the levy of an execution on sufficient property to sat- isfy the debt,** or the collection of a portion of it by means of execu- tion,*" will not estop the creditor to petition in bankruptcy, provided he will surrender the preference thus obtained, by releasing the levy or bringing into court the sum already realized. § 156. Same; Requisites as to Number and Amount. — According to the provisions of the statute (section 59), in every case of proceed- ings in involuntary bankruptcy, it is requisite that the amount of the debts represented by those joining in the petition should be at least $500. But as to the number of creditors who must join, it is provided that at least three shall unite in filing the petition, except in the case where the whole number of the creditors of the proJDOsed bankrupt is less than twelve, in which event one creditor or two may file the petition. If the number of creditors exactly equals twelve, then three must join, for the right to petition is given to a single creditor (or to two) only in case all the creditors are "less than twelve" in number. It appears that the bankruptcy law may be made the means of collecting a single debt. If the claimant who files the petition is. the solitary creditor of the jpro- posed bankrupt, it is only necessary that his claim should amount to $500 or more, and that he should be able to prove the commission of an act of bankruptcy within four months. Cases would /undoubtedly be rare in which the ordinary legal remedies would be insufficient for a creditor so situated; butat any rate he would have his option to throw his debtor into bankruptcy if he saw fit to proceed in that way. It was so held under the earlier bankruptcy law,*® though the courts also ruled that a petition presented by a single creditor who had ample security for his claim was not within the purpose of the statute and the court should decline to take jurisdiction.*'' 82 In re Henderson, 9 Fed. 196. 224 Fed. 245, 35 Am. Bankr. Kep. 375, 83 Everett v. Derby, 5 Law Rep. 225, holding that a single intervening credi- Fed. Cas. No. 4,576. tor may carry oil an involuntary petition 84 In re Sheehan, 8 N. B. R. 345, Fed. in bankruptcy good on its face. Cas. No. 12,737. 87 Avery v. Johann, 3 N. B. R. 144, 85 In re Miller, 104 Fed. 764, 5 Am. Fed. Cas. No. 675; In re Johann, 2 Biss. Bankr. Rep. 140. 139, 4 N. B. R. 434, Fed. Cas. No. 7,331; 86 In re Alexander, 1 Low. 470, 4 N. In re Scammon, 6 Biss. 145, Fed. Cas. B. R. 178, Fed. Oas. No. 161. And see No. 12,428. In re Culgin-Pace Contracting Co. (D. C.) Blk.Bkr.(3d JSd.)— 23 156 LAW OF BANKEUPTCT 354 In computing the number of creditors, to determine whether enough h^ve joined, or whether the total number is greater or less than twelve, the time to be taken is the date of the filing of the "petition, as that is the commencement of the proceedings,** subject, of course, to the ex- ception provided for in the statute, where other creditors intervene and join in the petition before the final decision.*® Creditors holding fraudulent or voidable preferences are not to be counted in computing the number of creditors,^' nor are secured credi- tors unless their claims severally exceed the value of the securities which they hold.*^ Neither should the count include any creditors who would be estopped to join in the petition, as, by having assented to a general assignment by the debtor."^ Further the act directs that "such creditors as were employed by him [the bankrupt] at the time of the filing of the petition, or are related to him by consanguinity or affinity within the third degree, as determined by the common law,®* and /have not joined in the petition, shall not be counted." ®* But it is a fair in- ference fronl this provision that if any employes or relatives have joined in the petition, they are not to be excluded from the computa- tion ; they may then be counted either for the purpose of making up the minimum of three who must join, or, on the other hand, for making out the total number of creditors to be twelve or more. It will also be perceived that the law places no minimum limitation upon the value 8 8 In re H. E. Page Motor Car Co. (D. 7,305; 'in re Scraflford, 4 DUl. 376, Fed. C.) 251 Fed. 318, 41 Am. Bankr. Bep. Cas. No. 12,556. Contra, see Boston 546; Moulton v. Coburn, 131 Fed. 201, West Africa Trading Co. v. Quaker City 66 C. C. A. 90, 12 Am. Bankr. Kep. 553; Morocco Co., (C. C. A.) 261 Fed. 665, 44 Stroheim v. Lewis F. Perry & Whitney Am. Bankr. Rep. 315, affirming In re Co. (C. C. A.) 175 Fed. 52, 23 Am. Bankr. Boston- West Africa Trading Co. (D. C.) Bep. 695; In re Coburn, 126 Fed. 218, 11 255 Fed. 924, 43 Am. Bankr. Rep. 382. Am. Bankr. Bep. 212. Contra, see In re oi in re Blount, 142 Fed. 263, 16 Am. Plymouth Cordage Co., 135 Fed. 1000, Bankr. Rep. 97; In re Crossette, 17 N. 68 C. C. A. 434, 13 Am. Bankr. Bep. 665. b. R. 208, Fed. Cas. No. 3,435; In re 89 But see In re Kehoe, 233 Fed. 415, Bouton, 5 Sawy. 427, Fed. Cas. No. 1,706. 147 C. C. A. 351, 36 Am. Bankr. Bep. 891, And see Bankruptcy Act 1898, §§ 56b, 59b. holding that, where there were more than 12 creditors, and only one filed an 92 In re Miner, 104 Fed. 520, 4 Am. , ^ ,.,. ,., , Bankr. Bep. 710. But see In re Cobui-n, involuntary petition creditors who ac- -^^6 Fed. 218, 11 Am. Bankr. Bep. 212. quired their claims after the filing of the petition cannot intervene as petitioning "^As to the meaning of these terms, creditors. ^®® supra, § 61. It has been thought that Stevens v. Nave-McCord Mercantile *^® officers of a corporation, having Co (O C A ) 150 Fed. 71, 17 Am. claims against it, should not be counted Bankr.Bep. 609; Clinton "v. Mayo, 12 N. ^''^°^^ ^^ creditors, their relation to B R. 39, Fed. Cas. No. 2,899; In re Cur- ^^^ corporation being analogous to cou- rier 2 Low. 436, 13 N. B. R. 68, Fed. sanguinity between natural persons. See Cas. No. 3,492; In re Israel, 3 Dill. 511, ^"^ ""^ Barrett Publishing Co., 2 Nat. 12 N. B. R. 204, Fed. Cas. No. 7,111; In Bankr. News, 80. re Jewett, 7 Biss. 242, Fed. Cas. No. »* Bankruptcy Act 1898, § 59e. 355 PETITION AND ADJUDICATION glSB of the several claims, so far as regards computing the 'number of cred- itors. It has been strongly intimated from the bench that, for this purpose, trivial debts for petty amounts, "trashy debts," as the court called them, should not be noticed, on the principle of the maxim "de minimis non curat lex/'^^ But this is in the face of the statute, and there is authority for the proposition that all creditors must be count- ed, even those for merely nominal sums.^® In estimating the number and amount of claims on a petition against a partner, the partnership debts ^nd creditors must be considered.^'' Personal property taxes are debts, to be included in determining whether or not the bankrupt's debts amount to the jurisdictional sum.** An insolvent debtor having more than twelve creditors cannot de- feat bankruptcy proceedings against him by transferring his property for the benefit of some of his creditors, leaving less than three unpro- vided for, but at the same time leaving the preferred creditors actually unpaid for the purpose of requiring them to be counted, so that those remaining will be insufficient in number to maintain the petition.®' And payments made by the bankrupt to some of the petitioning cred- itors, after the filing of the petition, so as to eliminate them from the count or reduce the aggregate amount of the petitioning creditors' claims below the statutory limit, will not defeat the jurisdiction of the court, at least where enough other creditors afterwards come in to raise the amount above the jurisdictional limit. ^•'^ In regard to the requirement that the amount due to the petitioning creditors should be at least $500, it is held to be unnecessary .that the amount due to the petitioning creditor or creditors should be exactly determined (as in the case of claims for damages) provided it clearly appears that it will be more than enough to satisfy the statute.^*'- Nor is it necessary that the principal sum of the debts should equal the jurisdictional amount, but accrued interest, evidently due on the face 85 Gage V. Bell, 124 Fed. 371, 10 Am. Fed. 587, 144 C. C. A. 641, L. R. A. 1916E, Bankr. Rep. 696. And see In re Blount, 628, 36 Am. Bankr. Rep. 531. 142 Fed. 263, 16 Am. Bankr. Eep. 97. s" In re Blount, 142 Fed. 263, 16 Am. Relative to there being less then 12 Bankr. Rep. 97. But see Leighton v. creditors, so that one holder of a claim Kennedy, 129 Fed. 737, 64 C. C. A. 265, for $500 could file a petition in involun- 12 Am. Bankr. Rep. 229. tary bankruptcy holders of small claims i"" In re Ryan, 114 Fed. 373, 7 Am. for household supplies payable monthly Bankr. Eep. 562; W. A. Gage & Co. v. may be disregarded. In re Burg (D. C.) Bell, 124 Fed. 371, 10 Am. Bankr. Eep. 245 Fed. 173, 40 Am. Bankr. Rep. 126. 696. 6 In re Brown, 111 Fed. 979, 7 Am. loi In re Hughes, 183 Fed. 872, 25 Am. Bankr. Rep. 102. Bankr. Rep. 556; In re Stern, 116 Fed. 9 7 In re Lloyd, 15 N. B. R. 257, Fed. 604, 54 C. 0. A. 60, 8 Am. Bankr. Rep. Cas. No. 8,429. 569 ; In re Manhattan Ice Co., 114 Fed. 8 8 Kaw Boiler Works v. SchuU, 230 399, 7 Am. Bankr. Rep. 408. § 156 LAW OF BANKRUPTCY 356 of the petition, jnay be added for this purpose.^"* But costs cannot be added. Unless the creditors have provable claims to the amount of $500, they have no right to make costs by proceeding in bankruptcy.^** Set-offs and counterclaims on the part of the proposed bankrupt will naturally" be considered in determining the amount of indebtedness; and when a creditor has received a conditional payment, the effect of which is to reduce his claim below the amount entitling him to main- tain a petition, he cannot bring proceedings in bankruptcy unless the condition has failed, so as to make the payment nugatory.^*** The petition should affirmatively show that it is subscribed 'by the requisite number and amount of creditors. ^*^ But it is often very diffi- cult to ascertain how many creditors an insolvent debtor may have or the amount of their claims, and the petitioning creditors should not be held to literal accuracy nor to greater precision than their available sources of information enable them to attain. It has been held that a merchant who has refused, on the demand of creditors, to give them information about his affairs sufficient to enable them to know the number and amount of his debts, will not be heard to object that a sufficient number of his creditors did not join in the petition, at least if enough have come in before the trial.^**® But on the other hand, petitioning creditors must be held to good faith in the matter of alleg- ing and showing that, they constitute the requisite quorum of creditors. They cannot "recklessly file a petition for the purpose of making the respondent file a statement of his creditors. It would be intolerable if any one or two creditors, upon either a real or pretended claim, could by a simple allegation in the words of the act compel a business man to spread upon the records a statement of his liabilities. Such a fishing petition cannot be entertained' under the act." ^" And the pe- tition will be dismissed on motion, without requiring the debtor to file' a schedule, where it appears that the petitioning creditors knew that they did not constitute the requisite number.^"^ If it is averred in the petition that there are less than twelve cred- itors in all, and the debtor desires to contest this point, so as to pre- vent an adjudication being made against him on the petition of a single 102 Sloan V. Lewis, 22 Wall. 150, 22 L. R. Co., 3 Sawy. 240, 11 N. B. R. 193, Fed. Ed. 832. Cas. No. 2,335. And see infra, § 160. 103 In re Skelley, 3 Biss. 260, 5 N. B. R. los Perin & Gaff Mfg. Co. v. Peale, 17 214, Fed. Cas. No. 12,921. N. B. R. 3T7, Fed. Cas. No. 10,981. 104 In re Ouimette, 1 Sawy. 47, 3 N. lo? in re Scammon, 3 Blss. 195, 11 N. B. R. 566, Fed. Cas. No. 10,622. B. R. 280, Fed. Cas. No. 12,429. 105 In re Keeler, 10 N. B. R. 419, Fed. loain re Scammon, 3 Biss. 195, 11 N. Cas. No. 7,638; In re California Pac. B. R. 280, Fed. Cas. No. 12,429. 357 PETITION AND ADJUDICATION § 156 creditor, he must do so in the manner prescribed by the act/*" that is, by an answer accompanied by a sworn list of all his creditors with their addresses."* But it is not only the bankrupt who may take issue with the petitioning creditors on this point. Another creditor, desiring to oppose the adjudication, may suggest the insufficiency of the petition in this respect, and require the bankrupt to file the list of creditors,^" or such opposing creditor may himself file the "answer" contemplated by the statute."* Thereupon, all the creditors shown by the list are to be notified of the pendency of the petition. Apparently they are to be so notified by mail, since the bankrupt is required to furnish their addresses. The object is to give the petitioning creditors an opportunity to secure the concurrence of a sufficient number of other creditors to make up the jurisdictional quorum, and for this purpose they are to be accorded a reasonable length of time."* It was held under the act of 1867 that the case at this stage might be referred to a register or commissioner to hear and ascertain the facts,"* on any prop- er evidence,"^ and probably the same course might now be pursued. If it is found that the petitioning creditors were originally sufficient in number and amount, or if, prior to or during the hearing, a sufficient number join in the petition, the case may be proceeded with, but other- wise the petition will be dismissed. It is more difficult to determine whether or not the joinder of a suf- ficient number and amount of creditors in the petition is to be regard- ed as a jurisdictional fact. There are respectable authorities in sup- port of the view that it is to be so considered,^" and even that the valid- ity of the adjudication in this respect may be collaterally questioned."'" But the preponderance of authority is to the contrary, and it majr be stated as the generally accepted rule that the joinder of the specified proportion of creditors, in number and amount, in a petition in involun- 109 Lastrapes v. Blanc, 3 Woods, 134, R. 433, Fed. Cas. No. 6,986; In re Sar- Fed. Cas. No. 8,100. gent, 13 N. B. K. 144, Fed. Cas. No. 12,- 110 Bankruptcy Act 1898, § 59d. And 861. see In re Sfeinman, 6 Biss. 166, 10 N. us In re California Pac. R. Co., 8 B. R. -214, Fed. Cas. No. 13,357 ; In re Sawy. 240, 11 N. B. R. 193, Fed. Cas. Hymes, 7 Ben. 427, 10 N. B. R. 433, Fed. No. 2,315. Cas. No. 6,986. us In re Scammon, 6 Biss. 130, Fed. 111 Clinton v. Mayo, 12 N. B. R. 89, Cas. No. 12,427; In re Rosenfields, 11 N. Fed. Cas. No. 2,899. B. R. 86, Fed. Cas. No. 12,061; Doty v. 112 Anonymous, 11 CM. Leg. News, 190, Mason (D. C.) 244 Fed. 587, 40 Am. Fed. Cas. No. 441. Bankr. Rep. 58; Cutler v. Nu-Gold Ring lis In re California Pac. R. Co., 3 Co. (C. C. A.) 264 Fed. 836, 45 Am. Bankr. Sawy. 240, 11 N. B. R. 193, Fed. Cas. No. Rep. 505. 2,315; In re Rebmeister, 15 Blatehf. 467, ^" Buckingham v. Schuylkill Plush & Fed. Cas. No. 11,623; In re Bedingfield, Silk Co., 38 Misc. Rep. 305, 77 N. T. 96 Fed. 190, 2 Am. Bankr. Rep. 355. Supp. 857. 114 In re Hymes, 7 Ben. 427, 10 N. B. § 157 LAW OF BANKRUPTCY 358' tary bankruptcy is not a jurisdictional prerequisite."* And in one case where it plainly appeared that the petition was not presented by the requisite quorum of creditors, but the bankrupt himself consented to an adjudication thereon, the court remarked that there was great force in the suggestion that, this was merely an irregularity which the bank- rupt might waive. ^^* And at any rate, the judgment of the court of bankruptcy that the required number and amount of creditors have joined in the petition is final, and the question so adjudged is not there- after re-examinable, except it may be in cases of fraud or imposition > practised on the court. ^** § 157. Same; Solicitation, Procurement, or Purchase of Claims. — The validity of a proceeding in involuntary bankruptcy is not affected by the fact that it was commenced at the instigation of the bankrupt himself. There is no legal fraud in an insolvent debtor's requesting his creditors to petition against him, or soliciting a sufficent number of cred- itors to join in the petition, when the court otherwise has jurisdiction and he has committed an act of bankruptcy .^^^ And on the same prin- ciple, an agreement to withdraw opposition to a proceeding in involun- tary bankruptcy, and to consent and submit to an adjudication of bank- ruptcy, cannot be said to be in fraud of the act.^*' So also it is permis- sible for a creditor, who desires the settlement of his debtor's estate through the agency of a court of bankruptcy, to use all lawful and honest means to bring about that result. There is nothing to forbid him from seeking out other creditors of the common debtor and asking them to join in the petition, or to come in after the filing of the petition and join in it, when such intervention becomes necessary to save the proceed- 118 In re Plymouth Cerclage Co., 135 1,706; In re Matot, 16 N. B. R. 485, Fed. Fed. 1000, 68 C. C. A. 434, 13 Am. Cas. No. 9,282. The fact that proceed- Bankr. Rep. 665; In re Hafif, 136 Fed. ings in involuntary bankruptcy were in- 78, 68 C. C. A. 646, 13 Am. Bankr. Rep. stigated by a promise on the part of the 362; In re Henderson, 9 Fed. 196; Ex debtor that the petitioning creditor parte Jewett, 2 Low. 393, 11 N. B. R. should be paid in full, while it would af- 443, Fed. Cas. No. 7,303; In re Duncan, feet the right to a discharge, will not in- 8 Ben. 365, 14 N. B. R. 18, Fed. Cas. No. validate the proceedings in bankruptcy 4,131. so as to make void a sale made by the 119 In re Williams, 6 Biss. 233, 11 N. bankrupt's assignee. Wallace v. Loomis, B. R. 145, Fed. Cas. No. 17,700. 07 U. S. 146, 24 L. Ed. 895. But a bank- 120 In re Duncan, 8 Ben. 365, 14 N. B. rupt who procures a fraudulent petition R. 18, Fed. Ca.?. No. 4,131; In re Funken- to be filed by his creditors, with intent stein, 3 Sawy. 605, 14 N. B. R. 213, Fed. to i rocure a discharge, which he eoidd €as. 5,158; In re Lloyd, Fed. Cas. No. 8,- not obtain by voluntary proceedings, 431. w in contempt of court. In re Lalor, 19 121 In re Ordway, 19 N. B. R. 171, Fed. N. B. R. 253, Fed. Cas. No. 8,001. Oas. No. 10,552; In re Duncan, 8 Ben. 122 Sanford v. Huxford, 32 Mich. 313, 365, 14 N. B. R. 18, Fed. Cas. No. 4,131; 20 Am. Rep. 647. In re Bouton, 5 Sawy. 427, Fed. Cas. No. 359 PETITION AND ADJUDICATION § 158 ing.^** And if other creditors than the one chiefly moving in the matter are unwilling to sign the petition, it is perfectly proper for other persons to purchase their claims, in order to be qualified to join, and so to make up the requisite number of petitioning creditors,^** though if such a sale of a claim is void for fraud or want of consideration, the claim is to be considered as still belonging to the assignor, and it will be so treated in counting the number of creditors.^"® But the debts or claims thus brought into the proceeding, whether by solicitation or by transfer, must be genuine and independent of each other. P A creditor of a bankrupt may not split up his claim into portions and assign some of the parts to third persons for the purpose of qualifying them as joint petitioners in a proceeding in involuntary bankruptcy. This is a subterfuge, entirely contrary to the spirit and purpose of the act, and which the law will not countenance.-'^" On the other hand, creditors may use proper means to prevent the filing of a petition against their debtor. It has been held that an agreement between creditors who have received preferences to contribute proportionally such sum as may be necessary to induce the other creditors to forbear to put the debtor into bankruptcy is not in- valid.i*' § 158. Same; Withdrawal of ' Petitioners. — On account of the com- munity of interest between the creditors joining in a petition in involun- tary bankruptcy and the requirement that there shall be a certain num- ber, holding claims to a certain value, in order to sustain the petition, a creditor so uniting with others in such a petition has not the same right to abandon the proceeding that the plaintiff in a suit has to discontinue it. It is in fact a well-settled rule that a creditor in this situation will not be permitted to withdraw his name from the proceedings, against the protest of the others, merely because he repents of his action or has ob- tained a settlement of his claim, when his withdrawal would reduce the number of creditors or the amount of debts below the jurisdictional 123 In re Smith, 176, Fed. 426, 23 Am. las In re Woodford, 13 N. B. E. 5T5, Bankr. Rep. 864. Fed. Gas. No. 17,972. 124 In re Bevins, 165 Fed. 434, 91 O. 12 6 in re Halsey Electric Generator C. A. 302, 21 Am. Bankr. Rep. 344 ; In re Co., 163 Fed. 118, 20 Am. Bankr. Rep. Woodford, 13 N. B. R. 575, Fed. Gas. No. 738 ; Stroheim v. Lewis F. Perry & Whit- 17,972. But see Emerine v. Tarault, 219 ney Co. (C. G. A.) 175 Fed. 52, 23 Am. Fed. 68, 134 C. C. A. 606, 34 Am. Bankr. Bankr. Rep. 695 ; In re Tribelhorn, 137 Rep. 55. Under the New York insol- Fed. 3, 69 C. G. A. 601, 14 Am. Bankr. vency law, if an insolvent procures a Rep. 491 ; In re Independent Thread Co., person to buy up a judgment against 11,3 Fed, 998, 7 Am. Bankr. Rep. 704 ; In him, and sufch person pays nothing, or at re Lewis F. Perry & Whitney Co., 172 most a nominal consideration, for the Fed. 745, 22 Am. Bankr. Rep. 772. assignment of the judgment, he can be 127 Ferryman v. Allen, 50 Ala. 573, a petitioning creditor only for the sym 15 N. B. B. 113. actually paid. Slidell v. McCrea, 1 Wend. (N. Y.) 156. § 158 LAW OF BANKRUPTCY 360 minimum, and so require the dismissal of the petition.^^* It must be said, however, that some of the more recent cases do not acquiesce in this rule. For instance, it has been said : "No doubt any petitioner may be allowed to withdraw in the court's discretion. If the original peti- tioners so withdraw before others intervene, that ends the proceeding completely; there is nothing left to intervene in. But until they do withdraw, there is a proceeding, in which others may intervene; and if they have done so, in the lifetime of the proceeding, subsequent with- drawal of the originators will leave the interveners free to proceed." ^^^ In another decision it is ruled that the withdrawal of any number of creditors who in good faith filed a petition in bankruptcy against the debtor does not prevent the court from proceeding with the adjudica- tion, so long as one or more of the petitioning «i||-editors, though less than the number required to institute the proceedings, desires it, since any other rule would permit the alleged bankrupt to bargain with part of the creditors to induce them to withdraw and thereby defeat the pro- ceedings.'^^* But a creditor whose name was joined with others in the petition without his knowledge or consent may repudiate the proceeding, and if he does so, the petition will be dismissed as to him, even though the result is to break the qu6rum.^'^. And it is in the discretion of the court to permit the withdrawal, at any time before an adjudication, of a creditor who was induced to join by misrepresentation or misunderstand- ing,^*^ or who did so under a mistake of fact as to his haying previously assented to the debtor's general assignment for the benefit of credi- tors,'^*^ or where the qualification of the creditor to become a petitionqa' is open 'to doubt or challenge.'** And in another case, where two of the three petitioning creditors brought about the payment of a judgment on the claim of one of them and the latter's withdrawal as a petitioning creditor, it was held that both were estopped to complain of the paid creditor's withdrawal from the proceeding.'^® 128 In re Bedlngfield, 96 Fed. 190, 2 laoin re San Jose Baking Co. (D. C.) Am. Bankr. Rep. .355 ; In re Quincy Gran- 232 Fed. 200, 36 Am. Bankr. Rep. 635. ite Quarries Co., 147 Fed. 279, 16 Am. isi In re Kosenfields, 11 N. B. R. 86, Bankr, Rep. 823 ; lu re Cronln, 98 Fed. Fed. Cas. No. 12,061. 584, 3 Am. Bankr. Rep. 552; In re Vog«l, isz In re Sargent, 13 N. B. R. 144, Fed. 9 Ben. 498, 18 N. B. R. 165, Fed. Cas. No. Cas. No. 12,361. 16,981; In re Heffron, 6 Biss. 156, 10 N. los in re Cobtirn, 126 Fed. 218, 11 Am. B. R. 213, Fed. Gas. No. 6,321 ; In re Bankr. Rep. 212. Rosenflelds, 11 N. B. R. 86, Fed. Cas. laiMoulton v. Coburn, 131 Fed. 201, No. 12,061; In re Philadelphia Axle 66 C. C. A. 90, 12 Am. Bankr. Rep. 553. Works, 1 Wkly. Notes Cas. 126, Fed. iss Cummins Grocer Co. v. Talley, 187 Cas. No. 11,091; In re Black Diamond Fed. 507, 109 C. O. A. 273, 26 Am. Bankr. Copper Min. Co., 10 Ariz. 42, 85 Pae. 653. Rep. 484. See In re .1. W. Lavery & Son 12 In re Bolognesi, 223 Fed. 771, i:i'.» (H C.) 235 Fed. 910, 37 Am. Bankr. Rep. C. C. A. 351, 34 Am. Bankr. Rep. 692. 606. 361 PETITION AND ADJUDICATION § 159 § 159. Pfetition in Bankruptcy; Formal Requisites. — Whether a proceeding in bankruptcy is voluntary or involuntary, it is initiated by a 'petition to the proper court. "Petition" is defined by the statute as "a paper filed in a court of bankruptcy, or with a clerk or deputy clerk, by a debtor praying for the benefits of this act, or by creditors alleging the commission of an act of bankruptcy by a debtor therein named," ^^'^ though a petition necessarily contains much more than is here specified, as, for instance, the prayer for an adjudication. The General Orders in bankruptcy direct that "all petitions and the schedules filed therewith shall be printed or written out plainly, without abbreviation or inter- lineation, except where such abbreviation and interlineation may be for the purpose of reference." ^^ And some of the courts of bankruptcy have adopted a rule that petitions in bankruptcy will not be placed on file nor considered unless made out on the prescribed printed forms, written or typewritten petitions being returned to the parties without action.^** Models for the various kinds of petitions, voluntary and in- voluntary, will be found among the official forms printed in the appendix to this book. The Supreme Court has directed that, as to the use of the official forms, "the several forms annexed to these general orders shall be observed and used, with such alterations as may be necessary to suit the circumstances of any particular case." ^^'* These forms are simple in character and not difficult to follow, and little comment on them is necessary. It should be observed, however, that the petition is not addressed to the court by title alone, but to the judge by name with the addition of the designation of the court. It was held, under the for- mer statute, that the petition must give the judge's name correctly, and 136 Bankruptcy Act 1898, § 1, clause ment, but rather rendered it more defi- 20. nite. In this case the petitioner first 137 General Order No. 5. This subject wrote his name In the abbreviated form was considered in the case of In re Mai- 'Robt." and this was then erased and com, 4 Law Kep. 488, Fed. Oas. No. 8,986, the name written in full. This, it was where it was observed by Judge Betts held, was no sufficient reason for reject- that the petition should be free from ing the petition. But in an anonymous erasures and interlineations, and the case reported in 15 Pittsb. Leg. J. 81, 1 name of the petitioner signed in full. If N. B. R. 215, Fed. Cas. No. 471, permis- wanting in conformity to these rules, the sion to file a petition in bankruptcy was papers would be sent back. But it was refused on account Of the illegible man- not contemplated by the rules to destroy ner in which it was written. the merits of an application, unless the iss Mahoney v. Ward, 100 Fed. 2T8, 3 sense of the paper was ruined by such Am. Bankr. Rep. 770. erasures and interlineations, or if the isa General Order No. 38. A petition papers were grossly Imperfect. It was in bankruptcy filed before the promulga- intended to have the papers neatly made tlon of the official forms by the Supreme out, so they could readily Ife read over. Court should not be dismissed for want Minor interlineations in the body of the of conformity thereto, but the court will petition would not vitiate it when they order a new petition, In the form pre- dld not obscure the sense of the docu- scribed, to be filed nunc pro tunc, the § 159 LAW OP BANKEUPTCY 362 that if the name as given is not correct, it cannot be stricken out as surplusage, and the petition cannot be filed."' A creditor's petition should ordinarily contain no more than the official form contemplates. But it has been held that such a petition, being in fact an original peti- tion, is not deprived of its character as such merely because it contains a prayer by the petitioner to intervene in earlier proceedings, as a cau- tionary measure, in order that he might not be unrepresented in such* earlier proceedings."^ It may also be noted that the coiirt will con- sider a petition in bankruptcy as the joint act of all the petitioners, and wilfuU falsehood in one petitioner's verification will cause the summary dismissal of the petition as the fraud of all, and no copetitioner's prayer for an amendment will be heard."* As to partnership cases, official form No. 2 covers the case of a vol- untary petition by partners, but as no form has been prescribed for involuntary proceedings against a firm, form No. 3, the general form of a creditors' petition, should be used for that purpose, with such adapta- tions as will meet the exigencies of the particular case."^ Where a vol- untary petition by partners prays that "the petitioners" may be adjudged bankrupt, instead of "the said firm," but otherwise follows the official form, the variance is not material."* And proceedings to adjudge a partnership bankrupt, after its dissolution by the death of one of the partners, are not invalidated by the fact that the petition did not refer to the deceased partner, nor disclose that the partners named were sur- viving partners, when the business was being continued as provided in the partnership articles."' But subject to some such exceptions as this, it is a general rule that the petition, whether by or against the firm, should set out the individual nam.es of all the partners,^** and this rule applies where one member of a firm files his own petition in bankruptcy, original petition, however, not to be 115 Fed. 359, 5 Am. Bankr. Rep. 266 ; In withdrawn from- the files. In re Ogles, re Gay, 98 Fed. 870, 3 Am. Bankr. Rep. 93 Fed. 426, 1 Am. Bankr. Rep. 6T1. 529 ; In re Russell, 97 Fed. 32, 3 Am. 1*0 Anonymous, 3 N. B. R. 128, Fed. Bankr. Rep. 529. A petition filed against Gas. No. 459. A bankruptcy petition a partnership by one partner alone must must be addressed to the court which conform to the requirements of an in- is authorized by la\v to take cognizance voluntary petition and must allege in- of tlie case, as determined by the resi- solvency and an act of bankruptcy by dence of the bankrupt. In re Mitchell, the firm. In re Ollinger & Perry (D. C.) 219 Fed. 690, 135 C. O. A. 362, 33 Am. 274 Fed. 970. Bankr. Rep. 463. i** In re Meyers, 97 Fed. 757, 3 Am. 141 In re HafC, 136 Fed. 78, 68 C. C. Bankr. Rep. 260. A. 646, 13 Am. Bankr. Rep. 362. i45 in re Coe, 157 Fed. 308, 19 Am. 1*2 In re Keiler, 18 N. B. R. 10, Fed. Bankr. Rep., 618. And see Hawkins v. Gas. No. 7,647. Quinette, 156 Mo. App. 153, 136 S. W. 14B Mather v. Coe, 92 Fed. 333, 1 Am. 246. Bankr. Rep. 504. And see In re Farley, im Adams v. May, 27 Fed. 907. 363 PETITION AND ADJUDICATION § 160 but with the object of obtaining a discharge from the debts of the part- nership as well as from his individual liabilities."'' § 160. Same; Allegations. — To sustain a petition in involuntary- bankruptcy, it must affirmatively show that it is brought by the requi- site number of creditors. If three petitioners unite in it, the statute is satisfied and no allegation as to the whole number' of the bankrupt's creditors is necessary. But if it be brought by one or two creditors only, it must allege that the whole number of such creditors is less than twelve. But since a fact of this kind is usually very difficult to ascer- tain, until after the bankrupt himself shall have filed a list of his credi- tors, it is held that this allegation need not be made in ternis of such positiveness that the petitioning creditor could be prosecuted for perjury if it should prove to be incorrect ; in other words, the allegation may be made upon information and belief.^*® It is also necessary that the peti- tioning creditors, whether one or three, should have provable claims amounting in the aggregate, in excess of securities held by them, to $500. The official form for a creditors' petition contains an allegation to this effect, and it should be followed, though it is held that the want of such an averment may be cured by amendment."* The petition must also set forth the nature and amount of the petitioning creditors' claims severally. An allegation that the proposed bankrupt owes a debt, but not that it is due to a petitioning creditor, is insufficient.*^" As to the degree of particularity required in describing the claims,, it is held that they should be so far explained in the petition that the court may see, on the face of it, that they are provable claims.*^* But the provision 1*7 In re Laughlin, 96 Fed. 589, 3 Am. 4 Sawy. 190, 17 N. B. E. 413, Fed. Oas. Bankr. Bep. 1. No. 17,442. 148 In re Seammon, 10 N. B. R. 66, isi In re Hadley, 12 N. B. B. 366, Fed. Fed. Cas. No. 12,430 ; In re Joliet Iron Cas. No. 5,894 ; In re Harmon, Fed. Gas. & Steel Co., 10 N. B. R. 60, Fed. Cas. No, No. 6,078; In re White (D. C.) 135 Fed. 7,436; In re Seammon, 6 Blss. 195, 11 N. 199, 14 Am. Bankr. Rep. 241: In re Farth- B. B. 280, Fed. Cas. No. 12,429; In re ing (D. C.) 202 Fed. 557, 39 Am. Bankr. Mann, 13 Blatchf. 401, 14 N. B. R. 572, Rep. 732. The sufficiency of a petition Fed. Cas. No. 9,033; Perin & Gaff Mfg. in involuntary bankruptcy, in respect to Co. V. Peale, 17 N. B. R. 377, Fed. Cas. the description of the petitioner's claim. No. 10,981; In re Roberts, 71 Me. 390. must be tested by the rules which would 140 In re Pangborn, 185 Fed. 673, 26 govern a declaration or a bill in equity Am. Bankr. Rep. 40; Roche v. Fox, 16 in an action or suit to enforce such N. B. R. 461, Fed. Cas. No. 11,974; Ex claims, ©oty v. Mason (D. C.) 244 Fed. parte Shouse, Crabbe, 482, Fed. Cas. No. 587, 40 Am. Bankr. Rep. 58. A petition 12,815. In a case of voluntary bank- in involuntary bankruptcy which sets ruptcy, an allegation in the petition that out contracts between petitioners and tlie the bankrupt owes debts establishes bankrupt, and alleges tender of perform- prima facie the existence of provable ance by petitioners and refusal by the debts ^against him. In re Hargadine-Mc- bankrupt, sufficiently establishes the Kittriek Dry Goods Co. (D. O.) 239 Fed. status of the petitioners as creditors. In 155, 39 Am. Bankr. Rep. 142. re H. A. Shaver Co. (D. C.) 265 Fed. 426, 150 In re Western Savings & Trust Co., 44 Am. Bankr. Rep. 540. § 160 LAW OS^ BANKRUPTCY 364 of the fifty-seventh section of the act, requiring the consideration of a claim to be set forth and sworn to, relates to the proof of the claim and not to the averments of the petition.*®^ This description of the several debts need not state whether they are secured or unsecured,^®* and an allegation that the indebtedness of the respondent to one of the peti- tioners was fraudulently contracted is impertinent, and should be strick- en out on motion. ^^* Where it is alleged that the claim is due, but the proof shows that it is owing but not yet due, the variance is not fatal, as the allegation was unnecessary."® As an example of the measure of particularity required, it may be remarked that the courts have approv- ed as sufficient an allegation that the petitioning creditor was the owner of a promissory note, dated on such a date, made by the alleged bank- rupt, payable to the order of the said creditor in three months after its date at a specified bank."* So of an allegation that the claim of the creditor is for goods sold and delivered, and that the bankrupt purchased the same within a year from the date of the petition."' But a debt suf- ficient to sustain the petition is not shown where the petitioner merely counts upon a judgment from which an appeal has been taken and is pending, with nothing to show the nature of his original claim, or that he would still have a provable debt if the judgment should be re- versed.^''* And the petition is demurrable if it shows on its face that the claim of the petitioning creditor is barred by the statute of limita- tions. ''"'» The petition must also contain a proper averment as to the occupa- tion of the defendant. The statute does not subject all natural persons to its operation, but excepts such as are wage-earners and also persons engaged chiefly in farming or the tillage of the soil. So, as to corpora- tions, it excepts municipal, railroad, insurance, and banking corpora- tions. Now it is a well-known rule of pleading that, in proceeding on a 152 In re Brett (D. C.) 130 Fed. 981, 12 untary bankruptcy, tlie claim of one of Am. Banter. Rep. 492. the petitioners was held sufiBclently 15 3 In re Harmon, Fed. Cas. No. 6,078. pleaded by alleging that it was for mon- An allegation in a petition by creditors ey had and received by the bankrupt on that certain of them are secured by mar- account of a protested check, represent- itlme liens on vessels, but that the liens ing the Indebtedness, issued by the bank- are of no value, is sufficient on demurrer rupt to the creditor, a copy of which was to show such petitioners qualified under attached. Stewart Petroleum Co. v. the Bankruptcy Act. In re Triangle S. Boardman (C. C. A.) 264 Fed. 826, 45 Am. S. Co. (D. C.) 267 Fed. 300, 46 Am. Bankr. Baukr. Rep. 573. Rep. 109, 1" In re Hark, 135 Fed. 604, 14 Am. 154 In re Kwing, 115 Fed. 707, 53 C. Bankr. Rep. 400. C. A. 289, 8 Am. Bankr. Rep. 269. iss in re R. L. Radke Co., 193 Fed. 735, 155 Linn v. Smith, 4 N. B. R. 46, Fed. 27 Am. Bankr. Rep. 950. Cas. No. 8,375. "9 In re R. L. Radke Co., 193 Fed. 15(1 In re Brett, 130 Fed. 981, 12 Am. 735, 27 Am. Bankr. Rep. 950. Bankr. Rep. 492. In a petition in invol- 365 PETITION AND ADJUDICATION § 160 statute, the pleader must negative an exception contained in the enact- ing cla'use. Therefore a petition in involuntary bankruptcy must af- firmatively show that the respondent is not within the excepted class- es; and this may be done either by words of express negation or by such an allegation as to the nature of his (or its) business as will show plainly that the respondent is not exempt from the operation of the statute.^®" ■ The want of such an averment will be ground of demur- rer.^*^ But it is generally held that this allegation is' not jurisdiction- al,"* but the want of it may be cured by amendrnent,-*^®^ and that, if the parties go to trial on a petition which is defective in this respect, with- out objection seasonably taken, and an adjudication is made, the defect is cured by the decree, and will not constitute ground for setting aside the adjudication or impeaching it collaterally.*** To show jurisdiction, it is further necessary for the petition to show where the debtor has resided for the greater portion of the preceding six months, naming the town, county, and state, and averring that the place mentioned is within the federal district where the petition is filed.**® Or if jurisdiction is claimed on the ground that he has had his principal place of business within the district, it should be so stated. Care should be taken not to confuse these terms. fAn allegation as to 160 Armstrong v. Fernandez, 208 U. S. 324, 28 Sup. Ct. 419, 52 L. Ed. 514, 19 Am. Bankr. Rep. 746; Conway v. Ger- man, 166 Fed. 6T, 91 C. C. A. 653, 21 Am. Bankr. Rep. 577; Edelstein v. United States, 149 Fed. 636, 79 C. C. A. 828, 17 Am. Bankr. Rep. 649; In re First Nat. Bank, 152 Fed. 64, 81 C. O. A. 260, 18 Am. Bankr. Rep. 265 ; In re Taylor, 102 Fed. 728, 42 C. 0. A. 1, 4 Am. Bankr. Rep. 515 ; In re Marion Contract & Const. Co., 166 Fed. 618, 22 Am. Bankr. Rep. 81 ; In re Rutland Realty Co., 157 Fed. 296, 19 Am. Bankr. Rep. 546; Rise v. Bordner, 140 Fed. 566, 15 Am. Bankr. Rep. 297; In re Mero, 128 Fed. 630, 12 Am. Bankr. Rep. 171 ; In re Callison, 130 Fed. 987, 12 Am. Bankr. Rep. 344; In re Bellah, 116 Fed. 69, 8 Am. Bankr. Rep. 310 ; In re Brett, 130 Fed. 981, 12 Am. Bankr. Rep. 492; In re White, 135 Fed. 199, 14 Am. Bankr. Rep. 241 ; Sabin v. Blake- McFall Co., 223 Fed. 501, 139 C. C. A. 49, 35 Am. Bankr. Rep. 179. McAfee V. Arnold & Mathis, 155 Ala. 561, 46 South. 870. isi Edelstein v. United States, 149 Fed. 636, 79 C. C. A. 328, 17 Am. Bankr. Rep. 649 ; In re First Nat. Bank, 152 Fed. 64, 81 C. O. A. 260, 18 Am. Bankr. Rep. 265 ; In re Taylor, 102 Fed. 728, 42 C. C. A. 1, 4 Am. Bankr. Rep. 515. 16 2 In re Broadway Savings Trust Co., 152 Fed. 152, 81 C. O. A. 58, 18 Am. Bankr. Rep. 254; Conway v. German, 166 Fed. 67, 91 C. G. A. 653, 21 Am. Bankr. Rep. 577 ; In re Marion Contract & Const, (jo., 166 Fed. 618, 22 Am. Bankr. Rep. 81. But compare In re Elmira Steel Co., 109 Fed. 456, 5 Am. Bankr. Rep. 484 ; In re Imperial Film Exchange, 198 Fed. 80, 117 C. 0. A. 188, 28 Am. Bankr. Rep. 815. 163 Armstrong v. Fernandez, 208 U. S. 324, 28 Sup. Ct. 419, 52 L. Ed. 514, 19 Am. Bankr. ffep. 746; Conway v. Ger- man, 166 Fed. 67, 91 C. C. A. 653, 21 Am. Bankr. Rep. 577; In re First Nat. Bank, 152 Fed. 64, 81 C. C. A. 260, 18 Am. Bankr. Rep. 265; In re Marion Contract & Const. Co., 166 Fed. 618, 22 Am. Bankr. Rep. 81 ; In re Bellah, 116 Fed. 69, 8 Am. Bankr. Rep. 310; In re White, 135 Fed. 199, 14 Am. Bankr. Rep. 241. 161 In re First Nat. Bank, 152 Fed. 64, 81 C. C. A. 260, 18 Am. Bankr. Rep. 265 ; In re Stern, 116 Fed. 604, 54 C. C. A. 60, 8 Am. Bankr. Rep. 569. 16 5 See Official Form No. 3. A petition in involuntary proceedings must affirma- tively and distinctly show the essential § 160 LAW OF BANKRUPTCY 366 the debtor's "principal place of residence" does not satisfy the statute, although such a defect may be considered as immaterial when the court has taken jurisdiction and granted a discharge^. ^®® But a petition which states disjunctively that the respondent has had his principal place of business, or has resided, or h^s had his domicile, within the district, is insufficient upon its face to confer jurisdiction.^*' And in a case of vol- untary bankruptcy of a partnership, it has been held that, wh,ere the al- legation of residence within the district as a ground of jurisdiction is false as to one of the petitioning partners, the court will have no juris- diction as to any of them.^®* The allegation that the respondent in an involuntary petition owes debts to the amount of $1,000, or over is also indispensable, and its omission leaves the court without jurisdiction.^*' Coining now to the allegations'of acts of bankruptcy, it is first of all necessary to allege the insolvency of the respondent in all instances where insolvency is an essential element of the act of bankruptcy charg- ed and relied on,^" and in partnership cases it is not enough to allege that the firm is insolvent, but there must also be an averment as to the solvency or insolvency of each of the partners.*^'^ The petitioning creditors are not restricted to the allegation of a single act of bank- ruptcy, but they may include in their petition as many separate acts as they have knowledge of, provided they were all committed within the four months."* This last item is highly important. If the petition facts necessary to give the bankruptcy insufficient, because pleading a conclu- court jurisdiction. In re McGraw (D. O.) sion. In re Connecticut Brass & Mfg. 254 Fed. 442, 43 Am. Bankr. Rep. 38. Corporation (D. C.) 257 Fed. 445, 43 Am. 166 Ross-Lewin v. Goold, 118 111. App. Bankr. Rep. 876. 499, judgment affirmed 211 111. 384, 71 N. I'lln re Blair, 99 Fed. 76, 8 Am. E. 1028. Bankr. Rep. 588. And see supra, § 114. 167 In re Laskaris, 1 Nat. Bankr. News, Compare In re Everybody's Grocery & 209. Meat Market (D. C.) 173 Fed. 492, 21 Am. 16 8 In re Beals, 9 Ben. 223, 17 N. B. R. Bankr. Rep. 925. A petition against a 107, Fed. Cas. No. 1,165. partnership may be sufficient, where it is 16 8 C. C. Taft Co. V. iPentury Sav. answered without objection, though it Bank, 141 Fed. 369, 72 C. C. A. 671, 15 does not distinctly allege that the part- Am. Bankr. Rep. 594. ners Individually are insolvent. Hough- 170 In re Lachenmaier, 202 Fed. 32, 121 ton Wool Co. v. Morris, 249 Fed. 434, 161 C. C. A. 368 ; In re Hammond (D. C.) 168 C. C. A. 408, 41 Am. Bankr. Rep. 271. Fed. 548, 20 Am. Bankr. Rep. 776; In But In a bankruptcy proceeding against re Dodge, Fed. Cas. No. 3,946a. A petition a firm, a creditor's petition against an al- for adjudication of one as a bankrupt leged secret partner, seeking to compel on the ground of his Jiaving made a gen- him to ffle schedules of assets and liabil- eral assignment for the benefit of credi- ities, but not alleging him to be insolvent, tors need not allege his insolvency, is not sustainable. In re Samuels, 215 Moody-Hormann-Boelhauwe v. Clinton Fed. 845, 132 C. C. A. 187. Wire Cloth Co., 246 Fed. 653, 158 C. C. A. "2 Bradley Timber Co. v. White, 121 609, 40 Am. Bankr. Rep. 441. A petition Fed. 779, 58 C. C. A. 55, 10 Am. Bankr. in involuntary bankruptcy, alleging that Rep. 329 ; In re Nusbaum, 152 Fed. 835, the debtor is insolvent, without more. Is 18 Am. Bankr. Rep. 598. 367 PETITION AND ADJUDICATION § 160 does not show that the act of bankruptcy charged was committed with- in the time limited by the statute, it is an absolutely fatal defect."* And in setting out the act charged, there must be a particular statement oi the facts and details, as particular as the nature of the transaction and the petitioners' means of knowledge will permit. To state an act of bankruptcy in the mere words of the statute is not enough. There must be such certainty and particularity as to time, place, persons concerned, and other details as will definitely inform the debtor of the charge which he is expected to controvert or explain.*'* But since the tor- tuous ways of an embarrassed debtor are often shrouded in mystery, it is naturally impossible for petitioning creditors, in all cases, to have exact and certain knowledge of all the details of a transaction alleged as fraudulent or preferential. In this situation, therefore, they are not held to any greater degree of particularity than their means of knowl- edge will warrant. They may make their allegation on inforrriation and belief, but they must show that they have used due diligence in the en- deavor to ascertain the details, and that they have something more than mere rumor, vague hearsay, or suspicion to go on, and their allegation of the commission of an act of bankruptcy should be supplemented, in such cases, by an explanation of its lack of completeness."® 173 Gross V. Potter, 15 Gray (Mass.) 556; In re Muller, Deady, 513, 3 N. B. R. 329, Fed. Cas. No. 9,912; Bradley Timber Co. v. White, 121 Fed. 779, 58 C. C. A. 55, 10 Am. Bankr. Rep. 329; In re Mason-Seaman Transp. Co. (D. C.) 235 Fed. 974, 37 Am. BanUr. Rep. 677. 17 4 In re Pressed Steel Wagon Goods Co., 193 Fed. 811, 27 Am. Bankr. Rep. 44 ; In re Cliffe, 94 Fed. 354, 2 Am. Bankr. Rep. 317 ; In re Hark, 135 Fed. 604, 14 Am. Bankr. Rep. 400; In re Randall, Deady, 557, 3 N. B. R. 18, Fed. Cas. No. 11,551 ; In re Nelson, 98 Fed. 76, 1 Am. Bankr. Rep. 63 ; Clark v. Henne & Mey- er, 127 Fed. 288, 62 C. C. A. 172, 11 Am. Bankr. Rep. 583 ; In re Deer Creek Wa- ter & Water Power Co., 205 Fed. 205, 29 Am. Bankr. Rep. 356; In re Stone, 206 Fed. 356, 30 Am. Bankr. Rep. 392; In re Sig H. Rosenblatt & Co., 193 Fed. 638, 113 C. C. A. 506, 28 Am. Bankr. Rep. 401 ; In re Hallin, 199 Fed. 806, 28 Am. Bankr. Rep. 708 ; In re McGraw (D. C.) 254 Fed. 442, 43 Am. Bankr. Rep. 38 ; In re D. F. Herlehy Co. (D. C.) 247 Fed. 369, 41 Am. Bankr. Rep. 171 ; In re Condon, 209 Fed. 800, 126 C. C. A. 524, 31 Am. Bankr. Rep. 754; In re Louisell Lumber Co., 209 Fed. 784, 126 C. C. A. 508, 31 Am. Bankr. Rep. 356. 17 5 In re Blumberg, 133 Fed. 845, 13 Am. Bankr. Rep. 343; In re Muller, Deady, 513, 3 N. B. R. 329, Fed. Gas. No. 9,912. A person proceeded against under an insolvency law "is entitled to as spe- cific a statement of the acts by which it is asserted he has exposed himself to the summary proceedings and severe conse- quences of the insolvency law, as their nature will reasonably admit of. * * * ft Is not meant by these observations that the allegations must be made with great minuteness of detail, or that the petitioner must establish every circum- stance embraced in his averment. This would be too stringent a requirement, and would often defeat the remedial pur- poses of the statute. A debtor seeking to fraudulently conceal or dispose of his property resorts to secrecy and artifice in effecting his purpose, and it would be difficult to trace all the steps or discover all the facts attending the perpetration of his fraud. But the allegations should be sufficiently pointed to describe with substantial identification the material facts which justify the characterization § 160 LAW OF BANKRUPTCY 368 Applying these principles to particular acts of bankruptcy, and con- sidering first the giving of a preference, it is absolutely necessary to aver that the transfer of property was made with the intent to prefer the particular creditor, as this is an essential element of this act of bank- ruptcy.^''® Further the name of the preferred creditor must be alleged if known to the petitioners.-'" An averment that the respondent paid money to one or more creditors with intent to prefer them is insuffi- cient.^'* But if the petitioners do not know the name of the creditor preferred, the petition is good although it may only aver in general terms that the payment was made, adding a specific reason why a more particular allegation is not possible.^'^ The exact date of the preference should also be given if known, though a petition which only shows that it was within four months may perhaps be sustained as against a de- murrer.^*" The property transferred, if other than money, should also be particularly described, though it has been held that an insufficient description of it, if not objected to by demurrer, may be cured by the evidence. ^*^ of the act complained of as an act of insolvency, in order that the defendant, the court, and the jury may be informed, in substance, of the subject-matter of the accusation and inquiry." SchifC v. Solo- mon, 57 Md. 572. The statements made in a petition in involuntary bankruptcy in accordance with the form prescribed by the rules in bankruptcy, in which the petitioners "represent" certain facts to be true, are of matters which must necessarily be alleged on hearsay, and do not purport to be of facts to which the petitioners make oath as personal wit- nesses, and hence the statement in the petition that it is made on information and belief does not add to nor detract from the strength of the allegation^ made, nor is a statement in the verifica- tion, that aflBants believe the matters so alleged on information and belief to be true, ground for dismissing the petition, although improper in form. In re Ball, 156 Fed. 682, 19 Am. Bankr. Rep. 609. A petition in involuntary bankruptcy may be sufficient although it does not set forth the evidence relied on to establish the facts. Graham Mfg. Co. v. Davy- Pocahontas Coal Co., 238 Fed. 488, 151 O. C. A. 424, 38 Am. Bankr. Rep. 18. ire In re Tupper,.163 Fed. 766, 20 Am. Bankr. Rep. 824; In re Hammond, 163 Fed. 548, 20 Am. Bankr. Rep. 776; In re Ewing, 115 Fed. 707, 53 C. C. A. 289, 8 Am. Bankr. Rep. 269 ; In re Mus- grove Mining Co. (D. C.) 234 Fed. 99, 37 Am. Bankr. Rep. 628. 1" In re Hadley, 12 N. B. R. 366, Fed. Cas. No. 5,894. Where a petition aver- red that the debtor, while insolvent, transferred and delivered a large num- ber of good and collectible notes, of the value of over .$5,000, to C. & Co. with intent to prefer them over other credi- tors, it was not objectionable for failure to charge that C. & Co. were creditors of the bankrupt. In re Vastbinder, 126 Fed. 417, 11 Am. Bankr. Rep. 118. As to omitting name of preferred creditor when it cannot be discovered from the books or papers of the bankrupt, see In re Standard Aero Corp. of New York (C. C. A.) 270 Fed. 779, 46 Am. Bankr. Rep. 511. irs In re Pure Milk Co., 154 Fed. 682, 18 Am. Bankr. Bep. 735 ; In re Triangle S. S. Co. (D. C.) 267 Fed. 300, 46 Am. Bankr. Rep. 109. 178 In re Lackow, 140 Fed. 573, 14 Am. Bankr. Rep. 514. 180 In re Vastbinder, 126 Fed. 417, 11 Am. Bankr. Rep. 118. 181 First State Bank v. Haswell, 174 Fed. 209, 98 O. C. A. 217, 23 Am. Bankr. Rep. 330. 369 PETITION AND ADJUDICATION § 160 The rules are similar where the act of bankruptcy charged is a fraud- ulent transfer or concealment of property. The intent to hinder, delay, or defraud creditors must be specifically charged, as the act of bank- ruptcy is not complete without this,**" or facts and circumstances must be pleaded from which such an intent may properly be inferred.*** An allegation of a transfer of property for an "improper consideration" is not sufficient.*** And so, a charge that claims due to the bankrupt were assigned without consideration, that suits thereon have been com- menced by the assignee, and that the assignments were made to hinder and defraud creditors, does not sufficiently allege an act of bankruptcy, because it, does not exclude a theory that the assignments were made merely for purposes of collection.**® And generally the petition should state the particulars of any transfer alleged, describing the property transferred and when and to whom the transfer was made.**® But if the petitioners cannot obtain exact knowledge of the details, it is enough if their allegation is as specific 'as they can make it.**' Thus, in a case of removal and concealment of property, they may state that they have been unable to ascertain to what place the goods have been removedi*** And where the evidence of a fraudulent concealment of assets is wholly circumstantial, it is unnecessary to. set out the precise details.**^ Thus, a charge that the respondent, at a certain time, received a specific sum of money, and that he has ever since concealed it, with intent to hinder, delay, and defraud his creditors, is not defective for failing to set forth the manner and details of the concealment.*"" 182 In re Tupper, 163 Fed. T66, 20 Am. Bankr. Rep. 824. In re Heleker Bros. Mercantile Co. (D. C.) 216 Fed. 963, 33 Am. Bankr. Rep. 503. And the petition is insufficient if it fails to show that the debts of petitioners were in ex- istence at the time of the commission of an alleged act of bankruptcy by the transfer and concealment of property with intent to defraud creditors. In re Stone (D. C.) 206 Fed. 356, 30 Am. Bankr. Rep. 392. 183 In re White,' 135 Fed. 199, 14 Am. Bankr. Rep. 241. 184 In re Blumberg, 133 Fed. 845, 13 Am. Bankr. Rep. 343. 186 In re R. L. Radke Co., 193 Fed. 735, 27 Am. Bankr. Rep. 950. 186 Conway v. German, 166 Fed. 67, 91 C. C. A. 653, 21 Am. Bankr. Rep. 577 ; In re Rosenblatt (O. C. A.) 193 Fed. 638, 28 Am. Bankr. Rep. 401. An act of bankruptcy by the fraudulent transfer of assets is sufficiently charged by a Bi,k.Bke.(3d Ed.)— 24 petition which alleges that, within four months before the filing of the petition, the bankrupt corporation permitted the two persons who were its only stock- holders to appropriate portions of its property to their individual use. In re R. L. Radke Co., 193 Fed. 735, 27 Am. Bankr. Rep. 950. So an averment in an involuntary petition that the defendant, who was a merchant, committed an act of bankruptcy by conveying a part of his property, consisting of real estate described, to a person named, with in- tent to hinder, delay, and defraud his creditors, is sufficient. In re White, 135 Fed. 199, 14 Am. Bankr. Rep. 241. 187 In re Mero, 128 Fed. 680, 12 Am. Bankr. Rep. 171. 188 In re Hark, 135 Fed. 604, 14 Am. Bankr. Rep. 400. 189 In re Bellah, 116 Fed. 69, 8 Am. Bankr> 310. 190 In re Bellah, 116 Fed. 69; 8 Am. Bankr. Rep. 310. § 160 LAW OF BANKRUPTCY 370 As to suffering a preference through legal proceedings, it is not suf- ficient to allege that the bankrupt suffered the recovery of a judgment against him and had not "at least five days before a sale or final dis- position of any property affected by such preference vacated or dis- charged the same" (in the words of the statute) without alleging the issuance of a;n execution on the judgment, or the levying thereof on any property of the debtor, and makiiig no allegation of the date of any proposed sale."^ Nor is it enough to allege that attachments have been issued and levied, which "have not to the present time been vacated," ^^ or merely that executions have been levied on the bankrupt's property without stating the further history of the executions.^®* Where the ground of the petition is the appointment of a receiver for the insol- vent defendant on the ground of insolvency, it should allege the fact of the appointment, and show that it was made by a court of competent jurisdiction, and that the reason for the appointment was insolvency.*** § 161. Same; Multifarious and Misjoined Matter. — It is improper to incorporate in a creditors' petition for an adjudication in bankruptcy allegations charging other creditors with having received voidable pref- erences, or a request for a warrant directing the marshal to seize and hold the debtor's property pending an adjudication, or a prayer for the seizure of property of the alleged bankrupt in the hands of adverse claimants, or for an injunction forbidding a third person having prop- erty of the respondent in his possession (such as a receiver appointed by a state court) to dispose of the same. All these are matters which can only be litigated in a separate proceeding. And hence such allega- tions and prayers are multifarious and will be stricken out, or treated as having been stricken."^ § 162. Signature and Verification of Petition. — The provision of the statute (section 18c) that "all pleadings setting up matters of fact shall 181 In re Pressed Steel Wagon Goods ware & Steel Ca, 177 Fed. 825, 101 Co., 193 Fed. 811, 27 Am. Bankr. Rep. C. C. A. 39, 24 Am. Bankr. Rep. 216; 44. See In re'Trttitt, 203 Fed. 550, 20 Doyle-Kidd Dry Goods Co. v. Sadler- Am. Bankr. Rep. 570; In re Fineman Lusk Trading Co., 206 Fed. 813, 30 Am. (D. C.) 223 Fed. 652, 34 Am. Bankr. Rep. Bankr. Rep. 604 ; In re Maplecroft Mills 245. (D. C.) 218 Fed. 659, 33 Am. Bankr. Rep. 192 Seaboard Steel Casting Co. v. Wil- 815; In re Valentine Bohl Co., 224 Fed. liam R. Trigg Co., 124 Fed. 75, 10 Am. 685, 140 C. C. A. 225, 34 Am. Bankr. Bankr. Rep. 594. Rep. 855. 108 In re Vastbinder, 126 Fed. 417, 195 Mather v. Coe, 92 Fed. 333, 1 Am. 11 Am. Bankr. Rep. 118. Bankr. Rep. 504; In re Ogles, 93 Fed. 19* In re Kennedy Tailoring Co., 175 426, 1 Am. Bankr. Rep. 671; In re Kelly, Fed. 871, 23 Am. Bankr. Rep. 656, Ex- 91 Fed. 504, 1 Am. Bankr. Rep. 306; In ploration Mercantile Co. v. Pacific Hard- re Hadley, 12 N. B. R. 366, Fed. Cas. 371 PETITION AND ADJUDICATION § 162 be verified under oath" is applicable to a petition in involuntary bank- ruptcy, which must be signed and verified in duplicate by the peti- tioning creditors,!** and not by one for all, but by each separately."' The verification may be made before any of the officers whom the bank- ruptcy act enumerates as authorized to administer oaths required by the act to be taken. These are referees in bankruptcy, officers authorized to administer oaths in proceedings before the courts of the United States, or under the laws of the state where the same are to be taken, and diplomatic and consular officers of the United States in any for- eign country .i*** It is not a fatal defect that the notary public who took the verification was the' bankrupt's own attorney,"* and the date of the jurat is not an essential part of the verification.^**" It is impor- tant to be noted that any mere irregularity or defect in the verification of the petition -will not defeat the jurisdiction of the court of bank- ruptcy. Jurisdictioii attaches upon the filing of the petition, and if the verification is insufficient or defective, the court may allow it to be amended, or, if it is not seasonably objected to it will be cured by an adjudication. "An order of adjudication is a judgment, and is as ef- fective as any other judgment to cure irregularities in practice which do not touch the jurisdiction of the court." ^"^ Further, an objectioi;i to a petition in involuntary bankruptcy, on the ground of informality No. 5,894 ; Creditors v. Cozzens, 3 N. B. 93, 134 ; United States v. Nihols, 4 Mc- R. 281, Fed. Cas. No. 3,378 ; In re Kintz- Lean, 23, Fed. Cas. No. 15,880. A peti- ing, 3 N. B. R. 217, Fed. Cas. No. 7,833. tion in bankruptcy may properly be ver- i»a In re BeUah, 116 Fed. 69, 8 Am. ified before a commissioner of deeds. In Bankr. Rep. 310. The v ofi But see In re Summers, 1 Nat. Bankr. 2 7 In re Rosenfields, 11 N. B. R. Sb, ' m J, n TVT 10 r\a-i NeWS, 266. Fed. Cas. No. 12.061. 2«8In re California Pac. R. Co., 3 213 in re Jefl'erson Casket Co., 182 Sawy. 240, 11 N. B. R. 193, Fed. Cas. No. Fed. 6S9, 25 Am. Bankr. Rep. 663. 2,315. § 163 LAW OF BANKRUPTCY 374 § 163. Amendment of Petition.-^It is provided by the General Or- ders in bankruptcy (No. 11) that "the court may allow amendments to the petition and schedules on application of the petitioner. In the ap- plication for leave to amend, the petitioner shall state the cause of the error in the paper originally filed." Upon this it is to be remarked, in the first place, that the "court" may here include the referee, and that officer has jurisdiction and discretion to order amendments to be made in the petition and schedules of a voluntary bankrupt referred to him, in particulars as to which he finds them defective or insufficient.'** Secondly, though the order only specifies the petition and schedules, yet formal amendments to an answer filed by a creditor to a petition in involuntary bankruptcy may be allowed at any time before adjudi- cation.**® Third, the application for leave to amend is fatally defec- tive if it does, not state the reason of the error or defect sought to be amended, but the applicant may be granted time to supply this omis- sion."** But this provision of the General Orders does not abrogate or restrict the general power of amendment in other respects vested in the courts of bankruptcy.**' The privilege of .amending a petition in bankruptcy in effect rests in the sound judicial discretion of the court, which will not be interfered with on review unless an abuse of discretion is shown.**" And it is perfectly proper for the court to re- fuse to allow an amendment as to jurisdictional facts or one going to the very foundation of the proceeding.*** It may also be observed that a creditor who has joined in the petition cannot object to an amend- ment thereof which is necessary to the prosecution of the same to final effect.**" Amendments to a petition relate back to the time of the filing of the original petition, and have the same force and effect as if included in the petition itself.*** For this reason, where a petition, sufficient in form to give the court jurisdiction, is filed within four months after 21* In re Brumelkamp, 95 Fed. 814, Co.. 138 Fed. 582. 15 Am. Bankr. Rep. .31 ; 2 Am. Bankr. Rep. 318. Sabin v. Blake-McFall Co., 223 Fed. 501, 210 In re Harris, 155 Fed. 216, 19 Am. 139 C. C. A. 49, 35 Am. Baukr. Rep. 17!) : Bankr. Rep. 204. Morrison v. Uieman, 249 Fed. 97, 161 210 In re Portner, 149 Fed. 799, 18 Am. O. C. A. 149, 41 Am. Bankr. Rep. 325, Bankr. Rep. 89. 210 In re Wood, 6 Ben. :'.:i9, 13 N. B. 217 In re Bellah, 118 Fed. 69, 8 Am. R. 9(1, Fed. Cas. Xo. 17,935; In re Craft, Bankr. Rep. 310 ; In re Hill, 5 Law Eep. 6 Blatchf. 177, 2 N. B. R. ill, Fed. Cas! 326, Fed. Cas. No. 6,485. No. 3,317 ; In re Farthing, 202 Fed. 557, 218 In re Rosenblatt (C. C. A.) 193 Fed. 29 Am. Bankr. Rep. 732. 638, 28 Am. Bankr, Rep. 401 ; Armstrong 220 in re Sargent, 13 N. B. R. 144, Fed V. Fernandez, 208 U. S. 324, 28 Sup. Ct. Cas. No, 12,361. 419, 52 L, Ed. 514, 19 Am. Bankr. Rep. 221 Millau v. Exchange Bank, 183 Fed. 746; Woolford v. Diamond State Steel 753, 106 O.C. A. 327, 24 Am. Bankr. Rep. 375 PETITION AND ADJUDICATION § 163 the commission of the act of bankruptcy alleged, it is no sufficient ob- jection to the allowance of an amendment that the four months have more than elapsed at the time the amendment is applied for.*^* The rule is otherwise, however, where the petition, as originally filed, was fatally defective. In this case, the date of the amendment must be taken as the date from which the limitation of four months begins to run.*** And if the petition "was fatally defective in failing to allege any act of bankruptcy, an amendment curing the defect, but not filed un- til more than four months after the attaching of a lien, will not take eflfec,t by relation as of the date of the original for the purpose of set- ting aside the lien.*** For other purposes, that is, with reference to the course of the proceedings, it is held that amendments may be made in bankruptcy proceedings at any stage of the case, regardless of the time that has elapsed,**® although here, as in other matters, the law contemplates a continuous prosecution of the proceedings and a speedy termination ; and where the petitioning creditors have delayed for near- ly a year, without sufficient excuse, to correct an averment in their petition as to the residence of the debtor, their application to amend should be refused.**® If otherwise meritorious, the amendment may. be allowed after the sustaining of a demurrer to the petition,**' and indeed, the petition will not ordinarily be dismissed after a successful demurrer, without giving the petitioners opportunity to apply for leave to amend.*** And amendments may even be made after adjudication, as, on the trial of the issue before a jury, when the court has power to permit amendments to be made to cover the case shown by the evidence.*** 889; Ryan v. Hendricks, 166 Fed. 94, 92 Mercur, 116 Fed. 655, 8 Am. Bankr. Rep. C. C. A. 78, 21 Am. Bankr. Rep. 570; 275. Sherman v. International Bank, 8 Blss. 22e in re Freudenfeis, Fed. Cas. No. 371, Fed. Cas. No. 12,765. 5,112a. A petition in involuntary bank- 222 In re Shoesmitli, 135 Fed. 684, 68 ruptcy is not amendable after many years C. C. A. 322, 13 Am. Bankr. Rep. 645; by adding a general and indefinite al- International Bank v. Sherman, 101 U. legation of a preferential transfer of S. 403, 25 L. Ed. 866; Hark v. C. M. property. In re Lewis Shoe Co. (D. C.) Allen Co., 146 Fed. 665, 77 C. C. A. 91, 17 235 Fed. 1017, 38 Am. Bankr. Rep. 134. Am. Bankr. Rep. 3. 227 in re Riggs Restaurant Co., 130 223 In re Condon, 209 Fed. 800, 126 C. Fed. 691, 66 C. C. A. 48, 11 Am. Bankr. C. A. 524, 31 Am. Bankr. Rep. 754 ; In re R6p. 508. Tniangle S. S. Co. (D. O.) 267 Fed. 303, 22s in re Brett, 130 Fed. 981, 12 Am. 45 Am. Bankr. Rep. 458. Bankr. Rep. 492. 224 In re Louisell Lumber Co., 209 Fed. 229 in re Binlhger, 7 Blatchf. 262, Fed. 784, 126 C, C. A. 508, 31 Am. Bankr. Rep. Cas. No. 1,420 ; In re Craft, 2 Ben. 214, 356. 1 N. B. R. 378, Fed. Cas. No. 3,316; af- .225 In re Mercur, 122 Fed. 384, 58 C. C. firmed, 6 Blatchf. 177, 2 N. B. R. Ill, A. 472, 10 Am. Bankr. Rep. 505; In re Fed. Cas: No. 3,317. § 163 LAW OF BANKRUPTCY 376 The various mistakes or omissions which may be corrected by amend- ment cover a very wide range of subjects, of which the more important may be here instanced. In the first place, creditors may in this man- ner correct a mistake in the name of the alleged bankrupt as set forth in their petition/''*" or in the allegation concerning his place of resi- dence,''*^ or in that which states the length of time he has resided with- in the jurisdiction of the court.^** But it is doubtful if the power of amendment ca^n be used to bring in new parties as respondents. It is held that a petition against a firm, naming only two of the three actual partners, cannot be amended so as to make the third a party after the testimony is taken and the cause is before the court on hearing.^** "And the pendency of simultaneous proceedings against the individual mem- bers of a partnership do not necessarily bring the firm itself into court, so as to authorize an amendment calling for an adjudication against it.^^* But on the other hand, where the petition is brought against an alleged partnership and its two members, but it appears that there was no partnership in fact, and that the business was owned and the act of bankruptcy committed by one defendant individually, it is in the discretion of the court to permit the petition to be amended by dis- missing as to the partnership and the other defendant.*^®' For another example, it is necessary for the petition in involuntary bankruptcy to show that the proposed bankrupt, whether 9, corporation or a natural person, does not come within those classes which are expressly ex- empted from the operation of the bankruptcy law, but if this allega- tion is omitted, it may be supplied by amendment.^*® So also, the peti- tioning creditors should show that their claims amount in the aggregate tb the jurisdictional minimum, and the petition is defective for want of such an averment, but it may be supplied by an amendment,*^' as may also, an allegation of the nature and amount of their several debts 230 Gleason v. Smith, 145 Fed. 895, 76 man, 166 Fed. 67, 91 C. C. A. 653, 21 Am. C. O. A. 427, 16 Am. Bankr. Eep. 602. Bankr. Eep. 577 ; In re Marion Contract 231 In re Vanderhoef, 18 N. B. R. 543, & Const. Co., 166 Fed. 618, 22 Am. Bankr. Fed. Oas. No. 16,841. Rep. 81 ; In re First Nat. Bank, 152 Fed. 232 In re Elmira Steel Co., 109 Fed. 64, 81 C. C. A. 260, 18 Am. Bankr. Rep. 456, 5 Am. Bankr. Eep. 484. 1.'05 ; In re Plymouth Cordage Co., 135 333 In re Pitt, 8 Ben. 389, 14 N. B. E. Fed. lOOO, 68 C. C. A. 434, 13 Am. Bankr. 59, Fed. Cas. No. 11,188. Eep. 665 ; In re Crenshaw, 156 Fed. 638, 284 In re Mercur, 122 Fed. 384, 58 C. 19 Am. Bankr. Eep. 502; Beach v. Macon C. A. 472, 10 Am. Bankr. Eep. 505. Grocery Co., 120 Fed. 736, 57 C-. C. A. 285 In re Eichardson, 192 Fed. 50, 27 150, 9 Am. Bankr. Eep. 702: In re Bel- Am. Bankr. Eep. 590; In re Young (D. lah, 116 Fed. 69, 8 Am. Bankr. Eep. 310; C.) 223 Fed. 659, 35 Am. Bankr. Eep. 200. McAfee v. Arnold & Mathis, 155 Ala. 56l', 230 Armstrong v. Fernandez;, 208 U. S. 46 South. 870. .■',24, 28 Sup. Ct. 419, 52 U Ed. 514, 19 =3? in re Scull, 7 Ben. 371, 10 N. B. R. Am. Bankr. Eep. 746; Conway v. Ger- 165, Fed. Oas. No. 12,568; In re McKib- 377 PETITION AND ADJUDICATION § 163 or claims.*** But it has been ruled that an amended petition cannot set forth, as part of the indebtedness to the petitigning creditor, a note indorsed by the debtor which did not fall due until after the original peti- tion wag filed.*^* If the petition is invalid by reason of a defect in the verification, it is amendable,-** and so of a clerical error in the jurat; it may be cured by amendment/*^ And so a petition which alleges the insolvency of the debtor at the time of the filing of the petition may be changed by amendment so as to charge insolvency at the date of the exe- cution of the alleged preference.'** But an amended petition, executed as such by a creditor, to be filed in proceedings previously instituted, cannot thereafter and after the proceedings have been dismissed by the court, be converted into an original petition by striking out the word "amended," and so made the basis of a new and independent proceed- ing.*« The allegations in' the petition concerning the commission of an act of bankruptcy may also be amended, where necessary, either in the way of being made more specific or in being made to conform more closely to the facts as developed. Thus, if these allegations are vague, general, and lacking in detail, the particulars may be supplied by amend- ment.*** So also, if the petition charges the commission of an act of bankruptcy by a transfer of property with intent to hinder or defraud creditors, but it is developed at the hearing that the transfer was made in satisfaction of an existing debt or for a consideration, it is proper for the court to permit an amendment charging that the transfer was made with intent to prefer the creditor benefited by it.**® As to the ben, 12 N. B. K. 97, Fed. Oas. No. 8,859; 2*2 jn re Pangborn, 185 Fed. 673, 26 In re Blair, 17 N. B. K. 492, Fed. Cas. Am. Bankr. Rep. 40. No. 1,481. 2*3 In re Hyde & Gload Mfg. Co., 103 238 In re White, 135 Fed. 199, 14 Am. Fed. 617, 4 Am. Bankr. Rep. 602. Bankr. Rep. 241. 2*^ In re Clifee, 94 Fed. 354, 2 Am. 23 9 In re Morse, 17 Blatchf. 72, Fed. Bankr. Rep. 317; In re Nelson, 98 Fed. Cas. No. 9,851. 76, 1 Am. Bankr. Rep. 63 ; In re Irish 240 In re Vastbinder, 126 Fed. 417, 11 (D. C.) 228 Fed. 573, 36 Am. Bankr. Rep. Am. Bankr. Rep. 118; Sabin v. Blake- 185. Though a petition in involuntary McFall Co., 223 Fed. 501, 139 C. C. A. 49, bankruptcy against a corporation did not 35 Am. Bankr. Rep. 179. See In re Frank, allege ^any act of bankruptcy, yet where 239 Fed. 709, 152 C. C. A. 543, 38 Am. the corporation, being in fact insolvent, Bankr. Rep. 674. But where petitioning afterwards adopted resolutions admit- creditors knew nothing of the facts aver- ting its insolvency and inability to pay red and did not take oath before a no- its debts and its willingness to be ad- tary public, although their petition bore judged bankrupt. It was held that a new his certificate, it was held that it could petition could thereupon be filed. In re not be amended by subsequently allowing D. F. Herlehy Co. (D. 0.) 247 Fed. 369, them to verify it. In re Frank (D. 0.) 2.34 41 Am. Bankr. Rep. 171. Fed. 665, 37 Am.' Bankr. Rep. 19. 245 Hark v. C. M. Allen Co., 146 Fed. 2" In re Bellah (D. C.) 116 Fed. 69, 8 665, 77 C. 0. A. 91, 17 Am. Bankr. Rep. Am. Bankr. Rep. 310. 3 ; In re Hark, 142 Fed. 279, 15 Am. § 163 LAW OF BANKRUPTCY ' ^'^ propriety of an amendment introducing an entirely new act of bank- ruptcy, not referred to in the original petition, there is more doubt. But the preponderance of authority favors the view that such an amend- ment is in the discretion of the court, and its allowance is not improper, especially where the testimony at the trial or hearing plainly discloses the commission of an act of bankruptcy additional to that alleged in the petition, and particularly if the proof fails as to the act originally charged, so that the proceeding will be saved and the ends of justice promoted by granting the amendment.^*" But it is necessary for the petitioning creditors, in order to obtain this privilege, to -explain or ex- cuse their omission to allege the new act of bankruptcy in their orig- inal petition.^*' This rule, however, is exceptional and entirely con- trary to the general rules of pleading, which require that the cause of action shall remain unchanged, however great a latitude in the way of amendment may otherwise be allowed. And a number of the courts have preferred to adhere to the more stringent rule that a new or en- tirely different act of bankruptcy cannot be introduced into the petition by an amendment.*** And even where this is allowed, it seems to be conceded that it is wholly improper to permit an amendment of this kind wheire the new act of bankruptcy proposed to be set up was com- mitted more than four months before the application for leave to amend, so that it could not be made the basis of a new original petition.*** Bankr. Rep. 460 ; In re Henderson, 9 In re Sears, 117 Fed. 294, 54 0. C. A. 532, Fed. 196. 8 Am. Bankr. Rep. 713; Reed v. Crow- 240 International Bank v. Sherman, ley, 1 N. B. R. 516, Fed. Gas. No. 11,644; 101 U. S. 403, 25 L. Ed. 866 ; Chicago In re Leonard, 4 N. B. R. 562, Fed. Gas. Motor Vehicle Co. v. American Oak No. 8,255 ; Stern v. Schonfield, Fed. Gas. Leather Co., 141 Fed. 518, 72 G. C. A. No. 13,377; In re Brown Commercial Car 576, 15 Am. Bankr. Rep. 804 ; In re Ham- Co., 227 Fed. 387, 142 G. C. A. 83, 36 Am. rick, 175 Fed. 279, 23 Am. Bankr. Rep. Bankr. Rep. 45. In the case of In re 721; In re Nusbaum, 152 Fed. 835, 18 Leonard, supra, it was said: "Amend- Am. Bankr. Rep. 598; In re Miller, 104 ments in legal proceedings always pre- Fed. 764, 5 Am. Bankr. Rep. 140 ; In re suppose something to amend — something Lange, 97 Fed. 197, 3 Am. Bankr. Rep. in the record concerning that distinct 231 ; In re Mercur, 95 Fed. 634, 2 Am. substantive matter, not that an entirely Bankr. Rep. 626 ; In re Strait, 1 Nat. new cause of action is to be substituted Bankr. News, 354 ; In re Gallinger, 1 for the previous one. Substitution is not Sawy. 224, 4 N. B. R. 729, Fed. <5as. No. amendment." And see In re McGraw 5,202 ; Hardy v. Bininger, 4 N. B. R. 262, (D. G.) 254 Fed. 442, 43 Am. Bankr. Rep. Fed. Gas. No. 6,057; In Be Forbes (D. 38. C.) 235 Fed. 316, 37 Am. Bankr. Rep. 511. "*« In re HafC, 136 Fed. 78, 68 G. C. A. 2*7 White V. Bradley Timber Co., 116 646, 13 Am. Bankr. Rep. 362 ; Walker v. Fed. 768, 8 Am. Bankr. Rep. 671 ; Wilder Woodside, 164 Fed. 680, 90 G. G. A. 644, V. Watts, 138 Fed. 426, 15 Am. Bankr. 21 Am. Bankr. Rep. 132; In re Pure Rep. 57. Milk Co., 154 Fed. 682, 18 Am. Bankr. 2*8 In re Pure Milk Co., 154 Fed. 682, Rep. 735; In re Perlhefter, 177 Fed. 299, 18 Am. Bankr. Rep. 735 ; In re Harris, 25 Am. Bankr. Rep. 576 ; In re Lewis 155 Fed. 21G, 19 Am. Bankr. Rep. 204; Shoe Co. (D. C.) 235 Fed. 1017, 38 Am. 379 PETITION AND ADJUDICATION § 164 § 164. Limitation of Time for Filing Petition. — The statute pro- vides that a petition in involuntary bankruptcy may be filed within four months after the commission of an act of bankruptcy by the debtor. It cannot be maintained on alleged acts of bankruptcy occurring more than four months before the petition is filed.*"* But the fact that the general assignment for the benefit of creditors, which is alleged as the act of bankruptcy in the petition, was made in England, of which coun- try the debtor was a resident, and that the English bankruptcy law requires action to be taken by creditors within three months after an act of bankruptcy, does not in any way deter American creditors from maintaining a proceeding in bankruptcy within the four months allow- ed by our own law.*" Where the act of bankruptcy alleged consists in the transfer of property in fraud of creditors or for the purpose of giving a preference or in the making of a general assignment, then the time does not expire until four months after the recording or registering of the transfer or assignment, if such recording or registering is required or permitted by law; if not, from the date when the beneficiary takes notorious, exclu- sive, or continuous possession of the property, unless the petitioning creditors have received actual notice of such transfer or assignment.*** The statute is not retroactive, and a conveyance of property is not an act of bankruptcy when made before the passage of the law, though not recorded until after that time. The deed is operative from its date, and the act of creditors in recording it cannot be taken as the act of the grantor.*** But a petition in involuntary bankruptcy could be maintained upon an act of bankruptcy committed before November 1, 1898, the earliest day on which such a petition, under the present stat- ute, could be filed, provided the act was committed after July 1, 1898, the date when the law took effect.*** In determining whether a trans- fer of property was made within the tinie limited, it will be held to have taken place at the time of the actual execution and delivery of the Bankr. Rep. 134. But compare In re 0. tioning creditors. In re Havens, 255 W. Bartleson Co. (D. C.) 253 Fed. 296, Fed. 478, 166 C. C. A. 554, 42 Am. Bankr. 42 Am. Bankr. Rep. 1; International Rep. 734. Silver Co. v. New York Jewelry Co., 233 ^^o Trammell v. Yarbrough, 254 Fed. Fed." 945, 147 O. C. A. 619, 37 Am. Bankr. 685, 166 O. C. A. 183, 42 Am. Bankr. Rep. Rep. 91. An act of bankruptcy commit- 727. ted and complete more than four months 2 6i In re Berthoud (D. C.) 231 Fed. 529, prior to the amendment of a petition in 36 Am. Bankr. Rep. 555. involuntary bankruptcy, cannot be charg- 252 Bankruptcy Act 1898, § 3b. See ed for the first time in the amendment. Thornhill v. Link, 8 N. B. R. 521, Fed. But where such act consists of a con- Oas. No. 13,993. cealment of property, which has con- 2 = 3 In re Wynne, Chase, 227, 4 N. B. tinued, the four months period will not R; 23, Fed. Cas. No. 18,117. begin to run until discovery by the peti- 254 Leidigh Carriage Co. v. Stengel, 95 § 164 LAW OF BANKRUPTCY 380 deed, and not at its date.^®^ And where an insolvent corporation sold its real estate and used the proceeds in paying some of its creditors to the exclusion of others, and a petition in bankruptcy against it, alleging the transaction as an act of bankruptcy, not on the theory of its being a conveyance of property with intent to delay and defraud creditors, but on the ground that the payments out of the price received were a trans- fer of property with intent to prefer certain creditors, was filed more than four months after such payments were made, though within four months after the recording of the deed, it was held that the petition was too late and must be dismissed-^®* It will be observed that the four months' limitation applies to the filing of the petition 'as the com- mencement of the proceedings, and hence, if the petition is filed in due time, the proceedings will not be vitiated by a delay in the issuance of process thereon.*"'' And moreover, in such a case, it is not material that certain creditors, who joined in the petition subsequent to its filing and before an adjudication thereon, and who are to be reckoned in making up the requisite number of creditors and amount of claims, did not enter their appearance, for the purpose of such joinder, until more than four months after the act of bankruptcy.*"* The period of four months is to be computed by excluding the day on which the act of bankruptcy was committed and including that on which the petition is filed.*"* In regard to the provision that a petition may be filed within four months after the beneficiary in a preferential conveyance takes "no- torious, exclusive, or continuous possession of the property," it has been held that the word "notorious" does not mean that the fact of his taking possession should be advertised or made public by any active efforts on the part of those concerned, but only that there should be nothing secret or hidden in the transaction ; the change of possession need only be such that creditors could have discovered it by proper inquiry.*®** As to acts of bankruptcy ether than the transfer of property and the making of an assignment, the limitation is simply that the petition must be filed within four months after the commission of the act of bank- ruptcy. Thus, it is an act of bankruptcy if an insolvent debtor shall have "suffered or permitted any creditor to obtain a preference through Fed. 63T, 37 O. O. A. 210, 2 Am. Bankr. "ss in re Romanow, 92 Fed. 510, 1 Am. Uep. 383. Bankr. Rep. 461. 250 In re Rooney, 6 N. B. R. 163, Fed. 2" in re Stevenson, 94 Fed. 110, 2 Am. Cas. No. 12,032. Bankr. Rep. 66; In re Dupree, 97 Fed. a-'O In re Mingo Valley Creamery Ass'n, 28. 100 Fed. 282, 4 Am. Bankr, Rep. 67. 200 in re Woodward, 1 Nat. Bankr. 257 In re Lewis, 91 Fed. 632, 1 Am. News, 352. Bankr. Rep. 458. 381 PETITION AND ADJUDICATION § 165 legal proceedings, and not having at least five days before a sale or final disposition of any property affected by such preference vacated or discharged such preference," and it is held that a petition in inyolun- tary bankruptcy may be filed, when the preference alleged was obtained by an attachment of the defendant's property and a sale thereunder, within four months after the seizure and sale of the property, though it be more than four months after the attachment was made.^'^ But where the act alleged is rather a "concealment" of property than a trans- fer of it, the opinion has been expressed that this is a continuing act, and the time begins to run from its discovery by the creditors.'*** As to the appointment of a receiver as cause for an adjudication of bankrupt- cy, it may be said that a receiver is "put in charge" of the property of a defendant when the decree appointing him is entered, and the four months' limitation begins to run from the date of the decree, rather than from the time when the receiver qualifies or takes actual posses- sion of the property.*"* It is further necessary to remark that both the original and the duplicate petition required by the statute must be filed within the four months; it is not enough to file the original, and then, after the four months, the duplicate.*** As stated in a preceding section, the four months' limitation does not apply to an amendment of the petition ; that is, if the original pe- tition was filed in due time, it is no objection to an amendment that it is allowed more than four months after the act of bankruptcy charged, provided it doe0 not introduce a wholly new act of bankruptcy.*** § 165. Filing and Presenting Petition. — Proceedings in involun- tary bankruptcy are commenced by the filing of the petition, and take date from that time, not from the issuance of process or its service on the defendant.*** And the filing of a bankruptcy petition is, in effect, a caveat, and, the proceedings being in rem, gives notice to the whole world.**'" It is not necessary that the petition should be filed or pre- sented to the court simultaneously with its execution or verification ; the fact that the petition was attested a number of days before being 26iParmenter Mfg. Co. v. Stoever (C. ^es Supra, § 163. And see In re R. L. C. A.) 97 Fed. 330, 3 Am. Bankr. Rep. Radke Co., 193 Fed. 735, 27 Am. Bankr. 220; In re Nusbaum, 152 Fed. 835, 18 Rep. 950. ' Am. Bankr. Rep. 598. 266 in re Appel, 103 Fed. 931, 4 Am. 262 Citizens' Bank v. W. C. De Pauw Bankr. Rep. 722; In re Lawis, 91 Fed. Co., 105 Fed. 926, 45 O. C. A. 130, 5 Am. 632, 1 Am. Bankr. Rep. 458 ; First Nat. Bankr. Rep. 345. Bank v. Masterson, 29 Okl. 76, 116 Pac. 20S In re Perry Aldrich Co., 165 Fed. 162. 249, 21 Am. Bankr. Rep. 244. 267 Hamilton v. Smith, 36 Mont. 1, 92 28 4 In re Stevenson, 94 Fed. 110, 2 Am. Pac. 32, -122 Am. St. Rep. 330; In re Bankr. Rep. 66 ; In re Dupree, 97 Fed. Schow (D. 0.) 213 Fed. 514. 28. § 165 LAW OF BANKRUPTCY 382 filed, aflFords no obstacle to its prosecution.*** All petitions are in- tended by the statute to be filed with the ,clerk of the court in which the proceeding is to be taken, and it is bad practice to send them di- rectly to the judge or to present them to a referee.*** A petition in bankruptcy is to be deemed "filed," within the meaning of the law, when it is- delivered personally to the clerk of the court of bankruptcy and received by him for the purpose of being placed on file, although not at his office or during office hours,*'"* and the time of filing does not date from the time when the clerk presents it to the judge for his action as to issuing an order to show cause.*''^ Where a voluntary partnership petition in bankruptcy was signed, verified, and presented by all the members of the firm, and was accompanied by schedules of the firm's assets and debts, but not by any individual schedules, and no adjudi- cation was made thereon, but subsequently the petition was in part withdrawn, and a new petition was filed, with parts of the old petition pasted thereon, and individual schedules of all the partners added by way of amendment, and thereupon an adjudication was made, it was held that the petition was "filed" on the later date and not the earlier.*'* The General Orders (No. 2) require the clerk to indorse on each paper filed with him the day and hour of filing; and when. this indorsement is made it is evidence of the facts stated and is for every legal purpose a certificate.*'* In fact, the record of the bankruptcy court showing that a petition was filed at a particular time is conclusive and cannot be contradicted by parol testimony,*'* although if the recital as to the date of filing is actually incorrect, it may be made right by an order entered nunc pro tunc.*'® The statute also provides (section S9c) that "petitions shall be filed in duplicate, one copy for the clerk and one for service on the bankrupt." This is imperative. But it applies only to involuntary proceedings, as is shown by the connection in which the clause is found, and by the further consideration that, in a case of voluntary bankruptcy, it would be wholly unnecessary for the bankrupt to duplicate his petition, since 268 In re Abraliams, 5 Law Rep. 328, 27o In re Von Borcke, 94 Fed. 352. See Fed. Gas. No. 20. Franks v. Houston, 9 Kan. 406. 260 In re Sykes, 106 Fed. 669, 6 Am. 2 7i in re Bear, 5 Fed. 53. Bankr. Kep. 264. Relationship between 272 in re Washburn, 99 Fed. 84, 3 Am. the bankrupt and the deputy clerk of the Bankr. Rep. 585. court in whose office the petition was 2^3 In re Dean, 1 N. B. R. 249, Fed. filed will be cause for transferring the Gas. No. 3,699. cause to another seat of tlie court in the 274 Alabama & C. R. Co. v. Jones, 7 same district and division, and ordering N. B. R. 145, Fed. Gas. No. 127. the record to be filed and docketed In the 275 Alabama & C. R. Co. v. Jones, 7 office of the clerk of the court at the N. B. R. 145, Fed Cas.. No. 127. latter place. Bray v. Cobb, 91 Fed. 102, 1 Am. Bankr. Rep. 153. 383 PETITION AND ADJUDICATION § 166 no provision is made for its service on any one. But in cases where this requirement applies, it is held to mean that there shall be one petition in the form of two duplicate originals, each verified as prescribed, and both filed at the same time,*'® not merely one formal and verified peti- tion and an unsworn copy of it. And the omissjon of the petitioning creditors to file both duplicates of the petition within the time limited by the statute is not cured by the appearance of the alleged bankrupt for the purpose of moving to dismiss the petition.*'"'' And although the court has broad and liberal powers in the way of permitting amendments, it should not undertake practically to repeal the legislative declaration that petitions must be filed in duplicate within the four months speci- fied."* When a petition in bankruptcy is offered to the clerk for filing, he must collect fees for himself ($10), for the referee ($10), and for the trus- tee ($5), except in the case of a voluntary petition which is accompanied by an affidavit stating that the petitioner has not the money to pay such fees and cannot obtain it.*'"' This statutory affidavit is prima facie evidence of the inability of the petitioner to make the required deposit of fees, and if, upon examination as to his available means, proper in- quiries being fairly answered, it appears that there was no money or property held by the petitioner at the institution of the proceedings, or obtainable through his individual earnings or efforts, the exemption from making such deposit must be allowed and the case proceed.**' § 166. Service of Process. — In cases where personal service is practi- cable, the provision of the statute is that, "upon the filing of a petition for" involuntary bankruptcy, service thereof, with a writ of subpoena, shall be made upon the person therein named as defendant in the same manner that service of such process is now had upon the commencement of a suit in equity in the courts of the United States except that it shall be returna- ble within fifteen days, unless the judge shall for cause fix a longer time." **^ The equity rules provide that "the process of subpoena shall 270 In re Stevenson, 94 Fed. 110, 2 Am. "s in re Stevenson, 94 Fed. 110, 2 Am. Bankr. Kep. 66; In re Dupree, 9 Fed. Bankr. Rep. 66. 28. But see Millan v. Exchange Bank, "o Bankruptcy Act 1898, §§ 40, 48, 51, 183 Fed. 753, 106 O. C. A. 327, 24 Am. 52. Bankr. Rep. 889, where a copy of the ^so in re Levy, 101 Fed. 247. petition made and certified by the clerk 2 si Bankruptcy Act 1898, § 18a. of the court and delivered to the marshal Though a subpoena issued September 27, with the summons, was held to satisfy requiring the alleged bankrupt to appear the requirement of the statute as to the on October 12, with a memorandum stat- filing of the petition in duplicate. ing that the petition would be taken as 277 In re Stevenson, 94 Fed. 110, 2 Am; confessed unless the answer was filed be- Bankr. Rep. 66. But compare In re fore the' return day, was irregular, in Plymouth Cordage Co., 135 Fed. 1000, that the bankrupt should have 5 days 68 O. C. A. 434, 13 Am. Bankr. Rep. 665. after the return day in which to answer, § ]66 LAW OF BANKRUPTCY 384 constitute the proper mesne process in all' suits in equity, in the first in- stance, to require the defendant to appear and answer the exigency of the bill." ^^^ As to the form and sanction of the writ, it is provided that "all writs and process issuing from the courts of the United States shall be un- der the seal of the court from which they issue, and shall be signed by the clerk thereof. Those issuing from a district court shall bear teste of the judge, or, when that office is vacant, of the clerk thereof."''** This is supplemented by the third general order in bankruptcy, which provides that "all process, summons, and subpoenas shall issue out of the court, under the seal thereof, and be tested by the clerk; and blanks, with the signature of the clerk and seal of the court, may, upon application, be furnished to the referees." It is not probable, however,' that the last clause was intended to apply to the original process for compelling the appearance and answer of the respondent, as no provision is made by the statute for the filing of the petition with a referee, nor is that officer vested with any jurisdiction of a bankruptcy case until it has been properly referred to him. Service of the process is to be made by the marshal or a deputy, except where that officer is a party to the cause, in which case it is to be executed by a disinterested third person specially appointed by the court for that purpose.**** If service is not effected before the return day, the petitioning creditors are entitled to alias and successive sub- poenas until due service is had.^*" And if the process is found to be n-regular or defective in any way, the court may allow it to be amend- ed.**" As to the mode of service, the equity rules provide that "the service of all subpoenas shall be by delivery of a copy thereof by the officer serving the same to the defendant personally, or by leaving a copy thereof at the dwelling-house or usual place of abode of each defendant, with some adult person who is a member or resident in the family." ***' There is nothing to prevent service on the alleged bankrupt wherever he may be found, though it is outside the district.*** If the defendant is a partnership, service on one member of the firm will give jurisdiction yet the irregularity will not be ground 'ss Equity Rule No. 14; Gleason v. for an avoidance of the subpoena, where Smith, Perkins & Co., 145 Fed. 895,' 76 it was served 10 days before the return 0. C. A. 427, 16 Am. Bankr. Rep. 602. day and the bankrupt had more than 5 aso Rev. Stat. U. S. § 948. days before the return day in which to zst Equity Rule No. 13. answer. Stewart Petroleum Co. v. ass Stuart v. nines, 33 Iowa, 60, 6 N. Boardman (C. C. A.) 264 Fed. 826, 45 Am. B. R. 416; Hills v. F. D. McKinniss Co., Bankr. Rep. 573. 188 Fed. 1012, 26 Am. Bankr. Rep. 329. 282 Equity Rule No. 7. But see In re Appel, 103 Fed. 931, 4 Am. 288 Rev. Stat. U. S. § 911. Bankr. Rep. 722. 284Eauity Rule No. 15; Rev. Stat. U; S. § 922. 385 PETITION AND ADJUDICATION § 166 of the firm and its property.^*" And in the case of a corporation, service is good if made on any of its principal officers,^"* as, the cashier of a banking company,^*^ or, in the case of a foreign corporation, that officer of the state who has been appointed its \ attorney to receive service of process within the state.'*' But if the corporation has been dissolved by decree of a state court, and a receiver appointed to wind up its af- fairs, service may be made by publication, as this is a case where the defendant cannot be found.'"* While a defendant may ordinarily waive service of process, this cannot be done in a bankruptcy proceeding, or at least it will not justify an adjudication before the return day of the writ, because creditors have the right to intervene and plead to the peti- tion, and they must be allowed the full statutory time for that pur- pose.'"* If the defendant is temporarily absent from the district, but has his dwelling-house or usual place of abode therein, the service may be made by leaving a copy there with some adult member of the family, as authorized by the equity rules, this being a personal service within the meaning of the bankruptcy act.'*® And in one case, the validity of service was sustained where it had been effected by leaving the sub- poena and a copy of the petition with the clerk of a hotel of which the bankrupt was the proprietor and where he usually resided, although, at the time, he was absent in another town in the last stage of a fatal ill- ness.'*® It may be added that the equity rule does not require the copy of the process to be left with a person within the dwelling-house, but is satisfied by a service at the door,, outside the house.'*' If personal service cannot be had, "then notice shall be given by publication in the same manner and for the same time as provided by law for notice by publication in suits to enforce a legal or equitable lien in courts of the United States, except that, unless the judge shall other- 28 9 Bail V. Hartman, 9 Ariz. 321, 83 Fed. 54, 150 C. C. A. 256, 38 Am. Bankr. Pac. 358. Eep. 454. 290 In re California Pac. R. Co., 3 soi Piatt v. Archer, 9 Blatchf. 559, 6 Sawy. 240, 11 N. B. B. 193, Fed. Gas. N. B. R. 465, Fed. Gas. No. 11,213. No. 2,315. Wliere service of the sub- 292 In re Magid-Hope S}lk Mfg. Co., • poena and a copy of the petition was 110 Fed. 852, 6 Am. Bankr. Rep. 610. made on one who was a director and a 203 in re Washington Marine Ins. Co., stockholder of the corporation defend- 2 Ben. 292, 2 N. B. R. 648, Fed. Oas. No. ant, under the mistaken belief that he 17,246. was its president, but in fact he handed 294 in re L. Humbert Co., 100 Fed. 439, over the papers to the real president of 4 Am. Bankr. Rep. 76. the corporation, it was held that the 295 in re Norton, 148 Fed. 301, 17 Am. service was sufficient to warrant the Bankr. Rep. 504. court in assuming jurisdiction and ad- 296 in re Risteen, 122 Fed. 732, 10 Am. judging the corporation a bankrupt. Bankr. Rep. 494. Lamar- Wells Co. v. Hamilton Co., 287 297 Phoenix Ins. Co. v. Wulf, 1 Fed. 775. Blk.jBkr.(3d Ed.)— 25 § 166 LAW OF BANKRUPTCY 386 wise direct, the order shall be published not more than once a week for two consecutive weeks, and the return day shall be ten days after the last publication, unless the judge shall for cause fix a longer time." *'* The statute here referred to, authorizing substituted service in suits to enforce liens, provides that "it shall be lawful for the court to make an order directing such absent defendant or defendants to appear, plead, answer, or demur, by a day certain to be designated, which order shall be served on such absent defendant or defendants, if practicable, wher- ever found, and also upon a person or persons in possession or charge of said property, if any there be, or where such personal service upon such absent defendant or defendants is not practicable, such order shall be published in such manner as the court may direct, not less than once a week for six consecutive weeks." ^'"* As applied to proceedings in bank- ruptcy against an absconding debtor, it is held that this requires the publication of an order designating a day on which the bankrupt is required to appear and answer, demur, or plead ; and where the order for publication did not designate a time for appearance, and publication was made of the citation issued by the clerk directing the marshal to summon the bankrupt, instead of the order for publication, it was held that this conferred no jurisdiction on the court to make an adjudica- tion.*** The manner of publication is apparently left entirely in the discretion of the judge, though there is another provision of the bank- ruptcy act (section 28) which requires the courts of bankruptcy to des- ignate the newspapers in which the notices and orders in bankruptcy proceedings shall be published. If the defendant in such proceedings desires to raise the objection that the court has no jurisdiction because the writ was improperly serv- ed, he may do so by motion or by defense at the trial, but not by de- murrer.*"^ But a general appearance will waive all irregularities in the service of process and confer jurisdiction of the defendant's person.*** And where there are several defendants, as in the case of a partnership, one who was not served may appear by attorney.*"* An omission in the 29 8 Bankruptcy Act 1898, §18, as sary tliat personal service, other than by, amended by Act Cong. Feb. 5, 1903, 32 publication, should be made on a re- Stat. 797; eeiver appointed by a state court in ■2 9 Act Cong. March 3, 1875, § 8, 18 charge of certain of the bankrupt's prop- Stat. 472, U. S. Comp. Stat. 1901, p. 513, erty. now constituting § 57 of the Federal Ju- aoi in re Seaboard Fire Underwriters, dicial Code of 1911. 137 Fed. 987, 13 Am. Bankr. Eep. 722. 300 Sidney L. Bauman Diamond Co. v. 302 in re L'lrich, 3 Ben. 855, 3 N. B. H. Hart, 192 Fed. 498, 27 Am. Bankr. Rep. 133, Fed. Cas. No. 14,327. 632. In the same case it was held that, sos in re Weyhausen, 1 Ben. 397, Fed. in case of service by publication on an Cas. No. 17,474. absconding bankrupt, it was not ^neces- 387 PETITION AND ADJUDICATION § 167 printed copy of an order for publication of the subpoena in involuntary bankruptcy proceedings against a partnership and the members there- of, who resided without the mstrict, will not be ground for setting aside the adjudication if the omission did not render the order unintelligible.*'* § 167. Notice to Creditors. — In the case where the petition is filed by one or two creditors only, and the bankrupt alleges in his answer the existence of more than twelve creditors, he is required also to file a sworn list of all his creditors, with their addresses, and thereupon the court shall cause such creditors to.be notified of the proceeding and give them an opportunity to be heard. Where this is done, the mode of service of notice on such creditors is immaterial, if the creditors named in the list are actually notified in time to intervene if they de- sire. It is left in the discretion of the court to decide whether notice shall be served personally or by mail, and by vvhqm the service shall b6 made.^*'' But this is the only provision in the statute for notice to creditors of the institution of the proceedings. In all other cases, no such notice is necessary, the filing of the proper petition by proper par- ties in the proper court (jonferring jurisdiction and in itself operating as a lis pendens and as notice to all who may be concerned.***® And al- though a creditor has had no notice of the petition, this will not entitle him to impeach the decree of adjudication, where the records show a regular proceeding. The fact that his name did not appear on the list of creditors and that he was not notified of the proceeding would not affect the jurisdiction of the court to proceed to an adjudication, nor will it affect the trustee's right to maintain an action against him to re- cover a preference or to set aside a fraudulent conveyance.**'' so 4 Hunter, Walton & Co. v. J. G. tervening creditors are not entitled to Cilierry Ck)., 247 Fed. 458, 159 C. C. A. notice of a continued hearing before the 512, 40 Am. Bankr. Kep. 732. master on the question whether the 30 5 In re Tribelhorn, 137 Fed. 3, 69 C. claims of the original petitioners were C. A. 601, 14 Am. Bankr. Rep. 491. No- suflficient in amount. In re Smith (D. tice of bankruptcy proceedings, given to C.) 232 Fed. 284, 36 Am. Bankr. Rep. 637. the owner of an interest in a judgment An indorser of, a note, who had become, against the bankrupt, is not notice to the the eauitable owner of a judgment other co-owner. Strickland v. Capital against himself and the maker, by pay- City Mills, 74 S. C. 16, 54 S. E. 220, 7 L. ing the judgment, is not entitled to no- R. A. (N. S.) 426. tice of the bankruptcy of the maker, 806 In re Billing, 145 Fed. 395, 17 Am. where the maker is not shown to have Bankr. Rep. 80. And see International had notice of the equitable assignment. Bank v. Sherman, 100 TJ. S. 406, 25 L. and in such case notice to the judgment Ed. 866; Mueller v. Nugent, 184 XJ. S. creditor is sufficient. Morericy v. Lan- 14, 22 Sup. Ct. 269, 46 L. Ed. 405, 7 Am. dry, 79 N. H. 305, 108 Atl. 855, 9 A. L. Bankr. Rep. 224; Wiley v. Pavey, 61 Ind. R. 123. 457, 28 Am. Rep. 677; Coppard v. Card- sot Roberta v. Fernald, 72 N. H. 198, ner (Tex. Civ. App.) 199 S. W. 650. In- 55 Atl. 942. § 168 LATT OF BANKRUPTCY 388 § 168. Parties. — Strictly speaking, the only parties to a proceed- ing in involuntary bankruptcy, before the adjudication, are the peti- tioning creditor or creditors and the alleged bankrupt, although other creditors have the privilege of intervening for the purpose of either sus- taining or opposing the petition. Persons having a lien on property of the bankrupt passing to his trustee are not parties to the bankruptcy proceeding, unless they come into the bankruptcy court to enforce their rights.*** So, the appearance of a nonresident as a witness in the bankruptcy proceeding, in obedience to a subpoena, does not make him a party to the proceeding.*"* Where it is necessary to reform a con- tract in order to sustain a petition in bankruptcy against a corporation, the corporation should be made a party to the proceeding, notwith- standing its default as to the petition, which did not ask such reforma- tion, or the assent of its board of directors to the bankruptcy.*^" Where the act of bankruptcy alleged is the making of a general as- signment for the benefit of creditors, it is perhaps not improper to join the assignee as a defendant in the bankruptcy proceeding, but his rights and interests cannot be adjudicated at this stage of the cause, and where the petition sets up no cause of action against him nor prays any spe- cial relief as to him, the mere fact of his being included does not make him continuously subject to the orders of the court without other pro- cess.*^^ Where the alleged bankrupt in involuntary proceedings dies after the filing of the petition, but before service of ptocess, the pro- ceeding does not abate, but his heirs and personal representatives should be brought in and made fiarties to the proceeding before any adjudica- tion.*^* Similarly, when the alleged bankrupt is insane, the court of bankruptcy has authority to appoint a guardian ad litem to defend against the petition, if he has no regular guardian or committee. If he has, then such guardian or committee must be brought in by process, as well as the lunatic, and may thereupon be appointed guardian ad litem for him.*^* § 169. Same; Intervention and Substitution of Parties. — ^The stat- ute provides (section S9f) that "creditors other than original petitioners may at any time enter their appearance and join in the petition." This 80 8 In re Reading Hat Mfg. Co. (D. O.) si2 Shute v. Patterson, 147 Fed. 509, 224 Fed. 786, 34 Am. Bankr. Rep. 884. 78 C. C. A. 75, 17 Am. Bankr. Rep. 99. 300 In te Geller (D. C.) 216 Fed. 558. In such a case, a recital in tlie subpoenas 310 In re Imperial Corp. (D. C.) 133 issued to the heirs, that the purpose of Fed. 73. the proceedings is to have them adjudged 311 Louisville Trust Co. v. Comlngor, bankrupts, is erroneous. Idem. 184 U. S. 18, 22 Sup. Ct. 293, 46 L. Ed. sia in re Burka, 107 Fed. 674, 5 Am. 413, 7 Am. Bankr. Eep. 421. Bankr. Rep. 843. 389 PETITION AND ADJUDICATION § 169 is a privilege of which any creditors having provable claims may avail themselves.*^* But it is first necessary that the petition should be sttffi- cient on its face to give jurisdiction. If it does not show that the requi- site amount of debts is represented, it cannot be amended by the^ join- der of other creditors having sufficient claims.*^® But if there is no want of jurisdiction apparent on the face of the petition, but it tran- spires before adjudication that there is a deficiency in the amount of debts represented, then other creditors who have entered their appear- ance and joined in the petition may be reckoned in making up the stat- utory quorum.*^® So, if the first petitioner is disqualified by failing to show that he is a creditor, another, who has joined m the petition after filing, will be substituted for him, and all rights of amendment of the first petitioner will inure to the second.*" To establish a right to in- tervene, it is not necessary that the party should have proved his debt in the ordinary form, provided he can satisfy the court that he is in fact a creditor,*^* and the fact that his petition of intervention is defective in matter of form in setting out his claim is immaterial, where the de- ficiency is supplied by proof on the hearing.*^® But he must be a gen- uine creditor having a real and provable claim.*" This right of additional creditors to come in and press the petition, being secured to them by law, cannot be defeated by any settlement or arrangement by which the original petitioners obtain satisfaction and seek to withdraw the petition or drop the proceedings,*^^ nor by their failure to appear or their omission or neglect to prosecute the proceed- ing to an adjudication.*^^ 314 In re Etheridge Furniture Co., 92 man Cotting Coat Co. (D. C.) 212 Fed. Fed. 329, 1 Am. Bankr. Rep. 112; In re 551. Crenshaw, 156 Fed. 638, 19 Am. Bankr. sis In re Boston, H. & E. R. Co., 9 Rep. 502 ; In re Black Diamond Copper Blatchf. 101, 6 N. B. R. 209, Fed. Cas. Mln. Co., 10 Ariz. 42, 85 Pac. 653. No. 1,677. 315 In re Stein, 130 Fed. 377, 12 Am. 3io Hays v. Wagner, 150 Fed. 533, 80 Bankr. Rep. 364. 0. C. A. 275, 18 Am. Bankr. Rep. .163. 816 In re Crenshaw, 156 Fed. 638, 19 32p in re Le^yis F. Perry & Whitney Am. Bankr. ReP. 502; In re Mackey, 110 Co., 172 Fed. 752, 22 Am. Bankr. Rep. Fed. 355, 6 Am. Bankr. Rep. 577; In re 780. Bedingfleld, 96 Fed. 190, 2 Am. Bankr. aai In re Lacey, 12 Blatchf. 322, 10 N. Rep. 355; In re Romanow, 92 Fed. 510, B. R. 477, Fed. Cas. No. 7,965; In re 1 Am. Bankr. Rep. 461; In re Vastbind- Calendar, 5 Law Rep. 125, Fed. Cas. No. er,'126 Fed. 417, 11 Am. Bankr. Rep. 118. 2,307; , In re Mammouth Pine Lumber 317 In re Taylor, 1 Nat. Bankr. News, Co., 109 Fed. 308, 6 Am. Bankr. Rep. 84. 412. On the same principle, where a pe- 322 in re Sheffer, 4 Sawy. 36^, 17 N- tition in involuntary bankruptcy, good B. R. 369,. Fed. Cas. No. 12,742; In re on its face, has been filed, other credi- Calendar, 5 Law Rep. 125, Fed. Cas. tors, acting in good faith, have the right No. 2,307; In re Buchanan, 10 N. B. R. to file intervening petitions at any time 97, Fed. Cas. No. 2,073; In re Lacey, 12 during the pendency of the proceeding, Blatchf. 322, 10 N. B. R. 477, Fed. Cas. although the original petitioners were No. 7,965; In re Stein, 105 Fed. 749, 45 estopped to file the petition. In re Free- C. C. A. 29, 5 Am. Bankr. Rep. 288. §'169 LAW OF BANKRUPTCY 390 The statute does not limit the time within which creditors may thus intervene, and therefore it is held that they may come in at any time before a final judgment is rendered on the petition, that is, before the court either makes the adjudication or dismisses the petition,*^^ and it is immaterial that it may be more than four months after the commis- sion of the act of bankruptcy alleged.*** Where the parties appear and join issue, and no further proceedings take place and no formal adjourn- ment is had, the matter will be regarded as pending from day to day until disposed of, to permit any other creditor to come in and prosecute the petition.**® But it is^ probable that a very long and unreasonable delay (seventeen months in the case cited) will debar any creditors from the privilege of entering .the case and taking up the petition for action.*** And after the petition has been definitively dismissed, wheth- er for want of prosecution, for insufficiency of petitioners, or because the issues were decided against them, it is then too late for any other creditors to intervene, and the petition cannot be revived for their bene-, fit.**' Their only course is to bring a new and independent petition against the debtor, and they must found it on acts of bankruptcy com- mitted within four months before they file it ; but in the prosecution of it they will not be. estopped by the judgment of dismissal.*** There are also some instances in which a substitution of parties in a bankruptcy proceeding will be proper. This is the case, for example; where one of the creditors joining in an involuntary petition himself be- comes a bankrupt before the hearing. In this event, his trustee in bank- ruptcy, who succeeds to all his rights and claims as against his debtors, • should be substituted in his place as a petitioner.**® 32S In re Lewis F. Perry & Whitney 327 In re Trlbelhorn, 137 Fed. 3, 69 0. Co., 172 Fed. 744, 22 Am. Bankr. Rep. O. A. 601, 14 Am. Bankr. Rep. 491; In re 770; In re Plymouth Cordage Co., 185 Olmsted, 4 N. B. R. 240, Fed. Cas. No. Fed. 1000, 68 C. 0. A. 434, 13 Am. Bankr. 10,505. An order in an involuntary pro- Rep. 665; In re Frisbee, 14 Blatchf. 185, ceeding that the petition be dismissed 15 N. B. R. 522, Fed. Cas. No. 5,129. when the fees due the clerk and mar- So long as the petition has not been for- shal shall be paid, is not a final discon- mally dismissed, other creditors have the tinuance, so as to deprive another cred- right to intervene, regardless of any lach- itor of the right to intervene and prose- es which might be urged against them, cute the original petition at any time be- In re C. Jutte & Co., 258 Fed. 422, 169 fore such fees are paid. In re Lacey, 12 0. C. A. 438, 44 Am. Bankr. Rep. 166. Blatchf. 322, 10 N. B. R. 477, Fed. Qas. 3 24 In re Charles Town Light & Pow- No. 7,965. er Co.,. 183 Fed. 160, 25 Am. Bankr. Rep. sas Neustadter v. Chicago Dry Goods 687; In re Bolognesi, 223 Fed. 771, 139 Co., 96 Fed. 830, 3 Am. Bankr. Rep. 96; C. C. A. 351, 34 Am. Bankr. Rep. 692. Trammell v. Tarbrough, 254 Fed. 685^ 826 In re Buchanan, 10 N. B. R. 97, 166 C. C. A. 183, 42 Am. Bankr. Rep. 727* Fed. Cas. No. 2,073. 329 Hays v. Wagner, 150 Fed. 533, 80 32 8 Ex parte Freedley, Crabbe, 544, C. C. A. 275, 18 Am. Bankr. Rep. 163; In Fed. Cas. No. 5,079. re Jones, 7 N. B. R. 506, Fed. Cas No 7,450. 391 PETITION AND ADjtJDICAa?ION § 170 § 170. Same; Perso In re Bo-wers (D. O.) 215 Fed. 617, *i* Bankruptcy Act 1898, § 3c. And 33 Am. Bankr. Rep. 51. see In re West, 108 Fed. 940, 48 C. C. » Carpenter v. Cudd, 174 Fed. 603, Co. V. Gregg Grain Co (C. C. A.) 268 Fed. 98 C. C. A. 449, 23 Am. Bankr. Kep. 463. 510, 46 Am. Bankr. Rep. 121. soi in re Benham, 8 N. B. R. 94. *87 In re Herzikopf, 121 Fed. 544, 57 so^ Phelps v. Clasen, Woolw. 204, 3 N. O. C. A. 608, 9 Am. Bankr. Rep. 745. B. R. 87, Fed. Cas. No. 11,074 ; Morss v. 408 In re Gebhardt, 3 N. B. R. 268, Fed. Franklin Coal Co., 125 Fed. 998, 11 Am. Oas. No. 5,294. Bankr. Rep. 423; Ex parte Foster, 5 489 In re Neasmith, 147 Fed. 160, 77 Law Rep. 406, Fed. Ca?. No. 4,959. C. C. A. 402, 17 Am. Bankr. Rep. 128; "s Carpenter v. Cudd, 174 Fed. 603, 98 Bray v. Cobb, 91 Fed. 102, 1 Am. Bankr. C. O. A. 449, 23 Am. Bankr. Rep. 463 ; Rep. 153 ; In res Sherry, 8 N. B. R. 142 ; Stephens v. Merchants' Nat. Bank, 154 In re Hunter, 3 McLean, 297, Fed. Cas. Fed. 341, 83 C. C. A. 119, 18 Am. Bankr. No. 6,902. Where the ^bankrupt does not Rep. 560. demand a jury trial in his answer, it is 604 in re Neasmith, 147 Fed. 160, 77 not an abuse of the court's discretion to C. C. A. 402, 17 Am. Bankr. Rep. 128 ; In refuse such a demand, though made with re Flaherty (D. C.) 265 Fed. 741, 45 Am. due promptness afterwards. In re West- Bankr. Rep. 638 ; In re Samuels & Lesser er, 242 Fed. 465, 155 0. 0. A. 241, 40 Am. (D. C.) 207 Fed. 195, 30 Am. Bankr. Rep. Bankr. Rep. 89. 293. 417 PETITION AND ADJUDICATION § 179 court.^® And so, in general, "in cases of bankruptcy, many incidental questions arise in the course of administering the bankrupt's estate, which ordinarily would be pure cases at law, and in respect of their facts triable by jury, but, as belonging to the bankruptcy proceedings, they become cases over which the bankruptcy court, which acts as a court of equity, exercises exclusive control. The bankruptcy court may, and in cases peculiarly requiring such a course will, direct an ac- tion or an issue at law to aid it in arriving at a right conclusion. But this rests in its sound discretion." ®** a As to the issue of insolvency, this involves as elfements the question of the amount of indebtedness and the fair valuation of the bankrupt's property, both of which he is entitled to have determined by a jury; and the court cannot make a prelirninary finding as to the validity and amount of the claims of certain creditors which will be conclusive on the jury on the trial of such issue, ^*''' As to the issue of the commis- sion of an act of bankruptcy, the question whether or not the defendant made a general assignment for the benefit of his creditors is a question of fact on which he is entitled to demand a jury.®"* And so, in respect to the fourth act of bankruptcy, it is proper to submit to a jury the questions whether the respondent was insolvent, whether receivers were appointed because of such insolvency, and whether such receivers took charge and possession of his property and still continue to hold it.®*® But where the act of bankruptcy charged is a transfer of property with intent to prefer a creditor, and the answer admits the respondent's in- solvency and the act charged, but merely denies the intent, this does not raise such an issue as to entitle him to a trial by jury.*^* The statute further provides that "if a jury is not in attendance upon the court, one may be specially summoned for the trial, or the case may be postponed." "^ The court may therefore, in its discretion, issue a special venire and impanel a jury to try the issue, at any time, without regard to the question of its being term-time or vacation in the district court proper.^^" The proceedings on a jury trial held under 5 05 Carpenter v. Cudd, 174 Fed. 603, ■"■osDay v. Beck & Gregg Hardware 98 C. C. A. 449, 23 Am. Bankr. Kep. 463 ; Co., 114 Fed. 834, 52 C. C. A. 468, 8 Am. Oil Well Supply Co. v. Hall,' 128 Fed. Bankr. Rep. 175. 875, 63 C. O. A. 343, 11 Am. Bankr. Rep. =»» Blue Mountain Iron & Steel Oo. v. 738; In re :^smitli, 147 Fed. 160, 77 Portner, 131 Fed. 57, 65 C. C. A. 295, 12 C. C. A. 402^7 Am. Bankr. Rep. 128; Am. Bankr. Rep. 559. Morrison v. Rieman, 249 Fed. 97, 161 sio In re Harris, 155 Fed. 216, 19 Am. C. C. A. 149, 41 Am. Bankr. Rep. 325. Bknkr. Rep. 204. 5 08 Barton v. Barbour, 104 U. S. 126, sn Bankruptcy Act 1898, § 19b. 26 L. Ed. 672. ^^^ In re Findlay, 5 Biss. 480, 9 N. B. 507 Schloss V. Strellow, 156 Fed. 662, - R. 83, Fed. Gas. No. 4,789; Lehman v. S4 C. C. A. 374, 19 Am. Bankr. Rep. 359. Strassberger, 2 Woods, 554, Fed. Gas. No. 8,216. Blk.Bkb.(3d Ed.)— 27 § 180 LAW OF BANKEUPTCY 418 this provision of the bankruptcy act are the same in form as on the trial of an ordinary action at law in a federal court,"' and if error is committed, it can only be reviewed on an application for a new trial or on a writ of error, and not by appeal.®" / § 180. Trial or Hearing; Conduct of Proqeedings. — Where a trial by jury is not demanded, or is not demandable of right, as noted in the preceding section, it is for the judge of the court of bankruptcy to determine the issues presented by the pleadings. But if disputed questions of fact arise, he may refer them to a special master or to a referee in bankruptcy, to ascertain and report the facts,®^® and the re- port is entitled to the very greatest consideration and, if responsive to the reference, will ordinarily be regarded as conclusive and not to be set aside at the mere discretion of the court."® It is also within the authority of the court of bankruptcy to grant continuances or adjourn- ments under proper circumstances,"" 'and the want of an adjournment to a day certain, after issue joined as to the acts of bankruptcy alleged, does not terminate the proceedings.®^* If the issues have been tried by a jury, the court has the same power over the verdict as a court of com- mon law, and may set it aside and order a new trial for cause shown,"' or may award a new trial on the ground of error in its own instruc- tions.®** Similarly, it may, if deemed best, order the consolidation of different petitions in bankruptcy filed by different creditors against the 613 In re Ward, 161 Fed. 755, 20 Am. whether the original petitioners had suf- Bankr. Rep. 482 ; Morss v. Franklin Coal flcient claims against the alleged bank- Co., 125 Fed. 998, 11 Am. BanUr. Rep. rupt, on a mere suggestion of collusion, 423; In re Jelsti, 9 N. B. R. 412, Fed. but such re-reference may be granted Cas. No. 7,257. by the court. In re Smith (D. C.) 232 514 In re Neasmith, 147 Fed. 160, 77 G. Fed. 284, 36 Am. Bankr. Rep. 637. C. A. 402, 17 Am. Bankr. Rep. 128. And "6 in re El Sevilla Restaurant (D. C.) see supra, § 40. 253 Fed. 410, 41 Am. Bankr. Rep. 608 ; 515 W. A. Gage & Co. v. Bell, 124 Fed. In re J. W. La very & Son (D. C.) 244 ■ 371, 10 Am. Bankr. Eep. 696 ; Lackawan- Fed. 959, 89 Am. Bankr. Rep. 807 ; In ria Leather Co. v. La Porte Carriage Co., re Murphy (D. C.) 225 Fed. 392, 35 Am. 211 Fed. 318, 127 C. C. A. 604, 81 Am. Bankr. Rep. 635; In re Senoia Duck Bankr. Rep. 658 ; In re C. W. Bartleson Mills (D. C.) 193 Fed. 711 ; Philpot v. Co. (D. C.) 243 Fed. 1001, 40 Am. Bankr. O'Brien, 126 Fed. 167, 61 C. C. A. Ill, Eep. 13 ; United States v. Coyle (D. C.) 11 Am. Bankr. Rep. 205; In re Ponzl (D. 229 Fed. 256 ; In re Lenoir-Cross & Co. C.) 26S Fed. 997, 46 Am. Bankr. Rep. 113. (Q. C.) 226 Fed. 227, 35 Am. Bankr. Rep. 5i7 in re Cohen, 131 Fed. 391, 11 Am. 774. Where a bankrupt's assignment of Bankr. Rep. 439 ; In re Pupke, 1 Ben. accounts was preferential, and the trans- 342, Fed. Cas. No. 11,468. H^ action was very complicated, the account oisin re Buchanan, 10 N. B. E, 97, should be submitted to a special mastar Fed. Cas. No. 2,073. to determine a disposition of it and state 5i9 in re De Forest, 9 N. B. B. 278, the same. Chapman v. Hunt (D. C.) 248 Fed. Cas. No. 3,745 ; Ex parte Corse, Fed. Fed. 160, 41 .Am. Bankr. Eep. 482. In- Cas. No. 3,254. tervening creditors are not entitled as of 520 in re JIarks Bros., 135 Fed. 448, 14 right to a re-reference of the question Am. Bankr. Rep. 830. 419 PETITION AND ADJUDICATION § 181 same debtor,^*^ but involuntary proceedings in bankruptcy against an individual cannot be changed, during their pendency and after testi- mony-has been taken, by a mere order amending the title, so as to em- brace also a proceeding against a partnership of which' the original de- fendant is one member.''*^ Where a bankrupt against vi^hom an invol- untary petition is pending files a voluntary petition, notice should be given to the creditors filing the involuntary petition before any action on the voluntary one, and such action should then be taken with re- spect to the two petitions as appears to be for the best interest of the estate. Thus, it would not be proper to make an adjudication on the voluntary petition and dismiss the other, where ' the result would be to prevent the successful impeachment of certain conveyances alleged to be preferential.®^* A court of bankruptcy also has power to make proper orders respecting the pleadings.®** But the rule is that if the petitioning creditors move for an adjudication on the petition and an- swer, they thereby admit the facts properly pleaded in the answer, in accordance with the general rules of equity practice, and the only ques- tion presented is as to the legal sufficiency of the answer; and if the motion is denied, the defendant is entitled to a final decree dismissing the petition.®*® § 181. Adjudication. — If the alleged bankrupt or any of his creditors shall appear within the time limited and controvert the facts alleged ' in the petition, the judge is to determine, as soon as may be, the issues presented by the pleadings, without the intervention of a jury, except in cases where a trial by jury is granted by law and is seasonably de- manded, and either make the adjudication or dismiss the petition. But if no pleadings are filed before or on the last day allowed by law for that purpose, the judge is to make the adjudication or dismiss the peti- tion, on the next day or as soon thereafter as may be practicable. But if he is absent from the district, or the division of the district in which the petition is pending, on that day, and no pleadings have been filed, the clerk shall forthwith refer the case to the referee.®*® Thus it ap- 621 In re McCracken & McLeod, 129 Bros., 162 Fed. 663, 89 C. C. A. 455, 20 Fed. 621, 12 Am. Bankr. Kep. 95 ; Salt Am. Bankr. Rep. 612. Lake Valley Canning Co. v. Collins, 176 =2 5 In re Waugh, 133 Fed; 281, 66 O. Fed. 91, 99 C. C. A. 611, 23 Am. Bankr. C. A. 659, 13 Am. Bankr. Hep. 187; In Rep 716 re Taylor, 102 Fed. 728, 42 O. C. A. 1, 522 In re Kaufman, 176 Fed. 93, 99 C. f t"^' ^^''^''- .^vf^' fr,^' '^^'^ f^^^^ C. A. 107, 23 Am. Bankr. Rep. 429. ^^'^'^^P canno have he case set down • '' - ^ for hearing on the petition and answer. 523 In re Dwyer, 112 Fed. 777, 7 Am. jjj j,g Fineman (D. C.) 223 Fed. 652, 34 Bankr. Rep. 532. Am. Bankr. Rep; 245.' 524 Toung & Holland Co. v. Brande 52 6 Bankruptcy Act 1898, § 18d, e, f, g. § 181 LAW OF BANKRUPTCT 420 pears that if no pleadings have been filed on behalf of the bankrupt or any of his creditors, and the petition is sufficient on its face, it is the duty of the judge to make an adjvidication of bankruptcy.®*' It is also the plain purpose of the act that there shall be absolutely no unneces- sary delay in disposing of the petition. If an unreasonably long time elapses after the filing of the pleadings, without any attempt either on the part of the petitioning creditors or the court to bring the matter to a final determination, and more especially if creditors are allowed to take their own course, outside the bankruptcy proceedings, in regard to reorganizing the debtor's business and distributing his property, it may be concluded that the court of bankruptcy has lost its jurisdiction over the case, and a state court will be justified in entertaining and proceeding with an attachment suit of a single creditor.*** The adjudication of bankruptcy, for which an official form has been provided (No. 12), is an order or decree of the court of bankruptcy, re- citing the hearing and consideration of the petition and concluding that the respondent "is hereby declared and adjudged bankrupt accordingly." The entry of the order constitutes the adjudication; but a mere mem- orandum of the judge on the petition directijig an order to be entered does not complete it.®** An adjudication of bankruptcy relates back to the date of the filing of the petition.®^* An order or judgment refusing to make the adjudication asked for may no doubt be opened for a rehearing, but this will not be done where the motion simply repeats the petitioners' original charge of in- 52 7 In re Black Diamond Copper Min. of the law as laid down in the bankrupt- Co., 10 Ariz. 42, 85 Pac. 653. cy act. It is not within the province of S2S Acme Harvester Co. v. Beekman the bankruptcy court to deny an adjudl- L/uraber Co., 222 U. S. 300, 32 Sup. Ct. cation in bankruptcy, and then hold ju- 96, 56 Ii. Ed. 208, 27 Am. Bankr. Rep. risdlction over tlie property for the pur- 262. Herein it was said: "It was the pose of allowing some of the creditors, duty of the bankruptcy court, if it in- to effect a reorganization and distribu- tended to administer the property under tion of the property. We cannot say the bankruptcy law, to promptly deter- that we think the Supreme Court of mine the question of adjudication, to , Missouri was wrong, indeed we think it proceed with the selection of a trustee was right, in reaching the conclusion and the administration and distribution that the district court had declined to of the estate, as required by the act. adjudicate the corporation a bankrupt This It evidently declined to do, and per- and vest its property in a trustee, and, mitted the. creditors' committee, which deeming it best for the creditors to fol- had been organized for the avowed pur- low out their plans, had found that the pose of defeating court proceedings, to case was not one calling for the inter- administer the estate, to buy and sell vention of the bankruptcy court." property, and mature a plan for the re- b29 in re Hill, 7 Ben. 378, 10 N. B. R. organization of the concern. This may 133, Fed. Cas. No. 6,484. have been for the benefit of the eredi- oso in re Bear, Fed. Cas. No. 1,177; tors, but it was not the administration Smith v. Brinkerhoff, 6 N. Y. 305. 421 PETITION AND ADJUDICATION § 182 solvency without disclosing any new. evidence to combat that offered by the respondent.®^^ The pendency of a petition in involuntary bank- ruptcy does not deprive the court of jurisdiction to make an adjudica- tion on a voluntary petition subsequently filed, but if this is done, the rigfht of the petitioning creditors to set aside a preferential transfer should be preserved by the order.''^'^ An adjudication in bankruptcy may perhaps be amended like any other judgment, but not, it seems, after the time for taking an appeal has expired.®** § 182. Conclusiveness and Effect of Adjudication. — A decree of a federal district court sitting in bankruptcy, vtpon a petition in involun- tary proceedings, whereby the debtor is adjudged and declared a bank- rupt, is in the nature of a decree in rem, since it determines his legal status in that respect, and is therefore notice, of itself, to all creditors, and is conclusive evidence that all the facts necessary to sustain the decree were proved before the court.®** All the creditors of a bankrupt are at least constructively parties to the proceeding to have him so ad- judged, and are conclusively bound by the adjudication, at least in so far as it determines the fact of his insolvency and his commission of the act of bankruptcy charged.®*® In particular, the insolvency of the debtor at the time of making the conveyance or transfer of property alleged as an act of bankruptcy is necessarily involved in the adjudication, and is conclusively established by it when the question shall again arise at any stage of the pi-oceedings, as, when it is sought to set aside the convey^ 531 Lracka wanna Lieatlier Co. v. La ^ao Cook v. Robinson (C. C. A.) 194 Porte Carriage Co., 211 Ted. 318, 127 C. Fed. 785, 28 Am. Bankr. Eep. 182; In C. A. 604, 31 Am. Bankr. Kep. 658. re Broadway Savings Trust Co., 152 Fed. 33 2 International Silver Co. v. New 152, 81 C. O. A. 58, 18 Am. Bankr. Kep. York .Jewelry Co., 233 Fed. 945, 147 O. 254; In re Billing, 145 Fed. 395, 17 0. A. 619, 37 Am. Bankr. Rep. 91. Am. Bankr. Rep. 80 ; Bear v. Chase, 99 533 Rhame v. Southern Cotton Oil Co., Fed. 920, 40 C. C. A. 182, 3 Am. Bankr. 230 Fed. 403, 144 C. C. A. 545, 35 Am. Rep. 746; In re American Brewing Co., Bankr. Rep. 732. 112 Fed. 752, 50 C. C. A. 517, 7 Am. 534 Chapman v. Brewer, 114 TJ. S. Bankr. Rep. 468 ; Lazarus v. Bagen, 206 158, 5 Sup. Ct. 799, 29 L. Ed. 83; In re Fed. 518, 30 Am. Bankr. Rep. 287; In Billing, 145 Fed. 395, 17 Am. Bankr. re Hecox, 164 Fed. 823, 90 C. C. A. 627, Rep. 80; Lewis v. Sloan, 68 N. 0. 557; 21 Am. Bankr. Rep. 814; In re Malkan In re Wallace, Deady, 4.33, 2 N. B. R. (C. C. A.) 261 Fed. 894, 44 Am. Bankr. 134, Fed. Cas. No. 17,094 ; In re Banks, Rep. 433 ; In re Gibney Tire & Rubber 1 N. Y. Leg. Obs. 274, Fed. Cas. No. Co. (D. C.) 241 Fed. 879, 39 Am. Bankr. 958; In re Ordway, 19 N. B. R. 171, Fed. Rep. 355. A judgment of the bankrupt- Cas. No. 10,552; Shawhan v. Wherrltt, cy court dismissing a petition in bank- 7 How. 627, 12 L. Ed. 847 ; Morse v. ruptcy, on sustaining a demurrer thereto. Godfrey, 3 Story, 391, Fed. Cas. No. 9,- will bar a subsequent petition in another 856 ; Rayl v. Lapham, 27 Ohio St. 452 ; district by creditors who intervened in Thornton v. Hogan, 68 Mo. 143 ; Fidelity the proceedings. In re Culgin-Pace Con- & Deposit Co. V. Queens County Trust tracting Co. (D. C.) 224 Fed. 245, 35 Am. Co., 226 N. T. 225, 123 N. E. 370. Bankr. Rep. 375. But compare Pepper- § 182 LAW OP BANKEUPTCT 422 ance or recover the preference.®** It has also been ruled that the ad- judication is conclusive evidence of the existence of creditors, not neces- sarily creditors antecedent to a given conveyance by the bankrupt, but at least subsequent thereto.®*" But in other respects an adjudication in bankruptcy is subject to the same rules which govern the conclusiveness of other judgments. It is only against parties and privies that it is conclusive of the facts in is- sue, and it is conclusive only as to facts which were in issue or which, though not in issue, were necessarily involved in it and without which it could not have been rendered. As to the first part of this rule, the Supreme Court of the United States has said that, while an adjudica- tion in bankruptcy is a judgment in rem, and that while, for the pur- pose of administering the debtor's property, it establishes as against all the world his status as a bankrupt, yet it is not res judicata as to the' facts or, as to the subsidiary questions of law on which it is based, ex- cept as between the parties to the proceeding or those in privity with them; and hence, as against other persons, it is not conclusive as to particular facts found, such as that the debtor had been insolvent for a certain length of time, and that while so insolvent he had given certain preferences.®** As to the second part of the rule, the effect of the adjudication as an estoppel depends upon whether the matters alleged to be foreclosed by it were in issue and determined. Thus, an adjudication in bankruptcy, though it may be res judicata, as against a chattel mortgage creditor of the bankrupt, of the bankrupt's insolvency at the time he executed the mortgage, does not determine the mortgagee's right to retain the se- curity.®** And so, if the validity of the claim of one of the petitioning creditors is put in issue by the bankrupt's answer and the issue is de- cided in favor of the creditor, the adjudication of bankruptcy is conclu- sive evidence upon that point, not only against the bankrupt and the trustee, but against all other creditors, since, under the statute, they dine v. Bank of Seymour, 100 Mo. App. 287. But compare Simpson v. Western 387, 73 S. W. 890 ; In re Thomas, 11 N. Hardware & Metal Co., 97 Wash. 626, B. R. 330, Fed. Cas. No. 18,891. 167 Pac. 113. And see McNeel v. FoIIj, 586 In re V. & M. Lumber Co., 182 Fed. 75 W. Va. 57, 83 S. E. 192. 231; In re American Brewing Co., 112 os? Cartwright v. West, 185 Ala. 41 Fed. 752, 50 O. O. A. 517, 7 Am. Bankr. 64 South. 293. Rep. 463 ; Whitwell V. Wright, 136 App. 53 s Gratiot County State Banlc v. Div. 246, 120 N. Y. Supp. 1065 ; De Graff Johnson, 249 TJ. S. 246, 39 Sup. Ct. 268, V. Lang, 92 App. Div. 564, 87 N. Y. Supp. 63 L. Ed. 587, 43 Am. Bankr. Rep. 357. 78; In re Southern Ai-izona Smelting 530 gheppard-Strassheim Co. v. Black, Co., 231 Fed. 87, 145 C. C. A. 275, 86 211 Fed. 643, 128 O. C. A. 147, 33 Am. Am. Bankr. Rep. 827; Lazarus v. Eagen Bankr. Rep. 574. (D. C.) 206 Fed. 618, 30 Am. Bankr. Rep. 4:23 PETITION AND ADJUDICATION § 182 might have become parties to the proceeding, and, failing to do so, are considered as represented by the bankrupt ; so that, when the claim in question is filed for allowance before the referee, it cannot be again con- tested by any one.^*** But if issue is taken on the question of insolvency or the commission of an act of bankruptcy, and no inquiry is made into the claims of the petitioning creditors, it is thought that the adjudica- tion cannot be considered as conclusive on the question of the precise amount which the bankrupt owed to any one creditor or that he was indebted to any particular creditor in any sum."^ And again, the adju- dication is not conclusive as to any matter which is brought in question only collaterally, and not directly. Thus, where the defendant took is- sue on the question of his insolvency, and the petitioning creditors, for the purpose of proving insolvency, undertook to show the amount of existing indebtedness and offered in evidence certain promissory notes made by the debtor to third parties (who were not parties to the pro- ceeding), and the debtor contested the validity and consideration of the notes, but the point was decided against him, and an adjudication was made, it was held that the adjudication was not conclusive as to the validity of the notes so as to prevent the bankrupt from opposing their allowance as claims against his estate.^'' As to the commission of the act of bankruptcy charged, this is always a matter concluded by the judgment.^* For if not put in issue, it must be taken as admitted by the debtor; and if any creditors are interested in controverting it, they have the right to intervene for that purpose, and must be considered as estopped by their failure to do so. Hence, when the act of bankrupt- cy on which the petition was founded is made the basis of a subsequent suit by the trustee in bankruptcy (as, to set aside a fraudulent convey- ance or recover a preference), the adjudication conclusively establishes the fact as against the bankrupt and all creditors."** But if the petition 540 Ayres v. Cone, 138 Fed. 778, 71 C. b" Cartright v. West, 155 Ala. 619, 47 C. A. 144, 14 Am. Bankr. Rep. 739 ; In South. 93 ; Granite City Bank v. Tvedt, re Henry IJlf elder Clothing Co., 98 Fed. 146 Minn. 12, 177 N. W. 767. But see 2 409, 3 Am. Bankr. Rep. 425 ; In re Fal- Black, Judgm. §§ 613, 615, 622, as to Ion, 2 N. B. R. 277, Fed. Cas. No. 4,628 ; the conclusiveness of a judgment upon Gleason v. Thaw, 234 Fed. 570, 148 C. C. points or matters necessarily involved in A. 336, 38 Am. Bankr. Rep. 866. But it, or without which it could not have where the alleged bankrupt and a cred- been rendered, though not put in issue, itor resisted an involuntary petition, be- 0*2 In re Henry Ulf elder Clothing Co., cause a petitioning creditor's claim was 98 Fed. 409, 3 Am. Bankr. Rep. 425. invalid and not provable, but later con- sis in re Veler, 249 Fed. 633, 161 C. sented to the adjudication, it was held C. A. 543, 41 Am. Bankr. Rep. 736. that the trustee was not estopped from 044 in re Hecox, 164 Fed. 823, 21 Am. contesting the claim on behalf of all, or Bankr. Rep. 314 ; Cook v. Robinson (C. any non-contesting, creditors. In re C. A.) 194 Fed. 785, 28 Am. Bankr. Rep. Continental Engine Co., 234 Fed. 58, 148 182 ; WhitweK v. Wnght, 115 N. T. C. C. A. 74, 37 Am. Bankr. Rep. 102. Supp. 48 ; Hackney v. Raymond Bros. § 182 LAW OP BANKRtTPTCT 424 charges diflferent acts of bankruptcy, and the adjudication does not show upon which one of them it proceeded, it does not render either charge res judicata in the further proceedings.®*^ An adjudication in a partnership case would ordinarily be conclusive as to the existence of the partnership and the identity of the persons composing it, but not, it seems, as against the trustee in bankruptcy of one of the persons in- cluded in the adjudication, who was not heard, although he filed a de- nial and answer.^® But it is not only in contested cases that the con- clusive effect of a judgment is to be attributed to an adjudication of bankruptcy. One entered on default for want of an answer is as bind- ing on the bankrupt and the creditors as one entered upon a trial or hearing.®*' From the conclusive character of an adjudication in bankruptcy it follows necessarily that it cannot be attacked or impeached as to its validity in any collateral proceeding in the same or any other court.®** •Clarke Co., 68 Neb. 624, 94 N. W. 822, 99 N. W. 675, 13 Am. Bankr. Rep. 164; Anderson v. Stayton State Bank, 82 Or. 357, 159 Pac. 1033. But see Pepperdine V. Bank of Seymour, 100 Mo. App. 387, 73 S. W. 890; John Silvey & Co. v. Tift, 123 Ga. 804, 51 S. E. 748, 1 L. R. A. (N. S.) 386. Where involuntary bankruptcy proceedings were institiited on the ground that the bankrupt had made a general assignment for the benefit of creditors, the order of adjudication was held not res judicata that the transfer was a general assignment. In re Mc- Cnim, 214 Fed. 207, 130 C. C. A. 555, 32 Am. Bankr. Bep. 604. 64B In re Letson, 157 Fed. 78, 84 C. C. A. 582, 19 Am. Bankr. Kep. 506; In re •Tulius Bros., 217 Fed. 3, 133 C. G. A. 328, I.. R. A. 1915C, 89. 546 Manson v. Williams, 213 U. S. 4.53, 29 Sup. Ct. 519, 53 L. Ed. 869, 22 Am. Bankr. Rep. 22, affirming 153 Fed. 525, 82 C. C. A. 475, 18 Am. Bankr. Rep. 674, which affirmed In re Hudson Cloth- ing Co., 148 Fed. 305, 17 Am. Bankr. Rep. 826. In re Flaherty (D. C.) 265 Fed. 741, 45 Am. Bankr. Rep. 638. See In re Hansley & Adams (D. C.) 228 Fed. 564, 36 Am. Bankr. Rep. 1. An adjudi- cation in bankruptcy was held not con- clusive of the fact that certain petition- ing creditors were not at one time part- ners of the bankrupt. In re Bean, 230 Fed. 405, U44 C. O. A. 547. o*? In re American Brewing Co., 112 Fed. 752, 50 C. C. A. 517, 7 Am. Bankr.- Rep. 463. 5 48 Fairbanks Steam Shovel Co. v. Wills, 240 U. S. 642, 36 Sup. Ct. 466, 60 L. Ed. 841, 36 Am. Bankr. Rep. 754 ; Gra- ham V. Boston, H. & E. R. Co., 118 TJ. S. 161, 6 Sup. Ct. 1009, 30 L. Ed. 196; Mich- aels V. Post, 21 Wall. 398, 22 L. Ed. 520 ; Corbett v. Riddle, 209 Fed. 811, 126 C. C. A. 535, 31 Am. Bankr. Rep. 330 ; Sabin V. Larkin-Green Logging Co. (D. C.) 218 Fed. 984, 34 Am. Bankr. Rep. 210 ; Ward V. Central Trust Co. of Illinois (C. C. A.) 261 Fed. 344, 44 Am. Bankr. Rep. 323; In re Dempster, 172 Fed. 353, 22 Am. Bankr. Bep. 751 ; Gilbertson v. United States, 168 Fed. 672, 94 C. C. A. 158, 22 Am. Bankr. Rep 32: In re New York Tunnel Co., 166 Fed. 284, 92 C. C. A. 202, 21 Am. Bankr. Bep. SSI ; In re Hinfze, 134 Fed. 141, 13 Am. Bankr. Rep. 721 Huttig Mfg. Co. V. Edwards, 160 Fed 619, 87 C. C. A. 521, 20 Am. Bankr. Rep, 349; Graham v. Boston, H. & E. R. Co. 14 Fed. 753; Sutton v. Mandeville, ] Cranch C. C. 187, Fed. Cas. No. 13,651 Cromwell v. Gallup, 17 Hun (N. Y.) 49 Mount v. Manhattan Co., 41 N. J. Eq. 211 3 Atl. 726 ; Slaughter v. Louisville & N R. Co., 125 Tenn. 292, 143 S. W. 603 Chappell V. Lowe, 145 Ga. 717, 89 S. E. 777 ; Johnson v. Gratiot County State Bank, 193 Mich. 452, 160 N. W. 544 Riffgs v. Price, 277 Mo. 333, 210 S. W, 420. J:25 PETITION AND ADJUDICATION § 182 It has sometimes been said, however, that a want of jurisdiction in the court of bankruptcy is such a fatal defect as may be availed of in a col- lateral proceeding.^** And this may well be true in a case of voluntary bankruptcy, where creditors may have no opportunity to plead a want of jurisdiction before the adjudication is made.*"* But the general rule is that if jurisdiction appears on the face of the proceedings, or if there is nothing on the face of the proceedings to disclose an absence of juris- diction, then the adjudication is not impeachable collaterally even on this ground. ^'^- And it should be observed that jurisdiction does not so far depend upon the question whether the defendarif is one of the per- sons or corporations subject to the act, or is exempt, as to open the ad- judication to attack on this ground. ^^^ And the same is true as to the sufficiency of the petitioning creditors in number and amount.®** And even if it should be conceded that the question of jurisdiction is always open still this is not the case where the bankrupt and all of his creditors have recognized the validity of the proceedings and have participated therein and sought the benefit thereof.''"* There are also some decisions to the effect that an adjudication in bankruptcy may be impeached col- laterally for fraud in its procurement or fraudulent collusion between the debtor and the petitioning creditors.®^* But the better opinion is that these are matters of defense, or perhaps ground for vacating the adjudication in a direct proceeding for that purpose, but not for draw- ing its validity into question collaterally.''"® Still less can the adjudica- tion be assailed collaterally for mere errors of law or irregularities of ■-•io Stuart r. Aumiller. .37 Iowa, 102, S ==2 In re First Nat. Bank, 152 Fed. 64, N. B. R. 541 ; In re Goodfellow, 1 Low, '81 0. C. A. 260, 18 Am. Bankr. Rep. 265 ; 510, 3 N: B. R. 452, Fed. Cas. No. 5,536. In re Columbia Real Estate Co., 101 Fed. 550 In re Garneau, 127 Fed. 677, 62, C. 965, 4 Am. Bankr. Rep. 411. C. A. 403, 11 Am. Bankr. Rep. 679. ^ss Roberts v. Fernald, 72 N. H. 198, 551 Sloan V. Lewis, 22 Wall. 150, 22 L. 55 Atl. 942; Bail v. Hartman, 9 Ariz. 321, Ed. 832; In re Billing, 145 Fed. 395, 17 83 Pac. 358. Am. Bankr. Rep. 80; United States v. 554 In re Worsham, 142 Fed. 121, 73 0. Freed, 179 Fed. 236, 25 Am. Bankr. Rep. C. A. 665, 15 Am. Bankr. Rep. 672. That 89; In re Ives, 5 Dill. 146, 19 N. B. R. the wife of a bankrupt has allowed three 97, Fed. Cas. Xo. 7,115. In re Sage (D. years to elapse since the adjudication of C.) 224 Fed. 525, 35 Am.^ankr. Rep. 436: bankruptcy constitutes such laches as In re Davis (D. O.) 21^"^d. 113, 33 Am. will preclude her from then contesting Bankr. Rep. 16. In bE(Akruptcy proceed- the allegations of insolvency in the peti- ings against a corporafflou, the fact that tiou upon which the adjudication was its principal place of business is within founded. In re Gibbons (D. C.) 225 Fed. the district of the coart is a quasi juris- 420, 35 Am. Bankr. Rep. 620. dictional fact, and the court's determina- 5 r, 3 in re Billing, 145 Fed. 395, 17 Am. tion thereof cannot be collaterally at- Bankr. Rep. 80; Benedict v. Smith, 48 tacked, but is conclusive on another Jlich. nn.T, 12 N. W. 866. bankruptcy court, which has not thereto- 550 Michaels v. Post, 21 Wall. 398, 22 fore acquired jurisdiction. Roszell Bros. L. Ed. 520 ; Bissell v. Post, 4 Day (Conn.) V. Continental Coal Corp. (D. C.) 235 79. Fed. 343, 38 Am. Bankr. Rep. 31. § 182 LAW OF BANKEUPTCY 426 practice, not sapping the foundation of the court's jurisdiction. These may be grounds for a reversal or modification of the decree on appeal, but are closed by the adjudication itself against inquiry in any other proceeding.®*' But the entry of an adjudication of bankruptcy against a corporation on the very day on which the petition against it was filed is not a mere irregularity; it is an act entirely void. The statute gives to creditors a substantial right to the limitation of a time within which they may come in and be heard, which right is not derived through the bankrupt, and consequently cannot be waived by him, nor can they be deprived of it by any act of his or by the court; and hence they may attack the validity of such an adjudication collaterally in proceedings previously instituted by them in another district.®®* As to the effect of the adjudication in other respects, it is held that it brings the property of the bankrupt into the custody of the law and appropriates it to the payment of his debts, as effectually as if it were taken on execution or attachment, subject to the qualification, except as otherwise provided, that the property is appropriated in the same condition and subject to the same equities as when in the possession of the bankrupt.®®" Thus, the relation of landlord and tenant is not sev- ered by the tenant's adjudication in bankruptcy.®*" The adjudication is also constructive notice to all persons, at least those within the jurisdic- tion of the court, of the transfer of title to the bankrupt's property, and they must take notice that the ownership of the bankrupt has ceased and that of his trustee begun.®*^ This applies, for example, to assessors of taxes.®*^ But the adjudication does not create an actual lien on the property in favor of the trustee.®*^ It does, however, operate as a caveat to all the world, and some cases have even thought that it tacitly embodies an injunction against any interference with any of the prop- erty by any person who has not a valid interest in it or lien upon it, so that intermeddling with the property by any such person amounts to a EST In re Getchell, 8 Ben. 256, Fed. oos in re Elmira Steel Co., 109 Fed. Cas. No. 5,371 ; Hobson v. Markson, 1 456, 5 Am. Bankr. Rep. 484. Dill. 421, Fed. Cas. No. 6,555 ; Edelstein 559 in re YoMli^trom, 153 Fed 98 82 V. United States, 149 Fed. 636, 79 C. C. c. C. A. 232, IS^Am. Bankr. Rep. 572.' A. 328, 17 Am. Bankr. Rep. 649; In re .„„ „, . 'V4L Columbia Real Estate Co., 101 Fed. 965, J"' ^f^'^'l" ''^onipson, 160 Ala. 363. 4 Am. Bankr. Rep. 411. Though the pe- *" *°""^°- '"'^- ' tltlon on which an adjudication in in- °'^ Hough v. City of North Adams, 196 voluntary bankruptcy was based, and Mass. 290, 82 N. E. 46. which was held to be sufficient, was '^«' Hough v. City of North Adams, 196 really insufficient, the proceedings are Mass. 290, 82 N. E. 46. not for that reason void so as to be open oes in re Hager, 166 Fed. 972 ; Marine to collateral attack. I^arkin-Green Log- gav. Bank v. Norton, 160 Mich 614 125 ging Co. v. Sabin, 222 Fed. 814, 138 C. n. W. 754. C. A. 240, 35 Am. Bankr. Rep. 86. 427 PETITION AND ADJUDICATION § 183 violation of the implied injunction and may be punished as a contempt of the court.^* § 183. Vacating and Setting Aside Adjudication. — ^An adjudication of bankruptcy taken by default, for want of appearance or answer, may be opened by the bankruptcy court, on application of the bankrupt or a creditor, to permit him to file an answer and contest the petition, pro- vided a good excuse is shown for the default or for any delay in the application, and provided the answer proposed to be filed shows a meritorious defense and not merely a technical objection.®^* So after the entry of an adjudication as the result of a trial or hearing, it may be vacated or set aside, for good and sufficient cause, on the motion of the bankrupt him self, ^®® or the receiver of the bankrupt corporation, appointed by a state court,®®'' or any creditor who may conceive his interests to be injuriously afifected by the adjudication,®** such as ,an attaching creditor.®*' But the authorities appear to restrict the right to these persons. It is said tliat a petition to set aside an adjudication of bankruptcy is in the nature of a bill to review and vacate a judgment, and therefore can be maintained only by the bankrupt or by a creditor of the bankrupt owning a provable debt or claim against him. Such a motion cannot be made by a stranger, although it is in the discretion of the court to allow him to be heard as amicus curiae, when the ground alleged is a want of jurisdiction, as that is a question which the court 564 Clay V. Waters, 178 Fed. 385, 101 s'o In re McFaun, 96 Fed. 592, 3 Am. 0. C. A. 645, 21 Ann. Cas. 897, 24 Am. Bankr. Kep. 66. But a bankrupt who Bankr. Rep. 293 ; In re Reynolds (D. C.) made no defense to the adjudication, filed 127 Fed. 760, 11 Am. Bankr. Rep. 758 ; ' Ms schedules, and appeared personally Ledgerwood v. Dashiell (Tex. Civ. App.) and by attorney, is not entitled to a va- 177 S. W. 1010; Darrough v. First Nat. cation of the adjudication without show- Bank, 56 Okl. 647, 156 Pac. 191. An ad- ing that fraud was practiced on him. judication In bankruptcy does not dis- In re Gill, 195 Fed. 643, 28 Am. Bankr. solve a corporation or terminate its Rep. 333. existence. In re Russell Wheel & Foun- ss7 in re Atlantic Mut. Life Ins. Co., dry Co. (D. O.) 222 Fed. 569, 35 Am. 9 ggn. 270, 16 N. B. R. 541, Fed. Cas. No. Bankr. Rep. 66. 628 J"^ ^V*" v"''l"^\aa''^T' ^^^ tII" Jt =^« In ^e New England Breeders' Club. 13 Am. Bankr. Rep. 199; In re Urban & ^ C A 84 22 Am suburban Realty Title Co., 132 Fed. 140, ^'^^^^'^^,^'^24 Jn re Scott 111 Fe"^ 12 Am. Bankr. Rep. 687; In re T.e Favour, ff, „ ■. ^^^ , ' i \^ ^ r. r o -D Ao -w^A rioe Mn R Oos ■ Tn rA 144, 7 Am. Bankr. Rep. 39; In re Derby, 8 Ben. 43, Fed., ^as- No. 8 208 In re ^^^ ^ ^ ^ ^ ^^^ ^^^ ^^^ Neilson, 7 N. BR 505^ Jed^ Cas. No. Blackstock v. Blackstock (C. C- 10.090; Tn re Gill, 19d Fed. 643, 28 Am. ■ ' _ Bankr. Rep. 333 ; In re Mitchell & Co. (D. ^•) 265 Fed. 249, 45 Am. Bankr. Kep. WZ. C.) 211 Fed. 778, 31 Am. Bankr. Rep. ses in re Donnelly, 5 Fed. 783; In re 814; 6-R Electric & Telephone Mfg. Co. Bergeron, 12 N. B. R. 385, Fed. Cas. No. V. mtna Life Ins. Co., 206 Fed. 885, 124 1,342. C. C. A. 545, 30 Am. Bankr. Rep. 4^4. § 183 LAW OF BANKEUPTCT 428 should consider whenever and however raised.^™ But where land of the bankrupt had been sold on execution, bought in by the judginent creditor, and subsequently sold by him to a third person, the latter may appeal to the court's discretion to vacate the adjudication of bank- ruptcy, though he must show that the vacation would be of practical value to him, as by showing that the bankrupt was not insolvent or did not commit the act of bankruptcy alleged.®'^ Whoever makes the application must exhibit reasonable promptness and diligence in so doing. He will not be heard if justly chargeable with laches. What constitutes due diligence for this purpose does not depend merely upon the actual time elapsed, but also upon the ques- tion whether the applicant had actual knowledge of the adjudication at the time, or when he received information of it, and upon the nature and extent of the proceedings which may have been taken in the case since the adjudication, and the possible intervening rights of third per- sons. Naturally each case must depend on its own circumstances, and no fixed rule can be laid down, but the decisons which support and il- lustrate the rule are cited in the margin. ^'^ i Want of jurisdiction is a sufficient ground for vacating an adjudica- tion of bankruptcy,®'* as, on a showing that the person or corporation proceeded against was within the exempt or excepted classes.^'* This action is also proper where the adjudication was based upon a waiver of important rights of the alleged bankrupt, made by his attorney,®''® or where it is shown to have been the product of fraud or collusion.®"' But fraud perpetrated upon the bankrupt in connection with the pro- ceedings is not sufficient to warrant vacating the adjudication, unless sToin re Columbia Real Estate Co.. N. B. R. 335, Fed, Cas. No. 9,370. Anad- 101 Fed. 965, 4 Am. Bankr. Rep. 411; s. judication entered upon a confession of c, 112 Fed. 643, 50 C. C. A. 406, 7 Am. the acts of bankruptcy charged cannot Bankr. Rep. 441. be set aside after the death of the bank- 571 Abbott V. Wauchula Mfg. & Tim- rupt on the application of a creditor who ber Co.. 240 Fed. 938, 153 C. C. A. 624, has proved his debt. In re Thomas, 11 39 Am. Bankr. Rep. 634. N. B. R. 330, Fed. Cms. No. 13,891. 572 In re First Nat. Bank. 152 F«d. =73 in re Niagara Contracting Co., 127 64, 81 O. C. A. 260, IS Am. Bankr. Rep. Fed. 782, 11 Am. Bankr. Rep. 643. But 265; Alton\YOod Park Co. v. Gwynne, 160 see In re Penn, 4 Ben. 09, 3 N. B. R. 582. Fed. 448, 87 C. C. A. 409, 20 Am. Bankr. Fed. Cas. No, 10,926. Rep. 31; In re Ivos, 113 Fed. 911, 51 C. =r4lu re Hudson River Electric Co., C. A. 541, 7 Am. Bankr. Rep. 692; In re 107 Fed. 986, 21 Am. Bankr. Rep. 915. Baltimore Cour^ty Dairy Ass'n, 2 Hughes, But see In re Urban & Suburban Realty 250, 11 N. B. R. 253, Fed. Cas. No. S2S ; Title Co., 132 Fed. 140, 12 Am. Bankr. In re Groome, 1 Fed. 464 ; In re Lalor, 19 Rep. (i,s7. N. B. R. 253, Fed. Cas. No. 8,001; In re or.-.In re Republic Ins. Co., 8 N. B. R. Court, 17 N. B. R. 555, Fed. Cas. No. 317, Fed. Cas. No. 11,706. 3,284; In re Republic Ins. Co., 8 N. B. R. oTe^in re Lalor, 19 N. B. R. 253, Fed. 817, Fed. Cas. No. 11,706 ; In re Meade, 19 Cas. No. 8,001. 429 PETITION AND ADJUDICATION § 183 it enters into the order of adjudication.^'''' And the fraudulent purpose of directors of a corporation to avoid liability in a stockholders' suit, then commenced but in which no receiver had yet been appointed, by filing a petition in voluntary bankruptcy, does not require the ad- judication to be set aside on the petition of the stockholders.®''* And an adjudication in bankruptcy will not be set aside merely because the bankrupt filed his petition in anticipation of the early death of his mother, who had made a will leaving him a substantial sum of money.®"* That the adjudication was entered prematurely may be ground for setting it aside, and this action should be taken even though the petition merely alleges matters which would not have prevented the adjudication be- ing made in due season.®*" So the court may open the adjudication and grant, a rehearing on the ground of newly discovered evidence,®*^ and It appears that it may be set aside by consent, on proof of the a.s- sent of all known creditors.®*^ But mere irregularities, not affecting the jurisdiction of the court or the substantial rights of the parties, will not be sufficient cause to induce the court to revoke and annul its de- cree.®** Thus, an adjudication will not be set aside merely on showing a prior filing of the petition against the bankrupt in another district,®** nor on the ground that the notary public who took the verification of the petition was the bankrupt's own attorney,®*® nor because the attor- ney who appeared for the bankrupt had not been admitted to practice in the federal courts of the district.®** As the statute does not specifically provide for notice to the creditors of an application or proceeding to vacate the adjudication, it has been held that this action may be taken without notifying them.®*'' But the bankrupt himself is in a different ■•77 In re S. & S. Mfg. & Sales Co. (D. of a creditor, to vacate the decree of ad- C.) 246 Fed. 10O5, .39 Am. Bankr. Rep. judication on a settlement made with 786. other creditors outside the proceedings. "s In re United Grocery Co. (D. C.) In re Malkan (C. C. A.) 261 Fed. 894, 44 239 Fed. 1016, 39 Am. Ba«vr. Rep. 501. Am. Bankr. Rep. 433. "9 In re Swift (D. C.) 259 Fed. 612, 44 sss But a petition to vacate the adjudi- Am. Bankr. Rep. 211. And see In re cation in voluntary proceedings is the Seal (D. C.) 261 Fed. 112, 44 Am. Bankr. correct practice, where the residence, Rep. 556. (liiiilfiio. and principal place of business .ISO In re Gibney Tire & Rubber Co. (D. are not correctly alleged in the petition. C.) 241 Fed. 879, 39 Am. Bankr. Rep. In re San .\iitonio Land & Irr. Co. (D. 355. C.) 228 Fed. 984, 36 Am. Bankr. Rep. SSI In re Great Western Tel. Co., 5 512. Eiss. 359, Fed. Oas. No. 5,739., 584 In re Harris, 6 Ben. 375, Fed. Ca;'. 5 82 In re Magee, Fed. Cas. No. 8,941. No. 6,111. But after an adjudication a bankrupt's 585 In re Kindt, 98 Fed. 403, 3 Am. estate can be wound up in only two Bankr. Rep. 443. ways, by distribution in bankruptcy or ssoin re Kindt, 98 Fed.' 867, 3 Am. by distribution in composition, and the Bankr. Rep. 546. court ha.s no power, over the objection b87 Texas & P. Ry. Co. v. McNairy, 42 § 183 LAW OF BANKRUPTCY 430 case. Though the proceeding may be involuntary, still he has an inter- est in its continuance, as it may result in his discharge from his debts, and therefore he must have notice of an application to annul the ad- judication.'*** It has been held (though not by a federal court) that a referee in bankruptcy has jurisdiction to set aside an adjudication, at least in the case where he himself made the adjudication, the case having been referred to him by the clei'k on account of the absence of the judge.''** It is within the competence of the court to impose terms or condi- tions upon the vacating of an adjudication, as, for instance, in the case of an adjudication taken against the bankrupt by default, that he shall appear and plead within five days, and if such terms are not complied with the adjudication will stand.®*" § 184. Clerk's Docket. — The first of the general orders in bank- ruptcy prescribed by the Supreme Court directs that "the clerk shall keep a docket, in which the cases shall be entered and numbered in the order in which they are commenced. It shall contain a memorandum of the filing of the petition and of the action of the court thereon, of the reference of the case to the .referee, and of the transmission by him to the clerk of his certified record of the proceedings, with the dates thereof, and a memorandum of all proceedings in the case except those duly entered on the referee's certified record aforesaid. The docket shall be arranged in a manner convenient for reference, and shall at all times be open to public inspection." It is held that this docket should show not only the fact and the date of the filing of the petition, but also that it was filed in duplicate, as required by the statute, if this requirement of the law is really complied with.*'^ But as a court of bankruptcy is always open for the transaction of business and has no regular terms, it is not necessary for the clerk to make an entry show- ing the opening and closing of the court on days when he enters pro- ceedings in bankruptcy cases."** Tex. Civ. App. 222, 94 S. W. 111. But osoin re Sutter Hotel Co., 241 Fed. see In re Nash (D. C.) 249 Fed. 375. 367, 154 O. 0. A. 247, 39 Am. Bankr. 88 In re Bush, 6 N. B. R. 179, Fed. Kep. 620. Cas. No. 2,222. ooi In re Stevenson, 94 Fed. 110,2 Am. 580 Texas & P. Ry. Co. v. McNairy, 42 Bankr. Rep. 66; In re Dupree, 97 Fed. 28. Tex. Civ. App. 222, 94 S. W. 111. 6»2 Keatley v. United States, 45 Ct. CI. 36. 431 SUITS BY AND AGAINST THE BANKRUPT § 185 CHAPTER XI SUITS BY AND AGAINST THE BANKRUPT Sec. 165. Effect of Bankruptcy on Pending Suits. 186. Stay of Pending Suits by State Court. 187. Stay by Injunction or Order from Federal Court ISS. Leave to Continue Suit in State Court. 189. What Actions May be Stayed. 190. Foreclosure of Mortgages and Other Liens. 191. Proceedings Subsequent to Judgment 192. Proceedings Supplementary to Execution. 193. Proceedings on Appeal. ' 194. Contempt Picoceedings. i 195. Effect of the Stay. 196. Effect of Grant or Denial of Discharge. 197. Pending Actions by Bankrupt as Plaintift 198. Intervention of Trustee in Pending Suits. 199. Suits Begun After Adjudication. § 185. Effect of Bankruptcy on Pending Suits. — The state tribunals are not deprived, by the mere force of an adjudication of bankruptcy, of jurisdiction over suits pending at the time against the bankrupt. They may grant a stay of proceedings in such suits on a proper applica- tion in that behalf. And the court of bankruptcy making the adjudi- cation has the power and authority to arrest or control the proceedings in such suits when it becomes necessary for the proper working of the bankruptcy law, provided the particular action is based upon a debt or claim from which the bankrupt's discharge would release him, and until the question of his discharge has been determined. But when such power is not exercised (or in the cases in which it cannot be exercised) the jurisdiction of the ordinary courts remains unimpaired, and they are not required to dismiss pending actions, but may proceed to render valid judgments therein.* As stated by the court in Georgia, the bank- 1 Martin v. Oliver, 260 Fed. 89, 171 C. Serra 6 Hijo v. Hoffman, 29 La. Ann. 17; O. A. 125, 43 Am. Bankr. Rep. 739 ; Chase Brown v. Newman, 66 Ala. 275 ; Suther- V. Farmers' & Mechanics' Nat Bank, 202 land v. Davis, 42 Ind. 26, 10 N. B. R; 424 ; Fed. 904, 121 C. C. A. 262, 30 Am. Bankr. Brandon Mfg. Co. v. Frazer, 47 Vt. 88, Rep. 200 ; Brazil v. Azevedo, 32 Oal. App. 19 Am. Rep. 118, 13 N. B. R. 362 ; United 364, 162 Pac. 1049 ; In re Davis, 1 Sawy. States v. Mackoy, 2 Dill. 299, Fed. Cas. 260, 4 N. B. R. 715, Fed. Cas. No. 3,620; No. 15,696; Friedman v. Zweifler, 74 Hewett V. Norton, 1 Woods, 68, 13 N. B. Misc. Rep. 448, 132 N. Y. Supp. 320 ; R. 276, Fed. Cas. No. 6,441; First Nat Hardesty v. Graham, 7 Ky. Law Rep. Bank V. Abner, 1 MacArthur (D. C.) 590; 447; Brackett v. Dayton, 34 Minn. 219, In re Davis, 8 N. B. R. 167, Fed Cas. No. 25 N. W. 348; Lewis v. Higgins, 52 Md. 3,619; Cutter v. Evans, 115 Mass. 27, 11 616; Hobart v. Haskell, 14 N. H. 127; N. B. R. 448 ; Munson v. Boston, H. & E. McCormick v. Raymond, 13 Neb. 306, 14 R. Co., 120 Mass. 81, 21 Am. Rep. 499; N. W. 402; Esterbrook Steel Pen Mfg. Seymour v. Browning, 17 Ohio, 362 ; Co. v. Ahern, 31 N. J. Eq. 3 ; Bowman v. § 185 LAW OP BANKRUPTCY 432 ruptcy of some or all of the defendants is no cause for dismissing a- bill in equity' prior to the hearing unless the complainant admits the bankruptcy and concedes that it bars all the' relief prayed for. Sus- pending proceedings, in terms of the bankruptcy act, is a different thing from dismissing the bill.^ The case is somewhat altered, however, where the object of the suit is to enforce a specific lien on property of the bank- rupt. Even assuming that the lien is of such a character as not to be affected by th.e proceedings in bankruptcy, it is the prerogative of the court of bankruptcy to control the proceedings thereon in such a manner as to save the rights of general creditors. Hence, if an attaching credi- tor, who knows that proceedings in bankruptcy have been instituted, proceeds in his suit against the bankrupt to judgment before a trustee is appointed, it is a fraud upon the law, and he will not be allowed to retain the fruits of his writ.* And in general, while a valid judgment may be rendered against the bankrupt, if the proceedings are not stayed or arrested, its only effect is to fix the amount of his liability. That is, no judgment rendered against the bankrupt after the filing of the peti- tion can create any lien upon his estate, for the consequence would be to withdraw some portion of the property from the exclusive control and custody of the court of bankruptcy.* But the execution of a decree lor partition in a state court is not arrested because one of the parties to the suit becomes bankrupt ; for his share of the property simply vests in his trustee.® And a judgment entered after the adjudication, on a default entered before the petition was filed, without fraud, mistake, or surprise, where the bankrupt fcad no defense, will not be set aside.® Strother, 144 Mo. App. 100, 128 S. W. 2 Ballin v. Ferst, 55 Ga. 546. 848 ; Sively v. Campbell, 23 Gratt. (Va.) s Ex parte Poster, 2 Story, 131, Fed. 893 ; Williams v. Lane, 158 Cal. 39„.109 Gas. No. 4,960 ; Everett v. Stone, 3 Story, Pac. 873; Johnson v. Bishop, Woolw. 324, 446, Fed. Gas. No. 4,577; Acme Har- Fed. Gas. No. 7,373 ; Irving Nat. Bank v. vester Co. v. Beekman Lumber Co., 222 Adams, 90 N. T. 682 ; Nonotuck Silk Co. U. S. 300, 32 Sup. Gt. 96, 56. L. Ed. 208, V. Pritzker, 143 111. App. 644. Compare 27 Am. Bankr. Eep. 262. And see, Infra, Fellows V. Hall, 3 McLean, 487, Fed. Gas. Chapter XX, and particularly §§ 376. No. 4,723. For the general rule that the 389. pendency of a suit in a federal court < McLean v. Rockey, 3 McLean, 235, cannot be pleaded in abatement of a suit Fed. Gas. No. 8.891. Though a contrac- in a state, court (or vice versa), though it tor has been adjudged bankrupt, this is involves ""tjife same parties and the same no obstacle to a suit by materialmen on subject-matter, see the following cases: the contractor's bond, where there is no Latham v. Chafee, 7 Fed. 523 ; Hospes v. (luestion as to the amounts dup the sev- O'Brien, 24 Fed. 145 ; Coe v. Aiken, 50 eral claimants and credit is given for a Fed. 640; Logan v. Greenlaw, 12 Fed. dividend already paid by the trustee. 10 ; Dwight v. Central Vermont R. Co., 9 People v. Valley Mantel & Tile Co., 200 Fed, 785 ; Lyman v. Brown, 2 Curt. G. C. Mich. 554, 166 N. W. 839. 5.59, Fed. Gas. No. 8.627 ; Wadleigh v. ^ Baum v. Stern, 1 S. Gar. 415. Veazip, 3 Sumn. 165, Fed. Gas. No. 17,- « Fiske v. Hunt, 2 Story, 582, Fed. Oas. 031 ; White v. Whitman, 1 Curt. O. C. No. 4,831. See American Wood Working 49t, Fed. Gas. No. 17,561. Machinery Go. v. Furbush, 193 Mass. 455, 433 SUITS BY AND AGAINST THE BANKRUPT § 186 For an even stronger reason the bankruptcy of the defendant is not a bar to a motion to amend the minutes of the court, by entering nunc pro tunc a verdict rendered some years previously against him.' In the case- of several joint defendants in a pending suit in a state court, one or more of whom are in bankruptcy, but not all, the suit will not be stayed on the application of those not affected by the bankruptcy pro- ceedings," and some courts have held that partnership creditors may attach partnership assets, though one member of the firm is a bankrupt." Finally, it should be noted that, while the trustee in bankruptcy is the proper person to assume and carry on litigation in which the bank- rupt is concerned, still a bankrupt who is defendant in a pending suit may defend it, if the trustee refuses to do so.-'" § 186. Stay of Pending Suits by State Court. — The bankruptcy act of 1867 provided that "no creditor whose debt is provable shall be allowed to prosecute to final judgment any suit at law or in equity there- for against the bankrupt until the question of 'the debtor's discharge shall have been determined; and any such suit or proceedings shall, on the application of the bankrupt, be stayed to await the determination of the court in bankruptcy on the question of his discharge." ^' It was held that this provision was applicable to suits pending in the state courts, as well as to any proceedings in a federal court, and was equally binding upon them. Consequently it was decided that it was the duty of a state court, in which a suit was pending against a bankrupt on a provable debt, to grant a stay of proceedings therein, upon the applica- tion of the bankrupt or his assignee, seasonably made, until the question of his discharge should have been determined; and this, without any injunction or order from the. court of bankruptcy.*^ The present stat- ute provides that a suit founded upon a claim from which a discharge in bankruptcy would be a release, and which is pending against a per- son at the time of the filing of a petition in bankruptcy against him, "shall be stayed" until an adjudication is made or the petition dismissed ; 79 N. E. 770. Where, after judgment on i<> Lane v. Moore, 59 N. H. 80. a note for plaintiff, it is discovered that ^^ ^^^ g^^^ -^ g g g^^g he had been adjudged banltrupt, and that the note had not been scheduled, such 12 nui v. Harding, 107 XJ. S. 631, 2 facts constitute ground for a new trial. Snp. Ct. 404, 27 L. Ed. 493; Boynton v, Juden V. Nebham (Miss.) 60 South. 45. Ball, 121 U. S. 457, 7 Sup. Ct. 981, 30 I., 7 Wool folk V. Gunn, 45 Ga. 117, 10 N. Ed. 985; Bratton v. Anderson, 5 S. Car, B. R. 526. 504, 14 N. B. R. 99 ; Ray v. Wight, 119 8. Johnson v. Waxelbaum Co., 1 Ga. JXiiss. 42(;, 20 Am. Rep. 3.33; Braley v. App. 511, 58 S. E. 56 ; Ex parte Canada, Boomer, 116 Mass. 527, 12 N. B. R. 303 ; 151 Mo. App. 704, 132 S. W. 754. Rood v. Stevens, 49 Conn. 45 ; Frostman 9 Pelzer Mfg. Co. v. Pitts & Hartzog, v. Hicks, 3 Wkly. Notes Cas. (Pa.) 202, 15 76 S. Car. 349, 57 S. E. 29, 11 Ann. Cas. N. B. R. 41. 665. Blk.Bke.(3d Ed.)— 28 § 186 LAW OF BANKRUPTCY 434 and if such person is adjudged bankrupt, the action "may be further stay- ed" until his application for discharge is determined or until twelve months from the date of the adjudication have expired.^^ It has been held that this provision is substantially similar to the corresponding clause of the act of 1867, and that the rule announced under the earlier statute is clearly applicable to the present law; so that it is now, as before, the duty of the state court to grant a stay of proceedings when the suit pending against the bankrupt is founded on a debt or claim from which his discharge would release him, and when application therefor is duly made." And although the court of bankruptcy has the power to order a stay of such proceedings, and may, if necessary, enjoin the plaintiff from further prosecution of his suit, it has been ruled that the application for a stay should not be made to the federal court in the first instance, but to the state court.-'^ To warrant the state court in taking this action it is necessary that the fact of the bankruptcy should be brought to its judicial attention in some proper manner, generally by a formal answer or plea.^* A mere statement of defendant's counsel at the trial that his client is in bank- 13 Bankruptcy Act 1898, § 11a. "In re Tune, 115 Fed. 906, 8 Am. Bankr. Rep. 285; Star Braiding Co. v. Stienen Dyeing Co. (R. I.) 114 Atl. 129 ; Maas V. Kuhn, 130 App. Div. 68, 114 N. Y. Supp. 444; First Nat. Bank v. Flynn, 117 Iowa, 493, 91 N. W. 784 ; Mclntyre V. Malone, 3 Neb. (Unof.) 159, 91 N. W. 246; Stone v. Brookville Nat Bank, 39 Ind. 284 ; Turner v. Gatewood, 8 B. Mon. (Ky.) 613; Dickens v. Dickens, 174 Ala. 305, 56 Soutli. 806. But some courts, particularly in Massachusetts, do not admit this rule to the fullest extent, but hold that it is entirely within their dis- cretion whether or not to stay the suit. See Rosenthal v. Nove, 175 Mass. 559, 56 N. E. 884, 78 Am. St. Rep. 512; Feigen- span V. McDonnell, 201 Mass. 341, 87 N. E. 624 ; St Louis World Pub. Co. v. Rialto Grain & Securities Co., 108 Mo. App. 479, 83 S. W. 781; Smith v. Miller, 226 Mass. 187, 115 N. E. 243. An order of the state court "abating" a suit because of the pendency of bankruptcy proceedings against the defendant is properly made, but should be interpreted as staying fur- ther action until the outcome of the bankruptcy proceeding, and not as a final determination of the matter. Clark v. Fighting Wolf Mining Co. (Mo. App.) 209 S. W. 307. 16 Ohio Motor Car Co. v. Eiseman Magneto Co., 230 Fed. 370, 144 C. C. A. 512, 36 Am. Bankr. Rep. 237 ; (certiorari denied, National Carbon Co. v. Ohio Mo- tor Car Co., 241 U.- S. 673, 36 Sup, Ct. 724, 60 L. Ed. 1231); In re Geister, 97 Fed. 322, 3 Am. Bankr. Rep. 228; Mc- lntyre V. Malone, 3 Neb. (Unof.) 159, 91 N. W. 246; Delavergue v. Farrand, 1 Mich. N. P. 90 ; Stone v. Brookville Nat. Bank, 39 Ind. 284; Smith v. Soldiers' Business Messenger & Dispatch Co., 35 N. J. Law, 60. Contra, see Garrett v. Carrow, 3 Houst. (Del.) 652. isHolden v. Sherwood, 84 111. 92; Red River Nat. Bank v. Bray (Tex. Civ. App.) 132 S. AV. 968 ; State v. Broaddus, 234 Mo. 358, 137 S. W. 268. See Rey- nolds V. Pennsylvania Oil Co., 150 Cal. 629, 89 Pac. 610. A defendant who de- sires to plead his subsequent discharge ia bankruptcy as a bar, should move for a continuance to see if he shall ob- tain it, and if he does, he should then -plead It. Rogers v. Abbott, 206 Mass. 270, 92 N. E. 472, 138 Am. SL Rep. 394. A petition by trustees to vacate an at- tachment of the bankrupt's realty, after the adjudication, is the appropriate method of procedure. Ward v. Hargett, 151 N. C. 365, 66 S. E. 340. 435 SUITS BY AND AGAINST THE BANKRUPT § 186 ruptcy will not be sufficient to operate as a, stay of proceedings;" and evidence of the fact of the defendant's bankruptcy cannot be introduced under the plea of the general issue." It has been ruled that the mere filing of a petition in bankruptcy, without any adjudication thereon, does not bar the prosecution of a suit against the debtor in a state court, and is no ground for staying the proceedings." But this seems to be contrary to the plain terms of the present statute, which evidently makes the stay before adjudication imperative, though a further stay after the adjudication is perhaps dis- cretionary. But a state court need not grant a stay of an action brought therein against the bankrupt jointly with others; it will order that proceedings on any judgment which may be obtained against him shall be stayed until the further order of the court.^** Where, after the ver- dict but before the entry of a judgment thereon, in a cause pending in a state court, the defendant files his petition in bankruptcy, the court, on the filing of a certificate of his having been adjudged bankrupt, and on motion of the defendant, should stay further proceedings until the bankruptcy court passes upon his application for discharge; and on a showing that the discharge was granted, the state court will render judgment on the verdict against the defendant, but with a perpetual stay of execution.*^ A debtor, however, who files his petition in bank- ruptcy pending a suit against him in a state court for a debt provable in bankruptcy, while he may obtain a stay of proceedings in the suit, is under no obligation to do so. He may allow the suit to proceed to judgment without forfeiting his right to avail himself of his discharge, if he shall subsequently obtain it. And if a judgment is entered, he may apply to the court to vacate it, or he may interpose his discharge as a defense as soon as the plaintiff moves to enforce his judgment.''* The levy of an execution issued after the defendant has made applica- tion for the benefit of the bankruptcy law, will be quashed by the court out of which it issued, on motion.^* If the debt or claim in -suit is one which would not be afifected by the defendant's discharge, no stay is necessary or proper. But if there is doubt on this point, a continuance may be ordered. Thus, where IT McGowan v. Bowman, 79 Vt. 295, 64 448, 132 N. Y. Supp. 320 ; Hoyt v. Freel, Atl. 1121. 8 Abb. Prac. N. S. (N. Y.) 220, 4 N. B. B. 18 Styles V. Fuller, 101 N. Y. 622, 4 131. N. E. 348. ^^ Hill v. Harding, 116 111. 92, 4 N. E. 10 Rennebaum v. Atkinson, 52 S. W. 361. See Rosenthal v. Nove. 175 Mass. 828, 21 Ky. I^aw Rep. 587 ; Glvens v. 559, 56 N. E. 884, 78 Am. St. Rep. 512. Robbins, 5 Ala. 676; Stewart v. Sonne- 2 2Whyte v. McGovern, 51 N. J. Law, bom, 51 Ala. 126; Murphy v. Young, 6 356, 17 Atl. 957. But compare Damall Wkly. Notes Gas. (Pa.) 317. v. Cline, 4 Ky. Law Rep. 537. 20 Friedman v. Zweifler, 74 Misc. Rep. 28 McDougald v. Reid, 5 Ala. 810. § 187 LAW OF BANKRUPTCY 43G the complaint states a cause of action for embezzlement, but , the de- fendant asserts that his liability, if any, is on contract, it is proper for the state court to postpone the action, pending a determination against the defendant in the court of bankruptcy.** And where an equitable petition was filed, seeking to enjoin the enforcement of a judgment and have an equitable set-off against it established, it was held that the fact that defendant had been adjudicated a bankrupt and no trustee had been appointed, was not ground for staying a hearing on a demurrer to the petition.''' § 187. Stay by Injunction or Order from Federal Court. — The au- thority of a court of bankruptcy to grant an injunction or restraining order staying the prosecution of a pending suit in a state court against a bankrupt is supported not only by the explicit provision of the elev- enth section of the bankruptcy act, but also by the grant to the courts of bankruptcy (in the second section of the act) of jurisdiction to "make such orders, issue such process, and enter such judgments in addition to those specifically provided for as may be necessary for the enforcement of the provisions of this act." It is pertinent also to notice that the gen- eral prohibition of the use of the writ of injunction "by any court of the United States to stay proceedings in any court of a state," is sub- ject to the specific exception of "cases where such injunction may be authorized by any law relating to proceedings in bankruptcy."-* It may be stated, therefore, that if the pending suit is upon a debt or claim which would be released by a discharge, it is within the jurisdiction of the court of bankruptcy to order its stay or enjoin its prosecution.^' And it makes no difference that the state court had previously denied a 2i Ex parte Butler-Keyser Mfg. Co., courts, and in all of which liability de- 174 Ala. 237, 56 South. 960. pended on the same facts, the bankrupt 2 5 Miller V. Smith, 136 Ga. 117, 70 S. '"'^^ ^^^^ entitled to an injunction re- j,, ggy straining prosecution of suits on such ,' , -r ^- ■ , ^ ^ inii s oo.r claims until it could obtain its discharge, 26 Federal Judicial Code 1911. § 265. ^^^ Us^ustee was held entitled to an 2 7 Mitchell Storebuilding Co. v. Oar- order requiring adjudication of the roll, 193 Fed. 616, 113 C. C. A. 484, 27 claims in the bankruptcy court, where Am. Bankr. Kep. 894 ; Moore v. Green, they could be consolidated for trial as to 145 Fed. 472, 76 C. O. A. 242, 10 Am. liability. In re I'eople's Warehouse Co. Bankr. Rep. 648; Bothwell v. Fitzger- (D. C.) 273 Fed. 611. But the court of aid, 219 Fed. 408, 135 C. C. A. 212, 34 bankruptcy has no jurisdiction to en- Aifi. Bankr. Rep. 261; Drake v. Hodg- join a sale of property on a judgment son, 192 App. Dlv. 676, 183 N. Y. Supp. rendered in a state court enforcing a Am ; Fowler v. Dillon, 1 Hughes, 232, mortgage lien of date long prior to four Fed. Cas. No. 5,000. And see supra, § months preceding the adjudication of 20. Where there were more than 100 the mortgagor as a bankrupt. Samy)le separate damage claims against a bank- v. Bea-sley, 158 Fed. 607, S.j C. C. A. 420 rupt corporation, all arising from the 20 Am. Bankr. Rep. 164. And see Pick- same transaction, on some of which ac- ens v. Dent, 106 Foil. 6.53, 45 C. C. A. tions had been brought In the state 522, 5 Am. Bankr. Rep. 644. 437 SUITS BY AND AGAINST THE BANKRUPT § 187 similar application by the same petitioner.** Even though the pending action is not directly against the bankrupt himself, the court of bank- ruptcy has power to enjoin its further prosecution, if the proceedings in the state court, if allowed to continue, might interfere with and delay the settlement of the bankrupt's estate, as, where the defendant in such action, though a solvent corporation and not in bankruptcy, is claimed to be a mere department or adjunct of the business of the bankrupt, and therefore its assets are claimed by the trustee in bankruptcy.** Though the statute speaks only of Staying suits against a defendant "against" whom a petition in bankruptcy has been filed, it applies equally to the case of voluntary bankrupts as to those adjridged bankrupt on compulsory proceedings; for the first section of the act declares that the phrase "a person against whom a petition has been filed" shall in- clude "a person who has filed a voluntary petition." "* Though the stat- ute does not in terms declare that this power must be exercised by the judge of the court of bankruptcy, to the exclusion of the referee, the plain direction of the General Orders is to ,that effect, and the courts have sanctioned the rule that a referee has no jurisdiction to issue an injunction staying proceedings in a state court. '^ It will also be ob- served that, as regards the staying of an action after the adjudication in bankruptcy, the granting of an order for that purpose rests in the dis- cretion of the district court, since the language of the law is that such action "may be stayed" until the question of the bankrupt's discharge is determined ; and the action of the court of bankruptcy in this mat- ter will riot be interfered with by the appellate coui;t, on petition for review, unless such discretion has been abused.** In fact, the courts should incline against any unnecessary interference with the normal action of the state courts, and their power in this behalf should be spar- ingly exercised,** upon due and careful consideration of all the equities of t^ie case,** and not at all where there is legitimate scope for the judg- es New River Coal Land Co. v. Ruff- continued in force by the district covirt, ner Bros., 165 Fed. 881, 91 C. C. A. 559, no question being raised as to tlie ref- 21 Am. Banlir. Rep. 474. eree's jurisdiction. And see In re Lom- 2 9 Mitchell Storebuilding Co. v. Car- bardy Inn Co. (D. C.) 266 Fed. 394, 44 roll, 19.3 Fed. 616, 113 C. C. A. 484, 27 Am. Bankr. Rep. 444. Am. Bankr. Rep. 894. 32 in re Lesser (C. C. A.) 99 Fed. 913, 3 "In re Geister, 97 Fed. 322, 3 Am. 3 Am. Bankr. Rep. 758; In re Bittle (D. Bankr. Rep. 228. C.) 239 Fed. 191, 38 Am. Bankr. Rep. 31 General Order Noi 12, cl. 3 ; In re 484. Siebert, 133 Fed. 781, 13 Am. Bankr. ss in re United Wireless Telegraph Rep. 348; In re Mussey, 2 Nat. Bankr. Co., 196 Fed. 153, 28 Am. Bankr. R«p. News, 113. See In re Kimmel, 183 Fed. 394 ; In re Guanacevi Tunnel Co. (0. C. 665, 25 Am. Bankr. Rep. 595, where such A.) 201 Fed. 316, 29 Am. Bankr. Rep. 229. an injunction, granted by a referee, wa« 34 Henry v. Harris, 191 Fed. 868. § 187 LAW OF BANKRUPTCY 438 ment of the state court without interfering with the jurisdiction of the bankruptcy court ^® It has been made a question whether the power of a court of bank- ruptcy to enjoin and stay proceedings against the bankrupt extends to cases pending in any and all courts, state or federal, and whether its process issuing for this purpose may run throughout the United States, or must be confined to its own judicial district.** But it will be remem- bered that the order or process of the court of bankruptcy acts upon the parties (that is, plaintiffs in such actions) and not upon the courts where the suits may be pending. Now all creditors of the bankrupt are parties to the proceedings in bankruptcy, because such proceedings are in rem, and moreover, a court of bankruptcy has power to restrain any and all persons from unlawfully interfering with the property of the estate in bankruptcy.*' Hence any creditor who is within reach of the process of the court may be enjoined or restrained from the further prosecution of his action. The court, indeed, cannot stay or enjoin foreign creditors proceeding against the bankrupt in a foreign court; but if they seek the aid of the court of bankruptcy for the enforcement of their demands, they will not be allowed any advantage over other creditors.** Thus, where the resident partners of a firm, having a part- ner residing abroad, prove a debt in bankruptcy, the firm becomes a party to the proceedings, and the resident partners may be restrained from prosecuting suits abroad to collect the claim.** It must also be remarked that the power of the bankruptcy court to restrain actions against the bankrupt or his property extends not only to the state courts, but also to the admiralty side of the same court, and a libel against the bankrupt's vessel, filed under such circumstances, will be enjoined.** But the power to stay actions against the bankrupt, by injunction, is vested only in that court in which the proceedings in bankruptcy are pending. A federal district court cannot enjoin proceedings in a state court on the ground that proceedings in bankruptcy against the defend- ant are pending in some other federal district court." And while the 8 5 In re United Wireless Telegraph s? in re Lesser, 100 Fed. 433, 3 Am. Co., 196 Fed. 153, 28 Am. Bankr. Rep. Bankr. Rep. 815. 394. 8 8 In re Bugbee, 9 N. B. R. 258, Fed. 8 8 See In re Hirsch, 2 Ben. 493, 2 N. Cas. No. 2,115. And see Phillips v. Hunt- B. K. 3, Fed. Cas. No. 6,529 ; Acme Har- er, 2 H. Bl. 402, 414. vester Co. v. Beekman Lumber Co., 222 a » in re Schepeler, 4 Ben. 68, Fed. Cas. U. S. 300, 32 Sup. Ct. 96, 56 L. Ed. 208, No. 12,453. 27 Am. Bankr. Eep. 262 ; Progressive *o in re People's Mail S. S. Co., 3 Ben. Building & Loan Co. v. Hall, 220 Fed. 45, 226, 2 N. B. R. 552, Fed. Cas. No. 10,070. 135 C. C. A. 613, 33 Am. Bankr. Rep. , *i In re Richardson, 2 Ben. 517, 2 N. 313 ; John A. Roebling's Sons Co. v. Fed- B. R. 202, Fed. Cas. No. 11,774 ; Mark- eral Storage Battery Car Co., 185 App, son v. Heaney, 1 l>ill. 497, 4 N. B. H. Dlv. 430, 173 N. X. Supp. 297. 510, Fed. Cas. No. 9,098. 439 StJITS BY AND AGAINST THE BANKRUPT § 187 bankruptcy court has power to stay peflding suits against the bank- rupt, and also to empower the trustee to take the place of the bankrupt therein, it has no authority to withdraw from the state court a suit pending therein and compel its trial in the district fcourt.*'' Application for an order staying a suit, or enjoining further proceed- ings therein, may be made by the trustee in bankruptcy, if one has been appointed, or by the bankrupt himself, if no trustee has yet been se- lected,** or perhaps by a creditor of the estate whose interests might be affected by the result of the litigation. As a general rule, the plain- tiff in the pending suit is cited before the court of bankruptcy on a rule to show cause why he should not be restrained from the further prose- cution of his action, and thereupon, if the facts developed at the hearing will warrarit it, an order, in the nature of a restraining order, may issue against him. But the more formal method of a writ of injunction may be resorted to.** But when this is cjesired, it is not necessary that the formal and plenary proceedings common to suits in equity in the cir- cuit courts should be carried out. A petition stating the facts and pray- ing for the order desired will be sufficient. Nor is it necessary that no- tice should be given of the application for injunction.*® For similar reasons, any party who desires to obtain the dissolution of an injunc- tion so granted may apply therefor by motion.** The bankruptcy act of 1867 provided that pending suits against the bankrupt might be stayed "to await the determination of the court oi bankruptcy on the question of the discharge, provided there is no unrea- sonable delay on the part of the bankrupt in endeavoring to obtain his discharge." *' But the present law is much more explicit. It does not allow th"e stay to extend for a longer period than twelve months after the adjudication in bankruptcy, except where, before the expiration of that time, an application for discharge is filed, and then only until the question of the discharge is determined.** After a discharge has been ». *2 Samson v. Burton, 5 Ben. 325, 4 N. " Eev. Stat. U, S. § 5106. See In re B. R. 1, Fed. Cas. No. 12,285. Sweet, 36 Fed. 761; Greenwald v. Ap- ia Brock V. Terrell, 2 N. B. R. 643, pell, 5 McCrary, 339, 17 Fed. 140. Fed. Cas. No. 1,914; In re Tifft, 18 N. *8 in re Weisberg (D. p.) 253 Fed. 833, B. R. 78, Fed; Cas. No. 14,031. 42 Am. Bankr. Eep. 616 ; In re Federal 4* In re Citizens' Sav. Bank, 9 N. B. Biscuit Co., 214 Fed. 221, 130 O. C. A. R. 152, Fed. Cas. No. 2,735. 635, 32 Am. Bankr. Rep. 612; Pell v. 45 In re William E. Delaney & Co., 124 McCabe (D. C.) 254 Fed. 356, 42 Am. Fed. 280, 10 Am. Bankr. Eep. 634. But Bankr. Eep. 762. "Adjudication," with see Acme Harvester Co. v. Beekman respect to the time, means the date of Lumber Co., 222 TJ. S. 300, 32 Sup. Ct. the entry of a decree that the defendant 96, 56 L. Ed. 208, 27 Am. Bankr. Eep. is a bankrupt, or, if such decree is ap- 262. pealed from, then the date when such 4 6 In re Wallace, Deady, 433, 2 N. B. decree is finally confirmed. Bankruptcy R. 134, Fed. Cas. No. 17,094. Act 1898, §1, cl. 2. As to restraining § 188 LAW OF BANKRUPTCY 440 granted or denied, there is noineed of staying pending suits; for in the. one case the bankrupt may plead his discharge in bar, and in the other, his liability to judgment is not affected by the bankruptcy proceedings. But the fact that the bankrupt has already received his discharge is no obstacle to an injunction from the court of bankruptcy directed against the enforcement of 9, collusive or fraudulent judgment or transfer of property.** § 188. Leave to Continue Suit in State Court. — The former bank- ruptcy law provided that "if the amount due the creditor is in dispute, the suit, by leave of the court in bankruptcy, may proceed to judgment for the purpose of ascertaining the amount due, which amount may be proved in bankruptcy, but execution shall be stayed." ®* No such provi- sion is found in the present law. But pra:ctically the same result is worked out by leaving it in the discretion of the court of bankruptcy to stay the further prosecution of appending suit after the adjudication. It may, of course, withhold its hand and leave the creditor to proceed. For example, in a case in the second circuit, the bankrupt was entitled to support and maintenance out of a trust fund, but under the laws of the state (New York) the surplus income of such a fund, over and above what is necessary for the beneficiary's support, may be made available to satisfy the claims of his creditors. Before the bankruptcy, certain creditors had brought a suit in the state court for this purpose. There was a proposal that the trustee in bankruptcy should then institute a similar action, but a majority of the creditors in number and amount voted against this, on the ground that they did not believe the action could be maintained by him. Orders were then made allowing the credi- tors to continue the prosecution of their suit, but on condition that the net amount recovered should be turned over to the trustee for distribu- tion, and that, if the action were unsuccessful, the estate in bankruptcy should not be charged with the costs and expenses. And it was held that these orders were proper and could not be complained of by the bankrupt or by other qreditors.®^ That there may be cases in which the court of bankruptcy should not interfere with the prosecution of actions in the state courts is fur- creditoi-s from prosecuting suits after Courtnay, 47 Ala. 185: In re Rundle, the lapse of the time provided for by 2 N. B. R. 113, Fed. Cas. No. 12,138; In the terms of a composition, see In re re Bousfleld & Poole Mfg. Co., 17 N. B. Nebenzahl, 9 Ben. 243, 17 N. B. U. 23, R. 153, Fed. Cas. No. 1,704; In re Cooke, Fed. Cas. No., 10,074. Fed. Cas. No. 3,172 ; Rutherford v. Roun- 4i> See Southern Loan & Trust Co. v. tree, 68 Ga. 725. Benbow, 96 Fed. 514, 3 Am. Bankr. > 1 lu re Buchanan, 219 Fed. 492, 135 Rep. 9. ■ C. 0. A. 204, 33 Am. Bankr. Rep. 638. 5 Rev. Stat. U. S. § 5106, See May v. 441 SUITS BY AND AGAINST THE BANKRUPT § 188 ther shown by another clause of the act, which provides that a creditor may prove, as a claim against the estate, a judgment upon a provable debt rendered after the filing of the petition and before the considera- tion of the bankrupt's discharge, less costs incurred and interest ac- crued after the filing of the petition and up to the time of the entry of the judgment. (Bankruptcy Act, § 63, cl. 5.) Thus it is not necessary to obtain leave of the court of bankruptcy to continue to judgment a suit founded in tort, pending at the time of the filing of the petition in bankruptcy, for the claim would not be provable until the judgment was obtained.^^ Again, the law provides that "unliquidated claims against the bankrupt may, pursuant to application to the court, be liquidated in such manner as it shall direct, and riiay thereafter be proved and allowed against his estate," ^* and this implies the author- ity to direct the liquidation of such a claim by suit in a state court. So, a pending suit on a dischargeable debt, in which the bankrupts had been arrested and given bail more than four months prior to their bankruptcy, may be permitted to proceed to judgment to enable the plaintiff to enforce his demand against the surety in the undertaking, in case it is in form a security for the payment of the judgment. *** Moreover, a suit to enforce a valid security against property of the bankrupt may be allowed to continue, where nothing is to be gained for the general creditors by assuming jurisdiction over the property. For instance, where several attachments were levied so far before the commencement of the bankruptcy proceedings as not to be affected by them, a state court may proceed to determine the question of priority of liens as between the several creditors.^® Again, a stay of proceed- ings against the bankrupt in a state court may be vacated, so as to permit creditors to move the state court to punish the bankrupt for contempt committed prior to the filing of the bankruptcy petition.'^ But in no case whatever will the court of bankruptcy permit property which is in the custody and possession of a trustee in bankruptcy to be seized on execution or other final process from a state court based on a judgment against the bankrupt, or against the trustee as his succes- sor in interest.^' 52 In re Hennocksburgh, 6 Ben. 150, 7 Martin, 105 Fed. 753, 5 Am. Banki-. Kep. N. B. R. 37, Fed. Cas. No. 6,367; Louis- 428. ville Dry Goods Co. v. Lanman, 135 Ky. os Davis v. Frledlander, 104 U. S. 570, 163, 121 S. W. 1042, 28 L. R. A. (N. S.) 26 L. Ed. 818. 363, 135 Am. St. Rep. 451. ^e in re Sims, 176 Fed. 645, 23 Am. 38 Bankruptcy Act 1898, § 63b. See Bankr. Rep. 899. Blair v. Carter's Adm'r, 78 Va. 621. " Allen v. Montgomery, 48 Miss. 101, 5 4 In re Ennis v. Stoppani, 171 Fed. 10 N. B. R. 503. Creditors of a bankrupt 755, 22 Am. Bankr. Rep. 679. See In re corporation may apply to the bankruptcy § 189 ' LAW OF BANKRUPTCY 442 § 189. What Actions May be Stayed. — The provision of the act of 1867, authorizing a temporary stay of pending suits against the bank- rupt, made no distinction between debts which would be released by his discharge and debts which would not be so released; and it was ac- cordingly held that, even in cases where the claim was one which would not be affected by the discharge, proceedings on it must be stayed until the question of the discharge was determined.®* But the present act expressly restricts the stay of suits to such as are "founded upon a claim from which a discharge would be a release." It is necessary, therefore, to warrant an order staying pending proceedings, first, that the claim in suit should be one which is provable in the bankruptcy proceedings (for otherwise it could not be affected by the discharge) and second, that, if provable, it should not be within the classes of claims which are expressly excepted from the operation of a discharge.*"® It is within the exclusive jurisdiction of the court of bankruptcy to de- termine whether these two conditions exist, and its decision on the point is final and conclusive, unless reversed on appeal,*" and it is not bound or concluded by any decision of the state court on the same ques- tion,®^ although the bankruptcy court is not required to enter into an investigation outside of the pleadings in the action to determine the cliaracter of the claim.** As to the first requisite, an unliquidated claim, which might have been liquidated and proved against the bankrupt, should be treated as a provable debt for this purpose.** So where the debt is clearly provable in bankruptcy, an action based upon it should be stayed, although its object is not to enforce collection of the claim, but to remove the bankrupt from his position as a member of a munici- court for leave to prosecute their claims er or not the particular claim is dls- to judgment, so as to enforce the liability chargeable in bankruptcy, a motion to of stockholders ; but such creditors will vacate the stay should be denied. In re not be permitted to issue executions. Dunfee, 206 Fed. 745, 30 Am. Bankr. John A. Roebling's Sons Co. v. Federal Rep. 721. Storage Battery Car Co., 185 App. Div. oo In re Mustin, 165 Fed. 506, 21 Am. 430, 173 N. T. Supp. 297. Bankr. Bep. 147; American Grapho- 5 8 In re Ghirardelli; 1 Sawy. 343, 4 N. phone Co. v. Leeds & Oatlin Co., 174 Fed. B. R. 164, Fed. Cas. No. 5,376 ; In re 158, 23 Am. Bankr. Rep. 337 ; Wagner v. Rosenberg, 3 Ben. 14, Fed. Cas. No. United States, 104 Fed. 133, 43 C. C. A. 12,054; In re Schwartz, 14 Blatchf. 196, 445, 4 Am. Bankr. Rep. 596. Fed. Cas. No. 12,502; In re Van Buren, oi Knott V. Putnam, 107 Fed. 907, 6 Fed. Cas. No. 16,833. ~ Am. Bankr. Rep. 80. In re Camelb, 195 Fed. 632, 28 Am. 02 In re Adler, 152 Fed. 422, 81 C. C. Bankr. Rep. 353. A fine imposed on a A. 564, 18 Am. Bankr. Rep. 240. bankrupt by a state court for a civil con- 03 in re Hilton, 104 Fed. 981, 4 Am. tempt, for disobedience of its orders, is Bankr. Rep. 774. But compare In re not a provable debt, and hence a court New York Tunnel Co., 159 Fed. 688, 86 O. of bankruptcy has no jurisdiction to in- C. A. 556, 20 Am. Bankr. Rep. 25. And t erf ere with its enforcement. People v. see Imbriani v. Anderson, 76 N. H. 491, Sheriff of Kings County, 206 Fed. 566. 84 Atl. 974. Where it is substantially doubtful wheth- 443 SUITS BY AND AGAINST THE BANKRUPT § 189 .pal fire department because of his failure to pay the debt in question.'* Generally speaking, however, suits which contemplate some other re- lief than the collection of a debt are not to be stayed, as their prosecu- tion would not ordinarily interfere with the bankruptcy proceedings.*® Examples are proceedings for an accounting before a master in a patent infringement suit, where an interlocutory judgment had been ren- dered before the adjudication in bankruptcy,** and an action of forcible entry and detainer by a landlord, under the state statute, to recover possession of the leased premises.*' And so, where, a lease without rent, granted in consideration of the delivery of corporate stock of the lessee, provided for forfeiture of the lease on the bankruptcy of the lessee, the trustee in bankruptcy of an assignee of the lease cannot have the enforcement of the forfeiture clause enjoined, at least where there is no showing of fraud or mistake.** For similar reasons a court of bankruptcy is without power to stay a suit in a state court for money had and received, against a third person, who, in the character of a mere stakeholder, has possession of a fund which is also claimed by the trustee in bankruptcy.*^ But on 'the other hand, it is held by a state court that a suit brought under the statute to have a mortgage declared a general assignment for creditors should not be stayed on the filing of respondents' special plea setting up the pendency of bank- ruptcy proceedings when the bill was filed.''* Secondly, the prosecution of a pending action in a state court against the bankrupt should not be stayed or enjoined when the debt on which it is founded is one which will not be released by his discharge in bankruptcy," except, of course, in cases where the temporary suspen- sion of the action is necessary to enable the court of bankruptcy fully to carry out the provisions of the law and to exercise without hindrance 64 In re Hicks, 133 Fed. 739, 13 Am. 597; Bloemecke v. Applegate (O. C. A.) Bankr. Rep. 654. 271 Fed. 595 ; In re Camelo, 195 Fed. 05 In re United Wireless Telegraph Co., 632, 28 Am. Bankr. Eep. 353 ; A. Klipeteln 192 Fed. 238, 27 Am. Bankr. Rep. 1. & Co. v. Allen-Miles Co., 136 Fe(J. 385, 6 8 In re Leeds & Catlin Co., 175 Fed. 69 C. C. A. 229, 14 Am. Bankr. Rep. 15; 309, 23 Am. Bankr. Rep. 679. Continental Nat. Bank v. Katz (111.) 1 6 7 In re Van Da Grift Motor Car Co., Nat. Bankr. News, 165; Black v. McClel- 192 Fed. 1015, 27 Am. Bankr. Rep. 474. land, 12 N. B. R. 481, Fed. Cas. No. 1,462 ; 68 Empress Theatre Co. v. Horton (O. In re Dowie, 202 Fed. 816, S9 Am. Bankr. C. A.) 266 Fed. 657, 46 Am. Bankr. Rep. Rep. 338. Where the bankrupt, though 80. duly served In an action on a claim bar- 6 9 In re Interocean Transp. Co. of red by his discharge, made default, it America (D. C.) 232 Fed. 408, 36 Am. was held that the court of bankruptcy Bankr. Rep. 651. could not enjoin the enforcement of the 70 Anders Bros. v. Latimer, 198 Ala, judgment of the state court, for the de- 573, 73 South. 925. fense of a discharge in bankruptcy is 71 In re Wamock (D. C.) 239 Fed. 779, waived unless pleaded. In re Boardway 39 Am. Bankr. Rep. 539 ; In re Johnson (D. C.) 248 Fed. 364, 41 Am. Bankr. Eep. (D. C.) 233 Fed. 841, 37 Am. Bankr. Rep. 478. § 189 LAW OF BANKRUPTCY 444 its plenary jurisdiction over the estate of the bankrupt.'* If, for exam- ple, the plaintiff is proceeding against the bankrupt for a debt "creat- ed by his fraud, embezzlement, misappropriation, or defalcation while .acting as an officer or in any fiduciary capacity," the claim is one which will not be affected by a discharge, if granted, and therefore the action should not be stayed.'* Again, since a suit to require a defendant cor- poration to issue a certificate of stock, and for damages for refusing to issue it, involves a claim from which a discharge in bankruptcy would not be a release, the suit cannot be stayed.'* And wages earned by a bankrupt after his adjudication belong to him and not to his estate in bankruptcy, and the court has no jurisdiction to take action against a creditor who has wrongfully collected such wages on an assignment made prior to the bankruptcy.'^ So also, according to the preponderance of authorit)^ alimony award- ed to a divorced wife by the judgment of a court of competent juris- diction, to be paid iri fixed periodical instalments, and overdue at the time the husband files his petition in bankruptcy (or is adjudged bank- rupt on an involuntary petition), is not provable as a "debt" against his estate, and is not such a claim as will be released by his discharge ; and therefore the wife will not be stayed or enjoined, pending the bank- ruptcy proceedings, from pursuing appropriate remedies for its collec- ts In re NuttaU (D. C.) 201 Fed. 557, legations were sustained, would not be 29 Am. Bankr. Kep. 800. dischargeable in bankruptcy, so that the '3 In re Cole, 106 Fed. 837, 5 Am. defendant, on his subsequent bankruptcy, Bankr. Rep. 780; In re Thaw, 180 Fed. was held not entitled to an injunction -119, 24 Am. Bankr. Rep. 759; In re restraining further prosecution of the Lawrence, 163 Fed. 131, 20 Am. Bankr. action. In re Northrup, 265 Fed. 420. Rep. 698 ; In re Gulick, 186 Fed. 350, 26 Where the organizer and president of a Am. Bankr. Rep. 362; In re Wollock, 120 corporation induced the stockholders to Fed. 516, 9 Am. Bankr. Rep. 685 ; Mackel let him use the corporate funds for the V. Rochester, 135 Fed. 904 ; In re Adler, purchase of land for the company, but 144 Fed. 659, 75 C. C. A. 461, 16 Am. represented the price paid as larger than Bankr. Rep. 414; In re Ennis & Stop- it actually was, thus pocketing a secret lianl, 171 Fed. 755, 22 Am. Bankr. Rep. profit, a stockholder's suit against him to (>70 ; Horter v. Harlan, 9 Phila. 63, 7 N. recover such profit necessarily involves a B. R. 238. See Gleason v. O'Mara, 180 charge against him of misappropriating Fed. 417, 103 C. O. A. 563, 24 Am. Bankr. money iu a fiduciary capacity ; and as a Rep. 832 ; In re Kalk (D. C.) 270 Fed. 62T. claim based upon such a charge is not 46 Am. Banjcr. Rep. 597. A complaint dischargeable in. bankruptcy, It follows in an action in a state court alleging that, the defendant becoming bankrupt, that the defendant, having in his pos- there is no ground for staying the prose- session money which was the property cution of the stockholder's suit. In re of the plaintiff, refused to pay over Bloemecke (D. C.) 265 Fed. 343, 45 Am. the same and converted it to his own Bankr. Rep. 623. use, was held (by Judge Ray, in the 7 4 1^ re Clipper Mfg. Co., 179 Fed. 843, Northern District of New York) to charge 103 C. C. A. 2G0, 24 Am. Bankr. Rep. 683! a "willful and malicious injury" to prop- '= In re Karns (D. 0.) 148 Fed. 143, 16 erty, a judgment for which, if the al- Ani. Bankr. Rep. 841. 445 SUITS BY AND AOAINST THK BANKRUPT 189 tion.''* In a few of the district courts, however, the doctrine has pre- vailed that arrears of alimony, due at the time of the bankruptcy, con- stitute a provable debt and will be released by the discharge, and hence that contempt proceedings or other coercive means of enforcing their payment, may be stayed to await the determination of the court of bank- ruptcy on the jjuestion of the bankrupt's discharge." But as to future instalments of alimony, that is, such as will become due and payable under the original decree after the date of adjudication in bankruptcy, it is clear that these are not provable against the bankrupt s estate, and therefore not affected by his discharge.'* The same principle applies to a judgment in a bastardy proceeding, requiring the putative father Uo provide for the maintenance of the child; such an award is more in the nature of a fine or punishment than a "debt" ; it is not an obligation from which the defendant will be released by his discharge in bank- ruptcy, and hence proceedings for its enforcement should not be stayed.'* So again, an action for breach of promise of marriage is an action on contract and not in tort, although seduction is also alleged, and a gen- eral verdict for the plaintiff, not specifically awarding any damages for the seduction, creates a debt provable and dischargeable in bank- ruptcy, so that a suit for its enforcement may be stayed.** '6 Audubon v. Shufeldt, 181 U. S. 575. 21 Sup. Ct. 735 ; 45 L. Ed. 1009, 5 Am. Bankr. Kep. 829; In re Hubbard, 98 Fed. 710, .3 Am. Bankr. Eep. 528; Turner v. Turner, 108 Fed. 785, 6 Am. Bankr. Kep. 289; In re Sbepard, 97 Fed. 187; In re Anderson, 97 Fed. 321, 5 Am. Bankr. Kep. 858; In re Smith, 1 Nat. Bankr. News, 471; In re Nowell, 99 Fed. 931, 3 Am. Bankr. Eep. 837; In re Lawrie, 2 Nat. Bankr. News, 77; In re Garrett, 2 Hughes, 233, 11 N. B. R. 493, Fed. Cas. No. 5,252 ; In re Lachmeyer, 18 N. B. K. 270, Fed. Cas. No. 7,966 ; Barclay v. Bar- clay, 184 111. 375, 56 N. E. 636, 51 D. R. A. 351; Welty v. Welty, 96 111. App. 141; Maisner v. Maisner, 62 App. Div. 286, 70 N. Y. Supp. 1107 ; Young v. Young, 35 Misc. Rep. 335, 71 N. Y. Supp. 944 ; Lem- ert V. Lemert, 25 Ohio Cir. Ct. Rep. 253. In the recent case of In re Vadner (D. O.) 259 Fed. 614, the following rules were made: (1) A claim for alimony or for the maintenance of wife or child is not a prov- able claim which a discharge in bankrupt- cy will release, and hence a suit pending thereon in a state court cannot be sta;yed siibsequent to the adjudication. (2) Rel- ative to a stay ordered by the bankrupt- cy court, an action for divorce is not a claim which would be released by a dis- charge. (3) The enforcement of a Judg- ment for the support of the wife and children of the bankrupt, rendered more than four months before the bankruptcy proceeding, and a lien therefor expressly created by the judgment on a note and mortgage, which, pursuant to the judg- ment, were lodged with the clerk of the court, will not be stayed. TT Wagner v. United States, 104 Fed. 13.3, 43 O. C. A. 445, 4 Am. Ba'hkr. Rep. 596; In re Houston, 94 Fed. 119, 2 Am. ^ankr. Rep. 107; In re Van Orden, 96 %e(^. 86, 2 Am. Bankr. Rep. 801 ; In re Challoner, 98 Fed. 82, 3 Am. Bankr. Kep. 442 ; Arrington v. Arrington, 131 N. C. 143, 42 S. E. 554, 92 Am. St. Rep. 769; In re Williams' Estate, 118 N. Y. Supp. 562. -8 See In re Nowell, 99 Fed. 931, 3 Am. Bankr. Rep. 837; In re Garrett, 2 Hughes, 235, 11 N. B. R. 493, Fed. Cas. No. 5,252; In re Lachemeyer, 18 N. B. K. 270, Fed. Cas. No. 7,966: In re Chal- loner, 98 Fed. 82, 3 Am. Bankr. Rep. 442. ■ ,T9In re Baker, 96 Fed. 954, 3 Am. Bankr. Rep. 101 ; In re Cotton, Fed. Cas. ■No. 3,269; Hawes v. Cooksey, 13 Ohio, 242. so In re Warth, 196 Fed. 571, 28 Am. § 189 LAW OF BANKRUPTCY 446 But there are cases in which a pending action in a state court should be allowed to proceed, even though it involves a provable and discharge- able claim. Thus where the bankrupt is a corporation, and a creditor has an action pending against it, but it appears that his ultimate ob- ject is to enforce a statutory liability against the directors and stock- holders, and to do this he must first have recovered a judgment against the corporation, the bankruptcy court will refuse to enjoin him and will allow him to proceed to judgment against the bankrupt." So, where the creditor's object is not to collect anything from the bankrupt, but to enforce the liability of the surety on a bail bond.*" On the other hand, the general rule must be modified in cases where interference by the court of bankruptcy is necessary to prevent unlawful seizure of property within its exclusive jurisdiction or to avoid the acquisition of preferences or the enforcement of liens which are an- nulled by the adjudication in bankruptcy. Thus, the statute does not prevent the court of bankruptcy from restraining attaching creditors of the bankrupt from the further prosecution of their attachment suits in I a. state court, when the preference created by the levy of such attach- ments was the act of bankruptcy on which the adjudication was based, and the petition was filed within four months after the levy, even though the creditors' causes of action were such as would not be affected by a discharge of the debtor in bankruptcy.** So also, the court may inter- fere where proceedings between' the bankrupt and another in a state court are collusive and intended to give such other an advantage over other creditors.** But the jurisdiction acquired before the proceedings in bankruptcy 'by a state court in proceedings for the partition of an estate in which the bankrupt is interested will not be interfered with by the -bankruptcy court.*^ Proceedings to enforce the payment of a tax levied by a state or a municipal corporation should not be stayed or interfered with by the court of bankruptcy. For taxes are not debts of such a character as to be released by a discharge, and moreover they are entitled to priority Bankr. E^p. 41; In re McCauley, 101 ss Bear v. Chase (C. C. A.) 99 Fed. 920, Fed. 223, 4 Am. Bankr. Rep. 122. 3 Am. Bankr. Rep. 746 ; In re Lilienthal, 81 In re Marshall Paper Co., 95 Fed.' 256 Fed. 819, 168 C. C. A. 165; 43 Am. 419, 2 Am. Bankr. Rep. 653 ; In re Rem- Bankr. Rep. 665. ington Automobile & Motor Co., 119 Fed. 441, 9 Am. Bankr. Rep. 538; John A. 8 4 Samson v. Burton, 5 Ben. 343, 5 N. Roebllng's Sons Co. v. Federal Storage ^- ^- ^59, Fed. Cas. No. 12,286; In re Battery Car Co., 185 App. Div. 430, 17.! ^lajk, 9 Blatehf. 372, 6 N. B. R. 403, Fed. N. T. Supp. 297. ^^®- No- 2.801. 82 In re Franklin, 106 Fed. 666, 6 Am. 8 b in re Caldwell, 2 Hughes, 291, Fed. Bankr. Rep. 285. Cas. No. 2,300. 447 SUITS BY AND AGAINST THE BANKRUPT § 191 of payment out of the estate of a bankrupt and outrank the claims of all other creditors.*® § 190. Foreclosure of Mortgages and Other Liens. — ^As a general ^ ^ rule, the institution of proceedings in bankruptcy against a debtor does not take away the jurisdiction of a state court to proceed with a suit already pending therein for the foreclosure of a mortgage or the en- forcement of any other valid lien against his property, and such pend- ing action will not be stayed or enjoined by order of the court of bankruptcy, provided, of course, that the lien attached more than four months before the bankruptcy and is otherwise unimpeachable. The trustee in bankruptcy may be authorized or directed to intervene in such suit for the protection of the interests of the general creditors or for the purpose of setting up any defense which would be available to the bankrupt or to them. The proceedings in the state court may be stopped if there is good ground for disputing the datfe or the validity of the alleged lien. And it is not outside the jurisdiction of the court of bankruptcy to restrain the creditor from proceeding further in his action, and to take charge of the property affected, for administration under its own direction, if it appears that there is a substantial excess of value in the property over the amount of the creditor's claim, and that this will probably be sacrificed at a forced sale under process of the state court, while the property could be more economically sold and at a better price by the trustee in bankruptcy. But except in such cases as these, the creditor will be allowed to proceed in the state court without interference. These general principles will be more fully dis- cussed in a subsequent chapter.*' § 191. Proceedings Subsequent to Judgment. — ^Where a creditor has recovered judgment and caused final process to be issued and levied on property of the debtor, before the latter's adjudication in bankruptcy, if no stay of proceedings is ordered, nor other measures taken, in the court of bankruptcy to arrest the action, the officer holding the writ may proceed to make a sale of the property, and his deed will give the purchaser a title which cannot be impeached collaterally by the trustee in bankruptcy.** But if the writ was issued and levied within four months before the institution of the proceedings in bankruptcy, then, 86 Bankruptcy Act 1898, §§ 11a, 17, 64. er, 2 Woods, 564, Fed. Cas. No. 13,860; See In re Duryee, 2 Fed. 68. Blston v. Castor, 101 Ind. 426, 51 Am. "7 See infra, ch. 20, § 390. Eep. 754; Hunter v. Porch, 4 Ky. Law 88 Doe V. Childress, 21 WaU. 642, 22 Rep. 826; Fisher v. Lewis, 69 Mo. 629; L. Ed. 549; In re Hufnagel, 12 N. B. R. Thompson v. Moses, 43'6a. 383; Wheeler 554, Fed. Cas. No. 6,837 ; Thames v. Mill- v. Redding, 55 Ga. 87. § 191 LAW OF BANKRUPTCY 4d8 by the provisions of section 67 of the act, its lien is extinguished by the adjudication in bankruptcy, and consequently the officer holds the property as a mere temporary custodian, and the trustee is entitled to recover possession of it, and the court of bankruptcy has jurisdittion' to order the surrender of the property, on a summary petition by the trus- tee.** Moreover, the court of bankruptcy has jurisdiction, by injunc- tion, to forbid an execution creditor of the bankrupt from proceeding to sell property on which a levy has been made at the date of the ad- judication, where the execution constitutes the act of bankruptcy found against the defendant, or is an unlawful preference and contrary to the provisions of the bankruptcy law."" Even though the judgment is not thus impeachable, the court of bankruptcy may enjoin the sale by the sheriff (at least until the trustee in bankruptcy can intervene) when it appears to be necessary for the protection of the interests of the general creditors.'"^ If it shall appear to be for the best interests of all concerned, the court of bankruptcy has power, instead of enjoining the sale by the sheriff, to allow that officer to proceed with the sale and hold the proceeds subject to its own order.** When this is done, the sheriff will be directed to bring the entire proceeds, less costs, into the court of bankruptcy; or he may be directed to satisfy the execution creditor (if the latter's claim is valid and not affected by the adjudication), and to pay over the remainder to the trustee in bankruptcy.®* If the sheriff has already made a sale of the property before the adjudication in 89 In re Francis- Valentine Co. (C. C. 9i in re Lady Bryan Min. Co., 6 N. B. A.) 94 Fed. 793, 2- Am. Bankr. Kep. 522; R. 252, Fed. Cas. No. 7,980; In re Globe In re Fellorath, 95 Fed. 121, 2 Am. Cycle Works, 1 Nat. Bankr. News, 421: Bankr. Rep. 40 ; In re Richards, 95 Fed. Eastburn v. Tardley, Fed. Cas. No. 4,252. 258, 2 Am. Bankr. Rep. 518 ; In re Fran- An injunction restraining proceedings on ds-Valentine Co., 9.3 Fed. 953. 2 Am. execution under a judgment against the Bankr. Kep. 188; In re Schnepf, 2 Ben. bankrupt will be dissolved where the 72, 1 N. B. R. 190, Fed. Cas. No. 12,471. trustee has taken no measures to recover 00 In re Lesser, 100 Fed. 433, 3 Am. the property levied on, and the bankrupt Bankr. Rep. 815 ; In re Kimball, 97 Fed. declares that the property does not be- 29, 3 Am. Bankr. Rep. 161 ; In re Lady long to him. In re Olcott, 2 Ben. 443, Bryan Min. Co., 6 N. B. R. 252, Fed. Cas. Fed. Cas. No. 10,478. No. 7,980; Beatlie v. Gardner, 4 Ben. „, r,,^ j. ^ . ■ ,, v., . 479, 4 N. B. B. 323, Fed. Cas. No. 1,195; "' ^^^^^ property is perishable is no In re Mallory, 1 Sawy. 88, 6 N. B. R. S":°"°'^ ^""^ dissolving an injunction 22, Fed. Cas. No. 8,991; Blake v. Fran- "^^f^ restrained a sale thereof on exe- cis-Valentine Co., 89 Fed. 691, 1 Am. ™''7 ^''"l^" t.^?^^f"TT:J'' '^ Bankr. Bep. 372 ; Irving v. Hughes, 2 N. *^^''''^'-' \ ^«°- ^^^' ^ N. B. R. 38, Fed. B, R. 61, Fed. Cas. No. 7,076; In re Metz- ^'^^^ ^'^- ^'^^'^• ler, 1 Ben. 356, 1 N. B. R. 38, Fed. Cas. »3 in re Bernstein, 2 Ben. 44, 1 N. B. No. 9,512; Southern Loan & Trust Co. v. R. 199, Fed. Cas. No. 1,350 ; O'Brien v. Benbow, 96 Fed.' 514, 8 Am. Bankr. Weld, 92 U. S. 81, 23 L. Ed. 675. Rep. 9. 449 SUITS BY AND AGAINST THE BANKRUPT § 191 bankruptcy, but still has the proceeds in his hands, he will not be re- strained from paying to the execution creditor the amount of his debt, if the creditor is legally entitled thereto, but will merely be required to account to the trustee in bankruptcy for any balance that may re- main. But if the lien was dissolved, because the writ was levied within four months before the commencement of the bankruptcy proceedings, the case is different. Here, the proceeds of the sale do not belong to the execution creditor, but to the estate of the bankrupt; and although there is some difference of opinion, the rule may be stated, as sustained by the best authorities, that the ofiQcer may be' enjoined from dispos- ing of the fund in his hands, and ordered to surrender it to the trustee in bankruptcy, and this, on summary proceedings, and without the ne- cessity of resorting to a plenary suit.®* If the sheriff has paid over the proceeds of the execution to the creditor, after the adjudication of the debtor as a bankrupt, the trustee will still have a remedy by ac- tion against the creditor to recover the fund, if the levy was dissolved by the bankruptcy proceedings or was voidable as a preference ; "^ but otherwise where the sale was made and the proceeds paid over to the creditor before the filing of the petition in bankruptcy, though less than four months prior thereto, since the statute applies only to liens exist- ing and unsatisfied at the commencement of the proceedings in bank- ruptcy.^® An adjudication in bankruptcy brings the entire estate of the bankrupt within the custody and control of the court of bankruptcy ; and if a sheriff thereafter levies on goods of the bankrupt, he may be enjoined from making a sale under his levy. The title to the goods vests in the trustee in bankruptcy, and he alone must make the sale, the proceeds being subject to any valid liens or claims upon them.*' 9i Clark V. Larremore, 188 XJ. S. 486, re Francis-Valentine Co. (C. 0. A.) 94 23 Sup. Ct. 363, 47 L. Ed. 555, 9 Am. Fed. 793, 2 Am. Bankr. Rep. 522 ; Mills Bankr. Kep. 476 ; In re Kenney, 105 Fed. v. Davis, 10 N. B. R. 340 ; Kosches v. . 897, 45 0. 0. A. 113, 5 Am. Bankr. Rep. Libowitz (Tex. Civ. App.) 56 S. W. 613 ; 355*; In re English, 127 Fed. 940, 62 C. Davis v. Jewett, 17 S.' Dak. 410, 97 N. C. A. 572, 11 Am. Bankr. Rep. 674 ; In re W. 16. Conjpare In re Easley, 93 Fed. Franks 95 Fed. 635, 2 Am. Bankr. Rep. 419, 1 Am. Bankr. Rep. 715 ; In re Camp- 634 ; Sehmilovitz v. Bernstein, 22 R. I. bell, 1 Abb. V. S. 185, 1 N. B. R. 165, Fed. 330,' 47 Atl. 884 ; In re Dugiiid, 100 Fed. Cas. No. 2,349. 274' 3 Am Bankr. Rep. 794; Bear v. 9 b Bradley v. Frost, 3 Dill. 457, Fed. Chase, 99 Fed. 920, 40 C. C. A. 182, 3 Cas. No. 1,780. Am. Banlcr. Rep. 746; Miller v. O'Brien, os Davis v. Jewett, 17 S. Dak. 410, 97 9 Blatchf . 270, 9 N. B. E. 26, Fed. Cas. N. W. 16 ; Levor v. Seiter, 69 App. Div. No. 9,586; In re Grinnell, 7 Ben. 42, 9 N, 33, 74 N. Y. Supp. 499; Greene v. Mon- B. R. 29, Fed. Cas. No. 5,830; Pennington tana Brewing Co., 28 Mont. 380, 72 Pac. ' V Lowenstein, 1 N. B. R. 570, Fed. Cas. 751 ; Farrell v. W. B. Lockett & Co., 115 No. 10,938 ; In re Richards, 95 Fed. 258, Tenn. 494, 91 S. W. 2G9. 2 Am. Bankr. Rep. 518; In re Fellerath, o^ Leonard v. Tohnk, 68 Wis. 587, 32 95 Fed. 121, 2 Am. Bankr. Rep. 40; In N. W. 702, 60 Am. Rep. 884; Pennington Blk.Bkk.(3d Ed.)— 29 § 191 LAW OF BANKRUPTCY 450 In a suit to revive a judgment against a bankrupt, his trustee is the proper person on whom to serve the citation, if he is still in office.** § 192. Proceedings Supplementary to Execution. — Where proceed- ings supplementary to execution are pending in a state court at the time of the adjudication of the judgment debtor as a bankrupt, the judgment being a debt provable in bankruptcy, the court of bankruptcy, on the application of the bankrupt or his trustee, may order a stay of all proceedings in the state court to await the determination of the court of bankruptcy on the .question of the bankrupt's discharge.*® When a judgment in a state court has been recovered against two defendants on their joint and several obligations, and one of them is afterwards ad- judged bankrupt but not the other, proceedings in the state court sup- plementary to execution on such judgment may be stayed and en- joined as to the bankrupt, but not as to the other judgment debtor.*"* Of course, the state court may itself stay the proceedings, and it is held that a bankrupt who has omitted to apply for a stay of proceed- ings in an action against him, pending the question of his discharge, may nevertheless apply to the state court after judgment to have sup- plementary proceedings against him thereon stayed, on the ground that he has been discharged, if the plaintiff's demand is of such a na- ture as to be released by the discharge.*** But the adjudication in bankruptcy will not affect the state court's jurisdiction of the supple- mentary proceedings, nor authorize the debtor to refuse to comply with its order directing his examination, in the absence of an application to the federal court for a stay of such proceedings.*** If the plaintiff has procured the appointment of a receiver in his supplementary proceed- ings, and the latter has taken actual possession of the property, he will not, under any ordinary circumstances, be interfered with by the bankruptcy court, but leave will be given to the trustee to intervene in the creditor's action, for the purpose of contesting his claim, if there V. Sale, 1 N. B. R. 572, Fed. Cas. No. loi World Co. v. Brooks (N. Y. Com. 10,939. Pleas) 3 N. B. R. 588. And see In re 8 Grayson's Ex'r v. Norton, 33 La. Madden (D. C.) 257 Fed. 581, 43 Am. Ann 1018 ^^°'""- ^^P- ^^2. „ ^ 102 In re William E. De Laney & Co., 9 9 In re Reed, 1 N. B. R. 1, Fed. Cas. j^24 Fed. 280, 10 Am. Bankr. Rep. 634. No. 11,637; In re Kletchka, 92 Fed. 901, ^ui,^ ^^ ^^^^^ j^ supplementary pro- 1 Am. Bankr. Rep. 479 ; In re Lesser (C. ceedings is stayed by an adjudication of C. A.) 99 Fed. 913, 3 Am. Bankr. Rep, bankruptcy for 12 months therefrom, the "^58. proceedings are not superseded, and they 100 In re Burke, 155 Fed. 703, 19 Am. can be continued after the expiration of Bankr. Rep. 51; In re De Long, 1 Nat. that period. Taylor v. Buser (Sup.) 167 Bankr. News; 26. N. Y. Supp. 887. 451 SUITS BY AND AGAINST THE' BANKRUPT § 193 is any ground to do so, and for the protection of the interests of the general creditors.^"* § 193. Proceedings on Appeal. — As a general rule, the bankruptcy of a party does not prevent the hearing and determination of an appeal from a judgment of a state court by the appellate court of the state. Proceedings on such appeal are not ipso facto suspended by the adju- dication in bankruptcy nor will the court of bankruptcy order them stayed.^"* Where the bankrupt was the appellant, his trustee, on pro- ducing the proper evidence of his official character, may, on motion, be substituted as appellant in the case.^** If the trustee does not inter- vene and Seek to be substituted, still the bankrupt, prior to his discharge, has sufficient interest in preventing the establishment of a claim against him to enable him to maintain an appeal from a judgment thereon.^** Though the judgment was not rendered until after the adjudication in bankruptcy, yet the bankrupt may prosecute an appeal or writ of error thereon in his own name,^*' at least if his trustee will give his written consent thereto.^"* But after the bankrupt has received his discharge, he has no further interest in any action pending against him, and canpot prosecute an appeal from a judgment rendered against him before the discharge was granted, though his trustee may do so."^ i03 Supra, § 27. And see In re Whip- clared a bankrupt. Tutt v. Fighting pie, 6 Blss. 516, 13 N. B. K. 373, Fed. Wolf Mining Co. (Mo. AppO 209 S. W. Cas. No. 17,512. In re Cefola (D. C.) 222 304. Fed. 171. '■'^^ Herndon v. Howard, 9 Wall. 664, 10* Smith V. Meisenheimer, 104 Ky. 19 L. Ed. 809; Knox v. Exchange Bank, 753, 47 S. W. 1087 ; Flanagan v. Pear- 12 Wall. 379, 20 L. Ed. 287. See Sigler son, 42 Tex. 1, 19 Am. Rep. 40 ; Merrltt v. Shehy, 15 Ohio, 471. V. Glidden, 39 Cal. 559, 2 Am. Kep. 479; i»6 Sanford v. Sanford, 58 N. Y. 67, Alston v. Wingfield, 53 Ga. 18 ; Booker 17 Am. Kep. 206 ; O'Neil v. Dougherty, 46 V. Adkins, 48 Ala. 529; In re Hirsch, 2 Cal. 575; Hughes v. Thweatt, 57 Miss. Ben. 493, 2 N. B. R. 3, Fed. Cas. No. 376; Schoonmaker v. Pittsburgh Con- 6,529 ; Booker v. Blythe, 90 Ark. 165, 118 tracting Co., 176 App. Div. 48, 161 N. T. S. W. 401 ; Bennett v. Bennett, 65 S. W. Supp. 186, 1055, 12, 23 Ky. Law Rep. 1281. Compare In lo? Hill v. Harding, 131 U. S. (Appen- reMetcalf, 2 Ben. 78, 1 N. B. R. 201, Fed. dix) cc, 26 L. Ed. 310; O'Neil v. Dough- Cas. No. 9,494 ; In re Leszynsky, 3 Ben.. erty, 46 Cal. 575. But compare Parks 487, Fed. Cas. No. 8,278. See United v. Doty, 13 Bush. a<-J.) 727; Daugherty Wireless Telegraph Co. v. National Elec- v. Ringo, 1 Ky. Law Rep. 282. And see trie Signaling Co., 198 Fed. 385, 117 C. Jenkins v. International Bank, 97 111. C A. 261, 28 Am. Bankr. Rep. 889; Kohn, 668. Weil & Co. V. Weinberg, 110 Miss. 275, "s Christy v. Des Moines City Ry. 70 South. 353. The court in which the Co., 126 Iowa, 428, 102 N. W. 194. appeal is pending may itself stay fur- "a Knosx v. Exchange Bank, 12 Wall, ther proceedings, but cannot dismiss and 379, 20 L. Ed. 287 ; Wilson v. McMullen, finally determine the cause merely on a 4 Ky. Law Rep. 895 ; Jones v. Barnes, showing that the defendant has been de- 107 Miss. 800, 66 South. 212. § 194 LAW OF BANKBUPTCX 452 1 § 1,94. Contempt Proceedings. — The power of a court of bank- ruptcy to stay proceedings in a state court againpt the bankrupt for a contempt of the latter court will depend upon the nature of the duty or obligation which is sought to be enforced. If the contempt alleged consists of a disobedience to the process or orders of the court, the vio- lation of an injunction, the wilful use of false affidavits, or other affront to the court itself, it would appear that the court of bankruptcy could have no motive for interfering, and every principle of comity would forbid an attempt to control the action of the state tribunal.^^* On the other hand, if the proceeding for contempt is merely used as a means of enforcing a private obligation, the authority of the court of bank- ruptcy to forbid its prosecution must depend upon the question whether or not the creditor's claim is of a nature to be released by the discharge in bankruptcy.-'^^ For example those authorities which hold that ali- mony is a provable debt in bankruptcy, and therefore one which will be affected by the discharge, also maintain the authority of the court of bankruptcy to enjoin the person to whom such alimony is due from forcing its payment by the bankrupt by proceeding against him in the state court as for contempt.''^* § 195. Effect of the Stay. — When the court of bankruptcy has ex- ercised its power to order a stay of proceedings in a pending suit against the bankrupt, founded on a debt from which his discharge would be a release, this does not divest the state court of jurisdiction over the case, and "the stay does not operate as a bar to the action, but only as a suspension of proceedings until the question of the bankrupt's discharge shall have been determined in the United States court sitting in bank- ruptcy. After the determination of that question in that court, the court in which the suit is pending may proceed to such judgment as the circumstances of the case may require. If the discharge is refused, the plaintiff, upon establishing his claim, may obtain a general judg- ment:" ^^^ If, on the other hand, the discharge is granted, the bankrupt 110 In re Koronsky, 170 Fed. 719, 96 442; In re Summers, 1 Nat. Bankr. News, O. 0. A. 39, 21 Am. Bankr. Rep. 851 ; In 60. Contra, In re Pyatt (D. C.) 257 Fed. re Hall, 170 Fed. 721, 22 Am. Bankr. "362. Rep. 498 ; In re Hill, 2 N. B. R. 140, Fed. us Hill v. Harding, 107 V. S. 633, 2 Gas. No. 6,486; People v. Sheriff of Sup. Ct. 404, 27 L. Ed. 493; Byers v. , Kings County (D. O.) 206 Fed. 566, 31 First Nat. Bank, 85 111. 423 ; Tinkum v. Am. Bankr. Rep. 84. O'Neale, 5 Nev. 93. Where a suit in 111 In re Adler, 144 Fed. 659, 75 O. O. equity abates by the bankruptcy of the A. 461, 16 Am. Bankr. Rep. 414. plaintiff before the time for answering 112 See In re Van Orden, 96 Fed. 86, 2 has expired, no answer is required until Am. Bankr. Rep. 801; In re Houston, 94 a plaintiff has been substituted by order Fed. 119, 2 Am. Bankr. Rep. 107; In re of the court, and the court has no pow- Challoner, 98 Fed. 82, 3 Am. Bankr. Rep. er to order entry of a decree pro con- 453 SUITS BY AND AGAINST THE BANKRUPT § 196 may of course plead it in bar of the further prosecution of the action. But it is provided that "a claim for taxable costs incurred in good faith by a creditor before the filing of the petition, in an action to recover a provable debt" may be proved and allowed as a claim against the. bankrupt's estate."* While the stay, however, remains in force it sus- pends all further proceedings in the action. Thus, a creditor enforcing an execution on a judgment recovered in the state court, in defiance of an injunction of the court of bankruptcy, in which the debtor has filed a voluntary petition, is guilty of contempt,^^^ and a sale of property of the bankrupt on execution, after notice of the injunction, will render the officer liable.^^^ But where the suit is against the bankrupt and another jointly, and proceedings are stayed as to the bankrupt, it is said that judgment may .be rendered against both defendants, and an order made staying execution as to the bankrupt until the question of his discharge is determined. '^^ And where the creditor has already recovered a judgment against the bankrupt and a third person, though he is enjoined from enforcing execution as against the bankrupt, this does not in any way affect his right to proceed against the other defend- ant."» § 196. Effect of Grant or Denial of Discharge. — An injunction is- sued by the court of bankruptcy, staying proceedings against the bank- rupt in a state court until the question of his discharge shall have been fesso. Western Star Lodge v. Burkes injunction may be disregarded, or the Const. Co. (C. C. A.) 267 Fed. 550, 46 Am. parties may be enjoined from attempt- Banlcr. Rep. 166. ing to enforce it. Where, after a .iudg- 11* Bankruptcy Act 1898, § 63, cl. 3. ment creditor had levied execution, the 115 In re Atkinson, 3 Pittsb. 423, 7 N. debtor filed a petition and was adjudged B. R. 143, Fed. Cas. No. 606. Where a bankrupt, and proceedings on the execu- bankrupt obtained an injunctive order tion were stayed, it was held that, al- from the bankruptcy court staying all though the bankrupt had waived in the suits and proceedings against him on the judgment his right to personal exemp- part of certain creditors, their agents tions, it was nevertheless a contempt of and attorneys, to collect certain specified court for the judgment creditor to pro- debts, and thereupon a suit by one of ceed under the writ of execution to sell the creditors was discontinued, and property set aside to the bankrupt on afterwards a new suit was brought Ms claim of exemptions, the restraining through the same attorney in the same order not having been modified so as to court for the reeovery of the same debt, allow such proceedings ; and this is so with allegations of fraud, it was held even though the creditor was entitled to that the last named suit was a violation reach such property. In re Braun (D. of the injunction. In re Schwarz, 14 C.) 259 Fed. 309, 43 Am. Bankr. Rep. 695. Fed. 787. But see Kittredge v. Emer- iie Stinson v. McMurray, 6 Humph, son, 15 N. H. 227, where it was ruled that (Tenn.) 339. the jurisdiction of the court of bank- iir Byers v. First Nat. Bank, 85 111. ruptcy to Issue an injunction of this kind 423. But compare Hinman v. Cutler, 2 may be inquired into by the state court, Low. 364, Fed. Cas. No. 6,524. and if the latter finds that the federal us Penny v. Taylor, 10 N. B. R. 200, court has acted without authority, the Fed. Cas. No. 10,957. § 197 ' LAW or BANKRUPTCY 454 determined, if not ipso facto dissolved by the granting of the discharge, should ordinarily be vacated as a matter of course on the application of the creditor who was stayed or enjoined."* After the discharge has been granted, the bankrupt's further relief against the prosecution of suits in the state courts, on causes of action such as to be affected by the discharge, must be sought and obtained in those courts only, and they will determine the effect of the discharge on his pleading it. Hence an injunction obtained ex parte in the bankruptcy court, after the dis- charge has been granted, continuing the previous injunction, was held to have been improvidently granted and was vacated.'^* If the defetid- ant fails to obtain his discharge, an action pending against him in a state court at the time of the adjudication survives. ^^^ If such a suit was pending in an appellate court, and was ordered abated on the occurrence of the bankruptcy proceeding, and the bankrupt fails to obtain his dis- charge, the plaintiff may then have the case reinstated for hearing.^^^ § 197. Pending Actions by Bankrupt as Plaintiff. — It was the doc- trine of many of the earlier cases that a suit at law or in equity pend- ing and undetermined at the time of the adjudication of the plaintiff as a bankrupt, and founded on a cause of action which would pass to his trustee in bankruptcy, would abate by reason of such bankruptcy, un- less the trustee was substituted as a party, and that, if the trustee on due notice, omitted to intervene, the action should be dismissed. "^^^ For the rule was inflexible that, after an adjudication in bankruptcy and the appointment of a trustee, the bankrupt had no right to prosecute further any action begun by him before his bankruptcy; if the action was to continue, it must be in the name of the trustee. ^^* But in view of the fact that the statute makes it optional with the trustee whether or not to intervene, the better authorities now hold that a pending action 110 In re Rosentlial, 108 Fed. 368, 5 122 Clark v. Fighting Wolf Mining Co. Am. Bankr. Rep. 799; In re Flanders, (Mo. App.) 209 S. W. 307. 121 Fed. 936, 10 Am. Bankr. Rep. 879; In 123 gee Gear v. Fitch, 3 Ban. & A. 573, re Thomas, 3 N. B. R. 38, Fed. Cas. No. Fed. Cas. No. 5,290; Cook v. Lansing, 13,890; Kittredge v. Emerson, 15 N. H. 3 McLean, 571, Fed. Cas. No. 3,162; Lacy 227. The same action should be taken v. Rockett, 11 Ala. 1002; Brooks v. Har- by a state court, when the stay of pro- ris, 12 Ala. 555; McNutt v. King, 59 ceedings was granted by it. Wakeman Ala. 597; Sutherland v. Davis, 42 Ind. V. Throckmorton, 74 Conn. 616, 51 Atl. 26, 10 N. B. R. 424; Towle v. Davenport, 554. 57 N. H. 149, 16 N. B. R. 478; Negley v. ■ 120 In re Havens (C. C. A.) 272 Fed. Jeffers, 28 Ohio St. 90; Atwood v. Bail- 975, 46 Am. Bankr. Rep. 711; In re ey, 184 Mass. 133, 68 N. E. 13. Herzberg, 25 Fed. 699. 12* Abernathy v. Phillips, 82 Va. 769, 121 American Woolen Co. v. Maaget, 1 S. E. 113; Charles v. Bala, 9 Ky. Law 86 Conn. 234, 85 Atl. 583; Anders Bros. Rep- 398; Dessau v. Johnson, 66 How. V. Latimer, 198 Ala. 573, 73 South. 925. Pr. (N. Y.) 4. 455 SUITS BY AND AGAINST THE BANKRUPT § 197 will not abate merely by reason of the bankruptcy of the plaintifif.^** In fact, the transfer of the right of action to a trustee in bankruptcy is a matter of defense to be set up by the defendant, and the failure of the plaintiff to disclose the fact of his bankruptcy is not a fraud nor ground for a new trial.^'® Besides, where no trustee has been appointed, th'e bankrupt still retains title to his property, so that he may maintain a suit on a chose in action.^^' Upon the appointment of a trustee, there are at least three courses open to him with regard to pending suits by the bankrupt as plaintiff. In the first place, the trustee may, with the approval of the court of bankruptcy, be permitted to prosecute as trustee any suit commenced by the bankrupt prior to the adjudication with like force and effect as though it had been commenced by him.^** Secondly, a trustee in bankruptcy, though vested with title to all the transferable estate of the bankrupt, is not obliged to accept anything which may prove onerous or unprofitable to his charge. Hence if he judges that there is but slight prospect of a recovery in an action instituted by the bankrupt, and that his intervention is likely to involve the estate in costs and ex- penses without an adequate return, he may decline to prosecute the action. In that case the suit may be continued by the bankrupt in his own name and for his own benefit.''^'' Thirdly, the trustee may con- sent that the bankrupt shall continue to prosecute the action in his own name, without losing his right to whatever may be recovered in the action, or divesting himself of the title passed to him by the adjudi- cation in bankruptcy.^*" The right of the trustee to receive the fruits 12 5 Thatcher v. Rockwell, 105 U. S. Mass. 278, 107 N. E. 941. But see Peters 467, 26 L. Ed. 949; King v. Morrison, 5 v. Wallace, 4 S. W. 914, 9 Ky. Law Kep. Ark. 519; Pittsburgh, C. & St. L. R. Co. 215. Before a bankrupt can maintain V. Nuzum. 60 Ind. 533; Springer v. Van- an actioij on a claim which, under the derpool, 4 Edw. Ch. (N. Y.) 362; Griffin adjudication ^ In bankruptcy, passed to V. Mutual Life Ins. Co., 119 Ga. 664, 46 his trustee, on the ground that the trus- S. E. 870. tee elected not to take such claim, it de- 12 6 Coulson V. Ferree, 82 S. W. 1000, volves upon the bankrupt to show that 26 Ky. Law Rep. 959. the trustee was Informed of the nature 127 Rand V. Iowa Cent. R. Co., 186 N. of the claim and that he elected not to X. 58, 78 N. B. 574, 116 Am. St. Rep. take it. Buckingham v. Buckingham, 36 530, 9 Ann. Cas. 542. ' Ohio St, 68. And note that "costs tax- 12 8 Bankruptcy Act 1898, § lie. And able against an involuntary bankrupt see Ames v. Oilman, 10 Mete. (Mass.) who was, at the time of the filing of the 239; Van Camp v. McCulley, 89 Ohio petition against him, plaintiff in a cause St. 1, 104 N. E. 1004. of action which would pass to the trus- 12 Hubbard v. Gould, 74 N. H. 25, 64 tee, and which the trustee declines to Atl. 668; Griffin v. Mutual Life Ins. Co., prosecute after notice," may be proved 119 Ga. 664, 46 S. E. 870; Towle v. and allowed as a claim against the bank- Rowe, 58 N. H. 394; Ramsey v. Fellows, rupt's estate; Bankruptcy Act 1S98, § 58 N. H. 607; Conner v. Southern Expr. 63a. Co., 42 Ga. 87, 5 Am. Bankr. Rep. 543, iso Thatcher v. Rockwell, 105 U„ S. 9 N. B. R. 138; Greenall v. Hersum, 220 467, 26 L. Ed. 949; Gilmore v. Bangs, § 197 LAW OF BANKRUPTCY 456 of the judgment, and of the defendant to be protected in paying the amount to the proper party, may be secured by proper steps taken for that purpose.'^*^ If no trustee in bankruptcy has yet been appointed, the defendant may, in case of recovery, protect himself against liability to another suit by a trustee, when appointed, by an application to the court of bankruptcy.'^'*^ It has been held that the court in which the action is tried may direct the jury, if they find for the plaintiff, to find that he recover for the use of his trustee in bankruptcy.^^* Or the court of bankruptcy may make its order requiring the defendant to pay the amount of the judgment to the trustee,^** After the discharge of the trustee, or after the payment of all creditors and the discharge of the bankrupt, the latter may take up and continue the prosecution of any actions which were pending at the time of his bankruptcy and which remain unsettled.^*® It remains to be stated that if the cause of action, in a suit pending in the name of the bankrupt as plaintiff at the time of the adjudication, is one which does not pass to the trustee in bankruptcy, the bankrupt himself may continue to prosecute the action without any reference to his trustee or to the proceedings in bankruptcy.^^® Thus, where the bankrupt before his adjudication had begun an action in a state court to recover damages for a malicious prosecution and arrest, the court of bankruptcy has no jurisdiction to control him in the further conduct of such suit, the right of action therein not vesting in the trustee, and 55 Ga. 403: Peck v. United States, 15 decree that the title to land was in him Ct. CI. 364; Mayhew v. Pentecost, 129 and that defendant should execute title Mass. 332; Williams v. Fowle, 132 Mass. on payment of the amoxint due, and 385; Thatcher v. Rockwell, 4 Colo. 375; pending the action the plain ti£E became Reed v. Paul, 131 Mass. 129. Where de- bankrupt, a final decree should declare fendant conveyed to plaintiff,, with full the amount to be due by the bankrupt covenants of warranty, land from which and authorize its payment, and that, on the plaintifiE was later evicted by fore- the making of such payment, his trustee closure of a prior mortgage, it was held should have title executed to him, or, on no defense to plaintiff's suit on his war- the termination of the bankruptcy, to ranty that, after the conveyance and the person succeeding to the plaintiff's pending the foreclosure, the plaintiff was title to the land. Scott v. Lunsford, 141 adjudged bankrupt, and the trustee and Ga. 73, 80 S. B. 316. referee in bankruptcy, though rejecting is 2 Rand v. Iowa Cent. R. Co., 186 N. this real estate, did not reject the right Y. 58, 78 N. E. 574, 116 Am. St. Rep. 580, of action on the covenant against incum- 9 Ann. Cas. 542. brances. Smith v. Wahl, 88 N. J. Law, iss Woddail v. HoUiday, 44 Ga. 18, 10 623, 97 Atl. 261. N. B. R. 545. 131 Stone V. Jenkins, 176 Mass. 544, 57 is* Moore T. Jones, 23 Vt. 789, Fed. N. E. 1002, 79 Am. St. Rep. 343; Griffin Cas. No. 9,768. V. Mutual Life Ins. Co., 119 Ga. 664, 46 las Bacon v. Abbott, 137 Mass. 397; S. E. 870; Southern Exp. Co. v. Connor, Peery v. Carnes, 86 Mo. 652. 49 Ga. 415, 12 N. B. R. 53. Where plain- iso Towle v. Davenport, 57 N. H. 149, tiff sued for an accounting and for a 16 N. B. R. 478. 457 SUITS BY AND AGAINST THE BANKRUPT § 198 the bankrupt needs no permission from the court of bankruptcy to prosecute such suit to judgment.^^' Pending proceedings in bankruptcy and after the appointment of a trustee, the bankrupt has no standing to commence and prosecute an action in his own name, in relation to any of his property, unless it be exempt property.^** But the assignee of a chose in action may maintain a suit thereon in the name of his assignor, notwithstanding the fact that the latter has been adjudged a bankrupt.^*" And so, the purchaser of a chose in action from the trustee of a bankrupt's estate may maintain an action upon it in the name of such trustee.^*" § 198. Intervention of Trustee in Pending Suits. — The bankruptcy law provides that the court "may order the trustee to enter his appear- ance and defend any pending suit against the bankrupt," and that "the trustee may, with the approval of the court, be permitted to prosecute as trustee any suit commenced by the bankrupt prior to the adjudica- tion, with like force and effect as though it had been commenced by him." "^ The trustee is therefore entitled to be made a party to suits pending in state courts by or against the bankrupt, and to assume the control of them and be substituted in place of the bankrupt, and the latter, if necessary, will be enjoined from interfering with the litiga- tion.-'** But some of the state courts maintain that, while the trustee is hereby authorized to apply to the court in which an action is pending to be made a party, yet it rests in the discretion of the state court to grant or refuse such an application, and that its authority is not abridged by the fact that the court of bankruptcy has directed or ordered the trustee to enter his appearance or intervene, and that, in deciding such an application, the state court will be governed by state laws and judi- cial policy."* However, if leave of court is necessary to the trustee's 137 In re Haensell, 91 Fed. 355, 1 Am. Friedman v. Verchofsky, 105 111. App. Bankr. Rep. 286. 414. 138 Pickens v. Dent, 106 Fed. 653, 45 1*2 Gates V. Goodloe, 101 U. S. 612, 25 C. C. A. 522, 5 Am. Bankr. Rep. 644; L. Ed. 895; Samson v. Burton, 5 Ben. Scheldt V. Goldsmith, 103 111. App. 623; 325, 4 N. B. R. 1, Fed. Gas. No. 12,285; Simpson V. Miller, 7 Cal. App. 248, 94 New Orleans Acid & Fertilizer Co. v. Pac. 252; Buckingham v. Buckingham, Guillory, 117 La. 821, 42 South. 329; 36 Ohio St. 68; Rand v. Sage, 94 Minn. Williams v. Lane, 158 Cal. 39, 109 Pac. 344, 102 N. W. 864; Remmers v. Rem- 873; Neill v. Barbaree, 135 Ga. 771, 70 mers, 217 Mo. 541, 117 S. W. 1117. S. B. 638; Lee v. Pfeffer, 25 Hun (N. Y.) 139 Hayes v. Pike, 17 N. H. 564; Bon- 97; Armfield Co. v. Saleeby, 178 N. C. villain v. American Sugar Refining Co. 298, 100 S. E. 611. But see Jewett Bros; (D. C.) 250 Fed. 641, 41 Am. Bankr. Rep. v. Huffman, 14 N. D. 110, 103 N. W. 408. 267. 1*3 National Distilling Co. v. Seidel, 1*0 Rogers V. Union Stone Co., 134 103 Wis. 489, 79 N. W. 744; Bank of Mass. 31. Commerce v. Elliott, 109 Wis. 648, 85 141 Bankruptcy Act 1898, § lib, c. See N. W. 417; Drew v. Fort Payne Co., 186 § 198 LAW OF BANKRUPTCY 458 intervention, the objection that it was not obtained comes too late after verdict."* Further, to authorize a trustee in bankruptcy to intervene, he must of course be in the actual exercise of his official functions at the time. But if a trustee, after intervening in a pending suit, has been inadvertently or improperly discharged, and is afterwards reinstated by the referee in bankruptcy, the suit may be revived in his name."^ But while the trustee thus has the right to intervene in any pending suit by or against the bankrupt, if he sees fit, yet he is not bound to do so. If he is satisfied that nothing is to be gained for the estate by prose- cuting or defending such suit, "his duty rather requires him to take no part in the litigation, and neither the parties to the action nor any court can compel him to intervene.^*" He may allow the action to proceed in the name of the bankrupt and claim for the estate the fruits of the litiga- tion if it is successful."' It is held, however, that where a patent in- fringement suit is pending against the bankrupt, the court of bankrupt- cy may grant leave to the plaintiff to file a supplemental bill making the trustee a party defendant, in order that he may be bound by the decree ; but this does not oblige him to make any defense or take anything more than a nominal part in the proceedings ; whether or not he shall interfere actively is a matter to be determined by him and by the bank- ruptcy court."* But there is an implied limitation on the right of the trustee to inter- vene in a pending action, in this, that the action must be one in which the estate of the bankrupt has an interest and which may therefore be prosecuted (or defended) by the trustee for the benefit of the general creditors.^** Thus, it is a general rule that the right of action for a per- sonal tort — an injury inflicted upon the bankrupt himself, rather than upon his property — does not pass to his trustee as assets of his estate. Ala. 285, 65 South. 71; Gray v. Amot, thorne & Sheble Mfg. Co., 173 Fed. 617, 31 N. X). 461, 154 N. W. 268. 23 Am. Bankr. Kep. 234. 144 Jones V. Meyer Bros. Drug Co., 25 "» In re Haensell, 91 Fed. 355, 1 Am. Tex Civ App. 234, 61 S. W. 553. Bankr. Rep. 286. The trustee in bank- 145 Bunch V. Smith, 116 Tenn. 201, ruptey of a corporation is properly al- lowed to intervene in an action by a 93 S. W. SO. shareholder seeking to recover from the 140 In re Leeds & CatUn Co., 175 Fed. president the value of his stock which 309, 23 Am. Bankr. Rep. 679; Griffin v. ^,^^ ^^^ destroyed by the president's Mutual Life Ins. Co., 119 Ga. 664, 46 S. embezzlement of the entire corporate as- E. 870; I-Ieckscher v. Blanton, 111 Va. sptg. Floyd v. Lay ton, 172 N. C. 64, 89 648, 69 S. E. 1045, 37 L. R. A. (N. S.) 923; g g. 998. In an action for the purchase Serra 6 Hijo v. Hoffman, 29 La. Ann. 17. prjge of a chattel, where the buyer coun- See Norton v. Switzer, 93 U. S. 355, 23 terelaimed for breach of warranty, it is L. Ed. 903. proper to substitute the buyer's trustee i47Kessler v. Herklotz, 132 App. Div. in bankruptcy as a party to the couu- 278, 117 N. Y. Supp. 45. terclaim. Crouch v. Fahl, 63 Ind. App. 148 Victor Talking Mach. Co. v. Haw- 257, 113 N. E. 1009. 459 SUITS BY AND AGAINST THE BANKRUPT § 198 Hence if the bankrupt has an action of this kind pending, as, for example, for slander or libel, the trustee cannot claim to be substituted as plain- tiflf.^'* And so, if the bankrupt has disclaimed title to the property in suit, his trustee cannot come in and assert title. "^^^ This, however, does not apply to property which he has conveyed away in fraud of his credi- tors. On the contrary, it is well settled that the trustee has the right to intervene in a judgment creditor's suit to reach and subject such conceal- ed assets,^^* and that his recovery is for the benefit of all the creditors and not merely for the original plaintiif, so that the trustee iS entitled to have turaed over to him the entire proceeds of a sale of the property.^®^ For similar reasons, he will be admitted to prosecute to final judgment a suit .begun by a creditor to avoid an unlawful preference, ^^* or one to enforce an equitable lien on property of the bankrupt,^^* or to foreclose a mortgage, in order that he may be enabled to claim any surplus pro- ceeds of the sale after satisfying the mortgagee. ^^ Moreover, the trus- tee has a legal status to attack a judgment illegally entered against the bankrupt,"' or to move to set aside a judgment entered against the bankrupt by default,*^* or to take the bankrupt's place in an action be- gun by him to obtain an injunction against the collection of a judgment on the ground that it had been paid.^^ If the trustee desires to intervene in a pending suit, he should act with reasonable promptness. An unreasonable delay, operating to the prejudice of others in interest, will justify a denial of his application,^*" and if he allows the suit to go to judgment in the court of first instance, he cannot intervene after it has been taken up on appeal.^®^ But sup- iBo Epstein V. Handverker, 29 Okl. 337, 116; McCrory v. Donald, 119 Miss. 256, 116 Pac. 789. 80 South. 643. 151 Simmons v. Ricliards, 28 Tex. Civ. i^s Buncli v. Smith, 116 Tenn. 201, 93 App. 112, 66 S. W. 687. But where it ap- S. W. 80. pears on the face of the record that the i^* Miller v. New Orleans Acid & Fer- bankrupt, plaintiff in an action, has a tilizer Co., 211 U. S. 498, 29 Sup. Ct. 176, prima facie right to sue for the proper- 53 L. Ed. 300. ty in question, his trustee's application uss Snyder v. Smith, 185 Mass. 58, 69 to be substituted as plaintiff cannot be N. E. 1089. defeated by the bankrupt alleging that lee in re Gerdes, 102 Fed. 318, 4 Am. his wife is the real party in interest. Bankr. Kep. 346. Person v. United States, 8 Ct. CI. 543. i" Garrison v. SeckendorfC, 79 N. J. 152 In re Riker, 107 Fed. 96, 5 Am. Law, 203, 74 Atl. 311 ; Weil v. Simmons, Bankr. Rep. 720 ; Davis v. Vandiver, 143 66 Mo. 617. Ala. 202, 38 South. 850; Kinmouth v. iss First Nat. Bank v. Flynn, 117 Braeutigam (N. J. Eq.) 57 Atl. 1013 ; Iowa, 493, 91 N. W. 784. Bunch V. Smith, 116 Tenn. 201, 93 S. i5o Brandon v. Cabiness, 10 Ala. 155. W. 80; Tharp v. Tharp's Trustee (Ky.) i«o Freehold Const. Co. v. Bernstein, 119 S. W. 814 ; Atkins v. Globe Bank & 60 Misc. Rep. 363, 113 N. X. Supp. 368. Trust Co. (Ky.) 124 S. W. 879; Googins isi Weaver Mercantile Co. v. Thur- V. Skillings, 118 Me. 299, 108 Atl. 50; mond, 68 W. Va. 530, 70 S. E. 126, 33 Blick V. Nimmo, 121 Md. 139, 88 Atl. L. R. A. (N. S.) 1061. § 198 LAW OF BANKRUPTCY 460 posing his application to be seasonably made, the proper method is by his own petition or motion in the court where the suit is pending. •'^®* A motion by the bankrupt himself, without any application on the part of the trustee, is not sufficient. ^*^ The trustee's petition should contain allegations showing the fact and the date of the adjudication of bank- ruptcy,^** his own appointment as trustee,^*^ and such facts as show that he has an interest in the litigation as the representative of the creditors at large.^®* But he need not prove his appointment and qualification unless his right to recover in the capacity of a trustee in bankruptcy is challenged in such form, as the state law requires.^^ It shouJd be ob- served that this provision of the bankruptcy law does not undertake to regulate the practice in state courts, but places on the trustee the official duty of appearing according to the rules and practice of such courts, so as to protect the interests of the general creditors.*** He is therefore not exempt from the necessity of proper pleadings and evidence.**^ But he cannot set up either the bankrupt's adjudication or his discharge as a ground for staying proceedings Or in bar of the action, as that is a right personal to the bankrupt.*'"* On the other hand, where the trus- tee is brought in as a defendant, it is not necessary that the plaintiff's pleadings, alleging the trustee's representative capacity, and the trans- fer to him of the title to defendant's property, should also state a cause of action against him.*'* If the defendant in an action in a state court wishes to object to the substitution of the plaintiff's trustee in bank- ruptcy in place of the plaintiff himself, he must do so by objection or exception taken at the time ; if he goes to trial, it will then be too late to object to any irregularity.*'^ Where the trustee thus intervenes and takes part in the prosecution of the action, or its defense, he submits himself to the jurisdiction of the state court and becomes a party in the ordinary sense and with the ordinary consequences.*'* Thus, judgment may be taken against him 162 Kent V. Downing, 44 Ga. 116, 10 N. les Bacon v. George, 206 Mass. 566, 92 B. E. 538. N. E. 721. 163 Oscar Bonner Oil Co. v. Pennsyl- icg Wikle v. Jones, 133 Ga. 266, 65 S. \ania Oil Co., 150 Cal. 658, 89 Pac. 613. e. 577. 16* Jones V. Meyer Bros. Drug Co., 25 „„ ge^ra 6 Hijo v. Hoffman, 29 La. Tex. Civ. App. 234, 61 S. W. 553; A. ^^^ y; Itr'l^ %^T "■ """""' ^'° ^- '"""' "^ L^^timer v. McKlnnon, 85 App. Div. 35 South. 296 „ ^ ^ OP. 224, 83 N. T. Supp. 315. 16 B Jones V. Meyer Bros. Drug Co., 25 ' i'f • Tex. Civ. App. 234, 61 S. W. 553. "^ Chicago Legal News Co. v. Browne, 106 Hackett's Ex'rs V. Hackett's Trus- 103 111. 317; Brandon v. Cablness, 10 tee (Ky.) 118 S. W. 377 ; Kohout v. Chal- Ala. 155. oupka, 69 Neb. 677, 96 N. W. 173. I's Rennells v. Potter, 198 Mich. 49, 10 7 Jones V. Meyer Bros. Drug Co., 25 164 N. T. 475; Earl v. Jacobs, 177 Mich. Tex. Civ. App. 234, 61 S. W. 553. 163, 142 N. W. 1079. *61 SUITS BT AND AGAINST THE BANKRUPT § 199 by default.^"* He may become liable for costs, at least those accruing after his entrance into the casc^''^ And he will be bound by the judg- ment rendered, and if that judgment is unfavorable to the claims of the bankrupt, the court of bankruptcy will not, at the instance of the trus- tee, enjoin the state court's officers from executing the judgment, or from distributmg its proceeds according to the orders of the state court.^''^ The trustee may be authorized to compromise and settle a suit pending in a state court, in which the bankrupt is plaintiff, but not without consent of the latter's attorney, as he has a lien on any judg- ment recovered for his services."' If the trustee decHnes to take up a litigation begun by the bankrupt, the suit may proceed in the name of the bankrupt himself, or the bank- rupt's surety may be allowed to continue it in the name of the bankrupt but for his own protection."* In any case, the trustee, by taking this course, does not lose his right to claim whatever may be recovered."® But on the" other hand, as he occupies substantially the position of a pur- chaser pendente lite, he will be concluded by the judgment.^** Where, however, the action is against the bankrupt as defendant, and the trus- tee declines to intervene, a judgment recovered by the creditor may be proved in the bankruptcy proceedings as a liquidation or judicial ascer- tainment of the amount due the creditor, and as a basis of dividends, but it is effectual and operative for that purpose only.^*^ If the bankrupt was one of two joint plaintiffs on the record, the suit must be continued in the name of the trustee in bankruptcy and the other plaintiff, or, if a trustee has not yet been appointed, the action may be supported in the names of the bankrupt and the other plaintiff until a trustee comes in.^** § 199. Suits Begun After Adjudication. — It may be stated as a general nile that, after an adjudication in bankruptcy and until the de- 174 Kingsbury v. Waco State Bank, 30 Tucker v. Western Union Tel. Co., 94 Tex. Civ. App. 387, YO S. W. 551. Misc. Kep. 364, 157 N. Y. Supp. 873. "5Kessler v. Herklotz, 132 App. Div. it a Peck v. United States, 15 Ct. CI. 278, 117 N. Y. Supp. 45. And see Mur- 364. tagh V. Sullivan, 74 Misc. Rep. 517, 132 iso Eyster v. GafE, 91 U. S. 521, 23 L. N. Y. Supp. 503. Ed. 403 ; Heckscher v. Blanton, 111 Va. 176 In re Van Alstyne, 100 Fed. 929, 4 648, 69 S. B. 1045, 37 L. R. A. (N. S.) Am. Bankr. Rep. 42; In re Neely, 113 923; Ohickering v. Failes, 26 111. 507; Fed. 210, 51 C. 0. A. 167, 7 Am. Bankr. Mount v. Manhattan Co., 43 N. J. Eq. 25, Rep. 312; American Trust & Savings 9 Atl. 114; Cleveland v. Boerum, 24 N. Bank v. Ruppe, 237 Fed. 581, 150 C. C. Y. 613. A. 463, 38 Am. Bankr. Rep. 621. isi Norton v. Switzer, 93 U. S. 355, 23 17 7 In re Adamo, 151 Fed. 716, 18 Am. L. Ed. 908. Bankr. Rep. 180. i82 stinson v. Fernald, 77 Me. 576, 1 178 Bluegrass Canning Co. v. Steward, Atl. 742. And see Toulmin v. Hamilton, 175 Fed. 537, 23 Am. Bankr. Rep. 726 ; 7 Ala. 362. %. 199 LAW OP BANKRUPTCY 462 termination of the question of the bankrupt's discharge, no suit can be commenced against him in any court. He is civiliter mortuus, and the bankruptcy proceedings supersede the ordinary remedies of creditors.^*^ Also it is said that the court of bankruptcy has jurisdiction to stay the prosecution of ah action against the bankrupt in a state court, on a debt from which his discharge would be a release, pending the deter- mination of the question of his discharge, although the action was not begun until after the filing of the petition in bankruptcy.^** But on the application of a creditor the court of bankruptcy may grant him leave to begin a suit against the bankrupt in a state court, where there are special circumstances rendering such a proceeding necessary. But when the creditor has brought his suit, pursuant to such leave, and saved his rights thereby, the court of bankruptcy will then order a stay of further proceedings to await the determination of the question of discharge.-**^ It is held in one state, however, that a person prov- ing his claim in the bankruptcy court may sue for the same claim in a state court against the bankrupt, after the filing of the application for discharge, in order to obtain an attachment lien on the defendant's after-acquired and garnished property, ' though, where a discharge in bankruptcy would be a bar to any further proceeding on a claim filed therein, and an application for a discharge is pending, the state courts will be careful to protect the bankrupt's rights until his discharge is determined.**® We must also notice the provision of the statute that "unliquidated claims against the bankrupt may, pursuant to application to the court [that is, the court of bankruptcy], be liquidated in such manner as it shall direct, and may thereafter be proved and allowed against his es- tate." **" It may sometimes occur that the best method of liquidat- ing such a claim would be by a suit against the bankrupt in a state court, and it appears that the court of bankruptcy might "direct" that such a course be pursued. This is further shown by the provision that "claims 183 Green wald v. Appell, 5 McCrary, W. 79; Thompson v. Massie, 41 Ohio St. 339, 17 Fed. 140 ; In re Williams, 6 Blss. 307. 233, 11 N. B. R. 145, Fed. Cas. No. 17,- is* In re Basch, 97 Fed. 761, 3 Am. 700 ; In re Archenhrown, 11 N. B. R. Bankr. Rep. 235 ; In re Cohen, 19 N. B. 149, Fed. Cas. No. 504; Woolfolk v. R. 133, Fed. Cas. No. 2,961. Murray, 44 Ga. 133, 10 N. B. R. 540; iss in re Ghirardelli, 1 Sawy. 343, 4 Wilson V. Capuro, 41 Cal. 545, 4 N. B. N. B. B. 164, Fed. Cas. No. 5,376 ; Brooks R. 714; Rogers v. Weutworth, 58 N. v. Bates, 7 Colo. 576, 4 Pae. 1069; In IT. 318 ; Collins v. Scheeline, 52 Cal. re Wlilting, Fed. Cas. No. 17,574 ; In re 450. Compare Hackett v. Supreme Coun- Scott, Fed. Cas. No. 12,520. oil A. L. H., 206 Mass. 139, 92 N. E. 133; iso Roth v. Pechin, 260 Pa. 450, 103 Davidson v. Fisher, 41 Minn. 363, 43 N. Atl. 894. 187 Bankruptcy Act 1898, § 63b. ^''S SUITS BY AND AGAINST THE ' BANKRUPT § 199 founded upon provable debts f educed to judgments after the filirig of the petition and before the consideration of the bankrupt's application for a discharge," may be proved and allowed.^** Moreover, the general rule must yield to the requirements of justice where the creditor .would lose or forfeit his rights if an action were not brought. Thus, it is held that a creditor holding a promissory note, valid and enforceable against the maker at the date of the lattei"'s adjudication in bankruptcy, but against which the statute of limitations has nearly run, may reduce the same to judgment by suit brought in a state court after such adjudica- tion, and such judgment will establish the claim and stop the running of the statute, though it will not give the creditor any lien or priority nor entitle him to levy on the bankrupt's property .^*^ And the same principle applies where it is necessary to begin a 'suit in order to pre- serve a mechanic's lien.^" In no circumstances, however, can the cred- itor go further than judgment. The title of the trustee in bankruptcy attaches as of the date of the adjudication. It includes all property then owned by the bankrupt and of such a nature as to pass to the trustee. All such property 'comes within the custody and control of the court of bankruptcy, and no creditor can thereafter acquire a lien by judgment, execution, or otherwise upon such property,^®^ or inter- fere with the possession of the trustee in bankruptcy by attachment,^** or garnishment,"* or replevin.^** But the proceedings in bankruptcy do not bar an action against the bankrupt by one who was not a creditor at the time of the adjudication, though of course his judgment will not entitle him to levy execution upon any property except such as the bankrupt may have acquired since the adjudication.^*" For similar reasons, one who has been adjudged a bankrupt can- not commence actions against third persons in the state courts in re- 188 Bankruptcy Act 1898, § 63a, cl. 5. liams v. Merritt, 103 Mass. 184, 4 Am. 189 In re McBryde, 99 Fed. 686, 3 Am. Rep. 521, 4 N. B. R. 706. Bankr. Rep. 729. 192 In re Renda, 149 Fed. 614, 17 Am. 100 Clifton V. Foster, 103 Mass. 233, Bankr. Rep. 521; In re Jobn L. Nelson 4 Am. Rep. 539. & ^'"O- Co., 149 Fed. 590, 18 Am. Bankr. 101 In re Franklin Lumber Co., 147 Rep. 66; Williams v. Merritt, 103 Mass. Fed. 852, 17 Am. Bankr. Rep. 443 ; Mc- 184, 4 Am. Rep. 521, 4 N. B. R. 706. Lean v. Rockey, 3 McLean, 235, Fed. i»3 In re Cunningham, 19 N. B. R. Cas. No. 8,891; In re Dey, 3 Ben. 450, 276, Fed. Cas. No. 3,478; McAfee v. 3 N. B. R. 305, Fed. Cas. No. 3,870 ; In Arnold, 155 Ala. 561, 46 South. 870. re Tifft 19 N. B. R. 201, Fed. Cas. i»* White v. Schlperb, 178 U. S. 542, 20 No. 14,034; Sicard v. Buffalo, N. Y. & Sup. Ct. 1007, 44 L. Ed. 1183, 4 Am. P. R. Co., 15 Blatchf. 525, Fed. Cas. Banlfr. Rep. 178 ; In re Platteville Foun- No. 12,831; Stuart v. Hines, 33 Iowa, dry & Machine Co., 147 Fed. 828, 17 61, 6 N. B. R. 416; Manwarring v. Am. Bankr. Rep. 291. Kouns, 35 Tex. 171; Clifton v. Foster, iob Miller v. Warden, 111 Pa. St. 300, 103 Mess. 233, 4 Am. Rep. 539 ; Wil- 2 Atl. 90. § 199 LAW OF BANKRUPTCY 464 spect to any property or rights of action which are of such a nature as to vest in or be claimable by his trustee in bankruptcy. But where a promissory note due to the bankrupt (or a judgment recovered thereon) is set apart to him by the trustee in bankruptcy as a part of his exemp- tion, the bankrupt can sue thereon in a state court in his own name.*** • 188 Eobinson v. Hall, 11 Gray (Mass.) 483. 465 CUSTODY OF PROPERTY BEFORE APPOINTMENT § 200 CHAPTER XII CUSTODY AND PROTECTION OF PROPERTY BEFORE APPOINTMENT OF TRUSTEE Sec. 200. Custody and Control of Property. 201. Warrant and Seizure Before Adjudication. 202. Seizure of Property in Hands of Third Person. 203. Remedies Against MarsMal Seizing Property of Stranger. 204. Restraining Waste or Disposition of Property by Banlirupt. 205. Restraining Interference with Property by Third Persons. 206. Enjoining Levy, Judicial Sale, or Replevin. 207. Restraining Proceedings in gtate Courts. 208. Indemnity Bond by • Petitioning Creditors. 209. Forthcoming Bond by Bankrupt. 210. Appointment of Receiver. 211. Powers and Duties of Receiver. 212. Continuing Bankrupt's Business. 213. Claims of Third Persons Against Receiver or Estate. 214. Actions By and Against Receiver. 215. Ancillary Receiverships. 216. Accounts and Compensation of Receiver. 217. Sale of Property Pending Proceedings. § 200. Custody and Control of Property. — The filing of a petition in bankruptcy is an assertion of jurisdiction, with a view to determining the status of the bankrupt and to a settlement and distribution of his estate; and the jurisdiction of the court in which the petition is filed is exclusive, and is so far in rem that the property of the bankrupt is re- garded as being in custodia legis from the filing of the petition.^ And after such filing, property of an alleged bankrupt may not be seized or attached without the consent of the court of bankruptcy, even though actual possession has not been taken by its officers.^ Thus, the removal 1 Acme Harvester Co. v. Beekman Bros. (D. C.) 159 Fed. 560, 20 Am. Bankr. Lumber Co., 222 U. S. 300, 32 Sup. Ct. 96, Rep. 472; Norin v. Scheldt Mfg. Co., 56 L. Ed. 208, 27 Am. Bankr. Rep. 262; 297 111. 521, 130 N. B. 791; Bank of Brook- Franceschl v. Mercado (C. C. A.) 269 ings v. Aurora Grain Co., 43 S. D. 591, Fed. 954, 46 Am. Bankr. Rep. 667; Gage 181 N. W. 909; Whittlesey v. Philip Lumber Co. v. McEldowney, 207 Fed. 255, Becker & Co., 142 App. Dlv. 313, 126 N. 124 C. C. A. 641, 30 Am. Bankr. Rep. Y. Supp. 1046; Smith v. Berman, 8 Ga. 251; Corbett v. Riddle, 209 Fed. 811, 126 App. 262, 68 S. E. 1014. C. C. A. 535, 31 Am. Bankr. Rep. 330; 2 In re Wellmade Gas Mantle Co. (D. In re Diamond's Estate, 259 Fed. 70, C.) 230 Fed. 502, 36 Am. Bankr. Rep. 170 C. C. A. 138, 44 Am. Bankr. Rep. 268; 354. The title to the bankrupt's proper- Board of Road Com'rs of Monroe Coun- ty remains in him until lils adjudication, ty V. Keil, 259 Fed. 76, 170 C. C. A. 144, and a transfer of property by him after 44 Am. Bankr. Rep. 259; In re Arctic the filing of the petition but before ad- Stores (D. C.) 258 Fed. 688; In re Well- judication is not necessarily void. In re made Gas Mantle Co. (D. C.) 230 Fed. Perpall (C. C. A.) 271 Fed. 466, 46 Am. 502, 36 Am. Bankr. Rep. 354; In re Walsh Bankr. Rep. 302. Though, prior to ad- |Blk.Bkk.(3d Ed.)— 30 § 200 LAW OF BANKEUPTCT 466 and concealment by third persons of property, in contemplation of the appointment of a receiver in bankruptcy, and after the filing of the petition, is a contempt against the court of bankruptcy.* But often a considerable interval elapses before the appointment and qualifications of a trustee. During this period, the bankrupt himself occupies the position of a temporary custodian or trustee of his property. The title remains unchanged ; it is not divested until there is a trustee to take it.* Nor is the bankrupt to be regarded as "civilly dead" during this period.^ The court may, in a proper case, enjoin him, as well as other persons, from disposing of the property or interfering with it in any way. But unless such action is taken, the bankrupt's possession of the estate will not be disturbed, although he will henceforth hold hig property under the duty of preserving it intact until it can be handed over to a trustee duly appointed, and in the meantime the bankrupt will have the right to pursue all proper legal measures for securing and preserving the es- tate.* Thus, he may file a petition to enjoin the enforcement of a judg- judication, the bankrupt has power to dispose of his property in the ordinary course of business, it is improper for him to use his money foi gaming. In re Stemburg (D. C.) 249 Fed. 980, 41 Am. Bankr. Rep. 476. The taking posses- sion of j)roperty under an instrument amounting to a chattel mortgage, but invalid as against creditors because not tiled as required by law, when done be- tween the filing of a petition in bank- ruptcy against the mortgagor and his ad- judication, does not defeat the rights of the trustee subsequently appointed. Massachusetts Bonding & Ins. Co. v. K^emper, 220 Fed. 847, 136 C. C. A. 593, 34 Am. Bankr. Rep. 80. 3 In re Iron Clad Mfg. Co. (D. C.) 193 Fed. 781. 4 Schoenthaler v. Rosskam, 107 111. ApiJ. 427. 5 Plant V. Gorham Mfg. Co., 174 Fed. 852, 23 Am. Bankr. Rep. 42. 6 Hampton v. Rouse, 22 Wall. 263, 22 I.. Ed. 755; Blake v. Francis- Valentine Co., 89 Fed. 691, 1 Am. Bankr. Rep. 372; March v. Heaton, 1 Low. 278, 2 N. B. R. 180, Fed. Cas. No. 9,061; Myers v.' Callag- han, 10 Biss. 139, 5 Fed. 726; In re Bowie, 1 N. B. R. 628, Fed. Oas. No. 1,728; Jones V. Leach, 1 N. B. R. 595, Fed. Cas. No. 7,475; In re Jessup, 19 Fed. 94; In re Steadman, 8 N. B. R. 319, Fed. Cas. No. 13,330. In the case last cited, it was said: "Between the filing of the petition and the appointment of a trustee, it is the duty of the bankrupt to protect and preserve the estate for the benefit of his creditors, and if he has warning that it is threatened with invasion by strong hand, or he has knowledge of impending danger from local process, he may apply to the bankruptcy court for such appre- hensive [preventive?] remedy as inay avert the approaching wrong. So he may, I apprehend, institute actions foi any trespass to or eloignment of the es- tate, when committed before the assignee has qualified, if the estate remains in his care, and he may do, so whether he is specially designated to collect, preserve, and utilize the estate or not. It Is a power incident to his trust, and the as- signee may afterwards come in and be made plaintiff, for the rights of the cred- itors. * • * Before the appoint- ment of the assignee, the bankrupt is the custodian of the estate (unless the court orders it into other hands) and his fidu- ciary relation to the general creditors re- quires affirmative action on his part to gather up, guard, and preserve the es- tate until it is conveyed to the assignee. His trust resembles the office of a tem- porary administrator, under the laws of this state, or of an administrator ad col- ligendum, whose duty it is to collect and keep the estate of the deceased ' until an administrator is appointed." 467 CUSTODY OP PROPERTY BEFORE APPOINTMENT § 200 ment against the property,' or to restrain a sheriff from selling under a levy,* or he may redeem land from a tax sale,® or maintain a suit for damages occasioned by an unlawful judicial sale of a portion of the property,^" and he is the proper person to be notified of the dishonor of notes or bills on which he is an indorser, and is competent to Vvaive demand and notice.^^ Further, if the bankrupt dies before the appoint- ment of a trustee, the trust and duty of holding and preserving the property devolve upon his heirs.^^ But under no circumstances what- ever can the bankrupt, after the filing of the petition, be justified in selling any portion of his property, even for the purpose of raising money to pay lawful fees, unless by leave of the court.^* If the prop- erty is perishable, or must be sold at once for fear of deterioration, the court will order the marshal to sell it, and the bankrupt cannot be- come the purchaser.** The provision of the statute for seizure of the bankrupt's property on petition and warrant applies only to involuntary cases. The theory of the law apparently is that the voluntary bankrupt, filing his own pe- tition and thereby manifesting his willingness to surrender all his prop- erty for distribution to creditors, will not remove or waste it in the mean time. But he places it under the control of the court, and his own subsequent possession is merely (as already stated) that of a trustee. Hence if circumstances should arise making it necessary or proper that the court should take actual charge of the property, by a receiver or the marshal, pending the appointment of a trustee, it seems that ample power exists to pursue that course.*® When property of the bankrupt ^ In re Bowie, 1 N. B. R. 628, Fed. own use, while holding his property sub- Cas. No. 1,728. ject generally to the orders of the court, 8 Jones V. Leach, 1 N. B. B. 595, Fed. but his act in selling it not being in vio- Cas. No. 7.,47o. , lation of any particular order. In re 9 Hampton v. House, 22 Wall. 263, 22 Probst. 205 Fed. 512, 123 C. C. A. 580. L. Ed. 755. 30 Am. Bankr. Rep. 600. 10 Johnson v. Collier, 222 U. S. 538, 32 " March v. Heaton, 1 Low. 278, 2 N. Sup. Ct. 104, 56 L. Ed. 306, 27 Am. B. R. 180, Fed. Cas. No. 9,061. Bankr. Rep. 454. is The Ironsides, 4 Biss. 518, Fed. 11 Ex parte Tremont Nat. Bank, 2 Cas. No. 7,069. Where a bankrupt, after Low. 409, 16 N. B. H. 397, Fed. Cas. No. the filing of the petition, absconded from 14,169. the jurisdiction and was arrested in a 12 Ferguson v. Dent, 24 Fed. 412. distant city, and there subjected to 18 In re Pryor, 4 Biss. 262, Fed. Cas. search, resulting in the discovery on his No. 11,457; In re Jessup, 19 Fed. 91. person of a large sum of money belong- See Shipman V. Daubert, 7 Mo. App. 576. ing to his estate in bankruptcy, which And compare In re Livingston & Turk, was claimed by his receiver, it was held 205 Fed. 364, 30 Am. Bankr. Rep. 531. that the court was not required to order The bankruptcy court has no jurisdiction the restoration of the money to the bank- to punish the bankrupt as for contempt, rupt, on the ground that the search had where, subsequent to the adjudication, been unlawful, since it would then have he sold and disposed of certain of his power immediately to order him to sur- assets and converted the money to his render it to the receiver. In re A. Musi- 201 LAW OF BANKRUPTCY 468 was under attachment at the time of the filing of the petition, it will ordinarily remain in the possession of the officer until a trustee is ap- pointed, although the lien of the writ was dissolved by the adjudication. But "an attaching creditor is not under any legal compulsion to keep the sheriff or other officer in possession after the dissolution of the at- tachment by the adjudication in bankruptcy; on the contrary, unless the court has appointed a receiver or directed the marshal to take charge of the estate, the property attached should, upon the dissolution of the attachment, be forthwith restored to the possession of the bankrupt, to be held by him in trust for the benefit of his creditors until the qual- ification of a trustee." ^* § 201. Warrant and Seizure Before Adjudication. — The provisions of the bankruptcy act relating to the seizure and custody of property of an alleged bankrupt, after the filing of a petition but before any adjudication thereon, are quoted and compared in the margin.^' Under ca & Son, 205 Fed. 413, 30 Am. Bankr. Kep. 555. 16 In re Allen, 96 Fed. 512, 3 Am. Bankr. Rep. 38. 17 Bankruptcy Act 1898, § 2, cl. 3, gives to the court of bankruptcy power to "ap- point receivers or the marshals, upon the application of parties in interest, in case the courts shall find it absolutely neces- sary for the preservation of estates, to take charge of the property of bankrupts, after the filing of the petition and until it is dismissed or the trustee is quali- fied." Section Be provides that "when- ever a petition is filed by any person for the purpose of having another adjudged a bankrupt, and an application is made to take charge of and hold the property of the alleged bankrupt, or any part of the same, prior to the adjudication and pending a hearing on the petition, the petitioner or applicant shall file in the same court a bond with at least two good and sufllcient sureties, * * * condi- tioned for the payment, in case such pe- tition is dismissed, to the respondent, his or her personal representatives, all costs, expenses, and damages occasioned by such seizure, taking, and detention of the property of the alleged h.nnkrupt." Al- though these two provisions are not pre- cisely dovetailed, it is the evident mean- ing of Congress that they should be un- derstood as relating to the same subject. The effect of reading them together is that the power of the court to appoint a receiver (or the marshal as receiver) is to be exercised on an application for that purpose, which may be made by the creditor who files the petition for adjudi- cation or by any other creditor; it must be made to appear to the court that such action is absolutely necessary for the preservation of the estate; and a bond will be required, conditioned as specified in the act and with such sureties as the act designates. But the sixty-ninth section of the statute provides that "a judge may, upon satisfactory proof by affldavlt that a bankrupt against whom an involuntary petition has been filed and is pending has committed an act of bankruptcy, or has neglected or is neg- lecting, or is about so to neglect his property that it has thereby deteriorated or is thereby deteriorating or is about thereby to deteriorate in value, issue a warrant to the marshal to seize and hold it subject to further orders. Before such warrant is issued, the petitioners applying therefor shall enter into a bond in such amount as the judge shall fix, with such sureties as he shall approve, conditioned to indemnify spch bankrupt for such damages as he shall sustain in the event such seizure shall prove to have been wrongfully obtained. Such property shall be released, if the bank- rupt shall give a bond in a sum which shall be fixed by the judge, with such sureties as he shall approve, conditioned to turn over such property, or pay the 469 CUSTODY OF PROPERTY BEFORE APPOINTMENT § 201 the corresponding provisions in the act of 1867 (which were much less specific and detailed than those of the present act) it was held that a provisional warrapt might issue where it was shown that the debtor had disposed of a portion of his assets and had expressed an intention of going abroad.** The proceedings to obtain a warrant for the seizure of the debtor's property, and in execution thereof, are separate and dis- tinct from the petition for adjudication in bankruptcy, and ipust be prosecuted by separate petition. The practice of uniting these two mat- ters in one petition has met with the condemnation of the courts.** The application for a warrant is to be supported by affidavits, and these must set forth fully and specifically all the essential facts, including the insolvency of the debtor and the facts constituting the alleged act of bankruptcy or neglect of his property by the debtor.^** It is not a suf- ficient compliance with the statute where the creditor's application is supported merely by an affidavit of the bankrupt that he waives proof of the necessary facts and consents to the issuance of the warrant.^* On the other hand, where the affidavits show the necessary facts, the value thereof in money to the trustee, in the event he is adjudged a bankrupt pur- suant to such petition." Since all parts of a statute must be read together, and the construction must be such as to give effect to every part and every word, if possible, it will be necessary to under- stand that two separate methods of seiz- ing the property of a person against whom an involuntary petition is pending, for the purpose of preserving it for the creditors, are provided. The one is by the appointment of a receiver. The re- ceiver may be some disinterested person not an officer of the court, or the mar- shal may be appointed to act as such re- ceiver. To justify this, it must be shown to the satisfaction of the court that such a step is "absolutely necessary" for the preservation of the estate. The bond must conform to the requirements of sec- tion 3. The bankrupt cannot regain the possession of the property. But if the petition is dismissed or withdrawn, he may recover all costs, counsel fees, ex- penses, and damages occasioned by the seizure and detention of his property. The other 'method is by the issuance of a warrant empowering and directing the marshal to seize the property and hold it subject to further orders. To justify this course, it is not necessary to show the "absolute necessity" for seizing the estate, but it will be sufficient to make out a prima facie case in support of the petition in bankruptcy, that is, to offer satisfactory proof by aiBdavit that the respondent has committed an act of bankruptcy, or the creditor may secure the issuance of the warrant by showing that the conduct of the alleged bankrupt with reference to his property is, or has been, or will be so neglectful as to cause deterioration in value of the property. The bond should conform to the re- quirements of section 69. If it should prove that the seizure was "wrong- fully obtained," the bankrupt may re- cover on the bond. The dismissal of the petition would probably make the seizure wrongful, and so, perhaps, would prove that the bankrupt had not been neglectful of his property. In this case the recovery is limited to "such damages as he shall sustain." The bank- rupt may obtain the release of his prop- erty by giving a forthcoming bond. 18 See Rev. Stat. U. S. § 5024; In re Hale, 18 N. B. R. 335, Fed. Gas. No. 5,911 ; In re Clark, 17 N. B. R. 554, Fed. Cas. No. 2,811. 10 In re Kelly, 91 Fed. 504, 1 Am. Bankr. Rep. 306. 2 In re Kelly, 91 Fed. 504, 1 Am. Bankr. Rep. 306. 21 In re Sarsar, 120 Fed. 40, 9 Am. Bankr. Rep. 576. § 202 LAW OP BANKRUrTCT 470 warrant will not be vacated where such facts are not disproved, and it appears that the purpose of the bankrupt in moving to vacate the war- rant is merely to deprive the marshal of his fees.^* , The application for the warrant will regularly be made to the judge, but it is provided that a referee in bankruptcy may "exercise the powers of the judge for the taking possession and releasing of the property of the bankrupt, in the event of the issuance by the clerk of a certificate showing the absence of a judge from the judicial district, or the division of the district, or his sickness or inability to act." ^^ This will most probably include authority on the part of the referee, in the circumstances named, to fix the amount of the bond to be given by the petitioners and to approve the sureties thereon. The forms for the warrant, the marshal's return thereto, the bond of the petitioning creditors, and a bond of indemnity to the marshal, have been officially prescribed.** There is no official precedent for the forthcoming bond to be given by the al- leged bankrupt, to obtain the release of his property, but it may be in the form usually followed in cases of attachment and the like. Upon breach of the condition of such a forthcoming bond, the court of bank- ruptcy has jurisdiction to proceed against the sureties on a summary petition.*^ If, however, the marshal, acting merely as the messenger of the court, has taken possession of the bankrupt's property, but with- out any order of court to that effect, his possession is not that of the court of bankruptcy.** Property in the custody of the marshal, under a warrant in bankruptcy, may be insured under the direction of the judge or referee.*' § 202. Seizure of Property in Hands of Third Person. — Under a warrant such as is described in the preceding section, the marshal will be justified in taking possession not only of such property of the bank- rupt as may remain in the latter's own hands, but also of all property actually belonging to the bankrupt which may be found in the posses- sion of third persons holding it as the bankrupt's agents, custodians, or bailees.** But a more difficult question arises when the officer is asked 22 In re Clark, 17 N. B. R. 554, Fed. Doyle, 102 TJ. S. 686, 26 L. Ed. 277; In Gas. No, 2,811. re White, 205 Fed. 393, 29 Am. Bankr. 2 8 Bankruptcy Act 1898, § 38, cl. 3. Rep. 358; In re Franklin Suit & Skirt 2 4 Official Forms Nos, 8, 9, 10. Co., 197 Fed. 591, 28 Am. Bankr. Rep. 25 In re Mayo, 4 Hughes, 384, Fed. Cas. 278. A marshal appointed to take charge No, 9,353a. of the property of an alleged bankrupt 2 8 The Ironsides, 4 Biss. 518, Fed. Cas. has the right to seize property in the No. 7,069. possession of a third person, even though 27 In re Carow, 4 N. B. B. 543, Fed. the latter claims it adversely, where Cas. No. 2,426. there is reason to believe that it actually 2 8 Feibelman V. Packard, 109 tJ. S. 421, belongs to the bankrupt's estate; and 3 Sup. Ct. 289, 27 I/, Bd. 984 ; Sharpe v. the bankruptcy court has jurisdiction to ATI CUSTODY OF PKOPERTY BEFORE APPOINTMENT § 202 to seize property in the hands of a third person who claims title thereto in his own right, under a transfer or conveyance from the bankrupt made before the commencement of the proceedings, but which is al- leged by creditors to have been void because fraudulent at common law or preferential, or in pursuance of a general assignment for the benefit o| creditors, or otherwise in a contravention of the bankruptcy act. A number of well-considered cases, both under the act of 1867 and the present statute, hold that the marshal acts at hjs own risk in taking pos- session of property thus Claimed, and that the claimant cannot be de- prived of the possession of the property on the ex parte application of the creditors, nor compelled to litigate his claims in summary proceed- ings in the bankruptcy court on the return of the warrant.** But the Supreme Court of the United States has unequivocally declared that property of a bankrupt in the hands of third persons is included within the provisions of the statute, so that it may be seized by the marshal, where the possessor's title rests upon a foundation which is void or voidable under the bankruptcy act, the case before the court being that of a purchaser from an assignee under a general assignment for credi- tors, which assignment was itself an act of bankruptcy, and the sale having been made before the appointment of a trustee in bankruptcy, but after and with notice of the filing of the petition in bankruptcy.** This decision not only agrees with rulings made under the former stat- ute, but has been followed in later cases, and is understood as justifying the seizure of property in the hands of third persons, not only where the possessor claims under an assignment for creditors, but also where the transfer to hini was fraudulent or preferential.*^ At any rate, it determine the title thereto, and if the longing to the bankrupt is proper only as adverse claimant flies a petition for its specific property or to obtain known as- recovery in the bankruptcy court, he sets of the bankrupt. In re Iron Clad thereby assents to the jurisdiction of Mfg. Co., 193 Fed. 781. that court summarily to determine his 2 9 In re Harthill, 4 Ben. 448, 4 N. B. K. rights. Further, the fact that property .392, Fed. Cas. No. 6.161 ; In re Holland, was unlawfully taken from one in pos- Fed. Cas. No. 6,605; In re Manahan, session of it by state officers, by an un- Fed. Cas. No. 9,003 ; In re Rockwood, 91 reasonable or unlawful search and seiz- Fed. 363, 1 Am. Bankr. Rep. 272; In re ure, affords no reason why it may not be Kelly,- 91 Fed. 504, 1 Am. Bankr. Rep. lawfully seized while in the possession of 306; Beach v. Macon Grocery Co., 116 such authorities by the marshal acting Fed. 143, 53 C. C. A. 463, 8 Am. Bankr. as receiver in bankruptcy. Le Master Rep. 751 ; In re Kolln, 134 Fed. 557, 67 V. Spencer (O. C. A.) 203 Fed. 210, 29 Am. C. C. A. 481, IB Am. Bankr. Rep. 531 ; In Bankr. Rep. 264. But on motion in re Andre, 135 Fed. 736, 68 C. C. A. 874, 13 bankruptcy to require third parties to Am. Bankr. Rep. 132. And. see In re turn over property, alleged to belong to Gibsoij, 22 Okl. 867, 98 Pac. 923. the bankrupt, to the receiver, specific s" Bryan v. Bernheimer, 181 U. S. 188, proof must be made as to the identity or 21 Sup. Ct. 557, 45 L. Ed. 814, 5 Am. value of the property ; and a search of a Bankr. Rep. 623. third person's premises for property be- " Sharpe v. Doyle, 102 U. S. 686, 26 L. § 202 LAW OF BANKEUPTCX 472 seems clear that a third person in the possession of property may be summarily ordered to surrender it, where the validity of the title which he sets up in himself depends on a question of law rather than one of fact.'^ It is perhaps more doubtful whether the jurisdiction of a court of bankruptcy to authorize the seizure of property under a warrant of this kind can be extended to property which is in the possession of an officer of a state court, such as a sheriff or constable, under a writ of execution or replevin.** But in one case, where a justice of the peace refused to regard an adjudication in bankruptcy, but proceeded to ren- der judgment and order the sale of attached property which, by virtue of such adjudication had passed into the jurisdiction of the court of bankruptcy, the latter court was held justified in directing the seizure of the property by the marshal.** But if the property is in the hands of a receiver appointed by a state court, it cannot be seized on the war- rant, as the possession of the receiver is that of the court which appoint- ed him.*^ If property which really belongs to a third person is erro- neously seized, the court of bankruptcy may order it to be returned to him. But this course should not be taken where his right to it is in good faith denied by creditors of the bankrupt; in that case the claim- ant will be required to assert his rights in a plenary action.** And in any case the restoration of the property to the claimant may be condi- tioned upon his compliance with proper terms imposed by the court of bankruptcy, when the circumstances justify it. Thus, where the prop- erty seized was in the possession of an assignee for the benefit of credi- tors (the assignment being rendered nugatory by the subsequent insti- tution of the bankruptcy proceedings), it was said that it should be re- stored to him only on condition of his releasing the marshal from all damages, and his agreeing not to dispose of the property without the approval of the bankruptcy court.*' Ed. 277 ; Feibelman v. Packard, 109 U. ss in re Hymes Buggy & Implement S. 421, 3 Sup. Ct. 289, 27 L. Ed. 984 ; In Co., 130 Fed. 977, 12 Am. Bankr. Eep. re Eochford, 124 Fed. 182, 59 O. C. A. 477; In re L. Popkin & Co. (D. C.) 240 388, 10 Am. Bankr. Kep. 608 ; McNulty v. Fed. 848, 38 Am. Bankr. Rep. 20 ; An- Feingold, 129 Fed. 1001, 12 Am. Bankr. sonla Brass & Copper Co. v. Babbitt, 8 Eep. 338 ; In re Moody, 131 Fed. 525, 12 Hun (N. Y.) 157. See supra, § 28. Am. Bankr. Rep. 718; In re Knopf, 144 „, ^ _ „ Fed-. 245 16 Am. Bankr. Rep. 432; In re „ " In re Tune, 115 Fed. 906, 8 Am. Smith, 1 Nat. Bankr. News, 61 ; In re "a""^'"- Kep. 285. Muller, Deady, 513, 3 N. B. E, 329, Fed. as Carling v. Seymour Lumber Co., 113 Oas. No. 9,912 ; In re Briggs, 3 N. B. E. Fed. 483, 51 C. C. A. 1, 8 Am. Bankr. Rep. 638, Fed. Oas. No. 1,869 ; Stevenson v. 29. And see supra, § 27. McLaren, 23 Minn. Ill, 14 N. B. R. 403 ; ^ „ In re Miller, 6 Biss. 30, Fed. Oas. No. , "J^ '^^°™^' ^^^ ^^^- ^^S. 49 0. C. g gg]^ A. 283, 7 Affi. Baukr. Eep. 14. 8 2 In re Michaelis & Llndeman, 196 st. in re Manahan, 19 N. B. E. 65, Fed. Fed. 718. Cas. No. 9,003. 473 CUSTODY OF PROPERTY BKFORB APPOINTMENT § 203 § 203. Remedies^ Against Marshal Seizing Property of Stranger.— Where the marshal, in the execution of a warrant of seizure in bank- ruptcy, has taken possession of property which did not belong to the bankrupt, but was owned by a third person, the most simple and direct remedy of the latter is to file a petition in the court of bankruptcy, set- ting up his title to the property in question, and praying for an order that it may be restored to him. On such intervention, the bankruptcy court has authority to grant him full protection and justice, and will order the immediate return to him of the property seized, or its pro- ceeds if it has already been sold.^* It has also been held that the claim- ant may be allowed costs, counsel fees, and damages occasioned by the seizure and detention of the property, to be paid by the creditors at whose instance his property was taken.^" But the owner of the prop- erty has a right to trial by jury in the federal court, if he chooses to claim it, and he cannot be compelled to submit his claims to adjudica- tion in a summary proceeding, on petition, rule to show cause, and ref- erence of the case to a referee in bankruptcy. He may maintain a ple- nary action against the marshal in the bankruptcy court (or against the trustee, if a trustee has been appointed and has taken charge of the property) if he prefers to adopt that course.*" If, on the other hand, he chooses to abandon. the property and pursue his remedies against the marshal, he may maintain an action for damages against that officer, in the nature either of trespass or trover, in a state court. This involves no interference with the exclusive jurisdiction of the court of bankruptcy, and that court will not enjoin the proceedings at the instance of the trustee in bankruptcy, claiming the property.*^ If the petitioning cred- itors in the bankruptcy proceedings have given the marshal a bond of indemnity, they will of course be bound to defend such suit against him 3 8 In re Harthlll, 4 Ben. 448, 4 N. B. In re Bender, 106 Fed. 873, 5 Am. Bankr. R. 392, Fed. Cas. TSTo. 6,161 ; In re David- Rep. 632. son, 2 Ben. 506, 2 N. B. R. 114, Fed. Oas. s" In re Abraham, 93 Fed. 767, 35 C. No. 3,598 ; Krippendorf v. Hyde, 110 TJ. C. A. 592, 2 Am. Bankr. Rep. 266. S. 276, 4 Sup. Ct. 27, 28 L. Ed. 145 ; Lam- 4o in re Russell (C. C. A.) 101 Fed. 248, mon V. Feusler, 111 TJ. S. 17, 4 Sup. Ct. 3 Am. Bankr. Rep. 658. 286, 28 I* Ed. 337 ; Gumbel v. Pitkin, *i Buck v. Colbath, .3 Wall. 334, 18 L. 124 TJ. S. 131, 8 Sup. Ct. 379, 31 L. Ed. Ed. 257; In re Russeli (C. C. A.) 101 374. "It is a matter of everyday prae- Fed. 248, 3 Am. Bankr. Rep. 658 ; Marsh tice, where the marshal is called upon to v. Armstrong, 20 Minn. 81 (Gil. 66), 18 seize the assets of a bankrupt, that he in Am. Rep. 355, 11 N. B. R. 125; In re this way becomes possessed of articles Davidson, 2 Ben. 506, 2 N. B. R. 114, of property which do not in fact belong Fed. Cas. No. 3,598; In re Marks, 2 N. B. to the bankrupt, and the uniform prac- R. 575, Fed. Cas. No. 9,095. See Leroux tice in these cases is for the owner of v. Hudson, 109 TJ. S. 468, 3 Sup. Ct 309, the property to apply to the bankruptcy 27 L. Ed. 1000. Compare Hudson v. court for its possession, and orders are Schwab. 18 N. B. R. 480, Fed. Oas. No. made causing the same to be delivered." 6,835. § 203 LAW OF BANKRUPTCY 474 in the state court.** The fact that the claimant may have applied to the bankruptcy court to stop proceedings for the sale of the property until he could establish his title will not make him a party to the bankruptcy proceedings, nor will the decision on such application make his title res judicata in his action against the marshal for trespass.** But if the marshal justifies under his warrant, and the state courts hold that he had no authority under the laws of the United States to levy on the property in controversy, the decision is one which may be reviewed by the Supreme Court of the United States.** But while a state court may have jurisdiction of an action in per- sonam against the marshal, this is not true of any proceeding which seeks to recover the property itself. The res being within the exclusive custody and possession of the court of bankruptcy through its officer, no other court can be permitted to interfere with that possession. Con- sequently, if the claimant desires to regain the property itself, there is but one court which can grant him that relief, namely, the court under whose process it was seized. He cannot maintain an action of replevin in any state court against the marshal or the trustee in bankruptcy for the restoration of the property. If such action is begun, its prosecution will be enjoined by the court of bankruptcy.*® Further, if a United States marshal, under process from the federal court, seizes property which does not belong to the defendant in the writ, but to a third per- son, the latter cannot have a writ of injunction from a state court for- bidding the marshal to sell the property. It is for the federal court to give him relief in that behalf.** § 204. Restraining Waste or Disposition of Property by Bankrupt. — Upon the making of an adjudication in voluntary bankruptcy, or upon the commencement of involuntary proceedings against a debtor; all his property comes within the jurisdiction of the court of bankruptcy for the purpose of the proceeding, and if the circumstances are such as to render it necessary, for the preservation of the estate, that the bankrupt himself or any third persons should be restrained from wast- 2 4 In re Marks, 2 N. B. E. 575, Fed. ell v. Heyman, 111 XJ. S. 176, 4 Sun. Ct. Cas. No. 9,093. 355, 28 L. Ed. 390 ; Petterson v. Mater, 48 Marsh V. Armstrong, 20 Minn. 81 ^6 Fed. 31; Summers v. White, 71 Fed. (Gil 66), 18 Am. Rep. 355, 11 N. B. E. 1^^' ^'^ ^- C- A. 631 ; Hannebutt v. Cun- J25 nlngham, 3 111. App. 353; Feusier v. Lammon, 6 Nev. 209; Lewis v. Buck 7 44 Sharpe v. Doyle, 102 U. S. 686, 26 L. jxi,,^ ^q^ (gi, ^j^^ go ^^ j^^^ 73 . j^j^. ^^- 277. son V. Harroun, 34 111. 422, 85 Am. Dec 46 In re Russell (C. C. A.) 101 Fed. 248, 316. 3 Am. Bankr. Rep. 658; Freeman v. ■"> Brooks v. Montgomery, 23 La Ann Howe, 24 How. 450, 16 L. Ed 749 ; Gov- 450. 475 CUSTODY OF PROPERTY BEFORE APPOINTMENT § 205 ing, selling, or otherwise disposing of the property, an injunction may issue for that purpose, to be in force until a trustee is elected and quali- fied.*' Thus, the alleged bankrupt may be enjoined from collecting ac- counts due him, from squandering his assets, or from making transfers or gifts or mortgages of his property.** He will not be permitted to convey away his property after the filing of the petition in bankruptcy,*' and if he, thereafter, delivers property in his possession to a third per- son on the pretense that the latter is the owner of the property and the bankrupt only a bailee, it is a contempt of the court of bankruptcy and may be dealt with as such.®* Further, a creditor of a bankrupt who receives a payment in money from him after the institution of the proceedings violates the spirit and purpose of the bankruptcy law, and if he does this knowingly and fraudulently, he may be proceeded against criminally and punished on conviction, under the twenty-ninth section of the act." It may even be proper to enjoin the bankrupt from dis- posing of his exempt property, as where a plaintiff claims such property by virtue of a waiver of exemptions.®^ And where a petition in bank- ruptcy is filed against. a corporation, its offcers may be enjoined from withdrawing its funds from the bank where they are on deposit.®* § 205. Restraining Interference with Property .by Third Persons. — The filing of a bankruptcy petition is supposed to give notice to all the world of the pendency of the proceedings, and operates as an attach- ment of the bankrupt's property and as an injunction restraining all persons from intermeddling with it.®* But besides this implied injunc- tion, it is within the authority of the court of bankruptcy to issue its actual injunction, for the purpose of preserving the estate intact until a trustee can be appointed to take charge of it forbidding any third per- 47 Hampton v Rouse, 22 WaU. 263, 22 oo In re Potteiger, 181 Fed. 640, 24 L. Ed. 755 ; In re Ulrich, 6 Ben. 483, 8 Am. Bankr. Rep. 648. N. B. R. 15, Fed. Cas. No. 14,328 ; Hyde , bi Knapp & Spencer Co. v. Drew, 160 V. Bancroft, 8 N. B. R. 24, Fed. Gas. pg^ 413^ §7 c. C. A. 365, 20 Am. BanUr. No. 6,966; Ex parte Harris, Fed. Cas. jjgp 355 No. 6,110; In re MuUer Deady, 513 3 ^ ^^^^^ ^^ N. B. R. 329, Fed. Cas. No. 9,912 ; John- „ ^ q.o son V. Price, 13 N. B. R. 523, Fed. Cas. »• ^- "?°- No 7 407; In re Camp, 1 N. B. R. 242, =» In re McGinley, 219 Fed. 159, 135 Fed. Cas. No. 2,346; In re Heleker Bros. O. C. A. 57, 33 Am. Bankr. Rep. 612. Mercantile Co. (D. C.) 216 Fed. 963, 33 54 Mueller v. Nugent, 184 U. S. 1, 22 Am. Bankr. Rep. 503. Sup. Ct. 269, 46 L. Ed. 405, 7 Am. Bankr. 48 In re Calendar, 5 Law Rep. 129, Rep. 224 ; In re Krinsky, 112 Fed. 972, 7 Fed. Cas. No. 2,308; In re Irving, 8 Am. Bankr. Rep. 535; In re Breslauer, Ben. 463, 14 N. B. R. 289, Fed. Cas. No. 121 Fed. 910, 10 Am. Bankr. Rep. 33 ; In 7,073. re Mertens, 131 Fed. 507, 12 Am. Bankr. 48 Muschel V. Austern, 43 Misc. Rep. Rep. 698 ; In re Reynolds, 127 Fed. 760, 352, 87 N. Y. Supp. 235. 11 Am. Bankr. Rep. 758. § 205 LAW OF BANKRUPTCY 47G son whomsoever from interfering with the property, taking possession of any portion of it, selling it, or otherwise disturbing the status quo."' Removal or concealment by third persons of property, in contemplation of the appointment of a receiver or trustee in bankruptcy, after the filing of the petition, is in fact a contempt of the court; and any third person who has interfered with personalty which was in the bankrupt's possession when the petition in bankruptcy was filed, has the burden of showing the right under which he removed the property, and on his failure to make such showing, he is properly directed to surrender to the trustee possession of everything shown to have been in the bank- rupt's possession."** Thus, where the debtor had inade an assignment for the benefit of his creditors (which is alleged as the act of bankruptcy upon which the petition is founded), and the assignee is in possession of the estate and is about to make sale thereof, the court of bankruptcy has jurisdiction to enjoin such assignee from proceeding further with the administra- tion of the estate."" Again, pending the adjudication on an involuntary petition, the court of bankruptcy may enjoin any person from convey- ing away, disposing of, or interfering with any property once owned by the debtor and claimed to have been fraudulently transferred by him and concealed, upon prima facie proof of the fraud."* Moreover the authority of the court of bankruptcy to preserve the property intact until the proper person can be vested with its possession and control extends to cases where any portion of the bankrupt's estate is in the custody of an officer of a state court, who has levied a writ thereon. The sale or other disposition of such property, under the officer's au- thority may be stayed until a trustee in bankruptcy can intervene for the protection of the rights of the general creditors, or make out a case against the validity of the levy."* But these preliminary injunc- 5 5 In re Lineberry, 183 Ked. 338, 25 5o in re Iron Clad Mfg. Co., 193 Fed. Am. Bankr. Eep. 164; In re Berkowitz, 781. 173 Ffid. 1013, 22 Am. Bankr. Rep. 233 ; st in re Gutwilllg, 92 Fed. 337, 34 C. P,i In re Erie Lumber Co., 150 Fed. 817, 17 Am. Bankr. Rep. 689. 491 CUSTODY OF PROPERTY BEFORE APPOINTMENT § 213 the proceeds were used in conducting the business, and then only ratably with the claims of other creditors of the receiver.^®" § 213. Claims of Third Persons Against Receiver or Estate. — Prop- erty in the possession of a receiver in bankruptcy is in the custody of the law, and an attachment or garnishment levied upon it is void.^"* Ordi- narily claimants must work out their rights by application to the court of bankruptcy. Thus, an attorney who is in possession of securities be- longing to a bankrupt corporation will be required to turn them over to the receiver, and if he claims a lien on them, his rights may be determin- ed in the bankruptcy court. ^''* So, if the receiver occupies a store or other buildirtg leased by the bankrupt, and the landlord desires to have the bankrupt's goods removed and the premises vacated b}'- the receiver, his remedy is by petition to the court of bankruptcy ."'' Generally, the question of the right to property or funds in custodia legis is one which the bankruptcy court may determine summarily and without the for- mality of technical pleadings or a plenary suit.^^® And third persons may in this manner be required to surrender to the receiver property which they hold in possession as agents or bailees of the bankrupt.^®" But a receiver in bankruptcy is not vested with the powers of a trustee, but is a mere custodian, and has no authority to take possession of prop- erty held and claimed adversely by»a third person; and on a petition by such adverse claimant to recover property alleged to have been taken from his possession by the receiver without his consent, the invalidity of his title is no defense.^®* N"either has the court of bankruptcy jurisdic- tion, on a mere summary petition, to determine the question of right and title as between a stranger holding property by an adverse claim, assert- ed in good faith, and a receiver alleging that he acquired it by a fraudu- lent or preferential transfer."' But the court has jurisdiction to enter- 152 In re C. M. Burkhalter & Co-, 182 A. 481, 13 Am. Bankr. Rep. 531. But Fed. 353, 25 Am. Bankr. Rep. 378. where one charged' with conspiring with 10 3 McAfee v. Arnold & Mathis, 155 a bankrupt to conceal assets cohsented Ala. 561, 46 South. 870. that the money in his possession be im- 164 In re Eurich's Ft. Hamilton Brew- pounded by the bankruptcy court to def ery, 158 Fed. 644, 19 Am. Bankr. Rep. cide whether it belonged to the bankrupt, 798. the money should n&t be delivered on the 155 In re Kleinhans, 113 Fed. 107, 7 petition of such person until the right Am. Bdnkr. Rep. 604. thereto was adjudicated. In re Robin- 156 In re J. C. Winship Co., 120 Fed. son (D. C.) 237 Fed. 102. 93, 56 C. C. A. 45, 9 Am. Bankr. Rep. 638. iso in re Eurich's Ft. Hamilton Brew- is ' In re Muncie Pulp Co., 139 Fed. ery, 158 Fed. 644, 19 Am. Bankr. Rep. 546, 71 C. C. A. 530, 14 Am. Bankr. Rep. 798: Copeland v. Martin, 182 Fed. 805, 70; In re Friedman, 161 Fed. 260, 20 25 Am. Bankr. Rep. 268; In re Darling- Am. Bankr. Eep. 37. . ton Co., 163 Fed. 389, 20 Am. Bankr. Rep. IBS In re Kolin, 134 Fed. 557, 67 C. C. 805: Knapp & Spencer Co. v. Drew, 160 § 213 LAW OF BANKEUPTCI 492 tain the proceeding so far as to ascertain whether the claimant is in fact an adverse claimant, or whether he holds the property as agent or bailee of the bankrupt.^^* And where property has once come into the posses- sion of the receiver as a part of the bankrupt's estate, and has been taken from him by an adverse claimant, either with or without hi.s consent, the court of bankruptcy has power to protect its possession by a summary order requiring the return of the property, or its proceeds if sold, and jurisdiction to adjudicate with respect to all claims thereto.^*^ Where a sheriff's levy of execution, on judgments rendered against the bankrupt more than four months before the bankruptcy, was insuffi- cient, and the sheriff was attempting to sell property other than that subject to a purchase-money lien in favor of one of the judgment credi- tors, it was held that, as the property subject to the lien was not identi- fied, it was proper for the bankruptcy court to refuse an order for de- livery of any property to the sheriff, and instead to allow its own receiv- er to retain possession of all the property."* In another case, where the bankrupt would have been entitled to the possession of goods in the hands of a carrier consigned to him, on payment of the freight, on the day on which a demand was made by his receiver in bankruptcy, in case bankruptcy had not intervened, it was considered that the receiver was entitled to the same, and the w^rongful refusal of the carrier's agent to deliver the goods constituted him the agent of the receiver, thus ter- minating the right of stoppage in transitu."* Where a New York mort- gage provided that, in the event of default, the mortgagee should have the right to enfer and take possession of the premises and to receive the rents and profits, it was held that the mortgagee was not entitled to the rents and profits until he had entered into possession or foreclosed the mortgage, and hence the receiver in bankruptcy of the mortgagor is en- titled to the rents and profits collected before the mortgage was fore- closed."* Fed. 413, 87 0. O. A. 365, 20 Am. Bankr. 725; la re Dialogue (D. C.) 215 Fed. 462, Rep. 355; In re Mundle, 139 Fed. 691, 32 Am. Bankr. Rep. 183. 14 Am. Bankr. Rep. 680. 102 In re Brinn (D. C.) 262 Fed. 527, 100 In re Andre, 1?5 Fed. 736, 68 0. C. 45 Am. Bankr. Rep. 74. A. 374, 13 Am. Bankr. Rep. 132; In re iss in re White (D. C.) 205 Fed. 393, Livingston & Turk, 205 Fed. 364, 125 29 Am. Bankr. Rep. 358. 0. 0. A. 582, 30 Am. Banki-. Rep. 531. lo* In re Brose, 254 Fed. 664, 166 0. C. 181 In re Rose Shoe Mfg. Co., 168 Fed. A. 162, 42 Am. Bankr. Rep. 543. But see 39, 93 C. O. A. 461, 21 Am. Bankr. Rep. In re Jarmulowsky (D. 0.) 224 Fed. 141, 35 Am. Bankr. Rep.' 514. 493 CUSTODY OF PROPERTY BEFORE APPOINTMENT § 214 § 214. Actions By and Against Receiver. — The functions of a re- ceiver appointed to "take charge of the property of the bankrupt," as au- thorized by the statute, are not limited to the mere receipt and custody of such property as may be voluntarily surrendered to him, but it is his duty to collect and recover the property, by suit if necessary; and the court has jurisdiction, in appointing the receiver, to authorize him to in- stitute all necessary actions at law or in equity for the recovery of the bankrupt's property.^*® He may maintain summary proceedings in the court of bankruptcy in a case proper for that mode of procedure,^^ or replevin, where that form of action would otherwise be appropriate,"' and he may sue in state courts as well as federal courts, and the decree authorizing him to sue will not be open to collateral impeachment in an action brought by him.^** But the receiver will not be authorized to bring suit for the collection of assets in a jurisdiction other than the one in which he was appointed ; that is, he cannot maintain an action in a federal court in another district or in a state court of another state.-^** If assets of the bankrupt are discovered in another state, the proper course is for the petitioning creditors to apply to the proper court, fed- eral or state, in such other state, setting up the pending proceedings in bankruptcy as the basis of their action, and asking for protection for their rights in the property of the debtor within that state, by injunction, receivership, or other appropriate remedy, in which proceedings the trustee in bankruptcy, subsequently appointed, may appear .and take 185 In re Fixen & Co., 96 Fed. 748, 2 lee In re Muncie Pulp Co., 139 Fed. Am. Bankr. Kep. 822. A receiver in .546, 71 C. C. A. 530, 14 Am. Bankr. Eep. bankruptcy may be authorized to sue a 70. carrier for negligence in the handling of i«'' Unmack v. Douglass, 75 Conn. 633, freight. Slaughter r: Louisville & N. B. 55 Atl. 12. Co., 125 Tenn. 292, 143 S. W. 603. A los Slaughter v. Louisville & N. R. Co., receiver in bankruptcy may sue out an 125 Tenn. 292, 143 S. W. 603. But the attachment, or bring an action to pre- order authorizing the receiver to sue is vent the statute of limitations from run- not conclusive on the question whether ning, or sue at law to recover any debt he has any cause of action. Greenhall or personal property which might other- v. Hurwitz, 80 Misc. Rep. 186, 141 N. Y. wise be lost. McKenna v. Bandle, 5 Supp. 914. Alaska, 590. A receiver appointed in iod Clark v. Booth, 17 How. 327, 15 L. bankruptcy has no right to recover se- Ed. 164; Hale v. Allinson, 188 U. S. 56, 2.3 curities deposited by the bankrupt to Sup. Ct. 244, 47 L. Ed. 380; In re Dunseath secure a usurious loan, without tender- & Son Co., 168 Fed. 973, 21 Am. Bankr. ing the amount lawfully due. Rice v. Rep. 742; 22 Am. Bankr.' Rep. 75; In re Schneck, 189 App. Div. 877, 179 N. t. National Mercantile Agency, 128 Fed. Supp. 335. A cause of action In favor of 639, 12 Am. Bankr. Rep. 189; In re a receiver In bankruptcy for conversion Schrom, 97 Fed. 760, 3 Am. Bankr. Rep. of property wrongfully taken from his 352. -Compare In re Dempster, 172 Fed. possession, is not assignable. Ellis v. 353, 22 Am. Bankr. Rep. 751. See Fletch- Feeney & Sheehan Bldg. Co., 187 App. er v. Murray Commercial Co., 72 Wash. Div. 481, 176 N. T. Supp. 61. 525, 130 Pac. 1140. § 214 . LAW OF BANKRUPTCY 494 charge."* Or if the receiver is armed with an order of the court which appointed him, requiring the surrender of property in another state, it appears that he may apply to the court of bankruptcy in such other state for its assistance in the enforcement of the order.^'^ It is not with- in the functions of such a receiver to attempt to vacate alleged prefer- ential payments or transfers, to dissolve liens, or to recover property al- leged to have been conveyed away in fraud of the bankrupt's creditors. Authority to take measures of this kind is indeed conferred by the bank- ruptcy act, but only upon the trustee in bankruptcy, not the receiver. The latter, therefore, has no authority to bring suits of this kind or for the purposes mentioned.^'* As to actions against the receiver, an act of Congress provides that "every receiver or manager of any property appointed by any court of the United States may be sued in respect of any act or transaction of his in carrying on the business connected with such property, without the previous leave of the court in which such receiver or manager was appointed." ^'* It has been pointed out that, while this section applies to receivers in bankruptcy, it does not authorize a suit without leave against such receiver unless he is carrying on the business of the bank- rupt, or in respect to his acts relating merely to the care and preserva- tion of the property of the estate.^'* It may be proper for him to enter his appearance in a suit pending against the bankrupt at the time of his appointment,"® but in respect to claims which will be provable in the bankruptcy proceedings, the receiver is not the proper person to adjust such claims or to defend suits thereon, and an action on such a claim, against the receiver as such, will not be authorized or allowed by the 170 In re Schrom, 97 Fed. 760, 3 Am. goods of a bankrupt alleged to have Bankr. Kep. 352. been fraudulently conveyed had been 171 In re Peiser, 115 Fed. 199, 7 Am. taken into the possession of an ancillary Bankr. Rep. 690. receiver, it was heid that the court ap- 172 Boonville Nat. Bank v. Blakey, 107 pointing such receiver acquired Jurisdic- Fed. 891, 47 O. O. A. 43, 6 Am. Bankr. tion to determine the validity of the Rep. 13; Frost v. liatham & Co., 181 transfer and the rights of the parties. Fed. 866, 25 Am. Bankr. Rep. 313 ; Guar- In re Lipman, 201 Fed. 169, 29 Am. anty Title & Trust Co. v. Pearlman, 144 Bankr. Rep. 139. Fed. 550, 16 Am. Bankr. Rep. 461; Lans- ^^ federal Judicial Code 1911, § 66. ing.v. Manton, 14 N. B. R. 127, Fed. Cas. ^^^ ggg i^ ^g ggHy j^^y Q^ods Co., 102 No. 8,077. Compare In re Alexander, ^g^ 747^ 4 ^^ 3^^^^^ ggp 538. 193 Fed. 749. Where the bankrupt had xr ,u » t, ,t.. ^ ,„„ sold certain of his assets to his attorney, „ " I"/ai n n A^.f o. ?' ^iS" ^^^ and the latter had sold the same to an- l^^- l^' 91 C. C A. 573, 21 Am. Bankr. other person, it was held that a receiver ^P- 393 ; In re Lane Lumber Co. (D C.) in bankruptcy was entitled to sue to 206 Fed. 780, 30 Am. Bankr. Rep. 749. vacate such sales, without waiting for I's In re Muncie Pulp Co., 151 Fed. the appointment of a trustee.- In re 732, 81 C. C. A. 116, 18 Ain. Bankr. Rep. Alexander, 193 Fed. 749. And where 56. 493 CUSTODY OP PEOPERTY BEFORE APPOINTMENT § 215 bankruptcy court in any event.^'* But as to the receiver's own acts and transactions, the case is different. The court of bankruptcy has no juris- diction to stay or prevent the maintenance of an action against the re- ceiver to enforce a personal liability against him for acts done beyond the scope of his authority.*'" Thus, if the receiver takes possession not only of the property designated in the order appointing him, but also of other goods, the property of a third person and which never were owned by the bankrupt, the owner thereof may maintain trespass in a state court against the receiver, as an individual, for thus interfering with property which was outside the order of the court."* So also, a state court has jurisdiction of an action against a receiver in bankruptcy to recover rent for premises occupied by the bankrupt under a lease which the receiver elected to accept.*'* § 215. Ancillary Receiverships. — Notwithstanding a few decisions to the contrary,*** it is now quite well settled (especially since the amendment of 1910) that the statute invests courts of bankruptcy with ancillary jurisdiction to appoint receivers for property found within their territory and belonging to a debtor against whom a petition in involuntary bankruptcy has been filed in another district,*** though it seems that this power ought not to be exercised without such notice to the persons in possession of the property and to other parties in in- terest as will answer the requirement of due process of law.**^ The court of bankruptcy thus appointing an ancillary receiver has juris- diction to hear and determine the claims of third persons asserting title to the property or liens upon it,*** and to settle the ancillary receiver's accounts, affording to creditors, or to the trustee of the primary juris- 176 In re Heim Milk Product Co., 183 but resort must be had to the federal Fed. 787, 25 Am. Bankr. Rep. 746." courts for relief. 177 In re Spechler Bros., 185 Fed. 311, 179 Brooklyn Improvement Co. v. Lew- 26 Am. Bankr. Rep. 97; In re Kalb & is, 136 App. Div. 861, 122 N. Y. Supp. 111. Berger Mfg. Co., 165 Fed. 895, 91 C. C. A. iso Ross-Meeham Foundry Co. v. South- 573, 21 Am. Bankr. Rep. 393. But a re- ern Car & Foundry Co., 124 Fed. 403, 10 ceiver in bankruptcy is not personally ^m. Bankr. Rep. 624; In re Dempster, liable for negligence of a person employ- 172 Fed. 353, 22 Am. Bankr. Rep. 751. ed by him to remove property which he ^j, j^ ^.^ ^unseath & Son Co., 168 Fed. was authorized to remove, where the q^^^ ^1 Am. Baukr. Rep. 742; 22 Aiu. receiver was not guilty of any negligence . g^nkr. Rep. 75 ; In re John L. Nelson in the selection of such employe. Fred- ^ ^^^ f,^^ ^^^ j,g^ 590^ j^g ^^^ Bankr. erick A. Stokes Co. v. Oarell, 138 N. T. ^^^ gg. j^ ^^ Benedict, 140 Fed. 55, 15 Supp. 536. Am. Bankr. Rep. 232. 178 In re Young, 7 Fed. 855 ; Dalton ^^^ Ross-Meeham Foundry Co. v. South- Adding Mach. Co. ^- SHerrard 207 111. ^^^ ^ ^^ ^^ ^2^ ^^^ App. 338. But see Quait v. Wortham ^^ Bros. Co., 176 111. App. 273, holdmg that the actions of a receiver In bankruptcy isa Fidelity Trust Co. v. Gaskell (C. may not be attacked in the state courts, C. A.) 195 Fed. 865, 28 Am. Bankr. Rep. 4. § 216 LAW OF BANKEUPTCY 496 diction, an opportunity to question the correctness of the accounting in the ancillary court, the receiver not being bound to account to the cotirt of primary jurisdiction.^** But the ancillary receiver's duty is limited to the collection of assets and to holding the same to await the appointment of a trustee, and he will not ordinarily be authorized to sell any of the property in his custody.^*® An application to vacate the receivership, on a ground going to the root of the whole matter, as, that the alleged bankrupt was solvent and had not committed an act of bankruptcy, should not be made in the first instance to the court of an- cillary jurisdiction (the same person having been appointed receiver in both districts), but to the court of original jurisdiction.^** § 216. Accounts and Compensation of Receiver. — ^A receiver in bankruptcy, on the termination of his trust, should submit his account of receipts and disbursement, which will be audited and passed in the usual manner.^*'' Exceptions to the account should be verified, though the omission of a verification is an amendable defect.^** The receiver will be surcharged with the value of any property coming into his hands and not accounted for.'^^' And though a petition is dismissed, on the ground that the alleged bankrupt was not amenable to the law, yet as the court had jurisdiction to determine that question, its appointment of a receiver was not void, and hence it may in its discretion allow and pay the expenses of the receivership out of the fuiids in the receiver's hands, where his services were beneficial to the estate.^*' As to allowing fees to an attorney representing the receiver, it has been said that, ordina- rily, the duties of a statutory receiver for an alleged bankrupt neither require nor justify the employment of an attorney,' and hencte no claim for the services of an attorney so employed is chargeable per se against the estate, predicated alone on the fact of employment and service IS* Loeser v. Dallas (O. O. A.) 192 Fed. ise In re Hayes, 192 Fed. 1018, 27 Am. 909, 27 Am. Bankr. Rep. 733. Bankr. Rep. 713. ^ T t.'l^T'"^^ ^^^^l^''°l2'-' r ^" ^^^'^ ^^^ ^<=«°™ts of a receiver Fed. 283, 27 Am. Bankr Rep 577. An- .^ bankruptcy have been settled by a ciliary receivers in bankruptcy are of- ^^^^ ^ jurisdiction, he may be fleers of the court, and not successors m „ „ ., " ,•" , , ' ^^ \ 7 title to the bankrupt, and are therefore «™">a"ly ordered to pay over the bal- not charged with the bankrupt's knowl- Z^^J^tZf ^'t """"'X r?i "^""^^ liable therefor. In re Reliable Bottle edge of the contract under vphich he ob- tained title to the property, possession Box Co., 199 Fed. 670, 29 Am. Bankr. of which the receivers acquired from the bankrupt, though they may be charged i^s In re Ketterer Mfg. Co., 156 Fed. with knowledge of the identity of the 719, 19 Am. Bankr. Rep. 638. property with that claimed, if it was „„ j Consumers' CoffeP Co ifi9 sufficiently described, so that its identity „^, i?„ '„^- V^° "^"^ ^ L^ ' could be determined from inspection. In ^^^- ^^^' ^0 ^- ^ankr. Rep. 835. re Fosgate (D. C.) 268 Fed. 985, 45 Am. lo" In re Wentworth Lunch Co., 189 Bankr. Rep. 596. Fed. 831. 4:97 CUSTODY OP PROPERTY BEFORE APPOINTMENT § 216 rendered.""^ At any rate, if such fees are allowed, they should be al- lowed only to the extent that the services were rendered for the direct benefit of the entire estate, and not of any particular creditor.*** And since the receiver is required to stand independent of the parties to the litigation, he will not be allowed to charge the estate for services ren- dered to him by the attorney for either party during the continuance of such relation.*** As to the receiver's own compensation, the bankruptcy act, as orig- inally adopted, made no provision for this, except in the clause provid- ing that the "actual and necessary cost of preserving the estate subse- quent to filing the petition" should have priority and be paid in full out of the estate.*** Accordingly it was held that the question of al- lowing commissions or compensation to the receiver, and the amount, was committed entirely to the sound judicial discretion of the court as in ordinary cases in courts of equity, to be determined upon considera- tion, of the services rendered in the particular case.**® But an amend- ment to the bankruptcy act adopted in 1910 provides on this subject that "receivers or marshals appointed pursuant to section two, sub- division three, of this act, shall receive for their services, payable after they are rendered, compensation by way of commissions upon the mon- eys disbursed or turned over to any person, including lien holders, by them, and also upon the moneys turned over by them or afterwards realized by the trustee from property turned over in kind by them to the trustees, as the court may allow, not to exceed six per centum on the first five hundred dollars or less, four per centum on moneys in excess of five hundred dollars and less than one thousand five hundred dollars, two per centum on moneys in excess of one thousand five hun- dred dollars and less than ten thousand dollars, and one per centum on moneys in excess of ten thousand dollars: Provided, that in case of the confirmation , of a composition such commissions shall not exceed one-half of one per centum of the amount to be paid creditors on such compositions : Provided further, that when the receiver or marshal acts as a mere custodian and does not carry on the business of the bank- rupt as provided in clause five of section two of this act, he shall not receive nor be allowed in any form or guise more than two per centum 181 In re T. E. Hill Co., 159 Fed. 73, "* Bankruptcy Act 1898, § 64b. 86 C. C. A. 263, 20 Am. Bankr. Rep. 73. i9b in re Schoe'hfeia, 183 Fed. 219, 105 But compare In re Oppenheimer, 146 O. C. A. 481, 25 Am. Bankr. Rep. 748; Fed. 140, 17 Am. Bankr. Rep. 59. And In re Klrkpatrick, 148 Fed. 811, 78 C. C. see infra, § 784. A. 501, 17 Am. Bankr. Rep. 594 ; In re 102 In re Ketterer Mfg. Co., 156 Fed. Martin Borgeson Co., 151 Fed. 780, 18 719, 19 Am. Bankr. Rep. 638. Am. Bankr. Rep. 178 ; In re Gerson, 2 188 In re T. L. Kelly Dry Goods Co., Nat. Bankr. News, 493. 102 Fed. 747, 4 Am. Bankr. Rep. 528. BLK.BKR.fSn En )— 32 § 216 LAW OF BANKRUPTCY 49S on the first thousand dollars or less, and one-half of one per centum on all above one thousand dollars on moneys disbursed by him or turned over by him to the trustee and on moneys subsequently realized from property turned over by him in kind to the trustee : Provided further, that before the allowance of compensation notice of application there- for, specifying the amount asked shall be given to creditors in the man- ner indicated in section fifty-eight of this act. "Where the business is conducted by trustees, marshals, or receiv- ers, as provided in clause five of section two of this act, the court may allow such officers additional compensation for such services by way of commissions upon the moneys disbursed or turned over to any person, including lien holders, by them, and in cases of receivers or marshals, also upon the moneys turned over by them or afterwards realized by the trustees from property turned over in kind by them to the trustees; such commissions not to exceed six per centum on the first five hundred dollars or less, four per centum on moneys in excess of five hundred dollars and less than one thousand five hundred dollars, two per centum on moneys in excess of one thousand five hundred dollars and less than ten thousand dollars, and one per centum on moneys in excess of ten thousand dollars: Provided that in case of the confirmation of a com- position such commissions shall not exceed one-half of one per centum of the amount to be paid creditors on such composition: Provided further, that before the allowance of compensation notice of application therefor, specifying the amount asked, shall be given to creditors in the manner indicated in section fifty-eight of this act." ^^* § 217. Sale of Property Pending Proceedings. — A receiver appointed by a court of bankruptcy to take charge of the property of a bankrupt, pending the election and qualification of a trustee, may be ordered to sell the property, or any part of it, when such a course is necessary for the preservation of its value.^®' But in view of the temporary nature of the receiver's functions, such sales are justified only when the prop- erty is perishable or is rapidly depreciating in value.^®* Thus, where the receiver acquires possession of a leasehold as part of the bankrupt's i»6Act Cong. June 25, 1910, § 9, 36 any proceedings therefor In the domicili- Stat. 838. ary jurisdiction. In re Brockton Ideal 187 In re Becker, 98 Fed. 407, 3 Am. Shoe Co., 194 Fed. 233, 27 Am. Bankr. Bankr. Rep. 412 ; In re B. D. Garner & Rep. 577. Co., 153 Fed. 914, 18 Am.- liankr. Rep. ids in re Desrochers, 183 Fed. 991, 25 733 ; In re De Lancey Stables Co., 170 Am. Bankr. Rep. 703 ; In re Harris, 156 Fed. 860, 22 Am. Bankr. Rep. 406. Where Fed. 875, 19 Am. Bankr. Rep. '635. a. corporation is adjudged bankrupt in "Perishable" property, in this connection Massachusetts and an ancillary receiver ig not restricted to property which de- appointed in New York, he will not be teriorates physically, but Includes that authorized to sell the bankrupt's stock which Is liable to deteriorate in value in trade in New York, in absence of 499 CUSTODY OP PROPERTY BEFORE APPOINTMENT § 217 Estate, he should not attempt to make a sale of it."® And whatever be the nature, of the property, he can act only under the direction of the court. A sale by a receiver in bankruptcy without the order of the court conveys no title.*'* The sale of goods as perishable is for the benefit of all concerned, the money realized standing in place of the property itself, against which the parties interested may assert their rights the same as if the sale had not taken place.*"^ If the receiver is not in possession of particular property, the court of bankruptcy has no ju- risdiction to order its sale. and determine the rights of adverse claim- ants in the proceeds,*** unless, it may be, with the consent of the claim- ant who has *the possession of the property.*** and price by reason of delay in dispos- ing of it. In re Pedlow, 209 Fed. 841, 126 C. C. A. 565, 31 Am. Bankr. Rep. 761. 109 In re Fulton (D. C.) 153 Fed. -664, 18 Am. Bankr. Rep. 591. 2 00 In re Styer (D. C.) 98 Fed. 290, 3 Am. Bankr. Rep. 424; In re Fulton (D. C.) 153 Fed. 664, 18 Am. Bankr. Rep. 591 ; Muschel v. Austem, 43 Misc. Rep. 352, 87 N. Y. Supi). 235. But it is within the discretion and power of the court of bankruptcy, by confirmation of a sale made by the receiver without a prior order, to ratify and validate the sale, as it can of course subsequently ratify what it could have' authorized in advance. Klintz V. Marx, 205 111. App. 376; Ellis V. Feeney & Sheehan Bldg. Co., 187 App. Div. 481, 176 N. Y. Supp. (il. Of course a receiver in bankruptcy has no author- ity to sell at private sale on his own re- sponsibility. But if he reports to the court an ofCer made by an outside party for the purchase of property in his charge, and the court makes an order authorizing him to accept the offer and sell the property, the transaction be- comes a judicial sale, and the purchaser can be compelled, by rule or attachment, to comply with its terms. In re J. Jung- mann. Inc., 186 Fed. 302, 108 C. O. A. 380, 26 Am, Bankr. Rep. 401. 2 01 Gealey v. South Side Trust Co., 249 Fed. 189, 161 C. C. A. 225, 41 Am. Bankr. Rep. 645 ; In re Le Vay (D. 0.) 125 Fed. 990, 11 Am. Bankr. Rep. 114. 2 02 First Nat. Bank v. Chicago Title & Trust Co., 198 U. S. 280, 25 Sup. Ct. 693, 49 L. Ed. 1051, 14 Am. Bankr. Rep. 102. One who purchases property from a re- ceiver in bankruptcy, which is listed in the receiver's inventory as property al- leged to belong to a third person, must be deemed to have notice of the owner- ship of the property. Dalton Adding Ma- chine Co. V. Sherrard, 207 111. App. 338. 2 03 Ommen v. Talcott (D. C.) 175 Fed. 261, 23 Am. Bankr. Rep. 572 ; In re Hol- lingsworth & Whitney Co., 242 Fed. 753, 155 C. O. A. 341, 39 Am. Bankr. Rep. 678. § 218 I-AW OF BANKRUPTCY 500 CHAPTER XIII THE BANKRUPT, HIS RIGHTS ANO DUTIES See. 218. Status of Bankrupt During Proceedings. 219. Bankrupt Subject to Orders of Court. 220. Duties With Relation to Estate, and Assistance to Trustee. 221. Schedule of Assets ; Preparation and Filing. 222. Form and Contents of Schedule. 223. Preparation of Schedule on Bankrupt's Default. 224. Mistakes and Omissions in Schedule. 225. List of Creditors. 226. Amendment of Schedule and List. ' 227. Surrender of Money or Assets to Trustees ; Jurisdiction and Power to Order. 228. Same; Petition, Order, and Proceedings Thereon. 229. Same; Evidence to Sustain Order. 230. Same; Excuses, Defenses, and AUoVrancea. 231. Same; Commitment for Contempt. 232. Detention and Extradition of Bankrupts. 233. Privilege from Arrest on Civil Process. 234. Release from Iniprisonment. 235. Arrest Prior to Bankruptcy Proceedings. 236. After-Acquired Property. 237. Bight to Surplus of Estate. § 218. Status of Bankrupt During Proceedings. — During the pend- ency of the proceedings, the bankrupt is regarded as "civiliter mortuus" so far as concerns all his property and estate which is subject to admin- istration in bankruptcy. From the date of the adjudication in bank- ruptcy, he loses all power of disposing of any portion of such property, and any subsequent deed, conveyance, incumbrance, transfer, or agree- ment which he may make is a nullity and absolutely void as against his trustee in bankruptcy.^ He can make no binding agreement with credi- 1 In re Anderson, 23 Fed. 482 ; In re since, his title thereto having vested in Gregg, 1 Hask. 173, 3 N. B. R. 529, Fed. his trustee in bankruptcy, it could not be Cas. No. 5,796; Johnson v. Geisriter, 26 said that he died "seised and possessed" Ark. 44 ; Hamilton v. Smith, 36 Mont. 1, of the lands. Bostick v. Jordan, 7 Heisk. 92 Pac. 32, 122 Am. St. Rep. 330; Red- (Tenn.) 370. But the present bankrupt- man V. Gould, 7 Blackf . (Ind.) 361. It cy act (section 8) saves to the widow and is doubtful whether a person who has children "all rights of dower and allow- been adjudged bankrupt, pending the ance fixed by the laws of the state of proceedings, has such a possibility cou- the bankrupt's residence." The bank- pled with an interest in property dis- ruptcy of the lessee under a lease demis- covered after his death as will enable ing the premises for a fixed term with such property to pass under a general the privilege of renewal occurring dur- devise by him. In re Morris, Crabbe, ing the fixed term does not dissolve the 70, Fed. Cas. No. 9,825. Without the agreement so as to authorize a court of aid of a saving clause in the statute, it equity to cancel the renewal clause, appears that the widow of a bankrupt Olden v. Sassman, 67 N. J. Eq. 239, 57 dying before his discharge would not be Atl. 1075, afBrmed, 68 N. J. Eq. 799, 64 entitled to dower in lands belonging Atl. 1134. to him at the time of filing the petition, 501 THE BANKRUPT, HIS EIGHTS AND DUTIES § 218 tors or others as to the distribution of his estate.* If the bankrupt ex- ecutes a mortgage upon his property, pending the proceedings, the trus- tee may have it set aside summarily, on petition; he need not resort to a bill in equity.* If the bankrupt undertakes to make an assignment of a judgment standing in his name, it passes no right or title available against the trustee.* The doctrine of the law is that, upon' the institu- tion of proceedings in bankruptcy against a debtor (or upon his voluntary petition), all persons are so far affected with constructive notice of the proceedings that they cannot deal with the bankrupt or his estate to the prejudice of the proceedings, or in derogation of the title of the trustee in bankruptcy.® Accordingly it is held that payment of a debt made to a bankrupt after the commencement of proceedings against him, though made in good faith and in the usual course of business, and with- out any knowledge or actual notice of the bankrjiptcy proceedings, is not effectual to discharge the debt, but the debtor may be required to pay the money again to the trustee in bankruptcy, unless, indeed, the bankrupt should surrender the amount of it.* But the bankrupt's exempt property is brought into the proceeding only so far as to be valued and set apart by the trustee. The title does not pass to the trustee, nor is the , title of the owner impaired or af- fected by the proceedings. He may mortgage or sell it, and he may bring and maintain suits in respect to it, without regard to the pendency of the bankruptcy proceedings.' Further, there are some kinds of property, or rights of property, which are not of a character to be af- fected by the bankruptcy proceedings and do not pass to the trustee, and as to property of this description, the bankrupt, even pending the proceedings, has the right to deal with it as he sees fit, or to sue upon and arbitrate claims in regard to it.* This is the case, for example, in regard to the right of action for a purely personal tort against the bank- rupt, such as libel or slander or malicious prosecution or false imprison- 2 In re Anderson, 2 Hughes, 378, 9 N. « Howard v. Crompton, 14 Blatchf . B. R. 360, Fed. Cas. No. 351. 328, Fed. Cas. No. 6,758 ; In re Hayden, 3 In re Sims, 16 N. B. B. 251, Fed, 7 N. B. K. 192, Fed. Cas. Na 6,257; Cas. No. 12,888. Mays v. Manufacturers' Nat. Bank, 64 ■* Harris v. England, 1 Ky. Law Rep. Pa. St. 74, 3 Am. Rep. 573. See Bab- 271. bltt V. Burgess, 2 Dill. 169, 7 N. B. R. 5 Page v. Waring, 76 N. T. 463. Even 561, Fed. Cas. No. 693 ; Ex parte Good- a transfer of promissory notes by the win, 1 Atk. Ch. 100. And see infra, § payee, pending bankruptcy proceedings 340. against him which result in an adjudica- ^ Henley v. Lanier, 75 N. C. 172 ; Winn tion and an injunction against disposing v. Morse, 59 N. H. 210; Selling: v. Gnn- of his property, vests no title in the derihan, 35 Tex. 545; Bush v. Lester, purchaser, though he had no actual no- 55 Ga. 579. tice of the proceedings. ■ In re Lake, 3 s Tallnian v. Tallmari, 5 Gush. (Mas.i.) Biss. 204, 6 N. B. R. 542, Fed. Cas. No. 325. 7,992. § 218 LAW OF BANKRUPTCY 502 ment.® And finally, as will more fully appear in another chapter, a trustee in bankruptcy is not bound to take any property which he deems likely to be more of a burden than a benefit to the estate ; and when he manifests his election not to assume the administration of such property, it reverts to the bankrupt, and the latter is of course free to deal with it as he may please.*" Although the bankrupt is for most purposes, as above stated, civiliter mortuus during the proceedings, yet the individual bankruptcy of a person who is a stockholder and director and officer of a corporation (which is not in bankruptcy) does not prevent him from voting on stock still standing in his name, nor incapacitate him from exercising his func- tions as such officer of the corporation, nor render void as to third per- sons the acts and conveyances of the corporation done and executed through him as its representative.** Also it should be observed that a bankrupt is competent to take, hold, and execute a trust. A trust estate already confided to him does not pass to his trustee in bankruptcy, nor does his discharge release him from any fiduciary debts or obligations.*' § 219. Bankrupt Subject to Orders of Court. — From the time of the filing of a petition in bankruptcy until the discharge of the bankrupt (and perhaps even until the final closing of the estate), the bankrupt is always within the jurisdiction of the court of bankruptcy and subject to its orders in respect to the performance of all duties laid upon him by the law itself or arising out of the peculiar circumstances of his es- tate. This principle would be easily deducible from the very nature of the proceeding, but it is enacted as law by the provision of the act that the bankrupt shall "comply with all lawful orders of the court." *^ And lest there should be any lack of authority to enforce compliance, it is provided that the court of bankruptcy shall have jurisdiction to "en- force obedience by bankrupts, officers, and other persons to all lawful orders, by fine or imprisonment." ** § 220. Duties With Relation to Estate, and Assistance to Trustee. — Prior to the appointment of the trustee, the bankrupt has sufficient in- terest in his property, and it is his duty, to do whatever may be neces- sary to protect and save it, and he may, for that purpose, institute all » In re Haensell, 91 Fed. 355, 1 Am. n Atlas Nat. Bank v. Gardner, 8 Biss. Bankr. Rep. 286 ; Stanly v. Duhurst, 537, 19 N. B. R. 213, Fed. Gas. No. 635 ;' 2 Root (Conn.) 52 ; Noonan v. Orton, 34 State v. Ferris, 42 Gonn. 560. Wis. 259, 17 Am. Rep 441, 12 N B. R. ,, ^ ^ ^ ^g Bankruptcy 405 ; In re Grockett, 2 Ben. 514, 2 N. B. ^^^ ^ggg „ j^_ ^'•'-' R. 208, Fed. Gas. No. 3,402; Dillard v. Collins, 25 Gratt. (Va.) 343. " Bankruptcy Act 1898, § 7. 10 See Infra, § 320. i* Bankruptcy Act 1898, § 2, cl. 13. 503 THE BANKRUPT, HIS RIGHTS AND DUTIES § 220, necessary actions.*® After the trustee is chosen and qualified, it is made the duty of the bankrupt (by the seventh section of the statute) to "examine the correctness of all proofs of claims filed against his es- tate; execute and deliver such papers as shall be ordered by the court;** execute to his trustee transfers of all his property in foreign countries ; immediately inform his trustee of any attempt, by his creditors or other persons, to evade the provisions of this act, coming to his knowledge; and, in case of any person having to his knowledge proved a false claim against his estate, disclose that fact immediately to his trustee." As to transfers of property, it should be remarked that, under the act of 1867, it was held that, as a bankruptcy law has no ex-territorial operation, the courts of bankruptcy had no jurisdiction over property of the bank- rupt in a foreign country and could not compel him to make a convey- ance of it to his trustee." This difficulty seems to have been met by the quoted provision of the present statute. As to property within the United States, the court of bankruptcy has jurisdiction to require the bankrupt to do whatever is necessary to make the legal transfer of it to the trustee valid and effectual.'* Thus, he may be compelled to join in an application for the transfer of a liquor license formerly belonging to him and sold by the trustee,** or in such proceedings as are necessary to transfer a seat on the stock exchange.^' And where a devise has been made to a bankrupt, and accepted by him, it is a fraud upBn his creditors for him to disclaim or renounce it, and the court of bankruptcy will compel him to do all acts necessary to perfect his title to the devised estate.** As to disclosing attempts to prove false claims, it is held that the fact that, no trustee has yet been appointed will not relieve the bankrupt from the duty, or deprive him of the right, of objecting to the allowance of any false or unjust claim against his estate, or of moving for its expunction.^^ It has been held that a claim* by a bankrupt for compensation for rendering extraordinary services and assistance to his trustee, beyond isjohnson v. Collier, 222 U. S. 538, is In re Lattimer, 174 Fed. 824, 23 Am. 32 Sup. Ct. 104, 56 L. Ed. 306, 27 Am. Bankr. Eep. 388; In re Hudson River Bankr. Rep. 454 ; Hickcock v. Bell, 46 Water Power Co., 148 Fed. 877, 17 Am. Tex. 610 ; In re Banks (D. C.) 207 Fed. Bankr. Rep. 778. 662, 31 Am. Bankr. Rep. 270. is In re Wiesel, 173 Fed. 718, 23 Am. 16 Babbitt v. Dutcher, 216 U. S. 102, Bankr. Rep. 59. 30 Sup. Ot. 372, 54 L. Ed. 402, 17 Ann. 20 in re Hurlbutt, Hatch & Co., 135 Cas. 969, 23 Am. Bankr. Hep. 519 (com- Fed. 504, 68 C. O. A. 216, 13 Am. Bankr. pelling delivery of records and stock Bep. 50. books of bankrupt corporation) ; In re 21 Ex parte Fuller, 2 Story, 327, Fed. Wilson, 116 Fed. 419, 8 Am. Bankr. Eep. Cas. No. 5,147. 612 (punishment for contempt for refus- 22 in re Ankeny, 100 Fed. 614, 4 Am. ing to turn over books of account). Bankr. Rep. 72. IT Phelps V. McDonald, 2 MacArthur, 375, 16 N. B. R.' 217. § 221 LAW OF BANKRTJPTCX 504 what was required to make the property, rights, credits, and effects avail- able, cannot be allowed by the court, though it may be allowed by the creditors as an act of grace on their part.** But on the other hand, a man's professional skill, ability, and education are his own, and cannot be claimed by creditors in their own interest without compensation. Hence a bankrupt is under no obligation to render services, in his capaci- ty as an attorney at law, in proceedings to realize his estate for the benefit of his creditors, and if he does so, he will be entitled to the pay- ment of a fair compensation therefor out of the funds so secured.** § 221. Schedule of Assets; Preparation and Filing. — ^The statute makes it the duty of a bankrupt to prepare and file in court a verified schedule of his property. This paper must show the amount and kind of property, its location, and its money value in detail. It must accom- pany the petition for adjudication if the proceedings are voluntary, and in the case of an involuntary bankrupt, it must be filed within ten days after the adjudication, unless fiirther time is granted. The schedule is further required to be in triplicate, one copy being for the clerk, one for the referee, and one for the trustee. Forms to be followed in the preparation of this schedule have been officially provided.*® It is the evident intention of the rules and forms that each of the two divisions of the schedule (that is, the schedule properly so called, being the in- ventory of property, and the list of creditors, inappropriately called "Schedule A.,") should be separately signed and verified by the bankrupt, but there is ground to contend that a single signature and verification, at the end of the whole, would be sufficient at least to protect the pro- ceedings against collateral attack.** It is, in most cases, absolutely nec- essary to the successful administration of the estate that the bankrupt should fully comply with his duty in this respect, thus bringing to the knowledge of the trustee and others in interest those details in regard to his property and his obligations wfiich are, perhaps, within his exclu- sive knowledge.*' The court is not without the means to compel his performance of this duty. If an explanation of the state of his affairs is necessary to enable the trustee to settle the estate, it may be obtained on an examination of the bankrupt, or the court may force him to file 28 In re Barnes, 1 Wkly, Notes Oas. notary public. In re Bailey, 15 N. B. R. 21, Fed. Cas. No. 1,013. 48, Fed. Cas. No. 727. 24 Blythe v. Thomas, 55 Fed. 961, 5 2^ Where a partnership and one mem- 0. C, A. 356, affirming 45 Fed. 784. ber of it are adjudged bankrupt, and 2 6 Bankruptcy Act 1898, § 7; Form the other member not, the latter must No. 1. file a schedule and inventory within 2 Brewster v. Ludekins, 19 Oal. 162. ten days. Armstrong v. Fisher, 224 Fed. The schedule may be verified before a 97, 139 C. C. A. 653, 34 Am. Bankr. Rep 701. 505 THE BANKRUPT, HIS EIGHTS AND DUTIES § 222 satisfactory schedules by withholding his discharge until this is done.** A bankrupt is not relieved from the duty of filing a schedule on the ground that its contents would tend to incriminate him, or could be used in evidence against him in a criminal prosecution ; but even though he is under indictment at the time, he is required in good faith to make an effort to file a schedule which will comply with the requirements of the bankruptcy act, up to the point where the court can see that further obedience would violate his constitutional privilege. But he will be excused from making any statement in his schedule with reference to a transaction between himself and a third person, where it is appar- ent that there is immediate danger of a criminal prosecution against the bankrupt arising out of such transaction.** Where the bankrupt sent through the mail in June, 1911, a false financial statement, and after proceedings in bankruptcy were instituted, he was indicted for misuse of the mails in sending out such statement, it was held that there was no such connection between his condition in June and in October of the same year, when he was adjudged bankrupt, as would entitle him to refuse to file a schedule in bankruptcy, on the theory that to do so would tend to inctiminate him. And at any rate, where a bankrupt claims that to furnish information will tend to incriminate him, "it must at least appear to the court from the character of the information sought or the question propounded, that his claim is justified, or the bankrupt must produce facts on which he bases such claim, in order that the court may judge of their sufficiency to support it." *" § 222. Form and Contents of Schedule. — A bankrupt's schedule of property should contain a full and accurate inventory of all of his prop^ erty which is of such a nature as to pass to the trustee in bankruptcy, and which the bankrupt himself could have made available for the sat- isfaction of his creditors.*^' He is not to decide whether it is worth in- cluding in the schedulf ; if there is any possibility of its having value, it must not be omitted. Nor can the bankrupt anticipate possible claims to the ownership of the property by third persons, or omit it from .his schedule on the theory of his title being defeasible ; these questions are for the trustee to settle at the proper time.^* But where the bank- 28 In re Walther, 95 Fed. 941, 2 Am. so Podolln v. Lesher Warner Dry Bankr. Rep. 702 ; In re Schulman & Goods Co., 210 Fed. 97, 126 0. G. A. 611, Goldstein, 164 Fed. 440, 20 Am. Bankr. 31 Am. Bankr. Rep. 796. Rep. 707. And see In re Brockton Ideal si Pollack v. Meyer Bros. Drug Co., Shoe Co., 200 Fed. 745, 29 Am. Bankr. 233 Fed. 861, 147 0. O. A. 535, 36 Am. Rep. 76. Bankr. Rep. 835. 2 8 In re Podolin, 202 Fed. 1014, 29 Am. 32 Corporate stock standing in the Bankr. Rep. 406; 205 Fed. 563, 30 Am. name of a bankrupt should be included Bankr. Rep. 576. in his schedule, although hypothecateG 222 LAW OF BANKRUPTCY 506 rupt has no property except what he claims as exempt, and his credi- tors are all of one class, he is required, in making up his schedule, to use only such forms as are appropriate to and descriptive of the debts and property he is required to list.'* Property which is exempt by the law of the state must of course be included in the schedule. This does not involve any surrender of it. On the contrary, it is necessary as a means of identifying the property which the bankrupt will claim.** But property or rights which are of such a character that they will not vest in the trustee need not of course be included in the schedule. This is the case with regard to a right of action for damages for a purely personal tort, and a few other interests. Not being assets in any sense that would make them available for creditors, nor included in the de- scriptions of property which the statute transfers to the trustee, they need not appear in the schedule.*^ Further, it must be remembered that this schedule speaks from the date of the filing of the petition, and the bankrupt is bound to set forth only such property as he has a right or interest in at the commencement of the proceedings.*® With re- gard to property which the bankrupt has transferred or assigned, or for its full value. In re Hirsch, 96 Fed, 468, 2 Am. Bankr. Rep. 715. Growing crops unmatured must be entered on the schedule. In re Schumpert, 8 N. B. R. 415, Fed. Oas. No. 12,491. So also must a claim of the bankrupt for damages on a contract for the sale of goods. In re Orne, 1 Ben. 361, 1 N. B. R. 57, Fed. Gas. No. 10,581. If the bankrupt has property in his possession and has the actual use of it as his own, although his title to it may be defeasible, he must set it out in his schedule and turn It over to his trustee. "It is not for him to rely on the title of a third person which he has not himself respected." In re Beal, 1 Low. 323, 2 N. B. R. 587, Fed. Cas. No. 1,156. The bankrupt's wilfuU omission from his schedule of his interest in a vested estate in remainder to take effect in possession after the termination of a precedent life estate, is such a fraud as will vitiate his discharge. Edwards v. Gibbs, 39 Miss. 166. A grantor in an unrecorded deed, who becomes bank- rupt, properly includes in his schedule the property conveyed thereby. Davis V. Pursel (Colo.) 134 Pac. 107. 8 8 Anonymous, 1 N. B. R. 122, Fed. Cas. No. 457. 34 Money received from the United States as a pension, and remaining in '•be pensioner's hands at the time of fil- ing his petition in bankruptcy, should be listed in his schedule of assets un- der the heading of "cash on hand," with a statement that he claims it as exempt. If omitted without fraudulent intent, he may be permitted to Insert it by amend- ment. In re Bean, 100 Fed. 262, 4 Am. Bankr. Rep. 53. 8 6 In re Brick, 4 Fed. 804. Where a proposed voluntary bankrupt, who has no property except such as is exempt, borrows $50 wherewith to pay the fees and costs of his attorney, just before filing his petition, he is not required to list the sum so borrowed in his sched- ule of assets, and his omission to do so is no ground of Opposition to his discharge. Sellers v. Bell (C. C. A.) 94 Fed. 801, 2 Am. Bankr. Rep. 529. An interest in the net profits of a business as additional compensation for the services of a bank- rupt need n6t be scheduled by him. In re Brown, 5 Law Rep. 121, Fed. Cas. No. 1,978. 3 8 Ex parte Robertson, 5 Law Rep. 321, Fed. Cas. No. 11,921. The proceed- ings In bankruptcy are not constructive notice to any one of facts not necessary to appear therein, and this is true of a statement in the bankrupt's schedule as to property formerly, but not then, own- ed by him. Page v. Waring, 76 N. Y. 463. 507 THE! BAiSTKRUPT, HIS EIGHTS AND DUTIES § 222 covered up in the name of some relative, wtih a fraudulent design of placing it beyond the reach of his creditors, it is not to be included in the schedule. Such a conveyance or transfer may, indeed, be voidable as to the creditors. It may be set aside or annulled at the instance of a trustee in bankruptcy, either on common-law grounds or because in contravention of the bankruptcy law. But as against the bankrupt him- self — and he is the person who makes and verifies the schedule — it is valid and binding.*' This same rule applies to property which has al- ready been sold under execution or other process, and the mere fact that property of the bankrupt, when sold at judicial sale, was bought by members of his family does not afford presumptive evidence of an own- ership remaining in the bankrupt which will require him to account for the property in his schedule.^* The schedule must contain a substantially accurate description of each item of property, or interest, or claim listed, and the description must identify the property with such reasonable certainty as to advise the trustee of its nature and location, its value and the nature of the title or interest of the bankrupt. If these requirements are met, unim- portant errors of detail, not materially misleading and not fraudulently designed, will not vitiate the schedule nor convict the bankrupt of mak- ing a false oath, and if deemed necessary they may be corrected by amendment.*" In setting forth interests in real estate, it is probably not necessary that the schedule should describe the property with all the particularity of a deed or mortgage, but there must be a sufficient description to fix the location of the property and enable the trustee to identify it with certainty.*" The forms officially promulgated for schedules in bankruptcy require a statement showing "what portion of debtor's property has been conveyed, by deed of assignment or otherwise, 3T In re Crenshaw, 95 Fed. 632, 2 Am. feet in this particular may be reme- Bankr. Kep. 623; In re Schreck, 1 Nat; died by amendment. In re Hill, 1 Ben. Bankr. News, 334 ; In re Warne, 12 Fed. 321, 1 N. B. K. 16, Fed. Cas. No. 6,481. 431 ; . In re Fi-eeman, 4 Ben. 24.5, 4 N. B. See Sellers v. Bell (C. 0. A.) 94 Fed. 801, B. 64, Fed. Cas. No. 5,082; Ex parte 2 Am. Bankr. Eep. 529. Judgments in Robertson, 5 Law Rep. 321, Fed. Cas. favor of the bankrupt should be entered . No. 11,921. But compare In re Skinner, under the heading "personal property" 97 Fed. 190, 3 Am. Bankr. Rep. 163. in the schedule, and not under the head 38 In re Bailey, 1 N. Y. Leg. Obs. 18, of "unliquidated claims." In re Sallee, Fed. Cas. No. 726 ; In re Pomeroy, 2 2 N. B. R. 228, Fed. Cas. No. 12,256. N. B. R. 14, Fed. Cas. No. 11,258; In re *» See In re Shenberger, 102 Fed. 978, Hummitsch' 2 N. B. B. 12, Fed. Cas. 4 Am. Bankr. Rep. 487; Woods v. lit- No. 6,866. ' tie. 134 Fed. 229, 67 C. C. A. 157, 18 Am. 39 See In re Soper, 1 Nat. Bankr. Baaikr. Rep. 742; In re Gaijey, 127 News, 182 ; Phelps v. McDonald, 2 Mac- Fed. 538, 62 C. C. A. 336, 11 Am. Bankr. Arthur, 375. The schedule should set Rep. 539; In re Frisbee, Fed. Cas. No. forth the separate items of household 5,130; In re Dodge, Fed. Cas. No. 3,- furniture and wearing apparel, but a de- 946a. § 223 LAW OF BANKEUPTCT 508 for benefit of creditors," together with the date of such deed and the name and address of the grantee or assignee, and also a statement of the amount realized from the assigned property and the disposal of the same, so far as known to the debtor.*^ The bankrupt must also state whether or not any note has been given, or any judgment rendered, for each of the debts listed, and whether or not any person is liable with him as a partner or joint contractor.** Under former bankruptcy laws, it was held that, in the bankrupt's schedule or list, everything that was required to be stated or set forth must be printed or written out in full ; that the sign "do.," or dots, or inverted commas, could not be used in the schedule by way of reference to indicate anything necessary to be stated.*^ And this rule was maintained notwithstanding the provisions of a general order in bankruptcy (No. 14) which declared that "all peti- tions and the schedules filed therewith shall be printed or written out plainly, without abbreviation or interlineation, except where such ab- breviation and interlineation may be for the purpose of reference." This rule of court, or general order, has been again put in force, under the present statute, 'in identically the same language.** § 223. Preparation of Schedule on Bankrupt's Default. — We have seen that it is the statutory duty of the bankrupt to prepare, verify, and file in court a schedule of his property and a list of his creditors, with his petition if the proceeding is voluntary, or, in an involuntary case, within, ten days after the adjudication. Congress also has made provision for the case of a debtor failing or refusing to perform this duty, for it is enacted that it shall be the duty of referees to "prepare and file the schedules of property and lists of creditors required to be filed by the bankrupts, or cause the same to be done, when the bankrupts fail, neg- lect, or refuse to do so." *^ Moreover, the general orders in bankruptcy provide that "in all cases of involuntary bankruptcy in which the bank- rupt is absent or cannot be found, it Shall be the duty of the petitioning creditor to file, within five days after the date of the adjudication, a schedule giving the names and places of residence of all the creditors of the bankrupt, according to the best information of the petitioning cred- itor. If the debtor is found, and is served with notice to furnish a sched- ule of his creditors and fails to do so, the petitioning creditor may apply for an attachment against the debtor, or may himself furnish such sched- *i Form No. 1, Schedule B., 4. See In 79, Fed. Cas. No. 10,582. re Plimpton, 4 Law Rep. 488, Fed. Cas. *« In re Orne, 1 Ben. 420, 1 N. B. R. No. 11,227 ; In re Mott, Fed. Oasu No. 79, Fed. Cas. No. 10,582. 9,878b. ** General orders In Bankruptcy No. 5. *= In re Orne, 1 Ben. 420, 1 N. B. R, 45 Bankruptcy Act 1898, § 39, cl. 6. 509 THE BANKRUPT, HIS RIGHTS AND DUTIES § 224 ule as aforesaid."*® It would seem that the "schedule" referred to in this general order is the same as the "list of creditors" mentioned in the statute. Reading these various provisions together, their apparent effect is this: If the bankrupt is found and is within the reach of the court, and fails to file his list of creditors within the time limited (or within a proper time after the discovery of his whereabouts), he ijiust be served with notice to comply with his duty in this respect. If he disregards the notice, the creditor has an option either to prepare and file the list himself, or to apply for an attachment against the bankrupt to compel his obedience to the notice. Such attachment may be issued by the referee, if the case has been referred ; for he has authority to "cause" the list to be prepared and filed. If the bankrupt is absent or cannot be found, the duty of making up the list of creditors falls upon the petitioning creditor in the first instance. If that creditor also neglects the duty, it devolves upon the referee either to order the creditor to perform it, or else him- self to prepare and file both the schedule of property and the list of creditors, according to the best information he can obtain. § 224. Mistakes and Omissions in Schedule. — If the schedule of the bankrupt does not contain a full, true, and accurate inventory of his as- sets and liabilities, and if the omissions or falsifications are material and were made by the bankrupt knowingly and with a fraudulent design to conceal property which should pass to his trustee, or otherwise to evade the provisions of the bankruptcy law, then there is not only ground for withholding his discharge, but- also for criminal prosecution and punishment.*' But, to have these consequences, there must have, been a willful and intentional omission or false entry in the schedule. If the omission or other error was the result of mere mistake, accident, or in- advertence on the part of the bankrupt or the attorney who prepared the schedule, without fraudulent. design, it will not sustain a prosecu- tion against him, nor furnish a reason for refusing to discharge him.** And the same rule holds good where tl^e bankrupt's reason for not in- cluding particular property in the schedule was his honest, though mis- taken, belief that he had no title to it or interest in it, or that it was worthless, -or that the incumbirances upon it were so great as to leave no margin of value for the general creditors.** It should also be observ- *6 General Order No. 9. Bell (O. 0.. A.) 94 Fed. 801, 2 Am. Bankr. " Bankruptcy Act 1898, §§ 14, 29. Rep. 529; In re Bushnell, 1 Nat. Bankr. *8ln re Crenshaw, 95 Fed. 632, 2 Am. iSTews, 528; In re Winsor, 16 N. B. R. Bankr. Rep. 623 ; In re Hirsch, 96 Fed. 152, Fed. Cas. No. 17,885. 468, 2 Am. Bankr. Rep. 715 ; Sellers v. ^9 In re Barrow, 98 Fed. 582, 3 Am. § 224 LAW OP BANKRUPTCY 510 ed that mistakes, omissions, or falsifications in the schedule, while they may require amendment and correction, and while they may, if fraudu- lent, expose the bankrupt to very serious consequences, do not affect the jurisdiction of the court of bankruptcy, nor open any of its decrees or orders made in the case to collateral attack. This doctrine is held with regard to- the insolvency laws of the States, and should apply with even greater force to proceedings under the bankruptcy act.®" A pro- ceeding in bankruptcy is in rem. Jurisdiction is founded upon the resi- dence of the bankrupt within the territory of the court, and upon the presentation of a proper and sufficient petitioi>, sustained if need be by evidence, on which an adjudication is made. This brings all the estate of the bankrupt within the jurisdiction of the court, without any regard to the fullness or accuracy of the schedule. Hence neither the adjudica- tion of bankruptcy, nor the decree of the court upon the bankrupt's ap- plication for discharge, can be assailed collaterally by reason of any- thing contained in the schedule or anything omitted from it.®*- But the fact that the bankrupt omitted to include a particular item of property in his schedule of assets may raise an estoppel against his subsequently, claiming it as his, or at least furnish evidence or an admis- sion that, a,t the time, he regarded it as belonging to another person.®^ § 225. List of Creditors. — ^Together with the schedule of his prop- erty, and under the same requirements as to signature and verification and time of filing, the bankrupt is required to furnish a list of his credi- tors. This list must show the residences of the creditors if known ; if not known; the fact must be stated. It must also state the amount due to each of them, the consideration for the debt, and the security held by the creditor, if any.®* It may be remarked in passing that the listing of Bankr. Rep. 414; In re Hirsch, 96 Fed. 482, Fed. Cas. No. 3,512. An erroneous 468, 2 Am. Bankr. Rep. 715 ; In re Win- claim of certain articles mentioned as sor, 16 N. B. R. 152, Fed. Cas. No. 17,885 ; exempt does not affect the truth of the In re Cushman, 7 Ben. 482, Fed. Cas. No. affidavit to the schedule which states 3,512. But if the bankrupt describes a that it contains a statement of all the claim as worthless when he knows it to bankrupt's estate. In re Whetmore, be of considerable value, or has reason Deady, 585, Fed. Cas. No. 17,508. to believe it valuable, a purchase made b" Bennett y. His Creditors, 22 Cal. by him, or for his benefit, of his assets 38; Brewster v. Ludekins, 19 Cal. 162; for a nominal sum, even after his dis- Pope v. Kirchner, 77 Cal. 152, 19 Pac. charge, at a sale by the trustee, would 264. be considered fraudulent and void. ^i Fuller v. Pease, 144 Mass. 390, 11 Phelps V. McDonald, 2 MacArthur, 375. N. E. 694; Graves v. Wright, 53 Mich. As to including debts due to the bank- 425, 19 N. W. 129. rupt, but which are barred by the stat- 02 gee Honaker v. Honaker, 182 Ky. ute of limitations or otherwise not col- 38, 206 S. W. 12; Hooker v. Peterson, lectible, see Pope v. Kirchner, 77 Cal. 140 Tenn. 280, 204 S. W. 858. 152, 19 Pac. 264 ; In re Cushman, 7 Ben. ^ a Bankruptcy Act 1898, § 7a, el. 8. 511 THE BANKRUPT, HIS RIGHTS AND DUTIES § 225 a debt or claim- does not amount to an admission by the bankrupt which any one can take advantage of. Thus, a bankrupt is not estopped from alleging the invalidity of a judgment because he has placed it on his schedule in the list of claims against him.*"* The reason of the require- ment that the list of creditors shall include their residences is that all notices to creditors are to be sent to their respective addresses as they appear in this list, or as afterwards filed with the paper in the case by the creditors.^® Hence the statements of the residences of creditors in the bankrupt's list should be such as will insure due delivery of notice by mail or service in person.^® If the names and addresses of creditors are so illegibly written that the referee cannot determine with certainty who are the persons entitled to notice of the first meeting and where they are to be served, it is his duty to refuse to take any action until he has been furnished with a fair and legible copy of the list.®' But excessive strict- ness should not be indulged, nor exactly literal accuracy required. It is enough if the exercise of reasonable intelligence and common sense, brought to bear on the bankrupt's list, will prevent mistake as to the per- sons of the creditors or their addresses.®* A judgment due to a firm should be listed in the firm's name, without setting forth the names of its members, but giving their individual names will not vitiate the paper.®* On the other hand, in listing a debt due to a newspaper, the name of its proprietor should be given, and not merely the name of the The purpose of scheduling claims in itor's address is erroneously given in bankruptcy is to Inform the court of the the list filed, and notice is sent to, that persons who are entitled to notice, to address and his true address might easi- inform trustees of the claims which will ly have been ascertained from the city or may be proved, and to limit the effect directory, no proper notice has been giv- of the bankrupt's discharge. Merchants' en. In re Quackenbush, 122 App. Div. Bank of Brooklyn v. Miller, 176 App. 456, 106 N. ¥. Supp. 773. Div. 412, 162 N. T. Supp. 999. Itis ex- s? In re Hall, 2 N. B. R. 192, Fed. Cas. pressly provided that a debt which has No. 5,922. not been duly scheduled in time for proof ss GatlifC v. Mackey, 104 S. W. 379, 31 and allowance will not be released by the Ky. Law Rep. 947 ; In re Orne, 1 Ben. discharge of the bankrupt, unless the 420, 1 N. B. R. 79, Fed. Cas. No. 10,582 ; creditor has notice or actual knowledge Merchants' Bank of Brooklyn v. Miller, of the proceedings in bankruptcy. Bank- 176 App. Div. 412, 162 N. Y. Supp. 999. ruptcy Act 1898, § 17. A creditor ob- Where a bankrupt in his schedule sets jecting that the bankrupt does not set forth a debt represented by a promissory forth a full list of his creditors, with note to be due to one who is the equitable their residences and the amounts due, owner thereof though not the legal payee, must point out the omission. In re it is sufficient. Ross-Lewin v. Goold, Plimpton, 4 Law Rep. 488, Fed. Cas. No. 118 111. App. 499. 11227. BO Anonymous, 1 N. E. R. 122, Fed. 5* King V. Pickett, 32 La. Ann. 1006. Cas. No. 457. And see New York In- 55 Bankruptcy Act 1898, § 58a. stitution for Instruction of Deaf and 58 In re Pulver, 1 Ben. 381, 1 N. B. R. Dumb v. Crockett, 117 App. Div. 269, 102 46, Fed. Cas. No. 11,466. Where a cred- N. Y. Supp. 412. § 226 LAW OF BANKEUPTCy 512 newspaper.®* Where a schedule in voluntary bankruptcy stated the present residences of certain creditors' to be unknown, but gave their former residences, it was held that the statement as to the present resi- dences was sufficient, and that the statement as to their former residences was surplusage, but the bankrupt could show, either in the list or by separate affidavit, what efforts he had made to ascertain the residences of such creditors.®^ The statement of the amount due to each creditor is sufficient if the sum and the date of the debt or judgment is given.®* And where a judgment previously recovered against the bankrupt still appears on the records of the court which rendered it as an unsatisfied obligation against him in favor of the judgment creditor, it is rightly in- cluded in his schedule as a debt due to that creditor, although it has ac- tually been sold to another creditor, and the bankrupt is chargeable with knowledge of the sale.®* A contingent liability, it is said, need not be scheduled where it does not appear that the person primarily liable will not pay in full.®* If the bankrupt willfully places upon his schedule a debt which he knows to be false, he will be guilty (the schedule being duly verified) of having "made a false oath in a proceeding in bankrupt- cy,'' and the consequence will be not merely the loss of his discharge, but also liability to punishment as for a criminal offense.®® § 226. Amendment of Schedule and List. — "The court may allow amendments to the petition and schedules on application of the peti- tioner. Amendments shall be printed or written, signed and verified, like original petitions and schedules. If amendments are made to sep- arate schedules, the same must be made separately, with proper refer- so Anonymous, 2 N. B. R. 141, Fed. or holder of a bill or note are unknown Cas. No. 462. to the bankrupt, the fact must be stated, 61 In re Pulver, 1 Ben. 381, 1 N. B. B.. and also the name and residence of the 46, Fed. Cas. No. 11,466. In a case aris- last holder known to the debtor. A ques- ing under the insolvency law of Califor- tion of diligence in ascertaining the cor- nia, it was held that, when the insolvent rect residence of a creditor of a bankrupt is liable as indorser on a promissory enters into the question as to whether note, it is not sufficient for him merely the debt has been properly scheduled to state the fact, with the name of his only so far as it affects the good faith indorsee, in the list of debts, if such in- of the debtor's statement in the schedule dorsee has already transferred the note that such residence is unknown. Lutz v. to another person ; it is the duty of the Kalmus, 115 N. Y. Supp. 220. insolvent to ascertain, if he can, and "2 in re Hill, 1 Ben. 321, 1 N. B. R. state, who is the present holder of the 16, Fed. Cas. No. 6,481. note, and if he cannot ascertain it he ^^ Sellers v. Bell, 94 Fed. 801, 36 C. O. should state that the name of such credl- A. 502, 2 Am. Bankr. Rep. 529. tor is unknown to him. McAllister v. s* In re Greenebaum, Fed. Cas. No. Strode, 7 Cal. 428. The note at the end 5,769. of part 3 of "Schedule A.," of the official «=■ See Bankruptcy Act 1898, §§ 14b, and forms, provides that when the name and 29b. And see In re Delevan, Fed. Cas. residence of the drawer, maker, Indorser No. 3,758. 513 THE BANKRUPT, HIS EIGHTS AND DUTIES § 226 ences. In the application for leave to amend, the petitioner shall state the cause of the error in the paper originally filed." '* Where creditors . are omitted from the list of debts, or property omitted from the inven- tory of assets, or either wrongly stated, but as the result of accident, mistake, or mere inadvertence, or where there is a lack of form or of compliance with the statutory requisites, this general order authorizes corrections to be made in the manner prescribed.^' And if the bank- rupt, without any fraudulent intent, has omitted from his schedule prop- erty which he means to claim as exempt, he will be allowed to insert it by amendment.** The phrase "the court," in the general order, of course includes the referee.®* In fact, under the present statute, it might almost be said to exclude the judge; for it is made the express and specific duty of the referee, when the schedule and list filed by the bankrupt are incomplete or defective, to "cause them to be amended." '" Applications for leave to amend will usually proceed from the bankrupt himself, and this is apparently all that is contemplated by the general order. But it has also been hejd that any creditor who has proved his claim has the right to ask that the bankrupt be required to amend de- fects in his petition or schedule.''^ Under the former bankruptcy law (and it would seem that the same rule applies at present) it was held that an application by the bankrupt for leave to amend and correct his list of creditors, by inserting the name of a creditor inadvertently omit- 6 6 General Order in Bankruptcy No. La. 1007, 50 South. 833, 134 Am. St. Rep: 11. A voluntary petitonpr in bankrupt- 529. cy, in applying for leave to amend his . «» In re Morford, 1 Ben. 264, 1 N. B. schedule, must state the cause of the er- R. 211, Fed. Cas. No. 9,796. ror in that originally filed. In re Brin- 'o Bankruptcy Act 1898, § 39, cl. 2. cat (D. C.) 233 Fed. 811, 37 Am. Bankr. Under the former act and rules, it was Rep. 587. held that the register might, of his own 67 In re Perry, 1 N. B. R. 220, Fed. motion, and not on the petition of the Cas. No. 10,998 ; In re Hill, 1 Ben. 321, trustee or a creditor, order an amend- Fed. Cas. No. 6,481 ; In re Frisbee, Fed. ment of the banukrupt's schedule, when Cas. No. 5,130. If a bankrupt fails' to the same was found to be incomplete or schedule property which should be sur- defective or otherwise insuiflcient. In rendered to his trustee, and this fact re Orne, 1 Ben. 420, 1 N. B. R. 79, Fed. is shown upon his examination, he may Cas. No. 10,582. . The present rule, then be permitted to correct his schedule. which provides only that amendments In re Harrell (D. C.) 222 Fed. 160, 34 Am. may be "allowed," might not be broad Bankr. Rep. 809. Where a tract of land enough to authorize such action, but has been fraudulently conveyed by the spontaneous action of this character on bankrupt to his wife . as her separate the part of the referee, when he finds property in fraud of creditors, it may the proceedings embarrassed by an Iut properly be added to his schedule by sufiicient schedule of property or list of amendment as assets of his estate. creditors, is not only permitted but en- Strong V. Durdle, 94 Wash. 157, 162 joined by the section of the act above Pac. 6. quoted. «8In re Bean, 100 Fed. 262, 4 Am. 7 1 in re Jones, 2 N. B. R. 59, Fed. Gas. Bankr. Rep. 53; Harrelson v. Webb, 124 No. 7,447. Bl,k.Bkr.(3d Ed.)— 33 § 226 LAW OF BANKRUPTCY 514 ted, was ex parte and grantable of course, and required no notice to creditors, and that creditors had no right to object to such amendment, and no issue of fact or law could be raised or contested in regard to it.'* An order authorizing or requiring an amendment in the bankrupt's schedule should specify particularly the respects in which it is to be amended.''* The right of amendment may of course be conditioned on such terms as will prevent any injustice or inequality.'* As to the time or stage of the proceedings at which amendments may be allowed, it is held that they do not come too late if made after the filing of specifi- cations of opposition to the discharge of the bankrupt (based on errors or omissions in the schedules), and even though a hearing may have been had on such speciiications, yet if it can be shown to the court that the bankrupt was guilty of no greater fault than inadvertence or mis- take, and that there is no ground for withholding the discharge by reason of any fraud or perjury, proper amendments may be ordered and the case continued, with leave to renew the application for discharge at a future time.'® Even the granting of a discharge and the closing of the estate are not insuperable obstacles to the allowance of a proper amendment. Such a course was sanctioned in one case where the bankrupt discovered assets of substantial value, of which he had previ- ously been unaware, and desired to claim the balance of his exemption out of the fund thus brought in.'® But where a considerable time has elapsed since the granting of a discharge, the bankrupt will not be permitted to reopen the proceedings and amend the schedule for the purpose of including an omitted creditor who had not been made a party to the .proceedings and had no notice or knowledge of them." A peculiar condition arises where the bankrupt applies for leave to amend his list of creditors, after the first meeting and after the election '2 In re Hill, 5 Fed. 448; In re Watts, Js in re Preston, 3 N. B. R. 103, Fed. 3 Ben. 166, 2 N. B. E. 447, Fed. Cas. No. Cas. No. 11,392; In re Heller, 5 N. B. R. 17,293 ; In re Heller, 5 N. B. B. 46, Fed. 46,' Fed. Cas. No. 6,339 ; In re Townsend, Cas. No. 6,339. But in the case last 2 Fed. 559. But see In re Kittler, 176 cited, it was said to be "the better prac- Fed. 655, 23 Am. Bankr. Rep. 585. It is tlce to issue an order -requiring the party said that the allowance of an amend- to show cause why the amendments as ment to the schedule, by adding proper- asked for should not be allowed, specify- ty omitted, does not preclude a creditor ing particularly the points in which the from availing himself of any ground of schedules are defective. The bankrupt opposition to the bankrupt's application or creditor will then have the right to for discharge arising out of such omis- oppose the application, and appeal from sion. In re Watts, 3 Ben. 166, 2 N. B. the order if dissatisfied with the deci- R. 447, Fed. Cas. No. 17,293. sion of the register." 76 in re Irwin, 177 Fed. 284, 22 Am. 7 3 In re Ome, 1 N. B. R. 79, 1 Ben. Bankr. Rep. 165. 420, Fed. Cas. No. 10,582. 77 in re Splcer, 145 Fed. 431, 16 Am. 74 In re Ratcliffe, 6 thila. 466, 1 N. Bankr. Rep. S02. B. R. 400, Fed. Cas. No. 11,578. 515 THE BANKRUPT, HIS RIGHTS AND DUTIES § 227 of a trustee, and the object of the amendment is to introduce the names of other creditors holding such an amount of claims that their votes would have changed the result of the election of the trustee. In this case it has generally been considered necessary to hold a new meeting of creditors, based on new notices, and to hold a new election for trus- . tee. If the person now chosen for trustee is a different person from the trustee previously appointed, an application to the court should be made for the removal of the present incumbent and the appointment of the newly chosen trustee in his place.'* An amendment of the bankrupt's list of creditors so as to include a given claim relates back to the date of filing the petition in bankrupt- cy, so that the owner of the claim will be affected by the bankrupt's discharge in just the same way as if the claim had been properly listed at first. If the bankrupt afterwards sues him, on a transaction occurring after the filing of the petition in bankruptcy, he cannot use that claim as a set-off.'^ § 227. Surrender of Money or Assets to Trustee; Jurisdiction and Power to Order. — The present bankruptcy statute does not in explicit terms require the bankrupt to surrender his property and effects to the trustee. That such a surrender must be made is, however, quite clear by implication from various clauses of the act. Thus, it is provided that the trustee shall be vested by operation of law with the title of the bankrupt to all of the latter's property which is of a nature to be admin- istered under the act, and that the bankrupt must execute to his trustee transfers of all his property in foreign countries, a procedure which is rendered necessary by the fact that the bankruptcy law can have no extraterritorial efficacy. Further, if the bankrupt conceals from his trustee any of his property, it is a criminal offense.*" This duty of sur- 7 8 See In re Perry, 1 N. B. E. 220, was bound "upon pain of death to make Fed. Cas. No. 10,998 ; In re Katclitfe, 6 a full discovery of all his estate and ef- Phila. 466, 1 N. B. R. 400, Fed. Cas. No. fects as well in expectancy as in pos- 11,578 ; In re Morgenthal, 6 Phila. 468, session, and how he has disposed of the 1 N. B. R. 402, Fed. Cas. No. 9,813 ; In re same, together with all books and writ- Carson, 5 Ben. 277, 5 N. B. R. 290, Fed. Ings relating thereto and is to deliver up Cas. No. 2,460. all in his own power to the commission- 's Bramham v. Lanier Bros., 138 Tenn. ers (except the necessary wearing ap- 702, 200 S. W. 830. parel of himself, his wife, and his chil- 80 Bankruptcy Act 1898, § 70a ; § 7, cl. dren), and in case he conceals or em- 5; § 29b. Compare Rev. Stat. TJ. S. §§ bezzles any effects to the amount of 5044, 5051, 5055. Under the British stat- twenty pounds, or withholds any books ute of 5 Geo. II, c. 30, which was in or writings with intent to defraud his force at the beginning of the nineteenth creditors, he shall be guilty of felony century, the bankrupt was .required to' without benefit of clergy, and his goods appear before the commissioners for an and estates shall be divided among his examination, and upon this examination, creditors." 2 Bl. Comm. 482. Studen,ts § 227 LAW OF BANKRUPTCY 516 render on the part of the bankrupt the court has ample power to en- force. It is now well settled that, if the court is satisfied, either from the examination of the bankrupt himself or from other evidence, that he has in his possession and control money or other property which be- , longs ■ to his estate in bankruptcy and should be administered by the trustee, and if the bankrupt has neglected or refused to surrender such money or property to his trustee, or fails or refuses to give any account of his disposition of it, or attempts to account for its loss by a story which is incredible in itself or is contradicted by trustworthy evidence, then it is within the power and jurisdiction of the court of bankruptcy summarily to order the bankrupt to pay the money or surrender the property to the trustee, and his obedience to this order may be enforced by committing him tO prison, as for a contempt of court, where he may be held until he will comply with the command of the court, or until it becomes evident that it is impossible for him to yield such obedi- ence.*^ The fact that a bankrupt who knowingly and fraudulently con- ceals from his trustee any property belonging to his estate in bank- ruptcy thereby commits a crime, for which he is liable to be prosecuted and punished by imprisonment, does not deprive the court of juris- diction to order him to surrender the property and to deal with him as for contempt if he does not obey.** And since such an order is not an order for the payment of a debt, it cannot be said that a commitment of the bankrupt to jail to enforce his obedience to it is in any sense imprisonment for debt.*^ But two essential facts condition the law- of the progress of civilization may well Stem, 185 Fed. 549, 26 Am. Bankr. Rep. compare the barbarous severity of this 54; Cummings v. Synuott, 1S4 Fed. 718, enactment with the indulgent kindness 25 Am. Bankr. Rep. 859 ; In re De Got- of the act of Congress of 1898. tardi, 114 Fed. 328, 7 Am. Bankr. Rep. 81 Schweer v. Brown (C. C. A.) 130 723 ; In re Greenberg, 106 Fed. 496, 5 Am. Fed. 328, 12 Am. Bankr. Rep. 178 ; In Bankr. Rep. 840; In re Felsou, 124 Fed. re Rosser, 101 Fed. 562, 41 C. C. A. 497, 288, 10 Am. Bankr. Rep. 716; In re Tu- 4 Am. Bankr. Rep. 153 ; In re Schlesing- dor, 96 Fed. 942, 2 Am. Bankr. Rep. 808 ; er, 102 Fed. 117, 42 0. O. A. 207, 4 Am. In re Pevear, 21 Fed. 121; In re Salkey, Bankr. Rep. 361 ; In re Purvine, 96 Fed. 6 Biss. 269, 11 N. B. R. 423, Fed. Gas. 192, 37 C. C. A. 446, 2 Am. Bankr. Rep. No. 12,253, affirmed 6 Biss. 280, 11 N. B. 787; In re Shachter, 119 Fed. 1010, 9 Am. R. 516, Fed. Gas. No. 12,254 ; In re Pelta- Bankr. Rep. 499; In re Gerstel, 123 Fed. sohn, 4 Dill. 107, 16 N. B. R. 265, Fed. 166, 10 Am. Bankr. Rep. 411 ; Ripon Gas. No. 10,912 ; In re Kempner, 6 N. B. Knitting Works v. Schreiber, 101 Fed. R. 521, Fed. Gas. No. 7,689; In re Spey- 810, 4 Am. Bankr. Rep. 299; In re Mayer, er, 6 N. B. R. 255, Fed. Gas. No. 13,2.39; 98 Fed. 8.39, 3 Am. Bankr. Rep. 533 ; In In re How, IS N. B. B. 565, Fed. Gas. No. re Logan, 196 Fed. 678, 28 Am. Bankr. 6,747; In re Dresser, 3 N. B. R. 557, Fed. Rep. 543 ; Wayne Knitting Jlills v. Nu- Gas. No. 4,077. gent, 2 Nat. Bankr. News, 714; In re s 2 Ripon Knitting Works v. Schreiber, Schlesinger, 97 Fed. 930, 3 Am. Bankr. 101 Fed. 810, 4 Am. Bankr. Rep. 299. Rep. 342 ; In re Wilson, 116 Fed. 419, 8 ss In re Rosser, 101 Fed. 562, 41 C. G. Am. Bankr. Rep. 612; In re Shaffer & A. 497, 4 Am. Bankr. Rep. 153. 517 THB BANKRUPT, HIS RIGHTS AND DUTIES § 228 ful exercise of this power by the court ; first, that the money or prop- erty directed to be delivered to the trustee shall be a part of the bank- rupt's estate, and second, that the bankrupt has it in his possession or under his control at the time the order for delivery is made.*' In speak- ing of the "court," in this connection, it is to be understood that the referee is included. That officer has jurisdiction of an application for an order requiring such a surrender of property, and to make an order in accordance with his findings on such application.*^ It is not necessary that the money or property should be physically in the possession of the bankrupt. It is enough if it is held for him by some person whom he can control. Thus, where a bankrupt, within a few days before the filing of the petition in bankruptcy, sold property and handed the proceeds over to his wife, she will be regarded as hold- ing the same as his agent, and the facts will warrant an order requir- ing him to pay the money over to his trustee.** It is likewise the duty of the bankrupt to turn over to the trustee any money which he may have collected from his debtors since the commencement of the bank- ruptcy proceedings, and he may be constrained to do so in the same manner and by the same process as above indicated.*' Where a devise has been made to a bankrupt and accepted by him, it is a fraud upon his creditors for him to disclaim or renounce it, and the bankruptcy court will compel him to do all acts necessary to perfect his title to the de- vised estate.** Where a bankrupt, having been engaged in business in one state absconds with money belonging to his estate, and is arrested in an- other state, the federal District Court in the latter state has ancillary jurisdiction, at the suit of the receiver in bankruptcy, to require the sur- render of the money.** § 228. Sarfiie ; Petition, Order, and Proceedings Thereon. — In order to obtain a surrender of property or money by a bankrupt, it is not nec- essary to resort to a plenary suit, but the matter may be determined summarily, that is, on a petition by the trustee and a rule on the bank- si In re Rosser, 101 Fed. 562, 41 C. O. and must surrender them to Its trustee. A. 497, 4 Am. Bankr. Rep. 153. In re Cantelo Mfg. Co., 201 Fed. 158, 29 8 5 In re Mayer, 98 Fed. 839, 3 Am. Am. Bankr. Rep. 704. Bankr. Rep. 533 ; In re Oliver, 96 Fed. st Howard v. Crompton, 14 Blatchf, 85, 2 Am. Bankr. Rep. 783. And see su- 328, Fed. Gas. No. 6,758 ; In re Bttinger, pra, § 67. 18 N. B. R. 222, Fed. Cas. No. 4,543. 86 In re Bddleman, 154 Fed. 160, 19 ss Ex parte Fuller, 2 Story, 327, Fed. Am. Bankr. Rep. 45. So where the own- Cas. No. 5,147. er of patents for inventions has assigned so Musica v. Prentice, 211 Fed. .326, 127 them to a corporation in exchange for 0. 0. A. 525, 31 Am. Bankr. Rep. 687. its stock, he holds them thereafter mere- affirming In re A. Musica & Son (D. 0.) ly as 'an agent or officer of the company, 205 Fed. 413, 30 Am. Bankr. Rep. 555. § 228 LAW OP BANKEUPTCT 518 rupt to show cause why he should not be ordered as prayed.*" This application can be made only by the trustee in bankruptcy, acting for the benefit of the creditors at large; a motion will not be entertained if made by a creditor or creditors independently of the trustee.*"- And if the money or property in question is supposed to be in the possession of some third person, holding as an agent or bailee of the bankrupt, the bankrupt should be dealt with first, and proceedings cannot be taken against the alleged agent to compel him to account for the property until it has been specifically traced into his hands.** It is of course prop- er before applying to the court, to make demand upon the bankrupt for the property in question, but he cannot complain of the omission of such a demand if the order for its delivery is served on him in ample time to allow of his compliance before steps are taken to punish him.** The trustee's petition for such an order should contain definite averments and state specifically what sum of money or what particular property the bankrupt is supposed to be concealing or withholding,** but it need not allege affirmatively that he is able to comply with an order requir- ing its surrender.*^ The bankrupt must have notice of the application and a full and fair opportunity to be heard in his own behalf, to make his defense, to produce evidence, and to cross-examine the witnesses. Fail- ure to accord him his fundamental rights in these particulars is more than a mere irregularity. It is a fault which will render the order, if made, entirely unlawful and void.*® The bankrupt may either demur 8 In re Cunney (D. 0.) 225 Fed. 426. Am. Bankr. Rep. 742. And see Richter 35 Am. Bankr. Rep. 617; Jones v. Blair, v. Rockhold, 253 Fed. 941, 165 C. C. A. 242 Fed. 783, 155 C. O. A. 371, 39 Am. 383, 42 Am. Bankr. Rep. 384. Bankr. Rep. 569; In re Joseph R. Mar- 93 in re D. Levy & Co., 142 Fed. 442, quette, Jr., Inc., 254 Fed. 419, 166 O. 73 0. 0. A. 558, 15 Am. Bankr. Rep. 166. C. A. 51, 42 Am. Bankr. Rep. 555 ; In 9* In re Ruos, 164 Fed. 749, 21 Am. re Adler (D. C.) 129 Fed. 502, 12 Am. Bankr. Rep. 257 ; In re Greer, 189 Fed. Bankr. Rep. 19; In re Pevear (D. C.) 21 511, .26 Am. Bankr. Rep. 811 ; Ripon Fed. 121 ; In re McKenna, 9 Fed. 27 ; In Knitting Works v. Schreiber, 101 Fed. re Thompson, 18 N. B. R. 300, Fed. Gas. 810, 4 Am. Bankr. Rep. 299. A petition No. 13,938. Though an order is made of the trustee, alleging that at the time in summary proceedings of this kind, it of the filing of the petition in bankruptcy may have the efCect of a bar or estoppel. a certain sum was due, owing, and un- Thus, an order denying the petition of paid to the bankrupt by a corporation, the trustee to require the bankrupt to but alleging no facts, and supported by deliver up a policy of life insurance or no evidence warranting the inference pay its surrender value is a bar to a that the bankrupt ever had the money later application to require him to sur- in his possession or under his control, is render the policy or pay its loan value. insufficient to sustain an order on him In re Samnels (0. 0. A.) 263 Fed. 561, to pay it over as a concealed asset. In 45 Am. Bankr. Rep. 13. ■ re Levy (D. 0.) 259 Fed. 316, 43 Am. »i In re Eliowich (D. 0.) 148 Fed. 510, Bankr. Rep. 590. 17 Am. Bankr. Rep. 419; In re Pearson, ob in re Stavrahn, 174 Fed. 330, 98 C. 1 Nat. Bankr. News, 474. ' O. A. 202, 23 Am. Bankr. Rep. 168. 92 In re Pogelman, 188 Fed. 755, 26 sein re Atwater, 227 Fed. 511, 36 Am. 519 THE BANKRUPT, HIS RIGHTS AND DUTIES § 229 or answer to the trustee's petition,*' but his answer, although under oath, is not conclusive on the court, but it may proceed to inquire into all the facts and circumstances."* Proceedings on the petition are usu- ally had before the referee, but the court may refer the matter to a spe- cial master for hearing and examination of the bankrupt.** If money is found to be withheld by the bankrupt, the order should require it to be paid over to the trustee, and not into the registry of the court.^*** And if property other than money is involved, the order should describe it with reasonable certainty and as particularly as practicable, though in such a case as a stock of merchandise a general description will be sufficient, and should require its surrender in specie.^"^ Where an order of a referee requiring a bankrupt thus to surrender or turn over property to his trustee was based on a mistake of fact, the referee has power, on the petition of the bankrupt, filed within the time limited for a review of his decision, and the mistake being shown, to reconsider and set aside such order.^*^ § 229. Same; Evidence to Sustain Order. — In a proceeding to com- pel a bankrupt to surrender money or property alleged to be withheld or concealed by him, it is first of all necessary for the trustee to make out a prima facie case by showing that the bankrupt had such money or property in his possession or under his control at or about the time of his bankruptcy, and that it was not included in his schedule and has not since been turned over to the trustee.^"" Such a case is usually estab- lished by presumptions drawn from the facts, and positive proof is not Bankr. Eep. 109 ; In re Rosser, 101 Fed. rupt's benefit, the trustee could not be re- 562, 41 C. C. A. 497, 4 Am. Bankr. Kep. quired to accept a bond and allow the 153; In re BYank, 182 Fed. 794, 25 Am. payment of the money to the bankrupt. Bankr. Kep. 486; Boyd v. GluckUch, 116 In re Reynolds (D. C.) 243 Fed. 272, 40 Fed. 131, 53 C. O. A. 451, 8 Am. Bankr. Am. Bankr. Rep. 139. Rep. 393; In re Oole, 163 Fed. 180, 20 i„i g^mel v. Dodd, 142 Fed. 68, 73 C. Am. Bankr. Rep. 761; In re Baum, 169 q ^ 254, 16 Am. Bankr. Rep. 163; In Fed. 410, 94 C. C. A. 632, 22 Am. Bankr. ^e Lesaius, 163 Fed. 614, 21 Am. Bankr. Rep. 295; In re Thiessen, 2 Nat. Bankr. jjgp 23. ^^Tin^rf Koplln, 179 Fed. 1013, 24 Am. "" I^ '^ Brenner, 190 Fed. 209, 26 Bankr. Rep. 534. ^'"- ^ankr. Rep. 646. 88 In re Gerstel, 123 Fed. 166, 10 Am. 10a Henkin v. Fousek, 246 Fed. 285, Bankr. Rep. 411. 159 C. C. A. 15, 40 Am. Bankr. Rep. 701; »9 In re Herskovitz, 152 Fed. 316, 18 Schmid v. Rosenthal, 230 Fed. 818, 145 Am. Bankr. Rep. 247. But compare In C. C. A. 128, 36 Am. Bankr. Rep. 548; In re Nankin, 246 Fed. 811, 159 0. C. A. ra Ricciardelli (D. C.) 224 Fed. 638, 35 113, 40 Am. Bankr. Rep. 459. Am. Bankr. Rep. 35; In re Kalmano- 100 In re Baum, 169 Fed. 410, 94 C. C. witz (D. C.) 211 Fed. 167, 32 Am. Bankr, A. 632, 22 Am. Bankr. Eep. 295. Where Rep. 210; In re Barton Bros. (D. 0.) 149 the trustee in bankruptcy claimed as Fed. 620, 18 Am. Bankr. Rep. 98; In re against the bankrupt income arising un- Reynolds (D. C.) 190 Fed. 967, 27 Am. der a testamentary trust for the bank- Bankr. Rep. 200. § 229 LAW OF BANKRUPTCY 520 required.^"* The trustee, for instance is not required to prove by eye- witnesses that the bankrupt has in his possession the goods alleged to be concealed or that the money unaccounted for is in the bank or on the bankrupt's person.^"® Evidence showing the recent possession by the bankrupt of money, or property, with no satisfactory explanation of what was done with it or what has become of it, will sustain the burden of proof resting on the trustee.^** And when the trustee's prima facie case is established either by evidence or by the admission of the bankrupt or his failure to deny it, the burden is then shifted to the bank- rupt, and it is incumbent on him to give a satisfactory reason for his fail- ure to produce the property, by explaining in a clear, explicit, and credi- ble manner what became of it, what disposition he made of it, or how it passed out of his possession or control.^*" If he fails to appear before the referee when cited for this purpose, or if, when under examination, he refuses to give any account of the money or property in question, there is sufficient ground for an order requiring him to surrender it to the trustee in bankruptcy.^** Ordinarily, however, the bankrupt will at- tempt to meet the issue and rebut the presumption that he still holds the property. But his mere denial under oath that he has the money or property is not conclusive, and does not prevent the court from proceed- ing to a further investigation and making the order for surrender if suf- ficient contrary evidence is adduced.^"" His positive denial is of course entitled to its due weight, but this amounts to very little where it is inconsistent with the only reasonable conclusion to be drawn from the evidence, and where there are circumstances tending to discredit the bankrupt, as, that he has destroyed the books of account which would have shown the true fact,"* or where his testimony is entirely uncor- 104 In re Graning, 229 Fed. 370, 143 24 Am. Bankr. Rep. 915; In re Lesalus, O. C. A. 490, 36 Am. Bankr. Rep. 162. 163 Fed. 614, 21 Am. Bankr. Rep. 23; In 10 5 In re Silverman (D. C.) 206 Fed. re Schlesinger, 97 Fed. 930, 3 Am. Bankr. 960, 30 Am. Bankr. Rep. 798. Rep. 342; In re Averick, 170 Fed. 521, 100 In re Dixon, 224 Fedi 624, 35 Am. 22 Am. Bankr. Rep. 518; In re De Got- Bankr. Rep. 482 ; In re Silverman (D. C.) tardi, 114 Fed. 328, 7 Am. Bankr. Rep. 206 Fed. 960, 30 Am. Bankr. Rep. 798; 723; ,In re Rosenthal, 200 Fed. 190, 29 Shea V. Lewis, 206 Fed. 877, 124 C. C. Am. Bankr. Rep. 515. A. 537, 30 Am. Bankr. Rep. 436; In re ^,, j^ ^^ 3^,^^^ ^^^ ^^ 26 Am Katz (D. C.) 216 Fed. 949; In re Bdel: g^^^j. ^^^ 399. j^ ^^ j^ ^^^' ^ ^^ man (D. C.) 251 Fed. 429, 42 Am. Bankr. -^^^ ^^^ 443, 73 C. 0. A. 558, 15 Am'. Rep. 229. „,niri/i 010 1P1 Bankr. Rep. 166; In re.Rosser, 96 Fed. 107 In re Chavkin, 249 Fed. 342, 161 3^8, 2 Am, Bankr. Rep. 746. C. O. A. 350, 41 Am. Bankr. Rep. 36; In re Pennelk 214 Fed. 337, 130 CO. "^ Mo™^y v- Cole, 148 Fed. 295, 17 A 645 32 Am. Bankr. Rep. 241; In re ''^'"- Bankr. Rep. 818; Schweer v. Brown, Bass (D. C.) 257 Fed. 137, 43 Am. Bankr. ^^0 Fed. 328, 64 C. C. A. 574, 12 Am. Rep 280; In re Stavrahn, 174 Fed. 330. ^^anl^i'- Rep. 178; Kirsner v. Taliaferro, 98 0. 0. A. 202, 23 Am. Bankr. Rep. 168: ^02 Fed. 51, 29 Am. Bankr. Rep. 832. In re Deuell, 100 Fed. 633, 4 Am. Bankr. no in re Goodman, 196 Fed. 566, 27 Rep. 60; In re Nisenson, 182 Fed. 912, Am. Bankr. Rep. 697. 521 THE BANKRUPT, HIS RIGHTS AND DUTIES § 229 roborated, although he was given ample opportunity to obtain cor- roborating testimony and it appears that this could easily have been done if his own testimony was true."^ As on the trial of other civil is- sues, any pertinent evidence, having a material bearing on the ques- tion, may be introduced."^ Thus, stenographic notes of the testimony of the bankrupt when under examination at a creditors' meeting, held for the general purpose of inquiring into his affairs are admissible."* And circumstances showing a general disposition on the part of the bankrupt to be secretive and unfair towards his creditors, or to entertain a fraudulent purpose of overreaching them or concealing assets from them, may be admissible as tending to discredit his own story of the loss or disappearance of the property in question."* Yet it must be reniembered that an order imperatively requiring the bankrupt to surrender money or property, against his own denial that he has it, is a very strong measure, especially as the consequence of his failure to comply will be his inc'arceration. Hence, notwithstanding an occasional ruling that a fair preponderance of the ' evidence is enough to justify the court in making such an order,"^ it is held by the great majority of the decisions that the court inust be satisfied beyond a rea- sonable doubt that the bankrupt has the present possession or control of the money or property in question and the present ability to comply with an order for its surrender.^^^ Circumstances which merely create a strong suspicion that he is concealing assets,^^'' or even a strong prob- 111 In re Henderson, 130 Fed. 385, 12 Fed. 502, 12 Am. Bankr. Rep, 19; Moody Am. Bankr. Kep. 351; In re Lelnweber, v. Cole, 148 Fed. 295, 17 Am. Bankr. 128 Fed. 641, 12 Am. Bankr. Rep. 175. Rep. 818; Boyd v. Glucklich, 116 Fed. 112 In re Jacobs, 235 Fed, 706, 149 131, 53 C. C. A. 451, 8 Am. Bankr. Rep. C. C. A. 126, 38 Am. Bankr. Rep. 96. A 393; In re Walder, 142 Fed. 784, 16 Am. financial statement, made by the bank- Bankr. Rep. 41; Samel v. Dodd, 142 Fed; rupts a short time before the bankrupt- 68, 73 0. C. A. 254, 16 Am. Bankr. Rep. cy, showing a surplus of assets notsched- 163; In re De Gottardi, 114 Fed. 328, 7 uled, is admissible in evidence in pro- Am. Bankr. Rep. 723; In re Anderson, ceedings by the trustee to require them 103 Fed. 854, 4 Am, Bankr. Rep. 640; to turn' over Such assets. In re Chav- Ripon Knitting Works v. Schreiber, 101 kin, 249 Fed. 342, 161 C. C. A. 350, 41 Fed. 810, 4 Am. Bankr. Rep. 299; In re Am. JBankr. Rep. 36. Mayer, 98 Fed' 839, 3 Am. Bankr. Rep. 113 In re Wiesen Bros. (D. C.) 135 Fed. 533; In re McCormick, 97 Fed. 566, 3 Am. 442, 14 Am. Bankr. Rep. 847; Good v. Bankr. Rep. 340; In re Thiessen, 2 Nat. Kane, 211 Fed. 956, 128 C. C. A. 454. Bankr. News, 625; Kirsner v. Taliaferro, 114 In re De Gottardi, 114 Fed. 328, 7 202 Fed. '51, 29 Am. Bankr. Rep. 832; Am. Bankr. Rep. 723. In re Holden (C. G. A.) 203 Fed. 229, 29 lis In re Cramer, 175 Fed. 879, 23 Am. Am. Bankr. Rep. 387; Shea v. Lewis (C. Bankr. Rep. 637. 0. A.) 206 Fed. 877, 30 Am. Bankr. Rep. 118 In re Krueger, 197 Fed. 124, 28 436; Stuart v. Reynolds (C. C. A.) 204 Am. Bankr. Rep. 890; In re Krall, 182 Fed. 709, 29 Am. Bankr. Rep. 412; In re Fed. 191, 24 Am. Bankr. Rep. 941; In Mitchell, 202 Fed. 806. re Berman, 165 Fed. 383, 21 Am. Bankr. n? In re Switzer, 140 Fed. 976, 15 Am. Rep. 139; In re Sax, 141 Fed. 223, 15 Bankr. Rep. 468; In re Adler, 170 Fed. Am. Bankr. Rep. 455; In re Adler, 129 634, 21 Am. Bankr. Rep. 371. § 229 LAW OF BANKRUPTCY 522 ability/" will not dp. The court must not take this step in a doubtful case. Particularly where the issue turns upon comparative estimates of the value of a stock of goods at different times, great care must be exercised, and an order of surrender should not be made unless the discrepancy is great and such as cannot be explained except on the theory that the bankrupt is keeping back a part."" But to stay the hand of the court, the doubt which it entertains must be "reasonable." In deciding issues of this kind, "a court, when called upon to pass upon the weight of testimony and the credibility of wit- nesses, is not to be deprived of those faculties of judgment and dis- crimination as to what is true or probable, on the one hand, and untrue, improbable, or absurd, upon the other, which are permitted to be exercis- ed by juries in similar cases." ^^* Hence although the bankrupt's explan- ation of the loss or disappearance of his property is entirely uncontra- dicted by any testimony, yet the court is not bound to believe him, but may refuse to accept the explanation and make its order for the sur- render of the property, when the story told by the bankrupt is so evi- dently manufactured for the occasion or so incredible that it would not deceive any person of reasonable sagacity.^^^ That the courts are often confronted with this sort of dilemma may be seen from the cases cited in the margin. Without pursuing in detail the various surprising nar- ratives brought forward by fraudulent bankrupts, it may be remarked that it appears to be a favorite device to allege that the money in ques- tion was stolen from them in the street or that burglars looted the home or the store. The courts have frequently declined to lend their ear to this easy falsehood.^^^ And yet if the bankrupt attempts to explain the loss of the money or property by a story which, though difficult to be- lieve, is not impossible nor an obvious fabrication, the court should not be hasty in deciding against him. It is the more prudent course to 118 In re Goldfarb Bros., 131 Fed. 643, Fed. 551, 25 Am. Bankr. Rep. 874; In re 12 Am. Bankr. Eep. 386. Eobert Greenberg & Bro., 179 Fed. 413, ii» In re Reese, 170 Fed. 986, 22 Am. 24 Am. Bankr. Rep. 943; In re Wein- Bankr. Rep. 521. While an inventory reb, 146 Fed. 243, 76 C. C. A. 609, 16 taken by a bankrupt merchant prior to Am. Bankr. Rep. 702; In re Kane, 125 his bankruptcy may be made the basis of Fed. 984, 10 Am. Bankr. Rep. 478; In re an order requiring him to turn over Frankfort, 144 Fed. 721, 15 Am. Bankr. property, it should be used with caution Rep. 210. on account of Its very probable unreli- 122 See, for example. In re Chamelin, ability. Kirsner v. Taliaferro (C. C. A.) 184 Fed. 553, 25 Am. Bankr. Rep. 570; 202 Fed. 51, 29 Am. Bankr. Rep. 832. In re De Gottardi, 114 Fed. 328, 7 Am. 120 Schweer v. Brown, 130 Fed. 328, Bankr. Rep. 723; In re Levin, 113 Fed. 64 0. 0. A. 574, 12 Am. Bankr. Rep. 178. 498, 6 Am. Bankr. Rep. 743; Schweer v. 121 In re Stokes, 185 Fed. 994, 26 Am. Brown, 130 Fed. 328, 64 C. O. A. 574, 12 Bankr. Rep. 255; In re Lippman, 184 Am. Bankr. Rep. 178. 523 THE BANKRUPT, HIS EIGHTS AND DUTIES § 230 order him before the judge or referee for further examination as to whether or not he has made a full disclosure of the facts.^'** § 230. Same ; Excuses, Defenses, and Allowances. — Although mon- ey or property not turned over to the trustee may be proved or ad- mitted to have been in the recent possession of the bankrupt, still an order for its surrender by him will not be made unless it is within his ability presently to comply. Physical inability to obey such an order will be a good plea in defense, and though his bare denial will not be enough to establish the fact, yet if he succeeds in demonstrating it, no order will be made.^** Thus, he may show that, since the time the mon- ey is shown to have been in his hands, it has passed into the possession of others and is no longer under his control.^^® This method of pro- ceeding cannot be employed, for instance, to reach property which is in the hands of third persons, claiming title thereto by conveyance or transfer from the bankrupt prior to the bankruptcy, although such transfer was manifestly fraudulent.^** But money of a married woman received by her husband, but which by the law of the state is her sepa- rate property and subject to her absolute control, is presumably held by him as her agent, arid the fact of his possession furnishes no excuse for her failure to deliver it to her trustee in bankruptcy, unless she shows as a matter of fact that she is unable to obtain the actual possession of it.-*^' And a bankrupt cannot escape the duty of turning over to his trustee money which he has invested in his business on the pretense that he holds it as a trustee.-"^* Again, since the question is not whether the bankrupt has made a proper use of his money or not, but whether he actually has it now in possession or not, it is a good defense that he has paid it away to his creditors, regardless of the fact that such pay- ments were not justified and resulted in giving preferences.''^* In fact, it may be said that it is entirely immaterial what the bankrupt has done with his money (so far as regards a proceeding of this kind) so long as 128 In re McCormick, 97 Fed. 566, 3 "^ in re Mayer, 98 Fed. 839, 3 Am. Am. Bankr. Eep. 340. Bankr. Rep. 533. 12 4 In Be Cummlngs, 186 Fed. 1020, 26 127 in re Cole, 144 Fed. 392, 75 C. C. Am. Bankr. Rep. 130; In re Ricliards, A. 330, 16 Am. Bankr. Rep. 302. 183 Fed. 501, 25 Am. Bankr. Kep. 176; 128 In re Smith Longbottom & Sons, In re Davison, 143 Fed. 673, 16 Am. 142 Fed. 291, 15 Am. Bankr. Rep. 437. Bankr. Rep. 337; Crawford v. Sternberg, 120 In re Laplume Condensed Milk Co., 220 Fed. 73, 135 C. C. A. 641, 36 Am. 145 Fed. 1013, 16 Am. Bankr. Rep. 729; Bankr. Rep. 677; Epstein v. Steinfeld, In re Smith Longbottom & Sons, 142 210 Fed. 236, 127 C. C. A. 54. 32 Am. Fed. 291, 15 Am. Bankr. Rep. 437; In re Bankr. Rep. 6. Kane, 125 Fed. 984, 10 Am. Bankr. Rep. 125 American Trust Co. v. Wallis, 126 478; In re Anderson, 103 Fed. 854, 4 Am. Fed. 464, 61 C. C. A. 342, 11 Am. Bankr. Bankr. Rep. 640; In re Cunney (D. C.) Rep! 36o! 225 Fed. 426, 35 Am. Bankr. Rep. 617. § 231 LAW OF BANKRUPTCY 524 he satisfies the court that he has actually parted with it.^*" The object of the proceeding is to force the bankrupt to disgorge assets which he is concealing or withholding, not to punish him for improvident or even dishonest conduct. If he has wasted his money or paid it away, no matter for what purpose, he cannot be ordered to pay it over to his trustee. As remarked by the court in such a case: "These sums ap- pear to have been paid out by the bankrupt for very worthy and com- mendable purposes, but if they had been paid out for unworthy pur- poses, or lost at gaming or other immoral purposes, the bankrupt could not be committed for not restoring the amounts to his trustee." ^*^ It should be said, however, that in at least one case a much more severe rule was applied, and the court held that, in determining what sum of money the bankrupt should be ordered to pay over toi his trustee, he might be allowed credit for so much as he had spent in the reasonable cost of his living, if he had conducted himself economically and properly, but not for sums spent in a debauch, nor in journeying to a remote place in search of employment.^^'^ But whatever may be the excuse or ex- planation set up, it must be made out by a straightforward and con- vincing story, and will be disregarded if too improbable for belief or discredited by other and better testimony. ■'^** In one case, where the bankrupt had an interest in groviring crops, but omitted to list them in his schedule under the honest belief that they would not vest in the trustee, and he completed their cultivation and harvesting after his ad- judication, and was then ordered to surrender the crops, or the proceeds of their sale, to the trustee, it was held that he should be allowed a rea- sonable compensation for his work and care bestowed on them from the date of the adjudication.^^* § 231. Same; Commitment for Contempt. — Where a bankrupt fails or refuses to comply with a lawful order of the court of bankruptcy, requiring him to surrender a designated sum of money or certain speci- fied property to his trustee, he is in contempt of the court, and his obe- dience to the order may be enforced by committing him to prison until ISO One who was nominally a member terous. In re Vyse (D. C.) 220 Fed. 727, of the bankrupt firm, but really a mere 34 Am. Bankr. Rep. 378. clerk, should not be ordered to pay to isiBoyd v. Gluckllch, 116 Fed. 131, the trustee money which he had turned 53 0. C. A. 451, 8 Am. Bankr. Rep. 393. over to his partner. And so, the trustee 18= In re Tudor, 100 Fed. 796, 4 Am. is not entitled to proceed directly against Bankr. Rep. 78. the bankrupt to require the payment of laa In re Kempner, 6 N. B. R. 521, Fed. money which he had delivered to his sis- Cas. No. 7,689; In re Friedman, 1 Nat. ter, although his claim that it was de- Bankr. News, 3.32. llvered in payment of a debt was prepos- is* in re Barrow, 98 Fed. 582, 3 Am. Bankr. Rep. 414, 525 THE BANKRUPT, HIS EIGHTS AND DUTIES § 231 he will purge his contempt by obedience to the oi'der.**" Such an order is not a judgment for the payment of a debt, and therefore the commit- ment of the bankrupt for failure of compliance with it is not "imprison- ment for debt" within the meaning of the state and federal laws abol- ishing that method of collecting debts. ^** It should be observed that the sole purpose of a contempt proceed- ing of the kind now under consideration is to reach and compel the surrender of money or property in the bankrupt's actual possession or control, and not to punish him for concealing his assets.*^' In view of the fact that the twenty-ninth section of the Bankruptcy Act makes it a"criminal offense for a bankrupt to conceal property from his trustee, it is at least doubtful whether, an attachment for contempt can be used as a means of punishing him for such a concealment.^^* Even when the bankrupt has been indicted for this crime, and has pleaded guilty and served the sentence imposed upon him, the question of his obedience to a "turnover" order requiring him to surrender the same assets al- leged to have been concealed remains unsettled. If- such an order was lawfully made and he is able to comply with it and refuses to do so, he is in contempt, and the contempt is not purged by the serving of the sentence. ^^'' Again, a contempt proceeding to enforce obedience to a "turnover" order is a different thing from a proceeding to punish the bankrupt for having squandered his assets or put them out of his reach. When a bankrupt, after having been ordered to pay over to his trustee assets which he has withheld, deals with them in such a manner as to make it impossible for him to comply with the order, he 135 In re Cole, 163 Fed. 180, 90 C. 0. ting Works v. Schreiber, 101 Fed. 810, 4 A. 50, 23 L. R. A. (N. S.) 255, 20 Am. Am. Bankr. Rep. 299 ; In re Schlesinger Bankr. Rep. 761; In re Krichevsky (D. C.) (C. C. A.) 102 Fed. 117, 4 Am. Bankr. 219 Fed. 347, 34 Am. Bankr. Rep. 362; Rep. 361 ; In re Anderson, 103 Fed. 854, In re Stanny (D. O.) 226 Fed. 517, 36 4 Am. Bankr. Rep. 640. Am. Bankr. Rep. 79; Power v. FuHrman, 13^ -^^ ^.^ g^^^g^ -^25 ped. 984, 10 Am. 2201 Fed. 787, 136 C. C. A. 393, 34 Am. ^ankr. Rep. 478. A motion to commit Bankr. Rep. 418; Clay v.. Waters, 178 jj^g treasurer of a bankrupt corporation Fed. 385, 101 C. C. A. 645, 24 Am. Bankr. f^j. contempt for failure to obey an order Rep. 293; In re Gerstel, 123 Fed. 166, 10 ^j jj^g referee requiring him to turn over Am. Bankr. Rep. 411; In re Bosser, 96 money to tbe trustee will not be con- Fed. 308, 2 Am. Bankr. Rep. 746; In re gic^gred where he is under bail to appear Salkey, 6 Biss. 269, 11 N. B. B. 423, Fed. .^^^^ answer to indictments in the state Gas. No. 12,253; In re Speyer,, 6 N. B. R. • court for the embezzlement of such mon- 255, Fed. Cas. No. 13,239. See Mallory gy jj^jj, ^^^ corporation, until after the Mfg. Co. V. Fox, 20 Fed. 409; In re Fogel- indictments are disposed of. In re Hooks man, 204 Fed. 351, 30 Am. Bankr. Rep. Smelting Co., 146 Fed. 336, 17 Am. Bankr. 348; In re Star Spring Bed Co., 203 Fed. jjgp ^41 640 30 Am Bankr^ ^^^'iff .„ „„ C C "^ I" ^e Ellas (D. O.) 240 Fed. 448, . oJ^ff ^-^ 1 ' f n ifi. Chwee,: 39 Am. Bankr. Rep. 441. A. 254, 16 Am. Bankr. Rep. led ; hchweer '^ V. Brown, 130 Fed. 328, 64 C. O. A: 574, "» In re Sobol, 242 Fed. 487, 155 C. 12 Am. Bankr. Rep. 178 ; Rlpon Knit- O. A. 263, 39 Am. Bankr. Rep. 252. § 231 LAW OF BANKRUPTCY 526 cannot be committed for failure to obey the order, since his present in- ability to do so is a complete defense ; but his conduct, being in fraud of his creditors and in defiance of the authority and jurisdiction of the court, constitutes a criminal contempt, for which he may be punished.^** Where, however, the bankrupt is brought before the court for the explicit purpose of being dealt with .for his disobedience to a "turn- over" order, the proceedings need not be formal, but may be based on a petition of the trustee setting forth the facts so as to inform the bank- rupt of the charge he is to meet."* The bankrupt should be cited to show cause before being committed for contempt,**^ but it is not a pro- ceeding in which he is entitled to claim a trial by jury."* It is an entirely separate and distinct proceeding from that which resulted in the order requiring him to yield up the property. That order will be conclusive of the fact that, at the time it was made, the bankrupt had in his possession or control money or property which he was then able to surrender to his trustee, and this question will not be reviewed or re-examined.*" But it is not conclusive that he still is able to make the payment or surrender, because he may in the meantime have paid away the money or lost the property ; and on this question the bankrupt is entitled to a hearing and cannot be committed until he has had an opportunity to present this defense.**® For whatever may have been the state of the case when the order for surrender was made, the court will not send the bankrupt to jail unless it is shown that he still continues in a position of present and continuous ability to make the surrender,"* and of this fact the court must be satisfied by clear and convincing proof. 140 In re Mardenfeld (D. C.) 256 Fed. O. C. A. 330, 16 Am. Bankr. Rep. 302; 920, 43 Am. Bankr. Rep. 613 ; In re Stern Frederick v. Silverman, 250 Fed. 75, 162 (D. C.) 215 Fed. 979. C. C. A. 247, 42 Am. Bankr. Rep. 24 ; 141 In re Cole, 163 Fed. 180, 90 0. C. In re Kramer (D. C.) 210 Fed. 977, 31 Am. A. 50, 23 I/. R. A. (N. S.) 255, 20 Am. Bankr. Rep. 525 ; In re Myerson (D. C.) Bankr. Rep. 761. 253 Fed. 510, 42 Am. Bankr. Rep. 337. 1^- in le Rosen's Estate (0. C. A.) 263 i*" In re Dickens, 175 Fed. 808, 23 Am. Fed. 704, 45 Am. Bankr. Rep. 5. Bankr. Rep. 660; In re Davison, 143 Fed. 143 Ripon Knitting Works V. Schreiber 673, 16 Am. Bankr. Rep. 337; In re (D. 0.) 101 Fed. 810, 4 Am. Bankr. Rep. Marks, 176 Fed. 1018, 23 Am. Bankr. 299. Rep. 911 ; In re Richards, 183 Fed. 501, 144 In re Frankel (D. C.) 184 Fed. 539, 25 Am. Bankr. Rep. 176 ; In re Mize, 172 25 Am. Bankr. Rep. 920; In re Marks* Fed. 945, 22 Am. Bankr. Rep. 577; In re (D. 0.) 176 Fed. 1018, 23 Am. Bankr. Rep. Reynolds, 190 Fed. 967, 27 Am. Bankr. 911 ; In re Richards (D. C.) 183 Fed. 501, Rep. 200 ; In re Rues, 164 Fed. 749, 21 25 Am. Bankr. Rep. 176. But compare In Am. Bankr. Rep. 257 ; In re Holden, 203 re Elias (D. C.) 240 Fed. 448, 39 Am. Fed. 229, 29 Am. Bankr. Rep. 387 ; In re Bankr. Rep. 441. Heyman (D. C.) 225 Fed. 1000, 34 Am. 146 In re Hausman, 121 Fed. 984, 58 C. Bankr. Rep. 108; Freed v. Central Trust C. A. 260, 10 Am. Bankr. Rep. 64 ; In re Co., 215 Fed. 873, 132 C. C. A. 7, 33 Am. Davison, 143 Fed. 673, 16 Am. Bankr. Bankr. Rep. 64 ; In re McNaught (D. O.) Rep. 337; In re Cole, 144 Fed. 392, 75 225 Fed. 511, 35 Am. Bankr. Rep. 609. 527 THE BANKRUPT, HIS RIGHTS AND DUTIES § 232 or, as sometimes stated, beyond a reasonable doubt."' The cases difEer as to whether proof of the recent possession of money or property by the bankrupt is enough to warrant committing him for contempt unless he satisfactorily explains, its disappearance ; but generally it may be stated that if the contempt proceeding follows close on the heels of the order for surrender, it may be presumed that the ability to pay or sur- render continues, and then the bankrupt must overcome this presumption by proof."* In such cases, the bankrupt's contempt is a continuing contempt, and therefore the court is not confined to committing him for a definite and limited time, as it would be in the case of a specific act, complete in it- self, constituting a contempt. And if he is released on bail, he may be recommitted by order of the court, on the trustee's showing that his contumacy still continues, and if he leaves the' district, he may be pur- sued and arrested on warrant and again recommitted until the further order of the court or until he complies."® But as the object is not pun- ishment, but only to enforce obedience, the imprisonment should not be continued indefinitely, and the bankrupt should be discharged after a reasonable time when it appears that he is really unable to comply with the order."" § 232. Detention and Extradition of Bankrupts. — The present bank- ruptcy statute authorizes the arrest and detention of a bankrupt, after the filing of the petition and. not more than one month after the qualifi- cation of a trustee, on satisfactory proof by the affidavits of at least two persons that the bankrupt "is about to leave the district in which he re- sides or has his principal place of business to avoid examination, and that his departure will defeat the proceedings in bankruptcy." ^" A com- 147 Stuart V. Reynolds, 204 Fed. 709, i*» United States v. Sowles, 16 Fed. 123 C. C. A. 13, 29 Am. Bankr. Rep. 412 ; 536. In re Dickens, 175 Fed. 808, 23 Am. iso in re Karp, 196 Fed. 998, 28 Am, Bankr. Rep. 660 ; McNeil v. McCor- Bankr. Rep. 559 ; In re Taylor, 114 Fed. mack (C C. A.) 182 Fed. 808 ; In re 607, 7 Am. Bankr. Rep. 410 ; In re Cum- Davison, 143 Fed. 673, 16 Am. Bankr. raings, 188 Fed. 767, 26 Am. Bankr. Rep. Rep. 337; In re Mize, 172 Fed. 945, 22 477. Am. Bankr. Rep. 577. i" Bankruptcy Act 1898, § 9b. Upon 14 8 See In re Banzai Mfg. Co. (C. C. A.) this part of the statute it may be re- 183 Fed. 298, 25 Am. Bankr. Rep. 497; marked, in the first place, that it applies First Nat. Bank y. Cole, 144 Fed. S92, 75 alike to voluntary and involuntary cases. C. C. A. 330, 16 Am. Bankr. Rep. 302; whereas the corresponding provisions of Ifl re Stavrahn, 174 Fed. 330, 98 O. C. the act of 1867 were restricted to invol- A. 202, 23 Am. Bankr. Rep. 168; In re untary proceedings. In re Hale, 18 N. Marks, 176 Fed. 1018, 23 Am. Bankr. Rep, B. R. 335, Fed. Cas. No. 5,911. In the 911; In re Haring, 193 Fed. 168, 174, next place, it will be noticed that the 175,' 27 Am. Bankr. Rep. 285; In re Rey- warrant here authorized may be issued nolds, 190 Fed. 967, 27 Am. Bankr. Rep, by "the judge." This word does not in- oQo elude the referee, and consequently that § 232 LAW OF BANKRUPTCY 528 parison of these provisions with the only corresponding section of the act of 1867 (Rev. St. § 5024) will show radical differences. Under the earlier law, the warrant for the bankrupt's arrest might issue if there was "probable cause for believing that he is about'to leave the district, or to remove or conceal his goods, or to make any fraudulent conveyance or disposition thereof;" but now, only when his object in leaving the dis- trict is to "avoid examinatibn," and not then unless his departure will "defeat the proceedings in bankruptcy." The act of 1867 authorized the arrest of the debtor to secure his attendance at the hearing and adjudi- cation;^^* that of 1898 is concerned only with securing the examination of the bankrupt. Still it must be noted that there are some decisions to the effect that the power of the court of bankruptcy to order the deten- tion of a bankrupt, who is about to abscond from the jurisdiction with his assets, is not limited to the particular circumstances and specific pur- poses mentioned in this clause of the act, and that, under the authority to "make such orders and issue such process, in addition to those specific- ally provided for, as may be necessary for the enforcement of the provi- ions of the act," the court has authority to issue an order in the nature of a writ of ne exeat, when the arrest of the bankrupt is shown to be necessary for the enforcement of the statute as applied to his case.-*^^^ But the court has no authority to issue a warrant for the arrest of a bankrupt who is not within the district.-*®* The former law provided that the marshal, executing this warrant, should "arrest and safely keep" the alleged bankrupt. The present stat- ute, with remarkable tenderness for the debtor, provides that the mar- shal shall "keep such bankrupt in custody, but not imprison him." The meaning of this term may not be easy to determine. It has been held that, in a sentence that the defendant "be in custody until," etc., the word "custody" imports actual imprisonment, and the duty of a sheriff under such a sentence is not performed by allowing the defendant to go at large under his general watch and control, but so doing renders him liable for an escape.^®* But in the statute under consideration the words officer Has no jurisdiction to authorize i52 Usher v. Pease, IIG Mass. 440, 17 the arrest of the banlirupt, although, it Am. Rep. 169, 12 N. B. R. 305. See Mar- would appear, he may hear the evidence ble v. Pulton, 1 Hask. 462, Fed. Oas. No. when the bankrupt is in custody and 9,059. decide whether to detain him or not^ ,,,^^ ,^ ^ipke, 98 Fed. 970, 3 Ajn. Bankruptcy Act 1898, § 1 cl. 16. As to g^^j.^ ^^^ gg j^ ^^ Berkowitz, 173 the requisites , of the petition and pre- jj-g^ iQ^g, 22 Am. Bankr' Rep 231 limina*ry proof to authorize the issu- ance of the warrant, see In re Lipke, 98 "* ^n re Hassenbusch, 108 Fed. 35, 47 Fed. 970, 3 Am. Bankr. Rep. 569 ; In re ^- ^- ^- ^'^'^' 5 Am. Bankr. Rep. 532. McKlbben, 12 N. B. R. 97, Fed. Oas. No. i" Smith v. Commonwealth, 59 Pa. St 8,859. 320. 529 THE BANKRUPT, HIS EIGHTS AND DUTIES § 233 "custody" and "imprison" are carefully placed in opposition to each other, whence it would appear that the statute would be satisfied if the marshal or his deputy remained constantly in the physical presence of the bankrupt, or so situated with reference to him as to be able to pre- vent his escape, and that the bankrupt might be kept in custody in his own house, or even allowed to go about his business if the officer was constantly with him. If the bankrupt has already made his escape from the district, he may be brought back on a process similar to extradition. The statute pro- vides that "whenever a warrant for the apprehension of a bankrupt shall have been issued, and he shall have been found within the jurisdiction of a court other than the one issuing the warrant, he may be extradited in the same manner in which persons under indictment are now extradited from one district within which a district court has jurisdiction to anoth- er." ^*® Another section of the act provides that the courts of bankrupt- cy shall have jurisdiction to "extradite bankrupts from their respective districts to other districts."^*'' As to the manner of effecting such ex- tradition, it has been enacted that "only one writ or warrant is neces- sary to remove a prisoner from one district to another. One copy there- of may be delivered to the sheriff or jailer from whose custody the pris- oner is taken, and another to the sheriff or jailer to whose custody he is committed, and the original writ, with the marshal's return thereon, shall be returned to the clerk of the district to which he is removed." ^®* § 233. Privilege from Arrest on Civil Process. — The statute pro- vides that the bankrupt shall not be liable to arrest on civil process, ex- cept where such process issues from a court of bankruptcy for contempt or disobedience of its lawful orders, or unless the process issues from a state court having jurisdiction, and is served within the state, and is founded upon a debt or claim "from which his discharge in bankruptcy would not be a release, and ill such case he shall be exempt from such arrest when in attendance upon a court of bankruptcy or engaged in the performance of a duty imposed by this act." "* The general orders in bankruptcy provide that "if the petitioner, during the pendency of the proceedings in bankruptcy, be arrested or imprisoned on process in any civil action, the district court, upon his application, may issue a writ of habeas corpus to bring him before the court to ascertain whether Such process has been issued for the collection of any claim provable in bank- 1B6 Bankruptcy Act 1898, § 10. ibs Kev, Stat. V. S. § 1029. 15T Bankruptcy Act 1898, § 2, cl. 14. "» Bankruptcy Act 1898s § 9. Bi.k.Bkk.(3d Ed.)— .34 m § 233 LAW OF BANKRUPTCY 530 ruptcy, and if so provable he shall be discharged ; if not, he shall be re- manded to the custody in which he may lawfully be." "' The discrep- ancy between these two enactments will be at once apparent. The stat- ute exempts the bankrupt from arrest in cases where the debt or claim on which the process is founded is of such a nature that it will be re- leased by the discharge in bankruptcy. The general order exempts him from arrest in cases where the debt or claim is provable in bankruptcy. Now, several kinds of debts which are provable are not affected by a discharge. Such are judgments in actions for frauds, taxes, debts creat- ed by the bankrupt's fraud or breach of duties as a trustee or a public officer. In this conflict, the inferior federal courts have not hesitated to hold that the order must give way to the statute, the latter being of superior authority .^®^ The test, therefore, is not the provable char- acter of the debt, but the effect upon it of a discharge in bankruptcy. The bankrupt, if the laws of the state so provide, may be arrested in an action on a claim from which his discharge would not release him, and the bankruptcy court will not interfere to prevent the enforcement, by arrest and imprisonment, of a judgment founded on such a claim, unless such action is necessary to enable the bankruptcy court to exer- leo General Order No. 30. This order and the ninth section of the act are in pari materia and should be construed as a whole. tFnited States v. Peters, 166 Fed. 613, 22 Am., Bankr. Rep. 177. But it is a noteworthy circumstance that the order, in one respect at least, does not go nearly so far, in extending the bene- fits intended, as the act itself. The or- der, hy its express terms, is applicable only to cases of voluntary bankruptcy. It provides for the release of the debtor if he is committed after the filing of "his" petition, or where "the petitioner" — that is, a voluntary petitioning bank- rupt — is arrested or imprisoned during the pendency of the proceedings. If a petition in bankruptcy is filed against a debtor by his creditors, it cannot with any propriety be spoken of as "his" peti- tion, nor can he be called "the petition- er." The order, therefore, will not apply in compulsory cases. But the district courts will be justified in acting inde- pendently of it in such cases, for the statute itself provides that "a bankrupt" shall be exempt from arrest on civil process, etc., and that the term "bank- rupt" shall Include "a person against whom an involuntary petition has been filed, or who has filed a voluntary peti- tion, or who has been .adjudged a bank- rupt." 161 In re Baker, 96 Fed. 954, 3 Am. Bankr. Rep. 101, General Order No! 30 was copied, with a few slight verbal changes, from the corresponding general order (No. 27) made under the act of 1867. And of that order it was said: "It would seem that the general order carries the exemption of the bankrupt from arrest further than is warranted by the statute ; for the latter, by plain im- plication, allows an arrest for a debt or claim from which the bankrupt would not be released by his discharge. The rule was perhaps Inadvertently framed, and was intended merely to prescribe the mode in which the immunity given by the act might be secured and enforced, but not to extend that immunity to cases where the act clearly shows that none was to be allowed ; or perhaps the Su- pteme Court referred in this rule to cases of preliminary arrest at the com- mencement of a suit. As the twenty- first section [the eleventh section of the present act] provides for a stay of all suits for debts provable under the act [but now only where the suit is founded 531 THE BANKRUPT, HIS RIGHTS AND DUTIES § 233 cise its proper authority and jurisdiction in the case."* On this prin- ciple it is held that, if the laws of the state authorize the arrest and detention of a defaulting taxpayer, a bankrupt in that plight will not be released on habeas corpus, since taxes due to a state or municipality are not affected by a discharge in bankruptcy."* The same is true of claims sounding in tort, when the torts are of the nature excepted by the statute from the effects of a discharge."* And if the debtor is held under arrest in a civil action in a state court founded on a debt contracted by his defalcation while acting in a fiduciary capacity, that is a claim from which his discharge in bankruptcy would not release him, and therefore he is not entitled to be released on habeas corpus from the court of bankruptcy."^ Also, it has been decided that a judg- ment in a bastardy proceeding, brought against the putative father in the name of the state and by the public prosecutor, according to the upon a claim from whicli a discharge would be a release], the general order re- quires the discharge of the bankrupt when arrested in any such suit; other- wise the proceedings might be stayed, but the bankrupt would remain in prison. But where the arrest is one on final pro- cess issued after judgment, the discharge of the bankrupt would depend on wheth- er the arrest was for a debt from which his discharge in bankruptcy would re- lease him." In re Ghirardelli, 1 Sawy. 343, 4 N. B. E. 164, Fed. Cas. No. 5,376. And see In re Whltehouse, 1 Low. 429, Fed. Cas. No. 17,564; In re Seymour, 1 Ben. 348, I'N. B. R. 29, Fed. Oas. No. 12,684; In re Glaser, 2 Ben. 180, 1 N. B. R. 336, Fed. Cas. No. 5,474; In re Alsberg, 16 N. B. R. 116, Fed. Cas. No. 261. Some justification for the extreme breadth of the order may be found in the words of the statute, that, even in the case of a debt from which the bankrupt would not be released by his discharge, "he shall be exempt from arrest when in attendance upon a court of bankrupt- cy or engaged in the performance of a duty Imposed by this act." Section 9. The Supreme Court, in framing the order in question, may well have taken the view that a bankrupt, from the time of filing his petition until the. discharge is granted, is always "in attendance upon a court of bankruptcy," either actually, or constructively by reason of the neces- sity of being able to command his pres- ence at any and all times for purposes connected with the settlement and ad- ministration of the estate, which might be seriously Interfered with if he were liable to be restrained of his liberty on civil process from a state court. Thus, in one of the cases, it was said: "A bankrupt is within the jurisdiction of the court by the proceedings in bankruptcy, and being bound at all times to abide its orders and decrees in the matter of his petition, he is entitled to its protec- tion, by being privileged from arrest on civil process pending the proceedings on his application for relief under the bank- ruptcy law." United States v. Dobbins, Fed. Cas. No. 14,971. And see In re Lewensohn, 99 Fed. 73, 3 Am. Bankr. Eep. 594. 162 In re Pettis, 2 N. B. E. 44, Fed. Cas. No. 11,046; In re Baker, 96 Fed. 954, 3 Am. Bankr. Rep. 101. lesAldrich v. Aldrich, 8 Mete. (Mass.) 102. . 164 In re Devoe, 1 Low. 251, 2 N. B. R. 27, Fed. Cas. No. 3,843 ; In re Simpson, 2 N. B. E. 47, Fed. Cas. No. 12,879 ; In re Whitehouse, 1 Low. 429, 4 N. B. E. 63, Fed. Cas. No. 17,564. 165 In re Seymour, 1 Ben. 348, 1 N. B. E. 29, Fed. Cas. No. 12,684; Kavanaugh V. Mclntyre, 128 App. Div. 722, 112 N. Y. Supp. 987. But a bankrupt arrested and held on a capias in an action to recover from him the value of property which he is alleged to have embezzled and fraudu- lently converted to his own use, is en- titled to release on habeas corpus, where no facts are pleaded which show such embezzlement to have been committed § 233 LAW OF BANKKUPTCT 532 State law, adjudging him to pay a certain sum monthly to the mother of the child for the period of ten years, and to secure such payment by a bond with sureties, is not such a debt as will be released by his dis- charge in bankruptcy, and hence, if he is arrested, during the bankruptcy proceedings, for failure to furnish the bond required, and committed, the court of bankruptcy will not set hirn at liberty on habeas corpus,"* On the other hand, if alimony, fixed by a decree of a state court, is a provable debt in bankruptcy (which is an unsettled question), it is of a nature to be released by the discharge, and the state court cannot lawfully cause the bankrupt to be arrested and imprisoned for a con- tempt of its authority in omitting to pay installments of the alimony due."' The same is true of his arrest on a capias under a judgment recovered against him in a suit for breach of promise of marriage.^®* And again, a bankrupt cannot be held in the custody of a sheriff of the county on account of a judgment obtained against him for costs in an action in a state court,"' unless in cases where the judgment for costs was not rendered until after the adjudication in bankruptcy."" Under the act of 1867, in a case where the bankrupt, while on his way to be examined as a witness in the bankruptcy proceedings under an order of the register, was arrested on mesne process issuing from a state court, it was held that the arrest was a violation of his privilege as a party and witness, and that he was entitled to be released therefrom on application to the court of bankruptcy, without reference to the question whether the debt on which the arrest was based was one which would be affected by his discharge in bankruptcy; although, if the debt were fraudulent or fiduciary, he would be liable to be again ar- rested as soon as the privilege ceased.^'^ The same rule is equally ap- plicable under the present statute,"* and moreover it is expressly pro- vided by the ninth section of the act that, even in those cases where an arrest of the bankrupt would be lawful, having regard to the nature of the debt, he shall be exempt from such arrest "when in attendance while lie was acting in a fiduciary ca- les in re Fife, 109 Fed. 880, 6 Am. paclty. Barrett v. Prince, 143 Fed. 302, Bankr. Rep. 258. 74 0. 0. A. 440, 16 Am. Bankr. Rep. 64. iso In re Borst, 2 N. B. R. 171, Fed. 106 In re Baker, 96 Fed. 954, 3 Am. Cas. No. 1,665. Bankr. Rep. 101. i^o In re Marcus, 105 Fed. 907, 45 C. 167 In re Houston, 94 Fed. 119, 2 Am. O. A. 115, 5 Am. Bankr. Rep. 365. Bankr. Rep. 107. See In re Van Orden, iti in re Kimball, 2 Ben. 38, 1 N. B. 96 Fed. 86, 2 Am. Bankr. Rep. 801; In E. 193, Fed. Cas. No. 7,767; Ex parte re Smith, 1 Nat. Bankr. News, 471 ; In Mifflin, 1 Pa. Law Jour. 29, Fed. Cas. No. re Lachemeyer, 18 N. B. E. 270, Fed. 9,537. Oas. No. 7,966; In re Foye, 2 Low. 399, 172 United States v. Flynn, 179 Fed. Fed. Oas. No. 5,021. 316, 23 Am. Bankr. Rep. 294. 533 THE BANKRUPT, HIS RIGHTS AND DUTIES § 233 upon a court of bankruptcy or engaged in the performance of a duty imposed by this act." This clause is liberally construed, and it is held that the bankrupt's exemption is not restricted to particular occasions when his physical attendance in court is required or when he is actually engaged in performing some required duty.^'* The exemption from arrest begins at the time of the filing of the petition in bankruptcy/''* and extends until the final decision on the bankrupt's application for discharge."^ After that, his discharge, if granted, will be a sufiicient protection against arrest for any debt which the discharge affects, and whether it is granted or withheld, his duties under the bankruptcy act will have been performed, so that it will no longer be necessary for the court of bankruptcy to be able to com- mand his instant attendance. The reader will not fail to note that this privilege against arrest extends only to the apprehension of the bank- rupt on "civil process." In any criminal proceeding against him, he re- mains, of course liable to arrest and imprisonment. Where a state stat- ute authorizes a judgment creditor, upon alleging that his debtor has fraudulently disposed of his property, to institute proceedings which begin with the arrest and imprisonment of the debtor, but such arrest is not intended as a punishment of the debtor, but as a means of obtain- ing a full disclosure as to his property, the proceeding is not criminal but civil, and its primary object is the collect-ion of the creditor's judg- ment. Such proceedings are therefore in direct conflict with the bank- ruptcy law, as respects any property which has passed to a trustee in bankruptcy, and a bankrupt cannot be arrested in proceedings founded on such statute. '^'* On the other hand, the bankruptcy law does not prevent a state court from committing the bankrupt to prison for a con- tempt, where such commitment is intended as a punishment and not as • a means of collecting a debt.*" 17 s In re Dresser, 124 Fed. 915, 10 application to that court for relief. In Am. Bankr. Kep. 270. re Lockwooa (D. 0.) 240 Fed. 161, 39 Am. 17* State V. Rollins, 13 Mo. 179; In Bankr. E«p. 482. re Winthrop, 5 Law Rep. 24, Fed. Cas. "o Goodwin v. Sharkey, 5 Abb. Prac. No. 17,900. See Robb v. Powers, 7 Ala. N. S. (N. Y.) 64. 658; Gibson v. Holmes, 78 Vt. 110, 62 i" In re Fritz, 152 Fed. 562, 18 Am. Atl. 11, 4 Xj. R. a. (N. S.) 451 ; Turgeon Bankr. Rep. 244 ; In re Collins, 39 V. Bean, 109 Me. 189, 83 Atl. 557. Misc. Rep. 753, 80 N. Y. Supp. 1119 ; In 17B United States v. Peters, 166 Fed. re Meggett, 105 Wis. 291, 81 N. W. 419. 613, 22 Am. Bankr. Rep. 177; Hersch- A proceeding for the pimisbment of the man v. Bolster, 220 Mass. 137, 107 N. E. Bankrupt for contempt; of a state court 543. But the court of bankruptcy, hay- will not be stayed because he might be ing granted a discharge, may protect the imprisoned, for his attendance before the bankrupt from arrest on a .iudgment bankrupty court could be procured by rendered by another court after the dis- habeas corpus. In re Francisco (D. C.) charge, but only to allow liim to make 245 Fed. 216, 41 Am. Bankr. Rep. 87. § 233 LAW OF BANKEtrPTCT 534 In addition to these provisions of the statute, General Order No. 12 provides that the bankrupt "may receive from the referee a protec- tion against arrest, to continue until the final adjudication on his appli- cation for a discharge, unless suspended or vacated by order of the court." And it is held that the court may impose terms on granting such protection, and hence, in a proper case, may require the bankrupt to furnish a bond with sureties, conditioned that during its continuance he will obey all orders of the court and not meanwhile depart from its jurisdiction."* § 234. Release from imprisonment. — A court of bankruptcy has ju- risdiction to enforce the protection against arrest on civil process ac- corded to bankrupts by the statute, and for this purpose may issue the writ of habeas corpus, requiring the production of the bankrupt before it in order that it may inquire and determine whether or not the case is one within the statute, and in the former alternative, discharge the bankrupt. It is so provided by the general orders in bankruptcy,^'* and has been so ruled by the courts."* But the authority thus given to the district courts can be exercised only by that court in which the particular bankruptcy proceedings are pending.^*^ Where a bankrupt is under arrest under process from a state court, he should first apply to 178 In re Lewcnsotin, 99 Fed.' 73, 3 Am. of (he slate, but of his < rod i tors. In re Bankr. Rep. 594. Mirieau, 45 Fed. 188. That the writ may 179 General Order No. 30. "Before issue to inquire into the cause of corn- granting the order for discharge, the mitment under a civil process, as well court shall cause notice to be served up- as In a case of a criminal process, see on the creditor or his attorney, so as Ex parte Randolph, 2 Brock. 447, Fed. to give him an opportunity of appearing Cas. No. 11,558. The power to issue the and being heard before the granting of writ may be exercised by the judge of the order." Idem. In addition to the the district court at chambers and in provisions of this order It is enacted that vacation (see Bennett v. Bennett, Deady, "the Supreme Court and the circuit and 299, Fed. Cas. No. 1,318; Ex parte Ben- district courts shall have power to issue edict. Fed. Cas. No. 1,292 ; Ex parte writs of habeas corpus. The several jus- Barnes, 1 Sprague, 133, Fed. Cas. No. tices and judges of the said courts, with- 1,010), especially In view of the fact that in their respective jurisdictions, shall the bankruptcy act invests the district have power. to grant writs of habeas cor- courts with such powers "as will enable pus for the purpose of an inquiry into them to exercise original jurisdiction in the cause of restraint of liberty." Rev. bankruptcy proceedings, in vacation in St. U. S. §§ 751, 752. The following chambers and during their respective section (753) declares that the writ of terms." Bankruptcy Act 1898, § 2. But habeas corpus "shall in no case extend it does not appear to have been intended to a prisoner in jail." But this does that this writ should be granted by a not oust the federal courts of jurisdlc- referee in bankruptcy. tion to release on habeas corpus, for the iso in re Glaser, 2 Ben. 180, 1 N. B. purpose of bringing him before a com- R. 336, Fed. Cas. No. 5,474; United raissioner (or a referee in bankruptcy) States v. Dobbins; 1 Pa. Law Jour. 9, for examination, a debtor who is in jail Fed. Cas. No. 14,971. under executions in civil actions, for isi in re Seymour, 1 Ben. 348 1 N. B. such debtor is not confined at the suit R. 29, Fed. Cas. No. 12,684. 535 THE BANKRUPT, HIS EIGHTS AND DUTIES § 234 that court before coming into the court of bankruptcy to obtain his release. For this practice is less likely to produce conflicts of juris- diction, and if he is entitled to be released under the bankruptcy act, though on no other ground, he may urge that privilege in the state court as well as in any other, for all courts, both state and federal, are bound to obey the act of congress.^** But if the state court being thus ap- plied, to, decides against the petitioner's application for release from custody, the bankruptcy court is not in any manner bound by its deter- mination. If, in the judgment of the latter court, the arrest and de- tention of the bankrupt are in violation of his statutory rights, it will not hesitate to release him from the arrest, notwithstanding that the state court has already refused to do so. The jurisdiction of the fed- eral court is exclusive and its authority paramount, and it will protect the bankrupt in the manner contemplated by the law.^** Further, it is immaterial whether the process on which the arrest is effected issues from a state court or from a circuit court of the United States.^** But the writ of habeas corpus may not always be necessary to ob- tain the release of a bankrupt held under civil process. Where a sim- ple order to show cause why he should not be released from custody can be made to answer the same purpose, it will be employed instead of the writ. It will be an order in bankruptcy, and the court may com- pel obedience to it by the process of attachment for contertipt.^*® More- over, the court of bankruptcy has power to protect the bankrupt from imprisonment in a case where the law exempts him from arrest, not only by releasing him from actual custody, by means of the writ of habeas corpus, but also by orders staying further proceedings in the state court, or staying the issue of any capias or attachment against the bankrupt, or by enjoining the creditor from suing out such a writ, or forbidding him to execute a writ already out.'^*^ If the bank- rupt is arrested in a foreign country, under process from its courts, it would seem that he could not obtain his release under habeas corpus from the court of bankruptcy, because the bankruptcy law has no ex- territorial effect and because process from our courts does not run 182 In re O'Mara, 4 Biss. 506, Fed. a so in re Glaser, 2 Ben. 180, 1 N. B. Cas. No. 10,509. And see United States K. 336, Fed. Cas. No. 5,474; In re Ja- V. McAleese (0. C. A.) 93 Fed. 656, 1 Am. coby, 1 N. B. R. 118, Fed. Cas. No. 7,165. Bankr. Rep. 650. i«« Knott v. Putfiatn, 107 Fed. 907, 6 183 Knott V. Putnam, 107 Fed. 907, 6 Am. Bankr. Rep. 80; In re Pettis, 2 N. Am. Bankr. Rep. 80; In re Wiggers, 2 B. R. 44, Fed. Cas. No. 11,046; In re Biss. 71, Fed. Cas. No. 17,623. Jacoby, 1 N. B. R. 118, Fed. Cas. No. 184 In re Wenham, 153 Fed. 910, 16 7,165; In re Migel, 2 N. H. R. 481, Fed. Am Bankr. Rep. 690. Cas. No. 9,538 ; In re Goldstein, 52 How. Prac. (N. Y.) 426, Fed. Cas. No. 5,523. § 234 LAW OF BANKRUPTCY 536 into a foreign jurisdiction. But it has been suggested 'that the bank- ruptcy court may have power, under some circumstances, to enjoin a citizen within its jurisdiction from holding a bankrupt under arrest in a foreign country.^*'' On an application for the release of a bankrupt who is held under arrest upon process from a state court, if the debt, obligation, or lia- bility which is sought to be thus enforced is one which is dischargeable in bankruptcy, he will generally be entitled to deliverance on habeas corpus.^*® But it is otherwise if the debt or obligation would not be so released. And if a judgment has been rendered in the state court and the record shows that the debt was one contracted by the fraud of the bankrupt, or in a fiduciary capacity, or otherwise was of such a nature as not to be affected by his discharge in bankruptcy, the federal court will accept the record as importing absolute verity and will not inquire further into the question, and will refuse the application.^*® But if the case has not proceeded to judgment, and the capias or order of arrest was issued merely upon the preliminary showing of the plain- tiff, — that is, upon the declaration or complaint, or upon an affidavit stating such facts as to bring the defendant within the state statute, — it is open to dispute how far the bankruptcy court should proceed to " inquire into the facts. Some of the decisions hold that there is only a question of law before the federal court, that is, the question whether the debt, assuming it to be of the nature shown by these papers, is dischargeable in bankruptcy, and that the court should not enter upon any inquiry as to the truth of the facts alleged in the complaint or affi- davit.^" On the other hand, certain of the cases maintain the principle 187 Hazleton v. Valentine, 1 Low. 270, bankruptcy court having jurisdiction 2 N. B. R. 31, Fed. Oas. No. 6,287. pending his application for discliarge, 188 A bankrupt in custody under a such a judgment being dischargeable in body execution upon a judgment dis- bankruptcy. In re Madigan (D. 0.) 254 chargeable in bankruptcy will be releas- Fed. 221, 41 Am. Bankr. Rep. 770. ed on habeas corpus, though arrested be- iss In re Robinson, 6 Blatchf. 253, 2 N. fore the petition was filed. Ex parte B. R. 341, Fed. Cas. No. 11,939; In re Margiasso (D. C.) 242 Fed. 990, 88 Am. Patterson, 2 Ben. 155, 1 N. B. B. 307, Bankr. Rep. 524. a bankrupt impris- Fed. Cas. No. 10,817. oned on process issued in an action for loo in re Kimball, 2 Ben. 554, 2 N. B. breach of promise of marriage (unac- R. 204, Fed. Cas. No. 7,768, affirmed 6 companled by seduction), before the fil- Blatchf. 292, 2 N. B. R. 354, Fed. Cas. ing of his petition, is entitled to dis- No. 7,769; In re Valk, 3 Ben. 431, 3 N. charge. In re Komar (D. C.) 234 Fed. B R. 278, Fed. Cas. No. 16,814; In re 378, 37 Am. Bankr. Rep. 683. So, where Devoe, 1 Low. 251, 2 N. B. R. 27, Fed. a bankrupt, having recklessly driven an Cas. No. 3,843. In the case last cited it automobile, was arrested under order was ruled that evidence cannot be re- of the state court made prior to the fll- ceived to contradict the declaration in ing of his voluntary petition in bank- the action in which the order of arrest ruptcy, and judgment was recovered was granted and to show that no such against him, he may be released by the cause of action really exists as is there- 537 THE BANKRUPT, HIS RIGHTS AND DUTIES § 235 that the bankruptcy court is not bound by the case made by the plead- ings or affidavits in the proceedings in the state court, nor obliged to accept the plaintiff's allegations as conclusive on the question of fact, but may make original inquiry into the question whether or not the debt is one liable to be released by the discharge of the bankrupt, and to this end may consider all legal evidence brought before it.^*^ What- ever may be the proper solution of this question, it should be remarked that the writ of habeas corpus, though it is a writ of right, does not issue as a matter of course, and it may be refused if it appears, on the showing made by the petition, that the applicant for the writ, if brought into court by its means, would have to be remanded.*"* § 235. Arrest Prior to Bankruptcy Proceedings. — The protection from arrest granted to a bankrupt during the pendency of the bank- ruptcy proceedings does not relieve him from an arrest existing at the time of the commencement of the bankruptcy proceedings. That is to say, a bankrupt who was arrested under process from a state court, civil or criminal, before the filing of the petition in bankruptcy, and is held in custody under such arrest, cannot obtain his release from such imprisonment by application to the federal court, on petition for the writ of habeas corpus; and in this ca^e it makes no difference whether the debt or claim for which he was arrested is of such a character as to be provable in bankruptcy or released by the discharge, for irrespective of any such question, the pending arrest will not be superseded by the bankruptcy proceedings."^ If, as a matter of fact, the claim sought to be -enforced by the arrest is one which is affected by the discharge in bankruptcy, then the defendant will be entitled to regain his liberty, but only after the discharge is granted, and only on application to the prop- er state court."* But it may be necessary during the proceedings in In set forth, for the bankruptcy court No. 17,060; Hazleton v. Valentine, 1 cannot undertake to decide whether the Low. 2T0, 2 N. B. R. 31, Fed. Cas. No. plaintifE's claim is well or ill founded; 6,287; Minon v. Van Nostrand, 1 Low. that must be left to the determination of 458, 4 N. B. R. 108, Fed. Cas. No. 9,642, the court where the suit is pending. affirmed Holmes, 251, Fed. Cas. No. .,v, loivTTjTjiifl -w^^ 9,641; Brandon Nat. Bank v. Hatch, 57 i»x In te Aisberg, 16 NB R. 116, Fed. ^ ^ ^ ^ ^^^ p^^ ^ IN ?R 3^6 Fed Cas 5o 5 47% In -« burgeon v. Emery, 182 Fed. 1016, ^ ^,.^-. ^- 1 ' . oQQ ;i M R R 14^ 25 Am. Bankr. Rep. 694; People v. Er- i\rir%. So Vn' r^- Lobn -^z^^-r, ^^^- r • '' r„^^"^^- ^?i- N. B. R. 118, Fed.' Cal No. 7,165. SVFed.i:3,?7 i^ Ban^S. S 192 See In re King, 51 Fed. 434; In re holding that the word "arrest" in this Haskell, 52 Fed. 795. part of the statute includes "imprison- 19 3 In re Claiborne, 109 Fed. 74, 5 Am. ment," and a bankrupt is entitled to dis- Bankr. Rep. 812; Ex parte Ziegenfuss, charge from imprisonment under a pre- 24 X. C. 463; Ex parte Rank, Crabbe, vious arrest on a dischargeable debt. 493 Fed Cas' No 11566; In re Walker, "^ Brandon Nat. Bank v. Hatch, 57 1 Low. 222, 1 N. B. R. 318, Fed. Cas. N. H. 460, 16 N. B. R. 468. § 236 LAW OF BANKRUPTCY 538 bankrtiptcy to have the bankrupt before the referee or judge, particularly for the purpose of examination. This contingency has been met by the general order, which provides that "if, at the time of preferring his peti- tion, the debtor shall be imprisoned, the court, upon application, may order him to be produced upon habeas corpus, by the jailer or other ofHcer in whose custody he may be, before th§ referee, for the purpose of testifying in any matter relating to his bankruptcy." "® Upon this rule it is necessary to remark, in the first place that, taken literally, it applies only to a voluntary bankrupt, but that cases of involuntary bankruptcy are equally within the spirit and reason of the rule. And sec- ondly, the habeas corpus here referred to is not the great writ of that name used as a means of obtaining deliverance from illegal imprison- ment, but rather the writ of "habeas corpus ad testificandum" which is used to bring the body of a prisoner into court when he is needed as a witness in a pending cause. § 236. After-Acquired Property. — ^The estate which vests in a trus- tee in bankruptcy, to be collected and distributed to creditors, is that which belonged to the bankrupt at the time of the commencement of the proceedings in bankruptcy. Whatever the bankrupt may acquire after that date, whether by inheritance, devise, or gift, or as the fruit of his own industry and skill, even though it may- be acquired while the bankruptcy proceedings are still pending and before the discharge, is his own peculiar property. It is not subject to be administered in the bankruptcy proceedings; it is not within the jurisdiction of the bank- ruptcy court ; it is not liable to the claims of any creditors whose claims were provable (whether actually proved or not) in the bankruptcy pro- ceedings. The only limitation upon this rule is that, if the bankrupt fails to secure his discharge (or, as to any debts not released by his dis- charge) his after acquisitions may be subjected to the satisfaction of creditors, but by the ordinary processes of law, and not with any rela- tion to the proceedings in bankruptcy."® We have spoken of the 105 General Order No. 30. See In re In re Levy, 1 Ben. 496, 1 N. B. E. 136, Cheney, 5 Law Rep. 19, Fed. Cas. No. Fed. Gas. No. 8,296; In re Patterson, 1 2,636; In re Gilbert, 2 Nat. Bankr. News, Ben. 508, 1 N. B. R. 125, Fed. Gas. No. 378. 10,815; Day v. Superior Court, 61 Gal. 198 Sparhawk v. Terkes, 142 U. S. 1, 489; Bond v. Baldwin, 9 Ga. 9; Mays 12 Sup. Ct. 104, 35 L. Ed. 915; Traer v. v. Manufacturers' Nat. Bank, 64 Pa. St. Clews, 115 U. S. 528, 6 Sup. Ct. 155, 29 74, 3 Am. Rep. 573; Sosnowski v. Rape, h. Ed. 467; Clay v. Waters (G. C. A.) 69 Ga. 548; Bank of Missouri v. Francis- 161 Fed. 815, 20 Am. Bankr. Rep. 561; cus, 10 Mo. 27; Turner v. Gatewood, 8 In re Harper, 155 Fed. 105, 83 C. C. A. B. Mon. (Ky.) 613; McLendon v. Turner, 565, 18 Am. Bankr. Rep. 741; In re Ren- 65 Ga. 577; In re Swift (D. C.) 259 Fed. nle, 1 Nat. Bankr. News, 335; In re 612, 44 Am. Bankr. Rep. 211; In re Grant, 2 Story, 312, Fed. Cas. No. 5,693; Green (D. G.) 213 Fed. 542. 539 THE BANKRUPT, HIS RIGHTS AND DUTIES 236 "commencement of the proceedings in bankruptcy" as the moment from which the bankrupt may begin to acquire property for himself, and this is most probably to be understood, under the peculiar language of the present statute (though the point may not be free from doubt) as the date of the filing of the petition in bankruptcy, so that property which might be acquired by the bankrupt after the presentation of the petition, but before even the adjudication, would not pass to his trustee as assets."' As to all his after-acquired property the bankrupt has the unre- stricted right of disposing of it as he wills, and the ordinary remedies for its protection, independently of the bankruptcy proceedings. He may maintain trover for its recovery,"" or if his creditors seize upon it, while his application for a discharge is pending, a court of equity will interfere, by injunction, to protect his rights, and will restrain pro- ceedings until the question of his discharge has been decided.^"* Fur- thermore, the bankrupt himself may become a purchaser at the trus- tee's sale of his own property and assets, and is not disqualified from thus buying back as much of his former belongings as he can pay for out of his exempt property, his earnings, or his subsequent acquisi- tions.^** While the possession of property by a bankrupt at the time of 187 Bankruptcy Act 1898, § 70, provides that the trustee of the estate of a bankrupt "shall be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, * * * to property which, prior to the filing of the petition, he could by any means have transferred or which might have been levied upon and sold under ju- dicial process against him." There are two clauses here which stand in apparent antagonism. But the phrase "as of the date he was adjudged a bankrupt" prob- ably has no other office than to make the trustee's title relate back to the date mentioned, since, without this provision, that title could not of course accrue any earlier than the appointment and qualification of the twistee. In other words, it fixes the date of the adjudica- tion as the date when "by operation of law" the title passes, but it does not in any way define or limit the quantum of the estate which the trustee is to take. The other phrase, "prior to the filing of the petition," does not relate to the ac- crual of the trustee's title, but, in the connection in which it is found, serves to define and still further limit the property which the trustee will take. That prop- erty (with certain exceptions) must be property which the bankrupt could have transferred by his voluntary act, or which ,hls creditors could have seized on judicial process against him, and fur- ther, it must be property to which he had such a title or claim, at the time of the filing of the petition, that it could at that moment have been so transferred or seized. If this interpre- tation is correct, — and it seems the only construction which gives sense and in- telligibility to the statute, — then no prop- erty which the bankrupt may acquire after the filing of the petition, though it be before the adjudication, will pass to the trustee. See In re Judson, 192 Fed. 834, 113 C. C. A. 158, 27 Am. Bankr. Rep. 704; In re_Burka, 104 Fed. 326, 5 Am. Bankr. Rep. 12; Sibley v. Nason, 196 Mass. 125, 81 N. E. 887, 12 L. R. A. (N. S.) 1173, 124 Am. St. Rep. 520, 12 Ann. Gas. 938. A contrary rule pre- vailed under the act of 1841. See Ex parte Newhall, 2 Story, 360, Fed. Cas. No. 10,159. 198 Webb V. Fox, 7 Dum. & E. 387. 19 9 Mosby V. Steele, 7 Ala. 299. 'See In re Rogers, 1 Nat. Bankr. News, 211. 2O0 Sparhawk v. Terkes, 142 U. S. 1, § 236 LAW OF BANKRUPTCY 540 his discharge, or immediately after, which by industry he might reason- ably have acquired, does not warrant the presumption that he did not make a full surrender of his estate, yet, if the value of the property is so great as to make it improbable that it was earned since the filing of the petition in bankruptcy, it devolves upon the bankrupt to show how he became the proprietor of such property, when his discharge is im- peached for fraudulent and wilfull concealment of property.^*^ All property is to be regarded as after-acquired property, in this sense and for these purposes, to which the bankrupt's title or right ac- crues, from any sottrce or in any manner, so as to be available for his own uses, after the bankruptcy.**^ Thus, where an estate was con- veyed to a husband and wife to be held in entirety, and the husband went into bankruptcy, and, between the adjudication and his discharge, he obtained a divorce from his wife, it was held that, when the adjudi- cation was made, he had no interest in the real estate which could pass to the trustee, and if he gained an alienable interest by the divorce, it was a new acquisition which could not be claimed by the trustee.''** So where a wife, being possessed of a separate estate, procured a policy of insurance on her own life, payable on her death to her husband, and paid the premiums out of her own estate for a year, before the end of which time he was adjudicated a bankrupt, and she paid out of her own estate the premiums for the two following years and then died, it was 12 Sup. Ct. 104, 35 L. Ed. 915; Traer v. O. C. A. 505, 36 Am. Bankr. Rep. 166. Clews, 115 U. S. 528, 6 Sup. Ct. 155, 29 But proiierty is not "after acquired" L. Ed. 467; Phelps v. McDonald, 2 Mac- property merely because, after the termi- Arthur, 375, 16 N. B. R. 217; Gates v. nation of the bankruptcy proceedings, it Fraser, 9 111. App. 624. A bankrupt acquires a ^alue which it did not possess who, after hi§ discharge, becomes the at their inception.' Thus, a bankrupt bona fide holder of a note payable to owned a claim against a third person, himself, which had been returned in his who had made an assignment for the schedule and sold by the assignee, is benefit of his creditors. This claim was remitted to his original title, and may listed by the bankrupt in his schedule transfer it by indorsement so as to vest of assets, but all parties at that time the right of action in his indorsee. Birch regarded it as entirely worthless. The V. Tillotson, 16 Ala. 387. trustee took no action in regard to it. 201 Hargroves v. Cloud, 8 Ala. 173. See But after the bankrupt had obtained his Mays V. Manufacturers' Nat. Bank, 64 discharge, circun^stances occurred which Pa. St. 74, 3 Am. Rep. 573. made the claim valuable, and a dividend 2 02 Wages of a bankrupt, earned after upon it was paid by the assignee. It the ad.iudication, are not properly a part was held that this money was not after of the assets to be administered. Pro- acquired property of the bankrupt, but gressive Building & Loan Co. v. Hall, 220 that it belonged to his estate in bank- Fed. 45, 135 C. O. A. 613, 33 Am. Bankr. ruptcy, which could be reopened for the Rep. 313. After his adjudication, the purpose of administering it. In re Light- bankrupt may pay on a mortgage money hall (D. C.) 221 Fed. 791, 34 Am. Bankv. earned after the filing of the petition or Rep. 594. obtained from relatives or friends. Co- -"'■> In re Benson, 8 Biss. 116, Fed. hen v. Bacharach, 229 Fed. 385, 143 Cas. No. 1,328. 541 THE BANKRUPT, HIS RIGHTS AND DUTIES § 237 held that the husband was entitled to the proceeds of the policy, and not his trustee in bankruptcy.^** ''So where a devise or bequest, vesting by the death of the testator after the filing of a petition in bankruptcy against the heir, is coupled with a provision for the deduction of any indebtedness then existing from the heir to the testator, this does not prevent the bankrupt from being entitled to the benefit of the bequest' in full so far as concerns his general creditors, subject only to the con- tingency of his not obtaining a discharge.*" Again, crops planted by a bankrupt after the filing of the petition in bankruptcy do not pass to the trustee as assets for the use of creditors.*** And a liquor license granted to one after he has been adjudicated a bankrupt belongs to him personally and not to his receiver or trustee in bankruptcy.*"' Where the bankrupt, who was indorser on a promissory note falling due after the filing of his petition in bankruptcy, pays the same, his claim against the maker is after-acquired property accruing to himself and not to the benefit of his creditors, and he may be permitted to prove such claim against the estate of the maker, the latter bfeing also bankrupt.*** On the other hand, income or profits accruing to the bankrupt after the adjudication, but from property in which he had a fixed and vested in- terest before the bankruptcy, is not to be regarded as after-acquired property.*"* So the share of a bankrupt in a trust estate is riot after- acquired property, though it was decreed to" him after the filing of the petition in bankruptcy, the rights of the parties in the trust estate being adjudicated by such decree as of a date prior to the filing of such peti- tion.*^' And where one held land by an unrecorded deed prior to his bankruptcy, and his grantor thereafter sold the land to another, his right of action against the grantor for the proceeds of such sale is not property acquired after the bankruptcy, so as to entitle him to sue therefor in his own name.*^* § 237. Right to Surplus of Estate. — Where all the claims duly proved against the bankrupt's estate have been paid in full, together 2 04 In re Murrin, 2 Dill. 120, 8 N. B. Am. Bankr. Kep. 55; In re Wright, 177 E^ 6, Fed. Oas. No. 9,968. ' Fed. 578, 24 Am. Bankr. Rep. 437. 2 05 In re Woods, 133 Fed. 82, 13 Am. aioMcNaboe v. Marks, '51 Misc. Rep. Bankr. Rep. 240. 207, 99 N. Y. Supp. 960. But where the 206 Conley v. Nelin (Tex. Civ. App.) 128 conditions upon which the bankrupt was S. W. 424; In re Bamett, 3 Pittsb. 559, to become entitled to a trust fund were Fed. Cas. No. 1,024; Jackson v. Jetter not performed until after his adjudica- (lowa) 142 N. W. 431. tion, it was held that his trustee had no 2 07 In re Whitlock's License, 39 Pa. title thereto for the use of the creditors. Super. Ct. 34. Hull v. Palmer, 155 App. Div. 636, 140 N. 20 8 in i-e Smith, 1 Nat. Bankr. News, Y. Supp. 811. 13Q 211 Simpson v. Miller, 7 Cal. App. 248, 20 8 In re Baudouine, 96 Fed. 536, 3 94 Pac. 252. § 237 LAW OF BANKRUPTCY 542 with the costs and expenses of the proceedings and the fees and com- missions of the officers, if there remains any surplus in money, or any property not disposed of by the trustee, it belongs to the bankrupt, and upon the closing of the estate and the discharge of the trustee, such surplus will be ordered turned over to the bankrupt.^^*' Or if the bank- i-upt has died in the mean time, such surplus should be paid or delivered to his executor or administrator.'^* On the same principle, when a com- position is accepted by the creditors and confirmed by the court, the estate thereupon revests in the bankrupt.*" And after the bankrupt has been discharged, he may sue for and recover property which was 'not administered in the bankruptcy proceedings, and the attorney who prosecutes such suit and pays over to the bankrupt the money recovered is not, in the absence of fraud, liable for the amount so paid on the estate being reopened.'*^® It is probably not necessary that the trustee should execute a formal conveyance or assignment to the bankrupt of such surplus property, though some of the decisions intimate that this is required,^^® for the title would revest by operation of law, or rather, perhaps, the bankrupt is to be regarded as retaining a reversionary interest, which develops into a full title upon the discharge of the trustee. Even in the case where no trustee is appointed, a chose in action belonging to the bank- rupt will revert to him after his creditors have satisfied themselves out of his other property.'" There are certain cases in which it has been held that, after the trustee in bankruptcy has paid in full the debts prov- 212 Bankruptcy Act 1898, § 66b; In re Murray, 5 Sawy. 320, 18 N. B. K. 469, Hoyt, 3 N. B. R. 55, Fed. Gas. No. 6,806; Fed. Gas. No. 10,223. Colie V. Jamison, 4 Hun (N. Y.) 284, 13 213 in re Ohl (D. G.) 260 Fed. 338, 44 N. B. R. 1; Dewey v. Moyer, 9 Hun (N. Am. Bankr. Eep. 328. T.) 473, 16 N. B. R. 1; Jones v. Pyron, 214 j^ j.^ McNeil Gorp. (D. G.) 249 Fed. 57 Tex. 43; Herndon v. Davenport, 75 ^gg 4^ ^^ ^^nkr. Rep. 162. Tex. 462, 12 S. W. 1111; Steevens v. „,,w ^ tvt *i or.i »i ok -t- Earles, 25 Mich. 40; , Boyd v. Olvey, 82 , '" ™°" ^- ^^°""y' ^"^ ^^^- ^^' ^^ Ind. 294; Page v. Waring, 76 N. Y. 463; ^'^^^°- ^'*^- Hunter v. Hodgson (Tex. Civ. App.) 95 216 gcruby v. Norman, 91 Mo. App. S. W. 637; Wade v. Goza, 78 Ark. 7, 96 517; Kempner v. Bauer, 53 Misc. Rep. S. W. 388; Robertson v. Scbard, 142 109, 104 N. Y. Supp. 76; Kruegel v. Iowa, 500, 119 N. W. 529, 134 Am. St. Rep. Murphy & Bolanz (Tex. Giv. App.) 126 S. 430; Roberts6n v. Howard, 82 Kan. 588, W. 680. But see Frazier v. Desha's 109 Pac. 696; Bracklee Go. v. O'Connor, Adm'r, 40 S. W. 678, 19 Ky. Law Rep. 67 Misc. Eep. 599, 122 N. Y. Supp. 710; 407. And see Raley v. D. Sullivan & Johnson v. Norris, 190 Fed. 459, 111 0. Co. (Tex. Gom. App.) 207 S. W. 906, hold- O. A. 291, 27 Am. Bankr. Rep. 107. A ing that the title of a bankrupt to land, conveyance by the bankrupt alleged to though not scheduled as an asset, passes be fraudulent as to creditors will not be *<> ^^^ trustee, and, notwithstanding the set aside at the suit of the trustee, when bankrupt's discharge, he cannot recover there are no. provable debts, as the es- the same, no facts being shown revesting tate, after satisfying the claims against the title in him. it, belongs to the bankrupt. Nicholas v. 217 Roberts v. Martin, 158 Ky. 124, 164 543 THE BANKRUPT, HIS RIGHTS AND DUTIES § 237 ed against the estate, the surplus, instead of being returned to the bank- rupt, should be applied in payment of debts which, though not proved, were listed by the bankrupt in his schedule.*^* But this doctrine has been disapproved,*^* and does not commend itself to legal reason. For creditors who do not prove their claims are not parties to the proceed- ings, and should not be forced to reap an advantage from them which they have not sought, but should be left to their ordinary remedies at law. The court of bankruptcy is to do justice, and make a distribution of property, between the bankrupt on the one hand and, on the other hand, those of his creditors who choose to come in and make them- selves parties to the suit by proving their claims. But where a prefer- ence, voidable under the act, has been wrested from the creditor at the suit of the trustee, and the creditor then makes proof of his debt, and the assets are enough to pay all the other creditors in full and leave a sur- plus, in this case the preferred creditor's proof may be allowed to stand, and he may be paid out of such surplus; for, as between the bankrupt and himself, he is entitled to the money.^^* So also, it is ruled that the surplus remaining.^after the payment of all proved claims, with interest thereon to the date of adjudication, should not be returned to the bank- rupt until there has been further paid out of it interest on the proved claims from the date of adjudication to the day of payment.^*"- After the estate has been closed, the trustee discharged, and the bankrupt himself discharged, property which comes to light, not having been discovered in time to be administered in the bankruptcy proceedings, belongs to the bankrupt as a surplus of his estate, and if there are no representations of fraud or concealment on his part, or of such mistake as would vitiate the discharge, the court has no authority to appoint a new trustee to take possession of such surplus.^^* But on the other hand, a discharged bankrupt can assert no title, nor can he maintain any S. W. 369; Griffin v. Mutual Life Ins. 10 N. B. R. 383, Fed. Oas. No. 5,898; In Co. 119 Ga. 664, 46 S. E. 870. re Bank of North Carolina, 12 N. B. R. 218 In re Haynes, 2 N. B. R. 227, Fed. 130, Fed. Gas. No. 895. Cas. No. 6,269; In re James, 2 N. B. R. 222 See Hanson v. First Nat. Bank 227. These were decisions by the Su- (Tex. Civ. App.) 128 S. W. 1147; Lasa- preme Court of the District of Columbia ter v. First Nat. Bank, 96 Tex. 345, 72 sitting as a court of bankruptcy. S. W. 1057; Mayer v. Gourden, 26 Fed. 218 In re Hoyt, 3 N. B. R. 55, Fed. Cas. 742; Burton v. Perry, 146 111. 71, 34 N. No. 6,806, per Lowell, J. And see Peo- E. 60; In re Pintard, Fed. Cas. No. 11,- ple's Nat.' Bank of Independence v. Max- 170; In re Graff (D. C.) 242 Fed. 577, son, 168 Iowa, 318, 150 N. W. 601. 40 Am. Bankr. Rep. 205; Davis v. Find- 220 In re McGuire, 8 Ben. 452, Fed. ley, 201 Ala. 515, 78 South. 869. Com- Cas. No. 8,813. Pare In re Lighthall (D. O.) 221 Fed. 791, 221 In re Town, 8 N. B. R. 40, Fed. 34 Am. Bankr. Rep. 594. Cas. No. 14,112: In re Hagan, 6 Ben. 407, § 237 LAW OF BANKRUPTCY 544 action, in respect to property which he wilfully concealed from his trus- tee or failed to surrender for the benefit of his creditors.*^* Where the trustee in bankruptcy elects not to take and .charge the estate with property of the bankrupt which is incumbered, or where he abandons it, the property or right, whatever it is, remains in or reverts to the bankrupt.^^* 22S First Nat. Gank v. Lasater, 196 U. Supp. 212; Rand v. Sage, 94 Minn. 344, S. 115, 25 Sup. 'Ot. 206, 49 L. Ed. 408, 102 N. "W. 864; Jones v. Barnes, 107 13 Am. Bankr. Rep. 698; Laing v. Fish, Miss. 800, 66 South. 212; Perkins v. Ales- 119 111. App. 645; Hunt v. Doyal, 128 ander (Tex. Civ. App.) 209 S. W. 789. Ga. 416, 57 S. E. 489. See Rand v. Iowa 22* Abo Land Co. v. Tenorio (N. M.) Cent. Ry. Co., 96 App. Div. 413, 89 N. Y. 191 Pac. 141. 545 BXEMPTIONS OF BANKRUPT § 238 CHAPTER XIV EXEMPTIONS OF BANKRUPT Sec. 238. Exemptions Under Federal Laws. 239. Pension Money. 240. Exemption Under State Laws. 241. Same; Exemption by Value. 242. Same; Exemption of Specilic Property. 243. Policies of Life Insurance. 244. Homestead Exemption. 245. Title to Exempt Property. 246. Forfeiture of Exemptions. 247. Abandonment and Waiver of Exemptions. 248. Same; Rights and Remedies of Creditors Holding Waivers. 249. Liens on and Claims Against Exempt Property. 250. Same ; Claims for Unpaid Purchase Money. 251. Jurisdiction of Bankruptcy Court. 252. Claim of Exemptions. 253. Setting Apart Exempt Property. 254. Sale of Property and Allowance of Exemptions Out of Proceeds. 255. Exemptions in Partnership Cases. 256. Dower and Allowances to Bankrupt's Widow. § 238. Exemptions Under Federal Laws. — The bankruptcy act of 1898 makes no specific exemptions to bankrupts except such as may be allowed them by the law of the state of their domicile. In this respect it differs from the act of 1867, which granted to bankrupts an exemp- tion of household and kitchen furniture, wearing apparel, and "other articles and necessaries" to the value of $500, to be set apart by the as- signee.^ But there are certain laws of the United States, not repealed by the bankruptcy act, under which specific property may be claimed as exempt from liability for the debts of the bankrupt. Thus, his mili- tary uniform, arms, and equipment are exempted by an early act of Congress from seizure on judicial process or distress.^ Again, since the bankruptcy law invests the trustee in bankruptcy with title to the bankrupt's property, except "property which is exempt," it is held that land acquired by the bankrupt under the United States homestead law cannot be subjected, in the bankruptcy proceedings, to the pay- ment of any debt contracted by him before the issuance of the patent for such land, it being exempt as to all such debts by the terms of the 1 Rev. Stat. U. S. § 5045. See In re Edglngton v. Taylor (0. C. -A.) 270 Fed. Friend, 3 Woods, 388, Fed. Gas. No. 48, 46 Am. Bankr. Rep. 566. 5,120. A homestead exemption can be 2 Rev. Stat. U. S. § 1628. This exemp- plaimed under the Bankruptcy Act only tion is recognized in the official form No. where given by the laws of the state. 1, Schedule B, 5. Blk.Bke.(3d Ed.)— 35 § 239 LAW OF BANKRUPTCY 546 homestead act.' And a similar decision has been made with reference to land to which an Indian bankrupt was entitled, under an act of Congress allotting in severalty the agricultural lands of the tribe, but providing that the government should hold the lands for twenty-five years in trust for the sole use. and benefit of the several Indian allottees, who were not allowed to convey or incumber the lands during that period of time.* § 239. Pension Money. — An act of Congress provides that "no sum of money due or to become due to any pensioner shall be liable to at- tachment, levy, or seizure by or under any legal or equitable process whatever, whether the same remains with the pension office, or any agent or officer thereof, or is in course of transmission to the pensioner entitled thereto, but shall enure wholly to the benefit of such pension- er." ^ In pursuance of this statute it is held that money received from the United States as a pension, and remaining unchanged in the pen- sioner's hands at the time of filing his petition in bankruptcy, is ex- empt from liability for his debts, and does not pass to his trustee in bankruptcy as assets of his estate.* But after a United States pension check, or the money it represents, has been deposited in a bank,' or placed in the hands of a .third person for safe keeping,* or invested in any species of property,® it is no longer exempt from liability for the pensioner's debts, but may be reached by ordinary judicial process, 3 In re Daubner, 96 Fed. 805, 3 Am. Jones, 166 Fed. 337, 21 Am. Bankr. Rep. Bankr.. Rep. 368 ; In re Cohn, 171 Fed. 536. In the former case it was held 568, 22 Am. Bankr. Rep. 761 ; In re Auge that such money should be listed In the (D. C.) 238 Fed. 621, 39 Am. Bankr. Rep. bankrupt's schedule of assets under the 39. See Rev. Stat. U. S. § 2296. heading of "cash on hand," with the * In re Russie, 96 Fed. 609, 3 Am. statement that he claims It as exempt ; Bankr. Rep. 6. And see In re Grayson, If it is omitted without fraudulent in- 3 Ind. Ter. 497, 61 S. W. 984. tent, the bankrupt may be allowed to in- B Rev. Stat. TJ. S. § 4747. In New York sert it by amendment ; but the liability it is held that money due to a debtor of a voluntary bankrupt to pay the filing from the public authorities as a pen- fees required by the statute does not de- sion, granted under state or municipal pend upon his having property which is law, cannot be reached by a creditor of not exempt, but he is excused from such the pensioner until actually paid over to payment only in case of absolute inabil- the latter. Nagle v. Stagg, 15 Abb. Prac. ity. Hence he may be ordered to pay N. S. (N. Y.) 348. And an annuity or such fees out of pension money remain- pension payable to the bankrupt as a re- ing in his hands at the time of filing his tired civil employee, under either the petition. laws of the state or of the City of ISTew 7 Martin v. Hurlburt, 60 Vt. 364, 14 York, as it is not a vested right, but a Atl. 649. revocable bounty, is not an asset of his s Rozelle v. Rhodes, 116 Pa. St. 129, estate In bankruptcy. In re Hoag (D. 9 Atl. 160, 2 Am. St. Rep. 591 ; Sims v. C.) 227 Fed. 478, 480, 36 Am. .Bankr. Rep. Walsham (Ky.) 7 S. W. 557. 142, 145. 9 Faurote v. Carr, 108 Ind. 123, 9 N. oin re Bean, 100 Fed. 262, 4 Am. E. 350; Robion v. Walker, 82 Ky. 60, 56 Bankr. Rep. 53. But see, contra, In re Am Rep. 878; Jardain v. Fairton Sav- 547 EXEMPTIONS OF BANKRUPT § 240 and will therefore vest in the trustee in bankruptcy as assets of the pensioner's estate. It should be noted, however, that in one state . (Iowa) a statute provides that all money received from the United States government as a pension shall be exempt from execution, whether it be in the actual possession of the pensioner "or deposited, loaned, or invested by him." ^^ Also under the laws and decisions of New York, pension money "may be applied to his support and mainte- nance, may be saved intact for future use, or may be invested by the beneficiary in real or personal property necessary for the maintenance and support of himself and family. Such property is exempt so long as it can be strictly identified as the actual proceeds of the pension. But if the pension is embarked in business enterprises or employed in speculation, which results in intermingling the bounty of the govern- ment with other property interests and rendering the pension funds incapable of identification, then the statutory exemption is lost." And therefore a. bankrupt pensioner cannot claim as exempt real property which was purchased in the first instance partly with pension' money, but out of which he has withdrawn, by way of mortgage, more than the pension money originally put in, and used the money so withdrawn in other ventures.^^ § 240. Exemption Under State Laws. — The bankruptcy statute of 1898 provides that "this act shall not affect the allowance to bankrupts of the exemptions which are prescribed by the state laws in force at the time of the filing of the petition in the state wherein they have had their domicile for the six months or the greater portion thereof immediately preceding the filing of the petition." ^* This adoption of the various state laws as the measure of the exemption to be allowed to bankrupts is not beyond the power of Congress. On the contrary, the constitutional validity of such a provision, in reference to the require- ment that laws on the subject of bankruptcy shall be "uniform" through- out the United States has been fully sustained by the courts.^" And it is held that the section in question is to be liberally construed to ac- ings Fund Ass'n, 44 N. J. Law, 376 ; re Cobb, 1 N. B. R. 414, Fed. Gas. No. Friend v. Garcelon, 7T Me. 25, 52 Am. 2,920. "Exempt" property is property Eep. 739. which is not subject to be taken undei) ' ' . „ ,^„„ „o T„_„„ process for the enforcement of a demand. . o .^f .T ^-^flZ ^- ' Stratton v. Ermis (C. C. A.) 268 Fed. 533, 578, 44 N. W. 819. ^g ^^ ^^^^^ j^^p 125. 11 In re Ellithorpe, 111 Fed. 163, 7 Am, 13 parling v. Berry, 4 McCrary, 470, Bankr. Rep. 18, citing Bank v. Oarpen- j^g ji^^ ggg. Harlin v. American Trust ter, 119 N. Y. 550, 23 N. E. 1108, 7 L. R. cq. 67 Ind. App. 213, 119 N. E. 20. And A. 557, 16 Am. St. Rep. 855. gee supra, § 2, and other cases there 12 Bankruptcy Act 1898, § 6. See In cited. § 240 LAW OF BANKETJPTCT 548 compHsh the purpose of the exemption." The bankruptcy act, it will be •observed, neither enlarges nor diminishes the exemption laws of the states. It simply takes the law of the particular state where the bank- rupt is domiciled, as it exists at the time the proceeding is begun, and adopts it as the measure of the exemption to be allowed."^ Thus, the extent and the duration of a homestead allotment made in a court of bankruptcy will be the same as prescribed by the law of the state.^* And the nature and extent of the state exemption must be ascertained in the mode designated by the state law." Further, it must be noticed that when the act of Congress speaks of the "state laws," as measuring the exemption, it means the statutory law of the state only. Hence an item of property having an actual market value (such as a seat in a stock exchange) which, if exempted from liability to satisfy the debts of the owner, is so exempted by decisions of the state courts, not resting on any exemption by reason of a state statute, but purely on definitions of property, will not be deemed exempt under the bankruptcy act.-*-* In construing the state exemption laws, for the purposes of the bank- ruptcy act, the federal courts will follow the decisions of the highest court of the state, if any applicable rulings are to be found,'-* but they 14 In re Tilden, 91 Fed. 500, 1 Am. Bankr. Rep. 300; Smith v. Thompson, 213 Fed. 335, 129 C. O. A. 637, 32 Am. Bankr. Rep. 165 ; In re Lenters (D. C.) 225 Fed. 878, 35 Am. Bankr. Rep. 3. IB In re Basse tt, 189 Fed. 410, 26 Am. Bankr. Rep. 800; In re Boyd, 120 Fed. 999, 10 Am. Bankr. Rep. 337; In re Staunton, 117 Fed. 507, 9 Am. Bankr. Rep. 79 ; In re Wunder, 133 Fed. 821, 13 Am. Bankr. Rep. 701; In re Manning, 112 Fed. 948, 7 Am. Bankr. Rep. 571 ; Steele V. Buel, 104 Fed. 968, 44 C. C. A. 287, 5 Am. Bankr. Rep. 165 ; In re Andrews & Simonds, 193 Fed. 776, 27 Am. Bankr. Rep. 116 ; In re Bitner, 255 Fed. 48, 166 C. 0. A. 376, 42 Am. Bankr. Rep. 175; In re Hewit (D. O.) 244 Fed. 245, 40 Am. Bankr. Rep. 6 ; In re Gunzberger (D. 0.) 268 Fed. 673, 45 Am. Bankr. Rep. 690. 10 In re Woodard, 95 Fed. 260, 2 Am. Bankr. Rep. 339; Windle.? v. Tankard, 88 N. C. 223. But where the exemption law of the state has been amended by a new statute allotting additional exemp- tions, but such later act is void for want of conformity to the constitutional re- quirements as to amending statutes, a bankrupt who has had set apart to him all the exemptions allowed by the origi- nal act cannot claim anything further under the amending statute. In re Bue- low, 98 Fed. 86, 3 Am. Bankr. Rep. 389. 17 In re Feeley, 3 N. B. R. 66, Fed. Cas. No. 4,714; Sutman v. Hogsett, .70 , Pa. Super. Ct. 180; People's Nat. Bank of Independence v. Maxson, 168 Iowa, 318, 150 N. W. 601. 18 Page V. Edmunds, 187 U. S. 596, 23 Sup. Ct. 200, 47 L,Ed. 318, 9 Am. Bankr. Rep. 277. 19 Libby V. Beverly (O. C. A.) 263 Fed. 63 44 Am. Bankr. Rep. 605; In re Scheier, 188 Fed. 744, 26 Am. Bankr. Rep. 739 ; In re National Grocer Co. (C. 0. A.) 181 Fed. 33, 24 Am. Bankr. Rep. 360 ; In re Cochran, 185 Fed. 913, 26 Am. Bankr. Rep. 459 ; In re Meriwether, 107 Fed. 102, 5 Am. Bankr. Rep. 435 ; In re McCrary Bros., 169 Fed. 485, 22 Am. Bankr. Rep. 161 ; In re Stone, 116 Fed. 35, 8 Am. Bankr. Rep. 416 ; In re Owings, 140 Fed. 739, 15 Am. Bankr. Rep. 472; In re Downing, 148 Fed. 120, 15 Am. Bankr. Rep. 423; In re Stevenson, 93 Fed. 789, 2 Am. Bankr. Rep. 230; In re Camp, 91 Fed. 745, 1 Am. Bankr. Rep. 165; In re Beauchamp, 101 Fed. 106, 4 Am. Bankr. Rep. 151; In re Wyllie, 2 Hughes, 449, Fed. Cas. No. 18,112; South- ern Irr. Co. V. Wharton Nat. Bank (Tex. Civ. App.) 144 S. W. 701. But the decision 549 HXEMPTIONS OF BANKRUPT ■ § 240 are not bound to follow a mere obiter dictum.*" It shoiild also be re- marked that, in setting out the exemption to the bankrupt, it is the "lex domicilii" which governs ; *^ and property which is exempt by the laws of the state where the debtor resides and where the petition is filed will be protected wherever it may actually be situated, and if it is situated in another state, the court will not inquire into the laws of that state to see if it would be there exempt, for that question is entirely immaterial.** But the adoption by the bankruptcy act of the state exemption laws extends so far only as to accord the property to the debtor. Collateral provisions in the state laws, particularly in re- lation to the method of allotting or setting apart the exempt property, are not made a part of the bankruptcy act. In these respects it is the national law, and not the state law, which governs.** By this it is not meant to imply that any substantive provisions of the state law, made a prerequisite to the right to claim an exemption, may be disregarded. On the contrary, such provisions are to be strictly observed. Thus, if the state law grants the exemption to "residents of the state," the bankrupt must answer this condition or he cannot claim the exemp- tion,** and one who is not a citizen of the United States or of the par- ticular state is not entitled to exemptions.** It is so also in regard to the common requirement that the person daiming an exemption must be "the head of a family," *® or a "citizen householder having' a fam- ily." *' The right of exemption must exist, if at all, at the date of the com- mencement of the proceedings in bankruptcy.** But where the bank- rupt is entitled to the exemption at that date, his subsequent removal from the state does not deprive him of the right, though the exemption is for the federal court, and when it is Ga. 559, 15 N. B. R. 515. And see In re about to order sale of the bankrupt's Culwell, 165 Fed. 828, 21 Am. Bankr. Rep. property, a state court will not recognize 614 ; In re Lenters (D. C.) 225 Fed. 878, given property as exempt from seizure 35 Am. Bankr. Rep. 3. and sale, since it should not interfere 24 in re Dinglehoef, 109 Fed. 866, 6 with the federal court's jurisdiction, and ^^^ Bankr. Rep. 242 ; In re O'Hara, 162 could not enforce its decree. Aubrey v. pg^j 325^ 20 Am. Bankr. Rep. 714. Guillaumin, 144 La. 177, 80 South^ 241. ,, j^ ^^ ^gg ^^^ 24 Am. 20 lu re Sullivan, 148 Fed^ 815 78 0. ^^^^^ 3^^ C. A. 505, 17 Am. Bankr. Rep. 578. 1^ iro in ., ..no 10 a . ^ ' „ ^l^^„Tr^„„.^„ T^,-^ 2^ In re Fmklea, 153 Fed. 492, 18 Am. 21 Duncan v. Ferguson-McKmney Dry ' ' o 1 >. ,r< n i \-i^n TTori 9fiq IS Am Bankr. Rep. 738; In re Youngstrom, ]53 Goods Co. (C. 0_ A.) 150 Fed. 269, 18 Am. ^^^ ^^^ ^^ c. C. A. 232, 18 Am. Bankr. Bankr. Rep. 155. Rep. 572; In re GHsson,'182 Fed. 287, 25 T, ,o« '^ f p'°'W 1 fciQ2 romnare Am Bankr. Rep. 911 ; In re McGo^an. R 298, Fed. ^as.No^ 13 392^ Compare ^^^ ^^ ^^ ^^^^^ ^^^ Gibbs V. Logan, 22 W. Va. 208, Camp- h^, t^ ., ^00 or bell-Thorpe Grocer Co. v. Watkins, 135 " In re Rainwater, 191 Fed. 738, 25 Ark. 433, 205 S. W. 826. Am. Bankr. Rep. 419. 23 In re Lynch, 101 Fed. 579, 4 Am. 2s in re Duerson, 13 N. B. R. 183, Fed. Bankr. Rep. 262 ;' Farmer v. Taylor, 56 Cas. No. 4,117. § 241 • LAW OF BANKRUPTCY 550 is only given to residents by the state law.^* So a bankrupt who was engaged in farming until a short time before the adjudication is entitled to the exemptions given by the state law to farmers, though he after- wards engages, temporarily, in another pursuit.** But where, execu- tions being levied on his property, a debtor claims and receives the money allowed to him as exempt, and directly afterwards files his pe- tition in bankruptcy, he cannot then claim another exemption of like amount, to be set apart to him under the bankruptcy law.*^ § 241. Same; Exemption by Value. — Where the state statute, as is often the case, does riot specify the items of property which may be claimed as exempt, but grants to the debtor an exemption of personal property generally (or of property either real or personal) to a value not exceeding a certain sum, it is held that the exemption is in property and not in money, so that a bankrupt must select the items of prop- erty which he wishes set apart to him, not exceeding the designated value, and cannot simply claim an exemption of that much money out of the proceeds of his estate in bankruptcy.** But subject to this con- dition, the exemption may be taken out of cash remaining in the hands of the bankrupt at the time of the adjudication,** or in a vested expectant interest of the bankrupt in a sum of money payable at his death or at the death of another person,** or in real estate if the statute so pro- vides.*' Where the state statute is intended primarily for the benefit of the family rather than of the individual debtor, and grants an ex- emption to either the husband or wife, but with a proviso that the amount allowed to them jointly shall not exceed a certain sum, the rights of a married bankrupt will be determined by the same rule which would govern them in the state courts, and may thus depend on the financial condition of his wife.*® But in the absence of a provision of 29 In re Donahey, 176 Fed. 458, 23 Am. homestead," a bankrupt comes within Bankr. Rep. 796. this description where, although he had 30 In re Fly, 110 Fed. 141, 6 Am. a homestead at the beginning of the pro- Bankr. Eep. 550. ceedlngs, yet the proceeds of its sale 31 In re Miller, 1 Nat. Bankr. News, were not sufficient to pay off the incum- 263. brances upon it. In re Stitt, 252 Fed. 32 In re Ansley Bros., 153 Fed. 983, 18 1, 164 C. C. A. 113, 41 Am. Bankr. Rep. Am. Bankr. Rep. 457 ; In re Baughman, 777. 183 Fed. 668, 25 Am. Bankr. Rep. 167; 33 in re Wilson, 108 Fed. 197, 6 Am. In re Pfeiffler, 155 Fed. 892, 19 Am. Bankr. Rep. 287. Bankr. Eep. 230; In re Staunton, 117 3, i^ ^.^ Bennett, 6 Phila. (Pa.) 472, 2 Fed. 507, 9 Am. Bankr. Rep. 79; In re n. B. R. ISl, Fed. Gas. No. 1,315. Prince & Walter, 131 Fed. 546, 12 Am. ., o at -d t, o^« t, . Bankr. Rep. 675. Where the state law ''^^ ^^ !?7^'^'^'' ^ ^- ^- ^- ^^^' ^^'^■ allows an exemption to a certain amount *^'i®- ^°- 4,293. out of personal property, but only in so in re McCutchen, 100 Fed. 779, 4 case the debtor is "not the owner of a Am. Bankr. Rep. 81. 551 EX13MPTI0NS OF BANKRUPT § 242 this kind, the bankrupt is entitled to claim the full amount of the ex- emption specified in the statute, irrespective of the fact that his wife may own unincumbered property.'" The court of bankruptcy will also give to a bankrupt the benefit of- a state statute exempting his wages earned within a limited time or to a limited amount.** § 242. Same; Exemption of Specific Property. — In many of the states the exemption laws save to the debtor certain specified articles or kinds of property, such as wearing apparel, tools and implements of his trade, domestic animals, or household furniture. So great is the diversity of these statutes that it would' not be profitable here to enter upon a discussion either of their terms or of their interpretation. In each state a bankrupt will be entitled to receive what the state law allows, and the court of bankruptcy, on any disputed construction of the law, will be guided by the decisions of the local courts.** The phrase "wearing apparel" has given rise to much controversy, and particularly as between bankrupts who own watches and jewelry and claim them as exempt and creditors who seek to subject them to their claims. The general weight of authority is to the effect that a gold watch and chain, habitually carried upon the person in the ordi- nary mode of use, is exempt as wearing apparel, at least where the value of the time-piece is not so great as to make it primarily an article of 37 In re Tonne, 13 N. B. K. 170, Fed. Fed. 947, 29 Am. Bankr. Rep. 907. On Cas. No. 14,095. the question of exempting a membership 3 8 In re Holden, 127 Fed. 980, 12 Am. in a stock exchange or chamber of com- Bankr. Hep. 96. merce, having a market value, by reason 3 9 As to a specific exemiilion of a lot of certain benefit or insurance features in a cemetery, see Burdette v. Jackson, in its charter or rules, see In re Nei- 179 Fed. 229, 102 C. C. A. 481, 24 Am. mann, 124 Fed. 738, 10 Am. Bankr. Sep. Bankr. Rep. 127. As to claiming an ex- 739. As to whether a liquor license can emption out of a stock of goods in trade, be claimed as a part of the expmption, see In re Wilson, 108 Fed. 197, 6 Am. see In re Olevs'ine, 125 Fed., 840, 11 Am. Bankr. Rep. 287. Concerning the effect Bankr. Rep. 40; In re Myers, 102 Fed. of a state Insolvency la^v, granting to the 869, 4 Am. Bankr. Rep. 536. As to the debtor an allowance for the support of exeinption of growing crops, see In re T. his family, see In re Anderson, 110 Fed. C. Burnett & Co., 201 Fed. 162, 29 Am. 141, 6 Am. Bankr. Rep. 555. As to a Bankr. Rep. 872; In re Friedrich, 199 state law exempting "wages or salary," Fed. 193, 28 Am. Bankr. Rep. 656. Where see In re Pears, 205 Fed. 255, 30 Am. the bankrupt is a "polyartist," or pursues Bankr. Rep. 563; In re Vonhee (D. C.) several different mechanical trades at 238 Fed. 422, 38 Am. Bankr. Rep. 799. the same time, he is not required to limit On the construction of a statute exempt- his claim for exemption of tools and im- ing the "best ^wine or meat of a swine," plements to those appropriate for the see In re Llbby, 103 Fed. 776, 4 Am. pursuit of any one of his trades, but may Bankr. Rep. 615 ; Bank of Nez Perce v. select those suitable for all his trades, Pindel, 193 Fed. 917, 113 C. C. A. 545, 28 provided he does not exceed the total Am. Bankr. Rep. 69. On the exemption amount of the exemption in value. In of earnings necessary for the support of re Robinson,' 206 Fed. 176, 30 Am. Bankr. a debtor's family, see In re Condon, 198 Rep. 686. § 242 LAW OF BANKRUPTCY 552 ornament rather than of mere utility.** But it seems that if the statute only exempts "necessary wearing apparel," a watch is not included.*^ The question also occurs whether a watch carried by a mechanic may be regarded as a tool or implement, of his trade, so as to be exempt under that designation. The few authorities on this point have held that, if the bankrupt can show that it is necessary for him to have a watch in order to carry on his trade, he will be allowed to claim as ex- empt such a watch as would be proper and sufficient for that purpose, but that if the watch which he owns is more valuable than it need be for use in his trade, he must account to his creditors for the difference.** As to articles of jewelry, if they are only carried as ornaments, they are not exempt under the description of "wearing apparel." *^ But in one instance the court allowed the bankrupt to retain as exempt a diamond stud which he habitually wore in the front of his shirt and for the pur- pose of fastening the shirt together (thus giving at least the color of usefulness to the article in question), there being no circumstances connected with its acquisition or use tending to show fraud or bad faith towards his creditors.** The term "wearing apparel" may also include the uniform or regalia of a fraternal order to which the bankrupt be- longs, although he does not wear it as an ordinary and usual dress, but only on special occasions.*® Where the statute exempts the tools or implements of a mechanic or artisan necessary to the carrying on of his trade, the term is under- stood to apply only to such simple instruments as are operated by hand, and it cannot be stretched so as to allow the bankrupt to claim an ex- emption of expensive and complicated machinery propelled by steam, *o In re H. L. Evans & Co., 158 Fed. re H. L. Evans & Co., 158 Fed. 153, 19 153, 19 Am. Bankr. Rep. 752; In re Am. Bankr. Rep. 752, where the court Jones, 97 Fed. 773, 3 Am. Bankr. Rep. allovs'ed as exempt, under the statutory 259 ; In re Freeman, 2 iNat. Bankr. News, description of "wearing apparel," not 569 ; In re Steele, 2 Flip. 324, Fed. Gas. only a gold watch and chain, but also No. 13,346; Sellers v. Bell, 94 Fed. 801, rings and scarf-pins set with diamonds, 36 C. C. A. 502, 2 Am. Bankr. Rep. 529 ; sapphires, rubies, and pearls, aggregating Stewart v. McClumg, 12 Or. 431, 8 Pac. over $400 in value. But later decisions 447, 53 Am. Rep. 374; Brown v. Ed- refuse to recognize diamond rings as monds, 5 S. Dak. 508, 59 N. W. 731. Con- allowably exempt under the description tra, In re Bverleth, 129 Fed. 620, 12 Am. of wearing apparel or otherwise. Rivas Bankr. Rep. 236. v. Noble, 241 Fed. 673, 154 O. O. A. 431, 41 In re TurnbuU, 106 Fed. 667, 5 Am. 39 Am. Bankr. Rep. 785 ; Langever v. Bankr. Rep. 549. Stitt, 237 Fed. 83, 150 C. C. A. 285, 38 ■42 In re CoUer, 111 Fed. 503, 7 Am. Am. Bankr. Rep. 446. Bankr. Rep. 131; In re TurnbuU, 106 **In re Smith, 96 Fed. 832, 3 Am. Fed. 667, 5 Am. Bankr. Rep. 549. And Bankr. Rep. 140. see In re Everleth, 129 Fed. 620, 12 Am. is In re Jones, 97 Fed. 773, 3 Am. Bankr. Rep. 236. Bankr. Rep. 259. But compare In re *3 In re Gemmell, 155 Fed. 551 ; In re Evei'leth, 129 Fed. 620, 12 Am. Bankr. Kasson, Fed. Cas. No. 7,616. But see In Rep. 236. 553 EXEMPTIONS OP BANKRUPT ' § 242 electricity, or other power.*® But within the meaning of such a .stat- ute, a baker is a mechanic,*' and so is an undertaker and embalmer,** and a farmer may claim as exempt a mechanical cream separator.*® A professional guide in the Maine woods is entitled to the exemption of a canoe as a tool of his trade, but (so the court seriously held) not his rifle.*" A horse and wagon may be so strictly necessary to the con- duct of the bankrupt's business as to be exempt under the designation of implements of his trade." But where the statute exempts "two horses kept and used for team work," a bankrupt is not entitled to claim as exempt a horse kept and used only as a racer.*' Where the statute exempts "one dray or truck, by the use of which a drayman or truckman habitually earns his living," it. is possible that an automobile truck may be exempt, but not unless it is clearly shown that the bankrupt habitually earns his living by the use of it.*^ The burden of proving that an article alleged to be exempt is within the provisions of the statute rests upon the bankrupt.** And he must select his exemption in kind, and cannot ordinarily wait until the prop- erty has been sold and then claim the maximum value of his exemp- tion in money from the proceeds."' And a bankrupt who dops not happen to own any articles of the kind or class mentioned in the stat- ute (tools, domestic animals, or the like) will not be entitled to receive out of his estate a commutation of their value in money.** But if arti- cles .strictly within the exemption law have been wrongfully taken by creditors, before the bankruptcy proceedings, on attachment, execution, or distress, and sold, the bankrupt will still be entitled to claim and re- ceive the allowance of his exemptions, the sale being declared void or the money ordered refunded by the creditors or by the sheriff if still in the latter's hands.*' And there is also authority for holding that a 46 Peyton v. Farmers' Nat. Bank of ss in re Schumm (D. 0.) 232 Fed.. 414, Hillsboro (O. C. A.) 261 Fed. 326, 44 Am. 36 Am. Bankr. Eep. 427. Bankrl Rep. 295. eijn re Tumbull, 106 Fed. 667, 5 Am. * 7 In, re Osborm, 104 Fed. 780, 5 Am. Bankr. Rep. 549. Bankr. Rep. Ill ; In re Petersen, 95 Fed. 55 j^ re Blamcliard, 161 Fed. 793, 20 417, 2 Am. Bankr. Rep. 630. Am. Bankr. Rep. 417 ; In re Grady, 138 westerner v. MarshaU, 140 Fed. 710, Fed. 935, 14 Am. Bankr. Rep. 738 ; In re 72 C. C. A. 103, 15 Am. Bankr. Rep. 486. Gunzberger (D. C.) 268 Fed. 673, 45 Am. 49 In re Hemstreet, 139 Fed. 958, 14 Bankr. Rep. 690. Am. Bankr. Rep. 823. , „ ., „ . , , t.t i. t. ■ 50 In re Mullen, 140 Fed. 206, 15 Am. ^ '' 1° /„« ? "^^. r' otS V l^^^T' ■R t -R 97f5 News, 513 ; In re Williams, 2 Nat. Bankr. •'fin re Conley, 162 Fed. 806, 19 Am. ^ejs /19- ^''^ «f '^ '^\^^^°''' ^' Bankr. Rep. 200; In re Hindman, 104 ^^^- 86, 3 Am. Bankr. Rep. 389. Fed. 331, 43 O. 0. A. 558, 5 Am. Bankr. e 7 in re Martin, 2 Hughes, 418, 13 N. Rep] 20. B. R. 397, Fed. Cas. No. -9,152 ; In re 52 In re Mbby, 103 Fed. 776, 4 Am. Bills, 1 N. B. R. 555, Fed. Cas. No- 4,400; Bankr. Rep. 615. Williams v. Miller, 16 Oonn. 144. § 243 r.AW OF BANKRUPTCY 554 judgment recovered by a debtor against one who has unlawfully levied upon and sold his exempt property stands in place of the exemption and cannot be reached by creditors.'* And it appears that the same doctrine applies to money due to the bankrupt ffom an insurance com- pany as indemnity for the loss of his exempt property by fire.'" I § 243. Policies of Life Insurance. — The seventieth section of the present bankruptcy act, which describes the property the title to which is vested in a trustee in bankruptcy, contains the following proviso: ■"That when any bankrupt shall have any insurance policy which has a cash surrender value payable to himself, his estate, or personal rep- resentatives, he may, within thirty days after the cash surrender value has been ascertained and stated to the trustee by the company issuing the same, pay or secure to the trustee the sum so ascertained and stated, and continue to hold, own, and carry such policy free from the claims of the creditors participating in the distribution of his estate under the bankruptcy proceedings, otherwise the policy shall pass to the trustee as assets." At first the courts were disposed to hold that this proviso was a specific limitation upon the sixth section of the act, which secures to the bankrupt in general terms the benefit of the exemption law of the state, and that therefore the title to such a policy would vest in the trustee, notwithstanding the fact that it was exempt under the state laws.*** But a contrary doctrine has prevailed. Attention has been given to the important phrase in the seventieth section which restricts the general language vesting the trustee with title to the bankrupt's property, by adding "except in so far as it is property which is exempt." And it is now held that the entire seventieth section is limited in its application, by its own terms and by section six, to property which is not exempt under the law of the state, and that the proviso above quoted applies only to insurance policies which are not so exempt. The proviso is intended to give the bankrupt the preferred right to retain a non- exempt policy on paying its cash surrender value. But if the policy is exempt under the stafe law, it is exempt in the bankruptcy pro- ceeding, and the bankrupt is not obliged to pay or secure its surren- der value in order to retain it as his own.*^ But if the laws of the osTillotson V. Wolcott, 48 N. X. 188. 25 Sup. Ct. 656, 49 L. Ed. 1018, 14 Am. 5 Sands v. Roberts, 8 Abb. Prac. (N. Bankr. Rep. 94; In re Johnson, 176 Fed. T.) 343. 591, 24 Am. Bankr. Rep. 277; In re Hold- «o In re Scheld, 104 Fed. 870, 44 0. O. en, 114 Fed. 650, 52 C. C. A. 346; Steele A. 233, 52 L. R. A. 188, 5 Am. Bankr. Rep. v. Buel, 104 Fed. 968, 44 C. C. A. 287, 5 102; In re Lange, 91 Fed. 361, 1 Am. Am. Bankr. Rep. 165; Pulsifer v. Hus- Bankr. Rep. 189 ; In re Steele, 98 Fed. sey, 97 Me. 434, 54 Atl. 1076 ; Dreyfus v. 78, 3 Am. Bankr. Rep. 549. Barton, 98 Miss. 758, 54 South. 254 ; n laws does not create any such lien on specific property as will be preserved by the bankruptcy act,"® nor does it make that creditor a "secured" creditor, within the meaning of the law."" It merely gives him an individual 140 In re French (D. C.) 231 Fed. 255, 139, 13 Am. Bankr. Rep. 142; Hallman 37 Am. Bankr. Rep. 289. v. Hallman, 124 Pa. St. 347, 16 Atl. 871; 1*1 In re Sauthoff, 7 Biss. 167, 14 N. Hall v. Fulghiim, 86 Tenn. 451, 7 S. W. B. B. 364, Feci. Cas. No. 12,379. 121; In re Poleman, 5 Biss. 526, 9 N. 142 McICenney v. Cheney, 118 Ga. 387, B. R. 376, Fed. Cas. No. 11,247; In re 45 S. E. 433; Smith v. Zlachry, 121 Ga. Becker, 2 Nat. Bankr. News, 202. 467, 49 S. E. 286. ne in re Jloran, 105 Fed. 901, 5 Am. 148 In re Bolinger, 108 Fed. 374, 6 Am. Bankr. Rep. 472; In re Hopkins, 1 Nat. Bankr. Rep. 171. Bankr. News, 71; Coffey v. Mitchell, 144 In re Brown, 1 Nat. Bankr. News, 139 Ga. 430, 77 S. B. 561. 2.30. 1*' l-'irst Nat. Bank v. Hollinsworth, 78 145 In re Nye, 133 Fed. 33, 66 C. C. A. Iowa, 575, 43 N. W. 536, 6 L. R. A. 92. 569 EXEMPTIONS OP BANKRUPT § 248 right of recourse against the property which is or will be set apart to the bankrupt as his exemption.^** And even this right must be worked out independently of the proceedings in bankruptcy. Since the debtor's exempt property does not vest in the trustee, the court of bankruptcy has nothing to do with it except to allot and set it apart to the bankrupt. Before it is so ascertained and set apart, it is in the temporary posses- sion and control of the trustee and therefore in the custody of the law, and a creditor having recourse against it by virtue of a waiver will not be allowed to attach it or levy an execution on i,,^** alhough, where he holds a mortgage Avaiving exemptions and coupled with a delegation of authority to him to select the exempt property, which is permitted under the law of the particular state, the mortgagee will be entitled to select and hold the property which the bankrupt might otherwise have chosen as his exemption.^*" Also it is held that where the bankrupt's exemption is to be set apart to him, not in the form of specific articles of property, but as so much out of a fund in court realized from the sale of his assets, the court of bankruptcy has jurisdiction to determine the claims of creditors holding waivers and to order their payment out of the sum which otherwise would have been turned over to the bank- rupt.*®'^ But this is nearly as far as its authority can be made to extend. When the bankrupt has no other property except such as is exempt under the state law, or when the property which he is entitled to hold as exempt has been set apart to him, or is definitely ascertained and ready for relinquishment to him, then the court of bankruptcy has no jurisdiction or authority to retain the possession or control of such property for the purpose of administering it for the benefit of creditors holding waivers, or of adjudicating and enforcing their claims against it."^ Such creditors must therefore obtain their redress in the state 148 Scott V. Cheatham,' 78 Va. 82. Am. Bankr. Eep. 107; In re Remmerde, 14,9 Byrd V. Harroia, 18 N. B. R. 433, 206 Fed. 822, 30 Am. Bankr. Rep. 701; I'ed. Gas. No. 2,269; In re Sorg, 155 Fed. In re Batten, 170 Fed. 688; Bell v. Daw- 550. See In re MacKlssic, 171 Fed. 259, son Grocery Co., 120 Ga. 628, 48 S. B. 22 Am. Bankr. Rep. 817. 150; In re Black, 104 Fed. 289, 4 Am. 100 In re National Grocer Co. (C. C. A.) Bankr. Rep. 776; Woodruff v. Cheeves, 181 Fed. 83, 24 Am. Bankr. Rep. 360. 105 Fed. 601, 44 0. C. A. 631, 5 Am. 151 In re MacKissic, 171 Fed. 259, 22 Bankr. Rep. 296; In re Moore, 112 Fed. Am. Bankr. Rep. 817; In re llighfield, 289, 7 Am. Bankr. Rep. 285; In re 163 Fed. 924, 21 Am. Bankr. Rep. 92; Swords, 112 Fed. 661, 7 Am. Bankr. Rep. In re Renda, 149 Fed. 614, 17 Am. Bankr. 486; In re Hill, 96 Fed. 185, 2 Am. Rep. 521; In re Sloan, 135 Fed. 878, 14 Bankr. Rep. 798; In re Camp, 91 Fed. Am. Bankr. Rep. 435. Compare In re 745, 1 Am. Bankr. Rep. 165; In re Bass, Grimes, 96 Fed. 529, 2 Am. Bankr. Rep. 3 Woods, 382, 15 N. B. R. 453, Fed. Gas. 730; In re Goldberg (D. C.) 254 Fed. 440, No. 1,091; In re Haas (D. C.) 213 Fed. 42 Am. Bankr. Rep. 299. 694, 32 Am. Bankr. Rep. 284; In re i = 2Lockwoodv. Exchange Bank, 190 U. Cheatliain (D. C.) 210 Fed. 370, 31 Am. S. 294, 23 Sup. Ct. 751, 47 L. Ed. 1061, 10 Bankr. Rep. 520; In re Anderson (D. C.) § 248 LAAV OF BANKRUPTCY 570 courts. To enable them to do this, the court of bankruptcy may stay the proceedings in bankruptcy until the rights of such creditors shall have been determined in the proper forum/^* or withhold the bank- rupt's discharge (the granting of which would extinguish the debt) until the waiver creditors have opportunity to resort to such remedies as may be granted by the state courts,"* and the bankruptcy court will not enjoin such a creditor from prosecuting an attachment suit in a state court against property claimed by the bankrupt as exempt, or at any rate, not longer than until the property shall have been set apart as exempt by the trustee.-'®® As to the nature of the creditor's remedy in the state courts there has been some difference of opinion, diverse rules being established in the two states where these questions seem chiefly to have arisen, viz., Georgia and Pennsylvania. In the former state, the Supreme Court has reached the conclusion that the creditor holding a waiver has no remedy at lav/, not being allowed to sue the debtor while the proceedings in bankruptcy are pending. But he has a remedy in equity, by means of a bill praying a special decree (in the nature of a judgment in rem) against the exempt property, together with the appointment of a re- ceiver to take charge of the property if it is perishable or in danger of being wasted, and also an injunction to forbid the debtor from demand- ing and receiving it from the hands of his trustee in bankruptcy.^"* And the creditor is not precluded from taking this course by the fact 224 Fed. 790, 35 Am. Bankr. Rep. 487; A.) 200 Fed. 736, 29 Am. Bankr. Rep. Schexnailder v. Fontenot, 147 La. 467, 619. 85 South. 207. There have been a num- isii b. F. Roden Grocery Co. v. Bacon, ber of decisions of the federal courts 133 Fed. 515, 66 C. C. A. 497, 13 Am. contrai-y to the rule stated in the text, Bankr. Rep. 251. but they are inconsistent with the de- i^o Fidelity Produce Co. v. Perdue, 134 cision in Lpckwood v. Exchange Bank, Ga. 778, 68 S. E. 503; Arnwlne v. Beav- supra. See In re Sisler, 96 Fed. 402, 2 er, 134 Ga. 377, 67 S. E. 937; Perry v. Am. Bankr. Rep. 760; In re Poleman, Britt-Carson Shoe Co., 129 Ga. 560, 59 5 Biss. 526, 9 N. B. R. 376, Fed. Cas. No. S. E. 216, 121 Am. St. Rep. 232; Bell 11,247; In re Garden, 93 Fed. 423, 1 Am. v. Dawson Grocery Co., 120 Ga. 628, 48 Bankr. Rep. 582; In re Graves, 2 ISfat. S. E. 150; Hudson v. Lamar, Taylor & Bankr. News, 469; In re Bragg, 2 Nat. Riley Drug Co., 121 Ga. 835, 49 S. E. Bankr. News, 82; In ra Solomon, 2 735; Wright v. Home, 123 Ga. 86, 51 S. Hughes, 164, 10 N. B. R. 9, Fed. Cas. No. E. 30; Brandt v. Hofmayer Dry Goods 13,106; In re Judkins, 2 Hughes, 401, Co., 146 'Ga. 649, 92 S. E. 53. A judg- Fed. Cas. No. 7,560. ment on three notes, one of which was i5« In re W. C. Allen & Co., 1S4, Fed. "««rious, and all of which waived home- 020, 13 Am. Bankr. Rep. 518. stead exemption, was held enforceable against property set apart as exempt in 'io4 Lock wood V. Exchange Bank, 19u bankruptcy for the amount of the two U. S. 294, 23 Sup. Ct. 751, 47 L. Ed. 1061, notes not afCected by usury, the waiver 10 Am. Bankr. Rep. 107; Bell v. Dawson in the usurious note being invalid. Grocery Co., 120 Ga. 628, 48 S. E. 150; Floyd v. .Tohnson, 142 Ga. 833, 83 S. E. H. S. Meinhard & Bro. v. Plncus (C. C. 943. 571 EXEMPTIONS OF BANKRUPT § 249 that he filed his claim in the court of bankruptcy and had notice of the setting apart of the exemption and did not object thereto.^®'' In Penn- sylvania, on the strength of the doctrine that the title to exempt prop- erty never vests in the trustee in bankruptcy, it is held that a judgment creditor holding a waiver may have the sheriff levy upon and sell the exempt property at any time before the final discharge of the bank- rupt,^^ but he must first file his claim in the bankruptcy proceedings.^^" Where a debtor has waived his right of exemption as to one of his creditors, but not as to others, the equitable principle of marshalling assets will require the creditor having a right to resort to the exempt property to exhaust his remedies against that fund before coming upon the general estate of the debtor in competition with the creditors who have no such rights against the exempt estate.^^ Where a bankrupt assigns a fund in the hands of his trustee in bankruptcy which has been set apart to him under his exemption claim, and notice of such assign- ment is given to the trustee and also to the attorney of a creditor of the bankrupt who subsequently issued an attachment against the fund under a judgment waiving exemption, the assignee has priority in the distribution of the fund over the attaching creditor, and the attachment will be dissolved.^®^ § 249. Liens on and Claims Against Exempt Property. — Proceed- ings in bankruptcy do not destroy existing liens on the bankrupt's exempt property. On the contrary, such liens, attaching before the com- mencement of the proceedings, and whether created by legal proceed- ings or by the act of the debtor, follow the property into the bank- ruptcy and are not obliterated or extinguished by the setting apart to him of such property as exempt,"* nor by his discharge in bankrupt- 15 7 Jackson v. Edwards, 130 Ga. SS8, any more than the bankrupt himself 72 S. E. 341. tould. • 168 First Nat. Bank of Sayre v. Bart- i^o Claster v. SoMe, 22 Pa. Super. Ct. lett, 35 Pa. Super. Ct. 593; Greenfield v. 631. Golder, 42 Pa. Super. Ct. 462. But see ^"o Hallman v. Hallman, 124 Pa. 847, In re Guuzbeiger (D. C.) 2GS Fed. 673, 16 Atl. 871; Shelley's Appeal, 36 Pa. 373; 45 Am. Bankr. Rep. 690, holding that a In re SauthofC, 7 Biss. 167, Fed. Gas. No. creditor in whose favor the debtor had 12,379. before bankruptcy waived exemption, loiLa Barre v. Doney, 53 Pa. Super, and who had secured an execution lien Ct. 435. upon the property within four months "2 Kener v. La Grange Mills, 231 before bankruptcy, cannot claim under V. S. 215, 34 Sup. Ct. 83, 58 L. Ed. 189; his lien on the exempt property, which In re Lightstone (D. C.) 253 Fed. 456, 41 alone was unaffected by the bankruptcy Am. Bankr. Eep. 619; In re J. E. May- proceedings, the difference in money be- nard & Co., 183 Fed. 823, 25 Am. Bankr. tween the value of the exempt property Eep. 732; Northern Shoe Co. v. Cecka, claimed by the bankrupt and the |300 22 N. D. 631, 135 N. W. 177; Powers allowed by the state law, since he cannot Dry Goods Co. v. Nelson, 10 N. D. 580, follow the proceeds of exempt property, 88 N. W. 703, 58 L. R. A. 770: Dozier v. S 249 LAW OF BANKRUPTCY 572 (,y 163 This, of course, is on the assumption that the lien would have been valid if attaching to other property. For a lien by attachment, garnishment, etc., which is avoided by the adjudication of the debtor as a bankrupt within four months after its creation, is none the less avoided because it concerns or attaches to exempt property.^®* Grant- ing this premise, the mortgaging of exempt property to a creditor is not against public policy, and a mortgage of such property, good against the debtor under the law of -the state, will be good as against his trus- tee in bankruptcy.^*® And it is no defense to an action to foreclose a mortgage that the mortgaged premises were allotted to the mortgagor as a homestead by proceedings in the court of bankruptcy.^*^ But if a mortgage covers an aggregate of property, only a part of which is exempt from execution, and its lien is avoided by the subsequent in- stitution of proceedings in bankruptcy, and the bankrupt waives his right of exemption, the lien is divested as to all the property, for the mortgagee cannot claim for the debtor a benefit which he waives for himself.'-®''' And one taking a mortgage on a parcel of land claimed as a homestead, after a decree declaring that it is not exempt as such, may be summarily ordered to release his security, and without the formality of a plenary proceeding at law or in equity."* The extent of the jurisdiction of the court of bankruptcy over ex- empt property on which creditors claim liens has been involved in some confusion and uncertainty. But it may be said, in the first place, that the mere fact that homestead or other exempt property has been mort- gaged to certain creditors does not make it assets to be administered McWhorter, 113 6a. 584, 39 S. B. 106; N. C. 310, 90 S. B. 314; F. Mayer Boot Currier v. King, 81 Vt. 285, 69 Atl. 873; & Shoe Co. v. Ferguson, 19 N. D. 496, Gregory Co. v. Gale, 115 Minn. 508, 133 126 X. W. 110. Conipiire Groves v. Os- N. W. 75, 37 L. R. A. (N. S.) 156; New- burn, 46 Or. 173, 79 Pac. 500. berry Shoe Co. v. Collier, 111 Va. 288, i64 Chicago, B. & Q. R. Co. v. Hall, 229 68 S. E. 974; Thole v. Watson, 6 Mo. U. S. 511, 33 Sup. Ct. 885, 57 L. Ed. 1306, App. .'02; Dixon v. Lawson, 65 Ga. 661; 30 Am. Bankr. Rep. 619; Southern Pa- Hiley v. Bridges, 60 Ga. 375; Bush v. cific Co. v. I. X. L. Furniture & Carpet Lester, 55 Ga. 579, 15 N. B. R. 36; Rob- Installment House, 44 Utah, 472, 140 inson v. Wilson, 15 Kan. 595, 22 Am. Pac. 665. Compare Bank of Mendon v. Rep. 272, 14 N. B. B. 565. In granting Mell, 185 Mo. App. 510, 172 S. W. 484. an exemption to a bankrupt, the court les In re National Grocer Co. (C. C. A.) will order that it shall not affect or 181 Fed. 33, 24 Am. Bankr. Eep. 360; In prejudice the wife's rights to alimony re Bitner, 255 Fed. 48, 166 0. C. A. 376, chargeable upon real estate claimed as 42 Am. Bankr. Rep. 175. a homestead. In re Garrett, 2 Hughes, loe Brady v. Brady, 71 Ga. 71; Brown 235, 11 N. B. R. 493, Fed. Cas. No. 5,252. v. Hoover, 77 N. C. 40. 363 Long V. BuUard, 117 U. S. 617, 6 107 in re SchuUer, 108 Fed. 591, 6 Am. Sup. Gt. 917, 29 L. Ed. 1004; In re Weav- Bankr. Eep. 278. And see In re Tune, er (D. C.) 144 Fed. 229, 16 Am. Bankr. 115 Fed. 906, 8 Am. Bankr. Eep. 285. Rep. 265; Fowler v. Wood, 26 S. C. 169, los in re Boothroyd, 15 N. B. R. 368, 1 S. E. 597; Watters v. Hedgpetli, 172 Fed. Cas. No. 1,653. 573 EXEMPTIONS OP BANKRUPT § 249 in bankruptcy."* And a court of bankruptcy has no authority to allot the bankrupt's exemption in specie, or order the payment of the amount of his exemption in money, to a mortgagee or to any one but the bankrupt himself.^'** Yet as the court has jurisdiction to "determine the claims of bankrupts to their exemptions," it has power to decide questions mcidental thereto and hence may, in a proper case, adjudicate the ques- tion whether or not a legal or equitable lien claimed by a creditor upon exempt property is valid. ^''■^ And, to do justice to all concerned, where it is necessary to send the creditor to the state court for relief, the court of bankruptcy may so far aid him as to withhold the granting of a discharge to the bankrupt until the creditor shall have been af- forded a reasonable opportunity to test his rights,"* or direct the trustee in bankruptcy to hold the fund out of which the exemption is claimed until proceedings to determine the right thereto can be institut- ed in a court of competent jurisdiction.'"^ But the court has no au- thority to hold in custody the exempt property of a bankrupt to await the determination of an action in tort against him in a state court, since his discharge would not be a bar to a recovery therein."* Neither will it entertain the bankrupt's petition for an injunction to restrain a creditor from selling the exempt property on an execution issued be- fore the bankruptcy, the remedy, if any, being in the state court."^ Where a homestead exemption is claimed out of property of larger value than the limit of the exemption as fixed by the state law, or where the lien of a creditor covers both exempt and non-exempt property, the circumstances of the case may make it proper for the bankruptcy court to partition the property, incidentally adjudging the creditor's lien to attach to the specific parcel set apart as exempt, or to order its sale as a whole and satisfy the lien-creditor out of the proceeds.^'" Or, if the homestead has been sold under foreclosure of a mortgage upon it, and it is thought that the property is more valuable than the amount 16 9 In re Bailey, 176 Fed. 990, 24 Am. ii's In re Castleberry, 143 Fed. lOlS, 16 Bankr, Eep. 201; In re Sinnett, 4 Sawy. Am. Bankr. Rep. 159. 250 Fed Cas No. 12,90T. "4 in re Hartsell & Sou, 140 Fed. 30, 170 In 're Blanchard & Howard, 161 ^^f,"J- ^^'^'L'- ?'^, "''t, ,, ^^o ^. ,-, , „r.f. o,^ » T. i,„ T3„r^ A09 ■ Tn 1" In re Hunt, 5 N. B, R. 493, Fed. Fed^ 797, 20 f ^.I;ankr_„^^P-, "^^1 '" Cas. No. 6,883 ; In re Pohlig (D. C.) 236 re Paramore & Bicks, 156 Fed. 211, 19 ^^^ ^^^^ ^^ ^^ ^^^^^ ^^^ ^ Am. Bankr. Eep. 130. ^^^ ^^ ^^ ^^^,^^^^ ^^^ ^^^ ^^^^ g ^^ I'l In re Lucius, 124 Fed. 455, 10 Am. Bankr. Eep. 255; In re Thomas, 96 Fed. Bankr. Rep. 653; Smalley v. Laugenour, 325^ 3 ^m Bankr. Eep. 99; In re Betts, .30 Wash. 307, 70 Pac. 786. Compare In 4 Dm 93^ ^5 N. B. E. 536, Fed. Cas. No. re Little, 110 Fed. 621, 6 Am. Bankr. ^^ 3^3^ . ^^^^^ ^ Munn, 155 Cal. 228, 100 Eep. 681. Pac. 694; In re Stout, 109 Fed. 794, 6 17 2 In re Brumbaugh, 128 Fed. 971, 12 Am. Bankr. Eep. 505. But compare In- Am. Bankr. Eep. 204. See In re Tune, gram v. Wilson, 125 Fed. 913, 60 C. 0. 115 Fed. 906, 8 Am. Bankr. Eep. 285. A. 618, 11 Am. Bankr. Eep. 192. § 249 LAW OF BANKnUPTCT 574 allowed by the state law as exempt, the court may authorize the trus- tee in bankruptcy to redeem from the foreclosure, arid in that case the bankrupt will have the same right to redeem from the trustee that he would have had to redeem from the foreclosure purchaser."'' A mort- gage covering both exempt and non-exempt property, and which con- stitutes an unlawful preference, is voidable by the mortgagor's trustee in bankruptcy only as to the non-exempt property."* But the law will not sanction any dishonest attempt on the part of the debtor to reduce the indebtedness on his homestead at the expense of his general credi- tors. Hence, where it appeared that the debtor, shortly before filing his voluntary petition in bankruptcy, and in contemplation thereof, had sold property which was not exempt from execution and applied the proceeds in part payment of a debt secured by a mortgage on property claimed to be exempt as a homestead, it was held that the transaction was in fraud of the bankruptcy law, and that the trustee in bankruptcy, for the benefit of the creditors, should be subrogated to the rights of the mortgagee to the extent of the money so paid."® But generally, when the trustee has set apart property to the bankrupt as exempt, and his action has been approved, and the bankrupt has taken posses- sion, such property passes out of the jurisdiction of the court of bank- ruptcy, and that court cannot thereafter entertain proceedings either to defend the property against adverse claims or liens or to subject it to liens or adjudicate the rights of claimants thereto.'** But the state courts have jurisdiction to enforce any specific lien upon exempt property of a bankrupt,'*"^ and proceedings for the fore- closure of a mortgage on property which the bankrupt claims as a home- stead should be brought against the bankrupt himself, and not againsir his trustee. ■"^"^ On the other hand, the action of a federal court in bank- ruptcy in setting apart to a bankrupt the exemption which the state law allows him has exactly the same effect as if it had been granted and allowed by the proper state court in a proceeding before it, and the property is not any more subject to levy and sale on the part of subse- quent creditors in the one case than in the other.-'** 11^7 Swenson v. Halberg, 1 McOrary, 96, Baiikr. Rep. 681 ; In re Grimes, 96 Fed. 1 Fed. 444. 529, 2 Am. Banlsr. Rep. 730 ; In re Hatch, 17 8 In re Bailey, 176 Fed. 990, 24 Am. 102 Fed. 289; Bogart v. Cowboy State Bankr. Rep. 201 ; Morris v. Covey (Ark.) Bank & Trust Co. (Tex. Civ. App.) 182 148 S. W. 257. S. W. 678. But see In re Hassler, 204 17 In re Boston, 98 Fed. 587, 3 Am. Fed. 139, 29 Am. Bankr. Rep. 502. Bankr. Rep. 388. But compare In re isi Robinson v. Wilson, 15 Kan. 595, Henkel, 2 Sawy. 305, Fed. Oas. No. 6,362. 22 Am. Rep. 272. And see In re Jackson, 116 Fed. 46, 8 Am. "2 Dendel v. Sutton, 20 Fed. 787. Bankr. Rep. 594. "a Smith v. Zachry, 115 Ga. 722, 42 S, 180 In re Little, 110 Fed. 621, 6 Am. E. 102; Evans v. Rounsaville, 115 Ga. 575 KXEMPTIONS OF BANKRUPT § 250 § 250. Same; Claims for Unpaid Purchase Money. — In several states it is provided by law that the grant of an exemption of property to a debtor^fihall not prevail as against a claim for the unpaid purchase money of the property in question. Where this is the case, the debtor's rights are not enlarged by his adjudication in bankruptcy. The fed- eral statute was not intended to override a provision of this character. On the contrary, it adopts the state exemption law as a whole, and therefore, in such states, a bankrupt cannot claim to have property set apart to him as exempt when he has not paid for it.^** But as the ex- emption law is a remedial and beneficial statute, any exception to it should be construed with some strictness. Hence it is held that an in- debtedness fpr borrowed money which was used in the purchase of the property claimed as exempt is not an "obligation contracted for its purchase," within the meaning of the state law,'*^ and that a bankrupt is entitled to goods exempted by the state statute, although they were paid for out of the proceeds of goods which were not paid for.^** More- over the particular creditor, to be entitled to object to the bankrupt's claim, must have taken the steps required by the state law, such as reducing his claim to a judgment.'^*' And the unpaid creditor is the only proper person to raise the objection, not the trustee in bankrupt- cy.^** An allowance of exemptions in bankruptcy out of a stock of 684, 42 S. E. 100 ; Collier v. Simpson, 74 Nat. Bank of Hillsboro (O. C. A.) 261 Ga. 697 ; Murphey v. Smith, 16 Ga. App. Fed. 326, 44 Am. Bankr. Rep. 295. 472, 85 S. E. 791. ^«' In re Butler, 120 Fed. 100, 9 Am. 184 Mullinix v. Simon, 196 Fed. 775, 116 Bankr. Rep. 539. As regards superiority C. O. A. 399, 28 Am. Bankr. Rep. 1 ; Can- to a claim of homestead ^exemption, an non V. Dexter Broom & Mattress Co., alternative judgment for the money val- 120 Fed. 657, 57 C. O. A. 119, 9 Am. Bankr. ue of property, in an action of tort such Rep. 724 ; McGahan v. Anderson, 113 as trover, is not a "judgment for pur- Fed. 115, 51 C. C. A. 92, 7 Am. Bankr. chase money," purchase money being the Rep. 641 ; In re Wells, 105 Fed. 762, 5 original debt or consideration which the Am. Bankr. Rep. 308; In re Perdue, 2 purchaser agrees to pay for a thing in N. B. R. 183, Fed. Cas. No. 10,975 ; In re money. Williams v. American Slicing Whitehead, 2 N. B. R. 599, Fed. Cas. No. Mach. Co., 148 Ga. 770, 98 S. E. 270. 17,562 ; In re Brown, 3 N. B. R. 256, Fed. "8 in re Boyd, 120 Fed. 999, 10 Am. Cas. No. 1,980 ; Camp v. Young, 119 Ga. - Bankr. Rep! 337. But see In re Carap- 981, 47 S. E. 560; In re Peacock, 203 bell, 124 Fed. 417, 10 Am. Bankr. Rep. Fed. 191, 30 Am. Bankr. Rep. 179. See 723. And compare In re Stitt, 252 Fed. 1. In re Hammonds, 198 Fed. 574, 28 Am. 164 C. C. A. 113, 41 Am. Bankr. Rep. 777, Bankr. Rep. 811 ; In re Phillips (D. C.) holding that where the bankrupt proved 209 Fed. 490, 31 Am. Bankr. Rep. 597 ; that hfe was a married man living with In re Nunemaker (D. G.) 208 Fed. 491, his wife and not the owner of a home- 30 Am. Bankr. Rep. 697 ; Sheridan State stead, when filing his claim for exemp- Bank V. Rowell (D. C.) 212 Fed. 529 ; tion unde-r the laws of Ohio, the burden Pace V. Berry, 176 Ky. 61, 195 S. W. 131. was thten on the trustee in bankruptcy 185 In re Bailes, 176 Fed. 460, 23 Am. to show affirmatively that personalty in Bankr. Rep. 789. question had not been paid for by the 186 In re Tobias, 103 Fed. 68, 4 Am. bankrupt, and hence was subject to prior Bankr. Rep. 555; Peyton v. Farmers' claims for the purchase price. § 251 LAW OF BANKRUPTCY 576 goods cannot be defeated on the theory that the stock being made up by commingling goods paid for with goods not paid for, must be treated as a unit, and that since it is not all paid for no partof it can be exempted, or that, since the assets are less than the liabilities, presum- ably nothing has been paid for, but in this case it is for the creditor to point out the items not paid for.^** But the fact that property claim- ed as exempt is in this situation, — with a demand for unpaid purchase money standing against it, — does not bring such property within the jurisdiction of the bankruptcy court, nor entitle the creditor to have the trustee take possession of it and administer it for his benefit,^®* nor has the creditor a right to enforce his vendor's lien in the court of bank- ruptcy,^*^ but the trustee will be directed to surrender the property to the bankrupt in order that it may be taken on attachment or other process from the state court,^*^ and the fact that the goods in question have been set apart to the bankrupt as exempt is no ground for quash- ing an attachment in an action for their price. ^** In some states, however, it is held that the remedy of a, creditor in this situation is in equity.^®* § 251. Jurisdiction of Bankruptcy Court. — The jurisdiction of a court of bankruptcy to "determine all claims of bankrupts to their ex- emptions," and to set apart to them the property which they are en- titled to claim as exempt, includes the consideration of preliminary questions as to the right of the bankrupt to claim the property and as to whether he has taken the steps required by the state law to make his 189 In re Kippa, 180 Fed. 603. But in the course of bankruptcy administra- compare In re Tobias, 103 Fed. 68, 4 Am. tion. In re Moore (D. C.) 274 Fed. 645. Bankr. Rep. 555. Where a bankrupt isi In re Wells, 105 Fed. 762, 5 Am. bought a stock of goods with borrowed Bankr. Rep. 308. Since the title to a money, and also incurred debts for goods homestead exempt under state laws re- purchased to renew the stock, he was mains in the bankrupt, and does not not entitled to exemptions as against pass except for the purpose of ascertain- creditors for the goods so purchased but ing his homestead right therein, the only as against the claimants for bor- bankrViptcy court may not order a sale rowed money. In re Stern (D. C.) 208 of it because a vendor has a right under Fed. 488, 30 Am. Bankr. Rep. 694. the state law to subject the homestead i»o In re Seydel, 118 Fed. 207, 9 Am. to the payment of a purchase-money Bankr. Kep. 255. See In re Boyd, 120 note, but the vendor must prosecute his Fed. 999, 10 Am. Bankr. Rep. 337. While claim in the proper state court. Hughes the bankruptcy court will follow and v. Sebastian County Bank, 129 Ark. 21S. adopt the statutes of the state as con- 195 S. W. 364. strued by its highest courts in determin- 192 in re Durham, 104 Fed. 231, 4 Am. ing the nature and extent of a bankrupt's Bankr. Rep. 760. exemptions, still the manner in which ms Northern Shoe Co. v. Ceeka, 22 N. such exemptions are to be claimed, set D. 631, 135 N. W. 177. apart, and awarded is regulated by the i9i Brooks v. Britt-Carson Shoe Co., federal courts as a matter of procedure 133 Gn. 191, 65 S. E. 411. S77 BXEiXPTIONS OF BANKRUPT § 251 claim effe,ctive/*^ and the action of the trustee in setting apart property to the bankrupt as exempt is not final, but is subject to the determina- tion of the court on the application of the bankrupt or any party in interest,^*** such jurisdiction being exercised originally by the referee, but subject to review by the judge if desired by the bankrupt or the creditors.*"^ This jurisdiction to determine claims to exemptions is ex- clusive, and in the performance of this duty the court of bankruptcy will not be interfered with by any other court, nor can any independent pro- ceedings in a state court for the same purpose be lawfully t-aken."^^* A wrongful allowance by the bankruptcy court of the property claimed as exempt by the bankrupt cannot be remedied in the state courts.*^® Nor can the order of the court of bankruptcy in that behalf be collaterally questioned. Where the trustee sells property to which the bankrupt had title at the time of the adjudication, no state court can entertain any inquiry as to whether such property was exempt to the bankrupt.^*' Furthermore the general opinion appears to be that the action of the court of bankruptcy has the same effect, in removing specific property from the reach of ordinary judicial process, that would attend the judgment of a state court setting apart such property as exempt, under the course of procedure prescribed by the state statute.^"^ But when once the bankrupt's exempt property has been designated and set apart to him by the trustee in bankruptcy, with the approval of the court, it has been administered, so far as the proceedings in bank- ruptcy are concerned, and passes out of the control of the bankruptcy court, and thereafter such court has no jurisdiction either to defend such property from adverse claims or liens or to enforce liens or claims against it.'"^ But it is the duty of the court to see that the bankrupt's 196 In re Highfleld, 163 Fed. 924, 21 722, 42 S. E. 102; Collier v. Simpson, 74 Am. Bankr. Rep. 92. Ga. 697 ; Ross v. Worsham, 65 Ga. 624 ; i9« In re White, 103 Fed. 774, 4 Am. Brady v. Brady, 71 Ga. 71. Compare Bankr. Rep. 613. Felker v. Crane, 70 Ga. 484; Adams v. i»7ln re Dobbs, 175 Fed. 319, 23 Am. Dickson, 72 Ga. 846; Toungblood v. Bankr. Rep. 569. Lathen, 20 S. C. 370. 19 8 McGahan v. Anderson, 113 Fed. 202 Sullivan v. Mussey (C. O. A.) 184 115, 51 0. C. A. 92, 7 Am. Bankr. Rep. Fed. 60, 25 Am. Bankr. Rep. 781; In 641 ; In re Gibbs, 103 Fee}. 782, 4 Am. re Yeager, 182 Fed. 951, 25 Am. Bankr. Bankr. Eep. 619 ; Smalley v. Laugenour, Rep. 51 ; In re MacKissic, 171 Fed. 259, 30 Wash. 307, 70 Pac. 786; In re Over- 22 Am. Bankr,, Rep. 817; In re Culwell, street, 1 Nat. Bankr. News, 408; In re 165 Fed. 828, 21 Am. Bankr. Rep. 614; Askew, 8 N. B. R. 575, Fed. Gas. No. 585 ; In re Sorg, 155 Fed. 550 ; In re Reese, Woolfolk V. Murray, 44 Ga. 133, 10 N. 115 Fed. 993, 8 Am. Bankr. Rep. 411; B. E. 540. In re Grimes, 96 Fed. 529, 2 Am, Bankr. losBrengle v. Richardson, 78 Va. 406. Rep. 730; Jeffries v. Bartlett, 20 Fed. ,200 Steele v. Moody, 53 Ala. 418, 16 N. 496; In re Featherston, 3 Pittsb. 480, B, R. 558. Fed. Gas. No. 4,753; King v. Neill, 26 201 Evans v. Rounsaville, 115 Ga. 684, Fed. 721; Phillips v. Bass, 65 Ga. 427; 42 S. E. 100; Smith v. Zaehry, 115 Ga. Lathrop v. Pate, 136 Ga. 36, 70 S. E. BLTv.BKR.f3D Ed.)— 37 § 252 LAW OF BANKRUPTCY 578 exempt property is secured to him. If, for instance, such property is under an attachment at the time bf the adjudication of bankruptcy, the lien of which is dissolved by the adjudication, the attaching creditor cannot hold the property on the theory that, being exempt, it is not sub- ject 4o be administered in the bankruptcy proceedings. On the con- trary, the court should require the officer having possession under the attachment to surrender the property to the trustee, in order that he may set it apart to the bankrupt.*** § 252. Claim of Exemptions. — The bankruptcy law provides that the bankrupt must prepare, verify, and file in court "a claim for such ex- emptions as he may be entitled to." *••* The official form prescribed for a debtor's petition contains a recital that he is "willing to surrender all his property for the benefit of his creditors except such as is exempt by law," and the accompanying schedule is to contain "a particular state- ment of the property claimed as exempted from the operation of the acts of Congress relating to bankruptcy, giving each item of property and its valuation, and, if any portion of it is real estate, its location, de- scription, and present use." '"'*' It is the duty of the bankrupt, no less than his interest, to comply with these directions. While his right to 569; McKenney v. Cheney, 118 6a. 387, 45 S. E. 433 ; Brooks v. Eblen, 106 S. "W. 308, 32 Ky. Law Rep. 543; Pow- ers Dry Goods Co. v. Nelson, 10 N. D. 580, 88 N. W. 703, 58 L. R. A. 770; New- berry Shoe Co. V. Collier, 111 Va. 288, 68 S. E. 974 ; Watters v. Hedgpeth, 172 N. C. 310, 90 S. E. 314 ; In re Elkin (D. C.) 218 Fed. 971, 34 Am. Bankr. Rep. 134. 203 In re Stevens, 2 Blss. 373, 5 N. B. R. 298, Fed. Cas. No. 13,392. 204 Bankruptcy Act 1898, § 7, cl. 8. 205 Form No. 1, Schedule B, 5. And see In re Duffy, 118 Fed. 926, 9 Am. Bankr. Rep. 358; In re J. E. Maynard & Co., 183 Fed. 823, 25 Am. Bankr. Rep. 732; In re Irwin, 174 Fed. 642, 98 C. C. A. 396, 23 Am. Bankr. Rep. 487; In re Kelly, 199 Fed. 984, 28 Am. Bankr. Rep. 730 ; In re Diamond, 158 Fed. 370, 19 Am. Bankr. Rep. 811. But it has been held that it is not necessary for the bankrupt to specify the articles spe- cially claimed to be esempt, as the official form is not intended to be man- datory, but to be altered to suit the circumstances of the particular ■ case. Burke v. Guarantee Title & Trust Co., 134 Fed. 562, 67 C. C. A. 486, 14 Am. Bankr. Rep. 31. But a claim by a bank- rupt of an exemption out of a stock of goods, claiming the stock in bulk, is not a sutBcient compliance. In re Wilson, 108 Fed. 197, 6 Am. Bankr. Rep. 287. So, where a bankrupt is possessed of property capable of being divided, from which he could make his selection, he must do so in his schedule, and a claim to the exemption from "proceeds of per- sonal property" to the amount limited is not sufficient. In re Donahey, 176 Fed. 458, 23 Am. Bankr. Rep. 796. So if a bankrupt includes in his schedule all his lands, claiming, as a homestead ex- emption therein, "real eatate to the val- ue of $500," but without designating any particular portion, it is a defect, but one which is amendable, and of which ad- vantage cannot be taken in a subsequent collateral proceeding. Walker v. Car- roll, 65 Ala'. 61. -A.S a claim for exemp- tions is sufficient if made generally un- der the exemption laws of the state, an allowance of exemptions properly made will not be set aside merely because the claim erroneously designated the statute meant to be referred to. In re Dittmar, 249 Fed. 606, 161 C. C. A. 532, 41 Am. Bankr. Rep. 690. 579 EXEMPTIONS OF BANKRUPT § 252 exemptions must be deduced from the state law, yet his claim must be made at the time and in the manner pointed out by the bankruptcy law, which is exclusive and controlling on these points.^"® Ordinarily it is sufficient if he makes his claim to exemptions in his schedule, and an extension of time for filing the schedule will also extend the time for making such claim.^*' But a mere claim made by a bankrupt to his trustee, asserting a right to a homestead exemption, but not incorpo- rated in the schedule nor allowed by the trustee or the court, will not be available against a purchaser of the property at the trustee's sale.^** If the bankrupt makes an erroneous claim to property mentioned in the schedule as being exempt, it is the duty of the trustee to correct or dis- regard h.^"^ It is of course in the power of the bankrupt to waive the exemption, and he will generally be taken to have done so if he omits to set up the claim in his schedule, either originally or by seasonable amendment,*^* and if he does not assert his privilege, it cannot be claimed by any one else. Thus, a mortgagee of the bankrupt cannot set up the latter's rights of exemption in the mortgaged property, in order to validate his mortgage against the charge that it constituted a preference or a fraudulent conveyance.''" But the failure of the bank- rupt to claim his exemptions in his original petition will not be taken as a waiver of his right afterwards to claim the property which is ex- empt, by an amendment properly filed, provided, of course, that the amendment Can be allowed without causing any loss or injury to per- sons who have acquired rights in the property in question in conse- 206Lipnian v. Stein, 134 Fed. 235, 67 titled to the same against general credi- 0. C. A. 17, 14 Am. Bankr. Rep. 30 ; tors. In re Brumbaugli, 128 Fed. 971, 12 In re Andrews & Simonds, 193 Fed. 776, Am. Bankr. Rep. 204. 27 Bankr. Kep. 116; In re Le Vay, 125 a"' In re O'Hara, 162 Fed. 325, 20 Am. Fed. 990, 11 Am. Bankr. Rep. 114 ; In re Bankr. Rep. 714; Brandt v. Mayhew, Kane, 127 Fed. 552, 62 O. C. A. 616, 11 218 Fed. 422, 134 C. C. A. 210, 33 Am. Am. Bankr. Rep. ^533; In re W. S. Jen- Bankr. Rep. 845; In re Brincat (D. 0.) nings & Co., 166 Fed. 639, 22 Am. Ba;nkr. 233 Fed. 811, 37 Am. Bankr. Rep. 587. Rep. 160; In re Burnham, 202 Fed. 762, aos Steele v. Moody, 53 Ala. 418, 16 30 Am. Bankr. Rep. 270. But compare N. B. R. 558. In re Fisher, 142 Fed. 205, 15 Am. 209 in re Whetmore, Deady, 585, Fed. Bankr. R^p. 652 ; In re Garner, 115 Fed. Cas. No. 17,508. 200, 8 Am. Bankr. Rep. 263 ; Northern 210 In re Gerber, 186 Fed. 693, 108 O. Alabama Ry. Co. v. Feldman, 1 Ala. App. C. A. 511, 26 Am. Bankr. Rep. 60S ; In 334, 56 South. 16. In the Fisher Case, re Moran, 105 Fed. 901, 5. Am. Bankr. supra, it was held that the statute does Rep. 472 ; In re Von Kerm, 135 Fed. 447, not show an intent that the claim of ex- 14 Am. Bankr. Rep. 403 ; In re Harring- emption must have been made prior to ton, 200 Fed. 1010, 29 Am. Bankr. Rep. adjudication, but such claim may be al- 666. lowed if perfected thereafter within the 211 Mitchell v. Mitchell, 147 Fed. 280, time allowed by the state law. The only 17 Am. Bankr. Rep. 382 ; Edmondson question to be determined on a bank- v. Hyde, 2 Sawy. 205, 7 N. B. R. 1, Fed. rupt's application for his exemptions un- Cas. No. 4,285 ; In re French (D. C.) 231 der the state law is whether he is en- Fed. 255, 37 Am. Bankr. Rep. 289. § 252 LAW OF BANKRUPTCY 580 quence of the bankrupt's neglect seasonably to assert his claims,*^* and provided the amendment is asked in good faith and for the purpose con- templated by the law. Thus, it will be refused where it is avowedly sought for the purpose of preferring certain creditors to whom the bank- rupt had given notes containing a waiver of the exemption law.^^^ And such action can be taken only in the court of bankruptcy, which has, in the language of the statute, jurisdiction to "determine all claims of bankrupts to their exemptions." If a bankrupt, instead of incorporat- ing a claim for his exemptions in his schedule, goes into a state court and there sets up a claim and has the exemption allowed, he will not be entitled to have the exemption set off to him by the trustee in bank- ruptcy on his filing a record of the proceedings in the state court.^" And for even stronger reasons it is held that, if the bankrupt omits to claim his exemptions in the proceedings in bankruptcy, as required by the law, but allows the trustee to sell the property, he cannot afterwards assert his right to it as exempt in a proceeding to set aside the sale or in a suit against the purchaser.*^^ But here it must be noted that the statute expressly grants to an involuntary bankrupt a period of ten days after the adjudication in which to claim his exemptions, and if such claim is made before the expiration of the ten days, it is in time, and the bankrupt cannot be deprived of his exemptions by the fact that, in 212 In re Pisher, 142 Fed. 205, 15 Am. Bankr. Rep. 617; In re Wunder, 133 Bankr. Rep. 652; In re Berman, 140 Fed. 821, 13 Am. Bankr. Rep. 701; Fed. 761, 15 Am. Bankr. Rep. 463 ; In rfe Steele v. Moody, 53 Ala. 418, 16 N. B. Moran, 105 Fed. 901, 5 Am. Bankr. Rep. R. 558. But the right of the bankrupt 472 ; In re Kaufmann, 142 Fed. 898, 16 to the property exempted by the law of Am. Bankr. Rep. 118; In re White, 12S the state is a fixed and determinate Fed. 513, 11 Am. Bankr. Rep. 556 ; right, not dependent upon the discretion Goodman v. Curtis, 174 Fed. 644, 98 C. of the trustee and where it is claimed C. A. 398, 23 Am. Bankr. Rep. 504; In and illegally refused before the trus- re Harrington, 1 Nat. Bankr. News, 513 ; tee's sale of the property, it may be as- In re Williams, 2 Nat. Bankr. News, serted against the proceeds of the prop- 419 ; In re RadclifCe (D. C.) 243 Fed. erty while in the hands of the court for 716, 39 Am. Bankr. Rep. 612 ; In re Her- distribution. In re Jones, 2 Dill. 343, Fed. rin & West (D. 0.) 215 Fed. 250; In re Gas. No. 7,445. And see In re Roden- Lenters (D. C.) 225 Fed. 878, 35 Am. hageii, 2 Nat. Bankr. News, 674. Where Bankr. Rep. 3. As to diligence in claim- the law of the state does not require that ing a homestead exemption, and as to exemptions be claimed by way of selec- perfecting such an exemption under the tion before the sale of specific articles state law, after having claimed it in of personal property, a bankrupt who bankraptcy, see In re Burnham, 202 Fed. ^^^ lie'en depending for an exemption 762, 30 Am. Bankr. Rep. 270. out of the proceeds of a sale of the 2ia Moran v. King, 111 Fed. 730, 49 C. l^^^stead, which proceeds however, did C. A. 578, 7 Am. Bankr. Rep. 176; In re ^I'T" ^l '^'^'^^^^f. debts upon it. Men-y, 201 Fed. 369, 29 Am. Bankr. Rep, 829. may claim his exemption out of the proceeds of personalty after its sale. In re Stitt, 252 Fed. 1, 164 O. C. A. 113, 214 In re Nunn, 1 Nat. Bankr. News, 41 Am. Bankr. Rep. 777. And see Smith 427; Gayle v. Randall, 71 Ala. 469. v. Thompson, 213 Fed. 335, 129 C. C. A. 215 In re Oderkirk. 103 Fed. 779. 4 Am. 637, 32 Am. Bankr. Rep. 165. 581 . EXEMPTIONS OP BANKRUPT § 253 the meantime, the property has been sold and converted into money by a receiver in bankruptcy appointed at the time of filing the petition.^" But vsrhile the bankrupt must claim his exemption as prescribed by the statute, a severance of the exempted articles or property is not to be made by the debtor before adjudication, but by the trustee when ap- pointed ; and the valuation of exempt property is to be made in the first instance by the trustee. The bankruptcy act, while allowing to debtors the exemptions provided by the state law, itself regulates the manner in which such exemptions are to be claimed, set apart, and awarded.^" § 253. Setting Apart Exempt Property. — It is made the duty of trustees in bankruptcy to "set apart the bankrupt's exemptions and re- port the items and estimated value thereof to the court as soon as prac- ticable after their appointment." ^** This, provision of the statute is mandatory and the duties which it enjoins upon the trustee cannot be performed by any one else.*^* And where a claim has been duly and properly made for the exemption allowed by the law of the state, the trustee has no right or power to refuse to set the property apart. If he persists in selling the property, the court has jurisdiction to award the proceeds to the bankrupt.*^' There are some cases, however, where no trustee is appointed. Omission to appoint a trustee is authorized by General Order No. 15, when "the schedule of a voluntary bankrupt dis- closes no assets, and no creditor appears at the first meeting." The term "assets" means property available for distribution to creditors, and the conditions of the general order are met when the schedule shows no property except such as is claimed as exempt. When this condition of affairs occurs, it is the practice in some districts for the referee to make an order setting off the exemptions, based on an affidavit of the bankrupt. While this practice is informal and not in accordance with the regular course of procedure, it may be sanctioned by the court, in the exercise of its equity powers, where it is satisfied that the bankrupt has no property except such as is exempt, and that therefore there is 2i6Lipman v. Stein, 134 Fed. 235, 67 210 In re Grimes, 96 Fed. 529, 2 Am. C. C. A. 17, 14 Am. Bankr. Rep. 30 ; In Bankr. Rep. 730. An agreement between re Coddington, 126 Fed. 891, 11 Am. a bankrupt and his creditors that the Bankr. Eep. 122 ; In re Gunzberger (D. exemptions shall be valued and allotted C.) 268 Fed. 673, 45 Am. Bankr. Rep. 690. by three appraisers, whose decision shall 217 In re Friederich (0. C. A.) 100 Fed. be final and not subject to exception, 284, 3 Am. Bankr. Rep. 801; Burke v. is void, and an order made by the ref- Guarantee Title & Trust Co., 134 Fed. eree, by consent of parties, in the terms 562, 67 C. C. A. 486, 14 Am. Bankr. Rep. of such agreement, will be set aside. 31. ' And see Cowan v. Burchfield, 180 Idem. Fed. 614, 25 Am. Bankr. Rep. 293. . 220 in re Finkelstein, 192 Fed. 738, 27 218 Bankruptcy Act 1898, § 47a, cl. 11. Am. Bankr. Rep. 229. § 253 LAW OF BANKRUPTCY , 582 no occasion for the appointment of a trustee.'^^^ But when a trustee has been appointed and qualified, the referee has no authority to set apart the baiikrupt's exemptions, nor to direct the trustee in the mat- |.g]. 288 /j^j^g trustee has no right to demand from the bankrupt, as a con- dition upon his delivering to him the property claimed as exempt and appraised for that purpose, a bond of indemnity, and where, upon de- mand and refusal of such a bond; the trustee sells the property in ques- tion, tlie bankrupt may claim the amount of his exemptions from the proceeds.^"* If exemptions have recently been claimed and allowed to the bank- rupt in proceedings under the state law, it is permissible for the trustee to adopt and sanction the allotment, if no circumstances of fraud or mistake appear.^'* But it is not the duty of the trustee to wait until ex- emptions have been allowed and set apart by state officers according to the procedure prescribed by the laws of the state. ^^^ Since, however, the bankruptcy act merely gives the debtor what the state statute al- lows him, he must observe any directions of that statute, which are im- posed as conditions upon the allowance. If the state law withholds the exemption from him until he shall have complied with certain require- ments as to the mode of claiming and securing its allowance, he must pursue the same course before he can make good his claim to the ex- emptions in the bankruptcy proceeding.^^* And it is said, generally, that trustees in bankruptcy, in valuing and setting apart the exemptions of bankrupts, should conform as nearly as may be to the method pro- vided by the state law for that purpose.^^' Thus, where the state law exempts to a debtor personal property to a certain value, "to be se- 2 21 In re W. C. Allen & Co., 134 Fed. Fed. Cas. No. 4,647; In re Jackson, 2 N. 620, 13 Am. Bankr. Kep. 518; Smalley B. R. 508, Fed. Cas. No. 7,127 ; Baltimore V. Laugenour, 30 Wash. 307, 70 Pac. 786. Bargain House v. Busby, 143 Ga. 734, 85 222 In re Peabody, 16 N. B. K. 243, S. B. 875. Fed. Oas. No. 10,866. 227 in re McCutclien, 100 Fed; 779, 4 2 23 In re Brown, 100 Fed. 441, 4 Am. Am. Bankr. Rep. 81; In re Woodard, 95 Bankr. Rep. 46. Fed. 955, 2 Am. Bankr. Rep. 692. But 224 In re Vogler, 2 Hughes, 297, 8 N. compare In re Lynch, 101 Fed. 579, 4 Am. B. R. 132, Fed. Cas. No. 16,986. See In Bankr. Rep. 262. Where the state stat- re Wilson, 101 Fed. 571, 4 Am. Bankr. ute provides that the homestead shall be Rep. 260. appraised by three persons, chosen re- 22 6 In re Camp, 91 Fed. 745, 1 Am. speetively by the debtor, the creditor, Bankr. Rep. 165. A bankrupt to whom and the officer holding the writ, a trus- personalty claimed as exempt has been tee in bankruptcy, when a claim of set' apart, may thereafter execute and homestead is made by the bankrupt, file for record a declaration of home- should cause the property to be apprais- stead, as required by state law, and ed by three persons, one named by him- have the same set apart as exempt. In self, one by the bankrupt, and one by the re Lehfeldt (D. C.) 225 Fed. 681, 35 Am. creditors, and an appraisement made by Bankr. Rep. 716. three persons all chosen by the trustee, 220 See In re Farish, 2 N. B. R. 168, the bankrupt not being represented in 583 EXEMPTIONS OF BANKRUPT § 253 lected by him," the debtor, on being adjudged bankrupt, has the right to select specific personal property, to that value, from the estate in the hands of his trustee, even though the property is not divisible without loss nor salable except as a whole.^^* On the other hand, where the state law provides that the exempt property shall be selected by the debtor, it is not permissible to allow the bankrupt to select a trifling amount of personal property and receive the entire difference in cash from the trustee."** A mistake made by the trustee in valuing or set- ting eoft" the property may be corrected by amendment, or by a re- valuation of the property, where that is the proper course."^* When the trustee has set apart the property to be allowed as exempt and made re- port of his doings, and his action is either approved by the court or passes without exceptions being taken, it is then his further duty to de- liver the possession to the bankrupt.**^ But he is not authorized to dis- pense with the requirements of the statute and simply pay the bank- rupt a sum of money equivalent to the value of the exemptions, where no proper steps have been taken to select and set apart the exempt property, and especially where it does not appear that the money was placed in a designated depository and drawn out according to the rules in bankruptcy .'*** It should also be noted that the bankrupt* is entitled to receive the full amount of his exemption, and it cannot be diminished by deducting from it any costs and expenses made in the proceedings, their selection, will be set aside on ob- Bankr. Rep. 692. But when property jections by the latter, and a new ap- claimed by the bankrupt as exempt has praisement ordered. In re McOutchen, been sold by the trustee, the exemption supra. But it has been ruled that there should be set apart out of the proceeds of is no provision of the bankruptcy law the sale. In re Park, 102 Fed. 602, 4 Am. authorizing the valuation by appraisers Bankr. Rep. 432. of the property claimed by the bankrupt ^so Brady v. Brady, 71 6a. 71. Where as exempt, and that, where the appraisers a trustee in bankruptcy, in setting off value the entire estate of the bankrupt, to the bankrupt the proi>erty claimed as as provided by law, their inventory is his homestead, has adopted the value not binding on the trustee as respects placed upon it by appraisers fifteen the exempt property nor can he adopt it years before, when it was allotted to the as his own. In re Grimes, 96 Fed. 529, bankrupt as a homestead under process 2 Am. Bankr. Rep. 730. And see In re of a state court, but it appears that the Andrews & Simonds, 193 Fed. 776, 27 property has since increased in value be- Am. Bankr. Rep. 116; Bank of Nez yond the amount allowed as exempt by Perce v. Pindel, 193 Fed. 917, 113 0. C. the laws of the state, the court of bank- A. 545, 28 Am. Bankr. Rep. 69, holding ruptcy will direct the trustee to re-value that the time and manner of setting the property and set apart to the bank- apart the bankrupt's exemptions must be rupt so much thereof as shall not exceed determined by "and in accordance with in value the amount so allowed. In re the bankruptcy act. And see In re Crum McBryde, 99 Fed. 686, 3 Am. Bankr. Rep. (D. O.) 221 Fed. 729, 34 Am. Bankr. Rep. 729. 586. 231 In re Soper, 173 Fed. 116, 22 Am. 228 In re Grimes, 96 Fed'. 529, 2 Am. Bankr. Rep. 868. Bankr. Rep. 730. 232 in re Hoyt, 119 Fed. 987, 9 Am. 229 In re Woodard, 95 Fed. 955, 2 Am. Bankr. Rep. 574. § 253 LAW OF BANKRUPTCY 584 even the necessary cost of selling perishable property,^** though it ap- pears that an exception may be made as to storage charges on the spe- cific property pending its delivery to the bankrupt.*^* It is ordered that "the trustee shall make report to the court, within twenty days after receiving the notice of his appointment, of the articles set off to the bankrupt by him, according to the provisions of thei 47th section of the act, with the estimated value of each article." **® The time here limited, however, may be extended by the court, for good cause shown, and leave given to the trustee to make a later or further report.**® The action of the court on this report is of course subject to review in the ordinary manner, but is not open to collateral inquiry. If the court of bankruptcy wrongfully allows and sets apart to a bankrupt the property which he claims as exempt, the remedy is not in the state courts.^*' It is remarkable that neither the act nor the general order specially provides for the taking of exceptions to the trustee's deter- mination, as to exempt property, by the bankrupt himself. But the courts hold that if he is dissatisfied with the allowance made by the trustee, he may except to the latter's decision and have the question heard by the referee, and if necessary certified to the court.*** It is pro- vided that "any creditor may take exceptions to the determination of the trustee within twenty days after the filing of the report." ^^^ Under his provision a creditor is not precluded from objecting to the allowance 23 3 In re Le Vay, 125 Fed. 990, 11 Am. sale of real estate in which a homestead Bankr. Rep. 114; In re Hopkins, 103 is claimed, if indivisible, should always Fed. 781, 4 Am. Bankr. Rep. 619. be done promptly, and the referee should 234 In re Grimes, 96 Fed. 529, 2 Am. see that this is done. In re Brown (D. Bankr. Rep. 730. ^'^ 228 Fed. 533, 35 Am. Bankr. Bep. 826. 235 General Order No. 17. This order 23, Brengle v. IU.;hardson's Adm'r, 78 requires a specification of items and a ya. 406. And see Brady v. Brady, 71 separate appraisal of the property set q^^ ^i. apart to the bankrupt. In re Manning, ^^^ {^ ^.^ ^^^.^^^ y^- ^^^ 3^3^ ^^ j^^ 112 Fed. 948, 7 Am. Bankr. Rep. 571. B^nkr. Rep. 435 ; Richardson v. Trubev, And under the laws of Penilsylvania, a 2,50 111. 577, 95 N. E. 971: In re Pryor,4 trustee in bankruptcy, in setting aside Bj^g 262, Fed. Cas. No. 11,457; In re as exempt household goods and book ac- ^hiell, 4 Blss. 241, Fed ("us No 13 88'' • counts, must itemize them and value j^ j.g g^jj^jj^ 93 ^^^^ ^g^_ 3 Am. Bankr! each item separately. Idem. But under j^gp -^qq the corresponding provision of the act of 2 so General Order No. 17 See Mc- 1867, it was held that the reference was Qf^^^n v. Anderson, 113 Fed. 115, 51 C to articles of personal property exempt c. A. 92, 7 Am. Bankr. Rep. 641 ; E B by the laws of the state, and not to real T^yior Co. v. Williams (Ga.) 77 S E 386 estate held as a homestead, the title to rj.^^ homestead exemption claimed by a which does not pass to the trustee. In re bankrupt cannot be transferred until Hunt, 5 N. B. R. 493, Fed. Cas. No. 6,883. j^pproved by the referee or until 20 days 230 In re Shields, 1 N. P.. R. 603, Fed. have passed without ob,1ectioiis by cred- Cas. No. 12,785. The setting apart of itors being filed. In re Anderson (D. C.) exempt property to the bankrupt, and the 224 Fed. 790, 35 Am. Bankr. Rep. 487. 585 EXEMPTIONS OF BANKRUPT § 253 of exemptions because he is not armed with any process,"''* nor does it exclude the trustee, who may except on behalf of all the creditors to the bankrupt's claim or the decision of the referee thereon."" As to 'the limitation of time, it is held that the word "may" in this connection is not imperative, in the sense that exceptions must be taken within twen- ty days or not at all, but that a certain measure of discretion is left to the courts of bankruptcy, so that, in cases of fraud or mistake or for . other good cause, they may consider the objections of creditors even after the time limited,"*" though a creditor seeking this privilege must excuse his delay and clear himself of the imputation of laches."** As to the form of the exceptions, such a paper is not strictly speaking a plead- ing, and if the want of verification is a defect, at any rate it is not juris- dictional."** It has been held by some of the courts that, where the bankrupt makes out a prima facie case in support of his claim to exemptions, the objecting creditors must sustain the burden of proving that he is not entitled to what he demands."*^ But there are also rulings that the bur- den is on the bankrupt to prove his right to the exemptions claimed, and by conclusive evidence."*® However this may be, the issues on a hearing of this kind will be strictly confined. For instance, the court will not enter upon an inquiry as to whether or not the bankrupt had made a fraudulent conveyance of property such as would bar his right to a discharge."*' And the rulings of the referee on questions of fact in allowing exemptions will not be reversed unless clearly erroneous."** 240 In re Campbell, 124 Fed. 417, 10 tion claimed, interposed at the first meet- Am. Bankr. Eep. 723. ing of creditors, would be sufficient to 2 41 In re Rice, 164 Fed. 589, 21 Am. preserve his right to make such objec- Bankr. Rep. 202.; In re Bonvillain (D. tion at a subsequent stage of the pfo- C.) 232 Fed. 370, 36 Am. Bankr. Rep. ceedings. In re Harber, 2 Nat. Bankr. 761. News, 449. And see In re Krecum, 229 2*2 In re Perdue, 2 N. B. R. 183, Fed. Fed. 711, 144 O. C. A. 121, 36 Am. Bankr. Cas. No. 10,975. But compare In re Rep. 172; In re Libby (D. C.) 253 Fed. Cotton & Preston, 183 Fed. 190, 25 Am. 278. Bankr. Rep. 532. And see In re Gainey, 24s in re Reese, 115 Fed. 993, 8 Am. 2 N. B. R. 525, Fed. Cas. No. 5^81. Bankr. Rep. 411. Where the trustee has not filed his re- 244 in re Campbell, 124 Fed. 417, 10 port within the time limited for that Am. Bankr. Rep. 723. purpose, creditors are not bound to ex- 246 in re Eippa, 180 Fed. 603 ; In re cept to the same within twenty days Gfrimes, 94 Fed. 800, 2 Am. Bankr. Rep. after its filing. In re Peabody, 16 N. B. 160. In re Auge (D. C.) 238 Fed. 621, 39 R. 243, Fed. Cas. No. 10,866. A mere Am. Bankr. Rep. 39. report by the trustee that the bankrupt 24r in re Rainwater, 191 Fed. 738, 25 has made a claim for certain exemptions Am. Bankr. Rep. 419; In re Campbell, does not constitute a "setting off" of 124 Fed. 417, 10 Am. Bankr. Rep. 723. exemptions to the bankrupt, such that 247 in re W. C. Allen & Co., 134 Fed. creditors must file their exceptions to it 620, 13 Am. Bankr. Rep. 518. within the limited time. Objection by a 24 8 in re Rutland Grocery Co., 189 creditor to the allowance of the exemp- Fed. 765, 26 Am. Bankr. Rep. 942. § 254 LAW OF BANKRUPTCY 586 The decision of the court of bankruptcy will be accepted as conclusive by the state courts.*** § 254. Sale of Property and Allowance of Exemptions Out of Pro- ceeds. — Where the law of the state exempts to the debtor personal property to a certain value, "to be selected by him," the debtor, on being adjudged bankrupt has the right to select specific personal property to that value from the estate in the hands, of his trustee, and although his personal estate consists of a stock of goods not divisible without loss, nor salable except as a whole, yet the court cannot order the trustee to sell the whole stock and pay the bankrupt the value of his exemptions out of the proceeds.^^" And if the trustee takes the goods selected by the bankrupt and mixes them with others and sells the whole in- discriminately, the bankrupt will not be entitled to claim out of the proceeds the maximum value allowed by the exemption law, but only the price brought by the specific goods which he had selected.^*^ It has been held, however, that if the bankrupt, after making the selection, allows the selected articles to be sold with the rest, by an agreement to that effect with his trustee, that course being for the benefit of the es- tate, in that it makes the stock as a whole more salable the trustee should allow to the bankrupt, as his exemption, out of the proceeds of the sale, a sum of money equal to the value of the goods originally selected.'** But under the laws of Pennsylvania, the trustee cannot set apart as exempt cash out of the proceeds of a future sale of the bankrupt's per- sonal property.*®* If, before the appointment of a trustee, the property 249 Morton v. Jones, 136 Ky. 797, 125 it had not been sold. In re Lawson, 2 S. W. 247 ; McKlnley v. Morgan, 36 N. B. R. 54, Fed. Gas. No. 8,149. wash. 561, 79 Pac. 45. And see Drees v. ?5i In re Arnold, 169 Fed. 1000, 22 Am. Armstrong, 180 Iowa, 29, 161 N. W. 40 ; Bankr. Rep. 392 ; In re Friend, 3 Woods, McCurry v. Sledge, 4§ Okl. 27, 149 Pac. 388, Fed. Gas. No. 5,120. 1124. Gompare Seedig v. First Nat. 252 in re Richard, 94 Fed. 633, 2 Am. Bank of Clifton (Tex. Civ. App.) 168 S. Bankr. Rep. 506; In re Hutchinson, 197 W. 445. Fed. 1021, 28 Am. Bankr. Rep. 405 ; In 250 In re Grimes, 96 Fed. 529, 2 Am. re Hargraves, 160 Fed. 758, 20 Am. Bankr. Rep. 730 ; In re Shrimer (D. C.) Bankr. Rep. 186 ; In re Renda, 149 Fed. 228 Fed. 794, 36 Am. Bankr. Rep. 404. 614, 17 Am. Bankr. Rep. 521. Where Where the exemption law of the state personal property which the bankrupt does not exempt money, or any sum in was entitled to claim as exempt was money, but only property to a certain sold, on his request that cash should be value, the trustee has no right, where allowed him instead of the property, he the bankrupt's property has been seized should be charged with his percentage of and sold under execution and distress the difference between the proceeds of for rent, leaving him no property to the property and its appraised value as claim as exempt, to allow money, the against the amount of his exemptions, proceeds of debts due to the bankrupt, In re Ansley Bros., 153 Fed. 983, 18 Am. for the purpose of making good the prop- Bankr. Rep. 457. orty which would have been exempted if 253 in re Manning, 112 Fed. 948, 7 Am. Bankr. Rep. 571. 587 . EXEMPTIONS OF BANKRUPT , § 254 has come into the hands of a receiver in bankruptcy, who proposes to sell the sajne, the proper course is for the court to direct the receiver to set aside the specific property which the bankrupt claims as exempt, to await the determination of his claim."'* But if the receiver has sold the property (as being perishable or for other good reasons) before the appointment of a trustee, and the bankrupt has duly made his claim for his exemptions, it will be his right to receive the proper amount out of the proceeds of the sale.^^^ Where the statute does not give the debtor this right of selection of property, but only fixes the value of the exemption to be allowed, the rule is that, if the property in the hands of the trustee is not capable of division into parts without injury to the whole, or if it is of such a nature that it cannot advan- tageously be sold except as a whole, the court may order a sale of the whole, and an allowance to the bankrupt of the value of his statutory exemption, to be set apart to him out of the proceeds. *®® On a similar principle, it is held that where a bankrupt claims the property on which he resides as a homestead, but it is alleged that it exceeds in value the limit fixed by the homestead law of the state, and the evidence on the subject of value is conflicting, or responsible parties offer to bid a larger sum for the property, the proper course is to order the property sold by the trustee at public sale after due advertisement. At such sale, the bankrupt will be considered as bidding the amount fixed by the statute as the maximum value of a homestead exemption, and it will be knocked down to him at that price if no better offer is made. But if the property brings more than that amount, the bankrupt will be allotted a sum of money, out of the proceeds, equal to the value of a homestead exemption under the statute, and this will be considered as his exemption.*®'' So, where a mortgage, recognized a:s valid in the 254 In re N. Shaffer & Son, 128 Fed. 19 N. B. E. 68, Fed. Gas. No. 1,226; In re 986, 11 Am. Bankr. Rep. 717 ; In re Poleman, 5 Biss. 526, 9 N. B. R. 376, Fed. Joyce, 128 Fed. 985, 11 Am. Bankr. Rep. Oas. No. 11,247. 716. 2 is 7 In re Lynch, 101 Fed. 579, 4 Am. 20,5 In re Zack, 196 Fed. 909, 28 Am. Bankr. Rep. 262 ; In re Watson, 2 N. B. Bankr. Rep. 138; In re Le Vay, 125 Fed R. 670, Fed. Gas. No. 17,271; Bank of 990, 11 Am. Bankr. Rep. 114 ; In re Has- Nez Perce v. Pindel, 193 Fed. 917, 28 Am. kin, 109 Fed. 789, 6 Am. Bankr. Rep. Bankr. Rep. 69 ; In re Paramore & Ricks, 485; In re Bolinger, 108 Fed. 374, 6 Am. 156 Fed. 208, 19 Am. Bankr. Rep. 126. Bankr. Rep. 171; In re Sloan, 135 Fed. And see Dunlap Hardware Go. v. Hud- 873, 14 Am. Bankr. Rep. 435. dleston, 167 Fed. 433, 21 Am. Bankr. 25 6 In re Kane, 127 Fed. 552, 62 O. G. Rep. 731; Norwood v. Watson, 242 Fed. A. 616, 11 Am. Bankr. Rep. 533; In re 885, iss G. G. A. 473, 39 Am. Bankr. Rep. Yeager, 182 Fed. 951, 25 Am. Bankr. 348 ; In re Crum (D. G.) 221 Fed. 729, 34 Rep. 51 ; In re Luby, 155 Fed. 659, 18 Am. Am. Bankr. Rep. 586; McBride v. Gibbs, Bankr. Rep. 801; In re Grimes, 1 Nat. 148 Ga. 380, 96 S. E. 1004. Compare In Bankr. News, 426 ; In re Diller, 100 Fed. re Yungbluth, 220 Fed. 110, 136 O. O. A. 931, 4 Am. Bankr. Rep. 45 ; In re Beede, 202, 34 Am. Bankr. Rep. 299. § 255 LAW OP BANKRUPTCY 588 bankruptcy proceedings, covers an undivided fractional part of the real estate out of which the bankrupt claims his homestead exemption, the court will not order the trustee to partition the land as between the bankrupt and the mortgagee, and set apart to the former a designated portion to be held by him as his homestead in severalty and free from the mortgage, as this would change, and might impair, the security of the mortgagee. But the bankrupt may apply for an order to sell por- tions of the land not actually occupied as a homestead, and apply the proceeds in payment of the mortgage.^®* § 255. Exemptions in Partnership Cases. — A partnership, as such, cannot claim exemptions out of the firm assets. It cannot be a "head of a family" or a "housekeeper," within the meaning of those and simi- lar terms used in the state exemption laws.^^® And moreover, the ad- judication in bankruptcy dissolves the firm absolutely and for every purpose, and thereafter there is no firm in existence to claim or receive the exemption.^*" But a more difficult question arises when the in- dividual members of a bankrupt partnership claim the right to receive, each for himself, the statutory exemption out of the assets of the firm, there being no individual estate sufficient to yield the amount allowed as exempt. On this question, the courts of bankruptcy will follow the rule established by the decisions of the highest courts of the state, if any such have been rendered.*®^ In many of the states, this point has Ijeen determined by the court of last resort. But in the absence of any such determination, when the bankruptcy court must put its own construction on the state law, the tendency is to hold that the mdividual members of the firm are not entitled to any exemption out of the partnership property, unless there should remain a surplus of such property after the payment of all firm debts."*^ In North Carolina, the federal courts, following the decisions of the courts of the state, have, decided that, in case of the bankruptcy of a partnership, where there are firm assets but no individual estate, each partner is entitled to receive, out of the partnership assets, the exemp- tion allowed by the law of the state, provided the other partner con- sents thereto, and the fact that the petition in bankruptcy is signed 26 8 In re Thomas, 96 Fed. 828, 3 Am. Am. Bankr. Rep. 151; In re Camp, 91 Bankr. Rep. 99. Fed. 745, 1 Am. Bankr. Rep. 165; In re 2Boln re Lentz, 97 Fed. 486; In re Stevenson, 93 Fed. 789, 2 Am. Bankr. Smith, 2 Hughes, 307, Fed. Cas. No. Rep. 230. 12,979. ^'2 Jennings v. Stannus (C. C. A.) 191 2 80 In re Lentz, 97 Fed. 486; In re Fed. 347, 27 Am. Bankr. Rep. 384; In re Blodgett, 10 N. B. R. 145, Fed. Cas. No. Scheier, 188 Fed. 744, 26 Am. Bankr. 1,555. Rep. 739; In re Beauchamp, 101 Fed. 261 In re Beauchamp, 101 Fed. 106, 4 106, 4 Am. Bankr. Rep. 151. 589 EXEMPTIONS OF BANKRUPT § 255 by both partners is conclusive evidence of such consent mutually giv- en.*** And in this state a surviving partner may have his personal exemption set apart to him out of the partnership effects, with the consent of the administrator of the deceased partner.''®* But where a firm consists of several partners, all must consent to the allowance of exemptions out of the firm property, and if any object it cannot be done.**® Nor can this course be taken with reference to any partner unless it appears that he has no individual estate out of which to claim and receive the exemption, for it is not intended that a bankrupt part- ner should have his exemptions duplicated.*** A similar rule, allowing partners to claim their exemptions out of firm property, in case they have no separate estate, prevails ifa Georgia,**' Wisconsin,'** Missouri,*** New York,*'* and Michigan.*'^ In these and other states, it becomes important for the bankrupt claiming exemptions to establish his actual status as a member of the firm, and this question may turn upon the effect of an executory contract to sell his interest to his copartners, his renunciation of membership in the firm, the legal consequences of a conditional sale of his interest, or his participation in- the conduct of the firm's business.*'* 26 3 In re Gartner Hancock Lumber Co., 173 Fed. 153, 22 Am. Bankr. Kep. 898; In re Seabolt, 113 Fed. 766, 8 Am. Bankr. Rep. 57; In re Stevenson, 93 Fed. 789, 2 Am. Bankr. Rep. 230; In re Grimes, 94 Fed. 800, 2 Am. Bankr. Rep. 160; In re Duguid, 100 Fed. 274, 3 Am. Bankr. Rep. 794 ; In re Wilson, 101 Fed. 571, 4 Am. Bankr. Rep. 260. A partner having an equal interest with his copart- ner in the firm property is entitled to claim his statutory exemption therefrom, in case of the bankruptcy of the firm, al- though the amount contributed by him to the capital of the firm was less than the amount of surh exemption. In re Grimes, 94 Fed. 800, 2 Am. Bankr. Rep. 160. But compare In re Rutland Gro- cery Co., 189 Fed. 765, 26 Am. Bankr. Rep. 942. 264 In re Seabolt, 113 Fed. 766, 8 Am. Bankr. Rep. 57; In re Dinglehoef, 109 Fed. 866, 6 Am. Bankr. Rep. 242. 285 In re J. M. Monroe & Co., 156 Fed. 236, 19 Am. Bankr. Rep. 255. 260 In re Steed, 107 "Fed. 682, 6 Am. Bankr. Rep. 73. 287 In re Rutland Grocery Co., 189 Fed. 765, 26 Am. Bankr. Rep. 942; In re Camp, 91 Fed. 745. 1 Am. Bankr. Rep. 165. Compare In re Stewart, 13 N. B. R. 295, Fed. Cas. No. 13,420. 26 8 In re Frlederich, 100 Fed. 284, 40 C. C. A. 378, 3 Am. Bankr. Rep. 801 ; In re Friederick, 95 Fed. 282; Ex parte Rob- inson, 7 Biss. 125, Fed. Cas. No. 11,933 ; In re Zimmerman, 202 Fed. 812, 30 Am. Bankr. Rep. 361. The earlier decisions were to the contrary. See In re Saut- hofif, 8 Biss. 35, 16 N. B. R. 18, Fed. Cas. No. 12,380 ; In re Hughes, 8 Biss. 107, 16 N. B. R. 464, Fed. Cas. No. 6,842. 26 9 In re Xoung, 3 N. B. R. 440, Fed. Cas. No. 18,148 ; In re Richardson, 11 N. B. R. 114, Fed. Cas. No. 11,776. 270 Stewart v. Brown, 37 N. Y. 350, 93 Am.- Dec. 578. 271 In re Andrews & Simonds, 193 Fed. 776, 27 Am. Bankr. Rep. 116; In re Parks, 9 N. B. R. 270, Fed. Cas. No. 10,765. Compare In re Blodgett, 10 N. B. R. 145, Fed. Cas. No. 1,5.55; In re Boothroyd, 14 N. B. R. 223, Fed. Cas. No. 1,652. See In re Solomon & John- son (D. C.) 254 Fed. 503, 43 Am. Bankr. Rep. 18. 272 See In re B. M. Fowler & Co., 145 Fed. 270, 16 Am. Bankr. Rep. 580 ; In re Wilson, 101 Fed. 571, 4 Am. Bankr. Rep. 260; In re W. J. Floyd & Co., 154 Fed. § 255 LAW OF BANKRUPTCY 590 On the other hand, it is held that the individual members of a bankrupt partnership are not entitled to claim any separate exemption out of the partnership assets in Ohio/'* South Dakota,*'* Pennsyl- vania, *'® Arkansas,^'® Alabama,*" New Jersey,*'* Vermont,*'* Mississip- pi,**' Indiana,**^ and Washington.*** Here again the question of the existence of a partnership, or of the membership in it of the claimant, may become important. One is not deprived of his right to exemp- tions by the mere fact that he has conducted his business under a name indicating that it was owned by a firm or a corporation, if in fact he was the sole owner of it.*** So, during the continuance of a partnership business, the partners have a right, by a transfer from one to the other, to transform the partnership property into the individual property of one of the partners, and to apply it to the payment of his individual debts, provided it is done in good faith and before creditors intervene and bring the property of the firm into court. And where this is done, and there is no fraud in the transaction, and no showing of the insol- vency of the firm, the assets belong to the continuing partner as an individual, and he is entitled to claim his exemptions out of them in bankruptcy proceedings subsequently brought against him.*** But on the other hand, where a firm which is insolv"ent dissolves, but there is no transfer of the property by the retiring partner to the liquidating partner, but the former simply abandons his interest in the firm, the liquidating partner will not be allowed to claim an individual exemption 757, 18.Am. Bankr. Rep. 827. An alleged 2^7 in re McCrary Bros., 169 Fed. 485, partner who escapes adjudication on the 22 Am. Bankr. Rep. 161. ground erf his being an infant cannot ^ts in re Demarest, 110 Fed. 638, 6 claim exemptions as a partner. In re Am. Bankr. Rep. 232. EUenbecker, 205 Fed. 396, 30 Am. Bankr. 279 in re Hosier, 112 Fed. 138, 7 Am. Rep. 537. Bankr. Rep. 268. 273 In re Rosenbaum, 1 Nat. Bankr. ^goin re H. W. Bundy & Co. (D C) News, 541 ; In re Tonne, 13 N. B. R. 170, 2I8 Fed. 711, 33 Am. Bankr. Rep. 289 ^"^- ?^; l\^t^^l-^ r°"T%9''i4f ''' ^^ ^« Tumock& Sons, 230 Fed. 985, Rupp, 4 N. BR. 95, Fed. Cas. No 12,141. ^^^ ^ ^ ^ 3^ ^^ ^^^^^ 274 In re Abrams, 193 Fed. 271; In re ^ . ' f " Novak, 150 Fed. 602, 18 Am. Bankr. Rep. ^ "' 5,T!!if'/- ^l^'^''^ l?" ^- ^"^ ^^^ 236; In re Lentz, 97 Fed. 486 ; In re I. S. ^^^d^ 347, 27 Am Bankr. Rep. 384 ; In Vickerman & Co., 199 Fed. 589, 29 Am. ""^ Kudmck, 2 Nat. Bankr. News, 769. Bankr. Rep. 298. Compare In re McKer- ^^^\n re Carpenter, 109 Fed. 558, 48 Cher, 8 N. B. B. 409. C. C. A. 545, 6 Am. Bankr. Rep. 465. 27 In re Prince & Walter, 131 Fed. asijn re Kolber, 193 Fed. 281, 27 Am. 546, 12 Am. Bankr. Rep. 675; In re Hafer, Bankr. Rep. 414, citing Sargent v. Blake, 1 N. B. R. 547, Fed. Cas. No. 5,896. ' 160 Fed. 57, 87 C. C. A. 213, 20 Am. 276 In re Head, 114 Fed. 489, 7 Am. Bankr. Rep. 115, 17 L. R. A. (N. S.) 1040. Bankr. Rep. 556; In re Meriwether, 107 And see In re Bjornstad, 9 Biss. 13, 18 Fed. 102, 5 Am. BanKr. Rep. 435 ; In re N. B. R. 382, Fed. Cas. No. 1,453 ; Craw- Handlin, 3 Dill. 290, 12 N. B. B. 49, Fed. ford v. Sternberg, 220 Fed. 73, 135 C. Cas. No. 6,018. O. A. 641, 33 Am. Bankr. Rep. 677. 591 EXEMPTIONS OF BANKRUPT § 256 out of the assets of the firm, on the theory that he is now the sole owner.**'' § 256. Dower and Allowances to Bankrupt's Widow. — The eighth section of the bankruptcy act provides that a proceeding in bankruptcy shall not be abated by the death of the bankrupt, but that, in that event, "the widow and children shall be entitled to all rights of dower and allowance fixed by the laws of the state of the bankrupt's residence." This does not create or extend any right of dower or allowance, but makes the right of a bankrupt's widow, and its nature and extent, de- pend entirely upon the local law.**" She will therefore have the same right of dower and the same allowances as are granted by the laws of the state of his domicile under similar circumstances.**'' But if the bankrupt dies seised of realty in various states, the court of bank- ruptcy of the bankrupt's residence will have exclusive jurisdiction after his death to determine the right of the widow to dower in such lands.*** As to real estate, the wife's inchoate right of dower is not defeated by the vesting of title thereto in the bankrupt's trustee. For this is only for purposes of administration, and the bankrupt himself remains seised of the land until his death for the purposes of inheritance and within the meaning of the statute.**'- And the trustee in bankruptcy may not sell the real estate free from the widow's rights, after the death of the bankrupt, nor divest her of her dower right without her con- sent.*^" But it is held otherwise as to personal property. After it has been delivered into the possession of a duly qualified trustee, the bank- rupt ceases to be "seised or possessed" of it, so that his subsequent death will not entitle the widow to claim a third of it, as she might have done if he had not been adjudged bankrupt.*" But it is not the duty of a trustee in ban^cruptcy to protect the dower rights of the bank- 285 In re Abrams, 193 Fed. 271. In re Slack, 111 Fed. 523, 7 Am. Bankr. 2 86 In re McKenzie, 132 Fed. 986, 13 Rep. 121; Cravens v. Shippen, 77 S. W. Am. Bankr. Kep. 227. And see Kelly v. 929, 25 Ky. Law Kep. 1322 ; Warford v. Strange, 3 N. B. K. 8, Fed. Cas. No. Noble, 9 Blss. 320, 2 Fed. 202. 7,676; In re Hester, 5 N. B. R. 285, Fed. 290 Porter v. Lazear, 109 XJ. S. 84, S Oas. No. 6,437. Compare Hurley v. Dev- Sup. Ct. 58, 27 L. Ed. 865; In re McKen- lin, 151 Fed. 919, 18 Am. Bankr. Rep. zie, 142 Fed. 883, 73 C. C. A. 483, 15 Am. g27. Bankr. Rep. 679 ; Smith v. Smith, 5 Ves. 287 In re McKenzie, 142 Fed. 383, 73 189; In re Angler, 4 N. B. R. 619, Fed. C. C. A. 483, 15 Am. Bankr. Rep. 679. Cas. No. 388; In re Bartenbach, 11 N. See in re Dicks, 198 Fed. 293, 28 Am. B. R. 61, Fed. Cas. No. 1,068. Bankr. Rep. 845. 291 in re McKenzie, 142 Fed. 383, 73 2 88 Hurley v. Devlin, 151 Fed. 919, 18 C. O. A. 483, 15 Am. Bankr. Rep. 679; In Am. Bankr. Rep. 627. re McKenzie, 132 Fed. 986, 13 Am. 289 Thomas v. Woods, 173 Fed. 585, 97 Bankr. Rep. 227; In re Slack, 111 Fed. G. 0. A. 535, 23 Am. Bankr. Rep. 132; 523, 7 Am. Bankr. Rep. 121. § 256 LAW OF BANKRUPTCY 592 rupt's wife against the consequences of her own acts prior to the bank- ruptcy.^"^ As to other grants made to a widow under the general name of "allowances," the court of bankruptcy lias power and jurisdiction to give her what the state law allows and a state court would give. Thus, in Connecticut, the judge of the court of bankruptcy may make a rea- sonable allowance to the bankrupt's widow, from his estate in bank- ruptcy, for her support during the settlement of the estate. ^^* In Ohio, the widow of a bankrupt having his domicile in that state is entitled to reside for a year in the mansion house of her deceased husband, if dower is not sooner assigned, and also to the allowance of a year's sup- port for herself and children, these grants being in lieu of the exemptions which the husband would have been entitled to claim from the estate in bankruptcy if he had lived.*"* The widow must assert her claims in some proper way before the court of bankruptcy. To entitle her to dower it is not sufficient for her merely to intervene in a suit by the trustee in bankruptcy to set aside an alleged fraudulent conveyance, and file a suggestion of her husband's death without any further action.-"'' .\nd where a state statute provides that a wife who is granted a divorce shall be entitled to one-third of the husband's personal property abso- lutely, a wife who has begun an action for divorce has no such claim upon the husband's personalty, before decree, as will entitle her to enjoin the distribution of the proceeds of the property in the hands of his trustee in bankruptcy.*"® Where the local law allows a year's support to the widow and children of a decedent out of his "estate," their right is not lost be cause of the fact that his estate had vested in a trustee in bankruptcy before his death,*"' nor by the fact that he had made an assignment for the benefit of his creditors within four months before his adjudica- tion in bankruptcy.*** 2B2 Dudley v. Easton, 104 XJ. S. 99, 26 29 « Hawk v. Hawk, 102 Fed. 679, 4 L.Ed. 668. Am. Bankr. Rep. 463. 2,3 In re Newton. 122 Fed. 103, 10 Am. ^^^ ^^^^ ^ 23^ ^ ^ Bankr. Bep. 345. Compare In re Sea- ' ' bolt, 113,Fed. 766, 8 Am. Bankr. Rep. 57. ^^^j^.^J^f ?' '^ ^- ^''- ^^^' '* ^'"• 2 94 In re Parschen, 119 Fed. 976, 9 Am. '^'^^'^^- ^"K- ^■ Bankr. Rep. 389. 29 s In re Scott, 226 Fed. 201, 141 C. 29B Gray v. Chase, 184 Mass. 444, 68 O. A. 653, 35 Am. Bankr. Rep. 746. N. E. 676. 593 EXAMINATIONS IN BANKEUPTOT § 25.7 CHAPTER XV EXAMINATIONS IN BANKRUPTCY Sec. 257. When Examinations May be Ordered. 258. Who May Apply for Examination. 259. Application and Order for Examination and Notice, 260. Process to Secure Attendance of Witness. 261. Examination of Non-Resident Witnesses. 262. Who Subject to Examination ; The Bankrupt. 263. Same; The Bankrupt's Wife. 264. Same ; Other Witnesses. 265. Second Examination of Bankrupt 266. Conduct of the Examination. 267. Same; Right to Counsel. 268. Objections to Questions and Rulings Thereon. 269. Scope of the Inquiry. 270. Privileged Communications. 271. Privilege Against Self-Criminating Testimony. 272. Use and Effect of Evidence. 273. Witness Fees and Costs of Examination. 274. Contempts by Witnesses. § 257. When Examinations May be Ordered. — The act of Congress provides that "a court of bankruptcy may, upon application of any offi- cer, bankrupt, or creditor, by order require any desigii^ted person, in- cluding the bankrupt and his wife, to appear in court or before a referee or the judge of any state court, to be examined concerning the acts, conduct, or property of a bankrupt whose estate is in process of ad- ministration under this act." ^ Moreover, with special reference to the examination of the bankrupt, it is made his duty "when present at the first meeting of his creditoi's and at such other times as the court shall order, to submit to an examination concerning the conducting of his business, the cause of his bankruptcy, his dealings with his creditors and other persons, the amount, kind, and whereabouts of his property, and, in addition, all matters which may affect the administration and settlement of his estate." * The estate of an alleged bankrupt is con- sidered as being "in process of administration" from the time of the filing of a petition in involuntary bankruptcy against him, and there- fore an examination of the bankrupt or any other witness may be or- dered by 'the court of bankruptcy, on the application of the receiver, or on the application of creditors if no receiver has been appointed, al- though no adjudication has yet been made,* more especially, it appears, 1 Bankruptcy Act 1898, § 21a, as s Cameron v. United States, 231 U. S. amended by Act Congress Feb. 5, 1903, 710, 34 Sup. Ct. 244, 58 L. Ed. 448, 31 32 Stat. 797. Am. Bankr. Rep. 604; In re Weiden- 2 Bankruptcy Act 1898, § 7, clause 9. feld, 254 Fed. 677, 166 C. C. A. 175, 42 Blk.Bkk.(3d,Bd.)— 38 § 258 LAW OF BANKRUPTCY 594 if the bankrupt has delayed the making of an adjudication by his dila- tory tactics.* But the making of an order for the examination of any other witness than the bankrupt, or of the bankrupt himself at any other time than at the first meeting of his creditors, is in the sound dis- cretion of the court of bankruptcy, and will not be reviewed by the ap- pellate court unless an abuse of that discretion is shown.^ § 258. Who May Apply for Examination. — In providing that an application for the examination of a witness may be made by any "offi- cer," Congress undoubtedly meant the referee and the trustee, for either of these officers may need further information to enable him to dis- charge his duties in any particular case. The term is also broad enough to cover the case of a receiver of the bankrupt's property appointed under the act, as he is within the definition of an "officer." " The bank- . rupt himself has the right to apply for an order for the examination of any designated witness. This may be necessary to enable him to re- pel fictitious or exaggerated claims against his estate, or to defeat the aims of hostile creditors who are fishing for facts on which to specify grounds of opposition to his discharge. Further, the right of appli- cation is given to creditors. Any person who has connected himself with the proceedings in that capacity, and established his status as a creditor by pro-V'ing his debt, clearly has the right to call for an exam- ination of the bankrupt or any other witness,'" and when the bankrupt is summoned to an examination at the instance of a creditor who has proved his claim, counsel for other creditors have no right to interpose any objections to his examination.* But it is not necessary that the ap- plicant should have proved his debt in the bankruptcy proceedings. It Am. Bankr. Rep. 425 ; Rawlins v. Hall- N. B. R. 443, Fed. Cas. No. 7,303. A Epps Clothing Co., 217 Fed. 884, 183 C. bankrupt summoned at the instance of a G. A. 594, 33 Am. Bankr. Rep. 237. creditor who has proved his claim can- But to warrant an order for the exami- not refuse to be sworn and examined nation of the alleged bankrupt before on the ground that the claim is not adjudication, where no receiver has been valid unless such invalidity has been appointed, the .application must show proved. In re Wlnship, 7 Ben. 194, some unusual situation with reference Fed. Cas. No. 17,878. Nor on the ground to the estate which makes an examina- that he has a set-off which will extin- tion necessary at that time for the pur- guish the claim of the creditor at whose pose of securing or preserving the assets instance the order for examination is- of the estate. In re Stell (D. C.) 269 sued. In re Kingsley, 6 Ben. 300, 7 N. Fed. 1008, 46 Am. Bankr. Rep. 492. B. R. 558, Fed. Cas. No. 7,818. Cred- ■1 In re Weidenfeld, 254 Fed. 677, 166 itors whose claims have been protested C. C. A. 175, 42 Am. Bankr. Rep. 425. against, if duly proved, will be entitled In re Weidenfeld, 254 Fed. 677, 166 to an order for the examination of the C. C. A. 175, 42 Am. Bankr. Rep. 425. bankrupt. In re Belden, 4 N. B. R. 194 In re Fixen & Co., 96 Fed. 748, 2 Fed. Cas. No. 1,241. Am. Bankr. Rep. 822. s in re Winship, 7 Ben. 194, Fed. Cas 7 See Ex parte Jewett, 2 Low. 393, 11 No. 17,878. 595 EXAMINATIONS IN BANKEUPTOT § ^59 is held that any person who has a provable debt and who shows that he is actually a creditor of the bankrupt, by being named as a creditor in the bankrupt's schedule, or by other evidence satisfactory to the referee, is entitled to an order for the examination of the bankrupt, although he has not formally proved his claim.* § 259. Application and Order for Examination and Notice. — By the express terms of the statute, the issuance of an order to the bankrupt, or a summons to a witness, to appear and be examined must be based upon an "application." Under the act of 1867, it was decided that a creditor who desired to obtain" an examination of the bankrupt must make a written application therefor, supporting the same by either a duly verified petition or an aiifidavit showing good cause for the grant- ing of the order," but that when the application was made by the as- signee in bankruptcy, it was not necessary that it should be verified or supported, as the assignee was an officer of the court, and it was only necessary that the court should be satisfied of the bona fides of his ap- plication.*^ There is nothing in the present bankruptcy law which requires the verification of such an application, or even that it should be in writing. A creditor applying for an order for examination will do well to make a formal written application, but it is in the discretion of the referee to order the examination on a mere oral application.** In the case of a receiver or trustee in bankruptcy, it is held that his simple application or demand for an order or summons is all that is required to support it, and that, when a third person is to be exam- ined, it is not necessary for the trustee to set forth, in the form of an application for the summons, the questions which are to be asked upon the examination, or the particular facts or transactions as to which he proposes to interrogate the witness.** 9 In re Samuelsohn, 174 Fed. 911, 23 of a proposed composition. In re Tifft, Am. Bankr. Kep. 528 ; In re Rose. 163 18 N. B. R. 177, Fed. Gas. No. 14,032. Fed. 686, 19 Am. Bankr. Rep. 169 ; In lo In re Adams, 2 Ben. 503, 2 N. B. R. re Kuffle'r 153 Fed. 667, 18 Am. Bankr. 95, Fed. Cas. No. 39. See In re Vetter- Rep. 587 ;' In re Jehu, 94 Fed. 638, 2 lein, 5 Ben. 7, 4 N. B. R. 599, Fed. Cas. Am Bankr. Rep. 498; In re Walker, 96 No. 16,926. Fed. 550, 3 Am. Bankr. Rep. 35. On a n In re McBrien, 2 Ben. 513, 2 N. B. similar principle, where the proposed R. 197, Fed. Cas. No. 8,665; In re La- examination of the bankrupt has a bear- nier, 2 N. B. R. 154, Fed. Cas. No. 8,070. ing on the question of his discharge, it 12 In re Abbey Press, 134 Fed. 51, 67 is not a necessary prerequisite to the or- C. C. A. 161, 13 Am. Bankr. Rep. 11. der for such examination that the cred- But see Craddock-Terry Co. v. Kaufman, itor applying therefor should have filed 175 Fed. 303, 23 Am. Bankr. Rep. 724. specifications in opposition to the dis- "In re Bryant, 188 Fed. 530, 26 Am. charge. In re Baum, 1 Ben. 274, 1 N. B. Bankr. Rep. 504 ; In re Fixen & Co., 96 R. 5 Fed. Cas. No. 1,116. But the right Fed. 748, 2 Am. Bankr. Rep. 822; In re of a creditor to examine the bankrupt Is Howard, 95 Fed. 415, 2 Am. Bankr. Rep. suspended by the creditor's acceptance 582. § 259 LAW OF BANKRUPTCY 696 When a petition in involuntary bankruptcy has been filed, which the bankrupt means to contest, denying the acts of bankruptcy charged, and the petitioning creditors apply for an examination of the bankrupt before any adjudication is made, the bankrupt is entitled to notice of the application and to an opportunity to resist the making of the order asked for." But when the bankrupt is cited before the referee for exam- ination before any meeting of his creditors has been held and before the appointment of a trustee, and the object of the examination is merely to obtain information on which to prepare the schedures, it is not essential to the validity of the proceeding that notice should have been given to the creditors.^^ But after the list of creditors has been filed, all those whose names appear on it, or who have otherwise made themselves parties to the proceeding, are entitled to at least ten days' notice by mail of any proposed examination of the bankrupt.-*^* It is usual to combine this notice with the notice of the first meeting of creditors, by incorporating in the latter a statement that creditors may, at such meeting, examine the bankrupt. It is also proper that an examination of the bankrupt should be had to enable creditors to pre- pare specifications in opposition to his discharge. Notice of this exam- ination must be given, it must be open to all creditors, and ordinarily it will be had once for all. To avoid expense and delay, the notice to creditors to attend in opposition to the discharge may embrace a notice of examination of the bankrupt.^'' But while creditors must have no- tice of examinations of the bankrupt, the converse is riot true. When the trustee desires to examine a witness for the purpose of discovering property of the bankrupt, and causes a summons to issue, it is not nec- essary to give notice to the bankrupt of the time and place of such examination.^* As to informing third parties, whose interests may be affected by an examination in bankruptcy and the orders which may be founded on it, it is said that the proceeding is administrative in char- acter, and one in which the jurisdiction of the court is not dependent on the service of regular process, as it would be in a suit", and hence a 1* Rawlins v. Hall-Epps Clothing Co., allowed to cross-examine the witness, 217 Fed. 884, 133 C. C. A. 594, 33 Am. particularly if evidence were being elieit- Bankr. Kep. 237. ed which might be used against him on 1 In re Franklin Syndicate, 101 Fed. his application for discharge. But as 402, 4 Am. Bankr. Rep. 244. neither the act nor the general orders i« Bankruptcy Act 3£98, § 58. provide for notice to the bankrupt of the 17 In re Price, 91 Fed. 635, 1 Am. examination of a third party, it would Bankr. Rep. 419. seem that he has no such right to be 18 In re Levy, 1 Ben. 454, 1 N. B. R. present and take part as will make it 107, Fed. Gas. No. 8,295 ; In re Dunqan, necessary for the trustee to give him 8 Ben. 541, Fed. Cas. No. 4,132. Prob- previous notice. ably the bankrupt; if present, would be 597 EXAMINATIONS IN BANKEUPTOT § 260 notice given by mail a reasonable time before the hearing is sufficient.^® The order for an examination is to be made by "the court." But as this term ordinarily includes the referee, unless otherwise specified, it is held that, where a bankruptcy proceeding has been referred generally to a given referee, he has jurisdiction to order a third person, such as a secured creditor, to appear before him for examination.^* It should be noticed that the authority to summon persons for examinations in bankruptcy includes the power to order the production of books and papers.*^ § 260. Process to Secure Attendance of Witness. — Power and ju- risdiction to make an order requiring the bankrupt or any other com- petent witness to appear and submit to examination are vested in the referee in bankruptcy .^^ In case the bankrupt is the person to be ex- amined, an order for his attendance is made by the referee and a copy of the same is to be delivered to the bankrupt forthwith.** He may be required in the same order, or by a separate similar order, to produce his books of account or other papers needed for the investigation of his affairs, and a formal subpoena duces tecum is neither necessary nor proper for this purpose.** In the rare case where the bankrupt is a prisoner in jail, his attendance may be secured by means of the writ of habeas corpus ad testificandum. But this writ does not issue as a matter of right, on the request of creditors, but its employment rests in the discretion of the court, and it will not be granted except where it is strictly necessary, and especially when the prisoner is confined by authority of a state court.*^ If a person other than the bankrupt is to be the witness, the case is governed by General Order No. 3, which provides that "all process, summons, and subpoenas shall issue out of the court, under the seal thereof, and be tested by the clerk." The process to secure the attendance of such a witness is therefore a writ which is in the nature of a subpoena, but which is officially designated a "summons," sealed and tested as required; and which must be served 10 In re tewin, 103 Fed. 850, 4 Am. Brandt. 2 N. B. E. 215, Fed. Cas. No. Bankr. Kep. 6.S2. And see Swartz v. 1,812; In re Lanier, 2 N. B. R. 154, Fed. Frank, 183 Mo. 438, 82 S. W. 60. Cas. No. 8,070; In re Abbey Press, 134 20 In re Abbey Press, 134 Fed. 51, 67 Fed. 51, 67 C. C. A. 161, 13 Am. Bankr, C. C. A. 161, 13 Am. Bankr. Kep. 11. Rep. 11. 21 In re Mendenhall, 9 N. B. R. 285, 23 official Form No. 28. Fed. Cas. No. 9,423 ; In re Soloway & 2* In re Soloway & Katz, 195 Fed. 103, Katz, 195 Fed. 100, 103, 28 Am. Banlcr. 28 Am. Bankr. Rep. 228. Rep. 225, 228; In re Ironclad Mfg. Co. 25 in re Thaw, 166 Fed. 71, 91 C. C. (C. C. A.) 201 Fed. 66. A. 657, 21 Am. Bankr. Rep. 561; In re 22 In re Pioneer Paper Co., 7 N. B. Thaw, 172 Fed. 288, 22 Am. Bankr. Rep. R. 250, Fed. Cas. No. 11,178; In re 687. § 261 LAW OF BANKRUPTCY 598 on the witness in the usual manner.*® If the witness fails or refuses to appear, he is to be dealt with by the judge, on a certificate of the facts from the referee, and may be punished as for contempt; but an appli-- cation to the court for an attachment in the first instance, without such certificate, is irregular and improper.*' It has also been held that or- ders requiring the attendance of the bankrupt or other witnesses, at a designated time and" place, for the statutory examination, may be considered as "process" within the meaning of the last clause of Gen- eral Order No. 3, that "blanks, with the signature of the clerk and the seal of the court, may, upon application, be furnished to the referees." And where applications to the referee for summons to witnesses, in cases before him, become so numerous that it would be exceedingly irksome to fill out each summons and send it by a messenger to the clerk's office to procure the signature of the clerk and the seal of the court, it will be a proper case for directing the clerk to furnish the blanks to the referee.** § 261. Examination of Non-Resident Witnesses. — In the matter of securing the attendance of a witness in bankruptcy proceedings, the court may exercise all the power conferred upon it in ordinary civil cases, and hence the process may run into another district.*® But the bank- ruptcy law provides that no person shall be required to attend as a witness before a referee "at a. place outside of the state of his residence and more than one hundred miles from the place of such residence." ^*' The courts have virtually reconstructed this clause by reading it dis- junctively instead of conjunctively. And it is held that a person can- not be compelled to leave the state where he resides, to be, a witness before a referee in bankruptcy, though his residence is less than one hundred miles from the place of the hearing,*^ and that one cannot be compelled to attend an examination in bankruptcy at a distance of 2 Official Form 'No. 30. Sefe In re B. R. 297, Fed. Cas. No. 18,000. See Bellamy, 1 Ben. 390, 1 N. B. E. 64, Fed. Rev. Stat. U. S. § 876. Ca,s. No. 1,266. Where a witness is ac- so Bankruptcy Act 1898, § 41. An al- tually present before the referee in leged bankrupt, although he has removed bankruptcy for examination when an from the district where involuntary pro- order that he shall be sworn is made, the ceedings are pending against him, yet, fact that the subpoena issued and served when in the district in attendance on upon him was not under seal is imma- such proceedings, is subject to all law- terial. In re Abbey Press, 134 Fed. 51, ful orders of the court therein, including 67 0. C. A. 161, 13 Am. Bankr. Rep. 11. an order to appear for examination. In 2 7 In re Kerber, 125 Fed. 653, 10 Am. re Havens, 2.55 Fed. 478, 166 C. C. A. Bankr. Rep, 747. 554, 42 Am. Bankr. Rep. 734. 28 In re Bellamy, 1 Ben. 890, 1 N. B. si in re Cole, 133 Fed. 414, 13 Am. R. 64, Fed. Cas. No. 1,266. Bankr. Rep. 300. 2 9 In re Woodward, 8 Ben. 112, 12 N. 599 EXAMINATIONS IN BANKIiUPTCY § 261 more than one hundred miles from where he lives, though it is within the same state.** But where this condition exists, the witness may be required to appear before a designated referee in the district where the witness lives, and in this case the referee conducts the examination in the capacity and with the powers of a referee in bankruptcy, and not merely as an examiner with the powers granted under the general eq- uity rules.** Or the trustee or a creditor may apply to the court of bankruptcy in the district where the witness lives, and that court will have ancillary jurisdiction to order the examination within its own ter- ritory.** Another course is to take the evidence of the witness by dep- osition,*^ as to which the statute provides that the right to take dep- ositions in bankruptcy proceedings shall be determined and enjoyed ac- cording to the general laws of the United States relating to the same subject, except that notice of the taking of depositions shall always be filed with the referee, and that when depositions are to be taken in opposition to the allowance of a claim, notice shall also be served upon the claimant, and when in opposition to a discharge, notice shall also be served upon the bankrupt.*® It is in this connection that we dis- cover the significance of the twenty-first section of the act. which pro- vides that a witness in bankruptcy proceedings may be ordered to ap- pear for examination "in court or before a referee or the judge of any state court." For it is only when the evidence of the witness is to be taken by deposition that the examination could be conducted by a state judge.*' When a commission is issued by a court of bankruptcy and sent into another state, the circuit court in such state may compel a witness to testify or punish him for refusal.** If the witness resides in 82 In re Hemstreet, 117 Fed. 568, 8 3o Bankruptcy Act 1898, § 21b. See In Am. Bankr. Rep. 760. , re Robinson (D. C.) 179 Fed. 724, 24 33 In re Sturgeon, 139 Fed. 608, 71 C. Am. Bankr. Rep. 617. The laws of the C. A. 592, 14 Am. Bankr. Rep. 681; In United States relating to the taking of re Williams, 123 Fed. 321, 10 Am. Bankr. depositions are found in Rev. Stat. §§ Rep. 538 ; In re Kyler, 2 Ben. 414, 2 N. 863-870, 875, 1750. B. R. 649, Fed. Cas. No. 7,956. s' Rev. Stat. U. S. § 863, provides that 8* In re Sutter Bros., 131 Fed. 654, 11 depositions may be taken before "any Am. Bankr. Rep. 632. Compare In re chancellor, justice, or judge of a su- Williams, 123 Fed. 321, 10 Am. Bankr. preme or superior court, or judge of a Rep. 538. county court or court of common pleas 85 Under Bankruptcy Act 1898, § 21b, of any of the United States." taken In connection with Rev. Stat. § ssin re- Johnston, 14 N. B. R. 569, 863, the court of bankruptcy is author- Fed. Cas. No. 7,423. On an application Ized to take the depositions of witnesses for attachment of witnesses for con- who reside more than 100 miles from tha tempt in not making answers on examl- place of trial, whether within or without nation under a commission sent by the the state. In re Washington Steel & bankruptcy court into another district Bolt Co. (D. C.) 210 Fed. 984, 32 Am. and state, the attachment will be re- Bankr. Rep. 153. fused where no written interrogatories § 262 LAW OF BANKRUPTCY 600 a foreign country, his testimony cannot be taken upon a deposition, but a commission must issue.** § 262. Who Subject to Examination; The Bankrupt. — The bank- rupt, "when present at the first meeting of his creditors, and at such other times as the court shall order," is required to "submit to an ex- amination concerning the conducting of his business, the cause of his bankruptcy, his dealings with his creditors and other' persons, the amount, kind, and whereabouts of his property, and, in addition, all mat- ters which may affect the administration and settlement of his estate." *" Disobedience on the part of a bankrupt to an order of the court re- quiring him to appear for examination, or refu.sal to be sworn or to an- swer a proper question, or to produce books and papers, is a contempt of court which may be punished, and the bankrupt's compliance com- pelled, by fine and imprisonment.'" If llie bankrupt attempts to leave the district, in order to avoid examination, he may be arrested and held until he has been examined or given bail for his appearance.** On the other hand, he cannot be required to attend for the purpose of an examination at any place more than one hundred atul fifty miles dis- tant from his home or- principal place of business, unless ordered by the court for cause shown, and although he cannot demand the fees of a witness, as a condition to his being sworn,*' yet, by the express terms of the statute, he "shall be paid his actual expenses from the estate when examined or required to attend at any place other than the city, town, or village of his residence." (Section 7, clause 9, proviso.) Creditors must have at last ten days' notice by mail of all examinations of the bankrupt (Section 58), and the bankrupt cannot offer terms of composition to his creditors until after he lian been examined in open court or at a meeting of creditors (Section 12), As to the stage of the proceedings at which an examination of the accompanied the commission, and no in- Fed. <,lfis. No. U,S78; in re Rosenblum formation is furnished as to the partic- (D. C.) 268 H'tid. 381, 45 Am. Bankr. Rep. ular inquiry. In re Glaser, 2 N. B. R. S84. 398, Fed. Cas. No. 5,476. *2 Bankruptcy Act 1898, § 9b. And 8 9 Cortes Co. v Tannhauser, 18 Fed. where a bankrupt who has been ordered 667. to submit to a further examination de- io Bankruptcy Act 1898, § 7, cl. 9. parts from the district before the time «i Bankruptcy Act 1898. § 2, cl. 13. appointed, without an examination, his See In re Carpenter, 1 N. B. R. 299, Fed. discharge will not be granted until he Cas. No. 2,427; In re Holt, 3 N. B. R. has duly submitted to the examination. 241, Fed. Cas. No. 6,646; In re Rosen- In re Kingsley, 16 N. B. R. 301, Fed. field, 1 N. B. R. 319, Fed. Cas. No. 12,- Cas. No. 7,820. 059; In re Allen, 13 Blatchf. 271, Fed. *3 In re Okell, 2 Ben. 144, 1 N. B. R. Cas. No. 208; In re Winship, 7 Ben. 194, 303, Fed. Cas. No. 10,474. 601 EXAMINATIONS IN BANKRUPTCY § 263 bankrupt may be had, it was shown above (§ 257) that he may be sum- moned for this purpose at any time after the filing of a petition against him, even though no adjudication has yet been made. Under the for- mer law, it was held that the bankrupt could not be compelled to sub- mit to an examination after he had received his discharge, or at least after the expiration of the time within which an application to set aside the discharge might be made." Under the present act, the opinion has been advanced that a creditor or the trustee has the right, even after the discharge of the bankrupt, to examine him to ascertain wheth- er he has concealed any property from his trustee, and this right con- tinues for a year, or during the period within which the discharge could be revoked.*^ § 263. Same; The Bankrupt's Wife. — The bankruptcy statute of 1867 provided that "for good cause shown, the wife of any bankrupt may be required to attend before the court to the end that she may be examined as a witness; and if she does not attend at the time and place specified in the order, the bankrupt shall not be entitled to a discharge unless he proves to the satisfaction of the court that he was unable to procure her attendance." *® No such provision was found in the act of 1898 as originally enacted, but the wife of the bankrupt was undoubt- edly included in the power of the court to order the appearance for ex- amination of "any designated person." But she could not be examined unless she was, in the words of the law, a "competent witness" (that is, for or against her husband) "under the laws of the state in which the proceedings are pending." *' And where, by the law of the state, a wife could not be a witness for or against her husband, it was held that she could not be required, in proceedings in bankruptcy against her husband, to testify concerning property in her possession alleged to have been conveyed to her in fraud of the bankrupt's creditors, though it was thought that the trustee in bankruptcy, seeking to recover such property, might proceed by a bill of discovery against the wife.** But on the other hand, if competent as a witness, the wife of the bankrupt might be interrogated as to money or other property in her possession, **In re Jones, 6 N. B. R. 386, Fed. Van Tuyl, 3 Ben. 2.3T, 2 N. B. E. 579. Cas. No. 7,449 ; In re WitkowsM, 10 N. Fed. Cas. No. 16,879 ; In re Selig, 1 N. B. R. 209, Fed. Cas. No. 17,290; In re B. R. 186, Fed. Gas. No. 12,641. Dole, 11 Blachf. 499, 9 N. B. E. 193, Fed. *' Bankruptcy Act 1898, § 21. Cas. No. 3,964. Compare, In re Heath, is In re Fowler, 93 Fed. 417, 1 Am. 7 N. B. R. 448, Fed, Cas. No. 6,304. Bankr. Rep. 555 ; In re Jefferson, 96 *5 In re Peters, 1 Nat. Bankr. News, Fed. 826, 3 Am. Bankr. Rep. 174; In re 165, per Olmstead, Referee. Mayer, 97 Fed. 328, 8 Am. Bankr. Rep. *« Rev. Stat. U. S. § 5088. See In re 222. § 263 LAW OF BANKRUPTCY 602 and as to how and when the same was received or acquired, provided only that the testimony showed such questions to be reasonably perti- nent to the subject of inquiry, which is, in a general sense, the nature and location of the assets of the bankrupt." But an amendment to the bankruptcy law was enacted by Congress in 1903, which materially changed the law on this point. On the one hand, it removed the requirement that the wife should be a competent witness under the laws of the state. On the other hand, it limited the scope of her examination. As at present in force, the statute provides that the court of bankruptcy may "require any designated person, in- cluding the bankrupt and his wife, to appear in court or before a referee or the judge of any state court, to be examined concerning the acts, conduct, or property of a bankrupt whose estate is in process of admin- istration under this act: Provided, that the wife may be examined only touching business transacted by her or to which she is a party, and to determine the fact whether she has transacted or been a party to any business of the bankrupt." ^'' It is said, however, that a certain latitude must be permitted in her examination, and if there is reasonable ground therefor, she may be interrogated to determine whether a business con- ducted in her name is in fact hers or the bankrupt's, and may be asked such questions as are pertinent to that inquiry." Bi^t the bankrupt's wife cannot be required to testify as to mere confessions or admissions of her husband in regard to his dealings with third persons. There is nothing in the act to destroy the privilege of such confidences."* If the wife of the bankrupt, being duly summoned to appear and be ex- amined, fails or refuses to attend before the referee, or declines to be sworn or to answer any proper question, she is to be dealt with as any other witness, that is, by an attachment to enforce her attendance, and punishment as for contempt if she will not respond to the questions. ^' § 264. Same; Other Witnesses. — Any person who possesses in- formation concerning the acts, conduct, or property of a bankrupt whose estate is in process of administration under the law, may be sum- moned for examination -as a witness. This process is meant primarily i» In re Foerst, 93 Fed. 190, 1 Am. b2 In re Jefferson, 96 Fed. 826, 3 Am. Bankr. Rep. 259; In re Post, 1 Nat. Bankr. Rep. 174; In re Gilbert, 1 Low, Bankr. News, 527. . 340, Fed. Gas. No. 5,410. 5 Act Cong. Feb. 5, 1903, 32 Stat. 797, 8 In re Bellis, 38 How. Prac. (N. Y.) amending Bankruptcy Act 1898, § 21a. 88, 3 N. B. R. 270, Fed. Gas. No. 1,276 ; 01 In re Worrell, 125 Fed. 159, 10 Am. In re Woolford, 4 Ben. 9, 3 N. B. R.' 444^ Bankr. Rep. 744. Fed. Gas. No. 18,029 ; In re Van Tuyl' 2 N. B. R. 70, Fed. Cas. No. 16,881. 603 EXAMINATIONS IN BANKRUPTCY § 264 to aid the trustee in discovering and collecting the assets. But any creditor of the estate may also apply for the examination of a third per- son, though his right to do so is not unqualified, it being the duty of the court to exercise its discretion as to awarding the summons asked for."* This examination of a third person is a proceeding entirely inde- pendent of the examination of the bankrupt himself at the instance of the creditors; and a witness cannot object to being examined on the ground that there has not yet been any examination of the bank- rupt."^ Nor can he object to being sworn and examined on the ground that no issue has been made up for determination, or that there is no fact in dispute, and that therefore he cannot be questioned in the char- acter of a "witness." The object of such an examination is to obtain in- formation a:s to the bankrupt's property and conduct, not to prove or disprove some controverted fact."® A person summoned for examina- tion in a proceeding in bankruptcy, on the application of a temporary receiver appointed by the court of bankruptcy, cannot refuse to attend or be examined on the ground that the order appointing the receiver was erroneous or improvidently made."'' A creditor, as well as any other person, may be subject to this examination and may be interrogated as to his own claim' against the bankrupt, to the end that it may be strick- en out if the evidence shows that it cannot be supported."* So also, an assignee for the benefit of creditors or a trustee in insolvency appoint- ed by a state court, though more than four months before the bank- rutcy proceedings, may be summoned for examination and interro- gated concerning the .disposition made by him of the bankrupt's as- sets."" Also the trustee in bankruptcy may be subpoenaed and required to testify in the same manner as any other witness. But he is not sub- ject to examination at any time on the mere motion of a cy editor, and an order for his examination will not be granted unless it is asked upon 54 In re Andrews, 130 Fed. 383, 12 Where a witness is the assignee of cer- Am. Bankr. Rep. 267. tain debts due from the bankrupt to his 55 In re Levy, 1 Ben. 4.54, 1 N. B. R. creditors, it is not a suflBcient reason 107, Fed. Cas. No. 8,295 ; In re Freden- for him to refuse to testify before the berg, 2 Ben. 133, 1 N. B. R. 268, Fed. referee as to the actual consideration Cas. No. 5,075. P^W for the claims, that the considera- 5 6 In re Blake, 2 N. B. R. 10, Fed. tion did not come from the bankrupt Cas. No. 1,492. or his estate, and that to answer would 5 7 In re Fixen & Co., 96 Fed. 748, 2 be revealing the private business of the Am. Bankr. Rep. 822. See In re Fein- witness unnecessarily and prejudice him berg, 3 Ben. 162, 2 N. B. B. 425, Fed. in another suit then pending. In re Cas. No. 4,716. Trask, 7 Ben. 60, Fed. Cas, No. 14,141. 58 In i-e Kyler, 2 Ben. 414, 2 N. B. R. 5 9 in re PurseU, 114 FSd. 371, 8 Am. 649, Fed. Cas. No. 7,956; In re ClifEe, 97 Bankr. Rep. 96. Fed. 540, 3 Am. Bankr. Rep. 257. § 264 LAW OF BANKRUPTCY 604 some issue regularly referred to the referee.®* The law also ^ provides that a person shall be liable to punishment as for contempt, if he shall "neglect to produce, after having been ordered to do so, any pertinent document," and tKat the word "document" shall include any book, deed, or instrument in writing.*^ A receiver appointed by a state court, against whom a suit is. pending by the trustee in bankruptcy for the possession of the bankrupt's books, is not privileged to refuse to pro- duce the books and 'testify before the referee.** And it is held that, where it is alleged that the bankrupt's stock of goods was sold by him to a certain corporation without adequate consideration, the sale being induced by the fraud of the vendee, a receiver of the bankrupt's estate has the right, under process from the court of bankruptcy, to examine any books or documents of such corporation showing or tending to show its receipt or disposition of said stock, or in any other way relat- ing thereto.** So also, where a corporation organized m, the successor of a partnership is a mere fiction, its business and assets being those of the partnership, and the firm is adjudged bankrupt, the books of the corporation must be submitted for examination in the bankruptcy pro- ceedings, if demanded.** The officers of a corporation represent it and may be required to submit to an examination in bankruptcy proceedings against the cor- poration.*^ § 265. Second Examination of Bankrupt. — It is the right of credi- tors to have a full disclosure, on oath, by the bankrupt of everything relating to his estate, and with such detail as may be necessary or useful to the trustee in the discharge of his duties, and it is the duty of the bankrupt to submit to such examination promptly on reasonable appli- cation. Moreover, each of the creditors has equally the right to exam- ine the bankrupt, and the fact that one of the creditors has already exer- cised this privilege is not necessarily a reason why the bankrupt should not again be examined at the instance of another creditor. A full and fair opportunity must be allowed to all the creditors to inquire into the so In re Smith, 14 N. B. R. 432, Fed. ceeding. In re Mandel (D. C.) 224 Fed. Oas'. No. 12,988. 642, 35 Am. Bankr. Rep. 386. 61 Bankruptcy Act 1898, § 41a; and «8 In re Fixen & Co., 96 Fed. 748, 2 § 1, cl. 13. And see In re United States Am. Bankr. Rep. 822. Grapliite Co., 159 Fed. 300, 20 Am. o^ In re Horgan, 97 Fed. 319; affirmed, Bankr: Rep. 280. 98 Fed. 414, 39 C. C. A. 118, 3 Am. 02 In re Hulst, 7 Ben. 40, Fed. Gas. Bankr. Rep. 253. No. 6,864. Bi}t a state prosecuting offi- «° Powell v. Pangltorn, 161 App. Div. cer will not be required to deliver to a 453, 145 N. X. Supp. 1073; In re Fred receiver or trustee in bankruptcy books 0. Henderson, Inc. (D. C.) 266 Fed. 254, and papers which he is about to use, 44 Am. Bankr. Rep. 446. and needs for use, in a criminal pro- 605 BXAJ[INATIONS IN BANKRUPTCY § 266 matters pertinent to such investigation, and it is unquestio?iably with- in the authority of the court to order the bankrupt to appear and be examined a second time, or as often as proper occasion for it may be found to exist.*' At tlie same time, the court, in the exercise of a sound discretion, should so regulate the time and manner and course of the examinations as to protect the bankrupt from unnecessary annoyance or oppression and delay. Thus, the court may order all the creditors to unite in one and the same examination, if that seems the proper course. And when the bankrupt has once fully submitted to an examination, he has a right to be protected against unreasonable demands upon his time for further examination, and after ample opportunity has been afforded and an apparently full examination had, a second examination- will not be ordered unless some substantial reason for such an, order is present- ed and established." Where an examination of the bankrupt is abruptly terminated by the failure of the trustee's counsel to appear, and an or- der for a new examination is taken, the bankrupt cannot refuse to at- tend or to testify.®* § 266. Conduct of the Examination. — It is provided by the general orders in bankruptcy that "the examination of witnesses before the referee may be conducted by the party in person or by his counsel or attorney, and the witness shall be subject to examination and cross- examination, which shall be had in conformity with the mode now adopted in courts of law." *^ In examinations in bankruptcy, as in oth- 66 In re Bryant, 188 Fed. 530, 26 Am. bankrupt. In re Levy, 1 N. B. K. 184, Bankr. Rep. 504 ; In re Mellen, 97 Fed. Fed. Gas. No. 8,299. Where an attorney 326, 8 Am. Bankr. Rep. 226 ; In re Vo- offers to examine the bankrupt in be- gel, 5 N. B. R. 393, Fed. Gas. No. 16,984; half of a creditor, and it appears that In re Brandt, 2 N. B. R. 345, Fed. Gas. his power of attorney has been revoked, No. 1,813. it is not error for the referee to refuse 6 7 In re Frisbie, 13 N. B. R. 349, Fed. the attorney the right to examine the Gas. No. 5,131 ; In re Adams, 3 Ben. 7, bankrupt as to the circumstances under 2 N. B. R. 272, Fed. Gas. No. 40; In re which the revocation of his power of Isidor, 2 Ben. 123, 1 N. B. R. 264, Fed. attorney had been obtained. In re Gas. No. 7,105 ; In re Gilbert, 1 Low. ^ifft, 17 N. B. R. 550, Fed. Gas. No. 14,- 340, 3 N. B. R. 152, Fed. Gas. No. 5,410. 030. On the examination of a witness 6 8 In re Van Tuyl, 2 N. B. R. 70, Fed. respecting the bankrupt's estate, on the Gas. No. 16,881. application, of a creditor, it is held that 6 9 General Order No. 22. See In re other creditors have no right to inter- Dunn, 9 N. B. R. 487, Fed. Gas. No. veue and object to questions asked. In 4,173. Explicit authority to the referee re Stuyvesant Bank, 6 Ben. 33, 7 N. B. to administer the oath to witnesses, and R. 445, Fed. Gas. No. 13,582. As to the to conduct the examination generally, right of counsel for one witness to cross- is found in section 38, clause 2, of the examine another witness, and the ref- act. And see United States v. Ambrose, eree's discretion in allowing or refusing 2 Fed. 556. The attorney for the trustee it, see In re Jordan, 2 Nat. Bankr. News, in bankruptcy may act as attorney for 640. the creditors in the examination of the § 266 LAW OF BANKRUPTCY 606 er proceedings, the trustee is the trustee of all the creditors, and pri- marily represents them all.'"' But an examination of witnesses before a referee is a "proceeding in bankruptcy" before a court, and every creditor of the bankrupt is a party in interest and entitled to participate therein.'^ But the word "creditor" does not include the agent, attor- ney in fact, or proxy of a creditor, and a creditor cannot appoint a rep- resentative who is not an attorney at law, to examine the witnesses be- fore the referee.''^ Although the Bankruptcy Act gives latitude in an examination of this kind, it does not otherwise abrogate the rule as to the examination and cross-examination of witnesses which prevails in the federal courts.'* And it is held that this rille applies to the exam- ination of the bankrupt himself as well as to that of any other witness, and consequently, when the bankrupt has been examined by a creditor or by the trustee, he may be cross-examined' by his own counsel so far as may be necessary to explain or qualify any matters brought out on the direct examination which may seem to bear unfavorably upon his conduct or dealings, or which are obscure.'* The rules also provide that "a deposition taken upon an examination before a referee shall be taken down in writing by him or under his direction, in the form of a narrative, unless he determines that the examination shall be by ques- tion and answer. When completed, it shall be read over to the witness and signed by him in the presence of the referee." '* It has been held that the referee, as a judicial officer, is not required either by custom, the bankruptcy act, or the rules, to take the notes of testimony person- ally, or to incur the expense of clerical or stenographic aid therein for the benefit of a creditor examining the bankrupt, without indemnity therefof. He should supervise or direct the taking of testimony at the expense of the parties desiring it, or he may allow it to be taken by the parties themselves.'® But the referee, upon the application of the trus- fo Mechanics' & Traders' Ins. Co. v. a referee, in wMch the bankrupt or other McVay, 142 Ark. 522, 219 S. W. 34. witnesses are examined, and all such 71 The Prussian (D. C.) 255 Fed. 857, hearings must be taken down in writ- 43 Am. Bankr. Rep. 13. ing, read over to the witness, and signed 72 In re Looney (D. 0.) 262 Fed. 209, by him. In re Post (D. C.) 256 Fed. 236, 44 Am. Bankr. Kep. 542. 43 Am. Bankr. Rep. 136. The examin- 7 8 In re Kinnane Co. (D. O.) 217 Fed. ing party has the right to insist that 488, 33 Am. Bankr. Rep. 243. the examination shall be reduced to writ- 74 In re NoVes, 2 Low. 352, 11 N. B. ing. In re Jackson, 8 N. B. R. 424, Fed. E. Ill, Fed. Cas. No. 10,370 ; In re Cas. No. 7,128. A witness, having been Leachman, 1 N. B. R. 391, Fed. Cas. No. examined and his testimony taken down, 8,157 ; In re Levy, 1 Ben. 496, 1 N. B. R. is entitled to read over his testimony 136, Fed. Cas. No. 8,296. Compare In re before being required to sign it. In re . Bragg, Fed. Cas. No. 1,799. Waters-Colver Co. (D. C.) 212 Fed. 761, 7 6 General Order No. 22. In this or- 32 Am. Bankr. Rep. 379. der, the word "deposition" applies to all 7e In re Warszawiak, 1 Nat. Bankr. hearings in bankruptcy matters before News, 135. 607 EXAMINATIONS IN BANKRUPTCY § 267 tee in bankruptcy, may authorize the employment of a stenographer to report and transcribe the proceedings at the expense of the estate." When this is done, the testimony of the witness will be taken down by question and answer, and the hearing will be adjourned until the ste- nographer has transcribed his notes, after which the deposition should be read over to the witness and signed by him in the presence of the referee. If a witness should refuse to sign his deposition after it has been transcribed and read to him, it is probable that he might be re- quired to do so by an order, disobedience to which would be a con- tempt.'* The bankrupt cannot require the referee to have his testimony taken down in longhand when the trustee furnishes a stenographer.'"* The referee has a general control over the conduct and course of the examination ; but it is said that he has no authority to limit in advance the time within which the examination must be concluded.** He may adjourn the examination for sufficient cause,*^ and although he is re- quired to certify to the judge for decision questions arising in the course of the proceeding, he may properly refuse to suspend the examination which is pending until the decision of such questions, at least where no creditor is at that time entitled to priority.** § 267. Same; Right to Counsel. — A stranger to the proceedings (that is, one who is neither the bankrupt himself nor a creditor) when summoned to appear and be examined in bankruptcy, at the instance of the trustee or the creditors, has no right to have the attendance and advice of counsel at his, examination.** Neither is a creditor of the bankrupt a "party" to the proceeding, in any such sense as to entitle him to interfere with it or be represented in it by counsel, or at least it is in the judicial discretion of the referee to permit or refuse such representation.** But in the case of the bankrupt himself, it is different. The rule is well settled that he is entitled to be attended by his counsel' on his examination, and that the attorney may interpose objections to TT Bankruptcy Act 1898, § 38, cl. 5. 4,716; In re Predenberg, 2 Ben. 133, 1 N. Ts See Bankruptcy Act 1898, § 41 ; Ar- B. K. 268, Fed. Cas. No. 5,075 ; In re nold V. Kearney, 29 Fed. 820. Feeny, 1 Hask. 304, Fed. Cas. No. 4,715; 79 In re Frey, 9 Ben. 185, Fed. Cas. In re Stuyvesant Bank, 6 Ben. 33, 7 N. No. 5,114. B. E. 445, Fed. Cas. No. 13,582; In re 80 In re Tift, 17 N. B. R. 421, Fed. Schonberg, 7 Ben. 211, Fed. Cas. No. Cas. No. 14,036 ; In re Waitzfelder, 8 12,477 ; In re Comstock, 3 Sawy. 517, Ben. 423 ; Fed. Cas. No. 17,047. Fed. Cas. No. 3,080 ; In re Howard, 95 81 In re Robinson, 2 N. B. R. 516, Fed. Fed. 415, 2 Am. Bankr. Eep. 582. Cas. No. 11,942. , si in re Abbey Press, 134 Fed. 51, 67 82 In re Tifft, 17 N. B. R. 550, Fed. C. C. A. 161, 13 Am. Bankr. Eep. 11 ; In Cas. No. 14,030. re Comstock, 3 Sawy. 517, 13' N. B. R. 8 3 In re Emigh (D. C.) 243 Fed. 988,40 193, Fed. Cas. No. 3,080. But see The Am. Bankr. Eep. 277. In re Feinberg, 3 Prussian (D. C.) 2.55 Fed. 857, 43 Am. Ben. 162, 2 N. B. E. 425, Fed. Cas. No. Bankr. Rep. 13, holding that the exam- § 268 LAW OF BANKRUPTCY 608 any improper questions propounded to the bankrupt.*^ But the bank- rupt has no absolute right to consult with his counsel before answering any given questions, or to take his advice as to the necessity of his an- swering the question or the form of his answer. This privilege may be allowed to him by the referee, if the circumstances render it proper, but it cannot be claimed as of right. The referee has a discretionary power to allow such a consultation of the bankrupt with his counsel, and whether or not it shall be allowed must be determined by him according to the circumstances of each particular case.*® On this point it has been said: "There may be a case in which such a privilege might or should be allowed, as, for example, where the examination might impli- cate the bankrupt in a criminal charge, or require the disclosure of facts against, which he is protected by law. But even in such a case, the presence of the bankrupt's counsel will generally, if not always, furnish all the protection needed without the allowing of a private con- sultation." *,' § 268. Objections to Questions and Rulings Thereon. — Objections to questions may beraised in the usual manner and by any one qualified to object. Where the bankrupt is an attorney, he has the right to raise any question on his examination which an attorney for him could raise, and he is not in contempt for refusal to answer questions to which he presents in good faith well-founded objections.** The general orders in bankruptcy provide that the referee "shall note upon the deposition any question objected to, with his decision thereon, and the court shall have power to deal with the costs of incompetent, immaterial, or irrel- evant depositions, or parts of them, as may be just." ** The correspond- ing general order (No. 10) under the act of 1867 provided that the reg- ister should note upon the deposition the objections made to any ques- tion, but should not have power to decide on the competency, materiality, or relevancy of the question, and consequently he could not overrule or exclude any question."" The present practice is for the referee, when an objection is interposed, to incorporate in the deposition the question ination of witnesses before a referee is In re Judsou, 2 Ben. 210, 1 N. B. R. 364, a "proceeding in bankruptcy" before a Fed. Ciis. No. 7,562 ; In re Collins, 1 N. court, and that every creditor of the B. R. 551, Fed. Cas. No. 3,008; In re bankrupt is a party in interest and en- Lord, 3 N. B. R. 243, Fed. Cas. No. 8,502. titled not only to participate in the ex- s? in re Collins, 1 N. B. R. 551, Fed. amination but to the presence of counsel Cas. No. 3,008. in his behalf ss in re Shaffer, 101 Fed. 982, 4 Am. 85 In re Tanner, 1 Low. 215, 1 N. B. Bankr. Rep. 728. R. 316, Fed. Cas. No. 13,745. so General Order No. 22. 86 In re Patterson, 1 N. B. R. 150, Fed. soln re Levy, 1 Ben. 496, 1 N. B. R. Cas No. 10,819; In re Tanner, 1 Low. 136, Fed. Cas. No. 8,296; In re Patter- 215, 1 N. B. R. 316, Fed. Cas. No. 13,745; son, IN. B. R. 147, Fed. Cas. No. 10,818; 609 EXAMINATIONS IN BANKEUPTOT § 269 asked, the fact and grounds of objection, and his ruling on the objection, and then, even though he decides the question to be inadmissible, to allow and require it to be answered and the answer to be entered in the deposition. But an exception is made in the case of clearly privileged testimony, and also as to evidence which is so unmistakably incompetent, irrelevant, or immaterial that it would be an abuse of process or of the power of the court to compel its production or permit its introduction."^ § 269. Scope of the Inquiry. — In reference to the examination of the bankrupt, it is provided that he may be interrogated "concerning the conducting of his business, the cause of his bankruptcy, his dealings with his creditors and other persons, the amount, kind, and whereabouts of his property, and, in addition, all matters which may affect the admin- istration and settlement of his estate." ®* Under this broad provision, the bankrupt may be examined substantially as under a reference upon a creditor's bill, or in proceedings supplementary to execution.*^ All questions are proper which elicit answers tending to show an interest of the bankrupt in property at the time the petition was filed.** And it is the duty of the bankrupt to disclose whatever it may concern any parties interested to know concerning his debts, business, or estate."* Thus, he may be required to make known to the trustee the combination of a safe alleged to contain property of his."* But there are limits to the range which this examination may take, and no questions are proper which are not relevant to the matters described in the statute as the subjects of the inquiry. Thus, if the bankrupt has testified that he is not the owner of certain property, questions relating to the identity In re Kosenfield, 1 N. B. R. 319, Fed. »* In re Carson, 2 N. B. R. 107, Fed. Cas. No. 12,059 ; In re Bond, 3 N. B. R. Oas. No. 2,461. A question as to wheth- 7, Fed. Cas. No. 1,618; In re Koch, Fed. er a bankrupt did not make a certain Cas. No. 7,916. See In re Eeakirt, 7 N. statement in writing as to his assets B. E. 329, Fed. Cas. No. 11,614. within a few months prior to his bank- si Supra, § 72. ruptcy, on which he obtained property »2 Bankruptcy Act 1898, § 7, clause 9. on credit from certain of his creditors. The examination of an alleged bankrupt Is material and proper to be asked him which can be ordered under § 21a of the on his examination. In re Jacobs & Act is to show the condition of the es- Roth, 154 Fed. 988, 18 Am. Bankr. Rep. tate, and enable the court to discover its 728. extent and whereabouts and get posses- os in re Cooke, 10 N. B. R. 126, Fed. sion of it, and such examination cannot Cas. No. 3,168. He may -be examined on be employed to obtain evidence for use the question whether a composition offer- on the controverted issue of insolvency, ed to his creditors should be accepted by examination for the latter purpose being them and confirmed by the court, as be- authorlzed by § 3d. In re Stell (D. C.) ing for the best interest of all concern- 269 Fed. 1008, 46 Am. Bankr. Rep. 492. ed. In re Ash, 17 N. B. R. 19, Fed. Oas. 93 In re Pioneer Paper Co., 7 N. B. R. No. 571. 250, Fed. Cas. No. 11,178. oo in re Hooks Smelting Co., 138 Fed. 954, 15 Am. Bankr. Rep. 83. Blk.Bke.(3d Ed.)— 39 § 269 LAW OF BANKRUPTCY 610 of the owner, and the duration, extent, and character of the ownership of such property, are not relevant.*'' But while the debtor cannot be interrogated as to property in which he clearly has no interest, he is subject to examination as to all property in which he may have an interest. That is, it is not necessary for the examining creditor or trustee first to show that the bankrupt actually has an interest in the property, before questioning him about it, but only to show that he may have such an interest.** For similar reasons, ft is held that a creditor who has filed proof of a debt, claiming that it was contracted by fraud, cannot examine the bankrupt as to the facts constituting the alleged fraud, the inquiry being irrelevant to the scope and purpose of the examination.** Neither is it proper, on the examination of the bank- rupt, to interrogate him as to any property which he may have acquired since the commencement of the proceedings. For any such property is his own, and is not affected by the bankruptcy ^"* Nor can he be questioned as to his prospects or future plans or expectations, since these have no bearing on the proceeding in bankruptcy."^ But on the other hand, a creditor who is examining the bankrupt is not limited in his questions to transactions taking place since his own debt accrued,"^ and generally, the examination is not limited to facts and transactions occurring within four months prior to the bankruptcy, but may be di- rected to matters anterior to that time, if the circumstances in question »7 In re Van Tuyl, 1 N. B. K. 636, Fed. «» In re Wright, 2 Ben. 509, 2 N. B. Cas. No. 16,880. R. 142, Fed. Cas. No. 18,065. Compare 9 8 In re Bonesteel, 2 N. B. R. 330, Fed. In re Koch, 1 N. B. R. 549, Fed. Cas. No. Cas. No. I,€i28. Where the examination 7,916. has shown that the wife of the bankrupt loo in re Levy 1 Ben. 496 1 N B R holds valuable property transferred to 136, Fed. Cas. No. 8,296;"ln re Rosenfield^ her by third persons after his insolvency, i jj. B. R. 319, Fed. Cas. No. 12,059. But and enough has come out to furnish rea- ^e may be asked questions tending to sonable support for the theory that the g^ow that, within a short time after fil- consideration for such transfer moved jjjg jjjg petition, he had money in his from the bankrupt himself, or that the possession not acquired by the transac- transfer to the wife was a mere cover, ^ion of any business subsequent to such then it is the right of the creditor to ex- fl^^g j^ ^e McBrien, 3 Ben. 481, 3 N. amine the bankrupt fully and minutely ^ ^ 344^ j,g^ ^as. No. 8,666. And if with reference to the whole transaction, j^^ ^^^ acquired valuable property dur- and the bankrupt must answer all per- j^g ^^^ proceedings under suspicious cir- tinent questions. Idem. And see In re pumstances, he may be questioned con- Clark, 4 N. B. R. 237, Fed. Cas. No 2,805. ^^^^^^ j^. In re Walton, 1 Nat. Bankr. So where a bankrupt stated that he had .jjg^^g_ 533 ^^^ ^^^ j^ ^.^ rj,^^^^.^ gg ^^^ sold certain property and used part of g^g, 2 Am. Bankr Rep. 808 the proceeds in paying a debt for mon- ey borrowed, all the circumstances of the "^ '^^ re White, 2 Nat. Bankr. News, 536. bankrupt's examination by his creditors. 102 In re Craig, 3 Ben. 333, 3 N. B. R. In re Brundage, 100 Fed. 613, 4 Am. 100, Fed. Cas. No. 3,322. transaction are open to inquiry on the bankrupt's exa In re Brundai Bankr. Rep. 47, 811 EXAMINATIONS IN BANKRUPTCY § 269 will throw any light upon the facts or issues pertinent to the proceed- ings."* As to witnesses other than the bankrupt himself, the law provides that they may be examined concerning the "acts, conduct, or property of the bankrupt." The examination of a third person in a bankruptcy proceeding differs from the examination of a witness on the trial of a case. In the latter, there can be no examination of "witnesses" until there has been an issue made up and some point of fact in controversy, and then the examination must be confined to such issue or fact. But in bankruptcy, the witness may be interrogated generally as to the "acts, conduct, and property of the bankrupt," the object being to obtain information touching the estate of the bankrupt, its condition and lo- cation, and his conduct as affecting his property and his disposal of it, in order that the necessary steps may be taken for its recovery and preservation."* The trustee may use the right of examining a creditor or other person for the purpose of discovering the particulars of a transaction with the bankrupt which he suspects to have been fraudu- lent, and of getting evidence which will enable him to maintain a suit to set aside the judgment or transfer impeached. Thus, the witness may be required to give information as to property of the bankrupt fraudulently held in his name, as to preferences alleged to have been given, as toihis knowledge of any property concealed by the bankrupt, as to any secret trust or other arrangement between the bankrupt and himself, so far as it affects the estate or the rights of other creditors, as to alleged liens on the property, and so forth."^ But here, as in all judicial examinations, questions propounded must be relevant to the subject of inquiry. The course of the examination must be confined within legal limits, and though the court is vested with a wide measure of discretion as to its scope, it must not be pushed so far as to encroach upon the witness' right of privacy in relation to his own affairs, where the concerns of the bankrupt ate not involved."® While the statute 10 3 In re Brundage, 100 Fed. 613, 4 Pioneer Paper Co., 7 N. B. R. 250, Fed. Am. Bankr. Rep. 47. Cas. No. 11,178 ; Garrison v. Markley, 7 104 In re Blake, 2 N. B. B. 10, Fed. N. B. B. 246, Fed. Gas. No. 5,256. Cas. No. 1,492 ; In re Fixen & Co., 96 loe In re Horgan, 98 Fed. 414, 39 C. Fed. 748, 2 Am. Bankr. Rep. 822. This C. A. 118, 3 Am. Bankr. Rep. 253 ; In re provision of the statute does not author- Howard, 95 Fed. 415, 2 Am. Bankr. Rep. ize the interrogating of a witness con- 582. See In re Earle, 3 N. B. R. 304, ceniing an alleged contract regarding the Fed. Cas. No. 4,244 ; In re Stuyvesant bankrupt's property made, not with the Bank, 6 Ben. 33, 7 N. B. R. 445, Fed. bankrupt, but with the trustee himself. Cas. No. 13,582 ; In re Lathrop, 4 N. B. In re Madero Bros. (D. O.) 256 Fed. 859, R. 94, Fed. Cas. No. 8,106. Where the 43 Am. Bankr. Rep. 669. person examined is the principal stock- 106 In re Lathrop, Haskins & Co., 184 holder and manager of an alleged bank- Fed. 534, 24 Am. Bankr. Rep. 911 ; In re rupt corporation, it is imperative that § 269 LAW OF BANKRUPTCY 612 should be liberally construed, so as to enforce full and frank answers by a witness in aid of the bankruptcy proceedings, yet it does not au- thorize an inquiry into his private affairs which have no relation to the "acts, conduct, or property" of the bankrupt, nor can the court require him to produce private papers having no relation thereto; and a mere affidavit of belief on the part of creditors or others is not sufficient to overcome a positive statement of the witness that the transactions in- quired about or papers demanded have no relation to the bankrupt, so as to authorize the court to compel him to answer or to produce the papers."' So, the court cannot compel an officer of a corporation in which the bankrupt had stock, the same being admittedly in the bank- rupt's possession, to give evidence as to his opinion of the value of the stock and to produce in support thereof the records relating to the finan- cfal condition of the company."* Again, a witness cannot be compelled to answer as to the original consideration for a negotiable bond issued by the bankrupt where the creditor is a bona .fide holder for value."' And where the bankrupt, more than a year before the enactment of the bankruptcy law, had made an assignment for the benefit of his credi- tors under the state law, it is not material or proper, in his examination in the bankruptcy proceedings, to inquire into the circumstances under which the assignment was made, nor to require the assignee to produce the books and papers turned over to him at the time, unless a foundation is first laid for the belief that property of the bankrupt was'withheld by him at the time of such assignment and was still held as his at the time of the enactment of the bankruptcy law."** But it is not left to the judgment of the witness to decide whether or not the question put to him is relevant. If he declines to answer any question on this ground, he does so at his peril, for the decision as to relevancy of any question or line of inquiry is for the court."^ Moreover, in these examinations in bankruptcy, saving the right of the witness to refuse to criminate him- self, and respecting the inviolability of privileged communications, the courts will generally rule on the side of relevancy, and require the wit- ness to answer if it seems even probable that the facts to be elicited much latitude be permitted In the exam- Bankr. Rep. 554; In re E. S. Wheeler & ination, even though some personal af- Co., 151 Fed'. 542, 18 Am. Bankr. Rep. fairs of the witness may be revealed, 421. keeping in mind as the test of its scope toe in re Seligman, 192 Fed. 750, 26 that the inquiry concerns, primarily and Am. Bankr. Rep. 664. objectively, the "acts, conduct, or prop- los In re Leland, 6 Ben. 175, Fed. Gas. erty of the bankrupt." In re Standard No. 8,229. Aero Corporation (C. C. A.) 270 Fed. 783, "o In re Hayden, 96 Fed. 199, 1 Am. 46 Am. Bankr. Rep. 517. ' Bankr. Rep. 670. 107 In re Carley, 106 Fed. 862, 5 Am. m People's Bank of Bufealo v. Brown, 613 EXAMINATIONS IN BANKRUPTCY § 270 may be relevant.^*^ But creditors cannot use the process of examina- tions in bankruptcy for the purpose of obtaining information (from per- sons other than the bankrupt himself) which they can use in opposition to his discharge. In regard to such witnesses, and the facts they may know, a creditor must be left to the risk of establishing them upon the trial of the issues as parties are in ordinary trials at law.-'^* § 270. Privileged Communications. — The rule which forbids the disclosure, as matter of evidence, of confidential communications pass- ing between an attorney and his client will be respected and enforced in examinations in bankruptcy no less than in other judicial investiga- tions.^^* At the same time, counsel for the bankrupt, when examined as a witness, will be bound to answer all questions except such as re- quire him to disclose information as to the aiifairs of the bankrupt which he received, as such counsel, from the bankrupt or from persons to whom he was referred by the bankrupt for the purpose of obtaining in- formation.*^^® In other words, an attorney cannot refuse to answer un- less the facts which he is asked to disclose came to his knowledge while acting in his professional capacity and camfe from the client or from some one acting for the client."* A witness summoned for exam- ination in a bankruptcy proceeding cannot refuse to be sworn merely on the ground that he had been counsel for the bankrupt and was still his legal adviser. "The right to refuse to answer a question on the ground of privilege does not warrant a, refusal to be sworn as a wit- ness. The privilege cannot be interposed until a question is asked which invades the privilege." *" Nor will it be permitted to the attor- ney of the bankrupt to add to his oath as a witness a reservation as to privileged communications.*^* Whether the privilege is properly claim- ed and should be allowed is a question which must be determined by the court and not by the witness, and hence, by way of preliminary investigation, the witness may be subjected to such an interrogation as will put the court in position to decide the question."* 112 Fed. 652, 50 0. O. A. 411, 7 Am. iie In re Aspinwall, 7 Ben. 433, 10 N. Bankr. Kep. 475; In re Fixen & Co., 96 B. R. 448, Fed. Cas. No. 591 ; In re Don- Fed. 748, 2 Am. Bankr. Rep. 822. ohue, 2 Hask. 17, Fed. Cas. No. 3,990 ; In 112 People's Bank of Buffalo v. Brown, re Bellis, 3 Ben. 386, 3 N. B. R. 199, Fed. 112 Fed. 652, 50 C. C. A. 411, 7 Am. Gas. No. 1,274. Bankr. Rep. 475. See Robinson v. Phil- „e j^^ ^^ O'Donohoe, 3 N. B. R. 245, adelphia & R. R. Co., 28 Fed. 340 ; John- j.^^ ^^^ j^^ 10,435. son Steel Street-Rail Co. v. North Branch Steel Co., 48 Fed. 196. 117 In re Woodward, 4 Ben. 102, 3 N. eei K.U., -^a^ «="•/""• B. R. 719, Fed. Cas. No. 17,999. 113 In re Brandt, 2 N. B. R. 215, Fed. ' Cas No 1 812 us In re Adams, 6 Ben. 56, Fed. Cas. 11* In re Krueger, 2 Low. 182, Fed. No. 42. Cas. No. 7,942. ^^' People's Bank of Buffalo v. Brown, § 271 LAW OF BANKRUPTCY 614 § 271. Privilege Against Self-Criminating Testimony.— The fifth amendment to the Constitution of the United States provides that "no person shall be. compelled in any criminal case to be a witness against himself," and in the great case of Counselman v. Hitchcock/** it was held that this provision was not to be confined to a criminal case against the party himself, that its object was to insure that no one should be compelled, when acting as a witness in any investigation, to give testimony which might tend to show he had committed a crime. It was also held that the act of Congress which provides that no evidence given by a witness shall be in any manner used against him in any court of the United States in any criminal proceedings,^*^ does not supply a complete protection from all the perils against which the constitutional prohibition was designed to guard, inasmuch as it affords no protection against that use of testimony wrung from a witness which consists in gaining therefrom a knowledge of the details of a crime, and of sources of information which may supply other' means of con- victing the witness or party. These principles ^pply to the case of an examination in bankruptcy, and the constitutional safeguard may be appealed to by any witness undergoing such examination, whether it be the bankrupt himself or another. No witness, under such examination, can be compelled to reply to questions, when his answers would tend to criminate him, in the sense of the constitutional provision as above explained, or would furnish information or evidence which might be used against him in a criminal prosecution, and although the seventh section of the bank- ruptcy act (relating to the bankrupt and his examination) provides that "no testimony given by him shall be offered in evidence against him in any criminal proceeding," this does not take away the right of the bankrupt to decline answering questions which tend to criminate him, because it is not a sufficient protection, not being as broad and comprehensive as the constitutional provision, and therefore not to be taken as a substitute for it or as equivalent to it.^** Thus, where a 112 Fed. 652, 50 C. O. A. 411, 7 Am. Nat. Bankr. News, 378 ; In re Rosser, 96 BanUr. Rep. 475. Fed. 305, 2 Am. Bankr. Rep. 755 ; In re 120 142 U. S. 547, 12 Sup. Ct. 195, 35 L. Scott, 95 Fed. 815, 1 Am. Bankr. Rep. Ed. 1110. 49 ; In re Patterson, 1 Ben. 544, 1 N. B. 121 Rev. Stat. V. S. § 860. R. 152, Fed. Cas. No. 10,816; In re 122 In re Hess, 134 Fed. 109, 14 Am. Graham, 8 Ben. 419, Fed. Cas. No. 5,659; Bankr. Rep. 559 ; United States v. Gold- In re Koch, 1 N. B. R. 549, Fed. Cas. No. stein, 132 Fed. 789, 12 Am. Bankr. Rep. 7,916. Contra, Mackel v. Rochester, 102 755 ; In re Nachman, 114 Fed. 995, 8 Am. Fed. 314, 42 C. C. A. 427, 4 Am. Bankr. Bankr. Rep. 180; In re Franklin Syndi- Rep. 1. This provision of the statute cate, 114 Fed. 205, 4 Am. Bankr. Rep. has reference only to crimes committed 511 ; In re Feldstein, 103 Fed. 269, 4 previous to the giving of such testimony, Am. Bankr. Rep. 321; In re Gilbert, 2 and not to any criminal proceeding bas- 615 EXAMINATIONS IN BANKROPTCY § 271 person against whom indictments are pending in a state court is ad- judged bankrupt on an involuntary petition, and brought before the referee in bankruptcy for examination, he cannot be compelled to answer any questions propounded on such examination where his answers would tend to criminate him on the trial of the pending indictments.^** The constitutional privilege, however, is to be claimed only when necessary, and only with reference to some particular , question pro- pounded to the witness. It does not exempt a witness from being sworn, nor permit him to add to his oath a reservation as to crim.inating matters; it only enables him to decline a particular question.^** And further a witness cannot avoid answering a question by the mere state- ment thiftt his answer would tend to criminlate him, without regard to whether the statement is reasonable or not.*^® On the contrary, it is for the judge before whom the question arises to decide whether an answer thereto may reasonably have a tendency to criminate the witness, or to furnish proof of an element or link in the chain of evidence necessary to convict him of a crime. Where, from the course of the evidence and the nature of the question, the court can definitely see that the ques- tion, if answered in a particular way, will have that effect, the privilege claimed by the witness must be allowed.^"® On the other hand, if it is apparent that the answer could not possibly tend to criminate the ed on a crime inherent in the bankrupt's pert accountant based upon an examina- examination, and it does not protect him tion of his books which he had turned from a prosecution for perjury commit- over to the trustee. Ensign v. Pennsyl- ted by false swearing during the course vania, 227 U. S. 592, 33 Sup. Ct. 321, 57 of his examination. And in such a L. Ed. 658, 30 Am. Bankr. Rep. 408. prosecution, not only may the alleged But see Arndstein v. McCarthy, 254 U. false testimony be given in evidence, but S. 71, 41 Sup. Ct. 26, 65 L. Ed. — . any other testimony of the defendant 123 in re Scott, 95 Fed. 815, 1 Am. given in the examination may be put in Bankr. Eep. 49 ; In re Hooks Smelting evidence, provided it is relevant to the Co., 188 Fed. 954, 15 Am. Bankr. Eep. issue and tends to establish the falsity 83; In re Kanter, 117 Fed. 356, 9 Am. of that on which the prosecution is bas- Bankr. Rep. 104 ; In re Gilbert, 2 Nat. ed. Glickstein v. United States, 222 U. Bankr. News, 378. There are a few S. 139, 32 Sup. Ct. 71, 56 L. Ed. 128, 27 cases in the reports in which these Am. Bankr. Rep. 786; Daniels v. United principles, as applied to examinations in States, 196 Fed. 459, 27 Am. Bankr. Rep. bankruptcy, are denied or not admitted 790; United States v. Brod, 176 Fed. 165, to their full extent. See In re Bromley, 23 Am. Bankr. Rep. 740; Cameron v. 3 N. B. R. 686; In re Sapiro. 92 Fed. United States, 192 Fed. 548, 113 C. C. A. 340. 20, 27 Am. Bankr. Rep. 657. Further, it 121 In re Scott, 95 Fed. 815, 1 Am. is to be noted that the protection afCord- Bankr. Rep. 49. ed to the bankrupt by section 7, clause 12 Bin re Rosenblatt, 143 Fed. 663, 16 9, of the bankruptcy act, extends only to Am. Bankr. Rep. 306 ; In re Tobias, the testimony given by the bankrupt up- Greenthal & Mendelson (D. 0.) 215 Fed. on his examination under that clause 815. and section, and does not render inad- 120 Ex parte Irvine, 74 Fed. 954; In missible, on a criminal prosecution, the re Feldstein, 103 Fed. 269, 4 Am. Bankr. schedules filed by him in the bankruptcy Rep. 321 ; In re Shera, 114 Fed. 207, 7 proceedings, or the testimony of an ex- Am. Bankr. Rep. 552. § 271 LAW OV BANKRUPTCY 616 witness, it must be given,, notwithstanding the claim of privilege.^*'' This point is further illustrated by the cases, so frequently arising in practice, where a bankrupt attempts to withhold his books of account and other papers from his trustee or receiver, on the assertion that they contain matter which might be used against him in a criminal proceed- ing and so tend to criminate him. In this event, the rule is that the bankrupt must produce and deposit the books, in order that the question of privilege may be determined by the court or referee, and if it appears that they do contain such criminating evidence, the court will make such an order as will protect the bankrupt from its use in any criminal case, and at the same time give the trustee the use of the books in the administration of the estate.^^* Again, it is only against criminal or penal consequences of his dis- closures that the constitution protects a witness. A person undergoing an examination in bankruptcy cannot refuse to answer questions concern- ing his dealings with the bankrupt on the ground that his answers may furnish evidence against him in a civil action pending or to brought on behalf of the trustee in bankruptcy, and in point of fact, such ex- aminations are generally held for the precise purpose of enabling the trustee to obtain evidence for such suits, or to ascertain that there is no such evidence.-'** And the constitutional privilege of refusing to give self-criminating testimony was not intended to shield the witness from the personal disgrace or opprobrium attaching to the exposure of his crime, but only from actual prosecution and punishment. Hence, if the crime in which he was implicated was such that a prosecution against him would be barred by the statute of limitations, or if he has already received a pardon for it, he may be compelled to answer.^" Nor is it a sufficient reason for refusing to answer a proper and per- tinent question that the answer will expose the witness to the contempt of the community, or humiliate him, or bring him into general disgrace, if he would not also be liable to prosecution.^*^ But if the question does not relate to any matter of fact -n issue, or to any matter contained in his' direct testimony, the witness need not answer it, and will not be 127 In re Levin, 131 Fed. 388, 11 Am. Bankr. R«p. 559; United States v. Bankr. Hep. 382; In re Edward Hess & Rhodes (D. C.) 212 Fed. 518. Co., 136 Fed. 988. "9 in re Clitee, 97 Fed. 540, 3 Am. 128 In re Harris, 221 TJ. S. 274, 31 Bankr. Rep. 257; In re Fay, 3 N. B. R. Sup. Ct. 557, 55 L. Ed. 732, 26 Am. 660, Fed. Cas. No. 4,708 ; In re Danforth, Bankr. Rep. 302; In re Harris, 164 Fed. Fed. Cas. No. 3,560. 292, 20 Am. Bankr. Rep. 911 ; ' In re i3o Brown v. Walker, 161 U. S. 591, 16 Hark. 136 Fed. 986, 14 Am. Bankr. Rep. Sup. Ct. 644, 40 L. Ed. 819. 624; III re Hess, 134 Fed. 109, 14 Am. lai In re Rieliards, 4 Ben. 303, 4 N. B. R. 93, Fed. Cas. No. 11,769. 617 EXAltlNATIONS IN BANKBUPTOT § 271 compelled, to answer it, where he states that a truthful answer would tend to degrade him.^*^ The constitutional privilege may be waived. And if the bankrupt volunteers a disclosure concerning property, assets, or business deal- ings, he can be compelled to go into the matter fully. He cannot stop short at his own discretion, and refuse to answer further questions, on the assertion that he might be criminated.':** So he cannot claim the protection of the constitution where the question objected to is clearly in the line of cross-examination on what he has volunteered him- self, either in his petition and schedules or in testimony already given.^** So again, he waives the privilege if he makes no objection to testifying before the referee, but answers the questions put to him, so that any admissions made by him in the course of the examination can properly be used on his cross-examination in a criminal proceeding against him.**' And where, at the commencement of the proceedings in bank- ruptcy, he surrenders his books to the receiver without raising any ques- tion of privilege as to their use against him, so far as it is a proper use of the books by the trustee in bankruptcy to allow prosecuting authori- ties to use them, the bankrupt is chargeable with knowledge of that right and has waived his privilege.-**® And it has been held that no consti- tutional or sfatutory right of an accused person (either under the con- stitutional provisions against unreasonable searches and seizures and against the compelling of self-criminating testimony, or under the Act of Congress prohibiting the use of a party's pleading or evidence to his prejudice in a subsequent criminal proceeding against him) are infring- ed by the use by a grand jury, in the investigation of the charges con- tained in an indictment, of his books and papers procured from his receiver or trustee in bankruptcy, to whom they had been delivered under an unconditional order of the bankruptcy court, and which books and papers contain information with respect to the matters charged in the indictment against him. And further, these constitutional and statutory provisions do not prohibit the use of the books and papers of a bankrupt, in the hands of his receiver or trustee in bankruptcy, as evidence against him in a criminal prosecution for embezzlement and false pretenses, based upon disclosures in such books and papers.**' 132 In re Danforth, Fed. Cas. No. Pac. 982, aflSrmed, Burrell v. Montana, 3,560 ; In re Lewis, 4 Ben. 67, 3 N. B. 194 U. S. 572, 24 Sup. Ct. 787, 48 L. Ed. R. 621, Fed. Cas. No. 8,812. 1122, 12 Am. Bankr. Rep. 132. 183 In re Bendheim, 180 Fed. 918, 24 i3ti in re Tracy & Co. (D. C.) 177 Blfed. Am. Bankr. Rep. 254. 582, 23 Am. Bankr. Rep. 438. 134 In re Walsh, 104 Fed. 518, 4 Am. i37 United States v. Halstead, 38 App. Bankr. Rep. 698. I>. C. 69. 1-3 s State V. Burrell, 27 Mont. 282. 70 § 271 LAW OF BANKKUPTCY - 618 On the principle of waiver or estoppel, it has further been held that when the bankrupt has filed schedules of his assets, it is a representation that he has no other property, and therefore he cannot object to legiti- mate cross-examination with reference thereto, on the ground that it may incriminate him, so long as it does not tend to develop any in- dependent fact.^^* But it is the doctrine of the Supreme Court that the mere voluntary filing of schedules in bankruptcy, which, standing alone, do not amount to an admission of guilt or furnish clear proof of crime, does not waive the bankrupt's privilege to stop short and refuse to answer questions concerning the schedules when he can fairly claim that to answer might tend to incriminate him.^*' Aside from such questions, however, it is clear that the Bankruptcy Act itself protects the bankrupt against the subsequent prejudicial use of the testimony elicited from him on his examination in bank- ruptcy. Thus, an accused person, on trial for the crime of defrauding a national bank, cannot be cross-examined regarding the testimony given on his examination in bankruptcy.^*" And so, on a trial for em- bezzlement, the defendant's testimony previously given upon an exam- ination into the affairs of the corporation whose funds he was alleged to have embezzled, given before a referee in bankruptcy, cannot be ad- mitted."^ I § 272. Use and Effect of Evidence.— The testimony of a bankrupt, taken on his examination before the referee, is a part of the record, to which creditors generally are entitled to access while it remains in the custody of the referee, and this remains true although the interests of the creditor seeking to examine the testimony are antagonistic to those of the trustee, in that the latter intends to sue the 'former to recover 'i an alleged preference, and though a disclosure of the bankrupt's testi- mony, in view of his hostility to the trustee, may result prejudicially to the creditor."* On the other hand, statements made by a bankrupt on his examination concerning the ownership of a particular article of property in his possession at the time of the filing of the petition, and in the absence of any documentary evidence as to, the capacity in which he held it, are competent evidence, as admissions, though not conclu- sive, against his trustee on the hearing of a petition by an adverse claimant to reclaim the property, the trustee being at least to this ex- 188 In re Tobias, Greenthal & Mendel- m People v. Lay, 193 Mich. 476, 160 so0kD. O.) 215 Fed. 815. N. W. 467. 189 Arndstein v. McCarthy, 254 U. S. 112 in re Samuelsohn, 174 Fed. 911, 23 71, 41 Sup. Ct. 26, 65 L. Ed. — . Am. Bankr. Rep. 528. 140 Bain v. United States (C. O. A.) 262 Fed. 664, 45 Am. Bankr. Rep. 79. 619 EXAMINATIONS IN BANKRUPTCY § 273 tent in privity with the bankrupt."* So the testimony of the bankrupt taken on his examination and reduced to writing, is admissible against him in a subsequent proceeding by the trustee to require him to sur- render money or property of the estate alleged to be in his possession or under his control, and when the bankrupt is a corporation, the same rule applies to the testimony of any of its officers; but this does not apply in the case of any third person examined as a witness in the bank- ruptcy proceedings."* When a creditor's claim is contested by the trustee, the creditor may make use of testimony elicited from the bank- rupt at an examination in which the trustee participated, although the record does not show that due notice was given to creditors (as this fact may be inferred), and although the creditor had not filed or formally presented his claim at the time of the examination, as that fact did not deprive him of the right to take part in the examination."^ § 273. Witness Fees and Costs of Examination. — The statute pro- vides that no person shall be required to attend as a witness before a referee in bankruptcy unless "his lawful mileage and fee for one day's attendance shall be first paid or tendered to him," "^ and that the fees and mileage of witnesses shall be considered as a part of the "cost of ad- ministration" of an estate in bankruptcy, and shall be entitled to priority of payment."' The fees of a witness must be paid or tendered at the time of the service of the summons or subposna upon him."* If the wit- ness attends without the prepayment of the fees, the fees are to be col- lected as in ordinary actions and according to the practice of the courts therein."" If there is an adjournment, the witness is entitled to be paid his attendance fee for the adjourned day before he is obliged to lis In re Thompson, 197 Fed. 681, 28 law, one dollar and fifty cents, and five Am. Bankr. Rep. 794. But see Breclfons cents a mile for going from his place of V. Snyder, 211 Pa. St. 176, 60 Atl. 575, residence to the place of trial or hear- holding that, where a trustee in bank- ing and five cents a mile for returning." ruptcy sues to recover money of a bank- Rev. Stat. U. S. § 848. A witness is en- rupt said to be in the hands of the de- titled to fees only for the days of actual fendant, the testimony of the bankrupt attendance, and not for the days on at the preliminary examination before which he was ready to attend. In re the referee as to his assets and liabilities Crane, 15 N. B. K. 120, Fed. Gas. No. is not admissible in evidence, the Issue 3,352. Fees and mileage, at the fixed not being between •*he same parties. rate, are allowed to the witness whether 144 In re Alphin & Lake Cotton Co. his evidence is taken at a hearing before (DC) 131 Fed. 824, 12 Am. Bankr. Rep. the judge or referee or on deposition. 653. ' Rev. Stat. U. S. §§ 848, 870, 874. 145 Beaven v. Stuart, 250 Fed. 972, 163 147 Bankruptcy Act 1898, § 64 b, cl. 3. '\l ^an^^Vt^C^Tct^lS f Tl.^^The "« In re 0..en, 1 N^B. R. 371 2 Ben. fees of witnesses in the courts of the ^OO, Fed. Cas No 5,810; In re Kerber, United States are fixed by law as fol- 125 Fed. 653, 10 Am. Bankr. Rep. 747. lows: "For each day's attendance in i4« In re Griffen, 2 Ben. 209, 1 N. B. court, or before any officer pursuant to R. 371, Fed. Cas. No. 5,810. § 273 LAW OF BANKRUPTCY 620 return on such adjourned day, and also travel fees, if it is reasonable for him to return to his home in the interval, as to which the referee is to judge.^''" The wife (or husband) of the bankrupt, if attending under an order and being examined as a witness, is entitled to the same fee and mileage as any other witness.^" But it is doubtful whether the. statute would apply in favor of a creditor who had proved his claim and was afterwards cited to appear and be examined, not concerning the affairs of the bankrupt, but concerning his own claim, the trustee de- siring to discover grounds for moving to expunge it. Under the act of 1867, it was held that the creditor ift such a case was not entitled to witness fees.^^* The bankrupt himself, when ordered to appear for examination in the usual course, or at the instance of the trustee or a creditor, is not entitled to fees as a witness, but the law directs that he "shall be paid his actual expenses from the estate when examined or required to attend at any place other than the city, town, or village of his residence." *^' In regard to "expert witnesses," it has beep decided that extra compensation to such persons, over and above the statutory Vitness fee and mileage, cannot be taxed as costs or allowed against a losing party in a court of bankruptcy, nor will the court be bound to make such an allowance because counsel have so agreed.^** In regard to the hire of a clerk or stenographer to take down the testimony upon an examination in bankruptcy, the statute allows the referee to "authorize the employment of stenographers at the expense of the estates at a compensation not to exceed ten cents per folio for re- porting and transcribing the proceedings," but only "upon the applica- tion of the trustee." ^^^ Except, therefore, in cases where the trustee will make an application to this effect, the general rule will apply, that the cost of taking testimony must be defrayed by the party at whose instance it is taken, whether it be creditors seeking for information which will enable them to prepare opposition to the bankrupt's appli- cation for discharge, or the bankrupt himself desiring to have addi- tional statements or explanations appear in the testimony after the 150 In re GrifEen, 2 Ben. 209, 1 N. B. Fed. 604, holding also that any extra R. 371, Fed. Cas. No. 5,810. compensation to sucl|i witness may be a 151 In re Marcus, 160 Fed. 229, 20 Am. matter of private arrangement between Bankr. Rep. 397; In re Grlflfen, 2 Ben. the witness and the party calling him. 209, 1 N. B. 11. 371, Fed. Cas. No. 5,810. ibo Bankruptcy Act 1898, § 38, cl. 5. 15 2 In re Kyler, 2 Ben. 414, 2 N. B. R. The laws of the United States provide 649, Fed. Cas. No. 7,956 ; In re Paddock, that a "folio," in written or pi-inted doc- 6 N. B. R. 396, Fed. Cas. No. 10,658. nments, shall mean 100 words, count- 153 Bankruptcy Act 1898, § 7, proviso. ing each figure as a word. When there See In re McNair, 2 N.. B. R. 219, Fed. are more than 50 and less than 100 ,Oas. No. 8,907. words, they shall be counted • as one 164 In re Carolina Cooperage Co., 96 folio, but a less number of words than 621 EXAMINATIONS IN BANKRUPTCY § 274 examining creditors have finished their questions.'^* But it has been held that this provision of the statute does not apply to hearings on the examination of the bankrupt before a special commissioner, and that, in such cases, the stenographer may be allowed a larger compensation if his bill is approved by the receiver and it is shown that all the ex- amination was necessary and resulted in benefit to the estate.*^' § 274. Contempts b]^ Witnesses. — The bankruptcy act (Section 41) provides that it shall be punishable as a contempt if any person shall "misbehave during a hearing, or so near the place thereof as to obstruct the same,^** or neglect to produce, after having been ordered to do so, any pertinent document,^^^ or refuse to appear after having been sub- poenaed, or, upon appearing, refuse to take the oath as a witness, or, after having taken the oath, refuse to be examined according to law." If the witness, after being duly summoned and after he has had a rea- sonable time in which to make his appearance, does not attend before the referee as ordered, the proper method of securing his presence is by an attachment.**" But thii applies only to ordinary witnesses, and compulsory measures of this kind will not be directed, unless strictly necessary, against one called as an expert or one wanted only in the character of an interpreter.'^®-'- Nor can this process be resorted to in any case unless the witness was duly ordered to appear by a summons, subpoena, rule to show cause, or other proper process,"'' and was ten- 50 shall not be counted, except -when the lent manner and so as to prevent the whole document contains less than 50 further continuance of the examination, words. Kev. Stat. U. S. §§ 854, 828. And United States v. Anonymous, 21 Fed. see .Terman v. Stewart, 12 Fed. 271. 761. 156 In re Price, 91 Fed. 635, 1 Am. is 9 As to contempt of court by refusal Bankr. Rep. 419 ; In re Mealy, 2 N. B. j.^ produce books, papers, and other R. 128, Fed. Cas. No. 9,378; In re Ei- documents, see In re Herr, 182 Fed. 715, dom, 8 N. B. R. 160, Fed. Cas. No. 4,315 ; 35 Am. Bankr. Rep. 141 ; In re Sorkin, Scofield V. Moorhead, 2 N. B. R. 1, Fed. ^gg ^^^ gg-^^ go Am. Bankr. Rep. 637; Cas. No. 12,510. Where, in an examina- j^ j.^ ^^^^^ ^gg Fed. 207, 19 Am. Bankr. tion in bankruptcy, the testimony of a ^^p gj^g; In re Fellerman, 149 Fed. 244, large number of witnesses was taken j,^ j^^ Bankr. Rep. 785; In re Johnson stenographically, the bankrupt is en- ^ ^^^^ Lumber Co., 151 Fed. 207, 80 C. titled to a stenographic copy of such tes- (, j^ 359, 18 Am. Bankr. Rep. 50; In timony, on paying the charge fixed, as ^.^ gojo^-ay & Ratz, 196 Fed. 132, 28 he must be deemed a party in interest. j^^ Bankr. Rep. 345 ; In re Ironclad Petition of Moulthrop, 249 Fed. 468, 161 jj^g qq (^ ^ ^ ^ 201 Fed. 66 : In re C. C. A. 426, 41 Am. Bankr. Rep. 654. ^.^^^^^^ 215 Fed. 61, 131 C. C. A. 369. 157 In re Stark, 155 Fed. 694, 18 Am. ij„ Bowen v. Thornton, 9 Wkly. Notes Bankr. Rep. 467. Cas. (Pa.) 575. 158 It is a contempt of court to inter- ot^ * ., nipt and violently break up the exami- ^^^ I" ^e Roelker, Sprague, 276 teA. nation of a witness by persisting in the ^^s. No. 11,995. attempt to dictate to and prompt the 102 in re Johnson & Knox Lumber witness and control his answers, when Co., 151 Fed. 207, 80 C. C. A. 259, 18, this is done in an o^^erbearing and vio- Am. Bankr. Rep. 50. § 274 LAW OF BANKRUPTCY 622 dered his proper fees and mileage/** nor unless the summons or order for examination was duly served within the jurisdiction of the bank- ruptcy court."* When the contumacious conduct on the part of the witness consists in his refusal to answer a proper question, without any legal excuse or justification therefor, he may be committed as for a criminal contempt, to stand committed until he will answer the question which was propounded to him."'' But it must appear that the matter in regard to which he was interrogated was material and relevant to the point in issue, and that his answer would not require him to crim- inate himself or to disclose privileged communications.*^ But when the witness has given an answer, to a question put to him, but a false one, thereby committing perjury, the authority to punish him as for a contempt is not so clear. This case is not specifically cov- ered by the statute, for such behavior is not "refusing to be examined according to law," and it has been held that while a refusal to answer is contumacy and a contempt, yet -when an answer has been given, the judge in bankruptcy cannot assume or decide that the answer was false and punish the witness for perjury as for a contempt."'' Yet it must be admitted that the great preponderanc-e of authority is to the effect that false swearing in an examination in bankruptcy is a contempt of the court and punishable as such, notwithstanding that it is also a crime and punishable on indictment."* 103 In re Johnson & Knox Lumber Co., cure respect for the court's authority. 151 Fed. 207, 80 C. C. A. 259, 18 Am. In re Farkas, 204 Fed. 343, 30 Am. Bankr. Rep. 50. Bankr. Rep. 887. 1C4 In re Hodges, 11 N. B. R'. 369, Fed. me in re Romine, 1.38 Fed. 837, 14 Cas. No. 6,562. But where a federal Am. Bankr. Rep. 785 ; Ex parte Peck, 3 court orders the arrest of a witness Blatchf. 113, Fed. Cas. No. 10,885. charged with having failed to obey a lo? State v. Lazarus, 37 La. Ann. 314. subpoena Issued by It, and duly served, les In re Michaels, 194 Fed. 552, 28 and the witness departs into another Am. Bankr. Rep. 38; In re Wiesebrock, district before he can be arrested, any 188 Fed. 757, 26 Am. Bankr. Rep. 745; judge of the United States having juris- In re Shear, 188 Fed. 677 ; Magen v. diction in the district to which the wit- Campbell, 186 Fed. 675, 108 O. C. A. 531, ness has removed, may order his arrest 26 Am. Bankr. Rep. 594 ; In re Bron and removal back to the district in stein, 182 Fed. 349, 24 Am. Bankr. Rep. which he is charged with the ofCense. 524; In re Magen, 179 Fed. 572, 24 In re Ellerbe, 18 Fed. 530. ' Am. Bankr. Rep. 63 ; In re Schulman, 185 People v. Davidson, 35 Hun (N. Y.) 177 Fed. 191, 101 C. C. A. 361, 23 Am'. 471 ; People v. Pancher, 4 Thomp. & O. Bankr. Rep. 809 ; In re Singer, 174 Fed (N, Y.) 467. Where a witness fails to 208, 23 Am. Bankr. Rep. 28; In re appear at the appointed time, and, after Schulman, 167 Fed. 237, 21 Am. Bankr, contempt proceedings are instituted Rep. 288; In re Gordon, 167 Fed. 239, 21 against him, appears, apologizes, and of- Am. Bankr. Rep. 290; In re Gitkin, 164 fers himself freely for examination, he Fed. 71, 21 Am. Bankr. Rep. 113; Ex thereby purges himself of the civil con- parte Bick, 155 Fed. 908, 19 Am. Bankr. tempt, and the only question remaining Rep. 68 ; In re Fellerman, 149 Fed. 244, is the punishment to be imposed to se- 17 Am. Bankr. Rep. 785. 623 EXAMINATIONS IN BANKRUPTCY § 274 The provision of the Bankruptcy Act that no testimony given by the bankrupt on his examination "shall be offered in evidence against him in any criminal proceeding" has reference only to crimes committed previous to the giving of such testimony, a:nd not to any criminal pro- ceeding based on a crime inherent in the bankrupt's examination or any contempt of court committed in the course of such examination. Hence it does not make such testimony inadmissible in a proceeding to punish him for contempt in giving evasive answers.^®* And it does not pro- tect him from a prosecution for perjury committed by false swearing during the course of his examination."" But as to the power to punish perjury in such an examination as a contempt of the court an examination of the cases cited will show that the question has seldom arisen in its naked form. Almost always the adjudication of contempt has been based upon the conduct and be- havior of the witness through the whole course of his examination, and upon the fact that such conduct shows a settled purpose to thwart the objects of the examination, to defeat the operation of the law by con- cealing property, and otherwise to set the authority of the court at de- fiance. So that convictions for contempt of this sort have been ground- ed not so much on the fact that the answer to a particular question was false, as on the fact that the witness repeatedly gave vague, ambiguous, or incomplete answers to questions which he might have answered clearly, or persisted in professing ignorance or want of recollection of matters which he certainly must have known and remembered. It is also a question how far a witness may purge a contempt by showing that it was committed under the advice or direction of counsel. The result of the authorities appears to be that if the witness refuses to answer questions or to produce books or papers, but does so under the direction of counsel who in good faith advise him to pursue that course, the circumstance will palliate though it does not excuse his contumacy, and he should not be punished (except, perhaps, to the ex- tent of paying costs) if he will profess his readiness to submit to the examination, produce the books, etc., on the decision being rendered against him.^'^ 169 In re Kaplan Bros., 213 Fed. 753, Eep. 740; Cameron v.. United States, 192 130 C. 0. A. 267, 32 Am. Bankr. Rep. Fed. 548, 113 C. O. A. 20, 27 Am, Bankr. 305. Eep. 657; State v. Frasier, 94 Or. 90, 170 Gllckstein v. United States, 222 U. 184 Pac. 848; United States v. Coyle (D. S. 139, 32 Sup. Ct. 71, 56 L. Ed. 128, 27 C.) 229 Fed. 256. Am. Bankr. Eep. 786 ; Daniels v. United i^i United States v. Goldstein, 132 States, 196 Fed. 459, 116 C. C. A. 233, 27 Fed. 789, 12 Am. Bankr. Eep. 755; In re Am. Bankr. Eep. 790 ; United States v. Fixen & Co., 96 Fed. 748, 2 Am. Bankr. Brod (D, C.) 176 Fed. 165, 23 Am. Bankr. Eep. 822 ; In re Eosenfield, 1 N. B. E. § 274 LAW OF BANKRUPTCY 624 • The referee in bankruptcy has no power to punish for contempts committed by witnesses before him,"* but must certify the facts to the judge. But if the judge shall find that the facts warrant the punish- ment of the witness, he may punish him in the same manner and to the same extent as for a contempt committed before the court of bank- ruptcy.^'* A rule requiring a bankrupt to show cause why he should not be punished for contempt for refusing to answer "sundry questions" put to him during his examination before the referee is not insufficient, although it does not set out the questions, where it refers to the tran- script filed with the certificate of the referee, from which they fully appear."* 319, Fed. Cas. No. 12,059 ; In re Win- Fed. 191, 101 0. C. A. 361, 23 Am. Bankr. ship, 7 Ben. 104, Fed. Cas. No. 17,878. Rep. 809. 172 Bnnk of Ravenswood v. Johnson, its Bankruptcy Act 1898, § 41b. 143 Fed. 463, 74 C. C. A. 597, 16 Am. it4 United States v. Goldstein, 132 Bankr. Rep. 206; In re Schuhnan, 177 Fed. 789, 12 Am. Bankr. Rep. 755. 625 EIGHTS AND DUTIES OF CEEDITOKS § 275 CHAPTER XVI RIGHTS AND DUTIES OF OKEDITOR3 Sec. 275. Notices to Creditors. 276. Designation of Newspapers. 277. Meetings of Creditors. 278. Same; Special and Final Meetings, 279. Representation by Attorney or Proxy. 280. Assignment of Claims. 281. Participation of Creditors in the Proceedings. 282. Advising Trustea 283. Furnishing Indemnity for Expenses. 284. Right to Information as to Estate. § 275. Notices to Creditors. — By the provisions of the statute, cred- itors of a bankrupt ^hall have at least ten days' notice by mail, unless they waive notice in writing, of 1. All examinations of the bankrupt. 2. All hearings upon applications for the confirmation of composi- tions. 3. All meetings of creditors. 4. All proposed sales of property. 5. The declaration and time of payment of dividends. 6. The filing of the final accounts of the trustee, and the time when and the place where they will be examined and passed upon. 7. The proposed compromise of any controversy. 8. The proposed dismissal of the proceedings. 9. All applications for the .discharge o,f bankrupts, but in this last case only the law provides for thirty days' notice.-^ In addition to these enumerated cases, it is also held, in general, that any step which in effect would end the proceedings should not be taken without notice to creditors. So, where an assignee in bankruptcy sought to renounce his trust by making an application for his discharge, based on his own affidavit, alleging that no tangible assets had come to his hands and that he had no information of any property belonging to the bankrupt other than a chose in action in favor of the estate, it was held that notice to creditors of such application was necessary.* In the case of the notice of the first meeting, the law directs that it shall not only be sent to the creditors by mail, but shall also be "published at least 1 Bankrtupcy Act 1898, § 58, as amend 1 by Act Cong. June 25, 1910, 36 Stat. 838. 2 In re Savage, 12 Fed, 719. Blk.Bke.(3d Ed.)— 40 § 275 LAW OF BANKRUPTCY 6-6 once, and may be published such number of additional times as the court may direct, the last publication to be at least one week prior to the date fixed for the meeting. Other notices may be published as the court shall direct." * All notices are to be given by the referee in bankruptcy unless otherwise ordered by the judge.* Notices by mail are to be issued at least ten days before the meeting, hearing, or other proceeding to which they relate.^ The address of each creditor, for the purpose of such notices, is to be taken from the list of creditors fur- nished by the bankrupt, or from the information given by the creditor himself in the papers he files in the case.® Such written notice by mail is to be given to foreign creditors, as well as to those who reside with- in the United States,' and to secured as well as unsecured creditors.* If the name of a given creditor appears in the bankrupt's list, but with a statement that his residence is unknown, the failure to give him no- tice will not vitiate the proceedings.' It has also been ruled that notices of meetings of creditors subsequent to the first should be sent to all the known creditors, whether they have proved their debts or not.^" The form of the notice for the first meeting of creditors has been offi- cially prescribed. It recites the fact and date of the adjudication in bankruptcy, designates the time and place for the creditors' meeting, and provides that "said creditors may attend, prove their claims, appoint a trustee, examine the bankrupt, and transact such other business as may properly come before said meeting." " Clerical errors or minor inac- 3 Bankruptcy Act 1898, § 58b. shall be addressed as specified in the * Bankruptcy Act 1898, § 58c. proof of debt." General Order No. 21. 5 Bankruptcy Act 1898, § 58a. It is If the creditor has appeared and acted in also provided that "Whenever time is the prior proceedings by a "duly author- enumerated by days in this act, or in ized agent, attorney, or proxy," as is any proceeding in bankruptcy, the num- authorized by the statute, it would seem ber of days shall be computed by exclud- that the notice should be sent to the Ing the first and including the last, un- latter. less the last day fall on a Sunday or 1 1n re Heys, 1 Ben. 333, 1 N. B. E. 21, holiday, in which event the day last Fed. Cas. No. 6,447. included shall be the next day thereafter s This may be inferred from the re- which Is not a Sunday or a legal holi- quirement that the names of all secured day." Idem, § 31. creditors, with the securities held by 8 Bankruptcy Act 1898, § 58a. But them, shall appear on the bankrupt's "any creditor may file with the referee schedule, one copy of which is to be giv- a request that all notices to which he en to the referee. Bankruptcy Act 1898, may be entitled shall be addressed to § 7, cl. 8. hdm at any place, to be designated by the « In re Pulver, 1 Ben. 381, 1 N. B. E. post office box or street number, as he 46, Fed. Cas. No. 11,466. may appoint, and thereafter, and until "In re Mills, 7 Ben. 452, 11 N. B. some bther designation shall be made E. 117, Fed. Cas. No. 9,610; Eus^ell v. by such creditor, all notices shall be so Phelps, 42 Mich. 377, 4 N. W. 1. addressed, and in other cases notices n Official Form No. 18. 627 EIGHTS AND DUTIES OB' CUBDITORS § 276 curacies in the notice will not vitiate the proceedings, provided they are not such as to mislead or deceive creditors.^* The requirement of the statute that notice shall be given' to the cred- itors of the various steps in the proceeding is mandatory, in such sense that the failure to give notice of any particular meeting or other matter enumerated in the statute as requiring notice may be cause for setting aside the proceedings taken therein, or in such sense that the creditors who should have been notified, and were not, may not be bound by any- thing done at the meeting or in relation to the matter in hand.^* But the jurisdiction of the court, either over the proceedings in general or over the bankrupt's application for discharge, is not made dependent upon the correctness of the bankrupt's list of creditors or upon the ac- tual receipt of notice by the creditors. Jurisdiction is acquired by the petition and adjudication, and if the notices required by the act were duly and regularly published and served, the regularity of the proceed- ings, or the jurisdiction of the court to proceed with the case, is not affected by the failure of any creditor, or any number of creditors, to re- ceive the notice.*^* Where notice of the first meeting of creditors has been given to all those who appear on the bankrupt's list of creditors, and they have pro- ceeded to choose a trustee, and . afterwards the bankrupt is allowed to amend such list by the addition of other creditors not previously named therein, the rights of the creditors thus brought in are, as the authorities now stand, somewhat doubtful. But it has generally been thought that this development would require the calling of a new meeting, of which notice must be given to all creditors new and old, and that, at the meet- ing thus summoned, those creditors who may appear and prove their debts should proceed to elect a trustee. If their choice falls upon a per- son other than the one previously selected, they may apply to the court to remove the latter and confirm the new nominee.^* § 276. Designation of Newspapers. — The statute provides that "courts of bankruptcy shall, by order, designate a newspaper published 12 In re Hill, 1 Ben. 321, 1 N. B. K. 16, the mail, and it is not material to sliow Fed. Cas. No. 6,481. tliat it was received. Russell v. Phelps, lain re Gilbert, 2 Nat. Bankr. News, 42 Mich. 377, 4 N. W. 1. 378; In re Hall, 2 N. B. R. 192, Fed. i* In re Archenbrown, 11 Nl B. R. 149, Gas.' No. 5,922 ; Anonymous, 1 N. B. R. FedfcCas. No. 504 ; In re Stetson, 4 Ben. 122, Fed. Cas. No. 457. In an action 147, 3 N. B. R. 726, Fed. Oas. No. 13,- aga'inst an assignee in bankruptcy for 381. See In re Schiller, 96 Fed. 400, 2 willful neglect to give notice of cred- Am. Bankr. Rep. 704. iters' meetings, it is sufficient for him is See supra, § 226. to show that he placed the notice in § 277 LAW OF BANKEUPTCr 628 within their respective territorial districts, and in the county in which the bankrupt resides or the major part of his property is situated, in which notices required to be published by this act and orders which the court may direct to be published shall be inserted. Any court may in a particular case, for the convenience of parties in interest, designate some additional newspaper in which notices and orders in such case shall be published." ^® Power given to a court to "designate" a news- paper as the orga:n for the publication of judicial and legal notices is continuous. It is not exhausted by one exercise, but may be exercised from time to time, as may seem necessary and expedient to the court. It may be exercised by revoking a designation once made and making an- other.^' Where the referee in bankruptcy, pursuant to a rule of the court, designates certain newspapers, approved by the court, wherein all notices required under the bankruptcy law shall be published, this amounts to a designajbion of such papers by the court for each particular notice therein published.-*^* A referee may also, in the exercise of a wise discretion, select additional newspapers, published elsewhere than in the district, for the publication of such notices. Thus, where many of the creditors of a particular bankrupt lived in other states, it was held entirely proper for the referee to require the publication of notices, for that estate, in papers published in those other states, as well as in the papers designated by the court within the district.-*^* § 277. Meetings of Creditors. — The first meeting of the creditors of a bankrupt is directed to be hfld "not less than ten nor more than thirty days after the adjudication, at the county seat of the county in 18 Bankruptcy Act 1898, § 28. When Durfee, 101 Mich. ITl, 59 N. W. 409, 24 legal notices are directed to be pub- L. R. A. 793, 45 Am. St. Rep. 404; Tur- lished in a newspaper, one printed in the ney v. Blomstrom, 62 Neb. 616, 87 N. English language is always intended, un- W. 339 ; Lynn v. Allen, 145 Ind. 584, 44 less otherwise specified. Graham v. N. E. 646, 33 L. R. A. 779, 57 Am. St. King, 50 Mo. 22, 11 Am. Rep. 401. As Rep. 223 ; In re Application for Charter, to what constitutes a "newspaper," es- 11 Phila. (Pa.) 200; Rallton v. Lauder, pecially with reference to the official 126 111. 219, 18 K. E. 555 ; Beecher v. organs of the courts and periodicals de- Stephens, 25 Minn. 146; Benkendorf v. voted to legal news and legal advertis- Vincenz, 52 Mo. 441 ; Taylor v. Reid, 103 lEg, including the publication of court 111. 349; Hull v. King, 38 Minn. 349, 37 notices and notices of foreclosures and N. W. 792; Leroy v. Jamison, 3 Sawy. judicial sales, and as to what constitutes 369, Fed. Cas. No. 8,271. the place of "publication" of a news- i^ Daily Register Printing & Pub. Co. paper, the reader will find instructioii in v. Mayor of New York, 52 Hun, 542, 6 the following cases: Hanscom v. l^er, N. X. Supp. 10. 60 Neb. 68, 82 N. W. 114, 48 L. R. A. 409, is Hills v. Alden, 2 Hask. 299, Fed. 83 Am. St. Rep. 507 ; Maass v. Hess, 41 Cas. No. 6,507. 111. App. 282; Kellogg v. Oarrico, 47 Mo. lo In re Robinson, 1 Ben. 270, 1 N. B. 157 ; Kerr v. Hitt, 75 111. 51 ; Lynch v. R. 8, Fed. Cas. No. 11,936. 629 EIGHTS AND DUTIES OF CKKDITORS § 277 which the bankrupt has had his principal place of business, resided, or had his domicile, or if that place would be manifestly inconvenient as a place of meeting for the parties in interest, or if the bankrupt is one who does not do business, reside, or have his domicile within the United States, the court shall fix a place for the meeting which is the most convenient for the parties in interest. If such meeting should by any mischance not be held within such time, the court shall fix the date, as soon as may be thereafter, when it shall be held." ^* A creditors' meeting should not be held on a public holiday, but the fact that it was so held will not be cause for setting aside the proceedings taken at that meeting where it appears that no one was injured thereby.*^ The bank- rupt must attend this first meeting if so directed by the court, and, if present at the meeting, he must submit to an examination. But he is not required to attend a meeting at a place more than 150 miles distant from his home or principal place of business, unless ordered by the court for cause shbwn.*^ "At the first meeting of creditors, the judge or referee shall preside, and, before proceeding with the other busi- ness, may allow or disallow the claims of creditors there presented, and may publicly examine the bankrupt or cause him to be examined at the instance of any creditor." ** The meeting being organized, the first step is for those who present themselves and claim to be creditors of the estate to make proof of their claims. A claim duly proved will be al- lowed on its filing, unless objection is made. In the latter event, the referee may forthwith decide upon its admissibility, his decision being subject- to review by the judge, or postpone it for further consideration. A creditor who holds a voidable preference has a "provable" claim, in the sense that formal written proof of it may be made and filed, but it is a claim on which he cannot be allowed to vote until he has surren- dered his preference.** And where objections are filed to a claim, on the ground that the claimant has received a preference, he should not be permitted to take any part in the creditors' meeting until the matter has been heard and determined.*^ Where, after a decision by the ref- eree between two parties as to the right to vote upon a claim, the per- son aggrieved allows the vote to be taken without further objection, he cannot again reopen the question.*® Next in order comes the ex- • 2 Bankruptcy Act 189S, § 55a. tile Co. (C. C. A.) 150 Fed. 71, 17 Am. 21 In re McGlynn, 2 Ixjw. 127, Fed. Bankr. Rep. 609. Cas. No. 8,804. . =o In re Columbia Iron Works, 142 22 Bankruptcy Act , 1898, § 7. Fed. 234, 14 Am. Bankr. Rep. 526. 23 Bankruptcy Act 1898, § 55b. »« In re Spencer, 18 N. B, R. 199, Fed. 2* Stevens v. Nave-McCord Jlercan- Cas. No,. 13.229. § 277 LAW OF BANKRUPTCY 630 amination of the bankrupt, and if the latter desires to ofifer terms of composition to his creditors, he may now do so. It is next in order for the creditors to appoint the trustee and fix the amount of his bond. They may also at this meeting, as well as at subsequent meetings, "take such steps as may be pertinent and necessary for the promotion of the best interests of the estate and the enforcement of the act." "'" In the absence of any specific provisions of law, the conduct of a creditors' meeting is properly guided by the rules and usages of parliamentary bodies.^* It is provided that "creditors shall pass upon matters submitted to them at their meeting by a majority vote in number and amount of claims of all creditors whose claims have been allowed and are pres- ent, except as herein otherwise provided. Creditors holding claims which are secured or have priority shall not, in respect to such claims, be entitled to vote at creditors' meetings, nor shall such claims be counted in computing either the number of creditors or the amount of their claims, unless the amounts of such claims exceed the values of such securities or priorities, and then only for such excess." ** This provision is obviously intended for the protection of minorities. Its efifect is that a few heavy creditors cannot force action against the wishes of the small creditors, if the latter constit'ute a numerical majority. Nei- ther can a numerical majority of the creditors control the administra- tion of the estate unless they also represent a majority in amount of the claims proved. The two kinds of majority must concur. If, how- ever, the numerical majority of creditors in favor of any proposed ac- tion or policy (on which they are competent to act with binding effect) also control the major amount of the claims, they will be able to force their will upon a dissenting minority. If there were irregularities in the calling of the first meeting or in the notices to creditors, or if, for any other cause affecting the common interest of all in the estate, it seems to the referee proper to adjourn the meeting to a future fixed day, he has power to do so.** But in order to take this action, the referee must himself be present at the 2 7 Bankruntcy Act 1898, § 55c. nental Building & Loan Ass'n, 232 Fed. 28 In re Merchants' Ins. Co., 6 Biss. 828, 147 C. C. A. 22, 37 Am. Bankr. Rep. 252, Fed. Gas. No. 9,442. 439. 2 Bankruptcy Act 1898, § 56. After so in re Cheney, 19 N. B. R. 16, Fed. the selection of a trustee, a secured Cas. No, 2,6.5T ; In re Devlin, 1 Ben. 335, creditor cannot participate in creditors' 1 N. B. R. 35, Fed. Cas. No. 3,841 ; In re meetings, except in so far as the security Rosenfeld-Goldman Co. (D. C.) 228 Fed. which he holds fails to cover his entire 921, 36 Am. Bankr. Rep. 520. claim. Merchants' Nat. Bank v. Conti- 631 EIGHTS AND DUTIES OF CREDITORS § 278 meeting. If he is prevented from attending, he cannot adjourn the meeting by letter. In that case, the meeting wholly fails and a new meeting must be called.** § 278. Same; Special and Final Meetings. — The act provides that "a meeting of creditors, subsequent to the first one, may be held at any time and place when all of the creditors who have secured the allow- ance of their claims sign a written consent to hold a meeting at such time and place. The court shall call a meeting of creditors whenever one-fourth or more in number of those who have proven their claims shall file a written request to that effect ; if such a request is signed by a majority of such creditors, which number represents a majority in amount of such claims, and contains a request for such meeting to be held at a designated place, the court shall call such meeting at such place within thirty days after the date of the filing of the request." ** In addition to this, the general orders direct that' "whenever, by reason of a vacancy in the office of trustee, or for any other cause, it becomes necessary to call a special meeting of the creditors in order to carry out the purposes of the act, the court may call such a meeting, specify- ing in the notice the purpose for which it is called." ^* A final meeting of creditors shall be ordered "whenever the aflairs of the estate are ready to be closed." **. Creditors, as in regard to other meetings, are to have at least ten days' notice by mail. Fifteen days before the date fixe"d for this final meeting, the trustee will make a final report and file a final account with the court, and at the meeting itself he is, to lay before the creditors a detailed statement of the administra- tion of the estate. The creditors now have an opportunity to scrutinize the accounts of the trustee, and determine whether any objections to his discharge are to be based thereon.'^ A final dividend will be de- 31 In re Dickinson, 18 N. B. R. 514, he deems it advisable, to consider the Fed. Cas. No. 3,895. course to be taken with respect to :&rop- 32 Bankruptcy Act 1898, §§ 55d, 55e. erty of the bankrupt which is subject to See In re Back Bay Automobile Co. (D. liens. In re Cutler & John (D. C.) 228 C.) 158 Fed. 679, 19 Am. Bankr. Rep. Fed. 771, 36 Am. Bankr. Rep. 420. The 835. meeting for the declaration of a divi- 33 General Order No. 25. It is un- dend should be combined with that for doubtedly in the discretion of the ref- the payment of the dividend so declared, eree to direct that a creditors' meeting and if ttiere is to be but one dividend, shall be called to consider whether the the final meeting can and should in trustee shall be authorized to file objec- proper cases be combined with such divi- tions to the bankrupt's application for dend meeting. In re Smith, 1 Nat. discharge. In re Whitney (D. 0.) 250 Bankr. News, 404. Fed. 1005, 41 Am. Bankr. Rep. 548; In si Bankruptcy Act 1898, § 55f. re Hockman (D. C.) 205 Fed. 380, 30 Am. so See In re Merchants' Ins. Co., 6 Bankr. Rep. 921. So., the referee may Biss. 252, Fed. Cas. No. 9,442. properly call a meeting of creditors, if § 279 LAW OF BANKRUPTCY 632 clared by the referee and paid by the trustee, and thereupon the court will close the estate, if satisfied that it has been fully administered, by approving the final account of the trustee and discharging him.'* § 279. Representation by Attorney or Proxy. — ^The act provides that the term "creditor" shall include "any one who owns a demand or claim provable in bankruptcy, and may include his duly authorized agent, attorney, or proxy," '' from which it appears that creditors may act at their meetings by agent or attorney. And the Supreme Court has promulgated forms for a "general letter of attorney in fact when a creditor is not represented by attorney at law" and for a "special letter of attorney in fact." ^* These powers of attorney must be acknowledged before a referee in bankruptcy, a United States commissioner, or a no- tary public, and "when executed on behalf of a partnership or of a cor- poration, the person 'executing the instrument shall make oath that he is a member of the partnership, or a duly authorized officer of the cor- poration on whose 'behalf he acts. When the person executing is not personally known to the officer taking the proof or acknowledgment, his identity shall be established by satisfactory proof." ** If the letter of attorney is given to two or more persons jointly, its authority cannot ■be exercised by one of the attorneys alone.** And if one of the joint proxies is disqualified (as, becauge he is the bankrupt's attorney) neither of them can vote under the power of attorney at a creditors' meeting.*^ If the acts which may be performed in behalf of the creditor are spe- cifically enumerated in the power of attorney, its scope will be limited to such acts. Thus, a letter of attorney merely empowering the agent to attend and vote at meetings of creditors will not authorize him to file opposition to the bankrupt's application for discharge.*^ The question whether one constituted the creditor's general attorney by such an in- strument can appoint a third person to act for the creditor in particular details will depend upon the wording of the authorization. It has been thought that such a delegation might be made under a power of at- torney which authorized the attorney to sign the creditor's name to any writing proper or necessary to collect or receive debts due, with power of substitution.*^ 86 Bankruptcy Act 1898, § 47, clauses *» In re Phelps, 1 N. B.-R. 525, Fed; 7 and 8; Idem, § 2, clause 8. See In re Cas. No. 11,071. Steed, 107 Fed. 682, 6 Am. Bankr. Rep. ^^ j^ ^^ Columbia Iron Works, 142 ''3- Fed. 234, 14 Am. Bankr. Rep. 526. 87 Bankruptcy Act 1898, § 1, cl. 9. „ . ^. .. 88 Official Forms Nos. 20 and 21. " Creditors v. Williams, 4 N. B. R. 89 (Jeneral Order No. 21, par. 5. See 579, Fed. Cas. No. 3,379. In re Butterfield, 14 N. B. R. 195, Fed. 43 in re Knoepfel, 1 Ben. 398, 1 N. B. Cas. No. 2,248 ; In re McDuffee, 2 Hask. R. 70, Fed. Cas. No. 7,892. 76, 14 N. B. R. 336, Fed. Cas. No. 8,778. 633 EIGHTS AND DUTIES OF CEEDITOES § 280 Where the person who appears on behalf of a creditor, and proposes to act in his interest, is an attorney at law, a member of the bar of the particular court, he need not produce a written and acknowledged au- thority. His right to appear in behalf of his client will be presumed, and he will not be required to prove it unless it is challenged by some party in interest. This applies, however, only to such acts as fall within the ordinary scope of an attorney's duties and employment, such as filing proofs of debt or other papers, examining witnesses, objecting to the claims of other creditors, or making any ordinary motion or request.** But the right to cast his client's vote in the election of a trustee stands upon a dififerent footing. This is a function which the attorney cannot exercise without showing an express authorization. "Voting for a trustee in bankruptcy is an act so essentially dififerent in its nature and character from an attorney's ordinary duties in the con- duct of litigation, and the business considerations that enter 'into the choice of a trustee are so foreign to a lawyer's ordinary functions or presumed special knowledge and skill, that the right to vote cannot be deemed to be a part of his implied authority, nor presumed to be con- ferred upon a lawyer from his mere retainer in a bankruptcy proceed- ing." *5 § 280. Assignment of Claims. — A provable claim against the estate of a bankrupt may be sold and assigned either before or after proving it. "Claims which have been assigned before proof shall be supported by a deposition of the owner at the time of the commencement of pro- ceedings setting forth the true consideration of the debt and that it is entirely unsecured, or, if secured, the security, as is required in proving secured claims. Upon the filing of satisfactory proof of the assign- ment of a claim proved and entered on the referee's docket, the referee shall immediately give notice by mail to the original claimant of the filing of such proof of assignment, and if no objection be entered within ten days, or within further time allowed by the referee, he shall make an order subrogating the assignee to the original claimant. If objection be made, he shall proceed to hear and determine the matter." ** But if the assignee of the claim is also a debtor to the bankrupt, he cannot be permitted to set off such claim against his debt to the estate, provided the claim "was purchased by or transferred to him after the filing of the petition, or within four months before such filing, with a view to *iln re Scott, 15 N. B. R. 73, Fed. *b in re Blankfein, 97 Fed. 191, 3 Am. Cas. No. 12,519; In re Hill, 1 Ben. 321, Bankr. Rep. 165; In re Christley, 6 Biss. 1 N. B. R. 16, Fed. Cas. No. 6,481 ; In re 154, 10 N. B. R. 268, Fed. Ca,s. No. 2,702. Pauly, 1 Nat. Bankr. News, 405. *8 General Order No. 21, par. 3, § 281 LAW OF BANKRUPTCY 634 such use and with knowledge or notice that such bankrupt was insolvent or had committed an act of bankruptcy." *' Generally, where a prov- able claim against the bankrupt existed at the time the petition was filed, the subsequent assignment of it will carry with it all the rights and remedies which the assignor had, including the right to intervene in the bankruptcy proceedings.** And claims which have been proved, and then sold and assigned, before the election of a trustee must be voted upon in such election by the actual owner at the time and not by the original creditor.*^ But such an instrument as a certificate of deposit is dishonored after the bankruptcy of the maker, and after it is proved as a claim, it no longer possesses the qualities of negotiable paper.^* It is also held that one taking an assignment of a proved claim as security for an antecedent liability of the person in whose name it is proved, who is apparently, though not really, the owner thereof, is not a purchaser for value, and cannot hold the claim against the true owner .^^ § 281. Participation of Creditors in the Proceedings. — Generally speaking, and for most purposes, the right of creditors to participate in the proceedings, by motion or petition or otherwise, depends upon the proof and allowance of their claims. It is by this step that the status of the creditor is asserted and recognized. It is essential to enable a creditor to vote at any creditors' meeting, and in most other respects it may be said that the rights of creditors, as parties to the proceeding, arise and accrue upon proof of their clainis.^^ A non-resident creditor subjects himself to the jurisdiction of the court by proving his debt, and is thereafter bound to obey all the orders of the court touching his claim, and the court can, in case he disobeys its orders, deprive him of all the benefit of the act, and can reject and expunge his claim.^* It should also be noted that the provision of the statute (Section 59f ) allow- ing other creditors than the original petitioners to enter their appearance and join in the petition, has reference only to proceedings before the ad- judication in bankruptcy. After the adjudication, all creditors are in effect parties to the proceeding, and they are equally entitled to be heard without any special order permitting them to intervene.^ 47 Bankruptcy Act 1898, § 68b. Cas. No. 7,447. "Until a creditor has '*8 In re Fitzgerald, 191 Fed. 95, 26 proved his claim, he ought not to be Am. Bankr. Rep. 773. heard as a creditor, and he has no right *o In re Frank, 5 Ben. 164, 5 N. B. R. to be heard in any other character." In 194, Fed. Cas. No. 5,050. re Brisco, 2 N. B. R. 226, Fed. Cas. No. 5 In re Sime, 3 Sawy. 305, 12 N. B. R. 1,886. 315, Fed. Cas. No. 12,861. 53 in re Kyler, 2 Ben. 414, 2 N. B. R. 61 In re Sime, 3 Sawy. 305, 12 N. B. 649, Fed. Cas. No. 7,956. K. 315, Fed. Cas. No. 12,861. 64 in re Schwartz, 1 Nat Bankr. 5 2 See In re Jones, 2 N. B. R. 59, Fed. News, 266. fi35 EIGHTS AND DUTIES OF CKBDITOES , § 282 As a general rule, the rights of creditors, after their claims have been proved and allowed, must be worked out through the trustee, and not by independent action on their part. Still, there are some circum- stances in which creditors w^ill be justified in acting for the common in- terest independently of the trustee, or even in opposition to him. Thus, if ho trustee has yet been appointed, any creditor may petition the court to enjoin another creditor from proceeding with a pending suit, or enforcing a voidable lien or attachment against the bankrupt, and injunction may issue on such petition.^ So also, any creditor may ob- ject to the allowance of another creditor's claim, and if it is allowed, the objecting creditor may move the court to direct the trustee to ap- peal, or to allow him to appeal in the name of the trustee.®® So, if the trustee sells property of the bankrupt for a grossly inadequate price, himself discouraging competition, and refuses to have the sale set aside, a dissatisfied creditor may take action in that behalf.®' So, while the trustee is the one in whom the title to the bankrupt's property is vested and therefore the proper person to bring all necessary actions for its recovery, yet the creditors are interested in having the assets brought in and realized upon, and the trustee cannot complain of the institu- tion by creditors of suits to recover assets which he, the trustee, might intentionally or unintentionally permit to escape.®* § 282. Advising Trustee. — Energetic creditors, who desire to pro- mote the' efficient working of the bankruptcy law, els well as to protect their own interests, will not rest satisfied with selecting a competent person to act as trustee in bankr.uptcy. They will be ready to advise and assist him in collecting the assets, unearthing frauds, keeping down the , expenses, and securing the largest possible dividend. But the question may be asked, how far have the creditors a right to instruct the trustee in his administration of the estate? Is he bound to comply with advice or directions given to him by a majority of those in interest? If the acts or omissions of the trustee result in loss or damage to the estate, can^he save himself from personal liability by showing that he acted in pursuance of directions given him by the creditors, or by a major part of those in interest? On the one hand, the trustee is re- quired to collect and reduce to money the property of the estate "under the direction of the court." He may intervene in suits pending by or against the bankrupt by order, or with the approval, of the court, 55 See In re Carrier, 51 Fed. 900. 57 in re Groves, 2 Nat. Bankr. News, 56 Chatfleld v. O'Dwyer (C. C. A.) 101 466. Fed. 797, 4 Am. Bankr. Rep. 313. os Davl.s v. W. F. Vandiver & Co., 143 Ala. 202, 38 South. 850. § 282 , LAW OF BANKRUPTCY 63G and his sales of both real and personal property shall, when practicable, be subject to the approval of the court. On the other hand, creditors are not only empowered but required, at each of their meetings, to "take such steps as may be pertinent and necessary for the promotion of the best interests of the estate and the enforcement of this act." ^* Upon this is may be remarked that, while the trustee's administration of the estate is to be under the "direction" of the court, directions to the trus- tee will not generally be issued by the court sua sponte. Directions, leave, or authority for any particular action, is usually sought and ob- tained upon an application to the court, and such applications are com- monly prompted by the creditors. In the analogous case of receiver- ships, when the question presented by such an application is one of expediency, the court is much influenced by the number or proportion of the creditors who urge the action to be taken or who consent to it. Unanimous consent of creditors will almost certainly induce the court to grant the authority or leave asked, provided the course proposed to be taken is not contrary to law. On the other hand, a court will be re- luctant to coerce an unwilling minority, and will not do so unless thor- oughly satisfied that the course proposed is clearly for the best inter- ests of all.«» In so far as the modern decisions have dealt with this question, they ' appear to leave the matter balanced between the duty of the trustee to exercise his independent judgment and discretion and the legitimate in- fluence of the creditors in persuading him to the course they think best. In one case it was said : "Equally removed from the interference of the creditors is the action of the trilstee, so long as that officer shall act with fidelity to his trust. He is chosen to represent all the credi- tors, not a majority however great. The purpose of vesting the estate of the bankrupt in him is to commit to an impartial administration its management for the benefit of each and all the creditors. The creditors are the cestuis que trustent. He gives a bond for the faithful per- formance of his duty to all the beneficiaries. His office is one of per- sonal confidence and cannot be delegated. He has no right to impose his duty on others, and if he does he will be responsible to the cestuis B9 Bankruptcy Act 1898, § 55c. On from time to time summon general meet- this point the bankruptcy law at present ings of the creditors for the purpose of in force In Great Britain makes specific ascertaining their wishes, and it shall provision. It directs that "the trustee be his duty to summon meetings at such shall, in the administration of the prop- times as the creditors may direct." erty of the bankrupt, and in the distribu- English Bankruptcy Act 1883, § 89. tion thereof amongst his creditors, have oo See Keenan v. Shannon, 10 Phila. regard to any directions that may be (Pa.) 219, 9 N. B. R. 441, Fed. Cas. No. given by resolution of the creditors at 7,640; In re Treadwell, 23 Fed. 442. any general meeting. The trustee may ^^'^ EIGHTS AND DUTIES OP CREDITORS § 2.83 que trustent. Subject to the control of the court and statutory limita- tions, the entire administration of the trust estate is in his hands. He cannot therefore yield his judgment to that of a majority of the creditors, merely because they are a majority, without a breach of his trust. To thus abdicate his duties is to make himself a mere passive trustee. It is proper that he should consult with the creditors upon important mat- ters and get the benefit of their knowledge and experience, but the re- sponsibility of decision rests upon him." *^ On the other hand, highly respectable authorities hold that, when the trustee is in serious doubt as to the expediency of some proposed step in the administration of the estate, — as, for example, the bringing of a suit the issue of which may be doubtful, or which may prove costly out of all proportion to the amount finally recovered, — he should first exercise his own intelligence and judgment and take the advice of counsel, and if still in doubt, the proper course is for him to assemble the creditors in special meeting, under the presidency of the referee and put the question to their discus- sion and decision by vote. Their instructions will be authoritative and will save the trustee from any personal responsibility. If he has not enough funds in hand to conduct the proposed litigation, he may also require the creditors to come to his assistance with such money as may be required.®* But the trustee should be careful not to act (and the court will not allow him to act)L under the control of any particular credi- tor or group of creditors. Where there is evidence of such control or attempted control, the court wiH direct him to report fully to a special meeting of all the creditors, to be called for the purpose, and to be gov- erned by such directions as the meeting shall adopt.** § 283. Furnishing Indemnity for Expenses. — There may be circum- stances in which it will be incumbent upon the creditors to advance the money required for the expense of legal proceedings, if they desire such proceedings to be instituted with the idea that they may result in benefit to themselves. Thus, generally, where creditors of an estate desire the trustee to bring suit to set aside alleged preferences or fraud- ulent conveyances, or otherwise to recover property alleged to belong- to the bankrupt, they may be required to guaranty to the trustee all the probable costs and expenses likely to 'be incurred in the prosecution of such suit, if there are no funds of the estate to pay such expenses, or 61 In re Columbia Iron Works, 142 184 Fed. 190, 25 Am. Bankr. Rep. 757 ; In Fed. 234, 14 Am. Bankr. Rep. 526. And re Harper, 175 Fed. 412, 23 Am. Bankr. see In re Meadows, Williams & Co.,' 181 Rep. 918. Fed. 911, 25 Am. Bankr. Rep. 100. es In re Arnett, 112 Fed. 770, 7 Am. 6 2 See In re Baber, 119 Fed. 520, 9 Bankr. Rep. 522. Am. Bankr. Rep. 406; In re Kearney, § 284 LAW OF BANKRUPTCY 638 if the money in hand is not more than enough for the creditors having priority, or if the wish of those creditors is opposed by the trustee him- self or by a considerable body of other creditors.** But though a trus- tee in bankruptcy is not required to litigate every question called to his notice by creditors, however frivolous or apparently lacking in sup- port, yet he cannot, by requiring indemnity in every instance against costs and expenses, cast the risk of a controvei-sy respecting alleged preferences, etc., on the particular creditor requesting him to under- take it.«* § 284. Right to Information as to Estate. — ^The bankruptcy act clearly recognizes and fully provides for the right of creditors to re- quire all legitimate information in regard to the estate in which they are interested and its administration by the trustee, and to inspect records, accounts, and papers relating to it, to the end that they may be fully advised as to all matters affecting their interests and competent to "take such steps as may be pertinent and necessary for the best in- terests of the estate." Thus, it is made the duty of the trustee to "fur- nish such information concerning the estate and its administratioii as may be requested by parties in interest." (Section 47, clause 5.) The accounts and papers of trustees "shall be open to the inspection of offi- cers and parties in interest." (Section 49.) Referees, also, must "fur- nish such information concerning the estates in process of administration before them as may be requested by the parties in interest." (Section 39, clause 3.) And if any person, while acting as referee or trustee, shall "refuse to permit a reasonable opportunity for the inspection of the accounts relating to the affairs of, and the papers and records of, estates in their charge, by parties .in interest, when directed by the court so to do," he is liable to punishment by fine and the forfeiture of his office. (Section 29, c. 3.) But it has been held that the refusal by the referee of permission to take a copy of the inventory, which is at all times accessible to the creditor, is not prejudicial to the latter, and is no ground for opposition to the recording of a resolution of composi- tion.®* e* In re Barrett, 132 Fed. 362, 12 Am. No. 12,396; In re McNamara, 2 Nat. Bankr. Kep. 626; In re Barnes, 18 Fed. Bankr. News, 341. 158; In re Griffith, 1 Nat. Bankr. News, es in re Baird, 112 Fed. 960, 7 Am. 546 ; In re Hughes, 2 Ben. 85, 1 N. B. R. Bankr. Rep. 448. 226, Fed. Gas. No. 6,841 ; In re Sawyer, ee in re Tifft, 18 N. B. R. 227, Fed. 2 Low. 551, 16 N. B. R. 460, Fed. Oas. Gas. No. 14,033. 639 QUALIFICATION AND TENURE OF TRUSTEES 8 28£ CHAPTER XVII APPOINTMENT, QUALIFICATION, AND TENURE OF TRUSTEES Sec. 285. tjualiflcatlous of Trustees. 286. Election of Trustee. 287. Same; Cases Where No Trustee Appointed. 288. Same; Rights of Creditors as Voters. 289. Same ;• Representation by Agent or Attorney. 290. Sam^; Corrupt Practices and Improper Influences In Election. 291. Confirmation or Disapproval by the Court. 292. Appointment of Trustee by Court. 293. Acceptance and Resignation of Trustee. 294. Bonds of Trustees. 295. Death of Trustee. 296. Removal of Trustee. § 285. Qualifications of Trustees. — The forty-fifth section of the bankruptcy act provides that trustees in bankruptcy may be individuals who are competent to perform the duties of the office and who reside, or have an office, in the judicial district within which they are appointed, or corporations authorized by their charters or by law to act in such a capacity and having an office in the judicial district within which they are appointed. Nothing appearing to the contrary in the statute, it would seem that a woman might be elected or appointed trustee, if otherwise qualified and competent. And it has been held that a per- son is not disqualified from acting in this capacity because he is an alien.* Under the second clause of the statute, a trust company or other suitable corporation may act as a trustee in bankruptcy, and the selec- tion or appointment of such companies has not been uncommon.* The requirement that the trustee must be "competent" to perform the duties of his' office probably has reference to business competence and skill. But it must be noted that this is a question for the creditors to determine in the first instance. It is for their own sake that a com- petent trustee must be chosen, and while their choice is subject to the approval or disapproval of the court, it is not believed that any court of bankruptcy would set aside an election of trustee on the ground that the appointee was not competent, unless at the instance of a respectable minority and upon" very strong representations of his unfitness.* In the cases where it becomes necessary for the court to name the trustee, 1 In re Coe, 154 Fed. 162, 18 Am. that the trustee in bankruptcy was a Bankr. Rep. 715. ' trust company, though the case itself is 2 See, for instance, In re Howe Mfg. not concerned with this question. Co., 193 Fed. 524, 27 Am. Bankr. Rep. » In re Clairmont, 1 Low. 230, Fed. 477, where it appears from the report Cas. No. 2,781. § 285 LAW OF BANKRUPTCY 640 regard must be had to the business experience and skill of the person to be appointed, very much as in the case of the appointment of a re- ceiver. The court should here take into account the nature of the bankrupt's property and business, and select for its administration a . person whose experience in that business or with property of that na- ture will enable him to dispose of it to the best advantage* A trustee in bankruptcy does not act in the interest of. the bankrupt, but, as a rule, adversely to him. For this reason he must not be under the influence or control of the bankrupt, and it is said,%iat a near rel- ative of the bankrupt is not eligible as trustee of his estate, .or at least, while such relationship may not be an absolute disqualification, it is a circumstance which should have great weight in determining the ques- tion of his confirmation.^ But there is nothing to prevent the creditors from electing one of their own number, or the court from appointing one of them, to be trustee. The fact of his interest in the estate does not disqualify him. There is no requirement that the trustee should be a disinterested third party, and as a matter of fact, it will frequently be highly expedient to choose one of the heavier creditors.® And since his successful administration of the estate, in view of the ex- traordinary powers and remedies with which he is vested, does not depend on the good will of the bankrupt, it is no objection to his ap- proval by the court that he has incurred the violent hostility of the * In the ahalogous ease of the appoint- The act of 1867 provided that "no person ment of a receiver, it has been said that v^ho has received any preference con- it is not proper to appoint a person as trary to the provisions of this act shall receiver over a kind of property (such be eligible as assignee." Rev. Stat. U. as a mill) the management of which he S. § 5035. As to this prohibition, see In does not understand, with an undertak- re Powell, 2 N. B. R. 45, Fed. Oas. No. ing that he will act under the direction 11,354; In re Stuyvesant Bank, 5 Ben. of a person who does understand it. The 566, 6 N. B. R. 272-, Fed. Cas. No. 13,- receiver should be a_person competent to 581. In the case of a trustee in bank- manage the particular property and to ruptcy, as in the case of a receiver in act on his own responsiliility. Lupton v. equity, it Is not invariably necessary, or Stephenson, 11 Ir. Eq. 484. even proper, that he should be an en- 5 In re Powell, 2 N. B. R. 45, Fed. Oas. tirely disinterested person. There may No. 11,354; In re Zinn, 40 How. Prac. be circumstances in which one of the (N. Y.) 461, 4 N. B. R. 370, Fed. Cas. creditors would be an eminently suitable No. 18,216; In re Bogert, 3 N. B. R. 651, per.son for the office. When the work Fed. Cas. No. 1,600 ; In re Zinn, 4 Ben. to be done is the unearthing of concealed 500, 4 N. B. R. 436, Fed. Cas. No. 18,215. preferences, meeting and baffling fraud- See, as to the analogous case of receivers, ulent designs in relation to the secreting "Wetter v. Schlieper, 7 Abb. Prac. (N. Y.) or transfer of property, exposing fraud" 92; Williamson v. Wilson, 1 Bland. Oh. uleut conspiracies, and the like, it is (Md.) 418, 427. probable that the interests of all con- 5 In re Lazoris, 120 Fed. 716, 10 Am. cerned will be best served by the active Bankr. Rep. 31; In re Lewisohn, 98 Fed. labor of one who has a direct and per- 576, 3 Am. Bankr. Rep. 299; In re Clair- sonal interest in realizing the greatest mont, 1 Low. 230, Fed. Cas. No. 2,781. possible amount of assets. In an analo- 641 QUALIFICATION AND TENURE OP TRUSTEES 285 latter.' Neither is there anything in the act to prevent the attorney for the creditors, or for one or some of them, from being chosen as trustee, and if he is duly elected by the creditors, and is not otherwise objectionable, he will be confirmed.* But on the other hand,., no trus- tee will be approved or confirmed by the court who has plainly been elected under the influence or control of the bankrupt or, in his inter- est." Thus, the bankrupt's own attorney is not eligible. And even one who has no apparent connection with the bankrupt's attorneys, bther than having an office in the same building with them, may be set aside as unsuitable for the office of trustee when -objected to by the minority creditors and when the votes which elected him were cast under powers of attorney held by the bankrupt's attorneys.*" One who has acted as attorney for the bankrupt, in matters not connected with the bankruptcy, may be eligible as trustee, but a person who has a direct interest ad- verse to that of the creditors generally, or who is the attorney of such person, is disqualified.** No debtor of the bankrupt should be ap- pointed trustee, and hence the court will disapprove the selection of the bankrupt's common-law assignee, the assignment being the act of bankruptcy relied on, and the assignee having an unsettled account and a claim for his services.** But the mere fact that one who: is chosen gous case, on a motion to appoint a re- ceiver, a federal court has said: "He is not, and ought not to be, indifferent be- tween the parties. His duty requires him to be the active adversary of 'this fraudulent debtor and his accomplices. In the selection of a person to discharge these duties, the respondent [correspond- ing to the bankrupt] in the position he now occupies, should have no voice, any more than the criminal should have in the choice of a detective to ferret out and recover the fruits of his crime. A person, therefore, who, by relationship) or other connection, may be supposed to feel in some degree the desire felt by the complainant to collect the sum decreed to be due, would seem, if otherwise un- objectionable, to be eminently fit to be appointed a receiver in a case like the present." Shainwald v. Lewis, 8 Fed. 878. And see further, Cookes v. Cookes, 2 De G., J. & S. 526; Taylor v. Life Association of America, 3 Fed. 465; Mat- ter of Knickerbocker Bank, 19 Barb. (N, Y.) 602; Chamberlain v. Greenleaf, 4 Abb. New Gas. (N. Y.) 92. r In re Mangan, 133 Fed. 1000, 13 Am. Bankr. Rep. 303. Bi,k.Bkk.(3d Ed.)— 41 s W. A. Lillet Bldg. Co. v. Reynolds, 247 Fed. 90, 159 C. C. A. 308, 40 Am. Bankr. B.ep. 371; In re Margolies, 191 Fed. 369, 27 Am. Bankr. Rep. 398; In re Lawson, 2 N. B. R. 112, Fed. Cas. No. 8,150; In re Barrett, 2 Hughes, 444, 2 N. B. R. 533, Fed. Cas. No. 1,043; In re Clairmont, 1 Low. 230, Fed. Gas. No. 2,781; Redick V. Woolworth, 17 Neb. 260, 22 N. W. 693, 52 Am. Rep. 410. When an attorney accepts the office of trustee, he Surrenders for the time his standing in the court of bankruptcy as an attor- ney for creditors. In re Evans, 116 Fed. 909, S Am. Bankr. Rep. 730. • 9 In re Van De Mark, 175 Fed. 287, 23 Am. Bankr. Rep. 760. 10 In re Sitting, 182 Fed. 917, 25 Am. Bankr. Rep. 682; In re Rekersdres, 108 Fed. 206, 5 Am. Bankr. Rep. 811; com- pare In re Fisher, 193 Fed. 104, 26 Am. Bankr. Rep. 793. 11 In re Clairmont, 1 Low. 230, Fed. Gas. No. 2,781. See In re Dayville Wool- en Co., 114 Fed. 674, 8 Am. Bankr. Rep. 85; In re Wink, 206 Fed. 348, 30 Am. Bankr. Rep. 298. 12 In re Kellar (G. C. A.) 192 Fed. 830. As a trustee in bankruptcy may be called § 285 LAW OF BANKRUPTCY , 642 by the creditors as the trustee advised the voluntary assignment un- der the state law which constituted the act of bankruptcy does not render him incompetent.^* The reason for the requirement that the trustee must be a resi- dent of the judicial district in which he is appointed, or at least have an office therein, is obvious. And this requirement is imperative. A person who does not reside within the district is absolutely disquali- fied from being trustee, unless he has a fixed place of daily business within the district.-^* But mere remoteness of the trustee's residence from the place where the trust property is to be administered (as, for instance, where he lives in another county) is no ground for disapprov- ing the election if he satisfies the requirerhents of the statute and is the free choice of the creditors.*^ ■There is a rule in relation to the selection of a person to be receiver of a corporation which might, very well be applied, and probably would be applied, in parallel cases under the bankruptcy law. It is that, when the condition of an insolvent corporation shows fraud, recklessness, or gross negligence in the conduct of its affairs the court, in selecting a receiver, will not appoint any of the officers or directors who have taken an active part in its former management.^® But aside from questions of this kind, where three trustees are elected for a bankrupt corporation, it is no ground of objection that one of them is a director of the cor- poration, and in case it becomes the duty of the trustees to bring an action against the directors, it may be done by the other two, making upon to sue to set aside transfers, to ed that the parties should agree on some compel persons to account for property suitable person, living in that city, to be belonging to the bankrupt estate, etc., a associated with the chosen trustee as co- trust company, which was trustee of trustee. In re Jacoby, Fed. Cas. No. mortgages belonging to the bankrupt, 7,166. and which was intimately associated is In re Kreuger, 196 Fed. 705, 27 Am. with the bankrupt's business should not Bankr. Rep. 440; In re Jacobs & Both, be appointed trustee, since it might be 154 Fed. 988, 18 Am. Bankr. Rep. 728. compelled to assume inconsistent posi- le Buck v. Piedmont & A. L. Ins. Co.» tions. Wilson v. Continental Bldg. & 4 Fed. 849; Atkins v. Wabash, St. L. & Loan Ass'n, 232 Fed. 824, 147 C. C. A. P. Ry. Co., 29 Fed. 161; Attorney Gen- 18, 37 Am. Bankr. Rep. 444. eral v. Bank of Columbia, 1 Paige (N. Y.). IS In re Blue Ridge Packing Co., 125 511. See In re Stuyvesant Bank, 5 Ben. Fed. 619, 11 Am. Bankr. Rep. 36. 566, 6 N. B. R. 272, Fed. Cas. No. 13,581. 1^ In re Havens, 1 N. B. R. 485, Fed. And see In re Gordon Supply & Mfg. Co., Cas. No. 6,231; In re Clairmont, 1 Low. 129 Fed. 622, 12 Am. Bankr. Rep. 94. A 230, Fed. Cas. No. 2,781; In re Loder, stockholder and oflBcer of a bankrupt 2 N. B. R. 515, Fed. Cas. No. 8,459. In corporation is not, for that reason alone, one case, where the trustee elected did incompetent to act as its trustee in not reside in the same city with the bankruptcy. In re Merritt Const. Co., bankrupt, and certain creditors objected 219 Fed. 555, 133 C. C. A. 323,. 33. Am- to him on this ground, the court suggest- Bankr. Rep. 616. ; 643 QUALIFICATION AND TENURE OP TRUSTEES § 286 their cotrustee a defendant as director.^' It is also held that a man who is himself a bankrupt and undischarged is not a proper person to be appointed trustee of the estate of another bankrupt, and the referee should not receive votes cast for such a person. "^^ § 286. Election of Trustee. — "The creditors of a bankrupt estate shall, at their first meeting after the adjudication or after a vacancy has occurred in the office of trustee, or after an estate has been re- opened, or after a composition has been set aside or a discharge re- voked, or if there is a vacancy in the office of trustee, appoint one trustee or three trustees of such estate." ^' As to the time of making the appointment, there can be no trust estate for administration, and consequently no authority to choose a trustee, until after an adjudica- tion has been made.^" As to the number of trustees, they must be ei- ther one or three. If the creditors elect two trustees, there is a va- cancy in the office of third trustee, which the creditors should fill at a subsequent meeting to be called by the referee, but if they fail to do so, the referee himself may fill it.^*- In case of the. bankruptcy of a part- nership and also the individual partners, it is thought to be the inten- tion of the statute that the same person (or the same three persons) should be appointed trustee for both the firm and the separate estates."^ But it is held that the court has discretionasy power to appoint sep- arate trustees for the estate of the firm and that of an individual part- ner or partners, but it is not customary, is seldom necessary, and is. likely to lead to greater expense and to undesirable complications. Hence this power should be exercised only in cases of special and peculiar ne- cessity, and for the protection of rights which cannot be adequately secured by the action of a common trustee or by the .creditors directly .^^ IT In re Syracuse Paper & Pulp Co., the time of confirming the composition 164 Fed. 275, 21 Am. Bankr. Rep. 174. or granting the discharge, also discharg- 18 In re Smith, 1 Nat. Bankr. News, ed the trustee), then a new trustee must 136. be appointed. Compare the language of ,. 19 Bankruptcy Act 1898, § 44. The for- section 50, c, where the same phrases ty-fifth word in this section — the word are repeated but with the omission of "or" occurring after the word ''revoked" this word. — ^is superfluous and the sentence should ' 20 In re Back Bay Automobile Co., 158 be read as if it were omitted. The mean- Fed. 679, 19 Am. Bankr. Rep. 835. ing is that if there is a vacancy In the 21 In re William F. Fisher & Co., 135 oflSce of trustee at the time when the , Fed. 223, 14 Am. Bankr. Rep. 366. creditors hold their next meeting after 22 in re Coe, 154 Fed. 162, 18 Am. the reopening of an estate, or the setting Bankr. Rep. 715. aside of a composition, or the revocation 2 s In re Currie, 197 Fed. 1012, 28 Am. of a discharge (that is, if the court, at Bankr. Rep. 834. § 286 LAW OF BANKRUPTCY 644 The statute does not prescribe any particular manner of conducting the election of a trustee in bankruptcy. It is not necessary that the creditors should first take an informal vote and then follow it by a formal ballot, in fact, there is no such thing known in the law as an informal vote. Any manner of expressing their choice of a trustee, pro- vided it is free from doubt and ambiguity, will be a sufficient vote.** The election may be by ballot, viva voce, or by calling the name of each creditor or by calling upon the persons representing them to name their choice.*^ But while the manner of proceeding is left very much to the determination of the creditors themselves it should conform to the general practice of meetings; and Form No. 22, prescribed by the general orders, "seems to contemplate that each creditor shall vote, and that his name, residence, and amount of debt shall be recorded. If on the first vote no choice is made, by reason of a greater part in number and value failing to concur, a second, third, or any number of ballots may be had, until the required concurrence is obtained." ** If no choice of a trustee is made at the first session of the creditors, the meeting may be adjourned to another day, and the trustee then chosen; it continues to be the "first meeting" notwithstanding such adjournment.*' So also, if objections are raised to proxies offering to vote, and the referee decides that they are disqualified, he may adjourn the meeting, in order to Enable the creditors affected to appear in person or by valid proxies, but he is not bound to do so, and if he directs the creditors present to jproceed forthwith to an election, the result will not be set asidd for that reason unless it is shown that he abused his discretion.** It is also sufficient cause for adjourning the meeting that the person chosen as trustee declines to act (although creditors should try to avoid this emergency by first obtaining the consent of the trus- 2* In re Pearson, 2 N. B. R. 477, Fed. treated as tentative. In re Knox, 221 Gas. No. 10,878. Fed. 36, 136 C. C. A. 562, 34 Am. Bankr. 26 In re Lake Superior Ship Canal Co., Rep. 461. So also, It is in the discretion 7 N. B. R. 376, Fed. Cas. No. 7,997. of the referee to adjourn the first meet- 26 In re Phelps, 1 N. B. R. 525, Fed. Ing of creditors from time to time, in Cas. No. 11,071. order that disputed claims may be in- 27 In re Phelps, 1 N. B. R. 525, Fed. vestigated before the voting for trustee Cas. No. 11,071; In re Nice & Schreiber, is completed. In re Show (D. C.) 248 123 Fed. 987, 10 Am. Bankr. Rep. 639. Fed. 295, 41 Am. Bankr. Rep. 481. Or Where objections are filed to certain he may adjourn the meeting to permit claims, and no person receives the votes > claimants to amend their statements of of an undisputed majority in number and claim. In re Eisenberg (D. C.) 251 Fed. amount for trustee, the referee is au- 427, 40 Am. Bankr. Rep. 864. thorized to postpone the election, and on 28 in re McGill, 106 Fed. 57, 45 0. 0. his doing so, the election should be A. 218, 5 Am. Bankr. Rep. 155. 645 QUALIFICATION AND TENURE OF TRUSTEES § 287 tee whom they expect to elect), or that objections are presented against the person elected and are taken under advisement by the referee."* The meeting should be organized at the hour designated in the offi- cial notice, and should be kept open for a proper length of time, to en- able all the creditors who desire to participate to come in and cast their votes. The law does not prescribe the length of time for which the meeting must be kept open, but under any ordinary circumstances an hour is not too long. It was the general practice under the act of 1867, as also under the English bankruptcy law and the insolvency laws of some of the states, to accord that much time to parties interested to appear.** Where, at the first meeting, the bankrupt proposes to offer terms of composition to his creditors, the referee, in a proper case, should postpone the choice of a trustee, to give opportunity for the filing of the proposed composition, and if it is filed, he should further postpone the selection of a trustee until the entry of an order refusing to confirm such agreement.** It will be noticed that the statute provides (Section 56) that "creditors shall pass upon matters submitted to them at their meetings by a majority vote in number and amount of claims of all creditors whose claims have been allowed and are present." In the absence of any more specific direction, this provision must be under- stood as applicable to the choice of a trustee, and a majority of those creditors who are present at the meeting, ^nd have had their claims al- lowed, must concur in his selection, as well as a majority in value of the claims of such creditors.** § 287. Same; Cases Where no Trustee Appointed. — The general orders in bankruptcy provide that "if the schedule of a voluntary bank- rupt discloses no assets, and if no creditor appears at the first meeting, the court may, by order setting out the facts, direct that no trustee be appointed ; but at any time thereafter a trustee may be appointed, if the court shall deem it desirable." *^ This order is within the power grant- ed by the act to the Supreme Court to prescribe necessary rules for carrying the statute into effect.** And a case for its application arises where the schedule of a voluntary bankrupt shows no other assets than 29 In re Lewensohn, 98 Fed. 576, 3 Am. ss General Order No. 15. Under the Bankr. Rep. 299. act of 1867, it was held that, even though 30 In re Gilley, 2 Low. 250, Fea. Gas. "^o creditors proved their debts and no No. 5,438: In re Phelps, 1 N. B. R. 525, "^^^ts were shown, still an assignee Fed. Gas. No. 11,071. should be appointed, because creditors ' ' „ ' ., vt 4. T> 1 TVT..„ might appear and assets might be found. 31 In re Rung, 1 Nat. Bankr. News, Anonymous, 1 N. B. E. 122, Fed. Gas. No 406. 457. 32 In re Henschel, 109 Fed. 861, 6 Am. 34 Smalley v. Laugenour, 80 Wash. 307, Bankr. Rep. 305. 70 Pac. 786. § 288 LAW OF BANKRUPTCY 640 such as are exempt by law.^® Even though some available assets may be disclosed, but no substantial amount, the appointment of a trustee is not indispensable, and no person elected to that office can be compelled to sei-ve without compensation, so that, if creditors insist upon the ap- pointment of a trustee, they must advance the statutory fees or other- wise arrange for his remuneration.*® But if assets afterwards come to light, a trustee must be appointed. This step is essential to divest the bankrupt of title to his property, and so make it available for adminis- tration in bankruptcy.*' Hence if the referee, after ordering that no trustee should be appointed, for the causes set forth in the generial or- der, shall learn that property of-the bankrupt has been found which creditors can claim as assets of the estate, he should then take measures for the appointment of a trustee.** § 288. Same; Rights of Creditors as Voters. — Generally speaking, and for most purposes, the right of a creditor to participate in the bank- ruptcy proceedings against his debtor does not depend upon his being named as a creditor in the bankrupt's list or schedule,*® but upon the proof and allowance of his claim. It is by this step that the status of the creditor is asserted and recognized. This is necessary to entitle him to vote as a creditor in the election of a trustee, to challenge the right of any other voter, or to take any other part in the proceedings.** And since the right to elect a trilstee belongs to the proving creditors, the vote will not be postponed to allow other creditors to prove their claims, unless by consent of those who have already proved.*^ If objection is 35 Smalley v. Laugenour, 30 Wash. 307, 225 111. 430, 80 N. E. 307, 116 Am. St. 70 Pac. 786. Probably also, a case arises Eep. 151. In which no trustee need be appointed ssin re Smith, 93 Fed. 791, 2 Am. where there are valid mortgage or other Bankr, Rep. 190. liens which will absorb all of the bank- 3 9 in xe Evening Standard Pub. Co., rupt's available property ; but even in 164 Fed. 517, 21 Am. Bankr. Eep. 156. this case the petitioning, creditors are en- *» See In re Jones, 2 N. B. R. 59, Fed. titled to an adjudication of bankruptcy Oas. No. 7,447; In re Hill, 1 Ben. 321, if they have made out their case, and the 1 N. B. R. 16, Fed. Cas. No. 6,481 ; In re question of appointing a trustee cannot Brisco, 2 N. B. R. 226, Fed. Cas. No. be taken up until after an adjudication 1,886. To entitle a creditor to vote at has been made. Vulcan Sheet Metal Co. the election of a trustee, his statement V. North Platte Valley Irr. Co., 220 Fed. of claim should show the date of the in- 106, 136 C. O. A. 198, 33 Am. Bankr. Rep. debtedness, so as to exclude the possibil- 686. ity of the defense of limitation. In re" 8 6 In re Levy, 101 Fed. 247. Eisenberg (D. C.) 251 Fed. 427, 40 Am. 8T Miller v. Barto, 247 111. 104, 93 N. Bankr. Rep. 864. B. 140. But in the absence of proof to *i In re Lake Superior Canal Co., 7 the contrary, it will be presumed that, N. B. R. 376, Fed. Cas. No. 7,997. But after the institution of a bankruptcy pro- compare In re Rosenfeld-Goldman Co. ceeding, a trustee was appointed, thus (D. C.) 228 Fed. 921, 36 Am. Bankr. Rep, divesting the bankrupt's title to real 520. flstate. Stem v. Bradner Smith & Co., 647 QUALIFICATION AND TENUKE OF TRUSTEES § 288 made to the reception of the vote of any creditor, the question will be decided by the referee and certified to the judge for review, if desired. It is the duty of the referee at least to hear the objections sufficiently to determine whether they are made in good faith, and if so, and if they appear to be well founded, the claim should not be allowed for voting purposes.*^ If the claim has not yet been proved or allowed, the referee may, on a good case against it being made, postpone the question of allowance until after the vote for trustee.** And, creditors whose proofs of claims have been thus postponed may have the proceedings certified to the court, and if the postponement is held to, have been erro- neous, the election may be set aside and a new vote taken, provided it appears that the result would be changed by allowing votes to be cast on such claims.** But mere oral unverified objections, to claims of creditors, not supported by any proof offered or produced, are not suffi- cient to require the referee to adjourn the meeting until such objections can be tried before proceeding with the election.*^ If sorrte of the credi- tors object to the votes offered to be cast by other creditor's, on the ground that they were procured by the influence of the bankrupt and in collusion with him, or that they are controlled by him and meant to be cast in his interest, the referee has power to hear and decide the ques- tion thus raised, and to exclude such votes from the election if he finds the facts to be as stated.*® But it, is no reason, for excluding a claim, unquestionably valid, from the right to vote, that it is due to the bank- rupt's attorney or his clerk, and therefore may be voted in his inter- est.*' And so where, by want of proper advice, creditors have named as their agent and attorney a person who has acted for the bankrupt, and whom mere judicial policy discourages from acting for them, they should not for that reason be denied a voice in the selection of the trustee.** *2 In re Mallno, 118 Fed. 368, 8 Am. *» In re Syracuse Paper & Pulp Co., 164 Bankr. Rep. 205 ; In re Kelly Dry Goods Fed. 275, 21 Am. Bankr. Rep. 174. Co., 102 Fed. 747, 4 Am. Bankr. Rep. 528. ^s In re McGill, 106 Fed. 57, 45 C. C. As to allowing a creditor to vote upon A. 218, 5 Am. Bankr. Rep. 155 ; In re so much of his claim as is undisputed, Van De Mark, 175 Fed. 287, 23 Am. see In re Wenatchee-Stratford Orchard Bankr. Rep. 760. See In re Noble, 8 Ben. Co., 205 Fed. 964, 30 Am. Bankr. Rep. 332, 3 N. B. R. 06, Fed. Cas. No. 10,282. 540. * < 7 In re Ployd, 183 Fed. 791, 25 Am. 48 In re Noble, 3 Ben. 332, 3 N. B. R. Bankr. Rep. 194. 96, Fed. Cas. No. 10,282; In re Northern ^s in re Kaufman, 179 Fed. 552, 24 Am. Iron Co., 14 N. B. R. 356, Fed. Cas. No. Bankr. Rep. 117. Where majority cred- 10,332. itors of a bankrupt were represented by 4* In re Eagles, 99 Fed. 695, 3 Am. attorneys, who had previously represent- Bankr. Rep. 733 ; In re Lake Superior ed the bankrupt,' and who had solicited Ship Oanal Co., 7 N. B. R. 376, Fed. the claims, and for this reason were not Cas. No. 7,997. allowed to vote in the election of a trus- § 288 LAW OF BANKRUPTCY 648 There is no reason in law or in morals why a relative of the bank- rupt, provided he is a legitimate creditor, should not have the same right to vote for a trustee as any other creditor.** But the purity and freedom of the election being the main consideration, the referee is not without a certain measure of discretion in this matter. Thus, where there was a struggle over the election of a trustee, and the wife of the bankrupt presented a claim and asserted herself to be a creditor, and the contest was so close that her vote, if allowed, would determine the choice of the trustee, it was held that it was not improper for the ref- eree to disallow it, basing his objection on the insufficiency of the state- ment of claim to show that it was not barred by limitations, although the claim (which was not finally disallowed) might have been amended so as to make it good on its face.** An analogous question is as to the right of stockholders to vote for trustee in the bankruptcy of their cor- poration. It appears that where the corporation is in voluntary bank- ruptcy, any of the stockholders who have legitimate and provable claims against it may take part in the selection of the trustee, or at least, that where the claims of stockholders constitute so large a part of the cor- poration's indebtedness that it would be entirely solvent if they were disregarded, then other creditors have no title to complain because the votes of the stockholders were allowed.®^ A shareholder in a building and loan association who is entitled at any time to withdraw and to de- mand the book value of his stock is a creditor of the association in its bankruptcy and entitled to vote for trustee.®^ The act provides (section 56) that "creditors holding claims which are secured or have priority shall not, in respect to such claims, be en- titled to vote at creditors' meetings, nor shall such claims be counted in computing either the number of creditors or the amount of their claims, unless the amounts of such claims exceed the values of such securities or priorities, and then only for such excess." ^* One who holds a note made by the bankrupt and indorsed by a third person, which is secured by collateral belonging to the indorser, is not a secured creditor within tee, the referee should have granted a =1 In re , Continental Bldg. & Loan continuance, in order that they might Ass'n (D. C.) 232 Fed. 413, 36 Am. Bankr. secure other proper representation and Rep. 412, aflBrmed, Wilson v. Continental participate and proceed to the election of Bldg. & Loan Ass'n, 232 Fed. 824, 147 C. a trustee by the majority, and it was er- C. A. 18, 37 Am. Bankr. Rep. 444. ror for him to refuse. In re B. A. Walk- 02 Merchants' Nat. Bank v. Continental er & Co., 204 Fed. 132, 29 Am. Bankr. Bldg. & Loan Ass'ii, 232 Fed. 828, 147 Rep. 499. C. C. A. 22, 37 Am. Bankr. Rep. 439. 49 In re Rothleder (D. C.) 232 Fed. 03 gee In re Eagles (D. C.) 99 Fed. 398, 37 Am. Bankr. Rep. 116. 695, 3 Am. Bankr. Rep. 733. 5 In re Ballantine (D. C.) 232 Fed, 271, 37 Am. Bankr. Rep. 111. 649 QUALIFICATION AND TENUEB OF TRUSTEES § 28b the definition of the statute, and is therefore entitled to vote for trus- tee.^ But one who has furnished material to a bankrupt building con- tractor, and who has served an attested account on the owner of a build- ing under construction, which, under the laws of the state, effects an attachment on any money then or subsequently due the contractor, is a secured creditor, and is not entitled to vote unless it is shown that no money was due or became due to which his lien could attach.*^ Where a secured creditor makes a purely formal proof of claim and does not allege any insufficiency in the security or take any steps to have his security valued, he is not entitled to have the claim allowed in any amount, so as to enable him to participate in the creditors' meet- ings.^* And a creditor holding a mortgage as security, who, in the proof of his debt,- states upon information and belief, that the mort- gage is worth less than the amount of the debt, is not entitled to vote on the difference between its value as stated by him and the amount of his debt.^' But where the referee in bankruptcy ascertained that the security held by a creditor would be insufficient to satisfy his claim, and no exception was taken to the method of liquidation, which was not favorable to the creditor, it was held that the referee did not err in permitting, him to vote in the selection of a trustee, for the amount of the deficit, witliout surrendering the collateral.®* Where the security held by the creditor covers the entire debt, though it may be insufficient in amount, he cannot vote at a creditors' meeting unless his security has been valued in the manner prescribed by the act and the excess thus ascertained. But where a specific portion or amount of the debt is se- cured, so that the"debt secured can be separated from the entire debt, at once and with certainty, the creditor may vote and act, ag to the residue, as a general creditor.®* As to preferred creditors, it should be noted that their claims cannot be "allowed" until they have surrendered their pref- erences (Section 57g), and that the voters at these meetings are defined as "creditors whose claims have been allowed and are present" (Section 56). Consequently a preferred creditor cannot participate in the choice of a trustee unless he has surrendered his preference. This he may do, however, at the first meeting, and then vote for the trustee, when the preference is of such a nature as to be effectually destroyed by such B* In re Pan-American Match Co. (D, st in re Hanna, 5 Ben. 5, 7 N. B. R. 0.) 242 Fed. 995, 39 Am. Bankr. Rep. 805. 502, Fed. Gas. No. 6,027. 5 5 In re Ferrand (D. C.) 263 Fed. 908, os in re Milne, Turnbull & Co. (D. C.) 45 Am. Bankr. Rep. 36. ' 159 Fed. 280, 20 Am. Bankr. Rep. 248. 56 In re North Star Ice & Coal Co. "9 in re Parkes, 10 N. B. R. 82, Fed (D. 0.) 252 Fed. 301, 42 Bankr. Rep. 76 Cas. No. 10,754. § 288 . LAW .OP BANKRUPTCY 650 surrender.®* .For somewhat similar reasons, a creditor of a bankrupt who is also a debtor to the bankrupt's estate is not entitled to vote in the election of a trustee where he has not made his indebtedness good.®*^ If only a single creditor appears at the first meeting and proves his debt, he is entitled to name the trustee.*^ Where the creditor is a firin, either of the partners may vote ,the full amount of the claim ; but if the debt is owned by joint creditors who are not partners, or by joint trus- tees, neither can vote or act without the authority or consent of the other."* A corporation may vote by its proper officers or by any per- son specially authorized.** .Claims which have been prqyed and then sold and assigned, before the election of a trustee, must be voted upon in such election by the actual owner at the time and not by the original creditor.®^ A creditor may change his vote as often as he sees fit until he has signed the certificate of choice of trustee, but not after that has been done and the meeting has adjourned, at least where such a change wojild cause a failure to elect, but if a mistake has been made, he may present his objection to the judge.** The majority required to elect a trustee is thus defined by the. stat- ute: "A m'ajority vote in nuinber and amount of clairiis of all creditors whose claims have been allowed and are present." This requires, there- fore, a majority nofmerely of the votes cast but of all the creditors who are present and have had their claims allowed.*" And creditors are not to be counted as present merely because their claims have been allowed, but they must attend in person or by duly authorized agent or attorney, oo In re Saunders, 2 Low. 444, 13 N. the bankrupt may agree ujwn, or, if they B. R. 164, Fed. Cas. No. 12,371. do not agree, the matter may be referred «i In re DuryeiS, Power Co., 159 Fed. to the referee. In re Sacchi, 10 Blatchf. 783, 20 Am. Bankr. Rep. 219. But an 29, 6 N. B. R. 497, Fed. Cas. No. 12,200. unliquidated claim for damages which es In re Purvis, 1 N. B. R. 163, Fed. the bankrupt proposes to set off against Cas. No. 11,476. the claim ^of a creditor must be wholly «* Ex parte Bank of England, 1 Swanst. disregarded in the proceedings for the 10. The managing officers of a bankrupt choice of a trustee. That is, the creditor corporation, when bona fide creditors of is entitled to vote, and for the full the company, have the same right to vote amount of his claim, as It is not com- for the trustee as any other claimant, petent at this stage of the proceedings In re Northern Iron Co., 14 N. B. R. 356, to consider the question of set-off. In Fed. Cas. No. 10,322. re Orne, 1 Ben. 361, 1 N. B. R. 57, Fed. so In re Frank, 5 Ben. 164, 5 N. B. R. Cas. No. 10,581. 194, Fed. Cas. No. 5,050. 82 Anonymous, 1 N. B. R. 216, Fed. so In re Pfromm, 8 N. B. R. 357, Fed. Cas. No. 458 ; In re Haynes, 2 N. B. R. Cas. No. 11,061 ; In re Seheiffer, 2 N. B. 227, Fed. Cas. No. 6,269. And whore, in R. 591, Fed. Cas. No. 12,445. the course of the proceedings, one creu- <" In re Purvis, 1,N. B. R. 163, Fed. itor has become the sole creditor, he may Cas. No. 11,476 ; In re ScheifCer, 2 N. B. apply for the appointment of a new R. 591, Fed. Cas. No. 12,445. See In re trustee in place of the one acting, and Portsmouth' Savings Fund Soc, 2 Hughes, such person will be appointed as he and 238, Fed. Cas. No. 11,297. 651 QUALIFICATION AND TKNUKB OF TEUSTEES § 289 and those creditors who do so attend constitute the meeting."* And even though the creditor may be present by a proxy, still if the latter's power of attorney is invalid because given under the influence or control of the bankrupt for the purpose of being voted for a trustee of his choice, the creditor will not be counted as present and necessary for a choice.®* Where a firm is the creditor, and the vote of the firm for the trustee is cast by one member thereof, in computing the number of votes such vote can be counted only as one; it would be incorrect to count each member of tlie creditor firm as a separate creditor who has voted.'" And so where creditors, before the institution of the bankruptcy proceedings, assigned their claims to a committee in trust for the purpose of pur- chasing the bankrupt's assets from the trustee and selling them for the benefit of such assignors as distinguished from the bankrupt's general creditors, the committee is entitled to only a single vote in the selection of a trustee, and not to a vote for each of the claims so assigned.'^ In case of the bankruptcy of a partnership, 'the right to appoint the trustee is in "the creditors of the partnership," that is, as distinguished from the creditors of the individual partners. (Section 5b.) But where a separate adjudication is made against a bankrupt who is or has been a member of a firm, both the separate creditors and the firm creditors have a right to vote for the trustee.'* In case of the bankruptcy of a corporation, where a creditor has a bona fide claim against it, and there is no evidence of collusion or improper influence, the fact that the credi- tor is also a stockholder and director of the bankrupt corporation will not disqualify him from voting for a trustee.'* § 289. Same; Representation by Agent or Attorney. — In the elec- tion of a trustee, as in all other proceedings in bankruptcy, the statute permits a creditor to act by his "duly authorized agent, attorney, or proxy." (Section 1, clause 9.) The vote of a creditor may therefore be cast by an attorney in fact, on producing a written authority from the creditor for that purpose, which authority will be filed by the referee 6 8 In re Kaufman, 179 Fed. 552, 24 v. Davis, 2 Low. 511, Fed. Cas. No. 17,- Am. Bankr. Rep. 117; In re Mackellar 664; In re Webb, 4 Sawy. 326, Fed. Cas. 116 Fed. 547, 8 Am. Bankr. Rep. 669 ; In No. 17,317. A court of bankruptcy has re Henschel, 113 Fed. 443, 51 C. 0. A. discretionary power to appoint separate 277, 7 Am. Bankr. Rep. 662. trustees for the estates of a bankrupt 6 9 In re McGill, 106 Fed. 57, 45 C. 0. partnership and of an individual part- A. 218, 5 Am. Bankr. Rep. 155. ner, but such power should be exercised 70 In re Purvis, 1 N. B. R. 163, Fed. only in cases of special and peculiar ne- Cas. No. 11,476. cessity. In re Currie, 197 Fed. 1012, 28 71 In re E. T. Kenney Co., 136 Fed. Am. Bankr. Rep. 834. 451, 14 Am. Bankr. Rep. 611. 's in re Stradley & Co., 187 Fed. 285, 7 2 In re Beck, 110 Fed. 140, 6 Am. 26 Am. Bankr. Rep. 149; In re Syracuse Bankr. Rep. 554; In re Falkner, 16 N. Paper & Pulp Co., 164 Fed. 275, 21 Am. B. R. 503, Fed. Cas. No. 4,624 ; Wilkins Bankr. Rep. 174. Compare In re L. W. § 289 LAW OF BANKRUPTCY 652 as a part of his record in the case.'* But the power of attorney must be actually produced and exhibited. One claiming that such a paper was executed to him, but that it has been lost or mislaid, is properly excluded from participating in the election."^ And one in this situation, or whose proxy has been ruled invalid, has no interest or standing which gives him a right to object to the, action of the referee on behalf of his alleged principal.'® The letter of attorney must be acknowledged before a competent officer, and it has been held that an acknowledgment be- fore a foreign consul may be sufficient." * In regard to the authority of an attorney at law, it is generally agreed that an attorney in good standing need not produce a written authority from his client when he desires to appear in a bankruptcy proceeding for such ordinary purposes as filing a petition, making a request of the court, interposing an objection to some proceeding, or ihaking a mo- tion, but his authority will be presumed until successfully challenged by some party in interest.'* But these are matters pertaining to the employment of the attorney in his professional capacity. In regard to the special matter of voting for a trustee, where the attorney does not act as the legal adviser of the creditor, but merely as his substitute, the decisions are to the effect that he must be duly constituted his at- torney in fact.'® If a power of attorney is given to a firm, and not to either member of it, one alone is not authorized to vote upon it in the election of a trustee.*" But one member of a partnership, on behalf of the firm, may execute a power of attorney to a third person, authoriz- ing him to cast the vote of the firm in such election.*^ In this special case, the rule requires the letter of attorney to show that the person executing it is a member of the firm. But if a statement to that effect Day & Co., 174 Fed. 164, 23 Am. Bankr. Fed. Oas. No. 11,476; In re Christley, 6 Rep. 56. Biss. 154, Fed. Cas. No. 2,702 ; In re T4 In re Eagles, 99 Fed. 695, 3 Am. Capitol Trading Co. (D. C.) 229 Fed. 806, Bankr. Eep. 733. 36 Am. Bankr. Rep. 339. Where a trus- '5 In re Blue Ridge Packing Co., 125 tee in bankruptcy was removed, and a Fed. 619, 11 Am. Bankr. Rep. 36. meeting of creditors held for the elec- 7 6 Falter v. Reinhard, 104 Fed. 292, 4 tion of a new trustee, it was held that Am. Bankr. Rep. 782. an attorney who represented conflicting 77 In re Sugenheimer, 91 Fed. 744, 1 interests as between the trustee and an Am. Bankr. Rep. 425. assignee for creditors should not be per- 7 8 In re Scott, 15 N. B. R. 73, Fed. mitted to represent any creditor In the Cas. No. 12,519 ; In re Hill, 1 Ben. 321, election. In re Forestier (D. C.) 222 1 N. B. R. 16, Fed. Cas. No. 6,481 ; In Fed. 537, 35 Am. Bankr. Rep. 51. re Pauly, 1 Nat. Bankr. News, 405. s" In re Frank, 5 Ben. 164, 5 N. B. R. 7 In re Lazoris, 120 Fed. 716, 10 Am. 194, Fed. Cas. No. 5,050. Bankr. Rep. 31 ; In re Scully, 108 Fed. si In re Barrett, 2 Hughes, 444, 2 N. 372, 5 Am. Bankr. Rep. 716 ; In re B. R. 533, Fed. Cas. No. 1,043 ; Ex parte Blankfein, 97 Fed. 191, 3 Am. Bankr. Mitchell, 14 Vesey, 497. Rep. 165; In re Purvis, 1 N. B. E. 163, 653 QUALIFICATION AND TENURE OF TRUSTEES § 290 is contained in the proof of debt accompanying the letter, though ab- sent from the letter itself, it is sufficient to entitle the attorney to rep- resent the creditor.** § 290. Same; Corrupt Practices and Improper Influences in Elec- tion. — It is important that the action of creditors, in their choice of a trustee, should be free and unbiased. Any secret and corrupt influeiices brought to bear upon them, any tampering with the freedom of their choice, even, in some cases, mere solicitation of their votes, will be sufficient to warrant the court in refusing to confirm the trustee chosen, or even in annulling the election. The referee, for instance, should not attempt to influence creditors in their choice of a trustee, or in any manner interfere with their free action in that mattef. If he endeavors to secure the election of a particular person by soliciting and urging the creditors to vote for him, it is an improper and unwarrantable: inter- ference on his part, and if creditors complain to the court of such con- duct on the part of the referee, the judge will be justified in taking the case out of his hands and sending it to another referee.** More es- pecially where it appears that the choice of the trustee has been in- fluenced by the bankrupt himself, by bribery, soliciting votes, election- eering, packing the meeting with his own friends, or any other form of active interference with the free choice of the creditors, the court will not hesitate to disapprove or vacate the election.** Yet this rule, founded though it is on good ?ense and good policy, should not be pushed to an absurd extreme. Where the trustee chosen is d perfectly competent and trustworthy person, and is elected by a large majority of creditors apparently exercising their independent judgment in his •election, and it does not appear that his administration would be in any way detrimental to the estate, it is no stifficient reason for setting him aside that the bankrupt urged his creditors to vote for him, giv- ^^ ing reasons for his belief that he would, be the best person to have charge of the estate.*® Generally, however, what is said above of the sain re Blue Kidge Packing Co., 125 R. 78, Fed. Gas. No. 1,543; In re Wet- Fed 619, 11 Am. Bankr. Rep. 36. jnore, 16 N. B. R. 514, Fed. Cas. No. 17,- 8 3 In re Smith, 2 Ben. 113, 1 N. B. R. 466; In re Pfromm, 8N. B. R. 357, Fed. 243, Fed. Oas. No. 12,971. Cas. No. 11,061; In re Stowe (D. C.) 235 8* In re Floyd, 183 Fed. 791, 25 Am. Fed. 463, 38 Am. Bankr. Rep. 76. In Bankr. Rep. 194; In re Ii. W. Day & one case the court refused to confirm Co., 178 Fed. 545, 101 O. C. A. 461, 34 the election of a trustee who was the Am'. Bankr. Rep. 252; Falter v. Rein- bankrupt's bookkeeper, when it appoar- hard, 104 Fed. 292, 4 Am. Bankr. Rep. ed that a large number of the creditors 782; In re Lloyd, 148 Fed. 92, 17 Am. could not be present at the meeting, Bankr. Rep. 96 ; In re Hanson, 156 Fed. though the election was almost unani- 717, 19 Am. Bankr. Rep. 235 ; In re mous. In re Wetmore, 16 N. B. R. 514, Houghton, 2 Low. 243, Fed. Cas. No. Fed. Cas. No. 17,466. 6,729; In re Bliss, 1 Ben. 407, 1 N. B. 8 5 in re Ea^tlack, 145 Fed. 68,'16 Am. § 290 LAW OF BANKRUPTCY 654 bankrupt applies equally to his attorney. The latter should not att tempt to control or influence the election in the interest of his client, and if he does so, it will be ground for refusing to confirm the trustee chosen.** But where an attorney's retainer for a bankrupt was limited to the filing of the bankrupt's petition, for which he received no fee, he is not disqualified to accept claims from creditors sent to him thereafter without his solicitation or the procurement of the bankrupt, and to vote; such claims in the election of a trustee.*''' Again, it is not in accordance with good policy or the spirit of the law that an election of this kind should be determined by the desire of a particular jDcrson to be chosen as the trustee, and even if no cor- rupt practices are charged, nor any secret or improper influences brought to bear on the creditors, the mere fact that the trustee secured his elec- tion by the solicitation of votes will be sufficient reason why the judge should refuse to confirm it,** more especially where the same person appears as trustee in numerous bankruptcies, and makes it his business to seek out creditors and secure their votes, though he does not wield any sinister influence and seeks only the legitimate profits of the office.** But facts such as these must be shown, not merely conjectured. It is not proper to disapprove an election made by the creditors on a mere suspicion that the appointment of the trustee was procured by improper considerations, based on the frequency with which the same person has been selected as trustee in bankruptcy under the influence of the same attorneys who have procured his appointment in the present case.9» The case is somewhat dififerent where one or more of the creditors, not acting under the influence of the bankrupt nor in any kind of col- lusion with him, put up a candidate for the office of trustee and en- Bankr. Rep. 529 ; In re Ketterer Mfg. In obtaining powers of attorney to be Co., 155 Fed. 9B7, 19 Am. BanUr. Rep. used in tlie election of a trustee, it was 225. And see In re Morton, 118 Fed. held that the referee properly deter- 908, 9 Am. Bankr. Rep. 508. mined that he was disqualified to vote 8 8 In re Blue Ridge backing Co., 125 such powers himself. In re Wink (D. Fed., 619, 11 Am. Bankr. Rep. 36; In re C.) 206 Fed. 348, 30 Am. Bankr. Rep. Lamont, 2 Nat. Bankr. News, 291 ; In ro 298. Wink, 206 Fed. 848, 30 Am. Bankr. Rep. ssin re Fisher, 193 Fed. 104, 26 Am. 298. But a mere suggestion by the bank- Bankr. Rep. 793; In re Mallory, 4 N. B. rupt's attorney to creditors, that the re- R. 153, Fed. Oas. No. 8,990 ; In re Doe, celver in the case should be chosen trus- 3 Ben. 66, 2 N. B. R. 308, Fed. Oas. No. tee, does not show any abuse of discre- 3,957; In re Haas, 8 N. B. R. 189, Fed. tlon by the referee in appointing the re- Oas. No. 5,884. See In re Brown, 2 Nat. celver as trustee. In re Rothleder (D. Bankr. News, 590. C.) 232 Fed. 398, 37 Am. Bankr. Rep. 116. so in re Doe, 2 N. B. R. 308, Fed. Oas. 8Tln re Cooper (D. 0.) 135 Fed. 196, No. 3,957; In re Mallory, 4 N. B. B. 14 Am. Bankr. Rep. 320. But where the 153, Fed. Cas. No. 8,990. bankrupt's former attorney, with the »« In re Kreuger, 196 Fed. 705, 27 bankrupt's assistance, had been active Am. Bankr. Rep. 440. 655 QUALIFICATION AND TBNIJRB OF TRUSTEES § 291 deavor by legitimate means to persuade otlier creditors to vote for him. There seems to be no solid lega.1 objection to this course, and it must frequently happen that the best way to secure the effective, admin^ istration of an estate in bankruptcy is for one or more of the larger creditors to select a well-equipped person for the trustee, induce him to serve, and persuade the other creditors to vote for him. And the courts have sometimes sanctioned this sort of legitimate canvassing^ especially where resorted to for the purpose of defeating another candidate al- ready in the field and justly suspected of being a tool of the bankrupt or unduly inclined to his interest.*^ But where both parties or fac- tions in the contest over the choice of a trustee went beyond what was proper in soliciting claims to vote in the election, it is not proper action on the part of the referee to disfranchise the claims of one side and allow those of the other party to be voted.*" § 291. Confirmation or Disapproval by the Court. — General Order No. 13 provides that "the appointment of a trustee by the creditors shall be subject to be approved or disapproved by the referee or by the judge." And one elected to be a trustee in bankruptcy does not become a trustee in fact, or have any power to act as such, until his selection is so approved.®* And the decision of the referee approving the choice of the creditors in the election of a trustee is subject to review by the judge.'* On the other hand, if the referee is satisfied that any reason exists why a trustee selected by the creditors should hot be ap- proved by the court, it is his duty to state such. reasons fully in sub- . mitting to the judge the question of approval.®^ The proper method of reviewing the proceedings in the election of a trustee is by a peti- tion for review of the order of the referee approving or disapproving the selection made by the creditors.*" On such a review, in the absence of the evidence on which the referee acted in making his decisions 'as to the claims to be voted, his findings. of fact as to all claims must be confirmed.*" While it is undoubted that the referee has a considerable discretion in the matter of approving or disapproving the selection of 91 In re Callahan, 242 Fed. 479, 155 »3 In re Kellar, 192 Fed. 830, 113 C. 0. C A. 255, 39 Am. Bankr. Rep. 419; C. A. 154; In re SchelfCer, 2 N. B. R. Bollman v. Tobin, 239 Fed. 469, 152 C. 591, Fed. Cas. No. 12,445. O. A. 347, 38 Am. Bankr. Rep. 504. See »* In re Hanson, 156 Fed. 717, 19 Am. In re Duryea Power Co., 159 Fed. 783, Bankr. Rep. 235. 20 Am. Bankr. Rep. 219. Compare In re »6 in re Bliss, 1 Ben. 407, 1 N. B. R. Anson Mercantile Co., 185 Fed. 993, 25 78, Fed. Cas. No. 1,543. Am. Bankr. Rep. 429. "« In re Arti-Staln Co. (D. C.) 216 92 In re Parsons Mfg. Co. (D. C.) 247 Fed. 942. Fed. 126, 39 Am. Bankr. Rep. 275, 858. '^ in re Snow (D. C.) 248 Fed. 295, 41 Am. Bankr. Rep. 481. ,■ § 291 LAW OF BANKRUPTCY 656 a trustee, his discretion cannot be exercised arbitrarily.®* He must exercise care to protect the interests of all the creditors.®* His decision will not be set aside except for an unjust and injurious abuse of discre- tion or a clear mistake of law.^*" But where error of a fundamental character appears, such as to aiifect the rights of a substantial body of the creditors, the referee's decision cannot be upheld. ^"^ On the other hand, where the referee and the district judge concur in disapproving" the election of a trustee effected by the creditors, their action will be sustained by the reviewing court, unless an abuse of discretion is shown.^** The general order vests in the court a discretion to confirm the cred- itors' choice of a trustee or to set it aside. But the power to annul an election is not to be exercised arbitrarily nor merely because the review- ing authority would have chosen a different person. The selection of a trustee is the peculiar right and privilege of the creditors. The court cannot undo their action save in the exercise of a sound legal discretion, based upon good and sufficient reasons. The person who is chosen by the requisite majority of creditors is entitled to be confirmed in the office of trustee, unless it is satisfactorily shown that he is disqualified under the statute, or is an incompetent person, or that the election was deter- mined by improper or corrupt influences!"* Objections to the confirma- 9 8 Wilson V. Continental Bldg. & Loan Oil Co., 208 Fed. 548, 125 C. C. A. 550, Ass'n, 232 Fed. 824, 147 O. C. A. 18, 37 31 Am. Bankr. Rep. 376. Am. Bankr. Rep. 444. los in re Margolies, 191 Fed. 369, 27 99 In re Ballantine (D. O.) 232 Fed. Am. Baiikr. Rep. 398; In re Eastlack, 271. 145 Fed. 68, 16 Am. Bankr. Rep. 529 ; In 100 In re Grat (D. C.) 228 Fed. 925, 36 re Blue Ridge Packing Co:, 125 Fed. " Am. Bankr. Rep. 524. On purely ad- 619, 11 Am. Bankr. Rep. 36; In re ministrative matters, such as the ap- Funkenstein, Fed. Cas. No. 5,157; In re pointment of a trustee in bankruptcy, Clairmont, 1 Low, 230, Fed. Cas. No. the judgment of the referee is entitled 2,781 ; In re Grant, 2 N. B. R. 106, Fed. to great weight, and it is not to be as- Cas. No. 5,692; In re Merritt Const. Co., sumed that he disregarded the votes of 219 Fed. 555, 135 C. C. A. 323, 33 Am. the creditors without strong reason for Bankr. Rep. 616. "While the choice of so doing. Hence, his refusal to appoint an- assignee is vested by law in a ma- as trustee the person first elected by the jority in number and amount of the creditors, because that person did not creditors, it is subject, nevertheless, to reside at the place of the bankrupt's the approval of the district judge — a business, will be confirmed where the evi- provision which implies a discretionary dence was not reported, and the ref- power to disapprove the choice so made, eree's report did not show whether the While the judge ought not arbiti'arily, duties of the trustee would be such as capriciously, or from dislike or partial- to require some one who would be in ity, to overrule the decision of the cred- daily contact with the business. In re itors, he is bound to see that the rights JafCee (D. 0.) 272 Fed. 899, 46 Am. of the minority are properly protected, Bankr. Rep. 714. and to refuse confirmation where he has 101 In re Parsons Mfg. Co. (D. C.) good reason to suspect that the assignee 247 Fed. 126, 39 Am. Bankr. Rep. 275, has been chosen in the interest of the S58. bankrupt. I think he is not bound to 102 M. C. Kiser Co. v. Georgia Cotton find as a fact that the assignee is incom- ' 657 QUALIFICATION AND TBNDRH OF TKUSTBBS § 292 tion of a person chosen trustee are usually presented by a dissenting mi- nority of the creditors, and indeed it is hardly too much to say that this is one of the numerous devices of the law to protect and save the rights of the minority. Thus, for example, on the representations of such a mi- nority, the court will refuse to approve the election of a trustee who was elected by the influence of the bankrupt or in his interest.^'* But any person in interest may present objections to the approval of the trustee. The bankrupt himself has a standing in court to object to the confirma- tion of the person selected by the creditors."" But the court will not take the step of disapproving the choice of the creditors, when the ob- jections presented for its consideration would not have affected the re- sult if recognized at the time."* When the judge refuses to approve the appointment of the trustee selected by the creditors, he may order a new election to be held."' § 292. Appointment of Trustee by Court. — If the creditors, by in- action or by disagreement, fail to exercise their right to select the trus- tee in bankruptcy, it will devolve upon the court to appoint a trustee.*'* In the early days of the law's administration, there was serious question whether the word "court" in this connection included the referee, or whether the appointment vested in the judge only. But these doubts were removed upon the promulgation of the official forms in bankrupt- cy. No. 23 being a form of appointment of the trustee by the referee in petent, corrupt, or unfit, but may de- Pfromm, 8 N. B. R. 357, Fed. Cas. No. cline to approve if the circumstances are 11,061. such as to indicate that the election was lor in re Scheiffer, 2 N. B. E. 591, Fed. not a fair one, or that the assignee will Cag. no. 12,445 not truly represent the body of the cred- ,08 Section 44 of the bankruptcy act l*T-A \r ZTJ""^' i ?■ »4' P^o^-i^s tl'at the creditors, shall "ap- Fed. Cas. No. 17,466, per Brown, J., aft- p„j^^ ^^^ ^^^^^^ ^^ ^^^^^ ^^^^^^^^ P^ ™1' fe'"BETBer407, 1 N. B. R. -^^^ estate. If the creditors do not ap- 78, Fed Cas. No 1,543; In re Wetmore, P^J"* a trustee or trustees as herein pro- 16 N. B. R. 514, Fed. Cas. No. 17,466 ; In ^]f^f' t^^ court shall do so." If this wer. re Houghton, 2 Low. 243, Fed. Cae. No. ^"- «>« ^^^ y^"'* be perfectly mtellig) 6,729; In re Continental Bldg. & Loan We and consistent, and its efCect would Ass'n (D C.) 232 Fed. 413, 36 Am. Bankr. ^ *» Si^e to creditors the unrestricted Rep. 412; In re Rothleder (D. C.) 232 ^'^S^^ *» choose and appoint the trustee. Fed. 398, 37 Am. Bankr. Rep. 116; su- without any question of the approval of pra i 290. tlie court, and to give to the court, not a 106 In re McGlynn, 2 Low. 127, Fed. "^isht of approval, but a right of appoint- Cas. No. 8,804. The bankrupt may move ™ent in the case where the creditors do to set aside the election of a trustee on not act. But the second section of the the ground that the persons whose votes act also provides that the courts of bank- elected him were not creditors of the ruptcy shall be invested with jurisdiction bankrupt. In re Stokes, 1 N. B. R. 489, to "appoint trustees pursuant to the rec- Fed. Cas. No. 13,475. ommendation of creditors, or when they 106 In re Jackson, 7 Biss. 280, 14 N. neglect to recommend the appointment of B. E. 449, Fed. Cas. No. 7,123; In re trustees." Now it is a well-known rule Blk.Bkr.(3d Ed.)— 42 § 292 LAW OP BANKRUPTCY 658 consequence of the failure of creditors to elect."' The forty-fourth sec- tion of the statute gives to creditors the right to appoint "one trustee or three trustees" of the estate, and provides that "if the creditors do not appoint a trustee or trustees as herein provided, the court shall do so." Hence it appears that, when the appointment devolves upon the court, three trustees may be named if any sufficient reason appears fof appoint- ing more than one.^" And upon a petition to a court of bankruptcy showing good grounds therefor an additional trustee may be appointed to act in conjunction with the one previously appointed.^^^ But care has been taken to provide that each trustee in bankruptcy appointed by the court shall be selected in, and with reference to, the particular estate in liquidation. General Order No. 14 provides that "no official trustee shall be appointed by the court, nor any general trustee to act in classes of cases.", This order would probably not prevent the same person from being appointed and acting as trustee in two or more bankruptcies at the same time, if he is chosen by the creditors (or appointed by the court) in each case as a separate and distirict matter, and not appointed generally to act as trustee in all cases, or all cases of a given class, which may be instituted in that court. of statutory construction that a law must be so interpreted, if possible, as to pre- vent conflicts between Its difCerent pro- visions, to give force and effect to every clause and word of Jt, and to make it con- sistent with itself throughout its whole extent. In obedience to this rule, the courts would have been compelled to put one of two constructions upon these clauses of the bankruptcy act. First, they might have held that two courses were open to creditors when called upon to choose a trustee, viz., that they might either "appoint" a trustee absolutely or "recommend" an individual to the court for appointment as trustee. But if cred- itors had the power to appoint, there is no conceivable reason why they should rest satisfied with recommending an ap- pointment. Secondly, the courts might have held that tlie action of the credi- tors in choosing a trustee, though final as to them, and an "appointment" so far as they \vere concerned, was no more than a "recommendation" as to the court, so that the court, if not satisfied with the recommendation, could refuse to approve the choice made by the cred- itors. This last is the interpretation put upon the act by General Order No. 13, for, In declaring that the "appointment" of a trustee hy the creditors shall be "subject to be approved or disapproved by the referee or by the judge," it in ef- fect makes such appointment equivalent merely to a "recommendation" and there- by harmonizs the two sections of the law. 10 9 And see In re Knox, 221 Fed. 36, 136 0. C. A. 562, 34 Am. Bankr. Kep. 461; In re Rosenfeld-Goldman Co. (D. C.) 228 Fed. 921, 36 Am. Bankr. Kep. 520 ; Crock- er V. United States, 48 Ct. CI. 383. 110 In a case where a corporation hold- ing property and carrying on business in three different states was adjudged bank- rupt and assignees were appointed who were respectively citizens of two of the states* in which the proceedings in bank- ruptcy were pending, but none was ap- pointed in the third state, it was consid- ered that it ought to have been so ar- ranged that each of the districts could have an assignee within it a resident thereof. In re Boston, H. & E. R. Co., 5 N. B. K. 233, Fed. Cas. No. 1,680. "1 In re Overton, 5 N. B. R. 366, Fed. Cas. No. 10,625. The court has discre- tion to appoint different trustees for the bankrupt estates of a partnership and of its members, which is properly exercised where a partner's individual debts ex- ceed his individual estate and the pro- 659 QUALIFICATION AND TENURE OF TRUSTEES § 292 We have said that the creditors may lose their right to name the trus- tee by inaction, or by disagreement."* And these are the two cases in which, ordinarily, the court will be called upon to make the appointment. If no creditors appear and prove their claims at the time and place ap- pointed for the first meeting, then a trustee must usually be appointed by the court."* And the same result follows if the creditors fail to agree upon a trustee, no person receiving the majority required by the statute. When this happens at the first meeting of the creditors, it is usual and proper to ask for an adjournment of the meeting, or for the calling of a second meeting at a future day, for the purpose of taking another ballot, and the referee should grant the request. But if no such motion is made, or if a second election still results in a deadlock, and it appears impossible for the requisite majority to agree, while there is evidently need of an immediate selection of a trustee, the referee will take the matter into his own hands and appoint a trustee of his own se- lection, not being confined to the candidates already voted for, but being properly influenced by the wishes of any considerable bod.y of the cred- itors."* But if the requisite majority of creditors concur in the election of a trustee, the referee has no authority to disregard their action and se- lect a trustee and appoint him, merely because he disapproves of the choice made by the creditors. He may, in the escercise of a sound dis- cretion and for cause, refuse to confirm their choice. But when this ac- tion is taken, it creates a vacancy in the ofifice of trustee, and it is the right of the creditors to fill it, wherefore it becomes the duty of the ref- ceeding against the partnership has ar- Bichards, 103 Fed. 849, 4 Am. Bankr. rived at the stage of declaring a dividend Rep. 631 ; In re Jackson, 7 Biss. 280, 14 when the proceeding against the partner N. B. R. 449, Fed. Cas. No. 7,123 ; In re is Instituted. In re Wood, 248 Fed. 246, Portsmouth Savings Fund Soc, 2 Hughes, 160 C. C. A. 324, 40 Am. Bankr. Rep. 810. 238, Fed. Cas. No. 11,297. The appel- 112 Where a majority in amount of the late court will not set aside the appoint- creditor's claims were disputed, causing ment of a trustee by the district judge considerable delay, but there was need where the only error claimed, is in hold- of the immediate appointment of a trus- ing that no election had been made by tee, it was held that the referee was em- the creditors, there being no allegation powered to appoint one. In re Knox, against the fitness of the person appoint- 221 Fed. 36, 136 CO. A. 562, 34 Am. ed^ Woods v. Buckewell,.2 Dill. 38, 7 Bankr. Rep. 461. N. B, R. 405, Fed. Cas. No. 17,991. 113 In re Cogswell, 1 Ben. 388, 1 N. B. Where the referee is called upon to ap- R. 62, Fed. Cas. No. 2,959. point a trustee because of the failure of 114 In re Goldstein, 199 Fed. 665, 29 the creditors to elect one, a suitable per- Am. Bankr. Rep. 301; In re Cohen, 131 son is not ineligible for appointment Fed. 391, 11 Am. Bankr. Rep. 439; In re merely because he was one of the un- Machin, 128 Fed. 315, 11 Am. Bankr. successful candidates voted for by the Rep. 449; In re Brooke, 100 Fed. 432, 4 creditors. In re F. & D. Co., 242 Fed. 69, Am. Bankr. Rep. 50 ; In re Kuffler, 97 155 C. 0. A. 13, 39 Am. Bankr. Rep. 378. Fed. 187, 3 Am. Bankr. Rep. 162 ; In re § 293 LAW OP BANKRUPTCY 660 eree to call a new election and give the creditors the opportunity of unit- ing upon a different candidate."" But if the creditors, at the second election, fail or refuse to make a second choice, then it is proper for the referee to appoint a trustee."* But in any case the appointment of a trustee in bankruptcy by a court having jurisdiction, though it may be erroneous, is not void, and therefore cannot be assailed collaterally."' § 293. Acceptance and Resignation of Trustee. — ^The bankruptcy act itself does not require any written or otherwise formal acceptance of the office of trustee by one elected or appointed thereto. And at common law, his acceptance might be constructive and based on his dealing with the property of the estate."* But General Order No. 16 provides that "it shall be the duty of the referee, immediately upon the appointment and approval of the trustee, to notify him in person or by mail of his appointment ; and the notice shall require the trustee forth- with to notify the referee of his acceptance or rejection of the trust." Furthermore, the act requires the trustee to qualify within teij days (un- less the time is extended by the court), by executing the required bond, and if he fails to do so, "he shall be deemed to have declined his ap- pointment." "* It. is a rule applicable to trustees generally (and it seems to be ap- plicable in the case of trustees in bankruptcy) that, when the trustee has once accepted the appointment and assumed the duties of the office, he has no absolute right to resign and withdraw from the trust, or to re- lieve himself from its duties and responsibilities by renunciation. He may do this by obtaining the consent of all parties interested (provided they are all sui juris) or the court, by its order, may accept his resigna- tion, even against the wishes of some of those interested, if the trustee shows to the court good and sufficient cause why he should be relieved from the duties of the trust. But it does not rest in his own simple choice.^^* However, in a case where a trustee in bankruptcy abscond- no In re Margalles, 191 Fed. 369, 27 "7 Raymond v. Morrison, 59 Iowa, Am. Bankr. Rep. 398 ; In re Van De 371, 13 N. W. 332. Mark, 175 Fed. 287, 23 Am. Bankr. Rep. "s See Maccubbin v. Cromwell, 7 Gill 760; In re Kaufman, 179 Fed. 552, 24 & J. (Md.) 157. Am. Bankr. Rep. 117; In re Morris, 154 no Bankruptcy Act 1898, §§ 50b, 50k. Fed. 211, 18 Am. Bankr. Rep. 828; In re See Ex parte Bryan, 2 Hughes, 273, 14 Mangan, 133 Fed. 1000, 13 Am. Bankr. N. B. R. 71, Fed. Cas. No. 2,061. Rep. 303 ; In re Mackellar, 116 Fed. 547, 120 As to the case of trustees gener- 8 Am. Bankr. Rep. 669; In re Hare, 119 ally, see Croger v. Halliday, 11 Paige (N. Fed. 246, 9 Am. Bankr. Rep. 520; In re T.) 314. Under the bankruptcy act of Lewensohn, 98 Fed. 576, 3 Am. Bankr. 1867, an assignee might, "with the con- Rep. 299 ; In re Forestier (D. C.) 222 sent of the judge, resign his trust and be Fed. 537, 35 Am. Bankr. Rep. 51. discharged therefrom." Rev. Stat. U. S. 110 In re Kellar (0. 0. A.) 192 Fed. §5038. But we And no such provision in 830. the present statute. As to the power to C61 QUALIFICATION AND TENURE OF TEUSTEES § 294 ed, after embezzling the funds of the estate, it was held that such con- duct amounted to an abandonment of his office, so that it thereby be- came vacant, and a new trustee might be appointed without formal steps for the removal of the former one, and without the necessity of notify- ing him.-**^ § 294. Bonds of Trustees. — The principal provisions of the stat- ute relating to the bonds of trustees in bankruptcy are found in the fiftieth section. It is a general rule, applicable to receivers and to all classes of trustees, that when such a person is required by law to give a "bond," this means an obligation under seal ; nothing else will answer the description. The execution and filing of an instrument in the form of a bond, but not sealed, will not authorize the trustee to act.^^^ Fur- ther, a trustee in bankruptcy must give a separate and" distinct bond in each case in which he may be appointed trustee; a general bond, con- ditioned for the due performance of his duties in all cases in which he may be appointed, is not sufficient.^** As to the sureties upori the bond, it is said that the clause of the act requiring two sureties upon the bond of a trustee is not applicable to a bond with a corporate surety given under Section SOg. The act, of Congress of August 13, 1894, authorizing the approval of a corporation (which has complied with its provisions) as a sole surety, is in pari ir^fiteria with this clause qf the bankruptcy act-.^^* The mere fact that the sureties are not residents of the district is not a sufficient reason for rejecting a iDond which is in all other respects unobjectionable.^*® And where the principal becomes liable for the full amount, and the boiid is executed by several sureties, who become liable in smaller sums aggregating the whole amount of the bond, this is a good and sufficient bond.^* But the wife of the trustee should not be accepted as a surety on his bond, if the law of the particular state is such that a married woman cannot bind herself or her separate property as a surety on a bond.-^*'' The condition of a trustee's bond is that he "shall obey such orders as said court may make in relation to said" trust, and shall faithfully and truly account for all the moneys, assets, and effects of the estate of fill a vacancy in the office of trustee . 12s in re McFaden, 3 N. B. E. 104, Fed. 1 created by the resignation of the incum- Cas. No. 8,785. bent, see Hull v. Burr, 64 Fla. 83, 59 12* In re Kalter, 1 Nat. Bankr. News, South. 787. 384. 121 Scofleld V. United States, 174 Fed. 125 Ex parte Milwaukee R. Co., 5 1, 98 C. C. A. 39, 23 Am. Bankr. Rep. WaU, 188, 18 L. Ed. 676. 259. 126 Bradley Fertilizer Co. v. Pace, 80 122 Johnson v. Martin, 1 Thomp. & C. Fed. 862, 26 C. C. A. 198. ■ (N. Y.) 504. 12^ In re MeFaden, 3 N. B. R. 104, Fed. Cas. No, 8,785. § 294 LAW OF BANKEUPTCX ' 662 the said bankrupt which shall come into his hands and possession, and shall in all respects faithfully perform all his official duties as said trus- tee." The bond must be approved by an order in writing, which may be made by the referee.''^* The condition of such an obligation is con- strued with some strictness, and it is held that if a trustee in bank- ruptcy makes payments of money in his hands without an order of the court, and in violation of the rules, a liability on his bond will accrue, notwithstanding the fact that the payments were such as the court might have authorized if it had been applied to.^'* Generally speaking, an accounting by the trustee, under an order in that behalf is a necessary prerequisite to an action on his bond, as fixing the measure of his re- sponsibility.^*" But this does not apply where the trustee has ab- sconded and cannot be located or where he is a fugitive from justice,^'^ in which case he is not even a necessary party to the action on the bond."* As provided in the statute, the bond may be sued on in the name of the United States for the use of any person injured by the breach of its condition, and it is not necessary for the party so injured to obtain leave of court to sue."* Where a trustee in bankruptcy has been removed from his office for mismanagement and default, and a new trustee appointed, the latter may be considered as a "person in- jured" by the breach of condition of the bond of the former trustee and may sue thereon, and a district court of* the United States has juris- diction of the action.-*** But a. state courtof general original jurisdic- tion will also have jurisdiction of an action on the bond of a trustee in bankruptcy."® In regard to the provisions of the act that "trustees shall not be lia- ble, personally or on their bonds, to the United States, for any penal- ties or forfeitures incurred by the bankrupts under this act," some further remark seems necessary. There is nothing to which this pro- vision can apply except (1) a fine imposed on the bankrupt by the court of bankruptcy, as a punishment for a contempt of the court or before a referee, or for disobedience to its lawful orders; (2) a breach of the condition of a bail bond or a forthcoming bond given by the 128 Official FormsvNos. 25 and 26. iss Alexander v. Union Surety & 129 In re Hoyt & Mitchell, 127 Fed. Guaranty Co., 89 App. Div. 3, 85 N. T. 968, 11 Am. Bankr. Rep. 784. Supp. 282. ISO United States v. Sindheim, 188 is* United States v. Union Surety & Fed. 378. Guaranty Co., 118 Fed. 482, 9 Am. 181 Scofleld V. United States, 174 Fed. Bankr. Rep. 114. But see contra, Alex- 1, 98 C. 0. A. 39, 23 Am. Bankr. Rep. ander v. Union Surety & Guaranty Co., 259. 89 App. Div. 3, 85 N. Y. Supp. 282. 132 Alexander v. Union Surety & ^^o Alexander v. Union Surety & Guar- Guaranty Co., 89 App. Div. 3, 85 N. Y. auty Co., 89 App. Div. 3, 85 N. Y. Supp. Supp. 282. 282. 663 QUALIFICATION AND TENURE OF TRUSTEES § 295 bankrupt to release his person or property from arrest. In the latter case, the loss would fall upon the bondsmen or sureties in the bail bond or other bond, as the case might be; but neither the trustee nor his sureties, nor the estate in his hands, would be liable. It should be noted that criminal offenses by bankrupts are not punishable by pen- alty or fine, but by imprisonment only. § 295. Death of Trustee. — When a person elected trustee in bank- ruptcy dies without having qualified, there is a vacancy in the office of trustee which must be filled by the creditors by a new election, and when this is done at a continuation or adjournment of the first meet- ing, it is not necessary to send out new notices to the creditors.**" If the trustee dies after having entered upon the discharge of his duties, it is provided by the statute (Section 46) that his decease shall not abate any suit or proceeding which he is prosecuting or defending at the time, but the same may be proceeded with or defended by his joint trustee or his successor. At common law, upon the death of a trustee in bankruptcy, it seems that the right of action for a debt due to the bankrupt would vest in the trustee's executor.**'' But the present statute expressly declares that the title to the assets and estate of the bank- rupt shall be vested by operation of law in the trustee "and his successor or successors if he shall have one or more." Consequently the estate remaining undisposed of passes to the successor of the trustee and not to his personal representatives^** and a state court has no authority to 'appoint a new trustee or to direct the execution of the trust under , its statutory equitable powers.*** The court of bankruptcy, however, has authority to appoint a new trustee where evidence of the existence of unadministered assets is produced after the death of the original trus- tee, even though his right to recover such assets may be doubtful, depending upon disputed questions of law and fact."" A cause of ac- tion against a trustee in bankruptcy, for wrongfully paying the assets in his hands to other creditors than the plaintiff, in disregard of the latter's right of priority, does not abate by the death of the trustee.*** 138 In re Wright, 1 Nat. Bankr. News, diction of the federal district court 405. which made the adjudication in bank- 187 Richards v. Maryland Ins, Co., 8 ruptcy, and where the trustee dies, that Cranch, 84, 3 L. Ed. 496. court has power to take such steps as 138 Howes V. Carlisle, 52 S. W. 936, 21 the circumstances may require, so that Ky. Law Rep. 613. a mistake as to the proper step to be J38 Lloyd V. Davis, 123 Cal. 348, 55 taken does not warrant a collateral at- Pac. 1003. tack on its judgment. Lloyd v. Davis, 140 In re Mahoney, 5 Fed. 518. The 123 Cal. 348, 55 Pac. 1003. settlement of an estate in bankruptcy' i*i United States v. Dewey, 39 Fed. by the trustee does not divest the juris- 251. § 296 LAW OF BANKRUPTCY 664 § 296. Removal of Trustee. — ^The second section of the act, regulat- ing the jurisdiction of the courts of bankruptcy, provides that they may remove trustees for cause, but only after notice to the trustee proposed to be removed and upon a hearing, and only in case pom- plaint is made in that behalf by the creditors."* This power of removal can be exercised by the judge only; it is not given to the referee."* And although the facts disclosed in a proceeding relative to the settle- ment of the bankrupt's estate may be such as would justify the removal of the trustee, this step cannot be taken except in pursuance of an ap- plication made in accordance with the forms prescribed.*** The act provides that a trustee may be removed "upon complaints of credi- tors." This must be construed to mean any creditor of the particular estate, for the form of petition for the removal of a trustee set forth by the Supreme Court recites that it is presented by "one of the creditors of said bankrupt." The trustee is to have a "hearing," which means a full and fair opportunity to disprove the allegations against him. But the proceeding is, summary, and the power of the court is similar to that exercised by courts of equity in the removal of receivers or trus- tees under a will."^ The act provides for notice only to the trustee. Complaining creditors are of course before the court. But it seems that notice should be given to the other creditors, for^ many of them — even a majority — might desire the continuance of the trustee in office, as against one or a few complaining. The court would probably have a discretion to order notice to be given. An order of the district court removing a trustee does not present such a case or question as can be reviewed by the appellate court, as it rests wholly in the discretion of the court of bankruptcy."® A trustee in. bankruptcy may be removed from his office for fraud or criminal conduct in respect to the estate committed to his trust, for mismanagement resulting in loss to the beneficiaries, for careless- 142 The corresponding clause of the Fed. Cas. No. 11,409; In re Stokes, 1 N. act of 1867 provided that the creditors B. R. 489, Fed. Cas. No. 13,475. might, with the consent of the court, re- i** See In re Schapter, 9 N. B. R. 324, move any assignee by such a vote as Fed. Cas. No. 12,438. The forms relat- was provided for the choice of an as- ing to a proceeding for the removal of signee. Rev. Stat. V. S. § 5039. See In a trustee are Nos. 52, 53, and 54. re Dewey, 1 Low. 493, 4 N. B. R. 412, 1*5 See Bruns v. Stewart Mfg. Co., 31 Fed. Cas. No. 3,840; In re New York Hun (N. Y.) 195. The referee may be Mail S. S. Co., 2 N. B. E. 74, Fed. Cas. directed to employ counsel to represent No. 10,209. the estate of the bankrupt at the hear- 1*8 General Order No. 13; InreHoldeu ing of the order to show cause why the (D. 0.) 258 Fed. 720. In re Berree & trustee should not be removed. In re Wolf, 185 Fed. 224. But it seems that Price, 4 N. B. R. 406, Fed. Cas. No. 11,- a referee may have a rule issued on a 409. trustee to show cause why he should not 1*6 In re Adler, 2 Woods, 571, Fed. be removed. In re Price, 4 N. B. R. 406, Cas. No. 82. 665 QUALIFICATION AND TENUEE OF TRUSTEES § 296 ness, incompetence, and, generally, for neglect or breach of his duty."' But he will not be removed for every mistake or neglect of his duty, especially where the consequences complained of were brought about by misunderstanding on his part, without wrongful or reckless inten- tion, or by his following bad professional advice. Mistakes or neg- ligence sufficient to justify his removal must be such as show a want of hbnesty or capacity to perform the duties of his office, or a lack of reasonable fidelity to the trust, and really endanger the trust property."* Thus, involving the estate in unnecessary litigation, if caused by er- roneous legal advice, is no ground for removing the trustee."* Nor will he be removed for unsuccessfully attacking mortgages given by the bankrupt, when it appears that such action was justifiable.^®*' But a trustee who has embezzled the funds of the estate and absconded must be removed,*" and also one who is a fugitive from justice,*** or who has mismanaged the estate and wholly failed to account.*®* So a trus- tee may be removed, and at his own cost, for neglecting to take proper measures to secure the bankrupt's property and for allowing it to be sold for taxes.*®* Ground for the removal of a trustee is also found in his dilatoriness in letting slip an opportunity to dispose of assets of the estate at great advantage, which resulted in protracted litigation and substantial injury to the interests of creditors.*®® So whtre the trustee has failed in properly informing creditors in regard to their rights and the value of the assets, and the information has been sup- pressed in the interest of one class of creditors, it is the duty of the court to remove him.*®* But where it appears that the trustee, though he ought to be removed, because of his mismanagement of the estate, has acted in entire good faith throughout, he should not be charged 147 A trustee in bankruptcy who fails. Fed. 760; Putnam v. Timothy Dry' Goods without reason, to carry out the wishes Co., 79 Fed. 454. of the creditors by whom he was chosen, i4» In rtf Blodget, 5 N. B. E. 472, Fed. thus preventing their necessary co-op- Cas. No. 1,552. eration, should be removed. Bollman ibo in re Sacchi, 43 How. Prac. (N. Y.) V. Tobin, 239 Fed. 469, 152 C. C. A. 347, 250, 6 N. B. R. 398, Fed. Cas. No. 12,201. 38 Am. Bankr. Rep. 504. It is also isi Scofield v. United States, 174 Fed. cause for removing a trustee that he 1, 98 C. C. A. 39, 23 Am. Bankr. Rep. employs as his attorney one who is also 259. the legal representative of interests 152 Alexander v. Union Surety & which may be antagonistic to the estate. Guaranty Co., 89 App. t)iv. 3, 85 N. T. In re Forestier (D. C.) 222 Fed. 537, 35 Supp. 282. Am. Bankr. Rep. 51. But compare In les United States v. Union Surety & re Archbold & Hamilton (D. C.) 237 Fed. Guaranty Co., 118 Fed. 482, 9 Am. 408, 38 Am. Bankr. Rep. 256. See, geu- Bankr. Rep. 114. erally. In re Sweetser (D. C.) 240 Fed. is* In re Morse, 7 N. B. R. 56, Fed. 167 ; In re Holden (D. C.) 258 Fed. 720. Cas. No. 9,852. 148 WiUiams v. Nichol, 47 Ark. 254, 1 i" in re Prouty, 24 Fed. 554. S. W. 243; Matthews v. Murchison, 17' ^'^^ Ex parte Perkins, 5 Biss. 254, Fed. Cas. No. 10,982. § 296 LAW OF BANKEUPTCT 666 with the costs of the proceeding for his removal.^" Deterioration of his personal character or capacity may also be grputid.for his removal. Thus a trustee who, from long-continued intemperance, has become unfit to have charge of the trust property may be removed.^®* And if the trustee becomes insolvent, or himself applies for the benefit, of the bankruptcy act, this will be good cause for removing him from office.^^ But one who, at the time of his appointment, resided in the district and who still maintains an office therein, should not be removed merely because he has changed his legal residence to another district, unless it is shown that the change interferes with the performance of his duties or renders it difficult for interested parties to communicate with him or serve notices on him.^*" As the trustee holds a fiduciary rela- tion to the creditors, he should not be interested in any scheme of com- position. And his joining with the bankrupt to effect a composition, to the detriment of the creditors, by means of false representations as to the assets, is ground, not only for setting, aside the composition, but also for removing the trustee from his office.^*^ t 157 In re Mallory, 4 N. B. R. 153, Fed. leo in re Seider, 163 Fed. 138, 20 Am. Cas. No. 8,990. Bankr. Rep. 708. IBS Bayles V. Staats, 5 N. J. Eq. 513. isi In re AUen B. Wrisley Co:, 133 15 9 i^rris V. Harris, 29 Beav. 107. Fed. 388, 66 0. 0. A. 450, 13 Am. Bankr. Eep. 193. 667 POWERS AND DUTIES OP TRDSTBB § 297 CHAPTER XVIII POWERS AND DUTIES OF TRUSTEE Sec. 297. Effect of Appointment and Qualification of Trustee. 298. Trustee as Representative of Creditors. . 299. Instructions of Court or Referee. 300. Inventory and Appraisal of Property. 301. Custody and Care of Property. 302. Carrying On Bankrupt's Business. 303. Collection of Assets. 304. Arbitration and Compromise. 305. Redemption of Property. 306. Performance of Bankrupt's Contracts and Obligatlong. 307. Leased Property and Leasehold Interests of Bankrupt. 308. Expenditures. 309. Employment and Compensation of Attorney for Trustee. 310. Deposit and Disbursement of Funds. 311. Responsibility for Negligence or Misconduct. 312. Joint Trustees. 313. Accounts and Reports of Trustee. 314. Discharge of Trustee. 315. Closing and Reopening Estate § 297. Effect of Appointment and Qualification of Trustee. — An adjudication in bankruptcy and the appointment of a trustee operate to divest the bankrupt of all title to his property and of the right to possess and dispose of it.-^ Thereafter all the property which was in the bankrupt's possession or control is regarded as in the custody of the law and in the actual or constructive possession of the court of bankruptcy.* It becomes the duty of the bankrupt to surrender to his trustee all the property in his possession and also such property of his as he can reclaim from the hands of third persons holding it as his agents or bailees, and the duty of the trustee to claim and secure the possession of it.* Further, not only the right of possession, but the title to the bankrupVs property is vested by operation of law in the trustee upon his appointment, but as of the date of the adjudication,* and in this respect the trustee dififers from a receiver appointed by a court of equity, the latter being a mere temporary custodian of the property, and not regarded as having any legal title to it.^ As the title 1 Kempner v. Bauer, 53 Misc. Rep. 109, * In re Toungstrom, 153 Fed. 98, 82 C. 104 N. Y. Supp. 76. 0. A. 232, 18 Am. Bankr. Rep. 572: In 2 Crosby v. Spear, 98 Me. 542, 57 Atl. re Walsh Bros., 159 Fed. 560, 20 Am. 881, 99 Am. St. Rep. 424 ; Devendorf v. Bankr. Rep. 472 ; In re Rosenberg, 3 Dickinson, 21 How. Pi-ac. (N. T.) 275; Ben. 366, 3 N. B. R. 130, Fed. Cas. No. Rogers v. Voss, 1 Wils. (Ind.) 376. 12,055. 3 Supra, § 227. " Yeager v. Wallace, 44 Pa. St. 294. § 298 LAW OF BANKRUPTCY 668 descends upon the trustee "by operation of law," no other act is neces- sary to vest it than the adjudication and the qualification of a duly elected or appointed trustee,* no assignment, deed, or transfer from the bankrupt being requisite, except as to property in foreign countries (which of course is beyond the territorial operation of the bankruptcy law) and as to some peculiar forms of property (such as licenses or franchises) which require the indorsement of the bankrupt for* their transfer.' If the trustee needs formal evidence of his official capacity and rights, in dealing with third persons or state courts, the law pro- vides that "a certified copy of the order approving the bond of a trustee shall constitute conclusive evidence of the vesting in him of the title to the property of the bankrupt, and if recorded shall impart the same notice that a deed from the bankrupt to the trustee if recorded would have imparted had not bankruptcy proceedings intervened." * The trus- tee, however, acts under the direction or at least the control of the court of bankruptcy, and must obey its orders even though the particular subject-matter is in litigation in a state court.® And further, to give him fuller authority and an even stronger title than the bankrupt had, an amendment to the statute adopted in 1910 provides that "trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceed- ings thereon, and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied."** This statute, though not retroactive, applied to all fu- ture cases, and is held to be consistent with the other provisions of the act and to be valid.** \ § 298. Trustee as Representative of Creditors. — Although a trustee in bankruptcy succeeds to the title of the bankrupt, he does not for that reason act as the agent or representative of the bankrupt in the subsequent proceedings, except only in the matter of setting apart to For this reason a receiver (unlike a trus- s Bankruptcy Act 1898, § 21e. tee in bankruptcy) cannot maintain tro- » Capital Nat. Bank v. Wilkerson, 36 ver for the property included in his Ind. App. 550, 76 N. E. 258. charge, without leave of the court, except lo Act Cong. June 25, 1910, c. 412, § 8, after it has actually passed into his pos- 36 Stat. 840, amending Bankruptcy Act session. Slngerly v. Fox, 75 Pa. St. 112 ; 1898, § 47a. See Bean v. Parker, 89 Vt Boyle V. Townes, 9 Leigh (Va.) 158. 532, 96 Atl. 17. 6 Hough V. City of North Adams, ISo n In re Calhoun Supply Co., 189 Fed. Mass. 290, 82 N. E. 46. 537, 26 Am. Bankr. Rep. 528 ; In re 1 Supra, § 220. Gartman, 186 Fed. 349. 669 POWERS AND DUTIES OF TRUSTEE 298 him the. exemptions allowed by law.^* For all other purposes and in all other matters the trustee is thte representative of the creditors, and of them only, and not in any sense of the bankrupt.^* And by analogy, where the bankrupt is a corporation, the trustee represents its creditors only, and not its stockholders." This distinction is important, because it follows from it that the trustee is free to assert or contest claims and rights to property, maintain or defend proceedings, collect assets, and avoid preferences, in circumstances where the bankrupt himself would not be at liberty to act, either on the ground of estoppel or of public policy.^^ But when it is said that the trustee represents the creditors, it is meant that he represents only those who were creditors at the time of the filing of the petition, because they alone become parties to the proceeding.^® But as to those creditors, the trustee represents them all equally and alike. He must not advocate the cause of one against another, or give to any creditor an advantage which the law does not give, nor allow himself to be controlled in his administration of the trust by any creditor or group or class of creditors. , As he owes a like duty to all, he must hold himself indifferent, and give to all like oppor- tunities and absolutely impartial treatment." 12 Aiken v. Edrington, 15 N. B. R. 271, Fed. Cas. No. Ill ; American Woolen Co. of New York v. Samuelsohn, 226 N. T. 61, 123 N. B. 154. But se In re Lenters (D. C.) 225 Fed. 878, 35 Am. Bankr. Rep. 3, in which it is said that a trustee in bankruptcy occupies a fiduciary capacity and is to some extent a stakeholder, hav- ing duties to the bankrupt as well as to the creditors. 13 In re Kessler, 186 Fed. 127, 108 C. C. A. 239; In re Kreuger, 196 Fed. 705, 27 Am. Bankr. Rep. 440; In re Doran, 148 Fed. 327, 17 Am. Bankr. Rep. 799 ; Aiken V. Edrington; 15 N. B. R. 271, Fed. Cas. No. Ill; Cartwright v. West, 173 Ala. 198, 55 South. 917. See Edwards v. Schil- linger, 245 111. 231, 91 N. E. 1048, 33 L. B. A. (N. S.) 895, 137 Am. St. Rep. 308. And see Jones v. Dugan, 124 Md. 346, 92 Atl. 775, where it is said that the trustee in bankruptcy for some purposes stands in the position of the creditors and for others in the position of the bankrupt himself, and this rule is not afEected_by the 1910 amendment to the Bankruptcy Act, givjng him the status of a lien cred- itor. Compare also Riggs v. Price, 277 Mo. 333, 210 S. W. 420, holding that while the trustee, suing to set aside a fraudu- lent conveyance, may be said to be the alter ego of the creditors, in that his ac- tion is for their benefit, still he is, in law and fact, but an arm of the court, and' acts, not for creditors individually or collectively, but for the estate. 1* In re V. & M. Lumber Co. (D. C.) 182 Fed. 231. 15 In re Kessler, 186 Fed. 127, 108 C. 0. A. 239 ; In re Gurney, 7 Biss. 414, 15 N. B. E. 373, Fed. Cas, No. 5,873; In re St. Helen Mill Co., 3 Sawy. 88, 10 N. B. R. 414, Fed. Cas. No. 12,222. 16 Batchelder & Lincoln Co. v. Whit- more, 122 Fed. 355, 58 C. C. A. 517, 10 Am. Bankr. Rep. 641. 17 West v. Bank of Lahoma, 16 Okl. 508, 86 Pac. 59 ; People v. Security Life Ins. Co., 79 N. Y. 267 ; In re Sully, 142 Fed. 895, 15 Am. Bankr. Rep. 304. It is also to be noted that in general the trus- tee represents the general creditors of the estate, as against secured creditors or those claiming liens or special interests. In re Imperial Textile Co. (D. C.> 239 Fed. 775, 39 Am. Bankr. Rep. 534. But there may be circumstances under which it would be right and his duty to enforce equitable rights in favor of certain cred- itors only. In re Desnoyers Shoe Co. (D. 299 LAW OF BANKEUPTCY 670 § 299. Instructions of Court or Referee. — The trustee, as an officer of the court, is subject to its orders ahd directions at all times from his appointment to his discharge, and may be controlled in his administra- tion of the property by orders made in summary proceedings ; " and will be treated as in contempt if he acts in contravention of the rulings and orders of the court." He may submit for the sanction or approval of the court arrangements or agreements made with adverse claimants of property or other third persons.^* And where he applies for the di- rections of the court, and a reference is ordered to ascertain the neces- sary facts, but the trustee fails to attend the hearing and acts inde- pendently, he will be held to the strictest accountability.^^ Undoubtedly the trustee may, in any proper emergency, apply to the court of bankruptcy for directions as to the course to be pursued. But neither the judge nor the referee is the general adviser of the trus- tee in his dealings with the property of the estate.^* And where the trustee's duty is plain, or where the question is simply one of expedi- ency or of probable advantage or disadvantage to the estate, or where the proposed act is entirely within his own discretion and power, he cannot as a matter of right obtain the instructions of the court, but should act on his own responsibility, or, if he prefers to take no risk, he should submit the matter to the creditors and be governed by their vote.^* Such, for example, is the question whether it is necessary or desirable for him to retain an attorney,** or whether he should file a petition to have the claim of a creditor expunged for fraud.*® On this C.) 210 Fed. 533, 32 Am. Bankr. Rep. 51 ; flcially to inform creditors of the jeop- Sanborn-Cutting Co. v. Paine, 244 Fed. ardy in which their interests are thereby 672, 157 O. C. A. 120, 40 Am. Banlcr. Rep. placed, though not applied to for instruc- 525. tions, but only to grant a petition tor the 18 In re Cadenas & Coe (D. O.) 178 carrying out of the bargain, see Henry Fed. 158, 24 Am. Bankr. Rep. 135 ; In re v. Harris, 191 Fed. 868. See In re Cutler Howard (D. 0.) 130 Fed. 1004, 12 Am. & John (D. C.) 228 Fed. 771, 36 Am. Bankr. Rep. 462^ Bankr. Rep. 420, holding that when the 18 In re ,Smith, 2 Hughes, 284, Fed. trustee finds that the bankrupt owns Gas. No. 12,978. property which is subject to liens, he 2 Mulford V. Fourth Street Nat. Bank should petition the court (referee) for in- (p. C. A.) 157 Fed. 897, 19 Am. Bankr. structions as to the course which he Rep. 742. should pursue, and the referee, if he 21 In re Schapter, 9 N. B. R. 324, Fed. deems it advisable, may call a meeting Gas. No. 12,438. of the creditors to consider what is best ■ i'2 In re Sturgeon, 1 N. B. R. 498, Fed. to be done. Gas. No. 13,564. 2.4 in re Abram, 103 Fed. 272, 4 Am. 2 3 In re Franklin Sav. Fund Soc, 10 Bankr. Rep. 575; In re Columbia Iron Phila. (Pa.) 276, Fed. Cas. No. 5,058. As Works, 142 Fed. 234, 14 Am. Bankr. Rep. to the authority and duty of the court to 526. disapprove an improvident bargain pro- =° In re Baber, 119 Fed. 520, 9 Am. posed to be made by the trustee, and of- Bankr. Rep. 406. 671 POWERS AND DUTIES OP TRUSTEE § 300 subject it has bee^n said: "Undoubtedly, by the very terms of the bankruptcy statute, the trustee acts at all times technically under the direction of the court, and no doubt he has, on proper occasions and under proper circumstances, the right to apply to the court for its in- structions in the premises. But this does not mean that he can shovel the administration of his trusteeship into the court, unload his responsi- bility upon the referee or the judge of the court, and evade or shirk his plain duties by asking the advice and directions of the court. Prop- erly, he should be a man of affairs,, ready to act upon his own responsi- bility and intelligence, as business men do in their affairs, if necessary resort to the advice of counsel, and still more, if the further necessity exist, resort to the tribunal of the body of the creditors assembled in general or special meeting called for the purpose under the presidency of the referee "or judge, as provided in the scheme of the act. It is for such purposes that meetings of creditors are provided for, and, until resort has been had to these appliances to guide his judgment, and complications of a serious nature have arisen, it is disserviceable that a trustee should be applying to the court for its instructions and ad- Vice. § 300. Inventory and Appraisal of Property. — The seventeenth gen- eral order in bankruptcy makes it the duty of the trustee, "immediately upon entering upon his duties," to "prepare a complete inventory of all the property of the bankrupt that comes into his possession." In addi- tion to this, the statute explicitly requires that all the property, wheth- er real or personal, shall be appraised by three disinterested Appraisers, who shall be appointed by, and report to, the court.'" The object of the appraisement is to secure for the benefit and protection of all parties concerned a designation and estimate of the property which passes into the hands of the trustee, and for which in the first instance he is to be accountable.** And since it is the policy of the law that all steps in the administration of the estate should be taken by persons who are disin- terested and will act for all the creditors, rather than for the benefit of any faction or clique, the referee should make the appointment of the appraisers in the exercise of his independent judgment, and their selec- tion should not be submitted to a vote of the creditors, especially where there is a sharp conflict of views and interests between the creditors.*® 2 6 In re Baber, 119 Fed. 520, 9 Am. ?»,In re Columbia Iron Works, 142 Bankr. Rep. 406. Fed- 234, 14 Am. Bankr. Rep. 526. A 2 7 Bankruptcy Act 1898, § 70b. person is not disqualified for appoint- 2 8 In re Gordon Supply & Mfg. Co., ment as appraiser of a bankrupt's prop- 133 Fed. ■ 798, 13 Am. Bankr. Rep. 352. erty merely because some of the offlcers I 301 LAW OF BANKRUPTCY 672 The particularity with which the appraisement is to be made is not specified in the statute, and if must depend somewhat on circumstances. But usually it should be general and not special, and should not go into the detail practised by a merchant in taking an account of stock, only such particularity being indulged in as is sufficient for a reasonable identification of the property in character and quantity and to give a fair idea of its value.*" The compensation of the appraisers is not fixed by the law, and rests in the discretion of the court. But in at least one district the rule has been established that, in any ordinary case, no more than $5 a day for three days' work will be allowed to each appraiser, the trustee being required to justify any greater allowance, and the court declares that "it must be an extraordinary case where over two or three days are necessary."'^ § 301. Custody and Care of Property. — While the property of the estate remains in the hands of the trustee, that is to say, until it is final- ly disposed of by sale or otherwise, it is his duty to exercise such care in the custody and preservation of it, and in saving it from loss or de- terioration, as would be exacted of a receiver, guardian, or other fidu- ciary. He has an insurable interest in the property, and if he considers it a necessary precaution, he may effect an insurance on it to its full value. Even if he omits to obtain the previous authorization of the court, or the consent of the creditors, before taking this step, the pre- miums paid for a reasonable amount of insurance will be allowed in his accounts, as a part of the necessary expense of preserving the estate.** If the trustee finds some of the property to be in bad physical condi- tion, the circumstances may be such as to justify him in spending part of the cash in hand for the purpose of such repairs as will make the property salable. Ordinarily the property will remain in his custody only for a very short time, as the predominant purpose of the bankrupt- and directors of a corporation creditor 632, 23 Am. Bankr. Rep. 16. In a case are also officers and directors of another where the bankrupt was the owner of corporatioii of which such appraiser is .30 stores scattered through four different president. Idem. A lessee of a bank- states, it was held that an award of $250 rupt mining company is not disqualified, to each of the three appraisers was not merely by reason of his lease, to serve clearly excessive. In re Mills Tea & But- as an appraiser of the bankrupt's prop- ter Co. (D. C.) 235 Fed. 812, 37 Am. • erty. dark Hardware Co. v. Sauve, 220 Bankr. Rep. 154. Fed. 102, 136 0. C. A. 194, 33 Am. Bankr. 3= In re Hamilton, 102 Fed. 683, 4 Am. Rep. 674. Bankr. Rep. 543; Thompson v. Phenix 3 In re Gordon Supply & Mfg. Co., Ins. Co., 136 U. S. 293, 10 Sup. Ct. 1019, 133 Fed. 798, 13 Am. Bankr. Rep. 352. 34 L. Ed. 408 ; Insurance Co. v. Chase, 5 But see In re Mills Tea & Butter Co. (D. Wall. 509, 18 L. Ed. 524 ; In re Carow, C.) 235 Fed. 812, 37 Am. Bankr. Rep. 154, 4 N. B. R. 543, Fed. Cas. No. 2,426; In holding- that the inventory must be care- re Fortune, 1 Low. 306, 2 N. B. R. 662, ful, accurate, and complete. Fed. Cas. No. 4,955. See Dortch v. 31 In re E. I. Fidler & Son, 172 F«d. Dortch, 71 N. C. 224. 673 POWERS AND DUTIES OF TKUSTHB § 301 cy act is to settle estates as quickly as possible. Yet, in exceptional cases, the same rule might be applied to a trustee in bankruptcy which governs the case of receivers, viz., that they will be allowed for money spent in reasonable and necessary repairs, even without previous author- ity granted.** There is this difference, however, that a trustee in bank- ruptcy always has it in his power to consult the body of creditors and to cast upon them the responsibility of deciding upon the propriety or necessity of such action, and this he should not fail to do when the ob- ject of the proposed expenditure is not so much to save the property from actual destruction as to enhance its value and make it more attrac- tive to possible purchasers. As to the management of the cash in hand, it is the duty of the tru.i- tee to place it in one of the designated depositories, and withdraw it only in the manner specified in the act and the rules, as will appear in a later section. Occasionally, however, the question may arise whether it is not the duty of the trustee to invest the funds, where it appears that the final settlement of the estate will be long delayed, so that the money may earn some interest in the meantime. There is no provision of the statute covering this point, unless it be found in the clause which directs trustees to "account for and pay over to the estates under their control all interest received by them upon property of such estates." ** ,.But probably this is only intended to prevent trustees from making their possession and control of the money a source of profit to themselves. Previous bankruptcy laws made provision for the temporary invest- ment of the funds of estates under the sanction of the court,*® and it has been intirnated that, under the present statute, in cases where an estate is involved in protracted litigation or there are other circumstances to postpone its settlement, it might be proper to invest the funds, at least to the extent of placing them in some bank paying interest on deposits and taking a time certificate of deposit for them, but that this could be done only with the consent of all the creditors.*' 3 3 Attorney General v. Vigor, 11 Ves. convenient bank, upon such interest, not 563; Hooper v. Winston, 24 111. 353; exceeding the legal rate, as the bank Hynes v. ' McDermott, 3 N. Y. St. Repr. may contract with the assignee to pay 582. thereon." Rev. Stat. U. S. § 5060. And 3* Bankruptcy Act 1898, § 47a. cl. 1. the Torrey bankruptcy bill, vs^hich wsis ?o 35 The act of 1867 provided that "when long and seriously considered by Con- It appears i^at the distribution of the gress, provided that "whenever an estate estate may be delayed by litigation or Is involved in litigation which is likely other cause, the court may direct the to be prolonged, the judge may order the temporary investment of the money be- investment of the cash, if any, at inter- longing to such estate in securities to be est upon approved security, pending such approved by the judge or register, or litigation." may authorize it to be deposited in any 3 « Huttig Mfg. Oo. v. Edwards, 160 Bi,k.Bkb.(3d Ed.)— 43 § 302 LAW OF BANKRUPTCY 674 « § 302. Carrying on Bankrupt's Business. — ^The statute provides that the courts of bankruptcy may "authorize the business of bankrupts to be conducted for limited periods by receivers, the marshals, or trus- tees, if necessary in the best interests of the estates."" Practically it often happens that the creditors take this matter into their own hands and vote to direct the trustee to continue the business, sometimes specifi- cally limiting the amount to be expended for this purpose, the time it is to continue, or .the branch of the business to be conducted, and occa- sionally exercising a close supervision over the trustee by giving him detailed instructions for the running of the business.** But such a course is not proper. Authority for this purpose is explicitly confided to the court of bankruptcy, and that court should invariably pass upon such a question. While undoubtedly the judge would be influenced by the expressed wish of a large proportion of the creditors, still he is bound to exercise his own judgment and discretion. And it has even been said that, if the transaction proposed is one of any magnitude, or involves the raising of money by means of trustees' certificates, the ref- eree should not undertake to exercise the authority granted to the "court," but refer the matter to the judge.** Permission to carry on the business of the bankrupt should rarely be granted. The object of a- proceeding in bankruptcy is not to save a failing or unprofitable concern and nurse it into productiveness, or to convert a financial wreck into a paying investment, but to secure all the available assets of the debtor, convert them into cash, and divide them among the creditors as quickly as possible. The trustee may find it necessary to ask for leave to carry on the business for a short time, in order that the fruits of valuable contracts may become available as assets, or that grants may be earned or franchises preserved. Yet it is expressly made his duty to "close up the. estate as expeditiously as is compatible with the best interests of the parties in interest." And aside from this specific injunction, the purpose and policy of the act should be considered as putting a limitation upon the discretion of the trustee Fed. 619, 87 C. C. A. 521, 20 Am. Baiikr. ss See, for example, United States v. Eep. 349. As to the investment of funds Union Surety & Guaranty Co., 118 Fed. by receivers and guardians (whose posi- 482, 9 Am. Bankr. Rep. 114 ; In re Plum- titsn Is analogous to that of a trustee in mer, 2 Nat. Bankr. News, 292. bankruptcy), see Attorney General v. so Bray v. Johnson, 166 Fed. 57, 91 C. North American Life Ins. Co., 89 N. Y. C. A. 643, 21 Am. Bankr. Rep. 383. If 94< Coffin V. Bramlitt, 42 Miss. 194, 97 a trustee in bankruptcy continues the Am. Dec. 449. bankrupt's business without being there- 8 7 Bankruptcy Act 1898, § 2, clause 5. to authorized by the court of bankruptcy, As to authorizing a receiver in bankrupt- he will be personally liable. McAuley v. cy to carry on the business, see supra, § Jackson, 165 App. Div. 846, 151 N. T. 212. Supp. 120. 675 POWERS AND DtlTIBS OF TRUSTEE § S03 in these particulars and upon the authority of the court in granting him permission. Hence authority to continue the business of the bankrupt should not be granted unless the gain to the estate from such a course is very clear and very certain. Such cases do sometimes occur. Thus, Adhere the assets of the bankrupt coming into the hands of the trustee include commodities in process of construction or preparation, such as unfinished machinery jn the bankrupt's work-shops, not so far com- pleted as to be salable* but it is shown that they could be finished and made ready for the market in a short time, and at a comparatively small cost, and would then command such a price as would result in substan- tial benefit to the estate, the court may authorize the trustee to finish such goods for sale and to defray the necessary cost thereof out of the funds of the estate.** Such a course is also proper where the business must be continued in operation because it can only be sold to good ad- vantage as a going concern, as, for instance, in the case of a hotel.*^ The trustee should be required to pay all bills properly and legiti- mately contracted by him in the conduct of the bankrupt's business,*^ including the wages of skilled employes whom it is necessary to retain as being the only persons acquainted with the business.** But it seems that he is not liable to an action for damages for the negligence of an employe resulting in injury to a stranger, where it is not shown that he held himself out as conducting the business in any other capacity than as an officer of the court, and where no personal negligence is imputable to him.** § 303. Cbllection of Assets. — It is made the duty of trustees in bankruptcy to "collect and reduce to money the property of the estates for which they are trustees." *^ And first it is incumbent on the trustee *o Foster v. Ames, 1 Low. 313, 2 N. B. til it could be sold or until a trustee was R. 455, Fed. Cas. No. 4,965. Where a appointed. In re Delmonico's (D. O.) bankrupt orchard company, having con- 256 Fed. 414, 43 Am. Bankr. Rep. 519. tracted to plant, cultivate, and irrigate *2 In re Pattee, 143 Fed. 994, 16 Am. orchards pending payment of the price, Bankr. Rep. 450. had assigned all but one of such con- *3 j. j. Case Plow Works v. Edwards, tracts before adjudication, the trustee 176 111. 34, 51 N. E. 618. was held not entitled to continue cul- ** Cardot v. Barney, 63 N. Y. 281, 20 tivation against the objection of a cred- Am. Rep. 533. itor. In re Wenatchee Heights Orchard ^b Bankruptcy Act 1898, § 47a. See Co. (D. C.) 212 Fed. 787, 32 Am. Bankr. Barrett v. Kaigler, 200 Ala. 404, 76 Rep. 369. • South. 320. The mere designation of a "In re Bayley, 177 Fed. 522, 22 Am. person as "special master" in the order Bankr. Rep. 249. The receivers in bank- of appointment in bankruptcy proceed- ruptcy of the famous New York res- ings does not deprive him of the express tauraut "Delmonico's", after operating authority conferred by such order to the business for three rponths at a sub-, sue for and collect the assets of the es- stantial and increasing profit, were tate. Royal Ins. Ck>. v. Miller, 199 U. S. granted leave to continue the same un- 353, 26 Sup. Ot. 46, 50 L. Ed. 226. In § 303 LAW OF BANKETJPTCr 676 to exercise diligence in discovering the available assets of the bankrupt. Ordinarily he will rely in the first instance on the bankrupt's schedule of property and on information given to him by the creditors. And probably he is not required to make a search for possible interests of the bankrupt in property which the latter either does not know of or does not mention and which is not suspected by any creditor.** But on the other hand, a trustee would certainly not be justified in relying on the schedule alone. He must act upon any infoAation, hint, or sugges- tion coming to him from a reliable source. And he can generally ob- tain the information necessary to follow up any such clue, by asking for an order to have any designated person appear and submit to exam- ination.*" If, in fact, he could learn of the existence of available assets by proper inquiry, and fails, to do so, he is chargeable with negligence,** and he may be charged in his account with the value of assets which never came into his possession if he failed in his duty to recover them.** When informed of the existence and whereabouts of assets, the trustee is armed with ample remedies to secure them. In the first place, if he can do so without a breach of the peace, he may take physical possession of -any property of the bankrupt, wherever it may be found, and if money has been converted into goods, they may be taken in the same manner, provided they can be certainly identified.®* He may also maintain replevin for goods of the bankrupt to which he is entitled as trustee," or ejectment for the recovery of real property.®* And when fortified by an order or decree of the court for the delivery of possession, he may have the help of a writ of attachment, or of se- questration, or of assistance, according as one or the other may be the the bankruptcy of a corporation, amounts Johnson v. Canfield-Swigart Co., 211 111. remaining due and unpaid on subscrip- App. 423. And see supra, § 148. tions to its stock are "assets" of its es- *" See In re Mott, Fed. Gas. No. 9,- tate in bankruptcy, and if it is necessary 878a. to realize on them, in order to raise suf- *' IBaukruptey Act 1898, § 21a. flcent money to pay the debts of the es- *8 Avery v. Cleary, 132 U. S. 604, 10 tate, the court of bankruptcy has power Sup. Ct. 220, 33 L. Ed. 469 ; Sparhawk and jurisdiction, on a proper application v. Terkes, 142 U. S. 1, 12 Sup. Ct. 104, 35 by the trustee, to levy an assessment on L. Ed. 915 ; In re Kuhn Bros., 234 Fed. the delinquent subscribers, and to en- 277, 148 C. C. A. 179. force its payment. Enright v. Heck- 49 In re Keinboth, 157 Fed. 672, 19 scher, 240 Fed. 868, 153 C. C. A. 540; In Am. Bankr. Rep. 15. re M. Stipp Const. Co., 221 Fed. 372, 137 »o Brush v. Blanehard, 19 111. 31. C. C. A. 180, 34 Am. Bankr. Rep. 333 ; bi Gordon v. Farrington, 46 Mich. 420, In re Louis J. BergdoU Motor Co. (D. 9 N. W. 456: Coats v. Farrington, 46 C.) 260 Fed. 234, 43 Am. Bankr. Rep. Mich. 422, 9 N. W. 456. 593 ; In re Canister Co., 252 Fed. 70, 164 bz Kirkpatrick v. Clark, 182 111. 342, C. C. A. 182, 42 Am. Bankr. Rep. 278 ; 24 N. E. 71, 8 L. R. A. 511, 22 Am. St! Rep. 531. 677 POWERS AND DUTIES OF TRUSTEE § 303 appropriate remedy.^^ If part of the assets of the bankrupt consists of a provable claim against the estate of another bankrupt, it is the duty of the trustee to prove the claim in such other bankruptcy and se- cure its allowance and collect the dividends which may be payable on it.®* It may even be the duty of the trustee to institute proceedings in bankruptcy against his bankrupt's insolvent debtor, as the only available means of collecting any portion of the debt. He could" not be allowed to secure a preference for the estate which he is administering, and his only available remedy may be the filing of a petition in. bank- ruptcy.®" Without resorting to legal proceedings, he may, in proper cases, advance the interests of the estate by a bargain or compromise with an adverse claimant or other party,''® provided that it is not con- trary to law or to morality or public policy.®'' The power of the court of bankruptcy is also behind the trustee, and he may summarily apply for an order requiring the bankrupt to surrender to him any property which the latter has in his possession or under his control,®* or even property in the hands of third persons which is claimed by him as assets of the estate.®* Btit if he is satisfied that property which comes into his hands did not belong to the bankrupt, he should at once return it ■ to the frue owner.*" In suitable cases, also, the possessor of property' which belongs to the estate in bankruptcy may be enjoined from dis- posing of it or transferring it,®'- or ordered to withdraw an unlawful claim to it.®^ But if it is in the hands of a receiver appointed by a state court, his proper course is to apply to the court which appointed the receiver for an order for its surrender.** He may also sue to set aside fraudulent conveyances or transfers and recover the property affected,** I 53 Equity Rules Nos. 7 and 9. 950, 9 Am. Bankr. Rep. 670 ; In re Mills, Bi Bankruptcy Act 1S98, § 57m. 179 -Fed. 409, 25 Am. Bankr. Rep. 278 ; 6 5 In re Jones, 7 N. B. R. 506, Fed. In re Famous Clothing Co., 179 Fed. Cas. No. 7,450. 1015, 24 Am. Bankr. Rep. 780 ; In re 5 6 In re E. M. Newton & Co., 153 Fed. Meier, 182 Fed. 799, 25 Am. Bankr. Rep. 841, 83 C. C. A. 23, 18 Am. Bankr. Rep. 272 ; In re Friedman, 161 Fed. 260, 20 567. ■ Am. Bankr. Rep. 37; Floyd v. Layton, . 57 In re Rosenblatt, 153 Fed. 335, 18 172 N. C. 64, 89 S. E. 998 ; Bynum v. Am. Bankr. Rep. 663. Scott (D. C.) 217 Fed. 122, 33 Am. Bankr. 58 In re Wright, 177 Fed. 578, 24 Am. Rep. 436. And see supra, § 67. Bankr. Rep. 437; In re E. I. Fidler & eoin re Noakes, IN. B. R. 592, Fed. Son, 163 Fed. 973, 21 Am. Bankr. Rep. Cas. No. 10,281. 101. And see supra, § 227. si In re Jackson, 94 Fed. 797, 2 Am. 58 Mueller v. Nugent, 184 U. S. 1, 22 Bankr. Rep. 501. And see supra, § 205. Sup. Ct. 269, 46 L. Ed. 405, 7 Am. e^ In re Home Discount Co., 147 Fed. Bankr. Rep. 224 ; In re Gill (C. C. A.) 538, 17 Am. Bankr. Rep. 168. 190 Fed. 726, 26 Am. Banki-. Rep. 8SS; ss Seligman v. Ferst, 57 Ga. 561. And In re Peacock, 178 Fed. 851, 24 Am. see supra, § 27. Bankr. Rep. 159 ; In re Holbrook Shoe e* Falls City Tinware Co.'s Trustee v. & Leather Co., 165 Fed. 973, 21 Am. Levine, 104 g. W. 716, 31 Ky. Law Rep. Bankr. Rep. 511 ; In re Davis, 119 Fed. 1103. And see infra, ch. 23. § 304 LAW OF BANKRUPTCY 678 and may proceed against a creditor to recover money received by him from the bankrupt after the institution of the proceedings.*^ § 304. Arbitration and Compromise. — ^A trustee is authorized, "pur- suant to the direction of the court, to submit to arbitration any contro- versy arising in the settlement of the estate." ** And he may also, "vi^ith the approval of the court, compromise any controversy arising in the administration of the estate upon such terms as he may deem for the best interests of the estate." *" But when a trustee applies for authority either to arbitrate or to compromise a controversy, "the application shall clearly and distinctly set forth the subject-matter of the controversy and the reasons why the trustee thinks it proper and most for the in- terest of the estate that the controversy should be settled by arbitra- tion or otherwise." *® Generally speaking, no such action should be taken b'y the trustee without first obtaining leave of the court. But if the circumstances are such that the sanction of the court would have been given if applied for, the compromise may be sustained if after- wards questioned.** It is also provided that creditors shall have notice of "the proposed compromise of any controversy." '* But the initiative in this matter is given only to the trustee, who acts as the representative _ of the creditors. If a compromise is offered, he may indeed submit it to the judgment of the creditors assembled in a meeting, but their vote in favor of accepting it is neither a sufficient warrant to the trustee nor conclusive on the court. It may still be disapproved by the judge or 6 5 Knapp & Spencer Co. v. Drew, 160 App. 112, 66 S. W. 687. A trustee in Fed. 413, 87 C. C. A. 365, 20 Am. Banlir. bankruptcy has no power to give his con- Rep. 355. sent to a decree of a state court, in a 60 Bankruptcy Act 1898, § 26. Under suit to which he is made defendant, the act of 1867, a disputed claim might brought for the purpose of determining be submitted to the decision of the regis- the right and title to property scheduled ter by stipulation, but his judgment by the bankrupt as part of his assets, was not final, but was subject to review In re Anderson, 23 Fed. 482. by the court. In re Ford, 18 N. B. E. 7o Bankruptcy Act 1898, § 58a. .When 426, Fed. Cas. No. 4,932. the court has been misled into making 87 Bankruptcy Act 1898, § 27. an order authorizing the compromise of 6 8 General Order No. 33. See In re a controversy by misrepresentations as Hoole, 3 Fed. 496. An order of the bank- to the true state of the facts In question, ruptcy court made upon the ex parte an application to have such order va- application of the trustee, approving the cated may be made by any creditor of terms of an agreement of compromise, the estate. In re Hoole, 3 Fed. 496. and authorizing the trustee to consnm- Where a creditor had actual notice of a mate the same, has no binding effect proposed compromise, which was fair upon the othet party to the proposed and made in good faith, he cannot at- compromise. DufC v. Hopkins, 33 Fed. tack it five years later for the want of 599. But compare Lake v. Dredge (Iowa) a formal notice. Petition of Baxter (C. 138 N. W. 869. C- A.) 269 Fed. 344, 46 Am. Bankr. Rep. o» Bacot v. Heyward, 5 S. 0. 441. And 453. see Simmons v. Richards, 28 Tex. Civ. 679 POWERS AND DUTIES OF TRUSTEE § 304 referee.'^ And no binding bargain can be made by the creditors or .part of them directly with the bankrupt. He no longer has control of his property or debts, and any such agreement must have the concur- rence of the trustee and the approval of the court.''* ' Leave to compromise a controversy is not granted as of course. It will be refused where the claim of the trustee can apparently be collect- ed in full if proper measures are taken, or where it is secured.'* And the expense and delay of a litigation will not justify a compromise in a case where public interests and the due administration of the bankrupt- cy law require the settlement of the questions of law involved by the judgment of the court,''* nor where the proposed settlement would re- sult in creating an illegal preference, contrary to the spirit and purpose of the statute.'^ Nor can the provision of the law relating to compro- mises be stretched so as to include a scheme for the reorganization of a bankrupt corporation, under which dissenting creditors would be com- pelled to accept stock in a new corporation in exchange for their claims and submit to the creation of a prior mortgage lien to provide a work- ing capital.'* And it should be remarked that, although the law does not require the consent of the creditors to a proposed compromise, or any proportion of them, yet the court will carefully consider the rights and interests of any who may dissent, Thu^s, stockholders of a bankrupt corporation, at whose instance a suit has been brought by the trustee against officers and directors to recover damages for the alleged wrecking of the corporation, are entitled to have an offer of compromise rejected by the bankruptcy court, on giving security to pro- tect the estate against any loss consequent upon the failure to realize the amount offered.'' Undoubtedly, however, there are cases where the interests of all concerned will be promoted by a judicious settlement out of court, as where a claim against a third person for 'money and prop- erty alleged to belong to the bankrupt is contested, and the evidence is 71 In re Heyman, 108 Fed. 207, 5 Am. 74 in re Rowe, 18 N. B. R. 429, Fed. Bankr. Rep. 808. The trustee's authority Cas. No. 12,092. to compromise a controversy is not limit- 75 j^ ^g Geiselhart, 181 Fed. 622, 25 ed to cases in which all the creditors of ^jjj_ Bankr. Rep. 318. the bankrupt have the same interest. t,t iu 4. t, ^■^ a r, Petition of Stuart (C. C. A.) 272 Fed. '« /"^ ''\^ff'rnlo''JT-^ ? „„„ ment Co., 185 Fed. 542, 25 Am. Bankr. T2 In re Ford, 18 N. B. R. 426, Fed. ^^P- ^65. And see In re Woodend, 133 ' Cas No 4 932; In re Anderson, 2 Fed. 593, 12 Am. Bankr. Rep. 768. In re Hughes 378, 9 N. B. R. 360, Fed. Cas. Prudential Outfitting Co, (D. C.) 250 Fed. No 351 504, 41 Am. Bankr. Rep. 621. 73 In re Furbish, 2 Hask. 120, Fed. 77 in re John H. Woodbury Dermato- Cas: No. 5,159. In re Stier-March Con- logical Institute (C. C. A.) 191 Fed. 819, tractlng Co. (D. O.) 245 Fed. 223, 38 Am. 27 Am. Bankr. Rep. 497. Bankr. Rep. 74. § 304 LAW OP BANKRUPTCY 680 conflicting, and it is apparent that if the trustee could recover at all, it would only be at the end of a long and costly suit.'* So also, by the terms of the statute, where the trustee and a secured creditor cannot agree upon the value of the security, for the purpose of crediting such value upon the claim, they may be directed by the court either to com- promise the matter or to submit it to arbitration.'* In case of submission of any controversy to arbitration, the statute directs that "three arbitrators shall be chosen by mutual consent, or one by the trustee, one by the other party to the controversy, and the third by the two so chosen, or if they fail to agree in five days after their appointment, the court shall appoint the third arbitrator." *" This method of selection must be followed. It is an irregularity if one of the arbitrators is selected by the trustee, one by the other party, and the third agreed upon by the two contending parties.*^ As to the award, the direction of the statute is that "the written finding of the arbitrators, or a majority of them, as to the issues presented, may be filed in court and shall have like force and effect as the verdict of a jury." *^ But their finding, when so filed, has no greater effect, and is subject to be set aside or adjudged upon by the court in like mariher as a verdict would be.«8 § 305. Redemption of Property. — When it is thought to be for the advantage of the estate in bankruptcy that the trustee should redeem property from a mortgage, pledge, or other lien, the course prescribed is that a petition for authority to take that step should be filed in the court of bankruptcy by either the trustee or the bankrupt or by any creditor who has proved his debt, and the court will decide the ques- tion upon a hearing, of which interested parties are to be notified and at which they shall have an opportunity to show cause against the pro- posed redemption.** Subject to these provisions a trustee in bankruptcy may redeem land from a conveyance which, though absolute in form, was intended as a mortgage and was accompanied by a parol defeas- ance,*^ or from a foreclosure sale under a decree rendered after the ad- judication, if, by the law of the state, such a right of redemption re- mains in the bankrupt mortgagor.*® And he may redeem property of 7 8 In re Krauich, 174 Fed. 90S, 23 Am. 84 General Order No. 28. See In re Bankr. Rep. 550. See Matter of Croton East Stroudsburg Supply & Const Co. Ins. Co., 3 Barb. Ch. (N. Y.) 642. (D, C.) 248 Fed. 356, 41 Am. Bankr. Rep. TO Bankruptcy Act 1898, § 57h. 57. so Bankruptcy Act 1898, § 26b. ss Foraast v. Hyman, 138 lU. 423, 28 81 In re McLam, 97 Fed. 922, 3 Am. N. E. 800. Bankr. Rep. 245. "« In re Novak, ill Fed. 161, 7 Am. 82 Banki-nptcy Act 1898, § 26c. Bankr. Rep. 27. See Wittmeier y. Cran- 88 In re Mcl.am, 97 Fed. 922, 3 Am. Bankr. Rep. 245. 681 POWERS AND DUTIES OF 1 MUSTEK § 306 the bankrupt which has been sold on execution to the judgment cred- itor, without paying the unsatisfied balance of the judgment or taking the property subject to the lien of the judgment.*'' As to redeeming from a tax sale, the law is not clear. So far as concerns the bankruptcy law, a step so necessary for the preservation of assets which may be valuable would surely be authorized by the court, and warrant might easily be found for the necessary expenditure. But the right of a trustee in bankruptcy must depend upon the wording of the state statute, and if the right of redemption is given only to the "owner" of the prop»rty, it might be doubtful whether he would come within this description. Generally, however, the tax laws of the states are so construed as to give a right of redemption to almost any one who can show a substantial interest in the property.** .^ § 306. Performance of Bankrupt's Contracts and Obligations. — It has been stated that a trustee in bankruptcy is bound to carry out the bankrupt's valid contracts- made in good faith and not in fraud of his creditors,** and that the trustee is estopped by the acts of the bankrupt, and bound by his conduct and agreements to the same extent that the bankrupt would be bound before the adjudication.^* Probably these statements are too broad, especially in view of the provision of the stat- ute giving the trustee the rights of a lien creditor. But certainly he may, if he so elects, assume the bankrupt's contracts and fulfil them, provided that any benefit to the estate will result from his doing so. ^ While a trustee in bankruptcy is not bound to accept property or take over contracts which are onerous and unprofitable, he is required to elect whether to assume an existing executory contract and to continue its performance and ultimately dispose of it for the benefit of the estate, or to renounce it, and leave the injured party to such legal remedies for the breach as the case affords. If he elects to assume a contract, and com- pletes it,' he is entitled to whatever the bankrupt would have received, but on the other hand he takes the contract cum onere, as the bankrupt ford, 199 Ala. 1, 73 South. 981; Brown v. 28 Gal. App. 285, 152 Pac. 313. Compare Crawford (D. C.) 252 Fed. 248, 42 Am. Park, Grant & Morris v. Shannon & Mott Bankr. Rep. 263. Co., 140 Minn. 60, 167 N. W. 285. The 87 Lloyd V. Hoo Sue, 5 Sawy. 74, 17 holder of an option from the bankrupt N. B. R. 170, Fed. Cas. No. 8,432. for the purchase of land was held en- ss See Black, Tax Titles (2d ed.) § titled to specific performance by the 365. And see In re William F. Fisher bankruptcy court, on an offer to pay & Co., 148 Fed. 907, 17 Am. Bankr. Rep. sufficient to satisfy all claims against 404; In re Clark Realty Co., 234 Fed. the estate and costs. Dunlop v. Baker, 576, 148 C. 0. A. 342, 37 Am. Bankr. 239 Fed. 193, 152 C. C. A. 181, 38 Am. Rep. 129. Bankr. Rep. 869. 89 In re Stewart (D. O.) 193 Fed. 791, 9 o Watson v. Proximity Mfg. Co., 147 27 Am. Bankr. Rep. 529. And see Man- N. C. 478, 61 S. E. 273. kins V. Forward Movement Syndicate, § 306 LAW OF BANKRUPTCY 682 held it, subject to all -of its provisions and conditions.®^ This course is often proper with regard to property held by the bankrupt under a con- tract of conditional sale, where the assets of the estate will be increased by the completion of the conditions by the trustee and the consequent vesting of' full title to the article in question.**;). So where the bankrupt was a building contractor, and had an unfinished contract on hand at the time of his adjudication, the trustee may be directed by the court to complete the contract and collect the balance due under it.®^ But where the ^Dankrupt corporation held property under a lease, which required It to erect an expensive building on the leased land, and had failed to perform the condition, and had received notice of a forfeiture of the lease for breach of such condition, all before its adjudication in bank- ruptcy, the court of bankruptcy, on petition of the lessor, decreed the enforcement of the forfeiture and directed the trustee to surrender pos- session, this being the only effective means of protecting the rights of the lessor.** What has been said above of the assumption of contracts by the trustee naturally does not apply to such executory contracts as re- late to purely personal services or involve the element of personal trust or confidence.*^ 81 Dushane v. Beall, 161 U. S. 513, 16 Sup. Ct. 637, 40 L. Ed. 791; United States Trust Co. v. Wabash Ey., 150 U. S. 289, 14 Sup. Ct. 86, 37 L. Ed. 1085; Sparhawk v. Terkes, 142 U. S. 1, 12 Sup. Ct. 104, 35 L. Ed. 915; American File Co. V. Garrett, 110 U. S. 288, 4 Sup. Ct. 90, 28 L. Ed. 149; In re Chambers, Galder & Co., 98 Fed. 865, 3 Am. Bankr. Rep. 537; Atchison, T. & S. F. Ry. Co. V. Hurley, 153 Fed. 503, 82 C. C. A. 453, 18 Am. Bankr, Rep. 396; Watson v. Merrill, 136 Fed. 359, 69 C. C. A. 185, 14 Am. Bankr. Rep. 453; In re Nicholas, 122 Fed. 299, 10 Am. Bankr. Rep. 291; Wilkins v. Tourtellott, 28 Kan. 825; First Trust & Savings Bank v. Bitter Root Valley Irr. Co. (D. C.) 251 Fed. 320; In re Berry (D. C.) 247 Fed. 700, 41 Am. Bankr. Rep. 357 ; Barr v. Tounge- ville Sugar Factory, 141 La. 869, 75 South. 805, L. R. A. 1917F, 654. Wheth- er or not a bankruptcy court will au- thorize its trustee to complete an un- performed contract, or will permit a surety of the bankrupt to make use of the property of the estate in so doing, is a matter within the discretion of the court, the surety not being entitled as a matter of right. In re Schilling (D. C.) 251 Fed. 966, 41 Am. Bankr. Eep. 705. The trustee must exercise his op- tion to accept or reject an uncompleted contract within a reasonable time. Brown v. Rushton, 223 Mass. 80, 111 N. E. 884. But where a corporation pur- chased goods for future delivery, and later went into voluntary bankruptcy, the fact that the trustee waited until he could ascertain whether there was a profit in the contract before accepting it would not make his action dilatory. Planters' Oil Co. v. Cresham (Tex. Civ. App.) 202 S. W. 145. »2 See In re Grainger, 160 Fed. 69, 87 C. C. A. 225, 20 Am. Bankr. Rep. 166; Hurley v. AUman Gas Engine & Machine Co., 144 App. Dlv. 300, 129 N. Y. Supp. 14; Tierney v. Butler, 144 Iowa, 553, 123 N. W. 213. 93 Davis v. Fidelity & Deposit Co., 75 App. Div. 518, 78 N. T. Supp. 336 ; Ford V. State Board of Education, 166 Mich. 658, 132 N. W. 467. »i Lindeke v. Associates Realty Co., 146 Fed. 630, 77 C. C. A. 56, 17 Am. Bankr. Rep. 215. 5 In re Schiermann, 2 Nat. Bankr. News, 118. 683 POWERS AND DTJTIHS OF TRUSTEE § 307 § 3tJ7. Leased Property and Leasehold Interests of Bankrupt. — A leaseliold interest in property, if salable and possessing a market value, is assets of the bankrupt's estate which passes to the trustee.®* But the trustee is not bound to accept anything which may be more burden- some than beneficial to the estate in his charge, and therefore is not re- quired to assume a lease made to the bankrupt unless he thinks it will be for the benefit of the creditors. He has his option either to accept it ■or to abandon it,®'" and he cannot be charged with the obligations of the lease without some affirmative act of acceptance on his part.*"* The trustee must be accorded a reasonable length of time after his appoint- ment in which to decide whether he will take over the lease or not.** But in a case where the bankrupt's landlord repeatedly inquired of the trustee as to when, he would surrender the possession, and was ready to accept a surrender, having negotiated with a new tenant, but the trustee gave him no information, but continued to occupy the premises, it was held, that the trustee was liable for the rents whether or not he had any funds in his hands to reimburse himself."* If the trustee elects to as- sume the le^se, he may continue to occupy the premises to the end of the stipulated term,^*^ or sell the lease if he can do so to advantage. But he is of course liable for the stipulated rent,"' including a share of the crops raised on the land if that is among the conditions of the lease."* But the mere fact of the bankruptcy of a lessee does not sever the rela- tion of landlord and tenant, and the tenant's obligation to pay rent un- der his lease is not discharged as to the future if his trustee abandons or does not assume the lease."* If the rent was in arrear at the time 88 In re Thlessen, 2 Nat. Bankr. News, Fed. 5S4, 167 C. C. A. 614, 43 Am. Bankr. 628. Rep. 480. »7 In re Chambers, Calder & Co., 98 loo in re Metals Extraction & Keflning Fed. 865, 3 Am. Bankr. Rep. 537; Sum- Co. (C. C. A.) 195 Fed. 226, 27 Am. merville v. Kelliher, 144 Cal. 155, 77 Pac. Bankr. Eep. 11. 889; Rosenblura v. Uber, 256 Fed. 584, loi in re Sehwartzman, 167 Fed. 399, 167 C. C. A. 614, 43 Am. Bankr. Rep. 480. 21 Am. Bankr. Eep. 885. 98 In re Frazln, 183 Fed. 28, 105 C. 102 Matter of Otis, 101 N. T. 580, C. A. 320, 24 Am. Bankr. Eep. 903. N. B. 571; Brooklyn Improvement Co., While the trustee may at his election v. Lewis, 136 App. Div. 861, 122 N. Y. decline to continue a lease to the bank- Supp. lll;*Eosenblum v. Uber, 256' Fed. rupt for the benefit of the estate, and 584, 167 C. C. A. 614, 43 Am. Bankr, thus relieve himself and the estate from Rep. 480. further liability thereon, a referee has i»3 Summerville v. Kelliher, 144 Cal. no power to order its cancellation. In 155, 77 Pac. 889. re J. Sapinsky & Sons, 206 Fed. 523, .30 10* In re Roth & Appel(C. C. A.) 181 Am. Bankr. Rep. 416. Fed. 667, 24 Am. Bankr. Rep. 588; In 00 In re Rubel, 166 Fed. 131, 21 Am. re Scruggs, 205 Fed. 673; Rosenblum v. Bankr. Rep. 566; In re Ells, 98 Fed. 967, Uber, 256 Fed. 584, 167 C. C. A. 614, 43 3 Am. Bankr. Rep. 564 ; In re Scruggs, Am. Bankr. Rep. 480 ; In re Sherwoods, 205 Fed. 673 ; Rosenblum v. Uber, 250 210 Fed. 754, 127 C. C. A. 304, Ann. Cas. 1916A, 940, 31 Am. Bankr. Rep. 769. § 307 LAW OF BANKEUPTCT 684 of the bankruptcy of the tenant, but the landlord had not taken the necessary steps to regain possession, he cannot oust the trustee.^"® In such a case, however, the bankruptcy court has full jurisdiction to deter- mine the lessor's rights and remedies; and a forfeiture of the lease for the past default in the payment of rent should not be restrained unless the lessor's just claims can be fully met and his rights protected in the administration of the estate in bankruptcy, nor unless, after satisfying such claims, something may probably be realized for the general credi- tors.^** A trustee in bankruptcy may also, if the landlord will consent, sur- render a lease held by the bankrupt, and if this is done, the landlord regains possession of the premises, and all unmatured obligations be- tween the parties depending upon the continuance of the leasehold es- tate are terminated. But in surrendering the lease, the trustee has no greater right than the tenant would have had if he had attempted to make the surrender before his bankruptcy. In a case in which the fore- going principles were laid down, it was further held that whpre the trustee had attempted to surrender the leased premises to the landlord, but the latter accepted only upon the express condition that he would care for the building and rent it if possible "for the benefit of the estate," the effect of the transaction, although the trustee thought that he had surrendered the premises and terminated the liability of the estate under the lease, was in reality a refusal to accept and administer the lease as an asset of the estate, and left the obligation of the bankrupt tenant under the lease just where it was before the attempt to surrender.-"" It is often important for a trustee in bankruptcy to continue in the occupation of the premises leased by the bankrupt, at least for a limited time, until he shall have a reasonable opportunity to dispose of the bank- rupt's stock in trade or other property in the leased premises, especially where removing the goods would injure them or involve unreasonable expense, yet without assuming the lease for the whole of the unexpired term. Where this situation arises, it is said that the court of bankruptcy has power to enjoin the landlord from interfering with the trustee's pos- session of the premises."^ But of course the landlord is entitled to fair compensation for the use of the premises by the trustee, for as long a io» In re Adams, 1-34 Fed. 142, 14 Am. 21 Am. Bankr. Rep. 885; In re Craw- Bankr. Eep. 23. ford Plummer Co. (D. C.) 253 Fed. 76, 106 In re Elk Brook Coal Co. (D. C.) 42 Am. Bankr. Kep. 92. A trustee in 261 Fed. 445, 44 Am. Bankr. Rep. 283. bankruptcy represents other creditors as 107 Rosenblnm v. Uber, 256 Fed. 584, well as tlie landlord, and his occupancy 167 C. 0. A. 614, 43 Am. Bankr. Rep. of demised premises after the adjudica- 480. tion cannot be construed as adverse to 108 In re Schwartzman, 167 Fed. 399, the landlord for the purpose of defeat- 683 POWERS AND DUTIES OF TEUSTEB § 308 time as the latter shall continue in the occupation of them, the amount thereof being chargeable as a part of the expense of administering the estate."* And if the trustee and the landlord have not made any agree- ment as to the amount of such compensation, the latter is entitled to recover>on a quantum meruit.^" But if the trustee occupies only a part of the premises, the rest having been sublet by the bankrupt, the land- lord can demand rent only for the portion actually occupied.^" Where the trustee, with knowledge of the expiration of the lease, holds over for several days, notwithstanding a notice to quit, he becomes a tres- passer and is personally liable for the damages sustained."^ § 308. Expenditures. — The statute makes provision for the allow- ance and payment -of "the actual and necessary expenses incurred by officers in the administration of estates." ^^^ And the general orders provide for the allowance to trustees in bankruptcy of "expenses neces- sarily incurred in the performance of their duties." "* Both the amounts and the items of such allowable expenses will naturally vary with the circumstances of each case. But it may be stated as a general rule that expenditures by a trustee, to be allowed by the court, must have been actually made, reasonably necessar^, and beneficial to the estate, having regard, on the one hand, to economy in the administration of the estate, and, on the other hand, to the necessity of realizing all that is possible for the creditors.^^® And first, the trustee is allowed to incur ing his lien for rent. Lontos v. Cop- occupancy of their premises by a trustee pard, 246 Fed. 803, 159 €. 0. A. 105, 40 in bankruptcy, although evidence of the Am. Bankr. Rep. 575. rent which had previously been paid, 100 Bray v. Cobb, 100 Fed. 270, 3 Am. either under the lease or under a verbal Bankr. Eep. 788; In re Luckenbill, 127 letting, may be of great assistance in Fed. 984, 11 Am. Bankr. Hep. 455; In determining what fairly and equitably re JefCerson, 93 Fed. 948, 2 Am. Bankr. ought to be allowed. Gardner v. Glea- Rep. 206; In re Grimes, 96 Fed. 529, 2 son, 259 Fed. 755, 170 C. C. A. 555, 43 Am. Bankr. Rep. 730 ; In re Secor, 18 Am. Bankr. Rep. 644. Fed. 319; In re Budd, 239 Fed. 307, 152 m In re J. Frank Stanton Co. (D. C.) C. O. A. 295, 38 Am. Bankr. Rep. 643. 162 Fed. 169, 20 Am. Bankr. Rep. 549. 110 In re Grignard Lithographic Co., 112 In re Hunter, 151 Fed. 904, 18 Am. 155 Fed. 699, 19 Am. Bankr. Rep. 101; Bankr. Rep. 477. In re Adams Cloak, Suit & Fur House, us Bankruptcy Act 1898, § 62. ip9 Fed. 337, 28 Am. Bankr. Rep. 923. n* General Order No. 35, par. 3. The rent reserved in a Ipase to the bank- After an offer of composition, the ex- rupt is, under ordinary conditions, ,the penses of conducting the bankruptcy fair measure of what should be paid proceeding should be secured by the by a trustee remaining in possession. bankrupt, and, if necessary, paid out of In re Crawford Plummer Co. (D. C.) 253 the amount deposited for the purpose of Fed. 76, 42 Am. Bankr. Rep. 92. But the composition. In re Miller (D. C.) neither the rent reserved in the lease 243 Fed. 242, 40 Am. Bankr. Rep. 155. nor the rent which had previously been no In re Krause, 155 Fed. 702, 19 Am. paid by the bankrupt as a tenant at will Bankr. Rep. 93 ; In re Criblier, 184 Fed. is conclusive in determining what rental 338, 25 Am. Bankr. Rep. 765; Akers v. should be allowed the owners during the Veal, 66 Ga. 302. § 308 LAW OF BANKRUPTCY 686 all necessary expenses for the care and custody of the bankrupt's prop- erty so long as it remains in his hands."® Thus, where a part of the estate consists of horses, sheep, or cattle, the trustee must pay the proper charges of an agistor with whom they were pastured,"' or of an officer who had them in his charge under a foreclosure or attachment, which was dissolved by the bankruptcy proceedings."* Again, it is clear that the trustee is warranted in charging the estate with necessary office expenses of his administration. Thus, a reasonable allowance will be made to him for expense incurred in stationery and postage,"' and like- wise for the rent of an office and the wages of a book-keeper, in so far as these items are shown to have been necessary for the efficient ad- ministration of the trust.^^" So also, the rent of premises temporarily occupied by the trustee, under an unexpired lease to the bankrupt, for the purpose of storing the bankrupt's property or keeping it together until it can be sold, is chargeable as part of tlie expense of administra- tion.-'*^ Again, it is the duty of a trustee in bankruptcy to pay all taxes assessed or becoming due on the property of the bankrupt while it remains in his hands for administration,' and he will be allowed credit for such- payments.^** And where he finds the bankrupt to be the owner of imported merchandise, he may and should pay the customs duties on it, in order to release it from bond, and so make it available as assets.-'** The estate in bankruptcy must also bear the cost of actions or pro- ceedings properly undertaken by the trustee for the purpose of recov- ering assets or contesting spurious claims, but he will not be allowed the costs of unfounded and unnecessary litigation.^** In regard to pay- ing out the money of the estate for any other purpose than that of ad- ministration expenses, the trustee must have the warrant or order qf the court, and without it he acts at his own peril, as, for example, where 118 Gardner v. Cook, 7 N. B. B. 346, 56 C. C. A. 92, 9 Am. Bankr. Rep. 691; Fed. Gas. No. 5,226. In re William F. Fisher & Co., 148 Fed. 117 In re Mitchell, 8 N. B. E. 47, Fed. 907, 17 Am. Bankr. Rep. 404; Ex parte Gas. No. 9,657. Sherwln, 16 N. B. R. 535, Fed. Gas. No. iisZeiber V. Hill, 1 Sawy. 268, 8N. B. 9,658; C. B. Norton Jewelry Co. v. R. 239. Fed. Gas. No. 18,206 ; In re Da- Hinds, 245 Fed. 341, 157 C. G. A. 533, 40 vis, 155 Fed. 671, 19 Am. Bankr. Rep. 98. Am. Bankr. Rep.^320. 110 In re Pegues, 3 N. B. R. 80, Fed. 12s j. i. Case* Plow Works v. Ed- Gas. No. 10,907; In re Tulley, 3 N. B. wards, 176 111. 34, 51 N. E. 618. E. 82, Fed. Gas. No. 14,235; 124 In re Josephson, 121 Fed. 146, 9 120 In re Barnes, 18 Fed. 158. Am. Bankr. Rep. 608. Under the Bank- 121 In re Hunter, 151 Fed. 904, 18 Am. ruptcy Act of 18Cp, it was held that an Bankr. Rep. 477 ; Louisville Woolen assignee }n bankruptcy need not, for the Mills V. Tapp, 239 Fed. 463, 152 0. G. A. protection of the estate, advance money 341, 38 Am. Bankr. Rep. 529. And see to defend a suit. In re Sweetser (D. O.) supra, § 307. 240 Fed. 174. 122 Swarts V. Hammer, 120 Fed. 256, 687 POWERS AND DUTIES OP TRUSTEE § 309 he pays to a Hen creditor his distributive share of the estate without noticing an attorney's lien upon it for services in securing its allow- ance.^*^ To justify the trustee in paying out money of the estate for serv- ices rendered it is necessary that' they should have been rendered to him in his capacity of trustee or to the estate. For instance, where a person was employed by a corporation to go to a distant state and there make an investigation of the conduct of its business and affairs in that state, and pending the conclusion of his investigation, the cor- poration went into bankruptcy, after which he made his report to the directors as instructed by them, it was held that his claim for payment for his services could not be allowed as a claim for services rendered in the administration of the estate in bankruptcy.^** And it is also nec- essary to distinguish between expenses incurred for the benefit of the estate in general and those incurred for the benefit of particular cred- itors. Thus, in the bankruptcy of a stockbroker who had large amounts of stocks and other securities belonging to his various customers; sup- posedly in his own hands, but which in fact he had pledged without authority to another broker, it became necessary to engage an account- ant to unravel the details contained in the books of the pledgee, so as to enable the various claimants to trace their securities; and it was held that the resulting expense should be apportioned among the claim- ants, excepting, however, those claimants who could trace their stock without the aid of the accountant.^*' In another case, the trustee in bankruptcy and his counsel, after a successful prosecution of the bank- rupt and others for concealing property of the estate, made a settlement, by which the defendants restored the property, and also paid a sum in cash to be used in paying the cost of the criminal case, including attor- neys' fees, and also the expenses of administration of the estate, and the money was so used by the attorneys with the knowledge of the cred- itors. It was held that the trustee must be held to this arrangement and could not be credited in his accounts with any expenses of administra- tion over and above the amount so paid by the defendants.^** § 309. Employment and Compensation of Attorney for Trustee. — It is not by any means the first duty of a trustee in bankruptcy to em- ploy an attorney. Where the affairs of the estate committed to his 121 In re Rude, 101 Fed. 805, 4 Am. 12' In re J. C. Wilson & Co. (D. C.) Bankr. Rep. 319. 252 Fed. 631, 42 Am. Bankr. Rep. 350. 126 In re Union Dredging Co. (D. 0.) 128 in re Di Cola, 217 Fed. 743, 133- 225 Fed. 188, 35 Am. Bankr. Rep. 555. O. C. A. 437, 33 Am. Bankr. Rep. 389. § 309 LAW OF BANKRUPTCY 688 charge are simple, and require no more than the application of intelli- gence and good business judgment, he is not justified in charging the estate with fees for professional advice or assistance.-'** But on the other hand, where the situation of the estate is such that he really re- quires legal assistance, the trustee- may employ counsel, and their fees for services properly and actually rendered to the trustee, to a reasonable amount, may be allowed as part of the cost of administer- ing the estate.^^" This is the case, for instance, where the trustee be- lieves that certain property belongs to the bankrupt, but cannot recover it without litigation, and needs advice as to the existence of a cause of action and the probable chances of success.^*^ And an attorney's bill is evidence of his services and their payment, but must be supported by proof of the occasion, necessity, and value thereof.*** And it is said that the trustee (at least without authority from the court) cannot re- tain an attorney to conduct a suit for a contingent fee.**^ As to the choice of an attorney for the trustee, it is the policy of the bankruptcy law to leave the selection entirely to the trustee himself, subject to the authority of the court to interfere if it appears that the attorney selected is acting under improper influences or for his own advantage.*** In some jurisdictions it has been the practice to allow the creditors, when assembled in their first meeting, to elect an attor- ney for the trustee.**^ But this is wrong, and referees should not al- '.ow it. The trustee should be left free to choose his own attorney and creditors have no right to dictate to him in the matter.*** More par- ticularly is this the case where there are disagreements between factions of creditors as to the manner of administering the estate, or matters in controversy between different classes of the creditors. Where this situation exists, the trustee will not be authorized to retain as his coun- sel one who also represents and continues to act for any of the cred- itors.**' And the court may refuse to allow any fee to an attorney rep- 128 In re Muldaur, 8 Ben. 65, Fed. isa in re Staff, 5 Ben. 574, Fed. Cas. Gas. NO. 9,905 ; In re New York Mail No. 13,273. S. S. Co., 2 N. B. R. 423, Fed. Cas. No. las in re Brlnker, 19 N. B. R. 195, Fed. 10,210; In re Noyes, 6 N. B. R. 277, Fed. Cas. No. 1,882. Cas. No. 10,371. is* in re Champion Wagon Co., 193 130 In re Stotts, 98 Fed. 438, 1 Am. pg^ ^qq^^ 28 Am. Bankr. Rep. 51. Bankr^Rep. 641; In re Dave^Port, 3 ,3, ^^ ^^ ^^^^^ ^^^^ ^^^^^ N. B. R. 77, Fed. Cas. No. 3,587; In re _ , __„ Comstock, 3 Sawy. 517, 13 N. B. R. 19,3, ^ea. ooo. Fed Cas. No. 3,080. ise In re Columbia Iron Works, 142 isi In re McKenna, 137 Fed. 611, 15 ^ed. 234, 14 Am. Bankr. Rep. 526; In re Am. Bankr. Rep. 4; In re Waterloo Or- Eusch, 105 Fed. 607, 5 Am. Bankr. Rep. . ganCo., 154 Fed. 657, 83 C. C. A. 481, 18 565. Am. Bankr. Rep. 752. i" In re Rusch, 105 Fed. 607, 5 Am. 689 POWERS AND DUTIES OF TRUSTHB § 309 resenting the trustee, when he has already been allowed a fee as at- torney for the petitioning creditors, which covers any services rendered to the trustee or the estate.^** But while the fact that an attorney had acted for the bankrupt may afifect the propriety of his employment as counsel for the trustee, yet it does not deprive him of the right to com- pensation for services actually rendered.'^" Where the trustee is him- self an attorney at law, it has been said that the court may, in its dis- cretion, allow him additional compensation for his services rendered in that capacity in the conduct of necessary litigation for the estate.-*^*" But the weight of authority is the other way. The trustee is not bound to place his professional knowledge and skill at the service of the es- tate, but if he does, he cannot have compensation therefor, as he can- not, in the character of a trustee, employ himself, in the character of a lawyer."^ As to the nature and occasion of the professional services for which fees may be allowed, no compensation can be claimed for services not rendered under the employment of the trustee, though they may have been beneficial to the estate,^** nor for services rendered prior to the appointment of the trustee,*** nor for assistance in the performance of the ordinary duties of a trustee, such as making up reports, statements, and accounts,*** unless, perhaps, where these cover so long a period, or involve transactions of such magnitude and complexity, as to require the services of a professional adviser.**^ Neither should an attorney be al- lowed a fee for conducting the examination of the bankrupt or a witness, Bankr. Rep. 565 ; In re Columbia Iron lowance for their services to the trustee Works, 142 Fed. 234, 14 Am. Bankr. Rep. out of the estate. 526. But see In re Smith (C. C. A.) 203 iss In re Carolina Cooperage Co., 96 Fed. 369, 29 Am. Bankr. Rep. 628 ; where Fed. 950, 3 Am. Bankr. Rep. 154. it is said that the ge^ieral rule that a iso In re Dlmm & Co., 146 Fed. 402, 17 receiver may not employ the solicitor of Am. Bankr. Rep. 119. either party to the suit in vyhich he is no In re Welge, 1 Fed. 216, 1 McCrary, appointed is applicable to trustees in 46 ; In re Mitchell, 1 Nat. Bankr. News, bankruptcy, but it is only when the trus- 264. tee is acting adversely to one of the par- "iln re McKenna, 137 Fed. 611, 15 ties that there is any impropriety- in his Am. Bankr. Rep. 4 ; In re Muldaur, 8 employing the counsel of the other ; and Ben. 65, Fed. Cas. No. 9,905 ; In re Drake, that, in general, a trustee or receiver in 14 N. B. R. 150, Fed. Cas. No. 4,058; In bankruptcy should not employ an attor- re Cook, 17 Fed. 328 ; Matter of Bank of ney who represents the bankrupt, or an Niagara, 6 Paige (N. T.) .213. interest in litigation having an interest lia In re Hamburger, 8 Ben. 189, Fed. adverse to that represented by the trus- Cas. No. 5,974. tee, but the fact that attorneys represent i*3 In re New York Mail S. S. Co., 2 creditors of the bankrupt, whose inter- N. B. R. 423, Fed. Cas. No. 10,210. ests are not adverse to the estate gen- i*< In re Averill, 1 Nat. Bankr. News, erally, does not so far disqualify them to 544. act for the trustee as to preclude an al- i*^ Lape's Adm'r v. Jones (Ky.) 15 S. W. 658. Blk.Bkk.(3d Ed.)— 44 § 309 LAW OF BANKRUPTCY 690 from which no benefit to the estate has resulted, where he virtually act- ed for certain creditors who were his clients."® Again, if it is suspected that the bankrupt is concealing property which belongs to his estate, or has fraudulently conveyed it away, or that there have been preferential payments or transfers which may be avoided, it is the duty of the trus- tee to make due search for such property, and to make all reasonable and necessary preliminary inquiries as regards the facts of the alleged con- cealment or transfer. If he employs an agent or attorney to do this por- tion of his work for him, it must be at his own expense. Whatever may be his right to employ legal assistance for the prosecution of proceedings in the courts, he cannot expect to have the assets of the estate applied in payment of professional services rendered merely in preliminary searches or investigations."' On the other hand, the trustee may re- tain counsel not only to prosecute actions which he brings, but also to defend suits brought against him by creditors or claimants,^** but he cannot charge the estate with attorneys' fees incurred in an unsuccessful attempt to retain particular property as against its equitable owner.^** The trustee's charges for the fees of his attorney must be included in his accounts and submitted to the meeting of the creditors,^®" and al- lowed or disallowed by the court of bankruptcy, which has jurisdiction to determine, in a summary manner, all questions as to the propriety of making the allowance and the amount thereof.^®* And a dismissal of the proceedings, though not opposed by the creditors, will not be order- ed until payment of the reasonable and proper fees of the trustee's at- torney."* As to the amount to be allowed to the trustee's attorney, it will naturally vary with the circumstances of the particular case, the only general rule being that it must not exceed the reasonable value of his services, having regard to the nature of the work performed and also to the amount involved and the circumstances of the estate."' 140 In re Rozlnsky, 101 Fed. 229, 3 Am. per (D. C.) 222 Fed. 690, 34 Am. Bankr. Bankr. Eep. 830. Rep. 806. 147 In re Cook, 17 Fed. 328. 102 In re Salaberry, 107 Fed. 95, 5 Am. 148 Gazin v. Norton, 38 Fed. 200. Bankr. Rep. 847.^ 149 Gillespie v. Piles, 178 Fed. 886, 102 103 In re Cook, 17 Fed. 328; In re C. C. A. 120, 24 Am. Bankr. Rep. 502. Hoffman, 173 Fed. 234, 23 Am. Bankr. leo In re Hubbel, 9 N. B. R. 523, Fed. Rep. 19; In re McKenna, 137 Fed. 611, Cas. No. 6,820. 15 Am. Bankr. Rep. 4 ; In re Byerly, 128 iBi In re Brinker, 19 N. B. R. 195, Fed. Fed. 637, 12 Am. Bankr. Rep. 186; In re Cas. No. 1,882; In re Noyes, 6 N. b; R. Bignall, 9 Fed. 385; In re Drake, 14 N. 277, Fed. Cas. No. 10,371. An attorney B. R. 150, Fed. Cas. No. 4,058. While it for the trustee in a successful action is may be the rule in some courts of bank- not entitled to retain his compensation ruptcy to allow the trustee's attorney 15 from the amount recovered, but he must per cent, of the sum recovered in suits pay the entire recovery into the court involving considerable but not very great of bankruptcy and submit to the court sums, this does not apply where the his claim for compensation. In re Stem- amount of the recovery Is very great, 691 POWERS AND DUTIES OF TEUSTEH § 310 § 310. Deposit and Disbursement of Funds.-^The statutory provi- sion with reference to the safe-keeping of the funds of estates in bank- ruptcy is as follows: "Courts of bankruptcy shall designate, by order, banking institutions as depositories for the money of bankrupt estates, as convenient as may be to the residences of trustees, and shall require bonds to the United States, subject to their approval, to be given by such banking institutions, and may from time to time as occasion may re- quire, by like order, increase the number of depositories or the amount of any bond or change such depositories." ^^* It is further provided that the bonds of the designated depositories shall be filed of record in the office of the clerk of the court, and may be sued on in the name of the United States for the use of any person injured by a breach of their con- ditions.^'''' It is further made the duty of trustees in bankruptcy to "de- posit all money received by them in one of the designated deposito- ries." '"^ This duty of the trustee is absolute and imperative. His com- pliance with the directions of the statute cannot be waived even by the consent of all. the creditors and other parties in interest.^^'' And though he may himself have claims against the estate, as, for disbursements in since the work done is the real thing to be paid for, and the amount recovered is only to be considered as showing the responsibility involved and the success accomplished. In re J. M. Fiske & Co. (D. C.) 209 Fed. 982, 31 Am. Bankr. Rep. 736. 15 4 Bankruptcy Act 1898, § 61. .On this provision, it may be remarked, in the first place, that although the deposi- tory is to be a "banking institution," It need not be a national bank, but may be a trust company authorized to do a bank- ing business, or a state bank, or even a private banker. In the next place, they are to be designated by "order." But this does not mean a separate order in each case in bankruptcy, designating a deposi- tory for the funds of that particular es- tate. The court may, by an order made with reference to all future proceedings in bankruptcy before it, designate one or more banks within its district as the au- thorized depositories for the money of es- tates In bankruptcy. If they are found to be Insufficient in number, with refer- ence to the volume of bankruptcy busi- ness in the court or the magnitude of the estates involved, authority is given to "increase" the number. If those or- iginally designated prove to be inconven- ient or unsatisfactory for any reason, the court has power to "change such deposi- tories." They are required to be as con- venient as may be to the residences of trustees, and this requirement will prob- ably be- answered by designating one or more depositories in each city or princi- pal town within the district. Probably the court might in each separate case, either on its own motion or on the ap- plication of the trustee for instructions, indicate which of the designated deposi- tories is to be used by him for the de- posit of funds. But if this is not done, it is the duty of the trustee to inform himself, by reference to the records of the court and the order of designation, as to the bank or banks in which it will be lawful for him to make his deposits. 15 5 Bankruptcy Act 1898, § BOh. See Illinois Surety Co. v. United States, 226 Fed. 665, 141 C. 0. A. 421, 36 Am. Bankr. Rep. 82. 15 8 Banki-uptcy Act 1898, § 47a. Where the bonds of the authorized de- positories did not extend to savings ac- counts on which interest was paid, it was held that the trustee could not de- posit funds of a bankrupt estate as a savings account. In re Dayton Coal & Iron Co. (D. C.) 239 Fed. 737, 38 Am. Bankr. Rep. 657. 15 7 In re Michel, 6 Fed. 706. . § 310 LAW OF BANKRUPTCY 692 cash, he cannot simply retain the amount out of funds coming into his hands, but must first deposit such funds as required."* Besides exposing himself to animadversion and possible removal from office, a trustee who omits altogether to deposit the money of the estate may be charged with interest on it, at least if the proper depository would have paid inter- est.*** As to the manner of making the deposit, the statute makes no ex- plicit provision, but it was probably the intention of the legislators that the funds of each estate in bankruptcy should be separately deposited to the credit of the trustee as such, designating the estate.^®* At any rate this is much the best practice, especially as it is the means of avoid- ing the complications which arose under the act of 1867, where the funds of all estates in bankruptcy were deposited to the credit of the court and drawn out on the court's check, and it was held that the depository was not bound to keep a separate account for each estate, but checks might be paid out of any funds then to the credit of the court, and if the clerk of the court neglected to deposit all moneys coming into his hands, the debts and dividends of one estate might be paid out of the funds of an- other."! Further, a trustee in bankruptcy is undoubtedly subJ£Ct to the gener- al rule "applicable to all other classes of trustees, viz., that if a trustee, on receiving money of the trust estate, deposits it in a bank in his own name and to his. own credit, thus mingling it with his own funds and making the bank simply his individual debtor for the amount, anji the bank subsequently fails, the resulting loss will fall upon the trustee per- sonally.*^^ And this rule applies even though the bank selected by the trustee was the very one in which he was ordered or required to make the deposit, if he failed to keep the fund separate and apart from his own money. **^ And though the trust fund may not be lost or impaired by being deposited to the trustee's own credit, still he may be chargeable IBS In re Kyle, 181 Fed. 617. Ann. 605 ; Mason v. Whitthome, 2 Cold. 15 9 In re Newcomb, 32 Fed. 826; In (Tenn.) 252; Bobinson v. Ward, 2 Car. re Burt, 27 Fed. 548; In re Thorp, 2 & P. 59; Williams v. WilUams, 55 Wis. Ware, 294, Fed. Cas. No. 14,002. 300, 12 N. W. 465, 13 N. W. 274, 42 Am. 160 In re Carr, 117 Fed. 572, 9 Am. Rep. 708;" Shaw v. Bauman, 34 Ohio St. Bankr. Bep. 58; Utica Ins. Co. v. Lynch, 25; Whitehead v. Whitehead, 85 A'a. 870, 11 Paige (-N. T.) 520. 9 S. B. 10; Matter of Stafford, 11 Barb. 161 See State Nat. Bank v. Dodge, 124 (N. Y.) 353; School Dist. v. FiTst Nat. ri. S. 3."3, 8 Sup. Ot. 521, 31 L. Ed. 458; Bank, 102 Mass. 174; Coffin v. Bramlitt, State Nat. Bank v. Beilly, 124 111. 464, 42 Miss. 194, 97 Am. Dec. 449 ; Bracken- 14 N. E. 657. ridge v. Holland, 2 Blackf. (Ind.) 377, 20 162 Salway v. Salway, 2 Buss. & M. Am. Dec. 123. And see In re Barnett 215 ; Fletcher v. Walker, 3 Madd. Oh. 73 ; (D. C.) 214 Fed. 263, 32 Am. Bankr. B«p. .Tenklns v. Walter, 8 Gill. & J. (Md.) 218, 585. 29 Am. Dec. 539; Comm. v. McAlister, 28 i63 Gory a v. Cqrya, 119 Ind. 593, 22 Pa. St. 480 ; Naltner v. Dolan, 108 Ind. N. E. 3. 500, 8 N. .B. 289 ; Norris v. Hero, 22 Ija. 693 POWERS AND DUTIES OF TRUSTHH § 310 with interest upon it if it appears that he has made any private gain from the course pursued.^** Concerning the disbursement of the funds of estates, the rules made by the Supreme Court provide that "no moneys deposited as required by the act shall be drawn from the depository unless by check or warrant, signed by the clerk of the cotirt, or by a trustee, and countersigned by the judge of the court, or by a referee designated for that purpose, or by the clerk or his assistant under an order made by the judge, stating the date, the sum, and the account for which it is drawn." ^^^ This also is imperative, and the disbursement of money in any other manner is ir- regular, and may subject both the trustee and the depository to liabili- ty on their bonds as well as to attachment for contempt of court.^"" Even the court itself cannot violate this rule, and it has been held error for a court of bankruptcy to withdraw the proceeds of a sale of a bank- rupt's property from the designated depository and have the money de- posited in another bank, though it was done for the purpose of securing interest on the fund while it was tied up by litigation."' For similar reasons, no state court can require a depository to pay a judgment against a trustee in bankruptcy out of the funds deposited by him.-*^®* But if there is apprehension that the money may be lost -through the in- solvency of the depository, the court may hear the suggestions of parties in interest with reference to removing it, or may do the same ex officio and without application.^®* But where an officer of a court of bank- ruptcy deposits money in a designated depository, the same relation of debtor and creditor is created as in the case of an ordinary bank depos- it, so that the court no longer has the same jurisdiction over the money as it has over funds in the hands of a receiver or trustee, and hence it cannot summarily order the payment of money out of the depository after the institution has passed into the hands of the superintendent of banks for liquidation.^"* In regard to the duty of the referee in coun- 164 Hinckley v. Railroad Co., 100 U. Fed. 619, 87 C. C. A. 521, 20 Am. Bankr. S. 153, 25 L. Ed. 591 ; Livermore v. Wort- flep. 349. man, 25 Hun (N. Y.) 341. "s Havens v. National City Bank, 4 165 General Order No. 29. Hun (N. Y.) 131, 13 N. B. R. 95. 166 In re Cobb, 112 Fed. 655, 7 Ain. i69 Ex parte Shipley, 4 Md. 493. Bankr. Rep. 202. See Louisville Woolen I'o in re Bologh, 185 Fed. 825, 25 Am. Mills V. Tapp, 239 Fed. 463, 152 C. C. A. Bankr. Rep. 726. Possibly the deposi- 341, 38 Am. Bankr. Rep. 529. It Is ir- tory may be regarded as an officer of the regular, but perhaps permissible in some court, and so liable for misconduct in cases, for the trustee to agree with a misappropriating the funds, as in case creditor that securities held by the cred- of contempt, butthis cannot be true of itor shall be retained by him and ap- each of the employes or servants of the plied as a general payment upon his bank. See Southern Development Co. v. claim. In re American Paper Co. (D. C.) Houston & T. C. Ry. Co., 27 Fed. 344; 255 Fed. 121, 42 Am. Bankr. Rep. 716. In re Western Marine & Fire Ins. Co., 16 7 Huttig Mfg. Co. v. Edwards, 160 38 111. 289. § 311 LAW OF BANKKUPTCT 694 tersigning checks, it is to be observed that this is a judicial function and not a mere ministerial duty, and the referee will be justified in refusing his signature if he has cause to believe that the amount of the check is too great, or that the proposed payment is fraudulent or for an invalid claim. In such circumstances, he should withhold his signature until he has investigated the matter, and he will not be constrained by man- damus.^''^ § 311. Responsibility for N.egligence or Misconduct. — It is a crim- inal offense if a trustee in bankruptcy shall knowingly and fraudulently appropriate to his own use, embezzle, spend, or unlawfully transfer any property, or secrete or destroy any document, belonging to the estate in bankruptcy and coming into his charge as trustee.*'* Be- sides this, he is personally responsible, in an action on his bond, for property converted to his own use,"^ and possibly for the embezzlement or misappropriation of funds by his agents or employes.*'* It is the paramount duty of a trustee in bankruptcy to conserve and advance the iiiterests of the estate, and if he fails to keep himself clear of al- liances which tempt to make the estate's interest subordinate to his own, he must account, not only for losses suffered, but for gains made by him; and hence, when a trustee, through the medium of his wife as a dummy, entered into partnership with a sa;lesman and made prof- its in dealing with the trust estate, he must account therefor."^ If the trustee knowingly appropriates to the benefit of the estate prop- erty which he knows is not the property of the bankrupt, but of a third person, and mingles it or its proceeds with the proceeds of the bank- rupt's property, so that they cannot be distinguished, he must pay the claimant the value of such property out of the proceeds of the estate in bankruptcy.*'" And where a trustee in bankruptcy refused to surrender property, which had been in the possession of the bankrupt, to a claim- ant who was its rightful owner, it was held that both the trustee ana the estate were liable for such of the property as subsequently disap- 171 In re Clark, 9 N. B. R. 67, Fed. were such that It was proper and neces- Cas. No. 2,810 ; People v. Wood, 35 Barb, sary for the receiver to act by an attor- (N. T.) 653. ney, and the attorney employed was one 172 Bankruptcy Act 1898, § 29a. ^^ sood standing at the time, and there TTT ii . on TT /XT ^^^ '^'^ Bvldence of any negligence on 178 Gnswold V. Watkms, 20 Hun (N. ^^^ ^^^^ ^^ ^^^ ^^^^.^^^ j« ^^^ ^^^^ ^■) ■^^^- that he should not be held accountable 17 4 See In re Union Bank, 37 N. J. for the money so lost. Eq. 420, where it appeared that money i76 in re Webster Loose Leaf Filing of a trust estate was collected and mis- Co. (D. C.) 252 Fed. 959, 42 Am. Bankr.. appropriated by an attorney at law who Rep. 125. was employed by the receiver in the busi- ire Bramble v. Brett, 230 Fed. 385, 144 ness of the trust, and the circumstances C. C. A. 527, 36 Am. Bankr. Rep. 526. 695 POWERS AND DUTIES OF TEUSTEB § 311 peared, whether or not this happened through any negligence of the trustee."' In regard to the performance of such duties of his ofSce as are mere- ly ministerial in character, and do not involve the exercise of discretion, he is liable in damages to any person injured by his neglect or omission of them.^'* And as to those duties which require the exercise of judg- ment and prudence, it is a general rule of law that a trustee is not ac- countable for an honest mistake, but where his duty is so plain that no man of ordinary intelligence could mistake it, he is responsible if he has that intelligence, and cannot shield himself from responsibility by doubts which he takes no measures either to verify or to dispel.^'* It has been held as to various classes of trustees (and no doubt the rule .is applicable to trustees in bankruptcy) that such a fiduciary is bound to exercise such a degree of care and diligence in the adminis-' tration of his trust as would be expected from a provident owner in regard to his own affairs, and is liable for a Ipss occasioned by ordinary negligence, but not for acts or omissions which would not be deemed culpable in the management of his own concerns.^** T^hus, executors, guardians, and other classes of. trustees are not generally, held re- sponsible for loss occasioned to the estate, provided they have exer- cised such a measure of care and prudence, when valuable animals die, or when property is destroyed or lost by unavoidable accident or casu- alty, or by theft or burglary.^*^ The failure of a trustee to efifect in- surance on property of the estate may be negligence such as to render him liable for the loss, but the burden of proving negligence is on those who seek to charge him with it.^*^ As to intangible assets, it is the duty of the trustee to use all necessary means, by action or otherwise, to realize the debts due to the estate, and if a. debt is lost by his neg- lect of this duty, when the debtor had property sufficient to pay, he is personally responsible for the loss, although he may have acted without any improper motive.^*^ The rule is the sa,me where he al- 17 7 In re Reeves (D. 0.) 227 Fed. 711, Trusts, § 502. See Crosse v. Smith, 7 36 Am. Bankr. Rep. 130. East, 246, 258. 178 Russell V. Phelps, 42 Mich. 377, 4 iss Estate of Johnson, 11 Phila. (Pa.) N. W. ]. 83. See Croft's Ex'rs v. Lyndsey, 17 9 Gilbert v. Sutliff, 3 Ohio St. 129. Freem. Ch. 1. In the latter case (de- 180 Litchfield v. White, 7 N. T. 438, 57 cided A. D. 1676) an administrator was Am. iDec. 534 ; Burr v. McEwen, Baldw. relieved from responsibility for the loss 154, Fed. Cas. No. 2,193. of property of the estate, consisting of 181 Stevens v. Gage, 55 N. H. 175, 20 certain houses, which were destroyed by Am Rep. 191 ; State v. Meagher, 44 Mo. the great fire in London. The question 356, 100 Am. Dec. 298 ; Seawell v. Green- of his duty to insure them did not come way,' 22 Tex. 691, 75 Am. Dec. 794; Car- up, the system of fire insurance not being penter v. Carpenter, 12 R. I. 544, 34 Am. very well established at that day. Rep. 716; 1 Perry, Trusts, § 441; 2 Beach, i83Royairs Adm'r v. McKenzie, 25 § 312 LAW OF BANKRUPTCY 696 lows money in which the bankrupt has an interest to be paid out and dissipated by a bank and certain joint owners without objection, when he could have prevented it.^** At the same time it must be remembered that the trustee is not allowed willfully or recklessly to incur costs and expenses in litigation, when the exercise of ordinary prudence and foresight would have taught him that litigation was unnecessary or would fail, and if he does, he is personally chargeable with such costs, and cannot cast them upon the estate.^*^ But the estate of the bank- rupt is not liable to third persons injured by the torts, negligence, or misconduct of the trustee.^** § 312. Joint Trustees. — It is a general rule that, "in the adminis- tration of a trust, where there is more than one trustee, all must con- cur, but the entire body can direct one of their number to transact business which it may be inconvenient for the others to perform, and the acts of the one thus authorized are the acts of all and binding on all. The trustee thus acting is to be considered the agent of all the trustees, and not as an individual trustee." ^*' But where several trustees leave the entire performance of the trust to one co-trustee, they are all equally responsible for his performance of the duties which they have thus delegated to him."* And a majority of the trustees cannot, by any rule or resolution which they may adopt, exclude one of their number and so divest him of his rights as to make his subsequent act of obtaining possession of the trust property a tort."* Under former bankruptcy acts it was held that where two of the three trustees of a bankrupt en- ter into an agreement, in the absence of the third, the contract is not binding upon the absent trustee, unless he had previously given au- thority to make it, or unless he subsequently recognizes and acknowl- edges it."' But this rule appears to be changed by the provision of the present statute that, when three trustees have been appointed, the concurrence of at least two of them shall be necessary to the validity of their every act concerning the administration of the estate.-"^ § 313. Accounts and Reports of Trustee. — Trustees in bankruptcy are required by law to "keep regular accounts showing all amounts Ala. 363. And see In re Kuhn Bros., 234 ist Insurance Co. v. Chase, 5 Wall. Fed. 277, 148 C. O. A. 179. 509, 18 L. Ed. 524. 184 In re Kane, 161 Fed. 633, 20 Am. iss Maccubbin v. Cromwell, 7 Gill & J. Bankr. Rep. 616. (Md.) 157. 186 Kingsbury v. Powers, 131 III. 182, iso Trustees of First Society v. Stew- 22 N. E. 479; In re Preston, 6 N. B. R. ^rt, 27 Barb. (N. Y.) 553. 454 Fed. Cas. No. 11,394; In re Brink- ^,. , man,6N.B.R.541,F;d.Cas,N0.1,883. 'r ^''^''l''-f}:''^' ^^t" °- ^- ^' 186 Adams V. Meyers, 1 Sawy. 306, 8 ^^^- C^s. No. 1,541. N. B. R. 214, Fed. Cas. No. 62; King v. i»i Bankruptcy Act 1898, § 47b. Deitz, 12 Pa. St. 156. 697 POWERS AND DUTIES OF TEUSTBH § 313 received and from what sources, and all amounts expended and on what accounts," to "teport to the courts in wi"iting the condition of the es- tates and the amounts of money on hand, and such other details as may be required by the courts, within the first month after their ap- pointment and every two months thereafter, unless otherwise ordered by the courts," to "make final reports and file final accounts with the courts fifteen days before the days fixed for the final meetings of the cred- itors," and to lay before such final meetings "detailed statements of the administration of the estate." "" Creditors must also have notice of the filing of the final accounts of the trustee and the time when and the place where they will be examined and passed upon.^** Trustees (be- ing included in the general term "officers," as used in the act) are also required to report statistics of bankruptcy proceedings to the Attorney General within ten days after being requested to do so."* It is also provided that "the accounts and papers of trustees shall be open to the inspection of officers and all parties in interest," ^*' and if a trustee refuses to permit a reasonable opportunity for the inspection of the accounts, papers, and records relating to the estate, when directed by the court so to do, it is a punishable offense, and he forfeits his office on conviction. "^"^ And generally, failure of the trustee to inform creditors of their rights and of the condition of the estate, when the suppression of facts is in the interest of one class of creditors, is good cause for the removal of the trustee."' Among those who are entitled to demand proper and necessary information from the trustee are the referee,"* the bankrupt,"* and any creditor of the bankrupt, even though the latter has not formally proved his claim,^** or though he has instituted proceedings against the trustee for the reclamation of specific property. ^"^ In case of the bankruptcy of a partnership, the trustee is required to keep separate accounts of the partnership property and of the property belonging to the individual partners.*** But except for this, no particu- lar form or manner of keeping the trustee's accounts is prescribed, and probably any system would be sufficient which clearly showed the re- ceipts and disbursements and from which the condition of the estate could be easily ascertained.*"* But upon the final settlement, a clear 192 Bankruptcy Act 1898, § 47a. i^o In re Blaisdell, 5 Ben. 420, 6 N. 193 Idem, § 58a, cl. 6. B. E. 78, Fed. Cas. No. 1,488. 194 Idem, § 54. 200 in re Samuels, 174 Fed. 911, 23 Am. 195 Idem, § 49. Bankr. Eep. 528. ir/Ex"palte'perkL, 5 Biss. 254, 8 ^^"^V" ',".T' '"' ^'^^ '"'' '° ^"'• N. B. E. 56, Fed. Cas. No. 10,982. Bankr. Kep. 353. 198 In re Clark, 6 N. B. E. 194, Fed. 202 Bankruptcy Act 1898, § 5d. Cas. No. 2,807. ^"^ See Solomons v. Kursheedt, 3 Dam- § 313 ' LAW OF BANKRUPTCY 698 balance sheet should be presented, and proper vouchers should be filed, and the balance shown by such sheet must correspond with that shown by the statement of the designated depository.*** In the accounts of trustees generally, inaccuracies arising from inadvertence, oversight, miscalculation, or palpable mistake, may be corrected in proper cases when returned into court.**" But "any omissions or inaccuracies in the accounts of a trustee, inimical to the interest of his cestui que trust, give rise to presumptions against him which are decisive unless over- come by collateral proofs affirmatively establishing his perfect fairness and equity in the premises." *** If the trustee fails to file any account or report at the time when he is required by law to do so, it is cause for his removal from office.**' And it is always within the power of the court, on the application of a party in interest or on its own motion, to make an order requiring the trustee to file an account, report, or statement which is due from him,*** which order may be made by the referee,^** and to compel his obedience by commitment as for contempt.*^* The final account of the trustee, as above stated, is to be submitted to the final meeting of the creditors, and it is usually exhibited and read to them, though they may dispense with this by vote, where the account has been on file long enough for all to inform themselves of its terms.*^*^ But it is the referee, and not the creditors, who must pass upon the ac- counts of the trustee; and it is the duty of the referee to examine and •pass upon every item of the account, without regard to whether or not objections to particular items are raised by the creditors.*^* And any person who desires to object to the decision of the referee in allowing or disallowing a particular item, whether it be the trustee himself or a creditor, should promptly file exceptions to the account as passed, and bring the matter before the judge by petition for review of the referee's rulings.*^* But the exceptant must move promptly, or he will be arest (N. Y.) 307; Hutchinson's Appeal, 211 In re Merchants' Ins. Co., 6 Biss. 34 Conn. 300. 252, Fed. Cas. No. 9,442. 204 In re Carr, 116 Fed. 556, 8 Am. 212 in re Baginsky, 1 Nat. Bankr. Bankr. Eep. 635. News, 360; In re Sawyer, 2 Low. 551, 200 Coffin V. Bramlitt, 42 Miss. 194, 97 16 N. B. R. 460, Fed. Cas. No. 12,396. Am. Dec. 449. The district judge has jurisdiction to in- 200 Hottel V. Mason, 16 Colo. 43, 26 vestigate the condition of the trustee's Pac. 335; Landis v. Scott, 32 Pa. St. account on petition of a creditor, to as- 495. certain what dividends, if any, are due 20 7 General Order No. 17. and payable. In re Sand, Fed. Cas. No. 208 Adams v. Woods, 8 Cal. 306; Mab- 12,302. ry V. Harrison, 44 Tex. 286. 213 in re Reliance Storage & Ware- 200 In re Bellamy, 1 Ben. 390, 1 N. B. house Co., 100 Fed. 619, 4 Am. Bankr. R. 64, Fed. Caa. No. 1,266. Rep. 49; In re Clark, 9 N., B. R. 67, 2ioo'Conor v. Sunseri (C. 0. A.) 184 Fed. Cas. No. 2,810. See In re Byerly, Fed. 712, 2(i Am, Bankr. Rep. 1. 128 Fed. 637, 12 Am. Bankr. Rep. 186. 699 POWERS AND DUTIES OF TEUSTEB § Sl5 deemed to have acquiesced.^" The decision of the judge on such ex- ceptions is also subject to review by the appellate court, but proceed- ings for its review must be taken in due season, and if not, the order of the court will become final and cannot be set aside or modified on mo- tion.»i5 § 314. Discharge of Trustee. — When the estate has been fully ad- ministered and is ready to be closed, and the final account of fhe trustee has been filed, examined, and allowed, he will thereupon be discharged by a written order, which may be made by the referee.*^* But as all orders of the referee are expressly made subject to review by the judge, the latter has power to vacate an order for the discharge of the trus- tee.*" Objections to the allowance of the account and the discharge of the trustee may undoubtedly be filed by any creditor who alleges fraud or embezzlenient on the part of the trustee or any such mismanagement of the estate as would render him liable to be surcharged with losses or wasting of assets.*^* The court may set aside a discharge of the trustee which has inadvertently found its way into the files of the court, and may order him to proceed.*** But after receiving his discharge, and unless it is vacated, the trustee has no power to convey property which came into his hands as assets of the estate, and the mere fact that his •conveyance recites that, it is executed to correct a former deed gives it no additional effect.**" But it seems that an order made by the ref- eree authorizing a discharged trustee to sell subsequently acquired assets is equivalent to opening the discharge or reappointing the trus- tee.**i § 315. Closing and Reopening Estate. — The court of bankruptcy hag jurisdiction to "close estates, whenever it appears that they have been fully administered, by approving the jfinal accounts and discharg- ing the trustees, and reopen them whenever it appears they were closed before being fully administered." *'* The referee to whom the case was « The referee has no authority to sur- 210 Maybin v. Raymonii, 15 N. B. R. charge the account of a trustee, unless 353, Fed. Cas. No. 9,338. exceptions thereto filed by parties In in- 22" Richards v. Northwestern Coal & terest are sustained. In re Kenny (D. Mining Co., 221 Mo. 149, 119 S. W. 953. d.) 269 Fed. 54, 46 Am. Bankr. Rep: 214. 221 Geisreiter v. Sevier, .33 Ark. 522. '214 In re Sch'err, 138 Fed. 695, 14 Am. 222 Bankruptcy Act 1898, § 2, clause 8. Bankr Rep. 794. ^^ *" ^^^ proceedings on closing an es- 215 in re Hoyt & Mitchell, 127 Fed. tate, see In re De Ran, 260 Fed. 732, 171 968, 11 Am. Bankr. Rep. 784. C. O. A. 470, 44 Am. Bankr. Rep. 409; 216 Official Form No. 51. In re Levy (D. C.) 261 Fed. 432, 44 Am. 217 Brown v. Persons, 122 Fed. 212, Bankr. Rep. 248. The estate of a bank- 58 C. C. A. 658, 10 Am. Bankr. Rep. 416. rupt is never technically closed, and a 218 In re Peabody, 16 N. B. R. 243, discharge of the trustee Is of no effect, Fed. Cas. No. 10,866. where there has been no final meeting of § 315 LAW OF BANKEUPTCT 700 originally referred has jurisdiction of a petition to reopen it and may make the necessary order. *^* And where a bankrupt has concealed prop- erty which he should have surrendered, the title thereto does not revest in him upon his discharge in such sense as to deprive the court of juris- diction upon the reopening of the estate.*** A petition fo reopen can be filed only by one who has an interest and will be benefited thereby.**** And this does not include a creditor who had not proved his claim within the time allowed,*** but may include the original trustee in bank- ruptcy,**'' and the bankrupt himself in a voluntary case.*** As the stat- ute provides no limitation of time within which closed estates may be reopened, the application must be made -syithin a reasonable time, and the doctrine of laches applies if there has been unreasonable delay.*** The granting of such an application rests very much in the discretion of the court, and its decision will not be reversed unless an abuse of discretion is shown.**" Generally the application is made on the gi'ound of the discovery of unadministered assets and if the sum is considera- ble, it will be proper to reopen the case,*** but not if the assets in ques- tion are so inconsiderable as not to justify the trouble and expense.*** It appears that the .estate may properly be reopened on the petition of a purchaser of real estate from the trustee, where it appears that the creditors and settlement of the trustee's accounts. Levy v. Schorr (C. C. A.) 266 Fed. 207, 45 Am. Bankr. Eep. 324. As to reopening an estate, it is said that the proceedings for that purpose need not be formal, and a petition is sutBcient to support an order for the reopening of the estate if it contains sufficient in- formation to satisfy the court of the ju- risdictional fact that the estate was closed before being fully administered; In re Carlucci Stone Co. (D. C.) 269 Fed. 795, 46 Am. Bankr. Rep. 272. 22 3Bilafsky v. Abraham, 183 Mass. 401, 67 N. E. 318. 2 24 Fowler v. Jenks, 90 Minn. 74, 95 N. W. 887, 96 N. W. 914. 226 In re Meyer, 181 Fed. 904, 25 Am. Bankr. Rep. 44; In re Graff, 250 Fed. 997, 163 C. C. A. 247, 41 Am. Bankr. Eep. 32. 2 20 In re Paine, 127 Fed. 246, 11 Am. Bankr. Rep. 351. 227 In re P.aine, 127 Fed. 246, 11 Am. Bankr. Rep. 351. 22 8 In re Shaffer, 104 Fed. 982, 4 Am. Bankr. Rep. 728 ; In re Graff, 255 Fed. 241, 166 C. C. A. 421, 42 Am. Bankr, Rep. 741. The court has .inrisdictlon to grant an application by the bankrupt to reopen the proceedings as to property not pass- ing through the bankruptcy court, in or- der to remove any question as to title. In re Graff (D. C.) 242 Fed. 577, 40 Am. Bankr. Rep. 205. 229 Traub v. Marshall Field & Co., 182 Fed. 622, 25 Am. Bankr. Rep. 410; In re Paine, 127 Fed. 246, 11 Am. Bankr. Rep. 351; Clark v. Pidcock, 129 Fed. 745, 64 C. C. A. 273, 12 Am. Bankr. Rep. 309; Duncan v. Watson, 198 Ala. 180, 73 South. 448. 230 In re Paine, 127 Fed. 246, 11 Am. Bankr. Rep. 351; In re Goldman, 129 Fed. 212, 63 C. C. A. 370, 11 Am. Bankr. Rep. 707; In re Graff, 250 Fed. 997, 163 0. C. A. 247, 41 Am. Bankr. Rep. 32. 231 In re Barton's Estate, 144 Fed. 540, 16 Am. Bankr. Rep. 569; In reXevy (D. C.) 259 Fed. 316, 43 Am. Bankr. Rep. 590. It is proper to reopen the estate on proof that a sale of the bankrupt's assets was effected for a grossly inade- quate price because of the concealment of assets and the suppression of material facts. In re Leigh (C. C. A.) 272 Fed. 678, 47 Am. Bankr. Rep. 72. 2 32 In re O'Connell, 137 Fed. 838, 70 "^Ol POWERS AND DUTIES OP TRUSTEE § 315 sale was not legally perfected.*^* And it has been held that the pro- ceeding might be reopened to allow the bankrupt to amend his schedules so as to include a debt which, through misapprehension, was listed in the name of the wrong party .^** As the reopening of a closed bankruptcy estate is, in general, only for the purposes of distribution, it in no way affects the bankrupt and notice to him of the application is not neces- sary, and if a restraining order is made in connection with the order for opening the estate, the bankrupt cannot have it vacated merely because it was made without notice to him.^*^ When the case is reopened, this does not have the- effect of re-instat- ing the trustee in his office, pr of revoking his discharge. On the con- trary, the first step to be taken is to call a meeting of the creditors, and they are tlien to elect a new trustee.^*® As this is a case of "vacancy" in the office of trustee, it is not proper for the referee to make an appoint- ment to that office until after the creditors have had an opportunity to elect and have either neglected to do so or failed to reach an agree- ment. But if the referee proceeds at once to appoint a trustee, the title of the latter will not be considered invalid in any collateral proceed- ing.**' Since the statute expressly limits the time for proving claims to one year after the adjudication, the question has been raised whether the reopening of the estate lifts the bar of the statute or not. In one instance, where no creditors took the trouble to prove their claims be- cause the bankrupt scheduled no assets, and he was discharged and the estate closed, but afterwards property was discovered and the estate re- opened, it was held that the court might permit the filing of claims for a year from the date of the order for reopening the case, although the year after the adjudication had expired. ^^* It should also be observed C. C. A. 336, 14 Am. Bankr. Rep. 237; Paine (D. C.) 127 Fed. 246, 11 Am. Bankr. In re Newton, 107 Fed. 429, 46 C. C. A. ReiD. 351; In re Minners (D. C.) 253 Fed. 399, 6 Am. Bankr. Rep. 52. ' 300, 41 Am. Bankr. Rep. 773; In re 233 In re Minners (D. C.) 253 Fed. 300, Rocliester Sanitarium & Baths Co., 222 41 Am. Bankr. Rep. 773. Fed. 22, 137 C. 0. A. 560, 34 Am. Bankr. 23 See In re Sage (D. C.) 224 Fed. 525, profits out of which a dividend might be 35 Am. Bankr. Rep. 436 ; Ledgerwood v. 717 PROPERTY VESTING IN TRUSTEE § 319 property which has inherent value, or value in use or consumption, but which is contraband or cannot legally be sold, the case is doubtful. It was formerly thought that where the bankrupt was a licensed dealer in intoxicating liquors, his stock in trade would be assets in the hands of his trustee in bankruptcy, notwithstanding the doubt as to the legality of any sale of it by the latter.*^ But since the adoption of the Eight- eenth Amendment to the federal Constitution it. would appear that a stock of liquors in the hands of a bankrupt would not be assets of his estate, since it could neither be legally transferred by him nor levied upon and sold under judicial process. § 319. Situation of Property. — ^AU property of the bankrupt sit- uated anywhere within the United States passes to and vests in his trustee in bankruptcy, without regard to the territorial limits of the ju- risdiction of the court which made the adjudication of bankruptcy. That is, it is entirely immaterial that parts of the property, whether real or personal, may be situated without the district or in another state; it all comes within the trustee's title and right of possession, and within the exclusive control of the bankruptcy court in which the proceedings are had.** But a decree in bankruptcy would not be sufficient in itself to invest the trustee with title to real property of the bankrupt situated in a foreign country,** the reason being that, as a bankruptcy law can have no exterritorial operation, it cannot affect land situated beyond the boundaries of the United States, which is governed only by the law of its situs. But this contingency has been provided for by the present statute, which enacts that it shall be the duty of the bankrupt to "execute to his trustee transfers of all his property in foreign countries." ** While this language is broad enough to include assignments of personal prop- erty or choses in action, it is doubtful whether they would be necessary. It seems that intangible personal property of a bankrupt, such that its situs must be taken to be that of the owner's domicile, will vest in his trustee in bankruptcy, though the obligation which it secures, or the value which it represents, is performable or payable only in a foreign DashieU (Tex. Oiv. App.) 177 S. W. 1010; ford, 22 Grat. (Va.) 195; Knauth, Na- In re Deutsche Bros. (D. C.) 220 Fed. chod & Kuhne v. Latham & Co., 219 Fed. 532, 33 Am. Bankr. Rep. 858 721, 135 C. 0. A. 419, 33 Am. Bankr. 81 See Strub v. Gamble, 221 Fed. 253, Kep. 631; Koger v. Clark (Tex. Civ. 137 C. C. A. 258, 34 Am. Bankr. Rep. App.) 216 S. W. 434. 229. ^' Oakey v. Bennett, 11 How. 33, IB 82 In re Granite City Bank, 137 Fed. L. Ed. 593; Chalson v. McFaddin (Tex. 818, 70 C. C. A. 316, 14 Am. Bankr. Rep. Civ. App.) 132 , S. W. 524; In re Dele- 404 ; In re Wilka, 131 Fed. 1004, 12 Am. hanty's Estate, 11 Ariz. 366, 95 Pac. 109, Bankr. Rep. 727; Ward v. Hargett, 151 21 Ann. Cas. 1038. N. C. 365, 66 S. E. 340 ; Cannon v. Well- «* Bankruptcy Act 1898, § 7, clause 5. § 320 LAW OF BANKRUPTCT 718 jurisdiction. In an English case we find a decision that bonds of a for- eign government vest in the executor of a decedent who held such bonds at the time of his death, the same being marketable securities in Eng- land,*" and the rule should certainly extend by analogy to trustees in bankruptcy. § 320. Burdensome Interests. — Though title to all the bankrupt's property descends' upon his trustee, the latter is not bound to accept or to administer any portion of it or any item of assets which he may decide to be worthless, or likely to cost more than it will yield, or to be more of a burden than a benefit to the estate. In the exercise of his judgment and discretion on this point, he may reject, abandon, or refuse to take charge and possession of, any such property, and so free himself from any duty or responsibility in regard to it.*" Thus, for instance, if he finds property of the bankrupt so heavily burdened with mortgages or other liens that he considers it impossible to realize anything out of the equity of redemption for the benefit of the general creditors, he may refuse to administer it and abandon it to the secured creditor, and it is in fact his duty to do so whenever it is certain that the general estate would derive no benefit from a sale of the property.*' So, he is not bound to accept any property which may involve him in litigation, when the probability is that the estate would be taxed with costs and expenses in excess of any sum eventually realized.** While the decision of such questions is for the trustee in the first instance, and he is bound to ex- ercise sound judgment as well as good faith, his determination is not irrevocably binding on the creditors. That is to say, if they believe his decision to reject or abandon property was unwise, and that the prop- 8 5 Attorney General v. Bouwens, 4 65 Md. 40, 3 Atl. 895; Grlswold v. Mees. & W. 171. See Devisme v. Mar- Morse, 59 N. H. 211 ; Berry v. Gillis, 17 tin, Wythe (Va.) 298. N. H. 9, 43 Am. Dec. 584; Briggs v. 8» Sparhawk v. Yerkes, 142 U. S. 1, Avary, 47 Tex. Civ. App. 488, 106 S. W. 12 Sup. Ct. 104, 35 L. Ed. 915; Amerl- 904; Fleming v. Courtenay, 98 Me. 401, can File Co. v. Garrett, 110 U. S. 288, 4 57 Atl. 592, 99 Am. St. Rep. 414 ; In re Sup. Ct. 90, 28 L. Ed. 149 ; Sessions v. Zehner, 193 Fed. 787, 27 Am. Bankr. Romadke, 145 U. S. 29, 12 Sup. Ct. 799, Rep. 536; McCarty v. Light, 155 App. 36 L. Ed. 609; In re Wisconsin Engine Div. 36, 139 N. Y. Supp. 853; Dow v. Co., 234 Fed. 281, 148 C. C. A. 183, 37 Bradley, 110 Me. 249, 85 Atl. 896. Am. Bankr. Rep. 106; In re Scruggs s^ in re Zehner, 193 Fed. 787, 27 Am. (D. C.) 205 Fed. 673, 31 Am. Bankr. Rep. Bankr. Rep. 536 ; In re Jersey Island 94; In re Berry (D. C.) 247 Fed. 700, 41 Packing Co., 138 Fed. 625, 71 C. C. A. Am; Bankr. Rep. 357 ; Taylor v. Irwin, 75, 2 L. R. A. (N. S.) 560, 14 Am. Bankr. 20 Fed. 615 ; Kimberling v. Hartly, 1 Rep. 689 ; In re Stewart, 193 Fed. 791, McOrary, 1,36. 1 Fed. 571; Amory v. 27 Am. Bankr. Rep. 529; In re North Lawrence, 3 Cliff. 523, F^d. Cas. No. 336 ; Star Ice & Coal Co. (D. C.) 252 Fed. 301, Copeland v. Stephens, 1 Barn. & Aid. 42 Am. Bankr. Rep. 76. 603 ; Smith v. Gordon, 6 Law Rep. 313, ss Oldmixon v. Severance, 119 App. Fed. Cas. No. 13,052; Glenn v. Howard, Div. 821, 104 N. Y. Supp. 1042. 719 PEOPEUTY VESTING IN TRUSTEE § 321 erty might be administered for the benefit of the estate, the court of bankruptcy is open to them, and they may there obtain a reversal of his decision and an order requiring him to take charge of the property and administer it.*" But if the trustee's decision to abandon the property is acquiesced in, or not overruled, the effect is to restore to the bankrupt the title and possession of the property and the right to deal with it as his own, and the trustee cannot thereafter interfere with it or claim any proceeds arising from the sale or other disposition of the property or any advantage accruing from it."* Thus, in a case where the bankrupt was carrying some policies of life insurance, the trustee decided that they were not of any value to the estate, and hence did not have them appraised or make any provision for paying the premiums, but aban- doned them to the bankrupt, with the approval of the court. But the beneficiaries in the policies or the bankrupt himself kept up the pre- miums, and the bankrupt died before the estate was closed. It was held that the trustee was not entitled to recover the proceeds of the policies from the insurance companies or from the beneficiaries.®^ So, when the trustee declines to take a debt or claim due to the bankrupt, it becomes the latter's right to sue upon it himself, and in this case it is immaterial whether or not the trustee's right to sue would be Barred, as that does not affect the bankrupt.'^ § 321. Same; Trustee's Election to Accept or Abandon Property. — The trustee canno^ be put to his election whether to accept or to reject property of the bankrupt unless he is aware of its existence and of the circumstances which should influence his decision. In other words, no one'else can deal with the property without first showing that the trus- tee abandoned it, and in order to establish this, it must be shown that the trustee had either actual knowledge of the property in question or suffi- cient means of obtaining full information.®* And if the trustee assumes control over the property with reasonable promptness, after learning of its existence, no previous inaction on >his part will count for anything sfo Sparhawk v. Terkes, 142 U. S. 1, Oo. (D. C.) 225 Fed. 893; Meslrov v. 12 Sup. Ct. 104, 35 L. Ed. 915 ; People's Inn's Speiden & Co., 88 N. J. Law, 548, Nat. Bank v. Maxson, 168 Iowa, 318, 150 97 Atl. 160 ; Smith v. Wahl, 88 N. J. N. W. 601. Law, 623, 97 Atl. 261. »o Fleming v. Courtenay, 98 Me. 401, »i Meyers v. Josephson, 124 Fed. 734, 57 Atl. 592, 99 Am. St. Rep. 414; Burton 59 C. C. A. 650, 10 Am. Bankr. Rep. 687. V. Perry, 146 111. 71, 34 N. E. 60 ; Amory 02 Buckingham v. Buckingham, 36 Y. Lawrence, 3 Cliff. 523, Fed. Cas. No. Ohio St. 68. 336; Kimberling v. Hartley, 1 McCrary, »3 Dushane r. Beall, 161 V. S. 513, 16 136, 1 Fed. 571; Smith v. Gordon, 6 Sup. Ct. 637, 40 L. Ed. 791; Atwood v. Law Rep. 313, Fed. Cas. No. 13,052; Ha- Bailey, 184 Mass. 133, 68 N. B. 13; ley V. Boston Belting Co., 140 Mass. 73, Buckingham v. Buckingham, 36 Ohio St. 2 N. E. 785 ; Shaffer v. Federal Cement 68. § 321 LAW OF BANKRUPTCY 720 or prejudice his rights in any way.** The rule that a bankrupt can as- sert title to any property which the trustee declines to take "can have no application when the trustee is ignorant of the existence of the J)rop- erty and has had no opportunity to make an election. It cannot be that a bankrupt, by omitting to schedule and withholding from his trustee all knowledge of certain property, can, after his estate in bankruptcy has been finally closed up, immediately thereafter assert title to the property on the ground that the trustee has never taken any action in respect to it. If the claim was of value, it was something to wlych the creditors were entitled, and this bankrupt could not, by withholding knowledge of its existence, obtain a release from his debts and still assert title to the property." ®^ Naturally the trustee is not required to come to an instant decision on learning of the property in question. He must be accorded a rea- sonable length of time in which to inform himself and arrive at a con- clusion.*® But on the other hand, he must' make his decision within a reasonable length of time, and cannot delay indefinitely. If he pursues a policy of mere neglect and inaction, and this continues for an unrea- sonable length of time, it will give rise to a presumption that he has abandoned the property, and will estop him to assert any interest in it, at least as against rights or liens subsequently acquired by third persons, such as a purchaser from the bankrupt, or a creditor who has independ- ently taken steps to subject the property to the payment of his debt.*' In particular, the courts will not permit the trustee to wait indefinitely in order to see whether an item of property, now apparently valueless, may eventually become sufficiently valuable to justify him in taking possession of it for the benefit of the estate.** 94 Hammond v. Whittredge, 204 U. S. owned memberships In the New' York 538, 27 Sup. Ct. 396, 51 L. Ed. 606 ; In and Philadelphia stock exchanges, but re Wiseman & Wallace, 159 Fed. 236, 20 at the time of his bankruptcy they were Am. Bankr. Kep. 293. of no value as property of his estate, 9 6 First Nat. Bank v. Lasater, 196 because he was indebted to other mem- U. S. 115, 25 Sup. Ot. 206, 49 L. Ed. 408, bers of the exchanges (whose debts were 13 Am. Bankr. Rep. 698. preferred under the rules of the ex- seBriggs y. Avary, 47 Tex. Civ. App. changes) to an amount largely in'ex- 488, 106 S. W. 904 ; Whittredge v. cess of the value of the seats. The trus- Sweetser, 189 Mass. 45, 75 N. B. 222. tees in bankruptcy were aware of all the 7 Sessions v. Romadka, 145 XJ. S. 29, facts, but they did nothing towards tak- 12 Sup. Ct. 799, 36 L. Ed. 609; Taylor v. ing charge of the property or adminis- Irwin, 20 Fed. 615 ; Rugely v. Robinson, tering it. They "contented themselves 19 Ala. 404; Smith v. Gordon* 6 Law with the hope that masterly inactivity Rep. 313, Fed. Cas. No. 13,052; Fleming might enable them to assert a claim if, v. Courtenay, 98 Me. 401, 57 Atl. 592, 99 by the efforts of the bankrupt, the load Am. St. Rep. 414. of debt which weighed down the right 8 Sparhawk v. Yerkes, 142 TJ. S. 1, 12 to the seats was lifted, and in the prog- Sup. Ct. 104, 35 L. Ed. 915. In this case ress of years the value of such seats th« bankrupt was a stockbroker and happened to increase, instead of dimin- 721 PROPERTY VESTING IN TRUSTEE § 322 The trustee's election not to take the property may be manifested formally, as where he gives a written waiver of his right, title, and in- "terest in the property, containing also permission to the bankrupt to deal with it as owner.** Or he may obtain an order of court directing him to pursue this course, or approving nvtnc pro tunc an abandonment of the property already made.^"" But this is not at all necessary, as re- gards third persons. For the abandonment of the property by the trus- tee may be conclusively presumed, not only from unreasonable delay in claiming it, as above stated, but also from any conduct on his part which is plainly inconsistent with an election to retain it or to administer it."' § 322. Property in Bankrupt's Possession. — All property of a bank- rupt in his actual possession at the time of the adjudication passes into the hands of the trustee immediately upon his appointment, except only such as is exempt by law."* And where a deficit is shown in the assets of the bankrupt's estate, he must account for it by a satisfactory explana- tion or pay the amount of the deficit to the trustee."^ And if he at- tempts to conceal or withhold any property which is in his possession or under his own control or the control of those who are holding it merely as his agents or bailees, he may be compelled, by order of the court of bankruptcy, to surrender it to his trustee, and punished for his failure to obey.*"* Further, "whatever money or property is in the possession of the bankrupt at the time of filing his petition, which he is actually us- ing and holding as his own, passes to his assignee [trustee] in bank- ruptcy, and he cannot set up in defense to the claim of the assignee a title in a third person m-erely for the purpose of holding on to it himself. If third persons have the possession, this court cannot, on summary pe- tition, order it to' be delivered to the assignee. But if the bankrupt has it, it passes to the assignee, subject to the liens or rights of third, per- sons, whatever they may be. After the assignee gets the property, any ish." The court said that "their con- Am. St. Eep. 414 ; Laing v. Fish, 119 111. duct can be viewed in no other light App. 645. than that of an election not to accept 102 In re Vogel, 7 Blatchf. 18, Fed. these rights as property of the estate." Cas. No. 16,982. And as this conduct continued for ten "a In re Peltasohn, 4 Dill, 107, Fed. years after the bankrupt's discharge, it Cas. No. 10,912; In re Goodman, 196 constituted "laches and acquiescence of Fed. 566, 27 Am. Bankr. Rep. 697. the most pronounced character." ^0* Supra, §§ 227-231. And see In re 98 Briggs v. Avary, 47 Tex. Civ. App. Kreuger, 197 Fed. 124, 28 Am. Bankr. 488 106 S W 904. -^^P- ^^^'' ^" ^^ K&rp, 196 Fed. 998, 28 ,„, „^ .,,,„ „ Am. Bankr. Rep. 559; In re Weber Co., 100 In re Josephson, 121 Fed. 142, 9 200 Fed. 404, 118 C. C. A. 556, 29 Am Am. Bankr. Rep. 345. Bankr. Rep. 217; Lessaius v. Goodman. 101 Sessions v. Eomadka, 145 U. S. 29, 165 Fed. 889, 91 C. C. A. 567, 21 Am. 12 Sup. Ct. 799, 36 L. Ed. 609; Fleming Bankr. Rep. 446; In re Jablin, 194 Fed. v. Oourtenay, 98 Me. 401, 57 Atl. 592, 99 228, 28 Am. Bankr. Rep. 54. Blk.Bkb.(3d Ed.)— 46 § 323 LAW OF BANKRUPTCY 722 third person may, by petition or suit, assert his rights in it." "^ In a case where an individual, who was engaged in the manufacture of piano cases, organized two corporations, transferring to one of them the busi-' ness and to the other the real property, and managed the two corpora- tions, not as separate and distinct entities, but as a part of the manufac- turing business, it was held that, on the bankruptcy of the manufactur- ing corporation, the trustee in bankruptcy was entitled to a summary order extending the trusteeship to the assets of the other corporation.^"® § 323. Property in Custody of the Law. — ^A trustee in bankruptcy is entitled to possession of all of the bankrupt's property and to administer the same, although it may be subject to, liens or in the possession of a state court in proceedings to enforce a lien."' If the property has been comrnitted to the custody of a receiver appointed by a state court, it is the right and duty of the trustee to reclaim it, although, in view of the comity which subsists between the state and federal courts, he cannot do this by any hostile proceedings, but must apply to the state court for an order directing the surrender of the property by its receiver, and if this is refused, the trustee must intervene in the pending suit."* If the property (or the money arising from its sale) is in the hands of a sheriff, the trustee may demand and claim it, provided the lien under which the sheriff seized the property was one dissolved by the adjudi- cation in bankruptcy, otherwise, it must be treated as in the custody of the court and a proper application made for its surrender."* If proper- ty is in the possession of an assignee for the benefit of creditors, the as- signment being dissolved by the adjudication in bankruptcy, or being the act of bankruptcy on which the adjudication was based, such assignee cannot hold the property, but must surrender it to the trustee in bank- ruptcy.^" Where land has been sold under decree of partition and the proceeds impounded in the state court, it is proper for the trustee of a bankrupt to apply to the state court for an order directing that so much of the fund as constitutes the bankrupt's distributive share should be paid over to him for distribution in the bankruptcy proceedings, and the application should be granted."^ 3 06 In re Moses, 1 Feci. 845. Aiid see Side Trust Co., 249 Fed. 189, 161 C. C. In re Havens, 8 Ben. 309, Fed. Cas. No. A. 225, 41 Am. Bankr. Rep. 645; In re 0,230. Williams (D. C.) 240 Fed. 788; Cudahy 106 In re Looschen Piano Case Co. (D. Packing Co. v. New Jersey Dairy Prod- C.) 261 Fed. 93, 44 Am. Bankr. Rep. 190. nets Co., 90 N. J. Eq. 541, lOT Atl. 147. 107 In re Kaplan, 144 Fed. 159, 16 Am. io» Supra, § 28. And see Bristol v. Bankr. Rep. 267. Mills, 14 Pa. Super. Ct. 107 ; In re Par- 108 Supra, § 27. And see Kennedy v. rell, 201 Fed. 338; Cooper v. Dannen- American Tanning Co., 81 N. J. Eq. 109, berg, 18 Ga. App. 615, 89 S. E. 1089. 85 Atl. 812; A. H. Alden & Co. v. New no See infra, ch. 21. York Commercial Co., 157 App. Div. 872, m Moran & Wilkinson v. Martin, 21 142 N. Y. Supp. 772; Gealey v. South Ga. App. 672, 94 S. E. 905. '^23 PEOI'KRTY VESTING IN TKUSTEE § 324 § 324. Interests in Real Estate.— The title to all real estate of the bankrupt passes to and vests in his trustee/** and the latter may if nec- essary maintain ejectment for its recovery.^i^ Generally speaking, also, any interest which the bankrupt may have in landed property will con- stitute assets of his estate, provided it is a beneficial interest and one which he might have transferred by his own deed or which might have been subjected to the claims of his creditors outside of the bankruptcy proceedings.*" Thus, although the title to realty may be in another, yet if the bankrupt has an interest in it, that interest will be available under the administration of the trustee.**® Or, though the bankrupt, nominally the owner, has only an undivided interest, at least that inter- est will be assets of his estate.**® So, where an estate is devised uncon- ditionally to two persons, and after the death of the testator but before the probate of the will, one of the devisees is adjudged bankrupt, the estate so devised will pass to his trustee in bankruptcy.**' Again, it is not necessary that the bankrupt's title should be one in fee. A life es- tate vested in him at the date of the adjudication is assets and may be sold by the trustee.*** Again, a conveyance of land on condition of the payment of an annual sum to the grantor during his life gives the gran- tee a title which will pass to his trustee in bankruptcy.**® And although the title to property which is exempt by law does- not vest in the trustee, yet he may claim land which was once occupied as a homestead but has since been voluntarily abandoned by the bankrupt.**" So where the bank- rupt was the owner in fee of a public street in a city, subject only to the public easement of passage, the right of the owner therein will pass to his trustee in bankruptcy,*** but a mere usufruct in property, not capable 112 Pearce v. Foreman, 29 Ark. 563. erty. McKay v. Weager, 134 N. Y. For the rule as to fixtures, see In re Supp. 66. West (D. C.) 253 Fed. 963, 42 Am. Bankr. no In re Throckmorton, 149 Fed. 145, Rep. 338, 341 ; In re Dr. Klegel Sani- 79 C. C. A. 15, 17 Am. Bankr. Rep. 856. tarium Co. (D. C.) 206 Fed. 319, 31 Am. ht Ex parte Fuller, 2 Story, 327, Fed. Bankr. Rep. 98. Cas. No. 5,147. 113 Beach v. Beach, 14 Vt. 28, 39 Am. us Adair v. Adair's Trustee, 99 S. W. Dec. 204 ; Essex Co. v. Durant, 14 Gray 925, 30 Ky. Law Rep. 857; City Nat. (MajSS.) 447 ; Talcott v. Goodwin, 3 Day Bank v.' Slocum (C. C. A.) 272 Fed. 11, (Conn.) 264. 47 Am. Bankr. Rep. 47. But otherwise 114 Merrill v. Hussey, 101 Me. 439, 64 as to a life estate which did not vest Atl. 819 ; Wright v. Green, 239 Mo. 449, until after the adjudication of bankrupt- 144 S. W. 437. cy. Hackett's Ex'rs v. Hackett's Trus- 115 In re Sanderson, 149 Fed. 273, 17 tee (Ky.) 118 S. W. 377. Am. Bankr. Rep. 871. The trustee is, enti- iii>Atwood v. Kittell, 9 Ben. 473, 17 tied to a decree adjudging a lien on the N. B. R. 406, Fed. Cas. No. 641. property of the bankrupt's wife to the is" Martin v. Smith, 104 S. W. 310, 31 amount of the money expended by the Ky. Law Rep. 882. bankrupt in improvements on the projD- 121 icinzie v. Winston, 56 111. 56. § 324 LAW OP BANKRUPTCY 724 of being transferred by sale except with the owner's permission, is not assets in bankruptcy.^''^ A trustee in bankruptcy, when there are creditors of the bankrupt who are entitled to invoke an estoppel against the owner of realty, the apparent record title of which is in the bankrupt, and on the faith of which credit had been extended to him, may maintain an action to appropriate the property to the extent of the claims of such creditors, but to no greater extent than the bankrupt's creditors might have ap- propriated it if bankruptcy had not intervened.^** Where the owner of real estate died intestate, and the next of kin conveyed it to the bank- rupt, who held it at the time of the bankruptcy, and no proceedings for its sale to pay the debts of the decedent had been taken up to that time, the receiver in bankruptcy is entitled to collect the rents.^** . § 325. Same; Equity of Redemption. — When real property of the bankrupt is incumbered by a mortgage, valid as to creditors and not voidable under the bankruptcy act, the trustee takes title to the bank- rupt's equity of redemption in the premises.^*® And this applies not only to a common-law mortgage in the ordinary form, but to equitable mort- gages and various other anomalous forms, such as a conveyance of land which, though absolute in form, is intended as security for a debt and is accompanied by an unrecorded agreement of defeasance,^** an instru- ment in the form of a deed of trust, but meant to secure a debt,^" a mortgage of personal property which authorizes the debtor to sell the items covered,^** and an assignment of a judgment, absolute in form, but intended as security for the price of goods sold or to be sold to the assignor.'^** So also, where the 'local law allows a certain period of time for redemption from a sale of real estate under execution, this right may be exercised by the debtor's trustee in bankruptcy, provided the appointed time has not expired when he is appointed, though it will not be enlarged by the intervening bankruptcy.^** A trustee in bank- ruptcy will also be entitled to collect and receive the rents of mortgaged 122 In re O'Dowd, 8 N. B. R. 451, Fed. 126 Moors v. Albro, 129 Mass. 9. Cas. No. 10,439. 127 in re Jersey Island Packing Co., 12s Bergin v. Blackwood, 141 Mum. 133 ped. 625, 71 C. C. A. 75, 2 L. R. A. 325, 170 N. W. 508. (N. s.) 560, 14 Am. Bankr. Rep. 689. 12. In re Tietje (D. CO 253 Fed. 283, ,,, ^ ^^ ^^^^^ ^^^ p^^ g^g^ g ^^ 41 Am. Bankr. Rep. 816. Rankr ncn ^m 125 In re Kellogg, 113 Fed. 120, 7 Am. ^^°'''- ^^^- ^^■ Bankr. Rep. essf Bryar's Appe'al. Ill ^ -"English v. Ross, 140 Fed. 630, 15 Pa. St. 81, 2 Atl. 344 ; Robinson v. Den- ^m. Bankr. Rep. rf70. ny, 57 Ala. 492; Winslow v. Clark, 47 iso In re Goldman, 102 Fed. 122, 4 Am. N. T. 261 ; In re Stewart, 193 Fed. 791, Bankr. Rep. 100. 27 Am. Bankr. Rep. 529. 725 PROPERTY VESTING IN TRUSTEE § 326 property of the bankrupt, at least until the mortgagee shall have taken proper steps to secure their application on his debt.'^*^ But if a mort- gage on land of the bankrtipt has actually been paid, the property will pass to the trustee in bankruptcy free from the incumbrance, although the mortgage has been assigned to a third person instead of being can- celed."* § 326. Same; Leased Property. — If the bankrupt is a tenant' of leased premises, his interest in the unexpired term of the lease will constitute assets of his estate in bankruptcy and pass to the trustee.'*^ The latter has the privilege of declining to accept the lease and of sur- rendering possession if he thinks that course will be advantageous for the estate, but if he finds that the leasehold interest has a market value and can be sold, it is his duty to claim it and administer it for the benefit of the creditors.'^** But in this case the rights of the landlord must be carefully guarded. It is said to be the duty of the trustee ei- ther to fix an upset price for the sale of the leasehold sufficient to pay the lessor the entire rental for the remaining term of the lease and pay over such amount to the lessor, or else to require a bond with ample security, obliging the purchaser to conform strictly to all the terms of the lease, and if bids cannot be obtained subject to these con- ditions, the trustee should surrender the lease to the landlord."® If notice to quit has been served on the tenant before his bankruptcy, it will serve as notice to the trustee, who takes only such rights as the bankrupt had at the time of the adjudication, and a new notice is not necessary. ■'*® And if a suit to cancel the lease is pending, which finally results in favor of the landlord, but meanwhile the lessee's trustee in bankruptcy has remained in the use and occupation of the premises, his possession pendente lite will be that of a trespasser under a claim of 181 Alter V. Clark, 193 Fed 153; Hun- iss in re Gutman, 197 Fed. 472, 28 ter V. Hays, 7 Biss. 362, Fed. Cas. No. Am. Bankr. Rep. 643. The trustee in 6,906. bankruptcy of the owner of a mining is2McMaster v. Campbell, 41 Mich. lease takes the lease subject to the 513, 2 N. W. 836. - same burdens as rested on the lessee, 138 Orowe V. Baumann, 190 Fed. 399, and may take it only by complying with 27 Am. Bankr. Rep. 100; In re Frassin & its terms and conditions. In re Barn- Oppenheim, 174 Fed. 713, 23 Am. Bankr. hardt Coal & Limestone Co. (D. C.) 265 Rep. 289; Olden v. Sassman, 68 N. J. Fed. 385, 44 Am Bankr. Rep. 170. Eq. 799. 64 Atl. 1134; Wildman v. Tay- iss Lindeke v. Associates Realty Co., lor, 4 Ben. 42, Fed. Cas. No. 17,654. And 146 Fed. 630, 77 C. C. A. 56, 17 Am. see Lyon v. Moore. 259 111. 23, 102 N. E. Bankr. Rep. 215. ^nd see In re Van Da 179; In re J. L. Kesner Co., 219 Fed. Grift Motor Car Co., 192 Fed. 1015, 27 512, 135 C. C. A. 262. Am. Bankr. Rep. 474. 134 Supra, § 307. § 327 LAW OF BANKRUPTCY 726 title.^*'' Where a court of bankruptcy has acquired jurisdiction to deter- mine the right of a lessor to a forfeiture under the terms of the lease, it will proceed on equitable principles, and will refuse to enforce a for- feiture if inequitable, even though as strict matter of law the lessor may be entitled to it.''-* Where a mining lease held by the bankrupt became subject to forfeiture under its terms pending the proceedings, the trustee will be permitted to avoid the forfeiture and retain the lease by paying the royalty in arrears."* § 327. Same; Remainders and Expectant Estates. — ^A vested es- tate in remainder in real prgperty is an asset which will vest in the trustee in bankruptcy, as in the ordinary case of an estate limited to one for life, with remainder to his surviving child or children and their 'heirs. Here, if the life-tenant is still living and the bankrupt is his child, the latter has a vested estate which will pass to his trustee in bankruptcy .■'^** But as to contingent remainders and expectant inter- ests the law is not so clear. Several cases hold that a vested interest in a contingent remainder will pass to the trustee in bankruptcy,'*' par- ticularly where the contingency relates to the event and not to the person. In this case, it is said the remainder-man possesses a right of title which ^may indifferently be called a vested right in or to a con- tingent interest or estate or a contingent right to a future interest or estate, and such a right is alienable and transmissible to heirs, and therefore will pass to the trustee in bankruptcy of the remainder-man.'** And in another case tKe broad view is expressed that, while a contingent remainder is not technically an estate, but a mere possibility of an es- tate in the future, yet it is "property" within the meaning of the bank- ruptcy act, that term, as used in the statute, being of the broadest pos- sible signification, and embracing everything that has exchangeable value, or goes to make up a man's wealth, and every interest or estate 137 In re St. Louis & Kansas Oil & 972, 3 Am. Bankr. Rep. 572; Loomer v. Gas Co., 168 Fed. 934, 22 Am. Bankr. Loomer, 76 Conn. 522, 57 Atl. 167 ; Simp- Rep. 56. son V. Miller, 7 Cal. App. 248, 91 Pac. 188 In re Larkey ,(D. O 214 Fed. 867, 252; Markham v. Waterman, 181 Kan. 32 Am. Bankr. Rep. 287. ^3, 181 Pac. 621. , ^ , „ :,. , m Putnam v. Story, 132 Mass. 205; 139 In re Earnhardt Coal & Limestone 3^1^^^^. ^ Burnett, 126 Mass. 230; In re Co. (D. C.) 265 Fed. 385, 44 Am. Bankr. churchman, 4 Pa. Co. Ct. R. 237 ; Boden- Rep. 170. hamer v. Welch, 89 N. C. 78 ; Clark v. 140 In re McHanT,^lll Fed. 498, 49 C. Grosh, 81 Misc. Rep. 407, 142 N. T. Supp. C. A. 429, 7 Am. Bankr. Rep. 83 ; In re 966 ; Clowe v. Seavey, 208 N. Y. 496, 102 Haslett, 116 Fed. 680; In re Twaddell, N. E. 521. 110 Fed. 145, 6 Am. Bankr. Rep. 539; "2 In re Twaddell, 110 Fed. 145, 6 In re St. John, 105 Fed. 234, 5 Am. Am. Bankr. Rep. 539; Clowe \. Seavey, Bankr. Rep. 190; In re Wood, 98 Fed. 208 N. Y. 496, 102 N. E. 521; Clark v. 727 PROPERTY VESTING IN TRUSTEE § 327 which the law regards as of sufficient value for judicial recognition.*** But on the other hand, there are respectable authorities to the effect that an expectation of succeeding to an estate, fixed as to the person but contingent on his surviving one or more previous takers or life- tenants, is nothing more than a mere possibility, and not of such a na- ture that it could be reached by a creditors' bill, and therefore not vest- ing in the trustee in bankruptcy."* And so, if the expectancy of the remainder-man depends upon the omission of the life-tenant to exer- cise a power of appointment which he holds, it appears that there is nothing which could be made available for his creditors in bankruptcy. Thus, under a devise to the use of one for life, with power of appoint- meiit by will, and, in case of failure to exercise the power, the property to go to the surviving next of kin of the testator, one who is next of kin does not take such an interest in the estate in remainder as will pass to his trustee in bankruptcy .'■*® On much the same principle rested the decision in a case in which it appeared that an aged woman made her will devising practically her entire estate to her son, and died three weeks later. But in the mean time, the son filed his voluntary peti- tion in bankruptcy. Creditors sought to make the property available for their claims in the bankruptcy proceedings, on the ground that, when the petition in bankruptcy was filed, the son had a contingent interest under the will which should constitute an asset of his estate, and rep- resented that it would be a fraud upon them to allow the bankrupt to retain the property for himself, since his petition in bankruptcy was evidently filed in the expectation of his mother's early death and in an- ticipation of that event. But the court held that, since the mother might at any time have changed her will, the bankrupt had no property rights under it during her life, and what he eventually received under it .was not assets of his estate in bankruptcy but after-acquired prop- erty and his own."* Again, where the father of a bankrupt orally Grosh, 81 Misc. Rep. 407, 142 N. Y. Supp. Swift (C. C. A.) 268 Fed. 305, 46 Am. 966. Bankr. Rep. 75. And therefore property i«3 Martin v. Maxwell, 86 S. O. 1, 67 which the alleged bankrupt expects or S. E. 962, 138 Am. St. Rep. 1012. hopes to acquire thereafter by will or .114 Van Heusen v. Van Heusen Charles descent is not assets of his estate. Idem. Co., 74 Misc. Rep. 292, 131 N. Y. Supp. i*' In re Wetmore, 102 Fed. 290, 4 401; Clarke v. Fay, 205 Mass. 228, 91 Am. Bankr. Rep. 335, affirmed 108 Fed. N. E. 828, 27 L. R. A. (N. S.) 454; Smith 520, 47 C. C. A. 477, 6 Am. Bankr. Rep. V. Kearney, 2 Barb. Ch. (N. Y.) 533 ; 210. But see In re borgan's Estate Luttgen V. Tiffany, 37 R. I. 416, 93 Atl. (D. C.) 237 Fed. 507, 38 Am. Bankr. 182; In re Russell (D. O.) 273 Fed. 724. Rep. 157. Only vested interests are considered i*« In re Seal (D. C.) 261 Fed. 112. property within the meaning of the 44 Am. Bankr. Rep, 556. Bankruptcy Act. Bank of Elberton v. • § 328 LAW OF BANKRUPTCY 72S agreed to give land to him at the time when the father should decide to make a decision, it was considered that the contract was wholly ex- ecutory, and the land itself, title to which was still in the grantor, could not be subjected in bankruptcy by the creditors before the, gran- tor divided it."'' ' § 328. Same; Estates by Curtesy and Community Property. — An estate by the curtesy, consummate by the death of the wife, will pass to the trustee in bankruptcy of the husband."* And the same has been held in regard to an estate by the curtesy initiate by the birth of issue."* But this must depend upon the local law. \And in some states (Massa- chusetts, for instance), under the statutory law, a husband's interest in the real estate of his wife, during her lifetime and after issue born, is not property which he could convey or assign, nor is it a "power" which he might exercise for his own benefit, and consequently it will not pass to his trustee in bankruptcy as assets of his estate.'^®" Where an estate is devised to a man and his wife absolutely and forever as tenants by entireties, the trustee in bankruptcy of the husband is not entitled, during the life of the wife, to any part of the property, or, in case of personalty, to any part of the principal or income.^" As to com- munity property, it has been held that, where funds belonging to the community estate of husband and wife were used by the husband in the erection of improvements on the wife's separate real estate, and the fund remained to that extent community property, the husband's trus- tee in bankruptcy was entitled to recover the amount of the community funds so expended, to be paid out of th^ proceeds of the sale of the improvements.^^^ § 329. Same; Estates of Vendor and Vendee Under Executory Contract. — Where a purchaser of lands under an uncompleted Contract' becomes bankrupt, whatever interest he has in the lands will pass to his trustee, who is thereafter the proper party to maintain a bill in eq- uity for -the specific performance of the contract, and, on the other hand, is the proper defendant in a suit to, enforce the vendor's lien."* 147 White V. Graybin, 184 Iowa, 897, 2 Am. Bankr. Rep. 600; Parks v. Tirrell, 169 N. W. 135. 3 Allen (Mass.) 15. 148 Elmore V. Symonds, 183 Mass. 321, loi In re Meyer's Estate, 232 Pa. St. 67 N. E. 314; Conoly v. Gayle, 54 Ala. 89, 81 Atl. 145, 36 L. R. A. (N. S.) 205, 269; Beamish v. Hoyt, 2 Rob. (N. Y.) Ann. Cas. 1912C, 1240. 307. But see Cox v. Wallace, 219 Fed. 152 Collins v. Bi-yan, 40 Tex. Civ. App. 126, 134 C. C. A. 562, 33 Am. Bankr. 88, 88 S. W. 432. See Gibbons v. Gold- Rep. 186. smith, 222 Fed. 826, 138 C. C. A. 252, 35 i4nin re McKenna, 9 Fed. 27. Am. Bankr. Rep. 40. 160 Hesseltlne v. Prince, 95 Fed. 802, isa Rea v. Richards, 56 Ala. 396; Mc- 729 PROPERTY VESTING IN TRUSTKB § 330 And though a parol contract for the sale of land is void under the lo- cal law, yet if the purchaser' under such a contract goes into possession and improves the property with the consent of the vendor, he has an equity in the land which can be subjected to the claims of creditors in bankruptcy proceedings.^^* Conversely, whatever interest may remain in the vendor of land under an executory contract will vest in his trus- tee in bankruptcy, and the latter may maintain ejectment on failure of the vendee to pay the price."^ But since the bankruptcy act does not give the trustee any greater' right or estate, than the bankrupt had, a purchaser under an oral contract of purchase, and who was entitled prior to the bankruptcy of the vendor to compel a conveyance by the vendor, may compel the trustee to convey.^*® § 330. Same; Settlers' Rights and Improvements on Public Lands. — ^A settler upon the public lands, under the pre-emption laws or other acts of Congress, has no title which he can sell or mortgage, or which could be levied upon and sold under executions against him, until he has fully complied with all the requirements prescribed by law as es- sential to his right to receive a patent;^^' Until that is done, he has only an inchoate and personal interest in the lands. But when he has per- formed everything that is required of him by the statutes, either in re- spect to residence on the land, improvements, payment of purchase money and fees, or making final proof, so that, as far as concerns him, the law has been fully satisfied and his right to a patent is complete, then he is considered as holding an equitable title to the lands, and the United States holds the legal title merely in trust for him and is under Donald V. McMabon, 66 Ala. 115 ; Smith isein re Snelling, 202 Fed. 259, 29 V. Hornesby, 58 Ga. 529; Duffield v. Am. Bankr. Rep. 818. Dosh, 124 Iowa, 286, 99 N. W. 1074. And i^? But an entry under the desert land see Christopherson v. Harrington, 118 laws, on which final proof has not been Minn. 42, 136 N. W. 289, 41 L. R. A. (N. made, is property subject to the payment S.) 276. But compare In re Phoenix of the entryman's debts, and on his bank- Planing Mill (D. C.) 250 Fed! 899, 42 ruptcy may be subjected to the payment Am. Bankr. Rep. 145. And see In re of such debts, whether the bankruptcy Berry (D. O.) 247 Fed. 700, 41 Am. be voluntary or involuntary, for under Bankr. 'Rep. 357, holding that the inter- the acts of' Congress the entry may be est of a Michigan bankrupt in land assigned before it is perfected, and as- whieh he and his vdfe had contracted to signments may be voluntary or involun- purchase does not pass to the trustee, tary, while the purpose of the desert since the rights of the pa"rties are those land laws is not, as in the case of home- of tenants by the entireties. ■ steads, to encourage settlers to establish 164 Overcast v. Lawrence, 141 Ky. 25, themselves, but requires the payment of 131 S. W. 1029. substantial consideration. In re Evans 155 Clements v. Taylor, 65 Ala. 863. (D. C.) 235 Fed. 956, 88 Am. Bankr. And see In re Sayed, 185 Fed. 962, 26 Rep. 361. Am. Bankr. Rep. 444. § 331 LAW OF BANKRUrTCY 730 obligation to transfer the legal title to him by the issuance of a patent. When his title is in this condition, therefore, notwithstanding the fact that the patent; the formal evidence of legal title, has not yet been is- sued to him, he has an estate which can be incumbered, alienated, or made liable for the payment of his debts. And consequently, if bis claim to the lands has advanced this far on the way to a complete legal title, at the time he js ajliudicateH a bankrupt, it is such property a-s will pass to and vest in his trustee.^** And generally speaking the set- tler's improvements on the public lands are also property available to his creditors in bankruptcy,^®* unless they have been forfeited by the cancellation of the sale to him by the general government or the state, as the case may be."* § 331. Same; Resulting Trusts. — Though the legal title to real property may. stand in the name of a third person, yet if the bankrupt has an equitable interest in it by virtue of a resulting trust in his favor, that interest will vest in his trustee as assets of the estate in ba^nk- ruptcy,-'*^ as, where the bankrupt paid the entire consideration for the property, but the deed was taken in the name of another."* And the trustee will take title notwithstanding a previous levy of execution on the bankrupt's equitable interest and a sale thereunder, where, by the law of the state, a resulting trust is not such property as can be sold on execution."* On similar principles, although the bankrupt swore on his schedules that he owned . no real estate at the time of filing the petition, neither he nor his heirs will be estopped by that oath from asserting their claim to property fratidulently procured from him by his vendee,- and after the death of the bankrupt, the heirs at law may file a bill to recover such property, and their recovery will inure to the trustee in bankruptcy."* § 332. Same; Powers. — The present bankruptcy statute explicitly enumerates, as among the classes or kinds of property of a bankrupt which shall vest in his trustee, "powers which he might have exercised 158 See Colorado Co. v. Commissioners, lei In re Dunavant, 96 Fed. 542, 3 Am. Banlcr. Rep. 41. And see Cullen v. Ann- strong (D. C.) 209 Fed. 704, 33 Am. Bankr. Rep. 735. leaCarr v. Hilton, 1 Curt. 230, Fed. Cas. No. 2,436; Gove v. Lawrence, 26 N. H. 484. 95 U. S. 259, 24 L. Ed. 495: Myers v Croft, 13 Wall. 291, 20 L. Ed. 562; Hutch ings V. Low, 15 Wall. 77, 21 L. Ed. 82 Carroll v. Safford, 3 How. 441, 11 L. Ed 671; Webster v. Bowman, 25 Fed. 880 United States v. Freyberg, 32 Fed. 195 Boggan V. Reid, 1 Wash. 514, 20 Pac. 425. ^^ _ ^ ^ ^„ 15 9 French v. Carr, 7 111. (2 Oilman) ''' ^^ ^e Dunavant, 96 Fed. 542, 3 „„. Am. Baukr. Rep. 41. leo Snodgrass v. Posey, 30 Tex. Civ. ic* Ferguson v. Dent, 24 Fed. 412. App. 584, 70 S. W. 984. 731 PROPERTY VESTING IN TRUSTEE § 334 for his own benefit, but not those which he might have exercised for some other person." ^*'' This particular mention was necessary to bring this kind of interest or title within the scope of the statute, since the Su- preme Court had expressly held, under the act of 1867, that a power of appointment would not pass to the assignee in bankruptcy of the per- son in whom the power resided.^®" § 333. Growing Crops. — When the bankrupt is the owner of agri- cultural land, crops sown and growing thereon at the time of the filing of the petition will pass to the trustee along with the land and as a part of it, and the trustee may sell the crops with the land, or claim them as assets of the estate when grown and severed.^®' So where the bankrupt was tenant of a farm under a contract reserving to the landlord, as rent, one-fourth of the crops raised on the land, the bank- rupt's interest in the growing crops, though they are immature and unsevered at the commencement of the proceeding in bankruptcy, is property which he might have- transferred at that date, within the meaning of the statute, and therefore vests in his trustee as assets of the estate; and after the crops have been severed, the bankrupt must surrender them to the trustee or else account for the proceeds.^** But crops not sown at the time of the adjudication do not become a part of the bankrupt's estate and the trustee has no interest in them.^®" § 334. Patents and Copyrights. — The statute provides that the trus- tee in bankruptcy shall be vested by operation of law with the bank- rupt's title, as of the date he was adjudged a bankrupt, to "interests in patents and patent rights." This clearly includes interests then owned by the bankrupt in patents already ' issued and in force, whether as patentee, assignee of the patent, or holder of rights acquired under a patent to a third person, such as licenses or manufacturing rights.^"* But on the question whether it also includes the interest of the bank- rupt in a patentable invention or in a pending application for a patent, the authorities are divided and irreconcilable. In one of the cases it is held that the trustee takes no title to a patent for an invention granted 105 Bankruptcy Act 1898, § 70a, cl. 3. 872; In re Eastman, 2 Nat. Bankr. See Montague v. Silsb.ee, 218 Mass. 107, News, 86; Carney v. AverlU, 110 ' Me. 105 N. E. 611. 172, 85 Atl. 49i. 166 Brandies v. Cochrane, 112 U. S. lea in re Barrow, 98 Fed. 582, 3 Am. 344, 5 Sup. Ct. 194, 28 L. Ed. 760; Jones Bankr. Rep. 414. V. Clifton, 101 U. S. 225, 25 L. Ed. 908. "o Bank of Nez Perce v. Pindel (C. 16 7 Hebert v. Crawford, 228 U. S. 204, C. A.) 193 Fed. 917, 28 Am. Bankr. Hep. 33 Sup. Ct. 484, 57 L. Ed. 800, 30 Am. 69. Bankr. Rep. 24; In re T. 0. Burnett & I'oin re McDonnell, 101 Fed. 239, 4 Co., 201 Fed. 162, 29 Am. Bankr. Rep. Am. Bankr. Rep. 92. § 334 LAW OP BANKRUPTCY 732 to the bankrupt after the date of the adjudication, although the applica- tion for the patent was made before the bankruptcy and was pending at the time of the adjudication."^ In another decision, where the same rule was adhered to, it was pointed out that there can be no such thing as a "patent right" until a patent has been issued, and that the statute, in referring to tjhe bankrupt's interests in "patent rights," must be con- strued as intending rights acquired under patents issued to third par- ties, but cannot with any propriety be made to include the incorporeal in- terest in an alleged invention pending an application for a patent there- on. Pressed with the argument that, if such an interest was not a "patent or patent right," at least it was "property" which the bankrupt could have transferred to another before his adjudication, especially in view of the fact that the patent laws permit an inventor to transfer his application and authorize the issue of a patent to the transferee, the court replied that Congress evidently intended to dispose of the whole subject of patents, and rights and interests therein, in the one clause of the statute in which they are specifically mentioned, and that the sub- sequent general clause relating to "property" of the bankrupt could not be understood as enlarging the previous specific clause, but was meant only to include other classes or kinds of property than those item- ized in the preceding clauses."^ But this precise point has been other- wise decided in a later case, where the court took a very broad view of the word "property," and held that it was intended to include everything which is the proper subject of a legal transfer, and therefore should in- clude a pending application for a patent.*''* The same view has been expressed by one of the circuit courts of appeals, but only in the way of an obiter dictum, since the disputed item of property before the court had nothing to do with a patent, but was a license for the sale of liq- uor."* As to copyrights, no such question has yet arisen. It might be in- teresting to inquire whether the bankrupt author of a literary composi- tion, finished in manuscript form but not copyrighted, could be re- quired to surrender it to his trustee, in order that the latter might take out copyright upon it and arrange for its publication. Probably such an unpublished work should be regarded as "property" of the bankrupt, within the broad meaning of the statute, and if so, the trustee in bank- 171 In re McDonnell, 101 Fed. 239, 4 "s In re Oantelo Mfg. Co., 185 Fed. Am. Bankr. Rep. 92. 276, 26 Am. Bankr. Eep. 57. 172 In re Dann, 129 Fed. 495, 12 Am. m Fislier v. Cushman, 103 Fed. 860, Bankr. Rep. 27. See Ingle v. Landis 43 0. C. A. 381, 51 L. R. A. 292, 4 Am. Tool Co. (D. C.) 262 Fed. 150, 45 Am. Bankr. Rep. 646. Bankr. Rep. 89. 733 PROPERTY VESTING IN TRUSTEE § 336 ruptcy should have his election whether to take possession of it and attempt to convert it into money for the benefit of the creditors or to" reject it as likely to be unprofitable. But the courts have not yet been confronted with this problem. It is held, however, that where an exist- ing copyright has been assigned by the author to a third person, abso- lutely and unconditionally, it constitutes property of the assignee which will pass to his trustee in bankruptcy .^'^ But a contract between, an author and a publisher for the publication and sale of a work having only a limited circulation among a special class of readers, who con- stitute the special clientele of the publisher, which contract contemplates the taking out of copyright in the name of the publisher and the pay- ment of a royalty to the author, is in the nature of a personal engage- ment. And where the contract expressly provides that it shall not be transferred without the author's consent, and that, on faikire to carry out its provisions, the copyright shall revert to the author, such copy- right cannot be sold by a trustee in bankruptcy as an asset of the pub- lisher's estate, against the objection of the author, but the latter is en- titled, on petition therefor, to have the copyright assigned to him by the trustee in accordance with the contract."* § 335. Trade Marks and Trade Names.^A trade mark or trade name, consisting of a man's individual name prefixed to the title of the article he manufactures, is not property which will vest in his trustee in bankruptcy,"' because in the case of personal trade marks of this kind, the use of them by any other person than the one with whom they are connected would be a fraud upon the public. But the right to use trade marks, in connection with a manufacturing or mercantile business, which are not personal in their character, but are descriptive titles or fanciful appellations, or which merely designate the place or establishment at which the goods are made, or the process employed, will pass to and vest in an assignee in insolvency of the owner,"-'* and thehefore, by analogy, in a trustee in bankruptcy, especially since the statute itself speaks of trade marks as among the kinds of property so vesting. § 336. Franchises' and Licenses. — A franchise, whether held by an individual or a corporation, may constitute property in such sense as to vest in the trustee in bankruptcy, and be salable by him for the benefit of the estate, provided it does not involve a personal trust or duty, but 17 6 In re Howley-Dresser Co., 132 53 How. Prac. (N. Y.) 453; Mattingly v. Fed. 1002, ,13 Am. Bankr. Kep. 94. Stone (Ky.) 14 S. W. 47. 178 In re D. H. McBride & Co., ,132 I's Warren v. Warren Thread Co., 134 Fed. 285, 12 Am. Bankr. Kep. 81. Mass. 247; Bradley v. Norton, 33 Conn. i77Helmbold v. Helmbold Mfg. Co., 157, 87 Am. Dec. 200. § 337 LAW OF BANKRUPTCT 734 the service to be rendered in exchange for the franchise can presumably "he as well performed by any purchaser of it as by the original holder."® The rule is substantially the same as to lipenses. Thus a license for the sale of intoxicating liquors issued by the authorities of a state or mu- nicipality or by a court, and which may be transferred on written ap- plication of the holder and subject to the approval of such authorities, which approval is ordinarily granted, and which for the purpose of sale and transfer has a recognized and actual money value, conditioned upon the acceptance of the transferee by the authorities, is property of the licensee, which is available as assets of his estate in bankruptcy, and he may be required by the court of bankruptcy to sign the necessary appli- cation for a transfer or to execute whatever other instrument in the na- ture of a transfer may be necessary to enable his trustee to convert it into money. ^*'' Such is also the rule in regard to a license to occupy a particular stall in a city market. Though it may be revocable at the pleasure of the city authorities, and can^not be assigned to another person without their written permission, yet if it has an ascertainable market value as an article of sale and can be transferred without any practical difficulty, it is an asset in the hands of the holder's trustee in bankruptcy, and such holder may be required to take such steps as are necessary and usual to effect a transfer. ^*'- § 337. Membership in Stock Exchange. — It is now well settled that a membership in a stock exchange or other similar body is an as- set of the member which will pass to and vest in .his trustee in bank- ruptcy, provided that it has an actual and substantial money value for purposes of sale and can be transferred to a purchaser without practical difficulty ; and this, notwithstanding the fact that the transfer of a mem- bership may be restricted by the rules of the exchange, — as where the membership is limited and the purchaser of a seat must pass the scru- 179 See, supra, § 147, particularly as Beahn (D. C.) 212 Fed. 762, 32 Am. to corporate franchises. And see People Bankr. Rep. 375; In re Benz, 218 Fed. V. Duncan, 41 Cal. 507; Stewart v. Har- 50, 134 C. C. A. 26, 33 Am. Bankr. Rep. grove, 23 Ala. 429. 363. ISO Fisher v. Cushman, 103 Fed. 860, isi in re Gallagher, 16 Blatchf. 410, 43 C. C. A. 381, 51 L. R. A. 292, 4 Am. Fed. Gas. No. 5,192; In re Emrich, 101 Bankr. Rep. 646; In re Wlesel, 173 Fed. Fed. 231, 4 Am. Bankr. Rep. 89. But 718, 23 Am. Bankr. Rep. 59; In re Brod- see Day v. Luna Park Co., 174 111. App. bine, 93 Fed. 643, 2 Am. Bankr. Rep. 477, holding that where a contract by an 53; In re Becker, 98 Fed. 407, 3 Am. amusement park company granting a li- Bankr. Rep. 412; In re Fisher, 98 Fed. cense to a concessionaire to conduct a 89, 3 Am. Bankr. Rep. 406. Compare E. bar provides that it must not be assigned S. Bonnie & Co. v. Perry's Trustee, 117 or transferred without the consent of Ky. 459, 78 S. W. 208; In re John F. the company, on the concessionaire be- Doyle & Son, 209 Fed. 1, 126 C. C. A. coming bankrupt, the license does not 143, 31 Am. Bankr. Rep. 571; In re pass to his trustee in bankruptcy. T35 PROPERTY VESTING IN TRUSTEE ^ § 387 tiny of a committee and be elected by ballot, — and notwithstanding the rules provide that the proceeds of a member's seat shall first be ap- plied in liquidation of any indebtedness of his to the exchange itself or to other members of it; and if the rules or customs of the exchange require the execution of an assignment or other transfer by the bankrupt member, in order to make an effectual transfer of the seat to a pur- chaser from the trustee, he may be compelled by the court of bankruptcy to execute such assignment. -""^ At least, such an order may be made by the court of bankruptcy at any time before the bankrupt has obtained his discharge. After that, he is no longer subject to the summary juris- diction of the court, though perhaps the trustee could gain control of the seat, for the purpose of selling it, by means of a bill in equity.^** But the trustee must move with reasonable promptness after acquiring knowledge of the bankrupt's membership in the exchange, and cannot indefinitely postpone action while waiting for the seat to increase in value or for the bankrupt to clear it from preferred debts. If he takes this course, it will be held an abandonment of the seat to the bankrupt or an election not to assume it and administer it.''** It should be ob- served that it is perfectly competent for a stock exchange to provide by rule that, upon the insolvency of a member, the proceeds of a sale of his seat shall first be applied to his indebtedness to the exchange and then to debts due from him to fellow members, to the exclusion of out- side creditors. And such a rule will be recognized as valid in the bankruptcy proceedings. So that, when the trustee in bankruptcy sells the seat, he will be entitled, as the representative of the general credi- 182 Page v. Edmunds, 187 U. S. 596, 23 Waldron, 89 N. Y. 328, 42 Am. Eep. 301; Sup. Ct. 200, 47 L. Ed. 318, 9 Am. Bankr. Ritterband v. Baggett, 4 Abb. New Cas. Rep. 277; Sparhawk v. Terkes, 142 U. (N. X.) 67; McCabe v. Emmons, 51 N. T. S. 1, 12 Sup. Ct. 104, 34 L. Ed. 915; Super. Ct. 219; Londieim v. White, 67 Hyde v. Woods, 94 U. S. 523, 24 L. Ed. How. Prac. (N. Y.) 467; Grocers' Bank 265; O'Dell v. Boyden, 150 Fed. 731, 80 v. Murphy, 60 How. Prac. (N. Y.) 426; C. C. A. 397, 17 Am. Bankr. Rep. 751; Eliot v. Merchants' Exchange, 14 Mo. Board of Trade of City of Chicago v. App. 234; Habenicht v. Lissak, 78 Cal. Weston, 243 Fed. 332, 156 C. 0. A. 112, 351, 20 Pac. 874, 5 L. R. A. 713, 12 Am. 40 Am. Bankr. Rep. 263; In re Stringer, St. Rep. 63; Clute v. Loveland, 68 Cal. 253 Fed. 352, 165 C. C. A. 134, 41 Am. 254, 9 Pac. 133. Contra, In re Suther- Bankr. Rep. 510; In re Hurlbutt, Hatch land, 6 Biss. 526, Fed. Cas. No. 13,637; & Co., 135 Fed. 504, 68 C. C. A. 216, 13 Barclay v. Smith, 107 111. 349, 47 Am. Am. Bankr. Rep. 50; In re Page, 107 Rep. 437; Weayer v. Fisher, 110 111. 146; Fed. 89, 46 C. C. A. 160, 59 L. R. A. 94, Thompson v. Adams, 93 Pa. St. 55; Pan- 5 Am. Bankr. Rep. 707; In re Gaylord, coast v. Gowen, 93 Pa; St. 66. Ill Fed. 717, 7 Am. Bankr. Rep. 195; iss In re Nichols, 1 Fed. 842; Piatt v. In re Page, 102 Fed. 746, 4 Am. Bankr. Jones, 96 N. Y. 24; Powell v. Waldron, Rep. 467; In re Werder, 15 Fed. 789; In 89 N. Y. 328, 42 Am." Rep. 301. re Ketchum, 1 Fed. 840; Wrede v. isigparhawk v. Yerkes, 142 U. S. 1, Clark, 132 App. Div. 293, 117 N. Y. Supp. 12 Sup. Ct. 104, 34 L. Ed. 915. 5; Piatt V. Jones, 96 N. Y. 24; Powell v. § 338 LAW OF BANKRUPTCY 73G tors, only to such surplus of the purchase price as may remain after sat- isfying the preferred debts mentioned.^*® § 338. Executory Contracts. — As a general rule, the interests and rights of the bankrupt under contracts are transferred to the trustee; and whatever these rights may be, the trustee can claim and enforce them. It is not the purpose of the bankruptcy law to interfere with or avoid contracts made by the bankrupt with other parties or prevent their execution.*** If the trustee so elects, he can require the perform- ance of an executory contract made with the bankrupt by another party, under which benefit will accrue to the estate in bankruptcy, or recover damages for the breach of it, and his action cannot be defeated on the theory that the adjudication in bankruptcy (even though founded on a voluntary petition) was an anticipatory breach on the part of the bank- rupt; for while voluntary bankruptcy is an anticipatory breach of a contract so far as concerns the establishment of a provable claim against the bankrupt, it is not such a breach, when it concerns the trustee's right to enforce the contract.^*' But when the trustee in bankruptcy, by order of the referee or the court, elects to ratify, confirm, and adopt an executory contract of the bankrupt, he thereby assumes the liabili- ties of the bankrupt, and takes the contract in same plight in which the bankrupt held it.^** It is not, however, invariably true that the bankrupt's unfinished con- tracts yest as property in his trustee. For contracts which cannot be made available for the payment of the debts do not pass to the trus- tee,^** nor those which would be onerous or unprofitable, or more of a burden than a benefit to the estate,-""* nor those which depend upon the future personal services of the bankrupt, where his. special knowledge or skill or adaptability to the employment, or special trust and confidence reposed in him, constitute an essential part of the contract, so that it 186 Page V. Edmunds, 187 V. S. 596, 23 iss Greif Bros. Cooperage Co. v. Mul- Sup. Ct. 200, 47 L. Ed. 3]S, 9 Am. Bankr. Unix {C. C. A.) 264 Fed. 391, 45 Am. Kep. 277; Hyde v. Woods, 94 U. S. 523, Bankr. Rep. 265. Coucemlug the owner- 24 L. Ed. 266; In re Currie, 185 Fed. ship of property or material furnished or 263, 107 C. C. A. 369, 26 Am. Bankr. prepared for use In connection with the Eep. 345; In re Gregory, 174 Fed. 629, execution of a building or construction 98 0. C. A. ■383, 23 Am. Bankr. Rep. 270; contract, the contract being interrupted Cohen v. Budd, 52 Misc. Rep. 217, 103 before completion by the bankruptcy of N. Y. Supp. 45; Solinsky v. New York the contractor, see AVilds v. Board of Stock Exchange (D. C.) 260 Fed. 266, 44 Education of City of New York, 227 N, Am. Bankr. Rep. 56. Y. 211, 125 N. E. 89; In re SchiUing 186 Poster V. Hackley, 2 N. B. R. 406, (D. C.) 258 Fed. 489, 46 Am. Bankr. Rep. Fed. Cas. No. 4,971. 49. 187 Planters' Oil Co. v. Gresham (Tex. i^ngtreeter v. Sumner, 31 N. H. 542. Civ. App.) 202 S. W. 145. i"" Supra, § 320. And see Streeter v. Sumner, 31 N. H. 542. 737 PROPEUTY VESTING IN TKUSTEB § 339 could not be performed by a third person to the equal satisfaction of the employer.'^* But the fact that a contract of the latter kind is not as- signable as a whole, does not necessarily prevent the assignability of rights aris'ing out of it, as, for compensation already earned,**^ provided that compensation is apportionable, and not dependent upon the future completion of the entire contract."* Thus the complainant in a credi- tor's bill (and the same would be true of a trustee in bankruptcy) can- not reach the salary or compensation which is to become due to the de- fendant, as a public officer, at a future time, for the performance of services which had been partially rendered but not completed at the time of the filing of the bill, where the defendant himself would have no legal or equitable right to demand payment for the services already per- formed (that is, any compensation at all) in case he should thereafter neglect to complete the services which had not been rendered at the time the bill was filed. ^** But aside from such cases as these, it does not stand in the way of the trustee's recovery that the bankrupt's compen- sation for services rendered was to be contingent, provided the event on which it depended happens during the administration of the estate, as, for instance, where the bankrupt had rendered certain services for a third person, for which that person was to pay him a fixed sum in case he succeeded in a pending suit in chancery.^"® And where the bank- rupt's interest in a contract is a right to share in the profits resulting from it, his interest will pass to and vest in his trustee in bankruptcy,"® in so far as profits have already accrued, or the bankrupt's right to share in future profits has become fixed, at the time of the bankruptcy. But not so as to a mere expectation of future profits growing out of the bank- rupt's right to a contiguous performance of the contract. Thus, an in- terest in the business of another, which the bankrupt conducts in his own name, receiving half the profits as compensation, is not property which will pass to his trustee. "The right to his share of the net profits was not property, any more than the right of a clerk, who has a stated salary, to continue to receive such salary is property." ^'^ § 339. Good-Will of a Business. — It is well settled that the good- will of a business may have a property value and form the subject- 191 Streeter v. Sumner, 31 N. H. 542. los Burton v. Lockert, 9 Ark. 411. 192 In re Wright (C. C. A.) 157 Fed. lao Sherman v. International Bank, 8 544, 19 Am. Bankr. Rep. 454; Bucking- Biss. 371, Fed. Cas. No. '12,765; Fraser v. ham V. Buckingham, 36 Ohio St. 68. Gates, 118 111. 99, 1 N. E. 817. 193 In re Jones, 4 N. B. R. 347, Fed. is? In re Beardsley, 1 N. B. R. 457, Cas. No. 7,448. Fed. Cas. No. 1,184. And see Rhoades 10* Browning v. Bettis, 8 Paige (N. T.) v. Blackiston, 106 Mass. 334, 8 Am. Rep. 568; Grow v. His Creditors, 31 Cal. 332. 329. Blk.Bkr.(3d Bd.)^7 § 339 LAW OF BANKRUPTCY 738 matter of a contract and sate/** and an administrator may be surcharged with the value of the good-will of his decedent's business, where it had a market value which he failed to realize/^' and the good-will of a part- nership business is assets of the firm, if it has any selling value, and cannot be appropriated by one partner on the dissolution of the firm, but must be sold for the benefit of the firm.^*" From these considera- tions we should conclude that, if the bankrupt was carrying on a busi- ness of such a nature that it might have a good-will attached to it, the trustee will be entitled to claim whatever benefit may accrue therefrom, and that it is the duty of the trustee to ascertain if the good-will has any market value, and, if so, to realize it for the benefit of the estate. It is expressly so held by the decisions rendered in England under the bankruptcy law of that country,*"^ and was so ruled under the act of Congress of 1867 relating to bankruptcy.*'* Also it appears that the value of the good-will should be taken into account, as an asset of an al- leged bankrupt, in determining the question of his solvency or insol- vency.^** But a good-will which rests only on the voluntary and un- constrained forbearance of those who are engaged in a particular trade, whereby they refrain from inaugurating an enterprise which would rival that already set on foot by another, though they are under no legal obligation so to refrain, is not property in any sense 'known to the law.*"* Hence it becomes important to inquire whether the sale of the good-will of the bankrupt's business by the trustee would in any way estop or prevent the bankrupt from subsequently re-engaging in the same business and soliciting the custom of those who had formerly been in the habit of resorting to his establishment. So far as the au- thorities go, they seem to answer fhis question in the negative. It is true that the bankrupt might bind himself by a covenant not to set up competition against the purchaser, but the court could not require him to enter into such a covenant. However, if he is guilty of fraudulent conduct in representing his new business to be a continuation of his old trade, or if he has so acted as to induce the purchaser to believe that he 188 Hathaway v. Bennett, 10 N. T. 108, W. 350; Sheppard v. Boggs, 9 Neb. 257, 61 Am. Dec. 739; Morse v. Hutchins, 102 2 N. W. 370. Mass. 439; Pay's Adm'r v. Fay (N. J. 201 Hudson v. Osborne, 39 Law Jour. Eq.) 6 Atl. 12; Cruess v. Fessler, 39 Cal. Ch. (N. S.) 79; English Bankruptcy Act, 336; Herfort v. Cramer, 7 Colo. 483, 4 1883, § 56. Pac. 896; Carey v. Gunnison, 65 Iowa, 202 In re Long, 7 Phila. (Pa.) 578, Fed. 702, 17 N. W. 934. Cas. No. 8,477. ISO Wiley's Appeal, 8 Watts & S. (Pa.) 203 Bell v. ElUs, 33 Cal. 620. But com- 244. pare In re Glickman, 1 Nat. Bankr. 200 Bradbury v. Dickens, 27 Beav. 53; News, 58. W^dderbum V. Wedderburn, 22 Beav. 84 ; 204 Sheldon v. Houghton, 5 Blatchf. Wallingford v. Burr, 17 Neb. 187, 22 N. 285, Fed. Cas. No. 12,748. 739 PROPERTY VESTING IN TRUSTEE § 340 would not trade again, the purchaser may have a remedy, but outside of the bankruptcy proceedings.*"® § 340. Debts Due to Bankrupt. — Upon an adjudication in bankrupt- cy, all debts and claims due to the bankrupt pass to his trustee, and the latter thereafter is alone entitled to collect and receive payment of the same,*"* and payment of a debt directly to the bankrupt, made a;£ter the institution of the bankruptcy proceedings, though made in good faith, and even in the usual course of business, and without any other notice than such constructive notice as the filing of a bankruptcy petition is supposed to impart to all concerned, is not effectual to discharge the debt, and is no protection against a suit for its recovery subsequently brought by the trustee in bankruptcy.**" And for stronger reasons, a payment made in bad faith, or with knowledge of the pending proceed- ing, and with the purpose of evading or defeating the operation of the bankruptcy act in any way, is void as against the trustee.*"** If the trus- tee dies or becomes bankrupt, however, the right to receive payment of outstanding debts due to the estate in his charge does not vest in his personal representatives or trustee, but passes to a new trustee to be appointed in the original bankruptcy.*"' These general rules apply to all manner of claims and demands in favor of the bankrupt, as, for example, to money due for the price of goods manufactured and sold by the bankrupt,*^" to money borrowed from him after the filing of the petition and before the adjudication,*" a judgment rendered in the bankrupt's favor before the adjudication,*^* 205 Robson, Bankruptcy (6th edn.) 620, Fed. 84, 108 C. C. A. 196, 26 Am. Bankr. citing Walker v. Mottram, 19 Ch. Div. Eep. 234 ; Galvin v. Boyd, Fed. Cas. No. 355. And see James Van Dyk Co. v. 5,208; Mersfelder v. Peters Cartridge F. V. Reilly Co., 73 Misc. Eep. 87, 130 Co., 32 Ohio Cir. Ct. R. 187. N. Y. Supp. 755. 208 Babbitt v. Burgess, 2 Dill. 169, 7 N. 208 Pullman v. Upton, 96 TJ. S. 328, 24 B. R. 561, Fed. Cas. No. 693. Where a L. Ed. 818; Stow v. Tarwood, 20 111. creditor, without authority, obtains pos- 497; Rogers v. Union Stone Co., 134 session of funds belonging to the debtor, Mass. 31 ; Ex parte Goodwin, 1 Atk. Ch. such unauthorized possession does not, 100. See In re Smyth, 167 Fed. 871, 21 on the subsequent bankruptcy of the Am. Bankr. Rep. 853; First Nat. Bank debtor, entitle the creditor to apply the V. Guarantee Title & Trust Co., 178 Fed. money to the payment of his own claim 187, 101 C. C. A. 507, 24 Am. Bankr. Rep. to the prejudice of other creditors. 330; In re Tanory (D. C.) 270 Fed. 872, Emerson v. Fisher, 246 Fed. 642, 158 C. 46 Am. Bankr. Rep. 520. C. A. 598, 41 Am. Bankr. Eep. 112. 20T Mays v. Manufacturers' Nat. Bank 209 in pe Merrick, 5 Watts & S. (Pa.) 9. 64 Pa. St. 74, 4 N. B. E. 660, 3 Am. Eep. 210 Sweet v. Oregon-Washington Lum- 573 ; Stevens v. Mechanics' Sav. Bank, ber & Mfg. Co., 98 Wash. 91, 167 Pac. 82. 101 Mass. 109, 3 Am. Eep. 325 ; Howard 211 Crompton v. Conkling, 9 Ben. 2*25, V. Crompton. 14 Blatchy. 328, Fed. Cas. Fed. Cas. No. 3,407. No. 6,758 ; In re Hayden, 7 N. B. E. 192, 212 First Nat. Bank v. Cook, 154 U. S. Fed. Cas. No. 6,257 ; Ex parte Goodwin, 628, 14 Sup. Ct. 481, 24 L. Ed. 916; 1 Atk. Ch. 100. But see In re Zotti, 186 Brown v. Wygant, 21 D. C. 16 ; Hale v. § 340 LAW OF BANKBUPTCX 740 or a claim against a sheriff for failing; to make the money on an execu- tion issued on such a judgment,^^^ also to rent due and accrued for prem- ises owned by the bankrupt,*^* and the amount due to him from an- other estate in bankruptcy/*'' or from the estate of a decedent in process of administration in a probate court,*** a claim under a policy of fire iri- surance for the loss by fire of property of the bankrupt covered by such policy/*'' a claim against a city for damages to the bankrupt's real property occasioned by a change in the grade of a street, where the property was injured but not taken,*** or money received by the admin- istrator of a bankrupt who difes after the adjudication and pending the proceedings/** In one case, it appeared that the bankrupt was man- aging agent for a life insurance company, under a contract having sev- eral years to run, which entitled him to an interest in renewal premiums oti policies previously written, when collected, so long as the contract was in force, but subject to the right of the company to terminate such interest if dissatisfied or if the bankrupt failed to comply with the con- tract. In case of his death, his widow or estate was entitled to receive such interest for five years, subject to a fee for collection. It was held that this interest was property which the bankrupt could have trans- ferred, and which therefore vested in his trustee in bankruptcy.*** But an agreement between a debtor and his surety that property held in trust by the surety as indemnity shall be applied to the payment of the debt, does not constitute a demand against the surety which will pass to the trustee in bankruptcy of the debtor, as it is not a mOney demand, Christy, 24 Neb. 746, 40 N. W. 295 ; Sim- 434, 1,84 N. Y. Supp. 1116. And see Alvord mons V. Heman, 17 Mo. App. 444 ; Moore t. Banfield, 85 Or. 49, 166 Pac. 549. V. Jones, 23 Vt. 739, Fed. Gas. No. 9,768. 2" in re EUis, 5 Ben. 421, Fed. Gas. But see (as to effect of pending appeal No. 4,399. and right of trustee to intervene) Alt- sie Gollier v. Hunter, 27 Ark. 74. hause v. Giroux Gonsol. Mines Co., 150 217 Walton Land & Timber Co. v. App. Div. 580, 185 N. Y. Supp. 500. Runyan (G. G. A.) 269 Fed. 180, 46 Am. Where a divorced wife is adjudged bank- Bankr. Rep. 248 ; Home Ins. Co. v. rupt, arrears of alimony due her at the Hollis, 58 Ga. 659, 14 N. B. R. 837. In time of the adjudication pass to her trus- re Luber (D. G.) 261 Fed. 221, 44 Am. tee, but not so as to alimony accruing Bankr. Rep. 292. But a trustee whose after the beginning of the bankruptcy bankrupt had mortgaged chattels is not proceedings. Bolton v. Bolton, 86 N. J. entitled to the proceeds of a fire policy Law, 69, 89 Atl. 1014. on such chattels taken out by the mort- als Gary v. Bates, 12 Ala. 544. gagee, on the theory that, the mortgage 214 Flanders v. Coleman (D. 0.) 249 being invalid, the mortg'agee had no in- Fed. 757, 41 Am. Bankr. Rep. 727. Brock surable interest. In re Stucky Trucking V. Weiss, 44 N. J. Law, 241. So a cove- & Rigging Go. (D. C.) 240 Fed. 427. nant by a landlord to return the deposit 218 in re Torchia, 185 Fed. 576, 26 Am. made by the tenant as security to carry Bankr. Rep. 188. out the lease is collateral and personal 210 in re Matschke, 193 Fed. 284, 27 and does not pass to the tenant's as- Am. Bankr. Kep. 770. signee as against his trustee in bankrupt- 220 in re Wright (C. C. A.) 157 Fed. cy. Sanford v. Zimmern, 76 Misc. Rep: 544, 19 Am. Bankr. Rep. 454. 741 PEOPBETY VESTING IN TEDSTBB § 341 but merely a right to require performance of an obligation or duty.^*^ So, where the payee of a note or duebill sells it before his bankruptcy, the purchaser takes title as against the seller's trustee, though the in- dorsement is made after the bankruptcy.-"^ In this connection it should be noted that it is not permissible for the bankrupt so to deal with any debt or claim due to him as to make it available only for his personal benefit and take it out of the reach of his creditors. Thus, if he holds a promissory note, an agreement on his part to accept payment of it in labor or care of himself or in his own support, made without any new consideration, will not be valid as against his general creditors where the contract was not fulfilled before the institution of bankruptcy pro- ceedings.*** § 341. Same; Claims Against Government. — A claim for damages against the United States government will pass to and vest in the trustee in bankruptcy of the claimant,*"* even before Congress has made any provision for the payment of such claims, and even though the claim is only a right to share in the distribution of a fund received by the United States from a foreign government to be apportioned as compensation among its own injured citizens (as was the case with the Geneva award under the Alabama Claims Commission), though both the accrual of the claim and the bankruptcy of the claimant preceded the making of the treaty under which such fund eventually became available.**® But this is not the case where the claim is not of such a nature that it would be legally enforceable against a private individual, and where its recogni- tion and payment are wholly optional with Congress and depend rather upon the clemency or generosity of that body than upon any moral ob- ligation.*** And so, a mere expectation of receiving a- reward from the Treasury department for furnishing information concerning smugglers, which has been applied for by the informer but not yet passed upon by the Secretary of the Treasury, whose action in the matter is discretion- ary, is not property of such a nature as to vest in the trustee in bankrupt- cy of the claimant.**' An act of Congress (Rev. Stat. § 3477, U. S. Comp. 221 White V. Crew, 16 Ga. 416. 225 Williams v. Heard, 140 U. S. 529, 222 Smoot V. Morehouse, 8 Ala. 370, 42 11 Sup. Ct. 885, 35 L. Ed. 550 ; Phelps Am. Dec. 644 ; Hersey v. EUiot, 67 Me. v. McDonald, 99 U. g. 298, 25 L. Ed. 478 ; 526, 24 Am. Rep. 50. Erwin v. United States, 13 Ct. CI. 49 ; 223 In re Powers, 1 Nat. Bankr. News, Leonard v. Nye, 125 Mass. 455; William- 185. • son V. Colcord, 1 Hask, 620, 13 N. B. K. 224 Erwin v. United States, 97 U. S. 319, Fed. Cas. No. 17,752. 392, 24 L. Ed. 1065 ; Phelps v. McDonald, 226Dockery v. United States, 26 Ct. 99 U. S. 298, 25 L. Ed. 478; Phelps v. CI. 148. McDonald, 2 MacArthur (D. C.) 375, 16 227 in re Ghazal, 174 Fed. 809, 98 C. N. B. R. 217 ; Cbmegys v. Vasse, 1 Pet. C. A. 517, 23 Am. Bankr. Rep. 178 ; s. c, 193, 7 L. Ed. 108. ■ 163 Fed. 602, 20 Am. Bankr. Rep. 807. § 342 LAW OF BANKRUPTCY 742 Stat. 1901, p. 2320) expressly forbids the assignment of a claim against the United States for money due under a contract, unless executed with the formalities therein prescribed, and unless the claim has been previ- ously allowed and a warrant issued for its payment. And consequently an assignment of such a claim, not yet allowed, can have no force or validity as against the trustee in bankruptcy of, the claimant, and he takes it as assets of the estate, free from any rights or interests on the part of the assignee.*^* § 342. Rights of Action. — The bankruptcy statute expressly vests in the trustee of a bankrupt "rights of action arising upon contracts or from the unlawful taking or detention of, or injury to, his property/'*^® and it is probable that various choses in action, not precisely within this limited description, will pass to the trustee under the broader clause (in the same section of the act) which invests him with title to property which the bankrupt "could by any means have transferred." Thus the trustee becomes entitled to claim, and to enforce for the benefit of the estate in his charge, a promissory note of a third person belonging to the bankrupt at the time of the filing of the petition,*^" a claim of the bankrupt against a third person for goods sold to the latter, to the ex- tent of their value, where no price was fixed at the time of the sale,^^' a claim against an insolvent estate pending in the probate court,*^^ or the right to contest the account of the administrator of the bankrupt's ancestor.*^^ Also the trustee takes a right of action for land in dispute 22 8 National Bank of Commerce v. f erred by a bankrupt as a credit on a Downie, 218 U. S. 345, 31 Sup. Ot. 89, 54 pre-existing indebtedness, on the day on L. Ed. 1065, 25 Am. Bankr. Rep. 199, af- which he filed his petition in bankruptcy, firming 161 Fed. 839, 88 C. C. A. 657, 20 may be sold by the trustee, although the Am. Bankr. Rep. 531 ; Guarantee Title transfer was only voidable and not void. & Trust Co. V. First Nat. Bank. 185 Fed. Keller v. Falckney, 42 Tex. Civ. App. 373, 107 C. C. A. 429, 26 Am. Bankr. Rep. 483, 94 S. W. 103. See In re Thomas 85. (D. C.) 199 Fed. 214, 29 Am. Bankr. Rep. 229 Bankruptcy Act 1898, § 70a. All 945. But a wife's trustee in bankruptcy rights of action arising out of contracts, is not entitled to recover from the hus- belonging to the bankrupt, vest In his band the amount expended by the wife trustee. Tucker v. Western tfnion Tel. for the support of herself and her chil- Co., 94 Misc. Rep. 364, 157 N. T. Supp. dren during the husband's abandonment 873. Where a buyer of goods has a claim of his family, when not representing for damages against the seller for the creditors supplying necessities on the latter's failure to deliver, such claim husband's credit. McCabe v. Guido, 116 passes to the buyer's trustee in bank- Miss. 858, 77 South. 801. ruptey. Tennison v. Planson, 136 Ark. 230 in re Duncan (D. 0.) 148 Fed 464 266, 206 S. W. 438 ; Hibernian Banking 17 Am. Bankr. Rep. 283. Ass'n V. Bell & ZoUer Coal Co., 181 111. 23iLeist v Dierssen 4 Pnl Ann rq^ App. 581. This is also true of a claim gg Pac! 812 ' ^^- ^^^- ^^' arising out of the embezzlement or mis- „,„,!.„ ^ , appropriation of the bankrupt's money. ''' *^i"er v.- Parker, 47 Ala. 312. Millard v. Green, 94 Conn. 597, 110 Atl. 233 in re Clute, 1 Nat. Bankr. News, 177, 9 A. L. R. 1610. And a claim trans- 386. 743 PKOPEETY VESTING IN TRUSTEE § 342 and held in adverse possession by a third person,^'* and may maintain an action to set aside the cancellation of a real-estate mortgage which was fraudulently procured from the bankrupt.*'* He is likewise vested with the right of action on a policy of fire insurance, for the destruc- tion of insured property of the bankrupt by fire, occurring after the ad- judication but before the appointment of the trustee,*** and with the right of action against a sheriff for failing to make the money on an exe- cution, or for selling the property on credit and failing to collect the amount of the bid.-*' So also, the bankrupt's right to file a notice of and to enforce a mechanic's lien passes to his trustee.*** And the trus- tee of a bankrupt corporation is entitled to sue for and collect unpaid subscriptions to the stock,*** though a statutory liability imposed upon persons who organize and transact business in the name of a corpora- tion before its minimum capital stock has been subscribed is not an as- set of the corporation, and hence the right to enforce such liability does not pass to its trustee in bankruptcy.*** A personal claim which there is no legal power to enforce, but on which an award is made by arbitra- tors, does not pass to a trustee in bankruptcy ; *" and a claim of a wife for alimony is not a property right, and property awarded to her as ali- ■ mony after her adjudication in bankruptcy does not become a part of her estate.*** It should also be observed that a trustee in bankruptcy succeeds to the bankrupt's title to choses in action, sftbject to any de- fense or counterclaim to which they would have been liable in the hands of the bankrupt*** Hence, for example, where property of the bankrupt covered by insurance has been destroyed by fire, but he has lost his right to sue on the policy by failing to render a statement forthwith, as re- quired by the policy, his trustee in bankruptcy cannot sue on it.*** So a trustee in bankruptcy has no greater rights on a note payable to the bankrupt, the signer of which added to his signature words indicating that he signed it as the treasurer of a corporation, than the bankrupt 2 84 Pope V, Davenport, 52 Tex. 206. Wash. 23, 153 Pac. 1082. On the general 2 35 Alexander v. Berney, 28 N. J. Eq. subject, see, supra, § 148, 90. 2*0 John V. Farwell Co. v. Jackson 23e Fuller v. New York Fire Ins. Co., y^' ^^J f " "^' f «• ^- f .^""^ 104 iwo== 19 fi-TM V R7CI see, supra, § 149. See also Breck v. 184 Mass. 12, 67 N^E 879. Brewster, 153 App. Div. 800, 138 N. Y. 2 87 Sullivan V. Bridge, 1 Mass. 511; g^pp gg] In re Geiser, 129 Fed. 287, 12 Am. Bankr. 24iTallman v. Tallman, 5 Cush. Kep. 208. (Mass.) 325. 288 Held V. Burke, 83 App. Div. 509, 82 242 in re Le Claire, 124 Fed. 654, 10 N. Y. Supp. 426. Am. Bankr. Rep. 733. 239Foote V Greilick, 166 Mich. 636, 2*3 Nebraska Moline Plow Co. v. Black- 132 N W. 473 ; Lane v. Nickerson, 99 111. burn, 74 Neb. 246, 104 N. W. 178. 284, Benner v. Billings, 107 Wash. 1, 181 244 Bennett v. .^tna Ins. Co., 201 Mass. Pac. 19. See McKay v. Carman, 89 554, 88 N. B. 335, 181 Am. St. Rep. 414. § 343 LAW OF BANKRUPTCY 744 himself had.*** And the trustee in bankruptcy of a corporation stands in no better position to attack an arrangement between the corporation's selling agent and a purchaser, whereby the agent was to pay his debt to the purchaser by paying part of the purchase, price, which was ratified by the corporation, than would the bankrupt company.**® In the bank- ruptcy of corporations, the same rules generally prevail. Thus, the trus- tee in bankruptcy of a trading corporation succeeds to any right which it might have to sue the directors for loss resulting from a breach of their duty.**' § 343. Same; For Personal Injuries and Other Torts. — In respect to rights of action on torts, it is necessary to distinguish carefully be- tween those which occasion injury to the person and those which occa- sion injury to property. Those of the latter class vest in the trustee in bankruptcy; those of the former class do not. Thus, if the bankrupt has an unliquidated claim for damages against a common carrier or oth- er person, for negligence or wrongful act which caused injury to his person, it does not vest in his trustee in bankruptcy and the latter has no interest in it.*** But a similar claim for the value of property of the bankrupt, lost or damaged in consequence of the negligence or wrong- ful act of a carrier or other person, is an asset of his estate and passes to the trustee.**® On the same principle, the trustee cannot lay claim to a right of action for damages growing out of an assault and battery up- on the bankrupt,*®** or for slander or libel against him,**i or for malicious prosecution and false imprisonment.*®* But if the bankrupt's claim for damages for any purely personal tort has already been reduced to judg- ment before his bankruptcy, it Vv^ould seem clear that the judgment will vest in the trustee, for the tort is merged in the judgment, and the latter is property which the bankrupt "could have transferred," within the meaning of the statute. 246 Jump V. Sparling, 218 Mass. 324, (Mass.) 539; Beeehwood v. Joplin-Pitts- 105 N. B. 878. tourg Ry. Co. 173 Mo. App. 371, 158 S. 24 6 GroUman v Montgomery Ward & W. 868; Co., 181 111. App. 598. 249 Borden v. Bradshaw, 68 Ala. 362. 247 McEvven v. Kelly, 140 Ga. 720, 79 S. The right to recover for injuries to the E. 777. See Emerson v. Fisher, 246 Fed. estate of a bankrupt, resulting from the 642, 158 C. C. A. 598, 41 Am. Bankr. Eep. wrongful appointment of a receiver, vests 112. in the trustee when he is appointed. In 2*8 Sibley v. Nason, 196 Mass. 125, 81 re Veler, 249 Fed. 633, 161 O. C. A. 543, N. B. 887, 12 L. E. A. (N, S.) 1173, 124 41 Am. Bankr. Kep. 736. Am. St. Rep. 520. 12 Ann. Cas. 938; 250 fiudson v. Plets, 11 Paige (N. Y.) Hanson v. First Nat. Bank (Tex. Civ. 180. App.) 128 S. W. 1147; Rand v. Fleish- 2 si Dillard v- Collins, 25 Gratt. (Va.) man, 6 Wkly. Notes Cas. (Pa.) 497 ; Dil- 343 ; Irion v. Knapp, 132 La. 60, 60 lard V. Collins, 25 Gratt. (Va.) 343 ; South. 719, 43 L. K. A. (N. S.) 940. Stone V. Boston & M. R. Co., 7 Gray 2^2 in re Haensell, 91 Fed. 355, 1 Am. 745 PROPERTY VESTING IN TRUSTEE § 343 On the other hand, maUcious attachment is an injury to property, and not to the person, and therefore the right of action will vest in the trus- tee in bankruptcy.*^* And so, a cause of action against an attorney at law, who had been employed to examine and pass upon the title to realty which the plaintiff intended to purchase, for certifying to him as good a title which was really defective, is nominally a cause of action for breach of contract, but in substance an action of tort ; yet as the tort involved is an injury to the property of the plaintiff, rather than his person, it will pass to his trustee in bankruptcy.^^* So also, the modern decisions hold that a right of action for deceit, based on false and fraudulent representa- tions, whereby the plaintiff was induced to sign a contract, enter into a partnership, buy property at an excessive price, or extend credit to a third person, to his pecuniary loss, is a "right of action arising from an injur;;- to his property," within the meaning of the statute, and therefore passes to the trustee.*®* And for a similar reason, a right of action for damages, given by a state statute to any person injured by the operation of any "trust," (as, for instance, for a conspiracy whereby the plaintiff was driven out of business), is held to be for an injury to business, em- ployment, or property, and therefore such as will vest in the trustee in bankruptcy.*®* So also of a right to sue for money lost in gambling, given by statute to the loser.*®' And under the statutes giving a right of action for the wrongful killing of a human being, the recovery to be for the benefit of the next of kin, it has been held that where a father is entitled to the entire amounf to be recovered for the wrongful killing of his son, his right thereto constitutes an asset of his estate in bankrupt- cy.^®* So again, where profits of the business of a corporation are wrongfully appropriated to his own use by an officer of the company, under the guise of a salary, the trustee in bankruptcy of the corporation may recover the same.*®* Bankr. Bep. 286; Noonan v. Orton, 34 3,402; Leggate v. Moulton, 115 Mass. Wis. 259, 17 Am. Rep. 441, 12 N. B. R. 552. 405; Stanly v. Duhurst, 2 Root (Conn.) ss" Cleland v. Anderson, 66 Neb. 252, 52. 92 N. W. 306, 96 N. W. 212, 98 N. "W. 253 Hansen Mercantile Co. v. Wyman, 3075, 5 L. R. A. (N. S.) 136; Id., 75 Neb. Partridge & Co., 105 Minn. 491, 117 N. 273, 105 N. W. 1092, 5 L. R. A. (N. S.) W. 926. 21 L. R. A. (N. S.) 727. 136. But compare Bonvillain v. Ameri- 25* Knights V. Quarles, 4 Moore, 532. can Sugar Refining Co. (D. C.) 250 Fed. 255 In re Gay, 182 Fed. 260, 25 Am. 641, 41 Am. Bankr. Rep. 267. Bankr. Rep. Ill; In re Harper, 17.5 257 Brandon .v. Sands, 2 Ves. .Jr. 514. Fed. 412, 23 Am. Bankr. Rep. 918; 2b8 in re Burnstine. 131 Fed. 828,12 Hyde v. Tuffts, 45 N. T. Super. Ct. 56. Am. Bankr. Rep. 596. Earlier decisions, under the act of 1867, 259 FUlebrown v. Haywood, 190 Mass. were to the contrary. See Tiifts v. 472, 77 N. E. 45, But salaries, not un- Mathews, 10 Fed. 609: In re Crockett, _ reasonable in amount, voted and paid 2 Ben. 514, 2 N. B. R. 208. Fed. Oa,s. No. by the directors of a corporation, who § 344 LAW OF BANKRUPTCT 746 § 344. Same; For Usury. — A right of action under a state statute to recover back usurious interest paid (or double the amount of it, or a penalty for exacting it, as the case may be) will vest in the trustee in bankruptcy of the borrower, since the injury done by the usurer is an injury to the property or estate of the borrower and not a personal tort.*'" The rule is the same under the national banking law. The right of action against a national bank, to recover twice the amount of usurious interest paid to it, under the act of Congress in that behalf (Rev. Stat. U. S. § 5198), will pass to and vest in the trustee in bank- ruptcy of the borrower, who is the "legal representative" of the bor- rower, within the meaning of that statute, for although the action thereon is one to recover a penalty, yet it is distinguishable from causes of action for damages growing out of mere personal torts.***^ § 345. Legacies and Inheritances. — Property coming to a bankrupt as his distributive share of the estate of one dying intestate, or as a legacy or devise, will pass to and vest in his trustee in bankruptcy,**^ though it may be as yet undetermined in respect to its extent,*** or though it may consist of an undivided interest,*®* provided only that the bankrupt's right thereto became a fixed and vested interest by the death of the decedent prior to the filing of the petition in bankruptcy. And where the death and the filing of the petition occurred on the same day, the fractions of that day> will be inquired into for the purpose ot fixing the status of the property, and if the filing of the petition was the later event, the trustee in- bankruptcy may claim the inheritance.**" Where the bankrupt's interest in a legacy is contingent, and becomes vested by the happening of the event or contingency after his adjudica- tion in bankruptcy, it will then become available as an asset of his also owned a large majority of its stock, Markson v. First Nat. Bank, Fed. Cas: to certain officers of the corporation for No. 9,907 ; Crocker v. First Nat. Bank, 4 past services, without objection by any Dill. 358, Fed. Cas. No. 3,397; Monon- stockholder or creditor, are not recover- gahela Bank v. Overholt, 96 Pa. St. 327. able by the trustee on behalf of subse- Contra, Barnett v. Muncie Nat. Bank, quent creditors, on the bankruptcy of Fed. Cas. No. 1,026; Bromley v. Smith, the corporation more than ten years la- 2 Biss. 511, 5 N. fe. R. 152, Fed. Cas. No. ter. In re Franklin Brewing Co. (C. C. 1,922. A.) 263 Fed. 512, 45 Am. Bankr. Kep. 7. 202 Watkins v. Bigelow, 93 Minn. 361. 26oEeed v. American-German Nat. 101 N. W. 497; Ex parte NewhaU, 2 Bank, 155 Fed. 233, 19 Am. Bankr. Rep. Story, 360, Fed. Cas. No. 10,159 ; Dohn- 140 ; Lasater v. First Nat; Bank, 96 Tex. er v. Dohner (Pa.) 1 Am. Law J. N. S. 78. 345, 72 S. W. 1057; Whfeelock v. Lee, =63 in re Mosier, 112 Fed. 138, 7 Am. 15 Abb. Prac. N. S. (N. Y.) 24, 10 N. B. Bankr. Rep. 268. R. 363; Moore v. Jones, 23 Vt. 739, Fed. 204 in re Kane, 161 Fed. 633, 20 Am. Cas. No. 9,768. Contra, Lafountaln v. Bankr. Rep. 616. Burlington Sav. Bank, 56 Vt. 332. ■ 205 in re Stoner, 105 Fed. 752, 5 Am. 261 Wright V. First Nat. Bank, 8 Biss. Bankr. Rep. 402; In re McKenna, 137 243, 18 N. B. R. 87, Fed. Cas. No. 18,078; Fed. 611, 15 Am. Bankr. Rep. 4. 747 PEOPEETY VESTING IN TEUSTEB § 346 estate/** Where the estate devised includes both real and personal property, the administrator of the decedent will have no right or inter- est in the real property as against the trustee in bankruptcy, though it may be that he would be entitled to possession of the personal prop- erty pending its administration."" But it is said that, if there are no local creditors to be protected, the probate court will be justified in turning over to a foreign trustee in bankruptcy of the heir or next of kin the bankrupt's share in the personal estate.*** § 346. Property Held in Trust for Bankrupt. — When property is held in trust for the bankrupt under a mere passive trust, with no di- rection as to accumulation and no discretion in the trustee to devote the fund or the income to any person other than the bankrupt, it con- stitutes assets of the latter's estate and may be recovered by the trus- tee, who need not give notice to the holder of the trust in order to com- plete his title. ^** And this is true nat only of express trusts but of such as are implied by law from the situation and dealings of the parties. Thus, a trustee in bankruptcy may enforce a resulting trust in land in favor of the bankrupt,*''* or a trust in, the avails of personal property or choses in action.*''* And of course property which is in the posses- sion of a third person, who holds it merely as the agent or bailee of the bankrupt, must be surrendered to the trustee in bankruptcy.*'* But it is otherwise when a trust created by will or deed confers upon the trustee an authority to choose or change the beneficiary or to decide upon the extent to which he shall benefit by the trust. "No case is cited, none is known to us, which goes so far as to hold that an absolute discretion in the trustee (under a will), — a discretion which by the ex- press language of the will he is under no obligation to exercise in favor of the bankrupt, — confers such an interest on the latter that he or his 286 Churchman's Appeal (Pa.) 12 Atl. person who, with his family owned all <300. ttie stock of the corporation, on the 267 In re Kane, 161 Fed. 633, 20 Am. ground that it was held in trust for the Bankr. Rep. 616: company, but he is not entitled to such 2 68 In re Delehanty's Estate, 11 Ariz. person's homestead or other property in 366, 95 Pac. 109, 21 Ann. Cas. 1038. which the corporation's funds were not 269 Whittredge v. Sweetser, 189 Mass. invested. Scott v. Cline, 257 Fed. 706, 45, 75 N. B. 222, affirmed in Hammond 168 C. C. A. 656, 44 Am. Bankr. Kep. S. V. Whittredge, 204 U. S. 538, 27 Sup. Ct. 2" In re Perley, Fed. Cas. No. 10,992. 396, 51 L. Ed. 606; Wallace v. Everett Compare Butler v. Merchants' Ins. Co., (Ky.) 125 S. W. 745; Pollack v. Meyer 14 Ala. 777. Any property in which Bros. IJrug Co., ,233 Fed. 861, 147 C. C. there is a secret trust for the bankrupt's A. 535, 36 Am. Bankr. Kep. 835. benefit, no matter how much covered up, 270 In re Dunavant, 96 Fed. 542, 3 Am. passes to the trustee. XJry v. Van Bankr. Rep. 41 ; Currie v. Look, 14 N. Every, 181 Cal. 604, 188 Pac. 985. D. 482, 106 N. W. 131. The trustee of a 272 in re Cole, 144 Fed. 392, 75 C. C. bankrupt corporation is entitled to re- A. 330, 16 Am. Bankr. Rep. 302; Line- cover real estate held in the name of a ker v. Ayeshford, 1 Cal. 75. § 347 LAW OF BANKRUPTCY 748 assignee in bankruptcy can successfully assert it in a court of equity or any other court." ^'^ But the fact that a fund in which the bankrupt had an interest was held in trust during the life of another by a trustee appointed by a state court will not deprive the court of bankruptcy of jurisdiction to administer such interest.^'* § 347. Same; Testamentary Trusts and Annuities. — Whether or not the provisions of a will create such a trust as will prevent a fund bequeathed from passing to the trustee in bankruptcy of the beneficiary or legatee, is to be determined by the law of the particular State.*'® But it may be stated as a general rule of law that, where property is devised to trustees, with directions to pay the income therefrom into the hands of a named beneficiary during his life, the latter has no such interest or estate either in the corpus of the property or in the income as will pass to and vest in his trustee in bankruptcy, as his rights or interests are not alienable by any sale or assignment on his part.*'® This is the ordi- nary case of a will making provision for a son, daughter, or other rela- tive, by securing an income for life to the beneficiary, but at the same time placing the principal beyond his control, so that he may not squan- der it or make debts which would absorb it. This is unquestionably within the power of a testator, and as creditors of the beneficiary cannot defeat and annul the provisions of the will by the most searching process known to equity, — -a creditors' bill, — neither can they do so through the instrumentality of the court of bankruptcy. So, where the income of a trust fund is directed to be applied to the support of a designated beneficiary and his wife and children, the trustee in bankruptcy of the beneficiary cannot claim such income, and the court cannot apportion the income, as between the bankrupt himself and his family, so as to give the trustee an aliquot share."" It is also entirely competent for a testator to direct that the income of the trust fund shall cease to be paid to the named beneficiary if he shall become bankrupt, and that it shall in that event be paid to his wife or children or to otjier specified 278 Nichols V. Eaton,. 91 V. S. 716, 23 Fed. 671, 16 Am. Bankr. Rep. 238; Spin- L. Ed. 254. And see Kip v. Bant of die v. Shreve, 9 BLss. 199, 4 Fed. 136 ; In New York, 10 Johns. (N. T.) 63 ; Frazier re Hoadley, 101 Fed. 233, 3 Am. Bankr. V. Barnum, 19 N. J. Eq. 316, 97 Am. Dec. Rep. 780 ; Degraw v. Clason, 11 Paige 666. (N. Y.) 136 ; Munroe v. Dewey (Mass.) 2 274 Pollack T. Meyer Bros. Drug Co., Nat. Bankr. News, 840; Brown v. Lum- 233 Fed. 861, 147 C. C. A. 535, 36 Am. bert, 221 Mass. 419, 108 N. E. 1079; Bos- Bankr. Rep. 835. ton Safe Deposit & Trust Co. v. Luke, 27 5 In re McKay, 143 Fed. 671, 16 Am. 220 Mass. 484, 10§ N. E. 64, L. E. A. Bankr. Rep. 238. 1917A, 988. 276 Eaton V. Boston Safe Deposit & 277 Durant v. Hospital Life Ins. Co., 2 Trust Co., 240 U. S. 427, 36 Sup. Ct. 391, Low. 575, 16 N. B. R^ 324, Fed. Cas. No. 60 L. Ed. 723, Ann. Cas. 1918D, 90, 36 4,188. Compare Rugely v. Robinson, 10 Am. Bankr. Rep. 701; In re McKay, 143 Ala. 702. 749 PEOPERTY VESTING IN TRUSTEE § 347 beneficiaries. Such a provision is not contrary eitlier to the general policy of the law or to that of the bankruptcy act in particular, and it leaves nothing for the trustee in bankruptcy to claim for the estate.*''* And for even stronger reasons, he has no claim upon a trust fund which the trustees were at liberty to apply to the benefit of the bankrupt, or not, in their discretion.*'" But in some states (particularly New York) the law provides that where a trust is created by which the trustee is to receive and collect the income from property and apply it to the use and benefit of a named beneficiary during his life, the latter shall riot take any legal estate or interest in the property, and can only enforce the trust in equity, and cannot transfer his rights, but that, if no valid direction for accumula- tion is given, the surplus of such income, beyond the sum necessary for the education and support of the beneficiary, shall be liable to the claims of his creditors in the same manner as other personal property which cannot be reached by execution. Under such statutory provisions, the federal courts have held that the surplus of an income so settled may be claimed by the trustee in bankruptcy of the beneficiary as assets of his estate.^** But the highest court of New York has ruled otherwise, holding that such surplus can be reached only in the manner pointed out in the state statute, and that, since it could neither be "transferred" by the bankrupt nor "levied upon and sold under judicial process against him" (Bankruptcy Act, § 70a), it is not within the terms or meaning of the act.-»i A somewhat different question is presented where a testator gives property to trustees for the benefit of a designated beneficiary, but with the direction that they shall hold it and the accumulations until the beneficiary reaches a certain age, later than the ordinary age of majority. Where this is the case, and the beneficiary is adjudged bankrupt before attaining the age mentioned in thg ■ will, . it is held that his trustee in 278 Nichols V. Eaton, 91 U. S. 716, 23 niarysuit See, also, Graff v. Bonnett, 31 L. Ed. 254, affirming 3 Cliff. 595, Fed. N. T. 9, 88 Am. Dec. '236; Brown v. Cas. No. 10,241. Barker, 68 App. Div. 592, 74' N. Y. Supp. 2T9 Nichols V. Eaton, 91 U. S. 716, 23 43. L. Ed. 254. 2" Butler v. Baudouine, 177 N. Y. 530, 280 In re Tiffany, 133 Fed. 799, 13 69 N. E. 1121. And see McNaboe v Am. Banlir. Rep. 310 ; In re Reynolds Marks, 51 Misc. Rep. 207, 99 N. Y. Supp (D. 0.) 243 Fed. 268, 40 Am. Bankr. Rep. 960 ; Cuthbert v. Chauvet, 136 N. Y. 326 141; Forbes v. Snow (Mass.) 131 N. E. 32 N. E. 1088, 18 L. R.,A. 745; Wet 299 ; In re Baudouine, 96 Fed. 536, 3 more v. Wetmore, 149 N.' Y. 520, 44 N Am. Bankr. Rep. 55. See the latter case E. 169, 33 L. R. A. 708, 52 Am. St. Rep on appeal, 101 Fed. 574, 41 O. 0. A. 752; Mills v. Husson, 140 N. Y; 99, 35 318, 3 Am. Bankr. Rep. 651, where, how- N. E. 422. Compare Jenks v. Title Guar- ever, th6 decision was not on the mer- antee & Trust Co., 170 App. Div. 830, its, but on the question whether tho 156 N. Y. Supp. 478. trustee in bankruptcy must bring a pie- § 347 LAW OF BANKRUPTCY 750 bankruptcy is entitled to claim the fund from the testamentary trus- tees.*** But a trust fund which is directed to be paid over to, the tes- tator's son only when he shall become financially solvent arid able to pay all his just debts and liabilities from resources other than such fund does not pass to his trustee in bankruptcy, although after his dis- charge in bankruptcy it was paid over to the son.*** As to a testamentary annuity, created by a will which directs trus- tees to pay a fixed annual sum to a named beneficiary during his life, it is held that the right of the beneficiary is property which he could assign and which could be followed by his creditors, and therefore will vest in his trustee in bankruptcy, to be sold by the latter for its pres- ent value,*** although it may not pass any estate or interest in the particular lands which are expected to furnish the income out of which the annuity shall be paid.*** It is also ruled that where property is devised in trust, the income to be paid to a named person for life, and the principal, after his death, to his executor in trust for the use of such person as he may appoint by will, and the first taker executes the power, the property appropriated is deemed in equity part of his asset^ and subject to the demand of his creditors, in preference to the claims of his voluntary appointees or legatees, and hence it should be available as assets of his estate in bankruptcy **" § 348. Policies of Life Insurance. — The provision of the statute on this subject is that, if the bankrupt "shall have any insurance policy which has a cash surrender value payable to himself, his estate, or per- sonal representatives, he may, within thirty days after the cash surren- der value has been ascertained and stated to the trustee by the company issuing the same, pay or secure to the trustee the sum so ascertained and stated, and continue to hold, own, and carry such policy free from the claims of the creditors participating in the distribution of his estate under the bankruptcy proceedings, otherwise the policy shall pass to the trustee as assets." **" Aside from the question of exemption, therefore, insurance policies having a surrender or disposable value are assets passing to the bankrupt's trustee.*** This part of the statute is now 282 Sanford v. Lackland, 2 Dill. 6, 286 De Haven v. Sherman, 131 111. 115, Fed. Gas. No. 12,312. And see Loomer 22 N. B. 711, 6 L. R. A. 745. V. Loomer, 76 Conn. 522, 57 Atl. 167. 28 8 Clapp v. Ingraham, 126 Mass. 200. 288 Hull V. Farmers' Loan & Trust 2 87 Bankruptcy Act 1898, § 70a, pro- Co., 245 U. S. 312, 38 Sup. Ct. 103, 62 L. Tiso. Ed. 312, 40 Am. Bankr. Rep. 594. 2 8s in re Phillips & Goldman, 192 Fed. 284 In re Burtis, 188 Fed. 527, 26 Am. 1020; In re Churchill, 198 Fed. 711, 29 Bankr. Rep. 680; Degraw v. Clason, 11 Am. Bankr. Rep. 153; In re Whelpley, Paige (N. Y.) 136; Graves v. Dolphin, 1 169 Fed. 1019, 22 Am. Bankr. Rep. 433; Simons, 66; Brandon v. Robinson, 18 Travelers'' Ins. Co. v. Middlekamp, 67 Ves. 429. Colo. 162, 185 Pac. 335. As to the rule 751 PROPERTY VESTING IN TRUSTEE § 348 read as excluding from the estate in bankruptcy all policies except such as may have a surrender value,^*® though it was formerly held that the language above quoted was not intended to define the class of insurance policies which should pass to the trustee in -bankruptcy, and limit the same to such policies as had a cash surrender value, but merely to give to the bankrupt a privilege with respect to the redemption of such poli- cies,**" and that therefore, though the policy in question may have no surrender value in cash, yet if it has any actual value (such as an in- choate value, or a value for the purpose of being pledged as collateral, or a paid-up insurance value), the trustee may claim it as an asset of the estate, since it is property which the bankrupt himself could have transferred and is therefore within the broader clause of the statute.^*' But a policy which has no surrender value, and no cash value to the es- tate, and in fact no value for any purpose except the contingency of its becoming valuable at the death of the bankrupt in case the premiums are kept paid, does not constitute an asset of the estate in bankruptcy.^"* The surrender value of a life insurance policy is the sum which the company will pay upon the surrender of the policy and its cancellation, in Mississippi, see In re Brinson (D. C.) 262 Fed. 707, 45 Am. Bankr. Rep. 99. As to the exemption of life insurance poli- cies, see, supra, § 243. 2 89 Burlingham v. Grouse, 228 U. S. 459, 33 Sup. Ct. 564, 57 L. Ed. 920, 30 Am. Banbr. Rep. 6, aflBrming 181 Fed. 479, 104 C. C. A. 227, 24 Am. Bankr. Rep. 6.32; In re Josephson, 121 Fed. 142, 9 Am. Banbr. Rep. 345, affirmed In Meyers . V. Josephson, 124 Fed. 734, 59 C. C. A. 650, 10 Am. Bankr. Rep. 687; King v. Miles, 108 Miss. 732, 67 South. 182. 2 90 In re SlinglufC, 106 Fed. 154, 5 Am. Bankr. Rep. 76 ; In re Coleman, 136 Fed. 818, 69 C. O. A. 496, 14 Am. Banbr. Rep. 461. 2 91 Partridge v. Andrews (C. O. A.) 191 Fed. 325, 27 Am. Banbr. Rep. 388; In re Orear, 178 Fed. 632, 102 C. C. A. 78, 24 Am. Banbr. Rep. 343; In re Coleman, 136 Fed. 818, 69 C. C. A. 496, 14 Am. Banbr. Rep. 461; In re Welling, 113 Fed. 189, 51 C. C A. 151, 7 Am. Banbr. Rep. 340; In re Dolan, 182 Fed. 949, 25 Am. Banbr. R^p. 145; In re Hettling, 175 Fed. 65, 23 Am. Banbr. Rep. 161; Clarb V. Equitable Life Assur. Soc, 143 Fed. 175, 16 Am. Banbr. Rep. 137; Van Kirk V. Vermont Slate Co., 140 Fed. 38, 15 Am. Banbr. Rep. 239; Gould v. Kew York Life Ins. Co., 132 Fed. 927, 13 Am. Bankr. Rep. 233. 292 In re Buelow (D. C.) 98 Fed. 86, ,3 Am. Bankr. Rep. 389; Gould v. New York Life Ins. Co. (D. C.) 132 Fed. 927, 13 Am. Bankr. Rep. 233; Sanders v. .aatna Life Ins. Co., 95 S. C. 36, 78 S. E. 532, Ann. Gas. 1915B, 1284. Where a twenty-year endowment policy has no cash surrender value before the end of the period, the insured's trustee In bank- ruptcy does not take an interest therein merely because it provides certain valu- able benefits to which the bankrupt will be entitled in case he survives the pe- riod. In re GhurchiU, 209 Fed. 766, 126 C. G. A. 490, 31 Am. Bankr. Rep. 1. An industrial policy, not payable with cer- tainty to any beneficiary, and which it does not appear the insurer will certain- ly buy, has no cash surrender value and therefore does not pass to the trustee. In re Gannon, 247 Fed. 932, 160 C. O. A. 122, 40 Am. Bankr. Rep. 518. Insurance policies on the life of the bankrupt, which have been fully paid and are yielding annual dividends, do not pass to the trustee where they have all been borrowed upon to their full loan value, and the interest on the loans exceeds the dividends. In re Williams (D. C.) 250 Fed. 288, 41 Am. Bankr. Rep. 611. § 348 LAW OF BANKRUPTCY 752 in consideration of being relieved from carrying the risk further.^*' This surrender value is often expressly , stipulated for in the policy itself, which may further contain the data, or fixed basis of calculation, on which the surrender value in any given year of the life of the policy will be computed. But in order that a policy may have a "cash surrender value," within the meaning of the bankruptcy law, it is not necessary that the policy should contain an express agreement or stipulation to that effect; it is sufficient if it possesses an actual value, either in cash or for the purchase of a paid-up policy, which would be recognized and paid by the insurer on the surrender of the policy, as a matter of settled and usual practice, or even as a concession in the particular case.*^* An endowment policy on the life of the bankrupt, payable to him with accumulated dividends if he survives the term, or to his wife in case of his death before its maturity, if it has a cash surrender value, will vest in the trustee in bankruptcy unless redeemed by the bank- rupt.^*® And even if it has no surrender value, yet if it has an actual 2»s In re Boardman, 2 Nat. Bankr. News, 821; In re McKinney, 15 Fed. 535. In the case last cited, it was point- ed out that the foundation of the sur- render value of a policy is the excess of the fixed annual premiums in the ear- lier years of the policy over the annual risk during the later years of the pol- icy. "This excess in the premium paid over the annual cost of insurance, with accumulations of interest, constitutes the surrender value. Though this ex- cess of premiums paid Is legally the sole property of the company, still> in prac- tical effect, though not in law, it is money of • the assured, deposited with the company in advance, to make up the deficiency in later premiums to cover the annual cost of insurance Instead of be- ing retained by the assured and paid by him to the company in the shape of greatly increased premiums when the risk' is greatest. It Is the 'net reserve' required by law to be kept by the com- pany for the, benefit of the assured and to be 'maintained to the credit of the policy. So long as the policy remains In force, the company has not practically any beneficial interest in it, except as its custodian, with the obligation to maintain It unimpaired and suitably in- vested for the benefit of the assured. This is the practical, though not the le- gal, relation of the company to this fund. Upon the surrender of the policy before the death of the assured, the company, to be relieved from all respon- sibility for the increased risk, which is represented by this accumulating re- serve, could well afford to surrender a considerable part of it to the assured or his representative. A return of a part, in some form or other, is now usually made." 2 84 Holden v. Stratton, 198 U. S. 214, 25 Sup. Ot. 660, 49 L. Ed. 1022, 14 Am. Bankr. Rep. 94 ; Hiscock v. Mertens, 205 U. S. 202, 27 Sup. Ct. 488, 51 L. Ed. 771, 17 Am. Bankr. Rep. 483 ; Equitable Life Assur. Soc. V. Miller, 185 Fed. 98, 25 Am. Bankr. Rep. 560; In re Herr, 182 Fed. 716, 25 Am. Bankr. Rep. 142 ; In re Coleman, 136 Fed. 818, 69 C. C. A. 496, 14 Am. Bankr. Rep. 461; In re Board- man, 103 Fed. 783, 4 Am. Bankr. Rep. 620. But compare Pulsifer v. Hussey, 97 Me. 434, 54 Atl. 1076. Though the Insurance company does not recognize the policy as haying a surrender value, yet if it has a recognized loan value, which Is substantially the same, this val- ue may be made available to the trus- tee in bankruptcy. Richter v. Rockhold, 253 Fed. 941, 165 C. C. A. 383, 42 Am. Bankr. Rep. 384. 2 06Remley v, Travelers' Ins. Co., 108 Minn. 31, 121 N. W. 230; In re Scho- field, 147 Fed. 862, 15 Am. Bankr. Rep. 824; In re Young, 208 Fed. 373, 31 Am. Bankr. Rep. 29; In re Simmons (D. C.) 253 Fed. 466, 42 Am. Bankr. Rep. 209; 753 PROPERTY VESTING IN TRUSTEE § 348 cash value which, by any practicable means, can tje realized and made available for the payment of debts, the creditors are entitled to the bene- fit- of it. Where the amount of such a policy is considerable, and it will mature before the estate can be closed, the trustee may, with the sanction of the court and the assent of the creditors, retain it, and pay the remaining premiums as they mature, and in case the amount is realized, the creditors will be entitled to at least the proportion equitably to the credit of the policy at the date of the adjudication, with the out- lay for premiums.*"* And the same rule has been applied to the so- called "tontine" and "semi-tontine" forms of policies.*"' And a paid- up policy insuring the bankrupt's life, under an agreement to pay him an annuity for life after twenty years, which term has not expired, and to pay his widow a fixed sum on his death, vests in his trustee in bank- ruptcy, but only as to the bankrupt's interest in the annuity, and not as to the entire present value of the policy.*'* The trustee can claim only such policies as are payable to the bank- rupt himself or to his estate or personal representatives. A special in- dustrial life policy, payable primarily to the executors or administrators, but with provision for payment to any person who may be equitably en- titled, at the company's option, does not vest in the trustee.**" And it 'was formerly held that a policy on the life of the bankrupt, but expressed, to be payable to his wife, was her property and not an asset of his es- tate in bankruptcy,^*' and that it was immaterial that the bankrupt might have the right, with the consent of the company, to change the beneficiary, if he had not done so at the time of the bankruptcy.^"* In re Dreuil & Co. (D. C.) 221 Fed. 796, Soc, 181 Mass. 341, 63 N. E. 899 ; Pulsi- 34 Am. Bankr. Rep. 373, far v. Hussey, 97 Me. 434, 54 Atl. 1076. 290 In re Slingluff, 106 Fed. 154, 5 Am. But see In re White, 174 Fed. 333, 98 C. Bankr. Rep. 76 ; In re Mertens, 131 Fed. C. A. 205, 23 Am. Bankr. Rep. 90 ; In re 972, 12 Am. Bankr. Rep. 712. Holden, 114 Fed. 660, 52 0. C. 346. 297 Hiscock V. Mertens, 205 U. S. 202, Compare In re Young, 208 Fed. 373, 31 27 Sup. Ct. 488, 51 L. Ed. 771, 17 Am. Am. Bankr. Rep. 29; In re Loveland, 200 Bankr. Rep. 483 ; In re Welling, 113 Fed. Fed. 136, 118 C. C. A. 310, 29 Am. Bankr. 189, 51 C. C. A. 151, 7 Am. Bankr. Rep. Rep. 560. 340; In re Mertens, 131 Fed. 972, 12 Am. soi in rp Cohen (D. C.) 230 Fed. 733, Bankr. Rep. 712. 37 Am. Bankr. Rep. 189 ; In re Arkin, 208 In re Schaefer, 189 Fed. 187, 26' 231 Fed. 947, 146 O. C. A. 143, 36 Am. Am. Banltr. Rep. 340. Bankr. Rep. .694 ; In re Pfaffinger (D. C.) 299 In re Gannon (D. C.) 241 Fed. 733, 164 Fed. 526, 21 Am. Bankr. Rep. 255. 39 Am. Bankr. Rep. 783. See In re L. Hammel & Co., 221 Fed. 56, 300 In re Flanigan (D. C.) 228 Fed. 339, 137 C. C. A. 80, 34 Am. Bankr. Rep. 46, 35 Am. Bankr. Rep. 807 ; In re Steele, holding that the bankrupt cannot be com- 98 Fed. 78, 3 Am. Bankr. Rep. 549; In pelled to substitute himself as benefl- re Pfaffinger, 164 Fed. 526, 21 Am. Bankr. ciary in a life insurance policy payable Rep. 255 ; In re Bear, 11 N. B. R. 46, ■ to his wife and borrow the loan value Fed. Cas. No. 1,178; Pace v. Pace, 19 Fla. thereof for the benefit of his creditors. 438; Haskell v. Equitable Life Assur. Blk.Bkb.(3d Ed.)— 48 § 348' LAW OF BANKRUPTCY 754 But in 1917 the Supreme Court laid down the rule that although a pol- icy on the life of the bankrupt may be explicitly made payable to some other person, yet if the bankrupt has the absolute right to change the beneficiary at will, so that the designated person has no vested right in the policy, its cash surrender value is property which, the bankrupt could have transferred prior to the bankruptcy, within the meaning of the Bankruptcy Act, and the power to change the beneficiary is a power which he might have exercised for his own benefit, and therefore the surrender value of the policy is an asset of his estate vesting in the trustee.^**^ It is important to be noticed that in some of the states a policy expressed to be payable to the wife of the insured is exempt by statute, and where this is the case, his trustee in bankruptcy takes no interest in it.*** But otherwise, the rule must now be accepted that if the bankrupt has the right at any time and without the consent of the wife to substitute another beneficiary in her place, the policy cannot be regarded as her property, but its surrender value will pass to the husband's trustee in bankruptcy.*"* But this rule does not apply to a policy made payable to the bankrupt's wife, where its terms are such that he has no right to change the beneficiary except after the death of the wife,*"^ and the trustee of a bankrupt cannot recover, after the bankrupt's death, the amount of a policy payable to his wife, with a right to change the beneficiary, which the company had paid to the wife without notice of any adverse claim thereto.*** Nor can the trus- tee claim a policy which was originally payable to the personal repre- sentatives of the bankrupt, but which was assigned to his wife more than four months before the bankruptcy, where nothing appears to im- pugn the good faith of. the transaction,**" or where, at the time of the S02 Cohen v. Samuels, 245 U. S. 50, 38 46 Am. Bankr. Rep. 400; In re Jens (D. Sup. Ct. 36, 62 L. Ed. 143, 40 Am. Bankr. C.) 273 Fed. 606. Compare In re Young Eep. 384 ; Cohn v. Malone, 248 U. S. 450, (D. C.) 208 Fed. 373, 31 Am. Bankr. Rep. 39 Sup. Ct. 141, 63 L. Ed. 352, 43 Am. 29. Bankr. Rep. 1; In re Samuels, 254 Fed. aoa Supra, § 243. 775, 166 C. C. A. 221, 42 Am. Bankr. Rep. 304 in re Jones (D. C.) 249 Fed. 487, 434; In re Shoemaker (D. C.) 225 Fed. 41 Am. Bankr. Rep. 299, 467, 329, 35 Am. Bankr. Rep. 22; Rawls v. . sos in re Majors (D. C.) 241 Fed. 538, Penn Mut. Life Ins. Co., 253 Fed. 725, 39 Am. Bankr. Rep. 642; In re Fetter- 165 0. 0. A. 319, 42 Am. Bankr. Rep. man (D. C.) 243 Fed. 975, 39 Am. Bankr. 612; Malone v. Cohn, 236 Fed. 882, 150 Rep. 834. C. C. A. 144, 38 Am. Bankr. Rep. 87; In soo Frederick v. Metropolitan Life Ins. re Bonvillain (D. C.) 232 Fed. 370, 36 Am. Co., 239 Fed. 125, 152 C. C. A. 167, 39 Bankr. Rep. 761; In re Jamison Bros. & Am. Bankr. Rep. 204; Frederick v. Fi- Co. (D. C.) 222 Fed. 92, 34 Am. Bankr. delity Mut. Life Ins. Co., 255 U. S. 41 Rep. 231; Frederick v. Fidelity Mut. Life Sup. Ct. 503, 65 L. Ed. — , 46 Am. Bankr. Ins. Co., 255 U. S. , 41 Sup. Ct. 503,- Rep. 586. 65 L. Ed. , 46 Am. Bankr. Rep. 586; so? In re Steele (D. C.) 98 Fed. 78, 3 In re Greenberg (O. C. A.) 271 Fed. 258, Am. Bankr; Rep. 549; Grems v. Traver, 755 PROPERTY VESTING IN TRUSTEE § 348 assignment, it had no surrender value in cash.^** But where the policy provides that the principal sum shall be paid to the assured himself at the end of a stipulated term of years if he is then living, or to his wife if he dies before the expiration of the term, its surrender value is payable to the assured, and it becomes a part of his estate in bankruptcy.^*"* But the mere expectancy of one who is named as the beneficiary in a policy of insurance on the life of another is not an asset in his estate in bankruptcy, where the policy also gives the assured the unqualified right to change the beneficiary at will, as this is not property which he could have transferred or which could have been levied on and sold.*^" But where the assured in such a case dies shortly after the adjudication in bankruptcy, leaving the bankrupt as the last designated beneficiary, the interest of the latter in the policy becomes fixed and unalterable, and passes to his trustee.*^^ And so, where a wife holds a policy of insur- ance on the life of her husband, by the terms of which she is bound to pay the premiums and is entitled to receive the proceeds of the policy, such policy will become a part of the assets of her estate in bankruptcy, unless she secures > or pays to her trustee its surrender value.*^* The only interest which the trustee can claim is the surrender value of the policy at the time of the bankruptcy, and if that is paid or se- cured to him, the bankrupt remains the owner of "the policy and of whatever interest or value may thereafter accrue under it.*" Indeed the policy, so far as respects any future insurance under it, would be a burden to the estate rather than a benefit, which the trustee would not be authorized to continue.*" But if the bankrupt does not redeem the policy, as authorized by the statute, it is for the court of bankruptcy to determine in what way the trustee shall treat the bankrupt's interest in it, whether by sale or by postponement of any action until the policy 87 Misc. Kep. 644, 148 N. X. Supp. 200. aio In re Hogan, 194 Fed. 846, 28 Am. Compare South Side Trust Oo. v. Wil- Bankr. Kep. 166; In re McDonnell, 101 marth, 199 Fed. 418, 117 C. C. A. 660, Fed. 239, 4 Am. Bankr. Rep. 92. 29 Am. Bankr. Rep. 29. The fact tbat sn in re Hogan, 186 Fed. 537. the husband paid the premiums on his aisin re Steele, 98 Fed. 78, 3 Am. life insurance policy, assigned to his Bankr. Rep. 549. wife, does not affect her title to the pol- »i8 Pulsifer v. Hussey, 97 Me. 434, 54 icy as against the husband's trustee in Atl. 1076; In re Simmons & Griffin, 255 bankruptcy. Longbottom v. Emery, 261 Fed. 521, 166 C. C. A. 589, 43 Am. Bankr. Pa. 163, 104 Atl. 561. Rep. 3. If an assignment by the bank- 808 Morris v. Dodd, 110 Ga. 606, 36 S. rupt and his wife of policies on his life E. 83, 50 L. R. A. 33, 78 Am. St. Rep. was void, the wife may, on their return 129. after his death, and within 30 days after 30 9 In re Steele, 98 Fed. 78, 3 Am. the determination of their surrender val- Bankr. Rep. 549; In re Grabs, 1 Nat. ue at the date of the adjudication, re- Bankr. News, 164; Brigham v. Home Ins. deem them. In re Levy (D. C.) 227 Fed. Co., 131 Mass. 319 ; In re Draper (D. C.) 1011, 36 Am. Bankr. Rep. 181. 211 Fed. 230, 32 Am. Bankr. Rep. 203. 8i* In re McKinney, 15 Fed. 535. § 348 LAW OF BANKEUPTCT 756 shall fall due.*^^ And in any case, the trustee takes the surrender val- ue of the policy subject to any valid existing liens upon it, as, for ex- ample, an equitable lien in favor of the bankrupt's wife for the amount of premiums which she has paid out of her own money in past years in order to keep the policy alive,*^* or the lien of one to whom the policy had previously been pledged as collateral security for a loan.*" And if the insurance company itself has loaned the bankrupt a sum equal to the full surrender value of the policy, holding the policy as security, there is nothing for the trustee in bankruptcy to take.*^* The death of the bankrupt will of course extinguish the surrender value of any policy, but at the same time mature the policy. And it was formerly held that, if this occurred after the filing of the petition but before the adjudication, the trustee would take the policy in its condi- tion at the date of the adjudication as a matured contract, and if it was payable to the estate or the personal representatives of the assured, the trustee might claim the entire proceeds; whereas, if the bankrupt sur- vived the adjudication, the trustee would take only such surrender value as the policy might have had at that date, and on the subsequent death of the bankrupt his heirs or representatives would have the right to pay to the trustee such surrender value and retain the rest of the proceeds of the policy.^*® f?ut the Supreme Court of the United States has re- cently decided that the time when the petition, in bankruptcy is filed (not the date of adjudication) fixes the cash surrender value of the policy, so that the death of the bankrupt between the filing of the petition and the adjudication does not make the proceeds of the policy above the cash surrender value assets in the hands of the trustee, but the right to re- deem on paying the surrender value may be exercised by the bankrupt's ex€cutors.*^' Where the bankrupt's death occurs by suicide, and the policy thereupon becomes void, but the insurance company returns pre- 316 Waldron v. Becker, 33 Misc. Kep. sia Partridge v. Andrews (O. C. A.) 191 182, 68 N. T. Supp. 402. Fed. 325, 2T Am. Bankr. Rep. 388 ; Van 318 In re Diack, 100 Fed. 770, 3 Am. Kirk v. Vermont Slate Co., 140 Fed. 38, Bankr. Rep. 723 ; Waldron v. Becker, 33 15 Am. Bankr. Rep. 239 ; In re McKin- Misc. Rep. 182, 68 N. T. Supp. 402. And ney, 15 Fed. 535 ; Sanders v. .Sltna Life see In re Bear, 11 N. B. B. 46, Fed. Gas. Ins. Co., 95 S. 0. 36, 78 g. E. 532. No. 1,178; American Sav. Bank & Trust sao Everett v. Judson, 228 U. S. 474, Co. T. Munson, 93 Wash. 78, 159 Pac. 33 Sup. Ct. 568, 57 L. Ed. 927, 30 Am. 1195. Bankr. Rep. 1, affirming 192 Fed. 834, 113 317 In re WoM, 165 Fed. 984, 21 Am. C. C. A. 158, 27 Am. Bankr. Rep. 704: Bankr. Rep. 452; Mutual Benefit Life Andrews v. Partridge, 228 U. S. 479, 33 Ins, Co. V. Swett, 222 Fed. 200, 137 C. Sup. Ct. 570, 57 L. Ed. 929, 30 Am. C. A. 640, Ann. Cas. 1917B, 298 ; Con- Bankr. Rep. 4, reversing 191 Fed. 325. nectlcut Mut. Life Ins. Co. v. Allen, 235 112 C. C. A. 69, 41 L. R. A. (N. S.) 123, Mass. 187, 126 N. E. 367. 27 Am. Bankr. Rep. 388; King v. Miles, 318 Burllngbam v. Grouse (G. 0. A.) 108 Miss. 732, 67 South. 182. 181 Fed. 479, 24 Am. Bankr. Rep. 632. 757 PROl'EKTY VESTING IN TRUSTEE § 349 miums paid under the policy, the money belongs to the trustee, as being a refund of the bankrupt's own money.*^^ Practically the same principles apply to contracts of indemnity in- surance. Thus, where an employer of labor holds a policy undertaking to.indemnify him against loss sustained by accident to an employe, and pays a judgment recovered by an employe against him, and becomes bankrupt, his claim against the insurance company under the policy for reimbursement will pass to his trustee in bankruptcy as an asset of his estate.*^* The trtistee in bankruptcy is also entitled, as against the bankrupt's widow, to the proceeds of a policy of insurance against per- manent disability.*'^^ § 349. Wife's Personalty and Choses in Action. — Where the rule of the common law has not been changed or abrogated by statute, the per- sonal property of the wife of a bankrupt, owned by her at the time of the marriage, and not excluded from the control of the husband by any trust, and also her choses in action reduced to his. possession, are assets of his estate in bankruptcy.*^* But courts of equity have always recog- nized the wife's right to a settlement, — that is, to an adequate provision for her support to be made out of her own property, — and have enforced it whenever it became necessary for the husband to resort to chancery ' in order to reach her property or rights of action, and courts of bank- ruptcy will take the same course.^*'' Subject to this equity, however, and wherever the common law still prevails, the husband's trustee in bankruptcy succeeds to his rights, and where the husband and wife were jointly prosecuting a suit in respect to a chose in action of the wife, and during its pendency the husband is adjudged bankrupt, his trustee should join with the wife in the further conduct of the suit, and his recovery therein will inure to the benefit of the husband's creditors.*** But the trustee is not entitled to a chose in action of the bankrupt's wife, where there is nothing to show that the bankrupt ever asserted his marital right thereto or made any attempt to reduce it to his possession,**'' and 321111 re Judson, 188 Fed. 7D2, 26 Am. Chandler, 3 Gray (Mass.) 392; In re Bankr. Rep. 775, affirmed 192 Fed. 834, Hammond, 98 Fed. 845. 113 C. C. A. 158, 27 Am. Bankr. Rep 704. ,,, ^lark v. Hezekiah. 24 Fed. 663 ; In ''"Travelers' Ins Co. V. Moses 63 N. ^^ ^ g ^j^^ ^^^ ^^^ ^^ J. Eq. 260, 49 Atl. 720, 92 Am. St. Rep. ^gj^. j„ ^^ Campbell, 3 Hughes, 276, 17 ^^^- , , , .„„ „ . „o. or, ^'- B. R. 4, Fed. Cas. No. 2,348 ; Shaw v. 32 3 In re Matschke, 193 Fed. 284, 27 j^jj^j^^jj^ ^ ^^^^^ 220, Fed. Cas. No. Am. Bankr. Rep. 770. ^2,722; Bell v. Bell, 1 Ga. 637. 324 In re Boyd, 2 Hughes, 349, 5 N. B. R. 199, Fed.' Cas. No. 1,745; In re "'" I^i re Boyd, 2 Hughes, 349, 5 N. Grant, 2 Story, 312, Fed. Cas. No. 5,693; B. R. 199, Fed. Cas. No. 1,745. Butler v. Merchants' Ins. Co., 8 Ala. 146; 327 Wickham v. Valle, 11 N. B. R. 83, Gayle v. Randall, 71 Ala. 469 ; Smith v. Fed. Cas. No. 17,613 ; In re Snow, Fed. § 349 LAW OF BANKRUPTCY 758 merely including it in his schedule of assets filed. in the bankruptcy pro- ceedings is not such a reduction to possession as to give his trustee or creditors a claim upon it.^** Nor does the general rule apply to anything but property in which the wife has a fixed and definite interest. Thus, a legacy to the bankrupt's wife, dependent on her surviving another per- son, is a mere possibility and does not pass to the husband's trustee.^** On the other hand, where the wife's separate property is secured to her by statute, the husband's trustee in bankruptcy has no claim to any personal property or chose in action acquired and owned by her before the marriage, such, for instance, as stock in a corporation.*^" And the fact that the wife allows her husband to have and use her money in his own business indefinitely does not prevent her from reclaiming it, as against other creditors, in his subsequent bankruptcy ,**i unless the stat- utory law of the state expressly precludes her from asserting ownership as against creditors in general,*** or raises a presumption that a gift of the money was intended.*** And however this may be,- the property or profits which the husband may have accumulated in business transac- tions, using his wife's money as capital, but adding his own skill and energy, constitute his own assets and not hers, and vest in his ti"ustee.*** Either money or other property given by a man to his wife, at a time when he is solvent and entertains no fraudulent purpose, passes out of his ownership into hers, and cannot be reclaimed for the benefit of his creditors when he afterwards becomes insolvent and bankrupt.**^ And although it is a general rule that money saved by a wife out of an allow- ance made by her husband for the expenses of the household belongs to him and not to her, yet where the wife, during the twelve years of her marriage, managed, by doing her own work, to save from the allowance a considerable sum, which she deposited in bank in her own name, be- sides on different ocpasions expending considerable sums, which fact was probably known to her husband, the presumption is that he intend- ed such savings as a gift to her; and where he was solvent at all times until his death, the trustee in bankruptcy of the surviving partner of a Cas. No. 13,142; Shay v. Sessaman, 10 But see Keating v. Keefer, 5 N. B. E. Pa. St. 432. 133, Fed. Cas. No. 7,635. 328 Poor V. Hazleton, 15 N. H. 564. 382 in re Hemstreet, 139 Fed. 958, 14 329 Krumbaar v. Burt, 2 Wash. C. C. Am. Bankr. Eep. 823. 406, Fed. Cas. No. 7,944. 333 Teter v. Viquesney, 179 Fed. 655, 330 Bryan v. Sturgis Nat. Bank, 40 103 0. C. A. 213, 24 Am. Bankr. Rep. 242. Tex. Civ. App. 307, 90 S. W. 704. ssi Muirhead v. Aldridge, 14 N. B. E. 331 Van Kleeck v. Miller, 19 N. B. E. 249, Fed. Cas. No. 9,904. 484, Fed. Cas. No. 16,860; In re Wes- 335 in re Brandt, 5 Biss. 217, Fed. Cas. tervelt, Fed. Cas. No. 17,445a ; Sliippen's No. 1,811; In re Ludlow, Fed. Cas. No. Appeal, 80 Pa. St. 391, 15 N. B. E. 553. 8,599. 759 PROPERTY VESTING IN TRUSTEE § 351 firm of which he had been a member, on its bankruptcy, after his death, cannot claim such money.'*® § 350, Acquisitions of Minor Children. — Theoretically the services and earnings of a minor belong to his father and constitute assets of the latter's estate in bankruptcy. But the law is not overzealous to strip infants of their earnings, even in favor of their parent's creditors. And it has been held that the property of minor children, accumulated by their sole exertions with their father's consent, and which he has not re- duced to his own possession but which has always stood in their names, does not pass to his trustee in bankruptcy.**' Moreover, where a father, although himself insolvent, has expressly emancipated his minor son, the earnings of the latter, thenceforward and during the remainder of his minority, or property purchased with the same, do not belong to the father and cannot be claimed by his creditors as assets of his estate in bankruptcy.*** § 351. Dower Rights. — A woman's inchoate right of dower in the lands of her husband is not such property as will pass to and vest in her trustee in bankruptcy.*** But when a wife's contingent interest in her husband's lands has been transformed into a vested right by the event of his death, she cannot then divest it by parol without considera- tion, as against her creditors, and consequently, if she has not parted with it prior to her bankruptcy, it will constitute an asset of her es- tate.**" As to the dower rights of the wife in the case of the bankruptcy of the husband, it is the rule in Pennsylvania that the land of a bankrupt can be sold free from the dower rights of his wife, such rights under the state laws beii;ig subject to the claims of creditors.*" But in Ohio, a wife's dower interest in lands, although they are mortgaged, does not pass to the husband's trustee in bankruptcy.*** Under the law in North Carolina, where the wife of a bankrupt has an inchoate dower right in his equitable estates, and has joined with him in mortgages under which his realty is sold subsequent to the bankruptcy, she has a dower right only in the surplus proceeds, and is not, as against the trustee, repre- senting the unsecured creditors, entitled to the present value of one-third of the entire proceeds of the sale.*** 336 In re Simon, 197 Fed. 102, 28 Am. sio Watterson's Appeal, 95 Pa. 312. Bankr. Rep. 616. 34i in re Kligei-man (D. C.) 253 Fed. 337 Ex parte Tebbets, 5 Law Hep. 503, 778, 42 Am. Bankr. Kep. 670. Fed. Cas. No. 13,816. 342 Marine Nat. Bank v. Swigart (C. 338 In re Dunava,nt, 96 Fed. 542, 3 Am. C. A.) 262 Fed. 854, 45 Am. Bankr. Eep. Bankr. Rep. 41. 162. 33 9 Lucas V. Bennett, 42 Iowa, 703. 343 in re Munford (D. 0.) 255 Fed. 108, 43 Am. Bankr. Eep. 218. § 352 LAW OF BANKRUPTCY 760 § 352. Property of Third Persons in Bankrupt's Possession. — If the ^ggi'^giate of property surrendered and turned over to a trustee in bank- ruptcy includes any article or item which does not belong to the bank- rupt, but to a third person, it is not a part of the estate in bankruptcy. The trustee must take charge of it until it is reclaimed by the rightful owner, and cannot surrender it to any other person. But it is not an asset in his hands for administration in bankruptcy.'** This is also true of personal property which is in the possession of the bankrupt un- der a contract of lease, although he may have ah option to buy it at a stated price, which he has never exercised.**'' But to withdraw specific property from the estate to be admmistered, the assertion of title to it must come from the rightful owner, not from the bankrupt. Whatever is in the possession of the latter at the time of the bankruptcy must be delivered to the trustee. A third person may thereafter reclaim any property of his own. But the bankrupt cannot withhold any property actually in his possession, and set up in defense to the trustee's demand for it that the title is in a third person.**® If, however, money has been paid to the bankrupt by mistake, and he has turned it over to the per- son entitled to receive it, the trustee in bankruptcy cannot maintain a suit to recover it back, as it is not a part of the bankrupt's ^issets.**' Questions often arise as to the ownership of property in the bank- rupt's possession under a contract for its sale to him or a contract un- der which it was to become his property on the performance of certain conditions, the trustee claiming the goods as the bankrupt's and seek- ing to put the seller in the position of a creditor for the unpaid price, 344 In re John H. Parker Co. (D. C.) a prima facie showing of his individual 268 Fed. 868, 45 Am. Bankr. Rep. 34; In ownership of certain certificates of de- re Toole (C. 0. A.) 270 Fed. 195, 46 Am. posit, as against the trustee's claim that Bankr. Rep. 243 ; In re Condon, 198 they belonged to the bankrupt, it was Fed. 480, 117 C. C. A. 212, 28 Am. Bankr. held that they should not be impounded Rep. 851 ; ,In re Cox, 199 Fed. 952, 29 for the purpose of being made available Am. Bankr. Rep; 456 ; In re Thompson, to satisfy a judgment which might be 205 Fed. 556, 30 Am. Bankr. Rep. 64; obtained by the trustee against the ofiB- In re Walsh Bros., 195 Fed. 576, 28 Am. cer. In re McGinley, 219 Fed. 159, 135 Bankr. Rep. 243 ; Cooper v. White, 19 C. C. A. 57, 33 Am. Bankr. Rep. 612. Ga. 554. And see In re Potee Brick Co., ^*^ McEwen v. Totten, 164 Fed. 837, 179 Fed. 525 (case of fixtures) ; Ludvigh 90 C. C. A. 599, 21 Am. Rankr. Rep. 336 ; V. Umstadter, 148 Fed. 319, 17 Am. Bankr. In re Kay-Tee Film Exchange (D. C.) Rep. 774 (property partitioned before 193 Fed. 140. bankruptcy); In re Woodman, 186 Fed. 34.8 in re Moses (D. C.) 1 Fed. 845. 533 (money held as deposit to secure Aud see supra, § 322. the return of cans in which the goods «" Jackman v. Bau Claire Nat. Bank, were shipped); In re Shelly (D. C.) 235 125 Wis. 465, 104 N. W. 98, 115 Am. Fed. 311, 37 Am. Bankr. Rep. 514; St. Rep. 955, affirmed Eau Claire Nat. Southern Cotton Oil Co. v. EUiotte, 218 Bank v. .Jackman, 204 U. S. 522, 27 Sup. Fed. 567, 134 C. C. A. 295, 33 Am. Bankr. Ct. 391, 51 L. Ed. 596, 17 Am. Bankr. Rep. 375. In the bankruptcy of a cor- Rep. 675. poration, where one of its officers made 761 PEOPEEXY TESTING IN TEUSTEE § 352 while the latter claims that title has not passed and that he is therefore entitled to a return of the goods.*** These questions must ordinarily be determined according to the general law of sales of personal property.^*' But it may be said, in general, that while payment of the price is not always necessary to complete a sale, yet the vendor may reclaim the property when there has been no delivery of it of such a character as to pass title,^"* as, where the bankrupt, on receipt of the property, ob- jected both to its quantity and quality and stored it separately, and re- fused to pay for it except at a reduced price, which had not been agreed to when bankruptcy intervened.*®'^ So also the seller may reclaim the goods where the contract was for an absolute sale (not conditional) and the payment of the price in cash was a condition precedent to the pass- ing of title, and payment has not been made,*®^ or where payment has been tendered in a medium which the seller refused to accept, such as an uncertified check which is afterwards- dishonored.*^* Again, if prop- erty is in the bankrupt's possession which was not sold to him, but con- signed to him for sale on the owner's account, it is not assets of his es- tate, but may be reclaimed by the true owner.*^ But the fact that a merchant ships goods to a customer, but consigned to himself^is not conclusive proof of his assertion that he reserved title in himself "or the purpose of a future scrutiny of the customer's financial condition, if there are other facts tending to show an actual sale and a resort to this equivocal method for the purpose of denying a sale in case of the cus- 348 The title to building material rescind and reclaim. In re Caldwell which has passed with delivery to the Machinery Co. (D. C.) 215 Fed. 428. purchaser Is not restored to the seller 350 in re Kingston Realty Co. (D. C.) by the fact that there was a representa- 157 j^ed. 303, 19 Am. Bankr. Rep. 703. tion In the contract that it would be gge Kellogg-Mackey-Cameron Co. v. Cur- used In a certain building, which was tjcg, 162 Mo. App. 124, 144 S. W. 152. A breached by the buyer's^ subsequent receiver in bankruptcy has the right to bankruptcy. Citizens' Coal & Supply take property sold to the bankrupt, and Co. V. Custard, 244 Fed- 425, 157 C. O. shipped by carrier, from the carrier on A. 51, 40 Am. Bankr. Rep. 369 ; And see j^g arrival at destination, and such tak- In re Shelly, 242 Fed. 251, 155 C. C. A. i^g e,jds the right of stoppage in transi- 91, 89 Am. Bahkr. Rep. 519. tu. In re Arctic Stores (D. C.) 258 Fed. 3*9 In proceedings to reclaim property gss. 43 Am. Bankr. Rep. 543. from a trustee in bankruptcy, the' ques- 35, j^ ^^ pi^^^gj^. ^^^_ ^ ^g^ ^^^ tlon whether the contract under which g^g ^9 j^^ ^^^^^ ^ ,^29. the bankrupt held the property was ,,„ c ^,, „• ^ a bailment for hire, or a sale, conditional ^ '".^"^'^f™ /!f\no°V/n n^T^ or absolute, must be determined by the Trust Co 141 Fed. 802 73 C. C. A. 60, law of the state in which it was made. ^^ Am. Bam.r. Rep. 618 ; In re Smith, In re Eagle Ice & Coal Co. (D. C.) 241 ^^^ ^l^- ^^^'l ^^- ^fJ^'^/'/^P, ^f ' Fed. 3937 39 Am. Bankr. Rep. 184. In re Burkle, 116 Fed. 766, 8 Am. Bankr. Where goods were sold to the bankrupt ^^' on open account, the title vested at once . '=" I" re Tracy, 185 Fed. 844; In re and the relaition of debtor and creditor Selman Heating & Plumbing Co., 203 was created, so that on bankruptcy in- ^^d. 777. tervening the seller was not entitled to 354 gee, infra, § 356. § 352 LAW OF BANKRUPTCY 762 tomer's bankruptcy; there must be good faith, and no sinister design^ in the transaction.*^ There are also some cases in which a third person may reclaim goods on the ground that the bankrupt was estopped to assert title in himself. And if this is true, the estoppel is equally binding on the trustee in bank- ruptcy, who stands in no better position than the bankrupt himself in respect to the assets, except as to. fraudulent conveyances, preferences, and the like. In an interesting case under the former bankruptcy stat- ute, it appeared that the bankrupts had agreed to build a locomotive engine for a railroad company. They notified the company that the en- gine was finished and dispatched, whereupon the price was paid. No such engine then existed, but two engines, either of which would an- swer the contract, were afterwards finished, and one of them was deliv- ered to a third person before the bankruptcy. At the date of the bank- ruptcy, the other remained in the bankrupts' shop. It was held that the railroad company had a title to the engine as against the bankrupts and their trustee by estoppel.^^ § 353. Same; Remedies of Owner. — When' property in the posses- sion G(£ a bankrupt, but which belongs to a stranger, passes into the hands of the trustee in bankruptcy, the proper remedy of the owner, desiring to reclaim it, is to file his petition in the court of bankruptcy setting forth the facts and his claim, and the referee has authority sum- marily to call the parties in interest before him and to hear and deter- mine the claim, and if it is admitted or established by proof, to make an order for the restoration of the property to the claimant.*^'' This remedy is exclusive. When property has come into the hands of a trustee in bankruptcy, it is in the custody of the court of bankruptcy, 35 5 In re Leeds Woolen Mills, 129 Fed. 207, 40 Am. Bankr. Rep. 177; In re 922, 12 Am. Bankr. Rep. 136; In re Liebig, 255 Fed. 458, 168 C. C. A. 534, Levin, 127 Fed. 886, 11 Am. Bankr. Rep. 42 Am. Bankr. Rep. 535 ; In re Clayton 446. See Grange Co. v. Farmers' Union (D. C.) 259 Fed. 911, 43 Am. Bankr. Rep. & Milling Co., 3 Oal. App. 519, 86 Pac' 687; Darrough v. First Nat. Bank, 56 615. Okl. 647, 156 Pac. 191; Mound Mines 656 Ex parte Rockford, R. I. & St. L. Co. v. Hawthorne, 173 Fed. 882, 97 C. C. R. Co., 1 Low. 345, 3 N. B. R. 50, Fed. A. 394, 23 Am. Bankr. Rep. 242 ; In re Cas. No. 11,978. And see In re Cantelo Squier, 165 Fed. 515, 21 Am. Bankr. Rep. Mfg. Co., 185 Fed. 276, 26 Am. Bankr. 346 ; In re Pierce, 157 Fed. 757, 19 Am. Rep. 57; Lovell v. Isidore Newman & Bankr. Rep. 664; In re Schloerb, 97 Son, 188 Fed. 534, 26 Am. Bankr. Rep. Fed. 326, 3 Am. Bankr. Rep. 224 ; Keegan 660. V. King, 96 Fed. 758, 3 Am. Bankr. Rep. 3 57 In re Kaplan & Myers, 241 Fed. 79; In re Anderson, 23 Fed. 482; In re 459, 154 C. C. A. 291, 39 Am. Bankr. Rep. Clark, 9 Blatchf. 379, 6 N. B. R. 410, 367; In re Midland Motor Co., 224 Fed." Fed. Cas. No. 2,802; In re Havens, 8 nns, 140 C. C. A. 54, 37 Am. Bankr. Rep. Ben. 309, Fed. Cas. No. 6,230. 365; In re Aronson (D. O.) 245 Fed. 763 PEOPHKTY VESTING IN TRUSTEE § 354 which alone has jurisdiction over it. Hence the claimant cannot regain it by means of a writ of replevin,*''* nor by a suit in a state court against the trustee in bankruptcy to establish his title and restrain that officer from selling the property,*^® nor b^^an attempted exercise of the right of stoppage in transitu.**" Neither is property so in the possession of the trustee liable to be levied on and taken in execution by a sheriff at the suit of a creditor of the person who claims title thereto as against the bankrupt.**^ Further, it behooves the claimant to act with reason- able promptness in asserting his claims. If he has notice of the pro- ceedings in bankruptcy, but stands silently by while the trustee turns all the property in his hands into cash and pays it out in the form of a dividend to creditors, the claimant will be considered guilty of laches and cannot afterwards present his claim.**^ § 354. Property Held by Bankrupt as Trustee. — Property held by a bankrupt by a mere naked legal title, and purely in trust for another, is no part of his estate in bankruptcy and does not pass to his trustee,*** unless in cases where the trust has been virtually terminated by such acts or conduct on the part of the cestui que trust as would estop him to claim any benefit from it, in which event the estoppel is equally avail- able to the trustee in bankruptcy as it would have been to the bank- rupt himself.*** But while the rule is as above stated, still the trustee in bankruptcy will have the right to claim for the benefit of creditors 3 58 In re Schloerb, 97 Fed. 326, 3 Am. Bankr. Rep. 853; In re Coffin, 152 Fed. Bankr. Bep. 224; In re Clark, 9 Blatchf. 381, 81 C. C. A. 507, 18 Am. Bankr. 379, 6 N. B. R. 410, Fed. Cas. No. 2,802; Rep. 127; Clark v. Wilson, 53 Miss. 119, Erb V. Perkins, 32 Ark. 428. Compare 16 N. B. R. 356; Welch v. PoUey, 177 Leigh ton v. Harwood, 111 Mass. 67, 15 N. T. 117, 69 N. E. 279; Butler v. Mer- Am. Rep. 4, 12 N. B. R. 360. And see chants' Ins. Co., 14 Ala. 777; Starr v. Kennedy v. Strong, 10 Johns. (N. Y.) Keefer, 1 MacArthur (D. C.) 166; Plcke- 289; In re 'Wellmade Gas Mantel Co. rell v. Zell, 2 MacArthur (D. 0.) 65; Pugh (D. C.) 230 Fed. 502. 36 Am. Bankr. Rep. v. HoUiday, 3 Ohio St. 284 ; Bailey v. 354. Wood, 211 Mass. 37, 97 N. E. 902, Ann. 3 59 Keegan v. King, 96 Fed. 758, 3 Am. Cas. 1913A; 950; Blin v. Pierce, 20 Vt. Bankr. Rep. 79. See In re Litchfield, 13 25; Shryock v. Waggoner, 28 Pa. St. Fed. 863. 430; Ludwig v. Highley, 5 Pa. St. 132. 330 In re Allen, 178 Fed. 879, 24 Am. Compare Carr v. Gale, 3 Woodb. & M. Bankr. Rep. 574. See In re Arctic Stores 38, Fed. Cas. No. 2,485. See Hatch v. (D. C.) 258 Fed. 688, 43 Am. Bankr. Curtin, 154 Fed. 791, S3 C. C. A. 495, 19 iRep. 543. Am. Bankr. Rep. 82; Clark v. Snelling, »«i In re Clark, 9 Blatchf. 379, 6 N. B. 205 Fed. 240, 123 C. C. A. 430, 30 Am R. 410, Fed. Cas. No. 2,802. See Hill v. Bankr. Rep. 50 ; In re Benz, 218 Fed! Fleming, 39 Ga. 662. 50, 134 C. C. A. 26, 33 Am. Bankr. Rtep. 3«2 Claflin Co. v. Eason, 1 Nat. Bankr. 363 ; City Nat. Bank v. Slocum (C. C. A.) News, 360 ; In le Ennis, 198 Fed. 381, 272 Fed. 11, 47 Am. Bankr. Rep. 47. 117 C- C. A. 257- 3 64 In re Coffin, 146 Fed. 181, 16 Am. 3 63 Lowell V. International Trust Co., Bankr. Rep. 682. 158 Fed. 781, 86 O. C. A. 137, 19 Am. § 354 LAW OF BANKRUPTCY 764 any interest which the bankrupt himself had in the subject of the trust, whether by way of compensation for his services or as a part owner or distributee.*®' Where merchandise is by mistake delivered to a factor to whorii it was not coiiKgned, and is sold by a warehouse- man and the proceeds deposited 'in bank to the credit of the factor, the money is held in trust for the owner and does not pass to the factor's trustee in bankruptcy.*^* So, where a husband has, by fraud or mis- take, been invested with the title to land inherited by his wife, eq- uity will treat him as trustee of the wife, and a court of bankruptcy will not subject the land to the claims of the husband's creditors.*®'' So land which the bankrupt holds upon an implied trust for another is not an asset of his estate, although no declaration of trust has been made or recorded.*®* But although one who has given a bond to con- vey becomes in equity a trustee for the purchaser, yet if he has not received the whole of the purchase money, he is not a mere naked trus- tee, and his interest in the property will pass to his trustee in bank- ruptcy.*®' It is a general rule that persons seeking to recover trust funds which they claim to have traced into the possession of the trustee in bank- ruptcy of their trustee are under the burden of proving their title, and if the evidence leaves the identification in doubt, that doubt must be resolved in favor of the trustee in bankruptcy.*'® Hence where the sub- ject of the trust is money, the cestui que trust cannot claim reimburse- ment in full, but must occupy the position of a general creditor, unless he can in some way identify his fund, and he has the burden of clearly tracing his money into some specific fund or property in the possession of the trustee in bankruptcy.*'^ And the older cases generally main- see Appling V. Bailey, 44 Ala. 333; soo in re Woods & Mal»ne, 121 Fed. Rankin v. Bancroft, 114 111. 441, 3 N. B. 599, 9 Am. Bankr. Rep. 615. 97. See Clark v. Snelling, 205 Fed. 240, sor in re Anderson, 2 Hughes, 378, 9 30 Am. Bankr. Rep. 50. Where an ad- ^ ^ r gg^^ pg^ Cj^g jjo. 351. See Ar- miuistratrix, without authority from the ^ju^y ^ jjg jjigp^ (g^p ^ -^^^ ^_ y. Supp. probate court, continued the mercantile 7^3 business of the decedent, purchasing 368 Low v. Welch, 139 Mass. 33, 29 new goods and contracting new debts, ^. ^ 2I6. But compare Putnam v. all merchandise on hand acquired by southworth, 197 Mass. 270, 83 N. E. 887. her and all accounts accruing to her o^ -^t r> ^^ o after her appointment are property of »»» Swepson v. Rouse, 65 N. C. 34, 6 her estate in bankruptcy, as well as the ^^- '^^P- ''^^• proceeds of accounts made while the "» Schuyler v. Littlefield,' 232 U. S. business was conducted by her receiver. 707, 34 Sup. Ct. 466, 58 L. Bd. 806, 35 In re Tletje (D. C.) 253 Fed. 283, 41 Am. Bankr. Rep. 209. Am. Bankr. Rep. 816. And see In re sti in re A. D. Matthews' Sons, 238 Jlitchell (D. C.) 250 Fed. 1003, 41 Am. Fed. 785, 151 C. C. A. 635, 38 Am. Bankr. Rep. 528. Bankr. Rep. 438. 765 PROPERTY VESTING IN TRUSTEE § 354 tained the rule that the right to follow a trust fund ceases when the means of identification fail and that this result follows from the mere act of the bankrupt in mingling the trust funds with his own money, as where the whole is deposited to his personal credit in a bank. On this subject it was said: "Money delivered to the bankrupt in trust, if ear-marked or separately kept and retained as trust property, to be delivered or paid over in the same bills or coin in which it was re- ceived by the bankrupt, would not pass under such assignment [in bankruptcy], but would be considered as trust property; but an amount of money due from the bankrupt as trustee, and which could not be distinguished from any moneys in his possession or under his control, or which was only due from him because he had used trust funds for his own purposes, or otherwise misapplied them, could not be considered as property held by the bankrupt in trust." *'* But the rule generally applied by the lat-er decisions is that if trust funds have been inter- mingled with the general funds of the trustee so as to render their identification impossible, still a court of bankruptcy will follow them and decree restitution to the cestui que trust, if the unlawful appropria- tion of them, resulted in increasing the assets of the bankrupt as they come into his trustee's possession, as where the trust money is mingled with the bankrupt's own by being deposited in his name in bank, but the amount of the deposit at all times equals or exceeds the amount of the trust fund.*'* But if, before the date of the bankruptcy, so much of the money on deposit is withdrawn as to leave less in bank than the amount of the trust fund, the cestui que trust cannot establish a lien on the whole or any part of the balance.*'* And if the whole of the money is withdrawn from the bank, his right to claim his specific funds will not be restored by the subsequent deposit of other money obtained from other sources to the credit of the account.*'® And so where the 3-7 2 Hosmer v. Jewett, 6 Ben. 208, Fed. Bankr. Rep. 141 ; In re Woods & Malone, Cas. No. 6,713; Illinois Trust & Sav. 121 Fed. 599, 9 Am. Bankr. Rep. 615; Bank v. First Nat. Bank, 21 Blatchf. In re A. O. Brown & Co., 189 Fed. 432 ; 275, 15 Fed. 858; In re Vetterlein, 26 In re City Bank of Dowagiac, 186 Fed. Fed. 145; In re Richard, 104 Fed. 792; 250, 25 Am. Bankr. Rep. 236; Ex parte In re Janeway, 4 N. B. R. 100, Fed. Hobbs, 2 Low. 491, 14 N. B. K. 495, Fed. Cas. No. 7,208. See Hotchklss v. Na- Cas. No. 6,549; Wuerpel v. Commercial tional City Bank, 200 Fed. 287; In re Germania Trust & Sav. Bank, 238 Fed. Leigh (D. C.) 208 Fed. 486, 31 Am. Bankr. 269, 151 C. C. A. 285, 38 Am. Bankr. Rep. 379; Knauth, Nachod & Kuhne v. Rep. 223. Lovell (D. C.) 212 Fed. 337, 32 Am. 3t4 in re Mulligan, 116 Fed. 715, 9 BaUkr. Rep. 340. Am. Bankr. Rep. 8. 3T3 In re M. E. Dunn & Co., 193 Fed. sia in re M. E. Dunn & Co., 193 Fed. 212, 28 Am.* Bankr. Rep. 127; In re 212, 28 Am. Bankr. Rep. 127; Schuyler Royea's Estate, 143 Fed. 182, 16 Am. v. Littlefield, 232 U. S. 707, 34 Sup. Ot. § 354 LAW OF BANKRUPTCY 760 bankrupt took the trust funds and added some of his own money and placed the sum in the hands of a broker for investment in stocks, and most of it was lost, the) cestui que trust cannot claim a lien on any of the stocks remaining in the hands of the broker and recovereci by the trustee in bankruptcy, unless he can prove that they were bought with his money and not with that of the bankrupt.*'® In a case in which the bankrupt had been engaged in business as a private banker, the following principles were laid down: First, claimants who had deposited funds with him for investment in a partic- ular manner were entitled to subject to their claims a deposit account in the name of the bankrupt, provided they could trace their funds into such deposit, as it appeared that the bankrupt had assumed a fidu- ciary relation to them and had not carried out his undertaking. Sec- ond, claimants who bought from the bankrupt drafts which they used to send funds abroad could not assert a claim against a deposit to the account of the bankrupt merely because the drafts were not paid, where it appeared they obtained the drafts they bargained for and no cir- cumstances of active fraud or deception were shown. Third, where several laid claim to a fluctuating deposit to the account of the bank- rupt, on the theory that their funds, which had been impressed with a trust because of his breach of fiduciary relations, were commingled therewith, the several claimants were equitably entitled to an allow- able preference in the inverse order of the times of their respective pay- ments into the funds. Fourth, where a number of claimants delivered moneys to the bankrupt for particular investment, and he failed to make the investment, thus violating the fiduciary relation, and deposited the funds to his own account, the claimants were entitled to assert the trust against the deposit only to the extent of the smallest amount such deposit contained subsequent to the commingling.*" Where a consolidated corporation periodically declared dividends on its preferred stock, each time depositing in bank in a special fund sufficient money to pay the dividend, such deposit became a trust fund held by it for the stockholders, which did not pass to its trustee in bankruptcy, and in which the stockholders of the consolidating cor- porations, who had not yet exchanged their stock for that of the new 466, 58 L. Ed. 806, 35 Am. Bankr. Rep. srein re Mulligan, 116 Fed. 715, 9 209; In re A. D. Matthews' Sons, 238 Am. Bankr. Rep. 8. Fed. 785, 151 0. 0. A. 635, 38 Am. Bankr. 377 in re A. Bolognesi & Co., 254 Fed. Rep. 438. 770, 166 0. O. A. 216, 42 Am. Bankr. Rep. 548. 767 PROPERTY VESTING IN TRUSTEE § 355 corporation, but had the right to do so, were entitled to share to the extent of their dividends on ihaking such exchange.*'* Where a bank (or an individual) advances money to a merchant to enable him to buy or import a stock of goods, and the merchant exe- cutes a trust receipt, by which he agrees to hold the goods in trust for the one so advancing the funds and as the latter's property, but with liberty to sell the same in the course of trade, and binding him to pay over the proceeds ^f such sales as fast as received until the advances are repaid, the title to the goods, before such repayment, does not vest in the merchant in such sense that they will be assets of his estate in bankruptcy, but the cestui que tritst will be entitled to reclaim the goods from the trustee in bankruptcy, or their proceeds if sold.*'* And the same rule is applied where, instead of an advance of cash, the goods are directly supplied to the merchant by a manufacture or wholesaler, under the same form of trust receipt.**". § 355. Same; Deposits in Bank. — The doctrine prevails in the fed- eral courts that the relation between a bank and a depositor is simply that of debtor and creditor, and that, in the absence of any agreement to the contrary, deposits are not special but become the property of the bank, which does not occupy the position of a trustee, so that upon its bankruptcy, an ordinary depositor cannot claim to be repaid the amount of his balance but must take his place with all other creditors.***^ There may of course be a form of special deposit, contemplating the return of the identical bills or coin, made for safe-keeping only, under which the deposit would not become the property of the bank,*** but the mere fact 87 8 In re Interborough Consol. Corp. 75 N. H. 451, 75 Atl. 983. But see Unge- (D. C.) 267 Fed. 914, 46 Am. Bankr. Rep. witter v. Von Sachs, 4 Ben. 167, 3 N. 203. B. E. 723, Fed. Cas. No. 14,343. 379 In re Cattus, 183 Fed. 783, 106 C. ssi In re Smith, 15 N. B. R. 459. Fed. C. A. 171, 26 Am. Bankr. Rep. 348; Cas. No. 12,990; Bank of Republic, v. Charavay & Bodvin v. York Silk Mfg. Millard, 10 Wall. 152, 19 L. Ed. 897; Co., 170 Fed. 819; In re E. Reboulin Claflin Co. v. Eason, 1 Nat. Bankr. Fils & Co., 165 Fed. 245, 21 Am. Bankr. News, 360. Rep. 296; In re Emerson, Marlow & 88 2 See In re King, 9 N. B. R. 140. In Co., 199 Fed. 99, 117 C. C. A. 639, 29 this case, the creditor claimed to hkve Am. Bankr. Eep. 179; In re Boessneck, deposited 72 twenty-dollar 'gold pieces, 232 Fed. 596, 146 C. C. A. 554; In re as a special deposit, with the bankrupt, Bettman-Johnson Co., 250 Fed. 657, 163 who was a banker. It was alleged that C. C. A. 3, 42 Am. Bankr. Rep. 128. this money was sewed up in a belt, with 380 Walter A. Wood Co. v. Bubanks, the owner's name attached, and the 169 Fed. 929, 95 C. C. A. 273, 22 Am. bankrupt was directed to keep it, de- Bankr. Rep. 307 ; Corbitt Buggy Co. v. liverable only to the owner or to some Ulcaud, 169 Fed. 935, 95 C. O. A. 279, person specially authorized by him to 22 Am. Bankr. Rep. 316 ; In re J. V. receive it. The creditor petitioned to Lindsley & Co., 185 Fed. 684, 25 Am. have his debt paid in full out of the Bafikr. Rep. 239; Webster v. Stearns, general assets. The trustee refused to § 356 LAW OP BANKRUPTCY 768 that money is deposited for a specific purpose, as, to pay a mortgage note when presented, does not stamp it as a trust fund, or make the banker a fiduciary.^** And those who deposit money in a bank after it has suspended payment and then resumed business, on the strength of an advertisement by the bank that it will keep the old and new ac- counts separate, are not entitled to a preference on its subsequent bank- ruptcy.*** The rule is substantially the same as to collections made by a bank. A creditor of a bank which collects money for him and fails to pay it over has no priority over other creditors in the bankruptcy of the bank.**^ It may be that a check or note deposited with a bank for collection, and against which the depositor is not allowed to draw until payment, does not become the property of the bank, and may be re- claimed from its trustee in bankruptcy, and it has been so held,'***" but it is otherwise where the note or check is at once passed to the credit of the depositor's general account, especially if the account was then overdrawn.**'' On the same principle, where one bank agrees to be- come the agent of another, for clearing-house purposes, and in that capacity agrees to pay all the checks of the latter which come to it through the clearing-house, and in pursuance of this arrangement the latter bank sends funds to the former from time to time, which are passed to its credit but not kept separate, the relation of the two banks is simply that of debtor and creditor, and the funds cannot be consid- ered as clothed with a trust, but will, on failure of the bank receiving them, pass to its trustee.*** § 356. Property Held by Bankrupt as Agent or Bailee. — Property in the possession of a bankrupt, which he holds only as agent or bailee for another, does not pass to his trustee.*** For instance, money received by pay, stating that no such belt was found, a so Bank of Commerce v. Russell, 2 and that he was not able to say whether Dill. 215, Fed. Cas. No. 884. these particular gold coins were among ase in re Havens, 8 Ben. 309, Fed. Cas. the gold received as part of tbe bank- No. 6,2.30. rupt's assets. It was held that the sst in re Bank of Madison, 5 Biss. creditor could only share pro rata with 515, 9 N. B. R. 184, Fed. Cas. No. 890. the other creditors and was not entitled See In re Jarmulowsky (C. C. A.) 261 to payment in fuU. Fed. 779, 44 Am. Bankr. Rep. 432. 383 In re Hosie, 7 N. B. R. 601, Fed. sss Phelan v. Iron Mountain Bank, 4 Gas. No. 6,711. But see In re Jarmu- Dill. 88, 16 N. B. R. 308, Fed. Cas, No. lowsky, 258 Fed. 231, 169 C. C. A. 297, 11,069. 43 Am. Bankr. Rep. 536, holding that 389 in re Hawley Down-Draft Furnace the trustee in bankruptcy of a private Co., 238 Fed. 122, 151 C. C. A. 198, 38 banker cannot retain money given to Am. Bankr. Rep. 219; In re Wright-Dana the bankrupt for transmittal. Hardware Co., 211 Fed. 908, 128 C. C. A. 384 In re Mutual Building Fund So- 286, 31 Am. Bankr. Rep. 764; In re ciety & Dollar Sav. Bank, 2 Hughes, 374, Devon Manor Corporation (D. C.) 257 15 N. B. R. 44, Fed. Cas. No. 9,976. Fed. 766, 44 Am. Bankr. Rep. 79; L. C. Smith & Bro. Typewriter Co. v. Allenian, 769 PROPERTY VESTING IN TRUSTEE § 356 an attorney for -his client, and which he kept distinct and separate from his own funds, is no part of his estate in bankruptcy.^*" And so of -bonds or certificates of stock or other securities in the hands of a broker for sale for the account of his customer, or the proceeds of suchvsales if capable of identification,*®^ and so also of raw material or unfinished products placed in the hands of the bankrupt for manufacture or completion or for repairs,*®* and of grain stored with a warehouseman, provided it is kept separate or in such a manner as to be capable of identification or separation.*®* So again, a right of action upon a contract made by the bankrupt in his own name, but as agent for an undisclosed principal, in which the bankrupt has no beneficial interest, does not vest in his trus- tee.*** But where an agent agrees to be liable to his principal for any damage by fire to the latter's property in his hands, the money due from an insurance company to the agent on account of loss under its policy, is not a trust fund for the benefit of the principal, but a debt due to the agent, which becomes a part of his general estate in bankruptcy.*®" But the form of contract which the courts of bankruptcy are most frequently called upon to construe, in this connection, is that by which goods are consigned to a factor or agent for their sale, to be sold for the account of the consignor and to remain his property until. sold, and the agent to account for the proceeds of sale. This is a perfectly valid form of contract, and it constitutes a bailment and not a conditional sale, and on the bankruptcy of the factor or agent, the principal is entitled to re- 199 Fed. 1, IIT C. C. A. 577, 28 Am. 396; Stow v. Tarwood, 20 111. 497. But Bankr. Rep. 699; In re Marx Tailoring see In re Sassman, 167 Fed. 419, 21 Am. Co. (D. C.) 196 Fed. 243, 28 Am. Bankr. Banlcr. Rep. 893; Chisliolm v. Eagle Ore Rep. 147; Gallaspy v. International Har- Sampling Co., 144 Fed. 670, 75 C. C. A. vester Co., 109 Miss. 904, 67 South. 904. 472, 16 Am. Bankr. Rep. 423. Compare As a condition to the recovery of specific In re MacDonald, 138 Fed. 463, 14 Am. property held by the bankrupt as a bail- Bankr. Rep. 797. Where furniture owned ee, the bailor must pay to the trustee by a creditor was at the time of the in bankruptcy any sum already paid by bankruptcy in the possession of the bank- the bailee on a contemplated purchase rupt for repairs, which had been par- of the property. Goldman v. Shreve (C. tially completed, the creditor may re- C. A.) 263 Fed. 74, 45 Am. Bankr. Rep. claim the furniture on payment of the 285. amount then due for work done thereon. 390 Schoolfleld's Adm'r v. Rudd, .9 B. In re Pottier & Stymus Co. (C. C. A.) Mon. (Ky.) 291. 262 Fed. 955, 44 Am. Bankr. Rep. 469. 391 Hamilton v. National Loan Bank, 3,3 ^^^^^ ^ Meyers, 1 Sawy. 306, 8 3 Dill. 230, 18 N. B. B. 97, Fed. Cas. No. jj ^ jj. 214, Fed. Cas. No. 62. In re 5,987; Voight v. Lewis, 11 Phila. (Pa.) Chalmers (D. 0.) 206 Fed. 143, 30 Am. 511, 14 N. B. R. 543, Fed. Cas. No. 16,- jgankr. Rep. 521 989. And see, infra, § 357. .192 In re Susquehanna Roofing Co., s"* Rhoades v. Blackiston, 106 Mass. 173 Fed. 150, 23 Am. Bankr. Rep_. 5; ^34, 8 Am. Rep. 332. SafCord V. Burgess,, 16 N. B. R. 402, i^ed, 395 David Bradley & Co. v. Brown, 78 Cas, No. 12,213; In re Oberhoffer, 9 Ben. Neb. 836, 112 N. W. 331, 13 L. R.A. 485, 17 N. B. R. 546, Fed. Cas. No. 10,- (N. S.) 152, 126 Am. St. Rep. 647. Bi,k.Bkr.(3d Ed.)— 49 § 356 LAW OF BANKRUPTCY 770 claim from the trustee in bankruptcy all of the goods remaining unsold and the proceeds of any sold by the trustee,*** unless this kind of ar- rangement is made fraudulent and void as to creditors by some provision of the local statute,*"'' or unless the arrangement is not made in good faith but with a fraudulent purpose to cheat other creditors.*** But ir- regularities in conducting the business under a contract of factorage do not avoid the contract in bankruptcy so long as no creditor of the bank- rupt was misled to his injury.**® And where coal was delivered to an agent under a contract between the principal and the seller, the fact that a subsequent contract between the principal and the agent, defining the terms of the agency, contained illegal provisions for the control of the agent, does not preclude recovery by the principal of the coal and the proceeds of sale thereof from the agent's trustee in bankruptcy.**" And although the bankrupt did not advertise himself as an agent, or in any way indicate that he was selling goods on consignment, that fact 3 90 Ludvigh V. American Woolen Co., 231 U. S. 522, 34 Sup. Ct. 161, 58 L. Ed. 345, 31 Am. Bankr. Rep. 481; In re Marx Tailoring Co., 196 Fed. 243, 28 Am. Bankr. Rep. 147; In re Smith, 192 Fed. 574, 27 Am. Bankr. Rep. 647; In re Monongahela Distillery Co., 186 Fed. 220; In re Fabian, 151 Fed. 949, 18 Am. Bankr. Rep. 488; In re Smith & Nixon Piano Co., 149 Fed. Ill, T9 0. C. A. 53, 17 Am. Bankr. Rep. 636; Franklin v. Stoughton Wagon Co., 168 Fed. 857, 94 C. 0. A. 269, 22 Am. Bankr. Rep. 63; Walter A. Wood Mowing & Reaping Mach. Co. V. Vanstory, 171 Fed. 375, 96 C. C. A. 331, 22 Am. Bankr. Rep. 740; In re Gait, 120 Fed. 64, 56 C. C. A. 470, 13 Am. Bankr. Rep. 575; In re Pierce, 157 Fed. 757, 19 Am. Bankr. Rep. 664; In re Bailey, 176 Fed. 628, 23 Am. Bankr. Rep. 876; Price v. Ralston, 2 Dall. (Pa.) 60, 1 L. Ed. 289, 1 Am. Dec. 260; McKey V. Clark, 233 Fed. 928, 147 C. C. A. 602, 37 Am. Bankr. Rep. 699; Healey v. Boston Batavia Rubber Co. (D. C.) 268 Fed. 75, 45 Am. Bankr. Rep. 727; In re King (C. C, A.) 262 Fed. 318, 45 Am. Bankr. Rep. 95; In re National Home & Hotel Supply Co. (D. C.) 226 Fed. 840; In re Reeves (D. C.) 227 Fed. 711, 36 Am. Bankr. Rep. 130; In re Bondurant Hardware Co. (D. C.) 231 Fed. 247, 37 Am. Bankr. Rep. 308; In re Wright & Barron Drug Co. (D. C.) 237 Fed. 411, 38 Am. Bankr. Rep. 486; General Electric Co. v. Brower, 221 Fed. 597, 137 C. C. A. 321, 34 Am. Bankr. Rep. 642; In re Caldwell Machinery Co. (D. C.) 215 Fed. 428; Thomas v. Field- Brundage Co., 215 Fed. 891, 132 C. C. A. 231; Gray v. A. W. Martin & Co., 18 Ga. App. 460, 89 S. E. 540. 897 Chesapeake Shoe Co. v. Seldner, 122 Fed. 593, 58 C. C. A. 261, 10 Am. Bankr. Rep. 466. Under Code Va., 1904, § 2877, providing that all property or stock acquiredor used in the business of a trader, doing business in his own name and not displaying by a sign the name of any partner or principal, shall be liable for his debts, the trustee in bankruptcy of such a trader takes title to his stock, including goods held on consignment. Virginia Book Co. v. Sites, 254 Fed. 46, 165 C. C. A. 456, 41 Am. Bankr. Rep. 450. But under the law of Georgia, which does not require the re- cording of consignment contracts, the fact that a bankrupt had in his posses- sion goods held on consignment under an unrecorded contract does not vest the trustee with their ownership. In re Thomas (D. C.) 231 Fed. 513, 36 Am. Bankr. Rep. 600. 398 In re Cozatsky (D. C.) 216 Fed. 920, 33 Am. Bankr. Rep. 323. 3ooMcBlwain-Barton Shoe Co. v. Bas- sett, 231 Fed. 889, 146 C. C. A. 85, 36 An). Bankr. Rep. 536. 4 In re H. L. Herbert & Co. (C. C. A.) 263 Fed. 351, 45 Am. Bankr. Rep. 20. 771 PROPERTY VESTING IN TRUSTEE ^ § 356 does not affect the rights of the owner who had consigned goods to him for sale.*" As to the proceeds of sales made before the bankruptcy, it is held that the consignor is entitled to the possession and benefit of any notes, checks, or specific uncollected debts for goods so sold,*** and to the cash proceeds of any sale which can be traced and specifically distinguished from the general mass of the agent's property.*'* Under the older rule^ however, the principal was not entitled to recover money arising from such sales if it had been inextricably mingled with the general funds of the bankrupt, bearing no ear-mark and not being capable of identifica- tion.*** But the modern rule, applicable to all kinds of trust funds, is now applied to this case, so that, if the proceeds of such sales of the prin- cipal's goods have swelled the funds coming to the trustee in bankrupt- cy, and such funds have at all times equalled or exceeded the amount due to the principal, equity will follow the goods into their proceeds and de- cree his reimbursement.**^ But in many cases there is strong ground for suspecting that this kind of arrangement has been resorted to for the precise purpose of pro- tecting the seller or consignor in case of the bankruptcy of the alleged agent or factor. This will not be countenanced. And where the trans- action is essentially a sale on credit, though masked as a consignment for sale, the seller will not be entitled to reclaim goods unsold or the proceeds of any sales.*** Thus it has been said that, to make out a case of agency contract for sale, it must appear that the goods were at all times subject to the owner's control, both as to the selling price and the manner in which the goods should be sold, that there was a strict ac- counting between the bankrupt and the owner at the periods called for in the contract, giving the names of purchasers and all other details of sales, and, if sales were made otherwise than for cash, that the notf s and accounts had either been forwarded to the owner or accounted for by the bankrupt, and held subject to the owner's orders, to be forwarded 401 Taylor v. Fram, 252 Fed. 465, 164 Ten Broeke Mfg. Co., 6 Biss. 315, 12 N. C. C. A. 389, 41 Am. Bankr. Kep. 831. B. K. 203, Fed. Cas. No. 2,915. 402 In re McGehee, 166 Fed. 928, 21 405 in re Northrup, 152 Fed. 763, 18 Am. Bankr. Rep. 656; IJutchinson v. Am. Bankr. Rep. 335; In re Kurtz, 125 Reed, 1 Hoff. Ch. (N. Y.) 316; In re Taft, Fed. 992, 11 Am. Bankr. Rep. 129. And 133 Fed. 511, 66 C. C. A. 385, 13 Am. see, supra, § 354. Bankr- Rep. 417; International Agrl- 4oe in re Carpenter, 125 Fed. 831, 11 cultural Corp. v. Sparks (D. C.) 250 Fed. Am. Bankr. Rep. 147; In re Rabenau, 318, 40 Am. Bankr. Rep. 80. 118 Fed. 471, 9 Am. Bankr. Rep. 180; In 40 3 In re Bank of Madison, 5 Biss. 515, re Landsberger, 177 Fed. 443, 24 Am. 9 N. B. R. 184, Fed. Cas. No. 890; N^t- Bankr. Rep. 107; In re Linfortti, 4 Sawy. ter V. Wheeler, 2 Low. 346, Fed. Cas. No. 370, 16 N. B. R. 435, Fed. Cas. No 8,369; 10,384. " In re A. Gaglione & Son, 200 Fed.. 81, 28 404 Trecothlek v. Austin, 4 Mason, 16, Am. Bankr. Rep. 694. Fed. Cas. No. 14,164; In re Coan & § 357 , LAW OF BANKRUPTCY 772 on demand.**'' So where the consignee is at liberty to sell the goods at any price and on any terms he pleases, accounting at a fixed price to the consignor, and is to pay taxes and insurance and is responsible for the loss of the goods, and is to pay for such as remain unsold at a fixed time, he is not an agent or factor, but the contract is one of conditional sale.*** So if the contract contains no provision for commissions on sales, nor for the return of goods under any circumstances, and they are billed as sold.*'* The determining factor is often the liability of the consignee to buy and pay for all of the goods which may remain unsold at a given time. If this liability is a part of the contract, it is held a sale.*" But if he has the privilege of returning goods then unsold, it is a contract of factorage.*^^ Finally, where a merchant is charged a fixed price for the goods sent to him, including the cases and bottles in which they are con- tained, but allowed a "rebate" for empty cases and bottles returned, the contract is not one of bailment as to the cases and bottles, but of sale and return, and such as remain in his hands at the time of his bankrupt- cy are assets of his estate.*^* § 357. Money or Collateral in Hands of Bankrupt as Stock-Broker. — Where a stock-broker has in his possession, at the time of his bank- ruptcy, certificates of stock placed in his hands by a customer but not yet sold, or stock bought for a customer but not yet delivered to him, he holds the same as an agent or bailee, and the stock may be reclaimed by the owner from his trustee in bankruptcy.*^* And if the bankrupt had a larger quantity of that particular stock on hand at the time of his failure, it will be presumed that part of it was the stock belonging to such customer.*" If the broker had bought various lots of stock in the same corporation for various customers, but had not delivered any of it, and it is found that, at the time of his bankruptcy, he hah not enough of that particular stock in his possession to cover all of his customers who were "long" of it at that time, such customers are 407 In re Agnew, 178 Fed. 478, 23 Am. 4ii Ludvigh v. American Woolen Co., Bankr. Rep. 360; Taylor v. Fram (D. 188 Fed. 30, 110 C. C. A. 180; In re Lar- 0.) 243 Fed. 733, 40 Am. Bankr. Rep. kin & Metcalf, 202 Fed. 572. 377. *i2 In re Allen, 183 Fed. 172, 25 Am. 40 8 In re Rabenau, 118 Fed. 471, 9 Am. Bankr. Rep. •722. Bankr. Rep. 180; In re Wells, 140 Fed. "s In re .Tames Carothers & Co., 182 752, 15 Am. Bankr. Rep. 419; Miller Rub- Fed. 501. ber Co. v. Citizens' Trust & Sav. Bank, 4i4 In re Graff, 117 Fed. 343, 8 Am. 233 Fed. 488, 147 C. C. A. 374, 37 Am. Bankr. Rep. 744; Gorman v. Littlefield, Bankr. Rep. 542. 229 U. S. 19, 33 Sup. Ct. 690, 57 L. Ed. 401) In re Martin- Vernon Music Co., 182 1047, 30 Am. Bankr. Rep. 266. And see Fed. 983, 13 Am. Bankr. Rep. 276. ' Richardson v. Shaw, 209 U. S. 365, 28 410 Parlett v. Blake, 188 Fed. 200, 110 Sup. Ct. 512, 52 L. Ed. 835, 14.Ann. Cas. C. C. A. 72, 26 Am. Bankr. Rep. 25. See 981, 19 Am. Bankr. Rep. 717; Sexton v. Bransford v. Regal Shoe Co., 237 Fed. 67, Kessler & Co., 225 U. S. 90, 32 Sup Ct 150 C. C. A. 269, 38 Am. Bankr. Rep. 450. 657, 56 L. Ed. 995, 28 Am. Bankr. Rep. 85. 773 PROPERTY VESTING IN TRUSTEE § 357 entitled to have his holdings of that stock divided among them pro rata.**" If the broker had bought stock for a customer, but instead of delivering it he converted it to his own use and sold it, still, if he has in his possession at the time of his bankruptcy an equal or greater amount of the same stock, not specifically identified as belonging to any one else, the customer may claim and receive the number of shares originally bought for him, to the exclusion of general creditors. "It is unnecessary for a customer, where shares of stock of the same kind are in the hands of a broker, being held to satisfy his claims, to be able to put his finger upon the identical certificates of stock purchased for him. It is enough that the broker has shares of the same kind which are legally subject to the demand of the customer. And in this respect the trustee in bank- ruptcy is in the same position as the broker. "-*i*' — The same principle ap- plies where there are several customers claiming stock of the same kind. But if the broker had converted a part of the stock held for various cus- tomers, leaving unconverted a certain amount of similar stock, there is no presumption that he selected the stock of margin customers for con- version, leaving untouched the stock of cash customers.**' A deposit of securities with a broker by a customer as margin, and as security against losses in stock transactions, under an agreement which does not contemplate a sale or disposition of such securities by the broker except in the event of losses, constitutes a pledge and does not create the relation of debtor and creditor, and where the securities have not been sold by the broker to meet marginal requirements prior to his bankuptcy, they may be recovered by the pledgor from the bankrupt's trustee.*** And the court should not require him to make good losses for which he would have been liable, if the stocks pretended to have been bought for him had really been bought and carried, as a condition to his *i5Duel V. HoUins, 241 U. S. 523, 36 Brown, 184 Fed. 454, 106 C. C. A. 536. Sup. Ct. 615, 60 L. Ed. 1143, 37 Am. And see Duel v. Hollins, 241 U. S. 523, Bankr. Rep. 1; Gorman v. Littlefleld, 229 36 Sup. Ct. 615, 60 L. Ed. 1143, 37 Am. U. S. 19, 33 Sup. Ct. 690, 57 L. Ed. 1047, Bankr. Rep. 1; In re B. Solomon & Co. 30 Am. Bankr. Rep. 266; In re Pierson, (O. C. A.) 268 Fed. 108, 45 Am. Bankr. 288 Fed. 142, 151 C. C. A. 218, 38 Am. Rep. 783. Bankr. Rep. 214; In re H. B. Hollins & *" In re J. C. Wilson & Co. (D. C.) Co. (D. C.) 212 Fed. 817. See In re J. C. 252 Fed. 631, 42 Am. Bankr. Rep. 350. Wilson & Co. (D. C.) 252 Fed. 631, 42 Am. 'tis In ve Jacob Berry & Co., 149 Fed. Bankr. Rep. 350, holding that, though 176, 79 C. C. A. 124, 17 Am. Bankr. Rep. shares of certain stock held by a bank- 467, affirmed, Thomas v. Taggart, 209 U.. rupt broker are insufficient to satisfy S. 385, 28 Sup. Ct. 519, 52 L. Ed. 845, long customers for whom he held such 19 Am. Bankr. Rep. 710; United Nat. stock, a customer who can identify his Bank v. Tappan, 33 R. I. 1, 79 Atl. 946; stock by certificate number is entitled to In re T. A. Mclntyre & Co. (C. C. A.) 181 reclaim that stock or its proceeds. Fed. 955, 24 Am. Bankr. Rep. 626; Bo.'i- s.*ieGorman v. Littlefield, 229 U. S. ton Safe Deposit & Trust Co. v. Adams, 19, 33 SuTr-Gt,-490,-5I L- Ed. 1047, 30 224 M^'p<= 442, 113 N. E. 277, L. R. A. Am. Bankr. Rep. 266, reversing In re 19ieF, 488. § 357 LAW OF BANKRUPTCY 774 recovery of the securities deposited as collateral.*" But a claimant who remitted money to brokers to purchase stocks, which were bought and paid for by the brokers but afterwards converted to their own use, can- not rescind the whole transaction and recover the money so remitted, from the trustee in bankruptcy of the brokers, as a trust fund, although he may follow the proceeds of the stocks, if sold by the brokers, and if such proceeds can be traced into the hands of the trustee.**** So like- wise, where the customer does not remit to the broker the entire price of the stock to be bought for him, but a margin, and the broker buys and carries the stock, the latter holds it as a pledgee, and on his bankruptcy the customer is entitled to the stock on payment of the amount due thereon, or to the surplus realized from its sale by the trustee, to the ex- clusion of the general creditors.**^ Another problem arises where a broker, having in his possession stock bought for a customer and paid for, or stock placed in his hands as security for a customer's account, but without authority to use or hypothecate the same, pledges it as collateral security for his own debt to a third person. Here the pledgee probably has a lien on the stock for repayment of his advances, but if his debt is satisfied from other sources and the stock surrendered to the broker's trustee in bankruptcy, the customer may then reclaim it, or if the stock remains in the hands of the pledgee, the customer may be subrogated to the rights of the bankrupt and so recover it.**'' But in order to do this, the claimant must be able to identify the stock as his own. It is not sufficient for him merely to show that the trustee in bankruptcy has in his hands an equal or greater number of shares of the same kind of stock, recovered by him from third persons to whom they had been pledged by the bankrupt. In addition, he must be able to trace his own stock, or to show, at least with a reasonable degree of certainty, that some portion of the stock in the trustee's hands is the identical stock which belonged to him and which the bankrupt wrongfully hypothecat- 418 In re Ennis, 187 Fed. 726, 109 O. *2 2 in re T. A. Mclntyre & Co., 189 0. A. 474. Fed. 46, 110 C. C. A. 610, 26 Am. Bankr. 420 In re Brown, 175 Fed. 769, 99 C. Rep. 771; In re Ennis, 187 Fed. 720, 109 C. A. 345, 23 Am. Bankr.. Rep. 423; In C. O. A. 468; In re A. O. Brown & Co., re A. O. Brown & Co., 185 Fed. 972. 183 Fed. 861, 25 Am. Bankr. Rep. 800; The trustee in bankruptcy of a broker ac- In re Meadows, Williams & Co., 173 Fed. quires no right to money delivered to 694, 23 Am. Bankr. Rep. 124; In re Amy the broker to be applied on payment for (C. C. A.) 263 Fed. 8, 45 Am. Bankr. Rep. stock which the broker never secured, 15. Owners of securities in the hands but merely ordered from another broker of bankrupts, who were brokers, which and the next day sold. In re Wettengel, had been wrongfully pledged as eollat- 238 Fed. 798, 151 C. C. A. 648, 38 Am. eral for a bank loan, and were sold by Bankr. Rep. 444. the bank, were held subrogated to the *2i Kean v. Dickinson, 152 Fed. 1022, bank's right of set-ofe with respect to a 82 C. C. A. 667 ; In re Boiling, 147 Fed. general balance to the credit of the 786, 17 Am. Bankr. Rep. 399. bankrupts in their deposit account. In 775 PROPERTY VESTING IN TRUSTEE § 357 ed, or represents its proceeds.**^ Where a bankrupt has pledged his own securities and the securities of various of his customers, his own securities are to be applied first to the payment of the sum for which they were pledged, then those of his customers rightfully pledg- ed, and lastly those of his customers wrongfully pledged.*** And where a broker converts a portion of the long stock of a customer trading on margin, and the latter, with notice of the conversion, allows the broker to remain in possession of his unconverted stock, which is hypothe- cated and upon the broker's bankruptcy sold by the pledgee, the custom- er's claim, no matter how much the value of the unconverted shares exceeded his debit balance, is inferior to those of customers whose stock was hypothecated without authority and who can trace such stock or its proceeds.**® Where stockbrokers made an unauthorized pledge of stock belonging to their customers, part of which the pledgee, upon the bankruptcy of the brokers, sold to satisfy the brokers' indebtedness, a customer whose stock was not sold by the pledgee is no better situated than customers whose stock was sold and can be successfully traced, the former being merely entitled to prorate with the latter.**" Where the broker has sold his customer's securities, or they have been sold by a third person to whom he pledged them, the customer may still claim full reimbursement out of the proceeds if he can trace his money into a particular fund, and this can be done — on the doctrine of the commingling of funds — if he can show that the bankrupt broker's balance in barik, or the amount due to him from the party to whom the customer's stock was sold or pledged, has been, at all times since the con- version, equal to or greater than the amount realized on the sale of the customer's securities.*" In another case, a customer directed the bro- ker to sell certain stock on his account, and, on being advised that the sale had been made, delivered to the broker his certificate for the stock and received in exchange a check which proved to be worthless, and the broker's bankruptcy followed. It was shown that the broker had made a sale of so many shares of the stock as directed by his customer, but re Leavitt & Grant, 215 Fed. 901, 132 42e in re J. C. Wilson & Co. (D. C.) C. C. A. 139, 33 Am. Bankr. Rep. 63. 252 Fed. 631, 42 Am. Bankr. Rep. 350. i23 In re Ennls, 187 Fed. 728, 109 C. See In re Toole (C. C. A.) 274 Fed. 337, C A 476; In re T. A. Mclntyre & Co. ^^ ^™- ^^nkr. Rep. 651. (CCA) 181 Fed. 960, 25 Am. Bankr. "' I^ ^e Swift (D. C.) 108 Fed. 212; Ren 93 -^^ '^ *^''^^ (^- ^-^ ^^^ ^^^- ^^^' ^ ^™- ■ ■ „ „ „ „• p r. oQon ., Bankr. Rep. 744-; In re A. O. Brown & 424 In re H. B. Hollins & Co., 232 Fed. ^o. (D. 0.) 189 Fed. 432 ; In re Brown, 124, 146 C. C. A. 316, 36 Am. Bankr. 135 Fed. 766, 107 C. 0. A. 656; In re Rep. 698. James Carothers & Co. (D. C.) 182 Fed. 42 5 In re J. 0. Wilson & Co. (D.C.) 501; In re J. C. Wilson & Co. (D. C.) 252 Fed. 631, 42 Am. Bankr. Rep. 350. 252 Fed. 631, 42 Am. Bankr. Rep. 350. § 357 LAW OF BANKRUPTCY 776 had delivered stock of his own and received payment. It was held that the customer had the right to recover the proceeds of his stock from the bankrupt's trustee, if they had not been dissipated, and if they had been, to rescind the delivery and reclaim his stock.*^* The fact that one who loaned securities to a broker who became bankrupt proved his claim for the value of such securities in the bank- ruptcy proceedings does not prevent him from reclaiming the actual se- curities themselves, provided he reserved the right to do so.**® § 358. Property Held Under Contract of Conditional Sale. — Ex- cept in so far as the matter may be regulated by a local statute, the rule is that property in the possession of a bankrupt under a contract of conditional sale, the condition not having been performed (as, where he bought under a written contract stipulating that the title should remain in the vendor until the goods were fully paid for), does not vest in the trustee in bankruptcy, and he is not entitled to hold it as against the unpaid vendor.**" If no payment has been made on the price of the property, the vendor may reclaim it. If it has been paid for in 42 8 In re A. O. Brown & Co. (D. O.) 189 Fed. 432. 429 Robinson v. Roe, 233 Fed. 936, 147 C. C. A. 610, 38 Am. Bankr. Rep. 26. 430 Smith Wallace Shoe Co. v. Temes, 235 Fed. 282, 148 C. C. A. 642, 37 Am. Bankr. Rep. 845 ; In re K. Marks & Co., 222 Fed. 52, 137 C. O. A. 590; In re Seward Dredging Co., 242 Fed. 225, 155 C. C. A. 65, 39 Am. Bankr. Rep. 372; Shook V. Levi, 240 Fed. 121, 153 C. C. A. 157, 39 Am. Bankr. Rep. 549; In re Traunstein (D. C.) 225 Fed. 317, 34 Am. Bankr. Rep. 482; In re American Steel Supply Syndicate (D. C.) 256 Fed. 876, 43 Am. Bankr. Rep. 271; In re Wegman Piano Co. (D. C.) 221 Fed. 128, 34 Am. Bankr. Rep. 490 ; In re Place (D. C.) 224 Fed. 778, 35 Am. Bankr. Rep. 426; In re I. S. Remsen Mfg. Co. (D. C.) 227 Fed. 207, 35 Am. Bankr. Rep. 195; In re Hamil (D. C.) 236 Fed. 292, 38 Am. Bankr. Rep. 205 ; In re White's Express Co., 215 Fed. 894, 132 C. C. A. 2.34, 33 Am. Bankr. Rep. 74; In re Robinson Mach. Co. (D. 0.) 268 Fed. 165, 46 Am. Bankr. Rep. 293; Davis v. Crompton, 158 Fed. 785, 85 C. O. A. 633, 20 Am. Bankr. Rep. 53 ; In re Regealed Ice Co., . 191 Fed. 931 ; In re Gartman, 186 Fed. 349 ; In re Forse, 182 Fed. 212, 25 Am. Bankr. Rep. 134; In re C. K. Hutchins Co., 179 Fed. 864, 24 Am. Bankr. Rep. 647; In re Pittsburgh Industrial Iron Works, 179 Fed. 151, 25 Am. Bankr. Rep. 221 ; In re Atlanta News Pub. Co., 160 Fed. 519, 20 Am. Bankr. Rep. 193; Sprague Canning Mach. Co. v. Fuller, 158 Fed. 588, 86 C. C. A. 46, 20 Am. Bankr. Rep. 157 ; Dunlop v. Mercer, 156 Fed. 545, 19 Am. Bankr. Rep. 361 ; Rog- ers v. Whitehouse, 71 Me. 222; Andre V. Murray (Ind.) 101 N. E. 81; Park v. South Bend Chilled Plow Co.. (Tex. Civ. App.) 199 S. W. 843 ; Creamery Package JIfg. Co. V. Horton, 178 App. Div. 467, 165 N. Y. Supp. 257 ; Toledo Computing Scale Co. v. Johnson, 194 111. App. 159 ; Jennings v. Schwartz, 86 Wash. 202, 149 Pac. 947. Modification of the terms ot payment for a machine sold under a conditional sale contract, may not be a waiver of the reservation of title, so as to prevent the seller, on the buyer's bankruptcy, from enforcing the condi- tion. Colonial Trust Co. v. Thorpe, 194 Fed. 390, 114 C. G. A. 308, 27 Am. Bankr. Rep. 451. A seller of property to a bankrupt by a contract of condi- tional sale, which provided that it should be insured for his benefit, will be entitled to the proceeds of the insurance where the property v?as burned within four months prior to the bankruptcy, although the bankrupt insured in his own name. In re Zitrou, 203 Fed. 79, 30 Am. Bankr. Rep. 172. 777 PEOPERTT VESTING IN TRUSTEE § 358 part, he has a good and valid lien upon it for the unpaid balance of the purchase money, which the trustee in bankruptcy must recognize.**^ And if it is likely to result in benefit to the estate, the trustee may pay such balance, and thereby become invested with full title to the prop- erty.*** Or the trustee may be ordered to sell the property at public auction, and out of the proceeds pay to the vendor the balance due him on the contract.*** If the property in question is valuable in the use (such as machinery) and was to have been paid for in monthly instal- ments called "rent," the vendor cannot recover such contract rentals for the time the property remained in the possession of the trustee pending the determination of his rights, but if the trustee used the property without his consent, he may recover the. reasonable value of such use.*** The preliminary question whether the contract between the ven- dor and the bankrupt was one of conditional sale, absolute sale, sale and return, or lease or bailment, is a question of local law, and is to be determined in accordance with the decisions of the highest court of the state,*** as is also the question of the validity of the contract, as- suming it to be one of conditional sale.**® And where a contract of 431 In re Bentz (D. C.) 267 Fed. 606, C. C. A. 23, 18 Am. Bankr. Kep. 567; 46 Am. Bankr. Kep. 164 ; In re New Or- Bradley, AldersOn & Co. v. McAfee, 149 leans Milling Co. (D. C.) 263 Fed. 254, Fed. 254, 17 Am. Bankr. Rep. 495; In 45 Am. Bankr. Rep. 364; Southern re Butterwick, 131 Fed. 371, 12 Am. Hardware & Supply Co. v. Clark, 201 Bankr. Rep. 536 ; Flanders Motor Co. v. Fed. 1, 119 C. C. A. 339. Reed, 220 Fed. 642, 136 C. C. A. 250, 33 *3 2 In re Lyon, 7 N. B. R. 182, Fed. Am. Bankr. Rep. 842. Cas. No. 8,644; In re Wegman Piano Co. *3 6 First Nat. Bank v. Guarantee Ti- (D. C.) 221 Fed. 128, 34 Am. Bankr. Rep. tie & Trust Co., 178 Fed. 187, 101 C. C. 490. See Waterbury Trust Co. v. .Weis- A. 507, 24 Am. Bankr. Rep. 330 ; Davis man, 94 Conn. 210, 108 Atl. 550. v. Crompton, 158 Fed. 735, 85 C. C. A. 433 In re Azule Natural Seltzer Water 633, 20 Am. Bankr. Rep. 53; In re Great Co., 2 Nat. Bankr. News, 639 ; Allen v. Western Mfg. Co., 152 Fed. 123, 81 C. C. Whittemore, 8 Ben. 485, 14 N. B. R. 189, A. 341, 18 Am. Bankr. Rep. 259; In re Fed. Cas. No. 241. Lutz, 197 Fed. 492, 28 Am. Bankr. Rep. 434 In re Daterson Pub. Co., 188 Fed. 649; In re Osborn, 196 Fed. 257; In re 64, 110 C. C. A. 134, 26 Am. Bankr. Rep. Nelson, 191 Fed. 233, 27 Am. Bankr. 582. See Haskell v. MerriU, 179 Mass. Rep. 272 ; In re Dunn Hardware & Fur- 120, 60 N. E. 485. niture Co., 132 Fed. 719, 13 Am. Bankr. 43 6 Mishawaka Woolen Mfg. Co. v. Rep. 147. Where a conditional sale con- Westveer, 191 Fed. 465, 112 C. C. A. 109, tract provided for the delivery of goods' 27 Am. Bankr. Rep. 345, citing Thomp- in the Indian Territory, there being no son V. Fairbanks, 196 U. S. 516, 25 Sup. local law therein Inhibiting such con- Ct. 306, 49 L. Ed. 577, 13 Am. Bankr. tracts, the question whether the fact Rep. 437; York Mfg. Co. v. Cassell, 201*^ that they were furnished to the buyer U. S. 344, 26 Sup. Ct. 481, 50 L. Ed. for resale in the usual course of business 782, 15 Am. Bankr. Rep. 633 ; Bryant v. invalidated the contract must be teste'! SwofCord, 214 U. S. 279, 29 Sup. Ct. 614, in bankruptcy proceedings against the 53 L. Ed. 997, 22 Am. Bankr. Rep. Ill; buyer in accordance with the general Dodge V. Norlin, 133 Fed. 363, 66 C. C. law. In re Gray, 170 Fed. 638, 21 Am. A. 425, 13 Am. Bankr. Rep. 176; In re Bankr. Rep. 375. E. M. Newton & Co., 153 Fed. 841, 83 § 358 LAW OF BANKEUPTCir 778 conditional sale of personal property is made in one state, but provides for the delivery of the chattels in another state and their use there by the purchaser, it is to be governed, in a contest between the vendor and the trustee in bankruptcy of the vendee, by the law of the latter state, not the former.**' Next, it is to be observed that the rights of the par- ties become fixed, so far as regards creditors of the vendee and his trustee in bankruptcy, at the time of the original transax:tion, and can- not be afterwards changed by their agreement so as to put the vendor in a more favorable position. If the contract was originally one of conditional sale, but the local law would make the reservation of title in the vendor ineiifective as against creditors, it cannot be turned into a contract of bailment, or of lease, or of factorage, after the buyer has become insolvent, or especially after he has been adjudged bankrupt.*** On the other hand, if the seller under a contract of conditional sale sues for the price, obtains judgment, and levies an execution, within four months prior to the purchaser's bankruptcy, he will be held to have waived his reserved title, and he will have no greater rights in the property than any other execution creditor.*** It should also be observed in this connection that one claiming property which has passed into the possession of a trustee in bankruptcy, on the ground that the sale to the bankrupt was conditional, has the burden of proof.*** If the trustee has taken possession of the property, it is in the custody of the law, and the bankruptcy court has jurisdiction to determine all questions respecting title, possession, or control. The conditional ven- dor, in such a case, is an "adverse claimant," and is entitled to a plenary hearing in the bankruptcy court, but only the kind of plenary hearing that will end the situation.*** But in many states the laws now provide that a contract of condi- tional sale, though good between the immediate parties, shall not be valid as against creditors of the purchaser unless reduced to writing and cast in the form of a chattel mortgage, or unless filed or recorded in the proper office, so as to impart notice. Of course if the vendor fully complies with a statutory provision of this kind, it will be effective to preserve his rights as against the purchaser's trustee in bankruptcy.**^ 487 In re Legg, 96 Fed. 326; In re Co., 230 Fed. 811, 145 C. C. A. 121, 36 Gehris-Herbine Co., 188 Fed. 502, 2G Am. Bankr. Rep. 493. Am. Bankr. Rep. 470. **" In re Farmers' Dairy Ass'n (D. *S8 In re Poore, 140 Fed. 786, 15 Am. C.) 234 Fed. 118, 37 Am. Bankr. Rei>. Bankr. Rep. 407; In re Martin-Vernon 672. Music Co., 132 Fed. 983, 13 Am. Bankr. **i Story & Clark Piano Co. v. Rep. 276; In re Rinker, 174 Fed. 490, Holmes, 251 Fed. 565, 163 C. C. A. 550, 23 Am. Bankr. Rep. 62 ; In re Tweed, 41 Am. Bankr. Rep. 668. 131 Fed. 355, 12 Am. Bankr. Rep. 648. **2 In re Farmers' Co-operative Co. 430 In re Fitzhugli Hall Amusement of Barlow, N. D. (D. C.) 202 Fed. 1005, 779 PROPERTY VESTING IN TRUSTEE § 858 But if not, there has been (until recently) much doubt and uncertainty as to his right to reclaim the property from the trustee in bankruptcy. In one line of cases it has been argued that such a contract, not pro- tected by compliance with the statute, is fraudulent and void as against the creditors of the bankrupt, and therefore should be equally void as against their representative, the trustee in bankruptcy; that as it is good between the parties, the bankrupt has an interest or right under it which could have been transferred or levied on; and that it should be held within the terms of the bankruptcy act, providing that "claims which for want of record would not have been valid liens as against the claims of the creditors of the bankrupt shall not be liens against his estate." For some or all of these reasons the cases re- ferred to held that the reservation of title in the vendor was void as against the trustee in bankruptcy, the state statute not having been complied with, and gave him no right to reclaim the property.*** But these views have not prevailed. Other courts, following the lead of the Supreme Court of the United States, have held that if the contract was free from actual fraud and good as between the parties, it would be equally good and binding upon the purchaser's trustee in bank- ruptcy, although not acknowledged or recorded as required by the state law, and whatever might have been the rights of creditors outside of the bankruptcy proceedings, for the reason that a trustee in bank- ruptcy has no higher or stronger rights in property in the bankrupt's possession than the bankrupt himself.*** And further, where the state 30 Am. Bankr. Rep. 187; Woods v. 745; In re Franklin Lumber Co., 147 Brunswick-Balke-CoUender Co., 190 Fed. Fed. 852, 17 Am. BanUr. Rep. 443; In re 935, 111 C. C. A. 569, 27 Am. Bankr. Tice, 139 Fed. 52, 15 Am. Bankr. Rep. Rep. 172. In re Canuet Lumber Co. (D. 97 ; In re Poore, 139 Fed. 862, 15 Am. C.) 178 Fed. 340. Bankr. Rep. 174; In re Ducker, 134 443 Liquid Carbonic Co. v. Quick, 182 Fed. 43, 67 C. C. A. 117, 13 Am. Bankr. Fed. 603, 105 C. C. A. 141, 25 Am. Bankr. Rep. 760 ; In re Smith & Shuck, 133 Rep. 394; In re Faulkner, 181 Fed. 981, Fed. 301, 13 Am. Bankr. Rep. 103; In 25 Am. Bankr. Rep. 416 ; In re 6. & re Tweed, 131 Fed. 355, 12 Am. Bankr. K. Trunk Co., 176 Fed. 1007, 23 Am. Rep. 648 ; In re Carpenter, 125 Fed. 831, Bankr. Rep. 914 ; In re Penny & Ander- 11 Am. Bankr. Rep. 147; In re Pekin son, 176 Fed. 141, 23 Am. Bankr. Rep. Plow Co., 112 Fed. 308, 50 C. C. A. 257, 115; In re Rinker, 174 Fed. 490, 23 Am. 7 Am. Bankr. Rep. 369; In re Howland. Bankr. Rep. 62 ; Chilberg v. Smith, 174 109 Fed. 869, 6 Am. Bankr. Rep. 495. Fed. 805, 98 C. C. A. 513; McElvain v. In re Legg, 96 Fed. 326, 2 Am. Bankr. Hardesty, 169 Fed. 31, 94 C. C. A. 399, 22 Rep. 805 ; Press Post Printing Co. v. Am. Bankr. Rep. 320; In re Burke, 168 Landon Printing & Pub. Co., 2 Nat. Fed. 994, 22 Am. Bankr. Rep. 69 ; In re Bankr. News, 774 ; Logan v. Nebraska Fish Bros. Wagon Co. (C. C. A.) 164 Fed. Moline Plow Co., 3 Neb. (Unof.) 516, 92 553 21 Am. Bankr. Rep. 149; In re Burt, N. W. 129; McFarlan Carriage Co. v. ■ 155' Fed. 267, 19 Am. Bankr. Rep. 123; In Wells, 99 Mo. App. 641, 74 S. W. 878. re Perkins, 155 Fed. 237, 19 Am. Bankr. *^* Bryant v. SwofEord Bros. Dry Rep. 134; In re George O. Hassam & Goods Co., 214 U. S. 279, 29 Sup. Ot. 614, Son 153 Fed. 932, 18 Am. Bankr. Rep. 53 L. Ed. 997, 22 Am. Bankr. Rep. Ill ; § 358 LAW OF BANKKUPTCT 780 law provides for the filing of contracts of conditional sale, but makes an unfiled* contract of that kind void only as to those creditors who have fastened upon the property by some specific lien, an adjudication in bankruptcy is not the equivalent of a judgment or attachment, so as to operate as a lien in favor of the trustee as against the conditional vendor of property sold to the bankrupt, because of failure to comply with the state law.**^ But this does not apply where actual fraud en- tered into the arrangement between the parties or where the transaction was merely colorable.*** Thus the law stood until 1910, when Congress passed an amend- ment to the bankruptcy act covering the case in point and probably enacted as a direct consequence of the conflicting decisions above mentioned. It provides that trustees in bankruptcy, "as to all property in the custody or coming into Ilie custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a Hen by legal or equitable proceedings thereon." **' This amendment was intended to protect the general creditors of a bankrupt against holders of unrecorded mortgages and conditional sales, and Since its passage the right of the trustee in bankruptcy to hold and administer the property held by the bankrupt under an unrecorded contract of con- ditional sale is superior to the right of the seller.*** But the amendment Nauman Co. v. Bradshaw, 193 Fed. 350, 813, 31 Am. Bankr. Rep. 455 ; In re Ter- 113 C. C. A. 274, 27 Am. Bankr. Rep. rell, 246 Fed. 743, 159 C. C. A. 45, 40 565; In re Anson Mercantile Co., 203 Am. Bankr. Rep. 713; Mergenthaler Fed. STl; In re Ferguson Contractin? Linotype Co. v. Hull, 239 Fed. 26, 152 Co., 183 Fed. 880 ; Crucible Steel Co. of C. C. A. 76, 39 Am. Bankr. Rep. 187. America v. Holt, 174 Fed. 127, 98 C. C. **» York Mfg. Co. v. CasseU, 201 U. A. 101, 23 Am. Bankr. Rep. 302; York S. 344, 26 Sup. Ct. 481, 50 L. Ed. 782, 15 Mfg. Co. V. Brewster, 174 Fed. 566, 98 Am. Bankr. Rep. 633; Hewit v. Berlin C. C. A. 348, 23 Am. Bankr. Rep. 474; Machine Works, 194 XJ. S. 296, 24 Sup. John Deere Plow Co. v. Anderson, 174 Ct. 690, 48 L. Ed. 986, 11 Am. Bankr. Fed. 815, 98 C. C. A. 523, 23 Am. Bankr. Rep. 709 ; In re Brown Wagon Co. (D. Rep. 480; In re Hager, 166 Fed. 972; C.) 224 Fed. 266, 35 Am. Bankr. Rep. In re Pickens Mfg. Co., 166 Fed. 585; 3S3; John Deere Plow Co. v. Edgar In re Cavagnaro, 143 Fed. 668, 16 Am. Farmer Store Co., 154 Wis. 490, 143 N. Bankr. Rep. 320; Mishawaka Woolen W. 194. Compare In re Press-Post Print- Mfg. Co. V. Smith, 158 Fed. 885, 20 Am. ing Co., 134 Fed. 998, 13 Am. Bankr. Bankr. Rep. 317; In re Pierce, 157 Fed. Rep. 797; Chesapeake Shoe Co. v. Seld- 755, 19 Am. Bankr. Rep. 662 ; In re Kel- ner, 122 Fed. 593, 58 C. C. A. 261, 10 , logg, 118 Fed. 1017, 50 C. C. A. 383 ; In Am. Bankr. Rep. 466 ; In re Fraizer, 117 re Hinsdale, 111 Fed. 502, 7 Am. Bankr. Fed. 746, 9 Am. Bankr. Rep. 21. Rep, 85; In re Sewell, 111 Fed. 791, 7 4io in re Fitzgerald, 188 Fed. 763, 26 Am. Bankr. Rep. 183 ; Buckwalter Stove Am. Bankr. Rep. 104. Co. V. Stratton, 118 App. Div. 915, 103 **' Act Cong. June 25, 1910, 36 Stat. N. Y. Supp. 118; Studebaker Bros. Mfg. 838, ■ amending Bankruptcy Act 1898, § Co. V. Elsey-Hemphill Carriage Co., 152 47a, cl. 2, by adding the words quoted. Mo. App. 401, 133 S. W. 412; John Deere "s in re Miua (D. C.) 270 Fed. 969, • Plow Co. V. Edgar Farmer Store Co. 46 Am. Bankr. Rep. 523; Augusta Gro- (Wis.) 143 N. W. 194. In re Superior eery Co. v. Southern Moline Plow Co , Drop Forge & Mfg. Co. (D. 0.) 208 Fed. 213 Fed. 786, 130 C. C. A. 444, 31 Am. 781 PEOPERTY TESTING IN TEDSTBH 359 is not retroactive, and does not enable the trustee to invalidate a con- tract of conditional sale made prior to its passage and otherwise valid.**' It is also held that the liens of execution creditors on property held by the insolvent judgment debtor under a contract of conditional sale,, as they existed when the petition in bankruptcy was filed, cannot be sub- sequently destroyed so as to prevent the court of bankruptcy from pre- serving them for the benefit of the estate, by the act of the conditional vendor in retaking the property.*®" § 359. Property Held Under Executory and Option Contracts of Sale. — Property delivered to the bankrupt under a contract of sale with reservation of title in the vendor until payments are completed, or under a contract of lease with an option to purchase it on makmg certam specified payments, the title meanwhile to remain in the lessor or ven- dor, but which has not been paid for at the time of bankruptcy, does not vest in the trustee, but may be claimed from him by the vendor, or its Bankr. Rep. 677; Potter Mfg. Co. v. Arthur, 220 Fed. 843, 136 C. O. A. 589, Ann. Cas. 1916A, 1268, 3i Am. Bankr. Rep. 75; Groner v. Babcock Printing Press Mfg. Co. (O. C A.) 267 Fed. 822, 45 Am. Bankr. Rep. 563; In re M. L. B. Sturkey Co. (D. C.) 224 Fed. 251, 35 Am. Bankr. Rep. 371 ; In re Frankel CD. C.) 225 Fed. 129; In re Kreuger, 199 Fed. 367, 27 Am. Bankr. Rep. 623; In re Dancy Hardware & Furniture Co., 198 Fed. 336, 28 Am. Bankr. Rep. 444 ; In re Farmers' bupply Co., 196 Fed. 990, 28 Am. Bankr. Rep. 535; In re Nelson, 191 Fed. 233, 27 Am. Bankr. Rep. 272 ; In re J. S. Ap- pel Suit & Cloak Co., 198 Fed. 322, 28 Am. Bankr. Rep. 818 ; In re Hartdagen, 189 Fed. 546, 26 Am. Bankr. Rep. 532; In re Calhoun Supply Co., 189 Fed. 537, 26 Am. Bankr. Rep. 528 ; In re Gehris- Herbine Co., 188 Fed. 502, 26 Am. Bankr. Rep. 470; In re Franklin Lumber Co., 187 Fed. 281, 26 Am. Bankr. Rep. 37; In re Williamsburg Knitting Mill, 190 Fed. 871, 27 Am. Bankr. Rep. 178. See In re Rutland-Perry Co., 205 Fed. 200, 30 Am. Bankr. Rep. 383. The amenda- tory act confers on the trustee an abso- lute right to attack the unrecorded lien of a conditional seller, without refer- ence to whether the trustee represents creditors who have in fact acquired liens by legal or equitable jyroceedings against the bankrupt. In re Bazernore, 189 Fed. 236, 26 Am. Bankr. Rep. 494. But property delivered to a bahkrupt under an unrecorded contract of condi- tional sale, but retaken by the seller prior to the bankruptcy, though within four months, is not recoverable by the trustee, since it never became the bank- rupt's property. Hart v. Emmerson- Brantingham Co., 203 Fed. 60, 30 Am. Bankr. Rep. 218. A party seeking to reclaim . from a trustee In bankruptcy property conditionally sold to the bank- rupt has the burden of showing that there were prior creditors, as to whom the contract was not invalid, and that the claims of subsequent creditors will not exhaust the property. Potter Mfg. Co. V. Arthur, 220 Fed. 843, 136 C. C. A. 589, Ann. Cas. 1916A, 1268, 34 Am. Bankr. Rep. 75. Where a conditional sale contract did not identify the proper- ty, and there was no identification of invoices of goods sold ■as the goods in- tended to be covered, the contract was void as against the buyer's trustee in bankruptcy exercising the rights of a lien creditor. Meier & Frank Co. v. Sabin, 214 Fed. 231, 130 C. C. A. 605, 32 Am. Bankr. Rep. 595. 1*9 Arctic Ice Mach. Co. v. Armstrong County Trust Co., 192 Fed. 114, 112 C. d. A. 458, 27 Am. Bankr. Rep. 562 ; In re Schneider, 203 Fed. 589, 29 Am. Bankr. Rep. 469. 45 Rock Island Plow Co. v. Reardon, 222 V. S. 354, 32 Sup. Ct. 164, 56 L. Ed. 231,- 27 Am. Bankr. Rep. 492. ' § 359 LAW OF BANKRUPTCY 782, proceeds if sold.*" Or if some of the payments have been made, while others are in default, and the lessor has not attempted to forfeit the con- tract or retake the property, the trustee in bankruptcy may tender the amount remaining due under the contract and so acquire title to the property .*^^ In regard to contracts of sale and return, an essential difference is to be noted between a delivery with an option to purchase and a sale with the privilege of rescinding and returning. "An option to purchase if he liked is essentially different from an option to return a purchase if he should not like. In one case, the title will not pass until the option is determined; in the other, the property passes at once, subject to the right to rescind and return.""* Hence where goflds were delivered to a bankrupt on memorandum, the understanding being that, if he signified his desire to keep them within thirty days after delivery, they should be charged to him, otherwise they should be returned, the contract was one of the first class above mentioned, and the title remained in the seller until the expiration of the buyer's option, so that, on his becoming bankrupt, the seller was entitled to a return of all such goods as had been delivered to the bankrupt within thirty days before the filing of the petition in bankruptcy.*^* On the other hand, where property is delivered to the bankrupt on the agree- ment that he is to put it into use and test and try it for a limited time, and that he shall have the privilege of returning it if it proves unsatis- factory, we have a contract of the second kind, under which the title passes to the bankrupt on delivery, though subject to be divested if he should elect to return the goods, and therefore the seller cannot reclaim the goods from the trustee but simply becomes a creditor for the price.**® Again, where a wholesaler sends to a merchant a large assort- loiHauck V. Frey (D. O.) 228 Fed. montlas before the buyer's bankruptcy, 779, 37 Am. Banbr. Rep. 350 ; In re but did not exercise it, he has no rights Atlantic Beach Corp. (D. C.) 244 Fed. as against the trustee in bankruptcy. Mc- 828, 40 Am. Bankr. Kep. 514; Colonial Cabe v. Northampton Trust Co., 60 Pa. Trust Co. V. Thorpe, 194 Fed. 390, 114 C. Super. Ct. 18. ?; ^- ^°^' 2y ^^- \^''^^- f^^-^f^,l^^l '/ "' Hunt y. Wyman, 100 Mass. 198, ^.T^^fv"" f ^°^'^a. ^ /« arln re National Boat & Engine Co., 198 Fed. 407 ; Lovell v. H. Hentz & Co., 181 Fed. 555; AUen v.. Hollander, 128 Fed. 159, 11 Am. Bankr. Rep. 753; Weeks v. Fowler, 71 N. H. 5l8, 53 Atl. 543. Whether delivery of property sold by a bankrupt was sufficient to pass the title is to be determined by the law of the state. In re Waite-Robbins Motor Co., 192 Fed. 47, 27 Am. Bankr. Rep. 541. Where a buyer of a crop of hops at a specified price per pound, to be de- livered by the seller at a railroad sta- tion, inspected, weighed, and accepted a part of the crop at the seller's ranch, before the latter's bankruptcy, it was held that the title had passed as to such part of the crop, as against the seller's trustee in bankruptcy, the provision as to delivery at the railroad station being one which the buyer could waive and had waived. Williamson v. Richardson 205 Fed. 245, 123 C. C. A. 427, 30 Am. Bankr. Rep. 559. Where bankrupts had set aside cotton, and weighed, marked, and shipped it to a steamship for a purchaser's account before their bank- ruptcy, it was held that there was a delivery whereby it passed beyond the control of the bankrupts. Hiller v. Cor- nille & De Blonde, 228 Fed. 670, 143 C. C. A. 192, 36 Am. Bankr. Rep. 377. Where purchasers of lumber accepted the same, receipted for the bill of lad- 789 PKOPEETT VESTING IN TUUSTEB § 361 title may be considered as passing upon the delivery of a deed to the purchaser.*"* In the case of personalty, a symbolical delivery may be sufficient, as, by the delivery of the key to a room where the goods are stored,*"* or the delivery of warehouse receipts.''"* But a conveyance of real property which is intended as security only, although it is in form an absolute deed, is no more than a mortgage, and though it creates an enforceable lien, yet the property itself is assets of the mort- gagor's estate in bankruptcy.'"'-''" and even in the case of a mortgage regular in form, the mortgagee is not generally entitled to uncollected rents, but the same must go to the trustee in bankruptcy.*®* Goods pledged by the bankrupt to secure a debt or claim, supposing that there is nothing fraudulent or preferential in the contract, are equally beyond the reach of the trustee, who can recover them and make them available as assets, only on condition of redeeming from the pledge.**'' But the bailment, to have this effect, must be in all respects vaTid and binding under the laws of the state, and if an actual change of ing, and directed transfer of the ship- ment to a third party, to whom they transferred the lumber, it was held that, as title passed to the purchasers, the ul- timate buyer became indebted to such purchasers and on bankruptcy the pur- chasers' trustee was entitled to the pro- ceeds of the sale. TurnbuU v. Potlatch Lumber Co. (Sup.) 181 N. Y. Supp. 56. 492 Mason v. Perkins, 180 Mo. 702, 79 S. W. 683, 103 Am. St. Rep. 591; Con- gleton V. Schreihofer (N. J. Eq.) 54 Atl. 144. See In re Dr. Riegel Sanitarium Co., 206 Fed. 319, 81 Am. Bankr. Rep. 98. Where the bankrupt delivered a bond and mortgage under an agreement to pass title, creditors have no greater rights than the bankrupt, and the trustee in bankruptcy would have no better po- sition than that of a subsequent lienor to the rights of the bank holding the bond and mortgage. In re Friedman (D. .C.) 241 Fed. 603, 39 Am. Bankr. Rep. 777. 493 In re Cole, 171 Fed. 297, 22 Am. Bankr. Rep. 611. 494 Taney v. Penn Nat. Bank, 187 Fed. 689. 109 C. C. A. 437, affirming In re Miller Pure Rye Distilling Co., 176 Fed. 606, 23 Am. Bankr. Rep. 890. Jurisdic- tion in bankruptcy over property in a warehouse, the receipts for which were pledged as security for a loan, depends on whether possession thereof was with the bankrupt or with persons claiming adversely at the time the petition was filed. Chicago Title & Trust Co. v. First Nat. Bank,. 174 111. App. 339, aflirmed, Chicago Title & Trust Co. v. National Storage Co., 260 111. 485, 103 N. E. 227. 49 5 In re Moore, 146 Fed. 187, 17 Am. Bankr. Rep. 164. 496 In re Dole, 110 Fed. 926, 7 Am. Bankr. Rep. 21 ; Elmore v. Symonds, 183 Mass. 321, 67 N. E. 314. 49 7 Commercial Nat. Bank v. Hiller, 211 Fed. 337, 128 C. C. A. 16, 32 Am. Bankr. Rep. 236. In re Miller Piire Rye Distilling Co., 214 Fed. 189, 130 C. C. A. 537 ; Roth v. Smith, 215 Fed. 82, 131 C. C. A. 390 ; In re Dreuil & Co., 205 Fed. 573, 31 Am. Bankr. Rep. 69; Bank of Brodhead v. Smith, 199 Fed. 703, 118 C. 0. A. 141 ; Lovell v. Isidore Newman & Son, 192 Fed. 753, 113 C. C. A. 39, 27 Am. Bankr. Rep. 746; In re Macauley, 158 Fed. 322, 18 Am. Bankr. Rep. 459; Van Kirk v. Vermont Slate Co., 140 Fed. 38, 15 Am. Bankr. Rep. 239; Bush v. Export Storage Co., 136 Fed. 918, 14 Am. Bankr. Rep. 138 ; Lamb v. Hall, 147 Cal. 44, 81 Pac. 288 ; King v. Cram, 185 Mass. 103, 69 N. E. 1049. See Bank of North America v. Penn Motor Car Co., 235 Pa. St. 194, 83 Atl. 622; Martin v. Bankers' Trust Co.; 18 Ariz. 55, 156 Pac. 87, Ann. Cas. 1918E, 1240; Benhett v. North Philadeliihia Trust Co., 66 Pa. Super. Ct. 261: Griffin v. Smith, 177 Cal. 481, 171 Pac. 92. § 362 LAW OF BANKRUPTCY 790 possession is necessary to constitute a valid pledge, the claimant must be able to show that this has taken place, or else he cannot hold the goods as against the trustee in bankruptcy of the pledgor.*^* A contract by which a bankrupt agreed that in the event that certain goods which he had sold, and the accounts for which had been assigned to a bank, should be returned, the bankrupt would hold the goods or the proceeds in trust for the bank, and deliver the same on demand, was not, in the absence of such delivery, a valid pledge."^ But the trustee of a bank- rupt corporation, acting for the benefit of its creditors, can have an or- der for the cancellation of bonds of the corporation and a trust deed securing them, when they are held by one to whom they had been pledged for a debt, that debt having been paid, and the holder claim- ing to retain them as security for the debt of another corporation, for which they could not legally be held, although no fraud is alleged and the holder is making his claim in good faith.^* § 362. Equitable Rights of Third Persons. — Aside from cases of preference and of fraudulent conveyance, a trustee in bankruptcy takes the property of the bankrupt subject not only to specific liens, but also to equities in favor of third persons, whether arising out of the act of the bankrupt or by operation of law, which are not invalid as to credi- tors.^^ Thus, for example, one having a claim against a fund by an 488 In re Gebbie & Co., 167 Fed. 609, 31 Am. Bankr. Eep. 568; In re Sher- 21 Am. Bankr. Kep. 694; Fourth Street woods, 210 Fed. 754, 127 C. C. A. 304, Nat. Bank v. Millbourne Mills Co.'s Ann. Cas. 1916A, 940, 31 Am. Bankr. Trustee, 172 Fed. 177, 96 C. C. A. 629, Kep. 769; Gage Lumber C!o. v. McBl- .22 Am. Bankr. Rep. 442; In re A. P. downey, 207 Fed. 255, 124 C. C. A. 641, 30 Wilson & Co., 176 Fed. 652, 23 Am. Am. Bankr. Eep. 251 ; In re M. E. Dunn Bankr. Rep. 907 ; Godwin v. Murchison & Co. (D. C.) 193 Fed. 212, 28 Am. Bankr. Nat. Bank, 145 N. O. 320, 59 S. E. 154, Eep. 127; In re McConnell (D. C.) 197 17 L. R. A. (N. S.) 935 ; French v. White, Fed. 438, 28 Am. Bankr. Rep. 659 ; Good- 78 Vt. 89, 62 Atl. 35, 2 L. R. A. (N. 8.) nough Mercantile & Stock Co. v. Gallo- 804, 6 Ann. Cas. 479 ; Goodrich v. Dore, way (D. C.) 171 Fed. 940, 22 Am. Bankr. 194 Mass. 493, 80 N. E. 480. See In re Rep. 803; In re Chantler Cloak & Suit Zinner, 202 Fed. 197, 29 Am. Bankr. Rep. . Co. (D. C.) 151 Fed. 952, 18 Am. Bankr. 860 ; In re Shulman, 206 Fed. 129, 30 Rep. 498 ; Crosby v. Ridout, 27 App. D. Am. Bankr. Rep. 238. C. 481 ; Blake v. Meadows, 225 Mo. 1, 490 In re Shulman (D. C.) 206 Fed. 129, 123 S. W. 868, 30 L. E. A. (N. S.) 1 ; ' 30 Am. Bankr. Eep. 238. Kimball v. Baker Land & Title Co., 152 BOO First Nat. Bank v. Towner, 239 Wis. 441, 140 N. W. 47. See Hotclikiss Fed. 433, 152 C. C. A. 311, 38 Am. Bankr. v. National City Bank (D. C.) 200 Fed. Eep. 576. 287. The trustee in bankruptcy of one 001 Greif Bros. Cooperage Co. v. Mul- who had contracted with the state to Unix (C. C. A.) 264 Fed. 391, 45 Am. install certain plumbing will be post- Bankr. Eep. 265; Cohen v. Bacharach, poned to the rights of a surety for the 229 Fed. 385, 143 C. C. A. 505, 36 Am. contractor, which performed the con- Bankr. Eep. 166 ; In re Einstein (D. tract on the contractor's default. Derby C.) 245 Fed. 189, 40 Am. Bankr. Eep. v. United States Fidelity & Guaranty 507; In re Cotton (D. 0.) 209 Fed. 124, Co., 87 Or. 34, 169 Pac. 500. "^Ql PBOPEKTT VESTING IN TRUSTEE § 362 equitable assignment from the bankrupt may assert it against the trus- tee in bankruptcy.^*^ A check on a bank, where the drawer has suffi- cient funds to meet it, operates as an equitable assignment pro tanto of the money as between the holder of the check and the trustee in bank- ruptcy of the drawer,®** unless the statute law of the particular state has established a different rule.^*** A draft does not ordinarily oper- ate as an equitable assignment until it has been accepted, but if the drawer, having no funds to meet it at the time it is presented, after- wards makes a remittance for the specific purpose of taking up the draft, the holder has an equitable claim upon the fund thus set apart.®"* The same is true of an order given by the bankrupt on his attorney, direct- ing the latter to pay the holder out of the proceeds of notes collected by him for the bankrupt,®*® and of an order on the bankrupt's agent to pay the holder out- of rents collected by the agent for the bankrupt.®*' But a mere promise to pay out of a particular fund when received, the promisor retaining control of the fund, and no notice being given to the person who is to pay, does not create any lien or charge upon the fund or any equity in it,®** nor does an order directing an insurance agent to pay the holder part of the proceeds of an insurance loss due to the bankrupt, where no notice is given to the insurance company and the agent has no authority from the company to comply with such an order.®** And one who holds funds of the bankrupt in the character of a trustee or as security for his own debt, has no power to bind the trustee in bankruptcy by a promise given to a creditor to pay him out of the fund.®" But where plaintiff, being a member of a stock ex- change, is in the habit of executing orders for a brokerage firm not a member, and the firm accepts orders of customers, which it directs plaintiff to execute, such customers, though unknown to plaintiff, sus- tain the relation to him of debtor and creditor, and he will be required to pay them the funds he may have from their business done on the 502 In re Hanna (D. C.) 105 Fed. 587, 201, Fed. Cas. No. 3,894; Seligman v. 5 Am. Bankr. Kep. 127 ; Andrews Elec- Wells, 17 Blatchf . 410, 1 Fed. 302. trie. Inc. v. St. Alphonse Catholic Total ^oa in re Smith, 16 N. B. R. 399, Fed. Abstinence Sec, 233 Mass. 20, 123 N. E. Cas. No. 12,992. 103. See In re Stiger (D. C.) 202 Fed. so? in re Oliver, 132 Fed. 588, 12 Am. 791. Bankr. Rep. 694. 5oa First Nat. Bank v. Coates (C. C.) "' ^^ P^rte Tremont Nail Co., 16 N. 8 Fed. 540, 3 McCrary, 9 ; Fourth Nat. ^- ^- ^48, Fed. Cas. No. 14,168. Bank V. City Nat. Bank, 68 111. 398, 10 °''° ^^ '^ The Leader, 190 Fed. 624, N B R 44 ^^ Bankr. Rep. 668. 610 In re Ballantine, 186 Fed. 91, 109 504 In re Grive, 151 Fed. 711, 18 Am. q q ^ 203, 26 Am. Bankr. Rep. 275. Bankr. Rep. 202. gee In re Kessler & Co., 165 Fed. 508, 60 B Dickey t. Harmon, 1 Cranch, C. C. 21 Am. Bankr. Rep. 583. § 362 LAW OF BANKRUPTCY 792 firm's orders, before he pays anything to the firm's trustee in bankrupt- cy.^'" An equitable right or claim in favor of a third person may also grow out of circumstances which would raise an estoppel against the bankrupt to claim particular property as his own. Generally, such an estoppel will be equally efifective against the trustee in bankruptcy.^^* And conversely, the trustee may claim an estoppel against one who fails to assert his claims at the proper season, provided that positive and clear loss has resulted.®^* But the advantage derived from a mis- take made by a bankrupt when reducing to writing a contract made by him, is not an asset in the hands of his trustee, for the latter is not a bona fide purchaser for value in such sense as to bar the reformation of the contract in equity.®" But on the other hand, circumstances un- der which a court of equity might permit a rescission of a contract of sale, on the ground of mistake, where the parties could be restored to their original position, may not warrant such relief after the pur- chaser has become bankrupt and the rights of creditors have intervened, and especially where the specific property cannot be restored."® Real property of a bankrupt, which was intended to be covered by a mortgage, but which was not sufficiently described therein to give the trustee notice of the fact, passes to the trustee, especially since the amendment of 1910 to the Bankruptcy Act, which gives him the rights, remedies, and powers, of a creditor holding a lien.®^* But a receiver in bankruptcy acquires no specific lien on property of the bankrupt con- sisting in deposits in a bank which will prevent the bank from setting off against the deposits, after the adjudication, notes due to it which had not matured when the receiver was appointed.®^' 611 Doucette V. Baldwin, 194 Mass. and title is taken In the name of one, the 131, 80 N. B. 444. trustee in bankruptcy of the legal owner 512 Aldine Trust Co. v. Smith, 182 cannot claim a greater interest than the Fed. 449, 104 C. C. A. '556, 25 Am. Bankr. bankrupt actually had. Jones v. Dugan, Bep. 608. Where officers and stockhold- 124 Md. 346, 92 Atl. 775. ers of a corporation in effect ratify irreg- ois in re Loll, 162 Fed. 79, 20 Am. ular payments by a corporate officer of Bankr. Eep. 548. his individual indebtedness with checks sii Zartman v. First Nat. Bank, 216 drawn directly upon the corporation, by U. S. 134, 30 Sup. Ct. 368, 54 Jj. Ed. 418, remaining silent and thus preventing the 23 Am. Bankr. Eep. 635. creditor from proceeding again.'it the cor- oib in re American Knit Goods Mfg. porate officer, the trustee in bankruptcy Co., 155 Fed. 906, 19 Am. Bankr. Rep. of the corporation cannot contend that 212. the officer was not authorized to draw "lo in re Scruggs Bros. (D. C.) 252 such checks. Atherton v. Beaman (D. O.) Fed. 322, 40 Am. Bankr. Eep. 543. 256 Fed. 871, 42 Am. Bankr. Eep. 631. oi? De Long v. Mechanics & Metals Where' two persons purchase property, Nat. Bank, 168 App. Div. 525, 153 N. Y. each paying part of the purchase money. Supp. 1010. 793 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 363 CHAPTER XX EFFECT OF BANKRUPTCY ON EXISTING LIENS Sec. 363. Statutory Provisions. 364. Validity of Liens as Against Trustee. 365. Liens Invalid as Against Creditors. 366. Mortgages of Real Property. 367. Chattel Mortgages. 368. Pledges and Assignments of Collateral. 369. Maritime Liens. 370. Attorneys' Liens for Services. 371. Vendors' Liens. 372. Statutory Liens. 373. Landlord's Lien for Rent. 374. Liens of Mechanics and Materialmen. 375. Liens Acquired by Legal Proceedings Before Bankruptcy, 376 Same ; Attachment or Garnishment. 377. Same ; Judgment or Execution. 378. Dissolution of Liens by Adjudication. , 379. Insolvency of Debtor. 380. Date of Attaching of Lien as Affecting Dissolution , 381. Rights of Bona Fide Purchasers. 382. Rights of Trustee as to Property Affected by Liens. 383. Conveyance or Surrender of Property Under Order of Court 384. Subrogation of Trustee to Rights of Lienholders. 385. Rights and Remedies of Creditor on Dissolution of Lien. 386. Costs and Fees Incurred Under Dissolved lien. 387. Proceedings to Establish or Enforce Liens. 388. Same; Proceedings in State Courts. 389. Same; Restraining Proceedings in State Courts. 390. Same ; Foreclosure of Mortgages. 391. Same; Proceedings Out of Court. § 363. Statutory Provisions. — The sixty-seventh section of the bankruptcy act provides, in clause "c," that "a lien created by or obtain- ed in or pursuant to any suit or proceeding at law or in equity, including an attachment upon mesne process or a judgment by confession, which was begun against a person within four months before the filing of a petition in bankruptcy by or against such person shall be dissolved by the adjudication of such person to be a bankrupt if (1) it appears that said lien was obtained and permitted while the defendant was insolvent and that its' existence and enforcement will work a preference, or (2) the party or parties to be benefited thereby had reasonable cause to believe the defendant was insolvent and in contemplation of bankruptcy, or (3) that such lien was sought and permitted in fraud of the provisions of this act; or if the dissolution of such lien would militate against the best interests of the estate of such person, the same shall not be dissolv- ed, but the trustee of the estate of such person, for the benefit of the es- i 363 LAW OF BANKETJPTCT 794 tate, shall be subrogated to the rights of the holder of such lien and em- powered to perfect and enforce the sanie in his name as trustee with like force and effect as such holder might have done had not bankruptcy- proceedings intervened." Later in the same section it is provided (clause "f") that "all levies, judgments, attachments, or other liens, ob- tained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankrupt- cy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien, shall be deemed wholly discharged and released frpm the same, and shall pass to the trustee as a part of the estate of the bank- rupt, unless the court shall, on due notice, order that the right under such levy, judgment, attachment or other lien shall be preserved for the benefit of the estate; and thereupon the same shall pass to and may be preserved by the trustee for the benefit of the estate as aforesaid. And the court may order such conveyance as may be necessary to carry the purposes of this section into effect; Provided, that nothing herein contained shall have the effect to destroy or impair the title obtained by such levy, judgment, attachment, or other lien, of a bona fide purchaser for value who shall have acquired the same without notice or reasonable cause for inquiry." Although the latter of these two provisions is in terms confined to a person "against" whom a petition in bankruptcy is filed, yet in view of the provision of the first section of the statute that "a person against whom a petition has been filed shall include a person who has filed a voluntary petition," it is held that the provision as to liens applies to cas- es of voluntary bankruptcy as well as to involuntary cases.'^ And al- though it may apply to proceedings on debts contracted before the pas- i In re Richards, 96 Fed. 935, 37 C. C. Am. St. R«p. 382 ; National Bank & Loan A. 634, 3 Am. Bankr. Rep. 145; In re Co. v. Spencer, 53 App. I>iv. 547, 65 N. Dobson, 98 Fed. 86, 3 Am. Bankr. Rep. Y. Supp. 1001; Ford v. Henderson, 91 420; In re Beals, 116 Fed. 530, 8 Am. Or. 701, 178 Pac. 381, 179 Pac. 558; Bankr. Rep. 639 ; In re Vaughan, 97 Fed. Wallace v. Camp, 200 Pa. St. 220, 49 Atl. 560, 3 Am. Bankr. Rep. 362 ; In re Lesser, 942 ; Mencke v. Rosenberg, 202 Pa. St. 100 Fed. 433, 3 Am. Bankr. Rep. 815; In 131, 51 Atl. 767, 90 Am. St. Rep. 618; re Rhoads, 98 Fed. 399, 3 Am. Bankr. Rothermel v. Moyer, 24 Pa. Super. Ct. Rep. 380; In re McCartney, 109 Fed. 325; Gardiner v. Ross, 19 S. Dak. 497, 621, 6 Am. Bankr. Rep. 367 ; Gabriel v. 104 N. W. 220 ; Farrell v. W. B. Lockett Tonner, 138 Cal. 63, 70 Pac. 1021 ; Me- & Co., 115 Tenn. 494, 91 S. W. 209. Kenney v. Cheney, 118 Ga. 387, 45 S. E. Contra, In re De Lue, 91 Fed. 510, 1 Am. 433; Jones v. Stevens, 94 Me. 582, 48 Bankr. Rep. 387; In re O'Connor, 95 Atl. 170; Stickney & Babcock Coal Co. Fed. 943; In re Easley, 93 Fed. 419, 1 V. Goodwin, 95 Me. 246, 49 Atl. 1039, 85 Am. Bankr. Rep. 715. And see In 're Am. St. Rep. 408 ; Brown v. Case, 180 Kemp, 101 Fed. 689, 4 Am. Bankr. Rep. Mass. 45, 61 N. E. 279; Cavanaugh v. 242. Fenley, 94 Minn. 505, 103 N. W. 711, 110 795 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 363 sage of the law, yet it is not for that reason objectionable as impairing the obligation of contracts, since it affects only the remedy on the con- tract, and not the contract itself.* This provision is not intended solely for effect in the courts of bankruptcy, but it is equally binding upon the courts of the states,* and it overrides and is superior to all state laws on the same subject.* No one can fail to notice that the two clauses of the act which we have quoted above, clauses "c" and "f" of the sixty-seventh section, are to a certain extent duplicates of each other, and yet sufficiently unlike to introduce the greatest confusion into the law if both are to have equal authority. This state of affairs is accounted for by tlie fact that the one clause was contained in the bill as originally passed by the House of Representatives, and the other in the bill as originally passed by the Senate, and both were retained by the conference committee which set- tled the terms of the statute in its present form, and consequently passed by bpth houses without adverting to the conflict between them. It has sometimes been thought that the particular or special provisions in clause "c" are to be taken as exceptions to the general provisions of clause "f." ^ But the courts are now agreed that the two clauses are absolutely repugnant and irreconcilable, and that therefore in any case of conflict between them, clause "c" must give way, and clause "f" must prevail, as being the latest expression of the legislative will.® Yet the two clauses must be read together, for the light they may throw on each other, in construing the act as a whole.' Both of these provisions relate to liens obtained through legal pro- ceedings. As to liens created by the act of the parties, or raised by the law without suit, the provisions are that "claims which for want of rec- ord or for other reasons would not have been valid liens as against the claims of the creditors of the bankrupt shall not be liens against his es- tate," and that "liens given or accepted in good faith and not in contem- plation of or in fraud upon this act, and for a present consideration, which have been recorded according to law, if record thereof was nec- essary in order to impart notice, shall, to the extent of such present con- sideration only, not be affected by this act."* 2 In re Ehoads, 98 Fed. 399, 3 Am. 785, 28. Am. Bankr. Rep. 182; In re Bankr. Kep. 380. Richards, 96 Fed. 935, 37 C. 0. A. 634, 3 Thompson v. Ragan, 117 Ky. 577, 78 3 Am. Bankr. Rep. 145 ; In re Rhoads, S. W. 485. 98 Fed. 399, 3 Am. Bankr. Rep. 380. * Atkinson v. Purdy, Crabbe, 551, Fed. 7 Folger v. Putnam (C. C. A.) 194 Fed. Cas. No. 616. 793, 28 Am. Bankr. Rep. 173. 5 Ex parte Chase, 62 S. C. 353, 38 S. s Bankruptcy Act 1898, § 67, clauses E. 718. "a" and "d." 6 Cook V. Robinson (C. C. A.) 194 Fed, § 364 LAW OF BANKEUPTCT 796 § 364. Validity of Liens as Against Trustee. — Except as to the classes of liens expressly declared by the bankruptcy act to be dissolved by an adjudication within four months after they attached, and except also in cases of fraud or attempted preference, the rule is that proceed- ings in bankruptcy do not interfere with existing valid liens,' but the trus- tee takes the property of the bankrupt subject tp all such liens as would have been enforceable against it in the hands of the bankrupt himself." And as the trustee does not occupy the technical position of a "purchaser for value," it is immaterial whether or not he had notice of a given lien, or rather, he is supposed to take with notice.*" Further, as to liens which are thus protected and preserved, the bankruptcy law makes no distinction between -them, as to the manner in which they originated, or whether they are enforceable at law or in equity,** but will preserve them all and direct their payment in their relative order of rank and priority,** and if the trustee in bankruptcy does not undertake the administration of the property affected, and the lien creditor does not prove his debt in the bankruptcy proceeding, the lien will survive that proceeding.** But a lien claimed by a creditor must be valid under the law of the particular state,** and free from all fraudulent design as against other 9 Rode & Horn v. Pbipps, 195 Fed. 414, 115 C. C. A. 316, 27 Am. Bankr. Rep. 827; Atchison, T. & S. F.,Ry. Co. V. Hurley, 153 Fed. .503, 82 C. C. A. 453, 18 Am. Bankr. Rep. 396; Tucker v. Curtin, 148 Fed. 929, 78 C. C. A. 5-57, 17 Am. Bankr. Rep. 354 ; In re Boschelli, 183 Fed. 864, 25 Am. Bankr. Rep. 528; In re Columbia Fireproof Door & Trim Co., 168 Fed. 159, 21 Am. Bankr. Rep. 714; In re Platteville Foundry & Ma- chine Co., 147 Fed. 828, 17 Am. Bankr. Rep. 291; In re Clifford, 136 Fed. 475, 14 Am. Bankr. Rep. 281; Schoenthaler V. Rosskam, 107 111. App. 427; Mat- tocks V. Baker, 2 Fed. 455 ; Robinson v. Tuttle, 2 Hask. 76, Fed. Cas. No. 11,968; Presbyterian Board, etc., v. Gilbee, 212 Pa. St. 310, 61 Atl. 925. The rule that the filing of a petition In bankruptcy is in effect an attachment and in,1unction has no application to those holding sub- stantial claims, antedating the filing, to liens upon property of the bankrupt. In re Rathman, 183 Fed. 91 .S, 106 C. C. A. 253, 25 Am. Bankr. Rep. 246. Equitable liens of creditors of a decedeut upon land devised by him are not lost by the passing of the legal title of the land to the trustee in bankruptcy of his devisee, for such property passes subject to all equities impressed upon it in the hands of the bankrupt. In re McAusland (D. C.) 235 Fed.- 173, 37 Am. Bankr. Rep. 519. 10 Clason V. Morri.s, 10 Johns. (N. Y.) 524; State v. Superior Court of King County, 63 Wash. 312, 115 Pac. 307, Ann. Cas. 1913D, 1119. 11 Reed v. BuUington, 49 Miss. 22.^, 11 N. B. R. 408. 1^ McLean v. Lafayette Bank, 3 Mc- Lean, r,S7, Fed. Cas. No. 8,888; In re Longfellow, 2 Husk. 221, 17 N. B. Ri. 27, Fed. Cas. No. 84.S(;. A court of bank- ruptcy vein release from its administra- tion only that property of a bankrupt in which, by reason of conceded and ab- sorbing superior liens and pi-ivileges, the trustee has no equity. Roger v. J. B, Levert Co., 237 Fed. 737, 150 C. C. A. 491, 38 Am. Bankr. Rep. 240. IS Clanton v. Estes, 77 Ga. 352, 1 S. E. ICH. 1* Hoyt V. Zibell, 259 Fed. 186, 170 C. 0. A. 2.''.4, 43 Am. Bankr. Rep. 538; In re McAusland (D. C.) 235 Fed. 173, 37 Am. Bankr. Rep. 519; In re Unitrnl States Lumber Co., 206 Fed. 236, 30 Am. Bankr. Rep. 682; In re Hersey, 171 Fed. 1004, 22 Am. Bankr. Rep. 863 ; Plutt v. Preston, Fed. Cas. No. 11,219. Though 797 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 364 creditors.^® But where the question is purely between the trustee in bankruptcy and the lien-creditor, the rights of the former are measured by those of the bankrupt. If the contract or arrangement by which the lien was created was binding on the bankrupt, it will be binding on his trustee.*" But if it was not binding as between the immediate parties, — as, for instance, in the case of an agreement for a lien on personal prop- erty, but without change of possession, — it will not aflfect the property in the hands of the trustee.^' But if the circumstances were such that the bankrupt would be estopped to take advantage of a defect or irregulari- ty, the estoppel may also be set up against his trustee.?* Thus, where a corporation, before becoming bankrupt, had given a mortgage on its property, but without complying with the state law requiring such a mortgage to be authorized by a vote of the stockholders in meeting, it was held that its trustee in bankruptcy could not take advantage of the defect, in view of the fact that the courts of the state had construed that provision of the statute as being for the exclusive benefit of the stock- holders.** But the trustee is not so far in privity with the bankrupt as to be prohibited from attacking judgments against him collaterally, as, in the case of a judgment obtained on a debt not due.*' Further, it is necessary that the lien should be in full force and vital- ity at the date of the adjudication. If it has been in any way released or the rights of a trustee in bankruptcy rights were superior to the secret equity ■ and those of an assignee in insolvency of the wife. Gee v. Parks (Tex. Civ. under a state statute are defined in App.) 193 S. W. 767. ' similar language, yet a state statute i6 in re Greek Mfg. & Enterprising making a certain transfer void as against Co. (D. C.) 167 Fed. 424, 21 Am. Bankr. an assignee eo nomine does not make it Rep. 717. But see Scandinavian-Amerl- void as against a trustee in bankruptcy, can Bank v. Sabin, 227 Fed. 579, 142 C. In re Loveland, 155 Fed. 838, 84 C. C. A. 0. A. 211, 36 Am. Bankr. Rep. 151, holding 72, 19 Am. Bankr. Rep. 18. that an agreement under which a creditor 15 Ommen v. Talcott, 188 Fed. 401, 112 claims a lien on property, while good as C. C. A. 239, 26 Am. Bankr. Rep. 689. between the parties, may not be good as Where an assignment of accounts by the against the trustee in bankruptcy, under bankrupt was subject to attack as pref- the 1910 amendment to the Bankruptcy erential and fraudulent, a defendant, Act, giving the trustee the position of a who had consented to the bankrupt's use lien creditor. in his business of sums of money col- i7 in re Faulhaber Stable Co., 170 lected, was held not entitled to an equi- Fed. 68, 95 C. C. A. 344, 22 Am. Bankr. table lien for those amounts. Chapman Rep. 881 ; Bank of Leavenworth v. V. Hunt (D. C.) 248 Fed. 160, 41 Am. Hunt, 11 Wall. 391, 20 L. Ed. 190. Bankr. Rep. 482. Where a wife paid is Allen v. Whlttemore, 8 Ben. 485, 14 seven-eighths of the purchase price of N. B. R. 189, Fed. Cas. No. 241. See In land taken in the name of the husband, re Jackson Light & Traction Co. (C. C. who bought goods, giving a note and A.) 269 Fed. 223, 46 Am. Bankr. R«p. mortgage to the seller, which borrpwed 258. money from a bank, depositing accounts 1 9 In re V. & M. Lumber Co., 182 Fed. and the note as collateral, and the seller 231 ; Stuart v. Holt, 198^ Ala. 73, 73 was thereafter declared bankrupt, and South. 390. the trustee recovered the collateral from 20 Partridge v. Dearborn, 2 Low. 286, the bank, it was held that the trustee's 9 N. B. R. 474, Fed. Cas. No. 10,785. § 364 LAW OF BANKRUPTCY 798 relinquished before that time, it cannot be revived as against the ttus- tee.*^ And after the adjudication it is too late to fasten any lien upon the property of the bankrupt however far the debt or claim may antedate it.** Subject to these conditions, all classes of liens may follow the specific property affected into the hands of a trustee in bankruptcy, such, for in- stance, as the lien of a state for taxes,** the lien of a factor for advances to his principal and for his commissions,** the lien of a municipal corpo- ration on a stock of goods belonging to one of its public officers which was purchased wholly or in part with public moneys misappropriated by him,*^ or the lien of the surety on the bond of a bankrupt contractor, against funds remaining due under the contract,** or the lien of a private corporation, created by its by-laws, on the stock of each stockholder to cover his indebtedness to the corporation,*'" or the lien created by the fil- ing of a judgment creditor's bill to set aside a fraudulent conveyance and subject the property conveyed to the satisfaction of the judgment, after the service of process thereon,** or at any rate after the service of an injtmction or the appointment of a receiver.** And although a mere per- sonal claim against. a bankrupt's estate does not constitute a lien,*" yet the bankruptcy act will save and protect equitable liens as well as 'those given by statute or raised by the explicit agreement of the parties, and the court of bankruptcy will recognize a lien of this character wherever a court of equity would do so.*^ Such an equitable lien may arise out of the assignment, as security for a loan, of money to accrue under a con- 21 Sage V. Wynkoop, 16 N. B. R. 363, Oas. No. 4,156; In re Bigelow, 2 Ben. Fed. Cas. No. 12,215, affirmed, 104 V. 469, 1 N. B. R. 667, Fed. Gas. No. 1,395. S. 319, 26 L. Ed. 740. But see Crane v. 2 8 Bradley v. United Wireless Tele- Penny, 2 Fed. 187, as to the right of a graph Co., 79 N. J. Bq. 458, 81 Atl. 1107 ; trustee in bankruptcy to plead that an in j-e Beadle, 5 Sawy. 351, Fed. Cas. No. execution was dormant at the time of 1,155. Compare In re Pitts, 9 Fed. 542. the adjudication. And see Blick v. Nimmo, 121 Md. 139, 88 22 In re York Silk Mfg. Co., 188 Fed. ^.tl. 116. 735, 26 Am. Bankr. Rep. 650; In re ^ain re Smith, Fed. Cas. No. 12,997: Badenheim, 15 N. B. R. 370, Fed. Oas. Johnson v. Rogers, 15 N. B. R. 1, Fed. No. 716. „„. „ ^. „ Cas. No. 7,408; In re Pemberton (D. C.) 'oo"" ""^ ^''^^^' \?"? o!f« ^^ ' ^ • 260 Fed. 521, 43 Am. Bankr. Rep. 149; R. 324, Fed. Cas^ No. 1,809. ^^^^,^^ ^. ^j^j^ed Wireless TefegrapA 24 ommen v^ Talcott, 188 Fed. 401, ^o., 83 N. J. Eq. 688, 93 Atl. 1084. 112 C. C. A. 239, 26 Am. Bankr. Rep. „„_, ^ . „„ _, ^. 689; In re RoseWry, 8 Biss. 112, 16 " Sf ^w sm'T/ f^, '''• mV^"*; N. B. R. 340, Fed. Cas. No. 12,052 ; Ms- ^T^' ^2 S. W^ 800 ; Hotchkiss v. National bet V. Sigel-Campion Live Stock Com- City Bank, 200 Fed. 287. mission Co., 21 Colo. App. 494, 123 Pac. " ^"^ ^'^ Plantations Co. (D. C.) 270 110; Boise v. Talcott (D. C.) 212 Fed. ^^d. 273, 46 Am. Bankr. Rep. 318; Wal- 268, 36 Am. Bankr. Rep. 838. ton Land & Timber Co. v. Runyan (C. 20 Smith V. Township of Au Gres, 150 C. A.) 269 Fed. 128, 46 Am. Bankr. Rep. Fed. 257, 17 Am. Bankr. Rep. 745. 251; Gage Lumber Co. v. McEldowney 20 Lyttle V. National Surety Co., 43 (0. C. A.) 207 Fed. 255, 30 Am. Bankr. App. D. 0. 136. Kep. 251 ; In re Hoffman, 199 Fed. 448, 2 7 In re Dunkerson, 4 Blss. 227, Fed. 28 Am. Bankr. Rep. 680 ; Parker v. Bates, 799 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 304 tract,'* or out of the agreement of the bankrupt to assign specific ac- counts or funds as security for advances of money made to him.'* So a purchaser of drafts drawn by the bankrupt on a London bank, which were refused payment because of the intervening bankruptcy, was held entitled to an equitable lien on securities deposited by the bankrupt in New York to protect such drafts, pursuant to an agreement with the drawee.** Again, a purchaser of lumber to be manufactured by the bankrupt, having made large advances thereon, was held to have an eq- uitable lien on lumber sawed and piled in the bankrupt's yards at the time the bankruptcy occurred, and which was intended to be applied on the contract, the lien being enforceable against the bankrupt's trustee.*® And so, as against the trustee in bankruptcy, one who had made loans to the bankrupt, secured by instruments representing the grain handled by it, which instruments, more than four months before the adjudication, were taken up and replaced by a single receipt covering grain in various' elevators in several states, but which receipt did not comply with the state laws governing warehouse receipts, was held entitled to an equita- ble lien.*® On the same principle, where a moirtgagor, after having paid a part of the mortgage debt, borrowed further sums from the mortgagee, and indorsements were made on the mortgage note to the effect that such sums should be added to the amount previously remaining due thereon, it was held that the mortgage was a valid lien in equity for the full amount as so increased, as against the mortgagor's trustee in bankrupt- cy.*' So, an equitable lien On personal property may be created by a verbal agreement, provided the intention is clear to charge some particu- 203 Fed. 294, 30 Am. Bankr. Rep. 198 ; Elmore v. Symonds, 183 Mass. 321, 67 N. Atchison, T. & S. F. Ky. Co. v. Hurley, E. 314; Ross v. Saunders, 123 Fed. 737; 153 Fed. 503, 82 C. C. A. 453, 18 Am.. Moore v. Green, 145 Fed. 472, 76 C. C. Bankr. Rep. 396 ; Smith v. Township of A. 242, 16 Am. Bankr. Rep. 648 ; In re Au Gres (C. C. A.) 150 Fed. 257, 17 Am. Teter, 173 Fed. 798, 23 Am. Bankr. Rep. Bankr. Kep. 745 ; Hanson v. W. L. Blake 223 ; Ernst v. Mechanics' & Metals Nat. & Co., 155 Fed. 342, 19 Am. Bankr. Rep. Bank (O. C. A.) 201 Fed. 664, 29 Am. 325 ; In re J. F. Grandy & Son, 146 Fed. Bankr. Rep. 289. 318, 17 Am,. Bankr. Rep. 206 ; In re Mac- 32 Jennings v. Whitney, 224 Mass. 138, Dougall, 175 Fed. 400, 23 Am. Bankr. 112 N. E. 655. See Maltbie v. Olds, 88 Rep. 762; Loving v. Moore, 37 App. D. C. Conn. 633, 92 Atl. 403. 214; Crosby v. Ridout, 27 App. D. C. 481; 33 in re Imperial Textile Co. (D. C.) Kelly-Buckley Co. v. Cohen, 195 Mass. 239 Fed. 775, 39 Am. Bankr. Rep. 534. 585, 81 N. E. 297; Smith v. Godwin, 145 st in re Hollins,'215 Fed. 41, 131 C. 0. N. C. 242, 58 S. E. 1089; Gardner v. A. 349, L. R. A. 1915B, 438. Planters' Nat. Bank, 54 Tex. Civ. App. as Gage Lumber Co. v. McEldowney, 572, 118 S. W. 1146; NeWUn v. McAfee, 207 Fed. 255, 124 C. C. A. 641, 30 Am. 64 Ala. 357: Fletcher v. Morey, 2 Story, Bankr. Rep. 251. 555, Fed. Cas. No. 4,864; Ex parte Gen- se Britton v. Union Inv. Co. (C. C. A.) eral Assignee, 5 Law Rep. 362, Fed. Cas. 262 Fed. Ill, 44 Am. B^nkr. Rep. 531. No. 5,305. See also the following cases, 37 in re Loveland, 155 Fed. 838, 84 C. where the circumstances were held not C. A. 72. sufiBcient to create an equitable lien: § 365 LAW OF BANKRUPTCY 800 lar property.'* Thus, an oral agreement by a mortgagor to insure the property for the benefit of the mortgagee, whose money was used in its purchase, will give the mortgagee an equitable lien on the proceeds of the insurance after the property has been destroyed by fire, as against the mortgagor or his trustee in bankruptcy.^* It is also a part of this gener- al doctrine that one whose money or property was held by the bankrupt in the capacity of a trustee, and was converted or misappropriated by the latter, the proceeds going to swell his general estate, may claim a lien on the assets of the bankrupt to the extent of his loss, provided he is able to trace his property, either in its original shape or in a substi- tuted form, into the hands of the trustee in bankruptcy.** But the equi- table rights of claimants as creditors of another corporation, whose property the bankrupt acquired, on the theory that it was transferred subject to a trust ex maleficio, cannot be treated as a valid lien superior to the rights of general creditors of the bankrupt, until, by some legal proceeding, it has become attached to the property of the bankrupt." So, a customer of bankrupt brokers, whose stocks had been loaned by them and sold by the borrowers on their insolvency, is not entitled to subrogation to a lien on the proceeds of the sale of their seat on the stock exchange.*^ § 365. Liens Invalid as Against Creditors. — Since a trustee in bank- ruptcy is the representative of the creditors, no one can successfully assert against him a lien on property of the bankrupt which, though it might have been good as against the bankrupt himself, would be in- valid as against his creditors,** whether for failure to record the instru- 3s.Goodnough Mercantile & Stock Co. *2 In re Van Schaick & Co., 228 Fed. V. Galloway, 156 Fed. 504, 19 Am. Bankr. 465, 143 C. C. A. 47, 37 Am. Bankr. Rep. Rep. 244. 59. 39 Hanson v. W. L. Blake & Co., 155 43 First Nat. Bank v. Staake, 202 U. Fed. 342, 19 Am. Bankr. Rep. 325 ; Reil- S. 141, 26 Sup_. Ct. 580, 50 L. Ed. 967, 15 ley V. Buffalo German Ins. Co., 86 Misc. Am. Bankr. Rep. 639 ; McHarg v. Staake, Rep. 69, 147 N. Y. gupp. 1086. 202 V. S. 150, 26 Sup. Ct. 584, 50 L. Ed. 40 In re Brown, 193 Fed. 24, 113 C. C. 971, 15 Am. Bankr. Rep. 646; Casey v. A. 348; In re A. O. Brown '& Co., 193 Ciivaroc, 96 U. S. 467, 24 L. Ed. 779; Fed. 30, 113 C. C. A. 354 ; Brown Bros. Burnett v. Frederick (C. C. A.) 263 Fed. Co. V. Smith Bros. Co. (D. C.) 231 Fed. 681, 45 Am. Bankr. Rep. 442; Receivers 475, 37 Am. Bankr. Rep. 30. And see, of Virginia Iron, Coal & Coke Co. v. supra, §§ 354, 357, 362. Staake, 133 Fed. 720, 66 C. C. A. 550 ; In 41 In re American Candy Mfg. Co. (D. re Thomas, 199 Fed. 214, 232, 29 Am. C.) 248 Fed. 145, 41 Am. Bankr. Rep. 461. Bankr. Rep. 945 ; In re Cramond, 145 But see Brown Bros. Co. v. Smith Bros. Fed. 966, 17 Am. Bankr. Rep. 22 ; Han- Co. (D. C.) 231 Fed. 475, 87 Am. Bankr. son v. W. L. Blake & Co., 155 Fed. 342, Rep. 30, holding that the fact that the 19 Am. Bankr. Rep. 325 ; In re I. S. particular funds converted by a bank- ^'ickerman & Co., 199 Fed. 589, 29 Am. rupt did not reach the ti-ustee does not Bankr. Rep. 298; In re Booth. 98 Fed. defeat thei lien of the owner of the funds 075 ; Skilton v. Codington, 185 N. Y. 80, upon the other assets of the bankrupt. 77 N. E. 790, 113 Am. St. Rep. 885 ; f 801 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 365 ment creating the alleged lien** or for any other reason,*^ provided it can be shown that general creditors were misled to their injury, or induced to give credit to the bankrupt, by reason of the concealment or other irregularity which they allege as a ground for rejecting the alleged lien.*® But under the laws of some of the states, as interpreted by their courts, it is not open to any creditor at large to impeach an alleged lien on property of his debtor, on the ground of frauds con- cealment, or other ground of invalidity, but only to a creditor who has fastened a specific lien on the particular property or who is armed with some legal process which puts him in a position to enforce his claim directly against the property. A few decisions, particularly under the former bankruptcy act, have held that a trustee in bankruptcy, for this purpose, is in the same position and has the same rights' as a creditor holding an execution or attachment.*' But the decided preponderance of authority was to the effect that the trustee in bankruptcy represents only the general creditors, and hence, if none of them is in position at the time of the adjudication in bankruptcy to attack the validity of an alleged lien, in virtue of having fastened a lien on the property involved or of holding an execution or attachment or other similar process, nei- ther can the trustee in bankruptcy attack it, notwithstanding fraud, con- cealment, or other cause of impeachment.** And if the lien was in- valid as to one creditor, but valid as against others, or if only one Moore v. Young, 4 Biss. 128, Fed.. Gas. had been allowed to lie dormant in the No. 9,782; In re Wynne, Chase, 227, 4 N. hands of the sheriff for several months. B. E. 23, Fed. Cas. No. 18,117; Odell v. So, a creditor who sold machinery to the Flood, 8 Ben. 543, Fed. Oas. No. 10,428; bankrupt with the understanding that it Todd V. Townsend, Fed. Oas. No. 14,075 ; was to be used in a vessel being built un- Johnson v. Rogers, 15 N. B. R. 1, Fed. der contract for the United States was Cas. No. 7,408; Bdmondson v. Hyde, 2 held to have no lien upon the machin- Sawy. 205, 7 N. B. R. 1, Fed. Cas. No. ery, nor upon the contract or its pro- 4,285 ; In re Morrill,'2 Sawy. 357, 8 N. B. ceeds, because an act of Congress makes R. 117,»Fed. Cas. No. 9,821; In re Dunn, void the assignment of any interest In 2 Hughes, 169, 11 N. B. R. 270, Fed. Cas. government contracts. In re Waters- No. 4,172 ; Benner v. Scandinavian Amer- Colver Co., 206 Fed. 845, 30 Am. Bankr. lean Bank, 78 Wash. 488, 131 Pac. 1149. Rep. 763. 4* But Bankruptcy Act § 67a applies ie In re MacDougall, 175 Fed. 400, 23 only to claims which are required by the Am. Bankr. Rep. 762 ; In re Gerstmari, state law to be recorded. In re Lane 157 Fed. 549, 19 Am. Bankr. Rep. 145. Lumber Co., 217 Fed. 550, 133 C. 0. A. i^ Niagara Falls Hydraulic Power & 402, 33 Am. Bankr. Rep. 491. Mfg. Co. v. Schermerhorn, 60 Misc. Rep. <5 Security Warehousing Co. v. Hand, 209, 111 N. T. Supp. 576; In re Werner, 206 U. S. 415, 27 Sup. Ot. 720, 51 L. Ed. 5 Dill. 119, Fed. Cas. No. 17,416; Beers 1117, 19 Am. Bankr. Rep. 291, affirming v. Place, 4 N. B. R. 459, Fed. Cas. No. 143 Fed. 32, 74 C. O. A. 186, 16 Am. 1,233. Bankr. Rep. 49. See In re Thackara, is in re New York Economical Prlnt- Mfg. Co., 140 Fed. 126, 15 Am. Bankr. ing Co., 110 Fed. 514, 49 C. C. A. 133, 6 Rep. 258, holding the lien of an out- Am. Bankr. Rep. 615; In re Burnham, standing execution invalid because it 140 Fed. 926, 15 Am, Bankr. Rep. 548; Blk.Bkr.(3d Ed.)— 51 § 3€6 LAW OF BANKRUPTCY 802 creditor was in position to enforce his rights against it, then it was held that the trustee could avoid 'it only to the extent of the claim of that creditor.*'-* But in 1910, in order to obviate the difficulties of this position and strengthen the enforcement of the bankruptcy act, Con- gress amended the statute by. adding a provision that trustees in bank- ruptcy, "as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon; and' also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied." ®' Since this amendment, therefore, the trustee is no longer in the situation of a general creditor, but occupies the more favorable position of a judgment or execution creditor, and can resist the enforcement of any lien which would be invalid as against a cred- itor of that class.*'^ § 366. Mortgages of Real Property. — ^A mortgage of real property given by one subsequently adjudged bankrupt will be a valid and en- forceable security as against his trustee in bankruptcy provided it was given and accepted in good faith, and not in contemplation of bank- ruptcy nor in fraud of the bankruptcy act, and for a present consid- eration, and if it was recorded according to law.*^ If made within four months prior to the filing of the petition in bankruptcy it may be voidable as a preference, but if not, it is not invalid as a lien, unless made with intent to hinder, delay, or defraud creditors, or unless, the debtor being at the time insolvent, the conveyance would be held null and void as to creditors under the laws of the state where the prop- erty is situated.^* When none of these invalidating .elements is pres- ent, the trustee in bankruptcy takes the property charged with the mortgage, and has no greater interest or higher rights than the bank- rupt himself,®* being entitled only to the equity of redemption or the surplus proceeds of the property,*^ and being bound by the mortgagor's In re Lausman, 183 Fed. 647, 25 Am. Am. Bankr. Rep. 336; Sturdlvant Bank Bankr. Rep. 186; Skilton v. Codington, v. Schade, 195 Fed. 188, 27 Am. Bankr. 86 App. Div. 166, 83 N. Y. Supp. 351. Rep. 673; In re Empress Pharmacy (D. 48 In re New York Economical Print- C.) 237 Fed. 676, 38 Am. Bankr. Rep. ing Co., 110 Fed. 514, 49 C. C. A. 133, 6 l^^- Am. Bankr. Rep. 615. " Bankruptcy Act 1898, § 67d.y^. „- „.„ .,„ ,. OS Bankruptcy Act 1898, § 67e. = oAct Cong. June 25, 1910, c. 412, § 6 4 in re Stewart. 193 Fed. 791, 27 8, 36 Stat. 840, amending Bankruptcy ^^ ^ankr. Rep. 529; In re Dunavant, Act 1898, § 47a. 96 Fed.. 542. 3 Am. Bankr. Rep. 41. 51 In re Hammond, 188 Fed. 1020, 26 ob Lyall v. Miller, 6 Mclean, 482, Fed. 803 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 366 covenant to keep the premises insured for the benefit of the mortgagee.''® And where a bill is filed by a junior mortgagee for the foreclosure and sale of the equity of redemption, the trustee in bankruptcy of the mort- gagor has no standing to object to the order in which the priority oi valid and subsisting liens on the mortgaged property is fixed by the decree of foreclosure, as he can get nothing in any event until all valid liens have been satisfied.^' Of course, however, the trustee also represents the general cred- itors, and may and should assert whatever rights they may have as against the holder of the security. Thus, for instance, a bankrupt had executed a trust deed (in the nature of a mortgage) securing certain notes which he made and signed. He delivered the notes to the payee named therein, but after recording the trust deed, he kept possession of it. He then made other^ notes exactly, similar to those first executed, and succeeded in borrowing money from a bank upon the false repre- sentation that the second set of notes (which he put up as collateral) were the first set. It was held that the lien of the first payee on the .mortgaged property was superior, and that the bank could not assert even an equitable lien on the property as against the trustee, repre- senting the unsecured creditors of the bankrupt, especially in view of the fact that the local law made parol liens void as against creditors."* So, a stipulation by a mortgagor (who afterwards became bankrupt) indorsed on a bond at the time of an assignment of the bond and mort- gage, as to the amount then due, which, through an error in computa- tion, stated a larger amount than was actually due, does not increase the lien of the mortgage as against the trustee in bankruptcy and the general creditors.®* Again, the holder of a real estate mortgage as col- lateral security for a bankrupt's debt is not entitled to collect the rents and profits as against the bankrupt's trustee.*" These rules of course do -not apply if the security is fraudulent or void. But a security otherwise valid is not avoided merely because taken in the form of an absolute deed instead of a mortgage,®^ nor be- cause it covers all of the bankrupt's property, if given to secure bona Cas. No. 8,613; In re Erie Lumber Co., 257 Fed. 402, 168 C. C. A. 442, 43 Am. 150 Fed. 817, 17 Am. Bankr. Rep. 689. Bankr. Rep. 26. 56 In re Sands Ale Brewing Co., 3 59 In re Howard (D. C.) 207 Fed. 402. Biss. 175, 6 N. B. R. 101, Fed. Cas. No. 31 Am. Bankr. Rep. 251. 12,307. 6 In re Sweeney, 212 Fed. 1, 128 C. C. ST Jerome v. McCarter, 94 U. S. 734, A. 483, 32 Am. Bankr. Rep. 302. 24 L. Ed. 136. And see In re Times Pub. 6i Gaffiney v. Signaigo, 1 Dill. 158, Fed- Co., 183 Fed. 603. Cas. No. 5,169; Alter v. Clark (D. C) 5 8 Page V. Old Dominion Trust Co., 193 Fed. 153. § 366 LAW OF BANKEUPTCI 804 fide debts and liabilities,** nor because, being a partnership obligation, it in terms adopts a debt incurred by one of the partners in behalf of the firm and includes it in the mortgage.®* A mortgage of a corpora- tion's real property which has been properly recorded may create a valid lien on such property as against the corporation's trustee in bank-' ruptcy, though it was defectively acknowledged.** But a mortgage ex- ecuted in the name of a bankrupt corporation by its officers, without any authority or ratification by the directors, does not create a valid lien as against its unsecured creditors.^ As to recording, the rule appears to be well established that a mort- gage which was valid when executed and entirely free from fraud is not invalidated in the bankruptcy proceedings simply because it was not placed on the record until after the debtor had become insolvent or until shortly before the filing of the petition in bankruptcy, provided it is not shown that there was any fraudulent purpose in so withholding it from the record, and if the law of the state is such that recording is not necessary to its validity as between the parties.** Also the trustee cannot recover the value of the mortgaged property if the mortgagee took possession before the' commencement of the proceedings in bank- ruptcy, although the mortgage was not properly recorded.*' In the case of an indemnity mortgage given to a surety, the holder can en- force it to the extent of the indemnity contracted for, but not to any greater extent, although he may have paid debts or incurred liabilities to a larger amount. Whatever might be his equities as against the mortgagor himself in this case, he can claim no more than the face of the mortgage as against the trustee in bankruptcy.** If the surety, in such a case has not paid the creditors to whom he became bound as surety, the mortgage may be held by the court of bankruptcy to inure to 82 gidener v. Kller, 4 Biss. 391, Fed. 24 Fed. 663; Curry v. McCauley, 20 Fed. Gas. No. 12,843. 583; Seftver v. Spink, 8 N. B. R. 218, 65 83 Wait V. Bull's Head Bank, 19 N. B. 111. 441; Folsom v. Clemence, 111 Mass. K. 500, Fed. Cas. No. 17,043. 273. But see Bostwick v. Foster, 14 64 Pacific State Bank v. Coates, 205 Blatchf. 436, 18 N. B. R. 123, Fed. Cas. Fed. 618, 123 C. C. A. 634, Ann. Cas. No. 1,682; In re Lukens, 138 Fed. 188, 1913E, 846, 30 Am. Bankr. Rep. 655. 14 Am. Bankr. Rep. 683; In re Randolph, 6 5 Bernard v. Lea, 210 Fed. 583, 127 187 Fed. 186, 26 Am. Bankr, Rep. 623. 0. C. A. 219, 31 Am. Bankr. Rep. 436. 67 Miller v. Jones, 15 N. B. R. 150, 60 Sturdivant Bank v. Schade, 195 Fed. Fed. Cas. No. 9,576. 188, 115 C. C. A. 140, 27 Am. Bankr. 6s Courier- Journal Job Printing Co. v. Rep. 673; In re Doran, 154 Fed. 467, 83 Schaefer-Meyer Brewing Co., 101 Fed. 0. C. A. 265, 18 Am. Bankr. Rep. 760; 699, 41 C. C. A. 614, 4 Am. Bankr. Rep. In re Adams, 97 Fed. 188, 2 Am. Bankr. 183. And see In re Stoddard Bros. Lum- Rep. 415; In re Wright, 96 Fed. 187, 2 ber Co., 169 Fed. 190, 22 Am. Bankr. Rep. Am. Bankr. Rep. 364; Stewart v. Hop- 435. kins, 30 Ohio St. 502; Clark v. Hezekiah, 805 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 367 their benefit.*® It remaitis to be added that, in the case of a valid mort- gage, the discharge of the debtor in bankruptcy does not extinguish the mortgage debt so far as the same is necessary to uphold the mortgage.'" § 367. Chattel Mortgages. — A chattel mortgage is a valid form of security and gives a lien which may be enforced as against the trustee in bankruptcy of the mortgagor, if free from fraud, based on an actual con- sideration, and recorded or filed as required by local law."*^ But it is always open to the trustee to question the validity of the mortgage,'* or to show that its lien has been lost, as, by delay on the part of the mortgagee in taking possession after default,'* or allowing the mort- gaged goods to be inextricably commingled with other property not cov- ered by it,'* and if, for any reason, such a mortgage is null and void as against the other creditors of the mortgagor, it is not valid' as against his trustee in bankruptcy.'^ In particular, the security must be «» In re Pierce, 2 Low. 343, Fed. Cas. No. 11,140. 70 Chamberlain v. Meedfer, 16 N. H. 381; Sosnowski v. Eape, 69 Ga. 548; Thaxton v. Roberts, 66 Ga. 704; Carlisle V. WUkins, 51 Ala. 371. 71 Title Guaranty & Surety Co. v. Wit- mire, 195 Fed. 41, 115 C. C. A. 43, 28 Am. Bankr. Rep. 235; Davis v. Turner, 120 Fed. 605, 56 C. C. A. 669, 9 Am. Bankr. Rep. 704; In re Durham, 114 Fed. 750, 8 Am. Bankr. Rep. 115; Simmons v. Greer, 174 Fed. 654, 98 C. C. A. 408, 23 Am. Bankr. Rep. 443; Long v. Gump, 144 Fed. 824, 75 -C. C. A. 554, 16 Am. Bankr. Rep. 501; In re Collins, 8 Ben. 59, Fed. Cas. No. 3,004; Ex parte Ames, 1 Low. 561, 7 N. B. R. 230, Fed. Cas. No. 323: In re Gregg, 1 Hask. 173, 3 N. B. R. 529, Fed. Cas. No. 5,796; In re Mitchell Motor & Service Co. (D. C.) 274 Fed. 492, 46 Am. Bankr. Rep. 716; In re Baar, 213 Fed. 628, 130 0. C. A. 292; Park v. South Bend Chilled Plow Co. (Tex. Civ. App.) 199 S. W. 843; Hasbrouck v. La Pebre, 23 Wyo. 367, 152 Pac. 168. Ma- chinery placed in its plant by the bank- rupt corporation, under a bailment or a lease with an option to purchase, with title reserved in the bailor, will pass un- der a mortgage of the plant and the machinery therein, as against the trustee and the creditors, because they are not ' concerned with the rights of the bailor. In re Erie Lithograph Co. (D. C.) 260 Fed. 490, 43 Am. Bankr. Rep. 397. 72 Carlsbad Water Co. v. New, 33 Colo. 389, 81 Pac. 34; In re Hartman, 185 Fed. 196. The trustee in bankruptcy may maintain an action to set aside a chattel mortgage, although more than four months have elapsed between the filing of the mortgage and the petition in bankruptcy. Parker, v. Wagoner (Sup.) 166 N. Y. Supp. 625. But a chattel nlort- gage describing logs as being in the mortgagor's boom, which did not reach the boom for 12 days thereafter, will be valid as against the trustee in bankrupt- cy subsequently appointed. Otto v. Eng- land, 99 Wash. 529, 169 Pac. 964. 7 8Knapp v. Milwaukee Trust Co., 216 U. S. 545, 30- Sup. Ot. 412, 56 L. Ed. 610; Hanson v. W. L. Blake & Co., 155 Fed. 342, 19 Am. Bankr. Rep. 325; In re Forbes, 5 Biss. 510, Fed. Cas. No. 4,922; Stewart v. Hoffman, 31 Mont. 184, 77 Pac. 689, 81 Pac. 3; Schaupp v. Miller, 206 Fed. 575, 30 Am. Bankr. Rep. 699. A mortgagee who is in possession of the mortgaged property at the time of the adjudication in bankruptcy against the mortgagor is entitled to retain such pos- session as against the trustee in bank- ruptcy and the general creditors. In re Howard, 207 Fed. 402; Coggan v. Ward (Mass.) 102 N. B. 336. But compare Cor- nelius V. Boling, 18 Okl. 469, 90 Pac. 874. '* In re Holmes Lumber Co., 189 Fed. 178, 26 Am. Bankr. Rep. 119. 7 5 Harvey v. Crane, 2 Biss. 496, 5 N. B. R. 218, Fed. Cas. No. 6,178; Kane V. Rice, 10 N. B. R. 469, Fed. Cas. No. § 367 LAW OP BANKRUPTCY 800 based upon a real, present, and sufficient consideration, and failing this, it creates no lien which will be preserved in the bankruptcy proceed- ings,'* and if the circumstances suggest a fraudulent transaction or an attempt to give a preference, the burden may be on the mortgagee to show both his good faith in the matter and the existence of a good consideration." In cases where the debt purporting to be secured by the mortgage is greater than the actual consideration passing between the parties, it may be good in bankruptcy to the, extent of the real con- sideration, provided it was given in good faith and with no fraudulent purpose and has been recorded.'* But if the alleged debt is purposely exaggerated for the sake of deceiving a creditor and hiding the property from execution, and the mortgagee knows the fact and records the mortgage with an affidavit that the entire amount is justly due, the whole transaction is so vitiated with fraud that the mortgage cannot be enforced in bankruptcy even to the extent of the sum really due.'* But a renewal chattel mortgage given to a bankrupt's creditor may be good so far as the renewal debts were previously validly secured, al- though the renewal moi'tgage be otherwise invalid.** In regard to the requirement that the mortgage shall be filed or recorded according to the local law, it was held under the former bankruptcy statute that the trustee in bankruptcy of the mortgagor could not take advantage of a failure to file or record it, for it would still be good and valid as between the original parties and the trustee 7,609. Under a state statute providing '« In re -Builders' Lumber Co., 148 that "any chattel mortgage securing Fed. 244, 17 Am. Bankr. Rep. 449; In notes which do not state upon their face re Levine, 196 Fed. 589, 28 Am. Bankr. the fact of such security shall be abso- Rep. 481. See Stedraan v. Bank of Mon- lutely void," the holder of such a note roe, 117 Fed. 237, 54 O. 0. A. 269, 9 and mortgage has no lien, as against -^M- Bankr. Kep. 4. the trustee In bankruptcy, even though 7 7 lu re Sims, 19 N. B. R. 57, Fed. he has taken possession. In re Birck & Gas. No. 12,889; In re Ewald v. Brain- Co., 142 Fed. 438, 73 0. C. A. 554, 15 ard, 135 Fed. 168, 14 Am. Bankr. Rep. Am. Bankr. Rep. 694. But where the 267. state law provides that mortgages may 7 8 Act Cong. June 25, 1910, § 12, 36 be made only on certain enumerated Stat. 838, amending Bankruptcy Act kinds of personal property, yet provides 1898, § 67d. And see In re Mahland, 184 that mortgages of other kinds of chattels Fed. 743, 26 Am. Bankr. Rep. 81. shall be valid between the parties, and 7 8 in re Hugill, 100 Fed. 616, 3 Am. their heirs, legatees, personal representa- Bankr. Rep. 686. tives, and persons who, before parting so in re ISndlar, 192 Fed. 762, 113 C. with value, have actual notice thereof, a o. A. 48. As to the validity of a cura- chattel mortgage of property other than tive chattel mortgage, given in place of that specified, if executed In good faith one technically defective, and for that and for a good consideration, is valid reason not recorded, see In re Interna- against the mortgagor's trustee in bank- tional Mahogany Co., 147 Fed. 147, 78 ruptcy and the general creditors. In re 0. C. A. 58, 15 Am. Bankr. Rep. 797. Grainger, 160 Fed. 69, 87 C. C. A. 225, 20 Am. Bankr. Rep. 166. 807 EFFKCT OF BANKRUPTCY ON EXISTING LIENS 367 had no better right to avoid it than the bankrupt.*^ But the present statute reverses this rule, and if the law of the state makes an unfiled chattel mortgage invalid as against the creditors of the mortgagor, it is also invalid as against his trustee.** Where the mortgage is recorded or filed, but not until a considerable time after its execution, or just before the commencement of the bankruptcy proceedings, this does not necessarily invalidate it,** except as to creditors of the bankrupt who became such between the time of the execution and the filing of the mortgage.** But this supposes that the delay does not result from SI Detroit Trust Co. v. Pontiac Sav. Bank, 237 U. S. 186, 35 Sup. Ct. 509, 59 L. Ed. 907, 34 Am. Bankr. Rep. 759; Piatt V. Preston, 3 Fed. 394 ; Ex parte Dalby, 1 Low. 431, 3 N. B. R. 731, Fed. Cas. No. 3,540; C!oggeshall v. Potter, Holmes, 75, 4 N. B. R. 73, Fed. Oas. No. 2,955; Field v. Baker, 12 Blatchf. 438, 11 N. B. R. 415, Fed. Gas. No. 4,762. 82 Bankruptcy Act 1898, § 67a. And see Mattley v. Giesler, 187 Fed. 970, 110 C. C. A. 90, 26- Am. Bankr. Rep. 116; In re Beckhaus, 177 Fed. 141, 100 C. C. A. 561, 24 Am. Bankr. Rep. 380; In re Southern Textile Co., 174 Fed. 523, 98 C. C. A. 305, 23 Am. Bankr. Rep. 172; Simmons v. Greer, 174 Fed. 654, 98 C. C. A. 408, 23 Am. Bankr. Rep. 443; In re McDonald, 173 Fed. 99, 23 Am. Bankr. Rep. 51 ; In re SUebler, 165 Fed. 363, 21 Am. Bankr. Rep. 309; In re Bur- lage Bros., 169 Fed. 1006, 22 Am. Bankr. Rep. 410; In re Shaw, 146 Fed. 273, 17 Am. Bankr. Rep. 196; In re H. G. An- drsB Co., 117 Fed. 561, 9 Am. Bankr. Rep. 135; In re Jones, 116 Fed. 431, 8 Am. Bankr. Rep. 626 ; In re Tatem, 110 Fed. 519, 6 Am. Bankr. Rep. 426; In re Wright, 107 Fed. 428; In re Booth's Es- tate, 98 Fed. 975; In re Leigh, 96 Fed. 806; Goodrich v. Dore, 194 Mass. 493, 80 N. E. 480; Clark v. Williams, 190 Mass. 219, 76 N. E. 723. But where, as under the law in Wisconsin, the failure of a chattel mortgagee to file his mort- gage or take possession of the property, without fraud or collusion, renders the mortgage voidable only as to subsequent creditors or those who acquire a lien, the taking possession by the holder of an unrecorded chattel mortgage, after the filing of a petition in bankruptcy against the mortgagor, validates the mortgage as against the general credi- tors, so that it cannot be attacked in their behalf by the trustee. In re Antigo Screen Door Co., 123 Fed. 249, 59 C. C. A. 248, 10 Am. Bankr. Rep. 359. And see In re Chadwick, 140 Fed. 674, lb Am. Bankr. Rep. 528. It is stated to be the settled law in Georgia (which will be recognized by the courts of bankruptcy sitting within that state) that recording is not essential to the validity of a chat- tel mortgage, and under this rule, a chattel mortgage given to a bank to se- cure a present loan, made by the bank in good faith and without knowledge of the borrower's insolvency, although un- recorded, will create a valid lien as against the trustee in bankruptcy, pro- vided that the withholding of the mort- gage from record was not for any fraud- ulent purpose nor pursuant to any agree- ment between the parties. In re Joseph- son, 116 Fed. 404, 8 Am. Bankr. Rep. 423. S3 In re Perrin, 7 N. B. R. 283, Fed. Cas. No. 10,995; In re Barman, 14 N. B. R. 125, Fed. Cas. No. 999. s* In re Jacobson & Perrill, 200 Fed. 812, 29 Am. Bankr. Rep. 603; In re Harnden, 200 Fed. 175, 29 Am. Bankr. Rep. 507; Detroit Trust Co. v. Pontiac Sav. Bank, 196 Fed. 29, 115 C. C. A. 663, 27 Am. Bankr. Rep. 821; Post v. Berry 175 Fed. 564, 99 0. C. A. 186, 23 Am Bankr. Rep. 699; In re Wade, 185 Fed. 664, 2a Am. Bankr. Rep. 169 ; Mattley V. Wolfe, 175 Fed. 619, 23 Am. Bankr. Rep. 673; In re J. C. H. Claussen & Co., 164 Fed. 300, 21 Am. Bankr. Rep. 34 ; In re Doran, 148 Fed. 327, 17 Am. Bankr, Rep. 799 ; In re Beede, 138 Fed. 441, 14 Am. Bankr. Rep. 697; In re Adams, 97 Fed. 188, 2 Am. Bankr. Rep. 415; In re Kauftman, 2 Nat. Bankr. News, 778. Where an unfiled chattel mortgage, void as to subsequent credi- tors under the state law, is set aside in bankruptcy proceedings against the mortgagor, the mortgagee will be en- § 367 LAW OF BANKRUPTCY 808 any fraudulent or sinister degign.*^ And where, by a secret agreement between a bankrupt and one of his creditors, who held a chattel mort- gage on the bankrupt's stock, the mortgage was withheld from record in order that the bankrupt might obtain credit to which he was not entitled, it was held that the mortgage was fraudulent and void, not only as to subsequent creditors, but as to all those interested in the bankrupt's estate.*® Further it is to be noted that, in order to avoid the lien claimed, it must be quite clear that the instrument in question is of such a nature as to come withiil the recording laws of the state. Thus, a lease of land containing a provision that, if it shall be terminated for any cause, before a specified date, the improvements placed on the land by the lessee shall belong to the lessor, is not a chattel mortgage and therefore is enforceable against the lessee's trustee in bankruptcy though not filed for record.*'' But a bill of sale of the bankrupt's stock in trade, or a contract for the sale of merchandise, may be in substance and actual effect a chattel mortgage, and, if so, will be governed in bankruptcy by the rules applicable to such instruments.** A contractor's application to a surety company for a performance bond,, assigning to the surety company, in the event of nonperformance, all the contrac- tor's interest in tools, plant, materials, etc., has no greater force than a chattel mortgage, and as between the surety company and the con- tractor's trustee in bankruptcy, it is to be regarded as if it were on its face a chattel mortgage.** So, where an insolvent conveyed personal property of which he was the absolute owner to a creditor for the ex- pressed consideration of $1, and then took back a lease of the same, also, giving a nominal consideration, with the right in the lessee to repur- chase if he had paid his indebtedness to the lessor, it was held that the titled to share in the proceeds of the 86 in re Duggan, 182 Fed. 252, 25 Am. mortgaged property with the mortga- Bankr. Rep. ""05; In re Hickerson, 162 gor's subsequent creditors. In re Huxoll, Fed. 345, 20 Am. Bankr. Rep. 682 ; In 193 Fed. 851, 113 C. C. A. 637, 27 Am. re Noel, 137 Fed. 694, 14 Am. 'Bankr. Bankr. Rep. 579. But see In re Cannon, Rep. 715 ; Texas Brewing Co. v. Mal- 121 Fed. 582, 10 Am. Bankr. Rep. 64, lette, 28 Tex. Civ. App. 461, 67 S. W. holding that both the mortgagee* and the 441 ; Deland v. Miller & Chaney Bank, antecedent creditors must be excluded 119 Iowa, 368, 93 N. W. 304. from the distribution. st Niagara Falls Hydraulic Power & 85 A creditor who withheld a chattel jifg. Co. v. Schermerhorn, 60 Misc. Rep. mortgage from record until he discov- 209, 111 N. Y. Supp. 576. ered that the debtor was in failing cir- cumstances, cannot assert an equitable ^ ''/"^ ^e Marengo County Mercantile lien on the property, where he acted de- 9,°- (^- <^'> ^^^ ^ed. 474, 29 Am. Bankr. liberately, and where the statute re- f/P' ^^l Gill v. Ely-Norris Safe Co., 170 quires the recording of such mortgages ^°- "^PP- ^'^8, 156 S. W. 811. But com- as a condition to their validity. Na- P*'"^ ^-^erritt v. Clark, 247 Fed. 100, 159 tional Bank of Balcersfield v. Moore, 247 ^- ^- ^- ^^^' ^1 -*-™- Bankr. Rep. 232. Fed. 913, 160 C. 0. A. 103, 41 Am. Bankr. 8 9 in re Schilling (D. C.) 251 Fed. 966, Rep. 409. 41 Am. Bankr. Rep. 705. 809 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 867 attempted transaction was in effect a mortgage, invalid under the law of Pennsylvania for want of delivery, and that on the bankruptcy of the debtor the property passed to his trustee.** So also, a mortgage which covers both real and personal property, and which is properly recorded as a real-estate mortgage, is nevertheless void as to the per- sonalty unless it is also recorded as a chattel mortgage.*^ Here also, as in regard to other forms of liens,** we encounter the question whether a chattel mortgage, void as to "creditors" of the mort- gagor, may be impeached by the trustee in bankruptcy as the repre- sentative of creditors at large, or only by a creditor armed with legal process or who has fastened a lien upon the particular property. In the absence of a more specific direction in the bankruptcy act, it was held that this question must be determined in accordance with the recording law of the particular state as interpreted by its courts.*^ Thus, in New York, a chattel mortgage which is not filed as required by the statute (or where there is a failure to file a renewal statement at the end of a year) is invalid as against general creditors who became such prior to actual filing, and therefore it is also invalid as against the trustee in bankruptcy of the mortgagor, who may seize the property in the hands of either the mortgagor or mortgagee, or recover the proceeds of it from the latter.** But in some other states, such a mortgage is not im- peachable by creditors at large, but only by one who has secured a lien on the property by execution or otherwise or has a judgment entitling him to a lien.** Some cases have held that a trustee in bankruptcy oc- 90 In re Beihl (D. O.) 176 Fed. 583, 23 asHolt v. Crucible Steel Co., 224 U. Am. Bankr. Rep. 905. S. 262, 32 Sup. Ct. 414, 56 L.Ed. 756, 91 Pacific State Bank v. Coats, 205 27 Am. Bankr. Rep. 856; Rode & Horn Fed. 618, 123 O. C. A. 634, Ann. Gas. v. Phlpps (C. C. A.) 195 Fed. 414, 27 1913E, 846, 30 Am. Bankr. Rep. 655. Am. Bankr. Rep. 827 ; Title Guaranty & 92 See, supra, § 365. Surety Co. v. Witmire, 195 Fed. 41, 28 OS Holt V. Crucible Steel Co., 224 U. Am. Bankr. Rep. 235 ; Foerstner v. Clti- S. 262, 32 Sup. Ct. 414, 56 L. Ed. 756, zens' Savings & Trust Co., 186 Fed. 1, 27 Am. Bankr. Rep. 856; In re Petersen 108 C. C. A. 267, 26 Am. Bankr. Rep. (I>. C.) 252 Fed. 849, 40 Am. Bankr. 377; E. Bppstein & Co. v. WiLson, 149 Rep. 653; In re Oliver, 19 N. B. R. 291, Fed. 197, 79 C. C. A. 155, 17 Am. Bankr. Fed. Cas. No. 10,492. Rep. 591; In re Beard, 204 Fed. 129, 30 94 In re Thomas, 199 Fed. 214, 29 Am. Am. Bankr. Rep. 301 ; In re Watson, Bankr. Rep. 945; In re Gerstman, 157 201 Fed. 962; Mattley v. Wolfe, 175 Fed. 549, 19 Am. Bankr. Rep. 145 ; Skil- Fed. 619, 23 Am. Bankr. Rep. 673 ; In ton V. Coddington, 185 N. Y. 80, 77 N. E. re Matland, 196 Fed. 310, 28 Am. Bankr. 790, 113 Am. St. Rep. 885 ; Stephens v. Rep. 476 ; In re Beede, 138 Fed. 441, 14 Perrinc, 143 N. Y. 476, 39 N. E. 11 ; Karst Am. Bankr. Rep. 697; In re Wright, 96 V. Gane, 136 N. Y. 316, 32 N. B. 1073; .Fed. 187, 2 Am. Bankr. Rep. 364; Simon Gove V. Morton Trust Co., 96 App. Div. v. Openheimer, 20 Fed. 553 ; Cragin v. 177, 89 N. Y. Supp. 247. And see Stich Oarmichael, 2 Dill. 519, 11 N. B. R. 511. V. Pirkl, 100 Misc. Rep. 594, 166 N. Y. Fed. Cas. No. 3,319; In re Collins, 12 Supp. 440 ; In re Michigan Furniture Blatchf. 548, 12 N. B. R. 379, Fed. Cas. Co. (D. O.) 249 Fed. 978, 41 Am. Bankr. No. 3,007; Hall v. Keating Implement Rep. 784. & Machine Co., 33 Tex. Civ. App. 526, 77 367 LAW 0P BiNKRDPTCY 810 cupies this more favored position.*® Whether this view is correct or not the question is now settled by the act of Congress of 1910 amending the bankruptcy law, which gives to the trustee the rights and remedies of a "creditor holding a lien by legal or equitable proceedings" or of "a judgment creditor holding an execution duly returned unsatisfied." *' In some states a chattel mortgage upon a stock of goods, which allows the mortgagor to remain in possession and sell the goods and buy others in their place, is fraudulent and void as against his credi- tors, at least in the absence of a provision for an accounting, and there- fore may also be avoided by his trustee in bankruptcy.** As to mort- gages covering after-acquired property, they are in some jurisdictions invalid so far as concerns such property, except as between the im- mediate parties, and where this is the case, such a mortgage will give the mortgagee no right to claim or hold the property against the mort- gagor's trustee in bankruptcy.** But we must distinguish the case where one advances to a m'erchant the money with which to purchase a stock of goods and takes a chattel mortgage covering the property so to be bought, and which in fact is afterwards bought with his money. Here there is a present consideration, and an equity in favor of the lend- S. W. 1054; Murphy v. W. T. Murphy & Co., 126 Iowa, 57, 101 N. W. 486. 08 Zartman v. First Nat. Bank, 109 App. Div. 406, 96 N. Y. Supp. 633; Mil- ler V. Jones, 15 N. B. R. 150, Fed. Gas. No. 9,576; In re Thorp, 130 Fed. 371, 12 Am. Banljr. Bep. 195; In re Schmidt, 181 Fed. 73, 24 Am. Bankr. Rep. 687. "Act Cong. June 25, 1910, 36 Stat. S38, amending Bankruptcy Act 1898, § 47a. See In re Smith, 198 Fed. 876, 29 Am. Bankr. Rep. 527; Millikin v. Sec- ond Nat. Bank (C. C. A.) 206 Fed. 14, 30 Am. Bankr. Rep. 477; In re East End Mantel & Tile Co., 202 Fed. 275, 29 Am. Bankr. Rep. 793; In re Nuckols, 201 Fed. 437, 29 Am. Bankr. Rep. 867; In re Jacobson & Perrill, 200 Fed. 812, 29 Am. Bankr. Rep. 603. 8 In re Noethen (C. C. A.) 201 Fed. 97, 29 Am. Bankr. Rep. 234; In re Ma- rine Construction & Dry Dock Co., 144 J'ed. 649, 75 C. C. A. 451, 16 Am. Bankr. Rep. 325; In re First Nat. Bank, 135 Fed. 62, 67 C. C. A. 536, 14 Am. Bankr. Rep. 180 ; In re Antigo Screen Door Co., 123 Fed. 249, 59 C. C. A. 248, 10 Am. Bankr. Rep. 359; Stroud v. McDaniel, 106 Fed. 493, 45 C. C. A. 453, 5 Am. Bankr. Rep. 695 ; In re Hawks, 204 Fed. 309, 30 Am. Bankr. Rep. 365 ; In re Tuck- er, 161 Fed. 584, 20 Am. Bankr. Rep. 404; Mitchell v. MltcheU, 147 Fed. 280, 17 Am. Bankr. Rep. 382; In re Stand- ard Telephone & Electric Co., 157 Fed. 106, 19 Am. Bankr. Rep. 491 ; Marden v. Phillips, 103 Fed. 196, 4 Am. Bankr. Rep. 566; In re Leigh, 96 Fed. 806; In re Forbes, 5 Biss. 510, Fed. Cas. No. 4,922; Smith V. Ely, 10 N. B. R. 553, Fed. Cas. No. 13,044; In re Manly, 2 Bond, 261, 3 N. B. R. 291, Fed. Cas. No. 9,031 ; Ben- ner v. Scandinavian American Bank, 73 Wash. 488, 131 Pac. 1149. In an action of trover by the trustee in bankruptcy against the bankrupt's mortgagee under a mortgage providing that the mortga- gor might sell and replace goods, it was held that the mortgagee had the burden of showing title to goods, if any, and that, on the facts, the inference neces- sarily arose that no part of the original stock was left at the time of bankrupt- cy. WiUiams v. Noyes & Nutter Mfg. Co., 112 Me. 408, 92 Ati. 482, Ann. Cas. 1916D, 1224. In re Niagara Lead & Battery Co., 202 Fed. 298, 29 Am. Bankr. Rep. 788 : In re Hurley, 185 Fed. 851, 26 Am. Bankr. Rep. 434 ; In re Eldridge, 2 Biss 362, 4 N. B. R. 498, Fed. Cas. No. 4,330. See In re Clough, 197 Fed. 185, 28 Am. Bankr. Rep. 828; In re Hager, 166 Fed. 972; Mower v. McCarthy, 79 Vt. 142, 64 811 EFFECT OF BANKRUPTCl ON EXISTING LIENS § 368 er as strong as a legal lien, and it will be recognized and protected in the bankruptcy proceedings.^"" § 368. Pledges and Assignments of Collateral. — The rights of a pledgee in respect to his lien, in cases free from fraud, are not affected by the adjudication in bankruptcy of the pledgor or the appoint- ment of his trustee.^"^ And .this rule applies not only to pledges of tangible personal property, but also to assignments as collat- eral security of notes, accounts, or bills receivable ; ^"^ of insurance pol- icies ;"* of leases ;"* and of contracts, or sums of money due or to be- come due under contracts,^'^ although it is to be remembered that, under federal laws, it is not permissible to assign or transfer any unallowed claim against the United States, so that an attempt to pledge such an account or contract is void as against the assignor's trustee in bankrupt- cy los But it is the rule at common law that there can be no valid pledge of personalty without a transfer of possession, actual or constructive, to the pledgee.^*" And, applying this rule to bankruptcy cases, it was held that no such change of possession as would validate a pledge of goods resulted from the pledge and delivery of so-called "warehouse receipts" acknowledging the receipt of goods on premises really occupied by the owner of the property, though nominally leased by him to a warehousing Atl. 578, 7 L. K. A. (N. S.) 418, 118 Am.' See In re Cross (D. C.) 265 Fed. 769, 45 St. Eep. 942; Mitchell v. Winslow, 2 Am. Bankr. Eep. 695. Story, 630, Fed. Cas. No. 9,673. "sJ. M. Radford Grocery Co. v. 100 In re Flatland, 196 Fed. 310; 116 Powell, 228 Fed. 1, 142 C. C. A. 457, 35 C. C. A. 130, 28 Am. Bankr. Rep. 476; Am. Bankr. Rep. 790. In re Chautler Cloak & Suit Co. (D. G.) lo* Meador v. Everett, 3 Dill. 214, 10 151 Fed. 952, 18 Am. Bankr. Rep. 498. N. B. R. 421, Fed. Cas. No. 9,376. See 101 In re Peacock (C. C.) 178 Fed. 851, Lamb v. Hall, 147 Cal. 44, 81 Pac. 288. 24 Am. Bankr. Eep. 159; In re Twining loo in re Merrill & Baker (D. C.) 162 (D. C.) 185 Fed. 555, 26 Am. Bankr. Rep. Fed. 590, 19 Am. Bankr. Rep. 210. But 200 ; Woodard v. Snow, 233 Mass. 267, where a pledge of installment contracts, 124 N. E. 35, 5 A. L. R. 1381; Andrews under wUcli the pledgor continued to Electric Co. v. St. Alphonse Catholic collect installments, was made to secure Total Abstinence Soc, 233 Mass. 20, 123 a loan, which was ultra vires, it was N. E. 103; First Nat. Bank v. Exchange held that the pledgee, though entitled Nat. Bank, 179 App. Div. 22, 153 N. T. upon the pledgor's bankruptcy to retain Supp. 818, 164 N. Y. Supp. 1092 ; Grif- the contracts until payment of the debt, fin V. Smith, 177 Cal. 481, 171 Pac. 92. was not entitled to an interest in, or a And see Wood v. Simpson, 149 App. Div. lien upon, collections in the hands of 471, 133 N. Y. Supp. 1069. the seller's trustee. Barker Piano Co. 102 Union Trust Co. v. Bulkeley, 150 v. Commercial Security Co., 93 Conn. Fed. 510, 80 C. C. A. 328, 18 Am. Bankr. 129, 105 Atl. 328. Rep. 35; Young v. Upson (C. C.) 115 loe in re Hudford Co. of New York, Fed. 192, 8 Am. Bankr. Rep. 377; Mont- 257 Fed. 722, 169 C. C. A. 10. gomery v. City of Philadelphia (D. 0.) 107 Adams v. Merchants' Nat. Bank, 9 253 Fed. 473, 42 Am. Bankr. Rep. 498 ; Biss. 396, 2 Fed. 174 ; Spencer v. Duplan Riverside Contracting Co. v. City of Silk Co. (C. C.) 112 Fed. 638, 7 Am. New York (Sup.) 148 N. Y. Supp. 281. Bankr. Rep. 563. See First Nat. Bank § 368 LAW OF BANKRUPTCY 812 company, where the actual possession of the goods was exercised by and existed with the owner substantially the same after the issuance of the receipts as before, and that, where a pledge was thus invalid for want of a change of possession, the pledgee could not claim an equitable lien which would take precedence of the title of the trustee in bankruptcy of the pledgor.^** But more recent decisions have considerably liberalized these doctrines. It is held, for instance, that an agrement to give and deliver a pledge, made in good faith and to secure a present loan or a consideration protected by the state law, is valid under the Bankruptcy Act, and that if the article or instrument to be pledged is afterwards de- livered, the delivery will relate back to the date of the agreement."* So also, a paper assignment of a chose in action, without any other delivery than delivery of such paper, and without notice to the one in possession of what is transferred, is held to pass a good title as against the trustee in bankruptcy of the pledgor.*" In a recent case in the Supreme Court of the United States, it appeared that a distiller, by way of giving secu- rity for money loaned, had entered into a transaction in the nature of a pledge of a specific number of barrels of whisky stored in his own bond- ed distillery warehouse, without any actual change of possession, but accompanied by the issuance and transfer conformably to trade usage, of the distiller's warehouse receipts representing such whisky. There being nothing in the law of the state (Ohio) to invalidate this transac- tion, it was held that it constituted a good and valid pledge, as against the distiller's trustee in bankruptcy.**^ In line with these decisions, there is also a ruling that a written agreement whereby specific property or a fund is made security for a debt, will create at least an equitable lien which'must be recognized in bankruptcy.*** Again, where a corporation, borrowing money, agreed to pledge 50 carloads of lumber stored with a storage company, the agreement providing for substitution of carloads, and it appeared that a "carload" meant either the load of a particular car or lumber to the value of $200, it was held that this was valid, as against the objection of indefiniteness of designation of the property at- V. Pennsylvania Trust Co., 124 Fed. 968, G. A. 629, 30 L. R. A. (N. S.) 552, 22 60 C. C. A. 100, 10 Am. Bankr. Rep. 782. Am. Bankr. Rep. 442. 108 Security Warehousing Co. v. io» In re Harvey (D. 0.) 212 Fed. 340, Hand, 206 IT. S. 415, 27 Sup. Ct. 720, 41 32 Am. Bankr. Rep. 337. L. Ed. 1117, 11 Ann. Cas. 789,^ 19 Am. "o In re Germantovvn Alraegum Mfg. Bankr. Rep. 291. And see Adams v. Co. (D. C.) 251 Fed. 755, 41 Am. Bankr. Merchants' Nat. Bank (C. C.) 9 Blss. 396, Rep. 598. 2 Fed. 174; Guarantee Tl'tle & Trust Co. i" Dale v. Pattlson, 234 U. S. 399, V. First Nat. Bank, 185 Fed. 373, 107 C. 34 Sup. Ct. 785, 58 L. Ed. 1370, 52 L. C. A. 429, 26 Am. Bankr. Rep. 85 ; R. A. (N. S.) 754. Fourth Street Nat. Bank v. MlUbourne "2 Root Mfg. Co. v. Johnson, 219 Mills Co.'s Trustee, 172 Fed. 177, 96 0. Fed. 397, 135 C. C. A. 139, 34 Am. Bankr. Rep. 247. 813 EFFECT OF BANKBUPTCT ON EXISTING LIENS § 369 fected by the pledge, and entitled the pledgee to the equivalent of 50 carloads of lumber in the possession of the storage company, as against the corporation's trustee in bankruptcy, although a great part of the lumber had not been received by the storage company in cars, but had been shipped by water, and such part had never been appropriated from the larger mass by the storage company.^" And so, in a case where a coal company had contracted with a railway company to supply it with coal, and was unable to go on with its deliveries for lack of funds, and the railway company advanced money for this purpose, it was held that the transaction amounted to a pledge, in favor of the railway company, of such a quantity of coal thereafter to be mined, and as fast as mined, as the moneys so advanced would pay for, and that this pledge was en- forceable as a preferential claim against the assets of the bankrupt estate of the coal company in the hands of its trustees, who assumed and con- tinued the performance of the contract."* This decision was rested on the strong and manifest equity in favor of the railway company, and may perhaps be considered as applying a rule analogous to the well- known rule that, in equity, an agreement to give a mortgage is equivalent to a mortgage. Also it has been held that persons paying drafts drawn for the price of goods shipped to the drawer, under an agreement that the goods should be pledged as security therefor, have a lien as against the trustee in bankruptcy of the purchaser."® A pledgee, who wrong- fully sells the pledged property, will be estopped to claim a lien for any greater amount than he actually received, on an accounting to the trustee in bankruptcy of the pledgor for the value of the property.^^* § 369. Maritime Liens. — Maritime liens are among the classes of securities preserved and protected by the bankruptcy law, if valid and free from fraud and preferential features.^*'' And such a lien which, by the law of the admiralty, would take precedence over charges of an earli- er date, may be accorded a similar preference in a court of bankruptcy."* Also it has been held that a maritime lien, existing at the time when the petition in bankruptcy was filed, may be enforced by process in admiralty against the vessel after the filing of the petition, and while the trustee in iisAtherton v. Beaman (D. C.) 250 Richheimer, 221 Fed. 16, 136 C. 0. A. Fed. 871, 42 Am. Bankr. Rep. 631. Af- 542. firmed (C. O A.) 264 Fed. 878, 45 Am. ,,, jj„^^^^ ^ Mechanics' Bank (D. Bankr^Bep. 21^. „ „ „ „ „ O.) 262 Fed. 699, 45 Am. Bankr. Rep. I'l* Hurley v. Atchison, T. & S. F. Ry. ^-/o Co., 213 U. S. 126, 29 Sup. Ct. 466, 53 L. Ed. 729, 22 Am. Bankr. Rep. 17, af- '" The Home, 18 N. B. B. 557, Fed. firming Atchison, T. & S. F. Ry. Oo. T. Cas. No. 6,657; The Loulie Dole, 11 Hurley, 153 Fed. 503, 82 C. O. A.. 453, ^Iss- 479, 14 Fed. 862; The Ironsides, 4 18 Am: Bankr. Rep. 396. Biss. 518, Fed. Cas. No. 7,069. 13 5 Fletcher v. Morey, 2 Story, 555, us in re Scott, 3 N. B. R. 742, Fed. Fed. Cas. No. 4,864. But see In re Cas. No. 12,517. § 370 LAW OF BANKRUPTCY 814 bankruptcy, in such a case, has the right to appear and be heard, the court of bankruptcy will accept the determination of the admiralty court as to the validity and amount of the lien.^^* And a court of admiralty, which has obtained full jurisdiction over a vessel in a suit to enforce maritime liens thereon, before the institution of bankruptcy porceedings against the owner, is not deprived of such jurisdiction by the adjudication in bankruptcy, but will retain jurisdiction and determine all questions with respect to such liens. ^''" § 370. Attorneys' Liens for Services. — The institution of proceed- ings in bankruptcy will not displace or invalidate an attorney's lien on se- curities belonging to the bankrupt in the possession of the attorney, or on funds collected for the bankrupt or a judgment recovered for him, or (as the law is in some states) upon his cause of action. ^^"^ And the fact that an attorney, in drawing up the bankrupt's schedule of assets, includes certain notes or securities in his possession does not estop him from claiming a lien thereon for his professional services. "^^^ So when a suit in which the bankrupt is the plaintiff, and which is pending and unde- termined at the time of the bankruptcy, is taken up and prosecmted by the trustee, an attorney's lien for compensation for services rendered in the suit prior to the adjudication in bankruptcy is preserved and is binding upon the trustee.^^* But- attorneys for a bankrupt are not enti- tled to a lien for fees for services rendered to the bankrupt subsequent to the institution of the proceedings in an ancillary suit by the receiver to recover money belonging to the estate. ^^* § 371. Vendors' Liens. — A vendor's lien on real property is not divested by the bankruptcy of the purchaser.^*^ And this may also lis In re Interocean Transp. Co. (D. Bankr. Rep. 292 ; Schoenherr v. Van C.) 232 Fed. 408, 36 Am. Bankr. Rep. Meter, 215 N. T. 548, 109 N. B. 625. 651; The Ironsides, 4 Biss. 518, Fed. The lien of attorneys on money of their Cas. NO. 7,069. But compare In re Peo- client is not affected by bankruptcy pro- pie's Mail S. S. Co., 3 Ben. 226, 2 N. B. ceedings against him in another juris- R. 552, Fed. Cas. No. 10,970. And see, diction, no steps having been taken by per contra. The Casco (D. O.) 230 Fed. the trustee to reach or claim the fund. 929, 37 Am. Bankr. Rep. 215 ; In re Hartman v. Swiger (D. C.) 215 Fed. 986, New England Transp. Co. (D. C.) 220 33 Am. Bankr. Rep. 369. Fed, 203, 34 Am. Bankr. Rep. 323. 122 In re Brown, Fed. Cas. No. 1,984. ■130 The Philomeiia, 200 Fed. 859; The 123 in re Wilson, 12 Fed. 235. Bethulia, 200 Fed. 862. 124 Musica v. Prentice, 211 Fed. 326, 121 In re Eurich's Ft. Hamilton Brew- 127 C. C. A. 575, 31 Am. Bankr. Rep. ery, 158 Fed. 644, 19 Am. Bankr. Rep. 687. 798; In re Baxter & Co, 154 Fed. 22, 120 In re Lane Lumber Co., 217 Fed. 83 C. C. A. 106, 18 Am. Bankr. Rep. 450 ; 550, 133 C. C. A. 402, 33 Am. Bankr. Rep. Kneeland v. Pennell, 54 Misc. Rep. 43, 491, affirming In re Lane Lumber Co. 104 N. Y. Supp. 498; Clarke v. Clarke, (D. C.) 210 Fed. 82; Sheridan State 2 Hayw. & H. 114, Fed. Cas. No. 18,279 ; Bank v. Rowell (D. C.) 212 Fed. 529 ; In In re Luber (D. C.) 261 Fed. 221, 44 Am. re French (D. C) 231 Fed. 255, 37 Am. S15 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 371 be true of personal property, where such a Hen is given by statute or reserved by the valid agreement of the parties. None exists' at common law after delivery of the goods. But in a case where a claim- ant had sold goods to the bankrupt, taking his notes as conditional payment, but retained possession of the property until after the adju- dication in bankruptcy and after the notes fell due and remained un- paid, it was held that he had a lien for the unpaid portion of the price, which the trustee in bankruptcy must recognize.^^* As to the creation of such a lien by statute, it is held that a statute providing that property shall not be exempt from claims for its purchase money and for the seizure and sequestration of the property in a suit for the purchase mon- ey, does not give the seller of personalty a lien arising at the time of the sale, and such as to be protected by the bankruptcy act, but only a right to gain a lien by attachment, and a lien so acquired will be divested by the adjudication in bankruptcy of the purchaser within four months thereafter.^^' A vendor's lien may also be reserved by the contract of the parties, and will be preserved in bankruptcy on the same -terms and under the same conditions as other liens.^^* But the device now usually employed is a contract of conditional sale, in which the seller attempts to reserve for himself a lien, to secure payment of the price, on so much of the property as may remain in the buyer's hands and pn the proceeds of what he has sold. This is generally held invalid in bankruptcy,^** unless the contract is filed or recorded like a chattel mortgage.^** But failure to file or record such a contract will not de- feat the lien in bankruptcy, where all the creditors of the bankrupt had actual notice of the sale and its conditions, because in that case the trustee would represent no class as to which the condition would be void, Bankr. Rep. 289; Rader v. Star Mill & 732, 81 C. C. A. 116, 18 Am. Bankr. Rep. Elevator Co., 258 Fed. 599, 169 C. C. A. 56; National Bank of Commerce v. Wil- 541, 43 Am. Bankr. Rep. 754; Farrell Ijams, 159 Fed. 615, 86 C. C. A. 605, 20 T. Wysong, 246. Fed. 281, 159 0. C. A. Am. Bankr. Rep. 79 ; CuUen v. Arm- 11, 40 Am. Bankr. Rep. 740; Ex parte strong (D. C.) 209 Fed. 704, 33 Am. Drewry, 2 Hughes, 435, Fed. Gas. No. Bankr. Rep. 735. 4,081; Whalen v. Wolford, 96 Kan. 211, 120 Pontiac Buggy Co. v. Skinner, 158 150 Pae. 608 ; Deaton v. Southern Irr. Fed. 858, 20 Am. Bankr. Rep. 206. Corn- Co. (Tex. Civ. App.) 144 S. W. 294; pare American Woodworking Machinery Stewart v. Comanclie Mercantile Co. Co. v. Norment, 157 Fed. 801, 19 Am. (Tex. Civ. App.) 147 S. W. 1166. Com- Bankr. Rep. 679; Bell v. Shaw, 230 Fed. pare (as to the law in North Carolina) 976, 145 C. C. A. 170, 36 Am. Bankr. Rep. Bernard v. Lea, 210 Fed. 583, 127 O. C. 544; Emerson-Brantingham Implement A. 219, 31 Am. Bankr. Rep. 436. Co. v. Lawson (D. C.) 237 Fed. 877, 38 1211 In re Manuel J. Portuondo Co. Am. Bankr. Rep. 344; In re Sutton (D. (D. C.) 135 Fed. 592, 14 Am. Bankr. Rep. C.) 244 Fed. 872, 40 Am. Bankr. Rep. 337. 348. 127 In re Wilkes (D. C.) 112 Fed. 975, . iso Pontiac Buggy Co. v. Skinner, 158 7 Am. Bankr. Rep. 574. Fed. 858, 20 Am. Bankr. Rep. 206. 128 In re Muneie Pulp Co., 151 Fed. § 372 LAW OF BANKRUPTCY 816 actual notice removing the necessity of showing constructive notice.^*^ But in some states, a contract of this kind is valid only from the time of its record, as against creditors even with actual notice, and where this is the law, it would of course be void as against the trustee in bank- ruptcy.^** § 372. Statutory Liens.-^It is entirely within the power of a state legislature to create classes of liens by statutory enactment, in respect to property within the state, and such liens, being otherwise valid, will be protected in the bankruptcy courts.*** But before a creditor can claim a lien given by a state statute on property of a bankrupt, he must perfect the same as required by such statute.-^** Thus, a lien which derives its existence wholly from a state statute, and the continuance of which is by such statute made dependent upon the commencement of a suit in a state court within a prescribed time, is not preserved as a valid incumbrance on the bankrupt's estate when no suit has been in- stituted in the state court, and no step taken in the bankruptcy pro- ceediiigs equivalent to such suit, within the time limited by the law, the mere commencement of bankruptcy proceedings not being a sufficient compliance with the statute.-'*® On the other ha:nd, if the lien springs directly from the statute, or from the acts, tiransactions, or relations specified in the statute as the ground of it, and not from the steps pre- scribed by the statute as necessary to perfect or enforce it, — such as filing or recording a claim in a state court, or beginning a suit, — then it is 'not a lien "obtained through legal proceedings" in such sense as to be avoided by the subsequent bankruptcy of the debtor within four months, notwithstanding that some sort of legal proceedings may be necessary to perfect or secure it.**" Among the kinds of liens thus pre- served in the bankruptcy proceedings and following the property into the hands of the trustee, may be mentioned a lien given by statute for materials and supplies furnished to carry on the business of a manufac- turing corporation,**'' a lien given by statute for the protection of keep- 131 In re Bazemore, 189 Fed. 236, 26 isb in re Brunquest, 7 Biss. 208, 14 N. Am. Bankr. Rep. 494. B. B, 529, Fed. Gas. No. 2,055. 132 In re Builders' Lumber Co., 148 ise Moore v. Gi-een, 145 Fed. 472, 76 Fed. 244, 17 Am. Bankr. Rep. 449. 0. 0. A. 242, 16 Am. Bankr. Rep. 648; 188 In. re Burt, 12 Blatchf. 252, 13 N. Norrls v. Trenholm, 209 Fed. 827, 126 B. R. 137; Fed. Oas. No. 2,209; Moore O. C. A. 551, 31 Am. Bankr. Rep. 353. V. Green, 145 Fed. 472, 76 C. C. A. 242, isr in re Bennett, 153 Fed. 673, 82 C. 16 Am. Bankr. Rep. 648 ; Tube City C. A. 531, 18 Am. Bankr. Rep. 847 ; In Min. & Mill Co. v. Otterson, 16 Ariz. 305, re Starks-tJllman Saddlery Co., 171 Fed. 146 Pac. 203, L. R. A. 1916E, 303. 834, 96 0. 0. A. 506, 22 Am. Bankr. Rep 134 In re Franklin, 151 Fed. 642, 18 596. Am. Bankr. Rep. 218. 817 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 373 ers of livery and boarding stables/'* the lien of a state or municipality for taxes/** and a statutory lien for rent, the question whether, it se- cures the rent which would be payable for the whole of the stipulated term, or for one year, or for a different period, being determined in accordance with the provisions of the statute under which it is claim- ed."* So, where a school board which has let a contract for the erec- tion of a school building terminates the contract on the default of the contractor, and takes over the material remaining on hand, to use in finishing the building, it has a qualified property in, or a lien upon, such material, which is superior to the rights of the contractor's trustee in bankruptcy."^ § 373. Landlord's Lien for Rent. — The common-law or statutory lien of a landlord for rent, including rent reserved under a ground-rent deed,"* is of a nature to be preserved in bankruptcy proceedings against the tenant, and must be enforced against the goods and chattels in the trustee's hands, or their proceeds if sold, and the trustee cannot defeat the landlord's claim for the rent to become due during the remainder of the term by vacating the premises and surrendering possession."' But to bring about this result, there must be a valid lease in existence at the commencement of the bankruptcy proceedings. Thus, where the lease had terminated, but the tenant remained in possession under a contract to purchase, and was so holding at the time of his bankruptcy, the relation of landlord and tenant no Jonger existed, and the landlord had no lien on the tenant's personal property for subsequently accruing 188 In re Pratesi, 126 Fed. 588, 11 Friedman v. Murphey (Ariz.) 124 Pac. Am. Bankr. Rep. 319 ; In re Mero, 128 654 ; In re Meyer, 195 Fed. 653, 28 Am. Fed. 630, 12 Am. Bankr. Kep. 171. Bankr. Rep. 17 ; In re Mitchell, 116 Fed. 130 City of Waco v. Bryan, 127 Fed. 87, 8 Am. Bankr. Rep. 324; Martin v. 79, 62 C. C. A. 79, 11 Am. Bankr. Rep. Orgain, 174 Fed. 772, 98 C. C. A. 246, 23 481. Am. Bankr. Rep. 454; I. Trager Co. v. 1140 I. Trager Co. v. Cavaroc Co., 124 Cavaroc Co., 124 La. 611, 50 South. 598; La. 611, 50 South. 598; Shapiro v. Shapiro v. Thompson, 160 Ala. 363, 49 Thompson, 160 Ala. 363, 49 South. 391. South. 391 ; McLean v. Klein, 3 Bill. 141 Wilds V. Board of Education of 113, Fed. Cas. No. 8,884; Austin v. New York, 186 App. Div. 472, 174 N. Y. O'Reilly, 2 Woods, 670, 12 N. B. R. 329, Supp. 375, afHrming 103 Misc. Rep. 318, Fed. Cas. No. 665 ; In re Trim, 2 Hughes, 170 N, Y. Supp. 1033. 355, 5 N. B. R. 23, Fed. Cas. No. 14,174 ; 142 Large v. Rosier, 2 Clark (Pa.) 29. Ex parte Morrow, 1 Low. 386, 2 N. B. i43Fudlckar v. Glenn, 237 Fed. 808, R. 665, Fed. Cas. No. 9,850; In re 151 C. C. A. 50, 88 Am. Bankr. Rep. 237 ; Wynne, Chase, 227, 4 N. B. R. 23, Fed. Courtney v. Fidelity Trust Co., 219 Fed. Cas. No. 18,117 ; In re Hoagland, 18 N. 57, 134 C. C. A. 595, 33 Am. Bankr. Bep. B. R. 530, Fed. Cas. No. 6,545 ; In re 400; In re City Drug Store (D. C.) 224 Dunham, Fed. Cas. No. 4,145; In re Fed. 132, 35 Am. Bankr. Rep. 335; In Eckenroth, Fed. Cas. No. 4,265 ; Watson re J. Sapinsky & Sons (D. C.) 206 Fed. v. Lemar, Fed. Cas. No. 17,287 ; Loudon 523, 30 Am. Bankr. Rep. 416 ; Mitchell v. Blandford, 56 Ga. 150. See In re Gal- Storebuildtng Co. v. Carroll, 193 Fed. 616, lacher Coal Co., 205 Fed. 183, 29 Am. 113 C. C. A. 484, 27 Am. Bankr. Bep. 894 ; Bankr. Rep. 766. Bi.kjBkb.(3d Ed.)— 52 § 373 LAW OF BANKRUPTCY 818 rent on the non-performance of the contract of purchase."* So, where the leasehold interest of the bankrupt tenant is sold by the trustee, the landlord has no lien on the proceeds of the sale for rent overdue at the time of the bankruptcy."^ Also, if the statute' makes any other condition than the mere failure to pay rent a prerequisite to the land- lord's lien, that condition must be shown to exist before the lien can be claimed in bankruptcy."* Thus, where the state law is such that the landlord's lien attaches to goods and chattels on the demised prem- ises when the same are levied on under an execution, it has been held that the landlord cannot claim a lien in the bankruptcy proceedings against the tenant by reason of the levy of an execution on the goods within four months prior to the bankruptcy proceedings, as the lien of the execution would be dissolved thereby.^*' But on the other hand, it has been held that if the court of bankruptcy takes possession of the chattels which would be liable to the lien and orders them sold, its process may be regarded as an equitable execution, for the purpose of preserving the landlord's lien, such a case being clearly within the equity of the statute."* But where the statute gives the lien, not upon mere tii Des Moines Nat. Bank v. Council Bluffs Sav. Bank, 150 Fed. 301, 18 Am. Bankr. Rep. 108. A landlord has no priority under a lease containing a cove- nant constituting the rent a lien or mortgage on all goods on the premises, where such lease is void as against the creditors of the tenant for not having been recorded as a chattel mortgage un- der the state laws. In re Dyke, 9 N. B. R. 430, Fed. Cas. No. 4,227. An agree- ment, nominally for the extension of a lease, may really constitute a contract for an additional separate term, to com- mence on the expiration of the term of the existing lease, and in this case it does not give a right to a lien for rent, where the tenant becomes bankrupt and his property is sold before the expiration of the first term. In re Southern Hard- ware & Supply Co. (D. C.) 210 Fed. 381, 32 Am. Bankr. Rep. 92. Where a land- lord, before the expiration of the lease of an earlier tenant, who was indebted for rent, demised the premises to the bankrupt under a lease providing that it should not affect the former lease, or remedies for collection of rent, and the bankrupt took over property of the first tenant in the premises, it was held that the landlord's claim for rent against the first tenant could not be asserted against the banla-upt's estate as a priority claim, there being no right to distrain. In re West (D. C.) 253 Fed. 963, 42 Am. Bankr. Rep. 341. 145 In re Ruppel (D. C.) 97 Fed. 778, 3 Am. Bankr. Rep. 233. i*eAs to the effect of recording the lease or failing to record It, see In re Floyd-Scott Co. (D. C.) 224 Fed. 987, 35 Am. Bankr. Rep. 463; Dellinger v. Waite-Thresher Co., 228 Fed. 506, 143 C. C. A. 88, 35 Am. Bankr. Rep. 802. 147 In re Whealton Restaurant Co., 143 Fed. 921, 16 Am. Bankr. Rep. 294: In re Butler, 3 Pittsb. 369, 6 N. B. R. 501, Fed. Cas. No. 2,236; Appeal of Barnes, 76 Pa. St. 50, 13 N. B. R. 543. 14 8 Longstreth v. Pennock, 20 Wall. 575, 22 L. Ed. 451; In re Hoover, 113 Fed. 136, 7 Am. Bankr. Rep. 330; In re W. R. Kuhn Co., 225 Fed. 13, 140 C. C. A. 473 ; In re Delaney (D. C.) 251 Fed. 425, 41 Am. Bankr. Rep. 601. -But a landlord to whom rent is due for the use of the premises by the bankrupt as a store will not be required to bring an action in a state court for the establish- ment of his lien, as provided by the state statute, as a precedent step to the assertion of his rights against the bank- rupt's property in the hands of the trus- tee, but he may at once prove his debt and be heard in the court of bankruptcy in support of his claim to priority. In 819 EFFECT OF BANKEUPTCY ON EXISTING LIENS § 374 default in the payment of rent, but upon the levy of a distress warrant, the landlord will have no lien available in the bankruptcy proceedings unless he has levied his distraint before the filing of the petition in bank- ruptcy.-'*® Tbe fact that a distraint is necessary to perfect the inchoate lien does not make it a lien "obtained through legal proceedings" in such sense as to be dissolved by the adjudication in bankruptcy of the tenant within four months.^^ The amount of rent for which the landlord may claim a lien, whether for a year, in addition to that already in arrear, for a year from the cpmmencement of the bankruptcy proceedings, or to the end of the term, will depend upon the law of the particular state. But it is held that a provision in a coal mine lease, gfiving the lessor a lien to secure all amounts that might become due under the lease, does not extend to a claim for damages caused by the bankruptcy of the lessee and the consequent abandonment of the lease.^®^ § 374. Liens of Mechanics and Materialmen. — The liens given by statute to mechanics, sub-contractors, and materialmen are not dissolved by the adjudication in bankruptcy of the owner, contractor, or other person liable, but on the contrary are preserved and may be enforced against the trustee in bankruptcy.-^®" And the same is true of the stat- utory liens existing in some states for the wages of labor.^®^ Liens of these kinds are not opposed to either the terms or the policy of the bankruptcy law, since they do not in any way prefer one creditor at the expense of another, nor diminish the general assets of the debtor other- re Byrne, 97 Fed. 762, 3 ~km. Bankr. re Cramond, 145 Fed. 966, 17 Am. Bankr. Eep. 268. Rep. 22 ; Hastings v. Thompson, 47 Pa. 149 In re Potee Brick Co., 179 Fed. Super. Ct. 424 ; National Fire Proofing 525 ; Morgan v. Campbell, 22 Wall. 381, Co. v. Daly, 77 N. J. Eq. 583, 78 Atl. 22 L. Ed. 796 ; In re Joslyn, 2 Biss. 285, 1135 ; Clifton v. Foster, 103 Mass. 233, 4 3 N. B. R. 473, Fed. Cas. No. 7,550; Am. Rep. 539; In re Wilkinsburg Bor- Southern Ry. Co. v. Wilder, 231 Fed. ough School Dist., 234 Pa. St. 373, 83 933, 146 C. C. A. 129, 36 Am. Bankr. Atl. 410 ; Felin v. Conway, 32 Pa. Super. Rep. 747 ; In re Grovenstein-Bishop Co. Ct. 171 ; Grainger & Co. v. Riley (C. C. (D. C.) 223 Fed. 878, 35 Am. Bankr. A.) 201 Fed. 901, 29 Am. Bankr. Rep. Rep. 114. But see In re Rose, 3 N. B. 114; Church E. Gates & Co. v. Empire R. 265, Fed. Cas. No. 12,043. City Racing Ass'n, 225 N. Y. 142, 121 iBoin re West Side Paper Co., 162 N. B. 741; George A. liOwe & Co. v. Fed. 110, 89 C. C. A. 110, 20 Am. Bankr. Leary, 49 Utah, 506, 164 Pac. 1052 ; A. Rep. 660 (reversing 159 Fed. 241), 20 B. Newbury Co. v. Tennant (N. J. Ch.) Am. Bankr. Rep. 289 ; In re Potee Brick 113 Atl. 486. Co., 179 Fed. 525; Henderson v. Mayer ,'^ issin re Kerby-Dennis Co., 95 Fed. 225 U. S. 631, 32 Sup. Ct. 699, 56 L. Ed. 116, 36 C. 0. A. 677, 2 Am. Bankr. Rep. 1233, 28 Am. Bankr. Rep. 387. 402 ; In re Laird, 109 Fed. 550, 48 C. C. 161 In re Gallaeher Coal Co. (D. 0.) A. 538, 6 Am. Bankr. Rep. 1; In re 205 Fed. 183, 29 Am. Bankr. Eiep. 766. Lowensohn, 100 Fed. 776, 4 Am. Bankr. 162 In re Grissler, 136 Fed. 754, 69 C. Rep. 79. In the case last cited, it ap- 0. A. 406, 13 Am'. Bankr. Rep. 508; In peared that a clothier gave out garments 8 374 LAW OF BANKRUPTCY 820 wise applicable to the payment of his general creditors.^®* And al- though the local law requires that a mechanic's or materialman's lien shall be perfected by the filing or recording of a claim, or even the in- stitution of a suit, within a limited time, yet this does not make it a lien "obtained through legal proceedings," in such sense that it will be dissolved by the subsequent adjudication in bankruptcy of the debtor within four months thereafter.^^^ But questions often arise as to the validity of the lien where the work has been done or the materials fur- nished, but the required notice or claim has not been filed or recorded, at the time the bankruptcy proceedings are begun. The rule appears to be settled as follows : If, by .the local law, the lien of a mechanic or materialman arises from the doing of the work and attaches to the building from that time, upon the condition subsequent that the lien creditor shall file or record a certain notice within a given time, the lien is not affected or impaired by the commencement of bankruptcy pro- ceedings between the doing of the work and the filing of the notice, but the notice may be filed, and the lien thereby perfected, after the ad- judication in bankruptcy, provided it is done within the time prescribed by the state statute ; ^^ but if the statute gives the lien only from the time of filing the notice, this must be done before the institution of the proceedings in bankruptcy, and if not, the trustee in bankruptcy will in lots, to different tailors, to be made In re Kerby-Dennis Co., 95 Fed. 116, 36 up by the piece and returned in whole C. C. A. 677, 2 Am. Bankr. Rep. 402 or broken lots for examination, and to s. c, 94 Fed. 818, 2 Am. Bankr. Rep. 218 be paid for at stated intervals if approv- In re Emslie, 102 Fed. 291, 42 C. C A. Bd, and the tailors employed other work- 350, 4 Am.'Eankr. Rep. 126; In re Beck, men in making up the goods. It was 2 Nat. Bankr. News, 532; Holland v, held that, as against the estate of the Cunliff, 96 Mo. App. 67, 69 S. W. 737 clothier iir bankruptcy, the tailors had Kemp Lumber Co. v. Howard, 237 Fed. a lien upon all articles remaining in 574, 150 C. C. A. 456, 38 Am. Bankr their hands, not only for the work done ' Rep. 608 ; Chickasaw Hotel Co. v. C. B upon those articles, but also for work Barker Const. Co., 135 Tenn. 305, 186 done upon any portions of the same S. W. 115, L. iR. A. 1916F, 106. specific lot which had been returned for use Reeves v. York Engineering & examination and not yet paid for, and Supply Co., 249 Fed. 513, 161 C. O. A. also that, where the whole of a particu- 439 ; Pels v. George Lueders & Co., 246 lar lot had been returned for exami- Fed. 436, 158 C. C. A. 500, 40 Am. Bankr. nation, this was not such an unqualified Rep. 851 ; Pittsburgh Plate Glass Co. v. delivery of the goods as to deprive the Kransz, 291 111. 84, 125 N. E. 730; workmen of their lien for labor bestowed Church E. Gates & Co. v. National Pair on that lot, unless there had been such & Exposition Ass'n, 172 App. Div. 581, a delay in afterwards demanding pay- '158 N. Y. Supp. 1070; Hildreth Granite ment as would amount to a waiver of Co. v. City of Watervliet, 161 App. Div. the lien. 420, 146 N. Y. Supp. 449; Church E. 1B4 In re Coulter, 2 Sawy. 42, 5 N. B. Gates & Co. v. Jno. F. Stevens Const. iR. 64, Pod. Cas. No. 3,276. Co., 220 N. Y. 38, 115 N. E. 22 ; Horton 15 5 In re West Norfolk Lumber Co., v. Queens County Machinery Corp., 101 112 Fed. 759, 7 Am. Bankr. Rep. 648; Misc. Rep. 31, 166 ]. Eep. 255, 79 N. Y. Supp. 395 ; Garretson 113, 150 N. W. 563, L. R. A. 19a5F, 1132, v. Clark (N. J. Eq.) 57 Atl. 414 ; In re Ann. Cas. 1917C, 290; Harrison v. Kna- Sabin, 12 N. B. E. 142, Fed. Cas. No. fle, 128 Tenn. 329, 161 S. W. 1003; In 12,194; In re Collins (D. C.) 235 Fed. re Coulter, 2 Sawy. 42, 5 N. B. R. 64, 937, 37 Am. Bankr. Rep. 692. Fed. Cas. No. 3,276; In re McAllister- is s Selling agents for a bankrupt man- Newgord Co., 193 Fed. 265, 27 Am. ufacturing company cannot claim a lien Bankr. Rep. 459; In re Grissler, 136 under the description of workmen or Fed. 754, 69 C. C. A. 406, 13 Am. Bankr. laborers. In re Crawford Wollen Co. Rep. 508; In re Georgia Handle Co., 109 (D. C.) 218 Fed. 951, 34 Am. Bankr. Rep. Fed. 632, 48 C. 0. A. 571, 6 Am. Bankr. 223. Eep. 472; In re Lillington Lumber Co., 159 in re Oramond, 145 Fed. 966, 17 132 Fed. 886, 13 Am. Bankr. Rep. 153 ; Am. Bankr. Rep. 22. Crane Co. v. Smythe, 94 App. Div. 53, 87 iso In re Cramond, 145 Fed. 966, 17 N. Y. Supp. 917 ; Sabin v. Connor, Fed. Am. Bankr. Rep. 22. If the property is Cas. No. 12,197 ; Clifton v. Foster, 103 sold free of liens by the trustee in bank- Mass. 233, 4 Am. Rep. 539, 3 N. B. R. ruptcy, those holding- liens as mechanics 656; In re Dey, 9 Blatchf. 285, Fed. Cas. or materialmen will have their claims No. 3,871. But the notice or claim must transferred to the fund arising from the be filed and it must be correct in form sale. In re Dubosky (D. C.) 253 Fed. 794. and substance. In re Shute (D. C.) 233 isi in re Cook, 3 Biss. 116, Fed. Cas. Fed. 544, 37 Am. Bankr. Rep. 554. No. 3,151. 15 7 In re Roeber, 121 Fed. 449, 57 C. 18-2 in re Lynn Camp Coal Co., 168 C. A. 565, 9 Am. Bankr. Rep. 303 ; In re Fed. 998, 22 Am. Bankr. Rep. 60. Cramond, 145 Fed. 966, 17 Am. Bankr. 103 in re Hoyt, 3 Biss. 436, Fed. Cas. Rep. 22; Lazzari v. Havens, 39 Misc. No. 6,805. § 375 LAYf OF BANKRUPTCY 822 § 375. Liens Acquired by Legal Proceedings Before Bankruptcy. — Under the earlier of the two clauses of the bankruptcy act contrasted in a former section/"* a lien "created by or obtained in or pursuant to any suit or proceeding at law or in equity" will be dissolved by the ad- judication of the debtor within four months' thereafter, if it appears that it was "obtained and permitted" while he was insolvent and that its enforcement will work a preference, or if the party to be benefited had reasonable cause to believe that the defendant was "insolvent and in contemplation of bankruptcy," or if such lien was "sought and permit- ted in fraud of the provisions of this act." Here the statute is satisfied by any one of the three alternatives. For example, if the enforcement of the lien will work a preference, it is not necessary that the creditor should have known, or had reasonable cause to believe, that the debtor was insolvent, nor that the lien should have been sought and permitted in fraud of the act.*"® And under the construction given to this provi- sion, an attaching creditor "obtains" his lien when proceedings insti- tuted by him result in its attaching to an insolvent's estate in such manner as to effect a preference, and the debtor "permits" it when he allows a state of facts to exist, rendering such lien possible, and cannot and does not in good faith resist it.*"" But under the wider provisions of clause "i" of the sixty-seventh section, all liens obtained through legal proceedings against an insolvent debtor, within four months prior to the filing of a petition in bankruptcy by or against him, are annulled by his adjudication, irrespective of the question whether the debtor suffered or permitted the lien to be obtained, and irrespective of any knowledge by the creditor of the debtor's insolvency.*"' It is strictly necessary, however, that the lien should have been created within four months before the filing of the petition and that the debtor should have been insolvent at the time it was created.*"* And if a valid lien upon particular property or a fund has been acquired more than four months 10* Supra, § 363. 47 Tex. Civ. App. 323, 105 S. W. 337 ; In 185 In re Burrus, 97 Fed. 926, 3 Am. re Louisell Lumber Co., 209 Fed. 784, Bankr, Rep. 296. 126 C. O. A. 508, 31 Am. Bankr. Rep. 166 In re Arnold, 94 Fed. 1001, 2 Am. 356. The time and manner in which a Bankr. Rep. 180; In re Burrus, 97 Fed. lien attaches to property through legal 926, 3 Am. Bankr. Rep. 296. proceedings begun before bankruptcy 167 In re Richards, 96 Fed. 935, 37 C. depends wholly upon the law of the state O. A. 634, 3 Am. Bankr. Rep. 145. But in which the property Is situated. In re this provision of the statute does not Schow (D. C.) 213 Fed. 514. The taking apply to property set apart by the bank- possession of property of a corporation ruptcy court as exempt. Burcell v. Gold- by a court through receivers in a credi- Btein, 23 N. D. 257, 136 N. W. 243. tors' suit constitutes a "levy" within § 168 Gay V. Ray, 195 Mass. 8, 80 N. E. 67f of the Bankruptcy Act, and the ju- C93; W. S. Danby Millinery Co. v. Dogan, risdiction of the court over the property 823 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 375 before bankruptcy proceedings, its enforcement within that time is not an illegal preference under the bankruptcy act.**"* Of the term "legal proceedings," used in this connection, it has been said that these words are not terms of art. "They have no strictly tech- nicaf meaning, but are here used in a general sense. In their narrower meaning, they signify a suit or proceeding at law or in equity. But in a wider sense, they embrace every proceeding established by law for acquiring a right or enforcing a remedy. In this sense, the foreclosure of a mortgage by advertisement under the statute is as truly a legal proceeding as a foreclosure by a suit in equity; the one is a statutory remedy out of court, the other a remedy in and through the court. Both are equally legal proceedings. If there were doubt in which sense the expression 'legal proceedings' is used in Section 67f, the wider sense should be adopted, ut res magis valeat quam pereat, that the main ob- ject of the act, viz., equality among creditors, may be saved and not lost.""' As otherwise explained, the expression relates only to those actions and proceedings taken by creditors who,, having no .existing lien or right of lien resting in existing contract entered into in good faith, seek to obtain a preference by being first in the race of diligence, and the statute does not apply, for example, to a lien obtained by a landlord by the levy of a distress warrant for past due rent under a lease entered into in good faith and giving him the right to resort to that remedy .'^''^ But the statute plainly covers a seizure of pro]ierty on a writ of re- plevin,^'^ the lien secured by the filing of a creditor's bill,"* or a suit to reach and subject the surplus income of an estate held in trust for the debtor,"* or a suit to vacate a chattel mortgage, as being invalid against creditors."® But a mortgagee creditor does not lose his lien by suing for and obtaining a decree of foreclosure and an advertisement of the prop- is not affected by bankruptcy proceedings Kep. 604. But compare In re United against the corporation instituted more Motor Chicago Co., 220 Fed. 772, 136 C. than four months afterwards. Blair v. C. A. 378, 33 Am. Bankr. Rep. 694. Brailey, 221 Fed. 1, 136 C. C. A. 524, 84 1^2 In re Hymes Buggy & Implement Am. Bankr. Rep. 12. Co., 130 Fed. 977, 12 Am. Bankr. Rep. 109 Wood V. Kerkeslager, 225 Pa. St. 477; In re Weinger, Bergman & Co., 296, 74 Atl. 174. 126 Fed. 875, 11 Am. Bankr. Rep. 424 ; 170 In re Emslie, 98 Fed. 716, 3 Am. In re Haynes, 123 Fed. 1001, 10 Am. Bankr. Rep. 516. Bankr. Rep. 715. 171 In re Robinson & Smith, 154 Fed. i^s In re Potee Brick Co., 179 Fed. 525. 343, 83 0. C. A. 121, 18 Am. Bankr. Rep. Compare Blick v. Nimmo, 121 Md. 139, 563 ; Schall v. Kinsella, 117 La. 687, 42 88 Atl. 116. South. 221 ; Bird v. City of Richmond, i'* In re Tiffany, 133 Fed. 799, 13 Am. 240 Fed. 545, 153 C. O. A. 349, 39 Am. Bankr. Rep. 310. Bankr. Rep. 1; In re Mossier Co., 239 its Dunn Salmon Co. v. Pillmore, 55 Fed. 262, 152 C. C. A. 250, 38 Am. Bankr. Misc. Rep. 546, 106 N. Y. Supp. 88. § 376 LAW OF BANKRUPTCY 824 erty for sale, within four months prior to the debtor's bankruptcy, for the lien is not one created by the decree, but by the act of the parties, that is, by the mortgage itself.^'* Where property of a bankrupt, at the time of the bankruptcy, is in the lawful custody of a state court under seizure in a pending suit begun within four months, the court of bankruptcy has power to stay such suit and to direct the property to be turned over for administration in the bankruptcy proceedings.^" § 376. Same; Attachment or Garnishment. — The lien acquired by an attachment of the property of an insolvent debtor is a lien "obtained through legal proceedings," both on general principles and by the ex- plicit description of it as such in the bankruptcy law, and is dissolved by the filing of a petition in bankruptcy by or against the debtor, if that occurs within four months after its date.'^'* And much more is this true of an attachment issued after the commencement of the bankruptcy proceedings.'^" But of course the, statute does not apply to cases where the property seized under the attachment is exempt property of the bankrupt,^*** or where the person or corporation proceeded against in bankruptcy is not amenable to the bankruptcy law.**^ In other cases, however, the effect of the statute in dissolving attachment liens is not confined to those issuing from courts of the United States, but applies as well to the process of the state courts.'^** And the appointment by 17 6 In re Gerdea, 102 Fed. 318, 4 Am. debtor within four monttis. Dyke v. Bankr. Rep. 346. Farmersville Mill & Light Co. (Tex. Civ. 177 Orr V. Tribble, 158 Fed. 897, 19 App.) 175 S. W. 478. Where the state Am. Bankr. Rep. 849; Stacy v. McNichol- statute gives a right to an attachment as, 76 Or. 167, 148 Pac. 67. for rent due, but requires it to be fol- ios in re Southern Arizona Smelting lowed by a determination of the rights of Co., 231 Fed. 87, 145 C. C. A. 275, 36 Am. th^ parties by a proceeding in court, Bankr. Rep. 827; In re F'ederal Biscuit this is not the equivalent of a common- Oo., 214 Fed. 221, 1.30 C. C. A. 635, 32 Am. law distress for rent, and therefore does Bankr. Rep. 612 ; Ford v. Henderson, 91 not give the landlord's claim a prefer- Or. 701, 178 Pac. 381, 179 Pac. 558 ; Bear ence, but, if taken within four months of V. Chase (C. C. A.) 99 Fed. 920, 3 Am. a petition in bankruptcy, is dissolved Bankr. Rep. 746; In re Tune, 115 Fed. thereby. Jones v. Ford, 254 Fed. 645, 906, 8 Am. Bankr. Rep. 285 ; Zeiber v. 166 0. C. A. 143, 43 Am. Bankr. Rep. 88. Hill, 1 Sawy. 268, 8 N. B. R. 239, Fed. 179 Phillips v. Helmbold, 26 N. J Eq Cas. No. 18,206; Lindner v. Brock, 40 202. Mich. 618; Howe v. TJnion Ins. Co., 42 iBnT>„i,- tit., -^ tt ™_ „„ r(„i coo ii^^A n„o, TVT« a ura m„.,i-iL „ Robinson V. Wilson, 15 Kan. 595, 22 Cal. 528, Fed. Cas. No. 6,776 Tootle v. .^ t.„„ „„„ , . „ „ _' _._ „ Sheldon, 10 Neb. 44, 4 N. W. 358 ; Peek p".,^^f; ^l^' " !!• o^J'-if 4^^*^"" J" V. Jenn;ss, 16 N. H. 516, 43 Am. Dec. ItTl^fl^ ^- ,' n^'/^^ f' ^.J^tl — o -r V Ti^.ii- ■, T^ ,r^ > First International Bank v. Lee (N. D.) 573; Ingraham V. Phillips, 1 Day (Conn.) .... „ ~. „. . x^c u^. x^.; 117; Reed v. BuUington, 49 Miss. 223, *• ' °" Third persons questioning the right of "'^ ^'^ ^^ New Amsterdam Motor Co., an attaching creditor may attack his lien ^^ ^^d. 943, 24 Am. Bankr. Rep. 757. on the ground of its being dissolved by 182 Wood v. Carr, 73 S. W. 762, 24 Ky. bankruptcy proceedings begun against the Law Rep. 2144; Bank of Columbia v. 825 • EFFECT OF BANKRUPTCY ON EXISTING LIENS § 376 the state court of a receiver of the property of the debtor, and a trans- fer to him of the attached property, prior to the appointment of the trustee in bankruptcy, does not so alter the rights of the parties as to entitle the attaching creditor to prefereftce in the payment of any judgment he may obtain.^** The effect of the dissolution of the attachment is to release the at- tached property,"* though no order of dissolution may be entered in the court where the action is pending,"^ and a purchaser of the property under the attachment has no standing to maintain a bill to clear his title or set aside conveyances,'^*^ and further proceedings in the suit ■wherein the attachment issued may be enjoined by the court of bank- ruptcy.''*'' The attached property mu»t be surrendered to the trustee in bankruptcy.'** But if the property attached has already been sold, and the proceeds paid over to the attaching creditor, it is doubtful whether he can be made to refund it at the suit of the trustee.'** The same principles apply to the process of garnishment. The ren- dition of a judgment against the garnishee creates a lien on the fund or property, and even the service of the writ, before judgment, if it does not create a lien, at least raises a specific right to a lien, and in either case the right or preference secured by the creditor is "obtained through legal proceedings," in such sense as to be dissolved by the subsequent adjudication of the debtor within four months.'** The effect is to vest Overstreet, 10 Bush (Ky.) 148, 13 N. B. R. C.) 210 Fed. 940, 31 Am. Bankr. Rep. 387. 157. 18 7 In re Bellows, 3 Story, 428, Fed. 183 Miller v. Bowles, 58 N. Y. 253. Cas. No. 1,278; 0. Tennant Sons & Co. 184 Bank of Garrison v. Malley, 103 v. New Jersey Oil & Meal Co., 78 Misc; Tex. 562, 131 S. W. 1064 ; Lehman, Stern Rep. 497, 139 N. Y. Supp. 1023 ; Pope v. & Co. V. E. Martin & Co., 132 La. 231, 61 Title Guaranty & Surety Co., 152 Wis. South. 212. Where an attachment is 611, 140 N. W. 348; In re Federal Bis- sued out against a defendant within four cuit Co., 203 Fed. 37, 29 Am. Bankr. Rep. months of his bankruptcy, and is dis- 393. solved, a garnishment in aid of such at- iss New Orleans Acid & Fertilizer Co. tachment falls with it. Hobson-Starnes v. Grissom, 79 Miss. 662, 31 South. 336. Coal Co. V. Alabama Coal & Coke Co., In re Gilsonite Mines Co.- (D. C.) 236 189 Ala. 481, 66 South. 622. The filing of Fed. 1015, 37 Am. Bankr. Rep. 473. a petition in bankruptcy by an attach- After the annulling of the lien of an at- ing creditor and delivery of the attached tachment by the filing of a petition in goods to the receiver in bankruptcy, will bankruptcy, the sheriff holds merely as discharge the attachment if it was ob- an involuntary bailee for the benefit of tained within four months, apd will pass the trustee in bankruptcy. Gray v. Ar- the title to the receiver. Ernest Wolff not, 31 N. D. 461, 154 N. W. 268. Mfg. V. Battreal Shoe Co., 192 Mo. App. ,i89Botts v. Hammond (0. C. A.) 99 113, 180 S. W. 396. Fed. 917, 3 Am. Bankr. Refp. 775. 185 Sullivan V. Rabb, 86 Ala. 433, 5 i»o In re Ransford, 194 Fed. 658, 28 South. 746. See King v. Will J. Block Am. Bankr. Rep. 78; Longley Bros. v. Amusement Co., 193 N. Y. 60S, 86 N. E. McCann, 90 Ark. 252, 119 S. W. 268; 1126. Fairlamb v. Smedley Const. Co., 36 Pa. 18 6 Hatfield v. MoUer, 4 Fed. 717. But Super. Ot. 17; Hobbs v. Thompson, 160 see In re Alabama Coal & Coke Co. (D. Ala. 360, 49 South. 787, 18 Ann. Cas. 381 ; § 376 LAW OP BANKRUPTCY . 826 in and transfer to the trustee in bankruptcy the indebtedness of the garnishee to the bankrupt, and he alone has ^the right to claim and collect it/*^ so that no judgment can thereafter be properly rendered against the garnishee in the suit of the creditor/*^ and if nevertheless, a judgment is so rendered, it is void, and must be treated as a nullity whenever drawn in question, whether directly or collaterally,^*^ ^nd the decree of the federal court adjudicating the principal debtor a bankrupt will constitute a complete defense to any attempt to enforce a judgment rendered by the state court against the garnishee.^'* Where a state statute provides for the filing of judgments recovered against employees of the state and for the payment of such judgments by state officers out of the salary or wages due to such employees (in lieu of allowing the garnishment of such wages or salaries), a lien thus ac- quired on the amount due an employee of the state is rendered void by his adjudication in bankruptcy, like any other lien, but the judgment itself is not affected, so that the lien exists upon all sums falling due after the adjudication in bankruptcy.^®*" But on the other hand, a lien by attachment or garnishment secured more than four months before the filing of the petition in bankruptcy is not dissolved by the adjudication, but remains a valid charge on the property or fund, which must be recognized and allowed in the bankruptcy proceedings."® But this is on the assumption that the Cavanaugh v. Fenley, 94 Minn. 505, 103 is a in re Beals, 116 Fed. 530, 8 Am. N. W. 711, 110 Am. St. Rep. 382; Wilbur Bankr. Kep. 639. And see De Friece v. V. Wilson, Fed. Oas. No. 17^637; Howe Bryant (D. C.) 232 Fed. 283, 37 Am. V. Union Ins. Co., 42 Cal. 528, Fed. Cas. Bankr. Rep. 275. No. 6,776; In re Peek, 9 Ben. 169, 16 N. 194 Hall v. Chicago, B. & Q. R. Co., 88 B. R. 43, Fed. Cas., No. 10,886. See Lon- Neb. 20, 128 N. W. 645. don Guarantee & Accident Co. v. Moss- i^e Jefferson Transfer Co. v. Hull, 166 ness, 108 111. App. 440; Mechanics' & Wis. 438, 166 N. W. 1. Traders' Ins. Co. v. McVay, 142 Ark. 522, loe Doe v. Childress, 21 Wall. 642, 22 219 S. W. 34. L. Ed. 549 ; Crowe v. Reid, 57 Ala. 281 ; 191 Wright-Dalton-Bell- Anchor Store Martin v. Lile, 63 Ala. 406; Daggett v. Co. V. Sanders, 142 Mo. App. 50, 125 S. Cook, 37 Conn. 341 ; Carr v. Thomas, 18 W. 517 ; Peck Lumber Co. v. Mitchell, 1 Fla. 736 ; Bowman v. Harding, 56 Me. Nat. Bankr. News, 262. Where a gar- 559 ; Currier v. King, 81 Vt. 285, 69 AtL nisher has notice of a prior lien on the 873 ; Stickney & Babcock Coal Co. v. money which he • attempts to garnish, Goodwin, 95 Me. 246, 49 Atl. 1039, 85 such lien wiU prevail against his rights, Am. St. Rep. 408 ; Francis Batchelder and also against a trustee in bankruptcy & Co. v. Wedge, 80 Vt. 353, 67 Atl. 828; to whom the money was subsequently Bloch Bros. v. Moore (Ala.) 39 South, transferred, the latter also having no- 1025 ; Allen v. Ingalls, 33 Nev. 281, 111 tice of the prior lien. Gardner v. Plant- Pac. 34, 114 Pac. 758; In re Albrecht, 17 ors'. Nat. Bank, 54 Tex. Civ. App. 572, N. B. R. 287, Fed. Cas. No. 145; In re 118 S. W. 1146. Maher, 169 Fed. 997, 22 Am. Bankr. Rep. 102 Wright-Dalton-Bell-Anchor Store 290; HoUaday v. Hare, 69 Cal. 515, 11 fn. V. Sanders, 142 Mo. App. 50, 125 S. Pac. 28 ; Ressmeyer v. Norwood, 117 Md. W. 517. 320, 83 Atl. 347 ; In re J. L. Philips & 827 EFFECT OF BANKEUPTCT ON EXISTING LIENS § 377 lien is valid and complete under the law of the state. Thus, to con- stitute an attachment of personal property, the officer must actually take it into his custody and control, and the mere taking of a receipt for certain property, followed by a return that he had attached it more tlian four months before the bankruptcy proceedings, though it would estop the receiptor from denying that there was an attachment, is not enough to create a lien as against the trustee in bankruptcy.**" Hav- ing a valid Hen, accruing more than four months before the bank- ruptcy, the creditor will be entitled to prosecute his action to judg- ment, at least so far as to obtain a decree in rem against the specific property attached, and to proceed to a sale of the property there- under.*** If the proceeds are not sufficient to satisfy his whole claim against the debtor, he may come into the bankruptcy proceedings with a claim for the balance, after crediting the amount realized under the attachment.**** § 377. Same; Judgment or Execution. — The Bankriiptcy Act pro- vides that "all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt." ^'** Consequently a creditor holding an unsatisfied judg- Co. (D. C.) 224 Fed. 628, 34 Am. Bankr. debtor ; only its lien is (in some cireum- Kep. 877 ; Coast & Lakes Contracting stances) divested. It is true the section Corp. V. Martin, 92 Conn. 11, 101 Atl. cited speaks of "levies, judgment, at- 502 ; Light v. Hunt, 17 Ga. App. 491, 87 tachments, or other liens obtained S. E. 763; Pelton v. Sheridan, 74 Or. 176, through legal proceedings." But it is 144 Pac. 410; Citizens' Nat. Bank v. evident from the context that it is not Dasher, 16 Ga. App. 33, 84 S. E. 482. the judgtaent as an obligation or an evi- ls? In re Ashley, 19 N. B. R. 237, Fed. dence of debt that is intended, but only Cas. No. 581. See Marceline State Bank its lien, or only the judgment in its as- V. Smith, 122 Mo. App. 61, 98 S. W. 104 ; pect of creating a lien. Besides, the In re Schow (D. C.) 213 Fed. 514. only prescribed effect of this annulment 198 In re Snell, 125 Fed. 154, 11 Am. or avoidance is that the property afCect- Bankr. Rep. 35; May v. Courtnay, 47 ed by the judgment or lien shall be re- Ala. 185; Hill V. Harding, 116 111. 92, 4 leased from it. Further, judgments are N. E. 361; Gillett v. McCarthy, 23 Kan. provable debts in bankruptcy, and this 668; Stoddard v. Locke, 43 Vt. 574, 5 Am. could not be if they were rendered null Rep. 308, 9 N. B. R. 71 ; Bates v. Tap- and void by the proceedings. Hence, as pan, 99 Mass. 376, 3 N. B. R. 647. See merging the original cause of action, as Ray v. Wight, 119 Mass. 426, 20 Am. an obligation, as an evidence of debt, as Rep. 333, 14 N. B. R. 563. the l^^sis for a new suit, as* evidence in 100 In re Knight, Yancey >& Co., 190 the courts of another state, as subject to Fed. 893, 26 Am. Bankr. Rep. 787. revival by scire facias, and in all other 200 Bankruptcy Act 1898, § 67f. Note respects save only the question of lien, that the judgment itself is not dissolved, the judgment is not affected. See Pope annulled, rendered void, or otherwise af- v. Title Guaranty & Surety Co., 152 Wis. fected by the institution of proceedings 611, 140 N. W. 348. A judgment against in bankruptcy against the judgment the bankrupt will be effective as an es- § 377 LAW OF BANKEUPTCT 828 ment, or an execution levied on property of the debtor, can claim no preference or advantage over other creditors if the debtor is adjudged bankrupt within four months after its date. The judgment may re- main as a provable debt against the bankrupt, but its lien is lost.'"^ Such questions as whether a lien arises from the delivery of an ex&- cution to the sheriff before levy, or whether it covers property held under a contract of conditional sale, will be controlled by the law of the state, and the federal courts will be governed by the decisions of ' its highest tribunal.^*^ The bankruptcy act is held applicable, in this particular, not only to judgments rendered in contested actions, but also to judgments by confession,*** and judgments entered by con- sent,*"* and a judgment imposing a fine for a violation of a state law or a municipal ordinance is not excepted,*"^ nor one for the purchase price of the property to which its lien attaches.'*^ But the object of the statute is only to secure equality among creditors as of a certain date, that is, four months before bankruptcy. Hence it is not the judgment which it denounces, but only the lien or preference springing from it, and therefore it applies only to judgments of which a lien on property is a necessary result or concomitant. "A judgment or de- cree in enforcement of an otherwise valid pre-existing lien is not the judgment denounced by the statute, which is plainly confined to judg- ments creating liens. If this wei-e not so, the . date of the acquisition of a lien by attachment or creditor's bill would be entirely immaterial. Moreover, other provisions of the act render it unreasonable to im- pute the intention to annul all judgments recovered within four toppel against the trustee arid the es- Ades v. Caplan, 132 Md. 66, 103 Atl. 94, tate, although, by the loss of Its lien, the L. R. A. 1918B, 276 ; In re Beclc (D. C.) judgment creditor can only claim in com- 238 Fed. 653, 38 Am. Bankr. Rep. 797; petition with other creditors . having Finney v. Knapp Co., 145 Ga. 400, 89 S. equal rights. In re Stringer (D. C.) 230 B. 413. See In re Surprenant (D. C.) 217 Fed. 177, 37 Am. Bankr. Rep. 44 ; So Fed. 470, 33 Am. Bankr. Rep. 454. Corn- again, where a judgment is rendered pare Doyle v. Hall, 86 111. App. 163. within four months before an adjudica- aozReardon v. Rock Island Plow Co., tion of bankruptcy, it becomes a lien on 168 Fed. 654, 94 0. C. A. 118, 22 Am. any real estate of the bankrupt which Bankr. Rep. 26; Pence v. Cochran, 6 the trustee elects not to take, although Fed. 269. it is not effective against the trustee or 203 jjj ^g Weeks, 2 Biss. 259, 4 N. B. persons claiming under him or against, jj 304^ ^^^ ^as. No. 17,350; Jordan v. the bankrupt personally. McCarty v. Downey, 40 Md. 401, 12 N. B. R. 427; Light, 155 App. Div. 36, 189 N. Y. Supp. Hoover v. Greenbaum, 61 N. T. 305. 853. And see People's Nat. Bank v. Max- son, 168 Iowa, 318, 150 N. W. 601. 201 In re Harrington, 200 Fed. 1010, 29 20* In re Richard, 94 Fed. 633, 2 Am. Bankr. Rep. 506. Am. Bankr. Rep. 666; Severin v. Robin- '°°In re Green (D. C.) 179 Fed. 870, son, 27 Ind. App. 55, 60 N. E. 966; L. 24 Am. Bankr. Rep. 665. Mohr & Sons v. Mattox, 120 Ga. 962, 48 206 in re O'Brien, 215 Fed. 129, 32 Am. S. E. 410; Burgett v. Paxton, 99 111. 288; Bankr. Rep. 347. 829 BFPBOT OF BANKIIUPTCT ON EXISTING LIENS § 377 months." *"'' Thus, a decree foreclosing a mortgage, entered within four months before. the bankruptcy of the mortgagor, is not a judg- ment creating a lien, such as to be rendered void by the adjudication, but merely a decree for the enforcement of a prior lien, which is not affected by the proceedings in bankruptcy.*** And so, a judgment dis- possessing a tenant, rendered shortly before his bankruptcy, is not one which creates a lien on his estate.*'* Moreover, the statute does not apply to a lien which has already been merged into a title by sale on judicial process. Where a judgment has been recovered, an execu- tion issued and levied, and a sale of the property made thereunder, all within four months prior to the bankruptcy, the title of the execution purchaser is expressly saved by the statute in case he bought in good faith and for value and without notice, and as to the proceeds of the sale, they may perhaps be recovered by the trustee in bankruptcy if they yet remain in the hands of the sheriff, but not after they have been paid over to the judgment creditor, saving questions as to prefer- ence or fraud.*^* But if a lien was gained by the recovery of a judgment, or by the levy of an execution thereunder, more than four months before the in- stitution of bankruptcy proceedings, it is not dissolved or affected by the adjudication of the debtor, but the creditor is entitled to claim and enforce the advantages of his position.*^^ And it has been held that the y^2'>^ Metcalf V. Barker, 187 U. S. 174, 210 Nelson v. Svea Pub. Co., 178 Fed. 23 Sap. Ct. 67, 47 L. Ed. 122, 9 Am. 136; In re Bailey, 144 Fed. 214, 16 Am. Bankr. Kep. 36; In re Kavanaugh (D. Bankr. Rep. 289; In re Franks, 95 Fed. C.) 99 Fed. 928, 3 Am. Bankr. Rep. 832. 635, 2 Am. Bankri Rep. 634 ; In re Fran- A judgment creditor, who secured a de- ds-Valentine Co., 93 Fed. 953, 2 Am. cree setting aside as to him a conveyance Bankr. Rep. 188 ; In re Kenney, 95 Fed. by the bankrupt should not be restrained 427, 2 Am. Bankr. Rep. 494 ; Dyson v. from levying execution on the property, Harper, 54 Ga. 282; Clement v. King, though the decree was obtained within I52 N. C. 456, 67 S. E. 1028. And see, four months before the bankruptcy pro- supra, §§ 28, 233. Compare In re Bres- ceedings, other creditors not having par- lauer, 121 Fed. 910, 10 Am. Bankr. Rep. ticipated. In re Betsekas (D. C.) 235 33. See Utah Ass'n of Credit Men v. Fed. 1020, 38 Am. Bankr. Rep. 184. Jones, 50 Utah, 519, 164 Pac. 1029 ; Key- Where a judgment obtained more than stone Brewing Co. v. Schermer, 241 Pa. four months before the judgment debtor 361, 88 Atl. 657. was adjudicated a bankrupt did not 211 Lewin v. Telluride Iron Works Co. create a lien, a levy within the four (C. C. A.) 272 Fed. 590, 47 Am. Bankr. months is void as against the trustee in Rep. 22; In re BruCe, 158 Fed. 123, 19 bankruptcy. Coppard v. Gardner (Tex. Am. Bankr. Rep. 770; United States Fi- Olv. App.) 199 S. W. 650. delity & Guaranty Co. v. Murphy, 4 Ga. 208 In re McKane (D. C.) 152 Fed. 733 ; App. 13, 60 S. B. 831 ; Tucker v. Denico, Harvard v. Davis, 145 Ga. 580, 89 S. E. 27 R. I. 239, 61 Atl. 642 ; Meirkord v. 740. Helming, 139 Iowa. 437, 116 N. W. 785; 209 piaut V. Gorham Mfg. Co. (D. C.) Kaminsky v. Horrigan, 2 Ga. App. 332, 174 Fed. 852, 23 Am. Bankr. Rep. 42. See 58 S. E. 497; In re Fuller, 1 Sawy. 243, 4 In re Chambers (D. C.) 254 Fed. 506, 43 N. B. R. 115, Fed. Cas. No. 5,148; Virgin- Am. Bankr. Rep. 22. la-Carolina Chemical Co. v. Rylee, 139 § 377 LAW OF BANKRUPTCY 830 Statute does not affect the lien of an execution levied within the four months, but founded on a judgment recovered two years before.*^* But this is difficult to concede, in view of the fact that the statute expressly names "levies" as well as "judgments and other liens obtained through legal proceedings." *^* But the trustee in bankruptcy may attack the validity of the lien on other grounds, if any are open to him. The law recognizes as liens only those which are valid and binding under the law of the estate where the property is situated. Hence if the lien of a judgment has been lost by lapse of time, and the judgment become dor- mant, by the laws of the state, there is no lien which is enforceable in bankruptcy.^^* And so, where an execution has been returned "nulla bona," ^^^ but not necessarily because a sale under the execution has been enjoined by strangers.^" On the other hand, the validity of a levy which is valid under the state law, being a matter of record, is conclu- sive and cannot be enquired into in the bankruptcy proceedings, and if the recital of a levy is false, the officer may be held to answer for it to the proper party, but this does not entitle the trustee in bankruptcy to claim or hold the proceeds of sale.*^' An execution levied upon property after the filing of a petition in bankruptcy, while it is not rendered void by § 67f of the Bankruptcy Act, which applies only to liens acquired prior to the filing of the petition, creates no lien which will be recognized by the court of bank- ruptcy .^'-^ And a money judgment rendered in a state court pending the bankruptcy proceedings does not impose a lien on lands forming a. part of the bankrupt's non-exempt property .^^* § 378. Dissolution of Liens by Adjudication. — All liens obtained within four months prior to the adjudication in bankruptcy, whether voluntary or by the process of a state court, and whether the proceedings in bankruptcy are begun by a voluntary or an involuntary petition, are Ga. 669, 78 S. E. 27 ; In re L'Hommedieu, Cas. No. 3,313 ; In re Zeis (D. C.) 229 146 Fed. 708, 77 G. O. A. 134, 16 Am. Fed. 472, 36 Am. Bankr. Rep. 581 ; In re Banlir. Rep. 850; In re Zeis, 245 Fed. Monarch Acetylene Co. (D.JG.) 229 Fed. 787, 158 C. 0. A. 139, 40 A.m. Banlir. Rep. 474, 36 Am. Bankr. Rep. 59S. See In re 104 ; In re Pilcher & Son (D. C.) 228 Fed. Fraser (D. C.) 261 Fed. 558, 44 Am. 189, 36 Am. BanUr. Rep. 273; Robinson Bankr. Rep. 572. & Co. V. Cosner, 136 La. 595, 67 South. 215 in re B. Matthews & Sons 163 468 ; Robinson v. Tischler, 69 Fla. 77, 67 Ped. 127, 20 Am. Bankr. Rep. 570. South. 565; Kinney v. Avery & Co., 14 oi„t„ ,. t>„ j 1 1 lo-r -m j, -,^„ «« ^ ■ ^Art or> . 110, 103 N. W. 408. Spaulding, 7 Hun (N. Y.) 2^8, 15 N. B. And see supra, § 249. Compare In re R. 313. Forbes, 186 Fed. 79, 108 C. C. A. 191, 26 22 s Louden v. King, 50 Ga. 302; King Am. Bankr. Rep. 355; In re Tune, 115 v. Loudon, 53 Ga. 64. Fed, 906, 8 Am. Bankr. Rep.. 285. This 226 Hardt v. Schuylkill Plush & Silk rule- applies also as to the bankrupt's Co., 69 App. Div. 90, 74 N. Y. Supp. 549. after-acquired property. Taylor v. Buser 227 Miller v. Bowles, 58 N. Y. 253. (Sup.) 167 N. Y. Supp. 887. 228 zahm v. Fry, 10 Phila. (Pa.) 243, 223 Goodnough Mercantile & Stock Co. 9 N. B. R. 546, Fed. Cas. No. 18,198. § 379 LAW OF BANKRUPTCT 832 only as against the trustee in bankruptcy and those claiming under him.*** And a court will not presume the appointment and qualification of a trustee, merely because the bankruptcy act provides for such ap- pointment, when the question is as to the discharge of a lien alleged to be invalidated by the adjudication of the debtor.**" In efifect, this stat- utory dissolution of liens is for the benefit of creditors, not for the bene- fit of the bankrupt, and as to him all such liens remain in force notwith- standing his adjudication in bankruptcy, as, for instance with reference to his exempt property or property which the trustee disclaims or which never comes into his possession.**^ And although a sale of land on ex- ecution within four months before the defendant's adjudication in bank- ruptcy, may be avoided by his trustee, its nullity cannot be pleaded by a former grantee of the same property.*** Nor does the adjudication of the principal debtor release the sureties on a replevin bond or forthcom- ing bond.*** § 379. Insolvency of Debtor. — ^The bankruptcy act provides for the dissolution of liens obtained tlirough any suit or proceeding at law or in equity begun against a person within four months before the filing of a petition in, bankruptcy by or against him, if it appears that he permitted the attaching of such lien while he was insolvent and that it will effect a preference, or if the person to be benefited by it "had reasonable cause to believe the defendant was insolvent and in contemplation of bank- ruptcy." *** This was also the rule under the act of 1867 as interpreted by the courts.**^ It will be observed that the question as to the creditor is whether he had "reasonable cause to believe" the debtor insolvent — not what he did believe — the latter is immaterial. The creditor is not constituted the sole judge of the sufficiency of the evidence of his debtor's insolvency; that is for the court to determine, the lien being attack- ed.*** Reasonable cause to believe a person to be insolvent means 228 McKenney v. Cheney, 118 Ga. 387, 163 Pac. 695. Compare Kaiser v. Rich- 45 S. B. 43.3; Frazee v. Nelson, 179 Mass. ardson, 5 Daly (N. Y.) 301, 14 N. B. R. 456, 61 N. E. 40, 88 Am. St. Rep. 391. 391. 280 Schoenthaler v. Rosskam, 107 111. 2S4 Bankruptcy Act 1898, § 67c. App. 427. 2 3B Merchants' Nat. Bank v. Truax, 1 2 81 Miller v. Barto, 247 111. 104, 93 N. N. B. R. 545, Fed. Cas. No. 9,451; In re B. 140; Rochester Lumber Co. v. Locke, McDonough, 3 N, B. R. 221, Fed. Cas. 72 N. H. 22, 54 Atl. 705. No. 8,775; Driggs v. Moore, 1 Abb. U. S. 28 2 Hutchins v. Cantu (Tex. Olv. App.) 440, 3 N. B. R. 602, Fed. Cas. No. 4,083; 66 S. W. 138. In re Pierce, 2 Low, 343, Fed. Cas. No. 233 Kaminsky V. Horrigan, 2 Ga. App. 11,140; McCabe v. Goodwine, 65 Ind. 332, 58 S. E. 497 ; Ehrlich v. Sklamberg, 288. See Peckham v. Burrows, 3 Story, 116 N. Y. Supp. 602; In re Federal Bis- 544, Fed. Cas. No. 10,897. cuit Co., 214 Fed. 221, 130 C. C. A. 635, 2se Hall v. Wager, 3 Biss. 28, 5 N. B. 32 Am. Bankr. Rep. 612; Credit Ass'n R. 181, Fed. Cas. No. 5,951. of CaUfomla v. Griffin, 32 Cal. App. 598, 838 EFFECT OF BANKEUPTCX ON EXISTING LIENS § 379 knowledge of a state of facts which would put a prudent man upon in- quiry as to the condition of the person with whom he is dealing.**' "If it appears that the party making the conveyance was actually insolvent, and that the means of knowledge upon this subject were at hand, and that such facts and circumstances were known to the party receiving the conveyance as clearly put the assignee, transferree, or grantee of the property upon inquiry, it would seem to be just to hold that the party re- ceiving the assignment, transfer, or conveyance, even if he omitted to make inquiries, had reasonable cause to believe that his assignor or gran- tor was insolvent." *^* Under these rules, reasonable cause to believe the debtor insolvent may be imputed to a creditor when he knows that the debtor cannot pay his debts in the ordinary course of his business*^* or that the debtor has been embarrassed for two years, had made small payments on overdue debts, has unavailingly applied for extensions of time, has been pressed by his creditors, and has declined to give a mort- gage on the ground that it would injure his credit.**** So the debtor's repeated failure to fulfill promises in regard to paying the claim, the creditor also having knowledge of other debts, charges him with notice of insolvency, or reasonable cause for belief,**^ and so also, where cred- itors have to sue for the collection of accounts long overdue, and the debtor submits to suits on claims against which he has no defense.**" Again, where a creditor takes a check, the fact that payment of it is re- fused puts him upon inquiry,*** and it is said that the existence of a financial crisis or panic constitutes of itself reasonable cause to believe persons otherwise in doubtful circumstances to be insolvent.*** Under the definition of insolvency as accepted in the application of former bank- ruptcy laws (inability to meet debts as they mature in the ordinary course of trade), it was held that a creditor who has knowledge of any transactions by the debtor out of the ordinary course of trade is put upon inquiry as to his solvency,**® and the giving of a mortgage to secure prior advances or a pre-existing debt is out of the usual course of busi- ness, and is therefore a circumstance to put the creditor upon inquiry.**® 237 Rison V. Knapp, 4 N. B. R. 349, 2*2 Stranahan v. Gregory, 4 N. B. R. Fed. Gas. No. 11,861; In re McDonougli, 427, Fed. Gas. No. 13,522; Mayer v. Her- 3 N. B. R. 221, Fed. Gas. No. 8,775; Webb mann, 10 Blatcbf. 256, Fed. Gas. No. V. Sachs, 4 Sawy. 158, 15 N. B. R. 168, 9,344; Dunning v. Perkins, 2 Blss. 421, Fed. Gas. No. 17,325. Fed. Gas. No. 4,180. 238 Scammon v. Cole, 3 Gliff. 472, 5 N. 243 Warren v. Tenth Nat. Bank, 5 Ben. B. R. 257, Fed. Gas. No. 12,432. 395, 5 N. B. R. 479, Fed. Gas. No. 17,200. 239 Wilson V. Brinkman, 2 N. B. R. 244 in re Clarke, 2 Hughes, 405, 10 N. 468, Fed. Gas. No. 17,794; In re Forsyth, B. R. 21, Fed. Gas. No. 2,843. 7 N. B. R. 174, Fed. Gas. No. 4,948. 245 Scammon v. Hobson, 1 Hask. 406, 240 Hall V. Wager, 3 Biss. 28, 5 N. B. Fed. Gas. No.. 12,434. R. 181, Fed. Gas. No. 5,951. 240 in re Holland, 2 Hask. 90, Fed. 241 In re Armstrong, 9 Ben. 212, 16 N. Oas. No. 6,603; Wager v. Hall, 16 Wall. B. R. 275, Fed. Cas. No. 539. 584, 21 L. Ed. 504. But compare Ex Blk.Bkr.(3d Ed.)— 58 § 379 LAW OF BANKRUPTCY 834 But on the other -hand, the creditor is not to be charged with knowledge of his debtor's insolvency, or reasonable cause to believe in it, merely from the fact that he knows that the debtor is embarrassed in carrying on his business for want of means,**' or that the debtor was short of funds on the particular occasion, and wished the creditor to take a note and mortgage in substitution for a check on a bank.*** So the fact that a person doing a large business obtains renewals of his commercial pa- per, or under special circumstances pays a large discount, is not notice of insolvency where it appears that such commercial paper was selling at equal rates in the market.*** And in a rural community, the mere non- payment of a note at maturity is not sufficient evidence of insolvency to put a creditor on inquiry.*'* As to the meaning of the phrase "contemplation of bankruptcy," some of the decisions under the former statutes applied the strict rule that this could only mean the debtor's contemplation of the commission of an act denounced by the statute as an act of bankruptcy, or his con- templation of a decree adjudicating him a bankrupt either on his own pe- tition or in involuntary proceedings.***^ But other decisions held that the phrase means contemplation on the debtor's part of a state of insolv- ency such as to involve a thorough breaking up of his business, and hence something more than insolvency in the sense of mere inability to pay debts promptly and as they mature,*** so that payments made or securities given by a party who knew himself to be insolvent, were not considered as being "in contemplation of bankruptcy" if, at the time, he fully expected to continue his business and retrieve his losses.*** But under the wider provision in a later clause of the same section of the statute, liens obtained through legal proceedings against an insol- vent person, within four months before the filing of a petition in bank- ruptcy, are to be deemed null j^nd void in case he is adjudged a bank- rupt,^'* without reference to his contemplation of bankruptcy or to the creditor's knowledge or constructive notice of his insolvency. And "in- solvency" does not here mean mere inability to pay debts, but "a. person parte Packard, 1 Low. 523, Fed. Cas. No. In re Goldsclimidt, 3 N. B. R. 164, 3 Ben. 10,650; McLean v. Lafayette Bank, 3 379, Fed. Cas. No. 5,520. McLean, 587, Fed. Cas No. 8 888. 252 Everett v. Stone, 3 Story, 446, 247 In re Wynne, Chase 227, 4 N. B. ^^ ^as. No. 4,577; McLean v. Lafavette R. 23, Fed. Cas. No. 18.117. Bank, 3 McLean, 587, Fed. Cas. No. 8,888; 248 Collins V. Bell, 3 N. B. B. 587, Fed. Hutchins v. Taylor. Fed. Cas. No. 6,953; Cas. No. 3,010. In re Dibblee, 3 Ben. 283, 2 N. B. R. 240Golson V. Niehoff 2 Biss. 434, 5 q^^^ ^^^ ^as. No. 3,884; Atkinson v. N. B. B. 56, Fed^ Cas. No. 5,524^ Farmers' Bank, Crabbe, 529, Fed. Cas. 200 Shafer v. Fritchery, 4 N. B. R. 548, j^^ gQg Fed. Cas. No. 12,697. „' , A . 2 51 Buckingham v. McLean, 13 How. "' Atkinson v. Farmers' Bank, Crabbe, 151, 14 L. Ed. 91; In re Craft, 6 Blatchf. 529, Fed. Cas. No. 609. 177, 2 N. B. R. Ill, Fed. Cas. No. 3,317; 254 Bankruptcy Act 1898, § 67f. 835 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 380 shall be deemed insolvent when the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or permitted to be concealed or removed, with intent to de- fraud, hinder, or delay his creditors, shall not, at a fair valuation, be suf- ficient in amount to pay his debts." *""" To satisfy the statute, it is nec- essary that the debtor should have been insolvent at the time the lien at- tached or was obtained. If he was then solvent, the lien is not dissolved by his subsequent adjudication in bankruptcy, though it be within four months.'®* And his insolvency must be alleged in any proceeding to avoid or discharge the lien, and proved by satisfactory evidence.*®" The burden is on one who claims that a lien is void under this section of the Bankruptcy Act to plead and prove the insolvency of the person against whom the lien was obtained at the time of its being obtained.^®* Thus, the burden of proof being on the trustee, the lien of a lessor, perfected by levy of a distress warrant within four months of the bankruptcy of the lessee, cannot be set aside in the absence of evidence that the lessor had cause to believe a preference was given.*®* § 380. Date of Attaching of Lien as Affecting Dissolution. — After the filing of a petition in bankruptcy it is too late for any creditor to gain an advantage over others by fastening any kind of a lien upon property of the debtor.**" Moreover, certain classes of liens acquired within four months prior to the filing of the petition are expressly avoided by the statute upon the subsequent adjudication of the debtor,*®^ such as the lien of an execution and levy on personal property,*"'* or that of a distress 255 Bankruptcy Act 1898, § 1, clause 15. 259 in re Mossier Co., 239 Fed. 262, 266 Newberry Shoe Co. v. Collier, 111 152 C. O. A. 250, 38 Am. Bankr. Rep. Va. 288, 68 S. E. 974; Jackson v. Valley 604. Tie & Lumber Co., 108 Va. T14, 62 S. E. 2^0 Oox v. State Bank, 125 Fed. 654, 964; D. C. Wise Coal Co. v. Columbia ^^ ^^ ^^^^^ jj^p -^^2; in re Engle, 105 Zinc & Lead Co., 157 Mo. App. 315, 138 pg^_ g^g^ g j^^ ^^^^^ ^ 3^2; Mor- S. W. 67; W. S. Danby MilUnery Co. v. g^^ ^_ CampbeU, 22 Wall. 381, 22 L. Dogan, 47 Tex. Civ^ App. 323, 105 S. W. jjd. 796; Kinmouth v. Braeutigam, 63 N. 337; Stone-Ordean-Wells Co V Mark, 227 j. gq. 103, 52 Atl. 226. But see In re Fed. 975, 142 C. C. A. 433, 35 Am. Bankr. wodzlcki (D. C.) 238 Fed. 571, 38 Am. Bep. 663. But see In re Southern An- ^ankr. Rep. 282, holding that a judg- zona Smelting Co., 231 Fed. 87, 145 O. C. j^^^^. creditor of the bankrupt is entitled A. 275, 36 Am. Bankr. Rep. 827 ^o money collected monthly from the 257 Simpson V. Van Etten, 108 Fed. ^^^^^ ^j ^he bankrupt under execution 199, 6 Am. Bankr. Rep 204; Hardt v. ^^^^j. code Civ. Proc. N. T. § 1391, not Schuylkill Plush & Silk Co 69 App. Div. ^^^y before the four-month period, but 90, 74 N. Y. Supp. 549; Kellogg-Mackay- ^^^j^g ^^^ ^^^^^ ^^ trustee' in bankrupt- Cameron Co. V. William Schmidt Baking j^^^ ^^^ appointed. Co., 101 111. App. 209; In re Cralts-Rior- don Shoe Co., 185 Fed. 931, 26 Am. ^ei As to the effect of liens attaching Bankr. Rep. 449; Martin v. OUver, 260 before the passage of the bankruptcy Fed. 89, 171 C. C. A. 125, 43 Am. Bankr. act, see In re Brown, 91 Fed. 358, 1 Am. Rep. 739. Sa.nkr. Rep. 107. 258 Stone-Ordean-Wells Co. v. Mark, 262 Rothermel v. Moyer, 24 Pa. Super 227 Fed. 975, 142 C. C. A. 433, 35 Am. Ct. 325. Bankr. Rep. 663. § 380 liAW OF BANKRUPTCY . 836 warrant,*** or the statutory lien acquired by the institution of proceed- ings against a manufacturing corporation by a laborer in its employ- ment.*''* But generally speaking, if four months or more have intervened between the attaching of the lien and the institution of the bankruptcy proceedings, the lien is not annulled, but preserved, as in the case of the lien of an attachment,**^ or that acquired by the rendition and entry of a final judgment,*** or the docketing of a judgment in the county where the debtor's land lies.**' So, a deed takes effect from its delivery, if there are no 'restrictions upon the right of the grantee to record it, and it will give a title available as against a trustee in bankruptcy if delivered more than four months before the beginning of the bankruptcy proceedings, though not recorded until later,*** and the same rule has been applied in the case of a writ of attachment issued more. than four months before the bankruptcy, but amended within that period to cure a formal de- fect.*«9 , The rule for determining when the four-months period begins and ends is furnished by the statute itself (Section 31), which provides that "whenever time is enumerated by days in this act, or in any proceeding in bankruptcy, the number of days shall be computed by excluding the first, and including the last, unless the last fall on a Sunday or holiday, in which event the day last included shall be the next day thereafter which is not a Sunday or a legal holiday." This was also the rule under the former bankruptcy law.*'* Under this rule, an attachment or other lien acquired on February 8th (for example) will be dissolved by the fil- ing of a petition in bankruptcy on June 8th following. ^'i And the maxim that the law does not take account of fractions of a day has no applica- tion to transactions in bankruptcy, as the time thereof is made certain by record.*'* But the doctrine of relation plays a very important part in determin- ing this question of the dissolution of liens. Thus it is held by the great weight of authority, that a creditor who brings suit against his debtor and secures the issue and levy of an attachment, more than four 28S In re D. H. Dougherty Co., 109 28" In re Dunavant, 96 Fed. 542, 3 Am. Fed. 480, 6 Am. Bankr. Kep. 457. Bankr. Rep. 41. 2 6* In re Monroe Lumber Co., 186 Fed. "" National Bank of Fredericksburg 252, 24 Am. Bankr. Rep. 371. '^- Coiway, 1 Hughes, 37, 14 N. B. R. TT ,u .. T, „o TVT TT oo^ K= ^^^' ^^^d. Cas. No. 10,037. 265 Hurlbutt y. Brown^ 72 N. H. 235, 55 ,,, Harrington y. Fire Ass'n, Fed. Cas. Atl. 1046; Tucker y. Denico, 26 R. I. j^^ q-^qq 560, 59 Atl. 920. 270 Richards v. Clark, 124 Mass. 491; 266 Hillyer v. Le Roy, 179 N. T. 369, 72 Cooley v. Cook, 125 Mass. 406. N. E. 237, 103 Am. St. Rep. 919. See 271 in re Warner, 144 Fed. 987, 16 Am. Buttz V. James, 33 N. D. 162, 156 N. W. Bankr. Rep. 519 ; Jones v. Stevens, 94 547 ; Ricks v. Smith, 20 Ga. App. 491, Me. 582, 48 Atl. 170. 93 S. B. 116. 272 Westbrook Mfg. Co. v. Grant, 60 Me. 88, 11 Am. Rep. 181. 837 EFFECT OP BANKRUPTCY ON EXISTING LIENS § 380 months before the filing of a petition in bankruptcy against the debtor, acquires a lien which will not be dissolved by the adjudication in bank- ruptcy, notwithstanding the fact that the judgment in the action, which enforces the lien, was rendered within the four-months period. '^'^ This is partly on the ground that such judgment, so far as concerns the pur- poses of the lien, relates back to the service of the attachment, and partly on the theory that the "judgments" spoken of in the statute as being dis- solved by the adjudication of the debtor within four months are judg- ments which create a lien, and not those which merely enforce an existing lien.*'* On the same principle, the equitable lien arising from a credi- tor's bill to set aside a fraudulent conveyance, having its date from the filing of the bill, and not from the date of the decree rendered in the suit is not avoided by the bankruptcy proceedings, where the bill is filed more than four months prior to the petition in bankruptcy, though the decree is rendered within such four months.*'® So also, the title of a receiver appointed in proceedings supplementary to execution relates back to the date of the service of the order, and will be superior to that of the trustee in bankruptcy, if the order was served more than four months before the beginning of the bankruptcy proceedings, regardless of the fact that the receiver was appointed within that period.*'^ And again where the law of the state gives a lien to an award of arbitrators, it is valid against the trustee in bankruptcy if the award was made more than four months before the bankruptcy, though the judgment confirm- 273 Metcalf V. Barker, 187 U. S. 165, security, which was dated and recorded 23 Sup. Ct. 67, 47 L. Ed. 122, 9 Am. more than four mouths before his bank- Bankr. Bep. 36 ; Yumet & Co. v. Delgado, ruptey, a judgment on the note secured 243 Fed. 519, 156 C. C. A. 217, 40 Am_. By the deed is not invalidated by the Bankr. Rep. 293; In re Crafts-Riordon adjudication in bankruptcy, though tak- Shoe Co., 185 Fed. 931, 26 Am. Bankr. en within the four months' period. Rep. 449; In re United States Graphite Spradlln v. Kramer, 146 Ga. 896, 91 S. E. Co., 161 Fed. 583, 20 Am. Bankr. Rep. 409. 573; In re Beaver Coal Co., 113 Fed. 2'b Metcalf v. Barker, 187 U. S. 165, 889, 51 O. C. A. 519, 7 Am. Bankr. Rep. 23 Sup. Ct. 67, 47 L. Ed. 122, 9 Am! 542 ; In re Bl^ir, 108 Fed. 529, 6 Am. Bankr. Rep. 36 ; Doyle v. Heath, 22 R. I. Bankr. Rep. 206 ; Jackson v. Valley 213, 47 Atl. 213 ; Snyder v. Smith, 185 Tie & Lumber Co., 108 Va. 714, 62 S. Mass. 58, 69 N. E. 1089; Schoenthaler B. 964 ; Pepperdine v. Bank of Seymour, v. Rosskam, 107 111. App. 427 ; Tay- 100 Mo. App. 387, 73 g. W. 890 ; Wake- lor v. Taylor, 59 N. J. Eq. 86, 45 Atl. 440 ; man v. Throckmorton, 74 Conn. 616, 51 Iselin v. Goldstein, 35 Misc. Rep. 489, Atl. 554; Hurlbutt v. Brown, 72 N. H. 71 N. T. Supp. 1069; Ninth Nat. Bank 235, 55 Atl. 1046; Kittredge v. War- v. Moses, 39 Misc. Rep. 664, 80 N. T. ren, 14 N. H. 509 ; Rows v. Page, 54 N. Supp. 617 ; In re O'Connor, 95 Fed. 943. H. 190, 13 N. B. R. 366; Hudson v. Compare In re Lesser, 100 Fed. 433, 3 Adams, 18 N. B. R. 102, Fed. Cas. No. Am. Bankr. Rep. 815. See Jasper v. 6,832. Contra, see In re Johnson, 108 Rozinski, 228 N. Y. 349, 127 N. E. 189. Fed. 373, 6 Am. Bankr. Rep. 202; Duf- 2^8 Arnold v. Greene Gold-Silver Co., field V. Horton, 10 Hun (N. Y.) 140, 16 68 Misc. Rep. 449, 125 N. Y. Supp. 29; N. B. R. 59; In re Cook, 2 Story, 376, Wrede v. Clark, 132 App. Div. 293, 117 Fed. Cas. No. 3,162. N. Y. Supp. 5; Smith v. Meisenheimer, 274 Where the debtor gave a deed as 104 Ky. 753, 47 S. W. 1087; In re West § 380 LAW OF BANKRUPTCT 838 ing it was obtained within that time.*''"' And so, the lien of a chattel mortgage depends upon the date of its execution, and not upon the sub- sequent act of the mortgagee in taking possession of the goods.^'* But the -merely provisional or inchoate lien acquired by the service of gar- nishment process, which under the law of the state can be made effective only through the recovery of a judgment and a levy or demand there- under, is not of a kind to be preserved in the bankruptcy proceedings where the judgment was given within the four months, irrespective of the time when the process was served.*" On the other hand, although the statute speaks of the dissolution of liens obtained through a suit or proceeding which was "begun" against a person within four months before his bankruptcy, this does not necessarily refer to the beginning of the suit or action itself, but to the beginning of that part or branch of the proceedings whose special object is to secure a lien on property.**" And although it is competent for a state to provide by law that the lien of a judgment, in a certain class of cases, shall relate back to the institution of the suit, and the bankruptcy law will preserve such lien,**^ yet the lien obtained . by the levy of an execution on property newly purchased or acquired by the debtor, within four months prior to the bankruptcy, will be dissolved by the adjudication, though the judgment was entered more than four months previously,*** and so will the lien obtained on land in another county within the four-months period, by the transfer to that county of an older judgment.*** So, although a judgment may have been standing for several years, yet if garnishment proceedings founded on it were be- gun within four months before the bankruptcy of the debtor, the lien thereby acquired will be dissolved,*** apd so of an attachment sued out within the prescribed period, no matter how long the original action may have been pending.**® And again, where a creditor holding a note ern Sav. Bank, 110 Misc. Eep. 444, 181 N. though within four months thereafter Y. Supp. 574. But see In re O'Connor, the debtor is adjudged bankrupt, is not 95 Fed. 943. in fraud of the bankruptcy law. Kem- 277 In re Koslowski, 153 Fed. 823, 18 merer v. Tool, 81 Pa. St. 467, 12 N. B. Am. Bankr. Rep. 723. E. 334. 278 Thompson v. Fairbanks, 75 Vt. 361, zsa in re Darwin, 117 Fed. 407, 54 C. 56 Atl. 11, 104 Am. St. Rep. 899. But C. A. 581, 8 Am. Bankr. Rep. 703 ; In re see Bank of Leavenworth v. Hunt, 11 Spacht, 2 Nat. Bankr. News, 238. Wall. 391, 20 L. Ed. 190. 2 83 Mencke v. Rosenberg, 202 Pa. St. 270 In re Lesser, 108 Fed. 201, 5 Am. 131, 51 Atl. 767, 90 Am. St. Rep. 618; Bankr. Rep. 326. But compare Albany In re Jackson Light & Traction Co. (C. & Northern Ry. Co. v. Dunlap Hardware O. A.) 269 Fed. 223, 46 Am. Bankr. Rep.- Co., 8 Ga. App. 171, 68 S. B. 868. 258. 2 80 In re Higglns, 97 Fed. 775, 3 Ana. 2 S4 Armour Packing Co. v. Wynn, 119 Bankr. Rep. 364. Ga. 683, 46 S. B. 865. 2 8iVoyles V. Parker, 9 Biss. 326, 4 285 in re Higgins, 97 Fed. 775, 3 Am. Fed. 210. The revival of a judgment by Bankr. Rep. 364, disapproving In re De amicable scire facias and confession, Lne, 91 Fed. 510, 1 Am. Bankr. Eep. 387. 839 EFFECT OF BANKKDPTCY ON EXISTING LIENS § 381 with warrant of attorney to confess judgment enters up judgment there- on and levies on the debtor's property, the latter being then insolvent, and within four months thereafter a petition in bankruptcy is filed by or against the debtor, the lien is dissolved, notwithstanding the fact that the note was given more than four months before and at a time when the debtor was solvent.'*** It is important to be observed that the provision of the Bankruptcy Act invalidating liens which were created within four months prior to the adjudication in bankruptcy refers only to such liens as are placed on the bankrupt's property within that period, whether by process of a court or the act of the parties, and it does not affect liens which were attached to the property when it came into the bankrupt's hands.**' § 381. Rights of Bona Fide Purchasers. — In prescribing the disso- lution of liens obtained within four months prior to bankruptcy, the stat- ute saves the rights of innocent third parties by providing that "nothing herein contained shall have the effect to destroy or impair the title ob- tained by such levy, judgment, attachment, or other lien, of a bona fide purchaser for value who shall have acquired the same without notice or reasonable cause for inquiry." *** Though awkward and obscure on ■ its face, this proviso is interpreted by the courts to mean that an adju- dication in bankruptcy shall not affect the title. acquired by a bona fide purchaser at a sale under such levy, judgment, attachment, or other lien, provided he bought without notice of the debtor's insolvency or of his intention to prefer a creditor or work a fraud upon the act, and with- out reasonable cause for inquiry into the circumstances in this respect.*** But it is intended only for the benefit of third persons so purchasing, and affords no protection to the creditor in the execution or attachment,*^* 2 86 In re Richards, 96 Fed. 935, 37 C. sonable cause for inquiry, it was held C. A. 634, 3 Am. Bankr. Rep. 145; In entitled to the benefit of its lien as re Khoads, 98 Fed. 399, 3 Am. Bankr. against, a subsequent attachment sought Rep. 380; In re Engle, 105 Fed. 893, 5 to be preserved for the benefit of the Am. Bankr. Rep. 372 ; Ferguson v. estate. In i-e Alabama Coal & Coke Oo. Greth, 195 Pa. St. 272, 45 Atl. 735, 78 (D. O.) 210 Fed. 940, 31 Am. Bankr. Rep. Am. St. Rep. 812. 387. 287 In re McAusland (D. C.) 235 Fed. 290 in re Kaupisch Creamery Co. (D. 173, 37 Am. Bankr. Rep. 519. C.) 107 Fed. 93, 5 Am. Bankr. Rep. 790. 2SS Bankruptcy Act 1898, § 67f, pro- Where an insolvent corporation confess- viso. ed judgment in favor of a bank, • which 2 80 In re Kenney, 95 Fed. 427, 2 Am. bought in its property at the execution Bankr. Rep. 494 ; State Bank v. Mun- sale, setting off the judgment against the roe, 109 111. App. 34 ; Jones v. Springer, purchase price, it was held that the bank 15 N. Mex. 98, 103 Pac. 265; Coppard was not a bona fide purchaser, within v. Gardner (Tex. Civ. App.) 199 S. W. this provision of the Bankruptcy Act, 650. Where a bank took an assignment because the lien of the judgment, de- of certain accounts receivable from the stroyed by the adjudication in bankrupt- bankrupt to secure a present loan, with- cy, was a preference. Grant v. National in four months prior to his bankruptcy, Bank of Auburn (D. O.) 232 Fed. 201, in good faith and without notice or rea- 37 Am. Bankr. Rep. 329. § 382 LAW OF BANKRUPTCY 840 nor to one acting in concert or collusion with him,'*^ nor to the officer making the sale or who holds the proceeds thereof.^'* Further, a person is not to be considered a bona fide purchaser who, in addition to knowl- edge of suspicious circumstances, is aware that he is purchasing a large and valuable amount of property at a grossly inadequate consideration.*®* And where, a few days before an execution sale, one who became the purchaser was handed a copy of the debtor's assignment for the benefit of creditors, and the debtor was present at the sale and publicly announced that he was insolvent, and the assignee exhibited the assign- ment and forbade the sale, the purchaser had reasonable cause to believe that the sale would not stand, and he cannot hold his purchase against the trustee in bankruptcy of the debtor.*** And the same rule has been applied against the purchaser at an execution sale who merely had heard rumors that the debtor had already been adjudged bankrupt, this being sufficient to put him upon inquiry.*®* § 382. Rights of Trustee as to Property Affected by Liens. — It is always open to the trustee in bankruptcy to contest the validity of liens asserted against property of the bankrupt estate, because he repre- sents the creditors, and not the bankrupt, and, further, has the rights and status of a creditor armed with a lien.*®* Where, however, the validity of a lien (as, for example, a chattel mortgage) has been es- tablished by decree in a foreclosure suit before the bankruptcy pro- ceedings were instituted, the trustee can have no greater rights than those of the bankrupt.*®' But where, with knowledge of the debtor's adjudication in bankruptcy and of the rights of the trustee under the Bankruptcy Act, certain creditors persisted in pressing attachment proceedings, ultimately recovering judgment, it was held that the trus- tee was not estopped to claim the property on the theory that he had allowed the creditors to persist.^®* And in general, where the lien of an attachment, execution, or other writ is dissolved by the adjudication of the debtor as a bankrupt within four months, it is the right and duty of the trustee in bankruptcy to demand and recover the property affected from the possession of the officer holding it under the writ,'®® and the 2uiln re Goldberg, 121 Fed. 578, 10 2 96 Butterfield v. Woodman, 223 Fed. Am. Bankr. Kep. 97. 956, 139 C. C. A. 436, 34 Am. Baukr. Rep. 292 joQes V. Stevens, 94 Me. 582, 48 510; In re Shute (D. O.) 233 Fed. 544, Atl. 170; In re Kenney, 95 Fed. 427, 2 37 Am. Bankr. E«p. 554; Mechanics' & Am. Bankr. Rep. 494. Traders' Ins. Co. v. McVay, 142 Ark. 288 In re Goldberg, 121 Fed. 578, 10 522, 219 S. W. 34. Am. Baukr. Rep. 97. 297 otto v. England, 99 Wash. 529, 2 94 Brown v. Case, 180 Mass. 45, 61 N. 169 Pac. 964. E. 279. And see Dreyer v. Kicklighter 20s in re Gilsonite Mines Co. (D. C.) (D. C.) 228 Fed. 744, 36 Am. Bankr. Rep. 236 Fed. 1015, 37 Am. Bankr. Rep. 473. 199. -»» In re Walsh Bros., 159 Fed. 560, 20 206 Wallace v. Camp, 200 Pa. 220, 49 Am. Bankr. Rep. 472; In re Francis- Atl. 942. Valentine Co. (C. C. A.) 94 Fed. 793, 2 841 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 382 pendency of an action of replevin in a state court against the officer by a stranger claiming ownership of the property is no justification for his refusal to surrender it,*** and the trtfstee has sufficient title to maintain trover against the officer, after demand and refusal, and is not required to apply first to the court from which the process issued for an order for its delivery to him.**^ And the same course may be pursued against one who holds attached property under a receipt to the sheriff or a forthcoming bond.®"^ Even if the property is in the possession of a receiver appointed by a state court, it should be surrendered to the trustee in bankruptcy, on his petition to the state court for an order to that effect.*'* It is probably unnecessary for the trustee formally to move the state court for the discharge or vacating of the judgment or . other lien in question, though this is a proper practice.*** If the property has already been sold under the writ, the statute will not affect the title acquired by a purchaser at such sale taking without notice and in good faith.**® But if the proceeds of the sale remain in the hands of the officer, they stand in lieu of the property soldi They do not belong to the lien creditor, but to the trustee in bankruptcy for the benefit of the general creditors. Hence the officer may be enjoined from paying over the money to the lien creditor, and he should turn it into the hands, of the trustee in bankruptcy on his de- mand, and may be compelled to do so by order of the court of bank- ruptcy.**® But if the money arising from the sale has been paid over to the lien creditor, it cannot be reclaimed from him by the trustee. For the statute does not apply to the case of a lien which has been sat- isfied and discharged by sale and the application of the proceeds to the Am. Bankr. Rep. -522 ; In re Fellerath, Co., 71 N. H. 384, 52 Atl. 457. And see 95 Fed. 121; In re Richards, 95 Fed. supra, § 378. 258, 2 Am. Bankr. Rep. 518 ; In re Fran- sos in re Weltzel, 191 Fed. 463, 27 Am. cis-Valentine Co., 93 Fed. 953, 2 Am. Bankr. Rep. 370; In re Goldman, 102 Bankr. Rep. 188; In re Benedict, 37 Fed. 122, 4 Am. Bankr. Rep. 100; De Misc. Rep. 230, 75 N. Y. Supp. 165; Friece v. Bryant (D. C.) 232 Fed. 233, Smith V. Godwin, 145 N. C. 242, 58 S. E.. 37 Am. Bankr. Rep. 275. And see, supra, 1089 ; Ansonia Brass & Copper Co. v. § 381. Compare Gray v. Arnot, 31 N. D. Pratt, 10 Hun (N. Y.) 443, 16 N. B. R. 461, 154 N. W. 268. 170; In re P. J. Sullivan Co. (D. C.) 247 soe Clark v. Larremore, 188 ,11. S. 486, Fed. 139, 41 Am. Bankr. Rep. 189. 23 Sup. Ct. 363, 47 L. Ed. 555, 9 Am. 3 00 In re Francis- Valentine Co. (C. C. Bankr. Rep. 476; Bear v. Chase, 99 Fed. A.) 94 Fed. 793, 2 Am. Bankr. Rep. 522. 920, 40 O. O. A. 182, 3 Am. Bankr. Rep. 301 Cooley V. Cook, 125 Mass. 406. 746; In re IXiguid, 100 Fed. 274, 3 Am. 302 Parks v. Sheldon, 36 Conn. 466, 4 Bankr. Rep. 794; In re Kenney, 97 Fed. Am. Rep. 95 ; Towle v. Robinson, 15 N. 554, 3 Am. Bankr. Rep. 353 ; In re Rich- H. 408. ards, 95 Fed. 258, 2 Am. Bankr. Rep. SOS In re English, 127 Fed. 940, 62 C. 518; In re Fellerath, 95 Fed. 121, 2 Am. C. A. 572, 11 Am. Bankr. Rep. 674; Bal- Bankr. Rep. 40; In re Franks, 95 Fed. lin V. Ferst, 55 Ga. 546 ; Rodgers v. 635, 2 Am. Bankr. Rep. 634 ; Pennington Forbes, 23 Ohio Cir. Ct. R. 438. v. Lowenstein, 1 N. B. R. 570; Fed. Oas. 304 Thompson v. Ragan, 117 Ky. 577, No. 10,938; In re Benedict, 37 Misc. Rep. 78 g. W. 485 ; Gage v. Bates Machine 230, 75 N. T. Supp. 165 ; Schmllovitz v. § 383 LAW OF BANKRUPTCY 842 debt before the filing of a petition in bankruptcy.**" It has been held, however, that if a sherifif levies an execution on property of the debtor and sells it, after the filing of a petftion in bankruptcy (which is said to have the effect of a caveat and an injunction to all the world), he is liable to the trustee in bankruptcy for the proceeds of the sale, though he has paid them over to the creditor before receiving any notice of the bankruptcy.*** The rule that the trustee is entitled to the posses- sion of property covered by a lien which is dissolved by the adjudication in bankruptcy is subject, however, to this limitation, that due recognition must be given to, and provision made for, other liens which are valid and unaffected by the bankruptcy and which affect the same property, for the trustee is only the representative of the general or unsecured creditors, and his right to the property is measured by the interest which they may have in it."" But the opinion has been advanced that if a judgment or other lien has been acquired within four months of the bankruptcy and is vacated thereby, the claim of the trustee is superior to that of any person claiming under some other and subsequent trans- fer or lien, even though the latter be innocent of any intent to obtain a preference, for such claimant would take subject to the lien invalidated by the adjudication in bankruptcy.*** § 383. Conveyance or Surrender of Property Under Order of Court. — Where a claim to the possession of property of a bankrupt's estate, as against the trustee's right of possession, is based solely on the lien of an execution, attachment, or other writ or process, the lien of which Bernstein, 22 R. I. 330, 47 Atl. 884 ; 31, 94 O. C. A. 399, 22 Am. Bankr. Rep. ICosches V. I/ibowitz (Tex. Civ. App.) 56 320; In re Sink, 2 Nat. Bankr. News, S. W. 613. 645; In re American Candy Mfg. Co., 807 Farrell v. W. B. Lockett & Co., 115 256 Fed. 87, 167 C. C. A. 329, 43 Am. Tenn. 494, 91 S. W. 209 ; Levor v. Selter, Bankr. Rep. 77 ; W. A. Ldller Building 69 App. Div. 33, 74 N. T. Supp. 499 ; Co. v. Reynolds, 247 Fed. 90, 159 C. C. A. (j'reene v. Montana Brewing Co., 28 308, 40 Am. Bankr. Rep. 371. Where the Mont. 380, 72 Pac. 751 ; Davis v. Jewett trustee takes possession of mortgaged Bros., 17 S. D. 410, 97 N. W. 16. Com- property, and, on foreclosure, the pro- pare McCord V. McNeil, 4 Dill. 173, Fed. ceeds are insuflScient to discharge the Cas. No. 8,714. And see Lewin v. Tel- last mortgage, rents collected between luride Iron Works Co. (O. C. A.) 272 Fed. the adjudication and the foreclosure may 590, 47 Am. Bankr. Rep. 22. be required to be applied to the liquida- 308 Miller v. O'Brien, 9 Blatchf. 270, tion of such mortgage. In re Dooner v. 9 N. B. R. 26, Fed. Cas. No. 9,586; In Smith (D. C.) 243 Fed. 984, 40 Am. re Grinnell, 7 Ben. 42, 9 N. B. R. 29, Fed. Bankr. Rep. 116. Expenses of operating Cas. No. 5,830. And see Balms v. Hut- vessels of a bankrupt shipowner by ton, 9 Bing. 471; Garland v. Carlisle, the trustee after adjudication are not 10 Blng. 452. chargeable to the proceeds of the vessels 800 See In re Torchia, 188 Fed. 207, as against holders of maritime liens, 110 C. C. A. 248, 26 Am. Bankr. Rep. where there are general funds of the es- 579; Stewart v. Piatt, 101 U. S. 731, 25 tate. In re New England Transp. Co. I.. Ed. 816 ; Houston Ice & Brewing Co. (D. C.) 220 Fed. 203, 34 Am. Bankr. Rep. V. Fuller, 26 Tex. Civ. App. 239, 63 S. W. 323. 1048; McElvain v. Hardesty, 169 Fed. aio In re American Candy Mfg. Co. 843 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 384 is avoided by the adjudication in bankruptcy, the person or officer so in possession is not an adverse claimant, but holds as bailee for the trustee, and must deliver the property on a proper demand, and he may be required to do so by a summary order of the court of bankruptcy .*^'- So the court may receive from one indebted to the bankrupt the amount of the debt, although it was garnished within four months before the adjudication in bankruptcy, and judgment entered therefor against such debtor in a state court, and may make such order as may be necessary to protect the garnishee."* Further, in order to secure full effect for the provision dissolving liens on the bankrupt's property in certain cases, and to enforce its surrender to the trustee for the benefit of the general creditors, the statute provides that "the court may order such conveyance as shall be necessary to carry the purpdses of this section into effect." *^* Such a course might sometimes be necessary in the case of real property, but it is believed that this clause adds nothing to the substantive provisions of the section. § 384. Subrogation of Trustee to Rights of Lienholders. — The bankruptcy act makes provision for the preservation of liens, which otherwise would be dissolved by the adjudication, whenever an ad- vantage is to be gained for the general estate by keeping them alive and subrogating the trustee to the rights of the lienholder,*** chiefly in cases where, if this course were not pursued, the property affected would not come into the hands of the trustee at all, but would be claimed by the holder of a valid and undissolved lien, with a possible loss to the estate of its value. over and above the amount of the incumbrance.*^^ (D. C.) 248 Fed. 145, 41 Am. Bankr. Rep. judication in bankruptcy, a creditor in 461. a suit agaiilst the bankrupt attached the 311 Staunton v. Wooden, 179 Fed. 61, bankrupt's funds on deposit in a trust 102 C. C. A. 355, 24 Am. Bankr. Rep. 736. company, and the company thereafter by 312 In re McCartney, 109 Fed. 621, 6 mistake paid them out on the bankrupt's Am. Bankr. Rep. 367 ; In re Beck (D. O.) check, it was held proper to order that 238 Fed. 653. the attachment be retained for the bene- 318 Bankruptcy Act 1898, § 67f. See fit of the estate, that the creditor assign In re V. & M. Lumber Co., 182 Fed. 231. his claim to' th^ trustee for the benefit 314 Bankruptcy Act 1898, § 67b, c, f. of the estate, and that the trustee should On the construction and reconciliation of prosecute the suit to judgment to secure these provisions, see First Nat, Bank v. the attached funds, since the payment by Guarantee Title & Trust Co., 178 Fed. mistake did not diminish the rights of 187, 101 C. C. A. 507, 24 Am. Bankr. Rep. the trustee as it would not have dimin- 3.30; In re Baird, 126 Fed. 845, 11 Am. ished those of the attaching creditor. Bankr. Rep. 435. In re Charles Wirth & Co. (D. O.) 266 315 Thompson v. Fairbanks, 75 Vt. 361, Fed. 141, 45 Am. Bankr. Rep. 145. The 56 Atl. 11, 104 Am. St. Rep. 899. And trustee in bankruptcy, whose bankrupts, see Merchants' Nat. Bank v. Sexton, 228 had assigned to their creditors to secure U. S. 634, 33 Sup. Ct. 725, 57 L. Ed. 998, loans certain notes held by the bankrupts 30 Am. Bankr. Rep. 278 ; In re Schweitz- secured by stock in trade and accounts, er (D. 0.) 217 Fed. 495, 33 Am. Bankr. is entitled to participate in the coUater- Rep. 212. Where, shortly before the ad- als to the extent that the funds of the § 384 LAW OF BANKRUPTCY S44 Indeed, it is said that these provisions of the statute were only designed to preserve some interest acquired by virtue of the invalid or dissolva- ble lien which would not otherwise pass to the trustee in bankruptcy,'" since, to construe them as referring only to liens on property which, if such liens were annulled, would vest in the trustee, would restrict their application to a contingency already provided for in the statute.'" To illustrate, a lien acquired by an attaching creditor on real property which, but for such attachment, would have passed to a subsequent purchaser under an unrecorded deed, should be preserved by order of the court of bankruptcy for the benefit of the bankrupt's estate, although it would be liable to dissolution as having been acquired within four months before the bankruptcy .^^* So where the debtor has sold per- sonal property, but under circumstances such as to make the sale void as against attaching creditors, and an attachment has been levied within four months before the bankruptcy, its lien will not be dissolved, but will be preserved for the benefit of the estate.'^® Again, where a chat- tel mortgage given by the insolvent is void as against judgment credi- tors because not filed as required by law, but would be valid as to gen- eral creditors and would, as to them, entitle the mortgagee to the pos- session of the property, judgment liens which have attached (though within four months before the bankruptcy) will be preserved by sub- rogating the trustee to the rights of the judgment creditors.*^' And so as to the liens of execution creditors on property held by the insolvent debtor under a contract of conditional sale'.'^^ And on the same princi- ple, any advantage which a creditor may have gained by taking the proper steps to subject to his claim property apparently belonging to the bankrupt or standing in his name, but claimed by a third party, should be preserved and transferred to the trustee in bankruptcy.'** This authority and discretion on the part of the court of bankruptcy with reference to the preservation of liens otherwise voidable, when an advantage is thereby to be gained for the benefit of the general estate, bankrupt estate have been used to dis- A. 547, 13 Am. Bankr. Rep. 281; First charge a secured debt and acquire the Nat. Bank v. Staake, 202 TJ. S. 141, 26 collateral notes, including a deposit to Sup. Ot. 580, 50 L. Ed. 967, 15 Am. the bankrupt's credit which the secured Bankr. Rep. 639 ; In re Baird, 126 Fed. creditor set off against the debt. Mer- 845, 11 Am. Bankr. Rep. 435. chants' Nat. Bank v. Sexton, 228 TJ. S. "o Love v. Hill, 21 Okl. 347, 96 Pac. 634, 33 Sup. Ct. 725, 57 L. Ed. 998, 30 Am. 623. Bankr. Rep. 278. «=" In re Beede, 138 Fed. 441, 14 Am. 810 Goodnough Mercantile & Stock Co. Bankr. Rep. 697; Dunn Salmon Co. v. V. Galloway, 171 Fed. 940, 22 Am. Bankr. Pillmore, 55 Misc. Rep. 546, 106 N. T. Rep. 803. Supp. 88. 817 First Nat. Bank v. Staake, 202 TJ. a 21 Rock Island Plow Co. v. Reardon. S. 141, 26 Sup. Ct. 580, 50 L. Ed. 967, 15 222 U. S. S54. 32 Sup. Ct; 164, 56 L. Ed. Am. Bankr. Rep. 639. 231, 27 Am. Bankr. Rep. 492. 818 Receivers of Virginia Iron, Coal & si2 in re Hammond, 98 Fed. 845; Pat- Coke Co. Y. Staake, 133 Fed. 717, 66 C. 0. ten v. Francis D, Oarley & Co., 69 App. 845 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 384 is not confined to liens which would be void as creating a preference,**' but extends to all classes of liens, such as the liens of judgments,'"* or executions.'*^ And the title or lien acquired by an assignee under a general assignment, valid according to the law of the state where made, if it would be to the advantage of the estate when it has subse- quently passed into bankruptcy, is not necessarily destroyed by the supersession of the assignment proceeding, but, if the court of bank- ruptcy will so order, may be retained by the trustee for the benefit of the creditors.'** So, the trustee has such an interest in mortgaged land of the bankrupt as will entitle him to pay the mortgage debt and have the mortgage assigned to himself, although it is not in process of fore- closure, where such a course will benefit the estate by enabling .him to sell the property to better advantage.'*' But it is said that the statute does not transfer to the trustee the right of a judgment creditor to en- force an equitable lien acquired by the filing of a creditor's bill before bankruptcy proceedings were begun.'** Nor will the preservation of the lien and the subrogation of the trustee be ordered merely to enable him to defeat another lien on the same property which is valid and which possesses at least equal' claims to the consideration of a court of equity.*** And in any event, if the substitution of the trustee is desired, proper steps must be taken to that end before the lien is dis- charged."" And where a sheriflf is holding property of the bankrupt Biv. 423, 74 N. T. Supp. 993 ; In re Mer- from the mortgage, does so as a mere row, 131 Fed. 993, 12 Am. Bankr. Rep. volunteer, and cannot claim any right of 615. subrogation to the lien of the mortgage. 32 3 In re Baird, 126 Fed. 845, 11 Am. Brown v. Crawford (D. C.) 252 Fed. 248, Bankr. Rep. 485. 42 Am. Bankr. Rep. 263. 324 In re Beede, 138 Fed. 441 14 Am ,,, ^^ ^^^ ^ ,j^^^ Bankr. Rep. 697 ; Wills v. E. K. Wood ^g ^^.j ^^q Lumber & Mill Co., 29 Cal. App. 97, 154 ,,„ i " o . v r, r. .„^ p^g gj^3 3 29 In re Sentenno & Green Co., 120 3 25 Reardon v. Rock Island Plow Co., ^^d. 436, 9 Am. Bankr. Rep. 648; In re 168 Fed 654 94 C. C. A. 118, 22 Am. ^oov&, 107 Fed. 234, 6 Am. Bankr. Rep. Bankr Rep 26 ^'^^' Thompson v. Fairbanks, 196 V. S. 326 in re' Fish Bros. Wagon Co., 164 ^16, 25 Sup. Ct. 306, 49 L. Ed. 577, 13 Am. Fed. 553, 21 Am. Bankr. Rep. 149. Bankr. Rep. 437. 327 In re Bacon, 132 Fed. 157, 12 Am. 33oin re Walsh Bros (D. 0.) 195 Fed. Bankr. Rep. 730. Where the legal title 576, 28 Am. Bankr. Rep. 243. The mere ' and the mortgagee's title thus vest in adjudication in bankruptcy and the ap- the trustee in bankruptcy of the ■ mort- pointment of a trustee do not automatic- gagor, there will be no merger of the ally preserve the lien of an attachment, mortgage lien, if it ,is to the advantage but there must be affirmative action of of the estate to keep the lien alive to the court to that effect. In re Prentice defeat a junior mortgage. Fidelity & (D. O.) 267 Fed. 1019, 46 Am. Bankr. Rep. Deposit Co. V. Albrecht (Tex. Civ. App.) 38. A referee in bankruptcy has power 171 S. W. 819. But where the lien of a to order an attachment lien on a bank- mortgage is not dissolved by the adjudi- rupt's homestead, valid under the state cation in bankruptcy, because given more law, preserved for the benefit of the than two years before, the trustee in estate. In re Malone's Estate (D. C.) bankruptcy, if he redeems the property g28 Fed. 566, 36 Am. Bankr. Rep. 364. § 385 LAW OF BANKRUPTCY _^ 846 under a levy, voidable because made within the four months, and the trustee in bankruptcy takes possession or the property, the lien of the levy is wholly discharged, and the trustee cannot thereafter assert any rights under it as against an adverse claimant.^^^ § 385. Rights and Remedies of Creditor on Dissolution of Lien. — If a lien obtained through legal proceedings is dissolved by the adjudica- tion of the debtor in bankruptcy within four months thereafter, it is ex- tinguished for any and all purposes, and cannot afterwards be made ef- fective, even though the bankrupt fails to obtain his discharge.**^ The only remedy of the creditor in such a case is to prove his claim as a gen- eral creditor, and as such to share in the distribution of the estate,^^* applying to the court of bankruptcy for an application in his favor of the proceeds of the sale of the property by the trustee in bankruptcy if he has any superior claim on them.*** But if he has paid off other liens or charges on the property affected by his lien, in order to preserve it, he is entitled to be repaid the amount thereof out of the general funds of the estate, though his own lien is dissolved by the bankruptcy proceed- ings, since his discharge of liens wbich otherwise would have bound the property in the hands of the trustee has pro tanto increased the assets of the estate.**® A creditor in this situation is not required to execute an assignment to the trustee of his lien, as a condition precedent to his sharing in the distribution of the estate (unless its preservation for the benefit of the estate is ordered by the court), where he has refrained from enforcing his lien in obedience to an injunction from the bank- ruptcy court.**® The' dissolution of a lien on particular property, as hav- ing been obtained within the four-months period, does not enlarge other liens on the same property or affect their rank and priority.**'" Thus, the dissolution of an attachment lien by proceedings in bankruptcy does not enlarge the security of a junior lien. Where an attachment upon prop- erty of the bankrupt for its full value is dissolved by the adjudication, a judgment creditor who has made a levy of execution subsequent to such attachment is not entitled to priority of payment. All the right which the judgment creditor acquired was by a levy on property already in- cumbered to its full value, and such a levy does not give him security.*** 331 Davis V. Compton, 158 Fed. 735, 85 Zinc & Lead Co., 157 Mo. App. 315, 138 a C. A. 633, 20 Am. Bankr. Kep. 53. And S. W. 67. see Green V. Hooper, 41 Nev. 12, 167 Pac. sso In re Baker, 1 Hask. 593, Fed. 23. Cas. No. 762. 33 2 St. Cyr V. Daignault, 103 Fed. 854, 836 in re Carrier, 51 Fed. 900. 4 Am. Bankr. Rep. 638. «=^ In re Nelson, 9 Ben. 238, 16 N. B. 883 In re Brand, 2 Hughes, 334, 3 N. R. 312, Fed. Cas. No. 10,100. B. E. 324, Fed. Cas. No. 1,809; Cole v. sss in re Klancke, 4 Ben. 326, 4 N. B. Duncan, 58 111. 176. " R- 648, Fed. Gas. No. 7,864 ; In re Steele, 334 D. 0. Wise Coal Co. t. Columbia 7 Biss. 504, 16 N. B. R. 105, Fed. Cas. No. 13,345. 847 BPffECT OP BANKRUPTCY ON EXISTING LIENS § 386 § 386. Costs and Fees Incurred Under Dissolved Lien. — Where a lien acquired by attachment, execution, or other process is dissolved by an adjudication in bankruptcy, the sheriff or other officer holding the property under his writ is entitled to his fees for services rendered up to the filing of the petition in bankruptcy,^^' but he has no lien on the property itself for such fees or his costs, unless such a lien is expressly given by the state statute. If it is, he must be paid his fees and expens- es before being ordered to deliver up the property to the trustee in bank- ruptcy.**' Otherwise he has no right to retain possession of the proper- ty as against the trustee until payment. His fees are taxable in the court from which the writ issued, and when there taxed and allowed, may be made the basis of a claim in the court of bankruptcy, but the property must be surrendered forthwith.**^ On the other hand, if he applies first to the court of bankruptcy for an allowance of his. fees, and is dissatis- fied with its decision, his only remedy is by appeal, and he cannot recur to the state court.*** After the adjudication in bankruptcy the officer can make no fees or charges, except it may be for the preservation of the property as a temporary custodian. At that time he becomes a simple bailee of the property, holding the same for the use of the trustee' to be subsequently appointed, and is not entitled to make additional costs in his official character.*** As for the creditor whose lien is dissolved by the bankruptcy pro- ceedings, his claim for costs and disbursements incurred by him and for attorneys' fees is a provable debt in bankruptcy, but is not entitled to priority of payment, and is not a lien on the property affected or on the proceeds of the trustee's sale of it,*** unless where such a lien is ex- pressly given by the law of the state.**® But a more liberal rule is ap- plied in cases where the lien is ordered to be preserved for the benefit of the estate. Here the court may direct the payment out of the general funds, not only of the sheriff's costs and the disbursenients of the lien 339 Piatt V. Stewart, 11 N. B. B. 191, Bankr. Rep. 38; In re Young, 96 Fed. Fed. Cas. No. 11,221; In re Welch, 5 606, 2 Am. Bankr. Rep. 673; Hanson v. Ben. 278, Fed. Cas. No. 17,367. Stephens, 116 Ga. 722, 42 S. E. 1028 ; In 3 40 Wilkinson v. Raymond, 80 App. re Davis, 1 Hask. 232, Fed. Gas. No. 3,- Div. 378, 81 N. T. Supp. 82; In re Hous- 616; In re Preston, 6 N, B. R. 545, Fed. berger, 2 Ben. 504, 2 N. B. R. 92, Fed. Cas. No. 11,394; In re Ward, 9 N. B. R. Cas. No. 6,734. 349, Fed. Oas. No. 17,145. But if a lien 3*1 In re Francis-Valentine Co., 94 creditor successfully prosecutes his Fed. 793, 36 C. C. A. 499, 2 Am. Bankr. claim to priority of payment, his attor- Rep. 522; In re Stevens, 2 Blss. 373, 5 ney is entitled to a fee, which becomes N. B. R. 298, Fed. Cas. No. 13,392. a Hen on the JCund so secured for his 342 Johnson v. Woodend, 44 Misc. Rep. client, and may be fixed and enforced by 524, 90 N. T. Supp. 43. the court of bankruptcy. In re Rude, 101 343 In re Preston, 6 N. B. E. 545, Fed. Fed. 805, 4 Am. Bankr. Rep. 319. Cas. No. 11,394; Barker v. McLeod, 14 345 Gardner v. Cook, 7 N. B. R. 346, Nev. 148. Fed. Cas. No. 5,226. 344 In re Allen, 96 Fed. 512, 3 Am. § 387 LAW OF BANKEUPTCI 848 creditor, but also a reasonable compensation to attorneys for profession- al services previously rendered.^** A somewhat similar case arises where a third person, having possession of goods of the bankrupt, refus- es to surrender them to the trustee on the latter's demand, on the mis- taken theory that he has a lien on them for storage. Though this claim is rejected, he will be entitled to suitable compensation for the stor- age and care of the goods from the time of the commencement of the proceedings in bankruptcy up to the time of the demand and refusal.^*' § 387. Proceedings to Establish or Enforce Liens. — ^An adjudication of bankruptcy brings the bankrupt's assets into the custody of the court of bankruptcy for administration, and a creditor of the bankrupt, having a lien on such property at that time, is not bound to follow the course of procedure prescribed by the state statute under which the lien arises, requiring certain action to be taken within a limited time for its pres- ervation, but only to prove his claim in the character of a secured cred- itor as the bankruptcy law directs.*** So, where the rules of a stock exchange give to members of the exchange a lien for debts due them from a defaulting member upon the proceeds of the sale of his seat, by proving their .claims before a committee while the fund remains in their hands, but do not expressly assume to make this remedy exclusive, a court of bankruptcy, when equity requires it, may properly recognize and enforce such lien after the fund has come under its control.**® For the purpose of asserting his lien, a secured creditor or pledgee of proper- ty is always entitled to intervene in the bankruptcy proceedings against his debtor.*^* And even where one has waived or relinquished his lien, through. oversight or a mistake of fact not operating to the prejudice of any one else^ he may come into the court of bankruptcy and ask to be restored to his lien, which relief will be granted if he shows himself en- titled to it.*5i The court of bankruptcy has jurisdiction to inquire into and deter- mine the validity, extent, and priority of liens asserted upon any prop- ane Receivers of Virginia Iron, Coal and not to the remedies for its enforce- & Coke Co. V. Staake, 133 Fed. 717, 66 ment, which may be changed without C. C. A. 547, 13 Am. Bankr. Rep. 281: impairing the contract. In re Hasie, In re Jenks, 15 N. B. R. 301, Fed. Cas. 206 Fed. 789, 30 Am. Bankr. Rep. 83. No. T,276; In re Ward, 9 N. B. R. 349, s*9 Hutchinson v. Otis, 115 Fed. 937, Fed. Oas. No. 17,145 ; Ex parte Holmes, 53 C. C. A. 419, 8 Am. Bankr. Rep. 382, 14 N. B. R. 493, Fed. Cas. No. 6,631. affirmed Hutchinson v. Otis, Wilcox & 847 In re Kelly, 18 Fed. 528. Co., 190 U. S. 552, 23 Sup. Ct. 778, 47 L. 8*8 In re Falls City Shirt Mfg. Co., 98 Ed. 1179, 10 Am. Bankr. Rep. 135. Fed. 592, 3 Am. Bankr. Rep. 437.; In re sso Fisher v. Cushman, 103 Fed. 860, Rude, 2 Nat. Bankr. News, 498; Mc- 43 C. 0. A. 381, 51 L. R. A. 292, 4 Am. Farland Carriage Co. v. Solanes, 108 Bankr. Rep. 646; Ward v. First Nat. Fed. 532, 6 Am. Bankr. Rep. 221. The Bank, 202 Fed. 609, 29 Am. Bankr. Rep. provision of the bankruptcy act, that 312. valid liens shall not be affected, relates soi Hutchinson v. Otis, 115 Fed. 937, only to the obligation of the contract, 53 C. 0. A. 419, 8 Am. Bankr. Rep. 382, 849 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 387 erty of the bankrupt which has come into its actual or constructive pos- session, in a summary manner, or at any rate without the formalities at- tending a plenary suit, on the petition of the trustee desiring to contest the alleged lien or to settle any question in regard to it,^"* or on the pe- tition of the lien claimant, without regard to the possession of the prop- erty, if the latter voluntarily comes into court asserting a lien on the property and seeking to have it established, protected, or enforced as against the trustee.*®* But if the property is in the possession of the claimant (as, for instance, a chattel mortgagee) his claims upon it can- not be determined in a summary proceeding at the instance of the trus- tee, unless with the consent of the lienor.*''* And where the question to be determined is a matter in controversy between third persons, the test of jurisdiction to hear and decide it is the necessity of so doing in order affirmed Hutchinson v. Otis, Wilcox & Co., 190 U. S. 552, 23 Sup. Ct. 778, 47 t. Ed. 1179, 10 Am. Bankr. Kep. 135. And see In re Jamison Bros. & Co., 227 Fed. 30, 142 C. C. A. 3, 35 Am. Bankr. Rep. 725. 35 2 Ex parte Christy, 3 How. 292, 11 L. Ed. 603 ; In re Eppstein, 156 Fed. 42, 84 C. C. A. 208, 19 Am. Bankr. Rep. 89 ; In re Hobbs & Co., 145 Fed. 211, 16 Am. Bankr. Rep. 544 ; In re Lemmon & Gale Co., 112 Fed. 296, 50 C. C. A. 247, 7 Am. Bankr. Eep. 291; In re Kellogg, 113 Fed. 120, 7 Am. Bankr. Rep. 623; In re Ellis Bros. Printing Co., 156 Fed. 430, 19 Am. Bankr. Rep. 472; Wakeman v. Throckmorton, 74 Conn. 616, 51 Atl. 554 ; Jungbecker v. Huber, 101 Tex. 148, 105 S. W. 487; In re Logan, 196 Fed. 678, 28 Am. Bankr. Rep. 543; Bear Gulch Placer Mining Co. v. Walsh, 198 Fed. 351, 28 Am. Bankr. Rep. 724; In re Hooven-Owens-Eentschler Co., 195 Fed. 424, 28 Am. Bankr. Rep. 135; Orinoco Iron Co. V. Metzel, 230 Fed. 40, 144 C. C. A. 338, 36 Am. Bankr. Rep. 247; T. E. Wells & Co. V. Sharp, 208 Fed. 393, 125 C. C. A. 609, 31 Am. Bankr. Rep. .S44 ; Courtney v. Fidelity Trust Co., 21.) Fed. 57, 134 C. C. A. 595, 33 Am. Bankr., Eep. 400; Story & Clark Piano Co. v. Holmes, 251 Fed. 565, 163 C. C. A. 559, 41 Am. Bankr. Rep. 668; In re Dia- mond's Estate, 259 Fed. 70, 170 C. C. A. 138, 44 Am. Bankr. Eep. 268; In re Weg- man Piano Co. (D. C.) 228 Fed. 60, 36 Am. Bankr. Rep. 210; Karasik v. Peo- ple's Trust Co. (D. C.) 241 Fed. 939, 39 Am. Bankr. Rep. 830; In re Einstein (D. C.) 245 Fed. 189, 40 Am. Bankr. Rep. 507; In re Kligerman (D. C.) 219 Fed. Bi-k.Bke.(3d Ed.)— 54 758, 33 Am. Bankr. Rep. 608; In re Whiteside (D. C.) 230 Fed. 937, 36 Am. Bankr. Rep. 870; Brown Bros. Co. v. Smith Bros. Co. (D. C.) 231 Fed. 475, 37 Am. Bankr. Rep. 30; Spencer Commer- cial Club V. Bartmess (Ind. App.) 123 N. B. 435. The question whether or not a mortgage was a valid claim against the bankrupt estate cannot be decided in a suit by the trustee against others to set aside conveyances as preferential and as in fraud of creditors, those in- terested in the mortgage not being be- fore the court. Smith v. Coury (D. C.) 247 Fed. 168, 41 Am. Bankr. Rep. 219. 30 8 In re MacDougall, 175 Fed. 400, 23 Am. Bankr. Rep. 762; In re Platteville Foundry & Machine Co., 147 Fed. 828, 17 Am. Bankr. Eep; 291 ; Goodnough. Mer- cantile & Stock Co. V. Galloway, 156 Fed. 504, 19 Am. Bankr. Eep. 244; In re Wegman Piano Co. (D. 0.) 221 Fed. 128, 34 Am. Bankr. Eep. 490; Rhine- lander V. Richards, 184 App. Div. 67, 171 N. Y. Supp. 436. 3 54 In re Buntrock Clothing Co., 92 • Fed. 886, 1 Am. Bankr. Rep. 454; Good- nough Mercantile & Stock Co. v. Gallo- way, 156 Fed. 504, 19 Am. Bankr. Rep. 244 ; In re L. B. Pickens & Bro., 184 Fed. 954, 26 Am. Bankr. Eep. 6; In re Munro, 195 Fed. 817, 28 Am. Bankr. Rep. S69; Spears v. Frenchton & B. R. Co., 213 Fed. 784, 130 C. C. A. 442, 31 Am. Bankr. Rep. 679; Commercial Security Co. V. Holcombe (C. C. A.) 262 Fed. 657, 44 Am. Bankr. Rep. 481; In re Valecia Condensed Milk Co. (D. C.) 233 Fed. 173, 37 Am. Bankr. Rep. 504; In re Pe- tronio, 220 Fed. 269, 136 C. C. A. 285, 34 Am. Bankr. Rep. 470; In re Goldstein, § 387 LAW OF BANKRUPTCY 850 to administer the estate of the bankrupt. *^^ Further, the court of bank- ruptcy will not undertake to determine or adjust liens upon property of the bankrupt, unless it appears that the trustee has at least a probable interest in it for the general creditors.*®' In any petition for the recognition and enforcement of a lien the facts should be clearly and fully set forth, and the appropriate measure of relief asked for.*®' Such petition may be opposed by the trustee in bank- ruptcy without formal pleadings.*®* Where the facts rest in parol, they may be established by the evidence of the parties to the transaction, if credible and uncontradicted, without further testimony.*®* If the valid- ity of the lien is contested on the ground that the debtor was insolvent at the time it was created the burden of proving such insolvency is on the party asserting it.*®* It is also within the jurisdiction of the court, ad- mitting the validity of a lien claimed on property of the bankrupt, to order the sale of the property and the payment of the lien creditor out of- the proceeds, preserving the remainder for the general creditors.**' § 388. Same; Proceedings in' State Courts. — The jurisdiction of a state court over a proceeding to establish and enforce a valid lien on property is not taken away by the mere fact of the intervening bankrupt- cy of the debtor ; but unless its hand is stayed by the order of the court of bankruptcy, or the parties have placed themselves in a position where they can no longer invoke its jurisdiction, it may proceed, without regard to the bankruptcy proceedings, to render such judgment as may be ap- propriate in the case,*** and having given such judgment or decree, it may thereafter grant the necessary process (or sanction the use of its 216 Fed. 887, 133 C. O. A. 91 ; In re Fed. 510, SO C. C. A. 328, 18 Am. Bankr. Gottlieb & Co. (D. 0.) 245 Fed. 139, 40 Rep. 35. Am. Bankr. Rep. 247. seo Jackson v. Valley Tie & Lumber 806 In re Hobbs & Co. (D. C.) 145 Fed. Co., 108 Va. 714, 62 S. E. 964. 211, 16 Am. Bankr. Rep. 544; In re soi in re Arden, 188 Fed. 475, 26 Am. Graves (D. C.) 163 Fed. 358, 20 Am. Bankr. Rep. 684; In re Vastblnde, 132 Bankr. Rep. 818. See In re Traunsteln Fed. 718, 13 Am. Bankr. Rep. 148. (D. C.) 225 Fed. 317, 34 Am. Bankr. Rep. 882 in re Brinn (D. C.) 262 Fed. 527, 482. ' 45 Am. Bankr. Rep. 74; In re Stringer 3 68 In re Gibbs (D. C.) 109 Fed. 627, 6 (D. C.) 230 Fed. 177, 37 Am. Bankr. Rep. Am. Bankr. Rep. 485 ; In re North Star 44 ; In re Pilcher & Son (D. C.) 228 Fed. Ice & Coal Co. (D. 0.) 252 Fed. 301, 42 139, 36 Am. Bankr. Rep. 273 ; Hobbs v. Am. Bankr. Rep. 76. But compare Head & Dowst Co., 184 Fed. 409, 106 Cbauncey v. Dyke Bros., 119 Fed. 1, 55 C. C. A. 519, 26 Am. Bankr. Rep. 63: C. C. A. 579, 9 Am. Bankr. Rep. 444. Frazier v. Southern Loan & Trust Co., 8 87 Teter v. Viquesney, 179 Fed. 655, 99 Fed. 707, 40 C. C. A. 76, 3 Am. Bankr. 103 C. C. A. 213, 24 Am. Bankr. Rep. Rep. 588; In re Maaget, 173 Fed. 232, 2:? 242; In re Gosch, 121 Fed. 604, 9 Am. Am. Bankr. Rep. 14; In re Platteville Bankr. Rep. 613; In re George W. Shieb- Foundry & Machine Co., 147 Fed. 828, ler & Co., 163 Fed. 545, 20 Am. Bankr. 17 Am. Bankr. Rep. 291 ; In re Majori Rep. 777. 2 Hughes, 215, Fed. Cas. No. 8,981; 868 In re Mulligan, 116 Fed. 715, 9 Kimberlin v. Hartly, 1 McCrary, 136, 1 Am. Bankr. Rep. 8. Fed. 571; Thames v. Miller, 2 Woods, 860 Union Trust Co. v. Bulkeley, 150 564, Fed. Cas. No. 13,860; Mattocks v! 851 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 388 necessary and appropriate process) for carrying the judgment or decree into operation, as, for instance, by levy on and sale of the bankrupt's property under execution, the same being subject to the lien, provided, of course, that such property is not already in the custody of the court of bankruptcy, and provided that such process is not enjoined or stayed by order of the latter court.*®* It is, in fact, a general rule that where the rights of the parties, urging claims that conflict with one another on the same property or fund, would be the same whether presented in the state court or in the court of bankruptcy, the court which first acquires ju- risdiction of the property or fund may retain it for the purpose of a deci- sion.*** And when the state court has thus rendered a judgment or de- cree in a proceeding to establish and enforce a valid lien, not dissolved by the bankruptcy, its decision will be conclusive and binding on the trus- tee in bankruptcy, if he was heard in the case or had an opportunity to intervene,*** and it cannot be reviewed, reversed, or modified by the court of bankruptcy.*** And this rule holds good even though the lien Farrington, 2 Hask. 331, Fed. Cas. No. 9,293 ; Kritzer v. Tracy Engineering Co., 16 Cal. App. 287, 116 Pac. 700 ; Mass v. Kuhn, 130 App. Div. 68, 114 N. Y. Supp. 444; Murphey v. Brown, 12 Ariz. 268, 100 Pac. 801; Llnthicum v. Fenley,, 11 Bush (Ky.) 131; Vance v. Lane's Trus- tee, 82 S. W. 297, 26 Ky. Law Rep. 619; Reed v. Equitable Trust Co., 115 Ga. 780, 42 S. E. 102; Dyson v. Harper, 54 Ga. 282; South End Imn. Go. v. Harden (N. J. Eq.) 52 Atl. 1127 ; Douglas v. St. Louis Zinc Co., 56 Mo. 388; Davis v. Lumpkin, 57 Miss. 506 ; Bradley v. Unit- ed Wireless Telegraph Co., 79 N. J. Eg. 458, 81 Atl. 1107; Chickasaw Hotel Co. V. C. B. Barker Const. Co., 135 Tenn. 305, 186 S. W. 115, L. E. A. 1916F, 106 ; Robinson v. Tischler, 69 Fla. 77, 67 South. 565; Joseph Nelson Supply Co. V. Leary, 49 Utah, 493, 164 Pac. 1047; Strong V. Butte Central & Boston Cop- per Corp., 54 Mont. 584, 172 Pac. 1033 ; Bradley v. United Wireless Telegraph Co., 83 N. J. Eq. 688, 93 Atl. 1084; Schoenherr v. Van Meter, 215 N. T. 548, 109 N. E. 625 ; Bank of Mendon v. Mell, 185 Mo. App. 510, 172 S. W. 484 ; Cook v. Wheeler (Mo. App.) 218 S. W. 929. 3 63 In re Frasei: (D. C.) 261 Fed. 558, 44 Am. Bankr. Rep. 572; In re Beck (D. C.) 238 Fed. 653; Houston v. Shear (Tex. Civ. App.) 210 S. W. 976. Contra, see George B. Matthews & Sons v. Jo- seph Webre Co. (D. C.) 213 Fed. 396, 32 Am. Bankr. Eep. 180; Tormey v. Miller, 31 Cal. App. 469, 160 Pac. 858. The bankruptcy of a contractor does not de- prive the state court of jurisdiction to distribute funds in. the owner's hands among mechanics' lien claimants and subcontractors. Gordon-Jones Const. Co. V. Welder, (Tex. Civ. App.) 201 S. W. 681. The possibility of selling land to better advantage through a receiver iu bankruptcy does not require the judg- ment Creditor to surrender the property to the receiver, thus depriving him of his right to collect his debt through the sheriff. Harvard v. Davis, 145 Ga. 580, 89 S. E. 740. And notwithstanding the bankruptcy of a mortgagor, the mort- gagee is not deprived of his action against the sheriff for failing to make the money on execution. Lackenbach v. Finn, 26 Cal. App. 482, 147 Pac. 471. But in all such cases and proceedings, the state court will take care to extend proper protection to the estate of the bankrupt for the benefit of the gener.il creditors. Lyttle v. National Surety Co., 43 App. D. C. 136. 8 64Pietri V. Wells, 137 La. 1087, 69 South. 847. 8 66 In re Van Alstyne, 100 Fed. 929, 4 Am. Bankr. Rep. 42; Frazier v. South- ern Loan & Trust Co., 99 Fed. 707, 40 C C. A. 76, 3 Am. Bankr. Rep. 710; Jack son V. Valley Tie & Lumber Co., 108 Va 714, 62 S. E. 964; Chickasaw Hotel Co V. C. B. Barker Const. Co., 135 Tenn 305, 186 S. W. 115, L. R. A. 1916F, 106 ; Eberle v. Drennan, 40 Okl. 59, 136 Pac. 162, 51 L. RiCA. (N, S.) 68. 386 In re Eash (D. C.) 157 Fed. 996, 19 Am. Bankr. Rep. 738; Farrell v. Wy- § 388 LAW OF BANKRUPTCY 852 in question is one which would be voidable under the bankruptcy act at the instance of the trustee in bankruptcy, if he does not seek to annul it or assert any right to the property in controversy.*®" But the jurisdic- tion of the state court in such cases is precarious, in the sense that it may be exercised only in the absence of some order or effective objection re- straining the parties from proceeding. In the first place (as will be shown in the next section) the court of bankruptcy may enjoin the lien creditor from proceeding with his action in the state court. Or it may order a stay of a pending action in the state court until the question of the bankrupt's discharge has been determined,*®* though this will not ordinarily be done where it would result in injury to other lien claim- ants.*®" The absence of any such stay or injunction would seem to be sufficient authorization to the plaintiff to bring or proceed with his ac- tion. But courts of bankruptcy have sometimes taken the course of granting express permission to a lien claimant to sue in a state court for the enforcement of his lien, framing the order in such a manner as to preserve and insure an equitable distribution of the assets of the bank- rupt.*'" Further, the creditor may be prevented from proceeding by an injunction procured by another creditor. But a state court will not grant an injunction, at the instance of a general creditor of an insolvent debtor, to tie up the assets of the debtor, which have come into the hands of an- other creditor by execution on the latter's judgment, until the former creditor can institute bankruptcy proceedings against the debtor.*'^ Again, if the court of bankruptcy has assumed jurisdiction of a contro- versy respecting an alleged lien, the state court will naturally not at- tempt to interfere with the full exercise of that jurisdiction,*'* and if the property in question is in the custody of the court of bankruptcy, no one can proceed in a state court for the purpose of enforcing a lien on it, unless with the permission of the bankruptcy court.*'* And again, if the lien creditor has made himself a party to the proceedings in bank- song, 246 Fed. 281, 159 0. O. A. 11, 40 take such action. Lamorelle v. Nass, 30 Am. Bankr. Rep. 740. But see D. C. Pa. Super. Ct. 190. But see Armour Wise Ooal Co. v. Columbia Lead & Zinc Packing Co. v. Wynn, 119 Ga. 683, 46 S. Co., 123 Mo. App. 249, 100 S. W. 680, as E. 865. to a judgment enforcing a lien dissolved ^"^ See supra, §§ 185-198. by the adjudication in Ijankruptcy. ^<"> In re Grissler, 136 Fed. 754, 69 C. 307 Rochester Lumber Co. v. Locke, C. A. 406, 13 Am. Bankr. Rep. 508. 72 N. H. 22, 54 Atl. 705. And see Davis a^o Virginia Iron, Ooal & Coke Co. v. V. Planters' Trust Co., 196 Fed. 970, 28 Olcott, 197 Fed. 730, 117 0. C. A. 124, Am. Bankr. Rep. 495. A garnishee 28 Am. Bankr. Rep. 321. against whom judgment has been enter- 87i Victor v. Lewis, 24 Misc. Rep. 515, ed has no standing, after both the plain- * 53 N. Y. Supp. 944. tifC and the defendant in the suit have 372 Beall v. Walker, 26 W. Va. 741. been adjudicated bankrupts, to move the s's Owen v. Potter, 115 Mich. 556, 73 court to dissolve the gari^hment and N. W. 977; Cohen v. Nixon & Wright (D. strike off the judgment, as only the trus- 0.) 236 Fed. 407, 37 Am. Bankr. Rep. tee in bankruptcy of the defendant can 646; Reeve v. Kernan, 85 N. J. Law, 853 EPPEOT OF BANKRUPTCY ON EXISTING LIENS § 389 ruptcy, he is subject to the jurisdiction of the court of bankruptcy and must work out his rights in that forum alone.*''* § 389. Same; Restraining Proceedings in State Courts. — An adju- dication of bankruptcy draws the property and assets of the bankrupt within the exclusive jurisdiction of the court of bankruptcy for the pur- poses of administration and distribution, and it may defend that jurisdic- tion by all appropriate means.^'° Thereafter, if any creditor brings an action in a state court to establish or enforce a lien on any property of the bankrupt, at least without the permission of the bankruptcy court first obtained, it is an unwarrantable interference with its jurisdiction and control over the property, and the creditor will be enjoined from the fur- ther prosecution of his action.*''® And even though the action in the state court may have been pending at the time of the adjudication in bank- ruptcy, yet its further prosecution may be stayed or enjoined when it affects property which is in the actual custody or possession of the bank- ruptcy court through its trustee, receiver, or other officer,*'''' or where the lien, if enforced, would constitute a preference voidable under the bankruptcy law,*''* or where it is of such a character as to be dissolved by the adjudication in bankruptcy, as having been acquired within four months prior thereto,*''* or even where the continuance of the action in the state court would embarrass the administration of the esl^e in bank- ruptcy.**** And the jurisdiction of the federal court in these cases is not affected by the fact that the creditor's cause of action is such as would 641, 90 Atl. 285 ; Tube City Min. & Mill the district. In re Printograph Sales Co. Co. V. Otterson, 16 Ariz. 305, 146 Pac. (D. 0.) 210 Fed. 567, 31 Am. Bankr. Rep. 203, L. B. A. 1916E, 303. 539. 37* Francisco v. Shelton, 85 Va. 779, -"Tin re Dana, 167 Fed. 529, 21 Am. 8 S. B. 789; Reed v. BuUington, 49 Miss. Bankr. Rep. 683; In re Whitener, 105 223. Fed. 180, 44 C. C. A. 434, 5 Am. Bankr. 3T5 In re Lines, 133 Fed. 803, 13 Am. Rep. 198; In re Neely, 108 Fed. 31; In Bankr. Rep. 318; In re Vastbindcr, 132 re Morse (D. C.) 210 Fed. 900, 32 Am. Fed. 718, 13 Ami Bankr. Rep. 148. Bankr. Rep. 207. 376 In re Emslie, 102 Fed. 291, 42 C. s's Bear v. Chase, 99 Fed. 920, 40 C. C. A. 350, 4 Am. Bankr. Rep. 126;- Beall C. A. 182, 3 Am. Bankr. Rep. 746; In re V. Walker, 26 W. Va. 741; In re Tune, Kimball, 97 Fed. 29, 3 Am. Bankr. Rep. 115 Fed. 906, 8 Am. Bankr. Rep. 285; In 161; In re McAusland (D. C.) 235 Fed. re Roger Brown & Co., 196 Fed. 758, 28 173, 37 Am. Bankr. Rep. 519. Compare Am. Bankr. Rep. :',S6; In re Tomlin.son, Heath v. Shaffer, 93 Fed. 647, 2 Am. 193 Fed. 101, 27 Am. Bankr. Rep. 780; Bankr. Rep. 98. In re Trayna & Cohn (C. C. A.) 195 Fed. s'o In re Lesser, 100 Fed. 433, 3 Am. 486, 27 Am. Bankr. Rep. 594; Jn re Bankr. Rep. 815; In re Pruschen, 1 Nat. Grafton Gas & Electric Light Co. (D. Bankr. News, 526; In re Ransford, 194 C.) 253 Fed. 668, 42 Am. Bankr. Rep. Fed. 658, 28 Am. Bankr. Rep. 78. 567; In re Fraser, 261 Fed. 558, 44 Am. > asoin re Gutman, 114 Fed. 1009, 8 Bankr. Rep. 572. A federal district court Am. Bankr. Rep. 252; In re Munro, 195 has ancillary jurisdiction of a petition Fed. 817, 28 Am. Bankr. Rep. 369; In by a bankrupt's trustee, appointed in an- re Roger Brown & Co., 196 Fed. 758, 116 other district, to restrain the prosecution C. C. A. 386, 28 Am. Bankr. Rep. 336; of distress proceedings by a landlord Virginia Iron, Coal & Coke Co. v. Olcott, against property of the bankrupt within 197 Fed. 730, 117 C. 0. A. 124, 28 Am. § 389 LAW OF BANKETJPTCT 854 not be affected by the discharge of the debtor in bankruptcy,^" or the ' fact that the bankrupt may already have received his discharge,^** or the fact that the claim of the particular creditor is not mentioned in the bankrupt's schedules, at least where he has knowledge of the bankruptcy proceedings.**^ But the injunctive process of the court of bankruptcy should be confined to the parties litigating against the bankrupt in the state court. Even if the federal court' has power to direct its injunction to the state court itself or the judge of that court, which is extremely doubtful, it should not be done, nor should the writ be so framed as to take the place of a writ of prohibition, unless in cases of imperative ne- cessity.^** Yet the state court should respect the purpose of the injunc- tion, and refuse to sanction any further proceedings in the case by any of the parties.**^ But on the other hand, it is a thoroughly well-established rule as be- tween the federal and state courts, that the court which first acquires complete jurisdiction of a controversy shall be allowed to continue in the exercise of that jurisdiction to final judgment without interference by the other court. And on this principle, if a state court of competent jurisdiction has taken cognizance of an action to establish- or enforce a lien on property of a debtor, and the action is pending at the time of his ad- judication in bankruptcy, but the lien is not dissolved thereby, because it attached more than four months previously, the jurisdiction of the state court is not divested by the bankruptcy proceedings, and the federal court has no rightful authority to enjoin the creditor from the further prosecution of his action.*** This rule applies with special force where the property to be affected is in the actual custody and possession of the Bankr. Rep. 321; McLoughlin v. Knop Bros., 174 Fed. 53, 23 Am. Bankr. Eep. (D. C.) 214 Fed. 260, 32 Arii. Bankr. Kep. 264. 582. 3 84 In re Dana, 167 Fed. 529, 93 C. C. 381 Bear v. Chase, 99 Fed. 920, 40 C. A. 238, 21 Am. Bankr. Rep. 683. 0. A. 182, 3 Am. Bankr. Rep. 746. See ass Levi v. Goldberg, 76 App. Div. 210, In re Van Buren, 164 Fed. 883, 20 Am. 78 N. T. Supp. 367. Bankr. Rep. 896. And for even stronger sso Hobbs v. Head & Dowst Co., 231 reasons, the bankruptcy court will stay U. S. 1B92, 34 Sup. Ct. 253, 58 L. Ed. further proceedings in a state court on a 440, 31 Am. Bankr. Rep. 656; Metcalf v. judgment which is provable in the bank- Barker, 187 V. S. 165, 23 Sup. Ct. 67, 47 ruptcy proceedings and where the debt L. Ed. 122, 9 Am. Bankr. Rep. 36 ; Pick- evidenced by it would be barred by the ens v. Roy, 187 U. S. 177, 23 Sup. Ct. 78, bankrupt's discharge. In re Cunning- 41 L. Ed. 128, 9 Am. Bankr. Rep. 47 ; ham (D. C.) 253 Fed. 663, 42 Am. Bankr. Griffin v. Lenhart (C. C. A.) 266 Fed. 671, Rep. 560; In re Lusch (D. C.) 251 Fed. 45 Am. Bankr. Rep. 221 ; Broach v. Mul- 316, 42 Am. Bankr. Rep. 246. lis (D. C.) 228 Fed. 551, 35 Am. Bankr. 3 82 Southern I^an & Trust Co. v. Ben- Rep. 841; In re Bach (D. C.) 212 Fed. bow, 96 Fed. 514, 3 Am. Bankr. Rep. 9; 575 ; In re Wagner's Estate (D. C.) 206 In re Driggs, 171 Fed. 897, 22 Am. Bankr. Fed. 3G4, 30 Am. Bankr. Rep. 396 ; Grif- Rep. 621; In re , Obergf all, 239 Fed. 850, fin v. Smith,, 177 Cal. 481, 171 Pac. 92; 152 C. C. A. 636, 38 Am. Bankr. Rep. 645. Pickens v. Dent, 106 Fed. 653, 45 C. C. A. 38 3 In re Beerman, 112 Fed. 662, 7 Am. 522, 5 Am. Bankr. Rep. 644 ; In re United Bankr. Rep. 434. See In re Bluestone Wireless Telegraph Co., 192 Fed. 238, 27 855 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 390 State court,'*' or its receiver.*** Further, and as a general rule, it is only proceedings directly' against the bankrupt himself that may be thus stayed or enjoined. "The fact that a trustee in bankruptcy may be in- terested in the result of a litigation which is pending between third par- ties in a state court does not entitle him to have the proceedings in such action stayed, as between such third parties, and to have the controversy transferred for adjudication to the bankruptcy court." *** Thus, the court of bankruptcy has no jurisdiction $o enjoin the plaintiff in a suit against the bankrupt in a state court from collecting his judgment from the surety on the bankrupt's bail bond.**' And so also, a pending suit will not ordinarily be stayed unless the trustee in bankruptcy shows that he has some interest in it as the representative of the general credi- tors, or that such a course may result in securing for them some surplus over the claims of the lien creditor.**^ § 390. Same; Foreclosure of Mortgages. — A mortgage creditor has the right to institute proceedings in the court of bankruptcy to enforce his lien and to reach other assets.**^ But proceedings of this kind are generally taken in the state courts. And it is a general rule' that the ju- risdiction of a state court over a pending foreclosure suit is not divested by the adjudication of the mortgagor in bankruptcy, and if the mortgage was given more than four months before the filing of the petition in bankruptcy, and its validity is not assailed on any other ground under Am. Bankr. Kep. 1; In re Shlnn, 185 S9i in re Mercedes Import Co., 166 Fed. 990, 25 Am. Bankr. Kep. 833 ; Ex Fed. 427, 92 C. C. A. 179, 20 Am. Bankr. parte Donaldson, 6 Phila. (Pa.) 443, 1 N. Rep. 648 ; In re Arden, 188 Fed. 475, B. R. 181, Fed. Cas. No. 3,981; Clarke v. 26 Am. Bankr. Rep. 684; Hardcastle v. Rist, 3 McLean, 494, Fed. Cas. No. 2,861. National Clothing Co., 137 Tenn. 64, 191 Compare New River Coal Land Co. v. S. W. 524. Where bankrupts unlawfully RufEner Bros., 165 Fed. 881, 91 C. O. A. pledged bonds deposited with them, but 559, 20 Am. Bankr. Rep. 100 ; In re in which they had no owi^ership, the re- Baughman, 138 Fed. 742, 15 Am. Bankr. turn of the bonds to the trustee does not Rep. 23. vest the bankrupt estate with any in- 8 S7 Tennessee Producer Marble Co. v. terest therein, and therefore a petition Grant, 135 Fed. 322, 67 C. C. A. 676, 1 by the trustee for an order staying an Am. Bankr. Rep. 288 ; In re Seebold, 105 action in a state court by the owner for Fed. 910, 45 C. O. A. 117, 5 Am. Bankr. their recovery will be denied. In re Rep. 358; White v. Thompson, 119 Fed. Amy (C. C. A,) 263 Fed. 8, 45 Am. Bankr. 868, 56 C. C. A. -398, 9f Am. Bankr. Rep. Rep. 15. 653; In re Shoemaker, 112 Fed. 648, 7 392 Owen v. Potter, 115 Mich. 556, 73 Am. Bankr. Rep. 437 ; Downer v. Brack- N. W. 977. A mortgagee who files his ett, 21 Vt. 599, Fed. Cas. No. 4,043. claim as a secured claim in the bankrupt- S88 In re Sterlingworth Ry. Supply Co., cy proceedings, but does not have his 165 Fed. 267, 21 Am. Bankr. Rep. 342. right to foreclose the mortgage adjudi- 3 89 In re Horton, 102 Fed. 986, 43 C. C. cated in the federal court, is not thereby A. 87 ; Tripplehorn v. Cambron, 250 Fed. bari-ed or estopped from suing in the 605, 162 C. C. A. 621, 41 Am. Bankr. Rep. state court. Stewart-Noble Drug Co. v. 334. Bishop-Babcock-Becker Co., 62 Colo. 197, 39 Jaquith v. Rowley, 188 U. S. 620, , 162 Pac. 159. 23 Sup. Ct. 369, 47 L. Ed. 620, 9 Am. Bankr. Rep. 525. § 390 LAW OF BANKRUPTCY the bankruptcy law, the state court may proceed to foreclosure and sale, and the mortgagee should not be stayed by injunction from either the court of bankruptcy or the state court.*** In such a case, the trustee in bankruptcy is a proper party to the suit in the state court, where he must appear and assert his rights, and he should apply for leave to intervene, or he may be directed by the bankruptcy court so to apply,*** although, if he does not ask to be joined as party, it is not necessary to stay the proceedings and compel him to come in.**® But if he does not become a party, while this will not affect the validity of a decree of foreclosure, it will leave his rights in equity unaffected by the decree,*** unless where he has disclaimed any interest in the property.**" Instead of a decree of foreclosure, the state court may, in proper circumstances make its order giving the trustee in bankruptcy the right to redeem, or if he has no funds in hand for that purpose, it may order a sale under the mortgage, with directions that the surplus shall be paid into court for the benefit of the trustee.*** But no deficiency decree can be ren- 3 93 Jerome v. McCarter, 94 V. S. 734, 24 L. Ed. 136; Garrison v. Kurt, 249 Fed. 672, 161 C. C. A. 582, 41 Am. Bankr. Rep. 291 ; In re United States Chrysotile Asbestos Co. (D. C.) 253 Fed. 294, 41 Am. Bankr. Rep. 774; Martin v. Bankers' Trust Co., 18 Ariz. 55, 156 Pac. 87, Ann. Gas. 1918E, 1240; Albert Pick & Co. v. Natalby, 211 111. App. 486 ; Abney-Barnes Co. V. Davy-Pocahontas Coal Co., 83 W. Va. 292, 98 S. E. 298 ; In re Bolirer, 177 Fed. 381, 100 C. O. A. 613, 24 Am. Bankr. Hep. 52 ; Clark v. Norwalk Steel & Iron Co., 188 Fed. 999; In re Lattimer, 174 Fed. 824, 23 Am. Bankr. Kep. 388; In re McKane, 158 Fed. 647, 18 Am. Bankr. Rep. 594; In re Gerdes, 102 Fed. 318, 4 , Am. Bankr. Rep. 346 ; Wikle v. Jones, 1.33 Ga. 266, 65 S. B. 577; Parks v. Bald- win, 123 Ga. 869, 51 S. E. 722 ; Harvey V. Smith, 179 Mass. 592, 61 N. E. 217 ; Furth V. Stahl, 205 Pa. St. 439, 55 Atl.^ 29; Carter v. People's Nat. Bank, 109^ Ga. 573, 35 S. E. 61 ; Merrill v. Jordan, 60 N. H. 425; Lenlhan v. Hamann, 55 N. Y. 652 ; Cutter v. Dingee, 8 Ben. 469, 14 N. B. R. 295, Fed. Cas. No. 3,518 ; In re Irving, 8 Ben. 463, 14 N. B. R. 289, Fed. Cas. No. 7,073 ; . Getz v. First Nat. Bank, Fed. Cas. No. 5,374. Compare Carpenter v. O'Connor, 16 Ohio Cir. Ct. U. 526 ; In re Doran, 154 Fed. 467, 83 C. 0. A. 265, 18 Am. Bankr. Rep. 760. 8 9* Eyster v. Gaff, 91 U. S. 521, 23 L. Ed. 403; In re Gerdes, 102 Fed. 31S, 4 Am. Bankr, Rep. 346 ; Heath v. Shaffer, 93 Fed. 647, 2 Am. Bankr. Rep. 98; In re Porter, 109 Fed. Ill, 6 Am. Bankr. Rep. 259. In such an action, the defense of usury is available to the trustee in bankruptcy. In re Kellogg, 121 Fed. 333, 57 C. C. A. 547, 10 Am. Bankr. Rep. 7 ; In re Miller, 118 Fed. 360, 9 Am. Bankr. Rep. 274. Where a trustee in bankrupt- cy intervenes' in a foreclosure proceed- ing pending in a state court, he thereby recognizes the jurisdiction of that court. O'Reilly v. Pietri, 135 La. 1, 64 South. 922. 3 95 Oliver v. Cunningham (C. O.) 6 Fed. 60. 396 In re Soltmann, 249 Fed. 455, 161 C. C. A. 413, 41 Am. Bankr. Rep. 42; Goldsmith v. Winner Shingle Co., 96 Wash. 516, 165 Pac. 392; Cobleigh v. Spitznagle, 120 111. App. 110; Leary v. Shaffer, 79 Ind. 567. A trustee in bank- ruptcy, by applying to a state court to set aside an ordeir granting executory process for the foreclosure of a mortgage, could not impair or affect the jurisdic- tion of the court of bankruptcy to en- join the foreclosure. George B. Mat' thews & Sons v. Joseph Webre Co. (D. C.) 213 Fed. 396, 32 Am. Bankr. Rep. 180. 397 Scott v. Gordon, 109 Mo. App. 695 83 S. W. 550. 398 Jobbins v. Montague, 23 N. J. Ea 182. 837 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 390 dered against the mortgagor, at least until the question of his discharge has been determined.*^® But the court of bankruptcy is not without jurisdiction to stop the prosecution of a foreclosure suit, where such a course is necessary for the proper exercise of its own jurisdiction or the effective administra- tion of the estate in bankruptcy. Such is the case where the foreclosure suit was not begun until after the institution of the bankruptcy pro- ceedings,*"* where the validity of the mortgage is denied on common- law grounds,**^ or where its lien is claimed to have been dissolved by the adjudication in bankruptcy following within four months after it was given,*'^ or where the giving of the mortgage was the very act of bankruptcy on which the adjudication was. based,*"* or where the pro- ceedings taken by the holder of a chattel mortgage were not such as to bring the property within the jurisdiction of the state court.*** So also, where it appears that it would be for the interest of the creditors at large to have mortgaged real estate taken by the trustee and admin- istered with the remainder of the assets, preserving the lien of the se- cured creditor, the court of bankruptcy has jurisdiction to order the trustee to take possession of the property, and to enjoin the secured creditor from selling it or otherwise interfering with it,**^ as where, it appears that its value greatly exceeds the amount of the iijcumbrance and that the surplus is more likely to be realized by a sale made by the trustee,*** or that the mortgagee is endeavpii^ng to delay the sale un- 3 99 Scott V. Ellery, 142 TJ. S. 381, 12 -loiin re Brooks (D. C.) 91 Fed. 508, Sup. Ct. 233, 35 L. Ed. 1050 ; McKay 1 Am. Bankr. Rep. 531. V. Funk, 37 Iowa, 661, 13 N. B. R. 334. los In re Booth (D. C.) 96 Fed. 943, 2 iOD In re San Gabriel Sanatorium Co., Am. Bankr. Rep. 770 ; In re Zehner, 193 102 Fed. 310, 42 O. C. A. 369, 4 Am. Fed. 787, 27 Am. Bankr. Kep. 536. ■Bankr. Rep. 197. McLougWin v. Knop ^os in re Ball (D. C.) 118 Fed. 672, 9 (D. C.) 214 Fed. 260, 32 Am. Bankr. Rep. Am. Bankr. Rep. 276; In re Zehner (D. 582. A summary sale of property of a C.) 193 Fed. 787, 27 Am. Bankr. Rep. 586. bankrupt by the trustee In a deed of Where there was a growing crop on the trust, made while the property was in mortgaged real property of tlic bankrupt, the possession of the trustee in bankrupt- which the trustee had been directed by ey of the grantor, and made without the the creditors to cultivate and harvest, consent of the court of bankruptcy, is the mortgagee should not be permitted to void. In re Hasie (D. C.) 206 Fed. 789, foreclose, though he might have any re- 30 Am. Bankr. Rep. 83. lief to which he would be entitled in 401 In re Duryea, 17 N. B. R. 495, Fed. equity,' and,, when the property was even- Cas. No. 4,196. tually sold, he would not sufiCer any dim- 402 In re Oxley, 182 Fed. 1019, 25 Am. inution of right or be subjected to any Bankr. Rep. 656. greater expense than by a foreclosure in 403 In re Donnelly, 188 Fed. 1001, 26 the state court. George B. Matthews & Am. Bankr. Rep. 304. But an adjudica- Sons v. Joseph Webre Co. (D. C.) 213 tlon that a mortgage is invalid as an il- Fed. 396, 32 Am. Bankr. Rep. 180. But legal preference does not prevent the the court of bankruptcy has no power mortgagee from suing in a state court to to enjoin the sale of the bankrupt prop- foreclose the mortgage, so far as the erty to be made by a state ofBcer pursuant same aftects exempt property. Morris v. to a decree of foreclosure by a state Covey, 104 Ark. 226, 148 S. W. 257. -court, merely to permit the trustee in § 391 Ij^w of bankruptcy 858 reasonably and to prevent the property from bringing a fair price,*"' or where a large and valuable tract of land is incumbered by numerous mortgages, the separate foreclosure of which would involve heavy ex- pense and leave little or nothing for the general creditors, while such a result could be avoided by administering the property in the bank- ruptcy proceeding.*"* Another course open to the court of bankruptcy is to permit the mortgage creditor to continue his action in the state court, making the trustee a party, in order that all questions as to its validity under the state laws may be there determined, but at the same time to reserve to the trustee the right to sell the property in the bank- ruptcy proceedings and hold the proceeds to await the decision of the state court.*"* But where the whole property of the bankrupt, includ-. ing that affected by the lien of a mortgage, has been sold in the bank- ruptcy proceedings, the secured creditor can enforce his lien upon the proceeds by proper application to the court of bankruptcy, and in these circumstances a foreclosure suit in a state court is unnecessary.*^" § 391. Same; Proceedings Out of Court. — After an adjudication of bankruptcy, all the property of the bankrupt which comes into the pos- session and custody of the trustee must be administered solely by him and in accordance with the directions of the bankruptcy law, and lien creditors Cannot interfere with his possession and administration by availing themselves of remedies which they hold by virtue of their contracts or which are given to them by statute to be exercised out of court. Thus, as to such property, a landlord cannot enforce his claim for rent by distress, but is only entitled to proceed against the trustee in the bankruptcy court.*^^ So a creditor cannot levy execution on real property on which his judgment is a lien unless permitted by the court of bankruptcy.*^* And a pre-existing tax lien cannot be converted into a full title by taking out a tax deed, without the' sanction of the court.*** The court of bankruptcy, in the exercise of its equitable powers, may pr9tect the estate of the bankrupt in its custody from a fraudulent and excessive assessment for taxes.*** But aside from this, and even where bankruptcy to try to secure a purchaser feltz, 94 Fed. 629, 2 Am. Bankr. Rep. 499. and to advertise the sale more extensive- *io Ovren v. Potter, 115 Mich. 556, 73 ly. In re Schmidt (D. 0.) 224 Fed. 814, N. W. 977. 35 Am. Bankr. Rep. 1. . ' *ii In re Bishop, 153 Fed. 304, 18 Am. 407 In re Hollo\vay (D. C.) 93 Fed. 638, Bankr. Rep. 635; In re Printograph 1 Am. Bankr. Rep. 659. Sales Co. (D. C.) 210 Fed. 567, 31 Am. 40 8 In re Pittlekow (D. C.) 92 Fed. 901, Bankr. Rep. 589. 1 Am. Bankr. Rep. 472. 412 in re Lesser, 100 Fed. 433, 3 Am. 400 In re Johnson, 127 Fed. 618, 11 Bankr. Rep. 815.. Am. Bankr. Rep. 544. As to the mort- 4i3 In re Eppstein, 156 Fed. 42, 84 C. RRgee's claim on rents and profits of the C. A. 208, 19 Am. Bankr. Rep. 89. property collected by the trustee while in 4i4 Cross v. Georgia Iron & Coal Co., possession, see In re Chase, 133 Fed. 79, 250 Fed. 438, 162 C. C. A. 508, 41 Am. 13 Am. Bankr. Rep. 294 ; In re HoUeii- Bankr. Rep. 385. 859 EFFECT OF BANKRUPTCY ON EXISTING LIENS § 391 no fraud is alleged, the sale for taxes or for special assessments of property belonging to a bankrupt estate and in the custody of the court of bankruptcy, if made without the leave of that court, is void."® But purchasers at tax sales of the bankrupt's property, which are avoided at the instance of trustee, will be entitled to reimbursement for the amount paid and subsequent taxes, with interest, just as in the case of a redemp- tion, without regard to the selling price of the property at a bankruptcy sale."® On the same general principle, a creditor may be restrained from proceeding to sell property under the power contained in a chattel mortgage or a deed of trust.*" But the case is different with a pledgee holding property of the bankrupt under a valid contract of pledge to secure a genuine debt. As the property is not in the custody or pos- session of the court of bankruptcy, it has no jurisdiction over it further than to protect the interests of general creditors against any fraudulent or oppressive conduct on the part of the pledgee or in respect to any surplus. Hence the pledgee, acting fairly, has the right to sell the property in accordance with the terms of the contract and apply the proceeds in payment of his debt, accounting to fhe trustee for any surplus, and he will not be enjoined from so doing."* And on the same principle, where one is employed in the capacity of a factor to purchase goods for a bankrupt, and the goods so bought are not shipped and sold under the bankrupt's instructions because of his bankruptcy, the factor is entitled to sell the property for the best price obtainable and charge the bankrupt with the loss in satisfaction of his lien."® ■lis Dayton v. Stanard, 241 U. S. 588, 362; In re Mayer, 157 Fed. 836, 19 Am. 36 Sup. Ct. 695, 60 L. Ed. 1190, 37 Am. Bankr. Rep. 356; In re Browne, 104 Bankr. Rep. 259. • Fed. 762, 5 Am. Bankr. Rep. 220. Oom- 416 Stanard v. Dayton, 220 Fed. 441, pare In re Cobb, 96 Fed. 821, 3 Am. 137 C. C. A. 35, 33 Am. Bankr. Rep. 682. Bankr. Rep. 129. But where bonds de- ^i? In re Hasie, 206 Fed. 789, 30 Am. posited as collateral to a corporation's Bankr. Rep. 83 ; In re Nathan, 92 Fed. note were simple promises to pay, not 590-; In re Jersey Island Packing Co., secured, and liad never been issued by 138 Fed. 625, 71 C. C. A. 75, 2 L. R. A. the bankrupt until delivery to secure the {N. S.) 560, 14 Am. Bankr. Rep. 689. bankrupt's note, the creditor was held iisHiscock V. VaricfcBank, 206 U. S. not entitled to sell the bonds to realize 28, 27 Sup. Ct. 681, 51 L. Ed. 945, 18 Am. funds with which to pay the note, since Bankr. Rep. 1 ; John Mathews, Inc. v. to do so would simply increase the cor- Knickerbocker Trust Co., 192 Fed. 557, poration's indebtedness, to the prejudice 118 C. 0. A. 29, 27 Am. Bankr. Rep. 627 ; of other creditors. In re Matthews, 188 In re Ironclad Mfg. Co., 192 Fed. 318; In Fed. 445, 26 Am. Bankr. Rep. 19. re Peacock, 178 Fed. 851, 24 Am. Bankr. *i9 Couturie v. Roensch (Tex. Civ. Rep. 159 ; In re Mertens, 144 Fed. 818; App.) 184 S. W. 413. 75 C. O. A. 548, 15 Am. Bankr. Rep. § 392 LAW OF BANKEDPTCI 860 CHAPTER XXI SUITS BY AND AGAINST TRUSTEES IN BANKRUPTOr Sec. 392. Trustee's Right of Action in General. 393. Trustee's Right of Action Exclusive. 394. Leave or Direction to Sue. 395. Suit by Foreign Assignee in Bankruptcy. 396. Suits Against Trustee. 397. Same; Leave of Court. 398. En.)oining Proceedings Against Trustee. 399. Garnishment of Trustee. 400. Nature and Form of Remedy. 401. Suits in Equity by Trustee. 402. Summary Proceedings in Court of Bankruptcy, 403. Same; Against Adverse Claimants. 404. Same; Determination of Character of Claim. 405. Joinder of Causes of Action. 406. Jurisdiction; Statutory Provisions. 407. Same; Jurisdiction of Court of Bankruptcy. 408. Same; Claims on Property in Possession of Trustee or Custody of Court. 409. Same; Independent Suits Against Third Persons. 410. Same; Preferences and Fraudulent Conveyances. 411. Same; Suits Which Bankrupt Could Not Have Maintained. 412. Same; Consent or Waiver of Objections. 413. Same; Federal Courts in Other Districts. 414. Same; Jurisdiction of State Courts. 415. Same; Conflicting Jurisdiction. 416. Limitation of Actions. 417. Same; What Suits and Proceedings Barred. 418. Same; Ignorance of Cause of Action and Concealed Frauds. 419. Same; Parties Affected by Statute. 420. Same; Pleading the Statute. 421. Same ; Laches of Trustee. 422. Same; Effect of Reopening Estate. 423. Parties. 424. Same; Joinder of Bankrupt. 425. Representation of Trustee by Counsel for Bankrupt, • 426. Injunction and Receivership. 427. Pleading; Allegations of Trustee's Bill or Complaint. 428. Pleading; Defenses to Trustee's Bill or Complaint. 429. Pleadings in .Suits Against Trustees. 430. Burden of Proof and Evidence in Trustee's Suit. 431. Evidence in Actions Against Trustee. 432. Liability of Trustee for Costs. § 392. Trustee's Right of Action in General. — Although the bank- ruptcy statute does not explicitly grant to trustees in bankruptcy the authority to sue in their own names, or indeed to sue at all, yet the right of a trustee to bring and maintain whatever suit may become necessary in the process of collecting and reducing to money the assets of the es- tate may be derived by clear and necessary implications from various 861 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 392 provisions of the act/ and in fact this right is to be regarded as a nec- essary incident to his office as trustee.^ The only limitations upon this right, as stated in a decision under the former statute, are "first, that the thing sought to be recovered shall be such as, when recovered, shall be assets of the estate, and second, that the action brought shall not be an action of tort for damages such as, at common law, is strictly personal and dies with the person." * But aside from questions of preference or fraudulent conveyance, it is necessary that the relation of debtor and creditor should have existed between the defendant and the bankrupt, or circumstances must have existed which equity would hold equivalent to such relation.* Thus, the trustee cannot maintain a suit for the re- covery of a statutory, forfeiture not. claimed by the bankrupt either, be- fore or after the beginning of the bankruptcy proceedings.® But since the statute vests him with title to all the bankrupt's property as of the date when he was adjijdged a bankrupt, the trustee is not hampered in suing for its recovery by the previous appointment of a receiver in a creditor's bill and the transfer of the legal title to such receiver.® The trustee, it will be observed, may and should sue in his own name, not in the name of the bankrupt nor as use plaintiff,'' but he may, in proper cases, intervene in suits pending by or against the bankrupt at the date of the adjudication,* and he may, under the direction of the court or with its approval, submit controversies to arbitration or efi'ect their compro- mise,* and the death or removal of a trustee in bankruptcy does not abate any pending suit which he was prosecuting or defending.*" Further, as the trustee represents all the creditors of the bankrupt, he may institute all such proceedings to avoid illegal transactions as any of the creditors might," and the appointment of a trustee in bankruptcy dispenses with 1 Pease v. Mc.Quillin, 180 Mass. 135, 61 must settle with the court which ap- N. E. 819 ; Brunnemer v. Cook & Bern- pointed them. Love v. Export Storage heimer Co., 89 App. Div. 406, S? X. Y. Co., 143 Fed. 1, 74 C. C. A. 155, 16 Am. Supp. 954; Johnsou v. Bishop, Woolw. Bankr. Rep. 171. 324, 8 N. B. E. 533, Fed. Oas. \o. V,.jr3; t Ward v. Jenkins, 10 Mete. (Mass.) Babbitt v. Burgess, 2 Dill. 169, 7 N. B. 583; West v. Bank of Lahoma, 16 Okl. R. 561, Fed. Gas. No. 69S ; Bai'ber v. 508, 86 Pac. 59. Wiemer, n83 Iowa, 72, 165 N. W. 440. 8 gee supra, § ;198. But the trustee 2 McLanahan v. Blackwell, 119 6a. 64, has a discretion in this matter, and may 45 S. E. 785. properly refuse to continue the prosecu- 3 Trustees of Mutual Building Fund v. tion of a suit which cannot result in Bosseiux, 4 Hughes, 387, 3 Fed. 817. benefit to the estate. In re Throckmor- * Monroe v. Bushnell, 158 Mich. 115, ton, 149 Fed. 145, 79 0. C. A. 15, 17 Am. 122 N. W. 508. Bankr. Rep. 856. 5 Bromley v. Smith, 2 Biss. 511, 5 N. » Bankruptcy Act 1898, §§ 26, 27. See B. R. 152, Fed. Gas. No. 1,922. Hiram Blow .Stave Go.'s Trustee v. « Shainwald v. Davis, 69 Fed. 687. Paducah Cooperage Co., 158 Ky., 833, But a ' trustee in bankruptcy has no 166 S. W. ^15. And see supra, § 304. right to sue on an agreement made be- lo Bankruptcy Act 1898, § 46. And tween state receivers of the bankrupt see Pace v. Ficklin's Ex'x, 76 Va. 292. and one of its creditors; the receivers n Crane v. Brewer, 73 N. J. Ea. 558. § 392 LAW OF BANKRUPTCY 862 the necessity of a judgment and execution in favor of any or all of the creditors, as a prelimiriary, for exartiple, to equitable proceedings to reach equitable assets of the bankrupt.^^ And rights of creditors en- forceable under state statutes are enforceable by the trustee in bank- ruptcy, though not made available to him by the specific terms of the Bankruptcy Act.^* So also, the trustee may pay off a creditor and be subrogated to his rights in a pending suit against a third person, if it will be for the benefit of the estate.^* But the trustee represents the whole body of creditors, and his administration must be for their equal and common benefit. Hence he cannot ordinarily maintain an action in the name or' for the benefit of a single creditor or for the advantage of less than all." As the trustee is the representative of the creditors, and not of the bankrupt, his rights of action are by no means limited to suits which the bankrupt himself might have brought or maintained. Even if the bank- rupt is disqualified from suing on a particular contract, for failure to comply with some requirement of the state law, it does not follow that his trustee is similarly disqualified.^* But besides this, the trustee may avoid numerous kinds of transactions which would have been good and valid as against the bankrupt. Thus, he may recover property in the hands of the bankrupt's assignee for the benefit of creditors;" he may sue to set aside fraudulent transfers of property or payments of money made by the bankrupt ; ^* he may recover money paid or property trans- 68 Atl. 78. And see In re Geiver, 193 failure of. tlie corporation to comply with Fed. 128, 28 Am. Bankr. Rep. 413. the law of the state, its trustee in bank- 12 McKey y. Emanuel, 263 111. 276, ruptcy cannot sue on the contract in a 104 N. E. 1051; Sherwood v. Holbrook, federal court. But it was intimated that 178 App. Div. 462, 165 N. T. Supp. 514. if the effect of the state statute was 18 Courtney v. Fidelity Trust Co., 219 merely to disqualify the foreign corpora- Fed. 57, 134 C. C. A. 595, 33 Am. Bankr. tion from maintaining a suit, it would E'ep. 400. not follow that the trustee could not sue. 1* In re Babeock, 3 Story, 393, Fed. A corporation's participation in the il- Oas, No. 696. legal issuance of its bonds, contrary to 15 Stevenson v. Bird, 168 Ala. 422, 53 the state law, does not prevent relief to South. 93 ; Smith v. Lawton, 39 Ga. its trustee in bankruptcy suing to com- 29. Compare In re Bothe, 173 Fed. 597, pel their return. In re Progressive 97 C. 0. A. 547, 23 Am. Bankr. Rep. 151. Wall Paper Corp., 229 Fed. 489, 143 C. A bill on behalf of creditors by a trus- C. A. 557, L. R. A. 1916B, 563. tee in bankruptcy to enforce a construe- ^^ See, infra, Chapter XXII. tive trust in real estate held by the *" See infra. Chapter XXIII. Where debtor's wife may be maintained though a third person bought the bankrupt's en- there is only one creditor entitled to the tire stock of goods, within four months benefit of the suit. Duncan v. Lum, 201 before the bankruptcy, and without com- Ala. 192, 77 South. 718. ■ plying with the Bulk Sales law of the 18 Thomas v. Birmingham Ey., Light state, the stock belongs to the trustee & Power Co., 195 Fed. 340, 28 Am. in bankruptcy as against the purchaser, Bankr. Rep. 152. In this case it was and the latter is liable to the trustee in held that, if a contract made in a given trover without a demand. Philoon v. state by a foreign corporation and to be Babbitt, 119 Me. 172, 109 Atl. 817. So, performed there is void because of the the holders of bonds of a corporation 863 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 392 ferred by a debtor in contemplation of bankruptcy to an attorney at law, for services to be rendered in the bankruptcy proceedings, at least in so far as the same shall exceed a reasonable compensation ; ^* and he may maintain suits to set aside preferences given to particular creditors or to recover their proceeds.*" Moreover, if an execution was levied on prop- erty of one who afterwards became bankrupt, and within such a tinle as to be avoided by the adjudication in bankruptcy, the trustee may claim the proceeds of the sale on such execution if they remain in the hands of the sheriff or have been paid into court, or if the money has been paid over to the execution creditor, the trustee may maintain a plenary suit against him to recover the proceeds as a voidable prefer- ence.*^ So also, the trustee of a bankrupt corporation may maintain ap- propriate proceedings to enforce the liability of stockholders on their unpaid subscriptions for stock,** and he may sue for the recovery of div- idends unlawfully paid out of capital,** or for the recovery of capital or assets wrongfully or fraudulently withdrawn by officers and stockhold- ers, or wrongfully paid over to them within four months before the ad- judication in bankruptcy.** Where the bankrupt was a minority stock- holder in a corporation, and it is claimed that stock was fraudulently issued to other holders, the trustee may maintain a bill to have the s'hares returned, but he must offer to return the amount paid.*® Moreover, the trustee of a bankrupt stockholder in a corporation succeeds to the bank- rupt's title to the stock and to all of his rights and remedies in respect ' to dividends declared or which ought to have been declared ; and so, which are adjudged to be void may be Kickllghter (D. C.) 228 Fed. 744, 36 Am. required by the court of bankruptcy, at Bankr. Rep. 199. the instance of the trustee, to surrender 22 Kiskadden v. Steinle (0. C. A.) 203 the bonds. In re Franklin Brewing Co. Fed. 375, 29 Am. Bankr. Rep. 346; Bab- CD. 0.) 254 Fed. 910, 43 Am. Bankr. Rep. bitt v. Read, 173 Fed. 712, 23 Am. Banlsr. 111. Rep. 254; Edwards v. Schillinger, 148 10 Bankruptcy Act 1898; § 60d. 111. App. 227 ; Rathbpne v. Ayer, 84 App. 20 In re Walsh Bros., 163 Fed. 352, Div. 186, 82 N. T. Supp. 235; Stoeker v. 21 Am. Bankr. Rep. 14; Rosenthal v. Davidson, 74 Kan. 214, 86 Pac. 136, 118 Bronx Nat. Bank (D. C.) 222 Fed. 83, 35 Am. St. Rep. 315 ; Smoot v. Perkins Am. Bankr. Rep. 273; Jackman v. Bau (Tex. Civ, App.) 195 S. W. 988, and see, Claire Nat. Bank, 125 Wis. 465, 104 N. supra, §§ 14S, 149. Compare Hunt v. W. 98, 115 Am. St. Rep. 955. And see, Sharkey, 20 Cal. App. 690, 130 Pac, 21. generally, infra, Chapter XXIX. And see, also, RosofC v. Gilbert Transp. 21 In re Bailey, 144 Fed. 214, 16 Am. Co., 204 Fed. 349, 30 Am. Bankr. Rep. Rep. 289 ; In re Knickerbocker, 121 Fed. 359; 1004, 10 Am. Bankr. Rep. 381; In re 23 Cottrell v. Albany Card & Paper Blair, 102 Fed. -987, 4 Am. Bankr. Rep. Mfg. Co., 142 App. Div. 148, 126 N. Y. 220 ; Horton v. Bamford, 79 N. J. Eq. Supp. 1070. See Sherwood v. Holbrook, 356, 81 Atl. 761 ; Jordan v. Downey, 40 98 Misc. Rep. 668, 163 N. Y. Supp. 326. Md. 401. The trustee in bankruptcy is 24 Johnson v. Canfield-Swigart Co., entitled to sue for property sold under 292 111. 101, 126 N. E 608 ; Arnold v. execution within four months before Knapp; 75 W. Va. 804, 84 S. E. 895. bankruptcy, or its value, without ten- 25 Abele v. S. A. Meagher Co., 227 dering back the amount paid. Dreyer v. Mass. 427, 116 N. E. 805. § 392 LAW OF BANKETJPTCT 864 where the directors of a corporation, in order to protect the bankrupt and to hold out money which ought to go to his creditors, fail to declare a dividend which they might and should declare, the trustee may main- tain a suit to compel the declaration of a dividend and its payment to him.'* On similar principles, the trustee may sue for the recovery of usuri- ous interest paid by the bankrupt.*' But he cannot recover from the bankrupt's creditor securities pledged to secure the paym^t of a usuri- ous loan without tendering the amount lawfully due,- where that is what the law of the state requires.** The trustee may also sue for the bank- rupt's share in a community estate,** and he has an absolute right to partition against the bankrupt's wife.^* He may also sue for an interest in a remainder assigned by the bankrupt,** for property erroneously or improvidently surrendered to claimants by a previous receiver of the same estate in bankruptcy/* for the profits of a manufacturing plant leased by the bankrupt corporation,^^ and for an accounting on the part of a pledgee of property of the bankrupt, who has sold the same im- providently or contrary to the agreement of pledge.** Also it is within the province of a trustee in bankruptcy to maintain suits for the removal of clouds on the title of property coming into his hands as trustee.*® As a membership in a stock exchange, board of trade, or similar or- ganization, held by the bankrupt, becomes assets of his estate in bank- ruptcy, if it has an actual market value and is salable, it passes to his trustee, and the latter may take such steps as are necessary to convert, it into money, and therefore may maintain a suit against the exchange or board, or its governing authorities, to compel the issuance to him of a membership certificate, but only for the purpose of a sale.*® The statute also vests the trustee with title to "rights of action aris- ing upon contracts or from the unlawful taking or detention of, or 28 In re Brantman, 244 Fed. 101, 156 34 in re Peacock, 178 Fed. 851, 24 Am. C. C. A. 529, 40 Am. Bankr. Rep. 18. Bankr. Rep. 159. Where defendant took 27 Darby v. Boatmen's Sav. Inst, 1 charge of a corporation's business un- Dill. 141, 4 N. B. R. 600, Fed. Gas. No. der a factor's agreement entitling him to 3,571 ; Bromley v. Smith, 2 Biss. 511, 5 a lien for advances on stock, accounts N. B. R. 152, Fed. Cas. No. 1,922. And receivable, etc., the corporation's trustee see supra, § 344. in bankruptcy was held entitled to an 2« Rice V. Schneck, 189 App. Biv. 877, accounting from defendant for mer- 179 N. Y. Supp. 335. chandise sold, or its value, for accounts 20 Collins V. Bryan, 40 Tex. Civ. App. collected, and for loans and advances. 88, 88 S. W. 432. Boise v. Talcott (D. C.) 212 Fed. 268, 38 so Harlin v. American Trust Co., 67 Am. Bankr. Rep. 838. ' Ind. App. 213, 119 N. E. liO. as Lance v. Tainter, 137 N. C. 249, 49 81 Clovre V. Seavey, 74 Misc. Rep. 254. S. E. 211 ; Gazlay v. Williams, 147 Fed 131 N. Y. Supp. 817. 678, 77 C. C. A. 662, 14 L. R. A. (N. S.) 82 Whitney v. Wenman, 140 Fed. 959, 1199, 17 Am. Bankr. Rep. 249. 14 Am. Bankr. Rep. 591. 88 Board of Trade of City of Chicago 38 Gill V. Bell's Knitting Mills, 137 v. Weston, 243 Fed. 332, 156 CCA App. Div. 553, 121 N. Y. Supp. 692. 112, 40 Am. Bankr. Rep. 263 865 SUITS BY AND AGAINST TRUSTEES IN BANKEUPTCT § 393 injury to, his [the bankrupt's] property."" Consequently the trustee may sue not only on contractual rights of action vested in the bankrupt at the time of the adjudication,** but also on such torts as are not purely personal but involve pecuniary injury or loss or diminution of the es- tate in bankruptcy.*" Creditors who obtain possession of the debtor's property without his authority or consent, and proceed to administer it, by turning it into money and paying ofif debts and claims, are also liable to his trustee in bankruptcy afterwards appointed, who may sue them as for a conversion, or, waiving the tort, for the value of the prop- erty.*" But the trustee cannot maintain a suit in tort for conspiracy in assisting the bankrupt to place his property beyond the reach of creditors, against persons who are alleged to have performed their acts of conspiracy pending the bankruptcy proceedings, but before the adjudica- tion, where it is not alleged that any of the defendants received any portion of the estate, and the only result of the conspiracy is to turn the bankrupt's property into money in his hands, for which he has failed to account to the trustee." The bankrupt himself is also liable at the suit of his trustee for a tort committed on the bankrupt's property when he went into bankruptcy, and it is no defense to such an action that he has no property of his own with which to respond.** But it cannot be maintained that it is the duty of the trustee to bring suits for the infringement of a patent owned by the bankrupt, or that his failure to do so is negligence.** Causes of action may of course also accrue to the trustee out of his dealings with other persons in his official character as trustee. For example, where a bankrupt's trustee was in possession of certain ma- chines which had been received by the bankrupt under a contract of conditional sale, and at the direction of the seller, but through a mistake on his own part, the trustee delivered certain of them to a third person, without paym'ent and without authority from the bankruptcy court, it was held that the trustee was entitled to recover from such person either the machines or their value.** § 393. Trustee's Right of Action Exclusive. — Upon an adjudication in bankruptcy, the bankrupt's property and rights of action vest in 87 Bankruptcy Act 1898, § 70a. " Friedman v. Myers, 30 Ohio Cir. Ot. 3 8 See supra, § 342. E. 303. '^ ^Tl'J ^f ■• ^""i see Brunnemer ,, ^arr v. Gale, 8 Woodb. & M. 88, Fed. V. Cook & Bernli«imer Co., 89 App. Div. Q^g j^^, g 435 406, 85 N. Y. Supp. 954. . . , . io In re Thomas, 199 Fed. 214, 29 Am. *^ kittle v. Hall, 29 Fed. 508. Bankr. Rep. 945. ^And see State Bank 44 in re Caldwell Machinery Co. (D. of Chicago v. Cox, 143 Fed. 91, 74 C. 0. C.) 215 Fed. 428, A. 285, 16 Am. Bankr. Rep. 32. Blk.Bkr.(3d Ed.)— 55 § 393 LAW OF BANKRUPTCY 866 his trustee, and thereafter suits in respect to the same must be brought in the name of the trustee, not in that of the bankrupt.*** If the bank- rupt sues,. it is a good plea in abatement that he has been adjudicated and a trustee appointed.** And conversely, it is no defense to a suit by the trustee to .recover a debt due to the bankrupt that the same debt has been claimed by the bankrupt as a set-off in a pending suit.*! The trustee's right of action is also exclusive of that of the creditors. If he refuses or neglects' to bring a suit which they deem necessary or advis- able, their remedy is to apply to the court of bankruptcy for an order compelling him to do so, or, in extreme cases, for his removal and the appointment of a new trustee.** Before the election and qualification of a trustee, it is true, any creditor of the bankrupt has the right to institute a suit. to set aside a fraudulent conveyance or recover a prefer- ence, but when a trustee is elected pending such a suit, he is entitled to become a party plaintiff therein.*' And after the trustee is in the exercise of his official functions it belongs to him alone to institute and maintain a suit of this character, at least to the exclusion of any credi- tor who has not a special lien on the property in question, and certainly to the exclusion of all simple-contract creditors.^' And the fact that creditors of a bankrupt had acquired a lien on property fraudulenth' transferred more than four months before the bankruptcy, and are therefore entitled to sue to set aside the conveyance, notwithstanding the bankruptcy proceedings, does not deprive the bankrupt's trustee of the right to maintain a similar suit, especially where the creditors 45 Dessau v. Johnson, 66 How. Prac. pare Davis v. W. F. Vandiver & Co., 143 (N. y.) 4 f Rea v. Richards, 56 Ala. 396 ; Ala. 202, 38 South. 850, where it is said First Nat. Bank v. Walte, 57 Vt. 608; that if creditors, acting independently, Elderkin v. Blderkin, 1 Root (Conn.) 139. bring suits for the recovery of assets 46 Cook V. Lansing, 3 McLean, 571, which the trustee is negligently or inten- Fed. Cas. No. 3,162. tionally permitting to escape, it does not 47 Miller v. Delaware, L. & W. E. Co., lie wUh the trustee to complain of their Fed. Cas. No. 9,566. action. 48 In re Oakley (D . C.) 215 Fed. 265, 49 Frost v. Latham & Co., 181 Fed. 866, 31 Am. Bankr. Rep. 806 ; Miners' & Mer- 25 Am. Bankr. Rep. 313. chants' Bank v. Union Loan & Trust Co., so Lovell v. Latham & Co. (D. G.) 211 5 Alaska, 511. And, see supra, § 281. Fed. 374, 32 Am. Bankr. Rep. 191 ; Vi- That a creditor of a bankrupt is dissat- (luesney v. Allen. 131 Fed. 21, 65 C. C. A. isfled with the manner in which the 259, 12 Am. Bankr. Rep. 402 ; Moore- trustee is discharging his duties does not Schafer Shoe Mfg. Co. v. Billings, 46 Or. Justify him in standing aloof from the 401, 80 Pac. 422; -New Orleans Nat. bankruptcy proceedings and bringing an Banlving Ass'n v. Le Breton, 4 Woods, independent suit to .recover his debt. 203, 14 Fed. 646. But see Googins v. De Muth V. Faw, 103 Wash. 279, 174 Pac. Skillings, 118 Me. 299, 108 Atl. 50, hold- 18. As to the rights of creditors in re- ing that a creditor may proceed in the spect to directing the trustee to bring state courts to set aside a fraudulent suits, and the discretion of the trustee transfer as to him, Blotwithstandihg the in submitting to a vote of the creditors debtor's bankruptcy, if the trustee takes the question whether particular action no action or if the creditor's claim is shall be taken, see supra, § 282. Com- not provable in bankruptcy. 867 SUITS BY AXD AGAINST TRUSTEES IN BANKRUPTCY § 394 have not yet brought their suit, and are joined as defendants in the trustee's suit.^^ § 394. Leave or Direction to Sue. — In respect to suits pending by or against the bankrupt at the time of the adjudication, it appears that the intervention of the trustee or his substitution as a party must have the sanction of the court of bankruptcy. For the language of the stat- ute is that he "may, with the approval of the court, be permitted to prosecute" a suit begun by the bankrupt, or, if the pending action was against the bankrupt as defendant, that "the court may order the trus- tee to enter his appearance and defend." *^ Before attempting to take the place of the bankrupt in a pending suit, therefore, the trustee should obtain the consent or order of the court of bankruptcy .°* But it is otherwise as to actions which the trustee begins on his own account after taking charge of the estate, whether the suit is to collect a debt, set aside a fraudulent transfer, or recover a preference. His right to bring such actions is clearly conferred by the statute, and his duty to do so is incident to his office and does not depend upon the orders or instruc- tions of the court. Any such suit may be brought in a state court by the trustee on his own initiative and responsibility, without first ob- taining the leave or direction of the court of bankruptcy, and the fact that he proceeds without any order from that court is no defense or valid objection.^ It is true that the statute requires trustees to collect and liquidate the assets of the estate "under the direction of the court," but this does not require an express order or direction to institute any par- ticular suit.^ However, it is also true that a trustee who. hesitates or refuses to bring a suit for the recovery of assets may be ordered to do so on the petition of a creditor, provided the latter will give a bond to protect the estate from liability for costs and expenses.^ In the particular case of a proceeding by the trustee of a bankrupt corporation to collect unpaid subscriptions to its capital stock, there must first be an order of the court of bankruptcy directing the insti- 61 Thomas v. Roddy, 122 App. Div. 851, Ryerson, 34 Mich. 362; Hallack v. Tritch, 107 N. Y. Supp. 473. 17 N. B. R. 293, Fed. Cas. No. 5,956. 5 2 Bankruptcy Act 1898, § lib, c. Compare Chlsolm v. Wallace, 146 Ala. 63 Hahlo V. Cole, 112 App. Div. 636, 98 683, 40 South. 219. And see, under the N. Y. Supp. 1049 ; In re Haensell, 91 Fed. act of 1867, Pollock v. Hill, 69 Ala. 515 ; 355, 1 Am. Bankr. Rep. 286; The Alert, Maybin v. Raymond, 15 N. B. R. 353, 199 Fed. 542. Fed. Cas. No. 9,338. As to necessity of 5* Traders' Ins. Co. v. Mann, 118 Ga. previous demand or notice to d^fcndant, 381, 45 S. E. 426; Chalman v. Dodd, 23 see Grant v. National Bank of^ubum, Ga. App. 653, 99 S. E. 150. Cartwright 197 Fed. 581, 28 Am. Bankr. Rep. 712. V. West, 155 Ala. 619, 47 South. 93 ; bs Callahan v. Israel, 186 Mass. 383, Ohism V. Citizens' Bank, 77 Miss. 599, 71 N. E. 812. 27 South. 637; Chism v. Bank of Friars b« in re Bailey (D. C.) 151 Fed. 953, Point (Miss.) 27 South. 610 ; Edwards v. 18 Am. Bankr. Rep. 226. And see, su- Schillinger, 148 111. App. 227; Avery v. pra, § 282. § 395 LAW OP BANKRUPTCY 868 tution of proceedings against the delinquent stockholders and notice to them and an opportunity to be heard as to the validity of the claim.^ But if these conditions are fulfilled, they can question the validity of the order authorizing suit only in a direct proceeding in the court of bank- ruptcy.^ § 395. Suit by Foreign Assignee in Bankruptcy. — The American rule as to the effect of foreign bankruptcy on the property of the bank- rupt, as stated by Story, is that an adjudication abroad is not regarded as vesting the assignee with title to the property of the debtor which may be without the jurisdiction of the country where the proceedings take place, or that, if it is recognized as having that effect (which is the case in some of our courts), at least it is universally held that we are not bound by comity to give effect to foreign bankruptcy laws to the extent of impairing the remedies, or lessening the securities, which our laws have provided for our own citizens.** But while the right of a foreign assignee in bankruptcy, as respects the assets of the bankrupt, must yield to the claims of creditors of the bankrupt seeking the aid of the domestic courts, yet such foreign assignee may, as the represent- ative of the bankrupt, sue to collect the assets to the same extent as the bankrupt could have done had not bankruptcy intervened, though whether he may sue in his own name or must sue in the name of the bankrupt is a local question, depending upon whether or not an assign- ment by operation of law is sufficient to enable the assignee to sue in his own name.*' § 396. Suits Against Trustee. — ^A trustee in bankruptcy may be sued by any one having a valid claim against him for acts done in the administration of the estate, as, for the recovery of money which has come into his hands but which does not constitute assets of the estate, properly belonging to the plaintiff, or for the conversion of goods sim- ilarly claimed by such plaintiff as his own.®^ So, a suit may be main- 5 7 Chamberlain v. Piercy, 82 Wash. man v. Caen, 34 Barb. (N. Y.) 66; s. c, 157, 143 Pac. 977 ; Natwick v. Terwilli- 1 Hun, 647, 4 Tbomp. c& C. 171, 10 N. B. ger, 24 Wyo. 253, 157 Pac. 696, 160 Pac. R. 512. 338. And see, supra, § 148. Compare oi in re Snelling, 202 Fed. 258; Gard- Porter v. Hughes, 198 Ala. 36, 73 South. ner v. Planters' Nat. Bank, 54 Tex. Civ. 400. App. 572. 118 S. W. 1146; Schall v. Kin- 6 8 Bernard v. Carr, 167 N. C. 481, 83 sella, 117 La. 687, 42 South. 221; Hos- S. E. 8M. mer v. Jewett, 6 Ben. 208, Fed. Oas. No. 9 StWy, Conflict of Laws (8th edn.) 6,713; Smith v. Gordon, 6 Law Rep. 313, pp. 565,- 575. And see supra, § 14. Fed. Cas. No. 13,052; State v. Trustees 6 Hunt V. Jackson, 5 Blatchf. 349, Fed. of University, 65 N. C. 714, 5 N. B. R. Cas. No. 6,893; Blane v. Drummond, 1 466, Fed. Cas. No. 10,318; Cogdell v. Ex- Brock. 62, Fed. Cas. No. 1,531 ; Merrick's um, 69 N. C. 464, 12 Am. Ren. 657, 10 N. Estate, 5 "Watts & S. (Pa.) 9; In re Mer- B. R. 326, rick, 2 Ashm. (Pa.) 4S5. Contra, Mossel- 869 SUITS BY AND AGAINST TRUSTEES IN BANKEUPTCT § 3 96 tained against the trustee to establish the validity and lien of an incum- brance on property of the bankrupt in his hands,*^ or by a chattel mort- gagee to establish his claim upon the fund arising from the trustee's sale of the mortgaged goods, where a sum was ordered reserved out of the proceeds of the sale to satisfy any liens which might be estab- lished,®* or the trustee may officially be made a defendant in a suit to foreclose a mortgage on property of the bankrupt, commenced after his appointment and qualification.** So also, an action lies against him for money received by him as assets of the estate and not paid over to creditors,*^ or for wrongfully paying out a fund in his hands to other creditors than the one solely entitled to it.*® But a suit against the trus- tee is not a proper or permissible procedure for one who is simply a cred- itor of the bankrupt and seeks thereby to collect his debt. He must take the course prescribed by the statute, proving his claim in the bankruptcy proceedings and taking his dividend with the rest.®'" Nor can one sue the trustee in a state court whose claim is properly to be presented to the court of bankruptcy as a part of the legitimate ex- penses of administration.®* And the bankrupt himself has no standing to sue the trustee in respect to any property vesting in the latter by vir- tue of the adjudication.®* If the trustee dies or absconds pending the suit, his co-trustee or his successor in the office of trustee may be brought in.'® As to the defenses available to the trustee in such an action, it is said that he is limited to such defenses on behalf of creditors as they themselves would be entitled to rely upon.'^ But clearly he may plead usury, and proba- bly it is his duty to do so,'* or the illegality of the consideration, as where the note in suit was given in a gambling transaction.'^ As to 62 Chattanooga Nat. Bank v. Rome himself. Hebert v. Crawford, 228 TJ. S. Iron Co., 99 Fed. 82, 3 Am. Bankr. Eep. 204, 33 Sup. Ct. 484, 57 L. Ed. 800, 30 582 ; Nauman Co. v. Bradshaw, 19^ Fed. Am. Bankr. Rep. 24. 350, 113 C. C. A. 274, 27 Am. Bank*. Rep. ee XTnited States v. Dewey, 39 Fed. 251. 565. / «7 Catlin v. Foster, 1 Sawy. 37, 3 N. B. 6 3 Skilton V. Codington, 185^N. Y. 80, R. .540, Fed. Cas. No. 2,519. 77 N. E. 790, 113 Am. St. Itep. 885. es in re Empire Construction & Sup- 64 Landon v. Townshend, 112 N. T. ply Co., 157 Fed. 493, 19 Am. Bankr. Rep. 93, 19 N. E. 424, 8 Am. St. Rep. 712. 704. 66 Hall V. Cushina 8 Mass. 521. A so in re Kranich, 174 Fed. 908, 23 Am. trustee in bankruptcy, who has been Bankr. Rep. 550. charged by the bankruptcy court in a 7o Fenton v. Collerd, 8 Ben. 27, 11 N. summary proceeding with the value of B. R. 535, Fed. Cas. 4,731. property which came into his possession 7 1 Marine Sav. Bank v. Norton, 160 as assets of the estate, and was improp- Mich. 614, 125 N. W. 754. erly delivered by him to a firm In which t2 in re Hoole, 3 Fed. 496. And see he was a partner, may be enjoined by a supra, § 344. state court from using the partnership 73 in re Hill, 187 Fed. 214, 26 Am. aspets to satisfy the judgment against Bankr. Rep. 133. § 396 LAW OF BANKRUPTCY 870 the form of action, the rule is that if the trustee is alleged to have in his possession, or to have converted to the use of the estate, property which did not constitute a part of the assets in bankruptcy, he may be sued in trespass or trover for its value by the rightful owner,'* but not in replevin, since the latter form of action would involve the physical change of possession of property which, being in the hands of the trus- tee as an officer, is in the custody and exclusive control of the court of bankruptcy.''® And for similar reasons, a state court has no jurisdiction to entertain a suit to enjoin, the collection of assets by a trustee in bank- ruptcy.'® As to the other incidents of a suit against the trustee, it may be remarked that the rule applies that one who purchases pendente lite is bound by the subsequent proceedings," and that if the trustee, being made a defendant to a suit, fails to come in and assert his rights, he will be just as much barred by a default judgment or decree as any other party.'* But when a judgment has been recovered against the trustee in his official capacity (that is, a judgment which is effective against the estate in bankruptcy rather than against the trustee per- sonally) there should be no attempt to collect it by the ordinary process of execution.'® The plaintiff must seek his remedy in the court of bank- ruptcy, which, having exclusive possession and jurisdiction to admin- ister the estate, and having control over the trustee as its officer, can make all proper orders relating to the satisfaction and payment of the judgment.*"* 74 In re Spitzer, 130 Fed. 879, 66 O. N. B. R. 414; Keegan v. King, 96 Fed. C. A. 35, 12 Am. Bankr. Rep. 846 ; In re 758, 3 Am. Bankr. Rep. 79. Russell (C. C. A.) 101 Fed. 248, 3 Am. 77 Kimberling v. Hartly, 1 McCrary, Bankr. Rep. 658 ; Truda v. Osgood, 71 N. 136, 1 Fed. 571. H. 185, 51 All. 633. But compare In re 's Turner v. Indianapolis, B. & W. Ry. Mertens, 131 Fed. 507, 12 Ajn. Bankr. Co., 8 Biss. 380, Fed. Gas. No. 14,259. Rep. 698. 7 In re Stringer (D. C.) 230 Fed. 177, 75 Weeks v. Fowler, 71 N. H. 221, 51 37 Am. Bankr. Rep. 44. Atl. 624; Crosby v. Spear, 98 Me. 542, so j. b. McFarlan Carriage Co. v. Sol- 57 Atl. 881, 99 Am St. Rep. 424 ; Concord anas, 106 Fed. 145, 45 C. C. A. 253, 5 Am. Iron '& Metal Co. v. Couch, 75 N. H. 593, Bankr. Rep. 442, dissenting opinion of 73 Atl. 301 ; Yegen v. Northern Pac. Ry. Shelby, J. The opinion of the majority Co., 19 N. D. 70, 121 N. W. 205. But see of the court was based on the theory that Ayers v. Farwell, 196 Mass. 349, 82 N. the fund or property in question was not E. 35, holding that one may maintain a part of the assets of the estate in bank- replevin in a state court to obtain posses- niptcy. See Smith v. Berman, 8 Ga. sion of the property of a bankrupt, after App. 262, 68 S. E. 1014. But a court of the adjudication in bankruptcy, but be- bankruptcy cannot, by a summary or- fore anything else lias been done to ob- der, require a trustee to pay a judgment tain possession of his property in the fed- for costs rendered against him in an- eral courts. And see Exler v. Wickes other jurisdiction, where there are no Bros., 263 Pa. 150, 106 Atl. 233. funds of the estate in his hands. In re 7 6 Southern v. Fisher, 6 S. 0. 345, 16 Howard, 130 Fed. 1004, 12 Am. Bankr. Rep. 462. 871 SUITS BY ANO AGAINST TRUSTEES IN BANKRUPTCY § 397 As to suits in which the object is to recover damages from the trus- tee personally, it is ruled that he is not liable to suit in a state court for any acts done in the performance of his duty under the orders of the court of bankruptcy." But on the other hand he may be sued for dam- ages for any wrongful acts which were entirely beyond his authority or duty and which resulted in injury to third persons.** Conversely, for such acts the estate of the bankrupt is not liable,- but only the trustee individually.** Finally, in his administration of the property, the trustee in subject to the police regulations of the state. Thus, the jurisdiction of the court of bankruptcy over the estate of the bankrupt does not ex- clude the jurisdiction of the state courts to entertain an action for the abatement of a liquor nuisance on property of the estate, that being a matter of police regulation, which does not interfere with the proper jurisdiction of the federal court.** § 397. Same; Leave of Court. — ^Under the former bankruptcy law, it was held that an assignee in bankruptcy could not be sued in a state court unless upon leave first obtained from the court of bankruptcy un- der which he was acting.*" And the same rule has been applied under the present statute to suits against trustees in bankruptcy, where the ob- ject of the suit is to recover or reclaim specific property claimed by the trustee to constitute part of the estate in his hands and which he has reduced to possession.*® A suit of this character brought against him without leave may be enjoined, at Ms request, by the bankruptcy court,*' or, if leave to sue was improvidently granted, it may be revoked by the court of bankruptcy on being fully advised of .all the facts.** But if the 81 Wood V. Cummings, 19T Mass. 80, South. 95, 82 Am. St. Eep. 254; Carney 83 N. E. 318. V. Averill, 110 Me. 172, 85 Ala. 494. 82Berman v. Smith, 171 Fed. 735, 22 s 7 Lloyd v. Ball, 77 Fed. 365. Am. Bankr. Rep. 662. An action lies ss in re Schermerhorn, 145 Fed. 341, against a trustee in bankruptcy for will- 76 C. C. A. 215, 16 Am. Bankr. Eep. 507. ful in.iury to creditors of the estate, re- Where the bankruptcy court had grant- suiting from his omission or improper ed leave for the institution of a fore- performance of his duties as to notify- closure suit after the election of the Ing them of meetings, or retaining suffl- trustee, so that the state court's jurisdic- cient funds to provide for their known tion over the parties had not attached but undetermined claims. Russell v. before the property came into the posses- Phelps, 42 Mich. 377, 4 N. W. 1. sion of the bankruptcy court, and it ap- 83 Adams v. Meyers, 1 Sawy. 306, 8 peared that there were sufficient assets N. B. R. 214, Fed. Cas. No. 62. to pay the mortgage debt sought to be 8* Radford v. Thornell, 81 Iowa, 709, foreclosed, as well as the two prior 45 N. W. 890. mortgages, but that the validity and 85 Price V. Price, 4 Hughes, 438, 48 amounts due on the three mortgages Fed. 823. were disputed, and the same issue would 86 In re Russell, 101 Fed. 248, 41 C. be presented as to the prior mortgages C. A. 323, 3j Am. Bankr. Rep. 658; Tur- as was involved in the mortgage on rentine v. Blackwood, 125 Ala. 436, 28 which foreclosure was begun, it was § 398 LAW OF BANKEDPTCY 872 object of the suit is only to establish a lien or recover a money judgment, and it does not seek in any way to disturb the trustee's possession of property in his hands, or to interfere with or contravene the proceedings of the courts of bankruptcy, there is authority in support of the view that it may be maintained without leave of the bankruptcy court,** especially in view of the act of Congress which permits receivers ap- pointed by the federal courts to be sued without previous leave,®" which certainly applies to receivers in bankruptcy,*^ and may easily be ex- tended by analogy so as to include trustees. § 398. Enjoining Proceedings Against Trustee. — Since the posses- sion of property of a bankrupt by his trustee is the possession of the court of bankruptcy, and that possession cannot be lawfully disturbed or ousted by any person without the permission of the court, the court has undoubted power and jurisdiction to enjoin any proceeding intended to take specific property out of the hands of the trustee.*^ And a sim- ilar rule applies to any proceeding which would seriously interfere with the administration of the estate in bankruptcy or cause unnecessary loss to creditors, as, for example, a suit in ejectment to recover premises leased to the bankrupt and which the receiver in bankruptcy continues to occupy for the purpose of closing up the business of the bankrupt.*^ But the court will not stay suits proceeding in the state courts between different creditors of the bankrupt, when the trustee in bankruptcy al- ready has possession of the property which is the subject-matter of such suits, and cannot be bound or in any way affected by the results of such litigation.** And where a suit in equity is pending in another court to establish a lien on a fund in the hands of a trustee in bankruptcy, it is doubtful whether that court has jurisdiction to restrain the trustee from distributing the fund to creditors, pending the determination of the suit, probably the better rule requiring the complainant to resort to the court of bankruptcy for an order to that effect.*" held that the further prosecution of the 101 Fed. 248, 41 C. C. A. 323, 3 Am. foreclosure proceedings should be stayed. Bankr. Rep. 658; Keegan v. King, 96 In re Locust Building Co. (D. 0.) 272 Fed. 7-58, 3 Am. Bankr. Rep. 79; In re Fed. 988, 47 Am. Bankr. Rep. 136. People's Mail S. S. Co., 3 Ben. 226, 2 N. 89 Gardner v. Planters' Nat. Bank of B. R. 552, Fed. Oas. No. 10,970; Hewett Honey Grove, 54 Tex. Civ. App. 572, 118 v. Norton, 1 Woods, 68, 13 N. B. R. 276. S. W. 1146; In re Smith (D. C.) 121 Fed. Fed. Cas. No. 6,441; In re Miller, 6 Biss^ 1014, 9 Am. Bankr. Rep. 603. 30, Fed. Cas. No. 9,551; Wagner v. Mt. 9 Act Cong. August 13, 1888, 25 Stat. Carmel Iron Works (C. C. A.) 270 Fed. 436. 80. 46 Am. Bankr. Rep. 508. ni In re Kanter & Cohen, 121 Fed. 984, „<, j„ „„ n^„^-h^^„ no tji j ca^ « . 58 0. C. A. 260, 9 Am. Bankr. Rep. .7. ^:2: [^53"' '' ^^'^ ''"' ' ^"^ 92 In re Schpnnerhorn. 145 Fed. 341, 76 0. C. A. 215, 16 Am. Bankr. Rep. 507; " ^^^'^ ^- Bromley, 6 Fed. 477. Lloyd V. Ball, 77 Fed. 365; In re Russell, ss Chattanooga Nat. Bank v. Rome 873 SUITS BT AND AGAINST TRUSTEES IN BANKRUPTCY § 400 § 399. Garnishment of Trustee. — Like a receiver in equity or an as- signee in insolvency, a trustee in bankruptcy cannot be required, by the process of garnishment, to account to a judgment creditor of the bankrupt with respect to money or property in his hands as such trus- tee, for it is in the custody of the law and under the control of the court of bankruptcy alone, and moreover the trustee does not hold ,as the debtor or the agent of the bankrupt, but adversely to him.** So also with respect to garnishment proceedings instituted by one holding a judgment or other claim against a creditor of the bankrupt estate. Nei- ther money in the hands of the trustee which is distributable in the form of dividends, nor money payable under a composition agreement, can be reached or tied up by the process of attachment or garnishment from another court." And this is true even after a dividend has been declared, the precise sum ascertained to which the particular creditor will be entitled, and the trustee ordered to pay him that sum. Still a judgment creditor of that creditor cannot obtain satisfaction of his claim by garnishment of such distributive share. For it remains within the exclusive jurisdiction of the court of bankruptcy, not only until its payment to the creditor is ordered, but until it has actually been paid to him.^ § 400. Nature and Form of Remedy! — If the trustee in bankruptcy brings his action in the -court of bankruptcy, it will be governed by the ordinary rules of procedure in the federal courts, such as that which pre- serves the distinction between legal and equitable causes of action, and if the suit is essentially one of equitable cognizance, it will be triable by the court without a jury.** On the other hand, if he goes into the state courts, he must bring an action recognized by the state laws as appro- Iron Co., 99 Fed. 82, 3 Am. Bankr. Kep. »? In re Kohlsaat, 18 N. B. R. 570, Fed. 582. Cas. No. 7,918. as Colby v. Coates, 6 Oush. (Mass.) 558; as in re Cunningham, 19 N. B. R. 276, Lord V. Meachem, 32 Minn. 66, 19 N. W. Fed. Cas. No. 3,478. 346; Oliver v. Smith, 5 Mass. 183; Field so Dokken v. Page, 147 Fed. 438, 77 C. V. Jones, 11 Ga. 413; Com. y. Hide & C. A. 674, 17 Am. Bankr. Rep. 228. But leather Ins. Co., 119 Mass. 155. But in bankruptcy cases, as in others, the see In re Kranich, 182 Fed. 849, 25 Am. Act of March 3, 1915, 38 Stat. 956 (Comp. Bankr. Rep. 50. It appears that a judg- St. 1916, §§ 1251a-1251c), applies, which ment creditor of the bankrupt may main- provides that, vifhen a suit at law should tain garnishment proceedings against the have been brought in equity or a suit in trustee, when the latter has collected a equity at law, the court shall order any note after it had been set apart to the necessary amendment, and that any par- bankrupt as exempt. Barker-Bond Lum- ty shall have the right at any stage of ber Co. y. Wbaley, 117 Va. 642, 86 S. B. the action to amend so as to obviate the 160, objection that the suit was not brought on the right side of the court. § 400 LAW OF BANKRUPTCY 874 priate to secure the relief for which he asks/'" and he will be bound by the rules of procedure in the state courts.^"^ When the action is to recover the value of a preferential transfer of property by the bankrupt, assumpsit is an appropriate form of action."* For the conditional obligation of the creditor to make restitution in case the debtor is adjudged bankrupt within four months and the trustee elects to sue, gives rise to a quasi contract sufficient to sustain this form of action. An action of tort is also suitable, and is the remedy perhaps more usually adopted, but the tort may be waived."* If the action con- cerns goods in the possession of a third person, but claimed as assets of the estate in bankruptcy, the trustee may maintain the action] of replev- in."* If the object of the suit is to recover the value of property trans- ferred by the bankrupt in fraud of the act or for the purpose of hindering or defrauding his creditors, the proper form of action is trover."^ But in the case of a sale of the debtor's property under attachment, if the ti;ustee desires to pursue the attaching creditor, the officer making the sale, and the purchaser at the sale, on the ground that the attachment was dissolved by the debtor's adjudication in bankruptcy and that the defendants had notice thereof, the proper form of action is trespass, and not trover.^"® A suit by a trustee in bankruptcy against a mortgagee of 100 McCormick v. Page, 96 111. App. 447. And see Day v. Luna Park Co., 174 111. App. 477. 101 Bacon v. George, 206 Mass. 566, 92 N. E. 721. In a suit by a trustee in bank- ruptcy to set aside a fraudulent convey- ance of the bankrupt, the trustee must bring his case within the rules of plead- ing and proof prescribed by the statutes and decisions of the state wher«in the suit is brought. Coleman v. Hagey, 252 Mo. 102, 158 S. W. 829. 102 Chicago Title & Trust Co. v. First Nat Bank of Chicago, 174 111. App. 339, affirmed, Chicago Title & Trust Co. v. National Storage Co., 260 111. 485, 103 N. E. 227. See McCulloch v. Davenport Savings Bank (D. C.) 226 Fed. 309, 35 Am. Bankr. Eep. 765. In an action to recover a preference given a creditor within four months before the adjudica- tion of bankruptcy, where the value of the property converted is certain and knovpn and properly alleged, the action may be considered as arising- upon an implied contract, so that garnishment may issue. State v. Superior Court for ICing County, 105 Wash. 676, 178 Pac. 827. See Parker v. Sherman, 212 Fed. 917, 129 C. C. A. 437, holding that prop- erty transferred by a bankrupt so as to effect a preference, or its value, may be recovered by a suit in equity. 103 Reber v.. Ellis Bros.^ 185 Fed. 313, 25 Am. Bankr. Rep. 567; Edwards v. Schillinger Bros. Co., 153 111. App. 219. 104 Gordon v. Farrington, 46 Mich. 420, 9 N. W. 456; Godwin v. Tuttle, 70 Or. 424, 141 Pac. 1120. And see, supra, § 316. 105 Lyon v. Clark, 129 Mich. 381, 88 N. W. 1046; Jackman v. Eau Claire Nat. Bank, 125' Wis. 465, 104 N. W. 98, 115 Am. St. Rep. 955; Chlckering v. Ray- mond, 15 111. 362; Carr v. Gale, 3 Woodb. & M. 38, Fed. Cas. No. 2,435. See Shu- man V. Fleckenstein, 4 Sawy. 174, 15 N. B. R. 224, Fed. Cas. No. 12,826; Brooke V. McCracken, 10 N. B. R. 461, Fed. Cas. No. 1,932; Philoon v. Babbitt, 119 Me. 172, 109 Atl. 817. And see, supra, § 316. One receiving corporate chedcs for an officer's Individual liability, under cir- cumstances which would put him on no- tice. Is liable to the corporation, wheth- er or not the rights of creditors inter- vene, and hence, on the bankruptcy of the corporation, its trustee may main- tain an action for the conversion. Heig V. Caspary, 191 App. Div. 560, 181 N. Y. Supp. 633. 106 Wallace v. Camp, 200 Pa. St. 220, 49 Atl. 942. See Gaytes v. American, 5 875 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 401 the bankrupt to recover possession of property taken by the mortgagee under an alleged invalid mortgage is an independent and plenary suit by the trustee, and the mortgagee, answering to the merits, thereby admits the trustee's capacity to sue.^" The trustee may also, of course, have such other remedies as are available to any ordinary litigant. Thus, if property seized by the mar- shal has been surrendered to a claimant on a forthcoming bond, and the title of the claimant is finally adjudged invalid, but he is then insolvent, the trustee may proceed directly on the bond."* He may also maintain a writ of error to reverse a judgment rendered against the bankrupt."® But a refund of taxes formerly paid by the bankrupt and ordered by the state legislature to be restored to him, cannot be enforced by mandamus against the state auditor.^" And the trustee in bankruptcy of a tenant in common will not be allowed to sue in a state court for partition, when the provisions of the state laws and those of the bankruptcy act, which would be applicable to the resulting sale, are so irreconcilable that a con- flict of jurisdiction would inevitably arise between the state court and the court of bankruptcy.^*^ § 401. Suits in Equity by Trustee. — A trustee in bankruptcy is by no means limited to actions at law for such aid as he needs in collecting the assets of the estate, but may also bring a bill in equity, in the proper court, when the case is properly one of equitable cognizance.^^* Thus, the trustee in bankruptcy of a corporation seeking to recover from a stockholder because of the issuance to him of stock in exchange for prop- erty at an overvaluation, is exercising the rights of a creditor armed with process and must sue in equity."* So, trustees in bankruptcy may re- Biss. 86, 14 N. B. R. 141, Fed. Cas. No. ment of a receiver and for the marshal- 5,286; Chicago Title & Trust Co. v. First ling of the assets of the defendant corpo- Nat. Bank of Chicago, 174 111. App. 339. ration, where it appears .that it was a Compare Withoft v. Western Meat Co. mere dummy and nothlng'more than an (D. C.) 210 Fed. 986. agent of the bankrupt, its assets having 107 In re Federal Contracting Co., 212 always been (at least equitably) the bank- Fed. 688, 129 C. C. A. 224, 32 Am. Bankr. rupt's, and such assets being in danger Eep. 381. of being dissipated and fraudulently 108 storrs V. Engel, 3 Hughes, 414, l9 made away with. Hardy v. Oregon Bil- N. B. K. 90, Fed. Cas. No. 13,494. erfe Music House, 99 Or. 340, 195 Pac. ] 00 Day V. Laflin, 6 Mete. (Mass.) 280. 563. So a trustee in bankruptcy may And see supra, § 193. maintain a bill to subject the bankrupt's 110 Graham v. Norton, 15 Wall. 427, 21 interest in a testamentary trust estate L. Ed. 177. to. the payment of the bankrupt's credi- 111 Lindsay v. Kunkle, 82 Ohio St. tors. Forbes v. Snow (Mass.) 131 N. E. 325, 92 N. B. 489, 29 L. E. A. tN. S.) 659, 299. 137 Am. St. Rep. 781. iis Courtney v. Youngs, 202 Mich. 384, 112 In re Plant (D. C.) 148 Fed. 37, 17 168 JST. W. 441. A9 to suits to recover Am. Bankr. Rep. 272. But see In re unpaid subscriptions to the capital stock Beihl (D. C.) 197 Fed. 810, 28 Am. of the bankrupt corporation, see Shiffer Bankr. Rep. 310. A trustee in bankrupt- v. Akenbrook (Ind. App.) 130 N. E. 241;' cy may maintain a suit for the appoint- Kaye v. Metz (Oal.) 198 Pac. 1047. § 401 LAW OF BANKRUPTCY 876 sort to a bill in equity in the federal court to protect their right to the possession of property belonging to the bankrupt, as against one claim- ing a right to a portion of it and who interfered with the efforts of the trustees to obtain possession of any of it."* A complaint or petition by the trustee, addressed to the bankruptcy court in the exercise of its eq- uity powers, praying an accounting for damages resulting from the ap- pointment of a receiver, which was secured through imposition on the court, is not beyond the equitable jurisdiction of the court of bankrupt- cy. *** And if the trustee desires the reformation of a contract for a con- ditional sale to the bankrupt, he can, only obtain this relief upon a bill regularly filed."® But he must pursue appropriate remedies in all cases, and not resort to equity when he has a plain and adequate remedy at law, nor seek an injunction, receivership, or other equitable relief, where the proper course is to bring trover or replevin, or where a simple money judgment will give him all the relief to which he is entitled. ^^'' Where the object is to set aside a fraudulent conveyance or recover the value of property fraudu- lently transferred by the debtor, a bill in equity in the form of a cred- itor's bill may be an appropriate form of action,"* though, as stated in the preceding section, if the trustee seeks merely to recover the value of property so transferred, trover will lie. In the case of an alleged pref- erential payment by the bankrupt, where no actual fraud is charged, and there is no demand for the cancellation or setting aside of any convey- ance, it is thought that a bill in equity will not lie, the case being one for an action at law as for money had and received,^^'' though some of the iiiAtlierton v. Beaman (D. C.) 256 Rep. 421. But where defendant de- Fed. 871, 42 Am. Bankr. Rep. 631. dared a forfeiture under a contract pro- 115 In re Veler, 249 Fed. 633, 161 C. viding for the construction of a railroad 0. A. 543, 41 Am. Bankr. Rep. 736. by the bankrupts, it was held that, on 118 In re Bondurant Hardware Co. (D. a suit for an accounting by the trustee 0.) 231 Fed. 247, 37 Am. Bankr. Rep. of the bankrupts, in which general re- 308. lief was prayed, the court had authority 117 In re Oregon Iron Works, 4 Sawy. to grant relief on account of the for- 169, 17 N. B. R. 404, Fed. Gas. No. 10,- feiture of property not included in the 562 ; Sessler v. Nemcof (D. O.) 183 Fed. contract, and the trustee was not requir- 656, 25 Am. Bankr. Rep. 618. Where the ed to bring an action at law for conver- liability of stockholders of a bankrut)t sion.- Stennick v. Jones, 252 Fed. 345, corporation on their unpaid stock sub- 164 C. C. A, 269. scrip tions is unconditional, and an order us Stotesbury v. Cadwallader, 10 of the bankruptcy court for payment of Phlla. (Pa.) 281, Fed. Gas. No. 13,498 ; the subseriptiions is not a condition Taylor v. Rasch, 5 N. B. R. 399, Fed. precedent to their liability, the trustee Gas. No. 13,801; Simpson v. Western cannot maintain a bill in the bankruptcy Hardware & Metal Go. (D. C.) 227 Fed. court against the stockholders, on the 304, 35 Am. Bankr. Rep. 851; McGabe theory of avoiding a multiplicity of v. Guido, 116 Miss. 858, 77 South. 801; suits, but the proper remedy is a sepa- Weidhorn v. Levi, 253 U. S. 268, 40 Sup. rate action at law against each stock- Ct. 534, 64 L. Ed. 898, 45 Am. Bankr. holder. Kelley v. Gill, 245 U. S. 116, 38 Rep. 493. Sup. Ct. 38, 62 L. Ed. 185, 40 Am. Bankr. no Simpson v. Western Hardware & 877 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 402 federal courts justify the maintenance of a bill in equity in this case on the ground that it is analogous to a creditor's suit to vacate a fraudulent conveyance.^'"' And where the trustee in bankruptcy is proceeding against the officers and directors of a corporation to recover preferential payments and sums received by them as the result of a conspiracy, and the transactions necessitate the marshalling of assets, he may sue in equity, as the remedy at law in such a case would be inadequate.^*^ § 402. Summary Proceedings in Court of Bemkruptcy. — When the trustee seeks to recover property of the bankrupt which is in the hands of a third person, who makes no claim of title to it in his own right, he need not resort to a plenary suit, but may institute summary proceed- ings in the court of bankruptcy by a simple petition and order to show cause.^** This is the case where the third person holds the property as the agent or bailee of the bankrupt, not pretending himself to be the owner,^** or where the object of the proceeding is to reach surplus in- come in the hands of a testamentary trustee,^** or where the person holding the property is a mere cover or receptacle for it, for the purpose of concealing it and placing it beyond the reach of the bankrupt's cred- itors,^*^ providing, in the latter case, that the property can be followed Metal Co. (D. 0.) 227 Fed. 304, 35 Am. Bankr. Rep. 851; Maxwell y. Davis Trust Co., 69 W. Va. 276, 71 S. E. 270; Reber v. Ellis Bros. (D. C.) 185 Fed. 313, 25 Am. Bankr. Rep. 567; Edwards v. ^chillinger Bros., 153 111. App. 219; Peo- ple's Bank of Mobile v. McAleer, 204 Ala. 101, 85 South. 413; Irons v. Bias, 85 W. Va. 493, 102 S. E. 126. 120 Pond V. New York Nat. Exchange Bank (D. C.) 124 Fed. 992, 10 Am. Bankr. Rep. 343; Parker v. Black (D. 0.) 143 Fed. 560, 16 Am. Bankr. Rep. 202 ;| Parker t. Sherman, 212 Fed. 917, 129 O. C. A. 437. 121 Johnson v. Harrison, 199 Micb. 221, 165 N. W. 773. 122 In re Goldstein, 216 Fed. 887, 133 C. C. A. 91 ; Bank of Brookings. v. Auro- ra Grain Co., 43 S. D. 591, 181 N. W. 909; In re Fogelman, 188 Fed. 755, 26 Am. Bankr. Rep. 742; In re Holland, 176 Fed. 624, 23 Am. Bankr. Rep. 835; In re Holbrook Shoe & Leather Co., 165 Fed. 973, 21 Am. Bankr. Rep. 511 ; In re Wiesen Bros.. 138 Fed. 164, 15 Am. Bankr. Rep. 27; In re Breslauer, 121 Fed. 910, 10 Am. Ba'nkr. Rep. 33. And see supra, § 22. If no adverse claim to money or property was made at the time the petition in bankruptcy was filed, the ti- tle thereto passes to the trustee on his appointment, and the court has jurisdic- tion to require its surrender to him by a summary order, notwithstanding any adverse right subsequently asserted by the party in poss'ession. In re Davis, 119 Fed. 950, 9 Am. Bankr. Rep. 670. 123 Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405, 7 Am. Bankr. Rep. 224; Wayne Knitting Mills V. Nugent, 104 Fed. 530, 4 Am. Bankr. Rep. 747; In re Shea (D. C.) 211 Fed. 365, 31 Am. Bankr. Rep. 697. Where a corporation is in bankruptcy, an of- ficer of the corporation who has wrong- fully retained some of its property may be summarily ordered to surrender it to the trustee, and it is immaterial that he personally did not submit to the court's jurisdiction. In re 'Auto Safety Signal Lamp Co. (D. 0.) 237 Fed. 299, 37* Am. Bankr. Rep. 17. 1214 In re Baudouine (D. 0.) 96 Fed. 536, 3 Am. Bankr. Rep. 55. 12S In re Eilers Music House (C. C, A.) 270 Fed. 915, 46 Am. Bankr. Rep. 526 ; In re Looschen Piano Case Co. (D. C.) 261 Fed. 93, 44 Am. Bankr. JRep. 190; In re Hopkins, 229 Fed. 378, 143 C. C. A. 498, 36 Am. Bankr. Rep. 158; Salsburg v. Blackford, 204 Fed. 43S, 122 C. C. A. 624, 29 Am. Bankr. Rep. 320; In re Friedman (D. C.) 153 Fed. 939, 18 § 402 LAW OF BANKRUPTCY 878 into his hands and sufficiently identified to enable the marshal to take possession of it without mistake.^^* So, where there is a covinous con- trivance between the bankrupt arid others to embezzle the estate for the benefit of the bankrupt and his preferred creditors, the court may inter- pose by injunction.^*' Again, where the bankrupt, after the filing of the petition, sells goods in his possession to one chargeable with knowledge of the fraudulent character of the transaction, the court of bankruptcy may compel the restitution of the property or its proceeds in a summary proceeding.*** Likewise, money paid by a bankrupt to one of his cred- itors, after the filing of the petition in bankruptcy, thus necessarily cre- ating a preference, is recoverable by the trustee in a summary proceed- ing, without the need of resorting to a plenary suit.*** And so also of money which was deposited to release an attachment, within the four months preceding the bankruptcy, and which was paid over to the at- taching creditor after the adjudication.**" And the claim of a bank, as- serting the right to set off the deposit of a bankrupt against an indebted- ness to it, is not adverse in such sense as to require a plenary suit by the trustee, where the deposit wras made after the filing of the petition in bankruptcy.*** And so also where an insolvent debtor has made a gift of personal property to his wife, or given her a bill of salcj without any actual change of possession.*** And attaching creditors may also be proceeded against summarily, when their levies constituted the act of bankruptcy on which the adjudication was based, or where made after the filing of the petition and with knowledge thereof.*** And this ap- plies also to an execution sale of the debtor's property, if held after the, filing of the petition, and if the judgment creditor and the purchaser are chargeable with knowledge of the pendency of the bankruptcy proceed- ings,*** although if a, sale on execution has been held and the proceeds Am. Bankr. Rep. 712. But compare In 112 s in re Denson (D. C.) 195 Fed. 854, re Mayer (D. C.) 98 Fed. 839, 3 Am. 28 Am. Bankr. Rep. 158. Bankr. Rep. 533; In re Stevens, Fed. 120 in re R. & W. Skirt Co., 222 Fed. Oas. No. 13,390. A court of bankruptcy 256, 138 O. C. A. 67, 34 Am. Bankr. Rep. has jurisdiction by summary order to 353; In re Leigh (D. C.) 208 Fed. 486, direct the delivery of property to a trus- 31 Am. Bankr Rep. 379. tee by a corporation vs^hich was formed 130 in re O. L. Ward & Co. (D. C.) 242 by the bankrupt, with his near relatives Fed. 999, 39 Am. Bankr. Rep. 506. as incorporators, to hold the property laiReed v. Barnett Nat. Bank of beyond the reach of his creditors. W. Jacksonville. 250 Fed. 983, 163 C. C. A. A. Liller Bldg. Co. v. Reynolds, 247 Fed. 283, 41 Am. Bankr. Rep. 419. 90, 159 0. C. A. 308, 40 Am. Bankr. 132 in re Pierce, 7 Biss. 426, 15 N. B. Rep. 371. R. 449, Fed. Cas. No. 11,139 ; In re Nor- 126 In re Jackier (D. C.) 179 Fed. 720, ris, 177 Fed. 598, 24 Am. Bankr. Rep. 24 Am. Bankr. Rep. 790. See In re 444. Rosenzwelg (D. C.) 206 Fed. 360, 30 Am. issBear v. Chase (C. C. A.) 99 Fed. Bankr. Rep. 680. 920, 3 Am. Bankr. Rep. 746; In re 127 In re Connolly (D. C.) 100 Fed. Graessler & Reichwald, 154 Fed. 478, 83 620, 3 Am. Bankr. Rep. 842 ; In re C. C. A. 304, 18 Am. Bankr. Rep. 694. Smith, Fed. Cas, No. 12,993. is* In re Breslauer, 121 Fed. 910, 10 Am. Bankr. Rep. 33. 879 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 402 paid over to the judgment creditor before the commencement of the bankruptcy proceedings, the mere fact that the judgment and sale are voidable under the bankruptcy act will not enable the trustee to recover the proceeds in a summary proceeding; his remedy is a plenary suit to recover the proceeds as a preference.^^^ It is also held that a person claiming property as collateral security pledged to him by the bankrupt may be summarily ordered to surrender it, if the referee decides that the title to it is in the estate.*^* And so a proceeding to recover or reduce the amount of money paid by a bankrupt to his counsel, in contemplation of bankruptcy and for services to be rendered therein, may be sum- mary.**' Further, it is very important to be noticed that, if the court of bankr ruptcy is in the actual possession of any given property, through its of- ficers, such as the referee, a receiver, or a trustee in bankruptcy, it has jurisdiction to determine in a summary proceeding all claims of third persons asserting ownership of it or liens upon it, whether hostile, and adverse or not.*** If property once iii the possession or custody of the trustee in bankruptcy is taken from him by an adverse claimant by force or fraud or trick, no ^oubt the court has power to vindicate its authority by summary orders for its restoration. But if an agent or representa- tive of the trustee (such as a watchman placed in charge) peaceably sur- renders the possession of the property without force or threats, merely yielding to the demand of the adverse claimant, it seems that the trus- tee has lost the possession which would entitle him to protection by sum- mary order of the bankruptcy court.*** On similar principles, where a claimant of property and the receiver or trustee in bankruptcy have entered into an agreement concerning the disposition to be made of it, the court of bankruptcy may enforce com- pliance by either party, without any independent suit for that purpose, and by mere summary order.**" But jurisdiction to foreclose a mortgage 13 5 In re Resnek, 167 Fed. 574, 21 tracting Co. (D. C.) 238 Fed. 871, 38 Am. Am. Bankr..Rep. 740. Bankr. Rep. 278; Cohen v. Nixon & 136 In re Belfast Mesh Underwear Co.; Wright (D. C.) 236 Fed. 407, 37 Am. 185 Fed. 834. But see In re Bacon, 210 Bankr. Biep. 646 ; In re Schmick Handle Fed. 129, 126 C. C. A. 643, 31 Am. Bankr. & Lumber Co. (D. C.) 233 Fed. 446, 37 Rep. 777. Am. Bankr. Rep. 494; In re Flanigan 1*7 In re Wood, 210 U. S. 246, 28 Sup. (D. C.) 228 Fed. 339, 35 Am. Bankr. Rep. Ct. 621, 52 L. Ed. 1046, 20 Am. Bankr. 807; In re Rathman, 183 Fed. 913, 106 Rep. 1. C. C. A. 253, 25 Am. Bankr. Rep. 246; 138 Gray v. Gudger, 260 Fed. 931, 171 In re Plymouth Elevator Co. (D. C.) 191 C. C. A. 573, 44 Am. Bankr. Rep. 228; Fed. 633. See Johnston v. Spencer, 195 In re Joseph R. Marquette, Jr., Inc., Fed. 215, 115 C. C. A. 167, 27 Am. 254 Fed., 419, 166 0. C. A. 51, 42 Am. Bankr. Rep. 800; Shea v. .Lewis, 206 Bankr. Rep. 555; Lawhead v. Monroe Fed. 877, 124 C. C. A. 537. ' Bldg. Co., 252 Fed. 758, 164 C. C. A. 598, iso In re Mid- Valley Coal Co., 251 Fed. 41 Am. Bankr. Rep. 800; In re Dashiel, 815, 163 C. C. A. 649, 42 Am. Bankr. 246 Fed. 366, 158 C. C. A. 430, 40 Am. Rep. 301. Bankr. Rep. 649; In re Midtown Con- i^o in re Hollingsworth & Whitney § 402 LAW OF BANKRUPTCY 880 on tlie estate of the bankrupt, at the instance of the mortgagee, is not in- cluded in the powers to be exercised summarily,^*^ nor can the court thus determine the rights of a third person who is apparently a joint owner of certain property with the bankrupt, although the trustee alleges that he is only nominally connected with it and has no real financial in- terest in it,^*^ nor is this an appropriate proceeding for the trustee of a bankrupt corporatiori who seeks to compel a stockholder to pay the cor- porate debts because of his alleged participation in a fraudulent overval- uation of the corporation's assets in payment for stock. i*^ The summary jui-isdiction of a court of bankruptcy may not only be invoked at the instance of the trustee, but also against him, since he is an officer of the coitrt and always subject to its lawful orders. Thus, if the judgment of a competent court has decided that a fund in his hands does not belong to the estate in bankruptcy, but to a third person, he may be summarily ordered to pay it over.^** § 403. Sanve; Against Adverse Claimants. — ^A stranger to the bank- ruptcy proceedings, setting up an adverse title to property which is claimed by the trustee in bankruptcy as assets of the estate, cannot be compelled to submit his claim to adjudication in a summary proceeding in the court of bankruptcy, provided his claim is made with the apparent intention of defending it in good faith and is not merely colorable, but is entitled to be heard in a plenary suit, at law or in equity as the case may requir.e.^*^ Of course, however, this is a right which the claimant may waive, and he may do so by surrendering the disputed property to the trustee for sale and presenting to the bankruptcy court his claim Co., 242 Fed. 753, 155 0. C. A. 341, 39 Rockhold (C. C. A.) 269 Fed. 139, 46 Am. Bankr. Rep. 678. Am. Bankr. Rep. 246 ; First Nat. Bank v. 141 In re. Casey, lO.Blatchf. 376, 8 N. Hopkins (C. O. A.) 199 Fed. 873, 29 Am. B. E. 71, Fed. Cas. No. 2,495. Bankr. Eiep. 434 ; In re Cantelo Mfg. 1(42 In re Brodbine, 93 Fed. 643, 2 Am. Co., 201 Fed. 158, 29 Am. Bankr. Rep. Bankr. Rep. 53. 704; Johnston v. Spencer, 195 Fed. 215, 143 In re Haley, 158 Fed. 74, 85 C. C. 115 G. C. A. 167, 27 Am. Bankr. Rep. 800; A. 404 ; In re Howe Mfg. Co., 193 Fed. In re Denson, 195 Fed. 854, 28 Am. 524, 27 Am. Bankr. Rtep. 477. Bankr. Rep. 158 ; In re Iron Clad Mfg. 144 In re Howard, 135 Fed. 721, 68 O. Co., 194 Fed. 906; In re Mimms & Par- C. A. 359,14: Am. Bankr. Rep. 296; In- ham, 193 Fed. 276, 27 Am. Bankr. Rep. ternatiouai Agricultural Corp. v. Sparks 469; In re Big Cahaba Coal Co., 190 (D. C.) 250 Fed. 318, 40 Am. Bankr. Rep. Fed. 900, 26 Am. Bankr. Rep. 910 ; In re SO. Jackier, 179 Fed. 720, 24 Am. Bankr. 14 6 Smith Y. Mason, 14 Wall. 419, 20 Rep. 790; Oooney v. Collins, 176 Fed. L. Ed. 748; In re Midtown Contracting 189, 99 C. C. A. 543, 23 Am. Bankr. Co., 243 Fed. 56, 155 C. C. A. 586, 39 Rep. 840; In re Hersey, 171 Fed. 998, Am. Bankr. Rep. 578; Eisenberg v. Weiss- 22 Am. Bankr. Rep. 856; In re Driggs, kopf, 258 Fed. 617, 170 0. C. A. 71, 43 171 Fed. 897, 22 Am. Bankr. Rtep. 621; Am. Bankr. Rep. 548; In re Phoenix In re Horgan, 158 Fed. 774, 86 C. C. A. Planing Mill (D. C.) 250 Fed. 898, 42 130, 19 Am. Bankr. Rep. 857; In re Am. Bankr. Rep. 143 ; . In re Cotton (D. Edwards, 15,6 Fed. 794, 19 Am. Bankr. C.) 209 Fed. 124, 31 Am. Bankr. Rep. Rep. 632; In re Sunseri, 156 Fed. 103, 568; Charles H. Brown Paint Co. v. 18 Am. Bankr. Rep. 231; In re Davis 881 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 403 against the proceeds,^** or by answering the trustee's petition for the surrender of the property by defending on the merits without raising any objection to the jurisdiction of the court or referee."' But jurisdic- tion is not conferred by the appearance of the adverse claimant in an- swer to an order to show cause, merely for the purpose of filing an answer asserting his claim and his intention to contest the applica- tion."* The case of a transfer or conveyance of property by the bankrupt which the trustee claims to have been fraudulent and void as against creditors, but which the grantee claims to have been in good faith and for a consideration, falls within this rule, and the issue cannot be tried in summary proceedings,"* nor can that which is presented when the trustee seeks to recover money or property on the ground that the transaction constituted a preference voidable under the statute, and is met with a denial apparently interposed in good faith.^^" The wife of the bankrupt may be an adverse claimant, within this rule, if the law of the state removes the common-law disabilities of married women and gives them capacity to contract as if sole,-*^" and the holder of an assignment of money due to the bankrupt from a third person at the date of the bankruptcy is an adverse claimant,^^^ and so is a bank in which the bankrupt has money on deposit, but which claims the right to Tailoring Co., 144 E'ed. 285, 16 Am. Bankr. Kep. 486; In re New York Car "Wheel Works, 132 Fed. 203, 13 Am.. Bankr. Rep. 60; In re Green, 108 Fed. 616, 6 Am. Bankr. Kep. 2T0; In re Sheinbaum, 107 Fed. 247, 5 Am. Bankr. Rep. 187 ; In re Baudouine, 101 Fed. 574, 41 C. C. A. 318, 3 Am. Bankr. Rep. 651; In re Cohn, 98 Fed. 75, 3 Am. Bankr. lEep. 421; Mitchell v. McClure, 91 Fed. 621, 1 Am. Bankr. Rep. 53 ; In re Staib, 3 Fed. 209; In re Griffith, 1 Nat. Bankr. News, 546 ; In re Fowler, 1 Nat. Bankr. News, 215 ; In re Waitzf elder, 18 N. B. R. 260, Fed. Cas. No. 17,049 ; In re Bonesteel, 7 Blatchf. 175, 3 N. B. R. 517, Fed. Cas. No. 1,627; Ferguson v. Peck- ham, 6 N. B. R. 569, Fed. Cas. No. 4,741. As to an amendment, converting a sum- mary proceeding into a plenary suit, see In re Boston-Cerrillos Mines Corpora- tion, 206 Fed. 794, 30 Am. Bankr. Rep. 739. 1*6 In re Plymouth Elevator Co., 191 Fed. 633. 1*7 In re Carrier, 48 Fed. 161; In re Bmrich, 101 Fed. 231, 4 Am. Bankr. Rep. 89; People v. Brennan, 3 Hun (N. Y.) 666, 12 N. B. R. 567; In re Brantman, 244 Fed. 101, 156 C. 0. A. 529, 40 Am. Bi,k.Bke.(3d Ed.)— 56 Bankr. Rep. 18. Where a court of bank- ruptcy would have jurisdiction of a ple- nary suit by the trustee, the fact that- he proceeds by petition as for a sum- mary order is immaterial, if the parties appear and there is a full hearing on the merits, and in such case the proceed- ing will be treated as a plenary suit. In re Filers Music House (C. C. A.) 274 Fed. 330. 1*8 In re Walsh Bros., 163 Fed. 352, 21 Am. Bankr. Rep. 14 ; Board of Edu- cation of Salt Lake City v. Leary, 236 Fed. 521, 149 C. C. A. 573, 38 Am. Bankr. Rep. 289. 1*8 Camp V. Zellars, 94 Fed. 799, 36 C. C. A. 501; In re Tarbox, 185 Fed. 985, 26 Am. Bankr. Rep. 432 ; In re Car- ter, 1 Nat. Bankr. News, 162. 150 In re Scherber, 131 Fed. 121, 12 Am. Bankr. Rep. 616; In re Adams, 130 Fed. 788, 12 Am. Bankr. Rep. 367; In re Keystone Press, 203 Fed. 710, 29 Am. Bankr. Rep. 715.' 151 Blumberg v. Ryan, 107 Fed. 673, 46 0. C. A. 552, 6 Am. Bankr. Rep. 20; Shea V. Lewis, 206 Fed. 877, 124 C. C. A. 537, 30 Am. Bankr. Rep. 436. 152 In re Lineberry, 183 Fed. 338, 25 Am. Bankr. Rep. 164. § 403 LAW OF BANKRUPTCY 882 set off a debt due to it from the bankrupt/** and -so is the surety on a bail-bond of the bankrupt, with whom the latter, before the com- mencement of the bankruptcy proceedings, had deposited money to indemnify him against liability,*^ and a stockholder in the bankrupt corporation against whom the trustee is proceeding to compel him to pay the balance due on his subscription for stock.^®* An adverse claim, such as to require determination in a plenary proceeding, and not by a mere summary inquiry, is also presented by one who had obtained a lien on property of the bankrupt under such circumstances that it was not dissolved by the adjudication in bankruptcy ; ^®* by an execution creditor to whom the sheriff paid over the money collected under the levy, though this was done after the filing of the petition, in bankruptcy ; ^^'' by a receiver appointed by a state court of competent jurisdiction and who has property of the bankrupt in his possession ; *®* by one claim- ing title to and the right of possession of land which is also claimed by the trustee in bankruptcy as assets of the estate ; ^^ by one who had contracted with the bankrupt for the purchase of land and now demands specific performance of the contract ; "" by a cit}'^ which, under the terms of a contract for the removal of refuse, on its abandonment by the con- tractor, took possession of his plant for the purpose of continuing the work pending a new contract."^ Where the Post Office Department had issued a "fraud order" against the bankrupt, and, pending a hearing on it, had ordered his mail impounded by the local postmaster, it was held that the postmaster's possession of the bankrupt's mail was so far adverse to the claim of the receiver in bankruptcy that the latter's de- mand for it could not be disposed of on a summary motion.^®* And the summary jurisdiction of the court of bankruptcy does not extend to a 153 In re Gill, 190 Fed. 726, 111 C. C. sen (D. C.) 268 Fed. 904, 45 Am. Baukr. A. 454, 26 Am. Bankr. Rep. 883.; First Rep. 713. Nat. Bank v. Hopkins, 199 Fed. 873, 118 157 Stone-Ordean-Wells Co. v. Mark, 0. C. A. 321, 29 Am. Bankr. Rep. 434. 227 Fed. 975, 142 C. C. A. 433, 35 Am. iBiln re Horgan, 158 Fed. 774, 86 C. Bankr. Rep. 663; In re Cox-Raekley Co. 0. A. 130, 19 Am. Bankr. Rep. 857; Ja- fD. C.) 245 Fed. 367, 40 Am. Bankr. Rep. quith V. Rowley, 188 XJ. S. 620, 23 Sup. 487. Ot. 369, 47 L. Ed. 620, 9 Am. Bankr. "s Martin v. Oliver, 260 Fed. 89, 171 Rep. 525. C. C. A. 125, 43 Am. Bankr. Rep. 739; 155 In re Howe Mfg. Co. (D. C.) 193 in re Diamond's Estate, 259 Fed. 70, 170 Fed. 524, 27 Am. Bankr. Rep. 477 ; In c. C. A. 138, 44 Am. Bankr. Rep. 268. re La JoUa Lumber & Mill Co. (D. C.) 1 bo Peters v Bowers fil Coin "194 243 Fed. 1004, 40 Am. Bankr. Rep. 273; ^gg Pac 1101 In re Manufacturers' Box & Lumber Co. ,.„t^' „ ,. „. „ (D. 0.) 251 Fed. 957, 41 Am. Bankr. Rep. ""'J^''^^^^, iJ^l'"'!' ^" ^^^- ^^• Xoo 133 O. C. A. 599, 33 Am. Bankr. Rep. 150 American Trust & Savings Bank V. Ruppe, 237 Fed. 581, 150 C. C. A. 463, "^ In re Dailey, 255 Fed. 529, 166 C. 38 Am. Bankr. Rep. 621; In re Gold- C. A. 597, 42 Am. Bankr. Rep. 731. berg & Sagman (D. C.) 232 Fed. 194, 36 "^ In re Rice (D. C.) 256 Fed. 858, Am. Bankr. Rep. 736. But see In re Han- 43 Am. Bankr. Rep. 153. 883 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 404 re-examination of the amount of a fee paid by the bankrupt to his at- torney, where, the contract with the attorney was not made by the debtor in contemplation of bankruptcy,*** nor to the question whether salaries voted and paid by the bankrupt corporation to its officers were illegal, the trustee seeking their return over the objection of such offi- cers."* And the court has no summary jurisdiction to determine that the property and capital stock of a second corporation was the property of the bankrupt corporation.*"^ And it should be noted that the fact that the value of the property in controversy may be small, will not warrant the bankruptcy court in summarily determining the question of the right and title to it."' But on the other hand, where the trustee of a corporation in bank- ruptcy files a petition against two of its officers in their official ca- pacity to compel them to account for the proceeds of sales of the cor- poration's stock and also to pay the balance due on their own shares, and it appears that th^y had controlled the corporation absolutely from its inception, the other incorporators and directors being mere dum- mies, they cannot be regarded as adverse claimants, in determining the jurisdiction of the court of bankruptcy."' And so, where a receiver in bankruptcy, with the consent of the court, has vacated premises of which a third person was claiming the right of possession, and the latter has thereupon resumed the possession, a subsequently appointed trustee of the estate cannot oust the possessor and get possession of the premises by a summary proceeding.*"* But it has been held that the court of bankruptcy may summarily require a person in possession to turn over property to the trustee, although held under a claim of title, where such title depends on a question of law and not of fact."* § 404. Same; Determination of Character of Claim. — Whenever a trustee in bankruptcy lays claim to money or property which is in the possession of a third person, and petitions for an order requiring its surrender to him, the court of bankruptcy has jurisdiction to cite such person to show cause why he should not be required to yield up the money or property to the trustee.*"* And if the respondent denies that the property in question belongs to the estate in bankruptcy and sets up 163 Tripp V. Mitschrich, 211 Fed. 424, le? in re Kornit Mfg. Co., 192 Fed. 128 C. C. A. 96, 31 Am. Bankr. Eep. 662. 392, 27 Am. Bankr. Kep. 244. But see 164 In re Franklin Brewing Co. (C. C. ^^ ""e Spalding Cotton Mills, 193 Fed. A.) 263 Fed. 512, 45 Am. Bankr. Eep. ^. ^^■ ' ' J^ 168 In re Rothschild, 154 Fed. 194, 83 io5Looschen Land & Building Co. v. ^ p. A. 288, 18 Am. Bankr. Eep. 682. Milson (C. C. A.) 266 Fed. 359, 46 Am. i„, j^ ^^ Michaelis & Lindeman, 196 Bankr. Rep. 30. 'E'^A. 718 188 In re McCracken (D. C.) 234 Fed. I'oin re Waukesha Water Co., 116 776, 37 Am. Bankr. Rep. 745. Fed. 1009, 8 Am. Bankr. Eep. 715. § 404 LAW OF BANKRUPTCY 884 a claim of title in himself, the court has jurisdictiop to inquire and determine whether or not such claim is genuine, really adverse, and interposed in good faith. If it shall determine that such claim is merely- colorable or fictitious, frivolous on its face or plainly false, or manifest- ly pretended and without any foundation in law, it may proceed to make the order asked by the trustee ; but on the other hand, if it shall be determined that the respondent's claim to the property is genuine and interposed in good faith and with the intention of supporting it, the court cannot proceed to inquire int6 the merits, but must dismiss the petition and remit the trustee to his remedy by a plenary suit.^" In other words, if the respondent's plea sets forth facts showing that his claim is adverse and in good faith, the trustee should file a pleading denying the averments relating to this point, and an issue should be framed as to whether the claim pleaded is substantial or merely color- able, and this point should be decided on investigation; it is error sim- ply to overrule the plea and proceed to judgment.f'^ If there is nothing to impeach the good faith of the claim, and it is substantiated by verified pleadings or oral testimony, the issue cannot be heard sum- marily/'* In fact, it has been said that it is only in clear cases, in which the proof is decisive, that the court of bankruptcy is justified in making a peremptory order for the surrender of property.^'* An investigation of the facts may also disclose other reasons why a summary adjudication would be inappropriate, if indeed permissible at all. Thus, where a petitioner claimed a leasehold interest in certain lands and the ownership of c€rtain structures thereon, and an adjudi- 171 Courtney v. Shea, 225 Fed. 358, Bankr. Rep. 547 ; In re Breslauer, 121 140 C. C. A. 382, 34 Am. Bankr. Rep. Fed. 910, 10 Am. Bankr. Rep. 33 ; In re 75.3 ; In re Franklin Brewing Co. (D. C.) Baird, 116 Fed. 765, 8 Am. Bankr. Rep. 257 Fed. 135, 43 Am. Bankr. Rep. 663; 649; In re Tune, 115 Fed. 906, 8 Am. In re Resnek, Shapiro & Co. (D. C.) 246 Bankr. Rep. 285. Fed. 879, 39 Am. Bankr. Rep. 816; In 172 j q^^. .gn w^d 726 111 O C re Markel (T. C.) 228 Fed. 926, 35 Am. ^. 454 26 Am!' Bankr. Rep V3; In re Const. Co. (D. C.) 212 Fed. 462 ; John- ' ^' ston V. Spencer, 195 Fed. 215, 27 Am. "* ^^ '^ Kane (D. C.) 131 Fed. 386, 12 Bankr. Rep. 800 ; In re Ironclad Mfg. ^™- Bankr. Rep. 444. Where claimants Co. (C. C. A.) 191 Fed. 831, 27 Am. °* assets sought to be recovered by a Bankr. Rep. 490 ; In re Rathman, 183 bankrupt's trustee objected to summary Fed. 913, 106 0. C. A. 253, 25 Am. Bankr. Proceedings, denied that they held pos- Rep. 246 ; In re Norrls, 177 Fed. 598, 24 session for the bankrupt, and testified to Am. Bankr. Rep. 444; In re Hayden, 172 **'=*s which, if true, showed title and Fed. 623, 22 Am. Bankr. Rep. 764; In Possession in themselves prior to the in- re Ellis Bros. Printing Co., 156 Fed. 430, stitntion of the bankruptcy proceedings, 19 Am. Bankr. Rep. 472 ; In re Gilroy & ^^^ '^"urt should dismiss the proceeding. Bloomfleld, 140 Fed. 733, 14- Am. Bankr. ^° ""^ Goldstein, 216 Fed. 889, 133 C. 0. Rep. 627 ; In re Kane, 131 Fed. 386, 12 ^- ^^• Am. Bankr. Rep. 444; In re Tesch- "4 in re Gilroy & Bloomfleld (D. C.) macher & Mrazay, 127 Fed. 728, 11 Am. 140 Fed. 733, 14 Am. Bankr. Rep. 627. 885 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 406 cation of his title would require other parties to be brought in, his sum- mary petition to restrain the trustee from selling such lands as belong- ing to the bankrupt cannot be granted, but that question should be left for determination in a plenary action.^'^ And it has been pointed out that the bankruptcy court's jurisdiction to proceed in a summary man- ner to vest its receiver or the trustee with possession of property de- pends upon facts which may be disclosed from time to time, so that, while it may have jurisdiction of a summary proceeding at its institu- tion, it may be ousted of that jurisdiction by claims interposed by third parties."® § 405. Joinder of Causes of Action. — A trustee in bankruptcy stands in the place of the creditors of the bankrupt, and has the same rights and may pursue the same remedies in their behalf as they would have been entitled to if there had been no adjudication of bankruptcy ; and in a suit against the bankrupt and his transferees, to set aside al- leged fraudulent conveyances of property, the trustee has the right to include all such matters and causes of action as might have been in- cluded by the creditors in a creditors' bill against the defendants.'-" Thus, a petition by the trustee against the bankrupt and one of his creditors, to procure the setting aside of a mortgage on land, a chattel mortgage, and a lease of real and personal property, all made by the bankrupt at different times to the defendant creditor, and alleged to be fraudulent as to other creditors, and to have been given and accepted with intent to prefer the creditor receiving the same, is not demurrable for multifariousness."* -And so, a bill is not multifarious though brought to recover from several defendants different portions of the estate of the debtor, if the alleged illegal transfers were the result of a common purpose on the part of the defendants to dismember the es- tate."" § 406. Jurisdiction; Statutory Provisions. — The bankruptcy act provides that "the United States circuit courts shall have jurisdiction of all controversies at law and in equity, as distinguished from proceed- ings in bankruptcy, between trustees as such and adverse claimants con- cerning the property acquired or claimed by the trustees, in the same manner and to the same extent only as though bankruptcy proceed- ings had not been instituted, and such controversies had been between 175 In re Moose Eiver Lumber Co. (D. McGovern, 10 N. B. R. 188, Fed. Gas. C.) 251 Fed. 409, 42 Am. Bankr. Rep. No. 13,217. 242. 17 8 Carter v. Hobbs, 92 Fed. 594, 1 17 8 Morgan v. Chicago & N. W. R. Co., Am. Bankr. Rep. 215; Hunt v. Doyal, 167 Wis. 48, 166 N. W. 777. 128 Ga. 416, 57 S. E. 489. 177 Norcross v. Xathan, 99 Fed. 414, 179 Van Kleeck v. Miller, 19 N. B. R. 3 Am. Bankr. Rep. 613; Spaulding v. 484, Fed. Cas. No. 16,860. 406 LAW OF BANKRUPTCY 886 the bankrupts and such adverse claimants." ^*'' This is to be understood, not as a grant of jurisdiction to the circuit courts (or the district courts as their successors), but as a limitation upon the jurisdiction which they might otherwise have claimed. It means that jurisdiction shall not be conferred on a federal court by the mere fact that a trustee in bankruptcy is a party to the action, so as to make the case one "arising under the laws of the United States," but that, to confer such jurisdic- tion, the requisite diversity of citizenship must have existed between the bankrupt and the other party to the suit.^*^ The same section of the 'bankruptcy act then proceeds as follows : "Suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant." ^** During the first few 180 Bankruptcy Act 1898, § 23a. 181 It is the citizenship of the bank- rupt and of the adverse claimant which determines the jurisdiction ; the citizen- ship of the trustee is not material. The plain meaning of the statute seems to be that if the bankrupt and the adverse claimant could have invoked the juris- diction of the federal court, so also may the trustee and the adverse claimant, but not otherwise. In other words, all suits which could not have been brought in the federal courts because the parties were citizens of the sam-e state, or be- cause the amount involved was not suf- ficient, are left to the same forum which would have had jurisdiction of them, and they are not to be maintained in a federal court merely because a trustee in bankruptcy is now substituted as a party instead of the bankrupt himself. The object of inserting this provision was undoubtedly this: It had been set- tled by the courts that any controversy involving the construction or application of the national bankruptcy law was a case "arising under the laws of the United States," and therefore one of which the federal circuit courts might take cognizance, either originally or on removal from a state court, without re- gard to the citizenship of the parties. See Burbank v. Bigelow, 92 U. S. 179, 23 L. Ed. 542; Lathrop v. Drake, 91 U. S. 516, 23 L. Ed. 414; Pay son v. Coffin, 4 Dill. 386, Fed, Gas. No. 10,858 ; Noyes V. Willard, 1 Woods, 187, Fed. Cas. No. 10,374 ; Payson v. Dietz, 2 Dill. 504, 8 N. B. R. 193, Fed. Cas. No. 10,861 ; Olney v. Tanner, 19 N. B. R. 178, Fed. Cas. No. 10,506 ; Spaulding v. McGovern, 10 N. B. R. 188, Fed. Cas. No. 13,217; Flanders v. Abbey, 6 Hiss. 16, Fed. Cas. No. 4,851; Branard v. Hartford, P. & F. R. Co., Fed. Cas. No. 1,003 ; Brown v. White, 16 Fed. 900; Hallack v. Tritch, 17 N. B. R. 293, Fed. Cas. No. 5,956. It would follow, therefore, that, without the restrictive provision of this clause of the act, all the litigation arising in the settlement of the estate would be thrown into the federal circuit courts (or into the dis- trict courts, since the abolition of the circuit courts), and the state courts would be deprived of the jurisdiction which they would have had over such cases if bankruptcy proceedings had not intervened. The purpose of the act, then, is to counteract this effect of the bankruptcy proceedings, and to restrict the jurisdiction of the federal courts to those cases in which it would have exist- ed before their commencement. In other words, the trustee must seek his reme- dy, or defend actions against him, in the same courts which would have been open to the bankrupt, whether those courts be state or national courts. And adverse claimants cannot be brought in- to the federal courts, nor seek those courts of their own accord, unless a suffi- cient ground of jurisdiction appears in- dependently of the bankruptcy of the other party. Of course these remarks are subject to the quulifloation (as will appear in the text above) that, since the amendments to the bankruptcy act, state and federal courts have concurrent ju- risdiction of suits by trustees to avoid fraudulent conveyances or recover pref- erences. 182 Bankruptcy Act 1898, § 23b. 887 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 406 years after the enactment of the statute, the inferior federal courts were disposed to find the definition of their jurisdiction in the broad provisions of the seventh clause of the second section of the statute, that the courts of bankruptcy shall have jurisdiction to "cause the estates of bankrupts to be collected, reduced to money, and distributed, and determine controversies in relation thereto, except as herein other- wise provided," and they held that the provision above quoted from the twenty-third section of the act related only to the venue of ac- tions,^** or that it was a limitation upon the jurisdiction of the circuit courts of the United States, but not upon that of the courts of bank- ruptcy."* But this theory was expressly rejected by the Supreme Court of the United States, which* ruled that the twenty-third section was intended to define and limit the jurisdiction of the courts of bankruptcy, and that that section operated as an exception to, or limitation upon, the more general expressions of the second section; so that jurisdiction of civil actions at law and plenary suits in equity, to determine title to and reduce to possession alleged assets of the bankrupt, could not be claim- ed under the second section if not within the terms of the twenty- third.**^ But this section has sirice been amended by Congress so as to give to the courts of bankruptcy and the state courts concurrent jurisdiction of suits by trustees to set aside fraudulent conveyances or to recover preferences."® This legislation is not unconstitutional as imposing on state courts jurisdiction over causes of action which arise solely under the constitution and laws of the United States.-'*' The final clause of the twenty-third section, that "the United States circuit courts shallhave concurrent jurisdiction with the courts of bankruptcy, within their respective territorial limits, of the offenses enumerated in this act," has no applicability to civil actions, the "offenses enumer- ated" meaning the crimes described elsewhere in the act."* Since the abolition of tjie circuit courts, this criminal jurisdiction is vested in the district courts, but not in their capacity as courts of bankruptcy, but in their capacity as courts having general jurisdiction for the trial of criminal offenses under the laws of the United States. 153 In re Woodbury, 98 Fed. 833, 3 S. 524, 20 Sup. Ct. 1000, 44 T,. Ed. 1175, Am. Bankr. Rep. 457. 4 Am. Bankr. Rep. 163. 154 Louisville Trust Co. v. Marx, 98 i so Act Cong. Feb. 3, 1903, 32 Stat. Fed. 456, 3 Am. Bankr. Rep. 450; Cox 797; Act Cong. June 25, 1910, 36 Stat. r. Wall, 99 Fed. 546; In re Newberry, 838. 97 Fed. 24, 3 Am. Bankr. Rep. 158 ; In isr French v. R. P. Smith & Sons Co., re Sievers, 91 Fed. 366, 1 Am. Bankr. ' 81 Minn. 341', 84 N. W. 44. Rep. 117. issGoodier v. Barnes, 94 Fed. 798, 2 183 Bardes v. First Nat. Bank, 178 D. Am. Bankr. Rep. 328. § 407 LAW OF BANKRUPTCY 888 § 407. Same; Jurisdiction of Court of Bankruptcy. — In view of the specific limitations upon the jurisdiction of the courts of bankruptcy set forth in the preceding section, it is no longer held that the mere fact that the plaintifif in a suit is a trustee in bankruptcy is sufficient to give jurisdi9tion to a federal court/*" but on the contrary, that such court has no jurisdiction of a formal action at law or a plenary suit in equity between a trustee in bankruptcy and an adverse claimant, un- less the action might have been maintained in that court by the bank- rupt himself, if bankruptcy proceedings had not intervened.*^* The exceptions to this rule are found in cases where the trustee's suit is to re- cover a preference unlawfully given or to set aside a fraudulent trans- fer of property. If the claim advanced in" his suit is founded on either of these grounds, it is within the jurisdiction of the court of bank- ruptcy."* Thus, the trustee of a bankrupt corporation may sue in the bankruptcy court to recover unearned dividends illegally paid to a stockholder,*"^ but he cannot, in that forum, maintain an action against directors of the corporation on an allegation that the defendants, by false pretenses, have withdrawn and appropriated its funds.*"* Since the statute speaks of "suits" by the trustee, we must distin- guish between such proceedings as are properly called "suits" or "con- troversies at law or in equity" and those which are merely "proceedings in bankruptcy" or administrative measures in the process of collecting and distributing the estate. Of the latter character, and therefore main- tainable in the court of bankruptcy, is a proceeding to determine the relative rights of the bankrupt and the pledgee of certain of his prop- erty;*®* a proceeding to compel the vendor of a number of lots to the bankrupt, holding a purchase-money mortgage, to fulfill his agreement to release given lots on proportional payments, the trustee desiring to exercise the right of redemption as to' certain of the lots ; **^ or a bill by the trustee to protect his possession of property of the bankrupt, threatened by one who claims ownership of a part of it.*"^ So a con- tract made with a receiver in bankruptcy, by which a third person is allowed the use of machinery or equipment belonging to the bankrupt for a temporary purpose, on an agreement to return it when that pur- 18 9 McEldowney v. Card, 193 Fed. 475, 102 geegmiller v. Day, 249 Fed. 177, 27 Am. Bankr. Rep. 937. 161 C. C. A. 213, 41 Am. Bankr. Rep. 317. 18 Bmmby v. Jones, 141 Fed. 318, 72 103 Park v. Cameron, 237 U. S. 616, 0. C. A. 466, 15 Am. Bankr. Eep. 578 ; 35 Sup. Ct. 719, 59 L. Ed. 1147, 34 Am. Plaut V. Gorham Mfg. Co., 174 Fed. 852, Bankr. Rep. 849. 23 Am. Banlcr. Rep. 42; .Real Estate , 104 In re Miller Pure Rye Distilling Trust Co. V. Thompson, 112 Fed. 945, 7 Co., 214 Fed. 189, 130 O. C. A. 537. Am. Bankr. Rep. 520; In re Vadner (D. 100 In re East Stroudsburg Supply & C.) 259 Fed. 614. Compare In re Ham- Construction Co. (D. C.) 248 Fed. 356, mond, 98 Fed. 845. 41 Am. Bankr. Rep. 57. 191 Milkman v. Arthe, 223 Fed. 507, looAtherton v. Beaman (D. O.) 256 1.39 C. C. A. 55, 34 Am. Bankr. Rep. 536. Fed. 871, 42 Am. ^Bankr. Rep. 631. 889 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 407 pose is accomplished and meantime to give security agiinst loss or damage, may be enforced by appropriate proceedings in the court of bankruptcy.-^"'' So again, a proceeding by the trustee of a bankrupt corporation to have an assessment ordered on unpaid stock is not a "suit" within the meaning of the statute, but is an administrative pro- ceeding within the jurisdiction of the court of bankruptcy, since it does not require notice to nor the presence of the stockholders, whose per- sonal rights are not involved, but remain to be determined in subse- quent suits to collect the assessment if made."* But on the other hand, where the liability of stockholders of the bankrupt corporation for the unpaid balances of their stock is unconditional, so that an as- sessment or order by the bankruptcy court is not a condition precedent, the trustee cannot maintain a bill against them collectively in the court of bankruptcy, but must proceed by separate suit at law against each stockholder in the court having jurisdiction in each case.^"^ But the court of bankruptcy has jurisdiction of a controversy between persons, each claiming the right to a conveyance of land as a purchaser from the trustee in bankruptcy, since, while the title remains in the trustee, its jurisdiction with respect to such lands is exclusive.^" On similar principles, the court of bankruptcy has jurisdiction of proceedings to recover property in the possession of a receiver appointed by a state court,**^ or of an application for the rejection of a claim and, in addition thereto, to require the creditor to repay to the trustee the amount of a dividend previously paid on the claim, ^"^ or of a proceeding to re- examine and reduce a payment made by an intending bankrupt to an attorney for services to be rendered in the bankruptcy proceedings.^"^ But it is also true that the provision of the statute which allows the court of bankruptcy to take jurisdiction of controversies with the con- sent of the proposed defendant relates only to plenary actions, and does not enlarge such portion of the court's jurisdiction as may be exercised summarily, even with the consent of the respondent.*"* 197 Board of Road Com'rs of Monroe 617), but on the ground that the sale County V. Keil, 259 Fed. 76, 170 C. 0. A. to one of the contending parties had 144, 44 Am. Bankr. Eep. 259. been confirmed and the price paid, 19 8 In re Newfoundland Syndicate (D. though no deed made, before any con- C.) 196 Fed. 443, 28 Am. Bankr. Bep. troversy arose. 119; In re Crystal Spring Bottling Co. 201 in re Hecox (C. C. A.) 164 Fed. 823, (D. C.) 96 Fed. 945, 3 Am. Bankr. Rep. 21 Am. Bankr. Rep. 314. 194. 2«2 Pirie v. Chicago Title & Trust Co., 19 9 Kelley v. GUI, 245 U. S. 116, 38 182 U. S. 438, 21 Sup. Ct. 906, 45 L. Ed. Sup, Ct. 38, 62 L. Ed. 185, 40 Am. Bankr. 1171, 5 Am. Bankr. Rep. 814. Rep. 421. 2 3 In re Wood, 210 U. S. 246, 28 Sup. 200 In re Henderson, 142 Fed. 568, 15 Ct. 621, 52 L. Ed. 1046, 20 Am. Bankr.' Am. Bankr. Rep. 760. This decision was Rep. 1. reversed (Henrie v. Henderson, 145 Fed. 204 irf re Teschmacher & Mrazay, 127 316, 76 C. C. A. 196, 16 Am. Bankr. Rep. Fed. 728, 11 Am. Bankr. Rep. 547. § 407 LAW OF BANKRUPTCY 890 It is also to be noticed that, since this portion of the statute only speaks of suits "by" the trustee, it places no restriction upon the juris- diction of the court of bankruptcy as to suits "against" the trustee or the estate; so that, when its jurisdiction is voluntarily invoked by an adverse claimant as plaintiff, it may take cognizance of the action with- out regard to the citizenship of the parties or the amount in contro- versy.^**^ And the official responsibility of a trustee in bankruptcy for acts done in his character as trustee must be enforced in the court under whose jurisdiction he is proceeding.^'* But nothing in the bank- ruptcy act operates to abolish the distinction between legal and equitable remedies so far as regards suits or controversies arising out of, but not constituting a part of, the bankruptcy proceeding. Hence a suit in equity by a trustee is not maintainable in the district court, though otherwise within its jurisdiction, where a plain, adequate, and complete remedy might be had at law.^"' § 408. Same ; Claims on Property in Possession of Trustee or Cus- tody of Court. — On the general principle that possession of a res draws to the court jurisdiction to determine all conflicting claims and interests asserted against it, it is well settled that, if any particular item or par- cel of property has come into the custody of the court of bankruptcy, by actual possession vesting in one of its officers, such as a trustee or re- ceiver, and is claimed as a part of the estate in bankruptcy, that court has full jurisdiction to hear and determine all controversies involving the assertion of a title to such property, or a right or interest in it, or a lien upon it, in a summary manner if that form of proceeding is otherwise justified, or else in a plenary action where all necessary parties are duly served and brought into court.*** Thus, property having been found in the possession of the bankrupt and having passed into the possession of his trustee, the court of bankruptcy has jurisdiction to determine the clairri of a third person, who sold the property to the bankrupt and as- 205 In re McOallum, 113 Fed. 393, 7 20 s Whitney v. Wenman, 198 U. S. 539, Am. Bankr. Rep. 596; In re Whitener, 25 Sup. Ot. 778, 49 L. Ed. 1157, 14 Am. 105 Fed. 180, 44 C. C. A. 434, 5 Am. Bankr. Rep. 45; Clay v. Waters, 178 Bankr. Rep. 198 ; Swann v. Sanborn, 4 Fed. 385, 101 C. C. A. 645, 24 Am. Bankr. Woods, 625, Fed. Gas. No. 13,675. The Rep. 293 ; Bray v. United States Fideli- Supreme Court of the District of Co- ty & Guaranty Co.. 170 Fed. 689, 96 G. lumbia, sitting as a court of equity, has G. A. 9, 22 Am. Bankr. Rep. 363 ; Thom- jurisdlction to entertain a suit for the as v. Woods, 173 Fed. 5S5, 97 C. C. A. establishment of ah equitable lien 535, 23 Am. Banki-. Rep. 132; Treat v. against the estate of a bankrupt. Gros- Wooden, 138 Fed. 934, 14 Am. Bankr. by V. Ridout, 27 App. D. C. 481. Rep. 736 ; J. B. McFarlan Carriage Go. 200 Carbondale S'^hooi t; - v. Hour- v. Solanas, 106 Fed. 145, 45 G, O. A. igan, 267 Pa. 154, 110 Atl. 1731. 253, 5 Am. Bankr. Rep. 442 ; In re Kel- aoTWarnialli v. ODiiiiiel, xoi) Fed. 87, logg, 113 Fed. 120, 7 Am. Bankr. Rep. SO C. C. A. 277, 20 Am. Bankr. Rep. 101. 623 ; In re Rodgers, 125 Fed. 169, 60 See Grant v. National Bank of Auburn, G. C. A. 567, 11 Am. Bankr. Rep. 79 ; In 197 Fed. 581, 28 Am. Bankr. Rep. 712. re McCallum, 113 Fed. 393, 7 Am. Bankr. 891 ^ SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 408 serts the right to rescind the sale for fraud.""* And so, bailors or con- signors, who permit their goods in the hands of the bankrupt to pass in- to the custody of the receiver or trustee, cannot occupy the position of adverse claimants in determining the jurisdiction of the court."^* And generally, a controversy between a trustee in bankruptcy and one assert- ing an adverse title to property which is in the custody of the court is a "proceeding in bankruptcy" of which the court has jurisdiction, and not a "controversy at law or in equity" such as can only be tried there with the consent of the proposed defendant.^^^ So also, a court of bankrupt- cy has jurisdiction to determine a controversy as to the ownership of property between the trustees of two different estates, both of which are being administered by such court.*^* The same rule applies to the assertion and denial of liens upon proper- ty in the custody of the court. This one point being established (pos- session of the property by an officer of the court) it has jurisdiction of a proceeding in equity to establish the lien of a mortgage or other in- cumbrance upon the property,'^* or to impeach the validity of an exist- ing mortgage covering the property j*"-* or to set aside the mortgage as fraudulent or preferential or as having been given within four months previous to the bankruptcy,*'^" or to recover property unlawfully sold on foreclosure of a chattel mortgage after the adjudication in bankruptcy and before a trustee could be appointed,*'^* though not of a suit to fore- close a mortgage,*^' and (at least before the amendments to the bank- ruptcy acf) not of a proceeding to impeach a mortgage as fraudulent where the property affected is in the possession of the creditor, and not of the trustee."** Again, if there are conflicting liens or claims upon Rep. 596; Davis v. Coe, 19 Ohio Cir. 213 Cleminshaw v. International Shirt Ct. K. 639 ; In re Sabin, 18 N. B. K. 151, & Collar Co., 165 Fed. 79T, 21 Am. Bankr. Fed. Cas. No. 12,195 ; Dunlop v. Baker, Rep. 616 ; In re Goldberg & Sagman (D. 239 Fed. 193, 1-52 C. C. A. 181, 38 Am. C.) 232 Fed. 194, 36 Am. Bankr. Rep. Bankr. Rep. 369; Bennette v. Lawis 786. (Tex. Civ. App.) 176 S. W. 660; Dar- 214 In re Kellogg, 121 Fed. 333, 57 C. rough V. First Nat. Bank, 56 Okl. 647, O. A. 547, 10 Am. Bankr. Rep. 7; In 156 Pac. 191. re Waterloo Organ Co., 118 Fed. 904, 9 209 In re Mertens, 131 Fed. 507, 12 Am. Bankr. Rep. 427. Am. Bankr. Rep. 624. '^^In re McMahon, 147 Fed. 684, 77 210 In re Leeds Woolen Mills, 129 Fed; 9,' ^- ^- ^^^' ^^ ^'"- ^^''^''- ^P- ^^0; 922, 12 Am. Bankr. Rep. 136; In re Me- £^''^«'^ ^- ^obbs, 92 Fed. 594, 1 Am. Galium, 11.3 Fed. 393, 7 Am. Bankr. Rep. ^^,'??''- ^^P' 215 ; Galbraith v. Robson- _Qfi ' HiUiard Grocery Co., 216 Fed. 842, 133 ^^^- C. C. A. 46. 211 In re Rochford, 124 Fed^ 182 59 ,,, j^ ^^ ^^^^^ 91 ^^^ g^g ^ j^ C. C. A. 388, 10 Am. Bankr. Rep. 608; ^^^^^j. ^ 53-^' ' " In re Leeds Woolen Mills, 129 Fed. 922, ,,, {^ ^^ '^^^ q^^^^^ Sanatorium Co 12 Am., Bankr. Rep. 136. See Havens & ^^^ j,^ gg, 50 C. C. A. 56, 7 Am Geddes Co. v. Pierek, 120 Fed. 244, 57 ^^^^^ jjep 206 C. C. A. 37, 9 Am. Bankr. Rep. 569. 218 Bardes v.'nawarden Nat. Bank, 212 In re Rosenberg, 116 Fed. 402, 8 178 TJ. S. 524, 20 Sup. Ot. 1000, 44 l! Am. Bankr. Rep. 624. Ed. 1175, 4 Am. Bankr. Rep. 163. § 408 LAW OF BANKRUPTCY 892 property which is in the lawful custody of the court of bankruptcy, it has jurisdiction to determine the same, even though the trustee has no interest in the question.^^® And the court has jurisdiction of a petition laying claim to a fund which is allfeged to have come into the hands of the trustee.*^" And it has authority to determine the amount to which the wife of the bankrupt is entitled under her agreement for the release of her inchoate dower interest.*''^ In order thus to confer jurisdiction, there must be actual possession on the part of the receiver or trustee, not a mere claim to possession. But it may be constructive or symbolic. Thus, where the trustee in bankruptcy locks up the bankrupt's store and keeps the key, this brings the goods in the store into the custody and jurisdiction of the court of bankruptcy. ^'^^ And jurisdiction, having thus vested in virtue of posses- sion of the res, cannot be divested or impaired by the unauthorized sur- render of possession of the property by the officers of the court or by a seizure thereof by an adverse claimant.*** § 409. Same ; Independent Suits Against Third Persons. — A district court of the United States, in its capacity as a court of bankruptcy, has no jurisdiction of an independent suit brought by a trustee in bankrupt- cy against a stranger (that is, one who has not been in any way made a party to the bankruptcy proceedings) to collect a debt due to the bank- rupt or to recover money or property claimed as assets of his estate, un- less by consent of the proposed defendant, such jurisdiction being ex- pressly denied by the twenty-third section of the bankruptcy act.*** 218 Nisbet V. Federal Title & Trust 525; Board of Education of Salt Lake Co., 229 Fed. 644^ 144 C. C. A. 54, 36 City v. Leary, 236 Fed. 521, 149 O. 0. Am. Bankr. Kep. 222. A. 573, 38 Am. Bankr. Rep. 289 ; Kelley 2 20 Wuerpel v. Commercial Germania v. Aarons (D. O.) 238 Fed. 996, 39 Am. Trust & Sav. Bank, 238 Fed. 269, 151 C. Bankr. Eep. 115 ; De Friece v. Bryant 0. A. 285, 38 Am. Bankr. Rep. 223 ; In (D. C.) 282 Fed. 238, 37 Am. Bankr. Rep. re Einstein (D. C.) 245 Fed. 189, 40 Am. 275 ; In re Flanigan (D. C.) 228 Fed. Bankr. Rep. 507. 339, 35 Am. Bankr. Rep. 807; Chicago 2 21 In re Dialogue (D. C.) 241 Fed. 290, Title & Trust Co. v. National Storage 39 Am. Bankr. Rep. 70. Co., 260 111. 485, 103 N. E. 227; In re 222 Wood V. Cummings, 197 Mass. 80, Yorkville Coal Co., 211 Fed. 619, 128 ,s;3 N. E. 318. O. C. A. 570, 33 Am. Bankr. Rep. 633; 223 In re Schermerhorn, 145 Fed. 341, In re Ballou (D. C.) 215 Fed. 810, 33 76 0. O. A. 215, 16 Am. Bankr. Rep. Am. Bankr. Rep. 21; In re Lummus 507; Plant v. Gorham Mfg. Co., 159 Fed. (D. C.) 214 Fed. 891; In re Horgan (C. 754, 20 Am. Bankr. Rep. 269. See, per C. A.) 164 Fed. 415, 21 Am. Bankr. Rep. contra, Waite v. Gottstein (D. C.) 224 31; In re Bailey, 156 Fed. 691, 19 Am. Fed. 281, 35 Am. Bankr. Rep. 353. Bankr. Rep. 470 ; Hull v. Burr, 153 224 Bardes v. First Nat. Bank, 178 U. Fed. 945, 83 C. C. A. 61, 18 Am. Bankr. S. 524, 20 Sup. Ot. 1000, 44 L. Ed. Rep. 541; Hatch v. Curtin, 146 Fgd. 1175, 4 Am. Bankr. Rep. 163; Wall v. 200, 16 Am. Bankr. Rep. 629; In re Cox, 181 TJ. S. 244, 21 Sup. Ct. 642, 45 Flynn & Co., 126 Fed. 422, 11 Am.'Eankr. li. Ed. 845, 5 Am. Bankr. Rep. 727 ; Ja- Rep. 318 ; In re fiartman, 121 Fed quith V. Rowley, 188 V. S. 620, 23 Sup. 940, 10 Am. Bankr. Rep. 387; In re C1-. 369, 47 L. Ed. 620, 9 Am. Bankr. Rep. Rochford, 124 Fed. 182, 59 O. C. A. 388 893 SUITS BY AND AGAINST TEUSTBBS IN BANKEUPTCT § 409 There are, however, four important exceptions to this rule or qualifica- tions of it. First, as to any property which has come into the hands of. the trustee, the bankruptcy court has jurisdiction to determine adverse claims to it or liens asserted upon it.**^ Second, since the amendments to the bankruptcy law passed in 1903 and 1910, the court has jurisdiction if the suit is to set aside a fraudulent transfer or conveyance or to recov- er a preference.**® Third, if the requisite diversity of citizenship exists, that is, if the bankrupt and the defendant in such action are citizens of different states, and the jurisdictional amount is involved, the action might have been brought in a -federal circuit court, and therefore, the circuit courts having been abolished by the act of 1911 and their juris- diction transferred to the district courts, such an action may now be brought in a district court in the circumstances supposed, though in trying such a suit it does not sit as a court of bankruptcy.**' Fourth, if the action is one involving a federal question, or arises under the laws of the United States (other than the bankruptcy act itself), so that the bankrupt himself might have sued in a federal court regardless of the question of citizenship, so may his trustee. A suit by a trustee in bank- ruptcy against a national bank, to recover usurious interest received by the defendant from the bankrupt, is of this character.**^ 10 Am. Bankr. Eep. 608 ; J. B. McFarlan Carriage Co. v. Solanas, 106 Fed. 145, 45 C. O. A. 253, 5 Am. Bankr. Rep. 442 ; In re ToUett, 105 Fed. 425, 5 Am. Bankr. Kep. 30^; In re gilberhorn, 105 Fed. 899, 5 Am. Bankr. Rep. 568; Chattanooga Nat. Bank v. Rome Iron Co., 99 Fed. 82, 3 Am. Bankr. Rep. 582; Woods v. Forsyth, Fed. Oas. No. 1T,992. Under the provisions of the Bankruptcy Act, § 28, the court of bankruptcy has no juris- diction of controversies with adverse claimants whose claims do not rest upon mere pretense, put forward in bad faith, whether the issue depends upon a ques- tion of law or one of fact. In re Mid- town Contracting Co., 243 Fed. 56, 155 C. O. A. 586, 39 Am. Bankr. Rep. 578. 22 5 Chattanooga Nat. Bank v. Rome Iron Co., 99 Fed. 82, 3 Am. Bankr. Eep. 582. 220 Act Cong. Feb. 8, 1908, 82 Stat. 797; Act Cong. June 25, 1910, 36 Stat. 888. Even under these amendments, the court of bankruptcy has no jurisdiction of an action by a trustee in bankruptcy to recover property from a third person who sets up an adverse claim to it in his own right, where, the trustee does not contend that the property was ever "transferred" to the defendant by the bankrupt, but only that the defendant holds it under a secret trust for the bankrupt. Newcomb v. Biwer, 199 Fed. 529, 29 Am. Bankr. Rep. 15. 227 In re MacDougall, 175 Fed. 400, 28 Am. Bankr. Eep. 762 ; Sims v. Union Assur. Soc, 129 Fed. 804 ; In re Nugent, 105 Fed. 581, 44 C. C. A. 620, 5 Am. Bankr. Rep. 176. Diversity of citizen- ship between the defendant and the trustee in bankruptcy is not necessary; the test is whether the citizenship of the bankrupt and of the defendant is such that the former might have sued in a federal court if bankruptcy had not in- tervened. Bush V. Elliott, 202 U. S. 477, 26 Sup. Ct. 668. 50 L. Ed. 1114, 15 Am. Bankr. Rep. 656. The IMstrict Court, in a suit by a trustee in bankruptcy against nonresidents and residents, has no juris- diction of residents merely holding claims against the bankrupt and having nothing belonging to him, where many necessary parties are nonresidents and cannot be brought in. In re Smith Const. Co. (D. 0.) 224 Fed. 228, 85 Am. Bankr. Rep. 227. 22 8 Reed V. American-German Nat. Bank, 155 Fed. 233, 19 Am. Bankr. Rep. 140. § 409 LAW OF BANKRUPTCY 894 Subject to these exceptions, the general rule is well established. Thus, the bankruptcy court has no jurisdiction of an action of replevin, brought by a receiver or trustee in bankruptcy to recover the possession of chattels alleged to belong to the bankrupt but held adversely by the defendant under a claim of title,*** nor of a suit by the trustee of a bank- rupt corporation to compel a stockholder to pay corporate debts because of his alleged participation in a fraudulent overvaluation of the corporate . assets in payment for stock,**" nor of an action to enforce a mechanic's lien existing in favor of the bankrupt, a contractor, at the date of his ad- judication.**^ Again, while the trustee may petition the court to exam- ine summarily into the reasonableness of a fee paid by a prospective bankrupt to his attorney, yet if, instead of taking this course, he files a petition to compel the attorney to account for moneys claimed to have been paid to him in contemplation of bankruptcy, the case falls within the jurisdictional clause of the statute, and cannot be maintained in the bankruptcy court except with the consent of the defendant.*** A federal District Court has no jurisdiction to make partition of real estate be- tween a trustee in bankruptcy and the wife of the bankrupt, and cannot authorize her to sell her interest ; the most it can do is to order the sale of the bankrupt's interest!*** Where the trustee in bankruptcy sues to recover property on two theories, one of which would entitle him to sue? in the federal court, but his evidence fails to sustain that theory, the court will not retain jurisdiction to determine his right to recover under the other theory, but will require him to proceed in the proper state court.*** § 410. Same; Preferences and Fraudulent Conveyances. — The Bankruptcy Act of 1898, as it stood originally, contained the following restrictive provision in section 23b: "Suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt, whose es- tate is being administered by such trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant." And under this provi- sion it was held that no jurisdiction was vested in the courts of bank- ruptcy to determine actions brought for the purpose of vacating fraudu- lent transfers or recovering preferences, unless with the consent of the 220 Mitchell v. McOlure, 178 U. S. 539, 38 Sup. Ct. 38, 62 L. Ed. 185, 40 Am. 20 Sup. Ct. 1000, 44 L. Ed. 1182, 4 Am. Bankr. Eep. 421. Bankr. Rep. 177. 23i In re Grissler, 136 Fed. 754, 60 C. 230 In re Haley, 158 Fed. 74, 85 C. C. C. A. 406, 13 Am. Bankr. Rep. 508. A. 404. Nor of a bill in equity against 232 in re Raphael (C. C. A.) 192 Fed. the stockholders of a bankrupt coi-pora- 874. tion collectively, to force payment of the 233 Harlin v. American Trust Co., 67 unpaid balances on their subscriptions Ind. App. 213, 119 N. E. 20. for sfoclJ. Kelley v. Gill, 245 U. S. 116, 234 Kaigler v. Gibson (D. C.) 264 Fed. 240, 45 Am. Bankr. Rep. 462. 895 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 410 proposed defendant, or unless such diversity of citizenship existed and such an amount was involved as to give them jurisdiction of the con- troversy, not, indeed, as bankruptcy courts, but as federal District Courts.**" But much dissatisfaction and inconvenience resulted from this rule, and the twenty-third section of the statute was twice amended by Congress, first, by the Act of February 5, 1903 (32 Stat. 797), and second by the Act of June 25, 1910 (36th Stat. 838). The net result of these amendments is to except from the rule of jurisdiction originally laid down in the statute "suits for the recovery of property under sec- tion sixty, subdivision b ; section sixty-seven, subdivision e ; and section seventy, subdivision e." The first of these exceptions relates to the recovery of preferences given within four months of the filing of the petition in bankruptcy. The second relates tp the setting aside of con- veyances made to hinder, delay, or defraud creditors, made within a like period. The third is the provision by which "the trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt- might have avoided." It is therefore now held that the courts of bankruptcy have jurisdic- tion (not exclusive of the jurisdiction of the state couils, but concurrent with them) of plenary proceedings at law or in equity brought by a trustee in bankruptcy to set aside unlawful preferences or fraudulent transfers of property given or made within the four months preceding the filing of the petition in bankruptcy, or to avoid transfers by tne bankrupt which any creditor of his might have avoided; that this ju- risdiction may be exercised without the consent of the defendant; and that it does not depend upon diversity of citizenship or the amount in- volved.^*® It is to be noticed, however, that as to the first two excep- tions — preferences and conveyances to defraud- creditors — the transac- tion must have occurred within four months prior to the bankruptcy proceedings; as to the third — transfers which a creditor might have 235Bardes v. First Nat. Bank, 178 Eep. 731; Kaigler v. Gibson (D. C.) 264 U. S. 524, 20 Sup. Ct. 1000, 44 L. Ed. Fed. 240, 45 Am. Bankr. Kep. 462 ; Ward 1175, 4 Am. Bankr. Rep. 163 ; Mitcliell v. Central Trust Co. of Illinois (C. C. V. McClure, 178 U. S. 539, 20 Sup. Ct. A.) 261 Fed. 344, 44 Am. Bankr. Rep. 1000, 44 L. Ed. 1182, 4 Am. Bankr. Rep. 323 ; Breit v. Moore, 220 Fed. 97, 135 C. 177. C. A. 573, 34 Am. Bankr. Rep. 295 ; Da- 236'Flanders v. Coleman, 250 U. S. 223, vis v. Gates (D. C.) 235 Fed. 192, 37 Am. 39 Sup. Ct. 472, 63 L. Ed. 948, 43 Am. Bankr. Rep. 818; Hawkins v. Dannen- Bankr. Rep. 563; Stellwagen v. Olum, berg Co. (D. C.) 234 Fed. 752, 37 Am. 245 U. S. 605, 38 Sup. Ct. 215, 62 L. Bankr. Rep. 262; In re Vadner (D. 0.) Ed. 507, 41 Am. Bankr. Rep. 1 ; CoUett 259 Fed. 614 ; Newcomb v. Biwer (D. C.) V. Adams, 249 U. S. 545, 39 Sup. Ct. 372, 199 Fed. 529, 29 Am. Bankr. Rep. 15 ; 63 L. Ed. 764, 43 Am. Bankr. Rep. 496 ; Parker v. Sherman (D. C.) 195 Fed. 648, Brent v. Simpson, 238 Fed. 285, 151 C. 28 Am. Bankr. Eep. 379; McElvain v. C. A. 301, 38 Am. Bankr. Rep. 813; Hardesty, 169 Fed. 31, 94 C. C. A. 399, Golden Hill Distilling Co. v. Logue, 243 22 Am. Bankr. Rep. 320 ; Wallace v. Fed. 342, 156 C. O. A. 122, 39 Am. Bankr. Jefferson County Sav. Bank (C. C. A.) § 411 LAW OF BANKRUPTCY 896 avoided, — the time limit does not seem to apply.^*' It should also be remarked that the trustee may sue in the bankruptcy court to recover a payment which is declared to be preferential by the law of the state, though it is not a preference under the bankruptcy act, if it comes within the definition of a fraudulent transfer.^** But these provisions of the statute must be construed with reasonable strictness. Thus, the bankruptcy court has no jurisdiction of a suit in equity by the trustee to recover land, possession of which the bankrupt had surren- dered to his father within four months before the adjudication, on the theory that title had passed to the bankrupt by virtue of a parol gift from the father.^^* So, it has been held that an action by a trustee in bankruptcy to recover damages from defendants, upon allegations that they conspired with the bankrupt, knowing him to be insolvent, and pursuant to such conspiracy he purchased goods on credit, which he turned over to defendants for less than their value, is an action merely to recover damages for the conspiracy, and not to set aside a fraudulent transfer of property, and therefore not within the jurisdiction of the court of bankruptcy.^** The federal court cannot obtain jurisdiction by substituted service over nonresident assignees in a suit by a trustee in bankruptcy to set aside as a preference an assignment of a debt owing to the bankrupt by a nonresident.*" § 411. Same; Suits Which Bankrupt Could Not Have Maintained. — ^The twenty-third section of the bankruptcy act provides that "suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant." Before the amendments to this section, giving the district courts jurisdiction of suits to avoid preferences and fraudulent convey- ances, there was much doubt as to whether it should be held applicable to this class of actions. For such suits could not be maintained by the bankrupt at all, and therefore it could not be said that there was any court "where the bankrupt might have brought or prosecuted them," with the inevitable result that the trustee could not bring or prosecute 157 Fed. 838 ; OfC v. Hakes, 142 Fed. 364, of the state courts, see Craig v. Oox, 73 0. C. A. 464, 15 Am. Bankr. Rep. 696 ; (Mo.) 232 g. W. 77. Frost V. Latham & Co., 181 Fed. 866, 25 237 Hall v. Glenn (D. O.) 247 Fed. 997, Am. Ba,nkr. Rep. 313 ; Lynch v. Bronson, 39 Am. Bankr. Rep. 54. 160 Fed. 139, 20 Am. Bankr. Rep. 409; 238 Grandison v. Robertson (D. C.) 220 Bowman v. Alpha Farms, 153 Fed. 380, Fed. 985, 34 Am. Bankr. Rep. 609. 18 Am. Bankr. Rep. 700; Horsklns v. 239 Flanders v. Coleman (D. C.) 249 Sanderson, 132 Fed. 415, 13 Am. Bankr. Fed. 757, 41 Am. Bankr. Rep. 727. Rep. 101; McNulty v. Feingold, 129 Fed. 210 Lynch v. Bronson (D. C.) 177 Fed. 1001, 12 Am. Bankr. Rep. 338 ; Kraver 605, 24 Am. Bankr. Rep. 513. V. Abrahams, 203 Fed. 782, 29 Am. 241 Murphy v. Ford Motor Co. (D. 0.) Bankr. Rep. 365. As to the jurisdiction 241 Fed. 134, 39 Am. Bankr. Rep. 665. 897 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 4] 2 such actions, "unless by consent of the proposed "defendant," a reductim ad absurdum. Accordingly it was held in numerous decisions that this provision of the statute applied only to suits upon causes of action originally vested in the bankrupt, and which he might have maintained if there had been no adjudication in bankruptcy, such as actions upon contracts and to collect debts, and not to suits upon causes of action created by the bankruptcy proceedings, or vesting originally in the trustee as trustee.*** Yet this argument, plausible as it appears, did not find favor with the Supreme Court of the United States,**^ and the decision was ultimately against the right of the trustee to sue on such causes of action in the courts of bankruptcy, and this remained the rule until Congress amended the section in question (as set forth in tnc preceding pages) by an express grant of jurisdiction to the district courts over just such causes of action. § 412. Same; Consent or Waiver of Objections. — ^The provision of the twenty-third section of the bankruptcy act which permits the bring- ing of suits by a trustee in bankruptcy in courts other than those in which the bankrupt himself might have sued, "by consent of the pro- posed defendant," is to be regarded, not as conferring jurisdiction, but merely as giving a personal privilege to the defendant which he may waive; and his "consent" need not have been given before the suit was instituted, nor need it expressly appear of record, but it may be sufficiently shown by conduct necessarily implying such consent.*** Thus, if an adverse claimant of property, or a creditor alleged to have received a preference or a voidable lien, voluntarily appears in the court of bankruptcy and himself invokes its jurisdiction in his own behalf, that court may proceed to determine the controversy,**® as where such a claimant applies to the court of bankruptcy for an order or decree recognizing and establishing his claims or giving him any affirmative relief whatever,*** or where he pleads a set-off, on which he asks judg- 242 IE re Baudouine, 101 Fed. 5T4, 41 (D. C.) 241 Fed. 290, 39 Am. Bankr. Rep. O. C. A. 318, 3 Am. Bankr. Rep. 651; Tb. Skillin V. Magnus, 162 Fed. 689, 19 Am. 210 in re D. H. McBride & Co., 132 Bankr. Rep. 897 ; Pepperdlne v. Headley, Fed. 285, 12 Am. Bankr. Rep. 81 ; In re 98 Fed. 863, 3 Am. Bankr. Rep. 455;. Riker, 109 Fed. 63, 48 O. C. A. 220, 5 Am. Murray v. Beal, 97 Fed. 567, 3 Am. Bankr. Rep, 720; Philips v. Turner, 114 Bankr. Rep. 284 ; Carter v. Hobbs, 92 Fed. 726, 52 C. C. A. 358, 8 Am. Bankr. Fed. 594, 1 Am. Bankr. Rep. 215 ; In re Rep. 171 ; Fisher v. Cushman, 103 Fed. Gutwillig, 90 Fed. 481, 1 Am. Bankr. 860, 43 C. C. A. 381, 4 Am. Bankr, Rep. Rep. -78; Jones v. Smith, 38 Fed. 380; 646; In re Hadden Rodee Co., 135 Fed. Main v. Glen, 7 Biss. 86, Fed. Cas. No. 886, 13 Am. Bankr. Rep. 604 ; In re Drag 8,973. (D, C) 254 Fed, 474, 43 Am. Bankr. Rep. Z'ls Bardes v. First Nat. Bank, 178 U. 59. S. 524, 20 Sup. Ot. 1000, 44 L. Ed. 1182. 2*0 in re Mertens, 131 Fed. 507, 12 Am.. 244 McEldowney v. Card, 193 Fed. 475, Bankr. Rep. 698; In re Riker, 109 Fed. 27 Am. Bankr. Rep. 937 ; In re Dialogue 63, 48 C. C. A. 220, 5 Am: Bankr. Rep. iBLK.BKE.(;jD Ed.)— 57 § 412 LAW OF BANKRUPTCY 898 ment,'*'' or where he shows that the money claimed to be recovered from him by the trustee is also claimed by a third party and that he occupies the position of a mere stakeholder and ofifers to pay the money into court.*** Moreover, if the defendant in an action by the trustee enters a general appearance and pleads to the merits, and proceeds to a hearing before the referee or court, without raising any objection to the jurisdiction of the court, he must be taken to have "consented" that the court might try the case, and cannot object to the jurisdiction after a decision adverse to him.**" And parties denying a bankruptcy court's jurisdiction over them and answering to the merits at the same time, are estopped from raising the jurisdictional question,*®* although an answer to the merits accompanied with a motion to dismiss for want of jurisdiction, which motion was expressly reserved in the answer, does not give defendant's consent to the jurisdiction of the court.*®^ But a mere entry of a general appearance is not a waiver of objections to the jurisdiction, when the petition of the trustee does not state a cause of action, and objection to the jurisdiction is promptly taken upon the filing of an amended petition.*** So also, a respondent who files a paper in which he sets up that the court is without jurisdiction of the action, and who repeats and urges the same objection in a proceeding to have the judge of the court of bankruptcy review a decision of the referee adverse to him, cannot be said to have consented to the jurisdiction, although he also excepts to the petition as not stating a cause of action and further pleads a general denial.*®* A special and limited appear- 720; s. c, 107 Fed. 96, 5 Am. Bankr. Rep. Mitchell, 147 Fed. 280, 17 Am. Bankr. 720. But see In re Keystone Press, 203 Eep. 382 ; In re Blake, 150 Fed. 279, 17 Fed. 710, 29 Am. Bankr. Rep. 715. Am. Bankr. Rep. 668; Ryttenberg v. 247 McBldowney v. Card, 193 Fed. 475, Schefer, 131 Fed. 313, 11 Am. Bankr. 27 Am. Bankr. Rep. 937. Rep. 652; In re Durham, 114 Fed. 750,. 8 248 In re Blake, 150 Fed. 279, 17 Am. Am. Bankr. Rep. 115; Sinsheimer v. Si- Bankr. Rep. 668. monson, 106 Fed. 870 ; In re Leeds Wool- 249 Fairbanks Steam Shovel Co. v. en Mills, 129 Fed. 922, 12 Am. Bankr. Wills, 240 U. S. 642, 36 Sup. Ct. 466, 60 Rep. 136 ; In re Steuer, 104 Fed. 976, 5 L. Ed. 841, 36 Am. Bankr. Rep. 754; Seeg- Am. Bankr. Rep. 209; In re Emrich, 101 miller v. Day, 249 Fed. 177, 161 C. C. A. Fed. 231, 4 Am. Bankr. Rep. 89 ; In re 213, 41 Am.. Bankr. Rep. 317 ; Alco Film Connolly, 100 Fed. 620, 3 Am. Bankr. Corp. V. Alco Film Service of Minnesota, Rep. 842 ; Cohen v. American Surety Co., 234 Fed. 55, 148 C. C. A. 71, 37 Am. 192 N. T. 227, 84 N. E. 947; In re Rap- Bankr. Rep. 307 ; Jones v. Blair, 242 hael, 192 Fed. 874, 113 C. C. A. 198. Fed. 783, 155 C. O. A. 371, 39 Am. Bankr. 250 in re Franklin Brewing Co. (D. Rep. .569; In re Berry (D. C.) 247 Fed. C.) 257 Fed. 135, 43 Am. Bankr. Rep. 700, 41 Am. Bankr. Rep. .'157; Gooch v. 663. Stone, 257 Fed. 631, 168 O. C. A. 5S1, 44 201 Kaigler v. Gibson (D. C.) 264 Fed. Am. Bankr. Rep. 86; Detroit Trust Co. 240, 45 Am. Bankr. Rep. 462. V. Pontiac Sav. Bank (C. C. A.) 196 Fed. 202 in re Ilemby-Hutchinson Pub. Co. 29, 27 Am. Bankr. Rep. 821 ; McEldow- (D. O.) 105 Fed. 909, 5 Am. Bankr. Rep. ney v. Card, 193 Fed. 475, 27 Am. Bankr. 569. Rep. 937; In re Blletson Co., 174 Fed. 253 in re Miclue (D. C.) 116 Fed. 749, S.'jg, 23 Am. Bankr. Rep. 530; Mitchell v. 8 Am. Bankr. Rep. 734. 899 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 413 ance, for a purpose only subsidiary to the main issue and not involving a final determination of the controversy, does not give consent to the jurisdiction.^'* And the , appearance of a stockholder of a bankrupt corporation to contest a petition by the trustee asking that an assess- ment be made on all stock not fully paid for does not confer jurisdiction on the court of bankruptcy to adjudicate his personal liability for such an assessment.^'" Of course, the mere proof of claims against a bank- rupt does not constitute a consent to the jurisdiction of the federal court in a suit subsequently brought by the trustee against the claim- ant.256 It is also to be observed that the consent of a defendant to be sued in the court of bankruptcy means consent to the tribunal in which the controversy is to be carried on, and not to the mode of procedure, which is regulated by , general principles of law, unless other provision is made,^" and if the mode of procedure adopted is unlawful, the appear- ance of the defendant and his contesting the proceedings will not con- fer jurisdiction.^'* It was also held that the consent of the defendant, provided for in this part of the bankruptcy act, governing the jurisdic- tion of suits by a trustee in bankruptcy, was not intended to enlarge the jurisdiction of the federal circuit courts so as to confer a juris- diction which they would not have because of diverse citizenship of the parties or because of a federal question being involved.^'^ § 413. Same; Federal Courts in Other Districts. — Under the bank- ruptcy statute as originally enacted, the district courts had no auxiliary or ancillary jurisdiction to be exercised in aid of bankruptcy proceedings in progress in another district.*®* But this defect in the law was reme- died by an act of Congress, passed in 1910, which provided that courts of bankruptcy shall be authorized to "exercise ancillary jurisdiction over persons or property within their respective territorial limits in aid of a receiver or trustee appointed in any bankruptcy proceedings pend- ing ill any other court of bankruptcy." *®^ It is apprehended that this properly relates only to steps or proceedings in the bankruptcy case proper, that is, the making of such orders and giving such aid to the trustee as may properly be done in a summary manner upon his peti- 2 0* Board of Koad Com'rs of Monroe 898, 47 0. C. A. 51, 5 Am. Bankr. Rep. County V. Keil, 259 Fed. 76, 170 G. C. 537. A. 144, 44 Am. Bankr. Rep. 259. 2^9 Lovell v. Isidore Newman & Son, 256 Bergdoll V. Harrigan (C. C. A.) 263 227 U. S. 412, 33 Sup. Ct. 375, 57 L. Ed. Fed. 279, 44 Am. Bankr. Rep. 633. 5^7, 29 Am. Bankr. Rep. 482. m <- T> • ^ /T> n X ooc ir^ri ^'"' Hull V. Burr, 153 Fed. 945, 83 C. c,= o?f \^T t ^ fiflo^ 0. A. 61, 18 Am. B;nkr. Rep. 541 In re 878, 84 Am. Bankr. Rep. 660. ^^^ jj^;^^^ ^^^ Fed. 726, 74 C. C. A. 58, , 257 In re Raphael, 192 Fed. 874, 113 ^g ^^ B^nkr. Rep. 747. G. C. A. 198, 27 Am. Bankr. Rep. 708. jsi Act Cong. June 25, 1910, 36 Stat. 258 Sinsheimer v. Simonson, 107 Fed. 838. § 413 LAW OF BANKRUPTCY 900 tion.*** As to plenary actions, for the recovery of property against ad- verse claimants or the like, the jurisdiction of the courts of bankruptcy is territorially restricted, and such a court cannot take jurisdiction of a trustee's suit for the recovery of property outside the boundaries of its own district, but, in order to obtain the possession of such property or its avails, the trustee must invoke the jurisdiction of the proper local court, either state or federal.^** Since the amendments of 1903 and 1910 (giv- ing to courts of bankruptcy jurisdiction of suits to recover preferences or to avoid fraudulent conveyances, without the consent of the defend- ant), a trustee in bankruptcy who desires to bring a suit of such a char- acter, may go into the federal district court in the district where the pro- posed defendant resides and there prosecute his action.*** So also, he may sue in another district to collect the assets of the estate,**" to re- cover a sum of money due to the bankrupt under a written contract,*** or to redeem mortgaged property of the bankrupt.*.*'' But the jurisdic- tion thus to be exercised by the court in another district in a plenary suit is not a jurisdiction in bankruptcy, but its ordinary jurisdiction, in law or equity as the case may b^, and therefore the trustee must pursue the same remedies and is subject to the same rules as those would be whose rights he represents, that is, either the bankrupt or the creditors accord- ing to the nature of the suit.*** Thus, the trustee cannot maintain a 2 62 See Babbitt v. Dutclier, 216 U. S. 102, 30 Sup. Ct. 372, 54 L. Ed. 402, 17 Ann. Cas. 969, 23 Am. Bankr. Rep. 519; In re Elkus, 216 TJ. S. 115, 30 Sup. Ct. 377, 54 L. Ed, 407; The Alert, 199 Fed. 542 ; In re lipman, 201 Fed. 169, 29 Am. Bankr. Rep. 139; Rogers v. Chicamauga Trust Co., 253 Fed. 541, 165 O. C. A. 211. A bankruptcy court in ancillary proceed- ings has power to discharge a bankrupt from an arrest made prior to the bank- ruptcy proceedings, where he has the substantive right to relief. In re Madi- gan (D. C.) 254 Fed. 221, 41 Am. Bankr. R«p. 770. 268 In re Brittania Mining Co., 197 Fed. 459, 28 Am. Bankr. Rep. 651; Paine V. Caldwell, 1 Hask. 452, 6 N. B. R. 558, Fed. Cas. No. 10,674 ; In re Geller (D. C.) 216 Fed. 558. 26 4 Parker v. Sherman, 195 Fed. 648, 28 Am. Bankr. Rep. 379; Teague v. Ander- son Hardware Co., 161 Fed. 765, 20 Am. Bankr. Rep. 424; Lawrence v. Lrf)wrle, 133 Fed. 995, 13 Am. Bankr. Rep. 297; Hills V. F. D. McKinniss Co., 188 Fed. 1012, 26 Am. Bankr. Rep. 329; Sherman V. Bingham, 3 Clifif. 552, 7 N. B. R. 490, Fed. Oas. No. 12,762. The Bankruptcy Act authorizes suits by a trustee in bank- ruptcy to recover preferences to be brought in the federal District Court of the district where the real or personal property is situated, although the bank- ruptcy proceedings were instituted, and the defendant resides, in another dis- trict in the same state. CoUett v. Adams, 249 TJ. S. 545, 39 Sup. Ct. 372, 63 X. Ed. 764, 43 Am. Bankr. Rep. 496. 26 5 Knauth, Nachod & Kuhne v. Lat- ham & Co., '219 Fed. 721, 135 C. C. A. 419, 33 Am. Bankr. Rep. 631; West v. Empire Life Ins. Co. (D. C.) 242 Fed. 605, 40 Am. Bankr. Rep. 93; In re Sage (D. C.) 224 Fed. 525, 35 Am. Bankr. Rep. 436; Hartman v. Ackoury (D. C.) 210 Fed. 188, 31 Am. Bankr. Rep. 514 ; In re Farrell (C. C. A.) 201 Fed. 338; In re Eathfon Bros., 200 Fed. 108, 29 Am. Bankr. Rep. 22; Shainwald v. Lewis, 6 Sawy. 585, 5 Fed. 510; Goodall v. Tuttle, 3 Biss. 219, 7 N. B. R. 193, Fed. Cas. 5,533; In re Murphy, 2 Nat Bankr. News, 393. 266 Babbitt v. Burgess, 2 Dill. 169, 7 N. B. R. 561, Fed. Cas. No. 693. 26 7 Barnard v. Hartford, P. & F. R. Co., Fed. Cas. No. 1,003. 268 Markson v. Heaney, 1 Dill. 497, 4 N. B. R. 510, Fed. Cas. No. 9,098 ; In re 901 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 414 plenary suit in a court of bankruptcy of another district to recover alleged excessive payments or transfers to counsel made by the bankrupt in contemplation of bankruptcy and for services to be rendered therein, when the court in which the proceeding is pending has made no order for the re-examination and reduction of such payments or transfers. ''''* Where a bankrupt's estate is in course of administration in one district, a creditor may go into another district with a bill in equity seeking to impress a trust in his favor upon property of the bankrupt found there ; but if the allegations of the bill are insufficient to trace his funds into any specific property, so that the suit must be regarded as an attempt to secure priority of payment out of the bankrupt's estate on account of moneys fraudulently obtained by him and put into his business, it must be dismissed.*'* § 414. Same; Jurisdiction of State Courts. — ^Under former bank- ruptcy statutes, many state courts held that they had no jurisdiction of actions brought by trustees in bankruptcy to recover property alleged to have been transferred by the bankrupt in violation of, or in fraud of, the provisions of the bankruptcy act, as in cases of preferences and fraudulent conveyances, but that the jurisdiction of the federal courts in such cases was exclusive.*'^ The objection of these courts to enter- taining suits of this character was principally founded on two consid- erations ; first, that a court of equity should not take cognizance of a bill unless it has complete control oyer all the matters in controversy, ei- ther directly or by coercion of the parties, aiid this does not exist in the case of a trustee in bankruptcy ; second, that the avoidance of a convey- ance or wresting from a creditor a preference which he has obtained is in the nature of a penalty, and as this penalty is imposed by the laws of the United States, and not by the laws of the particular state, the courts of the state should not enforce it, more especially as preferential transfers -are only forbidden by the bankruptcy act and are not contrary to public policy or gqod morals.^'* But these views have not prevailed. WiUiams, 123 Fed. 321, 10 Am. Bankr. 271 Olcott v. McLean, 10 Hun (N. I.) Kep. 538; Hull v. Burr, 153 Fed. 945, 83 277, 16 N. B. R. 79; Brigham v. Claflin, Cr C. A. 61, 18 Am. Bankr. Kep. 541. 31 Wis. 607, 11 Am. Rep. 623 ; Bromley And see United States Fid^ity & Guar- v. Goodrich, 40 "Wis. 131, 22 Am.' Rep. anty Co. v. Bray, 225 U. S. 205, 82 Sup. 685, 15 N. B. R. 289 ; Gilbert v. Priest, Ct. 620, 56 L. Ed. 1055, 28 Am. Bankr. 65 Barb. (N. T.) 444 ; Shaw v. Meldrum, Rep. 207 ; Scott v. George's' Creek Coal 14 Abb. Prac. (N. T.) N. S. 165 note ; & Iron Co., 202 Fed. 251. Voorhies v. Frisbie, 25 Mich. 476, 12 Am. 209 In re Wood, 210 V. S. 246, 28 Sup. Rep. 291, 8 N. B. R. 152; Redd v. Wal- Ot. 621, 52 L. Ed. 1046, 20 Am. Bankr. lace, 145 Ala. 209, 40 South. 407. Com- Rep. 1. pare Otis v. Had'ley, 112 Mass. 100; 27 Knauth, Nachod & Kuhne v. Lat- Dambmann v. White, 48 Cal. 439. ham & Co., 242 U. S. 426, 37 Sup. Ct."l39, 272 Voorhies v. Frisbie, 25 Mich. 476, 61 L. Ed. 404, 38 Am. Bankr. Rep. 660; 12 Am. Rep.,- 291, 8 N. B. B. 152; Brig- JafCe V. Pyle, 242 Fed. 67, 155 C. C. A. 11, 40 Am. Bankr. Rep. 219. § 414 LAW OF BANKRUPTCY 902 Especially in view of the provisions of the bankruptcy act, as amended, giving "concurrent jurisdiction" to the state and federal courts of ac- tions of the kind mentioned, it is now held that any state court of com- petent jurisdiction may enforce actionable rights arising under the bank- ruptcy law.^'* Such a court, in passing upon the claims of a trustee in bankruptcy, is not proceeding under the bankruptcy law, but simply recognizes that statute as the source of the trustee's title, in the same manner as it would if he derived his title from a deed or contract.^'* Yet it should be remarked that Congress would have no authority to impose upon state courts the duty of hearing and determining contro- versies between trustees in bankruptcy and adverse claimants, by deny- ■ ing jurisdiction of such controversies to the federal courts. The juris- diction exercised by the state courts concurrently with the federal courts, in enforcing rights and duties created by an act of Congress, is purely discretionary on their part, and may at any time be renounced or incumbered with onerous conditions.*'® Accordingly, it is now thoroughly well settled that any state court which would have jurisdiction of the subject-matter as between citizens* of the state, and which acquires, jurisdiction of the persons of the liti- gants, has jurisdiction, concurrent with that of the courts of bankruptcy, of actions by trustees in bankruptcy to set aside , alleged fraudulent transfers or conveyances of property made by the bankrupts upon whose estates they are appointed to administer,^'* though, in case the convey- ance IS voidable at the suit of the trustee only because it is voidable un- der the laws of the state, the trustee must show that he represents cred- itors of that class who alone would be entitled to attack it, as, for ex- liam V. Claflin, 31 Wis. 607, 11 Am. Kep. Barber v. Wiemer, 183 Iowa, 72, 165 N. 623. Compare Tinker v. Van Dyke, 1 W. 440. Where an action by a trustee in Flip. 521, 14 N. B. R. 112, Fed. Cas. No. bankruptcy is brouglit in a state court, 14,058. the measure of his relief in the first in- 273 Maxwell v. Davis Trust Co., 69 W. stance is determined there, but the state Va. 276, 71 S. E. 270; Nisbet v. Sigel- court is not concerned with the distribu- Campion Live Stock Commission Co., 21 tion of the proceeds of his recovery, as Colo. App. 494, 123 Pac. 110 ; Robinson v. that belongs to the court of bankruptcy. White, 97 Fed. 33; Van Zandt v. Parson, Bergin v. Blackwood, 141 Minn. 325, 170 81 Or. 453, 159 Pac. 1153; Bennette v. N. W. 508. The state court has juris- Lewis' (Tex. Civ. App.) 176 S. W. 660. diction to allow a defendant a set-ofC But any suit brought in a state court by against the claim of the plaintiff suing a trustee in bankruptcy, except as spe- as a trustee in bankruptcy. Gill v. daily authorized by the bankruptcy law, Farmers' '& Merchants' Bank (Mo. App.) is without the jurisdiction of the court. 195 S. W. 538. Glover v. Love, 68 Ala. 219. 275 in re Woodbury (D. C.) 98 Fed. 274 Cook V. Whipple, 55 N. Y. 150, 14 833, 3 Am. Bankr. Rep. 457. Am. Rep. 202, 9 N. B. R. 155. Suits 275 Frank v. VoUkommer, 205 U. S. brought by a trustee In bankruptcy in a 521, 27 Sup. Ct. 596, 51 L. Ed. 911, 17 state court will be tried the same as any Am. Bankr. Rep. 806 ; McKenna v. Simp- other actions and according to the rules son, 129 U. S. 507, 9 Sup. Ct. 865, 32 L. of evidence prevailing in the state court. Ed. 771 ; Johnston v. Forsyth Mercantile 903 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 414 ample, creditors having a lien on the particular property.*'''' In the same way, the state courts have jurisdiction over an action by a trustee in bankruptcy to recover money or property paid or transferred by the bankrupt to a creditor by way of a voidable preference.*''* But in an action of the latter sort in a state court, it is not permissible to enter into an inquiry into the validity of all other claims against the bankrupt and into the question whether other creditors have received voidable preferences and have not been required to surrender them, since this would, in effect, transfer the administration of the bankrupt's estate from the bankruptcy court to the state court.*'* So also, the state courts have jurisdiction of actions by trustees in bankruptcy to collect the assets of the estate, realize on choses in action, enforce contracts, a.nd recover debts due to the bankrupt,**" and to hear and determine the rights or Co., 127 Fed. 845, 11 Am. Banbr. Rep. 669; In re Steed, 107 Fed. 682, 6 Am. Bankr. Rep. 73 ; Robinson y. White, 97 Fed. 33, 3 Am. Bankr. Rep. 88; Cox v. Wall, 99 Fed. 546; Norcro^s v. Nathan, 99 Fed. 414, 3 Am. Bankr. Rep: 613 ; An- drews V. Mather, 134 Ala. 358, 32 South. 738; Risen v. Powell, 28 Ark. 427 ; HuUi V. Hudson, 9 Del. Ch. 205, 80 Atl. 674;; Hobbs V. Frazier, 61 Fla. 611, 55 South.- 848; Isett v. Stuart, 80 111. 404, 22 Am. Rep. 194 ; Lyon v. Clark, 124 Mich. 100, 82 N. 'W. 1058, 83 N. W. 694 ; Sheldon v. Parker, 66 Neb. 610, 92 N. W. 923, 95 N. W. 1015; Bindseil v. Smith, 61 N. J. Eq. 654, 47 Atl. 456 ; Jones v. Schermerhom, . 53 App. Div. 494, 65 N. T. Supp. 999;' Bouton V. Wheeler, 118 App. Div. 426, 104 N. Y. Supp. 33 ; Small v. MuUer, 67 App. Div. 143, 73 N. T. Supp. 667 ; Breck- ons V. Snyder, 211 Pa. St. 176, 60 Atl.: 575 ; Mueller v. Bruss, 112 Wis. 406, 88 N. W. 229; Blick v. Nimmo, 121 Md. 139,' 88 Atl. 116 ; Googins v. Skillings, 118 Me. 299, 108 Atl. 50; Koger v. Clark (Tex. Civ. App.) 216 S. W. 434 ; Hull v. Forty- Second St. Storage House, 166 App. Div. 739, 152 N. Y. Supp. 303 ; Corey v. Black- well Lumber Co., 24 Idaho, 642, 135 Pac. 742 ; Union Banking Co. v. Truscott Boat Mfg. Co., 189 Mich. 698, 155 N. W. 717; Parker v. Wagoner (Sup.) 169 N. Y. Supp. 1107 ; American Bottle Co. v. Fin- ney, 203 Ala. 92, 82 South. 106. a-" Sparks v. Weatherley, 176 Ala. 324, 58 South. 280. 278 ciaflin V. Houseman, 93 U. S. 130, 23 L. Ed. 833 ; Russell v. Owen, 61 Mo. 185, 15 N. B. B. 322; Dambmann v. White, 48 Cal. 439, 12 N. B. E. 438; Jordan v. Downey, 40 Md. 401, 12 N. B. R. 427; Boudinot v. Hamann, 117 Iowa, 22, 90 N. W. 497; Goodrich v. Wilson, 119 Mass. 429, 14 N. B. R. 555 ; Detroit Trust Co. v. Old Nat. Bank, 155 Mich. 61, 118 N. W. 729 ; Drew v. Myers, 81 Neb. 750, 116 N. W. 781, 17 L. E. A. (N. S.) 350; Bindseil v. Cashion, 60 N. J. Eq. 116, 45 Atl. 697; Vollkommer v. Frank, 107 App. Div. 594, 95 N. Y. Supp. 324 ; Stern v. Mayer, 99 App. Div. 427, 91 N. Y. Supp. 292 ; Silberstein v. Stahl, 32 Misc. Rep. 353, 66 N. Y. Supp. 646; Exler v. American Box Co., 226 Pa. St. 384, 75 Atl. 661, 134 Am. St. Rep. 1067 ; Maxwell V. Davis Trust Co., 69 W. Va. 276, 71 S. E. 270. «7 9 Eau Claire Nat. Bank v. Jackman, 204 U. S. 522, 27 Sup. Ct. 391, 51 L. Ed. 596, 17 Am. Bankr. Rep. 675 ; Cartwright V. West, 185 Ala. 41, 64 South. 293. 2 80 Eyster v. Gaff, 91 V. S. 521, 23 L. Ed. 403; Burbank v. Bigelow, 92 U. S 179, 23 L. Ed. 542 ; Cox v. Wall, 99 Fed. 546 ; Heath v. ShafCer, 93 Fed. 647, 2 Am. Bankr. Rep. 98; In re Gerdes, 2 Nat. Kankr. News, 131 ; In re Murphy, 2 -Vat. Biinkr. News, 393 ; Clark v. Ewing, 9 Biss. 440, 3 Fed. 83; Farnham v. Frled- meyer, 109 111. App. 54; Mclntyre v. Malone, 3 Neb. (Unof.) 159, 91 N. W. 246 ; Frank v. McAdams, 32 Misc. Rep. 512^ 66 N. Y. Supp. 379; Pelper v. Harmer^ S Phila. (Pa.) 100; Tennyson v. Beggs, 176 Cal.^ w R T? 9^9 ■ Pnnl- V DpiiLtt '" Jenkins T. International Bank, 106 2- ul^^: sTn.T mi^lS Soty v%';ifnsr-6'^el' TJl" P^" "^' Grocery Co. v. Snackelf ord (Ga.) 79 S. E. Sn,^ mi.Tse' eS" Cas.= l^'lZs- »i. In re Dunavant, 96 Fed. 542. 3 Am. IZel C^7V'X Tl' ^'J /T«!f Bankr. Rep. 41; Sheldon y. Parker, 66 79 g P^to R.t i .v' o ^^/l^' Neb. 610, 92 N. W. 923, 95 N. W. 1015 ; g Ben £ 9 TbV'^^VJT"'^^' Cohen v. George, 149 Ga. 701, 101 S. E. ^3 030 ' ^ ^^ ^- ^- ^^' ^^- ^^^- ^°- 803. ' ^ 318 Trustees of Mutual Building Fund " ^™ « Appeal, II7 Pa. St., 810, 11 V. Bosseiux, 4 Hughes, 387, 3 Fed. 817. ^^^- ^^^■ 814 Walker V. Towner, 4 Dill. 165, 16 sis Jenkins v. Rosenberg 105 111 157 N. B. R. 285, Fed. Cas. No. 17,089. 909 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 417 ment confessed by the bankrupt under such circumstances as to make it a voidable preference,*^* to enforce against stockholders of the bank- rupt corporation the payment of the balance due on their shares,'** or to compel a transfer of stock on the books of the corporation,'*^ as also to an action against the administrator of a deceased bankrupt to recover the proceeds of insurance policies on the bankrupt's life,'"* or to set aside a sale under foreclosure of a mortgage,'*' or a tax deed on prop- erty of the estate in bankruptcy,'** or a suit to enjoin the trustee in bankruptcy from selling property claimed adversely by the plaintiff.'*® But it was held that the corresponding clause of the act of 1867 did not apply to a proceeding against the bankrupt himself, not cast in the form of a plenary suit, to compel him to surrender property omitted from his schedule and alleged to be fraudulently withheld from the trustee,'*^ nor to a proceeding taken merely as a step in the adminis- tration of the estate and involving merely the authority of the court of bankruptcy to ascertain and settle liens claimed upon the property of the estate,'"' nor to a proceeding to review a bill in equity.'** It was also considered that the provision of the act of 1867 should not be held to apply to actions founded upon causes arising after the estate comes to the hands of the trustee,'** and hence not to adverse claims arising _ out of an equitable attachment and an assignment of the bankrupt's in- terest under a testamentary trust, where both attachment and assign- ment were subsequent to the assignment in bankruptcy."** And it seems that, even in cases where the trustee in bankruptcy would be barred by the statute, it will not prevent an action by his grantee."^ § 418. Same; Ignorance of Cause of Action and Concealed Frauds. • — The bankruptcy act of 1867 prohibited the maintenance of any action by or against the assignee when brought "more than two years after the cause of action accrued." But it was generally held that when the assignee's cause of action arose from a fraud concealed by the opposite 319 Reber v. Gundy, 16 Fed. 801. see In re Churchman, 5 Fed. 181; In re 32 » Payson v. Coffin, 5 Dill. 473, Fed. Krogman, 5 N. B. R. 116, Fed. Cas. No. Cas. ifo. 10,859. 7,936. 321 Moses V. St. Paul, 67 Ala. 168. sas wilt v. Stiekney, 15 N. B. R. 23, 322 Avery v. Cleary, 132 U. S. 604, 10 Fed. Cas. No. 17,854. But see Webster Sup. Ct. 220, 33 L. Ed. 469. v. Gaff, 6 Colo. 475. 323piielan v. O'Brien, 12 Fed. 428. 329 Bowen v. Delaware, L. & W. R. 324 Gage V. Du Puy, 127 111. 216, 19 N. Co., 153 N. Y. 476, 47 N. E. 907, 60 Am. E. 878. St. Rep. 667. Compare Norton v. De La 325 West Portland Homestead Ass'n Villebeuve, 1 Woods, 163, 13 N. B. R. 304, V. Lownsdale, 17 Fed. 205, 9 Sawy. 106. Fed. Cas. No. 10,350; Rock v. Dennett, 326 Phelps V. McDonald, 99 TJ. S. 298, 155 Mass. 500, 30 N. E. 171. 25 L. Ed. 473; Thomas v. Blythe, 55 330 Hammond v. Whittredge, 204 TJ. Fed. 961, 5 C. C. A. 356. Compare Leech S. 538, 27 Sup. Ot. 396, 51 L. Ed. 606. V. Dawson, 23 Fed. 654. 33i Burton v. Perry, 146 111. 71, 34 N. 327 In re Anderson, 23 Fed. 482. But E. CO. § 419 LAW OF BANKRUPTCY 910 party, or which from its nature remained secret, the statute did not be- gin to run until the fraud was discovered,*^^ at least if there was no reason to impute laches to the assignee or want of due diligence in dis- covering the fraud.*^* It was said : "The courts have ingrafted on this act the recognized rule as to statutes of limitatioti, that if the facts on which any right of action is based have been fraudulently concealed by the parties in interest, or if the fraud is of such a character as con- ceals itself, the statute will only commence to run from the date of the discovery of the fraud, or of such information as, if diligently followed up, would discover it." *^* But this implied exception can be supported only on the theory that a cause of action cannot properly be said to "ac- crue" until the plaintiff has knowledge of the circumstances on which his action may be based. The language of the present bankruptcy act is essentially different. It provides that "suit shall not be brought by or against a trustee of a bankrupt estate subsequent to two years after the estate has been closed." *^° This appears to be absolutely prohibitive, and to admit of no exception whatever. If, therefore, an estate has been closed for more than two years, and then a fraud is unearthed which resulted in withholding assets which should have been adminis- tered in the bankruptcy proceedings, it appears that the proper course for the trustee is to apply for an order reopening the estate. § 419. Same; Parties Affected by Statute. — On this point the pro- visions of the act of 1867 and those of the present statute are sufficiently similar to make the earlier decisions of the courts instructive. The clause relating to the limitation of actions in the act of 1867 referred to suits "between an assignee in bankruptcy and a person claiming an adverse interest ;" that in the act of 1898 relates to suits "by or against a trustee of a bankrupt estate." Under the former act it was held that the limitation did not apply to an action by or against a purchaser from the assignee in bankruptcy, where the cause of action arose after the purchase,^^* although, if the statute had already begun to run against the assignee at the time of the sale, it would continue to run against 332 Rosenthal v. Walker, 111 U. S. No. 5,151a; Toney v. Spragins, 80 Ala. 185, 4 Sup. Ot. 382, 28 L. Ed. 395 ; Bailey 541. V. Glover, 21 Wall. 342, 22 L. Ed. 636; 333 Pearsall v. Smith, 149 U. S. 231, Scott V. Devlin, 89 Fed. 970; Shainwald 13 Sup. Ct. 833, 37 L. Ed. 713; Andrews \. Davids, 69 Fed. 687; DufC v. First v. Dole, 11 N. B. R. 352, Fed. Cas. No. Nat. Bank, 13 Fed. 65; Martin v. Ful- 373. lings, 3 Fed. 206;, Nicholas v. Murray, 5 334 Yancy v. Cothran, 32 Fed. 687; Sawy. 320, 18 N. B. R. 469, Fed. Cas. No. Bailey v. Glover, 21 Wall. 342, 22 L. Ed. 10,223; Pritchard v. Chandler, 2 Curt. 636. 488, Fed. Cas. No. 11,436; Forbes v. 336 Bankruptcy Act 1898, § 11a. Overby, 4 Hughes, 441, Fed. Cas. No. 336 Brewer v. Yazoo & M. V. R. Co., 4,928a; FuUings v. FuUings, Fed. Cas. 128 La. 544, 54 South. 987; Burton v! Perry, 146 111. 71, 34 N. E. 60. 911 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 421 his vendee,**^ and of course the latter could not sue on a cause of ac- tion which was already barred before the transfer of the property to him.*^* It was also held that the limitation did not afifect an action brought by the bankrupt himself respecting property rights which the assignee bad abandoned or had elected riot to take,^^* nor a suit by a person claiming under a conveyance made by the bankrupt before the adjudication in bankruptcy.^** So also, where a decree was made by the court of bankruptcy establishing the priority of the lien of one cer- tain creditor over all other creditors, it was held that a creditor who had not been made a party to the proceeding and had no notice of it was not barred by the statute from asserting his rights more than two years after the date of the decree.^*'^ But where a creditor brings an action to set aside an alleged fraudulent conveyance, not claiming any peculiar rights for himself, but simply because the assignee has refused to sue, he is as much bound by the statute as the assignee himself would be.**^ § 420. Same; Pleading the Statute. — The special short statute of limitations prescribed by the bankruptcy act, like any other statute of limitations, must be taken advantage of either by demurrer or answer ;^ if not pleaded, it will be waived, since it does not take away the juris- diction of the court in which the action may be brought, but only puts an end to the action if seasonably set up.®** And therefore if an action ■ begun by the bankrupt, and in which the trustee is substituted as plain- tiff, is allowed to proceed to judgment without any objection being taken on the ground that the statute of limitations had run against it, the proceeds of the judgment cannot be claimed by the bankrupt, but belong to the estate in bankruptcy.*** § 421. Same; Laches of Trustee or Claimants. — Even without spcr cial reference to the statute of limitations, an action by a trustee in bank- ruptcy to collect a debt, avoid a fraudulent conveyance, or recover a preference, may be successfully defended on the ground of his laches, if he has - unreasonably and negligently refrained from ■ asserting his claims as trustee, and rights have meanwhile accrued which are of 83 7 Greene v. Taylor, 132 U. S. 413, 3" Tennessee & O. R. Co. v. East Ala- 10 Sup. Ct. 138, 33 L. Ed. 411 ; Rock v. bama Ry. Co., 75 Ala. 516, 51 Am. Kep. Dennett, 155 Mass. 500, 30 N. B. 171. 475. 338 Lewis V. Prendergast, 45 Minn. 342 Fjeelander v. HoUoman, 9 N. B. R. 533, 48 N. W. 439. 331_ Fed. Cas. No. 5,081. 33 9 Sessions V. Romadka, 145 U. S. 29, ,,, „ ^ at t v,t -rncTT c- 12 Sup. Ct. 799, 36 L. Ed. 609. See May- „'' oY^r ^T^J-MfoT W ^1°' r-^" bin y Raymond, 15 N. B. R. 353, Fed. 640 26 L Ed. 1197; Bartles y. Gibson, Cas. No. 9,338; Brewer v. Brewer, 145 ^' ^^"- ^^'^■ La. 835, 83 South. 30. 344 Maybin v. Raymond, 15 N. B. R. 3 40 Ludeling v. ChafCe, 143 U. S. 301, 353, Fed. Cas. No. 9,338. 12 Sup. Ct. 439, 36 L. Ed. 313. § 421 LAW OF BANKRUPTCY 912 value and should be respected.**^ Thus, the statute requiFes claims against an estate in bankruptcy to be exhibited within one year after the adjudication, and also requires a cteditor who has received a pref- erence to surrender the same as a condition precedent to his right to prove his claim. But where a trustee in bankruptcy failed to take any steps towards the avoidance of an alleged preference until the year had so nearly expired that there did not remain to the preferred creditor a reasonably sufficient time in which to surrender his preference and prove his claim, it was held that the trustee's subsequent suit to avoid the preference should be dismissed on account of his laches.*** But the trustee is not barred, on the ground of laches, from asserting rights un- der the liens of execution creditors upon property held by the bank- rupt under a contract of conditional sale, which liens had been preserved for the benefit of the estate by order of the court of bankruptcy, simply because he first based his right to relief solely upon the ground that an unlawful preference was created»thro«gh the payment of an indebtedness by the transfer of the property to the vendor by the bankrupt when in- solvent.**' And the trustee in bankruptcy of a corporation whose treas- urer had used its funds without authority to purchase stocks in his own name, which he pledged with a bank as collateral for his notes, was held not barred by laches from proceeding to enforce the constructive trust affecting the stock in favor of the company, where it appeared that the last of the stock had been purchased in October, 1912, and the pe- tition in bankruptcy was filed in May, 1915, and the stock did not come into the possession of the bank until the day of the assignment in bank- ruptcy.*** So, the fact that the trustee allowed an attaching creditor to proceed to judgment in his suit against a debtor of the bankrupt, is not necessarily laches preventing him from proceeding to set aside the judgment.*** Laches may also be imputed to claimants against the estate in bank- ruptcy. Thus, where a claimant had been fraudulently induced to sell goods to the bankrupt, which were delivered December 9, 1912, and had 346 Sparhawk v. Yerkes, 142 U. S. 1, laches as to defeat his right, where no 12 Sup. Ct. 104, 35 L. Ed. 915; Kinder injury resulted to the creditor. In re V. Scharff, 231 U. S. 517, .34 Sup. Ot. 164, Star Spring Bed Co. (C. C. A.) 265 Fed. 58 L. Ed. 343 ; Swartz v. Frank, 183 Mo. 133, 45 Am. Bankr. Rep. 650, affirming 438, 82 S. W. 60; Beall v. Dushne, 149 (D. 0.) 25T Fed. 176, 43 Am. Bankr. Rep. Pa. St. 439, 24 Atl. 284; Jacobson v. 32a Sims, 60 Atl. 185. si? Rock Island Plow Co. v. Reardon, 346 Swartz V. Frank, 183 Mo. 438, 82 222 U. S. 354, 32 Sup. Ct. 164, 56 L. Ed. S. W. 60. But a delay of four months 231, 27 Am. Bankr. Rep. 492. on the part of a trustee In bankruptcy, 8*8 Millard v. Green, 94 Conn. 597, 110 after the filing of a claim against the Atl. 177, 9 A. L. R. 1610. estate, before he moved that it should 349 Wilson v. Van Buten County be expunged unless a preference were Farmers' Mut. Fire Ins. Co., 184 Mich, first surrendered, was held not such 530, 151 N. W. 752. 913 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 423 knowledge of the bankruptcy proceedings between the 10th and 12th of the same month, but filed no intervening petition claiming the goods or the proceeds until May 24, 1913, it was held that his right to rescind the sale was barred by laches.*^ § 422. Same; Effect of Reopening Estate. — The bankruptcy act of 1898 authorizes a court of bankruptcy to close the estate of a bankrupt whenever it appears that it has been fully administered, and to reopen such an estate whenever it appears that it was closed before being fully administered.**"^ And when a closed estate is reopened on a petition by creditors or the former trustee, showing that certain solvent claims had not been collected, subsequent suits brought to collect such claims are not barred by the special statute of lihiitations, although the estate was not reopened until more than two years after the final settlement and closing of it.*** But the opinion has been advanced that an estate cannot thus be reopened for the purpose of allowing the trustfee to bring a suit to set aside an alleged fraudulent conveyance by the bankrupt, on the theory that property conveyed away by a bankrupt, although for the purpose of defrauding his creditors, is not property of his estate until the sale is set aside, and therefore the existence of a cause of ac- tion in the trustee to vacate such a conveyance is insufficient to show that the estate was not fully administered when it was closed by order of the court.*®* . § 423. Parties. — In an action by a trustee in bankruptcy, the com- plaint should represent him as suing in his official capacity, and not as an individual, but when this is done, the fact that his name, in the caption, is followed , by the word "trustee," instead of the words "as trustee," is immaterial.*** If the same trustee is appointed for two bank- rupts individually and also for the firm of which they are the members, in the same proceeding, he holds but one office, and may sue to set aside a fraudulent conveyance made by the bankrupts jointly.*** He generally sues in his own name as trustee in bankruptcy, but if a tech- nical legal title to the property in suit is outstanding in the name of another, it will be necessary for the trustee (the local rules of practice so requiring) to use' the name of such other as the nominal plaintiff 350 In re Watmough (D. 0.) 210 Fed. of 1867, see Geisrelter v. Sevier, 33 Ark. 539, 32 Am. Bankr. Rep. 59. And see 522; Scott v. Little, 76 Fed. 563. In re Jamison Bros. & Co., 227 Fed. 30, sss Kinder v. Sharff, 129 La. 218, 55 142 C. C. A. 3, 35 Am. Bankr. Rep. 725. South. 769. 351 Bankruptcy Act 1898, § 2, clause 8. sb* Newland v. Zodlkow, 39 Misc. Rep. s5 2Bilafsky v. Abraham, 183 Mass. 541, 80 N. Y. Supt). 375. • 401, 67 N. B. 318. Contra, under the act .3 5 5 Wright v. Simon, 52 Misc. Rep. 360, 102 N. X. Supp. 1108. Blk.Bkb.(3d Ed.)— 58 § 423 LAW OF BANKRUPTCY 914 in the action.^"* Conversely, in any proceedings affecting property or assets of the estate, the trustee in bankruptcy must be made a party, or he will not be bound by the decree.*^' Thus, he is a necessary party to a bill to foreclose a mortgage given by the bankrupt.*^* As to the joinder of parties, bankruptcy follows the general rule of equity, that all those should be brought in who have any interests in the subject- matter of the suit or claims upon it, or whose rights may be prejudicially affected by the decree to be made in the case, in order that complete justice to all concerned may be effected at one time.*"* Thus, a trustee in bankruptcy, suing for money paid by the bankrupt to a corporation without consideration, should, as a protection in case the corporation might be or become insolvent, join as defendants all those shown by the complaint to be personally liable.**" And all the shareholders of an insolvent corporation who received dividends paid out of capital assets, may be joined in one action instituted by the trustee in bankruptcy to recover the amount of the dividends.*"^ So in a suit by a trustee in bankruptcy, based upon a state ■ statute which prohibits transfers to corporate officers and directors when the corporation's insolvency is imminent, with intent to prefer, all the various officers and directors may be made parties defendant, although they are not equally liable and though they were not all concerned in such transfer.*** But an objection on the ground of a want of necessary parties will be available only in so far as it prevents the doing of complete justice without the presence of the omitted parties, and it will not be allowed to prevent relief which can be given as between the parties before the court, and which will not affect the rights of the omitted parties.*** But on the 360 Bacon v. George, 206 Mass. 566, Beede, 126 Fed. 85.3, 11 Am. Bankr. Rep. 92 N. B. 721; Traders' Ins. Co. v. Mann, 387; In re Baudouine, 9 Fed. 536, 3 Am. 118 Ga. 381, 45 S. E. 426. After the ad- Bankr. Rep. 55. See In re Frey's Es- judication, an action against a debtor of tate, 237 Pa. St. 269, 85 Atl. 147 ; West the bankrupt cannot be maintained in v. Empire Life Ins. Co. (D. O.) 237 Fed. the name of the bankrupt's previous as- 303, 38 Am. Bankr. Rep. 462. And see, signee for creditors, nor by the trustee as to the right of intervention in suits suing in the name of such assignee. Gil- brought by the trustee In bankruptcy, bert V. Mechanics' & Metals' Nat. Bank, West v. Empire Life Ins. Co. (D. O.) 242 95 Misc. Rep. 364, 160 N. T. Supp. 710. Fed. 605, 40 Am. Bankr. Rep. 93. 8 67 Atkinson v. Farmers' Bank, 8oo Billings v. Charles Millar & Son Crabbe, 529, Fed. Gas. No. 609. See Vir- Co. (D. C.) 227 Fed. 185, 35 Am. Bankr. ginia-Carolina Chemical Co. v. Floyd, Rep. 840. 158 N. C. 455, 74 S. E. 465; Magruder v. aei Carlisle v. Ottley, 143 Ga. 797, 8."j Hattlesburg Trust & Banking Co., 108 S. B. 1010, L. R. A. 19170, 393, Ann. Cas. Miss. 857, 67 South. 485. 1917A, 573. And see Sherrill v. Ilutson, 8B8 Clark V. Clark, .56 N. H. 105. 187 Ala. 189, 65 South. 538. SB9 United Sheet & Tin Plate Co. v. 802 Sherwood v. Holbrook, 178 App. Hess, 159 Fed. 889, 87 C. C. A. 69, 20 Div. 402, 105 N. Y. Supp. 514. Am. Bankr. Rep. 254; In re Kane, 161 '■'<''<> Greenhall v. Carnegie Trust Co. Fed. 633, 20 Am. Bankr. Rep. 616; In re (D. C.) ISO Fed. 812, 25 Am. BanUr. Rep. 915 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 424 other hand, it is not necessary to bring in parties who may have some contingent or ultimate rights in the subject of the suit, if those rights are not to be affected by the proceeding immediately before the court.*®* Thus, ordinarily, in suits to vacate fraudulent transfers and the like, judgment creditors of the bankrupt are not necessary parties.*®^ So, in a suit to set aside a transfer of the bankrupt's interest in a partnership to a third person, the bankrupt's partner is not a necessary party.**® And in an action to vacate an alleged fraudulent chattel mortgage, per- sons to whom the bankrupt had subsequently given other chattel mort- gages on the same property are not necessary parties.**' And a fraud- ulent transferee of property, who has transferred the property to an- other fraudulent transferee, need not be joined.*** And in a suit by the trustee against the bankrupt's wife, to whom he had assigned policies of insurance on his life, to determine the amount of premiums paid in fraud of creditors, the insurer is not a necessary party.**® And it is no objection to the trustee's bringing a suit to recover assets in the form of a creditors' bill, that there are also other creditors of the de- fendant, for in such a bill, the complainant sues as one of a class for the benefit of all members thereof who may become parties.*'* But if property of the bankrupt is subject to a valid lien, the mere taking pos- session of the property by the court of bankruptcy does not make the holder of the lien a party to the proceedings in bankruptcy.*'^ In a suit by a trustee to establish rights in property within the district, a non-resident defendant claiming adversely may be brought in by an order and service by publication.*'* § 424. Same; Joinder of Bankrupt. — The bankrupt is neither a nec- essary nor a proper party to any action relative to the assets of his estate in the hands of hip trustee; and it is not necessary to join him as a party of record in any such proceeding, whether the suit be brought by the trustee or brought against him, and whether its object is to 300; Peninsula Bank of Williamsburg v. 3«f Shanks v. National Casket Co., 95 Wolcott, 232 Fed. 68, 146 C. C. A. 260, App. Dlv. 187, 88 N. Y. Supp. 839. Ann. Gas. 1918C, 477; 36 Am. Bankr. 3«s Skillen v. Endelman, 39 Misc. Rep. Rep. 327. 261, 79 N. Y. Supp. 413. 38* VoUkommer v. Frank, 107 App. a os Bailey v. Wood, 202 Mass. 562, 89 Div. 594, 95 N. Y. Supp. 324; Bank of N. E. 149. Waldron v. Euper, 93 Ark. 609, 125 S. a^o Stotesbury v. Cadwallader, 10 W. 1022. Phila. (Pa.) 281, Fed. Cas. No. 13,498. 36 s Traders' Bank v. Campbell, 14 But see Biggs v. Westen, 248 Mo. 333. Wall. 87, 20 L. Ed. 832; Smith v. Bel- 154 S. W. 708. den, 35 Misc. Rep. 113, 71 N. Y. Supp. sti in re Platteville Foundry & Ma- 246 ; Grant v. National Bank of Auburn, chine Co., 147 Fed. 828, 17 Am. Bankr. 19 Fed. 581, 28 Am. Bankr. Rep. 712. Rep. 291. But see Exler v. Wickes 366 Lamb v. Hall, 147 Cal. 37, 81 Pac. Bros., 263 Pa. 150, 106 Atl. 233. 286. 372 Horskins v. Sanderson, 132 Fed. § 425 LAW op BANKRUPTCY 91fi collect a debt, recover a preference, avoid a fraudulent transfer, or establish a title to, or lien upon, property in the possession of the trustee.*'* § 425. Representation of Trustee by Counsel for Bankrupjt. — Since the interests of the trustee in bankruptcy are usually antagonistic to those of the bankrupt, and since it is frequently the duty of the former to frustrate the latter's fraudulent attempts to conceal assets or put them beyond the reach of creditors, or to benefit one creditor at the expense of others, it is clearly contrary to the pplicy of the law that the same attorney should act both for the trustee and for the bankrupt. And this has been enacted into a rule of court in some of the federal districts. But it has been held that such a rule applies only to proceedings in the bankruptcy case before the bankruptcy court, that it has no application to a suit by the trustee in a state court, and that it is no defense to a suit brought by a trustee in bankruptcy, in equity, to recover assets of the bankrupt alleged to be in the possession of the defendant, that the plaintiff's attorney was attorney for the bank- rupt in the bankruptcy proceedings.*''* § 426. Injunction and Receivership. — It has already been shown that the court of. bankruptcy has authority, pending adjudication upon a petition in bankruptcy or pending the appointment of a trustee, to enjoin all persons from intermeddling with the property of the bankrupt or from disposing of such property as may be in their hands, and also, if necessary for the preservation of the estate, to take possession of it through a receiver.*'® It remains to be stated that the trustee in bank- ruptcy, when proceeding to collect the assets, may also have the aid of these powerful remedies when necessary.*'* When he brings suit to recover an alleged preference or to set aside an alleged fraudulent con- veyance, he may obtain an injunction restraining the defendant from disposing of the property or letting it go out of his hands pending the suit,*" provided he shows some emergency justifying such action or 415, 13 Am. Bankr. Rep. 101; Olcott y. Div. 616, 78 N. Y. Supp. 369; Pry v. Maclean, 73 N. T. 223. Street, 37 Ark. 39. But see Klmbrough 373 Wall V. Oox, 101 Fed. 403, 41 C. O. v. Aired, 202 Ala. 413, 80 South. 617. A. 408, 4 Am. Bankr. Rep. 659; Cox v. 874 Callahan v. Israel, 186 Maas. 383, Wall, 99 Fed. 546; Goodnough Mercan- 71 N. E. 812. tile & Stock Co. V. Galloway, 150 Fed. stb gee supra, §§ 205, 210. 504, 19 Am. Bankr. Rep. 244; Bucking- stoa court of bankruptcy has power ham V. Estes, 128 Fed. 584, 63 O. C. A. to enjoin the violation of a contract 20, 12 Am. Bankr. Rep. 182; French v. made with a trustee in bankruptcy. In R. P. Smith & Sons Co., 81 Minn. 341, re Consumers Albany Brewing Co. (0. 84 N. W. 44; Edwards v. Schillinger, 148 C.) 224 Fed. 235, 35 Am. Bankr. Rep. 358. 111. App. 227; Frank v. Musliner, 76 App. 877 in re Norris, 177 Fed. 598, 24 Am. 917 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 426 some imminent danger of loss which the court would be unable to re- dress,*'* and where his claim is to the possession of specific property, presently within the reach of the court, he may be entitled to an in- junction restraining its shipment out of the district until after the ter- mination of the suit.*'® But this remedy cannot be availed of where the defendant has rights in the property which are independent of the bankruptcy proceedings and not to be affected thereby. Thus, a trus- tee in bankruptcy of a husband cannot maintain a bill to restrain the husband and wife from alienating property which they hold by that peculiar tenure still surviving in some states, known as "tenancy by entireties."*** In cases where the remedy by injunction does not ap- pear sufficient, and particularly where it appears that the defendant in the action is not solvent, or would be financially unable to restore the value of the property in suit if he should meanwhile dispose of it, the trustee may apply for the appointment of a receiver to take charge of it, and this should be granted in a proper case.**^ This was held prop- erly done, for instance, in a case where the property alleged to have been fraudulently transferred to the defendants was a stock of mer- chandise, and it appeared that it consisted of goods subject to deterio- ration and fluctuation in price, and that it had not been inventoried, so that its value could not be correctly estimated, and that the defend- ants were probably not worth much more than the amount of their debts.**^ But proof of the defendant's insolvent or at least unstable financial condition is essential to the granting of this relief,*** and a receiver should not be appointed where there is a probability that a Bankr. Rep. 444; In re Schwartzman, the property are made on information 167 Fed. 399, 21 Am. Bankr. Rep. 885; and belief, and there is no allegation or Blake v. Nesbet, 144 Fed. 279, 16 Am. showing of their Insolvency. Lyle v. Bankr. Rep. 269; In re Latimer, 141 Fed. P«rry (D. C.) 250 Fed. 307, 42 Am. 665, 15 Am. Bankr. Rep. 461; Jobbing v. Bankr. Rep. 307. Montague, 23 N. J. Eq. 182; Hane v. 379Pyie v. Texas Transport ,&.Termi- Crown & Keystone Co. (D. C.) 223 Fed. nal Co., 185 Fed. 309, 25 Am. Bankr. 439, 35 Am. Bankr. Rep. 175; Hall v. Rep. 829. Glenn (D. C.) 247 Fed. 997, 39 Am. Bankr. sso Weiss v. Beihl, 232 Pa. St. 97, 81 Rep. 54; In re Schilling (D. C.) 264 Fed. Atl. 148. 357, 45 Am. Bankr. Rep. 147. asi Petrie v. Buffington, 79 W. Va. 113, 37 8 Beecher v. Bininger, 7 Blatchf. 170, 90 S. E. 557. Fed. Cas. No. 1,222; Rowland v. AutQ 382 Cox v. Wall, 99 Fed. 546. Car Co., 133 Fed. 835, 13 Am. Bankr. 383 Webb v. Manheim, 109 App. Div. Rep. 799. Application by a trustee in 63, 95 N. Y. Supp. 1003; McKenzie v. bankruptcy for a preliminary injunction Thomas, 118 Ga. 728, 45 S. E. 610. to restrain defendants from transferring Where respondent corporation did an in- property alleged to Ttiave been acquired dependent business and had goods hon- by them through a preferential transfer estly belonging to it and creditors to should be denied, where the only allega- whom it was indebted, and was not insol- tions connecting them with the transac- vent, a receiver should not be appointed tlon or charging their intention to sell to assist a trustee in bankruptcy of re- § 427 LAW OF BANKRUPTCY 918 valid claim of set-off existing in the defendant may wipe out the in- debtedness sued for.*** In any case, a receiver thus appointed should only be charged with the preservation of the property, and he should not be authorized to sell it,**® unless possibly in the case of perishable property.**® Even if a sufficient case for the appointment of a receiver is not made out, the trustee in bankruptcy, suing in equity to establish rights in property, may have a writ of sequestration to prevent the re- moval of the property from the district.^*' And if his attempt to realize the value of assets claimed to belong to the estate in bankruptcy, by a suit to quiet title, is met by an assertion of title on the part of the defendant and an attempt to enjoin him from proceeding with his suit, the opinion has been advanced that he may be entitled to a writ of pro- hibition, addressed to the state court in which the injunction is asked, forbidding it to grant the writ.*** § 427. Pleading; Allegations of Trustee's Bill or Complaint. — In any bill or complaint by a trustee in bankruptcy, it is first of all nec- essary for him to show his official capacity and right to sue, by alleg- ing the adjudication of bankruptcy and his own appointment as trus- tee.**® But it is probably not necessary to set out in detail the vari- ous steps in the bankruptcy proceeding, but only the two essential facts of the adjudication and appointment, which may be alleged to have been by orders or decrees "duly made or given." *®'' The trus- tee should also aver that he is the beneficial owner of the property in question, or that it belongs to the bankrupt's estate, or was held for him spondent's managing stockholder to trace Co., 67 Ind. App. 213, 119 N. E. 20. It property which he fraudulently conceal- is probably not necessary for the trustee ed from his creditors by means of re- to allege that he has not been discharged spondent corporation. Sprague v. L. D. as a trustee before the Institution of Margolis Co. (D. C.) 211 Fed. 171. the suit, but an admission to that effect 384 Rowland v. Auto Car Co., 133 Fed. may be availed of by the defendant. 835, 13 Am. Bankr. Rep. 799. Bausman v. Mead, 182 111. App. 35. 385 Small V. MuUer, 67 App. Div. 143, 3!"> In re Seger Bros. Co. (D. C.) 243 73 N. T. Supp. 667. Fed. 459, 39 Am. Bankr. Rep. 669; Bou- 3 86 Cox V. Wall, 99 Fed. 546. ton v. Wheeler, 118 App. Div. 426, 104 3 87 Horskins v. Sanderson, 132 Fed. N. Y. Supp. 33; Mears v. Shaw, 32 Mont. 415, 13 Am. Bankr. Rep. 101, citing 575, 81 Pac. 338; Wheelock v. Lee, 15 Steam Stone Cutter Co. v. Sears, 20 Abb. Prac. N. S. (N. T.) 24, 10 N. B. R. Blatchf. 23. 9 Fed. 8; Same v. Jones, 21 363; Seaton v. Scovill, 18 Kan. 433, 21 Blatchf. 138, 13 Fed. 567. Am. Rep. 212, note, 26 Am. Rep. 779. It 3 88 Hudson V. Judge of Superior Court, has been said that, in suing for the re- 42 Mich. 2.39, 3 N. W. 850, 913. covery of assets, the trustee need not 889 Van Slyke v. Huntington (C. O. A.) aver in his complaint the various steps 265 Fed. 86, 45 Am. Bankr. Rep. 173. in the bankruptcy 'proceeding, as they But the trustee's complaint need not are not ultimate but probative facts; the aver permission to bring the suit, as he pleading is good if he alleges ownership derives that authority from the bank- in himself, for under such an allegation ruptcy act. Harlin v. American Trust he can prove the bankruptcy and his own 919 SUITS BY AND AGAINST TRUSTEES IN BANKKUPTOY § 427 or for his benefit, as the case may be,**'^ and should show whether the right of action is one vesting originally in himself as trustee or one originally accruing to the bankrupt,^** but when he sues in trover for a conversion of goods occurring either before or after the bankruptcy, he may join in the declaration a count upon the bankrupt's title and a count upon the trustee's title.*®* If the action is at law, and for the recovery of money alleged to belong to the bankrupt, a demand should be alleged and also the fact that the money has not already been paid over to the bankrupt,*®* but in equity, no allegation of a previous de- mand is necessary, the rule in equity being that the bringing of the suit is itself a sufficient demand.*®^ But where, pending an action on an unpaid stock subscription, a trustee in bankruptcy was appointed and substituted as plaintiff, it was held that the complaint must allege notice to the stockholder and an opportunity to be heard as to the validity of claims.*®® And the opinion has been advanced that, since a trustee in bankruptcy should not delay iii taking charge of the prop- erty of the estate, if his delay would work any injustice to parties interested, a bill by the trustee to gain possession of property of the bankrupt should show that there has been no unnecessary delay.**'' When the action is to recover a mere debt, or, generally, where it is a suit which the bankrupt himself might have prosecuted, it is not neces- sary for the trustee to allege that he has not sufficient assets in his hands to pay all the debts of the estate,*®* but otherwise where the suit is to set aside a fraudulent transfer or recover the proceeds thereof.*'®. appointment. Dambmann v. White, 48 summary process of the bankruptcy Cal. 439. But if he undertakes to set court is invoked against a third person, out in detail the manner in which he alleged to be in possession of property claims to hare become the owner of the of the bankrupt, want of title in the property, by alleging the proceedings- in defendant, or that his title is merely bankruptcy, it is fatal to the declara- colorable, must be alleged and proved, tion if he omits to allege the adjudica- In re Flanigan (D. C.) 228 Fed. 339, 35 tion in bankruptcy. Wright v. Johnson, Am. Bankr. Rep. 807. 8 Blatchf. 150, 4 N. B. R. 626, Fed. Gas. 392 Murray v. Beal, 97 Fed. 567, 3 Am. No. 18,082. But compare, as to this last Bankr. Rep. 284. point, Lakin v. First Nat. Bank, 13 3 93 Burns v. O'Gorman Co., 150 Fed. Blatchf. 83, Fed. Gas. No. 7,999. Where 226, 17 Am. Bankr. Rep. 815. the plaintiff's appointment as trustee in 394 Cohen v. Wagar, 87 App. Div. 255, bankruptcy is denied, it must be proved, 84 N. T. Supp. 377. and judgment given in his favor without 395 Wright v. Skinner, 136 Fed. 694, proof of such appointment is erroneous. 14 Am. Bankr. Rep. 500. Van Houten v. Oliver, 91 N. T. Supp. 36. 396 Chamberlain v. Plercy, 82 Wash. Further, as to showing authority of trus- 157, 143 Pae. 977. tee to sue, see Security Trust Co. v. ss^Trenholm v. Miles, 106 Miss. 467, Glazier, 170 Mich. 26, 135 N. W. 904; 64 South. 209. Anderson v. Stay ton State Bank, 82 Or. 393 Drew v. Myers, 81 Neb. 750, 116 357, 159 Pae. 1033. N. W. 781, 17 L. R. A. (N. S.) 350; Ben- ty Co., 174 Ala. 490. 57 South. 34. Where ner v. Billings, 107 Wash. 1, 181 Pae. 19. 8 91 A. Dreher & Co. v. National Sure- 899 Seager v. Armstrong, 95 Minn. 414, § 427 LAW OF BANKRUPTCY 920 The trustee's declaration, complaint, or bill is likewise subject to the ordinary rules of pleading which require certainty and definiteness in the statement of a plaintiff's case and the inclusion of all facts nec- essary to make out a clear right of action. Examples of the application of these rules may be seen in the cases cited in the margin.**" On an issue in bankruptcy as to the priority of a mortgage lien, the bill sho'uld allege the names of all the creditors of the bankrupt other than the mortgagee, the amounts of their debts, the character of the same, and when they arose or were created.**^ § 428. Pleading; Defenses to Trustee's Bill or Complaint. — In an action by a trustee, in, bankruptcy, the defendant may deny the plaintiff's official capacity or right to sue, which constitutes a plea in bar, and not in abatement,*** or he may allfege that a suit upon the same cause of action, brought by the bankrupt himself in another court, and in whicli the trustee should have intervened, is still pending and undetermined.*** If the trustee's bill is to set aside a conveyance or transfer and contains allegations of fraud, there must be an answer denying the fraud, without which a general demurrer should not be allowed.*** And generally in actions of this kind, although the answer need not set forth in detail all the circumstances of the transaction, it should be responsive to the bill and should contain specific allegations covering the ground of in- tended defense, as, that the defendant paid a present and adequate con- sideration in cash, that he purchased in good faith and without intention 'to delay or defraud the bankrupt's creditors, or otherwise as the case may be.**® So, in an action to recover an alleged preference, the defend- 104 N. W. 479; Roney v. Conable, 125 C. C. A. 253; Jolinson v. Canfleld-Swi- lowa, 664, 101 N. W. 505; Mayhew v. gart Co., 292 111. 101, 126 N. E. 608; Cor- Todisman, 246 Mo. 288, 151 S. W. 436; ey v. Blackwell Lumber Co., 24 Idaho, Grant v. National Bank of Auburn, 197 642, 135 Pac. 742. Fed. 581, 28 Am. Bankr. Rep. 712. Con- ioiTeague v. Anderson Hardware Co., tra, Kraver v. Abrahams, 203 Fed. 782, 161 Fed. 765, 20 Am. Bankr. Rep. 424. 29 Am. Bankr. Rep. 365. *»2 Peel v. Ringgold, 6 Ark. 546. As to ^oo See Crowe v. Baumann, 190 Fed. pleading an estoppel against the trustee 399, 27 Am. Bankr. Rep. 100; Cohen v. in bankruptcy, see Coleman v. North- Wagar, 183 N. Y. 33, 75 N. B. 691; Rath- western Mut Life Ins. Co., 273 Mo. 620 bone V. Ayer, 84 App. Div. 186, 82 N. Y. 201 S. W. 544. Supp. 235; Carr v. Myers, 211 Pa. St. 408 Radford v. Folsom, 4 McCrary, 527, 349, 60 Atl. 913; Herzberg v. Riddle, 171 14 Fed. 97. Ala. 368, 54 South. 635; Dickey v. Gray *04 Johnston v. Forsyth Mercantile Co., Timber Co., 127 Ga. 460, 56 S. E. 481; 127 Fed. 845, 11 Am. Bankr. Rep. 669. Smith V. Auerbach, 2 Mont. 348; McKey ^osMcNulty v. Wiesen, 130 Fed. 1012, V. Smith, 255 111. 465, 99 N. E. 695; 12 Am. Bankr. Rep. 341. Or that the Sparks V. Weatherly (Ala.) 58 South. 280; property in question was exempt from Rodolf V. First Nat. Bank, 30 Okl. 631, execution and therefore not within the 121 Pac. 629, 41 L. R. A. (N. S.) 204; In statute. Meyer v. Perkins, 20 Cal. App. re Berkman, 201 Fed. 180; In re Young, 661, 130 Pac. 206. Where the conveyance 206 Fed. 187, 31 Am. Bankr. Rep. 82; of a bankrupt is attacked as in fraud of RatclifC V,. Clendenin, 232 Fed. 61, 146 creditors, the grantee may plead limita- 921 SUITS BY AND AGAINST TKUSTKES IN BANKEUPTCY § 429 ant should plead the essential facts of his defense, as, that the property transferred did not belong to the bankrupt, but to his wife,*"" that he had no knowledge of the insolvency of the debtor and no reasonable cause to believe that a preference was intended,*"' or that the goods in question wefe not taken by defendant in payment of a debt, but on the rescission of a sale of them to the bankrupt, which had been induced by the latter's false and fraudulent representations,*"* or, in the case of an attaching creditor, that the debtor was not insolvent when the attach- ment and judgment were secured and that the judgment has been paid.*"* But in a suit by a bankrupt's trustee to set aside certain alleged preferential transfers of personal property, a cross-bill by interveners seeking to impress a trust in their favor on certain property in the hands of the trustee, is not germane to the original bill and therefore is with- out equity.*^" And in a suit by the trustee to set aside a conveyance made by the bankrupt within four months of the filing of the petition, the grantee cannot defend on the ground that the rents of the property, which was in the possession of a receiver, were sufficient to pay all claims filed in the bankruptcy court, where it does not appear that the grantee consented to such use of the rents, inasmuch as the rents, in the event of a decree sustaining the conveyance, would belong to him.**^*^ § 429. Pleadings in Suits Against Trustees. — A bill in equity'against a trustee in bankruptcy which alleges that the complainant held a mort- gage on property of the bankrupt, and was induced by the fraudulent representations of the bankrupt to release the same, and offers to re- store the consideration received therefor, states a sufficient cause of ac- tion for equitable relief by the restoration of the lien.*^* But great par- ticularity is required in the case of a petition for the restoration to the plaintiff of goods in the hands of the trustee, and which the plaintiff claims under his right to rescind the contract by which they were sold to the bankrupt, on account of its having been induced by the latter's fraud. Such a petition must not only allege all the facts necessary to entitle the petitioner to rescind, but must also set out all the circum- tions as a defense to the bankrupt's 11- *0 9 Farmers' Nat. Bank v. Slaton, 180 abilities existing antecedently to t^e con- Ky. 700, 203 S. W. 565. veyance. Pace's Trustee v. Pace, 162 Ky. *io Lovell v. Latham & Co. (D. C.) 211 457, 172 S. W. 925. Fed. 374, 32 Am. Bankr. Rep. 191. As 400 Goode V. Elwood Lodge, 160 Ind. ^° ^ crossbill setting ofC claims in favor 251 66 N E 742 ^^ ^^^ defendant, see West v. Cowan, 189 ' ^ ,, v,,, • on=. ^ ox «„„ Ala. 138, 66 South. 816. «/r.™ ^- ' • *"W;rdv. Central Trust Co. (0. C. 54 Atl. 782. ^^ 261 Fed.- 344, 44 Am. Bankr. Rep. 40 8' American Lumber & Mfg. Co. v. 323. Taylor, 137 Fed. 321, 70 0. O. A. 21, 14 -1,12 Cleminshaw v. International Shirt Am. Bankr. Rep. 231. & Collar Co., 165 Fed. 797, 21 Am. Bankr. Rep. 616. § 430 LAW OF BANKRUPTCY 922 Stances of the transaction and describe the goods in detail. It has been said, in fact, the petition "should contain all the allegations necessary to sustain a complaint in trover and conversion, or required by the strict- est practice in an affidavit for replevin." "^ A petition to have assets, transferred by a judgment debtor to the bankrupt, applied to the pay- ment of the judgment, must allege that an execution against the debtor was returned nulla bona."* The trustee in bankruptcy, though he has the rights of an attaching creditor, is not ipso facto a bona fide purchas- er for value, and that he is such, unaffected by outstanding equities against the bankrupt, is an affirmative defense, which must be pleaded and proved."^ ' § 430. Burden of Proof and Evidence in Trustee's Suit. — In an ac- tion in a state court by a trustee in bankruptcy, it is not necessary for him to establish the jurisdiction of the court of bankruptcy or the peti- tion on which the bankruptcy proceedings were based, in order to sus- tain the action; but it is sufficient for him to show the adjudication in bankruptcy and his appointment as trustee.*" And this may be done by introducing in evidence a certified copy of the order approving his bond, which is declared by the bankruptcy act, to be "conclusive evidence of the vesting in him of the title to the property of the bankrupt." *^' The presumption is in favor of the regularity of all the proceedings lead- ing up to the appointment of the trustee, and that, as trustee, he has complied with all the requirements of the law and is qualified to act.*^* Thus, he is not required to produce record proof of an acceptance in writing of his appointment as trustee, or that he has given notice of such appointment.*^* He is presumed to represent the creditors of the bank- rupt, and the burden is on one who denies his authority to prove the '• ontrary.*** *i3 In re Levi & Pickard, 155 Fed. 262, an action is brought by a trustee in ,Y Am. Bankr. Eep. 430. But compare bankruptcy, and it appears that the ad- In re Pierce (C. C. A.) 157 Fed. 757, 19 judication was made by a referee, the Am. Bankr. Rep. 664. jurisdiction of the referee must be es- 414 In re Goldberg & Sagman (D. C.) tablished by affirmative proof that the 232 Fed. 194, 36 Am. Bankr. Rep. 736. .ludge was absent. And see also Mc- ^,„ _ . „ ,., „. „„ __R ifin Key V. Smith, 255 111. 465, 99 N. E. 695. *i5Coates V. Smith, 81 Or. 556, 160 4i 7 Bankruptcy Act 1898. § 21e. See Wilson V. Taylor, 154 N. C. 211, 70 S. E. Pac. 517. '416 Oone.v. Pureell, 56 N. T. 649; Carr 286; Kieffer Bros. v. Wohl, Man. Unrep V. Gale, 2 Ware, 330, Fed. Gas. No. 2,434 ; Oas. (La.) 385. Burk V. Winters, 28 Ark. 6, 15 N. B. R. 4isBreckons v. Snyder, 211 Pa. St. 140. But see Pace v. Roberts, Johnson 176, 60 Atl. 575; Laubaugh v. Pennsyl- & Rand Shoe Co., 103 Mo. App. 662, 78 vania R. Co., 28 Pa. Super. Ct. 247. S. W. 52, where it was held that, since 4i9 Rogers v. Stevenson, 16 Minn. 68 the bankruptcy law primarily commits (Gil. 56); Wooldbridge v. Rickei-t, 33 La. the making of an adjudication in bank- Ann. 234. And see Babbitt v. Walbrun, ruptcy to the jtidge of the court, and 6 N. B. R. 359, Fed. Gas. No. 605. only in his absence authorizes the clerk 420 Oliver v. Hllgers, 88 Minn. 35, 92 to refer the ease to the referee, where N. W. 511. 923 SUITS BY AND AGAINST TRUSTEES IN BANKRUPTCY § 430 Where the suit is to recover specific property or its proceeds, the trus- tee must assume the burden of proving that it belonged to the bankrupt at the time of the adjudication, but this need not be done by direct or positive testimony, if the circumstances of the case do not permit it, but by evidence of facts sufficiently strong to justify the jury in inferring such ownership.**^ So, if the suit is for the recovery of money or prop- erty in the hands of a third person, but alleged to belong to the bank- rupt, it is essential to show the actual possession of the property by the defendant, and the trustee has the burden of establishing this fact. But since a proceeding of this kind is not criminal in its nature, — although the defendant may be punished for contempt if he fails to comply with an order of the court requiring him to surrender the property, — the trustee is only bound to establish his possession by evidence plain and convinc- ing beyond reasonable controversy.**^ The trustee has also the burden of showing exactly what property of the bankrupt is in the defendant's possession,**^ but if he shows the fraudulent possession of property of the bankrupt by the defendant, he may recover the value of the goods, even if they cannot be precisely identified,*** and if a fund is once traced into the hands of the defendant, the latter must assume the burden of making some reasonable explanation of its disposition, in order to avoid being required to surrender it.**^ If the action is to recover property conveyed away in fraud of creditors or by way of preference, the trus- tee has the burden of showing the wrongful character of the transaction, or the defendant's knowledge of its purpose, as the case may be.*^® So, the burden of proving that a sale of property of the bankrupt by one holding it in pledge, made conformably to the contract of pledge, was 421 Burleigh v. Foreman, 130 Fed. 13, 42* In re Jackier, 179 Fed. 720, 24 Am. 64 C. C. A. 381, 12 Am. Bankr. Rep. 88 ; Bankr. Rep. 790 ; Page v. Moore, 235 Clay V. Waters (C. C. A.) 161 Fed. 815, Pa. St. 161, 83 Atl. 580. And see Potter 20 Am. Bankr. Rep. 561 ; Waters v. v. American Printing & Lithographing Davis, 145 Fed. 912, 76 C. C. A. 444, 16 Co., 182 Iowa, 458, 165 N. W. 1044. Am. Bankr. Rep. 667; Taleott v. Good- 425 in re Alphin & Lake Cotton Co., wia, 3 Day (Conn.) 264; Makins v. 134 Fed. 477, 14 Am. Bankr. Rep. 194 Crocker. 193 Fed. 976, 113 C. C. A. 596; Pope v. Cantwell, 206 Fed. 90S; In re Union Trust & Savings Bank v. Amery, Silverman, 206 Fed. 960; Woodford v, 72 Wash. 648, 131 Pac. 199; Collier v. Rice, 207 Fed. 473, 30 Am. Bankr. Rep. Hopper, 133 Ark. 599, 202 S. W. 687; 455. ' . Ferris v. G. W. Collier Estate, 20 Ga. 420 Smith' v. Auerbach, 2 Mont. 348 App. 148, 92 S. B. 758. Lynam v. Belfast Nat. Bank, 98 Me. 42 2 In re Alphin & Lake Cotton Co., 448, 57 Atl. 799. More particularly, as 134 Fed. 477. 14 Am. Bankr. Rep. 194; to burden of proof in actions to set aside In re Feldser, 134 Fed. 307, 14 Am. fraudulent conveyances, see infra, § 466, Bankr. Rep. 216 ; Mowry v. Reed, 187 and as to preferences, see infra, § 614. Mass. 174, 72 N. E. 936 ; Clay v. Waters On the general rule, see Ignatius v. (C. C. A.) 161 Fed. 815, 20 Am. Bankr. Farmers' State Bank. 272 Fed. 33, 47 Rep. 561 ; In re Rosenzveeig, 206 Fed. Am. Bankr. Rep. 42 ; Minott v. Johnson 360, 30 Am. Bankr. Rep. 680. . (Me.) 113 Atl. 464 ; Tobin v. Hewitt Co. 423 Mattley v. Wolfe, 175 Fed. 619, 23 (Mo. App.) 232 S. W. 257. Am. Bankr. Rep. 673. § 431 LAW OF BANKRUPTCY 924 unfair or otherwise voidable, is on the trustee.*^" It may also be neces- sary for the trustee to prove the insolvency of the bankrupt at a given date.*** But the testimony of the bankrupt at the preliminary examina- tion before the referee, touching his assets and liabilities, is not admissi- ble for this purpose, as the issue is not between the same parties.*** § 431. Evidence in Actions Against Trustee. — One seeking to re- cover or reclaim property from a trustee in bankruptcy has the burden of proving that it constituted part of the bankrupt's estate when the same passed into the hands of the trustee.*^* And since, presumptively, any property in the possession of the bankrupt and passing from him to his trustee belongs to the estate, the burden is on a claimant to show his superior title or right thereto.*^^ Evidence that the bankrupt did not include the property in his schedule of assets filed in the bankruptcy proceeding is indeed admissible on this issue,*** but it ordinarily requires stronger proof, and it is said such a claim cannot be supported by the uncorroborated testimony of the claimant, where, if true, he could have produced other evidence to fortify it.*** Likewise the burden is on the claimant to establish by evidence the particular ground on which he claims the property of fund as against the creditors represented by the trustee, as, that the sale of the property to the bankrupt was induced by false and fraudulent representations as to his financial condition,*** that the sale was conditional and the article not accepted by the bankrupt,**® or that the transaction was not a sale, but a mere consignment for sale, the title remaining in the claimant.*** § 432. Liability of Trustee for Costs. — As to whether a trustee in bankruptcy, suing as plaintiff in a state court, should be required to fur- nish security for costs, the matter depends upon the local law and prac- 427 Hiscock V. Varick Bank, 206 U. S. *30 in re Marsh, 116 Fed. 396, 8 Am. 28, 27 Sup. Ot. 681, 51 L. Ed. 945, 18 Bankr. Rep. 576. Am. Bankr. Eep. 1 ; Commercial-Germa- *3i in re Burke, 168 Fed. 994, 22 Am. nia Trust & Sav. Bank v. Conner, 114 Bankr. Rep. 69; In re Heckathorn, 144 Miss. 644, 75 South. 445. Fed. 499, 16 Am. Bankr. Rep. 467. 42S See eiark v. Mulcahy, 190 Mass. law or in equity, but may be done in a summary proceeding.*' For the assignee in such a case is not an adverse claimant. He is merely the agent of the assignor for the distribution of the proceeds of the property, and, as such agent, his possession is that of his principal.** Or as otherwise stated, the as- signee "is a mere naked bailee for the creditors, without a shred of title or lawful authority to the possession of the bankrupt's estate, and it would certainly be strange if, when the bankruptcy court finds prop- erty in the possession of such a bailee, it may not in a summary way require him to surrender possession to the court which alone has the re Louis Neuburger, Inc., 240 Fed. 947, Rep. 161; In re Stewart, 179 Fed. 222, 153 C. O. A. 633, 39 Am. Bankr. Rep. 139. 102 C. C. A. 348, 24 Am. Bankr. Rep. 691 ; 3 3 In re Solomon, 2 Nat. Bankr. News, In re Smith (D. C.) 92 Fed. 135, 2 Am. 460. Bankr. Rep. 9 ; In re Stokes (D. O.) 106 3 4 Collateral Security Bank v. Fowler, Fed. 312, 6 Am. Bankr. Rep. 262; In re 42 Md. 393, 12 N, B. R. 289. Thompson (D. 0.) 122 Fed. 174, 10 Am. 36 Burkhrlder v. Stump, 8 Phila. (Pa.) Bankr. Rep. 242. 172, 4 N.- B. R. 597, Fed. Gas. No. 2,165. 38 in re McCrum, 214 Fed. 207, 130 C. 38 Cohen v. American Surety Co., 192 C. A. 555, 32 Am. Bankr. Rep. 604; Gal- N. T. 227, 84 N. E. 947. braith v. Vallely (C. C. A.) 261 Fed. 670, 3 7 Bryan v. Bernheimer, 181 TJ. S. 188, 44 Am. Bankr. Rep. 523 ; In re Diamond's 21 Sup. Ct. 557, 45 L. Ed. 814, 5 Am. Estate, 259 Fed. 70, 170 C. C. A. 138, 44 Bankr. Rep. 623; In re McCrum, 214 Am. Bankr. Rep. 268; In re Colwell Fed. 207, 130 C. C. A. 555, 32 Am. Bankr. Lead Co. (D. O.) 241 Fed. 922, 39 Am. Rep. 604; In re Karp (D. C.) 228 Fed. Bankr. Rep. 228; In re Stewart, 179 798, 36 Am. Bankr. Rep. 414 ; In re Reis- Fed. 222, 102 C. C. A. 348, 24 Am. Bankr. wig (D. O.) 253 Fed. 390, 42 Am. Bankr. Rep. 691. § 440 LAW OF BANKRUPTCY 934 power to administer the estate." ^* But even a summary proceeding requires notice to the party to be charged and that he shall have an opportunity to be heard. Such an order cannot be made on the ex parte application of the trustee without bringing in the assignee or affording him an opportunity to show cause against the petition. If these condi- tions are not fulfilled, an order for the surrender of property is without jurisdiction, and the assignee cannot be punished for failure to obey it.** And in any event, the process of attachment for contempt should not be used to force the restitution of money or property which it is no longer possible for the assignee to surrender. Thus, if he has already paid out a portion of the estate committed to him, in the form of coun- sel fees or other necessary or proper disbursements, or if he retained a portion of it as his own commission and has spent such sum and is unable to replace it, this is a good answer, so far as it goes, to a rule to show cause why he should not be adjudged in contempt for failure to pay over the money to the trustee in bankruptcy. For a 'court can- not by contempt proceedings undertake to compel the performance of something which the respondent is wholly unable to perform, even though he became so through his own fault or improvidence, where it arose through a mere misconception of his legal rights and duties." § 440. Nature of Trustee's Title to Property Assigned. — The trus- tee in bankruptcy does not succeed the voluntary assignee in title or estate. His title is a wholly new one, founded alone on the provisions ' of the bankruptcy act, and not in any way connected with or depend- ent on the title vested in the assignee. And hence he does not take the estate subject to any preferences or priorities created by the deed of assignment or by the a,cts of the assignee.*^ But a title or lien acquired by the voluntary assignee, which would be to the advantage of the estate when it has subsequently passed into bankruptcy, is not necessarily de- stroyed by the supersession of the assignment proceeding, but, upon 89 In re Smith, 92 Fed. 135, 2 Am. re Stewart, 179 Fed. 222, 102 C. O. A. Bankr. Eep. 9. 348 ; In re Banzai Mfg. Co., 183 Fed. 40 Smitli V. Belford, 106 Fed. 658, 45 298, 105 C. C. A. 510, 25 Am. Bankr. Kep. C. 0. A. 526, 5 Am. Banki-. Rep. 291 ; In 497. re Banzai Mfg. Co., 183 Fed. 298, 105 C. *2 Randolph v. Scruggs, 190 V. S. 533, , C. A. 510, 25 Am. Bankr. Rep. 497; In 23 Sup. Ct. 710, 47 L. Ed. 1165, 10 Am. re Manning, 123 Fed. 179, 10 Am. Bankr. Bankr. Rep. 1; Alexander v. Gait, 9 Fed. Rep. 497. 149. Contra, under the act of 1867, see " Louisville Trust Co. v. Comingor, In re Beisenthal, 10 Ben. 42, 18 N. B. R. 184 U. S. 18, 22 Sup. Ct. 293, 46 L. Ed. 120, Fed. Cas. No. 1,235 ; Johnson v. 413, 7 Am. Bankr. Rep. 421 ; Sinsheimer Rogers, 15 N. B. R. 1, Fed. Cas. No. V. Simonson, 107 Fed. 898, 47 C. C. A. 7,408; In re Beadle, 5 Sawy. 351, Fed. 51, 5 Am. Bankr. Rep. 537 ; In re Klein, Cas. No. 1,155 ; Reeser v. Johnson, 76 116 Fed. 523, 8 Am. Bankr. Rep. 559 ; In Pa. St. 313. 935 RIGHTS OP TRUSTEE § 441 the order of the court of bankruptcy, it may be retained by the trustee for the benefit of the creditors.** § 441. Estate Partly Settled by Assignee. — Where an assignee, appointed in insolvency proceedings under a state law, or by a general deed of assignment, has taken charge of the debtor's property, sold it, and distributed the proceeds to creditors, acting in all respects in entire good faith and in conformity to the state law and the orders of the state court, and afterwards proceedings in bankruptcy against the assignor are had and a trustee appointed, the assignee is not to be held personally liable to the trustee in bankruptcy for the value of the property or its proceeds. In such a case the trustee "must seek his remedy against those who have received payments from the defendant in contravention of the bankruptcy act." ** This rule holds good even if the assignee has paid out the money of the estate to creditors preferred by the deed of assignment. Their preferences may be unlawful under the bankrupt- cy law and voidable by the trustee, but the amount cannot be recovered from the assignee personally.*^ But the assignee must stop all admin- istration of the estate immediately upon the appointment of a trustee in bankruptcy, or at least as. soon as he receives notice. Thereafter the title is vested in the trustee, and the assignee holds the property remaining in his hands merely as an agent or bailee, and has no further duty with reference to it except as to mere safe keeping. At least it may be said that, after the filing of a petition in bankruptcy, a common- law assignee acts at his peril in carrying on the bankrupt's business, in selling it Out or winding it up, or in doing anything beyond what is necessary to preserve such property as was in his hands when the peti- tion was filed. Common-law assignments, it is true, are not outlawed by the Bankruptcy Act, and where the creditors allow the assignee to continue in possession and operate the business, he is not necessarily to^be charged with a resulting loss, whether occurring before or after the filing of the petition in bankruptcy. But the burden is upon him to satisfy the bankruptcy court that in carrying on the business after the institution of bankruptcy proceedings he acted in good faith and with sound business judgment ; and he may be held liable for a loss in- curred by him in carrying on the business, where there is no finding that it was good judgment on his part to continue the business, and where he does not show what part of the loss was incurred before and what part after the filing of the petition in bankruptcy.*^ If, after <8 In re Fish Bros. Wagon Co. (0. 0. 45 Jones v. Kinney, 5 Ben. 259, 4 N. A.) 164 Fed. 553, 21 Am. Baukr. Rep. 149. B. E. 649, Fed. Cas. No. 7,473. i* Cragin v. Thompson, 2 "Dill. 513, 12 le In re Karp (D. 0.) 228 Fed. 798, 36 N. B. K. 81, Fed. Cas. No. 3,320 ; In re Am. BanUr. Rep. 414. Walker, 18 N. B. R. 56, Fed. Cas. No. 17,063. § 442 LAW OF BANKRUPTCY 936 the trustee has demanded the surrender of the property, the assignee pays it out in the form of dividends to creditors, he is personailly liable to replace it, and it is immaterial that the trustee did not sue out an injunction to restrain him from disposing of the estate, a mere demand for it being enough.*' § 442. Rights of Purchasers from Assignee and Paid Creditors. — A sale of property by an assignee for the benefit of creditors to a pur- chaser in good faith for a valuable consideration conveys a title which will prevail against the claims of a trustee in bankruptcy, of the assignor subsequently appointed, and the latter cannot recover the property from the purchaser.** But if there is no more than an uncompleted agreement for a sale, the purchaser not having made any payment on the property, it is avoided by the adjudication in bankruptcy and the trustee may claim the property.** So also, one who buys property from the as- signee after the filing of the petition in bankruptcy and with knowledge thereof, cannot be called a purchaser in good faith, and he acquires no title superior to that of the trustee; but his equities in respect to the property or the money which he has paid for it may depend on many circumstances, and can be settled in the court of bankruptcy, which may, if necessary, bring in the assignee.^ With regard to creditors who have received payment from the assignee, it may be remarked that if they were granted a preference by the terms of the assignment, and knew or had reasonable cause to believe, when receiving the money from the assignee, that it was in pursuance of the debtor's intention to prefer them, it is a clear case of a voidable preference under the bank- ruptcy law, and the trustee may force the restitution of the money so paid." So also he may recover money disbursed in satisfaction of a lien of such a character as to be dissolved by the adjudication in bank- ruptcy.^^ § 443. Appointment of Assignee as Trustee. — Where one who has made an assignment for the benefit of creditors is afterwards adjudged bankrupt, it may be the wish of the creditors that the assignee should be appointed and serve as trustee in bankruptcy. There is no absolute rule of law to prevent this, and the assignee may be eminently well *7 Ostrander v. Meuncli, 2 McOrary, hands of a subseciuent trustee In bank- 267, 12 Fed. 562. ruptcy. In re Goyette & Levigne (D. C.) 4 8 Goldsmith v. Hapgood, Hohnes, 454, 244 Fed. 638, 40 Am. Bankr. Rep. 109. Fed. Gas. No. 5,522. _,_,„_., ^o Bryan v. Bernheimer, 181 TJ. S. 188, 4» In re Kmght 125 Fed 35, 11 Am. 31 Sup. Ct. 557, 45 L. Ed. 814, 5 Am. Bankr. Rep. 1. Mistake of a common- Bankr. Rep. 623. law assignee in selling personal property to which his assignor had no title does "I" ""e Meyer, 2 N. B. R. 422, Fed. not impose any lien or trust in favor of ^^®- ^°- 9.515. the purchaser upon the proceeds in the ^^ Lander v. Lewis, 4 Fed. 318. 937 RIGHTS OF TRUSTEBJ § 444 qualified to act as trustee in virtue of his special knowledge of the business or affairs of the bankrupt, or for other personal reasons. The court may therefore approve the election of the assignee as trustee by the creditors, under special circumstances, but will not ordinarily do so where he is accountable to the estate for money or property in his hands and also has a claim against it for compensation for his services as assignee or for disbursements made. "There is both a practical and a legal presumption against the propriety of such an appointment, for the reason that as assignee he is an accounting party to the estate, and as trustee will have to investigate his own account." ®* Such a person, however, may be appointed temporary receiver of the estate in bank- ruptcy. And if he turns over to himself, as such receiver, the funds in his hands as assignee, without retaining any sum therefrom as com- pensation for his past services, he submits both the fund and himself to the jurisdiction of the court of bankruptcy with respect to his right to an allowance for such servicds." § 444. Credits and Allowances to Assignee. — When an assignee for the benefit of creditors is required to surrender the estate com- mitted to him by the assignment, at the instance of a trustee in bank- ruptcy subsequently appointed, and in order that the property may be administered in bankruptcy, he is entitled to an allowance for the actual and necessary expenses incurred by him in collecting, caring for, and preserving the property from the time he took charge of it as assignee up to the date of the adjudication in . bankruptcy.^® Thus, where the assignee, during the time the property remained in his care, and before the adjudication in bankruptcy, collected bills due to the bankrupt, continued insurance on the property, arranged for guarding the same, collected outstanding goods, conducted correspondence, made an inventory, and incurred a liability for rent, it was held that he had a lien on the assets for these necessary disbursements.*^ So he should be reimbursed for money paid for rent of the premises and for wages paid to clerks, workmen, and servants,®'' and for taxes paid on the prop- erty, the same being a valid lien which the trustee would have had to discharge if the assignee had not done so,®* and he may be allowed the costs and expenses of a sale of the property or a portion of it, if it 15 3 In re Kellar (C. C. A.) 192 Fed. 830. 1 Nat. Bankr. News, 405. Compare In re "In re Klein, 116 Fed. 523, 8 Am. Stubbs, 4 N. B. K. 3T6, Fed. Gas. No. Bantr. Rep. 559. , 13,557. 55 In re Mays, 114 Fed. 600, 7 Am. so in re Chase, 124 Fed. 753, 59 0. O. Bankr. Rep. 764; In re Tatum, 112 Fed. A. 629, 10 Am. Bankr. Rep. 677. 50, 7 Am. Bankr. Rep' 52; Burkljolder 57 Eichholz v. Polack, 140 App. Dlv. V. Stump, 8 Pblla. (Pa.) 172, 4 N. B. R. 551, 1-25 N. Y. Supp. 1108. 597, Fed. Cas. No. 2,165 ; Wehl v. Wald, ss in re Cohn, 6 N. B. R. 379, Fed. Cas. 18 Blatchf. 495, 6 Fed. 163 ; In re Pauly, No. 2,966. § 444 LAW OF BANKEUPTCY 938 appears that the sale was an advantageous one and beneficial to the estate.®* The assignee may even be allowed reimbursement for ex- penses incurred by him after the adjudication in bankruptcy, provided they were incurred, and reasonably necessary, in the care and preserva- tion of the property, though such expenditures will be strictly scru- tinized. Thus, in the bankruptcy of a mercantile firm, which had pre- viously made an assignment for the benefit of creditors, where there was an interval of some time between the adjudication and the appoint- ment of a receiver by the court of bankruptcy, and meanwhile the assignee carried on the business, it was considered that he should be reimbursed for money paid to employees and for rent of the business premises paid during that period.®" But so far as regards the assignee's claim for compensation for his own personal services in connection with the assigned estate, there has been great difference of opinion. Some of the decisions, both under the present bankruptcy act and earlier acts, have maintained the theory that an assignment for creditors is at least constructively a fraud upon the bankruptcy law and that the assignee must be regarded as a par- ticipant in the fraud and therefore precluded from benefiting by it, so that the allowance to be made to him must be restricted to money out of pocket and cannot include any' commissions or other remuneration for his own services.*^ But an equally respectable body of authorities repudiated this view, and held the assignee entitled to reasonable com- pensation for his time, care, and labor expended for the benefit of the assigned estate.*^ And the Supreme Court of the United States has finally declared that, if there was nothing inherently fraudulent or illegal in the assignment and the assignee was not a party to any actual fraud, he should not be deprived of compensation for his services ren- dered under the assignment, in so far as the same were beneficial to the estate, merely because of the fact that the assignment was an act of 5 8 In re Scholtz, 106 Fed. 834, 5 Am. Fed. 277; In re Cohn, 6 N. B. R. 379, Bankr. Rep. 782 ; In re Cohn, 6 N. B. R. Fed. Cas. No. 2,966 ; In re Stubbs, 4 N. 379, Fed. Cas. No. 2,966 ; Clark' v. Marx, B. R. 376, Fed. Cas. No. 13,557 ; In re 6 Ben. 275, Fed. Cas. No. 2,830; Jackson Pauly, 1 Nat. Bankr. News, 405. V. McCulloch, 1 Woods, 433, 13 N. B. R. 6 2 in re Stewart, 179 Fed. 222, 102 C. 283, Fed. Cas. No. 7,140. C. A. 348 ; In re Chase, 124 Fed. 753, 59 6 In re Morris & Rice (D. C.) 258 Fed. C. C. A. 629, 10 Am. Bankr. Rep. 677; 712, 44 Am. Bankr. Rep. 146. Summers v. Abbott, 122 Fed. 36, 58 C. 01 In re Congdon, 129 Fed. 478, 11 Am, Bankr. Rep. 219; In re Mays, 114 Fed Co., 104 Fed. 786, 5 Am. Bankr. Rep. 105 Stearns v. Flick, 103 Fed. 919, 4 Am, C. A. 352, 10 Am. Bankr. Rep. 254; In re Klein, 116 Fed. 523, 8 Am. Bankr. 600, 7 Am. Bankr. Rep. 764 ; In re Ta- Rep. 559 ; In re Scholtz, 106 Fed. 834, ^'" ~" " "' 5 Am. Bankr. Rep. 782; Wald v. Wehl, 18 Blatchf. 495, 6 Fed. 163 ; Jackson v. turn, 112 Fed. 50, 7 Am. Bankr. Rep. 52 Wilbur V. Watson, 111 Fed. 493, 7 Am, Bankr. Rep. 54 ; In re Peter Paul Book McCulloch, 1 Woods, 433, 13 N. B. R. Bankr. Rep. 723; Hunker v. Bing, 9 2,519. 283, Fed. Cas. No. 7,140 ; Catlin v. Foster, 1 Sawy. 37, 3 N. B. R. 540, Fed Cas. No. 939 RIGHTS OF TRDSTEH . § 444 bankruptcy on which creditors could, if they chose, institute proceedings. The court pointed out that an assignment is not void from its inception, but only voidable in case proceedings in bankruptcy follow within four months; that the assignee acts lawfully in what he does before pro- ceedings in bankruptcy are begun, and that, although the avoidance of the assignment by the adjudication in bankruptcy may relate back to the making of the assignment, still this mere fiction, of relation is not enough to forbid an allowance to the assignee for beneficial services rendered before the adjudication; and added: "We are not prepared to go further than to allow compensation for services which were bene- ficial to the estate, beyond that point we must throw the risk of his conduct on tlfe assignee, as he was chargeable with knowledge of what might happen." *^ The question of allowing compensation to attorneys for legal services rendered to the assignee stands upon the same basis. The claim of an attorney for -fees for such services must be worked out through the assignee, and cannot be put higher than the assignee's claim for allow- ances. But in so far as professional services were beneficial to the estate, they are a proper subject for allowance. If the assignee has paid the attorney's fees, he may claim reimbursement; if not, the at- torney may stand in his place and claim a lien on the assets for the reasonable value of his. services.** But an attorney's charge for pre- paring the deed of assignment is not entitled to preference, though it may be proved as an unsecured claim against the bankrupt's estate^®* But neither the assignee nor his attorney will be entitled to claim any compensation for services or expenses rendered or incurred in unsuccessfully attempting to resist the adjudication in bankruptcy or in the endeavor to maintain his own title and possession.®* Nor can 63 Randolph v. Scruggs, 190 U. S. 533, Fed. 36, 58 0. O. A. 352, 10 Am. Banki-. 23 Sup. Ot. 710, 47 L. Ed. 1165, 10 Am. Rep. 254 ; In re Scholtz, 106 Fed. 834, 5 Bankr. Rep. 1. And see Macdonald v. Am. Bantr. -Rep. 782 ; Piatt v. Archer, Moore, 15 N. B. R. 26, Fed.- Cas. No. 13 Blatchf. 351, Fed. Gas. No. 11,214 ; In 8,763 ; White v. Hill, 148 Mass. 396, 19 re Marble Products Co., 199 Fed. 668, 29 N. E. 407; Clark v. Sawyer, 151 Mass. Am. Bankr. Rep. 384. Contra, see In re 64, 23 N. E. 726 ; Perry-Mason Shoe Co. Cohn, 6 N. B. R. 379, Fed. Cas. No. 2,966; V. Sykes, 72 Miss. 390, 17 South. 171, 28 Eichholz v. Polack, 140 App. Div. 551, L. R. A. 277. The state court may make 125 N. T. Supp. 1108. allowances for compensation for serv- c s Randolph v. Scruggs, 190 U. S. 533, ices rendered under an assignment for 23 Sup. Ct. 710, 47 L. Ed. 1165, 10 Am. the benefit of creditors, before the bank- Bankr. Rep. 1. ruptcy proceedings against the assignor oe Randolph v. Scruggs, 190 U. S. 533, were Instituted, if the claim therefor is * 23 Sup. Ct. 710, 47 L. Ed. 1165, 10 Am. presented before the adjudication in Bankr. Rep. 1; In re Stewart, 179 Fed, bankruptcy. In re Bombino, 44 Utah, 222, 102 C. O. A.. 348; Piatt v. Archer, 141, 138 Pac. 1155. 13 Blatchf. 351, Fed. Cas. No. 11,214 ; e* Randolph v. Scruggs, 190 IT. S. 533, Clark v. Marx, 6 Ben. 275, Fed. Cas. No. 23 Sup. Ct. 710, 47 L. Ed. 1165, 10 Am. 2,830. Bankr. Rep. 1; Summers v. Abbott, 122 § 444 LAW OF BANKEUPTCT 840 the assignee be reimbursed for expenses or fees incurred by him in dealing with the assigned property after the date of the adjudication in bankruptcy,*' nor for any items which will result in subjecting the estate to double charges for the same thing.*' As to the mode of enforcing the assignee's claim, it is held that he has a lien on the assets in his hands for his necessary expenses and for the value of his services which were beneficial to the estate, and is there- fore entitled to a preference in payment.*® If he submits himself to the jurisdiction of the court of bankruptcy, and that court makes an order requiring him to surrender to the trustee the assets in his hands, it may expressly except from the operation of the order such sums as he may be entitled to claim by way of credit or allowance.'" Or if he is sued by the trustee in bankruptcy for the surrender of tlie estate, he may set off his claim for compensation and expenses against the amount demanded of him by the trustee.'^ But in respect to such credits and allowances, the assignee must be considered as occupying the position of an "adverse claimant." And therefore the court of bankruptcy has no jurisdiction to adjudicate the merits of his claim to retain out of the estate money disbursed by him, or which he claims on account of his commission as assignee, unless he consents to the exercise of such jurisdiction.'^ " In re Solofnon, 2 Nat. BanUr. News, 168, Fed. Cas. No. 7,989; In re Rogers, 400. 116 Fed. 435, 8 Am. Bankr, Rep. 723. »8 In re Kurth, 17 N. B, R. 570, Fed. '» NelU v. Jackson, 8 Fed. 144. Cas. No. 7,948; In re Kingman, 1 Nat. '" Catlln v. Foster, 1 Sawy. 37, 3 N. B. Bankr. News, 518. R. 540, Fed. Cas. No. 2,519. »» Randolph V. Scruggs, 190 U. S. .'J.'K, '' -^ JjOulsviUe Trust Co. v. Oomlngor, •IP, .Sup. Ct. 710, 47 L. Ed. 1165, 10 Am. 184 U. S. 18, 22 Sup. Ct. 29."?, 46 L. Ed. Bankr. Rep. ^ ; In re Chase, 124 Fed. 413, 7 Am. Bankr. Rep, 421 ; Galbralth 753, 59 C. C. A. 629, 10 Am. Bankr. Rep. v. Vallely, 255 U. S. , 41 Sup. Ct. 415, 677. Compare In re Lalns, 16 N. B. R, 65 L. Ed, , 46 Am. Bankr. Rep. 553. 941 FRAUDULENT CONVBYANCBS VOIDABLE BY TEUSTBB § 445 CHAPTER XXIII FRAUDULENT' CONVEYANCES VOIDABLE BX TRUSTEB Sec. 445. Statutory Provisions. 446. Eights of Trustee as to Transfers. 447. Election by Trustee. 448. Trustee's Right of Action Exclusive. 449. Conditions Precedent to Trustee's Action. 450. Same ; Proof of Debts and Insufficiency of Assets. 451. Nature and Form of Transaction. 452. Sales of Merchandise in Bulk. 453. "Preference" and "Fraudulent Transfer" Distinguished. 454. Transfers Void Under State Laws. 455. Transfers Fraudulent as to Partnership or Individual Creditors, 456. Property or Rights Transferred. , 457. Time of Conveyance or Transfer. 458. Insolvency of Debtor. 459. Intention of Debtor. 460. Same ; Intention as to Future Creditors, 461. Consideration. 462. Knowledge, Bad Faith, or Participation of Transferee. 463. Rights and Liabilities of Transferees. 464. Rights of Bona Fide Purchasers. 465. Jurisdiction, Form of Action, Parties, and Pleading. 466. Burden of Proof and Evidence. 467. Nature and Extent of Trustee's Recovery. 468. Eights of Creditors in Property or Fund Eecovered. § 445. Statutory Provisiojis. — The bankruptcy act provides that the trustee in bankruptcy shall be vested by operation of law with "the title of the bankrupt" to "property transferred by him in fraud of his credi- tors." ^ Since the bankrupt, himself has no title whatever to property transferred by him, though in fraud of creditors, it is evident that this clause is self-contradictory and without effect. But the subject is cov- ered by other provisions of the statute which are more explicit and con- sistent. The sixty-seventh section contains the following language : "All conveyances, transfers, assignments, or incumbrances of his prop- erty, or any part thereof, made or given by a. person adjudged a bank- rupt under the provisions of this act subsequent to the passage of this act and within four months prior to the filing of the petition, with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in good faith and for a present fair con- sideration; and all property of the debtor conveyed, transferred, as- signed, or encumbered as aforesaid shall, if he be adjudged a bankrupt, and the same is not exempt from execution and liability for debts by ,the 1 Bankruptcy Act 1898, § 70a. § 445 LAW OF BANKRUPTCY 942 law of his domicile, be and remain a part of the assets and estate of the bankrupt and shall pass to his said trustee, whose duty it. shall be to recover and reclaim the same by legal proceedings or otherwise for the benefit of the creditors." '^ This evidently refers to such conveyances and transfers as would be fraudulent and voidable at common law and at the instance of creditors. The same section contains the following further provision : "All conveyances, transfers, or incumbrances of his property made by a debtor at any time Within four months prior to the filing of the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the state, territory, or dis- trict in which such property is situate, shall be deemed null and void under this act against the creditors of such debtor if he be adjudged a bankrupt, and such property shall pass to 'the assignee [probably mean- ing the trustee in bankruptcy] and be by him reclaimed and recovered for the benefit of the creditors of the bankrupt." * This is plainly meant to cover such conveyances and transfers as are denounced as fraudulent by the local statutory law, but which are not so at common law. Since both, these provisions are found in a section of the act which bears the general heading "Liens," and since five of the six subdivisions of that section relate distinctly and exclusively to liens, properly so called, the natural reading of the language which we have quoted above would re- strict it likewise to liens operating in fraud of creditors, as distinguished from transfers by deed or bill of sale. But in view of the broad terms employed ("conveyances, transfers, assignments, or incumbrances") the courts have felt constrained to give this part of the section a much wider scope than the general title of the section would warrant. But the con- veyances or transfers intended by this part of the section are only 'such as are fraudulent either at common law or under the statutes of the state, as distinguished from those which are in fraud of the bankruptcy act itself.* It is further necessary to remark that, while both of the provisions quoted require that the conveyance, etc., shall have been made within four months prior to the filing of the petition in bankruptcy, . the former (relating to conveyances fraudulent at common law) re- quires an intent and purpose on the part of the debtor to hinder or de- fraud his creditors, but not that he should have been insolvent at the time, whereas the latter cannot be brought into play unless the debtor was insolvent when the conveyance, etc., was made, but does not re- quire any purpose on his part with reference to obstructing or defraud- 2 Bankruptcy Act 1898, § 67e. 10 N. B. R. 503 ; Bailey v. Wood, 211 8 Bankruptcy Act 1898, § 67e, in flnem. Mass. 37, 97 N. E. 902, Ann. Cas. 1912A, * Allen V. Montgomery, 48 Miss. 101, 950. 943 FRAUDULENT CONVEYANCES VOIDABLE BY TEUSTBB § 446 ing creditors, but only that the particular transaction should be "held null and void as against the creditors" by the laws of the state. Still another part of the statute provides that "the trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided, and Aiay recover the property so trans- ^ ferred, or its value, from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication. Such property may be recovered or its value collected from whoever may have received it, except a bona fide holder for value." ^ j It might naturally be supposed that this clause was intended to add nothing to the description of conveyances and incumbrances which should be void or voidable under the act, but was merely meant as an explicit declara- tion concerning the trustee's right of action, namely, that- he should be vested with the same right of action to avoid transfers and incumbrances which would be possessed by any creditor of the bankrupt if bankruptcy had not intervened. But it is significant, that this clause omits all ref- erence to the four-months' limitation. And consequently it is held that, if there be any kind of transfer of property which a creditor of the gran- tor might have avoided, though it was neither made with intent to delay . or defraud creditors nor is denounced as void by the laws of the state, then the trustee in, bankruptcy may avoid it, and without any regard to the time when it was made as compared with the date of bankruptcy^ But the effect of this clause is merely to vest the trustee with the same rights possessed by the creditor ; it does not clothe him with any new or additional right in the premises over those possessed by the creditor,' and he is subject to the same limitations and disabilities which would have beset the creditor in the prosecution of the action on his own be- half ;■ and the rights of the parties are to be determined, not by any pro- visions of the Bankruptcy Act, but by the applicable principles of the common law or the laws of the state in which the right of action may arise.' § 446. Rights of Trustee as to Transfers.— With respect to the ownership of property in general, and so far as regards valid sales, liens, and incumbrances, the trustee merely succeeds to the title of the bank- 5 Bankruptcy Act 1898, § 70e. .128 Fed. 187, 12 Am. Bankr. Rep. 99 ; In 6 Joseph V. Raff, 176 N. T. 611, 68 N. re Schenck, 116 Fed. 554, 8 Am. Bankr. E. 1118; Treseder v. Burgor, 130 Wis. Bep. 727; Irwin v. Maple, 252 Fed. 10, 201, 109 N. W. 957; Friedman v. Verchof- 164 0. C. A. 122, 41 Am. Bankr. Rep. 532 ; sky, 105 III. App'. 414; Sharp v. FitzhUgh, Neuburger v. Fells, 203 Ala. 142, 82 75 Ark. 562, 88 S. W. 929; Boyd v. Ar- South. 172. nold, 103 Ark. 105,' 146 S. W. 118 ; Thorn- 7 Davis v. Willey (D. O.) 263 Fed. 588, as V. Fletcher, 153 Fed. 226, 18 Am. 45 Am. Bankr. Rep, 348; Coleman v. Bankr. Rep. 623 ; In re Toothaker Bros., Hagey, 252 Mo. 702, 158 S. W. 829. § 446 LAW OF BANKRUPTCY 944 rupt and has no stronger rights than he,* and if the filing of a petition in bankruptcy were merely an appropriation by the bankrupt of his property for the payment of his debts, like a common-law assignment, the trustee would be equally bound with the bankrupt in respect to prior conveyances and transfers rhade in fraud of creditors.* But by the express terms of the act, the trustee represents creditors, succeeds to their rights, and is invested with the same rights of action which they would have had (if bankrupcy had not intervened) concerning any such conveyances or transfers.^" It follows that the trustee in bankruptcy may, by proper proceedings, avoid or annul any transfer made by the bankrupt which any creditor might have attacked by similar proceed- ings.^^ In fact, the trustee occupies exactly as strong a position, and especially since the amendnient of 1910, as a creditor who has levied an attachment or one who holds a judgment or an unsatisfied execution,^' 8 In re Great Western Mfg. Co., 152 Fed. 123, 81 C. O. A. 341, 18 Am. Bankr. Rep. 259. » At common law, the right of a cred- itor to attack and set aside a conveyance made by his debtor, on the ground of fraud, does not pass to an assignee or trustee appointed by the debtor. It will not pass to an assignee for the benefit of creditors) unless by force of some stat- ute of the state. Sandwich Mfg. Co. v. Wright, 22 Fed. 631; Fourth Street Nat. ,Bank v. Millboume Mills Co.'s Trustee, 'l72 Fed. 177, 96 O. C. A. 629, 22 Am. Bankr. Rep. 442. 10 In re Lukens, 138 Fed. 188, 14 Am. Bainkr. Rep. 683; Fourth Street Nat. Bank V. Millboume Mills Co.'s Trustee, 172 ]?ed. 177, 96 C. C. A. 629, 22 Am. Bankr. Rep. 442; In re Bodgers, 125 Fed. 169, 60 C. C. A. 567, 11 Am. Bankr. Rep. 79 ; Pf eiffer v. Roe, 108 App. Div. 54, 95 N. Y. Supp. 1014 ; In re Grocers' Baking Co. (D, C.) 266 Fed. 90O, 46 Am. Bankr. Rep. 150.' The fact that, long before the institution of bankruptcy proceedings, there w,ere creditors who were entitled under the state law to attack a particu- lar transfer or conveyance by their debt- or, as being fraudulent as to them, though not fraudulent as to subsequent creditors) does riot give those creditors any priority In the bankruptcy proceed- ings, nor prevent the application of the provision of the Bankruptcy Act for the dissolution of liens obtained within four months; the trustee in bankruptcy suc- ceeds to the rights of all the creditors in such matters. Globe Bank & Trust Co. V. Martin, 236 IT. S. 288, 35 Sup. Ct. 377, 59 L. Ed. 583, 34 Am. Bankr. Rep. 162. 11 Sanborn-Cutting Co. v. Paine, 244 Fed. 672, 157 C. C. A. 120, 40 Am. Bankr. Rep. 525; In re Cutler & John (D. C.) 228 Fed. 771, 36 Am. Bankr. Rep. 420; Wright V. H. B. BhrUch & Co., 146 Ga. 400, 91 S. E. 412; Beasley v. Smith, 144 Ga. 377, 87 S. E. 293 ; Albert Pick & Co. v. Natalby, 211 111. App. 486; Blake v. Thwing, 185 111. App. 187;. Gregory v. Binghamton Trust Co., 168 App. Div. 805, 154 N. T. Supp. 376; Bronaugh v. Evans, 204 Ala. 153, 85 South. 656 ; Igna- tius V. Farmers' State Bank (C. C. A.) 272 Fed. 33, 47 Am. Bankr. Rep. 42; MInott V. Johnson (Me.) 113 Atl. 464; Durrett v. Harris (Ark.) 228 S. W. 386 ; Thomas v. Roddy, 122 App. Div. 851, 107 N. Y. Supp. 473 ; Cox v. Wall, 132 N. C. 730, 44 S. E. 635; Landls v. McDonald, 88 Mo. App. 335 ; Studebaker Bros. Mfg. Co. V. Elsey-Hempbill Carriage Co., 152 Mo. App. 401, 133 S. W. 412; Earle v. National Metallurgic Co., 77 N. J. Eq. 17, 76 Atl. 555; Hunt v. Doyal, 128 Ga. 416, 57 S. E. 489 ; In re JIullen, 101 Fed. 413, 4 Am. Bankr. Rep. 224; Everett v. Stone, 3 Story, 446, Fed. Cas. No. 4,557; Brad- shaw V. Klein, 2 BIss. 20, 1 N. B. R. 542, Fed. Cas. No. 1,790 ; In re Jletzger, 2 N. B. R. 355, Fed. Cas. No. 9,510 ; In re De- land, 7 Ben. 156, 9 N.,B. R. 209, Fed. Cas. No. 8,230 ; In re I^^land, 10 Blatchf. 503, Fed. Cas. No. 8,234. 12 Iij re Rodgers, 125 Fed. 169, 60 C. C. A. 567, 11 Am. Bankr. Rep. 79; Bun- nell V. Bronson, 78 Conn, 679, 63 Atl. 945 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 446 and he may maintain a suit to set aside any fraudulent conveyance, made within four months before the filing of the petition in bankruptcy, which could have been attacked by creditors in that position,^* although the particular transaction would have been valid and binding as between the immediate parties to it," so that the bankrupt himself could not have sustained an action to recover the money or property, vacate the conveyance, or otherwise annul his own act.^* But more than this, the act provides (§ 67e) that property conveyed in fraud of creditors shall "be and remain a part of the, assets and estate of the bankrupt and shall pass to his said trustee," and also (§ 70a) that the trustee shall be vested with title to property conveyed by the bankrupt in fraud of his creditors. As to such property, therefore, the trustee is not merely a successor to the rights of defrauded creditors, but he is invested with the title,*® and may sue to vacate or avoid any fraudulent transfer of the bankrupt's property, whether or not there is any creditor armed with a lien or otherwise in position to attack such transfer,*? and a bill by the trustee for this purpose should be maintained in his own name as 396; Putnam v. Southworth, 197 Mass. 270, 83 'N. B. 887; In re Carpenter, 125 Fed. 831, 11 Am. Bankr. Rep. 147. Since an execution creditor may maintain an action of trespass on the ca^e against persons who have fraudulently conspired to secrete and transfer the property of the debtor, such an action may be main- tained by the debtor's trustee in bank- ruptcy subsequently appointed, by vir- tue of the amendment of 1910 giving him the rights and remedies of an execu- tion creditor. Sattler v. Slonimsky, 199 Fed. 592, 28 Am. Bankr. Rep. 729. IS Allen V. Massey, 17 Wall. 351, 21 L. Ed. 542; In re Ricketts, 234 Fed. 285, 148 C. C. A. 187, 37 Am. Bankr. Rep. 124; Winslow V. Staab, 23? Fed. 305, 36 Am. Bankr. Rep. 626; Riggs v. Price, 277 Mo. 333, 210 S. W. 420; Park v. South Bend Chilled Plow Co. (Tex. Civ. App.) 199 S. W. 843; Grand Rapids Trust Co. v. Nich- ols, 199 Mich. 126, 165 n! W. 667; Miley V. Heaney, 169 Wis. 58, 169 N. W. 64; Schmitt V. Dahl, 88 Minn. 506, 93 N. W, 665, 67 L. R. A. 590; Adams' Assignee V. Branch, 3 Ky. Law Rep. 178; McMas- ter V. Campbell, 41 Mich. 513, 2 N. W. 836. A corporation's trustee in bank- ruptcy has capacity to contest the valid- ity of a mortgage covering the bankrupt's real and personal property. Pacific State Bank v. Coats. 205 Fed. 618. 123 C. C. A. 634, 30 Am. Bankr. Rep. 665. The trustee in bankruptcy of a corporation Is Bi.k.Bke.(3d Ed.)— 00 entitled to maintain a bill to set aside transfers of property by the corporation to one of its directors as in fraud of its creditors. Henderson v. Garner, 200 Ala. 59, 75 South. 387. 1* Adams v. Merchants' Nat. Bank, 9 Biss. 396, 2 Fed. 174; Crooks v. Stuart, 2 McCrary, 13, 7 Fed. 800 ; Mann v. Flow- er, 25 Minn. 500. 15 Elmore v. Symonds, 183 Mass. 321, 67 N. E. 314; Bennett v. Mtna. Ins. Co., 201 Mass. 554, 88 N. E. 335, 131 Am. St. Rep. 414; Carr v. Gale, 3 Woodb. & JI. 38, Fed. Cas. No. 2,435. 10 Hillyer v. Le Roy, 84 App. Div. 129, 82 N. Y. Supp. 80 ; Annis v. Butterfield, 99 Me. 181, 58 Atl. 898; Starks v. Curd, 88 Ky. 164, 10 S. W. 419; In re Wynne, Chase, 227, 4 N. B. R. 23, Fed. Cas. No. 18,117; Mann v. Flower, 25 Minn. 500; Neuburger v. Fells, 203 Ala. 142, 82 ■ South. 172 ; Barrett v. Kalgler, 200 Ala. 404, 76 South. 320; Butta v. James,. 33 N. D. 162, 156 N, W. 547 ; Ernest Wolfe Mfg. Co. V. Battreal Shoe Co., 192 Mo. App. 113, 180 S. W. 396. 17 Sheldon v. Parker, 66 Neb. 610, 92 N. W. 923, 95 N. W. 1015. See also Faulkner v. Kaplon, 203 Fed. 114. Com- pare Coleman v. Hagey (Mo.) 158 S. W. 829. This provision of the Bankruptcy Act vests in the trustee title to all prop- erty trnnsf erred by the bankrupt at any time, in fraud of creditors existing at the § 447 LAW OF BANKEUPTCY 946 trustee, and not in the name of the bankrupt or of any creditor.^* But as it is the duty of a trustee in bankruptcy to represent the unsecured creditors, he is not entitled to sue to annul a conveyance merely as given in fraud of a creditor who has a lien on the property.^'* Nor can the trustee complain of the fraudulenj: character of a mortgage given by a purchaser from the bankrupt to a third person, unless he can impeach the sale from the bankrupt to the purchaser on other grounds.*' § 447. Election by Trustee. — It is not the imperative duty of a trus- tee in. bankruptcy to reclaim and attempt to recover all the property alleged to have been conveyed away by the bankrupt in fraud of his creditors. There may be circumstances rendering the necessary litiga- tion so costly, protracted, and doubtful that the ultimate benefit to the estate might be very small. In such cases he may elect to claim the property and proceed for its. recovery or not to do so, and if he does not elect to take it within a reasonable time, it is deemed an election to re- ject it.*^ And 'if he has once elected not to attempt to set aside a con- veyance or transfer by the bankrupt, he cannot afterwards come into equity to attack it.** Thus, where a debtor, within four months before his bankruptcy, sold and assigned certain accounts to a third person, and his trustee, with full knowledge of the facts, applied for and obtained an order from the court .of bankruptcy requiring the bankrupt to turn over a part of the proceeds of the sale which had not been accounted for, such action of the trustee was held an election to afifirm the sale and he could not thereafter maintain a petition against the assignee to recover the accounts, on the ground that the sale was fraudulent.** § 448. Trustee's Right of Action Exclusive. — ^The provisioris of the bankruptcy law relating to fraudulent conveyances by the bankrupt have the effect, not only to vest in the trustee in bankrutpcy the right to main- tain actions for the avoidance of such conveyances, but also to take away that right from creditors. After the adjudication in bankruptcy and the appointment of a trustee,** no creditor has the right to institute legal proceedings to set aside a transfer or conveyance alleged to have been fraudulent, as that right pertains to the trustee alone.*® And the adjudi- time of the bankruptcy. Barrett v. Kaig- see Greenhall v. Carnegie Trust Co., 180 ler, 200 Ala. 404, 76 South. 320. Fed. 812, 25 Am. Bankr. Rep. 300. 18 Exchange Nat. Bank v. Stewart, 158 23 Thomas v. Sugerman (0. C. A.) 157 Ala. 218, 48 South. 487. Fed. 669, 19 Am. Bankr. Rep. 509. 10 Cowan V. Staggs (Ala.) 59 South. 24 As to the right of creditors to insti- 153; tute such an action after the adjudica- 20 Sellers v. Hayes, 163 Ind. 422, 72 N. tion in bankruptcy, but before any trus- E. 119. tee has been appointed, see Guarant.v 21 Nash V. Simpson, 78 Me. 142, 3 Atl. Title & Trust Co. v. Pearlman, 144 Fed. 53. And see supra, §§ 282, 283, 321. 550, 16 Am. Bankr. Rep. 461. 22 Laiighlln v. Calumet & C. Canal & 2= Trimble v. Woodhead, 102 U. S. 647, Dock Co., 65 Fed. 441, 13 C. C. A. 1. And 26 L. Ed. 290 ;■ Glenny v. Langdon, 98 U. 947 FRAUDULENT CONVETANCES VOIDABLE BY TRUSTEE § 449 cation in bankruptcy and appointment of a trustee constitute a complete defense to a creditor's bill filed for such a purpose in a state court.*" Further, the refusal or failure of the trustee in bankruptcy to sue for the avoidance of an alleged fraudulent conveyance within the time prescrib- ed by law, or at all, does not transfer the right to any creditor or to the creditors generally, nor authorize them to sue in their own behalf.*' The remedy of creditors who are dissatisfied with the refusal or inac- tivity of the trustee is to apply to the court of bankruptcy for an order directing the trustee to institute the necessary proceedings. If the court is satisfied that such action should be taken and will probably result in benefit to the estate, it has power to require the trustee to proceed,** though, in doubtful cases, the creditors who insist on the suit being brought may be required to indemnify the trustee against the costs and expenses.** § 449. Conditions Precedent to Trustee's Action. — Since the bank- ruptcy law vests the trustee with title to all property conveyed by the bankrupt in fraud of creditors, he may proceed to recover such property notwithstanding the fact that there may be, at the time, no creditor who has put his claim in judgment and thus placed himself in a position to as- sail the transfer as fraudulent. The trustee's title "accrues by force of the act, and not through the right of the creditor to assert the fraud." '* Moreover, the bankruptcy law makes it impossible for creditors to re- S. 20, 25 L. Ed. 4.3; Wright v. H. B. Ehr- HiUyer v. Le Roy, 179 N. X. 369, 72 N. lich & Co., 146 Ga. 400, 91 S. E. 412 ; E. 237, 103 Am. St. Kep. 919. Kimbrough v. Aired, 202 Ala. 413, 80 as Leseure v. Weaver, 108 111. App. South. 617; McMahon v. Pithan, 167 616. Iowa, 498, 147 N. W. 920; Barnes Mfg. 27 Moyer v. Dewey, 103 U. S. 301, 26 Co. V. Norden, 67 N. J. Law, 493, 51 Atl. L. Ed. 394 ; Ruhl-Koblegard Co. v. Gille- 454 ; In re Gray, 47 App. Div. 554, 62 N. sple, 61 W. Va. 584, 56 S. E. 898, 10 L. T. Supp. 618; Elder's Ex'rs v. Harris, 76 B. A. (N. S.) 305, 11 Ann. Cas. 929. Com- Va. 187; Boiling v. Munchus, 59 Ala. pare Bates v. Bradley, 24 Hun (N. T.) 482; Thurmond v. Andrews, 10 Bush 84. (Ky.) 400, 13 N. B. R. 157; Anderson v. 2s Glenny v. Langdon, 98 U. S. 20, 25 Anderson, 80 Ky. 638; Allen v. Mont- L. Ed. 43; McMaster v. Campbell, 41 gorfiery, 48 Miss. 101, 10 N. B. R. 503 ; Mich. 513, 2 N. W.' 836 ; Freelander v. Goodwin V. Sharkey, 5 Abb. Prac. N. S. Holloman, 9 N. B. B. 331, Fed. Cas. No. (N. Y.) 64,- 3 N. B. R. 558; Scott v. Dev- 5,081. See Casey v. Baker (D. C.) 212 lin, 89 Fed. 970 ; In re Lowe, 19 Fed. 589; Fed. 247, 32 Am. Bankr. Rep. 311, hold- New Orleans Nat. Banking Ass'n vi Le ing that it is the trustee's duty, if prop- Breton, 14 Fed. 646; Allen v. Massey, 1 erly indemnliSed, to sue to set aside Dill. 40, 4 N. B. R. 248, Fed. Cas. No. fraudulent transfers, and if he refuses, 231. Contra, see Board of Directors v. an interested party may sue in his own Lowrance, 111 S. C. 295, 97 S. E. 830. name, making the trustee a defendant, As to suits begun by creditors more than or may be permitted to sue in the trus- four months before the bankruptcy, the tee's name, right to continue them after the appoint- 20 gee supra, § 283, ment of a trustee, and the preference so piatt v. Matthews, 10 Fed. 280. A gained by the suing creditors, see Boyd trustee may maintain a suit to recover V. Arnold, 103 Ark. 105, 146 S. W. 118; property fraudulently conveyed without § 450 LAW OF BANKKTJPTCT 948 cluce their claims to judgment after the adjudication, although this is usually necessary as a condition precedent to the right to avoid a fraud- ulent conveyance, or even that the creditor should hold an execution re- turned unsatisfied.** But the trustee occupies the position of an execu- tion creditor, and hence it is not a pre-requisite to his right to institute proceedings for such purpose, nor a condition to his action, that judg- .ments at law should have been obtained upon the claims of the creditors in whose behalf the equitable remedy is invoked.'* Nor is any demand- necessary before the commencement of an action by the trustee to recov- er property unlawfully transferred by the bankrupt,'* neither is he bound to tender to the purchaser the amount which the latter may have paid to the bankrupt.** But the trustee is bound to show some actionable in- jury to himself, or rather to the estate which he represents, and there- fore an action will not lie to avoid an alleged fraudulent sale of person- al property, where the goods have already been seized under a warrant in bankruptcy and turned over to the trustee, whose possession is un- disputed.*^ § 450. Same; Proof of Debts and Insufficiency of Assets. — In a suit to set aside a fraudulent conveyance or transfer, the trustee must be pre- pared to show that there were creditors of the bankrupt at the time of the alleged fraud, except in those cases where the transaction may be regarded as fraudulent with respect to subsequent creditors.** Also he must allege and show that there are proved and allowed claims against the estate in bankruptcy, or at least provable debts, at the time of bring- ing the suit, for otherwise there would be no one for him to represent and a recovery would simply inure to the benefit of the bankrupt him- self, which is not the purpose of the act.*" Hence, if the creditors pur- proving injury or first obtaining judg- 163, 40 Am. Bankr. Rep. 641; Riggs v. ment on his claim. Davis v. Gates (D. Price, 277 Mo. 333, 210 S. W. 420. It Is C.) 235 Fed. 192, 37 Am. Bankr. Rep. 818. not even necessary for the trustee, be- «i Thomas v. Roddy, 122 App. Div. fore suing to set aside fraudulent trans- 851, 107 N. Y. Supp. 473; Riker v. fers, to wait for the formal allowance Gwj'nne, 116 N. T. Supp. 10. of creditors' claims in the bankruptcy 82 Mitchell V. Mitchell, 147 Fed. 280, proceedings, if they have been presented 17 Am. Bankr. Rep. 382 ; Mueller v. and filed. Brewer v. Brown, 268 111. 562, Bruss, 112 Wis. 406, an N. W. 229; 109 N. E. 264. Thomas v. Roddy, 122 App. Div. 851, ss Goldberg v. Harlan, 33 Ind. App. 107 N. Y. Supp. 473; Crary v. Kurtz, 465, 67 N. B. 707. 332 Iowa, 105, 105 N. W. 590, 109 N. W. s* Johnston v. Forsyth Mercantile Co., 452, 119 Am. St. Rep. 549 ; Beasley v. 127 Fed. 845, 11 Am. Bankr. Rep. 669. Coggins, 48 Fla. 215, 37 South. 213, 5 Ann. a b Smith v. Claflin, 19 N. B. B. 523, Gas. 801 ; Hobbs v. Frazier, 61 Fla. 611, Fed. ,Cas. No. 13,026. 55 South. 848; Hood v. Blair State se Union Trust Co. v. Amery, 67 Wash. Bank, 3 Neb. (Unof.) 4ai!, 91 N. W. 701 ; 1, 120 Pac. 539; Cobb v. First Nat. Ryan v. Rogers, 14 Idaho, 309, 94 Pac. Bank (D. C.) 263 Fed. 1000, 45 Am. 427; Cragin v. Oarmichael, 2 Dill. 519, Bankr. Rep. 48. 11 N. B. B. 511, Fed. Cas. No. 3,319; st Crary v. Kurtz, 132 Iowa, 105, 105 Baldwin v. Kingston (D. C.) 247 Fed. N. W. 590, 109 N. W. 452, 119 Am. St. 949 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE ' § 451 porting to be represented in the action by the trustee have failed to pre- sent their claims for allowance within the time required by the statute, and are therefore barred from participation in the estate, the action can- not be maintained.^* Such a suit may be prosecuted for the sole benefit of one person, if he is the only creditor of the bankrupt,** but not where that creditor has so conducted himself with reference to the transaction in suit as to estop himself from alleging its fraudulent character.** Fur- ther, and to put himself in a position analogous to that of a creditor hold- ing an execution returned unsatisfied, the trustee must aver that the assets of the estate in his hands are not sufficient to satisfy the claims filed against it," though it is said that this is not necessary where the bankrupt states in his petition or schedule that he has no assets.** § 451. Nature and Form of Transaction. — Under the broad and com- prehensive language of the statute, relating to "conveyances, transfers, ■assignments, or incumbrances" of property, it may be stated in the most general terms that any disposition of real or personal property by a debtor which would have been void as against his creditors, as being fraudulent at common law or under the statutes of the state, if no peti- tion in bankruptcy 'had been filed against him, will be equally void as' against creditors represented by his trustee in bankruptcy.** And first, one may lawfully sell any part of his property for a present fair consid- eration, even though he is insolvent, and the transfer will not be voida- ble in bankruptcy, if the laws of the state were complied with in respect to delivery and other such requisites,** and there was no intent to place the property beyond the reach of creditors. But a transfer of property for a past consideration, or in discharge of an unsecured debt, will gen- Rep. 549; Leavengood v. McGee, 50 Or. pare Entwisle v. Cohen, 141 App. Div. 233, 91 Pac. 453; Nicholas v. Murray, 834, 125 N. Y. Supp. 935. 5 Sawy. 320, 18 N. B. K. 469, Fed. Cas. is in re Schoenfield, 190 Fed. 53, 27 No. 10,223. See Treseder v. Burgor, 130 Am. Bankr, Kep. 64. Wis. 201, 109 N. W. 957. Compare Done- 43 Bankruptcy Act 1898, §§ 67e, 70e. gan V. Davis, 66 Ala. 362. And see Union Trust & Sav. Bank v. ss Cartwright v. West, 173 Ala. 198, Amery, 72 Wash. 648, 131 Pac. 199; In 55 South. 917. re Wynne, Chase, 227, 4 N. B. R. 23, 8 9 Level Land Co. v. Sivyer, 112 Wis. Fed. Cas. No. 18,117; In re Morrill, 2 442, 88 N. W. 317. Sawy. 356, 8 N. B. R. 117, Fed. Cas. 4 Parker v. Travers, 74.N. J. Bq. 812, No. 9,821; Smith v. Ely, 10 N. B. R, 71 Atl. 612. 553, Fed. Cag. No. 13,044; Blake v. 41 Knapp V. Milwaukee a?rust Co., 216 Thwing, 185 111. App. 187. U. S. 545, 30 Sup. Ct. 412, 54 L. Ed. 4* in re Ozark Cooperage & Lumber 610; Prescott v. Galluccio, 164 Fed. 618, Co., 180 Fed. 105, 103 C. C. A. 603, 24 21 Am. Bankr. Rep. 229; Mueller v. Am. Baukr. Rep. 835; Burnes v. Ep- Bruss, 112 'Wis. 406, 88 N. W. 229; Flint stein, 201 Fed. 393. And see Meyer v. v. Chaloupka, 81 Neb. 87, 115 N. W. Perkins, 20 Cal. App. 661, 130 Pac. 206. 535 ; Shelly v. Nolen, 38 Tex. Civ. App. The mere fact that the defendant, hav- 343, 88 S. W. 524 ; McKey v. Smith, 255 ing purchased property from the bank- Ill. 465, 99 N. E. 695 ; Hibschman v. rupt, got it at a bargain price or for Bevis, 103 Wash. 317, 174 Pac. 5. Com- much less than its actual value, is not § 451 LAW OF BANKRUPTCY 950 erally be voidable either as a preference or as a fraud on the creditors.*® So where a pretended sale is merely colorable, and amounts to no more than a device to put the apparent title in a third person while the debtor- remains the real owner/* or where a chose in action is assigned to a third person, without any consideration, but merely that he may collect the money and hand it to the bankrupt,*" or where the sale includes the fixtures and furniture and the lease of the debtor's place of business, and so deprives him of the means of continuing his business,** or where a voluntary settlement by a debtor effects the payment of debts and con- tingent liabilities existing at the time, but by means of contracting other obligations which afterwards result in his insolvency.*' Again, trustees in bankruptcy very frequently find the wife of the bankrupt in the possession and apparent ownership of considerable prop- erty, which is not satisfactorily accounted for. Undoubtedly a wife is entitled to all she obtains from sources independent of her husband, and . cannot be molested therein by his creditors.^" And she may honestly acquire property directly from him, if she gives an adequate considera- tion. But the peculiar relation of the parties offers a special temptation to an insolvent or embarrassed man who is seeking the means to evade the just demands of his creditors and place property beyond their reach. Hence a transfer of property by a debtor to his wife, either directly or through an intermediary, should be carefully scrutinized, and it will be voidable at the instance of his trustee in bankruptcy if found to have been without consideration and in contemplation of insolvency, or mere- ly colorable, the wife taking the record title, but the husband retaining all the fruits of ownership and the power of disposition.*''- enough to warrant setting aside the sale 4 6 In re Siegel, 164 Fed. 559, 21 Am. as fraudulent, since mere inadequacy of Bankr. Rep. 154; Visanska v. Cohen, price is not alone a proof of fraud. 165 Fed. 552, 21 Am. Bankr. Rep. 350; Klein v. Gallin, 141 N. Y. Supp. 831. In re Irwin (D. C.) 268 Fed. 162, 46 *5 Carpenter v. Karnow, 193 Fed. T62, Am. Bankr. Rep. 288. 28 Am. Bankr. Rep. 21 ; Greenhall v. 47 O'Sullivan's Trustee v. Douglass, Carnegie Trust Co., 180 Fed. 812, 25 98 S. W. 990, 30 Ky. Law Rep. 366. An Am. Bankr. Rep. 300; In re Connelly, advancement made to enable the bank- 204 Fed. 479, 30 Am. Bankr. Rep. 340; rupt to keep in business long enough to Raley v. Raymond Bros. Co., 73 Neb. prevent the avoidance of prior prefer- 496, 103 N. W. 57; In re Ansley Bros., ences is a fraud on the Bankruptcy 153 Fed. 983, 18 Am. Bankr. Rep. 457. Act, so that .the trustee can recover But where a debtor, shortly before his property assigned in consideration of bankruptcy, conveys real and personal the advancement. Rubenstein v. Lot- property which he had previously sold tow, 220 Mass. 156, 107 N. E. 718. and for which he had received payment, 4 8 Brooks v. D'Orville, 7 Ben. 485, but had not yet conveyed, the convey- Fed. Gas. No. 1,951. ance is not void, although the debtor 48 Spaulding v. McGovern, Fed. Cas. knew that he was insolvent, as the title No. 13,218. to such propery was merely held by him eo in re Eldred, 3 N. B. R. 256, Fed. in trust for the purchaser. Steadman Cas. No. 4,328. V. Caswell, 2 Hask. 375, Fed. Cas. No. oiHenkel v. Seider, 163 Fed. 553, 20 13,330a. Am. Bankr. Rep. 773; In re Smith, 100 951 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 451 For somewhat similar reasons, the courts have often denounced the scheme by which an embarrassed merchant or manufacturer procures the organization of a corporation, to which he transfers his stock and property, ostensibly as his successor in business, but which is really conducted thereafter solely for his own benefit, the purpose being to delay and defraud his creditors by interposing an apparently new owner- ship between the property and their claims. Such a transfer is void- able in bankruptcy.®* But it is otherwise where the creditors them- selves engineer the formation of the corporation, or cause it to be op- erated for their benefit, rather than for that of the debtor.®* Again, one may take a mortgage or other security upon the property of an insolvent or failing debtor, and maintain it as against his trustee in bankruptcy, provided full and present consideration was given and there was no knowledge of an intent to defraud or to give a preference.®* Nor is the enforcement of an existing mechanic's lien necessarily invalid as against subsequent proceedings in bankruptcy,®® nor a transaction the effect of which is merely to render specific a previously existing gen- eral lien,®® or to convert alimony due and accruing under a decree of court into an annuity for life secured by a duly recorded mortgage of specific property.®" But a mortgage or other security newly given for a debt past due is generally voidable in bankruptcy, either as a prefer- ence or as a fraud on the other creditors.®* And even giving present Fed. 795, 3 Am. Bankr. Kep. 95 ; In 53 in re A. L. Robertshaw Mfg. Co., re Wood, 5 Fed. 44a ; Fisher v. Hen- 133 Fed. 556, 13 Am. Bankr. Rep. 409. derson, 8 N. B. R. 175, Fed. Cas. No. 54 Grinstead v. Union Savings & Trust 4,820; Lawrence v. Graves, 5 N. B. R. Co., 190 Fed. 546, 111 C. C. A. 398, 27 279, Fed. Cas. No. 8,138; Saxton v. Am. Bankr. Rep. 123; Lindley v. Ross, Sebring, 96 App. Div. 570, 89 N. Y. 200 Fed. 733, 29 Am. Bankr. Rep. 610; Supp. 372; Breschemier v. Houston First Nat. Bank v. Haverkampf, 16 N. (Iowa) 96 N. W. 756; In re Eldred, 3 M. 497, 121 Pac. 31. See, supra, § 366 N. B. R. 256, Fed. Cas. No. 4,328; et seq. A conveyance of property by a Jackson v. Jetter (Iowa) 142 N. W. 431 ; bankrupt to a mortgagee in payment of Block V. Academy Ball Room, Inc. (D. that and other valid liens is not void- C.) 221 Fed. 1004, 34 Am. St. Rep. 675 ; able in the bankruptcy proceedings. Me- Milkman v. Arthe (D. C.) 213 Fed. 642. servey v. Roby, 198 Fed. 844, 117 C. C. 6 2 In re Berkowitz, 173 Fed. 1013, A. 486, 28 Am. Bankr. Rep. 529. 22 Am. Bankr. Rep. 233; In re Hoi- bb Fehling v. Goings, 67 N. J. Eq. 375, brook Shoe & Leather Co., 165 Fed. 973, 58 Atl. 642. See supra, § 374. 21 Am. Bankr. 511 ; In re Medina Quar- bo Dupian Silk Co. v. Spencer, 115 ry Co., 179 Fed. 929, 24 Am. Bankr. Rep. Fed. 689, 53 C. C. A. 321, 8 Am. Bankr. 769; Ludvigh v. American Woolen Co., Kep. 367. 159 Fed. 796, 19 Am. Bankr. Rep. 795; " Savage v. Savage, 141 Fed. 346, 72 Foster v. Hip Lung Ylng Kee & Co., 243 C C. A. 494, 15 Am. Bankr. Rep. 599. lU. 163, 90 N. E. 375. See In re L. M. ^s Johnstone v. Babb, 240 Fed. 668, AUeman Hardware Co., 158 Fed. il9, 19 153 C. C. A. 466, 38 Am. Bankr. Rep Am. Bankr. Rep. 765 ; In re Jamaica 715 ; MacHenry v. Dwelling Building & Slate Roofing & Supply Co., 200 Fed. Loan Ass'n, 259 Fed. 880, 44 Am. Bankr. 460 ; Hane v. Crown & Keystone Co. (D. Rep. 234 ; In re National Boat & Engine C.) 223 Fed. 439, 35 Am. Bankr. Rep. Co. (D. C.) 216 Fed. 208, 33 Am. Bankr. 175; Osborn v. Peace (D. C.) 215 Fed. Rep. 154; In re Salvator Brewing Co.. 181. 183 Fed. 910,, 25 Am. Bankr. Rep. 536; § 451 LAW OP BANKRUPTCY 952 , consideration will not always save it. For a temporary loan at exorbi- tant interest, upon the conveyance of the insolvent borrower's whole assets, is a fraud on the bankruptcy law and therefore void.®* The same is true of a mortgage given by a corporation to secure the personal in- debtedness of its principal stockholder,** or one which lacks the consent of the necessary proportion of the stockholders, as provided by the state statute.*^ And a chattel mortgage comes within the terms of the bankruptcy law, and may be avoided by the trustee, if fraudulent and void as against creditors, whether for failure to record, or because there was no change of possession, or the mortgagor was not bound to ac- count for sales, or for other reasons.*^ And so of a pledge of personal property as security for the payment of an existing debt, disguised as a bill of sale with a separate instrument of defeasance without change of possession, 63 Bradley v. Farwell, Holmes, 433, Fed. Cas. No. 1,779; Bradley v. Convers^, 4 Cliff. 375, Fed. Cas. No. 1,776; DuracU V. Wilsou, 46 Misc. Rep. 237, 94 N. Y. Supp. 232 ; Mathews v. Hardt, 79 App. Div. 570, 80 N. Y. Supp. 462. That a renewal of a chattel mortgage may be invalid as against the trustee in bank- ruptcy of the debtor, see Scott v. One Thousand Island Boat & Engine Co., 134 N. Y. Supp. 150. A mortgage of all the mortgagor's property to secure overdue notes representing moneys advanced to take up other notes for the mortgagor, the latter bearing indorsements which were alleged to have been forged, must be deemed a conveyance made to hinder or defraud creditors, so as to be void- able by the mortgagor's trustee in bank- ruptcy. Dean v. Davis, 242 U. S. 438, 37 Sup. Ot. 130, 61 L. Ed. 419, 38 Am. Bankr. Rep. 664. Where the majority stockholder of a corporation, with knowledge of its precarious financial condition, agreed to sell to the corpora- tion its own stock of a par value of $5,100 for $2,000, receiving $500 in cash and notes secured by a deed of trust covering all the corporation's assets for the balance, the transaction was fraud- ulent as against the corporation's credi- tors and void as against its trustee in bankruptcy. M. V. Moore & Co. v. Gil- more, 216 Fed. 90, 132 C. C. A. 343. 8 Brooks V. Davis, Fed. Cas. No. 1,- 950. 80 American Wood Working Machin- ery Co. V. Norment (C. C. A.) 157 Fed. SOI, 19 Am. Bankr. Rep. 679. »i In re Eagle Steam Laundry Co., 176 Fed. 740, 23 Am. Bankr. Rep. 859. 2 In re Geiver, 193 Fed. 128, 28 Am. Bankr. Rep. 413; Egan State Bank v. Rice, 119 Fed. 107, 56 C. O. A. 157, 9 Am. Bankr. Rep. 437 ; In re Platts, 110 Fed. 126, 6 Am. Bankr. Rep. 568 ; Kapp- ner v. St. Louis & St. J. R. Ass'n, 3 Dill. 228, Fed. Cas. No. 7,612; In re Leland, 10 Blatchf. 503, Fed. Cas. No. 8,234; In re Jaconson & PerriU, 200 Fed. 812, 29 Am. Bankr. Rep. 603; Johnson v. Dis- mukes, 204 Fed. 382, 29 Am. Bankr. Rep. 686; In re Raney, 202 Fed. 996. Com- pare In re Durham, 114 Fed. 750, 8 Am. Bankr. Rep. 115. See supra, § 367. And see also In re Purtell (D. C.) 215 Fed. 191 ; Peterson v. Sabin, 214 Fed. 234, 130 C. C. A. 608, 32 Am. Bankr. Rep. 599 ; In re Haywood Wagon Co., 219 Fed. 655, 135 C. C. A. 391, 33 Am. Bankr. Rep. 618; In re P. H. Saunders & Co., 272 Fed. 1003, 47 Am. Bankr. Rep. 117; Zehner v. Southern Surety Co., 272 Fed. 954, 47 Am. Bankr. Rep. 132; General Securities Co. v. Driscoll (C. C. A.) 271 Fed. 296 ; In re Pine Tree Lumber Co. (C. C. A.) 269 Fed. 515, 46 Am. Bankr. Rep. 463; In re Bonk (D. C.) 268 Fed. 1012, 46 Am. Bankr. Rep. 389. 3 In re Groezinger (D. C.) 199 Fed. 935, 28 Am. Bankr. Rep. 732. See In re American Fibre Reed Co. (D. C.) 206 Fed. 309, 30 Am. Bankr. Rep. 223; Home Bond Co. v. McChesney, 210 Fed. 893, 127 C. 0. A. 552; Petition of Na- tional Discount Co. (C. C. A.) 272 Fed. 570, 47. Am. Bankr. Rep. 12. 053 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 451 Money also is property within the meaning of the law, and its trans- fer may be fraudulent as against creditors. Thus, where the owner of all the stock of a trading corporation, when it was indebted and within four months prior to the filing of a petition in bankruptcy against it, transferred the greater part of its bank deposit, which constituted prac- tically its sole assets, to himself in payment of alleged claims, leaving not enough to pay other claims, it was held that the transaction consti- tuted not only a preference, but also a transfer with intent to hinder and defraud creditors.®* So, where the bankrupt, who was the owner of a business corporation, at a time when it was desperately involved, diverted revenues of its business for his own benefit and that of others by overpayments for services, exorbitant hire of teams, and other ex- penses, his trustee in bankruptcy was held entitled to reach such money and property in the hands of those benefited.*^ So where one who knows himself to be insolvent makes a payment on a debt barred by the statute of limitations, the resulting implied promise to pay the re- mainder of the outlawed debt is an "incumbrance" which i|iay be avoided by the trustee in bankruptcy, since its effect is to defeat the defense of limitations, and that is a valuable right which passes to his creditors in bankruptcy.** On similar principles, where property is purchased by a man with his own money, but, by his direction or pro- curement, the conveyance is made to his wife and the title vested in her, it may properly be said, within the meaning of the bankruptcy law, that the money so paid by him is "transferred," and if this is done in fraud of his creditors, the title to the fund will pass to his trustee in bankruptcy, and the land, as representing it, may be subjected to the administration of the estate.®'' Arid of course the rule is the same when any third person, other than the bankrupt's wife, is made the cover to receive the title, the bankrupt furnishing the money.®* But one may loan money to his wife to enable her to purchase real estate, and if the loan is repaid before the institution of bankruptcy proceedings against the husband, the land cannot be taken from the wife or impressed with a trust for the husband's creditors.®" It may also be a fraudulent "trans- fer" of property, within the meaning of the statute, when funds are diverted by an insolvent debtor from the claims of his creditors and in- vested in a homestead,'" or when a payment to a creditor covers not 8* Boston West Africa Trading Oo. v. Oas. No. 9,618; In re Sclionberg, 7 Ben. Quaker City Morocco Co. (C. O. A.) 261 211, Fed. Cas. No. 12,477. Fed. 665, 44 Am. Bankr. Rep. 315. as Hyde v. Cohen, 11 N. B. R. 461, 8 6Kimbrougli v. Aired, 202 Ala. 413, Fed. Cas. No. 6,967; Parker v. Travers, 80 South. 617. 74 N. J. Bq. 812, 71 Atl. 612. 6 8 In re Salmon (D. 0.) 289 Fed. 413, es Clark v. Else, 21 S. D. 112, 110 N. 38 Am. Bankr. Rep. 692. W. 88. 87 Piatt V. Mead, 9 Fed. 91; In re '?o Painter x- Napoleon Township, 190 Meyers, 2 Ben. 424, 1 N. B. R. 581, Fed. Fed. 637, 26 Am. Bankr. Rep. 324 ; John- § 451 LAW OF BANKRUPTCY 954 only existing debts but also the amount of a note not yet due'." But a set-off by a bank of a deposit account due to a bankrupt against his liability to the bank on a note is not a "transfer of property" by the bankrupt.'* A gift of money or property of considerable value by a husband to his wife is in fraud of his creditors, and recoverable by his trustee in bankruptcy, if made while he was insolvent and in contempla- tion of the bankruptcy which shortly followed,'* and this includes pay- ments made by him on policies of insurance- on his own life for the wife's benefit.'* So again, a debtor may "transfer" his property- to another by vol- untarily confessing judgment in favor of such other and allowing him to issue execution and make a levy and sale resulting in his becoming the purchaser.'® But the plaintiff in a pending suit has the right to abandon or settle the contest at any stage, at his election, and on his subsequent adjudication as a bankrupt his trustee has no cause of action growing, out of the settlement of the case, unless in the direction of pursuing the proceeds of a compromise actually received' by the bankrupt.'* And where property of the debtor is sold under execution in coercive adver- sary proceedings, in which he made an active though unsuccessful de- fense, it cannot be said that the sale is in any sense a fraud upon his creditors." § 452. Sales of Merchandise in Bulk. — Where a merchant sells his entire stock in trade at one time to one purchaser, it is such an unusual occurrence and so far out of the ordinary course of business as to be presumptive evidence of fraud and to charge the purchaser with knowl- edge of the facts and with bad faith, so that the burden is on him to sus- tain the validity of his purchase by showing that he took all reasonable and proper steps to ascertain the seller's financial condition and that he bought in good faith and for a present fair consideration.'* And if it is son V. May, 16 N. B. K. 425, Fed. Oas. 101 C. C. A. 3T9, 24 Am. Bankr. Rep. No. 7,397. But see In re Letson, 157 183. Fed. 78, 84 C O. A. 582, 19 Am. Bankr. " Nelson v. Svea Tub. Co., 178 Fed. Rep. 506. 136. 7 1 Irish V. Citizens' Trust Co., 163 'sWalbrun v. Babbitt, 16 Wall. 577, Fed. 880, 21 Am. Bankr. Rep. 39. 21 L. Ed. 489 ; In re Calvi, 185 Fed. 642, 7 2 Booth V. Prete, 81 Conn. 636, 71 26 Am. Bankr. Rep. 206; Dokken v. Atl. 938, 20 L. R. A. (N. S.) 863, 15 Ann. Page, 147 Fed. 438, 77 C. C. A. 674, 17 Cas. 306. See In re United Grocery Co. Am. Bankr. Rep. 228 ; In re Knopf, 144 (D. C.) 253 Fed. 267, 41 Am. Bankr. Rep. Fed. 245, 16 Am. Bankr. Rep. 432 ; In 824. re Hemstreet, 139 Fed. 958, 14 Am. "Wiley V. McBride, 74 Ark. 34, 85 Bankr. Rep. 823; Norton v. Billings, 9 S. W. 84 ; In ro Friedman, 153 Fed. 989. Biss. 528, 4 Fed. 623 ; Main v. Glen, 7 74 In re Bear, 11 N. B. R. 46, Fed. Biss. 86, Fed. Cas. No. 8,973; In re Cas. No. 1,178. Dean, 2 N. B. R. 89, Fed. Cas. No. 3,700; 7 Grant v. National Bank of Auburn, Foster v. Hackley, 2 N. B. R. 406, Fed. 197 Fed. 581, 28 Am. Bankr. Rep. 712. Cas. No. 4,971 ; Parker v. Sherman, 201 7 8Edington v. Masson, 177 Fed. 209, Fed. 155; In re Lipman, 201 Fed. 169 955 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 453 shown that the sale was made secretly, or with an evident desire to con- ceal it, that it was made at night, or made hurriedly and with little or no preliminary negotiation, that it was made after a superficial exam- ination of the goods or without taking an inventory, and particularly if the price paid was considerably less than the value of the goods, these are indicia of fraud counting heavily against the purchaser in the trus- tee's suit to set aside the sale as fraudulent.''* Such a transaction may also be held void under § 67e of the Bankruptcy Law, as a transfer "held null and void under the laws of the state," since the "bulk sales laws" now in force in numerous states forbid such a transfer except where certain conditions are complied with.*** But if the state law is construed as available only in favor of those creditors whose claims arose from the' sale of the stock of merchandise or some part of it, and only as giving such a creditor a lien, analogous to a vendor's lien, which may be enforced by appropriate legal proceedings in the event of a sale in violation of the provisions of the act, but not as enabling any credi- tor to treat the sale as a nullity and proceed with the collection of his entire debt, then a sale made in defiance of the statute is not such a one as may be impeached by the trustee in bankruptcy of the seller, for the general estate of the seller can derive no benefit from such impeach- ment." Further, where personal property, part of the bankrupt mer- chant's stock iir trade, was sold to the same defendant, but. at three different times, shortly before bankruptcy, the goods not comprising the entire stock in trade, it was not a sale in bulk.*^ Substantially the same rules apply to the case of a mortgage covering an entire stock in trade or the whole assets of a partnership or corporation.** § 453. "Preference" and "Fraudulent Transfer" Distinguished.— There is a marked distinction, which should be constantly kept in view, between a payment or transfer of property constituting a "preference" and a "fraudulerit conveyance." It is true that a given transaction by an insolvent debtor may constitute both a preference and a fraudulent ; 29 Am. Baakr. Rep. 139. Compare Shel- Atl. 817 ; Niklaus v. Lessenhop, 99 Neb. ton V. Price, 174 Fed. 891, 23 Am. Bankr. 803, 1.57 N. W. 1019. Rep. 431. 81 Sellers v. Hayes, 163 Ind. 422, 72 79 Dokken v. Page, 147 Fed. 438, 77 O. N. B. 119. And see Gorham v. Buzzell C. A. 674, 17 Am. Bankr. Rep. 228 ; In (D. O.) 178 Fed. 596, 24 .^m. Bankr. Rep. re Knopf, 146 Fed. 109, 17 Am. Bankr. 440. Rep. 48; Johnston v. Forsyth Mercan- 82 Carpenter v. Karnow (D. 0.) 193 tile Co., 155 Fed. 268, 19 Am. Bankr. Fed. 762, 28 Am. Bankr. Rep. 21. And Rep. 48. see Sabln v. Horenstein, 260 Fed. 754, 8 In re Clayton (D. O.) 259 Fed. 911, 171 C. C. A. 492, 44 Am. Bankr. Rep. 43 Am. Bankr. Rep. 687 ; Brown v. Kos- 422. sove, 255 Fed. 806, 167 C. C. A. 134, 43 8 3 Pollock v. Jones, 124 Fed. 163, 61 Am. Bankr. Rep. 408; In re Thompson O. C. A. 555, 10 Am. Bankr. Rep. 616; (D. C.) 242 Fed. 602, 40 Am. Bankr. Rep. Zartman v. First Nat. Bank, 189 N. Y. 82 ; Philoon v. Babbitt, 119 Me. 172; 109 267, 82 N. E. 127, 12 L. R. A. (N. S.) 1083. § 453 LAW OF BANKRUPTCY 956 transfer.** ' But a transfer of money or property by an insolvent is not necessarily fraudulent under § 67e of the Bankruptcy Act, merely because it results in giving a preference to the creditor as defined in § 60 of the Act.*^ But though a preferential transfer is not in itself, or in its inception, fraudulent, it may be so manipulated or carried into later steps in an attempt to defeat a recovery by the trustee in bankruptcy as to bring the parties within that part of the statute which relates to fraudulent conveyances.*** Thus where a creditor, having secured from his insolvent debtor a transfer of property, the enforcement of which would effect a preference under the Bankruptcy Act, advanced money to the debtor, upon an assignment of certain book accounts, for the purpose of tiding the insolvent over the period of four months, so that the preference could not be vacated in the bankruptcy proceedings, it was held that the trustee could recover the value of the accounts.*" These distinctions may be further illustrated by some quotations from judicial opinions. "A consideration of the provisions of the bankruptcy law as to preferences and conveyances shows that there is a wide differ- ence between the two, notwithstanding they are sometimes spoken of in such a way as to confuse the one with the other. A preference, if it have the effect of enabling one creditor to obtain a greater portion of the estate than others of the same class, is not necessarily fraudulent. Preferences are set aside when made within four moriths, with a view of obtaining an equal distribution of the estate, and in such cases it is only essential to show a transfer by an insolvent debtor to one who himself or by his agent knew of the intention to create a preference." ** "In a preferential transfer, the fraud is constructive or technical, con- sisting in the infraction of that rule of equal distribution among all creditors which it is the policy of the law to enforce when all cannot be fully paid. In a fraudulent transfer the fraud is actual, — the bank- rupt has secured an advantage for himself out of what in law should belong to his creditors, and not to him."*® "A preferential payment may be constructively fraudulent, but it is not in and of itself a fraudu- lent conveyance. It can only become the latter in the unusual case where actual fraud in addition to the preference is established. Thus, a secret trust in favor of a person making such payments might turn 84 Chapman v. Hunt (D. C.) 248 Fed. ss Coder v. Arts, 213 U. S. 223, 29 160, 41 Am. Bankr. Kep. 482; Smith v. Sup. Ot. 436, 53 L. Ed. 772, 22 Am. Coury (D. C.) 247 Fed. 168, 41 Am. Bankr. Bankr. Rep. 1. Rep. 219. 8 9 In re Maher, 144 Fed. 503, 16 Am. 8 5 Watson V. Adams, 242 Fed. 441, 155 Bankr. Rep. 340. And see Meservey v. C. 0. A. 217, 39 Am. Bankr. Rep. 473. Roby, 198 Fed. 844, 117 C. C. A. 486, 28 8 8 Watson V. Adams, 242 Fed. 441, 155 Aiti. Bankr. Rep. 529; In re Doyle, 199 C. C. A. 217, 39 Am. Bankr. Rep. 473. Fed. 247, 29 Am. Bankr. Rep. 102. 8 7 Rubenstein v. Lotto w, 223 Mass. 227, 111 N. E. 973. 957 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 453 a mere preference into a fraudulent conveyance.""* The question whether a given transaction constitutes the one or the other is therefore a question of fact, depending, on the one hand, on the fraudulent pur- pose and intent of the debtor, or,, on the other hand, on the creditor's knowledge or reasonable cause to believe that a preference was intended. But if, in a case of payments made to certain creditors to the exclusion of others, there is any substantial evidence of an intent to delay or de- fraud the unpaid creditors, it is properly submitted to the consideration of the jury."^ It follows that a payment of money oi: a transfer of pro{)erty by an msolvent debtor, for the purpose of discharging or securing a bona fide existing debt, in good faith and without any intent to affect other creditors injuriously beyond what must necessarily result from the cor- responding diminution of the debtor's assets, is not in itself a "fraudu- lent transfer," nor evidence of an intent to delay or defraud creditors, and is not voidable by the trustee in bankruptcy unless violative of those provisions of the statute which relate specifically to preferences.** In order to recover money paid or property transferred by way of pref- erence, it is necessary for the trustee to show that "the person receiving it, or to be benefited thereby, or his agent acting therein, had reasonable cause to believe that it was intended thereby to give a preference." ** Lacking proof of such cause of belief, a transaction such as we have sup- posed above, is not voidable under those provisions of the law which relate to fraudulent conveyances."* It is not enough to show that the debtor intended to give a preference, or that he had a fraudulent design to exclude his other creditors or make them suffer.** But conversely, if the debtor intended to give a preference, and the creditor knew it or had reasonable cause to believe it, the transfer is voidable in the character of a preference, without regard to an actual fraudulent intent on either part.*" Thus, a mortgage given by an insolvent debtor, sub- sequently and within four months, adjudged a bankrupt, to secure money »o Van Iderstine v. National Discount 02 Coder v. Arts, 152 Fed. 943, 82 O. Co., 174 Fed. 518, 98 0. C. A. 300, 23 C. A. 91, 18 Am. Bankr. Rep. 513 ; Man- Am. Bankr. Rep. 345. And see Githens ning v. Evans, 156 Fed. 106, 19 Am. V. Shiffler, 112 Fed. 505, 7 Am. Bankr. Bankr. R«p. 217; Congleton v. Schrei- Rep. 453; In re Doyle, 199 Fed. 247, 29 hofer (N. J. Eq.) 54 Atl. 144; Maffl v. Am. Bankr. Rep. 102 ; Ex parte Stub- Stephens (Tex. Civ. App.) 93 S. W. 158. bins, L. R. 17 Ch. Div. 58; Kingsbury v. 03 Bankruptcy Act 1898, § 60b. First Nat. Bank, 71 Kan. 570, 81 Pac. ,, ^ Alexander 69 S C 23 187; Studebaker Bros. Mfg. Co. v. El- .„ «^ off ^- ^'^^^°"e^' **« °- 5^- ^^• sey-kempMU Carriage Co., 152 Mo. App. f„ %^- ^jf \ ^l^,t 1\ t'' f ° ^"^• 401, 133 S. W. 412. Compare In re HUl, .^J' ^' ^- °- ^- ^^^' ^^ ^'^- ^^''^- ^^^P" 140 Fed. 984, 15 Am. Bankr. Rep. 499; Allen V. French, 178 Mass. 539, 60 N. E. " Blakey v. Boonville Nat. Bank, 95 125. Fed. 267, 2 Am. Bankr. Rep. 459. »i Webb's Trustee v. Lynchburg Shoe oe Ferguson v. Lederer, Strauss & C!o., Co., 106 Va. 726, 56 S. E. 581. 128 Iowa, 286, 103 N. W. 794. § 454 LAW OF BANKRUPTCY * 958 borrowed at the time for the purpose of preferring certain of his credi- tors, is voidable, provided the lender knew or had reason to believe that such was his purpose."'' But it must be admitted that, although the theoretical distinction is clear, the complex circumstances of many cases often make it difficult to draw the line sharply. Thus, in one case a corporation executed mortgages covering all its property, to certain favored creditors, who were not pressing it for payment nor asking to be secured, intending thereby to force indulgence from its other credi- tors and further advances from those secured. It was held that the mortgages were intended to "hinder, delay, and defraud" creditors, and "were on that ground voidable in bankruptcy."* § 454. Transfers Void Under State Laws. — By the express provi- sions of the bankruptcy law all transfers, conveyances, or incumbrances of property made by an insolvent debtor, within four months before his bankruptcy, are voidable at the suit of the trustee in bankruptcy, if held null and void as against creditors by the law of the state, whether or not they would be voidable at common law, and whether or not within • the specific denouncements of the bankruptcy act."" Thus where the action is to set aside a conveyance alleged to be fraudulent and void under the state law, actual fraud or an actual fraudulent intent is not necessary to be made out unless the state law requires it. If that law avoids, as to creditors, transactions only presumptively fraudulent, or attended by "legal" as distinguished from "actual" fraud, the same will be void at the suit of the trustee, in bankruptcy.^**" And in determining ,the validity of any transfer or incumbrance alleged to be voidable under the law of the state, and assailed distinctly on that ground, the courts of bankruptcy will follow and be governed by the applicable decisions of the courts of the state.^"^ In the case of a conflict of laws, »7Iii re Pease, 129 Fed. 446, 12 Am. h. Ed. 542; Chicago Bank v. Kansas Bankr. Bep. 66. Bank, 136 U. S. 223, 10 Sup. OL 1013, 34 88 In re Steininger Mercantile Co., 107 L. Ed. 341 ; Etheridge v. Sperry, 139 U. Fed. 669, 46 C. C. A. 548, 6 Am. Bankr. S. 266, 11 Sup. Ct. 565, 85 L. Ed. 171 ; Eep. 68. Doole.y v. Pease, 180 U. S. 126, 21 Sup. 08 Allen V. Massey, 17 Wall. 351, 21 L. Ct. 329, 45 L. Ed. 457 ; Thompson v. Ed. 542; In re Bement, 172 Fed. 98, 96 Fairbanks, 196 U. S. 516, 25 Sup. Ct. C. C. A. 412, 22 Am. Bankr. Rep. 616; 306, 49 L. Ed. 577, 13 Am. Bankr. Kep. Wright V. Sampter, 152 Fed. 196, 18 Am. 437 ; Humphrey v. Tatman, 198 U. S. Bankr. Rep. 355 ; In re Broome, 3 Ben. 91, 25 Sup. Ct. 567, 49 L. Ed. 956, 14 488, 3 N. B. R. 343, Fed. Cas. No. 1,966 ; Am. Bankr. Rep. 74 ; Swager v. Smith In re J. S. Appel Suit & Cloak Co., 198 (C. C. A.) 194 Fed. 762, 27 Am. Bankr. Fed. 322, 28 Am. Bankr. Rep. 818; Pew Eep. 660; Howard v. Prince, 1 Hughes, V. Price, 158 S. W. 338, 251 Mo. 614; 239, 11 N. B. R. 322, Fed. Cas. No. 6,762; Goodwin v. Tuttle, 70 Or. 424, 141 Pac. Sieg v. Greene, 225 Fed. 955, 141 C. C. 1120. A. 79, Ann. Cas. 19170, 1006, 35 Am. 100 in re Gel ver, 193 Fed. 128, 28 Am. Bankr. Rep. 150; Deupree v. Watson, Bankr. Rep. 413. 216 Fed. 483, 132 C. C. A. 543 ; In re 101 Allen V. Massey, 17 Wall. 351, 21 Thorson Bros. (D. C.) 209 Fed. 961; 959 feaudu!lbnt conveyances voidable by tkusteb § 454 where the transfer sought to be set aside was a transfer of real prop- erty, the law of that state will govern in which the property is sit- uated.^"' In the case of a contract, the decision will be made in accord- ance with the law of the place of its performance, rather than that of the place where the contract was made.-"** In a case where personal property of the bankrupt, mortgaged in Illinois, was, with the consent of the mortgagees, removed to Tennessee, and thence to Mississippi, and finally to Arkansas, where the mortgagor was adjudged bankrupt, it was held that the rights of the mortgagees and the general creditors must be determined by the laws of Arkansas. ■"** In the case of a chattel mortgage, aside from any question of actual fraud or of an intention to contravene or defeat the bankruptcy law, the validity of such an instrument is to be tested by the law of the state ; and if that law prescribes certain conditions as essential to its validity when attacked by other creditors, — such as registration or filing for record, change of possession, accountability for sales out of stock, or the like,- — the trustee in bankruptcy may assail and avoid it for lack of compliance with those conditions.'"^ 'So he may take advantage of Stewart v. Asbury, 199 Mo. App. 123, 201 S. W. 949; Woodman V. Butterfield, 116 Me. 241, 101 Atl. 25 ; Holbrook v. Inter- national Trust Co., 220 Mass. 150, 107 N. E. 665 ; Potter v. American Printing & Lithogi-apbing C^., 182 Iowa, 458, 165 N. W. 1044. 102 Hall V. Glenn (D. C.) 247 Fed. 997, 39 Am. Bankr. Rep. 54. 103 Gielow V. Eaftem Shore Shipbuild- ing Corp. (D. C.) 265 Fed. 845. 104 In re Davies (D. C.) 256 Fed. 52, 43 Am. -Bankr. Rep. 458. 105 Holt V. Crucible Steel Co., 224 U. S. 262, 32 Sup. Ct. 414, 56 L. Ed. 756, 27 Am. Bankr. Rep. 856; Angle v. Bankers' Surety Co., 244 Fed. 401, 157 C. C. A. 27, 41 Am. Bankr. Rep. 90; Scandina- vian-American Bank v. Sabin, 227 Fed. 579, 142 C. C. A. 211, 36 Am. Bankr. Rep. 151; Massachusetts Bonding & Ins. Co. V. Kemper, 220 Fed.. 847, 136 C. C. A. 593, 34 Am. Bankr. Rep. 80; Millikin v. Second Nat. Bank, 206 Fed. 14, 124 C. C. A. 148, 30 Am. Bankr. Rep. 477; Smith V. Carukin, 259 Fed. 51, 170 C. C. A. 51, 44 Am. Bankr. Rep. 278; Calkins v. Lich- tig, 251 Fed. 844, 164 C. C. A. 60, 42 Am. Bankr. Rep. 306; In re Palmer (D. C.) 218 Fed. 74, 33 Am. Bankr. Rep. 689 ; In re Cooper's Estate (D. O.) 226 Fed. 317, 35 Am. Bankr. Rep. 321 ; In re Roberts (D. C.) 227 Fed. 177, 36 Am. Bankr. Rep. 137.: In re Schilling (D. C.) 251 Fed. 972, 41 Am. Bankr. Rep. 698 ; Rader v. Star Mill & Elevator Co., 258 Fed. 599, 169 C. C. A. 541, 43 Am. Bankr. Rep. 754 ; In re Steiner (P. C.) 249 Fed. 880; In re Per- pall (C. C. A.) 261 Fed. 858, 44 Am. Bankr. Rep. 519 ; In re Roseboom (D. C.) 253 Fed. 136, 42 Am. Bankr. Rep. 437; Stewart v. Asbury, 199 Mo. App. 123, 201 S. "W. 949; Goldberg v. Brule Timber Co., 140 Minn. 335, 168 N. W. 22; Davis v. Harlow, 130 Md. 165, 100 Atl. 102 ; In re Noethen, 195 Fed. 573, 27 Am. Bankr. Rep. 910; In re Jules & Frederic Co., 193 Fed. 5.83, 27 Am. Bankr. Rep. 136 ; Alter V. Clark, 193 Fed. 153 ; In re Gei- ver, 193 Fed. 128, 28 Am. Bankr. Rep. 413 ; In re Jackson Brick & Tile Co., 189 Fed. 636, 26 Am. Bankr. Rep. 915 ; Mis- hawaka Woolen Mfg. Co. v. Teasdale, 145 Wis. 73, 129 N. W. 671 ; Low v. Tay- lor, 73 N. J. Eq. 406, 68 Atl. 128 ; In re Walden Bros. Clothing Co., 199 Fed. 315, 29 Ara. Bankr. Rep. 80; L. A. Becker Co. V. Gill (C. C. A.) 206 Fed. 36, 30 Am. Bankr. Rep. 429; In re United States Lumber Co., 206 Fed. 236, 30 Am. Bankr. Rep. 682. And see supra, § 367. Com- pare Johnstone v. Babb, 240 Fed. 668, 153 C. C. A. 466, 38 Am. Bankr. Rep. 715; In re Mosher (D. C.) 224 Fed. 739, 35 Am. Bankr. Rep. 284 ; Davis v. Hanover Savings Fund Society, 210 Fed. 768, 127 C. C. A. 318, 31 Am. Bankr. Rep. 368. A mortgage covering both real and per- m § 454 LAW OF BANKEUPTCX 960 a state law which avoids, as to creditors, a mortgage made by any cor- poration while insolvent or when its insolvency is imminent,^**® or made without such authorization or consent on the part of the stockholders as is required by the state law,"' or, following the course of judicial d'ecisions in the state, he may assail the validity of a chattel mortgage where the principal part of the property covered consists of articles perishable in their nature or which would ordinarily be consumed in the use before a sale on foreclosure could be made.^*** But where the failure, to file or record a chattel mortgage in accordance with the laws of the state is cured by the act of the mortgagee in taking actual pos- session of the mortgaged property before the bankruptcy proceedings, the lien of the mortgage will be good as against the trustee in bank- ruptcy, unless he can find some other ground to attack it than the mere want of record ; ■"*" and if the mortgage was valid between the parties and given in good faith more than four months prior to the bankruptcy proceedings, the act of the mortgagee in taking possession within that period is not a voidable transfer.^^" The rule is substantially the same as to contracts of conditional sale. The claim of the vendor will not prevail against the trustee in bank- ruptcy of the purchaser if the contract was not acknowledged, filed, recorded, etc., as required by the laws of .the state."^ And a contract for sonal property and duly recorded as a real -estate mortgage, is nevertheless void as against the mortgagor's trustee in bankruptcy unless aiso recorded as a chattel mortgage. Pacific State Bank V. Coats, 205 Fed. 618, 123 C. O. A. 634, Ann. Gas. 1913E, 846, 30 Am. Bankr. Rep. 655. 106 McGill V. Commercial Credit Co. (D. C.) 243 Fed. 637, 39 Am. Bankr. Rep. 702 ; Empire State Trust Co. v. Trustees of Wm. F. Fisher & Co., 67 N. J. Eq. 602, 60 Atl. 940, 3 Ann. Gas. 393. 107 In re Progressive Wall Paper Corp. CD. C.) 230 Fed. 171, 37 Am. Bankr. Rep. 207. 108 Swager v. Smith, 194 Fed, 762, 114 C. C. A. 482, 27 Am. Bankr. Rep. 660. 10 9 Coggan V. Ward, 215 Mass. 13, 102 N. E. 336 ; First Nat. Bank v. Wegener, 94 Or. 318, 181 Pac. 990, 186 Pac. 41; Jones v. Bank of Excelsior Springs, 201 Mo. App. 545, 213 S. W. 892. Compare Schaupp v. Miller (D. C.) 206 Fed. 575, 30 Am. Bankr. Rep. 699. 110 Kettenbach v. Walker, 32 Idaho, 544, 186 Pac. 912. 111 L. A. Becker Co. v. Gill, 206 Fed. 36, 124 C. C. A. 170, 30 Am. Bankr. Rep. 429 ; Gielow v. Eastefti Shore Shipbuild- ing Corp. (D. O.) 265 Fed. 845 ; In re Ben- nett (D. C.) 264 Fed. 533, 45 Am. Bankr. Rep. 565 ; In re A. E. Savage Baking Co. (D. C.) 259 Fed. 976, ^^ Am. Bankr. Rep. 721; In re Mutual Motors Co. (D. O.) 260 Fed. 341, 44 Am. Bankr. Rep. 337; In re Capital City Cap Co. (D. C.) 251 Fed. 664, 41 Am. Bankr. Rep. 604; In re Kruse (D. C.) 234 Fed. 470, 37 Am. Bankr. Rep. 687 ; Columbus Jlerchandise Co. v. Kline (D. O.) 248 Fed. 296; In re M. L. B. Sturkey Co. (D. C.) 224 Fed. 251, 35 Am. Bankr. Rep. 371 ; In re Pacific Electric & Automobile Co. (D. C.) 224 Fed. 220, 35 Am. Bankr. Rep. 222 ; In re Vandewater & Co. (D. C.) 219 Fed. 627, 33 Am. Bankr. Rep. 671 ; In re Johnson (D. C.) 215 Fed. 666, 33 Am. Bankr. Rep. 104; In re O'Brien (D. C.) 215 Fed. 129, 32 Am. Bankr. Rep. 347 ; In re Johnson (D. C.) 212 Fed. 311, 31 Am. Bankr. Rep. 579; In re United States Lumber Co. (D. C.) 206 Fed. 236, 30 Am. Bankr. Rep. 682. Com- pare Baker Ice Machine Co. v. Bailey, 209 Fed. 603, 126 C. C. A. 425, 31 Am. Bankr. Rep. 593; Delaval Separator Co. V. Jones, 117 Me. 95, 102 Atl. 968. 961 FRAUDULENT CONVEYANCES VOIDABLE BY TEUSTEB § 454 the absolute sale of goods to the bankrupt, but with a reservation of a lien for the purchase price, must be recorded, if that is required by the law of the state, in order to be valid against the trustee in bankrupt- cy."* So, where a contract for the sale of fertilizers on credit to the bankrupt provided that the proceeds of sales made by him should be held for the seller to be applied on the price, it was held that such debts constituted personal property and required the contract to be recorded, under the local law, in default of which the seller was not entitled to a lien as against the trustee in bankruptcy.^** But a mining lease re- serving a lien for royalties is not a conveyance to secure a debt, such as must be recorded in Alabama, but is valid and enforceable, on the bankruptcy of the lessee, for past-due royalties."* So, also, the trustee in bankruptcy, as the representative of creditors, may resist adverse claims to property or liens thereon on the ground of failure 'of compli- ance with a state statute providing that every sale of goods in the pos- session of the vendor; not accompanied by immediate delivery and change of possession, shall be presumed fraudulent as to creditors,**® or one regulating sales in bulk,*** or a state law or course of judicial de- cisions invalidating an assignment of a chose in action unless there is delivery of the property or the evidence of it and notice given to the person against whom it is available.**'' In South Carolina, an assign- ment of a bond for title, and the recording of such an instrument, with- out its being proved in the manner required by law, by one who subse- quently became bankrupt, is a nullity.*** And under the law of Missis- sippi, requiring transfers between husband and. wife to be in writing and recorded, in order to be good as against third persons, the trustee in bankruptcy of a married woman may recover a stock of goods verbally transferred.*** So also, a trustee in bankruptcy may defeat an adverse 112 Walter A. Wood Mowing & Reap- 245, 123 C. C. A. 427, 30 Am. Bankr. Kep. ing Machine Co. v. Croll, 231 Fed. 679, 559. As to the law of Pennsylvania ap- 145 C. C. A. 565, 36 Am. Bankr. Kep. 610; plicaWe to sucl; sales, see In re Komara, In re Stoughton Wagon Co., 231 Fed. 676, 251 Fed. 47, 163 C. C. A. 297, 42 Am. 145 C. C. A. 562, 36 Am, Bankr. Eep. 592 ; Bankr. Rep. 236. In re American Steel Supply Syndicate ne In re Schoenfield (D. C.) 190 Fed. (D. 0.) 256 Fed. 876, 43 Am. Bankr. Rep. 53, 27 Am. Bankr. Rep. 64. And see, su- 271. pra, § 452. iisTownsend v. Ashepoo Fertilizer ii' In re Ha wley Down Draft Furnace Co., 212 Fed. 97, 128 O. C. A. 613, 31 Am, Co. (D. C.) 230 Fed. 471, 36 Am. Bankr. Bankr. Rep. 682. Rep. 584. See In re Rosenthal (D. C.) 114 In re Gallagher Coal Co. (D. C.) 238 Fed. 597, 39 Am. Bankr. Rep. 30; 205 Fed. 183, 29 Am. Bankr. Rep. 766. , Ward v. American Agricultural Chemi- 115 Skillen v. Endelman, 39 Misc. Eep. cal Co., 232 Fed. 119, 146 O. C. A. 311, 261, 79 N. Y. Supp. 413 ; In re Waite- 36 Am. Bankr. R6p. 321. Robbins Motor Co. (D. C.)192 Fed. 47, "s In re Rosenthal (D. O.) 238 Fed. 27 Am. Bankr. Rep. 541 ; In re Colonial 597, 39 Am. Bankr. Rep. 30. Mill & Lumber Co. (D. C.) 215 Fed. 640. no McCabe v. Guido, 116 Miss. 858, 77 See Williamson v. Richardson, 205 Fed. South. 801. Blk.Bkr.(3d Ed.)— 61 § 454 LAW OF BANKRUPTCY 962 claim to property by relying upon a state statute prohibiting any cor- poration, while incurring debts and liabilities, from giving to a stock- holder and director for the benefit of another stockholder or director any part of its capital.-'''* And a transfer or mortgage of property, which is invalid under the law of the state because made to one having knowl- edge or reasonable cause to suspect that it was made with the intention of hindering or defrauding creditors, will be voidable by the trustee in bankruptcy. ^*^ But the case must be brought within the very terms of the statute. Thus, where it provides that certain transfers of property shall be declared void "at the suit of any creditor," it cannot be invoked in a case where bankruptcy proceedings were instituted before any such suit was commenced. ■'^''^ And though the rights of a trustee in bank- ruptcy and those of an assignee in insolvency under the state statute are defined in similar terms, yet it does not follow that a state statute mak- ing a certain transfer void as against an assignee eo nomine will also ■ make it void as against a trustee in bankruptcy.^^* If the state statute requires the recording of conveyances, chattel mortgages, conditional sales, etc., in order to make them valid as against subsequent purchasers and incumbrancers in good faith without notice, but not as against gen- eral creditors, a transfer which is good between the parties though not recorded is not aj^oidable by the trustee in bankruptcy, since he does not come within either of those descriptions.^* But if the statilte makes an unrecorded transfer or contract voidable at the instance of "creditors," then it may be avoided by the trustee in bankruptcy, not only because he represents the creditors, but because, since the 1910 amendment to the Bankruptcy Act, he has the status of a creditor armed with a lien.^*^ 120 Hazard v. Wight, 201 N. Y. 399, In re Dagwell (D. C.) 263 Fed. 406, 45 Am. 94 N. E. 855. Bankr. Rep. 358; Johnson v. Barrett (D. 121 In re Walden Bros. Clothing Co. C.) 237 Fed. 112, 38 Am. Bankr. Rep. (D. C.) 199 Fed. 315, 29 Am. Bankr. Rep. 464 ; In re Bolstad (D. C.) 224 Fed. 283, 80. 35 Am. Bankr. Rep. 355; Toof v. City 122 In re Chadwiek (D. 0.) 140 Fed. Nat. Bank, 206 Fed. 250, 124 C. C. A. 118, 674, 15 Am. Bankr. Rep. 528. And see 30 Am. Bankr. Rep. 79 ; In re Mosher (D Mayhew v. Todisman, 246 Mo. 288, 151 C.) 224 Fed. 739, 35 Am. Bankr. Rep S. W. 436. 284. 128 In re Loveland, 155 Fed. 838, 84 125 National Bank of Bakersfield v. C. 0. A. 72, 1£- Am. Bankr. Rep. 18. Moore, 247 Fed. 913, 160 C. C. A. 103, 41 124 Carey v. Donohue, 240 XJ. S. 430, 36 Am. Bankr. Rep. 409 ; Hawkins v. Dan Sup. Ct. 386, 60 L. Ed. 726, L. R. A. nenberg Co. (D. C.) 234 Fed. 752, 37 Am 1917A, 295, 36 Am. Bankr. Rep. 704 ; Bankr. Rep. 262 ; In re Marriner (D. C] Martin v. Commerdal Nat. Bank, 228 220 Fed. 542, 34 Am. Bankr. Rep. 444 Fed. 651, 143 C. C. A. 173, 36 Am. , In re Pittsburgh-Big Muddy Coal Co., Bankr. Rep. 25; In re I. S. Remson Mfg. 215 Fed. 703, 132 C. C. A. 81. See In re Co., 232 Fed. 594, 146 O. C. A. 552,' 36 Wall (D. C.) 207 Fed. 994, 29 Am. Bankr. Am. Bankr. Rep. 799 ; In re Virgin (D. Rep. 901 ; In re White's Express Co., 215 C.) 224 Fed. 128, 35 Am. Bankr. Rep. 494 ; Fed. 894, 132 C. 0. A. 234, 33 Am. Bankr. Robertson v. Schlotzhauer, 243 Fed. 324, Rep. 74. 156 C. O. A. 104, 40 Am. Bankr. Rep. 237; 963 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 455 If it is voidable only at the instance of a creditor who has taken some positive step, such as attaching the property or otherwise fixing a lien upon it, then it may be avoided by the trustee only in case a superior position has been gained by some creditor whom he represents or whose place he is entitled to take, before the recording. "'^ Thus, if the law of the state is such that a chattel mortgage is voidable only in favor of a creditor who fixes a lien on the property before the instrument is re- corded, and if it is in fact recorded before the bankruptcy proceedings and before any creditor has acquired superior rights, though within the four months' period, it is valid as against the trustee, because the latter acquires his lien or status as a lien creditor only upon and by the bank- ruptcy proceedings.'''''' It is true, however, that a mortgage given by a bankrupt, though for a valid consideration and valid as between the par- ties, if withheld from record in pursuance of an agreement between them, so as not to impair the mortgagor's credit, may be set aside at the suit of his trustee as a fraudulent transaction.*** But the mere failure to record the instrument is not sufficient evidence of an agreement be- tween the bankrupt and the mortgagee to withhold it from record for improper purposes.*** Finally, it should be remembered that although an instrument may escape the charge of being a fraudulent transfer, the circumstances may still be such as to render it voidable as a pref- erence.**" § 455. Transfers Fraudulent as to Partnership or Individual Credi- tors. — The trustee of a bankrupt partnership can sue to set aside fraud- ulent transfers of its property or assets on the same grounds and under the same conditions as in the case of an individual bankruptcy.*** But since the bankruptcy of a firm does not necessarily involve that of its members, the distinction must be carefully drawn between transfers or conveyances by the firm and such as are made by the partners individ- ually. Thus, the validity of a mortgage given by the partnership as such is not affected by bankruptcy proceedings within four months there- after against one of the partners alone.*** It is a fundamental rule of 128 Bradley v. Roble (C. C. A.) 266 Fed. 120 in re Anderson (B. 0.) 252 Fed. 884, 46 Am. Bankr. Rep. 93; In re Brown 272, 41 Am. Bankr. Rep. 731. "" But it is thought that this gen- eral definition cannot prevail over the explicit provision of the statute that a fraudulent conveyance shall be void if maide by the bankrupt "while insolvent." This obviously means that he must be insolvent be- fore and at the moment of making the transfer. If he is solvent then, it can scarcely be said that the transfer was made "while" insolvent, merely because its effect is to leave him with insufificient assets. And this latter view is supported by cases of respectable authority.^'" But when the point at which insolvency becomes material has been deter- mined, the condition itself is to be ascertained by applying the statutory definition, taking into acfcount all the primary and contingent indebted- ness of the bankrupt and all, his property, the latter at a fair valuation.^'i But under section 70e of the Bankruptcy Act, the trustee may avoid 166 Adams V. Collier, 122 U. S. 382, 7 Fed. 352, 165 C. q, A. 184, 41 Am. Bankr. Sup. Ct. 1208, 30 L. Ed, 1207; Butcher Rep. 510. ' V. Cantor, 185 Fed. 945, 26 Ana. Bankr. mr Schilling v. Curran, 30 Mont. S70, Rep. 424; Metropolitan Nat, Bank v. 76 Pac. 998. Rogers, 53 Fed. 776, 3 C. ' C. A. 666; "s Rational Bank & Loan Co. v. Spen- Richardson v. Winnissimmet Nat. Bank, cer, 53 App, Div. 547, 65 N. Y. Supp. 189 Mass. 25, 75 N. E. 97 ; Mercer's Trus- 1001 ; Hamlin v. Arbolino, 72 Misc. Rep. tee V. Mercer, 74 S, W- 285, 24 Ky. Law 190, 131 N. Y. feupp. 45. See Weld v. Mc- Rep. 2469; Duttdn v. Clear, 26 Tex. Civ. kay, 2lS Fed. 807; 134 C. 0. A. 495, 34 App. 547, 65 S. W. 70 ; Schilling v. Our- Am. Bankr. Rep. 52. " ran, 30 Mont. 370, 76 Pac. 998: In re i6 9 Bankruptcy Act 1898, § 1, clause 1.5, Cornwall, 9 Blatchf. 114, 6 N. B. R. 305, i^o Upson v. Mt. Morris Bank, 103 Fed. Cas. No. ,3,250 ; Sedgwick v. Worm- App. Div. 367, 92 N. Y. Supp. 1101 ; Schil- ser, 7 N. B. R. 186, Fed. Cas. No. 12,626 ; "ling v. Curran, 30 Mont. 370, 76 Pac, 998 ; Sedgwick v. Lynch, 5 Ben. 489,,8,N, B. R.' Owens v. Daniel, 230 Fed. 101, 144 0. O. 289, Fed. Cas. No. 12,615; In re Sola e A. 399, 36 Am. Bankr. Rep. 433. HJjo (0. O. A.) 261 Fed. 822, 44 Am. "i Rutland County Nat. Bank v. Bankr. Rep. 372 ; In re Stringer, 253 Graves, 156 Fed. 168, 19 Am. Bankr. I?ep. § 459 LAW OF BANKRUPTCY 970 any transfer by the bankrupt which any creditor of the latter might have avoided under the laws of the state, without regard to the bankrupt's condition of solvency or insolvency at the date of the trartsfer.^'* § 459. Intention of Debtor. — In the case of conveyances held null and void as to creditors under the laws of the particular state, it is prob- ably not necessary to show an actual fraudulent purpose on the part of the debtor, in order to avoid them in bankruptcy, since these laws usu- ally apply to cases of constructive, technical, or presumed fraud.^'* 'But where an action to avoid a conveyance or incumbrance is based on the provision of the bankruptcy law which makes such transfers or liens voidable when made within four months prior to bankruptcy and "with the intent and purpose to hinder, delay, or defraud his creditors, or any of them," an actual fraudulent purpose on the part of the debtor is an essential element of the trustee's right, of action, and unless it is affirmatively established the transaction must stand good."* It is not enough to show that the necessary consequence of the transfer or in- cumbrance is to hinder creditors in enforcing their claims, or that it de- frauds them in the sense of leaving the debtor insolvent or even penni- less, or that the property so disposed of was more in value than the debtor could rightfully withdraw from the reach of his creditors."® The statute cannot be read as denouncing any transfer which produces a given result, irrespective of the motive. On the contrary it is aimed only at such conveyances as would be fraudulent and voidable at com- mon law or under the statute of Elizabeth, and under the bankruptcy act, as in those cases, an actual fraudulent intent on the part of the ' debtor is essential.-''® Thus, a sale, payment, or mortgage made in 446; Bailey v. Wood, 211 Mass. 37, 97 N. Eep. 899 (affirmed, 196 U. S. 516, 25 Sup. E. 902, Ann. Cas. 1913A, 950 ; Gill v. Ely- Ct. 306, 49 L. Ed. 577, 13 Am. Bankr. Norris Safe Co., 170 Mo. App. 478, 156 S. Rep. 437) ; Conley v. Nelin (Tex. Civ. W. 811. App.) 128 S. W. 424 ; Barnard v. Davis, 172 Baldwin v. Kingston (D. O.) 247 54 Ala. 565 ; Vowinkel v. Moser, 213 Pa. Fed. 163, 40 Am. Bankr. Eep. 641 ; Hoi- St. 587, 63 Atl. 130. But if a conveyance brook V. International Trust Co., 220 was made with an intent on the part of Mass. 150, 107 N. B. 665 ; Buttz v. the bankrupt to defraud his creditors, it James, 33 N. D. 162, 156 N. W. 547. is voidable, though free from any moral ITS Lavender v. Bowen (Iowa) 101 N. turpitude. Reed v. Chase (Mass.) 130 N. W. 760. B. 257. 174 Van Iderstine v. National Discount i'^ Adams v. Collier, 122 TJ. S. 382, 7 Co., 174 Fed. 518, 98 C. C. A. 300, 23 Am. Sup. Ct. 1208, 30 L. Ed. 1207. See Bankr. Rep. 345 ; Coder v. Arts, 152 Fed. Bryant v. Wolf, 94 Misc. Rep. 683, 158 N. 943, 82 C. C. A. 91, 18 Am. Bankr. Eep. Y. Supp. 678. 513; In re Kayserm, 177 Fed. 383, 100 i^s Coder v. Arts, 213 U. S. 223, 29 C. C. A. 615, 24 Am. Bankr. Rep. 174 ; Sup. Ct. 436, 53 L. Ed. 772, 16 Ann. Cas. Rutland County Nat. Bank v. Graves, . 1008, 22 Am. Bankr. Eep. 1 ; Sargent v. 156 Fed. 168, 19 Am. Bankr. Rep. 446; Blake, 160 Fed. 57, 87 C. C. A. 213, 17 In re Burnstine, 131 Fed. 828, 12 Am. L. E. A. (N. S.) 1040, 15 Ann. Cas. 58, Bankr. Rep. 596; Thompson v. Fair- 20 Am. Bankr. Rep. 115; In re Braus, banks, 75 Vt. 361, 56 Atl. 11, 104 Am. St. 248 Fed. 55, 160 C. C. A. 195, 40 Am. 971 FRAUDULENT CONVEYANCES VOtDABLE BY TRUSTEE § 460 good faith and for the honest purpose of discharging a debt, and in the expectation that .by so doing the person could continue in business, can- not be set aside as a fraudulent transfer, whatever may be the effect on the other creditors,^"' nor would it be voidable where a fair and honest sale of property was made with the particular view of keeping out of bankruptcy.^'* Such a transaction might indeed be voidable as a pref- erence, but that would be under a different provision of the bankruptcy act and would require, on the part of the creditor receiving it, knowl- edge or reasonable cause to believe that a preference was intended. On similar principles, though a man is insolvent, he may give to his wife a reasonable and suitable amount of money for current household ex- penses,"* and a transfer of exempt property is not voidable by the trus- tee.^** But a conveyance of property by a debtor for the purpose of compelling a creditor to compromise, by the hindrance and delay there- by occasioned, is voidable as to all creditors.-**^ § 460. Same ; Intention as to Future Creditors. — A conveyance or transfer by a person who afterwards becomes bankrupt may be avoid- ed by the trustee as a fraud upon creditors whose claims accrued after the conveyance or. transfer, that is, if it was made by the bankrupt with the expectation of iHcurring future debts and with a distinct pur- pose to hinder or defraud those who should subsequently become his creditors.^*^ But this cannot be the case with regard to debts which the bankrupt then did not expect to incur or creditors whose existence he then had no reason to anticipate.^** Questions of this kind, however, rriost frequently arise where a person puts his property in the name of his wife or children, and afterwards incurs debts and becomes bankrupt. Bankr. Rep. 668 ; Johnson v. Barrett (D. In re Mosher (D. C.) 224 Fed. 739, 35 C.) 237 Fed. 112, 38 Am.. Bankr. Rep. 464 ; Am. Bankr. Rep. 284. Boise V. Talcott (C. C. A.) 264 Fed. 61, 45 i" TMany v. Lucas, 15 Wall. 410, 21 Am. Bankr. Rep. 117 ; Jackson v. Jetter, L. Ed. 198. And see Richardson v. Ger- 160 Iowa, 571, 142 N. W. 431 ; Bryant v. mania Bank, 263 Fed. 320, 45 Am. Bankr. Wolf, 94 Misc. Rep. 683, 158 N. Y. Supp. Rep. 351. 678; Kentucky Bank & Trust Co. v. its Darby v. Lucas, 1 Dill. 164, Fed. Pritchett, 44 Okl. 87, 143 Pac. 338. The Cas. No. 3,573; Mercer v. Warfield's law implies a fraudulent intent from Guardian, 1 Ky. Law Rep. 273. a debtor's conveyance with a secret trust I'o Gray v. Brunold, 140 Gal. 615, 74 reserved for his benefit. Devorkin v. Pac. 303. Security Bank & Trust Co., 243 Fed. 171, iso Bohannon v. Clark, 78 S. W. 479, 156 O. C. A. 37, 39 Am. Bankr. Rep. 738. 25 Ky. Law Rep. 1710. A mortgage given by a bankrupt to se- i^i Voorheis v. Blanton, 89 Fed. 885, 32 cure advances to be made to a corpora- 0. C. A. 384. tion of which he was ah officer and stock- i82Greil v. Durr, 203 Ala. 644, 84 holder, and on whose paper he was in- South. 743; Lummis v. Crosby, 176 App. dWser, to be used in carrying out con- Div. 315, 162 N. T. Supp. 444; Calkins v. tracts in which he was vitally interested, Lichtlg, 251 Fed. 844, 164 C. C. A. 60, 42 is not necessarily fraudulent nor prefer- Am. Bankr. Rep. 306. ential. Angle v. Bankers' Surety Co. (D. iss Greil v. Durr, 203 Ala. 644, 84 C.) 210 Fed. 289, 32 Am. Bankr. Rep. 71 ; South. 743. § 461 LAW OF BANKRUPTCY 9'^2 It is clearly held that a person who is free from debt, or at any rate abundantly able to meet such debts as he may have, may convey prop- erty without consideration to his wife or child, by way of settlement, gift, or advancement, and subsequent creditors cannot attack the trans- fer merely on the ground of its beings voluntary. If it was made in good faith and without any fraudulent purpose at the time, it is not voidable though the gr^antor thereafter contracts debts-, becomes in- solvent, -and is thrown into bankruptcy.^** But if a person is engaged in a hazardous business and fears loss, and conveys property to his wife or children as an anchor to protect his family in case of insolvency, or if he takes this course because he is about to embark in new enterprises or speculations and means to secure his property against seizure for the debts which he expects to contract, then the transfer is fraudulent as to those who subsequently become his creditors and will be voidable by his trustee in bankruptcy.-'*® "In order to defeat a settlement made by a husband upon his wife, it must be intended to defraud existing credi- tors, or creditors whose rights are expected shortly to supervene, or creditors whose rights may and do so supervene, the settler proposing to throw the hazards of business in which he is about to engage upon others, instead of honestly holding his meane subject to the chance of those adverse results to which all business enterprises are liable." ^** § 461. Consideration. — A sale, assignment, or mortgage of property by one who is afterwards adjudged a bankrupt is -not voidable at the instance of his trustee if the purchaser or mortgagee took the same in good faith and gave a present consideration fairly proportioned to the value of the property, irrespective of the motive or purpose of the bankrupt."' This rule rests not only upon the explicit provisions of 184 Warren v. Moody, 122 U. S. 132, 7 Caller v. McNabb, Fed. Gas. No. 2,322. Sup. Ct. 1063, 30 L. Ed. 1108; Savage v. Compare In re Poss, 147 Fed. 790, 17 Am. Savage, 141 Fed. 346, 72 C. 0. A. 494, 15 Baukr. Kep. 439. Am. Bankr. Rep. 599; Herring, v. Rich- i«6 Smith v. Vodges, 92 U. S. 183, 23 ards, 1 McCrary, 570, 3 Fed. 4S9; Sedg- L. Ed. 481. wick V. Place, 5 Ben. 184, 5 N. B. R. 168, i87 Watson v. Adams, 242 Fed. 441, Fed. Cas. No. 12,620; Jones v. Clifton, 2 155 C. C. A. 217, 39 Am. Bankr. Rep. Flip. 191, 18 N. B. R. 125, Fed. Cas. No. 478; In re Baar, 213 Fed. 628, 130 O. 0. 7,457; Anonymous 1 Wall. Jr. 107, Fed. A. 292; National Bank of Goldsboro v. Cas, No. 474. HiU (D. 0.) 226 Fed. 102; In re Paul, 260 isBBeasley v. Cogging, 48 Fla. 215, 37 Fed. 114, 171 C. C. A. 150; Phillips v. South. 213, 5 Ann. Cas.' 801; United Carter (D. C.) 266 Fed. 444, 46 Am. States V. Griswold, 7 Sawy. 311, 8 Fed. Bankr. Rep. 33; Lewis v. Julius (D. C.) 556; Barker v. Smith, 2 Woods, 87, 12 212 Fed. 225, 31 Am. Bankr. Rep. 515; N. B. R. 474, Fed. Cas. No. 986; Scott Sullivan v. Myer, 137 Tenn. 412, 193 S. V. Mead, 37 Fed. 865; Sedgwick v. Place, W. 124; Potter v. American Printing & 12 Blatchf. 163, 10 N. B. R. 28, Fed. Oks. Lithographing Co., 182 Iowa, '458, 165 N. No. 12,621; Burdick v. Gill, 2 McOra:ry, W. 1044; Anderson v. J. O. & N. B. Cherl- 4^6, 7 Fed. 66g; Antrim v. Kelly, 4 N. ault, 208 Fed. 400, 125 C. C. A. 616, 31 B. R. 587, Fed. Cas. No. 494; Case v. Am. Bankr. Rep. 349; Vollmer v. Plage, Phelps, 39 N. X. 164, 5 N. B. R. 452; 186 Fed. 598, 26 Am. Bankr. Rep. 590; 973 FRAUDULENT CONVEYANOHS VOIDABLE BY TRUSTEE § 461 the bankruptcy act,^** but is also supported by sound reason, because the net result of such a transaction is not to impair the remedies of creditors nor to diminish the aggregate of the assets upon which they may have recourse for the satisfaction of their claims.^** Even a sale by an insolvent trader of his entire stock in trade, if for its full value, and without any marks of secrecy, haste, or intent to defraud or prefer, cannot be impeached in his subsequent bankruptcy."^®* Although it may be proved or admitted that the transfer was made with intent to de- fraud creditors, yet if it is also established that the purchaser acted in good faith, then the only question for decision is whether the price paid was a present fair consideration.^*^ But the fact of payment and the amount of the consideration must be clearly and fully established by satisfactory evidence."^ The consideration may be cash or solvent credit."* It may consist in the surrender of securities of equal value,"* or real property deeded in exchange for other land,"^ or the assumption of the unpaid balance of purchase money due on the property transferred,"* or the relinquish- ment of a dower interest in the bankrupt's lands, at least to the extent of the value of the dower released."' Marriage may be a good consid- In re McCord (C. C. A.) 174 Fed. 820, 23 Am. Bankr. Rep. 164; Perry v. Avery, 148 Mich. 211, 111 N. W. 746; Schilling V. Curran, 30 JXont. 370, 76 Pae. 998; Eosenfeld v. Siegfried, 91 Mo. App. 169; Mathews v. Hardt, 79 App. Div. 570, 80 N. T. Supp. 462; Friedman V. Verchof- sky, 105 111. App. 414; Piedmont Sav. Bank v. Levy, 138 N. C. 274, 50 S. E. 657, 3 Ann. Gas. 785; In re Pusey, 7 N. B. E. 45, Fed. Gas.. No. 11,478; In re Keefer, 4 N. B. R. 389, Fed. Gas. No. 7,636; Flournoy v. Newton, 8 Ga. 306. Where the bankrupt executed a mortgage to induce the defendant to make advanc- es to a construction company, a misap- plication of the advances by an officer of the company, with the consent of the bankrupt, furnishes no ground to avoid the mortgage. Angle v. Bankers' Surety. Co., 244 Fed. 401, 157 0. G. A. 27, 41 Am. Bankr. Rep. 90. 188 Bankruptcy Act 1898, § 69d, e. 189 For instance, where land purchased with the separate funds of the bank- rupt's wife was conveyed to the bankrupt without the consent of the wife, under a promise that the bankrupt would im- mediately reconvey the land to his wife, who had no knowledge that the convey- ance had not been properly made to her in tile ilrst instance until shortly before the bankrupt in fact reconveyed the land prior to the bankruptcy, it was held that such reconveyance was not fraudulent as against the trustee in bankruptcy. Toung V. Allen, 207 Fed, 318, 125 0. 0. A. 68, 30 Am. Bankr. Rep. 261. 190 In re Strenz (D. C.) 8 Fed. 311. 191 Montgomery v. McNicholas (D. O.) 138 Fed. 956, 15 Am. Bankr. Rep. 93. 192 Greensfelder v. Gorbett,' 1'90 111. 565, 60 N. E. 847. 193 Unmack v, Douglass, 75 Conii. 633, 55 Atl. 12; Grandison v. Robertson, 231 Fed. 785, 145 C. C. A. 605, 36 Am. Bankr. Rep. '452. A mortgage given by one sub- sequently bankrulpt, to induce pers'ons to indorse his note so that he could obtain a loan, is not a preference or fraudulent Conveyance. In re Mosher (D. C.) 224 Fed. 739, 35 Am. Bankr. Rep. 284. 19* Shaffer v. Fritchery, 4 N. B. E. 548, Fed. Gas. No. 12,697; First State Bank V. Sibley Gounty Bank, 96 Minn. 456, 105 N. W. 485, 489; Butterfield v. Woodman, 223 Fed. 956, 139 C. 0. A. 466, 34 Am. Bankr. Rep. 510. See In re Farrand (D. C.) 235 Fed. S09, 38 Am. Bankr. Rep. 101. 19 6 Hoffman v. Chicago Title & Trust Co., 198 111. 452, 64 N. B. 1027. 196 tfnniack v. bouglass, 75 Conn. 633, 55 Atl. 12. See Gray v. Breckheimer, ■ 193 App. Div. 231, 183 N. .Y. Supj)..748. 197 Moore y. Green, 145 Fed'. 472, 76 G. C. A. 242, 16 Am. Bankr. Rep. 648; § 461 I/AW OP BANKRUPTCY 974 eration for a transfer of property, but not where the gift to the wife . consists of house furnishings of large value bought on credit, she having knowledge of the husband's insolvency, and the whole transaction being part of a scheme to defraud his creditors,^"* nor where the woman had a husband living and was therefore incapable of entering into the mar- riage contract with the bankrupt. "^^^ So, past services rendered by a relative in the capacity of a housekeeper, which were given gratuitously at the time and not regarded as the foundation of any indebtedness, cannot support a transfer of property as against the trustee in bank- ruptcy.*"* And in a suit by the trustee to recover the consideration for an annuity purchased by the bankrupt in fraud of creditors, the payments to begin several years later, the execution of the insurance company's executory contract does liot constitute a payment of value which would prevent a termination of the contract and recovery of the consideration.*"^ A mortgage, deed of trust, or other form of security, based solely upon an antecedent debt and without any new consideration, is void- able if given within four months before bankruptcy, because it lacks the saving element of a "present fair consideration," because it operates as a preference, and because it is constructively fraudulent, since it re- moves from the reach of general creditors part of the assets to which they might have had recourse.*"* Where the mortgagor or other lien is given partly to secure an old debt, but partly also in consideration Baldwin v. Kingston (D. C.) 247 Fed. 163, Loan & Trust Co., 122 Fed. 569, 59 C. 40 Am. Bankr. Kep. 641; Greil v. Durr, C. A. 73; Empire State Trust Co. v. 203 Ala. 644, 84 South. 743. Trustees of Wm. F. Fisher & Co., 67 188 Hosmer v. Tiffany, 54 Misc. Rep. N. J. Bq. 602, 60 Atl. 940; Lehrenkrauss 402, 105 N. Y. Supp. 1055. Where the v. Bonnell, 138 App. Div. 493, 122 N. Y. value of property transferred by a bank- Supp. 866; In re Antisdel, 18 N. B. rupt to his wife was not disproportion- K, 289, Fed. Cas. No. 490; Gillespie v. ate to his pecuniary obligation to sup- McKnight, 3 N. B. R. 468, Fed. Cas. No. port her, in a suit by his trustee against 5,435; Wilson v. Mitchell-Woodbury Co., the wife to set aside the conveyance as 214 Mass. 514, 102 N. B. 119; In re Peter- in violation of the Bankruptcy Act,- the sen (D. C.) 252 Fed. 849, 40 Am. Bankr. equitable doctrine that, where the con- Rep. 653. But see Hagar v. Watt (D. sideration for a conveyance is inade- 0.) 232 Fed. 373, 36 Am. Bankr. Rep. 370. quate, the conveyance will be sustained Compare Watson v. Adams, 242 Fed. 441, to the extent of the consideration actual- 155 C. C. A. 217, 39 Am. Bankr. Rep. 473, ]y given, has no application. Baldwin v. holding that there is nothing inherently Kingston, 257 Fed. 554, 168 C. C. A. 538, fraudulent in a bankrupt's recognizing 44 Am. B^kr. Rep. 12. and paying a debt honestly due to his 100 Hosmer v. Tiffany, 115 App. Div. wife, though it is barred by limitations. 303, 100 N. Y. Supp. 797. That a transfer by a failing husband to 200 Bartlett v. Mercer, 8 Ben. 439, Fed. his wife, though absolute in form, was in Gas. No. 1,078. fact a mortgage, does not show that it 201 Smith v. Mutual Life Ins. Co., 178 was fraudulent, where she did not claim Fed. 510, 24 Am. Bankr. Rep. 514.' the value of the property, but only a 202 Morgan V. First Nat. Bank, 145 Fed. lien for a debt. Weld v. McKay, 218 466, 76 C. C. A. 236, 16 Am. Bankr. Rep. Fed. 807, 134 C. C. A. 495, 34 Am. Bankr. 639; William Firth Co. v. South Carolina Rep. 52. 975 FRAUDULENT CONVBYAINCES VOIDABLE BY TRUSTEE § 462 of fresh advances, it will constitute a valid lien to the extent of the new consideration (if otherwise unimpeachable) but no further,'**^ And in- deed, although the consideration may consist wholly of a present loan or advance of money, without including any past debts, still the mort- gage will be sustainable in bankruptcy only to the extent of the money actually advanced, with proper interest, not to the extent of an exag- gerated or fictitious value recited in the notes or mortgage.^** Where the transaction in question is a sale of goods, it will be void- able in bankruptcy if the price paid was so inadequate that it cannot be regarded as a "fair consideration." ^'^ But if the transfer was made in good faith and for a valuable coiisideration, it is not necessary, in order to save it, to show strictly that the price paid was fully equal to the value of the property, provided it was not so inadequate as to amount in itself to an actual fraud on creditors.^"* Or, as otherwise stated, the sale will not be set aside on this ground unless there was such a gross inadequacy of price as would put the purchaser upon inquiry as to the fraudulent intent of the seller in disposing of the goods/*'' or such as would impress him with the conviction that the sale could not have been made in good faith.^*** § 462. Knowledge, Bad Faith, or Participation of Transferee. — A- transfer or incumbrance of property cannot be set aside, although thp party making it is insolvent at the time and is adjudged bankrupt with- in four months, if the person receiving it, in addition to giving a pres- ent fair consideration, is a "purchaser in good faith," ^** even though 203 In re Grocers' Baking Co, (D. C.) subsequent offer of a slightly increased 266 Fed. 900, 46 Am. Bankr. Rep. 150; price. In re Copiag-Lindenhurst Co. (D. City Nat. Bank v. Bi-uee, 109 Fed. 69, 48 O.) 240 Fed. 431, 39 Am. Bankr. Rep. 412. C. C. A. 236, 6 Am. Bankr. Rep. 311; 2 or Dunlop v. Thomas, 28 Wash. 521, Phillips v. Kahn, 96 App. Div. 166, 89 68 Pac. 909. N. Y. Supp. 250; Asbnry Park Building 208 Myers v. Fultz, 124 Iowa, 437, 100 & Loan Ass'n v. Shepherd (N. J. Eq.) N. W. 351. 50 Atl. 65; Bankruptcy Act 1898, § 67d, ao's Greey v. DockendorfE, 231 U. S. 513, as amended by Act Cong. June 25, 1910, 34 Sup. Ct. 166, 58 L. Ed. 339, 31 Am. 36 Stat. 838. Bankr. Rep. 407; Weld v. McKay, 218 204 In re, Sawyer (D. C.) 130 Fed. 384, Fed. 807, 134 C. C. A. 495, 34 Am. Bankr. 12, Am. Bankr. Rep. 269; Jackson v. Rep. 52; Young v. Allen, 207 Fed. 318, Sedgwick (C. C.) 189 Fed. 508, 26 Am. 125 C. C. A. 68, 30 Am. Bankr. Rep. 261; Bankr. Rep. 836. Shelton v. Price (D. C.) 174 Fed. 891, 23 205 Ott V. Doroshow (D. C.) 147 Fed. Am. Bankr. Rep. 431; Chicago Title & 762, 17 Am. Bankr. Rep. 417; Myers v. Trust Co. v. First Nat. Bank, 174 111. JFultz, 124 Iowa, 437, 100 N. W. 351; Cans App. 339; Potter v. American Printing V. Weinstein, 83 App. Div. 358, 82 N. Y. & Lithographing Co., 182 Iowa, 458, 165 Supp. 280. N. W. 1044; Knisely v. People's Sav. 206 Meservey v. Roby, 198 Fed. 844, Bank, 199 Mich. 501, 165 N. W. 673; Cole- 117 O. C. A. 486, 28 Am. Bankr. Rep. 529. man v. Dana, 191 Mo. App. 370, 178 S. A sale by the directors of a bankrupt W. 256; Pratt v. Christie, 95 App. Div, corporation shortly before its bankruptcy 282, 88 N. Y. Supp. 585; Kennedy v. may be held valid, notwithstanding a Pierce's Loan Co., 100 Mo. App. 269, 73 § 462 LAW OF BANKEUPTCT 976 a fraudulent intent on the part of the bankrupt to cheat or obstruct his creditors is fully made out.*" But on the other hand, if the purchaser or incumbrancer acted in collusion with the bankrupt, participated in his fraudulent purpose, or even had a guilty knowledge of it, the sale or lien cannot stand as against the trustee in bankruptcy.*** Knowledge on the part of the purchaser or lienor, such as will defeat the transac- tion, is knowledge that the bankrupt is not acting in' good faith and with an honest purpose but is seeking to gain an advantage for himself by defeating or obstructing his creditors,*** or, as otherwise stated, knowledge that there are equitable claims upon the property in ques- tion such as should prevent the debtor from disposing of it in the way and at the price intended.*** This knowledge may be constructive as well as actual. If there are any circumstances attending the transac- tion sufficient to arouse the suspicions of an ordinarily careful and prudent person, then the purchaser is bound to exercise ordinary dili- gence in' making and pursuing inquiries in order to ascertain whether or not the seller can make a transfer of the property which will not be in violation of the bankruptcy law, and he will be chargeable with any knowledge which such reasonable inquiries would have revealed.*** Thus, a voluntary transfer of all his property by a person in failing or insolvent cbndition is a circumstance so out of the ordinary as to put S. W. 357; Clarke v. Sherman, 128 Iowa, A deed of trust executed to secure a pres- 353, 103 N. W. 982; Bunnell v. Bronson, ent advancement by the beneficiary, with 78 Conn. 679, 63 Atl. 396; Lewis v. First knowledge of the bankrupt's insolvency, Nat Bank, 46 Or. 182, 78 Pac. 990. Com- in order to take up notes held by a press- pare Beecher v. Clark, 12 Blatchf. 256, ing creditor, with knowletlge that fore- 10 N. B. R. 385, Fed. Cas. No. 1,223. closure would result in the reduction of 210 In re Benjamin, 140 Fed. 320, 15 the value of the bankrupt's assets, the Am. Bankr. Bep. 351; Schilling v. Cur- payment of a preferred debt, and failure ran, 30 Mont. 370, 76 Pac. 998. Compare to pay other debts. Is constructively Sherman v. Luckhardt, 67 Kan. 682, 74 fraudulent and invalid under the Bank- Pac. 277; Lehrenkrauss v. Bonnell, 138 ruptcy Act. Dean v. Davis, 212 Fed. App. Div. 493, 122 N. Y. Supp. 866; Clowe 88, 128 C. 0. A. 658, 31 Am. Bankr. Rep. v. Seavey, 208 N. T. 496, 102 N. B. 521; 808. lUoway V. Daly, 65 Pa. Super. Ct. 338. ais Friedman v. Verchofsky, 105 111. 211 McAtee v. Shade (C. O. A.) 185 Fed. App. 414. 442, 26 Am. Bankr. Rep. 151; Bolander 214 in re Moody, 134 Fed. 628, 14 Am. V. Gentry, 36 Cal. 105, 95 Am. Dec. 162, Bankr. Rep. 272; In re Calvi, 185 Fed. 2 N. B. B. 655; Crump v. Chapman, 1 642, 26 Am. Bankr. Rep. 206; McWll- Hughes, 183, 15 N. B. R. 571, Fed. Cas. liams v. Thomas (Tex. Civ. App.) 74 S. No. 3,455. And see Grant v. National W. 596; Gans v. Weinstein, .07 Misc. Bep. Bank of Auburn, 197 Fed. 581, 28 Am. 209, 75 N. Y. Supp. 155; Lumpkin v. Bankr. Rep. 712. Compare Lyon v. Wal- Foley (C. C. A.) 204 Fed. 372, 29 Am. lace, 221 Mass. 351, 108 N. E. 1075. And Bankr. Rep. 673; Lewis v. Julius (D. see Reed v. Chase (Mass.) 130 N. E. 257. C.) 212 Fed. 225, 31 Am. Bankr. Rep. 515; 212 In re Soudan Mfg. Co., 113 Fed. Blake v. Thwing,, 185 111. App. 187. Con- 804, 51 C. C. A. 476, 8 Am. Bankr. Rep. tra, see Chambers v. Continental Trust 45; Houck v. Christy, 152 Fed. 612, 81 Co. (D. O.) 235 Fed. 441, 38 Am. Bankr. 0. C. A. 602, 18 Am. Bankr. Rep. 330. Bep. 78. 977 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 462 the transfetee upon inquiry, though he himself acted in good faith, and if he could have discovered by such inquiry that it was the purpose of the grantor to defraud his creditors and secure the property for him- self and his children, the transfer will be held void.*^® The same rule applies where a bankrupt merchant sells his entire stock of goods. Mere personal good faith on the part of the purchaser is not enough to save the transaction. He should inquire into the transaction to see if a fraud upon creditors is intended, and if he omits to do so, he does not occupy the position of a bona fide purchaser.*^" And mortgaging an entire stock of goods is an act out of the ordinary course of busi- ness, and is evidence of the mortgagor's intention to hinder and delay creditors, and charges the mortgagee with notice that the mortgagor is insolvent.*" But a mortgagee is not to be charged with knowledge of a fraudulent purpose on the part of the dehtor merely because he is aware that a large part of the money borrowed is to be used in pay- ing outstanding unsecured debts,^^* nor merely because he has acted as attorney for the bankrupt.*^* On the other hand, where a mortgagor of chattels is selling off the goods for his own use with the consent of the mortgagee, the latter is not a Jjona fide holder of the mortgage.**** An even stronger case is presented where the person taking the property, or acquiring a lien on it, acted in collusion with the seller or mortgagor, not only knowing of his fraudulent purpose, but joining in the transaction for the purpose of assisting him in carrying it out. Here the sale or lien is voidable at the instance of the trustee in bank- ruptcy, even though it was based upon an honest debt or though the purchaser gave full value.**^ In this connection, an agreement to with- hold the deed or mortgage from the record' is a suspicious circumstance and One which requires explanation. It is not of itself such evidence of a fraudulent purpose as to constitute fraud in law, and so to warrant setting aside the conveyance or mortgage without more, but it is a fact -ivhich constitutes more or less cogent evidence of a want of good 215 Clowe V. Seavey, 208 N. T. 496, 102 261, 79 N. Y. Supp. 413; Pierre Bank- N. E. 521, 4Y L. R. A. (N. S.> 284. ing & Trust Co. v. Winkler, 39 S. D, 454, 210 Bentley v. Young (D. C.) 210 Fed. 165 N. W. 2. 202, 31 Am. Bankr. Kep. 506. 221 Gorham v. Buzzell, 178 Fed. 596, 217 Pierre Banking & Trust Co. v. 24 Am. Bankr. Rep. 440; In re Kyte, Winkler, 39 S. D. 454, 165 N. W. 2. 182 Fed. 166, 25 Am. Bankr. Rep. 337; 218 Van Iderstine v. National Discount In re Pease, 129 Fed. 446, 12 Am. Bankr. Co., 227 U. S. 575, 33 Sup. Ct. 343, 57 L. Rep. 66; E. S. Bonnie & Co. v. Perry's Ed. 652, 29 Am. Bankr. Rep. 478; In re Trustee, 117 Ky. 459, 78 S. W. 208; Par- Soudan Mfg. Co., 113 Fed. 804, 51 C. 0. leer v. Travers, 74 N. J. Eq. 812, 71 Atl. A. 476, 8 Am. Bankr. Rep. 45. 612; Babbitt v. Walbrun, 6 N. B. R. 359, 219 Webb V. Manhelm, 109 App. Div. Fed. Cas. No. 695. And see In re Groez- 63, 95 N. Y. Supp. 1003. inger, 199 Fed. 935, 28 Am. Bankr. R^. 220 gkiiien V. Endelman, 39 Misc. Rep. 732. Blk.Bkb.(3d Ed.)— 62 § 463 LAW OF BANKRUPTCY 9'^^ faith, according to the particular situation of the parties and the intent as indicated by all the facts and circumstances of the case.*^* § 463. Rights and Liabilities of Transferees. — When a sale or in- cumbrance of property is set aside at the instance of the trustee in bankruptcy as fraudulent in fact, the buyer or lienor having taken in bad faith, with knowledge of the circumstances, or having participated in the bankrupt's fraudulent purpose, such transferee is not entitled to retain any portion of the property, or to receive credit for property or money actually advanced, in other words, he loses any consideration which he may have given for the transfer.^** Neither is he entitled to reimbursement for the cost of improvements made on the property or for money advanced to reduce incumbrances.^^* And the fact that the fraudulent vendee of real property, prior to accepting an absolute trans- fer of it from the bankrupt, held a mortgage upon the same property, will not entitle him to a lien thereon.*^^ But if the transferee acted in jgood faith, having no knowledge of the fraudulent design of the bank- rupt and giving value, and it is therefore decided that the transfer is not void in toto, but only voidable to the extent of the excess of the value of the property over the consideration given, then the transferee is entitled to be protected to the extent of the actual pre'sent considera- tion paid or given,^*® and the trustee cannot have the sale or mortgage 222 Rogers V. Page, 140 Fed. 596, 72 C. who compiled with a request of the sell- O. A. 164, 15 Am. Bankr. Rep. 502; Cow- er's president by applying a portion of an V. Burchfield, 180 Fed. 614, 25 Am. the purchase price toward discharging Bankr. Rep. 293; Dean v. Plane, 195 111. personal debts Incurred for the corpora- 495, 63 N. E. 274. . tlon's benefit, cannot be required to make 22 3Feilbach Co. v. Russell, 233 Fed. such payments 'a second time to the cor- 412, 147 C. C. A. 348, 37 Am. Bankr. Rep. poration's trustee in bankruptcy. Dough- 285; In re Friedman. (D. C.) 241 Fed. 603, ty v. Moors, 41 Cal. App. 664, 183 Pac. 39 Am. Bankr. Rep. 777; Rubensteln v. 199. Lottow, 220 Mass. 156, 107 N. E. 718; 22* In re Liller, (D. C.) 253 Fed. 845. Blake v. Thwing, 185 111. App. 187; John- 42 Am. Bankr. Rep. 621; In re Mead, 19 son V. Cohn, .39 Misc. Rep. 189, 79 N. N. B. R. 81, Fed. Cas. No. 9,365. Com- Y. Supp. 139; Rosenbluth v. De Forrest pare Sieg v. Greene, 225 Fed. 955, 141 C. & Hotchkiss Co., 85 Conn. 40, 81 Atl. 955; C. A. 79, Ann. Cas. 1917C, 1006, 35 Am. Holloway v. Brame, 83 Miss. 335, 36 Bankr. Rep. 150; In fe Bradley (C. C.) South. 1; Allen v. French, 180 Mass. 487, 263 Fed. 446, 45 Am. Bankr. Rep. 30. 62 N. E. 987; Jackson v. Sedgwick, 193 225 Rallton v. Chicago Title & Trust Fed. 374; Scammon v. Hobson, 1 Hask. Co., 125 111. App. 617, affirmed 224 111. 406, Fed. Cas. No. 12,434. A creditor to 485, 79 N. E. 600. See Utah Ass'n of whom a bankrupt has granted a prefer- Credit Men v. Jones, 49 Utah, 519, 164 enee cannot surrender part of the prop- Pac. 1029. erty received in partial reduction of the 220 in re Howard, (D. C.) 207 Fed. 402, damages sustained by the estate in bank- 31 Am. Bankr. Rep. 251; Golden & Co. ruptcy. Wilson v. Mitcliell-Woodburj' v. Loving, 42 App. D. C. 489; Payne v. Co., 214 Mass. 514, 102 N. E. 119. But Sehon, Stevenson & Co., 81 W. Va. 128, a purchaser of property of a corporation 94 S. E. 34; Jackson v. Sedgwick, 189 Within four months prior to the adjudi- Fed. 508, 26 Am. Bankr. Rep. 836; In re cation of the corporation in bankruptcy, Chase, 133 Fed. 79, 13 Am. Bankr. Rep. 979 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 464 cancelled and recover the specific property without returning the con- sideration received,^^' or giving bonds to secure the transferee for the amount that is found to be due to him.^** And even though a transfer is set aside as being fraudulent as to the creditors of the grantor, still it may remain good as between the parties to it. Thus, where a deed of land from the bankrupt to his wife is vacated as voluntary and there- fore fraudulent, still the wife is entitled to a homestead allowance out of the proceeds of the property/^® And if the trustee in ba.nkruptcy sues the transferee for the value of the property and recovers a judgment, and the transferee thereupon pays the judgment, he becomes invested with full title to the property itself, in so far as title was vested in the bankrupt or the trustee.*^' It is sometimes impossible for the fraudulent transferee to restore the property to the trustee in the condition in which he received it, as, for instance, in consequence of a loss by fire. In this case, the rule ap- pears to be that the proceeds of insurance on a building which stood on land which had been conveyed to the insured in fraud of the gran- tor's creditors do not take the place of the property destroyed, and the grantor's trustee in bankruptcy may not recover them.**^ Where an assignment of a cause of action constitutes an unlawful preference in bankruptcy, but no steps are taken in the bankruptcy court to set it aside, it is not subject to collateral attack by a defendant in an action of fraud by the assignor to the use of the assignee.''** § 464. Rights of Bona Fide Purchasers. — Although one may have! acquired property under such circumstances that the transfer consti- tuted a fraud upon the creditors of the grantor, and therefore may be unable to hold the property as against the grantor's trustee in bank- 294; Paddock v. Fish, 10 Fed. 125; Clowe As to the right of the grantee or lienor V. Seavey, 74 Misc. Rep. 254, 131 N. Y. to add interest to the amount of his Supp. 817; Weatherwax v. Gorman, 150 valid claims, see Dean v. Plane, 195 111. Mich. 316, 113 N. W. 1105. And see 495, 63 N. E. 274; Senft v. Lewis, 239 Unity Banking & Sav. Co. v. Boyden, 159 Fed. 116, 152 0. C. A. 158, 39 Am. Bankr. Fed. 916, 87 C. C. A. 96, 20 Am. Bankr. Kep. 240. Bep. 264. Where, after the execution of 227 Sharood v. Jordan, 90 Minn. 249, 95 a fraudulent bill of sale of a certain ves- N. W. 1108. sel, the buyer paid various claims 228 Horton v. Bamford, 79 N. J. Eq. which were valid liens thereon, and after 356, 81 Atl. 761. the sale had been adjudged void at the 229 Smith v. Kehr, 2 Dill. 50, Fed. Cas. instance of the seller's trustee in bank- No. 13,071, affirmed in Kehr v. Smith, ruptcy, the buyer voluntarily surren- 20 Wall. 31, 22 L. Ed. 313. dered the vessel to the trustee, it was 230 Thompson v. Toland, 48 Cal. 99. held that the court had no further juris- 231 Trenholm v. Klinker, 108 Miss. 263, diction to require the trustee to reim- 66 South. 738, Ann. Cas. 1917B, 289; Un- burse the buyer to the amount of the derwood v. Winslow, 234 Mass. 550, 125 liens so paid as a condition to decreeing N. E. 631. a delivery to th« trustee. Arnold' v. Eas- 232 Leonard v. Springer, 174 111. App. tin's Trustee, 116 Ky. 686, 76 S. W. 855. 516. § 464 LAW OP BANKEUPTCT 980 ruptcy, yet, until proceedings for its recovery are begun, his title is defeasible only and not absolutely void, and therefore he may in the mean time convey a good and unimpeachable title to a third person, and if the latter took in good faith, gave value, and had no notice of the facts which would invalidate the title of his immediate grantor, the trustee in bankruptcy has no remedy against him.^*^ The trustee may indeed proceed against the fraudulent grantee and recover judgment for the value of the property transferred,^** and if the third purchaser gave a mortgage for part of the price, the trustee in bankruptcy may claim the mortgage and the right to enforce it, as representing the bankrupt's creditors,^*® but in no case should the court decree the set- ting aside of the conveyance from the bankrupt to his immediate grantee, sihce this would have the effect to cloud the title of the innocent hold- gj. 236 Qjj ^Yie same principle, if a fraudulent grantee of property ex- ecutes a mortgage on the same to one who lends his money in good faith, on the credit of the mortgagor's apparent title and without notice of any claims which might' be asserted against that title by the trustee in bankruptcy of the grantor, the rights of such mortgagee must be fully recognized and protected in the bankruptcy proceedings,**'' pro- vided he has recorded his mortgage before the adjudication in bank- ruptcy."** So also, the bankruptcy law does not prevent a creditor of the fraudulent grantee, without notice, from acquiring rights in the property superior to those of the trustee in bankruptcy of the grantor, ' as, by levying an attachment on the property.*** So also, the bona fide purchaser of negotiable paper secured by a mortgage, before maturity and without notice, takes the mortgage, as he does the notes, free from equities arising between the previous parties thereto, and also free from any latent equity existing in a trustee in bankruptcy at the time of the assignment of the notes, of which latent equity there is no 233 Bush V. Export Storage Co., 136 234 Hackney v. First Nat. Bank, 68 Fed. 918, 14 Am. Bankr. Rep. 138; Pad- Neb. 588, 94 N. W. 805, 98 N. W. 412; dock V. Fish, 10 Fed. 125; Jarrell v. Har- Gray v. Breslof (D. C.) 273 Fed. 526. rell, 1 Woods, 476, 7 N. B. R. 400, Fed. 235 Prescott v. GaUucdo, 164 Fed. 618, Cas. No. 7,222; Dennett v. Mitchell, Fed. 21 Am. Bankr. Rep. 229. Gas. No. 3,789; Judson v. Kelty, 5 Ben. 2se Sklllln v. Maibrunn, 176 N. T. 588, 348, 6 N. B. R. 165, Fed. Oas. No. 7,567; 68 N. E. 1124. Coolldge V. Ayers, 76 Vt. 405, 57 Atl. 970; as' Putnam v. Southworth, 197 Mass. Hackney v. First Nat. Bank, 68 Neb. 588, 270, 83 N. E. 887; Brooks v. D'Orville, 94 N. W. 805, 98 N. W. '412; Unmack 7 Ben. 485, Fed. Cas. No. 1,951; Sedg- V. Douglass, 75 Conn. 633, 55 Atl. 12; Un- wick v. Place, 12 Blatchf. 163, 10 N. B. Ion Trust & Savings Bank v. Amery, 72 R. 28, Fed. Cas. No. 12,621; Angle v. Wash. 648, 131 Pac. 199; Watson v. Bankers' Surety Co., 244 Fed. 401, 157 Adams, 242 Fed. 441, 155 0. C. A. 217, C. 0. A. 27, 41 Am. Bankr., Rep. 90. 39 Am. Bankr. Rep. 473; Merrick v. 2S8 putnam v. Southworth, 197 Mass. Pattison, 85 Wash. 240, 147 Pac. 1137; 270, 83 N. E. 887. Gray v. Breslof (D. 0.) 273 Fed. 526. asoJn re Mullen, 101 Fed. 413, 4 Am. Bankr. Rep. 224. 981 FBAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 465 notice actual or constructive.**" And therefore he is entitled to pro- tection and to the benefit of his security, as against the trustee, although his immediate vendor held it under such circumstances of fraud as would have made him liable to an action by the trustee tO set aside the se- curity.**^ But a purchaser from the fraudulent grantee may of course be charge- able with the consequences of the original fraud, if he knew of it. But this must be clearly made out. The mere fact that there was something unusual in the original transaction (as, that it embraced the whole of a stock of goods) may not be enough to charge him with notice.*** But if he had reasonable cause to believe that the transfer was fraudulent, or was aware of suspicious circumstances and omitted to make proper inquiries, he cannot claim to occupy the position of an innocent pur- chaser without notice.*** And although the mere institution of proceed- ings in bankruptcy does not give constructive notice to third persons that they must be on their guard in dealing with property which the bankrupt had previously conveyed or incumbered, because there may be ground to attack such conveyance or incumbrance as fraudulent,*** yet after the trustee in bankruptcy has begun his action to set aside a transfer of property as fraudulent, no third person can acquire a good title to it from the defendant in that action.**^ § 465. Jurisdiction, Form of Action, Parties, and Pleading. — A suit by a trustee in bankruptcy to set aside an alleged fraudulent conveyance by the bankrupt may be maintained either in the court of bankruptcy ' or in any state court which would have had jurisdiction of a similar action by the creditors; for this purpose the jurisdiction of the two courts is concurrent.**^ But when the court of bankruptcy has taken 240 In re Schwarz, 20b Fed. 309, 29 purchaser of mortgaged premises is not Am. Bankr. Rep. 700. This rule is firm- charged with notice of the mortgagor's ly settled so far as the federal courts fraudulent intent as to creditors by his are concerned, by the decision In Car- knowledge of the fact that the mortgage penter v. Longan, 16 Wall. 271, 21 L. was not recorded, that the parties to it Ed. 313, though it must be admitted that were brothers-in-laW, that the mortgagor elsewhere there is considerable conflict was heavily indebted, or that he retained of authority upon the question. See possession of the property after the Clement v. Saratoga Holding Co., 161 mortgage. KimbrOugh v. Aired, 202 Ala. App. Div. 898, 145 N. Y. Supp. 628, hold- 413, 80 South. 617. ing that the purchaser must bring him- 243 Darby v. Lucas, 1 DiU. 164, Fed. self within the definition' of a Dona fide Cas. No. 3,573; In re Moody^ 134 Fed holder under the Bankruptcy Act, and 628, 14 Am. Bankr. Eep. 272. not merely within the definitions of a 244 in re Mullen, 101 Fed. 413, 4 Am. state law on the subject of n€(gotiable Bankr. Rep. 224; Paddock v. Fish, 10 instruments. Fed. 125. 241 Myers v. Hazzard, 4 McCrary, 94, =45 Brewster v. GofC, 164 Fed. 127, 21 50 Fed. 155: Am. Bankr. Rep; 239. 242 Babbitt v. Wklbrun, 1 Dill. 19, 4 246 Johnston v. Forsyth Mercantile N. B. R. 121, Fed. Cas. No. 694. See Co., 127 Fed. 845, 11 Am. Bankr. Rep. Faulkner v. Kaplon, 203 Fed. 114. The 669; Carter v. Hobbs, 92 Fed. 594, 1 Am. § 465 LAW OF BANKRUPTCY 982 jurisdiction, any proceedings in the state court which would interfere with the full exercise of that jurisdiction or with its control of the prop- erty in suit may be restrained.^*' Formerly, a suit of this character might also be brought in a federal circuit court.^** And under the pres- ent statute it appears that a non-resident defendant may be sued in the federal district court of the district where he is domiciled, since juris- diction is given to "any" court of bankruptcy.^** Where an action of this kind has been begun in a United States court by judgment creditors, its jurisdiction to proceed with the case is probably not affected by the filing of a petition, in bankruptcy against the debtor,^^ but it should not take jurisdiction of a creditor's bill when proceedings in bankruptcy have already been commenced.*^"^ Since a trustee's suit to set aside a fraudulent transfer of property is in the nature of a creditor's bill, he may appropriately proceed by a bill in equity, notwithstanding the fact that there may be a remedy at law.^^^ Or, according to the circumstances of the particular case, he may bring an action for money had and received,^®* or trover,^^ or as- sumpsit where the goods transferred have been converted into money. *^ But the claims of the trustee , against an alleged fraudulent transferee or preferred creditor cannot be determined summarily by the court of bankruptcy on motion and rule.^®^ If the trustee, upon his appointment, finds a suit already commenced and in progress in a state court by one or more of the creditors to set aside a fraudulent conveyance by the bankrupt, he may apply to the court of bankruptcy for permission to intervene in such action, and leave will generally be granted if it ap- pears to be for the best interests of the estate.^^' Bankr. Eep. 215. And see Whittington 2 N. B. R. 539, Fed. Cas. No. 6,881; LIs- V. Simmons, 32 Ark. 377. Supra, §§ 410- berger v. Gamett, 1 Hughes, 620, Fed. 414. Cas. No. 8,383; Gnicbtel v. First Nat. 247 Kellogg V. RusseU, 11 Blatchf. 519, Bank, 66 N. J. Eq. 88, 53 Atl. 1041; 11 N. B. R. 121, Fed. Cas. No. 7,666. Thompson v. First Nat. Bank, 84 Miss. 2i8Woolridge v. McKenna, 8 Fed. 54, 36 South. 65. Compare Gray v. 650; Nicholas v. Murray, 5 Sawy. 820, Beck, 6 Fed. 595. And see Frank v. Fed. Cas. No. 10,223. Musliner, 76 App. Div. 616, 78 N. Y. 24 8 Bankruptcy Act 1898, §§ 67e, 70e, Supp. 369; Blake v. Thwing, 185 111. as amended by Act Cong. Feb. 5, 1903, App. 187. 32 Stat. 797. 253 Elmore y. Symonds, 183 Mass. 321, 250 National Bank of the Republic v. 67 N. E. 314. Hobbs, 118 Fed. 626, 9 Am. Bankr. Rep. 2B4Mowry v. Reed, 187 ^slss. 174, 72 190. N. E. 936. 251 Cruchet v. Red River Min. Co., 155 205 Lyon v. Clark, 129 Mich. 381, 88 N. Fed. 486, 18 Am. Bankr. Rep. 814. W. 1046. 2 52 Parker v. Black, 151 Fed. 18, 80 C. 201; Supra, § 403. See In re Green (D. C. A. 484, 18 Am. Bankr. Rep. 15; Wall C.) 207 Fed. 693, 30 Am. Bankr. Eep. 464! V. Cox, 101 Fed. 403, 41 C. C. A. 408, 4 257 in re Riker, 107 Fed. 96, 5 Am. Am. Bankr. Rep. 659; Cox v. Wall, 99 Bankr. Rep. 720; Kimmouth v. Braeu- Fed. 546; Schrenkeisen v. Miller, 9 Ben. tigam (N. J. Bq.) 57 Atl. 1013; Bunch v. 55, Fed. Cas. No. 12,480; In re Hunt, Smith, 116 Tenn. 201, 93 S. W. 80; At- 983 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 465 The bankrupt himself is neither a necessary nor a proper party to a bill in equity by his trustee to set aside an alleged fraudulent convey- ance or transfer.^^* But where several persons are all connected with various fraudulent undertakings for the purpose of preventing the bank- rupt's property from reaching the control of the trustee, although they are not all connected^ with each fraudulent act, but some of them performed one act and some another, all tending to the same result, the trustee may join them all in one suit to obtain possession of the property involved.*^* But in a suit to recover a preferential transfer only those persons who have received some benefit or advantage from it are proper defendants. ''®* As to matters of pleading and practice, the trustee's suit will be governed by the laws and rules of the court where it is brought, and where that is a federal court, the suit is treated as one in equity and will be governed by the rules of pleading and practice in equity, inde- pendently of the state practice.^*^ But in any case, the trustee's bill or complaint must se.t forth specifically all the facts and circumstances necessary to show the nature of the transaction in controversy and its fraudulent character.**^ Thus, as a basis for the suit, the bill must show that there were creditors existing at the time of the transfer which is attacked, or else allege such a fraudulent, intent as would make the transfer or conveyance void as against subsequent creditors ; and it must state the aggregate amount of the claims proved in the bankruptcy proceedings and aver that the assets are not sufficient to satisfy such claims; but it is not necessary to name the unsecured creditors whom kins V. Globe Bank & Trust Co. (Ky.) tile Co., 127 Fed. 845, 11 Am. Bankr. Rep. 124S. W. 879; Tharp v. Tharp's Trustee 669; Comstock v. Tracey, 46 Fed. 162^ (Ky.) 119 S. W. 814. See Davis v. W. .F. Gray v. Brunold, 140 Cal. 615, 74 Pac. Vandiver & Co., 143 Ala. 202, 38 South. 303 ; Crim v. Rice, 232 Fed. 570, 146 C. 850. C. A. 528, 37 Am. Bankr. Rep. 320 ; Kiim- 25 8 Buffington V. Harvey, 95 U. S. 99, brough v. Aired, 202 Ala. 413, 80 South. 24 L. Ed. 381; Benton v. Allen, 2 Fed. 617; Ury v. Van Every, 181 Cal. 604, 188 448; Huntington v. Saunders, 14 Fed. Pac. 985; McKey v. Cochran, 262 111. 907. 376, 104 N. E. 693. A bill by the trustee 25 9 Potts V. Hahn, 32 Fed. 660; Jones of a bankrupt corporation to recover the V. Slauson, 33 Fed. 632 ; Strasburger v. amount paid by the corporation on an ac- Bach, 157 Fed. 918, 19 Am. Bankr. Rep. commodation note in fraud of its cred- 732 ; Norcross v. Nathan, 99 Fed. 414, 3 Itors while insolvent, is Insufficient if it Am. Bankr. Rep. 613 ; Rubenstein v. does not allege that the holder knew of l/ottow, 220 Mass. 156, 107 N. E. 718. the fraud. Gullege v. Woods, 108 Miss. 260 Page V. Moore, 179 Fed. 988, 24 Am. 233, 66 South. 536. If a, trustee, suing to Bankr. Rep. 745. recover property fraudulently transfer- 261 Westall V. Avery, 171 Fed. 626, 96 red, seeks to recover property subse- O. C. A. 428, 22 Am. Bankr. Rep. 673. qii«ntly acquired by the transferee as the 282 Flanders v. Ooleman, 250 U. S. 223, proceeds of the transferred property, the 39 Sup. Ct 472, 63 U Ed; 948, 43 Am. complaint must show the necessary facts. Bankr. Rep. 563; In re Mcintosh, 150 Hane v. Crown & Keystone Co (D. C.) Fed. 546, 80 C. 0. A. 250, 18 Am. Bankr. 223 Fed. 439, ,35 Am. Bankr. Rep. 175. Rep. 169; Johnston v. Forsyth Mercan- § 465 LAW OF BANKEUPTCT 984 the trustee represents nor to specify or degcribe their respective debts.*** The bill must also offer to dp equity. For instance, if the transaction was fraudulent only in part, the defendant being entitled to retain or receive what he gave in the way of a present valid consideration, the trustee must offer in his bill to pay the defendant what may equitably be due to him.*** Such a bill, seeking "to set aside a chattel mortgage and a sale there- under, and also an assignment for the benefit of creditors, as fraudulent against creditors, and to recover the property, is not multifarious, its object being to recover the estate and clear it of incumbrances, and all the acts of the defendants having been done with a common purpose.**® The a,nswer should deny specifically the essential allegations of the bill,*** and may plead any proper defense, but it is not necessarily a defense that the property is already in the possession of the trustee, having been seized by the marshal,**' nor that the bankrupt's discharge was granted notwithstanding opposition to it on the ground of the same alleged fraudulent transaction.*** As to pleading .the statute of limita- tions as a defense, it was formerly held that the trustee" could not main- tain the suit if a similar action by creditors would have been barred by the state statute.**® But since his title is based on the bankruptcy act, and since the operation of that act cannot be in any way affected by state legislation, it is thought that the only applicable statute of limi- tations is that contained in the bankruptcy act itself, to the effect that "suits shall not be brought by or against a trustee of a bankrupt estate subsequent to two years after the estate has been closed." *''* § 466. Burden of Proof and Evidence. — In a suit to set aside an al- leged fraudulent transfer of property, the trustee must assume the bu:^- den of proving the fraud charged by clear and satisfactory evidence.*''^ 2«3 Cartwright v. West, 185 Ala. 41, 64 see Bean v. Brookmire, 1 Dill. 25, 4 N. South. 293 ; Barrett v. Kaigler, 200 Ala. B. R. 196, Fed. Cas. No. 1,168. 404, 76 South. 320; Riggs v. Price, 277 =7i Osley v. Adams (C. C. A.) 268 Fed. Mo. 333, 210 S. W. 420. 114, 46 Am. Bankr. Rep. 40 ; Reed v. 2 8 4 Albert Pick, & Co. v. Natalby, 211 Chase (Mass.) 130 N. E. 257; Angle v. 111. App. 486. Bankers' Surety Co., 244 Fed. 401, 157 26S Piatt V. Preston, 19 N. B. R. 241, C. C. A. 27, 41 Am. Bankr. Rep. 90; Fed. Cas. No. 11,219. And see O'Farrell Johnsto"ne v. Babb, 240 Fed. 668, 153 C. V. Poston, 105 S. C. 30, 89 S. E. 483. C. A. 466, 38 Am. Bankr. Rep. 715 ; In 268 Prestridge v. Wallace, 155 Ala. 540, re Jlosher (D. O.) 224 Fed. 739, 35 Am. 46 South. 970. ,. Bankr. Rep. 284 ; In re Grocers' Baking 2 0'- Kellogg V. Russell, 11 Blatchf. 519, Co. (D. C.) 266 Fed. 900, 46 Am. Bankr. 11 N. B. R. 121, Fed. Cas. No. 7,666. Rep. 150; French v. Cunningham (C. C. 268 Jones V. Milbank, 6 Lans. (N. Y.)73. A.) 261 Fed. 909, 44 Am. Bankr. Rep. 26 9 Jones V. Smith, 38 Fed. 380; Mar- 534; Murray v. Ray, 251 Fed. 866, 164 tin V. Smith, 1 Dill. 85, 4 N. B. R. 274, C. C. A. 82, 42 Am. Bankr. Rep. 315; Fed. Cas. No. 9,164. And see Lehman v. Peterson v. Mettler, 198 Fed. 938, 29 La Forge, 42 Fed. 493. Am. Bankr. Rep. 158 ; Jacobs v. Van 2 70 Bankruptcy Act 1898, § lid. And Sickel, 123 Fed. 340, 10 Am. Bankr. Rep. 985 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 466 A purpose to hinder or defraud creditors, and knowledge thereof on the part of the transferee, cannot be presumed from the bare fact of a con- veyance of property by one who was then insolvent and afterwards becomes bankrupt,*'"' though proof of highly suspicious facts in con- nection with the transfer or in the conduct of the parties may make out a prima facie case of fraud.*'* But the fact alone that a sale is made out of the usual course of business of the debtor is not sufficient to stamp the transaction as fraudulent, though it may be a badge of fraud, depending for its effect on the surrounding facts.*'* In this connec- tion, the trustee is entitled to" avail himself, in like manner as any judgment creditor, of a decree of a state court declaring the transfer or conveyance by the debtor to have been fraudulent and void,*'® and every declaration of the bankrupt in reference to defrauding his credi- tors and acts on his part showing the nature and intent of the fraudu- lent scheme are admissible where a prima facie case of conspiracy is made out.*'* And it may be shown that, eight days after another sale made a month before the sale in question, a secret agreement was en- tered into between the parties whereby the vendor was reinvested with an interest in the property sold.*" But evidence of transactions with others than the transferee in question, proper to be considered in deter- 5X9 ; Benton v. Allen, 2 Fed. 448 ; Joseph V. Eafe, 176 N. T. 611, 68 N. E. 1118; Klein v. Gallin, 141 N. Y. Supp. 831; Smith V. Eldredge, 143 N. Y. Supp. 87; Kanne v. Kanne, 119 Minn. 265, 138 N. W. 25 ; Halbert v. Pranke, 91 Minn. 204, 97 N. W. 976; Sharood v. Jordan, 90 Minn. 249, 95 N. W. 1108; Bailey v. Wood, 211 Mass. 37, 97 N. E. 902, Ann. Cas. 1913A, 950; Eason v. Garrison, 36 Tex. Civ. App. 574, 82 S. W. 800 ; Falls City Tinware Co.'s Trustee v. Levine, 104 S. W. 716, 31 Ky. Law Rep. 1103 ; Cole- man V. Hagey (Mo.) 158 S. W. 829; Horine v. Luria, 49 Pa. Super. Ct. 171 ; Gilmore v. Wall, 31 Okl. 754, 123 Pac. 1060; McCrory v. Donald, 192 Ala. 312, 68 South. 306; McKey v. Cochran, 262 111. 376, 104 N. E. 693; Pinch v. Cecil, 170 N. C. 114, 86 S. E. 991; Holbrook v. International Trust Co., 220 Mass. 150, 107 N. B. 665; Putnam v. United States Trust Co., 223 Mass. 199, 111 N. E. 969 ; Jones v. Shiro, 116 Me. 512, 102 Atl. 76. In a suit by a trustee in bankruptcy to reach property transferred by the ba,nk- rupt to his wife, the mere fact that nei- ther husband nor wife was called by the defense, does not sustain the plaintiff's burden of showing a secret trust. Lyon V. Wallace, 221 Mass. 351, 108 N. E. 1075. 2 72 Webb's Trustee v. Lynchburg Shoe Co., 106 Va. 726, 56 S. E. 581 ; Dutton v. Cloar; 26 Tex. Civ. App. 547, 65 S. W. 70 ; liOve V. Export Storage Co., 143 Fed. 1, 74 C. C. A. 155, 16 Am. Bankr. Rep. 171. Compare Thomas v. Roddy, 122 App. Div. 851, 107 N. Y. Supp. 473. And see Pouche V. Shearer, 172 Fed. 592, 22 Am. Bankr. Rep. 828; Phillips v. HufEaker, 35 Cal. App. 531, 170 Pac. 431. 373 In re Hunt, 2 N. B. R. 539, P'ed. Cas. No. 6,881. In a creditors' suit against the members of an insolvent banking firm, to set aside alleged fraud- ulent transfers of the bank's assets the failure of the defendants to produce the important books of the bank when re- quired, or to account for the same, raises a presumption of fraud of the most dam- aging character. National Bank of Re- public V. Hobbs, 118 Fed. 626, 9 Am. Bankr. Rep. 190. 274 Houck V. Christy, 152 Fed. 612, 81 C. C. A. 602, 18 Am. Bankr. Rep. 330; Babbitt v. Walbrun, 1 Dill. 19, 4 N. B. R. 121, Fed. Cas. No. 694. 275 In re Lesser, 100 Fed. 433, 8 Am. Bankr. Rep. 815. 276 Tyler v. Angevine, 15 Blatchf. 536, Fed. Cas. No. 14,306. 2 7 7, Rosen thai v. Walker, 111 U. S.' 185, 4 Sup. Ct. .382. 28 L. Ed. 395. § 466 LAW OF BANKRUPTCY 986 mining the bankrupt's intention, or as bearing on the question of his insolvency, is not admissible against the transferee without evidence that he had knowledge of such transactions.*'* So, evidence of what the bankrupt said to the defendant some days before, when he borrowed the money of him, as to what he wanted it for, or of statements then made by the bankrupt as to his financial condition, or of the time fixed for repayment, has no bearing on the question whether the defendant knew or had reasonable cause to believe the bankrupt was insolvent when he repaid the loan.*'* And testimony that the bankrupt secreted the money which he received on the sale in question, for the purpose of defrauding his creditors, does not show that the defendant had any knowledge of such fraudulent intent.*** And so, where a bill of sale is attacked as fraudulent, evidence that the bankrupt secreted certain of his property is not admissible except for the purpose of showing what goods were on hand at the date of the bill of sale.*" And generally, the trustee's case must fail where the only witnesses introduced, who were the parties to the transaction attacked, all testify that the transfer was made in good faith and for a fair consideration.*** It is also necessary for the trustee to prove that there were creditors of the bankrupt whose claims were in existence at or before the time of the transaction assailed as fraudulent, or else that he had, at that time, a fraudulent intention as to those who might afterwards become his creditors.*** Likewise the trustee must not only allege but prove that the assets of the estate in bankruptcy are not sufficient to' satisfy the claims against it, and on this point, evidence as to all the claims, whether secured or unsecured, will be admissible.*** It is also incumbent on the trustee to prove, by competent and sat- isfactory evidence, that the bankrupt was insolvent at the time of the transaction in question and tha.t the transferee knew of it or had suffi- cient cause to believe it.**^ The insolvency may be shown by the books 2 78 Doxsee v. Waddick, 122 Iowa, 599, 163, 104 Atl. 561 ; Scales v. Holje, 41 Cal. 98 N. W. 483. App. 733, 183 Pac.'sOS. 2 79 Goodrich v. Wilson, 119 Mass. 429, 2 84Eiggs v. Price, 277 Mo. 333, 210 But see Johnson v. Canfield-Swigart Co., S. W. 420. 292 111. 101, 126 N. E. 608. ass Van Iderstine v. National Discount 280 Schilling v. Curran, 30 Mont. 370, Co., 174 Fed. 518, 98 C. C. A. 300, 23 Am. 76 Pac. 998. Bdnkr. Rep. 345 ; Cans v. Weinstein, 83 2 81 Frank v. Musliner, 76 App. Div. App. Div. 358, 82 N. T. Supp. 280 ; Joseph 616, 78 N. T. Supp. 369. v. Raff, 176 N. T. 611, 68 N. E. 1118 ; 2 82 Entwisle v. Seidt, 155 Fed. 864, 19 Horton v. Bamford, 79 N. J. Eq. 356, 81 Am. Bankr. Rep. 185. Atl. 761 ; Way v. Ruff, 112 Minn. 57, 127 2 83 In re Snodgrass, 209 Fed. 325, 126 N. W. 564, 609; Moran v. Morgan, 252 C. C. A. 251, 31 Am. Bankr. Rep. 601 ; Fed. 719, 1G4 C. O. A. 559, 42 Am. Bankr. Coleman v. Hagey, 252 Mo. 102, 158 S. Rep. 430. Compare Senft v. Lewis, 239 W. 829; Longbottom v. Emery, 261 Pa. Fed. 116, 152 O. C. A. 158, 39 Am. Bankr. Rep. 240. 987 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE § 466 of the baiikrupt, including private memorandum books,^** or by the debtor's schedules in bankruptcy, if filed shortly after the transfer in question,"*'" but not if filed more than a year after the transaction which is alleged to have been fraudulent."** Evidence that a bankrupt, while insolvent, conveyed valuable property to his brother for an inadequate consideration, that by agreement between them the brother withheld the deeds from record, and that the bankrupt afterwards borrowed large sums of money on his representation, that he owned such property, will be sufficient to establish actual fraud and entitle the bankrupt's trustee to recover the property."** Where the transfer attacked is a payment of money, it is not necessary to trace it to the present possession of the defendant."** Where the trustee's contention is that the bankrupt con- spired with several other persons to secure or convert his property, and withdraw it from the reach of the creditors, he' will establish his case by proof that any two of the defendants acted in concert in the fraudu- lent scheme, though he may be imable to prove that all of the defend- ants were parties to the conspiracy."*^ On the other hand, at least When the trustee has made out a prima facie case, the defendant must assume the burden of proving that he was a purchaser for value and in good faith and for a fair considera- tion."*" For this purpose he must be allowed to present all competent evidence bearing -on the question of the good faith of the transaction and the consideration given."*^ And he is not estopped from claiming that the conveyance in question was valid as to him by the fact that 286 In re E. S. Wheeler & Co., 158 Fed. Sturdivant Bank v. Schade, 195 Fed. 188, 603, 85 C. 0. A. 425, 19 Am. Bankr. Rep. 115 C. 0. A. 140, 27 Am. Bankr. Rep. 673 ; 641. • Harper v. Sanderson (D. O.) 264 Fed. 2 87 Saxton V. Sebring, 96 App. Div. 857, 45 Am. Bankr. Rep. 579; In re 570, 89 N. Y. Supp. 372. Musica (D. O.) 263 Fed. 156, 44 Am. 2 88Barr v: Sofranski, 130 App. Div. Bankr. Rep. 628; Winslow v. Staab (D. 783, 115 N. Y. Supp. 533. . C.) 233 Fed. 305, 36 Am. Bankr. Rep. 289 Peterson v. Mettler, 198 Fed. 938, 626; Bentley v. Young (D. C.) 210 Fed. 29 Am. Bankr. Rep. 158. ' 202, 31 Am. Bankr. Rep. 506 ; Pope v. 2 00 Smith V. Mutual Life Ins. Co. (C. Cantwell (D. C.) 206 Fed. 908, 30 Am. C.) 178 Fed. 510, 24 Am. Bankr. Rep. 514. Bankr. Rep. 802 ; Lawrence v. Lowrie 2 01 McGill V. Commercial Credit Co. (D. C.) 133 Fed. 995, 13 Am. Bankr. Rep. (D. C.) 243 Fed. 637, 39 Am. Bankr. Rep. 297 ; Garland v. Arrowood, 177 N. C. 702 ; Gregory v. Binghamton Trust Co., 371, 99 S. E. 100 ; McNamara v. Farns- 168 App. Div. 805, 154 N. T. Supp. 376 ; worth, 106 Wash. 523, 180 Pac. 466 ; Saxton V. Sebring, 96 App. Div. 570, 89 Abele v. Beacon Trust Co., 228 Mass. 438, N. Y. Supp. 372. 117 N. E. 833; Eberline v. Prager, 209 2 02 Owens v. Daniel, 230 Fed. 101, 144 Mich. 322, 176 N. W. 428; Lockhart v. C. 0. A. 399, 36 Am. Bankr. Rep.. 433 ; Edge, 40 S. D. 307, 167 N. W. 164 ; Wick Klinger v. Hyman, 223 Fed. 257, 138 C. v. Hickey (Iowa) 103 N. W. 469. C. A. 499, 34 Am. Biankr. Rep. 338; 293 Joseph v. Raff, 176 N. Y. 611, 68 N. Harvey v. Stowe, 219 Fed. 17, 134 C. C. E. 1118 ; Hunt v. Doyal, 128 Ga. 416, 57 A. 635 ; Rison v. Parham, 219 Fed. 176, S. E. 489. The bona fide character of a 134 C. C. A. 550, 33 Am. Bankr. Rep. 571 ; conveyance by a failing husband to his Stroecker v. Patterson, 220 Fed. 21, 135 wife may be established by the uncor- O. C. A. 597, 34 Am. Bankr. Rep. 287; roborated, but uncontradicted, testimony § 467 LAW OF BANKETJPTCT 988 the adjudication in bankruptcy was based upon an allegation that it was a fraudulent conveyance and an act of bankruptcy,*®* nor by the fact that the same transaction was specified as a ground of opposition to the bankrupt's application for discharge.*®^ The question whether or not the conveyance or transfer drawn in question was fraudulent is a question of fact,*"®, which must go to the jury.**'' § 467. Nature and Extent of Trustee's Recovery. — In the case of a fraudulent conveyance of real property, vacated at the suit of the trustee in bankruptcy, the plaintiff is entitled to a decree declaring and establishing the title as vested in him,*** or requiring the defendant to execute the necessary deed.*** In the case of a fraudulent transfer of a note and mortgage, the trustee is entitled to an order requiring that they shall be assigned to him.^"' If the property transferred was a cer- tificate of corporate stock, and it still remains in the hands of the defend- ant, he may be required to surrender the certificate itself to the trustee in bankruptcy and to account for dividends received.**^ If the property in controversy consisted of chattels, they are to be delivered in specie to the trustee.*'* And generally, if it is in the power of the fraudulent transferee to restore the status quo by delivering to the trustee the iden- tical property which he received from the bankrupt, this is the relief which the trustee must seek and obtain, and he cannot abandon the pursuit of the property itself and simply have a judgment in personam for its value against the defendant.^** In the case of a fraudulent pay- ment of money, however, the natural and only appropriate judgment is one against the transferee personally for the sum shown to have been received by him.*** Where the transfer assailed consisted in the assign- o£ the husband or wife. Weld v. McKay, 336, 125 N. T. Supp. 1087. See in re 218 Fed. 807, 134 O. O. A. 495, 34 Am. Kessler & Co., 174 Fed. 906, 23 Am. Bankr. Rep. 52. Bankr. Rep. 391. 29* In re Marter, 12 N. B. R. 185, Fed. 302 Edwards v. Schillinger Bros. Co., Gas. No. 9,143. 153 111. App. 219. 290 Bradley v. Hunter, 50 Ala. 265. aos Phillips v. Sedgwick, 95 V. S. 3, 24 290 Bailey v. Wood, 211 Mass. 37, 97 L. Ed. 591; Wasey v. Holbrook, 141 App. N. E. 902, Ann. Cas. 1913A, 950 ; Webb's Div. 336, 125 N. Y. Supp. 1087 ; Off v. Trustee v. Lynchburg Shoe Co., 107 Va. Hakes, 142 Fed. 364, 73 C. C. A. 464, 15 807, 60 S. E. 130. Am. Bankr. Rep. 696. But if the sur- 297 Ooolidge V. Ayers, 76 Vt. 405, 57 render of certificates of corporate stock Atl. 970; Button v. Oloar, 26 Tex. Civ. (the property fraudulently transferred) App. 547, 65 S. W. 70; Sherman v. Luck- would offer insufficient relief because of hardt, 96 Mo. App. 320, 70 S. W. 388. their depreciation in value, the court may 298 Currie v. Look, 14 N. D. 482, 106 render a personal judgment against the N. W. 131. And see Bergin v, Blackwood, transferee. Wasey v. Holbrook, 65 Misc. 145 Minn. 363, 177 N. W. 493: Rep. 84, 120 N. T. Supp. 675. And see 290 McFarland v. Goodman, 6 Biss. Ill, Gill v. Ely-Norris Safe Co., 170 Mo. 11 N. B. R. 134, Fed. Cas. No. 8,789. App. 478, 156 S. W. 811. sop Clarke v. Sherman, 128 Iowa, 3!5.3, 804 Andreas' Assignee v. Rust, 3 Ky. 103 N. W. 982. Law Rep. 772 ; Greenhall v. Carnegie 301 Wasey v. Holbrook, 141 App. Div. Trust Co. (D. C.) 180 Fed. 812, 25 Am. 989 FRAUDULENT CONVEYANCES VOIDABLE BY TRUSTEE §467 ment of a judgment, the collection of the judgment should not he en- joined, but the court should direct payment to be made to the trustee in bankruptcy.'*® But if the property has passed into the possession of a bona fide holder for value, taking by .assignment or transfer from the original fraudulent transferee without notice, so that it can no longer be re- claimed or recovered by the trustee in bankruptcy, theii the appro- priate relief of the latter is a judgment for damages against the fraudu- lent grantee, measured by the value of the property, '*" and including, in the case of real estate, the rents and profits which he received or should have received from it while in his hands.'"" The value of the property, for the purpose of the trustee's recovery, is not measured by the price the fraudulent transferee paid for it,"* nor necessarily by its estimated value at the time of the transfer, but rather by the price for which he sold it to the present holder.'*® In this sense and to this extent, he may be held to account for any profit he made out of the property.'^* Thus, for instance, where a new corporation, organized to succeed the bank- rupt, took the latter's assets under a lease which was void for fraud as against creditors, and operated the bankrupt's property for a consider- able period, the corporation is not to be considered as a mere trespass- Bankr. Rep. 300 ; Smith v- Mutual Life Ins. Co.' (C. C.) 158 Fed. 365, 19 Am. Bankr. Rep. 707. The trustee's recovery should be limited to the amount by which the assets of the estate have been de- pleted by the transaction complained of. Continental & Commercial Trust & Sav. Bank v. Breen & Kennedy, 188 111. App. 467. But chattel mortgagees who had wrongfully foreclosed cannot complain because the mortgagor's trustee in bank- ruptcy recovers a judgment for the value of the property which exceeds the claims filed in the court of bankruptcy, especial- ly if the judgment provides that any sur- plus left after administering the bank- rupt's estate shall be returned to the mortgagees. Simpson v. Combes, 107 Wash. 575, 182 Pac. 566. 3 05 Barnard v. Davis,, 54 Ala. 565. 308 Skillin v. Maibrunn, 176 N. Y. 588, 68 N. E. 1124 ; Pf eiffer v. Roe, 108 App. Div. 54, 95 N. Y. Supp. 1014; Gray v. Brunold, 140 Cal. 615, 74 Pac. 303. 307 Gray v. Chase, 184 Mass. 444, 68 N. E. 676. 3 08 In re Denson (D. C.) 195 Fed. 854, 28 Am. Bankr. Rep. 158. In a suit to re- cover property sold Under execution within four months before bankruptcy, or its value, the value at the time of the execution sale should be adopted as the basis for the decree. Dreyer v. Kick- lighter (D. C.) 228 Fed. 744, 36 An: Bankr. Rep. 199. ' Where the bankrupt spent his money In making improve- ments on the land of another, with the latter's consent, knowing that he ~ did not retain sufficient property to satisfy his creditors, the lien of the trustee in bankruptcy on the land is merely for the increased value by reason of such im- provements, and not for the amount ac- tually expended. Garland v. Arrowood, 179 N. C. 697, 103 S. E. 2. Where a cor- poration never received any considera- tion for a note given to one of its di- rectors, he is liable to the company's trustee in bankruptcy for the amount he has received on account of the note, with interest. Schmid v. Neuberger, 174 App. Div. 670, 160 N. Y. Supp. 701. 3 Russell V. Powell, 38 Wash. 651, 80 Pac. 837. sioShuman v. Fleckenstein, 4 Sawy. 174, 15 N. B. R. 224, Fed. Cas. No. 12,826. See Dunlop v. Thomas, 28 Wash. 521, 68 Pac. 909. § 467 LAW OF BANKEUPTCT 990 er, but is liable in an accounting for its acts vinder the lease for the net profits earned after allowance of expenditures other than taxes.*** In the case of a joint purchase, fraudulent and voidable under the bankruptcy act, each purchaser is liable for the full value of the prop- erty, although they were interested in different proportions.*** But where the actual purchaser was only acting as agent for another, and surrendered the property to his principal, it would be error to make an order requiring the agent to turn over the property to the trustee.*** So where the fraudulent transaction 'consisted of a sale of the bankrupt's property and application of the proceeds to the discharge of an unre- corded chattel mortgage, and the trustee's action is to set aside the sale, the court should not adjudge that the mortgage be canceled, the mort- gagee not being a party to the suit, and the mortgage not being void to the extent that it evidenced a debt, though not a lien against subse- quent creditors.*** It should also be rernarked in this connection that, as against the trustee in bankruptcy, the wife of the bankrupt is not barred or estopped to claim dower by reason of her having joined her husband in a deed which is fraudulent as to creditors, and which has for that reason been set aside at the instance of the trustee. When the deed is decreed to be fraudulent and void at the suit of the trustee, he cannot set it up to defeat the right of the wife to dower. "Such a po- sition involves this inconsistency, viz., that it asks that the same instru- ment be held void as to creditors, and then, in their favor, held valid as to the wife." **^ ' § 468. Rights of Creditors in Property or Fund Recovered. — It is well settled that when the trustee in bankruptcy procures a fraudulent conveyance or transfer of property of the bankrupt to be set aside, and the property subjected to the payment of the provable debts in bank- ruptcy, this will inure to the benefit of all the creditors of the bank- rupt having provable claims, including those whose claims accrued subsequent to the transfer, and not merely to the advantage of those who, as existing creditors, or holding judgment, would have been entitled to attack the conveyance at the time it was made.*** Thus, a fraudu- 311 In re Medina Quarry Co., 179 Fed. Smith, 20 Wall. 31, 22 L. Ed. 313; Piatt 929, 24 Am. Bankr. Rep. 769. v. Mead, 9 Fed. 91 ; In re Lcfwe, 19 Fed. 812 Schulenburg v. Kabureck, 2 Dill. 5S9 ; Smith v. Kehr. 2 Dill. 50, 7 N. B. 132, Fed. Cas. No. 12,487. R. 97, Fed. Cas. No. 13,071 ; Pratt v. 813 In re Denson, 195 Fed. 854, 28 Am. Curtis, 2 Low. 87, 6 N. B. R. 139, Fed. Bankr. Rep. 158. Cas. No. 11,375; White v. Jones, 6 N. S14 E. S. Bonnie & Co. v. Perry's Trus- B. R. 175, Fed. Cas. No. 17,550; Trese- tee, 117 Ky. 459, 78 S. W. 208. der v. Burgor, 130 Wis. 201, 109 N. W. 315 Cox V. Wilder, 2 Dill. 45, 7 N. B. R. 957; Maffi v. Stephens, 49 Tex. Civ. App. 241, Fed. Cas. No. 3,308. 354, 108 S. W. 1008. See, also. In re 818 Globe Bank & Trust Co. v. Martin, Martin, 193 Fed. 841, 113 C. C. A. 627, 27 236 U. S. 289, 35 Sup. Ct. 377, 59 L. Ed. Am. Bankr. Rep. 545; Boyd v. Arnold, 583, 34 Am. Bankr. Rep. 162; Kehr v. 103 Ark. 105, 146 S. W. 118; Allen v. 091 FRAUDULENT CONVEYANCES VOIDABLE By TRUSTEE § 468 lent conveyance being gfood as between the parties to it, a judgment thereafter recovered does not attach as a lien on the property, and when it is vacated at the suit of the trustee, there is no superior equity, or right to prior satisfaction, in a creditor who holds a jvidgment.*^' So, a creditor's bill instituted subsequent to an adjudication in bankruptcy against the debtor, to set aside a chattel mortgage and a sale of a stock of merchandise, does not give rise to a lien in favor of the creditor filing the same on the goods sought to be reached.'** McMannes, 156 Fed. 615, 19 Am. Bankr. si'Neal v. Foster, 36 Fedi 29; Wood Rep. 276; Shaver v. Mowry, 262 Pa. v. Wright, 9 Biss. 365, 4 Fed. 511. See 381, 105 Atl. 505 ; Riggs v. Price, 27T Pool v. Ragland, 57 Ala. 414. Mo. 333, 210 S. W. 420. sis Moore-Schafer Shoe Mfg. Co. v. Billings, 46 Or. 401, 80 Pac. 422. § 469 LAW OP BANKRUPTCT 992 CHAPTER XXIV SALES OF PROPERTY BY TRUSTEES Sec. 469. Authority of Trustees and Orders of Court. 470. Sale of Incumbered Property. 471. Sale Free of Incumbrances. 472. What Interests Not Divested. 473. Sale of Perishable Property. 474. Land in Another District or State. 475. Notice. 476. Manner and Conduct of Sale. 477. Terms of Sale. 478. Who May Purchase. 479. Rights and Liabilities of Purchasers. 480. Nature and Extent of Title Conveyed. 481. Approval or Confirmation of Sale. 482. Payment or Recovery of Purchase Money, 483. Conveyance and Delivery. 484. Application of Proceeds. 485. Vacating and Setting Aside Sale. 486. Collateral Impeachment of Sale. § 469. Authority of Trustees and Orders of Court. — Before the ap- pointment of a trustee in bankruptcy, the court has authority to order the sale of particular assets of the bankrupt if special circumstances render it necessary or desirable.^ But when a trustee is appointed he becomes invested by operation of law with title to all the non-exempt property of the bankrupt and is charged with the duty of reducing the same to money. This applies to all property in the possession of the bankrupt when the proceedings were instituted.* Property salable by the trustee may thus include such diverse items as, for instance, a min- ing lease,* the equity or right of redemption in property of the bankrupt which has been sold on foreclosure,* and a right of action against a rail- road for damages to property in transit.^ Where a promissory note be- comes the property of an estate in bankruptcy, it is said that title there- to cannot be passed in any other way than by a sale in bankruptcy.® The personal medical and surgical practice and good will of a bankrupt as a physician are not subject to sale by his trustee, although his proper- 1 In re Hitchings, 4 N. B. R. 384, Fed. Co. (D. O.) 265 Fed. 385, 44 Am. Bankr. Cas. No. 6,542 ; In re Vila, Fed. Oas. No. Rep. 170. 16,941. And see supra, § 217 4 in re Ohio Copper Mining Co. (D. C.) 2 In re Union Trust Co., 122 Fed. 937, 037 ped. 490, 38 Am. Bankr. Rep. 548. 59 C. C. A. 461, 9 Am. Bankr. Rep. 767 ; ^ ' ^ Olitsky V. Estersohn, 90 N. J. Eq. 459, " Southern Ry. Co. v. Avey, 173 Ky. 108 Atl. 88 ; Gee v. Parks (Tex. Civ. ^^^' 1^1 S, W. 460. App.) 193 S. W. 767. « Segen v. Fabacher, 136 La. 568, 67 8 In re Earnhardt Coal & Limestone South. 369. ' 993 SALES OF PKOPERTY BY TRUSTEES § 469 ty interest in a practice and good will purchased from another may be so sold.' As it is- the duty of the trustee to sell every right, title, interest, or claim of the bankrupt to which he can give a title, and for which he can find a purchaser, it is held that property conveyed in fraud of creditors more than four months prior to the filing of the petition in bankruptcy may be sold by the trustee, and the purchaser will take such title as the trustee may have had, together with the right to institute an action in his own name to set aside the fraudulent conveyance.* But this does not apply to the right to recover property transferred by the bankrupt as a preference, since it is the clear intention of the Bankruptcy Act that no one but the trustee can maintain such an action.® The trustee, how- ever, may and should sell even contingent, uncertain, or litigated claims, if any one will pay a substantial price for them.*^" If he fails or refuses to sell available assets for the benefit of the creditors, he may be held personally responsible.^^ But the power of the trustee to sell and con- vey the bankrupt's estate is wholly statutory, and a sale otherwise than as the statute directs will not be valid, ^^ If the sale is to be private in- stead of public, or if the property is incumbered with valid liens, the trustee must have an order of the court to authorize it, and if he proceeds without such an order, the sale is a nullity.^^ But except in these cases, he may and should proceed on his own responsibility, and no spe- cial order of court is necessary to enable him to give a good title. ^* Gen- eral directions as to the conduct of bankruptcy sales are given in, the statute and the general orders,^^ and the particular court of bankruptcy may make a standing rule or order prescribing when and how such sales are to be held, and in ordinary cases, the trustee needs no further or spe- cific authority or direction." It is otherwise, however, when the trus- tee has never gained possession of the property in question and the title is in litigation. If such property can be sold at all, it may only be done 7 In re Myers, 208 Fed. 407, 125 C. C. 12 Wisner v. Brown, 50 Mich. 553, 15 A. 569, 31 Am. Bankr. Bep. 24. N. W. 901. 8 In re Downing, 201 Fed. 93, 119 C. ^^ In re Eden Musee American Co. (D. O. A. 431, 29 Am. Banlir. Rep. 228 ; O:) 230 Fed. 925, 36 Am. Bahkr. Rep. 111. Strong V. Durdle, 94 Wasli. 157, 162 Pac. 1* In rfe La France Copper Co. (D. C.) 6. Contra, Neuberger v. Felis, 203 Ala. 205 Fed. 207, 30 Am. Bankr. Rep. 381 ; 142, 82 South. 172. Olitsky v. Bstersohn, 90 N. J. Bq. 459, o'lovbU v. Latham & Co. (D. C.) 211 ^^^ ^"- ^8; Hallyburton v. Slagle, 130 Fed. 374, 32 Am. Bankr. Rep. 191. ^^ C- 482, 41 S. E. 877; In re White, 2 .-r ^ .. /T^ ^^ io» T^ ., ^«o Ben. 85, Fed. Cas. No. 17,531; Curdy v. 10 In re Gutterson (U C.) 136 Fed 698, g^^^^^^ gg ^^^ ^^^ 3^ ' ^ gg^ 14 Am. Bankr. Eep^ 495. And see In re ,, Bankruptcy Act 1898, § 70b ; Gen- Crouse (D. C.) 196 Fed. 907, 28 Am. eral Order No. 18. Bankr. Rep. 540. is Farmers' Loan & Trust Co. v. Bno, 11 In re Jackson, 2 N. B. R. 508, Fed. 35 Fed. 89 ; In re La France Copper Co., Cas. No. 7,127. 205 Fed. 207, 30 Am. Bankr. Rep. 381. Ei.k.Bke.(3d Ed.)— 63 § 469 LAW OF BANKRUPTCY 99-4 under an order of the court of bankruptcy, made on the trustee's peti- tion and after notice to the parties claiming adversely.^' If, for any reason, a special order of the court is sought and obtained for the sale, it should fix the time and place of the sale. It would be ir- regular and void for omitting these details,^* but not because it does not fix an upset price for the property.-'* An order of this kind is adminis- trative rather than judicial; it is not to be relied on as an adjudication that the property in question belonged to the bankrupt.^* For the pur- pose of making such an order, the referee is the court and may exercise its full powers,*^ and the trustee's petition for authority to sell should be filed with the referee and not with the clerk of the court.** In the case of joint trustees, all should join in the petition. But in a case where the creditors irregularly elected two trustees instead of three, and the two so chosen presented a petition for authority to sell assets, and aft- erwards the creditors appointed a third trustee, it was held that the ir- regularity was cured by his joining in the petition.** The pendency of composition proceedings may prevent a sale of the bankrupt's assets, if all 17 See Shaw v. Lindsey, 60 Ala. 344; In re Ludwigson, 3 Woods, 13, Fed. Gas. No. 8,601 ; Knight v. Cheney, 5 N. B. R. 305, Fed. Cas. No. 7,883; Stanley v. Sutherland, 54 Ind. 339. A sale. by the trustee of property of the bankrupt which has never come into his posses- sion, but Is in the possession of another claiming a lien thereon, though confirm- ed by the bankruptcy court, does not vest in the buyer the title and right to im- mediate possession necessary to main- tain trover. American Bottle Co. v. Fin- ney, 203 Ala. 92, 82 South. 106. 18 Osbora v. Baxter, 4 Cush. (Mass.) 406. 19 Schuler v. Hassiuger, 177 Fed. 119, 100 C. C. A. 539, 24 Am. Bankr. Rep. 184. Instead of directly ordering a sale, the court may direct the trustee to re- ceive bids and submit them to the court with recommendations. In re Glas-Sh^pt Dairy Co., 2.39 Fed. 122, 152 C^. A. 164, 38 Am. Bankr. Rep. 554. 20 Wilkins v. Tourtellott, 28 Kan. 825. But a sale of personal property by a trustee in bankruptcy, acting under an order of sale issued by the court, is a "judicial sale." Carney v. Averill, 110 Me. 172, 85 Atl. 494; American Bottle Co. v. Finney, 203 Ala. 92, 82 South. 106. In a proceeding by a trustee for an order authorizing the sale of real estate in his possession, the court of bankruptcy is without jurisdiction to cite into court a upon the validity of his mortgage, with- out his consent and over his objection. In re Henderson (D. C.) 206 Fed. 139, 30 Am. Bankr. Rep. 468. But an adverse claimant of property, which is also claimed by the trustee in bankruptcy, has no standing to object to an order di- recting the trustee to sell his "right, ti- tle, and Interest" in the property. In re Vanoscope Co., 244 Fed. 445, 157 C. C. A. 71, 40 Am. Bankr. Rep. 70. 21 In re Sanborn, 96 Fed. 551, 3 Am. Bankr. Rep. 54; In re Bank of North Carolina, 19 N. B. R. 164, Fed. Cas. No. 896; In re Styer, 98 Fed. 290, 3 Am. Bankr. Rep. 424. But it is said (in the case last cited) that if the property is in the hands of a receiver at the time of the adjudication in bankruptcy, an order for its appraisement and sale can be made only by the judge sitting as the court of bankruptcy. An order for the sale of property of a bankrupt is none the less an order of court because signed by the judge. There is no prac- tical distinction in a court of bankruptcy between an order of the judge and an order of the court, because the court in bankruptcy is always open, and when- ever the judge acts, wherever he may be, the act is the act of the court. In re Mott, 6 Fed, 685. 2= In re William F. Fisher & Co., 135 Fed. 223, 14 Am. Bankr. Rep. 366. = 3 In re William F. Fisher & Co., 135 Fed. 223, 14 Am. Bankr. Rep. 366. 995 SALES OF PEOPERTY BY TRUSTEES § 470 nas been done that is necessary to make the composition effective.** But on the other hand, the sale is not void merely because it does not follow immediately after the order authorizing it, nor even because so long a period as six years is allowed to elapse.*" But when the trustee once sells particular property at public auction, he divests himself of all title to it, and an attempted second sale, thereafter is entirely void.*® It remains to be added that where the bankrupt's assets include a stock of liquors, the trustee may sell them in bulk without being obliged to take out a license or pay a tax under either state or federal laws.*'' § 470. Sale of Incumbered Property. — Where the real estate of a bankrupt is incumbered by valid liens, the trustee may sell it either sub- ject to the incumbrances or absolutely and free therefrom. But in the latter case, he must, before selling, obtain from the bankruptcy court an order for that purpose ; and if he sells the property without such or- der, he can only sell it subject to the incumbrances, and the purchaser will take no better title than the bankrupt had ; that is, he will take only the bankrupt's equity of redemption, or take the property subject to the liens.** And Where property is thus sold subject to liens, by order of the court of bankruptcy, it passes out of its jurisdiction, and the state courts may then proceed to enforce the liens,** and by ordering and con- firming a sale under a mortgage, the bankruptcy court exhausts its ju- risdiction, so as to invalidate a subsequent sale under a purported ven- dor's lien.^" If the trustee obtains an order for the sale of the property, but the order does not mention liens, it will be construed as only au- thorizing a sale subject to existing valid liens. ^^ But the trustee may pe- tition for and obtain an order directing the sale to be made subject to a 2 4 In re ^¥illiam F. Fisher & Co., 135 Rep. 529; In re States Printing Co., 241 Fed. 223, 14 Am. Bankr. Kep. 366. Fed. 245, 154 C. C. A. 165, 38 Am. Bankr. 2 5 Potter V. Martin, 122 Mich. 542, 81 Rep. 722; Charak v. Durphee (D. C.) N. W. 424. 252 Fed. 885, 42 Am. Bankr. Rep. 110 ; 2 6 Townshend v. Thomson, 60 N. T. Kelly v. Minor, 252 Fed. 115, 164 O. C. Super. Ct. 454, 18 N. Y. Supp. 870. A. 227, 41 Am. Bankr. Rep. 275 ; In re 27 In re Becker, 2 Nat. Bankr. News, Cutler & John (D. C.) 228 Fed. 771, 36 225. And see Wildermuth v. Cole, 77 Am. Bankr. Rep. 420. One buying prop- Mich. 483, 43 N. W. 889 ; State v. John- erty at a bankruptcy sale, subject to the son, 33 N. H. 441 ; Gignous v. Bilbruck, lien of a mortgage thereon, does not 63 N. EC. 22 ; Williams v. Troop, 17 Wis. thereby assume payment of the mortgage 463. debt, but he becomes the owner of the 28 See V. Rogers, 31 W. Va. 473, 7 S. property subject to the incumbrance. E. 436; Ray v. Norseworthy, 23 Wall. Kerman v. Leeper (Mo. App.) 157 S. W. 238, 23 li. Ed. 116 ; In re Mebane, 3 N. 984. B. R. 347, Fed. Cas. No. 9,380; In re 29 Beall v. Walker, 26 W. Va. 741. Addison, 3 Hughes, 430, Fed. Cas. No. s" J. M. West Lumber Co. v. Lyon, 53 76 ; Boulware v. Hartsook's Adm'r, 83 Tex. Civ. App. 648, 116 S. W. 652. Va. 679, 3 S. E. 289; King v. Bowman, si in re Platteville Foundry & Ma- 24 La. Ann. 506 ; In re McClellan, 1 N. chine Co., 147 Fed. 828, 17 Am. Bankr. B. R. 389, Fed. Cas. No. 8,694 ; In re Rep. 291 ; Ex parte City of Anderson, 82 Stewart, 193 Fed. 791, 27 Am. Bankr. S. C. 131, 63 S. E. 534. § 470 LAW OF BANKRUPTCY 996 certain specified lien or incumbrance,** or, vice versa, to be made free from a specified lien. In either case, the sale will not divest a superior lien not mentioned in the order and the holder of which was not made a party to the proceeding.** But if there is a direction to sell free from first or superior liens, the fact that inferior liens are not mentioned will not prevent their being divested in accordance with the ordinary rule governing judicial sales.'* Where other courts have taken full jurisdiction of property on which liens are asserted, the court of bankruptcy will not ordinarily interfere.*' And where it is reasonably certain that the market value of the property does not exceed the amount of the valid liens upon it, it is not the duty of the trustee to petition for its sale, nor is it a proper exercise of the court's discretion to order it sold.** For such a course would result in no bene- fit to the general creditors, and would amount merely to putting through a sale for the benefit of the lien-holder, saving him the cost of foreclosure and making the expense fall unjustifiably upon the general estate.*' In such a case, it is entirely proper for the court to order the surrender of the property to the lien creditor, if he will take it in satisfaction of his claim ; if not, he should be allowed to foreclose on his own account.** § 471. Sale Free of Incumbrances. — The court of bankruptcy has power and authority to order the sale of any property of the bankrupt free and clear of all liens or incumbrances then resting upon it, trans- ferring the liens to the fund realized by the sale, or rather, transforming the lien creditors' contractual right into an equity to claim satisfaction out of the proceeds of the sale.*^ But in order to do this, it is absolutely 32 For form of petition and order for Trust Co., 122 Fed. 937, 59 G. C. A. 461, sale of property subject to liens, see 9 Am. Bankr. Rep. 767; In re Mebane, Official Form No. 44; 3 N. B. R. 347, Fed. Cas. No. 9,380 ; In S3 In re McGilton, 3 Biss. 144, 7 N. B. re Ludwigson, 3 Woods, 13, Fed. Oas. R. 294, Fed. Oas. No. 8,798 ; , Cain v. No. 8,601 ; In re Dillard, 2 Hughes, 190, Sheets, 77 Ala. 492; Bassett v. Thack- 9 N. B. R. 8, Fed. Cas. No.. 3,912; In re ara, 72 N. J. Law, 81, 60 Atl. 39. In a Hahnlen, Fed. Cas. No. 5,901 ; In re proceeding by a trustee for an order au- Bowie, 1 N. B. R. 628, Fed. Cas. No. thorizlng the sale of real estate in his 1,728. possession, the bankruptcy court does s' In re Cogley, 107 Fed. 73, 5 Am. not have jurisdiction to cite into court a Bankr. Rep. 731. mortgagee of such real estate and ad- 3 8 Equitable Loan & Security Co. v. R. judlcate upon the validity of his mort- L. Moss & Co., 125 Fla. 609, 60 C. C. A. gage, without his consent or over his 345, 11 Am. Bankr. Rep. Ill; In re objection. In re Henderson, 206 Fed. Rose, 193 Fed. 815, 26 Am. Bankr. Rep. 139. 752; In re Lausman, 183 Fed. 647, 25 84 McKay v. Hamill (C. 0. A.) 185 Fed. Am. Bankr. Rep. 186. 11, 26 Am. Bankr. Rep. 164. S9 Ray v. Norseworthy, 23 Wall. 128, 8 6 In re Taliafero, 3 Hughes, 422, Fed. 23 L. Ed. 116; In re Kohl-Hepp Brick Oas. No. 13,736. Co., 176 Fed. 340, 100 C. C. A. 260, 23 s«In re Rose, 193 Fed. 815, 26 Am. Am. Bankr. Rep. 822; In re Loveland, Bankr. Rep. 752; In re Foster, 181 Fed. 155 Fed. 838, 84 0. 0. A. 72, 19 Am. 703, 25 Am. Bankr. Rep. 96 ; In re Union Bankr. Rep. 18 ; Sturgiss v. Corbln, 141 997 SALES OF PEOPEETY BY TEDSTBBS I 471 essential that each lien creditor whose rights may be affected should have personal notice of the trustee's application for an order directing the sale to be made in this manner, and be accorded an opportunity to pre- sent any objections he may have,*" unless his conduct at or after the sale may be taken as a waiver of notice or acquiescence in the order of the court, as, where he was present at the sale and raised no objections," or where he brings trover against the trustee for the conversion of the property sold.*^ The actual consent of the lien creditor to a sale of the property free of liens will of course obviate any possible question as to the jurisdiction and power, of the court.*^ But jurisdiction is based upon the court's control over the estate in bankruptcy, and the consent of a creditor is not essential to the authority of the court to decide how the Fed. 1, 72 C. C. A. 179, 15 Am. Bankr. Kep. 543 ; In re Leslie-Judge Co. (0. O. A.) 272 Fed. 886, 46 Am. Bankr. Kep. 707 ; In re North Star Ice & Coal Co. (D. C.) 252 Fed. 301, 42 Am. Bankr. Kep. 76 ; In re West (D. C.) 232 Fed. 903, 87 Am. Bankr. Kep. 421; In re Whiteside (D. C.) 230 Fed. 937, 36 Am. Bankr. Kep. 870 ; In re Progressive Wall Paper Corp. (D. 0.) 222 Fed. 87, 35 Am. Bankr. Rep. 508 ; In re Pittsburgh-Big Muddy Coal Co., 215 Fed. 703, 132 C. C. A. 81; In re Roger Brown & Co., 196 Fed. 758, 28 Am. Bankr. Rep. 336; In re Trayna & Cohn, 195 Fed. 486, 27 Am. Bankr. Rep. 594 ; In re Shoe & Leather Reporter, 129 Fed. 588, 64 C. C. A. 156, 12 Am. Bankr. Kep. 248; In re Torchia, 185 Fed. 576, 26 Am. Bankr. Rep. 188; In re United States Graphite Co., 161 Fed. 583, 20 Am. Bankr. Rep. 573; In re Keet, 128 Fed. 651, 11 Am. Bankr. Rep. 117; In re Prince & Walter, 131 Fed. 546, 12 Am. Bankr. Kep. 675 ; In re Un- ion Trust Co., 122 Fed. 937, 59 0. O. A. 461, 9 Am. Bankr. Rep. 767; Southern Loan cfe Trust Co. v. Benbow, 96 Fed. 514, 3 Am. Bankr. Kep. 9 ; In re Pittel- kow, 92 Fed. 901, 1 Am. Bankr. Kep. 472 ; In re Worland, 92 Fed. 893, 1 Am. Bankr. Rep. 450; In re Mead, 58 Fed. 312 ; In re Kahley, 2 Blss. 383, 4 N. B. R. 378, Fed. Cas. No. 7,593 ; In re Kirt- land, 10 Blatchf. 515, Fed. Cas. No. 7,- 851; Sutherland v. Lake Superior Ship Canal, R. & I. Co., 9 N. B. R. 298, Fed. Cas. No. 13,643 ; In re Rhodes, 3 Pittsb. 340, Fed. Cas. No. 11,746; Giveen v. Smith, 1 Hask. 358, Fed. Cas. No. 5,467; In re Barrow, 1 N. B. R. 481, Fed. Gas. No. 1,057; Foster v. Ames, 1 Low. 313, 2 N. B. R. 455, Fed. Cas. No. 4,965 ; In re Columbian Metal Works, 3 N. B. K. 75, Fed. Cas. No. 3,039 ; Meeks v. What- ley, 48 Miss. 337, 10 N. B. R. 498 ; Blair V. Carter's Adm'r, 78 Va. 621; Toler v. Crowder, 127 Ark. 552, 192 S. W. 905. The power of a court of bankruptcy to order a sale of the bankrupt's property free from liens is not expressly confer- red, but it is necessarily implied, since such a sale is often necessary to the due execution of the power and duty to reduce the assets to money and distribute it to creditors. Gantt v. Jones, 272 Fed. 117. *o Factors' & Traders' Ins. Co. v. Mur- phy, 111 U. S. 738, 4 Sup. Ct. 679, 28 L. Ed. 582; Ray v. Norseworthy, 23 Wall. 128, 23 L. Ed. 116; In re Kohl- Hepp Brick Co., 176 Fed. 340, 100 'c. C. A. 260, 23 Am. Bankr. Rep. 822; In re Stewart, 193 Fed. 791, 27 Am. Bankr. Rep. 529; In re Saxton Furnace Co., 136 Fed. 697, 14 Am. Bankr. Rep. 483 ; In re Gerdes, 102 Fed. 318, 4 Am. Bankr. Kep. 346; Anonymous, Fed. Cas. No. 456; Ex parte Brewry, 2 Hughes, 435, Fed. Cas. No. 4,081; In re Taliafero, 3 Hughes, 422, Fed. Cas. No. 13,736 ; In re Major, 2 Hughes, 215, Fed. Cas. No. 8,- 981; In re Rowland, 2 Hughes, 210, Fed. Cas. No. 12,096; Murphy v. Fac- tors'' & Traders' . Ins. Co., 33 La. Ann. 454 ; Meeks v. Whatley, 48 Miss. 337, 10 N. B. R. 498. 41 Giveen v. Smith, 1 Hask. 358, Fed. Cas. No. 5,467. 4 2 In re Platteville Foundry & Ma- chine Co., 147 Fed. 828, 17 Am. Bankr. Rep. 291. 43 Chauncey v. Dyke Bros., 119 Fed. 1, 55 C. C. A.. 579, 9 Am. Bankr. Rep. 444; In re Caldwell, 178 Fed. 377, 24 § 471 LAW OF BANKRUPTCY 99S property shall be sold.** The mortgagee or other lienor must indeed have notice and a hearing, but he may be brought in by a rule to show cause,*" and while the court will give due weight to any objections which he may interpose, it is not constrained by them. In other words, the mere fact that a lien creditor objects is not enough to prevent the court from ordering a sale free of incumbrances, if that course shall appear best for the general interests of the estate.*" So mortgaged chattels may be ordered sold free of liens notwithstanding the fact that the mortgagee has, by his contract, a right to the immediate possession of the goods and desires to avail himself of that right.*' When a sale is made under an order of this kind, the purchaser will take an entirely free and unincumbered title,** and it is entirely immaterial that the proceeds of the sale may not be sufificient to dis- charge the various liens on the property or even the senior lien alone.** Of course it is for the interest of the mortgagee or other creditor to attend the sale and bid enough to protect himself, or at least to see that the final bid is not less than what he considers the fair market value of the property. If an outsider becomes the purchaser, the rights of the mortgagee or other lienor are transferred to the fund arising from the sale, and as the lien is extinguished, it is not necessary for him to take any further steps in the way of continuing or renewing it.^ Am. Bankr. Rep. 495. Where a lien- gives the purchaser the same title as if holder accepted service of the petition the sale were made in any other court to sell the property free from liens, it of equity to foreclose the mortgage or amounted to a consent to that mode of marshal the assets of an insolvent, and sale. Gugel v. New Orleans Nat. Bank, his title is good against the privies of 239 Fed. 676, 152 C. C. A. 510, 39 Am. the mortgagor and mortgagee, including Bankr. Rep. 160. the wife of the mortgagor when she has ** In re Kronrot, 183 Fed. 653, 25 Am. renounced her dower. Gantt v. Jones Bankr. Rep. 738 ; In re Howard (D. C.) (C. C. A.) 272 Fed. 117, 46 Am. Bankr. 207 Fed. 402, 81 Am. Bankr. Rep. 251. Rd|). 351. Since in bankruptcy the court *B In re E. A. Kinsey Co., 184 Fed. can order the sale of the property free 694, 106 C. C. A. 648, 25 Am. Bankr. from incumbrances, where the mort- Itep. 651. gagee consents to such sale his lien on *8 In re E. A. Kinsey Co., 184 Fed. the land is wiped out, and no release of 694, 106 C. O. A. 648, 25 Am. Bankr. the mortgage (as provided in the state Rep. 651; In re Howard, 207 Fed. 402. statute) is necessary to pass the title. *7 Foster v. Ames, 1 Low. 813, 2 N. Toler v. Crowder, 127 Ark. 552, 192 S. B. R. 455, Fed. Cas. No. 4,965. And a W. 905. clause in a mortgage securing bonds, *» Houston v. City Bank of New Or- giving the holders the ' right to bid on leans, 6 How. 486, 12 L. Ed. 526 ; In re their bonds at any foreclosure sale, does Sanborn (D. C.) 96 Fed. 551, 3 Am. not in any way limit the power of a Bankr. Rep. 54. court of bankruptcy to sell the property ^o Gantt v. Jones (C. C. A.) 272 Fed. free from liens. In re Franklin Brew- 117, 46 Am. Bankr. Rep. 351; In re ing Co., 249 Fed. 333, 161 C. O. A. 341, Bradley (C. C. A.) 269 Fed. 784 ; In re 41 Am. Bankr. Rep. 51. Plantations Co. (D. C.) 270 Fed. 273, 46 *8Ray V. Norseworthy, 23 Wall. 128, Am. Bankr. Rep. 818; Moranv. Schnugg, 23 L. Ed. 116. A sale of a bankrupt's 7 Ben. 399, Fed. Cas. No. 9,786; Shinn v. mortgaged property free from liens un- Kemp & Hebert, 73 Wash. 254, 131 Pac. der an order of the bankruptcy court 822. Where the trustee in bankruptcy, 999 SALES OF PROPBETY BY TKUSTEBS § 471 The power thus vested in the court of bankruptcy may be exercised by the referee. That is, the referee has authority, in the exercise of a judicial discretion, to order the sale of property free from liens, trans- ferring the claims of lien creditors to the proceeds of sale, and to con- firm the sale when made." But the court of bankruptcy will not order the trustee to sell prop- erty free of liens, unless satisfied that the interests of the general cred- itors will be advanced thereby, by the production of a fund available for their claims over and above the liens, and that the interests of creditors holding liens will not be injuriously affected.®* The proper in- quiry for both the trustee and the court is: On what terms will the property bring most for the creditors, subject to or discharged from the incumbrances upon it?®* As illustrating the circumstances which may properly influence the court in deciding this question, we may mention a case where a portion of the bankrupt's property was subject to a valid attachment lien, and it appeared that the sale of the attached property by the sheriff would dismember the property and result in destroying its value, wbile a sale of the whole property by the bank- rupt's trustee would enable the creditors to obtain a better price. Here it was held proper to order the sale free from liens.®* So where, by a prompt sale of the bankrupt's assets, interest accruing on liens thereon and taxes would be saved, and the sale could be made by the trustee with less expense than by the sheriff on foreclosure of the liens, and a sale by the trustee would enable the estate to be settled promptly, with- out awaiting the outcome of an action by lien creditors to enforce their knowing the facts creating an equitable 5 Am. Bankr. Eep. 248 ; In re Styer, 98 lien on property, sold the property Fed. 290, 3 Am. Bankr. Eep. 424 ; In re and used the proceeds in paying costs Pittelkow, 92 Fed. 901, 1 Am. Bankr. of administration primarily chargeable Rep. 472. See Equitable Trust Co. v. against the general assets, a court of Vanderbilt Realty Improvement Co., 155 equity, following the maxim that equity App. Div. 723, 140 N. Y. Supp. 1008; In will look upon that as done which ought re Progressive Wall Paper Corp. (D. C.) to have been done, will follow the pro- 222 Fed. 87, 35 Am. Bankr. Rep. 508. ceeds into the entire mass of the estate, 53 in re National Iron Co., 10 Phila. giving the party injured by the unlaw- (Pa.) 274, 8 N. B. E. 422, Fed. Cas. No. ful diversion, a priority of right over the 10,045. other creditors. In re Plantations Co. s* in re United States Graphite Co., (D. C.) 270 Fed. 273, 46 Am. Bankr. Eep. 161 Fed. 583, 20 Am. Bankr. Eep. 573. 318. The sale of personalty of^a bankrupt 61 In re Miners' Brewing Co., 162 Fed. separate from the realty, which togeth- .327, 20 Am. Bankr. Eep. 717; In re San- er constituted and were used as a bust- born, 96 Fed. 551, 3 Am. Bankr. Eep. ness plant and were mortgaged as such, 54; In re Waterloo Organ Co., 118 Fed. thus destroying the business entity of 904, 9 Am. Bankr. Rep. 427. the property, is erroneous. In re Frank- 62 In re Fayetteville Wagon-Wood & lin Brewing Co., 249 Fed. 333, 161 C. O. Lumber Co., 197 Fed. 180, 28 Am. Bankr. A. 341, 41 Am. Bankr. Eep. 51. Eep. 307; In re ShaefCer, 105 Fed. 352, § 472 LAW OF BANKRUPTCY 1000 liens, and the bankrupt's wife had quitclaimed her dower in the prop- erty to the trustee, these facts were held sufficient to move the court to exercise its discretion to order an immediate sale of the assets free from the liens."^ § 472. What Interests Not Divested. — Since a trustee in bankruptcy- can sell no more than the bankrupt himself owned, a sale of real estate by the trustee does not bar or extinguish an inchoate right of dower therein existing in the bankrupt's wife.** But as it is highly desirable to make the sale free from such dower right, as the property will ordi- narily bring a much better price, the wife's consent to release her dower should be obtained if possible, and in that case she may be compensated by a fair allowance out of the proceeds of the sale.*'' For reasons of another kind, it has generally been held that the liens of state and mu- nicipal taxes are not divested by a bankruptcy sale, even though ordered to be made free of all incumbrances,** unless, perhaps, as suggested in one of the cases, the revenue officer or other proper representative of the state is made a party to the trustee's application for an order of sale.** But in a case where the court of bankruptcy ordered the sale of real estate subject only to a first mortgage thereon, it was held that all other liens were divested, including a lien for taxes, and this, 55 In re Keet, 128 Fed. 651, 11 Am. Am. Bankr. Rep. 670; In re Codori (D. Bankr. Rep. 117. O.) 207 Fed. 784, .30 Am. Bankr. Rep. 5 Porter v. Lazear, 109 XJ. S. 84, .3 453. But the decision in In re Chotinev Sup. Ct. 58, 27 L. Ed. 865; In re Shaef- (D. C.) 216 Fed. 916, is directly to the fer, 105 Fed. 352, 5 Am. Bankr. Rep. contraiy. 248; In re Hays (C. C. A.) 181 Fed. 674, „ g^^^^^ ^ Savage, 141 Fed. 346, 72 24 Am. Bankr. Rep. 669; In re Angier, n C A 494 3 L R A nsT S ^ 923 I"? 4 K B R. 619, Fed. Cas^No 388; Dwyer L" Bankr 'r'p 5^9 AM sL In re V. Garlough, 31 Ohio St. 158; Kelso s gtraueh (D. C.) 208 Fed. 842, 31 Am. Appeal, 102 Pa. St. 7; Lazear y Porter, gankr. Rep. 36; Carver v. Ward, 81 W. 87 Pa. St^ 513, 30 Am. Rep. 380; Wor- ya. 644, 95 S. E. 828. In a case where cesterv. Clark 2Grant(Pa.)84; Coop- ^he bankrupt's wife had an inchoate ZJ- I^^''':LZ'''L5T.l ?^"i^"o^ -wer interest in the surplus proceed. 341. See Balrd v. Winstead, 123 N. C. of his lands sold under foreclosure, it |.^\' ^i'i ^- 1«; ^n^r ? /,. ■ ^"°'vf 2 was directed that one-third of such sur- t"^- ,;i t ^A^-^o ffi '-r/n^'T v""- P'"« «^'«"l'i ^e invested in government Jones, 111 Me. 348, 89 Atl 140; Harm „„„^g_ ^o be held by the clerk after set- y;a^'^''on tt"' ;,; I Ind. App. 213, tie^g^t of the estate. In re Munford 119 N. K 20. Under the law of Pennsyl- (p. c.) 255 Fed. 108, 43 Am. Bankr. Rep. vania, this question is doubtful. There 2I8. are some decisions holding that, since the 1910 amendment to the Bankruptcy „ '* J-" ^^ Cierry, 112 Fed. 958, 7 Am. Act, which gives to the trustee in bank- f3^^^- ^^p. 459; In re Keller, 109 Fed. riiptcy the rights and status of a credl- ^^' ^ ^.m. Bankr. Rep. 351 ; Stokes v. tor holding a judgment or other lien, the 1**^'^' ^6 Ga. 412, 9 N. B. R. 191, 12 Am. land of a Pennsylvania bankrupt can be ^"^^ ^^- Compare In re New York & sold free from the dower rights of his Pl^iladelphia Package Co. (D. C.) 225 wife, such rights under the state laws ^^^- -^^' ■'■' Am. Bankr. Rep. 94. being subject to the claims of creditors. so Meeks y. Whatley, 48 Miss. 337 10 In re Kligerman (D. C.) 253 Fed. 778, 12 N. B. R. 498. 1001 SALES OF PEOPBRTY BY TKUSTBBS § 473 although a statute of the state provided that taxes should be a continu- ing lien on property notwithstanding a judicial sale of it, unless the proceeds of the sale were sufficient to pay them, where it further ap- peared that this statute was not enacted until after the creation of the first mortgage and that it was not retroactive.^" There are some other exceptional cases in which outstanding interests in realty will not be divested by the sale. Thus, a person holding the legal title to lands, but bound under a deed of trust to account to third persons for specific interests therein, conveyed the same to his trustee in bankruptcy. No issues were framed or determined in the court of bankruptcy as be- tween the trustee and such third persons, and at the trustee's sale, the bankrupt repurchased the lands. It was held that the sale did not di- vest the interests of the third persons, and that the bankrupt took the lands still burdened with the trust.^"^ So, where certain realty was con- veyed by an alleged fraudulent conveyance from husband to wife, and subsequently they jointly executed a mortgage thereon to a third party, it was held that the subsequent private sale in bankruptcy of the realty in question as the property of the husband could not discharge the land from the lien of the mortgage, 'since the mortgage was good under the wife's title, which would remain perfect until directly im- peached by the husband's creditors.*^ § 473. Sale of Perishable Property. — ^Where property of a bank- rupt is of a perishable nature and must be disposed of immediately in order to prevent its dissipation or loss, it may be ordered sold at any time after the filing of the petition in bankruptcy, even before the ad- judication,^* or before the appointment of a trustee.** These cases, as well as the more ordinary cases of sales by trustees, are covered by the General Orders in bankruptcy, wherein it is provided that "upon petition by a bankrupt, creditor, receiver, or trustee, setting forth that a part or the whole of the bankrupt's estate is perishable, the nature and location of such perishable estate, and that there will be loss if the same is not sold immediately, the court, if satisfied of the facts stated and that the sale is required in the interest of the estate, may order the same to be sold, with or without notice to the creditors, and the proceeds to be de- posited in court." ®® When the trustee has sold property as perishable, and his action is confirmed by the court on his petition, it is not neces- sary to state the grounds on which the property, taken as a whole, was 60 In re Prince & Walter, 131 Fed. ss in re Kelly Dry-Goods Co., 102 Fed. 546, 12 Am. Bankr. Kep. 675. 747, 4 Am. Bankr. Rep. 528. 61 Roby V. Colehour, 146 U. S. 153, 13 64 Supra, § 217. Sup. Ct. 47, 86 L. Ed. 922. 6 5 General Order No. 18, par. 3. . For 6 2 Schwartz v. Kleber (Pa.) 7 Atl. 209. form of petition and order for sale of § 474 LAW OP BANKRUPTCY 1002 considered to be in the nature of perishable property.®* But the court has no power to order the sale of such property unless it is in the pos- session of the bankrupt or the trustee or of some ofhcer of the court appointed to take charge of. it, such as the marshal or a receiver."' An order authorizing the receiver of a bankrupt to sell perishable property consisting of produce in storage, "at public or private sale within his discretion, at current rates, without notice," will justify a sale in bulk of all the property in the hands of a warehouseman, after it has been offered in car load lots.** An order for the sale of perishable property is within the jurisdiction and authority of the referee in bankruptcy.®" § 474. Land in Another District or State. — As the jurisdiction of the court of bankruptcy embraces all the property of the bankrupt wherever situate, it is not bound by state laws or state lines in order- ing its sale. Thus, a state statute providing that lands taken in execu- tion shall be sold in the county where the property is situated has no application to a proceeding in bankruptcy in a federal court, and a trustee in bankruptcy may conduct a sale of land in a county other than that in which the land lies.'" So the fact that land of a bank- rupt may be situated in a sta'te beyond the federal district where the proceedings are pending is no obstacle to converting it into cash for the benefit of the estate. If the trustee has taken possession, it is within the custody of the court of bankruptcy, and the' referee has jurisdiction to order its sale free from liens.'^ As to the place where the sale should be conducted, in the case of land in another state, it has been held that the trustee may hold the sale at the place where he would sell any chattel, that is, where the estate is being administered.'^ Gener- ally, however, it would be more advantageous to sell the property where it lies. But when this is done, it is not necessary for the trustee to perishable property, see Official Form March. 3, 1893, requiring sales of land Ko. 46. to be made on the property or at the 66 Rogers V. Abbot, 206 Mass. 270, 92 courthouse in the county where the land N. E. 472, 138 Am. St. Rep. 394. lies, does not apply to sales in banlsrupt- 67 In re Metzler, 1 Ben. 356, 1 N. B. cy proceedings. In re Britannia Mining R. 38, Fed. Oas. No. 9,512. Co. (C. C. A.) 203 Fed. 450, 29 Am. 6 8 In re Roberts, 166 Fed. 96, 92 (}. Bankr. Rep. 472; In re La France Cop- A. 80, 21 Am. Bankr. Rep. 573. per Co., 205 Fed. 207, 30 Am. Bankr. 6 9 This appears from Official Form Rep. 381. No. 46, which is expressly prepared to "In re Wilka, 131 Fed.' 1004, 12 Am. be signed by the referee. And see In re Bankr. Rep. 727; Robertson v. Howard, Kelly Dry-Goods Co., 102 Fed. 747, 4 Am. 229 U. S. 254, 33 Sup. Ct. 854, 57 L. Ed. Bankr. Rep. 528. It was held otherwise 1174, 30 Am. Bankr. Rep. 611; T. E. under the iict of 1867. See In re Graves, Wells & Co. v. Sharp, 20S Fed. 393, 125 2 Ben. 100, 1 N. B. R. 237, Fed. Cas. No. C. C. A. 609, 31 Am. Bankr. Rep. 344. 5,709. ''^ Oakey v. Corry, 10 La. Ann. 502. 7 James v. Koy (Tex. Civ. App.) 59 S. And see In re Britannia Mining Co., 197 W. 295. And the Act of Congress of Fed. 459, 28 Am. Bankr. Rep. 651. 1003 SALES OF PROPERTY BY TRUSTEES § 475 go in person to the place of sale, in order to be present and superin- tend it, but he may employ an auctioneer to conduct the sale. It was so held in a case where the land to be sold was situated in Arizona, but the estate in bankruptcy was being administered in Massachusetts.'"* § 475. Notice. — The act provides that creditors shall have ten days' notice by mail (unless they waive notice in writing) of all proposed sales of the bankrupt's property.'* This is in order that they may have an opportunity to appear and show cause against the proposed sale or against the time, place, or terms of sale.'® But the courts incline to the opinion that the only requirements as to notice of bankruptcy sales which the courts are bound to regard are to be found in the bankruptcy act itself, and therefore that the act of Congress of March 3, 1893, requir- ing publication of notice of judicial sales once a week for four weeks, does not apply.'^ But when the time fixed by order for the sale has expired without the sale being held, notice to creditors and others in- terested must be given de novo before a new order of sale is made." In addition to this, all holders of liens on the property and claimants of interests therein must be served with notice or process, which must afhrmatively appear by the record, or the sale will be ineffectual to di- vest their liens or interests.'* Under the former bankruptcy law it was held that the requirement of notice of the time and place of sale of the bankrupt's real estate was directory only, affecting the accountability of the trustee but not the title of a purchaser in good faith." This may well be the case as to the notice required to be mailed to creditors. But it is otherwise as to adverse claimants and lien holders. Even such an one, however, may waive the objection of a want of notice; and he will be held to have done so where he is personally present at the sale and interposes no objection.** The notice for the sale should of course con- 7 3 In re National Mining Exploration 14 N. B. R. 71, Fed. Cas. No. 2,061; Co., 193 Fed. 232, 2T Am. Bankr. Rep. 92. Moorman v. Arthur, 90 Va. 455, 18 S. E. 7* Bankruptcy Act 1898, § 58a (4). 869; In re Platteville Foundry & Ma- 's In re Vila, 5 Law Rep. 17, Fed. Cas. chine Co, 147 Fed. 828, 17 Am. Bankr. No. 16,941. Kep. 291; In re Reading Hat Mfg. Co. 76 Robertson v. Howard, 229 U. S. 254, (D. 0.) 224 Fed. 786, 34 Am. Bankr. Rep. 33 Sup. Ct. 854, 57 L. Ed. 1174, 30 Am. 884; Pace v. Berry, 176 Ky. 61, 195 S. Bankr. Rep. 611; In re Bdes, 135 Fed. W. 131. And see supra, § 471. Notice 595, 14 Am. Bankr. Rep. 382 ; In re Na- to the trustee in a mortgage is enough tlonal Mining Exploration Co., 193 Fed. to give jurisdiction oyer holders of the 232, 27 Am. Bankr. Rep. 92. But see, bonds secured. Equitable Trust Co. \. contra, In re Britannia Mining Co., 197 Vanderbilt Realty Improvement Co., 155 Fed. 459, 28 Am. Bankr. Rep. 651. App. Div. 723, 140 N. T. Supp. 1008. '7 Allgalr V. William F. Fisher & Co., Stockholders of a bankrupt corporation 143 Fed. 962, 75 C. C. A. 148, 16 Am. are not entitled to this notice. In re Bankr. Rep. 278. Witherbee (C. C. A.) 202 Fed. 896, 30 7 8 Factors' & Traders' Ins. Co. v. Mur- Am. Bankr. Rep. 314. phy. 111 U. S. 738, 4 Sup. Gt. 679, 28 L. 7o Crowley v. Hyde, 116 Mass. 589. Ed. 582; Ex parte Bryan, 2 Hughes, 273, so Keyser v. Wessel, 128 Fed. 281, 62 § 476 LAW OF BANKKUPTCT 1004 tain such particulars, as to the description of the property to be sold, the time and place of sale, and the like, as are ordinarily required in no- tices of judicial sales or sales by executors or receivers. A notice in bankruptcy, serving in a double capacity, as a notice to creditors that application for a sale of property will be made, and as notice to bidders that they may attend and offer bids, though irregular, will not vitiate the sale, if it is shown that the notice was freely advertised, and it does not appear that further publicity would have produced a better bid.*^ It is also to be observed that, while the statute requires notice to be giv- en to creditors of sales by trustees, it does not require notice to be given of sales by pledgees, and hence a trustee, while acting as receiver, is not chargeable for a sale of pledged collaterals under an order authoriz- ing a public or private sale thereof, without notice to creditors.®* § 476. Manner and Conduct of Sale. — The General Orders provide that "all sales shall be by public auction unless otherwise ordered by the court," but that "upon application to the court, and for good cause shown, the trustee may be authorized to sell any specified portion of the bankrupt's estate at private sale ; in which case he shall keep an accurate account of each article sold, and the price received therefor, and to whom sold ; which account he shall file at once with the referee." ** By mak- ing this order the Supreme Court must be regarded as having construed the Bankruptcy Act in such a manner as that a court of bankruptcy or a referee has discretionary power to order a private sale of the bankrupt's property, with or without notice.** But authorization from the court is strictly necessary. A private sale made by the trustee without an order of the court allowing him so to sell is void.*® As to the distinction be- tween public and private sales, it is held that there is a "public" sale in bankruptcy, where all persons are permitted to bid, where bids are not held open except with the bidders' consent, and where notice inviting bids is publicly given, though the sale is not made by auction, and is combined with a meeting of the creditors of the bankrupt held for the purpose of enabling such creditors to vote on the acceptance of the bid C. O. A. 650, 12 Am. Bankr. Kep. 126; vate sale of property, see Official Form In re Caldwell, 178 Fed. 377, 24 Am. No. 45. Bankr. Rep. 495. 84 in re Hawkins, 125 Fed. 633, 11 Am. 81 In re Nevada-Utah Mines & Smelt- Bankr. Rep. 49; In re Edes, 135 Fed. ers Corp. 198 Fed. 497, 28 Am. Bankr. 595, 14 Am. Bankr. Rep. 382 ; In re Gut- Rep. 409. terson, 136 Fed. Cas. 698, 14 Am. Bankr. 82 In re James Carothers & Co., 193 Rep. 495 ; In re Knox Automobile Co. Fed. 687, 27 Am. Bankr. Rep. 921. (D. C.) 210 Fed. 569, 32 Am. Bankr. Rep. 8 3 Generiil Order No. 18. For form 67. of petition and order for sale of real es- ss Eeid v. Robrecht, 102 Cal. 520, 36 tate at auction, see Official Form No. 42. Pac. 875. Compare Curdy v. Stafford, 88 For form of petition and order for pri- Tex. 120, 30 S. W. 551. 1005 SALES OF PEOPBRTY BY TRUSTEES § 476 or bids made.*® It is also a permissible method of conducting a sale in bankruptcy for the trustee, under an order of court, to invite sealed bids for specified property, to be accompanied by certified checks for a certain amount, such bids to be opened in the presence of the referee on a day and at an hour named, and the property to be awarded to the highest bidder, subject to confirmation by the court, upon the hearing and determination of objections, which are directed to be filed by a cer- tain day and appointed to be heard on a designated other day.*' A pe- tition by the trustee to the bankruptcy court for an order authorizing a meeting of creditors, the object of the meeting being to enable the cred- itors to act upon any bid for certain property of the bankrupt which may be submitted at the meeting, is irregular, but yet is sufficient to author- ize the referee to act upon it, and is sufficient notice that a sale is pro- posed.** It is a rule applicable to trustees under deeds of trust and similar instruments that any sale of the property must be made by the trustee himself in person,** and that he must be present during the whole of the sale."* But there is no specific requirement in the bailkruptcy act that sales shall be made personally by the trustee, and therefore it is held to be within the power and discretion of the court of bankruptcy to appoint commissioners to make a given sale,®^ or to appoint an auctioneer to sell property of a bankrupt's estate in advance of any particular occasion therefor.^* The trustee may also employ an auctioneer to cry the sale, but only under the authority of the court.** The time and place of the sale are generally to be fixed by the trustee. And here it should be remembered that it is his duty to sell the property of the estate to the best possible ad\4^ntage, and to choose a time when there is a good market for the propert)'', wherein he should exercise not only fidelity to his trust, but also good business judgment and sagacity. And if he sacrifices the property by selling at an improper or ill-chosen time, though his intentions were good, he will be liable for the deficiency s8 In re Nevada-Utah Mines & Smelt- ss in re Nevada-Utah Mines & Smelt- ers Corp., 198 Fed. 497, 28 Am. Banlcr. ers Corp., 198 Fed. 497, 28 Am. Bankr. Rep. 409. On appeal in this case ([C. O. Rep. 409. A.l 202 Fed. 126, 29 Am. Bankr. Rep. sspuHer v. O'Neil, 69 Tex. 349, 6 S. 754), it was held that a sale made under W. 181, 5 Am. St. Rep. 59. an order passed at a meeting of credi- 9o Brickenkamp v. Rees, 69 Mo. 426. tors, according to a notice addressed to »i Sturgiss v. Corbin, 141 Fed. 1, 72 "creditors, stockholders, and other par- C. C. A. 179, 15 Am. Bankr. Rep. 543. ties in interest," but not inviting the 92 in re Benjamin, 136 Fed. 175, 69 0. public to attend and bid, was a private C. A. 191, 14 Am. Bankr. Rep. 481. sale, but was justified in the circum- os in re National Mining Exploration stances of the case. Co., 193 Fed. 232, 27 Am. Bankr. Rep, 92; ST See In re Chandler (C. C. A.) 194 In re Pegues, 3 N. B. R. 80, Fed. «3as. Fed. 944, 28 Am. Bankr. Rep. 89. No. 10,907. § 476 LAW OF BANKRUPTCY 1006 in the proceeds of the sale.*** Still, the object of the bankruptcy act is an expeditious settlement and distribution of the estate, and the trustee cannot keep the creditors waiting indefinitely in the hope that the prop- erty will eventually command a better price. It is his duty to sell the property with all reasonable promptness, unless all the creditors will consent to a delay .*^ But a mere mistake in judgment as to the proper place for the sale will not invalidate it, in the absence of fraud or col- lusion.*® In pursuance of his duty to realize as much as possible for the creditoi-s, it is also incumbent upon the trustee not to sell in bulk, but to divide the property into portions, if susceptible of division, and if it will thus command a higher price; if his failure to do this results in a sacrifice of the property, the sale will be set aside.®' Anything like col- lusion or an attempt to stifle competition will of course invalidate the sale but this result does not follow because of a private arrangement be- tween the attorney for the purchaser and the auctioneer that the bid of any other person should be raised $50 each time until a sign to stop was given.®* The property should be sold to the highest bidder, and a "bid" means an offer by a purchaser to pay something to the trustee for the property purchased which the trustee may distribute among creditors.*® The "highest bidder" is the one who makes the highest bid in good faith. For a trustee is not bound to accept every bid, and the court will always sustain him in refusing bids which would manifestly frustrate the very object and purpose of the sale.^** And a bid which was not accepted will not give the bidder any standing to complain either of its rejection of a sale to another at a higher price. "^ Generally speaking, the trustee is bound to obtain the best possible price, under the conditions attending the sale, and will be held responsible for any negligence in failing to do so."« »* See Snyder's Adm'rs v. McComb's »b in re J. B. & J. M. Cornell Co. (D. Ex'x, 39 Fed. 292; Melick v. Voorhees, 24 C.) 186 Fed. 859, 26 Am. Bankr. Rep. 252. N. J. Eq. 305; Holbrook v. Coney, 25 111. A sale through bankruptcy proceedings 543. is a judicial sale, subject to the same »6 Hart V. Crane, 7 Paige (N. Y.) 37. rules as an auction; so that a bid may 96 Hills v. Alden, 2 Hask. 299, Fed. be withdrawn before the hammer falls. Cas. No. 6,507. In re Glas-Shipt Dairy Co., 239 Fed. 122, 07 In re Lloyd, 11 Fed. 586 ; Chesley v. 152 C. C. A. 164, 38 Am. Bankr. Rep. 554. Chesley, 49 Mo. 540 ; Smith v. Scholtz, But see In re Lane Lumber Co., 207 Fed. 68 N. Y. 41. But a sale of a bankrupt's 762, 125 C. C. A. 30O, 31 Am. Bankr. Rep! assets en masse, for a larger sum than 148. was bid for the property in parcels, un- loo Gray v. Veirs, 33 Md. 18. der the court's order of sale, will be loi In re Chandler (C. C. A.) 194 Fed. held valid. In re Haywood Wagon Co., 944, 28 Am. Bankr. Rep. 89. But see Iii 219 Fed. 655, 135 C. C. A. 391, 33 Am. re Williams, 197 Fed. 1, 116 C. C. A. 523, Bankr. Rep. 618. 28 Am. Bankr. Rep. 258. 08 In re Ketterer Mfg. Co., 156 iTed. 102 in re Ryan, 6 N. B. R. 235, Fed. 719, 19 Am. Bankr. Rep. 638. And see Cas. No. 12,182; In re Knott, Fed. Cas. In re Ohio Copper Mining Co. (D. C.) No. 7,893 ; Hawkins v. Alston, 4 Ired. Eq. 237 Fed. 490, 38 Am. Bankr. Rep, 548. (39 N. C.) 137. 1007 SALES OF PEOPKETT BY TEUSTEES § 478 § 477. Terms of Sale. — There is nothing in the bankruptcy act which specifically forbids the sale of a bankrupt's property by the trustee on credit. And under the act of 1867, it was held that a sale so made was not necessarily invalid for that reason alone. ^** But a trustee who sells on any other terms than immediate cash takes a serious responsi- bility, and one which he should not assume without the express permis- sion of the court or the consent of all the creditors. At least, it has been held that if the trustee, without the sanction of the court, sells the eflEects of the estate on credit, taking the purchasers' notes for the price, and then is so dilatory or negligent in his efforts to collect the notes that he suffers them to become outlawed, he is personally re- sponsible for the loss, whether the makers of the notes were originally responsible or not.^"* It is also a requirement of the statute that "all real and personal property belonging to bankrupt estates shall be ap- praised by three disinterested appraisers. Real and personal property shall, when practicable, be sold subject to the approval of the court; it shall not be sold otherwise than subject to the approval of the court for less than seventy-five per centum of its appraised value." ^'^ The appraisers should value the property at its fair market price, that is, the price which it might be expected to bring at a private sale in the ordi- nary course of business or in the ordinary methods of selling such prop- erty, and not at the price which it might be expected to bring at a forced sale. This is shown by the fact that the law does not require the prop- erty to bring its appraised value, but only provides that, if it is sold without the approval of the court, it must bring not less than three- fourths of that value. § 478. Who may purchase. — ^A referee in bankruptcy cannot, di- rectly or indirectly, purchase any property of an estate in bankruptcy over which he has jurisdiction as a referee. This is expressly forbidden by the act, and moreover, it is made a criminal offense and conviction thereof vacates his office."* For similar reasons, one who has been employed in appraising the property cannot buy it, either directly or through the agency of an attorney.^*' Neither can the trustee himself losTraer v. Clews, 115 TJ. S. 528, 6 , the approval of the court is not neces- • Sup. Ct. 155, 29 Li. Ed. 467. Compare (as sary If the property is sold for as much to sales by assignees for the benefit of as 75 per cent, of the appraised value, creditors), Muller v. Norton, 132 TJ. S. yet, if a less sum is bid, the court is 501, 10 Sup. Ct. 147, 33 L. Ed. 397 ; Schu- bound to exercise its best discretion in ler V. Israel, 27 Fed. 851 ; Meacham v. the matter. In re American Beaver Co. Sternes, 9 Paige (N. T.) 398. (D. C.) 242 Fed. 599, 39 Am. Bankr. Rep. 104 In re Newcomb, 32 Fed. 826. 603. 105 Bankruptcy Act 1898, § 70b. And loe Bankruptcy Act 1898, § ,39b, par. see supra, § 300. An appraisal made by 3 ; Id., § 29c, par. 2. persons appointed by the court will be i or in re Frazin & Oppenhelm, 181 presumed honest and accurate, and while Fed. 307, 24 Am. Bankr: Rep. 598. § 478 LAW OF BANKRUPTCY 1008 become the purchaser at his own sale. This is forbidden on principles of public policy.^'* Such a sale will be set aside; and though the trustee may not be required to lose the value of improvements made by him on the property after the sale, yet it is not enough to prevent a resale that he accounts for the value of the property at the time of the sale, if it largely appreciated thereafter.^** Still, there may be exceptional cir- cumstances in which it will be proper for the court to permit the trustee to become a bidder at his own sale. Thus in one case, where real estate came to the trustee incumbered with liens exceeding its value, the trustee himself being one of the judgment creditors, it was held competent for the court to grant him leave to proceed in a state court to sell the prop- erty, on his judgment and to bid in his individual right at the sheriff's sale."" So a sale in bankruptcy is not voidable because one of the three trustees of the bankrupt was a stockholder and officer of a new corpora- tion organized for the purpose' of purchasing the bankrupt's property, vfhen the creditors appointed him with full knowledge of this fact, and the new company was promoted by a reorganization committee of the bankrupt's creditors for the purchase of the property, and all the stock- holders of the bankrupt corporation were given full opportunity to par- ticipate."^ Where the subject of the sale was certain claims against the United States, and they were bought by a person who had formerly been the manager of the bankrupt corporation, and he had more knowledge of the merit, of the claims and more confidence of ultimate success m collecting them than the creditors had, it was held that this did not re- quire that the sale should be set aside, where there was no fraud or concealment, and the creditors had an opportunity to ascertain for them- selves the situation in respect to the claims. ^^^ Where land of the bank- rupt is sold subject to a mortgage, the mortgagee, not having proved his- claim in the bankruptcy proceeding, may, like any other person, bid for the bankrupt's equity of redemption.'^** The wife of the bankrupt may become a purchaser at the sale, but she has the burden of showing that the purchase was not made with money furnished by the bank- rupt."* There is nothing to prevent the bankrupt himself from buying any portion of his former assets when offered for sale by his trustee, if he can pay the price either out of his exempt property or out of property acquired after the adjudication ; and if he does so purchase, he will take 108 citizens' Bank v. Ober, 1 Woods, 112 Bray v. United States Fidelity & 80, 13 N. B. R. 328, Fed. Cas. No. 2,731. Guaranty Co. (0. C. A.> 267 Fed. 533, 45 10 9 In re Hawley, 117 Fed. 364, 9 Am. Am. Bankr. Rep. 395. Bankr. Rep. 61. us In re Old Oregon Mfg. Co.. (D. C.) 110 In re Carrier, 39 Fed. 193. 236 Fed. 804, 38 Am. Bankr. Rep. 409. 111 In re National Mining Exploration 114 Woodford v. Rice (D. O.) 207 Fed Co., 193 Fed. 232,-27 Am. Bankr. Rep. 92. 473,' 30 Am. Bankr. Rep. 455. 1009 SALES OF PEOPEETY BY TEUSTBES § 479 a new title, embracing all the interest which the trustee had to convey.*^" So he may make the purchase through an attorney."® And it does not in- validate the sale that the successful bid was made by an attorney em- ployed by the purchaser for that purpose and that the attorney had acted as counsel for the bankrupt and also for the trustee in rendering certain legal services required locally, where he had no connection with the bankruptcy proceedings.'^^'' Any collusive or fraudulent combination among creditors or other bidders will of course be ground for setting aside the sale."* But when the property, of a bankrupt corporation is for sale, it is perfectly proper for the bondholders, stockholders, or offi- cers to form a syndicate or a reorganization comttiittee or a new cor- poration, for the purpose of bidding on the property and acquiring it if they can fairly, and if they make no attempt to stifle or exqlude inde- pendent competition. ^"^^ § 479. Rights and Liabilities of Purchasers. — The powers of a trus- tee in bankruptcy are in no sense judicial, and his acts bind only those whom he represents. In the sale of the bankrup.t's estate, he acts only for the creditors who prove their claims, and in such matters he utm conclude the rights of no one else.^^** And a purchaser at a bankruptcy sale must take notice that nothing is sold except the bankrupt's inter- est.^^^ Thus, where the trustee sells land, the title to which was ac- quired by the bankrupt after the filing of the petition in bankruptcy, . 115 Hallyburton v. Slagle, 130 N. C. the purpose of protecting their interests. 482, 41 S. B. 877; Gates v. Fraser, 9 111. These are propositions that need neither App. 624; Udall v. School District No. 4, argument nor authority to support. 48 Vt. 588; Arnold v. Leonard, 12 Smedes That the trustees should in good faith & M. (Miss.) 258. , encourage and approve a plan which 116 Beall V. Chatham, 100 Tex. 371, 99 looked to the successful settlement and S. W. 1116. winding up of the bankruptcy estate, and 117 In re National Mining Exploration which met with the approval of creditors Co., 193 Fed. 232, 27 Am. Bankr. Rep. 92. and had the consent of all classes in- ns In re Troy Woolen Co., 8 Blatchf. terested, was perfectly proper." 465, 4 N. B. R. 629, Fed. Cas. No. 14,20i: 120 Second Nat. Bank v. National 119 In re Pittsburgh Dick Creek Mih'- State Bank of New Jersey, 10 Bush (Ky.) ing Co., 197 Fed. 106, 28 'Am. Bankr. Kep. 367. 613; In re Prudential Outfitting Co. (D. 121 Ashevllle Supply & Foundry Co. v. G.) 250 Fed. 504, 41 Am. Bankr. Rep. 621. Machin, 150 N. C. 738, 64 S. E. 887. And Schuler v. Hassinger, 177 Fed. 119, 100 see Whitman v. Cammack, 7 Rob. (La.) C. 0. A. 539, 24 Am. Bankr. Rep. 184. In 361 ; Shesler v. Patton, 114 App. Div. the case last cited it was said : "That 846, 100 N. Y. Supp. 286. Where a bank- there should be a reorganization agree- rupt constructed an addition to a leasfed ment for the purpose of buying in the building on leased ground, the question property of the bankrupt corporation Whether such building constituted a fix- cannot be objected to. In fact It "fur- ture, or whether it was removable, as nishes the only way that a large diversi- against the landlord, by a purchaser at . fied property and plant like that of the a sale of the bankrupt's assets, could not S. Company can be sold a:nd purchased be determined in advan'ce of a sale and without disastrous results to creditors an attempt to sever. In re Gorwood, 138 and stockholders, and the creditors have Fed. 844, 15 Am. Bankr. Rep. 107. every right to organize themselves for . Blk.Bkk.(3d Ed.)— 64 § 479 LAW OF BANKRUPTCY 1010 the burden is on' him and those who claim under him to show that the land equitably belonged to the bankrupt when the petition was filed.^*^ Further, although a sale is ordered and confirmed by the court, this is not an adjudication- that the property sold belonged to the estate of the bankrupt, but only that whatever title the bankrupt had to the property legally passed to the purchaser at the sale.^^^ Further, it is a well-set- tled principle of law that there is no warranty in judicial sales and that the rule of caveat emptor applies to such sales with full force.^** But a court of equity, in pursuance of justice, may set aside a sale made by a trustee in bankruptcy where it is shown that the purchaser has been innocently misled by the advertised notice of the sale.^*^ But where the purchaser was expressly informed that the trustee was selling only such title as he possessed, and knew that such title was in litigation, and that the trustee assumed no personal responsibility and did not war- rant the title or salability of the property, the purchaser cannot recover the money paid therefor, when it is subsequently determined that the trustee had no interest which he could convey.^^* In fact, it is the duvj of an intending purchaser at such a sale to make an independent investi- gation of the nature and validity of the bankrupt's title, and to follow up all inquiries which are suggested by his discovery of doubtful or sus- picious circumstances, otherwise he is in no position to ask aid or relief from the court.^^' But he is entitled to rely on an absolute compliance with the terms of the sale, and on the absolute fairness of an auction conducted under the order of the court. ^^* He is not bound to see that every particular in the appointment and qualification of the trustee has been complied with.^*' The purchaser becomes so far a party to the proceedings as to give the court of bankruptcy jurisdiction to make any and all orders neces- sary to compel him to complete his purchase.*^" And if he abandons his 122 WilUins V. Tourtellott, 28 Kan. 825. of oue having a valid claim or lien upon 12 3 Chellis v./ Coble, 37 Kan. 558, 15 it. Johnson v. American Smelting & Ke- Pac. 505. Where a bankrupt has no title fining Co., 99 Neb. 633, 157 N. W. 337. to land, a sale thereof by the trustee con- 125 gearcy v. McChord, 1 Fed. 261. veys no title as against persons not par- And see In re Mott, 1 N. B. R. 223, Fed. ties to the bankruptcy proceeding. An- Cas. No. 9,879; Carney v. Averill, 110 derson v. Daugherty, 169 Ky. 308, 183 S. Me. 172, 85 Atl. 494. w; 545. 126 In re Frasin (C. C. A.) 201 Fed. 124 A person purchasing thfe bank- 343, 29 Am. Bankr. Rep. 212 ; Taylor v rupt's assets from the trustee is charged Kimmerle, 232 Fed. 134, 146 C. C. A. 326, vifith knowledge of any lack of author- 37 Am. Bankr. Rep. 34. ity on the part of the trustee, and also 127 Webber v. Clark, 136 111. 256, 26 of the fact that the sale must be ap- N. E. 360, 32 N. E. 748. 'proved. In re Eden Musee American Co. i2aln re Kronrot, 183 Fed. 653, 25 Am. (D. O.) 230 Fed. J925, 36 Am. Bankr. Rep. Bankr. Rep. 738. 111. Where the trustee sells property 120 Zeigler v. Shomo, 78 Pa. St. 357. which never has been in his possession, lao Where, after a. sale in bankruptcy, the proceeds must stand for the benefit but before Its confirmation by the court. 1011 SALES OF PROPERTY BY TRUSTEES § 479 purchase, without any attempt to secure the property (transferable only on certain conditions) he will be liable for the loss on a resale. ^^^ So long as the proceedings are pending in the court of bankruptcy, as, on application to have the sale confirmed, the property is still within the control of that court, and it may give the purchaser what aid he may need.*** But when the sale has been made, the proceeds received by the trustee, and the sale ratified by the court, it has no further jurisdic- tion over the property, and cannot interfere, by injunction or otherwise, to protect the purchaser against the assertion of adverse claims. He is thereafter left to himself, and must protect his own interests in any ap- propriate court, but cannot treat the bankruptcy court as a general war- rantor of title.*** As stated in one of the cases; "The court does not follow the property of the estates of bankrupts into the .hands ot pur- chasers, but only to the hands of purchasers. After they have once had the property, they must take care of it and of the possession of it." *** Where the property sold is a chose in action, the purchaser may of course sue on it, and it is sufficient evidence of the authority of the trustee in bankruptcy that he acted as such, without record evidence thereof.**^ And where a debt due to the bankrupt from a third person is sold, it cannot be offset by a debt due from the bankrupt to such third person which was acquired after the bankruptcy.*** Where an equity of redemption is sold and a valid conveyance made, the purchaser may maintain a suit to redeem.**' The special short statute of limitations contained in the bankruptcy act does not apply to actions by purchasers to recover property or collect debts bought by them.*** the property Is so seriously damaged by corporation having been sold to a reor- a flood as to become substantially worth- ganization committee, a court in a bank- less, the loss cannot be visited upon the ruptcy proceeding has no jurisdiction to purchaser ; the court has a judicial dis- control the rights to be given by such cretion to exercise in the matter of con- committee to stockholders of the old firming the sale, and it would be an company in the reorganization. In re abuse of such discretion to require the Witherbee, 202 Fed. 896, 30 Am. Bankr. purchaser to bear the loss. In re Finks, Rep. 314. 224 Fed. 92, 139 O. C. A. 648, 34 Am. 135 Arnold v. Leonard, 12 Smedes & M. Bankr. Bep. 749. (Miss.) 258. See Breakstone v. Buffalo ' 131 Snyder v. Bougher, 214 Pa. St. 453, Foundry & Machine Co., 79 Misc. Hep. 63 Atl. 893 ; In re Myers-Wolf Mfg. Co. 496, 141 N. T. Supp. 159; Jennings v. (C. C. A.) 205 Fed. 289, 30 Am. Bankr. Whitney, 224 Mass. 138, 112 N. E. 655. Rep- 5'72. 180 Judson v. Lathrop, 6 La. Ann. 587. 132 Potter V. Martin, 122 Mich. 542, 81 N. W. 424. 187 Davis v. Ives, 75 Conn. 611, 54 Atl. IBS Adams y. Crittenden, 17 Fed. 42 ; f^' ^^^ ^he right of a mortgagor (un- Briggs V. Stephens, 7 Law Rep. 281, Fed. ^^"^ ^ ^^^^^ ,f "^f*'^] to redeem within Cas. No. 1,873; Henrle v. Henderson, two years after a foreclosure does not 145 Fed. 316, 76 C. C. A. 196, 16 Am. P*«f *» f purchaser from his trustee in Bankr Ren fil7 bankruptcy. Leith v. . Galloway Coal 184 In re Hale', 19 N. B. R. 330, Fed. Co., 189 Ala. 204, 66 South. 149. Cas. No. 5,912. Assets of a bankrupt i^s Judson v. Lathrop, 6 La. Ann. 587. § 480 LAW OF BANKRUPTCT 1012 § 480. Nature and Extent of Title Conveyed. — A purchaser at a trustee's sale of the property of a bankrupt acquires no higher title or greater rights than the bankrupt himself had in the property sold.^^* Thus, a deed of land given on such a sale conveys only an interest in the surface of the land, when the bankrupt had previously conveyed by a recorded deed the coal and other minerals underlying it."" So, where the tenant of a building places fixtures therein, the purchaser of the same from his trustee in bankruptcy acquires only such right to remove the fixtures as the tenant may have had."^ And one who buys land from a trustee in bankruptcy knowing that the bankrupt held the land in trust for another, though by a deed absolute in form, acquires no title on which he can maintain a writ of entry."* One who buys the bankrupt's interest in a contract for the conveyance of land to him has all the rights therein which the bankrupt would have had but for the bank- ruptcy."* And a sale by the trustee of land held in trust by the bank- rupt to secure debts due to himself passes to the purchaser the debts secured as well as the legal estate in the land, and entitles him to pos- session until the debts are paid.*" It is to be observed that the purchaser acquires whatever title the bankrupt had in the land at the time of the sale, and if the bankrupt acquired any better or different title from the time of the adjudication in bankruptcy to the time the sale was made, that title inures to the benefit of the purchaser."^ But it is otherwise as to a title vesting in the bankrupt by devise after the sale."® It is also a general principle that a purchaser of property at a bankruptcy sale takes it subject to all the equities with which it was chargeable in the hands 139 McKiernan v. Fletcher, 2 La. Ann. maker has the right to the same defens- 438; Wallace v. Meekg, 99 Ark. 350, 138 es against the purchaser that he would S. W. 638 ; Watson v. Conrad, 38 W. Va. have if the trustee in bankruptcy were 536, 18 S. E. 744; Winter, Loeb & Co. the plaintiff. Phillips v. Matthews, 205 V. Montgomery Cooperage Co., 169 Ala. Ala. 480, 88 South. 641. 628, 53 South. 905 ; Noyes v. Willard, 1 140 Catlin Coal Co. v. Lloyd, 180 111. Woods, 187, Fed. Cas. No. 10,874; Con- 398, 54 N. B. 214, 72 Am. St. Eep. 216. verse v. Sorley, 39 Tex. 515; Roberts v. And so also as to a mining lease. See W. H. Hughes Co., 86 Vt. 76, 83 Atl. 807; Pittsburgh & West Virginia Gas Co. v. Osborn v. Mills, 20 Oal. App. 346, 128 Ankrom, 83 W. Va. 81, 97 S. E. 593, 5 pac. 1009; Brown v. Brown, 172 Ky. 754, A. L. R. 1157. ' i 189 S. W. 921; Bailey v. Anderson, 142 i4i Jacob v. Kellogg, 56 Misc. Rep. Ga. 11, 82 S. B. 290. The sale and con- gei, 107 N. Y. Supp. 713. See Sacred veyance by a trustee of a bankrupt, in Heart Roman Catholic Church v Ved- which the only property described was der, 80 Misc. Rep. 541, 142 N. T 'supp real estate, does not pass title to a house §70 standlog on the property, which, to the ,,, ^axon v. Folyey, 110 Mass. 392. knowledge of the purchaser, belonged to ,..ott ■ Z. . another person. Sacred Heart Roman J.^^S'^'ToJ- ^^''^^^^' ^^ ^ass. Catholic Church v. Vedder, 80 Misc. Rep. ° ' *"* ^- ^- '^^'^■ 541, 142 N. Y. Supp. 870. One purchas- "* ^treen v. Green, 79 N. 0. 343. ing a note at a bankruptcy sale after its '*" McAlplpe v. Tourtelotte, 24 Fed. 69. maturity acquires only such title or in- !*« Wilson v. Dresser, 152 111. 387, 38 terest as the bankrupt had, and the N. E. 888. 1013 SALES OF PEOPBETX BY TRUSTEES § 480 of the bankrupt."' And unless the court of bankruptcy orders the property sold free of incumbrances, the purchaser will take it subject to all valid and recorded liens, that is, he will take only the equity of re- demption, and the holder of a mortgage or other lien may proceed to enforce it against such purchaser,"* or, conversely, the purchaser will have the right to redeem from a mortgage or other lien or from a sale on foreclosure thereof."® But the purchaser will be protected against a prior unrecorded deed of the bankrupt if he has no notice of it and is not chargeable with knowledge of facts sufficient to put him on in- quiry. ^^ But an announcement made at the sale, concerning the exist- ence of an unrecorded mortgage or deed, will charge the purchaser with notice.^®^ And where the order of court directing the sale authorizes the trustee to sell only the right, title, and interest of the bankrupt in the property and to convey by a quitclaim deed, a purchaser who has actual notice of an agreement made by the bankrupt and binding him to pay certain royalties on mining operations conducted on the land to the former owner, the same constituting a covenant running with the land, will take subject to the same and not free from it.^®^ But if a previous conveyance, transfer, or assignment of the property in question, made by the bankrupt, is voidable under the bankruptcy law as having been preferential or as made in fraud of creditors, the purchaser of the prop- erty at the trustee's sale of it will succeed to the trustee's right to vacate or annul such transfer or assignment, and may maintain an appropriate action to do so."* 1*7 Renick v. Dawson, 55 Tex. 102; i4o Greene v. Taylor, 132 V. S. 415, 10 Baker v. Vining, 30 Me. 121, 50 Am. Dec. Sup. Ct. 138, 88 L. Ed. 411. 617; Anderson v. Miller, 7 Smedes & M. 150 Webber v. Clark, 136 111. 256, 26 (Miss.) 586; Steadman v. Taylor, 77 N. N. E. 360, 32 N. B. 748; Holbrook v. C. 134; Consolidated Arizona Smelting Dickenson, 56 111. 497; Lynch v. John-- Co. V. Hinchman, 212 Fed. 813, 129 C. 0. son, 170 N. C. 110, 86 S. E. 995. A. 267. 151 Eoberts v. W. H. Hughes Co., 86 14 8 In re Wylie, 153 Fed. 281, 82 C. C. Vt. 76, 88 Atl. 807. A. 411, 18 Am. Bankr. Rep. 503; In re 152 Hinchman v. Consolidated Arizona Allin, 12 Fed. 433 ; Bucknam v. Dunn, 2 Smelting Co., 198 Fed. 907, 29 Am. Hask. 215, 16 N. B. R. 470, Fed. Cas. No. Bankr. Rep. 893. 2,096; In re Cooper, 16 N. B. R. 178, is s In re Downing (C. C. A.) 201 Fed. Fed. Cas. No. 3,190; Horkan v. Bason, 93, 29 Am. Bankr. Rep. 228; Bryan v. 10 Ga. App. 236, 73 S. E. 352; Owen v. Madden, 79 App. Div. 636, 80 N. Y. Supp. Potter, 115 Mich. 556, 73 N. W. 977; 1131; s. c, 109 App. Div. 876, 90 N. T. Moore v. Fir.st Nat. Bank, 135 Ark. 869, Supp. 465; Dwinel v. Perley, 32 Me. 197; 205 S. W. 902 ; Collier v. Seward & Ro- Bartles v. Gibson, 17 Fed. 298 ; Hinton per, 116 Va. 877, 82 S. E. 100; Crouch v. Williams, 170 N. C. 115, 86 S. E. 994; V. Fahl, 63 Ind. App. 257, 113 N. E. 1009. Finney v. Knapp Co., 145 Ga. 400, 89 S. One buying property at a bankruptcy E. 418. But see Annis v. Butterfleld, 99 sale subject to a mortgage thereon does Me. 181, 58 Atl. 898 ; Belding-Hall Mfg. not assume payment of the mortgage Co. v. Mercer & Ferdon Lumber Co. (C. debt, but becomes owner of the property C. A.) 175 Fed. 335, 23 Am. Bankr. Rep. subject to the incumbrance. Kerman v. 595. Leeper, 172 Mo. App. 286, 157 S. W. 984, § 480 LAW OF BANKRUPTCY 1014 Whatever title the purchaser takes, it is understood to be absolute and final, and not provisional or defeasible. The court has no power to deprive him of whatever rights he may acquire by his purchase, and therefore cannot grant leave to a creditor of the estate, or to any one else, to redeem from the sale on reimbursing the purchaser.^®* The latter will also be entitled to the rents and profits of real property pur- chased from the day of the sale, and not. merely from the date of its confirmation.^®® But he cannot claim the bankrupt's right to any por- tion of the crops growing on the land and stipulated to be paid to him by way of rent.^®* Where the property sold consists of a going busi- ness, the purchaser will take it with the good will, if that was meant to be included in the sale,^®' and he may probably continue the business in the name of the former owner, a corporation,^®* or at least, he will have the right to advertise himself, by store signs or otherwise, as the "successor" of the bankrupt in the business.^®* Taxes due on the prop- erty at the time of the sale will of course be taken into account in fixing the price.'^®'* But taxes assessed after the sale, though before the payment of the balance of the purchase price and delivery of the deed must be paid by the purchaser, and he cannot claim reimbursement out of the funds of the estate, and this although the sale was made free of liens and incumbrances, since this applies only to such liens as exist- ed at the date of the sale.^®'- 164 In re Novak, 111 Fed. 978, 7 Am. Bankr. Rep. 267. 16 6 Hall V; Scovel, 10 N. B. B. 295, Fed. Gas. No. 5,945. As to application of rents on interest and principal of pri- or mortgage, see In re Ketterer Mfg. Co., 162 Fed. 583, 20 Am. Bankr. Rep. 694. 166 In re Bledsoe, 12 N. B. R. 402, Fed. Gas. No. 1,533. A parol agreement to plant, cultivate, and care for an orchard on the land of another, and to divide the net proceeds after the trees have come to bearing age, is a mere license, and does not pass under a sale of the li- censee's property in bankruptcy. Mc- Ferren v. DeardorfC, 69 Pa. Super. Gt. 154. 167 James Van Dyk Go. v. F. V. Reilly Co., 73 Misc. Rep. 87, 130 N. Y. Supp. 755. The sale by a corporation's trustee in bankruptcy of the assets and property of its bpsiness, vifithout its good will and trade rnarks, destroys both the good will and trade marks as things of value, and will preclude the trustee from thereafter selling them as property of the bank- rupt, and if he attempts to do so, he may be restrained. In re Jaysee Gorset Co., 201 Fed. 779, 29 Am. Bankr. Rep. 856. 168 S. F. Myers Co. v. TutUe, 188 Fed. 532, 26 Am. Bankr. Rep. 541. i6s> Freeman v. Freeman, 86 App. Div. 110, 83 N. Y. Supp. 478. See Hotel Clar- idge Go. V. George Rector, Inc., 164 App. Div. 185, 149 N. Y. Supp. 748. 16 As to trustee's sale of land free from lien of taxes, see supra, § 472. The liability of a purchaser of the bank- rupt's real estate for taxes thereon, con- stituting a lien under the law of the state, depends on the terms of the sale. In re Reading Hat Mfg. Co. (D. C.) 224 Fed. 786, 34 Am. Bankr. Rep. 884. The purchaser at a banki-uptcy sale of prop- erty on which a city had a lien for taxe.s takes it subject to the taxes, if the salf> was not declared to be free of tax liens, and the city had no notice of the bank- ruptcy proceedings or that its claim was or would be adjudicated therein. Citi- zens' Savings Bank v. City of Paducah. 159 Ky. 583, 167 S. W. 870. 161 In re CrowelUD. G.) 199 Fed. 659. 29 Am. Bankr. Rep. 308. And see In re Reading Hat Mfg. Co. (D. C.) 239 Fed. 357, 89 Am. Bankr. Rep. 207. 1015 SALES OP PROPERTY BY TRUSTEES § 481 Where certain personal property was not inventoried as an asset of the bankrupt's estate in the possession of the trustee, or as prop- erty to which the trustee claimed title, and was not mentioned in the appraisal nor in any transfer from the trustee, the purchaser of the bankrupt's property from the trustee acquired no legal title to that par- ticular property.^** § 481. Approval or Confirmation of Sale. — The statute directs that "real and personal property shall, when practicable, be sold subject to the approval of the court; it shall not be sold otherwise than subject to the approval of the court for less than seventy-five per centum of its appraised value." ^^* This is construed to mean that any sale for which it is practicable to obtain the approval of the court of bankruptcy must be approved or confirmed, and that the sale passes no title until approved or confirmed, either expressly or impliedly.^"* And if the matter is drawn in question, a purchaser under a trustee's sale which was not approved by the court has the burden of proving that it was impracti- cable to make the sale subject to such approval. ^^^ The authority of the court in this respect may be exercised by the referee.-"*® And since only the "approval" of the court is spoken of, it is not necessary that there should be a formal order confirming the sale in so many words. Thus, where, after an alleged unauthorized sale of the bankrupt's assets, the trustee applied for an order directing that the proceeds be delivered to him, which was duly entered by the court, this was held to constitute an affirmance of the sale."' But where the trustee makes a sale under order of the court and reports it for confirmation, the general rules gov- erning judicial sales apply, and the validity of the title acquired depends upon the validity of the order of confirmation."* The creditors of the estate are not entitled to notice of an application for the confirmation of a sale.^^ But they may, it appears, offer objections to its confirmation if they have any substantial reasons for so doing. An unsuccessful bid- 1S2 Ellis V. Feeney & Sheehan Build- loo Davis v. Ives, 75 Conn. 611, 54 Atl. ing Co., 187 App. Div. 481, 176 N. Y. 922. Supp. 61. And see Union Trading Co. v. loe in re American Beaver Co. (D. O Drach, 58 Colo. 550, 146 Pac. 767. 242 Fed. 599, 39 Am. Bankr. Eep. 603: 163 Bankruptcy Act 1898, § 70b. Un- ^avis v. Ives, 75 Conn. 611, 54 Atl. 922. der tlie act of 1867, some of the courts ■ r. -, ,r^ r^ ^ ,.^^ of bankruptcy made a practice of not '" ^^T 1^7^^ '.^?Jf; T.' having trustees' sales reported to them °" V \7' , '^ r,Z: ^ ' ' for confirmation. See In re Alden, 16 ^^ ^™- S'^"'^'"- ^^p. 709. N. B. R. 39, Fed. Cas. No. 151; In re les J. M. West Lumber Co. v. Lyon, 5.S Donnell, Fed. Cas. No. 3,986a. Tex. Civ. App. 648, 116 S. W. 652. 16* In re Shea, 126 Fed. 153, 61 C. C. • i,,, i^ ^e Nevada-XJtah Mines & Smel- A. 219, 11 Am. Bankr. Rep. 207; Everett ^^^^ coi-p., 198 Fed. 497, 28 Am. Bankr. V. Selden & Wright, 127 La. 573, 53 Rep. 409. Compare In re Peabody, 16 South. 867. Compare James v. Koy n. B. R. 243, Fed. Cas. No. 10,866. (Tex. Civ. App.) 59 S. W. 295. § 481 LAW OF BANKRUPTCY 1016 der at the sale may object to confirmation, but not merely on the ground that he would have bid more if the property had been sold as a whole instead of separately. But the high bidder has a standing in court to urge the acceptance of his bid and the confirmation of the sale.^™ No case has been found in which the bankrupt himself was admitted to op- pose the confirmation of a sale ; but in one instance this right was given to the heirs of a deceased bankrupt (whose estate had proved to be sol- vent) on their objection that the land in question, which was in another state, had not been appraised, and was insufficiently advertised.^" As to the matters to be considered on such an application, the ap- proval or disapproval of the sale rests very much in the discretion of the court,^'^ and it may withhold its approval on account of mere inade- quacy of price, without more ; "* it is not necessary that there should be fraud shown, or such gross inadequacy of price as to be proof of fraud."* Still it must be remembered that the purchaser at the sale has substantial rights, which are to receive the first consideration. The highest bidder at the sale, provided he is able and willing to comply with the terms of sale, is entitled to have his bid accepted and reported for confirmation, and to have the sale to him confirmed, if the sale was made on sufficient notice and for a fair price, and there appears to have been a compliance with all necessary and proper requirements for holding the sale, and honesty and fair dealing in the sale itself."® But the court may impose equitable terms or conditions upon the purchaser, as, for instance, by requiring him to give security for the payment of future rent on the sale of a leasehold interest."* An order of confirmation has I'o Jacobsohn V. Larkey, 245 Fed. 538, ity concur in their views. See In re 157 C. C. A. 650, L. R. A. 19180, 176, 40 Peerless Finishing Co., 199 Fed. 350, 28 Am. Bankr. Rep. 563. Am. Bankr. Rep. 429. 171 In re Iryine (D. C.) 255 Fed. 168, i^o in re Williams, 197 Fed. 1, 28 Am. 43 Am. Bankr. Rep. 155. Bankr. Rep. 258; In re National Min- 172 In re Sanborn, 96 Fed. 551, 3 Am. ing Exploration Co., 193 Fed. 232, 27 Bankr. Rep. 54. Olitsky v. Estersohn, Am. Bankr. Rep. 92; In re Throckmor- 90 N. J. Eq. 4:59, 108 Atl. 88. ton, 149 Fed. 145, 79 C. C. A. 15, 17 Am. 173 See In re Ohio Copper Mining Co. Bankr. Rep. 856; In re Ewing, 16 Fed. (D. C.) 237 Fed. 490, 38 Am. Bankr, Rep. 753 ; In re Kronrot, 183 Fed. 653, 25 548; Bryant v. Charles L. Stockhausen Am. Bankr. Rep. 738. Where the high Co. (C. C. A.) 271 Fed. 921, 46 Am. bid at a bankruptcy sale does not Bankr. Rep. 414. amount to 75 per cent, of the appraised 174 In re Groves, 2 Nat. Bankr. News, value, the bidder does not acquire an .30; In re O'Pallon, 2 DiU. 548, Fed. equitable title to the property. In re Gas. No, 10,445. See In re Thompson, 1 American Beaver Co. (D. C) 242 Fed, Nat, Bankr, News, 355, The court. In 599, 39 Am, Bankr. Rep, 603. deciding whether or not to confirm or i7 8ln re Varley & Bauman Clothing approve a sale, where the only question Co., 188 Fed, 761, 26 Am, Bankr, Rep, is whether the price offered is the- best 104. Where the referee, as part of a that could be obtained, should consider composition plan, sold property of a what is for the benefit of the creditors bankrupt, and confirmation of the sale in general, and may properly be influ- was conditioned upon confirmation of cnced by their wishes, if a large major- the offer of composition by the court, the 1017 SALES OF PROPEEXy By TRUSTEES § 482 the effect of a judgment and may raise an estoppel against parties whose rights were before the court,"'' but it is not a ratification of any act of the trustee done in excess of his authority, where it does not appear that the excess of power exercised was brought to the knowl- edge of the court."* The order of confirmation relates back to the date of the sale, so as to invest the purchaser with the character of an owner from the day of his purchase.'"* § 482. Payment or Recovery of Purchase Money. — The court of bankruptcy has jurisdiction and power to enforce in a summary man- ner the completion of the contract of sale, and to compel the purchaser to pay the stipulated price, which may also include interest if there has been unreasonable delay.^*" On the other hand, the purchaser may be entitled to a deduction or refund of part of the purchase money on ac- count of a shortage in the quantity of the property sold."^ And he may even be entitled to be excused from paying any part of the price, or to a restoration of what he may have paid, when it proves impossible for' the trustee to make a title.^** An order for a sale in bankruptcy may properly contain a provision that, in case of a purchase by a lien cred- itor, he may have credit on the price for such portion thereof as would otherwise accrue to him by reason of his lien.^*^ And on the same prin- ciple, where property incumbered by a mortgage securing an issue of sale is null and void, where tlie offer of sale. He is entitled to the intermediate composition is rejected. In re Kliger- rents and profits; he cannot escape man (D. C.) 253 Fed. 778, 42 Am. Bankr. from the sale because disadvantageous; Kep. 670. and he is bound to pay interest on the "7 Blood V Munn, 155 Oal. 228, 100 purchase money from its date. Wagner Pae. 694. '*'■ Cohen, 6 Gill (Md.) 97, 46 Am. Dec. ' ,,'„T HT /T14- o T,- ->AA r, TvT ^^- ^^^ scc lu TQ Fiuks, 224 Fed. 93, 178 In re McGilton, 3 Biss. 144, 7 N. ion n n a ota o^ a™ t. i -n -T.in B R 2q4 1?erl Ofis No S 7qs ^^^ ^- ^- ^- ^^^' ^^ ^™- ^ankr. Rep. 749. B. R. 294, Fed. Gas. No. 8,798. ,,„ ^^^^^ ^ Wolkowich, 150 Fed. 699, "9 Lathrop v. Nelson, 4 Dill. 194, Fed. 80 0. 0. A. 435, 10 L. R. A. (N. S.) 765, Gas. No. 8,111. A contract of sale made 17 Am. Bankr. Rep. 709; In re Myer.s- between the court as the vendor of prop- Wolf Mfg. Go., 205 Fed. 289, 123 O. C. erty through the agency of a trustee, A. 441, 30 Am. Bankr. Rep. 572. and the purchaser, is not regarded as isiln re Drumgoole, 140 Fed. 208, 15 consummated until it has received the Am. Bankr. Rep. 261. See Owens v. sanction and ratification of the court. If Bruce, 109 Fed. 72, 48 C. G. A. 239, 6 the purchaser has not assumed the re- Am. Bankr. Rep. 322. And see In re sponsibility of protecting the property, McGann (D. C.) 250 Fed. 1006, 42 Am. by taking possession of it, any loss that Bankr. Rep. 155. may be sustained by its injury or dete- 182 in re Gaponigri, 210 Fed. 897, 127 rioration, in the interval between the C. 0. A. 466, 32 Am. Bankr. Rep. 158. sale and final ratification, falls upon the In re Miller (D. C.) 171 Fed. 263; In re vendor. Still it gives to the purchaser Gomer & Go. (D. G.) 171 Fed. 261. an inchoate and equitable title, which is 3 Clark Hardware Co. v. Sauve, 220 becomes complete by the ratification of Fed. 102, 136 C. G. A. 194, 33 Am. Bankr. the court. The ratification retroacts. Rep. 674. And see Baker Motor Vehicle and the purchaser is regarded, by rela- Co. v. Hunter, 238 Fed. 894, 15S: G. C. A. tion, as the owner from the period of 28, 39 Am. Bankr. Rep. 122. 483 LAW OF BANKRUPTCY 1018 bonds is sold in bankruptcy, the holders of bonds, if they become the purchasers, must be permitted to use their bonds in paying the pur- chase price.^** But this does not a,pply where the bonds are void un- der the constitution of the state."" And the court will not ratify a sale where the bondholders of the bankrupt corporation, who do not include all of its creditors, propose to take over its property and assets, by trans- fer to a new corporation, and to pay the non-included creditors only a percentage of their claims or else give them obligations of the new corporation, for the court has no power thus arbitrarily to preclude the claims of the non-assenting creditors.^** § 483. Conveyance and Delivery. — In the case of sales of real prop- erty of an estate in bankruptcy, the statute directs that the title "shall be conveyed to the purchaser by the trustee." "'' The deed should be made in exact accordance with the directions of the court, but an er- ror in this respect will be cured by an order confirming the deed.-^** It should be executed by the trustee in his official capacity, as by describ- ing himself as "trustee in bankruptcy," ^*^ but need not contain a re- cital of the order of the court of bankruptcy authorizing the sale to be 184 In re Fayetteville Wagon-Wood & Lumber Co., 197 Fed. 180, 28 Am. Bankr. Rep. 307; In re Saxton Furnace Co., 136 Fed. 697, 14 Am. Bankr. Rep. 488; In re Waterloo Organ Co., 118 Fed. 904, 9 Am. Bankr. Rep. 427; Schuler v. Hassinger, 177 Fed. 119, 100 C. C. A. 539, 24 Am. Bankr. Rep. 184. In the case last cited it was said: "The proposition that the terms of sale were unequal and unfair, and competition was thereby stifled, Is based upon the fact that the purchaser was permitted, by the terms of the order of sale, to turn in, in payment of the price, admitted securities [bonds of the bankrupt corporation], the argument be- ing that the holders of securities could buy without paying cash, while an out- sider would be compelled to pay cash. The contention in this case seems to dis- regard the general rule which prevails in all foreclosure and execution sales, wherein it is not deemed proper and nec- essary to require purchasers to put up cash with one hand to take it down with the other." 18 6 In re Wyoming Valley Ice Co., 153 Fed. 787. 188 In re J. B. & J. M. Cornell Co., 186 Fed. 859, 26 Am. Bankr. Rep. 252. 187 Bankruptcy Act 1898, § 70c. Where there is a valid sale, under which the price has been paid, the mere failure to deliver a deed will not authorize a re- sale. In re King, 3 Fed. 839. Under the act of 1867, it was held that the cost of making and acknowledging the deed must be borne by the purchaser. In re Davenport, 3 N. B. R. 77, Fed. Cas. No. 3,587; In re Tulley, 3 N. B. R. 82, Fed. Cas. No. 14,235. The present statute, however, casts upon the trustee the duty of conveying the title, and would author- ize the cost of a deed to be included in his account of expenses incurred in adminis- tering the estate. But undoubtedly it would be competent for the court (as is often done in foreclosure sales) to order that "conveyancing shall be at purchas- er's cost." issHarman v. Steams, 95 Va. 58, 27 g. E. 601. 180 Coryell v. Klehm, 157 111. 462, 41 N. E. 864. An individual deed by a trustee in bankruptcy of property held in his official capacity, after the title had re- vested in the bankrupt, is Ineffective for any purpose. Calligan v. Calligan, 259 111. 52, 102 N. E. 247. Where a deed by a trustee in bankruptcy is relied on in an action against strangers, preliminary proof of the trustee's title and his au- thority to make the sale is necessary. Brown v. White, 153 Ky. 452, 156 S. 1019 SALES OF PROPERTY BY TRUSTEES § 483 private,"" and will be sufficient to pass title although not sealed."^ It should, however, be acknowledged before a competent officer,"" and should contain a sufficient description of the property to identify it with reasonable certainty."* It should run to the purchaser at the sale, un- less he directs it to be made out in the name of some other person,"* and a state court has no jurisdiction to enjoin the execution of a deed to the purchaser, on a bill filed by one claiming to be jointly interested with him in the purchase of the property."" In the absence of specific covenants of. title, they are not to be read into a trustee's deed by im- plication."* And the duty of the trustee to the purchaser ceases upon the delivery of a good and sufficient deed. Thus, a bankrupt in posses- sion of realty at the time of its sale by his trustee, who thereafter agrees with the purchaser to vacate on a certain day, holds as a tenant under the purchaser, and a petition will not lie by the trustee in bankruptc}5 for delivery of possession."'" In case of the sale of personal property, the duty of the trustee is to deliver it to the purchaser. But it is said that his authority as trus- tee ceases when he has sold the property, and his subsequent failure to make delivery is a personal, and not an official, breach of duty."* On his refusal to deliver, the purchaser may maintain trover against him in a state court, to which action, however, an order of the court of bankruptcy setting aside the sale would be a complete defense."* In the case of intangible property or choses in action, delivery to the purchaser will include whatever is necessary to make his title clear and his ownership effective, as, for instance, a written assignment of- a mort- gage which was the subject of the sale.""* But on the sale of a negotia- ble note by a trustee in bankruptcy, after its indorsement by the payee, or where it was payable to bearer, it is not necessary in order to pass title that the trustee should indorse the note, mere delivery being sufficient."'^ An assignment by a trustee in bankruptcy in pursuance of an order of sale of the bankrupt's bills receivable includes a debt due W. 96. But see, as to aiding the trus- i95 Henderson v. Henrie, 61 W. Va. tee's deed by presumptions after a great 183, 56 S. E. 369, 11 Ann. Cas. 741. lapse of time, Lacey v. Southern Mineral loe Clark v. Post, 113 N. Y. 17, 20 N. Land Co. (Ala.) 60 South. 283. E. 573. 190 Ryder V. Rush, 102 111. 838. i97 in re Hale, 19 N. B. R. 330, Fed. 181 Westfeldt v. Adams, 131 N. C. 379, Cas. No. 5,912. 42 S. E. 823. 198 Sheldon v. Rounds, 40 Mich. 425. 19 2 Harris v. Pratt, 37 Kan. 316, 15 i99 Ives v. Tregent, 29 Mich. 390, 14 N. Pac. 216. B. R. 60. 10 3 James v. Koy (Tex. Civ. App.) 59 200 In re Franklin Sav. Fund Soc«, Fed. S. W. 295. Cas. No. 5,059. 194 Wilson V. Winslow, 145 Mass. 339, 201 Wade v. Elliott, 11 Ga. App. 646, 14 N. E. 103. And see dlitsky v. Ester- 75 S. E. 989; Arnold v. Leonard, 12 sohn, 90 N. J. Eq. 459, 108 Atl. 88. Smedes & M. (Miss.) 258. § 484 LAW OF BANKRUPTCY 1020 to the bankrupt for goods sold, although the debt, without the knowl- edge of the trustee or the purchaser, had been previously reduced to judgment.'"^ § 484. Application of Proceeds. — Out of the proceeds of a trustee's sale are to be paid first the costs and expenses of the sale,^** and then any proper expenses incurred in caring for the property or putting it in condition to be sold, such as premiums for insurance,*"* and the value of improvements put upon the property by a purchaser at a for- mer sale which was set aside. ^*® Where the property is incumbered by a valid mortgage or other lien, it is wrong practice to charge the mort- gagee with a proportionate part of the costs and expenses of the sale, but these should first be paid out of the proceeds, and then the mort- gage creditor should be paid in full if the fund is sufficient for that pur- pose.^"® But the commissions of the trustee and referee do not out- rank the mortgage debt, in case of a deficiency. That is, if the proceeds of sale are no more than sufficient to pay the mortgage, the holder of it is entitled to the full amount without deduction for such commissions, at least if there is any general fund of the estate against which they can be charged,^*' except, perhaps, in cases where the mortgagee him- self petitioned for the sale or knew of it and made no objection.*"* But 202 Rogers V. Abbot, 206 Mass. 270, 92 foreclosure of the lien may be charged N. B. 472, 138 Am. St. Rep. 394. against the fund realized from the sale, 20 3 In re Utt, 105 Fed. 754, 45 C. C. A. without the consent of a lienholder, of a 32, 5 Am. Bankr. Rep. 383; Arnold v. bankrupt's property subject to the lien, Greene Gold-Silver Co., 68 Misc. Rep. the sale having been made free from 449, 125 N. Y. Supp. 29; In re .Tohnston, liens. In re New York & Philadelphia Fed. Gas. No. 7,424; In re Whitehead, 2 Package Co. (D. C.) 225 Fed. 219, 35 Am. N. B. R. 599, Fed. Cas. No. 17,562; In re Bankr. Rep. 94. Johnson (D. C.) 224 Fed. 180. Counsel 207 in re Harralson, 179 Fed. 490, 103 for the trustee may be allowed a fee as C. C. A. 70, 24 Am. Bankr. Rep. 715; a charge against the fund arising from In re Stewart, 193 Fed. 791, 27 Am. a sale of real estate in which both the Bankr. Rep. 529; In re Blue Ridge R. bankrupt and the estate of an insolvent Co., 2 Hughes, 224, 13 N. B. R. 315, Fed. decedent held an interest, where his serv- Cas. No. 1,570. The necessary expenses Ices were for the benefit of both classes of the sale should be allowed, but not of creditors. In re TIetje (D. C.) 263 the expenses of administration in the Fed. 917, 44 Am. Bankr. Rep. 638. bankruptcy court. The court cannot sell 204 In re Prince & Walter, 131 Fed. mortgaged premises free of the lien and 546, 12 Am. Bankr. Rep. 675. use the proceeds in paying the expenses 20 6 In re William F. Fisher & Co., 148 of administration, but may ascertain the Fed. 907, 17 Am. Bankr. Rep. 404. amount actually due and make proper al- 206 In re Sanderlin, 109 Fed. 857, 6 lowances for the expense of so doing. Am. Bankr. Rep. 384; McNair v. Mc- In re Howard (D. C.) 207 Fed. 402, 31 Intyre, 113 Fed. 113, 51 C. C. A. 89, 7 Am. Bankr. Rep. 251. Am. Bankr. Rep. 638. But see In re 208 in re Torchia, 188 Fed. 207, 110 Howard, 207 Fed. 402. Only those fees, C. 0. A. 248, 26 Am. Bankr. Rep. 579; charges, and expenses necessary for the In re Chambersburg Silk Mfg. Co., 190 preservation of the property and' the Fed. 411, 26 Am. Bankr. Rep. 107. 1021 SALES OF PEOPERTY BY TRUSTEES §_ 484 where a first mortgage. lien on the property is paid in full, not only the costs of sales but also commissions of officers may be satisfied out of the balance before any distribution to holders of valid but inferior liens, on the principle that the expenses of creating a fund are to be paid out of it.«»9 If the sale was made subject to incumbrances, the holder of a lien remains undisturbed in the possession of his security, but he cannot claim payment out of the proceeds of the sale.^^' On the other hand, if the sale was ordered to be made free of incumbrances, the liens of mortgagees and other secured creditors are transferred to the fund aris- ing from the sale.^^^ And this will apply to a creditor whose lien ex- pired by limitation between the making of the order for sale and the actual sale; for a conversion will be regarded as having been made at the time of the order for the sale, and therefore whatever claim was a lien on the land when the order was made will be entitled to share in the proceeds.*^^ A creditor whose lien is thus transferred is entitled to priority of payment out of the proceeds of the sale to the full amount of his debt.*^' And if the fund is sufficient for the purpose, he will also be entitled to interest on his claim up to the day of the sale,*" and to reimbursement for money paid by him for insurance on the property, if that expenditure was authorized by the mortgage,^^® and , a reasonable fee to his attorney for services rendered in connection with the sale and the distribution of the proceeds, but not necessarily the full ten per cent, stipulated for in the mortgage.*^® The order of liens is not displaced by a sale in bankruptcy, and if there are several liens on the property sold, they are transferred to the proceeds of the sale in the same relative rank and priority and are to be paid accordingly, so far as the fund will suffice.*" 209 In re Torchia, 185 Fed. 576, 26 Am. Fed. 842, 23 Am. Bankr. Rep. 239; In re Bankr. Rep. 188. Oconee Milling Co., 109 Fed. 886, 48 C. :;io In re Gerry, 112 Fed. 957, 7 Am. C. A. 703; In re Mebane, 3 N. B. R. 347, Bankr. Rep. 461. Fed. Gas. No. 9,380. 211 In re Randolph, 187 Fed. 186, 26 214 in re Stevens, 173 Fed. 842, 23 Am. Am. Bankr. Rep. 623; McKay v. Ham- Bankr. Rep. 239; In re Fabacher, 193 ill, 185 Fed. 11, 26 Am. Bankr. Rep. 164 ; Fed. 556, 27 Am. Bankr. Rep. 534 ; Co- Goodnough Mercantile & Stock Co. v. der v. Arts, 152 Fed. 943, 82 O. C. A. 91, Galloway, 171 Fed. 940, 22 Am. Bankr. 16 Am. Bankr. Rep. 513; In re Devore, Rep. 803 ; In re Vogt, 168 Fed. 551, 20 16 N. B. R. 56, Fed. Gas. No. 3,847 ; In re Am. Bankr. Rep. 457 ; In re Bourlier Hershberger (D. 0.) 208 Fed. 94, 30 Am. Cornice & Roofing Co., 133 Fed. 958, 13 Bankr. Rep. 635. Am. Bankr. Rep. 585; Crampton v. Mas- 21 sin re Fabacher, 193 Fed. 556, 27 sie, 236 Fed. 900, 150 C. 0. A. 162. Am. Bankr. Rep. 534. 212 Davis V. Stitzer, 19 N. B. R. 61, 216 in re Fabacher, 193 Fed. 556, 27 Fed. Gas. No. 3,654. Am. Bankr. Rep. 534. = 13 In re Lausman, 183 Fed. 647, 25 217 in re Bartenbach, 11 N. B. R. 61, .Am. Bankr. Rep. 186 ; In re Stevens, 173 Fed. Gas. No. 1,068 ; In re Worland, 92 § 484 LAW OF BANKRUPTCY 1022 Where claimants have liens on separate portions of the property, all of which is sold as a whole for a lump sum, it is the duty of the referee to apportion the proceeds among such claimants, and in so do- ing, if he has no other evidence on which to decide, he may properly fix the value of the various portions in accordance with the bids made previously for portions of the property when offered separately.*^* But where property is sold as an entirety and for a lump sum, only part of which is subject to a valid lien, and it would be impossible to deter- mine with any accuracy how much of the price was given in considera- tion of the incumbered portion, there cannot be an apportionment of the gross price, so as to entitle the lien-holder to a preference to the extent of his claim, at least where he permitted the sale to be made in that manner and did not insist on a sale in portions.*^* But it seems that he may save his rights by a timely objection and by procuring a reservation of them in the order for sak, in which case it becomes the duty of the referee to recognize and enforce such rights, taking evidence, if necessary, to determine as nearly as possible what portion of the pro- ceeds of the sale represented the property covered by the lien.*** But all that has been said above applies only in the case of liens which are recognized as valid and binding by the laws of the state and are other- wise free from defect or infirmity. There can, for example, be no claim to priority of payment out of the proceeds of a bankruptcy sale in fa- vor of one who asserts a vendor's lien on the property when the law of the state does not recognize any lien existing in an unpaid vendor apart from his legal estate in the land,**^ nor in favor of the holder of a mechanic's lien which is defective on its face,*** or the holder of a mortgage on the bankrupt's liquor license, when the pledging of such property is discountenanced by the local law as contrary to public policy.*** Fed. 893, 1 Am. Bankr. Rep. 450. And Fed. 1002, 7 Am. Bankr. Rep. 703. And see Chauncey v. Dyke Bros., 119 Fed. see In re James Carothers & Co., 182 ■1, 55 C. C. A. 579, 9 Am. Bankr. Rep. Fed. 501; First Savings & Banking Co., 444 ; In re OuUen, 176 Fed. 463, 23 Am. v. Kilmer (C. C. A.) 263 Fed. 497, 45 Am. Bankr. Rep. 793 ; In re Jamison Bros. Bankr. Rep. 366 ; In re B. A. Lockwood & CO., 209 Fed. 541, 126 G. C. A. 363, 30 Grain Co. (D. C.) 225 Fed. 873, 35 Am. Am. Bankr. Rep. 972. Bankr. Rep. 640. 218 In re Benz, 218 Fed. 50, 134 O. C. 220 George Carroll & Bro. Co. v. Young, A. 26, .'i.O Am. Bankr. Rep. 363. 119 Fed. 576, 56 C. C. A. 380, 9 Am. 218 Keyser v. Wessel, 128 Fed. 281, 62 Bankr. Rep. 643. C. C. A. 650, 12 Am. Bankr. Rep. 126; 221 in re Clark, 118 Fed. 358, 9 Am. In re Smith, 123 Fed. 188, 10 Am. Bankr. Bankr. Rep. 252. See In re Rector's, 220 Rep. 586; Vollmer v. McFadgen (C. C. Fed. 645, 136 C. C. A. 253. A.) 161 Fed. 914, 20 Am. Bankr. Rep. 222 in re Miners' Brewing Co., 162 Fed. 540 ; In re Gerry, 112 Fed. 957, 7 Am. 327, 20 Am. Bankr. Rep. 717. Bankr. Rep. 461; In re Klapholz, 113 223 in re McArdle, 126 Fed. 442, 11 1023 SALES OF PROPERTY BY TRUSTEES § 485 The proceeds of a sale in bankruptcy are not to be charged with the costs and expenses of proceedings by creditors which were termi- nated or rendered nugatory by the bankruptcy proceedings. Thus, where a distress warrant had been issued but was stayed by bankruptcy proceedings against the tenant, and the goods were sold by the receiver in bankruptcy, it was held ,that the constable was not entitled to fees out of the proceeds as for a sale.^** If disputes arise among the claimants of the proceeds of sale, or as to the order of distribution, the court, of bankruptcy (including the referee) has authority and jurisdiction to hear and determine the va- lidity, extent, and relative priority of all claims,^*^ but not to adjudicate upon the rights of one who claims an interest adverse to the bankrupt and who is a stranger to the proceedings.^^* If any balance remains, after paying the expenses and satisfying valid lieqs, the trustee will retain it as a part of the general funds of the estate for distribution to general creditors.**' § 485. Vacating and Setting Aside Sale. — A state court has no ju- risdiction, for any cause whatever, to interfere with or set aside a sale of a bankrupt's property by the trustee.*** But the court of bankruptcy may vacate or anndl such a sale, when sufficient reason is shown, and may proceed to do so in a summary manner, unless rights of third per- sons have intervened,**® in which case the remedy must be sought in a plenary action against the purchaser and others concerned.**" And it is no obstacle that the sale has been consummated by the delivery of a deed to the purchaser. If such deed was executed by the trustee im- providently, irregularly, or without due authority, or was procured by imposition or fraud practiced upon the court, or if it was designedly so drawn as to grant more than the order of the court warranted or to vary from it in material particulars, and if the title is still in the purchaser at the sale, who is chargeable with notice of the fraud or irregularity, the court has jurisdiction to vacate the sale and order the deed to be sur- Am. Bankr. Kep. 358. See In re Fisher, Bankr. Rep. 124; In re National Boat 98 Fed. 89, 3 Am. Bankr. Rep. 406. & Engine Co. (D. C.) 216 Fed. 208, 33 2 24 In re Hageman (D. C.) 218 Fed. Am. Bankr. Rep. 154. 708. 226 In re Muhlhauser, 121 Fed. 669, 225 In re Miners' Brewing Co. (D. C.) 57 c. 0. A. 423, 10 Am. Bankr. Rep. 236. 162 Fed. 327, 20 Am. Bankr. Rep 717; ,„ j^ .^ Sanderlin, 109 Fed. 857, 6 Leech V. Kay (C. C.) 4 Fed. 72; Globe ^^ ^^^^^ jj 384 Bank & Trust Co. v. Martin, 236 U. S. ., . „^ „ ^, ^ 289, 35 Sup. Ct. 377, 59 L. Ed. 583, 34 '"' ^^^ ^- ^tradley, 51 Iowa, 414, 1 Am. Bankr. Rep. 162; In re Bradley (D. ^- ^- ^"^■ C.) 263 Fed. 446, 45 Am. Bankr. Rep. 30; ^^° In re Mott, Fed. Cas. No. 9,878. Durand v. Brown, 236 Fed. 609, 149 C. C. 230 in re Charles Knosher & Co., 197 A. 605; Danville Ben. & Bldg. Ass'n v. Fed. 136, 28 Am. Bankr. Rep. 747; In Huff (0. C. A.) 262 Fed. 403, 45 Am. re I-Ierdie, 40 Fed. 360. § 485 LAW OF BANKRUPTCY 1024 rendered and canceled.**^ And even the intervening rights of a third person who has bought the property, or a part of it, from the original purchaser may not be sufficient to prevent the setting aside of a fraud- ulent or irregular sale, where the circumstances indicate knowledge or complicity on the part of such third person, or, assuming his innocence, it is possible to restore him to his original situation.^^* But it is not consistent with the effective administration of the bank- ruptcy law that trustees' sales should be constantly overhauled for trivial causes. On the contrary, such sales should not be set aside except for cause sufficient to move the conscience of the court,*** or where, as stat- ed in one of the cases, "it would be a gross discredit to the administration of justice if the sale should be permitted to stand." *** But it is essential that the sale should be fair and open, and any manipulation of it which tends to prevent the attendance of bidders, or to stifle competition among them, wilV be sufficient ground for vacating it.*^^ Inadequacy of price will also be ground for setting aside a sale in bankruptcy, but only in case it is unconscionable or so gross as fairly to raise a presumption of fraud."** No general rule can be formulated on this point. But it is said that the appraisal fixes the value of the bankrupt's property, in the absence of reliable evidence impeaching it, and a sale for more than the appraised value, confirmed by the court, will not be set aside by an ap- 231 In re Hyde, 19 Blatchf. 115, 6 Fed. 587; In re King, 3 Fed. 839; In re Ste- venson, 6 Fed. 710. On the trustee's bill filed for this purpose, there must be a tender to the purchaser of the sum he bid at the sale. Lanham v. State Bank of Kome (C. C. A.) 268 Fed. 458, 46 Am. Bankr. Rep. 55. 2 32 In re Frazin & Oppenheim, 181 Fed. 307, 24 Am. Bankr. Rep. 598; In re Finlay, 104 Fed. 675, 4 Am. Bankr. Rep. 745; In re Stevenson, 6 Fed. 710. 283 In re Metallic Specialty Mfg. Co., 198 Fed. 300, 27 Am. Bankr. Rep. 408; Bray v. tJ. S. Fidelity & Guaranty Co. (C. 0. A.) 267 Fed. 533, 45 Am. Bankr. Rep. 395. 234 In re Troy Woolen Co., 8 Blatchf. 465, 4 N. B. B. 629, Fed. Cas. No. 14,201. 236 In re Shea, 126 Fed. 153, 61 C. C. A. 219, 11 Am. Bankr. Rep. 207; In re Ethier,, 118 Fed. 107, 9 Am. Bankr. Rep, 160. But see In re Pittsburgh Dick Creek Mining Co., 197 Fed. 106, 28 Am. Bankr. Rep. 613, where It was held that a sale otherwise satisfactory will not be set aside at the instance of a creditor who alleges that there was a conspiracy to keep him away from the sale and otherwise to defraud him of his just rights, since. If such was really the case, he has a remedy at law for damages. And see In re Kronrot, 183 Fed. 653, 25 Am. Bankr. Rep. 738. An agreement between two creditors to bid against each other at a bankruptcy sale, until a certain figure was reached, in order to induce other bids, and If no higher bids were received to buy the property for their joint account and divide the profits, is not invalid. Schaap v. Robinson, 133 Ark. 113, 201 S. W. 292. The fact that the only other bidder at a bankruptcy sale was a puffer employed to run up bids is not ground for releasing the suc- cessful bidder, if there was no assurance to the puffer or belief that he would not be held liable. Williams v. Hogue, 219 Fed. 182, 134 C. C. A. 556, 34 Am. Bankr. Rep. 40. 2 36 In re National Mining Exploration Co., 193 Fed. 232, 27 Am. Bankr. Rep. 92; In re Burr Mfg. & Supply Co., 217 Fed. 16, 133 C. C. A. 126; In re Metallic Specialty Mfg. Co., 193 Fed. 300, 27 Am. Bankr. Rep. 408; In re Shapiro, 154 Fed. 673, 19 Am. Bankr. Rep. 125; In re Throckmorton, 149 Fed. 145, 79 C. C. A. 15, 17 Am. Bankr. Rep. 856; In re Bousfleld, 16 N. B. R. 481, Fed. Cas. No 1025 SALES OF PRpPHETY BI TRUSTEES § 485 pellate court on the ground of inadequacy of price.**' And the mere fact that the property has increased in value since the sale, or that it is discovered to possess a value which was not then suspected, will not warrant annulling the sale,*** nor will the naked fact that a third person offers to pay a better price than that realized at tlie sale.*** But an offer of an advanced price, made by a genuine and responsible bidder, is strong evidence that the price given at the sale was inadequate, and if the court is in this way satisfied that there was a gross discrepancy between the actual value of the property and the price obtained, it may pi-operly va- cate the sale and order a resale.**" But the advance offered must be substantial, not a mere trifle,**^ and the intending purchaser may be re- quired to enter into an agreement with the court (or even to give se- curity) that he will attend the resale and bid at least as much as he has offered.*** Applications to vacate such sales are generally made by the creditors of the estate.*** But they must be reasonably prompt and vigilant, in 1,702. And see Ballentyne v. Smith, 205 U. S. 285, 27 Sup. Ct. 527, 51 L. Ed. 803, where the following instructive remarks were made by Mr. Justice Brewer: "Something ijiay be said on each side of the question; on the one, that a court of equity owes a duty to the creditors seeking its assistance in subjecting prop- erty to the payment of debts, to see that the property brings something like its true value in order that, to the extent of that value, the debts secured upon the property may be paid; that it owes them something more than to merely take care that the forms of law are complied with, and that the purchaser is guilty of no fraudulent act; on the other, that it is the right of one bidding in good faith at an open and public sale to have the prop- erty for which he bids struck off to him if he be the highest and best bidder; that if he be free from wrong he should not be deprived of the benefit of his bid simply because others do not bid, or De- cause parties interested have done noth- ing to secure the attendance of those who would likely give for the property some- thing nearer its value; that if the credi- tors make no effort and are willing to take the chances of a general attendance, they have no right to complain on the ground that the property did not bring what it should have brought. In Eng- land, the old rule was that In chancery sales, until confirmation of the master's report, the bidding would be opened up- on a mere offer to advance the price -10 iBi.k.Bke.(3d Ed.)— 65 per cent; but this rule has been rejected, and now both in England and this coun- try a sale will not be set aside for mere inadequacy of price unless that inade- quacy be so gross as to shock the con- science, or unless there be additional cir- cumstances against its fairness. But it there be great inadequacy, slight circum- stances of unfairness in the conduct of the party benefited by the sale will be sufficient to justify setting it aside. Graffam v. Burgess, 117 U. S. 191, 6 Sup. Ct. 686, 29 L. Ed. 839. It is diflicult to formulate any rule more definite than this, and each case must stand upon its own peculiar facts." 2 3T Schuler v. Hassinger, 177 Fed. 119, 100 O. C. A. 539, 24 Am. Bankr. Rep. 184. 2S8 Tyson v. Mickle, 2 Gill (Md.) 376; Phelps V. McDonald, 2 MacArthur (D. C.) 375, 16 N. B. R. 217. 2 33 In re Ethier, 118 Fed. 107, 9 Am. Bankr. Rep. 160; In re Belden, 120 Fed. 524, 9 Am. Bankr. Eep. 679; Jacobsohn v. Larkey, 245 Fed. 538, 157 C. C. A. 650, L. E. A. 1918C, 1176, 40 Am. Bankr. R^. 563; Day v. Luna Park Co., 174 111. App. 477. 240 In re Palmer, 13 Fed. 870; In re Collins, 8 Ben. 328, Fed. Cas. No. 3,005. 2*1 Sturgiss V. Corbin, 141 Fed. 1, 72 C. C. A. 179, 15 Am. Bankr. Rep. 543. 2*2 In re Shea, 126 Fed. 153, 61 0. 0. A. 219, 11 Am. Bankr. Rep. 207. 2*3 In re Haywood Wagon Co., 219 Fed. 655, 135 C. C. A. 391, 33 Am. Bankr. Rep. 618; In re Prudential Outfitting Co. § 486 LAW OF BANKRUPTCY 1026 order to entitle their petition to favorable consideration, and a creditor who, with full knowledge of the circumstances of a sale, accepts a divi- dend from the proceeds, and silently allows the purchaser to sell the property, cannot avoid the sale even for fraud and collusion.*** Nor will this action be taken at the instance of one who is an entire stranger to the proceedings and whose rights, if any, in the property could not be prejudiced by the sale.**^ The special short statute of limitations con- tained in the bankruptcy act does not apply to proceedings to vacate a sale.*** And when an order to this effect is made, based on causes for which the purchaser was not in any way responsible, he will be entitled to have his money refunded and also such expenses as he has reasonably and properly incurred in the preservation of the property.**'' § 486. Collateral Impeachment of Sale. — The validity of a trustee's sale in bankruptcy is not open to inquiry or impeachment in any collat- eral proceeding, either in a state or federal court,*** more especially after the lapse of a considerable period of time, during which all parties in interest have acquiesced in the sale,**® or where the attack upon the sale is based on mere irregularities.*®" But where a bankrupt's liquor license was sold subject to the condition that its transfer to the purchaser must be authorized by the local court having jurisdiction, an inquiry by the court of bankruptcy to ascertain the grounds on which the local court refused to approve the transfer, is not a collateral attack on its order.*®^ (D. C.) 250 Fed. 504, 41 Am. Bankr. Rep. v. Faickney, 42 Tex. Civ. App. 483, 94 S. C21. W. 103; Chilton v. Metcalf, 234 Mo. 27, 244 Hills V. Alden, 2 Hask. 299, Fed. 136 S. W. 701; Mims v. Swartz, 37 Tex. Gas. No. 6,507. 13; Steele v. Moody, 53 Ala. 418, 16 N. 2 45 In re Muhlhauser, 121 Fed. 669, 57 B. R. 558; Eauitable Trust Co. v. Van- C. C. A. 423, 10 Am. Bankr. Rep. 236. derbilt Realty Improvement Co., 155 App. A stockholder of a bankrupt corporation, Div. 723, 140 N. Y. Supp. 1008; Thomp- as such, has no standing In the bank- son v. Sunrise Coal Co.'s Trustee, 181 ruptcy case to require the trustee to an- Ky. 158, 204 S. W. 89; Trabue v. Ash swer his petition to set aside a sale of (Tex. Civ. App.) 200 S. W. 415. the bankrupt's assets to a reorganization 249 Buckler's Adm'r v. Rogers, 54 S. committee. In re Witherbee (C. C. A.) W. 848, 21 Ky. Law Rep. 1265. 202 Fed. 896, 30 Am. Bankr. Rep. 314. 250 Robertson v. Howard, 229 U. S. 254, 246 Clark V. Clark, 17 How. 315, 15 L. 33 Sup. Ct. 854, 57 L. Ed. 1174, 30 Am! Ed. 77. Bankr. Rep. 611; James v. Koy (Tex. 247 In re Troy Woolen €0., 8 Blatchf. Civ. App.) 59 S. W. 295; Herbst v. Bates, 465, 4 N. B. R. 629, Fed. Cas. No. 14,201. 13 Wkly. Law Bui. (Ohio) 565; Smith v! 248 Buckler's Adm'r v. Rogers, 54 S. Long, 9 Daly (N. Y.) 429. W. 848, 21 Ky. Law Rep. 1265; Trumbo 251 in re Miller, 171 Fed. 263, 22 Am V. Fulk, 103 Va. 73, 48 S. E. 525; Keller Bankr. Rep. 560. 1027 PROVABLE DEBTS AND CLAIMS § 487 CHAPTER XXV PROVABLE DEBTS AND OI/AIMS Sec. 487. Statutory Provisions. 488. Who Are Creditors Wltliln the Act 489. Estoppel to Prove Claims. 490. Fraudulent Conduct Barring Proof of Claim. 491. Nature of Claims Provable in General. 492. Amount of Claims Provable. 493. Payment or Satisfaction. 494. Time of Accrual of Claims. 495. Claims on Contracts and Damages for Breach Thereof. 496. Promissory Notes; Consideration; Good Faith of Holder. 497. Judgments. 498. Equitable Claims and Demands. 499. Contingent Demands and Liabilities. 500. Unliquidated Demands. 501. Assigned Claims. 502. Debts Payable in the Future. 503. Interest Accrued and Accruing. 504. Costs, Expenses, and Collection Fees. 505. Liability of Bankrupt as Indorser, Guarantor, or Surety. 506. Eights of Bankrupt's Surety or Indorser. 507. Rights of Creditor Where Several Parties are Liable. 508. Claims of Bankrupt's Wife. 509. Claims for Alimony. 510. Unpaid Subscriptions to Stock and Stockholder's Statutory Liability. 511. Debts Created by Bankrupt's Fraud. 512. Taxes, and Interest and Penalties Thereon. 513. Breaches of Real Covenant^ 514. Claims for Torts. - 515. Fines, Penalties, and Forfeitures. 516. Debts Barred by Limitations. 517. Claims Founded on Illegal or Immoral Consideration. 518. Ultra Vires and Unlavcful Contracts of Corporations. 519. Landlord's Rights and Remedies. 520. Same ; Landlord's Lien. 521. Same; Rentxo Accrue After Adjudication. 522. Same; Occupation and Use of Premises by Trustee. 523. Same; Damages for Breach of Contract or Covenant. § 487. Statutory Provisions. — The varieties of debts and clainis which are provable in a bankruptcy proceeding are arranged i>y the stat- ute in five groups or classes, as follows: 1. A fixed liability, evidenced by a judgment or an instrument in writ- ing, absolutely owing at the time of the filing of the petition, whether then payable or not, with any interest which would have been recover- able at that date, or with a rebate of interest on such claims as were not then payable and did not bear interest. 2. Claims due as costs taxable against an involuntary bankrupt who § 487 LAW OF BANKRUPTCY 1028 was, at the time of the filing of the petition against him, plaintiif in a cause of action which would pass to the trustee and which the trustee declines to prosecute after notice. 3. Claims founded upon a claim for taxable costs incurred in good faith by a creditor before the filing of the petition, in an action to recover a provable debt. 4. Claims founded upon an open account, or upon a contract express or implied. 5. Claims founded upon provable debts reduced to judgment after the filing of the petition and before the consideration of the bankrupt's application for a discharge, less costs incurred and interest accrued after the filing of the petition and up to the time of the entry of such judg- ments. To this it is added that "unliquidated claims against the bankrupt may, pursuant to application to the court, be liquidated in such manner as it shall direct, and may thereafter be proved and allowed against his estate." ^ These several subdivisions of the section are not to be regarded as an enumeration of a group of characteristics all of which are essential to a provable claim, but as a classification, each specifying a separate class of provable claims independently of the others ; and hence the provision of the first clause, limiting the claims provable thereunder to those which were a fixed liability absolutely owing at the time of the filing of the pe- tition, does not impose the same limitation upon claims which fall within the other classes.* In general, it is said, this whole isection of the statute should be so construed as to make afl debts fairly within its meaning provable debts, in order to effectuate the purpose of the act in relieving insolvent debtors, and any doubt whether a debt is provable, or whether it is an unliquidated demand which may be made provable, should be re- solved in favor of its provability.* In particular, it may be remarked that the fourth clause, which allows proof of debts fpunded upon a "con- tract express or implied," may be given a construction sufficiently broad to include quasi contracts arising upon a conversion of property where the tort has been waived.* § 488. ' Who Are Creditors Within the Act.— A creditsr is defined by the act as "anyone who owns a demand or claim provable in bank- ruptcy." This includes the United States as well as any state or mu- nicipal corporation." Foreign creditors, as well as domestic, are also en- 1 Bankruptcy Act 1898, § 63. * Reynolds v. New York Trust Co., 188 2 In re Smith, 146 Fed. 923, 17 Am. Fed. 611, 110 C. 0. A. 409, 26 Am. Bankr. \ Bankr. Rep. 112. Rep. 698. 8 Dycus V. Brown, 135 Ky. 140, 121 S. » Bankruptcy Act 1898, § 57.1. And see W. 1010, 28 L. R. A. (N. S.) 190. In re Mansfield, 6 N. B. R. 388, Fed. Cas. 1029 PROVABLE DEBTS AND CLAIMS § 488 titled to prove their claims and share in the estate.* Secured creditors may prove their demands as secured, and receive dividends on so much of the claim as remains unsatisfied after liquidating and applying the security or realizing on it, or they may waive the security and prove their debts as unsecured.' A preferred creditor may prove his claim if he will surrender his preference.* Also the claim of any estate which is being administered in bankruptcy against any like estate may be proved by the trustee, and will be allowed in the same manner and upon like terms as the claims of other creditors.® And a court of bankruptcy may permit the bankrupt himself, acting in a representative capacity as the administrator of an estate, to prove an equitable debt, arising from a loan of funds borrowed from the estate of his intestate, whether such loan was lawful or not.^" In proper cases, one to whom the bankrupt had previously made a general assignment fqr the benefit of his creditors may be permitted to prove a claim,^^ as also a surety for the bankrupt,^* or a committee representing the bondholders of a bankrupt corporation.^^ The peculiar questions arising out of the bankruptcy of a partnership, and concerning the provability of claims of the partners as against each other and against the firm, have been considered in another place.** A corporation may of course be a creditor and prove a claim in bankruptcy ; but ordinarily claims are not provable as between two corporations, one of which is merely an agency, branch, or reorganization of the other. *^ But, to constitute a "creditor," it is always essential that there should be a debt measurable and payable in money, or a claim which is capable of being reduced to this kind of certainty, and also that it should be sup- ported by a consideration or by a clear right of action. This excludes mere accommodation paper not based on any actual consideration,** and also the case of one who has dealt with a bankrupt corporation, but has No. 9,049; In re Wright, 95 Fed. 807, 2 is In re Medina Quarry Co., 1T9 Fed. Am. Bankr. Rep. 592. As to proof of 929, 24 Am. Bankr. Rep. 769. claim by a municipal corporation or by ,, g^^ ^^^^^^ g ^30 ^^^ ^^^ ^^ ^.^ LJ. off ''t'j ',?o ^- ' Hirth, 189 Fed. 926, 26 Am. Bankr. Rep. 644, 84 South. 743. 666; In re Dillon, 100 Fed. 627, 4 Am. See Bankruptcy Act 1898, § 65d. B^^^r. Rep. 63 ; In re Savage, 16 N. B. I ^^^ 'J"^^^' ^l fJr^^ , ^ r K- 368, Fed. Cas. No. 12,3.81. 8 See infra, §§ 604-607. And see In re Franklin Brewing Co. (D. C.) 265 Fed. " ^^^ Clere Clothing Co. v. Union 301, 45 Am. Bankr. Rep. 719 ; In re Dix ^"^t ^ Savings Bank, 224 Fed. 363, 140 (D. C.) 267 Fed. 1016, 46 Am. Bankr. Rep. C. 0. A. 49, 35 Am. Bankr. Rep. 419 ; In 199. re Georgia Steel Co. (D. C.) 240 Fed. 473, 8 Bankruptcy Act 1898, § 57m. 39 Am. Bankr. Rep. 426 ; Carroll v. 10 Warner v. Spooner, 3 Fed. 890. Stern, 223 Fed. 723, 139 C. C. A. 253, 34 II In re Rudd, 180 Fed. 312, 25 Am. ^™- Bankr. Rep. 570. Bankr. Rep. 35. i6 Merchants' & Manufacturers' Nat. 12 Sessler v. Paducah Distilleries Co. Bank of Columbus, Ohio, v. Galbraith, (O. C. A.) 168 Fed. 44, 21 Am. Bankr. Rep. 157 Fed. 208, 84 C. O. A. 656, 19 Am.' 728. Bankr. Rep. 319. § 488 LAW OF BANKEUPTCX 1030 agreed to accept shares of its stock in satisfaction of his claim.^' Again, it is necessary that the consideration should have proceeded from the claimant himself or from some one to whose rights he has succeeded by a clear title. ^* Thus a. claim cannot be allowed where it is shown that the money in question was not advanced by the claimant personally, but by a corporation in which he is a stockholder.^" And further it is neces- sary to show that the bankrupt received or benefited by the considera- tion on which the claim is founded. But it is no objection to the allow- ance of a claim against a bankrupt corporation for money lent that it passed through several hands, where the claimant furnished the money with the intention that it should be a loan to. the corporation, and the latter received it and used it as such.'"' And where a new company is organized to take over and carry on the business of a failing corporation, which afterwards becomes bankrupt, one who, being a director in both the old and the new company, takes an active part in organizing the new concern, and subscribes and pays for some of its stock in cash, may be considered as a creditor of the bankrupt corporation to that extent.*^ Nor can a creditor who lent money to the bankrupt be debarred from proving his claim by the fact that he himself borrowed the money from a bank, pledging as collateral the note and security given him by the bankrupt."- But one who sells property on credit to a third person, who turns it over to a corporation which does not become a party to the con- tract of sale, does not thereby become a creditor of the corporation so as to be entitled to prove a claim against its estate in bankruptcy.^* The rule that one may take advantage of a contract to which he was not a party, but whicti was made for his benefit between two other persons, is also effective in bankruptcy, but his assent to the agreement must have been made effective before the bankruptcy of the promisor.^* It is also 17 Where a bank furnislied money or contractor of a general contractor of credit with which certain imported wool the United States, who gave bond in con- was purchased in a foreign country, tak- formity with the act of Congress of Feb. ing bills of lading and trust receipts in 24, 1905, will be required to pursue the its own name, and, when the wool was remedy prescribed by that act, and can- sold by the importer, became the owner not prove a claim under the bankruptcy of the account,, it alone was entitled to law against the estate of the bankrupt prove the claim against the estate of the contractor. In re Hawley, 194 Fed. 751, purchaser in bankruptcy. Assets Real- 28 Am. Bankr. Rep. 58. ization Co. v. Sovereign Bank of Canada, 21 in re Holbrook Shoe & Leather Co 210 Fed. 156, 126 O. O. A. 662. igg pe^. 973^ 2I Am. Bankr. Rep. 511. " 18 In re Le Sueur County Co-operative 22 r>i,!« ir„ii., td„ i /-. i.^ , ^ CO., 195 Fed. 926. 27 Am. Bankr. Rep. Fed. S sI^^^.T 60S VAm^B^^JS ^S2. Ken 40 i» In re Watkinson, 143 Fed. 602, 16 ^■j'"' ^ Am. Bankr. Rep. 245. '' ^^ '"f Builders' Lumber Co., 148 Fed. 20 In re American Specialty Co. (C. C. ^44, 17 Am. Bankr. Rep. 449. A.) 191 Fed. 807, 27 Am. Bankr. Rep. 463. 2* Blake v. Atlantic Nat. Bank, 33 R. But one furnishing materials to a sub- I. 464, 82 Atl. 225, 39 L. R. A. (N. S.) 874. 1031 PROVABLE DEBTS AND CLAIMS § 489 a rule that a creditor of a bankrupt, who is also his debtor in a larger amount, will not be perifiitted to prove his claim against the estate so long as his own debt remains unpaid.*" But on the other hand, where the father of a bankrupt, to whom the bankrupt was indebted, died after his adjudication, the right of the executor to prove the full indebtedness against the estate in bankruptcy is not affected by the fact that the fa- ther, by his will, left the bankrupt a share of his estate, from which any indebtedness due from the bankrupt was directed to be deducted.** § 489. Estoppel to. Prove Claim. — The ordinary principles of estop- pel may apply to a creditor seeking to prove a claim in bankruptcy,*' and also the rule that a creditor having his choice between two inconsistent remedies must make his election, and cannot pursue both,** and the rule that one cannot rescind a contract and recover the original considera- tion, and at the same time prove a claim upon the contract itself.*" But a creditor of a bankrupt who, after the bankruptcy, has taken a new promise based on the original debt, is not thereby precluded from main- taining his proof against the estate in bankruptcy and receiving divi- dends thereon, and at the same time proceeding against the bankrupt on the new obligation, so long as he receives but a single satisfaction of his debt.** And the fact that a creditor, pifior to the bankruptcy, had begun a suit to set aside a deed as fraudulent does not estop him, on the deter- 26 In re Gerson, 105 Fed. 893, 5 Am. Rep. 335. And see In re Hlrschman, 104 Bankr. Kep. 850; In re Wiener & Good- Fed. 69, 4 Am. Bankr. Eep. 715; In re man Shoe Co., 96 Fed. 949, 3 Am. Bankr. Howard, 100 Fed. 630, 4 Am. Bankr. Kep. Eep. 200. On the same principle, a cred- 69. But where, prior to the bankruptcy, itor of a bankrupt corporation, who, as a a claimant sought to replevin the balance holder of its capital stock, is liable on of a bill of goods remaining in the bank- calls or assessments, cannot participate rupt's possession unsold, in which he was in the assets of the estate until he has unsuccessful, it was held that he was paid or satisfied such assessments. In re entitled to file against the bankrupt's Manufacturers' Box & Lumber Oo. (D. estate for his whole claim. In re Ven- C.) 251 Fed. 957, 41 Am. Bankr. Rep. 763 ; Strom, 205 Fed. 325, 30 Am. Bankr. Rep. In re Caledonia Coal Co. (D. C.) 254 Fed. 569. And see Boden & Haac v. Lovell, 742, 43 Am. Bankr. Rep. 93. See Moise 203 Fed. 234, 30 Am. Bankr. Rep. 353, V. Scheibel, 245 Fed. 546, 157 O. 0. A. where certain foreign attachment litiga- 658, 40 Am. Bankr. Rep. 311. tion was held unavailable to sustain an 2 6 In re Woods (D. 0.) 133 Fed. 82, 13 ' estoppel preventing claimants from as- Am. Bankr. Rep. 240. sertlng claims not involved in such litiga- 2 7 Sledge V. Denton (Tex. Civ. App.) tion against the bankrupt. Under a 147 S. W. 281. Carroll v. Stern, 223 Fed. lease of machinery providing for rede- 723, 139 C. O. A. 253, 34 Am. Bankr. Rep. livery at B., and the payment of certain 570. charges, the lessor's acceptance of the 2 8 DTi Vivier & Co. v. Gallice (C. C. A.) machinery at a different place was held 149 Fed. 118, 17 Am. Bankr. Rep. 557. not a release of such charges. In re And see In re W. A. Sllvernail Co. (D. Desnoyers Shoe Co., 227 Fed. 401, 142 C. 0.) 218 Fed. 977, 33 Am. Bankr. Rep. 57. C. A. 97, 36 Am. Bankr. Rep. 51. 2 In re Kenyon, 156 Fed. 863, 19 Am. so in re Sweetser, 128 Fed. 165, af- Bankr. Rep. 194 ; Scott v. Abbott, 160 firmed Dowse v. Hammond, 130 Fed. 103 Fed. 573, 87 C. C. A. 475, 20 Am. Bankr. 64 C. C. A. 437. § 489 LAW OF BANKRUPTCT 1032 mination of the sui.t against him, from claiming the benefit of a lien re- served by such deed for his benefit.*^ So where the bankrupt commenced a suit before his bankruptcy, which was tried after the adjudication, and the defendant in that action set up in defense a particular claim as a dis- tinct cause of action, but offered no evidence in support of it, and judg- ment went in favor of the bankrupt, this does not estop such defendant from proving his claim in the bankruptcy proceedings.** And though one named as assignee in a general assignment for the benefit of cred- itors, which is voided by the bankruptcy of the assignor, has accepted the trust, this does not preclude him from proving a bona fide debt which he has against the bankrupt.** So a mere covenant by a creditor not to sue an accommodation acceptor does not prevent such creditor from proving against the drawer's estate in bankruptcy.** Again, where the president of a bankrupt corporation had loaned money to it on notes, he is not es- topped to claim the allowance thereof against the corporation's estate in bankruptcy because of statements of assets and liabilities made at various times, which did not include the notes, in the absence of any evidence that he had knowledge of their contents, or that credit was extended to the corporation, and the position of creditors changed, on the faith there- of.*^ So, although the bankrupt's bookkeeper prepared a financial state- ment which was submitted to a bank as a basis for credit, and the state- ment did not show that the bankrupt was indebted to the bookkeeper for his salary, this does not estop the latter to file a claim for unpaid salary, in the absence of evidence that credit was extended on the faith of the statement.*® But on" the other hand, where one advanced a large sum of money to a corporation on an agreement that he should receive stock in exchange for it when the capital stock of the company should be increased, and in the mean time that he should receive interest and also dividends, and this a.dvance was represented to creditors as an in- crease of capital, and the lender held himself out as being connected with the business, and the corporation became bankrupt, it was held that the lender was estopped, as to creditors who had relied on the representa- tions, to claim that he was a creditor and not a stockholder.*'" So, where ,31 Maxwell v. McDaniels (C. O. A.) 195 had advanced money in connection with Fed. 426, 27 Am. Bankr. Kep. 692. a composition in a former proceeding, 3 2 In re People's Safe Deposit & Sav. was held not estopped from proving his Inst., 10 Ben. 38, 18 N. B. R. 493, Fed. claim because of representations that the Cas. No. 10,971. money ^yould be raised outside the as- 83 In re Horton, 5 Ben. 562, Fed. Cas. sets of the corporation. McKey v. Bruns, No. 6,707. 243 Fed. 370, 156 C. C. A. 150, 40 Am. 3* Downing v. Traders' Bank, 2 Dill. Bankr. Rep. 189. 136, 11 N. B. R. 371, Fed. Cas. No. 4,046. so in re Cox (D. C.) 199 Fed. 952, 29 3 6 Spencer v. Lowe (C. C. A.) 198 Fed. Am. Banlir. Eep. 456. 961, 29 Am. Bankr. Eep. 876. So, the sr la re Desnoyers Shoe Co. (D. C.) president of a bankrupt corporation, who 210 Fed. 533, 32 Am. Bankr. Rep. 51. 1033 PROVABLE DEBTS AND CLAIMS § 490 the only claim filed by a brother of the bankrupt against his estate was based on notes and a mortgage which were clearly fraudulent, he was held bound by such action, and not permitted to prove the claim as one for wages of labor and so entitled to priority.** § 490. Fraudulent Conduct Barring Proof of Claim. — Where a cred- itor of a bankrupt actively participates or assists him in the execution of a scheme to delay or defraud his other creditors, and in furtherance thereof advances money or incurs expense, the entire transaction is contaminated by the fraud, and the court of bankruptcy will not aid the conspirators by allowing claims for such advances or expenses against the estate.^® So also, where money is loaned or advances made for the purpose of establishing a fictitious credit for the bankrupt and so en- abling him to cheat others.*" And so where a creditor has attempted to gain an advantage over other creditors by including in his proof ficti- tious items or exaggerated amounts, or by including fraudulent or illegal and non-provable claims, his proof will not be allowed even to the ex- tent of an honest debt which may be included in it, but will be rejected as an entirety.*^ And the same rule has been applied where a creditor holding collateral security under a pledge, took the opportunity, as soon as a petition in bankruptcy had been filed, to sell the security to himself at a pretended auction at a small fraction of its face value, and without liotice to any party in interest.*^ But there is nothing illegal in endeav- oring to buy up all the claims against the estate of a bankrupt, for the purpose of staying the bankruptcy proceedings altogether; and if the purchaser fails in this, he should nevertheless be allowed to. prove such claims as he has acquired as though he were an original creditor.** And 3 8 In re Hemstreet, 139 Fed. 958, 14 Am. Barikr. Rep. 213; In re Flick, 105 Am. Bankr. Rep. 823. Fed. 503, 5 Am. Bankr. Rep. 465 ; In re 3 9 Butcher v. Werksman, 204 Fed. 830, Elder, 1 Sawy. 73, 3 N. B. R. 670, Fed. 30 Am. Bankr. Rep. 332 ; In re Fried- Cas. No. 4,326 ; Marrett v. Atterbury, 3 man, 164 Fed. 131, 21 Am. Bankr. Rep. Dill. 444, 11 N. B. R. 225, Fed. Oas. No. 213 ; In re L. M. Alleman Hardware Co., 9,102. 172 Fed. 611, 22 Am. Bankr. Rep. 871 ; In *« In re Mertens, 134 Fed. 101, 14 Am. re Lansaw, 118 Fed. 365, 9 Am. Bankr. Bankr. Rep. 226. But see Turner v. Rep. 167 ; In re Knox, 98 Fed. 585, 3 Am. Metropolitan Trust Co. (C. C. A.) 207 Bankr. Rep. 371 ; In re Hugill, 100 Fed. Fed. 495, where a purchase of pledged 616, 3 Am. Bankr. Rep. 686 ; In re Hatje, collateral by the pledgee was held, under 6 Biss. 436, 12 N. B. R. 548, Fed. Cas. No. the particular circumstances, not to pre- 6,215. But see In re Medina Quarry Co., vent proof against the estate in bank- 179 Fed. 929, 24 Am. Bankr. Rep. 769. ruptcy. And compare In re L. M. Alleman Hard- *3 in re Pease, 6 N. B. R. 173, Fed. Cas. ware Co. (C. C. A.) 181 Fed. 810, 25 Am. No. 10,880; In re Strachan, 3 Biss. 181^ Bankr. Rep. 831. Fed. Cas. No. 13,519. So of an agreement *» In re Friedman, 164 Fed. 131, 21 by one creditor to advance funds to ef- Am. Bankr. Rep. 213; In re Royce Dry feet a composition, on condition that his Goods Co., 133 Fed. 100, 13 Am. Bankr; claim should be paid in full. In re Rep. 257. Hawks, 204 Fed. 309, 30 Am. Bankr. Rep. *i In re Friedman, 164 Fed. 131, 21 365. § 491 LAW OF BANKRUPTCY 1034 the act of a creditor in withholding from record a chattel mortgage se- curing his debt, by agreement with the mortgagor, until the latter's bank- ruptcy, while it may render the mortgage invalid as a lien as against subsequent creditors without notice, does not of itself affect his right to prove his debt in bankruptcy, nor subordinate it to the claims of subse- quent creditors.** Such fraudulent conduct on the part of a creditor as will forfeit his right to prove against the bankrupt estate may also op- erate to the disadvantage of others who, though not directly implicated, are still bound by his acts, as in the case of a partner who, though inno- cent himself, cannot disavow fraudulent acts of his copartner done in the firm name.*^ And where the holder of a note has forfeited his claim against the estate of the bankrupt maker by taking a preference, the guarantors of the note have no right to prove it against the estate, their liability having been discharged by the principal.*^ But it has been ruled in a well-considered case that where a creditor advances money to his debtor, knowing him to be insolvent, but believing that the loan will enable him to regain sufficient prosperity to pay off his debts, the mere fact that the creditor omits to notify the other creditors of the debtor's insolvency does not constitute a breach of duty, or a fraud or deceit on the other creditors, or authorize the disallowance of such creditor's claim against the debtor's estate in bankruptcy. For each creditor of an insolvent debtor is a competitor of all the others, and no fiduciary or confidential relation exists between them ; and to constitute such a fraud as will estop a creditor from sharing with others in the distribution of the estate, he must have been guilty of some moral turpitude or breach of duty whereby the other creditors were deceived to their damage.*' § 491. Nature of Claims Provable in General. — In general, it may be stated that every debt which is recoverable either at law or in equity is provable in bankruptcy,** or that any debt which may be proved by com- ** In re Ewald & Brainard, 135 Fed. in bankruptcy are not necessarily equiva- 168, 14 Am. Bankr. Rep. 267 ; In re Abell, lent terms. On the distinction, see R. P. 198 Fed. 484, 117 O. C. A. 243. But see Williams & Co. v. United States Fidelity In re Thweatt, 199 Fed. 319, 29 Am. & Guaranty Co., 11 Ga. App. 635, 75 S. Bankr. Rep. 84. E. 1067. Claims which are entitled to *5 Capelle v. Hall, 12 N. B. R. 1, Fed. priority under the statute (such as claims Cas. No. 2,391. for wages of labor) are provable and *<> In re Ayers, 6 Biss. 48, Fed. Cas. must be proved. But the fact that a No. 685. father employed his minor son to work 47 Crowder v. Allen-West Commission as his chief clerk, while the son paid Co., 213 Fed. 177, 129 C. C. A. 521, 32 Am. board to his mother, does not establish Bankr. Rep. 134. an emancipation of the son, so as to en- *8 In re Jordan, 2 Fed. 319 ; In re H. title him to prove -a claim for wages V. Keep Shirt Co., 200 Fed. 80, 28 Am. against his father's estate. In re Elff, Bankr. Rep. 765. See In re Hawks, 204 205 Fed. 406, 30 Am. Bankr. Rep. 504! Fed. 309, 30 Am. Bankr. Rep. 365. Compare In re Kanter (D C ) 215 Fed "Provable" debts and "allowable" debts 276. 1035 PROVABLE DEBTS AND CLAIMS § 491 plying with any of the provisions of the statute is provable,*® and the fact that a claim arises as a consequence of the bankruptcy is sufficient to render it provable as a fixed liability absolutely owing at the date of the petition."' A claim against the bankrupt for money loaned^ is liq- uidated and provable,®* and claims upon an "open account" (which is the same thing as an "account current") are specially enumerated by the statute as among the claims which shall be provable."* Again, it is no objection to the proof and allowance of a claim that it is of such a char- acter as not to be barred or released by the bankrupt's discharge, as in the case of a debt created by his fraud or created by him while acting in a fiduciary capacity.** And a debt evidenced by a note or other writing is provable notwithstanding the fact that it is expressed to be payable in a particular species of currency or in gold coin,"* or even in labor and merchandise."" An attorney may file and prove a claim against the bankrupt for professional services rendered to him before the bankrupt- cy and in matters not connected therewith, although there was no ex- press contract fixing the amount of his fees,"® at' least where his services conduced to the benefit of the estate or to its more prompt administra- tion, as where they resulted in obtaining a reduction of taxes assessed *9 Rankin v. Florida, A. & G. C. R. Co., 1 N. B. R. 647, Fed. Gas. No. 11,567. The fact that certain claims may be en- titled to payment in priority to the claim of a particular creditor does not affect his right to prove the claim and have it allowed. McKey v. Bruns, 243 Fed. 370, 156 C. G. A. 150, 40 Am. Bankr. Rep. 189. 6 In re Neff, 157 Fed. 57, 84 G. 0. A. 561, 28 L. R. A. (N. S.)f 349, 19 Am. Bankr. Rep. 23, 911. Bi In re Halgey Electric Generator Go. (D. G.) 163 Fed. 118, 20 Am. Bankr. Rep.- 738. Where a loan was in fact made to the corporation which is in bankruptcy, the claim is provable against it, though evidenced by the individual notes of its executive officers. Hogin v. Gentral Nat. Bank, 223 Fed. 325, 138 G, G. A. 587, 35 Am. Bankr. Rep. 81. Where a subscrib- er for an increase of stock paid the price thereof in advance, under an agreement that such payment should be treated as a loan until the issuance of the stock, and before that the corporation was ad- judged bankrupt, the subscriber was en- titled to have his claim allowed as a general claim against the bankrupt. Clark V. Hamilton, 217 Fed. 229, 133 O. C. A. 223, L. R. A. 1918E, 750, 33 Am. Bankr. Rep. 198. 02 In re Stanton, Fed. Gas. No. 13,295. "An open account is one in which some item of the contract is not settled by the parties, whether the account consists of one item or many; or where there have been running or current dealings between the parties, and the account is kept open with the expectation of fresher trans- actions." Sheppard v. Wilkins, 1 Ala. 62 ; Goodwin v. Harrison, 6 Ala. 438. An open account, in legal as well as in ordi- nary language, means an indebtedness subject to future adjastmeht, and which may be reduced or modified by proof. Nisbet V. Lawson, 1 6a. 275 ; Gayle v. Johnston, 72 Ala. 254, 47 Am. Rep. 405 ; McCamant v. Batsell, 59 Tex. 368; Pur- vis V. Kroner, 18 Or. 414, 23 Pae. 260. 6 s In re Tebbetts, 5 Law Rep. 259, Fed. Gas. No. 13,817; Bourne v. Maybin, 3 Woods, 724, Fed. Gas. No. 1,700. G4 In re Whittaker, 4 N. B. R. 160, Fed. Gas. No. 17,598; In re Elder, 1 Sawy. 73, 3 N. B. R. 670, Fed. Gas. No. 4,326. 5B In re Spot Gash Hooper Co., 188 Fed. 861, 26 Am. Bankr. Kep. 546; Mc- MuUin V. Bank of Penn Township, 2 Pa. St. 343. B 6 In re Coney Island Lumber Co., 199 Fed. 803. § 491 LAW OF BANKRUPTCY 1036 against the property or stopping the prosecution of an attachment suit.^' So a ward may prove his claim against his guardian's estate in bank- ruptcy, notwithstanding the fact that the accounts of the guardian are in courseibf settlement in the probate court of the state.^* The govern- ment also, if it holds a claim against a debtor in bankruptcy, may and should file proof of the same.'^" In the case of a bankrupt insurance com- pany, under the former statute, it was held that a claim founded on a covenant to repay part of the premium paid for insurance on cancellation of the policy was provable.*' And although money advanced to the bankrupt was purely in the form of a bonus, to induce him to erect and operate a manufacturing plant in a given locality, yet on his failure to do so and his ensuing bankruptcy, the amount so paid constitutes a prov- able claim.*^ Again, although the debt was not originally contracted by the bankrupt, yet if he assumed and agreed to pay it (as in the case of one buying a going business and taking the assets and liabilities together, or buying mortgaged land with an assumption of the mortgage), it will be provable against his' estate.®* So where a sale by an insolvent per- son, the proceeds of which were used to pay certain creditors in full, was set aside as constructively fraudulent as to other creditors, the ven- dee has a valid claim against the vendor's trustee in bankruptcy for the amount of the money he paid, less the expenses of setting aside the sale.®* In those states also where the separate property of a married woman is liable in equity for her business obligations, though under the local law she is not technically a free trader, if she engages in business on her own account, her obligations contracted in the business are provable debts in bankruptcy.®* But on the other hand, the amount contributed by a partner to the capital of the partnership cannot, on the bankitiptcy of the firm, be proved as a debt entitled to share ratably Avith the claims of the general creditors.®* And so, where one induc.es others to join with him in a pur- 57 In re Duran .Mercantile Co., 199 but afterwards recovered it by suit, can- Fed. 961, 29 Am. Bankr. Kep. 450. not be held liable for debts contracted by 8 Bourne v. Maybin, 3 Woods, 724, such other while conducting the business ^'ed. Gas. No. 1,700. in his own name. Van Slyke v. Huntlng- 6 9 United States v. Murphy, 11 Biss. ton (C. C. A.) 265 Fed. 86, 45 Am. Bankr. 415, 15 Fed. 589. Rep. 173. 80 In re Independent Ins. Co., 2 Low. «•■! Barber v. Coit, 144 Fed. 381, 75 C. 187, Fed. Cas. No. 7,019. But see In re O. A. 319. 16 Am. Bankr. Rep. 419. Western Ins. Co., 6 Ben. 159, Fed. Cas. 04 MacDonald v. Tefft-Weller Co., 128 No. 17,435. Fed. 381, 63 C. C. A. 123, 65 L. R. A. 61 Sturgiss V. Meurer, 191 Fed. 9, 111 106, 11 Am. Bankr. Rep. 800. O. O. A. 551, 26 Am. Bankr. Rep. 851. os in re W. J. Floyd & Co., 156 Fed. 62 In re Baumblatt, 153 Fed. 485, 18 206, 19 Am. Bankr. Rep. 438. And mon- Am. Bankr. Rep. 720; Begein v. Brehm, ey invested and lost by a creditor of a 123 Ind. 160, 23 N. B. 496. But the es. corporation by subscribing to its capital tate of a bankrupt, who was defrauded stock cannot be included in his' claim in of a stock of merchandise by another, bankruptcy. In re Franklin Brewing Co. 1037 PROVABLE DEBTS AND CLAIMS § 492 chase of property, by representations as to its value which prove to be incorrect, but without any express promise to reimburse them for any loss which they may sustain, the law will not raise such a promise by implication, so as to create a liability as on an implied contract provable against his estate in bankruptcy.*® Owelty of partition is a legal charge on the land, but not created by the contract of the parties but by the law, and'^ therefore is not provable in bankruptcy.*' And where one in- stitutes a suit against his debtor and against another as garnishee, and the latter goes into bankruptcy before the recovery of any judgment, the creditor has no provable claim against the garnishee's estate.** Finally it has been held that a claim for an account of profits against an infringer of a patent-right is not provable against his estate in bank- ruptcy.** § 492. Amount of Claim Provable. — In order to arrive at the cor- rect amount for which a creditor should be allowed to prove, the court will inquire into the accounts and dealings of the parties, and if neces- sary reduce the amount of the claim as filed.'" Thus, on a claim by one member of a syndicate of banking firms against the estate of a bankrupt member, the court will examine into the accounts of all the members, in- order to make a definite allowance against the bankrupt's estate.'^ So, where a corporation ^ gave its note to a bank for the indebtedness of a third party, for which it was not responsible, and also for its own debt, the note was invalid in the hands of the bank (having knowledge of the facts) to the extent of the amount of the debt of the third party, and it was held that the bank's claim against the estate of the corporation in bankruptcy must be reduced to the amount which the corporation itself owed when the note was given.'* So again, where a manufacturer con- signed goods to factors, ' who advanced him their notes to an amount larger than was ultimately realized on the goods, which notes were indorsed by him and discounted, and both parties became bankrupt, and the factors, employing the goods then in their possession, made a com- position with their creditors, including the holders of the notes, who (D. C.) 265 Fed. 301, 45 Am. Bankr. Rep. a bankrupt corporation against tlie es- 719. tate for merchandise transferred to it 86 Switzer v. Henking, 158 Fed. 784, at an agreed valuation may be subject 86 C. C. A. 140, 15 L. R. A. (N. S.) 1151, to proof to determine the fair market 19 Am. Bankr. Rep. 300. value of the property, and to reduction «7 Ex parte Walker, 107 N. C. 340, 12 accordingly. In re Peerless Shoe Co. (D. S. B. 136. O.) 226 Fed. 1020, 36 Am. Bankr. Rep. «s Ex parte Columbian Ins. Co., 2 Low. 71. 5, Fed. Gas. No. 3,037. , 7 1 in re Oooke, 12 N. B. R. 30, Fed. «9 In re Boston & F. Iron Works (0. C.) Cas. No. 3,170. 23 Fed. 880, citing Root v. Railway Co., 72 Mapes v. German Bank of Tilden, 105 U. S. 189, 26 L. Ed. 975. 176 "Fed. 89, 99 O. C. A. 609, 23 Am. 70 A claim by a large stockholder of Bankr. Rep. 713. § 492 LAW OF BANKRUPTCY i 1038 reserved the right to prove in full against all other parties to them, it was held that such creditors, in proving against, the estate of the manu- facturer, would not be required to give credit for the full amount re- ceived by them on the composition, but would be required to abate their proof by giving credit for the property of such manufacturer so em- ployed by the factors, which might, upon their application, have been applied towards paying their debts.'^ Again, the amount to be allowed on a claim may depend upon an in- quiry into and disclosure of the actual and true consideration.''* Thus, an indorsee before maturity of a negotiable note, without notice of existing equities, can only prove against the estate of the maker the amount paid therefor.'^ And so, where a mortgage is given to indemni- fy the mortgagee for his advances, and he loans his acceptances to the mortgagor, and, after the bankruptcy of the latter, buys up the paper at a discount, he can charge against the mortgaged property only what he paid in cash to take up the acceptances.'* But it has been held that the pledgee of notes held to secure a debt in a smaller amount may prove them against the maker's estate to their full amount, and receive divi- dends to the extent of his debt." The creditor may also be estopped to claim the full nominal amount of his debt or damage, either by his own previous agreement or by his laches or wrongful conduct. Thus, in a case where the fund to be distributed among the creditors of a bank- rupt storage company consisted entirely of the proceeds of insurance on the property of such creditors, burned while in storage, the amount of which had been determined by an agreement between the insurers and the respective owners as to the value of the property of each, it was held that the creditors were bound by such valuations as between themselves, and one cannot be permitted to prove a larger claim.''* So, where the bankrupt's brokers were carrying stocks on a margin, and, at the com- mencement of the bankruptcy proceedings, could have sold them at a profit, but carried the stocks until a decline and finally sold them at a loss, all without application to the court, it was held that they could not prove their claim for differences against the estate.''® And on a 78 Ex parte Harris, 2 Low. 568, 16 N. ^s in re Reliance Storage & Ware- B. R. 432, Fed. Cas. No. 6,109. house Co., 105 Fed. 351, 5 Am. Bankr. 7 4 See Edgar v. Ames, 255 Fed. 835, Rep. 249. 167 C. C. A. 163, 42 Am. Bankr. Rep. 697. 7" In re Daniel?, 6 Biss. 405, Fed, Cas. 7 6 In re Shelbourne, 19 N. B. R. 359, No. 3,566. So, where brokers made an Fed. Cas. No. 12,745. unauthorized pledge of customers' stock, <7 8 Ex parte Ames, 1 Low. 561, 7 N. B, and the pledgee, upon the brokers' bank- R. 230, Fed. Cas. No. 323. ruptcy, sold a portion of the stock to sat- 7 7 Bailey v. Nichols, 2 N. B. R. 478, isfy the, brokers' indebtedness, the stock Fed. Cas. No. 741. See Turner v. Metro- not so sold, in ascertaining the amount politan Trust Co. of City of New York, of the claim of the owner thereof, will '207 Fed. 495, 125 C. 0. A. 157, 31 Am. be valued as of the day upon which the Bankr. Rep. 181. first sale of similar stock was made on 1039 PROVABLE DEBTS AND CLAIMS § 493 somewhat similar principle, where-the general manager of a trading cor- poration (who was also a stockholder and director) had been allowed a salary for his services at a fixed monthly rate, but by the mere agree- ment of the board of directors without any by-law or resolution or entry of record, it was held that he was not entitled to prove a claim against the estate of the corporation in bankruptcy for arrears of salary at the rate so fixed, but only for the reasonable value of his services as deter- mined by the court.** In cases of breach of contract, the amount to be proved and allowed is determined by the ordinary rules relating to the measure of dam- ages.*^ Thus, for a buyer's breach of a contract for the manufacture and sale of certain articles of merchandise, the measure of the seller's damage, on the allowance of his claim against the bankrupt estate of the buyer, is the difference between the cost of manufacture and the con- tract price, notwithstanding the entire lot of goods were not manufac- tured or ready for delivery.** So, where an agreement indemnifying a contractor's surety, containing an assignment of the contractor's plant on the work in case he should be unable to carry out the contract, was executed more than four months before the contractor became bank- rupt and while he was solvent, the amount of the surety's claim against the bankrupt is not the amount which the latter might have paid by reason of his liability on the bonds, independent of the plant so assigned, but the amount of the loss the surety might sustain in completing the contract with such aid as he might gain by taking and using the plant.** § 493. Payment or Satisfaction. — A note which is subject to an off- set for a larger amount is not a provable debt in bankruptcy.** Nor will a creditor be permitted to prove a claim which he has expressly waived or released to the bankrupt,*^ or which he had previously set- tled by an accord and compromise, receiving the consideration then agreed on, though less than the amount of the debt,*® or where he has the Stock Exchange, where the exchange In re Miller (D. O.) 225 Fed. 331, 35 Am. had been closed because of the war at Bankr. Rep. 333. the time of the filing of the bankruptcy ,^ j^ ^^ Duquesne Incandescent Light petition, and not opened until more than ^o., 176 Fed. 785, 24 Am. Bankr. Kep. a month later, during which time the ^^g. p^^^^ v. Auto Spring Repairer Co., stock had appreciably increased in value. ^gg ^^ ^gg -^^g ^ q ^ 261, 28 Am. In re J. O. Wilson & Co. (D. C.) 252 Fed. ^^^^^^ ^ '^gg 631, 42 Am. Bankr. Rep. 350. „, .^ , tt -i j o*. <. t^^ -.-^ ,« .0 In re Grubbs-Wiley Grocery Co. (D. Jl^-'^ L ^^1^ VJ^^^lo f'^f*': J" Guaranty Co., 143 Fed. 424, 16 Am. Bankr. Rep. 21. O.) 96 Fed. 183, 2 Am. Bankr. Rep. 442. "1 Where a bankrupt, on full consid- eration paid, before his bankruptcy, had ^Hn re Ford, 18 N. B. R. 426, Fed. contracted absolutely to pay the claim- ^^^- ^°- 4,932. ant $3 per day during the remainder of «^ See In re Howard, 100 Fed. 630, 4 his life, the mortality tables should be Am. Bankr. Rep. 69. used to determine the claimant's life. so in re Decker, 8 Ben. 81, Fed. Cas. § 493 LAW OP BANKRUPTCY 1040 once adjusted his claim by accepting from the trustee in bankruptcy a surrender of the property in dispute or a quitclaim deed.*" Similarly, a vendor of goods under a conditional sale to the bankrupt may (if the transaction is not voidable under the bankruptcy law) affirm the sale and enforce a claim on the notes given by the bankrupt, or he may re- take the property, but he cannot do both, and if he chooses tlje latter course, he cannot then prove the notes as a claim against the estate.** Neither will proof be permitted upon so much of a claim as has previous- ly been satisfied by a payment in cash, or by a transfer and acceptance of property,*® or otherwise. But merely taking a note, without any payment on it, does not discharge an original debt having any privileges under the bankruptcy law, and either may be proved.*" So while the acceptance of shares of stock in a corporation in lieu of payment of a debt may cancel the debt so that it will no longer be provable in bankruptcy, if the creditor expressly releases the debtor from liability,*^ this is not the case if there is no sufficient proof that the creditor ever accepted the stock,** or if it was merely given as a substitute for collateral security held by the creditor and is not of value."* Again, where a creditor has received a partial payment on his debt under a general assignment for the benefit of creditors, made before the bankruptcy, he cannot prove for the whole of the debt but only for the balance remaining unsatisfied.®* No. 3,723; In re Lathrop, 3 Ben. 490, 3 In re Wray, 233 Fed. 418, 147 C. C. A. N. B. R. 410, Fed. Gas. No. 8,103. 354, 37 Am. Bankr. Rep. 28. If a land- 87 Kenyon v. Mulert, 184 Fed. 825, 26 lord obtains by an action of replevin a Am. Bankr. Rep. 184; In re Davis, 179 part of his rent from the goods of a snb- Fed. 871, 24 Am. Bankr. Rep. 667. tenant upon the premises, his claim 8 8 In re Norton, 181 Fed. 901, 24 Am. against the bankrupt estate of the tenant Bankr. Rep. 794 ; In re Helnsfurter, 97 should be reduced by the amount so re- Fed. 198, 3 Am. Bankr. Rep. 113. See ceived. Rosenblum v. Tiber, 256 Fed. 584, Patten's Appeal, 45 Pa. St. 151, 84 Am. 167 0. O. A. 614, 43 Am. Bankr. Rep. 480. Dec. 479. Where, prior to the bank- The holder of a note indorsed by the ruptcy, the claimant sought to replevin bankrupt, not due at the time of the the balance of a bill of goods remaining bankruptcy, but which became due be- in the bankrupt's possession unsold, in fore proof of claim, and on which in the which he was unsuccessful, he was en- mean time a payment was received from titled to file against the bankrupt's es- the maker, can prove only for the amount tate for the whole claim. In re Yen- due thereon at maturity. In re Shatz, Strom (D. 0.) 205 Fed. 325, 30 Am. Bankr. 251 Fed. 351 (D. C), 41 Am. Bankr. Rep. ' Rep. 569. 576. 89 In re Carpenter, 179 Fed. 743. See o» In re Worcester County, 102 Fed. Haas-Baruch & Co. v. Portuondo, 138 808, 42 O. O. A. 637, 4 Am. Bankr. Rep. Fed. 949, 15 Am. Bankr. Rep. 130. See 496; Dowse v. Hammond, 130 Fed. 103, In re Franklin Brewing Co. (C. C. A.) 64 C. C. A. 437. 272 Fed. 828, 46 Am. Bankr. Rep. 485. oi In re Norris (D. C.) 190 Fed. 101, Where claimant made advances to the 26 Am. Bankr. Rep. 945. bankrupt to enable her to buy a motor »2 In re Blumer, 11 Fed. 700. car, and the bankrupt, being unable to oa in re Lorillard, 107 Fed. 677, 46 O. repay the advances, delivered the car to C. A. 553, 5 Am. Bankr. Rep. 602. claimant, who sold it, the amount re- »* In re Folb, 91 Fed. 107, 1 Am. ceived by the claimant from the sale of Bankr. Rep. 22 ; In re Hamilton, 1 Fed. the car should be credited on the claim. 800. 1041 PROVABLE DEBTS AND CLAIMS § 494 The case of a creditor whose claim is proved and allowed after the dec- laration of a dividend, is somewhat peculiar. Here the law provides that the proof of such claim shall not affect the dividend so declared, but that such creditor shall receive an equal dividend (if the estate is suffi- cient) before other creditors receive any further dividends. But where the holder of a note made by a partnership and indorsed by one of the partners, both maker and indorser having been adjudicated bankrupts, proves his claim against the partnership estate after a dividend has been declared and paid to other creditors, his right to a preference in future dividends cannot be considered equivalent to a dividend actually de- clared in his favor, or to an actual part payment of his note by the maker, and hence he is entitled to prove his claim against the estate "of the indorser for the full amount of the note.*® Generally, however the holder of a note who has received a dividend from the estate in bank- ruptcy of the maker, can prove only the balance against the estate of the bankrupt indorser.*® But on the other hand, a creditor whose claim has been partly paid by an accommodation indorser may prove the claim to its full amount without giving the estate the benefit of such part payment.*' And so, where a creditor has received partial payment of his debt from a surety of the bankrupt, the right to prove the claim for its entire amount, against the estate in bankruptcy, is in the creditor in preference to the surety.** § 494. Time of Accrual of Claims. — The provability of a claim de- pends upon its status at the time of the filing of the petition in bank- ruptcy, which is the date when the right of creditors to share in the es- tate becomes fixed; and any claim which is not then a provable debt, as defined in the act, cannot be proved although it may thereafter come within such definition.** And a debt or claim which did not accrue or come into existence until after the filing of the petition is not prova- ble,^*** even though it was for money loaned to the bankrupt to be used 9s In re Swift, 106 Fed. 65, 5 Am. »« Zavelo v. Reeves, 227 U. S. 625, 33 Bankr. Rep. 415. Sup. Ct. 365, 57 L. Ed. 676, 29 Am. oo In re Howard, 4 N. B. R. 571, Fed. Bankr. Rep. 493 ; Sexton v. Dreyfus, 219 Cas. No. 6,750; In re Pnlsifer, 9 Biss. ^- S. 339, 31 Sup. Ct. 256, 55 L. Ed. 244, 487 14 Fed 247 ^^ •^™- Bankr. Rep. 363 ; In re American ^„„ ^ ^ „„„ „„ Vacuum Cleaner Co., 192 Fed. 939, 26 r. 'l^\ ''„.^°^.^' ^'"'-i^^I ^^- ^^t'n? Am. Bankr. Rep. 621 ; Swarts v. Fourth C. C. A. 218, 11 Am Bankr Rep. 50S; jjat. Bank, 117 Fed. 1, 54 O. C. A. 387, 8 Swarts V. Fourth Nat. Bank, 117 Fed. ^^ ^ankr. Rep. 673; In re PettingiU & 1, 54 C. C. A. 387, 8 Am. Bankr. Rep. 673. co., 137 Fed. 143, 14 Am. Bankr. Rep. But see In re Broich, 7 Biss. 303, 15 N. ^28 B. R. 11, Fed. Cas. No 1,921. See A. S. ^oo Colman Co. v. Wlthoft (C. C. A.) Coats Shingle Co. v. Chester Snow Log ^^gg pg^ 250, 28 Am. Bankr. Rep. 328; & Shingle Co., 106 Wash. 227, 179 Pac. j^ j.e Walker, 176 Fed. 455, 23 Am. ™^- . Bankr. Rep. 805; In re Reading Hosiery 98 In re Heyman, 95 Fed. 800, 2 Am. Co., 171 Fed. 195, 22 Am. Bankr. Rep. Bankr. Rep. 651. 562 ; In re Rome, 162 Fed. 971, 19 Am. Blk.Ber.(3d Ed.)— 66 § 494 LAW OP BANKRUPTCY 1042 in complying with the terms of a composition agreement."^ And it is immaterial that the debt accrued or came into existence before any ad^ judication was made upon the petition, if it did not exist when the pe- tition was filed ; for the statute is explicit in fixing the date of filing the petition, and not the date of the adjudication, as the decisive time."* An apparent exception to the rule here mentioned, but really only an extension of it, is found in the case where the filing of the petition in bankruptcy itself operates as a breach of an executory contract, because equivalent to a refusal to perform. Here the filing of the petition and the accrual of a claim for damages are exactly contemporaneous, and the creditor may prove his claim for damages as one existing at the tiine of the filing of the petition."* Although the first subdivision of the sixty-third section of the bankruptcy act is the one which defines a provable debt as one "absolutely owing at the time of the filing of the petition," and this language is . not repeated in the fourth subdivision, which allows proof of a claim "founded upon an open account or upon a contract express or implied," yet the decisions unanimously hold that the limitation of time contained in the first subdivision must be read into the fourth, the two being in pari materia, and hence a claim found- ed upon an open account or a contract is not provable in bankruptcy, any more than any other kind of claim, unless it existed at the time of the filing of the petition.^** Further, a debt to be provable in bank- ruptcy, must continue to exist in the same condition after as at the time of the commencement of the proceedings ; and proof of a claim as indorser upon a note made by the bankrupt will be disallowed where it appears that, after the adjudication of bankruptcy, a new note had been given and the first note taken up.^*® On this principle also, a claim against a bankrupt for work done under a contract after the filing of the Bankr. Eep. 820; In re Black Diamond loiZavelo v. J. S. Reeves & Co., 171 Copper Mining Co., 11 Ariz. 415, 95 Pac. Ala. 401, 54 South. 654. 117; In re Kiker, 18 N. B. R. 393, Fed. 102 in re Burka, 104 Fed. 326, 5 Am. Cas. No. 11,833; In re Merell, 19 Fed. Bankr. Rep. 12; In re Merrill, 21 Fed. 874 ; In re Ward, 12 Fed. 325 ; Phenix 120. Compare Spalding v. Dixon, 21 Vt Nat. Bank v. Waterbury, 123 App. Div. 45. 453, 108 N. Y. Supp. 391; Hardcastle v. 103 in re Swift, 112 Fed. 315, 50 C C. National Clothing Co., 137 Tenn. 64, 191 A. 264, 7 Am. Bankr. Rep. 374.' S. W. 524. On bankruptcy of the debt- 104 Colman Co. v. Wlthoft (C. O. A.) or, each creditor becomes an equitable 195 Fed. 250, 28 Am. Bankr. Rep. 328- cestui que trust in the assets in the ratio In re Roth & Appel, 181 Fed. 667, 104 o! which his claim beai-s to the total C. A. 649, 31 L. R. A. (N. S.) 270, 24 Am! amount, and his right to participate may Bankr. Rep. 588; In re Swift, 112 Fed. not be diminished by claims arising sub- 315, 50 C. 0. A. 264, 7 Am. Bankr. Rep! sequently to the bankruptcy, his right to 374 ; In re Adams, 130 Fed. 381, 12 Am! participate being determined as of the Bankr. Rep. 368; In re Burka, 104 Fed! date of the bankruptcy. In re United 326, 5 Am. Bankr. Rep. 12. Grocery Co. (D. C.) 253 Fed. 267, 41 Am. , 105 In re Montgomei-y, 3 N. B. R 426 Bankr. Rep. 824. Fed. Cas. No. 9,730. 1043 PROVABLE DEBTS AND CLAIMS § 4! 5 petition cannot be proved as a debt against the estate, although the con- tract was entered into before the commencement of the proceedings, but was then wholly executory.^** Judgments recovered against the bankrupt after the filing of the pe- tition, and before consideration of his application for A discharge, may be proved as debts, but only on condition that they are founded on debts provable at the commencement of the proceedings, and even in that case there must be deducted costs incurred and interest accrued after the filing of the petition and up to the time of the entry of judgment."" § 495. Claims on Contracts and Damages for Breach Thereof. — Claims founded upon an "open account or upon a contract express or implied" are specifically made provable by the bankruptcy act, and this clause is not limited by the provision in an earlier part of the same sec- tion that debts may be prove? and allowed which are "a fixed liability, as evidenced by a judgment or an instrument in writing, absolutely ow- ing." "* Hence an account for the balance due for goods sold and de- livered is a provable debt,^"® as is also the amount due on a conditional sale of property, assuming that that form of contract is not invalid un- der the laws of the state,^" or a fixed sum due for subscriptions to a mercantile agency,"^ or a claim fpr damages for breach. of an appeal bond."* Moreover, a claim for damages for the breach of an executory con- tract is a claim "founded upon a contract" within the meaning of the statute, and is provable in bankruptcy, equally as in the case where the contract itself is for the payment of a fixed sum."^ And if the bankrupt, 100 In re Adams, 130 Fed. 381, 12 Am. paid before the bankruptcy, contracted Bankr. Rep. 368. absolutely to pay the claimant $3 a day 10 7 Bankruptcy Act 1898, § 63a, cl. 5. during the remainder of his life, the See In re Fitzgerald, 191 Fed. 9.5, 28 Am. claim is fixed and provable. In re Miller Bankr. Rep. 773 ; United States v. The (D. 0.) 225 Fed. 331, 35 Am. Bankr. Rep. Rob Roy, 1 "Woods, 42, 13 N. B. R. 235, 333. Fed. Cas. No. 16,179. io9 Standard Sewing Machine Co. v. losin re Lyons Beet Sugar Refining Kattell, 132 App. Div. 539, 117 N T Co. (D. C.) 192 Fed. 445, 27 Am. Bankr. Supp. 32. Rep. 610. But compare In re D C^ Clark ,,„ i„ .^ (jray, 170 Fed. 638, 21 Am. Shoe Co. (D. C.) 211 Fed. 341, 32 Am. Bankr. Rep. 375 Bankr. Rep. 238. A cause of action ,,,_ !-,,., \,.,.„ sounding either in contract or tort at the „ ",' ^^ ^^'J;^- ^^ ^^^- 9^^, 25 Am. election of the holder is a provable claim ^^'^^^^^ -"ep. 871. in bankruptcy. Reinhardt v. Frlederlch, ^" Coe v. Waters, 16 Colo. App. 311, 58 Ind. App. 421, 108 N. E. 258. A claim 64 Pac. 1054. on a protested check, which was given us In re Frederick L. Grant Shoe Co., to make good an overpayment on an ac- 130 Fed. 881. 66 C. C. A. 78, 12 Am. count for goods sold, is a cause of action Bankr. Rep. 349 ; In re Adams, 130 Fed. in contract and provable in bankruptcy. 381, 12 Am. Bankr. Rep. 368 ; In re Stern, Stewart Petroleum Co. v. Boardman, 116 Fed. 604, 54 C. C. A. 60, 8 Am. Bankr. 264 Fed. 826, 45 Am. Bankr. Rep. 573. Rep. 569; In re Swift, 112 Fed. 316, 50 Where a bankrupt, on full consideration O. O. A. 264, 7 Am. Bankr. Rep. 374; Ex § 495 LAW OF BANKRUPTCY 1044 at the time of the bankruptcy, by disenabling himself from performing his part of a particular contract, and by repudiating its obligation, could give to the other party the right to maintain at once a suit in which dam- ages could be assessed at law or in equity, then such other party may prove as a creditor in the bankruptcy proceedings, on the ground that bankruptcy is the equivalent of disenablement and repudiation or is an anticipatory breach of the contract.**^* But this is on the supposition that the claimant is not himself in default, for if he has failed to carry out his own part of the contract he cannot file a claim for damages."* And in no case can his claim be allowed for more than the actual dam- age sustained. Thus, the courts will not allow the creditor to take this meg.ns of enforcing a mere penalty,^"^* or the collection of a sum named in the contract as liquidated damages in case of default, where it is not shown that the claimant has sustained an^ actual damage by the bank- rupt's breach of the contract.^^' So, in a case where one holding a pat- ent for an invention had granted to a corporation an exclusive license to manufacture the product, and the corporation had thereupon contract- ed to pay to the patentee a bonus or royalty on the patented articles sold with a guaranty of a minimum number during the year, and the corporation became bankrupt before the end of the year, it was held that the patentee was entitled to prove 'a claim for the amount of royalty which had accrued up to the time of the bankruptcy at the minimum rate, irrespective of the number of articles actually sold, but that he could not prove a claim for future royalties accruing during the remain- der of the term, although he was entitled to prove a claim for damages parte Pollard, 2 Low. 411, 17 N. B. K. 186; Wood v. Fisk, 156 App. Div. 497, 228, Fed. Cas. No. 11,252; Forest City 141 N. Y. Supp. 342. Contra, In re Im- Steel & Iron Co. v. Detroit & T. S. L. K. perial Brewing Co., 143 Fed. 579, 16 Am. Co., 154, Mich. 182, 117 N. W. 645; Loth- Bankr. Rep. 110; In re Inman & Co., 175 rop V. Reed, 13 Allen (Mass.) 294. Com- Fed. 312, 23 Am. Bankr. Rep. 566 ; Board pare Watson v. Merrill, 136 Fed. 359, 69 of Commerce of Ann Arbor v. Security C. C. A. 185, 14 Am. Bankr. Rep. 453. Trust Co., 225 Fed. 454, 140 O. C. A. 486, 11* Central Trust Co. of Illinois v. Chi- 34 Am. Bankr. Rep. 762; In re Frank E. cago Auditorium Ass'n, 240 U. S. 581, 36 Scott Transfer Co., 216 Fed. 308, 132 C Sup. Ct. 412, 60 L. Ed. 811, L. R. A. C. A. 452. See In re 35% Automobile 1917B, 580, 36 Am. Bankr. Rep. 679 ; In Supply Co. (D. C.) 247 Fed. 377, 41 Am. re Pettingill & Co., 137 Fed. 143, 14 Am. Bankr. Rep. 101 ; In re Leslie & Griffith Bankr. Rep. 728 ; In re Swift, 105 Fed. Co. (D. C.) 230 Fed. 465, 36 Am. Bankr. 493, 5 Am. Bankr. Rep. 335 : In re Sax- Rep. 744. See Heyward v. Goldsmith (C. ton Furnace Co., 142 Fed. 293, 15 Am. O. A.) 269 Fed. 946, 46 Am. Bankr. Rep! Bankr. Rep. 445; Pratt v. Auto Sprins 722. Repairer Co. (0. O A.) 196 Fed^ 495, 28 ,,, j^ ^^ Morgantown Tin Plate Co., Am. Bankr. Rep^ 483 ; In re Duquesne ^g^ ^^^ ^5 Am. Bankr. Rep. 836 Incandescent Light Co., 176 Fed. 785, 24 ^ Am. Bankr. Rep. 419; In re Spittler, 151 "" 1° ^e Bevier Wood Pavement Co., Fed. 942, 18 Am. Bankr. Rep. 425 ; In re ^56 Fed. 583, 19 Am. Bankr. Rep. 462. Neff, 157 Fed. 57, 84 C. C. A. 561, 19 Am. ii7 Northwest Fixture Co. v. Kilbourne Bankr. Rep. 911; In re National Wire & Clark Co., 128 Fed. 256, 62 C. C. A. Corp., 166 Fed. 631, 22 Am. Bankr. Rep. 63S, 11 Am. Bankr. Rep. 725. 1045 PROVABLE DEBTS AND CLAIMS § 495 for the breach of the contract, to be estimated in view of the fact that, the license having fallen in, he was at liberty to dispose of it again."^^* The case of the breach of a contract of employment presents some- what different features. One employed as a salesman, superintendent, manager, secretary, etc., may regard his contract of employment as dis- solved by the employer's adjudication in bankruptcy (especially, it is said, in the case where the bankrupt is a corporation or a partnershij^) and may prove a claim for the unpaid balance of his salary to the time of the filing of the petition,^^* if it was fixed by a valid written contract or other instrument^ or otherwise he may claim the reasonable value of his services.^*" But as to the right to prove a claim for so much of the agreed salary as would have been earned and payable (if bankrupt- cy had not intervened) from the date of the bankruptcy to the end of the stipulated period of employment, the decisions are not altogether in harmony. It has been ruled that the measure of the employe's damages in such a case would be the amount which he would have received un- der the contract for the remainder of the term fixed, less such amount as he would be able to earn during that time from other sources. ^^^ But the preponderance of authority is to the effect that the employe cannot prove a claim for any salary beyond the date of the filing of the petition in bankruptcy, on the theory that his expectation of receiving a salar}' during the remainder of the term, if it can be called a debt or a claim for damages, is no more than a contingent liability, and the present stat- ute has made no provision for the proof or allowance of claims of that character.^^* The rule is substantially the same where the contract re- quired the payment of commissions to a salesman in addition to his sal- ary. Such commissions as were actually earned before the date of bank- ruptcy constitute a provable debt, but a claim for commissions on sales which possibly or probably might have been made if the contract had continued to its appointed term is too speculative and remote to be avail- able as a provable debt in bankruptcy.^** lis In re Dr. Voorhees Awning Hood 122 In re Inman & Co., 171 Fed. 185, 22 Co., 187 Fed. 611. Am. Bankr. Rep. 524 ; In re American 119 Ex parte Pollard, 2 Low. 411, 17 Vacuum Cleaner Co., 192 Fed. 939, 26 N. B. K. 228, Fed. Cas. No. 11,252. See Am. Bankr. Rep. 621 ; In re Dr. Voorhees In re B. H. Gladding Co., 120 Fed. 709, Awning Hood Co., 187 Fed. 611 ; Orr v. 9 Am. Bankr. Rep. 700. Ward, 73 111. 318 ; In re D. Levy & Sons 120 In re Grubbs-Wiley Grocery Co., Co., 208 Fed. 479, 31 Am. Bankr. Rep. 96 Fed. 183, 2 Am. Bankr. Rep. 442. And 25; In re Montague & Gillet (D. O.) 212 see In re McCarthy Portable Elevator Fed. 452, 32 Am. Bankr. Rep. 106. Co., 196 Fed. 247, 28 Am. Bankr. Rep. 45. 123 See Clairemonte v. Napier Motor 121 In re Silverman, 101 Fed. 219, 4 Co., 11 Cal. App. 265, 104 Pac. 712; In Am. Bankr. Rep. 83; In re Schultz & re Silverman, 101 Fed. 219, 4 Am. Bankr. Guthrie (D. C.) 235 Fed. 907, 37 Am. Rep. 83. Bankr. Rep. 604. "§ 496 LAW OF BANKRUPTCY 1046 § 496. Promissory Notes ; Consideration ; Good Faith of Holder. — A promissory note is a provable debt in bankruptcy as being a "fixed liability evidenced by an instrument in writing," and may be proved by the payee or indorsee as the case may be.^** Notes made by a corpora- tion are provable against its estate in bankruptcy, if duly executed under proper authority and for a legitimate corporate purpose.**' -And a claim on a note may be proven against the estate of the bankrupt indorser.*^* — Under former statutes it was held that a note was none the less prova- ble in bankruptcy because it was payable in specific articles on de- mand/*' though such a claim would probably no^ be regarded as an unliquidated demand, and its equivalent in cash would have to be fixed before proving. But a claim founded on a promissory note will not be allowed where it appears that it was not founded upon a good and valid considera- tion,*** and a renewal note, which is not supported by any fresh con- sideration, is not provable where the original note was without consid- eration.**" But a note given by a bankrupt corporation to a stockholder^ for money borrowed with which to effect a composition, and which was so used, is not without consideration and may be proved as a debt in a second bankruptcy proceeding.*^* Further it is necessary that the claim- ant offering to prove on the note should be a holder in good faith and for value or at least (in the case of a remote indorsee) that he should prove affirmatively that his immediate indorser was a bona fide holder for value.*** A person to whom notes are sent for discount, and who fails to pay drafts drawn against the proceeds in favor of an indorser of the notes, cannot prove his claim on the notes, against the bankrupt payee of the drafts, for, having failed to pay the drafts, he has no right to re- tain the notes and is not a holder for value.*** But where the holder of a note is a corporation, its position is not necessarily prejudiced by bad faith or even illegal conduct on the part of one of its officers in regard to the acquisition of the note where full value was given in cash. Thus, in one of the cases it appeared that the cashier of a national bank had discounted notes for the maker of them, far in excess of the amount 124 In re Shelboume, 19 N. B. R. 359, 120 In re Stanford Clothing Co., 187 Fed. Cas. No. 12,745. Fed. 172, 26 Am. Bankr. Rep. 124 ; In re 125 In re New York Car Wheel Works, Cornwall, 4 N. B. R. 400, Fed. Cas. No. 141 Fed. 430, 15 Am. Bankr. Rep. 571. .3,251. See In re New York Car Wheel See Moerschel v. O'Bannon, 246 Fed. 887, Works, 139 Fed. 421, 14 Am. Bankr. Rep. 159 C. C. A. 159, 40 Am. Bankr. Rep. 780. 595. 126 In re Bruce, 6 Ben. 515, Fed. Cas. "o in re C. H. Bennett Shoe Co., 162 No. 2,044. Fed. 691, 20 Am. Bankr. Rep. 704. 127, Chandler v. Windshlp, 6 Mass. i^i in re Hopper-Morgan Co., 1.56 Fed. .310; Barker v. Mann, 4 Mete. (Mass.) 525, 19 Am. Bankr. Rep. 518, affirmed .302. 166 Fed. 1020, 91 C. C. A. 37. 128 In re Hook, 11 N. B. R. 282, Fed. "2 in re Howard, 6 N. B. R. 372, Fed. Cas. No. 6,672. Cas. No. 6,751. 1047 PROVABLE DEBTS AND CLAIMS § 497 which the bank could legally loan to one person, and beyond the ability of the maker and indorser of the notes to pay, and this was done with- out the knowledge or consent of the other officers of the bank. A crim- inal prosecution was instituted against the cashier and he was sentenced to imprisonment for misapplying the funds of the bank, and criminal proceedings against the maker of the notes for aiding him in so doing likewise resulted in a conviction. The bank having become insolvent, its receiver sued on the cashier's bond and recovered judgment for the amount of the penalty of such bond. But it was held that these facts did not affect the validity of the notes, nor the bank's ownership of them, and the receiver might prove the same in bankruptcy against the estate of the indorser. ^^* A pledgee in good faith and for value of a promissory note, transferred to him before maturity, may prove it for its full amount against the estate in bankruptcy of the maker, whatever may have been- the equities between the maker and the pledgor; but if there are such equities as would prevent the pledgor from proving, then the pledgee can receive in dividends only the amount for which he holds the note in pledge.^** § 497. Judgments. — ^Although a verdict, not followed by the entry of judgment before the institution of bankruptcy proceedings, is not a provable debt,**® yet a judgment recovered before the filing of the peti- tion in bankruptcy is expressly made provable by the terms of the stat- ute,*^® irrespective of the nature of the cause of action in the suit in which it was rendered, and even though that cause of action would not of itself have constituted a provable claim.**'' Hence, provided the judgment was obtained before the beginning of the bankruptcy pro- ceedings, it will be a provable debt when based on a cause of action for obtaining property by false and fraudulent representations,*** or where the action was in trover to recover goods purchased by the bank- rupt while insolvent, no fraudulent misrepresentations being shown,*** or where the the cause of action was against a city marshal for paying over attached rents to the attaching creditor after notice of an as- signee's claim to them,**" and proof may be made on a judgment against 133 In re Edson, 119 Fed. 487, 9 Am. 625. But compare Turner v. Turner, 108 Bankr. Kep.^505. Fed. 785, 6 Am. Bankr. Rep. 289, hold- is* Ex parte Kelty, 1 Low. 394, Fed. ing that a judgment for alimony is not a Gas. No. 7,681. ' provable debt, as to which see infra, § 13B li re Ostrom, 185 Fed. 988, 26 Am. 509. Bankr. Rep. 273; Black v. McClelland, iss in re Lockwood (D. 0.) 240 Fed. 12 N. B. R. 481, Fed. Cas. No. 1,462. 158, 89 Am. Bankr.' Rep. 478. 136 Johnson v. Joslyn, 45 Wash. 310, iso Kreltlein v. Ferger, 238 TJ. S. 21, 88 Pac. 324 ; Graham r. Plerson, 6 Hill 35 Sup. Ct. 685, 59 L. Ed. 1184, 34 Am. (N. T.) 247; People's Nat. Bank v. Max- Bankr. Rep. 862. son, 168 Iowa, 318, 150 N. W. 601. i^o TJlner v. Doran, 167 App. Div. 259, isTHowland v. Carson, 28 Ohio St. 152 N. Y. Supp. 655. § 497 LAW OF BANKRUPTCY 1048 the bankrupt for injuries to the judgment creditor's property caused by the bankrupt's negligence,"^ or for damages sustained by the creditor in an automobile accident."^ The same conditions being fulfilled, as to the time of recovery of the judgment, a judgment in an action for a tort, such as fraud, conspiracy, or deceit, is provable in bankruptcy,"* and so is a judgment for damages for negligence causing death,^** or for breach of promise of marriage,"^ or a judgment recovered by a wo- man against her seducer,"® or one fixing the liability of a stockholder of an insolvent corporation for a contribution equal to the amount of his stock to pay its debts.^*' Further, the judgment is conclusive of the validity and amount of the claim,"* though it may perhaps be im- peached on the ground of fraud or collusion in its procurement or for .want of jurisdiction."* And its conclusiveness, and its availability as a provable claim, are not impaired by the fact that an appeal is pend- ing or a writ of error with supersedeas of execution. ^^^ But this effect cannot be attributed to a mere decree nisi which, under the law of the state, is only preliminary and requires a further order to make it final.-^^^ It has also been held that, for the purpose of proving a claim in bank- ruptcy, a debt is not so merged in a judgment recovered upon it that the judgment must be proved instead of the debt. Hence where a cred- itor has a provable claim and has brought suit upon it before the ad- judication in bankruptcy, and recovers a judgment after the adjudica- tion and before the debtor's application for discharge, he may prove the original debt, although the judgment was for a less sum than the debt claimed and offered for proof.''®* As to the effect of a judgment recovered after the commencement 141 In re Cunningham (D. C) 253 Fed. loo In re Leszynsky, 3 Ben. 487, Fed. 663, 42 Am. Bankr. Rep. 560. Cas. No. 8,278 ; In re Sheehan, 8 N. B. 142 JefEerson Transfer Oo. v. Hull, 166 E. 356, Fed. Cas. No. 12,737; In re Ber- Wis. 438, 166 N. W. 1. lin Dye Works & Laundry Co. (D. C.) 143 Landgraf v. Griffith, 41 Ind. App. 225 Fed. 683, 34 Am. Bankr. Rep. 823; 372, 83 N. B. 1021. Moore v. Douglas, 230 Fed. 399, 144 C. 144 In re Putnam, 193 Fed. 464, 27 C. A. 541, 36 Am. Bankr. Rep. 740. Am. Bankr. Rep. 923. loi In re Wiseman, 123 Fed. 185, 10 14B In re Fife, 109 Fed. 880, 6 Am. Am. Bankr. Rep. 545, affirmed Hibberd Bankr. Rep. 258 ; In re Sidle, 2 N. B. R. v. Bailey, 129 Fed. 575, 64 C. C. A. 143, 220, Fed. Cas. No. 12,844. 12 Am. Bankr. Rep. 104. . 146 In re McCauley, 101 Fed. 223, 4 ^^^ In re Pinkel, 1 Nat. Bankr. News Am. Bankr. Rep. 122. 138; In re Brown, 5 Ben. 1, 3 N. B. R. 147 Dight y. Chapman, 44 Or. 265, 75 584, Fed. Cas. No. 1,975; In re Craw- Pac. 585, 65 L. R. A. 793. ford, 3 N. B. R. 698, Fed. Cas. No. 3,363 ; 148 McKinsey v. :toarding, 4 N. B. R. In re Stansfield, 4 Sawy. 334, 16 N. B 38; Fed. Cas. No. 8,866. R. 268, Fed. Cas. No. 13,294 ; In re Vick- 149 In re Pease, 2 Nat. Bankr. News, ery, 3 N. B. R. 696, Fed. Cas. No. 16,930; 657 ; In re Phelps, 2 Nat. Bankr. News, Blair v. Carter, 78 Va. 621. And see In 481 ; In re Van Buren, 19 N. B. R. 149, re Smith, 176 Fed. 426, 23 Am. Bankr Fed. Cas. No. 16,833. Rep. 864. 1049 PROVABLE DEBTS AND CLAIMS § 497 of the bankruptcy proceedings, upon a pre-existing debt, the terms of the act of 1867 were made the subject of various and conflicting deci- sions by the courts.^^* But the question has been clearly settled by the language of the present statute, which includes among the "debts which may be proved" those which are "founded upon provable debts reduced to judgments after the filing of the petition and before the considera- tion of the bankrupt's application for a discharge, less costs incurred and interests accrued after the filing of the petition and up to the time of the entry of such judgments." "* Under this provision, a creditor holding a promissory note, valid and enforceable against the maker at the date of the latter's adjudication in bankruptcy, but against which the statute of limitations has nearly run, may reduce the same to judgment by suit brought in a state court after such adjudication, and the judg- ment will establish the claim and stop the running of the statute, though it will not give the creditor a lien or priority or enable him to levy on the bankrupt's property.-^^^ But a judgment so recovered will not be provable in bankruptcy uiiless the claim or demand in suit was a prov- able debt at the date of the filing of the petition. (Thus, a claim for damages for negligence causing personal injuries is not a provable debt, and it is not made provable by the recovery of a, judgment on it after the filing of the petition in bankruptcy.^^* jAnd if the claim (for dam- ages) was not of a provable character, a judgment upon it against the bankrupt in a state court, actually rendered after the bankruptcy, will not be a provable debt, although, by direction of an appellate court, which reversed a judgment in the bankrupt's favor, it was entered nunc pro tunc as of the date of the reversed judgment, which was before the bankruptcy.-^"" It is also a provision of this part of the statute that the judgment, to be provable as a debt, should have been rendered before the con- sideration of the bankrupt's application for discharge. But it has some- times been held by the state courts that they may render final judg- ment against the bankrupt after his discharge, though in this case the iss See Black v. McClelland, 12 N. B. v. Supreme Council A. L. H., 206 Mass. E. 481' Fed. Cas. No. 1,462; In re May- 139, 92 N. B. 133. And see Gordon v. bin, 15 N. B. R. 468, Fed. Cas. No. 9,337 ; Texas Co., 119 Me. 49, 109 Atl. 368. In re Stansfield, 4 Sawy. 334, 16 N. B. is 6 in re McBryde, 99 Fed. 686, 3 Am. E. 268, Fed. Cas. No. 13,294 ; In re Gal- Bankr. Rep. 729. lison, 2 Low. 72, 5 N. B. ]^. 353, Fed. Cas. lesin re Crescent Lumber Co., 154 No. 5,203; In re Williams, 2 N. B. R.229, Fed. 724, 19 Am. Bankr. Rep. 112. But Fed. Cas. No. 17,705; Randall v. Sutton, see In re Standard Aero Corp. of New 2 Houst. (Del.) 510. York (C. C. A.) 270 Fed. 779, 46 Am. IS* Bankruptcy Act 1898, § 63a, clause Bankr. Rep. 511. 5. See In re McBryde, 99 Fed. 686, 3 ibt In re Kroeger Bro?. (D. C.) 262 Am. Bankr. Rep. 729. Compare Hackett Fed. 463, 45 Am. Bankr. Rep. 135. § 497 LAW OF BANKRUPTCY 1050 judgment merely establishes the amount of the debt or claim, and it should be framed in such limited form as not to involve a judgment in personam, though adequate to enable the creditor to reap the benefit of his proof of claim.-^®* The judgments spoken of in this part of the statute are evidently those recovered against the bankrupt himself. Judgments against the trustee in bankruptcy apparently stand upon a different footing. At least it has been held, in a case where the trustee, eighteen months after the adjudication, brought an action in a state couj-t against a supposed debtor of the estate, but was defeated, and the' defendant recovered a judgment on a counterclaim against the bankrupt, that the trustee was liable for the costs of the action, but that the creditor, having filed no claim within the time allowed, could not prove his judgment against the estate.^^* § 498. Equitable Claims and Demands. — ^As courts of bankruptcy have jurisdiction in equity as well as at law,. equitable claims against a bankrupt are provable if within the purview of the general rules of equity, even though they have no status at law."* Thus, in one case, it appeared that the wife of a bankrupt had loaned a large sum of money to a partnership of which her husband was a member. It was argued that she could not file a claim for the money against the estate in bank- ruptcy, for the reason that, under the local law, a married woman could not make contracts with her husband. But it was held that in equity, and therefore in bankruptcy, a married woman could contract with her husband in relation to her separate estate and even sue him with re- gard to it, and hence the claim in question, being enforceable in eq- uity was provable in bankruptcy.^®^ But a mere claim in equity to re- scind a contract is not a "debt" which is provable in bankruptcy.''** § 499. Contingent Demands and Liabilities. — The bankruptcy act of 1841 provided for the proving of "uncertain or contingent demands" against the estate of the bankrtipt. But it was held that, so long as it IBS Barry v. New Tork Holding & R. 206, Fed. Cas. No. 2,086 ; In re^Coney Construction Co., 229 Mass. 308, 118 N. Island Lumber Co., 199 Fed. 803 ;* Wal- E. 639. ter v. Atlia (C. C. A.) 262 Fed. 75, 45 15 In re Havens (D. 0.) 182 Fed. 367, Am. Bankr. Eep. 150. 25 Am. Bankr. Rep. 116. loi In re James, 131 Fed. 401, 65 C. C. 100 In re Putman, 193 Fed. 464, 27 Am. A. 385, 1 L. R. A. (N. S.) 321, 12 Am. Bankr. Rep. 923; In re Upson, 123 Fed. Bankr. Rep. 573. And see .In re Batch- 807, 10 Am. Bankr. Rep. 602; Sigsby v. elder & Lincoln Co., 122 Fed. 355, 58 Willis, 3 Ben. 371, 3 N. B. R. 207, Fed. C. C. A. 517, 10 Am. Bankr. Rep. 641; Oas. No. 12,849 ; In re Blandin, 1 Low. In re Jordan & Blake, 2 Fed. 319. 543, 5 N. B. R. 39, Fed. Cas. No. 1,527; 102 Doggett v. Emerson, 1 Woodb. & In re Buckhause, 2 Low. 331, 10 N. B. M. 195, Fed. Cas. No. 3,962. 1051 PROVABLE DEBTS AND CLAIMS § 499 remained wholly uncertain whether a contract or engagement would ever give rise to an actual duty or liability, and there were no means of removing the uncertainty by calculation, the contract or engagement was not provable.'^^?' The act of 1867 provided for the proof and allow- ance of "contingent debts and contingent liabilities," but only in case the contingency should happen before the order for the final dividend.^** The present statute makes no provision whatever for the proof of con- tingent claims or demands, and therefore they are not pi;ovable;3£S---'^ contingent' claim, in this sense, has been defined as one where "all the facts necessary to be shown to establish the bankrupt's liability to the claimant had not occurred before the petition in bankruptcy was fil- ed." **® Thus, bonds of a corporation which by their terms were paya- ble only out of funds created from the surplus earnings of the company are not provable in bankruptcy against the company, where there never had been any surplus earnings, and such funds had therefore never been created.^®' And in other cases it has been thought to be a claim "the valuation or estimation of which it is substantially impossible to prove," on account of, the uncertain or fortuitous elements which might enter into it."* But perhaps it is a better definition to say that a "contingent" claim is one as to Which it remains uncertain, at the time of the filing of the petition in bankruptcy, whether or not the bankrupt will ever be- come liable to pay it."-^' If it is certain that he will have to pay the claim, or some proportion of it, though it cannot yet be said when he will have to pay or how much, the claim is "unliquidated" but not contin- gent. In this view the liability of an indorser of the bankrupt's prom- issory note, not due at the time of the filing of the petition, is no real ex- ception to the rule against proving contingent demands.^'** On the oth- ^i63Riggin V. Magwire, 15 Wall. 549, the understanding that a corporation 21 L. Ed. 282. should take over the lumber, is not en- 164 Zimmer v. Schleehauf, 115 Mass. titled, on the corporation's being ad- 52, 11 N. B. E. 313. judged a bankrupt, to prove a claim 16 5 Dun bar v. Dunbar, 190 XJ. S. 340, against it for the amount due. In re 23"giip7~Ct. 757, 47 L. Ed. 1084, 10 Am. Lance Lumber Co. (D. O.) 224 Fed. 598. Bankr. Rep. 139; In re American Va- i67 Synnott v. Tombstone Consol. cuum Cleaner Co., 192 Fed. 939, 26 Am. Mines Co., 208 Fed. 251, 128 C. 0. A. 451 , Bankr. Rep. 621; In re Inman & Co., 31 Am. Bankr. Rep. 421. 171 Fed. 185, 22 Am. Bankr. Rep. 524; i68 Dunbar v. Dunbar, 190 U. S. 340, In re Wilson, 194 Fed. 564, 27 Am. 23 Sup. Ct. 757, 47 L. Ed. 1084, 10 Am. Bankr. Rep. 867; In re Hartman, 166 Bankr. Rep. 139. Fed. 776, 21 Am. Bankr. Rep. 610; Phe- i69 In re MuUings Clothing Co., 238 nix Nat. B&nk v. Waterbury, 123 App. Fed. 58, 151 C. C. A. 184, L. R. A. 1918A, Div. 453, 108 N. Y. Supp. 391; Leader v. 539, 38 Am. Bankr. Rep. 189. Mattingly, 140 Ala. 444, 37 South. 270: I'o "An apparent exception to the Getting V. Hooper, Lewis & Co., 220 rule that' contingent claims may not be Mass. 273, 107 N. B. 931. proved under section 63a is the case of 166 Colman Co. v. Withoft (C. C. A.) an indorser of the commercial paper of 195 Fed. 250, 28 Am. Bankr. Rep. 328. the bankrupt, not due at the time of the A seller of lumber to an individual, with filing. of the petition, but whose liability § 499 LAW OF BANKRUPTCY 1052 er hand, the liability of a bankrupt on a guai-anty executed by him of the payment by a corporation of dividends at a certain rate on its stock, owned by another, with respect to dividends not due or payable at the time of the filing of the petition in bankruptcy, is so far contingent that a claim based thereon is not a provable debt.^" And the same rule has been applied to an agreement by the bankrupt to pay an annuity to his divorced wife "during her life or until she remarries." "* And so of a claim against the bankrupt by his lessee for prospective profits of the business conducted at a stand on the bankrupt's premises, on breach of the lease by the bankrupt.^''* Nor can a claim be proved on a covenant in a lease permitting the lessor, on default, to re-enter and relet the premises at the risk of the lessee, the latter to remain liable for the rent and be credited with the sums actually realized.^'* But a contract liabil- ity of the bankrupt, contingent at the time the petition was filed, but liq- uidated within the year allowed for making proof, is a provable debt.^'* The mere giving of notes to evidence, or in prepayment of, obliga- tions which are clearly conditional, will not annul the condition or make an otherwise unprovable claim allowable in bankruptcy.^'* But on the other hand, the pendency of proceedings to open a guardian's settlement of accounts does not preclude the former ward from filing as claims against the guardian on his bankruptcy notes which he had given her for the amount which he admitted to be due."' § 500. Unliquidated Demands. — ^After enumerating five classes of provable debts, the bankruptcy act provides that "unliquidated claims as indorser thereafter becomes fixed. surplus earnings of the company, are Moch V. Market Street Bank, 107 Fed. not provable in bankruptcy against the 897, 47 C. C. A. 49, 6 Am. Bankr. Rep. company, where there never had been ill; In re Semmer Glass Co., 135 Fed. any surplus earnings, and such funds 77, 67 C. C. A. 551, 14 Am. Bankr. Rep. had therefore never been created. Syn- 25 ; In re Smith, 146 Fed. 923, 17 Am. nott v. Tombstone Consol. Mines Co., 209 Bankr. Rep. 112. But it may be doubt- Fed. 251. ed whether the liability of an indorser 172 Dunbar v. Dunbar, 190 U. S. 340, in that class of cases is in any true 23 Sup. Ct. 757, 47 L. Ed. 1084, 10 Am! sense contingent. The extent of his lia- Bankr Rep 139 bility is at all times known, for it is ,,3 ^^ ^^ '^^^^^ g measured by the note itself. Upon the ^^ 8 233. adjudication in bankruptcy it would ' _,' , ,. ^ , „ ^ seem that there is an end to the con- ^ '''f^^ ^^To'^*'''^^ l^Z' ^' '^. "l' tingency that the bankrupt himself may f ^- ^^^' ^^^' ^f ; ^"^ T'^^^ ' Bowditch pay the note, and that there remains !" ^^^'"'^f' "6 Mass 109, 15 N^E. 285. between that date and the maturity of ^^ f^^ ^^ ^/ *^f ^f """t, ^"^'i^^ "•' ^"^ the indorser's liability nothing but a ^^- ^^' ^9 Am. Bankr. Rep. 766. question of time." Colman Co. v. With- , "^^^ re James Dunlap .Carpet Co., oft (C. C. A.) 195 Fed. 250, 28 Am. 1^3 Fed. 541, 20 Am. Bankr. Rep. 882. Bankr. Rep. 328. i'« In re Wisconsin Engine Co., 234 "1 In re^Pettingill, 137 Fed. 148, 14 Fed. 281, 148 C. C. A. 183, 37 Am. Bankr. Am. Bankr.* Rep. 728. Bonds of a cor- Rep. 106. poration which by their terms were pay- 1^7 Beaven v. Stuart, 250 Fed. 972, 163 able only out of funds created from the C. C. A. 222, 41 Am. Bankr. Rep. 81. 1053 PROVABLE DEBTS AND CLAIMS § 500 against the bankrupt may, pursuant to application to the court, be liq- uidated in such manner as it shall direct, and may thereafter be proved and allowed against his estate." "^ But it is held that this clause is not to be understood as defining an additional class of debts which shall be provable. It relates merely to procedure, and provides for the liquida- tion of such of the claims enumerated in the preceding paragraph as may require that process in order to fix their amount. In other words, it covers only such claims as, when liquidated, will be provable debts under the specifications of the preceding paragraph, and does not enlarge the class of provable debts, nor permit the proof of claims for damages for torts not reduced to certainty by judgment.^'* The difference between a liquidated and an unliquidated claim relates only to the certainty of its amount, not to the certainty of its being due.^*' That is, the term "unliquidated claims" includes demands for which the bankrupt is certainly answerable in some sum, though that sum is not yet ascertained, but not demands for which he may not be liable at all.**^ Thus, a claim for damages for breach of a contract, where the amount of damages is to be ascertained by proof and not by mere calculation, is an unliquidated demand,^** and so- is the liability ' ITS Bankruptcy Act 1898, § 63b. 179 Dunbar v. Dunbar, 190 U. S. 340, 23 Sup. Ct. 747, 47 L. Ed. -1084, 10 Am. Bankr. Eep. 139; In re Southern Steel Co., 183 Fed. 489, 25 Am. Bankr. Rep. 358; In re New York Tunnel Co., 159 Fed. 688, 86 C. 0. A. 556, 20 Am. Bankr. Rep. 25; In re Hirscbman, 104 Fed. 69, 4 Am. Bankr. Rep. 715 ; Brown & Adams V. United Button Co., 149 Fed. 48, 79 0. C. A. 70, 17 Am. Bankr. Rep. 565. As to claims for unliquidated damages for torts, not reduced to judgment, see infra, §514. Moore v. Douglas, 230 Fed. 399, 144 C. C. A. 541, 36 Am. Bankr. Rep. 740. The claim of an injured employee against his employer, unliquidated and not reduced to judgment until after the employer's adjudication in bankruptcy, is not a provable debt. Bberlein v. Fidelity & Deposit Co. of Maryland, 164 Wis. 242, 159 N. W. 553. ISO Where a corporation had made an assignment for the benefit of its credi- tors before the filing of a petition in •bankruptcy against one of the stockhold- ers, and the latter's liability for the dif- ference between the amount of his stock subscription and the value of property transferred in payment thereof had ceas- ed to be contingent, although not yet liq- uidated, since the corporate debts for which a subscription would be a trust fund were then capable of determina- tion, the receiver of the corporation can prove a claim for such liability against the bankrupt's estate. In re Thompson (D. C.) 257 Fed. 140, 42 Am. Bankr. Rep. 142. 181 In re Wisconsin Engine Co.,. 234 Fed. 281, 148 0. C.,A. 183, 37 Am. Bankr. Rep. 106; Crane v. Eastern Transp. Line, 48 Conn. 361. "We understand by liquidation an amount certain and fixed, either by the act and agreement of the parties or by operation" of law- — a sum which cannot be changed by the proof- it is so much or nothing — and that the term does not necessarily refer to a writ- ing. An open account is the reverse of this." Nisbet v. Lawson, 1 Ga. 275, 287. A claim under an agreement by a bank- rupt to pay an annuity to his divorced wife "during her life or until she remar- ries" is not a provable debt on account of the substantial impossibility of esti- mating the value of the contingency of a remarriage. Dunbar, v. Dunbar, 190 V. S. 340, 23 Sup. Ot. 757, 47 L. Ed. 1084, 10 Am. Bankr. Rep. 139. 182 In re Erie Lumber Co. (D. C.) 150 Fed. 817, 17 Am. Bankr, Rep. 689. A claim against a bankrupt for breach of promise to marry, on which a suit Is pending in a state court, Is an unliq- § 500 LAW OF BANKRUPTCY 1054 arising upon a written guaranty to pay the future indebtedness of an- other person upon an open account/*^ and the liability of a bankrupt broker for stock purchased by him for a customer and converted to his own use, the exact time of the conversion not being shown.^** So where plaintiff was a partner with defendant in a transaction involving the pur- chase and sale of a certain commodity, and plaintiff knew, when defend- ant filed his petition in bankruptcy, that the venture would result in a loss, leaving the defendant indebted to him, though the exact amount was not then known and could not be ascertained until the rest of the stock on hand was disposed of> it was held that plaintiff had an "unliq- uidated claim" against defendant at the date of the bankruptcy .^*^ In this classification also are included losses suffered by a broker in dispos- ing of goods purchased for the bankrupt which he failed or refused to re- ceive,^*® and a claim against a testamentary trustee for negligence and mismanagement.^*' But on the other hand, a claim against the estate of a bankrupt for sums of money obtained by him from the claimants, while in their employment, by means of forged indorsements, pilfering of cash, and inducing them to purchase stocks on false and fictitious orders, can- not be denied allowance, on the ground of its being an unliquidated de- mand, where the amounts taken from and paid out by the claimants are certain. ^^* When a creditor's claim against the bankrupt is unliquidated in this sense, he cannot at once proceed to make proof of it and have it allowed. He must first make an application to the court to have the claim "liq- uidated," and it will then be liquidated in such manner as the court shall direct, — or it must be liquidated by suit or in some other manner which the court will allow or accept, without a previous application to it, — and thereafter he may prove the claim in the manner prescribed by law, and secure its allowance for the amount fixed by such liquidation.^*" As the manner of liquidating a claim of this kind is left to the direction of the court, any kind of judicial investigation will be sufficient which results in establishing the validity of the claim and definitely fixing its amount, provided the court will direct or sanction it. Thus, the liquida- tion may be effected by a hearing before the referee, by a plenary suit uidated claim, and the court may prop- ise in re Smith, 6 Ben. 187, Fed. Cas. erly. order it liquidated by trial in the No. 12,975. state court. In re Martin, 228 Fed. 184, i87 in re Griffin, 188 Fed. 389. 142 C. C. A. 540, 35 Am. Banlcr. Hep. iss in re Filer, 125 Fed. 261, 5 Am. 776. Bankr. Hep. 835. iss Hargroves v. Coolie, 15 Ga. 321. ""In re Eubel, 166 Fed. 131, 21 Am. iR4Tr, ,.0 r,.ofP 117 Ti'ori q^q s Am ^ankr. Eep. 566; In re Silverman, 101 184 In re GrafC, 117 Fed. 343, 8 Am. ^^ 319, 4 Am. Bankr. Eep. 83; in re Bankr. Kep. t^i. Heinsfurter, 97 Fed. 198, 3 Am. Bankr. issDycus V. Brown, 135 Ky. 140, 121 Eep. 113; In re Clough, 2 Ben 508 2 S. W. 1010, 28 L. E. A. (N. S.) 190. N. B. E. 151, Fed. Cas. No. 2,905. 1055 PROVABLE DEBTS AND CLAIMS § 501 in a court of competent jurisdiction, or by permitting an action pending in any court to proceed to judgment.^*" Hence where an action on an unliquidated claim is pending in a state court when bankruptcy occurs, and the trustee does not apply for a stay but permits the case to go to judgment, the claim is thereby liquidated, and the judgment affords proper proof of the amount of the olaim.^*^ And where a claim secured by a mortgage on the bankrupt's stock in trade was attacked by the trustee as a preference, and thereupon the creditor sued in a state court to establish the validity of his mortgage, and in that action the mortgage was held to be invalid as a preference, it was held that the creditor's claim was . thereby "liquidated," and was provable as an unsecured claim.^*' § 501. Assigned Claims. — ^Where a provable claim against the bankrupt existed at the time the petition was filed, a subsequent assign- ment of it will carry with it all the rights and remedies which the as- signor had, as to participating in the bankruptcy proceedings and re- ceiving a share of the estate.-'®^ But, except in the case of negotiable paper, the assignee will take the claim in the same condition in which his assignor held it, and will acquire no stronger or higher rights.^®* He may, however, prove the claim for its full amount although he pur- chased it at a discount,^^^ and he may prove the claim and receive divi- dends on it, notwithstanding that the assignment was intended only as collateral security.-*^*® But where various creditors have all assigned their claims to a committee, with a view to purchasing the bankrupt's property and selling it for the benefit of the assignors, the right to prove the claims in the bankruptcy is in the committee, and not in the indi- vidual creditors.'^*'' The form by which a claim against a bankrupt is transferred is immaterial, and cannot affect the right of the assignee to prove the claim, provided only that it is sufficient to estop the original holder from asserting any right to it.^®* 180 In re Buchan's Soap Corp., 169 i»* In re Wiener & Goodman Shoe Co., Fed. 1017, 22 Am. Bankr. Rep. 382; In 96 Fed. 949, 3 Am. Bankr. Rep. 200; re Duquesne Incandescent Light Co., 176 Humphreys v. Blight, 1 Wash. O. 0. 44, Fed. 785, 24 Am. Bankr. Rep. 419 ; In Fed. Cas. No. 6,870. re United Button Co., 140 Fed. 495, 15 195 in re Houghton, 5 Law Rep. 321, Am. Bankr. Rep. 390. Fed. Cas. No. 6,728. 191 In re Buchan's Soap Corp., 169 Fed. ,,, j^ ^^ American Specialty Co. (C. C. 1017, 22 Am Bankr. R«p. 382; Barry v. ^j ^g^ ^^^ gg^ 27 Am. Bankr. Rep. n^:^J°''\^°^^ol-,\^a^^ ""^ °°" 463. Compare In re Eagles, 99 Fed. 695. 229 Mass. 308, 118 N. E. 639. 3 Am. Bankr. Rep. 733. 102 Powell V. Leavitt (C. C. A.) 150 *^ • • ^■ Ped. 89. is'In re E. T. Kenney Co., 136 Fed. 193 In re Fitzgerald, 191 Fed. 95, 26 451, 14 Am. Bankr. Rep. 611. Am. Bankr. Rep. 773; In re Breakwater los In re Miner, 117 Fed. 953, 9 Am. Co. (D. C.) 232 Fed. 375, 86 Am. Bankr. Bankr. Rep. 100. Rep. 752. § 501 LAW OF BANKRUPTCY 1056 But proof of an assigned claim may be defeated by evidence of a design to defraud other creditors or to defeat the operation of the bank- ruptcy act. It is not, indeed, unlawful to buy up claims against an in- solvent person for the purpose of preventing or stopping proceedings in bankruptcy against him.^^* And it has even been held that the allow- ance of a claim, in favor of an assignee who acquired it after the adjudi- cation, but from an innocent and bona fide holder in whose hands it was valid and provable, will not be set aside upon an allegation by other creditors that the assignee bought the claim for the purpose of acquir- ing a majority interest in the estate, of controlling the bankruptcy pro- ceedings in the interest of the bankrupt and himself, and of hindering and defrauding the other creditors, when it does not appear that such fraudulent purpose has actually been carried out to the injury of other creditors.^"" But where a person intending to go into bankruptcy pro- cured a friend to buy up a large part of his indebtedness at a small fraction of its nominal value, by disseminating false and discouraging statements as to the amount of dividends his estate would pay, it was remarked that no court of bankruptcy would hesitate to hold that claims thus tinctured with fraud should not be proven against the estate.*"^ Yet, if the trustee has assets in hand more than sufficient to pay all otheir claims, debts purchased by agents for the bankrupt may be al- lowed to the extent of the sums paid therefor by the purchasers.^"* § 502. Debts Payable in the Future. — It is no objection to the proof and allowance of a claim that the time fixed for its payment, by the agreement of the parties or by the instrument which evidences it, has not arrived at the date of filing the petition in bankruptcy, provided that it was at that date a "fixed liability" and "absolutely owing." *"* But if the debt was not yet payable, at the commencement of the proceed- ings, and did not bear interest, the same clause of the statute requires that there shall be a "rebate of interest" upon it, which apparently means that the claim cannot be proved for its full amount, but must be discounted at the legal rate of interest, or that it can be proved only for its "present worth." To take the simplest form of illustration of the general rule, a promissory note made by the bankrupt is a provable debt in bankruptcy, although not du^ at the time of the filing of the petition but at a future day.*"* So in the case of an ordinary debt, if the debtor 10 9 In re Strachan, 3 Biss. 181, Fed. soa Bankruptcy Act 1898, § 63a. See Cas, No. 13,519. De Long v. Mechanics & Metals Nat. 20 In re Headley, 97 Fed. 765, 3 Am. Bank, 168 App. Div. 525 153 N Y Supp Bankr. Eep. 272. 1010. 201 In re State Ins. Co., 16 Fed. 756. 204 in re Percy Ford Co., 199 Fed. 834, 202 In re Lathrop, 5 Ben. 199, 5 N. B. 28 Am. Bankr. Rep. 919. K. 43, Fed. Cas. No. 8,104. 1057 PROVABLE DEBTS AND CLAIMS § 503 has procured an extension of time for its payment, and becomes bank- rupt, the creditor has a provable claim, even before the expiration of the time agreed on.*"*' As to future accruing installments on a contract to pay an annuity, the law is not so clear. But the best present opinion ap- pears to be that a penal bond, executed by a person who is thereafter adjudged a bankrupt, to secure the payment to the obligee of an annuity during life, is an instrument creating a fixed liability absolutely owing at the time of the filing of the petition, payable in the future, and is prov- able as a debt against the bankrupt's estate for the amount of the pen- alty stated therein, where the value of the annuity, computed on the life tables, exceeds such penalty.^"* § 503. Interest Accrued and Accruing. — Where a creditor's claim was "absolutely owing at the time of the filing of the petition" in bank- ruptcy, his proof of debt may include, and he should be allowed, "any interest thereon which would have been recoverable at that date." ^""^ And interest in the case of a debt put into judgment before the petition Was filed may be proved with the debt.^*** But when the statute speaks of interest "recoverable" at the commencement of the proceedings, it evidently means that interest can be claimed and added to the debt only in cases where the parties have expressly agreed that the debt should bear interest, or where the debt is of such a character that it carries legal interest by force of law without the stipulation of the parties. Hence the creditor must show either a debt entitled to interest by oper- ation of law, or else a mutual agreement of the parties that interest should be charged.*"^ The right to claim interest in bankruptcy pro- ceedings may also depend upon the making of a previous demand for payment.^^* And on the other hand, even though the parties may have agreed that no interest should be payable on a loan of money, yet where this stipulation was based on the performance of certain acts on the part 20 5Bcfort V. Greely, 6 N. B. K. 433, bankruptcy is entitled to interest at the Fed. Cas. No. 4,260. ordinary legal rate of 6 per cent but not 406 Cobb V. Overman, 109 Fed. 65, 48 to the larger interest required by the lo- C. C. A. 223, 54 L. R. A. 369, 6 Am. cal law to be paid on redemption from Bankr. Rep. 324 (overruling Bray v. tax sales. Dayton v. Stanard, 241 U. S. Cobb, 100 Fed. 270, 3 Am. Bankr. Rep. 588, 36 Sup. Ct. 695, 60 L. Ed. 1190, 37 788) ; Hayvcood v. Shreve, 44 N. J. Lavy, Am. Bankr. Rep. 259 ; In re Clark Re- 94 ; Roosevelt v. Mark, 6 Johns. Ch. (N. alty Co., 253 Fed. 938, 166 C. O. A. 38, 42 Y.) 266. Am. Bankr. Rep. 403. 207 Bankruptcy Act 1898, § 63a. See 208 Ex parte O'Neil, 1 Low. 163, Fed. In re Orne, 1 Ben. 361, 1 N. B. R. 57, Cas. No. 10,527. Fed. Gas. No. 10,581; J. & S. Ferguson v. 209 in re Stevens, 104 Fed. 323, 5 Am. Lyle, 267 Fed. 817, 45 Am. Bankr. Rep. Bankr. Rep. 9. See A. S. Coats Shingle 608 ; In re Mobile Chair Mfg. Co. (D. C.) Co. v. Chester Snovc Log & Shingle Co., 245 Fed. 211, 40 Am. Bankr. Rep. 134. 106 Wash. 227, 179 Pac. 862. The holder of tax certificates on mort- 210 in re North Carolina Car Co., 127 gaged property belonging to an estate in Fed. 178, 11 Am. Bankr. Rep. 488. Blk.Bke.(3d Ed.)— 67 §' 503 LAW OF BANKRUPTCY 1058 of the borrower, his failure to observe the contract may entitle the lender to claim interest as against his estate in bankruptcy.^" But it is said that interest should not be allowed where the debt is one which would have been barred by the statute of limitations if it had not been saved by a new promise.*^* And if, by the law of the state, the taking of usury causes a forfeiture of all interest, when the debt is put in suit, the same consequence attends the presentation in bankruptcy of a claim on which usury has been exacted.*^* In the case of all ordinary debts, interest accruing subsequent to the time of the filing of the petition in bankruptcy is not provable.*" But interest may run on a valid debt secured by a mortgage or other specific lien up to the time of its payment out of the proceeds of a sale of the property.*" And in the unusual case wiiere an estate in bankruptcy proves to be solvent, that is, where all proved claims are paid in full and there remains a balance in the hands of the trustee, the proving creditors are entitled to an additional allowance of interest, from the date of filing the petition to the date when the last payment on their debts was made, before any part of the surplus shall be returned to the bankrupt.*^* § 504. Costs, Expenses, and Collection Fees. — The statute provides for the proof and allowance of a claim for "taxable costs incurred in good faith by a creditor before the filing of the petition in an action to recover a provable debt." ^^^ This will include costs incurred in an at- tachment proceeding prior to the filing of the petition in bankruptcy, though the lien of the attachment is dissolved by the adjudication in bankruptcy,**^* more especially, it appears, where the attachment pro- ceedings had the effect of preserving the property for the benefit of the general creditors.*** So also, costs incurred by a judgment creditor in obtaining the judgment and in defending an appeal therefrom are 211 In re Fenn, 1T2 Fed. 620, 22 Ain. ons v. Clemons, 69 Vt. 545, 38 Atl. 314; Bankr. Rep. 833. In re McAusland (D. C.) 235 Fed. 173, 212 In re Reed, 6 Biss. 250, 11 N. B. 37 Am. Bankr. Rep. 519. R. 94, Fed. Cas. No 11,635. 217 Bankruptcy Act 1898, § 63a, clause 218 In re Prescott, 5 Biss. 523, 9 N. B. 3. ^^ ^x parte Foster, 2 Story, 131, R. 385, Fed. Cas. No 11,389. F^d. Cas. No. 4,960 ; In re Preston, 5 N. 214 In re Haake, 2 Sawy. 231, 7 N. B. g. R. 293, Fed. Cas. No. 11,393. R. 61, Fed. Cas. No. 5,883 ; In re Bugbee, 9 N. B. R. 258, Fed. Cas. No. 2,115. "'^^ "^^ ^"en, 96 Fed. 512, 3 Am. 215 In re Torchia, 185 Fed. 576, 26 Am. ^«'"'^i'- ^^p. 38; In re Preston, 5 N. B. Bankr Rep 188 ^'' ^^^' ^^^- ^^^- ^'''- 11.393; In re 210 iohnson v'. Norrls, 190 Fed. 459, ^°"™ ^"^^ C) 235 Fed. 383, 37 Am. Ill C. O. A. 291, 27 Am. Bankr. Rep. ^^"l""- ^^p. 509. Compare In re Hatje, 107; In re John Osborn's Sons & Co., 177 ^ Biss 436, 12 N. B. R. 548, Fed. Cas. Fed. 184, 100 C. O. A. 392, 24 Am. Bankr. ^°- ''■''l^- Rep. 65; Bromley v. Goodere, 1 Atkyns, 210 in re Heller, 176 Fed. 656, 23 Am. 75 ; Ex parte Hills, 2 Ves. Jr. 295 ; Clem- Bankr. Rep. 792. 5059 PROVABLE DEBTS AND CLAIMS § 504 provable against the estate of the surety on the appeal bond.*^" And although the "costs" allowable are ordinarily only those taxable un- der the law of the state where the action was maintaiijed, and must be limited to the amounts fixed by that law, yet it is competent for the parties to a litigation to stipulate for the payment to such officers as a referee or master in chancery, and also to a stenographer, of fees in excess of the statutory rate, and when they have done so, the amount ■ agreed upon may be proved and allowed in bankruptcy .^^^ But costs, to be allowable at all, must have been incurred in an action to recover a provable debt, and hence the costs of an attachment laid by the wife of the bankrupt in a libel for divorce are not provable in the bank- ruptcy.**^ And further, the costs must have been incurred "in good faith." But a creditor who sues, recovers judgment, and levies execu- tion before the filing of the petition in bankruptcy cannot be charged with bad faith merely because he may have known or believed that the debtor was in financial straits when he began his suit.*** But ex- penses and disbursements incurred by a creditor in endeavoring to de- feat the Bankruptcy act and to obtain a preference over other creditors cannot be allowed as a claim against the. estate.*** The question of the allowances to be made to an assignee for the benefit of creditors, includ- ing' compensation for his own services, when the assignment is avoided by the adjudication of the assignor in bankruptcy, and the property turned over to the trustee, has been considered in aa earlier' section.**^ Where the creditor's claim is based upon a note which contains a stipulation for the payment of an attorney's fee, in addition to princi-" pal and mterest, in case the note is "placed in the hands of an attorney for collection," the right to add the attorney's fee to the amount of the claim, in proving it in bankruptcy will depend upon the concurrence of two things, the maturity of the note and the placing it in an attor- ney's hands for collection, both before' the filing of the petition in bankruptcy. If the note fell due and was so placed for collection, and the bankruptcy of the maker occurred after both these events, then the creditor will be entitled to prove his claim for the stipulated attor- 220 Coe V. Waters, 16 Colo. App. 311, 224 in re Archenbrown, 8 N. B. R. 42&, 64 Pac. 1054. Fed. Cas. No. 503. 221 In re J. B. Brewster & Co., 180 "5 Supra, § 444. And see Summers Fed. 109, 103 C. C. A. 42, 24 Am. Bankr. "■ Abbott, 122 Fed. 36, 58 C. C. A. 352, Kep 838 ^^ Am. Bankr. Rep. 254; Bramble v. ■ ■ .^ „ ^ „„„ „ , ^ Brett, 230 Fed. 385, 144 C. C. A. 527, 36 222 In re Foye, 2 Low. 399, Fed. Cas. ^^_ g^nkr. Rep. 526; In re Sobol (O. ^°- ^■"2^- C.) 230 Fed. 652, 35 Am. Bankr. Rep. 22 3 In re Harnden, 200 Fed. 172, 29 804; Hume v. Myers, 242 Fed. 827, 155 C. Am. Bankr. Rep. 504. C. A. 415, 39 Am. Bankr. Rep. 401. § 504 LAW OF BANKRtrPTCT 1060 ney's fee in addition to the face of the note.®** But if the note did not mature until after the institution of the bankruptcy proceedings, no such fee can be claimed, although it may have been given to an attor- ney for collection when due.®®' And on the other hand, although the note fell due before the filing of the petition in bankruptcy, yet if it was not placed in the hands of an attorney for collection until after the institution of the bankruptcy proceedings, the claim for an attorney's fee cannot be proved, because not a "fixed liability absolutely owing" at the commencement of the proceedings.®®* Further, where the law of the state regards a stipulation of this kind as merely a contract of indemnity, — that is, as creating a liability for reasonable fees for serv- ices rendered, not exceeding the amount stipulated, — a creditor will not be entitled to the allowance of such a fee unless he gives proof of col- lection services actually rendered and entitling him to indemnification.®®* Nor should an attorney's fee be allowed where the payee of the note, filing it for proof, is himself an attorney.®^" In the case of an attorney's fee stipulated for in a mortgage, its allowance or rejection in bank- ruptcy will depend upon the wording of the particular instrument.®*^ Where the mortgagee proves his claim as a secured creditor, and the property is sold by the trustee in bankruptcy at private sale under or- ders of the court, a fee for the mortgagee's attorney cannot be claimed where the instrument only stipulated for such a fee in case it be- came "necessary to forclose" the mortgage "by suit or proceedings in court," ®*® but otherwise where it provided for an attorney's fee "in ■ case legal services should become necessary to protect the interests" of the mortgagee.®** Although a state statute provides that' a mort- gagee may recover attorneys' fees on foreclosure, provided he will pre- viously give a certain, notice of his intention to foreclose, yet such 226 In re Edens Co., 151 Fed. 940, 18 Thomas, 121 Fed. 306, 57 O. C. A. 374, 10 Am. Bankr. Rep. 643; In re Ledbetter (D. Am. Bankr. Rep. 299. C.) 267 Fed. 893, 45 Am. Bankr. Rep. 677. 220 McCabe v. Fatten, 174 Fed. 217, 98 But see In re Mobile Chair Mfg. Co. (D. 0. C. A. 225, 23 Am. Bankr. Rep. 3.35. O.) 245 Fed. 211. 230 in re Hersey (D. C.) 171 Fed. 1004, 227 In re T. H. Thompson Milling Co., 22 Am. Bankr. Rep. 863. 144 Fed. 314, 16 Am. Bankr. Rep. 454 ; J'\\!'^'''^ *°^ attorney's fees under a In re Bdens Co., 151 Fed. 940, 18 Am. f Pulation in a mortgage which was not Bankr. Rep. 643 ; In re Garlington, 115 f « ""^^^ ^^^ petition was filed, and un- Fed. 999, 8 Am. Bankr. Rep. 602. And ^^"^ ^^'^^^.^ '^<> services had been rendered, see In re Harris (D. C.) 272 Fed. 351, 47 Z,^ ^^^"^f.^!^ f T'* ''^ ^^^^^^^Pt'B Am Bankr Ren 40 ^^^^^^- ^"*'^'' ^ American Mortgage Am. Bankr. Rep. 40. ^.^ ^ g^^^j.^_ 2io Fed. 425, 127 0. C. A. 228 In re Keeton, Stell & Co., 126 Fed. 157, 31 Am. Bankr. Kep. 465. 426, 11 Am. Bankr. Rep. 367; In re V. & 232 in re Roche, 101 Fed. 956, 42 C. C. M. Lumber Co., 182 Fed. 231 ; In re Geb- A. 115, 4 Am. Bankr. Rep. 369. hard, 140 Fed. 571, 15 Am. Bankr. Rep. 233 in re Holmes Lumber Co., 189 Fed. 381. Compare Merchants' Bank v. 178, 26 Am. Bankr. Rep. 119. 1061 PROVABLE DEBTS AND CLAIMS . § 505 fees do not constitute a provable claim in bankruptcy, where the bank- ruptcy of the mortgagor intervened after the giving of such notice, but before any foreclosure was had.*^* As to the allowance of fees to the attorneys of creditors, independ- ently of the agreement of the parties or of any statutory provisions, the rule is that such an allowance may be made on equitable considerations for services from which the estate in bankruptcy has derived benefit,- and to the extent only that such services were beneficial in fact.^*" Thus, attorneys who filed a petition in involuntary bankruptcy for creditors, which was defective and insufficient to warrant an adjudication, a sec- ond petition presented by other creditors resulting in an adjudication, are not entitled to an allowance of fees from the estate.*** So, where an adjudication of bankruptcy was made against a corporation which was already in the hands of a receiver appointed by a state court, and the attorneys for the receiver antagonized the bankruptcy proceedings and instigated litigation which delayed and obstructed such proceed- ings and caused a large amount of expense to the estate, it was held that they were not entitled to the allowance of any fees from the estate, and their belief that they were within their legal rights, and that the state court had prior jurisdiction of the case, was considered imma- terial; and it was further held that they could not be allowed com- pensation for any services which were actually beneficial to the estate, where it appeared that, as a whole, their services cost the estate and the general creditors several times the amount, in increased expenses of administration.^*' § 505. Liability of Bankrupt as Indorser, Guarantor, or Surety. — The liability of a bankrupt as an indorser of commercial paper is un- doubtedly a debt provable against his estate.*** And where a note has matured at the time of the filing of the petition, and there have been presentation, demand of payment, and protest, the liability of an in- 234 In re Weiland, 197 Fed. 116, 28 Am. of Missouri v. Angle, 236 Fed. 644, 149 0. Bankr. Rep. 620. 0. A. 640, 38 Am. Bankr. Rep. 394. 235 In re Zier & Co., 142 Fed. 102, 73 zee in re Fischer (C. C. A.) 175 Fed. C. C. A. 326, 15 Am. Bankr. Rep. 646. S31, 23 Am. Bankr. Rep. 427. See In re Crave & Martin Co., 183 Fed. 2S7 in re Zier & Co., 142 Fed. 102, 73 769, 106 C. C. A. 180 ; In re Duran Mer- C. O. A. 326, 15 Am. Bankr. Rep. 646; In cantile Co., 199 Fed. 961, 29 Am. Bankr. re M. Zier & Co., 127 Fed. 399, 11 Am. Rep. 450; In re Coney Island Lumber Bankr. Rep. 527. Co., 199 Fed. 803. Where a receiver, ap- 23 8 in re Letchworth, 19 Fed. 873 pointed by a state court which was with- Hunt v. Taylor, 108 Mass. 508, 4 N. B' out jurisdiction to administer property R. 683 ; In re Morse, 11 N. B. R. 482 of the bankrupt, performed valuable Fed. Cas. No. 9,853; Ebc parte Farns services in conserving the property, he worth, 1 Low. 497, Fed. Cas. No. 4,672; may, on petition to the court of bank- ■ In re Henry & S. G. Lindeman (D. C.) ruptcy, be allowed compensation. State 238 Fed. 639, 38 Am. Bankr. Rep. 390. § 505 . LAW OF BANKRUPTCY 10S2 dorser thereon is a "fixed liability absolutely owing," within the mean- ing of the bankruptcy act.*** But some of the cases have maintained that no provable claim on an indorsement can be said to have arisen unless dishonor, protest, and notice have preceded the institution of the proceedings in bankruptcy.**" And in the case of a promissory note payable on demand, and which must therefore be presented for payment within a reasonable time in order to charge the indorser, it has been said that where such a note is not presented nor any demand made within four years, a protest made after that lapse of time does not fix any liability on the indorser, and a claim founded on the note cannot be proved against his estate in bankruptcy.^" But these views have not the, support of the weight of authority. The prevailing opin- ion is that the liability of a bankrupt indorser of negotiable paper, though it does not become absolute (by dishonor and protest) until after the filing of the petition, is nevertheless a "debt" within the meaning of the statute, which enumerates debts on contract, express or implied, among those provable in bankruptcy; and it may be proved against his estate after such liability has become fixed, if within the time limited for prov- ing claims.*** And it has even been held that the holder of a note might prove a claim against the estate of the bankrupt indorser, notwith- standing the fact that the note would not be due for more than a year after the adjudication in bankruptcy. "In this case, the claim must of course have been proved within the year, but its liquidation would be delayed until the security was all realized. This is a thing which may occur very frequently in bankruptcy." *** Even where the note in ques- tion is render.ed non-negotiable by the insertion of a restrictive provi- sion in regard to the mode of its payment, a proof against the bankrupt as an indorser of it will not be expunged where it is shown that it was negotiated for his sole benefit.*** But on the other hand, the bankrupt 239 Whitwell V. Wright, 136 App. Dlv. 212 Moch v. Market Street Nat. Bank, 246, 120 N. X. Supp. 1065. 107 Fed. 897, 47 C. C. A. 49, 6 Am. Bankr. 240 In re Loder, 4 Ben. 305, 4 N. B. R. Kep. 11 ; In re Phillip Semmer Glass Co., 190, Fed. Cas. No. 8,457; In re Schae- 185 Fed. 77, 67 C. C. A. 551, 14 Am. fer, 104 Fed. 973; Stowell v. Richardson, Bankr. Rep. 25; In re Smith, 146 Fed. 3 Allen (Mass.) 64. Compare Ex parte 923, 17 Am. Bankr. Rep. 112; In re Russell, 16 N. B. R. 476, Fed. Cas. No. Gerson, 105 Fed. 891, 5 Am. Bankr. Rep. 12,148. Notice Of nonpayment of a note 89 ; McNeil v. Knott, 11 Ga. 142 ; In re is not necessary to bind the estate in Nickodemus, 3 N. B. R. 230, Fed. Cas. bankruptcy of an indorser where the es- No. 10,254 ; Mauheim v. Loewe, 185 App. tates of the maker and the indorser are Div. 601, 173 N. T. Supp. 260. both represented by the same trustees. „,„^ „ ..„„ ,„„„ In re T. A. Mclntyre & Co., 198 Fed. 579, '" ^° '^ ^"^^'°^ & Co., 183 Fed. 827. 28 Am. Bankr. Rep. 459. 24* in re Granger, 8 N. B. R. 30, Fed. 241 In re Crawford, 5 N. B. R. 301, Fed. Cas. No. 5,684. Cas. No. 3,364. 1068 PROVABLE DEBTS AND CLAIMS § 506 cannot be held liable where it is shown that his indorsement on the note was forged and that he never received any benefit from the proceeds of it.«*6 The liability of the bankrupt as a surety on a replevin bond,"** or on a bond of a guardian,"*' is also a provable claim. Aiid under the act of 1867, which allowed proof of "contingent" claims, a claim was provable against the surety on any bond even before breach of condi- tion."** But the present law is not construed as peririitting proof of a claim against a surety until there has been an actual forfeiture or breach of condition or failure of performance, or (in the case of an in- demnity bond) some actual loss or injury to the obligee."** So also in the case of a contract by which the bankrupt assumes the liability of a guarantor. If there is nothing presently due or capable of liquidation at the time of the bankruptcy, and no certainty that anything will ever be due or that any liability will ever arise, no claim can be proved against the bankrupt's estate."^* It is the same with a contract of in- demnity. Hence where, after the dissolution of a partnership, the bankrupt agreed with the claimant, his former partner, to pay the firm debts, which remained as joint obligations of both, the claimant cannot prove the amount of such debts against the estate in bankruptcy where he has paid none of them."" § 506. Rights of Bankrupt's Surety or Indorser. — A surety on a bond, who has made the payment or discharged the obligation for which the principal was liable, has a provable claim against the latter's estate in bankruptcy."®" But a merely contingent or possible liability as surety is not provable. In other words, the bankrupt's surety has no provable claim, to be set up in his own name, until he has paid the debt or dam- ages or liquidated the obligation called for by the bond."®^ And a partial 24B In re Lamon, 171 Fed. 516, 22 Am. is provable against its estate in bank- Bankr. Rep. 635. ruptcy. In re Romadka Bros. Co. (D. 0.) 2*6 Choate v. Quinichett, 12 Heisk. 206 Fed. 944. (Tenn.) 427. 253 in re Tassinari (D. C.) 249 Fed. 247 Davis V. McCurdy, 50 Wis. 569, 7 990, 41 Am. Bankr. Rep. 148. N. W. 665. 252 In re Lyons Beet Sugar Refining 248 Jone.s V. Knox, 46 Ala. 53, 8 N. B. Co., 192 Fed. 445, 27 Am. Bankr. Rep. R. 559, 7 Am. Rep. 583. 610 ; Liddell v. Wisvpell, 59 Vt. 865, 8 24 8 Loeser v. Alexander, 176 Fed. 265, Atl. 680; In re Halsey W. Kelley & Co., 100 C. C. A. 89, 24 Am. Bankr. Rep. 75; Inc. (D. C.) 215 Fed. 155. Kingman v. Fowle, 5 Allen (Mass.) 133; 253 in re Astoroga Paper Co. (D. C.) Oorbett v. Woodward, 5 Sawy. 403; Fed. 234 Fed. 792, 37 Am. Bankr. Rep. 751 ; Cas. No. 8,223 ; Loring v. Kendall, 1 Insley v. Garside, 121 Fed. 699, 58 C. C. Gray (Mass.) 805. A. 119, 10 Am. Bankr. Rep. 52 ; R. P. Wil- 25 In re Merrill & Baker, 186 Fed. Hams & Co. v. United States Fidelity & 312, 108 C. C. A. 390 ; In re Pettingill & Guaranty Co., 11 Ga. App. 635, 75 S. E. Co., 137 Fed. 143, 14 Am. Bankr. Rep. 1067; Hester v. Baldwin, 2 Woods, 483, 728. A note guaranteed by a corporation Fed. Cas. No. 6,438 ; Steele v. Graves, 68 § 506 LAW OF BANKRUPTCT 1064 payment is not sufficient to give him a provable claim pro tanto. Unless and until the debt or claim is paid in full, the right to prove it as a debt in bankruptcy is in the original creditor and not in the surety.*^* But a surety need not necessarily pay in cash. If his individual note is ex- pressly received and accepted in payment, he may then prove against the bankrupt principal.^^^ But where the surety holds collateral securi- ties, for his own indemnity, and pays the debt of the principal, he can prove only the difference between the debt and the amount realized on the securities.^^* But the bankruptcy act contains a provision that ''whenever a creditor, whose claim against a bankrupt is secured by the individual undertaking of any person fails to prove such claim, such per- son may do so in the creditor's name, and if he discharge such under- taking in whole or in part, he shall be subrogated to that extent to the rights of the creditor." *^' Of this provision it has been said : "No one has any rights under the bankruptcy law outside of what it gives him, and those of a surety are defined by this section, beyond which he cannot go. By it he has the right to prove, in case the principal creditor fails to do so. He does not, indeed, have to discharge the obligation in order to have this privilege, but in case he does do so, in whole or in part, he becomes entitled to that extent to the right of subrogation and, in any event, when he proves the debt, he proves it not in his own name, but in that of the original holder. The particular point to be noticed in the present connection with regard to the position of the surety is that he has only a right to prove in case the principal creditor fails to do so, and the latter cannot be said to fail until he has had an opportunity and passed it by, which can only occur when, by proceedings duly instituted, the estate of the debtor has been drawn into the bankruptcy court to be there administered, and all parties have been called upon to make known Ala. 21 ; Ecker v. Bohn, 45 Md. 2T8, 16 Ity & Guaranty Co. v. Carnegie Trust N. B. R. 544. Compare Lipscomb v. Co., 177 App. Div. 176, 164 N. Y. Supp. Grace, 26 Ark. 231, 7 Am. Rep. 607. On 92. See In re Blanchard (D. C.) 253 Fed. this principle, a guarantor of rent can- 758, 42 Am. Bankr. Rep. 177. not prove the amount of his contingent 255 in re Morrill, 2 Sawy. 356, Fed. liability as a. claim against the estate Cas. No. 9,821. in bankruptcy, but may prove in the "''^ In re Baldwin, 19 N. B. R. 52, Fed. name of the lessor. In re Baker & Ed- Cas. No. 796. wards (D. O.) 224 Fed. 611, 35 Am. Bankr. 257 Bankruptcy Act 1898, § 57i. See Rep. 469. But it seems that a surety on J. S. Farming Co. v. Brannori (O. C. A.) a bond to dissolve a garnishment, when 263 Fed. 891, 45 Am. Bankr. Rep. 425. judgment has been recovered against The filing of his claim by the creditor him subsequent to the bankruptcy, has does not prevent the surety from filing a provable and allowable claim. Kil- the claim, under this provision of the Patrick V. United States Fidelity & Guar- Bankruptcy. Act, where the creditor's anty Co,, 228 Fed. 587, 143 O. C. A. 109, claim was withdrawn and he released all 37 Am. Bankr. Rep. 36. right to dividends. Kilpatrick v. United 254 In re Heyman (D. C.) 95 Fed. 800, States Fidelity & Guaranty Co., 228 Fed 2 Am. Bankr. Rep. 651 ; In re Hollister 587, 143 C. C. A. 109, 37 Am. Bankr Rep (D. C.1 3 Fed. 452 ; United States Fidel- 36. 1065 PROVABLE DEBTS AND CLAIMS § 506 their claims. When that has been done, and he neglects to act, the surety, so as not to be prejudiced, may himself prove the debt in his stead. This, so far as I can see, is all the relief given by the act, and, whether adequate or inadequate, it must suffice. It follows from this that, at the outstart, the surety who has not taken up the obligation has no provable claim, and therefore has no standing to petition. It is not provided in the law that at that stage he can intervene, either in his own name or in the name of the creditor, and institute involuntary proceed- ings. All that he can do is to prove the claim later on if the creditor fails to do so, after somebody else has moved." *®* On the same principle, an indorser of the bankrupt's paper may prove a claim for the amount, in his own name, against the estate, after he has paid the note, but not before.*®* Though such an indorser may have be- come absolutely liable to the holder of the note, by due notice of its dis- honor, before the filing of the petition in bankruptcy, this does not make him a creditor of the bankrupt.*®" But it was held, under the former statute, that when the holder of a note fails to prove the same again.st the maker's estate, thus showing that he looks to the indorser alone for payment, the indorser may prove it and receive dividends, though he has not proved the note.**^ And apparently this course might be taken under that section of the present statute which was quoted above as applicable to the case of a surety.*** Under a state statute providing that, where a party to a negotiable instrument has been adjudged bank- rupt, notice may be given either to the party himself or to his trustee, and that notice of dishonor is not necessary where the drawer and drawee are the same person, or to an indorser where he is the person to whom an instrument is presented for payment, where the maker and indorser of 258 Phillips V. Dreher Shoe Co., 112 260 in re Riker, 18 N. B. R. 393, Fed. Fed. 404, 7 Am. Bankr. Rep. 326. And Cas. No. 11,833. see Insley V. Garside, 121 Fed. 699, 58 C. ,„, -. •n,i, i, 4. = ivt t, -n ^^^ n * 110 1A a™ t}„ 1 „ r. „ Ko. T„ 261 In re Bllerhorst, 5 N. B. R. 144, C. A. 119, 10 Am. Bankr. Rep. 52 ; In -c j <-. xt a ooh n t. 100 in .3 OHO ic A T> 1 Fed. Oas. No. 4,381. re Carter, 138 Fed. 846, 15 Am. Bankr. ' Rep. 126; Rosenthal y. Nove, 175 Mass. 202 Where the indorsers of notes of 559, 56 N. E. 884, 78 Am. St. Rep. 512. the bankrupt paid a portion of the debt 259 In re Salvator Brewing Co., 193 and secured their release as indorsers, Fed. 989, 113 C. C. A. 626, 28 Am. Bankr. and the holders of the notes proved the Rep. 56; In re Dr. Voorhees Awning notes for the entire amount against the Hood Co., 187 Fed. 611 ; In re Morse, 11 bankrupt's estate, the indorsers were not N. B. R. 482, Fed. Cas. No. 9,853 ; Marks entitled to prove the amount paid by V. Barker, 1 Wash. C. C. 178, Fed. Oas. them as claims against the estate, since No. 9,096. See In re EUetson Co., 193 under Bankruptcy Act, § 57i, they were Fed. 84, 28 Am. Bankr. Rep. 434. Where only entitled to receive from the holders the holder of a note of the bankrupt has any overplus, after crediting dividends proved a claim upon it, and thereafter received from the bankrupt's estate and the indorser pays the note, he becomes the amount paid by the- indorsers. In re subrogated to the rights of the claimant. Manhattan Brush Mfg. Co. (D. O.) 209 In re Griffith Stillings Press (D. C.) 244 Fed. 997, 31 Am. Bankr. Rep. 747. Fed. 315, 39 Am. Bankr. Rep. 813. § 507 • LAW OF bankeuptOy 1066 notes were partners, and were adjudged bankrupts, both as partners and individually, before the notes matured, and the same trustees were ap- pointed for all the estates, it was held that notice of non-payment on the maturity of the notes was not necessary to bind the estate of the in- dorser.*** § 507. Rights of Creditor Where Several Parties are Liable. — The holder of a claim upon which several parties are personally liable may prove his claim against the estates of 'any of them who become bankrupt, and may at the same time pursue the others at law, and notwithstanding partial payments ^after the bankruptcy, received from the non-bankrupts or from the estates of those in bankruptcy, the creditor may recover dividends from each estate in bankruptcy upon the full amount of his claim, as it stood at the time the petition in bankruptcy was filed there- in, until, from all sources he has received full payment of his claim.*** Thus,' the holder of a bill of exchange is entitled to prove his debt in bankruptcy against the drawer, the acceptor, and the payee, and to re- ceive dividends from all their estates until his debt is paid in full; and if only one of the parties is in bankruptcy, he may prove his claim against that one, and also proteed against the others at law.^*^ So, when the holder of a note proves his debt in bankruptcy against the maker of the note for the full amount thereof, as an unsecured claim, this does not afifect or release an indorser from his liability on the note.*** But the estate of a bankrupt is entitled to the benefit of a partial pay- ment of the debt made, before the bankruptcy, by any of the other parties liable for it, and in this case the creditor can prove against the bankrupt only the unpaid balance of his claim after crediting the payment.**' An exception to this general rule, however, is found in the case where the maker of a note becomes bankrupt after the holder has received pari, payment from the indorser. Here, it is said, the creditor should prove a claim in the bankruptcy proceedings for the entire face of the note, be- 2«s In re T. A. Mclntyre & Co., 198 given by one bankrupt will not diminish Fed. 579, 28 Am. Banlir. Rep. 459. the claim against the other. In re New 284 Board of Oom'rs of Shawnee Conn- Yorlc Commercial Co., 233 Fed. 906, 147 ty V. Hurley, 169 Fed. 92, 94 C. C. A. C. 0. A. 580, 36 Am. Bankr. Rep. 769. 362, 22 Am. Bankr. Rep. 209; In re 205 in re Babcock, 3 Story, 393, Fed. Simon, 197 Fed. 105, 28 Am. Bankr. Rep. q^s No 696 J- - f 611 ; In re Girvin, 160 Fed. 206, 20 Am. Bankr. Rep. 320; Downing v. Traders' ="=» Merchants' Nat. Bank v. Comstock, Bank, 2 Dill. 136, 11 N. B. R. 371, Fed. 5p N. Y. 24, 14 Am. Rep. 168, 11 N. B. R. Oas. No. 4,046 ; In re Hicks, 19 N. B. R. ^35. 299, Fed. Cas. No. 6,456 ; In re Howard, 4 20? In re Pulsifer, 14 Fed. 247; Ex N. B. R. 571, Fed. Oas. No. 6,750. WTiere parte Harris, 2 Low. 568, 16 N. B. R. two bankrupt estates were liable for a 432, Fed. Cas. No. 6,109 ; In re Weeks, 8 debt due to a bank, the entire claim might Ben. 265, 13 N. B. R. 263, Fed. Cas. No. be proven against both, and the fact that 17,349 ; Sohier v. Loring, 6 Cush. (Mass.) security not applied to the debt had begn 537. 1067 PROVABLE DEBTS AND CLAIMS § 508 cause he is in the position of a trustee for the indorser, and if he re- ceives, in dividends, more than enough to satisfy the unpaid balance of his claim, he will hold the surplus for the indorser, who will be en- titled to reimbursement.*®* But in other cases, nothing short of actual payment, or a present right to receive a dividend from an estate in bank- ruptcy, will operate to prevent the creditor from proving in full against the estates of the other persons liable ; the fact that one of the debtors, being in bankruptcy, has offered notes for composition payments will not have this effect.*** So where a creditor, who had sold goods to the bankrupt, for which a third person became surety, afterwards received from the surety, as security, a note of the bankrupt aris,ing upon a sep- arate transaction, it was held that such note, being the property of the surety, did not inure to the bankrupt's interest, but to that of the surety, and was a separate debt, and that the creditor was entitled to prove on both claims.*'* But where a creditor of a bankrupt has a lien on the property of a third party, as part of the security for his debt, he cannot release his lien for a consideration without crediting the amount of the consideration on his claim.*'^ § 508. Claims of Bankrupt's Wife. — In bankruptcy a wife may be a creditor of her husband, and may prove and sustain a claim against his estate for money which was her separate property, and which she loaned to him, intrusted to his keeping and management, or allowed him to use in his busine;ss, if it clearly appears that no gift was intended, but only a loan or trust.*'* And this rule applies notwithstanding the fact that the law of the particular state may not give to husband and wife any right to contract with each other or to sue each other, and for this reason an agreement to repay the wife's money could not be en- forced by a suit at law. For in the first place, a proceeding in bankrupt- cy is not a suit against the bankrupt nor even adverse to hini. And sec- ondly, an express or implied undertaking to repay the wife's money, in the case supposed, is a contract which courts of equity will uphold and enforce, and courts of bankruptcy are governed by the principles of 268 In re Souther, 2 Low, 320, 9 N. B. 116 Fed. 1003; In re Neiman, 109 Fed. R. 502, Fed. Gas. No. 13,184; In re Bller- 113; Tucker v. Curtln, 148 Fed. 929, 78 liorst, 5 N. B. R. 144, Fed. Gas. No. 4,381. O. G. A. 557, 17 Am. Bankr. Rep. 354; And see In re Baxter, 18 N. B. R. 497, Glark v. Hezeklah, 24 Fed. 668; In re Fed. Gas. No. 1,120. Bigelow, 3 Ben. 198, 2 N. B. R. 556, Fed. 2 69 In re Hicks, 19 N. B. R. 299, Fed. ^^^- ^°- I'^^^l In re Blandln, 1 Low. Gas. No. 6,456. ^^' ^ ^- ^- ^- ^^' ^^^- ^as. No. 1,527. „ The failure of a married woman to regis- 27 In re 11. V. Keep Shirt Co., 200 ^r a claim against her husband as her Fed. 80, 28 Am. Bankr. Rep. 765. • separate property, under the laws of Ore- 271 Seay v. Wilson, 3 McGrary, 121, 9 gon, does not afCect her right to prove Fed. 589. the same against his estate in bankrupt- 272 In re Remmerde, 206 Fed. 826, 30 cy. In re Miner, 117 Fed. 953, 9 Am. Am. Bankr. Rep. 707; In re Nickerson, Bankr. Rep. 100. § 508 LAW OF BANKRUPTCY 1068 equity, and there is no distinction in such respect between an estate to the wife's separate use, as known to the chancery courts, and a sep- arate estate created by statute.*'"* But the wife's claim against her bankrupt husband must be supported, like any other, by a valid con- sideration, and she cannot prove a claim where she bas already received satisfaction of the debt in the form of a conveyance of property,*'* or where she had no valid title to the property placed in her husband's hands, having previously received the same from him as a gift under circumstances which rendered the transfer invalid.*''^ And where a wife allows her husband to appropriate the income of her separate estate in the support of the family, this does not create such a debt on his part as is provable in bankruptcy against his estate.*"* Subject to the foregoing considerations, it may be stated as a gen- eral principle that the wife of a bankrupt is entitled to the allowance of a claim for money lent to her husband, which she procured by mort- gaging her own realty,*'" or to prove a claim on a note given to her by the bankrupt, regardless of the consideration therefor, if it is not shown that the bankrupt was indebted at the time the note was made.*''* And under the civil law prevailing in Louisiana, a husband's debt to his wife for paraphernal property is provable against him in bankruptcy.*'" As to a wife's claim of payment for services rendered to her husband in his business, as, in the capacity of a clerk, bookkeeper, or the like, the law is not so clear. But apparently a claim may be proved in bank- ruptcy for the value of such services if the law of the state has removed the disabilities of married women,*** but not where the common law in this respect still prevails.**"^ Under a state statute providing that a wife who is granted a divorce from her husband shall be entitled to one-third of his personal property absolutely, the interest of a wife in the personal property of her husband, after the commencement of an action for divorce, but before decree is not such a claim as is provable against his estate in bankruptcy.*** 278 James v. Gray, 1.31 Fed. 401, 65 O. s's in re Kyte, 164 Fed. 302, 21 Am. C. A. 385, 1 L. K. A. (N. S.) 321, 12 Am. Bankr. Rep. 110. See In re Chapman, Bankr. Rep. 573^ In re Hill, 190 Fed. 105 Fed. 901, 5 Am. Bankr. Rep. 570. .390, 27 Am. Bankr. Rep. 146; lu re Domenlg, 128 Fed. 146, 11 Am. Bankr. 270 Fleitas v. Richardson, 147 U. S. 550, 13 Sup. Ct. 495, 37 L. Ed. 276. Rep. 552; In re NicRerson,, 116 Fed. 1003. Compare In re Talbot, 110 Fed. aso in re Domenig, 128 Fed. 146, 11 924, 7 Am. Bankr. Rep. 29. Am. Bankr. Rep. 552; In re Cox, 199 2T4 In re Carpenter, 179 Fed. 743. Fed. 952, 29 Am. Bankr. Rep. 456. 27 B In re Tucker, 148 Fed. 928, 17 Am. • Bankr. Rep. 247. " ^° '^ ^"'^'^l®' ^'^^ Fed. 828, 23 Am. 276 In re Jones, 6 Biss. 68, 9 N. B. R. ^''^''L^^^P- ^^^' ^"^ ^« Winkels, 132 556, Fed. Cas. No. 7,444. ^^^- ^^^' ^ ^"^^ ^^nkr. Rep. 696. 2 77 In re Foss, 147 Fed. 790, 17 Am. 282 Hawk v. Hawk, 102 Fed. 679, 4 Am. Bankr. Rep. 439. Bankr. Rep. 463. 1069 PROVABLE DEBTS AND CLAIMS § 509 § 509. Claims for Alimony. — ;Notwithstanding some difference of opinion among the earlier cases decided under the present bankruptcy- act, the rule is now well settled that alimony awarded to a divorced wife by the decree of a competent court does not constitute a debt or claim which is provable against the estate of the husband in bankruptcy, whether the claim be for arrears remaining unpaid at the date of the bankruptcy or for installments to accrue thereafter.^** The reasons for this rule are thus explained by the United States Supreme Court : "Ali- mony does not arise from any business transaction, but from the relation of marriage. It is not founded on contract, express or implied, but on the natural and legal duty of the husband to support the wife. The general obligation to support is made specific by the decree of the court of appropriate jurisdiction. Generally speaking, alimony may be altered by that court at any time, as the circumstances of the parties may re- quire. The decree of the court of one state, indeed, for the present pay- ment of a definite sum of money as alimony is a record which is entitled to full faith and credit in another state, and may therefore be there en- forced by suit. But its obligation in that respect does not affect its nature. In other respects, alimony cannot ordinarily be enforced by action at law, but only by application to the court which granted it, and subject to the discretion of that court. Permanent alimony is regarded rather as a portion of the hvisband's estate to which the wife is equitably entitled, than as strictly a debt; alimony from time to time may be regarded as a portion of his current income or earnings ; and the con- siderations which affect either can be better weighed by the court hav- ing jurisdiction over the relation of husband and wife than by a court of a different jurisdiction." ^** But where a wife, after securing a decree of divorce granting alimony, removes into another state, and there sues to recover unpaid arrears of alimony and obtains a judgment, and the 2 83 Audubon V. Shufeldt, 181 U. S. 575, 286, 70 N. Y. Supp. 1107; Lemert v. 21 Sup. Ct. 735, 45 L. Ed. 1009, 5 Am. Lemert, 25 Ohio Cir. Ct. Rep. 253 ; Brown Bankr. Kep. 829; In re Hubbard, 98 Fed. v. Brown, 172 Ky. 754, 189 S. W. 921. 710, 3 Am. Bankr. Rep. 528; Turner V. Contra, In re Challoner, 98 Fed. 82, 3 Turner, 108 Fed. 785, 6 Am. Bankr. Rep. Am. Bankr. Rep. 442; In re Houston, 94 289; In re Shepard, 97 Fed. 187; In re Fed. 119, 2 Am. Bankr. Rep. 107; In re Anderson, 97 Fed. 321, 5 Am. Bankr. Rep. Van Orden, 96 Fed. 86, 2 Am. Bankr. 858; In re No well, 99 Fed. 931, 3 Am. Rep. 801; Arrington v. Arrington, 131 Bankr. Rep. 837; In re Smith, 1 Nat. N. C. 143, 42 S. E. 554, 92 Am. St. Rep. Bankr. News, 471; In re Lawrle, 2 Nat. 769. Proceedings in a state court to en- Bankr. News, 77; In re Garrett, 2 force a decree awarding alimony, wheth- Hughes, 235, 11 N. B. R. 493, Fed. Cas. er for installments past due or those to No. 5,252; In re Lachemeyer, 18 N. B. accrue in the future, against the bank- R. 270, Fed. Cas. No. 7,966; Beach v. rupt, will not be stayed or enjoined by Beach, 29 Hun (N. T.) 181; Barclay v^ the court of bankruptcy. Supra, § 189. Barclay, 184 111. 375, 56 N. E. 636, 51 L. 2 84 Audubon v. Shufeldt, 181 U. S. 575^ R. A. 351; Welty v. Welty, 96 111. App. 21 Sup. Ct. 735, 45 L. Ed. 1009, 5 Am. 141; Maisner v. llaisner, 62 App. Div. Bankr. Rep. 829. § 510 LAW OF BANKRUPTCY 1070 husband lists the said judgment as an indebtedness in his schedule's in bankruptcy, it constitutes a provable debt against his estate.*** § 510. Unpaid Subscriptions to Stock and Stockholder's Statutory Liability. — The liability of a stockholder in a corporation to make good the difference between the face value of stock for which he has sub- scribed and the amount he has actually paid on it is a debt founded on contract, and is therefore provable against his estate in bankruptcy, at the instance of a judgment creditor of the corporation, although no assessment or call has yet been made by the corporation.*** As to the last part of this rule, however, it must be admitted that the decisions are not entirely in harmony, as some courts have thought that such a liability could not be regarded as a provable debt until the corporation itself had been required to make the necessary assessment upon its stockholders, so that the extent of the liability of each might be thus determined.**''^ But probably this might be dispensed with if it were shown that the corporation was so far insolvent that all the unpaid stock subscriptions, if collected and added to its present assets, would no more than pay the debts. As to the liability imposed by statute upon the stockholders of cer- tain classes of corporations to be personally answerable for the debts of their company to an extent proportioned to their holdings, even though their stock has been paid in full, it is generally held that this is not such a claim as can be proved in bankruptcy against a stockhold- er,*** at least if his personal responsibility remains uncertain and con- tingent, or the amount for which he may become liable has not been ascertained,**"* but otherwise if it is liquidated and ascertained by a judgment or a decree in equity before the expiration of the time limited for proving debts,*** or if the receiver of the corporation can certainly determine the amount of it by ascertaining the amount of the assets and 286 In re Williams' Estate, 118 N. Y. estate of a bankrupt subscriber to the Supp. 562. stock of the company, where it does not 288 In re Putman, 193 Fed. 464, 27 Am. appear that the subscription is neces- Bankr. Rep. 923; Carey v. Mayer, 79 sary to pay the debts, or that in an Fed. 926, 25 C. 0. A. 239; Glenn v. Abell, equalization between stockholders the .39 Fed. 10; Marr v. Bank of West Ten- bankrupt would be in the debtor class in- nessee, 4 Lea (Tenn.) 578. See In re stead of the creditor class. In re Bass Watkinson, 143 Fed. 602, 16 Am. Bankr. (D. C.) 215 Fed. 275. Rep. 245; In re Franklin Brewing Co. ^ss James v. Atlantic Delaine Co., 11 (C. C. A.) 272 Fed. 828, 46 Am. Bankr. n. B. R. 390, Fed. Gas. No. 7,179; Bris- 485. tol V. Sanford, 12 Blatchf. 341, 13 N. B. 287 Gibson V. Lewis, 11 Phila. (Pa.) 476, r. ^ ^^^ ^as. No. 1,893; Bangs v 11 N. B. R. 247, Fed. Cas. No. 5,398; uncoln, 10 Gray (Mass.) 600 ^ayre y. Glenn, 87 Ala. 631, 6 South. 45; ' Glenn v. Howard, 65 Md. 40, 3 Atl. 895. "° I'o°« ^- Manufacturers' Nat. Bank, Receivers of an insolvent insurance com- ■^'^ "®^- ^^^■ pany cannot prove a claim against the 200 Garrett v. Sayles, 1 Fed. 371. 1071 PKOVABLE DEBTS AND CLAIMS § 511 liabilities of the corporation, and thus determining how much will be needed from the stockholders to make up the deficiency of the assets of the corporation.**^ § 511. Debts Created by Bankrupt's Fraud. — Under the former bankruptcy law, it was held that a debt or liability created by the fraud of the bankrupt could be proved and allowed against' his estate, notwith- standing the fact that it would not be released by his discharge, the re- sult being that any dividend received on it would be merely a payment on account, leaving the bankrupt liable for the. unpaid balance.*** But under the present statute, the point is not free from doubt. It is true that the seventeenth section of the act provides that a discharge in bank- ruptcy shall release a bankrupt from "all of his provable debts, except such as * * * were created by his fraud," thereby implying that debts created by fraud are provable debts. But this must be read in connection with the explicit definitions of provable debts given in the sixty-third section, where there is nothing applicable to fraudulent debts save a provision for the proof of claims "founded upon an open account or upon a contract express or implied." Hence the true rule appears to be that a debt or liability is provable if essentially of a contractual char- acter, though induced by fraud, or if the circumstances were such that the claimant might waive the tort and ■ sue as upon an implied con- tract.*** Thus, a claim arising out of the conversion by stockbroker's of shares purchased and held by them on a customer's account is provable on this theory,*** and creditors in bankruptcy proceedings may invoke the principle that money procured by fraud may be recovered back by proving a demand for money had and received by the bankrupt to their use.**^ So, there is an obligation resting upon a defaulting testamentary trustee, independently of his bond, to restore the value of the assets em- ' bezzled, which is of a contractual character, and affords a basis for proof of a claim against his estate in bankruptcy therefor by his suc- cessor in the trust.*** Again, where a bankrupt, who was in. the em- 291 Irons V. Manufacturers' Nat. Bank, as* Crawford v. Burke, 195 U. S. 176, 17 Fed. 308. 25 Sup. Ct. 9, 49 L. Ed. 147, 12 Am. 292 In re Wright, 2 N. B. R. 41, Fed. Bankr. Rep. 659. Cas. No. 18,070; In re Rosenberg, 3 Ben. ,„„ t^ „ ti. t a ^^ , r, i^n t. ^ 14, 2 N. B. R. 236, Fed. Cas. No. 12,054; ''\^^ f ^-J- t™°if * ^^^ ^^l l^^' In re Rundle, 2 N. B. R. 113, Fed. Cas. ^f.' ^^ Am Bankr Rep. 320. But a No. 12,138; In re Clews, 19 N. B. R. 109, ^aim against a bankrupt for money re- Fed. Cas. No. 2,891; In re Eureka Mfg. '^^^T^^ «^°^°* ^\ ''f «^ °° ^, .^J^ec'^ €o., 1 Low. 500, Fed. Cas. No. 4,550. ^^^^f ^^^ f^f^ from the claimant 293 Crawford v. Burke, 195 U. S. 176, ^^ ^^^^^ ^^^„'°'i°nm*!?!.^/°'i^?*' 25 Sup. Ct. 9, 49 L. Ed. 147, 12 Am. Bankr. Rep. 659; In re Filer, 125 Fed. 261, 5 Am. Bankr. Rep. 835; In re Schwartz, 14 Blatchf. 196, 15 N. B. R. 2 96 Clarke v. Rogers, 183 Fed. 518, 106 330, Fed. Cas. No. 12,502. C. C. A. 64, 26 Am. Bankr. Rep. 413, who was a bona fide purchaser for value without notice. In re United States Hair Co., 239 Fed. 703, 152 C. C. A. 537. § 512 LAW OF BANKRUPTCY 1072 ploy of a firm of brokers, caused them to purchase stocks on false and fictitious orders purporting to have been given by customers, such pur- chases being in fact intended for his own benefit, the firm will have the right to treat him as the principal in the transactions, and to prove the debt against him in bankruptcy, as one for money paid at his request and for his use.^^'' For. similar reasons, a creditor who advanced money to the bankrupt on the strength of the latter's false and fraudulent repre- sentations concerning his credit or resources may prove a claim in bankruptcy for the amount, for though the loan was induced by fraud, there was none the less a contract for its repayment.^'® So where the creditor has by similar means been induced to part with goods, he may affirm the contract and file a claim for the value of the goods, instead of electing to claim for damages sustained by the fraud.*'* § 512. Taxes, and Interest and Penalties Thereon. — State and mu- nicipal taxes due from a bankrupt do not constitute a claim against his estate to be proved like those of creditors, and the rule that interest will not be allowed on debts after the filing of the petition has no application thereto, but it is the duty of the court of bankruptcy to direct the pay- ment of such taxes, together with such penalties or interest as have ac- crued thereon under the laws of the state to the time of actual pay- ment.*'" "Under the bankruptcy law, public taxes do not constitute a 'claim' in bankruptcy. It is not necessary for the public authorities to appear in a court of bankruptcy as ordinary claimants. They have no right in the administration as creditors and no voice in the selection of a trustee, and the liability for taxes is in no way affected by the discharge of the bankrupt. On the other hand, the duty of afi&rmative action rests upon the court of bankruptcy. It is the duty of the trustee to ascertain from the public records the amount due for taxes and bring the matter to the attention of the court, and thereupon it is the duty of the court to order their payment if there are sufficient funds in the estate for that ptirpose." **^ But taxes which have been actually paid, though irregu- larly, are not a liability of the estate in this sense nor a provable debt,*"* affirmed, 228 U. S. 534, 33 Sup. Ct. 587, In re Duryee, 2 Fed. 68; Warren R. Co. 57 L. Ed. 953, 30 Am. Bankr. Rep. 39. v. Belvidere, 35 N. J. Law, 584; Stanard 207 In re Filer, 125 Fed. 261, 5 Am. v. Dayton, 220 Fed. 441, 137 C. C. A. 35, Bankr. Rep. 835. 33 Am. Bankr. Rep. 682; In re Wenat- 298 In re B. J. Arnold & Co., 133 Fed. chee Heights Orcliaid Co. (D. C.) 212 789, 13 Am. Bankr. Rep. 320. Compare Fed. 787, 32 Am. Bankr. Rep. 369; Unit- In re Schuchardt, 8 Ben. 585, 15 N. B. ed States v. Brown-Alaska Co., 4 Alaska R. 161, Fed. Cas. No. 12,483. 89. 280 In re Hlldebrant, 120 Fed. 992, 10 aoi in re Kallak, 147 Fed. 276, 17 Am. Am. Bankr. Rep. 184. Bankr. Rep. 414. 8 00 In re Kallak, 147 Fed. 276, 17 Am. sos City of Pittsburgh v. South Side Bankr. Rep. 414; In re Scheldt Bros., Trust Co., 208 Fed. 984, 126 C. C. A. 72 177 Fed. 599, 23 Am. Bankr. Rep. 778; 31 Am. Bankr. Rep. 897; See In re 1073 PROVABLE DEBTS AND CLAIMS § 513 as where the bankrupt, being a deputy tax collector, has settled with his principal for the taxes on his own property, though the latter remains personally liable for the amount to the municipality,^** or where the tax- es .have been deducted from tjhe value of property taken by creditors un- der attachments valid as against the trustee.*'* It is also to be noted that the provisions for the payment of taxes by the trustee in bankrupt- cy do not apply to an annual license fee imposed by the state law on cor- porations, which has been held by the courts of the state not to be a tax, but an arbitrary imposition laid on corporations as a condition of their continued existence; and neither is it a contractual obligation at- taching by implication from the inception of the company, so as to be provable as a debt founded on contract, at least against the estate of a corporation becoming bankrupt before the fee for the year is assessed or collectible.*'^ A sale of real estate for delinquent taxes while the estate of the own- er is in process of administration in the court of bankruptcy is irregular and invalid, at least if made "without leave of the bankruptcy court ; but if such a sale is made, the purchaser of the property is entitled to be re- imbursed out of the general assets of the bankrupt on the surrender and cancellation of his certificate of purchase.*"® When a claim for payment of a state tax is presented against an es- tate in bankruptcy, the court of bankruptcy has power to examine it and revise it, to determine the question of liability ; but if the tax claimed is valid under thelaw of the state, the federal court cannot difjillow it as unjust or unlawful.*" § 513. Breaches of Real Covenants. — Under the bankruptcy acts of 1841 'and 1867, there were several decisions to the effect that a claim for damages for the breach of covenants in a deed, such as those of war- ranty of title, of possession, and of quiet enjoyment, and against incum- brances, constituted a provable debt in bankruptcy.*"* This view was, however, controverted by authorities of perhaps quite equal force,*"*., and in one of the cases it was pointed out that the covenants in a deed Gracey (D. C.) 241 Fed. 981, 39 Am. 307 in re United Five & Ten Cent Bankr. Rep. 463. Store (D. 0.) 242 Fed. 1005, 40 Am. 30 3 Moore v. Green, 145 Fed. 480, 76 C. Bankr. Rep. 146. 1 0. A. 250, 16 Am. Bankr. Rep. 607. so s Parker v. Bradford, 45 Iowa, 811; 3 04 Foster v. Inglee, 13 N. B. B. 239, Reed v. Pierce, 36 Me. 455, 58 Am. Dec. Fed. Gas. No. 4,973. 761; Abbott v. Rowan, 33 Ark. 593; Jem- 305 In re Danville Rolling Mill Co. (D. Ison v. Blowers, 5 Barb. (N. T.) 686. C.) 121 Fed. 432, 10 Am. Bankr. Rep. 327. .t_3o»Riggin v. Magwire, 15 Wall. 549, 300 Dayton v. Stanard, 241 U. S. 588, 21 L. Ed. 232; Murray v. De Rottenham, 36 Sup. Ct 695, 60 L. Ed. 1190, 37 Am. 6 Johns. Oh. (N. T.) 52; Burrus v. Wil- Bankr. Rep. 259; In re Clark Realty Co., kinson, 31 Miss. 537; Magwire v. Riggin, 253 Fed. 938, 166 C. C. A. 38, 42 Am. 44' Mo. 512. See Bates v. West, 19 111. Bankr. Rep. 403. ■ 134; Bailey v. Moore, 21 111. 165. Blk.Bke.(3d !Bd.)— 68 § 513 LAW OF BANKRUPTCY 1074 are not in the nature of an obligation to pay a debt, but amount merely to an undertaking to pay to the vendee whatever daiTiages he may sus- tain by the property being taken from him under adverse claims, or sub- jected to prior incumbrances. The claim of the creditor, in such a case, it was thought, was purely one of damages, not reducible to any certain or specific amount, and which could not be ascertained but by the verdict of a jury, and hence not provable in bankruptcy.*" But since the present statute allows "unliquidated claims" to be proved, after they shall have been liquidated in such manner as the court shall direct, it appears that claims of this character may be prova- ble in bankruptcy, provided, first, that the claimant shall have sustained actual loss or injury (not merely the apprehension of it) and second, that a breach of the covenant occurred before the filing of the petition in bankruptcy. The first point may be illustrated by the case of a sale of personal property which is fraudulent because in contravention of the rights of a prior mortgagee and therefore voidable. This will give the purchaser a right of action against the seller for breach of the implied warranty of title, but he has not a debt provable in bankruptcy against the seller until he has been damnified by losing the property to anoth- er.*-''^ As to the second point, if the breach of covenant occurred before the petition in bankruptcy was filed, then the claimant's damages were at that time capable of being liquidated and so made into a provable claim.*** But debts, to be provable at all, must have existed at the time of the filSlg of the petition. And hence, for example, a lessee cannot prove a claim for damages for breach of a covenant for quiet enjoyment in the lease against the estate of his lessor in bankruptcy because of an eviction which did not take place until after the commencement 'of the proceedings in bankruptcy.*** § 514. Claims for Torts. — Under the terms of the present bankrupt- cy act, a claim for damages for a tort, not connected with any contrac- 'tual liability, and not reduced to judgment before the filing of the pe- tition in bankruptcy, is not a provable debt.*** Such a claim is not made provable by that clause of the act which provides that "unliquidated si»Busli V. Cooper, 26 Miss. 599, 59 Rep. 547, 45 Am. Bankr. Rep. 599; Brown Am. Dec. 270. & Adams v. United Button Co., 149 Fed. 811 Bennett v. Bartlett, 6 Cush. (Mass.) 48, 79 C. C. A. 70, 17 Am. BanUr. Rep. 225. 565, affirming In re United Button Co., 312 Merrill v. Schwartz, 68 Me. 514; ^^^ ^^d. 495, 15 Am. Bankr. Rep. 390; Williams v. Harkins, 55 Ga. 172, 15 N. ^^ i'^ Bailey, 2 Woods, 222, Fed. Cas. No. B R 34 "" "^29; Bever v. Swecker, 138 Iowa, 721, 'ais'in re Pennewell, 119 Fed. 139, 55 Sun^'m'^ vT^.^'^r''" ^^ ''°«'"'""'' f 0. C. A. 571, 9 Am. Bankr. Rep. 490. "".".^J^' pLffhV. T'^ ^^ ^f^!' f Ala. 532. Provability of claims for torts 81* Schall V. Camors, 251 U. S. 239, 40 reduced to judgment before the filing of Sup. Ct. 135, 64 L. Ed. 247, 44 Am. Bankr. the petition, see supra, § 497. 1075 PROVABLE DEBTS AND CLAIMS § f)14 claims" may be liquidated in such manner as the court shall direct and may thereafter be proved and allowed ; for this relates only to a ma;tter of procedure, and does not enlarge the class of claims provable under the preceding paragraph, and contemplates only the liquidation of claims founded on contracts or on open accounts.*^^ Nor are the debts which may be proved in bankruptcy enlarged by the fact that it is assumed in the seventeenth section of the act (regulating the effect of a discharge) that liabilities for torts are provable and therefore released by a dis- charge, certain specified torts being thereupon excepted from the effect of a discharge. For this section, as originally enacted, referred only to judgments already recovered in actions for torts of the specified kinds, and was therefore not inconsistent with the sixty-third section of the statute, relating to provable debts. And the present want of harmony between the two sections is the result of the amendment of 1903, and therefore, in case of conflict, the sixty-third section, being specifically devoted to the enumeration and description of the classes of provable debts, must control.^" In accordance with these rules, a claim for unliquidated damages for negligence resulting in personal injuries is not a provable debt,*^' nor a cause of action for negligence causing the death of a human being,*^* or for negligence or nuisance resulting in injury to goods,*^* or for tres- pass to land,*^" or for deceit,^^^ or for assault and battery and false im- prisonment.**^ But in all those cases where the tort could be waived and a recovery had as upon a quasi contract, the claim may be provable, if the amount is definitely fixed, or after being liquidated as the court may direct.*^* On this principle, a claim for the conversion of personal prop- erty is a provable debt.*** 31 B Supra, § 500. And see In re Atl. 878; Kellogg v. Schuyler, Denio Hutchcraft (D. C.) 247 Fed. 187, 41 Am. (N. Y.) 73; Oilman v. Gate, 63 N. H. 278. Bankr. Eep. 238. 321 In re Schuchardt, 8 Ben. 585, 15 316 Brown & Adams v. United Button N. B. R. 161, Fed. Gas. No. 12,483. Go., 149 Fed. 48, 79 G. G. A. 70, 1 Am. ,822 Beers v. Hanlin, 99 Fed. 695, :^ Bankr. Rep. 565. See Biela v. Urban- Am. Bankr. Eep. 745; In re Hennocks- ezyk, 38 Tex. Civ. App. 213, 85 S. W. burgh, 6 Ben. 150, 7 N. B. R. 37, Fed. 451 ; Schall v. Camors, 251 U. S. 239, 40 Gas, No. 6,367. Sup. Ct. 135, 64 L. Ed. 247, 44 Am. 323 in re Griffin, 188 Fed. 389; In re Bankr. Rep. 547, 45 Am. Bankr. Rep. Southern Steel Go., 183 Fed. 498, 25 Am. 599- Bankr. Rep. 358; Burgoyne v. McKil- 317 Imbriani v. Anderson, 76 N. H. ^^____ . 491, 84 Atl. 974. 324 Pitcairn v. Scully, 252 Pa. 82, 97 318 In re New York Tunnel Go., 159 Atl. 120; Weaver v. Voils, 68 Ind. 191; Fed. 688, 86 C. G. A. 556, 20 Am. Bankr. Gole v. Roach, 37 Tex. 413, 10 N. B, R. Rep. 25. . 288. A claim against a bailee for hire 318 Brown & Adams v. United Button for the destruction of the goods bailed, Go., 149 Fed. 48, 79 G. G. A. 70, 1 Am. though suable in either contract or tort, Bankr. Rep. 565 ; Dusar v. Murgatroyd, may be proved against the estate of the 1 Wash. (G. G.) 13, Fed. Gas. No. 4,199. baUee in bankruptcy. Fingold v. Schac- 320Weisfield v. Beale, 231 Pa. 39, 79 ter, 223 Mass. 274, 111 N. E. 903. § 515 LAW OF BANKRUPTCY 1076 § 515. Fines, Penalties, and Forfeitures. — A judgment imposing a fine' as a punishment for a crime or misdemeanor or any violation of a state statute is not a debt provable against the estate of the defendant in bankruptcy. Although it comes within the terms of that section of the bankruptcy law which defines provable debts (as being a "fixed liability evidenced by a judgment, absolutely owing"), if literally construed, yet it cannot be supposed to have been the intention of Congress that a dis- charge in bankruptcy should release a defendant from a fine imposed as a punishment for a criminal offense against the laws either of the United States or of a state, and that section should be construed as applying only to civil liabilities and claims.''^® To hold such a judgment provable as a debt, with the necessary consequence of its being released by the dis- charge, "would be allowing the national government, through its courts, to grant pardons for crimes committed against a state. A person convict- ed of manslaughter and sentenced to pay a fine of $1000 would be reliev- ed, by a discharge in bankruptcy, from the punishment affixed by law to his crime. I do not think that the act, while it reasonably admits of any other construction, ought to be construed so as to permit or allow such a consequence." ^** For similar reasons, a judgment or sentence in a bas- tardy proceeding, condemning the defendant to pay a fixed sum for the maintenance of the child, is not a debt provable in bankruptcy.'*" And the liability of a bankrupt for the statutory penalty for cutting trees, imposed by a state statute, is not a debt founded on an implied contract, such as can be proved against his estate in bankruptcy.*** But there is another section of the bankruptcy law applicable, not lip, 182 Fed. 452, 25 Am. Bankr. Rep. 210 Fed. 878, 127 C. C. A. 462, 32 Am. .387; Clingman v. Miller, 160 Fed. 326, Bankr. Eep. 156. A fine adjudged 87 C. C. A. 278, 20 Am. Bankr. Eep. 360 ; against a corporation on its conviction In re Filer, 125 Fed. 261, 5 Am. Bankr. for using the mails to promote a fraud. Rep. 835; In re Hirschman, 104 Fed. 69, under U. S. Grim. Code, § 215, is a 4 Am. Bankr. Rep. 715; First Nat. Bapk "penalty" within the meaning of the of Bnosburg Falls v. Bamforth, 90 Vt. Bankruptcy Act, and not provable as a 75, 96 Atl. 600 ; In re Schenderlein (D. claim in bankruptcy ; but the United C.) 268 Fed. 1018, 46 Am. Bankr. Eep. States is entitled to prove all the costs 128 ; Stallck v. Slack (C. C. A.) 269 Fed. which it paid or incurred in the proseeu- 123, 46 Am. Bankr. Rep. 385. For an tion as a pecuniary loss sustained by it. excellent discussion of the whole sub- United States v. Birmingham Trust & ject of waiving a tort and suing as up- Savings Co., 258 Fed. 562, 169 C. C. A. on a quasi contract, see Keener, Quasi 502, 43 Am. Bankr. Rep. 430. Contracts, ch. Ill, pp. 1.59-312. 320 In re Sutherland, Deady, 416, 3 N. 32 Bin re Moore, 111 Fed. 145, 6 Am. B. R. 314, Fed. Cas. No. 13,639, per Bankr. Rep. 590. Contra, In re Alder- Deady, J. son, 98 Fed. 588, 3 Am. Bankr. Rep. 544. "27 in re Baker, 96 Fed. 954, 3 Am. A fine imposed on the bankrupt by a Bankr. Rep. 101; In re Cotton, Fed. Cas. state court, as a punishment for a civil No. 3,269; Hawes v. Cooksey, 13 Ohio, contempt in disobeying its order, is not 242; Commonwealth v. Erisman, 21 a provable debt. People v. Sheriff of Pittsb. Leg. J. O. S. (Pa.) 69. Kings County, 206 Fed. 566, 31 Am. sis in re Southern Steel Co., 183 Fed. Bankr. Rep. 84. See In re Abramson, 498, 25 Am. Bankr. Rep. 358. 1077 PROVABLE DEBTS AND CLAIMS § 515 indeed to fines for criminal offenses, but to penalties and forfeitures in- curred in civil cases. It provides that "debts owing to the United States, a state, a county, a district, or a municipality as a penalty or forfeiture shall not be allowed, except for the amount of the pecuniary loss sus- tained by the act, transaction, or proceeding out of which the penalty or forfeiture arose, with reasonable and actual costs occasioned thereby and such interest as may have accrued thereon according to law." *** Primarily this section would seem to apply to penalties imposed, in a fixed sum, without regard to the amount of damage involved, for breaches of contract between private individuals, on the one hand, and govern- mental or municipal authorities on the other hand, as, 'for example, a penalty of so many dollars a day for not completing a public work under contract within the time limited. But there are also cases where the mulct, although imposed as a punishment on an offender, is also in- tended as recompense to the public for injury to its property or revenues, and these cases would also come within the statute. For example, the laws of the United States impose, in certain cases, a "fine" for cutting timber on the public lands, the amount of which is to be "triple the valye" of the timber cut. Here, it seems, the government might prove a claim for the whole amount of the penalty, especially if reduced to judg- ment, but it could be "allowed" only to the extent of the pecuniary loss sustained, that is, the single value of the timber. And the same prin- ciple would apply to the fines and- penalties imposed under the internal revenue laws for failure to affix the proper stamps to various designated products.^'" Forfeitures are also imposed by the laws of the United States for various causes, — ^forfeitures of vessels for violations of the navigation laws and the neutrality laws, forfeitures of distilleries and apparatus for fraud in the evasion of the internal revenue laws, forfei- tures of goods imported for non-payment of duties. In all such cases, it seems, the test of the applicability of this section of the bankruptcy law must be the sustaining of pecuniary loss by the gov^rnment.^^^ And a 329 Bankruptcy Act 1898, § 57j. Now if the "pecuniary loss sustained" 33 See In re Rosey, 6 Ben. 507, 8 N. was the value of the stamps which B. K. 509, Fed. Cas. No. 12,066. In this should have been affixed, it would fol- case, under the act of 1867, the govern- low, under the plain wording of the pres- ment had sued the bankrupt, and recov- ent statute, that the United States could ered a judgment against him, for penal- prove Its claim in such a ease as this for ties incurred for several violations of the amount of the judgment, $5,000, but the stamp-tax law, in selling boxes of that the claim could be allowed only to matches not stamped. The amount of the extent of one dollar. This looks like the stamp required in each case was one a legal absurdity, but it is the will of cent. The amount of the penalty pre- Congress expressed in plain terms, scribed for each violation of the statute 33 1 See In re Vetterlein, 13 Blatchf. 44, was $50. The judgment was for more 12 N. B. R. 526, Fed. Oas. No. 16,929. than $5,000. The amount of the stamps In the case, under the bankruptcy act of required on the various boxes in ques- 1867, before the commencement of the tion would have been about one dollar. bankruptcy proceedings the United § 515 LAW OF BANKEUPTCT 1078 claim of the United States on a forfeited recognizance for bail in a crim- inal case has been held to be, a "penalty or forfeiture" within the meaning of this provision.**" What is here said of the United States government is also true, mu- tatis mutandis, of the states and of penalties and forfeitures for viola- tions of municipal ordinances. Thus, the provision in question applies to a penalty imposed by the state law on a corporation for failure to re- port and pay the prescribed fee or bonus to the state on an increase of its capital stock.*** It is also necessary, in some cases, to consider the right of an in- former to share in the penalty! But generally this is not a matter for the bankruptcy court at all. Where the government has recovered a judgment against the bankrupt for a penalty incurred by a violation of the revenue laws, for example, and has proved its claim as a creditor of the bankrupt^ the informer by whose procurement the penal action was prosecuted has no right to come into the bankruptcy court with a peti- tion asking for a summary adjudication of his right to a share oi tne penalty as against the United States. The court has no jurisdiction to effect such an adjustment in a proceeding in bankruptcy against the debtor. The claim of the informer is not against the bankrupt but against the government, and it must be worked out in the manner pre- scribed by the revenue laws, and not in a bankruptcy proceeding.*** § 516. Debts Barred by Limitations. — A debt or claim, once valid and which otherwise would be provable in bankruptcy, but which is barred by the statute of limitations of the state in which the bankrupt resides and where the proceeding in bankruptcy is pending, at the time of the filing of the petition, cannot be proved or allowed,**" notwithstand- ing the fact that it is not barred under the statute of some other state, as, for example, that in .which the creditor resides or that in which both parties lived when the contract was made.*** And the same rule applies States brought an action against the Cas. No. 10,223 ; In re Doty, 16 N. B. R. bankrupts to recover the value of goods 202, Fed. Cas. No. 4,017; In re Kingsley, which had been forfeited for violation 1 Low. 216, 1 N. B. R. 329, Fed. Gas. No. of the customs revenue laws. After the 7,819; In re Hardin, 1 Hask. 163, 1 N. adjudication, the bankrupts admitted B. R. 395, Fed. Cas. No. 6,048; In re the right of the government to recover Reed, 6 Blss. 250, 11 N. B. R. 94, Fed. and a judgment was rendered. It was Cas. No. 11,635; In re Noeson, 6 Biss. held that this was a provable debt. 443, 11 N. B. R. 422, Fed. Cas. No. 10,288 ; 882 In re Oaponlgri, 193 Fed. 291, 27 In re Cornwall, 9 Blatchf. 114, 6 N. B. Am. Bankr. Rep. 513. R. 305, Fed. Cas. No. 3,250; Ex parte 888 Commonwealth v. York Silk Mfg. Dewdney, 15 Ves. 479; Pace's Trustee v. Co., 192 Fed. 81, 112 C. C. A. 613, 27 Pace, 162 Ky. 457, 172 S. W. 925; In re Am. Bankr. Rep. 525. Ballantine (D. C.) 232 Fed. 271, 37 Am. 834 In re Jayne, 28 Fed. 419. Bankr. Rep. ill. 386 In re Putman, 193 Fed. 464, 27 888 Hargadine-McKlttrick Dry Goods Am. Bankr. Rep. 923 ; Nicholas v. Mur- Co. v. Hudson, 122 Fed. 232, 58 C. C. A. ray, 5 Sawy. 320, 18 N. B. R. 469, Fed. 596, 10 Am. Bankr. Rep. 225 ; In re Res- 1079 PROVABLE DEBTS AND CLAIMS § 516 to a dormant judgment against the bankrupt; that is, a judgment in not a provable debt unless it has been kept alive in such manner as the law of the state prescribes, by suit or scire facias upon it, by the issue or levy of execution, or otherwise according to the local law, within the time limited by that law before the bankruptcy.^*' And the doctrine or rule of adverse possession may be invoked for a like purpose. Thus, an in- tervener who, with knowledge of facts and without any claim of owner- ship, allowed the bankrupt to hold exclusive possession of certain resi- dence property and to make improvements, could not, after more than twenty years, contravene the lien of the trustee in behalf of the creaitors, for whose debts the property was expressly or impliedly pledged, to his knowledge.*** A due and sufficient acknowledgment of a barred debt, or new prom- ise to pay it, though made in contemplation of bankruptcy, is not neces- sarily a fraud on the other creditors, and will make the debt provable.**® Thus, a partial payment on a debt barred by limitations will revive it to the extent of making it provable in bankruptcy, though it was made for that very purpose.*** But if the law of the state makes any particu- lar requirements as to what will be effective to take a note out of the statute of limitations, as that an extension of it must be in writing, signed by the maker, and containing an acknowledgment of the debt, these must be complied with or else the note will not be provable.**^ But if a debtor, within four months before the filing of his petition in bankruptcy, gives a bond and mortgage to a creditor whose claim is outlawed under the state statute of limitations, the bond will revive the debt, even though the mortgage is voidable as a preference.*** But the mere fact that the bankrupt includes in his schedule of debts a claim already barred by the, statute of limitations does not revive it so as to make it a provable claim against his estate, to the prejudice of his other creditors, but It is the duty ler, 95 Fed. 804, 2 Am. Bankr. Rep. 602 ; affected by anything less than an equal- In re Hardin, 1 Hask. 163, 1 N. B. R. ly extensive impossibility of collecting 395, Fed. Cas. No. 6,048 ; In re Kings- such debt or claim by suit, ley, 1 Low. 216, 1 N. B. R. 329, Fed. Cas. ss? in re Rebman, 150 Fed. 759, 80 C. No. 7,819. But see a strong argument to O. A. 594, 17 Am. Bankr. Rep. 767; In the contrary of this view, in the case of re Farmer, 116 Fed. 763, 9 Am. Bankr. In re Ray, 2 Ben. 53, 1 N. B. R. 203, Fed. Rep. 19; In re Lipman, 94 Fed. 353, 2 Cas. No. 11,589, where it is said that the Am. Bankr. Rep. 46 ; In re Morris, fact that the debt is barred by the stat- Crabbe, 70, Fed. Cas. No. 9,825. ute of limitations of the state where the sss in re Rawlins Mercantile Co. (D. debtor resides is not enough to prevent 0.) 251 Fed. 164. Its being proved in bankruptcy, because 83» In re Blankenship (D. C.) 220 Fed. the effect of a state statute of limlta- 895, 33 Am. Bankr. Rep. 756. tions is merely to prevent the mainte- 3io in re Banks (D. C.) 207 Fed. 662, nance of a suit on the barred cause of 31 Am. Bankr. Rep. 270. action In the courts of that state; but s4i Wood v. Ledgerwood, 210 Fed. the bankruptcy law extends throughout 163, 127 C. C. A. 13. the United States, and its operation up- 342 in re Stendts, 1 Nat. Bankr. News, on a particular debt or claim cannot be 509. § 517 LAW OF BANKRUPTCY 1080 of the trustee in bankruptcy to oppose the allowance of the claim, on the ground of limitations, in behalf of the creditors in general.^** But it has been thought that this rule should not be invoked for the benefit of the bankrupt himself where no other creditor could be prejudiced by allowing the claim. If the estate proves sufficient to pay all the ex- penses of administration and all the other proved and allowed claims, the creditor whose debt was outlawed, but was included in the bank- rupt's list of debts, should be entitled to satisfaction out of the surplus, becai^e, as between the bankrupt and himself, the listing of the debt was a sumcient acknowledgment to take it out of the statute.*** And a debt which was not barred by the statute of limitations at the time when the petition was filed will remain valid against the trustee throughout the bankruptcy proceedings, and will be provable at any time within a year after the adjudication, notwithstanding the whole term fixed by the statute of limitations has expired when the claim is offered for proof, for the institution of bankruptcy proceedings stops the running of the statute.**® § 517. Claims Founded on Illegal or Immoral Consideration. — The bankruptcy act of 1867 expressly forbade the allowance of a claim in bankruptcy which was "founded in illegality." But this is only in af- firmance of the common law,*** since no court will lend its aid to the enforcement of an immoral or illegal contract. And although the pres- ent act contains no such express provision, it cannot be doubted that a claim arising on such a contract must be rejected.**' Thus, a claim for money alleged to be due under a stock-gambling transaction, or other form of wagering contract, is not provable in bankruptcy,*** although money placed in the bankrupt's hands for the purpose of being used in a gambling transaction, since it could be recovered in an action at law, 343 In r^ Banks, 207 Fed. 662; In re Minot v. Thacher, 7 Mete. (Mass.) 348. Eesler, 95 Fed. 804, 2 Am. Bankr. Rep. 41 Am. Dec. 444. 602; In re Lipman, 94 Fed. 353, 2 Am. s affords no basis for a claim against its estate in bankruptcy.*®* So where a savings bank, in violation of its charter, and the laws of the state, discounts notes of the bankrupt, neither the notes nor a claim for money loaned thereon can be proved.**^ The same rule applies where the charter of a manufac- turing corporation limits the amount of indebtedness which it may law- fully incur to one-half the amount of its paid-up capital stock; debts contracted in excess of this limit are not provable.**^ And so, a claim cannot be proved in bankruptcy against a corporation on a note which it gave to cover the indebtedness of a third party, for which it was in no way responsible,*^* or on notes which were authorized by the stockhold- ers, but which were issued by the managing officer direct to his personal creditors as collateral security for a prior indebtedness of his own.*^ 357 In re T. H. Bunch Co., 180 Fed. vires agreement to accept a share of the 519. net profits of the business, but from 358 In re Wj'oming Valley Ice Co., 153 which it received nothing, does not debar Fed. 787. it from proving its notes against the cor- 35 9 In re S. P. Smith Lumber Co., 132 poration in bankruptcy. In re Machine Fed. 618, 13 Am. Bankr. Rep. 123, af- Metals Producers Co., 251 Fed. 280, 163 firmed, Menefee v. Phelan, 140 Fed. 988, 0. C. A. 436, 41 Am. Bankr. Rep. 505. ?> ^«i''-/; ?p'.' o^f T \ '?ZVr. ^- ""' Cunningham v. German Insurance A.) 261 Fed. 733, 9 A. L. R. 1287, 44 Am. p^„i,_ ^^l Fed. 977, 4 Am. Bankr. Rep. Bankr. Rep. 304. ggo 860 In re S. P. Smith Lumber Co., 132 Fed. 620, 13 Am. Bankr. Rep. 118. "'•'' ^^^^P^s v. German Bank, 176 Fed. 361 In re Jaycox, 12 Blatchf. 209, 13 ^^' ^^ ^- ^- ^- 609, 23 Am. Bankr. Rep. 713. N. B. R. 122, Fed. Cas. No. 7,237. But the fact that a bank which lent money to a manufacturing corporation, taking secured notes therefor, made an ultra 19 Am. Bankr. Rep. 679. the fact that a bank which lent money 304 American Woodworking Machinery to a manufacturing corporation, taking Co. v. Norment (C. C. A.) 157 Fed. 801, 1083 PROVABLE DEBTS AND CLAIMS § 519 Again, where the law of a state forbids all foreign corporations to do business within its limits until they have complied with certain requisites (such as appointing a resident agent upon whom process may be served, or the like) a foreign corporation which has not complied with the stat- ute has no power to make contracts or to bring suits within the state. Consequently a contract made by the corporation, under such circum- stances, with a citizen of the state is illegal, and is not provable against the estate of such citizen in bankruptcy. As the bankrupt himself might have avoided it, his trustee may object to its being proved. ^®^ But the holder of special stock of a corporation, which was illegally issued, may prove against the estate of the corporation in insolvency (and presum- ably also in bankruptcy) a claim for the amount paid by him for the stock, deducting any dividends received, although he did not rescind the contract before the insolvency.*®® § 519. Landlord's Rights and Remedies. — Upon the bankruptcy of a tenant, his possession of the leased premises becomes the possession of the court of bankruptcy, and thereafter the rights and claims of the land- lord must be worked out through the bankruptcy proceedings, and not by independent action.*®' So also the right of the bankrupt tenant to remove machinery or other fixtures from the building passes to his trus- tee in bankruptcy.^** The landlord may prove a claim in bankruptcy for rent accrued up to the commencement of the proceedings, if he has a written lease or a valid oral agreement, or even an implied promise to pay rent,*®** and he may claim his rent out of the proceeds of goods which were specifically liable for it while on the demised premises and which have been sold by the trustee in bankruptcy,*'" or out of money paid to the tenant in eminent domain proceedings on the basis of his obligation to pay rent.*"^ So also, the landlord may prove a claim for rent accruing during a period when the premises stood vacant, having been surren- dered by the tenant, the latter having agreed to account for the rent until they were relet,*'* and where the original tenant assigned the lease or sublet the premises, the landlord, having agreed to the transfer, may prove his claim in bankruptcy against the estate of the assignee or sub- 865 In re Comstock, 3 Sawy. 218, 11 N. see in re Miller, .132 Fed. 414, 13 Am. B. R. 169, Fed. Cas. No. 3,078; In re Bankr. Rep. 87; In re Sherwoods, 210 Montello Brick Works, 174 Fed. 498, 23 Fed. 754, 127 C. 0. A. 304, Ann. Cas. Am. Ban'kr. Rep. 375; In re Springfield 19ieA, 940, 31 Am. Bankr. Rep. 769; Realty Co. (D. C.) 257 Fed. 785, 44 Am. In re MuUings Clothing Co. (D. C.) 230 , Bankr. Rep. 105. Fed. 681, 37*Am. Bankr. Rep. 166. 308 Reed v.' Boston Machine Co., 141 sto in re Bowne, 12 N. B. R. 529, Fed. Mass. 454, 5 N. B. 852. Cas. No. 1,741. 367 In re Steadman, 8 N. B. R. 319, sri in re Clancy, 10 N. B. R. 215, Fed Fed. Cas. No. 18,330. , Cas. No. 2,782. 868 In re Breek, 8 Ben. 93, 12 N. B. R. 372 in re Bruce, 6 Ben. 515, Fed. Cas. 215, Fed. Cas. No. 1,822. , No. 2,044. § 520 LAW OF BANKRUPTCY 1084 lessee.^'^ It is also competent for a landlord to require the tenant to pay current taxes on the leased premises, and municipal assessments, and water rates, and to stipulate that they shall constitute a part of the rent reserved, and when this is done, he may include the amount thereof, re- maining unpaid at the date of the bankruptcy, in his claim against the Estate of the bankrupt tenant.*'* But a state statute providing that, where a tenant unlawfully withholds possession of rented premises from his landlord, judgment shall go against such tenant "for double the rent reserved or stipulated to be paid," relates merely to the measure of the amount for which the tenant shall be liable, and does not characterize the landlord's demand for double rent during the period of unlawful detention as a debt springing out of the original contractual rfelation; and hence such demand, not arising ex contractu, is not provable in bank- ruptcy.*'^ So again, where a lease provided that the tenant might make alterations in the premises, he agreeing to restore the property at the expiration of the lease to its former condition, and before the end of the term the tenant became bankrupt, and the landlord resumed possession of the premises and leased them to the trustee in bankruptcy, afterwards seeking to prove a claim against the estate for the estimated cost of re- storing the property, it was held that the claim was not provable, as the clause in the lease contemplated the expiration of the lease by its own terms, and not by re-entry by the landlord.*'* § 520. Same; Landlord's Lien. — The general principles governing landlords' liens, in the bankruptcy of the tenant, have been discussed in an earlier section.*" It remains to be stated that a landlord to whom rent is due for the use of the premises by the bankrupt will not be re- quired to bring an action in a state court for the establishment of his lien, as provided by the state statute, as a condition precedent to the assertion of his rights against the bankrupt's property in the hands of S73 Wltherow v. South Side Trust Co., 304, Ann. Cas. 1916A, 940, 31 Am. Bankr. 181 Fed. 753; Wylle v. Smith, 2 Woods, Rep. 769. It seems that a landlord's 673, Fed. No. 18,110. claim for taxes and water rents which 3T4 Ellis V. Rafferty, 199 Fed. 80, 117 the tenant was bound to pay may be a C. C. A. 592, 29 Am. Bankr. Rep. 192; provable debt though, at the time of the McCann v. Evans, 185 Fed. 93, 107 C. O. adjudication in bankruptcy, the amouat A. 313, 26 Am. Bankr. Rep. 47; In re had not been fixed by assessment. In re Oriblier (D. 0.) 184 Fed. 338, 25 Am. Spies-Alper Co. (D. 0.) 231 Fed. 535, 36 Bankr. Rep. 765. Where a lease requir- Am. Bankr. Rep. 470. . ed the- bankrupt lessee to pay taxes two 375 Hamilton v. McCroskey, 112 Ga. months after they became a hen on the gg^ 37 S E 859 premises, taxes which were assessed and became a lien prior to the tenant's bank- "' ^^ »'e Arnstein, 101 Fed. 706, 4 Am. ruptcy were provable as a claim against Bankr. Rep. 246. And see In re O'Malley the estate, though they were not in fact * GlJ'nn. 191 Fed. 999, 27 Am. Bankr. payable until after the adjudication. lu -^^P- ^*^- re Sherwoods, 210 Fed. 754, 127 CCA. 877 Supra, § 373. 1085 PROVABLE DEBTS AND CLAIMS § 521 the trustee, but he may at once prove his debt and be heard in the court of bankruptcy in support of his claim to priority of payment.*'* But under the laws of some of the states, a landlord who takes from his tenant a mortgage on the personalty used or kept on the demised prem- ises, covering not only arrears of rent but also other debts, is deemed to have waived his statutory lien on such property for rent due, and he will not be entitled to enforce such a lien against the property in the hands of the tenant's trustee in bankruptcy.*™ Up to the time of the commencement of the proceedings in bankruptcy, the landlord may enforce his lien by distress, if allowed by the laws of the state, and the 'Security thus acquired is not invalidated by the adjudication of the tenant in bankruptcy, though within four months thereafter.**" But upon the filing of the petition in bankruptcy, the whole estate comes into the constructive custody and possession of the bankruptcy court, and thereafter the landlord will not be permitted to seize the goods on a distress warrant, but must proceed against the trustee in bank- ruptcy.**^ § 521. Same ; Rent to Accrue After Adjudication. — ^A landlord can- not maintain a claim in bankruptcy against the estate of his tenant for any rent accruing or to accrue under the terms of the lease after the commencement of the proceedings in bankruptcy.*** And it is im- 378 In re Byrne, 97 Fed. 762, 3 Am. man Co. t. Withoft (C. C. A.) 195 Fed. Bankr. Rep. 268. 250, 28 Am. Bankr. Rep. 328; In re Roth 3^9 In re Wolf, 98 Fed. 74, 3 Am. & Appel, 181 Fed. 667, 104 C. C. A. 649, Bankr. Rep. 558. See Lontos v. Cop- 31 L. R. A. (N. S.) 270, 24 Am. Bankr. pard, 246 Fed. SOS, 159 C. C. A. 105, 40 Kep. 588; In re Rubel, 166 Fed. 181, 21 Am. Bankr. Rep. 575. Am. Bankr. Rep. 566; Watson v. Merrill, 380 Marshall v. Knox, 16 Wall. 551, 21 " 1^6 Fed. 859, 69 C. C. A. 185, 69 L. R. A. L. Ed. 481; Goodwin v. Sharkey, 80 Pa. '^'^^' 14 -A.m. Bankr. Rep. 453; In re Roth St. 149, 15 N. B R. 526. * Appel, 174 Fed. 64, 22 Am. Bankr. Rep. 504; In re Hays, Foster & Ward Co., 117 Fed. 879, 9 Am. Bankr. Rep. 144; At- 3 81 In re Bishop, 153 Fed. 304, 18 Am. Bankr. Rep. 685; Buckey v. Snouffer, 10 Md. 149, 69 Am. Dec. 129; Noe v. Gibson, 7 Paige (N. Y.) 513. kins V. Wilcox, 105 Fed. 595, 44 C. C. A. 626, 53 L. R. A. 118, 5 Am. Bankr. Rep. 813; In re Mahler, 105 Fed. 428, 5 Am. 382 In re H. M. Lasker Co,, 251 Fed. 58, Bankr. Rep. 458; In re Arnstein, 101 163 0. C. A. 303, 42 Am. Bankr. Rep. 234; Fed. 706, 4 Am. Bankr. Rep. 246; Bray In re MuUings Clothing Co., 238 Fed. 58, v. Cobb, 100 Fed. 270, 3 Am. Bankr. Rep. 151 C. C. A. 134, L. R. A. 1918A, 589, 38 788; In re JefCerson, 93 Fed. 948, 2 Am. Am. Bankr. Rep. 189; In re Gallacher Bankr. Rep. 206; Treadwell v. Marden, Coal Co., 205 Fed. 183, 29 Am. Bankr. 123 Mass. 890, 25 Am. Rep. 108; Scott v. Rep. 766; South Side Trust Co. v. Wat- Demarest, 75 Misc. Rep. 289, 135 N. T. son, 200 Fed. 50, 118 C. C. A. 278, 29 Am. Supp. 264; Kamioner v. Balkind, 93 Bankr. Rep. 446; In re Abrams, 200 Fed. Misc. Rep. 458, 158 N. Y. Supp. 310. As 1005, 29 Am. Bankr. Rep. 590; In re to special rules under the statutory law Scruggs, 205 Fed. 673, 81 Am. Bankr. ol' Pennsylvania, see Bosenblum v. Uber, Rep. 94; In re Quaker Drug Co., 204 256 Fed. 584, 167 C. C. A. 614, 43 Am. Fed. 689, 30 Am. Bankr. Rep. 898; Col- Bankr. Rep. 480. § 521 LAW OF BANKRUPTCY 1086 material that the tenant may have given notes for the installments of rent to accrue in the future; they cannot be proved as debts against his estate.^*^ As to the effect of a covenant in the lease that, on default in the payment of any installment of rent, the rent for the entire term shall at once become due and payable, there is more doubt. But it has been held that the bankruptcy of the lessee, while so in default, will give the landlord a right to prove a claim for the entire rent so far as it is definitely fixed by the terms of the lease,^** though he must take the position of an ordinary general creditor, and will not be entitled to priority of payment,**^ but that if the tenant is not in default at the time of his bankruptcy, the filing, of the petition will not cause the rent for the whole term to become exigible or mature notes given for future installments.**^ And a provision ift the lease that, in case the tenant shall be adjudicated a bankrupt, the lessor may re-enter and terminate the lease, and that the lessee will then pay to the lessor "as damages" a sum representing the difference between the rental value of the premises and the rent reserved for the residue of the terrn, does not create a liability which can be proved as a debt against the estate.**" So a state statute giving to the lessor a lien on the tenant's property on the premises, to secure the payment of one year's rent due or to become due, does not entitle the landlord, when the tenant becomes' bankrupt during the term, to priority of payment out of his estate for a year's rent from the date of the adjudication.*** 383 Atkins V. Wilcox, 105 Fed. 595, 44 946, 33 Am. Bankr. Rep. 704. Where a C. C. A. 626, 53 L. B. A. 118, 5 Am. lease to a bankrupt of a store service Bankr. Rep. 313; In re Hays, Foster & system for a term of 10 years provided Ward Co., 117 Fed. 879, 9 Am. Bankr. that, on breach by the lessee or its bank- Rep. 144. . ruptcy, the lessor might enter and take 3 84 In re Pittsburg Drug Co., 164 Fed. possession of the property, which it did 482, 20 Am. Bankr. Rep. 227. Unaccrued after the bankruptcy, a further provision rent under a lease of a store service that in such case the rent for the entire apparatus may be provable in bankrupt- term should immediately become due and cy, where the apparatus was required to payable was held to create a penalty, be specially adapted to the premises and and a claim therefor against the bank- could not be used again to advantage, rupt estate was disallowed. In re Mer- and the parties have so provided in their win & Willoughby Co. (D. C.) 206 Fed. contract. In re Caswell-Massey Co. (D. 116, 30 Am. Bankr. Rep. 485. C.) 208 Fed. 571, 31 Am. Bankr. Rep. ss? Slocum v. Sollday, 183 Fed. 410, 426. 106 C. C. A. 56, 25 Am. Bankr. Rep. 460; 385 In re Cronson, 1 Nat. Bankr. News, In re Rhoads, 2 Nat. Bankr. News, 179. 474. Compare In re Goldstein, 1 Nat. Bankr. 3 8(1 Atkins v.. Wilcox, 105 Fed. 595, News, 422. See In re Merwin & Wil- 44 C. C. A. 626, 53 L. B. A. 118, 5 Am. loughby Co., 206 Fed. 116, 30 Am. Bankr. Bankr. Rep. 313; In re Miller Bros. Gro- Rep. 485. eery Co., 219 Fed. 851, 135 C. C. A. 521, 38 8 in re Jefferson, 93 Fed. 948, 2 Am. L. R. A. 1916B, 1099, Ann. Cas. 1916A, Bankr. Rep. 206. 1087 PROVABLE DEBTS AND CLAIMS § 522 § 522. Same ; Occupation and Use of Premises by Trustee. — Where there is a leasehold estate among the assets of the bankrupt, the trustee may accept it if it is salable and has a money value, but he is not bound to do so unless it appears to be for the interest of the creditors.^** If he accepts the term, for the purpose of realizing its value as an as- set, he is bound by the covenants of the lease, including that for the pay- ment of rent at the stipulated rate.^** But there must be some positive and unequivocal act of acceptance by the trustee before he will be held liable on the lease,**^ and he does not accept the premises and become responsible for the rent merely by leaving some goods there,*"^ and occupation of the leased premises by the trustee independently of the lease, where he pays for such occupation, is not evidence of an election to accept the lease.^** But if the trustee, without accepting or assuming the lease (or hold- ing over after the expiration of the bankrupt's term), continues to occupy and use the demised premises for purposes connected with the administration of the estate, the landlord will be entitled to compensa- tion for the reasonable value of the use of the premises by the trustee, from the date of the filing of the petition in bankruptcy until the pos- session is surrendered to him.*** In ordinary circumstances, this may be fairly measured by the rent which the bankrupt was paying, and compensation to the lessor will be allowed at the rate of the rent re- served in the lease, if this appears fair and reasonable to the court.**® But this is not always the case. If the trustee continues to occupy and use the premises only for the purpose of storing the goods of the bank- rupt therein until they can be sold, he should pay rent to the landlord only to the extent to which the estate in bankruptcy has been benefited by the use of the premises. That is, the landlord cannot recover the 389 White V. Griffing, 44 Conn. 437. Chambers, 98 Fed. 865, 3 Am. Bankr. And see, supra, § 307. Kep. 537; In re Grimes, 96 Fed. 529, 2 890 Ex parte Faxon, 1 Low. 404, 4 N. Am. Bankr. Kep. 730; In re McGrath, 5 B. R. 32, Fed. Cas. No. 4,704; White v. Ben. 183, 5 N. B. R. 254, Fed. Cas. No. Griffing, 44 Conn. 437. 8.808; In re Walton, 1 N. B. R. 557, Fed. ' 801 In re Washburn, 11 N. B. B. 66, ^^®- ^°- ^'^'^^^' ^° ^^ ^'■'^^' ^^ N. B. R. Fed Cas No 17 211 ^^' ^^^- ^^®- ^°- ''''116; In re Metz, 6 Ben. 571, Fed. Cas. No. 9,509; In re Croney, 8 Ben. 64, Fed. Cas. No. 3,411; , In re Hamburger, 12 N. B. B. 277, Fed. 3 93 In re Ten Eyck, 7 N. B. R. 26, Oas. No. 5,975; In re Hufnagel, 12 N. Fed. Cas. No. 13,829. , B. R. 554, Fed. Cas. 'No. 6,837. And see 394 In re Abrams, 200 Fed. 1005, 29 Am. supra, §§ 211, 307. Bankr. Rep. 590; In re Hunter, 151 Fed. sus In re Breck, 8 Ben. 93, 12 N. B. 904, 18 Am. Bankr. Rep. 477; In re R. 215, Fed. Cas. No. 1,822; In re Ap- Hinekel Brewing Co., 123 Fed. 942, 10 pold, 6 Phila. (Pa.) 469, 1 N. B. R. 621, Am. Bankr. Rep. 484; Bray v. Cobb, 100 Fed. Cas. No. 499; In re Cronson, 1 Nat. Fed. 270, 3 Am. Bankr. Rep. 788; In re Bankr. News, 474. 392 In re Teaton, 1 Low. 420, Fed. Cas. No. 18,133. § 522 LAW OF BANKRUPTCY 1088 amount which would be a proper rental for the premises if used as a place of business by a merchant in trade, but only what they were worth as a mere store-house.^*^ And even to this extent, the trustee is charge- able only for the time he actually used the place,*"'' and if he surren- ders the keys immediately after he receives them, he incurs no liability for rent which accrued before he took possession.^*^* And in a case where the premises had been used by the bankrupt for the purpose of storing his goods, under a lease, and the trustee knew nothing of the lease until two or three months after ^his appointment, when he was applied to for the rent, whereupon he denied his liability and removed the goods, it was held that, as he had not accepted the lease and in fact derived no benefit from the premises, he was not liable to the landlord for any sum.^®' Whatever may be the sum to which the landlord is entitled for the use of his premises by the trustee, he is not required to prove it as a debt in the bankruptcy proceedings and share with other creditors. It should be settled by the court, paid as a part of the expenses of ad- ministering the estate, and entered as a credit item on the trustee's ac- counts.*** And if the trustee has no cash in hand with which to pay the landlord's charges, h^ may be ordered to sell sufficient personal property for that purpose, and this will take precedence of the bankrupt's claim to have his exemptions set apart out of such person- alty.*«i § 523. Same; Damages for Breach of Contract or Covenant — The rule stated in a preceding section,**^ that a landlord cannot main- tain a claim in bankruptcy against the estate of his tenant for any rent accruing or to accrue after the commencement of the proceedings in bankruptcy, has sometimes worked hardship, and landlords of bankrupt tenants have attempted to prove a claim for the rent which would have accrued under the lease during the remainder of the term, on the the- ory'that such a sum was recoverable as damages for the tenant's breach of his contract or covenant to pay the stipulated rent. But such claims SOS In re Fowler, 8 Ben. 421, Fed. Cas. soo In re Washburn, 11 N. B. R. 66, No. 4,997; In re Lucius Hart Mfg. Co., Fed. Cas. No. 17,211. •17 N. B. R. 459, Fed. Cas. No. 8,592; 4oo in re Jefferson, 93 Fed. 948, 2 Am. In re Wheeler, 18 N. B. R. .385, Fed. Cas. Bankr. Rep. 206; In re Butler, 3 Pittsb. No. 17,490; In re Dunham, Fed. Cas. (Pa.) 369, 6 N. B. R. 501, Fed. Oas. No. No. 4,145. 2,236; In re Webb, 6 N. B. R. 302, Fed. 3 87 In re Merrifield, 3 N. B. R. 98, Fed. Cas. No. 17,315; In re Rose, 3 N. B. R. Cas. No. 9,465. See Longstreth v. Pen- 265, Fed. Cas. No. 12,043; In re Hoag- nock, 9 Phila. (Pa.) 394, 7 N. B. R. 449, land, 18 N. B. R. 530, Fed. Cas. No. 6,545. Fed. Cas. No. 8,488. 4oi in re Grimes, 96 Fed. 529, 2 Am. 3 8 In re Crlblier, 184 Fed. 338, 25 Am. Bankr. Rep. 730. Bankr. Rep. 765. *»2 Supra, § 521. 1089 PROVABLE DEBTS AND CLAIMS , §, 523 have generally been disallowed.*"* And the same rule is applied where the lease contains an express covenant that, upon the bankruptcy of the lessee, the lessor may terminate the lease and re-enter, and that the lessee shall thereupon be liable for all loss and damage sustained by the lessor pn account of the premises remaining unlet or being let for the remainder of the term -for a less rent than that reserved in the lease. A claim for the breach of such a covenant does not constitute a "fixed liability absolutely owing at the time of the filing of the petition in bank- ruptcy," but the liability is altogether contingent, because of the un- certainty as to whether the lessor will re-enter and terminate the lease, and, if he does, whether there will be any loss, and its amount; nor is such a claim provable as a debt "founded upon express contract," un- der the clause of the statute relating thereto, because this cannot be construed as permitting the proof of claims which are contingent both as to liability and amount at the commencement of the proceedings.*"* And for similar reasons it has been held that a claim for damages against a. lessee for abandoning the premises, a dwelling house, so that it was wrongfully entered, and burned and destroyed, is not a provable claim in bankruptcy proceedings.**® In the case of the lease of machinery or similar property, the lessor may be entitled to prove a claim for damages for having it thrown back oh his hands by the bankruptcy of the lessee. If such a lease provides, for instance, that it shall be terminated upon the bankruptcy of the lessee, and the lessee covenants to pay to the lessor, on breach or termination of the lease, certain sums to cover the cost of transporta- tion of the machinery back to the lessor, an allowance for depreciation, and the expense of repairing it for the use of another lessee, these items will be provable as a claim against the estate of the lessee in bankruptcy.**^ But it has been held that a claim of the lessor of a coal 403 In re Leslie & Griffith Co. (D. 0.) JluUings Clothing Co. (D. C.) 252 Fed. 230 Fed. 465, 36 Am. Bankr. Rep. 744; 667, 41 Am. Bankr. Rep. 756. Ratshesky v. Whiting, 251 Fed. 268, 163 *04 in re Shaffer (D. C.) 124 Fed. Ill, C- 0. A. 424, 41 Am. Bankr. Rep. 640; 10 Am. Bankr. Rep. 633; In re Roth & Watson V. Merrill, 136 Fed. 359, 69 C. C. Appel, 181 Fed. 667, 104 G. C. A. 649, 31 A. 185, 14 Am. Bankr. Rep. 453; In re L. R. A. (N. S.) 270, 24 Am. Bankr. Rep. Amstein, 101 Fed. 706, 4 Am. Bankr. 588; In re Ells (D. C.) 98 Fed. 967, 3 Am. Rep. 246; Ex parte Houghton, 1 Low. Bankr. Rep. 564. 554, Fed. Cas. No. 6,725; In re Croney, ^os Winfree v. Jones, 104 Va. 39, 51 S. 8 Ben. 64, Fed. Cas. No. 3,411; In re E. 153, 1 L. R. A. (N. S.) 201. Hufnagel, 12 N. B. R. 554, Fed. Cas. No. *»« In re Desnoyers Shoe Co., 227 Fed. 6,837. Compare In re Caloris Mfg. Co., 401, 142 C. C. A. 97, 36 Am. Bankr. Rep. 179 Fed. 722, 24 Am. Bankr. Rep. 609; 51; In re D. C. Clark Shoe Co. (D. O.) In re MuUings' Clothing Co.,, 238 Fed. 58, 211 Fed. 341, 32 Am. Bankr. Rep. 238. 151 C. C. A. 134, L. R. A. 1918A, 539, 38 Contra, see In re Jorolemon-Olirt'er Co., Am. Bankr. Rep. 189. And see In re 213 Fed. 625, 130 O. C. A. 217. Blk.Bkr.(3d Ed.)— 69 § 523 LAW OF BANKEUPTCY 1090 mine for the cost of pumping the mine after abandonment of the lease, due to the bankruptcy of the lessee, in view of stipulations in the lease, was for a contingent liability, dependent on continuance of the term, and therefore not provable agains^t the estate.*" 407 In re Gallacher Coal Co. (D. O.) 205 Fed. 183, 29 Am. Bankr. Rep. 766. 1091 . PROOF AND ALLOWANCE OF CLAIMS § 524 CHAPTER XXVI PROOF AND ALLOWANCE OF CLAIMS Sec. 524. Necessity of Proof. 525. Effect of Proof. 526. Time of Making Proof. 527. Persons Authorized to Prove. 528. Proof by Agent or Attorney. 529. Proof by Assignee of Claim. 530. Proof by Persons Contingently Liable for Bankrupt 531. Form and Sufficiency of Deposition. 532. Acknowledgjnent of Deposition. 533. Receiving and Filing Proofs. 534. Allowance or Disallowance of Proved Claims. 535. Postponement of Proofs. 536. Objections to Claims ; Who May Object. 537. Same ; Manner and Form of Objections. 538. Same; Grounds of Objection. 539. Same ; Contest and Determination. 540. Same; Burden of Proof and Evidence. 541. Amendment and Withdrawal of Proofs. 542. Re-Examination of Claims and Expunging, 543. Review of Referee's Proceedings by Judge. § 524. Necessity of Proof. — ^There are certain things which a cred- itor of a bankrupt may do without proving his claim. He may, for ex- ample, procure an order for the examination, of the bankrupt, when he desires by this means to discover whether it will be worth his while to prove his claim.^ But if the creditor wishes to participate in the distri- bution of the bankrupt's estate, through and by means of the bankrupt- cy proceedings, it is absoltrtely necessary that he should establish his status and the validity and amount of his claim in the manner which the act prescribes.* A secured creditor, it is true, may prefer to rely upon his security and avoid the bankruptcy proceedings altogether, and he will not generally be interfered with by the court unless there is rea- son to think that something might be realized on the security for the benefit of the general creditors, if it were foreclosed by the trustee in bankruptcy,* And there are certain privileged claims which need not 1 In re Jehu, 94. Fed. 638, 2 Am. on the objection- of creditors whose Bankr. Rep. 498; In re Walker, 96 Fed. claims, though mentioned in the sched- 550, 3 Am. Bankr. Rep. 35. ules, have not been proved or allowed. 2 In re Dunn Hardware & Furniture In re French, 181 Fed. 583. Co., 132 Fed. 719, 13 Am'. Bankr. Rep. s infra, § 566. And see In re Gold- 147; In re Kllgerman (D. 0.) 219 Fed. smith, 118 Fed. 763, 9 Am. Bankr. Rep. 758, 33 Am. Bankr. Rep. 608. Where all 419; In re North Star Ice & Coal Co. (D. things necessary to bring a proposed C.) 252 Fed. 301, 42 Am. Bankr. Rep. 76 ; composition before the court for confirm- In re Old Oregon Mfg. Co. (D. C.) 236 ation have been done, the court cannot Fed. 804, 38 Am. Bankr. Rep. 409. A as a matter of law refuse confirmation landlord, having a lien or charge for the § 524 LAW Off BANKEUPTCX • 1092 be' proved; such as taxes. Of taxes it has been said : "The bankruptcy act evidently does not contemplate that they shall be proved like an or- dinary debt, providing, as it does, that they shall be paid by the trustee on the order of the court, and that he shall have credit in his accounts upon filing the receipts of the proper officers therefor." * And while the lien of a judgment is not lost by failure to prove the claim in bankrupt- cy,^ yet a judgment creditor cannot share in the distribution of the es- tate without doing so:* And where formal proof of the debt is imperative, nothing can avail as a substitute for it. Thus, the finding, in a decree of adjudication in involuntary bankruptcy, that the petitioning creditor has a valid and provable claim to a certain amount, is not conclusive upon the trustee and creditors, so as to dispense with proof of the debt of that creditor, or to preclude questioning his right to participate in the distribution of the estate.' And a voluntary litigation against the trustee of a claim against the estate, resulting in a judgment against the trustee, does not create a preferred debt which can be enforced directly against the es- tate, but its only effect is to liquidate the claim, and the judgment must be proved.* Again, the statement of a debt in the schedule of the bank- rupt is not a proof of it ; it may be stated in fraud and may not exist, or the bankrupt may have made payments upon it or have counterclaims against it. The debt must be proved by the oath of the creditor as the law directs.® "Furthermore, a creditor who proves his debt in bankrupt- cy must do so absolutely and according to the directions of the statute and the rules of the court ; he will not be allowed to interpose any pro- test, qualification, or reservation.*" It should be added that the ordinary proceedings upon the proof and allowance, of the demands presented by creditors are a part of the entire proceeding in bankruptcy, and are not to be regarded as so many separate suits at law or in equity." rent due him on the property of his ten- bankrupt, and the plaintiff, with knowl- ant at the time of the latter's bank- edge of the bankruptcy proceedings, fails ruptcy, but the amount of which has not to prove his judgment therein, he cannot been adjudicated, must, in order to pre- afterwards set off his judgment against serve his priority, establish his claim by a judgment which the bankrupt had re- proof, the same as other creditors. In covered against him prior' to the bank- re Hayward, 130 Fed. 720, 12 Am. Bankr. ruptcy proceedings. Shoemaker v. Hur- Rep. 264. • witz, 56 Pa. Super. Ct. 632. 4 In re Prince & Walter, 131 Fed. 546, ^ ^n ^e Harper, 175 Fed. 412, 23 Am. 12 Am. Bankr. Rep. 675; In re Harvey, Bankr. Rep. 918; In re Cleveland Ins. 122 Fed. 745, 10 Am. Bankr. Rep. 567; Co., 22 Fed. 200. Paine v. Archer, 233 Fed. 259, 147 O. 0. * ^^ ""e Havens, 182 Fed. 367, 25 Am. A. 265, 37 Am. Bankr. Rep. 454. Bankr. Rep. 116. » Oottrell V. Plerson, 12 Fed. 805. Cas.' Nrs,?^'' ' ""■ ^' ^^ '^'' ^"^^ a In re Rosenberg, 144 Fed. 442, 16 lo Dutton v. Freeman, 5 Law Rep. 447, Am. Bankr. Rep. 465. Where a defend- Fed. Cas. No. 4,210. ant in a judgment is adjudicated a nWiswall v. Campbell, 93 U. S. 347, 1093 PROOF AND ALLOWANCE OF CLAIMS | 525 § 525. Effect of Proof. — By proving his claim in bankruptcy a cred- itor submits the same to the jurisdiction of the coijrt. If he is a non- resident, he will so far accept the jurisdiction of the court over him, by this course, that his obedience to its orders in the bankruptcy proceed- ing may be enforced by the power of striking out his claim ; ^* and if an alien creditor voluntarily appears and proves his claim and receives a dividend thereon, he will be held thereby to have waived the exterri- torial immunity from the operation of the bankruptcy law which other- wise would have saved him from the effect of the discharge granted to the bankrupt.*^ Again, the proof of a debt establishes the status of the claimant as a creditor of the bankrupt, connects him with the proceed- ings, and gives him the right to participate therein to the fullest extent allowed to creditors,*^* so that he may, for example, join in a call for a meeting of creditors,^^ or file charges against the trustee and ask for his removal.^* Moreover, the proof establishes the validity and provable character of the claim, and its amount, and the right of the creditor to receive dividends thereon, in a manner which will be final and conclusive on all parties, unless an appeal is taken from the allowance of the claim or a motion for its re-examination shall be made and prevail.^' The bankruptcy act of 1867 provided that no creditor proving his debt or claim should be allowed to maintain any suit at law or in equity therefor against the bankrupt, but should be deemed to have waived all right of action and suit against him ; and it was held that such implied waiver applied to all other courts, as well as the bankruptcy court, and that any suit thereafter commenced by such creditor against the bank- rupt should be enjoined.^* The present statute contains no such provi- sion, although it allows pending suits against the bankrupt to be stayed until the question of his discharge is determined. But unless the creditor is thus controlled by the court, in the interest of the estate as a whole, the doctrine appears to prevail that the filing of a proof of his claim is not a waiver of his right of action on it in another court.^® Certainly, it 23 L. Ed. 923 ; Maryman v. S. G. Drey- n Sabin v. Larkin-Green Logging Co fus Co., 117 Ark. IT, 174 S. W. 549. (D. C.) 218 Fed. 984, 34 Am. Bankr. Rep. 12 In re Kyler, 2 Ben. 414, 2 N. B. R. 210. See In re Merrick, 7 N. B. R. 459, 649, Fed. Cas. No. 7,956. Fed. Cas. No. 9,463 ; American Woolen 13 Clay V. Smith, 3 Pet. 411, 7 L. Ed. Co. v. Samuelsohn, 226 N. T 61, 123 N 723. E. 154. 1* See In re Smith, 2 Ben. 113, 1 N. B. is in re Meyers, 2 Ben. 424, Fed. Cas. R. 243, Fed. Oas. No. 12,971; Button v. No. 9,518; Wilson v. Capuro, 41 Cal. 545; Freeman, 5 Law Rep. 447, Fed. Cas. No. Burns v. Buricke (Ky.) 1 S. W. 821. 4,210; In i:e Baldwin, 6 Ben. 196, Fed. "Bay State Milling Co. v. Susman Cas. No. 795. Feuer Co., 91 Conn. 482, 100 Atl. 19 ; Bey- 15 In re Back Bay Automobile Co., 158 ei- v. Sadvoransky, 108 Misc. Rep. 463, 177 Fed. 679, 19 Am. Bankr. Rep. 835. N. T. Supp. 705 : In re Buchan's Soap 16 In re Roanoke Furnace Co., 152 Fed. Corp., 169 Fed. 1017, 22 Am. Bankr. Rep. 846, 18 Am. Bankr. Rep. 661. 382; Ringenoldns v. Abresch, 119 Wis. § 525 LAW OF BANKRUPTCY 1094 does not preclude the creditor from proceeding independently against any other person who may be separately liable on the same demand, such as a surety/" or another partner in the same firm who is not in bankrupt- cy ; *^ nor will it waive his right to assert and enforce a lien upon partic- ular property,*^ or to claim securities held as collateral,*^ or to pursue an independent remedy given by the state law, as, by the arrest of the debtor in the case of a debt fraudulently contracted.** So, if the creditor holds a note containing a waiver of exemptions, his proving the note as an un- secured debt in the bankruptcy proceedings will not debar him from pro- ceeding in a competent court to subject the exempt property to the sat- isfaction of the demand.*® As to the specific case of goods obtained by false representations and not paid for, the creditor does not waive his right of action for damages by proving his claim in bankruptcy,** but, so far as the bankruptcy proceedings are concerned, he is put to his elec- tion either to confirm the sale and assume the position of a creditor for the price or to repudiate the sale and recover the goods ; and having made his election, with knowledge of the facts, by proving his claim and voting as a creditor in the bankruptcy proceedings, he is concluded thereby, and cannot afterwards withdraw his claim and demand the goods.*' On a similar principle, it has been held that where the princi- 410, 96 N. W. 817. See In re E. B. Hav- ens & Co., 186 Fed. 583; Graves v. Neosho Falls Bank, 89 Kan. 179, 131 Pac. 146. Filing a claim in bankruptcy against an agent, without knowledge of an undis- closed principal, does not preclude an ac- tion against the latter. Sweeney v. Douglas Copper Co., 149 App. Div. 568, 134 N. Y. Supp. 247. Compare Commer- cial Bank of Boonville v. Central Nat. Bank (Mo. App.) 203 S. W. 662. After an adjudication of bankruptcy on the voluntary petition of the debtor, credi- tors who had previously filed an invol- untary petition do not lose their right to attack a preferential transfer by filing their claims with the referee. Interna- tional Silver Co. v. New York Jewelry Co., 233 Fed. 945. 147 C. C. A. 619, 37 Am. Bnnkr. Rep. 91. 2ornited States v. Schnfield Co., 182 Fed. 240; Curtin v. Katchinski, 31 Cal. App. 768, 161 Pac. 764 ; Tutt v. Fighting Wolf Min. Co. (Mo. App.) 209 S. W. 304. 21 Robinson v. First Nat. Bank, 98 Tex. 184, 82 S. W. 505. 22 Coles County v. Haynes & Lyons, 134 111. App. 320; Sessler v. Paducah Distilleries Co., 168 Fed. 44, 21 Am. Bankr. Rep. 723; Horton v. Queens County Machinery Corp., 101 Misc. Rep. 31, 166 N. Y. Supp. 662; Joseph Nelson Supply Co. V. Leary, 49 Utah, 493, 164 Pac. 1047. But see Brown v. City Nat. Bank, 72 Misc. Rep. 201, 131 N. Y. Supp. 92. 23 Thomas v. Taggart, 209 U. S. 385, 28 Sup. Ct. 519, 52 L. Ed. 845, 19 Am. Bankr. Rep. 710. But see First Nat. Bank v. Exchange Nat. Bank, 179 App. Div. 22, 153 N. Y. Supp. 818, 164 N. Y. Supp. 1092. 2 4 In re Lewensohn, 104 Fed. 1006, 44 C. C.A. 309, affirming 99 Fed. 73, 3 Am. Bankr. Rep. 594. 26 In re Loden, 184 Fed. 965, 25 Am. Bankr. Rep. 917; In re Meredith, 144 Fed. 2.30, 16 Am. Bankr. Rep. 331. See In re Strickland, 167 Fed. 867, 21 Am. Bankr. Rep. 734; Drees v. Armstrong, 180 Iowa, 29, 161 N. W. 40. 2 8 Maxwell v. Martin, 130 App. Div. SO, 114 N. Y. Supp. 349 ; Standard Sew- ing Mach. Co. v. Alexander, 68 S. C. 506, 47 S. B. 711; Sanger Bros. v. Barrett (Tex. Civ. App.) 221 S. W. 1087; J. K. Orr Shoe Co. v. Upshaw & Powledge, 13 Ga. App. ,501, 79, S. E. 362. 2 7 Standard Varnish Works v. Hay- dock, 143 Fed. 318, 74 C. C. A. 456, 16 Am. Bankr. Rep. 286; Lynch v. Bronson (D. C.) 160 Fed. 139, 20 Am. Bankr. Rep. 1095 PROOF AND ALLOWANCE OF CLAIMS § 525 pal of several joint wrongdoers has become bankrupt, and the creditor has proved his claim as upon an implied contract and received dividends, he cannot thereafter maintain an action in tort against those who assist- ed the principal in converting the property.** But this doctrine is not unquestioned. For instance, in an action against an agent for conversion for the unauthorized investment of plaintiff's funds in certain notes, it was held that the proving of such notes in bankruptcy against the estate of the maker, and the receipt of a dividend thereon, did not estop the plaintiff from proceeding with the action, but especially, in this case, where an order of the court in the case required the proving of the claim and directed that it should be without prejudice.** So, where a debtor, in pursuance of a scheme to defraud his creditors, conveyed land, took back a mortgage, and assigned the mortgage, it was considered that a creditor, by filing his proof of claim in the bankruptcy proceeding against the debtor, did not waive his right of action against the assignee of the mort- gage for the fraud.*" In another case, where a creditor of a partnership pledged notes to one of the partners for collection, and that partner, in violation of his agreement to pay the proceeds of the notes to the cred- itor, used the money to pay off other indebtedness, it was held that the creditor, by accepting a dividend in the bankruptcy proceedings against the partnership, did not waive his right of action against the partner for misappropriation.*^ If the bankrupt does not succeed in his application for a discharge, then a creditor who has proved his claim is remitted, as to any unpaid balance, to his former rights and remedies, and will not be estopped from pursuing any such remedy by the mere fact that he proved his claim and received a dividend in the bankruptcy proceed- ings.** Proof of a claim against a corporation in bankruptcy is not a bar to an action thereon a.gainst the stockholders.** 409; In re Kaplan & Myers (D. C.) 236 82 Frey v. Torrey, 175 N. X. 501, 67 N. Fed. 260, 37 Am. Bankr. Rep. 630 ; Edwin B. 1082 ; Dingee v. Becker, 9 Phila. (Pa.) Clapp '& Son V. Knorr, 106 Kan. 738, 189 196, 9 N. B. R. 508, Fed. Gas. No. 3,919 ; Pac. 936. But see, as to reserving a Ansonia Brass & Copper Co. v. New- right to reclaim the goods, In re Kaplan Lamp Chimney Co., 53 N. Y. 123, 13 Am. & Myers, 241 Fed. 459, 154 C. C. A. 291, Rep. 476, 10 N. B. R. 355; Hoyt v. Freel, 39 Am. Bankr. Rep. 367. And see Smith 8 Abb. Prac. N. S. (N. Y.) 220, 4 N. B. R. V. Carukin, 259 Fed. 51, 170 C. C. A. 51, 131; Valente v. Cosentino, 218 Mass. 125, 44 Am. Bankr. Rep. 278. 105 N. E. 551. But one whose claim has 28 Shonkweller v. Harrington, 102 been proved against the estate of a bank- Neb. 710, 169 N. W. 258. And see Wem- rupt, and afterwards expunged, cannot er V. Manson, 107 Misc. Rep. 76, 176 N. thereafter prosecute it. in a state court. Y. Supp. 742. Pease v. Bennett, 17 N. H. 124. 2» Parkerson v. Borst (C. C. A.) 264 as Chamberlin v. Puguenot Mfg. Co., Fed. 761, 45 Am. Bankr. Rep. 531. 118 Mass. 532; Shellington v. Howland, 80 Jasper v. Rozinski, 228 N. Y. 349, 53 N. Y. 371 ; Hall v. Robertson, 213 111. 127 N. E. 189. App. 147. But see Swofford Bros. Dry 81 Beal-Burrow Dry Goods Co. v. Tal- Goods Co. v. Owen, 37 Okl. 616, 133 Pac. hurt, 139 Ark. 113, 213 S. W. 20. 193, L. R. A. 1916C, 189. § 526 LAW OF BANKRUPTCY 1096 § 526. Time of Making Proof. — The statute declares that "claims shall not be proved against a bankrupt estate subsequent to one year after the adjudication; or, if they are liquidated by litigation, and the final judgment therein is rendered within thirty days before or after the expiration of such time, then within sixty days after the rendition of such judgment; provided that the right of infants and insane persons without guardians, without notice of the proceedings, may continue six months longer."^* The cases cited in the margin will illustrate the meaning of the phrase "liquidated by litigation" in the above provi- sion.*^ Specifically^ it is held that the term "litigation" is not limited to proceedings having for their object only the ascertainment of the amount due on the claim, but includes as well proceedings to ascertain the kind and character or validity of the claim,** and hence applies to a case where the creditor has claimed to hold security, and has litigated that question and been defeated, and thereafter attempts to prove as a general creditor.*" In any case, therefore, where the creditor has a suit pending which will determine the validity, nature, and amount of his claim, he has the right to wait until the end of the litigation and then prove his claim, though more than a year from the date of the adjudi- cation may then have elapsed.** In the words limiting the right of proof to a year after the "adjudication," this term, as elsewhere defined in the statute, means the date of the entry of a decree that the defendant is a bankrupt, or, if .such decree is appealed from, then the date when such 31 Bankruptcy Act 1898, § 57n. Under 171 Fed. 673, 22 Am. Bankr. Rep. 623; this provision, claims liquidated by liti- In re Fagan, 140 Fed. 758, 15 Am. Bankr. gation can be filed no later tlian one year Eep. 520 ; In re E. O. Thompson's Sons, and ninety days after the adjudication. 123 Fed. 174, 10 Am. Bankr. Rep. 581 ; In re Edelen, 248 Fed. 580, 40 Am. In re Landis, 156 Fed. 318, 19 Am. Bankr. Rep. 834. A creditor is not, Bankr. Eep. 420; Moore v. Simms, 257 chargeable with laches in proving his Fed. 540, 168 C. O. A. 524, 44 Am. Bankr. claim, where it is presented within the • Eep. 19. year allowed by the statute, unless the so In re Standard Telephone & Electric rights of others have been prejudiced by Co., 186 Fed. 586, 26 Am. Bankr. Eep. his delay. In re Dunlap Carpet Co. (D. 601. C.) 206 Fed. 726, 30 Am. Bankr. Rep. 664. st in re Salvator Brewing Co., 188 Failure of a landlord to present a claim Fed. 522, 26 Am. Bankr. Rep. 21 ; First for a lien for rent under Rev. Stat. Tex. Nat. Bank v. Cameron, 209 Fed. 611, 126 art. 5490, until more than 30 days after C. C. A. 433, 31 Am. Bankr. Rep. 209, the adjudication of the tenant as a bank- 695. rupt does not defeat his right. Lontos ssin re Balrd, 154 Fed. 215, IS Am V. Coppard, 246 Fed. 803, 159 C. C. A. Bankr. Rep. 655 ; In re Keyes, 160 Fed 105, 40 Am. Bankr. Rep. 575. 763, 20 Am. Bankr. Eep. 183; Powell 8 5 In re Clover Creamery Ass'n, 176 v. Leavitt, 150 Fed. 89, 80 C. C A 43- Fed. 907;' 100 C. C. A. 377, 23 Am. In re Salvator Brewing Co.', 193 Fed' Bankr. Eep. 884; Powell v. Leavitt, 150 989, 113 C. O. A. 626, 28 Am. Bankr. Eep Fed. 89, 80 C. C. A. 43; In re Lyons 56; In re Venstrom, 205 Fed. 325 30 Beet Sugar Eeflning Co., 192 Fed. 445, Am. Bankr. Eep. 569 ; Piatt v. Ives' 86 27 Ara. Bankr. Rep. 610 ; In re Clark, Conn. 690, 86 Atl. 579 ; In re Louis J 170 Fed. 955, 24 Am. Bankr. Eep. 388 ; Bergdoll Motor Co., 233 Fed. 410, 147 o' In re Coventry Evans Furniture Co., C A. 346, 37 Bankr. Eep. 501. 1097 PROOF AND ALLOWANCE OF CLAIMS § 526 decree is finally confirmed.** This includes not only the case where an appeal from a decree of adjudication is "affirmed," but also where such an appeal is dismissed.*" If the debt of the particular creditor was not scheduled in time for proof and allowance, it will not be affected by the discharge of the bankrupt, except when the creditor had notice or actual knowledge of the proceedings in bankruptcy.*^ The generally accepted rule is that the bar of the statute, as to the time for proving claims, is absolute and prohibitive; that a creditor cannot be permitted under any circumstances whatever to come in for the purpose of making proof after the end of the year (except as spe- cially stated in the statute), but forfeits all right in that behalf by de- lay ; and that the court has no discretionary power to permit the filing of proofs after the end of the year, either nunc pro tunc or otherwise.*^ This rule is applied so strictly that it is held to make no difference that the particular claim was not scheduled and that the creditor had no notice of the proceedings,** or that, during the statutory year, the creditor was asserting and litigating the validity of a preference, and was thereby prevented from making his proof,** or that a composition had been effected,*® or that the failure to make proof in due time was caused solely by accident and mistake,** or because the creditor was misled and omitted to prove his claim in consequence of the fraudulent concealment of assets by the bankrupt, who listed no property.*' And a claim cannot be allowed, after the end of the year, under the guise 3 » Bankruptcy Act 1898, § 1, clause 2. Bankr. Rep. 190; In re Trion Mfg. Co. Where an adjudication in bankruptcy (D. O.) 224 Fed. 521, 35 Am. Bankr. Kep. was vacated and the proceedings dis- 480; In re McCarthy Portable Elevator missed, but the order of vacation was Co. (I>. 0.) 205 Fed. 986, 30 Am. Bankr. reversed on appeal, and pursuant to Rep. 247. mandate the adjudication and proceed- 43 Santa Rosa Bank v. White, 139 Cal. ings were jeinstated, it was held that 703, 73 Pac. 577; In re Muskoka Lum- the court had power to allow a year ber Co., 127 Fed. 886, 11 Am. Bankr. thereafter for filing claims. In re Mai- Rep. 761. kan (D. C.) 265 Fed. 867, 45 Am. Bankr. 44 in re Leibowltz, 108 Fed. 617, 6 Am. Rep. 86. Bankr. Rep. 268; In re Kemper, 142 40 In re Lee, 171 Fed. 266, 22 Am. Fed. 210, 15 Am. Bankr. Rep. 675 ; In Bankr. Rep. 820. re Rhodes, 105 Fed. 231, 6 Am, Bankr. 41 Bankruptcy Act 1898, § 17. Rep. 197. 42 In re Ingalls Bros., 137 Fed. 517, 45 in re Brown, 128 Fed. 336, 10 Am. 70 C. C. A. 101, 13 Am. Bankr. Rep. 512 ; Bankr. Rep. 588 ; In re Bickmore Shoe In re Blond, 188 Fed. 452; In re Peck, Co. (D. O.) 263 Fed. 926, 45 Am, Bankr^ 168 Fed. 48, 21 Am. Bankr. Rep. 707 ; Rep. 24. In re Hawk, 114 Fed. 916, 52 C. C. A. 46 in re Sanderson, 160 Fed. 278, 20 536, 8 Am. Bankr. Rep. 71 ; Bray v. Cobb, Am. Bankr. Rep. 396. 100 Fed. 270, 3 Am. Bankr. Rep. 788; In 47 in re Meyer, 181 Fed. 904, 25 Anj. re Co-operative Knitting Mills, 202 Fed. Bankr. Rep. 44; In re Peck, 161 Fed. 1016, 30 Am. Bankr. Rep. 181; In re 762, 20 Am. Bankr. Rep. 629; Chapman Knosco, 208 Fed. 201 ; In re Thompson. v. Whitsett, 236 Fed. 873, 150 C. C. A. 227 Fed. 981, 142 O: O. A. 439, 36 Am. 135, 38 Am. Bankr. Rep. 424. § 526 LAW OF BANKRUPTCY 1098 of an amendment or substitute for a prior claim, filed in due time but afterwards withdrawn.** But this severe rule has been felt to work hardship in numerous cases, and the courts have often attempted to mitigate it in favor of creditors who were not to blame for the delay. Thus, it has been held that the statute should not be so construed as to prevent proof of a valid claim after the expiration of the year, where objection is not made by any other creditor or by the trustee, but by the bankrupt alone, and the delay was caused by the latter's own fraud.*® So where the peculiar cir- cumstances of the case rendered it impossible to file the claim for proof within the limited time.^* And it has been thought that where a pre- ferred creditor is compelled to surrender a voidable preference, he should thereafter be allowed to prove his claim before the estate is finally settled, though more than a year after the adjudication.'*'- And in a case where the bankruptcy court ordered a sale of the bankrupt's estate, on condition that the purchaser should pay to each unsecured creditor a specified per cent of his claim, and the purchaser paid the money to the receiver, who turned it over to the trustee, who declared a dividend to the unsecured creditors, but excluding one creditor on the ground that he had failed to prove his claim within the statutory time, it was held that the court must permit the filing nunc pro tunc of an amended formal proof of the claim.^* Further, this limitation of time is not binding on the United States as a creditor,®* nor does it apply to a claim of owner- ship of property adverse to the bankrupt and to his estate.®* And as to specific claims to funds in the possession of the trustee, it is held that the court cif bankruptcy may limit the time for claimants to prove their title to less than a year, provided that notice is given to them and a reasonable length of time accorded.®® The present bankruptcy statute also declares that if any creditors do not make proof of their claims until after dividends have been de- 48 In re B. O. Thompson's Sons, 123 02 in re Basha (C. C. A.) 200 Fed. 951, Fea. 174, 10 Am. Bankr. Rep. 581. But 29 Am. Bankr. Eep. 225.- a claim the proof of which was defective 53 i^ ^^ gtoever, 127 Fed. 394, 11 Am. because it lacked a statement of the offl- 3^^^^. Kep. 345 ; United States v. Birm- cial character of the officer signing the jngHam Trust & Savings Co., 258 Fed. jurat, and was returned to the creditor s g62, 169 C. 0. A. 502, 43 Am. Bankr. Hep. attorney for correction, was held prop- 430 erly allowed, though not redelivered to the referee for two years. In re Haskell " Nauman Co. v. Bradshaw, 193 Fed. (D ) 228 Fed. 819, 36 Am. Bankr. Rep. ^°^' l^^ C. C. A. 274, 27 Am. Bankr. Rep. 428. ^^^• • *o In re Towne, 122 Fed. 313, 10 Am. 6= In re T. A. Mclntyre & Co., 176 Fed. Bankr. Eep. 284. 552, 100 C. C. A. 140, 24 Am. Bankr. Rep. 50 In re Fagan, 140 Fed. 758, 15 Am. 4 ; In re Lathrop, Haskins & Co., 223 Bankr. Rep. 520. Fed. 912, 139 C. C. A. 392, 34 Am. Bankr. Bi In re Otto F. Lange Co., 170 Fed. Rep. 739. 114, 22 Am. Bankr. Rep. 414. 1099 PROOF AND ALLOWANCE OF CLAIMS § 527 clared and paid to the others, the right of such others shall not be af- fected thereby^ but the late proving creditors are to receive dividends equal in amount to those already received by the other creditors, if the estate amounts to so much, before such other creditors are paid any, further dividends.*** The law plainly intends that the iirst proof of claims shall ordinarily take place at the first meeting of creditors. But it is held that creditors are entitled to prove their claims before the day of such first meeting, so as to make themselves parties to the proceeding and be entitled to an order for the examination of the bankrupt."'" The presentation and delivery of proof of a claim to the trustee in bank- ruptcy, within the limited time, is a sufficient filing of it.** And where a creditor prosecutes a suit or petition against the trustee, and recovers judgment, his claim is so far before the court that it may be considered as "proved" for the purpose of saving the bar of the statute."* So, a claim duly proved within the year may be increased after that time where it is made necessary by a requirement that the creditor shall re- turn preferences received as a condition to its allowance.®" And where a claim against a bankrupt's estate was originally filed within the year, but was disallowed, and subsequent proceedings showed that it should have been filed for a larger amount, it was held that the amendment filed after the year had expired was not barred by the one-year limita- tion.®^ This limitation is restricted, according to its spirit and purpose, to claims which existed as such at the time of the adjudication, that is, claims which were then available against the bankrupt himself. It does not apply to expenses or liabilities incurred by the receiver or the trus- tee after the adjudication, such, for example, as a landlord's claim for rent of premises while they were occupied by the trustee.®* § 527. Persons Authorized to Prove. — ^Any person being the lawful owner of a claim against the bankrupt may prove it against his es- tate, and the fact that another has previously filed a claim as a creditor on the same account does not prejudice his right to offer proof of it.** Where various claims of the same general order have been pooled or placed in the hands of a committee or a trustee, they may be proved 5« William Openhym & Sons v. Blake, 63 C. 0. A. 20 ; In re Strobel, 163 Fed. 157 Fed. 536, 19 Am. Bankr. Rep. 639 ; 787, 20 Am. Bankr. Rep. 884. Bankruptcy Act 1898, § 65c. See In re ao in re Shiebler, 165 Fed. 363, 21 Am. Coulter (D. C.) 206 Fed. 906, 30 Am, Bankr. Rep. 309. Bankr. Rep. 75. «i In re Hamilton Automobile Co., 209 57 In re Patterson, 1 Ben. 448, 1 N. Fed. 596, 126 O. C. A. 418, 31 Am. Bankr. B. R. 100, Fed. Cas. No. 10,814. Rep. 205. 58 J. B. Orcutt Co. V. Green, 204 U. S. 6 2 in re Green (D. 0.) 231 Fed. 253, 96, 27 Sup. Ct. 195, 51 L. Ed. 390, 17 Am. 36 Am. Bankr. Rep. 188. Bankr. Rep. 72; Orinoco Iron Co. v. os in re James Dunlap Carpet Co., 171 Metzel, 230 Fed. 40, 144 O. C. A. 338, 36 Fed. 532, 22 Am. Bankr. Rep. 788 ; In re Am. Bankr. Rep. 247. IXmlap Carpet Co., 206 Fed. 726, 30 59 Buckingham v. Estes, 128 Fed. 584, Am. Bankr. Rep. 664. § 627 LAW OF BANKKTJPTCT 1100 by such representative,^ but the fact that a series of bonds issued by the bankrupt corporation are secured by a mortgage to a trustee does not exclude the right of individual bondholders to prove their several - claims.*^ Where the creditor has become bankrupt, his trustee in bank- ruptcy is the proper person to prove the claim against the debtor's es- tate.*^ There are also cases where two or more creditors may join as provants or petitioners, as where joint indorsers of the bankrupt's note have taken it up, each advancing half the necessary funds.*' There is no reason why a county or other municipal corporation should not file and prove a claim against an estate in bankruptcy.®* But a creditor whose claim is one for unliquidated damages should first make application to the court to direct the manner in which it shall be liquidated, and when that is done, he may file and prove his claim.®* In case the creditor is a partnership, either of the partners may prove the claim in the manner provided by law. It is only necessary, that the deposition proving the debt should contain a sworn statement that the deponent is a member of the firm, with such slight changes of phrase- ology as are rendered necessary by the circumstances.'"* When the debt is due to a corporation, the rule is that "the deposition shall be made by the treasurer, or if the corporation has no treasurer, by the officer whose duties most nearly correspond to those of treasurer." '^ But it is held, on the broad general principle that any person whp is authorized to give an acquittance of a debt is entitled to prove that debt in bankruptcy, that a receiver appointed to take charge of a corporation upon its dis- solution, or upon proceedings in bankruptcy or insolvency against it, in either a state or federal court, may properly make proof of a debt due to such corporation from a bankrupt debtor.'* The fact that the «* In re Salvator Brewing Co., 188 an individual partner and vice versa. Fed. 522, 26 Am. Bankr. Kep. 21 ; In re Bankruptcy Act 1898, § 5g. B. T. Kenney Co., 136 Fed. 451, 14 Am. ''i General Order No. 21, clause 1. Bankr. Rep. 611. ^ This order was amended, Nov. 1, 1915, 6 5 Mackay v. Randolph Macon Coal by adding this provision: "If the treas- Oo., 178 Fed. 881, 102 O. C. A. 115,' 24 iir«r or corresponding officer is not wlth- Am. Bankr. Rep. T19. See In re A. J. in the district wherein the bankruptcy Ellis, Inc., 252 Fed. 483, 164 C. C. A. proceedings are pending, the deposition 399, 42 Am. Bankr. Eep. 887. ™ay be made by some officer or agent of es Bankruptcy Act 1898, § 57m. the corporation having knowledge of the 67 In re Farmers' Supply Co., 170 Fed. ^^'ffj" ^,"1° P'°°^ ^l ^^ president of 502, 22 Am. Bankr. Rep. 460. " corporation, who performs the ordina- „, , „ 4. in« T^ J ry duties of a treasurer, see In re Elsen- Z' ]^ ^^ ^Ttf^\ ^ I' 1 I ^^'■S (D. C.) 251 Fed. 427, 40 Am. Bankr. 808, 42 C. C. A. 637, 4 Am. Bankr. Rep. ^^^ gg^ 496- " Ex parte Norwood, 3 Blss. 504, Fed. 69 In re Silverman, 101 Fed. 219, 4 Oas. No. 10,364; In re Republic Ins. Co., Am. Bankr. Rep. 83. 8. N. B. R. 197, Fed. Cas. No. 11,705 ; In 70 General Order No. 21, clause 1; re Baxter, 18 N. B. R. 560, Fed. Cas. Form No. 24. Where a partnership is in No. 1,121 ; Dight V. Chapman, 44 Or. 265, bankruptcy, the firm may prove against 75 Pac. 585, 65 L. R. A. 793. 1101 PROOF AND ALLOWANCE OF CLAIMS § 528 president' of a corporation ' has ceased to be a stockholder cannot be raised as an objection to proof of a claim by him in favor o^ the Cor- poration against his estate in bankruptcy.'* If the claim to be proved is due to a state, the proof should be made by the state treasurer or by some officer holding a relation to the state government similar to that which a treasurer or cashier bears to a business corporation of which he is such officer.''* Proof of claim for wages of labor due to a minor is prop- eriy made by his father, at least if there is nothing to show emancipa- tion.'® And one of two or more executors may sign and verify a claim on behalf of the estate.'® § 528. Proof by Agent or Attorney. — The present bankruptcy act provides that a proof of claim shall be "signed by a creditor"; but then, another clause provides that the term "creditor" may include "his diily authorized agent, attorney, or proxy." " And although the official forni (No. 35) provided for the proof of a claim by agent or attorney requires the deponent to state the reason why the deposition "can not" be made by the claimant in person, yet the General Order (No. 21) which is of higher authority than the form, is fully satisfied if the deposition sets forth the reason why it "is not" made by the claimant in person. Upon the whole, therefore, we conclude that if there is any good reason for the proof being made by an agent or attorney it may be so made, notwith- standing it would not have been entirely impossible for the claimant to make the proof in person.'* Thus, as held in some of the cases under the former statute, where the creditor himself has no personal knowledge of the facts respecting the debt, proof may be made by an agent who has had exclusive charge and control of the same, and who has personal knowledge of all the facts required to be sworn to in making the proof.'* Authority to prove a debt in bankruptcy proceedings in behalf of the creditor may be conferred by a formal power of attorney, which must be "proved and acknowledged before a referee, or a United States commis- sioner or a notary public." *" , But if the creditor, at the time of making 73 In re Morgan, 8 Ben. 186, Fed. Cas. claim will be disallowed where the proof No. 9,797. Is made by an agent as the principal, '4 In re Com Exchange Bank, 15 N. without disclosing the agency, for it is B. E. 216, Fed. Cas. No. 3,243. in that Case false. In re Rollins (D. C.) 7 5 In re Haskell (D. C.) 228 Fed. 819, 235 Fed. 937, 37 Am. Bankr. Rep. 692. S6 Am. Bankr. Rep. 428. 7 9 in re Watrous, 14 N. B. R. 258, 7 6 In re Schaffner (C. C. A.) 267 Fed. Fed. Cas. No. 12,270. 977, 45 Am. Bankr. Rep. 681. ao General Order No. 21, par. 5. Un- 77 Compare Bankruptcy Act 1898, § der the former statute, a power bf at- 57, with Id., § 1, cl. 9. torney to prove a debt in bankrupT;cy 78 While the statute allows proof of was not required to be acknowledged, claihi to be made by an agent, it is not In re Barnes, 1 Low. 560, Fed. Cas. No. contemplated that proof of claim can be 1,012; In re South Boston Iron Co., 4 so made when the principal is present Cliff. 343, Fed. Cas. No. 13,183. An at- and able to file his own proof. And a torney in fact may prepare and present § 528 LAW OF BANKRUPTCY 1102 the power of attorney, is in a foreign country, the instrument may be acknowledged before a United States consul in such country.*^ It ; is also held that a power of attorney duly executed to either of three persons as substitutes, but acknowledged before one of them, though void as to that one, may lawfully be executed by either of the other two.** Guardians, executors, administrators, and all other persons acting in a representative capacity, may make proof in bankruptcy of the claims, of .the persons or estates represented by them.** But it seems that the bankrupt himself cannot act as the trustee or representative of a creditor in proving the latter's claim against his own estate and securing its allowance.** But while the attorney for the bankrupt should not be permitted to appear in the proceedings as attorney for a creditor also, yet, in the absence of a rule of court on the subject, a claim duly proved against the bankrupt's estate should not be rejected merely be- cause filed for the creditor by the bankrupt's attorney, it being apparent that the attorney acted in entire good faith.** § 529. Proof by Assignee of Claim. — The assignee of a nonnegoti- able chose in action may prove it against the estate of the debtor in bankruptcy upon his own deposition, and it is not necessary to the suffi- ciency of the proof that the deposition of the assignor should be added, " if the assignment was made before the commencement of the proceed- ings in bankruptcy, although, in that case, the deposition should show the name of the original creditor.*® Under the provision of the law which requires the proof of debt to set forth the "consideration" of the claim, it is necessary, in the case of a simple chose in action, or a con- tract for the payment of money not negotiable, in the hands of an as- signee or purchaser of the same, that the proof should state the con- sideration upon which it rested as between the original parties, and a proof of claim, but only for one par- s* ii; re Mltteldorfer, Chase, 276, 3 N. tlcular creditor; that is, he may not en- B. R. 39, Fed. Cas. No. 9,674. gage in what is practically the business ss in re Kimball, 100 Fed. 777, 4 Am. of an attorney at law by collecting and Bankr. Rep. 144. managing large numbers of claims. In so In re McCarthy Portable Elevator re H. E. Ploof Machinery Co. (D. C.) 243 Co., 205 Fed. 986, 30 Am. Bankr. Rep. Fed. 421, 38Am. Bankr Rep. 795. 247 ; Ex parte Davenport, 1 Low. 384, 3 81 In re Sugenheimer, 91 Fed. 744, 1 N. B. R. 312, Fed. Cas. No. 3,586; In re Am. Bankr. Rep. 425. This is in view Kenny (D. C.) 269 Fed. 54, 46 Am. of the fact that section 20 of the bank- Bankr. Rep. 214. The fact that certain ruptcy law provides that oaths required creditors have made a champertous by the act may be administered by ''dip- agreement with a third party for the lomatic or consular officers of the United collection of their debts from the bank- States in any foreign country." rupt furnishes no ground for the disal- 8 2 In re Sugenheimer, 91 Fed. 744, 1 lowance of such claims, on petition, of a Am. Bankr. Rep. 425. creditor. In re Lathrop, 3 Ben. 490, 3 83 In re Republic Ins. Co., 8 N. B. R. N. B. R. 410, Fed. Cas. No 8 103 197, Fed. Cas. No. 11,705. 1103 PROOF AND ALLOWANCE OF CLAIMS § 530 not merely the consideration upon which it passed to the present holder. But negotiable paper, acquired in good faith before maturity, may be proved against the estate of the maker in bankruptcy by an indorsee upon showing a valid consideration paid by him; and such showing, in such a case, will be held to be a compliance with the requirement of the statute, and it will not be required of the holder to show that, as between the maker of the paper and its original payee, there was a good and valid consideration, or what that consideration was.*' ' Even after the commencement of proceedings in bankruptcy against a debtor, claims against him may be assigned and transferred. There is nothing in the statute or its policy to restrain the negotiability ot debts. On the contrary the law recognizes this ag something that will take place and makes provision for proof accordingly.** And where, after the filing of a petition in bankruptcy by or against the debtor, a creditor transfers or assigns his debt to another, the debt is to be proved by the person who is the owner of it at the time of making proof; but in this case, the deposition of the owner must be "supported" by a dep- osition of the person who was the owner at the time of the commence- ment of the proceedings, setting forth the true consideration of the debt and the particulars as to its being secured or unsecured, and the lan- guage of the form prescribed for the proof of debts will nave to be modi- fied to suit the circumstances of the case.** It is held that the receiver of the property of a creditor is an "assignee" of the debts due to such creditor, and may prove the debt in bankruptcy in the manner cotitem- plated for proof by a conventional assignee.*" But a mere agent holding negotiable paper, not as owner or indorsee, but simply for his principal, cannot prove it except in the name and for the benefit of the real own- er, and not at all when the owner is in a situation to make the proof for himself.*^ § 530. Proof by Persons Contingently Liable for Bankrupt. — The bankruptcy law provides that "whenever a creditor, whose claim against 87 In re Lake Superior Ship-Canal, R. Rep. 265. Tlie allowance by the referee & I. Co., 10 N. B. R. 76, Fed. Caa. No. of the transfer of a claim against the 7,998. bankrupt estate is binding upon other 88 In re Murdock, 1 Low. 362, Fed. creditors, who might have opposed it, Cas. No. 9,939. And see In re Sweetser 'whether they did so or not In re (D. C.) 131 Fed. 567. Where assignment Sweetser (D. 0.) 240 Fed. 167. is made of a claim which has already ,,^^ ^^ McCarthy Portable Elevator been proved and allowed in the bank- ^o. (D. C.) 205 Fed. 986, 30 Am. Bankr. ruptcy proceedings it is^ neither neces- jjep. 247; In re Murdock, 1 Low. 362. sary nor proper for the assignee to -^^^ ^^^ ^o. 9,939; In re Ford, 18 N. make a fresh proof of it, in his own 3 ^ 436, Fed. Cas. No. 4,932; General name ; and this is true, even though the Order No. 21 clause 3. assignor questions the fact or validity ^ ' , '.„ ,„ ^I ^ „ . of the assignment. In re Breakwater '" In re Mills, 17 N. B. R. 472, Fed. Co. (D. C.) 232 Fed. 375, 36 Am. Bankr. ^^^- ^°- ^'^ Rep. 762; In re Lonis J. Bergdoll Motor "'^ In re Saunders, 2 Low. 444, 13 N. Co. (D. C.) 230 Fed. 248, 36 Am. Bankr. B. R. 164, Fed. Cas. No. 12,371. § 531 LAW OF BANKRUPTCY 1104 a bankrupt estate is secured by the individual undertaking of any person, fails to prove such claim, such person may do so in the creditor's name, and if he discharge such undertaking in whole or in part he shall be subrogated to that extent to the rights of the creditor." And in execu- tion of this provision, the General Orders in bankruptcy provide that "the claims of persons contingently liable for the bankrupt may be proved in the name of the creditor when- known by the party contingent- ly liable. When the name of the creditor is unknown, such claim may be proved in the name of the party contingently liable, but no dividend shall be paid upon such claim, except upon satisfactory proof that it will diminish pro tanto the original debt.®* § 531. Form and Sufficiency of Deposition. — The bankruptcy act provides that "proof of claims shall consist of a statement under oath, in writing, signed by a creditor, setting forth his cla^m, the considera- tion therefor, and whether any, and, if so, what, securities are held there- for, and whether any, and, if so, what, payments have been made there- on, and that the sum claimed is justly owing from the bankrupt to the creditor." To this the general orders in . bankruptcy add the require- ment that the proof shall be made by a "deposition" which, shall be cor- rectly entitled in the court arid in the cause ; and the officially prescribed forms contain precedents for proofs of claims in various circumstances.®* Depositions to prove claims must contain the averments and the par- ticular details required by the statute, and must be made by the party authorized, and conform substantially to the official forms.®* Thus, a claim is not duly proved unless it appears from the deposition that a debt exists which the creditor has a present right to have paid out of the bank- 9 2 Bankruptcy Act 1898, § 57i; Gen- thus indemnify himself, to the extent of eral Order No. 21, el. 4. A creditor the dividends received, though remaln- whose claim is secured by the liability ing liable to the creditor for the unpaid of a co-debtor of the bankrupt, or one balance. See In re Levy, 2 Ben. 169, 1 who is a guarantor or surety for him, N. B. R. 327, Fed. Oas. No. 8,297. is not obliged, by anything in the law, «3 Bankruptcy Act 1898, § 57; General to prove his claim and proceed In tho Order No. 2; Forms Nos. 31-37. Tho bankruptcy proceedings. If he chooses, word "deposition," as here used. Is not he may rely wholly upon the secondary to be understood as requiring the same liability^ ilieglectlng the bankrupt's es- sort of desposition by which the testi- tate, and the liability of the guarantor mony of a witness is taken. The re- or surety will not be affected by the quirements, both of the act and the gen- bankrupt's discharge. But if the credi- eral order, are satisfied by a paper pre- tor takes this course, the act very justly pared by the creditor himself or by his gives to the person contingently or sec- attorney, containing all that is neces- ondarily liable for the bankrupt a right sary, in the form of an affidavit. See In to prove the claim in the name of the re Merrick, 7 N. B. R. 459, Fed. Gas. No. creditor, and to pay it wholly or in part, 9,463. with the right of subrogation. If, then, min re Port Huron Dry Dock Co., 14 he thinks the bankrupt's estate may be N. B. R. 253, Fed. Gas. No. 11,293. made to pay a part of the claim, this is Though a proof of debt fails to state one the course for him to pursue, for he will of the essential facts required by good 1105 PROOF AND ALLOWANCE OF CLAIMS § 531 rupt's estate.'" But it is not the duty of the refereee in bankruptcy to examine claims filed further than to discover whether or not the depo- sition contains the formal requisites prescribed by the statute, the gen- eral order, and the forms.** But an allegation on information and belief, on a vital point in a proof of claim in bankruptcy, is not sufficient as proof of such allegation.*" And the absence of a date to the creditor's proof of claim is a fatal defect.** As to the particular averments of the deposition, it is, in the. first place, strictly required and imperatively necessary that it should state whether the claim is secured or unsecured; and if the creditor has a lien on property to secure it, he must disclose its particular character, so that it can be identified, and, if necessary, liquidated by the trustee in bank- ruptcy.** It is also necessary to se^ forth the fact and the particulars of any partial payments which may have been made upon the claim. ^"' And it is indispensable that the consideration for the claim, and the particu- lars of the consideration, should be duly and adequately stated in the deposition.^"*^ The statements in regard to the consideration must be sufficiently full and specific to enable other creditors to pursue proper and legitimate inquiries as to the fairness and legality of the claitn; if too meagre or general to serve this purpose, they will be held inadequate, and the proof of debt will be expunged, unless leave is given to amend.*"^ pleading, yet if it complies apparently with the forms in bankruptcy and the order.s and the statute itself, it is the duty of the referee to allow it. In re Ankeny, 1 Nat. Bankr. News, 511. The fact that, at the head of a proof of claim, the title of the court is not given as required by the general order and form, is not sufficient to vitiate the proof so far as to prevent the creditor from participating in the creditors' meeting. In re Blue Ridge Packing Co., 125 Fed. 619, 11 Am. Bankr. Rep. 36. A proof of claim need not observe all the formali- ties required in ordinary pleadings. Kelsey v. Munson, 198 Fed. 841, 117 0. 0. A. 483, 28 Am. Bankr. Rep. 520. 8 5 In re Walton, Deady, 510, Fed. Cas. No. 17,129. As to proof of claim against bankrupt partnership and the individual partners, see Adams v. Brown, 226 Fed. 688, 141 C. C. A. 444, 35 Am. Bankr. Rep. 302 ; In re Collins (D. 0.) 215 Fed. 247. '>« In re Ankeny, 1 Nat. Bankr. News, 511. The refieree has power to require a bill of particulars of an item in the claim, whether liquidated or unliqui- dated, and the matter is within his ju- dicial discretion. In re Henry Siegel Br,KiBKE.(3D Ed.)— 70 Co., 223 Fed. 368, 35 Am. Bankr. Rep. 128. 9 7 In re United Wireles's Telegraph Co., 201 Fed. 445, 29 Am. Bankr. Rep. 848. »6 In re Blue Ridge Packing Co., 125 Fed. 619, 11 Am. Bankr. Rep. 36. 9 9 Cunningham v. Cady, 13 N. B. R. 525, Fed. Cas. No. 3,480; In re Bridg- man, 1 N. B. R. 312, Fed. Cas.*No. 1,866; Emerine v. Tarault, 219 Fed. 68, 184 C. C, A, 606, 34 Am. Bankr. Rep. 55. 10 In re Girvin, 160 Fed. 197, 20 Am. Bankr. Rep. 490. 101 In re Elder, 1 Sawy. 73, 3 N. B. R. 670, Fed. Cas. No. 4,326. A claim for legal services rendered to the bankrupt is insufficient if it does not show the nature of the services, their value, or the time consumed. In re Hudson Por- celain Co. (D. C.) 225 Fed. 325, 35 Am. Bankr. Rep. 18. Where a creditor holds more than one note against the bankrupt they should be proved as a single claim. Frederick v. Citizens' Nat. Bank, 231 Fed. 667, 145 C. C. A. 553, 37 Am. Bankr. Rep. 22. 102 In re United Wireless Telegraph Co., 201 Fed. 445, 29 Am. Bankr. Rep. 848 ; In re Goble Boat Co., 190 Fed. 92, 27 Am. Bankr. Rep. 48; In re Griffin,' § 531 LAW OF BANKEUPTCT 1106 A proof of debt on a promissory note is not sufficient although it sets out the note in full, unless it also states what was the consideration and whether any payments have been made thereon. i"* But this rule does not apply to a debt which has been reduced to judgment; that is to say, it is not necessary in proving on the judgment to recite or describe the consideration of the original debt, as that is now merged in the judg- ment.^"* In the case of an open account, the rules provide that the depo- sition "shall state when the debt became or will become due; and if it consists of items maturing at different dates, the average due date shall be stated, in default of which it shall not be necessary to compute inter- est on it. All such depositions shall contain an averment that no note has been received for such account, nor any judgment rendered there- on." "s "Whenever a claim is founded upon an instrument of writing, such instrument, unless , lost or destroyed, shall be filed with the proof of claim. If such instrument is lost or destroyed, a statement of such fact and of the circumstances of such loss or destruction shall be filed under oath with the claim." "* A judgment is not an "instrument of writing" within the meaning of this provision.^*'' Consequently if the creditor's claim is founded on a judgment, it will not be necessary for him to file with the proof of the claim a transcript of the judgment, but the depo- sition should contain a brief recital of the judgment, such as will enable other parties interested to identify it and to consult the record of it in the court where rendered. When, therefore, the creditor held a prom- issory note made by the bankrupt and has already recovered a judgment upon it, if he proves his claim on the note, it must be filed with the depo- sition, but if he proves a claim on the judgment, instead of the note, the note need not be produced, because it is merged in the judgment as a debt of a higher order, and the judgment need not be set out in full in the deposition, nor accompany it, because it is not an "instrument of 188 Fed. 389 ; In re Watertown Paper 841, 28 Am. Bankr. Rep. 520, holding that Co., 169 Fed. 252, 94 C. C. A. 528, 22 Am. all the formalities required In ordinary Bankr. Rep. 190 ; In re Coventry Evans pleadings do not apply to proofs in bank- Furniture Co., 166 Fed. 516, 22 Am, ruptcy, and that a failure to file a writ- Bankr. Rep. 272 ; In re Morris, 154 Fed. ten instrument upon which a claim is 211, 18 Am. Bankr. Rep. 828 ; In re Blue founded does not raise a presumption Ridge Packing Co., 125 Fed. 619, 11 Am. against the existence of the writing. Bankr. Rep. 36 ; In re Stevens, 107 Fed. Where claimant had made various loans 243, 5 Am. Bankr. Rep. 806 ; In re to the bankrupt, giving him a check for Scott, 93 Fed. 418, 1 Am. Bankr. Rep. the amount in each instance, the items 553. cannot be deemed founded on an instru- 108 In re Loder, 4 Ben. 125, 3 N. B. R. ment in writing, in such sense as to 655, Fed. Cas. No. 8,456. necessitate setting forth the various 101 In re Mott, Fed. Cas. No. 9,878b. checks in the proof of claim. In re 105 General Order No. 21, clause 1. Keller (D. C.) 252 Fed. 942, 42 Am. Bankr. 106 Bankruptcy Act 1898, § 57a. But Rep. 601. see Kelsey v. Munson (0. C. A.) 198 Fed. lo' This is shown not only by the con- 1107 PEOOF AND ALLOWANCE OF CLAIMS § 583 writing." ^'^ If a promissory note of the bankrupt was made payable in coin, the holder, in proving his debt in the bankruptcy, should set forth that fact in his deposition, and the demand should be entered upon the books of the trustee as payable in the stipulated currency."® In proving a claim founded upon a note in which only the initials of the Christian names are given, the full names must appear.^" Finally, it should be observed that the creditor, in making out his proof of claim, will do well to add his prpper address, in order that notices thereafter mailed may duly neach him, for these notices are to be sent to the creditors by mail "to their respective addresses as they appear in the list of creditors of the bankrupt, or as afterwards filed with the papers in the case by the creditors." i" ^ § 532. Acknowledgment of Deposition. — Depositions in support of claims filed in bankruptcy must be verified. The following provision of the statute is applicable to this matter: "Oaths required by this act, except upon hearings in court, may be administered by (1) referees, (2) officers authorized to administer oaths in proceedings before the courts of the United States, or under the laws of the state where the same are to be taken, and (3) diplomatic or consular officers of the United States in any foreign country." "* A notary public is authorized to administer the oath to a proof of claim, and such oath is sufficiently authenticated, prima facie, by what purport to be the notary's official signature and seal, although made in a different state from that in which the proceedings are pending, and without regard to the special requirements of the stat- utes of either state."* And it has been held that it is not a valid objec- tion to the proof of a claim that the officer taking the acknowledgment was the creditor's own attorney. ^^* § 533. Receiving and Filing Proofs.— The mere execution and ac- knowledgment of a proof of claim is not sufficient to establish the status text, but further by the distinction which no in re Valentine, 4 Biss. 317, 12 N. the act makes in the section relating to B. R. 389, Fed. Gas. No. 16,812. provable debts (§ 63) where it speaks of m Bankruptcy Act 1898, § 58a a "fixed liability evidenced by a judg- , , „ -no^i,, * ax-, o^o . ««' , ment or an instrument in writing." Un- J'' Bankruptcy Act 1898 § 20. In re- der a statute providing that, where a f„ f f„ir ""^/^ ^'°^ l\ deposition pleading Js founded on any "written in- ^ TcTf t^%Z' T ^l^ ^l «L^^'''^' strument," the original thereof or a copy ^^ ^- ^- ^- ^^' ^^^- C««- No. 8,635. must be filed with the pleading,, it is '"Ij^ '^ Pancoast, 129 Fed. 643, 12 held that a judgment is not a written ^™- Bankr. Rep. 275. See In re Nebe, instrument. Lytle v. Lytle, 37 Ind. 28i; ^^ N. B. R. 289, Fed. Gas. No. 10073; In i»8In re Knoepfel, 1 Ben. 398, IN. ^^ McKibben, 12 N. B. R. 97, Fed. Gas. B. R. 70, Fed. Gas.' No. 7,892. See In re ^o. 8,859. Jaycox, 7 N. B. R. 303, Fed. Gas. No. n* In re Kimball, 100 Fed. 777, 4 Am. 7,240 ; In re Haskell (D. C.) 228 Fed. 819, Bankr. Rep. 144. Compare In re tfebe, 36 Am. Bankr. Rep. 428. 11 N. B. R. 289, Fed. Gas. No. 10,073 ; In i»9 In re Elder, 1 Sawy. 73, 3 N. B. R. re Keyser, 9 Ben. 224, Fed. Gas. No. 7,748. 670, Fed. Gas. No. 4,326. I 533 LAW OF BANKRUPTCY llOS of the creditor. It is further necessary that the claim, thus proved, should be filed or presented in the bankruptcy proceeding. ^"^^ This is ordinarily done by the creditor in person, or by his attorney or some one else authorized to act for him. The bankrupt's attorney should not be employed for this purpose. He cannot properly represent any creditor. But the mere fact that he filed a claim for a creditor will not be sufficient to justify its rejection if the claim was duly proved and it appears that he acted in entire good faith."* The practice in regard to the filing and custody of proofs of claims is to be learned from sev- eral provisions of thfe statute and the general orders. First, "claims, after being proved, may, for the purpose of allowance, be filed by the claimants in the court where the proceedings are pending, or before the referee if the case has been referred." "" Again, "proofs of claims and other papers filed subsequently to the reference, except such as call for action by the judge, may be filed either with referee or with the clerk." ^^* The claimant may hand his proof to the trustee, if one has been appointed, but "proofs of debt' received by any trustee shall be delivered to the referee to whom the case is referred." •'^ And the handing of a verified claim to an employe of the trustee in the latter's office does not constitute a filing of the claim, where it was not in fact filed and it does not appear in what capacity the person with whom it was left was employed by the trustee. ^^^ And a trustee in bankruptcy cannot file with himself his proof of his own claim against the bank- rupt estate, nor will the delivery of such claim to his attorney, to be filed, with the referee be deemed the equivalent of a delivery to such referee.^^' Finally, it is provided that "the referee shall forthwith trans- mit to the clerk a list of the claims proved against an estate, with the names and addresses of the proving creditors." ■"■^^ From these various provisions it appears that the referee in bankruptcy is the proper per- son to ireceive the proofs of debts ; that, if they are filed in the clerk's office, they must be transmitted to the referee; that the referee is to retain the custody of the depositions until the termination of the case; and that it devolves upon the trustee to call on the teferee and procure a list of the proved claims, 115 In re French, 181 Fed. 583, 25 Am. 204 U. S. 96, 27 Sup. Ct. 195, 51 L. Ed. Bankr. Rep. 77. 390, 17 Am. Bankr. Rep. 72. lie In re Kimball, 100 Fed. 777, 4 Am. 120 in re Lathrop, Haskins & Co., 197 Bankr. Rep. 144. Fed. 164, 116 C. C. A. 601, 28 Am. Bankr. 117 Bankruptcy Act 1898, § 57c. Rep. 756. lis General Order No. 20. 121 J. B. Orcutt Co. v. Green, 204 U. 11 "General Order No. 21. As to the S. 96, 27 Sup. Ct. 195, 51 L, Ed.' 390, 17 authority of the Supreme Court to make Am. Bankr. Rep. 72. this order, see J. B. Orcutt Co. v. Green, 122 General Order No. 24. 1109 PROOF AND ALLOWANCE OF CLAIMS § 534 The referee will not generally refuse to receive a proof of debt which appears on its face to have been taken before a proper officer and to be correct in form and substance.^** But the statute is not satisfied by the creditor's merely swearing to the validity of his claim. A cred- itor who, after making a deposition to prove his debt, retains possession of the deposition, and does not allow it to go upon the files, cannot be considered as a creditor who has proved his debt.*^* On the other hand, a creditor cannot be prejudiced by the loss from the files of his proof of debt ; he will still be entitled to receive the notices provided for by the act.^^^ § 534. Allowance or Disallowance of Proved Claims. — The bank- ruptcy law provides that "claims which have been duly proved' shall be allowed, upon receipt by or upon presentation to the court, unless objection to their allowance shall be made by parties in interest, or their consideration be continued for cause by the court upon its own mo- tion." ^^® Undoubtedly the word "court," as here used, includes the referee, especially as another part of the act provides that, at the first meeting of creditors, "the judge or referee shall preside and may allow or disallow the claims of creditors there presented." ^^'^ The first meet- ing of creditors here spoken of means the first meeting after the ad- judication, and claims cannot be allowed without a meeting of the creditors.^^* It should be observed that the "proof" and the "allow- ance" of claims are separate and distinct steps, so that, for instance, if a claim is duly proved and filed within the year granted for that pur- pose, it is enough to take it out of the statutory limitation, and its al- lowance or disallowance may come later.^^* And further, the filing of a proved claim does not necessarily constitute an allowance thereof since, until a direct or indirect order of allowance is made, objections may properly be filed.**" But a proof of debt, made in the mode r^- 123 In re Merrick, 7 N. B. R. 459, Fed. 532, 22 Am. Bankr. Eep. 788 ; Keith v. Cas. No. 9,463; In re Ankeny, 1 Nat. Kilmer (C. C. A.) 272 Fed. 648, 47 Am. Bankr. News, 511. See In re Loder, 4 Bankr. Eep. 92. Ben. 125, 3 N. B. E. 655, Fed. Gas. No. 127 Bankruptcy Act 1898, § 55b. See 8,456. The referee has no right to re- Clendening v. Eed Elver Valley Nat. fuse to file a claim presented, on the Bank, 12 N D 51 94 N W 901 Hm MoS/'coIdT ??70 Fed'' ZX "' ^"^ '' ^^^'^ ^^^ Automobile Co.. Im. Bankr. Rep 411 ''" ^'^- ^'^' ^^ ^"^^ ^«'''^'-- »«P- ^^S- 124 In re Sheppard, 1 N. B. R. 439, 120 in re J. M. Mertens •& Co., 147Fed. Fed. Gas. No. 12,753. l''"^- '^'^ O. O. A. 473, 16 Am. Bankr. Eep. 125 In re Friedlob, 19 N. B. E. 122, ^^5. Fed. Cas. No. 5,118. iso in re Two Elvers Woodenware Co., 3 28 Bankruptcy Act 1898, § 57d. See 199 Fed. 877, 118 C. C. A. 325, 29 Am. In re James Dnnlap Carpet Co., 171 Fed. Bankr. Eep. 518. § 534 LAW OF BANKRUPTCT 1110 quired by the statute, and conforming on its face to all the requirements of the act and the general orders, makes a prima facie case, though it is subject to objection and counter proof, and will entitle the creditor to have his debt allowed as an established claim against the estate, unless objections are interposed/*^ In the latter case, the jurisdiction of the court to hear and determine the claim and objections is undoubt- ed, as the voluntary appearance of the creditor for the purpose of filing his claim places it within the control of the court.**^ But if the claim is rejected, on the ground that the creditor holds security for it, the court has then no jurisdiction to value the security and enter a decree against the creditor for the excess of its value over the debt.-'** It should further be noticed that there is nothing in the act which makes a proof of claim an entirety, which the court must either accept in full or re- ject altogether. If part of the claim is found to be valid, and part must be rejected for want of proper proof or other reasons, the referee may allow the claim the extent that it is valid, and it is not necessary to or- der it to be amended and resworn.^** In allowing or disallowing claims against an estate in bankruptcy, the court is bound by the esta.blished rules of law and equity, and can- not arbitrarily exercise its power to allow or reject a claim.-'*^ But an order either allowing or rejecting a claim is an adjudication of all the issues properly before the court for its determination and binding upon all who- have been made parties to the proceeding in bankruptcy, and therefore it cannot be impeached or questioned collaterally."* It should, however, be adequately recorded. It has been ruled that a mere minute showing the disallowance of a claim by a referee in bankruptcy 131 In re J. M. Mertens & Co., 147 Fed. Rep. 528. In re Louis J. Bersdoll Motor 177, 77 C. C. A. 473, 16 Am. Bankr. Rep. Co. (D. C.) 229 Fed. 262 ; Reynolds v. 825 ; In re Saunders, 2 Low. 444, 13 N. Hourlgan, 254 Fed. 690, 166 O. C. A. 188, B. R. 164, Fed. Cas. No. 12,371 ; In re 43 Am. Bankr. Ren. 75. See In re Perl- Colraan, 2 N. B. R. 562, Fed. Cas. No. mutter CD. C.) 256 Fed. 860, 42 Am. 3,021; In re Ankeny, 1 Nat. Bankr. News, Bankr. Rep. 725. 511; International Agr. Corp. v. Carry, iso in re Springfield Realty Co. CD C) 240 Fed. 101, 353 C. C. A. 137, 38 Am. 257 Fed. 785, 44 Am. Bankr. Rep. 105. Bankr. Rep. 7S3. iseCarr v. Barnes, 138 Mo. App. 264, 132 In re Jackson Brick & Tile Co., 189 120 S. W. 705; Spencer Commercial Club Fed. 636, 26 Am. Bankr. Rep. 915; In re v. Bartmess, 70 Tnd. Ann. 294. 123 N E L'Hommedien. 146 Fed. 708, 77 C. C. A. 435. See Skilton v. Codington, 105 App! 134, 16 Am. Bankr. Rep. 850. Div. 617, 93 N. Y. Supp. 460. The dis- 1S3 Fitch V. Richardson, 147 Fed. 197, allowance of a claim in bankruptcy for 77 C. C. A. 423. 16 Am. Bankr. Rep. 835. usury is available to a prior purchaser Jo-iln re Goldstein, 199 Fed. 665, 29 as res judicata of the claim of the hold- Am. Bankr. Rep. 301 ; Streeter v. Lowe, er of a mortgage antedating such pur- 184 Fed. 263, 106 C. C. A. 405, 25 Am. chase and given to secure the u.iurious Bankr. Rep. 774 ; In re T. L. Kelly Dry debt. De "Watteville v. Sims, 44 Okl. 708, Goods Co., 102 Fed. 747, 4 Am. Bankr. 146 Pac. 224. 1111 PROOF AND ALLOWANCE OF CLAIMS § 535 is not a record of a judgment and is not admissible in evidence to show the final disposition of the claim.^*" And an order of allowance, in so far as concerns its binding efifect on the trustee and the other creditors, does not amount to an adjudication that the particular creditor has not previously received an illegal or voidable preference, that question not being necessarily involved in it.^** § 535. Postponement of Proofs. — ^The bankruptcy act of 1867 con- tained a provision to the effect that "when a claim is presented for proof before the election of an assignee, and the judge or register entertains doubts of its validity or of the right of the creditor to prove it, and is of opinion that such validity or right ought to be investigated by the assignee, he may postpone the proof of the claim until the assignee is chosen." ^** Although the present act is not so explicit on this point, still it does provide that claims duly proved shall be allowed upon presentation, unless "their consideration be continued for cause by the court upon its own motion." "" The interpretation put upon the act of 1867 was that it rested in the discretion and judgment of the court or register to postpone the proof of a claim whenever he deAned it questionable or of doubtful validity, either in respect to its considera- tion or the right of the particular creditor to prove it, or on the ground of . its being voidable under the act as a preference or otherwise ; and this was to be done with a view to the investigation by the triistee, when appointed, of the claim in question, and the effect of postponing proofs was to prevent such claims from being voted upon in the elec- tion of a trustee."^ The corresponding provision of the present act, it is said, intends that, if objection to a claim is interposed, or if the court is not satisfied with the prima facie case made out by the claim- ant's sworn statement, the claim shall not be accepted as proved until the objection has been disposed of, or until the court is convinced, by testimony or otherwise, of the validity of the claim."* When a review by the judge of the action of the referee in such 1ST Hall V. Robertson, 213 111. App. 147. i*o Bankruptcy Act 1898, § 57d. But compare De Watteville v. Sims, 44 'i*i In re Stevens, 4 Ben. 513, 4 N. B. Okl. 708, 146 Pac. 224. R. 367, Fed. Cas. No. 13,391 ; In re Ja- 188 Steams Salt & Lumber Co. v. Ham- coby, Fed. Cas. No. 7,166 ; In re Bartusch, mond, 217 Fed. 559, 133 C. C. A. 411, 33 9 I^. B. R. 478, Fed. Cas. No. 1,086; In re Am. Bankr. Rep. 484 ; Buder v. Columbia Jones, 2 N. B. K. 59, Fed. Cas. No. 7,447: Distilling Co., 96 Mo. App. 558, 70 S. W. In re Frank, 5 Ben. 164, 5 N. B. R. 194, 508 ; Utah Ass'n of Credit Men v. Boyle Fed. Cas. No. 5,050. Furniture Co., 39 Utah, 518, 117 Pac. 800. i" in re Sumner, 101 Fed. 224, 4 Am. Compare Clendening v. Red River Valley Bankr. Rep. 123; In re Dreeben, 101 Fed. Nat. Bank, 12 N. D. 51, 94 N. W. 901. 110, 4 Am. Bankr. Rep. 146. ISO Rev. Stat. U. S. § 5083, being § 23 of the act of 1867. § 536 LAW OF BANKRUPTCY 1112 cases is sought, the better practice on behalf of the creditors who ob- ject to such postponement of their claims is to have the objection noted, obtain a stay of proceedings, and have the case certified, before any fur- ther action is taken before the referee, for if no objection is made at the time, and the trustee is appointed and enters upon his duties, the court will not interfere."* When the claim of a creditor, at the first meet- ing, is postponed by the referee, and again presented after the elec- tion of a trustee, the proof of claim must be treated in all respects as if it had not been before tendered; that is, such action does not cast upon the creditor the necessity of producing evidence in support of its validity, or of taking any other affirmative action not required in ordi- nary cases for the proof of a debt."* § 536. Objections to Claims; Who May Object. — The bankruptcy act provides that objections to the allowance of a claim offered for proof by a creditor of the bankrupt may be made by "parties in inter- est." "^ This vague phrase, so frequently used in the act, may proba- bly, in this connection, include the bankrupt himself. If he should prove to be lolvent (which may happen, and occasionally does happen, in a case of voluntary bankruptcy), any surplus of the estate remaining after paying creditors and the cost of the proceeding will belong to the bank- rupt. Further, it is to his "interest" in the popular if not the legal sense that his creditors should receive as large a dividend as may be. Moreover, the act makes it the duty of the bankrupt to "examine the correctness of all proofs of claims filed against his estate," and "in case of any person having to his knowledge proved a false claim against his estate, disclose that fact immediately to his trustee." "* This seems to contemplate that the objections should be made by the trustee on information to be furnished by the bankrupt. But if false claims are of- fered for allowance at or before the first meeting of creditors, and there- fore before a trustee has been appointed, it is more consonant to the general purpose and policy of the act that the bankrupt should object to their allowance than that he should allow them to be proved and afterwards advise the trustee of their fraudulent character, as, in that i*« In re Jackson, 7 Biss. 280, 14 N. only persons who would be injuriously B. H. 449, Fed. Cas. No. 7,12.3. affected by the allowance of a contested 144 In re Herrmann, 4 Ben. 126, 3 N. claim, since its allowance would necessl- B. R. 649, Fed. Cas. No. 6,425. tate an assessment upon them, they are X45 Bankruptcy Act 1898, § 57d. "parties in interest" and entitled to ob- 14 6 Bankruptcy Act 1898, § 7, clauses ject to the claim. Rosenbaum v. Button, 3 and 7. Where the bankrupt is a cor- 203 Fed. 838, 122 C. O. A. 156, 30 Am. poration, and Its stockholders are the Bankr. Rep. 155. 1113 PROOF AND ALLOWANCE OF CLAIMS § 537 case, the only remedy of the trustee would be to move for their recon- sideration and expunction/*'' As to other "parties in interest," it is clear that the trustee himself, as the representative of all the creditors, is authorized to contest the allowance of any claim filed against the estate."* And if he neglects or refuses to take this action, in regard to any claim alleged to be fraudulent, false, or exaggerated, creditors who have proved their debts may personally intervene and oppose its allowance."^ And the gen- eral trend of the decisions is to the effect that any creditor may pro- ceed on his own initiative to object to the allowance of a claim offered by another, and is not required' to present his objections through the trustee, or to show that the latter has been asked to act and has re- fused,^®* provided, however, that the contesting creditor shall first have proved his own claim and secured its allowance.^®^ But an objecting creditor cannot further contest the claim of another creditor after a decision on its validity by the court. Proceedings to review such deci- sion must be taken by the trustee by appeal.^*^ And the creditor at whose instance the trustee contests the claim of another creditor is lia- ble to the latter for costs where the claim is allowed.-^®* It should be added that the right to contest claims does not belong to those who are merely debtors or alleged debtors of the bankrupt.^^* § 537. Sarne; Manner and Form of Objections. — Under the bank- ruptcy act of 1867, it was held that objections to the propf of a claim 117 See In re Ankeny, 100 Fed. 614, 4 Fed. 787; In re Joseph, 2 Woods, 390, Am. Bankr. Eep. 72 ; In re Torchia, 185 Fed. Cas. No. 7,532 ; In re Overton, 5 N. Fed. 576, 26 Am. Bankr. Kep. 188. But B. R. 366, Fed. Cas. No. 10,625. Corn- compare Trabue v. Ash (Tex. Civ. App.) pare In re Randall, 1 Sawy. 56, Fed. Cas. 200 S. W. 415! No. 11,552. 1*8 Atkins V. Wilcox, 105 Fed. 595, 44 "^ Dressel v. North State Lumber Co., C. C. A. 626, 53 L. R. A. 118, 5 Am. 119 ^ed. 531, 9 Am. Bankr. Rep. 541; Bankr. Rep. 313 ; In re Two Rivers ^^st Nat. Bank v. Cooper, 20 Wall. 171, Woodenware Co., 199 Fed. 877, 118 C. C. 22 L. Ed. 273. Claimants whose claims A. 325, 29 Am. Bankr. Rep. 439. But ^^ave been disallowed cannot object to where the validity of a claim is conceded, the payment of dividends to creditors and the only dispute is between two per- "«'l»ose claims are uncontested. In , re sons about the ownership of it, the con- Stringer (D. O.) 244 Fed. 629, 40 Am. troversy concerns them alone, and the Pankr. Rep. 474. trustee, as the representative of the oth- ^'^ !« re, Troy Woolen Co., 9 Blatchf. er creditors, has no interest. In re Dun- 191. ^ed. Cas. No. 14,202. A creditor lap Carpet Co., 206 Fed. 726, 80 Am. cannot object to the allowance of claims Bankr. Rep 664. °^ other creditors where he did not move „.,„,„, ^ „„.„,,, to expunge them and took no exception ,,r n^f *J^^o,^^"r^ ^- ^T^"' ^7"" ■ t« tlie decision of the referee allowing 11}' f ^;J^^ ^I^i ^^ T^"^"^ '^"*°'°°" them. In re Collins (D. C.) 235 Fed. 937, bile Co. (D. O.) 229 Fed. 241. 3^ ^^ B^^^^ ^^ 392. 15 In re Canton Iron & Steel Co., 197 iss in re Troy Woolen Co., 8 N. B. R. Fed. 767, 28 Am. Bankr. Rep. 791 ; In re 412, Fed. «as. No. 14,203. Hatem, 161 Fed. 895, 20 Am. Bankr. Rep. 154 In re Sully, 152 Fed. 619, 81 C. O. 470; In re Wyoming Valley Ice Co., 153 A. 600, 18 Am. Bankr. Rep. 123. § 538 , LAW OF BANKRUPTCY , 1114 must be made by written allegations, which should specify with rea- sonable certainty the particular grounds of objection.*^^ Though the present statute contains no positive requirement to this effect (the act merely providing that claims duly proved shall be allowed "unless objection to their allowance shall be made by parties in interest") it is. unquestionably good practice to file the objections in this form, and the later decisions so recommend, with the further statement that the allegations should be sufficiently explicit to indicate to the claimant the nature and character of the objections.*®* But no particular form for the objections has been prescribed, the matter resting very largely in the discretion of the referee, and it is not necessary, nor even proper, that they should take. the shape of a formal pleading.*" Nor is the statement of objections required to be under oath.*®* And it is with- in the discretion of the referee to permit a merely oral statement on the part of the objecting creditor, provided it is definite and to the point.*®* But it is held that creditors who desire to contest the allowance of a claim must make their objections on their own behalf, and they can- not become parties to the issue merely by formally adopting objections filed by the bankrupt, nor have they any standing to contest such claim on an appeal taken from the decision of the court by the trustee, in which they did not join.*®* § 538. Same; Grounds of Objection. — As to the grounds on which objection may be made to a claim offered for proof, it is clear that it may be contested for fraud, illegality,*®* or want of consideration ; *®^ also for being fictitious or exaggerated; or because it is not of a na- ture to be provable under the bankruptcy law; or because it has been paid or discharged, wholly or in part, or is barred by the statute of lim- itations ; *** or because the proving creditor has received a preference which he has not surrendered,*** or a security which he has not men- tioned; or because of defects in the form or manner of the proof.**® 155 In re Walton, Deady, 442, Fed. Gas. loo Ayres v. Cone, 138 Fed. 778, 71 C. No. 17,128. O. A. 144, 14 Am. Bankr. Rep. 739. 156 Spencer v. Ix)we, 198 Fed. 961, 117 lei in re Fenn, 172 Fed. 620, 22 Am. C. 0. A. 497, 29 Am. Bankr. Rep. 876 ; In Bankr. Rep. &33. re Royce Dry Goods Co., 133 Fed. 100, 13 loa In re Romadka Bros. Co. (D. C.) Am. Bankr. Rep. 257. 206 Fed. 944. 157 Orr V. Park, 183 Fed. 683, 106 O. los In re John J. LafEerty & Bro., 122 C. A. 33, 25 Am. Bankr. Rep. 544; Fed. 558, 10 Am. Bankr. Rep. 290; In re Carter, 138 Fed. 846, 15 Am. Bankr. Pace's Trustee v. Pace, 162 Ky. 457, 172 Rep. 126. S. W. 925. Compare In re Gibson, 4'lnd. 16 8 In re Wooten, 118 Fed. 670, 9 Am. T. 498, 69 S. W. 974, 4 Ann. Cas. 938. Bankr. Rep. 247. le* Stern v. Louisville Trust Co., 112 150 In re Cannon, 133 Fed. 837, 14 Am. Fed. 501, 50 C. C. A. 367, 7 Am. Bankr. Bankr. Rep. 114; Embry v. tfennett, 162 Rep. 305. Fed. 1.39, 20 Am. Bankr. Rep. 651. 1 85 where a claim was allowed 1115 PROOF AND ALLOWANCE OF CLAIMS § 539 But a mere informality in the proof will not cause the rejection of the claim when the creditor, under examination, has testified positively to facts which establish its validity."® And the fact that one presenting a 'claim against the bankrupt is closely related to him, while it will justify a rigid scrutiny of the claim, will not alone warrant its rejec- tion.i«' When a judgment debt is offered for proof, the petition of the bank- rupt having been filed after the rendition of the judgment, it may be objected to by the trustee or by other creditors on the ground of fraud or irregularity, including fraudulent preference; for they, not being parties or privies to the judgment, are not precluded from attacking it collaterally.''®* For similar reasons, the trustee is not bound by a mere settlement or accounting, not followed by payment or transfer of prop- erty, between the bankrupt and a creditor, but he may show that it was erroneous or fraudulent.-'** And so also- the trustee may set up usury as a defense to the claim of a creditor."" But as against a ne- gotiable note made by the bankrupt, the trustee can avail himself only of such defenses as were available to the maker, not including collat- eral issues between the indorsers subsequent to delivery."^ § 539. Same; Contest and Determination. — The law intends that contests of this character shall be promptly disposed of. It declares that "objections to claims shall be heard and determined as soon as the convenience of the court and the best interests of the estates and the claimants will permit." "* Hence if objection is made to the allow- ance of a claim presented at a meeting of the creditors, the question of against a bankrupt firm and the bant- iss In re Oomstock, 3 Sawy. 620, 12 rupt estate of an individual partner, the N. B. R. 110, Fed. Cas. No. 3,079. Where trustee was estopped after four years to a claim against a bankrupt corporation object that the claim was insufficient in was based on the theory that it had as- form to justify its allowance against the sumed payment of a mortgage, but it partner's estate. In re Collins (D. O.) appeared that there had been no such 215 Fed. 247. assumption, the claimant cannot sustain loeMcKinsey v. Harding, 4 N. B. R. his claim on a different theory. In re 38, Fed. Cas. No. 8,866. Amsdell-Klrchner Brewing Co. (D. C.) 167 Ohio Valley Bank Co. v. Mack, 163 240 Fed. 492. Fed. 155, 89 C. C. A. 605, 20 Am. Bankr. i,„ i^ ^e Stern, 144 Fed. 956, 76 C. C. Rep. 40. .„„ „ , A. 10, 16 Am. Bankr. Rep. 510 (revers- ..«°l^ ^^°^ ^r L„ r^'""": !?,^T M^'l- i'lS In re Worth, 130 Fed. 927, 12 Am. 940, 57 C. C. A. 230; Bx parte O'Neil, 1 Bankr. Rep. 566); In re Moore, Fed. Low. 163, 1 N. B. R. 677, Fed. Cas. No. cas. No. 9,752; Bromley v. Smith, 2 10,527; Bourne v. Maybin, 3 Woods, 724, . bIss. 511, 5 N. B. R. 152, Fed. Cas. No. Fed. Cas. No. 1,700; In re Continental 1^922; LoganviUe Banking Co. v. For- Engine Co., 234 Fed. 58, 148 C. C. A. 74, jester, 17 Ga. App. 246, 87 S. E. 694. 37 Am. Bankr. Rep. 102; In re Stucky Trucking & Rigging Co. (D. C.) 243 Fed. "^ ^^ ^^ Schwarz, 200 Fed. 309, 29 287, 38 Am. Bankr. Rep. 690. Compare '^™- ^ankr. Rep. 700. Stilwell V. Walker, 17 N. B. R. 569, Fed. "" Bankruptcy Act 1898, § 57f. Cas. No. 13,451. I 539 LAW OF BANKETJPTCT 1116 its allowance should be heard as soon as feasible, and if the court is not satisfied with the weight of the evidence, the hearing may be adjourned to a future time.^'* A creditor presenting his claim for proof and al- lowance against the estate of the bankrupt, which is contested by the trustee, is not entitled to demand a tml by jury.^''* Proceedings in bankruptcy being of equitable cognizance, the seventh amendment to the Constitution of the United States does not apply thereto, and no act of Congress at present in force authorizes trial by jury in such cases.^'® Such contests are intended to be heard and determined by the referee, and he has full jurisdiction over them."® And it is not neces- sary that he should adhere to any prescribed order of proof."' Where the trustee objects to the allowance of a claim on the ground that the claimant has received an unlawful preference, and the referee, on hearing, decides that such is the case, his judgment disallowing the claim is res judicata on the question of the preference, and the creditor cannot litigate the question again in a plenary action by the trustee to recover the preference."* § 540. Same ; Burden of Proof and Evidence. — The burden of proof is on one claiming to be a creditor of a bankrupt and presenting a de- mand against his estate."® But he sustains the burden in the first in- " stance, and makes out a prima facie case, when he files a proof of his claim, sufficient in form and substance, and duly verified by his affi- davit, as required by the statute, as such proof is regarded rather as a deposition than as a pleading.*** Thereupon the burden is shifted to the objecting creditor or creditors, or the trustee as the representative of all the creditors, and they are required to rebut the claimant's prima facie case by evidence having a probative value at least equal to his ITS In re Eagles (D. C.) 99 Fed. 695, 3 C.) 260 Fed. 422, 44 Am. Bankr. Rep. Am. Bankr. Rep. 733. 381; Ullman, Stern & Krausse v. Cop- 174 But the claimant is. entitled to no- pard, 246 Fed. 124, 158 C. C. A. 350, 40 tice of the objections and an opportunity Am. Bankr. Rep. 426; Davenport Sav. to be heard. But where he appears be- Bank v. Chicago, R. I. & P. R. Co., 176 fore the referee and files a response to Iowa, 745, 158 N. W. 737. the referee's objection to his claim, this i7 9 in re Graves (D. C.) 182 Fed. 443, amounts to a waiver of notice of the ob- 25 Am. Bankr. Rep. 372 ; In re Hopper- jection which should have been given Morgan Co. (D. C.) 156 Fed. 533, 19 Am. him, and cures all defects therein. Dav- Bankr. Rep. 539. enport Sav. Bank r. Chicago, R. I. & P. iso Whitney v. Dresser, 200 U. S. 532, R. Co., 176 Iowa, 745, 158 N. W. 737. 26 Sup. Ct. 316, 50 L. Ed. 584, 15 Am. 17 5 In re Christensen (D. C.) 101 Fed. Bankr. R^p. 326; In re United Wireless ■ 243, 4 Am. Bankr. Rep. 99. Telegraph Co., 201 Fed. 445, 29 Am. 178 In re Schwarz (D. C.) 200 Fed. 309, Bankr. Rep. 848; In re Schwarz, 200 29 Am. Bankr. Rep. 700 ; McCulloeh v. Fed. 309, 29 Am. Bankr. Rep. 700 ; In re Davenport Sav. Bank (D. C.) 226 Fed. Montgomery, 185 Fed. 955, 25 Am. 309, 35 Am. Bankr. Rep. 765. Bankr. Rep. 431; In re Baumhauer, 179 17 7 In re Montgomery (D. C.) 185 Fed. Fed. 966, 24 Am. Bankr. Rep. 750; In re 955, 25 Am. Bankr. Rep. 481. James Dunlap Carpet Co., 171 Fed. 532, 17 8 Lincoln v. People's Nat. Bank (D. 22 Am. Bankr. Rep. 788; In re Jones, 1117 PROOF AND ALLOWANCE OF CLAIMS § 540 affidavit.^*^ Likewise, where the claim is for damages for breach of a contract, and the claimant has sufficiently established the elements of his case, the burden is on objecting creditors to show any circumstances in reduction or mitigation of damages.''*'' But in order to support the claimant's demand and warrant its allowance the proof of claim must conform to the requirements of the law and be fair on its face. It is not self-proving if insufficient in form, or if its recitals are contradictory and irreconcilable, or if the facts alleged are improbable and suspi- cious.^*^ And it is a rule that if the claimant does not choose to rely on the presumption of correctness of his claim raised by the formal proof of it, but elects to offer additional evidence, and such evidence is insuffi- cient to establish his case or contradicts the allegations of his' petition, he must abide by the result, and be taken to have waived the advantage of the position which he originally occupied.^** When objection is made to a proof of claim, the proving creditor may be summoned as a witness and be questioned (in the nature of cross-examination) by the trustee or the objecting creditors, concerning his claim and its particulars ; and if he fails to appear and submit to such examination, he will be taken to have admitted the objections to his claim, and the same will be rejected.^*^ But testimony of the bank- 151 Fed. 108, 18 Am. Bankr. Eep. 206; In re Castle Braid Co., 145 Fed. 224, 17 Am. Bankr. Eep. 143 ; In re Carter, 138 Fed. 846, 15 Am. Bankr. Rep. 126 ; In re Dresser, 135 Fed. 495, 68 C. C. A. 207, 13 Am. Bankr. Rep. 747; In re Wooten, 118 Fed. 670, 9 Am. Bankr. Rep. 247; In re Shaw, 109 Fed. 780, 6 Am. Bankr. Rep. 4991 In re Sumner, 101 Fed. 224, 4 Am. Bankr. Rep. 123 ; Flower v. Commercial Trust Co., 223 Fed. 318, 138 C. C. A. 580, 35 Am. Bankr. Rep. 74 ; Moore v. Crau- dall, 205 Fed. 689, 124 C. C. A. 11, 30 Am. Bankr. Rep. 517; In re Arthur E. Pratt Co. (D. O.) 252 Fed. 917, 42 Am. Bankr. Rep. 406; In re Welborne (D. C.) 266 Fed. 385; Board of Commerce of Ann Arbor v. Security Trust Co., 225 Fed. 454, 140 C. C. A. 486, 34 Am. Bankr. Rep. 762. 181 In re Harper, 175 Fed. 412, 23 Am. Bankr. Rep. 918 ; In re Carter, 138 Fed. 846, 15 Am. Bankr. Rep. 126; In re Sanger, 169 Fed. 722, 22 Am. Bankr. Rep. 145; In re Pfaffinger, 154 Fed. 523, 18 Am. Bankr. Rep. 807; in re Coventry Evans Furniture Co., 166 Fed. 516, 22 Am. Bankr. Rep. 272; West v. W. A. McLaughlin & Co.'s Trustee, 162 Fed. 124, 20 Am. Bankr. Rep. 654; In re Can- ton Iron & Steel Co., 197 Fed. 767, 28 Am. Bankr. Rep. 791. Compare Mason V. St. Albans Furniture Co., 149 Fed. 898, 17 Am. Bankr. Rep. 868 ; In re Hull (D. C.) 224 Fed. 796, 34 Am. Bankr. Rep. 447; In re O'Gara & Maguire (D. C.) 259 Fed. 935, 44 Am. Bankr. Rep. 49; Britton v. Union Inv. Co. (C. C. A.) 262 Fed. Ill, 44 Am. Bankr. Rep. 531. 182 In re Duquesne Incandescent Light Co., 176 Fed. 785, 24 Am. Bankr. Rep. 419. 183 In re Goble Boat Co., 190 Fed. 92, 27 Am. Bankr. Rep. 48; Orr v. Park, 183 Fed. 683, 106 C. C. A. 33, 25 Am. Bankr. Rep. 544; In re Shaw, 112 Fed. 947, 7 Am. Bankr. Rep. 458; In re Hud- son Porcelain Co. (D. C.) 225 Fed. 325, 35 Am. Bankr. Rep. 18. Failure to file a written insttument which is the basis of a claim against the bankrupt's estate, as required by the statute, does not raise a presumption against the existence of the writing. In re Dresser, 135 Fed. 495, 68 C. C. A. 207, 13 Am. Bankr. Rep. 747. 18* In re Greenfield, 193 Fed. 98, 27 Am. ^Bankr. Rep. 427 ; In re T. A. Mc- Intyre & Co., 174 Fed. 627, 98 C. C. A. 381, 24 Am. Bankr. Rep. 1 ; In re Mc- Ausland (D. C.) 235 Fed. 173, 37 Am. Bankr. Rep. 519. i85Baumhauer v. Austin, 186 Fed. 260, 108 C. C. A. 306, 26 Am. Bankr. Rep. § 540 LAW OF BANKRUPTCY 1118 rupt or other witnesses taken before the referee in other issues in the- bankruptcy proceedings, to which the claimant was not a party and when he was not present, cannot be used against him.^** If it becomes necessary to take the evidence of witnesses at a distance, the act pro- vides that, when depositions are to be taken in opposition to the allow- ance of a claim, notice shall be served upon the claimant and filed with the referee.^*' Upon questions of evidence arising upon the proof of debts, the laws of the United States must govern, and not those of the state in which the court may be sitting. This rule was applied in a case where the bankrupt was dead, and it was held that the proving creditor was a competent witness in his own favor to prove the con- tract out' of which his claim arose; for under Rev. Stat. U. S. § 858, a witness cannot be excluded on account of interest except in actions by or against executors, administrators, or guardians, and a proceeding in bankruptcy is in rem and not against the executor of a deceased bank- rupt.*** Under the same rule and the same provision of the Revised Statutes, it is held that, where a contest is made as to a claim offered to be proved against the estate of a bankrupt by his wife, she is a compe- tent witness in her own behalf.**® But a judgment recovered by the creditor in a state court is not conclusive evidence either of the exist- ence or the amount of his claim, when he seeks to prove it in the bank' ruptcy proceedings, at least where the trustee was not a party to the suit.*^' And the general rule of law that a party can only recover on the cause of action alleged in his pleading applies to claims presented in bankruptcy, and a claimant who has filed a statement of his demand under oath, as required by the statute, cannot sustain, it by evidence of an indebtedness arising in a different manner from that stated.*"* As in other cases, the evidence may be circumstantial on questions of motive, intent,- good faith, and the like,*"* and the claimant, if put to his defense, must show all the elements of a valid and enforceable demand, just as on the trial of. an issue in a plenary suit,*** and if he and the bankrupt .S85; In re Sumner, 101 Fed. 224, 4 Am. iso in re Elchards, 17 N. B. R. 562, Bankr. Rep. 123 ; In re Lount, 11 N. B. Fed. Cas. No. 11,770 ; In re Bean 14 R. 315, Fed. Cas. No. 8,543. N. B. R. 182, Fed. Cas. No. 1,166. c'oin- 188 In re Keller, 109 Fed. 118, 6 Am. pare In re Bechtel, Fed. Cas. No. 1,204. Bankr. Rep. 334; In re Hersey, 171 Fed. mo In re Fi-eeman, 117 Fed. 680, 9 1004, 22 Am. Bankr. Rep. 863; In re Na- Am. Bankr. Rep. 68; Bourne v. Maybin tional Boat & Engine Co. (D. C.) 216 Fed. 3 Woods, 724, Fed. Cas. No. 1,700. 208, 33 Am. Bankr. Rep. 154. i9i In re Lansaw, 118 Fed. 365, 9 Am. 187 Bankruptcy Act 1898, § 21c. Bankr. Rep. 1Q7; Orr v. Park 183 Fed 188 In re Merrill, 9 Ben. 165, 16 N. B. 683, 106 0. C. A. 33, 25 Am. Bankr Rep R. 35, Fed. Cas. No. 9,466. Conversely, 544. the bankrupt Is a competent witness 102 In re Friedman, 164 Fed. 131 21 where a claim against his estate is con- Am. Bankr. Rep. 213 ; In re Herman tested, though the creditor Is dead and 207 Fed. 594. the claim is presented by his executor, ibs Farnsworth v. Union Trust & De- In re Moore, Fed. Cas. No. 9,752. posit Co., 211 Fed. 912, 128 O. C. A. 1119 PROOF AND ALLOWANCE OF CLAIMS § 541 are the only witnesses and they squarely contradict each other, circum- stances tending to corroborate the one or tlie other will turn the scale.^®* Where the claimant is the wife, child, or other near relative of the bank- rupt, the experience of the courts has taught them that the claim must be closely and carefully scrutinized, though it is also to be remembered that the honest or dishonest character of such a claim is not to be de- termined by the mere fact of relationship.^*® The referee should of his own motion consider the credibility of the witnesses and of their testimony, and he is not obliged to allow the claim even if the evidence in its support is uncontradicted."® The court retains considerable control over the proceedings in these cases, and if the evidence offered by a claimant is not sufiRcient to establish his claim, it is in the discretion of the court to direct or allow the taking of addi- tional proof, even after the referee or master has made his report."' § 541. Amendment and Withdrawal of Proofs. — Proofs of debt may always be amended, if application is made in proper time, in respect to the correction of clerical errors, the supplying of omissions, or to rem- edy technical defects in the proofs in matters of form, and when the proof is amended so as to comply with the law, it will relate back to the original filing, unless the rights of others have in the mean time intervened."* On this point, it has been said : "The court undoubtedly possesses the power, in its discretion, to allow proofs of debt to be 290; Central State Bank v. McFarlan, ling (D. C.) 214 Fed. 503, 32 Am. Bankr. 257 Fed. 535, 168 O. C. A. 519, 44 Am. Rep. 656; In re Kanter (D. C.) 215 Fed. Bankr. Rep. 1; In re Maiman (D. C.) 276. 256 Fed. 127, 43 Am. Bankr. Rep. 507; i9o In re Cannon (D. C.) 133 Fed. 837, In re Rosenthal & Lehman (D. C.) 120 14 Am. Bankr. Rep. 114. Fed. 848, 9 Am. Bankr. Rep. 626; In re i97 in re J. C. Wilson & Co. (D. C.) Banks (D. C.) 207 Fed. 662, 31 Am. 252 Fed. 631, 42 Am. Bankr. Rep. 350. Bankr. Rep. 270. Where a claimant re- I's in re New York Commercial Co., lies on certlflcates of indebtedness is- 233 Fed. 906, 147 C. C. A. 580, 36 Am. sued by a building and loan association, Bankr. Rep. 769; In re Ballantlne (D: and it appears that they were fraudu- C.) 232 Fed. 271, 37 Am. Bankr. Rep. lently issued and that the association r?- Ill ; In re Soltmann (D. C.) 238 Fed. 241, ceived no consideration, the purchaser 38 Am. Bankr. Rep. 270 ; In re A. J. El- must show that he was a purchaser in lis. Inc., 252 Fed. 483, 164 C. C. A. 399, good faith and for value. In re German 42 Am. Bankr. Rep. 387. In re Myers, Savings & Loan Ass'n, 253 Fed. 722, 165 99 Fed. 691, 3 Am. Bankr. Rep. 760 ; In C. C. A. 316, 42 Am. Bankr. Rep. 559. re Salvator Brewing Co., 193 Fed. 989, An attorney who makes a claim against 113 C. C. A. 626, 28 Am. Bankr. Rep. 56 ; the. estate of a bankrupt corporation for In re Medina Quarry Co., 179 Fed. 929, legal services must clearly establish the 24 Am. Bankr. Rep. 769; In re Stevens, value of his services. In re United 107 Fed. 243, 5 Am. Bankr. Rep. 806; States Molybdenum Co.,(D. C.) 255 Fed. In re Maybin, 15 N. B. R. 468, Fed. Cas. 790, 43 Am. Bankr. Rep. 401. ' No. 9,337 ; In re Myrick, 3 N. B. R. 156, 194 In re Kaldenberg (D. O.) 105 Fed. Fed. Cas. No. 10,000; In re Montgomery, 232, 5 Am. Bankr. Rep. 6. 3 N. B. R. 423, Fed. Cas. No. 9,729; In 195 Walter v. Atha (C. C. A.) 262 Fed. re Lowerre, 1 Ben. 406, 1 N. B. R. 74, 75,-45 Am. Bankr. Rep. 150; In re Crum- Fed. Cas. No. 8,577. In re Basha (0. c! A.) 200 Fed. 951, 29 Am. Bankr. Rep. 225. i 541 LAW OP BANKRUPTCY 1120 amended, and in cases of mistake or ignorance, whether of fact or of law, will generally exercise that power in the absence of fraud, and when all parties can be placed in the same situation they would have been in if the error had not occurred, and where justice seems to de- mand that it should be done. But where the proceeding is in any man- ner tainted by fraud, or where the creditor has gained any permanent advantage by the omission, or the estate has been permanently injured thereby, the creditor guilty of such omission will be left where his own act has placed him." ^*® Thus if a creditor, in proving his claim, has illegally increased the amount of it, or if a portion of the consideration is good and a portion illegal, he will not be allowed, on the detection of the fraud, to separate the good from the bad and amend his proof, or have it allowed for the valid portion only, for his fraud taints the whole.^"* So, where a claim of lien under a mortgage has been declared fraudulent, the claimant is not entitled to amend so as to prove his claim as a general claim against the estate.^*^ Neither is it permissible, under the guise of an amendment, to introduce a wholly new and differ- ent claim against the bankrupt.**^ An amended proof of claim against a bankrupt's estate, filed more than a year after the adjudication, may be substituted for the original- proof when the latter was defective, irregular, or otherwise insuf- ficient, notwithstanding the provision of the act limiting the time for original filing of proofs.^** But this rule is subject to two con- ditions. In the first place, it cannot be invoked for the purpose of enabling the creditor to set up an entirely new and separate claim.*** But this does not apply to a change in the form or statement of the claim, the actual contract or consideration remaining the same. 199 In re Parkes, 10 N. B. K. 82, Fed. 122, 11 Am. Bankr. Eep. 464; Hutchin- Cas. No. 10,754. son v. Otis, 115 Fed. 937, 53 C. O. A. 419, 2 00 In re Elder, 1 Sawy. 73, Fed. Gas. 8 Am. Bankr. Kep. 382; In re Salvator No. 4,326. . Brewing Co., 188 Fed. 522, 26 Am. Bankr. 201 In re Vogt (D. C.) 188 Fed. 764. Eep. 21; In re Standard Telephone & But see Seligman v. Gray, 227 Fed. 417, Electric Co., 186 Fed. 586, 26 Am. Bankr. 142 0. G. A. 113, 35 Am. Bankr. Rep. Rep. 601; In re Kessler, 184 Fed. 51, 516, 36 Am. Bankr. Rep. 894. 25 Am. Bankr. Rep. 512 ; In re Fisk & 202 In re Miners' Brewing Co. (D. G.) Robinson, 185 Fed. 974; In re McCarthy 162 Fed. 327, 20 Am. Bankr. Rep. 717; Portable Elevator Co., 205 Fed. 986, 30 In re Montgomery, 3 N. B. R. 430, Fed. Am. Bankr. Rep. 24T. But compare In Gas. No. 9,731. re Amsdell-Kirschner Brewing Go. (D C ) ■ 20 s Hutchinson v. Otis, Wilcox & Co., 243 Fed. 783, 40 Am. Bankr Rep 284- 190 U. S. 552, 23 Sup. Ct. 778, 47 U Ed. in re Booth (D. O.) 216 Fed. 575, 33 Am' 1179, 10 Am. Bankr. Rep. 135 ; In re Bankr. Rep. 183 ; In re Moebius (D O ) Keller (D. C.) 252 Fed. 942, 42 Am. 116 Fed. 47, 8 Am. Bankr. Rep. 590. Bankr. Rep. 601; In re Schaffner (C. G. ' 204 in re McCallum & McOallum (D A.) 267. Fed. 977, 45 Am. Bankr. Rep. G.) 127 Fed. 768, 11 Am. Bankr. Rep! 681 ; In re Drexel Hill Motor Go. (D. C.) 447 ; In re Stevens (D. C.) 107 Fed 243 270 Fed. 673, 46 Am. Bankr. Rep. 411; 5 Am. Bankr. Rep. 806. In re Roeber, 127 Fed. 122, 62 0. C. A. 1121 PROOF AND ALLOWANCE OF CLAIMS § 541 Thus, where a creditor filed a claim in the form of a book ac- count, an amended claim, based on promissory notes of the bankrupt, may be treated as an amendment of the original claim, and the court may permit it to be filed after the expiration of the year, where it is shown that the notes were given in settlement of the account, but were not shown by the creditor's books, and that the original claim was based on the account, rather than the notes, through mere inattention or because the creditor did not realize that it would make any difference as to the form of proof.*"* So, where the creditor originally filed on a note and the claim was disallowed because it carried usurious interest, he was allowed to amend his proof by substituting therefor a claim for money fraudulently obtained by the bankrupt and received to the claim- ant's use.**** In the second place, the original proof must contain a sufficient statement of the claim to support an amendment, or there must have been a sufficient "filing" of it to justify such action.*"' But as to this, the courts are quite liberal. Thus, for example, though a claim was not formaUy filed within the year, but an assignment of it was executed and filed with the referee, It was held that this might be treat-, ed as sufficiently presenting the claim to permit an amendment after the year.*"* So a paper filed by a creditor, denominated an "application for the sale of collateral," and containing all the statements essential to a formal proof of claim, may be used as the foundation for an amend- ment after the expiration of the year.*"* And again, where the trus^ tee circulated a paper among the creditors for their signatures, contain- ing a proposal for a settlement, each creditor to state on it the amount of his claim, and it was signed by all and returned and filed with the referee within a year after the adjudication, it was held to constitute a sufficient claim to be amendable, after the end of the year, by a creditor who signed it in the belief that a proof of his claim was not required, but without whose assent the settlement could not have been effect- ed.*^* Further, a court of bankruptcy may allow an amended proof, filed with the trustee's consent, to be substituted for the defective orig- inal proof, although the trustee has an appeal pending from the decree of the court permitting the creditor to prove his claim.*^^ 205 Brown v. O'Connell, 200 Fed. 229, 209 in re Faulkner, 161 Fed. 900, 20 118 C. C. A. 415, 29 Am. Bankr. Rep. 653. Am. Bankr. Rep. 542. Compare In re 206 In re Robinson (D. 0.) 136 Fed. Basha, 193 Fed. 151, 27 Am. Bankr. Rep. 994, 14 Am. Bank:". Rep. 626. 435. 207 In re Thompson, 227 Fed. 981, 142 210 in re Fairlamb, 199 Fed. 278, 28 C. C. A. 439, 36 Am. Bankr. Rep. 190 ; Am. Bankr. Rep. 515. In re Drexel Hill Motor Co. (D. C.) 270 211 Hutchinson v. Otis, Wilcox & Co., Fed. 673, 46 Am. Bankr. Rep. 411. 190 U. S. 552, 23 Sup. Ct. 778, 47 L. Ed. 208 Bennett v. American Credit Indem- 1179, 10 Am. Bankr. Rep. 135. nity Co., 159 Fed. 624, 86 C. C. A. 614, 20 Am. Bankr. Rep. 258. Blk.Bkr.(3d Ed.)— 71 § 541 LAW OF BANKRUPTCY 1122 The power of allowing amendments is not infrequently appealed to in behalf of secured creditors; and it is well settled that where a creditor of this class has proved his claim as unsecured, but this has been done through inadvertence or mistake or ignorance _of his rights, it is in the discretion of the court to allow him to amend his proof so as to state the facts correctly, even after the lapse of a year from the adjudication, provided this will not operate to the prejudice of any other creditor, or provided all parties can be restored to their original positions.*** And it is not an insuperable objection to the allowance of such an amendment that the creditor has already received a dividend on his claim as unsecured, for it can be made a condition of the leave granted to him to amend that he shall refund to the trustee the sum so received as a dividend.*** On similar principles, where a bankrupt had money on deposit in a bank and was indebted to the bank on promissory notes for a larger sum, and the cashier of the bank made proof against the bankrupt's estate for the entire sum of the notes, omitting, through mistake or forgetfulness, to offset the amount of th« deposit, it was held that the bank should be permitted to amend its proof so as to retain the amount of the deposit, credit the same on the notes, and prove a claim for the balance.*** In regard to allowing a creditor who has proved his claim to with- draw the same entirely, so as to put himself outside the bankruptcy proceedings, the authorities are not so harmonious. Some of the cases hold that the withdrawal of a proof of debt cannot be permitted after the same has been filed in the case and allowed,**^ and especially after leave has been granted to the creditor to amend his proof.*** But on the other hand, there are decisions sustaining the principle that a cred- itor who has proved his claim in the bankruptcy may be permitted to withdraw the same, if it was made under a mistake of fact or law, pro- 212 Maxwell v. McDanlels (C. C. A.) In re Baxter, 12 Fed. 72. But see In 195 Fed. 426, 27 Am. Bankr. Rep. 692 ; re E; B. Havens & Co., 1S6 Fed. 583. Lontos V. Coppard, 246 Fed. 803, 159 213 in re Partes, 10 N. B. E. 82, Fed. 0. C. A. 105, 40 Am. Bankr. Rep. 575; Cas. No. 10,754; In re Baxter, 12 Fed. In re James Carotliers & Co., 182 Fed. 72. 501; In re Wilder, 101 Fed. 104; In re 214 in re Myers, 99 Fed. 691, 3 Am. Falls City Shirt Mfg. Co., 98 Fed. 592, Bankr. Rep. 760. 3 Am. Bankr.' Rep. 437; In re Clark, 5 215 in re Mcintosh, 2 N. B. R. 506, Fed. N. B. R. 255, Fed. Cas. No. 2,806 ; In re Cas. No. 8,826 ; In re Emlson, 2 N. B. Parkes, 10 N. B. R. 82, Fed. Cas. No. R. 595, Fed. Cas. No. 4,459 ; In re Low- 10,754 ; In re Hubbard, 1 Low. 190, 1 N. erre, 1 Ben. 406, 1 N. -B. R. 74, Fed. CaSv B. R. 679, Fed. Cas. No. 6,813 ; In re No. 8,577. But a creditor who has prov- .Taycox, 8 N. B. R. 241, Fed. Cas. No. ed a claim on a note may withdraw the 7,242; Ex parte Ha^'ood, Crabbe, 496, note, by the permission of the court, on Fed. Cas. No. 6,185; Ex ijarte Lapsley, leaving a copy on file. In re Loden,'l84 Fed. Cas. No. 8,083 ; In re Hope Min. Fed. 965, 25 Am. Bankr. Rep. 917. Co., 1 Sawy. 710, Fed. Cas. No. 6,681; 210 in re Hallle, 7 Ben. 182, Fed Cas No. 5,960. 1123 PROOF AND ALLOWANCE OF CLAIMS § 542 vided neither the bankrupt nor the other creditors who have proved will be injured thereby.*" Thus a creditor who was in fact deprived of his property through the fraudulent acts of the bankrupt, of which the creditor was ignorant and which he only discovers on the examination of the bankrupt, after he has proved his claim as a general creditor, is not then estopped to withdraw his claim and demand the return of his property.*^* But the court will not grant leave to withdraw a proof merely for the purpose of allowing the creditor to continue an arrest of the bankrupt which was made before the commencepient of the pro- ceedings in bankruptcy.*^* § 542. Re-Examination of Claims and Expunging. — The bankruptcy act provides that "claims which have been allowed may be reconsidered for cause and reallowed or rejected in whole or in part, according to the equities of the case, before but not after the estate has been closed." **" And the general orders, in execution of the foregoing provision, declare that "when the trustee or any creditor shall desire the re-examination of any claim filed against the bankrupt's estate, he may apply by petition to the referee to whom the case is referred for an order for such re-ex- amination, and thereupon the referee shall make an order fixing a time for hearing the petition, of which due notice shall be given by mail ad- dressed to the creditor. At the time appointed the referee shall take the examination of the creditor and of any witnesses that may be called by either party, and if it shall appear from such examination that the claim ought to be expunged, or diminished, the referee may order according- ly." **^ 21' In re Hubbard, 1 Low. 190, 1 N. Hendrie & Bolthoff Mfg. & Supply Co., B. R. 679, Fed. Cas. No. 6,813 ; American 50 Colo. 342, 116 Pac. 122. Sav. Bank & Trust Co. v. Munson, 93 221 General Order No. 21, clause 6. Wash. 78, 159 Pac. 1195. See International Agr. Corp. v. Cary, 240 218 In re Stewart, 178 Fed. 463, 24 Am. ^^d. 101, 153 C. C. A. 137, 38 Am. Bankr, Bankr Rep. 474. -^^P' '^^^- Tender the Corresponding pro- ' ,. ' , , ^, „ „ „, „ ^ , visions of the act of 1867 and the rules in 219 In re Wiener, 14 N. B. R. 218, Fed. bankruptcy, the order for the re-exam- Cas. No, 17,b^0. ination of a claim, or for reducing or 220 Bankruptcy Act 1898, § 57k. Also expunging it, could be made only by Jurisdiction to "reconsider allowed or the judge of the court of bankruptcy; disallowed claims, and allow or disallow this jurisdiction was not conceded to the them," is given to the courts of bank- register, unless, perhaps, in cases where ruptcy by § 2, clause 2. But this does no objection was interposed by the cred- Jiofc apply to claims against the estate itor. See Comstock v. Wheeler, 2 N. B. for expenses of administration, such as B. 561, Fed. Cas. No. 3,084; In re Lor- the charges and expenses shown on the ing. Holmes, 483, Fed. Cas. No. 8,512 ; In account of a receiver appointed to take re Muldauer, 8 Ben. 127, Fed. Cas. No. charge of the bankrupt's estate. In re 9,906 ;, In re Aspinwall, 7 Ben. 154, Fed. Reliance Storage & Warehouse Co., 100 Cas. Nq. 590. But an order for the re- Fed. 619, 4 Am. Bankr. Rep. 49. Nor examination of claims made by a register does it apply to fixed liens on the real without objection cannot be revoked by .estate of the bankrupt. Hawthorne v. him upon its return. Idem. § 542 LAW OF BANKEUPTCX 1124 In bankruptcy proceedings, the court's power to reconsider and re- vise its orders and decrees does not expire with the term at which they were made,^^* and reconsideration of a claim should be allowed as a gen- eral rule when asked by the trustee at any time before the estate has been closed, that being the only limitation prescribed by the statute. Yet parties in jnterest (that is, the trustee or other creditors) may certainly lose their right to move for the expunging of an allowed claim when they have acquiesced in it for such a length of time as to be justly chargeable with laches.^** But a delay of a year or even more, no other facts appearing, and where no dividend has been declared, cannot be said to constitute by itself such laches as to bar the re-examination of a claim.*^* And while it would be an abuse of discretion for the court to set aside an order allowing a claim and to grant a rehearing, for the sole purpose of extending the time within which an appeal may be tak- en, yet such an order, like all others, is within the control of the court, and may, in its sound discretion, be set aside for good cause shown, even after the expiration of the time allowed for appeal.*'^® It is the policy of the act to do equal and exact justice between the estate of the bankrupt and the creditors. The court has dmple power to investigate a claim at any stage of the proceedings, before the final closing of the estate, and to make any correction that equity and justice demand, — not only to reduce the amount of the claim if it is found to have been allowed for too large a sum, but also to increase it if, through inadvertence or mistake, it is less than by right it should be, or to allow the proofs to stand for any sum which, upon examination, is found to be actually due.^*** Consequently, when a trustee in bankruptcy is not 222 In re Keyes, 160 Fed. 763, 20 Am. 31, 25 Am. Bankr. Kep. 855; In re Mont- Bankr. Eep. 183. gomery, 3 N. B. R. 423, Fed. Cas. No. 223 In re Pittsburg Lead & Zinc Co., 198 9,730 ; In re New Brunswick Carpet Co., Fed. 316, 28 Am. Bankr. Rep. 880 ; In re 4 Fed. 514 ; Courtney v. Fidelity Trust Hinckel Brewing Co., 123 Fed. 942, 10 Co., 219 Fed. 57, 134 C. C. A. 595, 33 Am. Am. Bankr. Eep. 484 ; In re Hamilton Bankr. Rep, 400. See In re Unit«d Gro- Fumiture Co., 116 Fed. 115, 8 Am. Bankr. eery Co. (D. C.) 253 Fed. 267, 41 Am. Rep. 588; In re Efflnger, 184 Fed. 724, Bankr. Rep. 824. But on motion to ex- 25 Am. Bankr. Rep. 924 ; In re Merwin punge a proof of debt and establish a & Willoughby Co. (D. 0.) 208 Fed. 293, set-off, a personal judgment cannot be 31 Am. Bankr. Rep. 385 ; In re Williams rendered against the creditor for money (D. C.) 224 Fed. 984, 35 Am. Bankr. Rep. in his hands. In re Forbes, 5 Biss. 510, 459. Fed. Cas. No. 4,922 ; In re Peacock, 178 224 In re Globe Laundry, 198 Fed. 365, Fed. 851, 24 Am. Bankr. Rep. 159. Where 28 Am. Bankr. Rep. 831; In re Cale- a referee's order disallowing claims in donia Coal Co. (D. C.) 254 Fed. 742, 43 bankruptcy on the sole ground that the Am. Bankr. Rep. 93. claims were not offered for proof within 225 West V. W. A. McLaughlin & Co.'s the time required was sustained on a Trustee, 162 Fed. 124, 20 Am. Bankr. petition for review, and shortly after- Rep. 654. wards the Circuit Court of Appeals in = 28 In re W. A. Pat«rson Co., 186 Fed. another case so construed the bankrupt- 629, 108 C. C. A. 493, 34 L. R. A. (N. S.) cy act that such claims would not have 1125 PROOF AND ALLOWANCE OF CLAIMS § 542 satisfied of the legality or correctness of any claim which has been proved and allowed against the estate, or desires to contest such claim in re- spect either to its validity or amount, the proper practice is for him to move to have it re-examined, under the provisions of the general order, and proceed as therein directed.'**'' And in the first place, the proceeding should be begun by the filing of a petition by the trustee, which should be distinct and specific. But it is said that it need not allege facts which, if proved, would defeat the claim, but only facts which constitute a suf- ficient cause for the re-examination of it which is demanded.*** And if the petition is faulty in this respect, the proper method of objecting to it is by motion for a more specific statement, not by motion to strike out parts of the petition.*** The creditor whose claim is in contest should file an answer; and if he fails to do so, and does not seek or obtain an extension of the time for- answering, it will be a proper case for the en- try of a decree against him pro confesso, carrying the ordinary incidents and consequences of such a decree.**" The general order, it will be noticed, gives the right of moving for the reconsideration of a claim to the "trustee or any creditor." **^ Al- though the corresponding general rule under the act of 1867 was worded in the same way, it was held that a petition for the re-examination of a proved and allowed claim might be presented by the bankrupt himself, as well as by the trustee or a creditor.*** And in view of the purpose and policy of this provision of the act, and bearing in mind that the gen- eral order, though narrower than the statute, cannot operate as a restric- tion upon it, there seems good reason to hold that a petition by the bankrupt himself asking for a review of a proved claim ought not to be rejected.*** As between the trustee and the general creditors of the es- tate, it has been held that the trustee alone is vested with the right to been barred, the claimants were held en- allowed against the individual estate of a titled to a rehearing, although no appeal partner, the referee has jurisdiction and was claimed. In re Keyes, 160 Fed. 763, power, on his own motion, to disallow 20 Am. Bankr. Rep. 183. the claim, and then reallow it against the 227 In re Firemen's Ins. Co., 3 Biss. firm estate. Gary v. International Agr. 462, 8 N. B. R. 123, Fed. Cas. No. 4,796. Corp. (C. C.) 243 Fed. 475, 38 Am. Bankr. See In re Brown (D. C.) 228 Fed. 533, 35 Rep. 590. Am. Bankr. Rep. 826. 232 in re Pease, 29 Fed. 593. 228 In re George Watkinson & Co., 130 233 in re Ankeny, 100 Fed. 614, 4 Am. Fed. 218, 12 Am. Bankr. Rep. 370; In Bankr. Rep. 72. Compare In re Colum- re Ankeny, 100 Fed. 614, 4 Am. Bankr. bia Iron Works, 142 Fed. 234, 14 Am. Rep. 72. Bankr. Rep. 526. If the bankrupt can 220 In re Ankeny, 100 Fed. 614, 4 Am. be estopped from disputing the validity Bankr. Rep. 72. of a claim against his estate, or from 230 In re Docker-Foster Co., 123 Fed. applying to have it expunged after it has 190, 10 Am. Bankr. Rep. 584 ; In re been proved, by reason of his having in- Lewis, Bck & Co., 153 Fed. 495, 18 Am. eluded it in his sworn schedule of debts, Bankr. Rep. 657. no such estoppel can be claimed in favor ^31 In the bankruptcy of a partner- of a purchaser of the claim who was in- shlp, where a claim has been proved and formed by the bankrupt, before purchas- § 542 LAW OF BANKRUPTCY 1126 move for the reconsideration of a claim which has been allowed, that the provision authorizing "any creditor" to do so is meant to apply only to the case where a trustee has not yet been appointed, and that, after the appointment of a trustee, such a proceeding may not be instituted by a creditor without the concurrence of the trustee.*** Hence if any creditor is dissatisfied with the allowance of another creditor's claim, his proper course is to demand of the trustee that the latter shall move for its reconsideration. But if the trustee refuses to do so, then the cred- itor may apply to the court for an order requiring the trustee so to move, or for permission for the objecting creditor to move in his own name.**^ And where it appears that a claim has been properly disallowed on ob- jections made and conducted by the creditors in their own names, who voluntarily assumed liability for costs and expenses, the order of disal- lowance will not be disturbed on the theory that the trustee was the only proper person to attack the claim. *^* And the right to have a claim re-examined should not be denied to creditors who clearly have an in- terest therein because they seek such re-examination chiefly or solely in the interest of a third party.**' Any objection to a claim which would have been ground for refusing to allow it will be ground for expunging it on motion. If found to be exaggerated in amount, or illegal as to a severable portion, it may be reduced in amount. But if the claim as made' is disproved in form and substance, it should be wholly expunged.*** It may be stricken out on proof that the creditor had received a fraudulent preference which had not been surrendered,, whereby he was disabled from proving any part of his debt,**" or on account of an accomplished purpose of hindering and defrauding other creditors,**' or because, after the proof and allow- ance of a debt founded on a judgment, the court in which such judgment was rendered has set it aside,**^ or when the claim is shown to have been barred by the statute of limitations at the time the petition in bankrupt- cy was filed.*** ^ ing, that the seller of the claim had no ^87 in re Sully, 152 Fed. 619, 81 0. O. valid claim against the estate. In re A. 609, 18 Am. Baukr. Rep. 123. Pease, 29 Fed. 593. ass in re Mead, 14 Fed. 287 ^s. In re Sully, 142 Fed. 895, 15 Am. ,39 m re Ileadley, 97 Fed. 765, 3 Am. Bankr. Bep. 304 ; In re Lewensohn, 121 jtj^nkr. Rep. 272 ; In re Leland 14 Fed. 538, 57 0. C. A. 600, 9 Am. Bankr. Blatchf. 240, 16 N B. R. 505 Fed Cas Rep. 368. But see In re Collins, 235 no. 8,235 Fed. 937j 37 Am. Bankr. Rep. 692. ,-„'t„ ' tt .,, ^„ „ 2S0 In re Mexico Hardware Co., 197 '' \'^ ^e»dley, 97 Fed. 765, 3 Am. Fed. 650, 28 Am. Bankr. Rep. 736 ; In re '^"^^'^^- "^p. ^7^. Stern, 144 Fed. 956, 76 C. C. A. 10, 36 Am. ^, '" ^^ '« Bruce, 6 Ben. 515, Fed. Cas. Bankr. Rep. 510. ^o. 2,044. 280 In re Canton Iron & Steel Co., 197 =^2 in re Lipman, 94 Fed. 353, 2 Am. Fed. 767, 28 Am. Bankr. Rep. 791. Bankr. Rep. 46. 1127 PEOOF AND ALLOWANCE OF CLAIMS § 542 The burden of showing that a creditor's claim, duly proven according to the provisions of the statute, is founded in mistake or fraud, or other- •wise is not a valid claim against the estate, rests upon the trustee or the creditor moving to have it expunged. In proving the claim as the law provides, the creditor makes a prima facie case in favor of it. The proof is not conclusive. It may be attacked. But the person who attacks it must assume the burden of proof, for the claimant is entitled to stand upon his own deposition until overcome by countervailing evidence.*** This evidence, however, may be extracted from the creditor himself. He will be ordered to appear for examination concerning the nature and particulars of his claim, and if he does not obey, or refuses to answer questions, it is at his peril. Even though he lives in another state, this is no obstacle to the order for his appearance. For, by proving his claim, he subjects himself to the jurisdiction of the court and is thereafter bound to obey all lawful orders touching his debt. If he disobeys the order to appear and be examined, the court can deprive him of the bene- fit of the act by expunging his claim.*** If the testimony of the bank- rupt is desired on a motion to expunge a proved claim, it may be ob- tained by summoning him as a witness.**® The referee is required to give due notice to the creditor whose claim is challenged of the time fixed for hearing the petition,**® but there is nothing requiring him to give notice to either party of his findings and decision on the petition. That becomes a matter of record, of which a creditor who has proved a claim is bound to take notice, the same as he would, if he were a party to a suit, of the final action or judgment of the court in such suit.**' As against collateral attack, an order of a court of bankruptcy ex- punging one's claim for the list of proved and allowed claims, and ex- cluding it from participation in the distribution, is conclusive upon the facts and issues involved.*** And where a referee in bankruptcy makes an order expunging a claim by a creditor against the bankrupt, because the creditor had received a preference in excess of the claim, such order is res judicata as to the fact of the preference.*** But the effect of ex- punging a claim, and thereby excluding the creditor from participation 248 In re Frazin (G. 0. A.) 201 Fed. 86, foon v. Ives, 159 Fed. 861, 87 C. C. A. 41, 29 Am. Bankr. Eep. 214 ; In re Pitts- 20 Am. Bankr. Eep. 174 ; In re Kyler, 2 burg Lead & Zinc Co., MS Fed. S16, 28 Ben. 414, 2 N. B. E. 649, Fed. Cas. No. Am. Bankr. Eep. 880; In re Howard, 7,956. 100 Fed. 630, 4 Am. Bankr. Rep. 69; In 2*5 Canby v. McLear, 13 N. B. E. 22, re Felter, 7 Fed. 904 ; In re Robinson, 8 Fed. Cas. No. 2,378. Ben. 406, 14 N. B. E. 130, Fed. Cas. No. - S^e in re Stoever, 105 Fed. 355, 5 Am. 11,938 ; Canby v. McLear, 13 N. B. E. Bankr. Rep. 250. 22, Fed. Cas. No. 2,378; In re Elk Valley 247 in re Pease, 29 Fed. 593. Coal Mining Co. (D. C.) 210 Fed. 386, 31 2*8 John Nix & Co. v. Andrews, 88 N. 4.m. Bankr. Eep. 545. J. Law, 721, 96 Atl. 1012. 244 In re George Watkinson & Co., 130 249 Hartranft v. Ives, 64 Pa. Super. Fed. 218, 12 Am. Bankr. Eep. 370 ; Laf- Ct. 338. § 543 LAW OF BANKEDPTCY 1128 in the bankruptcy proceedings, is to remit him to such remedies as he may have outside the bankruptcy, and thus set him free to reduce his claim to judgment and subject to its payment such property of the bank- rupt as has not been absorbed by the bankruptcy proceedings.*^" § 543. Review of Referee's Proceedings by Judge. — Under the for- mer bankruptcy law it was held that the register had power to pass upon the question of the regularity and formality of the proofs, but when any question of law or fact was raised in respect to the claim, he was obliged to certify the same to the judge for decision.*®^ But under the present law, the referee not only has jurisdiction in the first instance to hear objections to the proof of claims, and pass upon the question of al- lowing or disallowing them, but also to entertain and decide motions for their reconsideration or expunction. And the only remedy to obtain a review of his decision on such a motion lies in the court of bankruptcy.*®* And a person dissatisfied must file a petition for a review of the referee's order. **^ The matter cannot be brought into the district court for re- view by filing exceptions in that court.*®* Further, a person desiring a review of the order must present his petition within the time limited therefor by any rule of the court,*®" and even if no such rule applies, he must act with reasonable promptness, or he will be subject to the imputa- tion of laches and may for that reason be barred of all relief.*®* On such a petition for review, the burden of proof is on those who object to the referee's decision and desire its reversal.*®' And since the referee is vested with a large measure of discretion, his decision on any 2 50 Andrews v. John Nix & Co., 246 V. tee may do so. In re Mexico Hardware S. 273, 38 Sup. Ct. 249, 62 L. Ed. 711, 41 Co., 197 Fed. 650, 28 Am. Bankr. Rep. Am. Bankr. Rep. 260. 736. 261 In re Bogert, 2 N. B. R. 485, Fed. ^°* ^^ re Hawley, 116 Fed. 428, 8 Am. Cas. No. 1,598 ; In re Clark, 6 N. B. R. ^ankr. Rep. 632. Where, after disal- 202, Fed. Cas. No. 2,80.er Corp. tual credits when its action is invoked (D. C.) 240 Fed. 807, 39 Am. Bankr. Rep. for that purpose. Cumberland Glass 557. Mfg. Co. V. De Witt, 237 U. S. 447, 35 s See In re Barnes Gear Co. (0. C. Sup. Ct 636, 59 L. Ed. 1042, 34 Am. A.) 265 Fed. 597, 45 Am. Bankr. Rep. Bankr. Rep. 723. 468. 2 Bankruptcy Act 1898, §§ 26, 27. * In re Kyte (D. C.) 182 Fed. 166, 25 Where a claim as originally filed recited Am. Bankr. Rep. 337 ; Lehigh Valley that there was no counterclaim or offset Coal Sales Co. v. Maguire, 251 Fed. 581, to it, but it appeared that the bank- 163 C. C. A. 575, 42 Am. Bankr. Rep. rupt had a claim and a lien against 319. property of the claimant, it was held s Wagner v. Citizens' Bank & Trust 1131 SET-OFF OF MUTUAL DEBTS § 544 court of bankruptcy, its discretion in these cases being, governed by the principles of equity. Thus, it may disallow a claim of a set-ofE against the bankrupt, when its allowance would work injustice,* and on the other hand, it may order a set-off where injustice wotild otherwise result, though an action at law could not be maintained on the claim in ques- tion.'' Thus, where a debtor of the bankrupt who had a claim against the latter which the law would allow him to offset, mistook his legal rights in the matter and acted on incompetent advice, to the effect that the bank- ruptcy law would prevent any set-off, and therefore paid the entire amount of his debt to the trustee in bankruptcy, it was held that he was entitled to a return of the money so paid by him.* But a claim can- not be used in this way where the transaction out of which it arose was fraudulent.* But it must be remarked that, although the allowance of a set-off enables the particular creditor to obtain payment in full of his claim, while other creditors are only partially paid, and thus ne becomes a preferred creditor, yet it is a preference growing out of the business relations of the parties as they stood at the time, and not one contrived between them, and therefore it is not obnoxious to the act.^" The claim proposed as a set-off, whether brought forward by the trus- tee or the creditor, must be in the nature of a debt or a credit. For this reason, a perfectly gratuitous expenditure of money with no ex- pectation of repayment (as by a father for the support and education of his children) cannot be made the subject of a set-off.^"^ And a payment on a note given by an insolvent to close up an existing account with a Co., 122 Tenn. 164, 122 S. W. 245, 28 L. Am. Bankr. Rep. 112. Where the trus- K. A. (N. S.) 484, 135 Aln. St. Rep. 869, tee in bankruptcy sues for the recovery 19 Aun. Cas. 483; Morris v. Windsor of certain commissions which had been Trust Co., 213 N. Y. 27, 106 N. E. 753, paid to the defendant in the character Ann. Cas. 1916C, 972 ; Planters' Oil Co. of a factor acting for the corporation V. Gresham (Tex. Civ. App.) 202 S. W. in its business, on the ground that the 145. See In re Colwell Lead Co. (D. factor had made secret payments out of C.) 241 Fed. 922, 39 Am. Bankr. Rep. his commissions to the president of the 228. corporation, in violation of the penal 8 Hitchcock V. BoUo, 3 Biss. 276, Fed. law of the state, the factor cannot offset Cas. No. 6,535. claims which he holds against the cor- 7 Wyckoit V. Williams, 136 App. Div. poration. Palmer v. DouU Miller Co. 495, 121 N. y. Supp. 18». (D. C.) 283 Fed. 309. s In re Farmers' & Mechanics' Bank lo Drake v. RoUo, 3- Biss. 273, Fed. (D. C.) 13 Fed. 361. Cas. No. 4,066. Compare In re White, 9 McKay v. Weager (Sup.) 134 N. T. 177 Fed. 194, 101 0. 0. A, 364, 24 Am. Supp. 66. A bank which, as pledgee, had Bankr. Rep. 197. wrongfully sold property of the bank- 11 Embry v. Bennett, 162 Fed. 139, 89 rupts at private sale for the amount of C. 0. A. 163, 20 Am. Bankr. Rep. 651. its lien, but afterwards received the And so of a payment made by a surety profit from resales by the purchaser, of the bankrupt, in exoneration of a which it held as its own, was held estop- default or defalcation of the bankrupt, ped, on an accounting to the trustee, to but which the surety was under no legal apply such sum on unsecured indebted- obligation to make, his liability as sure- ness of the bankrupts. Howard v. Me- ty having been already terminated by chanics' Bank (D.- C.) 262 Fed. 699. 45 circumstances which he might have dis- § 544 LAW OF BANKRUPTCY 1132 creditor, made within four months of the filing of his petition in bank- ruptcy, cannot be treated as a set-off against a new debt afterwards created by him with the same creditor, when he seeks to prove the latter in the bankruptcy proceedings.^* So also, a creditor proving a claim against the bankrupt on an open account cannot be subjected to a set-off which would reduce or extinguish it, merely because he applied funds sent to him by the bankrupt to the satisfaction of another claim (which was secured by mortgage) instead of applying them, as the debtor directed, to the open account.^* On similar principles, it is held that a contingent obligation or liability cannot be set off against a debt ab- solutely owing to the bankrupt,^* nor a claim for unliquidated damages for a tort or a breach of contract.^® So, a judgment obtained by a trustee in bankruptcy for a penalty incurred by the violation of a state statute against usury cannot be set off against a claim of the judgment debtor against the bankrupt estate. "^^ And money or property held or due under a trust must be employed or applied according to the terms of the trust, and cannot be made the subject of a set-off as against the private debt or obligation of the trustee." But subject to these qualifications and restrictions, the set-off al- lowed by the statute is not confined to pecuniary demands, but embraces such claims as may or must give rise to or result in a. "debt," as, for instance, where a creditor has goods of the bankrupt in his hands, which could be reached only by a suit at law or in equity.^* So a credi- tor .of the bankrupt who has in his possession, at the time of the bank- covered on proper inquiry. In re Hal- 377, 151 N. W. 525. In the banliruptcy loclc (D. C.) 226 Fed. 821, 36 Am. Bankr. of a stockbroker, wlio had been pur- Rep. 92. chasing stock for customers where the 12 In re Seay, 113 Fed. 969, 7 Am. number of shares he had on hand at the Banlir. Rep. 700 ; In re Abraham Steers time of the bankruptcy was less than Lumber Co., 112 Fed. 406. 50 C. C. A. required to satisfy the demands of the niO, 7 Am. Bankr. Rep. 332. customers, any customer who is indebt- 13 Stewart v. Hopkins, 30 Ohio St. ed to the broker may set off his indebt- 502. edness against the shares not recoyer- 1* Abbott V. Hicks, 7 Scott, 715; In able. In re H. B. Hollins & Co. (D. i-e American Paper Co., 246 Fed. 790, C.) 212 Fed. 317. 159 C. 0. A. 92, 41 Am. Bankr. Rep. i« Wilson v. National Bank of RoUa 141. (C. C.) 1 McCrary, 538, 3 Fed. 391. IB Rose V. Sims, 1 Bam. & Ad. 521; it Western Tie & Timber Co. v. Brown, In re Becker Bros., 139 Fed. 366, 15 Am. 196 U. S. 502, 25 Sup. Ct 339, 49 L. Bankr. Rep. 228 ; Pindel v. Holgate, Ed. 571, 13 Am. Bankr. Rep. 447 ; Libby 221 Fed. 342, 137 O. C. A. 15S, 34 Am. v. Hopkins, 104 U. S. 303, 26 L. Ed. 769 ; Bankr. Rep. 600; In re Barnes Gear In re Davis, 119 Fed. 950, 9 Am. Bankr. Co. (D. O.) 251 Fed. 764, 42 Am. Bankr. Rep. 670; Scammon v. Kimball, 5 Biss. Rep. 325; Ciistard v. MeNary, 85 W. 431, Fed. Cas. No. 12,435; In re Troy Va. 516, 102 S. E. 216. Compare In re Woolen Co., 8 N. B. R. 412, Fed. Gas. Hai-per (D. C.) 175 Fed. 412, 23 Am. No. 14,203; In re Lane, 2 Low. 305, 13 Bankr. Rep. 918. The rule is otherwise N. B. R. 43, Fed. Cas. No. 8,043. if damages for a tort or breach of con- le Murray v. Riggs, 15 Johns. (N. tract have been liquidated. Marcus Y.) 571; In re W. & A. Bacon Co. (D. Shipping Ass'n v. Barnes, 169 Iowa, C.) 261 Fed. 109, 44 Am. Bankr. Rep. 1133 SET-OFF OF MUTUAL DEBT8 § 545 ruptcy, goods consigned to him by the bankrupt for sale, may sell the goods and, as against a claim for the proceeds, set off his claim against the bankrupt." The value of property converted by the bankrupt may also be set off, *" and so, perhaps, may a claim for breach of a contract, where the amount which would be recoverable is fixed and certain.*^ Thus, a claim for loss under an insurance policy may be set off by the insured against his indebtedness to the company.** And where a land- lord received a specified sum from the tenant for an extension of the lease for a definite period, but the lessee obtained no benefit from the ex- tension because of his bankruptcy during the original term, in proceed- ings to establish claims for rent and for damages to the leased premises, the lessor must account to the estate for the sum so received.** A credi- tor having two distinct debts, and holding property in pledge for one of them, with power of sale existing at the date of the bankruptcy, may apply the surplus -proceeds after paying the first debt to the discharge of the second.** In partnership cases, the right of set-off cannot be so applied as to run counter to the cardinal ^rule that firm assets are for firm creditors and the separate estates of the partners for their individual creditors. But as between the partners themselves, claims arising out of independent dealings may be offset against demands growing out of the partnership affairs.*® § 545. Meaning of Mutual Debts and Mutual Credits. — In order that debts may be set off under this provision of the bankruptcy law, they must be mutual and must be in the same right.*® By the term "mu.tual 196. Claims due the bankrupt against s* Ex parte Whiting, 2 Low. 472, 14 mortgagees who took possession of the N. B. R. 307, Fed. Cas. No. 17,573; In property under an invalid foreclosure re- McVay, 18 Fed. 443 ; In re Searles, may be set ofE against claims of the 200 Fed. 893, 29 Am. Bankr. Rep. 635. mortgagees. Roger v. J. B. Levert Co., 25 in re Voetter, 4 Fed. 632; Warren 237 Fed. 737, 150 C. C. A. 491, 38 Am. v. Burnham, 32 Fed. 579. Bankr. Rep. 240. ze in re Howe Mfg. Co. (D. C.) 193 19 Goodrich v. Dobson, 43 Conn. 576, Fed. 524, 27 Am. Bankr. Rep. 477. See Fed. Cas. No. 18,297. In re American Paper Co. (D. C.) 243 20 MeCabe v. Winship, 17 N. B. B. 113, Fed. 753, 40 Am. Bankr. Rep. 121. Fed. Cas. No. 8,668. Trust funds are not applicable by way 21 See In re Wheeler, 2 Low. 252, Fed. of set-ofE against a debt of the bankrupt Cas. No. 17,488; In re Manneschmidt, to the person in charge of such funds, 202 Fed. 815; Clifford v. Oak Valley since the relation is fiduciary in the Mills Co. (D. C.) 229 Fed. 851, 36 Am. one instance and personal in the other. Bankr. Rep. 867; In re Pettier & Sty- Alvord v. Ryan, 212 Fed. 83, 128 C. C. mus Co. (C. C. A.) 262. Fed. 955, 44 A. 539, 32 Am. Bankr. Rep. 1. A debt Am. Bankr. Rep. 469; Wolins v. Wil- owing from a bankrupt partnership to a merding, 102 Misc. Rep. 667, 169 N. Y. creditor and one owing from the cred- Supp. 594; In re Barnes Gear Co. (D. itor to an individual partner are not C.) 259 Fed. 320, 44 Am. Bankr. Rep. "mutual debts" which may be set off 275. against each other. In re Neaderthal, 22 Drake v. Rollo, 3 Biss. 273, 4 N. B. 225 Fed. 38, 140 G. O. A. 364, 34 Am. R. 689, Fed. Cas. No. 4,066. Bankr. Rep. 542. 23 In re Abrams, 200 Fed. 1005, 29 Am. Bankr. Rep. 590. § 545 LAW OP BANKRUPTCY 1134 credit," as used in the rule under which courts of equity allow set-off in cases of mutual credit, we are to understand a knowledge on both sides of an existing debt due to one party, and a credit by the other party, founded on and trusting to such debt as a means of discharging it.*' But the term "mutual credits" in the bankruptcy law is more compre- hensive than the same term as used in the equity rule or in statutes re- lating to the subject of set-off. The term "credit" is synonymous with "trust," and the trust or credit need not be of money on both sides. Where the creditor has goods or choses of action of the bankrupt put in his hands before the bankruptcy, by a valid contract, by the terms of which the deposit will result in a debt, as, if they are ueposited for sale or collection, the case of mutual credits has arisen within the mean- • ing of the bankruptcy law.** Thus, where there is a debt due on one side, and on the other a delivery of property with directions to turn it into money, the property thus delivered constitutes a '"credit" within the meaning of the statute.** But where a bankrupt had deposited chat- tels with a bailee for the purpose of having certain work done upon them, and the trustee sought to recover them in an action of trover, it was held that the defendant was not entitled to retain them for his general bal- ance for such work done by him for the bankrupt previously to the bank- ruptcy, for this was not a case of mutual credits.'" So, in an action by the trustee in bankruptcy of an insolvent corporation, which carried on a livery stable, for board of defendant's horses, the latter cannot offset his personal claims against the former owner of the stable, who had conduct- ed the business in the same name adopted by the corporation, and after- wards managed the business, since, whatever equities the defendant may have against such former owner, he has no counterclaim against the trustee.*^ Again, where a claim against a bankrupt insurance company for loss under its policies has been assigned, after notice of insolvency, the assignee cannot set it off against his previous indebtedness to the company, the debts and credits not being "mutual" within the meaning of the law.** So, where the trustee of a bankrupt corporation is prose- 27 King 7. King, 9 N. J. Eq. 44. ruptcy. In re J. P. Pierson, Jr., & C!o. 2 8 Ex parte Caylus, 1 Low. 550, Fed. (D. C.) 225 Fed. 889, 35 Am. Bankr. Cas. No. 2,534 ; Marks v. Barker, 1 Bep. 213. Wash. C. C. 178, Fed. Cas. No. 9,096; so Rose v. Hart, 8 Taunt. 499; Bird- Rose V. Hart, 8 Taunt. 499. And see wood v. Raphael, 5 Price, 593. Walther v.' Williams Mercantile Co., =i Davis v. Lobsen, 34 Misc. Rep. 769, 169 Fed. 270, 94 C. C. A. 546, 22 Am. 68 N. Y. Supp. 795. Bankr. Rep. 328. "^ Hitchcock v. Rollo, 3 Biss. 276, 4 N. 29 Goodrich v. Dobgon, 43 Conn. 576, B. R. 690, Fed. Cas. No. 6,535. And see. Fed. Cas. No. 18,297. A customer of a as to assigned claims, Moulton v. Per- bankrupt stockbroker is entitled to a kins, 116 Me. 218, 100 AtL 1020. But set-off equal to the value of stock con- compare Standard Engineering & Const, verted, and may have the value of the Co. v. Smyser-Royer Co., 68 Pa. Super. stock fixed as of the date of the bank- Ct. 437. 1135 SET-OFF OF MUTUAL DEBTS § 546 cuting an action against another corporation for goods sold, a creditor of the bankrupt cannot have the value of the property credited on his claim against the bankrupt, and have the action dismissed, on the con- tention that the goods were bought by him from the bankrupt and sold by him to the other corporation, when it appears that he was an officer of the bankrupt corporation and in charge of its sales,' and at the same time an officer and agent of the purchasing corporation.^* In another case, it appeared that a claimant ordered materials from a corporation, but another corporation which became bankrupt, intending to charge the same to the claimant, furnished the materials. The claimant, before changing his position or suffering any loss, learned of the facts and in- sisted on receiving the materials from the bankrupt. It was held that the claimant made himself a debtor to the bankrupt without any right to offset against the shipment any claim he had against the other cor- poration.** § 546. Time of Accrual of Debts or Claims. — To entitle a person to a set-off against the estate of a bankrupt, his debt or demand must be a provable one, and therefore must have been in existence at the com- mencement of the proceeding in bankruptcy,** and further, if he was not the original holder of the claim, he must have acquired it before the filing of the petition in bankruptcy.** Thus, for example, the mutual accounts between a bankrupt and his bank of deposit are closed by operation of law at the time when the petition in bankruptcy is filed, and no. right of set-off exists in the bank as to deposits made after that time, even though neither party knew of the filing of the petition when the deposit was made.*' So, a creditor of a bankrupt cannot obtain a preference of his debt by purchasing the property of the bankrupt through the intervention of an agent, and tendering the notes of the bankrupt in payment for the same ; and in an action by the trustee to re- cover the value of such property, the creditor cannot set off the notes of the bankrupt.** But if a debt or claim constitutes a fixed and definite lia- bility at the time of the bankruptcy, it is a provable debt, a.lthough the time for its paymeilt has not yet arrived. Hence a debt not yet due may be set off against a debt due immediately, if it is of a provable nature.*" as In re Fort Wayne Electric Corp., 95 »e Smith v, Brinkerhoff, 8 Barb. (N. Y.) Fed. 264, 2 Am. Bankr. Bep. 503. 519 ; Ogden v. Cowley, 2 Johns. (N. Y.) 3* In re Belleview Pipe & Foundry Co., 274. 189 Fed. 169. *^ In re MichaeUs & Lindeinan, 196 35 Shepherd v. Turner, 3 McCord (S. Fed. 718. C.) 249, 15 Am. Dec. 631 ; Smith v. Brink- ss Fleming v. Andrews, 9 Bigs. 348, 3 erhoff, 2 Bdm. Sel. Gas. (N. Y.) 369; Fed. 632. Moore v. Third Nat. Bank, 41 Pa. Super. P Ex parte Prescpt, 1 Atk. 230; Ex Ct. 497 ; Bramham v. Lanier Bros., 138 parte Wagstaff, 13 Ves. 65; In re City Tenn. 702, 200 S. W. 830. Bank, 6 N. B. E. 71, Fed. Cas. No. 2,742. § 547 LAW OF BANKEUPTCY 1136 (Thus, notes made by the bankrupt, though not due at the time of the bankruptcy, may be used as a set-off in an action against the holder by the trustee in bankruptcy.** And an indorser or surety who pays the debt of his principal after the latter's bankruptcy, may claim* the bene- fit of it as a set-off, provided his contract of indorsement or suretyship was made before the filing of the petition." § 547. Claims Purchased With a View to Set-Off. — The bankruptcy act provides that "a set-off or counterclaim shall not be allowed in favor of any debtor of the bankrupt which was purchased by or transferred to him after the filing of the petition, or within four months before such filing, with a view to such use and with knowledge or notice that such bankrupt was insolvent, or had committed an act of bankruptcy." ** The rule was substantially the same under the act of 1867, the ques- tion turning upon the person's knowledge or notice of the fact of in- solvency, or, in the case of involuntary bankruptcy, of the commission of an act of bankruptcy.** If this particular fact is drawn in issue, the burden is on the party claiming the right of set-off to show that he had no notice or knowledge of the insolvency of the party with whom he was dealing, and consequently no intention of using the claim in ques- tion as a set-off in the latter's bankruptcy.** Though this clause of the statute speaks only of claims "purchased by or transferred to" the debtor of the bankrupt, it is held that, where an indorser of the bankrupt's paper takes it up within four months prior to the bankruptcy, knowing that the bankrupt is insolvent, and for the purpose of setting it off against his debt to the bankrupt, the statute applies, and it cannot be so used.*^ § 548. Claims Already Filed or Proved. — Proving his claim in the bankruptcy proceedings is a waiver by the creditor of all right of action or suit against the bankrupt in respect of such claim. Hence, where the creditor proved his claim, but omitted to credit the bankrupt with a debt due to him from the creditor, and the trustee sued for such debt, it was held that the creditor could not offer the claim already proved, by way of set-off to that suit ; for his doing so would be equivalent to the prosecution of an original suit for its amount, the right to which he had *o Frank v. Mercantile Nat. Bank, 182 14 N. 5. R. 201, Fed. Cas. No. 12,027 ; N. X. 264, 74 N. E. 841, 108 Am. St. Rep. Mattox v. Cady, Fed. Cas. No. 9,301 '; 805. Hovey v. Home Ins. Co., 10 N. B. R. 224*, 41 Marks v. Barker, 1 Wash. 0. 0. 178, Fed. Cas. No. 6,743. Fed. Cas. No. 9,096 ; In re Dillon, 100 i* In re Shults, 135 Fed. 623, 14 Am. Fed. 627, 4 Am. Bankr. Rep. 63. But Bankr. Rep. 378. compare Ex parte Hale, 3 Ves. 304. ^o Mason v. National Herkimer Coun- 42 Bankruptcy Act 1898, § 68b. \ ty Bank, 172 Fed. 529, 22 Am. Bankr. 48 See Mattocks v. Levering, 3 Fed. Rep. 733. 212 ; Rollins v. Twitchell, 2 Hask. 66, 1137 SET-OFF OF MUTUAL DEBTS § 549 waived.** But there is also a decision to the effect that a creditor who has proved his claim in the bankruptcy proceedings may withdraw the same and plead it as a set-off in a suit brought against him by the trus- tee, and that if he is not allowed thus to plead the claim, and judgment goes against him in the trustee's suit, the court of bankruptcy, having full power over such a judgment, is bound by the statute to set off against it the claim of the creditor at its proper value.*' § 549. Joint Debts and Credits. — Under the bankruptcy law of 1867 it was held that, where one of two joint debtors becomes bankrupt, the creditor may set off the debt against his separate indebtedness to the bankrupt.** But generally the courts adhered to the rule that a set-off is enforced in equity only when there are mutual debts or credits, or where there exists some equitable consideration or agreement between the parties which would render it unjust not to allow a set-off. Hence, where a bankrupt owed a debt to two persons jointly, and held a joint note given by one of them and a third person, it was held that the two claims were not subject to set-off under the bankruptcy act, being neither mutual debts or credits.** So, it is now held that a solvent partnership which is indebted to a bankrupt cannot set off against such indebtedness a claim due from the bankrupt estate to one of the part- ners,®* and a claim on promissory notes of a partner cannot be set off against a judgment in behalf of the firm, the debts not being in the same right.^^ So where five persons, only one of whom was solvent, had a joint claim against the estate of a bankrupt, and each of them had sev- erally become liable to the trustee in bankruptcy, the amounts of such liabilities aggregating more than the claim, but it did not appear that the joint liability and the separate debts grew out of the same trans- action, or that either formed the inducement or consideration for thefc other, it was held that there could be no set-off of such claims.®^ In the case of a person jointly liable with the bankrupt and who is also his creditor, the right may depend on whether or not the common cred- itor proves his claim. Thus, where the bankrupt and a person who was indebted to him were jointly liable on a promissory note to a bank, and the bank proved its claim oh the note, and thereafter the bankrupt's 46 Brown v. Farmers' Bank of Ken- s" In re Shults, 132 Fed. 573, 13 Am. tucky, 6 Bush (Ky.) 198; Russell v. Bankr. Rep. 84. Owen, 61 Mo. 185, 15 N. B. R. 322. si in re T. M. Lesher & Son, 176 Fed. * 7 Harmanson V. Bain, 1 Hughes, 391, 650, 25 Am. Bankr. Rep. 218; In re Fed. Cas. No. 6,073. Neaderthal, 225 Fed. 38, 140 0. 0. A. 4 8 In re Carrier, 39 Fed. 193. And see 364, 34 Am. Bankr. Rep. 542. Cosgrove v. Cosby, 86 Ind. 511; Tucker 52 in re Crystal Spring Bottling Co., V. Oxley, Cranch, 34, 3 L. Ed. 29. 100 Fed. ,265, 4 Am. Bankr. Rep. 55. 49 Gray v, RoUo, 18 Wall. 629, 21 L. Ed. 927. Blk.Bkb.(3d Ed.)— 72 § 550 LAW OF BANKRUPTCY 113S debtor took up the note, it was held that the latter could not set oif against his indebtedness to the estate the moiety of the note which the bankrupt should have paid, but that, on paying his debt to the trus- tee, he should be subrogated to the rights of the bank as to that moiety, and entitled to receive such dividends as should be declared thereon.^4 On the other hand, where a debtor of the bankrupt paid a debt to a creditor on which he was jointly liable with the bankrupt, and the cred- itor to whom the payment was made had received a preference, which he had not surrendered, and therefore was not entitled to prove his claim in the bankruptcy, it was held that the debtor paying the claim was not entitled to set ofif the payment against his debt to the bankrupt by virtue of his right of subrogation to the rights of the creditor, since he succeeded to the creditor's disabilities as well as to his rights, but that the claim of such debtor was a "mutual credit," within the meaning of the bankruptcy act, and on that ground he was entitled to have the same set ofiE against the claim of the bankrupt's estate against him.®* Where part. of a claim accrued to the bankrupt himself before the bankruptcy, but the remainder to his trustee after the bankruptcy, one desiring to set off a claim in his own favor must show against which portion of the trustee's claim, if any, it is available by way of set-oflf.^ § 550. Set-Off Against Deposit Account in Bank. — ^A general de- posit account in a bank subject to check becomes, upon the bankruptcy of the depositor, a security for, and a payment pro tanto of, his liabili- ties to the bank, by the operation of the law of mutual credits." Hence where a bankrupt is indebted to a bank, on promissory notes or other- wise, in which he also has a .balance to the credit of his general deposit account, the bank is entitled to have the one claim set off against the <|®ther, and to account to the trustee in bankruptcy only for the balance of the money on deposit after satisfying its own claims, or, if those claims exceed the amount of the bankrupt's balance, then to prove its claim for the remainder.®" And this rule is not affected by the fact that -'n 3 In re Bingham, 94 Fed. 796, 2 Am. 621, 6 Am. Bankr. Rep. 681; In re Bankr. Rep: 223. Meyer, 107 Fed. 86, 5 Am. Bankr. Rep. 5* Morgan v. Wordell, 178 Mass. 350, 593; In re Kalter, 2 Nat. Bankr. News, 59 N. B. 1037, 55 L. R. A. 33. 264; In re Petrle, 5 Ben. 110, 7 N. B. R. 5 5 Howard v. Magazine & Boo}c Co., 332, Fed. Gas. No. 11,040 ; Blair v. Allen, 147 App. Dlv. 335, 131 N. T. Supp. 916. 3 Dill. 101, Fed. Cas. No. 1,483 ; Booth v. 00 Hough V. First Nat. Bank, 4 Biss. Prete, 81 Conn. 636, 71 Atl. 938, 20 L. R. 349, Fed. Cas. No. 6,721 ; E.x: parte A. (N. S.) 863, 15 Ann. Cas. 306 ; Stein- Howard Nat. Bank, 2 Low. 487, 16 N. B. hardt v. National Park Bank, 120 App R. 420, Fed. Cas. No. 6,764. Div. 255, 105 N. Y. Supp. 23 ; Whitaker 57 New York County Nat. Bank v. Mas- v. Crowder State Bank, 26 Okl. 786 110 sey, 192 U. S. 138, 24 Sup. Ct. 199, 48 Pae. 776 ; West v. Bank of Lahoma, IC L. Ed. 380, 11 Am. Bankr. Rep. 42 : Okl. 32S, S5 Pac. 469 ; Toof v. City Nat Scanimon v. Kimball, 92 U. S. 362, 2:! L. Bank, 206 Fed. 250, 124 G. C. A. 118, 30 Ed. 483 ; In re Myers, 99 Fed. 691, 3 Am. Am. Bankr. Rep. 79; In re Wright-Dana Bankr. Rep. 760 ; In re Little. 110 Fed. Hardware Co., 212 Fed. 397, 129 C, C. A. 1139 SET-OFF OF MUTUAL DEBTS § 550 the debt to.the bank, if fixed and absolute, was not due at the date of the bankruptcy,®* as in the case of notes of the bankrupt which were dis- counted by the bank prior to the filing of the petition, whether matured or unmatured at the date of the adjudication in bankruptcy,®* or where the bankrupt's liability was as an indorser of a note held by the bank, though that liability did not becopie absolute until after the filing of the petition.** And it appears that, even though the deposit account may have been transferred on the books of the bank to an assignee for creditors or a receiver, or even to the trustee in bankruptcy, yet if there has been no actual payment of the money nor any change of possession, it is not too late to claim the right of set-off.®^ And in one case it was held that where a bank, holding a note of the bankrupt and also having funds of his on deposit sufficient to satisfy it, paid over the entire fund to the trustee in bankruptcy, through oversight, without first satisfying the note, it was entitled to recover the amount of the note from the trus- tee in a court of equity, without first offering to satisfy the note or bring- ing it into court for cancellation.*^ On the same principle, if a bank, aft- er the commencement of proceedings in bankruptcy, collects money on drafts deposited with it by the bankrupt before that time, it may apply the money towards the payment of a note of the bankrupt held by it.*'' And a firm note to a bank, assumed by an insolvent partner on the dis- solution of the firm, becomes his individual indebtedness, so that such debt and the amount due to him as a depositor, independent of any part- nership consideration, become mutual debts within the meaning of the bankruptcy law.** 73, 31 Am. Bankr. Kep. 816; Wilson v. 5 9 Frank v. Mercantile Nat. Bank, 100 Citizens' Trust Co. (D. O.) 233 Fed. 697, App. Div. 449, 91 N. T. Supp. 488, af- 37 Am. Bankr. Rep. 86 ; In re Friedman firmed, 182 N. Y. 264, 74 N. B. 841, 108 (i/. C.) 241 Fed. 603, 39 Am. Bankr. Kep. Am. St. Rep. 805. 777; Chisholm v. First Nat. Bank, 269 eo in re Philip Semmer Glass Co., 135 111. 110, 109 N. E. 657 ; Conquest v. Fed. 77, 67 C. C. A. 551, 14 Am. Bankr. Broadway Nat. Bank, 134 Tenn. 17, 183 Rep. 25. S. W. 160; Dunlap V. Seattle Nat. Bank, ei in re Myers, 99 Fed. 691, 3 Am. 93 Wash. 568, 161 Pac. 364; Bennett v. Bankr. Rep. 760. But compare Pearsall North Philadelphia Trust Co., 66 Pa. v. Nassau Nat. Bank, 74 App. Div. 89, Super. Ct. 261 ; Wrenn v. Citizens' Nat. 77 N. Y. Supp. 11. Bank (Conn.) 114 Atl. 120 ; In re Cross 62 Union Nat. Bank v. McKey, 102 Fed. (C. O. A.) 273 Fed. 39, 46 Am. Bankr. Rep. 662, 42 C. C. A. 583. 727. «3 In re F^nsworth, 5 Biss. 223, 14 5 8 Germania Savings Bank & Trust Co. N. B. E. 148, Fed. Cas. No. 4,673. And V. Loeb, 188 Fed. 285, 110 C. 0. A. 263, 26 see In re Northrup, 152 Fed. 763, 18 Am. Am. Bankr. Rep. 238 ; In re Ra'dley Steel Bankr. Rep. 335. But compare Con- Const. Co. (D. C.) 212 !Fed. 462 ; De Long tinental & Commerelal Trust & Savings v. Mechanics & Metals Nat. Bank, 168 Bank v. Chicago Title & Trust Co., 199 App. Div. 525, 153 N. Y. Supp. 1010 ; Fed. 704, 118 C. C. A. 142. Shields V. John Shields Const. Co., 83 N. "* Hooks v. Gila Valley Bank & Trust J. Eq. 21, 89 Atl. 1022. Co., 12 Ariz. 315, 100 Pac. 806. § 550 LAW OF BANKRUPTCY 1140 But a liability as indorser, where the principal is solvent, cannot be set off against a bank deposit by the indorser on his bankruptcy.*® And where deposits are made and accepted for a special purpose, the relation of the bank and the depositor is not that of debtor and creditor, but the bank becomes the bailee of the depositor, or holds the fund under a spe- cies of trust, and in this event it cannot set off its own claims against the depositor in his bankruptcy .*'* It was so held in a case where the money was deposited under an agreement that the bankrupt should use it to pay salary checks and pay-roll checks and for certain other specified purposes,®" and also in a case where the bank received a deposit from a customer merely for safe-keeping, the money to be ultimately appropri- ated for the benefit of his creditors, and the bank knew him to be in- solvent.^ So, where the treasurer of a town deposited money in a bank which failed, and town warrants paid with the bank's money were in the hands of the bank at the time of its bankruptcy, and the trustee in bankruptcy obtained the warrants, it was held that, although the town was liable to him on the warrants, no right to set-off could exist in favor of the treasurer and the sureties on his bond.®* Again, a bank has no right to a set-off as to deposits made by the bankrupt after the actual filing of a petition against him, although neither party knew that it had been filed.'"' And where: a bank claims a set-off against the claim of the bankrupt's trustee for money on deposit, its claim arising out of the bankrupt's alleged conversion of certain property of which the bank was the real owner, the claim can be adjudicated only in a plenary suit, and cannot be reached by a summary order.''* The converse of the main rule stated above is equally true. That is, on the bankruptcy of a bank or banker, a depositor, having a balance to the credit of his deposit account, is entitled to set off the same against a note on which he is indebted to the .bank.''* § 551. Unpaid Stock Svibscriptions. — ^As the capital stock of a cor- poration (and more especially unpaid subscriptions thereto) constitutes a trust fund for the benefit of the general creditors of the corporation, it follows that a stockholder indebted to a bankrupt corporation for un- 65 Ex parte Howard Nat. Bank, 2 Low. «» Town of Cicero v. Grisko 240 III 487, 16 N. B. R. 420, Fed.^Cas. No. 6,764. 220, 88 N. E. 478. 8 6 Farmers' & Merchants' State Bank ^° ^^ re Michaelis & Lindeman. 196 V. Park, 209 Fed. 613, 126 C. 0. A. 607, I^ed. 718. 31 Am. Bankr. Rep. 696. '''^ ^^ >"« Boston-Cerrlllos Mines Cor- 6r Continental & Commercial Trust & ^/^^^ ''' ^'^- '''' ^0 Am. Bankr. 118 C. C. A. 142, 199 Fed. 704. gankr. Rep. 84; Winslow v. Bliss, ."! 68 Lynam V. Belfast Nat. Bank, 98 Me. Lans. (N. T.) 220; Mandel v Koeriier 448, 57 Atl. 799. . (Mun. Ct. N. Y.) 149 N. Y. Supp. 455. , " 1141 SET-OFF OF MUTUAL DEBTS § 552 paid shares of stock cannot set off against such liability a debt due to him from the corporation. The debts are not in reality mutual, and to allow such a set-off would enable the stockholder to turn his fiduciary relation to his own benefit and the detriment of the creditors.'^ Thus, where the trustee of a bankrupt insurance company sues a stockholder for the unpaid balance of his subscription to its capital, the latter can- not set off a claim against the company for a loss under its policy.'* And the fact that stockholders of a bankrupt corporation are also bond- holders, and as such entitled to share in the distribution of the estate, does not entitle them to set off their claims as such in a suit against them by the trustee in bankruptcy to recover unpaid subscriptions.''® But the trustee of a bankrupt corporation may interpose as a set-off against the claim of a stockholder a claim against him for the difference between the value of property turned over by him in payment for his stock and the nominal value of the stock, and the court, in the interest of creditors, will scrutinize with care the integrity and fairness of the transaction.'* § 552. Set-Off by or Against Trustee.— A trustee in bankruptcy, substituted as defendant in a suit begun against the bankrupt, in re- plevin by the plaintiff, claiming under a transfer from the bankrupt, can set up as a counterclaim his right to avoid the transfer under the Bank- ruptcy Act." But a trustee who has paid a note of the bankrupt can- not set off the amount thereof against the claim of an accommodation maker or indorser of the note.'* As to the right of set-off or counter- claim against the trustee, it is held that he has no other or greater rights than the bankrupt had when he became bankrupt; and hence when a third person had at that time a right as against the bankrupt to a credit, he is entitled to assert such right in a suit against him by the trustee,'® and for the purpose of a set-off in such a suit, it is immaterial that the creditor has not proved his claim in bankruptcy, or that the year al- lowed for that purpose has expired.*" So a party against whom a judg- es Sawyor v. Hoag, 17 Wall. 610, 21 L. ?* Scammon v. Kimball, 5 Biss. 431, 8 Ed. 731 ; Scammon v. Kimball, 92 IT. S. N. B. R. 337, Fed. Cas. No. 12,435. 362, 23 Ij. Ed. 483 ; Scammon v. Kimball, 75 Babbitt v. Read, 173 Fed. 712, 23 5 Biss. 431, 8 N. B. R. 337, Fed. Oas. No. Am. Bankr. Rep 254 llf^ '' /° ^^ ^"^i ^^tP\^f ^^^- '« In re Royce Dry Goods Co., 133 Fed. 524, 27 Am. Banltr. Rep. 477 ; Kiskadden loO, 13 Am. Bankr. Rep. 257 V. Stelnle, 203 Fed. 375, 121 C. O. A. ' „, „ ^ ,^^ . ^. „„^ 559, 29 Am. Bankr. Rep. 346 ; Boatmen's ,"^'TT ^^ ^T ' ''''■ ^'''- ^^^' Bank y. Laws, 257 Fed. 299, 168 C. 0. ^^^ ^- ^- ^"^P' ^^• A. 383, 43 Am. Bankr. Rep. 683 ; In re '* ^^ ^'^ ^^^^s Bouy & Co. (D. C.) 244 La Jolla Lumber & Mill Co. (D. C.) 243 ^^^- ^^^' ^^ ^™- ^^nkr. Rep. 784. Fed. 1004, 40 Am. Bankr. Rep. 273; ^i Wasey v. Whitcomb, 167 Mich. 58, Whaley v. King, 141 Tenn. 1, 206 S. W. 132 N. W. 572. 31; Cochran T. Monteith (Tex. Civ. App.) so Norfolk & W. Ry. Co. v. Graham, 221 S. W. 1055. 145 Fed. 809, 76 C. C. A. 385, 16 Am. § 553 LAW OF BANKRUPTCY 1142 ment has been rendered in favor of the trustee may, by proper proceed- ings in equity, be allowed to offset against the same a claim allowed in his favor against the bankrupt.*^ The opinion has also been advanced that the provision of the statute in relation to the set-oflf of mutual debts or credits is broad enough to include a liability on the part of a creditor which has accrued to a trustee in bankruptcy as such, though not to the bankrupt himself, when the creditor's claim and such liability are mu- tual.** But in an action by a trustee in bankruptcy to recover the price of certain live stock, where defendant set up as a counterclaim a demand for services rendered by him in keeping the stock before and after the time when the trtistee acquired title thereto, it was held that so much of the claim as related to services rendered before the plaintiff acquired title was not a valid claim against the estate, and could not be allowed as a counterclaim, but otherwise as to so much of the claim as related to services rendered after the plaintiff acquired title to the property.** And so a claim based on a breach of contract by a bankrupt after the bankruptcy is not available as a counterclaim against a claim for serv- ices or materials supplied by the trustee in bankruptcy, while continuing a contract partly performed by the bankrtipt, because of want of mu- tuality, though the claim is available as against any claim of the bank- rupt set up by the trustee.** But a corporation which had made ad- vances to the bankrupt to enable him to continue in the business of manufacturing staves, under an agreement that it should purchase his entire output, and which paid the full purchase price in advance, has an equitable lien superior to the rights of other creditors, even though the legal title to the property remained in the bankrupt ; and hence, where the trustee adopted the contract and continued manufacturing staves under the same arrangement, the corporation cannot, at a later date, be required to pay for all of the staves turned over to it, without deduction for the advances made.*® § 553. Suit to Recover Preference. — In a suit by a trustee in bank- ruptcy to recover an unlawful preference, the creditor will not be al- lowed to set off the debt in respect to which the preferential transfer of property or payment was made,*® nor will he be entitled to credit for Bankr. Rep. 610; Wagne'- v. Burnham, s^Greif Bros. Cooperage Co. v. Mull- 224 Pa. St. 586, 73 Atl. 990. inix (G. C. A.) 264 Fed. 391, 45 Am. 81 Tootle-Weakley Millinery Co. v.. Bill- Bankr. Rep. 265. iugsley, 74 Neb. 5ol, 105 N. W. 85. so Western Tie & Timber Co. v. Brown,. 82 In re Crystal Spring Bottling Co., 129 Fed. 728, 64 C. C. A. 256, 12 Am. 100 Fed. 265, ,4 Am. Bankr. Rep. 55. bankr. Rep. Ill ; Moody v. Gliicago Title 88 Moran v. Bogert, 3 Hun (N. Y.) 603, & Trust Co., 188 111. App. 233; Harris 14 N. B. R. 393. v. Second Nat. Bank, 110 Tenn. 239, 75- 8 4 Howard v. Magazine & Book Co., S. W. 1053; Schmidt v. Bank of Com- 147 App. IMv. 335, 131 N. T. Supp. 916. merce, 15 N. Jlex. 470, 110 Pac. 613, 3a 1143 SHT-OFP OF MUTUAL DEBTS § 553 services rendered or disbursements made in caring for or disposing of the property in question.*'' So a court of equity, in a suit by the trustee in bankruptcy to recover a preference, will, not entertain a cross-bill for the recovery by the defendant of the amount of the dividend to which he claims to be entitled from the bankrupt estate, but will require him to prove his claim in the bankruptcy court, though it may permit him, on the giving of security, to retain in his hands sufficient of the amount . which the complainant is entitled to recover to cover his dividend in case his claim shall be allowed.** Nor is this rule confined to cases in which the trustee is forced to bring suit in order to avoid the preference. It is likewise applicable where he opposes the allowance of a claim filed by a creditor, on the ground that the creditor has received a preference which he has not surrendered.** L. R. A. (N. S.) 558; State Bank of 'a Ommen v. Tallcott, 175 Fed. 259, 23 Clearwater y. Ingram, 237 Fed. 76, 150 Am. Bankr. Kep. 570. 0. C. A. 278, 38 Am. Bankr. Rep. 447. 89 in re Chrlstensen, 101 Fed. 802, 4 87 Ommen v. Talleott, 175 Fed. 261, 23 Am. Bankr. Rep. 202. Am. Bankr. Rep. 572. § 554 LAW OF BANKRUPTCY 1144 CHAPTER XXVIII SECURED CREDITORS Sec. 5M. Who Are Secured Creditors. 555. Same ; Mortgagees. 556. Same; Judgment Creditors. 557. Same; Pledgees, Assignees, and Holders of Collateral. 558. Same; Holders of Notes. 559. Effect of Additional Security or Claim Against Third Person, 560. Joinder in Petition and Rights at Creditors' Meetings. 561. Proof of Claim as Secured. 562. Waiver of Security and Proof of Debt as Unsecured, 563. Same; Amendment of Proof to Claim Security. 564. Settling Value of Security. 565. Claim for Deficiency and for Interest and Costs. 566. Right to Rely on Security and Disregard Bankruptcy. 567. Foreclosure by Secured Creditor Independently of Bankruptcy. 568. Same; Obtaining Permission of Bankruptcy Court. 569. Same; Authority of Bankruptcy Court to Stay or Enjoin Pro- ceedings. 570. Redemption of Property by Trustee. 571. Sale of Property by Order of Bankruptcy Court 572. Marshalling Assets. § 554. Who Are Secured Creditors. — ^A secured creditor is defined by the bankruptcy act of 1898 as "a creditor who has security' for his debt upon the property of the bankrupt of a nature to be assignable un- der this act, or who Owns such a debt for which some indorser, surety, or other person secondarily liable for the bankrupt has such security up- on the bankrupt's assets." ^ To come within this definition, therefore, the creditor must either hold security against the property of the bank- rupt himself, or be secured by the individual obligation of another who holds such security.* The latter part of the definition is important; for it was held under the former bankruptcy law that a creditor was not to be treated as "secured" merely because a surety or guarant&r of the debt was protected by a lien on the bankrupt's property.* And to con- stitute a lien or security, within the meaning of the act, there must be a security additional to the personal obligation of the debtor.* Thus, a 1 Bankruptcy Act 1898, § 1, cl. 23. himself holds such property. In re 2 Gorman v. Wright, 136 Fed. 164, 69 Shatz (D. C.) 251 Fed. 351, 41 Am. 0. C. A. 76, 14 Am. Bankr. Rep. 135. Bankr. Rep. 576. And see In re Russell Falls Co. (D. C.) 3 In re Uoyd, 15 N. B. R. 257, Fed. 249 Fed. 260, 41 Am. Bankr. Rep. 448. Cas. No. 8,429. But compare In re Jay- A "secured" creditor is one who directly cox, 8 N. B. R. 241, Fed. Cas. No. 7,242. holds as security for his debt property * Shoemaker v. National Mechanics' which would otherwise swell the assets Bank, 1 Hughes, 101, Fed. Cas. No. of the bankrupt estate, or indirectly 12,801. As to the preferential right of a holds like property through having the subcontractor to the balance of the mon- debt obligation of another person who ey due the contractor from the principal, 1145 SECUEED CREDITORS § 554 banker has no lien upon the moneys of a depositor for any separate debt which the depositor may owe to him, and the mere fact that he holds such moneys on deposit at the time of the bankruptcy does not make him a secured creditor.® Further, although there may be an additional or collateral security, this does not make the creditor a secured creditor, un- less the person furnishing it has a lien on assets of the bankrupt. Thus, where a firm is dissolved and one of the partners assumes payment of all the debts, this makes him a principal debtor and the other partner a surety, but it does not follow that a creditor of the partnership becomes a secured creditor.® So, where the bankrupt had bought goods on credit, and payment was guaranteed to the seller by a third person, the creditor is not "secured," unless the guarantor has taken security from the bank- rupt.' So a mere promise by a subsequent purchaser of property sub- ject to a mechanic's lien, in consideration of forbearance, to pay the de- mand secured by the lien, is not "collateral security" and does not dis- charge the lien.* ^-gT^in, it is necessary that the security should attach to the bankrupt's "property" or "assets" ; that is, there must be a lien upon property which would otherwise go into the general fund or be available for the claims of general creditors,® and a creditor holding security on property which never belonged to the bankrupt may prove his whole debt without first disposing of the security.^' But subject to these conditions, the term "security," as used in the bankruptcy act, will include every interest or right attached to or which is a charge upon Specific property, or which entitles the owner thereof to be paid out of specific property, whether legal or equitable, absolute or contingent.^^ Thus, where the byrlaws of a corporation provide that it shall have a lien on the stock of any shareholder for his indebtedness to the corporation, and an indebted stockholder becomes bankrupt, the cor- poration is a secured creditor.^* Taxes, particularly those assessed by municipalities, may or may not attach to real property as liens, accord- ing to the local law, and upon this will depend the position of the state or municipality as a secured or unsecured creditor.^* Again, it is im- see Baker Lumber Co. v. A. A. Clark Co., lo In re Dunkerson, 4 Biss. 253, 12 N. 53 Utah, 336, 1T8 Pac. 764. B. E. 413, Fed. Cas. No. 4,157. A bank In re Warner, 5 N. B. R. 414, Fed. holding the note of a third person, se- Cas. No. 17,177 ; In re Weeks, 8 Ben. 265, cured by a pledge of stock which does 13 N. B. R. 263, Fed. Cas. No. 17,349. • not belong to the bankrupt, the latter 8 Schmitt V. Creenberg, 58 Misc. Rep. being liable thereon as an indorser, may 570, 109 N. Y. Supp. 881. prove its claim against the bankrupt's 7 In re Anderson, 7 Biss. 233, 12 N. B. estate without surrendering the stock. E. 502, Fed. Cas. No. 350. And see Unit- In re Thompson, 208 Fed. 207. ed States Fidelity & Guaranty Co. v. n Storm v. Waddell, 2 Sandf. Ch. (N. Carnegie Trust Co., 177 App. IMv. 176, Y.) 494, 507. 164 N. Y. Supp. 92. 12 In re Morrison, 10 N. B. R. 105, Fed. 8 Mervln v. Sherman, 9 Iowa, 331. Cas. No. 9,839. 9 In re Spades, 6 Biss. 448, 13 N. B. is See In re Harvey, 122 Fed. 745, 10 R. 72. Fed. Cas. No. 1.1.10G. Am. Bankr. Rep. 567. § 555 LAW OF BANKRUPTCY 1146 portant to notice that, when property or securities are delivered to a creditor, it may be the intention and understanding of the parties that a payment and discharge of the debt shall be effected, rather' than the creation of a lien, and of course, in the former case, the creditor can- not present himself in the guise of a secured creditor, though he may have been disappointed in the value of the property turned over to him.** And it is not permissible for the bankrupt himself, after receiving his dis- charge, to purchase and take an assignment to himself of debts against his own estate in bankruptcy secured by liens, and collect the same for his own use out of assets in the hands of his trustee, to the exclusion of subsequent lien holders. His purchase of his own debt operates to ex- tinguish the debt, and this rule is not affected by the fact of his having been discharged, because the discharge does not destroy or extinguish the debt, though it bars the remedy for its recovery.*^ § 555. Same; Mortgagees. — The holder of a mortgage on real or personal property of the bankrupt is a secured creditor,** though the mortgage was not made by the bankrupt himself, but by his predecessor in the title,*' and though it covers after-acquired property as well as that in possession at the time.** So, the joint note of a husband and wife secured by a deed of trust on the wife's property should be allowed as a secured claim against the estate of the husband in bankruptcy, al- though the wife may have died leaving heirs.*® But it is doubtful wheth- er a mortgage on exempt property of the bankrupt puts the mortgagee in the position of a secured creditor. Probably, however, it should be so held, since it would give him an inequitable advantage if he were al- lowed to realize on his security and At the same time compete with un- secured creditors.^" Equitable mortgages, as well as legal, may come 1* In re Black Diamond Copper Min. See In re Altenheim, 1 Ben. 431, Fed. Co., 11 Ariz. 415, 95 Pac. 117. Cas. No. 268. 15 In re Burton (D. C.) 29 Fed. 637. is Barnard v. Norwich & W. R. Co., 4 16 Krugmeier v. Hackett, 134 Wis. 57, Cliff. 351, 14 N. B. E. 469, Fed. Cas. No. 113 N. W. 1103. Bondholders of a bank- 1,007. See In re Baker, 1 Hask. 593, nipt corporation are not precluded from Fed. Cas. No. 762. Mortgagees, until thev proving their debts as secured because assert their rights in the rents by pro- of their omission to record the deed of ceedings to sequester them, cannot as- trust securing the bonds. In re Charles sert any rights as against the trustee in Town Light & Power Co. (D. C.) 199 Fed. bankrujjtcy of the mortgagor to rents 846, 29 Am. Bankr. Rep. 721. A secure.! collected before such assertion, though creditor who took the legal title to land the rents were included in the mortgage, mortgaged to secure pledged bonds, is In re Clark Realty Co., 234 Fed. 576, 148 still a pledgee or mortgagee, and only C. C. A. 342, 37 Am. Bankr. Rep. 129. entitled to prove the excess above the loin re Hartel, 7 N. B. R. 559, Fed. security. In re J. G. Reichard & Bro. Cas. Xo. 6,157. (D. C.) 230 Fed. 525. 20 see In re Lantzenheimer, 124 Fed. "McKay V. Hamill, 1S5 Fed. 11, 107 716, 10 Xm. Bankr. Rep. 720; Fenley v. C. C. A. 115. 21! Am. Bankr. Rep. 164. Poor, 121 Fed. 789, 58 C. C. A. 21, 10 Am. 1147 SECURED CREDITORS § 556 within this rule. Thus, if no state law forbids, a vendee under a contract for the purchase of land, who has recorded his bond for a deed and paid the purchase money, is entitled, on the bankruptcy of the vendor without having conveyed, to prove his claim as one secured by an equitable lien on the land.*^ And so, where money is loaned or advanced under an agreement that it is to be used to discharge an incumbrance on the bor- rower's property, and the lender is to have a first lien to secure its re- payment, and the money is so used, the lender may be subrogated to the rights of the incumbrancer whose debt was paid, against the borrower's trustee in bankruptcy.*^ § 556. Same; Judgment Creditors. — Ownership of a judgment against the bankrupt will constitute the creditor a "secured creditor,'" within the meaning of the act, provided there is property of the bank- rupt upon which the judgment may attach, or has attached, as a lien.** But not so if the law of the state confines the lien of .judgments to real property and the estate of the particular bankrupt consists wholly of personalty.**' And in any case, where the creditor claims the rights of a secured creditor by virtue of an alleged judgment lien on the property of the estate, the burden is on him to show that he has done everything required by statute to make his judgment attach as a lien.*^ Now at common law, a judgment does not by itself constitute a lien on property of the defendant, either real or personal, nor is a lien created by the is- suing of a writ of fieri facias upon such judgment; nothing but a levy upon specific property will produce that effect.*^ And when this rule is in force in the state where the proceedings are pending and where the debtor's property is situated, the docketing of a judgment against him, or the issuance of a writ thereon, will not create such a lien as will be respected and enforced by the court of bankruptcy.*' So, where a judg- ment recovered before a justice of the peace is not a lien on land until docketed in the superior court, this step must have been taken before the bankruptcy, or the judgment will not constitute a security within the meaning of the bankruptcy law.** And the same is true of a judg- ment which has been allowed to become dormant, unless the statute of limitations is applicable only in favor of subsequent purchasers and judg- Bankr. Eep. 377. Compare In re Bailey, Woolen Co. v. Maaget, 86 Conn. 234, 85 176 Fed. 990, 24 Am. Bankr. Rep. 201. Atl. 583. 21 In re Peasley, 137 Fed. 190, 14 Am. ^* ^^ re Erwin, 3 N. B. E. 580, Fed. Bankr. Rep. 496. Gas. No. 4,524. -.oo 17^ /, K-rn ^^ A °°In re "Wood, 95 Fed. 946, 2 Am. 22 In re Lee, 182 Fed. 579, 25 Am. Bankv Ren 695 if/'?'';, ^n?; T ' ^""'t^ ""o J^^"°"' ^^ '' 1 Black, Judgm. §§ 397, 398. N. B. R. 217, Fed. Cas. No. 3,850. „ j^ ^^ Mcintosh, 2 N. B. R. 506, Fed. 23 In re Cale, 182 Fed. 439, 25 Am. Cas. No. 8,826. Bankr. Eep. 367 ; Guardians of Poor v. 28 in re Wood, 95 Fed. 946, 2 Am. Ovens, L. H. 8 Ex. 37. See American Bankr. Rep. 695. § 557 LAW OF BANKRUPTCY 1148 merit creditors, in which case, not being available in favor of the judg- ment debtor, it cannot be set up in favor of his trustee in bankruptcy,** or unless the dormant judgment has been duly revived.^" Nor does a judgment creditor acquire a lien, which will be protected under the bank- ruptcy law, by commencing proceedings supplementary to execution; for until the appointment of a receiver, his right is not a lien.*^ And the same is true (at least in some states) of a judgment creditor who attacks an alleged fraudulent conveyance, but does not procure a decree setting it aside until after the bankruptcy of the debtor.** And it must not be understood that the creditor, even if his judgment Hen is perfect, will have the right to issue and levy an execution and cause a sale of the property, after it has passed into the control of the trustee in bankruptcy. While he has the advantageous position of a secured creditor, he will not be allowed to interfere, at will, with property in the custody of the bankruptcy court.** But one whose judgment is a lien on property which had been sold and conveyed by the bankrupt in good faith before the bankruptcy is differently situated. He may claim and secure in the bankruptcy proceedings his portion of the estate of the bankrupt, in virtue of the debt evidenced by his judgment, without accounting or giving credit for anything on account of the lien.** Under the bankrupt- cy act of 1841, it was held that a power of attorney to confess judgment was a "security" within the meaning of that statute,*^ but it is not prob- able that it would be so held under the narrower terms of the present law. § 557. Same ; Pledgees, Assignees, and Holders of Collateral. — One holding specific personal property in pledge, as a means of enforcing the payment of a debt, is a secured creditor within the bankruptcy act,** and so also where the pledge is of any of those various forms of intangi- ble property which are commonly known in the business world under the general description of "collateral," such as bonds or stock of corpo- rations, mortgages, notes, and other marketable securities.*' The same principle applies also to one who holds a policy of instirance on the life 28 In re Huddell, 47 Fed. 207. se in re Peebles, 2 Hughes, 394, 13 N. 30 Appeal of Bucknor (Pa.) 4 Atl. 738. B. R. 149, Fed. Cas. No. 10,902. 31 In re Wheeler, 18 N. B. E. 385, Fed. 37 in re McVay, 13 Fed. 443; Dayton Cas. No. 17,490. Nat. Banli v. Merchants' Nat. Bank, 37 82 In re Estes, 5 Fed. 60. Ohio St. 208 ; ilitchell v. Roberts, 17 Fed. S3 Pennington v. Sale, 1 N. B. R. .572, 776; Dumont v. Fry, 14 Fed. 293. "Any Fed. Cas. No. 10,939; Davis v. Andi-rson, species of property or thing in action, 6 N. B. R. 145, Fed. Cas. No. 3,*;2.'i; Riis- which is capable of assignment, may be sel V. McCord, 2 Flip. 1.39, 17 N. E. R. pledged as collateral security for the 508, Fed. Cas. No. 12,1.57. payment of a debt, by the delivery or as- 34McAden v. Keen, 30 Gratt. (Va.) slgnment of such property. All fonns of 400. negotiable paper, such as promissory 35 Buckingham v. McLean, 13 How. notes, bonds, and other evidences of debt 151, 14 L. Ed. 91. may be pledged as collateral securitv. 1149 SECTJEED CREDITORS § 558 of his debtor as collateral security for his debt.** And an assignment of a lease running to the debtor may constitute the creditor a secured creditor,*" and so of the transfer of an order drawn on a third person,** or an assignment of money to become due under a contract.*^ But the holder of a warehouseman's receipt which is attached to a note executed to the warehouseman, as collateral security, is not a secured creditor in the bankruptcy of the warehouseman.*^ There may also be circum- stances in which a court of bankruptcy — in view of its equitable powers and duties — would recognize a merely equitable assignment as putting the assignee in the position of a secured creditor. But it has been held that the holder of a protested draft, drawn by a bankrupt bank, is not entitled to priority of payment over other creditors of the bank, merely because the drawee (another bank) may have had funds of the drawer in its hands at the time it refused to accept the draft. "If it were as- sumed or conceded that under any circumstances such a draft can amount to an equitable assignment in favor of the payee of that amount of the drawer's funds in the hands of the drawee, such a principle cannot be applied where it would contravene the purpose of the bankruptcy act." " § 558. Same; Holders of Notes. — A promissory note is not a se- curity for the payment of a debt, but only an evidence of the debt.** And although it may be indorsed, this does not make the claim a secured one,*^ unless, under the terms of the statute, the indorser holds a se- curity on the property of the bankrupt. But the opinion has been ad- vanced that a creditor who holds a note of the bankrupt containing a waiver of exemptions is in the position of a secured creditor, since his Other evidences of debt, negotiable or 4o in re Hlnes, 144 Fed. 54, 16 Am. quasi-negotiable, may be pledged in ac- Bankr. Rep. 495. cordance with the usuages or customs of *i In re De Long Furniture Co., 188 the commercial world, or pursuant to Fed. 686, 26 Am. Bankr. Rep. 469. statutory enactments. Thus, by custom 42 State v. Federal Union Surety Co., or usage, where statutory enactments do 156 Mo. App. 60.5, 137 S. W. 613. not prohibit it, corporate stock, mort- ^a Bank of Commerce v. Russell, 2 gages securing promissory notes, and Dill. 215, Fed. Oas. No. 884. warehouse receipts or bills of lading may ** United States Trust Co. v. Brady, be pledged as collateral security." Cole- 20 Barb. (N. Y.) 119. brooke, Collat. Sec. (2d Ed.) § 2a. *5 in re Broich, 7 Biss. 303, 15 N. B. ssBiirlingham V. Crouse, 181 Fed. 479, R. 11, Fed. Cas. No. 1,921. A creditor 24 Am. Bankr. Rep. 632; In re Mertens, holding the bankrupt's indorsed note for 134 Fed. 101, 14 Am. Bankr. Rep. 226; part of his claim is not therefore a "se- In re Newland, 6 Ben. 342, 7 N. B. R. cured" creditor, and he is entitled to a 477, Fed. Cas. No. 10,170; In re Shoen- dividend on the full claim though the in- berger, Fed. Cas. No. 12,802. dorser paid the note after the proofs of 3 9 Fitch V. Richardson, 147 Fed. 197, claim were filed. Young v. Gordon, 219 77 C. C. A. 423, 16 Am. Bankr. Rep. 835. Fed. 168, 135 0. C. A. 66. § 559 LAW OP BANKRUPTCY 1150 right to resort to the exempt property is in the nature of a security, if not a lien.*' § 559. Effect of Additional Security or Claim Against Third Per- son. — The bankruptcy act provides that "the liability of a person who is a co-debtor with, or- guarantor, or in any manner a surety for, a bank- rupt shall not be altered by the discharge of such bankrupt." *' And it is a general rule that if a creditor of the bankrupt holds security in the form of any obligation of a third person whether it be a mortgage or pledge of property, an indorsement, or a contract of suretyship or guaranty, provided only that the third person does not hold counter- security, the creditor may prove his debt in the bankruptcy without sur- rendering the security, and may, notwithstanding such proof, proceed to enforce his security against such third person, provided, however, that he does not take, under the bankruptcy and the security, more than the full amount of his debt.** The reason is that the enforcement of the security in this case does not diminish the estate of the bankrupt to which the general or unsecured creditors must look for satisfaction, and moreover, the court of bankruptcy would have no authority to inter- fere between the creditor and the third person, the latter being a stranger to the bankruptcy proceedings.** So, if a judgment is recov- ered against two co-defendants, and execution thereon is levied on the property of one of them, and the other is adjudged bankrupt, the judg- ment creditor may prove his claim against the bankrupt as unsecured.®* And a creditor of a bankrupt partnership is not required to apply se- curities in his hands, which are the individual property of one of the partners upon his claim against the partnership estate.'^ The rule is the same where the creditor is additionally secured by the undertaking of a third person to guaranty the performance of the bankrupt's contract 40 In re Meredith, 144 Fed. 230, 16 Am. denied any interest in tlie mortgaged Banltr. Rep. 3-31. property, the proving of the claim i^ Banltruptcy Act 1898, § 16. against the banljrupt and the receipt of a *8 In re Babcock, 3 Story, 393, Fed. dividend thereon did not constitute ii Cas. No. 606; In re Thomas, 8 Biss. 139, waiver of the mortgage. P. Ballantine & 17 N. B. R. 54, Fed. Cas. No. 13,886; In Sons v. Fenn, 88 Vt. 100, 92 Atl. 3. re Beaver Knitting Mills, 154 Fed. 320, lo In re Thomas, 8 Biss. 139, 17 N. 8;5 0. C. A. 240, 18 Am. Bankr. Hep. B. R. 54, Fed. Cas. No. 13,886. .528; In re Otto F. Lange Co., 170 Fed. "o in re Iloadley, 97 Fed. '765, 3 Am. 114, 22 Am. Bankr. Rep. 414; In re Bankr. Rep. 272. Klnne, 5 Fed. 59; In re Sauthoff, 7 Biss. i^i In re Mertens, 144 Fed. 818, 75 C. 167, 14 N. B. It. 364, Fed. Cas. No. 12,- O. A. 548, 15 Am. Bankr. Rep. 302. A .379; In re Myer, 14 N. Mex. 246, 89 Pac. corjioratioh which proves an unsecured 246. Where a creditor whose claim claim against a bankrupt partiicrsliip, iiKiiinst the bankrupt was secured by a of which one of its stockholders is a chattel mortgage on prpr)erty of the membi^r, does not therel)y vvaive any lien bankrupt's wife, made full disclosure it may have on the stuck of tliat part- as to his .security in the liankiuptcy ner. I'.anlj of Searcy v. Merchants' Gro- proceedings, and the bankrupt in effect cer Co., li','; Ark. 403, 18.T K. W, SCO. 1151 SECUKED CRBDITOES § 560 or to be surety for him. The creditor loses none of his rights or reme- dies against the surety by proving his debt in the bankruptcy proceed- ings and participating in the distribution of the estate.^* And the surety upon a promissory note is liable in an action on the note, although the principal has been adjudged a bankrupt and the note has been filed by the payee in the bankruptcy proceedings.''* And on the other hand, where the bankrupt was indorser on a note, and his liability has become fixed and absolute, the creditor holding the note may prove its full amount against him, notwithstanding the primary liability of the maker of the note, and even though he holds a mortgage on the latter's prop- erty, to secure it, which has not been foreclosed and which he does not surrender.®* And where both the maker and indorser of a note are in bankruptcy, the holder may prove the amount of the note as a claim against each, and receive dividends from both estates, up to the full amount of his debt.®® But a creditor holding a note of the bankrupt, and, as collateral security therefor, another note on which the bankrupt is also liable, is not entitled to prove his claim against the estate in bank- ruptcy for both, but only for the amount of the actual indebtedness to him.®* But in all these; cases, the person who is secondarily liable for the bankrupt has an interest and an equity to have the estate of the bankrupt applied as far as it will go towards the satisfaction of the debt. Thus, where a mortgage was made by the bankrupt to secure the mortgagee as a surety for him, it was held that the mortgagee was not entitled to be paid personally the amounts of the debts for which he was surety out of the bankrupt's estate, but was entitled to have such debts paid to the creditors out of the proceeds of the mortgaged prop- erty, and to be released from his liability as surety.®' § .560. Joinder in Petition and Rights at Creditors' Meetings. — Se- cured creditor* may join in a petition in involuntary bankruptcy, but in making up the required jurisdictional amount ($500), such creditors are to be counted only to the extent of the excess of the claim over the value of the security held for it.®* Under the act of 1867, it was held that the act of a secured creditor in joining in the petition without any 5 2 In re Levy, 2 Ben. 169, IN. B. R. ss National Mt. WoUaston Bank v. 327, Fed. Cas. No. 8,29Y; Gorman v. Porter, 122 Mass. 308. Wright, 136 Fed. 164, 69 C. C. A. 76, 14 so First Nat. Bank v. Eason, 149 Fed. Am. Bankr. Rep. 135; Vette v. J. S. Mer- 204, 79 C. 0. A. 162, 17 Am. Bankr. Rep. rell Drug Co., 137 Mo. App. 229, 117 S. 593. W. 666.' 3 7 In re Randolph, 187 Fed. 18^, 26 5 3 Gregg V. Wilson, 50 Ind. 490, 15 N. Am. Bankr. Rep. 623. B. R. 142. 5 8 Bankruptcy Act 1898, § 59b. Fur- 54 In re Cram, 1 Hask. 89, 1 N. B. R. ther as to the right of secured creditors 504, Fed. Cas. No. 3,343; Gorman v. to join in the petition for adjudication Wright, 136 Fed. 164, 69 C. ,C. A. 76, 14 in bankniptc.v, see supra, § 153. Am. Bankr. Rep. 135. § 561 LAW OP BANKEUPTCT 1152 mention of the security which he held amounted to a waiver of it.®* But this was on the theory that under the terms of that statute, only unse- cured creditors had the privilege of petitioning in bankruptcy, whereas the present act directly contemplates the joinder of secured creditors, by providing that they may be counted only to the extent that the se- curity is deficient. It is also the right of secured creditors to vote at creditors' meetingSi and they may be counted in computing the number and amount of creditors required for any action, but only when the amount of their claims exceeds the value of the security, and then only for such excess.** It is also provided that "claims of secured creditors may be allowed, to enable such creditors to participate in the proceed- ings at creditors' meetings held prior to the determination of the value of their securities, but shall be allowed for such sums only as shall to the courts seem to be owing over and above the value of their securi- ties." *^ Where a partnership creditor holds securities on both the property of the partnership and the individual property of one of the partners (the firm and all its members being in bankruptcy together), the value of the security on the individual property of the partner need not be deducted in ascertaining the voting power of the creditor, but only the value of the security on the firm property.®* But a mortgage creditor who, after the adjudication, sells the mortgaged premises, and himself becomes the purchaser, cannot vote on the deficiency as an un- secured creditor.** § 561. Proof of Claim as Secured. — Proof of claim by a secured creditor differs from that to be made by an unsecured creditor only in that the former must specify "what securities are held therefor." ** If a creditor in this position wishes to participate in the bankruptcy pro- ceedings at all, he must make himself a party by filing a proof of his claim, according to the requirements of the statute, disclosing the par- ticular nature of the security which he holds.*^ But it is to be noted that a creditor is "secured" only when he holds a security on property of the bankrupt, or when a person secondarily liable for the bankrupt, in respect to the debt in question, holds such security on the bankrupt's as- sets. Hence when the creditor holds a mortgage or pledge on property belonging to a third person (the latter not having counter-security) he 58 In re Bloss, 4 N. B. K. 147, Fed. Cas. os in re Hunt, 17 N. B. R. 205, Fed. No. 1,562; In re Broich, 7 Biss. 303, 15 Cas. No. 6,884. N. B. E. 11, Fed. Cas. No. 1,921; In re ei Bankruptcy Act 1898, § 57a. For Bear, 5 Fed. 53. the manner of proving a secured debt, no Bankruptcy Act 1898, § 56b. And in person or by agent, see Official Forms see supra, §§ 277, 288. Nos. 32 and 36. ci Bankruptcy Act 1898, § 57e. os in re Bridgman, 1 N. B. K. 312, Fed. 6 2 In re Coe, Powers & Co., 1 Nat. Cas. No. 1,866. BanUr. News, 294. 1153 SECURED CRBDIT0E8 § 561 is not bound to disclose or mention it in his proof of debt.** When a creditor thus proves his debt as secured, he does not waive, abandon, or surrender the security, or in any way relinquish or prejudice his rights under it. On the contrary, this is the proper method of claiming and preserving- his security.*' "It is well settled that a creditor holding sg- curity for a debt does not in any manner prejudice his claim to the se- curity he holds by^proving his debt as a debt with , security, and setting out in his proof the particulars of the security "and its estirhated value. He does not, by such a form of proof, release his security, and prove hig debt as an unsecured debt. On the contrary, such a form of proof in- sists on and maintains the security."*® And moreover, as an adjudica^ tion of bankruptcy brings the assets of the bankirupt into the custody of the court of bankruptcy for administration, a creditor of the bankrupt having a lien on such property, at that time, is not bound to follow the course of procedure prescribed by the state statute under which the lien arises, requiring certain action to be taken within a limited time for its preservation, biit only, to prove his claim as the bankruptcy law directs.** But if any other creditor is interested in objecting to the claim of the proving creditor to an alleged security, or avers that the lien claimed is invalid under the laws of the state or is a voidable preference, or Other- wise should not be allowed, it is within the jurisdiction of the court of bankruptcy or the referee (and it is the proper practice) to determine whether the claim is a secured or an unseciired claim, so far as concerns its allowance as such, though such i determination will not have the effect to deprive the creditor of his lien, if he has one, for that questioli can be decided only in a proper action or proceeding bi-ought by the trustee in bankruptcy, and not on a summary hearing.'* But the claim of a broader lien than the facts warrant will not affect the actual lien of the creditor." And where a mortgage is made in good faith, prior to the. commencement of the proceedings against the mortgagor, a mistake 6« Merchants' & Farmers' State Bank gage fund. Butterfield v. Woodman, 223 V. Sheridan, 156 111. App. 25. And see Fed. 956, 139 C. C. A. 436, 34 Am. Bankr. supra, § 560. Rep. 510. 7 In re Medina Quarry Co., 1T9 Fed. es in re Grinhell, 7 Ben. 42, 9 N. B. R. 929, 24 Am. Bankr. Rep. 769; Bucknam 29 Fed Gsis No 5 830 I i^T' ^.^'''oJf ' f ^' ^ f; ^^'^; "" I° ^^ Fans city Shlrt Mfg. Co., 98 Fed. Cas. No. 2,096; In ^e Bolton^ 2 ^^^ 3 ^^ Ben. 189, 1 N. B. R. 370, Fed. Cas. No. 1,614; Kohout v. Chaloupka, 69 Neb. 677, '" Hi re Qunin, 165 Fed. 144, 21 Am. 96 N.-W. 173; Bassett v. Thackara, 72 S""^''- ^^^P- ^64; In re Cramond, 145 N. J. Law, 81, 60 Atl. 39. A creditor ^^d. 966, 17 Am. Bankr. Rep. 22; In re of a bankrupt corporation whose debt is ' Braselton-, 169 Fed. -960, 22 Am. Bankr. secured by a valid pledge of its mortgage ^«P- '^^^' ^^^ "^^ Harrison, 2 Nat. Bankr. bonds is not required to prove his claim ^^^s, 541. as a general creditor to entitle him to ^ 1 McKinsey v. Harding, 4 N. B. R; 38, have his bonds participate in the mort- Fed. Cas. No. 8,866. Blk.Bkk.(.3d Ed.)— 73 § 562 LAW OF BANKRUPTCY 1154 in the description of the premises in such mortgage may be corrected as against the trustee in bankruptcy to the same extent as would have been allowed against the mortgagor.'''' But where a mortgage given by the bankrupt secures a certain note only, and not an open account, an agreement that the account should also be covered by the mortgage cannot be implied.'* Finally, it must be remembered that mortgagees who prove their debts in the bankruptcy proceedings become creditors of the mortgagor's general estate only for the balance of the debt re- maining after deducting the value of the mortgaged property.'* § 562. Waiver of Security and Proof of Debt as Unsecured. — A se- cured creditor will iiot be allowed to prove his entire claim against the estate in bankruptcy without surrendering or abandoning, the security.''* But on the other hand, he cannot be required, at the instance of other creditors, to rely upon his security and prove only for the deficiency, if any. He has the option to prove his debt as unsecured.'* The latter course, entitling him to share with others in the distribution of the gen- eral estate, may be advantageous to him, and will be permitted, if his lien is not such as can be enforced against other creditors, for want of record or otherwise," or even after its validity has been attacked or de- cided adversely to him.'* But if the creditor has accepted a conveyance, of property in lieu of his secured claim, it is then too late for him to prove his claim in, the bankruptcy proceedings or have the value of his se- curity determined.'* It is also a general rule that if a creditor proves the whole amount of his claim, and jiarticularly if he accepts a dividend thereon, it places him on a par with all the general creditors, and is deemed a waiver and relinquishment of any security which he may 7 2 Schultze V. OBolting, 8 Biss. 174, 17 Bankr. Eep. 699; In re Burlage Bros., N. B. R. 167, Fed. Gas. No. 12,489. 169 Fed. 1006, 22 Am. Bankr. Rep. 410. 7 8 In re Johnson, 125 Fed. 838, 11 Am. Js JicAleer v. People's Bank, 202 Ala. Bankr. Rep, 138. 2.j6, 80 South. 94; In re Vogt (I>. C.) 7* McHenry V. Societe Frangaise, 95 U. 188 Fed. 764; In re Moyer (D. C.) 97 S. 58, 24 L. Ed. 370; In re Little, 110 Fed. 324. Fed. 621, e Am. Bankr. Rep. 681. 79 In re JI. I. IIihl)ler Much. Supply 73 In re Norris, 2 Hask. 74, Fed. Cas. Co. (D. C.) 192 Fed. 741, 27 Am. Bankr. No. 10,.S0:i; In re Jaycox, 8 N. B. B. 241, Rep. (il2. See Beal-Burrow Pry Goods Fed. Gas. No. 7,240; In re Granger, 8 Co. v. Talbnrt, i;ii) Ark. li:;, 213 S. W. 20. X. B. R. 30, Fed. Gas. No. 5,684; In re Where pluiiitiff had a negotiated note High, 3 N. B. R. 191, Fed. Gas. No. 6,473; siven It by defendant and sent -him a In re Holbrook, 2 L<5w. 259, Fed. Gas. check with the notation "To be used in No. 6,588. part renewal of note," proving up in 70 In re Little, HO Fed. 621, 6 Am. bankrupte.^- the note, which had not been Bankr. Rep. 081 ; Stewart-Nolile Driis taken up as directed, did not extinguish Go. V. Bishop-Biabcock-Becker Co., 62 plaintiff's cliiiui for the amount of the Colo. 197, 162 Pac. 1.59; In re Intei-bor- clieck. R. S. Howard Co. v. Internation- ough Realty Co., 223 Fed. 646, l.SO C. C. al Bank of St. Louis, 198 Mo. App. 284. A. 300, 34 Am. Bankr. Rep. 541. 200 S. W. 01. 7T Post V. Berry, 175 Fed. 564, 23 Am. 1155 SECURED CHEDITOES § 563 have held.** But a creditor cannot be deprived of the benefit of a lien by the unauthorized filing of his claim as an unsecured debt.*^ And there is no presumption on appeal that he intentionally omitted to dis- close the existence of his security, and thereby waived it.** Nor will such a waiver be inferred from doubtful or inexplicit terms in the state- ment of proof. Thus, if the proof shows that the debt in question has been reduced to judgment and that the judgment is in force, but omits to state that the judgment is a lien upon real estate (such being the fact) it does not amount to a proof of the debt as unsecured with a con- sequent waiver of the lien.*^ If the trustee in bankruptcy does not choose to take advantage of such a waiver o.f security, probably the other creditors may insist upon it, but not a subsequent mortgagee who has ndt proved his debt in the bankruptcy proceedings,** and certainly not the bankrupt himself.*^ And if the holder of a note, the indorser of which is secured by a mortgage, proves the note as unsecured, the mortgage is not thereby extinguished, but the trustee in bankruptcy will be subrogated to the rights of the holder.*® § 563. Same; Amendment of Proof to Claim Security .^If a secur- ed creditor proves his claim as unsecured, but does so through mistake or ihadvertence or ignorance of his legal rights, and without being aware of the effect which such a course may have as a waiver or aban- donment of his security, he should not be compelled to forego the benefit of the security and participate as a general creditor, but it is in the dis- cretion of the court to permit him to withdraw his proof and rely upon the security, or to amend the proof by stating the fact and the particu- lars of the security, and this permission will ordinarily be granted where 80 In re Burr Mfg. & Supply Co., 217 v. Lee, 57 Ga. 281; Johnson v. Worden Fed. 16, 133 C. C. A. 126; United States 47 Vt. 457, 13 N. B. R. 335. But where "Trust Co. V. Gordon, 216 Fed. 929, 183 a creditor having an aggregate claim, C. C. A. 117, 83 Am. Bankr. Rep. 300; made up of several items, for one or more In re Luber (D. C.) 261 Fed. 221, 44 Am. of vrhich, but not aH, he has a lien on Bankr. Rep. 292; First Nat. Bank of assets of the estate in bankniptey, re- Waterloo y. Exchange Nat. Bank, 179 ceives a dividend on the whole amount App. Dlv. 22, 153 N. T. Supp. 818, 164 of his claim, this does not estop him N. Y. Supp. 1092; In re Fisk & Robinson, from afterwards asserting tlie lien. 185 Fed. 974; White v. Crawford, 9 Fed. Brown Bros. Co. v. Smith Bros. Co. (O. 371; In re Spring, 2 Nat. Bankr. News, C.) 231 Fed. 475, 37 Am. Bankr. Rep. 30. 509; Merchants' Nat. Bank v. Cnmstock, si in re Bear (D. C.) 8 B^ed. 429. 55 N. T. 24, 14 Am. Rep. 168, 11 N. B. R. 8 2 Hatch v. Seeley, 37 .Iowa, 493, 13 235; Jones v. Hawkins, 60 Ga. 52; Heard N. B. R. 380. • i V. Jones, 56 Ga. 271, 15 N. B.R. 402; 8.3 Sedgwick v. Stewart, 9 Ben. 433, Shorten v. Booth, 32 La. Ann. 397; In re Fed. Cas. No. 12,625: Meyers, 2 Ben. 424,' 1 N. B. R, 581, Fed. si Cook v. Farrington, 104 Mass. 212. Cas. No. 9,518; Wallace v. Conrad, 8 ss Starks v. Curd, 88 Ky. 164, 10 Brewst. (Pa.) 329, 3 N. B. R. 41; Ex S. W. 419. parte Morris, 2 Low. 424, 16 N. B. R. 572. se Hiscock v. Jaycox, 12 N. B. R. 507, Fed. Cas. No. 9,823. Compare MeAlpin Fed. Cas. No. 6,531. § 564 LAW OF BANKRUPTCY 1156 no fraud appears and no one else will be prejudiced in his rights.®' But the rule is more strict when the proceedings have advanced so far that a dividend has been declared and the creditor has received his share of it. Here "it is said that an amendment will be allowed only in case of mistake or ignorance, and in the absence of all fraud, and where all per- sons can be placed in statu quo, and the creditor seeking to amend must refund a proportional part of the dividend, and pay the costs of his ap- plication.*® § 564. Settling Value of Security.— "The value of securities held by secured creditors shall be determined by converting the same into money according to the terms of the agreement pursuant to which such securities were delivered to such creditors,' or by such creditors and the trustee, by agreement, arbitration, compromise, or litigation, as the court may direct, and the amount of such value shall be credited upon S,uch claims, and a dividend shall be paid only on the unpaid balance." ** This statutory rule applies where a creditor claims a lien on property which has been set apart to the bankrupt as exempt.*" Jurisdiction is vested in the bankruptcy court to liquidate liens on the bankrupt's es- tate, and to determine, in the exercise of a sound discretion, in what manner disputes as to the value of securities shall be settled.*'^ And if a 87 In re Weaver, 144 Fed. 229, 16 Am. Bankr. Rep. 265; In re Wilder, 101 Fed. 104; In re Falls City Shirt Mfg. Co., 98 Fed. 592, 3 Am. Bankr. Rep. 437 ; In re Friedman, 1 Nat. Bankr. News, 208 ; In re Richard, 94 Fed. 633, 2 Am. Bankr. Rep. 506; In re Bear, 8 Fed. 429; In re Van Buren, 2 Fed. 643; In re Brand, 2 Hughes, 334, 3 N. B. R. 324, Fed. Cas. No. 1,809; Ex parte Harwood, Crabbe, 496, Fed. Cas. No. 6,185; In re McConnell, 9 N. B. R. 387, Fed. Cas. No. 8,712; Ex parte Lapsley, Fed. Cas. No. 8,083; Phillips v. Bowdoin, 52 Ga. 544, 14 N. B. R. 43 ; Britten v. Thomas, 238 Fed. 125, 151 C. C. A. 201, 38 Am. Bankr. Rep. 499. 88 In re Parkes, 10 N. B. R. 82, Fed. Gas. No. 10,754; In re Kaufman, 8 Ben. 394, Fed. Cas. No. 7,626. 80 Bankruptcy Act 1898, § 57h. Officers of a corporation who were sureties for it, and who paid the obligation and re- ceived the bonds which had been given as collateral security therefor, can claim on the bonds, in the bankruptcy of the corporation, only the amount paid by them, and not the face value of the - bonds, the latter sum being much great- er. Sauve V. Flesehutz, 219 Fed. 542, 135 C. C. A. 310, 34 Am. Bankr. Rep. 49. But see In re Anger Baking Co., 228 Fed. 181, 142 C. C. A. 537, 36 Am. Bankr. Rep. 261, holding that a pledgee of notes of a bankrupt may prove for their fuU amount, although the debt se- cured is less, where that is necessary to cover his claim. And where indorsers of the bankrupt's notes paid them, they are entitled to prove, as against the bankrupt's estate, the face value of the notes, regardless of any amount they may have received on foreclosure of a security mortgage, applying the proceeds on the balance of the claim. In re As- toroga Paper Co. (D. C.) 234 Fed. 792, 37 Am. Bankr. Rep. 751. The value of collateral deposited by a bankrupt to secure a note is the amount realized from the sale of such collateral, where the creditor has disposed of it, and not the value of the collateral at the time of the filing of the petition In bank- ruptcy, where that was much less. In re Isaacs, 246 Fed. 820, 159 C. C. A. 122, 40 Am. Bankr. Rep. 468. 80 In re Little (D. C.) 110 Fed. 621, 6 Am. Bankr. Rep. 681. »i In re Addison, 3 Hughes. 430, Fed. Gas. No. 76 ; In re Winn, 1 N. B. R. 499, Fed. Cas. No. 17,876. 1157 SECURED CREDITORS § 564 creditor voluntarily appears in the court of bankruptcy and asks the aid of the court for the enforcement of a lien which he claims on the bank- rupt's property, the court thereby acquires jurisdiction to proceed and dispose of the whole matter in a summary way.'* The intention of the statute seems to be that, if the creditor does not desire to foreclose his lien or realize on the security held, and the trustee does not deem it ad- vantageous for the estate to take the matter out of his hands and force a foreclosure, they shall endeavor to agree upon a valuation of the secu- rity, and may, if the court so directs, submit the matter to arbitration. But if they cannot agree, the creditor has the right to have the valua- tion fixed by litigation before the referee.*^ Or if the trustee has received or collected securities pledged, the court may, on petition of the pledgee, direct the trustee to apply the proceeds for the benefit of the pledgee.** Or if the parties have agreed on a valuation of the security, and there- after new facts are developed or occur, which show the valuation to have been erroneous, the court may order a new valuation to be made, if such a course is manifestly in furtherance of justice and the rights of the par- ties in interest.*^ Ordinarily, no steps will be taken towards compelling the valuation and application of a security until a trustee of the estate has been appointed, since the general creditors are to be represented by that officer, and it may be important for him to exercise his judgment as to the best manner of dealing with the situation.®* Much may depend, in such cases, upon the sound discretion of the trustee. But his duty is only to the general or unsecured creditors. Hence if a particular piece of property will be wholly absorbed in satisfying an established first lien on it, the trustee is under no duty to ascertain the validity of subse- quent liens.®'' But if it becomes necessary for him to carry the matter into the courts, he may file a bill against all incumbrancers, with the ob- ject of ascertaining the validity, priority, and amount of their several claims.** And in one case, where the creditor relied on the lien of a judgment, but it was represented to the trustee that the bankrupt was insane at the time of the service of process in the suit and at the date of the judgment, it was held that this, if true, was matter of fact which would render the judgment erroneous, and that the trustee should go into the court where it was rendered and sue out a writ of error coram nobis.** »2 In re Worthington, 14 N. B. R. 388, oo In re Grinnell, 7 Ben. 42, 9 N. B. Fed. Oas. No. 18,052. R. 29, Fed. Cas. No. 5,830. 3 In re Davison, 179 Fed. 750, 24 Am. or Mattocks v. Farrington, 2 Hask. Bankr. Rep. 460. 331, Fed. Cas. No. 9,298. 01 In re Wiley, 4 Biss. 171, Fed. Cas. as McLean v. Lafayette Bank, 3 Mc- No. 17,655. Lean, 415, Fed. Cas. No. 8,886. '5 In re Newland, 7 Ben. 63, 9 N. B. oo McKinsey v. Harding, 4 N. B. E. R. 62, Fed. Cas. No. 10,171. 38, Fed. Cas. No. 8,866. § 564 LAW OF BANKRUPTCY 1158 The manner of valuing and applying the security must depend in many cases on the particular circumstances present, the object being always to effect exact justice as between the secured creditor, on the one hand, and the body of unsecured creditors on the other hand. For instance, in one case it appeared that the creditor, after the adjudication of his debtor in bankruptcy, took out a policy of insurance on the life of the debtor as security for the debt, and paid all the premiums with his own money. He also proved his debt in bankruptcy and received divi- dends thereon. The bankrupt died prior to the declaration of the last dividend, and the insurance company paid the creditor in full the orig- inal amount of the debt. It was held that the creditor must pay to the ■ trustee in bankruptcy the whole amount received from the insurance company over the sum sufficient, with the dividends and payments pre- viously made, to pay the debt in full, but that he was entitled also to deduct the amount of premiums paid by him,- with interest from the time of payment.-'*** In regard to the costs and expenses of realizing on securities, the creditor should not ordinarily be charged with more than he would have had to expend if he had effected a foreclosure independently of the bankruptcy proceedings. But on the other hand, the estate in bankruptcy should not be burdened with expense where it gains no cor- responding advantage. Thus, where a mortgage creditor attempted to foreclose his mortgage in a state court, but without leave of the bank- ruptcy court and without joining the trustee, and the proceeding was held invalid, it was considered that attorneys' commissions and costs stipulated to be paid on foreclosure should not be allowed. ^**^ But a mortgagee in possession is not chargeable with any part of the costs in bankruptcy, nor with the expenses of the sale of any of the property other than that on which his mortgage was a valid lien.^"* 1 ' * § 565. Claim for Deficiency and for Interest and Costs. — If the se- curity held by a lien creditor is valued by agreement between himself and the trustee, or under the direction of the court, but the valuation is less, than the amount of his debt or claim, — or if the lien is foreclosed or the security otherwise realized, and results in a deficiency, — the creditor, in either case, will be entitled to prove a claim in the bank- ruptcy proceedings for such deficiency or unsatisfied balance,"^ al- 1100 In re Newland, 7 Ben. 63, 9 N. B. U. S. 58, 24 L. Ed. 370; In re Rudd. R. 62, Fed. Cas. No. 10,171. 180 Fed. 312, 25 Am. Bankr. Rep. 35; 101 In re Devore, 16 N. B. R. 56, Fed. In re Ball, 123 Fed. 164, 10 Am. Bankr. Cas. Ko. 3,847. Rep. 564 ; In re Linforth, 87 Fed. 386 : 102 In re Eldridge, 2 Biss. 362, 4 N. In re Letchwortli, 18 Fed. 822; In re B. H. 498, Fed. Cas. No. 4,330. Winn, 1 IV. B. R. 499, Fed. Cas. No. 17,- loaMcHenry v. Socl^tii Praneaise, 95 876; In re Bolton, 2 Ben. 189, 1 N. B. 1159 SECUEHb CElSDITOliS § 565 though, quoad hoc, he will not be entitled to any preference or advantage over other creditors, but simply to take his proportionate share out of the bankrupt's general assets.^*** Further, if a mortgagee forecloses within a year after the adjudication in bankruptcy, he cannot prove his claim for a deficiepcy after the expiration of such year, as he had the right to prove it in the first instance as a secured claim. ^*'' And as to his right to obtain and enforce a deficiency decree in the foreclosure pro- ceeding, that right will be suspended pending the bankrupt's application for a discharge, and will be lost if the discharge is granted."* If the property is sold on foreclosure proceedings and is bid in by the lien creditor for a merely nominal sum, with no competing bid against him, or, according to some of the authorities, if his successful bid is less than the amount due, the actual value of the property may be inquired into, and he will be allowed to prove a claim, as on a deficiency, only for the difference between the amount of his original debt and the value so ascer- tained."' And some of the cases rule that a mortgagee cannot be per- mitted to come upon the estate fo^ any deficiency where he proceeded to foreclose in a state court without obtaining leave of the bankruptcy court and without making the trustee a party, as this amounts to an electioif on his part to rely wholly on his security and stay out of the bankruptcy."* But other cases hold that such a claim may be allowed in. R. STO.'Fed. Cas. No. 1,614; In re Grant, lo? in re Dix, 176 Fed. 582, 23 Am. Fed. Cas. No. 5,690 ; Ex parte Dalby, Bankr. Eep. 889 ; In re Graves, 182 Fed. 1 Low. 431, 3 N. B. R. 731, Fed. Cas. 443, 25 Am. Bankr. Rep. 372 ; In re No. 3,540; In re Ruehle, 2 N. B. R. 577, Woods, 7 Fed. 665. In the case last Fed. Cas. No. 12,113; Watklns v. Worth- cited, it was said that the amount of ington, 2 Bland. (Md.) 509 ; In re Clark the proceed^ of a subsequent sale of Eealty Co., 258 Fed. 938, 166 Oi C. A. the property by the creditor is no test of 38, 42 Am. Bankr. Rep. 403 ; In re the actual value of the property and Progressive Wall Paper Corp. (D. C.) 224 should not be credited as such to the Fed. 143 ; In re McAusland (D. C.) 235 bankrupt, in the absence of an agree- Fed. 1-73, 37 Am. Bankr. Rep. 519 ; In ment between the parties that the cred- re Bash (D. C.) 245 Fed. 806, 40 Am. itor should sell the property and apply Bankr. Rep. 341. A creditor of a bank- the proceeds towards the satisfaction of rupt corporation holding its notes se- the debt. Upon a claim for the balance cured by its mortgage bonds as coUat- of a secured debt after sale of the se- eral, after realizing from the mortgaged eurity, the court of bankruptcy, in the property, cannot prove against the gen- absence of -a legal rule ^in the state eral estate both the balaace due on the making the sum for which the property notes and the balance dne on the bonds, is bought in at a public sale conclusive but is entitled to dividends only on the of its value, is bound to consider the amount of the actual indebtedness to question of^value on an allegation that him. In re Battle Island Paper Co. (D. the pi-ice realized at such a sale was in- C.) 259 Fed. 921, 44 Am. Bankr Rep. adequate. In re McAusland (D. C.) 235 240. Fed. 173, 37 Am. Bankr. Rep. 519. 104 In re Snedaker (Utah) 4 N. B. R. los in i-e Soltmann, 249 Fed. "455, 161 168. C. C. A. 413, 41 Am. Bankr. Rep. 42 ; In . 105 In re Sampter, 170 Fed. 938, 96 C. re A. J. Ellis, Inc. (D. C.) 242 Fed. 156, C. A. 98, 22 Am'. Bankr. Rep. 357. 39 Am. Bankr.- Rep. 265; In re Astorqga 106 Scott V. Ellery, 142 U. S. 381, 12 Paper Co. (D. C.) 234 Fed. 792, 37 Am. Sup. Ct. 233, 35 L. Ed. 1050. Bankr. Rep. 751 ; In re ililler, 19 N. B. § 565 tAW OF BANKRUPTCY 1160 the discretion of the court.^"® And in a case where a mortgage creditor obtained permission of the bankruptcy court to foreclose his mortgage in a state court, but upon condition of waiving any personal claim for deficiency, but the creditor, for good reasons and without laches, failed to prosecute his suit to judgment, it was held that he was not bound, as by an election, to rely solely on the mortgaged property, but he might be subsequently admitted as a creditor against the estate on account of the same debt.^^" It is also held by some of the decisions that the mortgagee of prop- erty of a bankrupt is equitably entitled to have the rents and profits of the property, collected by the trustee in bankruptcy, applied on the interest on his debt, if the security itself is insufficient,"^ particularly if he has secured an equitable lien on the rents by bill in equity and the appointment of a receiver after default.-'*^ But this is not undisputed, and certain other cases maintain that the mortgagee in such a case is not entitled to the rents unless, in addition to showing the insufficiency of his security, he actually intercepts and receives them.*" As to interest on the mortgage or other secured debt, it will ordi- narily stop with the filing of the petition in bankruptcy, as debts ac- cruing after that time are not provable in bankruptcy. Hence a' secured •creditor who sells the security after the filing of the petition, and finds the proceeds insufficient to pay the whole amount of his claim,. is not entitled to apply such proceeds first to interest accrued since the filing of the petition, and then to the principal debt, and then prove a claim for the balance.-'** But in the exceptional case where an estate in bank- ruptcy is amply sufficient for the purpose, a mortgagee may be allowed full interest on his debt."^ As to costs and fees, where these are stip- ulated in the mortgage to be paid in case of foreclosure by proceed- ings in court, they may be allowed when the security is realized on in the manner specified, but not where the property covered is sold by the trustee in bankruptcy at private sale under order of the court.*'* R. 78, Fed. Gas. No. 9,555; In re Her- m Foster v. Rhodes, 10 N. B. R. 52.S, rick, 17 N. 'B. R. 335, Fed. Gas. No. Fed. Gas. No. 4,981 ; In re Hollenfeltz, 6,421. 94 Feci. (;29, 2 Am. Bankr. Rep. 499. 10!) In re Moller, 14 Blatchf. 207, Fed. u* Soxton v. Dreyfus, 219 TJ. S. '.'>:',U. Gas. No. 9,700. .'U Suii. ct. 256. 55 L. Ed. 244, 25 Am. 110 In re lanforth, 87 Fed. 386. Bankr. licii. '.WH, rovorsing In re Kcsh- 111 In re Industrial Cold Slonige & ler, ISO I''ed. 979, 103 C. C. A. 582, 24 Ice Co., 163 Fed. 390, 20 Am. Bankr. Am. Bankr. Rep. 287, which affirmed In Rep. 901. And see In re Bennett, 2 re Ki'ssIit & Co., 171 Fed. 751, 22 Am. Hughes, 156, 12 N. B. R. 257, Fed. Gas. Bankr. Rep. 606. No. 1,313; Bindseil v. liberty Trust nsGodcr v. Arts, 213 U. S. 223, 2!) Co., 248 Fed. 112, 160 C. C. A. 252, 41 ,Sup. Gt. 4:!0, 53 L. Ed. 772, 16 Ann. Gas. Am. Bankr. Rep. 454. 1008, 22 Am. Bankr. Rep. 1. 112 In re Snedaker (Utah) 4 N. B. R. no In re Roche (C. G. A.) 101 Fed. 168. »0Q h. Ed. 668. 1163 SECURED CREDITORS § 567 he has not proved his debt.-'^*® And it cannot be said that the secured creditor has such an absolute right to disregard the proceedings in bankruptcy that he can proceed to enforce the security by the aid of the state courts without being interfered with by the trustee or the court of bankruptcy. If he brings a suit in a state court, after the commence- ment of the bankruptcy proceedings, to foreclose a mortgage or en- force any other lien, not having proved his debt or otherwise partici- pated in the proceedings in bankruptcy, he may be enjoined from pro- ceeding further with his suit, and such injunction may issue in a case where the trustee alleges that the mortgage or other security was fraud- ulent and void.-^® But still, if he takes this course under circum- stances which appeared to justify it at the time, and it does not appear that other creditors were injured, it is the authority and discretion of the bankruptcy court to ratify and confirm a sale so made, as if leave to make it had first been obtained.^^' Since the statute vests the trustee in bankruptcy with title to the bankrupt's property "as of the date when he was adjudged a bank- rupt," it is held that, until that date, a lienor or pledgee is at liberty to make any disposition of or perfect any title to the property which the nature of the lien permits, and where he has converted the security into money pursuant to his contract rights, he may prove the unsatis- fied balance of his claim. ^^* It remains to be stated that, if the creditor relies on his security and omits to prove his claim in the bankruptcy, a discharge granted to the bankrupt will not be a bar or defense to any proceedings to enforce t'he lien, but will preclude the creditor from set- ting up any claim for a deficiency.^^* § 567. Foreclosure by Secured Creditor Independently of Bank- ruptcy. — ^A mortgagee or other lien creditor may prosecute a suit in a state court for the establishment and enforcement of his lien without regard to the pendency of proceedings in bankruptcy against the debtor, provided that he has not made himself a party to those proceedings and subjected himself to the jurisdiction of the court of bankruptcy by prov- 125 In re High, 3 N. B. R. 191, Fed. 127 Bradley v. Adams Exp. Co., 3 Fed. Gas. No. 6,473. 895. 120 Markson v. Heaney, 1 Dill. 497, 4 128 in re Mertens, 144 Fed. 818, 75 O. N. B. R. 510, Fed. Gas. No. 9,098; In re C. A. 548, 15 Am. Bankr. Rep. 362. Snedaker (Utah) 3 N. B. R.'629; In re '29 Dixon v. Baruum, 3 Hughe's, 207, Brooks, 91 Fed. 508, 1 Am. Bankr. Rep. Fed. Gas. No. 3,928; Pease v. Ritchie, 531 ; In re Grinnell, 7 Ben. 42, 9 N. B. R. 133 HI. 638, 24 N. B. 433, 8 L. R. A. 566; 29, Fed. Cas. No. 5,8.30. See Barstow v. Gohn v. Golby, 57 How. Prac. (N. Y.) Peckham, 5 N. B. R. 72, Fed. Oas. No. 168 ; Barnett v. Salyers (Ky.) 12 S. W. 1,064. 303; Kinloch v. Savage, Speer, Eq. (S. C.) 464. § 567 LA-W OF BANKRUPTCT lifi4 ing his claim or otherwise, and provided that no action is taken by the trustee in bankruptcy to interfere with such suit, nor any order to that effect issued by the bankruptcy court.^** And particularly if foreclosure proceedings have proceeded in a state court so far as the rendition of a judgment or decree before any adjudication in bankruptcy is made, the whole matter is then within the exclusive jurisdiction of the state court, and the execution of the decree will not be stayed or enjoined.^^^ There is, however, an interval during which it would be unsafe for the creditor to proceed in this manner, and dufing which other creditors would have good ground for applying to the bankruptcy court to stay his hand. This is the time which elapses between the adjudication in bankruptcy and the appointment of a trustee. Since that ofi&cer, when appointed, will be under the duty of investigating the security and the property which it is alleged to cover, and of determining whether there is any equity which can be made available for the general creditors, a sale made before he is qualified will be at least voidable as against him.^^' And some of the cases hold that the trustee will not be barred or in any way affected by a decree of foreclosure if he was not joined as a party in the suit in which it was rendered, since he succeeds in title to the equity of redemption of the bankrupt.^** And since all prop- erty of the bankrupt is at least constructively in the possession of the trustee, a chattel mortgagee cannot take possession of the property covered, after the appointment of the trustee, unless it be with the consent of the latter. Possession so taken is not lawful and cannot be retained against the demand of the trustee f6r the surrender of the 130 Jerome v. McCarter, 94 U. S. 734, cured creditor, see, supra, §§ 387, 390. 24 L. Ed. 136 ; In re Roseberry, 8 Biss. Contra, see In re Wynne, Chase, 227, 4 112, 16 N. B. R. 340, Fed. Cas. No. 12,- X. B. R. 23, Fed. Cas. No. 18,117; Ex 052 ; Sedgwick v. Grinnell, 9 Ben. 429, parte Taylor, 1 Hughes, 617, 16 N. B. R. Fed. Cas. No. 12,612; In re Davis, 1 40, Fed. Cas. No. 13,773; Blum v. Ellis, Sawy. 260, 4 N. B. R. 715, Fed. Cas. No. 73 N. C. 293, 13 N. B. R. 345 ; In re 3,620; In re Smith, 2 Ben. 432, 1 N. B, Gerdes, 2 Nat. Bankr. News, 181; Stew- R. 599, Fed. Cas. No. 12,973; Swope v. art-Xoble Drug Co. v. Bishop-Babcock- Arnold, 5 N. B. R. 148, Fed. Cas. No. Becker Co., 62 Colo. 197, 162 Pac. 159. 13,702; Teadon v. Planters' & Mechan- 131 j^ ^.g Qerdes, 102 Fed 318 4 Am ics' Bank, Fed. Cas. No. 18,130; Brown B^nkr. Rep. 346; In re Holloway, 93 V. Gibbons, 37 Iowa, 654, 13 N. B. R. j-gj ggg ^ ^^^ g^^j.^. ^ g^g ^^^^ 407; Hayes v. Dickinson, 9 Hun (N. Y.) callagan v. American Trust & Savings 277, 15 N. B. R. 350; Barber v. Terrell. B^nk, lOB 111. App 102. 54 Ga. 146; Gumming v. Clegg, 52 Ga. ,,^^ ^ , 605, 14 N. B. R. 49; Winship v. Phillips, „ 'V ^" re. Brooks, 91 Fed. 508, 1 Am. 52 Ga. 593, 14 N. B. R. 50 ; Hall v. Bliss, S^""^"", ^^p. 531 ; Taylor v. Robertson, 118 Mass. 554, 19 Am. Rep. 476, 14 N. B. ^^ ^^°^- -^^■ R. 329; Hatcher v. Jones, 53 Ga. 208, 1 33 Barron v. Newberry, 1 Blss. 149, 14N. B. R. 387; Biddle's Appeal, 68 Pa. Fed. Cas. No. 1,056; Townshend v. St. 13, 9 N. B. R. 144 ; Green v. Arbuth- Thomson, 60 N. Y. Super. Ct. 454, 18 X. not, 4 Wkly. Notes Cas. (Pa.) 357. Fur- Y. Supp. 870; Griffin v. Hodshire, IIIJ ther as to foreclosure and sale by se- Ind. 235, 21 N. E. 741. 1165 SECURED CREDITORS § 567 property.^** But the adjudication is no bar to an ejectment by a mort- gagee against a third person, not connected with the trustee in bank- ruptcy, even though such suit is brought without permission of the court of bankruptcy, where the trustee never assumed possession of nor intermeddled, with the estate affected.*^* And in general, if the trustee is satisfied that the secured creditor's claim is valid and that the prop- erty covered is of no. greater value than will be sufficient to pay it, he may abandon the property to the creditor;^**' and when this is done it is perfectly permissible for the creditor to proceed as if no proceeding in bankruptcy were pending, and for a state court to take and exercise jurisdiction without regard to such proceeding;**'" and such abandon- ment may be presumed when the trustee takes no steps to bring the, property within the jurisdiction of the court of bankruptcy for admin- istration,*** or when he permits a pending foreclosure suit tO' proceed without objection or intervention.*** As for the court of bankruptcy, it will, in general, interfere with the creditor's proceedings. only where the interests of the general creditors will be materially afifected or where there is controversy as to the validity of the alleged lien.**" In the absence of such circumstances, it may permit the • creditor to proceed in his own way and allow him to make a sale of the property.*** .But still, even in such a case, if any fraud is discoverable in the sale, the bankruptcy court will not hesitate to interfere, as was done in a case where a pledgee of valuable collateral sold it to himself at a pretended auction sale for about one-sixth its nominal value, after the filing of a petitifin in bankruptcy against the pledgor, and without any other au- thority than the contract of pledge, and without notice to the pledgor or any other party in interest.**^ And where the mortgagee of property has proved his debt in the bankruptcy proceedings, ,and the court of 134 In re Gutman, 114 Fed. 1009, 8 see Bean v. Parl5,er, 89 Vt. 532, 96 Atl. Am. Ba^kr. Rep. 252 ; In re Rosenberg, 17. Whether the administration of a 3 Ben. 366, 3 N. B. E. 130, Fed. Cas. No. mortgaged stock of merchandise should 12,055 ; Hutchings v. Muzzy Iron Works, be left to the state court, which had talc- 8 N. B. R. 458, Fed. Oas. No. 6,952. en jurisdiction, or be brought into tile • 135 Eyster v. Gaff, 2 Colo. 228. . bankruptcy proceedings, is for the deter- 138 Second Nat. Bank v. National mination of the judge of the bankruptcy State Bank, 10 Bush (Ky.) 367; In re court. Bank of Dillon v. Murchison, 213 MoUSr, 8 Ben. 526, Fed. Cas. No. 9.699. Fed. 147, 129 C. C. A. 499, 31 Am. Bankr. 137 Stoddard v. Locke, 43 Vt. 574, 5 Rep. 740. Am. Rep. 308, 9 N. B. R, 71; Second i^i In re Lesser, 100 Fed. 433, 3 Am. Nat. Bank v. National State Bank, 10 Bankr. Rep. 815; In re Grinnell, 7 Ben. Bush (Ky.) 367. 42,' 9 N. B. R. 29, Fed. Oas. No. 5.830 ; 138 Crowe V. Reid, 57 Ala. 281. In re Sacchi, 10 Blatchf. 29, 6 N. B. R: 130 In re Stansfield, 4 Sawy. 334, 16 497, Fed. Cas. No. 12,200. N. B; R, 268, Fed. Oas. No. 13,294. 142 In re Mertens, 134 Fed. 101, 14 1*0 Goddard v. Weaver, 1 Woods, 257, Am. Bankr. Rep. 226. 6 N. B. R. 440, Fed. Cas. No, 5,493. And § 567 LAW OF BANKRUPTCY 1160 bankruptcy has made an order for the sale of the property, 'in a pro- ceeding to which he was a party, he cannot then go into a state court and sue 'for foreclosure.'^** Where the security takes the form of a deed of trust in the nature of a mortgage, the rights of the secured creditor (beneficiary) are not materially different from those of the mortgagee in a common-law Mort- gage. There is some authority for the doctrine that a power of sale given in a mortgage is not a power coupled with an interest, and there- fore is revoked by the bankruptcy of the mortgagor, as it would be by his death."* But this cannot be the case with a deed of trust by which the legal title is vested in one or more trustees for the benefit of the lawful holder of the obligation secured, since in this case nothing comes within the scope of the bankruptcy proceedings but the grantor's re- versionary or equitable title."® Where, prior to the commencement of the proceedings in bank- ruptcy, a receiver is appointed in an action in a state court to foreclose a mortgage, property in his possession cannot be taken by the trustee in bankruptcy without discharging the mortgage debt.^** But after the appointment of the trustee, a receiver will not be appointed for the bankrupt's mortgaged land, as the trustee is clothed with like functions as a receiver."'' § 568. Same; Obtaining Permission of Bankruptcy Court. — Under the bankruptcy act of 1867, there were numerous decisions to the eflfe,ct that, after, the commencement of the proceedings in bankruptcy, a cred- itor secured by a mortgage or deed of trust, or a pledge or a mechanic's lien, or holding an execution, could not proceed to enforce his security by sale of the property without the permission of the bankruptcy court first obtained, and that a sale made without such leave was voidable and would be set aside on a proper application."* And at least one decision under the present statute has been rendered to the same effect."? Fur- ies Levy V. Haakfe, 53 Cal. 267. Avenue German Sav. Inst., 3 N. B. R. i44Lockett V. Hoge, 9 N. B. R. 167. 218, Fed. Cas. No. 8,188; Phelps v. Sel- Fed. Cas. No. 8,444. And see Morris v. lick, 8 N. B. E. .390, Fed. Cas. No. ll,r Davidson, 49 Ga. 361, 11 N. B. R. 454. 079; Dooley v. Virginia Fire & Marino 146 McGready v. Harris, 54 Mo. 137, 9 Ins. Co., 2 Hughes, 482, Fed. Cas. No. N. B. R. 185. See In re Davis, 2 N. B. 3,998 ; The Skylark, 4 Blss. 388, Fed.. E. 391, Fed. Cas. No. 3,618. Cas. No. 12,929 ; Stemmons v. Burford. 140 Davis V. Railroad Co., 1 Woods, 39 Tex. 352; In re Needham, Fed. Cas! 661, 13 N. B. R, 258, Fed.' Cas. No. 3,648. No. 10,081a; Socl6t6 d'Epargnes v. Mc- 147 In re Bennett; 2 Hughes, 156, 12 Henry, 49 Cal. .351. Contra, In re Grin- N. B. R. 257, Fed. Cafl. No. 1,313. nell, 7 Ben. 42, 9 N. B. R. 29, Fed. Cas. 148 Smith V. Kehr, 2 Dill, 50, 7 N. B. No. 5,830; In re Moller, 14 Blatchf. 207, R. 97, Fed. Cas. No. 13,071 ; In re Cook, Fed. Cas. No. 9,700. 3 Biss. 116, Fed. Cas. No. 3,151; In re 140 in re Emslie (C. C. A.) 102 Fed. McGiltoii, 3 Biss. 144, 7 N. B. R. 294, 291, 4 Am. Bankr. Rep. 126. Fed. Cas. No. 8,798; Lee v. Franklin 1167 SECUEED CREDITORS § 569 ther, it was held that, in order to entitle a mortgagee to apply for leave to foreclose in another court, he must first prove his debt, "and his pe- tition for leave must fully describe his debt, its nature and amount, and the property affected, the other incumbrances, if any, and the actual value of the property ; and if the value of the property was greater, than the incumbrances, the petition must make it appear that the rights of the creditor could not be fully protected by a sale made by the trustee in bankruptcy,^®" and the creditor must notify the trustee of his appli- cation, failing which it should be dismissed.^®^ But the Supreme Court refused to accept or sanction this doctrine, and held that the lienor was entitled to perfect his title and enforce his rights as- though no proceeding in bankruptcy had been commenced, and without first ap- plying to the bankruptcy court for leave,^®^ and the best modern deci- sions accord with this last view.^®* § 569. Same; Authority of Bankruptcy Court to Stay or Enjoin Proceedings. — The court of bankruptcy has jurisdiction to "assume the entire administration of the estate of the debtor, to determine all ques- tions touching the existence of liens thereon, and to ascertain and set- tle the amount of such liens, and make provision for the liquidation and settlement thereof; and as incidental to this, it has ample power to restrain a claimant of such lien from, proceeding elsewhere to enforce his lien." ^^* And it is generally proper so to enjoin the secured cred- itor when the value of the property exceeds the amount secured by the mortgage or other lien, or where the validity or amount of the lien is disputed, or there is danger that the property may be sacrificed, or where the course taken by the secur'ed creditor would be prejudicial to the interests of the general body of creditors.^®^ And where there is no 150 In re Sabin, 9 N. B. R. 383, Fed. Lafayette Bank, 3 McLean, 185, Fed. Cas. No. 12,19.S. Cas. No. 8,885; Piatt v. Dickenson, Fed. 151 In re Frizelle, 5 N. B. B. 122, Fed. Cas. No. 11,216a; In re Kerosene Oil Cas. No. 5,133. Co., 3 Ben. 35, 2 N. B. E. 528, Fed. Cas. i52Eyster v. GafC, 91 U. S. 521, 23 L. No. 7,725; In re Hanna, 4 Ben. 469, 4 Ed. 403; Jerome v. McCarter, 94 U. S. N. B. R. 411, Fed. Cas. No. 6,026; Gets! 734, 24 L. Ed. 136. v. First Nat. Bank, Fed. Cas. No. 5,374; 153 In re Mertens, 144 Fed. 818, 75 C. In re Nfew York Kerosene Oil Co., 3 N. B. C. A. 548, 15 Am. Bankr. Rep. 362. R. 125, Fed. Cas. No. 10,206 ; Foster v. 15* In re Clark, 9 Blatchf. 372, 6 N, Ames, 1 Low. 313. 2 N. B. R. 455, Fed. B. R. 403, Fed. Cas. No. 2,801. Cas. No. 4,965; In re Brinkman, 7 N. 15 5 In re San Gabriel Sanatorium Co. B. R. 421, Fed. Cas. No. 1,884; Whitman (C. C. A.) 102 Fed. 310, 4 Am. Bankr. v. Butler, 8 N. B. R. 487, Fed. 'Cas. No. Rep. 197 ; In re Pittelkow, 92 Fed. 901. 17,579 ; Markson v. Heaney, 1 Dill, 497. 1 Am. Bankr. Rep. 479 ; In re Snedaker 4 N. B. R. 510, Fed. Cas. No. 9,098; (Utah) 3 N. B. E. 629; In re Iron Monn-. McKay v. Funk, 37 Iowa, 661, 13 N. B. tain Co., 9 Blatchf. 320, 4 N. B. R. 645, R. .334; Markson v. Haney, 47 Ind. 31, Fed. Cas. No. 7,065 ; The Skylark, 4 Biss. 12 N, B. R. 484. 388, Fed. Cas. No. 12,929; McLean v. § 570 LAW OP BANKRUPTCY 1168 dispute as to the title to the property but only a question as to the en- forcement of a lien upon it, a formal or plenary proceeding is not nec- essary, but the petition to enjoin the creditor from foreclosing may be heard and determined in a summary manner.^®* But courts of bank- ruptcy will be chary of interfering with a creditor who is proceeding to enforce an admittedly valid lien in the manner ordinarily appropriate for that purpose. The drastic step of enjoining him will be taken only when it is necessary to protect an equity of the bankrupt or to prevent a sacrifice of, or serious injury to, the interests of the creditors at large."^ Hence, if it is clearly shown that the property affected is of no value beyond the: admitted- incumbrances upon it, so that there is nothing to be gained for the general creditors, an injunction will be refused, or, if issued, will be dissolved.^^* And a trustee in bankruptcy cannot have an injunction against a foreclosure in a state court of a mortgage against the bankrupt, where he appeared and permitted the proceedings to ad- vance to a final adjudication, and no injury is done thereby to the es- tate of the bankrupt.^"* § 570. Redemption of Property by Trustee. — A trustee in bank- ruptcy is vested with such an interest in the mortgaged real estate of the bankrupt as entitles him to pay off the mortgage debt and have the mortgage assigned to himself or to. a person designated. by him, al- though it is not in process of foreclosure, where it is shown that such a course will be for the benefit of the estate, by enabling him to sell the property to better" advantage; and the court of bankruptcy has juris- diction; on his petition, to compel the mortgagee to accept payrnent and execute the assignment.^*' The procedure for this purpose has been prescribed as follows: "Whenever it may be deemed for the ben- efit of an estate of a bankrupt to redeem and discharge any mortgage or other pledge, or deposit or lien, upon any property real or personal, ...... the trustee, or the bankrupt, or any creditor who has proved his debt, ma.y file his petition therefor, and thereupon the court shall ap- point a suitable time and place for the hearing thereof, notice of which shall be given as the court shall direct, so that all creditors and other persons interested may appear and show cause, if any they have, why 168 In re Olark, 9 Blatchf. 372, 6 N. les in re O'Malley, Fed. Gas. No. 10,- B. R. 403, Fed. Gas. No. 2,801. 507a; In re Iron Mountain Go., !) 107 In re Davis, 8 N. B. E. 167, Fed. Blatchf. 320, 4 N. B. R. 645, Fed. Gas. Gas. No. 8,619; Blake v. Francls-Valen- No. 7.065; McLean v. Rockey, 3 Me- tine Go., 89 Fed. 691, 1 Am. Bankr, Rep. Lean. 2.S5, Fed. Gas. No. 8,891. 372; Pennington v. Sale, 1 N. B. R. 572, . loo Augustine v. McFarland, 13 N. B. Fed. Gas. No. 10,939; In re Wilbur, 1 R. 7, Fed. Gas. No. 648. Ben. 527, 3 N. B. R. 276, Fed. Gas. No. mo in re Bacon, 132 Fed. 157, 12 Am. 17,633. Bankr. Rep. 730; In re Straub, 168 Fed. 1169 SECURED CREDITORS § 571 an order should not be passed by the court upon the petition authoriz- ing such act on the part of the trustee.""^ Where payment of an al- leged specific lien is made by a bankrupt's trustee after notice to all creditors and without objection, a general judgment creditor claiming a prior lien cannot thereafter object, the rule being that lien creditors who are not prompt and persistent in asserting their rights may lose them.'^*'' § 571. Sale of Property by order of Bankruptcy Court. — The court of bankruptcy has jurisdiction and power to dispose of incumbered property of the bankrupt in any manner deemed best for the interests of all concerned. It may or-der such property to be sold by the trustee in bankruptcy, and may direct the sale to be made subject to a particu- lar lien, admitted to be valid, or free of all liens and incumbrances, and in the latter case the proceeds of the sale will be brought into court for distribution to those entitled, and any valid lien will be transferred from the property to the fund in court.^** And this action may be taken hot only at the instance of the trustee in bankruptcy, but the lien cred- itor himself may petition the court to take charge of the property and order its sale, or for leave to conduct the sale himself, in either case first proving his debt and making at least a prima facie showing as to the validity and priority of his lien.^** An order of the bankruptcy court so made will oust the jurisdiction of the state courts to foreclose the lien in the ordinary way."* But it can only be justified by the exist- ence of an equity in the property which can be made available for the general creditors. And hence, if it is quite clear tfiat the jiroperty is not worth anything more than the amount of the mortgage or other incum- brance upon it, the court will not order its sale, but will leave the cred- itor to deal with it in his own way.^"^ If, however, a sale has been ordered and made and the proceeds brought into court, all questions concerning the right of the creditor to paynxent out of the fund, or the amount to which he is entitled, must be determined by the bankruptcy 375, 19 Am. Bankr. Rep. 808; Foster v. 9T3; Davis v. Anderson, 6 N. B. E. 145, Ames, 1 Low. 313, 2 N. B. R. 455, Fed.. Fed. Cas. No. 3,623 ; In re Salmons, 2 N. Cas. No. 4,965. And see supra, § 305. B. R. 56, Fed. Cas. No. 12,268; Second 161 General Order in Bankruptcy, No. Nat. Bank v. National State Bank, 10 28. , Bush (Ky.) 367, 11 N. B. R. 49. And see 162 In re Torchla, 185 Fed. 576, 26 supra, §§ 470, 471. Am. Bankr. Rep. 188. i64 in re Stewart, 1 N. B. R. 278, Fed. 16S In re Booth, 96 Fed. 943, .2 Am. Gas. No. 13,418; In re Bigelow, 2 Ben. Bankr. Rep. 770 ; In re Plttelkow, 92 480, 1 N. B. R. 632, Fed. Cas. No. 1,396. Fed. 901, 1 Am. Bankr. Rep. 479; In re los In re Devore, 16 N. B. R. 56, Fed. Schnepf, 2 Ben. 72, 1 N. B. R. 190, Fed. Cas. No. 3,847. Cas. No. 12,471 ; In re Bowie, IN; B. R. i6o in re Lambert, 2 N. B. R. 426, Fed. 628, Fed. Cas. No. 1,728 ; In re Ham- Cas. No. 8,026 ; Foster v. Ames, 1 Low, bright, 2 N. B. R. 498, Fed. Cas. No. 5,- 313, 2 N. B. R. 455, Fed. Cas.' No. 4,965. Blk.Bke.(3d Ed.)— 74 § 572 LAW OF BANKRUPTCY 1170 court on a petition for distribution, not by a suit at law.**' And if the property does not bring as much as the amount of the. Hen, the cred- itor is not entitled to be paid in full out of the estate as holding a priv- ileged debt; in other words, he cannot come upon the general funds of the estate for the deficiency in the character of a 'lien creditor, though he may prove a claim for such deficiency as a general or unsecured cred- itor."* And even ahead of the claim of the lien creditor, the proper costs and expenses of the sale must be paid out of the proceeds.-'®* § 572. Marshalling Assets. — ^As among the various secured cred- itors of a bankrupt, the general equitable. principle of marshalling se- curities will be applied, so that a creditor having security on. two or more funds or properties will be required to exhaust that on which his lien stands alone, before proceeding against that on which other cred- itors beside himself have liens.*'* Thus, where a creditor held several judgment notes against a debtor and also some mortgages and two insurance policies as collateral, and caused judgment to be entered on the notes and execution issued thereon, and shortly afterwards a peti- tion was filed against the debtor and he was adjudged bankrupt, it was held that, the court had power so to marshal the assets as to require such creditor to foreclose a mortgage before resorting to the general fund.*'* But where the purchaser of a tract of land gave a mortgage back covering the entire property and afterwards divided it into lots, and sold some of them, and others remained on his hands at the time of his adjudication in bankruptcy, and thes6 were sold by the trustee in bank- ruptcy discharged of incumbrances, thus displacing, the lien of a sec- ond mortgage which covered these lots only, it was held that the fund belonged to the first mortgagee and not to the second. The second mortgagee attempted to invoke the equitable principle that where sev- eral pieces of real estate, subject to a common incumbrance, are suc- cessively aliened, they are liable for the incumbrance in the inverse or- der of alienation. But the court said that there was here but one fund for distribution, and on that the senior mortgage was unquestionably the prior lien, and that the junior mortgagee must seek subrogation and indemnity in another proceeding.*'* i«7 In re Masterson, 4 N. B. E. 553, "o in re Sauthoff, 7 Biss. 167, 14 N Fed. Oas. No. 9,268. B. R. 364, Fed. Cas. No. 12,379;' In re 188 In re Purcell, 2 Ben. 485, 2 N. B. Bowler, 2 Hughes, 319, Fed. Cas. No. R. 22, Fed. Cas. No. 11,469. . 1,735; McLean v. Lafayette Bank, 4 Mc- loo In re Baughman, 163 Fed. 669, 20 Lean, 430, Fed. Cas. No. 8,889. And see Am. Bankr. Rep. 81 ; In re Bllerhorst, 2 In re Thompson (D. C.) 208 Fed. 207, 31 Saw.v. 219, 7 N. B. R. 49, Fed. Cas. No. Am. Bankr. Rep. 236. 4,380; In re Dumont, 4N. B. R. 17, Fed. "i In- re SauthofC, 7 Biss. 167, 14 N Cas. No. 4,127. B. R. 364, Fed. Cas. No. 12,379. 17 2 In re Carothers, 12 Fed. 692. 1171 PREFEEENCBS AND PREFERRED CREDITORS § 573 CHAPTER XXIX PREFERENCES AND PREFERRED CREDITORS Sec. 573. Preferences at Common Law. 574. Preferences Under Bankruptcy Act 575. Essentials of a •Voidable Preference. 576. Transferee as "Creditor" or "Person Benefited." 577. Same; Guarantors, Sureties, and Indorsers. 578. Nature and Form of Transaction. 579. Procuring or Suffering Judgment. 580. Transfers of Property. 581. Same ; Transfer of Property In Substitution or Satisfaction of Lien. 582. Restoration of Specific Property or Funds. 583. Same; Trust Funds and Moneys Converted or Embezzled. 584. Giving of Present Consideration ; Security for Present Loan or Fu- ture Advances. 585. Effect of Prior Agreement to Give Security or Make Transfer. 586. Exchange or Substitution of Securities. 587. Payments by Debtor. 588. Payment or Transfer by Third Person. 589. Payments to Attorneys for Past or Future Services. 590. Set-0£E or AdjTistment of Mutual Accounts. 591. Partial Payments on Running Accounts. , 592. Time of Giving Preference. 593. Same ; Time of Filing Petition. 594. Same ; Time of Recording or Filing Lien. 595. Insolvency of Debtor. 596. Intention of Debtor. 597. Creditor's Knowledge or Reasonable Cause of Belief. 598. Same; Grounds of Suspicion or Doubt. 599. Same ; Facts Putting on Inquiry ; Duty to Investigate. 600. Same ; Circumstances Constituting Ground for Belief. 601. Imputed Knowledge of Agent or Attorney. 602. Solicitation, Coercion, or Threats by Creditor. 603. Preference of Partnership or Individual Creditors. 604. Rights of Preferred Creditor as to Proving Claim. 605. Same ; Creditor's Knowledge of Intent to Prefer. » 606. Same; What Constitutes "Surrender" of Preference. 607. Same ; Separate or Independent Claims. 608. Proceedings to Recover Preference ; Jurisdiction. 609. Same ; Right of Action. 610. Same ; Form of Action or Proceeding. 611. Same ; Pleading. 612. Same; Defenses. 613. Same; Set-Off of Amount of New Credit 614. Same; Burden of Proof and Evidence. 615. Same; Trial. 616. Same; Measure of Damages or Recovery. § 573. Preferences at Common Law. — At common law, and except as expressly forbidden by statute, an insolvent debtor has the right to prefer oqe creditor over others by a payment, transfer, or pledge of § 574 ' LAW Oh" BANKRUPTCY 1172 property which will satisfy that creditor in full or to a greater extent than other creditors ; and although such a preference may be inherently unjust, and may prevent other creditors from collecting their debts, yet it is not fraudulent or voidable if made in satisfaction of a real debt, and in good faith, with no secret arrangement for the debtor's own benefit.^ It follows, therefore, that a preference is not voidable when made before the enactment of the bankruptcy law,^ nor in any case unless brought plainly within the express terms of that statute. Hence payments made to the government by a United States revenue collector, within four months prior to his being adjudged a ba,nkrupt, though actually intend- ed to give a preference, are not within the statute; for, aside from the fact that the United States is probably not included in the term "cred- itor," preferential payments to the government are not expressly forbid- den by the act, and the government is not bound unless expressly named.* § 574. Preferences Under Bankruptcy Act. — Preferences are defined, and provision is made for their recovery or avoidance, in two subsections of the bankruptcy act of 1898, the first of which was amended in 1903, and the second, after having been also amended in 1903, was materially changed by a further amendment in 1910. The former now reads as follows : "A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and. before the adjudication, procured or suffered a judgment to be entered against himself in favor of any per- son, or made a transfer of any of his property, and the effect of the en- forcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. Where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required." The amendment of 1903 con- sisted substantially in adding to the original provision the above clause as to making the four months' period run from the recording or regis- 1 In re Terrill, 100 Fed. 778, 4 Am. the Bankruptcy Act differs from a fraud- Bankr. Rep. 145; Voorhees v. Blanton, iilent transfer at common law, In that 8.3 F«d. 234 ; Gary & Moen Co. v. McKey, the former is only malum prohibitum, 40 Fed. 858 ; Strauss v. Abrahams, ?.2 while the latter malum in se. Richard- Fed. 310 ; Means v. Montgomery, 23 son v. Germania Bank (C. C. A.) 263 Fed Fed. 421 ; Smith v. Graft, 11 Biss. 340, 320, 45 Am. Bankr. Rep. 351. 12 Fed. 856; Bean v. Brookmire, 1 Dill. , ,„ m •„ ,«« ^ 25, 4 N. B. R..196, Fed. Gas. No. 1,168; "^"^ '^ T«"',"' ^^O ^^d. 778, 4 Am. Forsalth v. Merritt. 1 Ix)w. 336, 3 N. B. '>^'^'^^- «ep. 14o. R. 48, Fed. Gas. No. 4,946 ; Hislop v. s Tiffany v. Morrison, 3 Colo, 43, 18 N. Hoover, 68 N. C. 141 ; Hafner v. Irwin, 1 B. R. 3G5. But see Parker v. Sherman Ired. (23 N. G.) 490. A preference under 212 Fed. 917, 129 C. G. A. 437. 1173 PKBFERBNCES AND PEEPERRED CREDITORS § 574 tering of the transfer. As to this, the amendatory act was held not to be retrospective.* The second subsection, as now in force, declares that "if a bankrupt shall have procured or suffered a judgment to be entered against him in favor of any person, or have made a transfer of any of his property, and if, at the time of the transfer, or of the entry of the judgment, or of the recording or registering of the transfer if by law recording or registering thereof is required, and being within four months before the filing of the petition in bankruptcy or after the filing thereof and before the adjudication, the bankrupt be insolvent and the judgment or transfer then operate as a preference, and the person re- ceiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such judg- ment or transfer would "effect a preference, it shall be voidable by the trus- tee and he may recover the property or its value from such person." ^ Where a mortgage, or any other transfer, was executed by the bank^., rupt to a creditor subsequent to June 25, 1910, the question whether it was a voidable preference is governed by the section above quoted as amended on that date.® The bankruptcy act does not prohibit or annul all transfers of prop- erty by an insolvent debtor, but only those which are made under the special conditions and circumstances which it sets forth.'' And a con- veyance or security, given to a creditor, made and operating as a prefer- ence, may even be an act of bankruptcy and yet be valid to the extent that the property or security transferred cannot be wrenched from the creditor by the trustee in bankruptcy.* Further, as has previously been pointed out, there is a very material difference between a fraudulent transfer and a preferential transfer.® And if a given transfer of proper- ty was not fraudulent in fact, the question whether it is voidable as a * Murphy v. W. T. Murphy & Co., 126 unsecured creditors. In re Star Spring Iowa, 57, 101 N. W. 486. Bed Co. (D. C.) 257 Fed. 176, 43 Am. 5 Bankruptcy Act 1898, § 60; a, b, as Bankr. Kep. 328. amended b^ Act Cong. Feb. 3, 1903 (32 « Ogden v. Reddish (D. C.) 200 Fed Stat. 797), and Act Cong. June 25, 1910, 977^ 29 Am. Bankr Rep. 531 36 Stat. 838 This, like other provisions , ^^^ of the Bankruptcy Act, is for carrying p^^ ^^ ^^^^.^ f Murchison Nat. out Its main purpose of securmg to cred- ^^^^ ^^g j^ ^ itors the^ bankrupt's entire property. ^ ggg ^^ ;^ ^ 2Ti:. ^2'''''^!l tT, . .V. ' '™"t Co., 211 Fed. 638, 128 C. C. A 142, 642, 135 Pac. 742 It Is of the essence 3^ ^^ ^^^^^ ^^ of a preference that it enables the cred- itor to obtain a greater percentage of ' ^shby v. Steere, 2 Woodb. & M. 347, his debt than other creditors "of the '^^^^ Cas. No. 576. same class." This refers to the four » Supra, § 4.53. And see Van Iderstine classes of creditors specified In § 64, v. National Discount Co., 174 Fed. 518, namely, tax creditors, creditors for wag- 98 C. C. A. 300, 23 Am. Bankr. Rep. 345; es, creditors eijititled by law to priority, StudebaUer Bros. Mfg. Co. v. Elsey- and general creditors; and secured gen- Hemphill CMi-riage Co., 152 Mo. App. 401, eral creditors are in the same class as 133 S. W. 412. § 575 LAW OF BANKRUPTCY 1174 preference must be determined entirely in accordance with the express provisions of the statute.^" Aod if a trustee in bankruptcy sues to set aside a transfer, alleging it to have been given as an illegal preference, he cannot recover on showing that the conveyance was void at common law or under the law of the state.^^ § 575. Essentials of a Voidable Preference. — The following elements of a voidable preference are enumerated by the statute: First, there must have been either an act of the debtor in procuring or suflfering a judgment to be entered against him or making a "transfer" of any of his property, taking that term in the very wide sense in which it is defined by the bankruptcy act. Second, the debtor must have been insolvent either at the time of the transfer, or of its recording, or of the entry of the judgment. Third, these things must have concurred within four months before the filing of the petition in bankruptcy, or after the filing •4nd before the adjudication. Fourth, the judgment or transfer must op- erate as a preference, that is, enable the creditor to obtain a greater per- centage of his debt than other creditors of the same class. Fifth, the person receiving it or to be benefited by it (or his agent acting in the transaction) must have had reasonable cause to believe that the enforce- ment of the judgment or transfer would effect a preference. These various elements will be separately discussed in the following sections of this chapter. But at present it is necessary to remark that all of them must be present or concur in order to give the trustee in bankruptcy the right to recover the payment or property or .avoid the transfer as a preference.^* Further, it is necessary that the transfer or giving of se- 10 In re Armstrong, 145 Fed. 202, 16 Lottow, 223 Mass. 227, 111 N. E. 973 ; Am. Bankr, Rep. 583; Slieppard-Strass- Abele v. Beacon Trust Co., 228 Mass' helm Co. v. Black, 211 Fed. 643, 128 C. 438, 117 N. E. 833; Craig v. Sharp C. A. 147, 33 Am. Bankr. Rep. 574. (Mo. App.) 219 g. W. 95 ; Newman v. 11 Cragin v. Carmichael, 2 Dill. 519, Tootle-Campbell I>ry Goods Co., 174 Mo. 11 N. B. R. 511, Fed. Cas. No. 3,319. App. 528; 160 S. W. 825 ; Ernest Wolff 12 First Nat. Bank v. Jones, 21 Wall. Mfg. Co. v. Battreal Shoe Co., 192 Mo. 325, 22 L. Ed. 542 ; Grandison v. Na- App. 113, 180 S. W. 396 ; Corey v. Black- tional Bank of Commerce, 231 Fed. 800, well Lumber Co., 24 Idaho, 642, 135 Pac. 145 C. C. A. 620, 36 Am. Bankr. Rep. 438 ; 742 ; Cauthorn v. Burley State' Bank, 26 Smith V. Powers (D. C.) 255 Fed. 582, 43 Idaho, 532, 144 Pac. 1108 ; Soule v. First Am. Bankr. Rep. 303 ; Hagar v. Watt (D. Nat. Bank, 26 Idaho, 66, 140 Pac. 1098 ; 0.) 232 Fed. 373, 36 Am. Bankr. Rep. Baden v. Bertenshaw, 68 Kan. 32, 74 Pac. 370 ; Mayes v. Palmer, 208 Fed. 97, 125 639 ; Summerville v. Stockton ' Millin<' C. C. A. 325, 31 Am. Bankr. Rep. 225; Co., 142 Cal. 529, 76 Pac. 243; Whitwell In re Starkweather & Albert (D. O.) 206 v. Wright, 115 N. T. Supp. 48 ; Jactman Fed. 797, 30 Am. Bankr. Rep. 743; v. Eau Claire Nat. Bank, 125 Wis' 465 Sparks v. Marsh (D. C.) 177 Fed. 739, 104 N. W. 98, 115 Am. St. Rep. 955 ; m! 24 Am. Bankr. Rep. 280; In re Gesas, Kahn &'Bro. v. Bledsoe, 22 Okl. 666 98 146 Fed. 734,JI7_C. C. A. 291, 16 Am. Pac. 921; Stewart v. Hoffman,, 31 Mont Bankr. Rep. 872; MSrgan v. First Nat 184, 77 Pac. 689, 81 Pac. 3;' I^ocke v Bank, 145 Fed. 466, 76 C. C. A. 236, 16 Winning, 3 Mass. 325. The -giving of a Am. Bankr. Rep. 639 ; Rubenstein v. preference must be the act of the bank- 1175 ■ PREFERENCES AND PREFERRED CREDITORS § 575 curity should be actual and in such form as to be effective if not avoided in the bankruptcy proceedings. A mere intent to give or to gain a prefer- ence is nothing at all if not accomplished by the execution of the pur- pose." It is essential that the creditor should actually receive some por- tion of the bankrupt's property or assets. And though the bankrupt may have made a transfer of property, intending that the creditor should receive it and thereby be preferred, this is not enough if the creditor does not receive the property.^* So, a creditor who has never accepted a deed of trust or mortgage which would give him a preference may disclaim all interest in it and prove his debt as unsecured.^^- And a pref- erence cannot be created by an attempted conveyance which was orig- inally and remains a niere and absolute nullity." Again, it must be noted that the preference must be created by the act or procurement of the debtor, not by the creditor's assertion of an existing legal right or remedy. Thus, the act of one who simply retakes the possession of property of his own which is in the possession of the bankrupt does not make him a preferred creditor.'^'" And this applies to the reclamation of property originally placed in the bankrupt's hands under a contract of conditional sale reserving title in the seller until pay- ment.-'* And so, an unpaid vendor of goods who exercises the right of stoppage in transitu does not thereby gain a preference, though it be with the consent of the debtor, for the latter cannot be considered as active in the creation of a preference merely because he assents to what he could not lawfully prevent.^* Next, it is essential to a preferential transfer that the bankrupt should have turned over to the creditor some portion of his own prop- erty, so that his available estate is thereby diminished.^* And the prop- erty transferred must have been of such a nature that his creditors would have the right to subject it to the satisfaction of their claims.*^ rupt himself. Where a receiver In bank- i7 In re Wright-Dana Hardware Co., ruptcy deposits money In a checking ac- 205 Fed. 335, 80 Am. Bankr. Rep. 582. count with a bank to which the bankrupt is In re Farmers' Co-operative Co., 202 was indebted, and which afterwards Fed. 1005, 30 Am. Bankr. Rep. 187; In closes its doors, this Is not the giving re Anson Mercantile Co., 203 Fed. 870 ; of a preference. In re United Grocery In re Levin, 178 Fed. 119, 21 Am. Bankr. Co. (D. C.) 253 Fed. 267, 41 Am. Bankr. Rep. 665. Rep. 824. is> In re Foot, 11 Blatchf. 530, 11 N. B. IS In re Bousfield & Poole Mfg. Co., 16 R. 153, Fed. Cas. No. 4,907. N. B. R. 489, Fed. Cas. No. 1,703. 20 Mason v. National Herkimer County 14 Aiello V. Crampton, 201 Fed. 891, 120 Bank, 172 F«d. 529, 22 Am. Bankr. Rep. O. C. A. 189, 29 Am. Bankr. Rep. 1; Eng- 783; In re Grocers' Banking Co. (D. O.) el V. Union Square Bank, 182 N. Y. 544, 266 Fed. 900, 46 Am. Bankr. Rep. 150 ; In 75 N. E. 1129. re Schwab (D. C.) 258 Fed. 772, 44 Am. 15 In re Saunders, 2 Low. 444, Fed. Bankr. Rep. 185; O'Connell v. City of Cas. No. 12,371. Worcester, 225 Mass. 159, 114 N. E. 201. 18 Rosenbl- ^^''^''- ^^P' ^^l' receive on the' final settlement. Slayton '6 Curran v. Munger, 6 N. B. R. 33, v. Drown, 93 Vt. 290, 107 Atl. 307. A ^^^- ^^®- ^°- ^'*^'^- preference by a bankrupt made within ^^ Judson v. Courier Co., 8 Fed. 422. four months of his bankruptcy may be as in re McGuire, 8 Ben. 452, Fed. Cas. unlawful though only sufficient to pay a No. 8,813. § 576 LAW OF BANKRUPTCY 1178 "creditor" or "-person to be benefited thereby." Nothing is within the purview of this provision except with reference to debts which may be proved for a dividend, but, on the other hand, anything which may be proved is within its purview^??^ It is therefore not necessary that the creditor's claim should be presently due, it is sufficient if it exists as a fixed liability,** and a creditor who receives property in settlement of a claim not yet matured may be chargeable with accepting a preference." Again, it is immaterial that the creditor may be an officer of the bank- rupt corporation.** But a bankrupt who pays money to the creditors of his wife does not give a preference, although the effect is to reduce the percentage which would otherwise be paid to his own creditors.** So a person who has contracted to purchase property from the bankrupt and has made an advance payment thereon is not a "creditor" in any prop- er sense and the deduction of the amount of such advance from the price when payment was made on delivery is not the receiving of a prefer- ence.** The same is true of persons who may have a cause of action to 3^ Clarke v. Rogers, 183 Fed. 518, 106 g/c. a. 64, 26 Am. Bankr. Rep. 413. ^nd see Bailey v. Baker Ice Mach. Co., 239 U. S. 268, 36 Sup. Ct. 50, 60 L. Ed. 275, 35 Am. Bankr. Rep. 814 ; In re Webb Co. (D. C.) 224 Fed. 258, 34 Am. Bankr. Rep. 785 ; Bridgeton Nat. Bank v. Way, 253 Fed. 731, 165 C. C. A. 325. A bank which has discounted notes of third per- sons made payable tp the bankrupt and indorsed by him is a general creditor of the bankrupt, as respects the question of receiving a preference. In re Star Spring Bed Co. (O. C. A.) 265 Fed. 133, 45 Am. Bankr. Rep. 650. Though the bankrupt may have obtained money from another person by fraud, the latter has a claim against him provable in the bankruptcy proceedings and therefore is a creditor. Watchmaker v. Barnes, 259 Fed. 783, 170 C. 0. A. 583, 43 Am. Bankr. Rep. 632. But the provision as to preferences has no application to ovv^ners of property, who have no claim against a bankrupt contractor, on account of possible liens by a preferred subcontractor. Jump v. Bernlcr, 221 Mass. 241, 108 N. B. 1027. And where a corporation, at a time when it was solvent and a going concern, de- clared and paid dividends to its stock- holders, which were received by them in ignorance of the fact thnt tliey were really paid out of the capital stock, the trustee, in the corporation's subsequent bankruptcy, cannot recover such divi- dends. Carlisle v. Ottley, 143 Ga. 797, 85 S. E. 1010, L. R. A. 1917C, 395, Ann. Cas. 1917A, 573. io Moody V. Chicago Title & Trust Co., 138 111. App. 233; Burpee v. First Nat. Bank, 5 Biss. 405, 9 N. B. R. 314, Fed. Cas. No. 2,185; Bean v. Brookmire, 1 Dill. 25, 4 N. B. R. 196, Fed. Cas. No. 1,168. Extension of credit to a bank- rupt for the price of stocks which were sold to it for cash will constitute the seller a general creditor, and render a mortgage given to secure the price a voidable preference. Security Trust & Sav. Bank v. Wm. R. Staats Co., 233 Fed. 514, 147 C. C. A. 400, 37 Am. Bankr. Rep. 547. 41 Mathews v. Rlggs, 80 Me. 107, 13 Atl. 48. i2 Cooper V. Miller (C. C. A.) 203 Fed. > 383, 30 Am. Bankr. Rep. 194. Where the owner of all the stock of a trading cor- poration, when it was indebted and with- in four months before the filing of a pe- tition in bankruptcy against it, trans- ferred the greater part of its bank de- posit, which constituted practically its only asset, to himself in payment of al- leged claims, the transaction constituted a preference. Boston West Africa Trad- ing Co. V. Quaker City Morocco Co. (C. C. A.) 261 Fed. 665, 44 Am. Bankr. Rep. 315. 4 3 In re Kayser, 177 Fed. 383, 100 C. C. A. 615, 24 Am. Bankr. Rep. 174. **Templeton v. Kehler, 173 Fed. 575, 23 Am. Bankr. Rep. 41. But a husband's 1179 PEEFEEBNCES AND PREFEERED CREDITORS § 576 charge the debtor with a statutory liability for the debts of a corpora- tion.*^ And where one partner sells to the other his entire interest in the property of the firm, the transferee is not a creditor, and the trans- action is not impeachable as a preference.*" Again, where the bankrupt feloniously or fraudulently got possession of personal property which wqs in the custody of a warehouseman as bailee of the owner, and, on being discovered, settled with the warehoi%eman by .turning over money, property, or securities, this does not constitute the giving of a prefer- ence, because the warehouseman was not a creditor of the bankrupt.*'' As to the meaning of the-phrase "person to be benefited thereby," it is held that a transaction which has the purpose and effect of exonerating or releasing a surety for the bankrupt "benefits" the latter within the meaning of the statute.** And so, a transfer of property by an insol- vent debtor by means of which a note given by himself and a surety is paid, and the transferee, who had obligated himself to indemnify the surety against loss thereon, is released from his liability, is one by which such transferee is benefited.*® To constitute a preference, it is further necessary that the preferred creditor should be placed in position to collect a greater percentage of his claim than "any other creditor of the same class." If all the credi- tors of the same class are equally interested in and benefited by the transaction in question, there is no preference.®* And it is said that the test of the classification of creditors is the percentage of their claims which they are entitled to draw out of the e'state of the bankrupt. If they are entitled to receive the same percentage, they are in the same class, but if different percentages, in different classes. ^"^ And the fact that a debt owing by an insolvent is secured does not prevent a transfer of property by the insolvent to pay it from being preferential as to cred- i|||)rs not secured.®* At least, creditors whose claims are secured by in- dorsement or guaranty of one or more third persons are in the same class breach of agreement to convey to his Am. Bankr. Eep. 871. And the rule is wife land purchased with her money, the the same as to the accommodation in- title being taken in his own name, will dorser. of the bankrupt's note. Goldman make her a creditor, so that a convey- v. Cohen (0. C. A.) 261 Fed. 672, 44 Am. ance in derogation of the rights of other Bankr. Eep. 318. creditors will operate as a preference. *» Huntington v. Baskerville, 192 Fed. In re Kean (0. C.) 237 Fed. 682, 38 Am. 813, 113 0. C. A. 137, 27 Am. Bankr. Kep. Bankr. Rep. 628. 219. *5 Cookingham v. Ferguson, 8 Blatchf. so Gill v. Bell's Knitting Mills, 128 488, 4 N. B. R. 635, Fed. Gas. No. 3,182. App. IJiv. 691, 113 N. X. Supp. 90. 46 In re Rudnlck, 102 Fed. 750, 4 Am. oi S warts v. Fourth Nat. Bank, 117 Bankr. Rep. 531. Fed. 1, 54 C. C. A. 387, 8 Am. Bankr. 47 Keystone Warehouse Co. v. Bissell, Rep. 678. 203 Fed. 652, 30 Am. Bankr. Rep. 213. 6 2 Horstman v. Little (Tex. Civ. App.) 48 In re Sanderson, 149 Fed. 273, 17 88 S. W. 286. § 577 LAW OF BANKEUPTCX 1180 as those whose claims are not so secured.^^ But strictly speaking, there are only two general classes of creditors, first, those who have priority and who are to be paid in full, and second, creditors who are entitled to equal dividends after the claims entitled to priority have been paid.®* Hence, for instance, payments made by a bankrupt to a clerk within three months prior to the filing of the petition, in the absence of specific application to other debts, ai# to be applied in payment of the wages earned by the clerk during that time, but such payments, up to the amount of wages so earned, do not constitute a preference which must be surrendered before the clerk can prove his claim for the remainder due him, unless the bankrupt's assets are insufficient to pay all the priority claims.®^ § 577. Same; Guarantors, Sxureties, and Indorsers. — A guarantor or surety for the bankrupt, or an indorser of his notes, or the accommoda- tion maker of a note for his use and benefit, is a "creditor" within the meaning of the bankruptcy act, and if he receives money or security or collateral from the bankrupt to meet the obligation when it shall ma- ture, or to secure himself against loss, under such circumstances as would constitute it a preference in other cases, ke is to be treated as a preferred creditor, and must surrender his preference before being ad- mitted to prove his debt, or may be required to surrender it at the suit of the trustee.®* Thus, where an agreement for the indemnification of a contractor's surety assigned to the latter all the contractor's plant in the event of the contractor's being unable to complete the undertaking, and the contractor subsequently abandoned the contract and was adjudged bankrupt, the surety became a creditor from the date of the abandon- ee Swarts V. Fourth J^at. Bank, 117 Am. Bankr. Rep. 349; In re Christopher Fed. 1, 54 C. C. A. 38T, 8 Am. Bankr. Rep. Bailey & Son, 100 Fed. 982. 21 Am. 673. See In re Harpke, 116 Fed. 295, 54 Bankr. Rep. 911 ; Swarts v. Slegel, IK C. C. A. 97, 8 Am. Bankr. Rep. 535. Fed. 13, 54 C. C. A. 399, 8 Am. Bankr. 5 4 Livingstone v. Heineman, 120 Fed. Rep. 689; Crandall v. Coats, 133 Fed. 786, 57 C. C. A. 154, 10 Am. Bankr. Rep. 965, 13 Am. Bankr. Rep. 712; Thomas ^ 39- , Woodbury, 1 Hask. 559, Fed. Cas. No. S6ln re FUck, 105 Fed. 503, 5 Am. 13,916; Smith v. Little, 5 Biss. 490. 9 N. Bankr. Rep. 465. B. R. Ill, Fed. Cas. No. 13,072 ; Seain- 5s Cohen v. Goldman, 250 Fed. 599, mon v. Cole, 3 Cliff. 472, 5 N. B. R. 257. 162 C. C. A. 615, 42 Am. Bankr. Rep. 85 ; Fed. Cas. No. 12.432 ; Ahl v. Thorner 2 Chapman v. Hunt (D. C.) 248 Fed. 160, Bond, 287, 3 N. B, R. 118, Fed. Cas. No" 41 Am. Bankr. Rep. 482 ; Smith v. Coiiry 103 ; Sill v. Solberg, 10 Blss 252 6 Fed (D. C.) 247 Fed. 168, 41 Am. Bankr. Rep. 468 ; Goldberg v. Harlan, 33 In'd. App 219 ; Lazarus v. Eagan, 206 Fed. 518, 30 465, 67 N. E. 707; Bank of Wayne y. Am. Bankr. Rep. 207 ; Paper v. Stern (C. Gold, 146 App. Diy. 296, 130 N T Supn C. A.) 198 Fed. 642, 28 Am. Bankr. Rep. 942; Piatt v. Ives, 86 Conn. 690, 86 Atl 592 ; Kobusch v. Hand, 156 Fed. 660, 84 579; M. Kahn & Bro. v. Bledsoe 22 Okl C. C. A. 372, 19 Am. Bankr. Rep. 379; 666, 98 Pac. 921; Horstman v. Little Stern v. Paper, 183 Fed. 228, 25 Am. (Tex. Civ. App.) 88 S. W. 286. Compare Bankr. Rep. 451; Huttig Mfg. Co. v. Ed- Horton v. Bamford, 79 N J Eg 356 81 wards, 160 Fed. 619, 87 C. C. A. 521, 20 Atl. 761. 1181 PBBFBKENCB8 AND PREFBERBD CREDITORS § 578 ment of the contract, within the provisions of the statute relating to preferences, although the amount of the surety's claim depended on con- tingencies and was not liquidated." So a surety for the bankrupt who has discharged the debt, either before or after the bankruptcy, is sub- rogated to the rights of the creditor, but is also affected by any prefer- ence received by the creditor before payment, which inheres in the claim.^* But where an indorser receives from the maker of the note an amount sufficient to pay a part thereof, and loans him the balance re- quired to pay it, he will not be chargeable with taking a preference be- yond the amount actually paid to him by the maker.*® On the same principle, a creditor who receives the debtor's note or check, indorses it, and procures it to be discounted at a bank, remains a creditor within the meaning of the bankruptcy act, and the payment of the note or check to the bank after the debtor's insolvency and within four months prior to his bankruptcy, constitutes a preferential transfer of property to the in- dorser, which will debar him from the allowance of any claim in his fa- vor, unless the amount so paid is first surrendered.®* I»ikewise, the pay- ment to a bank by an insolvent, within four months prior to his bank- ruptcy, of notes given to third persons, but which have been indorsed to and are owned by the bank, constitutes a pi-eference given to the bank, which it must surrender before proving a claim against the estate.®^ But a note discounted by a bank without knowledge of the insolvency of the maker and in due course of business, by crediting the payee with the amount of the discount, which note in the hands of the payee and indors- er would not be provable against the maker's estate in bankruptcy until certain preferences received were surrendered, is provable by the bank as a bona fide holder.®* § 578. Nature and Form of Transaction. — Whether or not a given transaction amounts to a preference is to be deteripined by its effect in giving an undue advantage to the particular creditor, rather than by its form, for the court will look to the result and not to the way in which 5 7 Wood V. United States Fidelity & Rep. 673; In re Lyon, 121 Fed. 723, 5S Guaranty Co., 143 Fed. 424, 16 Am. ' C. O. A. 143, 10 Am. Eankr. Rep. 25 ; In Bankr. Rep. 21. re Meyer, 115 Fed. 997, 8 Am. Bankr. 5 "Livingston V. Heineman, 120 Fed. ^ep. 598; In re Waterbury Furniture 786, 57 C. C. A. 154, 10 Am. Bankr. Rep. ^°' "4 Fed. 255, 8 Am. B.-^nkr. Rep. 79. 39 ; In re Schmechel Cloak & Suit Co., ^"t ^ee In re Bullock. 116 Fed. 667, 8 Am. 104 Fed. 64, 4 Am. Bankr. Rep. 719. But ^ankr. Rep. 646; Thomas v. Woodbury, see In re New, 116 Fed. 116, 8 Am. 1 Hask. 559, Fed. Cas. No. 13,916. Bankr Rep 566 °^ •'■^ '"^ George M. Hill Co., 130 Fed. „ 315, 64 C. C. A. 561, 66 L. R. A. 68, 12 5 8 Thomas v. Woodbury, 1 Hask. 559, ^^ g^nkr. Rep. 221. Fed. Cas. No. 13,916. es j^ rg Le^^i^ 121 Fed. 198, 9 Am. ooSwarts v. Fourth Nat. Bank, 117 Bankr. Rep. 176; In re Wyly, 116 Fed. Fed. 1, 54 C. C. A. 387, 8 Am. Bankr. 38, 8 Am. Bankr. Rep. 604. § 578 LAW OB" BANKRUPTCY 1182 it is accomplished.*^ In regard to "transfers" of property, this word is to be taken in the very broad sense assigned to. it in the first section of the bankruptcy law, where it is declared that it shall include "the sale and every other and different mode of disposing of or parting with prop- erty, or the possession of property, absolutely or conditionally, as a pay- ment, pledge, mortgage, gift, or security." Hence, if the other condi- tions are present, any form of mortgage or other lien which is meant to give to one or more creditors an undue advantage over others, will be a voidable preference,** including a chattel mortgage,*^ or a deed of trust in the nature of a mortgage,** or an unrecorded bill of sale of furniture and fixtures given by a tenant as security for past-due rent,*' or a bill of sale of property to a creditor who has attached it.** So, an assignment by an insolvent trader of his stock, book accounts, and other assets to one of his creditors, the latter in return agreeing to assume and pay cer- tain debts, is a preference if it enables that creditor to secure his own debt in full or in a larger proportion than other creditors.*^ The same is true of the assignment of a policy of life insurance,'" or of a claim against a fire insurance company for a loss under its policy. "^ And where a mortgage is given on property under circumstances such as to render it a voidable preference, and insurance is taken out on the mort-- 3 Rogers V. Fidelity Sav. Bank & Loan Co., 172 Fed. 735, 23 Am. Bankr. Rep. 1 ; In re C. J. McDonald & Sons, 178 Fed. 487, 24 Am. Bankr. Rep. 446. A transac- tion by which a bankrupt changed its indebtedness to a hank, so that it ma- tured at an earlier date, and assigned collateral, the proceeds of which the bank at such earlier date applied on the indebtedness, was held to have effected a voidable preference. Fifth Nat. Bank V. Lyttle, 250 Fed. 361, 162 O. O. A. 431, 41 Am. Bankr. Rep. 370. A provision of law In Porto Rico gives a preferential status to debts when authenticated by acknowledgment before a notary. When this device is resorted to, with reference to a promissory note, by a creditor and an insolvent debtor within four months of his bankruptcy, to defeat the bank- ruptcy law, it must fail, as an attempt to create a preference. In re Vidal, 233 Fed. 733, 147 C. C. A. 499, 36 Am. Bankr. Rep. 783. 6eech, 171 Fed. 591; Vltz- kept physically isolated until paid to the thum V. liarge, 162 Fed. 685, 20 Am. secured creditor, but was deposited In Bankr. Rep, 666. bank with other money of the bankrupt, 127 Root Mfg. Co. V. Johnson, 219 Fed. and a check for the amount immediately «97, 135 C. C. A. 139, .34 Am. Bankr. Rep. given to the creditor. Britton v. Union 247 ; In re Federal Biscuit Co., 214 Fed. Inv. Co. (C. C. A.) 202 Fed. Ill, 44 Am. 221, 1.30 C. C. A. 685, 32 Am. Bankr. Rep. Bankr. Rep. 531. 012; Ashuelot Bank v. Frost, 19 -Fed. i^MVarlng v. Buchanan, 19 N. B R 237; Coxe v. Hale, 10 Blatchf. 56, 8 N. 502, Fed. Cas. No. 17,176. But a transfer B. R. 502, Fed. Cas. No. 3,310; Catlin v. by a bankrupt to a creditor of property Hoffman, 2 Sawy. 486, 9 N. B. R. 342, of , no more value than such creditor's Fed. Cas. No. 2,521; Boothe v. Brooks, lien thereon and the amount of the 12 N. B. R. 398, Fed. Cas. No. 1,650; claims of certain other creditors of the Hallack v. Trltch, 17 N. B. R. 293. Fed. bankrupt, which he then pays, by agree- Cas. No. 5,956 ; Eason v. Garrison, 36 raent with the bankrupt, Is not a prefer- Tex. Civ. App. 574, 82 S. W. 800 ; Posey ence, though such other claims were un- 1191 PBEFBEBNCES AND PREFERRED CREDITORS § 582 transaction puts the creditor in a materially better position with refer- ence to the enforcement of his claim.^^® And to justify a transaction of . this kind, there must be an actual and valid lien of some kind, not a mere promise or unexecuted agreement to give security.^** But if a creditor holds a valid and subsisting lien on the debtor's property, and ' the equity of redemption therein is released to him under such circum- stances as to make it a fraudulent preference, though the conveyance is void, this will not divest the lien, but the parties will be remitted to their original position.^** § 582. Restoration of Specific Property' or Funds. — ^A transfer or surrender of property by an insolvent debtor will not constitute a void- able preference where the person receiving it was actually the owner of the property, and no title was vested in the bankrupt in any such sense that it could have been made available for his general creditors.^®* Thus,<»=' where a broker buys stock for a customer on a margin, the title to the stock is in the customer, and not in the broker, the latter holding it mere- ly as a pledgee to secure the advances made by him in the purchase. Hence the customer is not a creditor of the broker, and no preference is created by the transfer of the stock to the customer on the settlement of his account,^** or by the broker's action in redeeming the stock (already pledged by him) and turning it over to the customer on demand. ^^* So, a transfer of realty by an insolvent, though made within four months before his bankruptcy, is not a preference if made in good flith to his secured. Russell's Trustee v. Mayfield 670; Sears v. Gilman, 199 Mass. 384, 85 Lumber Co., 158 Ky. 219, 164 S. W. 783. N. E. 466. Compare Smith v. Tostevin, 129 In re Dibblee, 3 Ben. 283, Fed. Cas. 247 Fed. 102, 159 O. C. A. 320, 41 Am. No 3 884 Bankr. Rep. 212. Where a bank pur- chased with its own funds silk for eer- 130 Page V. Rogers, 211 TJ. S. 575, 29 t^in bankrupts, taking title In its oVn Sup. Ct. 159, 53 L. Ed. 832, 21 Am. Bankr. jj^me, and delivered the s^k to the bank- Rep. 496; Sharp v. Philadfelphia Ware- jupts under a trust receipt binding the house Co., 19 N. B. R. 378, Fed. Cas. No. jatter to hold the goods or their pro- 12,Tt)9a; Lacy v. Chandler (Tex. Civ. geeds for the bank until the price was App.) 163 S. W. 328. Payment by an in- p^id, jt was considered that, as the title solvent to one who assumes an indebted- j^^d never passed to the bankrupts, their ness of the insolvent therefor is a pref- agreement while insolvent to return the erence ; and so also, where one pays an goods to the bank was not a preference, indebtedness of an insolvent on condition ju ^e Killian Mfg. Co. (D. C.) 209 Fed. that a mortgage in his name, which has 493 been paid, shall remain effective. Mc- 133 Robinson v. Roe, 233 Fed. 936, 147 Knight v. Shadbolt, 98 Wash. 665, 168 c. C. A. 610, 38 Am. Bankr. Rep. 26; Pac. 473. -Richardson v. Shaw, 147 Fed. 659, 77 C. 131 Avery v. Haekley, 20 Wall. 407, 22 "a. A. 643, 16 Am. Bankr. Rep. 842; In re L. Ed. 385. .Graff (D. C.) 117 Fed. 343, 8 Am. Bankr. 132 Sieg V. Greene, 225 Fed. 955, 141 Rep. 744. C. C. A. 79, Ann. Cas. 1917C, 1006, 35 is* Richardson v. Shaw, 209 U. S. 365, Am. Bankr. Rep. 150 ; In re Wright-Dana 28 Sup. Ct. 512, 52 L. Ed. 835, 14 Ann. Hardware Co. (D. C.) 205 Fed. 335, 30 Cas. 981, 19 Am. Bankr. Rep. 717; Rob- Am. Bankr. Rep. 582 ; Bradley, Clark & inson v. Roe, 233 Fed. 936, 147 C. C. A. Co. V. Benson, 93 Minn. 91, 100 N. W. 610, 38 Am. Bankr. Rep. 26. § 582 LAW OF BANKRUPTCY 1192 wife in replacement of her dotal property alienated by him, and the ■ subject of the transfer does not exceed in value such dotal property.*'* Money, as well as other property, may be subject to this rule.**® Thus, the return of excessive margins by an insolvent stockbroker to a custom- er does not constitute a preference.*" So where money is placed in the hands of one who afterwards becomes bankrupt, but on the agreement that it shall be used for a particular purpose, and it is not so used, but is returned to the owner, this does not create a preference.*** But it is necessary to distinguish the case where money is delivered to the bank- rupt under such circumstances that the person giving it becomes simply a general creditor for the amount. Thus, where it appeared that the de-- fendant in an action to recover a preference had discounted a note for the bankrupt, but discovered the next day that an indorsement on the note was forged and called on the bankrupt to return the money, but the bankrupt was unable to do this, but gave the defendant a postdated check, which the latter accepted, and this check was shortly paid, it was held that this transaction constituted a preference and could not be up- held on the theory that the defendant was merely procuring a return of his money, for, by accepting a postdated check, which was paid from the bankrupt's general funds, he had accepted the position of a general creditor.*'® So, also, the general rule does not apply where goods have passed to the banld-upt under a contract of sale. It is an unlawful preference if the seller accepts a return of the goods or a part of them in settlement of his claim, unless he has retained title in himself by some lawful res- ervation or agreement.**" It has been held, however, that where goods are obtained on credit by an insolvent buyer and by means of false pre- tenses, the seller's recovery of them before they have been unpacked does not work a preference under the bankruptcy l^w.*** § 583. Same ; Trust Funds and Moneys Converted or Embezzled. — Questions often arise as to the creation of a preference where an insol-. 13= Gomila v. Wllcombe, 151 Fed. 470, 78.3. 170 C. C. A. 58.3, 43 Am. Bankr. Rep. 81 C. C. A. 268, 18 Am. Bankr. Rep. 143. 632. isewallprstein v. Gallagher (D. O.) '"Benjamin v. Buell (0. O. A.) 268 2.30 Fed. 602, 38 Am. Bankr. Rep. 287. ■^^d. 702, 46 Am. Banlcr. Rep. 404 ; Plnm- mer v. .Myers, 1.37 Fed 660 14 \m 'S7 Richardson v. Shaw, 209 TJ. S. 365, gankr. Rep. SOr,; West y Fulline* 'JO 28 Sup. Ct. 512, 52 L. E.l. 835, 14 Ann. i^^ ^pp. 017, 76 N. E. 325. As to' the Oas. 981, 19 Am. Bankr. Rep. 717. reclamation by a creditor of property 13 8 Sharp V. Slmonltsch, 107 Minn. 133, held by the bankrupt under a contract 119 N. W. 790 ; Dressel v. North State of conditional sale, see John Deere Plow Lumber Co., 119 Fed. 531, 9 Am. Bankr. Co. v. Edgar Farmer Store Co., 154 Wis. Rep. 541 ; In re W. W. Mills Co., 162 490, 143 N. W. 194 ; In re Bennett fD. C.) Fed. 42, 20 Am. Bankr. Rep. 501. 264 Fed. 533. And see, supra, § 358. ise Watchmaker v. Barnes, 259 Fed. m Mulroney Mfg. Co. v. AVeeks, 185 Iowa, '714, 171 N. W. 36. 1193 PEEFERBNCES AND PRHFEERBD CREDITORS § 584 vent person has been forced to restore or make good funds which he has stolen or embezzled, or which he has misappropriated to his own use while holding them in the character of a trustee. ' The general rule is - that if the particular fund has been kept separate and apart from the bankrupt's own money, or if it is distinctly traceable into property or other funds into which it has been converted, the owner may follow it and reclaim it from the trustee in bankruptcy, on the theory that it does not constitute any part of the assets in bankruptcy. _ From this it fol- lows that if the fund (or its avails) is surrendered or restored to the owner before bankruptcy intervenes, it cannot be said to constitute the giving of a preference. i** But if the person entitled to the fund, having knowledge of the embezzlement or conversion, and of the debtor's in- solvency, accepts a payment out of the latter's general funds or a con- veyance of property or a security offered, this is an election to treat the misappropriation as creating a debt, and consequently he will stand in no better position than any general creditor.^** Under these circum- stances, therefore, a payment or transfer of property, or the giving of a mortgage or other security, will constitute a voidable preference, sup- posing the other elements of a preference to be present^^^Ji-^And the United States Supreme Court has ruled that, independently of his liabili- ty on any bond, there is an obligation of a contractual nature resting upon a defaulting testamentary trustee to restore to the trust estate the value of assets embezzled, and this obligation is a provable debt in bank- ruptcy. Hence, where one is a trustee in several trusts, and knowing himself to be insolvent, and within four months prior to his bankruptcy, he transfers his own property from himself individually to one of those trusts and to himself in the character of trustee therein, to make good a shortage, and the efifect is to enable that trust to recover a larger share of its debt than the others, a voidable preference is given. '^*^. § 584. Giving of Present Consideration; Security for Present Loan or Future Advances. — "An insolvent person may properly make efforts 142 Block V. Rice, 167 Fed. 693, 21 Am. Rep. 721; Smith v. Township of Au Ores, Bankr. Rep. 691 ; McNaboe v. Columbian 1.50 Fed. 257, 17 Am. Bankr. Rep. 745. Mfg. Co., 153 Fed. 967, 83 C. C. A. 81, 18 Where a bankrupt which assigned ac- Am. Bankr. Rep. 684; Goode v. Blwood counts to defendants converted- pay- Lodge, 160 Ind. 251, 66 N. B. 742. And ments received on such accounts, but see supra, § 354. defendant could not trace such conver- ts Atherton v. Green, 179 Fed. 806, sions into other unassigned accounts, it •103 C. : C. A. , 298, 24 Am. Bankr. Rep. cannot, on the theory of a trust, sustain 630. a subsequent preferential assignment' _iiijeiSrke v. Rogers, 183 Fed. 518, 106 of other accounts. McGill v. Commercial 0, 0. A. 64, 26 Am. Bankr. Rep. 413 ; In Credit Co. (D. C.) 243 Fed. 637, 39 Am. re -Dorr, 196 Fed. 292, 28 Am. Bankr. Bankr. Hep. 702. Rep. 505 ; Burgoyne v. McKillip, 182 Fed. i^s Clarke v. Rogers, 228 V. S. 534, 33 452, 25 Am. Bankr. Rep. 387 ; In re Sup. Ct. 587, 57 L. Ed. 953, 30 Am. Bankr. Kearney, 167 Fed. 995, 21 Am. Bankr. Rep. 39. § 584 LAW OP BANKRUPTCY 1194 to extricate himself from his embarrassments, and therefore he may bor- row money and give, at the time, security therefor, provided always the transaction be free from fraud in fact and upon the bankruptcy act. And hence it is a settled principle of bankruptcy law, both in England and in this country, that advances made in good faith to a debtor to carry on business, upon security taken at the time, do not violate either the terms or the policy of the bankruptcy act. This is manifestly right, since the power to raise ready money may save the party from bankruptcy and ruin, and since his creditors are not injured nor his estate impaired, because he gets a present equivalent for the debt he creates and the se- curity he gives." "* In effect, an unlawful preference is created, within the meaning of the act, only when a transfer is made or security given for a pre-existing debt."'' This the creditor is not allowed to exact, at least if he has reasonable cause to believe that he is securing a prefer- ence. But at the time when a debt is created, the creditor has the right to dictate the terms on which he will part with his money or property, and he may therefore demand that he shall first be secured to such an extent as will satisfy him, and with this the bankruptcy act does not interfere.^** Moreover, the statute expressly provides that "liens given or accepted in good faith and not in contemplation of or in fraud upon this act, and for a present 'consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall not be affected by this act." "* It is therefore a well-settled rule that a creditor who takes security, though the debtor is insolvent and though his bank- ruptcy follows within four' months, does not receive a preference which is voidable under the act, if the consideration was a loan or advance of money to the bankrupt made at the same time with the giving of the security.^^" So a mortgage made in good faith to secure future sales of 1*8 Darby v. Boatmen's Sav. Inst., 1 re Busby (D. C.) 124 Fed. 469, 10 Am. Dill. 141, Fed. Cas. No. 3,571. Thus, Bankr. Rep. 650. Whether a debt, to where the directors of an Insolvent cor- secure which a lien was created within poration, in good faith and with the in- four months of bankruptcy, was a pre- tention of saving the business, borrowed existing debt must be determined as of money from a director and a stockholder the date of the creation of the lien. In to meet the most pressing obligations, re Mossier Co., 239 Fed. 262, 152 C. C. and executed mortgages on all of the A. 250, 38 Am. Bankr, Rep. 604. corporate assets to secure the same, it us in re Busby (b. C.) 124 Fed. 469. was held, on the subsequent bankruptcy 10 Am. Bankr. Rep. 650. of the corporation, that the mortgages no Bankruptcy Act 1898, § 67d. could not be questioned as preferential. i bo Dean v. Davi.s, 242 U. S. 438, 37 In re Lake Chelan Land Co., 257 FerT. Sup. Ct. 130, 61 L. Ed. 419, 38 Am. Baiakr. * 497, 168 C. C. A. 501, 5 A. L. R. 557, 44 Rep. 064: Lake View State Bank v. Am. Bankr. Rep. 14. .Tones, 242 Fed. 821, 155 0. C. A. 409, iiTin re Perpall (C. C. A.) 271 Fed. 40 Am. Bankr. Rep. 148; Dodge v. Har- 466, 46 Am. Bankr. Rep. 302' In re ris, 224 Fed. 434, 140 C. C. A. 128; With- Clifford (C. C. A.) 136 Fed. 475, 14 Am. oft v. Andrews (D. C.) 217 Fed. 421, 33 Bankr. Rep. 281; WllHam Schuette & Co. Am. Bankr. Rep. 536; Tiffany v. Boat- V. Swank, 265 Pa. 576, 109 Atl. 531; In men's Sav. Inst., 18 Wall. 375, 21 L. Bd 1195 PEBFEEENCES AND PEEFEEEED CEEDITOES § 584 goods to the mortgagor is valid to the extent of the advances actually made, and to such extent is not defeated but protected by the bankrupt- cy act.*"^ And where new sales succeed payments, and the net result is to increase the value of the debtor's estate, payments made by an insol- vent debtor on a running account are not to be considered preferenti'al.*** So a mortgage given for money borrowed at the time to pay the pur- chase price of the property mortgaged, whether or not the same identical money is used to make the payment, is in efifect a purchase-money mort- gage and entitled to high rank and protection.^®* The same principle applies where the transaction takes the form of a transfer of property, rather than a security. A person may sell or exchange his property, though he is insolvent at the time, if it is done in good faith and with no fraudulent design as against his creditors.^"* And one who takes a con- veyance of such property, acting in equal good faith, and who has al- ready advanced the money therefor, or gives a present and adequate consideration for it, is not chargeable with receiving a preference.^®* And either in the case of a security or a conveyance, it is not necessary 868; Lindley v. Boss, 200 Fed. 733, 29 Am. Bankr. Kep. 610; In re Empire Cork Co., 193 Fed. 225; In re Sayed, 185 Fed. 962, 26 Am. Bankr. Rep. 444; Powell v. Gate City Bank, 178 Fed. 609, 102 C. G. A. 55, 24 Am. Bankr. Rep. 316; In re Hersey, 171 Fed. 10O4, 22 Am. Bankr. Rep. 863; In re Bartlett, 172 Fed. 679, 22 Am. Bankr. Rep. 891; In re Farmers' Supply Co., 170 Fed. 502, 22 Am. Bankr. Rep. 460;' McDonald v. Clearwater Shortline Ry. Co., 164 Fed. 1007, 21 Am. Bankr. Rep. 182; Crim v. Woodford, 136 Fed. 34, 68 C. C. A. 584, 14 Am. Bankr. Rep. 302; Farmers' Bank of Edgefield v. C. D. Carr & Co., 127 Fed. 690, 62 C. C. A. 446, 11 Am. Bankr. Rep. 733; Young V. Upson, 115 Fed. 192, 8 Am. Bankr. Rep. 377; In re Little, 110 Fed. 621, 6 Am. Bankr. Rep.. 681; In re Davidson, 109 Fed. 882, 5 Am. Bankr. Rep. 528; In re Wolf, 98 Fed. 84, 3 Am. Bankr. Rep. 555; In re Little River Lumber Co., 92 Fed. 585, 1 Am. Bankr. Rep. 483; Neill V. Barbaree, 135 Ga. 771, 70 S. E. 638; Crooks V. People's Nat. Bank, 34 Misc. Rep. 450, 70 N. Y. Supp. 271; Claridge V. Evans, 137 Wis. 218, 118 N. W. 188, 803, 25 L. R. A. (N. S.) 144; Eason v. Garrison, 36 Tex. Civ. App. 574, 82 S. W. 800; O'Connell v. City of Worcester, 225 Mass. 159, 114 N. E. 201; Dunlap v. Seattle Nat. Bank, 93 Wash. 568, 161 Pac. 364; McNamara v. Farnswortli, 106 Wash. 523, 180 Pac, 466. 101 Marvin v. Chambers, 12 Blatchf. 495, 13 N. B. R. 77, Fed. Cas. No. 9,179; In re Watkinson, 142 Fed. 782, 16 Am. Bankr. Rep. 38; Peterson v. Nash Bros., 112 Fed. 311, 50 C. C. A. 260, 55 L. R. A. 344, 7 Am.; Bankr. Rep. 181. , 1S2 Joseph Wild & Co. v. Provident Life & Trust Co., 153 Fed. 562, 82 C. C. A. 516, 18 Am. Bankr. Rep. 506. 103 In re Franklin, 151 Fed. 642, 18 Am. Bankr. Rep. 218. 154 Blake v. Thwing, 185 111. App. 187. Where one who had been fraudulently induced to sell goods on credit, aacepted from the buyer, within four months be- fore the latter's bankruptcy, a transfer of accounts in payment for the goods, it was held that the transfer was made in consideration of the release of the right to rescind and recover the goods, and therefore was not a preference. Illinois Parlor Frame Co. v. Goldman, 257 Fed. 300, 168 C. C. A. 384, 43 Am. Bankr. Rep. 287. 155 Ernst V. Mechanics' & Metals Nat. Bank (C. C. A.) 201 Fed. 664, 29 Am. Bankr. Rep. 289; Mills v. Virginia-Caro- lina Lumber Co., 164 Fed. 168, 20 Am. Bankr. Rep. 750; In re Rosenfeld, 2 N. B. R. 116, Fed. Cas. No. 12,057; Harri- son V. McLaren, 10 N. B. R. 244, Fed. Cas. No. 6,139; Sparhawk v. Richards, 12 N. B. R. 74, Fed. Cas. No. 13,205; Weeks v. Spooner, 142 N. C. 479, 55 S. E. 482. But see Kerr v. Malum, 27 S. D. 208, 130 N. W. 83. § 584 LAW OF BANKRUPTCY 119(5 that the transfer and the giving of the consideration should be exactly contemporaneous. For an advance will be considered a present con- sideration for a conveyance made within a reasonable time thereafter and in pursuance of a prior agreement.^''* But it is strictly necessary that the whole transaction should be en- tirely free from fraud. If one lends money to an insolvent debtor (whose bankruptcy follows within' four months), and knows at the time that the borrower's purpose is not to use the money in supporting his cred- it or carrying on his business, but to use it in paying off one of the cred- itors, thereby giving a preference, the lender is so far affected by the fraudulent purpose that any security given to him for the loan will be voidable at the suit of the trustee in bankruptcy.^®' And it seems that actual knowledge on the part of the lender is not necessary to produce this result, if the circumstances were so unusual and suspicious as to lay upon him the duty of making reasonable inquiries concerning the des- tination of the money, which inquiries would have enlightened him as to the debtor's purpose.*®^ Further, if the consideration for a security or, transfer, though contemporaneous with it, was illegal, as being con- trary to law, to good morals, or to public policy, it will not support the lien or conveyance.^** Where it appears that the transfer or security was given in part to secure a pre-existing debt, and in part to secure a new advance of money made at the same time with it, and there was no actual fraud in the transaction as to the other creditors or upon the bankruptcy act, the creditor will be entitled to enforce his security against the estate of the debtor in bankruptcy to the extent of the money advanced at the time, although it is void as a preference so far as concerns the pre-existing debt.^"" Thus, an increase in a mortgage lien on a bankrupt's property, supported by a new and adequate consideration, and not lessening his estate or impairing in any respect the fund available to pay general creditors, must be sustained, although made within four months prior to 166 Douglass V. Vogeler, 6 Fed. 53; Co., 10 Fed. 379; Adams v. Merchants' (iattnian v. Honea, 12 N. B. R. 493, Fed. Nat. Bank, 9 Biss. 396, 2 Fed. 174. Cas. No. 5,271; In re Sutherland Co. mo in re Wolf, 98 Fed. 84, 3 Am. (D. C.) 245 Fed. 663, 40 Am. Bankr. Rep. Bankr. Rep. 555; In re Cobb, 96 Fed. 305. 821, 3 Am. Bankr. Rep. 129; In re Sau- loTBuckniim v. Goss, 1 Hask. 630, 13 derlin, 109 Fed. .S57, 6 Am. Bankr. Rep. N. B. R. 3.".7, Fed.' Cas. No. 2,097; Bry- 3§^; In re Mull, 115 Fed. 858, 8 Am. ant V. Wolf, 94 Misc. Rep. 683, 158 N. T. Bankr. Rep. 302; In re Dismal Swamp Supp. 678; Sherrill v. I-Iutson, 187 Ala. Contracting Co., 135 Fed. 415, 14 Am. 189, 65 South. 538. Bankr. Rep. 175; In re First Nat. Bank, IBS Ex parte Meudell, 1 Low. 506, 4 155 Fed. 100, 84 C. C. A. 16, 18 Am. N. B. R. 302, Fed. Cas. No. 9,418; Par- Bankr. Rep. 766; Smith v. Coury (D C) ker V. Sherman, 212 Fed. 917, 129 C. C. 247 Fed. 168, 41 Am. Bankr. Rep. 219. A. 437. But see Tuttle v. Truax, 1 N. B. R. 601, 1B9 Sharp V. Philadelphia Warehouse Fed. Cas. No. 14,277. 1197 PREFERENCES AND PREFERRED CREDITORS § 585 his bankruptcy.^*^ But the bankruptcy law cannot be evaded by a pre- tense of advancing an additional consideration which bears no reasona- ble relation to the existing indebtedness. Thus, an assignment of col- lateral by an insolvent debtor with intent to give a preference to a cred- itor who has reasonable grounds to believe that a preference is intend- ed, made a short time before an adjudication of bankruptcy, as security for a pre-existing debt, and also for a small additional loan, is void as to the whole.^** § 585. Effect of Prior Agreement to Give Security or Make Trans- fer. — It has often been ruled that, where an agreement is made or a promise given, at the tirne when money is loaned or advanced, that a transfer of property shall be made or a security given to the lender, the subsequent execution of the transfer or giving of security does not con- stitute an illegal preference, though it takes place at a time when the debtor is insolvent and within four months prior to his bankruptcy.^®* But on the other hand, there are important decisions to the effect that a transfer of property to a creditor by an insolvent debtor four months prior to his bankruptcy, which would otherwise constitute a voidable preference, is not deprived of that character by the fact that it was made pursuant to a prior agreement made more than four months before the bankruptcy.^®* The true doctrine appears to be that if the promise or agreement was of such a specific nature and related to such specific prop- erty as to give rise to an inchoate or equitable lien (in advance of its execution) then the creation of a specific lien, at a later time, in accord- ance with the prior promise, will not violate the bankruptcy law.'®° But lei state Bank of Williamson v. Fish, as, 199 Fed. 214, 29 Am. Bankr. Rep. 945; 120 N. Y. Supp. 365. Tilt v. Citizens' Trust Co., 191 Fed; 441, 102 Grannis v. Beardsley, Fed. Cas. No. 27 Am. Bankr. Rep. 320; In re Smith 5,688. 176 Fed. 426, 23 Am. Bankr. Rep. .864; 163 Tomlinson v. Bank of Lexington, In re Great Western Mfg. Co., 152 Fed. 145 Fed. 824, 76 C. C. A. 400, 16 Am. 123, 81 C. C. A. 341, 18 Am. Bankr. Rep. Bankr. Rep. 632; Ryttenberg v. Schefer, 259; In re Dismal Swamp Contracting 131 Fed. '313, 11 Am. Bankr. Rep. 652; Co., 135 Fed. 415, 14 Am. Bankr. Rep. Payne v. Solomon, 14 N. B. R. 162, Fed. 175; In re Mandel, 127 Fed. 868, af- Cas. No. 10,856; In re Wood, 5 N. B. R. firmed 135 Fed. 1021, 68 C. C. A. 546; 421, Fed. Cas. No. 17,937; Burdick v. In re Ronk, 111 Fed. 154, 7 Am. Bankr. Jackson, 7 Hun (N. Y.) 488, 15 N. B. B. Rep. 31; Second Nat. Bank v. Hunt, 11 318; M. & M. National Bank v. Brady's Wall. 391. 20 L. Ed. 190; In re Connor. Bend Iron Co., 8 Phila. (Pa.) 171, 5 N. 1 Low. 532, Fed. Cas. No. 3,118; Lloyd B. R. 491, Fed. Cas. No. 9,018; Smoot v. v. Strobridge, 16 N. B. B. 197, Fed. Cas. Morehouse, 8 Ala. 370, 42 Am. Dec. 644; No. 8,435; Chapman v. Hunt, 254 Fed. In re Metropolitan Dairy Co., 224 Fed. 768, 166 C. C. A. 214, 42 Am. Bankr, 444, 140 C. C. A. 646, 35 Am. Bankr. Rep. Rep. 509; In re Herman (D. C.) 207 Fed. 466. 594, 31 Am. Bankr. Rep. 243; John Ag- io* Citi?ens' Trust Co. v. Tilt, 200 Fed. new Go. v. Board of Education of City 410, 118 C. C. A. 562, 29 Am. Bankr. Rep. of Paterson, 83 N. J. Eq. 49, 89 Atl. 1046. 906; Lathrop Bank v. Holland, 205 Fed. iss Johnson v. Root Mfg. Co., 241 U. 143, 30 Am. Bankr. Rep. 62; In re Thorn- S. 160, 36 Sup. Ct. 520, 60 L. Ed. 934, § 586 LAW OF BANKRUPTCY 1198 these conditions are not met by a general parol agreement, entered into when the debt was contracted, not pledging any specific property, but merely that security should be given when required,^** or if the debtor should , become financially embarrassed.^*' So, a mere promise by the debtor, at the time the debt was contracted, to give a mortgage to se- cure it, but without specifying the nature of the mortgage or the property on which it was to be given, does not create an equitable mortgage, and the execution of a mortgage on a subsequent renewal of the debt, at a time when the debtor is insolvent and within four months before his bankruptcy, constitutes a transfer of property to secure an antecedent debt, and creates a preference."* In other words, the prior promise must contemplate the giving of a specific and definite security, not mere- ly "some" security; it must be such an agreement as could be enforced by a bill for specific performance."® An agfeement that the creditor shall have a general lien on the property of the debtor, a corporation, will not suffice."* And an agreement to pledge personal property as security for a debt is not executed where the goods are not delivered to the creditor nor set apart and treated as his property, so that where the creditor takes possession of the property shortly before the filing of a petition in bankruptcy, the transaction is voidable as a preference."* And an agreement, while negotiating a loan, to make repayment out of a certain fund, does not create a lien on the fund; and hence when re- payment is made out of it within four months before a proceeding in bankruptcy, it will be deemed to be preferential and voidable at the suit of the trustee.^"* § 586. Exchange or Substitution of Securities. — ^An exchange or substitution of one valid security for another does not create an unlawful preference, though occurring when the debtor is insolvent and within 36 Am. Bankr. Rep. 764; Sabin v. Camp, lo? Sebring v. Wellington, 63 App. Div. 98 Fed. 974, 3 Am. Bankr. Rep.. 578; 498, 71 N. Y. Supp. 788. But compare Stover V. Kennedy, Fed. Oas. No. 13,510. Stennick v. Jones, 252 Fed. 345, 164 O. C. And see Gage Lumber Co. v. McEldown- A. 269. ey (C. C. A.) 207 Fed. 255, 80 Am. Bankr. los Pollock v. Jones, 124 Fed. 163, 61 Rep. 251. Where the owner of a mer- c. C. A. 555, 10 Am. Bankr. Rep. 616. cantile business assigns to a creditor a loo tt, ,.<. To«t»„„ t„„ at* ^ Are policy to enable him to collect the „ "„" ^?os F^ rC^ ^ T.^^ "" '^ ""■ same and apply it in payment of a ^- ^- ^^^' ^^- Ca«- ^o. 7,153. prior loan, the assignment is not an un- "° Mathews v. Havdt, 79 App. Div. lawful preference, though made within 570, 80 N. Y. Supp. 462. four months of bankruptcy, where It wag m In re Sheridan, 98 Fed. 406, 3 Am. made pursuant to a prior agreement by Bankr. Rep. 554; In re Arkonia Fabric which the policy was pledged as security Mfg. Co., 151 Fed. 914, 18 Am. Bankr. for advances. Hecker v. Commercial Rep. 470. But compare In re Harvey State Bank, 35 N. D. 12, 159 N. W. 97. (D. C.) 212 Fed. 340, 32 Am. Bankr. 160 In re Connor, 1 Low. 532, Fed. Rep. 337. Cas. No. 3,118; Southwick v. Whipple, 172 Torrance v. Winfleld Nat. Bank 66 2 Fed. 770. Kan. 177, 71 Pac. 235. ' 1199 PBEFEHENCES AND PREFERRED CREDITORS § 586 four months prior to his bankruptcy, provided the new security is not of greater value than the old and does not put the creditor in better po- sition with reference to enforcing his claim, since, in this case, nothing is taken away from the general creditors of the bankrupt.^!,* Within this rule, the giving of a mortgage or pledge is not a preference when it is executed upon a renewal of the debt or loan, which was originally se- cured by a like mortgage or pledge. i'* Nor is a preference created by the substitution and recording of a mortgage correcting a mistake in a prior unrecorcjfd mortgage,"^ or in place of one not formally execut- ed ; *'* nor by the release of pledged property and the taking of a pledge on other property to secure the same debt,^" or the substitution of dif- ferent collaterals for those already held by the creditor ; *'* nor by the giving of a chattel mortgage in place of a prior valid bill of sale of the same property,^'® or in place of collateral security ; ^*" nor by a confes- sion of judgment for a debt already secured by a prior valid lien;^" nor by the substitution of a deed of trust for a mechanic's lien on the same property ; ^** nor by a mere change in the form of the obligation 173 Sawyer v. Turpin, 91 U. S. 114, 23 L. Ed. 235; Cook y. Tullis, 18 Wall. 332, 21 L. Ed. 933; Clark v. Iselin, 21 Wall. 360, 22 L. Ed. 568; Douglass v. Vogeler, 6 Fed. 53; Brett v. Carter, 2 Low. 458, 14 N. B. E. 301, Fed. Cas. No. 1,844; Albany Exchange Bank v. Johnson, 5 Law Rep. 313, Fed. Cas. No. 133; Sawyer v. Tur- pin, Holmes, 226, Fed. Cas. No. 12,409; Deland v. Miller & Chaney Bank, 119 Iowa, 368, 93 N. W. 304; Hutchinson v. Murchie, 74 Me. 187. See Obemeier v. Kass, 219 Fed. 529, 135 C. C. A. 279, 34 Am. Bankr. Rep. 37. A preferential as- signment of accounts within four months prior to bankruptcy cannot be sustained as a substitution for accounts thereto- ■fore assigned, where it appears that the previously assigned accounts had been collected by the bankrupt, with the as- signee's consent, before the later assign- ment. Wolfe V. Bank of Anderson, 238 Fed. 343, 151 C. C. A. 359, 38 Am. Bankr. Rep. 387. ir* Hagan v. McNeil, 253 Fed. 716, 165 C. 0. A. 310, 41 Am. Bankr. Rep. 792; In re Noel JJ). C.) 137 Fed. 694, 14 Am. Bankr. Rep. 715; Chattanooga Nat. Bank v. Rome Iron Co. (C. C.) 102 Fed. 755, 4 Am. Bankr. Rep. 441; In re Doran, Fed. Cas. No. 4,000. "5 Player v. Lippincott, 4 Dill. 124, Fed. Cas. No. 11,223. 178 Stewart v. Hoftman, 31 Mont. 190, 77 Pac. 689, 81 Pac. 3. The bankruptcy act does not give the trustee a Hen prior to the lien of a bank to which a written chattel mortgage was given shortly be- fore bankruptcy, in the place of a pre- vious oral mortgage which was valid under the laws of the state except as against innocent purchasers arid lien creditors. Border Nat. Bank v. Coup- land, 240 Fed. 355, 153 C. C. A. 281. 177 Perry v. Booth, 67 App. Div. 235, 73 N. Y. Supp. 216. But see Anniston Iron & Supply Co. v. Anniston Rolling Mill Co. (D. C.) 125 Fed. 974, 11 Am. Bankr. Rep. 200. Where bankrupt con- veyed land as security by deed which was not recorded, and within four months be- fore bankruptcy conveyed other land up- on surrender of the unrecorded deed and notes evidencing indebtedness, it was not a preference. Marsh v. Lese- man, 242 Fed. 484, 155 C. C. A. 260, 40 Am. Bankr. Rep. 97. 17 8 In re Reese-Hammond Fire Brick Co., 181 Fed. 641, 25 Am. Bankr. Rep. 323. 179 Sawyer v. Turpin, 91 U. S. 114, 23 L. Bd. 235. But a chattel mortgage is voidable as a preference, where the prior security was a conditional contract of sale, which was invalid because not re- corded. L. A. Becker Co. v. Gill (C. C. A.) 206 Fed. 36, 30 Am. Bankr. Rep. 429. 180 In re Davidson, 109 Fed. 882, 5 Am. Bankr. Rep. 528. 181 Reber v. Gundy, 13 Fed. 53. 18 2 In re Weaver, 9 N. B. R. 182, Fed. Cas. No. 17,307. § 586 LAW OP BANKRUPTCY 1200 from an account to a note.^*^ So, where the bankrupt's debt consists of a sum of money with accumulated interest, some time overdue, secured by a valid mortgage, and the parties have an accounting and compute the amount due to date for both principal and interest, and a new mortgage is given for the sum so ascertained, upon the same, property, the old mortgage being canceled, this is not to be regarded as an unlaw- ful preference, though done within the time limited before the debtor's bankruptcy.^** And a, creditor who has obtained a valid lien by execu- tion on property of greater value than the amount of the judgment may receive from the debtor bills receivable, accounts, and cash up to the amount of the execution, without violating the bankruptcy law, if the execution is thereupon released and the judgment satisfied.^*® And a broker who holds stocks of a customer as security for the money ad- vanced in their purchase, does not gain a preference by selling the stocks and applying the proceeds on his claim.^*® . But where a loan of money is simply evidenced by an indorsed prom- issory note, the substitution for it of a bond and mortgage is not such an exchange of securities as will prevent the mortgage being considered a preference, the other elements being present.^*' And a preference may be created by the substitution of one note for another, where that last given is made by a different party or is indorsed with a better name or matures earlier,^** or enables the creditor more easily or quickly to ob- tain judgment and levy on the debtor's property.^** Still it does not necessarily follow that the new security is voidable to its entire extent. Where a debtor gives a mortgage in exchange or substitution for an existing valid mortgage, but of greater value, it may be voidable by his trustee in bankruptcy, but only as to such excess of value.^^" § 587. Payments by Debtor. — Payment of a debt in money is a "transfer" of property within the meaning of the bankruptcy law, and if made under such circumstances as would constitute a preference in- the case of a transfer of any other form of property, may be recovered by the debtor's trustee in bankruptcy. ^'^ It is immaterial in what form 183 O'Connor v. Parker, 23 Mich. 22, 4 iss McAtee v. Shade, 185 Fed. 442, 26 N. B. 6. 713. Am. Bankr. Eep. 151; In re Lane, 2 184 Bernhisel v. Firman, 22 Wall. ITO, Low. 333, 10 N. B. E. 135, Fed. Gas. No. 22 L. Ed. 766. But see In re Jordon, 9 8,044; In re Star Spring Bed Co. (C. N. B. R. 416, Fed. Cas. No. 7,529; Forbes C. A.) 265 Fed. 133, 45 Am. Bajikr Rep! V. Howe, 102 Mass. 427, 3 Am. Rep. 475. 650. 186 Clark V. Iselin, 21 Wall. 360. 22 L. iso Loudon v. First Nat. Bank 2 Ed. 568; Livingston v. Bruce, 1 Bhitchf. Hughes, 420, 15 N. B. R. 476, Fed Gas" 318, Fed. Cas. No. 8,410. No. 8,525. ISO In re Filer, 125 Fed. 201, 5 Am. loo in re Manning (D. G.) 123 Fed. Bankr. Rep. 835. 181, 10 Am. Bankr. Rep. 500. 187 In re Hlrschowitz, 199 Fed. 202, loi West Philadelphia Bank v. Dick- 28 Am. Bankr. Rep. 571; In re Wolf, son, 95 U. S. 180, 24 L. Ed. 407; Pirie 98 Fed. 84, 3 Am. Bankr. Rep. 555. v. Chicago Title & Trust Ca, 182 U. S. 1201 PREFERENCES AND PREFERRED CREDITORS § 587 the payment is made, whether in cash or by a certified check/^^-or lay the acceptance of a draft drawn on the debtor by the creditor/'^ 'or an order on a third person to pay to the creditor money which is due to the debtor,^** or by giving a lien on property from which the creditor real- izes his debt in cash.**® So, the declaration of a dividend by a corpora- tion, with the understanding that the treasurer's portion ot it should be returned to the corporation in settlement of his indebtedness to it, which was done, constitutes a preference recoverable by the treasurer's trustee in bankruptcy.*** And where creditors of a bankrupt company, with knowledge of its insolvency, placed a representative in charge, and furnished goods on credit to replenish its stock, and would have suc- ceeded in re-establishing the business had not the issuance of execu- tion by another creditor precipitated bankruptcy, it was held that pay- ments made for goods so furnished within four months prior to the ad- judication were preferential.**'' 438, 21 Sup. Ct. 906, 45 L. Ed. 1171, 5 Am. Bankr. Rep. 814; D. C. Wise Coal Co. V. Small, 225 Fed. 524, 140 C. C. A. 508, 35 Am. Bankr. Eep. 682; Scheuer V. Katzofe (D. C.) 233 Fed. 473, 37 Am. Bankr. Eep. 476; In re Miller (D. C.) 221 Fed. 471, 34 Am. Bankr. Rep. 275; In re W. A. Silvernail Co. (D. G.) 218 Fed. 979, 33 Am. Bankr. Rep. 59; VoU- mar v. Plage, 186 Fed. 598, 26 Am. Bankr. Eep. 590; In re Rice, 164 Fed. 514, 21 Am. Bankr. Rep. 211; In re W. , W. ilills Co., 162 Fed. 42, 20 Am. Bankr. Kep. 501; Wright v. William Skinner Mfg. Co., 162 Fed. 315, 89 C. C. A. 23, 20 Am. Bankr. Rep. 527; Sargent v. Blake, 160 Fed. 57, 87 C. C. A. 213, 20 Am. Bankr. Rep. 115; Wright v. Samp- ter, 152 Fed. 196, 18 Am. Bankr. Rep. 355 ; In re John Morrow & Co., 134 Fed. (iS6, 13 Am. Bankr. Rep. 392; In re Col- ton E.xport & Import Co., 121 Fe(}. 663, 57 C. C. A. 417, 10 Am. Bankr, Rep. 14; Svvarts v. Fourth Nat. Bank, 117 Fed. 1. 54 C. C. A. 387, 8 Am. Bankr. Rep. 673 ; In re Fixen, 102 Fed. 295, 42 C. C. A. .354, 50 L. n. A. 605, 4 Am. Bankr. Rep. 10; In re Sloan, 102 Fed. 116, 4 Am. I!ankr. Rep. 356; In re Christen- sen, 101 Fed. 802, 4 Am. Bankr. Rep. 202; Strobel & Wilken Co. v. Knost, 99 Fed. 409, 3 Am. Bankr. Rep. 631; In re Ft. Wayne Electric Corp.', 99 Fed. 400, 39 C. C. A. 582, 3 Am. Bankr. Rep. 634; In re Conhaim, 97 Fed. 923, 3 Am. Bankr. Rep, 249; In re Ft. Wayne Electric Corp., 96 Fed. 808, 3 Am. Bankr. Rep. 186; In re Baxter, 25 Fed. 700; Metcalf V. Officer, 2 Fed. 640: Paige v. Loring,. Blk.Bkk.(3d Ed.)— 76 Holmes, 275, Fed. Cas. No. 10,672; An- drews V. Kellogg, 41 Colo. 35, 92 Pac. 222; Landry v. Andrews, 22 R. I. 597, 48 Atl. 1036; Chism v. Citizens' Bank, 77 Miss. 599, 27 South. 637 ; Sherman v. Luckhardt, 96 Mo. App. 320, 70 S. W. 388; Wright v. Cotten, 140 N. C. 1, 52 S. E. 141 ; West v. Bank of Lahoma, 16 Okl. 328, 85 Pac. 469 ; Rogers v. Ameri- can Halibut Co., 216 Mass. 227, 103 N. E. 689; Schuetz v. International Harvester Co., 167 Iowa, 634, 149 N. W. 855. Where the bankrupt was accustomed to deposit in a bank checks drawn on other banks, and immediately thereafter to check against such deposits, without waiting to see whether the checks were good, and the bank, which was required by the clearing house to make good worthless cheeks credited by it, required payments from the bankrupt to protect itself against excessive use of its cash reserves, it was held that there was no indebtedness from the bankrupt to tha bank, and- such payments were not pref- erences. Snipes v. Mutual Trust Co. (D. C.) 270 Fed. 318, 46 Am. Bankr. Rep. 546. i»2 Cannon v. James M. Bell Co., .34 Misc. Rep. 734, 70 N. Y. Supp. 1024. - 19 3 Fox V. Gardner, 21 Wall. 475, 22 L. Ed. 685. 104 In re The I;eader, 190 Fed. 624, 26 Am. Bankr. Rep. 668. 195 In' re Belding, 116 Fed. 1016, 8 Am. Bankr. Rep. 718. 19 6 Arthur v. Harrington (D. C.) 211 Fed. 215, 32 Am. Bankr. Rep. 216. 197 In re Farmers' Store & Supply Co, § 587 LAW OF BANKRUPTCY 1202 Nor does it affect the case that the payment is not made directly into the creditor's own hands, but reaches him through one or more inter- mediaries, as where the debtor's check passes through several bank^ and a clearing house and is finally credited to the creditor.*®* So where a creditor of the bankrupt assigns his account to a purchaser of the bank- rupt's property, under an arrangement whereby such purchaser pays the claim, the legal effect is to appropriate out of the assets of the bank- rupt the amount used in satisfying such claim by the purchaser as- suming the liability, and an unlawful preference results therefrom.**® This is also the case where the payingf teller of a bank, claiming to be its creditor, draws his check and pays himself the amount out of the funds on hand, just before the bank closes its doors.*** And where a bank which acts as agent for another bank for clearing house purposes pays, upon the day of its failure, to the latter, which has knowledge of its insolvency, deposits which have been made on its general account i<^ meet checks in the clearing house, such payment is an illegal prefer- ence.*** And where the president and general manager of a bankrupt corporation acts for it in purchasing certain accounts against it, he can only charge the corporation for the amount actually paid by him for the acounts, and must account to the trustee in bankruptcy for all prof- its made.*** And a trustee in bankruptcy is not precluded from recover- ing, from the payee of a note, money paid by the bankrupt on the note within four months before his adjudication, by reason of the fact that there is a solvent indorser on the note.*** But the rule must not be applied -with unreasonable strictness. There is no violation of the law against preferences where a debtor turns over money to his wife to be used, and which is in fact used, by her in defraying necessary household and family expenses, though she is also a creditor of his.*** Nor is the payment of house rent or rent of a store the giving of a preference where there is no intention to cheat other (D. C.) 214 Fed. 505, 32 Am. Bankr. Rep. 203 Harris v. Second Nat. Bank, 110 638. Tenn. 239, 75 S. W. 1053; Bartholow v. 198 In re Lyon, 114 Fed. 326, 7 Am. Bean, 18 Wall. 635, 21 L. Ed. 866. Bankr. Kep. 412; In re Hunter Arms 2»4 Neumann v. Blake, 178 Fed. 916, Co. (D. C.) 226 Fed. 866, 35 Am. Bankr. 102 C. C. A. 294, 24 Am. Bankr. Rep. Rep. 883. 5T5. Property bought by the wife of a 109 Hackney v. Hargreaves Ufos., 68 liankrupt with money saved by her from Neb. 624, 94 N. W. 822, 99 N. W. 675 ; *"™® Si^^n her by her husband from Rogers v. Fidelity Sav. Bank & Loan "™e ^° t*™^ for household expenses, Co., 172 Fed. 735, 23 Am. Bankr. Rep. 1. '*^'^^" ^^ ^'^s not indebted, and for „„„ T ™ i. -,^0 -IT, J o-r irr A which he asked no accounting, cannot bo =00 In re Plant, 148 Fed. 37, 17 Am. ,,,,^,,,^ ^^ ^.^ ^^^^^^ j^/' ^^ ^^^J^ Banicr. Kep. zu. • gf j^jj, subsequent creditors, but it is oth- 201 Phelan v. Iron Mountain Bank, 4 erwise as to money similarly given to Dill. 88, 16 N. B. R. 308, Fed. Cas. No. her after he became indebted to such 11,069. creditors. Milkman v. Arthe, 223 Fed. 202 Atherton v. Emerson, 199 Mass. 507, 130 C. C. A. 55, 34 Am. Bankr Rep 199, 85 N. E. 530. 536. 1203 PREFERENCES AND PREFERRED CREDITORS § 587 creditors or to evade the law.**>/^nd payment of interest in advance to a bank, to secure a renewal oi a note held by itj is not giving a prefer- ence.*"* So of the payment of the salary of an officer of the bankrupt corporation, provided the amount does not exceed a fair compensa- tion for his services.**' And so of the payment of accrued interest on a statutory dower in real estate.*** So, where a debtor, just before filing his voluntary petition in bankruptcy, went to two of his creditors, whose debts were barred by the statute of limitations, and paid each of them one dollar, and did this for the purpose of taking their claims out of the statute, so that they might share with the other creditors in the im- pending bankruptcy, and they had no knowledge or cause to believe that he meant to give them any advantage other than the revival of their debts, it was held that no preference was created.*** And where gold dust is deposited in a bank to the credit of the depositor (who afterwards becomes bankrupt), and its value is at once ascertained and the amount entered on the books to his credit, there is no preference given, though the same sum is offset by the bank against an indebtedness to it of the depositor, because the total value of his estate available for creditors is not diminished.*^* But a debt due to a railroad company for freight is not in any way privileged, and to pay it may constitute a preference, if under circumstances which would produce that result in the case of any, other creditor.*^"^ And a payment by insolvent makers to the holder of a note, for the purpose of relieving an indorser, is a preference forbidden by the bankruptcy law.*^* It is of course unnecessary, to constitute a preference, that the credi- tor should have been paid in full. The giving and acceptance of a partial payment may be equally within the statute. But a payment by an in- solvent debtor of a percentage on claims of a part of his creditors, which does not lessen the percentage which his other creditors will receive, is not a preference nor forbidden by the bankruptcy law.*'* 20B In re Locke, 1 Low. 293, 2 N. B. 20' Atherton v. Emerson, 199 Mass. K. 382, Fed. Oas. No. 8,439. But where 199, 85 N. E. 530. an insolvent debtor, having a leasehold sos in re Riddle's Sons, 122 Fed. 559, interest in a bakery where he carries on 10 Am. Bankr. Bep. 204. his business, pays the rent due on the 200 in re Banks (D. C.) 207 Fed. 662, same, as a means of enabling himself to 3^ ^^ Bankr Rep 270 continue the business, but with the pur- ,,„ American Bank of Alaska v. John- pose of defraudmg his creditors by ^^^ ^^^ ^^^ ^ ^ ^ ^^ hoarding and secreting the proceeds ot ^^ ^ ^02 the business so continued, and incurring „ , „ „,„,,„„„„ rew business debts without paying any _ " J^^"^™ ^^J^T • ' old ones, the payment of the rent should ^^"- ^^®- '^°- ^'°°°- be considered as a fraudulent preference ^" Landry v. Andrews, 22 R. I. 597, under the bankruptcy law. In re Lange, 48 Atl. 1036 ; Arnold v. Knapp, 75 W. 97 Fed. 107. Va. 804, 84 S. E. 895. 208 In re Kellar, 110 Fed. 348, 6 Am. 218 In re Hapgood, 2 Low. 200, Fed. Bankr. Eep. 621. Cas. No.. 6,044. § 587 LAW OF BANKRUPTCY 1204 Payment of a debt by the bankrupt after the filing of the petition in bankruptcy ag'ainst him is unauthorized, and ordin,arily the trustee is entitled to recover the amount paid ; but if the debt was one wholly or in part enforceable as against the trustee, it is a proper exercise of discre- tion for the court to deny such recovery, either in whole or pro tanto.*'* If the payment was made in total or partial discharge of a valid existing lien on property of the bankrupt, which would not have been disturbed by the bankruptcy proceedings, it cannot be considered a preference, because the assets available for general creditors are not thereby diminished. This has been ruled where the creditor merely held an inchoate lien,*^* and much more where the obligation is in the form of a valid mortgage.*^* But a mortgage or deed of trust never de- livered as a subsisting obligation cannot excuse a payment by the mort- gagor on the indebtedness covered thereby, which payment otherwise would be invalid as a preference.*^" And a creditor holding security for less than the amount of his claim cannot, if he knows the debtor to be insolvent, obtain a valid preferential payment of the unsecured part of his debt within four months before the adjudication in bankruptcy.*^* Where insurance was effected on mortgaged property, and the pro- ceeds thereof having been collected, a portion thereof was surrendered to the mortgagor, who had become bankrupt, that it might be repaid to the mortgagee in liquidation of an unsecured debt, it was held that the amount so relinquished at once became the property of the mortgagor, and when repaid constituted a preference.*"^® § 588. Payment or Transfer by Third Person. — A payment received by a creditor of a bankrupt from a third person, which does not come out of the assets of the bankrupt, does not constitute a preference.*** Thus, where, after the bankrupt had made an assignment for the benefit of his creditors, and just before bankruptcy proceedings were instituted against him, a firm of which he was a member paid an entire claim against him on which the firm was at most only partially liable, it was held that this payment did not constitute a preference.**^ So, payments 214 Toof V. City Nat. Bank, 206 Fed. 118 N. W. 198, 80.S, 25 L R A (N S ) 250, 124 C. 0. A. 118, 30 Am. Bankr. 144. Rep. 79. 210 Steai-ns Salt & Lumber Co. v. 218 In re Lynn Camp Coal Co., 168 Hammond, 217 Fed. 559, 133 C. C. A. Fed. 998, 22 Am. Bankr. Rep. 60. '^^^' 33 Am. Bankr. Rep. 484. =»ia Stewart v. Hopkins, 30 Ohio St. co^'lf^F^' ^./o^'a ^tate Lumber 502. But compare SHutts v. First Nat. ?°^. \\^, J^" f ^ t^' f!^"^^^- ^«P- Rnnk qs Fed 705 3 Am Bankr Ren ' ^^^son v. National Herkimer Conn- Bank, 98 led. 705, 6 Am. Bankr. Kep. ^^ ^^^^^ ^^^ ^^ ^29, 97 c. C. A. 155, 22 Am. Bankr. Rep. 733; McKav v 217 Page V. Rogers, 211 U. S. 575, 29 Sperry Flour Co., 95 Wash 209 163 Sup. Ct. 159. 53 L. Ed. 332, 21 Am. Pac. 377. ' Bankr. Rep. 496. 221 in 're Hines, 144 Fed. 543, 16 Am 2isClaridge v. Evans, 137 Wis. 218, Bankr. Rep. 495. And see Nestor v. 1205 PREFEEENCES AND PREFBURED CREDITORS § 589 made by the wife of the bankrupt out of her separate estate in settle- ment of claims against him, though made within four months before his bankruptcy, are not preferential.*'* And where directors of a corpora- tion borrow money, which is used by the corporation, .and thereafter, when the corporation is insolvent, pay the debt with money which they borrow by giving their individual notes, secured by mortgage on their own property, there is no preference given by the corporation.**'' But where an insolvent trader conveys his stock to certain persons who are sureties on his note given to a bank, and the sureties, in considera- tion of the transfer, agree to pay the debt to the bank, the bank not par- ticipating in this arrangement, and not being paid by the sureties out of the proceeds of the property, there is a preference as to the sureties, but not as to the bank.*** Payment is made by the bankrupt, within the meaning of the provisions of the Act relating to illegal preferences, when it is made under his authority or by his direction by his debtor to his creditor.**^ And in a case where the seller of property was originally entitled to the benefit of insurance placed on the property by the buyer, but this agreement had been superseded by the giving of a chattel mort- gage, and afterwards the buyer became insolvent, it was held that a pay- ment of the instirance money to the seller constituted a preference:**^ § 589. Payments to Attorneys For Past or Future Services. — The bankruptcy act provides that "if a debtor shall, directly or indirectly, in contemplation of the filing of a petition by or against him, pay money or transfer 'property to an attorney and counselor at law, solicitor in equity, or proctor in admiralty, for services to be rendered, the transac- tion shall be re-examined by the court on petition of the trustee or any creditor, and shall only be held valid to the extent of a reasonable' amount to be determined by the court, and the excess may be recovered by the trustee for the benefit of the estate." **'' It is therefore not unlaw- ful for a person who expects to file his voluntary petition in bankruptcy, or expects that creditors will petition against him, to retain an attorney for the purpose of such proceedings, and to pay him in advance a rea- sonable fee for his services, or transfer property to him in compensation for such services or give him security for the payment of his fee.*** This Joseph (C. C. A.) 265 Fed. 246, 46 Am. Tumbull v. Potlatch Lumber Co. (Sup.) Bankr. Rep. 5. 181 N. Y. Supp. 56. 222 Goode V. Elwood Lodge, 160 Ind. 226 Bunday v. Huntington, 224 Fed. 251, 66 N. E. 742. 847, 140 C. C. A, 415. 223Keegau v. Hamilton Nat. Bank, 227 Bankruptcy Act 1898, § eOd. This 163 Ind 216 71 N. E. 647. ^°^^ "''* ^PP'^' ^° ^^^^ ^^^^ *° °^^ ^^' ' • • • . torney by assignees under a general as- 22 4Hoi-stmanv. Little, 99 Tex. 530, 90 gig-nment made by the banknipt prior f3. W. 1095. jq (-jjg bankruptcy proceedings. In re 2 25 De Forest v. Crane & Ordway Co., Geller (D. C.) 216 Fed. 558. 55 Mont. 489, 179 Pac. 291. And see 223 in re Cummins, 196 Fed. 224, 28 § 589 LAW OF BANKRUPTCY 1206 does not constitute the giving of a preference, under the statute, to such attorney,*^" and the transaction will be valid as against the subsequent proceedings in bankruptcy, unless there was a fraudulent purpose to place assets out of the reach of the creditors,^*" or unless some party in interest objects to it and petitions to have the transaction examined by the court, in which case the question of the reasonableness of the fee paid is to be determined and the excess, if any, refunded.^** But this part of the statute refers only to services rendered to the bankrupt prior to the commencement of the proceedings in bankruptcy.*'* Another sec- tion of the statute provides for the payment (as a priority claim) of "one reasonable attorney's fee, for services actually rendered to the bankrupt in involuntary cases' while performing the duties herein pre- scribed, and to the bankrupt in voluntary cases as the court may al- low." **' But both of these provisions of the act refer only to such pro- fessional services as are rendered in aid of the bankruptcy proceedings and for the benefit of the creditors, or in the administration and distri- bution of the bankrupt's estate ; *'* and they will not validate a transfer of an insolvent's property to an attorney in consideration of an agree- ment to negotiate with the creditors of the insolvent for a settlement of his difficulties without resort to the bankruptcy court, nor a payment or transfer of property for services to be performed in defending the bankrupt against anticipated criminal proceedings, which are not brought until after the filing of the petition in bankruptcy.*'^ And al- though, in a case coming within the provisions of the statute, a transfer of property may be equally allowable as a payment of money, yet an agreement that the attorney shall take certain goods in payment for his services, where there is no actual delivery or change of possession, does not constitute a ."transfer" of the property, and if the attorney takes pos- session of the goods after the adjudication, and therefore after they have Am. Bankr. Eep. 385; Triplett v. Han- days after a fire, with an attorney to ley, 1 Dill. 217, Fed. Cas. No. 14,179 ; collect tlie insurance, where the insurers Williams v. Pultze, 5 Ohio Dec. 503 ; questioned their liability, was a pro- Lyon V. Marshall, 11 Barb. (N. Y.) 241; ceeding in the usual course of business, Furth V. Stahl, 205 Pa. St. 439, 55 Atl. having no necessary relation to bank- 29. Compare In re Evans, 8 N. B. R. ruptcy; and such contract could not of 261, Fed. Cas. No. 4,552. itself justify the conclusion that it was !420 Swartz v. Frank, 183 Mo. 438, 82 made "in contemplation of the filing of S. W. 60. a petition" in bankruptcy, within the 230 Goodrich v. Wilson, 119 Mass. 429, meaning of the Act, although a petition 14 N. B. R. 555. in bankruptcy was actually filed against 231 In re Morris, 125 Fed. 841, 11 Am. the debtor five days after the payment Bankr. Rep. 145; In re Porter, 253 Fed. to the attorney. Tripp v. Mitschrich, 552, 165 C. C. A. 222. 211 Fed. 424, 128 C. C. A. 96, 31 Am. 2 32 Pratt V. Bothe, 130 Fed. 670, 65 Bankr. Rep. 662. C. 0. A. 48, 12 Am. Bankr. Rep. 529. 235 in re Habegger, 139 Fed. 623, 71 2'33 Bankruptcy Act 1898, § 64b, 3. C. C. A. 607, 3 Ann. Cas. 276, 15 Am. 234 A debtor's contract, made three Bankr. Rep. 198. 1207 PEBFEUBNCES AND PEBFBRRED CREDITORS § 590 passed ino the custody of the law, he must restore them.*^* As to a pay- ment for legal services rendered in the past, and not relating to the bankruptcy proceedings, it stands on the same footing as a payment to any other creditor, and will be preferential in the same circumstances or under the same conditions,**'' unless the attorney has a lien on a par- ticular fund or an agreement which amounts to an equitable assignment of it.*»» § 590. Set-Off or Adjustment of Mutual Accounts. — The bankrupt- cy law does not prevent parti-es from adjusting their mutual accounts or exercising a right of set-off which would belong to them even after the institution of bankruptcy proceedings.**® - Thus, the application by a bank of the amount standing to the credit of a depositor in his general account, subject to check, on a note of the depositor or other indebted- ness to the bank, does not constitute a voidable preference, though made while the depositor was insolvent and within four months prior to his bankruptcy.**** ^ But this rule does not apply if the bank knew or had reasonable cause to believe that a preference was intended to be giv- M8 In re Corbett (D. C.) 104 Fed. 872, 5 Am. Bankr. Bep. 224. 237 Magee v. Fox, 229 Fed. 395, 143 C. C. A. 515, 36 Am. Bankr. Rep. 161; In re George W. Shiebler & Co. (D. O.) 163 Fed. '545, 20 Am. Bankr. Rep. 777. s'ssin re Coney Island Lumber Co. (D. C.) 190 Fed. 803, 34 Am. Bankr. Rep. 563 ; Van Slyke v. Huntington (C. C. A.) 265 Fed. 86, 45 Am. Bankr. Rep. 173. »39 See Gleason v. Bush, 100 Misc. Bep. 608, 166 N. Y. Supp. 321; Putnam V. United States Trust Co., 223 Mass. 199, 111 N. B. 969. -240 Continental & Commercial Trust & Savings Bank v. Chicago Title & Trust Co., 229 U. S. 435, 33 Sup. Ct. 829, 57 L.Ed. 1268, 30 Am. Bankr. Rep. 624; Studley v. Boylston Nat. Bank, 229 U. S. 523, 33 Sup. Ct 806, 57 L. Ed. 1313, 30 Am. Bankr. Rep. 161; New York County Nat. Bank v. Massey, 192 U. S. 138, 24 Sup. Ct. 199, 48 L. Ed. 380, 11 Am. Bankr. Bep. 42; In re Cross (C. C. A.) 273 Fed. 39, 46 Am. Bankr. Bep. 727; In re Cross (D. C.) 265 Fed. 769, 45 Am. Bankr. Bep. 695 ; In re Loosehen Piano Case Co. (D. C.> 259 Fed. 931, 43 Am. Bankr. Rep. 733; American Bank of Alaska v. Johnson, 245 Fed. 312, 157 C. C. A. 504, 40 Am. Bankr. Rep. 502; Fourth Nat. Bank of Wichita v. Smith, 240 Fed. 19, 153 C. C. A. 55, 38 Am. Bankr. Bep. 771 ; American Bank & Trust Co. V. Coppard, 227 Fed. 597, 142 C. C. A. 229, 35 Am. Bankr. Bep. 742; In re Badley Steel Const. Co. (D. C.) 212 Fed. 462; Johnson v. American Bank, 5 Alaska, 145; Chicago Title & Trust Co. V. Federal Trust & Sav. Bank, 192 Fed. 967; In re Wright-Dana Hard- ware Co., 207 Fed. 636; Tomllnson v. Bank of Lexington, 145 Fed. 824, 76 C. C. A. 400, 16 Am. Bankr. Rep. 632 ; In re George M. Hill Co., 130 Fed. 315, 64 C. C. A. 561, 66 L. B. A. 68, 12 Am. Bankr. Rep. 221 ; In re Seherzer, 130 Fed. 631, 12 Am. Bankr. Rep. 451 ; Robinson v. Wisconsin, M. & F. Ins. Co. Bank, 9 Biss. 117, 18 N. B. B. 243, Fed. Cas. No. 11,969; Habegger v. First Nat. Bank, 94 Minn. 445, 103 N. W. 216, 110 Am. St. Bep. 379; Cox v. First Nat. Bank, 126 La. 88, 52 South. 227; Booth V. Prete, 81 Conn. 636, 71 Atl. 938, 20 L. R. A. (N. S.) 863, 15 Ann. Cas. 306; West V. Bank of Lahoma, 16 Okl. 328, 85 Pac. 469 ; Conner v. First Nat. Bank (Wash.) 194 Pac. 562; Parker v. First Nat. Bank, 89 Vt. 69, 94 Atl. 1 ; Putnam V. United States Trust Co., 223 Mass. 199, 111 N. E. 969; Wrenn v. Citizens' Nat. Bank (Conn.) 114 Atl. 120. Contra, In re Kellar, 110 Fed. 348, 6 Am. Bankr. Rep. 621. And see Evans v. National Broadway Bank, 48 Misc. R«p. 248, 96 N. y. Supp. 789; In re Starkweather & Albert, 206 Fed. 797, 30 Am. Bankr. Rep. 743. § 590 LAW OF BANKRUPTCY 120S en,*" or if it appears that there was an intent on the part of the bank to accumulate funds of the bankrupt in its possession for its own ulti- mate security, or that there was any restriction imposed by it on the bankrupt's withdrawal of such funds, or an appropriation of such funds by the bank towards the payment of its claim,*** or if the deposit was made for a special purpose and therefore did not create the relation of debtor and creditor, but that of bailor and bailee,*** or if the claim was assigned with/ knowledge of insolvency and for the express purpose of being used as a set-off in expected bankruptcy proceedings.*** And so, where a bank, to which the bankrupt was largely indebted on the day the latter became insolvent, closed its account and credited the balance, including a deposit just made, on the bankrupt's indebtedness to it, such deposit amounted to a payment pro tanto of the loan, and its applica- tion an unlawful preference.^*® And where a depositor's debt to the bank exceeds the amount standing to his credit, and he settles by giv- ing the bank a check for the amount of such credit balance and cash for the remainder of the debt, the payment in cash will be a fi-audulent pref- erence, though the giving of the check may not.**' On the same prin- ciple it is held that a bank which receives from a clearing house asso- ciation the proceeds of checks presented for clearing by a member short- 2 41 First Nat. Bank of El Centro v. Harper, 254 Fed. 641, 166 C. C. A. 139, 43 Am. Bankr. Rep. 82 ; In re Fairbum Oil & Fertilizer Co. (D. C.) 240 Fed. 835, 39 Am. Bankr. Rep. 211; Ridge Avenue Bank v. Studheim, 145 Fed. 798, 76 C. C. A. 362, 16 Am. Bankr. Rep. 863; Ernst V. Mechanics' & Metals Nat. Bank, 201 Fed. 664, 120 C. C. A.' 92, 29 Am. Bankr. Rep. 289 ; In re Warner, 5 N. B. R. 414, Fed. Gas. No. 17,177; Knoll v. Commer- cial TiTist Co., 249 Pa. 197, 94 Atl. 750, L. R. A. 1916A, 683, Ann. Cas. 1916C, 988. Payment by a bankrupt of notes held by a bank on which he was in- dorser, a few days before the bank- ruptcy and before their maturity, by a cheek on his deposit in such bank, is not valid as a set-off, but is a voidable pref- erence. Heyman v. Third Nat. Bank (D. C.) 216 Fed. 685. The payment of the proceeds of checks by a bankrupt directly to a bank, with the intention of e.xtinguishing a pre-existing indebted- ness (a note owed to the bank) and without having such proceeds credited to his account, is voidable as a pref- erence. Chisholm v. First Nat. Bank, 206 111. App. 493. 2 42 In re National Lumber Co., 212 Fed. 92S, 129 C. C. A. 448 ; In re Percy Ford Co. (D. C.) 199 Fed. 334, 28 Am. Bankr. Rep. 919; Johnson v.. Gratiot County State Bank, 193 Mich. 452, 160 N. W. 544. - 213 Continental & Commercial Trust & Sav. Bank v. Chicago Title & Trust Co. (C. C. A.) 199 iFed. 704. But see this case on appeal, 229 U. S. 435, 33' Sup. Ct. 829, 57 L. Ed. 1268, 30 Am. Bankr. Rep. 624. 2** In re Shults, 132 Fed. 573, 13 Am. Bankr. Rep. 84. 2*5 Ernst V. Mechanics' & Metals Nat. Bank (D. C.) 200 Fed. 295. 248 Hough V. Fii-sf -^at Bank, 4 Biss. 349. Fed. Cas. No. 6,721. And see Farm- ers' State Bank v. Freeman, 249 Fed. 579, 161 C. C. A. 505, 41 Am. Bankr. Rep. 286. Where a bank, holding It.s depositor's demand note, on discovering Ihat his financial condition was unsatis- fiiftory, demanded a check for the amount of the deposit, and on receiving it, canceled the note, and took a new note for the amount due, less the de- posit, the transaction was held a pay- ment to the bank and a voidable pref- erence, and not an exercise of the right of set-ofC. In re Cross (D. C.) 265 Fed. 769, 45 Am. Bankr. Rep. 695. 1209 PKEFERKNCES AND PREFERRED CREDITORS § 591 ly before suspending payment, cannot escape liability to account to the estate in bankruptcy of the defaulting member, where the clearing house, in. revising the day's clearings because of such suspension, eliminated and returned the checks which had been debited against the defaulting, member, on the theory that, under the doctrine of rescission and follow- ing of trust funds, the bank had the right to appropriate any property of the defaulting member and apply it to the reduction of an advance of cur- rency made on that day, especially where such currency was paid out by such defaulting member over its counter to its customers;**'' nor is the transaction any the less a preference because the clearing house, under its rules, might have called on its other members to pay pro rata the amount of the checks drawn upon the defaulting member, and might have treated thf credits in favor of the defaulting member as belonging proportionally to the contributing members, since, even under these rules, a check which was the result of the clearings of the previous day would' not be entitled to participation.*** So also, the trustee in bank- ruptcy can recover the amount of a check given by the bankrupt in good faith before the adjudication in bankruptcy, but which was deposited in a bank other than the one on which it was drawn, and not presented to the drawee bank until after the adjudication.^*" § 591. Partial Payments en Running Accounts. — The provisions of the bankruptcy act relating to preferences are not so construed as to require a creditor to surrender partial payments received by him on ac- count in the usual course of business where the transactions covered by the account between the parties, taken together, result in increasing the net indebtedness to the creditor and correspondingly increasing the bankrupt's estate.*®" Thus, payments made on an open account, though within four months of the debtor's adjudication in bankruptcy, which are received in good faith and without the creditor having knowledpe of the debtor's insolvency, and which are less in amount than the credit sales made by such creditor to the debtor during that period, do not con- stitute a preference within the meaning of the bankruptcy law.*®^ This 2117 Rector V. Commercial Nat. Bank, Kimball v. E. A. Rosenham Co., 114 200 U. S. 420, 26 Sup. Ct. 294, 50 L. Ed. Fed, 85, 52 C. C. A. 33, 7 Am. Bankr. 533, 15 Am. Bankr. Rep. 347. Rep. 718; C. S. Moray Mercantile Co. s*8 Rector V. City Deposit Bank Co., v. Scliiffer, 114 Fed. 447, 52 C. C. A. 200 U. S. 405, 26 Sup. Ct. 289, 50 L. Ed. 249, 7 Am. Bankr. Rep. 670 ; Butterfleld 527, 15 Am. Bankr. Rep. 336. v. Woodman, 223 Fed. 956, 139 C. C. A. 2*9Edi.son Electric Illuminating Co. 436, 34 Am. Bankr. Rep. 510 ; Dunlai) v. V. Tibbetts, 241 Fed. 468, 154 C. C. A. Seattle Nat. Bank, 93 Wash. 568, 161 300, 39 Am. Bankr. Rep. 640. Pac. 364.. Compare In re Arndt, 104 2'5o In re Dickson, 111 Fed. 726, 49 C. Fed. 234, 4 Am. Bankr. Rep. 773. C. A. 574, 55 L. E. A. 349, 7 Am. Bankr. 2gi Jaquith v. Alden, 189 U. S. 78, 23 Rep. 186 ; In re Sagor, 121 Fed. 658, 57 Sup. Ct. 649, 47 L. Ed. 717, 9 Am. " C. C. A. 412, 9 Am. Bankr. Rep. 361; Bankr. Rep. 773; Yaple v. Dahl-Millikan § 591 LAW OF BANKRUPTCY 1210 rule has been applied in a case involving transactions between a stock- broker (the bankrupt) and a customer. Four months before the ad- judication, the broker was indebted to the customer to the extent of $1,550, and afterwards he was employed to purchase and carry stocks on a margin, receiving considerable sums of money from the customer, and paying him considerable, but less, sums as profits on his operations. At the date of the adjudication, the bankrupt owed the customer $6,500. It was held that no injustice would be done in this case by treating the parties simply as debtor and creditor, and as the effect of the whole se- ries of transactions was to increase the net indebtedness to the cus- tomer, and presumably to increase the bankrupt's estate, the customer was not in the position of one who had received a voidable preference.'®^ But payments made by an insolvent person to his landlord within four months of his adjudication in bankruptcy, and applied by the land- lord, not to rent for the current year, but to rent in arrears, constitute a preference.*®* § 592. Time of Giving Preference. — ^A preference given to a cred- itor, whether in the form of a payment, transfer of property, or security, is not contrary to the bankruptcy law unless given within four months before the filing of the petition in bankruptcy, or after the filing of the petition and before the adjudication. If it antedates that period, it is not impeachable in the subsequent bankruptcy of the debtor, nor can the creditor be required to surrender it.*®* Grocery Co., 193 U. S. 526, 24 Sup. Ct. Bankr. Rep. 21; In re Kindt, 101 Fed. 552, 48 L. Ed. 776, 11 Am. Bankr. Rep. 107, 4 Am. Bankr. Rep. 148 ; In re Ter- 596 ; Jaquith v. Alden, 118 Fed. 270, 55 rill, 100 Fed. 778, 4 Am. Bankr. Rep. 145 ; C. C. A. 364, 9 Am. Bankr. Rep. 165. In re Wise, 2 Nat. Bankr. News, 151; 2B2 In re Toplife, 114 Fed. 323, 8 Am. Maurer v. Frantz, 4 N. B. R. 431; Ash- Bankr. Rep. 141. Compare In re Gay- by v. Steere, 2 Woodb. & M. 347, Fed. Gas. lord, 113 Fed. 131, 7 Am. Bankr. Kep. No. 576 ; Pratt v. Christie, 95 App. Div. 577. 282, 88 N. Y. Supp. 585 ; Joseph v. Raff, 2 53 In re Louis J. BergdoU Motor Co. 82 App. Div. 47, 81 N. Y. Supp. 546; (D. C.) 225 Fed. 87, 35 Am. Bankr. Rep. Brown v. City Nat. Bank, 72 Misc. Rep' 32- 201, 131 N. Y. Supp. 92; McKay v. 2 64Atherton v. Beaman (C. C. A.) 264 Weager, 134 N. Y. Supp. 66; Hurl- Fed. 878, 45 Am. Bankr. Rep. 212 ; In re butt v. Brown, 72 N. H. 235,' 55 Atl Baird (D. C.) 245 Fed. 504, 40 Am. Bankr. 1046 ; Aretz v. Kloos, 89 Minn. 432 95 Rep. 552 ; In re Martinez (D. C.) 223 N. W. 216, 769 ; Hawes v. Bank of' El- Fed. 433, 35 Am. Bankr. Rep. 166 ; Hag- berton, 124 Ga. 567, 52 S. E. 022 ■ Beat- ar V. Watt (D. C.) 232 Fed. 373, 36 Am. ty v. Dudley, 80 Ky. 381 ; Farmers' Nat. Bankr. Rep. 370; Sturdivant Bank v. Bank v. Slaton, 180 Ky 700 '^03 S W Schade, 195 Fed. 188, 115 C. C. A. 140, 27 565 ; Arbury v. De Niord (Sup.) 152 N Am. Bankr. Rep. 673 ; Jackson v. Sedg- Y. Supp. 763 ; Tube City Min. & Mill Co wick, 189 Fed. 508, 26 Am. Bankr. Rep. v. Ott«rson, 16 Ariz. 305, 146 Pac 203 836 ; In re Arden, 188 Fed. 475, 26 Am L. R. A. 1916E, 303. As to the validity Bankr. Kep. 684 ; In re Farreil, 176 Fed. of renewals of liens or securities, see 505, 100 C. C. A. 63, 23 Am. Bankr. Rep. Breut v. Simpson, 238 Fed. 285, 151 C 826; Wood v. United States Fidelity & C. A. 301, 38 Am. Bankr. Rep. 813- Guaranty Co., 143 Fed. 424, 16 Am. Stockgrowers' State Bank v. Corker, 220 1211 PEBFBRBNCES AND PEEFEEEED OEBDITOES § 592 According to the prevailing opinion, a preference given to a creditor by means of a note or bond with warrant of attorney to confess judg- ment, is given, not when the note and warrant are executed and de- livered, but when the warrant is executed by the entry of a judgment thereon and the levy of an execution on the debtor's property. Hence if judgment is entered on such a warrant within four months before bankruptcy, under circumstances making it fraudulent or preferential, it is not saved by the fact that the warrant may have been given any length of time before.^^'' But there are some highly respectable author- ities to the contrary.^** Where the alleged preference consists of the giving of security in the nature of a mortgage, its liability to be avoided in subsequent bankruptcy proceedings may depend upon the date when it was recorded.*^' But aside from this question, it may be stated as a general rule that a mortgage, pledge, or bill of sale of chattels takes effect from the time it is given, rather than from the time when the mortgagee or pledgee takes possession of the goods. Hence if the se- curity was valid when given (at least as between the parties), and was given more than four months before the institution of bankruptcy pro- ceedings against the mortgagor or pledgor, it cannot be assailed as a preference merely because the act of the secured creditor in taking possession occurred within that period, but such act will be considered as relating back to the inception of the lien.*^* Likewise, an agreement to pledge collaterals as security, or to assign a claim against a third person, a particular fund, or the like, may constitute an equitable assign- ment thereof, and if so, will take effect, so, far as regards this provi- Fed. 614, 136 0. C. A. 222, 34 Am. Bankr. L. Ed. 956, 14 Am. Bankr. Kep. 74 ; In Rep. 392. re East End Mantel & Tile Co., 202 Fed. 2 55 In re Moyer, 93 Fed. 188, 1 Am. 275, 29 Am. Bankr. Rep. 793; First Nat. Bankr. Rep. 577; Hood v. Karner, 8 Bank v. Lanz, 202 Fed. 117, 29 Am. Phila. (Pa.) 160, 5 N. B. R. 348, Fed. Oas. Bankr. Rep. 247 ; Fisher v. Zollinger, NO. 6,664 ; Golsou v. NiehofC, 2 Biss. 434, 149 Fed. 54, 79 C. Q. A. 76 ; In re Na- 5 N. B. R. 56, Fed. Cas. No. 5,524 ; In re tional Valve Co., 140 Fed. 679, 15 Am. Lord, 5 N. B. R. 318, Fed. Cas. No. 8,503 ; Bankr. Rep. 524 ; In re Rogers & Wood- Ford V. Keys, Fed. Cas. No. 4,933. ward, 132 Fed. 560, 13 Am. Bankr. Rep. 2=0 Balfour v. Wheeler, 18 Fed. 893; "^5; In re Automobile Livery Service Co., Field V. Baker, 12 Blatchf. 438, 11 N. B. ^'^^ Fed. 792, 23 Am. Bankr. Rep. 799 ; R. 415, Fed. Cas. No. 4,762; Shimer v. Thomp.son v. Fairbanks, 75 Vt. 361, 56 Huber, 14 Phila. (Pa.) 402, 19 N. B. R. ^^^- ^^' ^^^ ^™- ^t Rep. 899; Woods 414, Fed. Cas. No. 12,787; Lonergan v. "'■ I^'""' 223 Pa. St. 256, 72 AU. 523; Fenlon, Fed. Cas. No. 8,475. Christ v. Zehner, 212 Pa. St. 188, 61 Atl. 822; Farnham v. Friedmeyer, 109 111. 2 57 See infra, § 594. And see In re ^pp. 54; Coggan v. Ward, 215 Mass. 13, Cahill (D. O.) 208 Fed. 193, 30 Am. 102 N. E. 336; Kettenbach v. Walker, Bankr. Rep. 794. 32 laaho, 544, 186 Pac. ,912. But see In 2 58 Thompson v. Fairbanks, 196 IT. S. re Ball, 123 Fed. 164, 10 Am. Bankr. 516, 25 Sup. Ct. 306, 49 L. Ed. 577, 13 Rep. 564; Landis v. McDonald, 88 Mo. Am. Bankr. Rep. |37 ; Humphrey v. Tat- App. 335 ; In re Klingaman; 101 Fed. man, 198 U. S, 91, 25 Sup. Ct. 567, 49 691, 4 Am. Bankr. Rep. 254; § 592 LAW OF BANKRUPTCY 1212 sion of the bankruptcy law, from the date of the agreement and not from the time of the actual delivery or formal pledge of the subject- matter.'®^ But to constitute an equitable assignment within this rule there must be something more than a mere promise to assign upon a future contingency, something, in fact, sufficient to bind the parties in a court of chancery and to justify the application of the rule that eq- uity will regard that as done which ought to have been done.^** An agreement to give a mortgage, if definite and certain and relating to specific property, will be held in equity as equivalent to an actual mort- gage, and may be sustained in the bankruptcy proceedings though ac- tually executed within the four months period.^*^ So also, where the mortgage first offered to the creditor was rejected by him because con- sidered defective in form, a subsequent mortgage accepted and deliv- ered will relate back to the former.*®* And where there was a valid transfer of goods by the bankrupt to a creditor in payment of the debt, sufficient to pass title, more than four months before the bank- ruptcy, the rights of the creditor will not be affected by the fact that the debtor, within the four months, entertaining a doubt as to the va- lidity of the transaction, attempted to perfect it by filing a claim of ex- emption with reference to the goods transferred and then executing a bill of sale to the creditor.*®* But a transfer of property by a corpora- tion as security for a past indebtedness,' within four months prior to 2 59McDonald V. Daskam, 116 Fed. 276, 133 Fed. 704, 66 C. C. A. 531, 13 Am. 63 C. C. A. 554, 8 Am. Bankr. Rep. 543 ; Bankr. Bep. 287 ; Long v. Farmers' Godwin v. Murchlson Nat. Bank, 145 N. State Bank, 147 Fed. 360, 77 C. C. A. C. 320, 59 S. E. 154, 17 L. R. A. (N. S.) 538, 9 h. R. A. (N. S.) 585, 17 Am. Bankr. 935; Gage Lumber €o. v. McBldowney, Rep. 103. A lien on part of the raw 207 F«d. 255, 124 C. C. A. 641, 30 Am. material used in a factory was held Bankr. Rep. 251 ; In re Cotton Mannf ac- not to support an assignment to the hold- turers' Sales Co. (D. C.) 209 Fe5. 629 : er of all of the accounts or finished prod- Britton v. Union Inv. Co. (O. C. A.) 262 ucts sold, made witliin four months prior Fed. Ill, 44 Am. Bankr. Rep. 531 ; Wie- to bankruptcy of the manufacturer, ner v. Union Trust Co. (D. C.) 261 Fed. Merchants' Nat. Bank v. Corr, 221 Fed. 709, 44 Am. Bankr. Rep. 610. An agree- 419, 137 O. C. A. 217, 34 Am. Bankr. Rep. ment made more than four months before 527. bankruptcy, by which a fund was created sei Murray v. Beal, 23 Utah, 548, 65 for the payment of claims against the Pac. 726. Compare Lathrop Bank v. Hol- bankrupt, may create an equitable lien in land, 205 Fed. 143, 123 O. C. A. 375, 30 favor of a claimant, the payment of Ani. Bankr. Rep. 62. which within the four months would =62 in re Montgomery, 12 N. B. R. not operate as a preference. Root Mfg. 321, Fed. Cas. No. 9,732. But mortgages Co. V. Johnson, 219 Fed. 397, 135 C. 0. promised and given more than four A. 139, 34 Am. Bankr. Rep. 247. months before bankruptcy for a present 2 80 Grandison v. National Bank of consideration have been held voidable Commerce, 231 Fed. 800, 145 C. C. A. 620, preferences where they were not ac- 36 Am. Bankr. Rep. 438 ; First Nat. knowledged until within the four months. Bank v. Yerkes, 238 Fed. 278, 151 0. In re Caslon Press, 229 Fed. 133, 143 C. A. 294, 38 Am. Bankr. Rep. 136 ; C. C. A. 409, 36 Am. Bankr. Rep.' 127. Johnston v. Huff, Andrews & Moyler Co., 203 in re Ratllffe (iJ^C.) 177 Fed. 587^ 1213 PREFERENCES AND PREFERRED CREDITORS § 593 its bankruptcy, when it was insolvent and the creditor had reason to believe it insolvent, is voidable as a preference, even though such trans- fer was made in ratification of an unauthorized transfer made by an officer of the corporation before the four months period.^** Where the alleged preference is a payment in money, the date is, fixed by its receipt by the creditor, rather than by any prior promise or agreement to pay. Thus, where the bankrupt gave his note to a creditor, which he afterwards paid, the preference, if any, is in the payment and not in the giving of the note, and must be considered as having been given at the date of such payment.^^" But where a note of the bankrupt, payable at a bank, was presented to the bank for payment on the day of its maturity, and was duly certified, and sub- sequently paid by the bank, the time of certification is to be taken as the time of payment, in determining whether the payment was prefer- ential.^** But the fact that accounts assigned by the bankrupt to a creditor as collateral security more than four months before the bank- ruptcy are collected within the four months period, does not entitle the trustee to recover such collections as preferences.^*^ And where a debtor mak^s an absolute sale of property, under an agreement that the purchase money shall be applied by the vendee in paying the claims of certain creditors of the seller, the time of giving a preference, if any, is the time when the buyer takes possession of the property, and not the time when he pays those creditors.^** A secret advantage given by a debtor to one creditor in a composition, made several years prior to the debtor's bankruptcy, cannot be reached and avoided as a pref- erence under the present bankruptcy statute.^*® § 593. Same; Time of Filing Petition. — The four months period within which preferences given by a bankrupt may be declared void is to be determined by computing four calendar months backward from the date of the filing of the petition in bankruptcy, and not by comput-. 2«* In re W. W. Mills Co., 162 Fed. an execution issued on a judgment 42, 20 Am. Bankr. Rep. 501 ; In re Kan- against defendant, and levied upon the sas City Stone & Marble Mfg. Co., 9 N. B. indebtedness owing the garnishee, so as E, 76, Fed. Cas. No. 7,610. to make out the four-month period. 265 In re Wolf & Levy, 122 Fed. 127, 10 Marsh v. Wilson Bros., 124 Minn. 254, 144 Am. Bankr. Rep. 153. N. W. 959. 266 In re Frazin, 201 Fed. 86, 29 Am. 26 s Fitch v. Bank of Grand Rapids, Bankr. Rep. 214. 146 Wis. 439, 131 N. W. 1095. 267 Lowell V. International Trust Co., 2go Batchelder & Lincoln Co. v. Whit- 158 Fed. 781, 86 C. C. A. 137, 19 Am. more, 122 Fed. 355, 58 C. C. A. 517, 10 Bankr. Rep. 853; In re Bird, 180 Fed. Am. Bankr. Rep. 641. But compare In 229, 25 Am. Bankr. Rep. 24. A garnish- re Chaplin, 115 Fed. 162, 8 Am. Bankr. ment lien cannot be tacked to the lien of Rep. 121. § 594 LAW OF BANKRUPTCY 1214 ing the time by days.^'" And either the day on which the transfer or payment was made, or the day on which the petition was filed, must be excluded.^'^ Amendments to a petition in involuntary bankruptcy filed by a single creditor or by an insufficient number of creditors, where- by other creditors join in the petition and set out their claims, relate back to the original filing of the petition, and do not advance the date of its filing, with reference to reckoning the prohibited period for pref- erences, though such joinder of creditors was necessary to make it suffi- cient.*'* But if the petition originally filed was void, as, for instance, because the creditors joining in it were estopped or disqualified to do so, an intervening petition subsequently filed by duly qualified creditors can' draw no support from it, and hence payments made more than four months before the filing of the intervening petition, though with- in four months before the first petition, are not preferential.*'* A trans- fer of property made on the same day on which the petition in bank- ruptcy is filed will constitute an unlawful preference, if the other essen- tials of a preference are present.*'* But under the former statutes, a payment or other disposition of property by the debtor after the filing of the petition was not regarded as a preference, but was held void as an unlawful meddling with property already constructively in the cus- tody of the law.*'® But this point is covered by the present statute, which makes a preference voidable if given "after the filing of the peti- tion and before the adjudication." *" And it will be observed that "ad- judication," with respect to the time, means the date of the entry of a decree that the defendant is a bankrupt, or, if such decree is appealed from, then the date when such decree is finally confirmed.*" . § 594. Same ; Time of Recording or Filing Lien. — The bankruptcy act provides that, "where the preference consists in a transfer, such period of four months shall not expire until four months after the date of the recording or registering of the transfer, if by law such recording or registering is required."*'* Another provision of the statute, relating ^70 Kelly V. Skaggs, 90 111. App. 543. 27s Di'spre.s v. Galbralth, 213 Fed. 190, And see Kubenstein v. Lottow, '2Zi Mass. 120 C. C. A. rj:u, :',2 Am. Bankr. Rep. 170. 227, 111 N. E. 973. "4 VH-nat-^.- FST^kiifey, 42 Tex. Civ.' 271 Butcher v. Wright, 94 U. S. 553, App. 483, IW S. W. lit.!; Morse v. God- 24 L. Ed. 130 ; Kelly v. Skaggs, 90 111. frey, 3 Story, 364, Fed. Gas. No. 9,856. App. 543; Whitley Grocery Co. V. Koach, 2" in re Randall, 1 Sawy. 56, Fed. 115 Ga. 918, 42 S. E. 282. Gas. No. 11,552. 272 First State Bank v. Haswell, 174 270 Bankruptcy Act 1898, § 60a. Fed. 209, 98 C. 0. A. 217, 23 Am. Bankr. 277 Bankruptcy Act 1898, § 1, cl. 2. B«p. 330;' Manning v. Evans, 156 Fed. 275 Bankruptcy Act 1898, § 60a. And 106, 19 Am. Bankr. Rep. 217. See Wit- see Ca,rey v. Donohue, 209 Fed. 328, 126 ters V. Sowles, 32 Fed. 758. 0. C. A. 254, 31 Am. Ba%kr. Rep. 21o'; In 1215 ■ PREFERENCES AND PREFERRED CREDITORS § 594 to the four months period after the commission of an act of bankruptcy within which the petition may be filed, declares that if the act of bank- ruptcy is the giving of a preference, the time shall not expire until four months after the recording or registering thereof "if by law such record- ing or registering is required or permitted, or, if it is not, from the date when the beneficiary takes notorious, exclusive, or continuous posses- sion of the property, unless the petitioning creditors have received actu- al notice of such transfer or assignment." *" But these two provisions are entirely independent and do not in any way limit or control each other.^*" Under the former bankruptcy laws it was held that a chkttel mortgage given to secure a creditor more than four months before a petition in bankruptcy was filed, but kept off the record until within the four months, was not a fraudulent preference, for the limitation began to run from the time the security was given, and not from the time when creditors might have notice of it."*' But it will be perceived that this is distinctly changed by the present statute. There has been some difficulty in determining when the recording or registering of a transfer is "required by law" witHiiTlrhe meaning of this provision. Some cases have held that the word "required" has reference to the character of the instrument of transfer required to be recorded by the state law, rather than to the particular individuals who^_byiX£2£oii oi adventitious circumstances, may or may not be affected by an unrecorded instrument,"*^ and that a state statute which requires a conveyance or transfer to be recorded in order to be effectual against any class or classes of persons is a law by which such recording is "required," "** or that a law may "require" a chattel mortgage to be recorded although it does not make an unrecorded mortgage void absolutely and under all circum- stances.^** But there is strong authority in support of the rule that, where the local law is such that failure to file or record a chattel mort- re Alden (D. G.) 233 Fed. 160, 37 Am. Shriver, 197 Pa. St. 191, 46 Atl. 926; Bankr. Kep. 611. • Babbitt v. Kelly, 96 Mo. App. 529, 70 27 9 Bankruptcy Act 1S9S, § 3b. And S. W. 384 ; NSti^SSTBtok of Fredericks- see Williams Y. German-American Trust ^"^'^^ ^- Conway, 1 HugheMT, 14 N. B. Co., 219 Fed. 507, 135 C. C. A. 257, 33 ^- l^^' ^^^- ^as- No. 10,037 j^Eogers v. Am. Bankr. Rep. 600; Staples v. War- P^S^' ^^O Fed. 596 72 C. C. A. 164, 15 .„ A^r, -n. n Q«o Am. Bankr. Kep. 502. ren, 46 App. D. C. 863. ^^^ Flrst^. Bank v. Conuett, 142 280 Little V. Holley-Brooks Hardware ^^ 33 73. q q a. 219, 15 Am. Bankr. Co., 133 Fed. 874, 67 C. C. A. 46, 13 Am. ^gp Qg2 Bankr. Rep. 422. And see Murphy v. J.^s3 Loeser v. Savings Deposit Bank & W. T. Murphy & Co., 126 Iowa, 57, 101 TruS^eo., 148 Fed. 975, 78 C. C. A. 597, N. W. 486;-^A|bury Park Building & ^7 j^ 3^^,.^. Eep. 628; Bowler v. Loan Ass'n v. Shepherd (N. J. Eq.) 50 pi^gt Nat. Bank, 21 S. D. 449, 113 N. W. -*-*^l- ^^- 618, 130 Am. St. Rep. 725. 281 Matthews V. Westphal, 1 McCrary, 234 First Nat. Bank v. Connett, 142 446, 48 EXl. 664 ; Gilbert v. Vail, 60 Vt. Fed. 33, 73 C. C. A. 219, }5 Am. Bankr. 261, 14 Aa,^42. And see Miller v. Rep. 662. § 594 LAW OF BANKRUPTCY 1216 gage or other such instrument does not affect its validity as between the parties or as against general creditors, but only as against creditors hav- ing a lien or subsequent purchasers or incumbrancers in good faith, the mgrtgage is not one which is "required" to be recorded or filed. **^ This provision of the statute applies ordinarily to such instruments as deeds of conveyance,*** deeds of trust in the nature of mortgages,**'' chat- tel mortgages,*** and bills of sale of chattels.*** But it does not apply to the lien given by an oral chattel mortgage,*'* nor to a conveyance of real estate absolute on its face but intended as a security, where the local law prohibits such a deed from being reduced to a mortgage except by a defeasance in writing, signed, sealed, and delivered by the grantor at the same time a.nd recorded within sixty days.**^ And where a contract pro- viding for the execution of a trust deed to secure bonds of a corporation given for advances is -not recorded, a trust deed executed pursuant to such contract within four months prior to the institution of bankruptcy proceedings cannot take effect by relation as of the date of the contract in order to sustain the same as against unsecured creditors.*'* The only effect of the provision concerning the recording or register- ing of a transfer is to carry forward the four months period within which a recordable transfer, which was in fact preferential, might be attacked as voidable, leaving the question whether or not the transfer constituted a voidable preference to be determined according to the conditions and intentions of the parties at the date when it was actually made;- and a 28S Bailey v. Baker Ice Mach. Co., 239 re Montague, 143 Fed. 428, 16 Am. Bankr. U. S. 268, 36 Sup. Ct 50, 60 L. Ed. 275, Rep. 18. 35 Am. Bankr. Rep. 814; Bonner v. 280 Ragan v. Donovan, 189 Fed. 138, First Nat. Bank, 248 Fed. 692, 160 C. C. 26 Am. Bankr. Rep. 311 ; In re Caliill,' A. 592, 41 Am. Bankr. Rep. 60 ; Hoshaw 208 Fed. 193, 30 Am. Bankr. Rep 794 V. Cosgriff, 247 Fed. 22, 159 C. C. A. 240, ^sr Harris v. Exchange Nat. Bank, 4 40 Am. Bankr. Kep. 694; In re Roberts Dill. 133, 14 N. B. R. 510, Fed. Oas. No (D. C.) 227 Fed. 177, 36 Am. Bankr. Rep. g^ug. ^„^ g^g jjarsh v. Leseman, 242 137; Deupree v. Watson, 216 Fed. 483, ^ed. 484, 155 C. C. A. 260, 40 Am Bankr 132 0. C. A. 543; In re Bo.yd, 213 Fed. Hep 97 774, 130 0. C. A. 288, 32 Am. Bankr. Rep. „,' . ' ^^ ^4==,-^ it.- <. p ,r . , 548 In re Jacobson & Perrill (D. 0.) 200 co (D CWsTpT ol^'o!\ TT Fed. 812, 29 Am. Bankr. Rep. 603 ; Rog- 2°;,^^„P.-^ IT.Il^J^ t ^\ I ' ers V. Page, 140 Fed. 5^6, 72 C. C. A. ^'^P' ^^^' ^''^^ ^^^- ^^""^ ^- Johnson, 164, 15 Am. Bankr. Rep. 502; Meyer Bros. Drug Co. v. Pipkin Drug Co., 136 „„„, „ ,^ h^„ „ Fed. 396, 69 O. C. A. 240, 14 Am. Bankr. , ''"J" ,''« l''''"?!^^^-^ ^"^- ^^^' ^^ Rep. 477; In re Hunt, 139 Fed. 283; ^- f ^i^.'i'- f'^' f, \no\f ' °°^^^" ^' In re Ohadwick (D. C.) 140 Fed. 674, ^^'^'1' ^IS Mass. 13, 102 N. E. 336. 15 Am. Bankr. Rep. 528; Wooldridge v. ""' *^°^er v. McCarthy, 79 Vt. 142, 64 Williams, 5 Alaska, 149 ; Pew v. Price, ^^^- ^'^S' ''' ^- ^- -A- (N. S.) 418, lis Am. 251 Mo. 614, 158 S. W. 338. Compare ^'^^ ^""P- ^12. Loeser v. Savings Deposit Bank & Trust ^" Knglish v. Ross, 140 Fed. 630, 15 Co., 148 Fed. 975, 78 C. C. A. 597, 17 Am. Bankr. Rep. 370. Am. Bankr. Rep. 628. And see First 20: Morgan v. First Nat. Bank 14.T Nat. Bank v. Connett, 142 Fed. 33, 73 C. Fed. 466, 76 0. C. A. 236, 16 Am. Bankr C. A. 219, 15 Am. Bankr. Rep. 662; In Rep. 639. 68 Neb. 641, 94 N. W. 837, 4 Ann. Cias 485. 1217 PKBFERHNCES AND PEBFBREBD CREDITORS § 595 transfer which was then made for a present consideration, and was there- fore not preferential, does not become so because of delay in recording it; in other words, delay in placing the instrument on the record does not warrant the court in treating it as if made as security for an antece- dent debt.*'* And it has been decided by a learned court in an able opin- ion that this rule is not affected by the amendment of 1910, changing the wording of this section of the statute.*'* It may perhaps be conceded that this is true in the case where a present and adequate consideration was given at the time the transfer was made. But in all other cases the amendment explicitly provides that a transfer shall be voidable as pref- erential if "at the time of the transfer, or of the entry of the judgment, or of the recording or registering of the transfer," the bankrupt shall be in- solvent, and if the transfer shall "then" operate as a preference, and the person receiving it shall "then" have reasonable cause to believe that its enforcement will effect a preference.**® § 595. Insolvency of Debtor. — In order that a judgment rendered against a debtor, or a transfer of property or payment of money made by him, should operate as a voidable preference, it is essential that he should have been insolvent, for if solvent he has the right to give voluntary sat- isfaction to any one or more of his creditors, leaving the others to their legal remedies.*'® But the amendatory act of l9lO so far changes this 2 9 -i Martin v. Commercial Nat. Bank, 228 Fed. 651, 143 C. C. A. 173, 36 Am. Bankr. Kep. 25; Big Four Implement Co. V. Wright, 207 Fed. 535, 125 C. 0. A. 577, 47 L. E. A. CN. S.) 1223, 81 Am. Bankr. Eep. 125. In re Watson, 201 Fed. S62, 30 Am. Bankr. Rep. 871; Debus v. Yates, 193 Fed. 427, 30 Am. Bankr. Rep. 823 ; In re Jackson Brick & Tile Co., 189 Fed. 636, 26 Am. Bankr. Rep. 915; In re Sturtevant, 188 Fed. 196, 110 C. C. A. 68, 26 Am. Bankr. Rep. 574; Mattley v. Giesler, 187 Fed. 970, 110 C. C. A. 90, 26 Am. Bankr. Rep. 116 ; In re Sayed, 185 Fed. 962, 26 Am. Bankr. Rep. 444; Sea- ger V. Lamm, 95 Minn. 325, 104 N. W. 1; Bradley, Clark & Co. v. Benson, 93 Minn. 91, 100 N. W. 670; Famham v. Friedmeyer, 109 111. 4PP- 54 ; Claridge V. Evans, 137 Wis. 218, 118 N. W. 198, 803, 25 L. E. A. (N. S.) 144; Gray & Dud- ley Hardware Co. v. Guthrie, 200 Ala. 6, 75 South. 318. 2 94 In re Watson, 201 Fed. 962, 30 Am. Bankr. Rep. 871. And see Martin v. Commercial Nat. Bank, 228 Fed: 651, 143 C. C. A. 173, 36 Am. Bankr. Eep. 25; Brigman v. Covington, 219 Fed. 500, 135 C. C. A. 250, 33 Am. Bankr. Rep. 644. Bi,k.Bkk.(3d Ed.)— 77 2 9 3 Bankruptcy Act 1898, § 60b, as amended by Act Cong. June 25, 1910, 36 Stat. 838. And see In re T. H. Bunch Commission Co. (D; C.) 225 Fed. 243, 35 Am, Bankr. Rep. 526. , 29f Angle V. Bankers' Surety Co., 244 Fed. 401, 157 C. C. A. 27, 41 Am. Bankr. Rep. 90; Stephens v. Union Bank & Trust Co., 250 Fed. 192, 162 C. C. A. 328, 42 Am. Bankr. Rep. 89 ; In re Kassel, 195 Fed. 492, 115 C. C. A. 402, 28 Am. Bankr. Rep. 233 ; Coleman v. Decatur Egg Case Co., 186 Fed. 136, 108 C. C. A. 248, 26 Am. Bankr. Rep. 248; In re Sayed, 185 Fed. 962, 26 Am. Bankr. Rep. 444; In re W. W. Mills Co., 162 Fed. 42, 20 Am. Bankr. Rep. 501 ; In re Wittenberg Veneer & Panel Co., 108 Fed. 593, 6 Am. Bankr. Rep. 271 ; In re Oregon Bulletin Printing & Publishing Co., 13 N. B. R. 503, Fed. Cas. No. 10,559; Empire State Trust Co. v. William F. Fisher Co., 67 N. J. Eq. 88, 57 Atl. 502 ; Blyth & Fargo Co. V. Kastor, 17 Wyom. 180, 97 Pac. 921; Northrop v. P. W. Finn Const. Co., 260 Pa. 15, 103 Atl. 544; Keystone Brewing Co. V. Schermer, 241 Pa. 361, 88 Atl. 657. § 595 LAW OF BANKRUPTCY 1218 rule that, in the case of a transfer required by law to be recorded, it is sufficient if the debtor is insolvent either at the time of making the trans- fer or at the time it is recorded.^*' But it is not necessary in any case that the insolvent condition of the debtor at the time of making. the trans- fer should be perpetuated by the existence of the same debts as compared with the same assets, up to the time the trustee takes action to avoid the conveyance. Continuous insolvency is sufficient, though none of the debts existing at the time of the transfer may remain, if new ones have been contracted in their place. ^** In the case of a partnership, it must be shown that both the firm and the individual partners are insolvent or were insolvent at the time, that is, that the aggregate of the partnership and individual assets is not sufficient to pay the debts.^** It is not enough to show that the debtor was financially embarrassed and hard pressed by his creditors. This condition may exist and yet, he may be solvent.*"** "Insolvency" must here be understood in the sense given to it by the bankruptcy act itself, that is, "a person shall be deemed insolvent when the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed, or removed, or per- mitted to be concealed or removed, with intent to defraud, hinder or de- lay his creditors. Shall not, at a fair valuation, be sufficient in amount to pay his debts." ^"^ In making this estimate and comparison, all the prop- erty of the debtor which has value must be included, not omitting prop- erty exempt under the law of the state, and including property trans- ferred in payment of or as security for a just debt, irrespective of whether or not it constitutes a preference, but not property transferred in fraud 2 9 7 Bankruptcy Act 1898, § 60b, as ton" Milling Co., 142 Cal. 529, 76 Pac. 243 ; amended by Act Cong. June 25, 1910, 36 In re Chappell, 113 Fed. 545, 7 Am. Stat. 838. And see McElvain v. Hard- Bankr. Kep. 608 ; Huttig Mfg. Co. v. Ed- esty, 169 Fed. 31, .94 C. C. A. 399, 22 Am. wards, 160 Fed. 619, 87 C. C. A. 521, 2l> Bankr. Rep. 320. Am. Bankr. Rep. 349; Paper v. Stern, 29S O'Neill V. Kilduffi, 81 Conn. 116, 70 198 Fed. 642, 117 C. C. A. 346, 28 Am. Atl. 640. But tlie insolvency of the debt- Bankr. Rep. 592 ; Hicks Co. v. Moore or at the time of giving an alleged pref- (C. C. A.) 261 Fed. 773, 44 Am. Bankr. erence is not shown by proof of Ms in- Rep. 3S4; William Schuette & Co. v. solvency a month later. Wrenn v. Citi- Schwank, 265 Pa. 576, 109 Atl. 531; zens' Nat. Bank (Conn.) 114 Atl. 120. Newman v. Tootle-Campbell Dry Goods 299Levor v. Seiter, 34 Misc. Rep. 382, Co., 174 Mo. App. 528, 160 S. W. 825. 69 N. X. Supp. 987; Eodolf v. First Nat. Contra, see Simpson v. Western Hard- Bank, 30 Okl. 631, 121 Pac. 629, 41 L. ware & Metal Co., 97 Wash. 626, 167 Pac R. A. (N.'S.) 204. And see supra, § 114. 113. The test of insolvency is not mere- noo In re Farmers' Supply Co., 170 ly that the debtor may not be al)le to Fed. 502, 22 Am. Bankr. Rep. 460. pay all his debts in money, if all were 301 Bankruptcy Act 1898, § 1, cl. 15. presented at the given time, but that all And see Ogden v. Reddish, 200 Fed. 977, his property at a fair valuation would 29 Am. Bankr. Rep. 531 ; Empire State then be insufficient for the purpose. In Trust Co. V. William F. Fisher Co., 67 N. re Walker Starter Co., 2.35 Fed. 285, 148 .T. Eq. 88, 57 Atl. 502; Des Moines Sav. C. C. A. (ur,. 37 Am. Bankr. Rep. 122; Bank v. Morgan Jewelry Co., 123 Iowa, McGill v. Commercial Credit Co. (D. C.) 4.32, 99 N. W. 121; Summerville v. Stock- 243 Fed. 637, 39 Am. Bankr. Rep. 702. 1219 PREFERENCES AND PREFERRED CREDITORS , § 595 of creditors.'"* Property subject to a mortgage must be included if the mortgage is not shown to be fraudulent as against creditors. ■'"'' And ac- counts against third persons in favor of the deb|or are to be reckoned in if they are not shown in any way to be uncollectible.'"* Where the prin- ' cipal asset consists of a plant or property which loses value if not kept in continuous operation, — such as a hotel, a periodical publication, and some kinds of manufacturing establishments, — the value assigned to it in making the estimate must be what it is worth as a going concern and not what it is worth as dead property after bankruptcy has intervened."*® ' On the other hand, in adding up the bankrupt's debts, it is proper to in- clude his liability as guarantor of the debt of a third person, the latter being insolvent, though the guaranty was oral and therefore within the statute of frauds.'** , The trustee in bankruptcy, assailing a judgment or transfer as pref- erential, must assume the burden of showing the insolvency of the debt- or by satisfactory and sufficient evidence; in the absence of this, the transaction cannot be disturbed.'*' The existence of unsatisfied judg- ments against the debtor does not necessarily prove his insolvency,'** though the fact that his paper has gone to protest may do so, in connec- tion with other circumstances.'** Evidence showing that the debtor was not in possession of ready money with which to meet a particular debt, of which he obtained a renewal, falls short of what is required,'^* and the fact that a corporation, engaged in the performance of a contract which required a considerable expenditure before it was entitled to any 3 02 Utah Ass'n of Credit Men v. Boyle sor Cleage v. Laidley, 149 Fed. 346, Furniture Co., 39 Utah, 518, 117 Pac. 800. 79 C. C. A. 284, 17 Am. Bankr. Rep. 598 ; ' 303 Posey V. McManIs, 28 Tex. Civ. In re ClifiEord, 136 Fed. 475, 14 Am. App. 452, 67 S. W. 792. Bankr. Rep. 281; In re Alexander, 102 304Blyth & Fargo Co. v. Kastor, 17 Fed. 464, 4 Am. Bankr. Rep. 376; Evans Wyom. 180, 97 Pac. 921, v. National Broadway Bank, 48 Misc. 305 In re Klein, 197 Fed. 241,/ J. W. Rep. 248, 96 N. Y. Supp. 789; Kimball v. Butler Paper Co. v. Goembel, 143 Fed. Dresser, -98 ale, 519, 57 Atl. 787 ; Deland 295, 74 C. C. A. 433, 16 Am. Bankr. Rep. v. Miller & Chaney Bank, 119 Iowa. 368, 26; Chicago Title & Trust Co. v. John* 93 N. W. 304 ; Capital Nat. Bank v. Wilk- A. RoeWing's Sons Co., 107 Fed. 71, 5 er.son, 36 Ind. App. 467, 75 N. E. 887; Mc- Am. Bankr. Rep. 368. But this rule Aleer v. People's Bank, 202 Ala. 256, 80 does not apply unless the debtor v?as in South. 94. Insolvency may, and in many fact a going concern at the time of the cases must, be proved by proof of other alleged preference. In re Fred D. Jones facts, from which the ultimate fact of Co. (C. C. A.) 268 Fed. 818, 46 Am. insolvency may be presumed or inferred. Bankr. Rep. 396. Rosenberg v. Semple, 257 Fed. 72, 168 306 Huttig Mfg. Co. V. Edwards, 160 C. C. A. 284, 43 Am. Bankr. Rep. 671. Fed. 619, 87 C, C. A. 521, 20 Am. Banlir. sos Summerville v. Stockton Millin;; Rep. 349. Debts of the bankrupt's part- Co., 142 Cal. 529, 76 Pac. 243; Levor v. nership on which he is jointly liable, and ' Seiter, 34 Misc. Rep. 382, 69 N. Y. Supp. whose debts, on its dissolution, he had 9S7. agreed to pay, are properly added to his sos in re Louis, 3 Ben. 153, 2 N. B. R. personal debts, to ascertain his entire 449, Fed. Cas. No. 8,527. indebtedness. Rubenstein v. Lottow, sio in re Chappell (D. C.) 113 Fed. 545, 223 Mass, 227, 111 N. E. 973. 7 Am. Bankr. Rep. 6,08. , § 596 LAW OF BANKBUPTCX 1220 payments, arranged with a bank for making overdrafts, is no evidence that it was insolvent.*^^ § 596. Intention of Debtor. — Under the bankruptcy acts which pre- ceded the present statute it was always held to be an essential element of a voidable preference that the debtor should have intended the trans- action to have that effect, that is, that he should have willed and meant to give the particular creditor an advantage over others or a larger share of his debt than they could obtain. And the act of 1898, before the latest amendment, made it a condition to the voidability of a preferential trans^' fer, not exactly that the debtor should have intended to give a prefer- ence, but that the person receiving it or to be benefited by it should have had "reasonable cause to believe that it was intended thereby to give a preference." And a majority of the cases decided before 1910 ruled that there could be no voidable preference under the statute unless there was an actual intention (not merely an assumed or attributed intention) on the part of the debtor to give a preference to the creditor receiving it or to be benefited by it. But all uncertainty on this point was removed by the amendment of 1910, affecting this section of the bankruptcy law,'^* which (aside from the limitation as to time) only requires that the debtor shall be insolvent, that the transfer shall operate as a preference, and that the creditor shall have reasonable cause to believe that the enforcement of the transfer will effect a preference. Since this amendment, therefore, it is not nec- essary to prove the existence of the debtor's intent to prefer, or the . cause for belief on the creditor's part that a preference was intended, or that the debtor knew of his insolvency, the test being whether the creditor had reasonable cause to believe that the bankrupt was then in- solvent, and that, in accepting and retaining the transfer, the creditor would receive a larger percentage of his debt than any other creditor of the same class.*" 311 McDonald v. Clearwater Shortline (D. O.) 202 Fed. 243; Abele v. Beacon Ky. Co. (C. C.) 164 Fed. 1007. Trust Co., 228 Mass. 43S, 117 N. K. S3a ; S12 Act Cong. June 25, 1910, 36 Stat. ^f ^''f^n .^ ^^"^^ ^L*o ^^°''' ^^^ 838, amending Bankruptcy Act 1898, § f^^^: ^20, 105 N E io52; Rogers v. Soj, American Plalibut Co., 216 Mass. 227, 103 N. E. 689; Wilson v. Mitchell-Woodburs' 813 Richardson v. Germania Bank (C. Co., 214 Mass. 514, 102 N. E. 119; Patter- C. A.) 263 Fed. 320, 45 Am. Bankr. Rep. son v. Baker Grocery Co., 73 Or. 433, 144 351; In re .Tones (D. C.) 259 Fed. 927, 44 Pac. 673. Compare Grandison v. Robert- Am. Bankr. Rep. 253; In re Campion (D. son, 231 Fed. 785, 145 C. C. A. 605, 36 C;) 256 Fed. 902, 43 Am. Bankr. Rep. 625 ; Am. Bankr. Rep. 452 ; In re Freeman Heyman v. Third Nat. Bank (D. C.) 216 Cotting Coat Co. (D, C.) 212 Fed. 548 ; Fed. 685 ; Covington v. Brigman (D. C.) Wills v. Venus Silk Glove Mfg. Co., 170 210 Fed. 499, 32 Am. Bankr. Rep. 85 ; In App. Div. 352, 156 N. Y. Supp. 115 ; Peo- re Herman (D. C.) 207 Fed. 594, 31 Am. pie's Bank v. McAleer, 204 Ala, 101, 85 Bankr. Rep. 243; In re Harrison Bros. South. 413. 1221 PKEFEEBNCBS AND PEHFBERHD OHBDITORS § 597 § 597. Creditor's Knowledge or Reasonable Cause of Belief. — To constitute a voidable preference it is strictly essential that the person receiving it or to be benefited by it, or his agent acting for hirn in the transaction, should have reasonable cause to believe that a preference will be effected by the enforcement of the judgment, transfer, security, or payment, as the case may be. Failing, this, it cannot be recovered from him by the trustee in bankruptcy, nor can he be required to surren- der it, notwithstanding that it was given by an insolvent debtor and within four months prior to his bankruptcy, and although it may actu- ally result in the preferred creditor's receiving full satisfaction or a larg- er proportion of his debt than other creditors receive.*" But it is im- 3i*Pyle V. Texas Transport & Termi- nal Co., 238 U. S. 90, 35 Sup. Ot. 667, 59 L. Ed. 1215, 34 Am. Bankr. Rep. 843; Jo- seph Wild & Co. V. Provident Life-& Trust Co., 214 U. S. 292, 29 Sup. Ct. 619, 53 L. Ed. 1003, 22 Am. Bankr. Rep. 109 ; First Nat. Bank v. Galbraith (€. C. A ) 271 Fed. 687; Frederick v. People's Bank of Califoi:nia, 246 Fed. 84, 158 C. C. A. 310, 40 Am. Bankr. Rep. 746; Wat- son V. Adams, 242 Fed. 441, 155 C. C. A. 217, 39 Am. Bankr. Rep. 473 ; Chambers V. Continental Trust Co. (D. C.) 235 Fed. 441, 38 Am. Bankr. Rep. 78; In re French (D. C.) 231 Fed. 255, 37 Am. Bankr. Rep. 289 ; Rosenthal v. Bronx Nat. Bank (D. O.) 222 Fed. 83, 35 Am. Bankr. Rep. 273 ; Stockgrowers State Bank v. Corker, 220 Fed. 614, 136 C. C. A. 222, 34 Am. Bankr. Rep. 392; Sheppard-Strassheim Co. v. Black, 211 Fed. 643, 128 C. C. A. 147, 33 Am. Bankr. Rep. 574; L. A. Becker Co. V. Gill, 206 Fed. 36, 124 C. C. A. 170, 30 Am. Bankr. Rep. 429 ; Mayes v. Palmer, 208 Fed. 97, 125 C. C. A. 325, 31 Am. Bankr. Rep. 225; Reber v. Shul- man, 188 Fed. 564, 106 C. C. A. 110, 25 Am. Bankr. Rep 475; Greenhall v. Car- negie Trust Co., 180 Fed. 812, 25 Am. Bankr. Kep. 300; In re Peacock, 1Y8 Fed. 851, 24 Am. Bankr. Rep. I59 ; Nel- son V. Svea Pub. Co', 178 Fed. 136; In re KuUberg, 176 Fed. 585, 23 Am. Bankr. Rep. 758; In re Evans Lumber Co., 176 Fed. 643, 23 Am. Bankr. Rep. 881; In re Neill-Pinckney-Maxwell Co., 170 Fed. 481, 22 Am. Bankr. Rep. 401 ; In re Burlage Bros., 169 Fed. 1006,. 22 Am. Bankr. Rep. 410; Ohio Valley Bank Go. v. Mack, 163 Fed. 155, 89 C. C. A. 605, 20 Am. Bankr. Rep. 919 ; Irish V. Citizeiis' Trust Co., 163 Fed. 880, 21 Am. Bankr. Rep. 39 ; Coder v. Arts, 152 Fed. 943, 82 0. C. A. 91, 18 Am. Bankr. Rep. 513; In re Maher, 144 Fed. 503, 16 Am. Bankr. Rep. 340; McNair v. Me- Intyre, 113 Fed. 113, 51 C. C. A. 89, 7 Am. Bankr. Rep. 638 ; In re Dundas, 111 Fed. 500, 7 Am. Bankr. Rep. 129; In re Blair, 102 Fed. 987, 4 Am. Bankr. Rep. 220; In re Eggert, 98 Fed. 843, 3 Am. Bankr. Rep. 541; Levor v. Seiter, 69 App. Div. 33, 74 N. Y. Supp. 499; Capital Nat. Bank v. Wilkerson, 36 Ind. App. 467, 75 N. E. 837 ; CulUnane v. State Bank, 12-3 Iowa, 340, 98 N. W. 887; Thompson v. First Nat. Bank, 84 Miss. 54, 36 South. 65; Wilson v. Weighle, 69 N. J. Eq. 561, 62 Atl. 458 ; Galveston Dry Goods Co. v. Frenkel, 39 Tex. Civ. App. 19, 86 S. W. 949; Johnston v. George D. Witt Shoe Co., 103 Va. 611, 50 S. E. 153; Lampkin V. People's Nat. Bank, 98 Mo. App. 239, 71 S..W. 715; Hawes v. Bank of Bl- berton, 124 Ga. 567, 52 S. E. 922 ; Blank"^ enbaker v. Charleston State Bank, 111 111. App. 393; North v. Taylor, 61 App. Div. 253, 70 N. Y. Supp. 339; Lewis •>. First Nat Bank, 46 Or. 182, 78 Pac. 990 ; Townes v. Alexander, 69 S. C. 28, 48' S. E. 214; Gamble v. Blkm, 205 Pa. St. 226, 54 Atl. 782; Johnson v. Anderson, 70 Neb. 283, 97 N. W. 339; Cummings v. Kansas City Wholesale Grocery Co., 123 Mo. App. 9, 99 S. W. 470; Herzberg v. Riddle, 171 Ala. 368, 54 South. 635; Blyth & Fargo Co. v. Kastor, 17 Wyo. 180, 97 Pac. 921 ; Stuart v. Farmers' Bank, 137 Wis. 66, 117 N. W. 820, 16 Ann. Cas. 821; Brooks v. Bank of Beav- er City, 82 Kan. 597, 109 Pac. 409; Max- well V. Davis Trust Co., 69 W. Va. 276, 71 S. B. 270 ; Soule v. First Nat Bank, 26 Idaho, 66, 140 Pac. 1098; Kentucky- Bank & Trust Co. V. Pritchett, 44 Okl. 87, 143 Pac. 338 ; Williams v. Davidson. 104 Wash. 315, 176 Pac. 334, 181 Pac. 874; Liberty Trust Co. v. Haggerty (N. J. Ch.) 113 Atl, 596. As respects the is- sue of the creditor's having reasonable § 597 LAW OF BANKRUPTCY 1222 portant to notice that the statute does not require that the preferred creditor should have any actual knowledge on the subject of the debtor's insolvency or the result of the transaction in giving a preference, nor \ even that he should have any actual belief on that point. What he really thinks or believes is entirely immaterial. What the law requires is "rea- sonable cause to believe," and if this exists it is enough, without regard to the actual state of the creditor's mind or opinion.^^.^ And the "pref- erence" which a transferee must have reasonable cause to believe will be effected is not the preference or advantage over unsecured creditors necessarily obtained by one who acquires a mortgage or other lien on property, but a preference made and accepted to evade the rule for equal distribution to all creditors of the same class. *** As a first and essential requisite the creditor must have reasonable cause to believe that the debtor is insolvent. This is necessarily implied in, and must serve as a foundation for, reasonable cause to believe that a preference will result from the transaction. Without this, there can be no cause, within the limits of reason, for the creditor to suppose that he is gaining a preference, and consequently the transaction will not be voidable though it does actually result in a preference.*^' "As no great- cause to believe that the bankrupt was insolvent at the time of a payment to the creditor, the latter's subsequent knowledge is not material, and it does not matter what the debtor Imew. Wrenn v. Citizens' Nat. Bank (Conn.) 114 Atl. 120. ^;!i5 Toof V. Martin, 13 Wall. 49, 20 L. Ed. 481; Healy v. Wehrung, 229 Fed. 686, 144 C. C. A. 96, 36 Am. Bankr. Rep. 673 ; ■ In re The Leader, 190 Fed. 624, 26 Am. Bankr. Rep. 668; In re Hines, 144 Fed. 543, 16 Am. Bankr. Rep. 495; Sund- heim v. Ridge Avenue Bank, 138 Fed. 951, 15 Am. Bankr. Rep. 132 ; In re Eg- gert (C. C. A.) 102 Fed. 735, 4 Am. Bankr. Rep. 449 ; Graham v. Stark, 3 Ben. 520, 3 N. B. R. 357, Fed. Cas. No. 5,676; Wilson v. Taylor, 154 N. C. 211, 70 S. E. 286; Utah Ass'n of Credit Men \. Boyle Furniture Co., 39 Utah, 518, 117 Pac. 800 ; Abele v. Beacon Trust Co., 22s Ma.ss. 438, 117 N. E. 833 ; Underwood v. Winslow, 231 Mass. 595, 121 N. E. 524; Cauthorn v. Burley State Bank, 26 Ida- ho, 532, 144 Pac. 1108. 310 In re Chicago Car Equipment Co., 211 Fed. 638, 128 C. C. A. 142, 31 Am. Bankr. Rep. 617. And see In re Ed- wards (D. C.) 217 Fed. 102, 33 Am. Bankr. Rep. 530; Shuetz v. Walter Boyt Saddlery Co., 166 Iowa, 523, 147 N. W. 897. 3" Aufemordt v. Easlu, 102 U. S. 620, 26 L. Ed. 262; Bank of Commerce v. Brown, 249 Fed. 37, 161 C. C. A. 97, 40 Am. Bankr. Rep. 591; American Bank of Alaska v. Johnson, 245 Fed. 312, 157 C. C. A. 504, 40 Am. Bankr. Rep. 502; In re Looschen Piano Case Co. (D. C.) 259 Fed. 931, 43 Am. Bankr. Rep. 733 ; Ro- senthal V. Bronx Nat. Bank, 231 Fed. 691, 145 C. C. A. 577, 36 Am. Bankr. Rep. 888; Egner v. Parshelsky Bros.. 258 Fed. 238, 169 C. C. A. 304, 44 Am. Bankr. Rep. 175; Smith v. Coury (D. C.) 247 Fed. 168, 41 Am. Bankr. Rep. 219 ; In re Gottlieb & Co. (D. C.) 245 Fed. 139, 40 Am. Bankr. Rep. 247 ; In re Rockaway Soda Water Mfg. Co. (D. C.) 226 Fed. 520, 34 Am. Bankr. Rep. 627; City Nat. Bank v. Slocum (C. C. A.) 272 Fed. 11, 47 Am. Bankr. Rep. 47; Kennard v. Behrer (D. C.) 270 Fed. 661, 46 Am. Bankr. Rep. 70; In re Greenberger, 203 Fed. 583, 30 Am. Bankr. Rep. 117; Og- den v. Reddish, 200 Fed. 977, 29 Am. Bankr. Rep. 531; In re Pfaffinger, 154 Fed. 523, 18 Am. Bankr. Rep. 807; Wright V. Sampter, 152 Fed. 196, 18 Am. Bankr. Rep. 355 ; In re Oliver, 109 Fed. 784, 6 Am. Bankr. Rep. 626; In re Eg- gert, 98 Fed. S43, 3 Am. Bankr. Rep. 541; Stobaugh v. Mills, S N. B. R. 361, Fed. Cas. No. 13,461; Gillenwaters v! Miller, 49 Miss. 150; Pearsall v. Nassau 1223 PKEFEEENCKS AND PREFEEKED CREDIXORS § 597 er percentage could be received under the transaction if the debtor be solvent and all his debts be paid in full, a creditor cannot be s^iid to have reasonable cause to believe the enforcement of the transfer would eiTect a preference, unless, either at the time the transfer was made or at the time it was recorded, he had reasonable cause to believe that his debtor was then insolvent." *'" As to knowledge of insolvency and the means of acquiring it, it is said that if a creditor knows that a payment to him is made out of a fund which, if the debtor should become bankrupt, would be needed equally by the other creditors, the transaction will constitute a voidable preference, if bankruptcy intervenes within four months. ^^* And a managing officer and director of an insolvent corporation will be estopped to plead ignorance of its insolvency when he received a pref- erence.^*" But a banker is entitled to transact business with a customer in the ordinary way, take renewal notes, and receive partial payments, and to assume that the customer is solvent, and is therefore not liable to restore payments when the latter becomes bankrupt.**^ It does not fol- low that because a creditor knows of the insolvency of a firm, he has any cause to believe in the insolvency of one of the partners who is his individual debtor.^** But where a creditor of a corporation knows of the insolvency of the corporation, as well as of the insolvency of its con- trolling stockholders, a note given such creditor by stockholders for the amount of its claim against the corporation constitutes a legal fraud against individual creditors of the stockholders, and is not provable against them individually.^** Neither the fact that a debtor's accounts are past due, nor the fact of his being financially embarrassed, is suffi- Nat. Bank, 74 App. Div. 89, 77 N. Y. the circumstances, and not merely upon Supp. 11; Des Moines Sav. Bank v. the debtor's declaration that he was Morgan Jewelry Co., 123 Iowa, 432, 99 solvent. N. W. 121; Wright v. Gotten, 140 N. u. sis in re Sam Z. Lorch & Co. (D. C.) •1, 52 S. E. 141; Evans v. Claridge, 137 199 Fed. 944, 28 Am. Bankr. Rep. 784. Wis. 218, 118 N. W. 198, 803, 25 L. R. A. The time for determining whether the (N. S.) 144; Shelton v. First Nat. Bank, creditor had cause to believe that a pay- 31 Okl. 217, 120 Pac. 959 ; Chicago Title ment operates as a preference is the & Trust Co. V. First Nat. Bank, 174 111. time of payment, and not the time of App. 339 ; Scott County Milling Co. v. distribution. W. S. Peck & Co. v. Whit- Powers, 112 Miss. 798, 73 South. 792. mer, 231 Fed. 893, 146 C. C. A. 89, 36 See William Schuette & Co. v. Swank, Am. Bankr. Rep. 722. 265 Pa. 576. 109 Atl. 531, holding that, 319 Scheuer v, Katzoff (D. C.) 233 Fed. where a contractor who, within four ^^3 37 Am Bankr Rep 476 months, became a bankrupt, gave a cred- ^^^ ' ^ ,^ ; Itor who had furnished lumber for ^^^ „ . g ^ " •construction of certain buildings for a coal company an order on the coal com- '" Grandison v. Robertson (D. C.) 220 pany, which "it accepted, the validity of ^^d. 985, 34 Am. Bankr. Rep. 609. the transaction did not turn upon the ^^^In re Hijll (D. C.) 224 Fed. 796," 34 creditor's personal belief that the con- Am. Bankr. Rep. 447; Jacobs v. Van tractor was solvent, but upon his reason- Sickel (C. C.) 123 Fed. 340, 10 Am. able cause to believe that the enforce- Bankr. Rep. 510. ment of the transfer would effect a pref- S23 in re Hawkins (D. C.) 249 Fed. erence, such cause depending upon all 355, 41 Am. Bankr. Rep. 671. § 597 LAW OP BANKRUPTCY 1224 cient to impeach the good faith of a creditor in taking security, so as to render it voidable as a preference, where there were circumstances which tended to explain such embarrassment upon grounds other than insol- vency.*** But in general it is enough if the creditor had knowledge or information of such facts and circumstances as would be calculated to put a reasonably prudent person on inquiry, and if such inquiry, when followed up, would lead to a knowledge of the debtor's insolvency.'^" If the creditor knows or has reasonable ground to believe that the debtor is insolvent, then it inay be. inferred without further proof, that , he has also reasonable ground to believe that the enforcement of the judgment or transfer which he takes will effect a preference, such being its natural and inevitable result,*** at least if the payment, transfer, or se- curity puts him in position to collect the whole amount of his claim. But if the preference alleged consists only in giving to one of the creditors a part of the amount of his claim, then he must have reasonable ground to believe that other creditors will not be able to secure so large a dividend, and even positive knowledge of the debtor's insolvency may not be suf- ficient to warn him of this. For though the debtor may not be able to pay his debts in full, yet he may be able to pay to all his creditors at least as large a share of their claims as goes to the creditor alleged to have been preferred. And where an offer of compromise is made, creditors are not bound to investigate the debtor's ability to pay the amount offered, and ascertain whether it. is his intention to pay it to all creditors alike, but are entitled to believe that the offer is made in good faith and to all the creditors, unless something occurs to put them on inquiry.**' Thus, where a mercantile company, shortly before its bankruptcy, sent a cir- cular letter to its creditors, in which it stated that its last season's busi- ness had not been good and that it was unable to meet its payments ; that it was about to make a special sale, to be strongly advertised, for the pur- pose of paying its bills, and would prorate the receipts from the sale among its creditors; and that it was solvent and hoped to pay in full within thirty days, it was held that creditors receiving such circulars, and 3 24 J. w. Butler Paper Co. V. Goembel, 121 N. W. 232; Hackney v. Raymond 143 Fed. 295, 74 C. C. A. 483, 16 Am. Bros. Clarke Co., 68 Neb. 0124, 94 N. W. Bankr. Rep. 26. S21>. 99 N. W. 675; Bryant v. Wolf, 94 325 People's Bank of Mobile v. Mc- -''^i*^- ^^p. 683, 15S N. Y. Supp. 678. But Aleer, 204 Ala. 101, 85 South. 413. "■^«'^ *'^e statute requires in this re- spect IS reasonable cause on the part of 3 20 In re Lynden Mercantile €o., 156 the creditor to believe that a preference Fed. 713, 19 Am. Bankr. Rep. 444; Gra- 'will' result from the transaction; be- hajn V. Stark, 3 Ben. 520, 3 N. B. R. 357, lief or cause to believe that a prefer- red. Cas. No. 5,676 ; In re Haucls, 17 N. enee "may" result is not sufficient. Sum- B. R. 158, Fed. Cas. No. 6,219; In re ner v. Parr (D. C.) 270 Fed 675 46 xVm Kingsbury, 3 N. B. R. 317, Fed. Cas. No. Bankr. Rep. 648. 7,816; Johnson v. Cohn, 39 Misc. Rep. s" Smith v. Hewlett Robin Co 178 189, 79 N. Y. Supp. 139 ; Hess v. Theo- Fed. 271, 101 O. C. A. 576, 24 Am. Bankr. dore Hamm Brewing Co., 108 Minn. 22, Rep. 153. 1225 PEEFBRENCBS AND PREFERRED CREDITORS § 598 a few days thereafter small payments on their claims, were not charge- able with reasonable cause to believe that they were intended as a prefer- ence, though the debtor was in fact insolvent and did not distribute the proceeds of the sale pro rata.*^* And a sale by a debtor will not be avoided because the purchaser was aware of the intention of the seller to prefer certain of his creditors by the use of the proceeds of the sale.^^* But where a mortgagee of a bankrupt' had reasonable cause to believe that the mortgage would "effect a preference," he had reasonable cause to believe that it would "operate as a preference," these phrases, as used in the bankruptcy act, being synonymous.*^* § 598. Same; Grounds of Suspicion or Doubt. — To invalidate a pay- ment, transfer, or security, as a preference, it is not enough that the cred- itor should entertain doubts concerning the solvency of the debtor or the effect of the transaction as preferential, or that he should have cause to regard the debtor's circumstances or the transaction in hand with sus- picion. He must have a knowledge of such facts as will carry him be- yond this and furnish a reasonable ground to believe that the enforcement of his transfer or security will give him a preference over other credi- tors.*^"^ "Suspicion, fear, and facts that arouse suspicion and fear in the mind of the creditor or party to be benefited, .but give no reasonable ground for hin;i to believe that a preference is intended by the transfer, 328 In re Varley & Bauman Clothing Fed. 612, 29 Am. Bankr! Rep. 373 ; First Co., 191 Fed. 459, 26 Am. Bankr. Kep. Nat. Bank v. Abbott, 165 Fed. 852, 91 C. 840. But see Benjamin v. Chandler, 142 C. A. 538, 21 Am. Bankr. Rep. 436; Pow- Fed. 21T, 15 Am. Bankr. Rep. 439. ell v. Gate City Bank, 1T8 Fed. 609, 102 329 Van Kleeck v. Miller, 19 N. B. R. O. C. A. 55, 24 Am. Bankr. Rep. 316; In 484, Fed. Oas. No. 16,860. re Eggert, 102 Fed. 735, 43 C. C. A. 1, 4 330 Ogden V. Reddish, 200 Fed. 977, 29 Am. Bankr. Rep. 449; Off v. Hakes, 142 Am. Bankr. Rep. 531. Fed. 364, 73 C. C. A. 464, 15 Am. Bankr. 331 Stucky V. Masonic Sav. Bank, IQS Rep. 696; May v. Le Claire, 18 Fed. 164, U. S. 74, 2 Sup. Ct. 219, 27 L. Ed. 640; Claridge v. Kulmer, 1 Fed. 399; Mackel Grant v. First National Bank, 97 TJ. S. , v. Bartlett, 36 Mont. 7, 91 Pac. 1064; 80, 24 L. Ed. 971; Richardson v. Ger- King v. Storer, 75. Me. 62; Farmers' & mania Bank (C. C. A.) 263 Fed. 320, 45 Mechanics' Bank v. Wilson, 4 Neb. Am. Bankr. Rep. 351; Cohen v. Tremont (Vnot) 606, 95 N. W. 609; Suffel v. Mc- Trust Co. (D. C.) 256 Fed. 399, 43 Am. Cartney Nat. Bank, 127 Wis. 208, 106 Bankr. Rep. 522 ; Smith v. Powers (D. N. W. 837, 115 Am. St. Rep. 1004 ; Sir- C.) 255 Fed. 582, 43 Am. Bankr. Rep. rine v. Stoner-Marshall Co., 64 S. C. 303; Bank of Commerce v. Brown, 249 457, 42 S., E. 432; Gnichtel v. First Nat. Fed. 37, 161 C. C. A. 97, 40 Am. Bankr. Bank (N. J. Eq.) 57 Atl. 508; Stevenson Rep. 591; Donohue v. Dykstra (D. C.) v. Milliken-Tomlinson Co., 99 Me. 320, 247 Fed. 593, 41 Am. Bankr. Rep. 278; 59 Atl. 472; Riibenstein v. Lottow, 223 Rosenman t. Coppard, 228 Fed. 114, 142 Mkss. 227, 111 N. E. 973 ; Batchelder v. C. 0. A. 520, 35 Am. Bankr. Rep. 786 ; Home Nat. Bank, 218 Mass. 420, 105 N. Nichols V. Elken, 225 Fed. 689, 140 C. E. 1052 ; Craig v. Sharp (Mo. App.) 219 C. A. 563, 35 Am. Bankr. Rep. 365 ; S. W. 98 ; Newman v. Tootle-Campbell Brookheim v. Greenbaum (D. C.) 225 Dry Goods Co., 174 Mo. App. 528, 160 S. Fed. 635; Beall v. Bank of Bowden (D. W. 825; Dunlap v. Seattle Nat. Bank, 93 C.) 219 Fed. 316, 34 Am. Bankr. Rep. Wash. 568, 161 Pac. 364; Mantz v. Cap- 186 ; In re F. M. & S. Q. Carlile, 199 ital City State Bank (Iowa) 181 N. W. 3. § 599 LAW OF BANKRUPTCY 1226 do not make such a preference voidable." **^ For example, knowledge of the mere fact that the debtor is not able to pay the creditor's debt in cash may awaken suspicion as to his solvency, but is not of itself reasonable cause to believe that a preference is intended.^^^ And so of the fact that the debtor is ofifering to sell his business,*^* or that he has called his cred- itors together for the purpose of making terms with them.^*® General reputation or common talk as to the debtor's solvency is not a safe test of the creditor's good faith.'^* Actual knowledge that the debtor is at the time in failing circumstances may be enough to establish the character of the transfer or security as a preference, if he is adjudged bankrupt within four months thereafter.^*'" But not so of knowledge, gained from the debtor's statement, that he had previously been financially embar- rassed and hard pressed by his creditors, where he afterwards assured the creditor that he had financed his business and was then "all right." *** § 599. Same; Facts Putting on Inquiry; Duty to Investigate. — Where a creditor, about to receive a payment or security from his debtor, has knowledge or notice of facts which would incite a man of ordinary prudence and business intelligence to inquire as to the debtor's solvency and the probable eflject of the transaction as a preference, he is bound to prosecute a reasonably diligent inquiry to ascertain the truth; and if he fails to do so, he is chargeable with knowledge of the facts which such an inquiry would have disclosed ; and if such ultimate knowledge would give him reasonable cause to believe that the transaction would result in giving him a preference, within the meaning of the bankruptcy law, then he cannot safely accept the payment, transfer, or security, for if the debtor's bankruptcy follows within four months, the transaction will be , voidable at the suit of the trustee.*** In fact, "reasonable cause to be- 332 Paper v. Stern, 198 Fed. 642, 117 249 Fed. 579, 161 C. C. A. 505, 41 Am. C. C. A. 346, 28 Am. Bankr. Rep. 592. Bankr. Rep. 286; National Bank of Bak- 333 Andrews v. Kellogg, 41 Colo. 35, 92 ersfield v. Jloore, 247 Fed. 913, 160 C. C. Pac. 222. A. 103, 41 Am. Bankr. Rep. 409; Smith 334Taft V. Fourth Nat. Bank, 8 Ohio v. Coury (D. C.) 247 Fed. 168, 41 Am. N. P. 59. Bankr. Rep. 219; In re Sutherland Co! 835 In re Kerr, 2 N. B. R. 388, Fed. (D. C.) 245 Fed. 663, 40 Am. Bankr. Rep. Cas. No. 7,728. 305; McGill v. Commercial Credit Co 836 Carey v. Donohue, 209 Fed. 328. (D. C.) 243 Fed. 637, 39 Am. Bankr. Rep 126 C. C. A. 254, 31 Am. Bankr. Rep. 210. 702; In re States Printing Co., 238 Fed 337 Peninsula Bank of Williamsburg v. 775, 151 C. C. A. 625, 88 Am. Bankr Rep Wolcott, 232 Fed. 68, 146 C. C. A. 260, 526; Aronin v. Security Bank of New- Ann. Oas. 1918C, 477, 36 Am. Bankr. York, 228 Fed. 888, 143 0. C. A. 286, 36 Rep. 327. Am. Bankr. Rep, 17; R. H. Herron Co. 338 In re Salmon, 249 Fed. 300, 161 0. v. Moore, 208 Fed. 134, 125 C. C. A 356 C. A. 308, 41 Am. Banki-. Rep. 45. 31 Am. Bankr. Rep. 221; Walter.s \! ssoToof V. Martin, 13 Wall. 49, 20 L. Zimmerman (D. C.) 208 Fed. 62, 30 Am.' Ed. 481; In re Star Spring Bed Co. (C. C. Bankr. Rep. 780; Lowell v. As'hton (D A.) 265 Fed. 133, 45 Am. Bankr. Rep. C.) 272 Fed. 536, 47 Am. Bankr. Rep! 650; Farmers' State Bank v. Freeman, 100; Tilt v. Citizens' Trust Co., 191 Fed 1227 PEEFBRHNCES AND PREFERRED CREDITORS 599 lieve," in the bankruptcy act, covers substantially the same field as "no- tice" in determining whether a person is a bona fide purchaser of prop- erty.**" Thus, if the creditor knows that the debtor has lost his position because of a defalcation, that his principal indorser is dead, and that his notes are overdue and unpaid, it is sufficient to put him on inquiry,*" as is also the fact that the creditor holds unpaid protested paper of the bankrupt,*** or that the debtor, on drawing up the mortgage in ques- tion, asked to be allowed to secure other creditors in the same instru- ment.*** But mere knowledge thkt the debtor fails to meet his obliga- tions promptly is not sufficient for this purpose,*** nor is the fact that there are outstanding and unsatisfied judgments against the debtor,**® or that he is engaged in a business of a speculative character, and that the creditor does not know of any other property owned by the debtor except his interest in certain contracts.*** If, however, the creditor knows that the bankrupt has committed forgery, this is a circumstance which would incite a person of ordinary prudence to inquiry as to his condition, and the creditor miist be charged with notice of all facts 441, 27 Am. Bankr. Hep. 320; Kagan v. Donovan, 189 Fed. 138, 26 Am. Bankr. Rep. 311; In re Thomas Deutschle & Co., 182 Fed. 435, 25 Am. Bankr. Rep. 348; In re C. J. McDonald & Sons, 178 Fed. 487, 24 Am. Bankr. Rep. 446; Brewster v. Gofe Lumber Co., 164 Fed. 124, 21 Am. Bankr. Rep. 106; In re W. W. Mills Co., 162 Fed. 42, 20 Am. Bankr. Rep. 501; In re Tindal, 155 Fed. 456, 18 Am. Bankr. Rep. 773^ EngUsh v. Ross, 140 Fed. 630, 15 Am. Bankr. Rep. 370; In re Virginia Hardwood Mfg. Co., 139 Fed. 209, 15 Am. Bankr. Rep. 135; In re Eggert, 102 Fed. 735, 43 C. C. A. 1, 4 Am. Bankr. Rep. 449; Capital Nat. Bank v. Wilkerson, 36 Ind. App. 560, 76 N. E. 258; Bardes v. First Nat. Bank, 122 Iowa, 443, 98 N. W. 284; Blyth & Fargo Co. v. Kastor, 17 Wyo. 180, 97 Pac. 921; Wilson v. Taylor, 154 N.. C. 211, 70 S. E. 286; Andrews v. Kellogg, 41 Colo. 35, 92 Pac. 222; Whit- well V. Wright, 115 N. T. Supp. 48; Atherton v. Emerson, 199 Mass. 199, 85 N. E. 530; Jackman v. Eau Claire Nat. Bank, 125 Wis. 465, 104 N. W. 98, 115 Am. St. Rep. 955; Hackney v. Raymond Bros. Clarke Co., 68 Neb. 624, 94 N. W. 822, 99 N. W. 675; Walker v. Tenison Bros. Saddlery Co. (Tex. Civ. App.) 94 S. W. 166; Christopherson v. Oleson, 19 S. Dak. 176, 102 N. W. 685; McAleer v. Peo- ple's Bank, 202 Ala. 256, 80 South. 94; Chisholm v. First 5iat, Bank, 176 111. Apj). 382; Russell's Trustee v. May field Lumber Co., 158 Ky. 219, 164 S. W. 783; Jacobs V. Saperstein, 225 Mass. 300, 114 N. E. 360; Craig v. Sharp (Mo. App.) 219 S. W. 95; Walter v. National Fire Ins. Co., 101 Neb. 639, 164 N. W. 569; First Bank of Maysville v. Alexander, 49 Okl. 418, 153 Pac. 646; Utah Ass'n of Credit- men V. Boyle Furniture Co., 43 Utah, 68, 136 Pac. 572; Slay ton v. Drown, 93 Vt. 290, 107 Atl. 307. 3*0 stern v. Paper (D. C.) 183 Fed. 228, 25 Am. Bankr. Rep. 451; Bassett v. Evans, 253 Fed. 532, 165 C. C. A. 202, 42 Am. Bankr. Rep. 587. 3*1 Sebring v. Wellington, 63 App. Div. 498, 71 N. Y. Supp. 788. 3*2 Swan V. Robinson (C. C.) 5 Fed. 287; Conners v. Bucksport Nat. Bank (D. O.) 214 Fed. 847; Grandison v. Na- tional Bank of Commerce (D. C.) 220 Fed. 981, 34 Am. Bankr. Rep. 497. 3*3 Lloyd V. Strobridge, 16 N., B. R. 197, Fed. Cas. No. 8,435. 3** Arkansas Nat. Bank v. Sparks, 83 Ark. 324, 103 S. W. 626; Hackney v. Raymond Bros. Clarke Co., 68 Neb. 624, 94 N. W. 822, 99 N. W. 675, And see Sumner v. Parr (D. C.) 270 Fed. 675, 46 Am. Bankr. Rep. 648. 3*5 Summerville v. Stockton Milling Co., 142 Cal. 529, 76 Pac. 243. ' 3*s Curtiss V. Kingman, 159 Fed. 880, 87 C. C. A. 60, 20 Am. Bankr. Rep. 95. § 599 , LAW OF BANKRUPTCY 122S which a reasonably diligent inquiry would have disclosed.**' This is also the case where the creditor knows not only that the debtor is in- solvent but that he has absconded.*** So, in another case, the debtor was a partner in a firm which was hopelessly insolvent, and a personal creditor of his received from him, in partial payment of notes which were not yet due, merchandise which had been bought entirely on the credit of the firm, as the creditor well knew. Taken in connection with the creditor's otherwise intimate knowledge of the affairs of the firm, this was held such knowledge or notice on his part as to render the pay- ment a voidable preference.*** But on the other hand, where a creditor makes adequate inquiry as to his debtor's financial condition, and honestly, though mistakenly, believes that he is solvent, the taking of a security for a debt from him will not constitute a preference.*®* As to the kind of investigation to be conducted by a creditor thus "put on inquiry," his duty is not discharg- ed by inquiries addressed to the debtor alone, at least if any better or more reliable sources of information are open to him,*®"^ And his inten- tional avoidance of obvious and reliable sources of information will charge him with the knowledge he could have obtained from them.*®- At the same time, he is not obliged to trace to its ultimate source any information of a suspicious nature which may come to his knowledge,*®* and if the question of the debtor's solvency is so close as to require an inventory arid a list of debts to determine it, the failure to use this de- gree of diligence will not charge the creditor with knowledge.*®* Nor can he be charged with notice of facts which could be learned only from intimate and inaccessible sources, such as the books of the bankrupt, but he is only responsible for such information as could be obtained by open observation and reasonable inquiry.*®® At the same time, if the creditor is permitted to examine the books of the debtor, or does make an independent investigation of his business and affairs, especially, through the medium of an expert or accountant, he may claim the bene- fit of the knowledge so acquired, and if the result is not such as to furnish reasonable ground to believe the debtor insolvent and a prefer- ence intended, the creditor will be safe from the attack of the trustee 3*7 Watctimaker v. Barnes, 259 Fed. 518; Singer v. Jacobs (C. C.) 11 Fed. 783, 170 0. C. A. 583, 48 Am. Bankr. 559. Rep. 632. 362 Pittsburgh Plate Glass Co. v. Ed- 348 De Forest v. Crane & Ordway Co., wards, 148 Fed. 377, 78 C. C. A. 191 55 Mont. 489, 179 Pac. 291. 17 Am. Bankr. Rep. 447. 340Gooch V. Stone, 257 Fed. esi, 168 sbs Blankenbaker v. Charleston State 0. G. A. 581, 44 Am. Bankr. Rep. 86. Bank, ill in. App. 393. 850 In re Gaylord (D. C.) 225 Fed. 234, s54 Edwards v. Carondelet Milling Co , 35 Am. Bankr. Rep. 544. 108 Mo. App. 275, 83 S. W. 764. sBiMcGirr v. Humphreys Grocery Oo. sob in re Wolf Co., 164 Fed.. 448 21 (D. 0.) 192 Fed. 55, 26 Am. Bankr. Rep. Am. Bankr. Rep. 73, ' ' 1229 PBBFBEBNCES AND PEHFHEEBD CEBDITOES § 600 in bankruptcy."** So, also, where he inquired about the condition of the debtor corporation, not only from its officers, but also from others who were in position to know, and was assured tha^ it was solvent and that its embarrassment was only temporary.*" And the rule of con- structive notice and diligent inquiry should be applied with due regard to the relative situation of the parties. For instance, it should not be applied with too great severity in the case of a young woman of no business experience whatever dealing with a banker, who was also a relative in whom she had confidence, she being "incapable of compre- hending the significance of business facts which would have been more enlightening to men of the business world." **** § 600. Same; Circumstances* Constituting Groimd for Belief. — What constitutes "reasonable ground to believe" that a debtor is in- solvent or intends a preference must depend on the facts and circum- stances of each case.®^ And althotigh the general business transactions and condition of the bankrupt, at the time of giving a preference, may not have been sufficient to raise this reasonable ground of belief, yet if the special facts and circumstances passing between the particular par- ties, and out of which the preference grew, were such as to give a rea- sonable cause for such belief, the creditor is chargeable with notice.^*** The mere' fact that the creditor's claim is past due when a payment is made on it or security given for it, is not alone sufficient to charge him with knowledge that the debtor is insolvent or that a preference will be effected,'*^ nor the mere fact that ah adjudication in bankruptcy actually follows within four months afterwards,*** though it is otherwise if the creditor at the time knew that the bankrupt's attorney was then engaged in preparing a petition in bankruptcy.*** Again, a creditor may khoW that his debtor is financially embarrassed, and may be insistent in his 356 Stratton v. Lawson, 27 Wash. 310, insolvent, and that a creditor to whom 67 Pac. 562; Brown v. Guichard, 37 a payment was made \ii^ithin four months Misc. Kep. 78, 74 N. Y. Supp; 735;,Hussey of bankruptcy had had a long course of V. Kichardson-Koberts Dry Goods Co., 148 dealings with the bankrupt, was f re- Fed. 598, 78 C. 0. A. 370, 17 Am. Bankr. quently in his place of business,: and Kep. 511; In re Mayo Contracting Co., had opportunity for intimate knowledge 157 Fed. 469, 19 Am. Bankr. Kep. 551; of his affairs, will sustain a finding that In re Bartlett, 172 Fed. 679, 22 Am. the creditor knew of the bankrupt's in- Bankr. ReJ). 891. solvency when the payment was made. 351' In re Wolf Co., 164 Fed. 448, 21 Benjamin v. Buell (C. C. A.) 268 Fed. Am. Bankr. Rep. 73. 792, 46 Am. Bankr. Kep. 404. 358 Wright V. Sampter, 152 Fed. 196, 3„ m re Goodhile, 130 Fed. 471, 12 18 Am. Bankr. Rep. 355. ^m Bankr. Rep. 374; Lyon v. Clark, 129 359 whitwell V. Wright, 136 App. Div. Mich. 381, 88 N. W. 1046. 246, 120 N. T. Supp. 1065. 360 Alderdice v. State Bank of Virgin- '"' Laundy v. First Nat. Bank, 66 Kan. ia, 1 Hughes, 47, 11 N. B. R. 398, Fed. '^^^' '^^ ^^*^- 2^^- Cas. No. 154. Evidence that the bank- so sin re Ga.lvin, 2 Nat. Bankr; News, rupt had for some considerable time been 146. ■ . , , § 600 LAW OF BANKRUPTCY 1230 demands for settlement, and yet he may not have a reasonable cause to believe the debtor insolvent,*®* nor is such reasonable cause to be de- duced from the mere fact that the debtor had some time previously compromised with his creditors at forty-five cents on the dollar.^^^ But statements by a debtor to the creditor's agent, who was seeking to col- lect past-due debts for which the debtor had given checks which were dishonored by the banks, that the debtor had not and could not obtain money to pay the debts, that its real estate was mortgaged for all it was worth, and that there were judgments outstanding against it, gave the creditor reasonable cause to believe that the debtor was insolvent, so that he must have known that the enforcement of a chattel mortgage then taken would be a preference.*^ So .where a bank, to which the bank- rupt transferred accounts the day before the petition in bankruptcy was filed, knew that he h,ad overdrawn his account, and that he had deceived the bank as to securities held by it, and that the transaction was han- dled for the bankrupt by an attorney, and the bank made haste to enter the transaction on its books and to notify persons concerned that it was the holder by assignment of the transferred accounts, this was held to jtistify the conclusion that the bank's officers believed the debtor to be insolvent.*®' And the fact that suits are pending against the debtor on claims which he does not dispute, is a very suspicious circumstance, and, if coupled with other facts, may be enough to charge the creditor with notice.*®* And a business man who allows his paper to go to protest, suspends payment, and closes the door of his place of business, pro- claims to the world that he is insolvent.*®® So, where the creditor learned that an account which the bankrupt had assigned as security was fictitious, and that his place of busiAess was closed, and that it was rumored that he had absconded, and placed its claim in the hands of its attorney for collection, although it was not due, and the claim was paid shortly before the adjudication in bankruptcy, it was held that the creditor had reasonable cause to believe that a preference was intended by such payment.*'* On the other hand, the mere fact that a creditor demands security for a debt previously unsecured does not show that he has reasonable ground for believing the debtor 384 Sharps V. AUender, 170 Fed. 5S9, so 7 in re Star Spring Bed Co. (D. 96 C. C. A. 104, 22 Am, Bankr. Rep. 431; 0.) 257 Fed. 176, 43 Am. Bankr. Rep. 328. Stackhouse v. Holden, 66 App. Div. 423, ses Crittenden v. Barton, 59 App. Div. 73 N. Y. Supp. 203. But see In re Kings- 555, 69 N. Y. Supp. 559; Empire State bury, 3 N. B. R. 317, Fed. Cas. No. 7,816; Trust Co. v. William F. Fisher Co., 67 In re Ilines, 144 Fed. 543, 16 Am. Bankr. N. J. Eq. 88, 57 Atl. 502. Rep. 495. 80 Markson v. Hobson, 2 Dill. 327, Fed. 306 Warren v. Tenth Nat. Bank, 5 Ben. Cas. No. 9,099; Merchants' Nat. Bank 395, Fed. Cas. No. 17,200. v. Cook, 95 U. S. 342, 24 L. Ed. 412. 3 60 In re Campion (D. C.) 256 Fed. 902, sto Pratt v. Columbia Bank, 157 Fed. 43 Am. Bankr. Rep. 625. 137, 18 Am. Bankr. Rep. 406. ' 1231 PREFERENCES AND PREFERRED CREDITORS § 601 to be insolvent,*'^ especially where the security also covers a contem- porary loan of money,*'' but the case is altered when, in addition to this, it appears that the security given pledges substantially all of the- debt- or's unexempt property,*'* or the creditor knows that the property would be insufficient to satisfy the other creditors after paying his own debt.*'* Evidence that the creditor was investigating the financial standing of the bankrupt immediately prior to and continuously up to the time when the transfer was executed is admissible on this point,*'" and it may be shown that he knew that the debtor was hard pressed and without credit, and that he himself had been persistently pressing his own claim for several months.*'* And reasonable cause to believe a debtor insolvent may arise from the fact that he conveyed his residence for the benefit of an insistent creditor, stating at the time that it was his only available resource.*" Circumstances justifying such a belief may also be found in the fact that the debtor settled with creditors by returning goods bought from them,*'* or that a creditor indirectly bought back goods from the debtor and sold them again at a loss,*'" or accepted for part of his claim goods for which he had no use, or which were not of a kind that he dealt in or employed in his business,**" or that the money to make a payment was obtained by the sale of the debtor's entire stock in trade, especially if such sale was made secretly or under any suspi- cious conditions.***- And where it appears that overdrafts were made by a merchant in collusion with a defaulting teller in the bank, for which a deed of preference was given to the bank just before the bankruptcy of -the merchant, the deed is voidable, as such facts constitute reasonable cause for the bank to believe that the debtor v\»s insolvent and that a preference was intended.*** § 601. Imputed Knowledge of Agent or Attorney.— A preference will be voidable if reasonable cause to believe that the debtor is insol- 371 Perry v. Booth, 80 App. Div. 3T3, Co., 162 Fed. 315, 89 C. C. A. 23, 20 Am. 80 N. Y. Supp. 706; Congleton v. Schrei- Bankr. Kep. 527. hofer (N. J. Eq.) 54 Atl. 144. But see 377 Brewster v. GofC, 164 Feci. 127, 21 In re Hickerson, 162 Fed. 845, 20 Am. Am. Bankr. Eep. 239. Bankr. Rep; 682. ■ 378 in re Andrews, 135 Fed. 5S9, 14 372 stedman v. Bank of Monroe, 117 -^™- B^jnkr. Rep. 247. Fed. 237, 54 0. C. A. 269, 9 Am. Bankr. "» Hardy v. Gray, 144 Fed. 922, 7.", jjgp 4 C. C. A. 562, 16 Am. Bankr. Eep. 387. 373 Coder V. McPherson, 152 Fed. 951, , ''"^° ''L.^^''}^^°'^^Z ^f^% * ^°"' 82 C. C. A. 99, 18 Am. Bankr. Rep. 523; ^^ f^\ff' f f'"' ^^"'^f' ^^P" t^^' Roberts V. Johnson, 151 Fed. 567, 81 0. f^^l^^ State Bank v. White, 198 Fed. C. A. 47, 18 Am. Bankr. Rep. 132. ''t'Lt^-JT\':J:t ^'t 374 Robinson v. Tuttle, 2 Hask. 76, 381 Thomas v. Adelman, 136 Fed. 973, T^ 1 r' TVT 11 Qco ^^ ^™- Ba"!^"". Rep. 510. See Dunlop v. ned. cas. JNo. ll.UbS. Thomas, 28 Wash. 521, 68 Pac. 909. 875 Capital Nat. Bank v. Wilkerson, sss Alderdice v. State Bank of Virginia, 36 Ind. App. 550, 76 N. E. 258. 1 Hughes, 47, 11 N. B. R. 398, Fed. Cas. 876 Wright V. William Skinner Mfg. No. 154. I 601 I-AW OF BANKEDPTCT 1232 vent and a preference intended is brought home either to the creditor himself or to "his agent acting therein" If the agent has knowledge of facts which should have induced such a belief, or of facts which should have put him upon inquiry as to the debtor's financial condition,'** that knowledge is imputed to the principal and the efifect is the same as if he himself had taken part in the transaction being in possession of such information,*** and it is no defense to the trustee's suit to recover the preference that the creditor had no personal knowledge of the debtor's insolvency.**® And it is immaterial how or when the agent obtained his knowledge, or that he had confidential relations with the bankrupt, or personal interests which prevented him from disclosing his knowledge to his principal.*** But the agent must be one acting for the creditor "therein," that is, in the particular transaction by which the preference was created, though a general financial agent may answer this descrip- tion,**' but not one who was the clerk or agent of the bankrupt at the time the preference was given and who was not employed by the cred- itor until afterwards.*** And it is important to observe that knowledge gained by a sub-agent or an agent of an agent is not imputable to the principal of the original agent. Thus, for example, if the holder of a note sends it to a bank for collection, the bank is his agent, and he is to be charged with whatever knowledge the bank possesses.**" But where a bank, being the holder of a note, and having no correspondent in the town where the maker lives, sends it to its correspondent in the nearest large city for collection, and the latter sends it to the local bank for col- lection, although the local bank may know facts about the maker which would render the payment of the note to it a preference under the bank- ruptcy act, that knowledge is not imputable to the creditor, for the col- 3 83 In re Nassau, 140 iPed. 912, 14 Am. «86 piummer v. Myers, 137 Fed. 660, Bankr. Rep. 828; Constam v. Haley, 206 14 Am. Bankr. Rep. 805. Fed. 260, 124 C. C. A. 128. In the case sse Campbell v. Balcomb, 183 Fed. 766, last cited. It is said that, where the 106 C. C. A. 474, 25 Am. Bankr. Rep. 538. holder of a note against a bankrupt is But naturally, this rule does not apply charged with an agent's knowledge of where the agent is playing false to both facts Indicating the bankrupt's Insolven- debtor and creditor, as where one actinjr cy, such notice is not limited to its effect in the transaction as the agent of the to convert into preferences payments ob- creditor was at the same time business tained through the activities of the agent, manager of the debtor corporation, 'and but extends as well to subsequent pay- was engaged in a scheme to defraud ei- ments made by the bankrupt direct to ther the creditor or the corporation or the holder. both. Scott County Milling Co. v. Pow- 384 Sage V. Wynkoop, 16 N. B. R. 363, ers, 112 Miss. 798, 73 South. 792. ' Fed. Cas. No. 12,215; Mathews v. Riggs, ss? Wright v. Gotten, 140 N C 1 5'> 80 Me. 107, 13 Atl. 48; In re Cramer & S. E. 141. ■ . , - Rogers Grocery Co., 252 Fed. 112, 164 sss Whitson v. Farber Bank, 105 Mo O. C. A. 224, 42 Am. Bankr. Rep. 283; App. 605, 80 S. W. 327. Smith V. Coury (D. C.) 247 Fed. 168, 41 8 8o Hooker v. Blount, 44 Tex. Civ App Am. Bankr. Rep. 219. 162, 97 S. W. 1083. 1233 PREFERENCES AND PREFERRED CREDITORS § 601 lecting bank is not its agent.*"* On the same principle, if the creditor sends his claim to a collection agency, and the agency employs an attor- ney to collect it, and the latter procures a confession of judgment, know- ing the debtor to be insolvent, this does not affect the validity of the preference so far as concerns the creditor, the attorney not being his agent.*®^ But an attorney at law employed directly by the creditor to .take proceedings for the enforcement of the claim, or to effect a settle- ment with the debtor, is the creditor's "agent," and his knowledge is imputable to the creditor.*** And it is immaterial that the attorney, un- known to the creditor employing him, has special and peculiar facilities for acquiring information, as, by being the professional adviser of the debtor also. So long as the disclosure of the knowledge acquired would not involve a breach of professional confidence, the creditor is charge- able with it.*** In the case of a corporation which is a creditor, the knowledge of any of its principal officers will be imputed to the corpora- tion itself,*** but not knowledge possessed by an officer who resigned be- fore the giving of the alleged preference, though he is also the principal stockholder of the bankrupt corporation.**^ And conversely, a person will be held to have notice as an individvial of what he does as the presi- dent of a corporation.**^ It appears that this rule applies also to public or municipal corporations. Thus, it is held that knowledge possessed by a township trustee as to the insolvency of his brother, a defaulting township treasurer, is imputable to the township itself.**' In the case of a banking corporation, either the president or the cashier may be re- 3 9oBalcomb v. Old Nat. Bank, 201 who had been led to believe that a claim Fed. 679, 29 Am. Bankr. Rep. 329. against the corporation was unfounded, 8 91 Hoover v. Wise, 91 U. S. 308, 23 L. though other corporate officers knew it Ed. 392. to be well founded, paid over to himself 392 Rogers v. Palmer, 102 U. S. 263, 26 on his own claims almost all of the cor- L. Ed. 464; Wight v. Muxlow, 8 Ben. porate assets. It was held that such 52, Fed. Cas. No. 17,629; Vogle v. Lath- payment was preferential, since the cor- rop, 3 Pittsb. 268, 4 N. B. R. 439, Fed. poration was charged with the knowl- Cas. No. 16,985; Mayer v. Hermann, edge of all of its officers. In re Boston- 10 Blatchf. 256, Fed. Cas. No. 9,344; West Africa Trading Co. (D. C.) 255 Fed. Hewitt y. Boston Straw Board Co., 214 924, 43 Am. Bankr. Hep. 382. But where Mass. 260, 101 N. E. 424. the bankrupt was treasurer of a corpo- 3 93 Brown v. Jefferson County Nat. ration, the fact that he knew himself to Bank, 19 Blatchf. 315, 9 Fed. 258; Far- be insolvent at the time he made a mers' State Bank v. Freeman, 249 Fed. payment on his indebtedness to the cor- 579, 161 C. C. A. 505, 41 Am. Bankr. poration did not charge it with knowl- Rep. 286. edge of such fact. Arthur v. Harrington 304 Farmers' Bank of Edgefield v. C. (D. C.) 211 Fed. 215, 32 Am. Bankr. Rep. D. Oarr & Co., 127 Fed. 690, 62 0. C. A. 216. 446, 11 Am. Bankr. Rep. 733; In re W. 395 Benner v. Blumauer-Frank Drug A. Silvernail Co. (D. C.) 218 Fed. 979, 33 Co. (D. C.) 198 Fed. 362, 28 Am. Bankr. Am. Bankr. Rep. 59; Patterson v. Baker Rep. 798. Grocery, Co., 73 Or. 43.3, 144 Pa c. 673. 39c Lancaster v. Collins (C. C.) 7 Fed. This rule was applied In a case where 338. the treasurer of a corporation, who had 397 Painter v. Napoleon Tp., 190 Fed. supplied practically all of its capital, and 637, 26 Am. Bankr. Rep. 324. Blk.-Bkr.(3d Ed.1— 78 § 602 LAW OF BANKEUPTCY 1234 garded as the "agent" of the bank, so that if either has knowledge of circumstances which would furnish reasonable ground to believe that the debtor of the bank was insolvent and that a preference would re- sult from any payment, transfer, or security given to the bank, then th'e preference so given will be voidable.^"* § 602. Solicitation, Coercion, or Threats by Creditor. — Under for- mer bankruptcy statutes, where an "intention" on the part of the debtor to give a preference was essential to its consummation, it was often argued, and sometimes held, that this implied a willingness or disposi- tion on his part to place the preferred creditor in an advantageous posi- tion, or the voluntary selection of one or more creditors to be favored above the rest.^*' But this doctrine did not prevail. It was held by the great majority of the decisions that a preference was none the less a preference because it was not yielded voluntarily, but was wrung from the debtor by urgent solicitation, threats of prosecution, fear of ex- posure and disgrace, or any other form of coercion or pressure.**" And these decisions will naturally be applicable under the present bank- ruptcy act, since it makes no reference to the debtor's intention or to any influence brought to bear upon him." § 603. Preference of Partnership or Individual Creditors. — The pur- pose of the bankruptcy act with reference to the joint assets of a bank- rupt partnership is that they shall be first applied, in good faith, to the payment of partnership debts, and that the individual property of the several partners shall first be applied in payment of their separate debts ; and any scheme or device resorted to by persons contemplating^ bankruptcy for the purpose of charging partnership assets with individ- ual debts, or vice versa, is in violation of the act and will be frustrated by the court, the law being administered in such a manner as to pre- 30 8 Nisbit V. Macon Bank & Trust Co., *oo First Nat. Bank v. Jones, 21 Wall. 12 Fed. 6S6, 4 Woods, 464; Crooks v. 325, 22 L. Ed. 542; Strain v. Gourdin 2 People's Nat. Bank, 72.App. Dlv. 331, 76 Woods, 380, 11 N. B. R. 156, Fed. Cas. N. Y. Supp. 92, 495 ; Gollett . v, Bronx No. 13,521 ; Van Kle«ck v. Tu'urber, Fed Nat. Bank, 205 Fed. 370, 123 C. C. A. Cas. No. 16,861; Campbell v. Traders' 392. Nat. Bank, 2 Biss. 423, 3 N. B. R. 498, 398Ashby V. Steere, 2 Woodb. & M. Fed. Cas. No. 2,370; In ^ Amory & 347, Fed. Cas. No. 576. This was also Leeds, Fed. Cas. No. 336c; Atkinson v. once the rule in England. "If such a Farmers' Bank, Crabbe, 529, Fed. Cas! preference to a particular creditor be not No. 609; Rlson v. Knapp, 1 Dill. 186 4 given voluntarily, but from an apprehen- N. B. R. 349, Fed. Cas. No. 11 861 • sion of legal process, it is not fraudulent, Foster v. Hackley, 2 N. B. R. 406* Fed. and cannot afterwards be vacated." 2 Cas. No. 4,971; Wilson v. Brihkrnan 2 Blackst. Comm. 478, note, citing Thomp- N. B. R. 468, Fed. Cas. No. 17,794 • Gra- son V. Freeman, 1 Durn. & E. 155. ham v. Stark, 3 Ben. 520, 3 N. B. R 357 Fed. Cas. No. 5,670. 1235 PREFERENCES AND PREFERRED CREDITORS § 603 vent preferences and secure the equitable distribution of the estate.*"^ Hence if a creditor of a firm, knowing the firm to be insolvent, takes a mortgage on the individual property of one of the partners, it is an unlawful preference.*"^ And the rule is the same if a member of the firm, owing a private debt, gives the firm's note for it, or his own note indorsed by the firm.*'* But on the other hand, a mortgage given by a partner on his individual property to secure his individual debt is not voidable as a preference in the subsequent bankruptcy of the firm,*** or at least, the creditors of the firm will have no standing to object to it and seek its vacation.**^ And so, a mortgage given by a partnership on its property is not affected by subsequent bankruptcy proceedings against one of the partners alone.*'* But it may be remarked that, in a suit by a trustee in bankruptcy of a partnership to recover payments made to a creditor as a preference, it must be shown that both the firm and the partners individually were insolvent when the payment was made.*" As to transactions between the partners themselves, it is held that where one partner sells to his co-partner his entire interest in the property of the firm, the tfansfer cannot be impeached as a preference, since the transferee is not a creditor, and the effect of the transfer is a loss to all the creditors of the firm ' alike.*"* Where the bankrupt obtained credit after he became for the sec- . ond time a sole trader, by buying out his partner, those extending credit, though they acted in ignorance of the dissolution, will not be presumed to have extended credit solely to the firm and to be merely firm creditors, because of their option to hold the withdrawing part- ner, where such presumption would preclude the trustee in bankruptcy <">! In re Jones, 100 Fed. 781. And see cause the payee has not received any of Johnson v. Hanley-Hoye Co., 188 Fed. the property of the bankrupt. Oatchings 752, 26 Am. Bankr. Rep. 748. v. Chatham Nat. Bank, 180 Fed. 10.S, 10,5 ioa Mayes v. Palmer (C. 0. A.) 208 Fed. C. C. A. 601, 24 Am. Bankr. Rep. 84.S. 97; In re Parker, 6.Sawy. 248, 11 Fed. 404 Hewitt v. Northrup, 9 Hun (N. X.) 397; Pollock v. Jones, 124, Fed. 163, 61 543, 16 N. B. R. 27, affirmed 75 N. Y. 506. C. C. A. 555; Ft. Pitt qoal & Coke Co. ,„5 j^ ^^ Lehigh Lumber Co., 101 Fed. V. Diser, 239 Fed. 443, 152 C. C. A. 321, 2I6, 4 Am. Bankr. Rep. 221. 38 Am. Bankr. Rep. 566. Compare Sar- ,„„_ „ ,,. ,„„„, „_„ „ gent V. Blake, 160 Fed. 57, 87 C. O. A. .""J" - J^tr '.. °'„„^.!f: f I' f Am. Bankr. Rep. 384; Rubenstein v. Lot- tow, 220 Mass. 156, 107 N. E. 718. 213, 17 L. R. A. (N. S.) 1040, 15 Ann. Gas. 58, A partner's individual indorse- ment of the firm's notes, while the firm is *" Tumlin v. Bryan, 165 Fed. 166, 21 insolvent, will give the payee a voidable ^™- ^'^^^^r. Rep. 319 ; Worrell v. Whit- preference. In re Frazer (D. C.) 221 Fed. "ey, 179 Fed. 1014, 24 Am. Bankr. Rep. 83, 34 Am. Bankr. Rep. 467. ^^9; Forsaith v. Meri-Itt, 1 Low. 336, 3 103 In re Jones, 100 Fed. 781, 4 Am. N. B. R. 48, Fed. Oas. No. 4,946. See Bankr. Rep. 141. But if a. note so in- Anderson v. gtayton State Bank, 82 Or. dorsed is paid by the firm, and the in- 357, 159 Pac. 1033. dividual partner becomes bankrupt (but *"» In re Rudnick, 102 Fed. 750, 4 Am. not the firm) his creditors cannot ob- Bankr. Rep. 531; Barnes v. Vetterlein, ject to the payment as a preference, be- 16 Fed. 759. § 604 LAW OF BANKRUPTCY 1236 from recovering as preferential a payment made by the bankrupt to an old individual creditor after dissolution of the firm, on the theory that there were no other creditors of the same class as the one to whom payment was made.*** § 604. Rights of Preferred Creditor as to Proving Claim. — The pro- vision of the statute (§ 57g) is that claims of creditors who have re- ceived voidable preferences "shall not be allowed unless such creditors shall surrender such preferences." This is not a penal requirement in such sense that it must be construed strictly."* And it applies only to transactions which constitute preferences within the meaning of the other provisions of the act, where preferences are defined and declared to be voidable.*^"^ But as the law stood originally, this clause contained no limitation as to time, and hence the claim of a preferred creditor could not be allowed without a surrender of the preference, though it was given more than four months before the beginning of the bankruptcy proceedings.*^* This, however, was changed by the amendment of 1903. If, therefore, a creditor files proof of his claim and asks its allowance, and it is opposed on the ground of his having received a preference, and this is. found to be the fact, allowance of the claim will be refused or withheld until he shall surrender the preference,*^* and the referee has jurisdiction to determine whether or not a preference has been received when the creditor offers to jirove his claim as an unsecured debt.*" Or if the claim has been proved and allowed, and it is afterwards dis- covered that the creditor had been preferred, the claim may be expunged on motion of the trustee and at the cost of the creditor.*^^ The stat- ute is imperative that the preference must be surrendered before the claim can be allowed. A creditor who has received partial satisfaction of his debt, by means of a preference, cannot retain it and prove a claim for the unsatisfied balance. The amount of the preference cannot be treated as a set-off, either to reduce the amount of his claim, or against the dividend to be received thereon, but the amount must be surrendered 409 Wartell v. Moore (C. C. A.) 261 Fed. Fed. 343, 8 Am. Bankr. Rep. 744; In re 762, 44 Am. Bankr. Rep. 624. Keller, 109 Fed. 118, 6 Am. Bankr. Rep. ^10 Pirie v. Chicago Title & Trust Co., 334; In re Hoffman, 2 Nat. Bankr. News, 182 IT. S. 438, 21 Sup. Ct. 906, 45 L. Ed. 554; Cookingliam v. Morgan, 7 Blatchf. 1171, 5 Am. Bankr. Rep. 814. 480, 5 N. B. R. 16, Fed. Cas. No. 3,183 ; *iiln re Peacock, 178 Fed. 851, 24 Bingham v. Richmond, 6 N. B. R. 127, Am. Bankr. Rep. 159. Fed. Cas. No. 1,415. *; 2 In re Busby, 124 Fed. 469, 10 Am. ^,,,. „ ^ „ Bankr. Rep. 650 ; In re Abraham Steers 09 Am B?nk.' ReT ti.''''' '°' ^'^^ '''' Lumber Co., 112 Fed. 406, 50 C. O. A. ^9 Am. Bankr. Rep. 715. . 310, 7 Am. Bankr. Rep. 332. ■'10 In re Forsyth, 7 N. B. R. 174, Fed. 418 In re Flynn & Co., 126 Fed. 422, 11 Gas. No. 4,948 ; In re Wise, 2 Nat. Bankr. Am. Bankr. Rep. 318 ; In re Graff, 117 News, 151. 1237 PEEB-'EKKNCES AND PEEFBUBBD OEEDITORS § 60i to the trustee.*^® And a creditor having both a claim entitled to pri- ority and a common claim cannot so apply a preferential payment re- ceived as to reduce or extinguish the common claim and then prove the priority claim in full.*" But if the creditor will surrender his preference, all taint of fraud arising out of it is removed and he is restored to an equality with all other creditors, and may then prove his entire claim as unsecured."* In fact, a creditor in this position has his option, either to make the surrender and take his place in the ranks of the unsecured creditors, or to retain and rely upon the preference received."' In the latter case, he is open to the attack of the trustee, for it is not necessary to the trustee's right ojE action to avoid an alleged preference that the cred- itor should have come into the bankruptcy proceedings in any way.*^* But if no proceeding for that purpose ig, brought, or if the trustee's at- tack fails, the creditor remains .eptirely outside , of , th^ bankruptcy pro- ceedings, so far as concerns the claim , affected by the preference. And even if he comes into the court of bankruptcy to claim a fjmd, which has been paid into court subject to the rights of. conflicting claimarits,, yet if he does not seek to prove his ; claim as a general creditor., the fund must be paid over to him intact, on his title to it being decided, and without deducting a preference which he had received.*^^ If allowance of the claim is opposed on this ground, it is incumbent upon the trustee to show the actual receipt by the creditor of money, goods, or other property or ' security which, if retained, will diminish the assets available for general creditors and giVe the preferred creditor an advantage over the rest.*** But if theprciperty preferentially trans- ferred was a note of a third person, the creditor must be charged with the face value of it, without regard to the amount he actually realized *i6 In re Chaplin, 115 Fed. 162, 8 Am. for all purposes. Petition of Rouse, 208 Bankr. Rep. 121 ; In re ' Sumner, 101 Fed. 881, 126 C. C. A. 90, L. R. A. 1915B, Fed. 224, 4 Am. Banlir. Rep. 123 ; In re 148, 31 Am. Bankr. Rep. 115. Oolton Export & Import Co., 115 Fed. "is In re Privett, 132 Fed. 592, 13 Am. 158, 8 Am. Bankr. Rep. 257 ; In re Kel- Bankr. Rep. 151. ler, 109 Fed. 306, 6 Am. Bankr. Rep. 487; ■'2» In re Nathan, 2 Nat. Bankr. News, Batchelder & Lincoln Co. v. Whitmore, 611. 122 Fed. 355, 58 C. O. A. 517, 10 Am. "i In re West Norfolk Lumber Co,, Bankr. Repi 641. 112 Fed. 759, 7 Am. Bankr. Rep. 648. A 4ir In re Henry C. King Co., 113 Fed. claim by a chattel mortgagee to the pro- 110, 7 Am. Bankr. Rep. 619. ce6ds of a sale of the mortgaged property *i8 In re Richard, 94 Fed. 633, 2 Am. is not such a claim as will be disallowed Bankr. Rep. 506 ; In re Israel, 4 Dill. 501, until the surrender of an illegal prfefer- Fed. Cas: No. 7,112 ; In re Huhtenberg, ence. In re Johnson (D. CO 224 Fed. 180. 153 Fed. 768, 18 Am. Bankr. Rep. 697; *22 in re Hickey, 112 Fed. 287,' 7 Am. In re Nathan, 2 Nat. Bankr. News, 611. Bankr. Rep. 282 ; In re George M. Hill The lien of a mortgage given by a bank- Co.^ 1.30 Fed. 315; 64 C. 0. A. 561, 66 L. rupt, which is voidable as a preference, R. A. 68, 12 Am. Bankr. Rep. 221 ; In is in effect discharged by the bankruptcy re Christensen, 2 Nat. Bankr. News, 695. § 604 LAW OP BANKRUPTCY 1238 on it.*^^ But the return of unsalable goods to the unpaid vendor of them, under an agreement that they may be exchanged for new and salable stock, does not constitute the giving of a preference such that he must account for their value before being allowed to prove his claim.*** If the bankrupt's estate proves sufficient to pay in full the claims of all unpreferred creditors, and leave a surplus, then a creditor who had received a preference, and had been excluded from participation in the division of the estate in bankruptcy because of his refusal to sur- render it, will be entitled, as against the bankrupt, to share in such sur- plus.**« § 605. Same; Creditor's Knowledge of Intent to Prefer. — As the bankruptcy act of 1898 stood originally, it simply provided that "the claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their preferences." .(Section 57g.) And it was held that any advantage gained by the creditor which was in the nature of a preference must be surrendered, irrespective of the in- tention of the debtor in the transaction or the creditor's knowledge of it, and though the preference was given in the usual course of business and innocently received by the creditor. In other words, though the creditor could not be forced to yield up the payment, property, or security re- ceived, at the suit of the trustee in bankruptcy, unless it could be shown that he took it with reasonable cause to believe that the debtor was in- solvent and that a preference was intended or would result, yet no such knowledge or reasonable cause of belief need be shown as a ground for disallowing his claim when offered for proof. If there was a preference, it must be surrendered, and nothing else was necessary.**® But this was changed by the amendatory act of 1903, which provides that "the claims of creditors who have received preferences, voidable under section sixty, 42 8 In re Chaplin, 115 Fed. 162, 8 Am. 334; In re Bashline, 109 Fed. 965, 6 Am. Bankr. Rep. 121. Bankr. Kep. 194; In re Seckler, 106 Fed. 424 In re Nicholas, 122 Fed. ,299, 10 484, 5 Am. Bankr. Rep. 579 ; In re Flick, Am. Bankr. Rep. 291. ^^^ '^^^- 503, 5 Am. Bankr. Rep. 465 ; In ,„.T .^ 4. 110 T? .q OAQ Q 4,^ Te Alexander, 102 Fcd. 464, 4 Am. Bankr. 426 In re Morton, 118 Fed. 908, 9 Am. R^p g^g. j^ ^^ ^.^^^^ ^^^ ^^^ 295, 42 Bankr. Rep. 508. C. C. A. 354, 50 L. R. A. 605, 4 Am. Bankr. 426 Pirie V. Chicago Title & Trust Co., hep. 10; In re Sloan, 102 Fed. 116, 4 Am. 182 U. S. 438, 21 Sup. Ct. 906, 45 L. Ed. Bankr. Rep. 356 ; Strobel & Wllken Co. 1171, 5 Am. Bankr. Rep. 814 ;. In re Abra- v. Knost, 99 Fed. 409, 3 Am. Bankr. Rep. ham Steers Lumber Co., 112 Fed. 406, 631 ; In re Fort Wayne Electric Corp., 50 C. C. A. 310, 7 Am. Bankr. Rep. 3.32; 99 Fed. 400, 39 C. C. A. 582, 3 Am. Bankr. In re Dickson, 111 Fed. 726, 49 C. C. A. Rep. 634 ; In re Conhaim, 97 Fed. 923, 3 574, 55 L. R. A. 349, 7 Am. Bankr. Rep. Am. Bankr. Rep. 249 ; In re Jourdan,' 2 186; Mills v. Lewis, 110 Fed. 512^ 49 C. Nat. Bankr. News, 581 ; In re Wise, 2 C. A. 131, 6 Am. Bankr. Rep. 612 ; Ifi re Nat. Bankr. News, 151 ; Harris v. Second Keller, 109 Fed. 118, 6 Am. Bankr. Rep. Nat. Bank, 110 Tenn. 239, 75 S. W. 1053. 1239 PEBFBEBNCES AND PREFERRED CREDITORS § 606 subdivision b, or to whom conveyances, transfers, assignments, or in- cumbrances, void or voidable under section sixty-seven, subdivision e, have been made or given, shall not be allowed unless such creditors shall surrender such preferences, conveyances, transfers, assignments, or incumbrances." **' And it is now held that the claim of a creditor cannot be disallowed or expunged after proof, unless it is shown that the preference would be voidable in a suit by the trustee, that is, it must be shown that the bankrupt was insolvent at the time and that the cred- itor had reasonable cause to believe that the enforcement of the trans- fer, payment, or security would effect a preference.*** But if a given payment received by a creditor without knowledge of insolvency need not be surrendered before proof, not being a preference within the bank- ruptcy act because the result of the whole transaction was to increase the net indebtedness to the creditor, the same payment, received with knowl- edge of insolvency, is not a preference and need not be surrendered.*** J § 606. Same ; What Constitutes "Surrender" of Preference.— There have been many decisions to the eflfect that a "surrender" of a preference, to entitle the creditor to have his claim allowed, must be voluntary, that ■ is, not forced or compulsory, but following upon the mere demand of the trustee ; that if the creditor chose to abide the issue of adversary proceedings against him, the allowance of his claim as well as the re- tention of the preference must depend upon the result; and that it was too late to make a surrender, within the meaning' of the act, after the trustee had begun a suit for the avoidance of the preference", or at any rate after the recovery of a judgment therein.*^* But the Supreme Court of the United States has established a different rule at least in cases where the transaction is not tainted by actual fraud. It has ruled that a 127 Act Cong. Feb. 5, 1903, 32 Stat. Davidson, 4 Ben. 10, 3 N. B. E. 418, Fed. 797, amending Bankruptcy Act 1^98, § Cas. No. 3,599 ; In re Ricliter's Estate, 1 57g. Dill. 544, 4 N. B. R; 221, Fed. Cas. No «8 In re Frazin, 201 Fed. 86, 29 Am. '^I'SO^ ; In re Tonkin, 4 N. B. E. 52, Fed Bankr. Rep. 214; In re Sam Z. Lorch & ^^^- No. 14,094; In re Ayers, 6 Biss. 48 Co., 199 Fed. 944, 28 Am. Bankr. Rep. ^^d. Cas. No. 685 ; In re Leland, 7 Ben 784; Hardy v. Gray, 144 Fed. 922, 75 C. 1^6, 9 N. B. R. 209, Fed. Cas. No. 8,230; O. A. 562, 16 Am. Bankr. Rep. 387; In 1° ^e Montgomery, 3 N. B. R. 374, Fed: re Bloch, 142 Fed. 674, 74 C. C. A. 250, C!as. No. 9,728; In re Stephens, 3 Biss, 15 Am. Bankr. Rep. 748 ; In re Oppen- ^87, 6 N. B. R. 533, Fed. Cas. No. 13,365 heimer, 140 Fed. 51, 15 Am. Bankr. Rep. ^» ^^ Graves, 9 Fed. 816 ; In re Drum 267; In re PettinglU & Co., 135 Fed. """n'^' ^ Biss. 149, Fed. Cas. No. 4,094 218; In re Ratliff, 107 Fed. 80, 5 Am. Pl'elps v. Sterns, 4 N. B. R. 34, Fed. Cas Bankr Rep 713 N°- ^-OSO ; In I'e Scott, 4 N. B. R. 414, ■ %^ ■ ^,. ^ „„ T. , ^'^^- Cas. No. 12,518; In re Forsyth, 7 429 In re Henry C. Knig Co., 113 Fed. j^_ g. R. 174, Fed. Cas. No. 4.928; In re 110,7 Am. Bankr. Rep. 619. Cramer, 13 N. B. R. 225, Fed. Cas. No. *3o In re Greth, 112 Fed. 978, 7 Am. 3,345; Burr v. Hopkins, 6 Biss. 345, 12 Bankr. Rep. 598 ; In re Owings, 109 Fed. N. B. R. 211, Fed. ''Cas. No. 2,192 ; In re 628, 6 Am. Bankr. Rep. 454; In re Israel, Riorden, 14 N. B. R. 332, Fed. Cas. No. 4 Dill. 501, Fed. Cas. No. 7,112; In re 11,852. § 606 LAW OP BANKEUPTCX 1240 creditor who has in good faith received a preference, which is voidable under the bankruptcy law only because given within four months prior to the filing of the petition, and who has in good faith retained the pref- erence until deprived thereof by the judgment of a court in a suit by the trustee, may still prove the debt so voidably preferred, notwithstanding the statutory provision concerning the "surrender" of preferences.*^^ "^ As to the manner of making the surrender, it naturally depends on the character of the preference given. If it was a payment of money, the sum must be paid over to the trustee in bankruptcy, and an offer by the creditor to allow the amount of the preference to be deducted from any dividend payable to him on his claim is not sufficient.*^* As to re- imbursing the estate for the costs of legal proceedings, it may or may not be equitable to require this according to the circumstances of the case.*** But on the other hand, when a conveyance of land is surrendered as hav- ing been prieferential, the creditor is entitled to be reimbursed for money expended in paying off incumbrances on the property.*** Where the property transferred was a note of a third person, the statute is satis- . fied by a return of the note itself, and the trustee cannot refuse to re- ceive it and demand its face value in cash.**" But the surrender of a chose in action must be completed by such indorsements or other forms of assignment as may be necessary to pass title.*** A written waiver of 431 Keppel V. Tiffin Sav. Bank, 197 IT. *32 in re Flick (D. O.) 105 Fed. 503, S. 356, 25 Sup. Ot. 443, 49 L. Ed. 790, 13 5 Am. Bankr. Rep. 465. But where a Am. Bankr. Hep. 552; Page v. Rogers, creditor has received a preference in ,211 TJ. S. 575, 29 Sup. Ct. 159, 53 L. Ed. money which i.s less than the amount of 332, 21 Am. Bankr. Rep. 496; Streeter his claim, the court, instead of requir- V. Jefferson County Nat. Bank, 147 U. S. ing the repayment thereof, may proper- 36, 13 Sup. Ot. 236, 37 L. Ed. 68; State ly permit proof of the creditor's claim, Bank of Clearwater v. Ingram, 237 Fed. and provide by its final decree for the 76, 150 C. C. A. 278, 38 Am. Bankr. Rep. deduction of the amount of the prefer- 447 ; In re Louis J. BergdoU Motor Co., ence, with Interest, from the dividend 233 Fed. 410, 147 O. O. A. 346, .37 Am. due such creditor. In re Wright-Dana Bankr. Rep. 501 ; Union Central Life Hardware Co., 212 Fed. 397, 129 C. C. A. Ins. Co. V. Drake, 214 Fed. 536, 131 C. C. 73, 31 Am. Bankr. Rep. 816.' And where A. 82, .32 Am. Bankr. Rep. 252; In re the trustee in bankruptcy holds money Cahill (D. C.) 208 Fed. 193, 30 Am. Bankr. belonging to a creditor who has received Rep. 794; In re Hamilton Automobile a voidable preference, the two sums may Co., 209 Fed. 596, 126 O. C. A. 418, 31 be offset and the balance only paid Am. Bankr. Rep. 205. In re EUetson Co., to the trustee as a condition of allow- 193 Fed. 84, 28 Am. Bankr. Rep. 434; ing the creditor's claim. In re French In re .John A. Baker Notion Co., 180 Fed. fD. C.) 2.01 Fed. 255, 37 Am Bankr 922, 24 Am. Bankr. Rep. 808; In re Rep. 289. Clark, 176 Fed. 955, 24 Am. Bankr. Rep. 4^3 in re Moyer (D. 0.) ^ Fed. 324. 388 ; In re Otto F. Lange Co., 170 Fed. *34 Crandall v. Coats (D. C.) 133 Fed. 114, 22 Am. Bankr. Rep. 414; In re 905, 13 .\m. Bankr. Rep. 712. Baker, 2 Nat. B;inkr. News, ]95; In re -iss Dickinson v. .Security Bank of .Newcomer, 18 N. B. R. 85, Fed. Cas. No. Richmond, 110 Fed. 353 49 O A 84 10,148 ; In re Cadwell, 17 Fed. 693 ; In 6 Am. Bankr. Rep. 551.' • • • > re Currier, 2 Low, 436, 13 N. B. R. 68, wae Traders' Ins. Co. v Mann 118 Ga Fed. Cas. No. 3,492. 381, 45 S. E. 426. ' 1241 PREFERENCES AND PREFERRED CREDITORS § 607 a lien may be a sufficient surrender of it,*" but not a mere admission on the part of the creditor that the security given is voidable as having been in fraud of creditors,*** though it appears that a specific surrender of a mortgage may not be necessary where the lien was cut off by the foreclosure of a prior mortgage before the creditor filed his proof of claim.**' If the creditor has instituted proceedings in a state court to establish or enforce a lien, they must be abandoned or dismissed as a part of the surrender of his preference.**" The surrender of a preference must be made to the trustee in bank- ruptcy, ^ and not to the bankrupt or to any other person,**^ and pending the appointment and qualification of a trustee, the proof of debt must be postponed, and the preferred creditor cannot vote in the election for trus- tee.*** Ordinarily it is intended that the surrender shall be made by the creditor himself. But where the preference consisted in a deed of trust in the nature of a mortgage, it is sufficient if the trustee therein surrenders the property covered.*** Where the question of preference has been contested, and decided by the referee in bankruptcy adversely to the creditor, the referee should fix a reasonable time within which the creditor may surrender his preference and have his claim allowed.*** And where the creditor, on demand of the trustee in bankruptcy; has promised and agreed to pay over to him the amount of a preferential payment received by him, which promise he afterwards fulfills, he is not debarred from having his proof of claim allowed by the fact that, for the convenience of counsel, the actual payment of the money was delayed for a few days, beyond the close of a year after the adjudication in bankruptcy.**^ § 607. Same; Separate or Independent Claims.-^According to the preponderance of authority, the provision of the bankruptcy act relating to the surrender of preferences, as a condition to the allowance of claims, is aimed at the preferred creditor, rather than the particular debt sought to be proved; and the sum total of the bankrupt's indebtedness to that creditor at the time the preference was given is affected by it, no matter what may be the nature and number of the items of that indebtedness, so that, although the preference was given in discharge of or as security for 437 In re Bolinger, 108 Fed. 374, 6 Bankr. Rep. 201 ; In re Currier, 2 Low. Am. Bankr. Rep. 171. 436, 13 N. B. R. 68, Fed. Gas. No. 3,492. 438 In re Leeman, 1 Nat. Bankr. News, 1*2 In re Parham, 17 N. B. R. 300, 831. Fed. Cas. No. 10,712. 439 In re Stendts, 1 Nat. Bankr. News, 443 in re Clarke, 2 Hughes, 405, 10 N. 509. B. R. 21, Fed. Cas. No. 2,843. 440 In re Heinsfurter, 97 Fed. 198, 3 m In re Oppenheimer, 140 Fed. 51, 15 Am. Bankr. Rep. 113; Buckingham v. Am. Bankr. Rep. 267. Schuylkill Plush & , Silk Co., 38 Misc. 445 Hutchinson v. Otis, Wilcox & Co., (R«p. 305, 77 N. Y. Supp. 857. 190 U. S. 552, 23 Sup. Ct. 778, 47 L. Ed. 4-41 In re Bailey, 176 Fed. 990, 24 Am. 1179, 10 Am. Bankr. Rep. 135. 607 LAW OF BANKETJPTC5 1242 one particular debt, yet the creditor cannot be allowed to prove a claim upon any other debt, existing at that time, however separate and dis- tinct, unless he will surrender the preference.**® And a creditor having several claims against the same debtor, who receives a payment on ac- count without special appropriation, under circumstances making it a preference, cannot apply the payment to the extinguishment of some of the claims, and then prove the others as unsecured.**' And the same principle applies where part of the original indebtedness has been trans- ferred or assigned by the creditor to a third person ; no part of it can be allowed as a claim against the estate- in bankruptcy until the preference has been surrendered.*** But this applies only to the state of the ac- counts between the parties at the time the preference was given. A cred- itor who has received a preference is not thereby debarred from proving a claim in bankruptcy on a separate and new debt created after the giving of the preference, and to which the preference could have no relation.f*** But where notes given by a debtor to close an account are still held by the creditor and unpaid at the time a further indebtedness on account is contracted, both the notes and the account will constitute the indebted- ness then due, and a payment of the notes thereafter, when the debtor is insolvent and within four months prior to his bankruptcy, will con- 4*8 In re Mayo Contracting Co., 157 Fed. 469, 19 Am. Bankr. Rep. 551; Dunn T. Cans, 129 Fed. 750, 64 C. C. A. 278, 12 Am. Bankr. Rep. 316; In re Delling,' 124 Fed. 852, 10 Am. Bankr. Rep. 6S8; Livingstone v. Heineman, 120 Fed. 786, 57 C. C. A. 154, 10 Am. Bankr. Rep. 39 ; In re E. O. Tliompson's Sons, 121 Fed. 607 ; In re Lyon, 121 Fed. 723, 58 C. C. A. 143, 10 Am. Bankr. Rep. 25 ; Swarts V. Fourth Nat. Bank, 117 Fed. 1, 54 C. C. A. 387, 8 Am. Bankr. Rep. 673 ; In re Dickson, 111 Fed. 726, 49 C. C. A. 574, 55 L. R. A. 349, 7 Am. Bankr. Rep. 186; In re Rogers Milling Co., 102 Fed. 687, 4 Am. Bankr. Rep. 540 ; In re Teslow, 104 Fed. 229, 4 Am. Bankr. Rep. 757; In re Flick, 105 Fed. 503, 5 Am. Bankr. Rep. 465; In re Gillette, 104 Fed. 769, 5 Am. Bankr. Rep. 119 ; In re Conhaim, 97 Fed. 923, 3 Am. Bankr. iRep. 249 ; In re Beswick, 2 Nat. Bankr. News, 808 ; In re Myers, 2 Nat. Bankr. News, 765: In re Richter. 1 Dill. 544, 4 N. B. U. 221, Fed. Gas. No. 11,803; In re Kingsbury, 3 N. B. R. 317, Fed. Cas. No. 7,816; In re Barnes, Fed. Cas. No. 1,013; State Nat. Bank v. Jlonroe Cotton Press Co., 39 La. Ann. .s:!4, 2 Smith. 605. Contra, In re Hurst, l.s.x Fed. 707, 2fi .\m. Bankr. Rep. 781; In re AVise, 2 Nat. Bankr. News, 151 ; In re Comstock, 3 Sawy. 320, 12 N. B. R. 110, Fed. Cas. No. 3,079; Whiston v. Smith, 2 Low. 101, Fed. Cas. No. 17,523 ; In re Stephens, 3 Biss. 187, 6 N. B. R. 533, Fed. Cas. No. 13,365; Corbett v. Woodward, 5 Sawy. 403, Fed. Cas. No. 3,223; Cramton v. Tarbell, Fed. Cas. No. 3,349. *47icimball V. E. A. Rosenham Co., 114 Fed. 85, 52 C. C. A. 33, 7 Am. Bankr. Rep. 718 ; O. S. Morey Mercantile Co. v. Sehiffer, 114 Fed. 447, 52 C. C. A. 249, 7 Am. Bankr. Rep. 670; Dunn v. Gans, 129 Fed. 750. 64 C. C. A. 278, 12 Am. Bankr. Rep. :^16; In re Conhaim, 07 Fed. 923, 3 Am. Bankr. Rep. 249 ; In re Kingsbury, 3 N. B. R. 317, Fed. Cas. No. 7,816; Stearns Salt & Lumber Co. v. Hammond, 217 Fed. 559, 133 C. C. A. 411, 33 Am. Bankr. Rep. 484. *'s Swarts v. Fourth Nat. Bank, 117 Fed. 1, .54 C. C. A. 387, 8 Am. Bankr. Rep. 673. 44!) In re Wolf & Levy, 122 Fed. 127, 10 Am. Bankr. Rep. 153; In re Abra- ham Steers Lumber Co., 112 Fed. 406, 50 C. C. A. 310, 7 Am. Bankr. Rep. 332 ; In re Weissner, 115 Fed. 421, 8 Am. Bankr. Rep. 177 ; In re Jourdan, 2 Nat. Bankr. News, 581 ; In re Arnold, 2 N. B. R. 160, Fed. Cas. No. 551. 1243 PEEFEEENCES AND PEEFEERED CEEDITOES § 609 stitute the giving of a preference, which must be surrendered before the account can be proved and allowed.*''' § 608. Proceedings to Recover Preference; Jurisdiction. — When a creditor who is alleged to have received a preference submits himself to the jurisdiction of the court of bankruptcy, the question of his rights and liabilities may be determined summarily .*^i But the trustee cannot require a creditor in this situation, who has not in any way become a party to the bankruptcy proceedings, to appear before the referee and litigate the question of preference, but he must proceed by plenary suit against the creditor in a proper court.*^* The federal district court has jurisdiction of an action at law for this purpose.*®^ And indeed it is ex- pressly provided by statute that "for the purpose of such recovery any court of bankruptcy, as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction." *^* And an action by a trustee against a credi- tor to recover an alleged preference, begun by summons and complaint, is an action at law within the jurisdiction of the bankruptcy court, not- withstanding an allegation in the complaint of the conversion of the property by the creditor.*^'' And the federal court is not prevented from taking jurisdiction by the fact that the alleged preference consisted of a confessed judgment, under which there has been a levy and sale and a distribution of the proceeds to lien creditors.*^® But if the proceeds of a sale remain in the custody of the state court, the proper course for the trustee is to file an intervening petition, asking that such proceeds should be ordered delivered over to him,*^' and in any case the fund, if recovered, must be turned over to the bankruptcy" court and administered by it as a part of the bankrupt's estate.*^* § 609. Same; Right of Action. — Since a trustee in bankruptcy rep resents the whole body of creditors, and not merely lien claimants or the bankrupt, it is his right and duty to contest the validity of any convey- ance, mortgage, payment, or other transfer of property by which one 450 In re Jones, 123 Fed. 128, 10 Am. 1 Sawy. 88, 6 N. B. E. 22, Fed. Cas. No. Bankr. Rep. 513; In re Meyer, 115 Fed. 8,991. 997, 8 Am. Bankr. Rep. 598. *»i Bankruptcy Act 1898, § eOb, as '4 51 In re Black, 2 Ben. 196, 1 N. B. amended by Act Cong. Feb. 5, 1908, 32 R. 353, Fed. Cas. No. 1,457. And see Stat. 797, and Act Cong. June 25, 1910, Giveen v. Smith, 1 Hask. 358, Fed. Cas. 36 Stat. 838. And see supra, §§ 410, 414. No. 5,467. 455 Grant v. National Bank of Auburn, •4152 In re Keystone Press, 203 Fed. 197 Fed. 581, 28 Am. Bankr. Rep. 712. 710, 29 Am. Bankr. Rep. 715; In re F. 4S6 First Nat. Bank v. Jones, 21 Wall. M. & S. Q. Carlile, 199 Fed. 612, 29 Am. 325, 22 L. Ed. 542. Bankr. Rep. 373. 457 Bear v. Chase (C. O. A.) 99 Fed. '*68 Kraver v. Abrahams, 203 Fed. 782, 920, 3 Am. Bankr. Rep. 746. 29 Am. Bankr. Rep. 365; Fenlon v. 4,5 8 Lovell v. Latham & Co., 186 Fed. Lonergan, 29 Pa. St. 471 ; In re Mallory, 602, 26 Am. Bankr. Rep. 599. § 610 tAW OF BANKRUPTCY 1244 creditor has obtained a preference over others, and he is the only proper party to bring the necessary action ; *^' it cannot be brought by another creditor, certainly not by one who has not made himself a party to the bankruptcy proceedings.*** The proper defendant in such an action .r the party receiving the alleged preference or who is to be benefited by it,**^ and it is immaterial that such party is a municipal corporation.*** Nor is it necessary to the trustee's right of action that the creditor should have actually received money or property. A preference, voidable at the suit of the trustee, is equally given by the creation of a security, or by a release of the debtor's equity or right of redemption,*** or by a trans- fer of a claim against a third person, which is credited upon the price of the bankrupt's stock in trade when bought by the preferred creditor.*** And where the trustee, alleging that a sale by the bankrupt just prior to his adjudication was fraudulent, brings an action against the purchaser for the value of the goods, and receives money in settlement of such claim, he is not thereby precluded from following the money received by the bankrupt for the goods into the hands of preferred creditors.**^ A previous demand for the return or surrender of a preference is not a condition precedent to the trustee's right to sue for its recovery or an- nulment.*** § 610. Same; Form of Action, or Proceeding. — Where a trustee in bankruptcy seeks to recover a preference, but without showing the need of an injunction or discovery or accounting, or of specific performance or the reformation or cancellation of any instrument, but merely asks a decree for the amount of the preference, he has an adequate remedy at law.**' But if it is necessary to his case that he should avoid a convey- ance, transfer, or incumbrance apparently good, or a judgment valid *B9 In re Metzger, 2 N. B. R. 355, Fed. iss Lampkin v. People's Nat. Bank, 98 Cas. No. 9,510; Balfour v. Wheeler, 15 Mo. App. 239, 71 S. W. 715. Fed. 229. If lie sues in a state court, los Eau Claire Nat. Bank v. Jackman, it is of course necessary for the trustee 204 U. S. 522, 27 Sup. Ct. 391, 51 L. Ed. to allege and show his official status, 596, 17 Am. Bankr. Rep. 675 ; McCuUoch which may be done by the record of the v. Davenport Sav. Bank (D. C.) 226 bankruptcy proceedings. Anderson v. Pted. 309, 35 Am. Bankr. Rep. 765; Ptayton State Bank, 82 Or. 357, 159 Pac. Boonville Nat. Bank v. Blakey, 166 Ind. 1033. 427, 76 N. E. 529 ; Capital Nat. Bank v. *eo Smith v. Brainerd, 37 Minn. 479, Wilkerson, 36 Ind. App. 467, 75 N. E. 35 N. W. 271. 837; Chicago Title & Trust Co. v. Moo- 461 Gray v. Brunold, 140 Cal. 615, 74 dy, 233 111. 634, 84 N. E. 656; Bowler Pac. 303. V. First Nat. Bank, 21 S. D. 449, 113 N. 462 Painter v. Napoleon Tp., 156 Fed. W. 618, 130 Am. St. Rep. 725. 289, 19 Am. Bankr. Rtep. 412. 46? Detroit Trust Co. v. Old Nat. 4 83 Jackman V. Eau Claire Nat. Bank, Bank, 155 Mich. 61, 118 N. W 729- 125 Wis. 465, 104 N. W. 98, 115 Am. Boonville Nat. Bank v. Blakey, 166 Ind' St. Rep. 955. 427, 76 N. E. 529 ; Allen v. Gray, 201 X. 416 4 Hackney v. Raymond Bros. Clarke Y. 504, 94 N. E. 652, Ann Cas' 1912B Co., 68 Neb. 624, 94 N. W. 822, 99 N. W. 123. Equity has no jurisdiction of a bill 675. by a trustee in bankruptcy to recover 1245 PRBFBEHNCBS AND PEEFEEEED OEBDITOES § 611 on its face, his proper course is to sue in equity, and it is none the less an equitable action because the ultimate relief sought is a money judg- ment.*®* And' at any rate, a trustee's, suit to recover a prohibited prefer- ence is analogous to a suit by a judgment creditor to set aside a fraudu- lent conveyance, and hence its maintenance as a suit in equity is not objectionable on the ground of the existence of an adequate remedy at law.*®* But where a suit in equity is brought by a trustee to avoid an alleged preferential transfer, and to recover a fund to be administered by the bankruptcy court, one claiming a lien on the fund if recovered can- not intervene and enforce such lien by cross-bill, for the rule is that the subject-matter of a cross-bill must be a defense to the original bill, or essentially connected with and necessary to a complete determination of the original suit.*'" Where the action is maintained in the bankruptcy court, it must be a plenary suit, and not a mere summary hearing, unless the defendant will consent; but if he is properly brought into court, it is competent for him to waive an objection of this kind, and in that case the issue may be determined in any appropriate form of proceed- ing.*" § 611. Same; Pleading. — In the trustee's bill or complaint to avoid or recover a preference, it is not necessary to allege facts sufficient to constitute a cause of action to set aside a fraudulent conveyance of real estate, all that is necessary being sufficient allegations of a preference given by an insolvent within four months of the filing of the petition in bankruptcy.*'^ The plaintiff must naturally show his^wn capacity to sue, and this is done by alleging the filing of the petition in bankruptcy, the adjudication of the bankrupt, and the appointment and qualification of the plaintiff as trustee, together with an allegation of demand and re- an alleged preference, consisting of a Brpek & Spight v. Oliver, 149 Ala. 93, payment of money only. First State 43 South. 357. Bank of Milliken v. Spencer, 219 Fed. 47o Lovell v. Latham & Co., 186 Fed. 503, 135 C. C. A. 253, 33 Am. Bankr. 602, 26 Am. Bahkr. Rep. 599. Rep. 594. 471 In re Noel, 137 Fed. 694, 14 Am. 4'6 8 Dyer v. Kratzenstein, 103 App. Bankr. Rep. 715; In re Ulrich, 3 Ben. Div. 404, 92 N. Y. Supp. 1012 ; Lesser v. 355, 3 N. B. R. 133, Fed. Cas. No. 14,327. Bradford Realty Co., 116 App. Div. 212, And see supra, § 403. 101 N. Y. Supp. 571; Andrews v. Math- 472 Marion State Bank v. Gossett, 175 er, 134 Ala. 358, 32 South. 738; In re Ind. 211, 93 N. E. 996; Lesser v. Brad- Swenk, 9 Fed. 643. And see supra, § ford Realty Co., 116 App. Div. 212, 101 401. N. Y. Supp. 571; Benson v. Johnson, 85 48 8 Pond V. New York Nat. Exch. Or. 677, 165 Pac. 1001, 167 Pac. 1014; Bank, 124 Fed. 992, 10 Am. Bankr. Rep. ' Williams v. German-American Trust Co., 343; Johnson v. Hanley, 188 Fed. 752, 219 Fed: 507, 135 C. C. A. 257, 33 Am. 26 Am. Bankr. Rep. 748; Goodenow v. Bankr. Rep. 600; Wilson v. Citizens' Milliken, 1 Hask. 348, Fed. Cas. No. Trust Co. (D. C.) 233 Fed. 697, 37 Am. 5i535; Houghton v. Stiner, 92 App. Div. Bankr. Rep. 86. And see Collett v. 171, 87 N. Y. Supp. 10. Contra, Baden Adams, 249 U. S. 545, 39 Sup. Ct. 372, 63 V. Bertenshaw, 68 Kan. 32, 74 Pac. 639 ; L. Ed. 764, 43 Am. Bankr. Rep. 496. § 611 LAW OF BANKRUPTCY 1246 fusal of surrender of the preference.*''^ Aside from this, the four essen- tial allegations of the complaint are (1) that the bankrupt was insolvent when the alleged preference was .given ; (2) that it was within four months prior to the bankruptcy ; (3) that the effect of the enforcement of the judgment or transfer will be to enable the defendant to obtain a greater percentage of his debt than any other creditor of the same class; (4) that defendant had reasonable ground to believe that a pref- erence would result from the transaction. The omission of any one of these allegations will render the complaint demurrable.*'* The alle- gation of the debtor's insolvency must be specific ; it is not sufficient to State that he was in failing circumstances and unable to meet his debts in full.*'"® And it is necessary to show, explicitly or by necessary alle- gation, that the payment was made or property transferred out of the estate of the bankrupt.*'® As to the allegation that the preference, if permitted to stand, will enable the defendant to obtain a larger per- centage of his claim than other creditors of the same class, this is strictly necessary.*" To show this, it is probably necessary to insert allega- tions disclosing the existence of other creditors, — general unsecured cred- itors who are entitled to participate in the distribution of the estate.*'* And it has been held that the bill is demurrable if it fails to allege that there are not sufficient assets to pay all the creditors who have filed claims against the estate,*'* or that if the complaint alleges that the schedules of the bankrupt show a certain amount of unsecured claims, it must also sho*' the amount of preferred and secured claims.**** But later and perhaps better considered decisions are to the effect that the trustee need not allege that the assets of the estate are not sufficient to' pay the creditors in full,**^ or even that any creditor has filed a claim in the bankruptcy proceeding or any fact showing the necessity for recov- *73 Lesser v. Bradford Realty Co., 116 App. Div. 212, 101 N. Y. Supp. 571; App. Div. 212, lOl'N. Y. Supp. 571 ; Cap- Crooks v. People's Nat. Bank, 46 App. ital Nat. Bank v. WUkerson, 36 Ind. Div. 335, 61 N. Y. Supp. 604. App. 467, 75 N. E. 837. But see supra, irsGering v. Leyda, 186 Fed. 110, 108 § 609, as to the necessity of demand be- C. C. A. 222, 26 Am. Baukr. Rep. 137. It fore suit. Is not necessary to allege the identity of 4 7 4 Painter v. Napoleon Tp., 156 Fed. the existing creditors with those who 289, 19 Am. Bankr. Rep. 412 ; Ferguson were creditors at the time of the alleged V. Lederer, Strauss & Co., 12S Iowa, 28G, preferential transfer. Jlinnesota & On- 103 N. W. 794. tario Power Co. v. Losey, 260 Fed. 689, 475 Martin v. Bigelow, 36 Misc. Rep. 171 C. C. A. 427, 44 Am. Bankr. Rep. 395. 298, 73 N. Y. Supp. 443; jNIcNeel v. Folk, 470 Lesser" v, Bradford Realty Co., 47 75 W. Va. 57, 83 S. B. 192. Misc. Rep. 463, 95 N. Y. Supp. 933. 470Richter v. Nimmo, 68 App. Div. 4so Grant v. National Bank of Auburn, 422, 71 N. Y. Supp. 501. ' 197 Fed. 581, 28 Am. Bankr. Rep. 712. 477 Schreyer v. Citizens' Nat. Bank, 74 48i Kraver v. Abrahams, 203 Fed. 782, App. Div. 478, 77 N. Y. Supp. 494; West 29 Am. Bankr. Rep. 365; Sherwood v. V. Bank of I.^homa, 16 Okl. 329, 85 Pac. Holbrook, 98 MisC. Rep, 668, 163 N. Y. 469 ; Lesser v. Bradford Realty Co., 116 Supp. 326. 1247 PREFEKENCES AND PREFBEUBD CREDITORS § 612 "ering the alleged preference.**'' And the value of the debtor's property and the extent of his indebtedness need not be set out, as these are mat- ters of evidence.**^ It is strictly necessary to aver that the defendant had reasonable cause to believe that the enforcement oi the judg- ment or transfer would result in giving him a preference,*** but not to state why he had such cause of belief or the evidence of it.**® It is not sufficient to allege that the transaction in question was fraudulent, or that there was a fraudulent intent on the part of the debtor or of the credi- tor; this kind of allegation cannot take the place of specific statements of the insolvency of the debtor and of the' effect of the transaction as a preference.**® But on the other hand, if all the elements of a voidable preference are pleaded, no allegation of fraud is needed, as the statute does not require the presence of any other fraud than ^uch as is irriplied in the particular kind of transactions which it denounces as preferen- tial.**'' In an action at law by a trustee in bankruptcy to recover a preference, the complaint is not demurrable merely because it demands judgment for too large a sum.*** § 612. Same; Defenses. — Ignorance of the law is no defense to a creditor who is sued for the recovery of an' illegal preference,**^ nor a decree of a land court granting registration of title to the property in question under the conveyance assailed as preferential, at least if the defendant is not a bona fide purchaser taking in reliance on the regis- tered title,*^" nor can the preferred creditor resist the trustee's action on the ground that he has expended money in the custody and care of the property in question, his claim for compensation being one which must be presented for allowance against the estate in bankruptcy.*" But he may defend on the ground that his taking of the property was merely in pursuance of his rescission of a contract by which he had sold it to the bankrupt,*®^ or he may escape liability by repudiating all 4S2 Jackman v. Eau Claire Nat. Bank, A. 424, 22 Am. Bankr. Rep. 599; Severin 125 Wis. 465, 104 N. W. 98, 115 Am. St. v. Robinson, 27 Ind. App. 55, 60 N. E. Rep. 955. 966 ; Hallack v. Tritoh, 17 N. B. R. 293, *83 Crooks V. People's Nat. Bank, 46 Ferl. '^!>«. No. 5 9*16. App. Div. 335, 61 N. Y. Supp. 604. <8t Chism v. Bank of Friars Point *84 Greene v. Montana Brewing Co., (Miss.) 27 South. 610 ; Thompson v. First 28 Mont. 380, 72 Pac. 751; Johnson v. Nat. Bank, 84 Miss. 54, 36 South. 65. Anderson, 70 Neb. 233, 97 N. W. ^39; ^ss Grant v. National Bank of Auburn, Peek V. Connell, 21 Pa! Super. Ct. 22 ; 197 Fed. 581, 28 Am. Bankr. Rep. 712. Hoshaw V. Cosgriff, 247 Fed. 22, 159 C. *ss) Martin v. Toof, 1 Dill. 203, 4 N. B. C. A. 240, 40 Am. Bankr. Rep. 694 ; Wat- R. 488, Fed. Cas. No. 9,167. son V. Adams, 242 Fed. 441, 155 C. C. A. *«<> Morris v. Small, ICO Fed. 142, 20 217, 39 Am. Bankr. Rep. 473 ; Johnson v. Am. Bankr. Rep. 138. American Bank, 5 Alaska, 145. 401 in re Nechamkus, 155 Fed. 867, 19 ■4 8 5 Crooks V. People's Nat. Bank, 46 Am. Bankr. Rep. 189. App. Div. 335, 61 N. Y. Supp. 604. 102 Blyth & Fargo Co. v. Kastor, 17 *8 6 In re Leech, 171 Fed. 622, 96 C. C. Wyo, ISO, 97 Pac. 921. § 613 LAW OF BANKRUPTCY 1248 claim to the property or its proceeds,*** or he may show that the pay- ment or transfer was not received from the bankrupt, but from a third person.*'* § 613. Same; Set-Off of Amount of New Credit. — ^The bankruptcy act provides that "if a creditor has been preferred, arid afterwards in good faith gives the debtor further credit without security of any kind, for property which becomes a part of the debtor's estate, the amount of such new credit remaining unpaid at the time of the adjudication in bankruptcy may be set off' against the amount which would other^ wise be recoverable from him." **^ This, it i's held, entitles such a cred- itor to a deduction of the amount of the new credit from a preference which he is reqdired to surrender before proving his claim, and is not limited in its application to cases where the trustee sues to recover the preference.*®® But there was, at one time, much discussion as to whether the provision quoted applied to preferences received innocently and in good faith and without knowledge of the debtor's insolvency, the cur- rent doctrine being that a creditor must surrender even a preference so received, before his claim could be allowed, though it would not be voidable at the suit of the trustee.*®' But the necessity for deter- mining this point no longer exists, since the amendment of 1903 pro- vides that the surrender of preferences before the allowance of claims shall include only such preferences as are subject to be set aside or re- covered by the trustee.*®* But it is the intention of the provision re- lating to set-off that the preference shall have been given in settle- ment and discharge of an existing debt, and that a new and uncon- nected transfer of property on credit shall have ensued.**® Hence where *83 Giveen v. Smith, 1 Hask. 296, Fed. ler, 109 Fed.' 118, 6 Am. Bankr. Rep. 334 ; Cas. No. 5,466. In re Christensen, 101 Fed. 802, 4 Am. 494 North V. Taylor, 61 App. Div. 253, Bankr. Rep. 202; In re Abraham Steers 70 N. Y. Supp. 339. Lumber Co., 110 Fed. 738, 6 Am. Bankr. 495 Bankruptcy Act 1898, § 60c. Rep. 315. 486 Kahn v. Cone Export & Commis- 407 See C. S. Morey Mercantile Co. v. sion Co., 115 Fed. 290, 53 O. C. A. 92, 8 Sehiffler, 114 Fed. 447, 52 C. O. A. 249, 7 Am. Bankr. Rep. 157; Gans v. Ellison, Am. Bankr. Rep. 670; In re Oliver, lOn 114 Fed. 734, 52 0. C. A. 366, 8 Am. Fed. 784, 6 Am. Bankr. Rep. 626; In re Bankr. Rep. 153; McKey v. Jjee, 105 Fed. Ratliff, 107 Fed. 80, 5 Am. Bankr. Rep. 923, 45 C. C. A. 127, 5 Am. Bankr. Rep. 713'; In re Thompson, 112 Fed. 651, 7 Am. 267; Peterson v. Nash Bros., 112 Fed. Bankr. Rep. 214; In re Jones, 123 Fed. 311, 50 C. C. A. 260, 55 L. R. A. 344, 7 128, 10 Ara. Bankr. Rep. 513. Am. Bankr. Rep. 181 ; In re Southern 498 Bankruptcy Act 1898, § 57g, as Overalls Mfg. Co., Ill Fed. 518, 6 Am. amended by Act Cong. Feb. 5, 190.3, 32 Bankr. Rep. 633; In re Ryan, 105 Fed. Stat. 797. 760, 5 Am. Bankr. Rep. 396 ; In re Seek- * do In re John Morrow & Co., 134 Fed. ler, 106 Fed. 484, 5 Am. Bankr. Rep. 579; 686, 13 Am. Bankr. Rep. 392; In re Bail- In re Soldosky, 111 Fed. 511, 7 Ara. ey, 110 Fed. 928, 7 Am. Bankr. Rep. 26. Bankr. Rep. 123. Contra, see In re Kel- Deposits in bank by an insolvent custom- 1249 PEBFEKBNCES AND PRBB'EREBD ORBDITOES § 614 preferential payments have been made on an account for goods sold, and the trustee demands their surrender before the creditor's claim shall be allowed, the latter cannot set off the unpaid balance.^"" Further, it is necessary that the property for which the credit was given should have been acquired by the bankrupt from the preferred creditor him- self,^*"- but not that it should remain a part of the debtor's estate until his adjudication in bankruptcy, or that it should be used in payment of preferred debts.™^ But the creditor claiming this right of set-off must allege and show all the facts essential to entitle him to it, the same as if he sought to maintain a separate action on his claim.*** § 614. Same; Burden of Proof and Evidence. — In an action to set aside or recover a transfer, incumbrance, or payment, alleged to con- stitute an unlawful preference, the burden of proof is on the trustee in bankruptcy to establish the existence of each of the statutory ele- ments of a voidable preference,*** To^show the fact that the bankruptcy law has become applicable to the transaction in question, by reason of the debtor's having been adjudged bankrupt as of a certain date, a prop- erly certified copy of the adjudication of bankruptcy is admissible.*** er after tlie bank's cashier had forbidden the payment of checks against the de- posit, and very shortly before the filing of a petition in involuntary bankruptcy against the customer, constitute a void- able preference, and cannot be allowed by way of set-ofC against the customer's debt to the bank. Mechanics' & Metals Nat. Bank v. Ernst, 231 T'. S. 60, 34 Sup. Ct. 22, 58 L. Ed. 121, 31 Am. Bankr. Rep. 302. And see Chlsholm v. First Nat. Bank, 269 111. 110, 109 N. E. 657; In re United Grocery Co. (D. C.) 2.53 Fed. 267, 41 Am. Bankr. Rep. 824. 500 In re Christensen (B. C.) 101 Fed. 802, 4 Am. Bankr. Rep. 202 ; Rotan Gro- cery Co. v. West, 246 Fed. 685, 158 C. 0. A. 641, 41 Am. Bankr. Rep. 153; In re Ryan (D. C.) 105 Fed. 760, 5 Am. Bankr. Rep. 396. ^■01 Carleton Dry Goods Co. v. Rogers, 120 Fed. 14, 57 0. C. A. 34, 9 Am. Bankr. Rep. 787. s 02 Kaufman v. Tredway, 195 TJ. S. 271, 25 Sup. Ct. 33, 49 L. Ed. 190, 12 Am. Bankr. Rep. •682. 6 03 In re Oliver (D. C.) 109 Fed. 784, 6 Am. Bankr. Rep. 626. 5 04 Turner V. SchaefCer, 249 Fed. 654, 161 C. 0. A.' 564, 40 Am. Bankr. Rep. 829; W. S. Peck & Co. v. Whitmer, 231 Fed. 893. 146 C. C. A. 89, 36 Am. Bankr. Eep. 722 ; Carey v. Donohue, 209 Fed. 328, Blk.Bkr.(3d Ed.)— 79 126 C. C. A. 254, 31 Am. Bankr. Rep. 210; Mayes v. Palmer, 208 Fed. 97, 125 C. C. A. 325, 31 Am. Bankr. Rep. 225; Northern Neck State Bank v. Smith, 205 Fed. 894, 124 C. C. A. 207, 30 Am. Bankr. Rep. 527; In re Dorr, 196 Fed. 292, 28 Am. Bankr. Rep. 505 ; Kimmerle V. Parr (C. 0. A.) 189 Fed. 295, 26 Am. Bankr. Rep. 818; Brown v. Streicher, 177 Fed. 473, 24 Am. Bankr. Rep. 267 ; Crane V. Penny, 2 Fed. 187; Parsons v. ToplifC, 119 Mass. 245, 14 N. B. R. 547; Burn- ham V. Ft, Dodge Grocery Co., 144 Iowa, ,577. 123 N. W. 220; Getman v. Second Nat. Bank, 89 N. T. 136; Starbuck v. Gebo, 48 Misc. Rep. 333, 96 N. Y. Supp. 781 ; Keith v. Gettysburg Nat. Bank, 23 Pa. Super. Ct. 14 ; Wickwire v. Webster City Sav. Bank, 153 Iowa, 225, 133 N. AV. 100; Haokney v. First Nat. Bank, 68 Nell. 588. 94 N. W. S05. 98 N. W. 412 ; McDonough v. Cohen, 90 Conn. 469, 97 Atl. 861 ; Kentucky Bank & Trust Co. v. Pritohett, 44 Old. 87, 143 Pac. 338. It is not incumbent upon the trustee to prove the existence of other creditors#or in- debtedness In order to defeat a mortgage, made within four months before the bankruptcy, and which operates as a preference. Pierre Banking & Trust Co. V. Winl-Tler, 39 S. D. 454, 165 N. W, 2. 5 oi) Calkins v. Farmers' &. Mechanics' Bank, 99 Mo. App. 509, 73 S. W. 1098; § 614 LAW OF BANKRUPTCY 1250 And it is proper to show that the defendant's attorney was present when the bankruptcy proceedings were had, as showing notice there- of.^"* But the fact that the particular transaction on which the trus- tee's suit is based was alleged as an act of bankruptcy in the petition in bankruptcy, and .that the adjudication was based on it, is not con- clusive proof against the defendant that it constituted an illegal pref- erence, because the issues in the two proceedings are not the same.®*' But on the other hand, a decree of a state court adverse to the cred- itor, in a suit between the trustee and himself, is a conclusive estoppel upon the creditor if he seeks afterwards to prove his claim in the bank- ruptcy proceedings.®"* One thing absolutely essential to constitute a voidable preference is that the debtor should have been insolvent at the time it was given, and the trustee has the burden of proving this' fact.®"® The mere fact that the debtor was afterwards adjudged bankrupt raises no presump- tion that he was insolvent at any given tinie within four months prior to the filing of the petition.®^" And the giving of a confession of judgment does not of itself raise a presumption of insolvency.®-'^'^ But the verified schedules of the bankrupt, containing a presumptively complete list of his assets and liabilities, are admissible in evidence on the question Whitson V. Farber Bank, 105 Mo. App. 605, 80 S. W. 327. 5 06 Calkins v. Farmers' & Mechanics' Bank, 99 Mo. App. 509, 73 S. W. 1098. B07 Hussey v. Richardson-Roberts Dry Goods Co., 148 Fed. 598, 78 C. C. A. 370, 17 Am. Bankr. Rep. 511; In re Dunkle, 7 N. B. R. 72, Fed. Cas. No. 4,160. And see supra, § 182. 608 In re Dakin, 19 N. B. R. 181, Fed. Cas. No. 3,539. A judgment of the ref- eree in bankruptcy, disallowing, on ob- jections by the trustee, a claim against the bankrupt's estate, on the ground that the claimant had received a preference, is admissible in evidence in a subsequent suit by the trustee to recover the prefer- ence. Ullman, Stern & Krausse v. Cop- pard, 246 Fed. 124, 158 C. C. A. 350, 40 Am. Bankr. Ben. 426. 600 In re F. M. & S. Q. Carlile, 199 Fed. 612, 29 Am. Bankr. Rep. 373; In re Ark- onia Fabric 5Ifg. Co., 151 Fed. 914, 18 Am. Bankr. Rep. 470; Edwards v. Caron- delPt Milling Co., 108 Mo. App. 27.-., S3 S. W. 764 ; .T. W. Crancer & Co. v. Wade, 26 Okl. 757, 110 Pac. 778 ; McGill v. Com- mercial Credit Co. (D. C.) 243 Fed. 63T, .39 Am. Bankr. Rep. 702; In re Gaylord (D. C.) 225"Fed. 234, 35 Am. Bankr. Rep. 544; Anderson v. Stayton State Bank, 82 Or. 357, 159 Pac. 1033; Simpson v. Western Hardware & Metal Co., 97 Wash. 626, 167 Pac. 113. But in an ac- tion by the trustee to recover money paid by the bankrupt prior to his adjudication in alleged satisfaction of a debt, where the question at issue is whether any such debt existed In fact, it is not necessary to show that there were unsatisfied creditors at the time the payment was made, or at the time of bringing suit or of the trial. Breckons v. Snyder, 211 Pa. St. 176, 60 Atl. 575. 610 In re Chappell, 113 F«d. 545, 7 Am. Bankr. Rep. 608; Swartz v. Frank, 183 Mo. 438, 82 S. W. 60. But where the undisputed facts established that the banki-upt was insolvent to a large extent at the time of the bankruptcy, even dis- regarding his contingent obligations, there is prima facie proof that he was insolvent at the time of making the transfer a month before, where there was no going business which substan- tially affected the situation in so short a time. In re Dix (D. C.) 267 Fed. 1016, 46 Am. Bankr. Rep. 190. 611 In re Dibblee, 3 Ben. 283, 2 N. B R. 617, F«d. Cas. No. 3,884. 1251 PREFERENCES AND PREFERRED CREDITORS § 614 of his insolvency at the time of 'the transaction in suit, at least if it occurred not very long before the bankruptcy and without opportunity for any great change in either property or debts.''^^ And the bank- rupt's books of account are competent evidence on this issue, to which either party may have recourse, and while their showing as to the debtor's solvency or insolvency is not conclusive, yet it is ordinarily im- portant evidence and entitled "to much weight.®^* The bankrupt may also be called as a witness in the trustee's suit, and his testimony may be received concerning his financial condition at the date in question; and if the giving of a preference excites a suspicion of collusion be- tween the bankrupt and the preferred creditor, or of a desire on the part of the former to aid and shield the latter, this only goes to the bankrupt's credibility, not his competency .^^* And it is proper and per- missible for the trustee in bankruptcy to testify as to the value of the assets of the bankrupt coming into his hands, the amount of debts proved, the amount he realized at a sale at auction of the bankrupt's assets, and other like matters, as all these, matters have a tendency to show the bankrupt's solvency or insolvency at the time of the alleged preference, although of course they must be considered in connection with any changes in his financial condition which may be shown to have occurred in the interval."® And where the validity of a mort- gage is in issue, it is proper to show that, on the day following its ex- ecution, the mortgagor made a voluntary conveyance to his son of sub- stantially allhis property.®^® If the intention of the debtor to give a preference is still necessary to justify its avoidance at the suit of the trustee, under the law as it stands at present,®^' the burden of establishing this fact is on the trus- B12 In re Mandel, 135 Fed. 1021, 68 0. 800 ; Grandison v. National Bank of 0. A. 546; Lynch v. Bronson, 80 Conn. Commerce (D. C.) 220 F«d. 981, 34 Am. 566, 69 Atl. 538 ; Summerville v. Stock- Bankr. Eep. 497. ton Milling Co., 142 Oal. 530, 76 Pac. en Supples v. Hall, 75 Conn. 17, 52 243 ; Hackney v. Raymond Bros., 68 Neb. Atl. 407, 96 Am. St. Rep. 188 ; Blyth & ' 624, 94 N. W. 822, 99 N. W. 67^ ; Utah Fargo Co. v. Kastor, 17 Wyo. 180, 97 Ass'n of Credit Men v. Boyle Furniture Pac. 921 ; Otis v. Hadley, 112 Mass. 100. Co., 39 Utah, 518, 117 Pac. 800. B^t bib Ridge Ave. Bank v. Studheim, 145 see, contra, Halbert v. Pranke, 91 Minn. Fed. 798, 76 C. C. A. 362, 16 Am. Bankr. 204, 97 N. W. 976 ; Hibbs v. Marpe, 84 Eep. 863 ; Capital Nat. Bank v. Wilker- Minn. 10, 86 N. W. 612; Batchelder v. son, 36 Ind. App. 467, 75 N. E. 827; Home Nat. Bank, 218 Mass. 420, 105 N". Lynch v. Bronson, 80 Conn. 566i 69 Atl. E. 1052; Johnson v. Gratiot County 538; Coolidge v. Ayers, 77 Vt. 448, 61 State Bank, 193 Mich. 452, 160 N. W. Atl. 40; In re Star Spring Bed Co. (D. 544. C.) 257 Fed. 176, 43 Am. Bankr. Rep. 018 Ernst v. Mechanics' & Metals Nat 328. But see Culliriane v. State Bank, Bank, 200 Fed. 295 ; In re Docker Fos- 123 Iowa, 340, 98 N. W. 887. ter Co., 123 Fed. 190, 10 Am. Bankr. Rep. bio Supplee v. Hall, 75 Conn. 17, 52 584 ; Utah Ass'n of Credit Men v. Boyle Atl. 407, 96 Am. St. Rep. 188. Furniture Co., 39 Utah, 518, 117 Pac. "' Supra, § 590. § 614 LAW OP BANKRUPTCY 1252 tee.^^* But it may be proved by circumstantial ' evidence, all the cir- cumstances which go to show the intent being considered,"* together with the declarations ,of the bankrupt at and prior to the time of the transaction in question.^^* And failure of the defendant to produce the testimony of the bankrupt or of the creditor alleged to have been pre- ferred, is held to be strongly corroborative of such evidence in the case as tends to show an intent to prefer.^*^ But the testimony of the parties to an alleged preferential transaction as to their intention is en- titled to but little weight as against proof of the transaction itself.®^^ And indeed many of the cases sustain the doctrine that, if the natural and inevitable result of the payment or transfer is to give a preference, the intention of the debtor in that behalf need not be proved but will be conclusively presumed.^^* The trustee must also assume the burden of proving that the per- son receiying the alleged preference or to be benefited by it, or his agent acting for him in the transaction had "reasonable cause to believe that the enforcement of the judgment or transfer would effect a pref- erence ;" this is absolutely essential and there can be no recovery with- out it.®**' But the obligation is sufficiently met by showing facts and 518 Debus V. Xates, 193 Fed. 427, 30 Am. Bankr. Rep. 823 ; Stevens v. Oscar Holway Co., 156 Fed. 90, 19 Am. Bankr. Rep. 399 ; Whitwell v. Wright, 136 App. Div. 246, 120 N. T. Supp. 1065; Jack- man V. Eau Claire Nat. Bank, 125 Wis. 465, 104 N. W. 98, 115 Am. St. Rep. 955. 51 s Little V. Alexander, 21 Wall. 500, 22 L. Ed. 625 ; Atherton v. Emerson, 199 Mass. 199, 85 N. E. 530; Wills v. Venus Silk Glove Mfg. Co., 170 App. Div. 352, 156 N. T. Supp. 115: 52 Nudd V. Burrows, 91 U. S. 426, 23 L. Ed. 286. 521 Darling v. Townsend, 5 Fed. 176. 522 Oxford Iron Co. v. Slafter, 13 Blatchf. 455, 14 N. B. R. 380, Fed. Cas. No. 10,637. 62 3 First Nat. Bank v. Jones, 21 Wall. 325, 22 L. Ed. 542; Lazarus v. Eagen (D. 0.) 206 Fed. 518, 30 Am.>Bankr. Rep. 287; Kimmerle v. Farr, 189 Fed. 295, 111 C. 0. A. 27, 26 Am. Bankr. Rep. 818 ; Brewster v. GofE Lumber Co., 164 Fed. 324, 21 Am. Bankr. Rep. 106; In re Mc- Lara, 97 Fed. 922, 3 Am. Bankr. Rep. 245; Galveston Dry Goods Co. v. Fren- kel (Tex. Civ. App.) 103 S. W. 224; Blyth & Fargo Co. v. Kastor, 17 Wyo. 180, 97 Pae. 921; Ecker v. McAllister, 45 Md. 290 ; Utah Ass'n of Credit Men v. Boyle Furniture Co., 43 Utah, 523, 136 Pae. 572. 524 Barbour v. Priest, 103 U. S. 293, 26 L. Ed. 478; Kaufman v. Tredway, 195 U. S. 271, 25 Sup. Ct. 33, 49 L. Ed. 190, 12 Am. Bankr. Rep. 682 ; City Nat. Bank v. Slocum (C. C. A.) 272 Fed. 11, 47 Am. Bankr. Rep. 47; Marshall v. Nev- ins, 242 Fed. 476, 155 C. C. A. 252, 40 Am. Bankr. Rep. 85 ; Baxter v. Ord, 239 Fed. 508, 152 C. O. A. 381, 39 Am. Bankr. Rep. 273 ; In re Campion (D. C.) 256 Fed. 902, 43 Am. Bankr. Rep. 625; Clifford v. Morrill (D. C.) 230 Fed. 190, 36 Am. Bankr. Rep. 805; Ogden v. Reddish, 200 Fed. 977, 29 Am. Bankr. Rep. 531; Tilt V. Citizens' Trust Co., 191 Fed. 441, 27 Am. Bankr. Rep. 320 ; Alexander v. Red- mond, 180 Fed. 92, 103 C. 0. A. 446, 24 Am. Bankr. Rep. 620; In re Houghton Web Co., 185 Fed. 213, 26 Am. Bankr. Rep. 202; Reber v. Louis Sliulman & Bro., 179 Fed. 574, 24 Am. Bankr. Rep. 782; Sparks v. Marsh, 177 Fed. 739, 24 Am. Bankr. Rep. 280; McElvain v. Har- desty, 169 Fed. 31, 94 C. C. A. 399, 22 Am. Bankr. Rep. 320; Getts v. Janesville Wholesale Grocery Co., 163 Fed. 417, 21 Am. Bankr. Rep. 5; Calhoun County Bank V. Cain, 152 Fed. 983, 82 C. C. A. 114, 18 Am. Bankr. Rep. 509 ; Parker v. 1253 PREFERENCES AND PREFERRED CREDITORS § 614 circumstances with respect to the debtor's financial condition such as would put an ordinarily prudent man oh inquiry, which would have disclosed the debtor's insolvency and the consequent fact that the trans- fer would effect a preference. '■"» The existence of' this reasonable cause of belief may be shown by^circumstantial evidence,®*" and indeed the test of the sufficiency of the evidence to warrant the submission of the question to the jury does not rest on the assertions of either party as to his intent or belief, but on inferences which may fairly arise from the facts in evidence.®*'' And such cause of belief is' not shown by circum- stantial evidence, where the circumstances are as consistent with tjie theory of innocence and good faith on the part of the creditor as with the theory of a fraudulent purpose.®** But proof that the bankrupt, while insolvent, paid or secured the defendant creditor in full, with- out making adequate compensation to his other creditors, raises a pre- sumption that the defendant knew that he was being preferred and that the debtor was insolvent, and casts upon him the burden of show- ing the contrary.®*® It is likewise necessary, in order to establish a voidable preference, to show that the preferred creditor actually received as a result of the transaction a greater percentage of his debt than that payable to the other creditors.®^* And the burden is on the trustee, if the mat- ter is involved in any doubt, to show that the transaction took place Black, 151 Fed. 18, 80 C. C. A. 484, 18 Craig v. Sharp (Mo. App.) 219 S. W. 98 ; Am. Bankr. Rep. 15 ; Harder v. Clark, 66 Brown v. First State Bank (Tex. Civ. Misc. Rep. 584, 123 N. Y. Supp. 1102 ; App.) 199 S. W. 895 ; Slayton v. Drown, Matthews v. Joannes Bros. Co., 156 Mich. 93 Vt. 290, 107 Atl. 307. But one claim- 663, 121 N. W. 272; Couturie v. Crespie Ing to be a purchaser for value and in (Tex. Civ. App.) 134 S. W. 257; Whit- good faith of property transferred by well V. Wright, 115 N. Y. Supp. 48 ; Ath- a preferential conveyance, has the bur- erton v. Emerson, 199 Mass. 199, 85 N. den of showing the payment of value. E. 530 ; Lynch v. Bronson, 80 Conn. 566, Watson v. Adams, 242 Fed. 441, 155 C. C. 69 Atl. 538 ; Andrews v. Kellogg, 41 Colo. A. 217, 39 Am. Bankr. Rep., 473. 35, 92 Pac. 222; Arkansas Nat. Bank 525 Capital Nat. Bank v. Wilkerson, 36 V. Sparks, 83 Ark. 324, 103 S. W. 626 ; Ind. App. 467, 75 N. E. 837. Walker v. Tenison Bros. Saddlery Co. 526 in re Baker 14 N B R 433 Fed (Tex. Civ. App.) 94 S. W. 166; Blyth & Cas No 763 Fargo Co. v Kastor 17 Wyo^ 180 97 , „ Hamilton Nat. Bank v. Balcomb, Pac 921 ; Alter y. Clark 19.3 Fed. 153; ^^^ ^^^ ^^ ^ ^ ^ 2^ ^^ Galbraith v. Whitaker, 119 Mmn. 447, td„„i™ tj„„ Abo 138 N. W. 772, 43 L. R. A. (N. S.) 427; ^^nkr/lep 338. Hewitt V. Boston Straw Board Co., 214 ,,f ' ^""l^"'"'.!;^*- ^°if^^^°''^'^ °°- Mass. 260. 101 N. E. 424 ; Burnes v. Ep- ^44 Iowa. 577, 123 N. W. 220. stein, 201 Fed. 393; Mantz v. Capital 520 gtobaugh v. Mills, 8 N. B. R. 361, City State Bank (Iowa) 181 N. W. 3; ^ed- Cas. No. 13,461; Crawford v. McDonough v. Cohen, 90 Conn. 469, 97 Einipf, 205 Pa. St. 154, 54 Atl. 709. Atl. 861; Soule v. First Nat. Bank, 26 530 Engel v. Union Square Bank, 182 Idaho, 66, 140 Pac. 1098 ; Continental & N. Y. 544, 75 N. E. 1129; Gering v. Commercial Trust & Savings Bank v. Leyda, 186 Fed. 110, 108 C. C. A. 222, Breen & Kennedy, 188 111. App. 467 ; 26 Am. Bankr. Rep. 137. g 615 LAW OF BANKRUPTCY 1254 within four months prior' to the filing of the petition in bankruptcy ,^^* that the relation of debtor and creditor then subsisted between the par- ties, and not a trust relation or other situation which would take the case out of the statute,^** and that the transaction was not a mere ex- change or substitution of securities.^** a § 615. Same; Trial. — ^The rules governing the trial of an action to avoid an illegal preference do not differ materially from those prevail- ing in an ordinary action or suit. Disputed issues of fact must be sub- mitted to the jury, if there is sufficient evidence to warrant or require it, and not taken from them by binding instructions.^** Thus, the ques- tion whether or not the defendant had "reasonable cause to believe" that a preference would result from the transaction in question or from the enforcement of the security obtained by him is a question of fact, and ordinarily he has the right to have the jury pass upon and decide ^ it.**5 gy^ where the undisputed facts unmistakably show the existence of such reasonable cause of belief, it is not error to direct a verdict,**® and on the other hand, where there is no evidence in the case from which the jury could draw the conclusion that he had such reasonable cause to believe that a preference would result, .binding instructions in favor of the defendant are not improper.®*' The instructions on mat- ters of law, such as the meaning of "insolvency," the nature of a void- able preference, what constitutes reasonable cause to believe a prefer- ence was intended, and the like, must be framed with careful regard to the language of the statute and its accepted interpretation.®** But a 531 Allen V. Gray, 63 Misc. Rep. 219, N. H. 274, 52 Atl. 74; Jackman v. Eau 115 N. Y. Supp. 928. Claire Nat. Bank, 125 Wis. 465, 104 N. 532 Ferguson v. Bauernfelnd, 140 Wis. ^- ^^' ^^^ -^™- St. Rep. 955; Upson v. 42 121 N. W. 647. ^*^- Morris Bank, 103 App. Div. 367, 92 lo. c^ j! T, 1 * TTT-ii- ^- T, ^^- ^- Supp. 1101; Hackney v. Raymond .on^^v « .«. Williamson v. Fish, ^ros. Clarke Co., 68 Neb. 624, 94 N. W. 120 N. Y. Supp. 365. ^^2, 99 N. W. 675; Landis v. McDonald, 534 Clingman v. Miller, 160 Fed. 326, §8 Mo. App. 335 ; Harmon v. Walker 131 87 C. C. A. 278, 20 Am. Bankr. Rep. 360; Mich. 540, 91 N. W. 1025 ; Deland v Mil- Utah Ass'n of Credit Men v. Boyle Fur- ler & Ohaney Bank, 119 Towa 368 93 N niture Co., 39 Utah, 518, 117 Pac. 800; w. 304; Jacobs v. Sapersteln, 225 Mass Blake V. Third Nat Bank, 219 Mo. 644, 300, 114 N. E. 360; McAleer V. People's 118 S. W. 641. Bank, 202 Ala. 256, 80 South. 94. 536 Coleman v. Decatur Egg Case Co., bso Shale v. Farmers' Bank of Morrill, 186 Fed. 136, 108 C. C. A. 248, 26 Am. 82 Kan. 649, 109 Pac. 408; Christoph- Bankr. Rep. 248 ; Wetstein v. Franciscus, erson v. Oleson, 19 S. D. 176, 102 N W 133 Fed. 900, 67 C. C. A. 62, 13 Am. 685. Bankr. Rep. 326; Ridge Ave. Bank v. 537 Keith v. Gettysburg Nat. Bank 23 Studheim, 145 Fed. 798, 76 C. C. A. 362, Pa. Super. Ot. 14 ; Waite v. Citizens' 16 Am. Bankr. Rep. 863; Andrews v. State Bank, 178 Iowa, 1331, 160 N. W. Kellogg, 41 Colo. 35, 92 Pac. 222; Brown 919; Keith v. Simpson, 24 Ga. App. 27o| V. Pelonsky, 210 Mass. 502, 96 N. E. 100 S. E. 649 ; Brittan v. Buerger Com- 1102 ; Hastings v. Fithian, 71 N. J. Law, mission Co., 168 Wis. 590, 170 N. W. 947. 311, 60 Atl. 350; Marden v. Sugden, 71 53s Lynch v. Bronson, 80 Conn. 566 69 1255 PKEFERBNCES AND PREFERRED CREDITORS § 616 charge in regard to the defendant's having "ground to believe" a pref- erence was intended, instead of "cause to believe," in the language of the statute, is not objectionable,''^' and where the trustee's suit pro- ceeds purely on the ground of the defendant's having received an un- lawful preference, a request to charge on the elements of a fraudulent conveyance is properly refused.^*" § 616. Same ; Measure of Damages or Recovery. — Where the trus- tee in bankruptcy succeeds in obtaining judgment for the restoration or avoidance of an unlawful preference, the amount of his recovery or the measure of damages will depend on the nature of the transaction out of which the preference arose. If it was a payment of money, he is entitled to a judgment for an equal amount.®*^ If it consisted of a transfer of personal property, he is entitled to a return of the specific property if it still remains in the creditor's hands.^** But where he left the disposition of securities transferred by the bankrupt to a bank to the absolute discretion of the bank, the proceeds if sold to stand in the place of the securities, the trustee, entitled to avoid the transfer as a preference under the bankruptcy act, is only entitled to a return of the securities and an accounting as to any dividends or interest col- lected in the meantime; he cannot hold the bank liable for a depreci- ation in the market value of the securities.®** If the property trans- ferred to the preferred creditor has been sold by him, or it is otherwise out of his power to return it, the trustee is entitled to a judgment for its value.^* And where the bankrupt had given two mortgages on his stock of goods, both preferential, and the first mortgagee took posses- sion, sold enough to pay his claim, and turned over the rest to the sec- ond mortgagee, and was then sued by the trustee in bankruptcy and Atl. 538 ; Galveston Dry Goods Co. v. 480, 5 N. B. E,. 16, Fed. Gas. No. 3,183 ; Frenkel (Tex. Civ. App.) 103 S. W. 224 ; Olariclge v. Kulmer, 1 Fed. 399 ; Golden .Tohnston v. George D. Witt Shoe Co., & Co. v. Loving, 42 App. D. C. 489. 103 Va. 611, 50 S. B. 153 ; Wilkinson v. s43 National City Bank v. Hotchkiss, Anderson-Taylor Co., 28 Utah, 346, 79 231 U. S. 50, 34 Sup. Ct. 20, 58 L. Ed. Pac. 46 ; Forbes v. Howe, 102 Mass. 427, 115, 31 Am. Bankr. Rep. 291, affirming 3 Am. Rep. 475 ; Blyth & Fargo Co. Ernst v. Mechanics' & Metals Nat. Bank, V. Kastor, 17 Wyo. 180, 97 Pac. 921; 201 Fed. 664, 120 C. C. A. 92, 29 Am. Chlsholm V. First Nat. Bank, 269 111. 110, Bankr. Rep. 289. 109 N. E. 657 ; People's Bank of Mobile b44 McElvain v. Hardesty, 169 Fed. 31, V. McAleer, 204 Ala. 101, 85 South. 413. 94 C. C. A. 399, 22 Am. Bankr. Rep. 320 ; 539 Edwards v. Carondelet Milling Co., Andrews v. Kellogg, 41 Colo. 35, 92 Pac. 108 Mo. App. 275, 83 S. W. 764. 222; Claridge v. Kulmer, 1 Fed. 399; 540 Johnston v. George D. Witt Shoe Cookinghara v. Morgan, 7 Blatchf. 480, Co., 103 Va. 611, 50 S. E. 153. 5 N. B. R. 16, Fed. Cas. No. 3,183 ; Drum- 041 Jones V. Kinney, 5 Ben. 259, 4 N. mond v. Smith, 118 N. Y. Supp. 718 ; B. R. 649, Fed. Cas. No. 7,473. Covington v. Brigman (D. C.) 210 Fed. 04S Cookingham v. Morgan, 7 Blatchf. 499, 32 Am. Bankr. Rep. 35. § 616 LAW OF BANKRUPTCY 1256 his mortgage held void as a preference, it was held that he was liable for the value of the entire stock, and not merely for the value of the goods sold while the stock was in his possession.®*® If the preference consisted in a sale of the bankrupt's property to a creditor for less than half its value, but the amount received by the bankrupt has been turned over to the trustee, the latter is entitled to recover from the preferred creditor the difference between the amount so received and the value of the property.®** For the purposes of a judgment in such cases, the value of the property preferentially transferred is to be taken as its actual market value at the time of the transfer, and not the sum which it brought on a sale of it by the preferred creditor or under process is- sued at his suit.®*' But if it appears that he sold the property to as good advantage as the trustee could have done, the creditor should not be held to account for more than he received.®** And if the parties, at the trial, stipulate the market value of the property at the time of the transfer, the sum so fixed will be the measure of the defendant's lia- bility.®** And if the preference consisted in a judgment procured or suffered by the bankrupt, under which the creditor issued execution and sold property, he must restore the amount received on the judg- ment, but he may be allowed credit for the actual expenses of the sale, but not including the officer's fees.®®" The preferred creditor should also be charged with interest, but only from the time when demand was made on him for the surrender of the preference, as, after that time, he holds the property or fund as a trustee ex maleficio,®®'^ or, accord- ing to some of the authorities, only from the commencement of the action.®®^ In the case where the money or property preferentially trans- ferred would have been more than sufHcient to pay in full all the re- maining creditors of the bankrupt, only so much may be recovered by the trustee as is necessary for that purpose and for the costs and ex- penses of the bankruptcy proceedings.®®' 64 5Whitson V. Farber Bank, 105 Mo. 201, 37 Am. Bankr. Rep. 329; Anderson App. 605, 80 S. W. 327. v. Stayton State Bank, 82 Or. 357, 159 =*6 Stem V. Louisville Trust Co., 112 Pac. 10.13. Fed. 501, 50 O. C. A. 367, 7 Am. Bankr. ogi Benjamin v. Chandler, 142 Fed. 217, Eep. 305. 15 Am. Bankr. Rep. 439 ; Ommen v.' 5*7 First Nat. Bank v. Jones, 21 Wall. Talcott, 175 Fed. 261, 23 Am. Bankr. Rep. 325, 22 L. Ed. 542. n72; Cookinghara v. Morgan, 7 Blatehf. 54 8 Allen V. McMannes, 156 Fed. 615, 480, 5 N. B. E. 16, Fed. Oas. No. 3,183; 19 Am. Bankr. Rep. 276. Utah Ass'n of Credit Men v. Boyle Fur- 540 Gering v. Leyda, 186 Fed. 110, 108 nlture Co., 43 Utah, 523, 186 Pac. 572. C. C. A. 222, 26 Am. Bankr. Rep. 137. 662 Capital Nat. Bank v. Wilk«rson, 36 5 50 Sedgwick v. Millward, 5 N. B. R. Ind. App. 467, 75 N. E. 837. 347, Fed. Cas. No. 12,618. Grant v. Na- 56 3 Rogers v. Page, 140 Fed. 596 72 C tional Bank of Auburn (D. C.) 232 Fed. C. A. 164, 15 Am. Bankr. Rep. 502. ' 1257 PKEFEEENCES AND PEBFEERED CRBDITOES § 616 Where the suit is brought and judgment recovered in the bankruptcy court, the bill containing a prayer for general relief, the court is not lim- ited to the entry of a money judgment against the preferred creditor, but may issue an order commanding him to pay the amount of the judg- ment to the trustee in bankruptcy, and may commit him for contempt until compliance.^* And the defendant is not entitled to have judg- ment withheld until he has proved his claim and a dividend in his fa- vor has been declared, and to have the amount thereof deducted from the judgment.®^^ The court of bankruptcy, possessing the full powers of a court of equity, may also enforce equities of the defendant as against any other creditor who would be entitled otherwise to share in the recovery .*®® On the other hand, the dismissal of a bill by the trus- tee to set aside an alleged fraudulent preference, where the construc- tion of the sta!tute was doubtful, should be without costs.®®' The right to dower in land revives, where a conveyance of such land is set aside as an illegal preference under the bankruptcy law, or is surrendered by the preferred creditor.®®* Where one who has received a preference from a bankrupt becomes himself a bankrupt, the preference cannot be collected in full from his estate as a priority claim, either in the usual course of proceediiigs'or on a composition.®®* 5 54 In re Plant, Bankr. Rep. 272. Trust Co. (C. C. A.) Bankr. Rep. 323. 5 55 Templeton v. 23 Am. Bankr. Rep. Ontario Power Co. 689, 171 C. O. A. Rep. 395. 148 Fed. 37, 17 Am. See Ward v. Central 261 Fed. 344, 44 Am. Kehler, 173 Fed. 574, 39. See Minnesota & V. Losey, 260 Fed. 427, 44 Am. Bankr. 550 Allen V. McMannes, 156 Fed. 615, 19 Am. Bankr. Rep. 276. 5 67 Collins V. Gray, 8 Blatehf. 483, 4 N. B. R. 631, Fed. Cas. No. 3,013. 558 In re Detert, 11 N. B. R. 293, Fed. Cas. No. 3,829. 6 59 In re Alpert (D. C.) 237 Fed. 295, 38 Am. Bankr. Rep. 459. § 617 LAW OF BANKRUPTCY 1258 CHAPTER XXX DEBTS ENTITLED TO PHIOEITT Sec. 617. Statutory Provisions. 618. General Rights of Creditors Entitled to Priority. 619. Relative Rank of Priority Claims. 620. Assignment of Priority Claims. 621. Priority of Taxes. 622. Same: What Taxes Included. 623. Costs and Expenses of Administration. 624. Receivers' Oertiflcates. 625. Attorney's Claim for Services. 626. Wages of Workmen, Clerks, and Servants. 627. Same; Traveling Salesmen. 628. Same ; Limitation of Three Months. 629. Same; Advance of Money to Pay Labor Claims. 630. Claims of United States. 631. Claims of State or Municipality, 632. Claims Entitled to Priority Under State Laws. 633. Landlord's Claim for Rent. 634. Trust Creditors and Claimants of Trust Funds. § 617. Statutory Provisions. — ^The bankruptcy act of 1898, after providing for the payment of taxes in advance of tJae payment of any div- idends to creditors, describes, as follows, the classes of debts which shall have priority and which shall be paid in full, and the order of their pay- ment: 1. The actual and necessary cost of preserving the estate subsequent to filing the petition. 2. The filing fees paid by creditors in involuntary cases, and, where property of the bankrupt, transferred or concealed by him either before or after the filing qi the petition, shall have been recovered for the bene- fit of the estate of the bankrupt by the efforts and at the expense of one or more creditors, the reasonable expenses of such recovery. 3. The cost of administration, including the fees and mileage payable to witnesses, and a reasonable attorney's fee for professional services rendered to the petitioning creditors in involuntary cases, to the bank- rupt in involuntary cases while performing the duties prescribed by the act, and to the bankrupt in voluntary cases as the court may allow. 4. Wages due to workmen, clerks, or servants which have been earn- ed within three months before the date of the commencement of proceed- ings, not to exceed three hundred dollars to each claimant. And this clause was amended by the act of June 15, 1906 (34 Stat. 267), so as to include "traveling or city salesmen." 5. Debts owing to any person who, by the laws of the states or the United States, is entitled to priority. 1259 DEBTS ENTITLED TO PRIORITY § 618 This part of the statute was not repealed or in any way altered or affected by the amendatory act of June 25, 1910 (36 Stat. 838), which gives to the trustee in bankruptcy the rights of a creditor holding a lien.^ And the section relating to priorities does not merely prescribe the or- der of distribution of assets after satisfaction of liens against the prop- erty, but it creates prior liens to the extent stated in favor of the classes of debts specified, and is enforceable without reference to state statutes relating to the same subject.* But it is not, to be extended by an over liberal construction. It is contrary to the general policy of the bank- ruptcy law, to distribute the estate equally among all the creditors J and "a statute that takes from one creditor to pay another must be strictly construed and carefully administered by the courts." * It has already been explained that creditors holding valid liens on specific property of the bankrupt, which liens are not divested or dis- turbed by the proceedings in bankruptcy, are entitled to satisfaction out of the property affected, or out of its proceeds if sold by the trustee, only the balance, if any, going into the general fund for distribution among unsecured creditors.* But the claims enumerated in the sixty-fourth section of the statute, and described as "debts to have priority," stand upon a different footing altogether. They do not take precedence of • valid lien claims, but they have a position of privilege or preference as against all other unsecured debts, and are entitled to payment in full, in their relative rank and order, out of the general assets of the estate, in advance of the payment of any dividends to the general creditors. § 618. ^General Rights of Creditors Entitled to Priority. — ^A creditor entitled to priority under this section of the Bankruptcy Act should prove his claim in that character, except as to claims for taxes, wHich, as we have seen, are not required to be proved.^ But if a creditor files his claim as a general claim and has it allowed in that character and re- ceives a dividend on it, this does not necessarily estop him from after- wards asserting his right to preferential payment if there is nothing to show that the trustee or the other creditors have been prejudiced by the delay.* And if a creditor is entitled to priority for his claim, but only up to a certain amount (as, for instance, the $300 payable to a clerk 1 In re Lausman (D. C.) 183 Fed. 647, Fed. 401, 140 0. C. A. 87, 35 Am. Bankr. 25 Am. Bankr. Rep. 186. Hep. 54: In re Octave Mining Co. (D. 2 In re McDavid Lumber Co. (D. C.) C.) 212 Fed. 457; Macy v. Roedenback, 190 Fed. 97, 27 Am. Bankr. Rep. 39. 227 Fed. 346, 142 C. C. A. 42, L. R. A. 3 In re Nounnan & Co. (Utah) 7 N. B. 1916C, 12, 86 Am. Bankr. Rep. 31; In R. 15. And see L. B. Waterman Co. v. re Nicol (D C.) 221 Fed. 82, 34 Am. Kline, 234 Fed. 891, 148 0. C. A. 489, 37 Bankr. Rep. 465. Am. Bankr. Rep. 252. » Supra, § 524. * Supra, Chapter XX, §§ 363-391. And * Wuerpel v. Commercial Germania sed In re American Product Co., 224 Trust & Savings Bank, 238 Fed. 269, § 619 LAW OF BANKRUPTCY 1260 or servant) he should prove his claim for a preference to that amount, and prove the balance as a general or unsecured creditor.' A creditor entitled to priority is not allowed to participate in creditors' meetings or to vote at such meetings, except in so far as the amount of his claim may exceed the "value of such priority." * For instance, a clerk having a claim for wages earned within three months prior to the commence- ment of the proceedings, but amounting to more than three hundred dollars, should be allowed to vote only on the excess. If, however, a priority creditor does vote his whole claim at a creditors' meeting in the election of a trustee, this will not amount to a waiver of his right of priority, and will not estop him from claiming the same, at least where no other creditor is shown to have been prejudiced.* And taking the debtor's note does not discharge an original debt entitled to priority nor prevent the creditor from claiming his privilege.^* It is also provided that the money necessary to pay all debts which have priority shall be deposited according to the directions of the court, before the court can consider the confirmation of a composition." And where a bankrupt, having been discharged by performance of a composition agreement,' promises one of his creditors to pay the full amount of his debt, and the debtor is again adjudged a bankrupt, there is no equity requiring such creditor to be postponed to others who have become creditors since the first bankruptcy proceedings on the faith of the former dis- charge.^* § 619. Relative Rank of Priority Claims. — Claims entitled to priori- ty of payment by this section of the statute do not outrank claims se- cured by valid liens. A mortgage or other lien given and accepted in good faith and for a present' consideration, and which is not voidable as a preference or otherwise in fraud of the act, is recognized in the bank- ruptcy proceedings and its enforcement permitted as against the spe- cific property to which it attaches. That property cannot be taken from the secured creditor and distributed among the claims entitled to priori- ty. Their right of priority applies only to the general assets of the es- tate, and is a right of priority as against general or unsecured creditors. This is shown by the language of the statute, which gives priority to certain claims "except as herein provided," and which declares that valid liens "shall not be affected by this act." i* 151 C. C. A. 285, 38 Am. Bankr. R«p. 670. 94 C. 0. A. 165, 21 Am. Bankr. 223. Rep. 834. 7 In re Crawfoi-d WoUen Co. (D. C.) lo In re Worcester County, 102 Fed. 218 Fed. 951, 34 Am. Bankr. Rep. 223 ; 808, 42 0. C. A. 637, 4 Am. Bankr Eep In re Floyd & Bohr Co. (D. C.) 200 Fed. 496. 1016, 29 Am. Bankr. Hep. 149. n Bankruptcy Act 1898, § 12b. 8 Bankruptcy Act 1898, § 56b; Id. § 12 In re Merriman, 44 Conn. 587, ^ed. 57e. Cas. No. 9,479. 9 In re Ashland Steel Co., 168 Fed. is City of Richmond v. Bird, 249 U. S. 1261 DEBTS ENTITLED TO PRIORITT § 619 Further, as between the different classes of debts to which the stat- ute gives priority, they do not all stand upon an equal footing, but have a relative rank and priority according to the order of their enumeration in the statute. For the law not only specifies the debts which shall have priority, but the "order of payment." ^* Hence if there is not enough money to satisfy all the priority claims, they are not to share pro rata, but be discharged in full in their order.^" Thus, claims for wages, being enumerated in the fourth clause of the section, will take precedence over claims enumerated in the fifth clause, that is, "debts owing to any per- son who, by the laws of the states or the United States, is entitled to priority." Hence such labor claims must be paid in full in preference to a landlord's statutory lien for rent of the premises in which the bank- rupt's business was carried on," and even in preference to debts or claims due to the United States.^'' So, the actual and necessary cost of preserving the baiikrupt's estate subsequent to filing the petition, which is an expense necessary to enable the court to exercise its jurisdiction is entitled to priority of payment over taxes due to the state. ^* And 174, 39 Sup. Ct. 186, 63 L. Ed. 543, 43 Am. Bankr. Rep. 260; Polk County, Iowa, V. Burns, 247 Fed. 899, 159 C. C. A. 453, 40 Am. Bankr. Rep. 727; In re North Star Ice & Coal Co. (D. C.) 252 Fed. 301, 42 Am. Bankr. Rep. 76; In re Citj- Trust Co., 121 Fed. 706, 58 O. C. A. 126, 10 Am. Bankr. Rep. 231; In re Yoke Vitrified Brick Co,, ISO Fed. 235, 25 Am. Bankr. Rep. 18; In re Proudfoot, 173 Fed. 733, 23 Am. Bankr. Rep. 106; In re Cramond, 145 Fed. 966, 17 Am. Bankr. Rep. 22; In re Frock, 1 Nat. Bankr. News, 214; In re McConnell, 9 N. B. R. 387, Fed. Gas. No. 8,712. Con- tra, see In re Blackstaff Engineering Co., 200 Fed. 1019, 29 Am. Bankr. Rep. 663 ; In re Erie Lumber Co., 150 Fed. 817, 17 Am. Bankr. Rep. 689; In re Tebo, 101 Fed. 419, 4 Am. Bankr. Rep. 235. But two of the three decisions last cited were rendered by the same judge, and in none of the three was any attention paid to the authorities opposed, to their views. 1* Bankruptcy Act 1898, § 64b. 15 But see In re Grignard Lithograph- ing Co. (D. C.) 158 Fed: 557, 19 Am. Bankr. Rep. 748, holding that, where the estate of the bankrupt is insufficient to pay in full the claims entitled to prior- ity, the court may, where equity requires it, scale a claim which would ordinarily be entitled to priority over others. And it is in the power of the court to mar- shal claims and assets in such manner as to secure the payment of priority claims of two different classes, where, if this were not done, only one would be satisfied in full. In re Gerrow (D. C.) 233 Fed. 845, 87 Am. Bankr. Rep. 14. le In re Woulfe & Co., 239 Fed. 128, 152 C. C. A. 170, 39 Am. Bankr. Rep. 91 ; In re Byrne (D. C.) 97 Fed. 762, 3 Am. Bankr. Rep. 268; Contra, see Lott V. Salsbury, 237 Fed. 191, 150 C. C. A. 337, 37 Am. Bankr. Rep. 796. But the lien of a landlord who had distrained property of the lessee before the bank- ruptcy proceedings were begun is su- perior to the claims of wage-earners. In re Mock (D. C.) 228 Fed. 94, 35 Am. Bankr. Rep. 9. And where wage-earn- ers had priority as to two funds realized from the bankrupt's assets, while the landlord had priority as to only one, and the two claims exceeded the amount of the funds, it was adjudged that the claims of the wage-earners should first be satisfied out of the fund as to which the landlord had no lien. In re Gerrow (D. 0.) 233 Fed. 845, 37 Am. Bankr. Rep. 14. IT Guarantee Title & Trust Co. v. Ti- tle Guaranty & Surety Co., 224 U. S. 152, 82 Sup. Ct. 457, 56 L. Ed. 706, 27 Am. Bankr. Rep. 873. 18 State of New Jersey v. Lovell, 179 Fed. 821, 102 C. C. A. 505, 24 Am. Bankr. Rep. 562; In re Hosmer (D. C.) 233 Fed. § 620 LAW OF BANKRUPTCY 1262 even among claims enumerated in the same class, there may be circum- stances to give one a preference over others. Thus, where a state stat- ute creates a lien in favor of employes performing labor in the manufac- ture of lumber, but provides that the debt or claim shall not remain a lien on the product, unless a statement thereof is filed within thirty days and an action begun within three months, holders of such claims, perfected according to the statute, against the estate of the employer in bankrupt- cy, are entitled to payment in full out of the proceeds of the property affected, in preference to claims for labor of the same kind which have not been preserved as the statute directs, and this although both classes of claims are equally claims for "wages" within the bankruptcy law.*® § 620. Assignment of Priority Claims. — A claim which is accord- ed priority by the bankruptcy law itself, such as a claim for wages, or one which is given priority by the laws of the state, does not lose its right to be satisfied in full in advance of distribution to general creditors by the fact of its having been assigned to a third person before the com- mencement of the proceedings in bankruptcy,^" or after the filing of the petition.** For the preference or priority is given to the debt, not to the person of the creditor; to the claim, and not to the claimant. And whereas the statute speaks of debts for wages "due to" workmen, clerks, etc., it is satisfied if the debt was originally so due, and does not mean that it must continue to be so due until bankruptcy proceed- ings are begun or until the claim is proved and allowed.** Thus, the fact that a large number of laborers holding claims for labor performed for the bankrupt assigned such claims to two of their number, who were also laborers and who held claims of their own, in order to save costs in prosecuting suits against the l^ankrupt to recover such wages, the assignees agreeing to account to their assignors for the amounts due each when collected, does not deprive the claims so assigned of their 318, 37 Am. Bailkr. Rep. 464; In re Ox- 204 U. S. 186, 27 Sup. Ct. 178, 51 L. Ed. ley (D. C.) 204 Fed. 826, 30 Am. Bankr. 486, 17 Am. Bankr. Rep. 77 ; In re Rep. 406. Dutcher, 213 Fed. 908, 32 Am. Bankr. I" In re Kerby-DennisOo., 95Fed. 116, Rep. 545. It has been held that one 36 C. C. A. 677, 2 Am. Bankr. Rep. 402. who cashes checks given by a bankrupt 2 Shropshire, Woodliff & Co. v. Bush, to his workmen for wages is entitled 204 U. S. 186, 27 Sup. Ct. 178, 51 L. Ed. to preference as an assignee of the 436, 17 Am. Bankr. Rep. 77 ; In re Ben- claims for wages, since the checks, un- nett, 153 Fed. 673, 82 C. C A. 531, 18 paid, did not discharge the debts for Am. Bankr. Rep. 847; In re Fuller & which they were given. In re Stultz Bennett, 152 Fed. 538, 18 Am. Bankr. Bros., 226 Fed. 989, 34 Am. Bankr. Rep. Rep. 443; In re Brown, 4 Ben. 142, 3 783. But on the other hand, claimants N. B. R. 720, Fed. Cas. No. 1,974. But who held undated .time checks issued by see In re Westlund, 99 Fed. 399, 3 Am. the bankrupt to laborers for their wages, Bankr. Rep. 646. for which the claimants had given goods 21 In re Campbell, 102 Fed 686, 4 Am. in exchange, under an arrangement with Bankr. Rep. 535. the bankrupt, without an assignment or 2 2 Shropshire, WoodlifC & Co. v. Bush, contract with the laborers, were held not 1263 DEBTS ENTITLED TO PRIORITY § 621 right to priority.*' But where one holding an assignment of claims for wages exchanges them with the bankrupt for the latter's note or other obligation, this operates as a novation of the wage claims and extin- guishes the right of priority given to them by the statute.** § 621. Priority of Taxes. — The trustee in bankruptcy is directed by the statute to "pay all taxes legally due and owing by the bankrupt to the United States, state, county, district, or municipality, in advance of the payment of dividends to creditors." *" A state need not prove its claim in bankruptcy in order to recover taxes due to it on property of the bankrupt,** but a claim for taxes due either to the United States or to a state is entitled to priority over all other priority claims,*'' even over the trustee's commissions and his necessary expenses.** And it is immaterial that, through the negligence of the officers charged with the collection of taxes, they have accumulated until the aggregate amount with interest will absorb all or a large part of the estate.*' Since the statute makes no distinction, it is held that taxes are entitled to priority of payment whether they were assessed before the com- mencement of the bankruptcy proceedings or during their pendency.*" And it makes no difference that the taxes in question were levied on property which never passed into the hands of the trustee in bank- ruptcy,*^ or upon the exempt property of the bankrupt.** And the pri- ority right of a county or municipality in respect to taxes due to it is subrogated to the laborers' right to pri- Bankr. Rep. 157. Hence a city's unse- ority. In re McGowin Lumber Co. (D. cured claim for taxes due to it, which C.) 223 Fed. 553, 35 Am. Bankr. Rep. 57. is not given any superior right by the And see Bell v. Arledge, 219 Fed. 675, local laws, does not come in ahead of a 135 C. C. A. 347 ; J. C. Stewart & Co. v. valid lien, such, for instance, as the lien McLeod, 222 Fed. 253, 138 C. C. A. 75, 34 of a landlord acquired by the levy of a Am. Bankr. Rep. 414. distress warrant. City of Richmond v. 23 In re Harmon, 128 Fed. 170, 11 Am. Bird, 249 U. S. 174, 39 Sup. Ct. 186, 63 Bankr. Rep. 64. L- Ed. 543, 43 Am. Bankr. Rep. 260, 24 In re Fuller & Bennett, 152 Fed. affirming Bird v. City of Richmond, 240 538, 18 Am. Bankr. Rep. 443. Fed. 545, 153 C. C. A. 349, 39 Am. 2 5 Bankruptcy Act 1898, § 64a. Bankr. Rep. 1. 20 Stokes V. State, 46 Ga. 412, 12 Am. 2 8 in re Weiss, 159 Fed. 295, 20 Am. Rep. 588. That a trustee in bankruptcy Bankr. Rep. 247. But compare Polk who fails to pay a claim of the United County, Iowa, v. Burns, 247 Fed. 399, States for customs duties may become 159 C. C. A. 453, 40 Am. Bankr. Rep. personally liable therefor, see Walkof 727. V. Fox, 90 Misc. Rep. 338, 153 N. Y. 28 in re Weissman, 178 Fed. 115, 24 Supp. 27. Am. Bankr. Rep. 150. 2 7 In re Brand, 2 Hughes, 334, 3 N. so in re Prince & Walter, '131 Fed. B. R. 324, Fed. Cas. No. 1,809. But the 546, 12 Am. Bankr. Rep. 675; In re provision of the statute giving priority Flynn, 134 Fed. 145, 18 Am. Bankr. Rep. to taxes applies only to general assets, 720. and not to property subject to a valid si City o;e Chattanooga v. Hill, 139 lien, the taxes not having become a lien Fed. 600, 71 C. C. A. 584, 15 Am. Bankr. on that property. In re Hosmer (D. C.) Rep. 195; City of Waco v. Bryan, 127 233 Fed. 318, 37 Am. Bankr. Rep. 464. Fed. 79, 62 C. C. A. 79, 11 Am. Bankr. Compare Delahunt v. Oklahoma County, Rep. 481. 226 Fed. 31, 141 O. C. A. 139, 35 Am. 32 in re Tilden, 91 Fed. 500, 1 Am. § 621 LAW OF BANKRUPTCY 1264 not lost by the fact that the property assessed has been struck off to it at a tax sale for want of other bidders,** or for less than the amount due as taxes, as it will be entitled, in the latter case, at least to priority of payment of ±he balance due.** Under the bankruptcy act of 1867, it was held that a debt due for taxes from a bankrupt to a state other than that in which the bank- ruptcy proceedings were pending was not entitled to a preference.** But this was because that statute gave priority to "all debts due to the state in which the proceedings in bankruptcy are pending and all taxes and assessments made under the laws thereof." The absence of such a provision in the present statute would seem to indicate that it was not the intention of Congress to restrict the priority of taxes to those due to the bankrupt's home state. The fact that the word "state" is used in the singular number in this sentence of the bankruptcy law- need not affect this interpretation, since the same thing is true of the following words "county, district, or municipality." Evidently the sentence should be read as if it referred to taxes due "to the United States or to any state, county, district, or municipality." It should be observed, however, that if there is any statute of limitations applicable to the tax in question, such as a municipal tax, it may be invoked by the trustee in bankruptcy as a protection against being required to pay the tax.*^ And further, this provision of the bankruptcy law is to be con- strued in accordance with equitable principles, such as that of the marshaling of assets; and where taxes due to a county are a lien on property of the bankrupt, the greater portion of which has been taken to satisfy a mortgage, leaving no more than enough to pay the costs and expenses of administration, it is within the power of the court to re- quire the county to resort to the mortgaged property.*'' The claim of a state or municipality for taxes is against the owner of the property on which the tax is assessed. Where the bankrupt is not the owner of such property, but a lessee of it, the state or munici- pality cannot come upon his estate in bankruptcy with a preferential claim for payment of the taxes, though he covenanted in the lease to pay all taxes assessed upon the property. For such a covenant is not made for the benefit of the state or municipality and cannot be enforced by it. It simply creates a debt in favor of the owner of the property.** Bankr. Rep. 300; In re Baker, 1 Nat. see New Jersey y. Anderson, 203 U. S. Bankr. News, 212. 483, 27 Sup. Ct. 137, 51 L. Ea. 284, 17 3 Hecox V. Teller County (C. C. A.) Am. Bankr. Rep. 63. 198 Fed. 634, 28 Am. Bankr.\Rep. 525. s 8 in re Stalker, 123 Fed. 961, 10 Am 84 In re Stalker, 123 Fed. 961, 10 Bankr. Rep. 709. Am. Bankr. Rep. 709. "7 in re Oxley, 204 Fed. 826, 30 Am. 8 6. In re Ambler, 8 Ben. 176, Fed. Cas. Bankr. Rep. 406. No. 271. But as to the present statute, =» In re Broom, 123 Fed. 639, 10 Am. 1265 DEBTS bntitIjEd to peioeitt § 621 And if the owner pays the taxes, which the bankrupt lessee had cove- nanted to pay, he may prove a claim therefor a'S a general creditor in the bankruptcy proceedings, but is not entitled to be subrogated to the rights of the state or municipality so as to occupy the position of a creditor entitled to priority.** Further, where the bankrupt had been county tax collector, his indebtedness to the county for taxes collected and not accounted for, or for taxes which should have been collected and for which he is liable under the laws of the state, is not a debt for "taxes legally due and owing by the bankrupt" to the county, and therefore is not entitled to priority.*' A sale of the land by the trustee in bankruptcy does not divest the lien of the state for taxes due upon it, even though the sale was made free of incumbrances.*^ But in that case the taxes are to be paid by the purchaser at the sale, rather than out of the funds of the estate in bank- ruptcy, at least if the amount realized is not more than enough to dis- charge liens ; *^ and the purchaser, paying the taxes, is not subrogated to the rights of the taxing power so as to claim priority.** The same section of the bankruptcy law provides that, "in case any question arises as to the amount or legality of any such tax, the same shall be heard and determined by the court," that is, the court of bank- ruptcy in which the proceedings are pending. This applies to taxes due to the United States ; and the trustee in bankruptcy may resist such a tax, and have the accuracy or justice of the claim therefor determined by the bankruptcy court, and he is not obliged to take the course of first paying the tax claimed and then filing a claim for a refund.** In gener- al, where the claim of a state or municipality against a bankrupt for Un- paid taxes is supported by sworn valuations which appear neither un- just nor illegal, the claim must be allowed as a priority claim, without reference to the hardship it may work on general creditors.*^ But the court of bankruptcy is to inquire into all such matters, and it is not lim- ited to sm:h defenses or objections as the bankrupt himself might have Bankr. Rep. 427; In re Siegel-Hillman 42 in re Brlnker, 128 Fed. 634, 12 Am. Dry Goods Co., 2 Nat. Bankr. News, 856. Bankr. Kep. 122; In re Conhaim, 100 3 8 Cooper Grocery Co. v. Bryan, 12T ^ed. 268, 4 Am. Bankr. Rep. 58; In re Fed. 815, 62 C. C. A. 495, 11 Am. Bankr. Veitch, 101 Fed. 251, 4 Am. Bankr. Rep. Rep. 734 ; In re Parker, 6 Ben. 286, Fed. 112. See In re Harvey, 122 Fed. 745, 10 Cas. No. 10,719. Am. Bankr. Rep. 567. „, „ ^<« .r-, , or,« .,- . *^ In re M. I. Hibbler Machine Supply "In re Waller, 142 Fed. 883, 15 Am. q^; (p. C.) 192 Fed. 741, 27 Am. Bankr. Bankr. Rep. 753. j^gp gj^g. *i Stokes V. State, 46 Ga. 412, 12 Am. ** In re W. P. Williams Oil Corpora- Rep. 588, 9 N. B. R. 191 ; Mesker v. tion (D. C.) 265 Fed. 401, 45 Am. Bankr. Koch, 76 Ind. 68; Meeks v. Whatley, 48 Rep. 278. In re General Film Corpora- Miss. 337, 10 N. B. R. 498. Compare In tion (0. C. A.) 274 Fed. 903. re Stalker, 123 Fed. 961, 10 Am. Bankr. is in re Bushnell (D. C.) 215 Fed. 651, Rep. 709. 33 Am. Bankr. Rep. 47. Blk.Bkk.(3d Ed.)— 80 § 622 LAW OF BANKRUPTCY 12G0 raised against the tax. So, for instance, the state's claim for a tax should not be allowed where it was based upon the bankrupt's false and padded return, when, if the real facts had been disclosed, no assessment could properly have been made.*® And the findings or determinations of state officers in fixing the amount of an annual license or franchise tax on a corporation are not conclusive on the court of bankruptcy, which may independently review the amount and legality of the tax.*' And the court may refuse to allow a claim for personal taxes on the ground that the property supposed to be taxed did not actually exist.** § 622. Same; What Taxes Included. — The provision of the bank- ruptcy act requiring the trustee to pay all taxes legally due and owing by the bankrupt intends that, while the estate is in the hands of the trus- tee, his custody of it shall not operate as a bar to the collection of taxes which would be collectible under the law if the property had remained in the possession and control of the bankrupt himself.** Hence the funds of the estate in the hands of the trustee are subject to state and loqal taxation in that taxing district where the values might have been assessed for taxation if the bankruptcy had not supervened, and on prop- er application the court will order the payment of such taxes by the trus- tee, as coming within the spirit, if not the letter, of the bankruptcy act.^ In effect, the word "tax," as used in this part of the law, is not employed in any restricted sense, but broadly, so as to include all obligations im- posed by the state and general governments under their respective tax- ing or police powers for governmental or public purposes ; and hence it will include a license fee or tax imposed on the privilege of carrying on certain lines of business supposed to require regulation under the police power, such as dealing in intoxicating liquors or cigarettes.^^ The term will also include an annual license fee or franchise tax imposed on a cor- poration by the state which granted its charter, though it does no busi- ness and has no property in that state.®* But a bonus required by the state law to be paid tti the state by any corporation on increasing its 46 In re E. C. Fisher Corp. (D. C.) 229 Booth, 14 N. B. E. 232, Fed. Gas. No. 1,- Fed. 3ie, 36 Am. Bankr. Rep. 509. 645. *7 In re Heffron (D. 0.) 216 Fed. 642, so in re Sims (D. C.) 118 Fed. 356, 9 ^3 Am. Bankr. Rep. 443; In re Simcox, Am. Bankr. Rep. 162. Inc. (D. C.) 243 Fed. 479, 40 Am. Bankr. si in re Otto F. Lange Co., 159 Fed. Rep. 195; New Jersey v. Anderson, 203 5S6, 20 Am. Bankr. Rep. 478. But see U. S. 483, 27 Sup. Ct. 137, 51 L. Ed. 284, In re Ott, 95 Fed. 274, 2 Am. Bankr. 17 Am. Bankr. Rep. 63. Rep. 637. 48 In re Otto Pruend Arnold Yeast 52 New Jersey v. Anderson, 203 V S Co. (D. C.) 178 Fed. 305, 24 Am. Bankr. 483, 27 Sup. Ct. 137, 51 L. Ed. 284, 17 Rep. 458. Am. Bankr. Rep. 63 ; In re Halsey Elec- 40 In re Conhalm (D. C.) 100 Fed. 268, trie Generator Co., 175 Fed. 825, 23 Am. 1 Am. Bankr. Rep. 58 ; Compare In re Bankr. Rep. 401. 1-267 DEBTS ENTITLED TO PEIOEITT § 623 capital stock, is not a tax.^* And an obligation imposed by state statute on corporations doing business within the state to collect from resident holders of its bonds or other obligations the state tax on such bonds, by the process of having the treasurer of the corporation withhold the amount of such tax from the interest due the bondholders, is not a tax on the corporation, though it is liable to the state therefor, and hence is not entitled to priority of payment out of the estate of the corporation in bankruptcy .''* It is also held that water rents due to a municipality, which are levied annually on property as a tax is levied and made a lien in like manner, are "taxes" within the meaning of the bankruptcy law.''^ And it appears that the same is true of assessments levied for local im- provements, at least if the law of the particular state, as interpreted by its courts, regards and treats them as taxes and gives the same remedies for their enforcement.^ But an assessment levied on an employer of labor under the workmen's compensation act of a state is not a "tax" entitled to priority of payment." Where interest accrues on delinquent taxes, and the law is such that the eventual payment of the taxes with the accrued interest is equivalent to their payment at the appointed time, the interest is a part of the tax and therefore entitled to priority of pay- ment. But a penalty imposed for the nonpayment of the tax when due is not a part of the tax and not entitled to priority ; and the fact that a statute requiring payment of an additional sum if the tax is not paid when due calls such sum "interest" is not conclusive on the bankruptcy court that it is not a penalty.®* § 623. Costs' and Expenses of Administration. — Priority is given to "the actual and necessary cost of preserving the estate subsequent to filing the petition." And even where property of the estate is turned over to the admiralty court to be sold for the satisfaction of maritime liens, the proceeds of the sale are subject to the payment of the neces- sary costs incurred by the bankruptcy court in preserving the property until it was so turned over.®* The costs or expenses here intended are such as accrue in connection with the custody and preservation of the property in the interval between the filing of the petition and the ap- 08 Commonwealth of Pennsylvania v. 221 Fed. 260, 137 C. C. A. 150, 34 Am. York Silk Mfg. Co., 192 Fed. 81, 112 0. Bankr. Rep. 43. C. A. 613, 27 Am. Bankr. Rep. 525. os in re Stalker, 123 Fed. 961, 10 Am. 6* In re York Silk Mfg. Co., 188 Fed. Bankr. Rep. 709. 735, 26 Am. Bankr. Rep. 650; In re Wy- bt in re Farrell (D. C.) 211 Fed. 212, oming Valley Ice Co., 145 Fed. 267, 16 32 Am. Bankr. Rep. 212. Am. Bankr. Rep. 594. os In re Ashland Emery & Corundum 05 In re Industrial Cold Storage & Ice Co. (D. C.) 229 Fed. 829, 36 Am. Bankr. Co., 163 Fed. 390, 20 Am. Bankr. Rep. Rep. 194. And see supra, § 512. 904; In re MoUer, 14 Blatchf. 207, Fed. 09 in re Hughes, 170 Fed. 809, 22 Am. Cas. Np. 9,700. But compare In re Hills, Bankr. Rep. 303. § 623 LAW OF BANKRUPTCY 1268 pointment of a trustee. After the trustee takes charge, similar expenses will be classed as "costs of administration." Among them may be in- cluded the expense of storage of the property and the pay of a watch- man or keeper,*" and rent of the store or other building occupied by the bankrupt as his place of business,*^ though not the rent of such portion of the building as he occupies as a residence.®^ And an expert employed by the bankrupt, after the commencement of the proceedings and be- fore the adjudication, with the consent 'of the creditors, to make certain surveys, and calculations having an important bearing on the collection of the bankrupt's claims against third persons, and who renders serv- ices which inure largely to the benefit of the creditors, may have a pre- ferred claim for his compensation.®* But one who has paid the pre- mium on a policy of fire insurance held by him under a pledge, and which is afterwards assigned to the receiver of the assured in bank- ruptcy, is not entitled to a preference for the payment of such claim, and the payment of the same by the receiver is not authorized.** Next in order of priority are the filing fees paid by creditors in invol- untary cases ; and to this the amendatory act of 1903 added a provision that when property transferred or concealed by the bankrupt is recov- ered for the benefit of the estate by the efforts and at the expense of one or more creditors, the reasonable expenses of such recovery shall likewise have priority. This, however, was not retroactive and did not apply to bankruptcy proceedings begun before its enactment.** The fees paid by voluntary bankrupts on filing their papers are naturally not returnable to them, but it has been held that a person advancing money to the bankrupt to pay the fees, has a first lien on the estate for its repayment.** The "costs of administration" are next entitled to satis- faction, and these will include the commissions of the referee and trus- tee,*' and ordinary and necessary expenses incurred in caring for and collecting the estate of the bankrupt, but not usually the cost of continu- ing the bankrupt's business,** nor expenditures made by the receiver or trustee, for the sole benefit of general creditors, in carrying out con- 60 In re Allen, 96 Fed. 512, 3 Am. preferential payment from the fund re- Bankr. Rep. 38; In re Mitchell, 212 covered, beyond repayment of their ex- Ped. 932, 129 C. O. A. 452. pense contributions. In re Butcher (D 31 Supra, §§ 211, 307, 522. 0.) 266 Fed. 239, 45 Am. Bankr. Kep 300 82 In re Hersey, 171 Fed. 1001, 22 Am. oo Whiston v. Smith, 2 Low. 101, Fed Bankr. Rep. 860. Cas. No. 17,523. 68 In re Nounnan & Orr, 1 "Utah, 44. st In re Cramond, 145 Fed. 966 17 «4 In re Hamilton, 102 Fed. 683, 4 Am. Am. Bankr. Rep. 22. Bankr. Rep. 543. 68 in re Bourlier Cornice & Roofin"- OB In re Felson (D. C.) 139 Fed. 275, Co., 133 Fed. 958, 13 Am. Bankr. Rep" 15 Am. Bankr. Rep. 185. Creditors con- 585. See Searle v. Mechanics' Loan & tributing to the expense of litigation by Trust Co., 249 Fed. 942 161 CCA the trustee are not generally entitled to 213, 41 Am. Bankr. Rep. 786. 1269 DEBTS ENTITLED TO PEIORITY § 624 tracts of the bankrupt which. were thought to be profitable.** And it is important to observe that the costs which are given priority are costs incurred in the bankruptcy proceedings itself or in connection with it. A claim for taxable costs incurred by a creditor in good faith before the filing of the petition in an action to recover a provable debt, is a claim which may be proved and allowed in the bankruptcy proceedings, but it is not a debt entitled to priority of payment," unless there is some provi- sion of the local law under which such costs may claim a preference." But an assignee for the benefit of creditors, whose functions are super- seded by the institution of bankruptcy proceedings against the assignor, has a lien on the assets and a preferred claim for his necessary disburse- ments and for the reasonable value of his services and those of his coun- sel, in so far as such services increased or benefited the estate of the bankrupt.'* As to the position of secured creditors, the better opinion is that the holder of a lien on specific property of the bankrupt, the validity of which is not disputed, is entitled to payment in full from the proceeds of the property, when it is sold by the trustee, with interest to the time of payment, and cannot be required to contribute anything to the gen- eral expenses of the bankruptcy proceeding.'^ But a secured creditor who makes use of the bankruptcy court and its officers to realize on his security may be required to contribute his proportion to the costs of the proceedings, and especially for the preservation of the property dur- ing their pendency, where there is not sufficient unincumbered estate for the purpose.'* § 624. Receivers' Certificates. — The amount of an issue of receiver's certificates authorized by a court of bankruptcy, to raise the money re- quired for the care and preservation of the property of the estate, rep- 8 9 In re Bourlier Cornice & Roofing Fed. 786, 5 Am. Bankr. Rep. 105. See, Co., 133 Fed. 958, 13 Am. Bankr. Rep. supra, § 444. As to compensation of a 585. receiver appointed by a state court, see 7 In re The Copper King, 143 Fed. 1° '^ J. H. Alison Lumber Co., 137 Fed. 649, 16 Am. Bankr. Rep. 148 ; In re Dan- ^43, 14 Am. Bankr. Rep. 78. And sea iels, 110 Fed. 745, 6 Am. Bankr. Rep. 699; P^me v. Archer, 233 Fed. 259, 147 0. C. In re Beaver Coal Co., 107 Fed. 98, 5 ^- 265, 37 Am. Bankr. Rep. 454 ; Hume Am. Bankr. Rep. 787; In re Allen, 96 "■ ^y^rs, 242 Fed. 827, 155 C. C. A. 415, "Fed. 512, 3. Am. Bankr. Rep. 38. ^9 Am. Bankr. Rep. 401; In re Cooper (D. C.) 243 Fed. 797, 40 Am. Bankr. Rep. Ti In re Daniels, 110 Fed. 745, 6 Am. ij_ Bankr. Rep. 699; In re Lewis, 99 Fed. '73 in re AUert, 173 Fed. 691, 23 Am. 935, 4 Am. Bankr. Rep. 51. Bankr. Rep. 101 ; In re Clark Coal & 7 2 Randolph v. Scruggs, 190 U. S. 533, Coke Co., 173 Fed. 658, 23 Am. Bankr. 23 Sup. Ct. 710, 47 L. Ed. 1165, 10 Am. Rep. 273. But see In re ^Debo, 101 Fed. Bankr. Rep. 1; In re Chase, 124 Fed. 419, 4 Am. Bankr. Rep. 235; Loving v. 753, 59 C. C. A. 629. Compare Stearns Moore, 37 App. D. C. 214. V. Flick, 103 Fed. 919, 4 Am. Bankr. Rep. '* In re J. H. Alison Lumber Co. (D. 723 ; In re Peter Paul Book Co., 104 0.) 137 Fed. 643, 14 Am. Bankr. Rep. 78. § 625 LAW OF BANKRUPTCY 1270 resents an expenditure for the benefit of all parties in interest, and such certificates are entitled to priority of payment out of the proceeds of such property.'® The same is true of certificates issued by the receiver to raise money for the purpose of carrying on the business of the bank- rupt.'''' But in a case of this kind, it appeared that the receiver had been authorized to borrovir the sum of $10,000, and began by borrowing half of that amount, for which he issued certificates. These were purchased by a company which was the surety on the bankrupt's bond guarantee- ing the performance of the contracts which the receiver expected to com- plete. He also incurred other indebtedness of the same character, for which no certificates were issued, to an amount in excess of the author- ized limit, all of which was done with the knowledge of the surety com- pany, to which the receiver paid $1,000 on account of the certificates which it held. It was held that the holders of the debts incurred by the receiver, for which no certificates were issued, to the amount of $6,000, were entitled to participate in the bankrupt's assets in the hands of the receiver on the same footing with the remaining $4,000 of the certifi- cates."' § 625. Attorney's Claim for Services. — ;Under the bankruptcy law of 1867, an attorney's claim for legal services rendered to the bankrupt in preparing the petition and schedules, and for advice in relation thereto, was not a privileged or priority debt.'* But this is changed by the pres- ent statute, which includes among the "costs of administration," as en- titled to priority, "one reasonable attorney's fee, for the professional services actually rendered, irrespective of the number of attorneys em- ployed, to the petitioning creditors in involuntary cases, to the bankrupt in involuntary cases while performing the duties herein prescribed, and to the bankrupt in voluntary cases, as the court may allow." " The at- torney of a voluntary bankrupt may therefore claim priority for his fee, though the amount of it is to be fixed by the court. But he will be held to have waived this right of priority if he makes the mistake of including 'B In re Alaska Fishing & Develop- In re Veler, 249 Fed. 633. 161 C. 0. A. ment Co. (D. C.) 167 Fed. 875, 21 Am. 543, 41 Am. Bankr. Rep. 736. Bankr. Rep. 685. '"In re Restein (D. C.) 162 Fed. 986, 7 8 Where it was to the Interest of se- 20 Am. Bankr. Rep. 832. ■ cured creditors, who held liens on the ^sin rg Ilirschberg, 2 Ben. 466, Fed.- property of the bankrupt, that the plant Oas. No. 6,530 ; In re Jaycox, 7 N. B. E. should be put into successful operation, 140, Fed. Cas. No. 7,239. and they acquiesced in the appointment '"> Bankruptcy Act 1898, § 64b. For of a receiver and in the sale of the prop- professional services rendered before the erty by the trustee free from their liens, bankruptcy, an attorney is merely a gen- receiver's certificates, lawfully Issued, eral creditor, entitled to no priority, are entitled to priority in payment out though he may have a charging lien on of the proceeds of the property, even the papers in his hands. Kraus v. Cen- over the liens of the secured creditors. tury Gas & Electric Fixture Co 161 App. Div. 916, 145 N. T. Supp. 1086. 1271 DEBTS ENTITLED TO PEIORITX § 626 his fee in the bankrupt's list of debts as an unsecured claim.*' And it may be proper for the court, in its discretion, to reject such claim al- together, as was done in a case where the purchaser of property subject to a mortgage, while a foreclosure suit was pending in a state court, filed his voluntary petition in bankruptcy, with the manifest intention of acting adversely to the interests of the mortgagee.*^ As for the compen- sation of attorneys employed by the trustee in bankruptcy, it is held that this is properly included in the "costs of administration," although the statute does not so specify, the allowance of a fee to the attorney for "the petitioning creditors" not being exclusive of the right to allow a priority claim to the attorneys for the trustee.** Thus, where an at- torney is retained by the trustee in a suit to recover a voidable or fraudu- lent preference made by the bankrupt, his reasonable fee should be al- lowed as a part of the expenses of administration and accorded priority of payment.** § 626. Wages of Workmen, Clerks, and Servants. — Priority is given by the bankruptcy act to "wages due to workmen, clerks, or servants, which have been earned within three months before the date of the com- mencement of proceedings, not to exceed three hundred dollars to each claimant." ** A claimant who comes within the statute does not lose his right of priority by reason of the fact that, within four months before the bankruptcy and while the employer was insolvent, he recovered a judgment against him for the wages due.*^ And the claim of a father for the wages due to his minor son, employed by the bankrupt, js entitled to the same priority.** But a claim for wages for an unexpired term of employment, the employe having been wrongfully discharged, is not entitled to priority, because in reality the demand is for damages for breach of the contract, and not for "wages which have been earned," etc.*' And where, by agreement, a clerk permits his employer to retain a certain portion of his wages each week to form a fund which is to be so In re Morris, 125 Fed. 841, 11 Am. a lien subject only to the costs of ad- Bankr. Rep. 145. ministration, laborers and materialmen 81 Liddon & Bro. v. Smith, 135 Fed. were held entitled to priority. In re 43, 67 C. 0. A. 517, 14 Am. Bankr.' Kep. John W. Farley & Co., 227 Fed. 378, 142 204. C. C. A. 74, 36 Am. Bankr. Rep. 88. 82 In -re Standard Fuller's Earth Co., as in re Haskell (D. C.) 228 Fed. 819, 186 Fed. 578, 26 Am. Bankr. Rep. 562; 36 Am. Bankr. Rep. 428; In re Anson In re Grignard Lithographing Co., 158 (D. 0.) 101 Fed. 608, 4 Am. Bankr. Rep. Fed. 557, 19 Am. Bankr. Rep. 743. 231. But see In re Burton Bros. Mfg. 8» Page V. Rogers, 149 Fed. 194, 79 C. Co. (D. 0.) 134 E'ed. 157, 14 Am. Bankr. C. A. 153, 17 Am. Bankr. Rep. 854. Rep. 218. 81 Bankruptcy Act 1898, § 64b, cl. 4. so in re Harthom, 4 N. B. R. 103, Fed. See In re Little Elk Logging Co. (D. C.) Cas. No. 6,162. 218 Fed. 142, 33 Am. Bankr. Rep. 592. s? in re Schultz & Guthrie (D. 0.) 235 Where the trustee was authorized to Fed. 907, 37 Am. Bankr. Rep. 604 ; In re ^ continue under the bankrupt's contract Pevear, 17 N. B. R. 461, Fed. Cas. No. and to borrow money, the lender to have 11,053. § 626 LAW OF BANKRUPTCX 1272 paid to the clerk or used for his benefit later, and the employer becomes bankrupt, the clerk cannot claim priority for the sums so retained dur- ing the preceding three months as "wages," because the fund has be- come, by the contract between the parties, a debt of a different class.*" And orders for goods, drawn by a manufacturing company in favor of its employes, are not preferred claims in the hands of the drawees against the estate of the company in bankruptcy.** As to the terms "workmen," "clerks," and "servants," these must be understood in their ordinary and popular signification, as they are not terms of art.^ A workman is a laborer, mechanic, or operative. He is distinguished from a "servant" in the nature of his employment, and from a "clerk" in that his labor is manual or mechanical, rather than intellectual. He is also an artisan or craftsman, as distinguished from those who direct, superintend, or employ the labor of others. Thus, a civil engineer employed on the construction of a railroad is not a work- man or laborer,*^ nor a carter or teamster, in so far as concerns the services of his team.** One employed as a salesman in a store or shop is a "clerk" within the meaning of the statute,** and so is a bookkeeper,®* and one employed for a temporary service in adjusting the books. and accounts of the bankrupt.*^ As to "servants," it has been held under analogous statutes that this word embraces only those who in common parlance are called servants, that is, "hirelings who make a part of a man's family, employed for money, to assist in the economy of the fam- ily or in matters connected with it." *^ "A servant is one who is engaged not merely in doing work or services for another, but who is in his serv- ice, usually upon or about the premises or property of his employer, and subject to his direction and control therein, and who is generally liable to be dismissed." *'' Yet the courts have striven to carry out the obvious purpose of the bankruptcy law to give special protection to those who are dependent on their daily earnings, and in so doing have given a 8 8 In re Caledonia Coal Co. (D. C.) 254 the same principle, the daim of a mining Fed. 742, 43 Am. Bankr. Eep. 93 ; In re engineer for unpaid salary is not entitled Flick (D. 0.) 105 Fed. 503, 5 Am. Bankr. to priority. In re Gay & Sturgis (D. 0.) Rep. 465. 233 Fed. 604, 36 Am. Bankr. Rep. 350. 8 In re Erie Rolling Mill Co. (D. C.) 02 SpruUs v. Lackawanna Dairy Co 1 Fed. 585. 189 Fed. 287, 26 Am. Bankr. Rep. 554 »oThat the compensation of an em- „, in re Flick, 105 Fed. 503. 5 Am. ployee of the bankrupt was more than Bankr Eep 465 $1,500 a year, so that he is not within „^ _ ' L, the definition of a "wage earner" in , "^^ »;« Baumblatt. 156 Fed. 422, 19 another part of the statute, does not of ^'"^ '^'^°'''- ^''^- ^OO. itself prevent him from claiming prior- "" ^^ P^rte Rockett, 2 Low. 522, 15 N. ity as a workman, clerk or servant. In ^- ^- 95. Fed. Cas. No. 11,977. re Schultz & Guthrie (D. C.) 235 Fed. »« Boniface v. Scott, 3 Serg. & E. (Pa.) 907, 37 Am. Bankr. Rep. 604. 351. »i Pennsylvania & D. R. Co. v. Leuf- "^ Hey good v. State, 59 Ala. 49; Mor- fer, 84 Pa. St. 168, 24 Am. Rep. 189. On gan v. Bowman, 22 Mo. 538. 1273 DEBTS ENTITLED TO PRIORITY § 626 • very elastic constniction to this term. Thus, it is held that musicians employed at regular wages to play in a theater, restaurant, roof garden, or other such place, are "servants" for the purpose of this statute.®* And so likewise, there are decisions that persons who are engaged as con- ductors or other employes on railroad trains come within the definition of "servants." ®* But "wages" is the reward paid for labor. And while it is none the less wages because the labor is paid for by the piece, yet compensation for labor is not wages where payment is by the job, nor where it consists of the profits derived from the labor of others, and this, though the claimant himself takes part in the work."^"" Therefore one w^o undertakes the performance of a definite piece of work, not under a con- tract for his personal labor or service, but under a contract for the per- formance of the work, is not a "workman," but a contractor, and the compensation due him is not "wages," though he may put his own hand to the work.^'^ Neither of the terms employed in this section of the bankruptcy act can properly be made to include one who is in general -charge and com- mand of a business, or of a branch of it, or an officer of a corporation such as the president, secretary, treasur-er, or general manager. Persons in this class of employment are not "workmen, clerks, or servants," and arrears of salary due to them cannot be described as wages.*"^ Nor is the rule altered by the fact that such a person may occasionally or inci- dentally perform services of a clerical or mechanical or menial charac- ter."* Regard is to be had to the general character and scope of his du- !>8 In re Caldwell, 164 Fed. 515, 21 Am. Fed. 657, 46 Am. Bankr. Eep. 503 ; In re Bankr. Eep. 236. But compare In re All Crown Point Brush Co., 200 Fed. 882, 29 Star Feature Corp. (D. C.) 231 Fed. 251, Am. Bankr. Rep. 638 ; In re Albert O. 36 Am. Bankr. Rep. 655, iii which it was Brown & Co., 171 Fed. 281, 22 Am. Bankr. held that an actress, contracting to fill a Rep. 496 ; In re Carolina Cooperage Co., four-week's engagement at a high salary, 96 Fed. 950, 3 Am. Bankr. Rep. 154 ; In was not classifiable as a workman or re Grubbs Wiley Grocery Co., 96 Fed. 183, servant. 2 Am. Bankr. Rep. 442 ; Wells v. South- as Heygood v, State, 59 Ala. 49 ; Con- ern Minnesota Ry, Co., 1 Fed. 270 ; Coffin ant V. Van Schaick, 24 Barb. (N. T.) 87. v. Reynolds, 37 N. X. 640. Where five 100 In re Thomas Deutschle & Co., 182 workingmen organized a corporation, Fed. 430, 25 Am. Bankr. Rep. 343. each paying in a sum of money, and one 101 In ra Thomas Deutschle & Co. 182 of them acted as treasurer and director. Fed. 430, 25 Am. Bankr. Rep. 343 ; In re in addition to working in the shop, it was Quackenbush (D. O.) 259 Fed. 599, 43 Am. considered that his claim for compensa- Bankr. Rep. 699 ; In re Footville Con- tion as such treasurer was not entitled to densed Milk Co. (D. C.) 237 Fed. 136, 38 priority over the general creditors of the Am. Bankr. Rep. 472 ; Oampfleld v. Lang, corporation. In re Boston French Range 25 Fed. 128 ; In re Rose, 1 Nat. Bankr. Co. (D. 0.) 235 Fed. 916, 37 Am. Bankr. News, 212 ; New Orleans & N. B. R. Co. Rep. 508. V. Reese, 61 Miss. 581. los Wintermote v. MacLaflferty, 233 102 Keyes v. Davie, 231 Fed. 688, 145 Fed. 95, 147 C. 0. A. 165, 37 Am. Bankr. C. O. A. 574, 36 Am. Bankr. Rep. 884; Rep. 425; In re Eagle Ice & Coal Co. In re Metropolitan Jewelry Co. (D. C.) (D. C.) 241 Fed. 393, 39 Am. Bankr. Rep. 216 Fed. 384; Arnold v. Knapp, 75 W. Va. 3S4; In re Continental Paint Co. (D. C.) S04, 84 S. E. 895 ; In re Bonk (D. C.) 270 L _0 Fed. 1?9, 34 Am. Bankr. Rep, 282. § 626 LAW OF BANKETJPTCT 1274 » ties, as defined by the rules or by-laws of the company or the contract under which he serves. Thus, the fact that the manager of a branch store of the bankrupt, in addition to his duties as manager, sold goods, kept the store clean, and kept the accounts, does not make him a work- man or clerk or servant, so as to entitle him to priority.^"* On the other hand, a bookkeeper, employed as such and working in that capacity up to the time of the bankruptcy of his employer, a corporation, is entitled to priority notwithstanding the fact that he had been elected treasurer of the company, in place of one who resigned, and held that office for some time, where he received no salary as treasurer, and did nothing in that office except to sign checks when directed to do so by the president of the company.^'^ And the steward of a bankrupt corporation operating a restaurant was held entitled to priority of payment of his wages, though he was also a director and officer of the company, where his acts and functions in the latter capacity were purely formal.*"* A state statute cannot enlarge the class of persons to whorti the bank- ruptcy law gives priority in the character of "workmen, clerks, or serv- ants." Though a person not a workman, clerk, or servant might come under the description of "employe," or similar comprehensive term, in a state statute giving priority of payment, this would not entitle him to priority in bankruptcy. For the clause specifically relating to labor claims is not affected or enlarged by that relating to claims entitled to priority under the laws of a state.*"'' The wife and children of the bankrupt are not to be excluded from the class of creditors entitled to priority of payment, merely on account of the relationship, if they have rendered services to the bankrupt, such as See Emerson v. Castor, 236 Fed. 29, 149 Fed. 882, 29 Am. Bankr. Rep. 638 ; In C. C. A. 239, 37 Am. BanUr. Rep. 719. re Slomka, 122 Fed. 630, 58 C. C. A.' 322, But a claim for salary was held entitled 9 Am. Bankr. Rep. 635; In re Shaw 109 to priority where tbe claimant, although Fed. 782, 6 Am. Bankr. Rep. 501 ; In re he was the superintendent of a shop. Reiser, 2 Nat. Bankr. News, 859. But having authority to hire and discharge compare In re City Trust Co., 121 Fed. men, subject to the eontroj of the general 706, 58 C. C. A. 126, 10 Am. Bankr. Rep! manager, did the same kind of work as 231 ; In re Kerby-Denis Co., 91 Fed. 818 the other men in the shop. Blessing v. 2 Am. Bankr. Rep. 218. But see In re Blanchard, 223 Fed. 35, 138 C. C. A. 399, Western Condensed Milk Co" 261 Fed Ann. Cas. 1916B, 341, 35 Am. Bankr. Rep. 62, 171 C. C. A. 658, 44 Am. B'ankr. Rep! 135. 558. In this case it was held that claims 10* In re Greenberger (D. 0.) 203 Fed. of laborers, filed and allowed as prefer- 583, 30 Am. Bankr. Rep. 117. red debts by a state court under the 1015 In re H. O. Roberts Co. (D. C.) 193 state law against a corporation under re- Fed. 294, 27 Am. Bankr. Rep. 437. And ceivership, were entitled to priority on see In re Capital Paint Co. (D. C.) 239 the subsequent bankruptcy of the cor- Fed. 424. poration, as debts given priority by the 108 In re Swain Co. (D. C.) 194 Fed. laws of the state, although the services 749, 28 Am. Bankr. Rep. 66. were rendered more than three months 107 In re Crown Point Brush Co., 200 prior to the bankruptcy. 1275 DEBTS ENTITLED TO PRIORITY § 628 would be rendered by any other "workman, clerk, or servant," within three months prior to the bankruptcy.^** § 627. Same; Traveling Salesmen. — The courts held at first that a traveling salesman or "drummer" was not a workman nor a clerk or servant of his employer within the meaning of those terms as used in the bankruptcy act, and was therefore not entitled to priority of pay- ment,"* and that when he sold goods on a commission, his earnings could not be described as "wages." "* But this clause of the statute was amended in 1906, by incorporating the words "traveling or city sales- men," so that, at present, priority is given to "wages due to workmen, clerks, traveling or city salesmen, or servants." "^ This amendment, however, was not retroactive.^** The doctrine now prevails that com- pensation payable in the form of commissions on the price of goods sold is to be treated as "wages." "' And a salesman comes within the mean- ing of the statute, when the principal and important part of his employ- ment, to which all else is subordinate, is the selling of goods or soliciting orders for goods. Thus a person of whom this is true is none the less a salesman and entitled to priority in that character, because it is a part of his duty to see to the installation of the goods produced and sold by his employer,*'-* or because he exercises his own^ discretion as to when and where he shall travel and maintains an office in a city at his own ex- pense,**® or because he is placed in charge of a branch office, where the office itself and his work in it is subordinate and auxiliary to his work as traveling salesman.*** § 628. Same; Limitation of Three Months. — Priority is given by the statute to wages only when "earned within three months before the date of the commencement of proceedings." Hence, although a claim may clearly be of such a character as to come within the statute, yet if los In re Strauch (D. C.) 208 Fed. 842, Fink, 163 Fed. 135, 20 Am. Bankr. Rep. 31 Am. Bankr. Rep. 36; In re, Starr (D. 897; In re New England Thread Co., 154 C.) 232 Fed. 416, 36 Am. Bankr. Rep. 426; Fed. 742, 18 Am. Bankr. Rep. 840; In re In re Davidson (D. C.) 233 Fed. 462, 37 National Marble & Granite Co., 206 Fed. Am. Bankr. Rep. 480. 185, 31 Am. Bankr. Rep. 80. But part- ion In re Scanlan, 97 Fed. 26, 3 Am. ners who sold goods for the bankrupt on Bankr. Rep. 202 ; In re Greenewald, 99 a commission basis, maintaining their Fed. 705, 3 Am. Bankr. Rep. 696. But own office, and not being bound to devote see Gravatt v. State, 25 Ohio St. 162. any particular amount of their time to 110 In re Mayer, 101 Fed. 227, 4 Am. selling the bankrupt's property, are not Bankr. Rep. 119. "traveling salesmen." In re Kominers 111 Act Cong. June 15, 1906, 34 Stat. (D. O.) 252 Fed. 183, 40 Am. Bankr. Rep. 267, amending Bankruptcy Act 1898, § 431. 64b. 11* In re Roebuck Weather Strip & 112 In re Photo Electrotype Engraving Wire Screen Co., 180 Fed. 497, 24 Am. Co., 155 Fed. 684, 19 Am. Bankr. Rep. Bankr. Rep. 532. 94. 110 In re Dexter, 158 Fed. 788; 118 In re Dexter, 158 Fed. 788 ; In re no In re Gay, 188 Fed. 392. § 628 LAW OF BANKRUPTCY 1276 the wages were earned more than three monL'us before the commence- ment of the proceedings, it is not entitled to priority,^^' and the creditor must allege in his statement of claim, or show by proof, that the debt accrued within the period limited,*^* and if only a part of it accrued with- in that time, then he is entitled to priority only as to that part.^^^ But a creditor having a claim for wages much exceeding the statutory limit of $300, and running back to a time much more than three months prior to the bankruptcy, and who rfeceives payments on account at various times, is not required to credit payments within the last three months so as to reduce wages earned within that period, but is entitled to cred- it all the payments to the earlier items of the account, leaving tp3U0 earned within the last three months, for which he is entitled to a pref- erence.^^* Wages earned in the interval between the filing of the pe- tition and the adjudication are not within the protection of the statute,^*^ but where a laborer is continued in his employment by the receiver in bankruptcy, who carries on the business for a time, his wages earned un- der the receivership will be given priority."^** Primarily, however, the statute relates to wages which are owing at the time of the bankruptcy, although they may not be then "due" in the sense of being immediately payable, and which have accrued within three months. It was not the purpose of this clause to make a distinction between wages due which have been earned and wages due which have not been earned, or to de- termine the wage earner's right by an inquiry into the amount of work done during the period of employment. The purpose is merely to limit priority to wages which have accrued within three months. The fact that during the three months, clerks of the bankrupt were given vaca- tions with pay, such pay to be withheld until the end of the year, during which time the employer became bankrupt does not deprive the clerks of the right to priority for such pay.^^^ Finally, wages of workmen, clerks, or servants which have been earned more than three months be- fore the commencement of the proceedings in bankruptcy are not enti- tled to priority merely because the law of the particular state may grant priority to such claims for a longer period or without any limitation as to the time of their accrual. For this clause of the bankruptcy act is en- tirely distinct from that which relates to persons entitled to priority un- der the laws of the state, deals exclusively with the matter to which it re- lates, and is not enlarged or in any way affected by the later clause.^** 117 In re Huntenberg, 153 Fed. 768, 18 121 In re Waties, 39 Fed. 264 Am. Bankr. Rep. 697. 122 In re Erie Lumber Col, 150 Fed 118 In re Dunn. 181 Fed. 701, 25 Am. 817, 17 Am. Bankr. Rep. 689. Bankr. Rep. 103. 12s In re B. H. Gladding Co., 120 Fed 119 In re Burton Bros. Mfg. Co., 134 709, 9 Am. Bankr. Rep. 700. Fed. 157, 14 Am. Bankr. Rep. 218. 124 In re Slomka, 122 Fed. 630 58 C 120 In re Van "Wert Mach. Co., 186 Fed. C. A. 322, 9 Am. Bankr. Rep. 6.35;' In re 607, 26 Am. Bankr. Rep. 597. Rouse, Hazard & Co., 91 Fed. 96 33 C 1277 DEBTS ENTITLED TO PRIORITY § 630 § 629. Same; Advance of Money to Pay Labor Claims. — The pro- vision of the bankruptcy act giving priority to the claims of workmen, clerks, and servants is for the benefit of the wage earner alone, and does not entitle a third person to priority, on the principle of subrogation or otherwise, who has advanced to the bankrupt money with which to pay the wages of his operatives or servants and which has been used for that purpose. "^^^ Thus, in one of the cases it appeared that a bankrupt cor- poration gave to its employes orders on a third person for goods and charged the same against the current wages of the men. The third per- son filled such orders and charged the amount to the corporation, which paid the same from time to time, either in cash or by note or credit on its books. Under the local statute, the employes were entitled to labor- ers' liens on the property of the corporation for wages earned within three months prior to the bankruptcy. It was hfeld that no right of sub- rogation to such liens arose in favor of the claimant, the third person mentioned, from such transactions, nor any right to the priority given to labor claims by the bankruptcy act, and that such subrogation would not be accorded them where it appeared that, if it were, the estate would not be sufficient to pay the preferred claims in full.^^" But under the law of Massachusetts, laborers working on a state building have an equita- ble lien on funds remaining in the hands of the state's officers, which is superior to any interest of the contractor's trustee in bankruptcy. ^^' § 630. Claims of United States. — There is some doubt whether claims of the United States government against a bankrupt would be entitled to priority of payment under the description of "debts owing to any person who by the laws of the states or the United States is en- titled to priority," as it is not altogether clear that it was meant to in- clude the United States as a "person." ^^* But at any rate, this provi- sion is in pari materia with earlier acts of Congress, now embodied in the Revised Statutes,^^® providing for priority of debts due to the United C. A. 356, 1 Am. Bankr. Rep. 234; In re Fed. 821, C9 C. C. A. 499, 14 Am. Bankr. Marshall Paper Co., 1 Nat. Bankr. News, Rep. 619. 294; In re Union Planing Mill Co., 2 Nat. i2t Burr v. Commonwealth, 212 Mass. Bankr. News, 384. But compare In re 534, 99 N. E. 323. Lawler, 110 Fed. 135, 6 Am. Bankr. Rep. i^s See Beaston v. Farmers' Bank, of 184. Delaware, 12 Pet. 102, 9 L. Ed. 1017; 125 Bell V. Arledge, 192 Fed. 837, 113 C. Title .Guaranty & Surety Co. v. Guaran- C. A. 161, 27 Am. Bankr. Rep. 773; Unit- tee Title & Trust Co., 174 Fed. 385, 98 ed Surety Co. v. Iowa Mfg. Co., 179 Fed. C. C. A. 603, 23 Am. Bankr. Rep. 340. 55, 102 C. 0. A. 623, 24 Am. Bankr. Rep. 129 "Whenever any person indebted to 726; In re St. Louis Ice Mfg. & Storage the United States is insolvent, or when- Co., 147 Fed, 752, 17 Am. Bankr. Rep. ever the estate of any deceased debtor, 194; In re North Carolina Car Co., 127 in the hands of the excutors or adminis- Fed. 178, 11 Am. Bankr. Rep. 488; In re trators, is insufficient to pay all the debts Paulson, Fed. Cas. No. 10,849. due from the deceased, the debts due to - 126 J. p. Browder & Co. v. Hill, 136 the United States shall be first satisfied; § 630 LAW OF BANKRUPTCY 1278 States in cases of insolvency and requiring every assignee or other person first to pay the debts of the United States>^* And under former bankruptcy acts it was held that the general government, not being specifically named in such statutes, was not bound by them, and there- fore was not compelled' to proceed against a bankrupt debtor under and in accordance with such acts,. but was entitled to an allowance of its full claim out of the estate in bankruptcy, without regard to the rights of other creditors.^*^ But the Supreme Court has held that this right of priority in favor of the United States no longer exists under the bankruptcy act of 1898, so far as regards labor claims, but that, since the section of the act relating to priority claims not only specifies such claims but also .prescribes the order of their payment, and since, in that enumerated order, labor claims are named before "debts entitled to priority under the laws of the United States," it follows that labor claims must be paid in full before payment of any debt due to the United States, except for taxes. ^^^ Presumably the same doctrine should be applied to the other classes of claims accorded priority by the stat- ute, such as the costs and expenses of administration, including the com- pensation of trustees, referees, and receivers, and these items should be paid in full before the claims of the United States. ^^' But after these preferred claims have been satisfied, or in cases where the costs and expenses of administration have been paid and no labor claims exist, the contest will be between the United States and the general creditors of the estate ; and there is no reason why the pro- visions of the Revised Statutes should not here apply. In such cases it is said that 'the priority of the United States extends to all classes of debts and to all the debtor's estate which comes to the hands of his assignee or trustee. The latter becomes a trustee for the United States and where he has notice of the debt due to the government, he cannot escape personal liability for the amount of it, to the extent of the value and tlie priority hereby established shall so much thereof as may remain due and extend as well to cases in which a debtor, unpaid." Rev. Stat. U. S. §§ 3466, 3467. not having sufficient property to pay all .iso in re Stoever, 127 Fed. 394, 11 Am. his debts, makes a voluntary assignment Bankr. Rep. 345; Lewis v. United States, thereof, or in which the estate and ef- 92 U. S. 618, 23 L. Ed. 513. fects of an absconding, concealed, or ab- isi In re Huddell, 47 Fed. 206; Lewis sent debtor are attached by process of v. United States, 92 U. S. 618, 23 L. Ed. law, as to cases in which an act of 'bank- 513; Mott v. Maris, 2 Wash. C. C. 196 ruptcy is committed. Every executor, Fed. Cas. No. 9,880; United States v! administrator, or assignee, or other per-- Fisher, 2 Cranch, 358, 2 L. Ed. 304. son, who pays any debt due by the per- isa Guarantee Title & Trust Co. v. son or estate from whom or for which Title Guaranty & Surety Co., 224 U. S. he acts, before he satisfies and pays the 152, 32 Sup. Ct. 457, 56 L. Ed. 706,' 27 debts due to the United States from such Am. Bankr. Rep. 873. person or estate, shall become answer- iss See, as to taxes. In re Jacobson able in his own person and estate for the (C. C. A.) 263 Fed. 883, 45 Am. Bankr. debts so due to the United States, or for Rep. 1, 1279 DEBTS ENTITLED TO PRIORITY § 630 of the assets coming to his hands, if he fails to provide for it before making distribution to other creditors. And even the judgment of a court of competent jurisdiction, directing such distribution, will af- ford the trustee no justification, in such a case, where it does not ap- pear that the United States was made a party to the proceeding in which such judgment was rendered. And further, the United States, by omit- ting to prove its claim in the bankruptcy proceedings until after such distribution is made, does not lose its right to proceed against the trus- tee personally, as the doctrines of waiver, laches, and estoppel cannot be invoked against the sovereign.*** A claim founded upon the indorse- ment of a bill of exchange, of which the government is the holder, is thus entitled to priority,**" and so is a claim for breach of condition of a bond given under the internal revenue laws,**® or for a penalty incurred by a violation of those laws.**' And the government is entitled to pri- ority of payment out of the estate of the bankrupt debtor whether he is principal or surety, or solely or jointly liable with others,*** and though the debt was contracted by a foreigner in a foreign country.*** So also, a claim of the United States for customs duties on goods imported by the bankrupt is entitled to priority.**" And under the Act of Congress placing the railroads under federal control during the war, the twelfth section of which declared that moneys derived from the operation of the railroads should be the property of the United States, unpaid freight charges on shipments made during the period of federal control are fed- eral property, and the claim therefor is entitled to priority in a bank- ruptcy proceeding.**^ But the United States Shipping Board Emergency Fleet Corporation, incorporated under the general corporation laws of the District of Columbia, is not entitled to priority of payment of a debt due to it from a bankrupt with whom the corporation made a contract as a principal, and not as an agent of the United States Government, on the theory that the debt was one due to the United States, for the claimant having been incorporated as a private corporation, it is not divested of that character by the fact that the Government owns its stock.***'^^ But this right of priority is not in the nature of a lien, but only a preferential right of payment out of the general estate, so that the gov- 184 United States v. Barnes, 31 Fed. is » Harrison v. Sterry, 5 Cranch, 289, 705. 3 L. Ed. 104. _is6 United States v. Fisher, 2 Cranch, ^^„ j^ ^^ Rosenthal Bros. (D. C.) 235 3o8, 2 L. Ed. 304. Pg^j g^g gg ^^^ Bankr. Rep. 1. 186 In re Webb, 2 N. B. R. 614, Fed. „. „ Cas No 17313 ^"^ '^^ ^® ^- •^- Hibner Oil Co. (0. C. A.) 137 In re Rosey, 6 Ben. 507, 8 N. B. R. 264 Fed. 667, 45 Am, Bankr. Rep. 380. 509, Fed. Cas. No. 12,066. 1*11/2 In re Eastern Shore Shipbuild- 13 8 Lewis V. United States, 92 U. S. ing Corp. (C. C. A.) 274 Fed. 893. 618, 23 L. Ed. 513. § 630 LAW OF BANKRUPTCY 1280 ernment has no right of preference over the holders of valid liens.^** It is said, however, that the government is not bound by the general equity rule for marshaling assets, nor by any rule prescribed by the bankruptcy law in conformity thereto, any further than as that rule is founded, in the particular case, on the liens of the several parties inter sese>** And hence the government may enforce its right of priority without first exhausting securities which it may hold."* And the United States is not bound by the rule for the division of an estate as between partnership and separate creditors; that is, though the claim of the government is against an individual partner, it is entitled to priority of payment out of the partnership funds, and vice versa."® It was held under former bankruptcy statutes that the United States was under no obligation whatever to prove its claim in the bankruptcy proceedings, and that the omission to do so did not affect its right to priority."® But it is probably otherwise under the present statute, es- pecially in view of the fact that the section bearing the general title "Proof and allowance of claims" includes the following: "Debts owing to the United States as a penalty or forfeiture shall not be allowed, except for the amount of the pecuniary loss sustained by the act, trans- action, or proceeding out of which the penalty or forfeiture arose, with reasonable and actual costs occasioned thereby and such interest as may have accrued thereon according to law." "' The principle of subrogation may in some cases entitle a third person to succeed to and claim that right of priority which is given to the United States. This was allowed in a recent case to a surety for the bankrupt on a bond executed to the United States, who had paid a judgment recovered against him on the bond."* And the same rule has been applied in a case of a surety who has paid money for a bank- rupt in discharge of a customs duty bond,*** and of one purchasing im- 1*2 United States v. Hooe, 3 Cranch, field & Poole Mfg. Co., 17 N. B. R. 153, 73, 2 L. Ed. 370; United States v. lie- Fed. Cas. No. 1,704. chanics' Bank, Gilp. 51, Fed. Cas. No. i" Bankruptcy Act 1898, § 57j. 15,756; Tbe Thomas Scattergood, Gilp. i*8 Title Guaranty & Surety Co. v. 1, Fed. Cas. No. 11,106; United States Guarantee Title & Trust Co., 174 Fed. V. Grlswold, 7 Sawy. 296, 8 Fed. 496. 385, 98 C. C. A. 603, 23 Am. Bankr. Rep! 1*3 In re Strassburger, 4 Woods, 557, 340. This case was reversed on appeal Fed. Cas. No. 13,526. (224 U. S. 152, 32 Sup. Ct. 457, 56 L. Ed. 144 United States v. Lewis, Fed. Cas. 706, 27 Am. Bankr. Rep. 873), but only No. 15,595, aflarmed 92 U. S. 618, 23 L. so far as regards the priority of a claim Ed. 513. of this kind over labor claims. See also 145 United States v. Lewis, Fed. Cas. In re P. JIcGarry & Son, 240 Fed 400 No. 15,595, affirmed 92 U. S. 618, 23 L. 153 C. C. A. 326, 39 Am. Bankr. Rep. 224; Ed. 513; In re Strassburger, 4 Woods, United States v. National Surety Co. (c! 557, Fed. Cas. No. 13,526. C. A.) 262 Fed. 62, 44 Am. Bankr. Rep! 148 Lewis V. United States, 92 U. S. 525; In re Scofield Co., 215 Fed. 45^ 618, 23 L. Ed. 513; Harrison v. Sterry, 131 C. C. A. 353. 5 Cranch, 289, 3 L. Ed. 104; In re Ecus- i4!i Kerr v. Hamilton, 1 Cranch, 0. C. 1281 DEBTS HNTITLED TO PRIORITY § 631 ported goods, and who was compelled, in order to obtain possession of them, to pay the duties which the importer' should have paid,"** and likewise in favor of an internal revenue officer paying to the govern- ment the amount of a dishonored check received ty him from a debtor to the government.*"^ § 631. Claims of State or Municipality. — A state is a "person" with- in the meaning of that provision of the bankruptcy act which gives pri- ority to "debts owing to any person who by the laws of the states or the United States is entitled to priority," and hence is a preferred claim- ant against a bankrupt if its own laws so provide.*"^ And if the insol- vency law of the state makes the municipal corporations of the state preferred creditors of an insolvent, a county having a claim against a bankrupt is entitled to priority of payment out of his estate,*®* but not unless some state law so provides.*^ And if the state law regulating assignments for creditors or the administration of insolvents' estates de- clares that it shall be for the equal and common benefit of all creditors, and supersedes the common-law rule that debts due the crown were en- titled to priority as against general creditors, the state itself can claim no priority in bankruptcy proceedings against its debtor.*** But assum- ing the state to be entitled to priority, this right will attach to a claim upon a contract for the hire of convict labor,*** and for the price of goods made in the state prison and sold to the bankrupt, or any other property of the state so sold,*®^ and a judgment rendered in favor of the state against a surety on a bail bond given for the appearance of a person un- der indictment for a crime.'^ But the state has no claim to priority against a bankrupt bank in which the warden of a penitentiary had de- 546, Fed. Gas. No. 7,731. But see Pol- 486; In re Wright, 95 Fed. 807, 2 Am. lock V. Pratt, 2 Wash. C. C. 490, Fed. Eankr. Rep. 592. Gas. No. 11,256. "4 In re Waller, 142 Fed. 883, 15 Am. 1 = In re Kirkland, 2 Hughes, 208, 14 Bankr. Rep. 753; In re Manistee Watch N. B. R. 139, Fed. Gas. No. 7,843. Cc, 197 Fed. 455, 28 Am. Bankr. Rep. 101 In re McBrlde, 19 N. B. R. 452, ^IG. Fed. Gas. No. 8,662. But see Wilkinson ^l, ^ j.^ t>e^rUn, 180 Fed. 170, 24 Am. V. Babbitt, 4 Dill. 207, Fed. Gas. No. Bankr. Rep. 863. ^^Sn re Western Implement Go., 166 „ '"iV^^^f'^lf,*^^. ?""*^' ^?^ l^^' Fed. 576. 22 Am. Bankr. Rep. 167. The ^08, 42 G. C^A. 637 4 Am Bankr Rep. law of Alabama does not give priority to t? ' ooJ^ ?°^^%^ ?. f^' ^n^' ?f '■ a debt due to the state from an Insolvent ^''■^•^f^ ^a^^^°^ Z^^^'^ n""" ^f ' debtor, or a decedent, except for taxes, ^^'^^- ^^' ^^ N. B. R. 404, Fed. Gas. No. and a contract debt due to the state from 1'>>19^- a bankrupt is therefore not entitled to i" In re Mercer, 171 Fed. 81, 96 G. G. priority. State of Alabama v. Martin, ^- 185. 22 Am. Bankr. Rep. 413; In re 256 Fed. 313, 167 0. C. A. 661, 43 Am. Mellor, 10 Ben. 58, 17 N. B. R. 402, Fed. Bankr. Re^. 450. Gas. No. 9,401. 153 In re Worcester County, 102 Fed. los in re Chamberlin, 9 Ben. 149, 17 N. 808, 42 G. C. A. 637, 4 Am. Bankr. Rep. B. R. 49, Fed. Gas. No. 2,580. Blk.Bkr.(3d Ed.)— 81 § 632 LAW OF BANKRUPTCY 1282 posited funds in his own name, as he is liable to the state on his bond.^^ It should also be observed that this preferential right of a state or its municipalities is subject to the provision of the bankruptcy act that "debts owing to the United States, a state, a county, a district, or a mu- nicipality, as a penalty or forfeiture, shall not be. allowed, except for the amount of the pecuniary loss sustained by the act, transaction, or pro- ceeding out of which the penalty or forfeiture arose, with reasonable and actual costs occasioned thereby and such interest as may have ac- crued thereon according to law." ^^° § 632. Claims Entitled to Priority Under State Laws. — While a state law could not, of its own force, grant or determine priorities of payment in the distribution of a bankrupt's estate, yet that clause of the national bankruptcy law which accords priority to "debts owing to any person who, by the laws of the states or the United States, is entitled to priority" adopts the law of the state for this purpose and makes it appli- cable as federal law in determining the question of priorities."^ And the controlling principle is that the creditor shall be allowed the same prior- ity under the bankruptcy act as he would, have had under the state law governing the distribution of the estates of insolvent debtors, if that law had not been superseded by the bankruptcy act.^"* For a state in- solvency law, though its operation "upon insolvents is suspended while the national bankruptcy law is in force, still remains a "law of the state" within the meaning of this clause."* And a creditor may claim a right of priority in payment which the law of the state gives him, though he does not set up such claim until more than a year after the adjudication in bankruptcy, when the question of the distribution of assets first arises.*** But this provision does not operate to place all preferred debts of this class upon a plane of equality; but liens created by the laws of the state will attach to the property of a bankrupt in the hands 150 In re Corn Exchange Bank, 7 Blss. Act, the word "state" is broad enough 400, 15 N. B. E. 431, Fed. Cas. No. 3,242. to include Porto Rico, so that a person i»o Bankruptcy Act 1898, § 57j. who is entitled to priority under the 101 Central Trust Co. of Illinois v. laws of Poi-to Rico is entitled to priority George Lueders & Co., 221 Fed. 829, 137 in bankruptcy. In re Vidal, 233 Fed. C. C. A. 387, 34 Am. Bankr. Rep. 61; 733, 147 C. C. A. 499, 36 Am. Bankr. In re Bennett, 153 Fed. 673, 82 C. C. A. Rep. 783. Compare Gandia & Stubbe 531, 18 Am. Bankr. Rep. 320, 847; And v. Cadierno, 233 Fed. 739. 147 C. C. A. see In re Leflys, 229 Fed. 695, 144 C. C. 505, 36 Am. Bankr. Rep 7sn A. 105 36 Am Bankr. Rep. 306 .Mc- ,,, j„ ^^ ^^^ Dermott v. Tolt Land Co., 101 Wash. b„„i.,. gg oqg 114, 172 Pac. 207 ; In re New Gait House Co. (D. C.) 199 Fed. 533; Bean v. Orr, "'1° re Wright, 95 Fed. 807, 2 Am. 182 Fed. 599, 105 C. 0. A. 137, 25 Am. «ankr. Rep. 592. Bankr. Rep. 400 ; In re Bazemore (D. I'oi in re .Vshland Steel Co., 16S Fed. C.) 189 Fed. 236, 26 Am. Bankr. Rep. 679, 94 C. C. A. 165, 21 Am. Bankr. Rep. 494. In this clause of the Bankruptcy 834. 1283 DEBTS ENTITLED TO PRIORITY § 633 of his trustee in the same relative rank and order in which they are fixed by the state statutes.''*® As an example of a priority right given by state law, we may cite the case of a statute providing that persons who shall have furnished materials or supplies for the carrying on of the business of any manufacturing company shall have a lien on its property and ef- fects involved in the business, superior to any mortgage or other incum- brance thereon.^** So the laws of some states give a preferential right of payment to the holders of mechanics' liens, and this will be recog- nized and enforced in bankruptcy.'*' And where the civil law prevails, community property is primarily a fund for the payment of community debts, and will be so applied in bankruptcy, the law postponing the claim of an antenuptial creditor."* In some states also, the statutes give a preference to debts due from an insolvent person in the character of a guardian, to his ward, which will furnish the rule for dis- tribution in bankruptcy.'*" And if the local law gives priority to the legal costs and expenses of an attachment 'suit against an insolvent, as is the case in several states, such items will be accorded a like priority in bankruptcy proceedings."* But the right of antecedent creditors, un- der the laws of the particular state, to set aside a conveyance made by their debtor without consideration, as being in fraud of their claims, but which, by the same law, is valid as to subsequent creditors or purchas- ,ers, is not a debt which is given priority by the state law so as to be en- titled to priority in bankruptcy.'" § 633. Landlord's Claim for Rent. — In several states, the local law gives priority of payment to the claim of a landlord for rent due and un- paid, in case of the insolvency of the tenant or where an execution is levied on his goods, usually, however, with the limitation that such claim is enforceable only against leviable or distrainable property on the demised premises, and only for rent accrued within a limited period, as, one year. Such a law will be applicable in bankruptcy proceedings 18,5 In re Falls City Shirt Mfg. Co., los In re Crow, 116 Fed. 110, 7 Am. 98 Fed. 592, 3 Am. Bankr. Rep. 437. Bankr. Rep. 545. Compare In re Jones, I'es In re Bennett, 153 Fed. 673, 82 151 Fed. 108, 18 Am. Bankr. Rep. 206. C. C. A. 531, IS Am. Bankr. Rep. 847. iro in re Amoratis, 178 Fed. 919, 102 And see In re Rheinstrom & Sons Co. C. C. A. 297; In re Iroquois Mach. Co., (D. C.) 207 Fed. 119; Ix)uisville Woolen 166 Fed. 629, 22 Am. Bankr. Rep. 183; Mills Co. V. Johnson, 228 Fed. 606, 143 In re Goldberg & Bros., 144 Fed. 566 ; In C. C. A. 128, 37 Am. Bankr. Rep. 67. re Lewis, 99 Fed. 935, 4 Am. Bankr. Rep. 187 In re Clark Coal & Coke Co., 173 51. But compare In re The Copper Fed. 658, 23 Am. B.nnkr. Rep. 273. See King, 143 Fed. 649, 16 Am. Bankr. Rep. In re Cramond, 145 Fed. 966, 17 Am. 148. Bankr. Rep. 22; In re Fowble (D. C.) i^i Globe Bank & Trust Co. of Padu- 213 Fed. 676; Interstate Contracting & cah v. Martin, 236 U. S. 288, 35 Sup. Supply Co. V. Belleville Sav. Bank, 197 Ct. 377. 59 L. Ed. 583, 34 Am. Bankr. 111. App. 30. Rep. 162. i6sin re Chavez (C. C. A.) 149 Fed. 73, 17 Am. Bankr. Rep. 641. § 633 LAW OF BANKEUPTCr 12S4 against the tenant, and the lessor will be entitled to claim the priority which the local law gives him.^'* And he is not required to bring an action in a state court for the establishment of his lien, or to levy on the property, but may at once prove his debt and be heard in the court of bankruptcy in support of his claim to priority,"* unless the local statute requires him to levy a distress as a condition precedent to claiming a lien.*'* But where the landlord permits the receiver or trustee in bank- ruptcy to make a sale in bulk of the entire equipment of the bankrupt's business, including some assets which would be subject to his claim for rent and some which would not, making no objection and interposing no claim, he cannot ask the court to apportion the proceeds of the sale so as to give him priority of payment out of any part of the fund.*'^ And where the state law limits the right of priority to such rent as may be due for not more than one year last past, the landlord cannot gain a preferred right to more than a year's rent by distraining on the property after the adjudication in bankruptcy, though before the appointment of a trustee.*'* Further, it is the generally accepted doctrine that priority can be given only to such rent as is past due at the date of the adjudica- tion, which fixes the rights of priority creditors as well as others, so that the landlord can gain no advantage from a provision in the lease (or even in the state statute) that the rent for the entire unexpired por- tion of the term shall become due and payable upon the bankruptcy of the tenant.*" But where the bankrupt occupied a part of the 1T2 Longstreth v. Pennock, 20 Wall. Southern Co. of Baltimore City, 180 Fed. 575, 22 L. Ed. 451; In re Bayley, 177 838; In re Gerrow (D. C.) 233 Fed. 845, Fed. 522, 22 Am. Bankr. Rep. 249; In 37 Am. Bankr. Rep. 14. See In re re Burns, 175 Fed. 633, 23 Am. Bankr. Braus (D. C.) 233 Fed. 835, 37 Am. Rep. 640; In re V. D. L. Co., 175 Fed. Bankr. Rep. 594; In re Cole Jewelry 635, 23 Am. Bankr. Rep. 643; In re West Co. (D. C.) 243 Fed. 790, 40 Am. Bankr. Side Paper Co., 159 Fed. 241, 20 Am. Rep. 234. Bankr. Rep. 289; In re Morris, 159 Fed. its in re McFadgen, 156 Fed. 715, 19 591, 19 Am. Bankr. Rep. 781 ; In re Am. Bankr. Rep. 481. And see Rosen- Bishop, 153 Fed. 304, 18 Am. Bankr. blum v. Uber, 256 Fed. 584, 167 C. C. Rep. 635; In re Rfenda, 149 Fed. 614, A. 614, 43 Am. Bankr. Bep. 480. But 17 Am. Bankr. Rep. 521; In re Groven- see, as to a sale made without notice stein-Bishop Co. (D. C.) 223 Fed. 878, 35 to the landlord, In re Federal Biscuit Am. Bankr. R-ep. 114 ; In re Mt. Winans Co., 218 Fed. 753, 134 O. 0. A. 431, 33 Lumber Co. (D. C.) 228 Fed. 831, 36 Am. Am. Bankr. Rep. 273. Bankr. Rep. 263. A debt for rent stanijs I'^o In re Duble, 117 Fed. 794, 9 Am. like any other debt before the court of Bankr. Rep. 121. bankruptcy, without preference or prior- i77 in re Abrams, 200 Fed. 1005, 29 ity, unless made preferential by some Am. Bankr. Rep. 590; Wilson v. Penn- state or federal law. Slayton v. Drown, sylvania Trust Co., 114 Fed. 742 52 C. 93 Vt. 290, 107 Atl. 307. C. A. 374, 8 Am. Bankr. Rep. 169 ; In ITS In re Byrne (D. C.) 97 Fed. 762, re Jefferson, 93 Fed. 948, 2 Am. Bankr. 3 Am. Bankr. Rep. 268 ; In re Pittsburg Rep. 206 ; In re Winfield Mfg. Co 149 Drug Co. (D. 0.) 164 Fed. 482, 20 Am. Fed. 185, 15 Am. Bankr. Rep. 257. Com- Bankr. Rep. 227. pare In re Keith-Gara Co., 203 Fed. 17* In re Chaudroh & Peyton, 180 Fed. 585, 29 Am. Bankr. Rep. 466, affirmed 841, 24 Am. Bankr. Rep. 811; In re in Ludlow y. Pugh, 213 Fed. 450, 130 C. 1285 DEBTS ENTITLED TO PEIOEITT § 634 leased premises as a storeroom, and the remainder for living quarters, the landlord will. have a preferred claim on the goods in the storeroom for the amount due as rent for the entire premises."* But these laws are applied with a reasonable measure of strictness. And if the stat- ute gives the landlord a preferential claim on goods and chattels of the tenant "liable to distress," he cannot claim priority of payment out qf the proceeds of the bankrupt's liquor license sold by the trustee.^" And the claim will be restricted to rent properly so called, and will not be allowed to include the amount of an unpaid city water tax,^** or a sum which the landlord was compelled to pay to discharge a lien for repairs made by the municipal health department.-'*'^ And the bankruptcy law does not entitle a landlord's claim to priority over all other claims what- ever, but only over those not specified in the bankruptcy act as being higher in rank or right.^** But where there was an agreement between the bankrupt and his landlord that the counter indebtedness of the land- lord to the bankrupt should 6e applied, as it arose, to indebtedness of the bankrupt to the landlord other than rent, it will be so applied in the bankruptcy proceedings, although the result will be to create a claim for rent, entitled to priority, larger than would otherwise be the case.*** Where the receiver or the trustee in bankruptcy continues to occupy the premises leased by the bankrupt, the rent for the period of such occupa- tion is payable as part of the cost of administration, and is treated as a priority debt to that extent.'** § 634. Trust Creditors and Claimants of Trust Fxmds.— The right of a creditor to recover or reclaim property of his which was held by the bankrupt in trust for him, or to receive payment in full out of trust funds in the hands of the trustee in bankruptcy, does not depend upon the insolvency laws of the states or laws giving priority to favored claims.**® In fact, it is not a question of priority at all, but of the right of the owner of property or money to reclaim it. A trust creditor of a bankrupt is not entitled to any preference over the general creditors C. A. 96. And see In re Quality Shoe ris Steam Engine Co. (D. C.) 225 Fed. Shop (D. C.) 212 Fed. 321, 34 Am. Bankr. 609, 34 Am. Bankr. Rep. 835. Rep. 196. 181 In re Schomacker Piano Forte 1" In re Hersey, 171 Fed. 1001, 22 ^fg. Co., 163 Fed. 413, 20 Am. Bankr. Am. Bankr. Rep. 860. ^^^P- S^^' ,„ „ . 182 In re Consumers' Coffee Co., 151 iro In re Myers, 102 Fed. 869, 4 Am. ^^^ 933^ ^g ^^^ gankr. Rep. 500. Bankr. Rep. 536. isaia re Bell Engraving Co. (D. C.) 180 In re Family Laundry Co., 193 214 Fed. 510. Fed. 297, 27 Am. Bankr. Rep. 517. As i84 in re MuUings Clothing Co. (D. to taxes in general, see In re Spies- C.) 230 Fed. 681, 37 Am. Bankr. Rep. Alpher Co. (D. C.) 231 Fed. 535, 36 Am. 166. And see, supra, §§ 211, 307, 522. Bankr. Rep. 470; In re William A. Har- iss Smith v. Mottley, 150 Fed. 266, 80 C. C. A. 154, 17 Am. Bankr. Rep. 863. § 634 LAW OF BANKRTJPTCT 1286 merely because of the character of his claim. But he is entitled to satis- faction of his claim if he can show that the trust fund, or property into which it was converted, came into the hands of the trustee in bankruptcy and increased the assets of the estate, even though the property cannot be exactly identified.^** But first, the trust must be distinctly establish- ed, and a contract or transaction which merely creates the relation of debtor and creditor between the parties, without impressing a trust on any fund or property, will not be sufficient to support a claim to payment in full.^*' But subject to this condition, the general rule may apply to special deposits in a bank or trust company.^** And where a bankrupt concealed money from his trustee, with which he purchased a stock of merchandise and conducted business in the name of another, debts con- tracted in the name of such other in the course of the business are enti- tled to priority of payment from the proceeds of the property.**" And so, the payment of a dividend, by the receiver of a state court appointed for an insolvent partnership in a suit by one j?artner for dissolution, to such creditors as presented their claims, within four months prior to the bankruptcy of the partnership, operates as a voidable preference as against other creditors, who were without notice and did not participate, and entitles them, on proving their claims in bankruptcy, to payment of an equal percentage thereon before any further dividends are paid.**' 186 Cox V. New England Equitable is not the giving of a preference, see Ins. Co., 247 Fed. 955, 160 C. C. A. 655, supra, § 582. 40 Am. Bankr. Rep. 793; Zenor v. Mc- is? in re Meyer (D. C.) 106 Fed. S2S, Farland, 238 Fed. 721, 151 C. C. A. 571, 5 Am. Bankr. Rep. 596 ; Smith v. Mott- 38 Am. Bankr. Rep. 510; Johnson v. ley^ 150 fed. 266, 80 C. C. A. 154, 17 Blxby, 252 Fed. 103, 164 C. C. A. 215, 1 Am. Bankr. Rep. 863 ; Block v. Shaw, A. L. B. 660, 42 Am. Bankr. Rep. 398; 73 Ark. 511, 95 S. W. 806. Where a In re Stringer (D. C.) 280 Fed. 177, 37 bankrupt, at the time of purchasing Am. Bankr. Rep. 44; In re Hawley certain mate-' "Is from the claimant Down Draft Furnace Co. (D. C.) 256 on ^ash terms, intended to pay prompt- Fed. 555, 43 Am. Bankr. Rep. 338; In jy^ and reasonably expected to be able re Brunsing, Tolle & Postel, 169 Fed. to do so, the seller was not entitled to a 668, 22 Am. Bankr. Rep. 129; In re J. preference on the theory that the pur- M. Acheson Co., 170 Fed. 427, 95 C. C. ehase was fraudulent. Cincinnati Ry A. 597, 22 Am. Bankr. Rep. 338 ; In re Supply Co. v. Hartlieb, 214 Fed. 177 Smith, Thorndyke & Brown Co., 159 130 c C A 525 ' 154, 17 Am. Bankr. Rep. 863; In re ^- ?f°^^'^ ^^'^■^^^' ^S '^ ^°'^'"'' ^^^ No^th Carolina Car Co., 127 Fed. 178, IttZ'^^Tn^'"'''']:,''''^-^''^' ^'"S" 11 Am. Bankr. Rep. 488; John Deere ^'^'°P'-°'^ ^f ,?°-/- ^'''^sory, 148 App. Plow Co. V. McDavid, 137 Fed. 802. 70 ^'\''-%,^^^ J^: ^"/"PP- ^^°: ^^ ^^ CCA. 422; In re Tracy, 185 Fed. 844 ; |°!,''^ar>n of I^'^^-^^'^ ^'■'''^° ^°' ^™ In re Gaskill, 130 Fed 235, 12 Ami l^^' l^' ^^ C' C A. 76, 22 Am. Bankr Bankr. Rep. 251. For the rule that ^^P" ^^^- ^^""^ ^^^ ^"P'-a- § 355. trust funds held by the bankrupt are ^'* ^^ re Offncht (D. C.) 260 Fed. not assets of his estate, and concerning ^82, 43 Am. Bankr. Rep. 345. the remedies of trust creditors, see su- iso Farnsworth v. Union Trust & De- pra, § 354. That the restoration of posit Co. (C C. A.) 272 Fed. 92, 46 Am. trust funds or property held in trust Bankr. Rep. 447. 1287 DIVIDENDS § 635 CHAPTER XXXI DIVIDENDS See. 635. Meaning of "Dividend" in Bankruptcy. G.36. Funds for Distribution as Dividends. 637. Time for Declaration of Dividends. 638. Proceedings for Declaration and Payment of Dividends. 639. Reopening and Setting Aside Order. 640. Payment of Dividends. 641. Recovery of Dividends Paid on Rejected Claims. 642. Claims Proved After Dividend. 643. Interest on Dividends. 644. Unclaimed Dividends. § 635. Meaning of "Dividend" in Bankruptcy. — A "dividend" is the distributive share payable to a creditor out of an estate in bankrupt- cy or insolvency. But the word has a somewhat more restricted mean- ing as used in that section of the bankruptcy act which provides that "dividends of an equal per centum shall be declared and paid on all al- lowed claims, except such as have priority or are secured." ^ Here the term is held to apply only to payments made on the claims of the general and unsecured creditors, and not to disbursements by the trustee in dis- charge of taxes, claims entitled to priority, or valid liens, and not to the claims of secured creditors at all, except in so far as the amount of the claim may exceed the value of the security.^ Upon the filing of a peti- tion in bankruptcy, "there vests in each creditor as a cestui que trust an equitable estate in such a part of the property of the bankrupt as the amount of his provable claim at that time bears to the entire amount of the provable claims against the estate," •'' or rather, perhaps, there vests in the creditor an undivided interest in the estate, measured by the ratio between the amount of his claim and the entire amount of claims, and when this interest is ascertained and is satisfied by the act of the trustee in paying to the creditor, in one or more payments, as the law directs, the sum to which he is entitled proportionally with other cred- 1 Bankruptcy Act 1898, § 65a. Al- Mfg. & Supply Co., 50 Colo. 342, 116 Pac. though the fund for distribution was 122 ; In re Utt, 105 Fed. 754, 45 C. C. A. raised by a sale of the entire assets of 32, 5 Am. Bankr. Rep. 383 ; In re Hinek- the bankrupt, under the sanction of the el Brewing Co., 124 Fed. 702, io Am. court, to a purchaser whose offer was to Bankr. Rep. 692; In re Mammoth Pine pay priority and preferred claims in full Lumber Co., 116 Fed. 731, 8 Am. Bankr. and 20 per cent, on the claims of unse- Rep. 651; In re Gardner, 103 Fed. 922, 4 cured creditors, still the dividend of 20 Am. Bankr. Rep. 420; In re Ft. Wayne per cent, can be declared and paid only Electric Corp., 94 Fed. 109, 1 Am. Bankr. to those creditors whose claims have Rep. 706. Compare In re Barber, 97 been duly filed and allowed. In re Fed. 547, 3 Am. Bankr. Rep. 306. Schloss (D. C.) 257 Fed. 876, 44 Am. s Board of County Com'rs of Shawnee Bankr. Rep. 64. County v. Hurley, 169 Fed. 92, 94 C. 0. 2 Hawthorne v. Hendrle & Bolthoflf A. 362, 22 Am. Bankr. Rep. 209. § 636 LAW OF BANKRUPTCY 1288 itors of the same class, each of such payments constitutes a "dividend" in bankruptcy. If the creditor's claim is of such a nature as to be barred by the bankrupt's discharge, and if the discharge is granted, the divi- dends so received will be in full satisfaction of the claim. But if the creditor had an action pending on his claim at the time of the adjudica- tion in bankruptcy, and the debtor fails to obtain a discharge, then divi- dends in the bankruptcy proceedings received by the plaintiff will mere- ly reduce his cause of action pro tanto.* § 636. Funds for Distribution as Dividends.-^The funds available for dividends in bankruptcy are such as result from the recovery and re- duction to cash of the assets of the bankrupt, in so far as the same are subject jto the claims of general creditors. These two things must con- cur; the fund must arise from property of the bankrupt, and it must be distributable to general creditors. Thus, if the bankrupt misappropriat- ed trust funds in his hands, and the money has come into the possession of the trustee, the defrauded cestui que trust may follow and reclaim the fund by appropriate proceedings ; but it is on the theory of its being his property and not a part of the estate in bankruptcy.^ But one acquiesc- ing in an order of the court for the sale of his own property and prop- erty of the bankrupt in one lot, and who thereafter prays for preference in payment out of the proceeds of the sale, is estopped from receiving a larger proportion of such proceeds than the ratio which the value of his property bore to the value of the lot sold at the time of the sale.® Money contributed by relatives and friends of the bankrupt, to increase his estate, under an agreement with creditors, may constitute a fund for dividends, but not where its payment was induced by a bargain which was contrary to law or to public policy, such as an agreement not to prosecute the bankrupt criminally.' Where property incumbered with a valid lien is sold, and more is realized than is required to satisfy the lien, the surplus will be available for creditors. But if the bankrupt had a right to compel contribution from a person jointly interested with him in the property, the claim of creditors to be subrogated to this right can only be considered and determined in ancillary proceedings instituted for that purpose.* Where property or its value is recovered by the trustee in bankrupt- cy by means of a suit to vacate a fraudulent conveyance or a voidable preference, or to dissolve attachment or other liens which are not pre- * American Woolen Co. v. Maaget, 86 Fed. 123, 81 O. C. A. 341, 18 Am Bankr Oonn. 234, 85 Atl. 583. Rep. 259. J In re Wilkes-Barre Furniture Mfg. r In re Rosenblatt, 153 Fed. 335, 18 Co., 130 Fed. 796, 12 Am. Bankr. Rep. Am. Bankr. Rep. 663. 472. 8 In re Straub, 158 Fed. 375, 19 Am. 8 In re Great Western Mfg. Co., 152 Bankr. Rep. 808. 1289 DIVIDENDS § 637 served in bankruptcy, the proceeds constitute a fund available for divi- dends, that is, for distribution among all. the general creditors propor- tionally, and are not for the benefit of those alone who began an attack on the fraudulent transaction or who held provable claims at that time." In partnership cases, the fund primarily available for dividends to the firm creditors will arise only out of partnership assets, while that available for the individual creditors will be produced from the separate estates of the partners." But where a person buys up claims agaiiist a bankrupt partnership, and agrees to pay any amount in excess of five per cent, of the claims received from the estate of the partnership, a divi- dend on the partnership claims is received from the bankrupt estate of the partnership, though the funds therefor were derived from the estate in bankruptcy of one of the partners, and though the assets of that part- ner were not formally transferred to the assets of the firm estate; for the only way in which a firm creditor could share in the surplus of a part- ner's estate is by its transfer, actual or constructive, to the partnership estate, and hence a constructive transfer by operation of law must be held to have been made.^'^ Claims in bankruptcy may be postponed, or made' subordinate in the distribution of dividends to the claims of all other creditors or of certain classes of creditors, when such was, the agreement of the parties, or on principles of estoppel or as the result of fraudulent conduct making it inequitable that such claims should share equally with others.** This rule may be applied, for instance, where a mortgage has been purposely or fraudulently withheld from record.** § 637. Time for Declaration of Dividends. — On this point the pro- vision of the statute is as follows : "The first dividend shall be declared within thirty days after the adjudication, if the money of the estate In 9 In re Martin, 193 Fed. 841, 113 C. C. 249 Fed. 194, 161 C. C. A. 230, 41 Am. A. 627, 27 Am. Bankr. Rep. 545 ; In re Bankr. Eep. 643 ; In re Wenatchee Kohler, 159 Fed. 871, 87 C. 0. A. 51, 20 Heights Orchard Co. (D. C.) 209 Fed. 84, Am. Bankr. Rep. 89 ; Treseder v. Bu.rgor, 31 Am. Bankr: Rep. 550; In re George C. 130 Wis. 201, 109 N. W. 957. A creditor Bruns Co., 256 Fed. 840, 168 C. C. A. who surrenders a preference which he 186, 43 Am. Bankr. Rep. 282 ; Edgar v. has received and thereafter files and Ames, 255 Fed. 835, 167 C. O. A. 163, 42 proves his claim as a general unsecured Am. Bankr. Rep. 697; Courtney v. Crox- clalm is entitled to share in the dividend, ton, 239 Fed. 247, 152 O. O. A. 235, 38 and is not postponed to creditors as to Am. Bankr. Rep. 560. whom the preference was originally void- is See Hicks v. Second Nat. Bank, 224 able. ti. A. Becker Co. v. Gill, 206 Fed. Fed. 53, 139 C. C. A. 615 ; Hollenbeck v. 36, 124 C. O. A. 170, 30 Am. iBankr. Rep. Louden, 35 S. Dak. 320, 152 N. W. 116 ; 429. See Wells v. I/incoln, 214 Fed. 227, Martin v. Commercial Nat. Bank of Ma- 130 C. C. A. 641, 82 Am. Bankr. Rep. 620. con, 228 Fed. 651, 143 C. C. A. 173, 36 10 Bankruptcy Act 1898, § 5f. Am. Bankr. Rep. 25; Fourth Nat. Bank 11 Frame v. Attermeier, 147 Wis. 485, v. Willlngham, 213 Fed. 219, 129 C. C. A. 133 N. W. 603. 563, 32 Am. Bankr. Rep. 159. 12 See In re Cloverdale Creamery Co., § 6^8 LAW OF BANKRUPTCY 1290 excess of the amount necessary to pay the debts which have priority and such claims as have not been, but probably will be, allowed, equals five per centum or more of such allowed claims. . Dividends subsequent to the first shall be declared upon like terms as the first and as often as the amount shall equal ten per centum or more, and upon closing the es- tate. Dividends may be declared oftener and in smaller proportions if the judge shall so order : Provided, that the first dividend shall not in- clude more than fifty per centum of the money of the estate in excess of the amount necessary to pay the debts which have priority and such" claims as probably will be allowed : And provided further, that the final dividend shall not be declared within three months after the first divi- dend shall be declared." " When all the known assets of the bankrupt have been collected and reduced to money, and the estate is ready to be closed, a final dividend may be declared at any time after the expiration of three months from the declaration of the first dividend.^* And this may be done notwithstanding the fact that the period of one year from the date of the adjudication, within which time creditors may prove their claims, has not yet expired, and creditors proving thereafter will only be entitled to subsequ'ently discovered assets and unclaimed dividends.** § 638. Proceedings for Declaration and Payment of Dividends. — Dividends are to be declared by the referee, and it is also made his duty to furnish to the trustee a dividend sheet showing the dividend declared and to whom payable." And creditors must have the statutory ten days' notic* by mail of the declaration and time of payment of all dividends.** But the declaration and payment of a dividend may be stayed by the court, when a motion is pending to expunge certain claims, the allow- ance or disallowance of which will materially affect the result and the amount of the shares of other creditors." The distribution of the bank- rupt's estate is strictly governed by these provisions of the statute,^' and it is irregular and unsafe to proceed in any other manner or to neg- lect anything which the act requires to be done. Thus, for example, an order entered by consent of all known creditors, in proceedings against an insolvent corporation, for the settlement of the estate and distribution 14 Bankruptcy Act 1898, § 65b, as if it Is proposed to declare dividends amended by Act Cong. Feb. 5, 1903, 32 oftener or in smaller proportions than Stat. 797. tbe act directs, the power to do this is 15 In re Bell Piano Co., 155 Fed. 272, given to the "judge" only. Id. § 65b 18 Am. Bankr. Rep. 183; In re Eldred, And this word, as used in the act, does 155 Fed. 686, 19 Am. Bankr, Rep, 52: not include the referee. Id., § 1 cl 16 In re Mills, 7 Ben. 452, 11 N. B. R. 117, is Bankruptcy Act 1898, § 'sSa (5). Fed. Cas. No. 9/610. i9 In re Jaycox, 7 X. B. R. 303 Fed lein re Stein, 94 Fed. 124, 1 Am. Cas. No. 7,240. Bankr. Rep. 662. 20 in re York Silk Mfg. Co., 188 Fed "Bankruptcy Act 1898, § 39a. But 735, 26 Am. Bankr. Rep. 650. 1291 DIVIDENDS § 639 of the proceeds as therein provided, but not in accordance with any ex- press provision of the bankruptcy act, must be held subject to the rights of any unknown creditors who may appear within the time allowed by law and present their claims.*^ So where a trustee in bankruptcy has paid to a lien creditor of the bankrupt his distributive share of the es- tate, but without any order or warrant of the referee or the court so to do, and the court afterwards deteirmines that such creditor's attorney is entitled to a lien on the fund for his services in securing its allowance, the money must be regarded as still in the hands of the trustee, and he will be required to satisfy the claim of the attorney.** The statute requires that dividends shall be of an "equal per centum," which means that each of the creditors entitled to participate in the div- idend shall receive a percentage of his total claim equal to the percentage awarded to all the other participating creditors.*^ But this does not pre- vent the court from exercising its equitable powers in deciding who shall be entitled to participate in the dividend, or to what extent his claim shall be allowed.** Thus, it is competent to postpone the claim of one creditor to that of another, when the fraudulent conduct of the one, as compared with the innocence and good faith of the other, demands that such a course should be taken.*' But an alleged indebtedness from one creditor of the bankrupt to another, growing out of transactions not con- nected with the bankruptcy proceedings, cannot be litigated in such proceedings or adjusted in the distribution of dividends.*® But the trus- tee in bankruptcy cannot be permitted to make a profit out of his J:rust; and where he has purchased a claim against the estate for less than its face value, dividends will be allowed thereon only to the extent of the amount he actually paid for it, with interest, and even though he has transferred the claim to another.*' § 639. Reopening and Setting Aside Order.— A motion to reopen or vacate an order for a dividend may be made by any person inter- ested, on proper papers and notice, and on the showing of a sufficient 21 In re Lockwood, 104 Fed. 794, 4 Am. zs In re Paris Modes Co., 198 Fed. 357, Bankr. Eep. 731. 116 C. C. A. 177, 28 Am. Bankr. Eep. 470 ; 2 2 In re Kude, 101 Fed. 805, 4 Am. In yp La .Tollu Lumber & Mill Co. (D. O.) Bankr. Rep. 319. 243 Fed. 1004, 40 Am. Bankr. Rep. 273. 23 The rate of the dividend to be dis- That one creditor of a bankrupt had tributed among the creditors depends orally promised another creditor of the upon the amount of the proved claims, same class that his claim should be paid the amount of the assets, and the fixing does not estop the former from receiving of the rate of distribution by the court dividends equally with the, latter. Moise of bankruptcy. Bausman v. Mead, 182 v. Schelbel, 245 Fed. 546, 157 0. O. A. 111. App. 35. 658, 40 Am. Bankr. Rep. 311. 21 See Searle v. Mechanics' Loan & 26 in re Girard Glazed Kid Co., 136 Trust Co., 249 Fed. 942. 162 C. C. A. 140, Fed. 511, 14 Am. Bankr. Rep. 485. ' 41 Am. Bankr. Rep. 786. 27 In re Sweetser, 157 Fed. 567. § 640 LAW OF BANKRUPTCY 1292 case, the referee and trustee will be forbidden to take steps for the payment of the dividend until the further orders of the court.** But it must be remembered that an order for a dividend, when made pur- suant to proper notice and filed in court, becomes virtually a judgment of the court, and cannot be disturbed except for some error committed by the referee and apparent from his memoranda and papers on file in the case.?* And after a dividend has been not only declared but actu- ally paid but to the creditors entitled, it cannot be set aside, notwith- standing the fact that it was erroneously made so large as not to leave sufficient money in the trustee's hands for an equal dividend to cred- itors afterwards perfecting their proofs, in addition to the costs of ad- ministration.*" The correctness of an order declaring a dividend is to be determined with reference to the time when it was made, and if it was proper at that time, the subsequent filing of further claims does not afford ground for subjecting it to review. So the question whether an order declaring a dividend, which was right when made, shall be revoked because of the subsequent filing of a new and large claim, is a matter within the discretion of the referee, the exercise of which is not reviewable, except so far as it may proceed on erroneous principles of law.^'^ § 640. Payment of Dividends. — Dividends are required to be paid by the trustee in bankruptcy within ten days after they are declared by the referee,*" and trustees may "disburse money only by check or draft on the depositories in which it has been deposited." ** Checks issued by a trustee in payment of dividends, if made payable to attor- neys, should designate them as such, and they must also, in compliance with the rules, state the account on which they are drawn, to constitute proper vouchers corresponding with the dividend sheet. Checks paya- ble to persons whose names do not appear on the dividend sheet, or which do not show what claims are covered thereby, or the authority of the payee to receive them, will not be approved as proper vouchers.** The trustee may withhold the payment of a dividend, if its declaration, so far as regards the particular claim concerned, was unauthorized,®^ or if the creditor is also a debtor to the bankrupt firm or a member of it, 28 In re New York Mail S. S. Co., 3 si in re Henry Sieuel Co. (D C.) 21»"i N. B. R. 280, Fed. Cas. No. 10,212. Fed. 943. 20 In re Smith, 15 N. B. R. 97, Fed. 32 Bankruptcy Act 1898, § 47a, cl. 9. Cas. No. 12,989. »8 Bankruptcy Act 1898, § 47a, el. 4. 80 In re Scott, 96 Fed. 607, 2 Am. 34 in re Carr, 116 Fed. 556, 8 Am. Bankr. Rep. 324; In re Smith, 15 N. B. Bankr. Rep. 635. R. 97, Fed. Cas. No. 12,989. 33 in re Herrick, 13 N. B. R. 312 Fed Cas. No. 6,420. 1293 DIVIDENDS § 641 his -dividend check may be withheld until the determination of a suit by the trustee to recover the debt.*' On the other hand, if the trustee withholds payment of a dividend without a sufficient legal reason, the creditor may have an order requiring him to pay it,*' and any court of general jurisdiction, including a state court, has jurisdiction of an action against the trustee to recover a dividend declared and which the trustee has fraudulently converted to his own use.** A dividend de- clared but unpaid may be assigned, and the assignee may take the like steps to enforce its payment.** But a dividend declared and due to a particular creditor, but not yet paid to him, cannot be attached or gar- nished in the hands of the trustee.** But a creditor of the creditor, claiming a specific lien on the fund, may assert his rights in the court of bankruptcy, or if he has a suit pending in a state court, that court may appoint a receiver who will represent him in the bankruptcy pro- ceeding and receive the money coming to the defendant as a dividend, and then account to the court appointing him for the same.*^ § 641. Recovery of Dividends Paid on Rejected Claims. — Where a dividend has been paid on an allowed claim, and afterwards the claim is reconsidered and rejected, in whole or in part, the trustee may re- cover from the creditor the aihount of the dividend so paid or a proporr- tional part.** For the purposes of such recovery a plenary suit is not necessary, at least where the creditor has contested the reconsideration and rejection of his claim, as he thereby submits himself to the juris- diction of the bankruptcy court, and in such a case it may simply, m&ke an order requiring him to pay to the trustee in bankruptcy a designated amount.** And prior to a direct or indirect order of allowance of a claim, it is not necessary for the trustee to move for a reconsideration of the claim, as the statute directs, in order to recover dividends paid.** On similar principles, where the claim of the creditor is based on a 3 8 Atkinson v. Kellogg, 10 N. B. R. 535, 500, 30 L. R. A. (N. S.) 720 ; In re Bridg- Fed. Cas. No. 613. man, 2 N. B. R. 252, Fed. Cas. No. 1,867 ; 3 7 In re Augusta Pottery Co., 163 Fed. Gilbert v. Quimby, 1 Fed. Ill; In re 1011, 21 Am. Bankr. Rep. 64. Chlsliolm, 4 Fed. 526; In re American 3 8 Berford v. Barnes, 45 Hun (N. Y.) Electric Telephone Co., 211 Fed. 88, 127 253. C. C. A. 512, 31 Ai. Bankr. Rep. 612. 3 9 Rockland Sav. Bank v. Alden, 103 4i In re Hollander, 181 Fed. 1019, 25 Me. 230, 68 Atl. 863, 14 L. R. A. (N. S.) Am. Bankr. Rep. 48 ; Jackson v. Miller, 1220, 13 Ann. Cas. 806. See Stires v. 9 N. B. R. 143.' First Nat. Bank, 83 Neb. 193, 119 N. W. *2 Bankruptcy Act 1898, § 571. 258. 4 3 Pirie v. Chicago Title & Trust Co., 40 In re Hollander, 181 Fed. 1019, 25 182 U. S. 438, 21 Sup. Ct. 906, 45 L. Ed. Am. Bankr. Rep. 48 ; In re Argonaut 1171, 5 Am. Bankr. Rep. 814. Shoe Co., 187 Fed. 784, 109 C. C. A. 632, 44 in re Tavo Rivers Woodenware Co., 26 Am.'Bankr. Rep, 584; Cowart v. W. 199 Fed. 877, 118 C. 0. A. 325, 29 Am. E. Caldwell Co., 134 Gai 544, 68 S. E. Bankr. Rep. 518. § 642 LAW OF BANKRUPTCY 1294 judgment which he has recovered against the bankrupt in a state court, and it is allowed, and the creditor's dividend paid to him, but after- wards the judgment is reversed on appeal, the trustee may recover the sum so paid as a dividend.*'' § 642. Claims Proved After Dividend. — "The rights of creditors who have received dividends, or in whose favor final dividends have been declared, shall not be affected by the proof and allowance of claims subsequent to the date of such payment or declarations of dividends; but the creditors proving and securing the allowance of such claims shall be paid dividends equal in amount to 1;hose already received by the other creditors, if the estate equals so much, before such other cred- itors are paid any further dividends." *® It is probably proper for the trustee, in reporting funds to the referee for the declaration of a divi- dend, to reserve funds sufficient in amount for a like dividend upon claims which are still under consideration, or which are known to ex- ist and will probably be proved and allowed. But a claim entitled to priority of payment out of such funds as may be on hand when it is presented, does not lose this right merely because it was not preseiited until after the declaration and payment of a first dividend. And where the trustee reserves money sufficient to pay a like dividend on claims which had previously been disallowed for want of sufficient proof, but with leave to the creditors to amend, the latter have no lien on the money so reserved, nor is the referee bound to distribute it to them; so that if, thereafter, a claim for an attorney's fee is presented, which is entitled to priority of payment as part of the costs of administration, it must be' paid out of such reserved fund, in preference to the general creditors.*' And where all the assets of the estate have been collected and reduced to money and a final dividend declared, any creditor who has not then proved his claim is debarred from participatino- in the fund,** though he may still have his share if any other assets should be discovered later, 'or if any dividends remain unclaimed. § 643, Interest on Dividends.— A trustee in bankruptcy is not bound to pay interest upon dividends which may be declared upon debts which have been fairly and reasonably disputed, from the time that like divi- dends were declared upon undisputed debts.** But where the payment *5 Nelson V. Hecks^;her, 219 Fed. 679, 4s in re Bell Piano Co 155 Fed 272 135 O. O. A. 351, 33 Am. Bankr. Rep. 514. 18 Am. Bankr. Rep. 183;' In re Miller' *ool v. McDonald, 15 N. B. R. 560, position are to bo slrictly construed as Fed. Cas. No. 11,268. against those who seek by this means to » In re Henry, 9 Ben. 449, 17 N. B. R. deprive non-assenting creditors of their 463, Fed. Cus. No. (j,:i70. right to have the dolitor's property ad- 1299 COMPOSITIONS § 646 the creditors was not necessary to lay the foundation for the acceptance or rejection by them of the terms offered.^" But to authorize any step to be taken for the offer and acceptance of a composition, there must first be a pending case in bankruptcy.^* And until 191Q,. the debtor was not entitled to offer a composition to his creditors until after there had been an adjudication of bankruptcy entered in his case.*^ In the year men- tioned, however, the bankruptcy statute was amended so as to allow an alleged bankrupt to offer terms of composition "either before or after adjudication," and if the offer is made before an adjudication, then "ac- tion upon the petition for adjudication shall be delayed until it shall be determined whether such composition shall be confirmed." ** Under the act of 1867, the doctrine prevailed that a composition was not a discharge or had not the effect of a discharge ; but that it was a payment and satisfaction of debts with the assent of the creditors. And consequently it was held that dissenting creditors could not defeat a pro- posed composition on grounds which would be sufficient to prevent the bankrupt's discharge. And even the fact that his application for dis- charge had already been heard and refused was no ground for denying the approval of a composition." But the present statute explicitly au- thorizes the judge to confirm a composition only if he "is .satisfied that the bankrupt has not been guilty of any of the acts or failed to per- form any of the duties which would be a bar to his discharge." *® And it is the evident purpose of this provision not to allow a bankrupt to obtain a release from the unpaid balance of his debts, by means of a composition, if he is not entitled to the same benefit by means of a discharge obtained in the ordinary way. It is also a prerequisite to the bankrupt's right to offer terms of composition that he shall have been examined in open court or at a meeting of his creditors, and that he,shall have filed in the court the re- quired schedule of his property and list of his creditors.*^ The propriety of this requirement is obvious when it is considered that in no other way 10 In re Haskell, 11 N. B. K. 164, Fed. position. In re Spiller (D. C.) 230 Fed. Gas. No. 6,192. 490, 36 Am. Bankr. Eep. 399. 11 In re Eeiman, 7 Ben. 455, 11 N. B. i* In re Odell, 9 Ben. 247, 16 N. B. R. R. 21, Fed. Gas. No. 11,673. 501, Fed. Gas. No. 10,427 ; Leo v. Josepli, 12 In re Back Bay Automobile Go., 158 56 Hun, 644, 9 N. Y. Supp. 612; In re Fed. 679, 19 Am. Bankr. Rep. 835. See Joseph, 23 Blatchf. 237, 24 Fed. 137; In In re Van Auken, 14 N. B. E. 425, Fed. re Haskell, 11 N. B. R. 164, Fed. Gas. Gas. No. 16,828. No. 6,192 ; In re Troth, 19 N. B. R. 253 ; 13 Bankruptcy Act 1898, § 12a, as Fed. Gas. No. 14,188. amended by Act Gong. June 25, 1910, 36 lo Bankruptcy Act 1898, § 12d. Stat. 838. The fact that the bankrupt i» Bankruptcy Act 1898, § 12a. And has already received his discharge in see In re Back Bay Automobile Go., 153 due course and that a dividend has been Fed. 679, 19 Am. Bankr. Rep. 835; In paid will not prevent an offer of com- re Berler Shoe Co. (D. 0.) 246 Fed. 1018, 40 Am. Bankr. Rep. 470. § 647 LAW OF BANKKUPTCY 1300 could the creditors obtain the necessary information concerning the debtor's assets and debts, to enable them to decide intelligently on the terms offered. But the proceeding will not be vitiated by a statement in the bankrupt's schedule that the value of his real estate is unknown/' or by ail innocent mistake in stating the amount due to a particular creditor." If a trustee in bankruptcy has not been appointed before the offer of a composition, none will be appointed after its acceptance by the creditors, since his services are not needed. But in that case, the bank- rupt himself stands in the place of a trustee, so far as regards such matters as the set-off of mutual debts.** § 647. Examination of Bankrupt. — As already stated, terms of com- position cannot be offered by the bankrupt or considered by creditors until after the bankrupt "has been examined in open court or at a meeting of his creditors." The phrase "in open, court" refers to pro- ceedings before the referee.*** The examination here contemplated is not an examination of the bankrupt as a witness on the issues of in- solvency and the commission of acts of bankruptcy charged, but the examination to which the bankrupt is required to submit when present at the iirst meeting of his creditors, and hence should be confined to an examination into his resources and liabilities.** And the referee has no authority to require any other person than the bankrupt to testify.** The debtor himself may be required to attend and testify at an adjourned meeting of the creditors, but he may be excused from so doing" if he presents a satisfactory reason therefor and it is accepted by a sufficient vote of the creditors.** The minority creditors may insist upon the examination of the bankrupt although the majority are willing to take a vote on the proposition offered without any examination,** and where creditors conducting the examination of the bankrupt in an apparently earnest opposition to the composition suddenly cease, without discern- ible cause, it is proper for the referee to allow another creditor to take up and continue the examination.*^ The refusal of the referee to proceed with the examination until his fees are paid or secured is not 17 In re Welles, 18 N. B. R. 525, Fed. rupt in general, their scope, protection Cas. No. 17,377. against self-crimination, etc., see supra, is Ex p^te Trafton, 2 Low. 505, 14 §§ 262-271. N. B. R. 507, Fed. Cas. No. 14,133. 22 In re Dobbins, 18 N, B. R. 268, Fed. i» Ex parte Howard Nat. Bank, 2 Low. Gas. No. 3,943. 487, 16 N. B. R. 420, Fed. Oas. No. 6,764. 28 In re Tifft, 17 N. B. R. 502, Fed. 20 In re Blood worth- Stembridge Co., Cas. No. 14,029. 178 Fed. 372, 24 Am. Bankr. Rep. 156. 24 in re Little, 19 N. B. R. 234, Fed. 21 In re Back Bay Automobile Co., 158 Cas. No. 8,392. Fed. 679, 19 Am. Bankr. Rep, 835; In re 2= In re Vanderhoef, Fed, Cas. No. 16,- Proby, 17 N. B, R. 175, Fed. Cas. No. 840. 11,439. As to examinations of the bank- 1301 COMPOSITIONS § 648 ground of opposition to the recording of a resolution accepting the com- position.** § 648. Offer of Terms. — The statute provides that the "considera- tion" to be paid by the bankrupt to his creditors, together with the "money" necessary to pay debts entitled to priority and the costs of administration, shall be deposited in such place as shall be designated by the judge.*' But the "consideration" to be paid to the creditors, es- pecially as shown by its contrast with the word "money," does not necessarily mean cash. It may be something equivalent to money, or that will be ultimately convertible into money within a reasonable time, and hence will include any reasonably safe securities, or indorsed prom- issory notes.** But the personal notes of the bankrupt, not indorsed and not secured in any way, will not constitute a consideration which the court will feel bound to approve.** And if a creditor dissents and ob- jects, the court will not sanction a composition where the alleged "con- sideration" is preferred stock in a corporation which the bankrupt has organized for the purpose of continuing his business, and it does not ap- pear that the stock represents any value eSccept the supposed good will of the business, and the effect would be to leave the bankrupt in control of the business and the creditors, in the capacity of stockholders, liable for the corporate, debts.*' Neither is it necessary that the consideration of the composition should be immediately payable. The question as to the time for its payment is one for the creditors to settle, and their judgment will not be reversed except for valid reasons.*^ Hence it is ordinarily no suffi- cient objection to the confirmation of a composition that it is payable in installments, secured by notes.** A composition agreement to pay more that the estate is able to pay, where the balance is made tip by the 2» In re Tifft, 18 N. B. R. 227, Fed. by turning over property to a third per- Cas. No. 14,033. son who will advance the needed sum. 27 Bankruptcy Act 1898, § 12b. The Greil v. Durr, 203 Ala. 644, 84 South, terms offered must be in accordance 743. But a bankrupt who has stolen or with the law, and the money put up fraudulently received a sum of money must be for ratable distribution anion? belonging to another cannot retain the the creditors entitled. A proposal for amount and schedule the claim as a debt composition under which the bankrupt and thereupon effect a composition. In agrees to pay to a certain creditor a sum re Alpert (D. C.) 237 Fed. 295, 38 Am. expended In investigating the bank- Bankr. Rep. 459. rupt's financial condition, in addition to 2» in re Janeway, 8 Ben. 267, Fed. his pro rata share, cannot be confirmed. Cas. No. 7,207; In re Langdon, 2 Low. In re M. & H. Gordon (D. C.) 245 Fed. 387, Fed. Cas. No. 8,058. 905, 40 Am. Bankr. Rep. 301. so In re Woodend, 133 Fed. 593, 12 2 8 In re Hurst, 1 Flip. 462, Fed. Cas. Am. Bankr. Rep. 768. No. 6,925; In re Reiman, 7 Ben. 455, si In re Wilson, 18 N. B. R. 300, Fed. Fed. Cas. No. 11,673. If nothing fraudu- Cas. No. 17,785. lent enters into the transaction, the 3 2 in re Wilson, 16 Blatchf. 112, Fed. money for a composition may be raised Cas. No. 17,781 ; In re McNab & H. Mf". § 648 LAW OP BANKEDPTCT 1302 relatives or friends of the bankrupt, is not evidence of fraud.** But a contract by a bank to advance the money to pay a composition made by a bankrupt, in part consideration for which it was to receive payment of its own debt in full, is illegal** It seems also that a compositipn may take the form of ratifying an assignment for the benefit of creditors made by the bankrupt under the state statute,*® or may include the adjustment of controversies which a trustee in bankruptcy would have been authorized to compromisCj** or may be conditioned upon the surrender of all the bankrupt's property to him and the discontinuance of all pending suits.*' And generally, the bankruptcy law does not provide or imply that compositions, though in- formal or even preferential, shall be void as between the parties.** Thus, a composition may be effected under an agreement for the bankrupt to turn over his entire property and estate to a person who has been se- lected by the creditors to act as a trustee in their behalf, in carrying out the details of the composition.** The bankrupt will be required to abide by his proposition, and he will not be given permission to vyithdraw an offer of composition after its acceptance by a majority of the creditors and after an application to confirm, as the Act does not authorize any such procedure.*" So the bankrupt will not be permitted to trade with his creditors, by increas- ing an offer of composition after he finds that his first offer was re- jected as insufficient; but if he made an insufficient offer of composition in good faith and without opportunity to examine and appraise the avail- able property, he may be allowed to amend his offer.**^ And where there is a fatal defect in the proceedings, but it appears that a majority of the creditors are willing to accept the offer made, the court will re- ject the offer but at the same time permit the bankrupt to make a new offer.** § 649. Acceptance by Creditors. — The official forms prescribed for proceedings in bankruptcy include a petition, to be filed by the bank- rupt, for calling a meeting of creditors to consider his proposal for a composition, in which he is to state the terms offered and that he verily Co., IS N. B. R. 388, Fed. Cas: No. 8,906; 3 7 in re Cavan, 19 N. B. R. 303, Fed. In re Wronkow, 15 Blatchf. 38, 18 N. B. Cas. No. 2,528. R. 81, Fed. Cas. No. 18,105. ssin re Black Diamond Copper Min. 33 In re Snelling, 19 N. B. R. 120, Fed. Co., 11 Ariz. 415, 95 Pac. 117. Cas. No. 13,140. so Guaranty Trust Co. of New York a^McCormick v. Solinsky, 152 Fed. v. McCabe, 250 Fed. 699, 163 C. C. A. 31. 984, 82 C. C. A. 134, 18 Am. Bankr. Rep. *o in re Agree (D. C.) 247 Fed. 590, 40 540. ■■ Am. Cankr. Rep. 773. 3 5 In re Diimahaut, 15 Blatchf. 20, *i In re Cockshaw (D. C.) 220 Fed. 239 Fed. Cas. No. 4,124. 34 Am. Bankr. Rep. 278. 3« In re Linderman, 166 Fed. 593, 22 42 In re Kinnane Co. (D. C.) 217 Fed. Am. Bankr. Rep. 181. 488, 33 Am. Bankr. Rep. 243. 1303 COMPOSITIONS § 649 believes that they will be accepted by a majority in number and value of the creditors.** This follows the practice under the former bankrupt- cy act, which required that the creditors should be called upon to assem- ble in meeting for the purpose of considering an offer of composition, and should vote upon a formal resolution presented to them, for its ac- ceptance or rejection.** But the present statute contains no such pro- vision. It merely requires that the composition shall have been "ac- cepted in writing" by a majority of the creditors, after which the bank- rupt may make application to the court for its confirmation.*® It is therefore not necessary to call a meeting of the creditors to vote upon the question whether or not they will accept the terms offered, but the bankrupt may go to them separately and procure their signatures.** But all of the creditors must have notice of the proposed composition, whether or not they have proved their claims at the time of the offer; the proposition must be offered and explained to all alike, and they must have a reasonable opportunity to consider it.*' This having been done, however, the decision of the majority will be binding upon all, where their judgment is exercised in good faith, and there is nothing to indicate fraud, accident, or mistake.** And creditors who have signed an accept- ance of the composition will not be permitted to disturb the arrangement by withdrawing their signatures, where it is not alleged that they were procured by fraud or misrepresentation.*' And mere delay, without laches, in obtaining the requisite number of signatures, will not be suf- ficient ground for refusing to confirm the composition.®* It is required that the acceptance shall be by a "majority in number of all creditors whose claims have been allowed, which number must rep- resent a majority in amount of such claims." This makes it impossible 43 Official Form No. 60. The referee before an adjudication in bankruptcy ; may in his discretion adjourn from time but the object of the meeting is stated to time meetings of creditors in compo- to be "the allowance of claims, exami- sition proceedings, before as well as aft- nation of bankrupt, and preservation or er adjudication. In re Bernstein (D. C.) conduct of estates." It Is not intended 272 Fed. 1018, 47 Am. Bankr. Rep. 139. as a meeting for debating and voting on •44 See In re Dumahaut, 15 Blatchf. the offer of composition. 20, Fed. Cas. No. 4,124 ; In re Ewing, 2 47 in re Rider, 96 Fed. 808, 3 Am. Low. 407, Fed. Cas. No. 4,587 ; In re Bankr. Rep. 178. McDowell, 6 Biss. 193, 10 N. B. R. 459, 48 In re Weber Furniture Co., 13 N. Z^t^lo ^"-/'l^^' ^T° 'fo^^n"' T^ '''■ ^- K- 55»' l^ed. Cas. No. 17,331. When a B. R. 73 Fed. Cas. No^ 12,519; In re ^^^ composition has not been as- ffooo"'' T^^ ^- I- f ■ i if M Ti «°- ^'^"te'i to ^y a "majority, both in number lao^^ ."n' M ifvo« 1 ■ ^""^ ^^°^^'' 0* «^e creditors, the court V ' . So^-- wn- i'Jt^'w 19« ^- '=^'''^°t '=o'^P«l tl'o^e who have not con- Vaughan 52 Mich 40o 18 N W. 126. ^^^^^^ ^„ ^ ^^^ proposition. In re 45 Bankruptcy Act 1898, § 12b. 40 In re Rider, 1 Nat. Bankr. News, Goldstein (D. C.) 213 Fed. 115. 483. The Act of Congress of June 25, " ^'' ""« ^"^'y- ^^^ ^^- "^44, 6 Am. 1910, 36 Stat. 838, does indeed provide Bankr. Rep. 299. that the court shall call a meeting of ^o In re Cavan, 19 N. B. R. 303, Fed. creditors, where composition is offered Cas. No. 2,528. § 650 LAW OF BANKRUPTCY 1304 for a composition to be forced through by the vote of one or a few cred- itors holding heavy claims, or, on the other hand, by a numerical ma- jority of creditors whose claims arc trifling or inconsiderable. It is held that those signing the acceptance must constitute a majority in number and amount of the claims at the time of the hearing on application to confirm the composition; it is not enough that they constituted a ma- jority at the time the composition was offered or accepted." An as- signee holding a large number of claims "should be counted as only one creditor in making up this majority, and he is not entitled to as many votes as the creditors whom he represents, nor are his assignors to be counted in determining the number necessary to make a majority.'* A partnership being a creditor, any one of the partners may bind the firm by accepting the terms of composition.** But in the case of the bank- ruptcy of a firm and its members, a partner who desires to make a compo- sition with his individual creditors must- obtain the acceptance of a majority of those creditors ; it is not enough that he obtains the accept- ance of a majority of the firm creditors, even though the consenting cred- itors may be more than a majority of all the creditors, both firm and in- dividual.'* § 650. Same ; Creditors Entitled to Vote. — Only those creditors are entitled to participate in composition proceedings, or be counted in as- certaining the necessary majority, who have claims which are techni- cally provable in bankruptcy,"' and hence not the holder of a merely un- certain and contingent claim,'* nor the accommodation maker of a note for the bankrupt's benefit,''' nor one whose claim is for damages for a tort not assessed or liquidated in any way.'* But for this purpose, the court may allow the ascertainment of an unliquidated claim by permitting the prosecution of a pending suit in a state court, or by ordering an inquiry before itself.'* Nor is it even sufficient that the creditor should have a provable debt. For the statute explicitly requires the consent of a ma- 51 In re Kider, 96 Fed. 808, 3 Am. bo Ex parte rTrafton, 2 Low. 505, 14 N. Bankr. Rep. 178. But claims filed after B. R. 507, Fed. Gas. No. 14,133. the creditor's meeting closes, though reg- se in re Kahn, 121 Fed. 412, 9 Am. ular in form and filed before the petition Bankr. Rep. 107. for conjrmation Is filed, cannot be count- 57 Liebke v. Thomas, 116 U. S. 605, ed in determining whether a majority of Sup. Ct. 496, 29 L. Ed. 744. the creditors agreed to a composition be- ssin re Bailey, 2 Woods, 222, Fed. fore adjudication. In re Chinese Fur Cas. No. 729. Importers (D. 0.) 269 Fed. 669, 46 Am. 59 Ex parte Trafton, 2 Low. 505, 14 N. Bankr. Rep. 336. B. R. 507, Fed. Cas. No. 14,133. But 52 In re MessengiU, 113 Fed. 366, 7 Am. where, in composition proceedings, the Bankr. Rep. 669. amount of the claim of one of the credi- 08 Bruen v. Marquand, 17 Johns. (N. tors Is disputed by the debtor, and an T.) 58. estimate is made to be used merely as, B* In re UUman, 180 Fed. 944, 24 Am. showing on what sum the creditor Is Bankr. Rep. 755; In re Spades, 6 Biss. entitled to vote, such estimate does not 448, 13 N. B. R. 72, Fed. Cas. No. 13,196. estop the debtor from questioning the 1305 COMPOSITIONS § 650 jority of those creditors "whose claims have been allowed." Therefore it is necessai-y that the creditor should have proved his claim and se- cured its allowance.** A secured creditor who is fully protected by his security and willing to rest upon it, is not to be counted in.** But a creditor whose lien or other security does not fully cover his claim may have the security valued or foreclosed, and will be allowed to prove a claim for the balance or deficiency, and to this extent he may participate in the composition proceedings.** And notes of a bankrupt, which are secured only by the personal indorsement of another, may be included as unsecured debts in a composition with creditors, and the confirmation of such composition will discharge the bankrupt as maker of the notes, without affecting the liability of the indorser.** But a creditor whose claims are more than offset by the claims of the bankrupt against him cannot be counted in for the purpose of a composition.** On the other hand, an objection to a creditor's vote on an offer of composition, on the ground that his claim is invalid, cannot be raised for the first time on an application to confirm the composition.*® And the vote or consent of a person who is not lawfully to be accounted a creditor will not nulli- fy the proceedings, at least if the elimination of his consent would not change the result.** And a creditor who has bought a claim, with the intention of preventing the' adoption of a pending offer of composition, may refuse his acceptance and be counted in determining the necessary majority, if he had no fraudulent or merely oppressive motive in the transaction.*' • In the matter of accepting or rejecting a coihposition, creditors may act by "duly authorized agent, attorney, or proxy." ** But a person acting under a power of attorney must keep strictly within its limits and cannot vary his instructions.** Whether or not a married woman, without authority from her husband, can vote her debt against a bankrupt's estate on the question of accepting a composition, at any rate an affidavit of the husband that he has given his wife authority to amount of the claim on which the per- Fed. Cas. No. 12,499; Paret v. Ticknor, centage of the composition shall be cal- 4 Dill. Ill, 16 N. B. R. 315, Fed. Cas. culated in paying the composition. In No. 10,711. re Holmes, 15 Blatchf. 170, 18 N. B. E. ea Stauffer-Eshleman Co. v. Abington 230, Fed. Cas. No. 6,632a. Hardware & Furniture Co., 131 La. 715, 6 In re Ennis, 183 Fed. 859, 25 Am. ^^ South. 202. Bankr. Rep. 383; American Woolen Co. " I^i ^^ Purcell, 18 N. B. R. 447, Fed. V. Cohen, 142 App. Div. 880, 127 N. X. ^^^- ^°- 11-470. Supp. 787; In re Keller, 18 N. B. R. 331, «° In re Bloch, 18 N. B. R. 328, Fed. Fed. Cas. No. 7,654; In re Bryce, 19 N. ^^^- ^o. 1,551. B. R. 287, Fed. Cas. No. 2,069. ''" I" ^^ Walshe, 2 Woods, 225, Fed. Cas. No. 17,118. 01 In re Van Auken, 14 N. B. E. 425, ^7 Ex parte Jewett, 2 Low. 393, 11 N. Fed. Cas. No. 16,828; In re Snelling, 19 g jj ^^^^ -^^^ O^s No. 7,303. N. B. R. 120, Fed. Cas. No. 13,140. es Bankruptcy Act 1898, § 1, cl. 9. «2 Flower v. Greenebaum, 9 Biss. 451, oo In re Alexander, 8 Ben. 99, Fed. 50 Fed. 190; In re Schwab, 8 Ben. 353, Cas. No. 159. § 651 LAW OF BANKRUPTCY 130G vote in favor of the composition is a ratification and estoppel validating the wife's act.'** § 651. Same; Fraudulent Inducement to Consent. — The rules of equity being applicable in bankruptcy, and fraud and underhand prac- tices being specially abhorred, a payment of money to a creditor of a bankrupt, to induce him to consent to a pending offer of composition, or to induce him to forbear an active or threatened opposition, will invali- date the entire composition arrangement ; and this rule applies although the required number of creditors accepted the offer of composition, with- out counting the one to whom payment was made, and even though it does not appear that their action was in any way influenced by the transaction.'^ And money so paid may be recovered back by the trus- tee in bankruptcy, or, according to some of the authorities, by the bank- rupt himself or by injured creditors.'* The rule, however, may possibly be relaxed in a case where the payment was made out of property which was not included in the bankrupt's schedule and was not available as assets in the bankruptcy.'^ The principle is the same where the con- sent of the creditor is obtained by the bankrupt's secret promise to pay him a larger share of his debt than the other creditors will receive under the composition. "It is a settled doctrine of equity jurisprudence that where creditors unite in a composition agreement, a secret promise by the debtor to one creditor to pay him more than the others is void. There is no reason why this settled doctrine should not apply to compositions in bankruptcy proceedings. There is indeed a stronger reason for its application in such cases than in any others, and the authorities do ap- ply it to compositions in bankruptcy proceedings." '* Nor is there any difference when the inducement offered to the creditor is that the bank- rupt will give him security for the remainder of his debt, or additional security or better security than he now holds; any such bargain will 70 In re Bailey, 2 Woods, 222, Fed. Gas. E. 235. And see Citizens' Nat. Bank v. No. 729. Kerney, 59 Ind. App. 96, 108 X. K. 139; 71 In re Bennett, 8 Ben. 561, Fed. Cas. Lieblein v. George, 193 Jlich. 462, 160 No. 1,312; Fairbanks v. Amoskeag Nat. N. W. 538; Union Bxcliange Nat. Bank Bank, 38 Fed. 630; In re Sawyer, 2 Low. v. Joseph, 194 App. Div. 20.j, 185 N. Y. 475, 14 N. B. R. 241, Fed. Cas. No. 12,- Supp. 403; Nole v. Abate, 190 App. Div. 395; BuUene v. Blain, 6 Biss. 22, Fed. 705, 180 N. X. Supp. 299; Claflin v. Tor- Cas. No. 2,124; Brownsville Mfg. Co. Una, 11 N. B. R. 521, 56 Mo. 369; Bean V. Lockwood, 11 Fed. 705. v. Amsinck, 10 Blatchf. 361, 8 N. B. R. 7 2 Fairbanks v. Amoskeag Nat. Bank, 228, Fed. Cas. No. 1,167; In re Keller, ,38 Fed. 630; Bean v. Brookmire, 1 Dill. 18 N B. E. 3;;i, Fed. Cas. No. 7,654- 151, Fed. Cas. No. 1,169; s. c, 2 Dill. 108, Woodman v. Stow, 11 111. App. 613; Rus- 7 N. B. R. 568, Fed. Cas. No. 1,170. sell v. Rogers, 10 Wend. (N. Y.) 473, 25 1? National Park Bank v. Peoples' Am. Dec. 574; BuUene v. Blain, 6 Biss. Bank, 14 Phila. (Pa.) 405, Fed. Cas. No. 22, Fed. Cas. No. 2,124; Culli'ngworth 10,049. V- Loyd, 2 Beav. 385. See Jacobs v. Siff, 74 Carey v. Hess, 112 Ind. 398, 14 N. 74 Misc. Rep. 58, 131 N. Y. Supp. 656. 1307 COMPOSITIONS § 651 vitiate the composition.'® Thus, where an insolvent debtor, desiring to obtain his release in bankruptcy by a composition with his creditors, agrees to execute his notes to one of the creditors for the balance of his debt, the notes so given are void.'* These rules have been applied with such severity that composition agreements have been held invalid, or have been set aside, on account of a secret or fraudulent advantage given to one creditor, even though it did not appear that the bankrupt himself procured it or was a party to it." In one case, an offer of money was made to two creditors, by the bank- rupt's bookkeeper, to induce them to consent, and the bankrupt had no ac- tual knowledge of the offer, but the bookkeeper was employed generally to see the creditors and procure their consent. It was held that the bankrupt was chargeable with what his representative did in the mat- ter, and the whole proceeding was thereby vitiated and the composition must fail.'* In another case, where a creditor was induced to consent to the composition by an undefined expectation of advantage held out to him by the indorser of the note which the creditor held, the compo- sition was set aside, though it did not appear that the bankrupt had anything to do with it.'* And in another case it was held that the signa- ture of a creditor to the composition agreement, obtained upon the promise of another creditor to give him the promisor's 'trade in the fu- ture, would invalidate the composition.*" But on the other hand, that creditors holding notes of a bankrupt corporation, indorsed by individu- als connected with the bankrupt, before accepting a composition, ob- tained an agreement by such indorsers that they should not thereby be discharged, does not invalidate the composition, since that would be the legal result of it without any promise.*^ Aside from any fraudulent or secret advantage, creditors may be moved to consent to a composition in bankruptcy by reasons other than a strict consideration for the interests of the majority, as, for example, personal friendship for the bankrupt, sympathy with him in his business misfortunes, or the expectation of profitable business with him in the future. Their assent, if given from such motives, is not invalid nor il- 75 Chuck V. Mesritz, 2 Woods, 204, Fed. by an assignee who paid face value for Cas. No. 2,710; Bean v. Brookmire, 2 the claims shortly before the creditors' Dill. 108, 7 N. B. R. 568,, Fed. Cas. No. meeting, should not be counted ^in deter- 1,170 ;■ Howell v. Todd, Fed. Gas. No. 6,- mining the vote on the composition. In 783 ; Way v. Langley, 15 Ohio St. 392 ; re Weintrob (D. C.) 240 Fed. 532, 39 Am. Mallouk V. American Exchange Nat. Bankr. Rep. 407. Bank, 75 Misc. Rep. 285, 135 N. T. Supp. 's in re Bennett, 8 Ben. 561, Fed. Oas. 78. No. 1,312. 7 s Tinker v. Hurst, 70 Mich. 159, 38 "in re Sawyer, 2 Low. 475, 14 N. B. N. W. 16, 14 Am. St. Rep. 482. E. 241, Fed. Cas. No. 12,895. 77 In re Sawyer, 2 Low. 475, 14 N. B. so in re Shine, Fed. Cas. No. 12,788. R. 241, Fed. Cas. No. 12,395. Votes in si In re B. Jacobson & Son Co., 196 favor of accepting a composition, cast Fed. 949, 28 Am. Bankr. Rep. 492. § 651 LAW OF BANKETIPTCT 1308 legal. "But the extent to which the majority is composed of creditors so influenced is an important factor in determining the weight to be given to. the assent of the majority upon the question whether the proposed composition is really for the best interest of all creditors." *^ In the ab- sence of any fraudulent or illegal bargain, a creditor, for the purpose of assisting the bankrupt in securing confirmation of a proposed composi- tion, may withdraw his claim, and such creditor will then not be counted in determining the number of creditors whose consent is necessary.*^ A bankrupt may use his credit to acquire the money required for the purposes of a composition offered conformably to the bankruptcy act to his creditors, and what inducement he gives to the person loaning him the money is a matter which does not concern the existing credi- tors, and hence does not affect the validity of the composition. And extortion or attempted extortion as a consideration for acting or for- bearing to act in bankruptcy proceedings (which is expressly forbidden by the statute) cannot be inferred from a promise by the bankrupt, after adjudication, that if certain creditors would loan him a specified sum to be used in paying the consideration of an offered composition, he would pay them the balance of their claim when such' composition was confirmed, after deducting their share of the consideration of the compo- sition, which promise they accepted, making the loan for the said pur- pose.** And when a bankrupt has proposed terms of composition and the same have been approved by a majority of the creditors, such cred- itors and their attorneys have an interest in common in securing an acceptance of the composition offered, and thereafter may properly participate in securing the necessary consents. And it is not improper for the attorney for the receiver, having secured powers of attorney to that end, to represent and vote for creditors in favor of the composition, so long as no false statements are made, and there is no trickery or collu- sion between creditors and the bankrupt, and no fraud practised.*® § 652. Deposit for Payment. — Before application is made for the confirmation of a composition, "the consideration to be paid by the bank- rupt tp his creditors, and the money necessary to pay all debts which have priority and the cost of the proceedings" must have been "de- posited in such place as shall be designated by and subject to the order of the judge." ** This requirement is imperative. If it is not complied with, the composition will not be confirmed, even though the application 82 In re Griffith StilUngs Press (D. C.) Sup. Ct. 365, 57 L. Ed. 676, 29 Am. Bankr. 244 Fed. 315, 39 Am. Bankr. Rep. 813; Rep. 493. And see Hickman v. Galves- In re Spiller (D. C.) 230 Fed. 490, 36 Am. ton Dry Goods Co., 42 Tex. Civ. App. 5S2, Bankr. Rep. 399. 94 S. W. 157. 83 In re M. & H. Gordon (D. O.) 245 ss in re McLellan, 204 Fed. 482, 30 Fed. 905, 40 Am. Bankr. Rep. 801. Am. Bankr. Rep. 325. 84 Zavelo V. Reeves, 227 U. S. 625, 33 so Bankruptcy Act 1898, § 12b. 1309 COMPOSITIONS § 653 is not opposed by any creditor,*'' and confirmation will also be withheld where the money deposited to cover the cost of the proceedings is not sufficient in amount.** The "cost of the proceedings" includes any fees which may be payable under the statute in disbursing the money.*® And the "debts which have priority," for the purposes of this provision, must be held to include all taxes due from the bankrupt or on his prop- erty.** As to the consideration to be paid to the creditors, it is held that the bankrupt is required to 'deposit the percentage offered, not only on all claims filed before confirmation, but also on all other claims listed by him in his schedule; but he is not required to deposit sufficient to cover such percentage on secured claims, nor for any supposed deficiency thereon, if it has not yet been ascertained and filed.®^ § 653. Application, Notice, and Hearing. — An official form has been prescribed for the application for confirmation of a composition. It is to be addressed to the judge of the court and is signed by the bankrupt, and recites briefly the offer of terms of composition, its ac- ceptance by the required proportion of creditors, and compliance with the various requirements of the act, and asks that the composition may be confirmed by the court.** The confirmation or rejection of a composi- tion is a matter which must be passed upon and decided by the judge of the court of bankruptcy; it is not within the jurisdiction or authority of the referee.** But it is proper for the referee,' when so requested, to appoint a day for bringing the composition before the court for hear- se in re Frear, 120 Fed. 978, 10 Am. though rejected for insufficiency, the Bankr. Rep. 199. But as a composition money should not. be retained becavise Is solely for the benefit of the creditors, the continuance of the business pending they are entitled, if they choose, to disposition of the offer resulted in loss waive the actual deposit of the money or to the creditors. In re Morris & Rice securities constituting the consideration. (D. C.) 258 Fed. 712, 44 Am. Bankr. Rep. Kinkead v. J. Bacon & Sons, 230 Fed. 146. As to liability for expenses incur- 362, 144 C. C. A. 504, 36 Am. Bankr. red in an investigation of the bankrupt's Rep. 390. affairs by an attorney, see In re Siegel 8 8 In re Rider (D. C.) 96 Fed. 808, 3 (D. C.) 252 Fed. 197, 41 Am. Bankr. Rep. Am. Bankr. Rep. 178. 753; aod same case on appeal, 256 Fed. 8 9 In re Mayer, 2 Nat. Bankr. News, 226, 167 C. C. A. 442, 43 Am. Bankr. Bep. 527. Where a third person advances 78. money to a bankrupt, to be deposited to oo In re Flynn (D. C.) 134 Fed. 145, 13 perform an offer of composition, such de- Am. Bankr. Rep. 720. posit is liable for expenses incurred by »i In re Harvey (D. C.) 144 Fed. 901, reason of the stay secured by the bank- 16 Am. Bankr. Rep. 345. And see In re rupt by the composition proceedings, if Atlantic Const. Co. (D. C.) 228 Fed. 571, they fail, but not for delay occasioned 35 Am. Bankr. Rep. 838; In re Alpert by the opposition of a creditor to the (D. C.) 237 Fed. 295, 38 Am. Bankr. Rep. offer of composition. In re Wiener (D. 459. C.) 2l7 Fed. 173, 33 Am. Bankr. Rep. 9= Official Form No. 61. 355. Money obtained by bankrupts after "s Bankruptcy Act 1898, § 38, cl. 4; the filing of the 'petition against them, Idem., § 1, cl. 16; In re Bloodworth- and deposited with an offer of composi- Stembridge Co., 178 Fed. 372, 24 Am. tion, does not belong to the estate, and Bankr. Rep. 156. See In re Spiller (D. if the offer was made in good faith, al- C.) 230 Fed. 490, 36 Am. Bankr. Rep. 399. § 653 • LAW OF BANKRUPTCY 1310 ing, and to issue the required notices to creditors.®* And it is proper and permissible for the judge to send the case to the referee to ascer- tain and report the facts, when objections are raised to the approval of the composition which depend on disputed matters of fact, or even in an unopposed case, when the judge has not sufficient facts before him to form a clear judgment as to the propriety of confirming the com- position.*® The statute explicitly requires that the creditors shall have notice of "all hearings upon applications for the confirmation of compo- sitions." ** If notices are not issued, it will be ground for refusing or withholding confirmation, or perhaps for setting aside an order of con- firmation made by the court on the supposition that the notices had been given, and if any creditor is negligently or intentionally omitted from the number of those to whom the notices are sent, it appears that he will not be bound by the result of the proceeding.*'' It is th.e evident intention of the statute that any creditors who are dissatisfied with the terms of composition offered by the bankrupt, and unwilling that the composition should be effected, shall have the priv- ilege and opportunity of opposing the application for confirmation, and may thereupon set up any objections within their knowledge which are sufficient, under the statute, to warrant the court in refusing the appli- cation. But only creditors who have proved their claims have a stand- ing in court for this, purpose.** It is immaterial, however, that the op- posing creditor bought up a claim against the bankrupt for the very purpose of using it in opposition to the proposed composition, if he had no motive in so doing that was fraudulent or oppressive, but only a desire to realize as much as possible from the estate.** Objections may be based on the commission of acts by the bankrupt which would bar his application for a discharge,^** and also on matters peculiar to the composition, such as irregularities in the offer or its acceptance, the genuineness of signatures purporting to accept, fraudulent practices in 9* In re Hilborn, 104 Fed. 866, 4 Am. 97 in re Cadenas & Coe, 178 Fed. 158, Bankr. Rep. 741. 24 Am. Bankr. Eep. 135 ; In re Spencer, 95 Adler v. Jones, 109 Fed. 967, 48 C. 18 N. B. E. 199, Fed. Cas. No. 13,229 ; In 0. A. 761, 6 Am. Bankr. Eep. 245; In re re Hilborn, 104 Fed. 866, 4 Am. Bankr. Levy, 172 Fed. 780, 22 Am. Bankr. Eep. Eep. 741. 769; In re Walshe, 2 Woods, 225, Fed. 98 !„ re Scott, 15 N. B. R. 73, Fed. Cas. Cas. No. 17,118; In re Scott, 15 N. B. R. No. 12,519; In re Keller, 18 N. B. E. 331, 73, Fed. Cas. No. 12,519. Fed. Cas. No. 7,G54 ; In re Mathers, 17 90 Bankruptcy Act 1898, § 58a, cl. 2; N. B. E. 225, Fed. Cas. No. 9,274 ; In re In re Fox (D. 0.) 222 Fed. 135, 34 Am. Bryce, 19 N. B. E. 287, Fed. Cas. No. Bankr. Eep. 812. All creditors must be 2,069. notified of a proposed composition, 9 9 Ex parte Morris, 12 N. B. E. 170; whether or not they have proved their In re Comstock, 154 Fed. 747, 19 Am', claims, and must be honestly advised of Bankr. Eep. 65. the true condition of the debtor's affairs. loo in ^e Cohen, 149 Fed. 908, 18 Am. In re Klnnane Co. (D. C.) 217 Fed. 488, Bankr. Eep. 84; In re Levenson (D. O.) 33 Am. Bankr. Eep. 243. 223 Fed. 874, 35 Am. Bankr. Rep. 260 1311 cojiiPOSiTioNS § 654 inducing creditors to accept, or the acceptance by a sufficient propor- tion of the creditors.-^** But a general objection, to the effect that the estate could pay more than the percentage offered by the bankrupt, will not avail unless the disparity is great and evident.^"^ And facts known to creditors when they accepted the offer, or when the composition was confirmed, cannot afterwards be used to vitiate or destroy it."^ Cred- itors desiring to oppose the application for confirmation should be re- quired to enter their appearance and to file written specifications of the grounds of their opposition,^** which should be similar to specifications in opposition to a discharge, and they have the burden of proof, and must sustain their objections by satisfying evidence.^*'' The bankrupt will of course have the right and capacity to appear and controvert the objections offered by creditors;'^*" Where the court refused to confirm an offer of composition, because the bankrupt, yielding to the demand of a creditor, had promised to reimburse such creditor for certain expenses, which would operate as a preference, but thereafter the claim of that creditor was withdrawn, and it appeared that the composition offered would be for the best interest of the creditors, it was held that the bankrupt should be allowed to re- new his application for confirmation of the composition.^*' But where, after the offer of a composition to the creditors, a new or amended oft'er is made, the court is without authority to confirm it until it has been again submitted in the same manner as an original offer and all the creditors have had opportunity to accept or reject it.'** § 654. Confirmation and Proceedings Thereon. — The bankruptcy act provides that "the judge shall confirm a composition if satisfied that it is for the best interests of the creditors, that the bankrupt has not been guilty of any of the acts or failed to perform any of the duties which would be a bar- to his discharge, and that the offer and its acceptance are in good faith and have not been made or procured except as herein 101 In re Scott, 15 N. B. R. 73, Fed. C. A. 761, 6 Am. Bankr. Rep. 245 ; City Cas. No. 12,519; In re Asten, 8 Ben. Nat. Bank v. Doolittle 107 Fed. 236, 46 350, 14 N. B. R. 7, Fed. Cas. No. 594. C. C. A. 258, 5 Am. Bankr. Rep. 730. 102 In re Welles, 18 N. B. R. 525, Fed. los in re H. J. Arrington Co., 113 Fed. Cas. No. 17,377. 498, 8 Am. Bankr. Rep. 64; City Nat. 103 In re South Boston Iron Co., 4 Bank v. Doolittle, 107 Fed. 236, 46 C. C. Cliff. 343, Fed. Cas. No. 13,183. But tlie A. 258, 5 Am. Bankr. Rep. 736; BoUes v. fact that a former offer of copiposition, Kelley, 222 Fed. 03, 1.^7 C. C. A. 601, 34 confirmation of which was refused be- Am. Bankr. Rep. 704 ; In re Rivkin (D. cause of irregularity in the proceedings, C.) 216 Fed. 218, 33 Am. Bankr. Rep. 170. was accepted by a given creditor, does loe In re French, 181 Fed. 583, 25 Am. not preclude him from objecting to a Bankr. Rep. 77. subsequent offer in substantially the same 107 in re M. & H. Gordon (D. 0.) 245 terms. In re Kinnane Co. (D. C.) 221 Fed. 905, 40 Am. Bankr. Rep. 301. Fed. 762, 34 Am. Bankr. Rep. 119. los in re Kinnane Co. (D. C.) 217 Fed. lo^Adler v. Jones, 109 Fed. 967, 48 C. 488, 33 Am. Bankr. Rep. 243. § 654 LAW OF BANKRUPTCY 1312 provided, or by any means, promises, or acts herein forbidden." ^"^ If satisfied of these various particulars, it is the duty of th6 court to con- firm the composition, because it is an arrangement for shortening and simplifying the bankruptcy proceedings which the bankrupt and his creditors have a lawful right to make."* At the same time, this section of the statute contemplates that dissenting creditors may be compelled to accept the percentage which is satisfactory to the majority, and may be deprived of their remedies on the balance of their claims, and there- fore it should be strictly construed.^" As to the requirement that the proposed composition should be "for the best interests of the creditors," it must appear to the court to be for the best interest of all the creditors, not merely for the advantage of certain creditors or of a certain class,"^ and though it is opposed by only a small minority of the creditors, yet the court has power to reject it if satisfied that a settlement of the estate through the agency of a trus- tee in bankruptcy would be more for their interest."* Whether it is expedient to accept the percentage offered by the bankrupt is a ques- tion primarily for the creditors themselves to determine, and the ap- proval of a majority -of them is prima facie evidence that the acceptance of the offer will be for the best interests of all concerned, so that the burden of proof will rest upon those who oppose the confirmation of the composition on this ground."* If no one offers objection to the com- position, this fact may be taken by the court as satisfactory evidence that it will be beneficial to all the creditors. But if objection is inter- posed by a minority, it becomes the duty of the court to make an inde- pendent investigation and determination."" "In the absence of any ob- 108 Bankruptcy Act 1898, § 12d. It is offer of composition should be accepted, within the discretion of the trial judge the court will not consider the interest of to refuse to confirm a composition offer- the bankrupt, nor of a purchaser of the ed by the bankrupt and recommended by bankrupt's property, but only the inter- the referee, in order that a claimant, est of the creditors. In re Kligerman denied a hearing because of delay in (D. 0.) 253 Fed. 778, 42 Am. Bankr. Rep. filing and serving specifications, may 670. have his day in court, and to remand the „s m re Whipple, 2 Low. 404, 11 N. B matter to the referee. In re Soloway & r 524 Fed Gas No 17 'il'? Katz, 211 Fed. 333, 128 C. O. A. 12, 32 , . . w. ±,,o±o. Am. Bankr. Rep. 234. "* I'l ""e Joseph, 23 Blatchf. 237, 24 110 In re McLellan, 204 Fed. 482, 30 ^^^- ^^'^' ^^ ^<^ Hoxie, 180 Fed. 508, 25 Am. Bankr. Rep. 325 ; In re Soloway & ^™- Bankr. Rep. 32 ; In re Waynesboro Katz, 234 Fed. 67, 148 0. O. A. 83, 37 ^^'"^ Co., 157 Fed. 101, 19 Am. Bankr. Am. Bankr. R«p. 257. ^^P- ^87 ; In re Barde, 207 Fed. 654 ; 111 Broadway Trust Co. v. Manheim, ^^ ^^ Goldstein (D. C.) 213 Fed. 115; In 47 Misc. Rep. 415, 95 N. T. Supp. 93. It ^°^^^^ Wholesale Grocery Co. (D. C.) 112 In re Hannahs, 8 Ben. 533, Fed. ^^^ ^'^^- ^^^' 37 Am. Bankr. Rep. 633. Cas. No. 6,033; In re Purcell, 18 N. B. R. no In re Waynesboro Drug Co., 157 447, Fed. Cas. No. 11,470; In re Kinnane Fed. 101, 19 Am. Bankr. Rep. 487; In re Co. (D. C.) 221 Fed. 762, 34 Am. Bankr. Graham & Sons, 252 Fed. 93, 164 C. C. A. Rep. 119. In determining whether an 205, 42 Am. Bankr. Rep. 52. 1313 COMPOSITIONS § 654 jection, it should be supposed that the creditors know their own interest best; but when objections are interposed by the minority, whose claims may be discharged against their will, it is the duty of the court to exam- ine those objections fully and carefully. Rather than be annoyed with litigation and dilatory proceedings, or for other causes, charitable or sympathetic, some creditors readily give their consent to propositions made, without scrutiny or hesitation. If no other creditors were in- volved, courts might, without interposition, permit them to decide for themselves what their own interests demand. But the act calls for the judgment of the court on the question, for the obvious reason that the minority need and are entitled to protection." ^^* But "while the rights of the minority creditors should b.e carefully watched and protected against all unreasonable acts of the majority, the judgment of the req- uisite majority should always be allowed to prevail, unless obtained without sufficient consideration or by some unfairness or undue influ- ence." ^^' In determining this question, the composition offer should be compared with what the creditors would probably receive upon a set- tlement of the estate by a trustee in bankruptcy, and not with what the debtor might possibly be able to pay them:^'* In other words, the ques- tion whether the bankrupt might have offered better terms than he did' is not before the court; that is for the creditors to decide before accept- ing. And only those assets should be considered which have been sur- rendered or can be recovered and made available for distribution.''^ The question then is whether the creditors will receive more or. less under the composition than may reasonably be expected by the admin- istration of the assets of the bankrupt in due course; and if the latter alternative would give them a substantially greater sum than the for- mer, the composition should be denied, as not being for their best in- terests; otherwise it should be confirmed.'^** Thus, "the court should refuse to confirm a composition when it clearly appears that there have been preferential payments, and there is reasonable cause to believe that 110 In re Keller, 18 N. B. R. 36, Fed. "s in re Whipple, 2 Low. 404, 11 N. B. Cas. No. 7,848 ; In re Morris (D. C.) 246 R. 524, Fed. Cas. No. 17,513. Fed. 1021, 39 Am. Bankr. Rep. 352. And us In re Llnderman, 166 Fed. ,598, 22 see In re Graham & Sons, 252 Fed. 93, Am. Bankr. Rep. 131. 94 C. C. A. 205, 42 Am. Bankr. Rep. 52. 120 Adler v. Jones, 109 Fed. 967, 48 C. 117 In re Wronkow, 15 Blatchf. 38, 18 C. A. 761, 6 Am. Bankr. Rep. 245; In N. B. R. 81, Fed. Cas. No. 18,105. The re Rider, 1 Nat. Bankr. News, 483; In assent of 90 per cent, of a bankrupt's re Keller, 18 N. B. R. 36, Fed. Cas. No. creditors to an offer of composition is 7,648 ; In re H. J. Arrington Co., 113 prima facie evidence that the composl- Fed. 498, S Am. Bankr. Rep. 64. And tlon Is for the best Interests of creditors, see In re Waynesboro Drug Co., 157 Fed. and the burden of showing the contrary 101, 19 Am. Bankr. Rep. 487 ; Riley v. is on objecting creditors. In re Spiller Pope, 186 Fed. 857, 26 Am. Bankr. Rep. (D. 0.) 230 Fed. 490, 36 Am. Bankr. Rep. 618 ; In re Kinnane Co. (D. C.) 217 Fed. 399. 488, 33 Am. Bankr. Rep. 243. Blk.Bkr.(3d Ed.)— 83 § 654 LAW OF BANKRUPTCY 1314 they, or any substantial part of the same, may be recovered by the trus- tee, and it also appears that the estate in hand, with such preferences recovered and added, will net the creditors a greater percentage than is offered in the proposed composition." ^^^ And the court may also con- sider the relations of the creditors favoring the composition to the debt- or, and the relative number of creditors whose individual opinions are expressed in person in the acceptance of the offer as compared with those who dissent.*** ' As to the objection that the bankrupt has been guilty of acts or omissions which would bar his discharge, if it is clearly made out this objection must prevail, and the composition must be rejected, however advantageous to creditors it might have been, and though it will result in their securing a smaller percentage of their debts than they would have received under the composition.*** But, generally speaking, an objection of this kind will not be sustained unless it appears that the conduct of the bankrupt to which exception is taken was willfully and intentionally false, fraudulent, or deceitful. This applies to the objec- tion that he failed to keep proper books of account or concealed or de- stroyed his books or accounts,*** that he omitted to include in his sched- ule property which belonged to his estate,*-® that he obtained money or property on credit by means of a materially false financial statement,**® that he concealed, removed, or misappropriated property,**' or that he gave fraudulent preferences.*** It is also proper for the court to consider any irregularities which may have occurred in the previous proceedings, and indeed it has no 121 In re McLellan, 204 Fed. 482, 30 Rep. 492; In re Reiman, 12 Blatchf. 562, Am. Bankr. Kep. 325. 13 N. B. R. 128, Fed. Cas. No. 11,675. 122 In re Weber Furniture Co., 13 N. 126 In re Sabsevitz, 197 Fed. 109, 28 B. R. 529, Fed. Cas. No. 17,330. And see Am. Bankr. Rep. 623 ; In re O'Callaghan, In re Griffith Stillings Press (D. C.) 244 199 Fed. 662, 29 Am. Bankr. Rep. 304 ; Fed. 315, 39 Am. Bankr. Rep. 813. In re Sellgman, 163 Fed. 549, 20 Am. 123 In re Griffin, 180 Fed. 792, 25 Am. Bankr. Rep. 774; In re Witman (D. C.) Bankr. Rep. 206; In re Comstock, 154 215 Fed. 286; In re Kerner (D. C.) 245 Fed. 747, 19 Am. Bankr. Rep. 65 ; In re Fed. 807, 40 Am. Bankr. Rep. 1S3. Godwin, 122 Fed. Ill, 10 Am. Bankr. 12? In re Bloch, 18 X. B. R. 328, Fed. Rep. 252. Cas. No. 1,551; In re Burman (D. C.) 124 In re Sabsevitz, 197 Fed. 109, 28 210 Fed. 512, .32 Am. Bankr. Rep. 62. A Am. Bankr. Rep. 623 ; In re Olman, 134 composition agreement will not be con- Fed. 681, 13 Am. Bankr. Rep. 395 ; In re firmed where, if the bankrupt's state- Wilson, 107 Fed. 83, 5 Am. Bankr. Rep. ments to sellers of merchandise were 849; In re Barde, 207 Fed. 654; In re correct, a large amount of assets had Rosenthal, 231 Fed. 449, 145 C. O. A. 443; disappeared concerning which he could In re Gottlieb (C. C. A.) 262 Fed. 730, give no explanation. In re Weintrob (D. 44 Am. Bankr. Rep. 464, 45 Am. Bankr. O.) 240 Fed. .^.-32, 39 Am. Bankr. Rep. 407! Rep. 180; In re Silberstein (D. C.) 225 128 in re Jacobs, 18 N. B. R. 48, Fed Fed. 665, 34 Am. Bankr. Rep. 479. Cas. No. 7,159. But see In re Rivk'in (D 126 In re B. Jacobson & Son Co., 196 C.) 216 Fed. 218, 33 Am. Bankr Reo Fed. 949, 116 C. C. A. 499, 28 Am. Bankr. 170. 1315 COMPOSITIONS § 655 power to confirm an irregular composition.^'* But irregularities which are the effect of mere mistake, and not of fraud, are not necessarily fatal.**" It is also proper to refuse to confirm a composition where there is evidence that the proceedings are collusive.*** But though there are indicia of fraud, the court should not refuse to confirm the composi- tion without giving the bankrupt and the majority creditors an oppor- tunity to be heard.**^ It is also essential that the creditors, in consid- ering the terms offered, should have been honestly and fully advised of the true condition of the debtor's affairs, so that they may be presumed to have acted intelligently and understandingly. And if it is shown that this was not the case, the court will be justified in withholding its ap- proval.*** But when questions of policy and expediency have been fair- ly before the creditors and disposed of by them, and their action has been approved by the district court, it will not be interfered with on appeal.***' § 655. Performance and Distribution. — "Upon the confirmation of a composition, the consideration shall be distributed as the judge shall direct, and the case dismissed. Whenever a composition is not con- firmed, the estate shall be administered in bankruptcy as herein pro- vided." **® Since a composition is essentially a voluntary arrangement and settlement between the bankrupt and his creditors, taking the case out of court, it is doubtful whether the court of bankruptcy has power to make a summary order for its enforcement;, and at any rate this will not be done where it does not appear that the creditors are willing and desirous to proceed with it.*** The official form prescribed for the or- der of distribution intends that the moneys shall be paid out by the clerk of the court,**' first to priority claims, then to cover the costs of the proceedings, and then to the general creditors.*** Money payable to a creditor on a composition cannpt be attached, or its payment obstructed, 128 In re Frear, 120 Fed. 978, 10 Am. Cas. No. 7,648; In re Greenebaum, Fed. Bankr. Rep. 199. And see In re Kinnane Cas. No. 5,769. Co. (D. C.) 221 Fed. 762, 34 Am. Baukr. i3i In re Wilson, 16 Blatchf. 112, Fed. Rep. 119. The court has no power to Oas. No. 17,781. confirm a composition which provides for 135 Bankruptcy Act 1898, § 12e. compensation to a receiver in a sum iso in re Remsen, 9 Ben. 260, Fed. largely in excess of that prescribed by Caa. No. 11,698. the act. In re Sol Gross & Co., Inc. (D. 137 But it has been held that the clerk C.) 274 Fed. 741. of the District Court is not required to 130 In re Henry, 9 Ben. 449, 17 N. B. distribute the consideration in composi- B. 463, Fed. Cas. No. 6,370. tion cases, and the referee should be 131 In re Keller, 18 N. B. E. 36, Fed. designated to make the distribution. In Cas. No. 7,648. But see In re Allen, 17 re Newbold (D. C.) 244 Fed. 888, 40 Am. N. B. R. 157, Fed. Cas. No. 210. Bankr. Rep. 298. 132 In re Wpber Furniture Co., 13 N. 13 s Official Form No. 63. Where an B. R. 559, Fed. Cas. No. 17,331. order of confirmation of composition re- i8» In re Keller, 18 N. B. R. 36, Fed. served for liquidation the claims of § 655 ' LAW OF BANKRUPTCT 1316 by proceedings in another court ; and the bankruptcy court will not sus- pend or deny the creditor's right to receive his composition, except in favor of one who claims a specific lien thereon, or who has procured the appointment of a receiver to take the creditor's title.^^" Nor has the court any power to require the bankrupt to pay the composition per- centage to a creditor whose claim was not scheduled or filed, or proved within a year after the adjudication."** But creditors receiving their re- spective shares of a composition are not bound to see that other cred- itors receive their shares."^ The costs of the proceeding are to be paid out of the money deposited by the bankrupt, and constitute a preferred claim. But a fee cannot be allowed to the bankrupt's attor- ney for his services in securing the confirmation of the composition, when it was opposed by creditors in good faith and on reasonable grounds.''** The statute directs that "upon the confirmation of a composition of- fered by a bankrupt, the title to his property shall thereupon revest in him." "* But a composition proceeding will be regarded as pend- ing until all notes become due which were given by the debtor to ef- fect the same."* And it seems that, even after the confirmation of a composition, the estate may be reopened for the purpose of recovering or receiving the surrender of a preference, and although it will inure to the benefit of the bankrupt himself by reason of the composition."" § 656. Effect of Failure of Perfonmance.— The acceptance of a com- position and its confirmation by the court will not operate as a dis- creditors who were entitled to a special claim within the year, if the bankrupt fund, such claims should be liquidated admits its validity and deposits funds before the distribution of the considera- for its partial payment. In re Aarons tioii. In re H. B. Hollins & Co. (D. C.) (D. C.) 243 Fed. 634, 40 Am. Bankr. 230 Fed. 920, 37 Am. Bankr. Rep. 205. Rep. 229. Where a creditor who was a party to a i*i Ex parte Hamlin, 2 Low. 571, 16 composition agreement sues on the debt, N. B. R. 320, Fed. Cas. No. 5,993. the burden is on the debtor to prove a 1*2 in re Martin. 153 Fed. 582. tender to the plaintifC of the proportion 1*3 Bankruptcy Act 1S98, § 70f. See of the debt called for by the composition. In re McKeon, 7 Ben. 51:5. 11 N. B. R. Ocean Accident & Guarantee Corp. v. 182, Fed. Cas. No. 8,858. Where a bank- Beek (Sup.) 153 N. Y. Supp. 932. And rupt has deposited money In pursuance see Beck v. Witteman Bros., 186 App. of fin offer of composition, and pro- Div. 961, 173 N. Y. Supp. 491. ceedings are delayed by the opposition 1S9 In re Kohlsaat, 18 N. B. R. 570, of minority creditors, but the offer is i'ed. Cas. No. 7,918. finally confirmed, the bankrupt is en- 1*0 In re Abrams & Rubins, 173 Fed. titled to any interest which the money 430, 23 Am. Bankr. Rep. 25; In re Lane, may have earned in the mean time. In 125 Fed. 772, 11 Am. Bankr. Rep. 136. re Kelley (D. C.) 223 Fed. 383, 35 Am. But see In re Englander's, Inc. (D. 0.) Bankr. Rep. 127. 267 Fed. 1012, 45 Am. Bankr. Rep. 508. i** In re Hinsdale, 9 Ben. 91, 16 N. A creditor may participate in a com- B. R. 550, Fed. Cas. No. 6,526. position, though he fails to prove his i^s In re B. Feinberg & Sons, 187 Fed. 283, 26 Am. Bankr. Rep. 587. 1317 COMPOSITIONS § 657 charge or release of the debtor from any given debt, unless the distribu- tive share of that creditor under the composition agreement is actually- paid or unconditionally tendered to him.^*® And the question whether such payment or tender has been made is open to trial in any court in which the debt may be sued for.^*'' Hence, upon failure of performance of the condition of a composition, the creditor may pursue his appro- priate remedies for the recovery of his original debt (not merely for the percentage offered under the composition) in any proper court.*** And if the debtor is subsequently adjudged bankrupt in a fresh pro- ceeding on his own petition, having paid the cash part of a composition previously effected, but not the notes which were given for the re- mainder of the percentage offered, the creditors may prove their orig- inal claims, giving credit for the cash received."® But mere delay in paying composition notes, occasioned by legal or other difficulties, does not ipso facto avOid the composition, nor does failure to pay one cred- itor according to the composition forfeit the bankrupt's rights as to cred- itors punctually paid.*^' Where a bankrupt executes composition notes with an agreement that if any note shall be in default all shall become due, and a creditor taking the notes assigns his claim to a third person, and takes the latter's notes in payment and retains the composition notes as security, he cannot proceed on the composition notes until after default on the other notes.*®*. One who has agreed to become a surety on a composition will not be summarily compelled to give se- curity, where it appears that the bankrupt has abandoned the composi- tion, and has not given the notes agreed upon as a part of it.*®^ § 657. Vacating and Setting Aside Composition. — It is provided in the bankruptcy act that "the judge may, upon the application of par- ties in interest, filed at any time within six months after a composition 146 In re Hurst, 1 Flip. 462, 13 N. B. Fed. Cas.' No. 1,144. Where notes are E. 455, Fed. Ca«. No. 6,925 ; Harrisou given under an order confirming a com- V. Gambl«, 69 lllch. 96, 36 N. W. 6S2; position in bania'uptcy, and are not Whittemore v. Stepliens. 48 Mich. 573, paid, the original debt revives. Ameri- 12 N. W. .'^.58. If a bankrupt fails to can Woolen Co. v. Friedman, 97 Misc. comply with a eompo.sition agreement Hep. 593, 163 N. T. Supp. 162. with his creditors, thoy will have an 149 i„ re A. B. Carton & Co.. 148 Fed. action thereon against him. Kobre As- (53 ^rj ^^ Bankr. Rep. 343 : Brookmire sets Corp. v. Baker, 178 App. Div. 62, y Bean, 3 Dill. 136, 12 N. B. R. 217, 164 N. Y. Supp. 597. Ferl. Cas. No. 1,942. 147 Whittemore v. Stephens, 48 Mich. ...^ „,, j.i„-kt-d t> ^r,r. 573 12 N W 858. ^ i-o In-re^ Kohlsaat, 18 N. B. E. 570, 148 Ransom' V. Geer, 20 Blatchf. 535, ^^^^- '^''^- ^"^ '^'^^^■ 12 Fed. 607; Harrison v. Gamble, 69 "i Willey v. Browne, 206 Pa. St. 322, Mich. 96, 36 N. W. 682 ; Page v. Carton, ^^ ^^^- ^029. 64 Misc. Rep. 645, 120 N. T. Supp. 277. 102 In re Remsen, 9 Ben. 260, Fed. Compare In re Bayly, 19 N. B. R. 73, Cas. No. 11,698. § 657 LAW OF BANKRUPTCY 1318 has been confirmed, set the same aside and reinstate the case, if it shall be made to appear upon a trial that fraud was practised in the pro- curement of such- composition, and that the knowledge thereof has come to the petitioners since the confirmation of such composition." "* This action can be taken only by the court of bankruptcy. No state court can annul or disregard a discharge in bankruptcy, whether it was ob- tained in the ordinary way or as the result of a composition.^®* And further, authority to set aside a composition is confided only to the "judge" of the court of bankruptcy, which term, in this instance, does not include the referee.-'®® The application for this purpose should take the form of a petition. And leave to file such a petition should only be refused when the petition on its face shows that, upon the facts stated, the petitioner could not under any circumstances be entitled to relief.^"® The petition should show by proper averments sufficient grounds why the court should revoke the order confirming the com- position or set it aside. ^®'' And it should allege that the fraud charged was not known to the petitioner until after the coniposition was con- firmed, but need not state the time or manner in which such knowledge was acquired, nor is it demurrable for omitting to allege that the peti- tioner restored or offered to restore the consideration immediately on discovery of the fraud, or for want of a tender of the consideration into court.-'®* The petition should be verified in the usual form for a bill, in equity, but verification by an agent is not sufficient when the prin- cipal allegations are made on information and belief and the agent is not shown to have any personal knowledge of the facts.*®' Notice should be given to the bankrupt and to all the creditors.**" Such a pe- tition can be filed only by a "party in interest." But a creditor who has assigned his claim, receiving a consideration therefor, is no longer a party in interest, although the assignment was procured through the 153 Bankruptcy Act 1898, § 13. See Bank, 75 Misc. Kep. 285, 135 N. T. Supp. In re Ballance, 206 Fed. 505, 30 Am. 78. Bankr. Rep. 689. A composition cannot iob gee Bankruptcy Act 1898, § 1, cl. be set aside where all the facts consti- 16, and Id. si 38. tutlng the alleged fraud were known loo in re Allen B. Wrisley Co., 133 to the creditors before it was confirmed. Fed. 388, 66 C. C. A. 450, 13 Am. Bankr. Uiiion Furniture Oo. v. Walker-Cooley Rep. 193. Furniture Co., 206 Fed. 217, 31 Am. iot City Nat. Bank v. Doolittle, 107 Bankr. Rep. 73. As to the necessity and Fed. 2P,Ci, 46 C. C. A. 258, 5 Am. Bankr. duty of setting aside the composition Rep. 736. See In re Kass (D. C.) 263 when fraud is found, see In re Ballance, Fed. 138, 45 Am. Bankr. Rep. 301. 219 Fed. 537, 135 C. U. A. 287, 33 Am. ibs in re Roukous, 128 Fed. 645, 12 Bankr, Rep. 642. , Am. Bankr. Rep. 128. 164 Turner v. Hudson, 105 Me. 476, 75 loo in re Roukous, 128 Fed. 648, 12 Atl. 45, 18 Ann. Cas. 600. But compare Am. Bankr. Rep. 169. Mallouk V. American Exchange Nat. loo Ex parte Hamlin, 2 Low. 571, 16 N. B. R. 320, Fed. Cas. No. 5,993. 1319 COMPOSITIONS § 657 fraud aiid misrepresentation of the trustee and the bankrupt/" But the fact that a creditor has commenced an action at law against the bankrupt will not prevent him from also maintaining a petition to set aside the composition.*®* An application of this kind positively cannot be considered by the court unless filed within the six months allowed by the statute."* The limitation prescribed is absolutely imperative. And the time allowed is not enlarged by the^ provision found in another section of the stat- ute, that a discharge may be revoked within a year after it is granted, for this relates only to a discharge obtained in the ordinary way, not to a discharge resulting by operation of law from the confirmation of a composition.''** So also, the section quoted above defines exclusively the ground upon which a composition may be set aside, namely, fraud in its pro- curement. It operates as a limitation upon the general grant of author- ity given to courts of bankruptcy by an earlier provision (section 2, clause 9) to "set aside compositions and reinstate the cases." '®® Hence the court has no power to set aside a composition merely because the petitioning creditor's address was erroneously stated in the bankrupt's schedule, in consequence of which the creditor had no notice of the pro- ceedings in bankruptcy, and did not prove his debt, and the same was not included in the composition.*^ Neither can a composition be set aside on account of inadequacy, or because the estate might have paid a larger dividend,"'' nor because the bankrupt has failed to carry out his part of the composition agreement."* But the fact that the bank- rupt made a false schedule or a false oath to his schedule constitutes ground for setting aside a composition subsequently effected, as the . schedule is supposed to inform the creditors of the extent and nature of his assets and to influence them in accepting terms of composition of- fered, and hence fraud in the schedule is fraud practised in procuring, the composition."® So the fact that the trustee joins with the hank- ie i in re Allen B. Wrlsley Co., 133 is* In re Jersey Island Packing Co., Fed. 388, 66 C. C. A. 450, 18 Am. Bankr. 152 Fed. 839, 18 Am. Bankr. Kep. 417. Rep. 193. 165 In re Rudnick, 93 Fed. 787, 2 Am. 162 In re Eoukous, 128 Fed. 648, 12 Bankr. Rep. 114; In re Cooper Bros., Am. Bankr. Rep. 169. 166 Fed. 932, 20 Am. Bankr. Rep. 634. 163 In re Ennis, 183 Fed. 859, 25 Am. See In re Siegel, 256 Fed. 226, 167 C. Bankr. Rep. 383 ; In re Jersey Island 0. A. 442, 43 Am. Bankr. Rep. 73. Packing Co., 152 Fed. 839, 18 Am. Bankr. i68 in re Rudnick, 93 Fed. 787, 2 Am. Eep. 417; In re Eisenberg, 148 Fed. Bankr. Rep. 114. 325, 16 Am. Bankr. Rep. 776. See, as i67 in re Shaw, 9 Fed. 495. to laches of petitioning creditors, In le losin re Eisenberg, 148 Fed. 325, 16 Herman, 9 Ben. 436, 17 N. B. K. 440, Fed. A.m. Bankr. Rep. 776. Gas. No. 6,405. leo In re Roukous, 128 Fed. 645, 12 Am. Bankr. Rep. 128. § 657 LAW OP BANKRUPTCY 1320 rupt to effect a composition to the detriment of creditors by means of false representations as to the assets, is ground not only for his re- moval, but also for vacating the composition.^'** But a composition should not be set aside thovigh some creditors fraudulently obtained notes for more than their pro rata share, where it appears that the ap- plicant for the order also obtained a preference."^ It is provided that when a composition is set aside, "the trustee shall, upon his appointment and qualification, be vested as herein provided with the title to all of the property of the bankrupt as of the date of the final decree setting aside the composition." *'* But all acts regularly done in pursuance of the composition, the same having been partly per- formed, remain valid, and the rights and title of the trustee are subject thereto.^'* There is also a provision that "in the event of the confirma- tion of a composition being set aside, or a discharge revoked, the prop- erty acquired by the bankrupt in addition, to his estate, at the time the composition was confirmed or the adjiadication was made shall be ap- plied to the payment in full of the claims of creditors for property sold to him on credit, in good faith, while such composition or discharge was in force, and the residue, if any, shall be applied to the payment of the debts which were owing at the time of the adjudication." "* In this event, it has been held that a workman, employed by the bankrupt dur- ing the time when the composition was in force, is entitled to payment of his wages earned during that period. "These wages are somewhat analogous to claims for expenditures incurred in preserving or taking care of the bankrupt's property before it comes into the hands of the assignee; and such expenditures will be allowed by the bankruptcy court in the exercise of its equitable jurisdiction."^'^ §, 658. Operation and Effect. — The confirmation and performance of a composition operate as a discharge by operation of law, and release the bankrupt from all of his debts which would be barred by a discharge, and in like manner terminate all remedies of creditors for the enforce- . ment of their claims against either the bankrupt or his property.^'* Fur- '71 In i-e Allen B. Wrisley Co., 1.33 44 Am. Rankr. Rep. 206; Herrington v. Fed. 388, 66 C. C. A. 450, 13 Am. Bankr. Bavitt (Sup.) 145 N. T. Supp. 452 ; Rep. 193. Oreenbernei- v. Schwartz, 261 Pa. 265, 17 1 In re Sacharoff & Kleiner, 163 104 Atl. 573. See In re Bjornstad, 11 Fed. 664, 20 Am. Bankr. Rep. 814. Biss. 68, 5 Fed. 791; In re Becket, 2 172 Bankruptcy Act 1898, § 70d. Wood.s-, 173, 12 N. B. R. 201, Fed. Cas. 173 Kx parte Hamlin, 2 Low. 571, 16 No. 1,210; Taylor v. Skiles, 113 Tenu. N. B. R. 320, Fed. Cas. No. 5,993. 288, Si S. W. 1258; Broadway Trust 174 Bankruptcy Act 1S9S, § p4c. Co. v. Manlieim, 47 Misc. Rep. 415, U'j 175 In re Wells, 4 Fed. (is. N. T. Supp. 93; Mandell v. Levy,' 47 i76in re Radley (D. C.) 252 Fed. 20.">. Misc. Rep. 147, 93 N. Y. Supp. 545; 42 Am. Bankr. He]>. 261; In re O'Gara Harrison v. Gamble, 69 Mich. 96, 36 N Coal Co., 260 Fed. 742, 171 C. C. A. 480, W. 682; Denny v. Merrifleld, 128. Mass^ 1321 COMPOSITIONS § 658 ther, ''upon the confirmation of a composition offered by a bankrupt, the title to his property shall thereupon revest in him." ^'" That is, the le- gal effect of a composition is that the legal title to the bankrupt's proper-, ty remains in him. If it is effected before an adjudication, the title is never divested; if afterwards, the title which vests by operation of law in the trustee in bankruptcy is automatically taken, from him and rcr vested in the bankrupt.*'* And "a certified copy of an order confirming a composition shall constitute evidence of the revesting of the title of his property in the bankrupt, and if recorded shall impart the same no- tice that a deed from the trustee to the bankrupt, if recorded, would im- part." *'* Thereafter the bankrupt is at liberty to deal with his assets as he may please,**" and may prosecute suits in his own name, though he may consent to the further prosecution of an action in the name of the trustee' in bankruptcy, after the composition, and in that case the court in which the suit is pending will not be obliged to dismiss it on account of the closing of the estate in bankruptcy.*** But the bankrupt takes back his title in the same condition in which it was before the batik- ruptcy. If he held a merely defeasible title to certain property, his trus- tee in bankruptcy would acquire no higher or stronger title, and if a composition is offered and confirmed, the original title, but no more, will revest in the bankrvtpt.**^ Also, the confirmation of a composition sus- pends the functions of the trustee as to administering the estate.**^ And the statute directs that the case (that is, the pending case in bankruptcy) shall be "dismissed." But this only means that the court shall proceed 228 : Turner v. Hudson, 105 Me. 476, the bankrupt in the hands of a third 75 Atl. 45, 18 Ann. Cas. 600. Where an person, which had not been reduced to offer of composition was accepted by possession by the trustee, at once revests creditors of a firm ad.1udged a bankrupt in the bankrupt free from any claim or ■without a proviso that the partners in- right of the trustee. In re Frisehknecht, dividually should be discharged from 223 Fed. 417, 1.39 C. C. A. 11, 34 Am. partnership debts or without any agree- Bankr. Rep. 530. After the confirmation ment that they should remain liable, the of a composition, the court of bank- mere fact that the referee and the ruptcy has no jurisdiction of a petition court and the parties had a mistaken l)y the bankrupt to require the proceeds view as to what the law was did not of property claimed by him to be paid affect the legal liability of the partners, over to him. In re Hollins, 229 Fed. Abbott V. Anderson, 265 111. 285, 106 •■'.49, 143 C. C. A. 469, 36 Am. Bankr. X. E. 782, L. R. A. 1915F, 668, Ann. Rep. 168. And see In re Hollins, 238 Cas. 1916A, 741. Fed. 787, 151 C. C. A. 637, 38 Am. 177 Bankruptcy Act 1898, § 70f. Bankr. Rep. 432. 178 Cumberland Glass Mfg. Co. v. De "9 Bankruptcy Act 189S, § 21g. Witt, 237 U. S. 447, 35 Sup. Ct. 636, 59 iso In re Shaw, 9 Fed. 495. L. Ed. 1042, 34 Am. Bankr. Rep. 723: i" Stone v. Jenkins, 170 Ma.ss. 544, .57 American Improvement Co. v. Lilienthal N. E. 1002, 79 Am. St. Rep. 343. And (Cal. App.) 184 Pac. 692; Houston v. see Merchants' Bank of Mobile v. Zadek, Shear (Tex. Civ. App.) 210 S. W. 976 ; 203 Ala. 518, 84 South. 715. Ligon V. Allen, 56 Mi.ss. 632; McDonald isa Zavelo v. Cohen Bros., 156 Ala. V. H. E. Taylor Co., 144 App. Div. 329, 517, 47 South. 292. 128 N. T. Supp. 1048. un confirmation iss In re August, 19 N. B. R. 161, Fed. of a composition, money belonging to Cas. No. 645. § 058 LAW OF BANKRUPTCY 1322 no further with the administration of the estate under the bankruptcy act, and does not forbid further proceedings in the case such as are nec- essary to terminate it, for instance, appropriate proceedings before the referee to pass upon the accounts of the trustee, and, after allowing the same, to direct that the trustee be discharged and the estate closed.^** But no new claims .against the estate can be filed and allowed,^** though a question as to what amount the trustee shall pay over to the bank- rupt as the balance in his hands should be determined by the referee under a special order of the court."* And the trustee cannot be held personally liable to a creditor for the difference between the dividend re- ceived under the composition agreement and the greater dividend which the trustee assured the creditor he would receive, such assurance being merely an expression of opinion that the larger dividend could be re- alized."' At least all those creditors who have proved their claims will be re- garded as parties to the bankruptcy proceeding so as to be bound and concluded by the composition ; "* and after the confirmation of the com- position it is too late for creditors to claim that a conveyance made by the debtor before the bankruptcy was fraudulent as against them."* Just as in the case of a discharge obtained in the ordinary way, a compo- sition prevents creditors from maintaining any action or suit for the en- forcement of a claim or the collection of a debt which would be released by a discharge."" And a creditor who receives a composition with full knowledge of the facts cannot afterwards require a set-off to be enforced against the debtor in a court of equity, which he had opportunity to as- sert at the time the composition was effected."^ A suit against the bank- rupt in a state court by a creditor included in the composition may be enjoined pending the completion of the composition,"* but after that, the court of bankruptcy will not interfere by injunction, as the debtor has a complete defense by simply pleading the composition and his conse- quent discharge."' But there is this difference between the effect of 184 United States v. Sondhelm, 188 is? Bossak v. Siff, 147 App. Div. 177, Fed. 378. And see In re Hyman, 18 N. 132 N. Y. Supp. 109. B. R. 299, Fed. Caa. No. 6,985. As to iss Clairiuonte v. Napier Motor Co., payment of costs, see In re Harris, 117 11 Cal. App. 265, 104 Pac. 712; In re Fed. 575, 15 Am. Bankr. Rep. 705. Rodger, 18 N. B. R. 381, Fed. Cas. No. 186 In re Cooper Bros., 166 Fed. 932, 11,992. 20 Am. Bankr. Rep. 634. A judgment iso McMaster v. Campbell, 41 Mich, liquidating a claim not proved and filed 513, 2 N. W. 836. within the statutory time is barred i*"" Taylor v. Skiles, 113 Tenn. 288, 81 where there has been confirmation of a S. W. 1258. composition. In re Maytag-Mason Mo- loijiunt v. Holmes, 16 N. B. R. 101 tor Co. (D. C.) 223 Fed. 684, 35 Am. Fed. Cas. No. 6,890. Bankr. Rep. 160. i»2 In re Shafer, 17 N. B. R. 116, Fed. 180 In re August, 19 N. B. R. 161, Fed. Cas. No. 12,695. Cas. No. 645. los In re Negley, 20 Fed. 499. 1323 COMPOSITIONS § 659 a composition and that of a discharge, that a new' promise will not re- vive a debt included in and settled by the composition, though it would in the case of a discharge. For a discharge does not satisfy or extin- guish the debt, thtDugh it bars any further proceeding for its collection ; but a composition is an accord and satisfaction and wipes out the cause of action.^** But a composition, like a discharge, must be pleaded in order to be a bar.^*** And if set up after the time for final performance of the terms of the composition, the plea must aver not only the proceed- ings leading up to the composition and its confirmation by the court, but also performance on the part of the debtor, or a sufficient excuse for failure to perform."* It is also provided that "a certified copy of an order confirming or setting aside a composition, not revoked, shall be evidence of the jurisdiction of the court, the regularity of the proceed- ings, and of the fact that the order was made." "' The statute does not in terms direct that such evidence shall be accepted as conclusive, but it is difficult to see how it could be accorded any less effect. And at any rate it is well settled that a composition, confirmed by the bankruptcy court, cannot be impeached in any collateral proceeding in a state court."* \ § 659. Same ; What Debts Released. — The bankruptcy act provides that "the confirmation of a composition shall discharge the bankrupt from his debts, other than those, agreed to be paid by the terms of the composition and those not affected by a discharge." ■'** Broadly speak- ing, therefore, all those debts to which the bankrupt might plead in bar a discharge obtained in the ordiriary course of administration will be equally released by the confirmation of a composition,*"* while, on the other hand, an action on a debt or claim will not be barred by compo- sition proceedings if it would not be discharged by the debtor's dis- 194 Taylor v. Skiles, 113 Tenn. 288, 81 with the amount of the note unless he S. W. 1258. Contra, see In re Kinnane produces or accounts for it. Beck v. Co. (D. C.) 221 Fed. 762, 34 Am. Bankr. Witteman Bros., 185 App. Div. 643, 173 Kep. 119. A bankrupt's promise, made N. Y. Supp. 488; Id., 186 App. Div. 961, prior to a composition settlement and 173 N. Y. Supp. 491. repeated thereafter, to pay a certain los Harrison v. Gamble, 69 Mich. 96, creditor's entire claim if he aided the 36 N. W. 682. And see Dobson v. Noyes, bankrupt in securing money to settle 39 Kan. 471, 18 Pac. 697. with his other creditors, was void, mi Bankruptcy Act 1898, § 21f. where the subsequent promise was mere- los Loeffler v. Wright, 13 Cal. App. ly a reassurance of payment, with no 224, 109 Pac. 269; Farwell r. Raddin, additional consideration. Lieblein v. 129 Mass. 7. George, 193 Mich. 462, 160 N. W. 538. 109 Bankruptcy Act 1898, § 14c. As 195 Consolidated Rubber Tire Co. v. to effect of order releasing the bank- Vehicle Equipment Co., 121 App. Div. rupt, after confirmation of a composi- 764, 106 N. Y. Supp. 599. A creditor tion, on the compensation of the referee who has received the debtor's note giv- in the case, see Kinkead v. J. Bacon & en in a composition with creditors, and Sons, ,230 Fed. 362, 144 0. C. A. 504, 36 who denies the effect of the composition Am. Bankr. Rep. 390. as discharging his debt, is chargeable 200 In re Jersey Island Packing Co., § 659 LAW OF BANKRUPTCY 1324 charge in bankruptcy under the act.**^ Thus, a composition will not affect the debtor's liability on a debt contracted by his fraud,*"^ nor while he was acting in a fiduciary capacity,-*^ nor in respect to a claim found- ed on one of the kinds of torts mentioned in the stcftute as not being released by a discharge.^** The act provides that a discharge shall not release the debtor from such claims as "have not been duly scheduled in time for proof and allowance, with the name of the creditor if known to the bankrupt, unless such creditor had notice or actual knowledge of the proceedings in bankruptcy." ^*® Hence a creditor whose name and address, with the amount due him, are correctly stated in the bankrupt's schedule, being chargeable with notice of the bankruptcy proceedings (even if he has no actual knowledge), must prove his claim and secure its allowance, whereupon he will be entitled to notice ot t^ie composition proceedings; and if he neglects to do this, and pays no attention to the bankruptcy proceedings, he is chargeable with laches and can take no action to recover the balance of his debt after receiving the dividend payable under the composition.**® On the other hand, a creditor whose claim is not listed by the bankrupt nor included in the composition arrangement, and who does not of his own motion come in and prove his claim, will not be affected or bound by the composition, provided he at all times lacked that notice or actual knowledge of the bankruptcy proceedings which would have charged him with the duty of intervening for the protection of his own interests.^*'' This rule has been applied to a case where the creditor's address was stated as "un- known," and he took no part in the composition proceedings,^** and in a case where the debt was stated at less than its true amount, and the creditor did not join in the composition and objected to its confirmation 152 Fed. 839, IS Am. Bankr. Rep. 417: 2ot In re Coe, 183 Fed. 745, 106 C. C Consolidated Rubber Tire Co. v. A'ebicle A. 181, 26 Am. Bankr. Rep. 352. Equipment Co., 121 App. Div. 764. 106 205 Bankruptcy Act ISOS, § 17. N. Y. Supp. 599; Herschman v. Justices 206 in re Wllkens, 191 Fed. 94, 27 Am. of tlie Municipal Court of City of Bos- Bankr. Rep. 235; In re Abrams & Ru- tpn, 220 Mass. 137, 107 N. E. 543. See bins, 173 Fed. 430, 23 Am. Bankr. Rep. Beck V. Wittemau Bros., 185 App. Div. 25; In re Starr. 56 Fed. 142; Troy v. 643, 173 N. T. Supp. 488. Rudnick, 198 Mns.s. 563, 85 N. B. 177 : 2oiWilmot V. Mudge, 103 U. S. 217, <^'°^er GroceryCo. v. Dome, 116 Ga. 26 L. Ed. 536; Bavlv v. Washin.^ton & -^°' "^^ S. E. ^4(. Lee University. 106 F. S. 11. 1 Sup. Ct. ''' ^'^ "-e Blackmore, 11 Fed. 412; 88, 27 L. Ed. 97; glavello v. J. S. Reeves l'l"wer v. (Jreenbaum, 9 Biss. 455, 2 Fed. & (^o., 171 Ala. 401, 54 South. 654; '^»': Broadway Trust Co. v. Manheim. Mudge V. Wilmot, 124 Mass. 493. Com- f *^'«<^- ^^^-l'- ^^5, 95 N. Y. Supp. 93: pare Wells v. Lamprey, 16 N. B. R. 205. ^obmson v. Soule, 56 Miss. 549; Col- , ,, „ Ims & Toole v. Crews, 3 Ga. App. 23s, 20. In re Tooker, 8 Ben- 390, 14 N. B. ,9 g. ^ ,,,. g,^,j^;„ ^ ^^^^ g.' R. 35, Fed. Cas. No. 14,096. aj^. 402; Smith v. Rucker, 88 Ark 615 203 In re Rodger, 18 N. B. R. 252, 114 S. W. 1181; In re Black Diamond Fed. Cas. No. 11,991 ; In re Shafer, 17 Copper Min. Co., 10 Ariz. 42, 85 Pac. 653. N. B. R. 116, Fed. Cas. No. 12,695; Sue- 20s Harrison v. Gamble, 69 Mich. 96, cession of Bayly, 30 La. Ann. 75. 36 N, W. 682. 1325 COMPOSITIONS § 660 and refused to accept any money under it.*"' Again, creditors whose claims are barred by failure to file or present the same within the year allowed for that purpose have no standing before the bankruptcy court in coijiposition proceedings.*^* But the fact that a corporation has been adjudged bankrupt and has effected a composition with its creditors will not prevent creditors from maintaining an action against its direc- tors, to enforce a liability imposed on them personally by statute for failing to report the condition of the company, since such a statutory liability is entirely independent of the cause of action against the cor- poration.*^'^ And on the same principle, any ri)ghts or claims which the creditors of a corporation may have against stockholders of it, growing out of the action of the corporation in issuing stock in exchange for property of inadequate value, are unaffected by a composition effected by the corporation in bankruptcy with the creditors.*'* § 660. Same J Effect on Rights of Secured Creditors. — Liens and other securities which would be valjd and unassailable in the ordinary course of bankruptcy proceedings are equally protected in composition arrangements and are not discharged or affected.*'* If the bankrupt wishes to bring the claims of secured creditors under the operation of the composition, it is his duty to have the securities valued as the law directs.*'* But, the other conditions existing, a composition confirmed by the court has the effect to confine a secured creditor to his security, and to discharge the debtor from personal liability for the debt,*'^ so that, for example, after the confirmation of a composition, a mortgage creditor cannot recover a deficiency judgment on the foreclosure of his mortgage.*'* But so far as concerns the property affected by a lien, the court of bankruptcy loses all control over it when the composition is confirmed, and cannot thereafter protect it, by injunction, from seizure 20 9 Hewes v. Rand, 129 Mass. 519. tors does not discharge the lien of a 210 In re French (D. C.) 181 Fed. 583, judgment rendered more than four 25 Am. Bankr. Rep. 77. months before the filing of the petition 211 Wood & Selick v. Vanderveer, 55 in bankruptcy. Oilfields Syndipate v. App. Div. 549, 67 N. Y. Supp. 371. American Improvement Co. (D. C.) 256 212 In re Eerier Shoe Co. (D. C.) 246 Fed. 979. 43 Am. Bankr. Rep. 325; Cobb Fed. 1018, 40 Am. Bankr. Rep. 470. v. First Nat. Bank of Livonia (D. C.) 263 213 Oilfields Syndicate v. American Fed. 1000, 45 Am. Bankr. Rep. 48. But Improvement Co. (C. C. A.) 260 Fed. 905, compare American Can Co. v. Schenkel. 44 Am. Bankr. Rep. ,490; In re Cyclo- 110 Misc. Rep. 345, 180 N. Y. Supp. 102. pean Co., 167 Fed. 971, 93 C. C. A. 447, 214 Flower v. Greenebaum (C. C.) 50 21 Am. Bankr. Rep. 679; In re Stowell Fed. 190. (D. C.) 24 Fed. 468; Stewart-Noble Drug 215 i„ re Lytle, 11 Phila. (Pa.) 522, 14 Co. V. Bishop-Babcock-Becker Co., 62 N. B. R. 457, Fed. Cas. No. 8,650. Com- Colo. 197, 162 Pac. 159 ; Vaughn-Carlton pare Cavanna v. Bassett, 9 Biss. 435, 3 C:o. V. Studebaker Corp., 22 Ga. App. 684, Fed. 215. 97 S. E. 99. A discharge of a bankrupt 21 e American Woolen Co. v. Cohen, by means of a composition with credi- 142 App. Div. 880, 127 N. Y. Supp. 787. § 661 LAW OF BANKRUPTCY 1326 under process from a state court.^^? But a creditor holding security cannot play fast and loose with the composition proceedings^ and ask to have his share of the composition impounded to await the result of a suit in which he seeks to establish and enforce his lien, so that he may claim it if vmsuccessful.*^* But notes of a bankrupt which are se- cured only by the personal indorsement of a third person may be included as unsecured debts in a composition with creditors, and the confirma- tion of such composition will discharge the bankrupt as maker of the notes.*^* And an attachment levied about a month before the adjudi- cation of bankruptcy, on 'a debt included in and released by the compo- sition, will be dissolved thereby.*** § 661. Same; Joint Liability of Others With Bankrupt. — ^A compo- sition in bankruptcy, while it discharges the bankrupt himself from any further liability for his debts, subject to the exceptions and limitations mentioned in the preceding sections, does not operate to exonerate or release any person who is jointly liable with him for the payment of the same debt, or who is collaterally liable therefor, in the character of a surety, guarantor, or otherwise.'''^'- Thus, a composition in bankruptcy • proceedings against the maker of a note does not discharge the indorser, since the release of the maker is effected by operation of law and not by the act or consent of the parties.*** 217 In re Lytle, 11 Phila. (Pa.) 522, 14 Fed. 406; Mason & Hamlin Organ Co. N. B. R. 457, Fed. Cas. No. 8,650. v. Bancroft, 1 Abb. N. C. (N. Y.) 415; 218 York Mfg. Co. v. Merchants' Re- Moore v. Stanwood, 98 TU. 605; Hem v. frlgerating Co., 168 Fed. 108, 21 Am. Allen, 179 111. App. 223; E. S. Parks Bankr. Rep. 748. Shellac Co. v. Harris, 237 Mass. 312, 129 219 StaufCer, Eshleman Co. v. Abing- N. E. 617; McClintic-Marshall Co. v. ton Hardware & Furniture Co., 131 La. City of New Bedford (Mass.) 131 N. E. 715, 60 South. 202. 444 ; Sprague, Warner & Co. v. Fischer, 220 Miller V. Mackenzie, 43 Md. 404, 13 199 Mich. 601, 165 N. W. 858; Martin N. B. R. 496, 20 Am. Rep. 111. And see Furniture Co. v. Massey, 135 Tenn. 338, In re Lilienthal, 256 Fed. 819, 168 C. C. 186 S. W. 451. A. 165, 43 Am. Bankr. Rep. 665. 222 in re American Paper Co. (D. C.l 22iEaston Furniture Mfg. Co. v. 255 Fed. 121, 42 Am. Bankr. Rep. 716; Caminez, "146 Apjr. I^iv. 456, 131 N. Y. Silverman v. Rubenstein (Sup.) 162 N. Y. Supp. 157; Guild v. Butler, 122 Mass. Supp. 733; Bromberg v. Self, 16 Ala. 498, 23 Am. Rep. 378 ; In re Burchell, 4 App. 627, 80 South. 631. 1327 DISCHARGE OF BANKRUPT CHAPTER XXXIII / DISCHARGE OF BANKRUPT See. 662. Right to Discharge in General. 663. Same; Responsibility tor Acts of Partner, Agent, or Eraployfi. 664. Same; Effect of Prior Application or Decision. 665. Parties Entitled to Oppose Discharge. 666. Grounds for Refusal of Discharge. 667. Same ; Want of Jurisdiction. 668. Same ; Transactions Prior to Enactment of Bankruptcy Law. 669. Same ; Purchasing Consent of Creditor. 670. Same ; Fraudulent or Preferential Transfers. 671. Same; Creation of Fiduciary, Fraudulent, or Tortious Debts, 672. Same; Concealment of Property. 673. Same; Omissions in Schedule and List of Creditors. 674. Same; Knowledge and Fraudulent Purpose. 675. Same; Omission by Mistake or by Advice of Counsel. 676. Same ; Omission of Property Without Value. 677. Same; Omission of Doubtful Claims or Assets. 678. Same ; False Oath or Testimony ; Refusal to Testify. 679. Same; Obtaining Credit by False Statements. 680. Same ; Failure to Keep Books of Account. 681. Same ; Destruction, Mutilation, or Concealment of Books. 682. Same; Intent to Conceal B^inanclal Condition. 683. Same; Contemplation of Bankruptcy. 684. Same ; What Are Proper Books of Account. 685. Time of Application for Discharge. 686. Petition for Discharge. 687. Notice of Application for Discharge. 688. Proceedings in Opposition to Discharge. ^ 689. Withdrawal of Opposition. 690. Want or Failure of Opposition. 691. Time to File Specifications in Opposition. 692. Form and Sufficiency of Specifications. 693. Same ; Allegations of Knowledge, Falsity, and Fraudulent Intent 694. Same ; Allegations as to Failure to Keep Books or Destruction or Concealment of Books. 695. Signature and Verification of Specifications. 696. Amendment of Specifications. 697. Exceptions to Sufficiency of Specifications. 698. Dismissal for Want of Prosecution. 699. Evidence on Application for Discharge, 700. Same ; Admissibility of Evidence. 701. Same ; Burden of Proof. 702. Same ; Weight and Sutficiency of Evidence. 703. Hearing and Determination of Application. 704. Same; Powers and Duties of Judge and Referee, 705. Staying or Suspending Discharge. 706. Order of Discharge. 707. Revoking Discharge. 708. Same ; Time for Application ; Laches. 709. Same ; Grounds for Revoking. 710. Conclusiveness and Effect of Discharge. § 662 LAW OF BANKRUPTCY 1328 Sec. 711. Effect of Discharge as to Property Fraudulently Transferred or Not Scheduled. 712. Collateral Impeachment of Discharge. 713. Pleading Discharge ; Necessity of Pleading, 714. Same ; Who May Plead Discharge. 715. Same; Form and EfCect of Plea. 716. Evidence as to Discharge. 717. Effect of Refusal of Discharge or Failure to Apply. § 662. Right to Discharge in General. — The granting of a discharge to a bankrupt is not optional or discretionary with the court. The pro- vision of the statute is that "the judge shall hear the application for a discharge" and "discharge the applicant" unless statutory cause for refusing the discharge is shown. ^ The right to a general discharge from one's debts by means of a proceeding in bankruptcy is of course purely statutory, in the sense that it can be granted or withheld, or coupled with conditions or limitations, as 'the legislative department may deem .best.* But when it has been granted as an integral part of the system of bank- ruptcy, then, the conditions having been fulfilled, it becomes a legal right of the particular bankrupt, and can be denied only when some ob- jection is filed and affirmatively sustained based upon a reason specific- ally enumerated in the statute.* The purpose of the act being to release honest debtors from the burden of their debts, and its provisions being- very liberal as concerns the discharge of the bankrupt, it should be giv- en a liberal construction in his favor on this point.* At the same time, a discharge in bankruptcy, while claimable as a right in a proper case, is a high privilege, and, to earn it, the bankrupt must comply strictly with the provisions«of the statute, and it must be shown that all the steps re- quired to be taken have been taken,"" and also, it is said, the bankrupt must have taken all proper steps to expedite the proceedings.* But ob- jections must be founded on one or more of the statutory grounds, and it is only upon one or other of these grounds that the discharge can be ' refused.' The bankrupt, for instance, cannot be punished by withhold- ing his discharge for improvident or reckless financial transactions which occurred long before the filing of the petition." 1 Bankruptcy Act 1898, § 14b ; In re .39 Am. Bankr. Rep. .S.S.o ; In re Braus Walsh, 2.56 Fed. 653, 168 C.C. A. 47, 43 248 Fed. 55, 160 C. C. A. 195, 40 Am. Am. Bankr. Rep. 266; In re Whitney (D. Bsiukr. Rep. CiiS. C.) 250 Fed. 1005, 41 Am. Bankr, Rep. = Popejoy v. Diedrich, 68 Colo. ;;.S;!, 1,S!> 548; In re Lockwood (D. C.) 240 Fed. Pac. .S41; In re Levenstein (D. C.) 180 158, 39 Am. Bankr. Rep. 478. Fed. 057, 24 Am. Bankr. Rep. H22. 2 In re Armstrong (D, C.) 248 Fed. 202, " ^" ■'■ Woll'owitz, 102 Fed. 105, 112 C. 40 Am. Bankr. Rep. 770. ^- ^- ^45, 27 Am. Bankr. Rep. 5.58. 3 In re Kaufman, 2;!0 Fed. 305, 152 C. ' I^ VT''^. '^r'^ j'T- ''"''■ "''• C. A. 293, .38 Am. Bankr. Rep. 648. ^^ ^n ^^^ ;^^'"- tn'n^1'l"T ''■ ''■ R. WiUiston & -Co. (C. C. A.) 266 Fed * In re Rosenfeld (C. C. A.) 262 Fed. 970, 45 Am. Bankr. Rep. 619. S7(j, 44 Am. Biinkr. Rep. 390 ; In re « In re Boner (D. C.) 169 Fed 727 •'' .IacIn re Conroy, 134 Fed. 764, 14 Bankr. Rep. 56. But compare In re Am. Bankr. Rep. 249. Armstrong (D. C.) 248 Fed. 292, 40 Am. *i In re Barrager, 191 Fed. 247, 27 Bankr. Rep. 770, holding that a creditor Am. Bankr. Rep. 366; Haley v. Pope, having a provable claim may oppose the 206 Fed. 266, 124 C. C. A. 330, 30 Am. discharge on the ground that the bank- Bankr. Rep. 644. rupt obtained credit on false statements, 42 In re Whetmore, Deady, 585, Fed. although such creditor's claim would Cas. No. 17,508. not be barred by the discharge. A cred- *8 In re Tebbetts, 5 Law Rep. 259, Fed. itor cannot oppose the discharge and at Cas. No. 13,817. the same time sue on his' claim in the ** Ex parte Traphagen, Fed. Cas. No. state courts, on the ground that it is 14,140. See In re Menzin, 238 Fed. 773, not provable in bankruptcy and not dis- 151 C. 0. A. 623, 38 Am. Bankr. Rep. chargeable. In re Menzin (D. C.) 283 435. : Fed. 333, 37 Am. Bankr. Rep. 468. *6ln re Ely, Fed. Cas. No. 4,428. is In re A. B. Carton & Co., 148 Fed. ioin re Westbrook, 186 Fed. 414, 26 63, 17 Am. Bankr. Rep. 343. Am. Bankr. Rep. 181. *9 In re Tallmadge, Fed. Cas No. 47 In re Meikleham (D. C.) 236 Fed. 13,738. 1335 DISCHARGE OF BANKRUPT § 665 being made of the claim as between the partners, no one of them can maintain opposition to the bankrupt's discharge without showing af- firmatively that all consent."*" It is also important to notice that where the ground of opposition is fraud on the part of the bankrupt (as, in the case of concealing or transferring property, or obtaining credit on a false statement), the right to make the objection is not confined to the person defrauded, but it may be made by any other creditor or party in interest.®^ And further, ttie right of creditors to oppose a bankrupt's discharge on the ground of an alleged fraudulent transaction does not depend on their having taken any legal proceedings, through the trustee or otherwise, to recover the property affected.®* Creditors may, however, be estopped from opposing the bankrupt's application for discharge. Thus, a creditor will be estopped from set- ting up in opposition to such application matters which have already been litigated between them to final decree in a state court, the decision therein having been adverse to the contention of the creditor.®* And a similar estoppel is raised against a creditor who participated in a pre- vious general assignment by the bankrupt, to the extent of ratifying it and taking measures under it to secure his claim, or accepting a pref- erence which it gave him,®* though it has been held that the mere ac- ceptance of a dividend under such an assignment will not estop the creditor if he had no power to dissent from the assignment or to repu- diate or avoid it.®® A creditor may also be estopped from setting up in opposition, to the discharge a false financial statement made by the bankrupt, and on which he obtained credit from such creditor, where the creditor has expressly waived the fraud, by admitting in writing that any inaccuracies in the statement were inadvertent and without wrongful intent.®* As to opposition by the trustee in bankruptcy, this right is given to him by the 1910 amendment to the bankruptcy act, but oiily on con- dition that he "shall be authorized so to do at a meeting of creditors called for that purpose." Unless so authorized, he has no right to BO In re Hendrick, 143 Fed. 647, 16 In re Kretz (D. C.) 212 Fed. 784, 32 Am. Bankr. Rep. 218. See In re Hagy, Am. Bankr. Rep. 365. 220 Fed. 665, 136 O. 0. A. 307, 34 Am. 52 in re Hirsch, 96 Fed. 468, 2 Am. ' Bankr. Rep. 319. Bankr. Rep. 715. MIn re A. B. Carton & Co., 148 Fed. ,3 j^ ^^ Antisdel, 18 N. B. R. 289, 63, 17 Am. Bankr. Hep. 343 ; In re Harr, pg^, ^^g j^^ ^qq 143 Fed. 421, 16 Am. Bankr. Rep. 213. • ' ' ' ' „ ^^ t, „ .n x. , Bnt compare In re Burk, Deady, 425, 3 ^ "' ^° ''%^°^^\ ^^ \ ?■ ^- ^^' ^^'^• N. B. R. 296, Fed. Cas. No. 2,156. Cred- ^^- ^o. 7,452 ; In re Schuyler, 3 Ben. itors may object to the bankrupt's dis- 200, 2 N. B. R. 549, Fed. Cas. No. 12,494. charge because of false statements made °° In re Kraft, 3 Fed. 892. to obtain credit from another creditor, sa In re Russell, 176 Fed. 253, 100 C. although that creditor does not object. C. A. 77, 23 Am. Bankr. Rep. 850. § 666 LAW OF BANKRUPTCY 1336 intervene and file objections.''' But on the other hand, when he has obtained authority from the creditors, neither the referee nor the court has power to withhold from him the right to file objections, or to pre- scribe as conditions to its exercise that no expense shall be imposed on the estate or that it shall not delay settlement beyond a stated time.®* The requirement of the statute that authority to the trustee to file ob- jections must be given at a meeting of the creditors called for that pur- pose is satisfied if the authority is given at a meeting called by the referee ; it is not necessary that the judge should issue the call and hold the meeting, or that he should specially authorize such, call and meeting.®* The District Court, sitting in bankruptcy, should not on its own motion interpose objections to the bankrupt's application for discharge, since it sits to try, and not to create, the issue.*** § 666. Grounds for Refusal of Discharge. — The precedent conditions having been complied with, the grant or refusal of a discharge does not rest in the discretion of the judge, but the applicant is entitled to a discharge as a matter of right, unless he is found guilty of some one of the prescribed acts or omissions.** There must of course be jurisdiction of the application, and it is said that the court is without jurisdiction un- less there are dischargeable debts, and where the only claims listed by a bankrupt, or filed, are stated in his schedule to be disputed, and are in fact in litigation, the court has no power to grant him a discharge.*^ Aside from these cases, however, a discharge can be refused only on one or more of the specific grounds mentioned in the statute not on ac- count of any acts or conduct on the part of the bankrupt however repre- hensible, which do not clearly come within the words of the law.** And 57 In re Hockman, 205 Fed. 3.30, 30 ea In re Guliek, 190 Fed. 52, 26 Am. Am. Bankr. Hep. 921. See In re Levey, Baukr. Rep. 632. 133 Fed. 572; In re White, 248 Fed. <-: Woodruff v. Cheeves, 105 Fed. 601, 115, 160 C, C. A. 255, 41 Am. Bankr. 44 C. C. A. 631, 5 Am. Bankr. R«p. 296 ; Rep. 458. Where, after notice given of Strause v. Hooper,. 105 Fed. 590, 5 Am. the hearing on the trustee's petition to Bankr. Rep. 225; In re Clark, Biss. 73, have leave to oppose the bankrupt's dis- 3 N. B. R. 16, Fed. Cas. No. 2,800 ; In re charge, no creditor appears either to Elliott, 2 N. B. R. 110, Fed. Cas. No. contest or to authorize such action, the 4,.391. But in a case where the bank- referee has no authority to order the rupfs financial transaction shovced that trustee to oppose the discharge. In re his financial difficulties were the result White (D. C.) 238 Fed. 874, 38 Am. of suspicious and fraudulent dealings, Bankr. Rep. 481. and he had been guilty of gross misrep- 5 8 In re Churchill, 197 Fed. 114, 28 resentations as to his solvency, and his Am. Bankr. Rep. 603. assets in bankruptcy were purchased by 6i> In re Reiff, 205 Fed. 399, 29 Am. a pawnbroker, who at once installed the Bankr. Rep. 753. bankrupt as manager of the business, In re Walsh, 256 Fed. 653, 168 0. with the same apparent control thereof C. A. 47, 43 Am. Bankr. Rep. 266. as before, the court held, with severe 61 In re Marshall Paper Co.. 102 Fed. animadversions that the bankrupt was 872, 43 C. C A. 38, 4 Am. Bankr. Rep. not entitled to a discharge. In re Mil- 468. ler, 135 Fed. 591, 14 Am. Bankr. Rep. 1337 DISCHAROE. OF BANKRUPT § i6C6 these specified grounds for denying a discharge are not in the nature of offenses or forfeitures of the right to a discharge, but are rather in the nature of violations of conditions precedent.** It is therefore no suf- ficient ground for refusing to discharge the bankrupt that he misused and wasted his estate before the filing of the petition,*^ or that his pe- tition was filed merely for the purpose of defeating the claims of the judgment creditor who objects.** But it has been ruled that the court is not required to grant a discharge to a bankrupt, knowing at the time that facts exist which would render such discharge revocable for fraud had they first come to light after it was granted.*'' Under the act of 1867, the bankrupt was required to show that he had in all respects con- formed to the provisions of the act, and the judge was required to be satisfied of this before granting the discharge ; and it was held that the bankrupt was made responsible for the regularity of the proceedings, . and was bound to see that all the necessary steps were regularly taken, or he could not have his discharge.** But under the present statute, an application for discharge is considered to be an independent proceeding, in which the jurisdiction and the validity of the prior proceedings are not involved,*® so that a discharge cannot be denied on account of an irregularity in the former steps of the bankruptcy, such as an error in the name of the bankrupt in giving notices to creditors."* While the commission of an offense punishable by imprisonment under the terms of the bankruptcy law is made ground for withholding a discharge, this privilege cannot be denied to a bankrupt because he has violated a criminal statute of the state, not denouncing the particular offenses made punishable by the bankruptcy act,'^ or because of the alleged offense of larceny, or larceny as bailee, committed by the bankrupt against the objecting creditor more than a year before the petition is filed.''* But on it 329. But one of the statutory grounds es in re Bellamy, 1 Ben. 426, X N. B. for refusing a discharge had already E. 96, Fed. Cas. No. 1,267; In re Little- been established in this case. field,: 1 Low, ."ini, 3 N. B. E. 57, Fed. Cas. 64 In re Seeley, 19 N. B. E. 1, Fed. No. 8,398. Cas. No. 12,628. coin ya Walrath, 175 Fed. 243, 24 5 In re Rogers, 1 Low. 423, 3 N. B. R. Am. Bankr. Rep. 541. 564, Fed. Cas. No. 12 001. _ _ , to m re Elkind, 175 Fed. 64, 23 Am. 66 In re Taylor, 188 Fed. 479, 26 Am. g^„i^^. ^^^ ^gg Bankr. Rep. 143. But where a school- teacher prepared for a bankruptcy in "In ^e McLellan, 204 Fed. 482, 30 which no assets should be disclosed, in A™- Bankr. Rep. 825. The provision order to avoid payment for an expensive "^^^^^ "a^'*^ » discharge if the bankrupt fur coat, it was held that her omission l^as "committed an offense punishable by from the schedules of salary due at the imprisonment as herein provided" is time they were verified would preclude limited to acts made offenses by the her discharge. In re Garrity, 247 Fed. Bankruptcy Act. In re Oliner (C. C. A.) 310, 159 C. C. A. 404, 40 Am. Bankr. 262 Fed. 7.34, 44 Am. Bankr. Rep. 450, 45 Rep. 664. •'^m. Bankr. Rep. 185. 6' In re Luftig, 162 Fed. 322, 15 Am. _ 72 in re Wolf, 159 Fed. 299, 20 Am, Bankr. Rep. 773. Bankr. Rep. 304. § 667 LAW OF BANKETJPTCT 133S the other hand, to deprive a bankrupt of his right to a discharge, it is not necessary that he shall have been convicted of one of the offenses enumerated in the act, but it is enough if it be shown by clear and con- vincing evidence that he has been guilty of such offense.'* The sections making the offense of knowingly and fraudulently making a false oath by the bankrupt in the bankruptcy proceedings, in respect tohis prop- erty, a ground for denying him a discharge, do not extend to previous conduct or tranisactions which are merely fraudulent as to creditors and not made criminal.'* Finally, the insanity of a bankrupt, though it has prevented his examination by the creditors and still continues, is not a bar to his discharge, as it is not one of the grounds specified for refusing a discharge, and especially in view of the fact that the statute provides that the insanity of a bankrupt shall not abate the proceedings, but the same shall be conducted and concluded in the same manner, so far as possible, as if insanity had not supervened.'^ § 667. Same; Want of Jurisdiction. — In several decisions under former bankruptcy laws, it was held competent for creditors to oppose a bankrupt's application for discharge on the ground that the court had no jurisdiction of the case originally, that is, no jurisdiction to enter- tain the petition and make the adjudication, either because the bank- rupt was not locally within the jurisdiction of the court, or for want of proper jurisdictional averments in the petition, and if this was shown, it was ground for refusing the discharge.'® But the better modern opinion is that, where an adjudication in bankruptcy has been duly made, upon a petition sufficient upon its face, and without any challenge to the jurisdiction of the court, it is final and conclusive, not only in col- lateral proceedings, but also in the further proceedings in the same case, and if it has not been appealed, from, reversed, or set aside, credi- tors cannot oppose the bankrupt's application for discharge on the ground of an original want of jurisdiction over him." Clearly this can- not be done by a creditor who has recognized the validity of the adjudi- cation by filing and proving his claim, participating in the election of a trustee, and sharing in the distribution of the estate.'* 7 3 In re Shear, 201 Fed. 460, 29 Am. re Penn, 4 Ben. 99, 3 N. B. R. 582, Fed. Bankr. Rep. 688; In re George, 1 Low. Oas. No. 10,926; Stiles v. Lay, 9 Ala. 795. 409, Fed. Gas. No. 5,325. 77 in re Clisdel, 101 Fed. 246, 4 Am. 74 Fellows V. Fi-eudenthal, 102 Fed. Bankr. Rep. 95; In re Goodale, 109 Fed. 731, 4 Am. Bankr. Rep. 490. And see 783, 6 Am. Bankr. Rep. 493; In re Wal- In re Wame, 10 Fed. 377. rath, 175 Fed. 243, 24 Am.' Bankr. Rep. 7 In re Miller, 133 Fed. 1017, 13 Am. 541; In re Ives, 5 Dill. 146, 19 N. B. R. Bankr. Rep. 345. 07, Fed. Gas. No. 7,115. And see In re 7 In re Groome, 1 Fed. 464; In re Tinker, 99 Fed. 79, 3 Am. Bankr Rep Leighton, 4 Ben. 457, 5 N. B. R. 95, Fed. 580. Gas. No. 8,221; In re Beals, 9 Ben. 223, 78 in re Mason, 99 Fed. 256, 3 Am 17 N. B. R. 107, Fed. Gas. No. 1,165; In Bankr. Rep. 509. 1339 DISCHARGE OF BANKRUPT § 669 § 668. Same ; Transactions Prior to Enactment of Bankruptcy Law. — The authorities generally agree that a discharge in bankruptcy can- not be refused on account of acts or omissions occurring, or transac- tions completed, before the enactment of the bankruptcy law, although the same things would have constituted good grounds of opposition to the discharge if done after the statute came into force, for the contrary construction would give the act an ex post facto operation, or at least make it objectionably retrospective." Thus, for example, the failure of the bankrupt to keep proper books of account or records from which his financial condition could be known, or his wrongful acts in conceal- ing, destroying, or mutilating such books or records, will not warrant the court in refusing to grant him a discharge, unless such omission or oiiense occurred since the date of the enactment of the bankruptcy law.** And whereas the statute (in its original form) required that such omis- sion to keep books or destruction or concealment of books must have been "in contemplation of bankruptcy," the courts held that a debtor cannot be said to be "in contemplation of bankruptcy" at a time when no bankruptcy law is in existence, even though a bill for a bankruptcy statute is then pending before Congress, and the debtor expects to take the benefit of it if it should become a law.*^ But as to the ofifense of concealing property from his trustee "while a bankrupt," it is held that the act of concealment may be continuous, and that if a conceal- ment of goods or money is begun before the enactment of the bank- ruptcy law, with intent to defraud creditors, and is continued after the adjudication of bankruptcy, by failure to list it in the schedule or to disclose it to the trustee, it is a concealment from the trustee "while a bankrupt," within the meaning of the statute, and ground for refusing a discharge.*^ § 669. Same; Purchasing Consent of Creditor. — The bankruptcy act of 1867 provided that a discharge should not be granted- "if the bank- rupt, or any person in his behalf, has procured the assent of any cred- os In re Goodale, 109 Fed. 783, 6 Am. Am. Bankr. Rep. 600; In re Hirsch, 96 Bankr. Kep. 493; In re Webb, 98 Fed. Fed. 468, 2 Am. Bankr. Hep. 715; In re 404, 3 Am: Bankr. Kep. 386; Paxton v, Shorer, 96 Fed. 90, 2 Am. Bankr. Rep. Scott, 66 Neb. 385, 92 N. W. 611; Schreck 165; In re Stark, 96 Fed. 88, 2 Am. V. Hanlon, 74 Neb. 264, 104 N. W. 193; Bankr. Rep. 785; In re Lieber, 2 Nat. In re Webb, 2 Nat. Bankr. News, 11; In Bankr. News, 21; In re Friedberg, 19 re Moore, 1 Hask. 134, Fed. Cas. No. N. B. R. 302, Fed. Oas. No. 5,116. 9,751; In re Keefer, 4 N. B. R. 389, Fed. si in re Hirsch, 96 Fed. 468, 2 Am. Cas. No. 7,636. Bankr. Rep. 715; In re Shertzer, 99 Fed. 80 In re Marx, 102 Fed. 676, 4 Am. 706, 3 Am. Bankr. Rep. 699. Bankr. Rep. 521; In re Phillips, 98 Fed. s 2 in re Jacobs & Verstandig, 147 Fed. 844, 3 Am. Bankr. Rep. 542; In re Dews, 797, 17 Am. Bankr. Rep. 470; In re 96 Bed. 181, 2 Am. Bankr. Rep. 483; In Quackenbush, 102 Fed. 282, 4 Am. Bankr., re Carmlchael, 96 Fed. 594, 2 Am. Bankr. Rep. 274. Rep. 815; In re Holman, 92 Fed. 512; 1 § 669 LAW OF BANKRUPTCT ' 1340 itor to the discharge, or influenced the action of any creditor at any stage of the proceedings, by any pecuniary consideration or obliga- tion." *' And it was held that although a creditor thus corruptly influ- enced was estopped from afterwards setting up the fraud as a ground of opposition to the discharge, yet other creditors, upon learning of the fraud, might object on that ground.** The fact of bribery being estab- lished, it was no defense to say that the assent of that creditor was al- together unnecessary.*® A promise by a debtor to pay his creditor "all he ever owed him when he got able," upon condition that he would as- sent to his discharge in bankruptcy, was held to constitute a pecuniary consideration or obligation sufficient to defeat the right of the bankrupt to be discharged.** But the rule did not apply to a payment by the bank- rupt of the fees of an attorney and of a notary and the register in making proofs of claims against his estate, though his sole motive in doing so was to obtain the consent of creditors to his discharge.*' The present bankruptcy law makes no explicit provision for this case. But it declares that it shall be an offense punishable by imprison- ment if any person shall have "received any material amount of property from a bankrupt after the filing of the petition, with intent to defeat this act," ** and also that the word "person," "when used with reference to the commission of acts which are herein forbidden, shall include per- sons who are participants in the forbidden acts." *** And it is held that, if the bankrupt pays money to a creditor to induce him to forbear oppo- sition to the discharge, or procures the buying up of the creditor's claim for the like purpose, and the creditor knows whence the money comes and its purpose, not only is the creditor guilty of the offense denounced by the statute, but the bankrupt also is guilty as a participant therein, and this is ground for refusing to grant the discharge.*" § 670. Same; Fraudulent or Preferential Transfers. — It is ground for refusing to discharge a bankrupt if he shall have, "at any time sub- sequent to the first day of the four months immediately preceding the filing of the petition, transferred, removed, destroyed, or concealed, or permitted to be removed, destroyed, or concealed, any of his property with intent to hinder, delay, or defraud his creditors." "^ As this is in 8 3 Rev. Stat. U. S. § 5110, par. 8. oi Bankruptcy Act 1898, § 14b, as 84 In re Bright, 9 Fed. 49], amemled by Act Cong. Feb. 5, lOiKi, ."!_' 85 In re Dongla.ss, 31 Fed. 40.3. Stat. 707. Though property fraudulently sn In re Ekings, Fed. 170. transferred Ity the bankrupt within flic 8' In re Svenson, i) iiiss. 09, 19 N. B. four months' period is subsequently re- R. 220, Fed. Cas. No. 1.3,659. covered by the trustee, or even surren- sf- Banknipfcy Act IhOS, § 29b, cl. 4. dered to him on demand, this does n it en Bankruptcy Act 189S, § 1, cl. 19. prevent the transfer being urged in op- 00 In re f/u£tlg, 162 Fed. 322, 15 Am. position to the bankrupt's application for Bankr. Rep. 773. And sec In re Sanborn, discharge. In re Singer, 251 Fed. .'ii, 16! 131 Fed. .397, 12 Am. Bankr. Rep. 428. C. C. A. 301, 41 Am. Bankr. Rep. 503.' On 1341 DISCHAHGE OF BANKRUPT § 670 the nature of a penal enactment, it is to be construed with sorhe strict- ness. The fact that the bankrupt may have made a fraudulent convey- ance of property will not affect his right to a discharge unless it comes strictly, within the statute.*^ Thus, the fact of such fraudulent convey- ance is immaterial with respect to the bankrupt's discharge unless it was made within the four months before the filing of the petition in bank- ruptcy,** except, perhaps, in the case of an instrument which must be recorded to be effective, and which was recorded within the four months, though executed some time before.** Further, there must have been a fraudulent intent on the part of the bankrupt.*^ But an intention to dis- pose of his property in such a way as to keep it beyond the reach of his creditors is an intention to hinder, delay, and defraud them, and will bar the discharge.*^ But since, under the bankruptcy la\v, there are sub- stantial differences between a conveyance fraudulent as to creditors and the giving of a preference, voidable though the preference may be, and since this part of the statute speaks only of the former class of transac- tions, it cannot be extended so widely as to include t-he latter, and hence a preferential payment or transfer of property, though it may be voida- ble in the bankruptcy proceedings, will not constitute ground for refusing the other hand, it is not of importance In this connection that the trustee has not been able, or has not tried, to avoid the transfer. Devorkin v. Security Bank & Trust Co., 243 Fed. 171, 156 C. C. A. 37, 39 Am. Bankr. Rep. 738. 9 2 Ashley v. Robinson, 29 Ala. 112, 65 Am. Dec. 387. 03 Gill V. White, 249 Fed. 50, 161 C. C. A. 110, 41 Am. Bankr. Kep. 606; In re Fackler (D. C.) 246 Fed. 864, 39 Am. Bankr. Rep. 74i' ; In re Schickerling, 204 Fed. 592, 123 C. C. A. 60, 30 Am. Bankr. Rep. 312; In re Jacobs (D. C.) 144 Fed. 868; In re Brumbaugh (D. C.) 128 Fed. 973. 12 Am, Bankr. Rep. 204; In re Wakefield (D. C.) 207 Fed. 180, 31 Am. Bankr. Rep. 42; In re Hennebry (D. C.) 207 Fed. 882, 31 Am. Bankr. Rep. 231. 4 In re McKane (D. C.) 155 Fed. 674, 19 Am. Bankr. Rep. 103. ■■<^- Pirvitz V. Pithan, 194 Fed. 403, 114 C. C. A. .365, 27 Am. Bankr. Rep. 621. Fraudulent intent must have been actual on the part of the bankrupt, and in the absence of evidence of such intent, it is not enough that the transfer may have operated, as a matter of law, to hinder or defraud creditors. In re Braus, 248 Fed. 55, 160 C. C. A. 195, 40 Am. Bankr. Rep. 668. Thus, while a general as- .•^ignment for the benefit of creditors is an act of bankruptcy, and is a "transfer intended to hinder, delay, or defraud creditors," within the meaning of that section of the Bankruptcy Act which avoids such transfers, yet if it was not made with any Improper intent, it is no ground for refusing a discharge. Feder v. Goetz (C. C. A.) 264 Fed. 619, 45 Am. Bankr. Rep. 57. But an actual fraudu- lent Intent may be inferred from the transfer of valuable property to relatives of the bankrupt for a nominal considera- tion at a time when the bankrupt was obviously insolvent. In re Singer, 251 Fed. 51, 163 C. C. A. 301, 41 Am. Bankr. Rep. 503. 90 In re Nelson (D. C.) 179 Fed. 320, 23 Am. Bankr, Rep, 37. A transfer of property by the bankrupt which is sim- ply a de\ ice to defeat a landlord's claim for rent is in fraud of creditors and precludes discharge. In re Braus (D. C.) 237 Fed. 139, 38 Am, Bankr, Rep. 109. A discharge may also be refused where the bankrupt, within the four months, sold his entire stopk of merchandise, and to avoid complying with the "bulk sales law" of the state, which would have re- quired the filing of a list of his creditors, swore that he had no creditors. In re De Nomme (D. C.) 214 Fed. 671. § 670 • LAW OF BANKRUPTCY 1342 the bankrupt's discharge.*' It is the intent of the debtor that must be looked to, and the fact that the transaction may or may not result in a preference is not controlling. Thus, a transfer of property to one cred- itor may be ground for refusing a discharge to the bankrupt, where it was made with the avowed purpose of hindering and delaying another creditor and preventing the latter from sharing in it.** So, a sale by the bankrupt of all his property, within four months prior to bankrupt- cy, with a direction that the proceeds shall go to such of his creditors as will agree to a compromise, is in fraud of creditors and bars his right to a discharge.** But a sale and transfer by an insolvent partnership of all of its prop'erty for its full value, the proceeds being used to discharge its indebtedness so far as possible without preference, is not a transfer to hinder or defraud creditors.^"* To satisfy the statute, it must appear that the property in question actually belonged to the bankrupt at the time of its transfer, removal, concealment, etc. Thus, where a broker pledges stock which is in his hands, but which belongs to a customer, as security for a loan to him- self, it is not a transfer of "his" property with intent to defraud cred- itors.^*"^ Again, there must have been an actual transfer or removal."* An agreement between a bankrupt and his wife, by which he undertook to transfer certain property to her as a preference, but which was void under the law of the state for want of power in the parties to contract with each other, and which was not accompanied by any actual transfer or removal of the property, which in fact passed into the hands of the trustee in bankruptcy, does not defeat the bankrupt's right to a dis- charge."* And payments made to a creditor from time to time, to en- able the bankrupt to continue in business, and to induce the creditor to continue supplying material for the business, and which do not reduce "In re Alpert (D. C.) 237 Fed. 295, loiln re Jacob Berry & Co. (D. C.) 38 Am. Bankr. Rep. 459; In re Kean (D. 146 Fed. 623, 15 Am. Bankr. Rep." 360. C.) 237 Fed. 682, 38 Am. Bankr. Rep. 102 To justify the denial of a dis- 628 ; In re Frledrieh (D. 0.) 199 Fed. charge to a bankrupt on the ground that 193, 28 Am. Bankr. Rep. 656; In re he transferred property with intent to Bouek (D. 0.) 199 Fed. 453, 28 Am. delay or defraud creditors, the transfer Bankr. Rep. 378; In re Battle (O. O.) must have been effective. W. A. Liller 154 Fed. 741, 19 Am. Bankr. Rep. 40; Building Co. v. Reynolds, 247 Fed. 90, In re Maher (D. O.) 144 Fed. 503, 16 159 C. C. A. 308, 40 Am. Bankr. Rep. 371.' Am. Bankr. Rep. 340 ; In re Steed (D. C.) The deposit by bankrupts of money in 107 Fed. 682, 6 Am. Bankr. Rep. 73. See bank in their own names cannot be con- In re Stemburg (D. C.) 249 Fed. 980, 41 sidered such a transfer or concealment Am. Bankr. Rep. 476. of property as to bar their right to dis- 8 Grafton v. Meikleham, 246 Fed. 737, charge. In re C)iiner (C. C. A.) 262 Fed. 159 C. C. A. 39, 40 Am. Bankr. Rep. 433. 734, 44 Am. Bankr. Rep. 450, 45 Am! »» In re Julius Bros. (D. C.) 209 Fed. Bankr. Rep. 185. 371, 31 Am. Bankr. Rep. 132. 103 In re Brpwn (D. C.) 140 Fed. 383 100 In re Julius Bros., 217 Fed. 3, 133 15 Am. Bankr. Rep. 350. See In re Hed- 0. C. A. 328, L. R. A. 191.^0, 89. ley, 156 Fed. 314, 19 Am. Bankr Ben 409. ■ ■ 1343 DISCHARGE OF BANKRUPT § 671 the assets available to creditors, are not fraudulent in this sense"* And gifts by a bankrupt to his wife and children, previous to the bankruptcy, although they may be voidable by the creditors, do not necessarily war- rant the refusal of a discharge."^ But this is a well-known device of fraudulent bankrupts, which the courts are astute to frustrate. And it may be said generally that where an insolvent debtor, just before his . bankruptcy, so manipulates his property as to get it into the possession and apparent ownership of his wife or his children, it is such a fraudulent "transfer" or "concealment" of assets as will prevent him from obtain- ing a discharge."* The question of the fraudulent character of a given transfer is not always or necessarily to be litigated for the first time on the bankrupt's application for discharge. It may have been tried and determined at an earlier stage of the proceedings, and if so, the decision then made is con- clusive.**' And if rights of third parties, adverse claimants, are involved, it is not proper to attempt their determination in such a collateral pro- ceeding as the statutory hearing on the bankrupt's application to be discharged."* On the other hand, the judgment of a state court, in a suit brought by the bankrupt's trustee, refusing to set aside a transfer of property made by the bankrupt as fraudulent, is conclusive on the creditors, and they cannot thereafter set up the same transfer as a ground of opposition to the discharge of the bankrupt."® § 671. Same; Creation of Fiduciary, Fraudulent, or Tortious Debts. — It is no ground for refusing a bankrupt's application for discharge that the creditor objecting thereto holds a judgment against him for willful and malicious injury to property, or a claim founded upon the fraud of the bankrupt, or for obtaining property by false pretenses, or for the embezzlement or defalcation of the bankrupt while acting as an officer or in any fiduciary capacity. Such debts, it is true, will not be released by the discharge when granted, but they do not defeat the bankrupt's right to be discharged, as they are not among the 'enumerated grounds for refusing a discharge.**" If no claims whatever were filed and proved 104 In re Maher (D. C.) 144 Fed. 503, Bankr. Rep. 296 ; In re McGum, 102 Fed. 16 Am. Bankr. Rep. 340. 743, 4 Am. Bankr. Rep. 459. 1 OS In re Warue (C. C.) 12 Fed. 481. no In re Carmichael, 96 Fed. 594, 2 108 In re Schenck, 116 Fed. 554, 8 Am. Am. Bankr. Rep. 815; In re Peacock, 101 Bankr. Rep. 727 ; In re Skinner, 97 Fed. Fed. 560, 4 Am. Bankr. Rep. 136 ; In re 190, 8 Am. Bankr. Rep. 163 ; In re Kams- Gara, 190 Fed. 112, 26 Am. Bankr. Rep. ler, 97 Fed. 194 ; In re Eldred, 3 N. B. R. 578 ; In re Rhntassel, 96 Fed. 597, 2 Am. 256, Fed. Cas. No. 4,328. Bankr. Rep. 697; In re Mussey, 99 Fed. 107 In re Miller, 135 Fed. 591, 14 Am. 71, 3 Am. Bankr. Rep. 592; In re Black, Bankr. Rep. 329. 97 Fed. 493; In re Thomas, 92 Fed. 912, 108 Fellows V. Freudenthal, 102 Fed. 1 Am. Bankr. Rep. 515; In re Lieber, 2 731j 42 C. C. A, 607, 4 Am. Bankr. Rep. Nat. Bankr. News, 21 ; In re Rosenfield, 490. ' , 1 N. B. R. 575, Fed. Cas. No. 12,058; In 109 In re Tiffany, 147 Fed. 314, 17 Am. re Rathbone, 2 Ben. 138, Fed. Cas. No. § 672 I-AW OF BANKRUPTCY 1344 against, the estate of the bankrupt except such as were clearly exceptecl from the operation of a discharge, the granting of a discharge could not benefit the bankrupt, and would be an idle formality, and it might be refused for that reason. But if there are any other claims, though they may be inconsiderable in comparison with the non-dischargeable debts, the discharge cannot be withheld."^ And in a case where the only debt scheduled against the bankrupt was a judgment of a state court, and, as the law then stood, it was doubtful whether or not it would be affected by the discharge, the court held that it had jurisdiction of the bankrupt's application, and would grant him a discharge if he was other- wise entitled to it, leaving the question as to its effect on the judgment to be determined elsewhere and in a more appropriate proceeding.^^^ § 672. Same; Concealment of Property. — It is made a punishable offense (and therefore a ground for refusing to discharge the bankrupt) if he shall have "concealed, while a bankrupt or after his discharge, from his trustee, any of the property belonging to his estate in bank- ruptcy." ^^^ But there must also have been an actual fraudulent intent on the part of the bankrupt, that is, an intent to conceal the property from the trustee, or to mislead him in regard to it, for the purpose of saving it from the bankruptcy proceedings and enjoying it himself.^^* Though there may have been an actual concealment of property, it is not ground for refusing the discharge if it was not willful but the result of mere accident or mistake.*^" Again, a fraudulent intent alone does not make out the case contemplated by the statute. There must be an actual con- cealment or withholding of assets of the estate,*^*® and there is no con- cealment when the claim is openly made that the property in question does not belong to the bankrupt but to another.^*' But the forbidden act may include a concealment of the title to property as well as the hid- 11,580; In re Tallman, 2 Ben. 348, Fed. Bankr. Rep. 217; In re De Leeuw, 98 Gas. No. 13,739.; In re Elliot, 2 N. B. E. Fed. 408, 3 Am. Bankr. Rep. 418 ; In re 110, Fed. Cas. No. 4,391 : In re Tracy, 2 Pierce, 103 Fed. 04, 4 Am. Bankr. Rep. N. B. R. 298, Fed. Cas. >; o. 14,124. 554 ; In re Boynton, 10 Fed. 277 ; In ro 111 In re Brumbaugh, 128 Fed. 971, 12 Smith, 1 Woods, 478, 13 N. B. R. 256, Fed. Am. Bankr. Rep. 204. Cas. No. 12,095; In re Scott, 11 Fed. 13'!. 112 In re Tinker, 99 Fed. 79, 3 Am. iie Vehon \. Ullman, 147 Fed. 694. 7N Bankr. Rep. 580. C. C. A. 82, 17 Am. Bankr. Rep. 435. The lis Bankruptcy Act 1898, § 29b. And use by the bankrupt of money taken from see In re Leslie, 119 Fed. 406, 9 Am. tho business for his personal expenses, Bankr. Rep. 561. and for the discharge of his individual IK In re Afjnew (D. 0.) 225 Fed. 650, debts, is not a concealment of assets pre- :!5 Am. Bankr. Rep. 709. It is not neces- venting his discharge. In re Rivas (D. sary, in this case, to show an intention C.) 268 Fed. 690, 45 Am. Bankr. Rep. 434. to defraud creditors; it is sufficient if an ii7 in re .Marsh, 109 Fed. 602, 6 Am. intent to hinder and delay them existed. Bankr. Rep. 537. As to concealment of In re Perlmutter (D. C.) 256 Fed. 862, 43 borrowed money, see In re De JIauriac, Am. Bankr. Rep. 302. . 206 Fed. 358, 30 Am. Bankr. Rep. 677. 116 In re Conn, 108 Fed. 525, 6 Am. 1345 DISCHARGE OF BANKRUPT § 672 ing from view of the property itself.^** And although the trustee may- have actual knowledge, gained from previous business relations with the bankrupt, that the latter owns certain property which he has not listed in his schedule, it is none the less concealed from the trustee if he does not know where the property is or how to find it."® It is also held that the act of concealment may be continuous, and that a bankrupt who hid property from his creditors while insolvent, though more than four months before the filing of the petition, is not entitled to his discharge if he kept the same concealed until after his adjudication.^*" Again, it is necessary that the property concealed should have been property "be- longing to his estate in bankruptcy." And hence it is necessary for cred- itors objecting to the discharge to show that the property in question was of such a character that it would constitute assets of the estate in bank- ruptcy, that the bankrupt owned it at the time of the adjudication, and that it was then in his possession, or at least that it was then in such a sit- uation that he could have claimed it for himself.^"^ Property acquired after the adjudication belongs to the bankrupt and not to the estate, and therefore he is not bound to disclose it.^** And the concealment of a claim against his wife on account of a gift made to her several years before his bankruptcy, and which was valid as to him and all his creditors except one, who might have maintained a suit to set it aside, is not enough to for- feit the right to a discharge.**-'' But on the other hand, where the bank- rupt has property in his possession and has the use of it as his own, and willfully omits it from his schedule and keeps it from his trustee, it is no answer to a charge of concealment thereof that the property be- longed of right to his assignee, under a previous assignment under the state insolvency law.*** And if the bankrupt was a member of a firm (not in bankruptcy) and has the actual possession of joint estate and the books of the firm, he must disclose them to his individual trustee in bankruptcy.**® So if he has mingled his own money with funds of an estate of which he is administrator, he must give the bankruptcy court a correct and intelligible account of his affairs, so that it can be deter- 118 In re Hussman, 2 N. B. R. 437, re Locks, 104 Fed. 783, 5 Am. Bankr. Fed. Cas. No. 6,951. Rep. 136 ; In re HIrsch, 96 Fed. 468, 2 119 In re Beal, 1 Low. 323, 2 N. B. R. -^-m- Bankr. Rep. 715. See In re Fleish- 587, Fed. Cas. No. 1,156. ™au, 120 Fed. 960, 9 Am. Bankr. Rep. ,n„T T ,^ r^ K ^o-, n, ;, A^o ^57. See In re De Mauriac (D. 0.) 206 1.0 In re James (C. C. A.; 181 Fed 476, j,,^ ggg 3^ ^^ ^^^^^ ^^^^^^ 24 Am. Bankr Rep^288. See In re ,,, j^ ^^ p^^j^ ^^2 Fed. 553, 10 Am. Frosteg (D. C.) 252 Fed. 199, 42 Am. ^^^^^ ^ g^g Bankr. Rep. 275. ,,, j^ ^.^ g^„^^^ ^03 ^^^ g^g_ ^ ^^ 121 Vehon v. Ullman, 147 Fed. 694, 78 Bankr. Rep. 603. ' C. C. A. 82, 17 Am. Bankr. Rep. 435; In 124 in re Beal, 1 Low. 323, 2 N. B. R. re Isaac Prager & Son, 134 Fed. 1006, 13 587, Fed. Cas. No. 1,156. Am. Bankr. Rep. 527; In re Fritchard, 125 In re Beal, 1 Low. 323, 2 N. B. R. 103 Fed. 742, 4 Am. Bankr. Rep. 609 ; In. 587, Fed. Cas. No. 1,156. BLK.BKE.r.iJ Ed.)— 85 § 672 LAW OF BANKRUPTCY 1346 mined what property belongs to the estate in bankruptcy ; and until he does this his discharge will be withheld.i«« But if the title to the prop- erty in question depends upon the validity of a certain chattel mortgage and its foreclosure, this question will not be determined summarily on the application for discharge, but the discharge will not be granted until it. shall have been determined in a proper proceeding. i*'' Further, it is necessary that the property should have been concealed from the trustee: And where the bankrupt, after having made up his schedules, delivered his canceled checks to the trustee's son, which placed them at the com- mand of creditors, it was held that he had not concealed them from his trustee.'^* But it is not necessary to constitute the statutory ground for withholding the discharge that the concealment of property should have been successful. It is none the less a concealment though the property is finally discovered by the trustee and recovered for the benefit of the estate.^''* Nor is the bankrupt's offense of concealment condoned by the fact that he lists the property on his schedule after it has been discovered by the trustee or the creditors.'^*" It is further to be understood that the word "concealment" is not to be construed so strictly as to confine it to objects which are physically capable of being hidden or secreted. The bankrupt's interest in a busi- ness, his rights under a will or a trust, his interest in an insurance policy, or other choses in action, may constitute assets of his estate. And in re- gard to such assets, he "conceals" them if he keeps silence in relation to them, omits them from his schedule, and gives false or equivocating evidence concerning them, as, by testifying that they have no existence or that they do not belong to him.^^^ But it is not technically a conceal- ment of an asset if the bankrupt lists or discloses it, although he at- tempts to divert attention from it by pretending that it has only a nom- inal value, or assigns it a value much below its actual worth in the market.^** To cover up assets by conducting business in the name of 126 In re Walther, 95 Fed. 941, 2 Am. mond, 1 Low. 381, 3 N. B. R. 273, Fed. Cas. Bankr. Rep. 702. No. 5,999. The concealment by the bank- 127 In re Olansky, 163 Fed. 428, 20 Am. rupt, during the four months before the Bankr. Rep. 780. filing of the petition, of the fact that a 128 In re Kyte, 174 Fed. 867, 28 Am. deed previously executed by him was a Bankr. Rep. 414. mortgage is a concealment of property. 120 In re Quackenbush, 102 Fed. 282, 4 In re White (D. C.) 222 Fed. 688, 34 Am. Am. Bankr. Rep. 274. Bankr. Rep. 803. The withholding of a 130 In re Sussman, 190 Fed. Ill, 26 small deposit in a bank from the trustee Am. Bankr. Rep. 18. in banki-uptcy is a concealment of prop- 131 In re Bacon, 205 Fed. 545, 30 Am. erty warranting refusal of discharge. Bankr. Rep. 584 ; In re Cohen, 201 Fed. In re Smith (D. 0.) 282 Fed. 248, 37 Am. 188, 29 Am. Bankr. Rep. 698 ; In re Bankr. Rep. 230. Towne, 122 Fed. 313, 10 Am. Bankr. Rep. 132 in re McBryde, 99 Fed. 686, 3 Am. 284; In re Otto, 115 Fed. 860, 8 Am. Bankr. R-ep. 729; In re Semmel, 118 Bankr. Rep. 305; In re Woods, 98 Fed. Fed. 487, 9 Am. Bankr. Rep. 351. 972, 8 Am. Bankr. Rep. 572 ; In re Ham- 1347 DISCHARGE OF BANKRUPT § 372 one's wife, and pretending to act only as her agent or manager, is a favorite device of fraudulent bankrupts, and this will be probed by the courts, and the bankrupt refused his discharge if it is found that he was the real owner of the business. ^^^ In regard to property conveyed away in fraud of creditors, the question is more difficult. But it may be stated as the general result of the authorities that, in order to establish a con- cealment of assets such as will defeat the bankrupt's right to a discharge, it must be shown that the property in fact belonged to him at the time of the bankruptcy. And if it had previously been transferred to another, the transfer being actual and not merely colorable and such as to place the property beyond the reach of the bankrupt, the bankrupt's omis- sion of it from his schedule or his denial that he owns it is not a con- cealment of assets, although the transfer would be voidable at the suit of creditors or of the trustee.^** But if the pretended transfer was color- able only and not real, and the property continues to be held for the benefit of the bankrupt and subject to his control, or under a secret trust for him, or he retains a secret interest in it or use of it, it continues to be his property in such sense that his failure to disclose it or surrender it to the trustee will constitute a. concealment of assets. '^^^ An amend- ment to the bankruptcy law, enacted in 1903, makes it a groiind for re- fusing a discharge that the bankrupt has made a transfer of prop- erty in fraud of his creditors, if within four months before the filing of the petition, so that, at present, a discharge might be refused on this ground, though the transaction did not constitute a "conceal- ment" of assets.^*® But the two grounds of objection to a discharge are entirely distinct, and allegations of the one would not be supported by proof of the other. Facts and circumstances showing a fraudulent concealment of assets by a bankrupt, which will defeat his right to a discharge, must be proved and will not be deduced, as a matter of doubtful inference, from 133 In re Miller, 212 Fed. 920, 129 C. Am. Bankr. Kep. 351; In re Wermuth, C. A. 440 ; In re Freund, 98 Fed. 81, 3 179 Fed. 1009, 24 Am. BanUr. Rep. 785. Am. Bankr. Kiep. 418; In re Welch, 100 J 35 in re Graves, 189 Fed. 847, 26 Am. Fed. 65, 3 Am. Bankr. Rep. 93; In re Bankr. Rep. 633; Hudson v. Mercantile Rathbone, 1 N. B. R. 536, Fed. Cas. No. Nat. Bank, 119 Fed. 346, 56 C. C. A. 250, 11,583; In re Hill, 2 Ben. 349, 1 N. B. R. 9 Am. Bankr. Rep. 432; In re Wilcox, 431, Fed. Cas. No. 6,483; In re Rath- 109 Fed. 628, 48 0. C. A. 567, 6 Am. bone, 3 Ben. 50, 2 N. B. R. 260, Fed. Cas. Bankr. Rep. 362 ; In re Welch, 100 Fed. No. 11,581. ' 65, 3 Am. Bankr. Rep. 93 ; In re Holstein, 131 In re Hammerstein, 189 Fed. 37, 114 Fed. 794, 8 Am. Bankr. Rep. 147; 110 C. C. A. 472 ; In re Kean (D. C.) 237 In re Bemer, 2 Nat. Bankr. News, 268 ; Fed. 682, 38 Am. Bankr. Rep. 628; In In re Wakefield, 207 Fed. 180, 81 Am. re Dauehy, 130 Fed. 532, 65 C. C. A. 78, Bankr. Rep. 42. 11 Am. Bankr. Rep. 511, affirming 122 lae In re Dauehy, 122 Fed. 688, 10 Am. Fed. 688, 10 Am. Bankr. Rep. 527 ; Fields Bankr. Rep. 527, affirmed 130 Fed. 532, V. Karter, 115 Fed. 950, 53 C. C. A. 432, 8 65 C. C. A. 78, 11 Am. Bankr. Rep. 511. ' § §73 LAW OF BANKRUPTCY 1348 Other facts and circumstances."' But it may be stated as a general rule that, where the established facts show a very large shrinkage or disappearance of assets within a short period, such assets being defi- nitely shown to have existed, and the discrepancy being too great to be accounted for by the ordinary vicissitudes of business, it is a fair pre- sumption that the bankrupt is concealing some or all of such assets, and this presumption he must overcome by giving a credible account of the loss or shrinkage, and if he fails to do so, it will be just cause for refusing to discharge him."* § 673. Same; Omissions in Schedvde and List of Creditors.— If a bankrupt knowingly, intentionally, and dishonestly omits from his schedule of assets property which should have been listed therein and turned over to his trustee, and swears to the schedule thus fraudulently incomplete, he is guilty both of concealing property from his trustee and of making a false oath in a proceeding in bankruptcy, and on both grounds forfeits his right to a discharge.*^* This is the case, for exam- ple, where he makes a willfully false statement in his schedule that all his property has gone into the possession of a receiver appointed by a state court, when in fact he has property which he did not turn over to the receiver nor list in his schedule."* And the fact that the bank- rupt amends his schedule and lists the omitted property, after the dis- covery of the fact that he has concealed assets and made a false oath, will not relieve him from the consequences of his original fault nor en- title him to a discharge."^ But the rule applies only to the omission 137 In re Conn, 108 Fed. 525, 6 Am. is» Osborne v. Perkins, 112 Fed. 127, Bankr. Eep. 217. 50 C. C. A. 158, 7 Am. Bankr. Rep. 250 ; 138 In re Coppleman, 207 Fed. 815, 30 In re McCann, 179 Fed. 575, 24 Am. Am. Bankr. Rep. 414; In re Loeb, 232 Bankr. Rep. 789; In re Guilbert, 169 Fed. Fed. 601, 146 C. C. A. 559, 36 Am. Bankr. 149, 22 Am. Bankr. Rep. 221 ; In re Rep. 768; In re Schwartz, 201 Fed. 166, Breiner, 129 Fed. 155, 11 Am. Bankr. 28 Am. Bankr. Rep. 670; In re Simon & Rep. 684; In re Bullwinkle, 111 Fed. 364, Sternberg, 151 Fed. 507, 18 Am. Bankr. 6 Am. Bankr. Rep. 756 ; In re Semmel, Rep. 204 : In re Jacobs & Verstandig, 147 118 Fed. 487, 9 Am. Bankr. Rep. 351 ; In Fed. 797, 17 Am. Bankr. Rep. 470; In re re Ix)wenstein, 106 Fed. 51; In re Lewln, Boyden, 132 Fed. 991, 13 Am. Bankr. 103 Fed. 852, 4 Am. Bankr. Rep. 636 ; In Rep. 269 ; In re Becker. 112 Fed. 1020, re Gammon, 109 Fed. 312, 6 Am. Bankr. 50 C. 0. A. 666; In re Leslie, 119 Fed. 406, Rep. 482; In re "Wood, 98 Fed. 972, 3 9 Am. Bankr. Rep. 561; In re Cashman, Am. Bankr. Rep. 572; In re Roy, 96 Fed. 103 Fed. 67, 4 Am. Bankr. Rep. 326; In 400, 3 Am. Bankr. Rep. 37. See In re re Hoffman, 102 Fed. 979, 4 Am. Bankr. Opava (D. C.) 235 Fed. 779, 37 Am. Rep. 331; In re Morgan, 101 Fed. 982, Bankr. Rep. 799. 4 Am. Bankr. Rep. 402 ; In re O'Gara, 97 i^o in re Lesser, 108 Fed. 205, 5 Am. Fed. 932, 3 Am. Bankr. Rep. 349; In re Bankr. Rep. 330. Grossman, 111 Fed. 507, 6 Am. Bankr. i4i in re Breiner, 129 Fed. 155, 11 Am. Rep. 510. Compare In re Lesser, 114 Bankr. Rep. 684; In re Brincat (D. 0.) Fed. 83, 52 C. C. A. 31, 8 Am. Bankr. Rep. 233 Fed. 811, 37 Am. Bankr. Eep. 587. 15. And see In re Allendorf, 129 Fed. 981, 12 Am. Bankr. Rep. 320. 1349 DISCHARGE OF BANKRUPT § 673 of property in which the creditors can claim an interest or which could be made available for the satisfaction of their claims through the bank- ruptcy proceedings."* And hence it is not ground for denying the dis- charge that the bankrupt failed to place any valuation on the prop- erty which he listed and claimed as exempt,"" or did not specify a valuable gold watch as included in the "personal wearing apparel" which he claimed to be exempt/** or omitted a portion of his monthly sal- ary as a public state officer which was earned but not payable at the time of filing the petition,"® or property previously transferred by a conveyance which was valid as against him, though it might have been voidable at the. suit of creditors,"® or money whicL he gave to his wife nine years before,"' or property which he had previously transferred to a creditor to whom it had been pledged as security for a debt of equal or greater amount."* But where the bankrupt omits from his schedule a contract under which he was entitled to receive money, though it was nominally assigned to another, and was in fact assigned to the amount he owed the assignee, it being otherwise treated by the bankrupt, the assignee, and the other party thereto, as the bankrupt's property, this amounts to a false oath and bars his discharge."" Under the former bankruptcy law, it was held to be ground for re- fusing a discharge if the bankrupt had willfully and fraudulently omit- ted to include any of his known creditors and their claims in his list of debts,^®" though not so if the omission was not the result of a fraudu- lent purpose,^®^ or if the names of creditors were omitted by their own direction or with their consent.^^^ This rule would appear to be equally valid under the present statute, since the bankrupt is explicitly required to file a sworn list of his creditors, and since his intentional omission 142 In re Winchester, 155 Fed. 505, 19 In re Schroeder (D. C.) 264 Fed. 862, 45 Am. Bankr. Rep. 227. Am. Bankr. Rep., 202; In re Hagy, 220 143 In re Reed, 191 Fed. 920, 26 Am. Fed. G65, 136 C. C. A. 307, 34 Am. Bankr. Bankr. Rep. 286. Whether a specific Rep. 319. item of property should go to creditors 147 In re Howell, 105 Fed. 594. or be reserved by the bankrupt as an ex- i48in re Webb, 98 Fed. 404, 3 Am. emption is not for the bankrupt to deter- Bankr. Rep. 386. mine, and a bankrupt cannot retain a 149 in re Semmel, 118 Fed. 487, 9 Am. sum of money a.s an exemption regard- Bankr. Rep. 351. less of the consent of the bankruptcy "o in re Kallish, Deady, 575, Fed. Cas. court. In re Brincat (D. C.) 233 Fed. No. 7,599; In re Perley, Fed. Cas. No. 811, 37 Am. Bankr. Rep. 587. 10,992 ; In re Redfield, 2 Ben. 71, Fed. 144 Sellers v. Bell, 94 Fed. 801, 36 C. Cas. No. 11,629. C. A. 502, 2 Am. Bankr. Rep. 529. 151 Burnside v. Brigham, 8 Mete. 145 In re Doherty, 135 Fed. 432, 13 (Mass.) 75 ; Piatt v. Parker, 4 Hun (N. Am. Bankr. Rep. 549. Y.) 135, 13 N. B. R. 14; Knabe v. Hayes, " his schedule, notwithstanding the fact that it is hypothecated or pledged for its full value. But if he omits to list such property, not with any fraudulent intent, but under the honest belief that, being so pledged, it is no longer his, or is not worth including, this is no reason for refusing his discharge.-*-'* And the bankrupt may easily be excused for failing to list a small sum of money on deposit with a person who has a claim against him of equal or greater amount."^ § 677. Same ; Omission of Doubtful Claims or Assets. — If the right of the bankrupt to a particular item of property, or his interest in it, de- pends on the solution of doubtful question's of law, that is, if there is substantial reason in law to doubt whether the property should consti- tute an asset of his estate in bankruptcy or could be made available for creditors through the medium of the bankruptcy proceedings, and if, for this reason, the bankrupt omits to list it in his schedule, it cannot be said that his purpose in so doing was fraudulent, and therefore he should not be refused his discharge."* Thus, where the question whether the 184 In re Hughes (0. O. A.) 262 Feci. lee in re Pearce, 21 Vt. 611, Fed. Gas. 500, 44 Am. Bankr. Bep. 447 ; Anderson No. 10,873. V. Forest City Nat. Bank, 254 Fed. 793, i87 in re Hirsch, 97 Fed. 571, 3 Am. 166 0. C. A. 239, 42 Am. Bankr. R«p. Bankr. Rep. 344. 423; Baker v. Bishop-Babcock-Becker ^'^ in re Kolster, 146 Fed. 138, 17 Am. Co., 220 Fed. 657, 136 O. 0. A. 265, 34 Bankr. Rep. 52. Am. Bankr. Rep. 396; In re Le Claire, io9 In re Jliner, 114 Fed. 998, 8 Am. 124 Fed. 654, 10 Am. Bankr. Rep. 733 ; Bankr. Rep. 248. In re Dews, 96 Fed. 181, 2 Am. Bankr. "o in re Hirsch, 96 Fed. 468, 2 Am. Rep. 483 ; In re Bryant, 104 Fed. 789, 5 Bankr. Rep. 715 ; In re Hamilton, 133 Am. Bankr. Rep. 114 ; Sellers v. Bell, Fed. 823, 13 Am. Bankr. Rep. 333 ; In re 94 Fed. 801, 36 C. C. A. 502, 2 Am. Bankr. Adams, 104 Fed. 72, 4 Am. Bankr. Rep. Rep. 529. 696. 185 In re McCrea, 161 Fed. 246, 20 Am. I'l In re Miner, 114 Fed. 998, 8 Am. Bankr. Rep. 412 ; In re Eaton, 110 Fed. Bankr. Rep. 248. 733, 6 Am. Bankr. R«p. 531. i''2 In re McCrea, 161 Fed. 246, 20 Am. 1353 DISCHARGE OF BANKRUPT § 678 bankrupt's interest in his grandfather's estate was vested or contingent was difficult of solution, and the bankrupt had previously been advised by counsel that he, had no interest in such estate on which he could raise money, his failure to schedule such interest as a part of his estate in bankruptcy could not preclude his right to a discharge.^'' In another case, it appeared that a testator bequeathed a sum of money to trustees, in trust to pay the income to his wife during her life, and with power to her to dispose of the principal by will, and added that, in default of such disposition by her, "I give the said trust fund, upon her decease, to my own then surviving next of kin." After the death of the testator, his son was adjudged bankrupt, and thereafter the testator's wife died, hav- ing exercised the power of appointment by bequeathing the fund to the bankrupt unconditionally. The bankrupt did not list this property in his schedule of assets, nor offer to surrender it to his trustee. It was held that, in view of the doubtful questions of law, whether the bank- rupt's interest in the trust fund at the date of the adjudication was a vested interest such as would pass to his trustee, and whether his title thereto, after his mother's decease, was derived from her will or from the prior will of his father, it could not be said that he had "knowingly and fraudulently" concealed property from his trustee, so as to forfeit his right to a discharge.'^'* But on the other hand, where a bankrupt has received a deed purporting to convey an interest in land, and has acted upon it by obtaining a loan secured by a mortgage on such interest, which is outstanding at the time of the adjudication in bankruptcy, he has no right to omit the property or the debt from his schedules on the theory that in fact the conveyance vested no interest in him, that being a matter to be determined by the court ; and his entire omission of any mention of the property is ground for refusing to grant him a dis- charge."® § 678. Same; False Oath or Testimony; Refusal to Testify. — It is statutory ground for refusing to discharge a bankrupt if he shall have "made a false oath in, or in relation to, any proceeding in bankruptcy." This offense may be committed by his making a material and intention- ally false statement in his voluntary petition for adjudication, or in the Bankr. Eep. 412 ; In re Brumbaugh, 128 Kaufman, 239 Fed. 305, 152 C. O. A. 293, Fed. 971, 12 Am. Bankr. Eep. 204; In re 38 Am. Bankr. Eep. 648. Countryman, 119 Fed. 639,. 9 Am. Bankr. f? a Woods v. Little, 134 Fed. 229, 67 Sep. 572 ; In re Todd, 112 Fed. 315, 7 0. 0. A. 157, 13 Am. Bankr. Eep. 742. Am. Bankr. Eep. TT'O; In re McAdam, m In re Wetmore, 99 Fed. 703, 3 Am. 98 Fed. 409, 3 Ana. Bankr. Eep. 417 ; Bankr. Eep. 700. And see In re Buchan- In re Freund, 98 Fed. 81, 3 Am, Bankr! an, 219 Fed. 492, 135 C. C. A. 204, 33 Am. Eep. 418; In re Webb, 98 Fed. 404, 3 Bankr. Eep. 638. Am. Bankr. Eep. 386; In re Dews, 96 its in re Gailey, 127 Fed. 538, 62 0. Fed. 181, 2 Am. Bankr. Eep. 483; In re C. A. 336, 11 Am. Bankr. Eep. 539. § 678 LAW OF BANKRUPTCY 1354 poverty affidavit accompan3''ing it,^'* or by swearing to a schedule of assets which is false, and known to be so, in respect to particular items of property, or which intentionally omits to mention property which should have been included,*''' or by giving willful false testimony in the course of his examination before the' referee, provided the evidence is material and relates to a subject which is a legitimate matter of inquiry on such examination.*'* But it is not enough to justify the refusal of a discharge that the bankrupt's testimony was evasive, misleading, or unsatisfactory, or that his behavior was disrespectful and contuma- cious.*"' Again, any pleading, verified and filed in the bankruptcy pro- ceeding, may contain such a "false oath" as to forfeit the right to a dis- charge. But the verification of an answer by the bankrupt containing a false statement of fact, does not constitute the making of a false oath in this sense, where the answer was filed too late and was not in fact con- sidered.**" It is not entirely clear that perjury committed by the bank- rupt on the hearing of his application for discharge will be ground for refusing to grant the discharge, to which he appears otherwise to be entitled. It has been held that this is "making a false oath in a pro- ceeding in bankruptcy," just as mucji as at any other stage of the case.*** But in a later case the court felt compelled to grant a discharge to the bankrupt, notwithstanding that he had sworn falsely in his effort to ob- tain it, while at the same time the court promised to punish him for contempt of court if he attempted to make use of the discharge so ob- tained.*** But in order that false testimony or statements should operate to de- prive the bankrupt of his discharge, they must have been made in the same proceeding in which the discharge is sought, that is to say, by the bankrupt in his own bankruptcy case.*** Hence, where a petition in in- voluntary bankruptcy was filed against a corporation, and one who was an officer of it and a stockholder in it gave testimony on the hearing of the petition, which was false, and afterwards he was himself adjudged bankrupt, it was held that his right to a discharge was not prejudiced by 170 See Sellers v. Bell, 94 Fed. 801, 36 no In re Cohen, 149 Fed. 908, 18 Am. C. 0. A. 502, 2 Am. Bankr. Rep. 529. Bankr. Rep. 84 ; In re Fanning, 155 Fed. 1" In re Herrman, 136 Fed. 767, 09 0. 701, 19 Am. Bankr. Rep. 55. C. A. 413, 13 Am. Bankr. Rep. 778; In isoin re Young, 140 Fed. 728, 15 Am. re Goodman, 171 Fed. 287, 22 Am; Bankr. Bankr. Rep. 477. Rep. 570; In re Kamsler, 97 Fed. 1^4; isi In re Dews, 101 Fed. 549. In re Roy, 96 Fed. 400, 3 Am. Bankr. is= In re Kretsch, 172 Fed. 523, 22 Am. Rep. 37. Bankr. Rep. 284. 178 In re Luftig, 162 Fed. 322, 15 Am. ".i But see In re Lesser, 234 Fed. 65, Bankr. Rep. 773 ; In re Conroy, 134 148 C. 0. A. 81, 36 Am. Bankr. Rep. 833^ F«d. 704, 14 Am. Bankr. Rep. 249 ; In in whicli it is held that a bankrupt who re Kamsler, 97 Fed. 194; In re Zoffer, commits perjury in any bankruptcy pro- 211 Fed. 936, 128 0. O. A. 434. ceedlng, though It be not his own, must be denied his discharge. 1355 DISCHAEGE OF BANKRUPT § 678 such false testimony.^** For the same reason, testimony given by the bankrupt in prior proceedings under the state insolvency law, even if materially false, cannot prejudice his right to a discharge, and this holds true even where s.uch testimony is read into the record on the bank- rupt's examination in the bankruptcy proceedings, where this is done by agreement of counsel, without the concurrence of the bankrupt and with- out his making any oath in respect to the truth of it.^*" So also the falsi- ty of an oath taken by the bankrupt does not affect his rigl^t to a dis- charge where it was not made in connection with the adminisiration of his estate or in any way affecting such estate,^** or where the statement was not material to any issue in the bankruptcy proceedings,**' and the statute cannot be extended so as to embrace previous conduct or trans- actions which are merely friitidulent as to creditors, but not made crim- inal.i»« Further, the oath or testimony of the bankrupt must have been know- ingly arid fraudulently false. ^*' Hence a false statement made by the bankrupt upon his examination, touching the existence of certain books of account, will not prevent his discharge if it appears that such state- ment was against his own interest, and apparently without motive, and the circumstances indicate that it was innocently and not willfully made.**' And the false oath must be such as would sustain an indict- ment for perjury,'** but if this condition is fulfilled, it is immaterial the bankrupt could not be convicted of perjury, on account of the protection given to him by another provision of the statute.*** And the objecting creditors must sustain the burden of proving that the oath or statement was not only false, but was knowingly and intentionally so.*** It ap- 18* In re Blalock, 118 Fed. 679, 9 Am. phries v. Nalley (C. O. A.) 269 Fed. 607, Bankr. Rep. 266. 46 Am. Bankr. Rep. 63. 185 In re Goldsmith, 101 Fed. 570, 4 i88Pellows v. Freudenthal, 102 Fed. Am. Bankr. Rep. 234. 731, 42 0. C. A. 607, 4 Am. Bankr. Rep! 18 6 Bauman v. Feist, 107 Fed. 83, 46 490. C. C. A. 157, 5 Am. Bankr. Rep. 703. leo Kentucky Nat. Bank v. Carley, 12V 187 In re Chamberlain (D. C.) 180 Fed. Fed. 686, 62 C. C. A. 412, 12 Am. Bankr. 304, 25 Am. Bankr. Rep. 37. False and Rep. 119 ; In re Hale, 206 Fed. 856, 31 evasive testimony concerning the making Am. Bankr. Rep. 88 ; In re Lundberg "(0. of a financial statement to a mercantile 0. A.) 272 Fed. 107; In re Wilson (D. 0.) agency Is not immaterial, but justifies 269 Fed, 845, 46 Am. Bankr. Rep. 477. denial of the bankrupt's discharge, al- i"" In re Warhe, 12 Fed. 431. though no creditor relied on the state- loi In re Strouse, 2 Nat. Bankr. News, ment. In re Sheinberg (D. C.) 223 Fed. 64. 218, 35 Am. Bankr. Rep. 132, On the 102 in re Gaylord, 112 Fed. 668, 60 C. other hand, the making by a voluntary O. A- 415, 7 Am, Bankr. Rep, 1;' In re bankrupt of an oath to his schedules, in Dow's Estate, 105 Fed. 889, 5 Am, Bankr. which It was stated that he had no prop- Rep. 400 ; In re Leslie, 119 Fed. 406, 9 erty, when in fact h© had a small Am. Bankr. Rep. 561. But coitipare In're amount of money, with which he paid Marx, 102 Fed, 676, 4 Am. Bankr. Rep. the costs, and a small amount of house- 521 ; In re Logan, 102 Fed. 876 4 Am. hold furniture, which he could have Bankr. Rep. 525. claimed as exempt, was not sufficient to "b Bauman v. Feist, 107 Fed. 83 46 constitute a bar to his discharge. Hum- C. C. A. 157, 5 Ak, Bankr. Rep. 703 ;' In § 678 LAW OF BANKRUPTCY 1356 pears also that a bankrupt'^ discharge should not be denied because of an, alleged false oath, where he corrected his testimony before the close of his examination.^** But this has been denied.^*® The act further specifies as a ground for refusing a discharge that the bankrupt has "refused to answer any material question approved by the court." >»* It makes no difference that his refusal to answer was based on a claim of his constitutional privilege against incriminating himself, 1" nor does he regain his right to a discharge by offering to an- swer the particular question, or by actually answering it, after specifica- tions in opposition to his discharge are filed. ^** § 679. Same; Obtaining Credit by False Statements. — ^This ground of objection to a bankrupt's discharge was not included in the bankrupt- cy act as originally enacted, but was added in 1903 by an amendment, which specified as a ground of refusing a discharge that the bankrupt had "obtained property on credit from any person upon a materially false statement in writing made to such person for the purpose of obtaining such property on credit." *** This was broadened by a further amend- ment in 1910, so as to provide that it shall be ground for denying the discharge if the bankrupt shall have "obtained money or property on credit upon a materially false statement in writing, made by him to any person or his representative for the purpose of obtaining credit from such person." ^•'* These amendments are retroactive, in so far as that they apply to all cases where the application for discharge was made after the amendment took effect, although the false statement may have been made before.*"*- As the law stood between the dates of these two i« Gaylord, 112 Fed. 668, 50 C. C. A. 415, tends to have taken as such in the case, 7 Am. Bankr. Rep. 1 ; In re Slingluff, 105 and which he knows to be false, the Fed. 50!i ; In re Marcus, 203 Fed. 29, 30 crime is complete, whatever may be his Xm. Bankr. Bep. 176. subsequent atonement." 194 In re Doyle, 199 Fed. 247, 29 Am. loo See In re Rea Bros. (D. C.) 251 Bankr. Rep. 102. Fed. 431, 40 Am. Bankr. Rep. 429. 180 In re Marcus, 192 Fed, 743, 27 Am. i»7 in re Dresser, 146 Fed. 383, 76 C. Bankr. Rep. 164. In this case it was 0. A. 655, 16 Am. Bankr. Rep. 561 ; In said by Hand, J.: "I cannot agree with re Schwartz & Co., 201 Fed. 166, 28 Am. th« learned master that it is in the least Bankr. Rep. 670. material that the bankrupt subsequently los in re Weinreb, 153 Fed. 363, 82 0. corrects a false oath by telling the truth, C. A. 439, 18 Am. Bankr. Rep. 387; In re except in so far as it throws light upon Schwartz & Co., 201 Fed. 166, 28 Am. what his actual intention or understand- Bankr. Rep. 670. ing was when he made the first stat-e- looAct Cong. Feb. 5, 1903, 32 Stat, ments. Suppose that the correction had 797, amending Bankruptcy Act 189S. occurred at a separate session of the § 14. first meeting of creditors, surely no one 200 Act Cong. June 25, 1910, 36 Stat, would say that such a fact was material. 838, amending Bankruptcy Act 1898, Suppose he first testified falsely, and was § 14. afterwards broken down by cross-exam- 201 In re Dresser, 145 Fed. 1021, 74 C. ination into a confession. Once he has 0. A. 680; In re Scott (D. C.) 126 Fed. given material testimony, which he In- 981, 11 Am. Bankr. Rep. 327. 1357 DISCHARGE OF BANKRUPT § 679 amendments, there was some doubt as to whether one borrowing money could be said to "obtain property" on credit,^"* but the obtaining of mon- ey is now expressly included.*'* However, it is held that the obtaining of a surety or indemnity bond by means of false financial statements, is not the obtaining of "property" on credit, within the meaning of the law.^"* Although it is not necessary that a statement made by bank- rupt to obtain goods on credit should have been made, or the goods de- livered, within four months prior to his bankruptcy, in order to bar his discharge,**® yet it is strictly necessary to show that some one has ac- tually parted with money or property in reliance upon such statement,*" and the lapse of a considerable period of time may have an important bearing on this point. Thus, a false financial statement, made eighteen months before a sale of goods to the bankrupt, cannot be considered a proximate cause of the sale, so as to entitle the seller to object to the bankrupt's application for discharge on account of it.*"' And a dis- charge will not be withheld where it is shown that the creditor first re- fused to make the loan to the bankrupt which the latter asked for, and for which he submitted the alleged false statement, and afterwards made the loan on security given at the time and which he then deemed suffi- cient.*»» Within the meaning of the statute, obtaining property "on credit" means obtaining it without present payment, but with a promise on the part of the debtor that payment will be made and an expectation of re- ceiving it on the part of the creditor.*"® And the financial statement presented by the debtor must be the inducernent to the extension of credit. It is necessary, therefore, that the creditor should have relied "0^ See In re Louisville National quired by statute, Is not an "obtaining Banking Co., 158 Fed. 403, 85 0. C. A. of property" within the meaning of the 513, 19 Am. Bankr. Rep. 309 ; In re Bankruptcy Act. In re Oliner (C. C. A.) Pfaffinger (D. C.) 154 Fed. 528, 19 Am. 262 Fed. 734, 44 Am. Bankr. Rep. 450, Bankr. Rep. 41; In re Gilpin (D. C.) 160 45 Am. Bankr. Rep. 185. Fed. 171, 20 Am. Bankr. Rep. 374. aos in re Simon (D. C.) 201 Fed. 1004, 2»3 Securing the renewal of notes by 29 Am. Bankr. Rep. 808. means of a false statement in writing is 206 in re Troutman & Jesse (D C) held to be "obtaining property" thereby. 051 ^ed. 930, 40 Am. Bankr. Rep. 418; Samet v. Farmers' & .Merchants' Nat. i^ re McLellan (D. C.) 204 Fed. 482, 30 Bank, 247 Fed. 669, 159 C. C. A. 571, 40 Am. Bankr. Rep. 325. Am. Bankr. Rep. 450. So, the obtaining of goods under a contract of conditional 20 7 In re Broverman (D.,C.) 199 Fed. ,^ . """='/'. \" ""•^•' "'^ >-"""-""""•' 8g3 28 Am. Bankr. Rep. 513. And see sale IS an obtaining of property not- j^ ; Allendorf (D. C.) 129 Fed. 981, 12 withstanding the seller's reservation of . „ d , t> oo/^ t r^ ,iC title. In re Fackler (D. C.) 246 Fed. 864, ^'"b.T ^ f «i^^.« ! ' ^" ? ?^°/^- 39 Am. Bankr. Rep. 742. C.) 237 Fed. 682 38 Am. Bankr^ Rep 628 ^04 In re Tanner (D. C.) 192 Fed. 572, ^"* f^^oo\ ^" ^^ f'"^'* ^^io^'^ ^^ 27 Am. Bankr. Rep. 615. The obtaining ^^^- ^03. 39 Am. Bankr. Rep. 632. by bankrupts of a license to do business ^"^In re Kaplan (D. C.) 141 Fed. 463, as private bankers, by means of a false 15 Am. Bankr. Rep. 534. written statement made to the Comp- 209 in re Wylly (D. C.) 210 Fed. 954, troller of the State of New York, as re- 32 Am. Bankr. Rep. 145. § 679 LAW OP BANKEUPTCT 1358 upon it as evidence of the debtor's ability to pay.^^" Thus, where a bank which loans money to a bankrupt on warehouse receipts as collateral would not have done so without a financial statement, which was fur- nished and which was false, the loan is the extension of a credit on the part of the bank.^^^ But the creditor's reliance on the statement made by the debtor need not always be directly proved. It is enough if it is fairly presumable from the circumstances. The fact, for instance, that the creditor wrote the word "caution" on the debtor's statement as a guide to his salesmen and directed that the credit should be limited to a certain small sum does not necessarily save the bankrupt from the consequences of falsity in the statement.*^^ And if the creditor did rely on the statement, the question cannot be raised as to whether or not he was justified in so doing; it is immaterial that he might have dis- covered its falsity by investigating the real estate records.^'* It should be added that this ground of objection to the discharge of a bankrupt is not limited to the case of merchants, but applies to all who ask for a discharge in bankruptcy.*" The "false statement in writing" described in the statute must be a financial statement, or statement of the debtor's assets or financial con- dition, as distinguished from a mere misrepresentation as to a material fact.*^^ For this reason, probably, it is held that a check given by the bankrupt in payment for goods, drawn on a bank where he has neither money nor credit, is not such a "statement" as the law intends, and fur- ther, that the: "credit" meant is express credit, and not such unintended credit as is forced upon a seller who accepts a worthless check.**® On the other hand, a bankrupt's statement that he has a certain amount of money invested is a statement of fact, and not a mere representation nor an estimate of value, and nf it was made for the purpose, and with the result, of obtaining credit, it is ground for denying his discharge.**'' In regard to the untruthfulness of the statement, it is said that the word "false," as used in the statute means more than merely erroneous or untrue, being used in its primary legal sense as importing an intention to deceive, and hence such a statement, in order to constitute a bar to 2H>Eauch V. Manchester-Smitli Co., ^i* In re Day (D. C.) 268 Fed. 871, 40 240 Fed. 687, 153 0. 0. A. 485, 39 Am. Am. Bankr. Rep. 394. Bankr. Rep. 484; Bank of Commerce & 216 In re Morgan (C. C. A.) 267 Fed. Savings v. Matthews, 257 Fed. 292, 16S 959, 45 Am. Bankr. Rep. 612. C. C. A. 376, 43 Am. Bankr. Rep. 284. 216 in re Rea Bros. (D. C.) 251 Fed. 211 In re Savarese, 209 Fed. 830, 126 ^^^' ^^ ^^- Bankr. Rep. 429; Robinson 0. C. A. 554, 31 Am. Bankr. Rep. 758. I" f „^;,^i^l\'*<>° J' ^o. (C. C. A.) 266 Fed. 970, 45 Am. Bankr. Rep. 619 See 212 In re Neuman (D. C.) 251 Fed. 667, jq ^e Robinson (D. C.) 256 Fed 55 43 40 Am. Bankr. Rep. 427. Am. Bankr. Rep. 64. 218 In re Blank (D. C.) 236 Fed. 801, 217 in re Simon (D. C.) 268 Fed. 1006, 38 Am. Bankr. Rep. 71. 46 Am. Bankr. Rep. 170. 1359 DISCHARGE OF BANKRUPT § 679 a discharge, must have been knowingly and intentionally untrue,*^* or it must have beeii either knowingly false, or made so recklessly as to warrant a finding that the bankrupt acted fraudulently in making it.^^® But there are decisions that if the statement was made for the purpose of obtaining credit and brought about that result, and was false in fact, it is none the less a bar to the bankrupt's discharge because the inac- curacy was due to a mistake made in good faith,*** or because it was made and given as a mere matter of form and with no actual intention to defraud.*'^ The false statement must have been made by the bank- rupt, but need not be in his writing. It is equally effective to bar hi^ discharge where the paper was filled out by a representative of the cred- itor from figures given by the bankrupt.*** And where one member of a firm makes a materially false statement of its assets and liabilities, for the purpose of obtaining credit, this will prevent the discharge of that partner and also of the firm, though probably not of an innocent part- ner.*** And although cases must be rare in which the bankrupt would make a materially false statement for the purpose of obtaining money or property for any one else than himself, yet it is said that the effect on 218 Doyle V. First Nat. Bank of Balti- more, 231 Fed. 649, 145 C. C. A. 535, 36 Am. Bankr. Rep. 331; AUer-Wilmes Jewelry Co. v. Osborn, 231 Fed. 907, 146 C. C. A. 103, 36 Am. Bankr. Rep. T14; In re Lundberg (C. C. A.) 272 Fed. 107 ; In re Rosenfeld (O. C. A.) 262 Fed. 876, 44 Am. Bankr. Rep. 390; In re Goldberg „„,„ T}„„ i/d wanki. Rep. 2b-l ; Lathrop v. Stuart, 5 Bankr. Rep. 143. . McLean, 167, Fed. Gas. No. 8,113: In re »si In re Hockman, 205 Fed. 330, 30 Langfeldt (D. C.) 253 Fed. 458, 41 Am Am. Bankr. Rep. 921 ; In re Taylor, 188 Bankr. Rep. 586. Fed. 479, 26 Am. Bankr. Rep. 143; but sss in re Hockman, 205 Fed. 330, 30 see In re Pincus, 147 Fed. 621, 17 Am. Am. Bankr. Rep. 921. Bankr. Rep. 331. ssein re Downing, 199 Fed. 329, 28 Am. Bankr. Rep. 778. 1377 D18CHAEGB OF BANKRUPT § 688 is not improper to add to it (for the purpose of saving expense) a notice of a meeting of creditors for the purpose of examining the bankrupt.^''''' The notice by mail should be given to all creditors who have proved their debts, or whose names are included by the bankrupt in his schedule of creditors,*^* but if no proofs of claims have been filed, and no assets have come into the hands of the trustee, notice may be by publication only/'"" But this course is not proper where there are known creditors, unless the bankrupt shows that the addresses of such creditors are un- known to him and cannot be ascertained after diligent search and in- quiry.**" But notice sent by mail to a judgment creditor, directed to his address as known at the beginning of the bankruptcy proceedings, will be sufficient, although the creditor has died in the mean time, at least if the will has not been admitted to probate and no steps have been taken to substitute the executor as a creditor in the bankruptcy.*'^ § 688. Proceedings in Opposition to Discharge. — The General Or- ders in bankruptcy provide that "a creditor opposing the application of a bankrupt for his discharge shall enter his appearance in opposition there- to on the day when the creditors are required to show cause, and shall file a specification in writing of the grounds of his opposition within ten days thereafter, unless the time shall be enlarged by special order of the judge." *'* Under this provision the judge may, in his discretion, extend the time for entering an appearance, as well as the time for filing specifications, and may grant leave to do so after the time has expired as well as before; but the creditor has no right to enter an appearance after the return day, and generally should not be allowed to do so except . for good cause shown excusing his delay.*** Creditors who do thus appear and filed objections on the merits to the granting of a discharge thereby waive objections to any error or irregularity in the granting of 3 6 7 In re Price, 91 Fed. 635, 1 Am. ing appearance and filing specifications Bankr. Eep. 419. before the return day. Objections to the 30 8 In re Mclntire, 1 Ben. 543, Fed. bankrupt's discliarge must be filed with Cas. No. 8,822. Where a creditor object- ' the clerk of tbe bankruptcy court, and ing to the bankrupt's discharge has died, not with the referee. In re C. H. Ken- notice of the hearing should be given to drick & Co. (D. C.) 226 Fed. 980, 35 Am. his attorney, to his widow or her attor- Bankr. Rep. 630. Objections to a bank- ney, and to his children or next of kin. rupt's discharge constitute the beginning In re Blaesser (D. C.) 230 Fed. 528, 36 of a new suit or Action, the hearing of Am. Bankr. Rep. 795. which is in effect a trial in equity. In 8 59 Anonymous, 1 N. B. K. 122, Fed. re Malschick (D. C.) 21T Fed. 492, 33 Am. Cas. No. 457. Bankr. Rep. 214. 360 In re Dvorak, 107 Fed. 76, 6 Am. 3g3 in re Levin, 176 Fed. 177, 99 C. C. Bankr. Rep. 66. A. 531, 23 Am.. Bankr. Rep. 845 ; In re SOI Lent V. Farnsw.orth, 180 N. T. 503, Ginsburg, 130 Fed. 627, 12 Am. Bankr. 72 N. E. 1144. Rep. 459; In re Chase, 186 Fed. 408, 26 3 02 General Order in Bankruptcy No. Am. Bankr. 'Rep. 456; In re Grant, 135 32. See In re Braun, 1 Ben. 274, 1 N. Fed. 889, 14 Am. Bankr. Eep. 398. B. R. 5, Fed. Cas. No. 1,116, as to enter- Blk,Bkr.(3dEd.)— 87 § 689 LAW OF BANKRUPTCY 1378 an extension of time for filing the petition for discharge.'** But on the other hand, a creditor who does not enter his appearance at the time specified (or within a further time granted to him by the court, as above stated) has no standing in court on the hearing of the petition for discharge, and cannot be heard in. opposition to it, but on the con- trary will be understood as assenting to it.*®® The entry of an appear- ance by one or more creditors for the purpose of opposing the application for discharge suspends all further proceedings until the filing of the specifications ; but if the specifications are not filed within the ten days (or within an extension of the time specially granted by the court), then the case proceeds as if no opposition had been entered.*®* But one creditor may adopt and prosecute the objections filed by another cred- itor, when the latter has declared his intention to abandon the same,*®' though not after the claim of the creditor originally objecting has been stricken out.*®* And the fact that creditors, who proposed to con- test the granting of a discharge on the ground that the bankrupt has de- frauded them, have abandoned their opposition is entitled to considera- tion by the court.*®* § 689. Withdrawal of Opposition. — A creditor who has entered op- position to the bankrupt's application for discharge may withdraw the same without the consent of the other creditors,*'" but not without no- tice to other creditors who have adopted the specifications as represent- ing their own objections and are proposing to prosecute them.*"- Or when a creditor who has filed specifications of objection is about to with*- draw them, other creditors may be substituted and carry on the opposi- tion.*'* But the law frowns severely upon any attempt to induce a cred- itor to withdraw his opposition, for the sake of a pecuniary advantage or benefit to himself. Any agreement or arrangement by which a creditor is to be paid in full, on consideration of his withdrawing opposition to the discharge, or is to receive a larger share of his debt than other cred- itors, or to receive other property or a bonus or present, is corrupt, il- legal, and contrary to public policy, and cannot be enforced in any form 364 In re Churchill, 197 Fed. Ill, 28 see in re McDonald, 14 N. B. R. 477, Am. Bankr. Rep. 607. Fed. Cas. No. 8)753. 3" In re Sutherland, Deady, 573, Fed. son in re Hammersteln, 189 Fed 37 Cas. No. 1.3,640 ; In re Smith, 5 N. B. no c. C. A. 472, 26 Am. Bankr. Rep' R. 20, Fed. Cas. No. 12,985 ; In re Sea- 757. ^ bury, 10 N. B. R. 90, Fed. Cas. No. 12,573 ; „„ n „ ttj ^ ,.. « ^ In r; Schuyler, 3 Ben. 200, 2 N. B. R. 30^ 1 pr'T-V- ^"' ''"'^'''''' ^' ^^'• 549, Fed. Cas. No. 12,494. ' ''^■■*"- 3 66 In re McVey, 2 N. B. R. 257, Fed. '" ^"^ re Dietz, 97 Fed. 563, 3 Am. Cas. No. 8,932; In re Frizelle, 5 N. B. Bankr. Rep. 316. R. 119, Fed. Cas. No. 5,132. sja In re Houghton, 2 Low. 328, 10 N. 307 In re Guilbert, 154 Fed. 676, 18. Am. B. R. 337, Fed. Cas. No. 6,730. Bankr. Rep. S.30. 1379 DISCHARGE OF BANKRUPT § 690 of proceeding.*''' If a promissory note is given to the creditor in pursu- ance of such an agreement, it is invalid and cannot be collected by law.*''* If the consideration is the bankrupt's promise to pay him. in full, no ac- tion can be maintained on such promise.*'^ So where the bankrupt's wife executes a mortgage on her separate property, at his request, in pursuance of an agreement by which he was to pay the debt of his cred- itor in full if the latter would assent to his discharge, the mortgage is without consideration and tainted with the illegality of the transaction, notwithstanding it was executed after the discharge and though the wife did not know of the agreement.*'"® A corrupt bargain of this sort will also invalidate the discharge, if granted, or at least it will constitute sufficient ground for revoking and annulling it.*'" And so strictly is the rule applied that it has been held ground for vacating a discharge that a creditor's withdrawal from opposition was purchased, though it was done by a friend of the bankrupt, without the procurement or partici- pation of the bankrupt, where the latter was privy to the arrangement and consented to it.*^* But in a case where a surety of the bankrupt paid the debt of a creditor who was opposing the discharge, merely for his own purposes, and because the gra,nting of the discharge would put him (the surety) in a better position, and this was done without con- sulting with the bankrupt or informing him of the transaction until long afterwards, and the latter had no part in it nor made any promise to re- pay the amount, it was held that this would not vitiate the discharge.*'''' § 690. Want or Failure of Opposition. — The court will not refuse to discharge the bankrupt unless creditors appear in opposition to the dis- charge, file written specifications sufficiently alleging the grounds of their opposition, and sustain the burden of proving the grounds specified. The formal prerequisites to a discharge having been complied with, the judge will not, of his own motion, seek out grounds for refusing to dis- charge the bankrupt or consider objections not specified. Hence if the specifications filed are found in favor of the bankrupt, or are withdrawn, or are ruled out because the creditor is estopped to allege the particular matter, or if none are filed, the court will not refuse a discharge, ex proprio motu, although it may appear that the bankrupt has committed some act which would deprive him of the right to a discharge if properly specified.**" And where there is no opposing party to the discharge, the 37S Blasdel v. Fowle, 120 Mass. 447, 21 376 Blasdel v. Powle, 120 Mass. 447, Am. Rep. 533. Compare Fox v. Paine, 21 Am. Eep. 533. 10 Ala. 523. s^r Ooates v. JBlush, 1 Cush. (Mass.) 374Bell V. Leggett, 7 N. T. 176; Mar- 564. Compare Fox v. Paine, 10 Ala. 523. ble V. Grant, 73 Me. 423; Rice v. Max- 378 in re Dietz, 97 Fed. 563, 3 Am. well, 13 Smedes & M. (Miss.) 289, 53 Am. Bankr. Rep. 316. Dec. 85. 8 7 Ex parte Brig^s, 2 Low. 389, Fed. 375 Austin V. Markham, 44 Ga. 161, 10 Cas. No. 1,868. N. B. R. 548. 3 80 In re Whitney (D. C.) 250 Fed. § 691 LAW OF BANKEUPTCI 1380 proceeding may be continued from time to time, to suit the convenience of the bankrupt.'*^ § 691. Time to File Specifications in Opposition. — Creditors desiring to oppose the bankrupt's application for discharge are required (by Gen- eral Order No. 32) to enter their appearance on the day when creditors are required to show cause, and to file their specifications within ten days thereafter. But though the notice to show cause usually designates not only the return day, but a particular hour of that day, creditors are not restricted to the hour so appointed, but have the entire day in which to enter their appearance and ten days thereafter for filing the specifica- tions.^** The general order does not operate as a statute of limitations, so as to cut off absolutely the right of creditors to file opposition if not exercised within the ten days, or prevent the court from granting an extension of time for good reasons shown.**^ But after the expiration of the ten days, no creditor can claim any absolute right to file specifica- tions. Whether he shall be allowed to do so rests entirely in the discre- tion of the court. It may be granted as a privilege by the judge, but not without good cause shown, and not unless the creditor clears himself of the imputation of laches.^** And specifications of opposition filed after the expiration of the prescribed time, without leave of court first obtain- ed or valid excuse for the delay, will be disregarded, or may be dismissed on motion of the bankrupt.**® § 692. Form and Sufficiency of Specifications. — Specifications in op- position to the bankrupt's application for discharge must of course be in writing,^*" and must disclose the name of the objecting party, and must allege that he is a party in interest, and, if he is a creditor, that he has a debt provable in bankruptcy, or that it has been proved and allowed if such is the case, and further that his claim is one which will be affected 1005, 41 •Am. Bankr. Rep. 548; In re sss in re Barrager, 191 Fed. 247, 27 Lockwood (D. C.) 240 Fed. 158, 39 Am. Am. Bankr. Rep. 366. Bankr. Rep. 478; In re Blaesser (D. C.) sss in j-g Natlianson, 152 Fed. 585, 18 230 Fed. 528, 36 Am. Baakr. Rep. 795 ; In Am. Bankr. Rep. 252. re McDuff, 101 Fed. 241, 41 0. C. A. 316, ■ as* in re Young, 162 Fed. 912, 20 Am. 4 Am. Bankr, Rep. 110 ; In re Hixon, 93 Bankr. Rep. 697 ; In re Frice, 96 Fed. Fed. 440, 1 Am. Bankr. Rep. 610 ; In re 611, 2 Am. Bankr. Rep. 674 ; In re Mot- Thomas, 92 Fed. 912, 1 Am. Bankr. Rep. gan, 101 Fed. 982, 4 Am. Bankr. Rep. 515 ; In re Holman, 92 Fed. 512, 1 Am. 402 ; In re Marsh, 2 Nat. Bankr. Newsi Bankr. Rep. 600; In re Antisdel, 18 N. 649; In re Levin, 7 Biss. 231, 14 N. B. R. B. R. 289, Fed. Cas. No. 490 ; In re Clark, 385, Fed. Cas. No. 8,291 ; In re Jacobs 5 19 N. B. R. 301, Fed. Cas. No. 2,812 ; In Sawy. 458, Fed. Cas. No. 7,160 ; In 're re Fowler, 2 Low. 122, Fed. Cas. No. Grefe, 2 N. B. R. 329, Fed. Cas. No. 5,794. 4,999. Contra, In re Sohoo, 3 N. B. R. sss in re Albrecht, 104 Fed. 974, 5 Am! 215, Fed. Oas. No. 13,162 ; In re Wilkin- Bankr. Rep. 223 ; In re Buxbaum 2 son, 3 N. B. R. 286, Fed. Cas. No. 17,667. Hughes, 339, 13 N. B. R. 477, Fed Cas 8 81 In re. Sutherland, Deady, 573, Fed. No. 2,259. Cas. No. 13,640. • S80 In re Shoemaker, 4 Biss. 245, Fed. Cas. No. 12,799. 1381 DISCHARGE! OF BANKRUPT § 692 by the discharge if granted.**'' As to substance, the specification must distinctly allege at least one of the statutory grounds for refusing the discharge, objeotions not specified in the act being unavailable.*** Fur- ther, there must be adequate statements of issuable facts; mere state- ments of conclusions of law are not sufficient.*** And it is an inflexible rule that the allegations of the specifications must be clear, distinct, spe- cific, and circumstantial. General allegations will not suffice ; all the es- sential facts must be particularized. Vague charges will not do ; the al- legations must be so precise and full as to inform the bankrupt of the exact charge which he is called upon to refute, and to inform the court of the exact issue to be tried.*®* For this reason a specification which merely follows the general language of the statute, without attempting to set forth particular facts, transactions, or details, is not sufficient.*** Alternative or disjunctive pleading should not be permitted,*** and in fact the specifications should be of such a character that their sufficiency may be tested by demurrer or by exceptions analogous to those allowed in equity.*** It has even been held, in several cases, that the specifica- 3 87 In re Main, 205 Fed. 421, 30 Am. Bankr. Rep. 547; In re White, 248 Fed.' 115, 160 C. O. A. 255, 41 Am. Bankr. Rep. 458; In re Fackler (D. C.) 246 Fed. 864, 39 Am. Bankr. Rep. 742; In re Chandler, 138 Fed. 637, 71 O. C. A. 87, 14 Am. Bankr. Rep. 512; In re Ser- vis, 140 Fed. 222, 15 Am. Bankr. Rep. 271 ; In re Palmer, 3 N. B. R. 301, Fed. Cas. No. 10,682. 388 In re Griffin Bros., 154 Fed. 537, 19 Am. Bankr. Rep. 78; In re McGum, 102 Fed. 743, 4 Ain. Bankr. Rep. 459; In re iRihutassel, 96 Fed. 597, 2 Am. Bankr. Rep. 697; In re Brincat (D. C.) 233 Fed. 811, 37 Am. Bankr. Rep. 587. Where specifications of opposition to a discharge wholly fail to state any statu- tory ground for refusal, their insuffi- ciency is not waived by failing to except thereto, and they may be disregarded. In re McCarthy, 170 Fed. 859, 22 Am. Bankr. Rep. 499. 389 In re Holman, 92 Fed. 512, 1 Am. Bankr. Rep. 600; In re Hirsch, 98 Fed. 468, 2 Am. Bankr. Rep. 715; Stewart V. Hargrove, 23 Ala. 429. 3 90 In re Wittenberg, 160 Fed. 991, 20 Am. Bankr. Rep. 398; In re Servis, 140 Fed. 222, 15 Am. Bankr. Rep. 271; In re Frice, 96 Fed. 611, 2 Am. Bankr. Rep. 674 ; In re Parish, 122 Fed. 553, 10 Am. Bankr. Rep. 548 ; In re Waggoner, 1 Ben. 532, Fed. Cas. No. 17,037; in re White, 18 N. B. B. 107, Fed. Cas. ^o. 17,533; In re Rathbone, 2 Ben. 138, 1 N. B. R. 294, Fed. Cas. No. 11,580; In re Burk, Deady, 425, 3 N. B. R. 296, Fed. Cas. No. 2,156; In re Eidom, 3 N. B. R. 106, Fed. Cas. No. 4,314; In re Freeman, 4 Ben. 245, 4 N. B. R. 64, Fed. Cas. No. 5,082 ; In re Hill, 2 Ben. 136, 1 N. B. R. 275, Fed. Cas. No. 6,482 ;, In re Tyrrel, 2 N. B. R. 200, Fed. Cas. No. 14,314; In re Hansen, 2 N. B. R. 211, Fed. Cas. No. 6,039. See In re Simon (D. C.) 268 Fed. 1006, 46 Am. Bankr. Rep. 170. » 391 In re Main, 205 Fed. 421, 30 Am. Bankr. Rep. 547 ; In re Mintzer, 197 Fed. 647, 28 Am. Bankr. Rep. 743 ; In re Lew- is, 163 F«d. 137, 20 Am.' Bankr. Rep. 711 ; In re Bromley, 152 Fed. 493. 18 Am. Bankr. Rep. 227; In re Ginsburg, iSO Fed. 627, 12 Am. Bankr. 459; In re Peck, 120 Fed. 972, 9 Am. Bankr. Rep. 747; In re Graves, 24 Fed. 550; In re Son, 2 Ben. 153, 1 N. B. R. 310, Fed. Cas. No. 13,174. An exception exists in the case of alleging the failure to keep books of account, or the destruc- tion or concealment of books, where, from the nature of the case, it may be impossible for the objecting^ creditor to particularize. Here an allegation in the language of the statute may suffice. See In re Magen Bros. Co., 192 Fed. 883, 113 C. C. A. 207, 27 Am. Bankr. Rep. 729. 392 In re Marsh, 2 Nat. Bankr. News, 649. , 3 93 Troeder v. Lorsch, 150 Fed. 710, 80 C. C. A. 376, 17 Am. Bankr. Rep. 723. § 692 LAW OF BANKRUPTCY 1382 tions must set forth the facts with the same particularity and exactness that are required in an indictment or a criminal information.*** And this rule may not be too severe in cases where the ground ©f opposition al- leged is the commission of a crime punishable under the bankruptcy law, though otherwise it appears to go to the extreme limit. An allegation which' merely states the creditor's belief that the bank- rupt owns property which he is concealing and has not listed in his schedule is insufficient.*** If this is the ground of opposition relied on, the specification must distinctly allege a concealment of the property or that the trustee has been prevented from taking possession of it,'** that the property has been concealed from the trustee, a charge that it has been concealed "from his estate in bankruptcy" being insufficient,**'' as is also a statement that the bankrupt has placed his property in the hands of his wife,*** and it must specify and describe the particular property al- leged to have been concealed, with as much certainty as the nature of the case admits, the courts refusing to consider such general statements as that the bankrupt has "concealed a part of his effects," "concealed his estate and effects," or "concealed certain papers," and the like.*** So if the creditor means to oppose the discharge on the ground that the bank- rupt has obtained money or property on credit by means of a materially false statement, he must charge that it was made in writing,**" and must state the substance of the false statement and the name of the person defrauded by it.*"^ Again, where it is specified that the bankrupt has 304jn re Levey, 133 Fed. 572, 13 Am. 399 in re Parish, 122 Fed. 553, 10 Am. Bankr. Rep. 312; In re Hirsch, 96 Fed. Bankr. Eiep. 548; In re White (D." C.) 468, 2 Am. Bankr. Rep. 715; In re But- 222 Fed. 688, 34 Am. Bankr. Rep. 803 ; terfield, 5 Biss. 120, 14 N. B. R. 147, In re Agnew (D. C.) 225 Fed. 650, 35 Fed. Cas. No. 2,247. But compare In re Am. Bankr. Rep. 709 ; In re Opava, 235 Smith, 5 N B. B. 20, Fed. Cas. No. 12,- Fed. 779, 87 Am. Bankr. Rep. 799. In 985; In re Mudd, 2 Nat. Bankr. News, re Mawson, 2 Ben. 332„1 N. B. R. 437, 710. Specifications in oiiposition to a Fed. Cas. No. 9,318; In re Hixon, 93 discharge, especially where attempting Fed. 440, 1 Am. Bankr. Rep. 610; In re to charge some criminal act, should be Condlct, 19 N. B. R. 142, Fed. Cas. No. pleaded with greater particularity than 3,094 ; In re Carrier, 47 Fed. 438 ; In re in ordinary civil actions, though the Dreyer, 2 N. B. R. 212. Fed. Cas. No. strict rules as to indictments do not ap- 4,082. But see In re Milgraum & Ost ply. In re White (D. C.) 222 Fed. 688, 129 Fed. 827, 12 Am. Bankr. Rep. 306, as 34 Am. Bankr. Rep. 803. to an allegation that bankrupts had con- 895 In re Thomas, 92 Fed. 912, 1 Am. cealed "large quantities of merchandise" Bankr. Rep. 515; In re White (D. C.) in a certain house. 222 Fed. 688, 34 Am. Bankr. Rep. 803 ; 400 in re Lewis, 163 Fed 137 20 Am In re Abramovitz (D. C.) 253 Fed. 299, Bankr. Rep. 711. 41 Am. Baukr. Rep. 588. 401 e. H. Godshalk Co. v Sterling S96 In re Taplin, 135 Fed. 861, 14 Am. 129 Fed. 580, 64 C. C. A. 148, 12 Am' K;"'-v Ren. 360. Bankr. Rep. 302; In re Levey (D C) 8or In re Adams, 171 Fed. 599, 22 Am. 133 Fed. 572, 13 Am. Bankr. Rep. 312. Bankr. Ren. G13. See In re Epstein (D. C.) 248 Fed' 19l' 39.1 In re Hill, 2 Ben. 136, 1 N. B. R. 40 Am. Bankr. Rep. 406: In re Main 275, Fed. Cas. No. 0,482. See In re (O. C.) 205 Fed. 421, 30 Am Bankr vaisi (D. C.) 205 Fed. 983. Rep. 547. A specification of objections 1383 DISCHARGE OF BANICfttJPT § 693 committed perjury in his testimony before the referee, the objection must set out the testimony alleged to be false, together with the facts relied on to prove its falsity, so as to present a specific issue.*'* And a speci- fication stating that the bankrupt procured the assent of certain creditors to the granting of the discharge, without alleging that he did so by means of a pecuniary consideration or otherwise corruptly, is not suffi- cient.*** And a specification that the bankrupt has falsely set forth in his petition and schedule that he had no property is defective and in- sufficient; it must specify what property he had.*"* And the same is true of a specification that the bankrupt mad«> "various contradictory statements" in the course of the proceedings.**^ But it is said that where fraudulent payments are charged, it is not necessary to state that the persons receiving such payments were creditors.*** Where it is es- sential that acts alleged as a ground for refusing the discharge should have been committed within a particular period of time, the time must be distinctly specified in the creditor's pleading. An allegation that such an act was done "a short time prior to" the filing of the petition, for in- stance, will not suffice.*" Finally, where the specifications filed are too vague and indefinite to be triable, the case stands as if there were no op- position and no specifications filed, and the bankrupt must receive his discharge if otherwise entitled to it.*** § 693. Same; Allegations of Knowledge, Falsity, and Fraudulent Intent. — ^A specification in opposition to a bankrupt's application for discharge, on the ground of his having concealed property from his trustee, is fatally defective if it fails to allege that the offense was com- mitted "knowingly and fraudulently," these words being included in the statute as a necessary part of the crime or ground for refusing a discharge.**® Thus, an allegation that he has "not offered to surrender all of his property for the benefit of his creditors" and that he is "with- holding property from his creditors" is not sufficient,*^* nor is an alle- to discharge, asserting that the baifk- Fed. Cas. No. 1,183; In re Kathbone, 1 rUpt obtained property on credit from N. B. R. 324, Fed. Cas. No. 11,582. the objecting creditor on a materially io^ In re Blalock, 118 Fed. 679, 9 Am. false statement in writing, made for the Bankr. Rep. 266. purpose of obtaining property on credit, ^os in re Smith, 5 N. B. R. 20 Fed. is objectionable, where there is no spec- Cas. No., 12,985. ificatlon or statement of what property *07 In re Steed, 107 Fed. 682, 6 Am. was thus obtained. In re , Troutman & Bankr. Rep. 73 ; In re Peacock, 101 Jesse (D. C.) 251 Fed. 930, 40 Am. Bankr. Fed. 560, 4 Am. Bankr. Rep. 136. Rep. 418. . *0 8 In re Son, 2 Ben. 158, 1 N. B. R. 402 In re Goodale, 109 Fed. 783, 6 31^, Fed. Cas. No. 13,174. Am. Bankr. Rep. 493; In re Greer (D. *" ^"^ ^'^ falser, 99 Fed. 689, 3 Am. C.) 248 Fed. 131, 40 Am. Bankr. Rep. ^^nkr. Rep. 767; In re Pierce, 103 Fed. rjQrj 64, 4 Am. Bankr. Rep. 554 ; In re Griffin Bros., 154 Fed. 537, 19 Am. Bankr. Rep. *03 In re Mawson, 2 Ben. 332, 1 N. B. ^g ^ R. 437, Fed. Cas. No. 9,318. " \^o in re Hirsch, 96 Fed. 468, 2 Am. 404 In re Beardsley, 1 N. B: R. 304, Bankr. Rep. 715. § 694 LAW OF BANKRUPTCY 1384 gation that the bankrupt, "with a fraudulent intent, has failed to include in his schedules property belonging to him,"*" nor a charge that, at the time of filing the petition, he Gtwned and possessed property which he has fraudulently concealed and fraudulently failed to inventory,"* nor an allegation that he fraudulently disposed of a part of his property and in his petition concealed the fact, and has converted the proceeds of the property to his own use.*^* Similarly, the making of a false oath in a proceeding in bankruptcy, considered as a ground for refusing a discharge, must have been done "knowingly and fraudulently," and if this is not distinctly alleged, the specifications will be insufficient.*-*^* So again, a charge that the bankrupt has concealed his books of account or destroyed them is defective if it fails to allege that this was done with intent to conceal his financial condition.*'® And if the ground of oppo- sition is that the bankrupt omitted the name and claim of the objecting creditor from his schedule it must be alleged that it was willfully and fraudulently done.*^® And if the act of the bankrupt objected to is a transfer of his property made within four months before the filing of the petition in bankruptcy, it must be alleged to have been made with intent to hinder, delay, or defraud his creditors, though in this case the words "knowingly and fraudulently" need not be used.*" § 694. Same; Allegations as to Failure to Keep Books or Destruc- tion or Concealment of Books. — Where the ground of objection to the bankrupt's discharge is that he has failed to keep books of account from which his financial condition could be ascertained, or that he has de- stroyed or concealed his books, the specifications of objection may state the charge generally, following the language of the statute, and without giving particulars, since these matters are peculiarly within the bank- rupt's own knowledge and cannot ordinarily be specified in detail.*^* And a specification on this ground is not defective for uncertainty be- 4" In re Adams, 104 Fed. 72, 4 Am. ^it in re Gift, 130 Fed. 230, 12 Am. Bankr. Rep. 690. Bankr. Rep. 244. "2 In re Taplin, 135 Fed. 861, 14 Am. *i8In re Magen Bros. Co., 192 Fed. Bankr. Rep. 860. 883, 113 C. C. A. 207, 27 Am. Bankr. Rep. 4isln re Patterson, 121 Fed. 921, 10 729; In re Ginsburg, 130 Fed. 627, 12 Am. Bankr. Rep. 371. Am. Bankr. Rep. 459; In re Randall, 414 In re Patterson, 121 Fed., 921, 10 159 Fed. 298, 20 Am. Bankr. Rep. 305; Am. Bankr. Rep. 371; In re Beebe, 116 In re Nathanson, 155 Fed. 645, 19 Am'. Fed. 48, 8 Am. Bankr. Rep. 597; In Bankr. Rep. 56; In re Patterson, 121 re Blalock, 118 Fed. 679, 9 Am. Bankr. Fed. 921, 10 Am. Bankr. Rep. 371; In Rep. 266 ; In re Mayer, 195 Fed. 571, 28 . re Bellis, 4 Ben. 53, 3 N. B. R. 496, Fed. Am. Bankr. Rep. 342 ; In re Smith, 5 Cas. No. 1,275. Compare In re Milg'raum N. B. R. 20, Fed. Cas. No. 12,985. & Ost, 129 Fed. 827, 12 Am. Bankr. Rep. 415 In re Griffin Bros., 154 Fed. 537, 306; In re Dreyer, 2 N. B. R. 212, Fed 19 Am. Bankr. Rep. 78. Cas. No. 4,082. "Whether a bankrupt 413 Symonds v. Barnes, 59 Me. 191, 8 has kept such accounts, and if so, Avhoth- Am. Rep. 418, 6 N. B. R. 377. er ha retains, conceals, or destroys 1385 DISCHARGE OF BANKRUPT § 694 cause it alleges, in the disjunctive, that the bankrupt, with intent to conceal his iinancial condition, either destroyed or failed to keep books of account.*^" So, if the specification charges that he failed to keep books of account or records from which his financial condition could have been ascertained, it is not necessary to proceed further and enu- merate or describe the books or records which the bankrupt ought to have kept in order to disclose the state of his affairs.*^* Or if the par- ticular charge is that the bankrupt, intending to conceal his financial condition, destroyed his canceled checks and their stubs, it is not nec- essary more definitely to describe the checks and stubs alleged to have been destroyed.*'^ But the intent to conceal his financial condition is an essential element of this offense, and this must be distinctly alleged. It is not sufficient, for example, to allege that the bankrupt failed to keep books of account "and hence the true status of his affairs cannot be as- certained." It must be specifically charged that his failure to keep books, or his destruction or concealment of them, was in pursuance of an intent to conceal his financial situation.*^^ And if the ground of ob- jection is that the bankrupt gave false testimony before the referee in regard to the books which he kept or did not keep, or in regard to the disposition which he has made of them, the specifications must be defi- them, is a matter peculiarly witliin his own knowledge and which, in the nature of things, a creditor ordinarily does not know. All he does know is that the bankrupt has not surrendered such books to the trustee. Now the purpose of a sjjecification is to fairly apprise the bank- rupt of such matters in bar of his dis- charge as will be insisted upon, in order that he may be able to meet them. Such matters are not to be specified with the exactness and formality required in in- dictments, but only in such substantial form as will fairly inform one of th« charges made against him. But where, as in the csLse of books of account, the bankrupt in the very nature of things, and he alone, already knows what books he did or did not keep, and the creditor does not know, except as he infers their nonexistence, concealment, or destruction from the fact of their nondelivery to the trustee, it would seem that a speci- fication following the language of the statute and covering nonkeeping, con- cealment, or destruction suflSciently and fairly apprises the bankrupt of the mat- ter insisted upon in that respect." In re Magen Bros. Co., supra. *i» In re Brod, 166 Fed. 1011, 21 Am. Biuikr, Rpp. 426, affirmed in Brod v. J. K. Orr Shoe Co., 173 Fed. 1019, 97 C. 0. A. 667. "Assuredly three separate speci- fications charging the bankrupts respec- tively with destroying, with concealing, and with falling to keep books, etc., would each have been good. Each being singly self-sufficient, certainly there is no reason why the three, united in a single specification, become bad." In re Magen Bros. Co., 192 Fed. 883, 113 C. C. A. 207, 27 Am. Bankr. Rep. 729. 42 E. H. Godshalk Co. v. Sterling, 129 Fed. 580, 64 C. C. A. 148, 12 Am. Bankr. Rep. 302. 421 B. H. Godshalk Co. v. Sterling, 129 Fed. 580, 64 C. C. A. 148, 12 Am. Bankr. Rep. 302. *22 In re Blalock, 118 Fed. 679, 9 Am. Bankr. Rep. 266 ; In re Bradin, 179 Fed. 768, 24 Am. Bankr. Rep. 793; In re Marston, 5 Ben. 313, Fed. Cas. No. 9,142. A specification of objections against a bankrupt's discharge that he failed to keep books, with full and complete knowledge of the importance and neces- sity thereof, in the brokerage business, and with intent to "defraud and deceive" the undersigned objecting creditors and others, while inapt, was considered suf- ficient to sustain an amendment, so as to conform it to the statute. In re Weston, "} C95 LAW OF BANKRUPTCY 1386 nite and certain and must set forth such particulars as will raise a dis- tinct issue.**® § 695. Signature and Verification of Specifications. — Specifications in opposition to a bankrupt's discharge must be in writing, signed, and verified. If the objecting creditor is a partnership, its signature may be affixed by one of the partners having authority to sign the firm name ; *** if it is a corporation, the specification may be signed by a duly author- ized officer, who will also affix the corporate seal.*^® If several credi- tors desire to urge the same objections to the bankrupt's application for discharge, they are not required to make and sign separate specifica- tions, but may join in one paper,*^* but in that case, each of them must sign and swear to the specification.**' These specifications are "plead- ings," within the meaning of the provision of the bankruptcy act that "all pleadings setting up matters of fact shall be verified under oath," *** and therefore they must be sworn to by the objecting creditor.*-® It is said, however, that the want of a verification is an irregularity which may be waived, and it will be considered as waived if the bankrupt does not object to the specification on this ground.*®" At any rate, the defect may be supplied by amendment.*®"^ The form generally approved for the verification of specifications is that by which the objecting creditor "does hereby make solemn oath that the statements of fact contained" in the specification "are true according to the best of my knowledge, information, and belief." *** Though specifications of objection should not ordinarily be signed and verified by attorneys at law or in fact for objecting creditors, in- stead of the creditors themselves, yet they may be so signed under ex- ceptional circumstances.*®® But in that case the reason why the verifi- cation is made by counsel instead of by the creditor in person should be 206 Fed. 281, 124 C. C. A. 345, 30 Am. Fed. 222, 15 Am. Bankr. Rep. 271. Com- Bankr. Rep. 647. pare In re Jamieson, 120 Fed. 697, 9 Am. *2 3 In re Nathanson (D. C.) 155 Fed. Bankr. Rep. 681. 645, 19 Am. Bankr. Rep. 56. *3o in re Main, 205 Fed. 421, 30 Am. *2* In re Glass, 119 Fed. 509, 9 Am. Bankr. Rep. 547. Bankr. Rep. 391. 43 1 in re Meurer, 144 Fed. 445, 15 Am. ,„„ ■„ , "4 In re Leland, 8 Ben. 204, P,ed. Cas. , *"J°, ""^ Goodhile (D C.) 130 Fed. Xo 8 232 ^^ ' ^^ ^- ^ankr. Rep. 380 ; In re Wil- ^ 465'in re WiUiams, 6 Blss. 233, 11 N. «»^- W9Jed. 628, 48 C. C. A. 567, 6 Am. B. R. 145, Fed. Cas. No. 17,700. ^''°, ""V^^^;?; f^tr. ^""Lf ^P.''''® J'' ,''^ 466 In re Leland, 8 Ben. 204, Fed. Cas. 2°°M^- ^'i ^^^ ^^^; ^^^' ^J^"^' ^''^'S- No 8282 P" ®®^ ^^ Blaesser (D. ^ 467 In ;e Delavan, Fed. Cas. No. 3,758. ^■\^^'^-^^- ^^^' ^f ^'?- ^^^i^'-- ^^P- 795. 46 8 In re Lathrop, 3 N. B. R. 46, Fed. ^ol<^'°g ^^^^ (notwithstanding General Cas No fftOS. Order No. 22) testimony given before the 460 Shaffer v. Koblegard Co., 183 Fed. referee by the creditor objecting to the 71, 105 C. C. A. 363, 24 Am. Bankr. Rep. discharge, who died without signing his S98; In re Goodhile, 130 Fed. 782, 12 testimony or being sworn thereto, may Am. Bankr. Rep. 380; In re Bard, 108 ^^ considered when written out and Fed. 208, 5 Am. Bankr. Rep. 810; In re P^o''^^ by the reporter or some one else. liOgan, 102 Fed. 876, 4 Am. Bankr. Rep. 472 in re Brockway (D. C.) 12 Fed. 69. § 701 . LAW OP BANKRUPTCT 1392 bankrupt is a competent witness for other creditors opposing the bank- rupt's discharge.*'^ And one who appeared as counsel in an equity suit brought by the trustees against the bankrupt and others may be com- pelled to testify as a witness for the creditors.*'* The testimony of ab- sent witnesses may be taken by deposition; but in this case notice of the taking of the deposition must be served upon the bankrupt and filed with the referee.*'^ An application to examine a witness who is a resi- dent of another state, in support of the creditors' specifications, should be made to the federal district court of the district wherein the witness has his residence.*'* It is of course not necessary, or even possible, to prove every allegation of the specifications by direct testimony, but cir- cumstantial evidence may be relied on in proper cases. Thus, where the charge is the obtaining of goods on credit by means of a materially false statement in writing, the fact that the creditor parted with his property in reliance on such statement may be shown circumstantially.*" And so, evidence of concealment of assets claimed by the bankrupt to be ex- empt, although irrelevant as evidence in support of the specifications, might be competent on the question of knowledge to show methods of concealment by the bankrupt with a view to bankruptcy.*'* § 701. Same; Burden of Proof. — The filing of specifications in op- position to a bankrupt's application for discharge does not make out a prima facie case against him which he is bound to disprove.*'* But on the contrary, the burden of proof is on the objecting creditors, and they must sustain the allegations of their specifications by satisfactory and convincing evidence, so as to show clearly the existence of at least one of the statutory grounds for refusing a discharge.*** If they fail in *73 In re Day, Fed. Cas. No. 3,671a. Payne & Gleaves, 226 Fed. 187, 141 C. C. *74 In re Leland, 8 Ben. 204, Fed. Cas. A. 185, 35 Am. Bankr. Eep. 307; In re No. 8;232. Cohen, 206 Fed. 457, 124 C. C. A. 363, 30 47 5 Bankruptcy Act 1898, § 21c. Am. Bankr. Kep. 653; In re Johnson (D. 478 In re Robinson, 179 Fed. 724, 24 C.) 215 Fed. 748; In re Shrimer (D. O.) Am. Bankr. Eep. 617. 228 Fed. 794, 36 Am. Bankr. Eep. 404 ; 4" In re Eeed, 191 Fed. 920, 26 Am. In re Haimowich (D. C.) 232 Fed. 378, Bankr. Eep. 286. 36 Am. Bankr. Eep. 648 ; In re Wix {D. 478 In re Isaacson, 175 Fed. 292, 23 C.) 236 Fed. 262, 38 Am. Bankr. Eep. Am. Bankr. Eep. 665. 185 ; In re Maaget (D. C.) 245 Fed. 804T 47 9 In re May, 2 Nat. Bankr. News, 93. 40 Am. Bankr. Eep. 221; In re Lally 480 In re Gottlieb (C. C. A.) 262 Fed. (D. C.) 255 Fed. 358, 43 Am. Bankr. Eep. 730, 44 Am. Bankr. Eep. 464, 45 Am. 252; In re Main, 205 Fed. 421, 30 Am! Bankr. Eep. 180; Horner v. Hamner, 249 Bankr. Eep. 547; Hardie v Swaffiord Fed. 134, 161 C. C. A. 186, L. R. A. Bros. Dry Goods Co., 165 Fed 588 91 C 1918E, 465, 40 Am. Bankr. Eep. 817; In C. A. 426, 20 L. E. A. (N. S.) 7S5, 21 Am re Garrlty, 247 Fed. 310, 159 O. C. A. Bankr. Eep. 457 ; In re Eades, 143 Fed 404, 40 Am. Bankr. Eep. 664; In re 293,74 0. C. A. 431, 16 Am Bankr Eep Braun, 239 Fed. 113, 152 C. C. A. 155, 38 30 ; In re Garrison, 149 Fed. 178, 79 C Am. Bankr. Eep. 651; Slieinberg v. C. A. 126, 17 Am. Bankr. Eep. 831- In Hoffman, 236 Fed. 343, 149 C. C. A. 475, re Walder, 152 Fed. 489, 18 Am. Bankr 38 Am. Bankr. Eep. 24 ; Poff v. Adams, Eep. 419 ; In re Kolster, 146 Fed. 138 1393 DISCHARGE OF BANKRUPT § 701 this, the specifications of objection will be overruled and dismissed and the discharge will be granted.**^ But the burden of proof may shift, and put the bankrupt upon the defensive. And this happens when enough has been shown by the creditors to make out a prima facie case, and it can be rebutted only by proof of facts which must be specially and peculiarly within the bankrupt's own knowledge. Thus, where the ground of opposition is the concealment of property from the trustee, and the creditors have shown the recent existence of assets which have not been scheduled or surrendered, and their disappearance or large shrinkage within a short time prior to the bankruptcy, the burden is on the bankrupt to account for the disappearance or diminution of his estate, and if he fails to give a reasonable and credible explanation, the court will be justified in inferring a fraudulent concealment of as- sets,, such as to forfeit his right to a discharge.*** On a similar prin- ciple, an objecting creditor has the burden of showing that a materially false statement made by the bankrupt as a basis for credit was known by him to be untrue when made;*** but when that fact is proved, the burden shifts to the bankrupt to show that it was not made with intent to deceive.*** So also, it is said that, to entitle a partner to a discharge notwithstanding the fact that the firm failed to keep proper books of account, with intent on the part of some member to conceal its financial condition, the burden rests on him to prove that he was innocent of any participation therein.**^ When the objecting creditors have shown that the bankrtipt failed to keep proper books of account, the circumstances of his business or occupation being such as to make them necessary for an understanding of his financial situation, the presumption then arises that the bankrupt intended the natural and probable consequences of 17 Am. Bankr. Rep. 62; In re Keefer, C. A. 185, 38 Am. Bankr. Rep. 589; In 1.35 Fed. 885, 14 Am. Bankr. Rep. 290; re Brincat (t>. C.) 233 Fed. 811, 37 Am. In re Hamilton, 133 Fed. 823, 13 Am. Bankr. Rep. 587; In re Diamond, 204 Bankr. Rep. 333 ; In re McGurn, 102 Fed. 137, 30 Am. Bankr. Rep. 363 ; In re Fed. 743, 4 Am. Bankr. Rep. 459 ; In re Miller, 203 Fed. 170, 30 Am. Bankr. Rep. Chamberlain, 125 Fed. 629, 11 Am. 113 ; In re McCann, 179 Fed. 575, 24 Am. Bankr. Rep. 95 ; In re Fltchard, 103 Bankr. Rep. 789; Selgel v. Cartel, 164 Fed. 742, 4 Am. Bankr. Rep. 609; In re Fed. 691, 21 Am. Bankr. Rep. 140; In Wetmore, 99 Fed. 703, 8 Am. Bankr. re Leslie, 119 Fed. 406, 9 Am. Bankr. Rep. 700; In re Phillips, 98 Fed. 844, 3 Rep. 561; In re Finkelstein, 101 Fed. Am. Bankr. Rep. 542; In re Shertzer, 99 418, 3 Am. Bankr. Rep. 800; In re Mey- Fed. 706, 3 Am. Bankr. Rep. 699 ; In re ers, 96 Fed. 408, 2 Am. Bankr. Rep. 707 ; Hixon, 93 Fed. 440, 1 Am. Bankr. Rep. In re Wood, 98 Fed. 972, 3 Am. Bankr. 610 ; In re Idzall, 96 Fed. 314. Rep. 572. *8i In re Miller, 212 Fed. 920, 129 C. *83 in re Troutman & Gesse (D. C.) C. A. 440 ; In re Corn (D. C.) 106 Fed. 251 Fed. 930, 40 Am. Bankr. Rep. 418. 143, 5 Am. Bankr. Rep. 478; In re 48 4 in re Arensou, 195 Fed. 609, 28 Hirsch (D. C.) 97 Fed. 571, 3 Am. Bankr. Am. Bankr. Rep. 113; In re Perlmutter ' Rep. .344; In re O'Kell, 2 N) B. R. 105, (D. 0.) 256 Fed. 862, 43 Am. Bankr. Rep, Fed. Cas. No. 10,475; In re Harris, 2 362. N. B. R. 105, Fed. OaS: No. 6,112. iss in re Schachter, 170 Fed. 683, 22 *82 In re Cooper, 230 Fed. 991, 145 C. Am. Bankr. Rep. 389. Blk.iBkr.(3d Ed.)— 88 § 702 LAW OF BANKRUPTCY 1394 such failure, that is to say, the concealment of his financial condition from his creditors, and, to obtain ■ his discharge, he must rebut this presumption by satisfactory evidence.*** But these rules do not of course apply in cases where there can be no burden of proof one way or the other, as where the question presented is one of law and not of. fact, as, for example, upon the construction of the statute.**' § 702. Same; Weight and Sufficiency of Evidence. — On opposition to a bankrupt's application for discharge, it is not required of the oppos- ing creditors that they should establish the allegations of their speci- fications beyond a reasonable doubt. Their evidence must, indeed, be sufiQcient to overcome any opposing presumptions as well as the evidence produced on behalf of the bankrupt,*** but a proceeding of this kind is not a criminal case, although the ground of opposition specified may also be a crime under the statute. Thus, where it is charged that the bank- rupt swore falsely in verifying his schedule or in the proceedings in bankruptcy, the evidence must be sufficiently clear and convincing to overcome the presumption of his honesty; but it is not required to be of the high degree necessary to sustain a conviction for perjury.*** In fact, it is only necessary that there should be a fair preponderance of the credible evidence supporting the case of the objecting creditors,**" but this preponderance must exist, for an evenly balanced condition of the proof will warrant a decision in favor of the bankrupt.*'* It is difficult to characterize exactly the kind of evidence and the weight of the evidence which the creditors must produce, as it necessarily varies greatly with the facts and circumstances of each particular case.**'-* ISO Thompson v. Lamb (C. C. A.) 263 *9i> Thompson v. Lamb (C. C. A.) 263 Fed. 61, 45 Am. Bankr. Rep. 316; Devor- Fed. 61, 45 Am. Bankr. Rep. 316; In re kin V. Security Bank & Trust Co., 243 Brincat (D. C.) 233 Fed. 811, 37 Am. Fed. 171, 156 C. C. A. 37, 39 Am. Bankr. Bankr. Rep. 587; In re Atlas "(D. G.) Kep. 738; In re Landersman (D. C.) 239 219 Fed. 783, 34 Am. Bankr. Rep. 44 ; In Fed. 766, 38 Am. Bankr. Rep. 685 ; In re re Bacon (D.' C.) 205 Fed. 545, 30 Am. Chass (D. C.) 238 Fed. 573, 37 Am. Bankr. Rep. 584; In re Doyle (D. C) Bankr. Rep. 734. 199 Fed. 247, 29 Am. Bankr. Rep. 102; *87 In re Gilpin (D. C.) 160 Fed. 171, In re Dauchy, 130 Fed. 532, 65 C. O. a! 20 Am. Bankr. Rep. 374. 78, 11 Am. Bankr. Rep. 51l'; In re Les- 488 In re Garrity, 247 Fed. 310, 159 0. lie (D. C.) 119 Fed. 406, 9 Am. Bankr. C. A. 404, 40 Am. Bankr. Rep. 664 ; In re Rep. 561. But compare In re Braus Perlrautter (D. 0.) 256 Fed. 862, 43 Am. 248 Fed. 55, 160 C. C. A. 195, 40 Am' Bankr. Rep. 362 ; Troeder v. Lorsch, 150 Bankr. Rep. 668. Fed. 710, 80 C. C. A. 376, 17 Am. Bankr. ^oi In re Hlrsch (D. C.) 96 Fed 468 "^ Rep. 723; In re Delmour (D. C.) 161 Fed. Am. Bankr. Rep. 715. 589, 20 Am. Bankr. Rep. 405; In re io^The following cases may be con- Greenberg (D. 0.) 114 Fed. 773, 8 Am. suited, each of which was concerned Bankr. Rep. 94. Compare In re Hen- with the weight and sufficiency of the nebry (D. C.) 207 Fed. 882, 31 Am, evidence offered on a contest of the bank- Bankr. Rep. 231. rupt's right to a discharge: In re Ro- 480 Remmers v. Merchants-Laclede senfeUl (C. C. A.) 262 Fed. 876 44 Am .\ut. Bank, 173 Fed. 484, 97 G. C. A. Bankr. Rep. 390; Goerner v Eastman 490, 23 Am. Bankr. Rep. 78. (C. 0. A.) 261 Fed. 177, 44 Am Bankr 1395 DISCHARGE OF BANKRUPT 702 But the general opinion of the courts may be seen from their frequent use, in stating the requirements, of such phrases as "clear and convinc- ing proof," **' "strict and convincing evidence," **■' "satisfactory and suf- ficient evidence," *'"' "clear and satisfying evidence," *** and even "indis- putable proof." *"'' Particularly in regard to questions of fraud, motive, intent, and the like, it is not sufficient to prove merely suspicious circum- stances or conduct which wears a sinister aspect.*** A fraudulent con- veyance of property must be shown affirmatively, and it is not sufficient that the bankrupt's evidence on his examination tends indirectly to sup-, port the contention of the creditors.*®* And while evasive and disingen- uous testimony is not a ground for refusing his discharge, it is a material consideration in determining his credibility when testifying as to what Rep. 303 ; Sternburg v. M. Cohen & Co., 254 Fed. 1, 165 C. C. A. 411, 42 Am. Bankr. Kep. 456; In re Schultz, 250 Fed. 103, 162 C. 0. A. 275, 41 Am. Bankr. Rep. 367 ; In re Newmark, 249 Fed. 341, 161 O. C. A. 349, 41 Am. Bankr. Rep. 54; Sherwood Shoe Co. v. Wix, 240 Fed. 692, 153 C. C. A. 490, 38 Am. Bankr. Rep. 670 ; In re Cooper, 230 Fed. 991, 145 C. C. A. 185, 38 Am. Bankr. Rep. 589; Broomfield v. Lehman, 215 Fed. 97, 131 O. C. A. 405; In re Wakefield (D. C.) 207 Fed. 180, 31 Am. Bankr. Rep. 42 ; In re Hindin (D. C.) 219 Fed. 605, 34 Am. Bankr. Rep. 114 ; In re Arnold, 228 Fed. 75, 35 Am. Bankr. Rep. 740; In re Gold- berg (D. C.) 256 Fed. 541, 43 Am. Bankr. Rep. 127; In re Jutkovitz (D. C.) 259 Fed. 915, 44 Am. Bankr. Rep. 231; In re Landersman (D. C.) 239 Fed. 766, 38 Am. Bankr. Rep. 685 ; In re Wiback (D. C.) 245 Fed. 135, 40 Am. Bankr. Rep. 172; In re Kaplan (D. C.) 245 Fed. 222, 40 Am. Bankr. Rep. 181; In re Helfgott (D. C.) 245 Fed. 358, 40 Am. Bankr. Rep. 196; In re Maaget (D. C.) 245 Fed. 804, 40 Am. Bankr. Rep. 221 ; In re Faekler (D. C.) 246 Fed. 864, 39 Am. Bankr. Rep. 742; In re Kappes (D. C.) 258 Fed. 653, 44 Am. Bankr. Rep. 15&S In re Schroe- der (D. C.) 264 Fed. 862, 45 Am. Bankr. Rep. 202; Troeder v. Lorsch, 150 Fed. 710, 80 C. C. A. 376, 17 Am. Bankr. Rep. 723 ; In re Taylor, 182 Fed. 187, 24 Am. Bankr. Rep. 945; In re Margolis, 181 Fed. 591, 24 Am. Bankr. Rep. 934 ; In re Chamberlain, 180 Fed. 304, 25 Am. Bankr. Rep. 37; In re Tillyer, 147 Fed. 860, 17 Am. Bankr. Rep. 125 ; In re Bur- stein, 160 Fed. 765, 20 Am. Bankr. Rep. 399 ; In re Goldich, 164 Fed. 882, 21 Am. Bankr. Rep. 249; In re Guilbert, 169 Fed. 149, 22 Am. Bankr. Rep. 221; Bar- ton Bros. V. Texas Produce Co., 136 Fed. 355, 69 C. C. A. 181, 14 Am. Bankr. Rep. 502; In re Doherty, 135 Fed. 432, 13 Am. Bankr. Rep. 549; In re Harr, 143 Fed. 421, 16 Am. Bankr. Rep. 213 ; In re Jacobs, 144 Fed. 868, 16 Am. Bankr. Rep. 482; In re Leslie, 119 Fed. 406, 9 Am. Bankr. Rep. 561 ; In re Young, 140 Fed. 728, 15 Am. Bankr. Rep. 477; In re Mi- ner, 117 Fed. 953, 9 Am. Bankr. Rep. 100; In re Baerncopf, 117 Fed. 975, 9 Am. Bankr. Rep. 133; In re Boyden, 132 Fed. 991, 13 Am. Bankr. Rep. 269; In re Blalock, 118 Fed. 679, 9 Am. Bankr. Rep. 266; In re Murray, 162 Fed. 983, 20 Am. Bankr. Rep. 700 ; In re Hedley, 156 Fed. 314, 19 Am. Bankr. Rep. 409; In re Lewin, 155 Fed. 501, 18 Am. Bankr. Ren. 72 ; In re Moore, 1 Hask. 134, Fed. Cas. No. &,751. *9 3 In re Agnew (D. C.) 225 Fed. 650, 35 Am. Bankr. Rep. 709 ; In re Lally (D. C.) 255 Fed. 358, 43 Am. Bankr. Rep. 252 ; In re Taylor (D. C.) 188 Fed. 479, 26 Am. Bankr. Rep. 143 ; In re Salsbury (D. C.) 113 Fed. 833, 7 Am. Bankr. Rep. 771 ; In re Howden (D. C.) Ill Fed. 7i23, 7 Am. Bankr. Rep. 191. *9* Garry v. Jefferson Bank, 186 Fed. 461, 108 C. C. A. 439, 26 Am. Bankr. Rep. 511. *»5 In re Hirsch (D. C.) 97 Fed. 571. 3 Am. Bankr. Rep. 344. ^oe In re Berner, 2 Nat. Bankr. News, 268. i Ross-Lewin v. Goold, 211 111. 384, Brady, 71 Ga. 71; Begein v. Brehm, 123 '^1 N. B. 1028^; Williams v. Scott, 122 Ind. 160, 23 N. E. 496 ; Lawver v. Glad- ^- ^- ^^^' ^9 S. E. 877. den (Pa.) 1 Atl. 659; Thurmond v. An- eio Ross-Lewin v. Goold, 211 111. 384, drews, 10 Bush (Ky.) 400; Stetson v. 71 N. E. 102S; Jones v. Knox, 51 Ala. Bangor, 56 Me. 286; Smith v. Ramsey, 367. § 712 LAW OF BANKEUPTCY 14:12 the theory that the court never acquired jurisdiction of his person be- cause he was not served with notice of the proceedings, and this, al- though his name was purposely omitted from the list of creditors, or although the omission to serve him with notice was fraudulent and in- tentional.*" Neither is it permissible, in any collateral proceeding, to impeach a discharge in bankruptcy on the ground of fraud practised by the bankrupt in obtaining it (though directed against the particular creditor who complains) or oh the ground of a fraudulent concealment of as- sets Or other fraudulent conduct of the bankrupt, since the remedy for these matters is to be sought in the court of bankruptcy and there alone.*^* At any" rate, it is clear that a creditor who has unsuccessfully opposed the bankrupt's application for discharge is thereby estopped, in a suit which he afterwards brings to recover his debt, and to which the defendant pleads his discharge, from showing that the discharge was fraudulently obtained.®^* And for even stronger reasons, no mere irregularities of practice or errors of law alleged to have been com- mitted by the court of bankruptcy can be set up to avoid the effect of the discharge. It cannot be questioned in any other court for any lack of conformity to the provisions of the bankruptcy law, or as hav- ing been wrongly, improperly, or irregularly allowed.*" On the con- trary, if the plea setting up the discharge shows the court to have had jurisdiction of the petition, and to have proceeded, on the petition, to grant the discharge, all the intermediate steps will be presumed to have been duly and regularly taken."^ But it is always permissible for a creditor to avoid the effect of a discharge in bankruptcy as to his particular claim (without question- ing its validity), by showing that his debt is one of the kind expressly excepted by law from the operation of a discharge, as, for instance, 611 Allen V. Thompson, 10 Fed. 116; Pittsb. Leg. J. (Pa.) 141; Morris v. Creed, Benedict v. Smith, 48 Mich. 593, 12 N. 11 Heisk. (Tenn.) 155; Brown v. Causey, W. 866 ; Thornton v. Hogan, 63 Mo. 56 Tex. 340 ; Seymour v. Street, 5 Neb'. 143 ; Williams v. Butcher, 12 N. B. R. 85 ; Wiley v. Pavey, 61 Ind. 457, 28 Am. 143; Sawyer v. Rector, 5 Dak. 110, 37 Rep. 677; Wales v. Lyon, 2 Mich. 276. N. W. 741 ; Brown v. Kroh, 31 Ohio St. Contra, see Gupton v. Connor, 11 Humph. 492; Bailey v. Cornithers, 71 Me. 172 ; (Tenn.) 287 ; Bond v. Baldwin, 9 Ga. Black V. Blazo, 117 Mass. 17, 13 N. B. R. 9; Shelton v. Pease, 10 Mo. 473. 195. Contra, see Batchelder v. Low, 43 eis Wales v. Lyon, 2 Mich. 276. Vt. 662, 5 Am. Rep. 311, 8 N. B. R. 571; 8i4 Grover v. Fox, 86 Mich. 463; Mar- Jones V. Knox, 51 Ala. 367. shall v. Sumner, 59 N. H. 218, 47 Am. wi 2 Ocean Nat. Bank v. Olcott, 46 N. Rep. 194; Hudson v. Bigham, 12 Heisk. Y. 12; Smith v. Ramsey, 27 Ohio St. (Tenn.) 58, 8 N. B. B. 494; Dusenbury 339, 15 N. B. R. 447; Rayl v. Lapham, v. Hoyt, 45 How. Prac. (N. Y.) 147; 27 Ohio St. 452, 15 N. B. R. 508; Oates Sinclair v. Smyth, 1 Brev. (S. C.) 402'. V. Parish, 47 Ala. 157; Ewell v. Pitman eis Morrison v. Woolson, 29 N. H. 510; (Ky.) 27 S. W. 870; Farr v. Evans, 26 Hubbell v. Cramp, 11 Paige (N. Y.) Sio! 1413 DISCHARGE OF BANKRUPT § 713 that it was created by the bankrupt by fraud or while acting in a fiduci- ary capacity,*^® or that the creditor had no knowledge of the proceed- ings in time to file his claim for proof and allowance.*^' This does not amount to an attack upon the discharge, either direct or collateral, since it admits its validity, and only seeks to withdraw the particular claim from its operation, in accordance with the provisions of the bankruptcy law. The foregoing principles are also applicable in cases where the bank- rupt is discharged on a composition with his creditors. Thus where, in proceedings in a court of competent jurisdiction for the discharge of a debtor on a composition, the decree is based on a finding that the bankrupt has not been guilty of any of the acts which would bar his discharge, nor of a failure to perform any of the duties necessary to secure it, which finding was essential to the exercise of the court's ju- risdiction, the decree will be binding as to such matters on all parties to the proceeding until properly set aside, and cannot be collaterally impeached.*^* § 713. Pleading Discharge; Necessity of Pleading. — Since a dis- charge in bankruptcy does not destroy Or extinguish the debts upon which it operates, and since it is a defense personal to the debtor and which he may waive,*^^ it follows that the bankrupt, if he wishes to avail himself of the benefit of his discharge in any particular suit, must plead it properly and seasonably, and" if he omits to do so, it constitutes no bar to the rendition of a valid judgment against him.*^" Thus, if 816 Sutherland v. Lasher, 41 Misc. 35 Tex. 171 ; Horner v. Spelman, 78 111. Rep. 249. 84 N. T. Supp. 56 ; Santa Rosa 206 ; Goodrich v. Hnnton, 2 Woods, 137, Bank v. White, 139 CaJ. 703, 73 Pac. Fed. Cas. No. 5,544. 577; Stevens v. Brown, 49 Miss. 597, e^o In re Nuttall, 201 Fed. 557, 29 Am. 11 N. B. R. 568; Linn v. Hamilton, 34 Bankr. Rep. 800; In re Boardway, 248 N. Y. Law, 305 ; Broadnax v. Bradford, Fed. 364, 41 Am. Bankr. Rep. 478 ; Fowle 50 Ala. 270. To allege that a given v. Park, 48 Fed. 789; Doggett v. Emer- claim is not discharged because it was - son, 1 Woodb. & M. 195, Fed. Cas. No. not duly scheduled in the bankruptcy 3,962; Fellows v. Hall, 3 McLean, 281, proceedings is not a collateral attack on Fed. Cas. No. 4,722 ; City of Newark v. the discharge. Hyde Park Flint Bottle Stout, 52 N. J. Law, 35, 18 Atl. 943; Co. V. Miller, 179 App. Div. 73, 166 N. Schreiber v. Schomacker Piano Forte T. Supp. 110. An action by a creditor Mfg. Co., 152 App. Div. 817, 187 N. Y. on his debt against the bankrupt would Supp. 747; Griffith v. Adams, 95 Md. not be a collateral attack on the dis- 170, 52 Atl. 66; McDougald v. Chata- charge. Collins v. Davidson, 34 Ohio nooga Medicine Co., 10 Ga. App. 653, 73 Cir. Ct. R. 668. S. E. 1089; Friedman v. Zweifler, 74 e" Fields v. Riust, 36 Tex. Olv. App. Misc. Rep. 448, 132 N. Y. Supp. 320; 350, 82 S. W. 331. Broadway Trust Co. v. Manheim, 47 «i« I-Ioskins V. Velasco Nat. Bank, 48 Misc. Rep. 415, 95 N. T. Supp. 93; Bank Tex. Civ. App. 246, 107 S. W. 598. of Commerce v. Elliott, 109 Wis. 648, 85 «inTaber v. Donovan, 156 Mich. 652, N. W. 417; Lovell v. Sneed, 79 Ark. 204, 121 N. W. 481; Ludeling v. Pelton, 29 95 S. W. 157; Lane v. Holcomb, 182 La. Ann. 719; Manwarring v. Kouns, Mass. 360, 65 N. E. 794; Collins v. Mc- § 713 LAW OF BANKRUPTCY 1414: the defendant in an. action fails to plead his discharge in bankruptcy and permits a judgment to go against him, he cannot afterwards, on the ground of the discharge, have relief in equity against any proceed- ings founded on the judgment, as, by enjoining the levy of execution thereunder.*^^ Nor can he have the judgment set aside, in order to ena- ble him to plead his discharge,®^* though it was formerly held in Ala- bama, and perhaps is still the law in that state, that where a bankrupt is sued before a justice of the peace and omits then to plead his dis- charge, it is nevertheless a good defense on an appeal by him to the cir- cuit court.*'^ And a discharge in bankruptcy must be pleaded affirma- tively in a proceeding by scire facias to revive a judgment, as well as in an original suit.®^* So again, where a suit is pending against several defendants, and one of them obtains his discharge in bankruptcy but does not plead it, and judgment is rendered against them all and the amount is paid by one of the other defendants, the latter is entitled to enforce contribution from the bankrupt.**^ And it should be noted that the court of bankruptcy cannot and will not do anything to relieve a defendant who, failing to plead his discharge in a suit in another court on a dischargeable debt, suffers a judgment.*^^ Furthermore, laches in ipaking an application for leave to plead a discharge in bankruptcy is a sufficient ground for denying such application.®^' So, where the de- fendant in a suit filed an answer which made no reference to the fact that he had been discharged in bankruptcy, and first brought that fact Walters, 35 Misc. Rep. 648, 72 N. Y. Ehrhart, 56 Pa. Super. Ct. 101; First Supp. 203; Bailey v. Kraus, 39 Misc. Nat. Bank v. Cootes, 74 W. Va. 112, 81 Rep. 845, 81 N. Y. Supp. 492; Collins S. E. 844. V. Hammock, 59 Ala. 448; Brown v. J. eai Goodrich v. Hunton, 2 Woods. 135, & E. Stevens Co., 52 Conn. 110 ; Smith Fed. Cas. No. 5,544 ; Stone v. Schneider- V. Cook, 71 Ga. 705; Horner v. Spelman, Davis Co., 51 Tex. Civ. App. 517, 112 S. 78 111. 206; Jenks v. Opp, 43 Ind. 108; W. 133; Marsh v. Mandeville, 28 Miss. Palmer V. Moore, 3 La. Ann. 208; Ludel- 122; Rahm v. Minis, 40 Cal. 421; White ing V. Felton, 29 La. Ann. 710; Jones v. Powell, 38 Tex. Civ. App. 38, 84 S. V. Coker, 53 Miss. 195 ; Bank of Mis- W. 836. But see Bunting Stone Hard- souri V. Franciscus, 15 Mo. 303 ; Cronell ware Co. v. Alexander (Tex. Civ. App.) V. Dakin, 38 N. Y. 253; Gardner v. 190 S. W. 1152. Hengehold, 6 Ohio Dec. 997; Park v. 622 Mack Mfg. Co. v. Van Duerson, 138 Casey, 35 Tex. 536 ; Bellamy v. Wood- F«d. 953. son, 4 Ga. 175, 48 Am. Dec. 221; Finney 62s McCrary v. Mab«, 7 Ala. 356 V. Mayer, 61 Ga. 500; Gallaher v. 02* in re Wesson, 88 Fed. 855 ; Spring Michel, 26 La. Ann. 41; HoUister v. Run Coal Co v Tozier 102 Pa St ^42- Abbot, 31 N H. 442 64 Am^Dec 342; ^,^^^^, v. ColweTl T4Va St67; Dun! Steward v. Green, 11 Paige (N. Y.) 535 ; Hargrove 22 Ala 150 Paschall V. Bullock, 80 N. C. 329; Bell e,!",;'^'!, Z^'t % ^" !?' ^ . Cunningham, 81 N. C. 83; Hersch- ^ «-= Brmvn v. J. & E. Stevens Co., 52 Conn. 110. V. man v. Bolster, 220 Mass. 137, 107 N. E. 543; Drake v. Hodgson, 192 App. Div. "^^ I" re Ferguson, 2 Hughes, 286, 16 676, 183 N. Y. Supp. 486 ; Bryan v. N- B. R. 530, Fed. Cas. No. 4,738 Orient Lumber & Coal Co., 55 Okl. 370, es' Medbury v. Swan, 46 N. Y. 200, 8 156 Pac. 897 ; People s Trust Co. v. N. B. R. 537. 1415 DISCHAUGH OF BANKKUPT § 714 to the attention of the court by a motion in ai-rest of judgment, three weeks after a verdict had been returned against him, and did not at- tempt to plead his discharge" in bar until nearly geven months after the verdict, it was held that he had vsraived his right to do so."** But of course the case is otherwise where the bankrupt has had no opportu- nity to plead his discharge before judgment goes against him. Here he does not lose its protection by the rendition of a judgment on a dis- chargeable debt.®** So, in a case where the failure to plead the discharge was due to the fact that the attorney representing the defendant in that litigation was unaware of it, it was held that le^ye might be granted to vacate the judgment given against him and for him to plead the discharge, but only on terms including the payment of costs and dis- bursements."*' § 714. Same; Who may Plead Discharge. — It is often said that a plea of discharge in bankruptcy is strictly personal to the debtor, that he may waive the benefit of his discharge by failing to plead it, and that if he chooses to do so, no one can plead the discharge for him.®*"- And the cases are no doubt correct in holding that the plea cannot be set up by a co-defendant in the action,®** nor by one who is in posses- sion of property of the debtor, transferred with an intent to defraud creditors, in an action to set aside such transfer.®** But on the other hand the plea of a discharge in bankruptcy . can certainly be made by the personal representatives of the debtor, and indeed it is held that his administrator cannot waive the benefit of the discharge by failing to plead it.®** So it may be plea'ded by the heirs of the bankrupt, or by his widow in an action tO recover land formerly belonging to the bank- rupt and transferred to her through the agency of a third person.®*® And the plea is also permissible when interposed by a surety of the bankrupt, in respect to the transaction out of which the surety's liabil- ity is supposed to grow.®*® And again, where the question respects • the discharge as affecting a lien on property, the plea can be urged by 82 8 Lane v. Holcomb, 182 Mass. 360, Go. v. Crawley, 118 Miss. 272, 79 South. 65 K. B. 794. 94. 629 Ewing V. Peck, 17 Ala. 339; Brown "'" George Bohon Co. v. Moren & Sip- V. Branch Bank of Montgomery, 20 Ala. P'^' ^51 Ky. 811, 152 S. W. 944. 420 ; Milhous v. Aicardi, 51 Ala. 594. ° = ' leeway v. Moyer, 9 Hun (N. Y.) 473, ^ ,, „ „. ,,. „ 16 N. B. R. 1. 630 De Marco v. Mass, 31 Misc. Rep. ea* Parker v. Grant, 91 N. 0. 338; 827, 64 N. Y. Supp. 768. Wheatman v. Andrews, 85 N. J. 107, 89 631 Bush V. Stanley,' 122 111. 406, 18 N. Atl. 285! E. 249; Bank of Commerce v. Elliott, ossupshur v. Briscoe, 138 U. S. 365, 109 Wis. 648, 85 N. W. 417 ; First In- 11 Sup. Ot. 313, 34 L. Ed. 931. t^rnational Bank v. Lee (N. D.) 14^1 N. eso McDonald v. State, 77 Ind. 26; W. 716; Alabama Great Southern Ry. Bouie v, Pucket, 7 Humph. (Tenn.) 169. § 715 LAW OF BANKRUPTCY ' 1416 any one claiming an interest in the property adverse to the lien as- serted.®^'' Finally, where the object of the plea is not to show the bankrupt's immunity from liability for his past debts, but to show (as a fact relevant to the issue on trial) that the claim of a particular cred- itor was released or extinguished by the discharge, it may be alleged as matter of fact by any party who finds it a necessary part of his claim or defense.*^* § 715. Same; Form and Effect of Plea. — The mode of pleading a discharge in bankruptcy is to be determined by the mode of pleading in the state courts.®^* And it must be remembered that a state court has the right to proceed with any case pending before it until the discharge is brought to its notice by a proper and sufficient plea.*** As to the general sufficiency of a plea of this kind, there has been much conflict of opinion as to whether it is necessary to show the jurisdiction of the bankruptcy court. Numerous decisions have maintained that the plea is not sufficient unless it sets forth the facts on which jurisdiction both of the subject-matter and of the person depend.®" But other cases have ruled that this is not necessary, in view of the fact that an order of dis- charge in bankruptcy is a judgment of a court of general jurisdiction, the federal district courts, sitting in bankruptcy, not being courts of limited or local jurisdiction in such sense that their judgments must show the facts essential to jurisdiction.®*^ And where the state law provides that a judgment may be pleaded by stating that it was duly given or made, a plea alleging that the defendant was "duly adjudged" a bankrupt in a designated federal court sufficiently alleges the juris- diction of that court.®*^ Generally speaking, however, it is necessary 6 3 7 Fleltas V. Mellen, 39 Fed. 129. Hellman v. Goldstone, 161 Fed. 913, 20 638 Fleitas v. Kichardson, 147 U. S. Am. Bankr. Rep. 539. 550, 13 Sup. Ct. 495, 37 L. Ed. 276. 84i Bailey v. Kraus, 39 Misc. Rep. 845, 63 9Landly & Co. v. Cummings, 5 Ky. 81 N. Y. Supp. 492; Ruckman v. Cow- Law Rep. 511. And see Wlieeler v. New- ell, 1 N. Y. 505 ; Sackett v. Andross, 5 ton, 168 App. Div. 782, 154 N. Y. Supp. Hill (N. Y.) 327 ; Stephens v. Ely, 6 Hill 431. A discharge in bankruptcy is prov- (N. Y.) 607 ; Stow v, Parks, 1 Chand. able in an action for conversion of stocks (Wis.) 60 ; Wiggins v. Shapleig'h, 20 N. and bonds under a plea of not guilty. H. 444 ; Morse v. Presby, 25 N. H. 299 ; Pitcairn v. Scully, 252 Pa. 82, 97 Atl. 120. Landly & Co. v. Cummings, 5 Ky Law 640 Bennett v. Lewis, 66 S. W. 523, 23 Rep. 511. Ky. Law Bep. 2037. Whether a judg- 612 Rowan v. Holcomb, 16 Ohio, 463 ; ment against one who is thereafter ad- Mount v. Manhattan Co., 41 N. J. Eq'. judged a bankrupt is thereby discharged 211, 3 Atl. 726 ; Bryant v. Kinyon, 127 is a question properly raised by plead- Mich. 152, 86 N. W. 531, 53 L. R. A.'801; ing the discharge in a proceeding to en- Hays v. Ford, 55 Ind. 52; Cromwell force the judgment, and not by a petition v. Burr, 59 How. Prac. (N. Y.) 93. in the bankruptcy court to enjoin the o^s Broadway Trust Co. v. Manheim, judgnipit creditor from enforcing it. 47 Misc. Rep. 415, 95 N. Y. Supp. 93. 1417 DISCHARGE OF BANKKUPT § 715 for the plea to name the court in which the discharge was granted,®** and it is proper and prudent, even if not strictly necessary, to aver the filing of the petition in bankruptcy, that being the fundamental juris- dictional fact,®*'' and to state the date of the filing of such petition, if it has any bearing on the availability of the discharge as a defense to the claim in suit.*** And on the same principle, the careful pleader will not omit to allege the residence or domicile of the bankrupt within the territorial jurisdiction of the bankruptcy court for the requisite length of time.**'' But a defect in a plea of bankruptcy, in failing to set forth such facts as will show the jurisdiction of the court, may be waived by pleading over.*** But assuming the jurisdiction of the court to have been shown, and that the plea distinctly alleges that the defend- ant has been discharged by the judgment of the proper court, and has received his certificate of discharge, which allegations are necessary,*** it is not necessary to allege all the different proceedings had to entitle him to his discharge,*®* as, for instance, that the requisite notices had been given to the creditors and others interested before the discharge was granted,*®^ but the plea will be good if it sets out the ordfer of discharge after a "taliter processum est" or other equivalent form of allegation.*^^ For the court, at least in passing on a demurrer to a plea or answer setting up a discharge in bankruptcy, will assume that every step in the bankruptcy proceedings prior to and at the time of the discharge was in all respects regular and complied with every re- quirement of the statute.*''* Next, it is necessary for the plea of a discharge in bankruptcy to show that the claim or debt in suit, and to which it is interposed as a defense, was a provable debt in the bankruptcy proceedings, and this should be done by alleging that it was listed in the bankrupt's schedifles, 644 Morrison v. Woolson, 29 N. H. 510; City of Newark v. Stout, 52 N. J. Law, Bailey v. Kraus, 39 Misc. Rep. 845, 81 35, 18 Atl. 943 , Compare Weld v. Locke, N. T. Supp. 492. Compare Preston v. 18 N. H. 141. Simmons, 1 Kich. L. (S. C.) 262. « bo white v. How, 3 McLean, 291, Fed. 64 5 Cutter V. Polsom, IT N. H. 139; Cas. No. 17,549; Lathrop v. Stuart, 5 Wiggins V. Shapleigh, 20 N. H. 444; McLean, 167, Fed. Cas. No. 8,113; John- Price V. Bray, 21 N. J. Law, 13; Mc- son v. Ball, 15 N. H. 407; Wiggins v. Cormick v. Pickering, 4 N. Y. 276. Shapleigh, 20 N. H. 444 ; McCormick v. 6*' House V. Johnson, 19 Colo. App. Pickering, 4 N. Y. 276; Preston t. Si- 524, 76 Pac. 743 ; Stephenson v. Bird, mons, 1 Rich. L. (S. C.) 262 ; Downer v. 168 Ala. 363, 53 South. 93, Ann. Cas. Chamberlin,-21 Vt. 414. 1912B, 249. 6 51 Weld v. Locke, 8 N. H. 141; Wig- 6 47 Cutter V. Folsom, 17 N. H. 139; gins v. Shapleigh, 20 N. H. 444; State Wiggins V. Shapleigh, 20 N. H. 444 ; v. Gaston, 52 N. J. Law, 321, 19 Atl. 608 ; McCormick v. Pickering, 4 N. Y. 276 ; McCormick v. Pickering, 4 N. Y. 276. Price V. Bray, 21 N. J. Law, 13. 6 52 Price v. Bray, 21 N. J. Law, 13. 6 48 Price V. Bray, 21 N. J. Law, 13. sss Jarecki Mfg. Co. v. McElwaine, 107 649 Hayes v. Flowers, 25 Miss. 169; Fed. 249, 5 Am. Bankr. Rep. 751, § 715 LAW OF BANKKUPTCr 1418 or, if not so listed, that the creditor had notice or knowledge of the bankruptcy proceedings in time to prove his claim and have it al- lowed.**®* And the plea should show that the demand in suit was not contracted after the defendant was adjudicated a bankrupt.*®® But it is not necessary for the defendant to allege or show that the debt in question is not one of those excepted from the operation of the bank- ruptcy act. If the plaintiff contends that the debt was of a fiduciary character, contracted in fraud, for willful injury to the person, etc., it is for him to allege this fact in reply, but not for the defendant to nega- tive it in advance.*®® A plea of the defendant's bankruptcy should conclude with a veri- fication,®®'" and a certificate of the discharge should be filed with the plea,*®* but the court cannot dismiss the action merely on the filing of such a plea,, but must submit the issue to the jury.*®* And a debtor will be estopped from pleading in bar, in a suit in a state court, a discharge in bankruptcy obtained pendente lite, where he fraudulently concealed from his creditor the pendency of the proceedings in bank- ruptcy until after the discharge was granted, and the creditor had no actual notice of the pendency of such proceedings.®** A defective plea of discharge in bankruptcy is amendable on terms.*'^ In an action at law, if the suit was begun before the discharge in bankruptcy and is pending, the proper method of setting up the dis- charge in bar is by a plea "puis darrein continuance," or by such form of answer as is equivalent thereto under the moderft forms of plead- ing.*** If the proceeding is in equity, the discharge, granted since the 6 64 Currier t. King, 81 Vt. 285, 69 Atl. Tibbetts, 30 Me. 188; Hayes v. Flowers, 873 ; Balk v. Harris, 130 N. C. 381, 41 25 Miss. 169 ; Sackett v. Andross, 5 Hill S. E. 940 ; Johnson v. Waxelbaum Co., 1 (N. Y.) 327 ; Maples v. Burnside, 1 Denio Ga. App. 511, 58 S. E. 56; Bennett v. (N. Y.) 332. Lewis, 66 S. W. 523, 23 Ky. Law Rep. esz Kirby v. Garrison, 21 N. J. Law, 2037 ; Biela v. Urbanczyk, 38 Tex. Civ. 179 ; StoU v. WUson, 38 N. J. Law, 198 ; App. 213, 85 S. W. 451; Reinhardt v. Patrick v. Brown, 7 Phlla. (Pa.)' 133; Frlederich, 58 Ind. App. 421, 108 N. E. Mayer v. Glmbel, 9 Phlla. (Pa.) 90; 258. But compare B. F. Roden Grocery Downer v. Chamberlin, 21 Vt 414. Co. V. Leslie, 169 Ala. 579, 53 South. 815; «is8 stoU v. Wilson, 38 N. J. Law, 198. Morrison V. Woolson, 23 N. H. 11 ; Har- oos Austin v. Markham, 44 Ga. 161, rington v. MeNaughton, 20 Vt. 293. 10 N. B. E. 548 ; Cooper v. Cooper, 9 N.' 666 Fowler v. Michael (Tex. Civ. App.) J. Eq. 566. 81 S. W. 321. 080 Batchelder v. Low, 43 Vt. 662, 5 « 60 Rowan V. Holcomb, 16 Ohio, 463; Am. Rep. 311, 8 N. B. R 571 State V. Beck, 175 Ind. 312, 93 N. E. 664 ; eai McNeil v. Knott, 11 Ga. 142 ; StoU McNeil V. Knott, 11 Ga. 142 ; Donald v. v. Wilson, 38 N. J. Law, 198 ; Bailey v Kell, 111 Ind. 1, 11 N. B. 782 ; Wiggins Kraus, 39 Misc. Rep. 845 81 N Y Sudd V. Shapleigh, 20 N. H. 444; McOabe v. 494. Cooney, 2 Sandf. Ch. (N. Y.) 314 ; Stow 062 Reeves v. McCracken, 69 N J Eq V. Parks, 1 Chand. (Wis.) 60. Contra, 203, 60 Atl. 332; Piatt v. Cole, 5 Fed! see Jordan v. Gatewood, Smith (Ind.) 82 ; 260 ; Penn v. Edwards, 50 Ala. 63 • Bivens v. Newcomb, 2 Ind. 98 ; Frost v. Keene v. Mould, 16 Ohio, 12 ; Humble v! 1419 DISCHAKQK OF BANKRUPT § 716 commencement of the suit, may be set up by a supplemental answer,*'* or, according to. some of the authorities, by a cross-bill.*** But where a defendant, before judgment against him, has suggested his bank- ruptcy, and filed a written motion for a continuance, he may, on sub- sequently obtaining a review, plead his discharge in bankruptcy in bar of the action.**^ In a proper case, the court may impose terms on grant- ing an application for leave to plead a discharge in bankruptcy obtained pending the suit, as, a waiver of any costs up to the time of setting up the defense.*** If the defendant in an action pleads his discharge in bankruptcy, and the plaintiff means to contend that the discharge does not release his claim, because it belongs to one of the classes of debts expressly ex- cepted by the statute, he should set up this matter by a replication.**' And the same course is proper where he means to avoid the effect of the discharge by showing a new promise on the part of the defendant to pay the debt in suit.*** But where, in a suit on a note, the answer sets up a discharge in bankruptcy before suit, it does not justify a re- ply that the money for which it was given was obtained on false pre- tenses.*** § 716. Evidence as to Discharge. — Where one who has received a discharge in bankruptcy is sued on a debt existing at the time o^ the filing of the petition, the introduction of the order of discharge makes out a prima facie defense, and casts the burden on the plaintiff to show that, because of the nature of the claim, the failure to give notice, or some other statutory reason, the debt sued on was by law excepted from the operation of the discharge.*'" It is therefore an established general rule that, when a discharge in bankruptcy is pleaded in defense to an action, and the plaintiff contends that the discharge is not opera- tive as to his debt, or that, for any reason, he is not bound by it, the burden is on him to establish this fact.*'^ Thus, it is not incumbent on Carson, 6 N. B. R. 84. See Boshes v. v. Hargrove, 23 Ala. 429; Brereton y. Kamin, 2C9 111. App. 508. Hull, 1 Denio (N. Y.) 75. Compare Shel- 663 Kahn v. Casper, 51 App. Div. 540, ton v. Pease, 10 Mo. 473. 64 N. Y. Supp. 838; Holyoke v. Adams, 6 68 Young v. Denslinger, 2 111. App. 22. 1 Hun (N. Y.) 223, 10 N. B. R. 270. 669 Strauch v. Flynn, 108 Minn. 313, 664 Banque Franco-Egyptienne v. 122 N. W. 320. Brown, 24 Fed. 106. 67o Schweigert-Ewald Lumber Co. v. 66 5;rodd V. Barton, 117 Mass. 291, 13 Bauman, 42 N. D. 221, 172 N. W. 808; N. B. K. 197. Morency v. Landry, 79 N. H. 305, 108 Atl. 606 Bank of Commerce v. Elliott, 109 855, 9 A. L. R. 123; Brooks v. Pitts, 24 Wis. 648, 85 N. W. 417. Ga. App. 386, 100 S. B. 776. 667 Kellogg V. Kimball, 138 Mass. 441; 67 1 Broadway Trust Co. v. Manheim, Cooper Grocery Co. v. Blume (Tex. Civ. 47 Misc. Rep. 415, 95 N. Y. Supp. 93; App.) 156 S. W. 1157 ; Cogburn v. Spence, Manheim v. Loewe, 185 App. Div. 601, 15 Ala. 549. 50 Am. Dec. 140; Stewart 173 N. Y. Supp. 260. Compare Hyde § 716 LAW OF BANKEUPTCT 1420 the bankrupt, in the first instance, to show that the claim sued on was provable in the bankruptcy proceedings, where it appears on its face to be so provable.®''* But the bankrupt pleading his discharge, — and more especially when he relies on it as a basis for affirmative relief, such as the cancellation of a judgment against him, — must assume the burden of showing either that the debt was duly listed in his schedule, or else that the creditor had notice or actual knowledge of the bank- ruptcy proceedings in time to have filed his claim and procured its al- lowance.*'* And included in this is the necessity of identifying the claim now in suit with the one listed in the schedule.®'* If the debt was actually scheduled and is identified, then it is not incumbent on the bankrupt to show that the creditor had notice or knowledge of the pro- ceedings in bankruptcy, for the law raises a presumption of such notice br knowledge.®'^ But on the other hand, while a debt or claim omitted from the schedule may still be barred by the discharge, yet the burden in this case is on the bankrupt to show that the creditor had such timely notice or actual knowledge of the bankruptcy proceedings as is necessary under the statute to bring about this result.®'® But again, the presumption is that all scheduled debts are released by the dis- charge, and hence if a creditor, suing after the discharge, contends that his particular claim is not affected, because within one of the classes specially excepted by the statute, as having been created by fraud, em- bezzlement, defalcation of a trustee, etc., then he must assume the bur- den of proving this contention.®" Park Flint Bottle Co. v. Miller, 179 App. ens v. King, 16 App. Div. 377, 44 N. T. Div. 73, 166 N. X. Supp. 110. Supp. 893 ; Clnflin v. WolfC, 88 N. J. «r2 Bailey v. Gleason, 76 Vt. 115, 56 Law, 308, 96 Atl. 73 ; Merchants' Bank Atl. 537. But see Baker v. Hughes, 5 of Brooklyn v. Miller, 176 App. Div. 412, Ga. App. 586, 63 S. E. 587. 162 N. Y. Supp. 999. 67 3 Weidenfeld v. Tillinghast, 54 Misc. s^e George F. Sloan & Bro. v. Groll- Rep. 90, 104 N. Y. Supp. 712; Grabef v. man, 113 Jld. 192, 77 Atl. 577; Wineman Gault, 103 App. Div. 511, 93 N. Y. Supp. v. Fisher, 135 Mich. 604, 98 N. W. 404 ; 76; Bailey v. Gleason, 76 Vt. 115, 56 Smith v. Hill, 232 Mass. 188, 122 N. E. Atl. 537 ; Fields v. Rust, 36 Tex. Civ. 310, 2 A. L. R. 1667. Where the schedul- App. 350, 82 S. W. 331 ; Bogart v. Cow- ing of a claim by the bankrupt was f aul- boy State Bank & Trust Co. (Tex. Civ. ty, in naming the original creditor after App.) 182 S. W. 678; Bunting Stone the claim had been assigned, the bank- Hardware Co. V. Alexander (Tex. Civ. rupt has the burden of showing due App.) 190 S. W. 1152. Contra, see Ailing diligence to ascertain and state the true v. Straka, 118 111. App. 184 ; Laffoon v. owner of the claim. Lansing Liquidation Kemer, 138 N. 0. 281, 50 S. B. 654. Corp. v. Heinze, 184 App. Div. 129, 171 874 Kreitlein v. Ferger (Ind. App.) 97 N. Y. Supp. 738. Though the name of a N. E. 819 ; B. F. Roden Grocery Co. v. creditor was inadvertently omitted from Leslie, 169 Ala. 579, 53 South. 815 ; the schedule as filed, yet if he was after- Anthony V. Sturdivant, 174 Ala. 521, 56 wards added by an amendment duly al- South. 571. But see King v. Kello'gg, 114 lowed and was served with proper notice, Miss. 375, 75 South. 134. the discharge will- be conclusive upon 076 New York Institution for Instruc- him. Almond v. Coalson, 23 Ga. App tion of Deaf and Dumb v. Crockett, 117 797, 99 S. B. 707. App. Div. 269, 102 N. T. Supp. 412 ; Stev- 67? Bailey v. Gleason, 76 Vt. 115, 56 1421 DISCHARGE OF BANKRUPT § 716 As to the admissibility of evidence and the character of the evidence required, it is not necessary for a bankrupt pleading his discharge to prove each step in the bankruptcy proceedings. For the statute pro- vides that a certified copy of an order granting a discharge, not revoked, shall be evidence of the jurisdiction of the court, the regularity of the proceedings, and of the fact that the order was made.^'* Where the claim in suit, and against which the discharge is pleaded, consists of a judgment, and it is contended that the judgment is excepted from the operation of the discharge because rendered in an action for fraud, this question must be determined by an inspection of the record of the action m which the judgment was rendered, and the showing made by such record is conclusive.*'* So also, if it is claimed that the judgment in question was for "willful and malicious injury to the person or proper- ty," the fact of its being based on such a cause of action may be shown by record evidence.**** But where the plaintiff's claim has not been re- duced to judgment, its character, as being within or without the excepted classes, is an issue of fact which must be determined upon competent and sufficient evidence and submitted to the jury. This rule applies where the plaintiff contends that the debt in question was created by Atl. 5;J7; In re Peterson, 137 App. Div. 435, 121 N. Y. Supp. 738; Thompkins v. Williams, 137 App. Div. 521, 122 N. T. Supp. 152; Culver v. Torrey, 34 Misc. Rep. 793, 69 N. T. Supp. 919; In re Peterson's Estate, 64 Misc. Rep. 217, 118 N. y. Supp. 1077 ; Van Norman v. Young, 228 111. 425, 81 N. E. 1060; Gatliff v. Mackey, 104 S. W. 379, 31 Ky. Law Rep. 947; Hallagan v. Dowell (Iowa) 139 N. W. 883 ; Gregory v. Edgerly, 17 Neb. 374, 22 N. W. 708; Sherwood v. Mitchell, 4 Denio (N. Y.) 435 ; Kreitlein v. Ferger, 238 U. S. 21, 35 Sup. Ct. 685, 59 L. Ed. 1184, 34 Am. Bankr. Rep. 862 ; Guindon V. Brusky, 142 Minn. 86, 170 N. W. 918 ; Brooks v. Pitts, 24 Ga. App. 386, 100 S. E. 776. eTs Bankruptcy Act 1898, § 21f. And see Nation v. Jones, 3 Ga. App. 83, 59 S. E. 330; United Society of Shakers v. Underwood, 74 Ky. (11 Bush) 265, 21 Am. Rep. 214 ; Hays v. Ford, 55 Ind. 52, 15 N. B. R. 569 ; Williams v. First Nat. Bank, 21 Ga. App. 182, 94 S. E. 73; Bank of La Fayette v. Phipps, 24 Ga. App. 613, 101 S. E. 696. "9 Louisville & N. R. Co. v. Bryant, 149 Ky. 359,. 149 S. W. 830; Forsyth v. Vehmeyer, 176 111. 359, 52 N. E. 55 ; Hall- igan v. Dowell, 170 Iowa, 172, 161 N. W. 177. A recital in a judgment rendered by a state court that the debt for which it was rendered is a liability arising out of fraud is conclusive, if based on a pleading to that effect, that it is not re- leased or discharged in bankruptcy. Young V. City Nat. Bank (Tex. Civ. App.) 223 S. W. 340. A judgment creditor hav- ing the burden of showing that his claim is not barred by a discharge in bankrupt- cy, the creditor's declaration, from which the nature of the claim appears, should be given the construction most favor- able to the bankrupt. In re Grout, 88 Vt 318, 92 Atl. 646, Ann. Cas. 1917A, 210. Where the creditor's judgment, un- der the pleadings and the charge, might be based upon a contract or upon fraud or upon both, and there is nothing but the pleadings and the charge from which to determine the facts, the creditor does not sustain the burden of showing that his claim (duly scheduled in the bank- ruptcy proceedings) is excepted from the operation of the discharge. Guindon v. Brusky, 142 Minn. 86, 170 N. W. 918. 880 Flanders v. Mullin, 80 Vt. 124, 66 Atl. 789, 12 Ann. Cas. 1010. See Baze- more v. Stephenson, 24 Ga. App. 180, lOO S. E. 234. § 717 LAW OF BANKRUPTCY 1422 the fraud of the bankrupt,**^ or by his false representations or false pretenses,*** and also in cases where the effect of the discharge will de- pend upon whether or not the creditor had notice or knowledge of the proceedings in bankruptcy,*** and where the bankrupt's contention is that a certain person was acting as the creditor's agent, so that his knowl- edge of the proceedings should be imputed to the creditor himself.*** § 717. Effect of Refusal of Discharge or Failure to Apply. — If the bankrupt does not obtain his discharge, none of the proceedings in the bankruptcy case will in any way affect the demands of his creditors against hiim.**^ And a creditor who has proved his claim and accepted and received a dividend thereon is not estopped from collecting the remainder of his debt in any proper way, if the bankrupt is not dis- charged, but the dividend will merely reduce his cause of action pro tanto.*** If the bankrupt fails to apply for a discharge, the order of the court approving the record and closing the case without granting a discharge is equivalent to a judgment by default in favor of the bank- rupt's then existing creditors, and is res judicata in any subsequent bank- ruptcy proceeding, precluding him from obtaining a discharge therein from any debts previously scheduled,**'' and the fact that a claim so scheduled is afterwards reduced to judgment does not create a new- debt which could form the basis for a subsequent bankruptcy proceed- ing and discharge therein.*** So when the bankrupt's application for a discharge is denied, the right to sue him upon any existing claim re- vives.*** And the refusal of a discharge renders the issue of his right to a discharge from any debts provable in that proceeding res judicata, so that he is not entitled to retry it in a second proceeding.*** But a creditor who desires to rely upon the order refusing a discharge, as res «8i Culver V. Torrey, 34 Misc. Eep. 793, ground for a stay of suits by them, nor 69 N. Y. Supp. 919. are such suits barred by his discharge 8 82 Atlanta Skirt Mfg. Co. v. Jacobs, 8 therein. In re Spangler (D. C.) 256 Fed. Ga. App. 299, 68 S. E. 1077. 62, 43 Am. Bankr. Rep. 63. 6 83 Troy V. Rudnlck, 198 Mass. 563, 85 ess Hamlin v. Hamlin, 3 Jones Eq. (56 N. E. 177 ; Bergmann v. Manes, 141 App. N. O.) 191 ; American Woolen Co. v. Dlv. 102, 125 N. T. Supp. 973 ; Fields v. Maaget, 86 Conn. 234, 85 Atl. 583. Rust, 36 Tex. Civ. App. 350, 82 S. W. es? in re Bramlett, 161 Fed. 588, 20 331; Armstrong v. Sweeney, 73 Neb. Am. Bankr. Eep. 402; In re Elby,'l57 775, 103 N. W. 436. Fed. 935, 19 Am. Bankr. Rep. 734. 6 84 Atkinson v. Elmore, 103 Mo. App. ossin rg Schnabel, 166 Fed. 383, 23 403, 77 S. W. 492. Am. Bankr. Rep. 22; In re Kuffler,'l55 esowiiitney v. Crafts, 10 Mass. 23; Fed. 1018, 19 Am. Bankr. Rep. 181.' Chandler v. Wlndship, 6 Mass. 310; "S" Storrs v. Plumb, 30 Hun (N. T) Iiummus V. Fairfield, 5 Mass. 248. Where 319. a bankrupt fails to obtain a discharge, eooin re Kuffler, 155 Fed. 1018, 19 creditors whose claims were proved are Am. Bankr. Rep. 181 ; In re Schwartz (D. not affected by subsequent bankruptcy C.) 248 Fed. 841, 41 Am. Bankr. Rep! proceedings against him, which afford no 246. 1423 DISCHARGE OF BANKKUPT § 717 judicata in a second proceeding instituted some years later, must prove it or otherwise call it to the attention of the court of bankruptcy, and if he fails to do so, and a general discharge is granted in the second proceeding, a state court must give effect to it in any proceedings there- after brought to enforce the creditor's claim.®*^ a»i loungman v. Salvage, 21 N. D. 31T, 130 N. W. 930^ Ann. Cas. 1913C, 1181. § 718 LAW OF BANKEUPTCX 1^4 CHAPTER XXXIV DEBTS AFFECTED BY DISCHARGE Sec. 718. Debts and Liabili|ties Discharged, in General. 719. Stockholders' Liabilities. 720. Claims of Sureties for Bankrupt. 721. Claims Against Bankrupt as Surety. 722. Claims for Alimony and Support of Wife or Children. 723. Claims of Alien Creditors. 724. Liabilities to State or United States. 725. Claims for Taxes. 726. Debts and Claims Not Provable. 727. Debts Not Duly Scheduled. 728. Same; Creditor's Notice or Knowledge of Proceedinga. 729. Debts Contracted in Fiduciary Capacity. 730. Same; Trustees. 781. Same; Executors, Administrators, and Guardians. 732. Same; , Agents. 733. Same; Attorneys. 734. Same; Bailees. 735. Same; Bankers and Brokers. 736. Same; Factors and Commission Merchants. 737. Same; Auctioneers. 738. Same ; ■ Partners and Joint Adventurers. 739. Same; Public and Other Officers. 740. Same; Sureties on Bonds of Fiduciary Debtors. 741. Liabilities for Willful and Malicious Injuries. 742. Liabilities for Seduction and Criminal Conversation. 743. Debts Contracted by Fraud. 744. Same; Deceit and False Representations. 745. Same ; Conversion of Property. 746. Effect of Proving Debt and Receiving Dividends. 747. Effect of Discharge as to Co-debtors and Persons Jointly Liable. 748. Same; Sureties and Guarantors. 749. Same; Contribution Between Sureties. 750. Partnership and Individual Debts. 751. Discharge of Corporation and Effect on Liabilities of Officers and Stockholders. 752. Effect of Discharge as to Securities and Liens. 753. Same; Attachment and Garnishment. 754. Same; Lien by Creditor's Suit. 755. Same; Mortgages. 756. Effect of Discharge on Rights as to Judgment and Execution. 757. Same; Cancellation of Judgment of Record. § 718. Debts and Liabilities Discharged, in General. — It is the pur- pose of the bankruptcy law to relieve an honest debtor, who complies with all its requirements, from the entire burden of his debts, as they existed at the time of the filing of the petition in bankruptcy, with the exception of a few carefully specified classes. Hence it is the general rule, apart from the exceptions referred to, that a discharge in bank- 1425 DEBTS AFFECTED BY DISCHARGE § 718 ruptcy releases the debtor and his after-acquired property from all debts and liabilities which were provable in bankruptcy and which existed at the commencement of the proceedings.^ And it is immaterial that a particular creditor did not prove his claim in the bankruptcy proceed- ings.. If the claim was provable and the creditor had an opportunity to prove it, his omission to do so will not withdraw it from the operation of the discharge.* Further, a provable debt is none the less barred by a discharge granted without opposition because the bankrupt had been refused a discharge in a prior proceeding, on the objection of the same creditor, in respect of the same indebtedness, where the ground of the refusal does not appear.* And the refusal of a discharge in an insolven- cy proceeding does not necessarily withdraw a debt proved therein from the operation of a discharge in a later bankruptcy proceeding, though the debt is not proved.* But the claim or liability must be a provable debt at the time of the filing of the petition in bankruptcy. Hence if it does not accrue or mature until after that date, it is not af- fected by the discharge.*" Further, it must answer the description of a provable debt as defined in the bankruptcy law, and hence a claim may not be affected by the discharge because not a "fixed liability absolutely owing" by the bankrupt,* or because it was uncertain or contingent,' or 1 Bankruptcy Act 1898, § 17a; A. Klipstein & Co. v. Allen-Miles Co., 136 Fed. 385, 69 C. C. A. 229, 14 Am. Bankr. Rep. 15 ; In re American Vacuum Clean- er Co., 192 Fed. 939, 26 Am. Bankr. Bep. 621 ; Kuhl-Koblegard Co. v. Gillespie, 61 W. \%. 584, 56 S. E. 898, 10 L. K. A. (N. S.) 305, 11 Ann. Cas. 929; Meyer v. Bartels, 56 Misc. Rep. 621, 107 N. T. Supp. 778 ; Beyer v. Sadvoransky, 108 Misc. Rep. 463, 177 N. T. Supp. 705; Xelson V. Petterson, 229 111. 240, 82 N. E. 229, 13 L. R. A. (N. S.) 912, 11 Ann. Cas. 178 ; Ailing v. Straka, 118 111. App. 184 ; Drake v. Vernon, 26 S. D. 354, 128 N. W. 317; Thornburgh v. Madren, 33 Iowa. 380; Fleming v. Lullmfin, 11 Mo. App. 104; Lefler v. Hunt, 8 Blackf. (Ind.) 195; Magoon v. Warfield, 3 6. Greene (Iowa) 293 ; Talbott v. Suit, 68 Md. 443, 13 Atl. 356; Withers v. Stinson, 79 N. G. 341. But a discharge of a debtor in bankruptcy is only from personal liabil- ity for debts and claims against him. Robinson v. Tischler, 69 Fla. 77, 67 South. 565. Under the law of Georgia, nonpayment of rent is the gist of the summary remedy for eviction, and a discharge in bankruptcy of a debt exist- ing on account of overdue rent is not "payment." Carter v. Sutton, 147 Ga. 496, 94 S. E. 760. Bi,k.Bke.(3d Ed.)— 90 2 In re Kuffler (D. C.) 153 Fed. 667, 18 Am. Bankr. Rep. 587. 3 Bliithenthal v. Jones, 208 U. S. 64, 28 Sup. Cf. 192, 52 L. Ed. .390, 19 Am. Bankr. Rep. 288. * Dean v. Justices of Municipal Court, 173 Mass. 453, 53 N. B. 893. Debts ex isting under the Bankruptcy Act of 1867, and kept alive by subsequent judgments, were not excepted from the operation of the Bankruptcy Act of 1898. In re Herrman, 106 Fed. 987, 46 C. C. A. 77. 5 Van Tuyl v. Schwab, 174 App. Div. 665, 161 N. Y. Supp. 323 ; Rice v. Mur- phy, 109 Me. 101, 82 Atl. 842 ; Wight v. Gottschalk (Tenn. Ch. App.) 48 S. W. 140. But a claim which is a "fixed lia- bility" and "absolutely owing" is prov- able in bankruptcy, and therefore dis- chargeable, although not yet payable when offered for proof. Supra, § 502. Thus a claim for unpaid installments under the bankrupts' contract for the purchase of land is discharged by his discharge in bankruptcy. O. L. Sch\^encke Land & Inv. Co. v. Forster (Sup.) 171 N. Y. Sup. 140. 8 Pheuix Nat. Bank v. Waterbury, 197 N. Y. 161, 90 N. E. 435. And see, supr^, §491. "! Leader v. Mattlngly, 140 Ala. 444, 37 South. 270. And see, supra, § 499. § 719 I^AW OF BANKRUPTCY 1426 because it was a claim for damages not liquidated in time for proof and allowance.* Xnd it is only debts or liabilities which are released by the discharge, and hence it does not operate to prevent the prosecution of an appeal.' Subject to these conditions, however, and provided only that it constitutes a provable debt, the nature of the creditor's claim is not material, with respect to the operation of the discharge upon it. Thus, for instance, the discharge will release the bankrupt from liability for breach of a covenant of warranty in his deed, the breach occurring before the bankruptcy,** and from his liability as the maker of a note,** and from all personal liability on a judgment recovered against him.** It is the nature of the transaction, and not the form of action, which is looked to in order to determine whether a cause of action is released by a dis- charge in bankruptcy,** and a court will look behind a judgment in order to ascertain whether the claim on which it was founded was of a nature to be provable in bankruptcy and so dischargeable.** In effect, it is after the discharge is granted, and not before it, that questions of this kind must be determined. For the court of bankruptcy, in granting the dis- charge, will not undertake to limit it to any particular debts nor under- take to decide upon what claims it shall operate and what shall be ex- cepted from it.*^ § 719. Stockholders' Liabilities. — The liability of one who has sub- scribed for stock in a corporation, or to whom stock not fully paid has been issued, to make good the unpaid balance of his subscription is a debt provable against him "in bankruptcy, and therefore will be released by his discharge, even though the call on which the action is bated is not made until after the discharge.** But it is otherwise in regard to the liability imposed by some state statutes on the stockholders or directors of insolvent corporations to be answerable for the debts of the company, 8 Jim Pearce & Co. v. Fisher, 170 Ala. is Nelson v. Petterson, 131 111. Apn. 456, 54 South. 164. See King v. Kellogg, 443. 114 Miss. 375, 75 South. 134. And see. i, j^ ^^ g-^j^ ^^ ^^ 270 Fed. 627, 4C supra 1500. Am. Banlcr. Rep. 597; In re Levitan (D. » Stockwell V. SiUoway, 105 Mass. 517. q.) 224 Fed. 241, 34 Am. Bankr. Rep. ,,'l r^?n«/- M ''f '• M-n T ^89; Halligan v. Dowell, 179 Iowa, 172, 77 N E. 1083; Mackenzie V. Miller, 7 ^gl N. W. 177; Bever v. Swecker 13S Ky. Law Rep. 831; Bradford v. Russell, j(,,y_ ^oi 116 N W 704 79 Ind. 64. And see, supra, § 513. ' ' •"•<"•*. iiBlackwell v. Farmers* & Merchant's' i=Hanan v. Long, 150 App. Dlv. 327, Nat. Bank (Tex. Civ. App.) 76 S. W. 454: 1^4 N. Y. Supp. 786. See In re West- Dundee Nat. Bank v. Strowbridge (Sup.) ''*'oo'^' 186 Fed. 414, 26 Am. Bankr. Rep. 184 N. Y. Supp. 257. 181. 12 J. B. Ellis & Co. V. Mobile, J. & K. lo Carey v. Mayer, 79 Fed. 926, 25 C. C. R. Co., 166 Ala. 187, 51 South. 860; C. A. '239; Burke v. Maze, 10 Cal. App. Otto Young & Co. V. Howe, 150 Ala. 157, 206, 101 Pac. 438, 440. Compare Glenn 43 South. 488 ; Barnes Cycle Co. v. v. Howard, 65 Md. 40, 3 Atl. 895. Haines, 69 N. J. Eq. 651, 61 Atl. 515. 1427 DEBTS AFFECTED BY DISCHARGE § 721 or for debts contracted under certain circumstances or within a par- ticular time. A liability of this kind is statutory and not contractual, and therefore is not released by the discharge of the stockholder or di- rector in bankruptcy/' unless, indeed, it has been reduced to judgment before the granting of the discharge, or the extent of the liability of the bankrupt, as a stockholder or director, has been fixed by a decree against the company and its stockholders, in which case it appears that it be- comes a provable debt in the bankruptcy proceedings, and therefore will be extinguished by the discharge.^* § 720. Claims of Sureties for Bankrupt. — A person who is responsi- ble for the bankrupt's debt or undertaking, in the character of a surety, guarantor, or indorser, has no provable claim against the bankrupt's estate until he has paid or in some way discharged the obligation on which he is liable, and hence if there is no breach of the obligation and no payment by the surety or indorser before the bankrupt's discharge, he may, notwithstanding the discharge, have recourse against the bank- rupt for any sum which he is thereafter compelled to pay.*' But there is also a provision in the bankruptcy act that whenever a creditor, whose claim against the estate in bankruptcy is secured by the individual un- dertaking of any person, fails to prove such claim, such person may do so in the creditor's name, and, if he discharges such undertaking in whole or in part, he shall be subrogated to that extent to the rights of the creditor.** Hence it appears that a surety or indorser (not having yet paid the debt) has a provable claim in the bankruptcy in the event that the principal creditor omits to prove the claim, and if his demand or claim thus becomes provable, it will also be released by the discharge granted to the bankrupt.** § 721. Claims Against Bankrupt as Surety. — Where the liability of a bankrupt as a surety has become fixed, definite, and certain at the commencement of the proceedings in bankruptcy, it constitutes a preva- il Old Colony Boot & Shoe Co. v. Par- of the contract or obligation, and a. de- ker-Sampson-Adams Co., 183 Mass. 557, mand macje on the surety for damages, 67 N. E. 870 ; First Nat. Bank v. Hing- before the bankruptcy proceedings, he ham Mfg. Co., 127 Mass. 563. Contra, then has a provable claim against the Van Tuyl v. Schwab, 174 App. Div. 665, bankrupt, which will be released by the 161 N. Y. Supp. 323; Richards v. discharge of the bankrupt, although Schwab, 101 Misc. Rep. 128, 167 N. Y. judgment is not recovered against the Supp. 535. surety or paid until after the discharge. 18 Dight V. Chapman, 44 Or. 265, 75 Williams v. United States Fidelity & Pac. 585, 65 L. R. A. 793. And see Phil- ^^^''^f^ ^o., 236 US 549, 35 Sup. Ct. adelphla & R. Coal & Iron Co. v. Hotch- ^89, 59 L. Ed. 713, 34 Am. Bankr. Rep. 181. 20 Bankruptcy Act 1898, § 571. kiss, 82 N. Y. 471 18 Goding V. Ro 61 N. E. 222. A But if there has been a definitive breach Div. 170, 66 N. Y. Supp. 780 19 Goding v. Roscenthal, 180 Mass. 43, 21 Hayer v. Comstock, 115 Iowa, 187. 61 N. E. 222. And see, supra, § 500. 88 N. "W. 351; Smith v. Wheeler, 55 App. § 722 LAW OF BANKRUPTCY 1428 ble debt against his estate, and therefore will be released by his dis- charge.*^ Thus, where the surety on an appeal bond becomes bankrupt and receives his discharge, after the rendition of a' judgment on such ap- peal bond, the discharge is a defense to the enforcement of the judg- ment, and likewise to any debt or claim for the costs incurred by the judgment creditor in obtaining the judgment and defending the appeal.*^ § 722. Claims for Alimony and Support of Wife or Children: — The amendment to the bankruptcy act, adopted in 1903, expressly excepts from the operation of a discharge in bankruptcy "liabilities for alimony due or to become due, or for maintenance or support of wife or child." ** But even before this amendment, it was the practically unanimous doc- trine of the courts that a claim for alimony to a divorced wife was not a "debt" within the meaning of the bankruptcy law, and, not being prov- able as a debt, was not released by the bankrupt's discharge.*^ Nor was this based solely on the ground that a decree for alimony was always within the control of the court which rendered it. For it was also held that a discharge in bankruptcy is no bar to a claim based on a contract or agreement of the bankrupt to pay an annuity or fixed periodical sum to his divorced wife during her lifetime or until her remarriage.*'' For similar reasons, the discharge cannot be pleaded as a defense to a claim upon the bankrupt based on his liability to make an allowance or pay a fixed sum for the support of his minor children, whether such liability is imposed upon him by an order or decree of court,*'^ as, for in- 22 In re Sullivan (D. C.) 262 Fed. 574, Mass. 170, 62 N. E. 248, 94 Am. St. Eep. 45 Am. Baukr. Kep. 131; McPhee v. 623; In re Williams, 208 N. Y. 32, 101 United States, 64 Colo. 421, 174 Pac. 808; N E. 853. And see supra, § 509. Hardy Buggy Co. v. Paducah Banking 2 6 Dunbar v. Dunbar, 190 TJ. S. 340, Co., 183 Ky. 776, 210 S. W. 452. And 23 Sup. Ct. 757, 47 L. Ed. 1084, 10 Am. see supra, § 505. Bankr. Eep. 139 ; Schlessinger v. Schles- 2 3 Coe V. Waters, 16 Colo. App. 311, ^^^^Ser, 39 Colo. 44, 88 Pac. 970, 8 L. R. 64 Pac. 1054. ■*■• ^■^- ^-^ ^^3- Where a voluntary bank- ,^Tj 1 4. » 4. lono Northern Commercial Co. v. Hartke, William J. Davidson is not discharged 110 Minn. 338, 125 N. W. 508; Finnell by scheduling it in the name of William V. Armoura, 39 Utah, 316, 117 Pac. 49. F. Davidson. 7 Custard v. Wlgderson, 130 Wis. 412, 72 Columbia Bank v. Birkett, 174 N. Y. 110 N. W. 263, 10 Ann. Cas. 740; Mar- 112, 66 N. E. 652, 102 Am. St. Rep. 478. shall v. English-American Loan & Trust But compare Broadway Trust Co.. v. Co., 127 Ga. 376, 56 S. E. 449; Wright- Manheim, 47 Misc. Rep. 415, 95 N. X. Dalton-Bell-Anchor Store Co. v. Sanders, Supp. 93. § 727 LAW OF BANKRUPTCY 1436 and that the claim has been distributed among his heirs.'* Where a claim has been assigned and the bankrupt has no knowledge of that fact, it is sufficient for him to list it in the name of the original creditor; but if he knows of the assignment he must use due diligence to discover and present the assignee's name and address in the schedule.'"* It seems also that the surviving partner of a firm creditor is correctly named as the creditor in the schedule,"^ and that if original creditors are named it is immaterial that their interests have beeh committed to a receiver,'* and that, if a debt due to a bank is correctly listed in the name of the bank, the schedule is not vitiated by the fact that it does not mention the cashier of the bank, who is the nominal holder of the note by which the debt is secured." It is also essential to the due listing of a debt that the address of the creditor should be given if known to the bankrupt. It has been decided that a schedule listing the creditor's residence by the name of a city (as "Indianapolis" or "New York City") without giving the street and house number, is at least a prima facie compliance with the statute, and the defect is not sufficient, as a matter of law, to render the discharge of the bankrupt inoperative as to that creditor.'* But if the bankrupt un- dertakes to give full particulars, ,,the address required is that of the creditor's residence, and it is not proper to state his business or office address, if the residence address is known or can be ascertained. A mis- take of this kind will prevent the discharge from releasing the particular debt.'* A debt is not duly scheduled wbere the address given is that of a discontinued business, the bankrupt knowing that the business had been closed and that the creditor could not be reached at that address.*" So, a debt is not released where the address of the creditor was given in the schedule as at a certain club, of which the creditor was a member but at which he did not reside.*"^ If the creditor's address is not known, it may be so stated in the schedule, and, in the absence of fraud, this will be a sufficient compli- ance with the statute to bring the debt within the operation of the dis- 7 8 Fible V. Crabb, 129 Ky. 461, 112 S. 7 a Kreitlein v. Ferger, 238 U. S. 21, W. 576. 35 Sup. Ct. 685, 59 L. Ed. 1184, 34 Am! 1* J^ansing Liquidation Corp. v. Helnze, Bankr. Rep. 862; Claflin v Wolff 88 184 App. Div. 129, 171 N. Y. Snpp. 738; N. J. Law, 308, 96 Atl. 73. Morency v. Landry, 79 N. H. 305, 108 to ivr^T^.,„ n > i -,^. . ^ Atl. 855, 9 A. L. R. 123; Mueller v. Goer- .ooT'^ I ati'' ^^■t'^l ^'''- ^^^' mz, 53 Misc. Rep. 53 103 N. T. Supp. ^.Z^' ^- ^^^J^' ^^\ Weidenfeld y. Tll- ino7 linghast, 54 Misc. Rep. 90, 104 N. Y. Supp. 712. 1037. 7 5 Kaufman v. Schreier, 108 App. Div. 298, 95 N. Y. Supp. 729. *° Jenkins v. Levy (City Ct. N. Y.) 167 7 6 Longfield v. Minnesota Sav. Bank, N. Y. Supp. 847. 95 Minn. 54, 103 N. W. 706. si Horbach v. Arkell, 172 App Div 77 Eoss-Lewin v. Goold, 211 111. 384, 566, 158 N. Y Supp 842 71 N. E. 1028. 1437 DEBTS AFFECTED BY DISCHARGE § 728 charge.** But it is a fraud to state the creditor's address as unknown, when in fact it is known to the bankrupt, and in this case the claim will not be affected by the discharge,*^ and the same result follows when the bankrupt inserts a certain street number as the residence of the creditor, when in fact he does not know where the creditor resides.** And a bankrupt is not permitted to state the creditor's residence as "unknown," and so bar the creditor's claim by his discharge, until he has made at least reasonably diligent efforts to discover it by proper inquiries.*® For instance, if the name and address of the creditor are correctly given in the 'city directory, but are not stated in the bankrupt's schedule, the debt is not released.*® So the debtor is not allowed to state the credi- tor's address as unknown when he could learn it from a draft drawn on him by the creditor which contained the latter's postofHce address,*" or firom a writ served upon him at the suit of the creditor.** But the bank- rupt is justified in relying on information given to him. by the creditor's attorney, as, where the attorney states that notice sent to a given ad- dress will reach the creditor,*' or states that all communications in the matter should be addressed to the attorney's office.*" § 728. Same ; Creditor's Notice or Knowledge of Proceedings. — Under the explicit provisions of the bankruptcy act, the claim of a given creditor will be released by the discharge (being otherwise dis- chargeable) if the creditor had notice or actual knowledge of the bank- ruptcy proceedings, although his debt was altogether omitted from the bankrupt's schedule, or was incorrectly described therein, or the credi- tor's name or address was wrongly stated.'^ But the notice here intend- 82 Steele v. Thalhelmer, 74 Ark. 516, st Guasti v. Miller, 203 N. Y. 259, 96 86 S. W. 305; In re Mollner, 75 App. N. B. 4^.6. Div. 441, 78 N. Y. Supp. 281. ss Parker v. Murphy, 215 Mass. 72, 83 Miller v. Guasti, 226 U. S. 170, 33 102 N. E. 85. Sup. Ct. 49, 57 L. Ed. 173, 29 Am. Bankr. ^9 Vaughn v. Irwin, 49 Misc. Eep. 611, Rep. 201, affirming Guasti v. Miller, 203 96 N T Supd 742 N. T. 259, 96 N. B. 416. 84 Sutherland v. Lasher, 41 Misc. Rep. '° ^^^ ""e David, 44 Misc. Rep. 516, 90 249,^84 N. Y. Supp. 5,6. •'^- ^- ^"PP- ^^■ 8 5 Peldmark v. Welnstein, 45 Misc. »i Kaufman v. Schreier, 108 App. Div. Rep. 329, 90 N. Y. Supp. 478 ; Schiller v. 298, 95 N. Y. Supp. 729 ; Morrison v. Weinstein, 47 Misc. Rep. 622, 94 N. Y. Vaughan, 119 App. Div. 184, 104 N. Y. Supp. 763 ; In re Boom, 48 Misc. Rep. Supp. 169 ; Thomson v. Caverley, 148 632, 96 N. Y. Supp. 204 ; Oagliostro v. In- 111. App. 295 ; Ailing v. Straka, 118 111. delli, 53 Misc. Rep.- 44, 102 N. Y. Supp. App. 184; Zimmerman v. Ketehum, 66 918 ; Hyde Park Flint Bottle Co. v. Mil- Kan. 98, 71 Pac. 264 ; Fider v. Mannheim, ler, 179 App. Div. 73, 166 N. Y. Supp. 78 Minn. 309, 81 N. W. 2 ; Armstrong v. 110 ; Popejoy v. Diedrich, 68 Colo. 388, Sweeney, 73 Neb. 775, 103 N. W. 436 ; 189 Pac. 841. Perry Naval Stores Co. v. Caswell, 63 sain re Quackenbush, 122 App. Div. Fla. 552, 57 South. 660; Delta County 456, 106 N. Y. Supp. 773 ; Murphy v. Bank v. McGranahan, 37 Wash. 307, 79 Blumenreich, 123 App. Div., 645, 108 N. Pac. 796 ; Briggs v. Angus, 52 Hun, 613, Y. Supp. 175. 5 N. Y. Supp. 313. Davis v. Findley. § 729 LAW OF BANKRUPTCY 1438 ed is actual notice, and not such constructive notice as might be im- plied from the publication of the orders and proceedings in the bank- ruptcy case.'^ Actual notice or knowledge possessed by the creditor's authorized agent may be imputed to the creditor,*^ and the knowledge of a receiver may be imputed to the creditors whom he represents.** But an attorney employed to represent the creditor in an appeal from a judgment of a state court against the bankrupt, but not in any way employed in the bankruptcy proceedings, is not the creditor's agent in this sense or for this purpose.*^ And it is important to observe that an unscheduled debt cannot be brought within the operation of the dis- charge, on the ground that the creditor had actual notice of the pro- ceedings, where his knowledge was not acquired until after the discharge had been granted, though he acquired it within the year allowed for proving claims and in time to have moved for the revocation of the discliarg*e.** The question of notice or want of it is one to be tried when the discharge in bankruptcy is set up in defense to a suit by the creditor. When this is done, the creditor is entitled to show that he did not receive any notice, and had no actual knowledge of the bank- ruptcy proceedings.*' And all facts, whether occurring before or after the commencement of the proceedings, tending to establish notice or the want of it, are competent evidence in determining the question.** § 729. Debts Contracted in Fiduciary Capacity. — By virtue of an express exception in the bankruptcy act, debts created by the fraud, embezzlement, misappropriation, or defalcation of the bankrupt while acting in any fiduciary capacity are not released by his discharge.** 201 Ala. 515, 78 South. 869; First Nat. »5 Strickland v. Capital City Mills, 74 Bank v. Bamforth, 90 Vt. 75, 96 Atl. 600. S. C. 16, 54 S. E. 220, 7 L. R. A. (N. S.) 82 Santa Kosa Bank v. White, 1.39 Cal. 426. But see Keefauver v. Hevenor, 163 703, 73 Pac. 577. See Wheeler v. Newton, App. Div. 531, 148 N. Y. Supp. 434, hold- 168 App. Div. 782, 154 N. Y. Supp. 431. ing that, where notice of bankruptcy "Notice or actual knowledge" contem- proceedings was given to an attorney of plates in every case actual personal no- a judgment creditor employed to collect tice of some sort to the creditor, as dis- the judgment, it was sufficient, though no tingulshed from mere imputed knowl- notice was given to the creditor's attor- edge; hence constructive notice of bank- ney of record. ruptcy proceedings is not sufficient to "o Birkett v. Columbia Bank, 195 U. S. discharge an unscheduled debt. Lynch v. 345, 25 Sup. Ct. 38, 49 L. Ed. 231 12 MeKee (Tex. Civ. App.) 214 S. W. 484. Am. Bankr. Rep. 691. "3 Atkinson v. Elmore, 103 Mo. App. »7 Westheimer v. Howard, 47 Misc. 403, 77 S. W. 492. A debt due to a bank, ixep. 145, 93 N. Y. Supp. 518. Without whose cashier had actual knowledge of any evidence of notice to the creditor it the bankruptcy proceeding in time to cannot be presumed that he received' it. have proved the debt, but failed to do Hilton v. White, 171 App. Div. 931, 156 so, is released by the discharge. Bank N. Y. Supp. 9. of Wrightsville v. Four Seasons, 21 Ga. os icnapp v. Harold, 25 Ohio Cir Ct App. 453, 94 S. E. 649. R. 213. o*Dight V. Chapman, 44 Or. 265, 75 oi) Forbes v. Keyes, 193 Mass. 38, 78 N Pac. 585, 65 L. R. A. 793. E. 733 ; Treadwell v. Holloway, 46 Cal! 1439 V DEBTS AFFECTED BY DISCHARGE § 729 But it is held that the words "fiduciary capacity," as here used, are to be limited to cases of technical trusts expressly created, not merely such as the law implies from the contract or the relation of the parties, but actually and expressly constituted; and hence the phrase cannot be extended so as to apply to cases where the law regards the relation of the parties simply as that of debtor and creditor, though the nature of the transaction between them is such that more or less confidence is neces- sarily reposed in the debtor.^'" Thus the position of one who owes mon- ey, including accounts collected for the creditor, is not one of trust within the meaning of this clause of the statute.^*^ Nor does a mere conversion of money or property put the bankrupt in the position of a fiduciary debtor.*** And a contract consigning goods for sale, with a stipulation that the consignee will "hold in trust" for the consignor all goods remaining unsold and the proceeds of his sales, does not create a technical trust nor make the debtor a fiduciary in respect to the proceeds of sales.*** Again, there is no fiduciary relation between a buyer and seller of merchandise, in respect to the unpaid price of the goods, al- though the sale was induced by the fraudulent representations of the buyer.*** For similar reasons, this provision of the act is held not to apply to the liability of a subscriber for corporate stock for an amount due on his subscription.*"® And although a conveyance of property by the bankrupt was intended to delay and defraud his creditors, it does not follow that the grantee therein holds the property in a fiduciary capacity.*'* The test of the dischargeability of the creditor's claim is the nature of the debt as originally created, or the original circumstances out of which it arose. And courts will look behind a note, a mortgage, or even a judgment, to ascertain the nature of the debt; and if it is discovered to 547; Herman T. Lynch, 26 Kan. 435, 40 from the collection of wages after they Am. Eep. 320 ; RufC v. Milner, 92 Mo. have been assigned, by on* not standing App. 620; Garner v. Yates, 61 Neb. 100, in a fiduciary capacity nor using false 84 N. W. 596. An act of fraud, embezzle- pretenses or representations to obtain ment, misappropriation, or defalcation the money, is not within the provision does not except a debt from a discharge of the statute as to debts not discharged, in bankruptcy, unless the debtor created Glasco v. Cooper, 17 Ga. App. 690, 87 S. it while acting as an officer or in a E. 1095; Stovall v. Coker, 18 Ga. App. fiduciary capacity. Martin v. Starrett, 326, 88 S. B. 907. 97 Neb. 653, 151 N. W. 154. 102 Watertown Carriage Co. v. Hall, 100 Lewis v. Shaw, 122 App. Div. 96, qq App. Div. 84, 72 N. Y. Supp. 466. 106 N. Y. Supp 1012 ; American Surety ,,, ^^ ^^ ^^^ ^^ ^^ Co. V. Spice, 119 Md. 1, 85 Atl. 1031; „ ^ -r. jg Palmer v. Hussey, 87 N. Y. 303 ; Keime ^^'^'^^- "^l"- -™- V. Graff, Fed. Cas. No. 7,650; Gibson v. "' Harrington & Goodman v. Herman, Gorman; 44 N. J. Law, 325; Goddin v. ^^^ Mo. 344, 72 S. W. 546, 60 L. R. A. Neal, 99 Ind. ^34 ; First Nat. Bank v. S^^- Bamforth, 90 Vt. 75, 96 Atl. 600. "° Morrison v. Savage, 56 Md. 143. 101 Hanan v. Long, 150 App. Div. 327, i<>« Reeves v. McCraeken, 69 N. J. Eq. 1.34 N. Y. Supp. 786. The debt arising 203, 60 Atl. 332, § 730 LAW OF BANKRUPTCY 1440 be one which is not released by a discharge in bankruptcy, it will be so adjudged."' For if the debt was created by the bankrupt while acting in a fiduciary capacity, it is immaterial that it has been reduced to judg- ment; the judgment will not be barred or affected by the discharge in bankruptcy any more than the original debt would be."* And a dis- charge in bankruptcy is no more a defense to a petition for a personal decree for a deficiency after mortgage sale, where the mortgage was giv- en to secure the loan of trust funds misappropriated by the defendant, than it would be in a proceeding brought against him in his fiduciary capacity."* But in the case of a judgment, the courts wilUnot go back of the record to inquire into the nature of the debt. Thus, if the record shows on its face that the judgment was obtained in a suit on a promis- sory note, it shows that there was no fiduciary relation between the parties, and the discharge in bankruptcy will be a good defense.^" And it should be noticed that there may be a novation of the debt such as to extinguish its fiduciary character, as where a debt due from a guardian is formally released on his giving his individual note for the amount due.'^'^ Embezzlement is an act which can be committed only by a person who holds ,funds in a fiduciary character, so that an allegation that the de- fendant "wrongfully embezzled" the plaintiff's money necessarily im- plies that he became possessed of it in a fiduciary capacity, and therefore his answer setting up a discharge in bankruptcy as a defense is demur- rable as insufficient."* § 730. Same ; Trustees. — A trustee under an express trust (whether created by deed, will, or otherwise) acts in a fiduciary capacity, and his discharge in bankruptcy will not release him from liability for any claims against him on account of his loss, misappropriation, or conversion of the trust funds."* And the same rule applies to a trustee for creditors, and to a receiver,"* and to an assignee under a deed of assignment for the benefit of creditors."? So a husband's liability as trustee under an antenuptial contract to account to the deceased wife's personal repre- sentative for trust moneys is a fiduciary debt."* And where a sum of money to which a wife was entitled, on the sale of certain land in par- 107 Donald v. Kell. Ill Ind. 1, 11 N. B. m Coleman v. Davies, 45 Ga. 489. Tos wade V. Clark, 52 Iowa, 158, 2 N. i.^N^y^SlHs N ""eolT """ '^ """"' W. 1039, 35 Am. Eep. 262; Brooks v. ""^ ^- ^- *^^^- ^S fv. E. 629. Yocum, 42 Mo. App. 516; Simpson v. i^s Warren v. Robinson, 21 Utah, 429, Simpson, 80 N. C. 332. See Ford v. 61 Pac. 28; Crisfield v. State, 55 Md. Blackshear Mfg. Co., 140 Ga. 670, 79 S. 192. ^- ^'^^■- 111 Field V. Howry, 132 Mich. 687, 94 109 Field V. Howry, 132 Mich. 687, 94 n W 213 ' N. W. 213. , , . „. , ■ 110 Donald v. Kell, 111 Ind. 1, 11 N. B. ^^° P'^kston v. Brewster, 14 Ala. 315. 782. 11 " Donovan v. Haynie, 67 Ala. 51. 1441 DEBTS AFFECTED BT DISCHARGE § 730 tition proceedings, was decreed to be paid to her husband, he to apply the interest to his own use and to give bonds for the p'ayment of the principal sum at his death, or whenever so required by the court, it was held that the liability of the husband to pay over the principal sum was incurred in a fiduciary capacity."'' The principle is further illustrated by a case in which one of two parties who contemplated the formation of a partnership paid over to the other a sum of money for the benefit of the firm, and shortly afterwards died. During his sickness, the recipient of the money deposited it in a bank in his own name, and after the death of his intended partner, he converted the money to his personal use. It was held that the partnership was dissolved by the death of one of the parties to it, and that the other thereafter became a trustee of the money for the benefit of the decedent's estate, so that his liability to account for it was contracted in a "fiduciary capacity" and was not re- leased by his discharge in bankruptcy."* But here, as in other cases, it is necessary to apply the rule that the words of the statute, "acting in a fiduciary capacity," are meant to include only cases of technical trust, not implied trusts."' Hence the provision does not include the obliga- tion of one to whom, as a creditor, the debtor has delivered property with directions to sell it, and apply so much of the proceeds as may be necessary to pay the debt, and pay over the balance to the debtor; the liability of the creditor to account for such balance involves no breach of trust, but only of contract.^*" And so, a debt arising out of an implied understanding had on a conveyance in the ordinary form of an absolute deed from A. to B. of certain parts of A.'s real estate, no trust being ex- pressly declared, is not excepted from the operation of a discharge in bankruptcy. ^^^ In a case before the United States Supreme Court, which came much closer to the line, it appeared that A. directed B. to pay to the plaintiff $700 a year during her natural life, or during her good behavior, and to that end he delivered to B. the sum of $10,000, declaring that such annual payments should be considered as interest thereon, and he directed that, in certain contingencies, the principal sum should be paid to the plaintiff, but that, if the plaintiff died with- out issue, it should revert to A, and his heirs. The plaintiff and B. each executed a written acceptance of these directions. It was held that, although, in the instruments embodying it, the transaction was called a "trust" and B. a "trustee" for the plaintiff, yet the obligation iiT Mock V. HoweU, 101 N. 0. 443, 8 S. 111. App. 509 ; Williamson v. Dickens, 5 H. 167. Ired. (27 N. C.) 259. lis Haggerty v. Badkin, 72 N. J. Bq. 120 Cronan v. Getting, 104 Mass. 245, 4 473. 66 Atl. 420. N. B. R. 667, 6 Am. Rep. 232 ; Bissell 119 Johnson's Adm'r v. Parmenter, 74 v. Coucliaine, 15 Ohio, 58. Vt. 58, 52 Atl. 73; Ehrhart v. Rork, 114 121 Reeves v. McCracken, 69 N. J. Eq. 203, 60 Atl. 332. Blk.Bkr.(3d Ed.)— 91 § 731 LAW OF BANKEUPTCY 1442 assumed by him was not a debt created in a fiduciary capacity, within the meaning of the bankruptcy law.^^^ § 731. Same; Executors, Administrators, and Guardians. — An ex- ecutor or administrator is a technical trustee, and holds the funds of the estate ni a fiduciary capacity, and debts and liabilities growmg out of his administration of the estate are not affected by his discharge in bankruptcy.'*^ If he mingles the funds of the estate with his own mon- ey, he is guilty of a wrongful misappropriation thereof within the mean- ing of the bankruptcy law,'^* and so if he deposits the money in a bank in his own name and for his own^ benefit, and it is lost through the in- solvency of the bank or through his own misconduct with respect to j^ 125 And though part of the debt due from an executor or administra- tor may be made up of interest, it is none the less true that the whole debt is excepted from the operation of a discharge in bankruptcy, for the interest is a mere incident of the principal and cannot be separated from it.-"** A debt due from an executor to the residuary legatee is of the fiduciary character excepted from the operation of a discharge in bank- ruptcy.^*' But it is not only in his dealings with the beneficiaries that a personal representative acts in a fiduciary character. If he has so administered the estate as to render himself personally liable to credi- tors, his debt to them is also a fiduciary debt.'** But an agreement by an executor guarantying the payment of a demand against the estate, and admitting the possession of sufficient assets, does not constitute a debt of this kind.'** And where he settles with the distributees of the estate by giving them his personal notes, and they release him, there is a novation of the debts, and claims founded on the notes have no fidu- ciary character.'*** Again, where a party paid an executor for a portion of the assets of the estate which he purchased at a discount, but with- out any actual fraud, knd was, with the executor, held liable for a devas- tavit, his subsequent discharge in bankruptcy was held a complete de- fense to an action against him for the devastavit.'*' The liability of a guardian to his ward, with respect to the ward's property or money, is also a fiduciary debt, and not released by the guardian's discharge in bankruptcy.'** And so, where a guardian makes 12 2 Upshur V. BrLscoe, 138 U. S. 365, ^-'' Crisfield v. State, 55 Md. 192. 11 Sup. Ct. 313, 34 L. Ed. 931. 128 Larauiore v. McKlnzie (jO Ga 53'' 123 Johnson's Adm'r v. Parmenter, 74 . i20Amoskeag Mfg. Co. v Barnes 49 Vt. 58, 52 Atl. 73. I,f H ^-^2. i^aines, 4a 124 Johnson's Adm'r v. Parmenter, 74 ,„'„,,? Vt 58 52 Atl 73 ""Elliott v. Higgins, 83 N. C. 459; 125 Brown v. Hannagan, 210 Mass. 246, ^'^ht v. Men-iam, 132 Mass. 283. 96 N. E. 714; Morris v. Covey, 104 Ark. ^" ^ea\ v. Clark, 95 U. S. 704, 24 L. 226, 148 S. W. 257. ^fl' 586. 1^0 Johnson's Adm'r v. Parmenter, 74 132 in re Maybin, 15 N. B. R. 468, Fed. \t. r,H, 52 Atl. 73. Cas. No. 9,337; Simpson v. Simpson, 80 1443. DEBTS AFFECTED BY DISCHARGE § 732 default, and his surety is forced to pay the deficit, the debt of the guard- ian to the surety for reimbursement is one contracted in a fiduciary ca- pacity and is not affected by the former's discharge in bankruptcy.^^* § 732. Same; Agents. — Although an agent is "trusted" in the pop- ular sense of the word, more or less confidence being necessarily reposed in his integrity and punctuality, this is not a case of express or technical trust so as to make his debt to his principal take on the character of a fiduciary debt.^** Thus, an agent employed to collect rents due to his principal and remit the proceeds, does not act in the character of a trus- tee, and a debt created by his failure to account for money so collected is not excepted fr^m the operation of his discharge in bankruptcy. ^^^ And generally this is true of any collecting agent employed to gather in pe- riodical payments due from persons with whom his principal does busi- ness, or to collect a particular account, or generally or in specific instanc- es to collect drafts, notes, and other bank items. There is no technical fraud in his mingling money so collected with his own funds, and if he misappropriates it or simply fails to account for it, it is not a breach of a technical trust, but only of a contract, and hence the claim against him is provable in bankruptcy and will be released by his discharge. ^^* This is likewise true of an agent employed to sell and deliver goods of his principal (or simply to deliver goods sold) and collect and remit the proceeds, less his commission or other compensation; he is not a trus- tee nor does he act in a fiduciary capacity.**'' And a judgment obtained by a railroad company against a ticket agent for money collected by him for tickets sold and converted to his own use is not a fiduciary debt.*** Again, an agent who retains money of his principal which was sent to him for a specific purpose, as, for instance, to take it to another N. C. 332 ; Cromer v. Cromer, 29 Gratt. Div. 327, 134 N. Y. Supp. 786. But com- (Va.) 2S0. pare Fulton v. Hammoua, 11 Fed. 291; 133 Halliburton V. Carter, 55 Mo. 43D, Shipley v. Platts, 17 S. D. 357, 97 N. W. 10 N. B. R. 359. 1. And see Williams v. Virginla-Caro- 134 Boyd V. Agriculture Ins. Co., 20 Una Chemical Co. (Ala.) 62 South. 755. Colo. App. 28, 76 Pac. 986 ; Young v. A bankrupt was held not released from Clark, 7 Cal. App. 194, 93 I'nc. 1056. a debt created by the collection of cer- 135 In re Benoit, 194 N. Y. 549, 87 N. tain notes for defendant under an agree- E. 1115 ; Byrnes v. Byrnes, 129 N. Y. 23, ment reciting their receipt as trustee for 29 N. E. 244 ; Stull v. Beddeo, 78 Neb. collection. Williams v. Virginia-Carolina 119, 112 N. W. 315, 14 L. R. A. (N. S.) Chemical Co., 182 Ala. 413, 62 South. 507. 755. 130 Noble V. Hammond, 129 TJ. S. 65, ist in re Camelo, 195 Fed. 632, 28 Am. 9 Sup. Ct. 235, 32 L. Ed. 621; Grover & Bankr. Rep. 353; In re Hale, 161 Fed. Baker Sewing Machine Co. v. Clinton, 5 387, 20 Am. Bankr. Rep. 633; American Biss. 324, 8 N. B. R. 312, Fed. Cas. No. Agricultural Chemical Co. v. Berry, 110 5,845 ; Green v. Chilton, 57 Miss. 598, 34 Me. 528, 87 Atl. 218 ; Barber V. Sterling, Am. Rep. 483 ; Guilfoyle v. Anderson, 9 68 N. Y. 267. Daly (N. Y.) 64; Kaufman v. Alexander, iss in re Wenham, 153 Fed. 910, 16 .53 Tex. 562 ; Hanan v. Long, 150 App. Am. Bankr. Rep. 690. § 733 LAW OF BANKRUPTCY 1444 place and there p^y the note of the principal, cannot be treated as a de- faulting trustee, but his liability will be discharged in bankruptcy.^** This question not seldom arises in connection with the liability of one who is intrusted with the funds of another for the purpose of loaning them on real-estate security, and who is authorized to receive payment of the interest as due and of the principal of such loans, and directed to remit the same to his principal. When borrowers pay into his hands ei- ther the interest or the principal, it is held that he does not receive the money in the capacity of a trustee, and his failure to pay it over creates a simple debt which is dischargeable in bankruptcy.^** But if, instead of investing the money sent to him, as directed, he converts it to his own use and employs it in his own business, it is considered fliat such a mis- application of the funds is a breach of trust, so that the debt thereby created will not be barred by his discharge in bankruptcy.^" And the same result follows where he lends the principal's money to himself, or where, on lending it to a third person, he takes security in the form of a trust deed to himself as trustee. In the latter case, if the property or its proceeds come into his hands through foreclosure, he is technically a trustee and holds the property in a fiduciary capacity."* So also, an as- signment of money to grow due in the fixture puts the assignor in the position of a trustee, so that if he collects the money when due and mis- appropriates' it, he cannot plead his discharge in bankruptcy against the assignee's claim."* § 733. Same; Attorneys. — In several of the cases decided under former bankruptcy laws it was held that the relation of attorney and client is one of trust, and a violation of duty by the attorney is an act done in a fiduciary capacity under the bankruptcy law, and a debt grow- ing out of the conversion or embezzlement by an attorney of his client's money or property, while in his hands, is a debt created while he is act- ing in a fiduciary capacity and therefore not released by. his discharge in bankruptcy.^** But the decisions to the contrary "* appear to be sus- tained by the better reason, since the confidence which must necessarily be reposed in the integrity of an attorney at law, great as it is, is still not sufficient to make it a case of technical or express trust, to which cases alone the statute is intended to apply."* 189 Pankey v. Nolan, 6 Humph. (Tenn.) us j. l. Mott Ironworks v. Tourney, 154 ; Phillips v. Kussell, 42 Me. 360. 94 App. Div. 216, 87 N. Y. Supp. 1020. Compare Matteson v. Kellogg, 15 111. 547. "* Flanagan v. Pearson, 42 Tex. 1, 14 110 Bracken v. Milner, 104 Fed. 522, 5 N. B. R. .37, 19 Am. Rep. 40 ; Hefifren v. Am. Bankr. Rep. 23. Jayne, 39 Ind. 463, 13 Am. Rep. 281. iiiFlagg V. Ely, 1 Edm. Sel. Gas. (N. i*5 Wolcott v. Hodge, 15 Gray (Mass.) Y.) 206. 547, 77 Am. Dec. 381 ; Woodward v. "2 Bracken v. Milner, 104 Fed. 522, 6 Towne, 127 Mass. 41, 84 Am. Rep. 337. Am. Bankr. Rep. 23. "o Supra, § 729. 1445 DEBTS AFFECTED BY DISCHAEGH § 735 § 734. Same; Bailees. — Unless expressly constituted a trustee, a bailee of personal property does not hold it in a fiduciary capacity, nor act in such a capacity when dealing with it, so that a debt or claim against him for the loss, destruction, or conversion of the property is simply founded on his breach of contract and will be released by his discharge in bankruptcy."'' Thus, where one is intrusted with the ef- fects of another to sell and dispose of them for the benefit of the latter, and to account to him therefor, the mere fact that such bailee has failed to account does not create a debt which is ekempted from his discharge in bankruptcy.^** So, where the bankrupts pledged accounts due them for merchandise sold to secure a loan, and also agreed to hold any goods returned by customers whose accounts were assigned as the property of the creditor or resell the same as his agents and account for the pro- ceeds, it ,was held that a failure to pay over the proceeds of goods so re- sold did not create a liability for "willful and malicious injury" to the property of the creditor, nor a debt created by the bankrupts while acting in a fiduciary capacity."* And a claim against a pledgee of a certificate of stock, based on his pledging the stock for an amount, in excess of the pledgor's indebtedness, shortly before his adjudication in bankrifptcy, and a refusal to deliver the certificate to the pledgor on tender of pay- •ment of his debt, is predigated merely on the pledgee's breach of con- tract, and is a liability discharged in bankruptcy."* „So again, where plaintiflf sold personal property to defendant, under an agreement that the title should remain in the seller until the purchase price was paid, but defendant sold the property and appropriated the proceeds, it was held that his liability therefor was not created while he was acting in a fiduciary capacity.""- § 735. Same ; Bankers and Brokers. — A banker does not occupy the position of a trustee with respect to funds placed in his hands on gen- eral deposit. The relation of the parties is simply that of debtor and creditor. Hence a claim against the banker for the loss or conversion of the money will be a provable debt against him in bankruptcy and will be barred by his discharge."* So also, the dealings between a 147 Sumner v. Richie, 54 Iowa, 554, 6 nsoWood v. Fisk, 156 App. Div. 497, N. W. 752; Phillips v. Russell, 42 Me. 141 N. Y. Supp. 342. 360; Grannis v. Oubbedge, 71 Ga. 582. i" Bryant v. Kinyon, 127 Mich. 152, Compare Herman v. Lynch, 26 Kan. 435, 86 N. W. 531, 53 L. R. A. 801. 40 Am. Rep. 320. And see Burnham v. 152 Lewis v. Shaw, 122 App. Div. 96, Noyes, 125 Mass. 85 ; Stokes v. Mason, 106 N. Y. Supp. 1012 ; Sheldon v. Clews, 10 R. I. 261, 12 N. B. R. 498. 13 Abb. New Cas. (N. Y.) 40; Shaw v. 148 Georgia R. R. v. Cubbedge, 75 6a. Vaughan, 52 Mich. 405, 18 N. W. 126; 321. Maxwell v. Evans, 90 Ind. 596, 46 Am. 149 In re Toklas Bros., 201 Fed. 377, Rep. 234; Hervey v. Devereux, 72 N. 0. 29 Am. Bankr. Rep.' 709. 463. § 736 ■ LAW OF BANKRUPTCY v 1446 stockbroker and his customers are not of a fiduciary character, and the broker's discharge in bankruptcy will release him from claims against him growing out of his conversion or misappropriation of- money placed in his hands by a customer as margin or for the purchase of stocks/®* or his failure or refusal to return securities deposited with him as col- lateral/^* or his unauthorized sale of stock purchased for a customer."® § 736. Same; Factors and Commission Merchants. — A factor or commission merchant is not technically a trustee with respect to the goods of his -principal in his hands or with respect to the proceeds of sales, and his failure to pay over money due to his principal is not a breach of trust. It creates a simple debt, which is provable and dis- chargeable in bankruptcy, and not a fiduciary debt."^®* "If the act em- braces such a debt, it will be difficult to limit its application. It must include all debts arising from agencies, and indeed all cases where the law implies an obligation from the trust reposed in the debtor. Such a construction would have left but few debts on which the law could, operate. In almost all the commercial transactions of the country con- fidence is reposed in the punctuality and integrity of the debtor, and a violation of these is, in a commercial sense, a disregard of a trust. But this is not the relation spoken of in the act." "' But while this rule ap- . plies to debts due from a factor to his principal, it may be otherwise in respect to his liability for goods of the principal in his hands which he refuses to return on demand, having no legal excuse for such refusal. It has been held that this constitutes a debt created by his fraud or mis- 153 In re Ehnls & Stoppanl, 171 Fed. erink v. Card, 3 McCrary, 549, 11 Fed. 755, 22 Am. Bankr. Rep. «79 ; Halpine 295 ; Owsley v. Cobin, 15 N. B. R. 489, V. May, 100 Mass. 498 ; Lawrence v. Har- Fed. Cas. No. 10,636 ; lu re Smith, 9 Ben. rington, 122 N. Y. 408, 25 N. E. 406; 494, Fed. Cas. No. 12,976; Hayman v. Clarke v. Milliken, 70 Misc. Rep. 492, 127 Pond, 7 Mete. (Mass.) 328 ; Scott v. Por- N. T. Supp. 339. ter, 93 Pa. St. 38, 39 Am. Rep. 719; Falk- 154 Palmer v. Hussey, 119 U. S. 96, 7 land v. Bank, 21 Hun (N. Y.l 450; Aus- Snp. Ct. 158, 30 L. Ed. 362 ; Hennequin till v. Crawford, 7 Ala. 335 ; Woolsey v V. Clews, 111 TJ. S. 676, 4 Sup. Ct. 576, 28 Cade, 54 Ala. 37S, 25 Am. Rep. 711; Max- L. Ed. 565 ; Crosby v. Miller, Vaughn & well v. Evans, 90 Ind. 596, 46 Ani Rep Co.. 25 R. I. 172. 55 Atl. 328; Hennequin 234; Du Pont v. Beck, 81 Ind. 271; Gro- V. Clews, 77 N. T. 427, 33 Am. Rep. 641. \n- & Baker S. M. Co. v. Clinton, 5 Hiss 155 Stratford v. Jones, 97 N. Y. 586. 324, 8 N. B. R. 312. Fed. C-i Gibbons v. Dexter Horton Trust & 1 Ga. App. 707, 58 S. E. 274. Savings Bank (D. C.) 225 Fed. 424, 35 Am. Bankr. Rep. 632. § 748 LAW OF BANKEUPTCT 1464 § 748. Same ; Sureties and Guarantors. — Under the provision of the banlcruptcy act that the liability of persons who are guarantors or sure- ties for a bankrupt shall not be "altered" by his discharge, it is held that the liability of such persons is not in any way released, changed, or diminished by the discharge of the principal debtor.**" As to the peculiar position of sureties on an appeal bond, there has been some difference of opinion. The general rule is that the surety on such a bond is not re- leased by the discharge in bankruptcy of the principal debtor, though the judgment was upon a debt provable and dischargeable in bankruptcy, and that, in such a case, a judgment may be rendered against the bank- rupt, but with a perpetual stay of execution, which will preserve the liability of the surety.**^ Some of the decisions do not admit this rule to its fullest extent, but hold that, where the liability of the surety has become fixed before the discharge is granted to the principal, by the affirmance of the judgment appealed from or by the rendition of a judg- ment on the bond, then the liability of the surety is not released or af- fected, even though the judgment becomes inoperative as against the principal debtor.^** But where the appeal bond is conditioned on the affirmance of the judgment or the dismissal of the appeal, and no final judgment is rendered in the action because it is terminated by the prin- cipal's discharge in bankruptcy (as, where the appeal is taken from the judgment of a justice of the peace and the bankrupt pleads his discharge in the higher court), then the liability of the surety is extinguished along with that of the principal, or rather, there is no breach of the condition of the bond on which the surety could be held liable.*** In the case of 280 Leader v. MatUngly, 140 Ala. 444, 190 Ala. 352, 67 South. 299; Chewnlng .37 South. 270 ; Boyd v. Agricultural Ins. v. Knight, 16 Ala. App. 357, 77 South. Co., 20 Colo. App. 28, 76 Pac. 986 ; State 969 ; James v. Harry Kitzenger & Co., V. Federal Union Surety Co., 156 Mo. 13 Ala. App. 448, 68 South. 582; Failor App. 603, 137 S. W. 613 ; D. C. Wise v. Wehe, 98 Kan. 325, 158 Pac. 74 ; Kohn, Coal Co. V. Columbia l.iead & Zinc Co., Weil & Co. v. Weinberg, 110 Miss. 275, 123 Mo. App. 249, 100 S. W. 680; Stein- 70 South. 353; Tutt v. Fighting Wolf hauer & Wight v. Adair, 20 Ga. App. 733, Mining Co. iWitthaus V. Zimmermann, 91 App. Wyckoff v. Gardner (N. J.) 5 Atl. 8O1' I >iv. 202, 86 X. Y. Supp. 315 ; Derscli v. Goss v. Gibson, 8 Humph. (Tenn ) 197- WtilkiT, 89 S. W. 233, 28 Ky. Law Rep. Liddell v. Wiswell, 59 Vt. 365, 8 Atl 680' ■ .-;ij ; liaffcrty v. Klein, 256 Pa. 481, 100 Byers v. Alcorn, 6 111. App. 39; Smith Atl. 945. V, Ilodson, 50 Wis. 279, 6 N. W.' 812. 1467 DEBTS AFFECTED BY DISCHARGE • § 7130 in his schedule, and is adjudged bankrupt,- but no adjudication is made against the partnership as such, the creditors of the firm may prove their debts against the bankrupt, and cause his interest in the firm property to be subjected to the payment thereof; and if a proper foun- dation is laid in the pleadings and notices to creditors, the discharge granted to the bankrupt will release him from both classes of debts.^*" But if neither the petition for adjudication, the notice to creditors, nor the application for discharge makes any reference to partnership lia- bilities, or asks relief against firm debts, such debts will not be af- fected by the discharge."*' In the individual bankruptcy of one part- ner, his co-partner may prove a claim against him for a liability grow- ing out of the partnership affairs, if it is fixed and certain or capable of being liquidated, and the omission to prove it in this case will bring it within the operation of the discharge."'* But where the partiier in bankruptcy had assumed and agreed to pay the firm debts, on a previ- ous dissolution, and a judgment is entered on a firm debt, which the other partner is compelled to pay, but after the commencement of the bankruptcy proceedings, and hence not in time for proof and allowance, the partner so paying may maintain an action to recover the amount paid, notwithstanding the discharge of the bankrupt."*® Where one partner thus secures his release from the firm debts, the defense is per- sonal to him and /available only so far as his individual liability is concerned, and will not ordinarily afifect the responsibility of the other partners.*** But it has been held that a discharge in bankruptcy of one • partner on a firm debt is a good defense to an action against the two partners to renew a judgment on a partnership debt,, where it appeared that the process in the action was served only on the partner who had been discharge, and where the firm had been dissolved many years be- fore', and the judgment creditor had actual knowledge that it had as- signed the firm and individual property under the state insolvency law, 296 l,esser v. Gray, 2.36 U. S. 70, 35 115 App. Dlv. 488, 101 N. Y. Supp. Sup. Ct. 227, 59 ,L. Ed. 666, 34 Am. 371. But compare In re Grnber, 129 Bankr. Rep. 8; Gordon v. Texas Co., App. Di v. 297, 113 N. Y. Supp. 923; Dodge 119 Me. 49, 109 Atl. 368; In re Dia- v. Kaufman, 46 Slisc. Rep. 248, 91 N. Y. mond, 149 Fed. 407, 79 C. 0. A. 227, 17 Supp. 727. And see Murphy v. Nichol- Am. Bankr. Rep. 563; In re Kaufman, son, 87 N. J. Law, 278, 94 Atl. 62. 136 Fed. 262, 14 Am. Bankr. Rep. 393; ,„ j^ ^.^ McFaun, 96 Fed. 592, 3 Am. Jarecki Mfg. Co. v. McEhvaine, 107 Fed. Bankr Rep 66 249, 5 Am^ Bankr. Rep^ 751; In re ,,,p ^^^^ '^ ,35 .^^ Laughlin 96 led. 589 3 Am^ Bankr. ^ • Eep. 1 ; Loomis v. Wallbloin, 94 Minn. ' ^ , w. 392, 102 N. W. 1114, 69 L. R. A. 771, ^os Ogilby v. Munro, 52 Misc. Rep. 170, 3 Ann. Oas. 798; New York Institution 101 N. Y. Supp. 753; Hefner v. Hefner, for Instruction of Deaf and Dumb v. 26 S. D. 704, 127 N. W. 634. Crockett, 117 App. Dlv. 269, 102 N. Y. soo Kimmel v. State (Ind. App.) 130 N. Supp. 412 ; Berry Bros. v. Sheehan, E. 239. § 750 LAW OF BANKRUPTCY 1468 and where it did not appear that any firm assets existed, provided that the claim was properly scheduled and notice thereof duly given.^"^ But individual partners cannot be discharged from partnership debts under an adjudication against the' partnership only; and the discharge of a firm, where the partners are not severally adjudicated bankrupt, does not release them personally from the partnership debts.**^ If some of the members of a bankrupt firm wrongfully converted stock certifi- cates, so as to create a liability for "willful and malicious injury to the property of another," not dischargeable in bankruptcy, those members of the firm who did not participate in such wrongful acts are neverthe- less not released from liability for such debts by the discharge in bank- ruptcy.^** § 751. Discharge of Corporation and Effect on Liabilities of Offi- cers and Stockholders. — Since the effect of a discharge in bankruptcy is to release only the bankrupt's personal liability, and since the six- teenth section of the bankruptcy act expressly provides that "the lia- bility of a person who is co-debtor with, or guarantor or in any man- ner a surety for, a bankrupt shall not be altered by the discharge of such bankrupt," the discharge of a bankrupt corporation does not re- lease its stockholders, directors, or officers from any statutory liability imposed upon them to be answerable, in whole or in part^ for the debts of the corporation; and if the law of the state makes the recovery of . a judgment against the corporation a prerequisite to any proceeding against the stockholders or officers, the discharge of the corporation will not prevent creditors from subsequently taking judgment against it in a state court in such limited form as may enable them to enforce the sec- ondary liability of the stockholders or officers.*"* And the fact that creditors may have proved their claims in bankruptcy against the cor- poration, and received dividends thereon, does not prevent them from collecting the unpaid balance in this way.**^ Further, the fact that a 301 Loomis V. Wallblom, 94 Minn. 392, so a Kavanaugh v. Mclntyre, 210 N. T 102 N. W. 1114, 69 L. R. A. 771, 3 Ann. 175, 104 N. E. 135. (^as. 798. 804 In re Marshall Paper Co., 102 Fed. 302 In re Pincus, 147 Fed. 621, 17 Am, 872, 43 C. 0. A. 38, 4 Am. Bankr. Rep. Bankr. Rep. 331; In re Bertenshaw, 157 468; s, c, 95 Fed. 419, 2 Am. Bankr. Rep. Fed. 363, 19 Am. Bankr. Rep. 577; 653; Elsbree v. Burt, 24 R. I. 322, 53 Schroeder v. Frey, 60 Hun, 58, 14 N. T. Atl. 60; Way v. Barney, 116 Minn. 285, Supp. 71; Wm. R. Moore Dry Goods Co. 133 N. W. 801, 38 L. R. A. (N. S.) 648^ V. Ford (Ark.) 225 S. W. 320. But see Ann. Cas. 1913A, 719; Cliiekasaw Hotel Young V. Stevenson, 73 Ark. 480, 84 S. W. Co. v. C. B. Barker Const. Co., 135 Tenn. 623. And compare Abbott v. Anderson, 305, 186 S. W. 115, L. R. A. 19ieF, 106! 184 111. App. 598. 30D First Nat. Bank v. Hingham'Mfg Co., 127 Mass. 563. 1469 DEBTS AFFECTED BY DISCHARGE § 752 corporation has been adjudged bankrupt does not relieve stockholders of debts contracted as partners.^'" § 752. Effect of Discharge as to Securities and Liens. — While a discharge in bankruptcy releases the debtor from personal liability for the debts proved and frees his after-acquired property from the claims of creditors, it does not divest or in any way affect a valid lien existing on property of the bankrupt, provided, first, that the lien is not of the kind stricken down by the commencement of bankruptcy proceed- ings within four months after its inception, and second, that the prop- erty has not been brought within the jurisdiction of the bankruptcy court and administered by it.**' In the latter case, of course, the rights of the lien creditor will be adequately safeguarded.*"* And where a debt is discharged in bankruptcy pending an action in a state court to re- cover the same, and there is a lien created by law incident to such debt, a plea in baripf further proceedings in the case will not preclude the court from rendering such a judgment as may be necessary to ena- ble the plaintiff to enforce the lien.*** This rule applies (among oth- ers) to mechanics' liens,*^* and to a vendor's lien for purchase money, where such a lien is recognized by the laws of the particular state,*^* and to an equitable lien,*"^* and to a suit by a creditor to enforce a trust in land held by the debtor's wife.*^* So, a discharge in- bankruptcy se- 306 Virginia-Carolina Chemical Co. v. shall, 116 Ga. 811, 43 S. E. 48; Evans v. Fisher, 58 Fla. 377, 50 South. 504. Rounsaville, 115 Ga. 684, 42 S. E. 100; 307 Butler Cotton Oil Co. v. Collins Smith V. Zachry, 115 Ga. 722, 42 S. E. (Ala.) 75 South. 975; Gray v. Bank of 102; Darling v. Woodward, 54 Vt. 101. Hartford, 137 Ark. 232, 208 S. W. 302; sos First Nat. Bank v. HofCman, 102 American Improvement Co. v. Lilienthal Kan. 465, 171 Pac. 13. (Cal. App.) 184 Pac. 692; Wills v. E. K. aos Bank of Commerce v. Elliott, 109 Wood Lumber & Mill Co., 29 Cal. App. Wis. 648, 85 N. W. 417. 97, 154 Pac. 613; Frey v. McGaw, 127 sio Jensen v. Dorr, 23 Cal. App. 701, Md. 23, 95 Atl. 960, L. R. A. 1916D, 113; 139 Pac. 659 ; Chickasaw Hot«l Co. v. C. Paxton v. Scott, 66 Neb. 385, 92 N. W. B. Barker Const. Co., 135 Tenn. 205, 186 611; Mallin v. Wenham, 209 111. 252, 70 S. W. 115, L. R. A. 1916F, 106; Holland N. E. 564, 65 L. R. A. 602, 101 Am. St. v. CanlifC, 96 Mo. App. 67, 69 S. W. 737; Rep. 238; Taylor v. Marshall, 153 111. McCullough v. Caldwell, 5 Ark. 237; App. 409; Morganstein v. Commercial Jensen v. Dorr, 159 Cal. 742, 116 Pac. Xat. Bank, 125 111. App. 397 ; McDonald 553. See Ricks v. Smith, 20 Ga. App. V. H. E. Taylor & Co., 144 App. Div. 329, 491, 93 S. E. 116. 128 N. Y. Supp. 1048; WyckofC v. Wil- sn Graves v. Coutant, 31 N. J. Eg. Hams, 136 App.. Div. 495, 121 N. Y. Supp. 763; White v. Hartman, 26 Colo. App. 189; Stevenson v. Bird, 168 Ala. 422, 53 475. 145 Pac. 716. See Graham v. Rich- South. 93; Newberry Shoe Co. v. Collier, erson, 115 Ga. 1002, 42 S. B. 374; Pace v. Ill Va. 288, 68 S. E. 974; John Leslie Berry, 176 Ky. 61, 195 S.. W. 131. Paper Co. v. Wheeler, 23 N. D. 477, 137 . 3i2Eisman v. Whalen, 39 Ind. App. N. W. 412, 42 L. R. A. (N. S.) 292; Caus- 350, 79 N. E. 514, 1072. ey Lumber Co. v. Connor, 6 Ga. App. 444, sis Evans v. Staalle, 88 Minn. 253, 92 65 S. B. 194; McCall v. Herring, 116 N. W. 951. Ga. 235, 42 S. B. 468; Philmon v. Mar- § 752 LAW OF BANKRUPTCY 1470: ■cured by the debtor in a judgment, without notice to an attorney, who- had filed a lien against the judgment for his fee, no mention of the lien having been made in the schedule of debts, does not discharge the at- torney's interest in the judgment or bar his right to use the judgment to collect the amount of his lien.*" And the right created by the as- signment, as security, of one's expectancy in the estate of his living ajicestor is a lieil enforceable against him after his discharge in bank- ruptcy.'*^" But the right of a judgment creditor to proceed under a state statute to reach the excess above the statutory homestead valua- tion of the homestead of the debtor is destroyed by the latter's dis- charge in bankruptcy, if the judgment was based on a claim provable in bankruptcy, and no proceedings to reach the homestead had been begun at the time of the di'scharge.*'^* In regard to an assignment of wages, it appears that a discharge in bankruptcy will not defeat the right of the assignee to recover the wages in so far as the same have been earned and assigned before the discharge,*^'' though it will release the bankrupt from personal liabil- j^y 318 gm ^jj assignment, as security for a debt, of wages thereafter to be earned by the debtor, either under a general or specific employ- ment, creates no lien until the wages have been earned, and where, be- fore that time, the debtor is adjudged a bankrupt and is subsequently discharged, the debt is extinguished from the date of the adjudication, and no lien arises as to wages earned thereafter, but the same become the property of the bankrupt free from the claims of all his creditors, including the assignee.*^® § 753. Same; Attachment and Garnishment. — In certain circum- stances the bankruptcy act destroys the lien of an attachment levied within four months prior to the institution of bankruptcy proceedings. 31* Lown V. Casselman (N. D.) 141 N. & Refining Co., 56 Mont. 277, 184 Pac. W. 73. 478; In re West, 128 Fed. 205, 11 Am. 315 Bridge v. Kedon, 16.3 Cal. 493, 126 Bankr. Rep. 782; In re Home Discount Pac. 149, 43 L. R. A. (N. g.) 404; Du- Co.. 147 Fed. .^:^,8, 17 Am. Bankr. Rep. mont. Roberts & Co. v. McDougal, 200 168; In re Liideke, 171 Fed. 292, 22 Am. Til. App. 583. Bankr. Rep. 467 ; Leitch v. Northern Pac. 310 Hoggs V. Dunn, 160 Cal. 283, 116 Ry- Co., 95 Minn. 35, 103 N. W. 704, 5 Pac. 743. ^1™ Cas. 63 ; Levi v. Loevenhart & Co., 317 Wabash R. Co. v. Meyer, 119 111. 1^8 Ky. 133, 127 S. W. 748, 30 L. R. A. App. 108 ; Raulins v. Levi. 232 Mass. 42. <^'- S) ^'^^- ^^'i Am. St. Rep. 377. But 121 N E 500 compare Mallin v. Wenham. 209 111. 252, 31. Milchell v. Leland, 190 Mas. 258, ^.^J "^^l^^/^ Z.t''.. 76 N. E. 670. Boston & M. R. R., 196 Miiss. 528, 82 N. 31S Draeger v. Wisconsin Steel Co., E. 696, 14 L. R. A. (N. S.) 1025, 124 Am. 104 111. App. 440; Hupp v. Union Pac. R. St. Rep. 584, 13 Ann. Cas. 365. And see Co.. 99 Ne)). 054, 157 N. W. 343, L. R. A. Monarch Discount Co. v. Chesapeake & 1916E, 247 ; Rate v. American Smelting O. Ry. Co., 285 111. 2?,n. 120 N. E. 743. 1471 DEBTS AFFECTED BY DISCHARGE § 753 Where these circumstances concur, and the debt in question is one prov- able in the bankruptcy, not only will the lien of the attachment be dis- solved, but the liability of sureties on a bond given to dissolve the at- tachment will be released by the debtor's discharge in bankruptcy. ^^^ But in cases where the attachment was levied more than four months before the bankruptcy and is otherwise valid, it will not be dissolved or released by the discharge of the bankrupt, though the original debt may be extinguished thereby.^** In that case, the plaintiff in attachment is entitled to the entry of a special judgment enforceable only against the attached property and an execution in accordance therewith.*^* And a judgment against the bankrupt which is specified to be enforceable agamst certain attached property and not otherwise, though in form a judgment for money, sufficiently recognizes the effect of his discharge and protects him against any unsatisfied balance of the debt after exe- cution sale.**^ If the attached property has already been released, on the execution of a fqrthcoming bond, recognizance, or other obligation permitted by the local practice, there is nothing in the bankruptcy act to prevent the rendition of a formal judgment against the bankrupt de- fendant, with a perpetual stay of execution, so as to enable the plaintiff to proceed against the sureties on such bond or obligation. ^^* The rules are much the same in the case of a garnishment. In some states, the interest which the plaintiff acquires in the property or credits of the de- fendant, by service of garnishee process on a person liable to the defend- ant as a debtor or a custodian of his property, is recognized as a lien, and an action pending to recover a debt which has been discharged in bankruptcy, having a garnishee action incidental thereto, will survive 320 Windisch-Muhlhauser Brewing Co. Chemical Co. v. Huntington, 99 Me. 361, V. Sinims. 129 La. 134, 55 South. 739; 59 Atl. 515; Johnson v. Collins, 116 Sanderson v. Buckley, 111 Miss. 748, 72 Mass. '392; Stockwell v. Silloway, 113 South. 148. • " Mass. 382; Bbsworth v. Pomeroy, 112 321 In re Blumberg, 94 Fed. 476, 1 Am. Mass. 293 ; Bates v. Tappan, 99 Mass. Bankr. Rep. 6.33; Grandin v. First Nat. 376; Davenport v. Tilton, 10 Mete. (Mass.) Bank, 70 Neb. 730, 98 N. W. 70 ; Powers 320. Dry Goods Co. v. Nelson, 10 N. D. 580, ?.''3 F. Mayer Boot & Shoe Co. v. Fer- 88 N. W. 703, 58 L. R. A. 770 ; Sims v. guson, 19 N. D. 496, 126 N. W. 110. Jacobson, 51 Ala. 186. Where the bank- an Hill v. Harding, 130 U. S. 699, 9 rupt, sued more than four months bo Sup. Ct. 725, 32 L. Ed. 1083 ; C. D.^mith fore the petition, deposited with plain- & Co. v. Lacey, 86 Miss. 295, 38 South, tiff's counsel a sum of money which was 311, 109 Am. St. Rep. 707; Barnstable to stand in lieu of an attachment, the Sav. Bank v. Higgins, 124 Mass. 115 ; discharge in bankruptcy barred the cred- Danforth Mfg. Co. v. M. L. Barrett & itor's right to such fund, there being no Co., 138 111. App. 244. See Hamilton v. lien perfected by injunction or attach- Bryant, 114 Muss. 543,' 14 N. B. R. 479 ; ment. Fingold v. Schachter, 223 Mass. Carpenter v. Turrell, 100 Mass. 450 ; Van 274, 111 N. E. 903. Zandt Jacobs & Go. v. Steiber, 90 Conn. ,322Stickney & Babcock Coal Co. v. 507, 97 Atl. 763; Tormey v. Miller, 31 Goodwin, 95 Me. 246, 49 Atl. 1039, 85 Am. Cal. App. 469, 160 Pa*. 858; Light v> St. Rep. 408; American Agricultural Hunt, 17 Ga. App. 491, 87 S. E. 763. § 754 LAW OF BANKRUPTCY 1472 the discharge, so far as to permit a judgment in form against the de- fendant, enforceable as to the equitable lien secured in the garnishee ac- tion.**® And if so broad a rule as this might not be recognized in all jurisdictions, at least it is held that where a judgment lien has been ob- tained against the property of the garnishee, the discharge in bankrupt- cy of the principal debtor will not release the lien.'** § 754. Same; Lien by Creditor's Suit. — A suit by a judgment cred- itor to set aside an alleged fraudulent conveyance and subject the prop- erty to his claim is not barred by the discharge in bankruptcy of the debt- or pending the action,**'" but the suit may proceed as an action in rem against the property affected and on which it creates a lien, although the person and future assets of the debtor have been exonerated by the discharge,*** provided, of course, that the land in suit has not been brought within the jurisdiction of the court of bankruptcy and there administered.**' So, the lien obtained on an equitable interest of a judgment debtor by the institution of a creditor's action to reach such interest is not lost by the subsequent discharge in bankruptcy of the judgment debtor.**" § 755. Same; Mortgages. — Since a bankrupt's equity of redemption in mortgaged premises, if it has any value, is an asset which must be made available for the satisfaction of his general creditors,**^ it is with- in the jurisdiction of the court of bankruptcy to stay a pending foreclo- sure of the mortgage in a state court,*** to allow the trustee to redeem from the mortgage,*** or to order the sale of the mortgaged property eitber subject to the mortgage or free from its lien.*** But if the rights of the mortgage creditor are not in some such way. brought into the 325 Bank of Commerce v. Elliott, 109 asoWahlhelmer v. Truslow, 106 App. Wis. 648, 85 N. W. 417 ; Ulner v. Doran, Div. 73, 94 N. T. Supp. 137. But see 167 App. Div. 259, 152 N. T. Supp. 655; Bowen & Thomas v. Keller, 130 Ga. 31, Friedman v. Gibbons, 101 Misc. Eep. 60 S. E. 174, 124 Am. St. Rep. 164, as to 356, 167 N. Y. Supp. 685 ; Rosen v. Wy- a suit in rem by a creditor (not holding a gand, 174 N. Y. Supp. 672. lien) to reach exempt property of the aze Marx v. Hart, 166 Mo. 503, 66 S. bankrupt, homestead rights having been W. 260, 89 Am. St. Rep. 715 ; Holland v. ■ waived as to the particular debt. CunlifC, 96 Mo.. App. 67, 69 S. W. 737. '" Supra, § 325. But see Jefferson Transfer Co. v. Hull, ''" Supra, §§ 190, 569. 166 Wis. 438, 166 N. W. 1. "' Supra, §§ 305, 570. .2. Bunch V. Smith, 116 Tenn. 201, 03 ^'^.l^^PJ'*' «f ^™' ^^l' ^^l" '^"ere the S. W. 80; Flint v. Chaloupka, 78 Neb. ZlZ.Ti,^''",^ ''?f "^ -^ ^ ^'^""^ 594, 111 N. W. 465. 13 L. R. A. (N. S.) 309, "^"'^fyf^ f ?^ ^^'^ ^^^'^'""^ •" bankruptcy, 126 Am. St. Rep. 639. H^'^,^ ,*1°''^" 7«« f"«Yf ''*' '^^*'" isainst the bankrupt estate anri tho »28 Phelps V. Curts, 80 111. 109, 16 N. ir,ortgaged property was soM d tJe B. R. 85 ; Storm v. Waddell, 2 Sandf . Ch. bankrupt's trustee under agreement^^th (N. Y.) 494. the holder, the discharge in bankruptcy 320 Flint v. dialoupka, 78 Neb. 594, would release any unsold propertv from 111 N. W. 465, 13 L. R. A. (N. S.) 309, 12ft the lien. First Nat. Bank v HtrfTman Am. St. Rep. 639. 102 Kan. 465, 171 Pac. 13. 1473 DEBTS AFFECTED BY DISCHARGE § 756 bankruptcy couft for adjudication, or voluntarily submitted by him to that court, and assuming the mortgage not to be voidable as either a preference or a fraudulent. transfer of property, then the lien of it is not divested or in any way affected by the discharge of the mortgagor in bankruptcy, though the debt secured be provable and so discharge- able.*^^ And although a discharge in bankruptcy frees the after-acquired property of the bankrupt from liability for his prior debts, so that it cannot be taken in execution for them, yet it does not affect the lien of a mortgage previously made by the bankrupt, for a valuable consideration on a contingent interest which vests after the discharge,*^® or on a new or more perfect title subsequently acquired by the bankrupt to the same property.**' And where a deed to land executed by the defendant was in fact a mortgage, the fact that his equity was not scheduled as a part of his assets in subsequent bankruptcy proceedings is no ground for an adjudication of the fee title in the pla.intiff after the discharge of the trustee in bankruptcy.*** But a discharge of the mortgagor in bankrupt- cy pending foreclosure proceedings will prevent the subsequent rendi- tion of a decree for the deficiency.*** Where, however, the mortgagor went through bankruptcy and obtained his discharge, without the mort- gagee having any notice of the bankruptcy proceedings, and, in a fore- closure suit, the mortgagor failed to appear and plead his discharge, it was held that a deficiency decree was properly entered against him.*** § 756. Effect of Discharge on Rights as to Judgment and Execution. — A judgment recovered against the bankrupt before the filing of the petition is a provable debt against his estate and therefore will be barred by his discharge ; and the fact that he went into bankruptcy for the ex- press purpose of avoiding a particular judgment does not limit the legal- effect of the discharge.*" But the lien of a judgment rendered, or of an execution levied, more than four months before the commencement 335 Fleltas V. Richardson, 147 U. S. Co. v. Machajewskl, 163 Wis. 184, 157 N. 550, 13 Sup. Ct. 495, 37 L. Ed. 276; But-' W. 702. ler Cotton Oil Co. v. Collins. 200 Ala ssn oiiphint v. Eekerley, 36 Ark. 69: 217, 75 South. 975 ; Copper Belle Miii. Haggerty v. Byrne, 75 Ind. 499 ; Bisby v. Co. V.' Costello, 12 Ariz. 318, 100 Pac. Walker, 185 Iowa, 743, 169 N. W. 467. 807; Security Sav. Bank v. Scott, 3 Cal. 3„ Haggertv v Byrne 75 Ind 499- App. 687. 86 Pac. 903; Stewart-Noble Adam vSktoc^rkD 483, 131 Drug Co. V. Bishop-Babcock-Becker Co., ^r -nr ooa 62 Colo. 197, 162 Pac. 159; McBride v. " ' „„ Gibbs, 148 Ga. 380, 96 S. E. 1004; Camp '" H°™ ''■ ^^'es (Ky.) 114 S. W. 763. V. Young, 119 Ga. 981, 47 S. E. 560 : John- ^'"' Prentis v. Richardson's Estate, 118 son V. Whitley Grocery Co., 112 Ga. 44k ^^^'^^^ ^^^' '^^ ^- '^'- ^^l- 37 S. E. 766; Catterlin v. Armstrong, 101 ^*'> Hanson v. Smith, 187 111. App. 350. Ind. 258; Schexnailder v. Fontenot, 147 3 4i Finnegan v. Hall, 35 Misc. Rep. La. 467, 85 South. 207; Laurel Oil & Fer- 773, 72 N. Y. Supp. 347; Kruegel v. Mur- tilizer Co. v. Home, 101 Miss. 629, 57 phy & Bolanz (Tex. Civ. App.) 177 S. W South. 624, 58 South. 652 ; Hoeffler Mfg. 1018. iBlk.Bkr.CSdEd.)— 93 § 756 LAW OF BANKRUPTCY 1474 of the bankruptcy proceedings is not extinguished by the discharge, where the holder of the judgment does not prove it as a debt against the estate,^** or where the property afifected did not pass to the trustee in bankruptcy as a part of the estate by reason of a right of homestead exemption existing at the date of the adjudication,*^* and even though a judgment creditor proves his claim against the estate, but receives noth- ing therefrom, if there is nothing to show that. he has surrendered or waived the lien of his judgment on land not sold by the trustee, such lien will not be affected by the discharge.*** If a judgment is rendered against a debtor after he is adjudged a bankrupt, but before the granting of his discharge, the judgment is can- celed by the discharge in so far as concerns the personal liability of the debtor and his after-acquired property, provided the debt in suit existed as a provable claim at the commencement of the bankruptcy proceed- ings and was of such a character that it would be released by the dis- charge.**® Under former bankruptcy laws it was sometimes argued, in cases of this kind, that although the original debt might be provable and dischargeable in bankruptcy, yet the rendition of the judgment constitut- ed a new debt, merging the original claim, and the judgment could not be affected by the discharge, not being a provable debt because not in existence at the commencement of the proceedings. But the courts re- fused to allow this contention.*** And the point is met by the provision of the present bankruptcy act that provable claims against an estate shall include such as are "founded upon provable debts reduced to judgments after the filing of the petition and before the consideration of the bankrupt's application for a discharge." **' And the application of the rule is not altered by the fact that the bankrupt, having a suit pend- 342 Camp V. Young, 119 Ga. 981, 47 S. v. Fenley, 94 Minn. 505, 103 N. W. 711, E. 560; Pinkard v. Willis, 24 Tex. Civ. 110 Am. St. Eep. 382; Grosso v. Mars, App. 69, 57 S. W. 891; Bassett v. Thack- 45 Misc. Rep. 500, 92 N. Y. Supp. 773; ara, 72 N. J. Law, 81, 60 Atl. 39 ; Hillyer Aiken v. Haskins, 34 Misc. Rep. 505, 70 V. Le Roy, 84 App. Dlv. 129, 82 N. Y. . N. Y. Supp. 293; Jensen v. Dorr, 159 Cal. Supp. 80 ; Pickert v. Eaton, 81 App. Div. 742, 116 Pac. 553 ; H. T. Hackney Co. v. 423, 81 N. Y. Supp. 50; Realty Co. v. Noe. 146 Ky. 818, 143 S. W. 418 ; Smith Gioshio, 50 Pa. Super. Ct. 185. v. Kinney, 6 Neb. 447 ; Huntington v. 343 Gregory Co. v. Gale, 115 Minn. 508, Saunders, 166 Mass. 92, 43 N. E. 1035; 133 N. W. 75, 37 L. R. A. (N. S.) 156; Sanderson v. Dally, 83 N. C. 67; Curtis Kener v. La Grange Mills, 135 Ga. fSO, v. Slosson, 6 Pa. St. 265; tocheimer v. 70 S. E. 245 ; McBride v. Gibbs, 148 Ga. Ste^yart, 91 Tenn. 385, 19 S. W. 21. 30 380, 90 S. E. 1004. Am. St. Rep. 887 ; Downer v. Rowell^ 26 sJ-iMcCarty v. Light, 155 App. Div. Vt. 397; Blair v. Carter, 78 Va. 621; 36, 139 N. Y. Supp. 853 ; Oilfields Syndi- ^.eonard v. Yohnk, 68 Wis. 587, 32 N. w! cate V. American Improvement Co. (D. 702, 60 Am. Eep. 884; Valdosta Guano C.) 256 Fed. 979, 43 Am. Bankr. Rep. Co. v. Green & Sutton, 149 Ga 610 101 325; Olsen v. Nelson, 125 Minn. 286, 146 S. E. 5.38. N. W. 1097. 346 Braman y. Snider, 21 Fed. 871; 345 Boynton v. Ball, 121 U. S. 457, 7 Mulhagen v. Carter, 6 Ky. Law Rep. 735! Sup. Ct. 981, 30 L. Ed. 985; Cavanaugh .147 Bankruptcy Act 1898, §.63a, cl 5." 1475 DEBTS AFFECTED BY DISCHARGE I 756 ing against him at the time of the adjudication, omits to bring such adjudication to the notice of the court or to ask for a stay of the pro- ceedings, but defends on the merits. None the less, if the judgment is rendered before the discharge is granted it will be barred thereby.'** There has, however, been some uncertainty as to the method of claim- ing the benefit of a discharge as against a previous outstanding judg- ment. Clearly, an execution issued on such a judgment cannot be en- forced against any property of the bankrupt acquired after the dis- charge,'^*® and it is said that the officer holding the writ must take no- tice of the bankruptcy of the defendant, and disregard all property which is not subject to the specific lien of the judgment.*^ And the creditor has no right to have process issued for the enforcement of a judgment which is barred or released by the discharge in bankruptcy,*^^ and if he applies for leave to issue execution it will be denied.*^* But if neverthe- less execution is issued on the judgment, it has been held that it is not void, but only voidable at the instance of the bankrupt,*''* and he cannot (unless some local statute authorizes it) move to have the discharge en- tered of record for the purpose of preventing the issue of an execution not actually sued out.**^ But it seems he may move to have an out- standing execution stayed or quashed. *^^ And according to the best modern doctrine, it is the right of the bankrupt, on motion, and without waiting for process on the judgment to be issued, to have its execution enjoined or perpetually stayed.*^* The discharge in bankruptcy will 3-48 Boynton v. Ball, 121 U. S. 457, 7 strom Metallic Door Co., 189 App. Div. Sup. Ct. 981, 30 L. Ed. 985; Pine Hill 685, 178 N. Y. Supp. 846. Coal Co. V. Harris, 86 Ky. 421, 6 S. W. ssoMcCance v. Taylor, 10 Grat. (Va.) 24; Anderson v. Anderson, 65 Ga. 518, 580. 38 Am. Rep. 797; Widner v. Yeast, 32 3oi Kruegel v. Murphy & Bolanz, 59 Kan. 400, 4 Pac. 838; Williams v. Hum- Tex. Civ. App. 482, 126 S. W. 680. phreys, 50 N. J. Law, 500, 14 Atl. 583; 362 Cohen v. Pinkus, 126 App. Div. Rogers v. Western Marine & Fire Ins. 792, 111 N. Y. Supp. 82. Co., 1 La. Ann. 161; West Philadelphia sss Cogbum v. Spence, 15 Ala. 549, 50 Bank v. GeiTy, 106 N. Y. 467, 13 N. B. Am. Dec. 140; Roden v. Jaco, 17 Ala. 453; Zumbro v. Stump, 38 W. Va. 325, 344. Compare Ewing v. Peek, 26 Ala. 18 S. E. 443. 413. 34 9 Peterson v. Calhoun, 137 Ga. 799, s64Brovifn v. Branch Bank at Mont- 74 S. E. 519 ; Brooks v. Eblen, 106 S. gomery, 20 Ala. 420. ' W. 308, 32 Ky. Law Rep. 543; Ford v. s'ss Cogburn v. Spence, 15 Ala. 549, 50 Blackshear Mfg. Co., 140 Ga. 670, 79 S. Am. Dec. 140; Alabama Great Southern B. 576. This rule applies to executions Ry. Co. v. Crawley, 118 Miss. 272, 79 Issued under Code Civ. Proc. N. Y. § South. 94. But where, pending a motion 1391, as to an execution against wages by a .judgment defendant to quash an being a lien and continuing levy upon execution on the ground of his discharge wages due or to become due, and the in bankruptcy, plaintiff issues a pluries debtor's discharge in bankruptcy, the execution, which defendant voluntarily judgment having been duly proven and pays, under no mistake as to his rights, allowed, frees his salary from the effects he cannot recover it. Ewlng v. Peck, 26 of such an execution in so far as con- Ala. 413. cerns payments subsequent to the date sioo Barnes Mfg. Co. v. Norden, 67 N. of the adjudication. Brenen v. Dahl- J. Law, 433, 51 Atl. 454; Chamberlain § 756 LAW OF BANKRUPTCY 1476 also be a complete defense to an action on the judgment,*" or to a writ of scire facias to revive it,*^* or an order in supplemental proceed- ings requiring the bankrupt to pay it,*®* or a proceeding in rem in equity against exempt property set apart to the bankrupt.*** And although it is a general rule that a discharge in bankruptcy is personal and can be pleaded by the bankrupt alone, yet this does not apply to a third person holding title to land derived from the bankrupt, when the attempt is made to subject it to the lien of a judgment recovered against the bank- rupt after his adjudication but before his discharge. Here the owner is entitled to defend his own title by defending that of his vendor, and this can be done only by setting up the discharge in bankruptcy.*"^ But whenever the attempt is made to escape liability on a judgment so ren- dered, the creditor may show, if such is the fact, that the debt or claim in suit was of such a character as to be excepted from the operation of the discharge.*"^ If the action is still pending at the time of the granting of a dis- charge in bankruptcy, it is the right of the defendant to plead the dis- charge in bar of its further prosecution, and the effect is to preclude the court from entering any personal decree against him.*"* But an order on a discharge in bankruptcy providing that it shall not affect a certain pending case until final judgment therein, and that as to such judgment the discharge shall have the same force as it would have had if the judgment had been recovered after the application for discharge and before the granting of the same, permits the prosecution of such suit.*®* V. Gvirney, 1 How. Prac. (N, Y.) 238 ; ulent representations as to the judgment Pai'ks V. Goodwin, 1 Mich. 35 ; Crocker assigned, it was held that, because of the V. Bergh, 118 Minn. 316, 136 N. W. 737 ; fraud of both parties, they should be Ziegler v. Suggit, 118 Minn. 74, 136 Ifeft in the same position as they were N. W. 411; Dick v. Powell, 2 Swan after the satisfaction of the judgment. (Tenn.) 632; In re lievitan (D. C.) 224 Wetter v. Russell, 104 Misc. Kep. 599, Fed. 241, 34 Am. Bankr. Rep. 780 ; Mor- 172 N. Y. Supp. 224. ris V. Perkins, 148 Ga. 554, 97 S. E. 526; sss Gardiner v. Ross, 19 S. D. 497, 104 Strickland v. Brown, 19 Ga. App. 73, 90 N. W. 220. S. E. 1039. if6» Richards v. Shields, 138 Ga. 583, 3 57Locheimer v. Stewart, 91 Tenn. 75 S. E. 602; Blair v. Carter's Adm'r 385, 19 S. W. 21, 30 Am. St. Rep. 887; 78 Va. 621. McDonald' V. Davis, 105 N. Y. 508, 12 '"^ Blair v. Carter's Adm'r, 78 Va. 621. N. E. 40. As to tlie enforcement of the judgment 3 08 Troop V. Griffin, 180 Pa. St. 452, 36 against property whicbi had been fraud- Atl. 865; Morrow v. Pfleiderer, 4 Ohio ulently conveyed by the bankrupt, see App. 283. yVhere plaintiffs judgment Deposit Nat. Bank v. Hay 262 Pa.' 388 was scheduled by the bankrupt, and 105 Atl. 463. plaintiff satisfied it of record on the sea lihh y_ Hamilton, 34 N. J. Law bankrupt's assigning to him a judgment 305 ; Taylor v. Buser (Sup.) 167 N. Y. against a third person, /which transac- Supp. 887. tion was in violation of Bankruptcy Act, sois Phelps v. Curts, 80 111. 109 16 N § 29b, cl. 4, and thereafter the plaintiff B. R. 85. . • , . asked to have his judgment reinstated se'4 Standard Sewing Mach. Co. v. because the defendant had made fraud- Alexander, 68 S. C. 506, 47 S. E 711 1477 DEBTS AFFECTED BY DISCHARGE § 757 And even as against a plea of discharge, it is permissible for the court to enter a special judgment against the bankrupt with a perpetual stay of execution, where this course is necessary to enable the plaintifif to take measures against persons secondarily liable, such as sureties on bonds.'*"'' And where the defendant, in an action on a judgment, had the rioht when the action was brought to set off against the plaintifif's judgment his own judgment against the plaintiff, such right is not af- fected by the plaintiff's subsequent discharge in bankruptcy.*** § 757. Same; Cancellation of Judgment of Record. — A statute in New York provides that, at any time after one year has elapsed since a bankrupt was discharged of his debts pursuant to acts of Congress, he may apply to a court in which a judgment was rendered against him, and obtain an order directing the. judgment to be canceled, if it appears that he has been discharged from payment of the judgment or the debt upon which it was recovered.**' And similar laws are in force in some other states.*** These statutes are mandatory,**" and delay of the debtor in applying for his discharge is not ground for refusing to can- cel such a judgment.*'* Neither should costs be imposed on the bank- rupt on granting his motion to cancel a judgment.*'* He is still entitled to avail himself of this statute although he had an opportunity to plead his discharge in bar of the action in which the judgment was rendered, when leave to do so was coupled with conditions and he declined to avail himself of it,*'* though not where his counsel consented to the entry of judgment for the amount claimed.*'* Further, a statute of this kind is applicable only to judgments entered before the granting of the discharge,*'* and only to judgments on dischargeable debts. That is., the court, on such a motion, may look behind the judgment to determine the character of the liability on which it was founded, and re- fuse the motion if the debt was one from which a discharge would not release the bankrupt.*'® For this reason also, the statute does not re- quire the cancellation of a judgment not duly scheduled by the bankrupt, 366 Kendrick & Roberts v. Warren Tostevin, 188 App. Div. 629, 177 N. Y. Bros. Co., 110 Md. 47, 72 Atl. 461; Supp. 291. Rosenthal v. No^e, 175 Mass. 559, 56 N. 37o Eberspacher v. Boehm, 58 Hun, E. 884, 78 Am. St. Rep. 512. See House 603, 11 N. Y. Supp. 404. V. Schnadlg, 138 111. App. 498. 3ti Briefer v. Johnsen, 32 Misc. Rep. 366 WyckofC V. Williams, 136 App. Div. '^^'^' 66 N. Y. Supp. 477. 495 121 N Y Supp 189 ' "2 Hussey v. Judson, 43 Misc. Rep. sin Code «;. Proc. N. Y. f 1268. ^'^"'Jl''- ^^ ^""Z '^^^ .o ^ n- 37 8 Stevens v. Meyers, 72 App. Div. *«8 Laws N. Dak. 1905, c. 125. i2S, 76 N. Y. Supp. 332. 369 Walker v. Muir, 127 App. Div. 163, "4 Howe v. Noyes, 47 Misc. Rep. 338, 111 N. Y. Supp. 465, affirmed 194 N. Y. UP, N. Y. Supp. 476. 420, 87 N. E. 680; Jolin Leslie Paper stb Maier v. Maier, 77 Misc. Rep. 145, Co. V. Wlieeler, 23 N. D. 477, 137 N. W. 135 N. Y. Supp. 1038. See Balliett v. 412, 42 L. R. A. (N. S.) 292; Rukeyser v. Dearborn, 27 Fed. 507. § 757 LAW OP BANKRUPTCY 1478 as the bankruptcy act excepts debts not scheduled from the operation of the discharge.*'* Again, this statute was not intended to enlarge the scope of the bankruptcy act by rendering null and void a lien which had been acquired in good faith more than four months prior to the com- mencement of the bankruptcy proceedings, and therefore, if the particu- lar judgment is a lien on real estate, meeting these conditions, an order for its cancellation will contain a reservation of the creditor's right to enforce his lien.*" The benefit of a statutory provision of this kind may be claimed, not only by the bankrupt himself, but also by an owner of land on which a judgment against the bankrupt is an apparent lien.*'* But the failure of the bankrupt to avail himself of the statute does not in any manner authorize the enforcement of a judgment which was dis- charged by the bankruptcy proceedings.*" If the judgment creditor is aggrieved by the granting of a motion for cancellation, the proper prac- tice is for him to appeal from the order, or ask leave to reargue but not to move to vacate it.**" »7e Feldmark v. Weinstein, 45 Misc. v. Trevlranus, 78 App. Div. 589, 79 N. Rep. 329, 90 N. T. Supp. 478; Woodward T. Supp. 732 ; Olsen v. Nelson, 125 Minn. V. Scliaefer, 91 N. T. Supp. 104. See 286, 146 N. W. 1097. N ^T r67"l3 T^E^ 453 '"' ^' ^^'^^' ^^ "' ^''^^^'' ^- ^^""' ^°^ ^P^' ^^- ^^^' 3TJ Plckert V. Eaton, 81 App. Div. 423, "* ^o v- Joseph, 56 Hun, 644, 9 N. 81 N. X. Supp. 50; In re David, 44 Misc. ^- ^"PP- ^12. Eep. 516, 90 N. X. Supp. 85; Popliam sso McKee v. Preble, 154 App. Div. V. Barrettp, 20 Hun (N. X.) 299 ; Arnold 156, 138 N. X. Supp. 915. 1479 REVIVAL OF DEBTS BAKEED BY DISCHAEGB § 758 CHAPTER XXXV REVIVAL OF DEBTS BARRED BX DISOHARGB Sec. 758. Validity and Consideration. 759. To Wliom Promise May be Made. 760. Time of Making Promise. 761. Sufficiency of New Promise. 762. Same ; Part Payment. 763. Same; Written or Oral Promise. 764. Conditional Promise. 765. Promise to Pay When Able. 766. Itemedies of Creditor. 767. Burden of Proof and Evidence. § 758. Validity and Consideration.— Although a discharge in bank- ruptcy releases the debtor from all legal liability to pay a debt which was provable in the bankruptcy proceedings, and which was not within the excepted classes, yet it does not extinguish the debt so as to make it incapable of revival. And although all remedies for the enforcement of such a debt are lost by the discharge, yet there remains a moral ob- ligation upon the debtor to pay in full ; and while this obligation is not one which can be enforced by suit, yet it furnishes a good and sufficient consideration for a new promise to pay the debt, and such a promise unequivocally given is binding on the debtor/ and may be enforced, notwithstanding the discharge of the bankrupt, in an action at law or any other proper form of proceeding.* So also, if a debtor, having been dis- iZavelo V. Reeves, 227 V. S. 625, 33 Rep. 316; Ross v. Jordan, 62 Ga. 298; Sup. Ct. 365, 57 L. Ed. 676, 29 Am. Carey v. Hess, 112 Ind. 398, 14 N. E. Bankr. Rep. 493 ; Cobb v. First Nat. 235 ; Succession of Andrieu, 44 La. Ann. Bank (D. C.) 263 Fed. 1000, 45 Am. 103, 10 South. 388; Way v. Sperry, 6 Bankr. Rep. 48; Fairmont Creamery Co. Cush. (Mass.) 238, 52 Am. Dec. 779; Ed- V. Collier, 21 Ga. App. 87, 94 S, E. 56 ; wards v. Nelson, 5i Mich. 121, 16 N. W. Ca^uley v. Dunn, 167 N. C. 32, 83 S. E, 261 ; WisUzenus v. O'Fallon, 91 Mo. 184, 16; Ferguson-McKinney Dry Goods Co. 3 S. W. 837; Second Nat. Bank v. Wood, V. Beuckman, 198 Mo. App. 41, 198 S. 59 N. H. 407; Hobaugh v. Murphy, 114 W. 504; Mutual Reserve Fund Life Pa. St. 358, 7 Atl. 139; Murphy v. Ass'n V. Beatty, 93 Fed. 747, 35 O. 0. A. Crawford. 114 Pa. St. 496, 7 Atl. 142 ; 573, 2 Am. Bankr. Rep. 244 ; Lambert v. Wells v. Mace, 17 Vt. 503. Schmalz, 118 Cal. 33, 50 Pac. 13; Old a Terry v.' Krauss, 149 Ala. 200, 43 Town Nat. Bank v. Parker, 121 Md. 61, South. 184; Hill v. Trainer, 49 Wis. 537, 87 Atl. 1105; In re Burton, 29 Fed. 637; C N. W. 926; Egbert v. McMichael, 9 B. German Exchange Bank v. Schnitzer, 72 Mon. (Ky.) 44; Williams v. Robbins, 32 Misc. Rep. 362, 130 N. Y. Supp. 223 ; Me. 181 ; Briggs v. Sutton, 20 N. J. Law, Stern v. Bradner, Smith & Co., 127 111. 581; Hopkins v. Ward, 67 Barb.,(N. Y.) App. 640; Anthony v. SturUivant, 174 452; Kearns v. Boyle, 13 Phlla". (Pa.) Ala. 521, 56 South. 571 ; McNair v. Gil- 193 ; Katz v. Moessenger, 110 111. 372. bert, 3 Wend. (N. Y.) 344 ; Post v. Losey, A promise by a debtor, who has been 111 Ind. 74, 12 N. E. 121, 60 Am. Rep. discharged in bankruptcy, to pay the 677 ; Craig v. Seitz, 63 Mich. 727, 30 N. balance of the debt remaining. Is a waiv- W. 347; Ogden v. Redd, 13 Bush (Ky.) er of the defense which the law gives 581 ; Ford v. Sidebottom, 5 Ky. Law him against an action on the original de- § 758 LAW OP BANKEDPTCT 1480 charged in bankruptcy, gives his note to a particular creditor for the unpaid balance of the latter's claim, the moral obligation to pay con- stitutes a sufficient consideration for the note and will support an action on it.* The effect of a discharge obtained by means of a composition with creditors is exactly the same. This is a discharge by operation of law, instead of by order of court, but an indebtedness thus discharged is a sufficient consideration for a new and express promise to pay the orig- inal debt.* Of course a new consideration may be given by the creditor, such as his forbearance to foreclose a mortgage for a definite time, and this will likewise suppott a new promise topay the original debt or the unsatisfied balance of it.* Any provable debt may be thus revived, as, for example, the claim of a surety on a note which was not due at the time of the bankruptcy proceedings.* And it is no objection to the en- forcement of a promise to pay a debt discbarged by bankruptcy that the debtor has selected some one or more creditors to be paid, to the exclusion of others. "The law allows a debtor who has been relieved from his debts by proceedings in bankruptcy to pay such debts, and will enforce a subsequent promise to make such payment, and the bankrupt can elect whether he will pay a part or all of the debts from which he has been thus relieved, he being the sole judge as to the extent to which he will revive such indebtedness." ' Subsequent creditors of a bankrupt are not entitled to question his promise to pay a creditor whose claim was barred by a discharge or composition, since the moral obligation is a sufficient consideration. But where a bankrupt, after the approval of a composition, executed a note secured by a mortgage to one of his creditors for the full amount of the debt, subsequent creditors may impeach the obligation as partially with- out consideration, if the composition creditor had also received a divi- dend.* Regularly, the new promise should be made directly to the creditor. But there are circumstances in which it may be made to a third person for his benefit. Thus, where a bankrupt executed a written promise, intended to be binding on his executors as well as himself, to pay a mund or promise. McClIntic-Marshall 603; Thornberry's Adm'r v. Dils 80 Ky Co. V. City of New Bedford (Mass.) 131 241. N. E. 444. 6 Cheney v. Barge, 26 111. App. 182. 3 Wislizenus v. O'Fallon, 91 Mo. 184, / Thai v. Larraon (C. O.) 25 Fed. 290. 3 S. W. 837; Succession of Andrieu, 44 ^VJere a bankrupt and a creditor who La. A-hn. 103, 10 South. 388. '^^'^ obtained a secret preference on a 4 Herrington y. Davitt, 220 N. Y. 162, ,'^11^^"°," '^T^^ l\f "T ^""^^'^ 115 N. E. 476, 1 A. L. k. 1700; In re . ' "''f "ti ^ '"'"'n!'^ enforceable as Merriman, 44 Conn. 587, Fed. Cas. No. t Tl'^^^^r^'T\ 'ofL^""^- ^''"'^ 9,479 ; Cohen v. Laehenmaier, 147 Wis. ^- f^^^^^ t p ^'^. ^^' ^^^ ^;, ^^ ^^'^• (49, 133 N. W. 1099. Fed 338 1.l" P r a ..T'l'lf'f ^l' ^^'' ii ed. iiSS, 151 C. C. A. 354, 38 Am. Bankv. 5 Stapp V. Thomas, 5 Ky. Law Rep, Rep. 789. 1481 nEVIVAL OF DEBTS BARRED BY DISCHARGE § 759 note which had been released by his discharge, and handed the paper to his son, with directions to deliver it, after his death, to the payee of the note, it was held that the latter, on receipt of the agreement, had a claim against the estate of the decedent, though he had no knowledge of the agreement when it was made.* The fact that the promisee had also been adjudged a bankrupt at the time the promise was made does not afifect the validity of the promise.'" But where the partners in a firm had obtained their discharge in bankruptcy, and one of the partners, who had not surrendered a part of his separate property, agreed with a firm creditor to pay his claim, the partner, on paying it, cannot recover from his co-partner unless the latter agreed to pay a moiety of the claim. ^^ § . 759. To Whom Promise May be Made. — According to some of the authorities, a new promise to pay a debt discharged by bankruptcy is not enforceable or binding on the debtor unless made either to the creditor personally or to an accredited agent or attorney of his.^** But other cases favor the rule that such a promise is equally binding and effective when made to a third person, — at least, a person who has some connec- tion with the creditor and may be expected to repeat it to him, — pro- vided it identifies the debt intended with certainty and is definite- and unequivocal.*^ And it is beyond any doubt that if the promise is made (whether verbally or in writing) to the creditor's attorney or to an agent authorized to act for him either in the particular matter or in sim- ilar matters in general, it may be enforced by the creditor." Thus, where the agent of the holder of a note has the note in his possession, and does not know that a renewal note has been given therefor, a new promise to the agent will remove the bar of the discharge in bankrupt- cy.*" In this sense, also, a collector to Whom the debt has been com- mitted for collection is the agent oi the creditor for the purpose of re- ceiving a new promise to pay it.*® And the wife of the creditor may act as his agent in such a matter, where the debt grew out of the sale of the wife's land.'' And the promise may be made to the creditor himself, in such a sense as to satisfy the strictest rule, where it is transmitted to him by a person appointed for that purpose by the debtor.** Hockett V. Jones, 70 lud. 227. n Underwood v. Eastman, 18 N. H. 10 Swan V. LuUman, 12 Mo. App. 584. 582; Hunt v. Jones, 1 Ind. App. 545, 28 11 Tyler v. Taylor, 21 Gratt. (Va.) 700. N. B. 98; Shaw v. Burney, 86 N. C. 331, 12 Pre watt v. Caruthers, 12 Smedes & 41 Am. Kep. 461; Bolton v. King, 105 M. (JCiss.) 491 ; Underwood v. Eastman, Pa. St. 78 ; Hill v. Kendall, 25 Vt. 528. 18 N. H. 582; Moseley v. Coldwell, 3 15 Jones v. Sennott, 57 Vt. 355. Baxt. (Tenn.) 208; Stewart v. Eeckless, ,pt,--.i, t ,, ■,-, ,,r . 24 N. J.- Law, 427 ; Jones v. Talbott, 18 " ^"* ^- ^^^'^H'^ann, 11 Mo. App. 254. Ky. Law Rep. 303. it Jones v. Talbott, 13 Ky. Law Rep. 18 Bennett v. Byerett, 3 R. I. 152, 67 "'^^' Am. Dee. 498; Evans v. Carey, 29 Ala. f-" Hockett v. Jones, 70 Ind. 227. 99 ; McKinley v. O'Kesou, 5 Pa. St. 369. § 760 LAW OF BANKRUPTCY 1482 § 760. Time of Making Promise. — In order that a new promise to pay a debt dischargeable in bankruptcy should overcome the effect of the discharge and found an enforceable obligation, it is necessary that it should have been made after the adjudication in bankruptcy has been passed against the debtor,^* or at any rate after the filing of the peti- tion in bankruptcy,*" though it has been held that a letter written by the debtor before the petition in bankruptcy was actually filed, but which, in the ordinary course of the mail, would not reach the creditor until after the adjudication, was a sufficient new promise.*^ But it is not necessary that the bankrupt should wait until after his discharge has been granted in order to bind himself effectually by a new promise. A provable debt may be revived by such a promise made after the filing of the petition and pending the proceedings, and the force of the new obligation is not impaired by the subsequent grant of a discharge.** "The theory is that the discharge destroys the remedy but not the indebtedness ; that, gen- erally speaking, it relates to the inception of the proceedings, and the transfer of the bankrupt's estate for the benefit of creditors takes effect as of the same time; that the bankrupt becomes a free man from the time to which the discharge relates, and is as competent to bind himself by a promise to pay an antecedent obligation, which otherwise would not be actionable because of the discharge, as he is to enter into any new engagement. And so, under other bankrupt acts, it has been common- ly held that a promise to pay a provable debt, notwithstanding the dis- charge, is as effectual when made after the filing of the petition and be- fore the discharge as if made after the discharge." ** But in this case it is necessary that the new promise should show distinctly that the bank- rupt undertakes personally to pay the debt, and not to pay it out of his estate in bankruptcy.** It may be remarked further that a defense of a 19 Stebbins v. Sherman, 3 N. Y. Super. South. 322, 60 Am. Eep. 733; Lanagin Ct. 510. But see Kingston v. Wharton, v. Nowland, 44 Ark, 84 ; Knapp v. Hoyt, 2 Serg. & R. (Pa.) 208, 7 Am. Dec. 638. 57 Iowa, 591, 10 N. W. 925, 42 Am. Rep. 2»Katz V. Moessenger, 7 111. App. 536. 59; Corliss v. Shepherd, 28 Me. 550: And see Stern v. Nussbaiun, 47 How. Otis v. Gazlin, 31 Me. 567; Wheeler v. Prac. (N. T.) 489. Wheeler, 28 111. App. 385 ; Thornberry 21 Cheney v. Barge, 26 111. App. 182. v. Dils, 3 Ky. Law Rep. 725. But seo, 22 Zavelo V. Reeves, 227 TJ. S. 625, 33 per contra, Thornton v. Nichols & Lem- Sup. Ct. 365, 57 L. Ed. 676, 29 Am. on, 119 Ga. 50, 45 S. E. 785; Ogden v. Bankr. Rep. 493; Old Town Nat. Bank Redd, 13 Bush (Ky.) 581; Graves v. M';- V. Parker, 121 Md. 61, 87 Atl. 1105; Guire, 79 Ky. 532; Chapman v. Pennie Moore v. Trounstine, 126 Ga. 116, 54 S. (Cal.) 39 Pac. 14 ; Holt v. Akarman (N. E. 810, 7 Ann. Cas. 971; Dicks v. An- J.) 86 Atl. 408; Traders' Nat. Bailk v. drews, 132 Ga. 601, 64 S. E. 788; Pear- Hermev, 202 Mo. App. 402, 218 S. W. sail V. Tabour, 98 Minn. 248, 108 N. W. 937 ; Bank of Elberton v. Vickery, 20 808 ; Wiggin v. Hodgdon, 63 N. H. 39 ; Ga. App. 96, 92 S. E. 547. Jersey City Ins. Co. v. Archer, 122 N. as Zavelo v. Reeves, 227 TJ. S. 625, 33 Y. 376, 25 N. E. 338; Fraley v. Kelly, 67 Sup. Ct. 365, 57 L. Ed. 676, 29 Am. N. C. 78; Hornthal v. McRae, 67 N. C. Bankr. Eep. 493. 21; Grlel v. Solomon, 82 Ala. 85, 2 24 Hornthal v. McEae, 67 N. 0. 21; 1483 ' REVIVAL OF DEBTS BARRED BY DISCHARGE § 761 discharge in bankruptcy, set up in a pending action, may be waived by the making of a new promise to pay the debt, given after the institution of the suit and before verdict.*^ § 761. Sufficiency of New Promise. — While no particular form of words is necessary in order to constitute an effective new promise to pay a debt barred by a discharge in bankruptcy,*** yet it is required that the new promise shall be clear, distinct, and unequivocal, as well as certain and unambiguous.*' There must be an express promise to pay the specific debt.** "The rule is different in regard to the defense of the statute of limitations against a debt barred by the lapse of time. In that case, acts or declarations recognizing the present existence of the debt have often been held to take a case out of the statute. Not so in the class of cases we are considering. Nothing is sufficient to revive a discharged debt unless the jury are authorized by it to say that there is the expression by the debtor of a clear intention to bind himself to the payment of the debt." ** In other words, there must be a distinct recognition and renewal of the debt as a binding obligation.*" In the case of a note, the promise of the debtor to pay it must be clear, distinct, and unequivocal, and without such clear and express prom- ise, neither payment of interest, part payment of the principal, nor a declaration of an intention to pay it, will suffice to revive the note." Kirkpatrick v. Tattersall, 13 Mees. & in which he said: "I will send you the W. 760. first 'V or 'X' I have," It was held that 2B Decker v. Kitchen, 33 Hun (N. Y.) the expression did not fairly import an 268. absolute promise to pay five or ten dol- 28 Jones V. Talbott, 13 Ky. Law Rep. lars, and did not take. the plaintiff's debt 303. out of the efCect of defendant's dis- 27 Allen V. Ferguson, 18 Wall. 1, 21 charge. Bigelow v. Norris, 141 Mass. 14, L. Ed. 851; Stern v. Bradner Smith & 6 N. B. 88. But on the other hand, a Co., 225 111. 430, 80 N. B. 307, 116 Am. sufficient new promise was made ouc St. Rep. 151; Dressier v. Van Vlissingen, from the following words, written to a 195 111. App. 63; Brooks v. Paine, 77 S. surety on a note given by the bankrupt W. 190, 25 Ky. Law Rep. 1125 ; Appei- for borrowed money : "If I live and am son v. Stewart, 27 Ark. 619 ; Shockey v. prospered, no man who helped me (with- Mills, 71 Ind. 288, 36 Am. Rep. 196; out remuneration) will be the poorer for Hubbard v. Farrell, 87 Ind. 215 ; Jersey me, if not otherwise. That Is all there City Ins. Co. v. Archer, 122 N. X. 376, is of it." Cheney v. Barge, 26 111. App. 25 N. E. 338; Stern v. Nussbaum, 5 Daly 182. (N. Y.) 382; Riggs'v. Roberts, 85 N. C. 28 Ngg^jj^nj y Matthewson, 81 Kaix. 151, 39 Am. Rep. 692 ; Turner v. Chris- 340, 105 Pae. 436. man, 20 Ohio, 332; Huffman v. Johns 20 Allen v. Ferguson, 18 Wall. 1, 21 L (Pa.) 6 Atl. 205; Murphy v. Crawford, e^ 851 114 Pa. St. 496, 7 Atl. 142; McDougall ,'„,,' i, ^ iao t ., .r.. o . v. Page, 55 Vt. 187, 45 Am. Rep. 602; La ^ '^f^^^t \ ^''T''' ^fJ""^' ^^^' ^ ^■ Tourrette v. Price, 28 Miss. 702; Wheel- ^- ^f ' ^,? t^: ?^?'i*^/„^^'^^'='' ^• er V. Simmons, 60 Hun, 404, 15 N. Y. ^°y?*?' ^^ ^''ft.^^^'f^ ^- ^- ^^= °^°- Supp. 462. Where the defendant, some ^"^^^ Appeal, ,4 Walk. (Pa.) 457. days after obtaining his discharge in si Dressier v. Van Vlissingen, 195 111. bankruptcy, wrote the plaintiff a letter App. 63. § 761 LAW OF BANKRUPTCY 14S4 Such statements as the following have been held sufficient: "I am going to pay you every dollar I owe you by the first of July ;" ** "I will pay him some day, can't say when;"^''' "your debt I will pay if I live;"^* "I will pay the note ;" ^^ "I will pay the debt before I leave the state ;" ** the creditor "shall have her money, even if it is but a little at a time." *' But under the rule as above stated,' it is not sufficient that the bankrupt acknowledges the debt as still existing, or that he expresses the expecta- tion of paying it or an intention to pay it. The necessary distinct prom- ise to pay cannot be extracted from such expressions as that the debtor is "going" to pay the debt, or that he "expects" to pay it, or that he means to "make it all right," or that he does not intend the creditor shall lose anything.^* Still less is the rule satisfied by showing merely the recognition by the bankrupt of a moral obligation resting on him,** or a willingness to pay the d'ebt, or a statement that he will try to do so.*' No sufficient new promise is made out by the bankrupt's decla- ration that "when I am in position to pay, there is no one I would more cheerfully pay," *^ or "I will make a desperate effort to pay you something on the note," *^ or "I will do all I can to pay you." ** Some of the decisions have also held that the promise must be express, and cannot be made out by implication.** But it is perhaps better to say that the promise must be so far unqualified as necessarily to au- thorize the implication of an undertaking to pay the debt.*^ And in any , 32 St. .John V. Stephenson, 90 111. 82. Wash. 73, 118 Pac. 881, 38 L. E. A. (N. •13 Bolton V. King, 105 Pa. St. 78. S.) .577, Ann. Cas. 1913C, 741 ; Bartlett v. ■■■'i Fraley v. Kelly, 79 X. C. 348. Peck. 5 La. Ann. 669. But compare Mor- is Hunt V. Jones, 1 Ind. App. 545, 28 daunt v. Monroe, 124 111. App. 306; Hub- X. E. 98; Farmers' & Merchants' Bank bard v. Farrell, 87 Ind. 215. V. Richards, 119 Mo. App. 18, 95 S. W. ,39 Mandell v. Levy, 47 Misc. Rep. 147, '■^90. 93 X. y. Supp. 545. 3 6 .Jones V. Talljott, 13 Ky. Law Rep. 40 Holden v. Chamberlin (N. D.) 179 X .303. W. 706. 37 Sundling V. Willey, 19 S. D. 293, 103 ,, ^jg^^^^ ^ ^ 43 X. W. 38, Ann. Cas. 644. And see Gold- jj y. Supp 330 • • " *'2 Moore v. Trounstine, 126 Ga. 116, .-)4 S. E. 810, 7 Ann. Cis. 971. stein V. Saur (Tex. Civ. App.) 162 S.,W. 441. 3 8 Allen V. Ferguson, 18 Wall. 1, 21 L. Ed. 854; Dennan v, Gould, 141 Mass. 16, " ^olt v. Akai-man (N. J.) 86 Atl. 6 N. E. 22; Brewer v. Boynton, 71 Midi. ^08; Lawrence v. Harrington, 122 N. Y. 2.54, 39 N. W. 49 ; Meech v. Lamon, 103 ^^^' ^5 N. E. 406. Ind. 515, 3 N. E. 159, 53 Am. Rep. 540: ** Evans v. Carey, 20 Ala. 99;.Willetts Willetts V. Cotherson, 3 111. App. 644; v. Cotherson, 3 111. App. 644; Katz v. Shockey v. Mills, 71 Ind. 288, .36 Am. Moessenger, 110 111. 372 ; Porter v. Por- Rep. 196; Jones v. Talbott, 13 Ky. Law ter, 31 Me. 169: Stark v. Stinson, 23 N. Rep. 303: Porter v. Porter, 31 Me. 169; H. 259; In re licazelton, 32 Leg. Int. Riggs V. Roberts, 85 N. C. 151, 39 Am. (Pa.) 13; Bennett v. Everett, 3 R. I. 152, Rep. 692 ; Turner v. Chrisman, 20 Ohio, 67 Am. Dec. 49,s. :',32 ; Yo.xtheimer v. Key.ser, 11 Pa. St. ^s Craig v. Seitz, 63 Mich. 347, 30 X. 364, 51 Am. Dec. 555 ; Coe v, Rosene, 66 W. 347. ■ 1485 REVIVAL OF DEBTS BAERBD BY DISOHAEGE § 761 case there must be a clear and certain identification of the particular debt which 'the bankrupt has in mind and means to revive.** The giving of a new note by the bankrupt, after his discharge, in renewal of a previous note, or simply for the amount of a pre-existing debt, will revive the debt and take it out of the effect of the discharge,*'' but not a mere unfulfilled offer or promise to give a new note.** And where the defendant in a pending suit pleads his bankruptcy, but after- wards withdraws the plea and confesses judgment, this will amount to a new promise binding him on the judgment.*® But the fact that the debtor, after his discharge, states an account running prior to such dis- charge and fixes a certain balance, and agrees that his debtor may apply certain demands in his favor, does not avoid the effect of the discharge.''*' If there is contradictory evidence as to, the making of the alleged new promise, or its terms, or as to the debtor's intention to bind himself to a specific promise to pay the debt, these questions must be left to the jury under proper instructions from the court." In order to give binding effect to a new promise to pay a debt dis- charged in bankruptcy, it is necessary that it should have been ac- cepted by the creditor. But where the plaintiff's amended petition in a suit against a discharged bankrupt alleged that the defendant "prom- ised and agreed to and with the plaintiff" to pay the barred debt as soon as he was able, it sufficiently alleged that the plaintiff had ac- cepted the new promise."^ So, evidence of a continued effort by a cred- itor of a discharged bankrupt to enforce the latter' s promise to pay the barred debt, and to get the bankrupt to keep his promise, sufficiently shows an acceptance of the promise by the creditdr."* If a discharged bankrupt's new promise to pay a barred debt was induced by the fraud of the creditor, the latter cannot recover upon it. But if the defend- ant bankrupt, in promising plaintiff to pay the barred debt, did not un- le Landis v. Roth, 109 Pa. St. 621, 1 v. Braduer Smith cfe Co., 127 111. Apij. Atl. 49, 58 Am. Rep. 747; Hobough v. 640. Murphy, 114 Pa. St. 358, 7 Atl. 139. A -to Anderson v. caark, 70 Ga. 362; Pew- written promise to pay a debt discharged ey v. Moyer, 72 N. T. 70. in bankruptcy need not describe the debt 5« Warren v. Bishop, 22 Vt. 607; In re where there is only one debt due to that Heazelton, 1 Wkly. Notes Cas. (Pa.) 67. creditor. Goldstein v. Saur (Tex. Civ. si Pearsall v. Tabour, 98 Minn. 24.S, App.) 162 S. W. 441. 108 N. W. 808 ; Pratt v. Russell, -7 Gush. "Christie v. Bridgman, 51 N. J. JSq. (Mass.) 462; Shaw v. Bumey.'se N. C. 3.31, 25 Atl. 9.39, 30 Atl. 429; Bowii v. 331, 41 Am. Rep. 461; Tioga County Sav- Thompson, 34 Leg. Int. (Pa.) 805; Law- ings & Trust Co. v. Gates, 254 Pa. 29S, rence v. flarrinston, 122 N. T. 408, 25 N. 98 Atl. 968. E. 406; Greil v. burr, 203 Ala. 644, 84 ^'^ Brashears v. , Combs, 174 Ky. .344, South. 743 : Stokes v. Sanders, 181 App. 192 S. W. 482. ■ Div. 249, 168 N. T. Supp. 409, 53 Brashears v. Combs, 174, Ky. 344, 48 Porter v. Porter, 31 Me. 169;' Stern 192 S. W. 482. § 762 LAW OF BANKRUPTCY 1486 derstand that the new promise would be binding upon him, that is, if he was mistaken as to its legal import and effect, the mistake was not such a mistake of law as would warrant equitable relief, either af- firmative or defensive.®* § 762. Same ; Part Payment. — Neither, a payment of interest nor a part payment of the principal will suffice to revive a debt from which the debtor has been released by a discharge in bankruptcy or constitute a new promise to pay it.*® "A different rule prevails in case of a debt discharged in bankruptcy from that applied to the defense of the stat- ute of limitations. In the latter case payment of a part of the debt is regarded as an acknowledgment of the existence of the debt, and the law implies a promise to pay the residue. But in the case of a debt discharged in bankruptcy, a promise cannot be inferred, but must be express, and so all the cases agree that partial payments will not re- vive the debt." ®® However, where there is a distinct and unambiguous promise, together with a partial payment, it fully and in every particu- lar complies with the rule for the revival of a discharged debt." But no such promise can be made out from the fact that the debtor, in au- thorizing the creditor to draw on him for part of the original debt, said that he "hoped" to pay the balance in full.®* But the fact of part pay- ment is admissible to identify the debt in reference to which an express promise to pay, otherwise of uncertain application, may be proved.®' § 763. Same; Written or Oral Promise. — In Maine, Massachusetts, and New York (and perhaps in some other states) the statutes provide that no agreement or promise to revive a debt barred by a discharge in bankruptcy shall be binding and effective unless contained in some writing signed by the party to be charged.*" Since the bankruptcy law eiBrashears v. Combs, 174 Ky. 344, 33 S. W. 410. But see Warder v Lake 192 S. W. 482. 198 III. App. 514. 56 Allen V. Ferguson, 18 Wall. 1, 21 L. 56 Lawrence v. Harrington, 122 N. Y. Ed. 854; Meyer v. Bartels, 56 Misc. Kep. 408, 25 N. B. 406. 621, 107 N. T. Supp. 778; Stern v. Brad- 57 Huffman v. Johns (Pa.) 6 Atl. 205; ner Smith & Co., 225 111. 430, 80 N. E. Lawrence v. Harrington 48 Hun 618 1 307, 116 Am. St. Rep. 151 ; Wilson v. N. Y. Supp. 577. Chandler, 133 HI. App. 622; Jacobs v. «» Scheper v. Brlggs, 28 App Div 115 Carpenter, 161 Mass. 16, 36 N. E. 676 ; 50 N. Y. Supp. 869. Heim v. Chapman, 171 Mass. 347, 50 N. 59 Willetts v. Cotherson 3 111 App B. 529; Griel v. Solomon, 82 Ala. 85, 2 644. South. 322, 60 Am. Rep. 733; Stark v. eo See Spooner v. Russell, 30 Me 454- Stinson, 23 N. H. 259; Wheeler v. Sim- Otis v. Gazlin, 31 Me. 567; Kingley \ mons, 60 Hun, 404, 15 N. Y. Supp. 462 ; Cousins, 47 Me. 91 ; Nathan v. Xeland^ Lawrence v. Harrington, 122 N. Y. 408, 193 Mass. 576, 79 N. E. 793 ; Jacobs v' 25 N. E. 406; Viele v. Ogilvie, 2 G. Greene Carpenter, 161 Mass. 16, S6 N. E 676- (Iowa) 326; ToUe v. Smith, 98 Ky. 464, Elwell v. Cumner, 136 Mass. 102; Balr 1487 REVIVAL OF DEBTS BARRED BY DISCHARGE § 764 contains no provision on this subject, and since state statutes of this character do not purport to affect the debt itself, but only the remedy for its enforcement, they are not in contravention of the federal law, and are effective in the jurisdictions where they are in force. But ac- cording to what may be called the common or general law of the sub- ject, and apart from such statutory provisions, it does not need a writ- ten promise to revive a discharged debt, but one merely spoken will be sufficient for the purpose if distinct and positive.*^ § 764. Conditional Promise. — It is not necessary that a new prom- ise to pay a debt barred by a discharge in bankruptcy should be abso- lute, but it may be made upon a condition or coupled with a condition.** But in that case, where the condition is in the nature of a proposition offered to the creditor, it n;ust be alleged and shown that he accepted it or assented to it,** and if the creditor expressly declines to agree to the condition, and insists on the immediate and unconditional payment of his claim, the debt is not revived and no action can be maintained on it.** Generally, however, a condition accepted by the creditor will not at all impair the effect of the agreement in reviving the debt, as, for example, where the bankrupt undertakes to pay the debt if time is grant- ed to him for the purpose and it is accordingly granted,*^ or where the bankrupt promises to pay the debt in full if the creditor will pay the taxes for a year on certain property, which is done.** But here it must be observed that the condition must contain nothing unlawful or in contravention of the bankruptcy act. Thus, a promise to pay a par- ticular creditor in full if he will refrain from opposing the bankrupt's V. Hilbert, 84 App. Div. 621, 82 N. Y. edict, 44 Vt. 518 : Holden v. Chamberlin Supp. 1010; Meyer v. Bartels, 56 Misc. (N. D.) 179 N. W. 706; Vaclion v. Ditz Rep. 621, 107 N. Y. Supp. 778 ; Gruenberg (Wash.) 194 Pac. 545. V. Treanor, 40 Misc. Rep. 232, 81 N. Y. 02 Allen v. Ferguson, 18 Wall. 1, 21 L. Supp. 675; Mandell v. Levy, 47 Misc. Ed. 854 ; Knapp v. Hoyt, 57 Iowa, 591, 10 Rep. 147, 93 N. Y. Supp. 545; Polk v. N. W. 925, 42 Am. Rep. 59; Herrington Stephens, 118 Ark. 438, 176 S. W. 689. v. Davitt, 220 N. Y. 162, 115 N. B. 476, 81 Mutual Reserve Fund Life Ass'n v. 1 A. L. R. 1700. A promise by the bank- Beatty, 93 Fed. 747, 35 C. 0. A. 578, 2 i-upt to make a payment on a barred in- Am. Bankr. Rep. 244; Smith v. Stanch- debtedness out of particular funds If field, 84 Minn. 343, 87 N. W. 917 ; Farm- they proved sufficient for the purpose ers' & Merchants' Bank v. Richards, 119 after the payment of other obligations, Mo. App. 18, 95 S. W. 290; Blanc v. does not give rise to a general liability Banks, 10 Rob. (La.) 115, 43 Am. Dec. on the part of the bankrupt. Brashears 175 ; Worthington v. De Bardlekin, 33 v. Combs, 174 Ky. 344, 192 S. W. 482. Ark. 651; Ross v. Jordan, 62 Ga. 298; « 3 Smith v. Stanchfield, 84 Minn. 343, Craig V. Seitz, 63 Mich. 727, 30 N. W. 87 N. W. 917; International Harvester 347; Henley v. Lanier, 75 N. C. 172, 15 Co. v. Lyman, 90 Minn. 275, 96 N. W. 87. N. B. R. 280 ; Kull v. Farmer, 78 N. C. o* International Harvester Co. v. Ly- .339; Lanier v. Tolleson, 20 S. C. 57; man, 90 Minn. 275, 96 N. W. 87. Farmers' & Mechanics' Bank v. Flint, 17 "^ Comfort v. Elsenbeis, 11 Pa. St. 13. Vit. 508, 44 Am. Dec. 351 ; Barron v. Beii- «» Thornberry v. Dils, 80 Ky. 241. § 764 LAW OF BANKRUPTCY 1488 application for a discharge, or if he will dismiss a proceeding to set aside the discharge, is fraudulent and void.*'" If the condition was not in the nature of .an election offered to the creditor, but contained something personal to the bankrupt, or iiivolved the occurrence of a future event or the future existence of a certain state of affairs, then it must, be pleaded and shown that the condition has been fulfilled or, as the case may be, that the event has happened or that the contemplated state of affairs now exists.** Thus, if the bankrupt promises to pay the debt after the lapse of a certain time, no action can- be maintained on the debt or the new promise until such time has elaps- ed.** Generally, however, it is held that the bankrupt's undertaking to pay the debt when he completes a certain contract, when he collects cer- tain claims due to him, when he returns from a contemplated journey, or the like, does not make the promise a conditional one, but is rather to be regarded as a specification of the time for payment.'* Where the bankrupt's promise is that, if he had not paid a certain debt, contracted before the bankruptcy, he would pay it, the creditor has only to prove that the debt has not been paid, and then the promise becomes abso- lute.'^ So a promise that, if the creditor should lose a certain case then pending in the appellate court, the bankrupt would make it good to him, Becomes enforceable upon the determination of the appeal adversely to the creditor.'^ A promise to do certain work and apply it on a debt discharged by bankruptcy cannot be construed into a promise to pay the debt in any other way.'* It must also be remarked that if there is any indefiniteness or ambiguity in the' statement of the condition, it must be effectually cleared up before the creditor can recover. Thus, a promise to pay "as soon as I get through with that squaring up" is not sufficient to revive the debt unless it is shown exactly what was meant by the "squaring up."'* Finally, a condition attached to the promise may be waived by the bankrupt, and will be considered as having been 67 Tinell v. Freeman, 139 Mass. 297, 344 ; Dantzler v. Sclieuer, 203 Ala. 89, 1 N. E. 350 ; Pell v. Cook, 44 Iowa, 485. 82 South. 103. 6 8 Smith v. Stanchfield, 84 Minn. 343, es Arnold v. Elliott, 7 Humph. (Tenn.) 87 N. W. 917; Stern v. Bradner Smith 354. & Co., 2:;5 111. 430, 80 N. E. 307, 116 Am. to Eaton v. Yarborough, 19 Ga, 82; St. Rep. 151 ; Griel v. Solomon, 82 Ala. Swan v. LuUman, 12 Mo. App. 584. A S5, 2 South. 322, 60 Am. Rep. 733; Apper- promise to pay "as soon as possible," son V. Stewart, 27 Ark. 619 ; Tolle v. made after a discharge in bankruptcy, is Smith, 98 Ky. 464, 33 S. W. 410 ; Yate not a conditional promise. Sundling' v V. Hollinf-'swoith, 5 Har. & J. (Md.) 216 ; Willey, 19 S. D. 293, 103 N. W. 38, 9 Ann I.ii Tourrette v. Price, 28 Miss. 702 ; Gold- Cas. 644. man v. Abrahams, 9 Daly (N. Y.) 223; ti Hill v. Kendall, 25 Vt. 528. I;anier v. Tolleson, 20 S. C. 57 ; Sher- 7 2 Hemdon v. Givens, 16 Ala. 261. man v. Ilobart, 26 \t. 60; Bearing v. ' a Lawrence v. Harrington, 122 N. Y Moffit, 6 Ala. 776 ; Richardson v. Brick- 408, 25 N. E. 406. er, 7 Colo. 58, 1 Pac. 433, 49 Am. Rep. 7* Stern v. Nussbaum, 5 Daly (N. Y-.) 382. 1489 REVIVAL^ OF DEBTS BARKED BY DISCHARGE § 765 waived by his making payments on the debts prior to the happening of the condition.™ § 765. Promise to Pay When Able. — A promise by a discharged bankrupt to pay an antecedent debt as soon as he is able (or as soon as he can, or as soon as he has the money, or the like), though it is a con- ditional promise, is not void for uncertainty, but is capable of enforce- ment by suit.'® But the creditor, in order to recover on such a prom- ise, must both plead and prove that the debtor is presently able to pay the debt.'" It is, however, no ground of demurrer to ^the declaration in such a suit that it does not state in what the -defendant's ability to pay consists.''* To sustain the burden of proving the debtor's ability to pay, the creditor must show his present possession of sufficient and available means. Proof of his ability to borrow the money is not sufficient.''^ Further, the defendant is entitled to show what portion of his earnings it is necessary for him to use for the support of himself and his family, and if the residue is in.sufficient to pay the debt, ability to pay is not shown,*" and the law does not require the debtor to reduce his family expenditures to such a point that enough will remain to satisfy the cred- itor.**^ And a promise to pay a debt when able must be construed as an undertaking to pay out of the first surplus money which the debtor may acquire, and there is no such surplus until he satisfies the claims of those who have extended him credit on the faith of his immunity, from the burden of debts barred by his discharge. In other words, though the plaintiff may show that the defendant has sufficient prop- erty to pay the debt in suit, yet he cannot recover if it is shown that the payment of other just claims, contracted since his discharge in bank- 's Thompklns V. Hazen, 30 App. Div. 22 N. M. 675, 167 Pac. 274, holding that .'?.5!.), 51 N. Y. Supp. 1003. But see this a statement of a discharged banlcriipt to case on appeal, 165 N. Y. 18, 58 N. E. a creditor that he would pay his account 762. and all his other creditors "if able" did '■" Krause v. Torry, 146 Ala. 548, 40 not amount to a promise, conditional or South. 956 ; Torry v. Erauss, 149 Ala. otherwise, and did not revive the debt. 200, 43 South. 184; Griel v. Solomon, 82^ tt Patten v. Ellingwood, 32 Me. 163; Ala. 85, 2 South. 322, 60 Am. Kep. 733 ; Green v. McGowan, 7 Ky. Law Rep. 661 ; Egbert v. McMichael, 9 B. Jlon. (Ky.) 44-; Taylor v. Nixon, 4 Sneed (Tenn.) 352 : Eckler v. Galbraith, 12 Bush (Ky.) 71; stern v. Gerber, 137 N. Y. Supp.. 879; Brashears v. Combs, 174 Ky. 344, 192 S. Torry v. Krauss, 149 Ala. 200, 43 South. W. 482; Holden v. Chamberlin (N. D.) ,184; Mason v, Hughart, 9 B. Mon. (Ky.) 179 N. W. 706. A promise by the bank- 430. lupt to pay -his notes at maturity if he /, ^^^^^^^. ^ g ^^^ 3 p^^ ^ ^ IS then able to do so, and if not able, ^-.q then to pay them when he can do so. the ' ^^ ^ time being extended for that purpose, is '" K''^"| ^- ^""'y' ^^^ ^^^- ^48, 40 a valid promise. Dantzler v. Schetier. ^o"*''^- 956. 203 Ala. 89, 82 South. 103. Compare s" Kraus v. Torry, 146 Ala. 548, 40 Bie-elow v. Morris, 139 Mass. 12, 29 N. E. South. 956. 61; Elwell v. Cumner, 136 Mass. 102, si Torry v. Krauss, 149 Ala. 200, 43 And see Caledonian Coal Co. v. Young, South. 184. Blk.Bkr.(3d Ed.)— 94 § 766 LAW OF BANKRUPTCY 1490 ruptcy, would exhaust his estate and leave nothing for the plaintiff.*^ On the other hand, if the bankrupt, at the very time of making the prom- ise, has sufficient means to discharge his outstanding new debts and also to satisfy the plaintiff, there seems to be no reason why the credi- tor should not immediately begin his suit. But the authorities appear to hold that a promise clearly relating to financial ability at some future time will not sustain an immediate action.** § 766. Remedies of Creditor. — Where the new promise is made after the adjudication in bankruptcy, but before the end of the proceed- ings, the creditor cannot prove a claim on it in the bankruptcy,** nor sue on it until after the question of the bankrupt's discharge has been determined.*® But on the other hand, the fact that the creditor has proved the original debt in the bankruptcy proceedings, and received a dividend, does not prevent him from recovering the balance in an action on the new promise.*® And an express promise to pay part of a debt, discharged by the proceedings in bankruptcy, will reviye the debt pro tanto.*' But the original debt is revived only as of the date of the new promise, and where judgment is obtained upon the latter, the debtor is entitled to claim the exemption provided by law in force at the latter date.** But where he has agreed that work done by him for the credi- tor shall go towards the payment of the discharged debt, this consti- tutes a new promise to pay the debt, and he cannot maintain an action to recover the v"alue of such work.** The creditor may also recover in- terest on the original debt as well as the principal of it, where the bank- rupt promised full payment, as the promise revives the debt on the original consideration.** But where the debt had been reduced to judg- ment, it is so far extinguished by the discharge in bankruptcy that the new promise to pay will not authorize the creditor at once to issue exe- cution and sell the debtor's land, but he must first revive the judgmeht." Nor can he arrest the debtor and hold him to bail.*^ But where the original debt is in such form as to be capable of assignment to a third person, the creditor may assign the new promise with it, and so enable the- assignee to sue on it.** 8 2 Eckler v. Galbraith, 12 Bush (Ky.) ss Willis v. Cushman, 115 Ind 100 17 71. N. E. 168. 8 3 Samuel v. Cravens, 10 Ark. 380. 89 Sampson v. Curtis, 39 Me. 398. 8 4 Kingston v. Wharton, 2 Serg. & E. so stern v. Bradner Smith & Co , 225 (Pa.) 208, 7 Am. Dec. 638. III. 430, 80 N. E. 307, 116 Am. St. Rep. 8 5 Egbert v. McMichael, 9 B. Mon. (Ky.) 151. 44. »» Graham v. Dreutzer, 75 Wis. 558, 86 Kingston v. Wharton, 2 Serg. & E. 44 N. W. 776, 17 Am. St. Rep. 205 (Pa.) 208, 7 Am. Dec. 638. »2 Glazier v. Stafford, 4 Har (Del i 87 Badger v. Gilmore, 33 N. H. 361, 66 240. Am. Dec. 729. »3 Way v. Sperry, 6 Cush. (Mass.) 238, 1491 REVIVAL OF DEBTS BARRED BY DISCHARGE § 767 As to the form of action for the recovery of a debt or claim thus revived, there has been much difference of opinion. Numerous cases hold that when the bankrupt has given a new promise sufficient to re- vive a debt barred by his discharge, the creditor, in bringing suit for the recovery of the debt, must declare on the original obligation or en- gagement, and not on the new promise.®* But the opposite view, name- ly, that the original debt is extinguished by the discharge, and the only cause of action is on the new promise, is supported by several decisions of weight.®^ Probably, however, the better reason as well as the pre- ponderance of authority is with the decisions which leave it to the elec- tion of the creditor which course he will pursue, it being equally com- petent to him to sue directly on the new promise or to declare on the original debt and then plead the new promise in replication to the de- fendant's plea of his discharge in bankruptcy.** § 767. Burden of Proof and Evidence. — The burden rests on the plaintiff in an action, to prove a new promise to pay a debt released by the defendant's discharge in bankruptcy, and this fact he must estab- lish by clear and satisfactory evidence.*' Also the proof must corre- spond with the allegations of his declaration or complaint. Thus, if he alleges an unconditional promise of the defendant to pay, made after the latter's discharge, proof of a conditional promise will not authorize a 52 Am. Dec. 779; Underwood v. East- man, 18 N. H. 582; Badger v. Gllmore, 33 N. H. 361, 66 Am. Dec. 729 ;. Clark v. Atkinson, 2 B. D. Smith (N. Y.) 112; Wolffe V. Eberlein, 74 Ala. 99, 49 Am. Rep. 809. But compare White v. Gush- ing, 30 Me. 267 ; Wardwell v. Poster, 31 Me. 558 ; Moore v. Viele, 4 Wend. (N. T.) 420; Walbridge v. Harroon, 18 Vt. 448. B* Bush V. Stanley, 122 111. 406, 13 N. E. 249 ; Herrington v. Davitt, 220 N. Y. 162, 115 N. E. 476, 1 A. L. R. 1700; Gni- enberg v. Treanor, 40 Misc. Rep. 232, 81 N. T. Supp. 675; Turner v. Chrisman, 20 Ohio, 332; Marshall v. Tracy, 74 111, 379 ; Apperson v. Stewart, 27 Ark. 619 Badger v. GUmore, 33 N. H. 361; 66 Am. Dec. 729 ; Praley v. Kelly, 67 N. C. 78 Riggs V. Roberts, 85 N. C. 151, 39 Am, Rep. 692; Dusenbury v. Hoyt, 53 N. T, 521, 13 Am. Rep. 543. 95 Trueman v. Fenton, 2 Cowp. 544 Post V. Losey, 111 Ind. 74, 12 N. B. 121, 60 Am. Rep. 677; Murphy v. Crawford, 114 Pa. St. 496, 7 Atl. 142 ; Hobough v. Murphy, 114 Pa. St. 358, 7 Atl. 139; Bolton V. King, 105 Pa. St. 78; Reside V. Hadden, 12 Pa. St. 243; Field's Es- tate, 2 Rawle (Pa.) 351, 21 Am. Dec. 454 ; Chabot V. Tucker, 39 Cal. 434; Ross v. Jordan, 62 Ga. 298; Fleming^ v. Lullman, 11 Mo. App. 104; Eckler \. Galbraith, 12 Bush (Ky.) 71. 98 Allen V. Ferguson, 18 Wall, i, 21 L. Ed. 854; Torry v. Krauss, 149 Ala. 200, 43 South. 184; Horner v. Speed, 2 Pat. & H. (Va.) 616 ; Wolffe v. Eberlein, 74 Ala. 99, 49 Am. Rep. 809; Nowland V. Lanagan, 45 Ark. 108 ; Classen v. Schoenemann, 80 111. 304, 16 N. B. R. 98; Turner v. Chrisman, 20 Ohio, 332; Iiubbard v. Farrell, 87 Ind. 215 ; Spoon- er V. Russell, 30 Me. 454 ; Craig v. Seitz, 63 Mich. 727, 30 N. W. 347. 97 Pearsall v. Tabour, 98 Minn. 248, 108 N. W. 808; Brooks v. Paine, 77 S. W. 190, 25 Ky. Law Rep.' 1125; Griel v. Solomon, 82 Ala. 85, 2 South. 322, 60 Am. Rep. 733; Badger v. Gilmore, 33 N. H. 361, 66 Am. Dec. 729 ; Spaulding v. Vin- cent, 24 Vt. 501 ; Haines v. Stauffer, 13 Pa. St. 541, 53 Am. Dec. 493; Dye v. Bertram, 6 Am. Law Rep. 355; Atwood V. Gillett, 2 Doug. (Mich.) 206; Under- wood V. First Nat. Bank (Tex. Civ. App.) 185 S. W. 395; Holden v. Chamberlin (N. D.) 179 N. W. 706. § 767 LAW OF BANKRUPTCY 1492 recovery.** On any doubtful or conflicting testimony, the question whether a new promise was or was not made must go to the jury." But the possibility of wrong to a discharged bankrupt by perjured tes- timony as to a new promise, thereby depriving him of the benefit of his discharge, is not to be remedied by a forced interpretation of the evi- dence in support of the promise to pay.^"" If there is any doubt or am- 'biguity as to the debt to which the new promise was meant to apply, the plaintiff must identify it by strong and positive proof.^*^ If the original debt was evidenced by a promissory note, the note itself may be given in evidence to show the consideration for the new promise.^"^ 9 8 Buford V. Crigler, 7 Ky. Law Rep. 662 ; D.oom v. Snyder, 10 Ky. Law Rep. 281. 9 Bennett v. Everett, 3 R. I. 152, 67 Am. Dec. 498 ; United Society in Can- terbury V. Winkley, 7 Gray (Mass.) 460; Old Town Nat. Bank v. Parker, 121 Md. 61, 87 Atl. 1105; Brashears v. C!ombs, 174 Ky. 344, 192 S. W. 482. loopearsall v. Tabour, 98 Minn. 248, 108 N. W. 808. loiPearsall v. Tabour, 98 Minn. 248, 108 N. W. 808. 102 Egbert v. MtMlchael, 9 B. Mon. (Ky.) 44. 1493 COSTS AND FEES § 768 CHAPTER XXXVI COSTS AND ITEES Sec. 768. Deposit of Filing Pees. 769. Security for Costs. 770. I'ower to Award Costs. 771. Amount and Items of Costs. 772. Persons Entitled to Costs. 773. Persons, Property, or Funds Liable for Costs. 774. Taxation of Costs. 775. Expenses of Administering Estates. 776. Fees of Clerks. 777. Fees and Expenses of Marshals and Receivers, 778. Compensation of Trustees. 779. Fees and Expenses of Referees. 780. On what Sums Commissions are Calculated. 781. Fees of Attorneys. 782. Same ; Attorney for Bankrupt. 783. Same ; Attorneys for Petitioning and Other Creditors. 784. Same ; Attorney for Receiver. 785. Same; Attorney for Trustee. § 768. Deposit of Filing Fees. — Upon the filing of a petition in bankruptcy, the law requires the clerk of the court to collect filing fees, to the extent of $15 for the referee, $5 for the trustee, and $10 for him- self. These fees are to be deposited by the petiti9ning creditors in in- voluntary cases, and by the bankrupt in voluntary cases, except where he is excused on the ground of poverty.^ This deposit, on th6 part of a voluntary baiikrupt not so excused, is a condition precedent to the filing of the petition; but if the petition is placed on file and an adjudication made without payment of the fees, the objection may be raised on the bankrupt's application for discharge, and action on such application will be stayed until the filing fees are pa;id.* Wheri the petition of a proposed voluntary bankrupt is accompanied by an affidavit stating tha:t he has not and cannot obtain the money with which to pay the filing fees, the clerk will file the petition and docket the case without exacting the de- posit of such fees.* But the question of the petitioner's ability to pay the fees is open to investigation at future stages of the proceedings. And while his afiidavit of inability is prima facie evidence of the facts stated,* 1 Bankruptcy .Vet 1898, §§ 40, 48, 51, fees has priority over payment of attor- 52. And see, supra, § 165. iieys" fees, a bankrupt cannot reverse 2 In re Bardpn, 101 Fed. 553, 4 Am. this order, and, after paying his attor- Bankr. Rep. 31. ney a fee, file his petition arid schedules 8 In re Fees Payable by Voluntary as a pauper. In re Darr (D. C.) 232 Bankrupts. 95 Fed. 120. Since, under Fed. 415. 36 Am. Bankr. Rep. 432. the statute, payment of the clerk's filing * In re Lei'.\- (D. C.) 101 Fed. 247. § 768 LAW OF BANKRUPTCY 1494 it is not conclusive, and if circumstances appear casting doubt on the truth of the affidavit, the case may be sent to the referee to investigate and report the facts,^ and then the petitioner must support his allegation of poverty by convincing evidence.* As to the fact of his actual inability to procure the money with which to pay the fees, he is not required to so- licit gifts or loans from his friends for that purpose, and he is not guilty of a false oath in making affidavit that he "cannot obtain" the requisite sum, although it appears that friends would have advanced him the amount if requested.' But he cannot hold out property which is exempt under the laws of the state and still make the poverty affidavit. The pro- vision of the bankruptcy act giving bankrupts the benefit of exemptions allowed by state law was not intended to exonerate them from pay- ment of the filing fees on their voluntary petitions. Such a bankrupt is excused from payment of the fees only in case of absolute inability to pay them ; and such inability does not exist so long as he has money or property sufficient for the purpose, although it is exempt.* Further, in case of the filing of a petition by a voluntary bankrupt without pay- ment of the fees, "the judge, at any time during the pendency of the proceedings in bankruptcy, may order those fees to be paid out of the es- tate ; or may, after notice to the bankrupt, and, satisfactory proof that he then has or can obtain the money with which to pay those fees, order him to pay them within a time specified, and, if he fails to do so, may or- der his petition to be dismissed." * This clearly means that the bank- rupt may be required to pay the filing fees out of money acquired or earned since the filing of the petition, though the only decision on the point is to the contrary." It is to be observed that the referee has no authority to make such an order, the power being confided to the judge alone." Upon the voluntary application of a partnership for the benefit of the act, only one petition need be filed, and all that is done thereupon con- stitutes one proceeding, although it involves granting a discharge to 5 In re Collier, 93 Fed. 191, 1 Am.« ment. In re Latham fD. C.) 271 Fed. Bankr. Rep. 182. 538, 46 Am. Bankr. Rep. 581. 6 In re Williams, 2 Nat. Bankr. News, s in re Mason, 181 Fed. 899, 25 Am. 206. Bankr. Rep. 73 ; In re Hines, 117 Fed 7 Sellers v. Bell, 94 Fed. 801, 36 0. 790, 9 Am. Bankr. Rep. 27 ; In re Bean C. A. 502, 2 Am. Bankr. Rep. 529; In 100 Fed. 262, 4 Am. Bankr. Rep. 53; re Mason, 181 Fed. 899, 25 Am. Bankr. In re Collier, 93 Fed. 191, 1 Am. Bankr'. Rep. 73. But compare In re Hines, 117 Rep. 182. Contra, see Sellers v Bell 94 Fed. 790, 9 Am. Bankr. Rep. 27. Where Fed. 801, 36 C. C. A. 502, 2 Am. Bankr persons filing voluntary petitions in Rep. 529. bankruptcy were able to pay their at- » General Orders in Bankruptcy No. torneys, and were earning money, and 35. ' by proper saving and conduct could ac- lo Sellers v. Bell, 94 Fed. 801 36 C C cumulate and procure the money with A. 502, 2 Am. Bankr. Rep. 529 ' which to pay the filing fee and referee's n In re Plimpton, 103 Fed. 775 4 Am fee, they will not be permitted to main- Bankr. Rep. 614. ' tain the proceedings without such pay- 1495 COSTS AND PEES § 769 each of the partners, and only one deposit of the filing fee is required; it cannot be demanded of the partners, as a prerequisite to discharging them, that they should each separately deposit a like fee."^* But where a partnership files a voluntary petition for the adjudication in bankrupt- cy of the firm as such, and also separate petitions for the adjudication of the several partners, each petition, with the accompanying schedules, constitutes a separate and distinct "case," within the meaning of the statute, and a deposit of the statutory filing fees must be made, not only for the partnership, but also for each member of the firm who seeks an adjudication." When the filing fees are deposited by the petitioning creditors in an involuntary case, or by their attorneys for tliem, they are entitled to have the amount refunded to them out of the estate in bankruptcy." § 769. Security for Costs. — When a trustee in bankruptcy is urged by certain creditors to institute proceedings to set aside fraudulent con- veyances or preferences, or otherwise to take action in court for the re- covery of alleged assets of the estate, he may require those creditors to furnish him security or indemnity against the costs which may fall upon the estate in consequence of his compliance with their demands.*" It is also provided by the general orders in bankruptcy that the clerk, the marshal, or the referee, before incurring expenses of certain kinds, may require the bankrupt or other person in whose behalf the duty is to be performed to furnish indemnity for such expenses, and that money advanced by the bankrupt or other person for this purpose shall be re- paid him out of the estate. (General Order No. 10.) Thus, a petition- er in voluntary bankruptcy may be required to furnish indemnity to the referee for the cost of publishing the notice to creditors and the creditors' meeting, and if he fails to do so, without excuse, in time for the meeting to be held, his petition should be dismissed for want of prose- cution.** But this provision does not apply to one against whom a pe- tition in involuntary bankruptcy is filed and who denies insolvency and resists adjudication, and he cannot be required to deposit the cost of a reference and hearing.*" And the statutes and rules as to security for 12 In re Langslow, 98 Fed. 869, X Am. trustee in bankruptcy bringing a suit In Bankr. Rep. 258; In re Gaj^, 98 Fed. a state court, wlio has no assets in his 870, 3 Am. Bankr. Rep. 529. But com- hands except the claim sued on, and pare In re Farley, 115 Fed. 359, 8 Am. does not show any prospect of being able Bankr. Rep. 266. « to succeed in the action, may and should 18 In re Barden, 101 Fed. 553, 4 Am. be required , to file security for costs. Bankr. Rep. 31. Uhr v. Coulter, 172 App. Div. 413, 158 1* In re Silverman, 97 Fed. 325, 3 Am. N. Y. Supp. 512. Bankr. Rep. 227; In re J. W. Harrison m In re Crisp (D. C.) 239 Fed. 419, 38 Mercantile Co., 95 Fed. 123, 2 Am. Bankr. Am. Bankr. Rep. 557. Rep. 419. 17 In re Wester, 242 Fed. 465, 155 C. 15 Supra, § 283. On the Other hand, a O. A. 241, 40 Am. Bankr. Rep. 89. § 770 LAW OP BANKRUPTCY 14:96 costs do not apply to petitions to review bankruptcy proceedings in mat- ters of law, and there is no settled practice authorizing an application for security in such cases. •* The provision as to repayment out of the estate of money advanced to cover costs does not apply to the filing fees which the clerk is directed to collect on the filing of a voluntary pe- tition in bankruptcy, and this money is not to be returned to the bank- rupt.*' A creditor who objects to the bankrupt's application, for dis- charge may prosecute his objections in forma pauperis, by virtue of the Act of Congress of July 20, 1892, 27 Stat. 252 (U. S. Comp. St. 1901, p. 706), which gives any citizen entitled to commence "any suit or action in any court of the United States" such right on making the required showing.^* § 770. Power to Award Costs. — Under the provisions of the statute, the court of bankruptcy may "tax costs, whenever they are allowed 6y law, and render judgments therefor against the unsuccessful' party, or the successful party for cause, or in part against each of the parties, and against estates, in proceedings in bankruptcy." ^^ But the obvious policy of the act, manifest in all of its provisions touching on the subject, is to reduce to a minimum the expense of administering estates, and the courts are bound to give the statute such a construction and application as will fulfill the intention of Congress in this regard.^* The general orders also provide that, "in cases of involuntary bankruptcy, where the debtor resists adjudication, and the court, after hearing, adjudges the debtor a bankrupt, the petitioning creditor shall recover, and be paid out of the estate, the same costs that are allowed to a party recovering in a suit in equity ; and if the petition is dismissed, the debtor shall recover like costs against the petitioner." ^^ But as regards the case where the petition is dismissed, it is held that this applies only in cases where the jurisdiction of the court was not questioned, or was sustained, and the decision was on the merits, and not to cases where the petition was dis- missed for want of jurisdiction or because the defendant was not within " In re Vidal, 230 Fed. 603, 145 O. C. re PuUick, 201 Fed. 463, 28 Am Bankr A. 13, 35 Aui. Bankr. Rep. 806. Rep. 634. ID In re Matthews (D. C.) 97 Fed. 772, 23 General Orders in Baiikruptcy No 3 Am. Bankr. Rep. 265; Anonymous, 1 34. And see In re Ghiglioue 93 Fed'lSG X. B. R. 122, Fed. Oas. No. 457. 1 Am. Bankr. Rep. 580; In re Morris' 20 In re Guilbert, 154 Fed. 676, 18 Am. 115 Fed. 591, 7 Am. Bankr. R«p 709- Bankr. Rep. 830. In re Reiswig (D. C.) 253 Fed 390 42 21 Bankruptcy Act 1898, § 2, cl. 18. A Am. Bai^kr. Rep. 161. Bankruptcy Act S state tdurt cannot review a judgment of 2, subd. 18, and General Order No 34 a federal court allowing costs in bank- should be read together and are merely ruptcy proceedings. Thoiiiiison v. Sun- (U'claratory of the general power of rise Coal Co.'s Trustee, 181 Ky. 158, 204 courts of equity, including bankruptcy ^' ^i ^^' T ,,r „ • ^, <.-i r. '^^°"'''^' "''" ^^^ allowance and apportion- 22 In re J. W. Harrison Mercantile Co., luent of costs. Petition of Kurtz Brass O.J Fed. 123. 2 Am. Bankr. Rep. 419; In Bed Co., 250 Fed. 116. Upon the dismis- 1497 COSTS AND FEES § 770 the classes of persons or corporations made subject to the law.** Anoth- er clause of the act provides that, when a petition in involuntary bank- ruptcy is accompanied by an application to seize and hold the property of the alleged bankrupt prior to the adjudication, the petitioners shall file a bond conditioned for the payment, in case the petition is dismissed, of costs, expenses, and damages, and if the petition is dismissed, the re- spondent shall be allowed costs, counsel fees, expenses, and damages occasioned, to be fixed by the court and paid by the obligors in the bond.*® But it is held that this applies only to the one case specified, so that, upon the dismissal of a petition in bankruptcy, the respondent is entitled to costs, but not to an allowance for counsel fees or expenses or damages, unless there was an application to seize and hold his proper- ty,** and the fact that a temporary injunction was granted to restrain supposed debtors from paying money into the hands of the alleged bank- rupt does not bring the case within the provision in question.*' But the court of bankruptcy has authority under its general equity powers to order the petitioning creditors to pay the expenses of a receivership, where the receiver was appointed on their application on the filing of their petition, which petition was subsequently dismissed as unfounded,** sal of an Involuntary petition, the court has uo inherent power to a.ssess the compensation of the trustee and counsel against the petitioning Creditors in the absence of fraud or bad faith. In re National Carbon Co., 241 JFed. 330, 154 C. O. A. 210, 39 Banlcr. Hep. 218. On dismissal of a proceeding in' Involuntary bankruptcy, the respondent is not en- titled to have an allowance for counsel f e-es taxed in his bill of costs, even though the proceeding was not instituted in good faith. In re Shon (D. C.) 212 Fed. 797. 2* In re Philadelphia & Lewes Transp. Co. (D. 0.) 127 Fed. 896, 11 Am. Bankr. Rep. 444. -' ■■■' Upon the dismissal of a petition in involuntary bankruptcy, on which a re- ceiver was appointed, the court of baiik- ruptcy has jurisdiction to authorize the allowance of damages, etc., in accord- ance with Bankruptcy Act, § 3e, occa- sioned by the appointment of the receiv- er. In re Weissbord (I>. C.) 241 Fed. 516, 39 Am. Bankr. Rep. 243. But see In re Wise (I>. 0.) 212 Fed. 567, holding that, since th« counsel fees, expenses, and damages provided for in that section of the Act are for special services or for dnmuges occasioned by the wrongful tak- ing of the property of an alleged bank- rupt, such f^ew and damages are not tax- able in the bankruptcy proceedings, but are recoverable in a suit on the bond of the petitioners. Where an alleged bank- rupt corporation, on th-e filing of an in- voluntary petition against it, consented to the appointment of a receiver without the bond required by the Act having been given, it cannot, on the dismissal of the petition, object to the payment of neces- sary disbursements out of the funds in the receiver's custody. In re Independ- ent Machine & Tool Corp., 251 Fed. 484, 163 C. 0. A. 478, 41 Am. Bankr. Rep. 517. ^« In re Williams, 120 Fed. 34, 9 Am. Bankr. Rep. 736; In re Morris, 115 Fed. 591, 7 Am. Bankr. Rep. 709; In re Ghiglione, 93 Fed. 186, 1 Am. Bankr. Rep. 580. " In re Williams, 120 Fed. 34,. 9 Am. Bankr. Rep. 736. 2 8 In re Lacov, 142 Fed. 960, 74 C. C. A. 130, 15 Am. Bankr. Rep. 290. See In re Eagle Steam Laundry Co., 184 Fed. 949, 25 Am. Bankr. Rep. 868. An ac- counting of the receipts and disburse- ments of a receiver appointed by a state court at the instance of a trustee in bankruptcy, and to protect property sued for by him, involves fixing his compensa- tion, so far as such court can fix it. Hull v. Fifty-Second St. Storage House, 167 App. Piv. SCO, 153 N. Y. Supp. 850. § 771 LAW OF BANKRUPTCY 1498 and to enforce such an order by proceedings in contempt.*' But if the receiver has continued in the possession of the property until after the defendant has been adjudged bankrupt by the court in another district, the authority to compensate the receiver passes to the court making the adjudication, which takes exclusive jurisdiction of the estate.^" Where creditors successfully oppose the bankrupt's application for discharge, and incur costs and expenses in so doing, they would ordinarily be tax- able against the bankrupt. But if he is entirely without money, the court will not make a useless order upon him to pay such costs, and there is no warrant of law to tax such costs against the estate.*^ § 771. Amount and Items of Costs. — Fees of witnesses in bankrupt- cy proceedings are a part of the costs which may properly be taxed by the court, and their allowance is indirectly provided for in the clause which declares that "no person shall be required to attend as a witness before the referee at a place outside of the state of his residence, and more than one hundred miles from such place of residence, and only in case his lawful mileage and fee for one day's attendance shall be first paid or tendered to him." ^* It is also provided that the bankrupt "shall be paid his actual expenses from the estate when examined or required to attend at any place other than the city, town, or village of his resi- dence." ^* But extra compensation to expert witnesses, above the statu- tory witness fee and mileage, cannot be taxed as costs, or 'allowed against a losing party, in a court of bankruptcy; and the court will not be bound to make such an allowance because couns'el have so agreed, espe- cially where the agreement is not in writing.'* As to the expense of taking down and preserving testimony, it is held that, except where a stenographer is employed on application of the trustee, as provided by section 38, clause 5, of the bankruptcy act, or there has been a stipulation of the parties, or money has been deposited for the expense as provided by general order No. 10, the referee cannot be allowed for the expense of a stenographer.'^ And in any event, the compensation allowed to stenographers will be scrutinized by the court, and reduced if deemed excessive.** As to costs on appeal, where proceedings for review of an order of the court of bankruptcy are dismissed for want of jurisdiction, without any motion therefor, neither party will be allowed costs.'' And t 2»In re Lacov, 142 Fed. 960, 74 C. C. s* In re Carolina Cooperage Co, 96 A. 130, 15 Am. Bankr. Rep. 290. Fed. 604. 30 In re Sears, Humbert & Co., 128 35 in rg Mammoth Pine Lumber Co Fed. 275, 62 C. 0. A. 623. 116 Fed. 731, 8 Am. Bankr. Rep. 651.' 31 In re Kyte, 189 Fed. 531, 26 Am. And see supra, §§ 266, 273. Bankr. Rep. 507. so in rg BUett Electric Co., 198 Fed. 3 2 Bankruptcy Act 1898, § 41, proviso. 400, 28 Am. Bankr. Rep. 453. And see, supra, § 278. 37 Hutchinson v. Le Roy, 113 Fed. 202, 8 3 Bankruptcy Act 1898, § 7, proviso. 51 C. C. A. 159, 8 Am. Bankr. Rep. 20. 1499 COSTS AND FEES § 772 the same rule applies where, on appeal against a trustee from an order in bankruptcy, such order is reversed on a ground not assigned or urged by the appellant.** And though a decree in bankruptcy is reversed on review in the Circuit Court of Appeals, no costs should be allowed when the petition for review was delayed nearly six months, and the estate has probably deteriorated through the delay, and where further, proceedings are necessary.** But where an appeal is taken from an order overruling respondent's demurrer to a bill of complaint brought by the trustee in bankruptcy, and pending the appeal the bill is voluntarily dismissed by the complainant, on leave of court, without prejudice, and at his own cost, thereby making necessary the dismissal of the appeal, he should be required to pay the costs on appeal.** § 772. Persons Entitled to Costs. — Where a petition for adjudication in involuntary bankruptcy is contested, costs will be awarded to the successful party, that is, to the alleged bankrupt if he defeats the peti- tion, to the petitioning creditors if the adjudication is made.*^ But the present statute and orders do not contemplate an allowance of expenses or counsel fees to a person who is adjudged bankrupt after an unsuccess- ful resistance to the petition.** The bankrupt, however, is entitled to his disbursements in proceedings to obtain his discharge,** and if he ad- vances the money necessary to pay for the issuance and publication of notices of his application for discharge, he is entitled to repayment of the same out of the estate.** So, in a proceeding to revoke or annul the discharge of a bankrupt, costs may be awarded to the prevailing party.*® The trustee in bankruptcy is likewise entitled to costs on bringing to a successful conclusion an action to recover assets of the bankrupt, set aside an unlawful assignment or transfer of his property, avoid a fraudu- lent conveyance, or recover an illegal preference.*® But claimants having claims against the estates of bankrupts must ordinarily establish them See Gandia & Stubbe v. Cadierno, 233 the part of that expense paid by him, but Fed. 739, 147 C. O. A. 505, 36 Am. Bankr. not the expense of a transcript of the Kep. 789. testimony for his own use. In re Pearce 3 8 In re Dickson, 111 Fed. 726, 49 O. (D. 0.) 235 Fed. 917, 37 Am. Bankr. Rep. G. A. 574, 55 L. R. A. 349, 7 Am. Bankr. 710. Rep. 186. *2 Otherwise under the act of 1867. 3» In re Endlar, 192 Fed. 762, 113 O. See In re Comstock, 5 N. B. R. 191, Fed. C. A. 48, 27 Am. Bankr. Rep. 758. Oas. No. 3,074. *o In re Orman, 107 Fed. 101, 46 C. 0. *^ In re Dibblee, 4 Ben. 304, Fed. Gas. A. 165, 5 Am. Bankr. Rep. 698. No. 3,887. *i In re Sheehan, 8 N.r B. R. 353, Fed. ** In re Hatcher, 145 Fed. 658, 16 Am. Gas. No. 12,738. On dismissal of a peti- Bankr. Rep. 722. tion in bankruptcy, where there was an *5 in re Holgate, 8 Ben. 355, Fed. Gas. agreement between the petitioners and No. 6,601. the alleged bankrupt that they should *» Ommen v. Talcott, 175 Fed. 261, 23 divide the cost of stenographers, the Am. Bankr. Rep. 572; Stackhousei v. bankrupt was entitled to recover as costs Holden, 66 App. Div. 423, 73 N. Y. Supp. § 773 LAW OF BANKRUPTCY 1500 at their own expense, and they will not be allowed their costs and ex- penses out of the estate, unless, perhaps, where it appears that the de- fense made by the trustee was captious or unwarranted." Especialk- where issues in the bankruptcy proceeding, arising out of the involved condition of the claims, were caused entirely by the methods of the creditor, the trustee should not be charged with the costs..** As to pro- ceedings taken by parties other than the trustee, such as judgment creditors, mortgagees, or other lien claimants, to set aside fraudulent conveyances, or otherwise to rescue or reclaim property alleged to be- long to the estate in bankruptcy, the general rule is that they may be allowed compensation out of the estate for costs, expenses, and counsel fees, in so far as their efforts have inured to the benefit of the general creditors, in the way of .creating or preserving a fund for distribution, but not otherwise.*® The costs of an attachment, execution, or other process which was begun within four months prior to the bankruptc}^ proceedings, and is therefore annillled by the adjudication are not a lien on the property in the hands of the trustee. But on the same principle as that last above mentioned, a sheriff or other person who has had the custody of the property may be reimbursed for his expenses in caring for and preserving it.''* But where property of the bankrupt was attached within four months before the filing of the petition, it is error to require, as a condition of delivery of the attached property to the trustee, that he shall pay counsel fees and costs to the attorney for the attaching creditor and the costs of the attachment.^* § 773. Persons, Property, or Funds Liable for Costs. — In some cir- cumstances, the bankrupt may be personally liable for costs. Thus, where he appeals from the adjudication against him, he cannot have an order on the receiyer appointed below to pay the costs of the appeal simply on the ground of his own poverty.^^ There are also cases in 203; Clowe v. Seavey, 74 Misc. Rep. In re J. F. Pierson, Jr., & Co. (D. C.) 254, 131 N. Y. Supp. 817 ; Parker v. 225 Fed. 889, 35 Am. Bankr. Rep. 213. Travers, 74 N. J. Eq. 812, 71 Atl. 612. *s Dowse v. Hammond, 130 Fed. 103, 4' In re Stewart (D. C.) 178 Fed. 463, 64 O. C. A. 437. 24 Am. Bankr. Rep. 474. But see In re *^ In re Lesser, 100 Fed. 433, 3 Am. Waterloo Organ Co., 154 Fed. 657, 83 C. Bankr. Rep. 815 ; In re J. C. H. Claus- C. A. 481, 18 Am. Bankr. Rep. 752. sen & Co., 164 Fed. 300, 21 Am. Bankr. Where the trustee contests the claim of Rep. 34; In re Dumahaut, 19 N. B. R. an outsider, the controversy is Inter par- 394, Fed. Cas. No. 4,126. tes, and costs follow as in any other bo in re Fortune, 1 Low. 306, 2 N. B. case. In re All Star Feature Corp. (D. R. 662, Fed. Cas. No. 4,955; In re Wil- C.) 232 Fed. 1004. On the referee's find- Hams, 2 N. B. R. 229, Fed. Cas. No. 17,- ing for the claimant, seeking to reclaim 705. And see supra, § 386. property from the trustee in bankruptcy, ei in re Shoemaker (C. C. A.) 205 Fed. th« allowance of costs and disbursements 113, 30 Am. Bankr. Rep. 349. to the claimant is in the referee's dis- b2 Herman Keck Mfg. Co. v. Lorsch cretion. In re Reeves (D. G.) 227 Fed. 179 Fed. 485, 103 C. O. A. 65, 24 Am' 711, 36 Am. Bankr. Rep. 130. But see Bankr. Rep. 705. 1501 COSTS AND PEES § 773 which costs are properly payable by particular creditors, rather than out of the estate. Thus, where a petition in bankruptcy is dismissed be- cause it is found that the bankrupt was insane at the time of committing . the alleged act of bankruptcy, the costs may be charged against the pe- titioning creditors."* So where an execution creditor intervenes and opposes the adjudication, on the ground that the debtor is not insol- vent, but unsuccessfully, the costs, of the proceeding, in so far as the same was rendered necessary by his opposition, may be taxed against such intervener, including the fees of witnesses summoned by him and of any witnesses summoned by the petitioning creditors whose examina- tion would not have been necessary but for the intervention."* On the other hand, petitioning creditors, who succeed in procuring an adjudi- cation of bankruptcy, are entitled to be reimbursed out of the estate for their expenditures and to the allowance of a reasonable attorney's fee.®* Where, on the application of creditors accompanying the petition in in- voluntary bankruptcy, property of the bankrupt is seized and held pend- ing the adjudication, and the result is the securing or preserving for the estate of valuable property which otherwise would have been lost or dissipated, the petitioning creditors are entitled to reimbursement for their costs and expenses."* But where, such a course having been taken, the petition is dismissed, the damages occasioned by the seizure and de- tention of the property are recoverable, not indeed against the petition- ing creditors generally, but against that creditor on whose application the property was seized."'' Costs may also be awarded against a partic- ular creditor who has insisted on and procured an unnecessary and fruit- less examination of the bankrupt in the hope of discovering concealed assets,"^ or who has procured the appointment of a receiver, when such appointment proves to have been unauthorized or unnecessary,"* or Who has unsuccessfully opposed the bankrupt's application for discharge."" Claimants of property and those asserting debts against the estate in bankruptcy are generally required to sustain the expense of con- tests. If a claim is disallowed, the claimant must pay the costs of the 53 In re Ward, 203 Fed. 769, 29 Am. 111. 534, 107 N. E. 194. See In re Veler, Bankr. Rep. 547. 249 Fed. 633, 161 C. 0. A. 543, 41 Am. =* 111 re Carolina Cooperage Co., 96 Bankr. Rep. 736. Fed. 604. And see Petition of Kurtz ^s i„ j.^ Rozinsky, 101 Fed. 229, 3 Am. Brass Bed Co. (D. C.) 250 Fed. 116, 42 nnnkr. Rep. 830. Am. Bankr. Rep. 3. 66 In re Mitteldorfer, Chase, 288, 3 N. '" Ii "'e Wentworth Lunch Co. (C. C. B. R. 1, Fed. Cas. No. 9,675. And see '^•) 191 ^^d. 821, 27 Am. Bankr. Rep. Bankruptcy Act 1898, § 64b, cl. 3. ^'^^ ' 1° ^^ Charles W. Aschenbach Co., = » In re Schwab, 3 Ben. 231, 2 N. B. R. 183 ^e<5- 305. 105 0. C. A. 517, 25 Am. 488, Fed. Cas. No. 12,498. '^ankr. Rep. 502. "In re Ward, 203 Fed. 769, 29 Am. «o In re 3Ilers, 193 Fed. 288, 27 Am. Bankr. Rep. 547 ; T. B. Hill Co. v. Unit- Bankr. Rep. 870 ; In re Amer (D. O.) 228 ed States Fidelity & Guaranty Co., 265 Fed. 576, 35 Ata. Bs^nkr. Rep. 627. § 773 LAW OF BANKEUPTCT 1502 examination and hearing,**- and even where the claimant succeeds in establishing his claim, as against opposition, the court will not allow ■him costs and attorneys' fees out of the estate.®' And especially where the costs on the contest of a claim grew out of a controversy between creditors, entirely carried on for the purpose of controlling the election of the trustee, they will not be allowed out of the estate.®* The case is somewhat different in regard to a mortgagee or other holder of a valid lien on particular property of the bankrupt. If such a creditor files and proves his claim in the bankruptcy proceedings for allowance and pay- ment out of the proceeds of the property affected, he is properly charge- able with his pro rata share of the costs of the bankruptcy proceed- ings.®* But where the court of bankruptcy, for the sake of realizing the supposed value of the equity of redemption in the mortgaged prop- erty, takes control of the same and causes it to be sold by the trustee, the creditor assenting to, but not inviting, such a course, the proceeds should not be charged with any part of the costs and expenses of the bankruptcy proceeding in general, incurred solely for the benefit of un- secured creditors, but since the mortgagee is benefited to the extent of having his lien foreclosed for him by the bankruptcy sale, he may prop- erly be called upon to bear the actual costs and expenses of the sale,*® and also, if equitable considerations justify it, to contribute towards the expense of caring for and preserving the property before the sale.®® And whereas the 1910 amendment to the bankruptcy act authorizes the pay- ment of commissions to the trustee out of the proceeds of the sale of incumbered property, it is held that this applies only to cases in which eiln re Rome, 162 Fed. 971, 19 Am. osin re O'Gara Coal Co., 235 Fed. 83 Bankr. Rep. 820 ; In re To^d, 109 Fed. 149 C. C. A. 195, 38 Am. Bankr. Rep! 265, 6 Am. Bankr. Rep; 88; In re 131; In re Elmore Cotton Mills (D. C.) Schocket, 177 Fed. 583, 24 Am. Bankr. 217 Fed. 808, 33 Am. Bankr. Rep. 426 ; K«P- 47. In re Rauch (D. C.) 226 Fed. 982, 36 Am'. 62 In re Coventry Evans Furniture Co., Bankr. Rep. 75 ; In re Cutler & John (D 171 Fed. 673, 22 Am. Bankr. Rep. 623. C.) 228 Fed. 771, 36 Am. Bankr. Rep. See In re J. F. Pierson, Jr., & Co. (D. 420; In re Williams' Estate, 156 Fed C.) 225 Fed. 889, 35 Am. Bankr. Rep. 934, 84 C. C. A. 434, 19 Am. Bankr. Rep. "213. 389 ; In re Howard, 207 Fed. 402 ; The 63 In re Worth, 130 Fed. 927, 12 Am. Bethulia, 200 Fed. 879; Mills v. Vir- Bankr. Rep. 566. ginia-Carolina Lumber Co., 164 Fed 168 64 In re Franklin (D. C.) 151 Fed. 642, 20 Am. Bankr. Rep. 750; In re Prince 18 Am. Bankr. R«p. 218. See In re El- & Walter, 131 Fed. 546, 12 Am. Bankr more Cotton Mills (D. C.) 217 Fed. 810, R«p. 675 ; In re Goldville Mfg. Co., 123 33 Am. Bankr. Rep. 544. Where a mort- Fed. 579, 10 Am. Bankr. Rep. 552'- In gagee of a bankrupt asserts a lien for an re Peabody, 16, N. B. R. 243, Fed"'oas. excessive amount, which is contested by No. 10,866. And see supra, § 571 the trustee, part or all of the expense 6 6 gee In re Evans Lumber Co. 176 thereby incurred, including an attorney's Fed. 643, 23 Am. Bankr. Rep. 881 Corn- fee, may be charged against the fund pare In re Vulcan Foundry & Machine which would otherwise go to the mort- Co., 180 Fed. 671, 103 C. O. A. 637 24 gagee. In re Howard (D. C.) 207 Fed. Am. Bankr. Rep. 825 402, 31 Am. Bankr. Rep. 251. 1503 COSTS AND FEES § 774 there was actually a substantial value to the equity of redemption, and in which, therefore, the bankruptcy court rightfully exercised its juris- diction to sell free from liens, or in which the lienholder consented to a sale; but where the incumbered property brings much less than the amount of the liens on it, the trustee's commissions must be paid out of the bankrupt estate, and not by the lien creditors.*' Where the trus- tees of a bankrupt corporation do not receive possession of its assets, because the same have been placed in the hands of receivers of another court in foreclosure proceedings, but they conceive it to be their duty to defend the foreclosure suits, and file a cross bill looking to the admin- istration of the entire assets, they are entitled to have the compensation for themselves and their attorneys made a direct charge on the property prior to the claims of creditors arid stockholders.** Where the trustee brings suit to set aside a fraudulent conveyance, recover a preference, or the like, the costs are to be borne by the unsuc- cessful defendant, and not to be faken , out of the property or fund re- covered.*® On the other hand, if he is unsuccessful in an action of this kind, the expense falls upon the estate in bankruptcy,''* unless the trus- tee, being doubtful of the probable result of the action, has exercised his ■ right to demand indemnity from those creditors who insist on his bring- ing the suit.'* In the case of the bankiruptcy of a partnership, the statute provides that "the expenses shalkbe paid from the partnership property and the individual property in such proportions as the court shall de- termine." '* Petitioning creditors, intervening creditors, and the alleged bankrupt may stipulate for an apportionment as between themselves of the costs and expenses of the proceeding, and in this case a creditor cannot set off against the amount of expenses taxed against him his demand against the bankrupt.'* § 774. Taxation of Costs. — Claims for costs, expenses, and fees should be filed with the referee in bankruptcy, in order that they may 67 In re Holmes Lumber Co., 189 Fed. taxable costs of an infant defendant, 178, 26 Am. Bankr. Rep. 119. In re Rus- who was impleaded in the action and de- sell Falls Co. (D. C.) 249 Fed. 260, 41 fended by a guardian ad litem, should be Am. Bankr. R«p. 448. But compare In paid out of the funds of the estate, re West (D. C.) 232 Fed. 903, 37 Am. Clowe v. Seavey, 74. Misc. Rep. 254, 131 Bankr. Rep. 421. N. Y. Supp. 817. 08 Meddaugh v. Wilson, 151 U. S. 333, ■"> Ommen v. Talcott, 175 Fed. 261, 23 14 Sup. Ct. 356, 38 L. Ed. 183. Am. Bankr. Rep. 572 ; In re Babcock, 1 60 Bunch y. Smith, 116 Tenn. 201, 93 Woodb. & M. 26, F-ed. Gas. No. 697. And S. W. 80 ; Collins v. Bryan, 40 Tex. Civ. see supra, §§ 198, 308, 311, 432. App. 88, 88 S. W. 432. See In re H. B. 7i gee supra, § 283. HoUins & Co. (D. C.) 225 Fed. 618. But 7 2 Bankruptcy Act 1898, § 5e. - in an action by a trustee in bankruptcy ^3 King Hardware Co. v. J. 6. Chris- to set aside an assignment by the bank- topher Co., 222 Fed. 224, 138 C. C. A. 54, rupt of his interest in remainder, the 34 Am. Bankr. Rep. 422. § 775 LAW OF BANKRUPTCY 1504 be examined by parties in interest and that any person aggrieved by the ruling of the referee may have the same reviewed.'* But the question of allowance may be determined by the referee ex parte, and notice to cred- itors of the hearing on such claims is not a prerequisite to the validity of his order.'^ And the amount to be allowed as a fee to the attorney of a voluntary bankrupt rests largely in the discretion of the referee, and his allowance will not be disturbed by the judge in the absence of evi- dence to show that it was unjust, excessive, or exorbitant.'* Similarly, costs will be allowed to an alleged bankrupt on the dismissal of an in- voluntary petition against him only after the filing of his bill of costs with the clerk and notice to the petitioning creditors." The statute al- lows, and gives priority to, "one reasonable attorney's fee, for the pro- fessional services actually rendered, irrespective of the number of attor- neys employed, to the petitioning creditors in involuntary cases, to the bankrupt in involuntary cases while performing the duties herein pre- scribed, and to the bankrupt in voluntary cases, as the court may al- low." '* But no attorney's fee can be allowed in voluntary proceedings, except upon proof of services actually rendered to the bankrupt in doing the things which the law requires of him.'* And the statute does not make the allowance of an attorney's fee in involuntary cases a matter of right, but gives the court discretionary power, and where such an allowance is asked for, the attorney must disclose his dealings with his client, that the court may act intelligently in the matter.*" Marshals must present vouchers for the items charged in their accounts, or pro- duce satisfactory rea,sons for the absence of such vouchers.*^ And the claim of the marshal for expenditures must be supported by his own oath as to their amou^,t and the necessity for them,** which, however, is not conclusive so as to preclude any further inquiry into the items charged.*^ § 775. Expenses of Administering Estates. — The authority and du- ty of a trustee in bankruptcy, with respect to expenditures for the care and preservation of the property committed to his charge, and the effi- cient administration of the estate in bankruptcy, have been discussed in an earlier section.** The general rule prescribed by the statute is as ■a In re Stoddara Bros. Lumber Co., 's Bankruptcy Act 1898, § 64b, cl. 3. 169 Fed. 190, 22 Am. Bankr. Rep. 435; '» In re Terrlll, 103 Fed. 781, 4 Am. In re Rosenberg, 3 N. B. R. 73, Fed. Gas. Bankr. Rep. 625. No. 12,056., 80 Tn re Carr, 117 Fed. 572, 9 Am. 7 sin re Stotts, 93 Fed. 438, 1 Am. Ran'^r. Rep. 58. Bankr. Rep. 641. /^ ^" ^'^ Comstock, 9 N. B. R. 88, Fed. .0 In re Tebo, 101 Fed. 419, 4 Am. '^':, if ;e "£,„«,, 4 Savvy. 163, 17 N; B. Bankr. R«p. 235. r ..go j,^,, c"as. No. 6,342. 77 In re Haeseler-KohlhofC Carbon Co., »s in re Pace. Fed. Cas. No. 10 640. 135 Fed. 867, 14' Am. Bankr. Rep. 381. s* gee supra, § 308. 1505 COSTS AND FEES § 775 follows : "The actual and necessary expenses incurred by officers in the administration of estates shall, except where other provisions are made for their payment, be reported in detail, under oath, and examined and approved or disapproved by the court. If approved, they shall be paid or allowed out of the estates in which they were incurred." *' The term "officers" here used inclu.des others beside the trustee. Thus, a deputy marshal appoirtted to take charge of a bankrupt's store and the stock of goods therein, and responsible on his bond for the value of the property, may hire a competent person as watchman if he has any rea- son to apprehend danger to the property, and charge in his accounts a reasonable sum as compensation for the services of such watchman.*® But the creditors are not officers ; and hence, for instance, the expenses of the creditors in attending meetings will not be allowed out of the estate.*' It is, in fact, the obvious policy of the act, manifest ,in all its provisions respecting expenses and fees, to reduce to a minimum the ex- pense of administering estates, and the courts are bound to give the statute such a construction and application as will fulfill the intention of Congress in this regard.** There is a provision in the general orders, as to requiring indemnity for expenses about to be incurred, which is expressed as follows: "Before incurring any expense in publishing or mailing notices, or in traveling, or in procuring the attendance of wit- nesses, or in perpetuating testimony, the clerk, marshal or referee may 86 Bankruptcy Act 1898, § 62a. Where 350. Where property is finally acl- a trustee in bankruptcy paid attorneys' judged not to belong to the estate in fees, leaving an insufficient amount in bankruptcy and Is taken out of the trus- his hands to pay a watchman employed tee's possession on reclamation proceed- to care for the property of the estate, he ings by the owner, charges for storing must stand the loss unless he can ob- the property prior to the filing of the tain a refund from the attorneys. In re reclamation petition may be made Mitchell, 212 Fed. 932, 129 C. C. A. 452. against such owner. In re John H. Park- Where a bankrupt with concealed assets er Co. (D. C.) 268 Fed. 868, 45 Am. Bankr. purchased and conducted a business ^n Eep. 34. Where one creditor on his own another district in the name of another, responsibility has recovered assets of the who - afterwards went into bankruptcy, estate by Suit, and is entitled to be re- tho cost of administration of both es- imbursed for the reasonable expense of tates in that district will be payable such recovery, he may properly retain from the proceeds of the property there- such expense from the proceeds of the in. In re Offricht (D. C.) 260 Fed. 682, judgment and pay over the remainder 43 Am. Bankr. Eep. 345. On bankruptcy only to the tnistee. In re Kenny (D. C.) proceedings of a stockbroker, the allow- 269 Fed. 54, 46 Am. Bankr. Eep. 214. ances to the special master and the ex- si in re Scott (D. 0.) 99 Fed. 404, 3 pense for stenographic minutes must Am. Bankr. Eep. 625. Compare In re come preliminarily out of the general es- Pickhardt (D. C.) 198 Fed, 879, 29 Am. tate ; If that is not sufficient they should Bankr. Eep. 524. come pro rata out of securities or their s7 in re Ward, 9 N.. B. E. 349, Fed. proceeds available to least favored claim- Gas. No. 17,145. ants; and if not satisfied by such seeuri- ss in re Harrison Mercantile Go. (D. ties, out of securities of most favored C.) 95 Fed. 123, 2 Am. Bankr. Rep. 419. claimants. In re J. C. Wilson & Go. (D. And see In re Metallic Specialty Co; (D. 0.) 252 Fed. 631, 42 Am. Bankr. Rep. C.) 215 Fed. 937. Blk.Bkr.CSd Ed.)— 95 I 776 LAW OF BANKRUPTCY 1506 require, from the bankrupt or other person in whose behalf the duty is to be performed, indemnity for such expenses. Money advanced for this purpose by the bankrupt or other person shall be repaid him out of the estate as part of the cost of administering the same."** But it is held that this does not apply to the filing fees which the clerk is direct- ed to collect upon the filing of a voluntary petition in bankruptcy, and this money is not to be returned to the bankrupt.*" § 776. Fees of Clerks. — The bankruptcy act provides that the clerks of the courts of bankruptcy "shall receive as full compensation for their service to each estate a filing fee of ten dollars, except when a fee is not required from a voluntary bankrupt." ** The matter of furnishing certified copies of records is provided for in another section of the stat- ute, as follows : "Clerks shall respectively account for, as for other fees received by them, the clerk's fee paid in each case and such other fees as may be received for certified copies of records which may be pre- pared for persons other than officers." ** These provisions are explained and reconciled in the general orders, which declare that "the fees al- lowed by the act to clerks shall be in full compensation for all services performed by them in regard to filing petitions or other papers required by the act to be filed with them, or in certifying or delivering papers or copies of records to referees or other officers, or in receiving or pay- ing out money; but shall not include copies furnished to other persons, or expenses necessarily incurred in publishing or mailing notices or other papers." ** Where the local rule of court provides that the notice of final meeting shall be issued by the clerk in accordance with Offi- cial Form No. 57, which includes the petition for the bankrupt's dis- charge, the order of notice, jurat, etc., it is held that the clerk is not entitled to charge a fee of 25 cents for each notice sent to creditors on petition for discharge, but is only entitled to the actual items of ex- pense thereon for postage, stationery, and clerical assistance.®* 8 General Orders in Bankruptcys No. allowed him. United States v. United 10. States Fidelity & Guaranty Co. (D. C) 90 In re Matthews (D. C.) 97 Fed. 772, 263 Fed. 442, 45 Am. Bankr. Rep. 29.^. 3 Am. Bankr. Rep. 265.' Clerks of federal courts are not entitled 01 Bankruptcy Act 1898, § 52a. to fees for sending out copies of the pe- 92 Bankruptcy Act 1898, § 51a. tition and notice of an application for a 9 3 General Order No. 35, par. 1. An bankrupt's discharge, but are only en- allowance to the clerk of the District titled to charge the necessary expenses Court for expenses in mailing bank- therefor. In re Loughney (D. C.) 2is ruptcy notices, duly approved by the Fed. 980, 34 Am. Bankr. Rep. 206. court, is not subject to collateral attack : s* in re Dunn Hardware & Furniture and the clerk cannot be required to ac- Co., 134 Fed. 997, 14 Am. Bankr. Rep. count to the government for the sums so 186. 1507 COSTS AND FEES § 777 § 777. Fees and Expenses of Marshals and Receivers. — In its orig- inal form, the bankruptcy act of 1898 authorized courts of bankruptcy to appoint receivers (or marshals to act as receivers) to take posses- sion of the property of alleged bankrupts, when necessary, after the filing of the petition, and until it should either be dismissed or an ad- judication made and a trustee appointed and qualified. But it made no special provision for the compensation of such receivers. In 1903 it was amended so far as to autliorize tlie courts of bankruptcy, when the business of a bankrupt had been continued and carried on by a receiver or the~marshal, to allow him additional compensation for such services, "but not at a greater rate than in this act allowed trustees for similar services." At that time the compensation of trustees was fixed by the forty-eighth section of the act, and consisted, in additiori of the filing fee of five dollars, of commissions on all moneys disbursed by them at fixed percentages varying with the total amount. And some of the decisions held that a receiver might be allowed the maximum com- mission which would be awarded to a trustee in similar cases, but could claim nothing extra for carrying on the bankrupt's business.*® The general rule, however, was that the court had authority to allow the receiver a just and reasonable compensation for his personal services, the amount of which rested in the sound discretion of the court and should depend upon all the circumstances of the particular case.*® But in 1910, this subject underwent a complete revision at the hands of Con- gress, and the forty-eighth section of the act was rewritten, the por- tions of it applicable to the Compensation of receivers and marshals be- ing made to read as follows : "(d) Receivers or marshals appointed pursuant to section two, sub- division three of this act shall receive for their services, payable after they are rendered, compensation by way of commissions upon the mon- eys disbursed or turned over to any person, including lien holders, by them, and also upon the moneys turned over by them^ or afterwards realized by, the trustees from property turned over in kind by them to the trustees, as the court may allow,®'' not to exceed six per centum on the first five hundred dollars or less, four per centum on moneys 05 In re Cambridge Lumber Co., 136 625 ; In re Siilly, 133 Fed. 997, 13 Am. Fed. 983, 14 Am. Bankr. Eep. 168; In Bankr. Rep. 783; In re Adams Sartorial re Richards, 127 Fed. 772, 11 Am. Bankr. Art Co., 101 Fed. 215, 4 Am. Bankr. Rep. Rep. 581. 107. And see, supra, § 216. 96 In re Scott, 99 Fed. 404, 3 Am. 9 7 Where the receiver turns over to Bankr. Rep. 625 ; Dunlap Hardvifare Co. the trustee cash, and also the bankrupt's V. Huddleston, 167 Fed. 433, 21 Am. stock, fixtures, and uncollected book ac- Bankr. Rep. 731; In re Huddleston, 167 counts, he is entitled, at the time, to a Fed. 428, 21 Am. Bankr. Rep. 669 ; In re commission on the cash only; he is not Scott, 99 Fed. 404, 3 Am. Bankr. Rep. entitled to an allowance on the property § 777 LAW OF BANKRUPTCY 1508 in excess of five hundred dollars and less than one thousand five hun- dred dollars, two per centum on moneys in excess of one thousand five hundred dollars and less than ten thousand dollars, and one per centum on moneys in excess of ten thousand dollars; provided, that in case of the confirmation of a composition, such commissions shall not exceed one-half of one per centum of the amount to be paid creditors on such compositions ; ®* provided further, that when the receiver or marshal acts as a mere custodian and does not carry on the business of the bankrupt as provided in clause five of section two of this act, he shall not receive nor be allowed in any form or guise more than two per centum on the first thousand dollars or less, and one-half of one per centum on all above one thousand dollars on moneys disbursed by him or turned over by him to the trustee and on moneys subsequently real- ized from property turned over by him in kind to the trustee ; provided further, that before the allowance of compensation notice of applica- tion therefor, specifying the amount asked, shall be given to creditors in the manner indicated in section fifty-eight of this act.*' "(e) Where the business is conducted by trustees, marshals, or re- ceivers, as provided in clause five of section two of this act, the court may allow such officers additional compensation for such services by way of commissions upon the moneys disbursed or turned over to any person, including lien holders, by them, and, in cases of receivers or marshals, also upon the moneys turned over by them or afterwards re- alized by the trustees from property turned over in kind by them to the trustees.; such commissions not to exceed six per centum on the first five hundred dollars or less, four per centum on moneys in excess of five hundred dollars and less than one thousand five hundred dollars, two per centum on moneys in excess of one thousand five hundred dollars and less than ten thousand dollars, and one per centum on moneys in excess of ten thousand dollars," with the same proviso as to the case of turned over in kind until the trustee has lating to. the division of the conipensa- realized on it. In re Falkenberg (D. C.) tion of trustees, where there are sever- 206 Fed. 835, 30 Am. Bankr. Rep. 718. al, the same rule applies as to receivers, 08 Where a composition Is offered and though there is more than one re- after the appointment of a trustee, the ceiver the compensation cannot be in- receiver may be allowed such amount as creased, but the fees must be divided, the court sees fit to allow up to the reg- In re Mills Tea & Butter Co. (D. C.) 235 ular percentage. In re Miller (D. C.) Fed. 813, 37 Am. Bankr. Rep. 148. An 243 Fed. 242, 40 Am. Bankr. Rep. 155. allowance to the receiver In excess of 00 The compensation of.reeeivers spec- the maximum fixed by the Bankruptcy ifled in the Bankruptcy Act is not In- Act cannot be allowed to stand, as it Is tended as a fixed, invariable amount to beyond the power of the court and the be awarded, but as the maximum to be principle is not altered by the fact that allowed only in cases justifying it. And no objection to such excessive allowance In the view of the provision of § 48b, re- was made by attorneys representing 1509 COSTS AND FEES § 777 the confirmation of a composition, and as to notifying creditors of the application for compensation.^'* Where a receiver is appointed pending the petition in bankruptcy, the petitioning creditor is required to give a bond, and if the petition is dismissed or withdrawn, "counsel fees, costs, expenses, and damages shall be fixed and allowed by the court, and paid by the obligors in such bond." ^"^ But the court has power in the first instance to direct that the expenses and the compensation of the receiver shall be paid out of the property in his hands, although the proceedings are afterwards dismissed, as it is no part of the receiver's duty to move to recover such expenses and compensation against the petitioning creditors.'^'* Where^ after the appointment of a receiver, a second petition is filed in another district, where an adjudication is made, and to which the proceedings are transferred, as being the district of the bankrupt's domicile, the court in the latter district has jurisdiction to fix the compensation of the receiver, although payment can only be made on order of the court having the custody of the estate.^'* Where the receiver is afterwards appointed trustee, the settlement of his fees should be determined in con- nection with the claim for commissions and fees for services rendered to the estate as. a whole.^** In regard to the additional compensation to be allowed to the receiver when he carries on the business of the bankrupt, it has been held that a receiver who takes possession of the bankrupt's store, advertises a sale, and keeps the store open, for the purpose of retail sale, only for the remainder of the day on which he takes possession, and then closes the store and sells the stock in bulk, is not a mere custodian, but on the other hand, he does not "carry oh the business" of the bankrupt so as to entitle himself to the extra com- pensation.^"® It should be observed that the requirement of notice to nearly all the creditors, in view of the 102 In re T. B. Hill Co., 159 Fed. 73, receiver's unusual assiduity and atten- 86 C. C. A. 263, 20 Am. Bankr. Rep. 73. tion to the proceedings. In re Weiss- 103 in re Isaacson, 174 Fed. 406, 98 C. man (D. C.) 267 Fed. 588, 46 Am. Bankr. C. A. 614, 23 Am. Bankr. Rep. 98. Rep. 189. And see In re Metropolitan lo* In re James Carothers & Co., 182 Motor Car Co. (D. C.) 225 Fed. 274, 35 Fed. 501. Am. Bankr. Rep. 539. 105 In re Charles Knosher & Co., 197 100 Bankruptcy Act 1898, § 48, as Fed. 136, 116 C. C. A. 560, 28 Am. Bankr. amended by Act Cong. June 25, 1910, 36 Rep. 747. Where the receiver inventories Stat. P?!R. the bankrupt's stock, has It appraised, 101 Bankruptcy Act 1898, § 3e. Where and sells it, he is more than a mere cus- a company not subject to adjudication in todian, though he does not carry on the bankruptcy acquiesced in the appoint- business, and he is entitled to such com- ment of receivers and their conducting pensation as the court may allow for his its business for a consideralble time, it is entire services, within the general pro- liable for their compensation. In re visions of the section. In re Ginsburg, Wilkes-Barre Light Co. (D. C.) 235 Fed. 208 Fed. 160. A receiver of bankrupts 807, 38 Am. Bankr. Rep. 99. for a sale of their property, after hav- I 777 LAW OP BANKRUPTCY 1510 creditors of the receiver's application for compensation is imperative, and no allowance of fees can rightfully be made until after such no- tice."« Creditors desiring to object should promptly file exceptions with the referee, and may bring the matter before the court by petition for review of the decision of the referee on the questions thus raised.^*" If the receivership was obtained by fraud or imposition practised upon the court, and was in no way beneficial to the estate, the court will be justified in refusing to make any allowance for the services of the receiver.''** In res:ard to the fees of the marshal, where he does not act as re- ceiver, the provision of the statute is that "marshals shall respectively receive from the estate where an adjudication in bankruptcy is made, except as herein otherwise provided, the same fees, and account for them in the same way, as they are entitled to receive for the perform- ance of the same or similar services in other cases in accordance with laws now in force, or such as may be hereafter enacted, fixing the com- pensation of marshals." "* But where the court of bankruptcy, upon the filing of a petition in involuntary bankruptcy, orders the marshal to take possession of the property of the bankrupt and hold the same until a trustee is appointed, the marshal is entitled to recejve, out of the estate, compensation for his services under such order, in addition to the costs and expenses incurred."' As to expenses so incurred, it is held that a marshal thus placed in charge may hire a competent watch- man or store-keeper, if he considers it necessary for the preservation of the property, and the reasonable pay of such a keeper will be allowed out of the estate.^'-'- The general orders provide that "the marshal shall make return under oath of his actual and necessary expenses in the service of every warrant addressed to him, and for custody of property, and other services, and other actual and necessary expenses paid by him, ing it in possession not more than six 829. As to mileage on service of pro- days, during wliicli time tlie store was cess, see In re Talbot, 2 N. B. R. 280, closed, was held entitled to a fee not ex- Fed. Gas. No. 13,727 ; Anonymous, Fed. ceeding 2 per cent, on the first $1,000, Gas. No. 437. As to allowance of fee for and one-half of one per cent, on the bal- serving order to show cause in bank- , ance. In re Griesheimer (D. G.) 209 Fed. ruptcy proceeding, see In re Damon, 104 134, 31 Am. Bankr. Rep. 567. Fed. 775, 5 Am. Bankr. Rep. 133. 106 In re Falkenberg, 206 Fed. 835, 30 no In re Adams Sartorial Art Go., 101 Am. Bankr. Rep. 718 ; In re Gash-Pap- Fed. 215, 4 Am. Bankr. Rep. 107 ; In re worth Grow-Sir, 210 Fed. 24, 136 C. C. A. Scott, 99 Fed. 404, 3 Am. Bankr. Rep. 604, 31 Am. Bankr. Eep. 709. 625; In re Woodard, 95 Fed. 955, 2 107 In re Reliance Storage & W. Go., Am. Bankr. Rep. 692. See In re Burnell, 100 Fed. 619, 4 Am. Bankr. Rep. 49. 7 Biss. 275, 14 N. B. R. 498, Fed Gas' 108 In re Desrochers, 183 Fed. 991, 25 No. 2,171. Am. Bankr. Rep. 703. m In re Scott, 99 Fed. 404, 3 Am. 109 Bankruptcy Act 1898, § 52b. The Bankr. Rep. 625; In re Lowenstein, 3 fees and compensation of United States Ben. 422, 3 N. B. R. 268, Fed. Gas. No. marshals are fixed by Rev. Stat. TJ. S. § 8,572; In re Comstock, 9 N. B. R. 88, 1511 COSTS AND FEES § 778 with vouchers, therefor whenever practicable, and also with a statement that the amounts charged by him are just and reasonable.""^ The subject of the costs and expenses. which may properly be in- curred by a receiver, and allowed out of the estate in bankruptcy, has been discussed in an earlier section."* But it may here be added that the expenses incurred by a receiver, in counsel and witness fees, in resisting a motion for his removal, will be allowed as a charge upon the fund or estate, where it appears that, although there were apparent grounds for the motion, yet the receiver had acted in good faith and with integrity of purpose."* § 778. Compensation of Trustees. — The bankruptcy act provides that "trustees shall receive for their services, payable after they are rendered, a fee of five dollars deposited with the clerk at the time the petition is filed in each case,^^* except when a fee is not required from a voluntary bankrupt, and such commissions on all moneys disbursed or turned over to any person, including lien holders, by them, as may be allowed by the courts, not to exceed six per centum on the first five hundred dollars or less, four per centum on moneys in excess of five hundred dollars and less than fifteen hundred dollars, two per centum on moneys in excess of fifteen hundred dollars and less than ten thousand dollars, and one per centum on moneys in excess of ten thousand dollars. And in case of the confirmation of a composition after the trustee has qualified, the court may allow him, as compensation, not to exceed one- half of one per centum of the amount to be j^aid the creditors on such composition." "* The general orders also provide that "the compen- sation allowed to trustees by the act shall be in full compensation for the services performed by them, but shall not include expenses neces- sarily incurred in the performance of their duties and allowed upon the settlement of their accounts." "' This provision of the statute is man- datory and must be followed, and the court has no authority to allow to a trustee a lumping sum in lieu of commissions calculated as the act directs.^** Further, the commission must be calculated, as the statute Fed. Cas. No. 3,075; In re Pace, Fed. Cas. ruptcy act In Its ordinary meaning as a No. 10,640 ; In re Johnston, 8 Ben. 191, comprehensive term, embracing the ag- 12 N. B. R. 345, Fed. Cas. No. 7,421. gregate in respect to that which is 112 General Orders in Bankruptcy, No. brought and prosecuted in the forni of a 19. single proceeding. In re Bider (D. C.) 113 Supra, § 216. , 220 Fed. 193, 34 Am. Banlcr. Eep. 280. 11* Cowdrey v. Railroad Co., 1 Woods, us Bankruptcy Act 1898, § 48a, as 331, Fed. Cas. No. 3,293. , amended by Act Cong. June 25, 1910, 36 115 Where a partnership and its in- Stat. 838. dividual members are adjudged bankrupt ht General Order in Bankruptcy No. on a single petition, there Is but one 35, par. 3. "case" for the purpose of computing the us In re Carolina Cooperage Co., 96 fees and commissions, of the trustee, for Fed, 950, 3 Am. Bankr. Rep. 154. the word "case" is used in the bank- § 778 LAW OF BANKRUPTCY 1^12 prescribes, on the amount of money disbursed or turne^J over, not on the gross amount collected."* But money is disbursed or turned over by the trustee, when it is paid into the hands of a receiver appointed by a state court in a suit between the bankrupt and a creditor, the former claiming it as exempt and the latter denying the contention.^^** Aside from the question of expenses necessarily incurred, the courts have sometimes made extra allowances to trustees in bankruptcy for unusual or highly beneficial services to the estates in their charge>*^ But the provision of the seventy-second section of the act (added by the amendment of 1903) is explicit that "neither the referee nor the trus- tee shall in any form or guise receive, nor shall the court allow them, any other or further compensation for their services than that expressly au- thorized and prescribed in this act." And the doctrine now prevails that this interposes an absolute bar to any extra allowance to the trustee, no matter how onerous or inconvenient his duties may have been, or how efficient or meritorious his services.^^* Thus, if the trustee- is himself a lawyer, he is not bound to perform legal services, but if he does, he cannot have a fee from the estate.^** And even where a creditor, desiring to secure the services of a particular person as trus- tee, proinises him a sum in excess of the commissions which he will receive, the bargain is void and cannot be enforced in the face of the express prohibition contained in the statute.^** If the business of the bankrupt is carried on for a limited time by the trustee, under authority of the court, he may be allowed additional compensation for his services in such business. The amount of it rests very much in the discretion of the court, having regard to the nature of the services rendered and their benefit to the estate, provided that it shall not exceed the percentages specified in the act.*^^ But the court 110 In re Smitli, 108 Fed. 39, 5 Am. erage Co., 96 Fed. 950, 3 Am. Bankr. Eep. Baiikr. Rep. 559. Where, to preserve 154 ; In re Epstein, 109 Fed. 87S; 6 Am. the assets of a bankrupt, they were Baukr. Rep. 191. transferred to a corporation for a small i^3 in re George Halbert Co., 134 Fed. sum, and both secured and unsecured 236, 67 O. C. A. 18, 13 Am. Bankr. Rpp. creditors received stock, the trustee's 399 ; In re McKenua, 137 Fed. 611, 15 commissions must be based on the cash. Am. Bankr. Rep. 4 ; In re Felson, 139 American Surety Co. v. Freed, 224 Fed. Fed. 275, 15 Am. Bankr. Rep. 185 ; In re 333, 140 C. C. A. 19, 35 Am. Bankr. Rep. Van Denburg (D. C.) 221 Fed. 475, 34 108. Am. Bankr. Rep. 521. 120 In re Castleberry (D. C.) 143 Fed. i2*Devries v. Orem, 104 Md. 648, 65 1021, 16 Am. Bankr. Rep. 430. Atl. 430 ; Cowing v. Altman, 5 Hun' (N 121 In re Dimm & Co., 146 Fed. 402, 17 Y.) 556. Am. Bankr. Rep. 119; In re Mammoth 126 in re George W. Shiebler & Co., Pine Lumber Co., 116 Fed. 731, 8 Am. 174 Fed. 336, 98 C. C. A. 208, 23 Am! Bankr. Rep. 651. -- Bankr. Rep. 162 ; In re Plummer, 2 Nat. 122 In re Coventry Evans Furniture Bankr. News, 292. Where th-e trustee Co., 171 Fed. 673, 22 Am. Bankr. Rep. "disburses" only the profit realized from 623 ; In re Screws, 147 Fed. 9S9, 17 Am. carrying out a contract of. the bankrupt, Bankr. Rep. 269; In re Carolina Coop- 1513 COSTS AND FEB3 § 779 has no authority to fix the compensation of a trustee in advance for such services' to be rendered in the future.^*" The act also provides that "the court may, in its discretion, withhold all compensation from any trustee who has been removed for cause." **' And it is held that this is applica- ble to a case where there was sufficient ground for the removal of a trus- tee, but, to avoid the odium of such a course, he was i^llowed to re- sign.^** And since, within the limits fixed by )aw, the amount to be allowed as commissions to a trustee is sitbject to the sound judicial dis- cretion of the court, it is held that, where a trustee has been negligent in the performance of his duty, the court may in a proper case, and even without the filing of any exceptions, deny him any commissions.*^" Where legal expenses are incurred in consequence of the negligent, irregular, or unauthorized actions of the trustee in dealing with the es- tate, as, for example, in contracting to sell property at private sale, but without the sanction or approval of the court or referee, they may be charged against his commissions.**" § 779. Fees and Expenses of Referees. — Provision for the compen- sation of referees in bankruptcy is made by the statute in the following terms: "Referees shall receive as full compensation for their services, payable after they are rendered, a fee of fifteen dollars deposited with the clerk at the time the petition is filed in each case, except when a fee is not required from a voluntary banferupt, and twenty-five cents for every proof of claim filed for allowance, to be paid from the estate, if any, as a part of the cost of administration, and from estates which have been administered before them one per centum commissions on all moneys disbursed to creditors by the trustee, or one-half of one per centum on the amount to be paid to creditors upon the confirmation of a composition."*** Originally the act allowed referees' commissions that is the only sum on which he can lai Bankruptcy Act 1898, § 40,. as receive commissions, regardless of the amended by Act Cong. Feb. 5, 1903, 3? total amount involved. In re New York Stat. 797. See In re J. B. White & Co. Commercial Co., 231 Fed. 445, 145 C. C. (D. 0.) 225 Fed. 796, 35 Am. Bankr. Rep. A. 439, 36 Am. Bankr. Rep. 496. 670. It is not proper to calculate the 12 8 In re Willis W. Russell Card Co., referee's commission on the total amount 174 Fed. 202, 23 Am. Bankr. Rep. 800. of the bankrupt's estate, but only on that 12 7 Bankruptcy Act 1898, § 48c. See In portion distributable to creditors. In re re Leverton, 155 Fed. 931, 19 Am. Bankr. Motridge, 258 Fed. 229, 169 C. C. A. 539, Rep. 434. 44 Am. Bankr. Rep. 175. The referee is lis In re E. I. Fidler & Son, 172 Fed. entitled to commissions on the amount 632, 23 Am. Bankr. Rep. 16. of claims which would have been paid in 129 In re Schoenfeld, 183 Fed. 219, 105 cash under a composition agreement, if C. C. A. 481, 25 Am, Bankr. Rep. 748. the creditors had not waived such pay- And see In re Sweetser (D. C.) 240 Fed. nient in consideration of a smaller cash 174. payment and the balance in notes given 130 In re Eden Musee American Co. (D. by another corporation. In re H. Bat- C.) 230 Fed. 925, 36 Am. Bankr. Rep. terman Co., 231 Fed. 699, 145 C. C. A. 111. 585, 36 Am. Bankr. Rep. 695. The ref- § 779 LAW OP BANKRUPTCY 1514 only on sums disbursed as "dividends and commissions." But the larger terms introduced by the amendment of 1903 permit the payment of commissions on moneys paid over to secured creditors or realized from the sale of incumbered property.^^^ But the moneys must still be "disbursed to creditors." Hence, in axase where the referee continued the bankrupt's business in order to complete certain government con- tracts, and for that purpose raised and paid out nearly half a million dollars during a period of eighteen months, and, as a result, distributed to creditors about thirty thousand dollars, it was held that he was en- titled to commissions only on the latter sum.^*^ There has been a prac- tice of referring particular issues or matters arising in the course of a bankruptcy case to the referee in the character of a special master, and allowing him fees or compensation as such.^^* For instance, where objections to a bankrupt's application for discharge are referred to the referee for hearing and report, it has been held that he is entitled to a reasonable allowance for his services, in addition to the fees allowed him by the bankruptcy act.^'® In this and similar cases, the theory proba- bly has been that the commissions specified in the act were intended only to compensate the referee for the performance of duties strictly incident to his office, a;id such as must be performed in every case re- ferred to him, as a matter of mere routine administration. Thus, it is said that a referee cannot make.ian extra charge for his services in pre- siding at creditors' meetings, conducting the bankrupt's examination, or making out the dividend sheet, as these services are particularly re- quired of him by the statute and are supposed to be compensated by the eree's commission is estimated on mon- eree is not entitled to recover fees out of eys disbursed to creditors, and not on the proceeds of a sale of mortgaged tlie claims and liabilities scheduled. In property when it brings less than the re Philips & McEachin, 210 Fed. 889, 127 amount of the mortgage debt. In re C. 0. A. 499, 31 Am. Bankr. Rep. 542. Stewart, 193 Fed. 791, 27 Am. Bankr. Rent of leased premises occupied by the Rep. 529. trustee Is not a disbursement to a cred- i33 Bray v. Johnson, 166 Fed. 57, 91 itor on which the referee is entitled to a 0. C. A. 643, 21 Am. Bankr. Rep. 383. commission., Kinkead v. J. Bacon & And- see In re J. Bacon & Sons (D. C.) Sons, 230 Fed. 362, 144 O. C. A. 504, 36 224 Fed. 764, 34 Am. Bankr. Rep. 825 ; Am. Bankr. Rep. 390. Where, In a com- In re M. F. Rourke Co. (D. O.) 209 Fed. position case, 25 i>er cent, in cash or 100 877, 31 Am. Bankr. Rep. 788. per cent, in stock (at par) of a corpora- is 4 In re Hurley, 204 Fed. 126, 29 Am. tion formed to take over the bankrupt's Bankr. Rep. 567 ; In re Goldville Mfg. business were offered as alternatives, it Co., 123 Fed. 579, 10 Am. Bankr. Rep. was held that the referee's commission 552. See In re Talton, 137 Fed. 178, 14 should be computed on the theory that Am. Bankr. Rep. 617. the stock was worth 25 per cent, of its is 5 Fellows v. Freudenthal, 102 Fed. par value. In re Mills Tea & Butter Co. 731, 42 C. C. A. 607, 4 Am. Bankr. Rep! (D. C.) 235 Fed. 815, 37 Am. Bankr. Rep. 490 ; In re Grossman, 111 Fed. 507, 6 711. Am. Bankr. Rep. 510; Bragassa v. St. 132 In re Holmes Lumber Co., 189 Fed. Louis Cycle, 107 Fed. 77, 46 C. C. A. 154 178, 26 Am. Bankr. Rep. 119. The ref- 5 Am. Bankr. Rep. 700. Contra, In re 1515 COSTS AND FEES § 779 fifteen dollar fee."' But on the other hand, nothing could be more positivethan the language of the amendatory act of 1903 (section 72) that "neither the referee nor the trustee shall in any form or guise receive, nor shall the court allow them, any other or further compen- sation for their services than that expressly authorized and prescribed in this act." And it is held that this absolutely prohibits the court of bankruptcy from allowing any extra or additional compensation to the referee for any services whatever, ^^' and, in particular, that it deprives the court of any authority to convert a referee in bankruptcy into a special master and compensate him as such.^** But on the other hand, the compensation of the referee as fixed by the statute will not be abated or diminished in a particular case because some of the duties which ordinarily would be discharged by the referee, in the holding of hearings and making of orders, were assumed by the judge, at the request of the parties, on account of the magnitude of the interests involved and the unusual character of the proceedings.*^^* The referee is entitled to reimbursement for expenses necessarily in- curred by him in the performance of his duties.**" And he may make a general charge for blanks used in mailing notices to creditors and for orders entered, and also for the hire of a clerk, where the extent of his business is such that a clerk is needed, which charge should be a gross sum, and uniform in each case, regardless of the amount of work done."* And the expenses incurred in the publication of notice of application for Wilcox, 156 Fed. 685, 19 Am. Bankr. Eep. tion may be made by standing rule or 241. order, or by special order in any partic- 130 In re Barker, 111 Fed. 501, 7 Am. ular case. United States v. Ward, 257 Bankr. Rep. 132. Fed. 372, 168 C. C. A. 412, 43 Am. Bankr. 137 In re Daniels, 130 Fed. 597, 12 Rep. 711. The referee is entitled to an Am. Bankr. Eep. 446 ; In re Mammoth allowance for the hire of a stenographer Pine Lumber Co., 116 Fed. 731, 8 Am. where correspondence with persons in- Bankr. Rep. 651 ; Dressel v. North State terested in the estate was so great that Lumber Co., 119 Fed. 531, 9 Am. Bankr. he could not personally attend to it all. Rep. 541; In re Troth, 104 Fed. 291, 4 In re Capital Security Co. (D. C.) 251 Am. Bankr. Rep. 7&0 ; United States v. Fed. 927, 41 Am. Bankr. Re^. 184. Ref- Ward, 257 Fed. 372, 168 O. C. A. 412, 43 erees in bankruptcy, where it is reason- Am. Bankr. Rep. 711. ably necessary, are entitled to maintain 13 8 In re Sw«eney, 168 Fed. 612, 94 C. offices for the transaction of their busi- C. A. 90, 21 Am. Bankr. Rep. 866 ; In re ness, and to employ clerical assistance. Nankin, 246 Fed. 811, 159 C. C. A. 113, and the expense may be prorated and 40 Am. Bankr. Rep. 459; In re Growe charged to the various estates referred Const. Co. (D. C.) 253 Fed. 9S1, 42 Am. to th«m. In re McNeil Corp. (D. C.) 249 Bankr. Rep. 654; In re Langford, Felts Fed. 765, 41" Am. Bankr. Rep. 162. & My«rs (D. C.) 225 Fed. 311, 35 Am. i" In re Pierce, 111 Fed. 516, 6 Am. Bankr. Eep. 519. Bankr. Rep. 747; In re Tebo, 101 Fed. 139 In re Barber, 97 Fed. 547, 3 Am. 419, 4 Am. Bankr. Rep. 235; In re Mam- Bankr. Rep. 306. moth Pine Lumber Co., 116 Fed. 731, 140 General Order No. 35, par. 2. The 8 Am. Bankr. Rep. 651. Compare In re court of bankruptcy may authorize a ref- Carolina Cooperage Co., 96 Fed. 950, 3 eree to employ a clerk and may allow Am. Bankr. Eep. 154 ; In re Dean, 1 N. expenses for stationery, office rent, light, B. E. 249, Fed. Cas. No. 3,699. heat, and telephone, and such authoriza- § 780 LAW OF BANKBUPTCY 1516 discharge, and for stationery, are chargeable against the bankrupt."' It was also held under the act of 1867 that the traveling expenses of a nonresident referee, when apportioned among the several cases before him, would be allowed."' The referee's order allowing fees to himself and the trustee is reviewable by the court,"* even after payment has been made to the trustee, if the referee's account was not presented to and passed upon by the court as required,"* but not where his account was duly kept, presented, and approved, and distribution of the estate has al- ready been made."" Hpwever, where a referee has collected from par- ties or estates in bankruptcy proceedings, as compensation, money to which he is not legally entitled, and these fees have been collected or withheld from parties who are numerous, and the individual amounts are small, the United States may maintain a single action on his bond, on behalf of all parties injured, to recover back such illegal fees ; and as the court of bankruptcy has no jurisdiction to allow to a referee under any form or guise any other or further compensation than that expressly au- thorized and prescribed by the bankruptcy law, such allowance, if made, does not bar an action for its recovery."' § 780. On What Sums Commissions are Calculated. — As original- ly enacted, the bankruptcy act allowed commissions to the referee and trustee on sums disbursed "as dividends and commissions." And it was held that this restricted them to the specified percentage on such sums as were available for, and distributed to, the general or unsecured cred- itors; that the payment in full of those claims which were entitled to priority (taxes, labor claims, etc.) was not the payment of a "dividend," and that commissions could not be reckoned either on the amount so paid out or on sums paid over to mortgagees or other secured creditors or lien holders.*** Also it was held that the setting apart of a homestead 1*2 In re Dixon, 114 Fed. 675, 8 Am. n? United States v. Ward, 257 Fed. Bankr. Kep. 145. 372, 168 C. C. A. 412, 43 Am. Bankr. Rep 143 In re Sherwood, 1 N. B. R. .344, 711. Fed. Ca.'f. No. 12,774. This is explicitly i*8 in re Iowa Falls Mfg. Co., 140 Fed. allowed under General Order No. 35, 527, 15 Am. B.nnkr. Rep. 384; In re Hin par. 2. ckel Brewing Co., 124 Fed. 702, 10 Am. 144 In re Allert, 17.3 Fed. 691, 23 Am. Bankr. Rep. '692; In re Goldville Mfg. Bankr. Rep. 101. See In re Reliance Co., 123 Fed. 579, 10 Am. Bankr. Rep. Storage & W. Co., 100 Feil. 619, 4 Am. ",.-,!': In re Mammoth Pine Lumber Co.. Bankr. Rep. 49. An order all»wing the 116 Fed. 731, 8 .\in. Bankr. Rep. 651 ; lees and compensation of a referee in Hawthorne v. Ileiidrie & Bolthoff Mfg. bankruptcy is a judicial order and can & Supply Co., 50 Colo. 342, 116 Pac. 122: not be collaterally attacked. United In re Barker, 111 Fed. 501, 7 Am. Bankr. States V. Brainerd (D. 0.) 250 Fed. 1011, Rep. 132 ; In re Smith, 108 Fed. 39, 5 41 Am. Bankr. Rep. 342. Am. Pankr. Rep. r,r,<) ; In re Utt, 105 Fed. 146 In re Mammoth Pine Lumber Co., 754, 45 C. C, A. :i2, 5 Am. Bankr. Rej). 116 Fed. 7.'n, 8 Am. Bankr. Rep. 651. 383; In re Barber. 97 Fed. 5.17, 3 Am! 140 In re Tebo, 101 Fed. 419, 4 Am. Bankr. Rep. 306; In re Fielding, 96 Fed. Bankr. Rep. 2.'!5. f^OO, 3 Am. Bankr. Rep. 135; In re Fort 1617 COSTS AND FEES § 780 exemption to the bankrupt from the proceeds of property sold by the trustee was not the making of a dividend, so as to entitle these officers to a commission on the amount.^** From this rule it sometimes resulted that the whole of the assets of an estate in bankruptcy would be con- sumed in the payment of priority claims and secured debts, and that nothing whatever would be left on which the commissions of the trus- tee and referee could be calculated. Yet this was held to be immaterial, and that, in such cases, their services must go unrewarded, except for the trifling filing fees.^"" But the amendatory act of 1903 altered this by allowing commissions on moneys "disbursed to creditors," and this was still further enlarged by the amendment of 1910, which allows the com- missions to be reckoned on "all moneys disbursed or turned over to any person, including lien holders." At present, therefore, trustees are to be allowed commissions on moneys received and disbursed by them which were derived from the sale of mortgaged property, and which were covered by and applicable to the payment of the lien.*" And this rule applies although the property is purchased by the party holding the incumbrance, the price in such case being treated as constructively paid to the trustee."* So also, the officers are entitled to commissions on all sums which would have been paid through the trustee but for an out- side agreement between the parties and their attorneys.*^* But when the trustee is permitted to sell pledged collaterals on paying the debt for which they were pledged, it is held that the balance of the price. after paying the debt con.stitutes the "money, disbursed" on which the com- Wayne Electric Corp., 94 Fed. 109, 1 Am. no interest. Gugel v. New Orleans Nat. Bankr. Rep. 706 ; In re Fielding, 2 Nat. Bank, 239 Fed. 676, 152 O. 0. A. 510, 39 Bankr. News, 735 ; In re Sabine, 1 Nat. Am. Bankr. Rep. 160 ; O. B. Norton Jew- Bankr. News, 312. elry Co. v. Hinds, 245 Fed. 341, 157 O. C. 149 In re Gardner (D. C.) 103 Fed. 922, A. 533, 40 Am. Bankr. Rep. 320; In re 4 Am. Bankr. Rep. 420. Stewart (D. 0.) 193 Fed. 791, 27 Am. 150 Smith V. Township of Au Gres, 150 Bankr. Rep. 529. Fed. 257, 80 C. C. A. 145, 9 L. R. A- (N. loa In re West (D. C.) 232 Fed. 903; In S.) S76, 17 Am. Bankr. Rep. 745. re Sanford Furniture Mfg. Co. (D. C.) IS 1 In re Howard (D. O.) 207 Fed. 402. 126 Fed. 888, 11 Am. Bankr. Rep. 414 ; In 31 Am. Bankr. Rep. 251. See In re An- re Morse Iron "Works & Dry Dock Co. (D. ders Push Button Telephone Co. (D. C.) C.) 154 Fed. 214, 18 Am. Bankr. Rep. 846. 136 Fed. 995, 13 Am. Bankr. Rep. 648 But compare In re Fort Wayne Electric But notwithstanding the amendment of Corp. (D. C.) 94 Fed. 109, 1 Am. Bankr. 1910, a trustee in bankruptcy is not en Rep. 706 ; In re Elk Valley Coal Mining titled to a commission where the pro- Co. (D. C.) 213 Fed. 383, 32 Am. Bankr. ceeds of incumbered property disposed Rep. 197; In re Columbia Cotton Oil & of in bankruptcy are insufficient to sat- Provision Corp., 210 Fed. 824, 127 C. C isfy the liens on it. In a proper case A. 374, 31 Am. Bankr. Rep. 339. And the lienbolders may be charged with the see In re Old Oregon Mfg. Co. (B. C.) costs of foreclosure, since that is for 236 Fed. 804, 38 Am. Bankr. Rep. 409. ' thsir benefit, but not with part of the ex- i5:-. In re Sanford Furniture Mfg. Co., pense of administering the estate, in 126 Fed. 888, 11 Am. Bankr. Rep. 414. which, in the case supposed, they have § 781 LAW OF BANKKUPTCY 1518 missions are to be estimated."* But property which comes into the possession of the trustee through the fraud of the bankrupt, and which is restored to the victim of the fraud, is not a part of the estate in bank- ruptcy out of which the officers may be allowed their statutory percent- age.^^^ And the same is true of real estate for the recovery of which the trustee has brought suit, but which never comes into the estate, be- cause it is made the subject of a private settlement between the claimant and the creditors, the trustee thereupon dismissing his suit."® § 781. Fees of Attorneys. — Aside from the fees allowed for routine professional work in bankruptcy cases, the general rule is that compen- sation may be allowed to an attorney at law out of a particular property or fund before the court only when his services have had the effect of preserving it for the true owner, and out of the estate in general only when his services have resulted in adding to it, increasing its value, freeing it from claims, or otherwise benefiting the general body of cred- itors."' And while the amount of compensation rests largely in the sound judicial discretion of the court, yet even this must be controlled by the general purpose and policy of the act, which requires that, just as far as possible, all the assets shall be available for the creditors, and that estates in bankruptcy shall be administered with severe economy and at a minimum of expense. '^^ Only a reasonable fee will be allowed to an attorney in any event,**® and where a rule of court fixes the scale of fees allowable, such allowances will not be increased except in most un- usual cases.*®" It is generally the referee, in the first instance, who will determine whether any, and what, fees shall be allowed, and he is by no means required to allow the fee claimed by the attorney or agreed upon between the attorney and the trustee, but may and should reduce it if he thinks it too great.*®* This question may be determined by the ref- 164 In re Meadows, 199 Fed. 304, 29 lesDunlap Hardware Co. v. Huddles- Am. Bankr. Rep. 165. ton, 167 Fed. 433, 21 Am. Bankr. Rep. 155 Gillespie v. J. C. Piles & Co., 178 ^31; In re Young, 142 Fed. S91, 16 Am. Fed. 886, 102 C. C. A. 120, 24 Am. Bankr. Bankr. Rep. 106 ; In re Goldville Mfg. Rep. 502; In re J C. Wilson & Co. (D. Co., 123 Fed. 579, 10 Am. Bankr. Rep. O.) 252 Fed. 631, 42 Am. Bankr. Rep. 552; In re Lang, 127 Fed. 755, 11 Am. 850. Bankr. Rep. 794. 156 In re Kaiser, 112 Fed. 955, 8 Am. Bn'nI-r V^Jp'/r' IV ^Z^' '7'' ^\^'^- „„„,„. ^„,, in« Bankr. Rep. 617. The fee of an attor- uanki. Kep. iu». j^gy collecting $6,000 for the bankrupt 15 7 Gillespie v. J. C. Piles & Co., 178 estate from the insurers on the occur- Fed. 886, 102 C. C. A. 120, 24 Am. Bankr. rence of a loss was held properly allow- Rep. 502; In re Huddleston, 167 Fed. 428, able in the sum of $500. American Sav. 21 Am. Bankr. Rep. 669 ; In re Coving- Bank & Trust Co. v. Munson, 93 Wash ton, 132 Fed. 884; 13 Am. Bankr. Rep. 78, 159 Pac. 1195. 150; In re Ii-win, 177 Fed. 284, 22 Am. loo in re Keller, 207 Fed. 118, 31 Am. Bankr. Rep. 165 ; In re W. B Terrell Co. Bankr. Rep. 51. (D. C.) 250 Fed. 317, 40 Am. Bankr. Rep. lei in re Ferreri, 188 Fed. 675, 26 Am. 138. Bankr. Rep. 658. 1519 COSTS AND PEES § 782 eree ex parte, that is, it is not necessary that he should give to creditors notice of the pendency of the question and an opportunity to be heard thereon,^*^ but he should balsgitisfied by evidence of the character and value of the attorney's serviced, and may suspend action on the applica- tion until satisfactory evidence is produced.^®* The decision of the ref- eree, since it depends so much upon the exercise of judgment and dis- cretion, will not be disturbed by the judge, in the absence of evidence to show that the fee allowed was exorbitant or excessive,^^ but the ref- eree's discretion is judicial and not arbitrary, and even though he rec- ommends the allowance of a particular fee, it will be reduced by the judge, if the latter regards it as extravagant,"® or even by the appel- late court, if the judge has failed to exercise his own discretion, with a due regard to the policy of the statute and the rights of the parties.*®® Where more than one attorney or set of attorneys render services for the benefit of an estate in bankruptcy, there must be a division of the allowable fee, rather than a duplication or multiplication of fees.*®' In regard to the particular matter of the bankrupt's discharge, it has been ruled that, in voluntary proceedings, the bankrupt's attorney may be allowed a docket fee for filing the application for discharge if there is no contest. If there is a contest made by the trustee at the instance of creditors, which is unsuccessful, he may be given a larger allowance from the estate. But where an unsuccessful contest is made by one or more creditors, acting for themselves and not through the trustee as the representative of all, the question of costs should be treated as one arising inter partes, and the estate generally ought not to sutler from an ill-advised contest."* § 782. Same; Attorney for Bankrupt. — The statute provides for the allowance of "one reasonable attorney's fee for professional serv- ices actually rendered, to the bankrupt in involuntary cases while per- forming the duties herein prescribed, and to the bankrupt in voluntary cases, as the court may allow." *®® In determining the reasonable value 102 In re Stotts, 93 Fed. 438, 1 Am. lei in re Tebo, 101 Fed. 419, 4 Am. Bankr. Rep. 641. In a proceeding in a Bankr. Eep. 235. court of bankruptcy to determine the io5 in re Carr, 116 Fed. 556, 8 Am. amount to be allowed as a fee to the at- Bankr. Rep. 635 ; In re De Ran, 260 Fed. torney of a creditor, out of such credi- 732, 171 C. C. A. 470, 44 Am. Bankr. Rep. tor's distributive share of the estate, a 409. trial by jury may be allowed in the dls- loo in re Curtis, 100 Fed. 784, 41 C. C. cretion of the court, but cannot be claim- A. 59, 4 Am. Bankr. Rep. 17; In re Iron ed as a matter of right, proceedings in Clad Mfg. Co., 215 Fed. 877, 132 C. C. bankruptcy being equitable in character. A. 11, 33 Am. Bankr. Rep. 69. In re Rude, 101 Fed. 805, 4 Am. Bankr. iot in re Coney Island Lumber Co., 199 Rep. 319. Fed. 197, 29 Am. Bankr. Rep. 91. 10= In re Dreeben, 101 Fed. 110, 4 Am. los In re Keller, 207 Fed. 118, 31 Am. Bankr. Eep. 146 ; In re Curtis, 100 Fed. Bankr. Rep. 51. 784, 41 C. C. A. 59, 4 Am. Bankr. Rep. 17. '89 Bankruptcy Act 1898, § 64b; See § 782 LAW OF BANKEUPTCY 1520 of services rendered to a bankrupt by his attorney, neither the assets nor the liabilities of the estate represent or measure the value of the mat- ter involved,^'* but the allowance can bglinade only for the reasonable value of services actually required, irrespective of the services actually rendered ; "^ that is, the attorney cannot claim compensation for all legal work he may do for the bankrupt in the proceedings, but only for that which the referee or the court may consider was required by the provisions of the law and the necessities of the particular case."* Fur- ther, it is necessary that the professional services should have been rea- sonably necessary to enable the bankrupt to discharge his duties under the law,^'* and that they should have Conduced to the benefit of the es- tate or to its prompt, efficient, or economical administration."* And since the attorney's services must have been rendered to the bankrupt while he was "performing the duties prescribed," it follows that no fee can be allowed to the attorney if the bankrupt has not performed his statutory duties, or at least if it appears that he has actively endeavored to defeat or delay the proceeding."^ But the fact that the bankrupt has disobeyed an order of the court requiring him to turn over money to his trustee, and has fled the jurisdiction and is in contempt, will not pre- vent the allowance of a proper fee to his attorney for services rendered in the course of the proceedings before the occurrence of the contempt, such misconduct on the part of the bankrupt having been without the attorney's privity or complicity."* The preparation of the bankrupt's petition and schedules is clearly a work necessary to enable him to per- form his duties under the act, and a proper and moderate fee should be allowed to his attorney out of the estate for this work, both in voluntary and involuntary cases."' The amount is not to be determined by the mere clerical labor involved, for the proper preparation of a schedule Smith V. Shenandoah Valley Nat. Bank Am. Bankr. Eep. 552 ; In re Rosenthal & of Winchester, Va., 246 Fed. 379, 158 Lehman, 120 Fed. 848, 9 Am. Bankr. Rep. O. C. A. 443, 40 Am. Bankr. Rep. 314. 626. Where an alleged involuntaiT bankrupt 175 in re Woodard, 95 Fed. 955, 2 Am. successfully resists adjudication, he is Bankr. Rep. 692. entitled to have an attorney's fee taxed as part of the costs in his favor. In re "" ^"^ ^^ Mayer, 101 Fed. 695, 4 Am. Wise (D...,a) 212 Fed. 56T. And see In Bankr. Rep. 238. re Weissbord (D. C.) 241 Fed. 516, 39 "7 in re FuUick, 201 Fed. 463, 28 Am. Am. Bankr. Rep. 243. Bankr. Rep. 634; In re Anderson, lO.S 170 In re Lane Lumber Co., 206 Fed. Fed. 854, 4 Am. Bankr. Rep. 640; In re 780, .30 Am. Bankr. Rep. 749. Mayer, 101 Fed. 695, 4 Am. Bankr. Rep. 171 In re Connell & Sons, 120 Fed. 846, 238; In re Carolina Cooperage Co., 96 9 Am. Bankr. Rep. 474. Fed. 950, 3 Am. Bankr. Rep. 154 ; In re 172 In re Payne, 151 Fed. 1018, 18 Am. Kennedy, Fed. Cas. No. 7,700; In re Bankr. Rep. 192. Thompson, 13 N. B. R. 300, Fed. Cas. JvTo. 173 In re Lane Lumber Co., 206 Fed. 13,938; In re Mansfield, 6 Ben. 284, Fed. 780, 30 Am. Bankr. Rep. 749. Cas. No. 9,048 ; In re Averill, l' Nat. 174 In re Duran Mercantile Co., 190 Bankr. News, 544. Compare In re Mat- Fed. 961, 29 Am. Bankr. Rep. 450; In thews, 97 Fed. 772, 3 Am. Bankr Rep re Goldville Mfg. Co., 123 Fed. 579, 10 265. 1521 COSTS AND FEES § 782 in bankruptcy requires a special kind of skill and knowledge. The sys- tematizing, arrangement, and condensation of the matter should be con- sidered.^'* Yet where the work involves nothing that would be beyond the powers of any competent accountant, the fact that it was done by the bankrupt's attorney does not entitle him to charge, aS against the estate, on a scale which would be strictly appropriate only for profes- sional services properly so called.*'* And he is not entitled to a fee for posting up the bankrupt's books and making extra copies of the schedules."* It is said that a bankrupt is not ordinarily entitled to the aid and presence of his counsel when attending before the referee or court for the purpose of giving information or undergoing examination, and hence his attorney should not be allowed fees out of the estate for such attendance upon the bankrupt, unless it is shown that there was some unusual contingency making his assistance really necessary.**^ Nor is the attorney entitled to a fee for assisting in making good the bankrupt's claim to exemptions and procuring the setting apart of the same,"-*^ or for services rendered in proceedings to confirm a composi- tion,*** nor for his services in obtaining a judgment in favor of the bank- rupt before the bankruptcy, though he may have a fee for collecting the judgment for the trustee.*** Again, the allowance to the attorney should not include a fee for defending the bankrupt against charges of fraud or concealment of assets, or other matters involving his personal liabil- ity, civil or criminal.**^ And where the trustee in bankruptcy is oppos- ing the allowance of a claim against the estate, as are also" some of the bankrupt's creditors, the bankrupt's attorney is not entitled to assist in such proceeding at the expense of the estate.*** As to the bankrupt's application for discharge, an allowance has generally been made to the attorney for his services in supporting the application, to the extent of a docket fee if there is no substantial opposition, which may be mate- rially increased if opposition develops.**' But the latest opinion appears 17 8 In re Andrews, 11 N. B. E. 59, Fed. Bankr. Rep. 508; In re Castleberi*y, 143 Oas. No. 370. Fed. 1021, 16 Am. Bankr. Rep. 430; In 170 In re Lane Lumber Co., 206 Fed. re Bohrman (D. C.) 224 Fed. 287, 34 Am. 780, 30 Am. Bankr. Rep. 749. Bankr. Rep. 801. ISO In re Cpnnell & Sons (D. C.) 120 iss in re Fogarty, 187 Fed. 773, 109 Fed. 846, |9 Am. Bankr. Rep. 474. C. C. A. 621, 26 Am. Bankr. Rep. 568 ; isi In re I,ane Lumber Co., 206 Fed. In re Klnnane Co.'s Estate, 242 Fed. 769, 780, 30 Am. Bankr. Rep. 749 ; In re 155 0. C. A. 357, 39 Am. Bankr. Rep. 593. KrosS, 96 Fed. 816, 3 Am. Bankr. Rep. i84ln re Blum, 193 Fed. 304, 28 Am. 187 ; In re Hammel (D. C.) 211 Fed. 238, Bankr. Rep. 60. 31 Am. Bankr. Rep. 672. Buf^see In re issin re Mayer, 101 Fed. 695, 4 Am. AJiiyer, 101 Fed. 693, 4 Am. Bankr. Rep. Bankr. Rep. 238; In re Felson, 139 Fed. 238; In re Michel, 95 Fed.. 803; In re 275, 15 Am. Bankr. Rep. 185. Clark, 43 How. Prac. (N. T.) 70, Fed. Cas. ise In re Lane Lumber Co., 206 Fed. No. 2,803. 780, 30 Am. Bankr. Rep. 749. 182 la re O'Hara, 166 Fed. 384, 21 Am. ist In re Christlanson, 175 Fed. 867, Bi,k.Bkr.(3d Ed.)— 96 § 782 LAW OF BANKRUPTCY lB22 to be that a contest over the discharge waged between certain individual creditors on the one side and the bankrupt on the other, and not con- ducted by the trustee as the representative of all the creditors, is a mat- ter which should not involve the estate in liability for costs and fees, if the opposition proves unsuccessful. "^^^ As to the allowance of a fee to the bankrupt's attorney in voluntary cases, since no conditions are attached to it in the statute, and it is merely directed to be "as the court may allow," it is held that the allow- ance of a fee in such cases and its amount rest entirely in the sound judi- cial discretion of the court of bankruptcy.^** Generally, however, the attorney of a voluntary bankrupt may be allowed a fee, payable out of the estate, for such professional services as were necessary to enable the bankrupt to bring his case properly before the court, secure an ad- judication and reference, surrender his estate, and perform his duties for the benefit of creditors, and receive his discharge if entitled thereto ; and the fee is not necessarily to be restricted to such services as were specially beneficial to the estate or rendered primarily in its interest.^** There can be no fixed fee for all cases, but the character and condition of the estate, the orders necessary to be secured for its protection, and the corresponding amount of time and attention required of the attorney, are all matters to be considered by the court in determining what is a reasonable amount in the circumstances. "^'^ § 783. Same; Attorneys for Petitioning and Other Creditors. — The court of bankruptcy is authorized to allow a reasonable fee to the attorney for the petitioning creditors in a case of involuntary bank- ruptcy, to be included in the costs of administration and paid out of the estate,^** provided, of course, that an adjudication of bankruptcy is made on the petition, for if the debtor successfully resists it there can be 23 Am. Bankr. Rep. 710; In re Kross, 96 Bankr. Rep. 641 ; In re Beck, 92 Fed. Fed. 816, 3 Am. Bankr. Rep. 187; In re 8S9, 1 Am. Bankr. Rep. 535; In re Eidom, 3 N. B. R. 160, Fed. Cas. No. Goodwin, 2 Nat. Bankr. News, 445. 4,315. But compare In re Brundin, 112 loo in re Kross, 96 Fed. 816, 3 Am. Fed. 306, 7 Am. Bankr. Rep. 296; In re Bankr. Rep. 187. Duran Mercantile Co.,. 199 Fed. 961, 29 loi In re Burrus, 97 Fed. 926, 3 Am. Am. Bankr. Rep. 450; Ex parte Hale, 5 Bankr. Rep. 296. Law Rep. 403, Fed. Oas. No. 5,910. See 102 Bankruptcy Act 1898, § 64b, cl. 3. In re Hammel (D. C.) 211 Fed. 238, 31 And see In re Harrison Mercantile Co., Am. Bankr. Rep. 672. 95 Fed. 123, 2 Am. Bankr. Rep. 419 ; In isa In re Keller, 207 Fed. 118, 31 Am. re Silverman, 97 Fed. 325, 3 Am. Bankr. Bankr. Rep. 51. See In re Gillardon, 187 Rep. 227 ; In re New York Mail S. s! Fed. 289, 26 Am. Bankr. Rep. 103. Co., 7 Bls^tchf. 178, 3 N. B. R. 627, Fed. 189 In re Smith, 108 Fed. 39, 5 Am. Cas. No. 10,208; In re King', 4 Biss. 319, Bankr. Rep. 559; In re O'Connell, 98 Fed. Cas. No. 7,780; In re O'Hara, .S Fed. 83, 3 Am. Bankr. Rep. 422; In re Pittsb. (Pa.) Ill, Fed. Cas. No. 10,465; Burrus, 97 Ffd. 926, 3 Am. Bankr. Rep. In re Jones, 9 N. B. R. 491. Fed. Cas' 296: In re Stotts, 93 Fed. 438, 1 Am. No. 7,4.51; Miller v. Scott, 6 PhUa. (Pa ) 1523 . COSTS AND FEES § 783 no allowance to the creditors.^"* In case of an adjudication, the attorney for the creditors is entitled to this fee as of right, and its allowance or refusal is not a matter within the discretion of the court of bankrupt- cy.^®* But the amount to be allowed is a question for the exercise of a sound judicial discretion, and to be determined upon a consideration of the nature and character of the services rendered, but if the sum al- lowed is deemed excessive, it will be reduced on appeal or review.^"® The fee will have to be paid out of the general funds of the estate, and lien creditors cannot be required to bear the expense of it or contribute to it.*®* Further, it is to be considered as compensation for professional services actually rendered in and about the matter of securing an adju- dication of bankruptcy. Petitioning creditors cannot be allowed, out of the estate, sums paid to their attorneys as retainers,^*' nor for services rendered in protecting their special and individual interests, but only for such as were for the common benefit of all the creditors.^** If two separate petitions in involuntary bankruptcy are filed by different sets of creditors, the one fee allowable should go to the attorneys in that petition on which the adjudication is made,*^** and if the petitions are consolidated, the fee must be divided between them according to the relative value of the services and amount of work done by each.*'"* It is the evident intention of the statute (and so the courts hold) to restrict 484, 2 N. B. R. 86, Fed. Cas. No. 5,620 ; resisted in their interest. In re Murphy , Dundore v. Coates, 6 N. B. R. 304, Fed. Boot & Shoe Co. (D. G.) 242 Fed. 991, 39 Cas. No. 4,142 ; In re Mead, 8 Phila. Am. Bankr. Rep. 811. (Pa.) 174, Fed. Cas. No. 9,864. In no lo* In re Curtis, 100 Fed. 784, 41 C. C. event can more than one docket fee be A. 59, 4 Am. Bankr. Rep. 17. taxed in any one bankruptcy proceeding. i05 in re Williams (D. C.) 240 Fed. 788; Peck V. Richter, 217 Fed. 880, 133 C. C. In re Curtis, 100 Fed. 784, 41 C. C. A. 59, A. 590, 33 Am. Bankr. Rep. 11. Services 4 Am. Bankr. Rep. 17 ; In re Sanger, 5 for which an attorney's fee is to be al- N. B. R. 54, Fed. Cas. No. 12,318. As to lowed in involuntary bankruptcy include the elements to be taken into considera- such only as are proper professional serv- tion in making an allowance to attor- ices, not including conferring with cred- neys for the petitioning creditors, see In itors to Induce them to join in the peti- re Weissman (D. C.) 267 Fed. 588, 46 Am. tion. in re Sape (D. C.) 225 Fed. 397, 35 Bankr. Rep. 189. Am. Bankr. R'-p. 625. The court of "o In re Freeman (D. C.) 190 Fed. 48, bankruptcy should not be called upon to 27 Am. Bankr. Rep. 16 ; In re Gillaspie, settle 'differences between counsel for the 190 Fed. 88, 27 Am. Bankr. Rep. 59; In petitioning creditors as to what proper- re Allert (D. C.) 173 Fed. 691, 23 Am. tion to the total sum allowed them Joint- Bankr. Rep. 101. ly each should receive. Hall v. Rey- 107 in re Comstock, 9 N. B. R. 88, Fed. nolds, 231 Fed. 946. 146 C. C. A. 142, 36 Cas. No. 3,075. Am. Bankr. Rep. 721. las in re Mead, 8 Phila. (Pa.) 174, Fed. 193 In re Black Diamond Copper Min. Cas. No. 9,364. Co., 10 Ariz. 42. 85 Pac. 653. Counsel 109 In re Southern Steel Co., 169 Fed. fees for resisting the adjudication should 702, 22 Am. Bankr. Rep. 476 ; Fjank not be allowed to the attorney for the Dickey, 139 Fed. 744, 71 C. O. A. 562, 15 minority stockholders in the bankrupt Am. Bankr. Rep. 155. . corporation, who, by holding the offices, 200 in re McCracken & McLeod, 129 were enabled to have the adjudication Fed. 621, 12 Am. Bankr. Rep. 95. § 783 LAW OF BANKRUPTCY 1524 this statutory fee to the services of attorneys rendered in preparing and presenting the petition and securing the adjudication. The "petitioning creditors" are to be considered as occupying the position of petitioning creditors only at this stage of the proceedings. Services rendered to them either before or after are not rendered to them in the character of "petitioning creditors," and are therefore not within this special pro- vision of the act. No allowance can be made out of the estate to the creditors who presented the petition for services of an attorney ren- dered after the appointment of the trustee, as, in examining the bank- rupt, sending out notices, attending sales, or the like, for such services are either for the benefit of the trustee or of the creditors individual- ly.^"^ But where the attorney for the petitioning creditors, concur- rently with the petition or directly after it, prepared and presented a pe- tition for an injunction restraining a mortgage trustee of the bankrupt from disposing of the property affected pendente lite, it was considered that he might be allowed a fee fot this service.*'* As a general rule, and aside from the special provisions for compen- sating the attorneys for petitioning creditors, it may be said that counsel employed by creditors of a bankrupt to represent them in the bankruptcy proceedings must look to their clients for compensation, and not to the estate of the bankrupt or to the court.*'* And especially, where profes- sional services are rendered for the benefit of a particular creditor, and not for all the creditors of the estate, or where they are in opposition to the interests of' the general creditors, they cannot be compensated out of the estate in bankruptcy.*'* Still, where the attorney for a particular creditor succeeds in an undertaking which materially benefits the estate as a whole, as, in unearthing concealed assets or recovering property fraudulently transferred-, he may be allowed a reasonable fee out of the estate, for though he may have acted primarily in the interest of his own client, yet the result inures to the benefit of all. This is specially provided for in the bankruptcy act as amended,**" and is also a doctrine generally recognized by the courts.*'® But there must have been pro- fessional service actually rendered. Thus, where notes of the bankrupt 201 In re Silverman, 97 Fed. 325, 3 Am. 204 in re Baxter, 28 Fed. 452; In re Bankr. Rep. 227; In re Harrison Mercan- Hope Min. Co., 2 Sawy. 351, 7 N. B. E. tile Co., 95 Fed. 123, 2 Am. Bailkr. Eep. 598, Fed. Cas. No. 6,682; In re Shoe- 419 ; In re Corastock, 9 N. B. R. 88, Fed. maker, 205 Fed. 113, 123 C. C. A. 345, Cas. No. 3,075; In re Munford (D. C.t 30 Am. Bankr. Rep. 349. 255 Fed. 108, 43 Am. Bankr. Rep. 218. 20= Bankruptcy Act 1898, § 64b, as 202 In re Harrison Mercantile Co., 95 amended by Act Cong. Feb. 5, 1903 S'"' Fed. 123, 2 Am. Bankr. Rep. 419. Stat. SOO. ' ' ' ~ = 0.1 111 re Evans, 116 Fed. 909, 8 Am. 200 in re Medina Quarry Co. (C. C. A.) Bankr. Rep. 730 ; Mechanics' -American 191 Fed. 815, 27 Am. Bankr. Rep. 466 ; lii Nat. Bank v. Coleman, 204 Fed. 24, 29 re E. I. Fidler & Son, 172 Fed. 632,' 2.". Am. Bankr. Rep. 396 ; In re Smith, 108 Am. Bankr. Rep. 16 ; In re Medina Quar- Fed. 39, 5 Am. Bankr. Rep. 559. ry Co., 182 Fed. 508, 25 Am. Bankr. Rep 1525 COSTS AND FEES § 784 are placed in the hands of an attorney for collection before mattirity, but are paid in due course of the bankruptcy proceedings and without suit, the holder is not entitled to an allowance for attorney's fees thereon.^" And where proceedings for the recovery of property concealed or fraud- ulently transferred have been instituted by the trustee, who is repre- sented therein by competent counsel, it is not the privilege of creditor:, to have their own counsel assist in such proceedings, and if they do, thev are not entitled to fees out of the estate.*'* So the court will not be jui,- tified either under the statutory provision above referred to or under its general equity powers, in charging the estate with fees to be allowed to attorneys for creditors, where the services rendered consisted in op- posing the allowance of improper or fictitious claims against the estate, or securing their expunction after allowance, or defeating claims to pri- orities,^"* unless, possibly, in- cases where the trustee in bankruptcy- has refused to make defense against such claims or to take the proper steps to defeat them.^^" It should also be remarked that, where a creditor claims priority of payment out of the estate of the bankrupt, on the ground of his having a lien on particular property, and is opposed by the trustee and by other creditors, the attorney for such claimant, who successfully prosecutes the claim in the court of bankruptcy and secures its allowance, though he cannot of course claim^a fee out of the estate, is entitled to a lien for his services on the fund thus secured for his client; and the court of bankruptcy has jurisdiction to determine the right to such lien, fix its amount, and enforce it in^the distribution of the property .^'^^ § 784. Same; Attorney for Receiver. — The duties of a receiver in bankruptcy are ordinarily not such as to require the advice or assistance of an attorney, and he is not justified in retaining counsel and charging his fees against the estate, in the absence of an order of court authoriz- ing the employment of the attorney,*** or in the absence of a showing that the services of the attorney were distinctly beneficial to the estate 405; Smith V. Cooper, 120 Fed. 230, 56 C. 210 In re Roadarmour, 177 Fed. 379, 0. A. 578, 9 Am. Bankr. Rep. 755 ; In re 100 O. O. A. 611, 24 Am. Bankr. Rep. 49 ; Evans, 117 Fed. 574. In re Little River Lumber Co., 101 Fed. 207 In re Jenkins, 192 Fed. 1000, 27 558. Am. Bankr. Rep. 860. 211 in re Rude, 101 Fed. 805. 4 Am. 20 3 In re Felson, 139 Fed. 275, 15 Am. Bankr. Rep. 319. And see In re Hersh- Bankr. Rep. 1S5. But see In re Atkins lierger, 208 Fed. 94, 30 Am. Banl^r. Rep. m. C.) 225 Fed. 6.39, 34 Am. Bankr. Rep. 635. 794. 212 In re Leonard, 177 Fed. 503, 2-1 200 In re Medina Quarry Co. (C. C. Am. Bankr. Rep. 97 ; In re T. B. Hill Co., A.) 191 Fed. 815, 27 Am. Bankr: Rep. 66: 159 Fed.' 73, 86 C. C. A. 263, 20 Am. In re George Watkinson & Co., 130 Fed. Bankr. Rep. 73 ; In re Union Bank, 37 N. 218. 12 Am. Bankr. Rep. 370 ; In re Har- J. Eq. 420. And see supra, § 216. risou Mercantile Co., 95 Fed. 123, 2 Am. Bankr. Rep. 419. § 785 LAW OF BANKRUPTCY 1526 as such.^i* Further, since a receiver in bankruptcy is required to stand independent of the parties to the litigation, the rule has been laid down that he will not be allowed to charge the estate for services rendered to him by the attorney for either party during the continuance of such re- lation.*" Thus, where the attorneys for the receiver were also actively engaged throughout a protracted contest in bankruptcy, as attorneys for the petitioning creditors, and were not independent counsel employed by the receiver, as contemplated by an order granting leave to the receiv- er to employ counsel, and the bankruptcy proceeding was afterwards dis- missed, it was held that the court rightly declined to make any allow- ance to the attorneys for services rendered to the receiver, such expenses being properly chargeable against the petitioning creditors.^*^ Perhaps this rule should be modified in particular cases, where it is possible to distinguish clearly between services rendered to the receiver and serv- ices rendered to some other client. But at any rate, where attorneys for the receiver are also attorneys for the moving creditors and for the trustee, they are not entitled to charge the receiver for services perform- ed in obtaining his appointment, or for other matters preliminary there- to, which services were rendered, not to the receiver, but in the interest of moving creditors, but only for services rendered to the receiver as such.*^* It should be added that the number of attorneys employed by a receiver in bankruptcy is not an element to be considered in allowing fees, but the allowance should be made as though but one attorney had been employed.*" § 785. Same; Attorney for Trustee. — A trustee in bankruptcy may retain an attorney to advise and assist him, not unnecessarily or as a mere matter of course, "but when the condition of the estate is such that he cannot safely or wisely proceed with its collection and distribution except under the guidance of competent professional advice; and for services thus rendered to a trustee in bankruptcy, in so far as the same were exclusively for his benefit or for the benefit of the estate which he represents, and were proper or necessary, and called for the exercise of professional knowledge and skill, as distinguished from mere clerical labor or business intelligence, the attorney is entitled to a reasonable fee, to be fixed by the court and paid out of the estate.*** A trustee in bank- ruptcy who is also an attorney cannot recover for legal services perform- ed for the petitioning creditors or for the bankrupt, since one who ac- 213 Piatt V. Archer, 13 BlatcM. 351, aiein re Falkenberg, 206 Fed. 835, 30 Fed. Cas. No. 11,214. Am. Bankr. Rep. 718. 2X4 In re Kelly Dry Goods Co., 102 217 in re Falkenberg, 206 Fed. 835 30 Fed. 747, 4 Am. Bankr. Rep. 528. Am. Bankr. Rep. 718. 210 In re T. E. Hill Co., 159 Fed. 73, 218 See supra, § 309. 86 C. C. A. 263, 20 Am. Bankr. Rep. 73. 1527 COSTS AND FEES § 785 cepts the position of trustee of a bankrupt's estate renounces the right to compensation in any other form or guise, and all services rendered must be referred to his position as trustee; but such a trustee may re- cover for services properly chargeable against the estate which w^ere ren- dered prior to his appointment as trustee.**® An allowance of compen- sation to counsel for the trustee in bankruptcy covering ordinary serv- ices does not necessarily preclude an additional allowance for subsequent unexpected and extraordiiiary services made necessary by the iiling of a doubtful claim.**" Attorneys' fees and expenses incurred in vacating a preference made by the bankrupt to a particular creditor will be paid out of funds recovered for the benefit of the general creditors.*** 219 Holland v. Mellwaine, 223 Fed. 221 in re Steams Salt & Lumber Co., 77T, 139 C. O. A. 597, 34 Am. Bankr. Rep. 225 Fed. 1, 140 C. 0. A. 461, 35 Am. 416. '. Bankr. Rep. 264. 220 In re Metallic Specialty Mfg. Co. (D. C.) 215 Fed. 937. I 786 LAW or BANKRUPTCY 1528 CHAPTER XXXVII CRIMES AND CRIMINAL PROOEDURD Sec. 786. Persons Liable. 787. Concealment of Property by Bankrupt 788. Making False Oath or Account. 789. Receiving Property from Bankrupt 790. Extortion. 791. Conspiring with Bankrupt. 792. Offenses by Referees and Trustees. 793. Jurisdiction. 794. Indictment or Information. 795. Burden of Proof and Evidence. § 786. Persons Liable. — The bankruptcy act provides that the word "persons," "when used with reference to the commission of acts which are herein forbidden, shall include persons who are participants in the forbidden acts, and the agents, officers, and members of the board of directors or trustees, or other similar controlling bodies, of corpora- tions." ^ Notwithstanding the broad nature of this provision, it was held in some of the earlier cases not to limit or affect the twenty-ninth section of the act, in which criminal offenses are defined and denounced, the rule of strict construction of criminal statutes forbidding such ap- plication. And particularly in relation to the offense of fraudulently con- cealing assets from the trustee, it was held that, where the bankrupt was a corporation, but its officers were not individually in bankruptcy, they could not be indicted for concealing the bankrupt's property or as- sets.* But these decisions have been disapproved, and the doctrine now prevailing is that a bankrupt corporation may be guilty of the offense of concsaling assets, that its president or any other officer, though not himself a bankrupt, may be indicted and punished for that offense if he brought about the concealment or participated therein or conspired with others to effect it, and that it is immaterial that the corporation is not or cannot be indicted for the same offense or as one of the conspirators.* Further, an indictment may be sustained against the president or other managing officer of a bankrupt corporation for the .offense of know- ingly and fraudulently aiding and abetting it in the concealment of its assets from its trustee.* And on a similar principle, a member .of a 1 Bankruptcy Act 1898, § 1, clause 19. 85 C. 0. A. 113, 19 Am. Bankr. Rep. 8; 2 Field V. United States, 137 Fed. 6, United States v. Freed, 179 Fed. 236, 25 HO C. O. A. 568, 14 Am. Bankr. Rep. 507; Am. Bankr. Rep. 89; Wolf v. United United States v. Lake, 129 Fed. 499, States, 238 Fed. 902, 152 C. C. A. 36, 39 12 Am. Bankr. Rep. 270. Am. Bankr. Rep. 107. 8 Cohen \. United States, 157 Fed. 651, ^ * Crim. Code U. S., §§ 332, 335 ; Kauf- 1529- CRIMES AND CRIMINAL PROCEDURE § 787 bankrupt partnership, though not himself adjudged bankrupt, is sub- ject to prosecution for the fraudulent concealment of property of the partnership from its trustee." § 787. Concealment of Property by Bankrupt. — It is a punishable offense if a person shall have knowingly and fraudulently "concealed, while a bankrupt or after his discharge, from his trustee, any of the property belonging to his estate in bankruptcy." ® Under the act of 1867, it was held that this offense is committed if the bankrupt fraudu- lently omits from his schedule any property or effects which should have been listed, with the intention of concealing such property.' But the modern doctrine is that the offense consists of a continuous con- cealment during the whole course of the bankruptcy proceedings, and even beyond, or until discovery, and that the crime may be initiated, but is not necessarily consummated, by the fraudulent omission of property from the schedule.* Undoubtedly the failure to list property is a significant circumstance, but since the concealment must have been "knowingly and fraudulently" perpetrated, a mere omission through mis- take or accident is not sufficient.' But the fact that the bankrupt used a part of the proceeds of property which he had concealed from his trustee in the payment of debts does not negative a fraudulent intent in such concealment.^" The concealment must have taken place while the defendant was a bankrupt or after his discharge. Hence if a per- son begins to secrete or cover up his property in expectation of com- ing bankruptcy and with the intention of withholding it from adminis- tration in bankruptcy, it is not yet an offense under the stg.tute, because not done "while a bankrupt." If such a scheme is pursued and carried on into the bankruptcy proceedings, after the defendant's adjudication, it would come under the denunciation of the statute.^^ But if all of the man v. United States, 212 Fed. 613, 129 571 ; Johnson v. United States, 163 Fed. C. C. A. 149, Ann. Cas. 1916C, 466, 32 30, 89 C. 0. A. 508, 18 L. R. A. (N. S.) Am. Bankr. Rep. 22. 1194 ; 20 Am. Bankr. Rep. 724 ; Kern v. B Conetto V. United States, 251 Fed. United States, 169 Fed. 617, 95 C. C. A. 42, 163 O. C. A. 292, 42 Am. Bankr. Rep. 145, 22 Am. Bankr. Rep. 223. 189. "In re Scott (D. C.) 6 Sawy. 234, 11 e Bankruptcy Act 1898, § 29b. As re- Fed. 133. spects the bankrupt's offense of Ijnowing- i" Corenman v. United States, 188 Fed. ly and fraudulently concealing, while a 424, 110 C. C. A. 341.' And see United bankrupt, given property from his trus- States v. Lowenstein (D. C.) 126 Fed. 884, tee, it is immaterial whether his bank- 11 Am. Bankr. Rep. 134. That a bank- ruptcy was voluntary or involuntary. rupt knowingly and fraudulently con- Tugendhaft v. United States (C. C. A.) ceals assets from his trustee is an of- 263 Fed. 562, 45 Am. Bankr. Rep. 310. fense under the statute, although he has '' United States v. Olark, 1 Low. 402, disposed of the property before being Fed, Cas. No. 14,806. ordered to turn it over to the trustee. 8 Gretsch v. United States, 231 Fed. In re Stern (D. 0.) 215 Fed. 979. 57, 145 C. C. A. 245, 36 Am. Bankr. Rep. n Glass v. United States, 231 Fed. 65, § 787 LAW OF BANKKUPTCY 1530 bankrupt's acts, alleged to constitute concealment of property from his trustee, occurred before the filing of the petition in bankruptcy, the indictment cannot be sustained.^^ Next it is necessary that the prop- erty should have been concealed "from his trustee." But it is held that the concealment of property by a voluntary bankrupt, after his adjudi- cation, though before the appointment of a trustee, is a concealment from the trustee, which, if knowingly and fraudulently done, will con- stitute a criminal offense.''* To sustain an indictment under this pro- vision of the statute, it is of course essential to allege and show that a trustee was actually appointed." But it is held that the offense of con- spiring to conceal a bankrupt's property from his trustee (altogether a different offense) may be committed although it is not shown that a trustee was ever appointed, as in a case where, by the carrying out of the conspiracy, all the bankrupt's property was removed out of the jurisdiction of the court before the adjudication in bankruptcy, so that the appointment of a trustee would have been a useless formality.*^ After a successful concealment of assets has been practised, and an in- dictment found against the bankrupt therefor, he cannot purge himself of his criminal liability by filing an amended schedule, setting forth the assets alleged to have been concealed. Such conduct may properly influence the court in detei-mining the measure of punishment after con- viction, but does not render the bankrupt any the less guilty of the stat- utory offense.^® Finally, it is to be observed that, although the offense may be committed after the discharge of the bankrupt, it can be com- mitted only with respect to property which was a part of his estate and should have been turned over to the trustee." What the bankrupt may earn or acquire after the filing of the petition is not a part of his estate, and he is not bound to disclose it to his trustee. Hence it is not a vio- 145 C. C. A.- 253, 36 Am. Bankr. Rep. C. A.) 265 Fed. 916, 46 Am. Bankr. 550 ; Kaufman v. United States, 212 Fed. Rep. 1. 613, 129 G. O. A. 149, Ann. Gas. 1916G, isRadin v. United States, 1S9 Fed 466, 32 Am. Bankr. Rep. 22 ; United 568, 111 G. C. A. 6, 25 Am. Bankr Rep States V. Rhodes (D. O.) 212 Fed. 513. 640. 12 Warren v. United States, 199 Fed. lo Kern v. United States 169 Fed 617 753, 118 G. C. A. 191, 43 L. R. A. (N. S.) 95 G. G. A. 145, 22 Am. Bankr. R«p. 223! 278, 29 Am. Bankr. Rep. 555. i? Where a partner appropriated firm 13 United States v. Goldstein (D. C.) assets, with the concurrence of his co- 132 Fed. 7S9, 12 Am. Bankr. Rep. 755. partners, the assets so withdrawn, upon 1* The fact that the trustee appoint- his bankruptcy individually and as a ed for a bankrupt failed to give bond, member of the firm, was "property be- but continued to act as trusteei, and longing to his estate in bankruptcy" there was no declaration of a vacancy, is within the criminal provisions of the no defense to a prosecution of the bank- act. Malvin v. United States 252 Fed rupt for a fraudulent concealment of 449, 164 G. O. A. 373, 42 Am. Bankr property. Sharfsin v. United States (G. Rep. 98. 1531 CRIMES AND CRIMINAL PROCEDURE § 788 lation of the statute for the bankrupt to withhold or secrete from his trustee such after-acquired property.^* § 788. Making False Oath or Account. — It is a punishable offense if any person shall have knowingly and fraudulently "made a false oath or account in, or in relation to, any proceeding in bankruptcy." ^* One guilty of false swearing in a bankruptcy proceeding must be prosecuted under this provision of the Bankruptcy Act, instead of under Penal Code, § 125, which is the general statute applicable to prosecutions for perjury, for the Bankruptcy Act provides a lighter punishment and a shorter period of limitations than the general statute, and the rule applies that for one offense there can be only one prosecution and con- viction.** The offense denounced by the statute is of course not re- stricted to the bankrupt himself. The offense might be committed and the penalty incurred, for instance, by strangers examined as witnesses in the proceedings, or by creditors proving claims or filing sworn state- ments as to the nature and value of securities held, etc.,*^ or by the trustee in bankruptcy in respect to the verity of his accounts filed in the proceeding. But practically this provision of the act is most fre- quently invoked against the bankrupt. And it is held to be within the statute if he intentionally, and with a fraudulent purpose, omits from his schedule of assets (which must be sworn to) any material amount of property which should have been included,''^ but not where he fairly submitted the facts to his counsel, and, acting on advice then received, withheld a certain item from the schedule,^* and probably not where the item omitted was of very doubtful value or where the bankrupt's title to it was doubtful in law.^* This provision of the statute applies also to any false testimony which may be given by the bankrupt on his examination before the referee.*® And an indictment for perjury which alleges that the ac- 18 In re PolakofE, 1 Nat. Bankr. News, 573, Fed. Cas. No. 14,847. And see Lev- 232. inson v. United States (C. C. A.) 263 19 Bankruptcy Act 1898, § 29b. Fed. 257, 45 Am. Bankr. Kep. 303. 20 Rosenthal v. United States, 248 Fed. 24 in re Shoemaker, 4 Biss. 245, Fed. «84, 160 C. C. A. 584, 41 Am. Bankr. Rep. Cas. No. 12,799. 583. See Wechsler v. United States, 158 ^i> United States v. Coyle (D. O.) 229 I"ed. 579, 86 C. C. A. 37, 19 Am. Bankr. . Fed. 256; Wechsler v. United States, 158 Rep. 1. Fed. 579, 86 0. C. A. 37, 19 Am. Bankr. 21 Ulmer v. United States, 219 Fed. Rep. 1. A bankrupt who, on examina- 641, 134 C. O. A. 127, 34 Am. Bankr. Rep. tion in a bankruptcy proceeding, in an- 143. And see Lybrand v. United States swer to a question requiring a statement (O. C. A.) 269 Fed. 601, 46 Am. Bankr. of his assets, willfully fails to disclose Rep. 469. all of such assets, is guilty of making a «2 United States v. Nihols, 4 McLean, false oath under this provision of the 23, Fed. Cas. No. 15,880. statute. United States v. Gray (D. C.) 28 United States v. Conner, 3 McLean, 255 Fed. 98, 43 Am. Bankr. Rep. 158. § 789 LAW OF BANKRUPTCY 1532 cused gave false testimony before the referee in bankruptcy, is sus- tained by evidence that the hearing at which the accused testified was had in the referee's office, that the refejree administered the oath to the accused as a witness, and personally conducted part of the examination, while the rest was conducted by counsel, that all the testimony was taken by a stenographer, and that the referee was at all times in the same room, or in an adjacent or adjoining room, in the absence of any- thing to show that the referee was not within the hearing of the exam- ination at all times, as against the objection that the perjury was not committed before the referee in person, based on the statement of the stenographer, deduced from signs in her notes, that the referee was out of the room part of the time, but without any independent recollection on her part that such was the case.*® It is also held that since the stat- ute relates to false swearing in any "proceeding in bankruptcy," the of- fense here denounced may be committed by the bankrupt on his exam- ination before the referee on an investigation of specifications filed in opposition to his application for discharge.*' § 789. Receiving Property from Bankrupt. — Among the offenses denounced by the bankruptcy act is that committed by any person who shall have "knowingly and fraudulently * * * received any mate- rial amount of property from a bankrupt after the filing of the petition, with intent to defeat this act."** The essential elements of the offense are that the accused should have received property from the bankrupt (which implies the, complicity of the latter), that the property should be of substantial or material value, that the transfer should have been made after the filing of the petition in bankruptcy, that the transferee should have knowledge of the bankruptcy proceedings, and that the intention of the transferee (and necessarily of the bankrupt also) should be to defeat the operation of the bankruptcy act by withholding the property in question from administration under it. Prosecutions under this provision of the act do not appear to have been frequent. But at- tention may be called to a case in which, after the filing of a petition in bankruptcy, the bankrupt surrendered valuable mortgaged property to the trustee in the mortgage, the latter taking possession, and both were fined by the court of bankruptcy, as for contempt.*' § 790. Extortion.— The bankruptcy act makes it a crime for any person to have "extorted or attempted to extort any money or property 2 8 Kovoloff v. United States (C. C. A.) Am. Bankr. Hep. 284 202 Fed. 475, 28 Am. Bankr. Rep. 767. ^ =8 Bankruptcy Act 1898 § 29b cl 4 ■'■ Edelstein v. United States, 149 Fed. 20 In re Arnett, 112 Fed 770 7 Am G36, 79 C. C. A. 328, 17 Am. Bankr. Rep. Bankr. Rep 522 •'•".< ^"J. 049; In re Kretsch, 172 Fed. 523, 22 1533 CRIMES AND CRIMINAL PROCEDURE § 790 from any person as a consideration for acting or forbearing to act in bankruptcy proceedings." ** It is said that "the ordinary meaning of the word 'extortion' is the taking or obtaining of anything from another by means of illegal compulsion or oppressive exaction. * * * The word has acquired a technical meaning in the common law, and desig- nates a crime committed by an officer of the law, who, under color of his office, unlawfully and corruptly takes any money or thing of value that is not due him, or more than is due, or before it is due. The officer must unlawfully and corruptly receive such money or article of value for his own benefit or advantage." *^ Undoubtedly the provision above quoted would apply to those acting as officers in bankruptcy proceed- ings, and in addition, the federal laws make it a punishable offense for any officer of the United States to practise extortion upon any one, or to ask or receive any money or thing of value "with intent to have his decision or action on any question, matter, cause, or proceeding which may, at any time, be pending, or -which may be by law brought before him in his official capacity, or in his place of trust or profit, influenced thereby." »« But extortion is not necessarily confined to those acting in an offi- cial capacity. It seems plain that the offense denounced by the statute might be committed by a creditor who should exact and receive a pe- cuniary reward for assenting to a composition or forbearing to oppose the bankrupt's application for discharge. Buf there is room for doubt as to whether the statute would apply to action or forbearance to act in respect to the institution of the bankruptcy proceedings. If a cred- itor, for instance, hearing that bankruptcy proceedings against his debt- or were threatened or contemplated, should demand and receive some- thing over and above the payment of his own debt as a consideration for his forbearing to join in the proposed petition, it is doubtful whether he would commit a punishable ofifense. The natural import of the lan- guage of the act, "acting or forbearing to act in bankruptcy proceed- ings," is that there must be a bankruptcy proceeding in existence or pending, in reference to which the action or non-action takes place. It could hardly be satisfied by a bankruptcy proceeding merely contem- plated and which may not be instituted at all. And it has been held that, before any proceeding in bankruptcy has been commenced, a cred- itor may take from a third person a contract or security for the' payment of money, as an inducement to forbear instituting proceedings against 80 Bankruptcy Act 1898, § 29b, cl. 5. 32 Rev. Stat. U. S. §§ 5449, 5451, 5481, 31 United States v. Deaver, 14 Fed. 5501. 595. § 790 LAW OF BANKRUPTCY 1534 ilie debtor, without violating any provision of the bankruptcy law or contravening public policy.** But where the attorney for a trustee in bankruptcy at first took the course of arguing before the referee against the acceptance of a bid which had been made for the bankrupt's stock, on the ground that it was inadequate, and then compelled the bidder to pay him a sura of money in consideration of his changing his position and advising the referee to accept the bid, it was hqld that he was guilty of the offense of extortion under the bankruptcy act, and no defense could be found in the fact that he was legitimately entitled to use his influence and per- suasion with the trustee or the referee.** § 791. Conspiring with Bankrupt. — This is not directly made a pun- ishable offense by the terms of the bankruptcy act, though there is a reference in the statute to persons who are "participants" in any of the acts forbidden by the law.*^ But elsewhere it is provided that "if two or more persons conspire either to commit any offense against the United States, or to defraud the United States in any manner or for any purpose, and one or more of such parties do any act to effect the object of the conspiracy, all the parties to such conspiracy shall be liable to a penalty" and to imprisonment.** And under this statute it has been held that persons may be indicted for conspiring with a bankrupt to commit the acts made criminal by the bankruptcy law, although no one but the bankrupt himself is mentioned in that connection.*'' Thus, concealment of assets from the trustee in bankruptcy is an offense which can be committed only while there is a person in bankruptcy, and with his participation, but when it is so committed, not only the bankrupt is punishable, but also any others who aid and abet in the conceal- ment.** But since the statute does not make it a criminal offense for a person not a bankrupt to conceal the bankrupt's property from the trus- tee, an indictment does not state an offense when it charges that the defendants, who were not in any manner officially connected with the bankrupt corporation, either as directors or stockholders, conspired to conceal assets of the corporation from the trustee in bankruptcy (that is, conspired with each other, but not with the bankrupt or its officers), and in pursuance of such conspiracy removed the corporation's stock 3 3 Ecker v. Bohn, 45 Md. 278, 16 N. 8 7 United States v. Bayer, 4 Dill. 407, B. R. 544. And see, supra, §§ 157, 158. 13 N. B. R. 400, Fed. Oas. No. 14,547. 34 United States v. Dunkley (D. C.) 235 as United States v. Young & Holland Fed. 1000, 38 Am. Bankr. Rep. 127. Co., 170 Fed. 110, 22 Am. Bankr. Rep. so Bankruptcy Act 1898, § 1, cl. 19. 484; ICaufman v. United States, 212 Fed' 88 Rev. St U. S. § 5440. 613, 129 C. C. A. 149, Ann. Gas. 19160, 466, 32 Am. Bankr. Rep. 22. 1535 CRIMES AND CRIMINAL PEOCEDTJRH . § 793 of goods from its place of business and sold the same and concealed the proceeds.*® § 792. Offenses by Eeferees and Trustees. — Referees in bankruptcy are forbidden to act .officially in any case in which they are directly or indirectly interested, to purchase, directly or indirectly, any property of an estate in bankruptcy under their jurisdiction as referees, or to re- fuse to permit a reasonable opportunity for the inspection of the ac- counts relating to the affairs of, and the papers and records of, estates in their charge by parties in interest when directed by the court so to do. In either of these three cases, the offense must have been committed "knowingly." In either case, the punishment, upon conviction, is a fine of not more than five hundred dollars and forfeiture of the office of referee.** In regard to the second ofifense above named, it may be remarked that the prohibition of the statute would apply to a purchase by a referee, otherwise fair, at a public sale made by the trustee, as well as to a purchase by private sale from the trustee or from the bankrupt. As to trustees in bankruptcy, the provision is that "a person shall be punished by imprisonment for a period not to exceed five years, upon conviction of the offense of having knowingly and fraudulently appropriated to his own use, embezzled, spent, or unlawfully trans- ferred any property or secreted or destroyed any document belonging to a bankrupt estate which came into his charge as trustee." " It should be remarked that this offense exists solely by virtue of the bankruptcy act. Independently of that statute, there is no law of the United States providing for the punishment of a trustee in bankruptcy for the em- bezzlement of funds coming into his hands -as trustee.** As in the case of a referee, so also in the case of a trustee, it is a punishable offense to refuse parties in interest a reasonable opportunity to inspect the accounts, papers, and records of estates in bankruptcy committed to their charge, at least when directed by the court so to do, and in the case of the trustee, also, the penalty includes forfeiture of his office.*.* § 793. Jurisdiction. — The courts of bankruptcy are invested with jurisdiction to "arraign, try, and punish bankrupts, officers, and other persons, and the agents, officers, members of the board of directors or trustees, or other similar controlling bodies, of corporations, for viola- tions of this act, in accordance with the laws of procedure of the United States now in force, or such as may be hereafter enacted, regulating trials for the alleged violation of laws of the United States." ** The 8 United States v. Waldman, 188 Fed. *2 United States v. Bixby, 10 Bias. 238, 524, 26 Am. Bankr. Rep. 677. I 6 Fed. 375. 40 Bankruptcy Act 1898, § 29c. *3 Bankruptcy Act 1898, § 29c. 41 Bankruptcy Act 1898, § 29a. 4* BankruRtcy Act 1898, § 2, cL 4. § 794 LAW OP BANKRUPTCY 1536 bankruptcy, act also gave to the circuit courts of the United States "concurrent jurisdiction with the courts of bankruptcy, within their respective territorial limits, of the offenses enumerated in this act." *^ But since the abolition of the circuit courts by the Federal Judicial Code of 1911, this provision has become unimportant. Where a state statute makes it a punishable offense, under certain circumstances, for an in- solvent debtor to conceal his property, the proper state court is not deprived of jurisdiction to try and punish a person violating the statute by the fact that he afterwards becomes bankrupt and thereupon becomes liable to punishment under the bankruptcy act in respect to the same concealment of property.** § 794. Indictment or Information. — It was evidently the under- standing and intention of Congress that offenses against the bankruptcy law might be prosecuted by information, since that provision of the act which, limits the time within which prosecutions may be brought bare criminal proceedings "unless the indictment is found or the information is filed in court within one year after the commission of the offense." *' But the offenses denounced by the act (except those which may be com- mitted by referees or trustees in their official capacity) are punishable by imprisonment which may exceed one year in duration, and therefore, under section 335 of the Criminal Code of 1909, must be classed as fel- onies, and must be prosecuted by indictment.** In any prosecution under the act the first essential to be pleaded and proved is the adjudication in bankruptcy. Hence it is ruled that the indictment must set forth the proceedings in the court of bankruptcy with such particularity as to show affirmatively that an adjudication of bankruptcy was made in a case in which the court, describing it, had jurisdiction.** And an indictment which does not state the name of the court or the time or place where the proceedings were instituted is not sufficient.^ But it is not necessary to set forth in detail the petition in bankrup'tcy on which the adjudication was made, but only to refer to it Only the court where the positive act of 4s Kaufman v. United States, 212 Fed. converting or retaining the physical 613, 129 C. C. A. 149, Ann. Gas. 1916C, property was done has jurisdiction of 466, 32 Am. Bankr. Rep. 22. the offense of fraudulently concealing m United States v. Prescott, 2 Biss. property from the trustee in bankruptcy ; 325, Fed. Cas. No. 16,084. hence the court in which the petition in bo United States v. Latorre, 8 Blatchf bankruptcy was filed has no jurisdiction 134, Fed. Cas. No. 15,.o67.' But see of the offense of concealing property United States v. Demins, 4 McLean 3 which was never within the district. Fed. Cas. No. 14.945, holding an indlct- Gretsch v. United States, 231 Fed. 57, 145 ont for perjmv in a proceedin"- in bank 0. C. A. 245, 36 Am. Bankr. Rep. 571. ruptey sufficient in alleging th°e petition 4B Bankruptcy Act 1898, § 23c. as made "to a judge sitting as a bank- 4« State V. Thompson, 5.S N. H. 270. rupt court." 47 Bankruptcy Act 1S98, § 29d. 1537 CRIMES AND CRIMINAL PROCEDURE § 794 in such a manner as to show its character and object." And as an in- dictment need not ordinarily negative an exception, the jurisdiction of the court to make an adjudication in bankruptcy against the corporation in question may be sufficiently alleged without a particular averment that it was one of the classes of corporations made subject to the bank- ruptcy law."" And in fact, it has been held sufficient simply to allege that the defendant "was lawfully adjudged a bankrupt."®* In regard to the offense of concealing assets from the trustee, it is said that the word "conceal" is of plain import, and when coupled in an indictment with the words "unlawfully, knowingly, and fraudulently" clearly excludes unintentional acts ; that, as the provisions of the stat- ute relating to this offense set forth all the elements of the offense, an indictment in the words of the statute is sufficient; and that the par- ticular manner of concealment of the property in question need not be described in the indictment, as this is a matter of evidence and not of pleading.^ It is of course necessary to plead the time of the conceal- ment, sufficiently to show that it occurred while the defendant was in bankruptcy or after his discharge. But it is held that it may be laid as of any date when the concealment continues, and hence it is proper to charge the commission of the offense as of the date when the bankrupt refused to turn over the property in question to the trustee.®^ The own- ership of the property must be alleged. But an averment that the de- fendant concealed property "which then and there belonged to the es- tate in bankruptcy" sufficiently alleges the ownership of the property, and is not rendered insufficient or uncertain by the further averment that the property was "then and there the personal property of" the bankrupt, which must be construed in conjunction with the prior aver- ment, or, even if the two averments must be regarded as repugnant, the latter may be rejected as surplusage.®" So, where the indictment al- leged the concealment, some months after the adjudication, of property "all then and there the property of him the said bankrupt," it was held that the failure to allege specifically that the property concealed was the property of the bankrupt at the time of the adjudication was a de- fect o£ form only, and not of substance."' And an averment that the Bi United States v. Deming, 4 McLean, States v. Greenbaum (D. C.) 252 Fed. 259, 3, Fed. Cas. No.' 14,945. 42 Am. Banla-. Rep. 286; United States ■5 2 United States v. Freed, 179 Fed. v. Rhodes (D. C.) 212 Fed. 513. 236, 25 Am. Bankr. Rep. 89. b6 United States v. Stern, 186 Fed. 854, 5 3 United States v. Crane, 3 Cliff. 211, 26 Am. Bankr. Rep. 110. Fed. Cas. No. 14,887. oe United States v. Comstock, 161 Fed. 01 United States v. Oomstocls, 161 Fed. 644, 20 Am. Bankr. Rep. 520. See United 644, 20 Am. Bankr. Rep. 520; Meyer v. States v. Rosenstein (D. C.) 211 Fed. 738, United States, 220 Fed. 822, 136 O. O. 33 Am. Bankr. Rep. 730. A. 432, 33 Am. Bankr. Rep. 877 ; United st United States v. Jackson, 2 Fed. 502. Blk.Bkb.(3d Ed.)— 97 § 794 LAW OF BANKRUPTCY 1538 bankrupt "unlawfully, knowingly, willfully, and fraudulently" concealed the property carries with it a sufficient averment of his knowledge that such property belonged to his estate in bankruptcy.^ And it is not an essential element of this offense, such as must be averred in the indict- ment, that the bankrupt at the time of concealing the property knew ei- ther the fact that a trustee had been appointed for his estate or the name of the trustee.®* As to the ofifense of making a false oath in bankruptcy by swear- ing to a schedule pi assets known to be false or incomplete, the indict- ment must allege the facts concerning the omission or understatement of assets sufficiently to show the materiality of the false statement, but need riot expressly aver that it was material.®" The particular property claimed to have been fraudulently and knowingly omitted from the schedule must be described in the indictment, but an allegation that it consisted of "one hundred and fifty- thousand dollars in lawful money of the United States" is sufficiently specific.*"^ But it will not do to allege that the bankrupt knew that his schedule was false and that he knew that he was the owner of a specified sum of money in addition to what was mentioned in the schedule. It is not the bankrupt's knowledge that is in question in this averment, but the fact itself. vHence the indict- ment must charge directly that he did have other property than that listed in the schedule.®^ In an indictment for perjury committed in an examination or other proceeding in bankruptcy, if it is founded on the general provision of the federal criminal law as to perjury,** it is essential to allege that the false oath was taken "willfully," and the omission of this word is a fatal defect.** But where the alleged perjury consists in not giving a full and true account of his property by the bankrupt, the items on the sched- ule need not be set out in the indictment.*® And an indictment is suffi- cient which, after alleging the prior proceedings and that an examina- tion of the bankrupt was held and that he was sworn to make true an- swers, avers that he attempted, to account for a certain item of prop- erty, with intent to defraud his creditors, by a fictitious loss.** So an indictment which charges that defendant committed perjury when he 5 8McNiel V, United States (C. C. A.) 02 Bartlett; v. United States, 106 Fed. 150 Fed. 82, 18 Am. Bankr. Eep. 18. 884, 46 C. C. A. 19, 5 Am. Bankr. Rep. -■oUuited^States V, Comstock, 161 Fed. 678. 644, 20 Am. Bankr. Rep. 520. es Rev. Stat. V. S. § 5392, U. S. Comp. 00 United States v. Lake, 129 Fed. 499, Stat. 1901, p. 3653. 12 Am. Bankr. Rep. 270. And see United 04 United States v. I.ake, 129 Fed. 499, States V. Coyle (D. 0.) 229 Fed. 256 ; Ul- 12 Am. Bankr. Rep. 270. mer v. United States, 219 Fed. 641, 134 as United States v. Chapman, 3 Mc- C. 0. A. 127, 34 Am. Bankr. Rep. 143. Lean, 3,90, Fed. Cas. No. 14,784. «i United States v. Lake, 129 Fed. 499, eo United States v. Crane, 3 Cliff. 211, 12 Am. Bankr. Rep. 270. Fed. Cas. No. 14,887. 1539 • CRIMES AND CRIMINAL PROCEDURE § 795 swore that his books were burned on a certain day in April ; that instead of being burned on that day they were in existence and in his posses- sion as late as November following; and that he knew that he was making a false oath when he swore that they were burned in April, is good and sufficient, the defects, if any, being merely in matter of form not prejudicial to the defendant.*' But where an indictment for con- spiracy to conceal the assets of a bankrupt corporation from its trustee alleged, as the overt act, that defendants removed and sold the bank- rupt's stock of goods and concealed the proceeds from the trustee, but did not allege any of the circumstances under which the goods were re- moved, so as to show that the removal was illegal and not under legal process, it was held insufficient.** § 795. Burden of Proof and Evidence. — In a prosecution of a bank- rupt for the offense of concealing assets from his trustee, the burden is on the government to establish the defendant's guilt -beyond , a reason- able doubt, and where the charge concerns property which he had pre- viously transferred, he is entitled to the presumption of law that he acted legally and in good faith in conveying it.** Yet if the evidence traces valuable property into the recent possession of the bankrupt, and then shows'that he has failed to surrender it or account for it, it is in- cumbent on him to give a reasonable and credible account of its disap- pearance or disposition, and the jury will not be bound to accept his bare denial under oath.'* In regard to the nature of the evidence admis- sible, it may be remarked that concealment of assets, like other offenses denounced by the bankruptcy law, may be proved by circumstantial evi- dence. "The evidence in such cases must accommodate itself to the issue to be tried, and be such as, in the practical affairs of life, tends to produce belief and conviction in the minds of those to whom such evi- dence is addressed. In other words, the evidence must in general be largely, if not wholly, circumstantial, and be in large measure gov- erned by what the trial court in its judicial discretion shall consider its OT Kovoloff V. United States' (C C. A.) 212 Fed. 613, 129 C. O. A. 149, Ann. Gas. 202 Fed. 475, 28 Am. Bankr. Rep. 767. 1916C, 466, 32 Am. Bankr. Rep. 22. 68 United States v. Waldman, 188 Fed. 7o in re Lasky, 163 Fed. 99, 20 Am. 524, 26 Am. Bankr. Rep. 677. Bankr. Rep. 729 ; United States v. Stem, 6 Chodkowski v. United States, 194 186 Fed. 854, 26 Am. Bankr. Rep. 110; Fed. 858, 114 C. C. A. 624, 28 Am. Bankr. Stern v. United States, 193 Fed. 888, 114 Rep. 62. In a prosecution of the presi- C. C. A. 102, 28 Am. Bankr. Rep. 101 ; dent and manager of a bankrupt corpora- Glass v. United States, 231 Fed. 65, 145 tion for aiding and abetting it in the C. C. A. 253, 36 Am. Bankr. Rep. 550; concealment of assets from its trustee, Terry v. United States, 235 Fed. 701, 149 the fact that there was no evidence that O. O. A. 121, 37 Am. Bankr. Rep. 666 ; the defendant was holding the money for Wolf v. United States, 238 Fed. 902, 152 the bankrupt did not Impair the govern- C. C. A, 36, 39 Am. Bankr. Rep. 107. raent's ease. Kaufman v. United States, § 795 LAW OF BANKBUPTCT • 1540 appropriateness to the issue presented in a particular case." " But of course the court must also apply the ordinary rules for excluding evi- dence which is immaterial or too remote for consideration.'* In a case of this kind, it is not improper to admit evidence of the amount and value of the defendant's stock in trade a few days prior to the filing of the petition in bankruptcy and also a short time afterwards,'* and the trustee may testify that he was never informed by the bankrupt that property belonging to him was stored in a particular place, the property described in the indictment having been found by the trustee in that place.'* To prove a continuous concealment of property, it is not nec- essary to take up each moment of the bankrupt's life while the proceed- ings lasted, and prove what he did as a means of proving what he failed to do,'® nor is it necessary to prove the concealment of each and every article or sum of money set forth in the indictment, but proof of the concealment of any part of the property or money described is sufficient to sustain a conviction.'* And it is not necessary to prove that a de- mand for the surrender of the property was made by the trustee." But it is absolutely essential to show a valid adjudication in bankruptcy. Without this a conviction cannot stand. Concealment of assets from a de facto trustee is not within the statute.'" It has been held that, on a prosecution of a bankrupt for concealing property, the schedules filed by him in the bankruptcy proceeding are not admissible in evidence against him.'* These decisions were rested upon an act of Congress which provides that no pleading of a party, nor any discovery or -evidence obtained from a party or witness by means of a judicial proceeding, shall be given in evidence or in any man- ner used against him in any criminal proceeding in any court of the United States.** But this statute has been repealed since the decisiSn Ti Stern v. United States, 193 Fed. 74 Johnson v. United States, 170 Fed. 888, 114 C. C. A. 102, 28 Am Bankr. Rep. 581, 95 C. C. A. 661, 22 Am. Bankr. Rep. 101. Where it appeared that the bank- 3.59. rupt, shortly before his ad,1«dication, fs Johnson v. United States, 163 Fed. converted into money merchandise which 30, 89 O. C. A. 508, 20 Am. Baakr. Rep. he had bought on credit, evidence of 724. conversations by the bankrupt at the 7 6 United States v. Stern, 186 Fed. 854, time of disposing of the merchandise 26 Am. Bankr. Rep. 110. vras admissible. Green v. United States, tt United States v. Smith, 13 N. B. R. 240 Fed. 949, 153 O. C. A. 635, .39 Am. 61, Fed. Cas. No. 16,339. Bankr. Rep. 637. ^s Gilbertson v. United States, 168 Fed. 72 Bean v. United States, 192 Fed. 859, 672, 94 C. C. A. 158, 22 Am. Bankr. Rep 113 C. O. A. 183, 27 Am. Bankr. Rep. 759 ; 32. McNiel V. United States (C. C. A.) 150 to Johnson v. United States, 163 Fed. Fed. 82, 18 Am. Bankr. Rep. 18. And see 30, 89 C. C. A. 508, 20 Am. Bankr, Rep.' Meyer v. United States, 220 Fed. 822, 724; Cohen v. United States, 170 Fed. 136 C. O. A. 432, 33 Am. Bankr. Rep. 877. 715, 96 C. C. A. 35, 22 Am. Bankr Rep 7 3 Jacobs V. United States (0. C. A.) S33. 161 Fed. 694, 20 Am. Bankr. Rep. 550. so Rev. Stat. U. S. § 860, U S Oomp St. 1901, p. 661. 1541 CRIMES AND CRIMINAL PROCBDURB § 795 of the cases above cited."* It is true the bankruptcy law also contains a provision for the protection of the bankrupt. In providing for his examination in bankruptcy concerning his property, business, and af- fairs, it directs that "no testimony given by him shall be offered in evi- dence against him in any criminal proceeding." *^ But the Supreme Court of the United States holds that the protection afforded by this provision extends only to the testimony given by the bankrupt on his examination under that section of the bankruptcy law, and does not render inadmissible, on a criminal prosecution, the schedules filed by him in the bankruptcy proceeding.*^ But it may be open to serious question whether the broad provision of the fifth amendment to the federal Constitution would not protect the bankrupt against the ad- mission of his schedules in evidence against him in a criminal case in a federal court. This question is not precluded by the decision of the Supreme Court above mentioned, because the prosecution there con- sidered, and in which the schedules were held admissible, was not in a federal court, but in a state court (where the fifth amendment does not apply), and was not for an offense under the bankruptcy law, but for a violation of a state statute forbidding bankers to receive deposits when insolvent. Returning to the privilege of immunity granted by the seventh sec- tion of the bankruptcy act, it is held that this does not protect the bank- rupt from prosecution for perjury committed in the course of the exam- ination therein referred to,** nor from a prosecution for testifying falsely in a proceeding to investigate the truth of specifications filed in oppo- sition to his application for discharge.*^ The crime of false swearing in bankruptcy proceedings is an entirely different offense from perjury at common law or under the federal crim- inal code, and it was not regarded by Congress as of equal enormity or of an equally aggravated character as perjury strictly so called. Hence it is not within the ancient rule of the common law that, to sustain a conviction of perjury, it must be proved by two witnesses, or by one witness with corroborating circumstances ; and evidence which not only contradicts the defendant's testimony, but so far preponderates as to justify the jury in finding that the testimony in question was not only false, but was made or given by the defendant knowingly and fraudu- 81 Act Cong. May 7, 1910, .36 Stat. Green (D. 0.) 220 Fed. 973, 34 Am. BanUr. .352, U. S. Gomp. Stat. Supp. 1911, p. Rep. 405. 272. '* Wechsler v. United States, 1.58 Fed. 8= Bankniptcy Act 1898, § 7, cl. 9. 579. 86 C. 0. A. 37, 19 Am. Bankr. Rep. 1. 8 3 Ensign v. Pennsylvania, 227 U. S. »-'Edelstein v. United Staffs, 149 Fed. 592, 33 Sup. Ct. 321, 57 L. Ed. 658, 30 636, 79 O. C. A. 32S, 17 Am. Bankr. Hep. Am. Bankr. Rep. 408; United States v. 649. § 795 LAW OF BANKRUPTCT 1542 lently, is enough to sustain a conviction.*® In a prosecution for mak- ing false oaths in a proceeding in bankruptcy, the judgment roll in a previous action, to which defendant was a party, is admissible as bear- ing on his motive and the reason for his testimony in the bankruptcy proceeding.*'' So, the books of a bankrupt corporation, with explanatory testimony of accountants, and statements of the corporation made to credit companies, of which defendant had knowledge, are admissible in a prosecution for falsely claiming that payments made by defendant to the bankrupt were loans and not for the purchase of stock.** And in a prosecution for perjury committed by defendant in his examination concerning the estate of a bankrupt, evidence of defendant's confiden- tial relations with the bankrupt are admissible to show motive.*® 86 Kahn v. TJnited States, 214 Fed. 54, ss Levinson v. United States (C. C. A.) 130 C. C. A. 494, 32 Am. Bankr. Rep. 109. 263 Fed. 257, 45 Am. Bankr. Rep. 305. 87 Hopkins v. United States, 234 Fed. 89 Ulmer v. United States, 219 Fed. 8P7. 148 0. 0. A. 465, 37 Am. Bankr. Rep. 641, 134 O. C. A. 127, 34 Am. Bankr. Rep. 767. 143. APPENDIX UNITED STATES BANKRUPTCY LAW OK JULY 1, 1898 AND AMENDMENTS THERETO TO JANUARY 28, 1915^ CHAPTER I. DEFINITIONS. Section 1. Meaning or Woeds and Phrases. — a The words and phrases used in this Act and In proceedings pursuant hereto _„. shall, unless the same be inconsistent with the context, be con- son against strued as follows: (1) "A person against whom a petition has who™ a peu- been filed" shall include a person who has filed a voluntary peti- aied." tion; (2) "adjudication" shall mean the date of the entry of a — "adjudi- decree that the defendant, in a bankruptcy proceeding, is a bank- cition." rupt, or if such decree is appealed from, then the date when such _,, decree is finally confirmed ; (3) "appellate courts" shall include late *ourts.'' the circuit courts of appeals of the United States, the supreme courts of the Territories, and the Supreme Court of the United _, States; (4) "bankrupt" shall include a person against whom an riipt."*" involuntary petition or an application to set a composition aside or to revoke a discharge has been filed, or who has filed a vol- _„ untary petition, or who has been adjudged a bankrupt ; (5) "clerk" _ ° ^^ ' shall mean the clerk of a court of bankruptcy; (6) "corporations" rations"' ''°' shall mean all bodies having any of the powers and privileges of private corporations not possessed by Individuals or partner- ships, and shall include limited or other partnership associations organized under laws making the capital subscribed alone respon- sible for the debts of the association ; (7) "court" shall mean the —"court," court of bankruptcy in which the proceedings are pending, and may include the referee ; (8) "courts of bankruptcy" shall include —"courts the district courts of the United States and of the Territories, o^.Jankrupt- the supreme court of the District of Columbia, and the United »The text of the Bankruptcy Act of 1898 is here reprinted in full, together with all amendments. The original text of the statute Is printed in Boman characters. Sections and parts of sections amended are enclosed in brackets. The amendatory matter, or sub- stituted new section or part of a section, follows immediately alter the part amended, and is printed in Italic characters. The successive amendments to the act were approved Feb- ruary 5, 1903 (32 Stat. 797), June 6, 1906 (34 Stat. 267), June 25, 1910 (36 Stat. 838), and January 28, 1915 (38 Stat. 804). Blk.Bkb.(3d Ed.) (1543) 1544 APPENDIX (Chap. I —"credi- tor." —"date of bankruptcy;" "bankrupt- cy," etc. —"debt." — "d I 8 - charge." — "d o u - ment." —"hoi 1- day." — when deemed "In- solvent." —"judge." —"oath." —"officer." — " p e r ■ sons." — "petl tion." - "p e f- eree." — " e n - ceaL" — "secured creditor." —"States." — "trans- fer." — "tr u s - tee." -"wage- earner." Words In masculine gender. — Import- ing, plural. -Import- ing, singular. States court of the Indian Territory, and of Alaska ; (9) "cred- itor" shall include anyone who owns a demand or claim provable in bankruptcy, and may include his duly authorized agent, at- torney, or proxy; (10) "date of bankruptcy," or "time of bank- ruptcy," or "commencement of proceedings," or "bankruptcy," with reference to time, shall mean the date when the petition was filed ; (11) "debt" shall include any debt, demand, or claim prov- able In bankruptcy; (12) "discharge" shall mean the release of a bankrupt from all of his debts which are provable in bank- ruptcy, except such as are excepted by this Act ; (13) "document" shall include any book, deed, or instrument in writing ; (14) "holi- day" shall include Christmas, the Fourth of July, the Twenty- second of February, and any day appointed by the President of the United States or the Congress of the United States as a holiday or as a day of public fasting or thanksgiving; (15) a person shall be deemed insolvent within the provisions of this Act whenever the aggregate of his property, exclusive of any prop- erty which he may have conveyed, transferred, concealed, or re- moved, or permitted to be concealed or removed, with intent to defraud, hinder or delay his creditors, shall not, at a fair valua- tion, be sufficient in amount to pay his debts ; (16) "judge" shall mean a judge of a court of bankruptcy, not including the ref- eree; (17) "oath" shall include affirmation; (18) "officer" shall include clerk, marshal, receiver, referee, and trustee, and the im- posing of a duty upon or the forbidding of an act by any officer shall include his successor and any person authorized by law to perform the duties of such officer ; (19) "persons" shall include cor- porations, except where otherwise specified, and officers, partner- ships, and women, and when used with reference to the commis- sion of acts which are herein forbidden shall include persons who are participants in the forbidden acts, and the agents, officers, and members of the board of directors or trustees, or other sim- ilar controlling bodies of corporations ; (20) "petition" shall mean a paper filed in a court of bankruptcy or with a clerk or deputy clerk by a debtor praying for the benefits of this Act, or by cred- itors alleging the commission of an act of bankruptcy by a debtor therein named; (21) "referee" shall mean the referee who has jurisdiction of the case or to whom the case has been referred, or any one acting in his stead; (22) "conceal" shall include se- crete, falsify, and mutilate; (23) "secured creditor" shall include a creditor who has security for his debt upon the property of the bankrupt of a nature to be assignable under this Act, or who owns such a debt for which some indorser, surety, or other per- sons secondarily liable for the bankrupt has such security upon the bankrupt's assets; (24) "States" shall Include the Territo- ries, the Indian Territory, Alaska, and the District of Columbia; (25) "transfer" shall include the sale and every other and different mode of disposing of or parting with property, or the possession of property, absolutely or conditionally, as a payment, pledge, mortgage, gift, or security; (26) "trustee" shall include all of the trustees of an estate; (27) "wage-earner" shall mean an In- dividual who works for wages, salary, or hire, at a rate of com- pensation not exceeding one thousand five hundred dollars per year ; (28) words importing the masculine gender may be applied to and include corporations, partnerships, and women ; (29) words Importing the plural number may be applied to and mean only a single person or thing; (30) words Importing the singular num- ber may be applied to and mean several persons or thing*. § 2) V. a. BANKEUPTCX LAW OF JULY 1, 1898 1545 CHAPTER II. CEEATION OF COUBTS OT BANKRUPTCY AND THBIK JUEISDICTIOW. bankruptcy.**' Sec. 2. That the courts of bankruptcy as hereinbefore defined, — u. s. Dls- viz, the district courts of the United States in the several States, ''■'°' <=°"'''^- the supreme court of the District of Columbia, the district courts —supreme of the several Territories, and the United States courts in the court, D. c. Indian Territory and the District of Alaska, are hereby made _Territo- courts of bankruptcy, and are hereby invested, within their re- rial courts, spective territorial, limits as now established, or as they may be hereafter changed, with such jurisdiction at law and in equity as jurisaio- will enable them to exercise original jurisdiction in bankruptcy tlon. proceedings, in vacation in chambers and during their respective terms, as they are now or may be hereafter held, to (1) adjudge persons bankrupt who have had their principal place of business, judge bank- resided, or had their domicile within their respective territorial r^nU jurisdictions for the preceding six months, or the greater por- tion thereof, or who do not have their principal place of business, reside, or have their domicile vrithin the United States, but have property within their jurisdictions, or who have been adjudged bankrupts by courts of competent jurisdiction without the United States, and have property vrithin their jurisdictions; (2) allow claims, disallow claims, reconsider allowed or disallowed claims, ai^a'uow*"^ and allow or disallow them against bankrupt estates ; (3) ap- claims, etc. point receivers or the marshals, upon application of parties in —appoint interest, in case the courts .shall find it absolutely necessary, g^^_ for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified; (4) arraign, try, and punish bank- _. rupts, officers, and other persons, and the agents, officers, mem- punlsif bank- bers of the board of directors or trustees, or other similar con- rupts, etc. trolling bodies, of corporations for violations of this Act, in ac- cordance with the laws of procedure of the United States now in, force, or such as may be hereafter enacted, regulating trials for the alleged violation of laws of the United States ; [(5) authorize _. _--_,<* the business of bankrupts to be conducted for limited periods by temporary receivers, the marshals, or trustees, if necessary in the best in- transaction terests of the estates;] (5) Authorize the business of hankrujits to 6e conducted for limited periods by receivers, the marshals, or trustees, if necessary in the best interests of the estates, and al- low such officers additional compensation for such services, but not at a greater rate than in this Act allowed trustees for sint- ilar services (amendment of 1903) ;. authorize the business of banlcrupts to be conducted for limited periods by receivers, the marshals, or trustees, if necessary in the best interests of the estates, and allow such officers additional compensation for such services, as provided in section forty-eight of this Act (amend- ment of 1910) ; (6) bring in and substitute additional persons or _to substi- parties in proceedings in bankruptcy when necessary for the J."*^, ^^^^' complete determination of a matter in controversy ; (7) cause the sons^ in 'pro- estates of bankrupts to be collected, reduced to money and dis- ceedlngs, etc. tributed, and determine controversies in relation thereto, except — t" collect as herein otherwise provided ; (8) close estates, whenever it ap- u?e^as^'ets.'*" pears that they have been fully administered, by approving the _to closn final accounts and discharging the trustees, and reopen them estatea. whenever it appears they were closed before being fully admin- 1546 APPENDIX (Chap. II -^0 con- Brm or reject composi- tions. — to modi- fy, etc., ref- erees* find- ings. —deter- mine exemp- tions. — dls- cliarge banlc- rupts, etc. — enforce orders. — extradite bankrupts. — malce or- ders. — punisli for contempt, —appoint trustees. —tax costs. —transfer - cases. Unspeci- fied powers. istered ; (9) confirm or reject compositions between debtors and their creditors, and set aside compositions and reinstate the cas- es ; (10) consider and confirm, modify or overrule, or return, with instructions for further proceedings, records and findings certi- fied, to them by referees; (11) determine all claims of banlirupts to their exemptions; (12) discharge or refuse to discharge bank- rupts and set aside discharges and reinstate the cases; (13) en- force obedience by bankrupts, officers, and other persons to all lawful orders, by fine or imprisonment or fine and imprisonment; (14) extradite bankrupts from their respective districts to other districts; (15) make such orders, issue such process, and enter such judgments in addition to those specifically provided for as may be necessary for the enforcement of the provisions of this Act; (16) punish persons for contempts committed before ref- erees; (17) pursuant to the recommencjation of creditors, or when they neglect to recommend the appointment of trustees, appoint trustees, and upon complaints of creditors, remove trus- tees for cause upon hearings and after notices to them ; (18) tax costs, whenever they are allowed by law, and render judgments therefor against the unsuccessful party, or the successful party for cause, or in part against each of the parties, and against es- tates, in proceedings in bankruptcy ; and (19) [transfer cases to other courts of bankruptcy.] Transfer cases to other courts of bankruptcy; and (20) exercise ancillary jurisdiction over per- sons or property vnthin their respective territorial limits in aid of a receiver or trustee appointed in any bankruptcy proceedings pending in any other court of hankruptcy. (Amendment of 1903.) Nothing in this section contained shall be construed to deprive a court of bankruptcy of any power it would possess were certain specific powers not herein enumerated. CHAPTER III, Bankrupts. BANKETJPTS. Acts of banlu'uptcy. — of wiiat to consist. Sec. 3. Acts or Banketjptct. — a Acts of bankruptcy by a per- son shall consist of his having (1) conveyed, transferred, con- cealed, or removed, or permitted to be concealed or removed, any part of his property with intent to hinder, delay, or defraud his creditors, or any of them; or (2) transferred, while insolvent, any portion of his property to one or more of his creditors with Intent to prefer such creditors over his other creditors; or (3) suffered or permitted, while insolvent, any creditor to obtain a preference through legal proceedings, and not having at least five days before a sale or final disposition of any property affected by such preference vacated or discharged such preference ; or [(4) made a general assignment for the benefit of his creditors;] or (4) made a general assignment for the benefit of his creditor's, or, being insolvent, applied for a receiver or trustee for his property or because of insolvency a receiver or trustee has been put in charge of his property under the laws of a State, of a Territory, or of the United States (amendment of 1903) ; or (5) admitted in writing his inability to pay his debts and his willingness to be adjudged a bankrupt on that ground. h/fliid''with° ^ -*■ P^t^t^o'i ^'^y ^^ ^le<^ against a person who is insolvent and in 4 months, who has committed an act of bankruptcy within four months aft- er the commission of such act. Such time shall not expire untU § 4) U. S. BANKRUPTCY LAW OF JULY 1, 1898 1547 ffiur months after (1) the date of the recording or registering of T''"'™ the transfer or assignment when the act consists in having made date." a transfer of any of his property with Intent to hinder, delay, or idefraud his creditors or for the purpose of giving a preference as hereinbefore provided, or a general assignment for the benefit of his creditors, if by law such recording or registering is required or permitted, or, if It is not, from the date when the beneficiary takes notorious, exclusive, or continuous possession of the prop- erty unless the petitioning creditors have received actual notice of such transfer or assignment. c It shall be a complete defense to any proceedings in bank- Defense oi solvGncy ruptcy instituted under the first subdivision of this section to allege and prove that the party proceeded against was not insol- vent as defined in this Act at the time of the filing the petition against him, and if solvency at such date is proved by the alleged bankrupt the proceedings shall be dismissed, and under said sub- division one the burden of proving solvency shall be on the al- —burden o£ leged bankrupt. J"'"''- d Whenever a person against whom ft petition has been filed as hereinbefore provided under the second and third subdivisions of this section takes issue with and denies the allegation of his Person Insolvency, it shall be his duty to appear in court on the hearing, foivenoy.'"" with his books, papers, and accounts, and submit to an examlna- , tlon, and give testimony as to all matters tending to establish —to testi- solvency or insolvency, and in case of his failure to so attend and ^^' submit to examination the burden of preying his solvency shall pr^oil'eto! ° rest upon him. e Whenever a petition is filed by any person for the purpose of having another adjudged a bankrupt, and an application is made to take charge of and hold the property of the alleged bank- rupt, or any part of the same, prior to the adjudication and pend- ing a hearing on the petition, the petitioner or applicant shall Petitioner file in the same court a bond with at least two good and suffi- Sl''^ bond, cient sureties who shall reside within the jurisdiction of said court, to be approved by the court or a judge thereof. In such sum as the court shall direct, conditioned for the payment, in case such petition is dismissed, to the respondent, his or her per- sonal representatives, all costs, expenses, and damages occasioned —liability by such seizure, taking, and detention of the property of the al- "" ''°^^' * "■ leged bankrupt. If such petition be dismissed by the court or withdrawn by. the petitioner, the respondent or respondents shall be allowed all — aiio-wanoe costs, counsel fees, expenses, and damages occasioned by such °' °°^^' *'°" seizure, taking, or detention of such property. Counsel fees. Counsel costs, expenses, and damages shall be fixed and allowed by the be 'fixed' by court, and paid by the obligors in such bond. court. Sec. 4. Who May Become Bankrupts. — a [Any person who Wbo may owes debts, except a corporation, shall be entitled to the benefits Jw™® bank- of this Act as a voluntary bankrupt.] Any person, except a mu- _yoiun. nicipal, railroad, insurance, or hanking corporation, shall he en- tary. titled to the benefits of this Act as a voluntary bankrupt. (Amendment of 1910.) [b Any natural person, except a wage-earner or a person en- — involun- gaged chiefly in farming or the tillage of the soil, any unincor- "'* porated company, and any corporation engaged principally in manufacturing, trading, printing, publishing, or mercantile pur- suits, owing debts to the amount of one thousand dollars or over. 1548 APPENDIX (Chap, m may be adjudged an involuntary bankrupt upon default or an impartial trial, and shall be subject to the provisions and entitled to the benefits of this Act. Private bankers, but not national banks or banks incorporated under State or Territorial laws, may be adjudged involuntary bankrupts.] b Any natwral person, except a wage-earner, or a person engaged chiefly in farming or the tillage of the soil, any unincorporated company, and any corporation engaged principally in manufacturing, trading, print- ing, punishing, nvining, or mercantile pursuits, owing dehts to the amount of one thousand dollars or over, may be adjudged an involuntary bankrupt upon default or an impartial trial, and shall be subject to the provisions and entitled to the benefits of this Act. Private banlcers, but not national banlcs or banTcs in- corporated under State or T&rritorial laws, may be adjudged in- voluntary bankrupts. The bankruptcy of a corporation shall not release its officers, directors, or stockholders, as such, from any liability under the laws of a State or Territory or of the United States. (Amend- ment of 1903.) Any natural person, except a wage-earner or a person engaged chiefly in farming or the tillage of the soil, any unincorporated company, and any moneyed, business, or commercial corporation, except a municipal, railroad, insurance, or banking corporation, owing debts to the amount of one thousand dollars or over, may be adjudged an involuntary bankrupt upon default or an impartial trial, and shall be subject to the provisions and entitled to the benefits of this Act. The bankruptcy of a corporation shall not release its officers, directors, or stockholders, as such, from any liability under the laws of a State or Territory or of the United States. (Amend- ment of 1910.) Partner- ^^"^ ^- Paktnebs. — a A partnership, during the continuation of ship. the partnership business, or after its dissolution and before the final settlement thereof, may be adjudged a bankrupt. — adminia- b The creditors of the partnership shall appoint the trustee ; tration of es- j^ other I'espects so far as possible the estate shall be adminis- tered as herein provided for other estates. — jurisdio- '^ '^^® court of bankruptcy which has jurisdiction of one of the Hon over one partners may have jurisdiction of all the partners and of the cient!^'^ ^"** administration of the partnership and individual property. —trustee's dThe trustee shall keep separate accounts of the partnership duty. property and of the property belonging to the Individual partners. eThe expenses shall be paid from the partnership property and the individual property in such proportions as the court shall determine. _ f The net proceeds of the partnership property shall be appro- of partnOT° prlated to the payment of the partnership debts, and the net ship debts, proceeds of the individual estate of each partner to the payment —payment of his individual debts. Should any surplus remain of the prop- oi Individual grty of any partner after paying his individual debts, such sur- debts. pj^g gjjg^jj jjg added to the partnership assets and be applied to oI~partnOT- the payment of the partnership debts. Should any surplus of the ship proper- partnership property remain after paying the partnership debts, ''• such surplus shall be added to the assets of the individual part- ners in the proportion of their respective interests in the part- nership. § 7) U. S. BANKRUPTCY LAW OF JULY 1, 1898 1549 g The court may permit the proof of the claim of the partner- CiaimB of ship estate against the individual estates, and vice versa, and agaSst iiSli- may marshal the assets of the partnership estate and individual viduai e»- estates so as to prevent preferences and secure the equitable dis- ' trlbution of the property of the several estates. h In the event of one or more but not all of the members of Adminis- a partnership being adjudged bankrupt, the partnership property tration of es- shall not be administered in bankruptcy, unless by consent of the *f'® pa/tifers partner or partners not adjudged bankrupt ; but such partner or are not partners not adjudged bankrupt shall settle the partnership busi- I'^n^'^Pt- ness as expeditiously as its nature will permit, and account for the interest of the partner or partners adjudged bankrupt. Sec. 6. Exemptions of Bankbupts. — a This Act shall not af- Exemp- fect the allowance to bankrupts of the exemptions which are Uon "' •"^n*- prescribed by the State laws in force at the time of the filing of "^ ' ' the petition in the State wherein they have had their domicile for the six months or the greater portion thereof Immediately preceding the filing of the petition. Sec. 7. Duties of Bankrupts. — a The bankrupt shall (1) at- Duties of tend the first meeting of his creditors, if directed by the court specified.^ or a judge thereof to do so, and the hearing upon his application for a discharge, If filed ; (2) comply with, all lawful orders of the court; (3) examine Hhe correctness of all proofs of claims filed against his estate; (4) execute and deliver such papers as shall be ordered by the court; (5) execute to his trustee transfers of all his property in foreign countries ; (6) immediately inform hi^ trustee of any attempt, by his creditors or other persons, to evade the provisions of this Act, coming to his knowledge; (7) in case of any person having to his knowledge proved a false claim against his estate, disclose that fact immediately to his trustee; (8) prepare, make oath to, and file in court within ten days, un- less further time is granted, after the adjudication, if an invol- untary bankrupt, and with the petition if a voluntary bankrupt, a schedule of his property, showing the amount and kind of prop- erty, the location thereof, its money value in detail, and a fist of his creditors, showing their residences, if known, if unknown, that fact to be stated, the amounts due each of them, the con- sideration thereof, the security held by them, if any, and a claim for such exemptions as he may be entitled to, all in triplicate, one copy of each for the clerk, one for the referee, and one for the trustee; and (9) when present at the first meeting of his cred- itors, and at such other times as the court shall order, submit to an examination concerning the conducting of his business, the cause of his bankruptcy, his dealings with his creditors and other persons, the amount, kind, and whereabouts of his property, and, in addition, all matters which may affect ithe administration and settlement of his estate; but no testimony given by him shall be offered in evidence against him in any criminal proceeding. Provided, However, That he shall not be required to attend a ^^m no"'"'' meeting of his creditors, or at or for an examination at a place compeilea to more than one hundred and fifty miles distant from his home or f"™^ meet- principal place of business, or to examine claims except when J presented to him, unless yrdered by the court, or a judge thereof, claims. for cause shown, and the bankrupt shall be paid his actual ex- Expenses penses from the estate when examined or required to attend at '°i' attenajng any place other than the city, town, or village of his residence. ""^^ '^^' 1550 APPENDIX (Chap, m Death or Sec. 8. DEATH OR Insanitt of Bankktjpts. — a The death or bal\rapts °* insanity of a bankrupt shall not abate the proceedings, but the -not to same shall be conducted and concluded in the same manner, so abate pro- far as possible, as though he had not died or become insane: ceedings. Provided, That in case of death the widow and children shall be e^Tt?ed to entitled to all rights of dower and allowance fixed by the laws of dower, etc. the State of the bankrupt's residence. Protection Sec. 9. PROTECTION AND Detention of Bankeupts. — a A bank- tion'^otlTank- rupt shall be exempt from arrest upon civil process except in the rupts. following cases: (1) When Issued from a court of bankruptcy for Exemption contempt or disobedience of its lawful orders; (2) when issued from arrest, f j^^ ^ gfj^jg. ^Qy^t having jurisdiction, and served within such State, upon a debt or claim from which his discharge in bank- ruptcy would not be a release, and in such case he shall be ex- empt from such arrest when in attendance upon a court of bank- ruptcy or engaged in the performance of a duty imposed by this Act. Detention b The Judge may, at any time after the filing of a petition by or o7 examtal- against a person, and before the expiration of one month after Hon. the qualification of the trustee, upon satisfactory proof by the affidavits of at least two persons that such bankrupt is about to leave the district in which he resides or has his principal place of business to avoid examination, and that his departure vrill de- feat the proceedings in bankruptcy, issue a warrant to the mar- shal, directing him to bring such bankrupt forthwith before the court for examination. If upon -hearing the evidence of the par- ties it shall appear to the court or a judge thereof that the al- legations are true and that it is necessary, he shall order such May be marshal to keep such 'bankrupt in custody not exceeding ten days, kept In ous- but not imprison him, until he shall be examined and released or days, etc. give bail conditioned for his appearance for examination, from time to time, not exceeding in all ten days, as required by the court, and for his obedience to all lawful orders made in refer- ence thereto. Extradition Sec. 10. EXTRADITION OF BANKRUPTS. — a Whenever a warrant of bankrupts, j^j. ^.j^g apprehension of a bankrupt shall have been issued, and he shall have been found within the jurisdiction of a court other than the one issuing the warrant, he may be extradited in the same manner in which persons under Indictment are now extra- dited from one district vnthin which a district court has juris- diction to another. Suits by Sec. 11. Suits by and against Bankectpts. — a A suit which and against is founded upon a claim from which a discharge would be a re- ban rup s. jgase, and which is pending against a person at the time of the filing of a petition against him, shall be stayed until after an —stay until adjudication or the dismissal of the petition ; if such person is adjudication, adjudged a bankrupt, such action may be further stayed until —further twelve months after the date of such adjudication, or, if within ^.**y- ' that time such person applies for a discharge, then until the question of such discharge is determined, —appear- b The cOurt may order the trustee to enter his appearance and anoe of trus- ^gfgu^ any pending suit against the bankrupt. -^om- c-^ trustee may, with the approval of tjie court, be permitted to menced prior prosecute as trustee any suit commenced by the I mkrupt prior tlon."'*^"^'''*" t° *^® adjudication, with Uke force and effect as tuough it had been commenced by him. § 14) V. S. BANKRUPTCY LAW OF JULY 1, 1898 lo51 d Suits shall not be brought by or against a trustee of a bank- Time for rupt estate subsequent to two years after the estate has been g Jit" ^against closed. trustees. See. 12. Compositions, when Confirmed. — a [A bankrupt may Composi- ofCer terms of composition to his creditors after, but not before, "^^'iien he has been examined in open court or at a meeting of his cred- may be ot- itors and filed in court the schedule of his property and list of *®''^^' Ms creditors, required to be filed by bankrupts.] A hankrupt may offer, either before or after adjudication, terms of composi- tion to his creditors after, but not before, he has been examii/ped in open court or at a meeting of, his creditors, and has filed in court the schedule of Ms property and the list of Ms creditors re- quired to be filed by bankrupts. In compositions before adjudi- cation the bankrupt shall file the required schedules, and there- upon the court shall call a meeting of creditors for the allowance of claims, examination of the bankrupt, and preservation or con- duct of estates, at which meeting the judge or referee shall pre- side; and action upon the petition for adjudication shall be de- layed until it shall be determined whether such composition shall be confirmed. (Amendment of 1910.) bAn application for the confirmation of a composition may be — appUca- filed in the court of bankruptcy after, but not before, it has been fl°min" ""^ accepted in writing by a majority in number of all creditors whose claims have been allowed, which number must represent a majority in amount of such claims, and the consideration to be paid by the bankrupt to his creditors, and the money necessary to pay all debts which have priority and the cost of the proceed- ings, have been deposited in such place as shall be designated by ' and subject to the order of the judge. cA date and place, with reference to the convenience of the , T^^\^'^' parties in interest, shall be fixed for the hearing upon each ap- plication for the confirmation of a composition, and such objec- tions as may be made to its confirmation. dThe judge shall confirm a composition if satisfied that (1) it — ™°^*- Is for the best interests of the creditors ; (2) the bankrupt has flrmance. not been guilty of any of the acts or failed to perform any of the duties which would be a bar to his discharge; and (3) the offer and its acceptance are in good faith and have not been nfede or procured except as herein provided, or by any means, prom- ises, or acts herein forbidden. eUpon the confirmation of a composition, the consideration — distribu- shall be distributed as the judge shall, direct, and the case dis- siaeration. missed. Whenever a composition is not confirmed, the estate shall be administered in bankruptcy as herein provided. Sec. 13. Compositions, when Set Aside. — a The judge may, —may b« upon the application of parties in interest filed at any time with- ^®' aside, in six months after a composition has been confirmed, set the same aside and reinstate the case if it shall be made to appear "'"f?"''^, upon a trial that fraud was practiced in the procuring of such fraud?* composition, and that the knowledge thereof has come to the pe- titioners since the confirmation of such composition. See. 14. dscHAEGES, WHEN GRANTED. — a Any person may, aft- Discharges. er the expiration of one month and within the next twelve months subsequent to being adjudged a bankrupt, file an applica- —applica- tion for a discharge in the court of bankruptcy in which the °^ °^' proceedings are pending; if it shall be made to appear to the judge that the bankrupt was unavoidably prevented from filing 1552 APPENDIX (Chap, m it within such time, it may be filed within but not after the ex- piration of the next six months, —hearing [b The Judge shall hear the application for a discharge, and tionl''''"''*" such proofs and pleas as may be made in opposition thereto by parties in interest, at such time as will give parties in interest a reasonable opportunity to be fully heard, and investigate the merits of the application and discharge the applicant unless he has (1) committed an offense punishable by imprisonment as herein provided ; or (2) with fraudulent intent to conceal his true financial condition and in contemplation of bankruptcy, destroyed, concealed, or failed to keep books of account or records from which his true condition might be ascertained.] 6 The judge shall hear the application for a discharge, and such proofs and pleas as may 6e made in opposition thereto iy parties in interest, at such time as will give parties in interest a reasonable opportunity to be fully heard, and investigate the merits of the application and discharge the applicant unless he has (1) committed an offense punishable by imprisonment as herein, provided; or (2) with intent to conceal his financial con- dition, destroyed, concealed, or failed to keep books of account or records from which such condition might be ascertained; or (3) obtained property on credit from any person upon a material- ly false statement in writing made to such person for the pur- pose of obtaining such property on credit; or (If) at any time subsequent to the first day of the four months immediately pre- ceding the fiUng of the petition transferred, removed, destroyed, or concealed, or permitted to be removed, destroyed, or concealect any of his property with intent to hinder, delay, or defraud Ms creditors; or (5) in voluntary proceedings been granted a dis- charge in bankruptcy vAthin six years; or (6) in the course of the proceedings in bankruptcy refused to obey any lawful order of or to answer any material question approved by the court. (Amendment of 1903.) 'I'he judge shall hear the application for a discharge and such proofs and pleas as may be made in opposi- tion thereto by the trustee or other parties in interest, at such time as will give the trustee or parties in interest a reasonable op%ortunity to be fully heard, and investigate the merits of the application and discharge the applicant unless he has (1) com- mitted an offense punishable by imprisonment as herein provided; or .(2) with intent to conceal his financial condition, destroyed, concealed, or failed to keep books of account or records from which such condition might be ascertained; or (3) obtained money or property on credit upon a materially false statement in writ- ing, made by him to any person or his representative for the purpose of obtaining credit from such person; or (4) at any time subsequent to the first day of the four months immediately pre- ceding the filing of the petition transferred, removed, destroyed, or concealed, or permitted to be removed, destroyed, or concealed, any of his property, with intent to hinder, delay, or defraud his creditors; or (5) in voluntary proceedings been granted a dis- charge m banlcruptcy within six years; or (6) in the course of the proceedings in bankruptcy refused to obey any lawful order of, or to ansioer any material question approved by the court: Provided, That a trustee shall not interpose objections to a bank- rupt's discharge until he shall be authorized so to do at a meet- ing of oreditors called for that purpose. (Amendment of 1910.) § 18) U. S. BANKRUPTCY LAW OF JULY 1, 1898 1553 cThe confirmation of a composition shall discharge the bank- Conflrma^ nipt from his debts, other than those agreed to be paid by the 'ha^ges from terms of the composition and those not affected by a discharge. debts. Sec. 15. DisoHABGES, WHEN REVOKED. — a The judge may, upon Dlsoharg- the application of parties in interest who have not been guilty yokeaf ^"^ '*" of undue laches, filed at any time within one year after a dis- charge shall have been granted, revoke it upon a trial if it shall be made to appear that it was obtained through the fraud of the bankrupt, and that the knowledge of the fraud has come to the petitioners since the granting of the discharge, and that the actual facts did not warrant the discharge. ' n ^ T,t ■ Sec. 16. Co-Debxobs .of Bankkupts. — a The liability of a per- liability not son who is a co-debtor with, or guarantor or in any manner a affected by surety for, a bankrupt shall not be altered by the discharge of afs°harge,^ such bankrupt. etc. [Sec. 17. Debts not Affected by a Discharge. — a A dis- Debts not charge in bankruptcy shall release a bankrupt from all of his a^charge.^ * provable debts, except such as (1) are due as a tax levied by the — u. s. and United States, the State, county, district, or municipality in ^'^*® *^^^*- which he resides; (2) are judgments in actions for frauds, or — judg- obtaining property by false pretenses or false representations, or ^fSaVcMons, for willful and malicious injuries to the person or property of etc. another ; (3) have not been duly scheduled in time for proof and —claims allowance, with the name of the creditor if known to the bank- °°^^ ^a?^*' rupt, unless such creditor had notice or actual knowledge of the proceedings in bankruptcy ; or (4) were created by his fraud, —created embezzlement, misappropriation, or defalcation while acting as ^^ fraud, etc. an officer or in any fiduciary capacity.] Seo. 11. Debts not Affected by a Discharge. — a A discharge in bankruptcy shall release a banhrupt from all of his provable debts, except such as (1) are due as a tax levied by the United States, the State, county, district, or munieipality in which he resides; (2) are liabilities for obtaining property by false pre- tenses or false representations, or for willful and malicious in- juries to the person or property or another, or for alimony due or to become due, or for maintenance or support of wife or child, or for seduction of an unmarried female, or for criminal conversa- tion; (3) have not been duly scheduled in time for proof and al- lovjance, with the name of the creditor if knoion to the bankrupt, unless such creditor had notice or actual knowledge of the pro- ceedings in bankruptcy ; or (4) were created by his fraud, em- bezzlement, misappropriation, or defalcation while acting as an officer or in any fiduciary capacity. (Amendment of 1903.) CHAPTER IV. COURTS AND PROCEDURE THEREIN. Courts and procedure. Sec. 18. Process, Pleadings, and Adjudications. — [a Upon the filing of a petition for involuntary bankruptcy, service there- Service of of, with a writ of subpoena, shall be made upon the person therein voluntary '° named as defendant in the same manner that service of such bankruptcy. process is now had upon the commencement of a suit in equity in the courts of the United States, except that it shall be re- — retuma- turnable within fifteen days, unless the judge shall for cause fix Jiya'" ^ a longer time ; but in case personal service can not be made, then notice shall be given by publication in the same manner and for the same time as provided by law for notice by p;?blication in cation. ''" BLK,iBKR.(3n Ed.)— 98 1554 APPENDIX (Chap. IV Pleading within 10 daya. — Teriflca- tlon. Court to determine is- sues when facts contro- verted. Decision where plead- ings not filed. It judge absent, case to be referred to referee. Hearing on filing volun- tary petition. — absence of judge. Jury trials. — person against whom invol- untary peti- tion filed, en- titled. -(right waived. Attendance ot Jury, etc. Bults in equity in courts of the United States.] a Upon the filing of a petition for involuntary lianloruptcy, service thereof, ioith a writ of subpoena, shall ie made upon the person therein named as defendant in the same manner that service of such process is now had upon the commencement of a suit in equity in the courts of the United States, eascept that it shall he returnable within fifteen days,- unless the judge shall for cause fix a longer time; but in case personal service can not be made, then notice shall be given by publication in the same manner and for the same time as provided by law for notice by publication in suits to enforce a legal or equitable lien in courts of the United States, except that, unless the judge shall otherwise direct, the order shall be published not more than once a week for two consecutive weeks, and the return day shall be ten days after the last publication unless the judge shall for cause fix a longer time. (Amendment of 1903.) [b The bankrupt, or any creditor, may appear and plead to the petition within ten days after the return day, or within such further time as the court may allow.] 6 The bankrupt, or any creditor, may appear and plead to the petition within five days after the return day, or within such further time as the court may allow. (Amendment of 1903.) cAll pleadings setting up matters of fact shall be verified un- der oath. d If the bankrupt, or any of his creditors, shall appear, within the time limited, and controvert the facts alleged in the petition, the judge shall determine, as soon as may be, the issues presented by the pleadings, without the intervention of a jury, except In cases where a jury trial is given by this Act, and makes the ad- judication or dismiss the petition. e If on the last day within which pleadings may be filed none are filed by the bankrupt or any of his creditors, the judge shall on the next day, if present, or as soon thereafter as practicable, make the adjudication or dismiss the petition. f If the judge is absent from the district, or the division of the district in which the petition is pending, on the next day after the last day on which pleadings may be filed, and none have been filed by the bankrupt or any of his creditors, the clerk shall forthwith refer the case to the referee. gUpon the filing of a voluntary petition the judge shall hear the petition and make the adjudication or dismiss the petition. If the judge is absent from the district, or the division of the district in which the petition is filed at the time of the filing, the clerk shall forthwith refer the case to the referee. Sec. 19. JuBY Trials. — a A person against whom an involun- tary petition has been filed shall be entitled to have a trial by jury, in respect to the question of his insolvency, except as herein otherwise provided, and any act of bankruptcy alleged In such petition to have been committed, upon filing a written applica- tion therefor at or before the time within which an answer may be filed. If such application is not filed within such time, a trial by jury shall be deemed to have been waived. bif a jury is not in attendance upon the court, one may be specially summoned for the trial, or the case may be postponed, or, if the case is pending in one of the district courts within the jurisdiction of a circuit court of the United States, it may be § 21) U. S. BANKRUPTCY LAW OF JULY 1, 1898 1555 certified for trial to tlie circuit court sitting at the same place, or by consent of parties when sitting at any other place in the same district, if such circuit court has or is to have a jury first in attendance. c The right to submit matters in controversy, or an alleged of- Laws as to fense under this Act, to a jury shall be determined and enjoyed, applicable, except as provided by this Act, according to the United States laws now in force or such as may be hereafter enacted in rela- tion to trials by jury. Sec. 20. Oaths, Affirmations. — a Oaths required by this Act, Oaths, by except upon hearings in court, may be administered by (1) ref- J^temif ™ °' erees; (2) officers authorized to administer oaths in proceedings before the courts of the United States, or under the laws of the State where the same are to be taken ; and (3) diplomatic or con- sular ofllcers of the United States in any foreign country. b Any person conscientiously opposed to taking an oath may, in Afflrana- lieu thereof, affirm. Any person who shall affirm falsely shall '"'^' be punished as for the making of a false oath. Sec. 21. Evidence. — [a A court of bankruptcy may, upon ap- Evidence. • plication of any officer, bankrupt, or creditor, by order require sory™attend- any designated person, including the bankrupt, who is a compe- ance of wU- tent witness under the laws of the State in which the proceedings are pending, to appear in court or before a referee or the judge of any State court, to be examined concerning the acts, conduct, or property of a bankrupt whose estate is in process of adminis- tration under this Act.] a A court of hanlcruptcy may, upon application of any officer, hanHrupt, or creditor, iy order require any designated person, in- cluding the bankrupt and his wife, to appear in court or before a referee or the judge of any State court, to he examined concern- ing the acts, conduct, or property of a bankrupt whose estate is in process of administration under this Act: Provided, That the wife may be examined only touching business transacted by her or to which she is a party, and to determine the fact whether, she has transacted or been a party to any business of the bank- rupt. (Amendment of 1903.) ' b The right to take depositions in proceedings under this Act (.jjjfj"'f '" shall be determined and enjoyed according to the United States governing. laws now in force, or such as may be hereafter enacted relating to the taking of depositions, except as herein provided. c Notice of the taking of depositions shall be filed vrith the —notice of referee in every case. When depositions are to be taken in op- taking, position to the allowance of a claim notice shall also be served upon the claimant, and when in opposition to a discharge notice shall also be served upon the bankrupt. d Certified copies of proceedings before a referee, or of papers, certified when issued by the clerk or referee, shall be admitted as evi- copies of dence with like force and effect as certified ,copies of the rec- evidlnce?^^ ords of district courts of the United States are now or may here- after be admitted as evidence. eA certified copy of the order approving the bond of a trustee _o{ order shall constitute conclusive evidence of the vesting in him of the approving trustGBs title to the property of the bankrupt, and if recorded shall im- bond. part the same notice that a deed from the bankrupt to the trustee if recorded would have imparted had not bankruptcy proceedings intervened. 1556 APPENDIX (Chap. IV —of order f A Certified copy of an order confirralng or setting asidts a composiuon, composition, or granting or setting aside a discliarge, not revoked, etc. sliall be evidence of the jurisdiction of the court, the regularity of the proceedings, and of the fact that the order was made, —evidence gA certified copy of an order confirming a composition shall fng "^titil^^in constitute evidence of the revesting of the title of his property bankrupt in the bankrupt, and if recorded shall impart the same notice , that a deed from the trustee to the bankrupt if recorded would impart. Reference Sec. 22. Refeeencb OF Cases atteb Adjudication. — a After a er adfudica- Person has been adjudged a bankrupt the judge may cause the tlon. trustee to proceed with the administration of the estate, or refer it (1) generally to the referee or specially with only limited au- thority to act in the premises or to consider and report upon specified issues ; ^ or (2) to any referee within the territorial ju- risdiction of the court, if the convenience of parties in interest win be served thereby, or for cause, or if the bankrupt does not Transfer of ''° business, reside, or have his domicile in the district. case to dil- b The judge may, at any time, for the convenience of parties eree. °^ ^°^ cause, transfer a case from one referee to another. jurisdieUon ®®"- ^^' JuEiSDiCTioN OP UNITED States and State Coubts. — of United a The United States circuit courts shall have jurisdiction of all i^e^courte^ controversies at law and in equity, as distinguished from pro- — circuit ceedings in bankruptcy, between trustees as such and adverse courts. claimants concerning the property acquired or claimed by the trustees, in the same manner and to the same extent only as though bankruptcy proceedings had not been instituted and such controversies had been between the bankrupts and such adverse claimants. Suits by [b Suits by the trustee shaU only be brought or prosecuted in whlrr^' *^® courts where the bankrupt, whose estate is being administered brought by such trustee, might have brought or prosecuted them if pro- ceedings in bankruptcy had not been Instituted, unless by consent of the proposed defendant.] 6 Suits hy the trustee shall only 6e brought or prosecuted in the ' courts where the bankrupt, vjhosc estate is heing adanirUstered by such trustee, might have brought or prosecuted them if proceed- ings in bankruptcy had not heen instituted, unless t>y consent of the proposed defendant, except suits for the recovery of property under section sixty, subdivision 6, and section sixty-seven, sub- division e. (Amendment of 1903.) 6 Suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceed- ings in bankruptcy had not been instituted, unless by consent of the proposed defendant, except suits for the recovery of property under section sixty, subdivision b; section sixty-seven, sitbdivi- iur'isdicti'on"* *'°'* ®' '*"'' section seventy, subdivision e. (Amendment of 1910.) in circuit c The United States circuit courts shall have concurrent juris- courtl of'* diction with the courts of bankruptcy, within their respective bankruptcy, territorial limits, of the offenses enumerated in this Act.i Appellate Sec. 24. .TuEiSDicTioN OF Appellate Coubts.— a The" Supreme courts, Juris- Court of the United States, the circuit courts of appeals of the c on o . United States, and the supreme courts of the Territories in vacation in chambers and during their respective terms, as now 'But see Federal Judicial Code 1911, 5 289, abolishing the circuit courts of the United States. < § 25) V. S. BANKRUPTCY LAW OF JULY 1, 1898 1557 or as tbey may be hereafter held, are hereby invested with appel- late jurisdiction of controversies arising in bankruptcy proceed- —appeals ings from the courts of bankruptcy from which they have a.v- '''°™ oourte pellate jurisdiction in other cases. The Supreme Court of the i^ea circuits United States shall exercise a like jurisdiction from courts of ana in Dis- bankruptcy not vyithin any organized circuit of the United States lumbia. and from the supreme court of the District of Columbia. , _. Jill* ISO. Ic* b The several circuit pourts of appeal shall have jurisdiction y^^ ^j ,,;,.. in equity, either interlocutory or final, to superintend and revise cult court of in matter of law the proceedings of the several inferior courts of ^pp^^is. bankruptcy within their jurisdiction. Such power shall be exer- cised on due notice and petition by any party aggrieved. (NOTE. The appellate jurisdiction of the Supreme Court ot the United I States, as defined in the foregoing section was greatjly restricted by the provisions of the Act of Congress of January 28, 1915 (38 Stat. 804) § 4, as follows: "That the judgments and decrees of the circuit courts of appeals in all proceedings and cases arising under the Bankruptcy Act and in all controversies arising in such proceedings and cases shall be final, save' only thac it shall be competent for the Supreme Court to require by cer- tiorari, upon the petition of any party thereto, that the proceeding, case, or controversy be certified to It for review and determination, with the same power and authority as if taken to that court by appeal or writ of error; but certiorari shall not be allowed in any such proceeding, «ase, or controversy unless the petition therefor is presented to the Supreme Court within three months from the date of such judgment or decree.") Sec. 25. Appeals and Weits of Ebboe. — a That appeals, as In Appeals equity cases, may be taken in bankruptcy proceedings from the courts of bankruptcy to the circuit court of appeals of the United States, and to the supreme court of the Territories, in the fol- —when •lovidng cases, to wit, (1) from a judgment adjudging or refusing tai^™- to adjudge the defendant a bankrupt ; (2) from a judgment grant- ing or denying a discharge ; and (3) from a judgment allowing or rejecting a debt or claim of five hundred dollars or over. Such appeal shall be taken within ten days after the judgment appeal- —to be ed from has been rendered, and may be heard and determined by within lo the appellate court in term or vacation, as the case may be, -hearing. b From any final decision of a court of appeals, allowing or re- Appeal to jecting a claim under this Act, an appeal may be had under such U. s. Su- niles and within such time as may be prescribed by the Supreme preme Court. Court of the United States, in the following cases and no other: 1. Where the amount in controversy exceeds the sum of two —where thousand dollars, and the question involved is one which might amount ex- have been taken on appeal or writ of error from the highest court ^^g ^ 5Z,ooo, of a State to the Supreme Court of the United States; or 2. Where some Justice of the Supreme Court of the United _ where States shall certify that in his opinion the determination of the question cer- question or questions involved in the allowance or rejection of p!feme''Gourt ' such claim is essential to a uniform construction of this Act Justice, throughout the United States. c Trustees shall not be required to give bond when they take —trustees appeals or sue out writs of error. bond.*° **^* d Controversies may be certified to the Supreme Court of the — certlfloa- United States from other courts of the United States, and the tioi to Su- DrsniG Oourt former court may exercise jurisdiction thereof and issue writs of by courts. certiorari pursuant to the provisions of the United States laws ' now In force or such as may be hereafter enacted. (NOTE. The foregoing section was amended, and the appellate jurisdic- tion of the Supreme Court of the United States restricted, by the follow- ing proTision of Section 4 of the Act of Congress of January 28, 1915 (38 1558 APPENDIX (Chap. IV Stat 804): "That the judgments and decrees of the circuit courts of ap- peals in all proceedings and oases arising under the Bankruptcy Act and in ail controversies arising in such proceedings and cases shall be final, save only that It shall be competent for the Supreme Court to require by certiorari, upon the petition of any party thereto, that the proceeding, case, or controversy be certified to it for review and determination, with the same power and authority as if taken to that' court by appeal or writ of error; but certiorari shall not be allowed in any such proceeding, case, or controversy unless the petition therefor is presented to the Supreme Court within three months from the date of such judgment or decree.") of '^on'troTer" ^^"^ ^®" Aebiteation of Conteoveesies. — a The trustee may,' sles. pursuant to the direction of the court, submit to arbitration any may"s^ubmit controversy arising in the settlement of the estate, to. b Three arbitrators shall be chosen by mutual consent, or one Selection of by the trustee, one by the other party to the controversy, and the arbitrators, third by the two So chosen, or if they fail to agree in five days after their appointment the court shall appoint the third arbi- trator. Findings of ^ The written finding of the arbitrators, or a majority of them, arbitrators, as to the issues presented, may be filed in court and shall have like force and effect as the verdict of a jury. Compro- Sec. 27. COMPROMISES. — a The trustee may, with the approval mise by trus- of j-j^g court, Compromise any controversy arising in the admij^- Istration of the estate upon such terms as he may deem for the best interests of the estate. Designa- Sec. 28. Designation of Newspapees. — a Courts of bankrupt- papers IV^' cy shall by order designate a newspaper published within their publish no- respective territorial districts, and in the county in which the tioes. bankrupt resides or the major part of his property is situated, in which notices required to be published by this Act and orders which the court may direct to be published shall be inserted. Any court may in a particular case, for the convenience of parties in interest, designate some additional newspaper in which notices and orders in such case shall be published. Penalty. Sec. 29. Offenses. — a A person shall be punished, by impris- onment for a period not to exceed five years, upon conviction of —for mis- the offlense of having knowingly and fraudulently appropriated pJSJertyf*"'^ *" '^^ °^^ ^^^' embezzled, spent, or unlawfully transferred any property or secreted or destroyed any document belonging to a . bankrupt estate which came into his charge as trustee, —conceal- b A person shall be punished, by imprisonment for a period not to exceed two years, upon conviction of the offense of having knowingly and fraudulently (1) concealed while a bankrupt, or after his discharge, from Ms trustee any of the property belong- — false oath ing to his estate in bankruptcy ; or (2) made a false oath or ac. etc. *°™""'' count in, or in relation to, any proceeding in bankruptcy ; (3) pre- — present- sented under oath any false claim for proof against the estate of clfimf ^ bankrupt, or used any such claim In composition personally or by agent, proxy, or attorney, or as agent, proxy, or attorney ; or —receiving (4) received any material amount of property from a bankrupt after ^/oT^'bank- *^® ^"°^ °* ^^^ petition, with intent to defeat this Act; or (5) rupt. extorted or attempted to extort any money or property from any mo7lv'?or °^ person as a consideration for acUng or forbearing to act in bank- forbearing to ruptcy proceedings. act, etc. c A person shall be punished by fine, not to exceed five hun- dred dollars, and forfeit his office, and the same shall thereupon become vacant, upon conviction of the offense of having know- courts. § 35) U. S. BANKRUPTCY LAW OF JULY 1, 1898 1559 Ingly (1) acted as a referee In a case In which he is directly or _aotinB a* Indirectly Interested ; or (2) purchased, while a referee, directly referee when or indirectly, any property of the estate in bankruptcy of which '"^pu'rehas- he Is referee ; or (3) refused, while a referee or trustee, to permit ing property, a reasonable opportunity for the inspection of the accounts re- ®"'' lating to the affairs of, and the papers and records of, estates in . "'"*''",?*, his charge by parties in interest when directed by the court so spe^ctiSi oi to do. accounts. d A person shall not be prosecuted for any offense arising un- proaecu- der this Act unless the indictment is found or the information is 'i •>* '° filed in court within one year after the commission of the of- ""^ ''*"' fense. Sec. 30. Rules, Forms, and Obdebs. — a All necessary rules, united forms, and orders as to procedure and for carrying this Act into states Su- force and efEect shall be prescribed, and may be amended from to^make time to time, by the Supreme Court of the United States. rules, etc. Sec. 31. Computation of Time. — a Whenever time is enu- computa- merated by days in this Act, or in any proceeding in bankruptcy, "o" "^ t'™» the number of days shall be computed by excluding the first and including the last, unless the last fall on a Sunday or holiday, in which event the day last included shall be the next day there- after which is not a Sunday or a legal holiday. Sec. 32. Tbansfee of Cases. — a In the event petitions are filed Transfer of against the same person, or against different members of a part- menced in nership, in different courts of bankruptcy each of which has different Jurisdiction, the cases shall be transferred, by order of the courts '" relinquishing jurisdiction, to and be consolidated by the one of such courts which can proceed with the same for the greatest convenience of parties in intei'est. CHAPTER V. OFFIOEBS, THEIB DUTIES AND COMPENSATION. OfBcers. Sec. 33. Creation op Two Offices. — a The offices of referee 0®°®^ °} aud trustee are hereby created. trustee ore- See. 34. Appointment, Removal, and Districts of Referees, ated. — a Courts of bankruptcy shall, within the territorial limits of appofntment, which they respectively have jurisdiction, (1) appoint referees, etc. each for a term "of two years, and may, in their discretion, remove them because their services are not needed or for other cause; and (2) designate, and from time to time change, the limits of — designa- the districts of referees, so that each county, where the services Wo" o' *'' ■ of a referee are needed, may constitute at least one district. Sec. 35. Qualifications of Referees. — a Individuals shall not _quaiiflc»- be eligible to appointment as referees unless they are respectively tion». (1) competent to perform the duties of that office ; (2) not holding any office of profit or emolument under the laws of the United States or of any State other than commissioners of deeds, jus- tices of the peace, masters in chancery, or notaries public ; (3) not related by consanguinity or affinity, within the third degree as determined by the common law, to any of the judges of the courts of bankruptcy or circuit courts of the United States, or of the justices or judges of the appellate courts of the districts wherein they may be appointed; and (4) residents of, or have tiieir offices in, the territorial districts for which they are to be appointed. 1560 APPENDIX (Chap. V take Sec. 36. Oaxhs or Office of Ebfebees. — a Referees shall take the same oath of office as that prescribed for judges of United States courts. Sec. 37. Number of Eefeeees. — a Such number of referees shall be appointed as may be necessary to assist in expeditiously transacting the bankruptcy business pending in the various courts of bankruptcy. Sec. 38. JuEisDiCTiON of Ebfebees. — a Eeferees respectively *'°° °' "'" are hereby invested, subject always to a review by the judge, with- in the limits of their districts as established from time to time, with jurisdiction to (1) consider all petitions referred to them by the clerks and make the adjudications or dismiss the petitions; —to oath. — number of. Jurisdlc- — to consid- er petitions. ter oaths, ex- (2) exercise the powers vested in courts of bankruptcy for the amine wit- administering of oaths to and the examination of persons as wit- nesses and for requiring the production of documents in proceed- — talce pes- ings before them, except the power of commitment ; (3) exercise session and the powers of the judge for the taking possession and releasing ertyTeto."^ of the property of the bankrupt in the event of the issuance by the clerk of a certificate showing the absence of a judge from _ the judicial district, or the division of the district, or his sick- certain du- ness, or inability to act; (4) perform such part of the duties, ties of bank- except as to questions arising out of the applications of bank- courts rupts for compositions or discharges, as are by this Act conferred on courts of bankruptcy and as shall be prescribed by rules or orders of the courts of bankruptcy of their respective districts, except as hesein otherwise provided; and (5) upon the applica- tion of the trustee during the examination of the bankrupts, or em^oyment * other proceedings, authorize the employment of stenographers at of stenog- the expense of the estates at a compensation not to exceed ten raphers. cents per folio for reporting and transcribing the proceedings. Sec. 39. Duties of Eeferees. — a Eeferees shall (1) declare dividends and prepare and deliver to trustees dividend sheets showing the dividends declared and to whom payable; (2) ex- amine all schedules of property and lists of creditors filed by bankrupts and cause such as are incomplete or defective to be amended; (3) furnish such information concerning the estates in process of administration before them as may be requested by the parties in interest; (4) give notices to creditors as herein no- provided ; (5) make up records embodying the evidence, or the substance thereof, .^s agreed upon by the parties in all contested matters arising before them, whenever requested to do so by either of the parties thereto, together with their findings there- in, and transmit them to the judges; (6) prepare and file the schedules of property and lists of creditors required to be filed by the bankrapts, or cause the same to be done, when the bank- rupts fail, refuse, or neglect to do so; (7) safely keep, perfect, and transmit to the clerks the records, her^n required to be kept by them, when the cases are concluded; (8) transmit to the clerks such papers as may be on file before them whenever the same are needed in any proceedings in courts, and in like manner secure the return of such papers after they have been used, or, if it be impracticable to transmit the original papers, transmit c'er- — preserve tifled copies thereof by mail; (9) upon application of any party ! V ence, etc. j^ interest, preserve the evidence taken or the substance thereof as agreed upon by the parties before them when a stenographer pa'pOTB^'Sc ^^ ^°^ ^" attendance; and (10) whenever their respective oflices are in the same cities or towns where the courts of bankruptcy Referees' duties. — declare dividends. — examine schedules, etc. — furnish information, etc. — give tices. — prepare records, etc. — prepare schedules, etc. —preserve records, etc. — transmit papers to clerks, etc. § 42) V. S. BANKRUPTCY LAW OF JULY 1, 1898 1561 convene, call upon and receive from the clerks all papers filed in courts of bankruptcy which have been referred to them. b Referees shall not (1) act in cases in which they are directly —not to act if IntoroBt fl^ ■ or indirectly Interested ; (2) practice as attorneys and counselors >•=•<">•."». at law in any bankruptcy proceedings; or (3) purchase, directly or indirectly, any property of an estate in bankruptcy. Sec. 40. Compensation of Referees. — La Referees shall re- ^ compensa- ceive as full compensation for their services, payable after they gVees." ' are rendered, a fee of ten dollars deposited with the clerk at the time the petition is filed in each case, except when a fee is not required from a voluntary bankrupt, and from estates which have been administered before them one per centum commissions on sums to be paid as dividends and commissions, or one half of one per centum on the amount to be paid to creditors upon the confirmation of a composition.] a Referees shall receive as full compensation for their services, payable after they are' rendered, a fee of fifteen dollars deposited with the cleric at the time the petition is filed in each case, except when a fee is not required from a voluntary bankrupt, and twenty-five cents for every proof of claim filed for allowance, to lie paid from the estate, if any, as a part of the cost of administration, and from estates which have been administered before them, one per centum commissions on all moneys disbursed to creditors by the trustee, or one-half of one per centum on the amount to be paid to creditors upon the confirmation of a composition. (Amendment of 1903.) b Whenever a case is transferred from one referee to another —oh trans- the judge shall determine the proportion in which the fee and to'^^ot^er."* commissions therefor shall be divided between the referees. c In the event of the reference of a case being revoked before -J-where it is concludedr and when the case is especially referred, the judge yo']fg|J^°* '*" shall determine what part of the fee and commissions shall be paid to the referee. Sec. 41. Contempts • BEFOBE Eeeekees. — a A person shall not, Contempt in proceedings before a referee, (1) disobey or resist any lawful e^esf * order, process, or writ ; (2) misbehave during a hearing or so near the place thereof as to obstruct the same ; (3) neglect to produce, after having been ordered to do so, any pertinent document; or (4) refuse to appear after having been subpoenaed, or, upon ap- pearing, refuse to take the oath as a witness, or, after having taken the oath, refuse to be examined according to law: Pro- when -wlt- vided. That no person shall be required to attend as a witness °8?s °"t ^^^ . before a referee at a place outside of the State of his residence, tend? and more than one hundred miles from such place of residence, and only In case his lawful mileage and fee for one day's attend- ance shall be first paid or tendered to him. b The referee shall certify the facts to the judge, if any per- contempt son shall do any of the things forbidden in this section. The proceedings, judge shall thereupon, in a summary manner, hear the evidence —penalty, as to the acts complained of, and, if It is such as to warrant him in so doing, punish such person in the same manner and to the same extent as for a contempt committed before the court of bankruptcy, or commit such person upon the same conditions as if the doing of the forbidden act had occurred with reference to the process of, or in the presence of, the court. Sec. 42. Records of Eeeeeees. — a The records of all proceed- Records of ings in each case before a referee shall be kept as nearly as may "^t-maliner be in the same manner as records are now kept in equity cases in of keeping, circuit courts of the United States. 1562 APPENDIX (Chap. V b A record of the proceedings in each case shall be kept in a separate book or books, and shall, together with the papers on file, constitute the records of the case. c The book or books containing a record of the proceedings shall, when the case is concluded before the referee, be certified to by him, and, together with such papers as are on file before him, be transmitted to the court of bankruptcy and shall there remain as a part of the records of the court. Referees' Sec. 43. Referee's Absence ob Disability. — a Whenever the absence or ofg^e of a referee is vacant, or its occupant is absent or disquali- dlsabliity. ^^^ ^^ ^^^^ ^^^ .^^^^ ^^^ ^^^ ^^ ^^^ appoint another referee, or —filling va- another referee holding an appointment under the same court cancy. ^^^^ ^^ order of the judge, temporarily fill the vacancy. Trustees. Sec. 44. Appointment of Teus'xees. — a The creditors of a bankrupt estate shall, at their first meeting after the adjudication or after a vacancy has occurred in the office of trustee, or after an estate has been reopened, or after a composition has been set aside or a discharge revoked, or if there is a vacancy in the of- mrnt'''"'"* ^*^® °* trustee, appoint one trustee or three trustees of such es- tate. If the creditors do not appoint a trustee or trustees as herein provided, the court shall do so. — quallflca- Sec. 45. Qualifications of Trustees. — a Trustees may be (1) tlons. Individuals who are respectively competent to perform the duties of that oflSce, and reside or have an office in the judicial district within which they are appointed, or (2) corporations authorized by their charters or by law to act in such capacity and having an office in the judicial district within which they are appointed. — deatli or Sec. 46. Death oe Removal of Trustees. — a The death or re- '^suSs not moval of a trustee shall not abate any suit or proceeding which to abate, etc. he is prosecuting or defending at the time of his death or removal, but ' the same may be proceeded with or defended by his joint trustee or successor in the same manner as though the same had been commenced or was being defended by such joint trustee alone or by such successor. ~^ffl*'l' ®**'' *''■ J^^^i^s °^ Trustees. — a Trustees shall respectively spec e ^j account for and pay over to the estates under their control all interest received by them upon property of such estates ; (2) [collect and reduce to money the property of the estates for which they are trustees, under the direction of the court, and close up the estate as expeditiously as is compatible with the best in- terests of the parties in interest;] collect and reduce to money the property of the estates for which they are trustees, under the direction of the court, and close up the estate as expeditiously as is compatible with the hest interests of the parties in interest; and such trustees, as to all property in the custody or coming into the custody of the ianlcruptcy court, shall 6e deemed vested with ' all the rights, remedies, and potvers of a creditor holding a lien by legal or equitaUe proceedings thereon; and also, as to all property not in the custody of the ianlcruptcy court, shall 6e deemed vested with all the rights, remedies, and poioers of a judgment creditor holding an execution duly returned unsatis- fied, (Amendment of 1910); (3) deposit all money received by them in one of the designated depositories; (4) disburse money only by check or draft on the depositories in which it has been deposited ; (5) furnish such information concerning the estates of which they are trustees and their administration as may be re- quested by parties in interest ; (6) keep regular accounts showing all amounts received and from what sources and all amounts es- § 48) V. S. BANKRUPTCY LAW OF JULY 1, 1898 1563 pended and on what accounts ; (7) lay before the final meeting of the creditors detailed statements of the administration of the estates ; (8) make final reports and file final accounts with the courts fifteen days before the days fixed for the final meetings of the creditors ; (9) pay dividends within ten days after they are declared by the referees; (10) report to the courts, in writing, the condition of the estates and the amounts of money on hand, and such other details as may be required by the courts, within the first month after their appointment and every two months thereafcer, unless otherwise ordered by the courts; and (11) set apart the bankrupt's exemptions and report the items and esti- mated value thereof to the court as soon as practicable after their appointment. b Whenever three trustees have been appointed for an estate, — concur- the concurrence of at least two of them shall be necessary to the " t''® f°'thre« validity of their every act concerning the administration of the necessary, estate. c The trustee shall, within thirty days after the adjudication, file a certified copy of the decree of adjudication in the office where conveyances of real estate are recorded in every county where the bankrupt owns real estate not exempt from execution, and pay the fee for such filing, and he shall receive a compensa- tion of fifty cents for each copy so filed, which, together with the filing fee, shall te paid out of the estate of thp 'banlcrupt as a part of the costs and disbursements of the proceedings. (Amend- ment of 1903.) Sec. 48. CoMPENS.\TioN OF Trustees. — [a Trustees shall re- Trustees' ceive, as full compensation for their services, payable after they compensa- are rendered, a fee of five dollars deposited with the clerk at the "^jgg time the petition is filed in each dase, except when a fee is not required from a voluntary bankrupt, and from estates which they _oommla- have administered, such commissions on sums to be paid as divi- sions. dends and commissions as may be allowed by the courts, not to exceed three per centum on the first five thousand dollars or less, two per centum on the second five thousand dollars or part there- of, and one per centum on such sums in excess of ten thousand dollars.] a Trustees shall receive for their services, payable aft- er they are rendered, a fee of five dollars deposited with the clerk at the time the petition is filed in each case, except when a fee is not required from a voluntary bankrupt, and from es- tates which they have administered such commissions on all mon- eys disbursed by them as may be allowed by the courts, not to exceed six per centum on the first five hundred dollars or less, four per centum on moneys in excess of five hundred dollars and less than fifteen hundred dollars, two per centum on moneys in excess of fifteen hundred dollars and less than ten thousand dol- lars, and one per centum on moneys in excess of ten thousand dollars. And in case of the confirmation of a composition after the trustee has qualified the court may allow him, as compensa- tion, not to exceed one-half of one per centum of the amount to be paid the creditors on such compos-ition. (Amendment of 1903.) b In the event of an estate being administered by three trus- tees instead of one trustee or by successive trustees, the court shall apportion the fees and commissions between them accord- —appor- ing to the services actually rendered, so that there shall not be tionment paid to trustees for the administering of any estate a greater JhaiT^n™"* amount than one trustee would be entitled to. 1564 APPENDIX ( Chap. V —with- c The court may, in its digcretion, Withhold all compensation holding of. from any trustee who has been removed for cause. (NOTB.-The Act o£ Congress of June 25, 1910 36 Si^?'' S^S., a™°«|^ ^S! foregoing ferty-eighth section by striking out the whole "'^^h' '^i'* 1"? , tuting the section which Immediately follows, bearing the same number.) Sec. 48. Compensation of teustees, receivers and mabshals: "(a) Trustees shall receive for their services, payable after they are rendered, a fee of five dollars deposited with the clerk at the time the petition is filed in each case, except when a fee is not required from a voluntary bankrupt, and such commis- sions on all moneys disbursed or turned over to any person, in- cluding lien holders, by them, as may be allowed by the courts, not to exceed six per centum on the first five hundred dollars or less, four per centum on moneys in excess of five hundred dol- lars and less than fifteen hundred dollars, two per centum on moneys in excess of fifteen hundred dollars and less than ten thousand dollars, and one per centum on moneys in excess of ten thousand dollars. And in case of the confirmation of a com- position after the trustee has qualified the court may allow him, as compensation, not to exceed one-half of one per centum of the amount to be paid the creditors on such composition. "(b) In the event of an estate being administered by three trn» tees instead of one trustee or by successive trustees, the court shall apportion the fees and commissions between them according to the services actually rendered, so that there shall not be paid to trustees for the administering of any estate a greater amount than one trustee would be entitled to. "(c) The court may, in its discretion, withhold all compensa- tion from any trustee who has been removed for cause. "(d) Receivers or marshals - appointed pursuant to section two, subdivision three, of this Act shall receive for their services, payable after they are rendered, compensation by way of com- missions upon the moneys disbursed or turned over to any person, including lien holders, by them, and also upon the moneys turned over by them or afterwards realized by the trustees from prop- erty turned over in kind by them to the trustees, as the court may allow, not to exceed six per centum on the first five hundred dol- lars or less, four per centum on moneys in excess of five hun- dred dollars and less than one thousand five hundred dollars, two per centum on moneys in excess of one thousand five hundred dollars and less than ten thousand dollars, and one per centum on moneys in excess of ten thousand dollars: Provided, That in case of the confirmation of a composition such commissions shall not exceed one-ha}f of one per centum of the amount to be paid creditors on such compositions: Provided further, That when the receiver or marshal acts as a mere custodian and does not carry on the business of the bankrupt as provided in clause five of sec- tion two of this Act, he shall not receive nor be allowed in any form or guise more than two per centum on the first thousand dollars or less, and one-half of one per centum on all above one thousand dollars on moneys disbursed by him or turned over by him to the trustee and on moneys subsequently realized from property turned over by him in kind to the trustee: Provided further, That before the allowance of compensation notice of ap- plication therefor, specifying the amount asked, shall be given to creditors in the manner indlcnted in section fifty-eight of this Act S 50) TJ. S. BANKRUPTCY LAW OF JULY 1, 1898 1565 "(e) Where the business is conducted by trustees, marshals, or receivers, as provided in clause five of section two of this Act, the court may allow such officers additional compensation for such services by way of commissions upon the moneys disbursed or turned over to any person, including lien holders, by them, and, In cases of receivers or marshals, also upon the moneys turned over by them or afterwards realized by the trustees from prop- erty turned over in kind by them to the trustees ; such commis- sions not to exceed six per centum on the first five hundred dol- lars or less, four per centum on moneys in excess of five hundred ^ dollars and less than one thousand five hundred dollars, two per centum on moneys in excess of one thousand five hundred dol- lars and less than ten thousand dollars, and one per centum on moneys in excess of ten thousand dollars: Provided, That in case of the confirmation of a composition such commissions shall not exceed one-half of one per centum of the amount to be paid cred- itors on such composition: Provided further, That before the al- lowance of compensation notice of application therefor, specifying the amount asked, shall be given to creditors in the manner in- dicated in section fifty-eight of this Act." Seo. 49. Accounts and Papebs of Teustees. — a The accounts Trustees' and papers of trustees shall be open to the inspection of officers ncoounts and and all parties in interest papers. Sec. 50. Bonds of Refeeebs and Teustees. — a Referees, be- bonds ot , fore assuming the duties of their offices, and within such time '■*^®''**^' as the district courts of the United States having jurisdiction shall prescribe, shall respectively qualify by entering into bond to the United .States in such sum as shall be fixed by such courts, not to exceed five thousand dollars, with such sureties as shall be approved by such courts, conditioned for the faithful perform- ance of their official duties. b Trustees, before entering upon the performance of their of- ^^^ *'^'' ficial duties, and vyithin ten days after their appointment, or within such further time, not to exceed five days, as the court may permit, shall respectively qualify by entering into bond to the United States, with such sureties as shall be approved by the courts, conditioned for the faithful performance of their of- ficial duties. c The creditors of a bankrupt estate, at their first meeting . after the adjudication, or after a vacancy has occurred in the office of trustee, or after an estate has been reopened, or after a composition has been set aside or a discharge revoked, if there Is a vacancy in the office of trustee, shall fix the amount of the bond of the trustee; they may at any time increase the amounj: —amount of the bond. If the creditors do not fix the amount of the bond Seaseaf of the trustee as herein provided the court shall do so. d The court shall require evidence as to the actual value of the property,^' property of sureties. value. e There shall be at least two sureties upon each bond. —two nea- f The actual value of the property of the sureties, over and ^^^^•'y- above their liabilities and exemptions, on each bond shall equakp^p^t^" at least the amount of such bond. g Corporations organized for the purpose of becoming surer -corpora- ties upon bonds, or authorized by law to do so, may be accepted JJ°°° ""^ as sureties upon the bonds of referees and trustees whenever the courts are satisfied that the rights of all parties in interest wUl be thereby amply protected. — ot ne>w trustee, etc. 1566 APPENDIX ( Chap. V Filing ot bonds. Bond, trus- tee's liabil- ity. —Joint —failure to give creates vacancy. —suits up- on referees'. — suits up- on trustees'. Clerks' du- ties. — to ac- count. — collect fees, etc. — deliver papers to reJieree, etc. —pay ref- eree. Compensa' tlon of clerks. —of mar- shals. Attorney- Oeneral to report annu- ally. —statistical information for. h Bonds of referees, trustees, and designated depositors shaU be filed of record in the office of the clerk of the court and may be sued upon in the name of the United States for the use of any person injured by a breach of their conditions. 1 Trustees shall not be liable, personally or on their bonds, to the United States, for any penalties or forfeitures incurred by the bankrupts under this Act, of whose estates they are re- spectively trustees. j Joint trustees may give joint or several bonds. k If any referee or trustee shall fail to give bond, as herein provided and within the time limited, he shall be deemed to have declined his appointment, and such failure shall create a vacancy in his office. 1 Suits upon referees' bonds shall not be brought subsequent to two years after the alleged breach of the bond. m Suits upon trustees' bonds shall not be brought subsequent to two years after the estate has been closed. Sec. 51. Duties of Clerks. — a Clerks shall respectively (1) account for, as for other fees received by them, the clerk's fee paid In each case and such other fees as may be received for cer- tified copies of records which may be prepared for persons other than officers; (2) collect the fees of the clerk, referee, and trus- tee in each case instituted before filing the petition, except the petition of a proposed voluntary bankrupt which is accompanied by an affidavit stating that the petitioner is without, and can not obtain, the money with which to pay such fees; (3) deliver to the referees upon application all papers which may be referred to them, or, if the offices of such referees are not in the same cities or towns as the offices of such clerks, transmit such pai)ers by mail, and in like manner return papers which were received from such referees after they have been used ; (4) and within ten days after each case has been closed pay to the referee, if the case was referred, the fee collected for him, and to the trustee the fee collected for him at the time of filing the petition. Sec. 52. Compensation of Clerks and Marshals. — a Clerks shall respectively receive as full compensation for their service to each estate, a filing fee of ten dollars, except when a fee is not required from a voluntary bankrupt b Marshals shall respectively receive from the estate where an adjudication in bankruptcy is made, except as herein otherwise provided, for the performance of their services In proceedings in bankruptcy, the same fees, and account for them in the same way, as they are entitled to receive for the performance of the same or similar services in other cases in accordance with laws now in force, or such as may be hereafter enacted, fixing the compensation of marshals. Sec. 53. Duties of Aitobnet-Geneeal. — a The Attorney-Gen- eral shall annually lay before Congress statistical tables showing for the whole country, and by States, the number of cases dur- ing the year of voluntary and involuntary bankruptcy; the amount of the property of the estates; the dividends paid and the expenses of administering such estates; and such other like ■Information as he may deem important. Sec. 54. Statistics of , Bankruptcy Proceedings. a Officers shall furnish in writing and transmit by mall such information as is within their knowledge, and as may be shown by the records S 57) V. S. BANKRUPTCY LAW OF JULY 1, 1898 l.WT and papers in their possession, to the Attorney-General, for statis- tical purposes, within ten days after being requested by him to do BO. CHAPTER VI. CREOITOBS. CredRora. Sec. 55. Meetings of Cheditobs. — a The court shall cause the — plnoe and first meeting of the creditors of a bankrupt to be held, not less fi^.* "' ™^'" than ten nor more than thirty days after the adjudication, at the county seat of the county in which the bankrupt has had his principal place of business, resided, or had his domicile; or if that place would be manifestly inconvenient as a place of meeting for the parties in interest, or if the bankrupt is one who does not do business, reside, or have his domicile within the United States, the court shall fix a place for the meeting which is the most con- venient for parties in interest. If such meeting should by any mischance not be held within such time, the court shall fix the date, as soon as may be thereafter, when it shall be held. b At the first meeting of creditors the judge or referee shall —presiding preside, and, before proceeding with the other business, may al- t^j^'" '^"' low or disallow the claims of creditors there presented, and may publicly examine the bankrupt or cause him to be examined at the instance of any creditor. c The creditors shall at each meeting take such steps as may Creaiton- be pertinent and necessary for the promotion of the best inter- ° ^' ests of the estate and the enforcement of this Act. d A meeting of creditors, subsequent to the first one, may be — subae- held at any time and place when all of the creditors who have Sgs'ot.™**'' secured the allowance of their claims sign a written consent to hold a meeting at such time and place. e The court shall call a meeting of creditors whenever one- —call of fourth or more in number of those who have proven their claims ^ylV"^ ^^ shall file a written, request to that effect; if such request is signed by a majority of such creditors, which number represents a majority in amount of such claims, and contains a request for such meeting to be held at a designated place, the court shall call such meeting at such place within thirty days after the date of the filing of the request. f Whenever the affairs of the estate are ready to be closed a — flpal final meeting of creditors shall be ordered. meeting. Sec. 56. Voters at Meetings op Cbeditoks. — a Creditors shall Voting_ at pass upon matters submitted to them at their meetings by a ma- meetings. jority vote in number and amount of claims of all creditors whose claims have been allowed and are present, except as herein oth- erwise provided. . b Creditors holding claims which are secured or have priority —holders shall not, in respect to such claims, be entitled to vote at cred- °iaims!"not itors' meetings, nor shall such claims be counted in computing entitled, etc. either the number of creditors or the amount of their claims, unless the Amounts of such claims exceed the values of such se- curities or priorities, and then only for such excess. Sec. 57. Peoof and Allowance op Claims.— a Proof of claims 5,1")^°' °' shall consist of a statement under oath, in writing, signed by a —of 'what creditor setting forth the claim, the consideration therefor, and t° ponsist. whether any, and, if so what, securities are held therefor, and whether any, and, if so what, payments have been made thereon. 1568 APPENDIX (Chap. VI — when tounded up- on a writing. — after proved, may be filed. —allow- ance of claims, etc. Claims of secured cred- itors, etc. Claims, liearing ob- jections. Preferred claims. Value of securities tield by se- cured cred- itors, etc. Claims se- cured by in- dividual un- dertaking. Debts due the United States, al- lowance of. and that the sum claimed is justly owing from the bankrupt to tbo creditor. b Whenever a claim is founded upon an instrument of writing, such instrument, unless lost or destroyed, shall be filed with the proof of claim. If such instrument is lost or destroyed, a state- ment of such fact and of the circumstances of such loss or de- struction shall be filed under oath with the claim. After the claim is allowed or disallowed, such instrument may be with- drawn by permission of the court, upon leaving a copy thereof on file with the claim. c Claims after being proved may, for the purpose of allowance, be filed by the claimants in the court where the proceedings are pending or before the referee if the case has been referred. d Claims which have been duly proved shall be allowed, upon receipt by or upon presentation to the court, unless objection to their allowanca shall be made by parties in interest, or their con- sideration be continued for cause by the court upon its own mo- tion. e Claims of secured creditors anct those who have priority may be allowed to enable such creditors to participate in the pro- ceedings at creditors' meetings held prior to the determination of the value of their securities or priorities, but shall be allowed for such sums only as to the courts seem to be owing over and above the value of their securities or priorities. f Objections to claims shall be heard and determined as soon as the convenience of the court and the best interests of the es- tates and the claimants will permit. [g The claims of creditors who have received preferences shall not be allowed unless such creditors shall surrender their pref- erences.] g The claims of creditors who have received preferences, void- able under section sixty, stbbdivision 6, or to whom conveyances, transfers, assignments, or incumbrances, void or voidable under section sixty-seven, subdivision e, have been made or given, shall not be allowed unless such creditors shall surrender such prefer- ences, conveyances, transfers, assignments, or incumbrancet. (Amendment of 1903.) h The value of securities held by secured creditors shall be determined by converting the same into money according to the terms of the agreement pursuant to which such securities were delivered to such creditors or by such creditors and the trustee, by agreement, arbitration, compromise, or litigation, as the court may direct, and the amount of such value shall be credited upon such claims, and a dividend shall be paid only on the unpaid balance. i Whenever a creditor, whose claim against a bankrupt estate is secured by the individual undertaking of any person, fails to prove such claim, such person may do so in the creditor's name, and if he discharge such undertaking in whole or in part he shall be subrogated to that extent to the rights of the creditor. j Debts owing to the United States, a State, a county, a dis- trict, or a municipality as a penalty or forfeiture shall not be allowed, except for the amount of the pecuniary loss sustained by 'the act, transaction, or proceeding out of which the penalty or forfeiture arose, with reasonable and actual costs occasioned thereby and such Interest as may have accrued thereon according to law. § 59) V. S. BANKRUPTCY LAW OF JULY 1, 1898 i5fi9 k Claims which have been allowed may be rgconsidered for ReconMd- cause and reallowed or rejected In whole or In part, according to c[ai*mB! °' the equities of the case, before but not after the estate has been closed. 1 Whenever a claim shall have been reconsidered and rejected, of^fy°ie^ In whole or In part, upon which a dividend has been paid, the trustee may recover from the creditor the amount of the dividend received upon the claim if rejected in whole, or the proportional part thereof if rejected only in part. m The claim of any estate which is being administered in Claims ot bankruptcy against any like estate may be proved by the trustee °°pj '"against and allowed by the court in the same manner and upon like terms another. as the claims of other creditors. n Claims shall not be' proved against a bankrupt estate sub- Time for sequent to one year after the adjudication; or if they are llqni- ''[fims^ dated by litigation and the final judgment therein is rendered within thirty days before or after the expiration of such time, then within sixty days after the rendition of such judgment: Provided, That the right of infants and insane persons without —of In- guardians, without notice of the proceedings, may continue six *a°ts, etc. months longer. Sec. 58. Notices to Crbditoks.— a [Creditors shall have at Notice to least ten days' notice by mail, to their respective addresses as creditors, they appear tn the list of creditors of the bankrupt, or as after- wards filed with the papers in the case by the creditors, unless —unless they waive notice in writing, of (1) all examinations of the bank- "* ^® • * • rupt; (2) all hearings upon applications for the confirmation of compositions or the discharge of bankrupts ; (3) all meetings of creditors ; (4) all proposed sales of property ; (5) the declaration and time of payment of dividends ; (6) the filing of the final ac- counts of the trustee, and the time when and the place where they will be examined and passed upon ; (7) the proposed compromise of any controversy, and (8) the proposed dismissal of the pro- ceedings.] Creditors shall have at least ten days' notice hy mail, to their respective addresses as they appear in the list of creditors of the bankrupt, or as afterwards filed with the papers in the case by the creditors, unless they waive notice in meriting, of (1) all examina- tions of the bankrupt; (2) all hearings upon applications for the confirmation of compositions; (3) all meetings of creditors; (4) all proposed sales of property; (5) the declaration and time of payment of dividends; (6) the filing of the final accounts of the trustee, and the time when and the place where they will be examined and passed upon; (7) the proposed compromise of any controversy; (8) the proposed dismissal of the proceedings, and (9) there shall be thirty days' notice of all applications for the discharge of bankrupts. (Amendment of 1910.) b Notice to creditors of the first meeting shall be published at mating '^' least once and may be published such number of additional times as the court may direct ; the last publication shall be at least _oj^.. one week prior to the date fixed for the meeting. Other notices tioes. may be published as the court shall direct. c All notices shall be given by the referee, unless otherwise eree. ordered by the judge. Sec. 59. Who mat File and Dismiss Petitions.— a Any quali- w^o'may file fied person may file a petition to be adjudged a voluntary bank- _^g volun- rupt. • tary bani- b Three or more creditors who have provable claims against '^"'' any person which amount in the aggregate, in excess of the value Blk.Bke.(3d Ed.)— 99 1570 APPENDIX (Chap. VI taryf ^'''"''" "* securities liQjd by them, if any, to five hundred dollars or over ; or if all of the creditors of such person are less than twelve in number, then one of such creditors whose claim equals such —to be to ^™ount may file a petition to have him adjudged a bankrupt. duplicate. c Petitions shall be filed in duplicate, one copy for the clerk and one for service on the bankrupt. InOlICB to creditors not d If it be averred in the petition that the creditors of the bank- joined in pe- rupt are less than twelve in number, and less than three cred- ' '°''" itors have joined as petitioners therein, and the answer avers the existence of a large number of creditors, there shall be filed with the answer a list under oath of all the creditors, vrtth their ad- dresses, and thereupon the court shall cause all suc^i creditors to be notified of the pendency of such petition and shall delay the — hearing hearing upon such petition for a reasona'ble time, to the end that Creditors, computing number of. —appear, ance of. Notice of dismissal. ol case, etc, parties in interest shall have an opportunity to be heard; if upon such hearing it shall appear that a sufficient number have joined in such petition, or if prior to or during such hearing a —when dis- sufiicient number shall join therein, the case may be proceeded with, but otherwise it shall be dismissed. e In computing the number of creditors of a bankrupt for the purpose of determining how many creditors must join in the pe- tition, such creditors as were employed by him at the time of the filing of the petition or are related to him by consanguinity or affinity within the third degree, as determined by the com- mon law, and have not joined in the petition, shall not be counted. f Creditors other than original petitioners may at any time enter their appearance and join in the petition, or file an answer and be heard in opposition to the prayer of the petition. g [A voluntary or involuntary petition shall not be dismissed by the petitioner or petitioners or for want of prosecution or by consent of parties until after notice to the creditors.] A voluntary or involuntary petition shall not be dismissed by the petitioner or petitioners or for want of prosecution or by consent of parties until after notice to the creditors, and to that end the court shall, before entertaining an application for dis- missal, require the bankrupt to flte a list, under oath, of all Ms creditors, with their addresses, and shall cause notice to be gent to all such creditors of the pendency of such application, and shall delay the hearing thereon for a reasonable time to allow all Creditors and parties in interest opportunity to be heard. (Amendment of 1910.) Sec. 60. Pkefeered Ceeditors.— [a A person shall be deemed to have given a preference if, being insolvent, he has procured or suffered a judgment to be entered against himself in fav^&f any person, or made a transfer of any of his property, and the efCect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class.] a A person shall be deemed to have given a preference if, be- ing insolvent, lie has, within four months before the filing of the petition, or after the filing of the petition and before the adjudi- cation, procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to mable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. Where the preference consists in a transfer, such period of four months shall not expire until four month's Preferred creditors. § 61) U. S. BANKRUPTCY LAW OF JULY 1, 1898 1571 after the date of the recording or registering of the transfer, if ty law such recording or registering is required. (Amendment of 1903.) [b If a bankrupt shall have given a preference within 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 Ms agent acting therein, shall have had reasonable cause to believe that it was 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.] h If a 'banlcrupt shall have given a preference, and the person receiving it, or to te lienefited thereby, or his agent acting there- in, shall have had reasonable cause to believe that it was 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. And, for the purpose of such recovery, any court of bank-ruptoy, as hereinbefore defined, and any State court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction, (Amendment of 1903.) b If a bankrupt shall have procured or suffered a judgment to be entered against him in favor of any person or have made a transfer of any of his property, and if, at the time of the trans- fer, or of the entry of the judgment, or of the recording or reg- istering of the transfer if by law recording or registering thereof is required, and being within four months before the filing of the petition in bankruptcy or after the filing thereof and before the adjudication, the bankrupt be insolvent and the judgment or transfer then operate as a preference, and the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such judgment or transfer would effect a preference, it shall be void- able by the trustee and he may recover the property or its value from, such' person. And for the purpose of such recovery any court of bankruptcy, as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not inter- vened, shall have concurrent jurisdiction. (Amendment of 1910.) c If a creditor has been preferred, and afterwards in good faith gives the debtor further credit without security of any kind for property which becomes a part of the debtor's estates, the amount of such new credit remaining unpaid at the time of the adjudi- cation in bankruptcy may be set off against the amount which would otherwise be recoverable from him. d If a debtor shall, directly or Indirectly, in contemplation of the filing of a petition by or against him, pay money or transfer property to an attorney and counselor at law, solicitor in equity, or proctor in admiralty for services to be rendered, the trans- action shall be reexamined by the court on petition of the trus- tee or any creditor and shall only be held valid to the extent of a reasonable amount to be determined by the court, and the ex- cess may be -recovered by the trustee for the benefit of the estate. Freferenct^ when given. — Toldabla. Preferred creditor giv- ing further credit, etc. —set off of new credit. Payments to attorneys, etc. — reexami- nation of. CHAPTER VII, ESTATES. Estates. Sec. 61. Depositories foe Money. — a Courts of bankruptcy Deposito- shall designate, by order, banking institutions as depositories for money" 1572 APPENDIX (Chap. Vn —bond. EiXpenses of adminis- tering es- tates. — report and approv- al. Debts proved. —fixed lia- bility. — costs ol suit due, etc. ^costs In- curred be- fore filing petition. — on open account. —judg- ments, etc. Allowance of ' unliqui- dated claims. Debts hav- ing priority, —taxes. of — order payment. — cost of preserving estate. —filing —cost of administra- tion, etc. the money of bankrupt estates, as convenient as may be to the residences of trustees, and shall require bonds to the United States, subject to their approval, to be given by such banking in- stitutions, and may from time to time as occasion may require, by like order increase the number of depositories or the amount of any bond or change such depositories. • See. 62. Expenses of Admixistbking Estates. — a The actual and necessary expenses incurred by officers in the administration of estates shall, except where other provisions are made for their payment, be reported in detail, under oath, and examined and approved or disapproved by the court. If approved, they shall be paid or allowed out of the estates in which they were incurred. Sec. 63. Debts which may be Pboved. — a Debts of the bank- rupt which may be proved and allowed against his estate which are (1) a fixed liability, as evidenced by a judgment or an instru- ment in writing, absolutely owing at the time of the filing of the petition against him, whether then payable or not, with any in- terest thereon which would have been recoverable at that date or with a rebate of interest upon such as were not then payable and did not bear interest ; (2) due as costs taxable against an in- voluntary bankrupt who was at the time of the filing of ^e peli- tion against him plaintiff in a cause of action which would pass to the trustee and which the trustee declines to prosecute after notice ; (3) founded upon a claim for taxable costs incurred in good faith by a creditor before the filing of the petition in an action to recover a provable debt; (4) founded upon an open account, or upon a contract express or implied; and (5) founded upon provable debts reduced to judgments after the filing of the petition and before the consideration of the bankrupt's applica- tion for a discharge, less costs incurred and interests accrued after the filing of the petition and up to the time of the entry of such judgments. b Unliquidated claims against the bankrupt may, pursuant to application to the court, be liquidated in such manner as it shall direct, and may thereafter be proved and allowed against his estate. Sec. 64. Debts which have Pbioritt. — a The court shall or- der the trustee to pay all taxes legally due and owing by the bankrupt to the United States, State, county, district, or mu- nicipality in advance of the payment of dividends to creditors, and upon filing the receipts of the proper public officers for such payment he shall be credited with the amount thereof, and in case any question arises as to the amount or legality of any such tax the same shall be heard and determined by the court. b The debts to have priority, except as herein provided, and to be paid in fuU out of bankrupt estates, and the order of pay- ment shall be (1) the actual and necessary cost of preserving the estate subsequent to filing the petition ; [(2) the filing fees paid by creditors In involuntary cases ;] (2) the filing fees paid hy cred- itors in involtintary cases, and, where property of the 'bankrupt, transferred or concealed hy Mm cither before or after the filing of the petition, shall have been recovered for the benefit of the estate of the banJcrupt by the efforts and at the expense of one or more creditors, the reasonable expenses of such recovery (Amendment of 1903); (3) the cost of administration, including the fees and mileage payable to witnesses as now or hereafter § 65) TJ. S. BANKRUPTCY LAW OF JULY 1, 1898 1573 provided by the laws of the United States, and one reasonable attorney's ifee, for the professional services actually rendered, ir- respective of tlie number of attorneys employed, to the petitioning creditors in involuntary cases, to the bankrupt in involuntary cases vphile performing the duties lierein prescribed, and to the bankrupt in voluntary cases, as the court may allow ; (4) [wages —wages at due to workmen, clerks, or servants which have beeu earned with- "j^'""™' In three months before the date of the commencement of pro- ceedings, not to exceed three hundred dollars to each claimant;] wages due to icorkinen, clerks, traveling or citj) salesmen, or servants ichich have been earned uithin three months before the date of commencement of proceedings, not to exceed three hun- dred dollars to each, claimant (Amendment of June 15, 1906): and —owing to (5) debts owing to any person who by the laws of the States or ^^^ to pri- the United States is entitled to priority. ority, etc. c In the event of the confirmation of a composition being set Payment a aside, or a discharge revoked, the property acquired by the bank- ^'^'"(t^r'''^"" rupt in addition to his estate at the time the composition was composition, confirmed or the adjudication Was made shall be applied to the ^jj^™ *'|'_ payment in full of the claims of creditors for property sold to him yoked, «tc. on credit, in good faith, while such composition or discharge was in force, and the residue, if any, shall be applied to the payment of the debts which were owing at the time of the adjudication. Sec. 65. Declakation and Payment of Dividends. — a Divi- Diyidends. dends of an equal per centum shall be dieclared and paid on all ed~clalms°* allowed claims, except such as have priority or are secured. [b The first dividend shall be declared within thirty days after ~**%°' jrgt the adjudication, if the money of the estate in excess of the amount necessary to pay the debts which have priority and such claims as have not been, but probably will be, allowed equals five per centum or more of such allowed claims. Dividends subsequent — subs*- to the first shall be declared upon like terms as the first and as '"^ ' often as the amount shall equal ten per centum or more and upon closing the estate. Dividends may be declared oftener and in smaller proportions if the judge shall so order.] 6 The first dividend shall be declared within thirty days after the adjudication, if the money of the estate in excess of the amount necessary to pay the debts which have priority and such claims as have not been, but probably will be, allowed equals five per centum or m,ore of such allowed claims. Dividends subse- quent to the first shall be declared upon lilce terms as the first and as often as the amount shall equal ten per centum or more and upon closing the estate. Dividends inay be declared oftener and in smaller proportions if the judge shall so order: Provided, That the first dividend shall not include more than fifty per centum, of the money of the estate in excess of the amount nec- essary to pay the debts which have priority and such claims as probably will be allowed: And provided further. That the final dividend shall not be declared within three months after the first dividend shall be declared. (Amendment of 1903.) c The rights of creditors who have received dividends, or in —creditors whose favor final dividends have been declared, shall not be af- not^'^affie'ctad fected by the proof and allowance of claims subsequent to the by proof ot date of such payment or declarations of dividends ; but the cred- oulims,"etc. iters proving and securing the allowance of such claims shall be paid dividends equal in amount to those already received by the other creditors if the estate equals so much before such other creditors are paid any further dividends. 1574 APPENDIX (Chap. VII —prefer- d Whenever a person shall have been adjudged a bankrupt by ence of cer- a court v^ithout the United States and also by a court of bank- itors. ruptcy, creditors residing within the United States shall first be paid a dividend equal to that received in the court without the United States by other creditors before creditors who have re- ceived a dividend in such courts shall be paid any amounts, claimant's" ® '^ Claimant shall not be entitled to collect from a bankrupt right to col- estate any greater amount than shall accrue pursuant to the pro- lect. visions of this Act. Unc'iimed gee. 66. Unclaimed Dividends. — a Dividends which remain —after 6 unclaimed for six months after the final dividend has been de- jnnnths paid clared shall be paid by the trustee into court. _ ■ b Dividends remaining unclaimed for one year shall, under the year, distrlb- direction of the court, be distributed to ^he creditors whose claims uted. have been allowed but not paid in full, and after such claims have —o£ minors, been paid in full the balance shall be paid to the bankrupt: Pro- vided, That in case unclaimed dividends belong to minors such minors may have one year after arriving at majority to claim such dividends. Liens. Sec. 67. Liens. — a Claims which for want of record or for ed~clata"^ other reasons would not have been valid liens as against the not claims of the creditors of the bankrupt shall not be liens against his estate, -j-trustee b Whenever a crt-ditor is prevented from enforcing his rights to rights of ^^ against a lien created, or attempted to be created, by his debtor, CTeditor. who afterwards becomes a bankrupt, the trustee of *iie estate of such bankrupt shall be subrogated to and may enforce such rights of such creditor for the benefit of the estate, ment"' etc''^" ^ ^ ^^^^ Created by or obtained in or pursuant to any suit or created wit'ii- proceeding at law or in equity, including an attachment upon in 4 months, mesne process or a judgment by confession, which was begun solved. " against a person within four months before the filing of a peti- tion in bankruptcy by or against such person shall be dissolved anT'wer?ta- ^^ *^® adjudication of such person to be a bankrupt if (1) it solvent. appears that said lien was obtained and permitted while the de- fendant was insolvent and that its existence and enforcement will — knowl- work a preference, or (2) the party or parties to be benefited there- ■edge of. by had reasonable cause to believe the defendant was insolvent "^^'■'"'sli and in contemplation of bankruptcy, or (3) that such lien was sought and permitted in fraud of the provisions of this Act; or if the dissolution of such lien would militate against the best in- terests of the estate of such person the same shall not be dis- --trustee solved, but the trastee of the estate of such person, for the benefit subroga e , ^^ ^j^^ estate, shall be subrogated to the rights of the holder of such lien and empowered to perfect and enforce the same in his name as trustee with like force and effect as such holder might have done had not bankruptcy proceedings intervened. Liens giT- d [Liens given or accepted in good faith and not in contempla- falth!" 610!"° tlon of or in fraud upon this Act, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall not be affected by this Act.] d Liens given or accepted in good faith and not in contempla- tion of or in fraud upon this Act, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall, to the extent of such present consideration only, not be affected iy this Act. (Amendment of 3910.) § 68) V. S. BANKRUPTCY LAW OF JULY 1, 1898 1575 e That all conveyances, transfers, assignments, or Incumbranc- ^^^^^ es of his property, or any part thereof, made or given by a per- sub||qu*ent son adjudged a bankrupt under the provisions of this Act sub- *" gf* »°* sequent to the passage of this Act and within four months prior months ot' to the filing of the petition, with the intent and purpose on his petition. part to hinder, delay, or defraud his creditors, or any of them, —to de- shall be null and void as against the creditors of such debtor, ex- ^^^^^- **''•• eept as to purchasers in good faith and for a present fair con- _property Bideration; and all property of the debtor conveyed, transferred, remains part assigned, or encumbered as aforesaid shall, if he be adjudged a °* assets, bankrupt, and the same is not exempt from execution and lia- ; bility for debts by the law of his domicile, be and remain a part of the assets and estate of the bankrupt and shall pass to his said trustee, whose duty it shall be to recover and reclaim the same by legal proceedings or otherwise for the benefit of the creditors. And all conveyances, transfers, or incumbrances of Convey- his property made by a debtor at any time within four months ^ithiA timr prior to the filing of the petition against him, and while insol- months of vent, which are held null and void as against the creditors of ^^^ °'^' such debtor by the laws of the State, Territory, or District in ae7™tate"°" which such property is situate, shall be deemed null and void un- laws, der this Act against the creditors of such debtor if he be adjudged —void under a bankrupt, and such property shall pass to the assignee and be "''' *"*• by him reclaimed and recovered for the benefit of the creditors o* the bankrupt. For the purpose, of such recovery any court of hankruptcy as hereiniefpre defined, and any State court which would have had jurisdiction if 1)ankruptcy had not , intervened, shall have concurrent jurisdiction. (Amendment of 1903.) f That all levies, judgments, attachments, or other liens, ob- Liens,' etc., tained through legal proceedings against a person who is insol- through le- vent, at any time within four months prior to the filing of a pe- gal prooeed- tition in bankruptcy against him, shall be Seemed null and void "^s^- in case he is adjudged a bankrupt, and the property affected by "^"i^' ^''■ the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the , bankrupt, unless the —property court shall, on due notice, order that the right under such levy, tr^ustTe.*" judgment, attachment, or other lien shall be preserved for the benefit of the estate; and thereupon the same may pass to and shall be preserved by the trustee for the benefit of the estate as aforesaid. And the court may order such conveyance as shall Court may be necessary to carry the purposes of this section into effect: veyances?"" Provided, That nothing herein contained shall have the effect to Purchaser destroy or impair the title obtained by such levy, judgment, at- °^ value, tachment, or other lien, of a bona fide purchaser for value who shall have acquired the same without notice or reasonable cause for inquiry. Sec. 68. Set-Offs and Cotjnteeolaims. — a In all cases of Set-oits mutual debts or mutual credits between the estate of a bankrupt claims. and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or —allowed. paid. b A set-off or counterclaim shall not be allowed in favor of j^""^* *'' any debtor of the bankrupt which (1) is not provable against the estate ; or (2) was purchased by or transferred to him after the filing of the petition, or within four months before such filing. 1576 APPENDIX (Chap. VH with a view to such use and with knowledge or notice that sueU bankrupt was insolvent, or had committed an act of bankruptcy. Possession gee. 69. POSSESSION OF PROPERTY. — a A judge may, upon satis- of property. f^j,^.Qpy proof, by affidavit, that a bankrupt against whom an in- voluntary petition has been filed and is pending has committed an act of bankruptcy, or has neglected or is neglecting, or is about —■when to so neglect his property that it has thereby deteriorated or is may'^be'seiz- thereby deteriorating or is about thereby to deteriorate in value, ed. issue a warrant to the marshal to seize and hold it subject to —bond to further orders. Before such warrant is issued the petitioners indemnity. applying therefor shall enter into a bond in such an amount as the judge shall fix, with such sureties as he shall approve, con- ditioned to indemnify such bankrupt for such damages as he shall sustain In the event such seizure shall prove to have been —released wrongfully obtained. Such property shall be released, if such bond. ^"'* Bankrupt shall give bond in a sum which shall be fixed by the judge, with such sureties as he shall approve, conditioned to turn over such property, or pay the value thereof in money to the trustee, in the event he is adjudged a bankrupt pursuant to such petition. Title te Sec. 70. TITLE To PROPERTY. — a The trustee of the estate of property. ^ bankrupt, upon his appointment and qualification, and his suc- cessor or successors, if he shall have one or more, upon his or —vested In their appointment and qualification, shall in turn be vested by trustee. operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, except in so far as it is to propert? me^s™' which is exempt, to all (1) documents relating to his property ; —patents, (2) interests in patents, patent rights, copyrights, and trade- ^'flcertain marks; (3) powers which he might have exercised for his own powers. benefit, but not those which he might have exercised for some —trans- other person ; (4) property transferred by him in fraud of his fraifd '" creditors; (5) property which prior to the filing of the petition —which he could by any means have transferred or which might have been might have levied upon and sold under judicial process against him: Pre- ferred, etc. vided, That when any bankrupt shall have any insurance policy —policy ot which has a cash surrender value payable to himself, his estate, insurance. or personal representatives, he may, within thirty days after the cash surrender value has been ascertained and stated to the trus- tee by the company issuing the same, pay or secure to the trustee the sum so ascertained and stated, and continue to hold, own, and carry such policy free from the claims of the creditors par- ticipating in the distribution of his estate under the bankruptcy —rights of Pi'oceedings, otherwise the policy shall pass to the trustee as action upon assets ; and (6) rights of action arising upon contracts or from contracts. ^j^^ unlawful taking or detention of, or injury to, his property, of^^property. ^ ^^^ ^^^^ ^^^ personal property belonging to bankrupt estates shall be appraised by three disinterested appraisers; they shall be appointed by, and report to, the court. Real and personal -sale. property shall, when practicable, be sold subject to the approval of the court; it shall not be sold otherwise than subject to the approval of the court for less than seventy-five per centum of Its appraised value, convey ^tlt" ° '^^^ ^^^^^ *° property of a bankrupt estate which has been ■ sold, as herein provided, shall be conveyed to the purchaser by the trustee, -vesting (J Whenever a composition shall be set aside, or discharge re- * '"'■ voked, the trustee shall, upon his appointment and qualification, be vested as herein provided with the title to all of the property § 72) * U. S. BANKRUPTCY LAW OF JULY 1, 1898- 1577 of the bankrupt as of the date of the final decree setting aside comjKisitloii the coinposltlon or revoking the discharge. aside. e The trustee may avoid any transfer by the bankrupt of his """"■y property which any cveditor of such bankrupt might have avoided, fjj" tfaM- and may recover the property so transferred, or Its value, from fers, etc. the person to whom it wtis transferred, unless he was a bona fide holder for value prior to the date of the ad.1udication. Such —recovery property may be recovered or its value collected from whoever "' property, may have received it, except a bona flde holder for value. For the purpose of such recovery any court of haiilcruptcy as here- inbefore defined, and any State eovrt tchich would have had jurisdiction if bankruptcy had not intervened, shall have concur- rent jurisdiction. (Amendment of 1903.) Title re- f T'pon the confirmation of a composition offered by a bank- ™^^^ ?° rupt, the title to his property shall thereupon revest in him. composition. THE TIMK WHEN THIS ACT SHALL GO INTO EFFECT. Force and a This Act shall go into full force and effect upon Its passage: ^'[1''*^.^. Provided, however. That no petition for voluntary bankruptcy for volun" shall be filed within one month of the passage thereof, and no '^''y bank- petition for involuntary bankruptcy shall be filed within four — involun- months of the pas.sage thereof. tary. b Proceedings commenced under State insolvency laws before ^^.^ the passage of this Act shall not be affected by it. §6° state"" Sec. 11. That the clerks of the several district courts of the laws. United States shall prepare and kcci> in their respective offices indexes to complete and convenient indexes of all petitions and discharges be kept. in bankruptcy heretofore or hereafter filed, in the said courts, and shall, when requested so to do, issue certificates of search cer- Certiflcatea tifying as to whether or not any such petitions or discharges have °^ \^^^ *° been filed; and said clerks shall be entitled to receive for such certificates the same fees as now allowed by law for certificates as to judgments in said courts: Provided, That said bankruptcy indexes and dockets shall at all times be open to inspection and examination by all persons or corporations without any fee or charge therefor. Sec. 72. That neither the referee nor the trustee shall in any Referee form or guise receive, nor shall the court allow them, any other and '"iste or further compensation for their services than that expressly lowed fur- authorized and prescribed in this Act. ther conapeu That the provisions of this amendatory Act shall not apply ^^"°°- to bankruptcy cases pending when this Act takes effect, but such cases shall be adjudicated and disposed of conformably to the provisions of the said Act of July first, eighteen hundred and ninety-eight. (New sections added by act of 1903.) Sec. 72. That neither the referee, reccirvr, marshal, nor trus- tee shall in any form or guise receive, nor shall the court allow him, any other or further compensation for his sermces than that expressly authorized and prescribed in this Act. That the pi-ovisions of this amendatory Act shall not apply to bankruptcy eases pending ichen this Act takes effect, but such eases shall be adjudicated and disposed of conformably to the provisions of said Act approved July first, eighteen hundred and ninety-eight, as amended by said Act approved February fifth, nineteen hundred and three, and as further amended by said Act approved June fifteenth, nineteen hundred and six. (Amendment of 1910.) GENERAL ORDERS AND FORMS IN BANKRUPTCY ADOPTED AND ESTABLISHED BY THE SUPREME COURT OF THE UNITED STATES NOVEMBER 28, 1898 Tabu! or THE General Oedees General Order. . XIX. I. Docket. XX. n. Filing of papers. XXI. ni. Process. XXII. IV. Conduct of proceedings. XXIII. V. Frame of petitions. XXIV. VI. Petitions in different dis- tricts. XXV. VII. Priority of petitions. XXVI. VIII. Proceedings in partnership XXVII. cases. XXVIII. rx. Schedule in Involuntary bankruptcy. XXIX. X. Indemnity for expenses. XI. Amendments. XXX. XII. Duties of referee. XXXI. XIII. Appointment and removal of trustee. XXXII. XIV. No oJflcial or general trus- XXXIII. tee. XXXIV. XV. Trustee not appointed in certain cases. XXXV. XVI. Notice to trustee of his ap- pointment. XXXVI. XVII. Duties of trustee. XXXVII. XVIII. Sale of property. XXXVIII. Accounts of marshal. Papers filed after reference. Proof of debts. Taking of testimony. Orders of referee. Transmission of proved claims to clerk. Special meeting of creditors. Accounts of ref«ree. Review by Judge. Redemption of property and compounding of claims. Payment of moneys depos- ited. Imprisoned debtor. Petition for discharge. Opposition to discharge or composition. Arbitration. Costs In contested adjudi- cations. Compensation of clerks, ref- erees, and trustees. Appeals; General provisions. Forms. SUPREME COURT OF THE UNITED STATES. OCTOBER TERM, 1898. In pursuance of the powers conferred by the Constitution and laws upon the Supreme Court of the United States, and particularly by' the act of 'Con- gress approved July 1, 1898, entitled "An act to establish a uniform system of bankruptcy throughout the United States," it is ordered, on this 28th day of November, 1898, that the following rules be adopted and established as general orders in bankruptcy, to take effect on the first Monday, being the second day, of January, 1899. And it is further ordered that all proceedings in bankruptcy had before that day, in accordance with the act last afore- said, and being in substantial conformity either with the provisions of these (1579) 1580 APPENDIX (I-VI general orders, or else with the general orders established by this court under the bankrupt act of 1867 and with any general rules or special orders of the courts in bankruptcy, stand good, subject, however, to such further regula- tion by rule or order of those courts as may be necessary or proper to carry into force and effect the bankrupt act of 1898 and the general orders of this court. DOCKET. The clerk shall keep a docket, in which the cases shall be entered and numbered in the order in which they are commenced. It shp.ll contain a memorandum of the filing of the petition and of the action of the court thereon, of the reference of the case to the referee, and of the transmission by him to the clerk of his certified record of the proceedings, with the dates thereof, and a memorandum of all proceedings in the case except those duly entered on the referee's certified record aforesaid. The docket shall be ar- ranged in a manner convenient for reference, and shall at all times be open to public inspection. II. PILING OF PAPERS. The clerk or the referee shall indorse on each paper filed with him the day and hour of filing, and a brief statement of its character., III. PEOCBSS. All process, summons and subpoenas shall issue out of the court, under the seal thereof, and be tested by the clerk; and blanks, with the signature of the clerk and seal of the court, may, upon application, be furnished to the referees. IV. CONDOOT OP PROCEEDINGS. Proceedings in bankruptcy may be conducted by the bankrupt in person In his own behalf, or by a petititioning or opposing creditor; but a creditor will only be allowed to manage before the court his individual interest. Every party may appear and conduct the proceedings by attorney, who shall be an attorney or counsellor authorized to practice in the circuit or district court. The name of the attorney or counsellor, with his place of business, shall be entered upon the docket, with the date of the entry. All papers or proceedings offered by an attorney to be filed shall be indorsed as above re- quired, and orders granted on motion shall contain the name of the party or attorney making the motion. Notices and orders which are not, by the act or by fhese general orders, required to be served on the party personally may be served upon his attorney. V. FRAME OF PETITIONS. AH petitions and the schedules filed therewith shair be printed or written out plainly, without abbreviation or interlineation, except where such ab- breviation and interlineation may be for the purpose of reference. VI. PETITIONS IN DIFFERENT DISTRICTS. In case two or more petitions shall be filed against the same Individual in different districts, the first hearing shall be had in the district In which the VII- VIII) GENERAL ORDERS IN BANKRUPTCY 1581 debtor tias his domlcO, and the petition may be amended by Inserting an allegation of an act of bankruptcy committed at an earlier date than that first alleged, if such earlier act is charged in either of the other petitions; and in case of two or more petitions against the same partnership in dif- ferent courts, each having Jurisdiction over the case, the petition first filed shall be first heard, and may be amended by the insertion of an allegation of an earlier act of bankriipfcy than that first alleged, if such earlier act is charged in either of the other petitions; and, in either case, the proceedings upon the other petitions may be stayed until an adjudication is made upon the petition first heard; and the court which makes the first adjudication of bankruptcy shall retain jurisdiction over all proceedings therein 'iintil the same shall be closed. In case two or more petitions shall be filed in differ- ent districts by different members of the same partnership for an adjudica- tion of the bankruptcy of said partnership, the court in which the petition Is first filed, having jurisdiction, shall take and retain jurisdiction over all proceedings in such bankruptcy until the same shall be closed; and if such petitioas shall be filed in the same district, action shall be first h^^d upon the one first filed. But the court so retaining jurisdiction shall, if satisfied that It is for the greatest convenience of parties in interest that another of said courts should proceed with the cases, order them to be transferred to, that court VII. PRIORITY or PETITIONS. Whenever two or more petitions shall be filed by creditors against a com- mon debtor, alleging separate acts of bankruptcy committed by said debtor on different days within four months prior to the filing of said petitions, and the debtor shall appear and show cause against ah adjudication of bank- ruptcy a:gainst him on the petitions, that petition shall be first heard and^ tried which alleges the commission of the earliest act of bankruptcy; and' in case the several acts of bankruptcy are alleged in the different petitions to have been committed on the same day, the court before which the same are pending may order them to be consolidated, and proceed to a hearing' is upon one petition ; and if an adjudication of bankruptcy be made upon either petition, or for the commission of a single act of bankruptcy, it shall not be necessary to proceed to a hearing upon the remaining petitions, unless proceedings be taken by the debtor for the purpose of causing such adjudica- tion to be annulled or vacated. : r VIII. PROCEEDINGS IN PARTNERSHIP CASES. Any member of a partnership, who. refuses to join in' a petition to have the partnership declared bankrupt, shall be entitled to resist the prayer of the petition in the same manner as if the petition had been filed by a cred- itor of the partnership, and notice of the filing of the petition shall be given to him in the same manner as provided by law and by -these rules in the case of a debtor petitioned against; and he shall have the right to appear at the time fixed by the court for the hearing of the petition, and to make proof, if he can, that the partnership is not insolvent or has not committed an act of bankruptcy, and to make all defences which any debtor proceeded against is entitled to take by the provisions of the act; and in case an ad- judication of bankruptcy is made upon the petition, such partner shall be required to file a schedule of his debts and an inventory of his property in the same manner as is required bjr the act in cases of debtors against whom adjudication of bankruptcy shall be made. 1582 APPENDIX (IX-XII IX. SCHEDtrtB IN INVOLUNTAET BANKKUPTOT. In all cases of involuntary bankruptcy in which the bankrupt Is absent or can not be found, it shall be the duty of the petitioning creditor to file, within five days after the date of the adjudication, a schedule giving the names and places of residence of all the creditors of the bankrupt, accord- ing to the best information of the petitioning creditor. If the debtor Is found, and is served with notice to furnish a schedule of his creditors and fails to do so, the petitioning creditor may apply for an attachment against the debtor, or may himself furnish such schedule as aforesaid. INDEMNITY FOE EXPENSES. Before incurring any expense in publishing or mailing notices, or In trav- elling, or in procuring the attendance of witnesses, or in perpetuating testi- mony, the clerk, marshal or referee may require, from the bankrupt or other person in whose behalf the duty is to be performed, indemnity for such ex- pense. Money advanced for this purpose by the bankrupt or other person shall be repaid him out of the estate as part of the cost of administering the same. XI. AMENDMENTS. The court may allow amendments to the petition and schedules on ap- plication of the petitioner. ,\mendments shall be printed or written, signed and verified, like original petitions and schedules. If amendments are made to separate schedules, the same must be made separately, with proper refer- ences. In the application for leave to amend, the petitioner shall state the cause of the error in the paper originally filed. XII. DUTIES OF REFEREE. 1. The order referring a case to a referee shall name a day upon which the bankrupt shall attend before the referee; and from that day the bankrupt shall be subject to the orders of the court In all matters relating to his bank- ruptcy, and may receive from the referee a protection against arrest, to con- tinue until the final adjudication on his application for a discharge, unless suspended or vacated by order of the court. A copy of the order shall forth- with be sent by mail to the referee, or be delivered to him personally by. the clerk or other officer of the court. And thereafter all the proceedings, ex- cept such as are required by the act or by these general orders to be' had before the judge, shall bfe had before the referee. 2. The time when and the place where the referees shall act upon the matters arising under the several cases referred to them shall be fixed by special order of the judge, or by the referee; and at such times and places the referees may perform the duties which they are empowered by the act to perform. 3. Applications for a discharge, or for the approval of a composition or for an injunction to stay proceedings of a court or officer of the United States or of a State, shall be heard and decided by the judge. But he may refer such an application, or any specified issue arising thereon, to the referee to ascertain and report the facts. Xni-XVn) GENERAL ORDERS IN BANKRUPTCY 1583 XIII. APPOINTMENT AND REMOVAL OF TEUSTEE. The appointment of a trustee by the creditors shall be subject to be ap- provecl or disapproved by the referee or by the judge; and he shall be re- movable by the judge only. XIV. NO OFFICIAL OB GENEBAL TEUSTEE. No official trustee shall be appointed by the court, nor any general trus- tee to act in classes of cases. XV. TBUSTEB NOT APPOINTED IN CEETAIN OASES. M the schedule of a voluntary bankrupt discloses no assets, and If no creditor appears at the first meeting, the court may, by order setting out the facts, direct that no trustee be appointed; but at any time thereafter a trustee may be appointed; if the court shall deem it desirable. If no trustee is appointed as aforesaid, the court may order that no meeting of the cred- itors other than the first meeting shall be called. XVI. NOTICE TO TEUSTEE OF HIS APPOINTMENT. It shall be the duty of the referee, immediately upon the appointment and approval of the trustee, to notify him In person or by mail of his appoint- ment; and the notice shall require the trustee forthwith to notify the ref- eree of his acceptance or rejection of the trust, and shall contain a state- ment of the penal sum of the trustee's bond. XVII. DUTIES OF TBUSTEB. The trustee shall. Immediately upon entering upon his duties, prepare a complete Inventory of all the property of the bankrupt that comes into Ms possession. The trustee shall m^ke report to the court, within twenty days after receiving the notice of his appointment, of the articles set ofC to the bankrupt by him, according to the provisions of the forty-seventh section of the act, with the estimated value of each article, and any creditor may take exceptions to the determination of the trustee within twenty days after the filing of the report. The referee may require the exceptions to be argtied before him, and shall certify them to the court for final determination at^the request of either party. In case the trustee shall neglect to file any report or statement which It is made his duty to file or make by the act, or by any gen- eral order in bankruptcy, within five days after the same shall be due, it shall be the duty of the referee to make an order requiring the trustee to show cause before the judge, at a time specified in the order, why he should not e removed from oflice. The referee shall cause a copy of the order to be served upon the trustee at least seven days before the time fixed for the hearing, and proof of the service thereof to be delivered to the clerk. All accounts of trustees shall be referred as of course to the referee for audit, unless otherwise specially ordered by the court 1584 APPENDIX (XVin-XXI XVIII. SALE OF PKOPERTT. 1. AIT sales shall be by public auction unless otherwise ordered by the court. 2. Upon application to the court, and for good cause shown, the trustee may be authorized to sell any specified portion of the bankrupt's estate at private sale; in which case he shall keep an accurate account of each article sold, and the price received therefor, and to whom sold; which account he shall file at once with the referee. 3. Upon petition by a bankrupt, creditor, receiver or trustee, setting forth that a part or the whole of the bankrupt's estate is perishable, the nature and location of such perishable estate, and that there will be loss if the same is not sold immediately, the court, if satisfied of the facts stated and that the sale is required in the interest of the estate, may order the same to be sold, -with or without notice to the creditors, and the proceeds to be de- posited in court - XIX. , ACCOUNTS OP MARSHAL. The marshal shall make return, under oath, of his actual and necessary ex- penses in the service of every warrant addressed to hin>, and for custody of property, and other serviceiS, and other actual and necessary expenses paid by him, with vouchers therefor whenever practicable, and also with a state- ment that the amounts charged by him are just and reasonable. XX. PAPERS PILED AFTER REFERENCl!. Proofs of claims and other papers filed subsequently to the reference, ex- cept such as call for action by the judge, may be filed either with the referee or with the clerk. XXI. PROOF OP DEBTS. 1. Depositions to prove claims against a bankrupt's estate shall be cor- rectly entitled in the court and in the cause. When made to prove a debt due to a partnership, it must appear on oath that the deponent is a member of the partnership; when made by an agent, the reason the deposition is not made by the claimant in person must be stated ; and when made to prove a debt due to a corporation, the deposition shall be made by the treasurer, or, if the corporation has no treasurer, by the ofiicer whose duties most nearly correspond to those of treasurer. // the treasurer or corresponding offlver is iwt within the district wherein the hanlcruptcy preceedings are pending the deposition may 6e made by some officer or agent of the corporation having knowledge of the facts. (Words in italics were added by amendment pro- mulgated November 1, 1915.) Depositions to prove debts existing in open account, shall state when the debt became or will become due; and if it con- sists of items maturing at different dates the average due' date shall be stated, in default of which it shall not be necessary to compute interest up- on it. All such depositions shall contain an averment that no note has been received for such account, nor any judgment rendered thereon PrQofs of debt received by any trustee shall be delivered to the referee to whom the cause is referred. 2. Any creditor' may file with the referee a request that all notices to which he may be entitled shall be addressed to him at any place, to be designated by the post office box or street number, as he may appoint • and thereafter XXI-XXni) GENERAL ORDERS IN BANKRUPTCY 1585 and until some other designation shall be made by such creditor, all notices shall be so addressed; and In other cases notices shall be addressed as specified in the proof of debt. 3. Claims which have been assigned before proof shall be supported by a deposition of the owner at the time of the commencement of proceedings, setting forth the true consideration of the debt and that it is entirely un- secured, or if secured, the security, as is required in proving secured claims. Upon the filing of satisfactory proof of the assignment of a claim proved and entered on the referee's docket, the I'eferee shall immediately give notice by mall to the original claimant of the filing of such proof of assignment; and, if no objection be entered within ten days, or within further time al- lowed by the referee, he shall make an order subrogating the assignee to the original claimant. If objection be made, he shall proceed to hear and determine the matter. 4. The claims of persons contingently liable for the bankrupt may be proved in the name of the creditor when known by the party contingently liable. When the name of the creditor Is unknown, such claim may be proved in the name of the party contingently liable; but no dividend shall be paid upon such claim, except upon satisfactory proof that it will diminish pro tanto the original debt. 5. The execution of any letter of attorney to represent a creditor, or of an assignment of claim after proof, may be pi-oved or acknowledged before a referee, or a United States commissioner, or a notary public. When executed on behalf of a partnership or of a corporation, the person executing the in- strument shall make oath that he is a member of the partnership, or a duly authorized officer of the corporation on whose behalf he acts. When the per- son executing is not personally known to the officer taking the proof or acknowledgment, his identity shall be established by satisfactory proof. 6. When the trustee or any creditor shall desire the v re-examination of any claim filed against the bankrupt's estate, he may apply by petition to the referee to whom the case is referred for an order for such re-examina- tion, and thereupon the referee shall make an order fixing a time for hear- ing the petition, of which due notice shall be given by mall addressed to the creditor. At the time appointed the referee shall take the examination of the creditor, and of any witnesses that may be called by either party, and if it shall appear from such examination that the claim ought to be expunged or diniinished, the referee may order accordingly, XXII. TAKING OP TESTIMONY. The examination of witnesses before the referee may be conducted by the party in person or by his counsel or attorney, and the witnesses shall be subject to examination and cross-examination, which shall be had in con- formity with the mode now adopted in courts of law. A deposition taken upon an examination before a referee shall be taken down in writing by Mm, or under his direction, in the form of narrative, unless he determines that the examination shall be by question and answer. When completed it shall be read over to the witness and signed by him, in |he presence of the referee. The referee shall note upon the deposition aijy questipn objected to, with his decision thereon; and the court shall have power to deal with the costs of incompetent, immaterial, or Irrelevant depositions, or parts of them, as may be just. XXIII. ORDERS OF BEFEEEE. In all orders made by a vet'eree, it slaall be recited, according as the fact may be, that notice vyas given ) and the manner thereof; or that the order BtK.BKB.(3D BID.)— lOO APPENDIX (XXIV-XXIX 1586 was made by consent; or that no adverse interest was represented at the hearing; or that the order was made after hearing adverse interests. XXIV. TRANSMISSION OF PEOVBD CLAIMS TO CtEEK. The referee shall forthwith transmit to the clerk a list of the claims proved against an estate, with the names and addresses of the proving creditors. XXV. BPECIAI. MEETING OP CBEDITOES. Whenever, by reason of a vacancy in the office of trustee, or for any other cause, it becomes necessary to call a special meeting of the creditors in order to carry out the purposes of the act, the court may call such a meeting, specifying in the notice the purpose for which it is called. XXVI. ACCOUNTS OP KEPEEEE. Every referee shall keep an accurate account of his travelling and In- cidental expenses, and of those of any clerk or other officer attending him in the performance of his duties in any case which may be referred to him ; and shall make return of the same under oath to the judge, with proper vouchers when vouchers can be procured, on the first Tuesday in each month. XXVII. EEVIEW BY JUDGE. When a bankrupt, creditor, trustee, or other person shall desire a review by the judge of any order made by the referee, he shall file with the referee his petition therefor, setting out the error complained of ; and the referee shall forthwith certify to the judge the question presented, a summary of the evi- dence relating thereto, and the finding and order of the referee thereon. XXVIII. BBDBMPIION OP'PEOPEBTT AND COMPOUNDING OF CLAIMS. Whenever it may be deemed for the benefit of the estate of a bankrupt to redeem and discharge any mortgage or other pledge, or deposit or lien, upon any property, real or personal, or to relieve said property from any condi- tional contract, and to tender performance of the conditions thereof, or to compound and settle any debts or other claims due or belonging to the estate of the bankrupt, the trustee, or the bankrupt, or any creditor who has proved his debt, may file his petition therefor; and thereupon the court shall ap- point a suitable time and place for the hearing thereof, notice of which shall be given as the court shall direct, so that all creditors and other persons inr terested may appear and show cause, if any they have, why an order should not be passed by the court upon the petition authorizing such act on the part of the trustee. XXIX. PAYMENT OF MONEYS DEPOSITED. No moneys deposited as required by the act shall be drawn from the de- pository unless by check or warrant, signed by the clerk of the court, or by a trustee, and countersigned by the judge of the court, or by a referee desig- XXX-XXXm) GENERAL ORDERS IN BANKRUPTCI 1587 nated for that purpose, or by the clerk or his assistant under an order made by the judge, stating the date, the sum, and the account for which It Is drawn; and an entry of the substance of such check or warrant, with the date thereof, the sum drawn for, and the account for which It Is drawn, shall be forthwith made in a book kept for that purpose by the trustee or his clerk; and all cheeks and drafts shall be entered in the order of time in which they are drawn, and shall be numbered in the case of each estate. A copy of this general order shall be furnished to the depository, and also Oie name of any referee or clerk authorized to countersign said checks. XXX. nrPRISONED DEBTOB. If, at the time of preferring his petition, the debtor shall be Imprisoned, the court, upon application, may order him to be produced upon habeas corpus, by the jailor or any officer in whose custody he may be, before the referee, for the purpose of testifying in any matter relating to his bank- ruptcy; and, if committed after the filing of his petition upon process in any civil action founded upon a claim provable in bankmiptcy, the court may, upon like application, discharge him from such imprisonment. If the pe- titioner, during the pendency of the proceedings in bankruptcy, be arrested or imprisoned upon process in any civil action, the district court, upon his application, may issue a writ of haheas corpus to bring him before the court to ascertain whether such process has been issued for the collection of any claim provable in bankruptcy, and if so provable he shall be discharged; if not, he shall be remanded to the custody in which he may lawfully be. Be- fore granting the order for discharge the court shall cause notice to be served upon the creditor or his attorney, so as to give him an opportunity of appearing and being heard before the granting of the order. XXXI. PETITION FOB DISCHAEGE. The petition of a bankrupt for a discharge shall state concisely, In ac- cordance with the provisions of the act and the orders of the court, the pro- ceedings in the case and the acts of the bankrupt. XXXII. OPPOSITION TO DISCHAEGE OB COMPOSITION. A creditor opposing the application of a bankrupt for his discharge, or for the confirmation of a composition, shall enter his appearance in opposi- tion thereto on the day when the creditors are required to show cause, and shall file a specification in writing of the grounds of his opposition within ten days thereafter, unless the time shall be enlarged by special order of the judge. XXXIII, AEBITEATION. Whenever a trustee shall make application to the court for authority to sub- mit a controversy arising in the settlement of a demand against a bankrupt's estate, or for a debt due to it, to the determination of arbitrators, or for au- thority to compound and settle such controversy by agreement with the other party, the application shall clearly and distinctly set forth the subject- matter of the controversy, and the reasons why the trustee thinks it proper 1588 APPENDIX (XXXIV-XXXVI and most for the Interest of the estate that the controversy should be set- tled by arbitration or otherwise. XXXIV. COSTS IN CONTESTED ADJUDICATIONS. In cases of Involuntary bankruptcy, when the debtor resists an adjudica- tion, and the court, after hearing, adjudges the debtor a bankrupt, the peti- tioning creditor shall recover, and be paid out of the estate, the same costs that are allowed to a party recovering in a suit in equity; and if the peti- tion is dismissed, the debtor shall recover like costs against the petitioner. XXXV. COMPENSATION OF OLEBKS, BBFEEEES AND TBUSTEES. 1. The fees allowed by the act to clerks shall be in full compensation for all services performed by them in regard to filing petitions or other papers required by the act to be filed with them, or in certifying or delivering papers or copies of records to referees or other oflScers, or In receiving or paying out money; but shall not include copies furnished to other persons, or ex- penses necessarily incurred in publishing or mailing notices or other papers. 2. The compensation of referees, prescribed by the act, shall be in full compensation for all services performed by them under the act, or under these general orders; but shall not include expenses necessarily incurred by them in publishing or mailing notices, in travelling, or in perpetuating tes- timony, or other expenses necessarily incurred in the performance of their duties under the act and allowed by special order of the judge. 3. The compensation allowed to trustees by the act shall be in full com- pensation for the services performed by them; but shall not include ex- penses necessarily incurred in the performance of their duties and allowed upon the settlement of their accounts. 4. In any case in which the fees of the clerk, referee and trustee are not required by the act to be paid by a debtor before filing his petition to be adjudged a bankrupt, the judge, at any time during the pendency of the pro- ceedings in bankruptcy, may order those fees to be paid out of the estate ; or may, after notice to the bankrupt, and satisfactory proof that he then has or can obtain the money with which to pay those fees, order him to pay them within a time specified, and, if he fails to do so, may order his petition to be dismissed. 1 XXXVI. APPEALS. 1. Appeals from a court of bankruptcy to a circuit court of appeals, or to the supreme court of a Territory', shall be allowed by a judge of the court appealed from or of the court appealed to, and shall be regulated, except as otherwise provided in the act, by the rules governing appeals in equity in the courts of the Ignited States. 2. Appeals under the act to the Supreme Court of the United States from a circuit court of appeals, or from the supreme court of a Territory, or from the supreme court of the District of Columbia, or from any court of bank- ruptcy whatever, shall be taken within thirty days after the judgment or de- 1 The Supreme Court, on December 11, 1905, ordered that General Order No 36 should be amended by adding the following sentence to the fourth subdivision thereof- ' "He may also, pending such proceedings, both in voluntary and involuntary cases or- der the commissions of referees and trustees to be paid immediately after such oommis ?lons accrue and are earned."' XXXVI-XXXVni) GENERAL ORDERS IN BANKRUPTCY 1589 cree, and shall be allowed by a judge of the court appealed from, or by a Jusi- tlce of the Supreme Court of the United States. 3. In every case in which either party Is entitled by the act to take an appeal to the Supreme Court of the TJnited States, the court from which the appeal lies shall, at or before the time of entering its judgment or decree, make and file a finding of the facts, and its conclusions of law thereon, stated separately; and the record transmitted to the Supreme Court of the United States on such an appeal shall consist only of the pleadings, the judgment or decree, the finding of facts, and the conclusions of law. XXXVII. GENBEAL PROVISIONS. In proceedings in equity, instituted for the purpose of carrying into effect the provisions of the act, or for enforcing the rights and remedies given by It, the rules of equity practice .established by the Supreme Court of the United States shall be followed as nearly as may be. In proceedings at law, instituted for the same purpose, the practice and procedure in cases at law shall be followed as nearly as may be. But the judge may, by special order in any case, vary the time allowed for return of process, for appearance and pleading, and for taking testimony and publication, and may otherwise mod- ify the rules for the preparation of any particular case so as to facilitate a speedy bearing. XXXVIII. The several forms annexed to these general orders shall be observed and used, with such alterations as may be necessary to suit the circumstances of any particular case. 1590 APPBNDIX FORMS IN BANKRUPTCY. [N. B.— Oaths required by the act, except upon hearings in court, may be administered by referees and by officers authorized to administer oaths in proceedings before the courts of the United States, or under the laws of the State where the same are to be taken. Bankrupt Act of 1898, c. 4, § 20.] Table of Forms. Is not of Number. 1. Debtor's petition. Schedule A. Schedule B. Summary of debts and assets. 2. Partnership petition. 3. Creditors' petition. 4. Order to show cause upon creditors' petition. 5. Subpoena to alleged bankrupt 6. Denial of bankruptcy. 7. Order for jury trial. 8. Special warrant to marshal. 9. Bond of petitioning creditor. 10. Bond to marshal. 11. Adjudication that debtor bankrupt. 12. Adjudication of bankruptcy. 13. Appointment, oath, and report appraisers. 14. Order of reference. 15. Order of reference In judge's ab- sence. 16. Referee's oath of office. 17. Bond of referee. 18. Notice of first meeting of creditors. 19. List of debts proved at first meet- ing. 20. General letter of attorney in fact. 21. Special, letter of attorney in fact. 22. Appointment of trustee by creditors. 23. Appointment of trustees by referee. 24. Notice to trustee of his appoint- ment. 25. Bond of trustee. 26. Order approving trustee's bond. 27. Order that no trustee be appointed. 28. Order for examination of bankrupt. 29. Examination of bankrupt or wit- ness. 30. Summons to witness. 31. Proof of unsecured debt. 32. Proof of secured debt. Number, 33. Proof of debt due corporation. 34. Proof of debt by partnership. 35. Proof of debt by agent or attorney. 36. Proof of secured debt by agent. 37. Affidavit of lost bill, or note. 38. Order reducing claim. 39. Order expunging claim. 40. List of claims and dividends. 41. Notice of dividend. 42. Petition and order for sale by auc- tion of real estate. 43. Petition and order for redemption of property from lien. 44. Petition and order for sale subject to lien. 45. Petition and order for private sale. 46. Petition and order for sale of per- ishable property. 47. Trustee's report of exempted prop- erty. 48. Trustee's return of no assets. 49. Account of trustee. 50. Oath to final account of trustee. 51. Order allowing account and dis- charging trustee. 52. Petition for removal of trustee. 53. Notice of petition for removal of trustee. 54. Order for renloval of trustee. 55. Order for choice of new trustee. 56. Certificate by referee to judge. 57. Bankrupt's petition for discharge. 58. Specification of grounds of opposi- tion to bankrupt's discharge. 59. Discharge of bankrupt. 60. Petition for meeting to consider composition. 61. Application for confirmation of com- position. ^ 62. Order confirming composition. 63. Order of distribution on composi- tion. Form No. 1) foems in BANKRxrPTcr 1591 [Form No. 1.] Debtor's Petition. To the Honorable , Judge of the District Court of the tTnited States for the — — — District of • Thg petition of , of , In the county of , and dis- trict and State of , ;- [state occupation], respectfully represents: That he has had his principal place of business [or has resided, or has had his domicll] for the greater portion of six months next immediately pre- ceding the filing of this petition at , within said judicial district ; that he owes debts which he is unable to pay in full ; that he is willing to sur- render all his property for the benefit of his creditors except such as is ex- empt by law, and desires to obtain the benefit of the acts of Congress relat- ing to bankruptcy. That the schedule hereto annexed, marked A, and verified by your peti- tioner's oath, contains a full and true statement of all his debts, and (so far as it is possible to ascertain) the names and places of residence of his cred- itors, and such further statements concerning said debts as are required by the pi-ovisions of said acts: That the schedule hereto annexed, marked B, and verified by your peti- tioner's oath, contains an accurate inventory of all his property, both real and personal, and such further statements concerning said property as are required by the provisions of said acts: Wherefore your petitioner prays that he may be adjudged by the court to be a bankrupt within the purview of said acts. -, Attorney. United States of America, District of . ss: I, '- — , the petitioning debtor mentioned and described in the foregoing petition, do hereby make solemn oath that the statements contained therein are true according to the best of my knowledge, information, and be- lief. , Petitioner. Subscribed and sworn to before me this day of , A. D. 18 — . (Offloial character.) 1592 APPENDIX (Form No. 1 5 a ^ H CH 00 P 3 M » ^ OS !5 ■3 ? o 1.2 g . ^ CJ OT P4 u 2 I en fp c» Q.C0 ii - v^ u » 0) 1 0) o |il 1'" Total .s , s o g 1 S ID a • Residences (it un- known, that fact must be stated). i o 1 \ Reference to ledg- er or voucher. 1594 APPENDIX (Form No.1 EB la „-a n -g •a « 52, Hi Q a ° ■a (a SM H a •- I ,^ " B « ° 5 >. i 4 6 tA- Nature and consideration of the debt, and whether any judgment, bond, bill of exchange, promis- sory note, etc., and whether contracted as part- ner or Joint contractor with any other person; and, if so, with whom. 1 ID ■OS CO .,_i a a 0) ■a all « S i (M 03 IS • U •s . i V > 9 f-< Form No. 1) FOBMS IN BANKRUPTCY 1595 Hi a a ti te n o 5 a 2 *J o 2 2'° o «- S ja o ^|:§ a p P •S £ a 3 S3 SI'" " 3 -« O O w S S » a s « rt (d .tf « o s ^■^ •s « 5 S "^ -d . §■" O ^ m t» s 13 «j fl -a O n S -S w5 ' a 9 6» ■Sfc S: l§ »3 (h u te m T3 -S XI « ^ _ Q ■g 0,-2 ■"Se Americ day ol regoing accorda nd swo = ta- 0) fl m £! W « -^ .§ S ■=! S ^ m 3 So g •« w ■J-" ja ,E) a S _. p. ^■3 Form No. 1) FORMS IN BANKRUPTCY 1597 D 2; P3 a o Hi <) O a a H m P Q a o 05 PQ t . to .9 «•- S gj td m w rt 3 d .215 4^ Eh tH Hid e g a • PA e >i u XI « '2 5 x» S ca : t ■ "■ T" ; r 1 c : '' . '4 -• ■ >■ ,j :, 1 l( Pi 1 'C ' " I' : - 1 a to (U ■a -o ! '."■■■ i p cd ' fl ri tl »:] hi. «-- _ , i 1598 APPENDIX (Form No. 1 a . a ^ o o Pi o H u cd Hi 3 -a 3 i rt a oi m ■S of CO iS rn ''^ •> 3 S ^ CO u iV •-• (a t4 u 0) d cd S bo bo fe ^ 1 (? in ^ t f Form No. 1) FORMS IN BANKRUPTCY 1599 a ° • -2 V & ^1 3 5 ■a a M , *•- o a ft *•■ ^B s ael ■CS c! <• ? fc. o > a; ■" ft -S o ■" O OJ "w aS S V -a S " ■" ■° ° o • « a) ca ° — ^ .rt nl (0 -a SS^ Q) -*-» ^"^-o fl * o - ■S'g^S fe aj O (u ■oSga , *!=' :^£- (u«w a E a" CO eS EQ • 09 ■O O B g o 3 « a W ^0) '-.Id >>• ■^1 a (n V i 1 ^S"" h interest editors, th m the proc a . : ? •STl^-* S& : b : ■s- : 1 ft" m -"131 if:| a Jo 2 SSI- la tion of eac snefit of or realized fro 0) a 1 J 1 ^ 3-" II [N. B.— A particular descrip ment, or otherwise, for the b( erty was conveyed, the amount s " 1 »g V I a c >; Q S i 1 M 1 4§ Schedule A Schedule A Schedule A 4 Notes and bills which ought to be paid by other parties thereto. 5 Accommodation paper .'I ■ • R 2-b Bills, promissory notes, and securities ........ *t 2-d Household goods, &c 2-e Books, prints, and pictures It •• t4 §t 2-k Machinery tools &c~ *' 2-1 Patents, copyrights, and trade-marks 4t 3-c Policies of insurance <• Schedule 3-e Deposits of money in banks and elsewhere — 4 Property in reversion, remainder, trust, &c.. To the Honorable • [Form No. 2;] Paetneeship Petition. Judge of the District Court of the United States for the District of ■ The petition of respectfully represents: have been partners under the flrui — , in That your petitioners and name of , having their principal place of business at the county of -, and district and State of • -, for the greater portion of the six months next immediately preceding the filing of this petition ; that the said partners owe debts which they are unable to pay in full ; that your petitioners are willing to surrender all their property for the benefit of their creditors, except such as is exempt by law, and desire to obtain the benefit of the acts of Congress relating to bankruptcy. That the schedule hereto annexed, marked A, and verified by oath , con- tains a full and true statement of all the debts of said partners, and, as far as possible, the names and places of residence of their creditors, and such further statements concerning said debts as are required by the provisions of said acts. 1604 APPENDIX (Form No. Z That the schedule hereto annexed, marked B, verified by oath , con- tains an accurate inventory of all the property, real and personal, of said part- ners, and such further statements concerning said property as are required by the provisions of said acts. And said further states that the schedule hereto annexed, marked C, verified by his oath, contains a full and true statement of all his in- dividual debts, and, as far as possible, the names and places of residence of his creditors, and such further statements concerning said debts as are required by the provisions of said acts ; and that the schedule hereto annexed, marked D, verified by his oath, contains an accurate inventory of all his individual prop- erty, real and personal, and such further statements concerning said property as are required by the provisions of said acts. And said further states that the schedule hereto annexed, marked E, verified by his oath, contains a full and true statement of aU his individual debts, and, as far as possible, the names and places of residence of his creditors, and such 'further statements concerning said debts as are re- quired by the provisions of said acts ; and that the schedule hereto annexed, marked F, verified by his oath, contains an accurate inventory of all his in- dividual property, real and personal, and such further statements concerning Bald property as are required by the provisions of said acts. And said further states that the schedule hereto annexed, marked 6, verified by his oath, contains a full and true statement of all his Individual debts, and, as far as possible, the names and places of residence of his creditors, and such further statements concerning said debts as are re- quired by the provisions of said acts ; and that the schedule hereto annexed, marked H,, verified by his oath, contains an accurate inventory of all his in- dividual property, real and personal, and such further statements concerning said property as are required by the provisions of said acts. And said further states that the schedule hereto annexed, marked J, verified by his oath, contains a full and true statement of aU his Individual debts, and, as far as possible, the names and places of residence of his creditors, and such further statements concerning said debts as are re- quired by the provisions of said acts, and that the schedule hereto annexed, marked K, verified by his oath, contains an accurate inventory of all his in- dividual property, real and personal, and such further statements concerning said property as are required by the provisions of said acts. Wherefore your petitioners pray that the said firm may be adjudged by a decree of the court to be bankrupts within the purview of said acts. Petitioners. -, Attorney. -, the petitioning debtors mentioned and described in the fore- going petition, do hereby make solemn oath that the statements contained therein are true according to the best of their knowledge, information and be- Uef. Petitioners. Subscribed and sworn to before me this day of , A. D. 18 . ' '» lOffloial character.] [Schedules to be annexed corresponding with schedules under Form No. 1.] Form No. 4) fokms in bankruptcy 1605 [Form No. 3.] Creditoes' PErniioN. To the Honorable , judge of the District Court of the United States for the district of : The petition of , of and , of , and ; , of , respectfully shows: That , of , has for the greater portion of six months next preceding the date of filing this petition, had his principal place of busi- ness, [or resided, or had his domicil] at , in the county of and State and district aforesaid, and owes debts to the amount of $1,000. That your petitioners are creditors of said , having provable claims amounting in the aggregate, in excess of securities held by them, to the sum of $500. That the nature and amount of your petitioners' claims are as follows: . And your petitioners further represent that said is insolvent, and that within four months next preceding the date of this petition the said committed an act of bankruptcy, in that he did heretofore, to wit, on the day of '. Wherefore your petitioners pray that service of this petition, with a sub- poena, may be made upon , as provided in the acts of Ctongress relating to bankruptcy, and that he may be adjudged by the court to be a bankrupt within the purview of said acts. Petitioners. Attorney. United States of America, District of , ss.: , , , being three of the petitioners above named, do hereby make solemn oath that the statements contained In the foregoing petition, subscribed by them, are true. Before me, , this day of , 189 — . (Official oliaracter.J [Schedules to be annexed corresponding with schedules under Form No. 1.] [Form No. 4.] Order to Show CAtrsB upon Creditors' Petition. In the District Court of the United States for the District of • In the matter of In Bankruptcy. Upon consideration of the petition of that be declared a bankrupt, it is ordered that the said do appear at this court, as a court of bankruptcy, to be holden at —, In the district 1606 APPENDIX (Form No. 4 aforesaid, on the day of , at — o'clock in the noon, and show cause, if any there be, why the prayer of said petition should not be granted; and It is further ordered that a copy of said petition, together with a writ of subpoena, be served on said , by delivering the same to him personally or by leaving the same at his last usual place of abode in said dis- trict, at least five days before the day aforesaid. Witness the Honorable , judge of the said court, and the seal thereof, at , in said district, on the day of , A. D. 18 — . f Seal of 1 • I the court. J Clerk. [FOEM No. 5.] SuBPCBNA TO Alleged Banketipt. United States of America, District of . To , in said district, greeting : For certain causes offered before the District Court of the United States of America within and for the district of , as a court of bankruptcy, we command and strictly enjoin you, laying all other matters aside and not- withstanding any excuse, that you personally appear before our said District Court to be holden at , in said district, on the day of , A. D. 189 — , ■ — - — to answer to a petition filed by in our said court, praying that you may be adjudged a bankrupt; and to do further and receive that which our said District Court shall consider in this behalf. And this you are in no wise to omit, under the pains and penalties of what may befall thereon. Witness' the Honorable , judge of said court, and the seal thereof, at , this day of , A. D. 189 — . ( Seal of ) , Xthe court J Olerh. [FOBM No. 6.] Denial or Bankeuptct. In the District Court of the United States for the District of • In the matter of - In Bankruptcy. At , in said district, on the day of , A. D. 18 . And now the said appears, and denies that he has committed the act of bankruptcy set forth in said petition, or that he is insolvent, and avers that he should not be declared bankrupt for any cause in said petition alleged ; and this he prays may be inquired of by the court [or, he demands that the same may be inquired of by a jury]. Subscribed and sworn to before me this day of , A. D. 18 . [Offloial character.} Pomi No. 8) FORMS IN BANKRUPTCY 1607 [FOEM No. 7.] Obdee fob Juey Tbial. In the District Court of the United States for the District of b In the matter of In Bankruptcy. At , in said district, on the day of , 18 — . Upon the demand in writing filed by , alleged to be a bank- rupt, that the fact of the commission by him of an act of bankruptcy, and the fact of his insolvency may be inquired of by a jury, it is ordered, that said issue be submitted to a Jury. { Seal of ) ' the court.) Clerk. [FoEM No. 8.] Special Waeeant to MaeshaIu In the District Court of the United States for the District of • In the matter of In Bankruptcy, To the marshal of said district or to either of his deputies, greeting:. Whereas a petition for adjudication of bankruptcy was, on the day of . A. D. 18 — , filed against ■ , of the county of anj^ State of , in said district, and said petition is still pending ;■ and where- as it satisfactorily appears that said has committed an act of bank- ruptcy [or has neglected or is neglecting, or is about to so neglect his proper- ty that it has thereby deteriorated or is thereby deteriorating or is about thereby to deteriorate in value], you are therefore authorized and required to seize and take possession of all the estate, real and personal, of said -, and of all his deeds, books of account, and papers, and to hold and keep the same safely subject to the further order of the court. Witness the Honorable , judge of the said court, and the seal thereof, at , in said district, on the of , A. D. 189 — . f Seal ot 1 .—— , I the court. J Clerk. BETUEN BY MAESHAI, THEEEON. By virtue of the within warrant, I have taken possession of the estate of of the within-named , and of all his deeds, books of account, and papers which have come to my knowledge. Marshal [or Deputy Marshal}, 1608 APPENDIX (Form No. 8 Fees and expenses. 1. Service of warrant 2. Necessary travel, at the rate of six cents a mile each way 3. Actual expenses in custody of property and other services as fol- lows [Here state the particulars.] District of ■ A. D. 18—. Marshal [or Deputy Marshal]. Personally appeared before me the said and made oath that the above expenses returned by him have been actually incurred and paid by him, and are just and reasonable. Referee in Banlcruptey. [FoEM No. 9.] Bond of Petitioning Ceeditoe. BJiow all men by these presents : That we, as sureties, are held and firmly bound unto dollars, to be paid to the said ■ -, as principal, and , In the full and just sum of executors, administrators, or assigns, to which payment, well and tnily to be made, we bind ourselves, our heirs, executors, and administrators, jointly and severally, by these presents. Signed and sealed this day of A. D., 189 — . ,.„ The condition of this obligation is such" that whereas a petition in bank- ruptcy has been filed in the district court of the United States for the district of against the said , and the said has applied to that court for a warrant to the marshal of said district directing him to seize and hold the property of said , subject to the further orders of said district court. Now, therefore, if such a warrant shall issue for the seizure of said proper- ty, and if the said shall indemnify the said for such damages as he shall sustain in the event such seizure shall prove to have been wrongfully obtained, then the above obligation to be void; otherwise to remain in full force and virtue. Sealed and delivered in presence of— [Se^l.] • [Seai,.] ■ [Seal.] Approved this day of , A. D., 189 — , District Judge. Form No. 11) fokms in bankeuptci 1609 [FOBM No. 10.] Bond to Mabshal. * Know all men by these presents : That we, , as principal, and as sureties, are held and firmly bound unto marshal of the United States for the district of , in the full and just sum of dollars, to be paid to the said , his execu- tors, administrators, or assigns, to which payment, well and truly to be made, we bind ourselves, our heirs, executors, and administrators, jointly and severally, by these presents. Signed and sealed this day of A. D. 189 — . The condition of this obligation is such that whereas a petition in bank- ruptcy has been filed in the district court of the United States for the district of , against the said , and the said court has is- sued a warrant to the marshal of the United States for said district, direct- ing him to seize and hold property of the said , subject to the further order of the court, and the said property has been seized by said mar- shal as directed, and the said district court upon a petition of said has ordered the said property to be released to him. Now, therefore, if the said property shall be released accordingly to the said , and the said , being adjudged a bankrupt, shall turn over said property or pay the value thereof in money to the trus- tee, then the above obligation to be void ; otherwise to remain in full force and virtue. Sealed and delivered in the presence of — [Seal.] [Seal.] [Seal.] Approved this day of , A. D. 189 — . District Judge. [FOKM No. 11.] Adjudication that Debtor is not Bankrupt. In the District Court of the United States for the District of • In the matter of In Bankruptcy. At , in said district, on day of , A. D. 18 — , before the Honorable , judge of the district of -. This cause came on to be heard at , in said court, upon the petition of that be adjudged a bankrupt within the true intent and mean- ing of the acts of Congress relating to bankj:uptcy, and [Mere state the pro- ceedings, whether there was no opposition, or, if opposed, state lohat proceed- ings were Jiad.] And thereupon, and upon consideration of the proofs in said cause [and the arguments of coimsel thereon, if owj/], it was found that the facts set forth in said petition were not proved ; and it is therefore adjudged that said was not a bankrupt, and that said petition be dismissed, with costs. 1610 APPENDIX (Form No. 11 Witness the Honorable , judge of said court, and the seal thereof, at , In said district, on the day of , A. D. 18 — . ( Seal _ , I the court. J Clerk. of ) urt.J [FOEM No. 12.] Adjudication of Bankeuptct. In the District Court of the United States for the District of In the matter of Bankrupt . In Bankruptcy. At , in said district^ on the day of , A. D. 18 — , before the Honorable , judge of said court in bankruptcy, the petition of : that be adjudged a bankrupt, within the true intent and meaning of the acts of Congress relating to bankruptcy, having been heard and duly considered, the said is hereby declared and adjudged bankrupt accordingly. Witness the Honorable , judge of said court, and the seal thereof, at , in said district, on the day of , A. D. 18 — . Seal of 7 1 the court. J Clerk, [FoEM No. 13.] Appointment, Oath, and Repoet of Apfeaisees. In the District Court of the United States for the District of In the matter of Bankrupt - In Bankruptcy. It is ordered that '■ , of , of , and , of , three disinterested persons, be, and they are hereby, appointed appraisers to appraise the real and personal property belonging to the estate of the said bankrupt set out in the schedules now on file in this court, and report their appraisal to the court, said appraisal to be made as soon as may be, and the appraisers to be duly sworn. Witness my hand this day of , A. D. 18 — . Referee in Bankruptcy. District of , ss.: , Personally appeared the within named and severally made oath that they will fully and fairly appraise the aforesaid real and personal property according to their best skill and judgment. Subscribed and sworn to before me this day of A. D. 189 [Official character.\ Form No. 14) FORMS IN BANKRUPTCT 1611 We, the undersigned, having been notified that we were appointed to esti- mate and appraise the real and personal property aforesaid, have attended to the duties as'slgned us, and after a strict examination and careful Inquiry, we do estimate and appraise the same as follows : Cents, In vrltness whereof we hereunto set our hands, at , A. D. 18—. this day of [FOHM No. 14.] Obdeb of Befebence. In the District Court of the United States for the District of ■ In the matter of Bankrupt . In Bankruptcy. Whereas aforesaid, on the ■ of and district day of — , in the county of — -, A. D. 18 — , was duly adjudged a bank- rupt upon a petition filed in this court by [or, against] him on the day of , A. D. 189 — , according to the provisions of the acts of Congress re- lating to bankruptcy. It is thereupon ordered, that said matter be referred to — , one of the referees in bankruptcy of this court, to take such further proceedings therein as are required by said acts ; and that the said shall attend before said referee on the day of at , and thence- forth shall submit to such orders as may be made by said referee or by this court relating to said bankruptcy. Witness the Honorable , Judge of the said court, and the seal thereof, at , in said district, on the — -^ — day of , A. D. 18 — . ( Seal of 7 {the court.] Clerk. 1612 APPENDIX (Form No. 15 [FoEM No. 15.] Obdeb of Reference in Judge's Absence. In the District Court of tlie United States for the District of . In the matter of In Bankruptcy. Whereas on the day of , A. D. 18 — , a petition was filea to have ' , of , in the county of and district aforesaid, ad- judged a bankrupt according to the provisions of the acts of Congress relating to bankruptcy; and whereas the judge of said court was absent from said district at the time of filing said petition [or, in case of iwooVuntary hank- ruptcy, on the next day after the last day on which pleadings might have been filed, and none have been filed by the bankrupt or any of his creditors]. It is thereupon ordered that the said matter be referred to , one of the referees in bankruptcy of this court, to consider said petition and take such proceedings therein as are required by said acts; and that the said shall attend before said referee on the day of , A. D. 189—, at . Witness my hand and the seal of the said court, at , in said district, on the day of , A. D. 189—. t.} I the court. 5 Clerk,. [FoBM No. 16.] Eeebree's Oath or Office. I, , do solemnly swear that I will administer justice without respect to persons, and do equal right to the poor and to the rich, and that I will faithfully and impartially discharge and perform all the duties incumbent on me as referee in bankruptcy, according to the best of my abilities and under- standing, agreeably to the Constitution and laws of the United States. So help me God. Subscribed and sworn to before me this day of , A. D. 18 — . District Judge. [Form No. 17.] Bond op Referee. Know all men by these presents : That we of as principal, and ■' of and . of as sureties are held and firmly bound to thQ United States of America in the sum of dollars, lawful money of the United States, to be paid to the said United States, for the payment of which, well and truly to be Form No. 18) forms in bankkuptcy 1613 made, we bind ourselves, our heirs, executors, and administrators, jointly and severally, by these presents. Signed and sealed this day of , A. D. 189 — . The condition of this obligation is such that whereas the said has been on the day of — , A. D. 18 — , appointed by the Honorable , judge of the district court of the United States for the district of , a referee in bankruptcy, in and for the county of , In said district, under the acts of Congress relating to bankruptcy. Now, therefore, if the said shall well and faithfully discharge and perform all the duties pertaining to the said office of referee in bankrupt- cy, then this obligation to be void; otherwise to remain in full force and vir- tue. Signed and sealed in the presence of Approved this day of A. D. 189 — . [L. s.] [L. s.] [L. S.] ' District Judge. [FoKM No. .18.1 Notice of First Meeting of Creditors. In the District Court of the United States for the District of . In Bankruptcy. In the matter of Bankrupt . In Bankruptcy. To the creditors of , of , in the county of , and dis- trict aforesaid, a bankrupt. Notice is hereby given that on the day of — — — A. D. 18 — , the said was duly adjudicated bankrupt; and that the first meeting of his creditors will be held at — '■ in , on the day of , A. D. 18 — , at • o'clock in the noon, at which time the said creditors may attend, prove their claims, appoint a trustee, examine the bankrupt, and transact such other business as may properly come before said meeting. Referee in Bahkruptoy. 18—. 1614 APPENDIX (Form No. 18 [FoEM No. 19.] List of Debts Proved at First BIeetino. In the District Court of the United States for the District of ■ In the matter of Bankrupt . In Bankruptcy. At in said district, on the day of referee in banlcruptcy. -, A. D. 18 — , before The following is a list of creditors who have this day proved their debts: Names o£ creditors. Residence. Debts proved. Dolls. Cts. Referee in: Bankruptcy. [Form No. 20.] Genebai, IiEttek or Attorney in Fact when Cbeditoe is not Represented BY Attorney at Law. In the District Court of the United States for the District of ■ In the matter of BanlM-upt . In Bankruntiw To I, of ■ -, in the county of and State of ■ -, do hereby authorize you, or any one of you, to attend the meeting or meetings of creditors of the bankrupt aforesaid at a court of bankruptcy, wherever adver- tised or directed to be holden, on the day and at the hour appointed and noti- fied by said court in said matter, or at such other place and time as may be appointed by the court for holding such meeting or meetings, or at which such meeting or meetings, or any adjournment or adjournments thereof may be held, and thei^ and there from time to time, and as often as there may be occasion, for me and in my name to vote for or against any proposal or resolution that may be then submitted under the acts of Congress relating to bankruptcy ; and in the choice of trustee or trustees of the estate of the said bankrupt, and for me to assent to such appointment of trustee ; and with like powers to attend and vote at any other meeting or meetings of creditors or sitting or sittings of the court, which may be held therein for any of the pur- Form No. 22) forms in bankeuptct 1615 poses aforesaid ; also to accept any composition proposed by said bankrupt In satisfaction of Us debts, and to receive payment of dividends and of money due me under any composition, and for any other purpose in my interest whatso- ever, with full power of substitution. In witness whereof I have hereunto signed my name and affixed my seal the day of , A. D. 189—. -. [l. s.] Signed, sealed, and delivered in presence of — Acknowledged before me this day of , A. D. 189 — . [Official character.1 [POKM No. 21.] Speciai. Letteb or Aiioknet in Fact. In the ma.tter of Bankrupt . In Bankruptcy. To I hereby authorize you, or any one of you, to attend the meeting of credi- tors in this matter, advertised or directed to be holden at , on the day of , before , or any adjournment thereof, and then and there for -, and in name to vote for or against any proposal or res- olution that may be lawfully made or passed at sucli meeting or adjourned meeting, and in the choice of trustee or trustees of the estate of the said bankrupt. . [L. s.] In vyitness whereof I have hereunto signed my name and affixed my seal the day of , A. D. 189—. Signed, sealed, and delivered in presence of — Acknowledged before me this day of , A. D. 18 — . (Official character.) [FoEM No. 22.] Appointment of Trustee by Cbeditobs. In the District Court of the United States for the District of ■ In the matter of Bankrupt - In Bankruptcy. At , In said district, on the day of , A. D. 18 — , before -, referee in bankruptcy. This being the day appointed by the court for the first meeting of creditors in the above bankruptcy, and of which due notice has been given in the [here 1616 APPENDIX (Form No. 22 insert the names of the newspapers in which notice vms published], we, whose names are hereunder written, being the majority in number and in amount of claims of the creditors of the said bankrupt, whose claims have been allowed, and who are present at this meeting, do hereby appoint , of , in the county of and State of , to be the trustee— of the said bankrupt's estate and effects. Signatures of creditors. Residences of the same. Amount of debt. Dolls. Cts. Ordered that the above appointment of trustee — be, and the same Is hereby approved. Referee in Bankruptcy. [FoEM No. 23.] Appointment of Trustee by Referee. In th6 District Court of the United States for the District of In the matter of Banl;nii)t In Bankruptcy. At -, in said district, on the referee in bankruptcy. day of -, A. D. 18 — , before This being the day appointed by the court for the first meeting of creditors uijder the said bankruptcy, and of which due notice has been given in the [here insert the names of the newspapers in which notice was published] I. the undersigned referee of the said court in bankruptcy, sat at the time and place above mentioned, pursuant to such notice, to take the proof of debts and for the chcAce of trustee under the said bankruptcy; and I do hereby certify that the creditors whose claims had been allowed and were present, or duly represented, failed to make choice of a trustee of said bankrupt's estate, and therefore I do hereby appoint , of , in the county of and State of , as trustee of the same. Referee in Btiiilcruptcy. [Form No. 24.] Notice to Trustee of his Appointment. In the District Court of the United States for the District of In the matter of Bankrupt In Bankruptcy. To of -, in the county of ■ and district aforesaid: I hereby notify you that you were duly appointed trustee [or one of the trustees] of the estate of the above-named bankrupt at the first maeting of the Form No. 26) forms in baxkuuptct 1617 creditors, on the day of , A. D. 18 — , and I have approved said ap- pointment. The penal sum of your bond as such trustee has been fixed at dollars. You are required to notify me forthwith of your acceptance or rejection of the trust. Dated at the day of , A. n. 18 — . Referee in Banlcruptcy. [Form No. 25.] Bond of Tkustei:. Know all men by these presents : That we, , of , as prin- cipal, and , of , and . of , as sureties, are held and firmly bound unto the United States of America in the sum of dollars, in lawful money of the United States, to be paid to the said United States, for which payment, well and truly to be made, we bind our- selves and our heirs, executors, and administrators, jointly and severally, by these presents. Signed and sealed this day of , A. D. 189 — . The condition of this obligation is such, that whereas the above-named was, on the ■ day of , A. D. 189 — . appointed trustee in the case pending in banferuptcy in said court, wherein is the bankrupt, and he, the said , has accepted said trust with all the duties and obligations pertaining thereunto: Now, therefore, if the said , trustee as aforesaid, shall obey such orders as said court may make in relation to said trust, and shall faith- fully and truly account for all the moneys, assets, and effects of the estate of said bankrupt which shall come into his hands and possession, and shall in all respects faithfully perform all his official duties as said trustee, then this obligation to be veld ; otherwise, to remain In full force and virtue. Signed and sealed in presence of — ■_ — . [SEAL. I , [seal.] , [SEAL.] [FOEM No. 26.] Obdeb Appboving Tbusteb's Bond. At a court of bankruptcy, held in and for the • District of , at , , this day of ■ -, 189—. Before . referee in bankruptcy, in the District Court of the United States for the District of . In the matter of Bankrupt In Bankruptcy. It appearing to the Court , of , and in said district, has been duly appointed trustee of the estate of the above-named bankrupt, and has given a bond with sureties for the faithful performance of his official du- Blb:.Bke.(3d Ed.)— 102 1618 APPENDIX (Form No. 27 ties, In the amount fixed by the creditors Cor by order of the court], to wit, in the sum of dollars, it is ordered that the said bond be, and the same is hereby, approved. _— ^^— , Referee in Barihruptcy. [FoEM No. 27.] Obder that no Texistee be Appointed. In the District Court of the United States for the District of In the matter of Banlcrupt . In Bankruptcy. It appearing that the schedule of the bankrupt discloses no assets, and that no creditor has appeared at the first meeting, and that the appointment of a trustee of the bankrupt's estate is not now desirable, it is hereby ordered that, until further order of the court, no trustee be appointed and no other meeting of the creditors be called. Referee in Bankruptcy. [FoEM No. 28.1 Oedbr for Examination of Bankbtjpt. In the District Court of the United States for the District of In the matter of Banlcrupt . In Bankruptcy. At , on the day of , A. D. 18—. Upon the appllcatiou of , trustee of said bankrupt [or creditor of said bankrupt], it is ordered that said bankrupt attend before -, one of the referees in bankruptcy of this court, at on the ■ day of , at — o'clock in the noon, to submit to examination under the acts of Congress relating to bankruptcy, and that a copy of this order be delivered to Mm, the said bankrupt, forthwith. , Referee in Bankruptcy. Form No. 30) forms in bankruptcy 1619 [FoEM No. 29.] Examination of BANKnuPT or Wititess. In the District Court of the United States for the (District of . In the matter of Banlcrupt In Bankruptcy. At , in said district, on the day of , A. D. 18 — , before : , one of the referees In bankruptcy of said court. , of , in the county of -, and State of , be- ing duly sworn and examined at the time and place above mentioned, upon his oath says. [Here insert substance of examination of party.] , Referee in Bankruptoy. [ToBM No. 30.] Summons to Witness. To Whereas , of , In the county of , and State of -, has been duly adjudged bankrupt, and the proceeding in bankruptcy is pending In the District Court of the United States for the District of , These are to require you, to whom this summons Is directed, personally to be and appear before , one of the referees in bankruptcy of the said court, at , on the day of , at — o'clock in the noon, then and there to be examined in relation to said bankruptcy. Witness the Honorable Judge of said court, and the seal thereof at —, this day of , A. D. 18&— . , Clerk. Return or Summons to Witness. In the District Court of the United States for the District of . In the matter of Banlcrupt In Bankruptcy. On this day of , A. D. 18 — , before me came , of , in the county of ' and State of , and makes oath, and says that he did, on , the day of , A. D. 189 — , personally serve ■ , of , in the county of and State of , wit . a true copy of the summons hereto annexed, by delivering the same to him ; and he further makes oath, and says that he is not interested in the proceed- ing in bankruptcy named in said summons. Subscribed and sworn to before me this day of , A. D. 18 — . 1620 APPENDIX (Form No. 31 [FOBM No. 31.] Pboof of Unsecured Debt. In the District Court of the United States for the District of In the matter of Bankrupt In Bankruptcy. At , in said district of , on the day of , A. D. 189 — , came , of , in the county of , in said district of , and made oath, and says that ' , the person by [or against] whom a petition for adjudication of bankruptcy has been flled, was at and before the filing of said petition, and still is, justly and truly indebted to said deponent In the sum of dollars; that the consideration of said debt is as follows : that no part of said debt has been paid [except that there are no set-offs or counterclaims to the same [except ]; and that deponent has not, nor has any person by his order, or to his knowl- edge or belief, for his use, had or received any manner of security for said debt whatever. Creditor. Subscribed and sworn to before me this day of , A. D. 18 — . lOffidal character.] [FoEM No. 32.] Peoof of Secuked Debt. In the District Court of the United States for the District of In the matter of Bankrupt In Bankruptcy. At — . in said district of , on the day of •, A. D. 189— , came , of , in the county of , in said district of , and made oath, and says that , the person by [or against] whom a petition for adjudication of bankruptcy has been filed, was at and before the filing of said petition, and still is, justly and truly indebted to said deponent, in the sum of dollars; that the consideration of said debt is Form No. 34) FOKMS IN BANKRUPTCY 1621 aa follows ; that no part of said debt has been paid [except ] ; that there are no set-offs or counterclaims to the same [except -J; and that the only securities held by this deponent for said debt are the following : Subscribed and sworn to before me this uuy of Creditor. -, A. D. — . lOffldal character.] [FoKM No. 33.] Pkoof of Debt Due Cobpojiation. In the District Court of the United States for the District ol In the matter of Bankrupt At ■—, in said district of , on the - came , of , in the county of ■ In Bankruptcy. day of • and State of ■ -, A. D. 189—, — , and made oath and says that he is- • of the • — , a corporation incorporated and carrying on business at — , and that he is duly author- by and under the laws of the State of — , in the county of and State of - ized to make this proof, and says that the said — , the person by [or against] whom a petition for adjudication of bankruptcy has been filed, was at and before the filing of the said petition, and still is justly and truly indebted to said corporation in the sum of dollars ; that the considera- tion of said debt is as follows : ■ that no part of said debt has been paid [except ]; that there are no set-offs or counterclaims to the same [except . ] ; and that said corporation has not, nor has any person by its order, or to the knowledge or belief of said deponent, for its use, had or received afty manner of security for said debt whatever. Subscribed and sworn to before me this of said Corporation. ■ day of , A. D. 18—. [Offldal character.] [FoEM No. 34.] Proof of Debt by Pabtnership. In the District Court of the United States for the In the matter of Banlcr.upt . District of At- came -, in said district of — , of , in the county of lu Bankruptcy, on the day of , A. D. 189—, In said district of 1622 APPENDIX (Form No. 34 -, and made oath and says that he is one of the firm of consisting of himself and , of , in the county of and State of ; that the said , the person by [or against] whom a petition for adjudication of bankruptcy has been filed, was at and be- fore the filing of said petition, and still is, justly and truly indebted to this deponent's said firm in the sum of dollars ; that the consideration ot said debt is as follows: that no part of said debt has been paid [except ]; that there are no set-ofCs or counterclaims to the same [except ]; and this deponent has not, nor has his said firm, nor has any person by their order, or to this deponent's knowledge or belief, for their use, had or received any manner of security for said debt whatever. Creditor. Subscribed and sworn to before me this day of , A. D. 18 — . [.Offl>oribe it], or to a lien [describe the origin and nature of the lien], or [if the property be personal pr'dperty] has been pledged or deposited and is subject to a lien for [de- scribe the nature of the Uen], and that it would be for the benefit of the said estate that said property should be sold, subject to said mortgage, lien. 1628 APPENDIX (Form No. 44 or otber incumbrance. Wherefore he prays that he may be authorized to make sale of said property, subject to the incumbrance thereon. Dated this day of , A. D. 189—. — , Trustee. The foregoing petition having been duly filed and having come on for a hearing before me, of which hearing ten days' notice was given by mail to creditors of said bankrupt, now, after due hearing, no adverse interest being represented thereat lor after hearing in favor of said petition and in opposition thereto], it is ordered that the said trustee be authorized to sell the portion of the bankrupt's estate specified in the fore- going petition, by auction [or, at private sale], keeping an accurate account of the property sold and the price received therefor and to whom sold; which said account he shall file at once with the referee. Witness my hand this day of , A. D. 189 — . Referee in Bankruptcy. [Form No. 45.] Petition and Oedek foe Private Sale. In the District Court of the United States for the District of In the matter of Banlcrupt . In Bankruptcy. Respectfully represents , duly appointed trustee of the c.;tat'e of the aforesaid bankrupt. That for the foUovring reasons, to wit, it is desirable and for the best interest of the estate to sell at private sale a certain portion of the said estate, to wit: Wherefore he prays that he may be authorized to sell the said property at private sale. Dated this day of , A. D. 189—. , Trustee. The foregoing petition having been duly filed and having come on for a hear- ing before me, of which hearing ten days' notice was given by mail to credi- tors of said bankrupt, now. after due hearing, no adverse interest being repre- sented thereat [or after hearing in favor of said petition and In opposition thereto], it is ordered that the said trustee be authorized to sell the portion of the bankrupt's estate specified in the forego- ing petition, at private sale, keeping an accurate account of each article sold and the price received therefor and to whom sold ; which said account he shall file at once with the referee. Witness my hand this day of , A. D. 189 — . Referee in Bankruptcy. Form No. 47) FORMS IN BANKRTIPTCX 1629 [FOBM No. 46.] Petition and Obdek for Sale of Perishable Pbopeety. In the District Court of the United States for the District of In the matter of Bankrupt In Banlvruptcy. Eespectfully represents the receiver, or the trustee of the said bankrupt's estate]. That a part of the said estate, to wit. the said bankrupt, lor, a creditor, or now in . is perishable, and that there will be loss if the same Is not sold immediately. Wherefore, he prays the court to order that the same be sold immediately as aforesaid. Dated this day of , A. D. 189—. The foregoing petition having been duly filed and having come on for a hearing before me, of which hearing ten days' notice was given by mail to the creditors of the said bankrupt, [or without notice to the creditors], now, after due hearing, no adverse interest being represented thereat, [or after hearing in favor of said petition and in opposition thereto] I find that the facts are as above stated, and that the same is requlied in the interest of the estate, and it is therefore ordered that the same be sold forth- vplth and the proceeds thereof deposited in court. Witness my hand this day of . A. D. 189 — . Referee in Bankruptcy. [FoBM No. 47.] Trustee's Report of Exempted Property. In the District Court of the United States for the District of • In the matter of Bankrupt In Bankruptcy. At' on the day of ■ 18—. The following is a schedule of property designated and set apart to be re- tained by the bankrupt aforesaid, as his own property, under the provisions of the acts of Congress relating to bankruptcy. General head. Particular description. Value. Military uniform, arms, and equip- Dolls. Cts. Property exempted by State laws... Trustee. 1630 APPENDIX (Form No. 48 [FoEM No. 48.] Trustee's Ketuen of no Assets. In the District Court of the United States for the District of . In the matter of Bankrupt . In Bankruptcy. At , in said district, on the day of , A. D. 18—. On the day aforesaid, before me comes , of , In the coun- ty of and State of , and makes oath, and says that he, as trustee of the estate and effects of the above-named bankrupt , neither received nor paid any moneys on account of the estate. Subscribed and sworn to before me at , this day of , A. 0. 18—. Referee in Banhruptoy. Form No. 49) FORMS IN BANKRUPTCY 1631 ? o Q O O IB 1=1 o o 1632 APPENDIX (Form No. 50 [Form No. 50.] Oath to Final Account of Tbustee. In the District Court of the United States for the District of . In the matter of Bankrupt In Bankruptcy. On this — — day of , A. D. 18 — , before me comes , of in the county of and State of , and makes oath, and says that he was, on the day of , A. D. 18 — , appointed trustee of the estate and effects of the above-named bankrupt, and that as such trustee he has conducted the settlement of the said estate. That the account ^ereto an- nexed containing -^ — sheets of paper, the first sheet whereof is marlted with the letter [reference may here also 6e made to any prior account filed by said trustee] is true, and such account contains entries of every sum of money received by said trustee on account of the estate and effects of the above-named bankrupt , and that the payments purporting in such account to have been made by said trustee have been so made by him. And he asks to be allowed for said payments and for commissions and expenses as charged in said accounts. , Trustee. Subscribed and sworn to before me at , in said district of , this day of , A. D. 18—. [Official character.] [Form No. 51.] Obdeb Allowing Account and Dischabging Textstee. In the District Court of the United States for the District of In the matter of Banli'rupt . In Bankruptcy. The foregoing account having been presented for allowance, and having been examined and found correct, it is ordered, that the same be allowed, and thfit the said trustee be discharged of his trust Referee im, Bankruptcy. Form No. 53) forms in bankeuptci 1633 [Form No. 52.] Petition for Eemoval of Trustee. In the District Court of the United States for the District of . In the matter of Bankrupt . In Banliruptcy, To the Honorable ■ Judge of the District Court for the District of The petition of , one of the creditors of said bankrupt, respect- fully represents that it is for the interest of the estate of said bankrupt that , heretofore appointed trustee of said bankrupt's estate, should be re- moved from his trust, .for the causes foUowinjg to wit; [here set forth the particular cause or causes for which such removal is requested.] Wherefore pray that notice may be served upon said . trustee as aforesaid, to show cause, at such time as may be fixed by the court, why an order should not be made removing him from said trust. [FoEM No. 53.] Notice of Petition for Removal of Trustee. In the District Court of the United States for the District of In the matter of Bankrupt In Bankruptcy. At , on the day of , A. D. 18- To , Trustee of the estate of ^ , bankrupt: You are hereby notified to appear before this court, at , on the day of , A. D. 18 — , at — o'clock — . m., to show cause (if any you have) why you should not be removed from your trust as trustee as aforesaid, ac- cording to the prayer of the petition of , one of the creditors of said bankrupt, filed in this court on the day of , A. D. 18 — in which it is alleged [here insert the allegation of the petition]. , Olerk. Blk.Bkr.(3d Ed.)— 103 1634 APPENDIX (Form No. 54 [Form No. 54.] Order for Removal of Trustee. In the District Court of the TJnitecl States for the District of In the matter 0|f Bankrupt . In Bankruptcy. Whereas ■ of • did, on the ■ day of - A. D. 18—, present his petition to this court, praying that for the reasons therein set forth, , the trustee of the estate of said , bankrupt, might be removed : Now, therefore, upon reading the said petition of the said and the evidence submitted therewith, and upon hearing counsel on behalf of said petitioner and counsel for the trustee, and upon the evidence submitted on be- half of said trustee. It Is ordered that the said be removed from the trust as trus- tee of the estate of said bankrupt, and that the costs of the said petitioner in- cidental to said petition be paid by said , trustee [or, out of the estate of the said , subject to prior charges]. Witness the Honorable thereof, at — ( Seal of J I the court. J — —, judge of the said court, and the seal > in said district, on the day of , A. D. 18 — . Clerk. [Form No. 55.] Order for Choice of New Trustee. In the District Court of the United States for the District of In the matter of BanJcrupt In Bankruptcy. At- on the ■ day of ■ A. D. 18—. Whereas by reason of the removal [or the death or resignation] of -, heretofore appointed trustee of the estate of said bankrupt, a vacancy exists in the office of said trustee, It is ordered, that a meeting of the creditors of said bankrupt be held at — , In , In said district, on the day of , A. D. 18 — , for the choice of a new trustee of said estate. And it is further ordered that notice be given to said creditors of the time, place, and purpose of said meeting, by letter to each, to be deposited in the mail at least ten days before that day. — • . Referee in Bankruptcy. Form No. 57) forms in bankeuptcy J.635 [FoBM No. 56.] Certificate by Refebee to Judgb, In the District Court of the United States for the District of -. In the matter of Bankrupt In Bankruptcy. I, , one of the refei-ees of said court In bankruptcy, do hereby certify that In the course of the proceedings in said cause before me the fol- lowing question arose pertinent to the said proceedings: [Here state the ques- tion, a summary of the evidence relating thereto, and the finding and order of the referee thereon.] And the said question is certified to the judge for his opinion thereon. Dated at , the — r- day of , A. D. 18—. lieferee in Banlcruptcy, ■ [FoBM No. 57.] Bankbupt's Petition fob Dischabgb, In the matter of BanJerupt In Bankruptcy. To the Honorable ■ Judge of the District Court of the United States for the Dis- trict of , of , in the county of and State of — , in said 4istrict, respectfully represents that on the day of — , last past, he was duly adjudged bankrupt under the acts of Congress relating to bankrupt-; cy; that he has duly surrendered all his property and rights of property, and has fully complied with all the requirements of said acts and of the orders of the court touching his bankruptcy. , i Wherefore he prays that he may be decreed by the court to have a full dis- charge from all debts provable against Ms estate under said bankrupt acts, except such debts as are excepted by law from such discharge. Dated this day of , A. D. 189—. r-, Banlorupt. Obdeb of Notice Theeeon. District of , «« : On this day of , A. D. 189 — , on reading the foregoing petition, Itis-^ Ordered by the court, that a hearing be had upoh the same on the day of , A. D. 189—, before said court, at , in said district, at o'clock in the noon ; and that notjce thereof be published in , a newspaper printed in said district, and that all known creditors and other persons in interest may appear at the said time and place and show cause, if any they have, why the prayer of the said petitioner should not be granted. 1636 APPENDIX (Form No. 57 And It Is, further ordered by the court, that the clerk shall send by mail to all known creditors copies of said petition and this order, addressed to them at their places of residence as stated. Witness the Honorable , judge of the said court, and the seal thereof, at , in said district, on the — -. day of , A. D. 189 — . ( Seal of J ' ■ I the court. J Clerk. hereby depose, on oath, that the foregoing order was published in the • on the following days, viz : On the day of and on the day of , in the year 189 — . District of . -, 189—. Personally appeared , and made oath that the foregoing state- ment by him subscribed is true. , Before me. [Offlcial character.] I hereby certify that I have on this day of , A. D. 189—, sent by mall copies of the above order, as therein directed. Clerk. [Form No. 58.] Specification of Geottnds of Opposition to Banketjpt's Dischasge. In the District Court of the United States for the District of In the matter of Bankrupt In Bankruptcy. of , in the county of and State of party interested In the estate of said , bankrupt, do hereby op- pose the granting to him of a discharge from his debts, and for the grounds of such opposition do file the following specification: [Here specify the gvownds of opposition.} , Creditor. [FoBM No. 59.] Discharge of Bankeupt. District Court of the United States, • District of ■ Whereas, of in said district, has been duly adjudged a bankrupt, under the acts of Congress relating to bankruptcy, and appears to have conformed to all the requirements of law in that behalf, it is therefore ordered by this court that said be discharged from all debts and claims which are made provable by said acts against his estate, and which ex- isted on the day of , A. D. 189 — , on which day the petition for ad- Form No. 61) forms in bankruptcy 1637 Judication was filed -: him; excepting such debts as are by law excepted from the operation of a discharge in bankruptcy. Witness the Honorable , judge of said district court, and the seal thereof this day of , A. D. 189—. ( Seal of ) • I the court. J Cleric. [Form No. 60.] Petition foe Meeting to Consider CoMPosiTipw. District Court of the United States for the District of • Hanlirupt In Bankruptcy. To the Honorable -, Judge of the District Court of the United States for the District of : The above-named bankrupt respectfully represent that a composition of per cent upon all unsecured debts, not entitled to a priority in satisfaction of debts has been proposed by to credi- tors, as provided by the acts of Congress relating to bankruptcy, and verily believe that the said composition will be accepted by a majority in number and in value of creditors whose claims are allowed. . Wherefore, he pray that a Ineeting of creditors may be duly caUed to act upon said proposal for a composition, according to the provisions of said acts and the rules of court. Banhmpt. [Form No. 61'] Application for Confirmation of Composition. In the District Court of the United States, for the District of • In the matter of Bankrupt In Bankruptcy, To the Honorable , Judge of the District Court of the United States for the District of . At , In said district, on the day of , A. D. 189 — , now comes the above-nained bankrupt, and respectfully represents to the court that, after he had been examined in open court [or at a meeting of his creditors] and had filed in court a schedule of his property and a list of his creditors, as required by law, he Offered terms of composition to his creditors, which terms have been accepted in writing by a majority in number of all creditors whose claims have been allowed, which number represents a ma- jority in amount of such claims; that the consideration to be paid by the bankrupt to his creditors, the money necessary to pay all d^bts which have priority, and the costs of the proceedings, amounting in all to the sum of 1638 APPENDIX (Form No. 61 dollars, has been deposited, subject to the order of the judge, in the — ■ National Bank, of , a designated depository of money in bankruptcy cases. Wherefore the said respectfully asks that the said composition may be confirmed by the court. , Banlcrupt. [FOEM No. 62.] Obdee Confibming Composition. In the District Court of the United States, for the District of ■ In the matter of In Bankruptcy. An application for the confirmation of the composition offered by the bank- rupt having been filed in court, and it appearing that the composition has been accepted by a majority in number of creditors whose claims have been allowed and of such allowed claims ; and the consideration and the money required by law to be deposited, having been deposited as ordered, in such place as was designated by the judge of said court, and subject to his order ; and it also ap- pearing that it is for the best interests of the creditors ; and that the bankrupt has not been guilty of any of the acts or failed to perform any of the duties which would be a bar to his discharge, and that the offer and its acceptance are in good faith and have not been made or procured by any means, promises, or acts contrary to the acts of Congress relating to bankruptcy: It is therefore hereby ordered that the said composition be, and it hereby is, confirmed. Witness the Honorable , judge of said court, and the seal thereof, this day of , A. D. 189—. [FoBM No. 63.] Oedee of Disteibution on Composition. United States of Amebic a: In the District Court of the United States, for the District of • In Bankruptcy. In the matter of Banlcrupt The composition offered by the above-named bankrupt in this case having been duly confirmed by the judge of said court, il is hereby ordered and de- creed that the distribution of the deposit shall be made by the clerk of the court as follows, to wit: 1st, to pay the several claims which have priority; 2d, to pay the costs of proceedings; 3d, to pay, according to the terms of the composition, the several claims of general creditors which have been allowed, and appear upon a list of allowed claims, on the files in this ease, which list Is made a part of this order. Witness the Honorable , judge of said court, and the seal there- of, this day of , A. D. 189—. I the^court. ' ' CZerfc. UNITED STATES BANKRUPTCY LAW MARCH 2, 1867 AS CONTAINED IN REVISED STATUTES U.S., §§ 4972-5132 CHAPTER ONE. COUETS OI- BAKKBTIPTOT, THEIR JUEISDICTION, OKGANIZATION, AND POWERS. Sec. Sec. 4972. Scope of the jurisdiction of courts 4991. of bankruptcy. 4973. Authority of district courts and 4992. judges. 4974. Sessions of the district courts. 4993. 4975. Power of district courts to com- 4994. pel obedience.. 4995. 4976. Powers of circuit judge during 4996. absence, sickness, or disability 4997. of district judge. 499S. 4977. Powers of the supreme court for 4999. the District of Columbia. 4978. Powers of the supreme courts for 5000. the Territories. 4979. Jurisdiction of -actions between 5001. assignees and persons claiming adverse interest. 5002. 4980. Appeals to circuit court, 5003. 4981. How taken. 5004. 4982. How entered. 4983. Waiver of appeal. 5005. 4984. Appeal from decision rejecting 5006. claim. 5007. 4985. Costs. 5008. 4986. Power of general superintendence 5009. conferred on circuit court. 4987. Superintendence by supreme courts 5010. of Territories. 4988. Power of district judge in a dis- 5011. trict not within any organized circuit. 5012. 4989. Appeal and writ of error to Su- 5013. preme Court. 4990. Supreme Court may prescribe rules. What constitutes commencement of proceedings. Records of bankruptcy proceed- ings. Registers in bankruptcy. Who are eligible. Qualification. Restrictions upon registers. Removal of registers. Powers of registers. Limitations upon powers of regis- ters. Registers to keep memoranda of proceedings. Registers to attend at place di- rected by judge. Power to summon witnesses. Mode of taking evidence. Depositions a.nd acts to be reduc- ed to writing. Witnesses must attend. Contempt before register. Registers may act for each other. Payment of fees of registers. Contested issues to be decided by judge. Certificates of matters to be de- cided by judge. Appeal from judge's decision upon questions submitted. Penalties against officers. Meaning of terms and computa- tion of time. Sec. 4972. The jurisdiction conferred upon the district courts as courts of bankruptcy shall extend : First To all cases and controversies arising between the bankrupt and any creditor or creditors who shall claim any debt or demand under the bank- ruptcy. Second. To the collection of all the assets of the bankrupt. (1639) 1640 APPENDIX (Chap. One Third. To the ascertainment and liquidation of the liens and other specific claims thereon. Fourth. To the adjustment of the various priorities and conflicting interests of all parties. Fifth. To the marshaling and disposition of the different funds and assets, so as to secure the rights of all parties and due distribution of the assets among all the creditors. Sixth. To all acts, matters, and things to be done under and In virtue of the bankruptcy, until the final distribution and settlement of the estate of the bankrupt, and the close of the proceedings in bankruptcy. Sec. 4973. The district courts shall be always open for the transaction of business in the exercise of their jurisdiction as courts of bankruptcy ; and their powers and jurisdiction as such courts shall be exercised as well in va- cation as in term time ; and a judge sitting at chambers shall have the same powers and jurisdiction. Including the power of keeping order and of punish- ing any contempt of his authority, as when sitting in court. Sec. 4974. A district court may sit for the transaction of business in bank- ruptcy, at any place within the district, of which place and of the time of commencing session the court shall have given notice, as well as at the places designated by law for holding sessions of such court. (NOTE. — This section is a literal copy of the first section of the act of 2 March, 1867, c. 176. v. 14, p. 517; and the act of 22 June, 1874, c. 390, s. 2, v. 18, p. 178, amended the said first section hy the addition of the following proviso: "Pro- vided. That the court having charge of the estate of any banlirupt may direct that any of the legal assets or debts of the banlirupt, as contradistinguished from equi- table demands, shall, when such debt does not exceed five hundred dollars, be col- lected in the courts of the State where such bankrupt resides having jvu-isdiction of claims of such nature and amount.") Sec. 4975. The district courts as courts of bankruptcy shall have full au- thority to compel obedience to all orders and decrees passed by them in bank- ruptcy, by process of contempt and other remedial process, to the same extent that the circuit courts now have in any suit pending therein In equity. Sec. 4976. In case of a vacancy in the oflice of district judge in any district, or in case any district judge shall, from sickness, absence, or other disability, be unable to act, the circuit judge of the circuit in which such district Is In- cluded may make, during such disability or vacancy, all necessary rules and orders preparatory to the final hearing of all causes in bankruptcy, and cause the same to be entered or issued, as the case may require, by the clerk of the district court. Sec. 4977. The same jurisdiction, power, and authority which are hereby conferred upon the district courts in cases in bankruptcy are also conferred upon the Supreme Court of the District of Columbia, when the bankrupt re- sides In that District. Sec. 4978. The same jurisdiction, power, and authority which are hereby conferred upon the district courts in cases in bankruptcy are also conferred upon the supreme courts of the several Territories when the bankrupt resides In either of the Territories. This jurisdiction may be exercised, upon petitions regularly filed in such courts, by either of the justices thereof whUe holding the district court In the district in which the petitioner or the alleged bank- rupt resides. Sec. 4979. The several circuit courts shall have within each district con- current jurisdiction with the district court, whether the powers and jurisdic- tion of a circuit court have been conferred on such district court or not, of all suits at law or in equity brought by an assignee Iji bankruptcy against any person claiming an adverse Interest, or by any such person against an assignee, touching any property or rights of the bankrupt transferable to or vested In such assignee. § 4988) TJ. S. BANKRtJPTCT LAW OF MARCH 2, 1867 1641 Seo. 4980. Appeals : may be taUen from the district to the circuit courts In all cases in equity, and writs of error from the circuit courts to the district courts may be allowed in cases at law, arising under or authorized by this Title, when the debt or damages claimed amount to more than five hundred dollars ; and any supposed creditor, whose claim is wholly or in part rejected, or an assignee who is dissatisfied with the allowance of a claim, may appeal from the decision of the district court to the circuit court for the same dis- trict. Sec. 4981. No appeal shall be allowed in any case from the district to the circuit court unless it is claimed, and notice given thereof to the clerk of the district court, to be entered with the record of the proceedings, and also to the assignee or creditor, as the case may be, or to the defeated party in equity, within ten days after the entry of the decree or decision appealed from ; nor unless the appellant at the time of claiming the same shall give bond in the manner required in cases of appeals in suits in equity ; nor shall any writ of error be allowed unless the party claiming it shall comply with the provisions of law regulating the granting of such writs. Sec. 4982. Such appeal shall be entered at the term of the circuit court wlaich shall be held within the district next after the expiration of ten days from the time of claiming the same. Sec. 4983. If the appellant, in writing, waives his appeal before any decision thereon, proceedings may be had in the district court as if no appeal had been taken. Sec. 4984. A supposed creditor who takes an appeal to the circuit court from the decision of the district court, rejecting his claim in whole or in part, shall, upon entering his appeal in the circuit court, file in the clerk's ofiice thereof a statement in writing of his claim, setting forth the same, substantially, as in a declaration for the same cause of action at law, and the assignee shall plead or answer thereto in like manner, and like proceeding shall thereupon be had in the pleadings, trial, and determination of the cause, as in actions at law commenced and prosecuted, in the usual manner, in the courts of the United States, except that no execution shall be awarded against the assignee for the amoimt of a debt found, due to the creditor. Sec. 4985. The final judgment of the circuit court, rendered upon any ap- peal provided for in the preceding section, shall be conclusive, and the list of debts shall, if necessary, be altered to conform thereto. The party prevailing in the suit shall be entitled to costs against the adverse party, to be taxed and recovered as in suits at law ; if recovered against the assignee, they shall be allowed out of the estate. Sec. 4986. The circuit court for each district shall have a general superin- tendence and jurisdiction of all cases and questions arising in the district court for such district when sitting as a court of bankruptcy, whether the powers and jurisdiction of a circuit court have been conferred on such district court or not; and except when special provision is otherwise made, may, upon bill, petition, or other proper process, of any party aggriev«d, hear and deter- mine the case as in a court of equity; and the powers and jurisdiction hereby granted may be exercised either by the court in term time, or, in vacation, by the circuit justice or by thei circuit judge of the circuit. Sec. 4987. The several supreme courts of the Territories , shall have the same general superintendence and jurisdiction over the acts and decisions of the justices thereof in cases of bankruptcy as is conferred on the circuit courts over proceedings in the district courts. Sec 4988. In districts which are not within any organized circuit of the United States, the power and jurisdiction of a circuit court in bankruptcy may, be exercised by the district judge. 1 642 APPENDIX (Chap. One Sec. 4989. No appeal or writ of error shall be allowed in any case arising under this Title from the circuit courts to the Supreme Court, unless the mat- ter in dispute in such case exceeds two thousand dollars. Sec. 4990. The general orders in bankruptcy heretofore adopted by the jus- tices of the Supreme Court, as now existing, may be followed in proceedings under this Title ; and the justices may, from time to time, subject to the pro- visions of this Title, rescind or vary any of those general orders, and may f rdme, rescind, or vary other general orders, for the following purposes : First. For regulating the practice and procedure of the district courts In bankruptcy, and the forms of petitions, orders, and other proceedings to be used in such courts in all matters under this Title. Second. For regulating the duties of the various officers of such courts. Third. For regulating the fees payable and the charges and costs to be al- lowed, except such as are established by this Title or by law, with respect to aU proceedings in bankruptcy before such courts, not exceeding the rate of fees now allowed by law for similar services in other proceedings. Fourth. For regulating the practice and procedure upon appeals. Fifth. For regulating the filing, custody, and inspection of records. Sixth. And generally for carrying the provisions of this Title into effect. All such general orders shall from time to time be reported to Congress, with such suggestions as the justices may think proper. Sec. 4991. The filing of the petition for an adjudication in bankruptcy, either by a debtor in his own behalf, or by any creditor against a debtor, shall be deemed to be the commencement of proceedings in bankruptcy. Sec. 4992. The proceedings in all cases of bankruptcy shall he deemed mat- ters of record, but the same shall not be required to be recorded at large, but shall be carefully filed, kept, and numbered in the oflice of the clerk of the court, and a docket only, or short memorandum thereof, kept in books to be provided for that purpose, which shall be open to public inspection. Copies of such records, duly certified under the seal of the court, shaU. in all cases be presumptive evidence of the facts therein stated. Sec. 4993. Each district judge shall appoint, upon the nomination and rec-om- mendation of the Chief Justice of the Supreme Court, one or more registers in bankruptcy, when any vacancy occurs in such office, to assist him in the per- formance of his duties, under this Title, unless he shall deem the continuance of the particular office unnecessary. Sec. 4994. No person shall be eligible for appointment as register in bank- ruptcy, unless he is a counselor of the district court for the district in which he is appointed, or of some one of the courts of record of the State in which he resides. Sec. 4995. Before entering upon the duties of his office, every person ap- pointed a register in bankruptcy shall give a bond to the United States, for the faithful discharge of the duties of his office, in a sum not less than one thou- sand dollars, to be fixed by the district judge, with sureties satisfactory to such judge ; and he shall, in open court, take and subscribe the oath prescribed in section seventeen hundred and fifty-six, Title, "Pkovisions applicable TO several classes or officers," and also an oath that he will not, during his continuance in office, be, directly or indirectly, interested in or benefited by the fees or emoluments arising from any suit or matter pending in bank- ruptcy, in either the district or circuit court in his district. Sec. 4996. No register shall be of counsel or attorney, either in or out of court, in any suit or matter pending In bankruptcy in either the circuit or district court of his district, nor in an appeal therefrom ; nor shall he be exec- utor, administrator, guardian, commissioner, appraiser, divider, or assignee of or upon any estate within the jurisdiction of either of those courts as"courts of banltruptcy, nor shnll he be interested in the fees or emoluments arising from any such trusts. § 6006) ' i U. S. BANKRTJPTCy LAW OF MARCH 2, 1867 1643 Sbo. 4997. Registers are subject to removal from office by the judge of the district court. Stec. 4998. Every register in bankruptcy has power : First. To make adjudication of bankruptcy in cases unopposed. Second. To receive the surrender of any bankrupt. Third. To administrator oaths in all proceedings before him. i Fourth. To hold and preside at meetings of creditors. Fifth. To take proof of debts. Sixth. To make all computations of dividends, and all orders of distribu- tion. Seventh. To furnish the assignee with a certified copy of such orders, and of the schedules of creditors and assets filed in each case. Eighth. To audit and pass accounts of assignees. Ninth. To grant protection. Tenth. To pass the last examination of any bankrupt in cases whenever the assignee or a creditor do not oppose. Eleventh. To sit in chambers and dispatch there such part of the adminis- trative business of the court and such uncontested matters as shall be defined in general rules and orders, or as the district judge shall in any particular matter direct. Sec. 4999. No register shall have power to commit for contempt, or to Make adjudication of bankruptcy when opposed ; or to decide upon the allowance or suspension of an order of discharge. Sec. 500O. Every register shall make short memoranda of his proceedings in each case in which he acts, in a docket to be kept by him for that purpose, and shall forthwith, as the proceedings are taken, forward to the clerk of the dis- trict court a certified copy of these memoranda, which shall be entered by the clerk in the proper minute-book to be kept in his oflice. Sec. 5001. The judge of the district court may direct a register to attend at any place within the district for the purpose of hearing such voluntary ap- pUcations under this Title as may not be opposed, of attending any meeting of creditors, or receiving any proofs of debts, and, generally, for the prosecu- tion of any proceedings under this Title. Sec. 5002. Every register, so acting, shall have and exercise all powers, ex- cept the power of commitment, vested in the district court for the summoning and examination of persons or witnesses, and for requiring the production of books, papers, and documents. Sec. 5003. Evidence or examination in any of the proceedings under this Title may be taken before the court, or a register in bankruptcy, viva voce or in writing, before a commissioner of the circuit court, or by aflidavit, or on commission, and the court may direct a reference to a register in bankruptcy, or other suitable person, to take and certify such examination, and may com- pel the attendance of witnesses, the production of books and papers, and the giving of testimony in the same manner as in suits in equity in the circuit court. Sec. 5004. All depositions of persons and witnesses taken before a register, and all acts done by him, shall be reduced to writing, and be signed by him, and shall be filed in the clerk's office as part of the proceedings. He shall have power to administer oaths in all cases and in relation to all matters In which oaths may be administered by commissioners of circuit courts. • ' Sec. 5005. Parties and witnesses summoned before a register shall be bouna to attend in pursuance of such summons at the place and time designated therein, and shall be entitled to protection, and be liable to process of contemjpt in like manner as parties and witnesses are now liable thereto in case of du- fault in attendance under any writ of subpoena. Sec. 5006. Whenever any person examined before a register refuses or de- clines to answer, or to swear to or sign his examination when taken, the 1C44 APPENDIX (Chap. One register shall refer the matter to the judge, who shall have power to order the person so acting to pay the costs thereby occasioned, and to punish him for contempt, if such person be compellable by law to answer such question or to sign such examination. Sec. 5007. Any register may act in the place of any other register appointed by and for the same district court. Sec. 5008. The fees of registers, as established by law or by rules and orders framed pursuant to law, shall be paid to them by the parties for whom the Bervices may be rendered. Sec. 5009. In all matters where an issue of fact or of law is raised and con- tested by any party to the proceedings before any register, he shall cause the question or issue to be stated by the opposing parties in writing, and he shall adjourn the same into court for decision by the judge. Sec. 5010. Any party shall, during the proceedings before a register, be at liberty to take the opinion of the district judge upon any point or matter aris- ing in the course of such proceedings, or upon the result of such proceedings, which shall be stated by the register in the shape of a short certificate to the judge, who shall sign the same if he approve thereof ; and such certificate, so signed, shall be binding on all the parties to the proceedings ; but every such certificate may be discharged or varied by the judge at chambers or In open court. Sec. 5011. In any proceedings within the jurisdiction of the court, under this Title, the parties concerned, or submitting to such jurisdiction, may at any stage of the proceedings, by consent, state any: questions in a special case for the opinion of the court, and the judgment of the court shall be final un- less it is agreed and stated in the special case that either party may appeal, if, in such cagp, an appeal is allowed by this Title. The parties may also, if they think fit, agree, that upon the questions raised by such special case being finally decided, a sum of money, fixed by the parties, or to be ascertained by the court, or in such manner as the court may direct, or any property, or the amount of any disputed debt or claim, shall be paid, delivered, or transferred by one of such parties to the other of them, either with or without costs. .Sec. 5012. If any judge, register, clerk, marshal, messenger, assignee, or any other oflacer of the several courts of bankruptcy shall, for anything done or pretended to be done under this Title, or under color of doing anything there- under, willfully demand or take, or appoint or allow any person whatever to take for him or on his account, or for or on account of any other person, or in trust for him or for any other person, any fee, emolument, gratuity, sum of money, or anything of value whatever, other than is allowed by law, such per- son shall forfeit and pay a sum not less than three hundred dollars and not more than five hundred dollars, and be imprisoned not exceeding three years. Sec. 5013. In this Title the word "assignee," and the word "creditor," shall include the plural also ; and the word "messenger" shall include his assistant or assistants, except in the provision for the fees of that oificer. The word "marshal" shall include the marshal's deputies ; the word "person" shall also Include "corporation;" and the word "oath" shall include "affirmation." And in all cases in which any particular number of days is prescribed by this Title, or shall be mentioned in any rule or order of court or. general order which shall at any time be made under this Title, for the doing of any act, or for any other purpose, the same shall be reckoned, in the absence of any expression to the contrary, exclusive of the first and inclusive of the last day, unless the last day shall fall on a Sunday, Christmas day, or on any day appointed by the President of the United States as a day of public fast or thanksgiving, or on the Fourth of July, in which case the time shall be reckoned exclusive of that day also. 5020) V. a. BANKRUPTCY LAW OF MARCH 2, 1867 1645 CHAPTER TWO. VOLUNTARY BANKBUPTOT. Sec. Sec. 5014. Petition and schedule. 5018. Oath of allegiance. 5015. Schedule of debts. 5019. Warrant to marshal. 5016. Inventory of property. 6020. Amendment of schedule. 5017. Oath to petition and schedule. Sec. 5014. If any person residing within the jurisdiction of the United States, and owing debts provable in bankruptcy exceeding the amount of three hun- dred dollars, shall apply by petition addressed to the judge of the judicial district in which such debtor has resided or carried on business for the six months next preceding the time of filing such petition, or for the longest period during such six months, setting forth his place of residence, his inability to pay all his debts In full, his willingness to surrender all his estate and effects for the benefit of his creditors, and his desire to obtain a discharge from his debts, and shaU annex to his petition a schedule and inventory, in compliance with the next two sections, the filing of such petition shall be an act of bank- ruptcy, and such petitioner shall be adjudged a bankrupt. Sec. 5015. The said schedule must contain a full and true statement of all his debts, exhibiting, as far as possible, to whom each debt is due, the place of residence of each creditor, if known- to the debtor, and if not known the fact that it is not known; also the sum due to each creditor; the nature of each debt or demand, whether founded on written security, obligation, or contract, or otherwise; the true cause and consideration of the indebtedness in each case, and the place where such indebtedness accrued ; and also a statement of any existing mortgage, pledge, lien, judgment, or collateral or other security given for the payment of the same. Sec. 5016. The said inventory must contain an accurate statement of all the petitioner's estate, both real and personal, assignable under this Title, de- scribing the same and stating where it is situated, and whether there are any, and, if so, what incumbrances thereon. Sec. 5017. The schedule and inventory must be verified by the oath of the petitioner, which may be taTsen either before the district judge, or before a register,, or before a commissioner of the circuit court. Sec. 5018. Every citizen of the United States petitioning to be declared bankrupt shall, on filing his petition, and before any proceedings thereon, take and subscribe an oath of allegiance and fidelity to the United States, which oath may be taken before either of the oflScers mentioned in the preceding sec- tion, and shall be filed and recorded with the proceedings in bankruptcy. Sec. 5019. Upon the filing of such petition, schedule, and inventory, the judge or register shall forthwith, if he is satisfied that the debts due from the petitioner exceed three hundred dollars, issue a warrant, to be signed by sueh judge or register, directed to the marshal for the district, authorizing him forthwith, as messenger, to publish notices In such newspapers as the warrant specifies ; to serve written or printed notice, by mail or personally, on all creditors upon the schedule filed with the debtor's petition, or whose names may be given to him in addition by the debtor; and to give such personal or other notice to any persons concerned as the warrant specifies. Sec. 5020. Every bankrupt shall be at liberty, from [time] to time, upon oath, to amend and correct his schedule of creditors and property, so that the same shall conform to the facts. 164B APPENDIX (Chapj-Thfee CHAPTER THREE. INVOLUNTABT BANKEUPTCT. Sec. See. 5021. Acts of bankruptcy. 5027. Costs at trIaL 5022. Prior acts of bankruptcy. 5028. Warrant. 5023. "Who may file petition. 5029. Distribution of property of debtor. 5024. Proceedings after filing petition. 5030. Schedule and inventory. 5025. Service of order to show cause. 5031. Proceedings when debtor Is ab- 5026. Proceedings on return day. sent. Sec. 5021. Any person residing within the jurisdiction of the United States and owing debts provable In bankruptcy exceeding the amount of three hun- dred dollars: First. Who departs from the State, district, or Territory of which he is an inhabitant with Intent to defraud his creditors, or, being absent, remains ab- sent with such Intent ; or, Second. Who conceals himself to avoid the service of legal process In any action for the recovery of a debt or demand provable in bankruptcy ; or. Third. Who conceals or removes any of his property to avoid its being at- tached, taken, or sequestered on legal process; or, Fourth. Who makes any assignment, gift, sale, conveyance, or transfer of his estate, property, rights, or credits, either within the United States or else- where, with Intent to delay, defraud, or hinder his creditors; or. Fifth. Who has been arrested and held in custody under or by virtue ol mesne process or execution. Issued out of any court of any State, district, or Territory within which such debtor resides or has property, founded upon a demand in its nature provable against a bankrupt's estate, and for a sum ex- ceeding one hundred dollars, if such process is remaining in force and not dis- charged by payment, or in some other manner provided by the law of such State, district, or Territory applicable thereto, for a period of seven days ; or, Sixth. Who has been actually Imprisoned for more than seven days in a civil action founded on contract, for the sum of one hundred dollars or up- ward ; or, Seventh. Who, being bankrupt or Insolvent, <5r In contemplation of bank- ruptcy or Insolvency, makes any payment, gift, grant, sale, conveyance, or transfer of money or other property, estate, rights, or credits, or gives any warrant to confess judgment ; or procures or suffers his property to be taken on legal process, with intent to give a preference to one or more of his credi- tors, or to any person or persons who are or may be liable for him as indors- ers, bail, sureties, or othervrise, or with the Intent, by such disposition of his property, to defea-t or delay the operation of this act; or. Eighth. Who, being a banker, broker, merchant, trader, manufacturer, or miner, has fraudulenly stopped payment, or who has stopped or suspended and not resumed payment of his- commercial paper, within a period of fourteen days, shall be deemed to have committed an act of bankruptcy, and to have become liable to he adjudged a bankrupt. And if such person shall be adjudged a bankrupt, the assignee may recover back the money or other property so paid, conveyed, sold, assigned, or transferred contrary to this Title, provided the person receiving such payment or conveyance had reasonable cause to be- lieve that a fraud on this Title was intended, and that the debtor was insolv- ent, and such creditor shall not be allowed to prove his debt in bankruptcy. Sec. 5022. Any act of bankruptcy committed since the second day of Marclj, eighteen hundred and sixty-seven, may be the fouadation of an adjudication of Involuntary bankruptcy, upon a petition filed within the time prescribed by law, equally with one committed hereafter. Sec. 5023. An adjudication of bankruptcy may be made on the petition of § 5029) TT. S. BANKRUPTCY; ^;AW QF MARCH 2, 1867 1647 one or more creditors, tlie aggregate of whose provable debts amounts to a,t least two hundred and fifty dollars, provided such petition is brought withlij six months after the act of bankruptcy shall have been committed. , Sec. 5024. Upon the filing of the petition aiithorized by the preceding section, if it appears that sufficient grounds exist therefor, the court shall direct the entry of an order requiring the debtor to appear and show cause, at a court of bankruptcy to be holden at a time to be specified in the order, not less than five days from the service thereof, why the prayer of the petition should not be granted. The court may also, by injunction, restrain the debtor, and any other person, in the mean time, from making any transfer or disposition of any part of the debtor's property not excepted by this Title from the operation thereof and from any interference therewith ; and if it shall appear that there is probable cause for believing that the debtor is about to leave the district, or to remove or conceal his goods and chattels or his evidence of property, or to make any fraudulent conveyance or disposition thereof, the court may issue a warrant to the marshal of the district, commanding him to arrest and safely keep the alleged debtor, unless he shall give bail to the satisfaction of tl)e court for his appearance from time to time, as required by the court, until its decision upon the petition, or until its further order, and forthwith to take possession provisionally of all the property and effects of the debtor, and safe- ly keep the same until the further order of the court. Sec. 5025. A copy of the petition and order to show cause shall be served on the debtor by delivering the same to him personally, or leaving the same at ,his last or usual place of abode ; or, if the debtor cannot be found, and his place of residence cannot be ascertained, service shall be made by publication in such manner as the judge may direct. No further proceedings, unless. the debtor appears and consents thereto, shall be had until proof has been given, to the satisfaction of the court, of such service or publication; and if such proof is not given on the return day of such order, the proceedings shall be adjourned and an order made that the notice be forthwith so served or pub- lished. Sec. 5026. On such return day or adjourned day, if the notice has been duly served or published, or is waived by the appearance and consent of the debtor, the court shall proceed summarily to hear the allegations of the petitioner and debtor, and may adjourn the proceedings from time to time, on good cause shown, and shall, if the debtor on the same day so demands, in writing, order a trial by jury at the first term of the court at which a jury shall be in attendance, to ascertain the fact of the alleged bankruptcy. If the petitioning creditor does not appear and proceed on the return day, or adjourned day, the court may upon the petition of any other creditor, to the required amount, proceed to adjudicate on such petition, without requiring a new service or pub- lication of notice to the debtor. Sec. 5027. If upon such hearing or trial the debtor proves to the satisfaction of the court or of the jury, as the case may be, that the facts set forth in the petition are not true, or that the debtor has paid and satisfied all liens upon his property, in case the existence of such liens was the sole ground of the proceeding, the proceedings shall be dismi||sed and the respondent shall re- cover costs. Sec. 5028. If upon the hearing or trial the facts set forth in the petition are found to be true, or if upon default made by the debtor to appear pursuant to the order, due proof of service thereof is made, the' court shall adjudge the debtor to be a bankrupt, and shall forthwith issue a warrant to take possession pf his estate. Sec. 5029. The warrant shall be directed, and the property of the debtor shall be taken thereon, and shall be assigned and distributed in the same man- 1648 APPENDIX (Chap. Three ner and with similar proceedings to those [hereinleforel [hereinafter] provid- ed for the taking possession, assignment, and distribution of the property of the debtor upon his own petition. Sec. 5030. The order of adjudication of bankruptcy shall require the bank- rupt forthwith, or within such number of days not exceeding five after the date of the order or notice thereof, as shall by the order be prescribed, to make and deliver, or transmit by mail, post-paid, to the messenger, a schedule of the creditors and an inventory of his estate in the form and verified in the manner required of a petitioning debtor. Sec. 5031. If the debtor has failed to appear in person, or by attorney, a cer- tified copy of the adjudication shall be forthwith served on him by delivery or publication in the manner provided for the service of the order to show cause ; and if the bankrupt is absent or cannot be found, such schedule and inventory shall be prepared by the messenger and the assignee from the best information they can obtain. CHAPTER FOUR. PROCEEDINGS TO EEALIZE THE ESTATE FOE CEEDITOES. Sec. Sec. 5032. Contents of notice to creditors. 506S. 5033. Marshal's return. 50B9. 5034. Choice of assignee. 5070. 5035. Who are disqualified. 5071. 5036. Bond of assignee. 5037. Assignee liable for contempt. 5072. 5038. Resignation of the trust. 5073. 5039. Removal of assignee. 5074. 5040. Effect of resignation or removal. 5075. 5041. Pilling vacancies. 5076. 5042. Vesting estate in remaining as- 5077. signee. 5078. 5043. Former assignee to execute in- 5079. struments. 5044. Assignment. 5080. 5045. Exemptions. 5081. D046. What property vests In assignee. 5047. Right of action of assignee. 5082. 5048. No abatement by death or re- 6083. raoval. 5084. 5049. Copy of assignment conclusive ev- 5085. Idence of title. 5086. 5050. Bankrupt's books of account. 50S7. 5051. Debtor must execute instruments. 5088. 5052. Chattel-mortgages. 5089. 5053. Trust property. 5054. Notice of appointment of assignee 5090. and record of assignment. 5055. Assignee to demand and receive 5091. all assigned estate. 5092. 5056. Notice prior to suit against as- 5093. signee. 5094. 5057. Time of commencing suits. 5096. 5058. Assignee's accounts of mone^ re- 5096. ceived. 5097. 5059. Assignee to keep money and 5098. goods separate. 5060. Temporary investment of money. 5099. 5061. Arbitration. 5100. 5062. Assignee to sell property. 5101. 5063. Sale of disputed property. 5102. 5064. Sale of uncollectible assets. 5065. Sale of perishable property. 5103. 5066. Discharge of liens. 5067. Provable debts. Contingent debts. Liability of bankrupt as surety. Sureties for bankrupt. Debts falling due at stated peri- ods. No other debts provable. Set-offs. Distinct liabilities. Secured debts. Proof of debt. Creditor's oath. Oath by whom made. Oath, before whom taken; proof sent to register. Proof to be sent to assignee. Examination by court into proof of claims. Withdrawal of papers. Postponement of^ proof. Surrender of preferences. Allowance and list of debts. Examination of bankrupt. Examination of witness. Examination of bankrupt's wife. Examination of imprisoned or dis- abled bankrupt. No abatement upon death of debtor. Distribution of bankrupt's estate. Second meeting of creditors. Third meeting of creditors. Notice of meetings. Creditor may act by attorney. Settlement of assignee's account. Dividend not to be disturbed. , Omission of assignee to call meet- ings. Compensation of assignee. Commissions. Debts entitled to priority. Notice of dividend to each cred- itor. Settlement of bankrupt estates by trustees. § 5040) U. S. BANKRUPTCY LAW OF MARCH 2, 1867 1649 Sec. 5032. The notice to creditors under warrant shall state: First.. That a warrant in bankruptcy has been issued against the estate of the debtor. Second. That the payment of any debts and the delivery of any property be- longing to such debtor to him or for his use, and the transfer of any property by him, are forbidden by law. Third. That a meeting of the creditors of the debtor, giving the names, resi- dences, and amounts, so far as known, to prove their debts and choose one or more assignees of his estate, will be held at a court of bankruptcy, to be holden at a time and place designated in the warrant, not less than ten nor more than ninety days after the issuing of the same. Sec. 5033. At the meeting held in pursuance of the notice, one of the registers of the court shall preside, and the messenger shall make return of the warrant and of his doings thereon ; and if it appears that the notice to the creditors has not been given as required in the warrant, the meeting shall forthwith be adjourned, and a new notice given as required. Sec. 5034. The creditors shall, at the first meeting held after due notice from the messenger in presence of a register designated by the court, choose one or more assignees of the estate of the debtor ; the choice to be made by the greater part in value and in number of the creditors who have proved their debts. If no choice is made by the creditors at the meeting, the judge, or if there be no opposing interest, the register, shall appoint one or more assignees. If an as- signee, so chosen or appointed, fails within five days to express in writing his acceptance of the trust, the judge or register may fill the vacancy. All elec- tions or appointments of assignees shall be subject to the approval of the judge ; and when in his judgment it is for any cause needful or expedient, he may appoint additional assignees, or order a new election. Sec. 5035. No person who has received any preference contrary to the provi- sions of this Title shall vote for or be eligible as assignee ; but no title to property, real or personal, sold, transferred, or conveyed by an assignee, shall be affected or impaired by reason of his ineligibility. Sec. 5036. The district judge at any time may, and upon the request in writ- ing of any creditor who has proved his claim shall, require the assignee to give good and sufficient bond to the United States, with a condition for the faith- ful performance and discharge of his duties; the bond shall be approved by the judge or register by his indorsement thereon, shall be filed with the record of the case, and inure to the benefit of all creditors proving their claims, and may be prosecuted in the name and for the benefit of any injured party. If the assignee falls to give the bond within such time as the judge or register or- ders, not exceeding ten days after notice to him of such order, the judge shall remove him and appoint another in his place. Sec. 5037. Any assignee' who refuses or unreasonably neglects to execute an instrument when lawfully required by the court, or disobeys a lawful order or decree of the court in the premises, may be punished as for a contempt of court. Sec. 5038. An assignee may, with the consent of the judge, resign his trust and be discharged therefrom. Sec. 5039. The court, after due notice and hearing, may remove an assignee for any cause which, in its judgment, renders such removal necessary or ex- pedient. At a meeting called for the purpose by order of the court, in its dis- cretion, or called upon the application of a majority of the creditors in number and value, the creditors may, with consent of the court, remove any assignee by such a vote as is provided for the choice of assignee. Sec. 5040. The resignation or removal of an assignee shall in no way release him from performing stU things requisite on his part for the proper closing up of his trust and the transmission thereof to his successors, nor shall it affect the liability of the principal or surety on the bond given by the assignee. J3lk.Bkr.(3d Ed.)— 104 1650 ' APPENDIX (Chap. Four Sec. 5041. Vacancies caused by death or otherwise in the office of assignee may be filled by appointment of the court, or at its discretion by an election by the creditors, in the same manner as in the original choice of an assignee, at a regular meeting, or at a meeting called for the purpose, with such notice thereof in writing to all known creditors, and by such person as the court shall direct. Sec. 5042. When, by death or otherwise, the number of assignees is reduced, the estate of the debtor not lawfully disposed of shall vest in the remaining assignee or assignees, and in the persons selected to fill vacancies, if any, with the same powers and duties relative thereto as if they were originally chosen. Sec. 5043. Any former assignee, his executors or administrators, upon re- quest, and at the expense of the estate, shall make and execute to the new as- signee all deeds, conveyances, and assurances, and do all other lawful acts req- uisite to enable him to recover and receive all the estate. And the court may make all orders which it may deem expedient to secure the proper fulfillment of the duties of any former assignee, and the rights and interests of all per- sons interested in the estate. Sec. 5044. As soon as an assignee is appointed and qualified, the judge, or, where there is no opposing interest, the register, shall, by an instrument under his hand, assign and convey to the assignee all the estate, real and personal, of the bankrupt, with all his deeds, books, and papers relating thereto, and such assignment shall relate back to the commencement of the proceedings in bank- ruptcy, and by operation of law shall vest the title to all such property and estate, both real and personal, in the assignee, although the same is then at- tached on mesne process as the property of the debtor, and shall dissolve any such attachment made within four months next preceding the commencement of the bankruptcy proceedings. Sec. 5045. There shall be excepted from the operation of the conveyance the necessary household and kitchen furniture, and such other articles and neces- saries of the bankrupt as the assignee shall designate and set apart, having reference in the amount to the family, condition, and circumstances of the bankrupt, but altogether not to exceed in value, in any case, the sum of five hundred dollars ; also the wearing apparel of the bankrupt, and that of his wife and children, and the uniform, arms, and equipments of any person who is or has been a soldier in the militia, or in the service of the United States; and such other property as now is, or hereafter shall be, exempted from at- tachment, or seizure, or levy on execution by the laws of the United States, and such other property not included in the foregoing exceptions as is exempt- ed from levy and sale upon execution or other process or order of any court by the laws of the State in which the bankrupt has his domicile at the time of the commencement of the proceedings in bankruptcy, to an amount allowed by the constitution and laws of each State, as existing In the year eighteen hundred and seventy-one; and such exemptions shall be valid against debts contracted before the adoption and passage of such State constitution and laws, as well as those contracted after the same, and against liens by judgment or decree of any State court, any decision of any such court rendered since the adoption and passage of such constitution and laws to the contrary notwith- standing. These exceptions shall operate as a limitation upon the conveyance of the property of the bankrupt to his assignee ; and in no case shall the prop- erty hereby excepted pass to the assignee, or the title of the bankrupt thereto be impaired or affected by any of the provisions of this Title ; and the deter- mination of the assignee in the matter shall, on exception taken, be subject to the final decision of the said court. Sec. 5046. All property conveyed by the bankrupt in fraud of his creditors ; all rights in equity, choses in action, patent-rights, and copyrights ; all debts due him, dr any person for his use, and all liens and securities therefor ; and all his rights of action for property or estate, real or personal, and for any § 5056) V. S. BANKEUPTCT LAW OP MARCH 2, 1867 1651 cause of action which he had against any person arising from contract or from the unlawful taking or detention, or Injury to the property of the bankrupt; and all his rights of redeeming such property or estate; together with the like right, title, power, and authority to sell, manage, dispose of, sue for, and re- cover or defend the same, as the bankrupt might have had if no assignment had been made, shall, in virtue of the adjudication of bankruptcy and the ap- pointment of his assignee, but subject to the exceptions stated in the preceding section, be at once vested is such assignee. Sec. 5047. The assignee shall have the like remedy to recover all the estate, debts, and effects in his own name, as the debtor might have had If the decree in bankruptcy had not been rendered and no assignment had been made. If at the time of the commencement of the proceedings in bankruptcy, an action is pending in the name of the debtor for the recovery of a debt or other thing which might or ought to pass to the assignee by the assignment, the assignee ■ shall, if he requires it, be admitted to prosecute the action in his own name, In like manner and with like efCect as if it had been originally commenced by him. And if any suit at law or in equity, in which the bankrupt is a party in his own name, is pending at the time of the ad.1udication of bankruptcy, the assignee may defend the same In the same manner and with-the like effect as it might have been defended by the bankrupt. Sec. 5048. No suit pending in the name of the assignee shall be abated by his death or removal ; but upon the motion of the surviving or remaining or new assignee, as the case may be, he shall be admitted to prosecute the suit' in like manner and with like effect as if it had been originally commenced by him. Sec. 5049. A copy duly certified by the clerk of the court, under the seal thereof, of the assignment, shall be conclusive evidence of the title of the as- signee to take, hold, sue for, and recover the property of the bankrupt. Sec. 5050. No person shall be entitled, as against the assignee, to withhold from him possession of any books of account of the bankrupt, or claim any lien thereon. Sec. 5051. The debtor shall, at the request of the assignee and at the ex- pense of the estate, make and execute any instruments, deeds, and writings which may be proper to enable the assignee to possess himself fully of all the assets of the bankrupt. Sec. 5052. No mortgage of any vessel or of any other goods or chattels, made as security for any debt, in good faith and for a present consideration and otherwise valid, and duly recorded pursuant to any statute of the United States or 'of any State, shall be invalidated or affected by an assignment in bank- ruptcy. Sec 5053. No property held by the bankrupt in trust shall pass by the as- signment. Sec 5054. The assignee shall immediately give notice of his appointment, by publication at least once a week for three successive weeks in such newspapers as shall for that purpose be designated by the court, due regard being had to their general circulation in the district or in that portion of the district in which the bankrupt and his creditors shall reside, and shall, within six months, cause the assignment to him to be recorded in every registry of deeds or other ofiice within the United States where a conveyance of any lands owned by the bankrupt ought by law to be recorded. [And the record of such assignment, or a duly-certified copy thereof, shall be evidence thereof in all courts.] Sec. 5055. The assignee shall demand and receive, from all persons holding the same, all the estate assigned or intended to be assigned. Sec 5056. No person shall be entitled to maintain an action against an as- signee in bankruptcy for anything done by him as such assignee, without pre- viously giving him twenty days' notice of such action, specifying the cause 1652 APPENDIX (Chap. Four thereof, to the end' that such assignee may have an opportunity of tendering amends, should he see fit to do so. Sec. 5057. No suit, either at law or in equity, shall be maintainable in any court between an assignee in bankruptcy and a person claiming an adverse in- terest, touching any property or rights of property transferable to or vested in such assignee, unless brought within two years from the time when the cause of action accrued for or against such assignee. And this provision shall not in any case revive a right of action barred at the time when an assignee is appointed. Sec. 5058. The assignee shall keep a regular account of all money received by him as assignee, to which every creditor shall, at reasonable times, have free resort. Sec. 5059. The assignee shall, as soon as may be after receiving any money belonging to the estate, deposit the same in some bank in his name as assignee, or otherwise keep it distinct from all other money, in his possession ; and shall, as far as practicable, keep all goods and effects belonging to the estate separate from all other goods in his possession, or designated by appropriate marks, so that they may be easily and clearly distinguished, and may not be Uable to be taken as his property or for the payment of his debts. Sec. 5060. When it appears that the distribution of the estate may be delay- ed by litigation or other cause,, the court may direct the temporary investment of the money belonging to such estate in securities to be approved by the judge or register, or may authorize it to be deposited in any convenient bank, upon such interest, not exceeding the legal rate, as the bank may contract with the assignee to pay thereon. Sec. 5061. The. assignee, under the direction of the court, may submit any controversy arising in the settlement of demands against the estate, or of debts due to it, to the determination of arbitrators to be chosen by him and the other party to the controversy, and, under such direction, may compound and settle any such controversy, by agreement with the other party, as he thinks proper and most for the interest of the creditors. Sec. 5062. The assignee shall sell all such unincumbered estate, real and per- sonal, which comes to his hands, on such terms as he thinks, most for the in- terest of the creditors ; but upon petition of any person I;aterested, and for cause shown, the court may make such order concerning the time, place, and manner of sale as will, in his opinion, prove to the interest of the credi- tors. Sec. 5063' Whenever it appears to the satisfaction of the court that the title to any portion of an estate, real or personal, which has come into possession of the assignee, or which is claimed by him, is in dispute, the court may, upon the petition of the assignee, and after such notice to the claimant, his agent or attorney, as the court shall deem reasonable, order it to be sold, under the direction of the assignee, who shall hold the funds received ia place of the es- tate disposed of ; and the proceeds of the sale shall be considered the measure of the value of the property in any suit or controversy between the parties in any court. But this provision shall not prevent the recovery of the property from the possession of the assignee by any proper action commenced at any time before the court orders the sale. Sec. 5064. The assignee may sell and assign, under the direction of the court and in such manner as the court shall order, any outstanding claims or other property in his hands, due or belonging to the estate, which cannot be collect- ed and received by him -Without unreasonable or ipconvenient delay or expense. Sec. 5065. When it appears to the satisfaction of the court that the estate of the debtor, or any part thereof, is of a perishable nature, or liable to dete- riorate in value, the court may order the same to be sold, in such manner as may oe deemed most expedient, under the direction of the messenger or as- g 5074) U. S. BANKHUPTCY LAW OF MARCH 2, 1867. 1653 slgnee, as the case may be, who shall hold the funds received in place of the estate disposed of. Sec. 5066. The assignee shall have authority, under the order and direction of the court, to redeem or discharge any mortgage or conditional contract, or pledge or deposit, or lien upon any property, real or personal, whenever pay- able, and to tender due performance of the condition thereof, or to sell the same subject to such mortgage, lien, or other incumbrance. Sec. 5067. AH debts due and payable from the bankrupt at the time of the commencement of proceedings in bankruptcy, and all debts then existing but not payable until a future day, a rebate of interest being made when no inter- est is payable by the terms of the contract, may be proved against the estate of the bankrupt All demands against the bankrupt for or on account of any goods or chattels wrongfully taken, converted, or withheld by him may be proved and allowed as debts to the amount of the value of the property so taken or withheld, with interest. When the bankrupt is liable for unliqui- dated damages arising out ,of any contract or promise, or on account of any goods or chattels wrongfully taken, converted, or withheld, the court may cause such damages to be assessed in such mode as it may deem best, and the sum so assessed may be proved against the estate. Sec. 5068. In all cases of contingent debts and contingent liabilities contract- ed by the bankrupt, and not herein otherwise provided for, the creditor may make claim therefor, and have his claim allowed, with the right to share in the dividdhds, if the contingency happens before the order for the final divi- dend ; or he may, at any time, apply to the court to have the present value of the debt or liability ascertained and liquidated, which shall then be done in such manner as the court shall order, and he shall be allowed to prove for the amount so ascertained. Sec. 5069. When the bankrupt is bound as drawer, indorser, surety, bail, or guarantor upon any bill, bond, note, or any other specialty or contract, or for any debt of another person, but his liability does not become absolute until after the adjudication of bankruptcy, the creditor may prove the same after such liability becomes fixed, and before the final dividend is declared. Sec. 5070. Any person liable as bail, surety, guarantor, or otherwise for the bankrupt, who shall have paid the debt, or any part thereof, in discharge of the whole, shall be entitled to prove such debt or to stand in the place of the creditor if the creditor has proved the same, although such payments shall have been made after the proceedings in bankruptcy were commenced. And any person so liable for the bankrupt, and who has not paid the whole of such debt, but is still Uable for the same or any part thereof, may, if the creditor fails or omits to prove such debt, prove the same either in the name of the creditor or otherwise, as may be provided by the general orders, and subject to such regulations and limitations as may be established by such general or- ders. Sec. 5071. Where the bankrupt is liable to pay rent or other debt falling due at fixed and stated periods, the creditor may prove for a proportionate part thereof up to the time of the bankruptcy, as if the same grew due from day to day, and not at such fixed and stated periods. Seo. 5072. No debts other than those specified in the five preceding sections shall be proved or allowed against the estate. Sec. 5073. In all cases of mutual debts or mutual credits between the parties, the account between them shall be stated, and one debt set off against the other, and the balance only shall be allowed or paid ; but no set-off shall be allowed in favor of any debtor to the bankrupt of a claim in its nature not provable against the estate, or of a claim purchased by or transferred to him after the filing- of the petition. Sec. 5074. When the bankrupt, at the time of adjudication, is liable upon any bill of exchange, promissory. note, or other obligation in respect of distinct 1654 APPENDIX (Chap. Foisr contracts as a member of two or more firms carrying on separate and distinct trades, and having distinct estates to be wound up in bankruptcy, or as a sole trader and also as a member of a firm, the circumstance that such firms are in whole or in part composed of the same individuals, or that the sole con- tractor is also one of the Joint contractors, shall not prevent proof and receipt of dividend in respect of such distinct contracts against the estates respec- tively liable upon such contracts. Sec. 5075. When a creditor has a mortgage or pledge of real or personal property of the bankrupt, or a lien thereon for securing the payment of a debt owing to him from the bankrupt, he shall be admitted as a creditor only for the balance of the debt after deducting the value of such property, to be as- certained by agreement between him and the assignee, or by a sale thereof, to be made in such manner as the court shall direct; or the creditor may re- lease or convey his claim to the assignee upon such property, and be admitted to prove his whole debt. If the value of the property exceeds the sum for which it is so held as security, the assignee may release to the creditor the bankrupt's right of redemption therein on receiving such excess; or he may sell the property, subject to the claim of the creditor thereon; and in either case the assignee and creditor, respectively, shall execute all deeds and writ- ings necessary or proper to consummate the transaction. If the property Is not so sold or released and delivered up, the creditor shall not be allowed to prove any part of his debt. Sec. 5076. Creditors residing within the judicial district where ttie proceed- ings in bankruptcy are pending shall prove their debts before one of the regis- ters of the court, or before a commissioner of the circuit court, within the said district. Creditors residing without the district, but within the United States, may prove their debts before a register in bankruptcy, or a commissioner of a circuit court, in the judicial district where such creditor, or either one of joint creditors, reside; but proof taken before a commissioner, shall be subject to revision by the. register of the court. Sec. 5077. To entitle a claimant against the estate of a bankrupt to have his demand allowed, it must be verified by a deposition in writing, under oath, and signed by the deponent, setting forth the demand, the consideration there- of, whether any and what securities are held therefor, and whether any and what payments have been made thereon; that the sum claimed is justly due from the bankrupt to the claimant; that the claimant has not, nor has any other person, for his use, received any security or satisfaction whatever other than that by him set forth ; that the claim was not procured for the purpose of influencing .the proceedings in bankruptcy ; and that no bargain or agree- ment, express or implied, has been made or entered into, by or on behalf of such creditor, to sell, transfer, or dispose of the claim, or any part thereof, or to take or receive, directly or indirectly, any money, property, or consideration whatever, whereby the vote of such creditor for assignee, or any action on the part of such creditor, or any other person in the proceedings, is or shall be in any way affected, influenced, or controlled. No claim shall be allowed un- less all the statements set forth In such deposition shall appear to be true. Sec. 5078. Such oath shall be made by the claimant, testifying of his awn knowledge, unless he is absent from the United States or prevented by some other good cause from testifying, in which case the demand may be verified by the attorney or authorized agent of the claimant, testifying to the best of his knowledge, information, and belief, and setting forth his means of knowl- edge. Corporations may verify their claims by the oath of their president, cashier, or treasurer. The court may require or receive further pertinent evi- dence either for or against the admission of any claim. Seo. 5079. Such oath may be taken in any district before any register or any commissioner of the circuit court authorized to administer oaths ; or, if the creditor is in a foreign country, before any minister, consul, or vice-consul § 5088) U. S. BANKRUPTCY LAW OF MARCH 2, 1867 1655 of the United States. When the proof is so made it shall be delivered or Bent by maU to the register having charge of the same. Skc. 5080. If the proof is satisfactory to the register It shall be delivered or sent by mail to the assignee, who shall examine the same and compare it with the books and accounts of the bankrupt, and shall register, in a book to be kept by him for that purpose, the names of creditors who have proved their claims, in the order in which such proof is received, stating the time of receipt of such proof, and the amount and nature of the debts. Such books shall be open to the inspection of all the creditors. The court may require or receive further pertinent evidence either for or against the admission of any claim. Sec. 5081. The court may, on the application of the assignee, or of any credi- tor, or of the bankrupt, or without any application, examine upon oath the bankrupt, or any person tendering or who has made proof of a claim, and may summon any person capable of giving evidence concerning such proof, or con- cerning the debt sought to be proved, and shall reject all claims not duly prov- ed, or where the proof shows the claim to be founded in fraud, illegality, or mistake. Sec. 5082. A bill of exchange, promissory note, or other instrument, used in evidence upon the proof of a claim, and left in court or deposited in the clerk's oflOice, may be delivered, by the register or clerk having the custody thereof, to the person who used it, upon his filing a copy thereof, attested by the clerk of the court, who shall indorse upon it the name of the party against whose estate it has been proved, and the date and amount of any dividend declared thereon. Sec. 5083. When a claim is presented for proof before the election of the as- signee, and th» judge or register entertains doubts of its validity or of the right of the creditor to prove it, and is of opinion that such validity or right ought to be investigated by the assignee, he may postpone the proof of the claim until the assignee is chosen. Sec. 5084. Any person who, since the second day of March, eighteen hun- dred and sixty-seven, has accepted any preference, having reasonable cause to believe that the same was made or given by the debtor, contrary to any pro- visions of the act of March two, eighteen hundred and sixty^seven, chapter one hundred and seventy-six, to establish a uniform system of bankruptcy, or to any provisions of this Title, shall not prove the debt or claim on account of which the preference is made or given, nor shall he receive any dividend therefrom until he shall first surrender to the assignee all property, money, benefit, or advantage received by him under such preference. Sec. 5085. The court shall allow all debts duly proved, and shall cause a list thereof to be made and certified by one of the registers. Sec. 5086. The court may, on the application of the assignee, or of any credi- tor, or without any application, at all times require the bankrupt, upon rea- sonable notice, to attend and submit to an examination, on oath, upon all mat- ters relating to the disposal or condition. of his property, to his trade and dealings with others, to his accounts concerning the same, to all debts due to or claimed from him, and to all other matters concerning his property and estate and the due settlement thereof according to law. Such examination shall be in writing, and shall be signed by the bankrupt and filed with the other proceed- ings. Sec. 5087. The court may, in like manner, require the attendance of any other person as a witness, and if such person fails to attend, on being sum- moned thereto, the court may compel his attendance by warrant directed to the marshal, commanding him to arrest such person and bring him forthwith before the court, or before a register in bankruptcy, for examination as a wit- ness. Sec. 5088. For good cause shown, the wife of any bankrupt may be required to attend before the court to the end that she may be examined as a witness; and if she does not attend at the time and place specified in the order, the 1656 APPENDIX (Chap. Four bankrupt sliall not be entitled to a discharge unless be proves to the satisfac- tion of the court that he was unable to procure her attendance. Sec. 5089. If the bankrupt is imprisoned, absent, or disabled from attend- ance, the court may order him to be produced by the jailer, or any officer in whose custody he may be, or may direct the examination to be had, taken, and certified at such time and place and in such manner as the court may deem proper, and with like efEect as if such examination had been had in court. Sec. 5090. If the debtor dies after the issuing of the warrant, the proceed- ings may be continued and concluded in like manner as if he had lived. Sec. 5091. All creditors whose debts are duly proved and allowed shall be entitled to share in the bankrupt's property and estate, pro rata, without any priority or preference whatever, except as allowed by section fifty-one hundred and one. No debt proved by any person liable, as bail, surety, guarantor, or otherwise, for the bankrupt, shall be paid to the person so proving the same until satisfactory evidence shall be produced of the payment of such debt by such person so liable, and the share to which such debt would be entitled may be paid into court, or otherwise held for the benefit of the party entitled there- to, as the court may direct. Sec. 5092. At the expiration of three months from the date of the adjudica- tion of bankruptcy in any case, or as much earlier as the court may direct, the court, upon request of the assignee, shall call a general meeting of the credi- tors, of which due notice shall be given, and the assignee shall then report, and exhibit to the court and to the creditors just and true accounts of all his re- ceipts and payments, verified by his oath, and he shall also produce and file vouchers for all payments for which vouchers are required by any rule of the court ; he shall also submit the schedule of the bankrupt's creditors and prop- erty as amended, duly verified by the bankrupt, and a statement of the whole estate of the bankrupt as then ascertained, of the property recovered and of the property outstanding, specifying the cause of its being outstanding, and showing what debts or claims are yet undetermined, and what sum remains in his hands. The majority in value of the creditors present shall determine whether any and what part of the net proceeds of the estate, after deducting and retaining a sum sufficient to provide for all undetermined claims which, by reason of the distant residence of the creditor, or for other sufficient rea- son, have not been proved, and for other expenses and contingencies, shall be divided among the creditors ; but unless at least one-half in value of the cred- itors attend the meeting, either in person or by attorney, it shall be the duty of the assignee so to determine. Sec. 5093. Like proceedings shall be had at the expiration of the next three months, or earlier, if practicable, and a third meeting of creditors shall then be called by the court, and a final dividend then declared, unless any suit at law or in equity is pending, or unless some other estate or effects of the debtor afterward come to the hands of the assignee, in which case the assignee shall, as soon as may be, convert such estate and effects Into money, and within two months after the same are so converted they shall be divided in manner afore- Said. Further dividends shall be made in like manner as often as occasion re- quires, and after the third meeting of creditors no further meeting shall be called, unless ordered by the court. Sec. 5094. The assignee shall give such notice to all known creditors, by mall or otherwise, of all meetings, after the first, as may be ordered by the court. Sec. 5095. Any creditor may act at all meetings by his duly constituted at- torney the same as though personally present. Sec 5096. Preparatory to the final dividend, the assignee shall submit his account to the court, and file the same, and give notice to the creditors of such filing, and shall also give notice that he will apply for a. settlement of his account, and for a discharge from all liability as assignee, at a time to be spec- ified in such notice, and at such time the court shall audit and pass the § 5103) U. S. BANKRUPTCY LAW OF MARCH 2, 1867 1657 accounts of the assignee, and the assignee shall, if required by the court, be examined as to the truth of his account, and it is found correct he shall there- by be discharged from all liability as assignee to any creditor of the bankrupt. The court shall thereupon order a dividend of the estate and effects, or of such part thereof as it sees fit, among such of the creditors as have proved their claims. In proportion to the respective amount of their debts. Sec. 5097. No dividend already declared shall be disturbed by reason of debts being subsequently proved, but the creditors proving such debts shall be entitled to a dividend equal to those already received by the other creditors before any further payment is made to the latter. Sec. 5098. If by accident, mistake, or other cause, vyithout fault of the as- signee, either or both of the second and third meetiugs should not be held within the times limited, the court may, upon motion of an interested party, order such meetings, with like effect as to the validity of the proceedings as if the meeting had been duly held. Sec. 5099. The assignee shall be allowed, and may retain out of money in his hands, all the necessary disbursements made by him in the discharge of his duty, and a reasonable compensation for his services, in the discretion of the court. Sec. 5100. In addition to all expenses necessarily incurred by him in the ex- ecution of his trust, in any case, tlie assignee shall be entitled to an allowance for his services in such case on all moneys received and paid out by him there- in, for any sum not exceeding one thousand dollars, five per centum thereon ; for any larger sum, not exceeding five thousand dollars, two and a half per centum on the excess over one thousand dollars ; and for any larger sum, one per centum on the excess over five thousand dollars. If, at any time, there is not in his hands a sufficient amount of money to defray the necessary expens- es required for the further execution of his trust, he shall not be obliged to proceed therein until the necessary funds are advanced or satisfactorily se- cured to him. Sec. 5101. In the order for a dividend, the following claims shall be entitled to priority, and to be first paid in full in the following order: First. The fees, costs, and expenses of suits, and of the several proceedings in bankruptcy under this Title, and for the custody of property, as herein pro- vided. Second. All debts due to the Uniteh States, and all taxes and assessments under the laws thereof. Third. All debts due to the State in which the proceedings in bankruptcy are pending, and all taxes and assessments made under the laws thereof. Fourth. Wages due to any operative, clerk, or house-servant, to an amount not exceeding fifty dollars, for labor performed within six months next pre- ceding the first publication of the notice of proceedings in bankruptcy., Fifth. All debts due to any persons who, by the laws of the United States, are, or may be, entitled to a priority, Jn like manner as if the provisions of this Title had not been adopted. But nothing contained in this Title shall interfere with the assessment and collection of taxes by the authority of the United States or any State. [See §§ 3466-3468.] Sec. 5102. Whenever a dividend is ordered, the register shall, within ten days after the meeting, prepare a list of creditors entitled to dividend, and shall calculate and set opposite to the name of each creditor who has proved his claim the dividend to which he is entitled out of the net proceeds of the estate set apart for dividend, and shall forward, by mail, to every creditor a statement of the dividend to which he is entitled, and such creditors shall beij paid by the assignee in such manner as the court may direct. Sec. 510.3. If at the first meeting of creditors, or at any meeting of creditors specially called for that purpose, and of which previous notice shall have been given for such length of time and in such manner as the court may direct. 1658 APPENDIX (Chap. Fdur three-fourths In value of the creditors whose claims have been proved shall re- solve that it Is for the Interest of the general body of the creditors that the estate of the bankrupt shall be settled by trustees, under the inspection and direction of a committee of the creditors, the creditors may certify and report such resolution to the court, and may nominate one or more trustees to take and hold and distribute the estate, under the direction of such committee. If it ap- pears, after hearing the bankrupt and such creditors as desire to be heard, that the resolution -wsls duly passed, and that the interests of the creditors will be promoted thereby, the court shall confirm it; and upon the execution and fil- ing, by or on behalf of three-fourths in value of all the creditors whose claims have been proved, of a consent that the estate of the bankrupt shall be wound up and settled by trustees, according to the terms of such resolution, the bankrupt, or, if an assignee has been appointed, the assignee, shall, under the direction of the court, and under oath, convey, transfer, and deliver aU the property and estate of the bankrupt to the trustees, who shall, upon such con- veyance and transfer, have and hold the same in the same manner, and with the same powers and rights, in all respects, as the bankrupt would have had or held the same if no proceedings in bankruptcy had been taken, or as the assignee in bankruptcy would have done, had such resolution not been passed. Such consent and the proceedings under it shall be as binding in all respects on any creditor whose debt is provable, who has not signed the same, as if he had signed it, and on any creditor whose debt, if provable, is not proved, as if he had proved it. The court, by order, shall direct all acts and things need- ful to be done to carry into effect such resolution of the creditors, and the trustees shall proceed to wind up and Kettle the estate under the direction and inspection of such committee of the creditors, for the equal benefit of all such creditors; and the winding up and settlement of any estate under the provi- sions of this section shall be deemed to be proceedings in bankruptcy; and the trustees shall have all the rights and powers of assignees in bankruptcy. The court, on the application of such trustees, shall have power to summon and examine, on oath or otherwise, the bankrupt, or any creditor, or any person indebted to the estate, or known or suspected of having any of the estate in his possession, or any other person whose examination may be material or nec- essary to aid the trustees in the execution of their trust, and to compel the attendance of such persons and the production of books and papers in the same manner as in other proceedings in bankruptcy ; and the bankrupt shall have the like right to apply for and obtain a discharge after the passage of such resolution and the appointment of such trustees as if such resolution had not been passed, and as if all the proceedings had continued in the manner pro- vided in the preceding sections of this Title. If the resolution is not duly re- ported, or the consent of the creditors is not duly filed, or if, upon its filing, the court does not think fit to approve thereof, the bankruptcy shall proceed as if no resolution had been passed, and the court may make all necessary orders for resuming the proceedings. And the period of time which shall have elapsed between the date of the resolution and the date of the order for re- suming proceedings shall not be reckoned In calculating periods of time pre- scribed by this Title. § 5108) U. S. BANKRUPTCY LAW OF MARCH 2, 1867 1659 CHAPTER FIVE. PBOTECTTON AND DISCIIABGE OF BANKBUPTS, See. Sec. 6104. Bankrupt subject to orders of 5112. Assets equal to fifty per cent, re- court, quired. 5105. "Waiver of suit by proof of debt. 5113. Final oath of bankrupt. 5106. Stay of suits. 5114. Discharge of bankrupt. 5107. Exemption from arrest. 5115. Form of certiflcate of discharge. 5108. Application for discharge. 5116. Second bankruptcy. 5109. Notice to creditors. 5117. Certain debts not released. 5110. Grounds for opposing discharge. 5118. Liability of other persons not re- 5111. Specification of grounds of oppo- leased. sitlon. 5119. Effect of discharge. 5120. Application to annul discharge. Sec. 5104. The bankrupt shall at all times, until his discharge, be subject to the order of the court, and shall, at the expense of tbe estate, execute all proper writings and instruments, and do all acts required by the court touch- ing the assigned property or estate, and to enable the assignee to demand, re- cover, and receive all the property and estate assigned, veherever situated. For neglect or refusal to obey any order of the court, the bankrupt may be com- mitted and punished as for a contempt of court. If the bankrupt is with- out the district, and unable to return and personally attend at any of the times or do any of the acts which may be required pursuant to this section, and if it appears that such absence was not caused by willful default, and if, as soon as may be after the removal of such impediment, he offers to attend and submit to the order of the court in all respects, he shall be permitted so to do, with like effect as if he had not been In default. Sec. 5105. No creditor proving his debt or claim shall be "allowed to main- tain any suit at law or m equity therefor against the bankrupt, but shall be deemed to have waived all right of action against him ; and all proceedings already commenced or unsatisfied judgments already obtained thereon against the bankrupt shall be deemed to be discharged and surrendered thereby. Sec. 5106. No creditor whose debt is provable shall be allowed to prosecute to final judgment any suit at law or in equity therefor against the bankrupt, until the question of the debtor's discharge shall have been determined ; and any such suit or proceedings shall, upon the application ' of the bankrupt, be stayed to await the determination of the court In bankruptcy on the question of the discharge, provided there is no unreasonable delay on the part of the bankrupt in endeavoring to obtain his discharge, and provided, also, that if the amount due the creditor is in dispute, the suit, by leave of the court in bank- ruptcy, may proceed to judgment for the purpose of ascertaining the amount due, which amount may be proved In bankruptcy, but execution shall be stayed. Sec 5107. No bankrupt shall be liable during the pendency of the proceed- ings in bankruptcy to arrest in any civil action, unless the same is founded on some debt or claim from which his discharge in bankruptcy would not release him. Sec. 5108. [At any time after the expiration of six nwnths from the adjudi- cation of bankruptcy, or if no dehts have been proved against the hanJcrupt, or if no assets have come to the hands of the assignee, at any tvme after the expiration of sixty days, and within one year from the adjudication of tank- ruptcy, the bankrupt may apply to the court for a discharge from his dehts.]i [At any time after the expiration of six months from the adjudication of bank- ruptcy, or if no debts have been pAved against the bankrupt, or if no assets have come to the hands of the assignee, at any time after the expiration of sixty days, and before the final disposition of the cause, the bankrupt may 1660 APPENDIX (Chap. Five apply to the court for a discharge from his debts. This section shall apply, in all cases heretofore or hereafter commenced.] Sec. 5109. Upon application for a discharge being made the court shall or- der notice to be given by mail to all creditors who have proved their debts, and by publication at least once a week in such newspapers as the court shall designate, due regard being had to the general circulation of the same in the district, or in that portion of the district in which the bankrupt and his credi- tors shall reside to appear on a day appointed for that purpose, and show cause *hy a discharge should not be granted to the bankrupt. Sec. 5110. No discharge shall be granted, or, if granted, shall be valid, in any of the following cases: First. If the bankrupt has willfully sworn falsely in his aflSdavit annexed to his petition, schedule, or inventpry, or upon any examination in the course of the proceedings in bankruptcy, in relation to any material fact. Second. If the bankrupt has concealed any part of his estate or effects, or any books or writings relating thereto, or has been guilty of any fraud or negligence in the care, custody, or delivery to the assignee of the property belonging to him at the time of the presentation of his petition and inventory, excepting such property as he is permitted to retain under the provisions of this Title, or if he has caused, permitted, or suffered any loss, waste, or dey struction thereof. Third. If, within four months before the commencement of such proceedings, the bankrupt has procured his lands, goods, money, or chattels to be attached, sequestered, or seized on execution. Fourth. If, at any time after the second day of March, eighteen hundred and sixty-seven, the bankrupt has destroyed, mutilated, altered, or falsified any of his books, documents, papers, writings, or securities, or has made or been privy to the making of any false or fraudulent entry in any book of ac- count or other document, with intent to defraud his creditors ; or has removed or caused to be removed any part of his property from the district, with intent to defraud his creditors. Fifth. If the bankrupt has given any fraudulent preference contrary to the provisions of the act of March two, eighteen hundred and sixty-severi, to estab- lish a uniform system of bankruptcy, or to the provisions of this Title, or has made any fraudulent payment, gift, transfer, conveyance, or assignment of any part of his property, or has lost any' part thereof in gaming, or has admitted a false or fictitious debt against his estate. Sixth. If the bankrupt, having knowledge that any person has proved such false or fictitious debt, has not disclosed the same to his assignee within one month after such knowledge. Seventh. If the bankrupt, being a merchant or tradesman, has not, at all times after the second day of March, eighteen hundred and sixty-seven, kept proper books of account. Eighth. If the bankrupt, or any person in his behalf, has procured the assent of any creditor to the discharge, or influenced the action of any creditor at any stage of the proceedings, by any pecuniary consideration or obligation. Ninth. If the bankrupt has, in contemplation of becoming bankrupt, made any pledge, payment, transfer, assignment, or conveyance of any part of his property, directly or indirectly, absolutely or conditionally, for the purpose of preferring any creditor or person having a claim against him, or who is or may be under liability for him, or for the purpose of preventing the property from coming into the hands of the assignee, or of being distributed in satisfac- tion of his debts. Tenth. If the bankrupt has been conviAed of any misdemeanor under this Title. Seo. 5111. Any creditor opposing the discharge of any bankrupt may file a upeciflcation in writing of the grounds of his opposition, and the court may in § 5119) U. S. BANKRUPTCY LAW OF MARCH 2, 1867 1661 its discretion order any question of fact so presented to be tried at a stated session of Oie district court. Sec. 5112. In all proceedings in bankruptcy commenced after the first day of January, eighteen hundred and sixty-nine, no discharge §hall be granted to a debtor whose assets shall not be equal to fifty per centum of the claims proved against his estate upon which he shall be liable as the principal debtor, unless the assent in writing of a majority in number and value of his creditors to whom he shall have become liable as principal debtor, and who shall have proved their claims, is filed in the case at or before the time of the hearing of the application for discharge ; but this provision shall not apply to those debts from which the bankrupt seeks a discharge which were contracted prior to the first day of January, eighteen hundred and sixty-nine. Sec. 5113. Before any discharge is granted, the bankrupt must take and subscribe an oath to the effect that he has not done, suffered, or been privy to any act, matter, or thing specified as a ground for withholding such discharge, or as invalidating such dischai'ge if granted. Sec. 5114. If it shall appear to the court that the bankrupt has in all things conformed to his duty under this Title, and that he is entitled, under the provi- sions thereof, to receive a discharge, the court shall grant him a discharge from all his debts except as hereinafter provided, and shall give him a certifi- cate thereof under the seal of the court. Sec. 5115. The certificate of a discharge in bankruptcy shall be In substance in the following form: District court of the United States, district of Whereas has been duly adjudged a bankrupt under the Revised Statutes of the United States, Title "Bankeuptot," and appears to have con- formed to all the requirements of law in that behalf, it is therefore ordered by the court that said be forever discharged from all debts and claims which by said Title are made provable against his estate, and which existed on the day of , on which day the petition for adju- dication was filed by (or against) him ; excepting such debts, if any, as are by law excepted from the operation of a discharge in bankruptcy. Given under my hand and the seal of the court at , in the said district, this day of (Seal.) , Judge. Sec. 5116. No person who has been discharged, and afterward becomes bank- rupt on his own application, shall be again entitled to a discharge whose es- tate is insuflacient to pay seventy per centum of the debts proved against it, unless the assent in writing of three-fourths in value of his creditors who have proved their claims is filed at or before the time of application for discharge ; but a bankrupt who pro.ves to the satisfaction of the court that he has paid all the debts owing by him at the time of any previous bankruptcy, or who has been voluntarily released therefrom by his creditors, shall be entitled to a dis- charge in the same manner and with the same effect as if he had not previous- ly been bankrupt. Sec. 5117. No debt created by the fraud or embezzlement of the bankrupt, or by his defalcation as a public ofiicer, or while acting in any fiduciary character, shall be discharged by proceedings in bankruptcy; but the debt may be proved, and the dividend thereon shall be a payment on account of such debt. Sec 5118. No discharge shall release, discharge, or affect any person liable for the same debt for or with the bankrupt, either as partner, joint-contractor, indorser, surety, or otherwise. Sec. 5119. A discharge in bankruptcy duly granted shall, subject to the limi- tations imposed by the two preceding sections, release the bankrupt from all debts, claims, liabilities, and demands which were or might have been proved against his estate in bankruptcy. It may be pleaded by a simple averment that on the day of its date such discharge was granted to the bankrupt, setting 1662 APPENDIX (Chap. Five a full copy of the same forth In its terms as a full and complete bar to all suits brought on any such debts, claims, liabilities, or demands. The certifi- cate shall be conclusive evidence in favor of such bankrupt of the fact and the regularity of such discharge. Sec. 5120. Any creditor of a bankrupt, whose debt was proved or provable against the estate in bankruptcy, who desires to contest the validity of the dis- charge on the ground that it was fraudulently obtained, may, at any tim«5 within two years after the date thereof, apply to the court which granted it to annul the same. The application shall be in writing, and shall specify which, in particular, of the several acts mentioned in section fifty-one hundred and ten it is intended to prove against the bankrupt, and set forth the grounds of avoidance ; and no evidence shall be admitted as to atiy other of such acts ; but the application shall be subject to amendment at the discretion of the court. The court shall' cause reasonable notice of the application to be given to the bankrupt, and order him to appear and answer the same, within such time as to the court shall seem proper. If, upon the hearing of the parties* the court finds that the fraudulent acts, or any of them, set forth by the creditor against the bankrupt, are proved, and that the creditor had no knowledge of the isame until after the granting of the discharge, judgment shall be given in favor of the creditor, and the discharge of the bankrupt shall be annulled. But if the court finds that the fraudulent acts and all of them so set forth are not proved, or that they were known to the creditor before the granting of the discharge, judgment shall be rendered in favor of the bankrupt, and the valid- ity of his discharge shall not be affected by the proceedings. CHAPTER SIX. PROCEEDINGS PECULIAB TO PABTNEBSHIPS AND COEPORATIONS. Sec. Sec. 5121. Bankruptcy of partnerships. 5123. Authority of State courts In pro- 5122. Of corporations and joint-stock ceedings against, corporations. companies. Sec. 5121. Where two or more persons who are partners in trade are ad- judged bankrupt, either on the petition of such partners or of any one of them, or on the petition of any creditor of the partners, a warrant shall issue, in the manner provided by this Title, upon which all the joint stock and property of the copartnership, and also all the separate estate of each of the partners, shall be taken, excepting such parts thereof as are hereinbefore excepted. All the creditors of the company, and the separate creditors of each partner, may prove their respective debts. The assignee shall be chosen by the creditors of the company. He shall keep separate accounts of the joint stock or property of the copartnership and of the separate estate of each member thereof ; and after deducting out of the whole amount received by the assignee the whole of the expenses and disbursements, the net proceeds of the joint stock shall be ap- propriated to pay the creditors of the copartnership, and the net proceeds of the separate estate of each partner shall be appropriated to pay his separate creditors. If there is any balance of the separate estate of any partner, after the payment of his separate debts, such balance shall be added to the joint stock for the payment of the joint creditors ; and if there is any balance of the joint stock after payment of the joint debts, such balance shall be appro- priated to and divided among the separate estates of the several partners ac- cording to their respective right and interest therein, and as it would have been If the partnership had been dissolved without any bankruptcy ; and the sum so appropriated to the separate estate of each partner shall be applied to the § 5123) U. S. BANKRUPTCY LAW OF MARCH 2, 1867 1663 payment of his separate debts. The certificate of discharge shall be granted or refused to each partner as the same would or ought to be if the proceedings had been against him alone. In all other respects the proceedings against partners shall be conducted In the like manner as if they had been commenced and prosecuted against one person alone. If such copartners reside In differ- ent districts, that court in which the petition Is first filed shall retain exclusive jurisdiction over the case. Sec. 5122. The provisions of this Title shall apply to all moneyed business or commercial corporations and joint-stock companies, and upon the petition of any oflBcer of any such corporation or company, duly authorized by a vote of a majority of the corporators at any legal meeting called for the purpose, or upon the petition of any creditor of such corporation or company, made and presented in the manner provided in respect to debtors, the like proceedings shall be had and taken as are provided in the case of debtors. All the provi- sions of this Title which apply to the debtor, or set forth his duties in regard to furnishing schedules and Inventories, executing papers, submitting to ex- aminations, disclosing, making over, secreting, concealing, conveying, assigning, or paying away his money or property, shaU in like manner, and with like force, effect, and penalties, apply to each and every officer of such corpora- tions or company In relation to the same matters concerning the corporation or company, and the money and property thereof. All payments, conveyances, and assignments declared fraudulent and void by this Title when made by a debtor, shall in like manner, and to the like extent, and with like remedies, be fraudulent and void when made by a corporation or company. Whenever any corporation by proceedings under this Title is declared bankrupt, all its property and assets shall be distributed to the creditors of such corporations in the manner provided In this Title in respect to natural persons. But no ' allowance or discharge shall be granted to any corporation or joint-stock com- pany, or to any person or officer or member thereof. Sec. 5123. Whenever a corporation created by the laws of any State, whose business Is carried on wholly within the State creating the same, and also any insurance company so created, whether all its business shall be car- ried on In such State or not, has had proceedings duly commenced against such corporation or company before the courts of such State for the purpose of winding up the affairs of such corporation or company and dividing Its. assets ratably among Its creditors and lawfully among those entitled thereto prior to proceedings having been commenced against such corporation or company un- der the bankrupt laws of the United States, any order made, or that shall be made, by such court agreeably to the State law for the ratable distribution or payment of any dividend of assets to the creditors of such corporation or com- pany while such State court shall remain actually or constructively in posses- sion or control of the assets of such corporation or company shall be deemed valid notwithstanding proceedings in bankruptcy may have been commenced and be pending against such corporation or company. 1664 APPENDIX (Chap. Seven CHAPTER SEVEN. FEES AND COSTg. Sec. Sec. 5124. Fees. 5127. Justices of the Supreme Court 5125. Traveling and Incidental expenses. may change tariff of fees. 5126. Marshal's fees. Sec. 5124. In each case there shall be allowed and paid, in addition to the fees of the clerk of the court as now established by law, or as may be estab- lished by general order for fees in bankniptcj-, the following fees, which shall be applied to paying for the services of the registers : First. For issuing every warrant, two dollars. Second. For each day in which a meeting is held, three dollars. Third. For each order for a dividend, three dollars. Fourth. For every order substituting an arrangement by trust-deed for bankruptcy, two dollars. Fifth. For every bond with .sureties, two dollars. Sixth. For every application for any meeting in any matter under this [act] [title,] one dollar. Seventh. For every day's service whUe actually employed unc'er a special order of the court, a sum not exceeding five dollars, to be allowed by the court. Eighth. For taking depositions, the fees now allowed by law. Ninth. For every discharge when there is no opposition, two dollars. Such fees shall have priority of payment over all- other claims out of the estate, and, before a warnint issues, the petitioner shall deposit with the clerk of the court fifty dollars as security for the payment thereof ; and if there are not sufficient assets for the payment of the fees, the person upon whose petition the warrant is issued shall pay the same, and the court may issue an execution against him to compel payment to the register. Sec. 5125. The traveling and incidental "expenses of the register, and of any clerk or other officer attending him, shall be settled by the court in accordance with the rules prescribed by the justices of the Supreme Court, and paid out of the assets of the estate in respect of which such register has acted; or if there are no such assets, or if the assets are insufficient, such expenses shall form a part of the costs in the case in which the register acts, to be appor- tioned by the judge. Sec. 5126. Before any dividend is ordered, the assignee shall pay out of the estate to the messenger the following fees and no more : First. For service of warrant, two dollars. Second. For all necessary travel, at the rate of five cents a mile each way. Third. For each written note to creditor named in the schedule, ten cents. Fourth. For custody of property, publication of notices, and other services, his actual and necessary expenses upon returning the same in specific items, and making oath that they have been actually incurred and paid by him, and are just and reasonable, the same to be taxed or adjusted by the court, and the oath of the messenger shall not be conclusive as to the necessity of such expenses. For cause shown, and upon hearing thereon, such further allowance may be made as the court, in its discretion, may determine. Sec. 5127. The enumeration of the foregoing fees shall not prevent the jus- tices of the Supreme Court from prescribing a tariff of fees for all other serv- ices of the officers of courts of bankruptcy, or from reducing the fees prescrib- ed in the three preceding sections, in classes of cases to be named in their general orders. § 5132) U. S. BANKRUPTCY LAW OF MARCH 2, 1867 1065 CHAPTER EIGHT. PROHIBITED AND FKAUDTJLENT TEANSFERS. See. Sec. 5128. Preferences by Insolvent. 6131. Fraudulent agreements. 5129. Fraudulent transfers of property. 5132. Penalties against fraudulent bank- 5130. Presumptive evidence of fraud. rupt. Sec. 5128. If any person, being Insolvent, or in contemplation of Insolvency, within four months before the filing of the petition by or against him, with a view to give a preference to any creditor or person having a claim against him, or who is under any liability for him, procures or suffers any part of his prop- erty to be attached, sequestered, or seized on execution, or, makes any pay- ment, pledge, assignment, transfer, or conveyance of any part of his property, either directly or indirectly, absolutely or conditionally, the person receiving such payment, pledge, assignment, transfer, or conveyance, or to be benefited thereby, or by such attachment, having reasonable cause to believe such person is insolvent, and that such attachment, payment, pledge, assignment, or convey- ance is made in fraud of the provisions of this Title, the same shall be void, and the assignee may recover the property, or the value of it, from the person so receiving it, or so to be benefited. Sec. 5129. If any person, being insolvent, or in contemplation of Insolvency or bankruptcy, within six months before the filing of the petition by or against him, makes any payment, sale, assignment, transfer, cohveyance, or other dis- position of any part of his property to any person who then has reasonable cause to believe him to be insolvent, or to be acting in contemplation of insol- vency, and that such payment, sale, assignment, transfer, or other conveyance is made with a view to prevent his property from coming to his assignee In bankruptcy, or to prevent the same from being distributed under this [act] [title,] or to defeat the olDJect of, or in any way impair, hinder, impede, or delay the operation and effect of, or to evade any of the provisions of this Title, the sale, assignment, transfer, or conveyance shall be void, and the as- signee may recover the property, or the value thereof, as assets of the bank- rupt ' Sec. 5130. The fact that such a payment, pledge, sale, assignment, transfer, conveyance, or other disposition of a debtor's property as is described in the two preceding sections, is not made in the usual and ordinary course of busi- ness of the debtor, shall be prlina-facie evidence of fraud. Sec. 5131. Any contract, covenant, or security made or given by a bankrupt Sf other person with, or in trust for, any creditor, for securing the payment of any money as a consideration for or with intent to induce the creditor to forbear opposing the application for discharge of the bankrupt, shall be void ; and any creditor who obtains any sum of money or other goods, chattels, or security from any person as an inducement for forbearing to oppose, or con- senting to such application for discharge, shall forfeit all right to any share or dividend in the estate of the bankrupt, and shall also forfeit double the value or amount of such money, goods, chattels, or security so obtained, to be recovered by the assignee for the benefit of the estate. Sec. 5132. Every person respecting whom proceedings in bankruptcy are coni- menced, either upon his own petition or upon that of a creditor: First. Who secretes or conceals any property belonging to his estate; or, Second. Who parts with, conceals, destroys, alters, mutilates, or falsifies, or causes to be concealed, destroyed, altered, mutilated, or falsified, any book, deed, document, or writing relating thereto; or, Third. Who removes or causes to be removed any such property or book, deed, document, or writing out of the district, or otherwise disposes of any Bi£.Beb.(3d Dd.)— 105 1666 APPENDIX (Chap. Eight part thereof, with Intent to prevent it from coming Into the possession of the assignee in bankruptcy, or to liinder, impede, or delay him in recovering or re- ceiving the same; or, Fourth. Who makes any payment, gift, sale, assignment, transfer, or convey- ance of any property belonging to his estate with the like intent ; or, Fifth. Who spends any property belonging to his estate in gaming ; or, Sixth. Who, with intent to defraud, willfully and fraudulently conceals from his assignee or omits from his inventory any property or effects required by this Title to be described therein ; or. Seventh. Who, having reason to suspect that any other person has proved a false or fictitious debt against his estate, fails to disclose the same to his assignee within one month after coming to the knowledge or belief thereof ; or, Eighth. Who attempts to account for any of his property by fictitious losses or expenses ; or. Ninth. Who, within three months before the, commencement of proceedings in bankruptcy, under the false color and pretense of carrying on business and dealing in the ordinary course of trade, obtains on credit from any person any goods or chattels with intent to defraud ; or. Tenth. Who, within three months next before the commencement of proceed- ings in bankruptcy, with intent to defraud his creditors, pawns, pledges, or disposes of, otherwise than by transactions made in good faith in the ordinary way of his trade, any of his goods or chattels which have been obtained on credit and remain unpaid for. Shall be punishable by imprisonment, with or without hard labor, for not more than three years. TABLE OF CASES CITED [Tlie fig'nres refer to sections] Aarons, In re, 655. Aarons & Co., In re, 360. Abbe, In re, 120. Abbey v. Commercial Bank of New Or- leans, 316. Abbey Press, In re, 35, 62, 259, 260, 267. Abbott, In re, 205. Abbott V. Anderson, 110, 114, 658, 750. Abbott V. Hicks, 544. Abbott V. Rowan, 513. Abbott V. Wauchula Mfg. & Timber Co., "183. A. B. Carton & Co., In re, 656, 665. Abele v. Beacon Trust Co., 57, 466, 575, 596, 597. Abele V. S. A. Meagher Co., 149, 316, 392. Abell, In re, 490. Abendroth v. Durant, 111. Abendroth v. Van Dolsen, 131. Abercrombie v. Conner, 726. Abernathy v. Phillips, 197. Ablowich, In re, 681. Ablowich V. Stursbgrg, 682. A. B. Newbury Co. v. Tennant, 374. Abney-Bames Co. v. Davy-Pocahontas Coal Co., 390. Abo Land Co. v. Tenorio, 237. A. Bolognesi & Co., In re, 55, 354. Aboudara, In re, 76. Abraham, In re, 22, 45, 46, 47, 52, 203, 515. Abraham v. Plestoro, 14. Abraham Steers Lumber Co., In re, 544, 580, 604, 605, 607, 613. Abrahams, In re, 165. Abrahamson, In re, 210. Abram, In re, 299. Abramovitz, In re, 692. Abrams, In re, 123, 255, 455, 521, 522, 544, 633. Abrams & Rubins, In re, 655, 659. Acheson Co., In re, 634. Acme Food Co. v. Meier, 81, 82, 173. Acme Harvester- Co. v. Beekman Lum- ber Co., 181, 185, 187, 200. Adair v. Adair's Trustee, 324. Adam V. McClintock, 755. Adamo, In re, 188. Adams, In re, 68, 259, 265, 270, 307, 315, 366, 367, 403, 494, 495, 676, 692, 693, 703, 707, 709. Adams v. Boston, H. & E. R. Co., 147. Adams v. Brown, 531. Adams v. Collier, 458, ^59. Adams v. Crittenden, 479. Adams v. Dickson, 251. Adams v. May, 159. Adams v. Merchants' Nat. Bank, 358, 368, 446, 584. Adams v. Meyers, 311, 356, 396. Adams v. Rockingham Ins. Co., 316. Adams v. Storey, 2, 7, 8. Adams v. Terrell, 16, 103. Adams v. Woods, 313. Adams' Assignee v. Branch, 446. Adams Cloak, Suit & Fur House, In re, 307. Adams Exp. Co. v. Schofleld, 143. Adams Sartorial Art Co., In re, 777. Adams & Hoyt Co., In re, 133. Addison, In re, 470, 564. Ades V. Caplan, 377. Adler, In re, 43, 189, 194, 228, 229, 296, 736. Adler v. Jones, 57, 653, 654. A. D. Matthews' Sons, In re, 354. A. Dreher & Co. v. National Surety Co., 427. A. E. Savage Baking Co., In re, 454. .autna Cotton Mills, In re, 517. A. Gaglione & Son, In re, 356. Agnew, In re, 178, 356, 672, 685, 692, 702. Agnew Co. v. Board of Education of City of Paterson, 585. Agree, In re, 648. A. H. Alden & Co. v. New York Commer- cial Co., 323. Ahl V. Thorner, 577. Aiello V. Crampton, 575. Aiken v. Edrington, 298, 316, 360. , Aiken v. Haskins, 756. A. J. Ellis, Inc., In re, 527, 541, 565. Akers v. Veal, 308. Akins V. Stradley, 485. A. Kllpsteln & Co. v. Allen-Miles Co., 189, 718, 748. Alabama Coal & Coke Co., In re, 376, 381. ■ (Bi,k.Bkb.(3dBd.) (1667) 1668 CASES CITED [Tbe flgrnres refer to secttona] Alabama Great Southern E. Co. v. Craw- ley, 714, 756. Alabama & C. R. Co., In re, 19, 132, 138. Alabama & 0. R. Co. v. Jones, 50, 51, 52, 138, 142, 143, 165. -Vlaska American Fish Co., In re, 132, 136. Alaska Fishing & CDevelopment Co., In re, 624. Albany Exch. Bank v. Johnson, 586. Albany & Northern R. Co. v. Dunlap Hardware Co., 380. Albers Commission Co. v. Richter, "170, 176. Albert O. Brown & Co., In re, 626. Albert Pick & Co. v. Natalby, 390, 446, 465. Albrecht, In re, 376, 691. Alco Film Corporation v. Alco Film Serv- ice of Minnesota, 412. Alden, In re, 481, 594. Alden v. Boston, H. & E. R. Co., 27. Alden Electric Co., In re, 54. Alden & Co. v. New York Commercial Co., 323. Alderdice v. State Bank of Virginia, 600. Alderson, In re, 515. Aldine Trust Co. v. Smith, 362. Aldi-ich V. Aldrich, 233. Aldrich Co., In re, 95, 132, 164. Aldridge, In re, 679. A. Lehmann & Co. v. Rivers, 198. » Alert, The, 394, 413. Alex, In re, 246. Alexander, In re, 49. 51, 52, 82, 85, 153, 156, 214, 595, 605, 650. Alexander v. Berney, 342. Alexander v. Gait, 440. Alexander v. Redmond, 614. Alexander v. Todd, 461. Alexander v. Union Surety & Guaranty Co., 294, 296. Alexis V. Koehler, 211. Alison Lumber Co., In re, 623. Alleman, In re, 675. AUeman Hardware Co., In re, 451, 490. Allen, In re, 200, 262, 353, 356, 386,^504, 623, 654. Allen v. Central Wisconsin Trust Co., 243. Allen V. Ferguson, 761, 702, 764, 766. Alleri V. French, 453, 463. Allen V. Gray, 610, 614. Allen V. Hickling, 674, 743. Allen V. Hollander, 361. Allen V. Ingalls, 376, Allen V. Long, 143. Allen V. McCormick, 414. Allen V. McJIannes, 468, 616. Allen V. Jlassey, 446, 448, 454. Allen V. Montgomery, 188, 206, 445, 448. Allen V. Sweeney, 58. Allen V. Thompson, 16, 152, 172, 712. Allen V. Ward, 149. Allen V. Whittemore, 358, 364. Allen V. Wrisley Co., In re, 296, 657. Allen & Co., In re, 240, 248, 253. AUendorf, In re, 672, 679, 682. Allert, In re, 623, 783. Aller-Wilmes Jew^ry Co. v. Osborn, 57, 679. Allgair v. William F. Fisher & Co., 475. Allin, In re, 480. AUing V. Straka, 716, 718, 728. All Star Feature Corporation, In re, 626, 772. Almond V. Coalson, 716. Almon H. Fogg Co. v. Bartlett, 748. Alper, In re, 274. Alpert, In re, 616, 648, 652, 670, 745. Alphin & Lake Cotton Co., In re, 18, 272, 430. A. L. Robertshaw Mfg. Co., In re, 54, 451. Alsberg, In re, 151, 233, 234, 744. Alston V. Robinett, 712. Alston V. Wingfield, 193. Altenheim, In re, 555. Alter V. Clark, 84, 325, 366, 454, 614. Althause v. Giroux uonsol. Mines Co., 340. Altman, In re, 119. Alton Mfg. Co., In re, 206, 211. Altonwood Park Co. v. Gwynne, 141, 183. Alvord, In re, 682. Alvord y. Banfield, 340. Alvord V. Ryan, 545. Ambler, In re, 621. Ambrose Matthews & Co., In re, 82, 91. Amer, In re, 773. American Agricultural Chemical Co. v. Berry, 732. American Agricultural Chemical Co. v. Brinkley, 106, 176. American Agricultural Chemical Co. v. Huntington, 753. American Bank of Alaska v. Johnson, 587, 590, 597. American Bank & Trust Co. v. Coppard, 590. American Beaver Co., In re, 477, 481. American Bottle Co. v. Finney, 316, 414, 469. American Brewing Co., In re, 182. American Can Co. v. Schenkel, 660. American Candy Mfg. Co., In re, 364, 378, 382. American Copper Co., In re, 59. American Electric Telephone Co., In re 640. American Fibre Reed Co., In re, 451. American File Co. v. Garrett, 306, 318, 320. CASES CITBD [Tbe agjireB ref^r to Bectlona] 1669 American Graphophone Co. v. Leeds & Catlln Co., 189, 211. American Guarantee & Security Co., In re, 145. ^Vmerican Improvement Co. v. Lillenthal, 645, 658, 710, 752. American Knit Goods Mfg. Co., In re, 360, 362. American Laundry Macliuiery Co. v. Ev- erybody's Laundry, 454. American Lumber & Mfg. Co. v. Taylor, 428. American Nat. Beverage Co., In re, 76. -Vmerican Paper Co., In re, 310, 544, 545, 061. American Piano Co. v. Heazel, 47. American Product Co., In re, 617. -American Pub. Co., In re, 171, 175. American Sav. Bank & Trust Co. v. Mun- son, 348, 541, 781. American Specialty Co., In re, 488, 501. American Steel Supply Syndicate, In re, 358, 454. American Steel & Wire Co. v. Coover, 121. American Surety Co. v. Freed, 778. American Surety Co. v. Spice, 729, 743. American Trust Co. v. Wallis, 230. American Trust & Savings Bank v. Dun- can, 457. American Trust & Savings Bank v. Rup- pe, 198, 403. American Vacuum Cleaner Co., In re, 494, 495, 499, 718. American Wood Working Machinery Co. v. Furbusll, 185. American Woodworking Machinery Co. V. Norment, ?71, 451, 518. American Woolen Co. v. Cohen, 650, 660. American Woolen Co. v. Friedman, 656. American Woolen Co. v. Maaget, 196, 556, 635, 717. American Woolen Co. v. Samuelsohn, 298, 525. Ames, Ex parte, 367, 492. Ames V. Gilman, 197. Ames V. Moir, 743. Ames Co. v. Slocumb Mercantile Co., 316. Amoratis, In re, 632. Amory, In re, 578. Amory v. Lavcrence, 320. Amory & Leeds, In re, 602. Amsdell-Kirchner Brewing Co., In re, 538, 541. Amoskeag Mfg. Co. v. Barnes, 731. Amsinck v. Bean, 121. Amster, In re, 682, 704. A. Musica & Son, In re, 24, 200, 211, 227. Amy, In re, 357, 389. Anders Bros. v. Latimer, 92, 189, 196. Anderson, Ex parte, 470. Anderson, In re, 13, 16, 17, 23, 31, 189, 218, 229, 230, 231, 2'42, 246, 247, 248, 253, 304, 353, 354, 417, 454, 509, 543, 554, 085, 722, 782. Anderson v. Anderson, 19, 448, 756. Anderson v. Brown, 245. Anderson v. Clark, 761. Anderson v. Daugherty, 479. Anderson v. Forest City Nat. Bank, 676. Anderson v. J. O. & N. B. Ohenault, 461. Anderson v. Miller, 480. Anderson V. Stayton State Bank, 129, 182, 427, 603, 609, 614, 616. Anders Push Button Telephone Co.h- In re, 780. Andrae Co., In re, 367. Andre, In re, 202, 213. Andre v. Murray, 358. Andreas' Assignee y. Rust, 467. Andrews, In re, 264, 600, 782. Andrews v. Dole, 418. Andrews v. John Nix & Co., 542. Andrews v. Kellogg, 574, 587, 598, 599, 614, 615, 616. Andrews v. Mather, 414, 610. Andrews v. Partridge, 348. Andrews Electric, Inc., v. St. Alphonse Catholic Total Abstinence Soc, 362, 368. Andrews & Simonds, In re, 240, 252, 253. 255. Andrieu, Succession of, 758. Andrus v. Cornwell, 708, 710, 712. Anger Baking Co., In re, 564. Angier, In re, 256, 472. Angle V. Bankers' Surety Co., 454, 459, 461, 464, 466, 595. Ankeny, In re, 220, 531, 533, 534,' 536, 542. Anketell, In re, 684. Ann Arbor Mach. Corporation, In re, 132, 152. Annis v. Butterfleld, 446, 480. Anniston Iron & Supply Co. v. Anniston Rolling Mill Co., 91, 586. Anonymous, 83, 91, 101, 156, 159, 222, 225, 275, 288, 460, 471, 687, 700, 703, 769, 777. Anosnis Brass & Copper Co. v. Pratt, 382. Anshutz V. Hoerr, 173. Ansley Bros., In re, 241, 246, 254, 451. Anson, In re, 626. Anson Mercantile Co., In re, 290, 858, 575. Ansonia Brass & Copper Co. v. Babbitt, 202. Ansonia Brass & Copper Co. v. New Lamp Chimney Co., 150, 525. Anthony v. Sturdivant, 716, 758. 1670 CASES CITED [The flgrnres refer to sections] Antigo Screen Door Co., In re, 45, 55, 367. Antisdel, In re, 461, 665, 681, 690. Antrim v. Kelly, 460. A. O. Brown & Co., In re, 354, 357, 364, 684. Appel, In re, 23, 165, 166. Appel Suit & Cloak Co., In re, 358, 360, 454. Apperson v.. Stewart, 761, ■ 764, 766. Apple V. Crawford Co., 61. Applegate, In re, 707. Appleton V. Bowles, 27. Application for Charter, In re, 276. Appling V. Bailey, 854. Appold, In re, 522. Apthorpe v. Apthorpe, 97. A. P. Wilson & Co., In re, 361. Arbury v. De Nlord, 354, 592. Archbold & Hamilton, In re, 296. Archenhold Co. v. Schaefer, 316, 378. Archenbrown, In re, 199, 275, 504, 682, 727. Archer v. Brown, 416. Arctic Ice Mach. Co. v. Armstrong Coun- ty Trust Co., 358. Arctic Stores, In re, 200, 317, 352, 353. Arden, In re, 387, 389, 592. Arenson, In re, 679, 701. Aretz V. Kloos, 592. Argonaut Shoe Co., In re, 26, 640. Arkansas Nat. Bank v. Sparks, 599, 614. Arkin, In re, 348. Arkin Dress Co., In re, 360. Arkonia Fabric Mfg. Co., In re, 585, 614. Arledge, In re, 10, 435. Armann, In re, 49, 55. Armfield Co. v. Saleeby, 198. Armour Packing Co. v. Brown, 7, 10. Armour Packing Co. v. Wynn, 380, 388. Armstrong, In re, 379, 574, 662, 665. Armstrong v. Fernandez, 56, 160, 163. Armstrong v. Fisher, 118, 121, 221. Armstrong v. Norris, 47, 662. Armstrong v. Kickey, 377. Armstrong v. Sweeney, 716, 728. Arnao, In re, 745. Arndstein v. McCarthy, 271. Arndt, In re, 591. Arnett, In re, 282, 789. Arnold, In re, 254, 375, 607, 680, 702. Arnold v. Eastin's Trustee, 457, 463. Arnold v. Elliott, 764. Arnold v. Greene GoldnSilver Co., 380, 484. Arnold v. Horrigan, 211, 317. Arnold v. Kearney, 266. Arnold V. Knapp, 173, 392, 587, 597, 626. Arnold v. Leonard, 478, 479, 483. Arnold v. Maynard, 84. Arnold v. Trevlranus, 757. Arnold Grocery Co. v. Shackelford, 416, 417. Arnold & Co., In re, 511, 517. Arnstein, In re, 519, 523. Arnwine v. Beaver, 248. Aronin v. Security Bank of New York, 599. Aronson, In re, 76, 246, 353, 359. Arrlngton v. Arrington, 189, 509, 707. Arrington Co., In re, 653, 654. Arthur v. Harrington, 587, 601. Arthur B. Pratt Co., In re, 540. Arti-Stain Co., In re, 291. Asbury Park Building & Loan Ass'n v. Shepherd, 461, 594. Asclienbach Co., In re, 173j 773. A. S. Coats Shingle Co. v. Chester Snow Log & Shingle Co., 493, 503. Ash, In re, 269. Ashby V. Steere, 574, 592, 602. Ashevllle Supply & Foundry Co. v. Ma- chin, 479. Ashland Emery & Corumdum Co., In re, 622. Ashland Steel Co., In re, 617, 618, 632. Ashley,' In re, 376. Ashley v. Robinson, 434, 670. Ashley's Adm'r v. Robinson, 696. Ashuelot Bank v. Frost, 581. Ashworth, Ex parte, 172. Askew, In re, 251. Aspinwall, In re, 270, 542, 578. Assets Realization Co. v. Sovereign Bank of Canada, 50, 488. , Associated Oil Co., In re, 132. Associated Trust, In re, 143. Association Dairy Co., In re, 23, 76. Asten, In re, 653. Astoroga Paper Co., In re, 506, 564, 565. Atchison, T. & S. F. R. Co. v. Hurley, 306, 364, 368. Atherton v. Bearaan, 362, 401, 407, 592. Atherton v. Emerson, 580, 587, 599, 614. Atherton v. Green, 583. Atkln Co., In re, 133, 143, 783. Atkins V. Globe Bank & Trust Co., 198, 465. Atkins V. Spear, 10. Atkins V. Wabash, St. L. & P. Ry. Co.; 285. Atkins V. Wilcox, 521, 536. Atkinson, In re, 7, 29, 195, 206. Atkinson v. Elmore, 716, 728. Atkinson v. Farmers' Bank, 379, 423, 602. Atkinson v. Kellogg, 640. Atkinson v. Purdy, 363. Atkinson-Kerce Grocery Co., In re, 76. Atlanta News Pub. Co., In re, 358. Atlanta Skirt Mfg. Co. v. Jacobs, 716, 744. Atlantic Beach Corporation, In re, 359. CASES CITED [The flgures refer to Bectlonis] 1671 Atlantic Const. Co., In re, 652. Atlantic Dynamite Co. v. Reger, 707. Atlantic Mut. Life Ins. Co., In re, 183. . Atlas, In re, 702. Atlas Nat. Bank v. Gardner, 218. Attorney General v. Bank of Columbia, 285. Attorney General v. Bouwens, 319. Attorney General v. Lorman, 136. Attorney General v. North American Life Ins. Co., 301. Attorney General v. Yigor, 301. Atwater, In re, 228. Atwood V. Bailey, 197, 321. Atwood V. Gillett, 767. Atwood V. KittPll, 324. Aubrey v. Guillaumin, 240. Audubon v. Shufeldt, 4, 97, 189, 509, 722. Auffraordt v. Rasin, 597. Auge, In re, 238, 253. Augenstein, In re, 709. Augsbury v. Crossman, 5. Augspurger, In re, 679. August, In re, 658. Augusta Grocery Co. v. Southern Mollne Plow Co., 358. Augusta Pottery Co., In re, 640. Augustine v. McFarland, 569. Auro Safety Signal Lamp Co., In re, 402. Austin V. Crawford, 4, 736. Austin, In re, 170. Austin V. Hayden, 26. Austin V. Markham, 689, 715. Austin V. Nalle, 62. Austin V. O'Reilly, 373. Automatic Typewriter & Service Co., In re, 153, 172. Automobile Livery Service Co., In re, 592. Averick, In re, 229. Averill, In re, 309, 782. Avery v. Cleary, 303, 417. Avery v. Hackley, 581. Avery v. Johann, 82, 156. Avery v. Ryerson, 394. Avoca Silk Co., In re, 74. Ayer v. Brastow, 121. Ayers, In re, 490, 606. Ayers v. Farwell, 396. Ayres v. Cone, 182, 53, Azule Natural Seltzer Water Co., In re, 358. B Baar, In re, 367, 461. Babbitt V. Burgess, 218, 340, 392, 413. Babbitt v. Dutcher, 18, 220, 318, 413. Babbitt v. Kelly, 594. Babbitt v. Read, 48, 148, 149, 392, 551. Babbitt v. Walbrun, 430, 462, 464, 466. Babcock, In re, 392, 507, 559, 773. Baber, In re, 282, 299. Bach, In re, 3S9. Bachelder v. Bickford, 106. Back Bay Automobile Co., In re, 64, 278, 286, 525, 534, 646, 647. Bacon, In re, 56, 67, 384, 402, 570, 664, 672, 702. Bacon v. Abbott, 197. Bacon V. Buffalo Cold Storage Co., 664. Bacon v. George, 198, 400, 423. Bacon v. International Bank, 316. Bacon v. Roberts, 74. Bacon Co., In re, 544. Bacon & Sons, In re, 779. Bacot V. Heyward, 304. Badders Clothing Co. v. Burnham-Mun- ger-Root Dry Goods Co!, 144, 174, 210. Baden v. Bertenshaw, 575, 610. Badenhedm, In re, 364. Badger v. Gilmore, 766, 767. Baerncopf, In re, 695, 697, 702. Eaginsky, In re, 313. Bail V. Hartman, 166, 182. Bailes, In re, 250. Bailey, In re, 152, 221, 222, 249, 356, 377, 392, 394, 409,. 514, 555, 606, 613, 650. Bailey v. Anderson, 148, 480. Bailey v. Baker Ice Mach. Co., 317, 576, 594. Bailey v. Corruthers, 712. Bailey v. Gleason, 716. Bailey v. Glover, 416, 417, 418. Bailey v. Henderson, 580. Bailey v. Kraus, 713, 715. Bailey v. Milner, 517. Bailey v. Moore, 513. Bailey v. Nichols, 492. Bailey v. Reeves, 748. Bailey v. Schofield, 173. Bailey v. Wood, 354, 423, 445, 456, 458, 466.. Bailey & Son, In re, 577, 600. Baily, In re, 19. Bain v. U. S., 271. Bair v. Hilbert, 773. Baird, In re, 284, 384, 404, 526, 592. Baird v. Winstead, 472. Baker, In re, 30, 50, 52, 74, 189, 233, 244, 385, 515, 555, 606, 614, 621, 722. Baker v. Bishop - Ba'boock -i Becker Co., 676, 704. Baker v. Board of Crook County Com'rs, 61. Baker v. Bryant Fertilizer Co., 745. Baker v. Hooks, 726. Baker v. Hughes, 716. Baker v. Vining, 480. Baker, Inc., v. Monarch Wholesale Mer- cantile Co., 144. Baker Ice Mach. Co. v. Bailey, 454. 1672 CASES CITED [Tbe flsnres refer to sectlonsj Baker Lumber Co. v. A. A. Clark Co., 554. Baker Motor Vehicle Co. v. Hunter, 482. Baker Notion Co., In re, 543, 606. Baker-Ricketson Co., Ia re, 82, 86, 91, 95, 96, 145. Baker & Edwards, In re, 119, 130, 506. Balcomb v. Old Nat. Bank, 601. Baldwin, In re, 506, 525, 697, 708. Baldwin v. Hale, 6, 7, Baldwin v. Kingston, 449, 458, 461. Baldwin v. Rosseau, 82, 84, 135. Balfour v. Wheeler, 592, 609. Balk V. Han-is, 715. BaU, In re, 160, 390, 565, 592. BaUance, In re, 657. ; Ballantine, In re, 288, 291, 362, 516, 541. Ballentine & Sons v. Fenn, 559. Ballentyne v. Smith, 485. Balliett v. Dearborn, 757. Ballin v. Ferst, 108, 185, 382. Ballou, In re, 67, 71, 75, 409. Balmer, In re, 665. Balms V. Hutton, 382. B. A. liOckwood Grain Co., In re, 484. Baltimore Bargain House v. Busby, 253. Baltimore County Dairy Ass'n, In re, 183. Bamberger, In re, 683, 684. Bangs V. Lincoln, 510. Bank v. Carpenter, 239. Bank of Andrews v. Gudger, 27, 144. Bank of Brodhead v. Smith, 361. Bank of Brookings v. Aurora Grain Co., 200, 402. \Bank of Clinton v. Kondert, 41. Bank of Columbia v. Overstreet, 2, 376. Bank of Commerce v. Brown, 597, 598. Bank of Commerce v. Elliott, 198, 710, 713, 714, 715, 752, 753. Bank of Commerce v. Russell, 355, 557. Bank of Commerce & Savings v. Mat- thews, 679. Bank of Dearborn v. Matney, 106. Bank of Dillon v. Murchison, 48, 567. Bank of Elberton v. Swift, 42, 151, 327. Bank of Elberton v. Vickery. 760. Bank of England, Ex parte, 288. Bank of 'Garrison v. Malley, 4, 376. Bank of La Fayette v. Phipps, 716. Bank of Leavenworth v. Hunt, ?64, 380. Bank of Madison, In re, 355, 356. Bank of Mendon v. Mell, 249, 388. Bank of Missouri v. Franciscus, 236, 713. Bank of Nez Perce v. Pindel, 242, 245, 253, 254, 333. Bank of Niagara, Matter of, 309. Bank of North America v. Crandall, 743. Bank of North America v. Penn Motor Car Co., 361. Bank of North Carolina, In re, 65, 66, 237, 469. Bank of Ragland v. Hudson, 49. Bank of Ravenswood v. Johnson, 72, 74. 274. Bank of Reidsville v. Burton, 123, 129. Bank of Republic v. Millard, 355. Bank of Searcy v. Merchants' Grocer Co., 559. Bank of Waldron v. Euper, 423. Bank of Wayne v. Gold, 575, 577. Bank of Wrightsville v. Four Seasons, 728. Banks, In re, 182, 220, 317, 516, 540, 587, 702. Banque Franco-Egyptienne v. Brown, 715. Banzai Mfg. Co., In re, 231, 439. Barber, In re, 566, 635, 779, 780. Barber v. Coit, 491. Barber v. International Co. of Mexico, 8, 11. Barber v. Bodgers, 7. Barber v. Sterling, 732. Barber v. Terrell, 567. Barber v. Wiemer, 316, 317, 392, 414. Barbery v. Cohen, 741. Barbour v. Priest, 614. Barclay v. Barclay, 189, 509, 722. Barclay v. Smith, 337. Bard, In re, 700.' Barde, In re, 6-54. Barden, In re, 768. Bardes v. First Nat. Bank, 406, 409, 410, 411, 599. Bardes v. Hawarden Bank, 35, 36, 408. Barker, In re, 779, 780. Barker v. Franklin, 455. Barker v. McLeod, 386. Barker v. Mann, 496. Barker v. Smith, 460. Barker-Bond Lumber Co. v. Whaley, 399. Barker Piano Co., In re, 31. Barker Piano Co. v. Commercial Secur- ity Co., 368. Barman, In re, 367. Barnard v. Davis, 459, 467. Barnard v. Hartford, P. & F. R. Co., 413. Barnard v. Norwich & W. R. Co., 555. Barnes, Appeal of, 373. Barnes, Ex parte, 234. Barnes, In re, 220, 283, 308, 607. Barnes v. Billington, 86. Barnes v. Pampel, 47. Barnes v. Rettew, 10, 91, 434, 437. Barnes v. Aetterlein, 578, 603. Barnes Cycle Co. v. Haines, 718, 743. Barnes Gear Co., In re, 544. Barnes Mfg. Co. v. Norden, 448, 743, 756. Barnett, In re, 236, 310. Barnett v. Muncie Nat. Bank, 344. Barnett v. Salyers, 566. CASES CITED [Tbe figures refer to iiectlona] 1673 Barnewall v. Jones, 437. Barnhardt Coal & Limestone Co., In re, 326, 469. Barnstable Sav. Bank v. Higgins, 753. BaiT V. Bartram & F. Mfg. Co., 173. Barr v. Essex Trades Council, 141. Bavr V. Sofranski, 466. Barr v. Youngeville Sugar Factory, 306. Barrager, In re, 665, 691. Barrett, In re, 283, 285, 289, 685. Barrett v. Kaigler, 303, 44^, 465. Barrett v. Prince, 233. Barrett Pub. Co., In re, 156. Barron v. Benedict, 763. Barron v. Newberry, 567. Barrow, In re, 7, 17, 26, 224, 230, 333, 471. Barry v. New York Holding & Const. Co., 497, 500. Barry & Co., In re, 670. Barstow v. Peckham, 566. Bartenbach, In re, 256, 484. Bartenback, In re, 684. Bartbier, In re, 682. Bartholomew v. West, 246. Eartholow v. Bean, 587. Bartles v. Gibson, 420, 480. Bartleson Co., In re, 163, 180. Bartlett, In re, 584, 599. Bartlett v. Mercer, 461. Bartlett v. New York, 19. Bartlett v. Peck, 761. Bartlett v. United States, 794. Bartolotta & Co. v. Their Creditors, 26. Barton v. Barbour, 179. Barton v. Tower, 10, 91, 153. Barton Bros., In re, 229. Barton Bros. v. Texas Produce Co., 702. Barton Hotel Co., In re, 135. Barton Lrumber & Brick Co. v. Prewit*-, 47. Barton's Estate, In re, 51, 58, 153, 315. Bartuseh, In re, 65, 535. Basch, In re, 29, 199, 736. Bash, In re, 565. Basha, In re, 526, 541. Bashinski v. Talbott, 246. Bashliue, In re, 605. Bass, In re, 76, 229, 245, 248, 510. Bass V. Geiger, 747. Bassett, In re, 135, 136, 240. Bassett r. Evans, 47, 599. Bassett v. Thackara, 470, 561, 756. Batchelder, In re, 80. Batchelder v. Home Nat. Bank, 596, 598, 614. Batchelder v. Low, 712, 715. Batchelder & Co. v. Wedge, 376. Batchelder & Lincoln Co., In re, 498. Batchelder & Lincoln Co. v. Whitmore, 298, 517, 592, 604. Bates, In re, 12, 123, 707. Bates V. Bradley, 448. Bates V. Tappan, 376, 753. Bates V. West, 513, 726. i;r.tes Machine Co., In re, 145. Batten, In re, 248. Batterman Co., In ,re. Battle, In re, 670. Battle Island Paper Co., In re, 565. Baudouine, In re, 16, 22, 31, 236, 31S, 347, 402, 403, 411, 423. Baughman, In re, 241, 246, 389, 571. Baum, In re, 54, 228, 258. Baum V. Stern, 185. Bauman v. Feist, 678, 681. Bauman Diamond Co. v. Hart, 13, 27, 166. Baumann, In re, 173. Baumblatt, In re, 491, 626. Baumhauer, In re, 76,' 540. Baumhauer v. Austin, 540, 543. Bausman v. Mead, 427, 638. Baxter, In re, 129, 507, 527, 541, 578, 587, 783. Baxter, Petition of, 47, 304. Baxter v. Ord, 614. Baxter County Bank v. Copeland, 11. Baxter & Co., In re, 177', 370. Bay City Irr. Co., In re, 27, 140. Bayles v. Staats, 296. Bayley, In re, 302, 633. Baylor v. RawUngs, 684. Bayly, In re, 656. Bayly, Succession of, 659. Bayly v. Washington & Lee University, 659, 746. Bay State Milling Co., In re, 43. Bay State Milling Co. v. Susman Feuer Co., 525. Bazemore, In re, 358, 371, 632. Bazemore v. Stephenson, 716. B. D. Garner &' Co., In re, 217. Beach v. Beach, 324, 509. Beach v. Macon Grocery Co., 58, 163, 202, 205, 208. Beachy & Co., In re, 148, 149. Beadle, In re, 364, 440. Beahn, In re, 336. Beal, In re, 222, 672. Beal-Burrow Dry Goods Co. v. Talbui-t, 525, 562. Beall V. Bank of Bowden, 598. Beall V. Chatham, 478. Beall V. Dushane, 421. Beall V. Walker, 316, 388, 389, 470. Beals, In re, 160, 363, 376, 667. Beamish v. Hoyt, 328. Bean, In re, 57, 182, 222, 226, 239, 244. 540, 768. Bean v. Amsinck, 651. Bean v. Brockmire, 465, 573, 576, 651. 1674 CASES CITED [The figures refer to sections] Bean v. Orr, 632. Bean v. Parker, 29T, 567. Bean v. U. S., 795. Bean-Chamberlain Mfg. Co. v. Standard Spoke & Nipple Co., 82. Bear, In re, 165, 181, 348, 451, 560, 562, 563. Bear v. Chase, 182, 189, 191, 376, 382, 389, 402, 415, 608. Bear Gulch Placer Min. Co. v. Walsh, 387. Beard, In re, 367. Beardsley, In re, 338, 692. Beasley v. Coggins, 449, 460. Beasley v. Smith, 446. Beaston v. Farmers' Bank of Delaware, 630. Beattle v. Gardner, 191, 579. Beatty v. Anderson Coal Min. Co., 95. Beatty v. Dudley, 592. Bcauchamp, In re, 240, 255. Beaven v. Stuart, 272, 499. Beaver Coal Co., In re, 380, 623. Beaver Knitting Mills, In re, 559. Bechtel, In re, 540. Beck, In re, 49, 84, 288, 374, 377, 383, 388, 782. Beck V. Witteman Bros., 655, 658, 659. Beck & Gregg Hardware Co. v. Crum, 727. Becker, In re, 217, 247, 336, 469, 672. Becker Bros., In re, 544. Becker Co. v. Gill, 454, 586, 597, 636. Beckerford, In re, 2. Becket, In re, 658. Beckham v. Lindsey, 316. Beckhaus, In re, 367. Beckwith & Co., In re. 111. Bedingfleld, In re, 156, 158, 169. Beebe, In re, 693. Beecher v. Bininger, 426. Beecher v. Clark, 462. Beecher v. Stephens, 276. Beechwood v. Joplin-Pittsburg R. Co., 343. ■ Beede, In re, 254, 367, 384, 423. Beekman Lumber Co. v. Acme Harvester Co., 16, 29. Beer v. Wisner, 316. Beerman, In re, 389, 580. Beers, In re, 128. Beers v. Hanlin, 84, 153, 614. Beers v. Place, 365. Begein v. Brehin, 491, 712. Beiermeister Bros. Co., In re, 132, Eeihl, In re, 367, 401. Beisenthal, In re, 440. Belcher, In re, 19. Belcher v. Burnett, 327. Belcher Land Mtg. Co. v. Bush, 414. Belden, In re. 258, 485. Belding, In re, 587. Belding-Hall Mfg. Co. v. Mercer & Fer- don Lumber Co., 457, 480. Belfast Mesh Underwear Co., In re, 95 133, 402. Belknap, In re, 83, 84. ' Belknap v. Davis, 710. Belknap & Co. v. Lyell, 580. Bell V. Arledge, 44, 620, 629. BeU V. Bell, 349. Bell V. Blessing, 10, 145. Bell V. Cunningham, 713. Bell v. Dawson Grocery Co., 248. Bell V. Ellis, 339. Bell V. Indian Live Stock Co., 105. Bell V. Leggett, 689. Bell V. Shaw, 371. Bell Engraving Co., In re, 633. Bell Piano Co., In re, 637, 642. Bellah, In re, 160, 162, 163. Bellamy, In re, 260, 313, 666, 703. Bellamy v. Woodson, 713. Belleview Pipe & Foundry Co., In re, 545. Bellis, In re, 263, 270, 684, 694, 696. Bellows, In re, 376. Bement, In re, 454. Bemls, In re, 680. Bendall, In re, 360. Bender, In re, 203. Bendheim, In re, 271. . Benedict, Ex parte, 234. Benedict, In re, 211, 215, 382, 736. Benedict v. Smith, 182, 712. Benedict v. Zut«s, 361. Benham, In re, 179. Benjamin, In re, 68, 76, 462, 476. Benjamin v. Buell, 582, 600. Benjamin v. Chandler, 579, 597, 616. Benjamin v. Hart, 51. Benkendorf v. Vincenz. 276. Benner v. Billings, 342, 427. Benner v. Blumauer-Frank Drug Co., 601. Benner v. Scandinavian American Bank 365, 367. Bennett, In re, 122, 241, 372, 454, 565, 567, 582, 620, 632, 651. Bennett v. JBtna Ins. Co., 317, 342, 446. Bennett v. American Credit Indemnity Co., 541. Bennett v. Bartlett, 513. Bennett v. Bennett, 19, 193, 234. Bennett v. Everett, 759, 767. Bennett v. His Creditors, 224. Bennett v. Lewis, 715. Bennett v. North Philadelphia Trust Co 361, 550. Bennett v. State, 62. Bennett Shoe Co., In re, 95, 496. Bennette v. Lewis, 408, 414. Benoit, In re, 732, 743. Benson, In re, 236. "CASES CITED [The flgmrefi refer to oeettons] 1675 Benson v. Johnson, 611. Bentley v. Young, 462, 466. Benton, In re, 579. Benton v. Allen, 465, 466. Bentz, In re, 358. Benz, In re, 336, 354, 484. Berford v. Barnes, 640. Berg, In re, 360, 431. BergdoU V. Hnrrigan, 55. 148, 412. BergdoU Motor Co., In re, 303, 526, 529, 5-34, 591, 606. Berger, In re, 663, 680. Bergeron, In re, 183. Bergin v. Blackwood, 324, 414, 467. Bergmann v. Manes, 716. Berkebile, In re, 49, 84. « Berkman, In re, 427. Berkowitz, In re, 6S, 70, 205, 232, 451. Berler Shoe Co., In re, 646, 659. Berlin Dye Works & Laundry Co., In re, 497. Bennan, In re, 229, 246, 252. Berman v. Smith, 396. Bernard v. Abel, 177. Bernard v. Carr, 148, 394. Bernard v. Lea, 44, 57, 366, 371. Bemer, In re, 19, 672, 675, 702. Bernhardt v. Curtis, 726. Bemheim v. Bloch, 727. Bemliisel v. Firman, 586. Bernstein, In re, 191, 360, 649. Berree & Wolf, In re, 296. Berrian, In re, 123, 128. Berry, In re, 306, 318, 320, 329, 412. Berry v. Gillis, 320. Berry v. Jackson, 710. Beri-y Bros. v. Sheehan, 750. Berry & Co., In re, 357, 670. Berryman, In. re. 111. Kertenshaw, In re, 110, 114, 118, 120, 750. Berthoud, In re, 19, 49, 91, 96, 164. Beswick, In re, 607. Bethulia, The, 369, 773. Betsekas, In re, 377. Bettmjin-Johnson Co., In re, 354. Betts, In re, 249. Bever v. Swecker, 514, 718, 741. Bevier Wood Pavement Co., In re, 495. Bevins, In re, 157. Bej-er v. Sadvoransky, 525, 71^. B. Feinberg & Sons, In re, 655. B. F. Eoden Grocery Co. v. Bacon, 248. B. F. Koden Grocery Co. v, Leslie, 715, 716. B. H. Gladding Co., In re, 495, 628. Bick, Ex parte, 274. ' Bickmore Shoe Co., In re, 526, 645. Biddle's Appeal, 567. Biderman v. Cooper, 78, Bidwell, In re, 686. Biela v. Urbanczyk, 514, 715. Bieler, In re, 76, 129, 177. Big Cahaba Coal Co., In re, 403. Bigelow, In re, 129, 364, 508, 571. Bigelow V. Norris, 761, 765. Big Four Implement Co. v. Wright, 317, 578, 594. Biggs V. Westen, 423. Big Meadows Gas Co., In re, 153. Bignall, In re, 309. Big Pines Lime & Transp. Co., In re, 95. Bilafsky v. Abraham, 315, 422. Bilder v. ElUs, 67. Billing, In re, 49, 167, 171, 176, 182. Billings V. Charles Millar & Son Co.. 423. Bimberg, In re, 707. Binder v. McDonald, 10. Bindseil v. Cashion, 414. Bindseil v. Liberty Trust Co., 565. Bindseil v. Smith, 414. Bingham, In re, 549. Bingham v. Richmond, 604. Binghampton Trust Co. v. Gregory, 634. Bininger, In re, 45, 58, 86, 163, 172, Binns, In re, 579. • Birch V. Steele, 48, 60, 63. Birch V. TlUotson, 236. Birck & Co., In re, 367. Bird, In re, 592. Bird V. Richmond, 375, 621. Birdwood v. Raphael, 545. Birkett v. Columbia Bank, 728. Birmingham Coal & Iron Co. v. South- ern Steel Co., 210., Birmingham Fertilizer Co. v. John A. Cox & Son, 710. Bisby y. Walker, 755. Bishop, In re, 391, 520, 633, 705. Bishop V. Catlin, 92. Bissell V. Couchaine, 730. Bissell V. Post, 182. Bitner, In re, 240, 249. Bittle, In re, 187. Blvens v. Newcomb, 715. B. Jacobson & Son Co., In re, 651, 654. Bjomstad, In re, 255, 658. Blabon v. Hunt, 90. Black, In re, 85, 113, 248, 579, 608, 671. Black V. Blazo, 712. Black V. McClelland, 189, 497. Black Diamond Copper Min. Co., In re, 51, 52, 158, 169) 177, 181, 494, 554, 648, 659, 783. Blackford, In re, 129. Blackman v. McAdams, 744. Blackmore, In re, 659. Blackstaff Engineering Co., In re, 619. Blackstock v. Blackstock, 183, 722. Blackstone v. Everybody's Store, 48, 95, 170, 174. Blackwell v. Claywell, 121. 1676 CASES CITED' [Tbe figraren refer to sectlonBl Blackwell v. Fanners' & Merchants' Nat Bank, 718. Blaesser, In re, 687, 690, 700. Blair, In re, 59, 108, 115, 160, 163, 380, 392, 597. Blair V. Allen, 550. Blair V. Brailey, 27, 375. Blair v. Carter, 497. Blair v. Carter's Adm'r, 188, 471, 756. Blair v.Hanna, 712. Blaisdell, In re, 66, 313. Blake, In re, 264, 269, 316, 361, 412. Blake V. Atlantic Nat. Bank, 488. Blake v. Bigelow, 710. Blake V. Francis-Valentine Co., 29, 97, 151, 191, 200, 205, 569. Blake V. Meadows, 362. Blake V. Nesbet, 426. Blake V. Third Nat. Bank, 615. Blake v. Thwing, 446, 451, 462, 463, 465. 584. Blake, Moffitt & Towne v. Frands-Vial- entine Co., 4, 5, 206. Blakey v. Boonville Nat. Bank, 453. Blalock, In re, 678, 675, 678, 692, 693, 694, 702. Blanc V. Banks, 763. Blanchard, In re, 76, 128, 242, 506. Blanchard v. Ammons, 49. Blanchard & Howard, In re, 249. Blandin, In re, 498, 508. Blane v. Drummond, 14, 395. Blank, In re, 679. Blank v. Blank, 316. Blankenbaker v. Charleston State Bank, 597, 599. Blankenship, In re, 516. Blankfein, In re, 279, 289. Blasdel V. Fowle, 689. Bledsoe, In re, 480. Blessing v. Blanchard, 626. Bleyer, In re, 679. Blick V. Nimmo, 198, 364, 375, 414, 711. Blight, In re. 644. Blight V. Ashley, 312. Blin V. Pierce, 354. Bliss, In re, 290, 291. Blitz, In re, 78. Blocb, In re, 173, 174, 176, 605, 650, 654. Bloch V. Bloch, 27. Bloch Bros. v. Moore, 376. Block V. Academy Ball Room, 451. Block V. Kice, 583. Block V. Shaw, 634. Blodget, In re, 296. Blodgett, In re, 255. Bloemecke, In re, 189. Bloemecke v. Applegate, 189, 739. Blond, In re, 526. Blood V. Munn, 249, 481. Bloodwirth-Stembridge Co., In re, 647, 653. Bloomberg, In re, 84, 173. Bloomingdale v. Empire Rubber Mfg. Co., 360. Bloomsburg Brewing Co., In re, 134. Bloss, In re, 153, 154, 560. Blount, In re, 3, 154, 156. Bloxham v. Consumers' Electric Light & St. R. Co., 138. Bluegrass Canning Co. v. Steward, 198. Blue Mountain Iron & Steel Co. v. Port- ner, 95, 176, 179. Blue Ridge Packing Co., In re, 285, 289, 290, 291, 531. Blue Ridge R. Co., In re, 484. Bluestone Bros., In re, 389. Blum, In re, 58, 67, 782. Blum V. Ellis, 567. Blumberg, In re, 160, 743, 753. Blumberg v. Bryan, 403. Blumer, In re, 110, 123, 128, 493. Bluthenthal v. Jones, 664, 718. Blyth V. Madgate, 129. Blyth & Fargo Co. v. Kastor, 595, 597, 599, 612, 614, 615. Blythe v. Thomas, 220. Boardman, In re, 348. Board of Commerce of Ann Arbor v. Se- curity Trust Co., 495, 540. Board of Com'rs of Shawnee County v. Hurley, 507, 635. Board of Directors v. Lowrance, 448. Board of Directors of Suburban Const. Co., In re, 27. Board of Education of Salt Lake City v. Leary, 47, 403, 409. Board of Railroad Com'rs v. Market St. R. Co., 138. Board of Road Com'rs of Monroe County V. Keil, 41, 47, 200, 407, 412. Board of Trade of City of Chicago v. Weston, 2, 337, 392. Boardway, In re, 189. Boas V. Hetzel, 710. Boasberg, In re. 682. Boatmen's Bank v. Laws, 551. Bodek, In re, 86. Bodenhamer v. Welch, 327. Boden & Haac v. Lovell, 489. Boedefeld v. Reed, 7. Boese v. King, 10, 91. Boese v. Locke, 7, 10. Boessneck, In re, 354. Bogart V. Cowboy State Bank & Trust Co., 249, 716,' 727. Bogen, In re, 84. Bogen V. Protter. 86. Bogen & Trummel v. Protter, 174, 175. Bogert, In re, 285. 543. Boggan V. Reid, P,SO. CASES CITED [The agurem refer to aectlonn] 1677 Boggs T. Dunn, 752. Bohannon v. Clark, 456, 459. Bohl Co., In re, 160. Bohon Co. V. Moren & Sipple, 714. Bohrman, In re, 782. Boise V. Talcott, 316, 364, 392, 459. Bolander v. Gentry, 462. Boles V. Missouri Valley Elevator Co., 26. Bolinger, In re, 247, 254, 606. BoUes V. Kelley, 653. Boiling, In re, 357. Boiling V. Miinchus, 448. Bollinger v. Central Nat. Bank, 134. BoUman v. Tobin, 290, 296. Bologh, In re, 310, 414. Bolognesi & Co., In re, 55, 158, 169, 172, .354. Bolstad, In re, 454. Bolton, In re, 561, 565. Bolton V. Bolton, 340. Bolton V. King, 759, 761, 766. Bombino, In re, 437, 444. Bond, In re, 268. Bond V. Baldwin, 236, 712. Bond V. Milliken, 742. Bondurant Hardware Co., In re, 356, 401. Boner, In re, 76, 435, 662. Bonesteel, In re, 45, 269, 403. Boniface v. Scott, 626. Bonk, In re, 451, 626. Bonner v. Fir^t Xat. Bank, 457, 594. Bonner OU Co. v. Pennsylvania Oil Co., 198. Bonnie & Co. v. Perry's Trustee, 336, 462, 467. Bonvillain, In re, 253, 348. Bonvillain v. American Sugar Eeflning Co., 197, 343. Book, In re, 102, 665. Booker v. Adkins, 193. Booker v. Blythe, 193. Boom, In re, 727. Boone v. Hall, 318. Boone v. Eevis, 710. Boonville Nat. Bank v. Blakey, 49, 56, 214, 609, 610. * Boorstin, In re, 246. Booss, In re, 73, 243. Booth, In re, 68, 76, 365, 390, 541, 571, 622. Booth v. Prete, 451, 560, 590. Booth's Estate, In re, 367. I'.oothe V. Brooks, 581. Boothroyd, In re, 246, 249, 255. Borden v. Bradshaw, 343. Border. Nat. Bank v. Couphmd, 586. Borelli & Callahan, In re, 176. Bor/;eson Co., In re, 216 Borst, In re, 233. Boschelli, In re, 364. Boshes V. Kamin, 715, 741. Bossak V. Slff, 658. Bostlck V. Jordan, 218. Boston, In re, 249, 456. Boston-Oerrillos Mines Corporation, In re, 19, 403, 550. Boston Dry Goods Co., In re, 54. Boston French Range Co., In re, 626. Boston Glass Manufactory v. Langdon, 146. Boston, H. & B. R. Co., In re, 33, 132, 169, 170, 292. Boston Mercantile Co. v. Quid-Carter Co., 11. Boston . Safe Deposit & Trust Co. v. Adams, 357. Boston Safe Deposit &, Trust Co. v. Luke, 347. Boston West Africa Trading Co., In re, 156, 601. Boston West Africa Trading Co. v. Quak- er City Morocco Co., 156, 451, 576. Boston & F. Iron Works, In re, 491. Boston & Oaxaca Min. Co., In re,' 95. Bostwick V. Burnett, 10, 434. Bostwick V. Foster, 366. Bosworth V. Pomeroy,' 753. Bothe, In re, 392. Bothwell V. Fitzgerald, 46, 187. Botts V. Hammond, 4, 376. Bouck, In re, 670, 699. Boudinot v. Hamann, 414. Bouie V. Bucket, 714. ' " •'' Boulware v. Hartsook's Adm'r, 470. Bourlier Cornice & Roofing Co.," In re, 484, 623. Bourne, Ex parte, 172. Bourne v. Maybin, 491, 538, 540. Bousfleld, In re, 485. Bousfleld & Poole Mfg. Co., In re, 188, 434, 575, 630. Boutelle, In re, 665. Bouton, In re, 156, 157. Bouton V. Wheeler, 414, 427. Boutwell V. AUderdiCe, 31. Bouy & Co., In re, 552. Bowditch V. Raymond, 499. Bowen v. Delaware, L. & W. E. Co., 417. Bowen v. Thornton, 274. Bowen & Thomas v. Keller, 754. Bower v. Holzworth, 40. Bowers, In re, 173. Bowie, In re, 200, 205, 206, 470, 571. Bowler, In re, 572. Bowler V. First Nat. Bank, 414, 594, 609. Bowman v. Alpha Farms, 410. •■-' Bowman v. Harding, 376. '■'. Bowman v. Provident Realty 'Inv. Co. 744. Bowman v. Strother, 185. Bown V. Thompson, 761. 1678 CASES CITED [The flgnres refer to sectional Bowne, In re, 519. Boyce V. United States Fidelity & Guar- anty Co., 153. Boyd, In re, 78, 240, 250, 349, 594. Boyd V. Agriculture Ins. Ck>., 732, 748. Boyd V. Applewhite, 739. Boyd V. Arnold, 43, 44, 445, 448, 457, 468. Boyd V. Glucklieh, 78, 228, 229, 230. Boyd V. Lemon & Gale Co., 84. Boyd V. Olvey, 237, 711. Boyden, In re, 672, 702. Boylan, In re, 119. Boyle V. Townes, 297. Boynton, In re, 99, 672, 675. Boynton v. Ball, 186, 756. Bozeman, In re, 316, 358. Bracken v. Milner, 732. Brackenrldge v. Holland, 310. Brackett v. Dayton, 185. Bracklee Co. v. O'Connor, 237, 316. Bradbury v. Dickens, 339. Bradford v. Russell, 718. Bradin, In re, 694. Bradley, In re, 57, 129, 454, 463, 471, 484. Bradley v. Adams Exp. Co., 566. Bradley v. Converse, 451. Bradley v. Farwell, 451. Bradley v. Frost, 191. Bradley v. Healey, 27. Bradley v. Hunter, 466. Bradley v. Norton, 335. Bradley v. Koble, 454. Bradley v. United Wireless Telegraph Co., 364, 388. Bradley, Alderson & Co. v. McAfee, 358. Bradley, Clark & Co. v. Benson, 582, 594. Bradley Fertilizer Co. v. Pace, 294. Bradley Timber Co. v. White, 160, 171. Bradley & Co. v. Brown, 356. Bradshaw v. Klein, 446, 457. Brady, In re, 49. Brady v. Bernard, 46, 49. Brady v. Brady, 249, 251, 253, 712. Bragasa, In re, 682. Bragassa v. St. Louis Cycle, 680, 779. Bragg, In re, 248, 266. Brake v. Callison, 82, 153. Braley v. Boomer, 186. Braman v. Snider, 756. Bramble v. Brett,^ 56, 311, 504. Bramham v. Lanier Bros., 226, 546. Bramlett, In re, 717. Branard v. Hartford, 406. Brand, In re, 364, 385, 563, 621. Brandies v. Cochrane, 332. Brandon v. Cabiness, 198. Brandon v. Robinson, 347. Brandon v. Sands, 343. Brandon Mfg. Co. v. Frazer, 185. Brandon Nat. Bank v. Hatch, 235. Brandt, In re, 260, 265, 269, 349. Brandt v. Hofmayer Dry Goods Co., 248. Brandt v. Klement, 744. Brandt v. Mayhew, 245, 247, 252. Brangan v. His Creditors, 689. Bransford v. Eegal Shoe Co., 356w Brantman, In re, 318, 392, 403. Braselton, In re, 76, 561. Brashears v. Combs, 761, 764, 765, 767. Bratton v. Anderson, 186. Braun, In re, 58, 195, 688, 701. Braus, In re, 457, 459, 633, 662, 670, 702. Braverman, In re, 679. Bray, In re, 74. Bray v. Cobb, 33, 60, 62, 64, 81, 94, 165, 171, 175, 179, 307, 502, 521, 522, 526. Bray v. Johnson, 66, 302, 779. Bray v. U. S. Fidelity & Guaranty Co., 408, 478, 485. Brazil v. Azevedo, 185. Breakstone v. Buffalo Foundry & Mach. ■ Co., 359, 479. Breakwater Co., In re, 501, 529. Brecher v. Fox, 130. Breck, In re, 519, 522. Breck v. Brewster, 5, 342. Breckons v. Snyder, 272, 414, 430, 614. Breiner, In re, 673. Breit V. Moore, 410. Breitling, In re, 675. B-R Electric & Telephone Mfg. Co. v. JEtnn Life Ins. Co., 42, 43, 55, 170, 183. Breneman, Ex parte, 91. Brenen v. Dahlstrom Metallic Door Co., 3, 756. Brener, In re, 679. Brengle v. Richardson's Adm'r, 251, 253. Brenner, In re, 67, 73, 76, 228. Brenner v. Duard, 743. Brent v. Simpson, 410, 592. Brereton v. Hull, 715. Breschemier v. Houston, 451. Breslauer, In re, 205, 377, 402, 404. , Brett, In re, 21, 160, 163. Brett V. Carter, 586. Brewer v. Boynton, 761. Brewer v. Brewer, 419. Brewer v. Brown, 449. Brewer v. Tazoo & M. V. E. Co., 419. Brewster v. Goff, 464, 600. Brewster v. GofC Lumber Co., 599, 614. Brewster v. Ludekins, 221, 224. Brewster & Co., In re, 504. Breyer Printing Co., In re, 47. Brlce, In re, 19, 102, 681, 682. Brick, In re, 120, 222. Brickenkamp v. Bees, 476. Bridge, In re, 435. Bridge v. Kedon, 752. Bridgeport Nat. Bank v. Way, 23. Bridgeton Nat. Bank v. Way, 47, 52, 576. Bridgman, In re, 531, 561, 640. CASES CITED [Tbe flKurcti refer to sections] 1679 Briefer v. Johnsen, 757. Brlggs, Ex parte, 689. Briggs, In re, 45, 202. Briggs V. Angus, 728. Brlggs V. Avary, 320, 321, Briggs V. French, 19. Briggs V. Stephens, 479. BTiggs y. Sutton, 758. Brlgham v. Claflln, 414. Brlgham v. Home Ins. Co., 348. Bright, In re, 669. Brlgman v. Covington, 594. Bi;lncat, In re, 226, 252, 673, 692, 701, 702. ' Brinckman, In re, 153. Brinker, In re, 309, 621. Brinkley v. Smithwiek, 171. Brlnkman, In re, 153, 311, 432, 569. Brinn, In re, 7, 213, 377, 388. Brinson, In re, 348. Brisco, In re, 281, 288. Brlskman, In re, 22. Bristol V. Mills, 323. Bristol V. Sanford, 149, 510. Briswalter v. Long, 117. Britannia Mln. Co., In re, 413, 474, 475. British & American Mortg. Co. v. Stuart, 504. Brittain Dry Goods Co. v. Bei'tenshaw, 575. Brlttan v. Buerger Commission Co., 615. Britton v. Thomas, 563. Brlttpn V. Union Inv. Co., 364, 540, 581, 592. Broach v. MuUis, 389. Broadnax v. Bradford, 4, 712, 744. Boardway, In re, 713. Broadway Savings Trust Co., In re, 1.34, 160, 182. Broadway Trust Co. v. Manheim, 654, 058, 659, 713, 715, 716, 727. Brock V. Hoppoc'k, 176. Brock V. Terrell, 84, 187, 205, 206. Brock V. Weiss, 340. Brock & Spight y. Oliver, 610. Brockman, In re, 680, 699, 704. Brockton Ideal Shoe Co., In re, 26, 215, 217, 221. Brockway, In re, 664, 700. Brod, In re, 680, 694. Brod V. J. K. Orr Shoe Co., 680, 694. Brodbine, In re, 22, 336, 402. Brodhead, In re, 434. Broich, In re, 493, 558, 560. Brokaw, In re, 155. Bromberg v. Self, 661. Bromley, In re, 271, 692 Bromley v. Goodere, 503. Bromley v. Goodrich, 414. Bromley v. Smith, 344, 392, 538. Bronaugh v. Evans, 446. Bronstein, In re, 274. Brooke, In re, 292. Brooke v. McCracken, 400. Brookbelm v. Greenbaum, 598. Brooklyn Improvement Co. v. Lewis, 214, 307. Brookmlre v. Bean, 656. Brooks, In' re, 390, 408, 666, 567. Brooks V. -Bank of Beaver City, 597. Brooks V. Bates, 199. Brooks V. BTltt-Carson Shoe Co., 250. Brooks V. Davis, 451. Brooks V. D'Orville, 451, 464. Brooks V. Eblen, 251, 756. Brooks V. Harris, 197. Brooks V. Montgomery, 203. Brooks V. Paine, 761, 767. Brooks V. Pitts, 716, 727, 744. Brooks V. Yocum, 729. Brookstone Mfg. Co., In re, 49, Broom, In re, 621. < Broome, In re, 91, 454. Broomfield v. Lehman, 702. BTose, In re, 213. Broussard v. Le Blanc, 415. Browder & Co. v. Hill, 629. Brown, In re, 27, 33, 49, 106, 153, 156, 176, 222, 247, 250, 253, 290, 357, 364, 370, 380, 454, 457,' 497, 526, 542, 620, 670, 682, 695, 708. Brown v. Barker, 347. Brown v. Branch Bank of Montgomery, 713, 756. Brown V. Broach, 743. Brown v. Brown, 316, 480, 509, 722. Brown v. Case, 363, 381. Brown v. Causey, 712. Brown v. City Nat. Bank,, 525, 592. Brown v. Covenant Mut. Life Ins. Co., 712. Brown V. Crawford, 27, 305, 316, 318, 384. Brown v. Curtis, 130. Brown v. Detroit Trust Co., 40, 78. Brown v. Edmonds, 242. Brown v. Farmers' Bank of Kentucky, 548. Brown v. First State Bank, 614. Brown V. Prenken, 316. Brown v. German-American Title & Trust Co., 141. Brown v. Gibbons, 567. Brovyn v. Guichard, 599. Brown v. Hannagan, 731, 746. Brown v. Hoover, 249. Brown v. Jefferson County Nat. Bank, 579, 601. Brown v. J. & E. Stevens Co., 713. Brown v. Kossove, 452. Brown v. Kroh, 712. Brown v. Lumbert, 347. 1680 CASES CITED [Tbe flsnrea refer to Bectlonsl Brown v. Newman, 185. Brown V. O'Connell, 541. Brown v. PeloBSky, 615. Brown v. Persons, 58, 314, Brown v. Rushton, 306. Brown v. Smart, 6. Brown v. Streicher, 614. Brown v. Walker, 271. Brown v. White, 408, 483. Brown v. Wygant, 340. Brown Bros. Co. v. Smith Bros. Co., 364, 387, 562. Brown City Sav. Bank v. Windsor, 578. Brown Commercial Car Co., In re, 84, 163, 174. ■ . Brown Paint Co. v. Rockhold, 45, 67, 403. Brown Wagon Go., In re, 358. Brown & Adams v. United Button Co., 500, 514. Brown & Brown Coal Co. v. Antezak, 748. Brown & Co., In re, 354, 357, 364, 389. 471, 626, 684. Browne, In re, 391. Browning v. Bettis, 338. Brownsville Mfg. Co. v. Lockwood, 651. Bruce, In re, 377, 496, 519, 542. Bruen v. MSrquand, 649. Brumbaugh, In re, 249, 252, 670, 671, 677. Brumby v. Jones, 407. Brumelkamp, In re, 66, 70, 163. Brundage, In re, 269. Brundln, In re, 782. Brundred v. Paterson Maeh. Co., 174. Brunnemer v. Cook & Bernheimer Co., 392. Brunquest, In re, 372. Bruns v. Stewart Mfg. Co., 296. Bruns Co., In re, 636, Brunsing, ToUe & Postel, In re, 634. Brush V. Blanchard, 303. Bruss-Ritter Co., In re, 5, 7, 27. Bryan, Ex parte, 293, 475. Bryan v. Bernheimer, 37, 202, 437, 4S9, 442. Bryan v. Madden, 480. Bryan y. Orient Lumber & Coal Co., 713. Bryan v. Sturgis Nat. Bank, 318, 349. Bryant, In re, 259, 265, 676. Bryant v. Charles L. Stockhausen, 481. Bryant v. Kinyon, 715, 734. Bryant v. Swoflford, 358. Bryant v. SwofCord Bros. Dry Goods Co., 211, 358. Bryant v. Wolf, 459, 578, 584, 597. Bxyar's Appeal, 325. Bryce, In re, 650, 653. B. Solomon & Co., In re, 357. Buchanan, In re, 169, 177, 180, 188, 677. Buchanan v. Smith, 579. Buchan's Soap Corp., In re, 500, 525. Buchholz V. Feustel, 748. Buchstein, In re, 708. Buck V. Colbath, 26, 27, 203. Buck V. Piedmont & A. L. Ins. Co., 285. Buckey v. Snouffer, 520. Buckhause, In re, 130, 498. Buckingham v. Buckingham, 197, 320, 321, 338. Buckingham v. Estes, 53, 54, 56, 424, 526. Buckingham v. First Nat. Bank, 125, 129. Buckingham v. McLean, 379, 556. Buckingham v. Schuylkill Plush & Silk Co., 154, 156, 606. Buckler's Adm'r v. Rogers, 486. Buckman v. Goss, 584. Bucknam v. Dunn, 480, 561. Buckner v. Street, 517. Bucknor, Appeal of, 556. Buckwalter Stove Co. v. Stratton, 358. Bucyrus Machine Co., In re, 127. Budd, In re, 307. Buder v. Columbia Distilling Co., 534. Buelow, In re, 240, 242, 244, 348. Buffalo Milling Co. v. Lewisburg Dairy Co., Ill, 174. Buffington v. Harvey, 465. Buford v. Crigler, 767. Bugbee, In re, 187, 503. Builders' Lumber Co., In re, 367, 371, 488. Bullene v. Blain, 651. BuUis, In re, 743, 744. BuUis v. O'Beirne, 743. Bullock, In re, 577. BuUwinkle, In re, 673. Bunch V. Maloney, 57, 317, 454. Bunch V. Smith, 198, 465, 754, 773. Bunch Commission Co., In re, 594. Bunch Co., In re, 517. Bunday v. Huntington, 588. Bundy & Co., In re, 255. Bunnell v. Bronson, 446, 462. BTjnster, In re, 7. Bunting Stone Hardware Co. v. Alexan- der, 713, 716. Buntrock Clothing Co., In re, 387, 566. Burbank v. Bigelow, 406, 414. Burbank Co., In re, 145. Burcell v. Goldstein, 375, 376. Burchell, In re, 661. Burdette v. Jackson, 242. Burdick v. Dillon, 132, 134, 139. Burdick v. Gill, 460. Burdick y. Jackson, 585. Burg, In re, 83, 156, 173, 174. Burgess, In re, 680. Burgett V. Paxton, 377. Burgin, In re, 98. Burgoyne v. McKillip, 514, 583. CASES CITED [Tbe flKures refer to aeetlonis] 1681 Burk, In re, 665, 674, 692, 697. Biirk V. Winters, 430. Bmka, In re, 168, 236, 494, 726. Burke, In re, 192, 358, 431. BurUe v. Guarantee Title & Trust Co., 252. Burke V. Maze, 719. Burke V. Rollinson, 121. Burkhalter & Co., In re, 212. Burkhart v. German-American Bank, 137. Burkholder v. Stump, 438, 444. Burkle, In re, 352. Burlage Bros., In re, 367, 562, 597. Burleigh v. Foreman, 47, 57, 430. Bnrllngham v. Crouse, 348, 557. Burlington Malting Co., In re, 153, 154. Burman, In re, 654. Burnell, In re, 777. Burnes v. Epstein, 451, 614. Burnett v. Frederick, 365. Burnett & Co., In re, 242, 318, 333. Burnham, In re, 252, 365. Burnham v. Ft. Dodge Grocery Co., 4, 614. Burnham v. Noyes, 734. Burnham v. Pidcock, 745. Burns, In re, 26, 633. Burns V. Buricke, 525. Burns v. O'Gorman Co., 427. Burnside v. Brifliam, 673. Bumstine, In re, 343, 459. Burow V. Grand Lodge of Sons of Her- mann, 44. Burpee v. First Nat. Bank, 576. Burpee v. Sparhawk, 727. Burr V. Commonwealth of Massachu- setts, 629. Burr V. Hopkins, 606. Burr V. McEwen, 311. Burr Mfg. & Supply Co., In re, 31, 485. 562. ' ' Burrell, In re, 79, 95. Burrell v. Montana, 271. Burrill v. Lawry, 455, 461. Burrus, In re, 375, 782. Burnis v. Wilkinson, 513. Burstein, In re, 702. Burt, In re, 10, 91, 310, 358, 372. Burtis, In re, 347. Burtis V. Wait, 748. Burton, In re, 19, 99, 170, 554, 758. Burton v. Lockert, 338. Burton v. Perry, 237, 320, 417, 419. Burton Bros. Mfg. Co., In re, 626, 628. Busby, In re, 584, 604. Bush, In re, 170, 183. Bush V. Cooper, 513, 726. Bush V. Crawford, 128. Bush V. Elliott, 409. Bush V. Export Storage Co., 361, 464. Bush V. Lester, 245, 249. Blk.Bkb.(3d Ed.)— 106 Bush V. Stanley, 714, 766. Bushnell, In re. 224, 621. Bushnell v. Park Bros. & Co., 143. Butcher, In re, 623. Butcher v. Cantor, 458. Butcher v. Werksnian, 490. Butler, In le, 250, :!73, 522. Butler V. Baudouine, 347. Butler V. Goreley, 6, 7. Butler V. Merchants' Ins. Co., 346, 349, 354. Butler Cotton Oil Co. v. Collins, 710, 752, 755. Butler-Keyser Mfg. Co., Ex parte, 186. Butler-Kyser Mfg. Co. v. O. D. Mitchell & Co., 736. Butler Paper Co. v. Goembel, 595, 597. Butler & Co., In re, 95, 176. Butt V. C. F. MacNlchol Conigt. Co., 136. Butte Duluth Mining Co., In 're, 95. Butterfield, In re, 162, 279, 692. Butterfleld r. Woodman, 382, 461, 561, 591. Butterlck Pub. Co. v. E. F. Bowen Co., 748. Butterwick, In re, 316, 317, 358. Butts, In re 729, 743. Buttz V. .Tames, 380, 446, 458. Buxbaum, In re, 691. BuzzinI & Co., In re, 505. Bybee, In re, 664. Byerly, In re, 309, 313. Byers v. Alcorn, 749. Byers v. First Nat. Bank, 195. Byers v. Franklin Coal Co., 139. Bynum v. Scott, 303. Byrd v. Harrold, 248. Byrne, In re, 12.3, 373, 455, 520, 619, 633. Byrnes v. Byrnes, 732. Caballos & Co., In re, 153. Cabot V. McMaster, 35. Cachere v. Bloch, 318. Cadenas & Co., In re, 299, 653. Cadmus v. Beman, 566. Cadwell. In re, 606. Cady V. Whaling, 457. Cagllostro v. Indelli, 727. Cahill, In re, 592, 594, 606. Cain, In re, 20, 154. Cain V. Sheets, 470. Calcote V. Stanton, 39. Caldwell, In re. 189, 471, 475, 626. Caldwell Machinery Co., In re, 352, 356, 392. Cale, In re, 56, 245, 556. Caledonia Coal Co., In re, 488, 542, 543, •626. Caledonian Coal Co. v. Young, 765. Calendar, In re, 169, 204. 1682 CASES CITED [Tbe fleares refer to sections] Calhoun County Bank v. Cain, 614. Calhoun Supply Co., In re, 5, 297, 358. California Pac. R. Co., In re, 2, 4, 138, 141, 153, 154, 156, 162, 166. Calkins v. Farmers' & Mechanics' Bank, 614. Calkins v. Lichtig, 454, 460. Calladay v. Pilkington, 4. Callagan v. American Trust & Savings Bank, 567. Callahan, In re, 290. Callahan v. Israel, 394, 425. Caller v. McNabb, 460. Calligan v. Calligan, 483. Oallison, In re, 153, 160. Calmenson v. Moudry, 727. Calnan Co. v. Doherty, 134. Oalorls Mfg. Co., In re, 523. Calridge v. Kulmer, 616. Calvi, In re, 452, 462. Cambridge Lumber Co., In re, 777. Camden Rolling Mill Co., In re, 177. Camelo, In re, 189, 732. Cameron v. Canieo, 108. Cameron v. National Surety Co., 49, 176. Cameron v. U. S., 257, 271, 274. Cameron Town Mut. Fire Ins. Co., In re, 138. Camp, In re, 204, 240, 248, 253, 255. Camp T. Young, 250, 755, 756. Camp V. Zellars, 22, 403. Campbell, In re, 191, 250, 253, 349, 620. Campbell v. Balcomb, 601. Campbell v. Perkins, 4. Campbell v. Thompson, 318. Campbell v. Traders' Nat. Bank, 80, 85, 602. Campbell-Thorpe Grocer Co. v. Watkins. 240. Campe & Co., In re, 155. Campfleld v. Lang, 105, 626. Campion, In re, 76, 596, 600, 614. Canada, Ex parte, 185. Canady, In re, 685. Canby v. McLear, 543. Canfield, Appeal of, 761. Canfield, In re, 56, 151. Canister Co., In re, 55, 71, 74, 303. Canner v. Webster Tapper Co., 57, 93, 155. Cannon, In re, 367, 537, 540. Cannon v. Dexter Broom & Mattress Co., 250. Cannon v. James M. Bell Co., 587. Cannon v. Wellford, 319. Cantelo Mfg. Co., In. re, 227, 334, 352, 403. Canton Iron & Steel Co., In re, 536, 540, 542. Cantor, In re, 274. Canuet Lumber Co., In re, 358. Capelle v. Hall, 490. ■ Capital City Cap Co., In re, 454. Capital Lumber Co. v. Saunders, 7. Capital Nat. Bank v. Wilkerson. 297, 595, 597, 599, 600, 609, 611, 614, 616. Capital Paint Co., In re, 626. Capital Publishing Co., In re, 136. Capital Security Co., In re, 779. Capitol Trading Co., In re, 289. Caponigri. In re, 57, 482, 515. Carbondale School Dist. v. Hourigan, 407. Card V. Wallridge, 711. Cardot v. Barney, 302. Cardozo t. Brooklyn Trust Co., 149. Carey, In re, 170. Carey v. Donohue, 41, 454, 594, 598, 614. Carey v. Gunnison, 339. Carey v. Hess, 651, 758. Carey v. Mayer, 510, 719. Carey Mfg. Co. v. Viaduct Place, 747. Carleton, In re, 107, 119, 152, 170. Carleton Dry Goods Co. v. Rogers, 613. Carley. In re. 48, 269, 696. Carlile, In re, 67, 430, 598, 608, 614. Carlin v. Western Assur. Co., 136. Carling v. Seymour Lumber Co., 7, 8, 11. 27, 28. 202, 415. Carlisle v. Ottley, 423, 576. Carlisle v. Wilkins, 366. Carlon, In re, 243, 244* Carlsbad Water Co. v. New, 367. Carlton, Ex parte, 29. Carlucci Stone Co., In re, 315. Carmichael. In re, 130, 244, 668, 671, 682, 683. Carnegie v. Hulbert, 143. Carney v. Averill, 333, 397, 469, 479. Carolina Cooperage Co., In re, 74, 75, 273, 309, 626, 771, 773, 778, 779, 782. Carothers, In re, 572. Carothers & Co., In re, 357, 475, 484, 541, T'77. Carow, In re, 201, 301. Carpenter, In re, 255, 262, 356, 358, 446 493, 508. Carpenter v. Carpenter, 311. Carpenter v. Cudd, 105, 179. Carpenter v. Goddard, 748. Carpenter v. Karnow, 451, 452. Carpenter v. Longan, 464. Carpenter v. O'Connor, 390. Carpenter v. Turrell, 753. Carpenter & Co. v. Lybrand, 91, 174. Carr, In re, 310, 313, 640, 774, 781. Carr v. Barnes, 534. Carr v. Gale, 354, 392, 400, 430, 446. Carr v. Hardemap & Phinizy, 27. Carr v. Hilton, 331, 457. Carr v. Myers, 427, 428. Carr v. Phillips, 361. Carr v. Thomas, 376. CASES CITED [Tbe flsnres refer to ■ectlonisl lfi83 Carrier, In re, 281, 385, 403, 478, 548, 692. Carroll, y. Safiford, 380. Carroll v. Stern, 57, 488, 489. Carroll & Bro. Co. v. Young, 484. Carson, In re, 226, 269. Carter, In re, 22, 403, 506, 537, 540, 543. Carter v. Hobbs, 4, 16, 405, 411, 465, 578. Carter v. People's Nat. Bank, 390. Carter v. Sutton, 718. Carter, Carter & Meigs Co. v. Stewart Drug Co., 8. Carter-Mullaly Transfer Co. v. Robert- son, 27, 317. Carthage Lodge, No. 365, I. O. O. F., In re, 143. Carton & Co., In re, 656, 665. Cartright v. West, 182, 414, 457, 465. Cartwright v. West, 298, 394, 450, 457. Carver, In re, 74, 435. Carver v. Ward, 472. CarvUIe v. Lane, 744. Cary v. International Agr. Corporation, 542, 543. Cary & Moen Co. v. McKey, 573. Casco, The, 369. Case V. Clarke, 19. Case V. Phelps, 460. Case Plow Works v. Edwards, 302, 308. Casey, In re, 16, 22, 45, 402, 685, 703. Casey v. Baker, 448. Casey v. Cavaroc, 365. Cashman, In re, 672, 682. Cash-Papworth Grow-Slr, In re, 48, 210, 777. Caslon Press, In re, 592. Cassard v. Kroner, 11. Castleberry, In re, ^46, 249, 778, 782. Castle Braid Co., In re, 540. CasweU-Massey Co., In re, 521. • Catehings v. Chatham, Nat. Bank, 603. Cate V. Connell, 134. Catlett V. Pacific Ins. Co., 19. Catlin V. Foster, 396, 444. Catlin V. Hoffman, 85, 581. Catlin Coal Co. v. Lloyd, 480. Catterlin v. Armstrong, 755. Cattus, In re, 354. Cauley V. Dunn, 758: Causey Lumber Co. v. Connor, 752. Cauthorn v. Burley State Bank, 575, 597. Cavagnaro, In re, 358. Cavagnaro v. Indian Tire & Blubber Co., 27. Cavan, In re, 648, 649. Cavanaugh v. Fenley, 363, 376, 756. Gavanna v. Bassett, 660. Caylus, Ebc parte, 545. C. B. Norton Jewelry Co. v. Hinds, 308, 780. C. 0. Taft Co. v. Century Sav. Bank, 54, 55, 160. C. D. Smith & Co. v. Lacey, 754. Ceballos & Co., In re, 79, 113, 115, 151, 153, 172. Cefola, In re, 29, 192. Central Bank, In re, 414. Central State Bank v. McFarlan,' 540. Central Trust Co. of Illinois v. Chicago Auditorium Ass'n, 495. Central Trust Co. of Illinois v. George Lueders & Co., 632. Cermak v. Aldrich, 748. Chabot V. Tucker, 766. Chace v. Chapin, 316. Chaehere v. Bloch, 318. Chadwick, In re, 367, 454, 594. Chaison v. McFaddin, 319. Chalfen, In re, 177. Challoner, In re, 189, 194, 509. Chalman v. Dodd, 394. Chalmers, In re, 356. Chamberlain, In re, 10, 91, 433, 678, 684, 701, 702, Chamberlain v. Greenleaf, 285. Chamberlain v. Gurney, 756. Chamberlain v. Meeder, 366. Chamberlain v. Perkins, 5. Chamberlain v. Piercy, 394, 427. Chamberlin, In re, 153, 631. Chamberlin v. Huguenot Mfg. Co., 146, 525. Chambers, In re, 377, 398, 522. Chambers v. Continental Trust Co., 76, 462, 597. Chambers v. Kirk, 377, 744. Chambers v. Northern Bank of Ken- tucky, 316. Chambers, Calder & Co., In re, 207, 306, 307. Chambersburg Silk Mfg. Co., In re, 484. Chamelin, In rf, 229. Champion Wagon Co.; In re, 211, 309. Chandler, In re, 44, 58, 123, 136, 476, 517, 692, 707. Chandler v. Siddle, 8. Chandler v. Thompson, 538. Chandler v. Traub, 243. Chandler v. Windship, 496, 717. Chantler Cloak & Suit Co., In re, 362, 367. Chaplin, In re, 592, 604. Chapman, In re, 86, 135, 508. Chapman v. Barney, 143. Chapman v. Brewer, 182, 205, 206. Chapman v. Forsyth, 736. Chapman v. Hunt, 180, 364, 453, 577, 585. Chapman v. Pennie, 760. Chapman v. Whitsett, 526. Chappell, In re, 595, 614. Chappell V. Lowe, 182. 1684 CASES CITED [Tbe flgmrea refer to sectlonsl Charak v. Durphee, 470. Charavay & Bodvin v. York Silk Mfg. Co.. 354. Charles, Ex parte, 153. Charles v. Bain, 197. Charjes H. Brown Paint Co. v. Rockhold, 45, 67, 403. Charles Knosher & Co., In re, 45; 485, 777. Charles Roesch & Sons Co. v. Mumford, 434. Charles R. Partridge Lumber Co., In re, 543. Charles Town Light & Power Co., In re, 76, 135, 140, 169, 316, 555. Charles W. Aschenbach Co., In re, 773. Charles Wirth & Co., In re, 384. Chase, Ex parte, 363. Chase, In re, 316, 390, 444, 463, 623, 664, 685, 688. Chase v. Farmers' & Mechanics' Nat. Bank, 185. Chass, In re, 701. Chatfield v. O'Dwyer, 50, 281. Chattanooga v. Hill, 621. Chattanooga Nat. Bank v. Rome Iron Co., 316, 396, 398, 409, 586. Chaudron & Peyton, In re, 633. Chauncey v. Dyke Bros., 23, 387, 471, 484. Chavez, In re, 682. Chavkin, In re, 229. C. H. Bennett Shoe Co., In re, 95, 496. Cheatham, In re, 248. Chellis V. Coble, 479. Chemical Nat. Bank v. Hartford Deposit Co., 146. Chemical Nat. Bank v. Meyer, 113, 122. Chemung Canal Bank v. Judson, 23. Cheney, In re, 235, 277, 316. Cheney v. Barge, 758, 760, 761. Chequasset Lumber Co., In re, 162. Chesapeake Oyster & Fish Co., In re, 135. Chesapeake Shoe Co. v. Seldner, 46, 318, 356, 358. Chesley v. Chesley, 476. Chestertown Bank v. Walker, 54. Chowning v. Knight, 748. Chicago Bank y. Kansas Bank, 454. Chicago, B. & Q. R. Co. v. Hall, 249. Chicago Car Equipment Co., In re, 574, 597. Chicago-Joplin Lead & Zinc Co.,. In re, 134, 139. Chicago Legal News Co. v. Browne, 198. Chicago Lumbering Co. v. Powell, 14. Chicago Motor Vehicle Co. v. American Oak leather Co., 163, 174. Chicago Title & Trust Co. v. Federal Trust & Sav. Bank, 590. Chicago Title & Trust Co. v. First Nat. Bank, 316, 361, 400, 462, 597. Chicago Title & Trust Co. v.' John A. iRoebling's Sons Co., 595. Chicago Title & Trust Co. v. Moody, 609. Chicago Title & Trust Co. v. National Storage Co., 316, 361, 400, 409. Chickasaw Hotel Co. ' v. C. B. Barker Const. Co., 374, 388, 751, 752. Chickering v. Failes, 198. Chickering v. Raymond, 400. Chilberg v. Smith, 358. Chilton V. Metchalf, 486. Chinese Fur Importers, In re, 649. Chisholm, In re, 640. Chisholm v. Eagle Ore Sampling Co., 356. Chisholm v. First Nat. Bank, 500, 590, 599, 613, 615. Chism V. Bank of Friars Point, 394, 611. Chism V. Citizens' Bank, 394, 587. Chisolm V. Wallace, 394. C. H. Kendrick & Co., In re, 688, 704. Choate v. Quinichett, 505. Chodkowski v. United States, 795. Chotiner, In re, 45, 316, 472. Christ V. Zehner, 592. Christensen, In re, 539, 553, 587, 604, 613. Cbristianson, In re, 782. Christie v. Bridgman, 761. Christley, In re, 279, 289. Christopher Bailey & Son, In re, 577, 600. Christopherson v. Harrington, 317, 329. Christopherson v. Oleson, 599, 615. Christy, Ex parte, 22, 29, 387. Christy v. Des Moines City R. Co., 193. Chubb V. Upton, 148. , Chuck V. Mesritz, 651. CHurch Const. Co., In re, 136, 210. Church E. Gates. & Co. v. Empire City Racing Ass'n, 374. Church E. Gates & Co. v. Jno. F. Stevens Const. Co., 374. Church E. Gates & Co. v. National Fair & Exposition Ass'n, 316, 374. Churchill, In re, 243, 348, 665, 685, 688. Churchman, In re, 327, 417. Chui-chman's Appeal, 345. Cicero v. Grippe, 550. Cilley V. Colby, 748. Cincinnati Ry. Supply Co. v. Hartlieb, 63-1 Cisco Oil Mill v. Shepherd, 748. Citizens' Bank v. Hargraves, 247. Citizens' Bank v. Ober, 478. Citizens' Bank v. W. C. De Pauw Co 164. Citizens' Banking Co. v. Ravenna Nat Bank, 88. CASES CITED 1685 Citizens' Goal & Supply Co. v. Custard, 352. Citizens' Loan Ass'n v. Boston & M. B. Co., 710, 752. Citizens' Nat. BauU v. Branden, 710. Citizens' Nat. Banl£ v. Dasher, .S76. Citizens' Nat. Bank v. Gass, 9. Citizens' Nat. Bank v. Kerney, 651, 758. Citizens' Sav. Bank, In re, 29, 187., Citizens' Sav. Bank v. Paducah, 480. Citizens' Trust Co. v. Tilt, 585. Citizens' & Miners' Sav. Bank v. Gilles- pie, 148. City Bank, In re, 546. City Bank of Dowagiac, In re, 354. City Drug Store, In re, 373. City Nat. Bank v. Bruce, 461. City N'at. Bank v. Doolittle, 653, 657. City Nat. Bank v. Slocum, 47, 324, 354, 597, 614. City of Anderson, Ex parte, 470. City of Austin v. Nalle, 62. City of Chattanooga v. Hill, 621. City of Holland v. Holland City Gas Co., 140. City of Newark v. Merchants' Ins. Co., 138. City of Newark v. Stout, 713, 715. City of New Orleans v. New Orleans City & L. R. Co., 138. City of Pittsburgh v. South Side Trust Co., 512. City of Richmond v. Bird, 619, 621. City of Waco v. Bryan, 372, 621. City Trust Co., In re, 619, 626. C. J. McDonald & Sons, In re, 578, 599. C. Jutte & Co., In re, 139, 169, 177. O. K. Hutchins Co. In re, 76, 358. Claif, In re, 664. Claflin v. Houseman, 414. Claflin V. Torlina, 651. Claflin V. Wolff, 716, 727. Claflin Co. v. Eason, 353, 355. Claiborne, In re, 235. Clairemonte v. Napier Motor Co., 495. Clairfield Lumber Co., In re, 361. Clairmont, In re, 285, 2!)1 . Glairmonte v. Napier .Motor Co., 658. Clancy, In re, 519. Clanton v. Estes, 364. Clapp V. Ingraham, 347. Clapp & Son V. Knorr, 525. Claridge v. Evans, 316, 584, 587, 594. Clarldge v. Kulmer, 598, 616. Clarion Bank v. Jones. 80. Clark, In re, 22, 27, 45, 58, 112, 126, 189, 201, 269, 310, 313, 353, 484, 526, 541, 543, 569, 606, 666, 690, 782. Clark v. American Jlfg. & Enameling Co., 64, 144. Clark V. Atkinson, 766. [Tbe fleares refer to sectlonii] Clark V. Binninger,'27, 28. Clark V. Booth, 214. Clark V. Clark, 423, 485. Clark V. Else, 451. Clark V. Equitable Life Assur. Soc, 348. Clark V. Ewing, 414. Clark V. Fighting Wolf Mining Co., 186, 198. Clark V, Cl.ark V, Clark V, Grosh, 327. Hamilton, 491. Henne & Meyer, 155, 160, 176. Clark V. Hezekiah, .349, 366, 508. Clark V. Iselln, 41, 579, 586. Clark . Johnson, 23. Clark V. Larremore, 191, 382. Clark V. Marx, 444. Clark V. Mulcahy, 430. Clark V. Xorwalk Steel & Iron Co., 390. Clark V. Pidcock, 50, 315. Clark V. Post, 483. Clark V. Sawyer, 444. Clark V. Snelling, 354. Clark V. Williams, 318, 367. Clark V. Wilson, 354. Clark Coal & Coke Co., In re, 74, 623, 632. Clark Hardware Co. v. Sauve, 300, 482. Clark-Herrin-Campbell Co. v. H. B. Claflin Co., 19. Clark Realty Co., In re, 305, 503, 512, 555, 565. Clark Shoe Co., In re, 495, 523. Clarke, In re, 379, 606. Clarke v. Clarke, 370. Clarke v. Fay, 327. Clarke v. Milliken, 735. Clarke v. Rist, 389. Clarke v. Rogers, 511,-S:mrf>SS. Clarke v. Rosenda, 316. Clarke v. Sherman, 462, 467 Clason V. Morris, 364. Classen v. Schoenemann, 743, 766. Claster v. Soble, 248. Claussen & Co., In re, 367, 772. Clay V. Smith, 14, 525. Clay V. Waters, 22, 182, 231, 236, 408, 430. Clayton, In re, 353, 452. Cleage v. Laidley, 98, 595. Cleary, In re, 171. Cleland v. Anderson, 343. Cleland v. Iowa Loan & Trust Co., 679. Clement v. King, 377. Clement v. Saratoga Holding Co., 211, 464. Clements v. Taylor, 329. Cleminshaw v* international Shirt & Col- lar Co,, 408, 429. Clemmons v. Brinn, 726. demons' v. Clemons, 503. 1686 CASES CITED [Tbe figures refer lo aectionsl Clendening v. Red i River Valley Nat. Bank, 415, 534, 543. Clere Clothing Co. v. Union Trust & Sav- ings Bank, 488. Cleveland v. Boerum, 198. Cleveland Ins. Co., In re, 524. Cleveland Ins. Co. v. Gl Com. V. Lackawanna Iron Co., 139. Com. V. McAlister, 310. Com. V. McMillen, 724. Com. V. Natural Gas Co., 135, 136. Com. V. Northern Electric L. & P. Co., 136. Com. V. O'Hara, 7, 11. Com. V. York Silk Mfg. Co., 515, 622. Commonwealth Lumber Co., In re, 95, 155, 173. Comstock, In re, 267, 309, 518, 538, 607, 653, 654, 772, 774, 777, 783. Comstock V. Tracey, 465. Comstock V. Wheeler, 542. Conant v. Van Schaick, 626. Conboy v. First Nat. Bank, 39, 49. Concord Iron & Metal Co. v. Couch, 396. Condict, In re, 692. Condon, In re, 85, 160, 163, 176, 242^ 352. •Cone V. Purcell, 430. Conetto V. V. S., 786. Coney Island Lumber Co., In re, 57, 491, 498, 504, 589, 781. Congdon, In re, 444. Congleton v. Schreihofer, 361, 453, 600. Conhaim, In re, 84, 605, 607, 621, 622. Conley, In re, 242, 682. Conley v. Nelin, 236, 459. Conn, In re, 671, 672. Connecticut Brass & Mfg. Corporation, In re, 23, 96, 160, 177. Connecticut Mut. Life Ins. Co. v. Allen, 348. Connell & Sons, In re, 782. Connelly, In re, 451, 664. Conner v. First Nat. Bank, 590. Conner v. Long, 317. Conner v. Southern Exp. Co., 197. Conners v. Bucksport Nat. Bank, 599. Connolly, In re, 402, 412. Connor, In re, 247, 585. Conoly V. Gayle, 328. Conquest v. Broadway Nat. Bank, 550. 1688 CASES CITED [The flgnrea refer to aectlonii] Conrader, In re, 123. Conrader v. Cohen, 123. Oonro V. Crane, 36. Conroy, In' re, 665, 678, 741. Consolidated Arizona Smelting Co. v. Hinchman, 480. Consolidated Rubber Tire Co. v. Vehicle Kquipment Co., 658, 659. Constam v. Haley, 601. Consumers Albany Brewing Co., In re, 426. Consumers' Coffee Co., In re, 212, 216, 633. Consumers' Packing Co., In re, 41, 47. Continental Bldg. & Loan Ass'n, In re, 288, 291. Continental Building & Loan Ass'n v. Su- perior Court of San Francisco, 8, 79. Continental Coal Corporation, In re, 33. Continental Coal Corporation v. Koszelle Bros., 57, 132, 152, 317. Continental Engine Co., In re, 182, 538. Continental Nat. Bank v. Katz, 189. Continental Paint Co., In re, 626. Continental Producing Co., In re, 67. Continental & Commercial Trust & Sav- ings Bank v. Breen & Kenpedy, 467, 614. Continental & Commercial Trust & Sav. Bank v. Chicago Title & Trust Co., 550, .590. Converse v. Sorley, 480. Conway v. German, 160, 163. Cook, Ex parte, 123. Cook, In re, 113, 309, 374, 380, 568. Cook V. Parrington, 562. Cook V. Lansing, 197, 893. Cook V. Robinson, 182, 363. Cook V. Rogers, 10, 11, 434. Cook V. Tullis, 586. Cook V. Wheeler, 388. Cook V. Whipple, 414. Cook Inlet Coal Fields Co. v. CaldweU, 41, 42, 51, 54, 77. Cooke, In re, 188, 210, 269, 492, 700. Cooke V. Plaisted, 743. Cooke V. Scovel, 414. Cookes V. Cookes, 285. Cookingham v. Ferguson, 458, 576. Cookingham v. Morgan, 604, 616. Cooley V. Cook, 380, 382. Coolidge V. Ayers, 464, 466, 580, 614. Coolidge Refrigerator & Car Co., In re, 134. Cooney v. Collins, 403. Cooper, In re, 290, 480, 623, 664, 701, 702. Cooper V. Cooper, 715. f'ooper V. Dannenberg, 323. Cooper V. Miller, 44, 576. Cooper V. Tabor, 472. Cooper V. White, 352. Cooper Bros., In re, 657, 658. Cooper Grocery Co. v. Blume, 715. Cooper Grocery Co. v. Bryan, 621. Cooper Grocery Co. v. Gaddy, 743. Cooper Grocery Co. v. Penland, 457. Cooper's Estate, In re, 454. Co-operative Knitting Mills, In re, 526. Copeland v. Martin, 213. Copeland v. Stephens, 320. Copiag-Ldndenhurst Co., In re, 461. Coppard v. Gardner, 167, 206, 377, 381. ' Copper Belle Mining Co. v. Costello, 755. Copper King, The, 623, 632. Coppleman, In re, 672. Corbett, In re, 589. Corbett v. Riddle, 26, 94, 182, 200. Corbett v. Woodward, 5(», 607. Corbitt Buggy Co. v. Ricaud, 354. Corenman v. United States, 787. Corey v. Blackwell Lumber Co., 414, 427, 574, 575. Corey v. Ripley, 712. Corliss, In re, 61. Corliss. V. Shepherd, 760. Com, In re, 680, 701. Corn Exchange Bank, In re, 527, 631. Cornelius v. Boling, 317, 367. Cornell, In re, 699, 705. Cornell Co., In re, 476, 482. Corner v. Miller, 3, 5, 9. Cornwall, In re, 153, 172, 458, 496, 516. Correio v. Lynch, 136. Corse, Ex parte, 180. Cortes Co. v. Tannhauser, 261. Corwin, In re, 707. Corwin Mfg. Co., In re, 153. Cory V. Clark, 121. Corya v. Corya, 310. Coryell v. Klehm, 483. Cosgrove v. Cosby, 549. Cosmopolitan Power Co., In re, 44. Costello V. Harbaugh, 91. Cote, Ex parte, 741. Cote, In re, 135. Cotting V. Hooper, Lewis & Co., 499. Cotton, In re, 189, 362, 403, 515. Cotton Manufacturers' Sales Co., In re, 592. Cotton Oil Co. V. Morse, 95. Cotton & Preston, In re, 240, 253, 663. Cottrell V. Albany Card & Paper Mfg. Co., 392. Cottrell V. Pierson, 524, 566. Couhaim, In re, 587. Coulson V. Ferree, 197. Coulter, In re, 374, 526, 642. Council V. Horton, 739. Countryman, In re, 677. Counts V. Columbus Buggy Co., 172. Courier-Journal Job Printing Co. v. CASES CITED [Tbe flKorea refer to sectional 1689 Schaefer-Meyer Brewing Co., 44, 52, 55, 366. Court, In re, 183. Courtenay Mercantile Co., In re,, 92, 93. Courtenay Mercantile Co. v. Finch, 92. Courtney v. Beale, 739. Courtney v. Croxton, 148, 636. Courtney v. Fidelity Trust Co., 47, 373, 387, 392, 542, 566. Courtney v. Georger, 148. Courtney v. Sliea, 46, 404. Courtney v. Youngs, 71, 401. Couts V. Townsend, 76, 94, 137. Couturie v. Crespie, 614. Couturie v. Eoensch, 391. Covell V. Heyman, 27, 203. Coventry Evans Furniture Co., In re, 526, 531, 540, 773, 778. Covington, In re, 65, 74, 76, 704, 781. Covington v. Barber, 28. Covington v. Brigman, 596, 616. Covington v. Eosenbusch, 741. Oowan V. Burchfield, 244, 252, 456, 462. Cowan V. Staggs, 446. Cowart V. W. E. Caldwell Co., 26, 640. Oowdin V. Huff, 105. Cowdrey v. Railroad Co., 777. Cowing v. Altman, 778. Cowles, In re, 82, 135. Cox, In re, 76, 352, 489, 508. Cox V. First Nat. Bank, 590. Cox V. New England Equitable Ins. Co., 634. Cox V. State Bank, 380. Cox V. Wall, 406, 414, 424, 426, 446, 465. Cox V. WaUace, 328. Cox V. Wilder, 467. Cox-Rackley Co., In re, 403. Coxe V. Hale, 154, 581. Cozart, In re, 377. Cozatsky, In re, 76, 356. Craddock-Terry Co. v. Kaufman, 74, 259. Craft, In re, 80, 85, 86, 89, 163, 379. Crafts-Riordon Shoe Co., In re, 86, 87, 153, 176, 379, 380. Cragin v. Carmichael, 367, 449, 574. Cragin v. Thompson, 10, 91, 437, 438, 441. Craig, In re, 269. Craig V. Cox, 410. Craig V. Seitz, 710, 758, 761, 763, 766. Craig V. Sharp, 575, 598, 599, 614. Craig Lumber Co., In re, 44. Cram, In re, 559. Cramer, In re, 229, 606. Cramer & Rogers Grocery Co., In re, 601. Cramond, In re, 365, 374, 561, 619, 623, 632. Crampton v. Jerkowski, 578. Crampton v. Massie, 484. Cramton v. Tarbell, 607. Crancer & Co. v. Wade, 614. Crandall v. Coats, 577, 606. Crane, In re, 272. Crane v. Brewer, 392. Crane v. Eastern Trausp. Line, 500. Crane v. Morrison, 126. Crane v. Penny, 364, 614. Crane Co. v. Sniythe, 316, 374. Crary v. Kurtz, 449, 450. Crave & Martin Co., In re, 504. Cravens v. Shippen, 256. Crawford, Ex parte, 8. Crawford, In re, 59, 497, 505. Crawford v. Broussard, 456. Crawford v. Burke, 511, 736, 743. Crawford v. Dunbar, 61. Crawford v. Mandell, 316. Crawford v. Points, 35, 41. Crawford v. Rumpf, 614. Crawford v. Sternberg, 230, 255, 455. Crawford Plummer Co., In re, 307. Crawford Woolen Co., In re, 374, 618. Creamery Package Mfg. Co. v. Horton, 358, 745. Credit Ass'n of California v. Griffin, 378. Creditors v. Cozzens, 161, 205. Creditors v. Williams, 279. Creech Bros. Lumber Co., In re, 46, 50, 435. < Crenshaw, In re, 98, 163, 169, 173, 174, 222, 224, 673, 675. Crescent City Seltz & M. W. Co. v. New Orleans, 136. Crescent Lumber Co., In re, 497. Cresson & Clearfield Coal & Coke Co. v. StaufCer, 183, 145. Cribben & Sexton Co. v. North End House Furnishing Co., 176. CriWier, In re, 308, 519, 522. Crim V. Rice, 465. Crim Y. Woodford, 50, 74, 584. Crisfleld v. State, 730, 731. Crisp, In re, 769. Crist, In re, 697. Crittenden v. Barton, 600. Crocker, In re, 246. Crocker v. Bergh, 756. Crocker v. First Nat. Bank, 344. Crocker v. U. S., 292. Crocker- Wheeler Co. v. Genesee Recrea- tion Co., 316. Crockett, In re, 116, 119, 218, 343. Croft, In re, 10, 91. Croft's Ex rs v. Lyndsey, 311. Cromer v. Cromer, 731, 740. Crompton v. Conkling, 120, 340. Cromwell v. Burr, 715. Cromwell v. Gallup, 182. Cronan v. Cotting, 730. Cronell v. Dakin, 713. Croney, In re, 522, 523. Cronin, In re, 158, 177. 1690 Cronson, In re, 521, 522. Crook Homer Oo. v. Gilpin, 748. Crooks V. People's Nat. Bank, 584, 601, 611. Crooks V. Stuart, 446. Croonborg, In re, 699. Crosby v. Miller, Vaughn & Co., 735, 743, 745. Crosby v. Kidout, 362, 364, 407. Crosby v. Spear, 26, 297, 396. Cross, In re, 368, 550, 590. Cross V. Georgia Iron & Coal Co., 391. Crosse v. Smith, 311. Crossette, In re, 156. Croton Ins. Co., Matter of, 304. Crouch V. Fahl, 198, 480. Croughwell, In re, 434. Grouse, In re, 469. Crouse v. Whittlesey, 710, 712. Crow, In re, 632. Crowder v. Allen-West Commission Co., 490. Crowe V. Baumann, 326, 427. Crowe V. Reid, 376, 567. Crowell, In re, 480. Crowley v. Hyde, 476. Crown Point Brush Co., In re, 626. Crowther v. Elgood, 737. Cruchet v. Bed Kiver Min. Co., 465. Crucible Steel Oo. of America v. Holt, 39, 358. Cruess v. Fessler, 339. Cruger v. Halliday, 293. Crum, In re, 244, 253, 254. Crumling, In re, 540. Crump V. Chapman, 462. Crystal Spring Bottling Co., In re, 148, 149, 407, 549, 552. C. S. Morey Mercantile Co. v. Schiffer, 591, 607, 613. C Tennant Sons & Co. v. New Jersey Oil & Meal Co., 376. Cudahy Packing Co. v. New Jersey Dairy Products Co., 323. Culgin-Pace Contracting Co., In re, 156, 182. CuUen, In re, 484. CuUen V. Armstrong, 331, 371. CuUen V. Veasey, 580. Cullinane v. State Bank, 597, 614. CuUingworth v. Loyd, 651. Culver, In re. 111. Culver V. Torrey, 716. Culwell, In re, 240, 251. Cumberland Glass Mfg. Co. v. De Witt, 544, 658. Cumming v. Clegg, 567. Cummings, In re, 230, 231. Oummlngs v. Kansas City Wholesale Grocery Co., 597. CuraminKs v. Synnott, 227. CASES CITED [T)ie flgmrcB refer to oectloiiB] Cummins, In re, 589. Cummins Grocer Co. v. Talley, 158, 171, 174, 175, 177. Cunney, In re, 228, 230. Cunningham, In re, 199, 389, 399, 497, 741. Cunningham v. Oady, 176, 531, Cunningham v. Gennan Ins. Bank, 44, 54, 518. Curdy v. Stafford, 469, 476, Curie, In re, 703. Curran v. Munger, 52, 575. Currie, In re, 286, 288, 337. Currie v. Look, 317, 346, 467. Currier, In re, 154, 156, 516, 606. Currier v. King, 249, 376, 715. Curry v. McCauley, 366. Curtin V. Katchinski, 525. Curtis, In re, 7, 10, 44, 91, 155, 433, 434, 781, 783. Curtis V. Slosson, 756. Curtis V. Waring, 743. Curtis V. Woodward, 131. Curtiss V. Kingman, 599. Cushman, In re, 224. Custard v. McNary, 316, 544. Custard v. Wigderson, 712, 727. Cuthbert v. Chauvet, 347. Cutlibertson, In re, 707, 708, 709. Cutler V. Nu-Gold Ring Co., 57, 153, 156. Cutler Hardware Co. v. Hacker, 123. Cutler & John, In re, 84, 278, 299, 446, 470, 773. Cutter V. Dingee, 390. Cutter V. Evans, 185. Cutter V. Folsom, 2, 99, 715. Cutting, In re, 84. C. W. Aschenbach Co., In re, 173. C. W. Bartleson Co., In re, 163, 180. Cyclopean Co., In re, 660. D Daggett, In re, 103, 117. Daggett v. Cook, 376. Dagwell, In re, 454, 580. Dailey, In re, 403. Dailey v. State, 61. Daily Register Printing & Pub. Co. v. New York, 276. Dakin, In re, 614. Dalby, Ex parte, 367, 565. Dale v. Pattison, 368. Dallas V. Flues, 566. Dalrymple v. Hillenbrand, 575. Dalton V. Humphreys, 47. Dalton Adding Mach. Oo. v. Sherrard, 214, 217. Daly, In re, 685. Dambmann v. White, 414, 427. Damon, Appeal of, 7. Damon, In re, 777. CASES CITED (TUe flsnrea refer to sectional 1691 Dana, In re, 389. Dana Bros., In re, 359. Danahy v. National Bank of Denison, 19. Danby Millinery Co. v. Dogan, 375, 379. Dancy Hardware & Furniture Co., In re, 358. Dandridge & Pugh, In re, 50. Danforth, In re, 271. Danforth Mfg. Co. v. M. L. Barret & Co., 753. Daniel v. Browder-Manget Co., 748. Daniels, In re, 492, 623, 779. Daniels v. United States, 271, 274. Dann, In re, 334. Dantzler v. Scheuer, 764, 765. Danville Auburn Auto Co. v. National Trust & Credit Co., 10. Danville Ben. & Bldg. Ass'n v. HufC, 484. Danville Rolling Mill Co., In re, 512. Darby v. Boatmen's Sav. Ins., 392, 584. Darby v. Lucas, 459, 464. Darevski, In re, 679. Darling v. Berry, 2, 240, 244. Darling v., Townsend, 614. Darling v. Woodward, 752. Darlington, In re, 213. Damall v. Cline, 186. Darr, In re, 768. Darrough v. First Nat. Bank, 17, 182, 353, 408. Darwin, In re, 380. Dashiel, In re, 402. Daterson Pub. Co., In re, 358. Daubner, In re, 238, 244. Daucliy, In re, 672, 702. Daugherty, In re, 704. Daugherty v. Ringo, 193. Daughters v. Christy, 244, 415. Dautz, In re, 247. D'avenport, Ex parte, 529. Davenport, In re, 309, 483. Davenport v. Tilton, 753. Davenport Sav. Bank v. Chicago, R. I. & P. R. Co., 539. David, In re, 727, 757. David Bradley & Co. v. Brown, 356. Davidson, In re, 203, 584, 586, 608f 626. Davidson v. Fisher, 199. Davidson & Co. v. Friedman, 44. Davies, In re, 172, 454. Davis, In re, 182, 185, 303, 308, 360, 386, 402, 493, 524, 544, 566, 567, 569. Davis V. Anderson, 16, 556, 566, 571. Davis V. Billings, 316, 581. Davis v. Bohle, 10, 45, 91, 205, 434, 436, 438. Davis V. Coe, 27, 408. Davis V. Compton, 384. Davis V. Orompton, 53, 358, 384. Davis V. Fidelity & Deposit Co., 306. Davis V. Findldf, 237, 728. Davis V. Friedlander, 188. Davis V. Gates, 410, 449. Davis V. Hanover Savings Fund Society, 454, 457. Davis V. Harlow, 454. Davis V. Ives, 479, 481. Davis V. Jewett, 191. Davis V. Jewett Bros., 382. Davis V. Lohsen, 545. Davis V. Lumpkin, 316, 388! Davis V, McCurdy, 505, 740. Davis V. Planters' Trust Co., 388. Davis V. Pursel, 222. Davis V. Railroad Co., 27, 567. Davis V. Stevens, 114, 143. Davis v. Stewart, 360. Davis V. Stitzer, 484. Davis V. Turner, 127, 367. Davis V. Vandiver, 198. Davis V. W. F. Vandiver & Co., 281, 393, 465. Davis V. Willey, 445. Davis V. Williams, 211. Davis Tailoring Co., In re, 403. Davis & Broadway r. L. S. Barwick & Son, 727. Davis & Rankin Bldg. Co. v. Barber, 35. Davison, In re, 230, 231, 564. Dawley, In re, 244. Day, In re, 679, 700. Day V. Bardwell, 5, 6. Day V. Beck & Gregg Hardware Co., 94, 171, 179. Day V. Home Ins. Co., 211. Day V. Laflin, 400. Day V. Luna Park Co., 336, 400, 485. Day V. Superior Court, 236. Day & Co., In re, 288, 290. Dayton v. Stanard, 391, 503, 512. Dayton Coal & Iron Co., In re, 310. Dayton Nat. Bank v. Merchants' Nat. Bank, 557. Dayville Woolen Co., In re, 285. D. C. Clark Shoe Co., In re, 493, 523. D. O. Wise Coal Co. v. Columbia Lead & Zinc Co., 388, 748. D. C. Wise Coal Co. v. Columbia Zinc & Lead Co., 379, 385. D. C. Wise Coal Co. v. Small, 587. Dean, In re, 66, 165, 452, 779. Dean v. Davis, 56, 451, 462, 578, 584. Dean v. Justices of Municipal Court, 718. Dean v. Plane, 457, 462, 463. Dean v. Speakman, 747. Dearing v. Moiiitt, 764. Deaton v. Southern Irr. Co., 371. Debus V. Yates, 594, 614. De Camp Glass Casket Co., In re, 42, 49, 132. Decker, In re, 493. Decker v. Kitchen, 760. 1692 CASES CITED [Tbe figrnreis refer to sections] Deekert, In re, 2. Deer Creek Water & Water Power Co., In re, 86, 160. Deere Plow Co. v. Anderson, 358. Deere Plow Co. v. Edgar Farmer Store Co., 358, 578, 582. Deere Plow Co. v. McDavid, 47, 684. De Ford, In re, 64, 66. De Forest, In re, 13, 180. De Forest v." Crane & Ordway Co., 588, 599. De Friece v. Bryant, 376, 382, 409, 579. De Gottardi, In re, 72, 227, 229. De Graff v. Lang, 182. Degraw v. dason, 347. De Haven v. Sherma'n, 347. Delahunt v. Oklahoma County, 621. De Lancey Stables Co., In re, 210, 217. • Deland v. Miller & Chaney Bank, 367, 586, 595, 615. Delaney, In re, 373. Delaney & Co., In re, 187, 192. Delaval Separator Co. \. Jones, 454. Delavan, In re, 700. Delavergue v. Farrand, 186. De Leeuw, In re, 672, 674. Delehanty's Estate, In fe, 319, 345. Delevan, In re, 225. De Lewandowski, In re, 685. Dell, In re, 130. Delllng, In re, 607. Dellinger v. Waite-Thresher Co., 373. Delmonico's, In re, 302. Delmour, In re, 702. De Loach v. Kennedy, 748. De Long, In re, 192. De Long V. Mechanics & Metals Nat Bank, 362, 502, 550. De Long Furniture Co., In re, 557. Delta County Bank v. McGranahan, 712, 728. Delta Nat. Bank v. Basterbrook, 40. De Lue, In re, 363, 380. Delve V. Devere, 741. De Marco v. Mass, 713. Demarest, In re, 255. De Mauriac, In re, 672. Dempster, In re, 18, 182, 205, 214, 215. De Muth V. Faw, 17, 148, 393. Dendel v. Sutton, 249. Denison-Gholson Dry Goods Co. v. Sim- mons, 17. Dennan v. Gould, 761. Dennett v. Mitchell, 464. Denning, In re, 122, 130. Denny v. Merrifield, 658. Denny & Co. v. Lee, 121. De Nomme, In re, 670. Denson, In re, 246, 402, 403, 457, 467. Depauli v. Bspitallier, 205. Deposit Nat. Bank v. Play, 756. De Kan, In re, 55, 315, 781. Derby, In re, 102, 183. Derby v. U. S. Fidelity & Guaranty Co., 362. Derosbow v. Ott, 47. Derseh v. Walker, 748. Des Moines Nat. Bank v. Council Bluffs Sav. Bank, 373. Des Moines Sav. Bank v. Morgan Jewel- ry Co., 595, 597. Desnoyers Shoe Co., In re, 298, 489, 523. Despres v. Galbraithv 155, 593. Desrochers, In re, 210, 217, 777. Dessau v. Johnson, 197, 393. Detert, In re, 246, 61^. Detroit Trust Co. v. Old Nat. Bank, 414, 610. Detroit Ti'ust Co. v. Pontiac Sav. Bank, 367, 412. Deuell, In re. 229. Deupree v. Watson, 57, 454. Denpres v. Watson, 594. Deutsche Bros., In re, 318. Deutschle Co., In re, 599, 626. Devendorf v. Dickinson, 297. Devisme v. Martin, 319. Devlin, In re, 178, 277, 631. Devoe, In re, 233, 234. Devonian Mineral Spring Co., In re, 19, 33. Devon Manor Corporation, In re, 356. Devore, In re, 484, 564, 571. Devorkin v. Security Bank & Trust Co., 459, 670, 701. Devries v. Orem, 778. Devries v. Shanahan, 54. De Watteville v. Sims, 534. Dewdney, Ex parte, 516. Dewey, In re, 296. Dewey v. Kelton, 555. Dewey v. Moyer, 237, 714, 761. Dews, In re, 668, 676, 677, 678. Dexter, In re, 627. Dey, In re, 199, 374. D. F. Herlehy Co., In re, 86, 160, 163, 170. D. H. Dougherty Co., In re, 380. D. li McBride & Co., In re, 334, 412. Dialogue, In re, 213, 408, 412. Diamon v. Palmer, 239. Diamond, In re, 252, 701, 706, 750. Diamond's Estate, In re, 27, 200, 317, 387, 403, 415, 439. Dibblee, In re, 80, 84, 379, 579, 581, 614, 772. Dick V. Powell 756. Dlckas v. Barnes, 46, 47, 110. Dickens, In re, 231. Dickens v. Dickens, 186. Dickerson v. Spaulding, 378. Dickey v. Gray Lumber Co., 427. Dickey v. Harmon, 362. • CASES CITED iTbe figures refer to sections] 1693 Dickinson, In re, 277. Dickinson v. Dickinson, 112. Dicjiinson v. Security Bank of Riclinioncl, 606. Dicks, In re, 256. Dicks V. Andrews, 760. Dickson, In re, 44, 591, 605, 607, 771. Di Cola, In re, 308. Dietz, In re, 689, 709. Diglit V. Chapman, 497, 527, 719, 728. Dillard, In re, 470. Dillard v. Collins, 218, 316, 343. Dille V. People, 9. Diller, In re, 254. Diller v. Frantz, 105. Dilley v. Simmons Nat. Bank, 743, 744. DiUon, In re, 130, 488, 546. Dimm & Co., In re, 309, 778. Dingee v. Becker, 525. Dinglehoef, In re, 240, 255. Disler y. McCauley, 742. Dismal Swamp Contracting Co., In re, 584, 585. Disney, In re, 98, 106. Ditemore v. Cable Milling Co., 206. Dittmar, In re, 252. Dix, In re, 48S, 565, 614. Dixon, In re, 229, 779. Dixon V. Bamum, 566. Dixon V. Lavvson, 249. D. Levy & Co., In re, 57, 228, 229. D. Levy & Sons Co., In re, 495. Doan V. Compton, 82. Dobbins, In re, 647. Dobbs, In re, 246, 251. Dobert & Son, In re, 117. Dobson, In re, 128, 363. Dobson V. Noyes, 658. Docker-Foster Co., In re, 5, 542, 614. Dockery v. United States, 341. Dr. Riegel Sanitarium Co., In re, 324, 361. Dr. Voorhees Awning Hood Co., In re, 495, 506. Dodd V. Northrop, 62. Doddy Jourdan & Co., In re, 177. Dodge, In re, 160, 222, 631. Dodgfe V. Harris, 584. Dodge V. Kaufman, 750. Dodge V. Kenwood Ice Co., 145. ' Dodge V. Norlin, 4l', 46, 47, 53, 54, 358. Dodge Sales & Engineering Co. v. First Nat. Bank, 57. Dodgen v. McCrea, 727. Doe, In re, 290. Doe V. Childress, 191, 376. Doggett V. Emerson, 498, 713. Dpherty, In re, 673, 702. Dohner v. Dohner, 345. Dokken v. Page, 400, 452. • Dolan, In re, 348. Dole, In re, 262, 317, 318, 361. Dole V. Warren, 749. Dolson V. Kerr, 434. Domenig, In re, 508. Donahey, In re, 240, 252. Donald v. Kell, 715, 729, 743. Donaldson, Ex parte, 389. Donaldson, In re, 685. Donaldson v. Farwell, 360. Donegan v. Davis, 450. Donnell, In re, 481. Donnell v. Swain, 726. Donnelly, In re, 55, 58, 82, 84, 162, 170, 183, 390. Donohue, In re, 270. Donohue v. Dykstra, 598. Donovan v. Haynie, 730. Dooley v. Pease, 454. Dooley v. Virginia Fire & Marine Ins. Co., 568. Doolittle V. Mutual Life Ins. Co. of New York, 207. Doom V. Snyder, 767. Dooner v. Smith, 382. Door, In re* 57, 517, 583, 614. Doran, In re, 44, 298, 366, 367, 390, 586. Dorgan's Estate, In re, 327. Doroski, In re, 106. Dortch f. Dortch, 301. Doscher In re, 173, 174. Dothan Nat. Bank v. Jones, 57. Doty, In re, 516. Doty V. Johnson, 417. Doty V. Mason, 153, 155, 156, 160, 177. Double Star Brick Co., In re, 133. Doucette v. Baldwin, 362. Dougherty Co., In re, 380. Doughty V. Moore, 463. Douglas V. St. Louis Zinc Co., 388. Douglas Coal & Coke Co., In re, 85, 95. Douglass, In re, 669, 709. Douglass V. Vogeler, 584, 586. Douthat V. Roberts, 26. Dow V. Bradley, 320. Dow V. Davis, 726. Dowie, In re, 189, 741. Downer v. Brackett, 389. Downer v. Chamberlin, 715. Downer v. Porter, 10. Downer v. Rowell, 13, 756. Downing, In re, 123, 240, 244, 469, 480, 687, 708! Downing v. Traders' Bank, 489, 507- Dows V. Johnson, 44. Dowse V. Bammond, 489, 493, 772. Dow's Estate, In re, 678. Doxsee v. Waddick, 466. Doyle, In re, 43, 50, 173, 174, 336, 453, 678, 702. Doyle v. First Nat. Bank of Baltimore, 679. Doyle V. Hall, 377. 1694 CASES CITED [Tbe flgnres refer to sections] Doyle V. Heath, 380. Doyle-Kidd Dry Goods Co. v. Sadler-Lusk Trading Co., 27, 95, 144, 160. Doyle & Son, In re, 336. . Dozier v. McWhorter, 249. Dozier v. Wilson, 2. Dozier Wholesale Grocery Co., In re, 654. Draeger v. Wisconsin Steel Co., 752. Drag, In re, 412. Drake, In re, 309. Drake v. Hodgson, 187, 713, 726. Drake v. KoUo, 544. Drake v. Vernon, 718, 741, Draper, In re, 348. Drayton, In re, 67. Dreeben, In re, 535, 781. Drees v. Armstrong, 245, 253, 525. Drees v. Waldron, 708. Dreher & Co. v. National Surety Co., 427. Dressel v. North State Lumber Co., 72, 74, 132, 536, 582, 588, 779. Dresser, In re, 227, 233, 540, 678, 679. Dresser v. Edison Illuminating Co., 19. Dressier v. Van Vlissingen, 761. Dressier Producing Corporation, In re, 26, 96, 172. Dreuil & Co., In re, 348, 361. Drew V. Fort Payne Co., 198. Drew V. Myers, 414, 427. Drewry, Ex parte, 371, 471. Drexel Hill Motor Co., In re, 533, 541. Dreyer, In re, 692, 694. Dreyer v. Kicklighter, 381, 392, 467, 579. I>reyer v. Perkins, 403. Dreyfus v. Barton, 243. Driggs, In re, 389, 403. Driggs V. Moore, 174, 379. Drlsko, In re, 107, 706. Driver, In re, 106, 176. Drumgoole, In re, 482. Drummond, In re, 84, 176, 606. Drummond v. Smith, 616. Duhle, In re, 633. Dubosky, In re, 374. Ducker, In re, 358. Dudley v. Easton, 256, 566. Dudley v. Jamaica Pond Aqueduct Corp., 136. Duel V. Hollms, 357. Duerson, In re, 2, 240, 244. Duff, In re, 135. Duff V. Carrier, 44. Duff V. First Nat. Bank, 418. iDuff V. HopKins, 304. Duffleld V. Dosh, 329. Duffield V. Horton, 380. Duffy, In re, 246, 252. Duffy V. His Creditors, 8. Dugan V. Nichols, 316. Duggan, In re, 367. Duguid, In re, 102, 121, 191, 255, 382. Duke & Son, In re, 110. Dumahaut, In re, 648, 649, 772. Dumont, In re, 571. Dumbnt v. Fry, 557. Dumont, Roberts & Co. v. McDougal. 752. Dunavant, In re, 331, 346, 350, 366, 380, 416. iDunbar v. Dunbar, 499, 500, 722. Duncan, In re, 156, 157, 172, 259, 342, 697. Duncan v. Perguson-McKinney Dry Goods Co., 240. Duncan v. Hargrove, 713. Duncan v. Landis, 40, 41, 89, 90, 173. Duncan v. Lum,- 392. Duncan v. Watson, 315. Dundas, In re, 597. Dundore v. Coates, 783. Dundee Nat. Bank v. Strowbridge, 718, 747. Dunfee, In re, 189, 744. Dunham, In re, 81, 93, 123, 171, 373, 522. Dunkerson, In re, 123, 127, 364, 554. Dunkle, In re, 89, 128, 614. Dunlap V. Seattle Nat. Bank, 550, 584, 591, 598. Dunlap Carpet Co., In re, 499, 526, 527, 534, 536, 540. Dunlap Hardware Co. v. Huddleston, 254, 777, 781. Dunlap Silk Co. v. Spencer, 451. Dunlop V. Baker, 306, 408. Dunlop V. Mercer, 358. Dunlop V. Thomas, 461, 467, 600. Dunn, In re, 266, 365, 628. Dunn V. Gans, 607. Dunn V. Sparks, 749. Dunn Hardware & Furniture Co., In re, 358, 524, 776. Dunn Salmon Co. v. Fillmore, 375, 384. Dunn & Co., In re, 354, 362. Dunnigan, In re, 102, 109, 121. Dunning, In re, 53. Dunning v. Perkins, 379. Dunphy, In re, 664. Dunseath & Son Co., In re, 214, 215. Dupeg, In re, 707. Duplan Silk Co. v. Spencer, 316, 451. Duplex Radiator Co., In re, 132, 145, 172. Du Pont V. Beck, 736. Du Pont De Nemours Powder Co. v. Schwenger, 744. Dupree, In re, 164, 1G5, 184. Duquesue Incandescent Light Co., In re, 492, 493, 500, 540. Durack v. Wilson, 451. Durand v. Brown, 484. Duran Mercantile Co., In re, 491, 504, 7S2. Durant v. Hospital Life Ins. Co., 347. Dure V. Wright, 27. CASES CITED [Tbe flgrares refer to aectlona] 1G95 Durham, In re, 250, 367, 412, 451. Durham Paper Co. v. Seaboard Knitting Mills, 155. Durrett v. Harris, 446. Duryea, In re, 29, 390. Duryea v. Guthrie, 10. Duryea Power Co., In re, 288, 290. Ouryea Power Co. v. Sternbergh, 44. Duryee, In re, 189, 512. Dusar v. Murgatroyd, 514. Dusenbury v. Hoyt, 712, 766. Dushane v. Beall, 306, 321. Dutcher, In re, 620. Butcher v. Marine Bank, 149. Dutcher v. Wright, 593. Dutton V. Cloar, 458, 466. Dutton y. Freeman, 170, 524, 525, 665. Du Vivier & Co. v. Galice, 489. Dvorak, In re, 687. Dwlght V. Central Vermont R. Co., 185. Dwinel v. Perley, 480. Dwyer, In re, 106, 180. Dwyer v. Garlough, 472. Dycus V. Brown, 121, 487, 500, 750. Dye V. Bartram, 710. Dye V. Bertram, 767. Dyer v. Kratzenstein, 414, 610. Dyke, In re, 373. Dyke v. FarmersviUe Mill & Light Co., 376. Dyson v. Harper, 377, 388. D. & B. Dress Co., In re, 437. E Eades, In re, 701, 702. Eagle Ice & Coal Co., In re, 352, 626. Eagles, In re, 130, 288, 289, 501, 539. Eagle Steam Laundry Co., In re, 135, 136, 451, 770. E. A. Kinsey Co., In re, 471. Eames, Ex parte, 7, 11. Earl V. Jacobs, 198. Earle, In re, 269. EaTle V. National Metallurgic Co., 446. Eash, In re, 244, 247, 388. Easley, In re, 28, 191, 206, 363, 377. Eason y. Garrison & Kelly, 316, 361, 364, 457,- 466, 581, 584. Eastburn v. Yardley, 191. East End Mantel & Tile Co., In re, 367, 592. Eastern Commission & Importing Co., In re, 206. Eastern Shore Shipbuilding Corporation, In re, 630. Bastlack, In re, 290, 291. Eastman, In re, 333. ■Eastman v. Hibbard, 726. Easton Furniture Mfg. Co. v. Caminez, 661. East Stroudsburg Supply & Const. Co., In re, 305,' 316, 407. Eaton, In re, 674, 676. Eaton V. Boston Safe Deposit & Trust Co., 347. Eaton V. Walker, 130. Eaton V. Yarborough, 764. Eau Claire Nat. Bank v. Jackman, 352, 414, 609. E. A. Walker & Co., In re, 288. Bberle v. Drennan, 388. Eberlein v. Fidelity & Deposit Co. of Maryland, 500. Eberline v. Prager, 466. Ebersole v. Adams, 10, 11. Eberspacher v. Boehm, 757. E. B. Havens & Co., In re, 525, 541. E. B. Taylor Co. v. Williams, 253. E. C. Fisher Corporation, In re, 621. Ecfort y. Greely, 502, 578. Eckenroth, In re', 373, 578. Ecker v. Bohn, 506, 790. Ecker v. McAllister, 154, 614. Eckler y. Galbraith, 765, 766. Eclipse Poultry Co., In re, 153. E. C. Westcott Co. y. Berry, 7. Eddleman, In re, 227. Edelen, In re, 526. Edelman, In re, 84, 229. Edelstein v. United States, 160, 182, 788, 795. Eden Musee American Co., In re, 469, 479, 778. Edens Co., In re, 504. Edes, In re, 475, 476. Edgar y. Ames, 492, 636. Bdgington v. Taylor, 238, 244. Edington v. Masson, 451. Edison Electric Illuminating Co. v. Tib- betts, 590. Edmondson v. Hyde, 252, 365. Edson, In re, 496. Edward Ellsworth Co., In re, 95, 176, 206. Edward Hess & Co., In re, 271. Edwards, In re, 241, 403, 597. Edwards v. Carondelet Milling Co., 599, 614, 615. Edwards v. Coleman, 747. Edwards y. Gibbs, 222. Edwards v. Nelson, 758. Edwards v. Schillinger, 298, 392, 394, 401, 424. Edwards v. Schillinger Bros. Co., 400, 401, 467. Edwin Clapp & Son v. Knorr, 525. Kd. W. Wright Lumber Co., In re, 84, 580. E. Eppstein & Co. v. Wilson, 367. Effinger, In re, 130, 542. Egan State Bank y. Rice, 451. Egbers v. Egbers, 722. 1696 CASES CITED [Tbe figures refer to sections] Egbert v. MeMlchael, 758, 765, 766, 767. Eggert, In re, 55, 597, 598, 599. Egner v. Parshelsky Bros., 597. E. H. Godshalk Co. v. Sterling, 56, 692, 694. Bhlinger v. Speckels, 744. Ehrhart v. Rork, 730. Ehrlich v. Sklamberg, 378. Eichholz V. Polack, 444. EidemiUer, In re, 102. Eidom, In re, 273, 692, 782. B. I. Dn Pont De Nemours Powder Co. V. Schwenger, 744. E. I. Fidler & Son, In re, 300, 303, 778, 783. Eilers Music House, In re, 46, 402, 403. Einstein, In re, 362, 387, 408, 580. Eisenberg, In re, lOi, 286, 288, 527, 657. Eisenberg v. Weisskopf, 403. Eisman v. Whalen, 752. E. J. Arnold & Co., In rfe, 511, 517. B. J. Hibner Oil Co., In re, 630. Ekings, In re, 669. Elby, In re, 66, 177, 717. Elder, In re, 490, 491, 531, 541. Elder v. Trussing, 747. Elder's Ex'rs v. Harris, 448. Elderkin v. Elderkin, 393. Eldred, In re, 451, 637, 670, 704. Eldredge v. Mutual Life Ins. Co., 243. Eldridge, In re, 367, 564. Electric Supply Co., In re, 27, 95. Electron Chemical Co., In re, 174. Elias, In re, 231. Elict V. Merchants' Exchange, 337. Eliowich, In re, 228. Elk Brook Coal Co., In re, 307. Elkin, In re, 246, 251. Elkind, In re, 43, 666. Elk Park Mining & Mill. Co., In re, 139. Elkus, In re, 413. Elk VaUey Coal Mining Co., In re, 542, 780. EUedge v. Sumpter, 243. Ellenbecker, In re, 255. Ellerbe, In re, 274. EUerbee, In re, 679. EUerhorst, In re, 506, 507, 571. Elletson Co., In re, 412, 506, 606. EUett Electric Co., In re, 771. Ellett-Kendair Shoe Co. v. Martin, 578. Eliett-Kendall Shoe Co. t. Ward, 431. Elliot, In re, 671. Elliott, In re, 666. Elliott V. Higgins, 731. Elliott V. Toeppner, 40. Ellis, In re, 153, 242, 340. Ellis V. Feeney & Sheehan Bldg. Co., 214, 217, 480. Ellis V. Krulewitch, 55, 75. Ellis V. Rafferty, 519. Ellis V. Smith, 62. Ellis Bros. Printing Co., In re, 387, 404. Ellis, Inc., In re, 527, 541, 565. Ellis & Co. y. Mobile, J. & K. C. E. Co., 710, 718. EJllison V. Ganiard, 316. Ellison & Sons v. Weintrob, 708, 709. EUithorpe, In re, 239. Ells, In re, 307, 523. Ellsworth V. Lyons, 57. Ellsworth Co., In re, 176, 206. Elmira Steel Co., In re, 33, 132, 160, 163, 174, 182. E. L. Moore & Co. v. Murehison, 149. Elmore v. Syraonds, 328, 361, 364, 446, 465. Elmore Cotton Mills, In re, 75, 773. Elsbree v. Burt, 751. El SevlUa Restaurant, In re, 74, 180, 208. Elston V. Castor, 191. ElweU V. Cumner, 763, 765. Ely, In re, 665. Ely V. Curtis, 743. E. Matthews & Sons, In re, 377. Embry v. Bennett, 537, 544. Etaerine v. Tarault, 157, 176, 531. Emerson v. Castor, 24, 41, 44, 47, 626. Emerson v. Com., 136. Emerson v. Fisher, 242, 340. Bmerson-Brantingham Implement Co. v. Lawson, 316, 371. Emerson, Marlowe & Co., In re, 354. Emery v. Canal Nat. Bank, 129. E. M. Fowler & Co., In re, 255. Emigh, In re, 267. Emison, In re, 541. E. M. Newton & Co., In re, 303, 316, 358. Empire Construction & Supply Co., In re, 396. Empire Cork Co., In re, 584. Empire Metallic Bedstead Co., In re, 79, 91, 95, 144. Empire State Surety Co. v. Des Moines, 748. Empire State Trust Co. v. Trustees of Wm. F. Fisher & Co., 454, 461. Empire State Trust Co. v. William F. Fisher Co., 595, 600. Empress Pharmacy, In re, 365. Empress Tlieater Co. v. Horton, 58, 189. Emrich, In re, 336, 403, 412. Emslie, In re, 374, 375, 389, 568. Endl, In re, 26. Endlar, In re, 46, 367, 771. Engel V. Union Square Bank, 575, 614. Englander's Inc., In re, 655. Engle, In re, 380. Engle V. Sohn, 136. English, In re, 191, 382. English V. Ross, 325, 594, 599. CASES CITED [Tbe flsnres refer to ■eotlons] 1697 Ennis, In re, 353, 357, 650, 657. Knnis v. Stoppani, 188. Ennis & Stoppani, In re, 189, 735, 743, 745. Enright v. Heckscher, 303. Ensign v. Pennsylvania, 271, 795. Entwisle v. Cohen, 450. Bntwisle v. Seidt, 466. E. O. Thompson's Sons, In re, 526, 607. Eppstein, In re, 387, 391. Eppstein & Co. v. Wilson, 367. Epstein, In re, 68, 662, 692, 778. Epstein v. Handverker, 198. Epstein v. Steinfeld, 57, 230. Equitable Life Assur. Soc. v. Miller, 348. Equitable Loan & Security Co. v. R. L. Moss & Co., 470. Equitable Trust Co. v. Vanderbilt Real- ty Imp. Co., 471, 475, 486. Erb V. Perkins, 353. E. Reboulin Fils & Co., In re, 354. B. R. Hawkins & Co. v. Quinette, 26. Etie Lithograph Co., In re, 367. Erie Lumber Co., In re, 212, 366, 500, 619, 628. Erie R. Co. v. Dial, 359. Erie Rolling Mill Co., In re, 626. Ernest Wolff Mfg.'tJo. v. Battreal Shoe ,Co., 376, 446, 575. Ernst V. Mechanics' & Metals' Nat. Bank, 364, 480, 575, 584, 590, 614, 616. Ervin, In re, 130. Erwin, In re, 556. jiirwln V. United States, 341. B. S. Bonnie & Co. v. Perry's Trustee, 336, 462, 467. E. S. Parks Shellac Co. v. Harris, 661. Ess, In re, 112. Essej: Co. v. Durant, 324. Esterbrook Steel Pen Mfg. Co. v. Ahem, 185. Estes, In re, 123, 556. E. S. Wheeler & Co., In re, 269, 466. Etheridge v. Sperry, 454. Etheridge Furniture Co., In re, 7, 69, 171, 210, 436. Ethier, In re, 485. B. T. Kenney Co., In re, 288, 501, 527. Bttinger, In re, 22, 227. Buclld Nat. Bank v. Union Trust & De- posit Co., 44, 123. Eureka Anthracite Coal Co., In re, 170. Eureka Furniture Co., In re, 148. Eureka Mfg. Co., In re, 511. Eurich's Ft. Hamilton Brewery, In re, 213, 370. Bustis V. Bolles, 112. Evans, In re, 4, 22, 117, 246, 285, 318, 330, 589, 783. Evans v. Carey, 759, 761. Evans v. Claridge, 597. Blk.Bke.(8d. Ed.)— 107 Evans v. Eaton, 2. Evans v. National Broadway Bank, 590, 595. Evans v. Rea, 748, Evans v. Rounsaville, 249, 251, 752. Evans v. Staalle, 752. Evans Lumber Co., In re, 597, 773. Evans & Co., In re, 242. Evening Standard Pub. Co., In re, 288. Everett v. Derby, 155. Everett v. Judson, 348. Everett v. Selden & Wright, 481. Everett v. Stone, 185, 379, 446. Everitt, In re, 2, 244. Everleth, In re, 242. Everybody's Grocery & Meat Market, In re, 108, 114, 160. Ewald V. Brainard, 367. Ewald & Brainard, In re, 490. Swell V. Pitman, 712. Ewing, In re, 160, 481, 649. Ewing V. Peck, 713, 756. Excelsior Cafe Co., In re, 98. Exchange Nat. Bank v. Stewart, 446., Exchange & Deposit Bank v. Stone, 316. Exler V. American Box Co., 414. Exler V. Wickes Bros., 396, 423. Bxline v. Sargent, 742. Exploration Mercantile Co. v. Pacific Hardware & Steel Co., 35, 95, 160. Exum, In re, 247. Eyster v. Gaff, 198, 390, 414, 567, 568. B. & G. Theatre Co., In re, 19. F. A. Ames Co. v. Slocomb Mercantile Co., 316. Fabacher, In re, 484. Fabian, In re, 356. Fackelman, In re, 19, 103. FaCkler, In re, 57, 670, 679, 692, 702. Factors' & Traders' Ins. Co. v. Murphy, 38, 471, 475. Fagan, In re, 526. F. A. Hall Co., In re, 7. Fahy, In re, 685. Failor v. Wehe, 748. Fairbanks v. Amoskeag Nat. Bank, 651. Fairbanks Steam Shovel Co. v. Wills, 56, 182, 317, 412. Fairburn Oil & Fertilizer Co., In re, 590. Fairlamb, In re, 541. Fairlamb v. Smedley Const. Co., 376. Fairmont Creamery Co. v. Collier, 758. Falco V. Kaupiseh Creamery Co., 148. Falconer, In re, 246. Falkenberg, In re, 777, 784. Falkland v. Bank, 736. Palkner, In re, 288. Fallon, In re, 182. 1698 CASES CITED [Tbe flsnres refer to sectional P''allows V. Continental & Commercial Trust & Sav. Bank, 48. Falls City Shirt Mfg. Co., In re. 387, 541, 561, 563, 632. Falls City Tinware Co.'s Trustee v. Le- vine, 303, 466. Falter v. Reinhard, 289, 290. Family Laundry Co., In re, 633. Famous Clothing Co;, In re, 67, 303. Fanning, In re, 678. Farish, In re, 253. Farkas, In re, 274. Farley, In re, 159, 768. Farley & Co., In re, 47, 626. Farmer, In re, 125, 516. Farmer v. Taylor, 240. Farmers' Bank of Edgefield v. C. D. Carr & Co., 584, 601.- Farmers' Co-operative Co., In re, 5, 358, 575. Farmers' Dairy Ass'n, In re, 76, 358, 359. Farmers' Loan & Trust Co. v. Eno, 469. Farmers' Nat. Bank v. Slaton, 428, 592. Farmers' State Bank v. i^Yeeman, 590, 599, 601. Farmers' Store & Supply Co., In re, 587. Farmers' Supply Co., In re, 358, 527, 584, 595. Farmers' & Mechanics' Bank, In re, 544. Farmers' & Mechanics' Bank v. Flint, 763. Farmers' & Mechanics' Bank v. Wilson, 598. Farmers' & Mechanics' Nat. Bank of Philadelphia v. Ridge Avenue Bank, 123. Farmers' & Merchants' Bank v. Richards, 761, 763. Farmers' & Merchants' State Bank v. Park, 550. Farming Co. v. Brannon, 506. Farnham v. Friedmeyer, 414, 592, 594. Farnsworth, Ex parte, 505, 550. Farnsworth v. Union Trust & Deposit Co., 540, 634. Farnum, In re, 129. Farr v. Evans, 712. Farrand, In re, 461. Farrell, In re, 10, 47, 323, 413, 592, 622, 664. Farrell v. W. B. Lockett & Co., 191, 363, 382. Farrell v. Wysong, 371, 388. Farrin v. Crawford, 91, 587. Farris v. Richardson, 102. Farthing, In re, 94, 160, 162, 163. Farwell v. Raddin, 658. Parwell Co. v. Jackson Stores, 149, 342. Faulhaber Stable Co., In re, 364. Faulkner, In re, 358, 541. Faulkner v. Kaplon, 446, 464. Faulk & Co. V. Stelner, Lobman & Frank, 210. Faurote v. Carr, 239. Faxon, Ex parte, 522. Faxon v. Folvey, 480. Fay, In re, 271. Fay's Adm'r v. Gay, 339. Fayetteville Wagon- Wood & Lumber Co., In re, 471, 482. F. Dobert & Son, 1° re, 117. , Featherston, In re, 251. Fechter v. Postel, 745. Feder v. Goetz, 43, 46, 49, 55, 670. Federal Biscuit Co., In rp, 187, 376, 378, 581, 633. Federal Contracting Co., In re, 53, 317, 400. Federal Lumber Co., In re, 91, 93, 144. Federal Mail & Express Co., In re, 91, 210. Feeley, In re, 240. Feeny, In re, 267. Fees Payable by Voluntary Bankrupts, In re, 768. Fehling v. Goings, 451. Feibelman v. Packard, 202. Feick V. Stephens, 47, 56. Feigenbaum, In re, 119. Feigenspan v. McDonnell, 186. Feilbach Co. v. Russell, 246, 463. Feinberg, In re, 264, 267. Feinberg & Sons, In re, 655. Feldmark v. Weinstein, 727, 757. Feldser, In re, 430. Feldstein, In re, 271, 682, 683, 684. Felin v. Conway, 374. Felker v. Crane, 245, 251. Fell V. Cook, 764. Fellerath, In re, 28, 191, 382. Fellerman, In re, 274. Fellows V. Burnap, 49. Fellows V. Dow, 245. Fellows V. Freudenthal, 666, 670, 674, 678, 704, 779. Fellows V. Hall, 185, 713. Fels V. George Lueders & Co., 374. Felson, In re, 227, 623, 778, 782, 783. Felter, In re, 542. Felts, In re, 692, 699. Fendley, In re, 23, 205. Fenley v. Poor, 555. Fenlon v. Lonergan, 60S Fenn, In re, 503, 538. Fenton v. CoUerd, 396. Ferguson, In re, 86, 16, 713. Ferguson v. Bauernfeind, 316, 614. * Ferguson v. Dent, 200, 331. Ferguson v. Greth; 380. Ferguson v. Lederer, Strauss & Co 453 611. Ferguson v. Lyle, 503. CASES CITED [The figures refer to sections] Ferguson v. Peckham, 22, 403. Ferguson v. Sherman, 138. FTguson Contracting Co., In re, 211, 35S. Ferguson-McKinney Dry Goods Co. v. Beuckman, 758. Ferrand, In re, 288. Ferrell v. Madigan, 4. Ferreri, In re, 781. Ferris, In re, 702. Ferris v. G. W. Collier Estate, 430. Fersko, Inc., In re, 144. Fetterman, In re, 243, 348. F. ±1. Saunders & Co., In re, 451. Fible V. Crabb, 727. Fidelity Loan & Trust Co. v. Douglas, 138. Fidelity Produce Co. v. Perdue, 248. Fidelity Trust Co. v. Gaskell, 44, 110, 215. Fidelity Trust Co. v. Kline, 91. Fidelity Trust Co. v. Robinson, 56. Fidelity & Deposit Co. v. Albrecbt, 384. Fidelity & Deposit Co. v. Queens County Trust Co., 182. Fider v. Mannheim, 728. Fidler & Son, In re, 300, 303, 778, 788. Megenbaum, In re, 664. Field V. Baker, 367, 592. Field V. Howry, 729, 730. Pleld V. Jones, 399. Field V. United States, 786. l^ield's OEstate, 766. Fielding, In re, 644, 780. Fields V. Karter, 672. Fields V. Rust, 712, 716. Fife, In re, 233, 497. Fifth Ave. Building & Loan Ass'n v. Goldberg, 727. Fifth Nat. Bank v. Lyttle, 578. Filer, In re, 19, 83, 500, 511, 514, 586. Fillebrown r. Haywood, 343. Fillingin v. Thornton, 97. Filmar, In re, 23, 122. Finan, In re, 675, 682. Finch V. Cecil, 466. Findlay, In re, 171, 179. Fineman, In re, 160, 180. Fingold V. Schacter, 514, 753. Fink, In re, 627. Finkelstein, In re, 71, 253, 701. Flnklea, In re, 240. Finks, In re, 479, 481. Finlay, In re, 485. Finn v. Carolina Portland Cement Co., 19. Finnegan v. Hall, 742, 756. Finnell v. Armoura, 727. Finney v. Knapp Co., 377, 480. Finney v. Mayer, 713. Finnin v. Malloy, 245. Firemen's Ins. Co., In re, 542. Firestone v. Harvey, 679. First Bank of Maysville v. Alexander, 599. First International Bank v. Lee, 376, 714. First Nat. Bank, Ex parte, 58. First Nat. Bank, In re, 47, 136, 160, 163; 182, 183, 367, 584. First Nat. Bank v. Abbott, 51, 54, 57, 72, 598. First Nat. Bank v. Abner, 185. First Nat. Bank v. Bacon, 316. First Nat. Bank v. Bamforth, 514, 728, 729, 741, 745. First Nat. Bank v. Bamum; 105. First Nat. Bank v. Bartlett, 247, 248. First Nat. Bank v. Blaqkburn, 575. First Nat. Bank v. Cameron, 526. First Nat. Bank v. Chicago Title & Trust Co., 4, 47, 217. First Nat. Bank v. Coates, 362. First Nat. Bank v. Cole, 231. First Nat. Bank v. Connett, 594. First Nat. Bank v. Cook, 340. First Nat. Bank v. Cooper, 44, 49, 536. First Nat. Bank v. Cootes, 713. First Nat. Bank v. Eason, 559. First Nat. Bank v. Exchange Nat. Bank, 368, 457, 525, 562. First Nat. Bank v. Flynn, 186, 198. First Nat. Bank v. Galbralth, 597. First Nat. Bank v. Guarantee Title & Trust Co., 340, 358, 384. First Nat. Bank v. Harper, 590. First Nat. Bank v. Havferkampf, 451. First Nat. Bank v. Hingham Mfg. Co., 719, 751. First Nat. Bank v. HofEman, 747, 748, 752, 755. First Nat. Bank v. Hollinsworth, 248. First Nat, Bank v. Hopkins, 403. First Nat. Bank v. Johnson, 594. First Nat- Bank v. Jones, 575, 579, 602, 608, 614, 616. First Nat. Bank v. Lanz, 575, 592. First Nat. Bank v. Lasater, 237, 321. First Nat. Bank v. Manassa, 10. First Nat. Bank v. Mastersou, 165, 712. First Nat. Bank v. Orten, 575. First Nat. Bank v. Peavy, 49. First Nat. Bank v. Pennsylvania Trust Co., 368. First Nat. Bank v. Staake, 365, 384. First Nat. Bank v. State Nat. Bank, 46, 58, 128. First Nat. Bank v. TVwner, 861. First Nat. Bank v. IFaite, 893. First Nat. Bank v. Ware, T, 12. First Nat. Bank v. Wegener, 317, 454. First' Nat. Bank v. Wyoming Valley Ice Co., 136, 172, 173. First Nat. Bank v. Yerkes, 49, 592. First Nat. Bank v. ZangwlH, 27. 1700 CASES CITED [Tbe flgrnrea refer to Bectlons] First Nat. Bank v. Zartman, 316. First Savings & Banking Co. v. Kilmer, 484. First State Bank v. HasweU, 57, 160, 593. First State Bank v. Sibley County Bank, 461. First State Bank v. Spencer, 610. First Trust & Savings Bank v. Bitter Root Valley Irr. Co., 306, 415. Firth Co. v. South Carolina Loan & Trust Co., 461. Fischer, In re, 504. Fishblate Clothing Co., In re, 154. Msh Bros. Wagon Co., In re, 358, 384, 440. Fisher, In re, 16, 86, 90, 252, 285, 290, 336, 484. Fisher v. Currier, 7, 89, 107, 113. • Fisher v. Cushman, 45, 46, 58, 334, 336, 387, 412. Fisher v. Henderson, 246, 451. Fisher v. Lewis, 191. Fisher v. Zollinger, 592. Fisher Corporation, In re, 621. Fisher & Co., In re, 286, 305, 308, 469, . 484. Fisk V. Montgomery, 7, 9. Flsk & Bohinson, In re, 541, 562. Fiske V. Hunt, 185. Fiske & Co., In re, 309. Fisse V. Einstein, 748. Fitch V. Bank of Grand Rapids, 592. Fitch V. McGie, 89, 579. Fitch V. Richardson, 534, 557. Fitchard, In re, 701. Fitts V. Custer Slide Mining & Develop- ment Co., 31, 132. Fitzgerald, In re, 280, 358, 494, 501. Fitzhugh Hall Amusement Co., In re, 358. Fixen, In re, 587, 605. Fixen & Co., In re, 210, 211, 214, 258, 259, 264, 269, 274. F. J. Hacker & Co., In re, 123. Flagg V. Ely, 732. Flaherty, In re, 65, 108, 179, 182. Flanagan, In re, 97, 151. Flanagan v. Pearson, 193, 733. Flanders, In re, 196. Flanders v. Abbey, 23, 406. Flanders v. Coleman, 340, 410, 465. Flanders v. MuUin, 716. Flanders Motor Co. v. Reed, 358. Flanigan, In re, 348, 402, 409, 427. Flarty v. Odium, 97. Flatland, In re, 45, 317, 367, 368. Fleishman, In re, 672. Fleitas v. Mellen, 714. Fleitas v. Richardson, 508, 714, 755. Fleming v. Andrews, 546. Fleming v. Courtenay, 320, 321. Fleming v. LuUman, 718, 766. Fletcher v. Morey, 364, 368. Fletcher v. Murray Commercial Co., 214. Fletcher v. Walker, 310. Flick, In re, 490, 576, (JOS, 606, 607, 626. Flickmger v. First Nat. Bank, 51, 53, 98. Flinn v. Bagley, 148. Flint V. Chaloupka, 450, 754. Flint Hill Stone & Const. Co., In re, 85. Florcken, In re, 69, 210. Floumoy v. Newton, 461. Flower v. Central Nat. Bank, 57. Flower V. Commercial Q?rust Co., 540. Flower v. Greenebaum, 650, 659, 660. Floyd V. Johnson, 204, 205, 248. Floyd V. Layton, 198, 303, 739. Floyd-Scott Co., In re, 316, 373. Floyd & Bohr Co., In re, 618. Floyd & Co., In re, 255, 455, 491. Fly, In re, 240. Flynn, In re, 621, 652. Flynn & Co., In re, 409, 604. F. Mayer Boot & Shoe Co. v. Ferguson, 249, 753. F. M, & S. Q. Carlile, In re, 67, 430, 598, 608, 614. Foerst, In re, 263. Foerstner v. Citizens' Savings & Trust Co., 367. Fogarty, In re, 782. Fogarty v. Gerrity, 19, 33, 172. Fogelman, In re, 228, 231, 402. Fogg Co. V. Bartlett, 748. Folb, In re, 493, 578. Foley, In re, 84. Foley-Bean Lumber Co. v. Sawyer, 7. Folger V. Putnam, 84, 87, 363. Folkstad, In re, 98. Folsom V. Clemence, 366. Foltz V. KerUn, 61. Fook Woh & Co., In re, 177. Foot, In re, 129, 575. Foot, Schulze & Co. v. Porter, 121. Foote V. Greiliek, 148, 342. Footville Condensed Milk Co., In re, 626. Foraast v. Hyman, 305. Forbes, In re, 119, 127, 163, 367, 378, 542. Forbes v. Howe, 586, 615. Forbes v. Keyes, 729. Forbes v. Overby, 418. Forbes v. Snow, 347, 401. Forbes v. Thomas, 744. Ford, In re, 304, 493, 529. Ford V. Blackshear Mfg. Co., 729, 756. Ford V. Henderson, 363, 376. Ford V. Keys, 592. Ford V. St. Louis, K. & N. W. R. Co., ' 105. Ford V. Sidebottom, 758. Ford V. State Board of Education, 306. Ford Co., In re, 590. CASES CITED tThe flgnrea refer to sectlonB] 1701 Foreman v. Burleigh, 50. Foreman v. Town of Marianna, 62. Forest City Steel & Iron Co. v. Detroit & T. S. L. R. Co., 495. Forestier, In re, 289, 292, 296. Forman v. Campbell, 432. Forsaith v. Merrltt, 121, 573, 603. Foi-se, In re, 128, 358. Forsyth, In re, 89, 128, 379, 604, 606, 662. Forsyth v. Vehmeyer, 716, 743, 744. Forsyth v. Woods, 127, 517. Forsythe, In re, 662. Forth. In re, 682. ^ Fort-Mims & Haynes Co. v. Branan-Akers Co., 710. Fortune, In re, 301, 772. Ft. Pitt Coal & Coke Co. v. Diser, 118, 603. Ft. Wayne Electric Corp., In re, 84, 545, 587, 605, 635, 780. Ft. Worth Heavy Hardware Co. v. Shap- leigh Hardware Co., 57. Fosgate, In re, 30, 215. Foss, In re, 74, 460, 508. Foster, Ex parte, 23, 176, 179, 185, 504. Foster, In re, 19, 119, 176, 470, 679. Foster V. Ames, 302, 471, 569, 570, 571. Foster v. Hackley, 316, 338, 452, 602. Foster v. Hip Lung Ying Kee & Co., 451. Foster v. Inglee, 512. Foster v. Rhodes, 565. Foster Paint & Varnish Co., In re, 145. Fouche V. Shearer, 76, 466. Fourth Nat. Bank v. City Nat. Bank, 362. Fourth Nat. Bank v. Smith, 46, 590. Fourth Nat. Bank v. Willingham, 636. Fourth Street Nat. Bank v. Millboume Mills Co.'s Trustee, 361, 368, 446. Fowble, In re, 632. Fowle V. Park, 713. Fowler, In re, 22, 119, itxi, 263, 403, 522, 690, 698, 707, 709. Fowler v. Dillon, 23, 29, 187. Fowler v. Jenks, 315. Fowler v. Kendall, 740. Fowler v. Michael, 715. Fowler v. Wood, 249. Fowler State Bank v. White, 600. Fowler & Co., In re, 255. Fox, In re, 653. Fox V. Eckstein, 83. Fox V. Gardner, 587. Fox V. Paine, 689. > , Foye, In re, 233, 504. Fraizer, In re, 358. Fraley v. Kelly, 760, 761, 766. Frame v. Attermeier, 630. Franceschl v. Mercado, 200. Francis, In re. 111. Francis v. McNeal, 42, 108, 110, 114, 118, 121. Francis Batchelder & Co. v. Wedge, 376. Francis- Valentine Co., In re, 28, 191, 377, 382, 386. Francisco, In re, 233. Francisco v. Shelton, 388. Frank, In re, 52, 57, 163, 228, 280, 288, 289, 535. Frank v. Dickey, 783. Frank v. McAdams, 414. Frank v. Mercantile Nat. Bank, 546, 550. Frank v. Michigan Paper Co., 663, 744. Frank v. Musliner, 424, 465, 466. Frank v. VoUkommer, 414. Frankel, In re, 231, 358. Frank E. Scott Transfer Co., In re, 495. Frankfort, In re, 229. Franklin, In re, 176, 189, 372, 584, 773. Franklin v. Monning Dry Goods Co., 679. Franklin v. Stoughton Wagon Co., 44, 356. ^ Franklin Brewing Co., In re, 58, 344, 392, 403, 404, 412, 471, 488, 491, 493, 510. Franklin Lumber Co., In re, 199, 358. Franklin Sav. Fund Soc, In re, 299, 483. Franklin Suit & Skirt Co., In re, 202. Franklin Syndicate, In re, 259, 271. Franks, In re, 28, 191, 377, 382. Franks v. Houston, 165. Frantzen, In re, 85. Fraser, In re, 377, 388, 389. Fraser v. Gates, 338. Frasin, In re, 479. Frazee v. Moffitt, 136. Frazee v. Nelson, 378. Frazer, In re, 123, 603. . Frazler, In re, 121, 358. Frazier v. Bamum, 346. Frazier v. Desha's Adm'r, 237. Frazier v. McDonald, 178. Frazier v. Southern Loan & Trust Co., • 26, 27, 388. Fl-azin, In re, 307, 542, 592, 605. Frazin & Oppenheim, In re, 317, 326, 478, 485. Frear, In re, 120, 652, 654. Freche, In re, 742. Fred C. Henderson, Inc., In re, 264. Fred D. Jones Co., In re, 595. Fredenberg, In re, 74, 264, 267. Frederick v. Citizens' Nat. Bank, 127, 531. Frederick v. Fidelity Mut. Life Ins. Co., . 348. Frederick v. Metropolitan Life Ins. Co., 243, 348. Frederick v. People's Bank of California, 597. Frederick v. Silverman, 55, 231. 1702 CASES CITED [The figures refer to sections] Frederick A. Stokes Co. v. Carell, 214. Frederick Electric L. & P. Co. v. Fred- erick City, 136. Frederick L. Grant Shoe Co., In re, 153, 495. Frederick L. Grant Slice Co. v. W. M. Laird Co., 35, 40, 49, 153. Freed v. Central Trust Co., 40, 54, 231. Freedley, Ex parte, 169. Freehold Const. Co. v. Bernstein, 198, 211. Freelander v. Holloman, 7, 419, 448. B'reeman, In re, 222, 242, 540, 692, 783. I'reeman v. Fort, 27. Freeman v.' Freeman, 4«a Freeman v. Howe, 26, 27, 203. Freeman Cotting Coat Co., In re, 169, 596. Freiberg v. Popper, 743. French, In re, 75, 246, 247, 252, 371, 524, 533, 597, 606, 653, 659. French v. Carr, 330. French v. Cunningham, |t66. French v. Grenet, 117. French v. Morse, 726. French v. O'ljrien, 8. French v. E, P. Smith & Sons Co., 406, 424. French v. White, 26, 361. French & Holmes, In re, 54. Frentress v. Markle, 747. Freudenfels, In re, 163. Freund, In re, 672, 675, 677. Freund Arnold Yeast Co., In re, 621. Frey, In re, 266, 684. Frey v. McGaw, 752. Frey v. Torrey, 525, 743. Frey's Estate, In re, 423. Frice, In re, 665, 691, 692. Friday' v. Hall & Kaul Co., 136. Friedberg, In re, 668, 680. Friederich, In re, 252, 255. Friederiek, In re, 255. Friedlaender, Petition of, 360. Friedlob, In re, 533. Friedman, In re, 56, 213, 230, 803, 361, 402, 451, 463, 490, 540, 550, 563. Friedman v. Gibbons, 753. Friedman v. Murphey, 373. Friedman v. Myers, 392. Friedman v. Verchofsky, 198, 445, 457, 461, 462. Friedman v. Zweifler, 185, 186, 713. Friedrich, In re, 242, 670. Friend, In re, 43, 46, 47, 238, 254. Friend v. Garcelon, 239. Friend v. Talcott, 746. Frisbee, In re, 91, 169, 222, 226. Frisbie, In re, 265. Frischknecht, In re, 658. Fritchard, In re, 672. Fritz, In re, 233, 685, 703, 709. Frlzelle, In re, 568, 688. Frock, In re, 619. Froelich Rubber Refining Co., In re, 359. Frost, In re, 128. Frost V. Latham & Co., 214, 393, 410. Frost V. Tibbetts, 715. Frosteg, In re, 672, 697. Frostman v. Hicks, 186. Freund Arnold Yeast Co., In re, 621. Fry V. Pennsylvania Trust Co., 579. Fry V. Street, 424. Fudiokar v. Glenn, 373. Fulkerson v. Shaffer, 84. Puller, Ex parte, 220, 227, 324. Fuller, In re, 206, 377. Fuller V. New York Fire Ins. Co., 342. H\iller V. O'Neil, 476. Fuller V. Pease, 224, 712. Fuller & Bennett, In re, 620. Fullick, In re, 770, 782. Fullings V. FuUings, 418. Fulton, In re, 217, 317. Fulton V. Hammond, 732. Fulton Club, In re, 142. Funk, In re, 101. Funk V. St. Paul aty R. Co., 138. Funkensteln, In re, 156, 291. Furbish, In re, 304. Furst-Kerber Cut Stone Co. v. Wells, 316. Furth V. Stahl, 390, 589. F. W. Hall & Sons, In re, 71, 316. P. & D. Co., In re, 292. Gabriel v. Tonner, 363. Gaddy v. Witt, 744. GafCney v. Signaigo, 366. Gage V. Bates Machine Co., 382. Gage V. Bell, 156. Gage V. Du Puy, 417. Gage V. Gates, 178. Gage V. Penfield, 709. Gage Lumber Co. v. McEldowney, 200, 316, 361, 362, 364, 585, 592. Gage & Co. v. Bell, 30, 156, 171, 180. Gaglione & Son, In re, 356. Gailey, In re, 222, 677. Gainey, In re, 253. Galbraith, Ex parte, 113. Galbraith v. First Nat. Bank, 316. Galbraith v. Robson-Hilliard Grocery Co , 408. Galbraith v. Rosenstfein, 47. Galbraith v. Vallely, 439, 444. Galbraith v. Whitaker, 614. Gallacher Coal Co., In re, 373, 499, 521, 523. Gallagher, In re, 336. Gallagher v. De Lancey Stables Co., 135. Gallagher v. Michel, 713. CASES CITED [TUe flsnres refer to Bectlons] 1703 Gallagher Coal Co., In re, 454. Gallaspy v. International Harvester Co., 356. Gallinger, In re, 163. Gallison, In re, 497. Gait, In re, 356. Galveston Dry Goods Co. v. Frenkel, 597, 614. 615. Galvin, In re, 600. Galvin v. Boyd, 340. Gamble v. Elkin, 428, 597. Gammon, In re, 673. Gandia & Stubbe v. Cadiemo, 632, 771. Gannon, In re, 348. Gans V. Ellison, 613. Gans V. Weinstoin, 461, 462, 466, Gantt V. Jones, 471. Gara, In re, 671. Gtirden, In re, 248. Gardiner v. Ross, 363, 756. (Gardner, In re, 635, 780. Gardner v. Cook, 308, 386. Gardner v. Gleason, 55, 74, 307. Gardner v. Haines, 457. Gardner v. Hengehold, 713. Gardner v. Planters' Nat. Bank, 364, 376, 396, 397. Gardner v. Sharp, 19. Garland v. Arrowwood, 466, 467. Garland v. Carlisle, 382. Garlington, In re, 504. Garnean, In re, 19, 182. Gamer, In re, 247, 252. Garner & Co., In re, 217. Garretson v. Clark, 374. Garrett, In re, 189, 249, 509. Garrett v. Carrow, 186. Garrett v. Sayles, 318, 510. Garrison, In re, 135, 680, 684, 701. (rarrison v. Kurt, 390. Garrison v. Markley, 269. Garrison v. SeckendorfE, 198. Garrity, In re, 666, 701, 702. Garry v. Jefferson Bank, 702. Gartman, In re, 5, 297, 358. Gartner Hancock Lumber Co., In re, 255. Gary v. Bates, 340. Gaskill, In re, 634. Gaskill V. Benton, 579. Gassett v. Morse, 82. Gates V. Fraser, 236, 478. Gates V. Goodloe, 198. Gates & Co. v. Empire City Racing Ass'n, 374. Gates & Co. v. Jno. F. Stevens Const. Co., 374. Gates & Co. v. National Fair & Exposi- tion Ass'n, 316, 374. Gatliff V. Mackey, 225, 716. Gattman v. Honea, 584. Gfiudette v. Graham, 44, 46. Gay, In re, 110, 131, 159, 173, 343, 627, 684, 768. Gay V. Ray, 27, 375. Gay & Sturgis, In re, 67, 76, 317, 626. Gayle r. Johnston, 491. Gayle v. Randall, 252, 349. Gay lord. In re, 337, 591, 599, 614, 678. Gaytes v. American, 400. Gazin v. Norton, 309. Gazlay v. Williams, 392. Gealey v. South Side Trust Co., 217, 323. Gear v. Fitch, 197. Gebbie & Co., In re, 361. Gebhard, In re, 504. Gebhardt, In re, 179. Gee V. Gee, 738, 743. Gee V. Parks, 316, 364, 469. Geery, Appeal of, 9, 11. Gehris-Herblne Co., In re, 316, 358. Geiselhart, In re, 304. Geiser, In re, 342. Geisreiter v. Sevier, 65, 314, 422. Geister, In re, 186, 187. Geiver, In re, 392, 451, 454. Geller, In re, 168, 413, 589. Gemmell, In re, 242. General Assignee, Ex parte, 364. General Electric Co. v.. Brower, 356. General Film Corporation, In re, 621. General Metals Co., In re, 33. General Securities Co. v. Driscoll, 451. George, In re, 131, 663, 666, 703. George A. Lovs^e & Co. v. Leary, 374. George B. Matthews & Sons v. Joseph Webre Co., 388, 390. George Bohon Co. v. Moren & Sipple, 714. George Carroll & Bro. Co. v. Young, 484. George C. Bruns Co., In re, 636. George F. Sloan & Bro. v. Grollman, 716. George Halbert Co., In re, 778. George M. Hill Co., In re, 577, 590, 604. George M. West Co. v. Lea, 36, 81, 94, 171, 172, 173. George O. Hassam & Son, In re, 358. George Watkinson & Co., In re, 542, 783. George W. Shlebler & Co., In re, 387, 589, 778. Georgia Handle Co., In re, 374. Georgia R. R. v. Cubbedge, 734. Georgia Steel Co., In re, 76, 360, 488. Gerber, In re, 30, 246, 252. Gerdes, In re, 71, 198, 375, 390, 414, 471, 567. Gering v. Leyda, 611, 614, 616. German Exchange Bank v. Schnitzer, 758. Germania I^re Ins. Co. v. Francis, 132. Germania Savings Bank & Trust Co. v. Loeb, 550. German Savings & Loan Ass'n, In re, 540. Germantown Almegum Mfg. Co., In re, 368. 1704 CASES CITED [The flgrnves refer to fiectlonfi] Geruer v. Yates, 729. Gerrow, In re, 619, 633. GeriT, In re, 472, 484. Gerson, In re, 216, 488, 505. (5erstel, In re, 227, 228, 231. • Gerstman, In re, 365, 367. Gesas, In re, 575. Getchell, In re, 162, 182. Getman v. Lippert, 457. Getman v. Second Nat. Bank, 614. Gettleston, In re, 65. Getts V. JanesvUle Wholesale Grocery Co., 614. Getz V. First Nat. Bank, 390, 569. Gliazal, In re, 341. Ghiglione, In re, 770. Ghirardelli, In re, 189, 199, 233. Gibbons, In re, 182. Gibbons v. Dexter Horton Trust & Sav. Bank, 34, 747. Gibbons v. Goldsmith, 47, 328. Gibbs, In re, 251, 387. Gibbs V. Logan, 240, 246. Gibney Tire & Rubber Co., In re, 182, 183. Gibson, In re, 111, 112, 126, 202, 318, 538. Gibson v. Dobie, 580. Gibson v. Gorman, 729, 737. Gibson v. Holmes, 233. Gibson v. King, 579. Gibson v. Lewis, 510. Gielow V. Eastern Shore Shipbuilding Corporation, 454. Gift, In re, 693, 695, 696. Gignoux V. Bilbruck, 469. Gnbert, In re, 85, 95, 111, 174, 176, 177, 235, 263, 265, 271, 275. Gilbert v. Mechanics' & Metals' Nat. Bank, 423, 434. Gilbert v. Priest 414. Gilbert v. Quimby, 26, 640. Gilbert V. Sutliff, 311. Gilbert v. Vail, 594. Gilbertson v. United States, 64, 182, 795. Gile, In re, 151. Giles, In re, 244. Gill, In re, 67, 183, 303, 403, 404. Gill V. Bell's Knitting Mills, 361, 392, 576. Gill V. Ely-Norris Safe Co., 367, 458, 467. Gill V. Farmers' & Merchants' Bank, 414. Gill V. White, 670. Gillardon, In re, 704, 782. Gillaspie, in re, 23, 783. Gillenwaters v. Miller, 597. Gillespie, In re, 318. Gillespie v. J. C. Piles & Co., 360, 780, 781. Gillespie v. McKnight, 461, Gillespie v. Piles, 309. Glllet V. Moody, 141. Gillett V. McCarthy, 376. Gillette, In re, 154, 155, 607. Gilley, In re, 286. Gilman v. Cate, 514. Gilman v. Loekwood, 6. Gilmore, In re, 173. Gllmore v. Bangs, 197. Gilmore v. Farmer', 727. Gilmore v. Wall, 466. Gilpin, In re, 663, 679, 701. Gilpin V. Merchants' Nat. Bank, 679. Gilroy & Bloomfleld, In re, 404. Gilsonite Mines Co., In re, 376, 382. Ginsburg, In re, 688, 692, 694, 777. Girard Glazed Kid Co., In re, 49, 154, 638. Girvin, In re, 507, 531. Githens v. Shiffler, 82, 453. Gitkin, In re, 78, 274. Giveen v. Smith, 471, 607, 612, Givens v. Bobbins, 186. Gladding Co., In re, 495, 628. Glasberg, In re, 698. Glasco V. Cooper, 729. Glaser, In re, 233, 234, 261. Glass, In re, 695, 696. Glass V. U. S., 787, 795. Glas-SMpt Dairy Co., In re, 469, 478. Glazier, In re, 83. Glazier v. Stafford, 766. Gleason v. Bush, 552, 590. Gleason t. O'Mara, 189. Gleason v. Smith, 163. Gleason v. Smith, Perkins & Co., 166. Gleason v. Thaw, 182, 744. Glenn, In re, 205. Glenn v. Abell, 510. Glenn v. Howard, 320, 510, 719. Glenn v. Soule, 148. Glenn Iron Works, In re, 50. Glenny v. Langdon, 448. Click, In re, 495. Glickman, In re, 3.39. Glickstein v. U. S., 271, 274. Glidden v. Massachusetts Hospital life Ins. Co., 317. Glisson, In re, 240. Globe Bank & Trust Co. v. Martin, 446, 468, 484, 632. Globe Cycle Works, In re, 191. Globe Ins. Co. v. Cleveland Ins. Co., 434. Globe Laundry, In re, 542. Globe Sec. Co., In re, 33. Glover v. Love, 414. Glover Grocery Co. v. Dome, 659. Gnichtel v. First Nat. Bank, 465, 598. Gobel Boat Co., In re, 531, 540. Goddard v. Weaver, 28, 316, 318, 567. Goddin v. Neal, 729. Coding V. Eoscenthal, 720. Godshalk Co. v. Sterling, 59, 692, 694. Godwin, In re, 654. Godwin v. Murchison Nat. Bank, 316 361, 574, 580, 592. CASES CITBD [Tbe fiKureB refer to aeotlonal 1705 Godwin v. Tuttle, 400. Goedde, In re, 120. Goerner v. Eastman, 702. Gold, In re, 47, 360. Gold V. South Side Trust Co., 48. Gold Bun Mining & Tunnel Co., In re, 95, 145, 155, 170. Goldberg, In re, 49, 205, 206, 248, 381, 679, 685, 704. Goldberg v. Brule Timber Co., 454.. Goldberg v. Harlan, 449, 577. Goldberg & Bros., In re, 632. Goldberg & Sagman, In re, 403, 408, 429. Goldbergh, In re, 702. Golden Hill Distilling Co. v. Logue, 410, 579. Golden Malt Cream Co., In re, 81. Golden & Co. v. Loving, 463, 580, 616. Colder, In re, 128. Goldfarb Bros., In re, 229. Goldich, In re, 702. Goldman, In re, 67, 75, 315, 325, 382. Goldman v. Abrahams, 764. Goldman v. Cohen, 576. Goldman v. Shreve, 356. Goldman v. Smith, 84, 170. Goldschmidt, In re, 379. Goldsmith, In re, 524, 678. Goldsmith v. Hapgood, 442. Goldsmith v. Winner Shingle Co., 316, 390. Goldstein, In re, 45, 234, 292, 387, 402, 404, 521, 534, 649, 654. Goldstein v. Saur, 761. Goldville Mfg. Co., In re, 773, 779, 780, 781, 782. Golson V. Niehoff, 379, 592. Golub, In re, 76. GomUa v. Wilcombe, 582. Gooch V. Stone, 412, 599. Good, In re, 42. Good V. Kane, 57, 229. Goodale, In re, 667, 668, 692. Goodall V. Tuttle, 2, 24, 413. Goodbough Mercantile & Stock Co. v. Galloway, 387. Goode V. Elwood Lodge, 428, 583, 588. Goodenow v. Milliken, 610. Goodfellow, In re, 19, 99, 182. Goodhile, In re, 600, 679, 700. Goodier v. Barnes, 406. Goodlander-Robertson Lumber Co. v. At- wood, 84. Goodman, In re, 100, 229, 322, 678. Goodman v. Brenner, 41. Goodman v. Curtis, 45, 252. Goodnough Mercantile & Stock Co. v. Galloway, 28, 362, 364, 378, 384, 388, 414, 424, 457, 484. Goodrich, In re, 387. Goodrich v. Dobson, 544, 545. Goodrich v. Dore, 361, 367. Goodrich v. Hunton, 713. Goodrich v. Bemington, 27. Goodrich v. Wilson, 414, 466, 589. Goodridge, In re, 702. Goodwin, Ex parte, 218, 340. Goodwin, In re, 782. Goodwin v. Barre Sav. Bank & Trust Co., 316. Goodwin v. Harrison, 491. Goodwin v. Sharkey, 283, 448, 520. Goodwin v. Tuttle, 454. Goodyear Rubber Co. v. Schreiber, 316, 360. Googins V. Skillings, 198, 393, 414. Gordon, In re, 249, 274, 648, 651. Gordon v. Farrington, 303, 400. Gordon v. Jennings, 105. Gordon v. Texas Co., 497, 750. Gordon-Jones Const. Co. v. Welder, 388. Gordon Supply & Mfg. Co., In re, 285, 300. Gore V. Lloyd, 579. Gorham, In re, 116, 119, 130. Gorham v. Buzzell, 452, 462. Gorman, In re, 247. Gorman v. Littlefleld, 357. Gorman v. Wright, 554, 559. Gorwood, In re, 479. Gosch, In re, 387. Goss V. Coffin, 316. Goss V. Gibson, 749. Gottlieb, In re, 43, 50, 654, 701. Gottlieb & Co., In re, 211, 387, 578, 597. Gottschalk v. Meyer, 8. Gould V. New York Life Ins. Co., 348. Gove V. Lawrence, 331. Gove V. Morton Ti-ust Co., 367. Goyer Co. v. Jones, 748. Goyette & Lavigne, In re, 442. Graber v. Gault, 716, 757. Graboyes, In re, 41. Gracey, In re, 512. Grady, In re, 242. Qraessler, In re, 78. Graessler & Reichwald, In re, 55, 78, 402. Graff, In re, 48, 75, 237, 315, 357, 500, 582, 604, 708. Graff V. Bonnett, 347. Graflfam V. Burgess, 485. Grafton v. Meikleham, 670. Grafton Gas & Electric Light Co., In re, 17, 27, 140, 389. Graham, In re, 246, 271. Graham v. Boston, H. & E. R. Co., 182. Graham v. Dreutzer, 766. Graham v. King, 276. Graham v. Norton, 400. Graham, v. Pierson, 497. Graham v. Richerson, 752. Graham v. Faith, 49, 67. 1706 CASES CITED [Tlie flgrnres refer to sectionsl Graham v. Stark, 84, 100, 597, 602. Graham Mfg. Co. v. Davy-Pocahontas Coal Co., 26, 144, 160, 117. Graham & Sons, In re, 43, ' 654. Grahs, In re, 348. Grainger, In re, 306, 367. Grainger & Co. v. Riley, 374. Grandin v. First Nat. Bank, 753. Grandison v. National Bank of Commerce, 173, 575, 578, 592, 599, 614. Grandison v. Robertson, 410, 461, 596, 597. Grand Lodge A. O. U. "W., In re, 143. Grand Rapids Trust Co. v. Nichols, 446. Grandy & Son, In re, 364. Grange Co. v. Farmers' Union & Mill- ing Co., 352. Granger, In re, 505, 562. Graning, In re, 229. Granite ^ity Bank, In re, 18, 319. Granite City Bank v. Tvedt, 182. Grannis v. Beardsley, 584. Grannis v. Cubbedge, 734. Grant, In re, 48, 49, 52, 54, 74, 236, 291, 349, 543, 565, 688. Grant v. First Nat. Bank, 598. Grant v. National Bank of Auburn, 381. 394, 407, 423, 428, 451, 462, 579, 598, 608, 611, 616. Grant Shoe Co., In re, 153, 495. Grant Shoe Co. v. W. M. Laird Co., 35, 40, 49, 158. Grantham v. Clark, 739. Grat, In re, 291. Gratiot County State Bank v. Johnson, 182. Grattan v. Trego, 244. . Gravatt v. State, 627. Graves, In re, 72, 77, 248, 387, 473, 516, 539, 540, 565, 606, 672, 684, 69a, 696. Graves v. Coutant, 752. Graves v. Dolphin, 347. Graves v. McGuire, 760. Graves v. Neosho Falls Bank, 525. Graves v. Winter, 104. Graves v. Wright, 224. Gray, In re, 123, 358, 448, 495. Gray v. Arnot, 198, 376, 382, 414. Gray v. A. W. Martin & Co., 356. Gray v. Bank of Hartford, 752. Gray v. Beck, 465. Gray v. Breckheimer, 461. Gray v. Breslof, 464. Gray v. Brunold, 123, 456, 459, 465, 467, 609. Gray v. Chase, 256, 317, 467. Gray v. Grand Forks Mercantile Co., 44, 50, 51. Gray v. Gudger, 57, 318, 402. Gray v. RoUo, 549. (;ray v. Veirs, 476. Gray & Dudley Hardware Co. v. Guthrie, 594. Grayson, In re, 238. Grayson's Ex'r v. Norton, 191. Great Western Mfg. Co., In re, 358, 446, 585, 636. Great Western Tel. Co., In re, 55, 57, 177, 183. Greek Mfg. Co., In re, 73. Greek Mfg. & Enterprising Co., In re, 364. Green, In re, 91, 123, 128, 236, 377, 403, 465, 517, 526. Green v. Arbuthnot, 567. Green v. Chilton, 732. Green v. Green, 480. Green v. Holmes, 361. Green v. Hooper, 384. Green v. McGovcan, 765. Green v. Sarmlento, 14. Green v. U. S., 795. Greenall v. Hersum, 197. Greenberg, In re, 227, 348, 702. Greenberg & Bro., In re, 229. Greenberger, In re, 597, 626. Greenberger v. Schvi'artz, 378, 658. Greene v. Montana Brewing Co., 191, 382, 611. Greene v. Moore, 17. Greene v. Rice, 8. Greene v. Taylor, 419, 480. Greenebaum, In re, 225, 654. Greenewald, In re, 627. Greenfield, In re, 108, 540, 685. Greenfield v. Colder, 248. Greenhall v. Carnegie Trust Co., 423, 447, 451, 467, 597. Greenhall v. Hurwitz, 211, 214. Green Pond R. Co., In re, 7, 27, 133. Green River Deposit Bank v. Craig, 94, 113, 162. Greensfelder v. Corbett, 461. Greenville Ice & Coal Co. v. Greenville, 136. Greenville & C. R. Co., In re, 16, 138. Greenwald v. Appell, 187, 199. Greenwood Gum Co. v. Zimmerman, 176. Greer, In re, 152, 228, 692. Greey v. Dockendorff, 47, 462. Grefe, In re, 691. Gregg, In re, 218, 367. Gregg V. Mitchell, 106. Gregg r. Wilson, 559. Gregory, In re, 337. Gregory v. Binghamton Trust Co., 466. Gregory v. Bdgerly, 716. Gregory v. Pierce, 744. Gregory v. Pritchard, 244. Gregory v. Williams, 743. Gregory Co. v. Cale, 249, 756. Greif Bros. Cooperage Co. v. MuUinix, 23, 838, 362, 552. CASES CITED 1707 Greil v. Durr, 460, 461, 488, 648, 761. Grems v. Traver, 348. Greth, In re, 606. Gretsch v. U. S., 787, 793. Griel v. Solomon, 760, 762, 764, 765, 767. Griesheimer, In re, 777. Grieves, In re, 680. Griffen, In re, 273. Griffin, In re, 245", 500, 514, 531, 654. Griffin v. Dutton, 91, 93. Griffin V. Hodshire, 567. Griffin v. Lenhart, 47, 389. Griffin v. Mutual Life Ins. Co., 197, 19S, 237. Griffin v. Smith, 361, 368, 389. Griffin Bros., In re, 692, 693, 708, 709. Griffith, In re, 22, 111, 283, 403. Griffith V. Adams, 713. Griffith Stillings Press, In re, 506, 651, 654. Grignard Lithographing Co., In re, 307, 619, 625. Grimes, In re, 245, 248, 249, 251, 253, 254 255 307 522. Grinn'eU, In re, 191, 382, 561, 564, 566, 567, 568. Grinstead v. Union Savings & Trust Co., 451. Grissler, In re, 374, .388, 409. Griswold v. Morse, 320. Griswold v. Pratt, 11. Grisvifold v. Watkins, 311. Grive, In re, 362. Grocers' Baking Co., In re, 446, 461, 466, 572. Grocers' Bank v. Murphy, 337. Groetzinger, In re, 125. Groetzinger & Sons, In re, 45, 49. Groezinger, In re, 451, 462. Grollman v. Montgomery Ward & Co., 342. Groner v. Babcock Printing Press Mfg. Co., 358. Groodzinsky, In re, 707, 744. Groome, In re, 183, 665, 667. Gross v. Potter, 160. Gross & Co., In re, 654. Grossman, In re, 672, 779. Grosso V. Marx, 756. Grounds, In re, 742. Grout, In re, 716, 741. Grovenstein-Bishop Co., In re, 373, 633. Grover v. Fox, 712. Grover & Baker Sewing Machine Co. v, Clinton, 732, 736. Groves, In re, 281, 481, 70S, 711. Groves v. Osburn, 249. Grow v. Ballard, 438. Grow V. His Creditors, 338. Growe Const. Co., In re, 30, 360, 779. [Tbe flgnreB refer to sections] Grubbs- Wiley Grocery Co., In re, 492, 495. 626. Gruber, In re, 750. Gruenberg v. Treanor, 763, 766. Grunsfeld Bros. v. Brownell, 8. Guanacevi Tunnel Co., In re, 48, 132, 145, 187. Guarantee Title & Trust Co. v. First Nat. Bank, 341, 368. Guarantee Title & Trust Co. v. Title Guaranty & Surety Co., 619, 630, 724. Guaranty Title & Trust Co. v. Pearlman, 214, 448. Guaranty Trust Co. of New York v. Mc- Cabe, 648. Guardians of Poor v. Ovens, 556. Guardian Trust Co. v. Kansas City Southern R. Co., 18. Guastl V. MiUer, 727. Guernsey v. Douglas, 710. Gugel V. New Orleans Nat. Bank, 471, 565, 780. Guilbert, In re, 673, 688, 702, 769. Guild V. Butler, 661, 747. Guilfoyle v. Anderson, 732. Guindon v. Brusky, 716, 744. Guinn v. Iowa Cent. E. Co., 132. Gulick, In re, 189, 666, 736. GuUege v. Woods, 465. Gumbel v. Pitkin, 203. Gunike, In re, 178. , Gunther v. Greenfield, 318. Gunzberger, In re, 240, 242, 248, 252. Gupton V. Connor, 712. Gurewitz, In re, 105. Gurler & Co., In re, ,108, 176. Gurley v. Robertson, 747. Gurney, In. re, 298- Guss r. Nelson, 359. Gutman, In re, 326, 389, 567. Gutterson, In re, 469, 476. Gutwillig, In re, 10, 45, 82, 205, 206, 317, 411, 434, 436. G. & K. Trunk Co., In re, 358. H . Haack v. Theise, 727. Haake, In re, 503, 566. Haas, In re, 248, 290. Haas v. O'Brien, 10, 437. Haas-Baruch & Co. v. Portuondo, 493. Haase, In re, 664. Habegger, In re, 589. Habegger v. First Nat. Bank, 590. Habenicht v. Lissak, 337. Hacker & Co., In re, 123. Hackett V. Supreme Council A. L. H. 199, 497. Hackett's Ex'rs v. Hackett's Trustee, 198, 324. . 1708 CASES CITBD [The figures refer to sectional Hackney v. First Nat. Bank, 456, 464, 614. Hackney v. Hargreaves Bros., 587. Hackney v. Raymond Bros. Clarke Co., 182, 597, 599, 609, 614, 615. Hackney Co. v. Noe, 756. Hadden, In re, 246. Hadden, Eodee Co., In re, 412. Hadley, In re, 160, 161, 162. Haensell, In re, 197, 198, 218, 343, 394. Haeseler-KohlhofE Carbon Co., In re, 774. Hafer, In re, 255. Haff, In re, 156, 159, 163, 172, 208. Hafner v. Erwin, 573. Hagan, In re, 237. Hagan v. McNiel, 57, 586. Hagar v. Watt, 461, 575, 592. Hageman, In re, 484. Hager, In re, 182, 358, 367. Haggerty v. Badkin, 730. Haggerty v. Byrne, 755. Haggett V. Jones, 472. Hagy, In re, 665, 673. Hahlo V. Cole, 394. Hahnlen, In re, 470. Haimowich, In re, 679, 701. Haimowich v. Mandel, 679. Haines v. Stauffer, 767. Halbert v. Pranke, 466, 614. Halbert Co., In re, 778. Hale, Ex parte, 546, T82. HalP, In re, 131, 201, 232, 479, 483, 678, 732. Hale V. AUinson, 214. Hale V. Christy, 340. Haley, In re, 402, 409. Haley v. Boston Belting Co., 320. Haley v. Pope, 665. HaU, Ex parte, 19, 108. Hall, In re, 42, 194, 225, 275. Hall V. Bliss, 567. HaU V.' Chicago, B. & Q. R. Co., 26, 376. Hall V. Oooley, 135. HaU V. Gushing, 396. HaU V. Fowler, 748. Hall V. Fulgham, 247. HaU V. Glenn, 410, 426, 454. Hall V. Kea'ting Implement & Maeh. Co., 361, 367. Hall V. Reynolds, 46, 55, 783. HaU V. Robertson, 525, 534. HaU V. Scovel, 480. HaU V. Wager, 81, 379. Hall V. Waterbury, 432. HaU Co., In re, 7. HaU & Sons, In re, 71, 316. Hallack v. Tritch, 394, 406, 581, 611. Hallagan r. Dowell, 710, 716, 741, 744. HaUiburton v. Carter, 731. Hallie, In re, 541. Halligan v. Dowell, 716, 718. Hallin, In re, 82, 84, 160. Hallman v. HaUman, 247, 248. Hallock, In re, 544. HaUyburton v. Slagle, 318, 469, 478. Halper, In re, 741. Halpine r. May, 735. Halsell, In re, 703. Halsey v. Diamond Distilleries Co., 360. Halsey v. Jordan, 743. Halsey v. Norton, 121. Halsey Electric Generator Co., In re, 153, 157, 491, 622. Halsey W. KeUey & Co., In re, 506. Hamberger v. Marcus, 105. Hambright, In re, 571. Hamburger, In re, 309, 522. Hamil, In re, 358. Hamilton, In re, 125, 301, 493, 623, 676, 682, 701. Hamilton v. Bryant, 753. Hamilton v. McCroskey, 519, 726. Hamilton v. National Loan Bank, 356. Hamilton v. Reynolds, 724. Hamilton v. Smith, 165, 218. Hamilton Automobile Co., In re, 44, 526, 606. HamUton Furniture Co., In re, 542. Hamilton Furniture & Carpet Co., In re, 360. Hamilton Nat. Bank v. Balcomb, 614. Hamlin, Ex parte, 655, 657. Hamlin, In re, 172. Hamlin v. Arbolino, 458. HamUn v. Hamlin, 717. Hamlin v. J. . M. Radford Grocery Co., 679. , Hamniel, In re, 782. Hammel & Co., In re, 348. Hammerstein, In re, 672, 688. Hammond, In re, 83, 160, 349, 365, 384, 407, 663, 672, 680, 684. Hammond v. Whittredge, 321, 346, 417. Hammonds, In re, 250. Hainpton v. Rouse, 200, 204. Hamrick, In re, 163. Hanan v. Long, 718, 729, 732. HandUn, In re, 255. Handy, In re, 359. Hane v. Crown & Keystone Co., 426, 451, 465. Hanna, In re, 288, 362, 569, 682, 696. Hannahs, In re, 654, 684. Hannebutt v. Cunningham, 203. Hanover Nat. Bank v. Moyses, 2, 13, 16. Hanscom v. Meyer, 276. Hansen, In re, 692, 709. Hansen v. Uniform Seamless Wire Co., 95. Hansen Mercantile Co. v. Wyman, Part- ridge & Co., 343. Hansley & Adams, In re, 118, 119, 182. CASES CITED [Tbe flgmreH refer to aectlouM] 1709 Hanson, In re, 290, 291. Hanson v. First Nat. Bank, 237, 343. Hanson v. Paige, 111. Hanson v. Smitli, 755. Hanson v. Stepliens, 27, 386. Hanson v. W. L. Blake & Co., 364, 365, 367, 578. Hanyan, In re, 153. Hapgood, In re, 587. Harbaugh, In re, 97. Harbaugh v. Costello, 7, 11, 91. Harber, In re, 247, 253. Harcourt, In re, 172. Hardcastle v. National Clothing Co., 359, 389, 494. Harder v. Clark, 614. Hardesty v. Graham, 185. Hardie v. Swafford Bros. Dry Goods Co., 663, 701. Hardin, In re, 516. Harding v. Crosby, 91, 437. Hardt v. Schuylkill Plush & SUk Co., 378, 379. Hardy, In re, 86, 246. Hardy v. Bininger, 163. Hardy v. Carter, 748. Hardy v. Gray, 600, 605. Hardy v. Oregon Eilers Music House, 401. Hardy y. Weyer, 316. Hardy Buggy Co. v. Paducah Banking Co., 721. Hare, In re, 292. Hargadine-McKittrick Dry Goods Co., In re, 132, 151, 160, 662. Hargadine-McKittrick Dry Goods Co. v Hudson, 516, 726, 743. Hargraves, In re, 254. Hargroves v. Cloud, 236. Hargroves v. Cooke, 500. Haring, In re, 78, 231. Hark, In re, 160, 168, 271. Hark v. C. M. Allen Co., 163. Harlin v. American Trust Co., 240, 392, 409, 414, 415, 427, 472. Harman v. Stearns, 483. Harmanson v. Bain, 84, 173, 548. Harmon, In re, 160, 620. Harmon v. McDonald, 740. Harmon v. Walker, 615. Hg^nden, In re, 367, 504. Harper, In re, 4, 88, 236, 282, 343, 524, 540, 544, 739. Harper v. Rankin, 739. Harper v. Sanderson, 466. Harper & Brothers, In re, 27, 82, 144. Harpke, In re, 576. Harr, In re, 665, 702. Harralscn, In re, 484. Harrell, In re, 226, 246, 682. Harrelson v. Webb, 226, 247. Harriman v. Tyndale, 480. Harrington, In re, 242, 244, 252, 377, Harrington v. Fire Ass'n, 380. Harrington v. McNaughton, 715. Harrington & Goodman v. Herman, 729, 743. Harris, Ex parte, 151, 204, 492, 507. Harris, In re, 112, 163, 179, 183, 217, 271, 504, 658, 701. % Harris v. England, 218. Harris v. Exchange Nat. Bank, 594. Harris v. Harris, 296. Harris v. Luxury Fruit Co., 27. Harris v. Pratt, 483. Harris v. Second Nat. Bank, 553, 587, 605. Harris v. Tapp, 98, 106. Harris v. Wells, 148. Harris Co,, In re, 205. Harris Steam Eiigine Co., In re, 633. Harrison, Ex parte, 235, 741- Harrison, In re, 72, 561. Harrison v. Gamble, 645, 655, 656, 658, 659. Harrison v. Knafle, 374. Harrison v. McLaren, 578, 584. Harrison v. Sterry, 14, 121, 630. Harrison Bros., In re, 575, 596. Harrison Mercantile Co., In re, 768, 770, 775, 783. Hart V. Boston, H. & E. R. Co., 133. Hart V. Crane, 476. Hart V. Emerson-Brantingham Co., 358. Hart Mfg. Co., In re, 522. Hart-Parr Co. v. Barkley, 42, 106. Hartdagen, In re, 358. Hartel, In re, 555. Harthill. In re, 22, 202, 203. Harthorn, In re, 626. Hartman, In re, llff, 120, 367, 409, 499. Hartman v. Ackoury, 413. Hartman v. John Peters & Co., 113. Hartman v. Swiger, 370. Hartnett v. Wilson, 710. Hartranft v. Ives, 542. Hartsell & Son, In re, 249. Hartwell Oil Mills, In re, 91, Hartz, Ex parte, 116, 119. Hartzell, In re, 44. Harvard v. Davis, 377, 388. Harvey, In re, 368, 524, 554, 585, 621, 652. Harvey v. Crane, 367. Harvey v. Gartner, 210. Harvey v. Smith, 390. Harvey v. Stowe, 466. Harwell v. Steel, 747. , ' Harwood, Ex parte, 541, 563, Hasbrouek v. Le Febre, 367. H. A. Shaver Co., In re, 160. Hasie, In re, 387, 390, 391. 1710 CASES CITED [The flgnres refer to sectlonsl Haskell, In re, 74, 234, 526, 527, 531, 626, 646, 682. Haskell v. Bailey, 19. Haskell v. Equitable Life Aeteur. Soc, 348. Haskell v. Merrill, 358. Haskin, In re, 254. Haslett, In re, 327." Hassam & Son, In re, 358. Hassenbusch, In re, 232. Hassler, In re, 249. Hastings v: Fithlan, 615. Hastings v. Thompson, 374. Hatch, In re, 244, 249. Hatch V. Chicago, E. I. & P. R. Co., 132. Hatch V. Curtin, 41, 55, 354, 409. Hatch V. Seeley, 562. Hatcher, In re, 64, 772. Hatcher v. Crew, 246. Hatcher v. Jones^ 567. Hatem, In re, 76, 536. Hatfield v. Cline, 244. Hatfield v. MoUer, 376. Hathaway v. Bennett, 339. Hathorn, In re, 27, 119. Hatje, In re, 170, 176, 490, 504. Hauck, In re, 597. Hauck V. Frey, 359. Haughey r. Albin, 85, 316, 579. Hatipt Btos., In re, 211. Hausman, In re, 231. Havens, In re, 163, 196, 261, 285, 322, 353, 355, 497, 524. Havens v. National City Bank, 310. Havens & Co., In re, 525, 541. Havens & Geddes Co. v. Pierek, 408. Hawes v. Angle-Saxon Petroleum Co., 136. Hawes v. Bank of Elberton, 592, 597. Hawes V. Cooksey, 189, 515. Hawk, In re, 526. Hawk V. Hawk, 256,, 508. Hawkins, In re, 10, 476, 578, 597. Hawkins v. Alston, 477. Hawkins v. Dannenberg Co., '410, 414, 454 Hawkins v. Hastings Nat. Bank, 51. Hawkins v. Learn.ed, 8. Hawkins v. Quinette, 159. Hawkins & Co. v. Quinette, 26. Hawks, In re, 24, 76, 367, 490, 491. Hawley, In re, 73, 478, 488, 543. I-Iawley Down-Draft Furnace Co., In re, 46, 75, 316, 356, 454, 634. Hawthorne v. Hendrie & BolthofC Mfg. & Supply Co., 542, 635, 780. Haxtun v. Corse, 665. Hayden, In re, 218, 269, 340, 404. Hayer v. Comstock, 720. ^ Hayes, In re, 215. Hayes v. Dickinson, 567. Hayes v. Flowers, 715. Hayes v. Pike, 197. Hayman v. Pond, 736. Haynes, In re, 237, 288, 375. Haynes Son & Co., In re, 316. Haynes & Sons, In re, 685. Hays, In re, 472. Hays V. Ford, 715, 716. Hays V. Wagner, 155, 169. Hays, Foster & Ward Co., In re, 521. Hayward, In re, 524. Hayvfood v. Shreve, 502. Haywood Co. v. Pittsburgh Industrial Iron Works, 360. Haywood Wagon Co., In re, 451, 476, 485. Hazard v. 'Wight, 454. Hazens, In re, 153. Hazleton v. Valentine, 234, 235. H. Batterman Co., In re, 779. H. B. HoUins & Co., In re, 357, 544, 655, 773. H: C. Denny & Co. v. Lee, 121. H. D. Still's Sons v. American Nat. Bank, 106, 108, 143. Head, In re, 255, 455. Heading Hat Mfg. Co., In re, 475. Headley, In re, 501, 542, 559, 675, 696. Healey v. Boston Batavia Rubber Co., 356. Healy v. Wehrung, 597. Heaphy v. Kerr, 741. Heard v. Arnold, 727. Heard v. Crum, 105. Heard v. Jones, 562. Heath, In re, 262. Heath v. ShafCer, 3?9, 390, 414. Heazelton, In re, 761. Hebbart, In re, 177. Hebert v. Crawford, 333, 396. Hecltathorn, In re, 431. necker v. Commercial State Bank, 585. Heckman, In re, 27. Heckscher v. Blanton, 198. Hecox, In re, 47, 182, 407. Hecox V. Teller County, 621. Hedley, In re, 670, 702. Heebner, In re, 49. HefCren v. Jayne, 733. wefEron, In re, 158, 621. Heflfron Co., In re, 76. Hefner v. Hefner, 750. Hegner v. American Trust & Savings Bank, 54. Heig V. Caspary, 400. Heim v. Chapman, 709, 762. Heim Milk Product Co., In re, 214, 414. Heinsfurter, In re, 493, 500, 606> Held V. Burke, 342. Heleker Bros. Mercantile Co., In re, 92 160, 204. »tl> CASES ciTmo ITUe flsures refer to seotious] 1711 Helfgott, In re, 682, 702. HeUer, In re, 89, 226, 504. Hellman v. Goldstone, 715. Hellmar, In re, 774. Helmbold v. Ilelmbold Mfg. Co., 335. Hem V. Allen, 661. Hemby-Hutchinson Pub. Co., In re, 412. Hempsted v. Bank, 6. Hemstreet, In re, 242, 261, 349, 452, 489. Henderson, In re, 1, 123, 155, 156, 163, 229, 407, 469, 470. Henderson v. Garner, 446. Henderson v. Henrie, 483. Henderson v. Mayer, 873. Henderson v. Morse, 46, 57. Hendrlck, In re, 665, 696, 697, 704. Hendricks v. Webster, 46. Henkel, In re, 249. Henkel v. Seider, 451. Henkelmau v. Smitb, 89, 579. Henkin v. Fousek, 45, 46, 51, 57, 229. Henley v. Lanier, 218, 763. Henly v. Lanier, 245. Hennebry, In re, 670, 702. Hennequin v. Clews, 735, 743. Hennessee v. Mills, 712. Hennocksburgh, In re, 188, 514. Henrie v. Henderson, 407, 479. Henry. In re, 646, 654. Henry v. Fisber, 105. Henry v. Harris, 187, 299. Henry Campe & Co., In re, 155. Henry C. King Co., In re, 604, 605. Henry Slegel Co., In re, 360, 531, 639. Henry Ulfelder Clothing Co., In re, 182. Henry Zeltrier Brewing Co., In re, 82. Henry & S. G. Lindeman, In re, 505. Henscbel, In re, 25, 286, 288. H. E. Page Motor Car Co., In re, 153, 156. H. E. Ploof Machinery Co., In re, 528. Herbert' & Co., In re, 47, 356. Herbst v. Bates, 486. Hercules Atkin Co., In re, 95, 138, 143. Hercules Mut. Life Assur. Soc, In re, 138. Herdic, In re, 485. Herfort v. Cramer, 339. Herlehy Co., In re, 86, 160, 163, 170. Herman, In re, 540, 585, 596, 657. Herman v. Lynch, 729, 734. . Herman Keck Mfg. Co. v. Lorsch, 54, - 773. ,, ■ Herndon v. Davenport, 237. Hern^on v. Givens, 764. Herndon v. Howard, 193. Herpicb, In re, 457. Herr, In re, 274, 348. Herrick, In re, 127, 128, 565, 640, 709. Herring v. Richards, 460. Herrington v. Davitt, 658, 710, 758, 764, 766. Herrin & West, In re, 252. , Hferritt v; Clark, 367. Herrman, In re, 664, 678, 718. Hermann, In re, 535, 664. Herron Co. v. Moore, 599. Herron Co. v. Superior Court of San Francisco, 9. Herschman v. Bolster, 238, 713. Herschman v. Justices of the Municipal Court of City of Boston, 659. Hersey, In re,. 364, 403, 504, 540, 578, 584, 623, 633. Hersey v. Elliot, 340. Hersey v. Fosdick, 643. Hershbetger, In re, 484, 783. Hershkowitz, In re, 75. Herskovitz, In re, 228. I-Iertzog, In re, 516. Hervey v. Devereux, 735. Herzberg, In re, 196. ±ierzberg v. Riddle, 428, 575, 597. Herzig, In re, 708. Herzitopf, In re, 154, 162, 179. Hess, In re, 271, 318, 360. Hess V. Theodore Hamm Brewing Co., 597. , Hess & Co., In re, 271. Hesseltine v. Prince, 328. Hestef, In re,' 245, 256. Hester v. Baldwin, 506." Hettling, In re, 348. Heusted, In re, 170. Hewes v. Rand, 659. Hewett V. Norton, 185, 398; Hewit, In re, 240. Hewit V. Berlin Mach. Works, 47, 316, 358. , . ' ' Hewitt V. Boston Straw Board Co., 3, 81, 601, 614. Hewitt V. Hayes, 117. Hewitt V. Northrup, 603. Heydette, In re, 171. Heygood v. State, 626. Heyman, In re, 76, 231, 304, 493, 506. Heyman v. Third Nat. Bank, 590, 596. Heys, In re, 275. Heyward v. Goldsmith, 57, 495. H. G. Andrae Co.,. In re, 367. Hibbard v. Henderson, 711. Hibberd v. Bailey, 497. Hibberd v. McGiU, 128. Hibbler Mach. Supply Co., In re, 562, 621. - Hibbs T. Marpe, 614. Hibernian Banking Ass'n v. Bell & Zol- ler Coal Co., 342. Hibner Oil Co., In re, ^0. Hibschman. v. Bevis, 450. Hickcock V. Bell, 220. Hlckerson, In re, 367, 600. Hickey, In re, 604. 1712 CASES CITBD [Tbe flgnrea refer to ■ectlonsl Hickey v. Thompson, 141. Hickman v. Galveston Dry Goods Co., 651. tlickman v. Parlln-Orendorf Co., 7. Hicks, In re, 3, 178, 189, 507. Hicks V. Second Nat. Bank, 636. Hicks Co. V. Moore, 595. Higgins, In re, 380. Higgins V. City of San Diego, 62. High, In re, 562, 566. Highfleld, In re, 248, 251. Hijo V. Hoffman, 185, 198. Hllborn, In re, 658. Hlldebrant, In re, 511. Hildreth Granite Co. v. City of Water- vliet, 374. Hiley r. Bridges, 249. Hill, In re, 163, 181, 194, 222, 225, 226, 248, 275, 279, 288, 289, 396, 453, 508, 672, 692. Hill V. Fleming, 353. ' Hill r. Harding, 186, 193, 195, 376, 753. HiU V. Kendall, 759, 764. HIU V. Levy, 176, 517. Hill V. Oxendine, 244. Hill V. Sheibley, 738. Hill V. Stetler, 143. Hill V. Trainer, 747, 758. Hill V. Western Electric Co., 50, 95. Hill Co., In re, 51, 136, 210, 216, 577, 590, 604, 777, 784. Hill Co. V. Contractors' Supply & Equip- ment Co., 132, 134. Hill Co. V. IT. S. Fidelity & Guaranty Co., 51, 208, 210, 773. Hiller v. Comille & De Blonde, 361. Hilliard v. Burlington Shoe Co., 10. Hills, In re, 622. Hills V. Alden, 276, 476, 485. Hills V. F. D. McKlnniss Co., 4, 19, 166, 413. Hillyer v. Le Eoy, 380, 446, 448, 756. Hilton, In re, 189. Hilton v. Dickinson, 44. Hilton V. White, 728. Hlnchman v. Consolidated Arizona Smelt- ing Co., 480. Hinckel Brewing Co., In re, 522, 542, 635, 780. Hinckley v. Railroad Co., 310. Hindin, In re, 702, 704. Hindman, In re, 242. Hinds, In re, 316. Hinds v. Moore, 22, 47. Hines, In re, 173, 208, 557, 580, 588, 597, 600, 768. Hlnman v. Cutler, 196. , Hinsdale, In re, 358, 645, 655. Hinton V. Williams, 480. Hiutze, In re, 182. Hiram Blow Stave Co.'s Trustee v. Padu- cah Cooperage Co., 392. Hirsch, In re, 29, 116, 187, 193, 222, 224, 665, 668, 672, 674, 676, 681, 683, 692, C93, 701, 702, 706. Hirschberg, In re, 625. Hirschman, In re, 489, 500, 514. Hii-schowitz, In re, 586, 681. Hirshowitz, In re, 681. Hirth, In re. 111, 130, 488. Hiscoek v. Jaycox, 562. Hiscock V. Mertens, 4, 348. Hiscoek v. Varick Bank, 44, 123, 126, 317, 391, 430. Hisiop v. Hoover, 573. Hitchcock v. EoUo, 544, 545. Hitchings, In re, 469. Hittinger v. Westford, 136. Hixon, In re, 690, 692, 701. H. J. Arrington Co., In re, 653, 654. H. J. Quimby Freight Forwarding Co., In re, 134, 135, 141, H. L. Evans & Co., In re, 242. H. L. Herbert & Co., In re, 47, 356. H. M. Lasker Co., In re, 521. Hoadley, In re, 347. Hoag, In re, 239, 244. Hoagland, In re, 373, 522. Hoague v. Cumner, 10, 435. Hobart v. Haskell, 185. Hobaugh v. Murphy, 758. Hobbs, Ex parte, 354. Hobbs V. Frazler, 414, 449. Hobbs V. Head & Dowst Co., 39, 49, 388, 389. Hobbs V. National Bank of Commerce, 141. Hobbs V. Thompson, 376. Hobbs & Co., In re, 387. Hobough V. Murphy, 766. Hobson V. Markson, 91, 182, 434, 438. Hobson-Starnes Coal Co. v. Alabama Coal & Coke Co., 376. Hockett V. Jones, 758, 759. Hockman, In re, 66, 278, 665, 686, 687, 704. Hodge, In re, 681, 682. Hodges, In re, 274. Hodgskin v. Heim, 455. Hoeffler Mfg. Co. v. Machajewskl, 755. Hoffman, In re, 76, 309, 364, 604, 672. Hoffman v. Chicago Title & Trust Co , 461. Hoffman v. Haight, 727. Hofman Co. v. Murphy, 26. Hogan, In re, 348. Hogin V. Central Nat. Bank, 491. Holbrook, In re, 124, 127, 129, 562. Holbrook v. Coney, 476. Holbrook v. Dickenson, 480. Holbrook v. Foss, 726. CASES CITED ITlie flsnres refer to sections] 1713 Holbrook v. International Trust Co., 454, 458, 466. Holbrook Shoe & Leather Co., In re, 67, 303, 402, 451, 488. Holden, In re, 55, 229, 281, 241, 243, 296, 348. Holden V. Chamberlin, 761, 763, 765, 767. Holden v. Sherwood, 186. Holden v. Stratton, 37, 243, 848. Holgate, In re, 772. HoUaday v. Hare, 376. Holland, In re, 202, 205, 379, 402. Holland V. CunlifE, 374, 747, 752, 753. Holland v. Heyman, 146. Holland t. Mcllwaine, 785. Hollander, In re, 640. HoUenbeck v. Louden, 636. HoUenfeltz, In re, 390, 565. Hollensihade, In re, 457. HoUingsworth & Whitney Co., In re, 217, 402. Hollins, In re, 364, 658. Hollins & Co., In re, 357, 544, 655, 778. HoUister, In re, 123, 506. HoUister v. Abbott, 713. HoUoway, In re, 390, 567. HoUoway v. Brame, 463. . Holman, In re, 668, 683, 690, 692, 696, 699. Holmes, Ex parte, 386. Holmes, In re, 12, 46, 49, 650, 685. Holmes V. Baker & Hamilton, 116. Holmes Lumber Co., In re, 367, 504, 773, 779. Holstein. In re, 672. Holt, In re, 262. Holt V. Akarman, 760, 761. Holt V. Crucible Steel Co., 367, 454. Holt V. Henley, 5. Holyoke v. Adams, 715. Home, The, 368. Home Bank for Savings v, Lohm, 44. Home Bond Co. v. McChesney, 451. Home Buyers' Bldg. & Loan Ass'n v. Peterman, 178. Home Discount Co., In re, 74, 75, 78, 303, 752. Home Ins. Co. v. Hollis, 340. Home Powder Co. v. Geis, 132, 145, 153. Honaker v. Honaker, 224. Honegger v. Wettstein, 131. Hood V. Blair State Bank, 12, 449. Hood r. Kamer, 592. Hook, In re, 496. Hooker v. Blount, 601. Hooker v. Peterson, 224. Hooks V. Aldridge, 27, 144. Hooks V. Gila Valley Bank & Trust Co., 550. Hooks Smelting CO., In re, 231, 269, 271, Hoole, In re, 304, 396. Blk.Bke.(.3d Ed.)— 108 Hooper v. Winston, 801. Hooven-Owens-Rentschler Co., In re, 387. Hoover, In re, 247, 373, 709. Hoover v. Greenbaum, 877. Hoover V. Ober, 7, 9. Hoover V. Wise, 601. Hope Min. Co., In re, 541, 783. Hopkins, In re, 56, 57, 170, 248, 253, 402. Hopkins v. Carpenter, 119, 172. Hopkins v. U. S., 795. Hopkins v. Ward, 758. Hopper.-Morgan Co., In re, 496, 540. Horbach v. Arkell, 727. Horgan, In re, 48, 264, 269, 403, 409. Horine v. Luria, 466. Horkan v. Eason, 480. Horn V. Bates, 711, 755. Home V. Boston & M. E. Co., 132. Homer v. Hamner, 664, 701. Homer v. Speed, 765, 766. Horner v. Spelman, 713, 748. Horner-Gaylord Co. v. Miller & Bennett, 210. Horn Silver Min. Co. v. New York, 139. Homstein, In re, 16, 154. Hornthal v. McRae, 760. H. O. Roberts Co., In re, 626. Horowitz, In re, 41, 48. Horskins v. Sanderson, 410, 423, 426. Horstman v. Little, 576, 577, 588. Horter v. Harlan, 189. Horton, In re, 12, 889, 489. Horton v. Bamford, 392, 463, 466, 577. Horton v. Mendelsohn, 47. Horton v. Queens County Machinery Cor- poration, 374, 525. Hoshaw V. CosgrifC, 594, 611. Hosie, In re, 355. Hoskins v. Belasco Nat. Bank, 712, 744. Hosmer, In re, 619, 621. Hosmer v. Jewett, 354, 896. Hosmer v. Tiffany, 461. Hospes v. O'Brien, 185. Hotchkiss V. National City Bank, 354, 362, 364. Hotel Claridge Co. v. George Rector, Inc., 480. Hottel V. Mason, 313. Houck V. Christy, 462, 466. Hough V. First Nat. Bank, 550, 590. Hough V. North Adams, 182, 297, 316. Houghton, Ex parte, 523. Houghton, In re, 152, 162, 290, 291, 501, 689. Houghton V. Burden, 44. Houghton V. Stiner, 610. Houghton Web Coi, In re, 614. Houghton Wool Co. v. Morris, 160, 176. Housberger, In re, 386. House, In re, 580, 672. House V. Johnsbn, 715. 1714 CASES CITED [Tbe figrnres refer to sections] House V. Schnadig, 710, 748, 756. Household Supply Co. v. Whlteaker, 56. Houston, In re, 189, 194, 233, 509. Houston V. City Bank of New Orleans, 471. Houston V. Shear. 16, 388, 658. Houston Ice & Brewing Co. v. Puller, 382. Hovey v. Home Ins. Co., 547. How, In re, 227. Howard, In re, 129, 259, 267, 269, 299, 366, 367, 396, 402, 463, 471, 484, 489, 493, 496, 507, 543, 684, 702, 708, 773, 780. Howard v. Crompton, 218, 227, 340. Howard v. Magazine & Book Co., 549, 552. Howard v. Mechanics' Bank, 368, 544. Howard v. Prince, 454. Howard Co. v. International Bank of St. Louis, 562. Howard D. Thomas Co. v. Beharrell, 47. Howard Nat. Bank, Ex parte, 550, 646. Howden, In re, 702. Howe, In re, 317. Howe V. Noyes, 757. Howe V. Union Ins. Co., 376. Howe Mfg. Co., In re, 22, 285, 402, 403, 544, 545, 551. Howell, In re, 153, 673. Howell V. McDowell, 105. HoweU V. Todd, 651. Howes V. Carlisle, 295. Howland, In re, 100, 358. Howland v. Carson, 497, 712, 742. Howley-Dresser Co., In re, 334. Hoxie, In re," 654. Hoy, In re, 106. Hoyt, In re, 237, 253, 374. Hoyt V. Freel, 186, 525. Hoyt V. Zibell, 364. Hoyt & Mitchell, In re, 294, 313. H. R. Leighton & Co., In re, 135. H. S. Meinhard & Bro. v. Pincus, 248. H. T. Hackney Co. v. Noe, 756. Hubbard, In re, 189, 509, 041, 722. Hubbard v. Farrell, 761, 766. Hubbard v. Gould, 197. Hubbard v. Guild, 121. Hubbel, In re, 309. Hubbell V. Cramp, 712, 727. Huber, In re, 675. Hubert v. Horter, 9, 710. Huddell, In re, 556, 680. Huddleston, In re, 210, 566, 777, 781. Hudford Co. of New YorK, In re, 368. Hudgins v. Lane, 119, 120. Hudson, In re, 679. Hudson V. Adams, 380. Hudson V. Bigham, 7, 712. Hudson V. .ludge of Superior Court, 420. Hudson V. Lamar, Taylor & Riley Drug Co., 248. Hudson v.. Mercantile Nat. Bank, 672. Hudson V. Osborne, 339. Hudson V. Plets, 343. Hudson V. Schwab, 203. Hudson Clothing Co., In re, 49, 111, 182. Hudson Porcelain Co., In re, 531, 540. Hudson River Electric Co., In re, 58, 183. Hudson River Electric Power Co., In re, 27, 95, 140, 145, 153, 170, 176. Hudson River Power Transmission Co., In re, 140. Hudson River Water Power Co., In re, 220. Huenergardt vl J. S. Brittain Dry Goods Co., 244. Huffman v. Johns, 761, 762. Huffman-Salvar Roofing Paint Co., In re, 149. Hufnagel, In re, 191, 522, 523. Hughes, In re, 30, 82, 156, 255, 283, 623, 676,- 704. Hughes V. Clark, 727. Hughes V. Oliver, 726. Hughes V. Sebastian County Bank, 250. Hughes V. Thweatt, 193. Hugill, In re, 367, 490. Hull, Ex parte, 153. Hull, la re, 123, .325, 540, 584, 597. Hull V. Burr, 293, 317, 361, 409, 413. Hull V. Dicks, 256. Hull V. Farmers' Loan & Trust Co., 347. Hull V. Fifty-Second St. Storage House, 770. Hull V. Forty-Second St. Storage House, 414. Hull V. Hudson, 414, 455. Hull V. King, 276. Hull V. Palmer, 236. Hulst, In re, 27, 264. Humbert Co., In re, 64, 166. Humble v. Carson, 715. Hume V. Myers, 31, 504, 623. Hummitsch, In re, 222. Humphreays, In re, 246. Humphrey v. Tatman, 454, 592. Humphrey Advertising Co., In re, 134. Humphreys v. Blight, 501. Humphries v. Nalley, 678. Hun V. Cary, 726. Hunker v. Bing, 444. Hunt, In re, 31, 154, 162, 249, 253, 465, 466, 560, 594, 684. Hunt v. Doyal, 237, 405, 446, 466. Hunt V. Holmes, 658. Hunt V. .Jackson, 395. Hunt V. Jones, 759, 761. Hunt V. Osborn, 316. Hunt V. Pooke, 116, 119, 162, 17a Hunt V. Sharke.Y, 392. CASES CITED [Tbe flenres refer to aectlona] 1715 Hunt V. Taylor, 505. Hunt V. Wyman, 359. Huntenberg, In re, 604, 628. Hunter, In re, 170, 307, 308, 522, Hunter v. Forrest, 245. Hunter v. Hays, 325. Hunter v. Hodgson, 237. Hunter v. Porch, 191. Hunter Arms Co., In re, 318, 587. Hunter, Walton & Co. v. J. G. CheiTy Co., 55, 166. Huntington v. Attrill, 173. Huntington v. Baskerville, 576, 580. Huntington v. Saunders, 465, 756. Hupp V. Union Pac. R. Co., 752. Hurlbutt, In re, 125. Hurlbutt V. Brown, 380, 592. Hurlbutt, Hatch & Co.-, In re, 220, 337. Hurley, In re, 19, 105, 367, 779. • Hurley v. AUman Gas Engine & Mach. Co., 306. Hurley v. Atchison, T. & S. F. R. Co., 368. Hurley v. Devlin, 2, 3, 256. Hurley v. Smith, 174. Hurst, In re, 607, 648, 655. Hurst V. Teft, 22, 45. Hussey, In re, 244. Hussey v. Jndson, 757. Hussey v. Richardson-Roberts Dry Goodp Co., 599, 614. Hussman, In re, 83, 872. Hutchcraft, In re, 514. Hutehings v. Low, 330. Hutchings v. Muzzy Iron Works, 567, Hutchins v. Cantu, 378. Hutchlns V. Taylor, 91, 379. Hutchins Co., In re, 76, 358. Hutchinson, In re, 254. Hutchinson v. Le Roy, 45, 771. Hutchinson v. Murchie, 586. Hutchinson v. Otis, 44, 387, 541. Hutchinson v. Otis Wilcox & Co., 387, 541, 606. Hutchinson v. Reed, 356. Hutchingon's Appeal, 313. Huttig Mfg. Co. V. Edwards, 182, 301, 310, 577, 595. Hutting Sash & Door Co. v. Stitt, 47. Huxoll, In re, 367. H. V. Keep Shirt Co., In re, 491, 507. H. W. Bundy & Co., In re, 255. Hyde, In re, 485. Hyde v. Bancroft, 204, 205. Hyde V. Cohen, 451. Hyde V. Corrigan, 579. Hyde v. Tuffts, 343. Hyde v. Woods, 337, 578. Hyde Park Flint Bottie Co. v. Miller, 712, 716, 727. Hyde & Gload Mfg. Co., In re, 163. Hyland v. Fink, 744. Hyman, In re, 71, 100, 658, 663. Hymes, In re, 156. Hymes Buggy & Implement Co., In re, 202, 375. Hynes v. McDermott, 301. Hynson v. Burton, 317. Idzall, In re, 682, 684, 701. Ignatius v. Farmers' State Bank, 430, 446. Illinois Parlor Frame Co. v. Goldman, 584. Illinois Surety Co. v. U. S., 310. Illinois Trust & Sav. Bank v. First Nat. Bank, 354. Illoway V. Daly, 462. Imbriani v. Anderson, 189, 514. Imperial Brewing Co., In re, 495. Imperial Corp., In re, 168, 183. Imperial Film Exchange, In re, 135, 160. Imperial Textile Co., In re, 298, 364. Independent Ins. Co., In re, 7, 133, 138, 141, 491, 578. Independent Machine & Tool Corporation, In re, 770. Independent Thread Co., In re, 157. Indianapolis, C. & L. R. Co., In re, 177. Industrial Cold Storage & Ice Co., In re, 565, 622. Ingalls, In re, 110, 123. Ingalls Bros., In re, 526. Inge V. Stillwell, 738. Ingle V. Landis Tool Co., 334. Ingraham v. Phillips, 376. Ingram v. Ingram Dart Lighterage Co., 210. Ingram v. Wilson, 45, 245, 249. Inman & Co., In re, 495, 499. Insley v. Garside, 506. Insurance Co. v. Chase, 301, 312. Interborough Consol. Corpoi-ation, In re, 354. Interborough Realty Co., In re, 562. International Agr. Corporation v. Cary, 23, 57, 123, 534, 542. International Agr. Corporation v. Sparks, 356, 402. International Banl^v. Sherman, 163, 167. International Coal Min. Co., In re, 95, 133. International Harvester Co. v. Carlson, 679, 704. International Harvester Co. v! Lyman, 764. International Mahogany Co., In re, 367. International Piano Mfg. Co., In re, 414. International Silver Co. v. New York Jewelry Co., 151, 163, 181, 525. International Trust Co. v. Myers, 57. 1716 CASES CITED [The flgnres refer to sections] Interocean Transp. Co., In re, 189, 360, 369. Interstate Banking & Trust Co. V. Brown, 3ie. Interstate Contracting & Supply Co. v. Belleville Sav. Bank, 632. Interstate Paving Co., In re, 134, 316. Iowa Palls Mfg. Co., In re, 780. I. Rheinstrom & Sons Co., In re, 632. Irion V. Knapp, 343. Irish, In re, 90, 163. Irish V. Citizens' Trust Co., 451, 597. Iron Clad Mfg. Co., In re, 26, 58, 174, 200, 202, 205, 259, 274, 391, 403, 404, 781. Iron Mountain Co., In re, 569. Irons V. Bias, 401. Irons V. Manufacturers' Nat. Bank, 510. Ironsides, The, 20O, 201, 369. Iroquois Mach. Co., In re, 632. Irvln, In re, 244. Irvine, In re, 271, 481. firing. In re, 128, 204, 244, 390. Irving v. Hughes, 191. Irving Nat. Bank v. Adams, 185. Irvsrin, In re, 23, 55, 226, 246, 252, 451, 781. Irwin v. Maple, 8, 445, 543. Isaac Harris Co., In re, 205. Isaac Prager & Son, In re, 672. Isaacs, In re, 127, 564. Isaacson, In re, 33, 212, 700, 704, 777. Iselin V. Goldstein, 380. Isert, In re, 74. Isett V. Stuart, 119, 414. Isidor, In re, 265. Israel, In re, 156, 604, 606. I. S. Eemsen Mfg. Co., In re, 358, 454. I. S. Vickerman & Co., In re, 255, 365. I. Trager Co. v. Cavaroc Co., 27, 372, 373. Ives, In re, 25, 42, 182, 183, 522, 667. Ives V. Tregent, 483. Jablin, In re, 322. Jack; In re, 170. Jackier, In re, 402, 403, 430. Jackman v. Eau Claire Nat. Bank, 352, 392, 400, 575, 599, 609, 611, 614, 615. Jackson, In re, 29, 2Q^, 249, 253, 266, 291, 292, 303, 469, 535. Jackson v. Edwards, 247, 248. Jackson v. Jetter, 236, 245, 451, 459. Jackson v. McCuUoch, 173, 444. Jackson v. Miller, 640. Jackson v. Sedgwick, 461, 463, 592. Jackson v. Valley Tie & Lumber Co., 379, 380, 387, 388. Jackson- V. Wauchula Mfg. & Timber Co., 170. Jackson Brick & Tile Co., In re, 454, 534, 594; Jackson Iron Mfg. Co., In re, 585. Jackson Light & Traction Co., In re, 364, 380. Jacob V. Kellogg, 480. Jacob V. Shantz & Son Co., In re, 578. Jacob Berry & Co., In re, 357, 670. Jacob Y. Shantz & Son Co., In re, 575. Jacobs, Ex parte, 8. Jacobs, In re, 36, 43, 45, 229, 654, 662, 670, 685, 691, 696, 702. Jacobs V. Ballantine Breweries Co., 517. Jacobs V. Carpenter, 762, 763. Jacobs V. George, 51. Jacobs V. Saperstein, 599, 615. Jacobs V. Siff, 651. Jacobs V. U. S., 795. JacSRs V. Van Sickel, 466, 597. Jacobs & Roth, In re, 269, 285. Jacobs & Verstandig, In re, 668, 672. Jacobsohn v. Larkey, 48, 481, 485. Jacobson, In re, 20, 47, 630. Jacobson v. Allen, 149. Jacobson's Assignees v. Sims, 360, 421. Jacobson & Perrill, In re, 367, 594. Jacobson & Son Co., In re, 651, 654. Jacoby, in re, 234, 285, 535. Jaconson & Perrill, In re, 451. JafCe V. Pyle, 413. JafCee, In re, 30, 291. Jamaica Slate Roofing & Supply Co., In re, 177, 451. James, In re, 237, 498, 672. James v. Atlantic Delaine Co., 80, 111, 510. James v. Gray, 508. James v. Harry Kitzenger & -Co., 748. ■Tames v. Koy, 474, 481, 483, 486. James Carothers & Co., In re, 357, 475, 484, 541, 777. James Dunlap Carpet Co. In re, 499, 527, 534, 540. James Supply & Hardware Co. v. Dayton Coal & Iron Co., 95. James Van Dyk Co. v. F. V. Rpilly Co., 340, 480. Jamieson, In re, 695. Jamison Bros. & Co., In re, 75, 348, 387, 421, 484. Janavitz, In re, 663, 680, 682. Janes, In re, 123. Janeway, In re, 354, 648. Jaquith v. Alden, 591. Jaquith v. Rowley, 389, 403, 409. Jardain v. Fairton Saving Fund Ass'n, 239. Jarecki Mfg. Co. v. McElwaine, 715, 750. Jarmulowsky, In re, 213, 355. Jarrell v. Harrell, 464. Jasper v. Rozinski, 380, 525. CASES CITED [The flgrares refer to sectlonsi 1717 Jassoy Co., In re, 148. Jaycox, In re, 44, 63, 518, 531, 541, 554, 562, 625, 638. Jayne, In re, 515. .Taysee Corset Co. In re, 480. J. Bacon & Sons, In re, 779. J. B. Brewster & Co., In re, 504. J. B. Ellis & Co. V. Mobile, J. & K. C. E. Co., 710, 718. J. B. Judkins Co., In re, 46^ 48, 55. J. B. McFarlan Carriage Co. v. Solanas, 396, 408, 409. J. B. Orcutt Co. V. Green, 526, 533. J. B. White & Co., In re, 779. J. B. & J. M. Cornell Co., In re, 476, 482. J. C. H. Claussen & Co., In re, 367, 772. J. C. Smith & Wallace Co. v. Lambert, 743. J. C. Stewart & Co. v. McLeod, 620. J. C. Wilson & Co., In re, 308, 357, 492, 540, 775, 780. J. C. Winship Co., In re', 211, 213. Jefferson, In re, 263, 307, 521, 522, 633. Jefferson Casket Co., In re, 145, 162. Jefferson Transfer Co. v. HuU, 376, 497, 741, 753. Jeffery v. Selwyn, 148. Jeffries v. Bartlett, 251. Jehu, In re, 97. 152, 258, 524. Jelsh, In re, 179. J. E. Maynard & Co., In re, 249, 252. Jemison v. Blowers, 513. Jemison Mercantile Co., In re, 50, 177, 178. Jenkins, In re, 783. Jenkins v. Armour, 149. Jenkins v. International Bank, 193, 417. Jenkins v. Levy, 727. Jenkins v. Pierce, 316. Jenkins v. Pilcher, 316, 743. Jenkins v. Rosenberg, 417. Jenkins v. Walter, 310. Jenks, In re, 386. Jenks V. Opp, 713, 747. Jenks V. Title Guarantee & Trust Co., 347. Jennings r. Schwartz, 358. Jennings v. Stannus, 102, 109, 255. Jennings v. Whitney, 364, 479. • Jennings & Co., In re, 252. Jens, In re, 243, 348. Jensen v. Dorr, 752, 756. Jensen-Bang-Byrd Co. v. Williams, 11. Jerman v. Stewart, 273. Jerome v. McCarter, 366, 390, 567, 568. Jersey City Ins. Co. v. Archer, 726, 760, 761. Jersey Island Packing Co., In re, 320, 325, 391, 657, 659. Jessup, In re, 200. Jewett, Ex parte, 156, 162, 258, 650. Jewett, In re, 108, 123, 130, 156. Jewett Bros. v. Huffman, 198, 378. Jewett Bros. & Jewett v. Bentson, 743. J. F. Grandy & Son, In re, 364. J. P. Growe Const. Co., In re, 360. J. F. Pierson, Jr., & Co., In re, 545, 772, 773. J. Frank Stanton Co., In re, 307. J. G. Eeichard & Bro., In re, 555. J. H. Alison Lumber Co., In re, 623. J. I. Case Plow Works v. Edwards,, 302, 308. Jim Pearce & Co. v. Fisher, 718. J. Ito Terusaki, In re, 172, 208. J. J. Reisler Amusement Co., In re, 136. J. Jungmann, In re, 47, 57, 217. J. K. Orr Shoe Co. v. Upshaw & Powl- edge, 525, 744. J. L. Kesner Co., In re, 326. J. L. Mott Ironworks v. Tourney, 732. J. L. Philips & Co., In re, 376, 705, 706. J. M. Aeheson Co., In re, 634. J. M. Ceballos & Co., In re, 79, 113, 115, ■ 151,, 153, 172. J. M. Fiske & Co., In re, 309. J. M. Mertens & Co., In re, 534. J. M. Monroe & Co., In re, 255. J. M. Radford Grocery Co. v. Powell, 47, 368. J. M. West Lumber Co. v. Lyon, 470, 481. Jobbins v. Montague, 16, 24, 390, 426. " Johann, In re, 156. Johansen Bros. Shoe Co. v. AUes, 54, 81, 170. John A. Baker Notion Co., In re, 543, 606. John A. Etheridge Furniture Co., In re, 7, 171. • John Agnew Co. v. Board of Education of City of Paterson, 585. John A. Roebling's Sons Co. v. Federal Storage Battery Car Co., 187, 188, 189. John B. Ellison & Sons v. Weintrob, 708, 709, John Deere Plow Co. v. Anderson, 358.- John Deere Plow Co. v. Edgar Farmer Store Co., 358, 578, 582. John Deere Plow Co. v. McDavid, 47, 634. John F. Doyle & Son, In re, 336. John Hofman Co. v. Murphy, 26. John H. Parker Co., In re, 352, 775. John H. Woodbury Dennatological Insti- tute, In re, 304. John J. Lafferty & Bro., In re, 538. John Leslie Paper Co. v. Wheeler, 752, 757. John L. Nelson & Bro. Co., In re, 199, 215. John Mathews v. Knickerbocker Trust Co., 391, John M. Linck Const, Co., In re, 49. 1718 CASES CITED [The fisntres refer to sections] John Morrow & Ck)., In re, 587, 613. John Naylon & Co. v. Christiansen Har- ness Mfg. Co., 57. John Nix & Co. v. Andrews, 542. John Osbom's Sons & Co., In re, 503. John S. Brittain Dry Goods Co. v. Ber- tenshaw, 575. John Silvey & Co. v. Tift, 1&2. John V. Farwell Co. v. Jackson Stores, 149, 342. John W. Farley & Co., In re, 47, 626. Johnson, In re, 30, 57, 106, 122, 189, 243, 244, 360, 380, 390, 454, 484, 561, 604, 664, 696, 701, 704, 739. Johnson v. American Bank, 590, 611. Johnson v. American Smelting & Refin- ing Co., 479. Johnson v. Anderson, 597, 611. Johnson v. Auditor, 739. Johnson v. Ball, 715. Johnson v. Barrett, 454, 459. Johnson v. Bishop, 27, 28, 185, 392. Johnson v. Bixby, 634. Johnson v. Canfleld-Swigart Co., 303, 392, 427, 466. Johnson v. Cohn, 463, 597. Jolmson V. CoUier, 200, 220. Johnson v. Collins, 753. Johnson v. Crawford, 9, 10. Johnson v. Dismukes, 451. •Johnson v. Gallagher, 100. Johnson v. Geisriter, 218. Johnson v. Gratiot County State Bank, 182, 590, 614. Johnson v. Hanley, 610. Johnson v. Hanley-Hoye Co., 603. Johnson v. Harrison, 401. Johnson v. Joslyn, 497. Johnson v. London Guaranty & Accident Co., 106. Johnson v. Martin, 294. Johnson v. May, 451. Johnson v. Monell, 19. Johnson v. Norris, 237, 503. Johnson v. Price, 204, 205. Johnson v. Rogers, 155, 364, 365, 437, • 440. Johnson v. Root Mfg. Co., 585. Johnson v. U. S., 13, 787, 795. Johnson v. Wald, 84, 85. Johnson v. Waxelbaum Co., 185, 715. Johnson v. Whitley Grocery Co., 755. Johnson v. Wilson, 457. John.son v. Woodend, 386. Johnson v. Worden, 562, 726. Johnson-Baillie Shoe Co. v. Bardsley, El- mer & Nichols, 82, 176. Johnson's Adm'r v. Parmenter, 730, 731. Johnson's Estate, In re, 311. Johnson Steel Street-Rail Co. v. North Branch Steel Co., 269. Johnson & Knox Lumber Go., In re, 274. Johnston, In re, 261, 484, 777. Johnston v. Barrills, 105. Johnston v. Bruckheimer, 741. Johnston v. Forsyth Mercantile Co., 414, 428, 449, 452, 465. Johnston v. .George D. Witt Shoe Co., 597, 615. Johnston v. HufC, Andrews & Moyler Co., 592. Johnston v. Spencer, 402, 403, 404. Johnstone v. Babb, 451, 454, 466. Joliet Iron & Steel Co., In re, 160. Jonas, In re, 170. Jones, -Ex parte, 102. Jones, In re, 123, 124, 127, 129, 143, 169, 171, 226, 239, 242, 243, 252, 262, 281, 288, 303, 338, 348, 367, 508, 535, 540, 580, 596, 603, 607, 613, 632, 665, 783. Jones V. Bank of Excelsior Spi-ings, 454. Jones V. Barnes, 193, 237, 318. Jones V. Blair, 47, 228, 412. Jones V. Burnham, Williams & Co., Ill, 176. Jones V. Clifton, 332, 460. Jones V. CoateSj 176. Jones V. Coker, 713. Jones V. Dugan, 298, 362. Jones V. Ford, 47, 376. Jones V. Hawkins, 562. Jones V. H. M. Hobbie Grocery Co., 360. Jones V. Kinney, 441, 616. Jones V. Knox, 505, 710, 712, 740. Jones V. Leach, 200, 205, 206. Jones V. Lellyett, 566. Jones V. McCormick Harvesting Mach. Co., 438. Jones V. Meyer Bros. Drug Co., 198. Jones V. Milbank, 465. Jones V. Miller, 317. Jones V. Pyron, 237. Jones V. Raines, 136. Jones V. Russell, 737, 739. Jones v. SchafE Bros. Co., 578. Jones V. Schermerhorn, 414. Jones V. Sennott, 759. Jones V. Shiro, 466. Jones V. Slauson, 456, 465. Jones V. Sleeper, 10, 84, 89, 91. Jones V. Smith, 411, 465. Jones V. Springer, 28, 381. Jones V. State, 748. Jones V. Stevens, 363, 380, 381. Jones V. Talbott, 759, 761. Jones V. Walter, 727. Jones V. Whitworth, 173. Jones Co., In re, 595. Jones' Ex'rs v. Clark, 743. Jones & Dyer Shoe Co. v. Wallace, 244. Jordan, In re, 2, 129, 266, 491, 664. Jordan v. Downey, 377, 392, 414. CASES CITED ITIie Asurea refer to sectlonsl 1719 Jordan v. Gatewood, 715. Jordan v. Hall, 8, 9. Jordan & Blake, In re, 498. Jordon, In re, 586. Jorey, In re, 684. Jorolemon-Oliver Co., In re, 523. Joseph, In re, 44, 536, 645, 646, 654. Joseph V. RafC; 445, 45T, 466, 592. Joseph Nelson Supply Co. v. Leary, 388. 525. Joseph R. Marquette, Jr., Inc., In re, 228, 402. Joseph Wild & Co. v. Provident Life & Trust Co., 584, 596, 597. Josephs, In re, 679. Josephs V. Powell & Campbell, 679. Josephson, In re, 308, 321, 348, 367, 432, 679, 680. Joslyn, In re, 373. Jourdan, In re, 605, 607. Joyce, In re, 254. J. P. Browder & Co. v. HiU, 629. J. Sapinsky & Sons, In re, 307, 373. J. S. Appel Suit & Cloak Co., In re, 358, 360, 454. J. S. Farming Co. v. Brannon, 506. J. S. Patterson & Co., 360. Judd V. Lawrence, 99. Juden V. Nebham, 185, 318. Judkins, In re, 16, 248. Judkins Co., In re, 46, 48, 55. Judson, In re, 236, 267, 317, 318, 348. Judson V. Courier Co., 575. Judson V. Kelty, 464. Judson V. Lathrop, 121, 479. Jules Bouy & Co., In re, 552. Jules & Frederic Co., In re, 454. Julius Bros., In re,' 182, 670. Jump V. Bernier, 173, 576. Jump V. Sparling, 342. Junck & Balthazard, In re, 119, 121. Jungbecker v. Huber, 387. .Turigmann, In re, 47, 57, 217. Jutkovitz, In re, 673, 702. Jutte & Co., In re, 139, 169, 177. J. V. Lindsley & Co., In re, 354. J. W. Butler Paper Co. v. Goembel, 595, 597. ' J. W. Caiman Co. v. Doherty, 134. J. W. Crancer & Co. v. Wade, 614. J. W. Harrison Mercantile Co., In re, 768, 770. J. W. Lavery & Son, In re, 158, 180. J. W. Ould Co; V. Davis, 679. J. W. Zeigler Co., In re, 27. J. & M. Schwartz, In re, 18, 108, ' J. & S. Ferguson v. Lyle, 503. K Kahley, In re, 471. Kahn, In re, 650. Kahn v. Casper, 715. Kahn v. Cone Export & Commission Co., 613. Kahn v. U. S., 795. Kahn & Bro. v. Bledsoe, 575, 577. Kaigler v. Gibson, 409,' 410, 412. Kaiser, In re, 693, 696, 699, 703, 704, 780. Kaiser v. Richardson, 378. Kalb & Berger Mfg. Co., In re, 214. Kaldenberg, In re, 540. Kalk, In re, 189, 718, 741. Kallak, In re, 512. Kallish, In re, 673. Kalmanowitz, In re, 229. Kalter, In re, 294, 550. Karnes v. Fox, 743. Kaminsky v. Horrigan, 377, 378. Kamloner v. Balkind, 521. Kamsler, In re, 670, 678, 681. Kane, In re, 229, 2.30, 231, 252, 254, 311, 345, 404, 414, 423. Kane v. Rice, 367. Kangas v. Robie, 246. Kanne v. Kanne, 466. Kansas City v. Vindctuest, 135, 136. Kansas City Stone & Marble Mfg. Co., In re, 592. Kanter, In re, 271, 491, 540. Kanter & Cohen, In re, 397. Kaplan, In re, 51, 57, 112, 240, 323, 679, 702. Kaplan Bros., In re, 274. Kaplan & Myers, In re, 353, 525. Kappes, In re, 702. Kappner v. St. Louis & St. J. R. Ass'n, 451. Karasik v. People's Trust Co., 387. Karger v. Ofth, 738. Karns, In re, 189. Karp, In re, 231, 322, 439, 441. Karr v. Whittaker, 170. Karst V. Black Diamond Range Co., 95. Karst V. Gane, 367. Karter v. Fields, 727. Kass, In re, 657. Kassel, In re, 174, 595. Kasson, In re, 10, 91, 242. Katz, In re, 229. Katz V. Moessenger, 758, 760, 761. Katzei^stein v. Reid, Murdock & Co., 744, 746. Kauffman, In re, 367. Kaufman, In re, 180, 288, 292, 563, 662, 677, 686, 750. Kaufman v. Alexander, 732, 736. Kaufman v. Lindner, 743. Kaufman v. Schreier, 727, 728. Kaufman v. Tredway, 613, 614. Kaufman v. U. S., 7^6, 787, 791, 794, 795. Kaufmann, In re, 252. Kaupisch Creamery Co. In re, 381. 1720 CASES CITED [Tbe figures refer to sections] Kavanaugh, In re, 26, 27, 377. Kavanaugh v. McXntyre, 233, 741, 750. Kaw Boiler Works v. SchuU, 156. Kaye v. Metz, 148, 401. Kayser, In re, 576. Kayserm, In re, 459. Kay-Tee Film Bxch., In re, 352, 359. Keach, In re, 680. Kean, In re, 2, 576, 670, 672, 679, 704. Kean v. Dickinson, 357. Kearney, In re, 282, 583. Kearns v. Boyle, 758. Keating v. Keefer, 349. Keatley v. United States, 31, 184. Keck Mfg. Co. v. Lorsch, 54, 773. Keefauver v. Hevenor, 728, 736. Keefer, In re, 461, 668, 680, 701. Keegan v. Hamilton Nat. Bank, 588. Keegan v. King, 22, 26, 353, 396, 398.' Keeler, In re, 156, 745. Keeler v. Snodgrass, 131. Keenan v. Shannon, 210, 282, 318. Keene v. Mould, 2, 715. Keep Shirt Co., In re, 491, 507. Keet, In re, 471. Keeton, Stell & Co., In re, 504. Kehler, In re, 58, 101, 172, 176, 178. Kehoe, In re, 156. Kehr v. Smith, 463, 468. Keller, In re, 159, 654. Kelme t. Graff, 729, 736. Keith V. Gettysburg Nat. Bank, 614, 615. Keith V. Kilmer, 44, 518, 534. Keith V. Simpson, 615. Keith-Gara Co., In re, 633, Kellar, In re, 285, 291, 292, 443, S87, 590. Keller, In re, 123, 290, 472, 531, 540, 541, 604, 605, 613, 650, 651, 653, 781, 782. Keller v. Faickney, 342, 486, 593. Kelley, In re, 115, 655. Kelley v. Aarons, 148, 409. Kelley v. Abbott, 148, 414. Kelley v. GiU, 401, 407, 409. Kelley & Co., In re, 506. Kellogg, In re, 316, 325, 358, 887, 390, 408, 415. Kellogg V. Carrico, 276. Kellogg V. Kimball, 715, Kellogg V. Russell, 465. Kellogg V. Schuyler, 514. Kellogg-Mackay-Cameron Co. v. William Schmidt Baking Co., 379. Kellogg-Mackey-Cameron Co. v. Curtice, 352. KeUy, In re, 22, 161, 201, 202, 252, 386, 698. Kelly V. Minor, 47, 470, 472. Kelly V. Scott, 316.. Kelly V. Skaggs, 593. Kelly V. Strange, 256. Kelly-Buckley Co. v. Cohen, 364. Kelly Dry Goods Co., In re, 66, 74, 75, 145, 214, 216, 288, 473, 534, 784. Kelsey v. Munson, 531. Kelso's Appeal, 472. Kelty, Ex parte, 496. Kemmerer v. Tool, 89, 380, 579. Kemp, In re, 363, 679. Kemp Lumber Co. v. Howard, 374; Kemper, In re*, 526. Kempner, In re, 227, 230. Kempner v. Bauer, 237, 297. Kendrick & Co., In re, 688, 704. Kendrick & Itoberts v. Warren Bros. Co., 756. Kener v. La Grange Mills, 249, 756. Kennard v. Behrer, 597. Kennedy, In re, 30, 782. Kennedy v. American Tanning Co., 323. Kennedy v. Pierce's Loan Co., 462. Kennedy v. Strong, 353. Kennedy Tailoring Co., In re, 160. Kennett v. Tudor, 744. Kenney, In re, 28, 112, 191, 377, 381, 382, 527. Kenney v. Ingalls, 316. Kenney Co., In re, 501, 527. Kenney & Co., In re, 288. Kenny, In re, 313, 529, 775. Kenova Loan & Trust Co. v. Graham, 49, 55. Kent V. Downing, 198, 378. Kentucky Bank & Trust Co. .v. Pritchett, 459, 597, 614. Kentucky Nat. Bank v. Carley, 57, 678, 696, 703. Kenwood Ice Co., In re, 145. Kenyon, In -re, 76, 84, 136, 489, 682. Kenyon y. Mulert, 493. Kepecs, In re, 3. Keppel V. Tiffin Sav. Bank, 606. Kerber, In re, 260, 273. Kerby-Dennis Co., In re, 374, 619, 626. Kerlin, In re, 84. Kerman v. Leeper, 470, 480. Kern v. United States, 787. Kerner, In re, 654, 679. Kerosene Oil Co., In re, 30, 569, Kerr, In re, 244, 598. Kerr v. Hamilton, 630. Kerr v. Hitt, 276. Kerr v. Melum, 584. Kerski, In re, 68. Kersten, In re, 27, 89, 96. Kesner Co., In re, 326. Kesslei/, In re, 298, 362, 541, 565. Kessler v. Herklotz, 198. Kessler & Co., In re, 362, 467, 565. Ketcham v. McNamara, 11. Ketchum, In re, 337, 705. Kettenbach v. Walker, 317, 454, 592. CASES CITED [Tlie fleaTes refer to sections] 1721 Ketterer Mfg. Co., In re, 216, 290, 476, 480. Keyes, In re, 526, 542. Keyes v. Bennett, 748. Keyes v. Davie, 626. Keyser, In re, 532. Keyser v. Wessel, 475, 484. Keystone Brewing Co. v. Schermer, 377, 595. Keystone Coal Co., In re, 139. Keystone Driller Co. v. Superior Court of San FranclseOi 9. Keystone Press, In re, 67, 403, 412, 604, 608. Keystone Warehouse Co. v. Bissell, 576. Kezer v. Clifford, 726. KiefCer Bros. v. Wohl, 430. Kiernan v. Fox, 761. Kilgore V. Barr, 67. Killan, In re, 68. KiUian Mfg. Co., In re, 582. Kilpatrick v. U. S. Fidelity & Guaranty Co., 506. Kimball, In re, 10, 29, 135, 191, 233, 234, 389, 435, 528, 532, 533. Kimball v. Baker Land & Title Co., 362. Kimball v. Dresser, 595. Kimball v. B. A. Rosenham Co., 591, 607. Kimberling v. Hartly, 320, 388, 396. Kimbrougb v. Aired, 424, 448, 451, 464, 465. Kimmel, In re, 74, 187, 748, 750. Kimmerle v. Farr, 614. Kinder v. SharfC, 421, 422. Kinder v. Trotti, 244, 246. Kindt, In re, 162, 172, 183, 457, 592. King, In re, 64, 153, 176, 234, 355, 356, 483, 485, 665, 783. King V. Bowman, 470. King V. Central Nat. Bank, 747. King T. Cram, 361. King V. Deitz, 311. King V. Kellogg, 243, 716, 718. King V. King, 544. King T. Loudon, 378. King V. Miles, 247, 348. King V. Morrison, 197. King V. Neill, 251. King V. Pickett, 225. King V. Storer, 598. King V. Will J. Block Amusement Co., 376. King Co.j In re, 604, 605. King Hardware Co. v. J. G. Christopher Co., 773. King Lumber Co. v. National Exch. Bank of Roanoke, 44, 55. Kingley r. Cousins, 763. Kingman, In re, 444. Kingman v. Fowle, 505. Kingsbury, In re, 597, 600, 607. Kingsbury y. First Nat. Bank, 453. Kingsbury v. Powers, 311, 432. Kingsbury v. Waco State Bank, 198. Kingsley, In re, 19, 258, 262, 516. Kingston v. Wharton, 760, 766. Kingston Realty Co., In re, 134, 135, 136, 352. Kinkead, In re, 100. Kinkead v. J. Bacon & Sons, 47, 55, 58, 652, 659, 779. Kinloch v. Savage,. 566. Kinmouth v. Braeutigam, 198, 380, 465. Kinnane Co., In re, 266, 648, 653, 654, 658. Kinnane Co.'s Estate, In re, 45, 48, 49, 782. Kinne, In re, 559. Kinney v. Avery & Co., 377. Kinsey Co., In re, 471. Kinsing v. Bartholew, 174. Kintzing, In re, 91, 161. Kinzie v. Winston, 324. Kip V. Bank of New York, 346. Kirby v. Garrison, 715. Kirkland, In re, 630. Kirkpatrick, In re, 216. Kirkpatrick v. Clark, 303. Kirkpatrick v. Harnesberger, 44. Kirkpatrick v. Johnson, 456. Kirkpatrick v. Tattersall, 760. Kirsner V. Taliaferro, 46, 229. Kirtland, In re, 471. Kiser Co. v. Georgia Cotton Oil Co., 291. Klser Co. v. Gerald, 744. Kiskadden v. Steinle, 44, 392, 551. Kittle V. Hall, 392. Kittler, In re, 226. Kittredge v. Emerson, 195, 196. Kittredge v. Warren, 380. Kitzinger, In re. 111, 643. Klancke, In re, 385. Klapholz, In re, 484. Klein, In re, 2, 27, 439, 443, 444, 595. Klein v. Gallin, 451, 466. Klein v. Powell, 675. Kleinhans, In re, 207, 213. Kletchka, In re, 29, 192. Kligerman, In re, 22, 76, 351, 387, 472, 481, 524, 654. Klingaman, In re, 578, 592. Klinger v. Hyman, 466. Klintz V. Marx, 217. Klipstein & Co. v. Allen-Miles Co., 189, 718, 748. K. Marks & Co., In re, 358, 360. Knabe v. Hayes, 673. . Knapp V. Anderson, 748. Knapp v. Harold, 728. Knapp V. Hoyt, 760, 764. Knapp V. Milwaukee Trust Co., 39, 47, 56, 367, 450. 1722 CASES CITED [Tbe figures refer to sections] Knapp & Spencer Co. v. Drew, 67, 71, 75, 204, 213, 303. KnaszaU, In re, 696, 704. Knauer, In re, 685. Knauth V. Knight, 360. Knauth, Nachod & Kuhne v. Latham & Co., 319, 413. Knauth, Nachod & Kuhne v. Lovell, 354. Kneeland v. Pennell, 370. Knickerbocker, In re, 392. Knickerbocker Bank, Matter of, 285. Knickerbocker Ins. Co. v. Comstock, 40. Knickerbocker Life Ins. Co. v. Gorbach, 19. Knight, In re, 4, 17, 27, 123, 434, 438, 442. Knight V. Cheney, 469. Knight, Yancey & Co., In re, 376. Knights V. Quarles, 343. Knisely v. People's Sav. Bank, 462. Knoepfel, In re, 279, 531. Knoll V. Commercial Trust Co., 590. Knopf, In re, 202, 452. Knosco, In re, 526. Knosher & Co., In re, 45, 485, 777. Knott, In re, 476. Knott V. Putnam, 189, 234. ICnowlton v. Moseley, 457. Knowlton & Co., In re, 124. Knox, In re, 286, 292, 490. Knox V. Exchange Bank, 193. Knox Automobile Co., In re, 75, 476, 536. Kobre, In re, 111, 113, 173. Kobre Assets Corporation y. Baker, 656. Kobusch V. Hand, 577. Koch, In re, 268, 269, 271. Koelle, In re, 682. Koger v. Clark, 319, 414. Kohler, In re, 636.- Kohl-Hepp Brick Co., In re, 471. Kohlsaat, In re, 399, 655, 656. Kohn, Weil & Co. v. Weinberg, 193, 748. Kohout V. Chaloupka, 198, 561. Kolber, In re, 255. Kolin, In re, 202, 213. Kolster, In re, 676, 701. Komar, In re, 234, 742. Komara, In re, 454. Kominers, In re, 627. Koplin, In re, 228. Kopplin V. Ludwig, 317. Kornit Mfg. Co., In re, 67, 148, 403. Koronsky, In re, 194. Kosches V. Libowitz, 191, 382. Koslffwski, In re, 380, 579. Kossakowski v. People, 143. Kovoloff V. United States, 788, 794. Kraft, In re, 91, 155, 665. Krall, In re, 229, 710. Kramer, In re, 67, 231. Kranich, In re, 304, 396, 399. Kraus v. Century Gas & Electric Fixture Co., 625. Kraus v. Torry, 765. Krause, In re, 308. Kraver v. Abrahams, 410, 427, 608, 611. Krecun, In re, 253. Kreitlein v. Ferger, 497, 716, 727. Kreitz v. EgelhofE, 4. Kretsch, In re, 678, 788. Jft.retz, In re, 665, 695, 679. Kreuger, In re, 298, 322, 358. Krichevsky, In re, 231. Krinsky, In re, 205. Krippendorf v. Hyde, 22, 203. Kritzer v. Tracy Engineering Co., 388. Kroeger Bros., In re, 497. Krogman, In re, 417. Kronrot, In re, 471, 479, 481, 485. Kross, In re, 782. Kruegel v. Murphy & Bolanz, 237, 756. Krueger, In re, 112, 229, 270, 285, 290. Krug, In re, 72. Krugmeier v. Hackett, 555. Krumbaar v. Burt, 349. Kruse, In re, 74, 454. Kuffler, In re, 43, 46, 107, 258, 292, 664, 698, 717, 718. Kuhn Bros., In re, 47, 303, 311. Kuhn Co., In re, 373. Kuhn & Co., In re, 123, 129. KuU V. Farmer, 763. KuUberg, In re, 597. Kuntz V. Young, 177, 664 Kunzler v. Kohaus, 2. Kurth, In re, 444. Kurtz, In re, 74, 356. Kurtz Brass Bed Co., Petition of, 773. Kyle, In re, 49, 310. Kyle V. Hammond, 35, 37. Kyle Lumber Co. v. Bush, 41. Kyler, In re, 49, 261, 264, 273, 281, 525, 542. Kyte, In re, 211, 462, 508, 544, 672, 679, 770. La Barre v. Doney, 248. L. A. Becker Co. v. Gill, 454, 586, 597, 636. Lace V. Smith, 9. Lacey, In re, 169. Lacey v. Cowan, 110, 120, 121. Lacey v. Southern Mineral Land Co., 483. Laehemeyer, In re, 189, 233, 509. La,chenmaier,.In re, 151, 160, 177. Lackawanna Leather Go. v. La Porte Carriage Co., 96, 162, 171, 173, 180, 181. Laekenbach v. Finn, 388. Lackow, In re, 160. Lacov, In re, 64. Lacoy, In re, 770. Lacy V. Chandler, 581. CASES CITED [Tlie figures refer to sections] 1723 Lacy V. Rockett, Ladertiurg v. Miller, 244. Lady Bryan Min. Co., In re, 29, 172, 191. Lafferty & Bro., In re, 538. Laffoon v. Ives, 543. Laffoon V. Kerner, 716, 748. Lafleche,,In re, 682, 704. Lafond v. Deems, 143. Lafountain v. Burlington Sav. Bank, 344. La France Copper Co., In re, 469, 474. Laidley v. Cummings, 712. Lalng V. Fish, 237, 321. Lains, In re, 444. Laird, In re, 374. La Jolla Lumber & Mill Co., In re, 403, 543, 551, 638. Lake, Ex parte, 400, 500. Lake, In re, 218. Lake v. Dredge, 304. Lake Chelan Land Co., In re, 57, 584. Lake Jackson Sugar Co., In re, 106, 176. Lake Superior Ship Canal Co., In re, 286, 288. Lake Superior Ship-Canal, E. & I. Co., In re, 529. Lake View State Bank v. Jones, 57, 316, 317, 584. Lakin v. First Nat. Bank, 174, 427. Lally, In re, 701, 702, 704. Lalor, In re, 157, 183. Lalor V. Wattles, 2. Lamar- Wells Co. v. Hamilton Co., 166. Lamb v. Brown, 727. Lamb v. Damron, 24. Lamb v. Hall, 361, 368, 423. Lamb v. Lamb, 148. Lambert, In re, 571. Lambert v. National Hog Co., 27. Lambert v. Schmalz, 758. Lammon v. Feusier, 203. Lamoille County Nat. Bank v. Stevens' Estate, 127. Lamon, In re, 505. Lamont, In re, 290. Lamorelle v. Nass, 388. Lampkin V; People's Nat. Bank, 597, 609. Ijianagin v. Nowland, 760. Lancaster y. Collins, 601. Lance v. Tainter, 392. Lance Lumber Co., In re, 499. Landersman, In re, 663, 680, 682, 701, 702. Landgraf v. Griffith, 497, 744. Landis, In re, 22, 359, 526. Landis v. McDonald, 446, 592, 615. Landis v. Both, 761. Landis v. Scott, 313. Landis Machine Co. v. Cooper, 9. Landly & Co. v. Cummings, 712, 715. Landon v. Townshend, 396. Landry v. Andrews, 587. Landry v. San Antonio Brewing Ass'n, 54. Landsberger, In re, 356. Lane, In re, 112, 130, 544, 586, 655. Lane v. Holcomb, 713. Lane v. Moore, 185. Lane v. Nickerson, 148, 342. Lane v. Tanner, 121. Lane Lumber Co., In re, 44, 53, 211, 214, 365, 371, 476, 782. Lang, In re, 685, 781. Lang V. Simmons, 105. Langdon, In re, 648. Lange, In re, 163, 174, 243, 587. Lange Co., In re, 526, 559, 606, 622. Langever v. Stitt, 242. m Langfeldt, In re, 687. Langford, Felts & Myers, In re, 779. , Langley, In re, 7, 155. Langley v. Perry, 4.33. Langslow, In re, 768. Lanham v. State Bank of Rome, 485. Lanier, In re, 65, 259, 260. Lanier v. ToUeson, 710, 763, 764. Lans, In re, 53. Lansaw, In re, 490, 540. Lansdale v. Brashear, 135. Lansing v. Manton, 23, 210, 214. Lansing Boiler & Engine Works v. Jos- eph T. Ryerson & Son, 81, 176. Lansing Liquidation Corp. v. Heinze, 123, 716, 727. Lantzenheimer, In re, 555. Lape's Adm'r v. Jones, 309. Laplume Condensed Milk Co., In re, 230. Lapsley, Ex parte, 541, 563. Laramore v. McKinzie, 731, 746. Large v. Bosler, 373. Larkey, In re, 326. Larkin, In re, 82. Larkin-Green Logging Co. v. Sabin, 182. Larkin & Metcalf, In re, 356. Larrabee v. Talbott, 5. Lasater v. First >fat. Bank, 237, 344. Laskaris, In re, 160. Lasker Co., In re, 521. Lasky, In re, 795. Lastrapes v. Blanc, 100, 113, 156. Latham, In re, 768. Latham v. Chafee, 185. Lathrop, In re, 269, 493, 501, 529, 700. Lathrop v. Drake, 18, 406. Lathrop v. Nelson, 481. Lathrop v. Pate, 251. Lathrop v. Stuart, 687, 712, 715. Lathrop Bank v. Holland, 585, 592. Lathrop, Haskins & Co., In re, 269, 318, 526, 533. Latimer, In re, 426. Latimer v. McKinnon, 198. Latimer v. McNeal, 210. 1724 CASES CITED [The flemres refer to sectlanBl La Tourrette v. Price, 761, 764. Lattimer, In re, 118, 220, 390. Laubaugh v. Pennsylvania R. Co., 490. Laughlin, In re, 119, 1-20, 159, 750. Ijaughlin v. Calumet & 0. Canal & Dock Co., 447. Laundy v. First Nat. Bank, 600. Laurel Oil &" Fertilizer Co. v. Home, 755. Lausman, In re, 365, 470, 484, 617. Lavender v. Bowen, 459. Lavender v. Gosnell, 7, 11, 12. Lavery & Son, In re, 158, 180. Lavie v. Phillips, 100. Lawhead v. Monroe Bldg. Co., 55, 58, 402. Lawler, In re, 628. Lavrreace, In re, 93, 125, 170, 189. Lawrence v. Graves, 451. ^jawrence v. Harrington, 735, 761, 762, 764. Lawrence v. Lowrie, 413, 466. Lawrie, In re, 189, 509. Lawson, In re, 254, 285, 703. Lawver v. Gladden, 100, 712. Lazarus v. Eagen, 182, 577, 614. Lazarus, Michel & Lazarus v. Harding, 58. Lazarus, Michel & Lazarus v. Prentice, 41. Lazear v. Porter, 472. Lazoris, In re, 285, 289. I^azzari v. Havens, 374. L. B. Pickens & Bro., In re, 387. L. B. Weisenberg & Co, 127. L. C. Smith & Bro. Typewriter Co. v. Alleman, 356. Lea V. George M. West Co., 27, 94. Leachman, In re, 266. Leader, The, 362, 587, 597. Leader v. Mattingly, 499, 718, 748. Leary v. ShafCer, 390. Leathern & Smith Lumber Co. v. Nalty, 317. Leavengood v. McGee, 450. Leavenworth Sav. Ban6, In re, 132. Leavitt, In re, 123. L^avitt & Grant, In re, 357. Le Claire, In re, 244, 342, 676. Ledbetter, In re, 504. Lederer, In re, 698. Ledgerwood v. Dashiell, 182, 318. Ledoux V. Samuels, 318. Lee, In re, 46, 526, 555. Lee V. Franklin Avenue German Sav. Inst, 568. Lee V. PfefCer, 198. Lee V. Tarplin, 744. Leech, In re, 75, 575, 580, 611. Leech v. Dawson, 417. Leech v. Kay, 484. Leeds Woolen Mills, In re, 352, 408, 412, 431. Leeds & Catlin Co., In re, 189, 198. Leeman, In re, 606. Le Favour, In re, 183. Lefler v. Hunt, 718. Leflys, In re, 632. Ijegg, In re, 358. Leggate v. Moulton, 343. Leggett V. Barton, 746. Lehfeldt, In re, 253. Lehigh Lumber Co., In re, 128, 603. Lehigh Valley Coal Sales Co. v. Maguire, 544. Lehman v. La Forge, 465. Lehman v. Rosengarten, 438. Lehman v. Strassberger, 179. Lehman, Stem & Co. v. E. Martin & Co., 376. Lehmann & Co. v. Rivers, 198. Lehrenkrauss v. Bonnell, 461, 462. Leibowitz, In re, 526. Leicester v. Hoadley, 742. Leidigh Carriage Co. v. Stengel, 2, 5, 16, 26, 81, 94, 134, 155. 162, 164, 436, 437. Leigh, In re, 46, 315, 354, 367, 402. Leighton, In re, 19, 667. Leighton v. Harwood, 353. Leighton v. Kennedy, 156. Leighton & Co., In re, 135.' Leinkauf v. Wellhouse, 740. Leinweber, In re, 229. Leist V. Dierssen, 318, 342. Leitch V. Northern Pac. R. Co., 752. Leiter v. Payson, 145. Leith V. Galloway Coal Co., 479. Leland, In re, 33, 82, 98, 106, 176, 269, 446, 451, 499, 542, 606, 700. Leman v. Steele, 211. Le Master v. Spencer, 202. Lemen, In re, 19. Lemert v. Lemert, 189, 509, 722. Lemmon & Gale Co., In re, 25, 387. Lengert Wagon Co., In re, 27, 434. Lenihan v. Hamann, 390. Lennox, In re, 58. Lennox v. Allen-Lane Co., 40, 176. Lenoir-Cross & Co., In re, 180. Lent V. Farnsworth, 687. Lenters, In re, 240, 252, 298. Lentz, In re, 255. Lenweaver, In re, 704. Leo V. Joseph, 646, 757. Leonard, In re, 163, 211, 784. Leonard v. Nye, 341. Leonard v. Springer, 463, 578. Leonard v. YoKnk, 191, 756. Leroux v. Hudson, 203. Leroy v. Jamison, 276. Lesaius, In re, 58, 228, 229. Lesaius v. Goodman, 55. Leseure v. Weaver, 448. Lesher & Son, In re, 543, 549. CASES CITED [The flgnreg refer to laectlons] 1725 Leslie, In re, 671, 672, 678, 701, 702. Leslie-Judge Co., In re, 471. Leslie Paper Co. v. Wheeler, 752, 757. Leslie & Griffith Co., In re, 495, 523. Lessaius v. Goodman, 322. Lesser, In re, 27, 48, 187, 191, 192, 363, 380, 389, 391, 415, 466, 567, 672, 673, 678, 772. Lesser v. Bradford Realty Co., 610, 611. Lesser v. Gray, 726, 750. Le Sueur County Co-Operative Co., In re, 488. LeszynsUy, In re, 193, 497, 696. Letchworth, In re, 505, 565. Leterman, Beeher & Co., In re, 47. Letson, In re, 50, 55, 182, 244, 451. Le Vay, In re, 217, 252, 253, 254. Level Land Co. v. Sivyer, 450. Levenson, In re, 653". Levensteln, In re, 662, 685. Leverton, In re, 246, 778. Levey, In re, 665, 692. ' Levi, In re, 577. Levi V. Goldberg, 389. Levi V. Loevenhart & Co., 752. Levi & Klauber, In re, 48, 177. Levi & PIckard, In re, 360, 429. Levin, In re, 4, 229, 271, 352, 543, 575, 688, 691. Levine, In re, 367. Levinson v. U. S., 788, 795. Levitan, In re, 718, 756. Levor v. Seiter, 191, 382, 595, 597. Levy, In re, 116, 165, 228, 236, 259, 264, 266, 268, 269, 287, 315, 317, 318, 348, 530, 559, 649, 653, 707, 711, 768. Levy V. Barley, 747. Levy V. Haake, 567. Levy V. Schorr, 315, 711. Levy & Co., In re, 57, 228, 229. Levy & Sons Co., In re, 495. L. E. Waterman Co. v. Kline, 617. Levirensohn, In re, 233, 286, 292, 525, 542, 744. Levs^in, In re, 77, 259, 673, 685, 702. Lewin v. Telluride Iron Works Co., 377, 382. Lewin v. Thurber, 746. Lewis, In re, 119, 124, 164, 165, 177, 271, 623, 632, 692. Lewis V. Buck, 203. Lewis V. County Clerk, 7. Lewis V. First Nat. Bank, 462, 597. Lewis V. Higgins, 185. Lewis V. Julius, 461, 462. Lewis V. Prendergast, 419. Lewis V. Shaw, 729, 735. Lewis V. Sloan, 182. Lewis V. United Sta'tes, 123, 630. Lewis, Eck & Co., In re, 542. Lewis F. Perry & Whitney Co., In re, 153, 155, 157, 169, 176. Lewis Shoe Co., In re, 163. Lewisohn, In re, 285. L. Hammel & Co., In re, 348. L'Hommedieu, In re, 377, 534. L. Humbert Co., In re, 64, 166. Libby, In re, 49, 242, 246, 253. Libby v. Beverly, 57, 240, 246. Libby V. Hopkins, 544. Liberty Trust Co. v. Haggerty, 597. Liby, Tn re, 246. Liddell V. Wiswell, 506, 749. Liddon & Bro. v. Smith, 47, 625. Lieber, In re, 668, 671. Liebig, In re, 353, 360. Liebke v. Thomas, 650. Lieblein v. George, 651, 658. Llesum v. Kraus, 727. Light, In re, 49. Light V. Hunt, 376, 753. Light V. Merriam, 731, 740. Llghthall, In re, 236, 237. Lightstone, In re, 249. Ligon V. Allen, 658. Lilienthal, In re, 189, 660. Liller, In re, 463. Liller Bldg. Co. v. Reynolds- 285, 382. 402, 670. Lillington Lumber Co., In re, 374. Lilly V. Barron, 745. Linck Const. Co., In re, 49. Lincoln v. People's Nat. Bank, 539. Lincoln St. R. Co. v. -McUleUan, 138. Lindeke v. Associates Realty Co., 306, 326. Lindeke v. Converse, 43, 698. Lindeman, In re, 505. Linder v. Lewis, 437, 442. Linderman, In re, 648, 654. Lindley v. Ross, 451, 584. Lindner v. Brock, 28, 376. Lindsay v. Runkle, 400. Lindsley & Co., In re, 354. Lindstroth Wagon Co. v. Ballew, 414. Lineberry, In re, 205, 403. Lineker v. Ayeshtord, 346. Lines, In re, 389. Linforth, In re, 128, 356, 565. Linker, In re, 682. Linkman v. Wilcox, 89. Linn v. Hamilton, 712. 756. Linn v. Smith, 153, 160. Linthicum v. Fenley, 10, 316, 388. Lipke, In re, 232. Lipman, In re, 153, 214, 413, 452, 516, 542. Lipman v. Stein, 252. Lipphart, In re, 19. Lippincott, Johnson & Co. v. Herman, 743 Lippman, In re, 229. 1726 Lipscomb v. Grace, 506. Lipset, In re, 72. Liquid Carbonic Co. v. Quick, 358. Llsberger v. Garnett, 465. Lisk Mfg. Co., In re, 145. Lissburger, In re, 645. Litchfield, In re, 123, 178, 353. Litchfield v. White, 311. Little, In re, 19, 119, 120, 249, 550, 561, 562, 564, 584, 647, 664. Little V. Alexander, 614. Little V. Holley-Brooks Hardware Co., 457, 594. Little Elk Logging Co., In re, 626. Littlefield, In re, 666. Littlefleld v. Delaware & H. Canal Co., 49, 52. Littlefield v. Gay, 9, 11. Little River Lumber Co., In re, 309, 584, 783. Littman, In re, 76. Livermorev. Bagley, 83. Livermore v. Wortman, 310. Livingston v. Bruce, 586. Livingston v. Helneman, 577. Livingston & Turk, In re, 200, 213. Livingstone v. Helneman, 44, 576, 607. Lizardi v. Cohen, 14. Lloyd, In re, 122, 123, 130, 156, 290, 476, 554. Lloyd V. Ball, 397, 398. Lloyd V. Chapman, 53. Lloyd V. Davis, 295. Lloyd V. Hoo Sue, -305. Lloyd V. Sichler, 581. Lloyd V. Strobridge, 585, 599. L. M. Alleman Hardware Co., In re, 451, 490. L. Mohr & Sons v. Mattox, 377. Locheimer v. Stewart, 756. Locke, In re, 84, 58?^ Locke V. Winning, 575. Lockett V. Hoge, 567. Lockhart v. Edge, 466. Lockman v. I^ang, 40, 51, 171. Locks, In re, 672. Lockwood, In re, 233, 497, 638, 662, 690, 703, 710. Lockwood V. Exchange Bank, 245, 248. Lockwood V. Noble, 316. Lockwood Grain Co., In re, 484. Locust Bldg. Co., In re, 397. Loden, In re, 525, 541. Loder, In re, 285, 505, 531, 533. Lodi Land & Lumber Co., In re, 26. Loeb, In re, 672. Loeffler v. Wright, 317, 658. Loeser v. Alexander, 505. Loeser v. Dallas, 215. Loeser v. Savings Deposit Bank & Trust Co., 47, 594. CASES CITED [The figures refer to sectlonsl Logan, In re, 67, 227, 387, 678, 697, 700. Logan V. Greenlaw, 185. Logan V. Nebraska Moline Plow Co., 358. Loganville Banking Co. v. Forrester, 538. Loll, In re, 362. Lomax v. Spear, 514. Lombardy Inn Co., In re, 187. Londheim v. White, 337. London v. Epstein, 456. London Guarantee & Accident Co. v. Mossness, 376. Lonergan v. Fenlon, 592. Ixjng, In re, 122, 246, 339. Long V. BuUard, 249. Long v. Farmers' State Bank, 592. Long V. Gump, 367. Long V. Hammond, 14. Long V. Lockman, 19. Longbottom v. Emery, 348, 466. Longfellow, In re, 364. Longfield v. Minnesota Sav. Bank, 727. Longis V. Creditors. 12, 684. Longley Bros. v. McCann, 19, 376. Longstreth v. Pennock, 373, 522, 633. Lontos V. Coppard, 307, 520. 526, 541. Ijoomer v. Ijoomer, 327, 347. Loomis V. Wallbloni, 750. Looney, In re, 266. Looschen Land & Bldg. Co. v. Milson, 403. Looschen Piano Case Co., In re, 67, 322, 402, 590, 597. Lorch & Co., In re, 597, 605. Lord, In re, 267, 592, 737. Lord vl Meachem, 399. Lord V. Seymour, 318. Lorde, In re, 741. Lorillard, In re, 493. Loring, In re, 542. Loring v. Kendall, 505. Lothrop V. Highland Foundry Co., 7. Lothrop V. Eeed, 495. Lott V. Salsbury, 55, 619. Lott V. Young, 176. Loud V. Pierce, 2. Louden V. King, 378. Loudon V. Blandford, 27, 373. Loudon V. First Nat. Bank, 586. Lough, In re, 130. Loughney, In re, 776. Loughran, In re, 685. Louis, In re, 5, 595. Louis J. BergdoU Motor Co., In re, 303, 526, 529, 534, 591, 606. Louis Neuburger, Inc., In re, 91, 437, 438. Louisell Lumber Co., In re, 160, 163, 375. Louisiana Nat. Life Assur. Society v. Segen, 173. Louisville Dry Goods Co. v. Lanman, 10, 188, 744. liouisville, E. & St. L. R. Go. v. Wilson, 105. CASES CITED [Tbe figures refer to sections] 1727 Louisville Nat. Banking Co., In re, 43, 679, TOT. Louisville Trust Co. v. Comingor, 3T, 168, 439, 444. Louisville Trust Co. v. Mars, 406. Louisville Woolen Mills v. Tapp, 308, 310. Louisville Woolen Mills Co. v. Johnson, 632. Louisville & N. R. Co. v. Bryant, T16, T43. Loulie Dole, The, 369. Lount, In re, 540. Love V. Export Storage Co., 56, 392, 466. Love V. Hill, 384. Love V. McGill, 74T. Loveland, In re, 243, 348, 364, 454, 4T1. Loveless v. Southern Grocer Co., 2T. Lovell V. Beauchamp, 102. Lovell V. H. Hentz & Co., .361. Lovell V. Isidore Newman & Son, 352, 361, 412. Lovell V. Latham & Co., 393, 428, 469, 608, 610. Lov.ell V. Sneed, T13. Loving, Matter of, 44, 45, 46, Loving V. Moore, 364, 623. Low V. Taylor, 454. Low V. Welch, 354. Lowe, In re, 123, 126, 448, 468. Lowe & Co. V. Leary, 3T4. Lowell V. Ashton, 599. Lowell V. International Trust Co., 354, 592. Lowensohn, In re, 3T4. Lowenstein, In re, 6T3, 685, TTT. Lowenstein v. Henry McShane Mfg. Co., 95, 153, 155, 1T2. Lowerre, In re, 541. Lown V. Casselman, T52. L. Popkin & Co., In re, 202. L. Hudnick & Co., In re, 28. L. Stein & Co., In re, 108, 109. Luber, In re, 1T6, 340, 3T0, 562. Luby, In re, 244, 254. Lucas V. Bennett, 351. Lucas V. Lucas' Assignee, 10. Lucius, In re, 249. Lucius V. Cawtlion-Coleman Co., 35. Lucius Hart Mfg. Co., In re, 522. Luck V. Staples, 4T, 5T. Luckenbill, In re, SOT. Luckhardt, In re, 106. Ludeke, In re, T52. Ludeling v. Chaff e, 419. Ludeling v. Felton, 713. Ludlow, In re, 349. Ludlow V. Pugh, 633. Ludowici Roofing Tile Co. v. Pennsylva- nia Inst, for Instruction of the Blind, 121. Ludvigh V. American Woolen Co., 356, 451. Ludvigh V. Umstadter, 352. Ludwlg V. Highley, 354. Ludwigson, In re, 469, 4T0. Luftig, In re, 666, 669, 6T8. Luken, In re, 404. Lukens, In re, 36T, 446. Lumber Co., In re, 182, 504. Lummis v. Crosby, 149, 460. Lummus, In re, 409. Lmnmus v. Fairfield, TIT. Lumpkin v. Eason, 244. Lumpkin v. Foley, 5T, 58, 462. Lund V. Bull, 743. Lundberg, In re, 678, 679. Lupton V. Stephenson, 285. Lusch, In re, 389. Lutfy, In re, 153, 205. Luttgen V. Tiffany, 327. Lutz, In re, 358. 9 Lutz V. Kalmus, 225, 712, 727. Luxton & Black Co., In re, 105. Luxury Fruit Co. v. Harris, 27, 177. L. W. Day & Co., In re, 288, 290. Lyall V. Miller, 366. Lybrand v. U. S., T88. Lyle V. Perry, 426. Lyman v. Belfast Nat. Bank, 430, 550. Lyman v. Bond, 10. Lyman v. Brown, 185. Lynan, In re, 58. Lynch, In re, 240, 253, 254, 532. Lynch v. Bronson, 410, 525, 614, 615. Lynch v. Durfee, 2T6. Lynch v. Johnson, 480. Lynch v. McKee, T28. Lynden Mercantile Co., In re, 597. Lynn v. Allen, 276. Lynn Camp Coal Co., In re, 374, 587. Lyon, In re, 358, 577, 587, 607. Lyon V. Clark, 400, 414, 465, 600. Lyon V. Johnson, 112. Lyon V. Marshall, 589. Lyon V. Moore, 326, 456. Lyon V. Russell, 8. Lyon V. WaUace, 462, 466. Lyons, In re, 100. Lyons Beet Sugar Refining Co., In re, 495, 506, '526. Lytle, In re, 660. Lytle V. Lytle, 531. Lyttle V. National Surety Co., 316, 364, 388. L. & R. Wister & Co., In re, 543. M Maaget, In re, 388, 679, 701, 702. Maas V. Kuhn, 186. Maass v. Hess, 276. 1728 CASES CITED [TIte flsares refer to sectional Mabry v. Harrison, 313. McAdam, In re, 677. MeAden v. Keen, 556. McAfee v. Arnold, 199. McAfee v. Arnold & Mathis, 160, 163, 213. McAleer v. People's Bank, 562, 599, 615. McAllister v. Bodkin, 244. McAllister v. Strode, 225. McAUister-Newgord Co., In re, 374 McAlpin V. Lee, 562. McAlplne v. Tourtelotte, 480. McArdle, In re, 484. McAtee v. Shade, 462, 586. McAuley v. Jackson, 302. MeAusland, In re, 17, 364, 380, 389, 503, 540, 565. Macauley, In re, 361. McBachron, In re, 681. McBean v. Fox, 746. McBride,^In re, 269, 630. McBride v. Gibbs, 254, 755, 756." McBride & Co., In re, 334, 412. McBrien, In re, 259, 269. McBryde, In re, 26, 199, 253, 497, bl2, ,705. McCabe v. Cooney, 715. McCabe v. Emmons, 337. McCabe v. Goodwine, 379. McCabe V. Guido, 342, 401, 454. McCabe v. Northampton Trust Co., 359. McCabfe V. Patton, 504. McCabe v. WinsMp, 544. McCall V. Herring, 752. McCallum, In re, 407, 408. McCallum & McCallum, In re, 541. McCamant v. Batsell, 491. McCance v. Taylor, 756. McCandless v. Hadden, 117. McCann, In re, 482, 673, 701, 704. McCann t. Evans, 519. McCann Bros. Ice Co., In re, 75. McCarthy, In re, 684, 692: McCarthy Portable Elevator Co., In re, 495, 526, 529, 541. McCartney, In re, 84, 363, 383. McOarty, In re, 710. McCarty v. Coffin, 47. McCarty v. Light, 320, 377, 756. McCary v. Mabe, 713. McCasland, In re, 59. McCauley, In re, 189, 407. McChristal v. Clisbee, 741. McClellan, In re, 470. McClellan v. Schmidt, 741. McClintic-Marshall Co. v. New Bedford, 661, 748, 758. McConneU, In re, 362, 563. McCord, In re, 461. McCord v. McNeil, 382. McCormiek, In re, 229. McCormick v. Page, 400. McCormlck v. Pickering, 715. McCormick v. Raymond, 185. McCormick v. Solinsky, 648. McCoy, In re, 129. McCracken, In re, 403. McCracken & McLeod, In re, 180, 783. McCrary Bros., In re, 76, 240, 255. McCrea, In re, 676, 677, 680. McCrory v. Donald, 198, 466. McCrum, In re, 182, 439. Maccubbin v. Cromwell, 293, 312. McCue V. Tunstead, 106. McCullam v. Buckingham Hotel Co., 149. McCuUoch v. Davenport Sav. Bank, 76, 400, 539, 609. McCuUough V. Caldvyell, 752. McCuUough V. Goodhart, 9, McCurry v. Sledge, 253. McCutchen, In re, 241, 253. McCutchen v. Townley, 702. McDaniel v. Stroud, 50. McDavid Lumber Co., In re, 617. McDermott v. Tolt Land Co., 632, MacDonald, In re, 356, 367, 688. Mficdonald v. JEtna Indemnity Co., 581. McDonald v. Brown, 741. McDonald v. Clearwater ShortUne R. Co., 584, 595. McDonald v. Daskam, 592. McDonald v. Davis, 756. McDonald v. H. E. Taylor & Co., 658, 752. McDonald v. McMahon, 329. McDonald v. Moore, 10, 437, 444. McDonald v. Salem Flour Mills Co., 19. McDonald v. State, 714, 740. MacDonald v. Tefft-Weller Co., 100, 491. McDonald & Sons, In re, 578, 599. McDonnell, In re, 334, 348. McDonough, In re, 379. McDonough v. Cohen, 614. McDougald v. Chattanooga Medicine Co., 713. McDougald V. Eeid, 186. MacDougall, In re, 364, 365, 387, 409. McDougall V. Page, 14, 761. McDowell, In re, 649. McDuff, In re, 690, 704. McDufCee, In re, 279. Mace V. Wells, 748. McEldowney v. Card, 407, 412. McElvain v. Hardesty, 358, 382, 410, 595, 614, 616. McElwain-Barton Shoe Co. v. Bassett, 356. McEwen, In re, 124, 130. McEwen v. Kelly, 342. McBwen v. Totten, 352, McFadden, In re, 294. McFaden, In re, 294. CASES CITED [TIic figures refer to sections] 1729 McFadgen, In re, 633. McFarlan Carriage Co. v. Solanas, 396, 408, 409. Mc-Farlan Carriage Co. v. Wells, 26, 358. McFarland, In re, 116. McFarland v. Goodman, 246, 467. McFarland Carriage Co. v. Solanes, 387; McFaun, In re, 120, 183, 750. McFerren v. Deardorff, 480. McGagee v. CruickshaBk, 27. McGahan v. Anderson, 58, ,244, 250, 251, 253. McGahee v. Cruickslffink, 27. McGarry & Son, In re, 630. McGee, In re, 85. McGehee, In re, 356. McGill, In re, 286, 288. McGill V. Commercial Credit Co., 454, 466, 580, 583, 595, 599, 614. McGilton, In re, 470, 481, 568. McGinley, In re, 204, 352. McGirr v. Humphreay Grocery Co., 599. McGlynn, In re, 277, 291. McGowan, In re, 240. McGowan v. Bowman, 186. McGowan v. Knittel, 173, 174. McGowin Lumber Co., In re, 620. McGrath, In re, 522. McGraw, In re, 83, 88, -92, 160) 163. McGready v. Harris, 567. > McGregor v. Balch, 61. McGuire, In re, 237, 575. McGurn, In re, 670, 692, 699, 701. McHarg v. Staake, 365. McHarry, In re, 327. McHenry v. Davies, 100. MacHenry v. Dwelling "Bldg. & Loan Ass'n, 451, 580. McHenry v. Soci6t6 Frangaise, 561, 565. Machin, In re, 292. Machine Metals Producers Co., In re, 518. Mclntire, In re, 73, 128, 687. Mclntire v. Jennings, 4.57. Mcintosh, In re, 465, 541, 556, 575. Mclntyre v. Kavanaugh, 741, 745. Mclntyre v. Malone, 186, 414. Mclntyre & Co., In re, 857, 505, 506, 526, 540. Mackall v. Pocock, 149. McKane, In re, 208, 377, 390, 670, 704. McKay, In re, 347, 684. McKay v. Funk, 390, 569. McKay v. Garman, 342. McKay v. HamiU, 470, 484, 555. Mackay v. Eandolph Macon Coal Co., 527. McKay v. Sperry Flour Co., 588. McKay v. Weager, 324, 544, 592. McKee, In re, 7, 10, 11, 177, 707. McKee v. Preble, 727, 757. Mackel v. Bartlett, 173, 598. Blk.Bke.(3d Ed.)— 109 Mackel v., Rochester, 189, 271, 743. Maekellar, In re, 288, 292. McKenna, In re, 228, .309, 328, 345, 778. McKenna v. Handle, 23, 214. McKenna v. Simpson, 414. McKenney v. Cheney, 245, 247, 251, 363, 378. McKenzie, In re, 3, 46, 256, 680. Mackenzie v. Miller, 718. McKenzie v. Thomas, 426. McKeon, In re, 655. BIcKewher, In re, 255. Mackey, In re, 19, 106, 169. McKey v. Bruns, 489; 491. ; McKey v. Clark, 356. McKey v. Cochran, 465, 466. McKey v. Emanuel, 392. McKey v. Lee, 613. McKey V. Smith, 428, 430, 450. McKlbben, In re, 82, 163, 232, 532. McKlbbon, Driscoll & Dorsey v. Haskell, 682. MJcKleman v. Fletcher, 480. McKinley v. Morgan, 253. McKinley v. O'Keson, 759, McKinney, In re, 348, 516. McKinnon Co., In re, 27, 95, 155. McKinsey v. Harding, 497, 538, 561, 564. MacKissic, In re, 76, 248, 251. McKlttrlck V. Gaboon, 722. Mack Mfg. Co. v. Van Duerson, 713. McKnight v. Shadbolt, 581. McLam, In re, 304, 614. McLanahan v. Blackwell, 392. McLaren, In re, 108. McLaughlin v. Upton, 416. JIcLean, Ip. re, 130. McLean v. Brown, 79. McLean v. Klein, 373. McLean v. Lafayette Bank, 2, 364, 379, 564,, 569, 572, 578. McLean r. Meline, 91. McLean v. Hockey, 185, 199, 569. McLeish v. Tylee, 316. McLellan, In re, 651, 654, 666, 679. McLendon v. Turner, 236. > McLeod V. Lincoln Medical College, 141, 142. McLeod's Trustee v. McLeod, 414, 711. McLoon, In re, 82. McLoughlin v. KnoJ), 389, 390. McMahon, In re, 47, 408. McMahon v. Pithan, 448. McMaster v. Campbell, 325, 446, 448, 658. McMenomy v. Murray, 14. McMillan v. McNeill, 14. McMinn v. Allen, 740. McMuUin v. Bank of Penn Tp., 491. McMurtrey & Smith, In re, 20, 114. McNaboe v. Columbia Mfg. Co., 583. McNaboe v. Marks, 236, 347. 1730 CASES CITED .[Tbe fl^nres refer to sections] McNab & H. Mfg. Co., In re, 648. McNair, In re, 77, 273. McNair v. Gilbert, 758. McNair v. Mclntyre, 455, 484, 597. :\IcNaUy Co., In re, 132. McNamara, In re, 283. McNamara t. Farnsworth, 466, 584. McNaught, In re, 231. McNaughton, In re, 162. McNeel v. Folk, 182, 611. McNeil V. Knott, 505, 715. McNeil V. McCormaek, 231. • McNeil Corporation, In re, 287, 779. MacNichol Const. Co., In re, 136. McNiel V. United States, 794, 795. McNulty V. Feingold, 202, 410. McNulty V. Wiesen, 428. McNutt V. King, 121, 197. Macon Grocery Co. v. Beach, 176. McPeek, In re, 360. McPhee v. U. S., 721. McUlta, In re, 246, 360. McVay, In re, 544, 557. McVey, In re, 688. McVoy Hardware Co., In re, 43. McWilliams v. Thomas, 462. Macy V. Koedenback, 617. Madden, In re, 50, 192. Madero Bros., In re, 269. Madlgan, In re, 234, 413, 741. Madison Tp. v. Dunkle, 739, 746. Matfi V. Stephens, 453, 468. Alagee, In re, 183. Magee v. Fox, 589. Magen, In re, 78, 274, 699, 704. Magen v. Campbell, 274. Magen Bros. Co., In re, 692, 694. Magid-Hope Silk Mfg. Co., In re, 132, 166. Magier, In re, 19. Magoon v. Warfield, 718. Magota, In re, 246. Magruder v. Hattiesburg Trust & Bank- ing Co., 423. Magwire v. Riggin, 513. Maher, In re, 376, 453, 597, 670, 705. Mahland, In re, 367. Mahoney, In re, 295. Mahoney v. Ward, 25, 120, 159, 704. Maier, In re, 685. Maier v. Maier, 757. Maiman, In re, 540. >Iain, In re, 679, 692, 695, 701. Main v. Bromlfey, 398. Main v. Glen, 411, 452. Main v. Mills, 149. Maisner v. Maisner, 189, 509. Major, In re, 388, 471. Majors, In re, 246, 348. Makins v. Crocker, 430. Malcom, In re, 159. Mali no, In re, 288. Malkaen, In re, 526. Malkan, In re, 182, 183. Mall V. Ulrich, 708. Mallin v. Wenham, 752. Mallory, In re, 4, 7, 29, 191, 206, 290, 296, 608. Mallory Mfg. Co. v. Fox, 281. Mallouk V. American Exchange Nat. Bank, 651, 657. Malloy, In re, 244. Malone v. Cohn, 348. Malone's Estate, In re, 384. Malschick, In re, 688, 700. Malschick & Levin, In re, 76. Maltbie v. Hotchkiss, 10, 11, 434. Maltbie v. Olds, 364. Malvin v. U. S., 787. Mammoth Pine Lumber Co., In re, 169, 635, 771, 778, 779, 780. Manahan, In re, 202. Mandel, In re, 264, 585, 614. Mandel v. Koerner, 550. Mandell v. Levy, 658, 761, 763. Mangan, In re, 285, 292. Manhattan Brush Mfg. Co., In re, 506. Manhattan Ice Co., In re, 156. Manhattan Trust Co. v. Sioux City R. Co., 138. Manheim v. Loewe, 505, 716. Manistee Watch Co., In re, 631. Mankins v. Forward Movement Syndi- cate, 306, 316. Manly, In re, 367. Mann, In re, 160. Mann v. Flower, 446. Manneschmidt, In re, 544. Manning, In rfe, 240, 244, 253, 254, 439, 586. Manning v. Drake, 318. Manning v. Evans, 453, 593. Mansfield, In re, 488, 782. Mansfield v. Andrews, 14. Manson v. Mesirov, 57. Manson v. Williams, 57, 111, 182. Mantz y. Capital City State Bank, 598, 614. Manuel J. Portuondo Co., In re, 371. Manufacturers' Box & Lumber Co., In re, 403, 488. Manufacturers' Nat. Bank, In re, 137. Manwarrlng v. Kouns, 199, 713. Mapes V. German Bank of Tilden, 492, 518. Maplecroft Mills, In re, 27, 95, 160, 176. Maplecroft Mills v. Childs, 95. Maples, In re, 97, 742. Maples V. Burnside, 715. Marble v. Fulton, 232, Marble v. Grant, 689. Marble Products Co., In re, 444. Marceline State Bank v. Smith, 376. CASES CITED [Tlie ffl^nres refer to sectlousl 1731 Marcer, In re, 154. March v. Heaton, 200. _ Marcus, In' re, 233, 273, 678, 684. " Marcus Shipping Ass'n v.' Barnes, 544. Marden v. Phillips, 367. Marden v. Sugden, 615. Mardenfeld, In re, 281; Marengo County Mercantile Co., In re, 367. Marglasso, Ex parte, 234. Margolies, In re, 48, 285, 291, 292, 711. Margolls, In re, 702. Marine Construction & Dry Dock Co., In re, 136, 367. Marine Iron Works, In re, 173. Marine Machine & Conveyor Co., In re, 19, 132, 145. Marine Nat. Bank v. Swigart, 42, 55, 82, 176, 244, 351. Marine Sav. Bank v. Norton, 182, 396. Marion Contract & Construction Co., In re, 16, 160, 163, 170. Marion State Bank v. Gossett, 611. Markel, In re, 404. Markham v. Waterman, 327. Marks, In re, 73; 120, 203, 231. Marks v. Barker, 506, 545, 546. Marks v. Marks, 19. Marks Bros., In re, 180. Marks & Co., In re, 358, 360. Markson v. First Nat. Bank, 344. Markson v. Haney, 17, 569. Markson v. Heaney, 13, 18, 24, 29, 187, 418, 566, 569. Markson v. Hobson, 600. Mamet Oil & Gas Co. v. Staley, 121. Marquette, In re, 244. Marquette, Jr., Inc., In re, 228, 402. Marr v. Bank of West Tennessee, 510. Marrett v. Atterbury, 490. Marrett v. Murphy, 125. Marriner, In re, 454. Marrionneaux's Case, 709. Marsh, In re, 431, 672, 674, 680, 684, 691, 692, 697, 700. Marsh v." Armstrong, 203. Marsh v. Leseman, 586, 594. Marsh v. Mandeville, 713. Marsh v. Putnam, 14. Marsh v. Walters, 578. Marsh v. Wilson Bros., 592. Marshall v. English-American Loan & Trust Co., 727. Marshall v. Knox, 22, 28, 520. Marshall v. Nevins, 614. Marshall v. Sumner, 712. Marshall t. Tracy, 766. Marshall Field & Co. v. Wolf & Bro. Dry Goods Co., 50. Marshall Paper Co., In re, 150, 189, 628, 666, 703, 710, 751. Marston, In re, 135, 694. Marter, In re, 466. Martin, In re, 46, 49, 58, 66, 119, 173, 188, 242, 247, 318, 468, 500, 575, 636, 655, 685. Martin v. Bankers' Trust Co., 361, 390. Martin v. Berry, 5, 7, 8, 11, 12. Martin v. Bigelow, 173, 611. Martin v. Commercial Nat. Bank, 316, 454, 594, 636. Martin v. I\illings, 418. Martift v. Hausman, 10. Martin v. Hulen, 84. Martin v. Hurlburt, 239. Martin v. Lile, 244, 376. Martin v. Maxwell, 327. Martin v. Oliver, 23, 185, 379, 403. Martin v. Orgain, 373. Martin v. Smith, 324, 465. Martin v. Starrett, 729. Martin v. Toof, 85, 612. Martin Borgeson Co., In re, 216. Martin Furniture Co. v. Massey, 661, 748. Martin- Vernon Music Co., In re, 356, 358. Martinez, In re, 592. Marvin, In re, 101. Marvin v. Chambers, 584. Marwick',' In re, 123. Marx, In re, 668, 678. Marx V. Hart, 753. Marx Tailoring Co., In re, 356. Maryman v. Dreyfus, 16. Maryman v.' S. 6. Dreyfus Co., 524. Mason, In re, 130, 152, 667, 768. Mason v. Hughart, 765. Mason v. National Herkimer County Bank, 547, 575, 58a Mason v. Perkins, 361, 741. Mason v. St. Albans Furniture Co., 540., Mason V. Sault, 741, 745. Mason v. Warthens, 89, 579. Mason v. Whitthorne, 310. Mason v. Wolkowich, 23, 47, 481, 482. Mason-Seaman Transp. Co., In re, 160, 177. Mason & Hamlin Organ Co. v. Bancroft, 661. Mass V. Kuhn, 388. Massachusetts Bonding & Ins. Co. v. Kemper, 49, 58, 200, 454. Massachusetts Brick Co., In re, 155. Massillon Bridge Co. v. Cambria Iron Co., 138. Masterson, In re, 571. Mather v. Coe, 86, 95, 15£l, 161, 171. Mathers, In re, 653. j Mathews v. Hardt* 451, 461, 585. Mathews v. Knickerbocbier Trust Co., 391. Mathews v. Riggs, 576, 601. Mathews v. Stewart, 435. 1732 CASES CITED [Tbe flgmres refer to Bectlonsl Mathews Consol. State Co., In re, 132, 139. MatMeu V. Goldberg. 736. Matot, In re, 113, 115, 157. Matschke, In re, 340, 348. Matson, In re, 106. Matteson v. Dewar, 727. Matteson v. Kellogg, 732. Matthewman, In re, 100. Matthews, In re, 66, 68, 391, 679, 769, 775, 782. Matthews v. Joannes Bros. Co., 614. Matthews v. Murchison, 296. Matthews v. Westphal, 578, 594. Matthews' Sons, In re, 354. Matthews & Sons, In re, 377. Matthews & Sons v. Joseph Webre Co., 388, 390. Mattingly v. Northwestern Virginia E. R., 51. Mattingly v. Stone, 335. Mattley v. Giesler, 367, 594. Mattley v. Wolfe, 367, 430. Mattocks V. Baker, 364. Mattocks V. Farrington, 388, 564. Mattocks V. Loverlng, 547. Mattocks V. Rogers, 578. Mattone v. Illinois Surety Co., 747. Mattox V. Cady, 547. Mauer, In re, 162. Mauran v. Crown Carpet Lining Co., 7, 27, 415. Maurer v. JFrantz, 592. Mauzy, In re, 708. Mawson, In re, 692, 704, 705. Maxson, In re, 247. Maxwell v. Akin, 141. Maxwell t. Davis Trust Co., 401, 414, 597. Maxwell v. Evans, 735, 736. Maxwell v. McDaniels, 489, 541. Maxwell v. Martin, 525, 744. May, In re, 124, 130. May V. Breed, 14. May V. Courtnay, 188, 376. May V. Le Claire, 173, 578, 598. May V. Merchants' & Mechanics' Bank, 3. May V. New Orleans & C. R. Co., 13, 316. Maybin, In re, 497, 516, 541, 731. Maybin v. Raymond, 314, 317, 394, 419, 420. Mayer, In re, 67, 76, 227, 229, 230, 244, 246, 263, 391, 402, 431, 627, 652, 693, 704, 782. Mayer v. Gimbel, 715. Mayer v. Gourden, 237. Mayer v. Hellman, 10, 435. ' Mayer v. Hermann, 174, 379, 601. Mayer v. Perkins, 451. Mayer Boot & Shoe Co. v. Ferguson, 249, 753. Mayes v. Palmer, 575, 596, 597, 603, 614. Mayhew v. Pentecost, 197. Mayhew v. Todisman, 427, 454. Maynard & Co., In re, 249, 252. Mayo, In re, 201, 209. Mayo Contracting Co., In re, 575, 579, 599, 607. Mays, In re, 444. Mays V. Manufacturers' Nat. Bank, 218, 236, 340. Maytag-Mason Motor Co., In re, 658. M. C. Kiser Co. v. Georgia Cotton Oil Co., 291. M. C. Kiser Co. v. Gerald, 744. Meacham v. Steames, 477. Mechanics' & Metals Nat. Bank v. Krnst, 613. Mechanics' & Traders' Ins. Co. v. McVay, 266, 376, 382. Mead, Ex parte, 51. Mead, In re, 463, 471, 542, 783. Mead v. National Bank of Fayettevlllei, 129. Mead v. Piatt, 51. Meade, In re, 183. Meador v. Everett, 368. Meadows, In re, 780. Meadows, Williams & Co., In re, 282, 357. Mealy, In re, 273. Means v. Dowd, 437. Means v. Montgomery, 573. Mears v. Shaw, 427. Mebane, In re, 470, 484. Mechanics' American Nat. Bank v. Cole- man, 783. Medbury v. Swan, 713. Meddaugh v. Wilson, 773. Medina Quarry Co., In re, 58, 451, 467, 488, 490, 541, 561, 783. M. B. Dunn & Co., In re, 354, 362. Meech v. Damon, 761. Meek v. Eggerman, 415. Meekins v. Creditors, 7, 12. Meeks v. Whatley, 471, 472, 621. Meggett, In re, 233. Meier, In re, 303. Meier & Franli Co. v. Sabin, 358. Meikleham, In re, 665, 675, 703. Meinhard & Bro. v. Pincus, 248. Meirkord v. Helming, 377. Melick V. Voorhees, 476. Mellen, In re, 265, 703. Mellor, In re, 206, 631. Melvin, In re, 125. Memphis & C. R. Co. v. Alabama, 132. Mencke v. Rosenberg, 363, 380. Mendell, Ex parte, 584. Mendelsohn, In re, 91, 93, 170, 681. Mendenhall, In re, 111, 177, 259. CASES CITED [Tlie fl^nrea refer to sectlonul 1733 Menefee v. Phelan, 518. Menke v. Sunderman, 110, 118. Monzin, In re, 665, 744. Mercedes Import Co., In re, 389. Mercer, In re, 631. Mercer v. Warfield's Guardian, 459. Mercer's Trustee v. Mercer, 45S. Merchants' Bank v. Thomas, 455, 504. Merchants' Bank of Brooklyn v. Miller, 225, 716. Merchants' Bank of Mobile v. Zadek, 658. Merchants' Ins. Co., In re, 7, 8, 27, 80, 86, 133, 138, 277, 278, 313. Merchants' Nat. Bank v. Cole, 82. Merchants' Nat. Bank v. Comstock, 507, 562. Merchants' Nat. Bank v. Continental Bldg. & Loan Ass'n, 277, 288. Merchants' Nat. Bank v. Cook, 600. Merchants' Nat. Bank v. Corr, 592. Merchants' l^at. Bank v. Sexton, 384. Merchants' Nat. Bank v. Traux, 379. Merchants' & Farmers' State Bank v. Sheridan, 561. Merchants' & Manufacturers' Nat. Bank V. Galbraith, 488. Mercur, In re, 120, 121, 153, 163. Meredith, In re, 525, 558. Merell, In re, 494. Mergenthaler Linotype Co. v. Hull, 358. Meriwetner, In re, 240, 255. Merkle, In re, 172. Mero, In re, 86, 160, 372. Merriam v. Sewall, 162. Merrick, In re, 340, 395, 525, 531, 533. Merrick v. Pattison, 464. Merrick's Estate, In re, 14, 395. Merrifield, In re, 522. Merrill, In re. 111, 494, 540. Merrill v. Hussey, 324, 457. Merrill v. Jordan, 390. Merrill v. Schwartz, 513, 726. Merrill & Baker, In re, 368, 505. Merriman, In re, 618, 758. Merritt, In re, 135. Merritt v. Glidden, 193. Merritt v. Halliday, 414. Merritt Const. Co., In re, 48, 285, 291. Merrow, In re, 884. Merry, In re, 252. Merry v. Jones, 8. Mersfelder v. Peters Cartridge Co., 340. Mertens, In re, 44, 47, 205, 348, 360, 391, 396, 408, 412, 490, 557, 559, 566, 567, 569. Mertens & Co., In re, 534. Mervin v. Sherman, 554. Merwin & Willoughby Co., In re, 521, 542. ileservey v. Roby, 451, 453, 461. Meslrov v. Innis Speiden & Co., 320. Mesker v. Koch, 621. Messenglll, In re, 649. Metallic Specialty Mfg. Co., In re, 485, 775, 78d. Metals Extraction & Refining Co., In re. 208, 307. Metcalf, In re, 193. Jletcalf V. Barker, 377, 380, 389. Metcalf V. Officer, 112, 587. Metropolitan Dairy Co., In re, 585. Metropolitan Jewelry Co., In re, 626. Metropolitan Motor Oar Co., In re, 211, 777. Metropolitan Nat. Bank v. Rogers, 458. Metsker v. Bonebrake, 119. Metz, In re, 522. Metz T. Buffalo, C. & P. R. Co., 147. Metzger, In re, 446, 608. Metzger Toy & Novelty Co., In re, 579. Metzler, In re, 191, 473. Meurer, In re, 695. Mexico Hardware Co., In re, 542, 543. Meyer, In re, 50, 91, 92, 93, 110, 113, 122, 315, 373, 442, 526, 550, 577, 607, 634. Meyer v. Aurora Ins. Co., 150. Meyer v. Bartels, 718, 762, 763. Meyer v. Perkins, 247, 428. Meyer v. U. S., 794, 795. Meyer Bros. Drug Co." v. Pipkin Drug Co., 52, 594. Meyer's Estate, In re, 328. Meyers, In re, 8, 86, 89, 100, 110, 120, 131, 159, 451, 525, 562, 663, 686,-701, 707, 709. Meyers v. Josephson, 320, 348. M. F. Rourke Co., In re, 779. Michaelis & Lindeman, In re, 202, 403, 546, 550. Michaels, In re, 274. Michaels v. Post, 13, 155, 182. Michel, In re, 310, 782. Michelin Tire Co. v. Hearn, 736. Miehener v. Payson, 148. Michie, In re, 412. Michigan Furniture Co., In re, 367. Midland Motor Co., In re, 353, 360. Midtown Contracting Co., In re, 402, 403, 409. Mid- Valley Coal Co., In re, 402. Miers, In re, 773. Mifflin, Ex parte, 233. Migel, In re, 234. M. I. Kibbler Mach. Supply Co., In re, 562, 621. Miley v. Heaney, 446. Milgraum, In re, 49. Milgraum & Ost, In re, 692, 694, 695. , Milhous V. Alcardi, 712, 713.. Milkman v. Arthe, 407, 451, 587. 1734 CASES CITED [Tlie figures refer to sections] Millan v. Exchange Bank, 163, 165. Millard v. Cireen, 342, 421. Millbourne Mills Co., In re, 318. Miller, Ex parte, 129. f Miller, In re, 26, 51, 67, 155, 163, 174, 177, 202, 240, 244, 308, 390, 398, 482, 486, 492, 495, 519, 543, 565, 587, 642, 666, 670, 672, 679, 696, 701, 777. Miller v. Barto, 287, 317, 378. Miller v. Bowles, 876, 878. Miller v. Delaware, L. & W. R. Co., 393. Miller v. Gillespie, 740. Miller v. Guasti, 727. Miller v. Jackson, 9. Miller v. Jones, 366, 367. Miller v. Mackenzie, 660. Miller v. New Orleans Acid & Fertilizer Co., 198. Miller v. O'Brien, 191, 382. Miller v. Parker, 342. Miller v. Scott, 783. Miller v. Shriver, 594. Miller v. Smith, 186. Miller V. Warden, 199. Miller Bros. Grocery Co., In re, 521. Miller Electrical Maintenance Co., In re, 148. Miller Pure Eye Distilling Co., In re, 361, 407. Miller Rubber Co. v. Citizens' Trust & Sav. Bank, 356. Miller & Brown, In re, 359. Millikin v. Second Nat. Bank, 367, 454. Mills, Ex parte, 503. Mills, In re, 16, 117, 120, 123, 130, 275, 303, 529, 637. ilills V. Davis, 28, 191. Mills V. Fisher, 110. Mills V. Friedman, 148. Mills V. Husson, 347. Mills V. J. H. Fisher & Co., 49, 113, 121. Mills V. I-ewis, 605. Mills V. Virginia-Carolina Lumber Co., 584, 773. Mills Co., In re, 582, 587, 592, 595, 599. Mills Tea & Butter Co., In re, 75, 300, 777, 779. Milne v. Moreton, 14. Milne, TurnbuU & Co., In re, 288. Milwaukee R. Co., Ex parte, 294. Mimms & Parham, In re, 403. Mlms V. Lockett, 4. Mims V. Swartz, 13, 486. Mina, In re, 358. Minard, In re, 82. Mineau, In re, 234. Miner, In re, 74, 76, 156, 501, 508, 675, 676, 702. Miners' Brewing Co., In re, 471, 484, 541. Miners' & Merchants' Bank v. Union Loan & Trust Co., 393. Mingo Valley Creamery Ass'n, 164. Minners, In re, 315. Minnesota & A. Const. Co., In re, 135. Minnesota & Ontario Power Co. v. Losey, 611, 616. Minon v. Van Nostrand, 235. Minor, In re, 102. Minot V. Philadelphia, W. & B. E. Co., 132. Minot V. Thacher, 516. Minott V. Johnson, 430, 446. Mintzer, In re, 680, 692. Mishawaka Woolen Mfg. Co. v. Powell, 26, 414. Mishawaka Woolen Mfg. Co. v. Smith, 858. Mishawaka Woolen Mfg. Co. v. Teasdale, 454. Mishawaka Woolen Mfg. Co. v. West- veer, 858. Mission Fixture & Mantel Co., In re, 594. ' Missouri-American Electric Co. v. Ham- ilton-Brown Shoe Co., 54. Mitchell, Ex parte, 289. Mitchell, In re, 108, 119, 159, 229, 308, 309, 384, 873, 623, 705, 775. Mitchell V. Great Works Mill. & Mfg. Co., 2. Mitchell V. Leland, 752. Mitchell V. McClure, 403, 409, 410. Mitchell V. McKibin, 317. MitcheU v. Mitchell, 252, 367, 412, 449. Mitcliell v. Roberts, 557. * Mitchell V. Winslow, 367. Mitchell Motor & Service Co., In re, 367. Mitchell Storebuilding Co. v. Carroll, 187, 878. Mitchell & Co., In re, 176, 183. Mitteldorfer, In re, 528, 773. Mize, In re, 231. M. Kahn & Bro. v. Bledsoe, 575, 577. M. L. B. Sturkey Co., In re, 358, 454. Moark-Nemo Consol. Mining Co., In ro, 86. Mobile Chair Mfg. Co., In re, 503, 504. Moch V. Market St. Nat. Bank, 499, 505. Mock, In re, 619. Mock V. Howell, 730. Model Incubator Co., In re, 57. Moebius, In re, 541. Moehs & Eechnitzer, In re, 172, 208. Moench & Sons Co., In re, 27, 133, 145, 155, 170. Moerschel v. O'Bannon, 498. Mohr V. Minnesota Elevator Co., 136, 149. Mohr & Sons v. Mattox, 377. Moise V. Scheibel, 488, 638. Moller, In re, 565, 567, 568, 622. MoUison V. Eaton, 28. CASES CITED [The fisnres refer to gectlonsl 1735 MoUner, In re, 727. Monarch Acetylene Co., In re, 47, 377. Monarch Corporation, In re, 148. Monarch Discount Co. v. Chesapeake & O. R. Co., 752. - Monarch Oil Corp., In re, 19. Monk V. Horn, Wi. Monongahela Bank v. Overholt, 344. Monongahela Distillery Co., In re, 75, 356. Monroe, In re, 709, 727. Monroe v. Bushnell, 392. Monroe Lumber Co., In re, 380. Monroe & Co., In re, 255. Montague, In re, 594. Montague v. Silsbee, 332. Montague & Gillet, In re, 495. Montello Brick Co. v. Trexler, 318. Montello Brick Works, In re, 518. Montgomery, In re, 122, 494, 539, 540, 541, 542, 543, 592, 606. Montgomery v. Bucyrus Machine Works, 360. Montgomery v. McNicholas, 461. Montgomery v. Philadelphia, 368. Montgomery's Appeal, 138. Moody, In re, 202, 462, 464. Moody V. Chicago Title & Trust Co., 553, 576, 580. Moody V. Cole, 229. Moody V. Muscogee Mfg. Co., 743. Moody V. Port, Clyde Development Co., 8, 145. Moody-Hormann-Boelhauwe v. Clinton Wire Cloth Co., 56, 95, 160. Moody & Son v. Century Sav. Bank, 41. Mooney, In re, 57. Moore, In re, 22, 47, 119, 243, 248, 250, 361, 384, 515, 538, 540, 668, 702. Moore v. Crandall, 540, 543. Moore v. Gushing, 10. Moore v. Douglas, 497, 500. Moore v. First Nat. BanK, 480. Moore V. Green, 45, 187, 364, 372, 461, 512. Moore v. Heaney, 105. Moore v. Horton, 14, 723. Moore v. John H. Smith & Sons, 579. Moore v. Jones, 197, 340, 344. Moore v. Simms, 526. Moore v. Stanwood, 661. Moore v. Third Nat. Banu, 546. Moore V. Trounstine, 760, 761. Moore v. Viele, 766. Moore t. Walton, 112. Moore v. Young, 365. Moore Bros. v. C/Owan, i!09, 210. Moore Dry Goods Co. v. Brooks, 55. Moore Dry Goods Co. v. Ford, 750. Moore-Schafer Shoe Mfg. Co. v. Billings, 394, 468. Moore & Co. v. Gilmore, 451. Moore & Co. v. Murchison, 149. Moore & Muir Co., In re, 135. Moorehead v. Seymour, 143. Moorman v. Arthur, 475. Moors V. Albro, 325. Moose River Lumber Co., In re, 316, 404. Morales, In re, 153. Moran, In re, 248, 252. Moran v. Bogert, 552. Moran v. King, 252. Moran v. Morgan, 466. Moran v. Schnugg, 471. Moran & Wilkinson v. Martin, 323. Mordaunt v. Monroe, 761. Moreau Lumber Co. v. Johnson, 374. Morehouse v. Giant Powder Co., 29, 133. Morehouse v. Pacific Hardware & Steel Co., 47. Morel V. Garelly, 14. Morency v. Landry, 167, 716, 723, 727. Morey Mercantile Co. v. Schifler, 591, 607, 613. Morford, In re, 226. Morgan, In re, 84, 527, 672, 679, 680, 682, 683, 684, 691. Morgan v. Benedum, 49. Morgan v. Bowman, 626. Morgan v. Campbell, 373, 380. Morgan v. Chicago & N. W. B. Co., 404. Morgan v. First Nat. Bank, 47, 461, 575, 594. Morgan v. Marquis, 121. Morgan v. Mastick, 85. Morgan v. Wordell, 549. Morgan Bros. v. Dayton Coal & Iron Co., 26. Morgan & Williams, In re, 114, 176. Morganstein v. Commercial Nat. Bank, 245, 752. Morgantown Tin Plate Co., In re, 495. Morgenthal, In re, 226. Moritz, In re, 97. Morley v. Thayer, 146. Morning Tel. Pub. Co. v. S. B. Hutchin- son Co., 10. Morrill, In re, 365, 451, 506. Morris, Ex parte, 562, 653. Morris, In re, 71, 140, 246, 292, 516, 531, 589, 625, 633, 654, 705, 770. Morris v. Brush, 44, 49. Morris v. Covey, 245, 249, 390, 731. Morris, Crabbe, In re, 218. Morris v. Creed, 712. Morris v. Davidson, 567. Morris v. Dodd, 348. Morris v. First Nat. Bank, 317. ' MoiTis V. Perkins, 756. Morris v. Small, 612. Morris v. Windsor Trust Co., 544. Morris & Rice, In re, 444, 652. 1736 CASES CITED [The flsnres refer to sections] Morrison, In re, 57, 131, 244, 554, 686. Morrison v. Savage, 729. Morrison v. Rieman, 53, 82, 153, 163, 179. Morrison v. Vaughan, 728. Morrison v. Woolson, 712, 715. Morrow, Ex parte, 373. Morrow, In re, 675. Morrow v. Pfleiderer, 744, 756. Morrow v. Zane, 244. Morrow & Co., In re, 587, 613. Morse, In re, 120, 122, 153, 162, 163, 243, 296, 389, 505, 506, 685. Morse V. Godfrey, 13, 182, 593. Morse v. Hovey, 2. Morse v. HutcMns, 339, 744. Morse V. Kaufman, 743. Morse v. Lowell, 739, 746. Morse v. Presby, 715. Morse Iron Works & Dry Dock Co., In re, 780. Morss V. Franklin Coal Co., 179. Morton, In re, 290, 604. Morton v. Jones, 253. Morton Boarding Stables, In re, 135. Mosby V. .Steele, 236. Moseley v. Coldwell, 759. Moses, In re, 22, 205, 322, 352^ Moses V. Pond, 117. Moses v.. St. Paul, 417. Mosher, In re, 454, 459, 461, 466. Mosier, In re, 127, 255, 345. MosselBian v. Caen, 14, 395. Mossier Co., In re, 58, 375, 379, 584. Moss Nat. Bank v. Arend, 113. Jldotridge, In re, 779. Mott, In re, 222, 303, 469, 479, 485, 531. Mott V. Maris, 630. Mott Ironworks v. Tourney, 732. Moulthrop, Petition of, 273. Moulton V. Coburn, 155, 156, 158. Moulton V. Perkins, 545. Mound Mines Co. v. Hawthorne, 47, 353. Mount V. Manhattan Co., 4, 182, 198, 715. Mt. Winans Lumber Co., In re, 633. Mower v. McCarthy, 367, 594. Mowry v. Reed, 430, 465. Moyer, In re, 89, 90, 246, 562, 592, 606. Moyer v. Dewey, 448. M. S. Fersko, Inc., In re, 144. M. Stipp Const. Co., In re, 303. Mudd, In re, 692, 696, 704. Mudge V. Wllmot, 659. Mueller. In re, 41, 44, 46, 205. Mueller V. Bruss, 414, 449, 450. Mueller v. Goerlitz, 727. Mueller v. Nugent, 67, 78, 167, 205, 308, 402. ' Muhlhauser, In re, 484, 485. Muir, In re, 82, 95, 176. Muirhead v. Aldridge, 349. Muldauer, In re, 542. Muldaur, In re, 309. Mulford V. Fourth St. Nat. Bank, 48, 299. Mulhagen v. Carter, 756. Mullen, In re, 242, 446, 464. MuUer, In re, 4, 153, 160, 202, 204, 205. MuUer v. Norton, 477. Mulligan, In re, 354, 387. MuUings Clothing Co., In re, 17, 27, 76, 499, 519, 521, 523, 633. Mullinix v. Simon, 250. Mulock V. Byrnes, 743. Mulroney Mfg. Co. v. Weeks, 360, 582. Muncie Pulp Co., In re, 18, 213, 214, 371. Mundle, In re, 213. Munford, In re, 3, 351, 472, 783. Munger Vehicle Tire Co., In re^ 19, 132, 133, 148. Munn, In re, 82. Munro, In re, 387, 389, 741. Munroe v. Dewey, 347. Munroe v. Guilleaume, 14. Munson v. Boston, H. & B. R. Co, 185. Munson v. Harroun, 203. Munsuri v. Fricker, 35. Murdock, In re, 529, 665. Murphey v. Brown, 388. Murphey v. Smith, 249. Murphy, In re, 54, 88, 101, 154, 180, 413, 414. Murphy v. Blumenreich, 727. Murphy V. Crawford, 758, 761, 766. Murphy v. Factors' & Traders' Ins. Co., 471.' Murphy v. Ford Motor Co., 410. Murphy v. John Hofman Co., 26, 207, 360. Murphy v. Nicholson, 750. Murphy v. Penniman, 135. Murphy v. W. T. Murphy & Co., 367, 457, 574, 594. Murphy v. Young, 186. Murphy Boot & Shoe Co., In re, 783. Murray, In re, 64, 112, 119, 517, 702, 703, 708. Murray v. Beal, 4, 411, 427, 592. Murray v. De Rottenham, 513, 723, 726. Murray v. Hazell, 244. Murray v. Murray, 121, 123. Murray v. Ray, 466. Murray v. Riggs, 544. Murrin, In re, 236. Murtagh v. Sullivan, 198. Muscbel V. Austem, 204, 217. Musgrove Mining Co., In re, 90, 160. Musica, In re, 466. Musica V. Prentice, 227, 370. Musica & Son, In re, 24, 200, 211, 227. Muskoka Lumber Co., In re, 526. Mussey, In re, 12, 97, 187, 244, 671, 706. Mussey v. Noyes, 92. CASES CITED [Tbe flsnreg refer to sections] 1737 Mustin, In re, 189. Mutual Benefit Life Ins. Co. v. Swett, 348. Mutual Building Fund Society & Dollar Sav. Bank, In re, 355. Mutual Ins. Co. v. Erie County, 141. Mutual Life Ins. Co. v. Flelschman, 415. Mutual Mercantile Agency, In re, 135, 145, 170. Mutual Motors Co., In re, 454. Mutual Reserve Fund Life Ass'n v. Beat- ty, 758, 763. M. V. Moore & Co. v. Gilmore, 451. Myer, In re, 54, 559. Myer v. Crystal Lake Pickling Works, 27. Myers, In re, 242, 469, 541, 550, 578, 607, &33. Myers v. Callaghan, 200. Myers v. Croft, 330. .Myers V. Fultz, 461. Myers v. Hazzard, 464. Myers v. Seeley, 148. Myers Co. v. Tuttle, 480. Myers- Wolf Mfg. Co., In re, 479, 482. Myerson, In re, 231. Myrick, In re, 541. M. Zier, In re, 504. M. & H. Gordon, In re, 648, 651. M. & M. Nat. Bank of Pittsburgh v. Brady's Bend Iron Co., 210, 585. N Nachman, In re, 271. Nadel, In re, 679. Nagle V. Stagg, 239. Najour, In re, 76, 246. Naltner v. Dolan, 310. Nankin, In re, 57, 228, 779. Naroma Chocolate Co., In re, 105. Nash, In re, 183. Nash V. Simpson, 447. Nashville Laundry Co., In re, 127. Nassau, In re, 601. Nassau Gas-Light Co. v. Brooklyn, 136. Nathan, In re, 391, 604. Nathan v. Leland, 768. Nathanson, In re, 665, 691, 694, 695, 696. Nation v. Jones, 716. National Bank of Athens v. Shackelford, 454. National Bank of Bakersfield v. Moore, 367, 454, 599. National Bank of Commerce v. Downie, 341. National Bank of Commerce v. New Bed- ford, 173. National Bank of Commerce v. Williams, 371. National Bank of Fredericksburg v. Con- way, 380, 594. National Bank of Goldsboro v. Hill, 461. National Bank of Newport v. National Herkimer County Bank, 580. National Bank of Republic v. Hobbs, 465, 466. National Bank of San Francisco v. Con- tinental Bldg. & Loan Ass'n, 58. National Bank & Loan Co. v. Spencer,. 363, 458. National Boat & Engine Co., In re, 16, 361, 451, 484, 540. National Carbon Co., In re, 770. National Carbon Co. v. Ohio Motor Car Co., 186. National City Bank v. Hotchkiss, 575, 616. National Discount Co., Petition of, 47, 451. National Distilling Co. v. Seidel, 198. National Exch. Bank v. Moore, 517. National Fire Proofing Co. v. Daly, 374. National Grocer Co., In re, 240, 248, 249, 456. National Home & Hotel Supply Co., In re, 356. National Iron Co., In re, 471. National Life Ins. Co., In re, 27. National Lumber Co., In re, 590. National Marble & Granite Co., In re, 627. National Mercantile Agency, In re, 214. National Min. Exploration Co., In re, 474, 475, 476, 478, 481, 485. National Mt. WoUaston Bank v. Porter, 559, 726. National Park Bank v. People's Bank, 651. National Pressed Brick Co., In re, 50, 54. National Surety Co. v. Medlock, 146, 415, 741, 748. National Typographic Co. v. New York Typographic Co., 132. National Valve Co., In' re, 592. National Wire Corp., In re, 495. Natwick v. Terwilllger, 394. Nauman Co. v. Bradshaw, 44, 46, 47, 358, 396, 526. Naylon & Co. v. Christiansen Harness Mfg. Co., S7. ■ Nazima Trading Co. v. Martin, 49. Neaderthal, In re, 545, 549. Neal, In re, 698. Neal V. Clark, 731, 743. Neal V. Foster, 468. Neasmith, In re, 40, 42, 53, 57, 179. Nebe, In re, 532. Nebenzahl, In re, 187. Neblett V. Cooper Grocery Co., 748. 1738 CASES CITED [Tbe fignrea re Nebraska Moline Plow Co. v. Blackburn, 342. Nechamkus, In re, 612. Needham, In re, 568, 673. Needham v. Mattliewson, 710, 761. Neely, In re, 198, 389, 664, 675. Neff, In re, 491, 495. Negley, In re, 658. Negley v. Jeffers, 197. Neill V. Barbaree, 198, 584. NeiU V. Jackson, 444. Neill-Pinckney-Maxwell Co., In re, 597. Neilson, In re, 183. Neiman, In re, 508. Neimann, la re, 242. Nelson, In re, 89, 160, 162, 163, 858, 385, 670. Nelson v. Garland, 35. Nelson v. Heckscher, 641. Nelson v. Hecksher, 46. Nelson V. Patterson, 718. Nelson V. Petterson, 718, 744. Nelson v. Spence, 11. Nelson v. Stewart, 710. Nelson v. Svea, 23. Nelson V. Svea Pub. Co., 23, 361, 377, 451, 596. Nelson Supply Co. v. Leary, 388, 525. Nelson & Bro. Co., In re, 199, 215. Nesblt V. Greaves, 710. Nestor V. Joseph, 588. Neuberger v. Fells, 317, 318, 469. Neuburger v. Felis, 445, 446. Neuberger, Inc., In re, 91, 437, 438. Neuman, In re, 72, 679. Neumann v. Blake, 587. Neustadter v. Chicago Dry Goods Co., 169, 177, 178. Nevada-Utah Mines & Smelters Corp., In re, 475, 476, 481. New, In re, 577. New Amsterdam Ins. Co., In re, 133. New Amsterdam Motor Co., In re, 5, 151, 376. Newark v. Merchants' Ins. Co., 138, 139. Newark v. Stout, 713, 715. Newberry, In re, 406. Newberry Shoe Co. v. Collier, 249, 251, 379. 752. Newbold, In re, 655. New Brunswick Cai-pet Co., In re, 542. Newbury Oo^ v. Tennant, 374. Newbury & Dunham, In re, 682. New Chattanooga Hardware Co., In re, 151. Newcomb, In re, 310, 477. Newcomb v. Biwer, 409, 410. Newcomer, In re, 606. New England Breeders' Club, In re, 45, 134, 183. fer to sections] New England Milk Producers' Ass'n v. Wing, 736. New England Thread Co., In re, 627. New England Transp. Co., In re, 369, 382. New Era Novelty Co., In re, 33, 132. Newfoundland Syndicate, In re, 71, 148, 407. New Gait House Co., In re, 632. Newhall, Ex parte, 236, 345. New Hampshire Savings Bank y. Var- ner, 44. New Jersey v. Anderson, 621, 622. New Jersey v. Lovell, 619. New Lamp Chimney Co. v. Ansonia Brass & Copper Co., 146, 150. Newland, In re, 557, 564. Newland v. Zodikow," 423. Newlin v. McAfee, 364. Newman, In re, 135, 682, 684. Newman v. Fisher, 17. Newman v. Goodard, 514. Newman v. Tootle-Campbell Dry Goods Co., 575, 595, 598. Newmark, In re, 702, 703. New Orleans v. New Orleans City & L. R. Co., 138. New Orleans Acid & Fertilizer Co. v. Grisson, 376. New Orleans Acid & Fertilizer Co. v. Guillory & Co., 110, 198. New Orleans Milling Co., In re, 358. New Orleans Nat. Banking Ass'n v. Le Breton, 393, 448. New Orleans, S. F. & L. E. Co. v. Dela- more, 38, 138. New Orleans & N. B. R. Co. v. Reese, 626. New River Coal Land Co. v. Ruffner Bros., 48, 187, 389. New York Building Loan Banking Co., In re, 135, 141. New York Car Wheel Works, In re, 403, 496. New York Commercial Co., In re, 860, 507, 541, 778. New York County Nat. Bank v. Massey, 550, 590. New York Economical Printing Co., In re, 49. 365. New York Inst, for Instruction of Deaf and Dumb v. Crockett, 123, 225, 716, 750. New York Kerosene Oil Co., In re, 569. New Ygrk Mail S. S. Co., In re, 296, 309, 639, 783. New York Tunnel Co., In re, 52, 136, 182, 189, 500, 514. New York & New Jersey Ice Lines, In re, 134, 136. New York & Philadelphia Package Co., In re, 472, 484, 543. CASES CITED IThe flsnres refer to sections] 1739 New York & Westchester Water Co., In re, 135, 140, 147. Newton, In re, 256, 315. Newton v. Hagerman, ^. Newton & Co., In re, 308, 316, 358. Neyland, In re, 131. Neyland & McKeithen, In- re, 679. Niagara Contracting Co., In r"e, 136, 183. Niagara Falls Hydraulic Power & Mfg. Co. V. Schei-merhorn, 865, 367. Niagara Lead &. Battery Co., In re, 367. Niagara Radiator Co., In re, 212. Nice & Sehreiber, In re, 286. Nicholas, In re, 306, 604. Nicholas v. Murray, 237, 418, 450, 465, 516, 707. Nichols, In re, 71, 74, 337, 543. Nichols V. Doak, 744. Nichols v. Eaton, 346, 347. Nichols V. Elken, 598. Nickerson, In re, 508. Nickodemus, In re, 505. Nicol, In re, 617. Nightingale, Ex parte, 486. Niklaus v. Lessenhop, 452. Nims, In re, 127, 128. Ninth Nat. Bank v. Moses, 380. Nippon Trading Co., In re, 74. Nisbet V. Federal OTitle & Trust Co., 408. Nisbet V. Lawson, 491, 500. Nisbet V. Macon Bank & Trust Co., 601. Nisbet V. Sigel-Campiot Live Stock Com- mission Co., 364, 414. Nisenson, In re, 229. Nixon, In re, 208. Nixon V. Fidelity & Deposit Co., 208. Nix & Co. V. Andrews, 542. N. L. Carpenter & Co. v. Lybrand, 91, 174. Noakes, In re, 308. Noble, In re, 288. Noble V. Hammond, 782, 743. Noe V. Gibson, 520. Noee, In re, 246. ' Noel, In re, 22, 867, 586, 610. Noeson, In re, 516. Noethen, In re, 367, 454. Nolan, In re, 27. Nole V. Abate, 651. NoUman & Co. r. Wentworth Lunch Co., 135. Nonotuck Silk Co. v. Pritzker, 185. Nooman, In re, 681. Noonan, In re, 27, 116, 119, 120. Noonan v. Orton, 218, 343. Noreross, Ex parte, 120. Norcross, In re, 20, 154. Noreross v. Nathan, 4, 405, 414, 465. Norcross v. Nave & McCord Mercantile Co., 49, 51. Norfolk & W. R. Co. v. Graham, 552. Norin v. Scheldt Mfg. Co., 17, 200. Norris, In re, 124, 402, 404, 426, 493, 5l7, 562. Norris v. Commonwealth, 136. Norris v. Goss, 710. NoiTis V. Hero, 310. i Norris v. Trenliolra, 372. North V. House, 578. North V. Taylor, 597, 612. Northampton Portland Cement Co., In re, 9b*, 304. North Carolina Car Co., In re, 508, 629, 684. Northern Alabama R. Co. v. Feldman, 252. Northern Commercial Co. v. Hartke, 727. Northern Iron Co., In re, 288. Northern Neck State Bank v. Smith, 614. Northern Shoe Co.. v. Cecka, 249, 250. Northrop, In re, 68. Northrop v. P. W. Finn Const. Co., 595. Northrup, In re, 356, 550. North Star Ice & Coal Co., In re, 288, 320, 387, 471, 524, 619. Northwest Fixture Co. v. Kilbourne & Clark Co., 495. Norton, In re, 166, 493. Norton v. Billings, 452. Norton v. De La Villebeuve, 417. Norton v. Hood, 859. « Norton v. Switzer, 198. Norton Jewelry Co. v. Hinds, 308, 780. Norwood, Ex parte, 527. Norwood V. Watson, 254. Nounnan, In re, 617. Nounnan & Co., In re, 617. Nounnan & Orr, In re, 177, 623. Novak, In re, 153, 255, 805, 480. Novick V. E. P. Reed & Co., 679. Nowell, In re, 189, 509. Nowland v. Lanagan, 766. Noyes, In re, 266, 809. Noyes v. Willard, 406, 480. Noyes Bros., In re, 57, 493. N. Shaffer & Son, In re, 254. Nuckols, In re, 367. Nudd V. Burrows, 578, 614. Nugent, In re, 409. Nunemaker, In re, 250. Nunn, In re, 252. Nusbaum, In re, 88, 160, 163, 164. Nuttall, In re, 189, 713, 743, 746. Nutter V. Wheeler, 356. Nye, In re, 244, 245, 247. Nye V. Hart, 711. Nylin v. American Trust & Savings Bank, 359. Oakey v. Bennett, 319. Oakey v. COrry, 474. 1740 CASES CITED [TIte flsnrea refer to Bectlonal Oakland Lumber Co., In re, 54, 210. Oakley, In re, 393. Gates V. Parish, 712. O'Banncn, In re, 860. Obergfall, In re, 389. OberhofCer, In re, 356. Obemeler v. Kass, 586. Oberreich v. Foster, 743, 748. O'Brian, In re, 121. O'Brien, In re, 42, 100, 244, 377, 454. O'Brien v. Doolittle, 316. O'Brien v. Ely, 48. O'Brien v. Weld, 191. O'Callaghan, In re, 359, 654. Ocean Accident & Guarantee Corporation v. Beck, 655. Ocean Nat. Bank v. Olcott, 712. Oconee Mill. Co., In re, 484. O'Connell, In re, 56, 315, 782. O'Oonnell v. Worcester, .575, 584. O'Connor, In re, 360, 363, 380, 431. O'Connor v. Parker, 580. O'Connor v. Sunseri, 313. Octave Mining Co., In re, 75, 617. Odell, In re, 135, 646. O'Dell V. Boyden, 41, 47, 837. Odell V. Flood, 365. OdeU V. Wootten, 748. Oderkirk, In re, 244, 252: O'Donnell, Ex parte, 726. O'Donnell, In re, 84. O'Donohue, In re, 270. O'Dovvd, In re, 324. Oehninger, In re, 119. O'Fallon, In re, 481. O'Farrell, In re, 178. O'Farrell v. Poston, 465. Off V. Hakes, 410, 467, 578, 598. Offricht, In re, 684, 775. O'Gara, In re, 672. O'Gara Coal Co., In re, 47, 56, 57, 146, 645, 658, 778. O'Gara & Maguire, In re, 540. Ogden V. Arnot, 121. Ogden V. Cowley, 546. Ogden V. Gilt Edge Consol. Mines Co., 23, 41, 47, 170. Ogden V. Redd, 758, 760. Ogden V. Reddish, 574, 595, 597, 614. Ogden V. Saunders, 6, 7, 14. Ogilby V. Munro, 750. Ogilvie V. Knox County Ins. Co., 148. Ogles, In re, 29, 159, 161, 205, 207. O'Halloran, In re, 162. O'Hara, In re, 240, 252, 782, 783. Ohio Copper Mining Co., In re, 23, 29, 469, 476, 481. Ohio Motor Car Co. v. Eiseman Magneto Co., 53, 56, 155, 186. Ohio Vall«y Bank Co. v. Mack, 50, 76, 488, 538, 597. Ohio Valley Bank Co. v. Switzer, 44. Ohl, In re, 237. Oilfields Syndicate v. American Improve- ment Co., 660, 7C6. Oil Well Supply Co. v. Hall, 48, 179. O'Kell, In re, 262, 701. Okmulgee Producing & Refining Co., In re, 33. • Olan.sky, In re, 672. Olcott, In re, 191. Olcott V. McLean, 14, 414, 423. Olden V. Sassman, 218, 326. Oldmixon v. Severance, 121,. 320. Old Oregon Mfg. Co., In re, 478, 524, 780. Olds V. Forrester, 725, 726. Oldstein, In re, 13, 19. Old Town Bank v. McConnlck, 9. Old Town Nat. Bank v. Parker, 758, 760, 767. Oleson, In re, 245. Olewine, In re, 242. Oliner, In re, 666, 670, 679. Oliphint V. Eckerley, 755. Olitsky V. Estersohn, 469, 481, 483. Olive V. Armour, 106. Olivei-, In re, 67, 227, 362, 367, 597, 613. Oliver v. Cunningham, 890. Oliver v. Hilgers, 430. Oliver v. Smith, 399. Ollinger & Perry, In re, 159. Olman, In re, 654. Olmsted, In re, 169. Olmsted-Stevenson Co. v. Miller, 57, 244. Olney v. Tanner, 406, 437. O. L. Scliwencke Land & Inv. Oo. v. Forster, 718. Olsen V. Nelson, 756, 757. O. L. W'iird & Co., In re, 402. O'Malley, In re, 569. O'Malley & Glynn, In re, 519. O'Mara, In re, 284. Ommen v. Talcott, 217, 364, 553, 616, 772, 773. O'Neil, Ex parte, 503, 538. O'Neil V. Dougherty, 193. O'Neil V. Glover, ,S3. O'Neill V. Kildnff. 595. Ontario Bank v. Mumford, 316, 318. Opava, In re, 673, 675, 680, 692. Openhym & Sons v. Blake, 360, 526. Oppenheimer, In re, 216, 005, 606. Orcutt Co. V. Green, 526, 533. Order of Sparta, In re, 143. Ordway, In re, 157, 182. Orear, In re, 243, 245, 348. Oregon Bulletin Co., In re, 58. Oregon Bulletin Printing & Pub. Co., In re, 84, 182, 174, 176, 595. Oregon Iron Works, In re, 401. Oregon Trust & Sav. Bank, In re, 137. O'ReiUy v. Pietri, 390. CASES CITHD [Tlie flKorea refer to aiectlouii] 1741 Oriental Society, In re, 135. Orinoco Iron Co. v. Metzel, 18, 26, 31, 47, 387, 526. Orman, In re, 771. Orno, In re, 222, 225, 226, 288, 503, 523. Orona Mfg. Co., In re, 644. Orr V. Llsso, 6, 7. Orr 7. Park, 537, 540, Orr V. Trlbble, 375. Orr V. Ward, 495. Orr Shoe Co. v. Upshaw & Powledge, 525, 744. Osage VaUey & S. K. R. Co., In re, 153. Osborn, In re, 242, 247, 858. Osborn v. Baxter, 469. Osborn v. Fender, 12. Osborn v. Mills, 480. Osborn v. Peace, 451. Osbom's Sons & Co., In fe, 503. Osborne, In re, 696, 697. Osborne v. Perkins, 56, 57, 673. Oscar Bonner Oil Co. v. Pennsylvania Oil Co., 198. Oshwitz, In re, 211. Osley V. Adams, 466. Ostrander, In re, 722. Ostrander v. Meunch, 10, 434, 441. Ostrom, In re, 497. O'Sullivan's Trustee v. Douglass, 451, 456. Otis, Matter of, 307. Otis v. Gazlin, 760, 763. Otis V. Hadley, 414, 614. Otis V. Maguire, 91. Ott, In re, 622. Ott V. Doroshow, 461. Ottawa Gas-Light Co. v. Downey, 136. Otto, In re, 672. Otto y. England, 367, 382. Otto P. Lange Co., In re, 526, 559, 606, 622. Otto Freiind Arnold Yeast Co., In re, 621. Otto Young & Co. V. Howe, 718, 748. Ouimette, In re, 153, 156, 171, 172. Ould Co. V. Davis, 679. Overcast v. Lawrence, 329. Overman Wheel Co. v. Pope Mfg. Co., 132. Overstreet, In re, 251, 698. Overton, In re, 292, 536. Owen v. Brown, 86. Owen V. Potter, 388, 390, 480. Owens, In re, 2. Owens V. Bruce, 482. i Owens V. Daniel, 458, 466. Owens V. Farmers' Bank of Abbeville, 57. Owings, In re, 240, 244, 606. Owsley V. Cobin, 736. Oxford Iron Co. v. Slafter, 614. Oxiey, In re, 390, 619, 621. Oxley V. Willis, 122. Ozark Cooperage & Dumber Co., In re, 451. Pace, In re, 774. Pace v'. Berry, 250, 475, 752. I'ace V. Ficklin's EX'x, 392. Pace V. Pace, 348. Pace V. Roberts, Johnson & Rand Shoe Co., 430. Pace's Trustee v. Pace, 428, 516, 538. Pacific Coast Casualty Co. v. Harvey, 51. Pacific Coast Warehouse Co., In re, 135. Pacific Electric & Automobile Co., In' re, 454. Pacific State Bank v. Coats, 366, 367, 446, 454. Packard, Ex parte, 379. Packer v. Whittier, 743. Packer's Estate, In re, 318. Paddleford v. State, 726. Paddock, In re, 273, 517. Paddock v. Fish, 463, 464. Page, In re, 337. Page V. Carton, 656. Page V. Edmunds, 240, 337. Page V. Moore, 430, 465. Page V. Old Dominion Trust Co., 366. Page V. Rogers, 57, 581, 587, 606, 625. Page V. Waring, 218, 222, 237. Page Motor Car Co., In re, 153, 156. Paget, Ex parte, 152. Paige, In re, 171. Paige V. Loring, 587. Paine, In re, 315, 709. , Paine v. Archer, 524, 623. Paine v. Caldwell, 413. Painter v. Napoleon Tp., 451, 601, 609, 611. Palatable Distilled Water Co., In re, 359. Palmer, In re, 19, 454, 485, 692. Palmer v. DouU Miller Co., 544. Palmer v. Hixon, 7. Palmer v. Hussey, 710, 729, 735. Palmer v. ]V[oore, 713. Palmer v. Preston, 743. Palmer v. \A'elch, 316. Pan-American Match Co., In re, 288. Pancoast, In re, 532. Pancoast v. Gowen, 337. Pangborn, In're, 153, 160, 163, 176. Pankey v. Nolan, 732. Paper v. Stern, 577, 595, 598. Paramore & Ricks, In re, 249, 254 Paret v. Ticknor, 650. Parham, In re, 606. Parish, In re, 672, 692. Paris Modes Co., In re, 638. Park, In re, 246, 253. Park V. Cameron, 407. Park V. Casey, 713. 1742 CASES CITED [The fi^nres refer to sectionsl Park V. South Bend Chilled Plow Co., 358, 367, 446. Park, Grant & Morris v. Shannon & Mott Co., 306. Parker, In re, 246, 603, 621, 674, 706. Parker t. Atwood, 712. Parker v. Bates, 364. Parker v. Black, 401, 465, 614. Parker v. Bradford, 513. Parker v. Brattan, 741. Parker v. First Nat. Bank, 590. Parker v. Grant, 714. Parker v. May, 142. Parker V. Muggridge, 121. Parker v. Murphy, 727. Parker v. Sherman, 400, 401, 410, 413, 452, 573, 584. Parker v. Travers, 450, 451, 462, 772. Parker v. Wagoner, 367, 414. Parker Co., In re, 352, 775. Parkers, In re, 129. Parkerson v. Borst, 525. Parkes, In re, 288, 541, 563. Parks, In re, 255. Parks V. Baldwin, 390. Parks V. Doty, 193. Parks V. Goodwin, 756. Parks V. Sheldon, 382. Parks V. Tirrell, 328. Parks Shellac Go. v. Harris, 661. Parlett v. Blake, 356. Parlin & Orendorff Implement Co. v. Moulden, 247. Parmelee Library, In re, 135. Parmenter Mfg. Co. v. Hamilton, 5, 7. Parmenter Mfg. Co. v. Stoever, 87, 88, 89, 164. Parschen, In re, 256. Parsons v. Caswell, 89, 579. Parsons v. Topliff, 578, 614. Parsons Mfg. Co., In re, 290, 291. Partridge v. Andrews, 348. Partridge v. Dearborn, 364. Partridge Lumber Co., In re, 543. PaschaU v. Bullock, 713. Paterson Co., In re, 542. Patrick V. Brown, 715. Patrick v. Central Bank, 125. Pattee, In re, 302. Patten v. EUingwood, 765. Patten v. Francis D. Carley & Co., 384. Patten v. Sturgeon, 244. Patten's Appeal, 493. Patterson, In re, 234, 236, 267, 268, 271, 526, 693, 694, 743. Patterson v. Baker Grocery Co., 596, 601. Patterson v. Boyd, 318. Patterson v. City of New Orleans, 136. Patterson Lumber Co., In re, 24. Patterson & Co., 360. Pattison v. Wilbur, 723, 727. Patty-Joiner & Eubank Co. v. Cummins, 10, 11. Paul, In re, 461. Paul Book Co., In re, 444, 624. Paulson, In re, 629. Pauly, In re, 279, 289, 444. Paxton V. Scott, 668, 752. Payne, In re, 782. Payne v. Able, 131,. 748. Payne v. Sehon, Stevenson & Co., 463. Payne v. Solomon, 84, 585. Payson v. Brooke, 148. Payson v. Coffin, 148, 406, 417. Payson v. Dietz, 24, 406. Payson v. Stoever, 148. Payson v. Withers, 148i P. Ballantine & Sons v. Fenn, 559. Peabody, In re, 31, 253, 314, 481, 773. Peacock, In re, 67, 250, 303, 316, 368, 391, 392, 542, 597, 604, 671, 692. Peale v. Phipps, 27. Pear v. Chase, 402. Pearce, In re, 676, 772. Pearce v. Atwood, 62. Pearce v. Foreman, 324. Pearce & Co. v. Fisher, 718. Pearlman v. Booth, 741. Pears, In re, 242. Pearsall v. Nassau Nat. Bank, 550, 597. Pearsall v. Smith, 418. Pearsall v. Tabour, 760, 761, 767. Pearson, In re, 84, 228, 286. Pease, In re, 122, 123, 453, 462, 490, 497, 542. Pease v. Bennett, 525. Pease v. McQuillin, 392. Pease v. Eitchie, 566. Peasley, In re, 555. Peaver, In re, 228. Pechin, In re, 45, 696. Peck, Ex parte, 274. Peck, In re, 74, 376, 526, 692, 695, 696. Peck V. Connell, 611. Peck V. Hibbard, 14. Peck V. Jenness, 27, 376. Peck V. Parker, 10. Peck V. Richter, 783. Peck V. United States, 197, 198. Peck Co. V. Lowenbein, 663. Peck Lumber Co. v. Mitchell, 376. Peck & Co. V. Whitmer, 597, 614. Peckham v. Burrows, 84, 379. Peckham's Assigned Estate, In re, 7. Pedlow, In re, 217. Peebles, In re, 557. Peel V. Bryson, 744. Peel V. Ringgold, 121, 428. Peeples v. Georgia Iron & Coal Co., 57. Peerless Finishing Co., In re, 481. Peerless Shoe Co., In re, 492. Peery v. Carnes, 197. CASES CITED [The figures refer to sectloniil 1743 Pegues, In re, 308, 476. Peiper v. Harmer, 414, 416. Peiser, In re, 214. Pekin Plow Co., In re, 358. Pell V. McCabe, 187. Peltasohn, In re, 227, 322. Pelton V. Sheridan, 10, 376, 435. Pelzer Mfg. Co. v. Pitts & Hartzog, 185. Pemberton, In re, 364. Pemmerde, In re, 508. Pence v. Cochran, 377. Peninsula Bank of Williamsburg v. Wol- cott, 423, 598. Penn, In re, 108, 183, 667, 710. Penn V. Edwards, 715. Penn Development Co., In re, 207. Pennell, In re, 26, 57, 229. Pennewell, In re, 513. Penniman v. Briggs, 146. Pennington v. Iiowenstein, 191, 382. Pennington r. Sale, 191, 556, 569. Pennington & Co., In re, 33, 132, 152. Pennsylvania Consol. Coal Co., In re, 132, 177. Pennsylvania & D. E. Co. v. LeufCer, 105, 626. Penny v. Taylor, 29, 195, 246. Penny & Anderson, In re, 358. People V. Brennan, 28, 403. People V. Campbell, 136. People V. Davidson, 274. People V. Doty, 137. People V. Duncan, 336. People V. Erlanger, 235. People V. Fancher, 274. People y. Horn Silver Min. Co., 139. People V. Knickerbocker Ice Co., 136. People V. Lay, 271. People V. Meyers, 105. People V. Remington, 105. People V. Roberts, 136. People V. Security Life Ins. Co., 298. People V. Sheriff of Kings County, 189, 194, 515. People V. Spalding, 726. People V. Sutherland, 4. People V. Valley Mantel & Tile Co., 185. People V. Wemple, 136. People V. Whitman, 61. People V. Wood, 310. People's Bank v. McAleer, 401, 596, 597, 615. People's Bank of Buffalo v. Brown, 269, 270. People's Department Store Co., In re, 74, 76. People's Mail S. S. Co., In re, 187, 369, 398. People's Nat. Bank v. Maxson, 237, 240, 320, 377, 497. People's Safe Deposit & Savings Inst, In re, 489. People's Trust Co. v. Ehrhart, 713. People's Warehouse Co., In re, 132, 187. Pepperdine v. Bank of Seymour, 182, 380. Pepperdine v. Headley, 411. Percy Ford Co., In re, 502, 590. Perdue, In re, 250, 253. Perin & Gaff Mfg. Co. v. Peale, 156, 160. Perkins, Ex parte, 296, 313. Perkins, In re, 358. Perkins v. Alexander, 237. Perkins v. Cowles, 148. Perkins v. Dorman, 153. Perkins v. Smith, 137. Perley, In re, 346, 673. Perley & Hays, In re, 114. PerlHefter, In re, 83, 84, 108, 114, 163, 175. Perlmutter, In re, 534, 672, 679, 701, 702. Permenter Mfg. Co. v. Stoever, 164. Perpall, In re, 200, 454, 584, Perrin, In re, 367. Perry, In re, 85, 226, 684. Perry v. Avery, 461. Perry v. Booth, 586, 600. Perry v. Britt-Carson Shoe Co., 248. Perry v. Langley, 5, 10. Perry v. Lorillard Eire Ins. Co., 316. Perry Aldrich Co., In re, 95, 132, 164. Perry-Mason Shoe Co. v. Sykes, 444. Perry Naval Stores Co. v. Caswell. 728. Perry & Whitney Co., In re, 153, 155, 157, 168, 176. Perryman v. Allen, 157. Person v. U. S., 198. Peterborough R. E. v. Wood, 739. Peter Paul Book Co., In re, 444, 623. Peters, In re, 262. Peters v. Bowers, 403, 414. Peters v. V. S., 741. Peters v. Wallace, 197. Petersen, In re, 74, 242, 367, 461, 543. Peterson, Ex parte, 745. Peterson, In re, 246, 716. Peterson v. Calhoun, 756. Peterson v. Mettler, 466. Peterson v. Nash Bros., 49, 584, 613. Peterson v. Peregoy & Moore Co., 114, 662. Peterson v. Sabin, 451. Peterson's Estate, In re, 716. Petrie, In re, 550. Petrie v. Buffington, 414, 426. Petronio, In re, 47, 67, 387. Petterson v. Mater, 203. Pettingill, In re, 76, 499. Pettingill & Co., In re, 54, 57, 494, 495, 505, 605. Pettis, In re, 233, 234, 743. Pettitf v. Seaman, 6. 1744 CASES CITED [Tlie flenres refer to sectional Petty V. Wilkins, 317. Pevear, In re, 21, 227, 228, 626. Pew V, Price, 454, 594. Peyton v. Farmers' Nat. Bank of Hills- boro, 242, 244, 250. Pfafflnger, In re, 348, 540, 597, 679. Pfeiffer, In re, 241, 247. Pfeiffer v. Roe, 446, 467. Pfroinm, In re, 288, 290, 291. Phelan v. Iron Mountain Bank, 355, 587. Phelan v. O'Brien, 417. Plielps, In re, 110, 122, 279, 286, 497. Phelps V. Borland, 14. Plielps V. Clasen, 153, 171, 179. Phelps V. Curts, 754, 756. Phelps V. McDonald, 220, 222, 224, 236, 341, 417, 485. Phelps V. Sellick, 566, 568. Phelps V. Sterns, 606. Phenix Nat. Bank v. Waterbury, 494, 499, 718. Philadelphia Axle Works, In re, 158. Philadelphia Freezing Co., In re, 136. Philadelphia & Lewes Transp. Co., In re, 135, 770. Philadelphia & R. Coal & Iron Co. v. Hotchkiss, 719. Philip Carey Mfg. Co. v. Viaduct Place, 747. Philip Semmer Glass Co., In re, 505, 550. Philipe V. James, 14. Philips V. Russell, 732, 734. Philips & Co., In re, 376, 705, 706. Philips & McBachin, In re, 779. Phillips, In re, 250, 668, 682, 699, 701. Phillips V. Bass, 251. Phillips V. Bowdoin, 563. Phillips V. Carter, 461. Phillips V. Dreher Shoe Co., 153, 506. PhilUps V. Helmbold, 317, 376. Phillips V. Huflfaker, 466. Phillips V. Hunter, 187. Phillips V. Kahn, 461." Phillips" V. Kleinman, 456. PhlUips V. Matthews, 480. Phillips V. Turner, 412. Phillips & Goldman, In re, 348. Philmon v. Marshall, 752. Philomena, The, 369. Philoon V. Babbitt, 317, 392, 400, 452. Philpot V. O'Brien, 176, 180. Phipps V. Sedgwick, 467. Phoenix Ins. Co. v. Wulf, 166. Phoenix Planing Mill, In re, 329, 403. Phosnix Warehousing Co. v. Badger, 148. Photo Mectrotype Engraving Co., In re, 627. Picard v. Hine, 100. Pick & Co. V. Natalby, 390, 446, 465. Pickens v. Dent, 187, 197, 389. Pickens v. Roy, 389. Pickens Mfg. Co., In re, 7, 95, 174, 358. Pickens & Bro., In re, 387. Plckerell v. Zell, 3.54. Pickert v. Eaton, 756, 757. Pickett V. McGavick, 708. Pidihardt, In re, 775. Picton, In re, 42. Piedmont Sav. Bank v. Levy, 461. Pierce, In re, 10, 26, 66, 91.' 353, 356, 358, 366, 379, 402, 429, 437, 456, 671. 693, 696, 704, 711, 779. Pierce v. Shippee, 738. Pierce v. Wilcox, 726. Pierce, Butler & Pierce Mfg. Co., In re, 55, 57. Pierre Banking & Trust Co. v. Winkler, 462, 614. Pierson, In re, 47, 315, 357. Pierson, Jr. & Co., In re, 545, 772, 773, Pietri v. Wells, 388. Pilcher & Son, In re, 377, 388. Pilger, In re, 105, 176. Pincus, In re, 679, 686, 750. Pincus V. S. H. Meinhard & Bro.; 245. Pindel v. Holgate, 44, 47, 544. Pine Hill Coal Co. v. Harris, 756. Pine Tree Lumber Co., In re, 451. Pinkard v. Willis, 748, 756. Pinkel, In re, 497. Pinkston v. Brewster, 730. Pinsou, In re, 84. Pinson & Co., In re, 20, 116. Pintard, In re, 237. Pioneer Paper Co., In re, 260, 269. Pirie v. Chicago Title & Trust Co., 3, 84, 407, 586, 587, 604, 605, 641. Pirvitz V. Pithan, 670. Pitcairn v. Scully, 514, 715, 743. Pitcher v. Standish, 9. Pitt, In re, 115, 163. Pittelkow, In re, 390, 471, 569, 571. Pittock, In re, 517. Pitts, In re, 364. Pittsburg Drug Co., In re, 521, 633. Pittsburg Lead & Zinc Co., In re, 542, 543. Pittsburgh-Big Muddy Coal Co., In re, 454. 471. Pittsburgh, O. & St. L. R. Co. v. Nu- zum, 197. Pittsburgh Dick Creek Mining Co., In re, 478, 485. Pittsburgh Industrial Iron Works, In re 358. Pittsburgh Laundry Supply Co. v. Im- perial Laundry Co., 48, 88, 90. Pittsburgh Plate Gla.ss Co. v. Edwards, 599. Pittsburgh Plate Glass Co. v. Kransz 374. CASES CITED [The flgnrea refer to nectlons] 1745 Pittsburgh & West Virginia Qas Co. v. Ankrom, 480. V. J. Sullivan Co., In re, 317, 382. Place, In re, 44, 49, 316, 358. Planett Mfg. Co., In re, 352. Plant, In re, 401, 587, 616. Plant V. Gorham Mfg. Co., 200. Plantations Co., In re, 364, 471. Planters' Oil Co. v. Gresham, 306, 338, 544. Piatt V. Archer, 29, 133, 166, 444, 784. Piatt V. Cole, 715. Piatt V. Dickenson, 569. Piatt T. Ives, 526, 577. Piatt V. Jones, 337. Piatt V. Matthews, 449. Piatt V. Mead, 451, 468. Piatt V, Parker, 673. Piatt V. Preston, 364, 367, 465. Piatt V. Stevirart, 386. Plattevllle Foundry & Mach. Co., In re, 199,. 364, 387, 388, 423, 470, 471, 475. Platts. In re, 451. Plaut V. Gorham Mfg. Co., 377, 407, 408. Player v. Lippincott, 586. Plimpton, In re, 222, •225, 768. Ploof Machinery Co., In re, 528. Plotke, In re, 4. 19. Ployd, In re, 288, 290. Plumb, In re, 115, 119. Plummer, In re, 302, 778. Plummer v. Myers, 582, 601. Plymouth Cordage Co., In re, 156, 163, 165, 169, 177. Pl.\mouth Cordage Co. v. Smith, 46, 59, 173. Plymouth Elevator Co., In re, 402, 403. P. McGarpy & Son, In re, 630. Podolin, In re, 221. Podolin V. Lesher Warner Dry Goods Co., 221. Poff V. Adams, Payne & Gleaves, 701. Pogue V. Kov?e, 10. Pohlig, In re, 249. Poillon V. Lawrence, 712. Polakoflf, In re, 787. Poleman, In re, 247, 248, 254. Polk V. Stephens, 747, 763. Polk County v. Burns, 619, 621. Pollack V. Meyer Bros. Drug Co., 222, 318, 34G. Pollard, Ex parte, 495. Pollard V. Noyes, 245. Pollet V. Cosel, 664. Pollmann, In re, 580. Pollock V. Hill, 394. Pollock V. Jones, 452, 585, 603. Pollock y. Pratt, 630. Pollock V. Simon, 456. Pomerantz & Hopkins, In re, 684. Pomeroy, In re, 222. Blk.Bkr.(3d Ed.)— 110 Pond V. New York Exchange Bank, 401, 610. Pontiac Buggy Co. v. Skinner, 371. Ponzi, In re, 176, 180. Pool V. McDoniild, 10, 646. Pool V. Ragland, 468. Poor V. Hazleton, 349. Poore, In re, 358. Pope, In re, 244. Pope V. Cantwell, 430, 466. Pope V. Davenport, 342. Pope V. Kirchner, 224. Pope V. Title Guaranty & Surety Co., 2, 376, 377. Popejoy V. Diedrich, 662, 727. Popham V. Barretto, 757. Popkin & Co., In re, 202. Poppenhauser v. India Rubber Comb Co., 19. Porter, In re, 73, 390, 589. Porter v. Cummings, 27. Porter v. Hughes, 394. Porter v. Lazear, 256, 472. Porter v. Porter, 761. Porter v. Sabin, 27. Port Huron Dry Dock Co., In re, 531. Portner, In re, 163. Portsmouth Savings Fund Soc, In re, 288, 292. Portuondo Co., In re, 371. Posey V. McManis, 581, 595. Post, In re, 263, 266. Post V. Berry, 367, 562. Post V. Losey, 747, 758, 766. Postlethwalte v. Hicks, 49. Potee Brick Co., In re, 352, 373, 375. Potteiger, In re, 204. Potter v. American Printing & Litho- graphing Co., 430, 454, 461, 462. Potter V. Brown, 14. Potter V. Martin, 317, 479. Potter Mfg. Co. v. Arthur, 358. Pottier & Stymus Co., In re, 356, 544. Potts, Ex parte, 82, 155, 176. Potts V. Hahn, 465. Potts V. Smith Mfg. Co;, 7. Powell, In re, 246, 285. Powell V. Gate City Bank, 584, 598. Powell V. Leavitt, 500, 526. Powell V. Pangborn, 264. Powell V. Waldron, 337. Power V. Fuhrman, 231. Powers, In re, 340. Powers Dry Goods Co. v. Nelson, 249, 251, 753. Prager & Son, In re, 672. Pramuk, Appeal of, 27. Prankard, In re, 119. Pratesi,. In re, 372. Prather v. Prather, 67. Pratt, In re, 101, 244. 1746 CASES CITED [The fi^rnres refer to sections] Pratt V. Auto Spring Repairer Co., 492, 495. Pratt V. Bothe, 589. Pratt V. Burr, 246. Pratt V. Chase, 747. Pratt V. Christie, 462, 592. Pratt V. Columbia Bank, 600. Pratt V. Curtis, 468. Pratt V. Russell, 761. Pratt Co., In re, 540. Prentice, In re, 76, 384. Prentis v. Richardson's Estate, 755. Presbyterian Board, etc., v. Gilbee, 364. Prescot, Ex parte, 546. Prescott, In re, 503. Prescott V. Galluccio, 450, 464. Pressed Steel Wagon Goods Co., In re, 160. Press-Post Printing Co., In re, 358. Press Post Printing Co. v. Dandon Print- ing & Pub. Co., 358. Preston, In re, 226, 311, 386, 432, 504. Preston v. Simmons, 715. Preston v. Simons, 715. Prestridge v. Wallace, 465. Prewett v. Caruthers, 759. Price, In re, 19, 27, 176, 259, 273, 296, 687. Price V. Bray, 715. Price V. Price, 397. Price V. Ralston, 356. Pridmore v. Puffer Mfg. Co., 359. Prime v. Brandon Mfg. Co., 316. Prince & Walter, In re, 241, 255, 471, 472, 484, 524, 621, 773. Printograph Sales Co., In re, 389, 391. Pritchard v. Chandler, 418. Privett, In re, 604. Probst, In re, 200. Proby, In re, 647. Progressive Bldg. & I^oan Co. v. Hall, 187, 386. Progressive Wall Paper Corporation, In re, 392, 454, 471, 544, 565. Proudfoot, In re, 619. Prouty, In re, 58, 296. Prudential Lithograph Co., In re, 46, 47. Prudential Outfitting Co., In re, 304, 478. 485. Pruschen, In re, 389. Prussian, The, 266, 267. Pryor, In re, 200, 253. Puffer, In re, 704. Puget Sound Engineering Co., In re, 84, 171, 177. Pugh V. Bussel, 6, 9. Pugh V. Holiiday, 354. Pugh V. Loisel, 27, 207. PuUian, In re, 107. Pullman v. Upton, 340. Pulsifer, In re, 493, 507. Pulsifer v. Hu.ssey, 243, 348. Pulver, In re, 74, 225, 275. Pupke, In re, 180. Purcell, In re, 571, 650, 654. Pure Milk Co., In re, 160, 163. Purgoyne v. McKillip, 514. Pursell, In re, 264. Piirtell, In re, 451. Purviance v. Union Nat. Bank, 360. Purvine, In re, 21, 45, 55, 227. Purvis, In re, 288, 289. Purvis V. Kroner, 491. Puschkin, In re, 679. Pusey, In re, 461. Putnam, In re, 87, 89, 153, 497, 498, 510, 516. Putnam v. Southworth, 354, 446, 464. Putnam v. Story, 327. Putnam v. Timothy Dry Goods Co., 296. Putnam v. U. S. Trust Co., 466, 590. Putney Shoe Co. v. Dashiell, 57. Pyatt, In re, 151, 177, 194, 722. Pyle V. Texas Transport & Terminal Co., 361, 426, 597. Quackenbusli, In re, 225, 626, 668, 672, 727, 747. Quait V. Wortham Bros. Co., 214. Quaker City Watch (Jo. v. Lamoreaux, 743. Quaker Drug Co., In re, 521. Quality Shoe Shop, In re, 633. Quartz Gold Min. Co., In re, 145. Queen v. Wilson, 102. Quimby Freight Forwarding Co., In re, 134, 135, 141. Quincy Granite Quarries Co., In re, 158. Quinike, In re. 178. Quinn, In re, 561. R Rabeuau, In re, 356. Radcliffe, In re, 244, 252. Rader v. Star Mill & Elevator Co., 371, 454. Radford v. Folsom, 428. Radford v. Thoraell, 396. Radford Grocery Co. v. Powell, 47, 368. Radin v. U. S., 787. Radke Co., In re, 88, 141, 153, 160, 164. Radley, In re, 658, 664. Radley Steel Const Co., In re, 404, 550, 590. Rado, In re, 154. , Raffauf, In re, 13. Rafferty v. Klein, 748. Ragan v. Donovan, 580, 594, .599. Ragan, Malone & Co. v. Cotton & Pres- ton, 43, 663, 679. CASES CIXHD [Tbe flsnres refer to aectlonsl 1747 Ragsdale, In re, 135. Rahm v. Minis, 713. Railroad Co. v. Harris, 132. Railton v. Chicago Title & Trust Co., 463. Railton v. Lauder, 276. Rainsford, In re, 709. Rainwater, In re, 240, 244, 253. Raley v. D. Sullivan & Co., 237, 727. Raley v. Raymond Bros. Co., 451. Rammage, In re, 679. Ramsey v. Fellows, 197. Rand v. Fleishman, 343. Rand v. Iowa Cent. R. Co., 197, 237, 711. Rand v. Sage, 197, 237. Randall, Ex parte, 151. Randall, In re, 10, 91, 160, 536, 593, 694, 695, 703, 704. Randall v. Sutton, 497. Randolph, Ex parte, 234. Randolph, In re, 366, 377, 484, 559. Randolph v. Scruggs, 434, 437, 439, 444, 623. Raney, In re, 451. Rank, Ex parte, 8, 235. Rankin v. Bancroft, 354. Rankin v. Florida, A. & G. 0. K. Co., 89, 138, 491. Rankin v. Railway Co., 154. Ransford, In re, 376, 389. Ransom v. Gear, 656. Raphael, In re, 47, 409, 412. Rasmussen's Estate, In re, 359. RatcUff V. Clendenin, 427. RatclifEe, In re, 226. Rate V. American Smelting & Refining Co., 710, 752. Rathbone, In re, 671, 672, 692. Rathbone v. Ayer, 148, 149, 392, 427. Rathfon Bros., In re, 413. Rathman, In re, 364, 402, 404. Ratliff, In re, 605, 613. RatlifEe, In re, 592. Ratshesky v. Whiting, 523. Rauch, In re, 773. Rauch V. Manchester-Smith Co., 679. Raulins v. Levi, 752. Rawlins v. Hall-Epps Clothing Co., 257, 259. Rawlins Mercantile Co., In re, 516. Rawls V. Penn Mut. Life Ins. Co., 348. Ray, In re, 19, 97, 100, 516. Ray V. Norseworthy, 470, 471. Ray V. Wight, 186, 376. Rayford Truck & Tractor Co., In re, 75. Ray! v. Lapham, 16, 182, 712. Raymond v. Cohen, 745. Raymond v. Morrison, 292. Raynor, In re, 162. ' Rea V. Richards, 329, 393. Rea Bros., In re, 678, 679. Reade v. Waterhouse, 432. Reading Hosiery Co., In re, 168, 316, 480, 494. Reakirt, In re, 268. Real Estate Trust Co. v. Thompson, 407. Realty Co. v. Gioshio, 756. Reardon v. Rock Island Plow Co., 377, 384. Reber v. Ellis Bros., 400, 401. Reber v. Gundy, 417, 586. Reber v. Louis Shulman & Bro., 614. Reber v. Shulman, 597. Rebman, In re, 516. Rebmeister, In re, 156. Reboulin Pils & Co., In re, 354. Receivers of Virginia Iron, Coal & Coke Co. V. Staake, 365, 384, 386. Rector v. City Deposit Bank Co., 590. Rector v. Commercial Nat Bank, 590. Rector's, In re, 484. Redd V. Wallace, 414. Red'field, In re, 673. Redick v. Woolworth, 285. Redman v. Gould, 218. Redmond, In re, 113. Red River Nat. Bank v. Bray, 186. Reed, In re, 192, 503, 516, 663, 673, 679, 684, 700. Reed v. American-German Nati Bank, 344, 409. Reed v. Bamett Nat. Bank of Jackson- ville, 402. Reed v. Boston Mach. Co., 518. Reed v. Bullington, 364, 376, 388, 710. Reed v. Chase, 459, 462, 466. Reed v. Crowley, 163. Reed v. Equitable Trust Co., 388. Reed v. Paul, 197. Reed v. Pierce, 513. Reed v. Stanley, 49. Reed v. Taylor, 11. Reed v. Vaughan, 712. Reed v. Vaugn, 16. Reese, In re, 229, 251, 253. Reese-Hammond Fire Brick Co., In re, 586. Reeser v. Johnson, 439. Reeside v. Hadden, 766. Reeve v. Kernan, 388. Reeves, In re, 311, 356, 772. Reeves v. McCracken, 715, 729, 730. Reeves v. York Engineering & Supply Co., 374. Regal Cleaners & Dyers v. Merlis, 132. Regealed Ice Co., In re, 358. Reichard & Bro., In re, 555. Reichman, In re, 87, 89. Reid v. Robrecht, 476. Reiff, In re, 665. Reilley v. Buffalo German Ins. Co., 211, 364. 1748 CASES CITED [The flsures refer to sectionsl Eeilly, In re, 46. Eeiman, In re, 2, 646, 648, 654. Reinboth, In re, 303. Reinhard v. Eeinhard, 414. Eeinhardt v. Friederich, 495, 715. Eeinhart, In re, 244. Eeiser, In re, 626. Relsler Amusement Co., In re, 136. Reisvvig, In re, 439, 770. Eeith V. Lullmann, 759. Eeitz V. People, 740. Eekersdres, In re, 285. Eeliable Bottle Box Co., In re, 216. Reliance Storage & Warehouse Co., In re, 313, 492, 542, 777, 779. Eemington Automobile & Motor Co., In i-e, 148, 189. Eemley v. Travelers' Ins. Co., 348. Eemmerde, In re, 248, 508. Remmers v. Merchants' Laclede Nat. Bank, 675, 702. Remmers v. Remmers, 197. Remsen, In re, 655, 656. Remsen Mfg. Co., In re, 358. Remson Mfg. Co., In re, 454. Renda, In re, 199, 248, 254, 633. ' Renick v. Dawson, 480. Rennelbaum v. Atkinson, 186. Rennells v. Potter, 198. Rennie, In re, 99, 236. Republic Ins. Co., In re, 148, 183, 527, 528. Resler, In re, 153, 516. Resnek, In re, 210, 402. Resnek, Shapiro & Co., In re, 404. Ressmeyer v. Norwood, 376. Restein, In re, 212, 624. Reukauff, Sons & Co., In re, 74. Rex Buggy Co. v. Hearick, 85. Reynolds, In re, 7, 9, 182, 205, 228, 229, 231, 347, 414, 415, 594. Reynolds v. Hourigan, 534. Reynolds v. New York Trust Co., 127, 129, 130, 487. Reynolds v. Pennsylvania Oil Co., 186. Reynolds v. Whittemore, 727. R. F. Duke & Son, In re, 110. ' Rhame v. Southern Cotton Oil Co., 49, 181. Rheinstrom & Sons Co., In re, 632. R. H. Herron Co. v. Moore, 599. R. H. Herron Co. v. Superior Court of San Francisco, 9. Rhlnelander v. Richards, 387. Rhoades v. Blackiston, 338, 356. Ehoads, In re, 2, 363, 380, 521. Ehodes, In re, 244, 471, 526. E. H. Pennington & Co., In re, 33, 132, 152. Rhutassel, In re, 671, 692, 699, 703, 743, 744. ElqciardeHi, In re, 229. Rice, In re, 122, 130, 246, 253, 403, 587. Rice V. Maxwell, 689. Rice V. Murphy, 718. Eice V. Nirdlinger, 748. Rice V. Schneck, 214, 392. Richard, In re, 7, 254, 354, 377, 563, 604. Richards, In re, 28, 45, 52, 55, 191, 230, 231, 271, 292, 363, 375, 380, 382, 540, 777. Richards v. Clark, 380. Richard.s v. Maryland Ins. Co., 295. Richards v. Northwestern Coal & Min- ing Co., 314. Eichards v. Schwab, 719. Richards v. Shields, 756. Richardson, In re, 29, 163, 187, 255. Richardson v. Bricker, 764. Richardson v. Germania Bank, 459, 573, 596, 598. Richardson v. Shaw, 357, 582. Richardson v. Trubey, 253. Richardson v. Vick, 360. Richardson v. Wlnnissimmet Nat Bank, 458. Richardson v. Woodward, 244. Rlchheimer, In re, 368. Richmond, In re, 649. Richmond v. Brown, 739, 746; Richmond Standard Steel Spike & Iron Co. V. Allen, 144, 151. Richter, In re, 607, 664. Riehter v. Nimmo, 611. Richter v. Rockhold, 228, 348. Rlchter's Estate, In re, 606. Ricketts, In re, 446. Ricks v. Smith, •380, 752. Riddle's Sons, In re, 587; Eidenour v. Mayo, 747. Eider, In re, 4, 543, 645, 649, 652, 654, 778. Ridge Ave. Bank v. Studheim, 590, 614, 615. Riegel Sanitarium Co., In re, 361. Rieger, Kapnar & Altmark, In re, 211. RifC, In re, 491. Riggin V. Magwire, 499, 513. Riggs V. Price, 96, 182, 298, 446, 449, 457, 465, 466, 468. Riggs V. Roberts, 761, 766. Riggs Restaurant Co., In re, 84, 163. Riker, In re, 198, 412, 465, 494, 506. Rlker v. Gwynne, 449. RUey V. Galveston City R. Co., 138. Riley v. Pope, 634, 654. Riley v. Warden, 105. Rlngenoldus v. Abresch, 525. Rlnker, In re, 358. Riorden, In re, 606. CASES CITE3D [Tbe flsnres refer to aectlouRl 1749 Rlpon Knitting Works v. Schreiber, 227, 22§, 229, 231. Eippa, In re, 244, 250, 253. Rise V. Bordner, 106, 160. Eison V. Knapp, 85, 379, 602. Risou V. Pariiam, 46, 466. Rison V. Powell, 414. Eisteen, In re, 166. Ritchie v. Garrison. 14. Ritchie County Bank v. McFarland, 47. Rittenhouse's Insolvent Estate, In re, 9. Ritterband v. Baggett, 337. Rivas, In re, 672, 681. Eivas V. Noble, 242. Elverslde Contracting Co. v. City of New York, 368. Rivkin, In re, 653, 654. Rixv. Capitol Bank, 245. E. L. Radke Co., In re, 88, 141, 153, 160, 164. Roadarmour, In re, 783. Roanoke rumace Co;, In re, 525. Robb r. Powers, 233. Robert Greenberg & Bro., In re, 229. Robert Moody & Son v. Century Sav. Bank, 41. Roberts, In re, 160, 454, 473, 594. Eoberts v. Atherton, 6. Eoberts v. Femald, 167, 182. Eoberts v. Johnson, 600. Roberts v. Martin, 237. Roberts v. W. H. Hughes Co., 480. Eoberts Co., In re, 626. Eoberts Cotton Oil Co. v. F. B. Morse & Co., 9, 95. Robertshaw Mfg. Co., In re, 54, 451. Robertson, Ex parte, 222. Robertson v. Carson, 19. Robertson v. Howard, 237, 474, 475, 486. Robertson v. Schard, 237. Robertson v. Schlotzhauer, 454. Robertson v. Union Potteries Co., 134. Robertson Banking Co. v. Chamberlain, 49. Robinson, Ex parte, 255. Robinson, In re, 45, 213, 234, 242, 261, 266, 276, 541, 543, 679, 697, 700. Robinson v. Butler, 706. Robinson v. Denny, 325. Robinson v. First Nat. Bank, 525. Robinson v. Hall, 199. Robinson v. Hanway, 153. Eobinson v. J. B. Willi.ston & Co., 662, 679. Eobinson v. Pesant, 726. Eobinson V: Philadelphia & E. E. Co., 269. Eobinson v. Roe, 357, 582. Robinson v. Seaboard Nat. Bank of New York, 129. Robinson v. Soule, 659, 726. Robinson v. Tlschler, 377, 388, 718. Robinson v. Tuttle, 364, 600. Robinson v. Ward, 310. Eobinson v. White, 414, 415. Robinson v. Wilson, 245, 249, 376. Robinson v. Wisconsin, M. & F. Ins. Co. Bank, 590. Robinson Mach. Co., In re, 358. Robinson & Co. v. Cosner, 377. Eobinson & Smith, In re, 375. Kobion v. Walker, 239. Eobison, In re, 244. Eoby V. Colehour, 472. Eoche, In re, 44. 50, 504, 565. Eoche V: Fox, 160, 162. Eochester Lumber Co. v. Locke, 378, 388. Rochester Sanitarium & Baths Co., In re, 31, 315. Eoehford, In re, 23, 67, 202, 408, 409. Eock V. Dennett, 416, 417, 419. Eockaway Soda Water Mfg. Co., In re, 597. Eockett', Ex parte, 626. Rockford, Ex parte, 352. Rock Island Plow Co. v. Reardon, 358, 384, 421. Rock Island Plow Co. v. Western Imp. Co., 28. Rockland Sav. Bank v. Alden, 640. Eockville Nat. Bank v. Latham, 9. Eockwood, In re, 22, 202. Eoddin, In re, 127. Roden V. Jaco, 756. Roden Grocery Co. v. Bacon, '248. Roden Grocery Co. v. Leslie, 715, 716. Rodenhagen, In re, 252. Rode & Horn Y. Phipps, 44, 49, 361, 364, 367. Rodger, In re, 658, 659, 746. Rodgers, In re, 408, 446. Rodgers v. Forbes, 382. Rodolf V. First Nat. Bank, 427, 595. Roeber, In re, 374, 541. Roebling's Sons Co. v. Federal Storage Battery Car Co., 187, 188, 189. Roebuck Weather Strip & Wire Screen Co., In re, 627. , Rnelker, In re, 274. Eoesch & Sons Co. v. Mumford, 434. Roger V. J. B. Levert Co., 29, 364, 544. Roger Brown & Co., In re, 389, 471. Rogers, In re, 27, 68, 84, 135, 236, 444, 666. Rogers v. Abbot, 186, 437, 472, 4a3. Eogers v. American Halibut Co., 587, 596, Eogers V. Boston Club, 9. Eogers v. Chicamauga Trust Co., 413. Eogers V. De Soto Placer Min. Co., 162. Eogers v. Fidelity Sav. Bank & Loan Co., 578, 587. Rogers v. Page, 462, 594, 616. 1750 CASES CITED [Tbe fl^nres refer to sectional Rogers v. Palmer, 579, 601. Rogers v. Stevenson, 430. Rogers v. Union Stone Co., 197, 340. Rogers v. Voss, 297. Rogers v. Wentworth, 199. Rogers v. Western Marine & Fire Ins. Co., 750. Rogers v. Whiteliouse, 358. Rogers v. Winsor, 318. Rogers Mill. Co., In re, 154, 176, 607. Rogers & Stefani, In re, 414. Rogers & Woodward, In re, 592. Rogowski, In re, 78. Rohrer, In re, 390. Rollins V. Twitchell, 547. Rollins Gold & Silver Min. Co., In re, 139, 145, 153. Romadka Bros. Co., In re, 505, 538. Romanow, In re, 10, 155, 164, 169, 434. Rome, In re, 74, 75, 494, 773. Rome Planing Mill Co., In re, 76, 81, 84, 85, 86, 88, 89, 173, 176. Romine, In re, 72, 74, 274. Romm, In re, 504. Roney v. Conable, 427. Ronk, In re, 585. Rood V. Stevens, 186. Rooney, In re, 164. Roosa, In re, 709. Roosevelt v. Mark, 502. Root V. Railroad Co., 491. Root Mfg. Co. V. Johnson, 368, 581, 592. Rose, In re, 258, 317, 360, 373, 470, 522, 626. Rose V. Hart, 545. Rose V. Sims, 544. Rose Shoe Mfg. CO., In re, 47, 213. Roseberry, In re, 364, 567. Roseboom, In re, 316, 454. Rosen v. Wygand, 753. Rosen's Estate, In re, 76, 231. Rosenbaum, In re, 255. Rosenbaum v. Dutton, 536. Rosenbaum v. Garnett, 22. Rosenberg, In re, 26, 73, 189, 297, 408, 511, 524, 567, 699, 774. Rosenberg v. Semple, 57, 595. Rosenberg-Oldstein Co., In re, 243. Rosenblatt, In re, 271, 303, 636. Rosenblatt & Co., In re, 160,^177. Rosenblum, In re, 262. Rosenblum v. Uber, 307, 493, 521, 633. Rosenbluth v. De Forrest & Hotchkiss Co., 318, 463, 575. Rosenfeld, In re, 578, 584, 662, 679, 699, 702. Rosenfeld v. Siegfried, 7, 461. Rosenfeld-Goldman Co., In re, 76, 277, 288, 292. Rosenfleld, In re, 262, 268, 269, 274, 457, 671. Rosenfields, In re, 156, 158, 162. Rosenman v. Coppard, 598. f Rosenthal, In re, 196, 210, 229, 378, 454, 455, 654, 727. Rosenthal v. Bronx Nat. Bank, 392, 597. Rosenthal v. Nove, 186, 506, 756. Rosenthal v. U. S., 788. Rosenthal v. Walker, 418, 466. Rosenthal Bros., In re, 630. Rosenthal & Lehman, In re, 540, 782. Rosenzweig, In re, 402, 430. Rosey, In re, 515, 630. Rosoff V. Gilbert Transp. Co., 392. Ross, In re, 26. Ross V. Jordan, 758, 763, 766. Ross V. Saunders, 50, 364. Ross. V. Stroh, 53, 55, 210. Ross V. Wilcox, 417. Ross V. Worsham, 251. Ross-Lewin v. Goold, 160, 225, 712, 727. Ross-Meehan Foundry Go. v. Southern Car & Foundry Co., 27, 215. Ross-Mehan Brake Shoe Foundry Co. 7. Southern Malleable Iron Co., 148. Rosser, In re, 55, 227, 228, 229, 231, 271. Roszell Bros. v. Continental Coal Corpo- ration, 17, 132, 182. Rotan Grocery Co. v. West, 613. Roth V. Pechin, 199, 744. Roth V. Smith, 361. Roth & Appel, In re, 307, 494, 521, 523. Rothenberg, In re, 153. Rothermel v. Moyer, 363, 380. Rothleder, In re, 288, 290, 291. Rothschild, In re, 403. I^oukous, In re, 657. Rourke Co., In re, 779. Rouse, Petition of, 604. Rouse, Hazard & Co., In re, 44, 45, 628. Rowan v. Holcomb, 2, 715. Rowe, In re, 304, 673, 704. Rowe V. Guilleaume, 743. Rowe V. Page, 7, 11, 380. Rowell V. Ricker, 744. Rowland, In re, 471. Rowland v. Auto Car Co., 426. Roy, In re, 673, 678. Royal, In re, 664, 675, 699, 703. Royal Ins. Co. v. Miller, 303. Royall's Adm'r v. McKenzie, 174, 311. Royce Dry Goods Co., In re, 490, 537, 551. Royea's Estate, In re, 354. Royston v. Weis, 119. Rozelle v. Rhodes, 239. Rozinsky, In re, 309, 773. R. P. Williams & Co. v. United States Fidelity & Guaranty Co., 491, 506. R. S. Howard Co. v. International Bank of St. Louis, 562. Rubel, In re, 211, 307, 500, 521. CASES CITED ITbe flgrnres refer to sections] 1751 Rubenstein v. Lottow, 451, 453, 463, 465, 575, 593, 595, 598, 603. Rubin, In re, 664. Rubin & liipman. In re, 704. Ruby V. Atkinson, 51. Ruckman v. Cowell, 710, 715. liudd, In re, 488, 565. Ruddell, In re, 100. Rude, In re, 308, 386, 387, 638, 781, 783. Rudebeck v. Sanderson, 145. Rudnick, In re, 255, 455, 576, 603, 657. Rudnick & Co., In re, 28. Rudstrom v. Sheridan, 744. Rudy V. Katz, 431. Ruehle, In re, 565. Ruff V. Milner, 729. Ruff's Appeal, 417. Rugely V. Robinson, 4, 321, 347. Ruhl-Koblegard Co. v. Gillespie, 448, 718. Eukeyser v. Tostevin, 757. Ruiz V. Eickerman, 723. Rumsey v. Wolcott, 211. Rumsey & Sikemier Co. v. Novelty & Machine Mfg. Co., 82, 84, 91, 205, 430. irundle. In re, 188, 511. Rung, In re, 286. Rung Furniture Co., In re, 89. Runzi, In re, 579. Ruos, In re, 64, 74, 228, 231. Rupp, In re, 255. Ruppel, In re, 373. Rusch, In re, 45, 309. Rush V. Flood, 722. Rush V. Lake, 55, 112. Rushin v. Cause, 244. Russel, In re, 119, 120. Russel V. McCord, 556. Russell, Ex parte, 505. Russell, In re, 41, 46, 159, 203, 327, 396, 397, 398, 414, 543, 665, 679. Russell V. Cheatham, 4. Russell V. Owen, 414, 548. Russell V, Phelps, 275, 311, 396. Russell V. Powell, 467. Russell V. Rogers, 651. Russell Card Co., In re, 74, 778. Russell Falls Co., In re, 554, 773. Russell's Trustee v. Mayfield Lumber Co., 581, 599. Russell Wheel & Foundry Co., In re, 145, 173, 182. Russie, In re, 99, 238. Rutherford v. Eountree, 188. Rutland County Nat. Bank v. Graves, 458. Rutland Grocery Co., In re, 253, 255. Rutland-Perry Co., In re, 316, 358. Rutland Realty Co., In re, 160. Ryan, In re, 80, 84, 135, 156, 476, 613. Ryan v. Cavanagh, 130. Ryan v. Hendricks, 55, 163. Ryan v. Hook, 105. Ryan v. Rogers, 449. Ryburn, In re, 315. Ryder v. Rush, 483. Ryttenberg v. Schefer, 412, 585. R. & W. Skirt Co., In re, 402. Sabin, In re, 16, 374, 408, 568. Sabin v. Blake-McFaU Co., 30, 48, 160, 162,- 163. Sabin v. Camp, 585. Sabin v. Chrisman, 10. Sabin v. Connor, 374. Sabin V. Horensteln, 452. Sabin v. Larkin-Green Logging Co., 16, 182, 525. Sabinal Nat. Bank v. Bryant, 741, 745. Sabine, In re, 65, 780. Sabsevitz, In re, 654. Sacchi, In re, 16, 288, 296, 567. Sacharoff v. Kleiner, 657. Sackett v. Andross, 715. Sacred Heart Roman Catholic Church v. Vedder, 480. • Sadler v. Immel, 10. Safe-Deposit & Sav. Inst., In re, 7, 27, 133, 176. Safford v. Burgess, 356. Sage, In re, 17, 137, 182, 318, 413, 415, 783. Sage v. Wyncoop, 89. Sage V. Wynkoop, 364, 601. Sagor, In re, 591. St. Cyr V. Daignault, 385. St. ^elen Mill Co., In re, 298. St. John, In re, 327. St. John V. Stephenson, 761. St. Louis County v. Watson, 317. St. Louis Ice Mfg. & Storage Co., In re, 629. St. Louis World Pub. Co. v. Rialto Grain & Securities Co., 186, 748. St. Louis & Kansas Oil & Gas Co., In re, 326. Salaberry, In re, 309. Sale, In re, 244. Salem V. Lyme, 19. Salkey, In re, 55, 227, 231. Sallee, In re, 222. Salmon, In re, 91, 360, 451, 598. Salmon & Salmon, In re, 8, 155. Salmons, In re, 571. Salsburg v. Blackford, 46, 57, 402, 702. Salsbury, In re, 702. Salters V. Tobias, 4. Salt Lake Valley Canning Co. v. Collins, ' 180. Saludes Lumber Co., In re, 176. Salvator Brewing Co., In re, 451, 506, 526, 527, 541. 1752 CASES CITED [The flKures refer to sectional Salway v. Salway, 310. Samel v. Dodd, 54, 228, 229, 231. Samet, In re, 679. Samet v. Farmers' & Merchants' Nat. Bank, 679. Sample v. Beasley, 187. Sampson v. Curtis, 766. Sampter, In re, 565. Sams V. St. Louis & M. E. Co., 138. Samson v. Blake, 46. Samson v. Burton, 29, 187, 189, 198, 200, 578. Samuel v. Cravens, 765. Samuel Wilde's Sons, In re, 75. Samuels, In re, 110, 112, 114, 160, 179, 228, 348. Samuels & Lesser, In re, 110, 112, 179. Samuelsohn, In re, 258, 272, 313. Sam Z. Lorch & Co., In re, 597, 605. San Antonio Land & Irr. Co., In re, 132, 183. Sanborn, In re, 469, 471, 481, 669. Sanbom-Cutting Co. v. Paine, 56, 298, 446. Sand, In re, 313. Sanderlln, In re, 484, 584, 603. Sanders v. .iEtna Life Ins. Co., 348. Sanderson, In re, 324, 526, 576. Sanderson v. Buckley, 753. Sanderson v. D&.ily, 756. Sanderson v. Hunt, 741. Sands v. Roberts, 242. Sands Ale Brewing Co., In re, 366. ^andusky. In re, 124. Sandusky v. Exchange Bank, 748. Sandusky v. First Nat. Bank, 25, 31. Sandwich Mfg. Co. v. Wright, 446. " Sanford, In re, 84. Sanford v. Huxford, 157, 172. Sanford v. Lackland, 347. Sanford v. Sanford, 193. Sanford v. Zlmmern, 340. Sanford Furniture Mfg. Co., In re, 780. San Gabriel Sanatorium Co., In re, 135, 390, 408, 569. Sanger, In re, 540, 783. Sanger v. Upton, 148. Sanger Bros. v. Barrett, 525, 743. San Jose Baking Co., In re, 158. San Miguel Gold Min. Co., In re, 57. Santa Rosa Bank v. White, 526, 712, 727, 728. Saplnsky & Sons, In re, 307, 873. Sapiro, In re, 271. Sargent, In re, 156, 158, 162, 163. Sargent v. Blake, 255, 317, 453, 459, 587, ■ 603. Sargent v. Helton, 205. Sarsar, In re, 201. Sassman, In re, 356. Sattler v. Slonlmsky, 446. Saulhoffi, In re, 248. Saunders, In re, 288, 529, 534, 575. Saunders v. Commonwealth, 724, 740. Saunders v. Mitchell, 101. Saunders & Co., In re, 451. Saur, In re, 313. SauthofC, In re, 122, 247, 248, 255, 559, 572. Sauve V. Fleschutz, 564. Sauve y. M. L. More Inv. Co., 41, 55. Savage, In re, 275, 488. Savage v. Savage, 451, 460, 472. Savage Baking Co., In re, 454. Savarese, In re," 679. Sawyer, In re, 135, 243, 283, 313, 461, 651. Sawyer v. Hoag, 148, 551. Sawyer v. Rector, 712. Sawyer v. Turpin, 586. Sax, In re, 229. Saxton V. Sebrlng, 451, 466. Saxton Furnace Co., In re, 471, 482, 495. Sayed, In re, 329, 584, 594, 595. Sayer, In re, 315. Sayre v. Glenn, 510. S. Bartolotta & Co. v. Their Creditors, 86. Scales V. Holje, 317, 457, 466. Scammon, In re, 156, 160. Scammon v. Bowers, 361. Scammon v. Cole, 41, 379, 577. Scammon v. Hobson, 379, 463. Scammon v. Kimball, 544, 550, 551. Scandinavian-American Bank t. Sabin, 47, 364, 454. Scanlan, In re, 627. Scattergood, The Thomas, 030.. Schaap v. Robinson, 485. Schachter, In re, 682, 701. Schaefer, In re, 348, 505. Schafer, In re, 246. SchafiCner, In re, 44, 527, 541. Schall V. Camors, 123, 129, 514. Schall V. Kinsella, 375, 396. Schapter, In re, 296, 299. Schaupp V. Miller, 367, 454. ' Scheldt V. Goldsmith, 197. Scheldt Bros.. In re, 512. Scheier, In re, 240, 255. Scheifter, In re, 110, 288, 291. Scheld, In re, 243. Schellenberg v. Mullaney, 722. Schenck, In re, 445, 457, 670, 685, 771. Schenderlein', In re, 84, 514. Schenectady Enginef'rlng & Const. Co., In re, 64, 65. Schenkein, In re, 153, 154 Schepeler, In re, 187. Scheper v. Briggs, 762. Scherber, In re, 403. Schermerhorn, In re, 397, .898, 408. Sc-hermerhorn v. Talman, 162. Sfherr, In re, 313. CASES CITED [TUe flsares refer to seotionsl 1753 Scherzer, In re, 590. Scheuer v. Katzoff, 587, 597. Scheuer v. Smith & Montgomery Book & Stationery Co., 27, 89, 133.- Schexnailder v. Fontenot, 3, 248, 755. ScMclj, In re, 86. Schickerling, In re, 670. Schiennann, In re, 306, 320. Sehiff V. Solomon, 160. Schiller, In re, 74, 275. Schiller v. Weinstein, 727. Schilling, In re, 75, 306, 317, 338, 367, 426, 454, 543. Schilling v. Curran, 458, 461, 462, 466. Schimmel, In re, 74. Schindler, In re, 359. Schlesinger, In re, 227, 229, 231. Schlessinger v. Schlessinger, 722. Schlitz V. Schatz, 245. Schloerb, In re, 205, 206, 353. Schloss V. Strellow, 179. Schmechel Cloak & Suit Co., In re, 577. Schmick Handle & Lumber Co., In re, 402. Schmid v. Neuberger, 467. Schmid v. Rosenthal, 57, Z2i). Schmidt, In re, 367, 390. Schmidt v. Bank of Commerce, 553. Schmilovitz v. Bernstein, 191, 382. Schmltt V. Dahl, 446. Schmitt V. Greenberg, 554, 748. Schnabel, In re, 717. Schneider, In re, 358. Schnepf, In re, 28, 191, 571. Schnurman's Ex'x v. Biddle & Co., 316. Schocket, In re, 773. Schoenfeld, In re, 216, 778. Schoenfield, In re, 450, 454. Schoenherr v. Van Meter, 370, 388. Schoenthaler v. Rosskam, 200, 364, 378, 380. Schofield, In re, 348, 675. Scholtz, In re, 7, 26, 436, 444. Schomacker Piano Forte Mfg. Co., In re, 633. Schonberg, In re, 267, 451. School Dist. V. First Nat. Bank, 310. Schoolfleld's Adm'r v. Rudd, 356. Schoonmaker v. Pittsburgh Contracting Co., 193. Schow, In re, 165, 205, 375, 376, 377. Schreck, In re, 222. Schreck v. Hanlon, 668. Schreiber v. Schomacker Piano Forte Mfg. Co., 713. Schrenkeisen v. Miller, 465. Sclireyer v. Citizens' Xat. Bank, 611. Sehroeder, In re, 673, 702. Schroeder v. Frey, 750. Schrom, In re, 214. Schroth V. Monarch Fence Co., 360. Schuchardt, In re, 511, 514. Schuette & Co. v. Schwank, 584, 595, 597, Schuetz V. International Harvester Co., 587. Scbulenberg v. Kabureck, 467. Schuler V. Hassinger, 47, 48, 469, 478. 482, 485. Schuler v. Israel, 477. SfchuUer, In re, 249. Schulman, In re, 57, 274. Schulman & Goldstein, In re, 221. Schultz, In re, 702. Schultz & Guthrie, In re, 76, 495, 626. Schultze V. Bolting, 561. Schulz, In re, 244. Schumert & Warfield v. Security Brew- ing Co., 95. Schumm, In re, 242. Schumpert, In re, 222, 684. Schunack v. Art Metal Novelty Co., 748. Schuyler, In re, 665, 688. Schuyler v. Littlefield, 354. Schvi-ab, In re, 575, 650, 773. Schwaninger, In re, 97. Schwartz, In re, 18, 29, 76, 108, 189, 281, 511, 664, 672, 685, 717. Schwartz v. Kleber, 472. Schwartz & Co., In re, 663, 678. Schwartzman, In re, 307, 426. Schwarz, In re, 195, 464, 538, 539, 540, 543. Schweer v. Brown, 227, 229, 231. Schweigert-Ewald Lumber Co. v. Bau- man, 716. Schweitzer, In re, 384. Schwencke Land & Inv. Co. v. Forster, 718. Scofield V. Moorhead, 273. Scofield V. United States, 293, 294, 296. Scofield Co., In re, 630. Scott, In re, 4, 65, .75, 147, 183, 199, 245, 256, 271, 279, 289, 369, 489, 531, 606, * 639, 642, 649, 653, 672, 675, 679, 775, 777, 787. Scott V. Abbott, 489. Scott w. Cheatham, 248. Scott V. Cline, 346. Scott V. Demarest, 521, 726. Scott V. Devlin, 418, 448. Scott V. Bllery, 390, 565. Scott V. George's Creek Coal & Iron Co., 413, 415. Scott V. Gillespie, 414. Scott V. Gordon, 390. Scott V. Grinstead, 10. Scott V. Kelly, 38, 414. Scott V. Little, 422. Scott V. Lunsford, 197. Scott v. Mead, 460. Scott V. Olmstead, 746. 1754 CASES CITED [Tbe Hs^rea refer to sections] Scott V. One Thousand Island Boat & Engine Co., 451. Scott V. Porter, 736. Scott V. Watson, 105. Scott V. Wilkie, 245. Scott County Milling Co. v. Powers, 597, 601. Scott Transfer Co., In re, 495. Scott & Co. V. Wilson, 47. ScovlU V. Shaw, 148. ScovlU V. Thayer, 148. Scrateord, In re, 156, 170. Screws, In re, 778. Scruby v. Norman, 237. Scruggs, In re, 307, 316, 320, 521, Scruggs Bros., In re, 362. Scudder, In re, 176. Scull, In re, 163. Scully, In re, 289. Scully V. Kirlipatrick, 9. Seaboard Fire Underwriters, In re, 143, 166. Seaboard Steel Casting Co. v. William R. Trigg Co., 87, 95, 160. Seabolt, In re, 245, 255, 256. Seabury, In re, 688. Seager v. Armstrong, 427. Seager v. Lamm, 594. Seaholm, In re, 664. Seal, In re, 23, 183, 327. Seaman v. Stoughton, 10. Searcy v. McChord, 479. Searle v. Mechanics' Loan & Trust Co., 23, 623, 638. Searles, In re, 544. Sears, In re, 33, 163. Sears v. Oilman, 582. Sears, Humbert & Co.,. In re, 58, 770. Seaton v. Scovill, 427. Seattle Coal Co. v. Thomas, Seaver v. Spink, 366. Seawell v. Greenway, 311. Seay, In re, 544. Seay v. Wilson, 507. Sebring v. Wellington, 585, 599. Seckendorf, In re, 703. Seckler, In re, 605, 613. Second Nat. Bank v. Hunt, 585. Second Nat. Bank v. National State Bank of New Jersey, 479, 567, 571. Second Nat. Bank v. Wood, 758. Secor, In re, 307. Security Sav. Bank v. Scott, 747, 755. Security Trust Co. v. Glazier, 427. Security Trust & Sav. Bank v. Wm. R. Staats Co., 576. Security Warehousing Co. v. Hand, 47, 365, 368. Sedalla Farmers' Co-op. Packing &' Prod- uce Co., In re, 95, 173. Sedgwick v. Casey, 416. Sedgwick v. Fridenberg, 49. Sedgwick V. GrinneU, 567. Sedgwick v. Lynch, 458. Sedgwick v." Menck, 27. Sedgwick v. Millward, 616. Sedgwick v. Place, 434, 436, 460, 464. Sedgwick v. Sheffield, 84. Sedgwick V. Stewart, 562. Sedgwick v. Wormser, 458. See V. Rogers, 470. Seebold, In re, 45, 52, 389. Seedig v. First Nat. Bank of Clifton, 253. Seegmiller v. Day, 149, 407, 412. Seeley, In re, 85, 666. Seeley v. Gwillim, 136. Segen v. Fabacher, 469. Seger Bros. Co., In re, 427. Seider, In re, 296. Seigel V. Cartel, 48, 701. Selling V. Gunderman, 218, 245. Selfridge v. Gill, 566. Selig, In re, 263. Selig V. Hamilton, 149. Seligman, In re, 269, 654. Seligman v. Forest, 303. Seligman v. Gray, 541. Seligman v. Wells, 362. Selkregg v. Hamilton Bros., 208. Sellers v. Bell, 222, 224, 225, 242, 673, 676, 678, 680, 768. Sellers v. Hayes, 446, 452, 575. Selman Heating & Plumbing Co., In re, 352. ' Semmel, In re, 672, 673. Semmer Glass Co., In re, 499, 505, 550. Senft V. Lewis, 463, 466. Senoia Duck Mills, In re, 180. Sentenne & Green Co., In re, 384. Serra e Hijo v. Hoffman, 185, 198. Servis, In re, 692, 695. Sessions v. Romadke, 320, 321, 419. Sessler v. Nemcof, 23, 401. Sessler v. Paducah Distilleries Co., 488, 525. Severin v. Robinson, 377, 611. Seward Dredging Co., In re, 316, 358. Sewell, In re, 358. Sexton V. Dreyfus, 494, 565. Sexton V. Kessler & Co., 357, 580. Seydel, In re, 250. Seymour, In re, 233, 234. Seymour v. Browning, 185. Seymour v. O. S. Richardson Fueling Co., 747. Seymour v. Street, 712. S. F. Myers Co. v. Tuttle, 480. Shachter, In re, 227. Shaefter, In re, 471, 472. Shafer, In re, 658, 659. Shafer v. Fritchei-y, 379. CASES CITED TThe flKnres refer to sections] 1755 Shaffer, In re, 268, 315, 523, 679. Shaffer v. Federal Cement Co., 320. Shaffer v. Fritehery, 461, 517. Shaffer v. Koblegard Co., 54, 56, 700. Shaffer & Son, In re, 254. Shaffer & Stern, In re, 227. Shainwald v. Davids, 23, 418. Shainwald v. Davis, 392. Shainwald v. Lewis, 285, 413, 455. Shale V. Farmers' Bank of Morrill, 615. Shanahan, In re, 121. Shanker, In re, 703. Shanks v. National Casket Co., 423. Shantz & Son Co., In re, 575. Shannon v. Shepard Mfg. Co., 27, 95. Shapiro, In re, 82, 124, 485. Shapiro v. Thompson, 182, 372, 373, 726. Sharfsin v. U. S., 787. Sharick, In re, 74. Sharood v. Jordan, 463, 466. Sharp V. Fitzhugh, 445, 457. Sharp V. Philadelphia Warehouse Co., 82, 581, 584. Sharp V. Simonitsch, 582. Sharp V. Woolsware, 247. Sharpe v. AUender, 600. Sharpe V. Doyle, 202, 203. Shatz, In re, 493, 554. Shaver Co., In re, 160. Shaver v. Mowry, 468. Shaw, In re, 367, 540, 626, 657, 658. Shaw V. Bauman, 310. Shaw V. Bumey, 759, 761. Shaw V. Lindsey, 469. Shaw V. Meldrum, 414. Shaw V. Mining Co., 132. Shaw V. Mitchell, 349. Shaw V. Standard Piano Co., 11. Shaw V. Vaughan, 649, 735. Shawhan v. Wherritt, 13, 182. Shay V. Sessaman, 349. Shea, In re, 402, 481, 485, 679. Shea V. Lewis, 44, 45, 57, 229, 402, 403. Shear, In re, 274, 666. Shears v. Solhinger, 11. Sheehan, In re, 155, 172, 497, 772. Sheets v. Hawk, 712. Sheffer, In re, 169. Sheinbaum, In re, 403. Sheinberg, In re, 678. Sheinberg v. Hoffman, 57, 701. Shelboume, In i-e, 492, 496. Sheldon v. Clews, 735. Sheldon v. Houghton, 339. Sheldon v. Parker, 414, 416, 446. Sheldon v. Rounds, 245, 483. Shelley, In re, 57. Shelley v. Nolen, 457. Shelley's Appeal, 248. Shellington v. Howland, 525. Shelly, In re, 352. Shelly V. Nolen, 450, 457. Slielton v. First Nat. Bank, 597. Shelton v. Pease, 712, 715. Shelton v. Price, 452, 462. Shenandoah Val. R. Co. v. Griffith, 146. Shenberger, In re, 222, 675. Shepard, In re, 121, 189, 509. Shepard v. Morgan, 739. Shepardson, Appeal of, 9. Shepardson, In re, 177, 743. Shepherd v. Turner, 546. Sheppard, In re, 533, 665. Sheppard v. Boggs, 339. Sheppard v. Wilkins, 491. Sheppard-Strassheim Co. v. Black, 182, 574, 597. Shera, In re, 271. Sherburne, In re, 177. Sheridan, In re, 585. Sheridan State Bank v. Rowell, 250, 371. Sherman v. Bingham, 24, 413. Sherman v. Hobart, 764. Sherman v. International Bank, 163, 338. Sherman v. Luckhardt, 580, 587, 462, 466. Sherman v. Traders' Nat. Bank, 578. SherriU v. Hutson, 423, 584. Sherry, In re, 179. Shertzer, In re, 668, 682, 701. Sherwin, Ex parte, 308. Sherwood, In re, 60, 135, 779. Sherwood v. Holbrook, 149, 392, 423, 611. Sherwood v. Mitchell, 716. Sherwood Shoe Co. v. Wix, 582, 702. S'herwoods, In re, 211, 307, 362, 519. Shesler v. Patton, 479. Shidlovsky, In re, 45. Shiebler, In re, 367, 526. Shiebler & Co., In re, 387, 589, 778. Shields, In re, 253. Shields v. Coleman, 27. Shields v. John Shields Const. Co., 550. Shiffer v. Akenbrook, 148, 401. Shlmer r. Huber, 592. Shine, In re, 651. Shinn, In re, 389, 457. Shinn v. Kemp & Hebert, 471. Shipley, Ex parte, 310. Shipley v. Platts, 732. Shipman v. Daubert, 200. Shippen's Appeal, 349. Shockey v. Mills, 761. Shoe & Leather Reporter, In re, 50, 56, 471. Shoemaker, In re, 348, 389, 692, 772, 783, 788. ., Shoemaker v. Hurwitz, 524. Shoemaker v. National Mechanics' Bank, 554. 1756 CASES CITED ITlie figures refer to sections] Shoenberger, In re, 557. Shoesmith, In re, 163, 173. Slion, In re, 770. ShouUweiler v. Harrington, 525. Shook V. Levi, 358. Sllorer, In re, 668, 681. Shorten v. Booth, 562. Shouse, Ex parte, 84, 153, 160, 176. ■ Shreveport Gas Oo. v. Assessor, 136. Shrimer, In re, 254, 682, 701. Shriver, In re, 704. Shropshire, Woodliff & Co. v. Bush, 620. Shryocls v. Basehore, 11. Shryock v. Waggoner, 354. Shuette & Co. v. Swank, 575. Shuetz V. Walter Boyt Saddlery Co., 597. Shuey, In re, 28. Shulman, In r6, 361. Shulman v. Graves, 659. Shute, In re, 374, 382. Shults, In re, 76, 547, 549, 550, 590. Schultz, In re, 663. Shuman v. Fleckenstein, 400, 467. Shuman v. Strauss, 743. Shute V. Patterson, 168, 178. Shutts V. First Nat. Bank, 587. Sibley V. Nason, 236, 343, 710. Sicard v. BufCalo, N. Y. & P. R. Co., 57, 199. Sickman & Glenn, In re, 127. Sidener v. Klier, 366. Sidle, In re, 497. Sidney L. Bauman Diamond Co. v. Hart, 13, 27, 166. Siebert, In re, 68, 187. Siebert v. Dahlberg, 664. Sieg V. Greene, 454, 457, 463, 582. Siegel, In re, 451. Siegel Co., In re, 360, 531, 639, 652, 657. Siegel-Hillman Dry Goods Co., In re, 23, 621. Slevers, In re, 10, 91, 205, 406, 434, 436. Sig. H. Rosenblatt & Co., In re, 160. Sigler v. Shehy, 193. Sigsby V. Willis, 153, 172, 498. Silberhorn, In re, 409. Silberstein, In re, 654. Silberstein v. Stahl, 414, 581. Sill V. Solberg, 577. Silverman, In re, 2, 76, 85, 171, 229, 430, 495, 500, 527, 685, 768, 783. Silverman v. Rubenstein, 661. Silvernail Co., In re, 489, 587, 601. Silvey & Co. v. Tift, 182. Simcox, Inc., In re, 621. Sime, In re, 32, 280. Simmons, In re, 162, r!48. Simmons v. Greer, 367. Simmons v. Heman, 340. Simmons v, Richards, los, 304, 415. Simmons & Griffin, In re, 348. Simon, In re, 349, 507, 664, 679, 681, 684, 692. Simon v. Openheimer, 367. Simon Casady & Co. v. Hartzell, 748. Simon & Sternberg, In re, 76, 246, 672. Simonsi v. Lovell, 106. Simonson, In re, i55, 162, 171, 172. Simonson v. Sinsheimer, 55, 155, 162. Simpson, In re, 233. Simpson v. City Sav. Bank, 9. Simpson v. Combes, 361, 467. Simpson v. Kerkeslager, 211. Simpson t. Miller, 197, 236, 317, 327. Simpson v. Minnix, 747. Simpson v. Simpson, 729, 731, 740. Simpson v. Van Etten, 379. Simpson v. Western Hardware & Metal Co., 182, 401, 595, 614. Simpson Mfg. Co., In re, 431. Sims, In re, 188, 218, 367, 622, 680. Sims v. Jacobson, 753. Sims Vr Union Assur. Soc, 211, 409. Sims V. Walsham, 239. Sinclair v. Smyth, 712. Singer, In re, 56, 274, 670. Singer v. Jacobs, . 599. Singer v. National Bedstead Mfg. Co., 9. Singerly v. Fox, 297. Sink, In re, 382. Sihnett, In re, 244, 249. , Sinsheimer v. Simonson, 155, 412, 439. Sirrine v. Stoner-Marshall Co., 598. Sisler, In re, 248. Sitting, In' re, 285. Sively v. Campbell, 185. Sjoberg v. Nordin, 62. Skaats, In re, 662, 664. Skelley, In re, 20, 156, 172. Skillen v. Endelman, 423, 454, 462. Skillin V. Magnus, 411. Skillin V. Maibrunn, 464, 467. Skilton V. Coddington, 367, 534. Skilton V. Codington, 365, 396, 414. Skinner, In re, 222, 670. Skoll, In re, 436. Skubinsky v. Bodek, 211. Skylark, The, 568, 569. Slack, In re, 256. Slade's Estate, In re, 106. Slaughter v. Louisville & N. R. Co., 182, 214. Slayton v. Drown, 575, 599, 614, 633. Sledge V. Denton, 489. Slee V. Bloom, 146. Sleek V. Turner, 89, 579. Slichter, In re, 100. Slidell V. SIcCrea, 157. Slingluff, In re, 348, 674, 678. Sloan, In re, 245, 248, 253, 254, 587 605, G85. Sloan V. Lewis, 15G, 182. CASES CITED [Tbe flKures refer to sections] 1757 Sloan & Bro. v. GroUman, 716. Slocum, In re, 123. Slocum V. Soliday, 521. Slomka, In re, 434, 626, 628. Slusher v. Hopkins, 748. Small V. I^uller, 414, 426. Smalley v. Laugenour, 249, 251 253, 287. Smart, In re, 634. Smith, In re, 2, 7, 10, 16, 26, 53, 71 , 74, 80, 85, 91, 108, 110, 119, 123, 130, 135, 157, 167, 171, 177, 180, 189, 202, 205, 229, 233, 236, 242, 244, 253, 255, 264, 278, 285, 288, 290. 299, 309, 352, 355, 356, 362, 364, 367, 397, 402, 434, 437, 438, 439, 451, 484, 487, 497, 499, 500, 505, 509, 523, 567, 585, 639, 665, 672, 675, 679, 688, 692, 693, 736, 778, 780, 782, 783. Smith V. Auerbach, 427, 430. Smith V. Belden, 423. Smith V. Belford, 439. Smith V. Herman, 200, 396. Smith V. Bralnerd, 609. Smith V. Brinkerhoff, 181, 546. Smith V. Brooke, 105. Smith V. Broomhead, 172. Smith V. Buchanan, 27, 89. Smith V. Carukin, 454, 525. Smith V. Chandler, 349. Smith V. Claflin, 449. Smith V. Commonwealth, 232. Smith V. Cook, 713. Smith V. Cooper, 783. Smith V. Coury, 387, 453, 575, 577, 584, 597, 599, 601. Smith V. Craft, 573. Smith V. Crawford, 417. Smith V. Eaton, 14. Smith V. Eldredge, 466. Smith V. Ely, 367, 451. Smith V. Engle, 16, 712. Smith V. Godwin, 364, 382. Smith V. Gordon, 320, 321, 396. Smith V. Hewlett Robin Co., 597. Smith V. Hill, 716. Smith V. Hodson, 724, 749. Smith V. Hornesby, 829. Smith V. Kastor, 149. Smith V. Kearney, 327. Smith V. Keegan, 674. Smith V. Kehr, 246, 463, 468, 568. Smith V. Kinney, 756. Smith V. Lawton, 392. Smith V. Little, 577. Smith V. Long, 486. Smith V. McQnillin, 726. Smith V. Manufacturers' Nat. Bank, 137, Smith V. Mason, 22, 35, 403. Smith V. Means, 47. Smith V. Meisenheimer, 193, 380. Smith V. Miller, 186. Smith V. Morganstern, 645. Smith V. Mottley, 634. Smith V. Mutual Life Ins. Co., 461, 466, 467. Smith V. Powers, 456, 575, 598. Smith V. Ramsey, 712. Smith V. Retail Merchants' Fire Ins. Co., 318. Smith V. Rucker, 659. Smith V. Scholtz, 476. Smith Y. Selbel, 457. Smith V. Shenandoah Valley Nat. Bank of Winchester, Va., 782. Smith V. Smith, 256. Smith V. Soldiers' Business Messenger & Dispatch Co., 186. Smith V. Stanchfleld, 763, 764. Smith V. Teutonia Ins. Co., 84. Smith V. Thompson, 240, 252. Smith V. Tostevin, 582. Smith V. Township of Au Gres, 364, 583, 780. Smith V. Turner, 726. Smith V. Vodges, 460. Smith V. Wahl, 197, 320. Smith V. Wheeler, 720. Smith V. Zachry, 247, 249, 251, 752. Smith Const. Co., In re, 409. Smith Longbottom & Sons, In re, 230. Smith Lumber Co., In re, 518. Smith, Thorndyke & Brown Co., In re, 634. Smith Wallace Shoe Co. v. Ternes, 358. Smith & Bro. Typewriter Co. v. Alleman, 355, 356. Smith & Co. V. Lacey, 753. Smith & Nixon Piano Co., In re, 356. Smith & Shuck, In re, 358. Smith & Wallace Co. v. Lambert, 743. Smoot V. Morehouse, 340, 585. Smoot V. Perkins, 392. Smyth, In re, 340. Snedaker, In re, 565, 566, 569. Snell, In re, 376, 685. Snelllng, In re, 329, 396, 648, 650. Snipes v. Mutual Trust Co., 587. Snodgrass, In re, 466. Snodgrass v. Posey, 330. Snow, In re, 286. 291, 349. Snow V. Dalton, 47. Snow V. Sheldon, 141. Snyder, In re, 378. Snyder v. Bougher, 479. Snyder v. Smith, 198, 380. Snyder's Adm'rs v. 'McComb's Ex'x, 476. Snyder & Johnson Co., In re, 135. Sobol, In re, 57, 231, 504. Social Circle Cotton Mills, In re, 316. Societe d'Epargnes v. McHenry, 568. Sohier v. Loring, 507, Sohoo, In re, 690. 1758 , CASES CITED [The flsnres refer to sections! Sol. Aarons & Co., In re, 360. Sola e Hi.io, In re, 47, 458, 575. Soldosky, In re, 613. Sol Gross & Co., In re, 654. Solinsky v. New York Stock Exchange, 337. Solomon, In re, 248, 438, 444, 682. Solomon & Carvel, In re, 114. Solomon & Co., In re, 357. Solomon & Johnson, In re, 255. Solomons v. Kursheedt, 313. Soloway & Katz, In re, 76, 78, 259, 260, 274, 654. Soltmann, In re, 390, 541, 565. Son, In re, 692. Sonneborn v. Stewart, 172. Soper, In re, 222, 246, 253. Soper V. Fry, 102. Sorg, In re, 248, 251. Sorkin, In re, 274. Sosnowski v. Rape, 236, 366. Soudan Mfg. Co., In re, 462. Soule V. First Nat. Bank, 575, 597, 614. Sounds Credits Co. v. Powers, 710. Southard v. Wilson, 317. South Boston Iron Co., In re, 45, 52, 110, 528, 653. South End Imp. Co. v. Harden, 316, 387. South Side Trust Co. v. Watson, 521. South Side Trust Co. v. Wilmarth, 348. South & North Alabama R. Co. v. FalU- ner, 105. Souther, In re, 507. Southern v. Fisher, 396. Southern Arizona Smelting Co., In re, 182, 376, 379. Southern Co. of Baltimore City, In re, 633. Southern Cotton Oil Co. v. ElUotte, 44, 352. Southern Development Co. v. Houston & T. C. R. Co., 310. Southern Exp. Co. v. Connor, 197. Southern Hardware & Supply Co., In re, 373. Southern Hardware & Supply Co. v. Clark, 358. Southern Irr. Co. v. Wharton Nat. Bank, 240. Southern Loan & Trust Co. v. Benbow, 4, 27, 29, 187, 191, 389, 471. Southern Minn. R. Co., In re, 138. Southern Overalls Mfg. Co., In re, 613. Southern Pac. Co. v. Denton, 132. Southern Pac. Co. v. I. X. L. Furniture & Carpet Installment House, 249. Southern Pine Co. v. Savannah Trust Co., 57, 352. Southern R. Co. v. Avey, 469. Southern R. Co. v. Wilder, 373. Southern Steel Co., In re, 145, 500, 514, 515, 783. Southern Steel & Iron Co. v. Hickman, Williams & Co., 212. Southern Textile Co., In re, 367. Southern Trust Co. v. Wilklns, 316. Southwell v. Church, 27. Southwestern Bridge & Iron Co., In re, 33. Southwestern Oar Co., In re, 631. Southwick V. Whippe, 585. Spacht, In re, 380. Spades, In re, 554, 649. Spalding, In re, 95, 178, 208. Spalding v. Dixon, 494. Spalding v. New York, 726. Spalding Cotton Mills, In re, 403. Span V. Read Phosphate Co., 758. Spangler, In re, 717. Spann, In re, 360. Sparhawk v. Drexel, 10, 437. Sparhawk v. Richards, 584. Sparhawk v. Yerkes, 236, 303, 306, 320, 321, 337, 421. Sparks v. Marsh, 575, 614. Sparks v. Weatherly, 414, 427. Spaulding v. McGovern, 405, 406, 451. Spaulding v. Vincent, 767. Spear, In re, 682. Spears v. Frenchton & B. K. Co., 387. Spechler Bros., In re, 214. Speer Bros., In re, 127. Spencer, In re, 277, 649, 653. Spencer v. Duplan Silk Co., 368. Spencer v. Lowe, 58, 489, 537. Spencer Commercial Club v. Bartmess, 387, 534. Spongier, In re, 106, 176. Speyer, In re, 227, 231. Spicer, In re, 226. Spicer v. Ward, 10, 91, 155. Spies-Alper Co., In re, 519. Spies-Alpher Co., In re, 633. Spiller, In re, 646, 651, 653, 654. Spilman v. .lohnson, 566. Spindle v. Shreve, 347. Spittler, In re, 495. Spitzel & Co., In re, 316. Spitzer, In re, 396. Spooner v. Russell, 763, 766. Spot Cash Hooper Co., In re, 491. Spradlin v. Kramer, 380. Sprague v. L. D. Margolis Co., 426. Sprague-Brimmer Mfg. Co. v. Murphy Furnishing Goods Co., 146. Sprague Canning Mach. Co. v. Fuller, 358. Sprague Canning & Machinery Co. v. Fuller, 58. Sprague, Warner & Co. v. Fischer, 661. Spring, In re, 562. CASES CITED [The flgnres refer to sections] 1759 Spring Run Coal Co. v. Tozier, 713. Springer, In re, 664. Springer v. Lewis, 106. Springer v. Vanderpool, 197. Springfield Realty Co., In re, 518, 534. Spruks V. Lackawanna Dairy Co., 626. S. P. Smith Lumber Co., In re, 518. Squire, In re, 353. S. Spltzel & Co., In re, 316. Staats Co. v. Security Trust & Sav. Bank, 35. Stackhouse v. Holden, 600, 772. Stacy V. McNicholas, 375. Staff, In re, 309. Stafford, In re, 49, 310, 675, 679, 706. Staib, In re, 22, 403. Stalick V. Slack, 514. Stalker, In re, 621, 622. Stamp, JEx parte, 101. Stanard v. Dayton, 391, 512. Standard Aero Corporation, In re, 160, 269, 497. Standard Cordage Co., In re, 8, 210. Standard Engineering & Const. Co. v. Smyser-Royer Co., 545. Standard Fuller's Bartli Co., In re, 8, 27, 625. Standard Laundry Co., In re, 316. Standard Oak Veneer Co., In re, 8. Standard Sewing Mach. Co. v. Alexan- der, 525, 756. Standard Sewing Mach. Co. v. Kattell, 495, 746. .Standard Shipyard Co., In re, 145. Standard Telephone & Electric Co., In re, 367, 526, 541. Standard Yarni.sh Works v. Haydock, 525. Standard Warehouse & Compress Co. v. George H. McFadden Bros. Agency, 144. Stanford Clothing Co., In re, 496. Stanley v. Sutherland, 469. Stanly v. Duhurst, 218, 343. Stanay, In re, 231. Stansell, In re, 153, 154. Stansfield, In re, 497, 567. Stanton, In re, 130, 307, 491. Stanton Co., In re, 307. Staples V. Warren, 594. Stapp V. Thomas, 758. Star Braiding Co. v. Stienen Dyeing Co., 186, 710. Starbuck v. Gebo, 614. Stark, In re, 273, 668, 681, 683. Stark V. Stinson, 762. Starks v. Curd, 446, 562. Starks-Ullman Saddlery Co., In re, 372. Starkweather v. Cleveland Ins. Co., 316. Starkweather & Albert, In re, 575, 590. Starr, In re, 626, 659. Starr v. Keefer, 354. Starr v. Whitcomb, 316. Star Spring Bed Co., In re, 231, 421, 430, 574, 575, 576, 586, 599, 600, 614. State V. Beck, 715, 745. State V. Broaddus, 186. State V. Burrell, 271. State V. De Gress, 61. State V. Duluth Gas & Water Co., 138. State V. Federal Union Surety Co., 557, 748. State V. Ferris, 218, 318. State V. Frasier, 274. State V. Gaston, 715. State V. German Exchange Bank, 27. State V. Johnson, 469. State V. Lazarus, 274. State V. Meagher, 311. State V. Merchant, 146. State V. Patterson, 106. State V. Rollins, 233. State V. Sage, 27. State V. Shelton, 724. State V. Smith, 135. State V. Superior Court of King County, 8, 11, 27, 364, 400. State V. Sutton, 62. State V. Taylor, 28. State V. Thompson, 793. State v. Trusteea of University, 396, 414. State V. Valle, 61. State V. Whittaker, 136. State Bank v. Munroe, 381. State Bank v. Wilborn, 2. State Bank of Chicago v. Cox, 317, 392. State Bank of Clearwater v. Ingram, 553, 578, 606. State Bank of Commerce v. Kenney Band Instrument Co., 149. State Bank of Williamson v. Fish, 584, 614. State Ins. Co., In re, 501. State. Nat. Bank v. Dodge, 310. State Nat. Bank v. Monroe Cotton Press Co., 607. State Nat. Bank v. Reilly, 310. State Nat. Bank v. Syndicate Co. of Eu- reka Springs, 9. State of Alabama v. Martin, 631. State of Missouri v. Angle, 17, 47, 504. State of New Jersey v. Lovell, 619. State Savings Ass'n v. Kellogg, 146. States Printing Co., In re, 470, 599. Stauffer-Eshleman Co. v. Abington Hard- ware & Furniture Co., 650, 660. Staunton, In re, 240, 241. Staunton v. Wooden, 18, 383. Stavrahn, In re, 228, 229, 231. Steadman, In re, 519. Steadman, S. N. B. R., In re, 200. Steadman v. Caswell, 451. Steadman v. Taylor, 480. , Steam Stone Cutter Co. v. Jones, 426. 1760 CASES CITED [Tbe flgnres refer to sections] Steam Stone Cutter Co. v. Sears, 426. Steam Vehicle Co., In re, 575. Stearns v. Elick, 444, 623. Steams Salt & Lumber Co., In re, 55, T85. Stearns Salt & Lumber Co. v. Hammond, 534, 587, 607. Stebbins v. Sberman, 760. Stedman v. Bank of Monroe, 367, 600. Steed, In re, 255, 278, 670, 679, 692, 704, 705. Steel, In re, 414. Steele, Ex parte, 32, 45, 60. Steele, In re, 15, 18, 60, 100, 242, 243, 348, 385. Steele v. Buel, 49, 240, 243. Steele v. Graves, 506, 740. Steele v. Moody, 251, 252, 486. Steele v. Thalheimer, 727. Steelman v. Mattix, 7, 9, 11. Steers Lumber Co., In re, 544, 580, 604, 605, 613. Steeter v. Lowe, 44. Steevens v. Barles,'237. Stefanlni v. Sroka, 741. Stegar, In re, 151. Stein, In re, 369, 637. Stein & Co., In re, 108, 109. Steiner, In re, 454. Steiner v. Marshall, 52, 242. Steinhardt v. National Park Bank, 550. Steinhauer & Wight v. Adair, 705, 748. Steininger Mercantile Co., In re, 458. Steiuman, In re, 156. Stell, In re, 257, 269. Stelling V. 6. W. Jones Lumber Co., 40. Stellwagen v. Clum, 2, 8, 410, 434, 457. Stemmons v. Burford, 568. Stemper, In re, 78, 309. Stendts, In re, 516, 606. Stennick v. Jones, 401, 585. Stephen Putne.v -Shoe Co. v. Dashiell, 57. Stephens, In re, 246, 455, 606, 607. Stephens v. Ely, 715. Stephens v. Merchants' Nat. Bank, 57, 179. Stephens v. Perrinc, 367. Stephens v. Union Bank & Trust Co., 595. Stephenson v. Bird, 711, 715! Stephenson v. Jackson, 129. Stei-lingworth By. Supply Co., In re, 27, 389. Stem, In re, 153, 156, 160, 231, 247, 250, 495, 538, 542, 787. Stern v. Bradner Smith & Co., 287, 758, 761, 762, 764, 766. Stern v. Gerber, 765. Stem V. Louisville Trust Co., 538, 578, 616. Stern v. Mayei;, 414. Stem v.-Nussbiium, 726, 760, 761, 764. j Stern v. Paper, 173, 577, 599. Stem v. Sehoenfeld, 163. Stem V. Truax, 435. Stern v. United States, 795. Sternbergh v. Dui-yea Power Co., 148. Sternburg, In re, 20O, 670. Sternburg v. M. Cohen & Co., 76, 702. Sterne v. Merchants' Nat. Bank, 44. Sterne & Levi, In re, 108. Stetson, In re, 275, 707. Stetson V. Bangor, 712. Steuer, In re, 68, 412. Stevens, In re, 22, 117, 127, 128, 240, 251, 386, 402, 484, 503, 531, 535, 541. Stevens v. Brown, 712. Stevens v. Gage, 311. Stevens v. King, 716. Stevens v. Mechanics' Sav. Bank, 340. Stevens v. Meyers, 757. Stevens v. Nave-McCord Mercantile Co., 42, 50, 154, 156, 277. • Stevens v. Oscar Holway Co., 614. Stevens v. Thompson, 700. Stevenson, In re, 164, 165, 184, 240, 255, 485. Stevenson v. Bird, 392, 752. Stevenson v. McLaren, 202. Stevenson v. Milliken-Tomlinson Co., 598. Steward v. Green, 713. Stewart, In re, 55, 151, 255, 306, 320, 325, 360, 366, 437, 439, 444, 470, 471, 484, 541, o71, 772, 779, 780. Stewart v. Asbury, 454. Stewart v. Brown, 255. Stewart v. Colwell, 713. Stewart v. Comanche Mercantile Co., 371. Stewart v. Emerson, 743, 744. Stewart v. Hargrove, 147. 336, 692, 715. Stewart v. Hoffman, 4, 367, 575, 586. Stewart v. Hopkins, 366, 544, 587. Stewart v. Isidor, 710. Stewart v. McClung, 242. Stewart v. McMurray, 174. Stewart v. Piatt, 84, 361, 382. Stewart v. Reckless, 759. Stewart v. Sonnebom, 172, 186. Stewart-Noble Drug Co. v. Bishop-Bab- cock-Becker Co., .'JOO, 562, 567, 660, 755. Stewart Petroleum Co. v. Boardman, 144, 160, 166, 171, 495. Stewart & Co. v. McLeod, 620. such V. Pirkl, 367. Stickney v. Wilt, 49. Stickney & Babcock Coal Co. v. Good- win, 363, 376, 753. Stidebaker Bros. Mfg. Co. v. Elsey-Hemp- hill Carriage Co., 446. h^tier March Contracting Co., In re, 211, 304. CASES CITED [Tbe flsares refer to sections] 1761 Stlger, In re, 362. Stiles V. Lay, 667, 712. Still's Sons V. American Nat. Bank, 106, 108, 143. Stillwell V. "Walker, 51, 538. Stinson v. Femald, 198. Stinson v. McMurray, 195. Stipp Const. Co., In re, 803. Stires V. First Nat. Bank, 640. Stitt, In re, 57, 241, 250, 252. iStobaugb V. Mills, 597, 614. Stocker v. Davidson, 148, 392. Stockgjowers' State Bank v. Corker, 592, 597. Stockwell V. Silloway, 718, 753. Stoddard v. Locke, 376, 567. Stoddard t. Lum, 148. Stoddard Bros. Lumber Co., In re, 366, 774. Stoddart, In re, 675. Stoever, In re, 526, 543, 630. Stokes, In re, 19, 75, 118, 229, 291, 296, 437, 439. Stokes V. Mason, 734, 746. Stokes V. Sanders, 761. Stokes V. State, 472, 621. Stokes Co. V. Carell, 214. Stoll V. Wilson, 715. Stone, In .re, 160, 240, 244, 664. Stone V. Boston & M. E. Co., 343. Stone V. Brookviile Nat. Bank, 186. Stone V. Jenkins, 197, 658. Stone Y. Schneider-Davis Co., 713. Stone-Ordean- Wells Co. v. Mark, 379, 403. Stoner, In re, 345. Storek Lumber Co., In re, 8, 133. Storm, In re, 86, 88. Storm V. Waddell. 457, 554, 754. Storrs V. Engel, 400. Storrs V. Plumb, 717. Story & Clark Piano Co. v. Holmes, 358, 387. Stotesbury v. Cadvi^allader, 401, 423. Stotts, In re, 309, 774, 781, 782. Stougbton Wagon Co., In re, 454. Stout, In re, 76, 249, 543. Stovall V. Coker, 729. Stovall Grocery Co., In re, 82, 84. Stover V. Kennedy, 585. Stow V. Parks, 715. Stow V. Yarwood, 340, 356. Stowe, In re, 290. Stowell, In re, 660. Stowell V. Richardson, 505. Stowers, In re, 119. Strachan, In re, 4, 490, 501, Stradley & Co., In re, 288. Strain v. Gourdin, 602. Strait, In re, 163. Stranahan v. Gregory, 379. Strang v. Bradner, 743, 746. Blk.Bkr.(3d Ed.)— Ill Strasburger v. Bach, 465. Straschnow, In re, 57. Strassburger, In re, 630. Stratford v. Jones, 735. Stratton v. Ermis, 240, 244. Stratton v. Lawson, 599. Straub, In re, 570, 636. Strauch, In re, 244, 247, 472, 626. Stranoh v. Flynn, 715. Strause v. Hooper, 127, 666. Strauss, In re, 41. Strauss v. Abrahams, 176, 573, 743. Streator Metal Stamping Co., In re, 44* 47. Street v. Dawson, 579. Streeter v. Jefferson County Nat. Bank, 606. Streeter v. Lowe, 44, 517, 534. Streeter v. Sumner, 338. Strellow V. Schloss, 173. Strenz, In re, 461. Strickland, In re, 525. Strickland v. Brown, 756. Strickland v. Capital City Mills, 167, 728. Stringer, In re, 74, 120, 125, 127, 337, 377, 388, 396, 458, 536, 634. Stringer v. Stevenson, 123, 127. Strobel, In re, 47, 49, 52, 78, 211, 526. Strobel & Wilken Co. v. Knost, 587, 605. Stroecker v. Patterson, 466. Stroheim v. Lewis F. Perry & Whitney Co., 156, 157. Strong V. Butte Central & Boston Copper Corporation, 388. Strong V. Carrier, 10. Strong V. Durdle, 226, 469. Stroud V. McDaniel, 367, Stroiise, In re, 678. Strub V. Gamble, 318. Strum V. "Baker, 359. Stuart, Petition of, 46, 58, 148, 304. Stuart V. Aurailler, 182. Stuart V. Britton Lumber Co., 44; Stuart V. Farmers' Bank, 597. Stuart V. Hines, 166, 199. Stuart V. Holt, 364. Stuart V. Reynolds, 55, 57, 229, 231. Stubbins, In re, 453. Stubbs, In re,. 444. Stucky V. Masonic Sav. Bank, 598. Stucky Trucking & Rigging Co., In re, 75, 340, 538. Studebaker, In re, 681. 682. Studebaker Bros. Mfg. Co. v. Blsey- Hemphill Carriage Co., 358, 446, 453, 574. Studley v. Boylston Nat. Bank, 590. Stull v. Beddeo, 732, 748. Stultz Bros., In re, 620. StumpfE, Ex parte, 59. 1762 CASES CITED [Tbe fignres refer to aectiong] Sturdivant Bank v. Schade, 365, 366, 457, 466, 592. Sturgeon, In re, 72, 74, 261, 299. Sturges V. Orowninshield, 7. Sturgiss V. Corbin, 52, 471, 476, 485. Sturgiss V. Meurer, 491. Sturkey Co., In re, 358, 454. Sturtevant, In re, 594. Stuyvesant Bank, In re, 266, 267, 269, 285. Styer, In re, 217, 469, 471. Styles V. Fuller, 186. Suckle, In re, 508. Suffel V. McCartney Nat. Bank, 598. Sugenhelmer, In re, 289, 528. Sullivan, In re, 57, 240, 244, 721, 742. Sullivan V. Bridge, 342. Sullivan v. Goldman, 35. Sullivan v. Heiskell, 8. Sullivan v. King, 378. ■ Sullivan v. Mussey, 251. Sullivan v. Myer, 461, 578. Sullivan v. Rabb, 376. Sullivan Co., In re, 317, 382. Sullivan & Co. v. King, 378. SuUy, In re, 94, 298, 536, 542, 777. Summers, In re, 162, 194. Summers v. Abbott, 151, 444, 504. Summers v. White, 203. Summerville v. Kelliber, 307. Summerville v. Stockton Mill. Co., 575, 595, 599, 614. Sumner, In re, 535, 540, 604. Sumner v. Parr, 597, 599. Sumner v. Richie, 734. Sundheim v. Ridge Avenue Bank, 597. Bundling v. Willey, 761, 764. Sunseri, In re, 403. Superior Drop Forge & Mfg. Co., In re, 316, 358. Superior Jewelry Co., In re, 86, 88. bupplee V. Hall, 614. Suprenant, In re, 120, 122, 126, 377. Surety Guarantee & Trust Co., In re, 135, 137. Susquehanna Roofing Co., In re, 356. Sussman, In re, 246, 672. Sutherland, In re, 52, 171, 337, 515, 584, 598, 688, 691, 698. Sutherland v. Davis, 185, 197. Sutherland v. Lake Superior Ship Canal, R. & I. Co., 471. Sutherland v. Lasher, 712, 727. Sutherland Co., In re, 599. Sutter, In re, 106. Sutter Bros., In re, 261. Sutter Hotel Co., In re, 42, 183. Sutman v. Hogsett, 240, 247. Sutton, In re, 371. Sutton V. Mandeville, 182. Svenson, In re, 669, 698. Swager v. Smith, 454. Swain, In re, 685. Swain Co.; In re, 626. Swan v. LuUman, 758, 764. Swan v. Robinson, 599. Swann v. Sanborn, 407. Swarts V. Fourth Nat. Bank, 493, 494. 575, 576, 577, 587, 607. Swarts V. Hammer, 308. Swarts V. Siegel, 23, 577. Swartz V. Frank, .259, 421, 589, 614. Sweaney v. Baugher, 718. Sweatt V. Boston, H. & E. R. Co., 142, 147. Sweeney, In re, 57, 360, 366, 779. Sweeney v. Douglas Copper Co., 525. Sweet, In re, 187. Sweet V. Oregon- Washington JiUmber & Mfg. Co., 340. Sweetser, In re, 52, 296, 308, 489, 529, 638, 778. Swenk, In re, 610. Swenson v. Halberg, 249. Swepson V. Rouse, 354. Swift, In re, 74, 183, 236, 357, 493, 494, 495. Swift Mfg. Co. V. Henderson, 105. Swift & Co. V. Hoover, 35. Switzer, In re, 229. Switzer v. Henking, 491. Swoflford Bros. Dry Goods Co., In re, 3, 23, 149. SwofCord Bros. Dry Goods Co. v. Owen, 525. Swope V. Arnold, 567. Swords, In re, 248. Sykes, In re, 165, 176, 687. Symonds v. Barnes, 693. Synuott V. Tombstone Conso'l. Mines Co., 54, 55, 499. Syracuse Gardens Co., In re, 23, 360. Syracuse Paper & Pulp Co., In re, 285, 288. S. & S. Mfg. & Scales Co., In re, 145, 183. Taber v. Donovan, 713. TafC & Conyers, In re, 744. Taft, In re, 52, 356. Taf t V. Fourth Xat. Bank, 598. Taft Co. V. Century Sav. Bank, 54, 55, 160. Talbot, In re, 508, 777. Talbott, In re, 246. Talbott V. Suit, 712, 718. TalcotI) V. Davis, 430. Talcott V. Dudley, 112. Talcott V. Friend, 665, 744. Talcott V. Goodwin, 324, 430. Talcott V. Harris, 746. Taliafero, In re, 50, 470, 471. CASES CITED [Tbe fignres refer to aectlonsl 1763 Tallmadge, In re, 665. Tallman, In re, 671. TaUman.v. Tallman, 218, 342. Talton, In re, 779, 781. T. A. Mclntyre & Co., In re, 357, 505, 506, 520, 540. Tanenhaus, In re, 49. Taney v. Penn Nat. Bank, 361. Tanner, In re, 267, 679, 680. Tanory, In re, 340. Taplln, In re, 692, 693, 703. Tarbox, In re, 403. Tassinari, In re, 505. Tate V. Brinser, 412. Tatem, In re, 367. Tatum, In re, 444. Tatum y. Leigh, 739. Tatum V. Zaehry, 105. Taunton, In re, 685. Taylor, Ex parte, 567, 740. Taylor, In re, 97, 151, 160, 169, 171, 172, 180, 231, 246, 457, 666, 686, 702, 704. Taylor v. Buser, 192, 378, 741, 756. Taylor y. Carryl, 27. Taylor v. Farmer, 743. Taylor v. Fram, 356. Taylor v. Irwin, 320, 321. Taylor v. Kimmerle, 479. Taylor v. Life Ass'n of America, 285. Taylor v. Marshall, 741, 752. Taylor v. Nixon, 765. Taylor v. Easeh, 401. Taylor v. Keid, 276. Taylor v. Robertson, 567. Taylor v. Skiles, 658. Taylor v. Taylor, 380, 384. Taylor v. Webster, 143. Taylor v. Williams, 62. Taylor Co. v. WUliams, 253. Taylor House Ass'n, In re, 155. T. C. Burnett & Co., In re, 242, 318, 333. Teague v. Anderson Hardware Co., 413, 428. Tebbets, Ex parte, 350. Tebbetts, In re, 97, 491, 665, 674. Tebo, In re, 77, 619, 623, 774, 779, 781. Tecopa Mining & Smelting Co., In re, 139. Tefft V. Munsuri, 35, 47. T. E. Hill Co., In re, 51, 136, 210, 216, 777, 784. T. E. Hill Co. V. Contractors' Supply & Equipment Co., 132, 134. T. E. Hill Co. V. U. S. Fidelity & Guaran- ty Co., 51, 208, 210, 773. Telfer, In re, 130. Temple, In re, 7, 10, 103, 117, 433. Templeton v. Kehler, 576, 616. Templeton v. Woollens, 578. Ten Eyck, In re, 522. Tennant Sons & Co. v. New Jersey Oil & Meal Co., 376. Tennessee Const. Co., In re, 132, 176. Tennessee Producer Marble Co. v. Grant, 389. Tennessee & C. R. Co. v. East Alabama R.'Co., 419. Tennison v. Hanson, 342. Teuny v. Collins, 699. Tennyson v. Beggs, 414. Tenth Nat. Bank v. Warren, 89. Tepel V. Coleman, 318. Terens, lb re, 455, 679. Terrell, In re, 316; 358, 580. Terrell Co., In re,, 781. Terrill, In re, 573, 592, 774. Terry, In re, S3, 106. Terry y. U. S., 795. Terusaki, In re, 172, 208. Teschmacher & Mrazay, In re, 404, 407. Teslow, In re, 607. Tesson, In re, 129. Teter, In re, 364. Teter v. Viquesney, 349, 387. T. E. Wells & Co. V. Sharp, 46, 387, 474. Texas Brewing Co. v. Mallette, 367. Texas Fidelity & Bonding Co. v. First State Bank of Channing, 26. Texas & P. R. Co. v. McNairy, 183. Thackara Mfg. Co., In re, 365. Thai V. Larmon, 758. Thames v. Miller, 191, 388. Tharp v. Tharp's Trustee, 198, 465. Thatcher v. Rockwell, 197. Thaw, In re, 189, 260, 744. Thaxton v. Roberts, 366. T. H. Bunch Commission Co., In re, 594. T. H. Bunch Co., In re, 517. Thiell, In re, 253. Thiessen, In re, 228, 229, 307. 35% Automobile Supply Co., In re, 495. Thistle V. Hamilton, 51. Thole V. Watson, 249. Thomas, In re, 64, 124, 127, 129, 182, 183, 196, 249, 254, 342, 356, 365, 367, 392, 559, 585, ,671, 690, 692, 699. Thomas v. Adelman, 600. Thomas v. Birmingham Ry., Light & Power Co., 392. Thomas v. Blythe, 417. Thomas v. EUmaker, 143. Thomas v. Field-Brundagfe Co., 356. Thomas v. Fletcher, 445, 457. Thomas v. Jones, 712. Thomas v. Roddy, 394, 446, 449, 466. Thomas v. Sugarman, 49. Thomas v. Sugerman, 447*. Thomas v. Taggart, 316, 357, 525. Thomas v. Woodbury, 57t. Thomas v. Woods, 2, 18, 47, 256, 408. Thomas Co. v. Beharrell, 47. Thomas Deutsehle & Co., .In re, 599, 626. Thomas McNally Co., In i-e, 132. 1764 CASES CITED [Tlie flsnres refer to sectional Thomas Scattergood, The, 630. Thomllnson Co., In re, 49, 91. Thompson, lu re, 44, 46, 49, 106, ITS, 228, 244, 246, 272, 316, 352, 437, 439, 452, 481, 500, 526, 541, 554, 572, 613, 705, 782. Thompson v. Adams, 337. Thompson v. Alger, 2. Thompson v. Fairbanks, 358, 378, 380, 384, 454, 459, 592. Thompson r. First Nat. Bank, 84, 455, 465, 597, 611. Thompson v. Freeman, 602. Thompson v. Judy, 741. Thompson v. Lamb, 701, 702. Thompson v. Massie, 199. Thompson v. Mauzy, 47, 49. Thompson v. Moses, 191. Thompson v. Phenix Ins. Co., 301. Thompson v. Eagan, 363, 382. Thompson v. Shaw, 10. Thompson v. Sunrise Coal Co.'s Trustee, 486, 770. Thompson v. Thompson, 173. Thompson v. Toland, 463, 464. Thompson, Belden & Co. v. Leisy Brew- ing Co., 517. Thompson-Houston Electric Co. v. Simon, 138. Thompson Mill. Co., In re, 504. Thompson's Sons, In re, 526, 607. Thoms & Brenneman v. Goodman, 41. Thomson v. Caverley, 728. Thornberry v. Dils, 760, 764. Thornberry's Adm'r v. Dils, 758. Thomburgh v. Madren, 718. Thornhill v. Bank of Louisiana, 8, 11, 39, 133. Thornhill v. Link, 164. Thornton v. Hogan, 182, 712. Thornton v. Nichols & Lemon, 760. Thorp, In re, 310, 367. Thorson Bros., In re, 454. Thrall V. Crampton, 111. Thrasher v. Bentley, 10, 434. Throckmorton, In re, 48, 54, 55, 324, 392, 481, 485. Throop V. Griffin, 709. T. H. Thompson Milling Co., In re, 504. Thurmond v. Andrews, 448, 712, 727. Thweatt, In re, 490. Tice, In re, 358. Tichenor v. Allen, 710. Tidewater Coal Exchange, In re, 143, 170, 171. Tiemey v. Butler, 306. Tietje, In re, 316, 324, 354, 484. Tiffany, In re, 347, 375, 670, 705. Tiffany v. Boatmen's Sav. Inst, 584. Tiffany v. La Plume Condensed Milk Co., 98, 132, 133. Tiffany v. Lucas, 459. Tiffany v. Morrison, 573. Tifft, In re, 187, 199, 258, 266, 284, 647. Tift, In re, 266. Tiger Shoe JIfg. Co.'s Trustee v. Shank- lin, 148, 149. Tilden, In re, 240, 621. Tillotson V. Wolcott, 242. Tillyer, In re, 702. Tilt V. Citizens' Trust Co., 585, 599, 614. Times Pub. Co., In re, 366. Tindal, In re, 599. Tindle v. Birkett, 739, 743, 746. Tinker, In re, 667, 671, 742. Tinker v. Colwell, 741, 742. Tinker v. Hurst, 651. Tinker v. Van Dyke, 414. Tinkum v. O'Neale, 195. Tioga County Savings & Trust Co. v. Gates, 761. Tlrre, In re, 20. Tirrell v. Freeman, 764. Title Guaranty & Surety Co. v. Guaran- tee Title & Trust Co., 630. Title Guaranty & Surety Co. v. Wit- mire, 367. T. L. Kelly Dry Goods Co., In re, 66, 74, 75, 145, 216, 534. T. M. Lesher & Son, In re, 543, 549. Tobias, In re, 244, 246, 250. Tobias, Greenthal & Mendelson, In re, 271. Tobin V. Hewitt Co., 430. Tobin V. Trump, 9. Todd, In re, 677, 773. Todd V. Alden, 49. Todd V. Barton, 715. Todd V. Townsend, 365. Toklas Bros., In re, 734. Toledo Computing Scale Co. v. Johnson, 358. Toledo Portland Cement Co., In re, 134. Toler V. Crowder, 471. Tolle V. Smith, 762, 764. Tollett, In re, 246, 409. Tomes, In re, 116. Tomlinson, In re, 389. Tomlinson v. Bank of Lexington, 585, 590. Tompkins v. Hazen, 764. Tompkins v. Williams, 716, 741. Toney v. Spragins, 418. Tonkin, In re, 606. Tonne, In re, 241, 255. Tontine Surety Co., In re, 134, 135. Toof V. City Nat. Bank, 317, 454, 550, 587. Toof V. Martin, 85, 173, 176, 597, «99. Tooker, In re, 659. Toole, In re, 47, 352, 357. Toothaker Bros., In re, 445, 457. CASES CITBD [The flgnres refer to sections] 1765 Tootle V. Sheldon, 376. Tootle-Weakley Millinery Co. v. Billings- ley, 552. Topliff, In re, 591. Torcliia, In re, 340, 382, 471, 484, 503, 536, 571. Tormey v. Miller, 388. 753. Torrance v. Winfleld Nat. Bank, 585. Torrens v. Hammond, 7. Torry v. Krauss, 758,. 765, 766. Toulmin v. Hamilton, 198. Towie V. Davenport, 197. Towle V. iBlobinson, 382. Towle V. Rowe. 197. Town, In re, 237, 517. Town of Cicero v. Grisko, 550. Town of Grantham v. Clark, 739. Towne, In re, 526, 672. Townes V. Alexander, 453, 597. Townsend, In re, 226, 684. Townsend v. Ashepoo Fertilizer Co., 454. Townsend v. Leonard, 28. Townshend v. Thomson, 469, 567. Toxaway Hotel Co. v. J. L. Smathers & Co., 135. Trabue v. Ash, 486, 536. Tracy, In re, 64, 352, 634, 671. Tracy & Co., In re, 271. Traders' Bank v. Campbell, 5, 423. Traders' Ins. Co. v. Mann, 394, 423, 606. Traders' Nat. Bank v. Campbell, 85. Traders' Nat. Bank v. Hermer, 760. Traer v. Clews, 38, 236, 477. Trafton, Ex parte, 646, 650. Trager Co. v. Cavaroc Co., 27, 372, 373. Trammell v. Yarbrough, 164, 169. Traphagen, Ex parte, 665. Trask, In re, 264. Traub v. Marshall Field & Co., 315. Traunstein, In re, 16, 358, 387. Travelers' Ins. Co. v. Middlekamp, 348. Travelers' Ins. Co. v. Moses, 348. Travis v. Sams, 727. Trayna & Cohn, In re, 389, 471. Treadwell, In re, 282. Treadwell v. HoUoway, 729. Treadwell v. Marden, 521. Treat v. Wooden, 408. Trecothick v. Austin, 356. Tremont Nail Co., Ex parte, 362. Tremont Nat. Bank, Ex parte, 200. Trenholm v. Klinker, 463. Trenholm v. Miles, 427. Treseder v. Burgor, 445, 450, 457, 468, 6^6. Triangle S. S. Co., In re, 160, 163. Tribelhorn, In re, 157, 167, 169, 177. Trice v. Coolldge Banking Co., 415. Trim, In re, 373. Trimble v. Woodhead, 448. Trlon Mfg. Co., In re, 526. Triplett v. Hanley, 589. Tripp V. Mitschrich, 403, 589. Tripplehorn v. Cambron, 317, 389. Troeder v. Lorsch, 692, 699, 702. Troop V. Griflin, 756. Troth, In re, 10, 646, 779. Troutman & Jesse, In re, 679, 692, 701, 704. Troy V. Rudnlck, 659, 716. Troy Steam Laundering Co., In re, 136. Troy Wagon Works v. Vastbinder, 171, 174: Troy Woolen Co., In re, 478, 485, 536, 544. Tinida v. Osgood, 396. Trueman v. Fenton, 766. Truitt, In re, 84, 86, 89, 90, 160. Trumbo v. Fulk, 486. Trunk Co., In re, 358. Trustees of First Society v. Stewart, 312. Trustees of Mutual Building Fund v. Bosseiux, 392, 416. Trustees of Eochiester v. Pettinger, 106. T. S. Faulk & Co. v. Steiner, Lobman & Frank, 210. Tua v. Carriere, 7. Tube City Min. & Mill Co. v. Otterson, 316, 372, 388, 592. Tucker, In re, 25, 367, 508. Tucker v. Curtin, 364, 508. Tucker v. Denico, 377, 380. Tucker v. Oxley, 549. Tucker v. Western Union Tel. Co., 198, 342. Tudor, In re, 67, 75, 227, 230, 269. Tufts V. Mathews, 343. Tugendhaft v. U. S., 787. TuUey, In re, 308, 483. TuHy, In re, 177. Tumlin v. Bryan, 114, 603. Tune, In re, 17, 186, 202, 249, 376, 378, 389, 404. Tupper, In re, 86, 88, 89, 160. Turetz, In re, 74. Turgeon v. Bean, 233. Turgeon v. Emery, 235. Tui-nbull, In re, 242. Turnbull v. Payson, 13, 148. Turnbull v. Potlatch Lumber Co., 361, 588. Turner v. Atwood, 744. Turner v. Chrisman, 761, 766. Turner v. Gatewood, 186, 236. Turner v. Hudson, 657, 658. Turner v. Indianapolis, B. & W. R. Co., 396. Turner v. Metropolitan Trust Co., 490, 492. Turner v. Schaeffer, 40,- 614. Turner v. Turner, 189, 497, 509, 722. Turney v. Blomstrom, 276. 1766 CASUS CITED [Tlic flgmreB refer to sectious] Tumock & Sons, In re, 255. Turpin Hotel Co., In re, 57. Turrentine v. Blackwood, 397. Tutt V. Fighting Wolf Mining Co., 193, 525, 748. Tuttle V. Truax, 584. Twaddell, In re, 318, 327. Tweed, In re, 358. Twining, In re, 368. Two Rivers Woodenware Co., In re, 534, 536, 641. Tybo Mining & Reduction Co., In re, 33. Tygarts River Coal Co., In re, 132, 211. Tyler, In re, 135. Tyler v. Angevine, 466, 680. Tyler v. Taylor, 758. Tyrrel, In re, 692. Tyrrel v. Hammerstein, 727. Tyson v. Mickle, 485. Tysor-Cheatham Mercantile Co., In re, 457. u Udall V. School District No. 4, 478. Uhr V. Coulter, 769. Ulfelder Clothing Co., In re, 182. UUman, In re, 645, 649. Tillman, Stern & Kratisse v. Ooppard, 539, 614. TJlmer v. U. S., 788, 794, 795. Ulner v. Doran, 497, 739, 753. Ulrich, In re, 166, 204, 205, 610. Underleak v. Scott, 457. Underwood v. Eastman, 759, 766. Underwood v. First Nat. Bank, 767. Underwood v. Winslow, 463, 597. Underwood & Daniel, In re, 360. Ungewitter v. Von Sachs, 354. Union Bank, In re, 311, 784. Union Banking Co. v. Truscott Boat Mfg. Co., 414. Union Brewing Co. v. Interstate Bank & Trust Co., 316. Union Central Life Ins. Co. v. Drake, 606. Union Dredging Co., In re, 308. Union Electric Co. v. Hubbard, 27. Union Exchange Nat. Bank v. Joseph, 651. Union Feather & Wool Mfg. Co., In re, 84. Union Fui:niture Co. v. Walker-Oooley Furniture Co., 657. Union Nat. Bank v. McKey, 550. Union Nat. Bank v. Neill, 46. Union Pac. E. Co., In re, 91, 144. Union Planing Mill Co., In re, 628. Union Trading Co. v. Drach, 480. Union Trust Co., In re, 55, 464, 469, 470, 471. Union Trust Co. v. Amery, 450. Union Trust Co. v. Bulkeley, 368, 387. Union Trust & Sav. Bank v. Amery, 430, 451, 464. United Button Co., In re, 33, 132, 500, 514. United Five & Ten Cent Store, In re, 512. United Grocery Co., In re, 26, 145, 152, 183, 451, 494, 542, 575, 613. United Motor Chicago Co., In re, 375. United Nat. Bank v. Tappan, 357. United Sheet & Tin Plate Co. v. Hess, 423. United Society in Canterbury v. Wink- ley, 767. United Society of Shakers v. Underwood, 716. U. S. V. Ambrose, 266. U. S. V. Anonymous, 274. U. S. V. Barnes, 630. U. S. V. Bayer, 791. U. S. V. Birmingham Trust & Savings Co., 515, 526. U. S. V. Bixby, 791. U. S. V. Brainerd, 779. U. S. V. Brod, 271, 274. U. S. V. Brown-Alaska Co., 512. U. S. V. Chapman, 794. U. S. V. Clark, 92, 787. U. S. V. Comstock, 794. U. S. V. Conner, 788. U. S. V. Coyle; 175, 180, 274, 788, 794. U. S. V. Crane, 794. U. S. V. Davis, 724. U. S. v. Deaver, 790. IT. S. V. Deming, 794. U. S. V. Dewey, 295, 396. U. S. V. Dobbms, 233, 234. U. S. V. Dunkley, 790. U. S. V. Fisher, 630. U. S. V. Flynn, 233. U. S. V. Fox, 2. U. S. V. Freed, 176, 182, 786, 794. U. S. V. Freyberg, 330. U. S. V. Goldstein, 271, 274, 787. U. S. V. Gray, 788. U. S. V. Green. 795. U. S. V. Greenbaum, 794. U. S. V. Griswold, 460, 630, 712. U. S. V. Halstead, 271. U. S. V. Hammond, 43. U. S. V. Herron, 724. U. S. V. Hooe, 630. U. S. V. Illinois Surety Co., 724. U. S. V. Jackson, 794. U. S. V. King, 724. U. S. V. Lake, 786, 794. U. S. V. Latorre, 794. U. S. V. Lewis, 630. U. S. V. Lowenstein, 787. CASES CITED [Tbe flgnrea refer to aectlonii] 1767 U. S. v. McAleese, 234. U. S. V. Maekoy, 185. TJ. S. V. Mechanics' Bank, 630. U. S. V. Murphy, 491. U. S. V. National Surety Co., 630. IT. S. V. Nihols, 162, 788. U. S. V. Peters, 233, TIO, 741. U. S. V. Prescott, 794. U. S. V. Rhodes, 271, 787, 794. U. S. V. Rob Boy, The, 494, 724. U. S. V. Eosenstein, 794. U. S. V. Euggles, 47. U. S. V. Shofleld Co., 525. U. S. V. Simon, 66. U. S. V. Sindheim, 294. U. S. V. Smith, 795. U. S. V. Sondheim, 658. U. S. V. Sowles, 231. U. S. V. Stern, 794, 795. U. S. V. Sutton, 35. U. S. V. Throckmorton, 724. TJ. S. V. Union Surety & Guaranty Co., 294, 296, 302. U. S. V. U. S. Fidelity & Guaranty Co., 776. U. S. V. Waldman, 791, 794., U. S. V. Ward, 64, 779. V. S. V. Young & Holland Co., 791. U. S. V. Zerega, 724. U. S. Chrysotile Asbestos Co., In re, 390. U. S. Fidelity & Guaranty Co. v. Bray, 413. U. S. Fidelity & Guaranty Co. v. Car- negie Trust Co., 506, 554. U. S. Fidelity & Guaranty Co. v. Mur- phy, 377. U. S. Graphite Co., In re, 264, 380, 471. U. S. Hair Co., In re, 511. U. S. Hotel Co., In re, 135. TJ. S. Lumber Co., In re, 364, 454. TJ. S. Molybdenum Co., In re, 540. TJ. S. Restaurant & Realty Co., In re, 141. U. S. Trust Co. V. Brady, 558. U. S. Trust Co. V. Gordon, 562. U. S. Trust Co. V. Wabash Ry., 306. TJ. S. Wind Engine & Pump Co. v. North Penn Iron Co., 748. United Surety Co. v. Iowa Mfg. Co., 84, 136, 629. United Wireless Telegraph Co., In re, 187, 189, 193, 389, 531, 540. United Wireless Telegraph Co. v. Nation- al Electric Signaling Co., 193. Unity Banking Ass'n, Ex parte, 102. Unity Banking & Sav. Co. v. Boyden, 463. Unmack v. Douglass, 214, 461, 464. Untereiner v. Camors, 47. Upshur V Briscoe, 714, 730. Upson, In re, 498, 70S. Upson V. Mt. Morris Bank, 458, 615. Upton Y. Bumham, 148. Upton V. Hansbrough, 148. Upton V. Jackson, 148. Upton V. McLaughlin, 420. Upton V. National Bank of South Bead- ing, 316. Upton V. Tribllcock, 148. Urban & Suburban Realty Title Co., In re, 15, 183. Ui-y V. Van Every, 346, 465. Usher v. Pease, 232. Utah Ass'n of Credit Men v. Boyle Fur- niture Co., 3, 534, 595, 597, 599, 614, 615, 616. Utah Ass'n of Credit Men v. Jones, 377, 463. Utica Ins. Co. v. Lynch, 310. Utley, In re, 91. Utt, In re, 50, 484, 635, 780. Utz & Dunn Co. v. Regulator Co., 155. V Vaccaro v. Security Bank, 83, 95, 114, 118. Vadion v. Ditz, 763. Vadner, In re, 189, 407, 410, 415, 722. Vaine, In re, 685. Valdosta. Guano Co. v. Green & Sutton, 756. Valecia Condensed Milk Co., In re, 387. Valente v. Cosentino, 525. Valentine, In re, 531. Valentine Bohl Co., In re, 95, 160. Valk, In re, 234. Vallely v. Northern Fire & Marine Ins. Co., 42, 138. Valliquette, In re, 82. Vallozza, In re, 67. Van Alstyne, In re, 198, 388. Van Auken, In re, 646, 650. Van Buren, In re, 127, 189, 389, 497, 563. Van Camp v. McCuUey, 197. Vance v. Lane's Trustee, 388. Van Da Grift Motor Car Co., In re, 189, 326. Van De Mark, In re, 285, 288, 292. Van Denburg, In re, 778. Vanderhoef, In re, 163, 647. Vanderhoof v. City Bank, 85. Vandewater & Co., In re, 454. Vandiver v. American Can Co., 748. Van Dyk Co. v. F. V. Eeilly Co., 340, 480. Vane v. Newcombe, 105. Van Emon v. Veal, 145. Van Heusen v. Van Heusen Charles Co., 316, 327. Van Horn, In re, 153. 1768 CASES CITED [Tbe flearea refer to Bectionsl Van Houten v. Oliver, 427. Van Iderstine v. National Discount Co., 453, 459, 462, 466, 574. Van Ingen v. Schophofen, 682. Van. Kirk v. Vermont Slate Ck)., 348, 361. Van Kleeek v. Thurber, 177, 602. Van Kleek v. Miller, 349, 405, 578, 597. Van Norman v. Young, 716. Van Nostrand v. Oarr, 7, 11, 96. Van Orden, In re, 189, 194, 233, 509. Vanoscope Co., In re, 33, 42, 47, 49, 469. Van Schaick & Co., In re, 364. Van Slyke v. Huntington, 427, 491, 589. Van Tuyl, In re, 263, 265, 269. Van Tuyl v. Schwab, 718, 719. Van Wert Mach. Co., In re, 628. Van Zandt v. Parson, 414. Van Zandt Jacobs & Co. v. Steiber, 753. Varlck Bank, In re, 79. Varley & Bauman ' Clothing Co., In re, 481, 597. A'ary v. Jackson, 707. Vastbinder, In re, 154, 160, 163, 169, 387, 389. Vaughan, In re, 363. Vaughn v. Irwin, 727. Vaughn-Carlton Co. v. Studebaker Corpo- ration, 210, 211, 660. V. D. L. Co., In re, 633. Vehon v. UUman, 56, B72. Veitch, In re, 621. Veler, In re, 47, 153, 182, 343, 401, 624, 773. A'enstrom, In re, 489, 498, 526. ^'erdon Cigar Co., In re, 74. ' Vemia, In re, 684. Very v. McHenry, 14. Vette V. J. S. Merrell Drug Co., 559. Vetterlein, In re, 123, 129, 130, 259, 354, 515. Vetterman, In re, 87. Vickerman & Co., In re, 255, 365. Vickery, In re, 497. Victor Talking Mach. Co. v. Hawthorne & Sheble Mfg. Co., 198. Vidal, In re, 7, 57, 578, 632, 769. Viele V, Ogilvie, 762. Vietor V. Lewis, 205, 388. Vila, In re, 469, 475. Viquesney v. Allen, 393. Virgin, In re, 454. Virginia Book Co. v. Sites, 356. Virginia-Carolina Chemical Co. v. Fish'- er, 751. Virginia-Carolina Chemical Co. v. Floyd, 423. Virginia-Carolina Chemical Co. v. Rylee, 8, 377. Virginia-Carolina Chemical Co. v. Shel- horse, 98, 106. Virginia Hardwood Mfg. Co., In re, 599. Virginia Iron, Coal & Coke Co.- v, Olcott, 388, 389. Visanska v. Cohen, 451. Vitzhum V. Large, 457, 580. Vocke, In re, 404. Voetter, In re, 544. Vogel, In re, 27, 158, 265, 322. Vogle V. Lathrop, 85, 89, 579, 601. Vogler, In re, 244, 253. Vogler V. Montgomery, 246. Vogt, In re, 26, 211, 484, 541, 562, Voight V. Lewis, 356. Vollkommer v. Frank, 414, 423. VoUmar v. Plage, 461, 587. Vollmer v. McFadgen, 484. Von Borcke, In re, 165. Von Borries, In re, 664. Von Hartz, In re, 413. Vonhee, In re, 242, 245. Von Hein v. Elkus, 10, 437. Von Kerm, In re, 252. Voorhees v. Blanton, 573. Voorhees Awning Hood Co., In re, 495, 506. Voorheis v. Blanton, 459. Voorhies v. Frisbie, 414. Vorck, In re,' 578. Vowinkel v. Moser, 459. Voyles V. Parker, 380. Vulcan Foundry & Machine Co., In re, 773. Vulcan Sheet Metal Co. v. North Platte Valley Irr. Co., 172, 287. Vyse, In re, 230. V. & M. Lumber Co., In re, 182, 298, 364, 383, 504. w Wabash R. Co. v. Meyer, 752. Waco V. Brayn, 372, 621. Waddell, Ex parte, 27. Wade, In re, 367. Wade V. Clark, 729. Wade v. Elliott, 483. Wade V. Goza, 237. Wadleigh v. Veazie, 185. W. A. Gage & Co. v. Bell, 30, 156, 171, 180. Wager v. Hall, 173, 176, 379. Waggener v. Haskell, 141. Waggoner, In re, 692. Wagner, In re, 685. Wagner v. Burnham, 4, 552. Wagner v. Citizens' Bank & Trust Co., 318, 544. Wagner v. Cohen, 481. Wagner v. Mt. Carniel Iron Works, 398. Wagner y. United States, 189. Wagner's Estate, In re, 389. Wagstaff, Ex parte, 546. Wahlheimer v. Truslow, 754. CASES CITED [The flgrnren refer to sections] 1769 Walt V. Bull's Head Bank, 866. W&ite, In re, 84, 665, 679. Waite V. Citizens' State Bank, 615. Waite V. Gottstein, 408. Waite-Robbins Motor Co., In re, 361, 454. Waitzfelder, In re, 22, 266, 403. Wakefield, In re, 105, 670, 672, 673, 697, 702, 741. Wakeman v. Hoyt, 135. Wakeman v. Throckmorton, 196, 380, 387. Walbridge v. Harroon, 766. Walbrun v. Babbitt, 452. Wald V. Wehl, 10, 91, 162, 444. Walden Bros. Clothing Co., In re, 57, 454. Walder, In re, 229, 701, 703. Waldron v. Becker, 348. Wales V. Lyon, 712. W. A. liUer Bldg. Co. v. Beynolds, 285, 382, 402, 670. Walker, Ex parte, 491. Walker. In re, 19, 235, 258, 441, 494, 524, 696. Walker v. Carroll, 245, 252. Walker v. Mottram, 339. Walker v. Muir, 757. Walker v. People, 173. Walker v. Taylor, 316. Walker v. Tenison Bros. Saddlery Co., 599, 614. Walker v. Towner, 148, 416. Walker v. Woodside, 153, 162, 163. Walker Grain Co. v. Gregg Grain Co., 57, 179. Walker Booting & Heating Co. v. Mer- chant & Evans Co., 136, 176. Walker Starter Co., In re, 595. Walker & Co., In re, 288. Walkof V. Pox, 316, 621. Wall, In re, 454. Wall V. Cox, ,409, 424, 465. Wallace, In re, 13, 22, 23, 29, 115, 182, 187, 205, 206. Wallace v. Camp, 363, 381, 400. Wallace v. Conrad, 562. Wallace v. Everett, 346. Wallace v. Jeflfer.son County Sav. Bank, 410. Wallace v. Loomis, 157. Wallace v. McConnell, 27. Wallace v. Meeks, 480. Wallace Shoe Co. v. Ternes, 358. Waller, In re, 621, 631, 685. Wallerstein t. Ervin, 130. Wallersteln v. Gallagher, 582. Wallingford v. Burr, 339. Walrath, In re, 102, 666, 667. Walsh, In re, 271, 662, 665, 704, 709, 710. Walsh Bros., In re, 200, 206, 297, 316, '352, 382, 384, 392, 403. Walshe, In re, 650, 653. Walter v. Atha, 57, 76, 498, 540. Walter v. National Fire Ins. Co., 599. Walter A. Wood Co. v. Eubanks, 316, 354. Walter A. Wood Mowing & Reaping Mach. Co. V. CroU, 57, 454. Walter A. Wood Mowing & Reaping Mach. Co. V. Vanstoi-y, 356. Walter Scott & Co. v. Wilson, 47. Walters, In re, 685. Walters v. Zimmerman, 599. Walther, In re, 221, 672. Walther v. Williams Mercantile Co., 545. Walton, In re, 127, 269, 522, 531, 537. Walton I/and & Timber Co. v. Runyan, 340, 364. W. A. Paterson Co., In re, 542. Ward, In re, 97, 101, 172, 178, 179, 205, 210, 386, 494, 773, 775. Ward V. American Agr. Chemical Co., 454. Ward v. Blake Mfg. Co., 132. Ward V. Central Trust Co., 55, 182, 410, 428, 616. Ward V. First Nat. Bank, 387, 566. Ward V. Hargett, 186, 319. Ward V. Jenkins, 392. Ward V. Johnson, 747. iWard V. Proctor, 7. Ward & Co., In re, 402. Warder v. Lake, 762. Wardlaw, In re, 244. Wardwell v. Foster, 766. Warford v. Noble, 256. Waring v. Buchanan, 484, 581. Warmath v. O'Daniel, 407. Wame, In re, 222, 666; 670, 678. Warner, In re, 84, 111, 380, 554, 590. iWamer v. Cronkhite, 748. Warner v. Grafton Woodworking Co., 361. Warner v. Spooner, 488. Warnock, In re, 189, 664. Warren, In re, 123, 127. Warren v. Bishop, 761. Warren v. Bumham, 544. Warren v. Delaware, L. & W. B. Co., 85. Warren v. Moody, 460. Warren v. Robinson, 730. Warren v. Tenth Nat. Bank, 47, 85, 89, 379, 600. Warren v. TJ. S., 787. Warren v. Warren Thread Co., 835. Warren R. Co. v. Belvidere, 512. Warszawiak, In re, 266. Wartell v. Moore, 56, 456,- 608. Warth, In re, 189, 742. Wasey v, Holbrook, 467. mo CASES CITED [The flsnres refer to sections] Wasey v. Whitcomb, 552. Washburn, In re, 165, 522. Washington v. Tearney, 58. Washington Cotton Co. v. Morgan, 114. Washington Marine Ins. Co., In re, 27, 133, 146, 166. Washington Steel & Bolt Co., In re, 261. W. A. Silverriail Co., In re, 489, 587, 601. Watchmaker v. Barnes, 57, 576, 582, 599. Waterbury Furniture Co., In re, 577. Waterlbury Trust Co. v. Welsman, 358. Waterloo Organ Co., In re, 309, 408, 471, 482, 772. Waterman Co. v. KUne, 617. Waters v. Davis, 430. Waters-Colver Co., In re, 266, 365. Watertown Carriage Co. v. Hall, 729, 745. Watertown Paper Co., In re, 531. Waties, In re, 628. Watkins v. Bigelow, 345. Watkins v. Worthington, 565. Watkinson, In re, 54, 64, 488, 510, 584. Watkinson & Co., In re, 542, 783. Watmough, In re, 360, 421. Watrous, In re, 528. Watschke v. Thompson, 378. Watson, In re, 19, 254, 367, 594. Watson V. Adams, 453, 461, 464, 597, 611, 614. Watson V. Citizens' Sav. Bank, 8, 27. Watson V. Conrad, 480. Watson V. Lemar, 373. Watson V. Merrill, 306, 495, 521, 523. Watson V. Motley, 237. Watson V. Proximity Mfg. Co., 306. Watson V. Taylor, 457. Waiters v. Hedgpeth, 249, 251. Watterson's Appeal, 351. Watts, In re, 8, 27, 226. Watts V. 'Wight Inv. Co., 710. Waugh, In re, 180. Waukesha Water Co., In re, 18, 404. Waxelbaum, In re, 33, 76, 152, 176, 177, 246. Way V. Barney, 751. Way V. Howe, 712. Way V. Langley, 651. Way V. Ruff, 466. Way V. Sperry, 758, 766. Wayne Knitting Mills v. Nugent, 227, 402. Waynesboro Drug Co., In re, 654. W. B. Belknap & Co. v. Lyell, 580. W. B. Terrell Co., In re, 781. W. C. Allen & Co., In re, 246, 248, 253. W. O. Belcher Land Mortg. Co. v. Bush, 414. Weatherwax v. Gorman, 463. Weaver, In re, 82, 249, 563, 586. Weaver v. Msher, 337. Weaver v. Veils, 514. Weaver Mercantile Co. v. Thurmond, 198. Webb, In re, 123, 127, 247, 288, 522, 630, 668, 673, 677. Webb V. Fox, 236. Webb V. Manheim, 426, 462. Webb V. Sachs, 85, 173, 379. Webb Co., In re, 576. Webb's Trustee v. Lynchburg Shoe Co., 3, 453, 466, 575. Webber v. Clark, 316, 479, 480. Weber, In re, 724. Weber Co., In re, 322. Weber Furniture Co., In re, 646, 649, 654. Webster, In re, 116. Webster v. Bowman, 330. Webster v. Gaff, .417. Webster .v. Stearns, 354. Webster City Steel Badiator Co. v. Cham- berlin, 727. Webster Loose Leaf Filing Co., In res, 311. Wechsler v. U. S., 788, 795. Wedderbum y. Wedderburn, 339. Weedman Stave Co., In re, 8, 155. Weeks, In re, 507, 554. Weeks v. Fowler, 361, 396, 414. Weeks v. Spooner, 584. Wegman Piano Co., In re, 358, 387. Wehl V. Wold, 437, 444. Weidenfeld, In re, 50, 177, 257. Weldenfeld v. TilUnghast, 716, 727. Weidhorn, In re, 47, 67. Weidhorn v. Levy, 46, 65, 67, 75. 401. Weil, In re, 360. Weil V. Simmons, 198. Weiland, In re, 504. Weinger, Bergman & Co., In re, 16, 26, 375. Weinreb, In re, 229, 678. Weintraub, In re, 664. Weintrob, In re, 651, 654, 708, 709. Weisberg, In re, 187, 710. Weisenberg & Co., In re, 127. Weisfield v. Beale, 514, 741. Weiss, In re, 621. Weiss V. Belhl, 426. Weissbord, In re, 208, 770, 782. Weissman, In re, 621, 777, 783. Weissner, In re, 607. Weitzel, In re, 101, 361, 382. Welborne, In re, 540. Welch, In re, 386, 672. Welch V. PoUey, 354. Weld V. Locke, 715. Weld V. McKay, 458, 461, 462, 466. Weldon, In re, 685. Welge, In re, 309. Weller v. Stengel, 211. Welles, In re, 646, 653. Wellesley, In re, 96, 113, 174, Welling, In re, 348. CASES CITED [The flsnre" refer to aectlons] 1771 Wellmade Gas Mantle Co., In re, 200, 317, 353. Wellman v. Mead, 741. WeUs, In re, 16, 26, 89, 173, 250, 356, 657. Wells V. Mace, 758. Wells V. Lamprey, 659. Wells V. Lincoln, 57, 636. Wells V. Southern Minnesota Ry. Co., 626. Wells & Co. V. Sharp, 46, 387, 474. Welty V. Welty, 189, 509. Wenatchee Heights Orchard Co., In re, 95, 302, 512, 636. Wenatchee-Stratford Orchard Co., 132, 288. Wenham, In re, 234, 732. Wentworth Lunch Co., In re, 136, 210, 216, 773. Warder, In re, 337. Wermuth, In re, 672. Werner, In re, 365. Werner v. Manson, 525. Wescott Co. V. Berry, 7. Wesson, In re, 713. West, In re, 123, 174, 246, 324, 373, 471, 752, 773, 780. West V. Bank of Lahoma, 298, 392, 550, 587, 590, 611. West V. , Cowan, 428. West V. Empire Life Ins. Co., 413, 423. West V. Fulling, 582. W§st V. W. A. McLaughlin & Co.'s Trus- tee, 540, 542. Westall V. Avery, 23, 465. Westbrook, In re, 664, 665, 718. Westbrook Mfg. Co. v. Grant, 380. West Co. V. Lea, 36, 81, 94, 171, 173. Wester, In re, 179, 769. • Western Condensed Milk Co., In re, 626. Western Implement Co., In re, 631. Western Ins. Co., In re, 491. Western Inv. Co., In re, 64. Western Marine & Fire Ins. Co., In re, 310. Western Sav. Bank, In re, 380. Western Savings & T. Co., In re, 153, 160. Western Star Lodge v. Burkes Const. Co., 195. Western Tie & Timber Co. v. Brown, 544, 553, 580. Western Union Cold Storage Co. v. Hurd, 743. Westervelt, In re, 349. Westfeldt v. Adams, 483. Westhetmer v. Howard, 728. West Lumber Co. v. Lyon, 470, 481. Westlund, In re, 620. West Norfoljj Lumber Co., In re, 374, 604. Weston, In re, 682, 694, 696. West Philadelphia Bank v. Dickson, 587. West Philadelphia Bank v. Gerry,' 120, 756, 757. West Portland Homestead Ass'n v. Lownsdale, 417. West Side Paper Co., In re, 373, 633. Wetmore, In re, 290, 291, 327, 677, 701. Wetmore v. Markoe, 722. Wetmore v. Wetmore, 347. Wetstein v. Franciscus, 615. Wettengel, In re, 357. Wetter v. Russell, 756. Wetter v. Schlieper, 285. Weyhausen, In re, 166. Weymouth v. Sanborn, 105. Whalen v. Wolford, 371. Whaley v. King, 551. Whatley Bros., In re, 360. W. H. Baker, Inc., v. Monarch Wholesale Mercantile Co., 144. Whealton Restaurant Co., In re, 373. Wheatman v. Andrews, 714. Wheeler, In re, 522, 544, 556, 685, 704. Wheeler v. Newton, 715, 728. Wheeler v. Redding, 191. Wheeler v. Simmons, 761, 762. Wheeler v. Wheeler, 760. Wheeler & Co., In re, 269, 466. Wheelock v. Lee, 344, 427. Whelpley- In re, 243, 348. Whetmore, In re, 224, 252, 665. Whipple, In re, 27, 192, 654. Whipple V. Parker, 143. Whiston V. Smith, 607, 623. Whitaker v. Crowder State Bank, 550. Whitcomb v. Rood, 4. White, In re, 43, 128, 160, 163, 202, 213, 246, 251, 252, 269, 348, 469, 544, 665, 672, 684, 692, 703. White V. Blake, 710. White V. Bradley Timber Co., 89, 163. White V. Crawford, 562. White V. Crew, 340. White V. Cushing, 766. White V. Davis, 210. White v. Farnham, 112. White V. Graybill, 327. White V. Griffing, 522. White V. Hartman, 752. White V. Hill, 444. White V. How, 715. White V. Jones, 468. White V. O'Brien, 316. White V. Powell, 713. White V. Schloerb, 22, 26, 199. White V. Thompson, 58, 389. White V. Whitman, 185. White's Express Co., In re, 358, 454. White & Co., In re, 779. Whited V. Bledsoe, 136. Whitehead, In re, 250, 484. Whitehead v. Whitehead, 310. 1172 CASES CITED [Tbe figrnres refer to sectlonBl WMtehouse, In re, 233. White Mountain Paper Co., In re, 26, 134. White Mountain Paper Co. v. Morse, 133, 134. Whitener, In re, 41, 46, 389, 407. Whiteside, In re, 387, 471. White Star Laundry Co., In re, 136. Whitewell v. Wright, 600. Whiting, Ex parte, 544. Whiting, In re, 199. Whitla & Nelson v. Boyd, 55. Whitley Grocery Co. v. Roach, 593. Whitlock's License, In re, 286. Whitman v. Butler, 569. Whitman v. Cammack, 479. Whitmore V. Swank, 55. Whitney, In re, 278, 662, 690, Whitney v. Crafts, 717. Whitney v. Dresser, 540. Whitney v. Wenman, 13, 392, 408. Whitney Central Trust & Savings Bank V. V. S. Const. Co., 47, 57. Whitridge v. Taylor, 18. Whitson V. Farber Bank, 108, 601, 614, 616. Whittaker, In re, 491. Whittemore v. Stephens, 656. Whittingtou v. Simmons, 465. Whittlesey v. Philip Becker & Co., 91, 200, 437. Whittredge v. Sweetser, 321, 346. Whitwell V. Wright, 3, 182, 505, 575, 599, 600, 614. ^^'hyte v. McGovem, 186. Wiback, In re, 702. Wick V. Hickey, 316, 466. Wickham v. Valle, 349. Wicks V. Perkins, 566. Wickwire v. Webster City Sav. Bank, 575, 614. Widner v. Yeast, 756. Wledmann, In re, 681. Wielarski, In re, 33. Wiener, In re, 541, 652. Wiener v. Union Trust Co., 592. Wiener & Goodman Shoe Co., In re, 148, 488, 501. Wiesebrock, In re, 274. Wiesel, In re, 220, 336. Wiesen Bros., In re, 229, 402. Wiggers, In re, 234. Wiggin V. Hodgdon, 760. Wiggins V. Shapleigh, 715. Wight V. Gottschalk, 718. Wight V. Muxlow, 89, 601, Wlkle V. Jones, 198, 390. Wilbur, In re, 569. Wilbur V. Stockholders, 148. Wilbur V. Watson, 444. Wilbur V. Wilson, 376. Wilcox, In re, 120, 123, 672, 700, 779. Wilcox V. Hersch, 747. Wild & Co. V. Provident Life & Trust Co., 584, 596, 597. Wilder, In re, 541, 563. Wilder v. Watts, 84, 163. Wilderinuth v. Cole, 469. Wilde's Sons, In re, 72, 75. Wildman v. Taylor, 326. Wilds V. Board of Education of New York, 838, 372. Wiley, In re, 123, 126, 564, Wiiey V. McBride, 451. Wiley V. Pavey, 167, T12. Wiley's Appeal, 339. Wilk, In re, 206. Wilka, In re, 819, 474. Wilkens, In re, 659. Wilkes, In re, 68, 371. Wilkes-Barre Furniture Mfg. Co., In re, 636. Wilkes-Barre Light Co., In re, 132, 140, 175, 777. Wilkes County Com'rs v. Staley, 739. Wilkins, In re, 659. Wilkins v. Davis, 120, 121, 288. Wilkins v. Tourtellott, 306, 317, 469, 479. Wilkinsburg Borough School Dist., f.n re, 374. Wilkinson, In re, 690. Wilkinson v. Anderson-Taylor Co., 615; Wilkinson v. Babbitt, 650. Wilkinson v. Barnard, 29. Wilkinson v. Raymond, 386. Wilkinson v. Wait, 245. Willetts V. Cotherson, 761, 762, Willey V. Browne, 656. William A. Harris Steam Engine Co., In re, 633. William E. Delaney & Co., In re, 187, 192. William F. Fisher & Co., In re, 286, 305, 308, 469, 484. WiUiam Firth Co. v. South CaroUna Loan & Trust Co., 461. William Openhym & Sons v. Blake, 360, 526. Wm. R. Moore Dry Goods Co. v. Brooks, 55. Wm. R. Moore Dry Goods Co. v. Fovd, 750. William R. Staats Co. v. Security Trust & Sav. Bank, 35. Wm. S. Butler & Co., In re, 95, 176. William Schuette & Co. v. Swank, 575, 584, 595, 597. Williams, In re, 16, 18, 19, 27, 52, 76, 82, 83, 84, 116, 123, 125, 154, 156, 170, 17?, 199, 234, 242, 252, 261, 323, 348, 413, 476, 481, 497, 542, 543, 700, 722, 768, 770, 772, 783. Williams v. American Slicing Mach. Co., 250. CASES CITED [The flKnres refer to aectlona] 1773 Wmiams V. Benedict, 27. Williams v. Butcher, 712. Williams v. Davidson, 597. Williams v. Mrst Nat. Bank, 716. Williams v. Fowle, 197. Williams v. German-American Trust Co., 575, 594, 611. Williams v. Harkins, 513. Williams v. Heard, 38, 341. Williams v. Hogue, 485. Williams v. Humphreys, 756. Williams v. Lane, 121, 185, 198, 414. Williams v. Merritt, 199. Williams v. Miller, 242. Williams v. Nichol, 296. Williams v. Noyes & Nutter Mfg. Co., 316, 317, 367. Williams v. Xuun, 82. Williams v. Pitts, 10. Williams v. Pultze, 589. AVilliamson v. Richardson, 55, 361< Williams v. Bobbins, 758. Williams v. Scott, 244, 712. Williams v. Troop, 469. Williams v. U. S. Fidelity & Guaranty Co., 720. Williams v. Virginia-Carolina Chemical Co., 732.. Williams v. Williams, 310. Williams Bros. v. Savage, 49. Williams' Estate, In re, 46, 189, 509, 773. Williams Oil Corporation, In re, 621. Williams & Co. v. United States Fidelity & Guaranty Co., 491, 506. Williams & Freeman v. Bosworth, 748. Williamsburg Knitting Mill, In re, 358. Williamson, In re, 246. Williamson v. Colcord, 341, 456. Williamson v. Mckens, 730. Williamson v. RichardSon, S5, 454. Williamson v. Wilson, 285. Willis V. Chapman, 143. Willis V. Cushman, 766. Willis Cab & Automobile Co., In re, 135. Willis W. Russell Card Co., In re, 74, 178. Wills V. E. K. Wood Lumber & Mill Co., 384, 752. Wills V. Venus Silk Glove Mfg. Co., 596, 614. Wilmington Hosiery Co., In re, 9, 82, 83, 145. Wilmot V. Mudge, 659. Wilmott, In re, 685. Wilson, In re, 116, 119, 122, 220, 227, 241, 242, 252, 253, 255, 318, 370, 456, 499, 648, 654, 678, 741. Wilson V. Atlantic & St. L. R. Co., 318. Wilson V. Brinkraan, 379, 602. Wilson V. Capuro, 199, 525.- Wilson V. Chandler, 762, Wilson V. Citizens' Trust Co., 550, 611. Wilson V. City Bank of St. Paul, 89, 579. Wilson V. Continental Bldg. & Loan Ass'n, 57, 285, 288, 291. Wilson V. Dresser, 480. Wilson V. McMullen, 193. Wilson V. Mitchell-Woodbury Co., 461, 463, 596. Wilson V. National Bank of Rolla, 45, 544. Wilson V. Parr, 27, 415. Wilson V. Pennsylvania Trust Co., 633. Wilson V. Taylor, 430, 578, 597,. 599. Wilson V. Van Buren County Farmers' Mut. Fire Ins. Co., 421. Wilson V. Weighle, 597. Wilson V. Winslow, 483. Wilson Bros. v. Nelson, 89, 90. Wilson-Nobles-Barr Co., In re, 76, 360. Wilson & Co., In re, 308, 357, 301, 492, 540, 775, 780. Wilt V. Stickney, 417. Winchester, In re, 673. Winchester v. Heiskell, 414. Winchester v. Thayer, 102. Windisch-Muhlhauser Brewing Co. v. Simms, 753. Windley v. Tankard, 240. Windt, In re, 88, 153. Wineman v. Fisher, 716, 727. Winfleld Mfg. Co., In re, 633. Winfree v. Jones, 523. Wink, In re, 49, 74, 285, 290. Winkels, In re, 508. Winkens, In re, 120. Winn, In re, 564, 565. Winn v. Morse, 218, 245. Winship, In re, 258, 262, 274j Winship v. Phillips, 567. Winship Co., In re, 211, 213. Winslow v. Bliss, 550, 551. Winslow V. Clark, 325. Winslow V. Staab, 446, 466. Winsor, In re, 224, 684. Winston, In re, 155. Winter v. Iowa, M. & N. P. R. Co.; 141. Winter, Loeb & Co. v. Montgomery Cooperage Co., 480. Wintermote v. MacLafferty, 626. Wintemitz, Ex parte, 9. Winters v. Claitor, 746. Winthrop, In re, 233. Wirth & Co., In re, 384. Wisconsin Engine Co., In re, 320, '499, 500. Wise, In. re, 84, 592, 604, 605, 607, 770. 782. 1774 CASES CITED [The figrares refer to sections] Wise Coal Co. v. Columbia Lead & Zinc Co. 388, 748. Wise Coal Co. v. Columbia Zinc & Lead Co., 379, 385. Wise Coal Co. v. Small, 587. Wiseman, In re, 497. Wiseman & Wallace, In re, 321, Wishnefsky, In re, 246. Wislizenus v. O'Fallon, 758. WiSner v. Brown, 469. Wlster & Co., In re, 543. Wiswall V. Campbell, 524. Wiswall V. Sampson, 27. Witherbee, In re, 53, 55, 170, 475, 479, 485. Witherow v. Soutb Side Trust Co., 519. Withers v. Stinson, 718. Withoft V. Andrews, 584. Witiioft V. Western Meat Co., 400. Withrow V. Fowler, 121. Witkowski, In re, 262. Witman, In re, 654. Wittenberg, In re, 692. Wittenberg Veneer & Panel Co., In re^ 595. Witters V. Sowles, 593. Witthaus V. Zimmermann, 710, 748. Wittmeier v. Cranford, 305. Wittredge v. Sweetser, 321. Wix, In re, 682, 701. W. J. Davidson & Co. v. Friedman, 44. W. J. Floyd & Co., In re, 255, 455, 491. Woddail v. Holliday, 197. Wodzicki, In re, 380. Woehrle v. Canclini, 741, 744. Wofford V. linger, 516. Wolcott V. Hodge, 733. Wolf, In re, 520, 584, .586, 666, 682. » Wolf V. Stix, 748. Wolf V. tJ. S., 786, 795. Wolf Co., In re, 599. Wolf & Levy, In re, 592, 607. Wolfboro Loan & Banking Co. v. Rollins, 748. AVolfe V. Bank of Anderson, 586. Wolfe, In re, 348, 685, 698. Wolff Mfg. Co. V. Battreal Shoe Co., 376, 446, 575. Wolffe V. Eberlein, 766. Wolins V. Wilmerding, 544 WoUock, In re, 189. WoUowitz, In re, 662. Wood, In re, 53, 123, 163, 244, 292, 327 402, 407, 413, 451, 543, 556, 585, 672, 673, 701. Wood v. Bailey, 49, 51. Wood V. Carr, 376, 710. Wood V. Cumraings, 396, 408, Wood V. Fisk, 405, 734, 741. Wood V. Henderson, 18. Wood V. Kerkeslager, 375. Wood V. Ledgerwood, 516. Wood V. Simpson, 368. Wood V. U. S. Fidelity & Guaranty Co., 492, 577, 592. Wood V. Wright, 468. Wood Co. V. Eubanks, 316, 354. Wood Mowing & Reaping Mach. Co. v. CroU, 57, 454. Wood Mowing & Reaping Mach. Co. v. Vanstory, 356. Wood & Selick v. Vanderveer, 659. Woodard, In re, 240, 244, 253, 777, 782. Woodard v. Snow, 368. Woodbury, In re, 406, 414. Woodbury Dennatological Institute, In re, 304. Woodend, Iii re, 304, 648. Woodford, In re, 157. Woodford v. Rice, 430, 478. Woodin v. Frazee, 316. WQodman, In re, 352. Woodman v. Butt'erfield, 454. Woodman v. Stow, 651. Woodruff, In re, 705. Woodruff V. Cheeves, 248, 666. Woods, In re, 89, 135, 236, 488, 565. Woods V. Brunswick-Balke-CoUeuder C!o., ' 358. Woods V. Buckewell, 292. Woods V. Forsyth, 409. Woods V. Klein, 592. Woods V. Little, 222, 677. Woods & Malone, In re, 354. Woodside Coal Co., In re, 139. Woodward, In re, 135, 164, 261, 270, 675, 777, 782. Woodward v. McDonald, 67. Woodward v. Sanger Bros., 244. Woodward v. Schaefer, -757. Woodward v. Towne, 733. Woolbridge v. Rickert, 430. Wooldcott, In re, 246. Woolfolk V. Gunn, 185. Woolfolk V. Murray, 199, 251. Woolford, In re, 263. Woolford V. Diamond State Steel Co., 163. Woollcott, In re, 246. Woollen, Ex parte, 49. Woolridge v. McKenna, 19, 465. Woolridge v. Williams, 316, 594. Woolsey v. Cade, 4, 736. Wooten, In re, 516, 537, 540. Worcester v. Clark, 472. Worcester County, In re, 9, 11, 44 46 49, 493, 527, 618, 631. ' ' Worcester Footwear Co., In re, 132. Worland, In re, 471, 484. World Co. V. Brooks, 192. Worrell, In re, 263. CASES CITED [The flsnren refer to seottons] 1775 Worrell V. Whitney, 603. Woi'sliam, In re, 182. Worth, In re, 538, 773. Worthington, In re, 564. Worthlngton v. De Bardlekln, 763. Woulfe & Co., In re, 619. W. P. Williams Oil Corporation, In re, 621. Wray, In re, 493, 517, 543. Wrede v. Clark, 337, 380. Wrenn v. Citizens' Nat. Bank, 550, 590, 595, 597. Wright, Ex parte, 739. Wright, In re, 7, 49, 74, 236, 269, 295, 303, 318, 338, 340, 366, 367, 488, 511, 516, 631, 632, 675, 709. Wright V. Gotten, 575, 587, 597, 601. Wright V. Filley, 89. Wright V. First Nat Bank, 344. Wright V. Green, 324. Wright V. H. B. Ehrllch & Co., 446, 448. Wright V. Home, 248. Wright V. Johnson, 427. Wright V. Nostrand, 121. Wright- V. Rumph, 153. Wright v; Sampter, 454, 587, 597, 599. Wright V. Simon, 423. Wright V. Skinner, 427. Wright V. William Skinner Mfg. Co., 587, 600. Wright-Dalton-Bell-Anchor Store Co. v. Sanders, 317, 376, 727. Wright-Dana Hardware Co., In re, 356, 550, 575, 582, 590, 606. Wright Lumber Co., In re, 84, 580. Wright & Barron Drug Co., In re, 356. Wrisley Co., In re, 296, 657. W. R. Kuhn Co., In re, 373. Wronkow, In re, 648, 654. W. S. Danby Millinery Co. v. Dogan, 375, 379. W. S. Jennings & Co., In re, 252. W. S. Kuhn & Co., In re, 123, 129. W. S. Peck Co. V. Lowenbein, 663. W. S. Peck & Co. V. Whitmer, 597, 614. Wuerpel v. Canal-Louisiana Bank & Trust Co., 47. Wuerpel v. Commercial Germania Trust & Sav. Bank, 44, 354, 408, 618. Wulbern v. Drake, 106. Wunder, In re, 240, 252. W. W. Mills Co., In re, 582, 587, 592, 595, 599. Wyatt, In re, 674. Wyckoflf V. Gardner, 749. Wyckoff V. Williams, 544, 752, 756. Wylie, In re, 480. Wylie V. Smith, 519. Wyllie, In re, 240. Wylly, In re, 517, 679. Wyly, In re, 577. Wynne, In re, 5, 164, 365, 373, 379, 446, 451, 567. Wyoming Valley Co-op. Ass'n In re, 153. Wyoming Valley Tee Co., In re, 482, 517, 536, 622. W. & A. Bacon Co., In re, 544. i'ancy v. Cothran, 418. Yaple V. Dahl-Millikan Grocery Co., 591. Yaryan Naval Stores Co., In re, 27. Yaryan Rosin & Turpentine Co. v. Isaac, 41, 45, 46. Yate V. HoUingsworth, 764. Yates, In re, 97. Yates V. Lyon, 102. Yeadon v. Planters' & Mechanics' Bank, 567. Yeager, In re, 251, 254. Yeager v. Wallace, 297. Yeatman v. New Orleans Sav. Inst., 316, 566. Yeaton, In re, 522.- Yegen v. Northern Pac. R. Co., 396. Ylia, In re, 76. Yoder, In re, 105. Yoke Vitrified Brick Co., In re, 619. York, In re, 44, 45, 49. York Mfg. Co. v. Brewster, 358. York Mfg. Co. v. Cassell, 316, 358. York Mfg. Co. v. Merchants' Refrigerat- ing Co., 660. York Silt Mfg. Co., In re, 364, 622, 638. Yorkville Coal Co., In re, 409. Yost, In re* 246. Youdelman-Walsh Foundry Co., In re, 211. Young, FiX parte, 517. Young, In re, 116, 120, 122, 126, 163, 202, 214, 255, 348, 386, 427, 678, 691, 702, 781. Yoimg V. Allen, 461, 462. Young V. City Nat. Bank, 716, 745. Young v. Clark, 732. Young V. Denslinger, 715. Young V. Gordon, 558. Young V. Grau, 743. Young V. Ridenbaugh, 706. Young V. Stevenson, 712, 750. Young y. Thomason, 243. Young V. Upson, 368, 584. Young V. Young, 189. Young & Co. V. Howe, 718, 748. Young & Holland Co. v. Brande Bros., 180. Youngblood v. Lathen, 251. Youngman v. Salvage, 717. Youngstown Coke Co. v. Andrews Bros. Co., 143. 1776 CASES CITED [The ngmea refer to nectlonfil Youngstrom, In re, 49, 182, 240, 244, 297. Toutsey v. Niswonger, 47, 49. Toxtheimer v. Key.ser, 761. iumet & Co. V. Delgado, 380. Tungblutli, In re, 254. Yungbluth v. Slipper, 113, 121. Zack, In re, 254. Zahm V. Fry, 378, 579. Zanteinger v. Ribble, 817. Zarega, In re, 723. Zartman, In re, 74, 120, 122, 126. Zartman v. First Nat. Bank, 316, 362, 367, 452. Zavelo T. Cohen Bros., 658. Zavelo T. J. S. Beeves & Co., 494, 659. Zavelo V. Beeves, 494, 651, 758, 760. Zehner, In re, 26, 320, 390. Zehner v. Southern Surety Co., 451. Zeiber v. Hill, 308, 376. Zeigler v. Shomo, 16, 26, 479, Zeigler v. Suggit, 756. Zeigler Co., In re, 27. Zeis, In re, 377. j ■ , Zeitinger v. Hargadine-McKittrick Dry Goods Co., 27, 132, 151, 170, 210, Zeltner Brewing, Co., In re, 82. Zenor v. McFarland, 634. Zeperink v. Card, 736. Ziegenfuse, Ex parte, 11, 235. Ziegler v. Suggit, 748, 75^. Ziegler v. Thayer, 173. Zier & Co., In re, 504. Ziff, In re, 246. Zimmer v. Schleehauf, 499. Zimmerman, In re, 255. Zimmerman v. Ketchum, 728, Zimmem v, Blount, 4 14. Zinn, In re, 285. Zinner, In re, 55, 361. Zitron, In re, 358. ZofEer, In re, 678, 679. Zotti, In re, 340. Zug, In re, 41, 125. Zugalla V. International Mercantile Agency, 86, 95, 135. Zumbro v. Stump, 756. INDEX [The flg-ures refer to aections] A ABATEMENT, Death of bankrupt before adjudication does not abate proceedings, 178, Bankruptcy of party not pleadable in, 185. Death or removal of trustee not to abate pending suits, 295. Bankruptcy of plaintiff as plea in, 393. ABANDONMENT, Of claim to exemptions in bankruptcy, 247. Of lease, by trustee, 307. By trustee, of claim to property fraudulently transferred, 447. Of security, by lien creditor, 562. Surrender of preference, 604-607. Of composition proceedings, 656. Of opposition to bankrupt's discharge, 690. ABSCONDING DEBTOR, Jurisdiction of proceedings in bankruptcy against. 19. Arrest of, on institution of bankruptcy proceedings, 232. Right of, to claim exemptions, 246. ACCOMMODATION NOTE, Holder of, entitled to prove against what parties, 505. ACCORD AND SATISFACTION, As bar to proof of claim in bankruptcy, 493. Composition in bankruptcy as, 645. ACCOUNT BOOKS, See Books of Account. ACCOUNTS, Of referees in bankruptcy, 77. Of receivers in bankruptcy, 216. Of trustee, open to inspection of parties in interest, 284. To be kept by trustee, 313. Due to bankrupt as assets of estate, 340. Of assignee for credltoi:s, settlement of, in bankruptcy, 438. Credits and allowances to assignee, 444. Open, provable in bankruptcy, 487. Mutual, set-off of, in bankruptcy, 544. Adjustment or set-off of, as preference, 590. Partial payments on running account, as preference, 591. False, rendering of, in bankruptcy, a crime, 788. ACTIONS, Pending, effect of bankruptcy of party on, 185. By or against bankrupt, stay of, by state court, 186. By injunction or order from federal court, 187. Leave to continue suit in state court, 188. What actions may be stayed, 189. Foreclosure of mortgages and other liens, 190. Proceedings subsequent to judgment, 191. Blk.Bkr.(3dEd.)— 112 (1777) 1778 INDEX [Tlie flsnres refer to sections] ACTIONS— Continued, Proceedings supplementary to execution, 192. Proceedings on appeal, 193. Contempt proceedings, 194. Effect of tlie stay, 195. Effect of grant or denial of discharge, 196. Pending actions by bankrupt as plaintiff, 197. Intervention of trustee in pending suits, 19S. Suits by or against bankrupt begun after adjudication, 199. Concerning exempt property, 199. In state courts, restraining, pending adjudication, 207. Against marshal seizing goods of stranger, 203. By and against receivers in bankruptcy, 214. By creditors. Independently of trustee, 281. Bankrupt's rights of action as assets, 342-344. By creditors, against bankrupt, may be restrained, 29. To establish or enforce existing liens, 387. In state courts, 388. Restraining, 389. Foreclosure of mortgages, 390. By and against trustees in bankruptcy, 392-432. Not abated by death or removal of trustee, 295. Bight of action in general, 392. Trustee's right of action exclusive, 393. Leave or direction to sue, 394. Suits against trustees, 396. Obtaining leave of court, 397. Power to enjoin, .398. Garnishment of trustee, 399. Nature and form of. trustee's action, 400. Suits in equity, 401. Summary proceedings in courts of bankruptcy, 402-404. Joinder of causes of action, 405. Jurisdiction of suits by and against trustees, 406. Statutory provisions, 406. Jurisdiction of court of bankruptcy, 407. Claims on property in custody of court, 408. Independent suits against third persons, 409. Preferences and fraudulent conveyances, 410. Suits which bankrupt could not have maintained, 411. Consent or waiver of objections, 412. Federal courts in other districts, 413. Jurisdiction of state courts, 414. Conflicting jurisdiction, 415. Limitation of actions by and against trustees, 416. What suits and proceedings barred, 417. Suits on concealed frauds, 418. Parties affected by statute, 419. Pleading the statute, 420. Laches of trustee as defense, 421. Effect of reopening estate, 422. Parties to actions by or against trustee, 423. Joinder of bankrupt, 424. Representation of tmstee by bankrupt's attorney, 425. Injunction and receivership in trustee's suit, 426. Pleadings in suits )Dy and against trustees, 427-429. Evidence in actions by and against trustees, 430, 431. Liability of trustee for costs, 432. To vacate previous assignment for creditors, 437. To recover assets from assignee for creditors, 438, 439. INDEX 1779 [Tbe flgrares refer to Bectlons] ACTIONS— Continued, To recover property fraudulently transferred, 445-468. Set-off In actions by trustee, 552. In suits to recover preferences, 553. Proceedings to avoid or recover preferences, 608-616. To enforce payment of dividends, 640. To recover back dividends wrongly paid, 641. On new promise to pay discharged debt, 766. ACTS OF BANKRUPTCY, Enumerated and defined, 79. Nature and effect of, 80. Insolvency as an element of, 81. Fraudulent conveyances, 82. Concealment' or removal of property, 83. Giving a preference, 84. Intention of debtor presumed, 85. Suffering preference through legal proceedings, 86. Attachment, 87. Failure to vacate or discharge, 88. Meaning of "suffer or permit," 89. Warranty of attorney ; confession of judgment, 90. Assignment for creditors, 91. What constitutes "general" assignment, 92. Invalid assignment, 93. Solvency no defense, 94. Appointment of receiver or trustee, 95. Confession of insolvency, 96. By partnership, 113. By corporations, 144. Admission of insolvency, 145. Power of directors to make, 145. Allegations of, in involuntary petition, 160. Adding, by amendment to petition, 163. ADJOURNMENT, Of examination in bankruptcy, 266. Of creditors' meeting, by referee, 277. Of election of trustee, 2£6. Of proof of claims, 535. ADJUDICATION, In voluntary proceedings, 151. Opposition by creditors, 152. What creditors may petition for, 153-158. Requisites of petition for, 159-163. Who entitled to oppose, 170. Death or insanity of bankrupt before, 178. Form and requisites of, 181. Conclusiveness and effect of, 13, 182. Vacating and setting aside, 183. Appeal from, 42. \ Jurisdiction of referee to make, 65. Power of referee to vacate, 183. Partnership dissolved by, 121. Suits pending by. or against bankrupt at time of, 185-198. Suits by or against bankrupt begun after, 199. Sequestration of property before, 201. Examination of alleged' bankrupt before, 262. Trustee's title relates to date of, 317. Pleading and proof of, in trustee's suit, 427, 430. Effect of, on previous assignment for creditors, 434. As evidence in suit to recover preference,, 614. Offer of composition before, 646. 1780 INDEX [The flgrnrea refer to sectional ADVERSE CLAIMANTS, Of property, summary jurisdiction does not extend to, 403. Determination of character of claim, 404. Previous assignee for creditors as, 439, 444. Alleged fraudulent transferees as, 465. Rights of, not determined on proceedings for distribution of proceeds of sale, 484. ADVICE OF COUNSEL, As excuse for omissions in schedule and list, 675. AFTER-ACQUIRED PROPERTY, Property acquired by bankrupt after filing petition does not pass to trustee, 236. Chattel mortgage on, validity of, in bankruptcy, 367. AGENT, Verification of bankruptcy petition by, 162. Representation of creditor by, at meetings, 279. In election of trustee, 289. Property held by bankrupt as, reclamation of, 356. Assignee for creditors as agent of bankrupt assignor, 439. Proof of claims by, 528. Knowledge of, imputed to principal in cases of preference, 601- Verification by, of petition to vacate composition, 657. Acts of, as barring bankrupt's right to discharge, 663. In what eases agents are fiduciary debtors, 732. Of creditor, may receive new promise to pay barred debt, 759. AGRICULTURISTS, Not subject to involuntary bankruptcy, 106. ^ Amenability to state insolvency laws, 9. ALIENS, Jurisdiction of involuntary proceedings against, 19. May petition in voluntary bankruptcy, 99. Commission to take testimony of foreign witness, 261. Eligible to office of trustee in bankruptcy, 285. Entitled to prove claims in bankruptcy, 488. Claims of, barred by discharge, 723. ALIMONY, Proceedings to collect, from bankrupt, not stayed or enjoined, 189. Accrued or accruing, not a provable debt, 509. Claims for, not barred by discharge, 722. ALLOWANCE, Of claims proved and filed, 534. Appeal from, 44. To bankrupt's widow under state laws, 256. Of trustee's accounts, 313. Of expenses and commissions to assignee for creditors, 444. Of claims of preferred creditors, 604-607. ALTERATION OF INSTRUMENTS, Liability of bankrupt on forged indorsement, 505. AMENDMENT, Of petition in bankruptcy, 163. May be ordered by referee, 66. Of schedule and list of creditors, 226. Of proof of claim, 541. Of schedule, to include claim for exemptions, 252. Of trustee's accounts, 313. Of proof of claim by secured creditor, 65^ Of specifications in opposition to discharge, 696. INDEX 1781 [Tbe fl^nres refer to aectlons] AMICABLE ACTION, Judgment in, when a preference, 579. AMOUNT IN CONTROVEBSY, Necessary io sustain jurisdiction of appeal, 44. How computed, 44. Necessary to sustain involuntary petition, 156. ANCILLARY JURISDICTION, Of courts of bankruptcy, 24. Ancilllary receiverships In bankruptcy, 215. In suits by trustees in bankruptcy, 413. In suits to avoid fraudulent transfers, 465. ANNUITY, Bankrupt's right to, as an asset, 347. Bond for payment of, as provable debt, 499, 502. ANSWER, Of debtor to involuntary petition, 171. In suit by trustee in bankruptcy, 428. To petition for re-examination of proved claim, 542. APPEAL BOND, Damages for breach of, a provable debt, 495. Effect of discharge on liability of sureties on, 748. APPEALS, In bankruptcy, statutory provisions as to, 34. Jurisdiction of U. S. Supreme Court, 35. On certification of questions, 36. On certiorari, 37. On writ of error to supreme court of state, 38. Rules governing appeal to U. S. Supreme Court, 39, Jurisdiction of circuit court of appeals, 40. On writ of error, 40. Appellate jurisdiction, 41. Adjudication of bankruptcy, 42. Decision on discharge or composition, 43.. Allowance or rejection of claim, 44. Revisory jurisdiction of circuit court of appeals, 45. Appellate and revisory jurisdiction contrasted, 46. Which remedy appropriate, 46. Choice of remedies, 46. Distinction between "controversies" and "proceedings" in bajikruptey, 47. Reviewing discretionary action of district court, 48. Time of taking appeal or petition for revision, 49. Parties to appeal or review, 50. Practice on appeal, 51. Practice on petition for revision, 52. Assignment of errors, 53. Record on appeal, 54. Scope of review, law and facts, 55. Questions not raised below, 56. Review of evidence and findings, 57. Determination on appeal or review and effect thereof, 58. Jurisdiction of territorial supreme courts, 59. From referee to court, 74^76. Prosecution of, after bankruptcy of appellant, 193. From order discharging trui^tee, 314. From order reopening estate, 315. From judgment against bankrupt, by trustee, 400. APPELLATE COURTS, In bankruptcy, statutory provisions as to, 34. Jurisdiction and practice, see Appeals. 1782 INDEX [Tbe flgnres refer to meotionnj APPOINTMENT, Of referees in bankruptcy, 60. Qualifications and eligibility, 61. Relatives of judges not eligible, 61. Of receivers in bankruptcy, 210. Of trustees in bankruptcy, 292. Effect of, 297. Of appraisers, 300. Of trustee, on reopening estate, 315. APPRAISAL, Of property in custody of receiver in bankruptcy, 211, Of property claimed as exempt, 253. Of property of estate in bankruptcy, 300, 477. APPROVAL OF COURT, When necessary to trustee's sale, 481. Confirmation of composition, 654. ARBITRATION, Trustee may submit controversies to, vchen, 304. ARREST, Of bankrupt, may be ordered when, 232. Is designed merely to secure attendance of bankrupt, 232. Bankrupt not liable to, In civil actions, 233. ASSAULT AND BATTERY, Claim for damages for, not an asset in bankruptcy, 343. Not a provable debt against bankrupt's estate, 514. Not released by discharge, 741. ASSESSMENTS, For local improvements, when entitled to priority, 622. How aftected by discharge in bankruptcy, 725. ASSETS, In possession of state court's receiver, jurisdiction of, 27. In possession of sherifC under writ from statei court, 28. Jurisdiction of referee as to collection of, 67. Distribution of, in partnership cases, 123. Marshaling of assets, 124. What are partnership assets, 125. What are individual assets, 126. Franchises of corporations as, 147. Sequestration of, pending adjudication, 201. Collection of, by receiver in bankruptcy, 211, 214. Schedule of, to be filed by bankrupt, 221. Form and contents, 222. Mistakes- and omissions, 224. Amendment, 226. Surrender of, to trustee. Jurisdiction to order, 227. Petition, proceedings, and order for, 228. Evidence to sustain order, 229. Excuses, defenses, and allowance, 230. Enforcing by attachment for contempt, 231, After-acquired, belong to bankrupt, 236. Surplus, bankrupt's right to, 237. Allowance of exemptions from, 238-255. Appraisal of, in bankruptcy, 300. Duty of trustee in collection of, 303. In bankruptcy, defined, 318. Suits by trustee for collection of, 392-432. Recovery of, from previous assignee for creditors, 437-439. Property conveyed in fraud of creditors, 445. INDEX 1783 [The flKUrea refer to ■eotlona] ASSETS— Continued, Sales of, by trustees, 469. ' Marshaling of, in bankruptcy, 572. Available for distribution as dividends, 636. Fraudulent transfer of, as bar to discharge, 670. Concealment of, as bar to discharge, 672. Omission of, from schedules, as bar to discharge, 673-677. Concealment of, as criminal offense, 787. ASSIGNEE, Of claim, as petitioning creditor, 163. ASSIGNMENT, Of claims against bankrupt estate, 280. Equitable, available against trustee in bankruptcy, 362. As fraudulent transfer, 451. Of choses in action sold by trustee, 483. Provability of assigned claims, 501. Proof by assignee of claim, 529. Assignee of collateral as secured creditor, 557. As voidable preference, 578. Of claims entitled to priority, 620. Of right to receive dividend, 640. Of new promise to pay discharged debt, 766. ASSIGNMENT FOR CREDITORS, Laws regulating, when suspended by bankruptcy law, 10. As an act of bankruptcy, 91. Notwithstanding defective execution, 93. By partnership, as act of bankruptcy, 113. By corporation, as act of bankruptcy, 144. Assent to, estops creditors from petitioning in bankruptcy, 155. Assignee may be examined in bankruptcy, 264. Rights of trustee in bankruptcy as against assignee, 433. Effect of adjudication In bankruptcy on, 434. Assignment more than four months before bankruptcy, 435. Enjoining action by assignee, 436. Trustee's proceedings to set aside assignment, 437. Recovery of assets by trustee from assignee, 438. Summary proceedings and attachment for contempt, 439, Nature of trustee's title to assigned estate, 440. Estate, partly settled by assignee, 441. Rights of purchasers from assignee, 442. Rights of creditors paid by assignee, 442. Appointment of assignee as trustee, 443. Credits and allowances to assignee, 444. Assignee may prove claim in bankruptcy, 489. ASSIGNMENT OP ERRORS, Necessity and sufHciency of, on appeal, 53. On appeal from referee to court, 74. ASSOCIATIONS, Unincorporated, subject to bankruptcy law, 143. ASSUMPSIT, Proper form of action to recover preference, 400. By trustee, to recover property fraudulently conveyed, 465. ATTACHMENT, Property, in custody of bankruptcy court not subject to, 26. Property held by sheriff under, jurisdiction of bankruptcy court over, 28. Suffering or permitting as an act of bankruptcy, 87. Of property in custody of receiver, 213. To secure attendance of witness at examination in bankruptcy, 260, 274. 1784 INDEX [The flgures refer to sections] ATTACHMENT— Continued, Malicious, action for, vests in trustee, 343. When dissolved by adjudication in bankruptcy, 376, Of funds in hands of trustee, 399. Of assignee for wedltors, to compel surrender of property, 439. Costs of, when a preferred claim, 832. When dissolved by composition, 660. Lien by, effect of discharge on, 753. ATTORNEY, Verification of involuntary petition by, 162. Employment of, by receiver in bankruptcy, 216. Attending witness at examination in bankruptcy, 267. Advice of, as excuse for contempt at examination, 274k Representation of creditor by, at meetings, 279. In election of trustee, 289. Of creditor, choice of, as trustee, 285. For trustee, employment and compMisation of, 309. Lien of, for services, preserved in bankruptcy, 370. For assignee for creditors, allowance of fees to, 444. Proof of claims by, 528. Payments to, as preferences, 589. Knowledge of, imputed to client, in cases of preference, 601. Claim of, for fees, when entitled to priority, 625. Debts of, to clients, not created in fiduciary capacity, 733. Of creditor, may receive new promise to pay barred debt, 759. Fees ■ of, in bankruptcy cases, 781-785. ATTORNEY GENERAL. Officers to furnish statistics of bankruptcies to, 313. AUCTION, Trustees' sales generally to be by, 476. AUCTIONEER. Acts in a fiduciary capacity, 737. Employment of, to conduct trustee's sale, 476. B BAILMENT, In what cases bailees are fiduciary debtors, 734. Property held by bankrupt as bailee, reclamation by ovrapr, 356, BAlSfKRUPT, Jurisdiction depending on residence or domicile of, 19. Jurisdiction of person of, 21. Who may become, 97-106. Service of subpoena and petition On, 166. Plea or answer of, to petition, 171. Death of, not to abate proceedings, 178. May make oath to solvency; practice thereon, 173-175. Suits by or against, pending at time of adjudication, how disposed of, 185-198. Duties of, in care of property before appointment of trustee, 200. Restraining waste or transfer of property by, 204. Forthcoming bond by, on seizure of property by marshal, 209, Rights and duties of, pending proceedings, 218-235. Ajlways subject to orders of court, 219. Status of, during bankruptcy proceedings, 218. Duties with relation to estate, 220. Duty to assist trustee, 220. •To prepare and file schedule of assets, 221. To file list of creditors, 225, Surrender of money and property to trustee, 227. INDEX 1785 [Tbe fflerares refer to aectlona] BANKRUPT— Continued, Jurisdiction and power to order, 227. Petition and proceedings, 228. Evidence to sustain order, 229. Excuses, defenses, and allowances, 230. Commitment for contempt, 231. Detention and extradition of, 232. Privilege from arrest on civil process, 233. Release from imprisonment, 234. Arrest of, prior to bankruptcy proceedings, 235. Right to after-acquired property, 236. Right to surplus of estate, 237. Allowance of exemptions to, 238-255. May maintain suits in respect to exempt property, 199, 245. May mortgage or pledge exempt property, 245. May apply for examination of witnesses, 258. Subject to examination before referee, 262. Second examination of, 265. Privilege against self-crimination, 271. Use of evidence given by, on examinations, 272. Not entitled to fees as witness, 273. Contempts by, when under examination, 274. Eligibility of, as trustee for another bankrupt, 285. Improperly influencing election of trustee,' 290. Right to object to confirmation of trustee, 291. Property of, vests in tnistee, 316. To execute necessary deeds, 319. Property in his possession to be surrendered, 322. Debts due to, vest in trustee, 340. Property held in trust for, as assets, 346. Property of third persons in possession of, 352. Property held by bankrupt as trustee, 354. As agent or bailee, 356. As stock-broker, 357. Under conditional sale, 358. Under executory or option contract, 359. Reclamation of property fraudulently procured by, 360. Property sold or pledged by, 361. Cannot sue independently of trustee, 393. Not a proper party in trustee's suit, 424. Fraudulent transfers by, voidable by trustee, 445-468, Insolvency of debtor essential, 458. Fraudulent intention of debtor, 459. Trustee's sale of assets of, 469. Purchase by, at trustee's sale, 478. Objecting to claim offered for proof, 536. Moving for reconsideration of proved claim, 542. Offer of composition by, 646, 648. Discharge of, 662-717. Criminal offenses by, 786-795. BANKRUPTCY ACT, Authority for, and enactment of, 1. Constitutionality of, 2. Policy and purpose of, 3. Construction and interpretation of, 4. Time of taking effect, 5. Effect of, on state insolvency laws, 6-12. Nature and effect of proceedings in bankruptcy, 13. Who may have advantage of, 97. Who liable to, in voluntary cases, 98. 1786 INDEX [Tbe flsnres refer to sectlonsl BANKRUPTCY ACT— Continued, Text of, see Appendix. Amendments to, 1. Provisions as to appeal and review, 34. Invalidity of preferences under, 574. Claims entitled to priority under, 617-634. BANKS, Incorporated, cannot become voluntary bankrupts, 97. Not subject to involuntary bankruptcy, 137. Depositories for money of estates, 310. Deposits in, as trust funds, 355. Checks and drafts on, as equitable assignments, 362. May set off claims against deposits, 550, 590. Bankers as fiduciary debtors, 735. BELIEF, ' As to debtor's solvency or insolvency, affecting validity of liens, 379. Affecting validity of transfer or conveyance, 462. As rendering preference voidable, 597-600. Imputed knowledge of agent or attorney, 601. BENEVOLENT AND FRATERNAL SOCIETIES, Not liable to proceedings in bankruptcy, 142, 143. BIDS, Sealed, for bankrupt's property, trustee may invite, 476. BILL IN EQUITY, By trustee, to avoid fraudulent conveyance, 465. To avoid or recover preference, 610. BILL OP SALE, As voidable preference, 578. BONA FIDE PURCHASER, Under lien dissolved by bankruptcy, rights of, 381. Trustee in bankruptcy is not, 364. Prom assignee for creditors, rights of, 442. From fraudulent grantee, rights of, 464. At trustee's sale, rights of, 479. BOND, On appeal or writ of error, 51. Of referees, 61. For warrant to seize property, 208. For release of property seized under warrant, 209. Of trustees, 294. Joint trustees may give joint and several bonds, 294. Trustee to give separate bond for each estate, 294. Of designated depositories, 310. Of trustee, order approving, as evidence of title, 316, 430. Of assignee for creditors, right of trustee in bankruptcy to sue on, 438. Effect of discharge on liabilitj of sureties on, 720, 748. BONDHOLDERS, Of bankrupt corporation, purchase of its assets by, 478. Entitled to use their bonds in paying purchase price, 482. Cannot set off claims against unpaid stock subscriptions, 551. , BOOKS AND PAPERS, Relating to bankrupt's property, belonging to trustee, 318. Production of, on examination as to solvency, 175. Use of, in examinations in bankruptcy, 257, 274. Right of creditors to examine, 284. Of trustee in bankruptcy, 313. INDEX 1787 [Tbe flgmreii refer to seotlona] BOOKS OF ACCOUNT, Failure to keep, as bar to discharge, 680. Destruction, mutilation, or concealment of, 68L Intent to conceal financial condition, 682. Contemplation of bankruptcy, 683. What are proper or necessary books, 684. Alleging want or destruction of, in opposition to discharge, 694. BREACH OF MARRIAGE PROMISE, Pending suit against bankrupt for, not stayed or enjoined, 189. Judgment for, is provable debt, 497. BROKERS, Not fiduciary debtors, 735. BULK SALES, When fraudulent and voidable by trustee in bankruptcy, 452. BURDEN OF PROOF, On issue of insolvency, 173, 174. In involuntary proceedings generally, 176. In suits by trustees in bankruptcy, 430. In suit to avoid fraudulent conveyance, 466. On objection to claim offered for proof and allowance, 540. On proceeding for reconsideration of proved claim, 542. In suits to avoid or recover preferences, 614. In proceedings in opposition to bankrupt's discharge, 701. In action on new promise to pay discharged debt, 767. In criminal prosecutions under bankruptcy act, 795. BURDENSOME INTERESTS, Trustee not bound to accept, 320. Trustee's election to accept or abandon, 321. BUSINESS CORPORATIONS, Liability of, to bankruptcy proceedings, 141. What are, 141. BUSINESS OF BANKRUPT, May be carried on by authority of court, 212. By bankrupt's trustee, 302. c CANCELLATION, Of judgment barred by discharge, 757. cAsia, Trustees' sales should be for, 477. Deposit of, to pay composition, 652. CAVEAT EMPTOR, Application of rule of, to bankruptcy sales, 479. CERTIFICATION OF QUESTIONS, To U. S. Supreme Court in bankruptcy cases, 36. By referee to court of bankruptcy, 74. CERTIORARI, Jurisdiction of U. S. Supreme Court on, 37. CHARITABLE ORGANIZATIONS, Not liable to proceedings in bankruptcy, 142. CHATTEL MORTGAGES, Lien of, in bankruptcy of mortgagor, 367. As fraudulent transfers, 451. Trustee's sale of property incumbered by, 470, 471. Holders of, as secured creditors, 555. As voidable preferences, 578. 1788 INDEX [The flgnreB refer to sections] CHECK, Disbursement of funds of estate by, 310. As equitable assignment of fund, 362. Payment of dividends by, 640. OHOSBS IN ACTION, Belonging to bankrupt, vest in trustee, 318, 342. Belonging to bankrapt's wife, as assets, 349. Assignment of, as fraudulent transfer, 451. Sale and transfer of, by trustee, 483. Assignees of, as secured creditors, 557. OIRCTJIT COURT OP APPEALS, Provisions of bankruptcy act as to, 34. Appellate jurisdiction of, 40. On v^rlt of error, 40. Judgments in bankruptcy proceedings, 41. Adjudication of bankruptcy, 42. Decision on discharge or composition, 43. Allowance or rejection of claims, 44. Revisory jurisdiction of, 45. Appellate and revisory jurisdiction contrasted, 46, 47. Reviewing discretionary action of district court, 48. Time for taking appeal or petition to, 49. Parties to appeal or review in, 50. Practice on appeal, 51. Practice on petition for revision, 52. Assignment of eri-ors, 53. Record on appeal, 54. Scope of review, law and facts, 55. Questions not raised below, 56. Review of evidence and findings, 57. Determination of appeal, or review and effect thereof, 58. CITATION, On appeal in bankruptcy cases, 51. To bankrupt in involuntary cases, 166. To witnesses, for examination in bankruptcy, 260. CITIZENSHIP, Diverse, as ground of jurisdiction in federal courts, 409. CIVIL PROCESS, Bankrupt privileged from arrest on, 233. Release on habeas corpus, 234. Arrest prior to bankruptcy, 235. CLAIMS, See Debts. CLASSES OF CREDITORS, With reference to giving of preferences, 576. See also Secured Creditors, Preferred Creditors, Priorities. CLERK, Of bankrupt, entitled to priority of payment, 626. CLERK OF COURT, Referring petitions in bankruptcy to referee, 64. Filing bankruptcy petitions with, 165. Collection of filing fees by, 165. Bankruptcy dockets to be kept by, 184. Fees of, in bankruptcy cases, 776. Distribution of composition money by, 655. OLOUD ON TITLE, Trustee may sue for removal of, 392. INDEX 1789 (Tbe flg-nrea refer to sections] CO-DEBTORS, Not released by bankrupt's discharge, 747. COERCION, Exercised by creditor, no excuse for giving preference, 602, COLLATERAL IMPEACHMENT, Of adjudication in banlcruptcy, 182. Of trustee's sale in bankruptcy, 486. Confirmed composition not open to, 658. Of discharge' in bankruptcy, 712. COLLATERAL SECURITY, Holder of, as secured creditor, 557. COLLECTION FEES, Addition of, to amount of debt provable in bankruptcy, 504. COLLECTOR OF TAXES, Official liability of, not released by discharge, 739. COLLUSION, As ground of opposition to petition in bankruptcy, 170. As ground for vacating adjudication, 183., As ground for disapproving election of trustee, 290, 291. With bankrupt in making fraudulent transfer, 462. As ground for vacating trustee's sale, 485. Composition procured by, 651. As ground for refusing discharge, 669. COMMENCEMENT OF PROCEEDINGS, Claims accruing after, not provable, 494. COMMERCIAL CORPORATIONS, Liability of, to proceedings in bankruptcy, 141. COMMISSIONS, Of referee and trustee In bankruptcy, 778-780. COMMISSIONERS, To make sales of bankrupt's property, court may appoint, 476. COMMON LAW, Validity of preferences at, 573. COMMUNITY PROPERTY, As assets in bankruptcy, 328. Claims against, as entitlied to priority, 632. COMPENSATION, To bankrupt for assisting trustee, 220. Of stenographer reporting evidence at examinations, 273. Of attorney for trustee, 309. Of superseded assignee for creditors, 444. Of landlord, for use of premises by trustee, 522. Of workmen, clerks, and servants, as priority claims, 626. COMPOSITIONS, Nature of composition in bankruptcy, 645. Right to offer, 646. Examination of bankrupt, 647. Offer of terms, 648. Acceptance by creditors, 649. Creditors entitled to vote, 650. Fraudulent inducement to consent, 651. Deposit for payment, 652. Application, notice, and hearing, 653. Confirmation and proceedings thereon, 654. Performance and distribution, 655. 1790 INDEX [The flirnrea refer to sectlonn] COMPOSITIONS— Continued, Effect of failure of performance, 656. Vacating and setting aside, 657. Operation and effect, 658. What debts released by, 659. Effect on rights of secured creditors, 660. Effect on joint liability of others, 661. Sureties and guarantors of bankrupt, 661. Constitutionality of provision for, 2. Appeal from decision on, 43. COMPROMISES, Trustee may make, with approval of court, 304. Proposed, creditors to have notice of, 304. COMPUTATION OF TIME, Time for taking appeal, 49. Time for dissolving preference acquired through legal proceedings, 88. Time for filing petition in involuntary cases, 164. Date of bankruptcy as affecting dissolution of liens, 380. Limitation of actions by and against trustees, 416. Time for filing petition, after assignment for creditors, 435. Time of accrual of claims, as affecting provability, 494. Time allowed for proving claims, 526. Time of giving preference, as affecting its validity, 592. With reference to time of filing petition, 593. Recording or filing lien, 59fl. Time for declaration and payment of dividends, 637. Time for filing application for discharge, 685. For filing specifications in opposition, 691. CONCEALMENT, Of property, as an act of bankruptcy, 83. As ground of forfeiting bankrupt's exemptions, 246. As ground for refusing discharge, 672. Ordering surrender of concealed property by bankrupt, 227. Of books of account as barring right to discharge, 681. Of property, with intent to defraud, made criminal, 787. CONDITIONS, Conditional promise to pay debt barred by discharge, 764. CONDITIONAL SALES, Property held by bankrupt under, reclamation of, 358. CONFESSION OP JUDGMENT, When an act of bankruptcy, 90. When annulled by subsequent bankruptcy, 377. As fraudulent transfer of property, 451. As "security" under bankruptcy act, 556. As voidable preference, 579. Time of creation of preference by, 592. As revival of debt barred by discharge, 761. CONFIRMATION, Of trustee, 291. Of trustee's action in setting apart exemptions, 253. Of trustee's sale, 481. Of composition, 654. CONFLICT OF LAWS, Effect of bankruptcy act on state Insolvency laws, 7. Law of debtor's domicile governs exemptions, 240. Statute of limitations of debtor's domicile controls proof of debts, 516. INDEX 1791 [Tbe flsnres refer to ■eotlonsl CONFLICTING JURISDICTION, Of bankruptcy courts and state courts, 26. Appointment of receiver by state court, 27. Property in possession of sheriff, 28. Enjoining proceedings in state courts, 29. Suits by trustee to collect assets, 415. CXDNSENT, Of defendant to suit in bankruptcy court, 412. Of assignee for creditors, to settlement of accounts In bankruptcy court, 444. Of creditors to terms of composition, 649. Fraudulently induced, 651. Of creditor to grant of discbarge, collusive, 669. CONSIDERATION, To support conveyance assailed as fraudulent, 461. To support promissory note as provable claim, 496. Illegal or immoral, claim not provable, 517. Statement of, in proof of claim, 531. Present, transfer or security for, not a preference, 584. Security given for present loan or advance, §84. For composition, ofEer of, 648. Deposit of, for payment, 652. Distribution of, 655. For new promise to pay barred debt, 758. CONSPIRACY, Of other persons with bankrupt to commit acts made criminal by the stat- ute, 791. CONSTITUTIONAL LAW, Constitutionality of national bankruptcy law, 2. CONSTRUCTION, Of bankruptcy law, rules for, 4. CONTEMPLATION OF BANKRUPTCX, As affecting validity of liens, 379. What constitutes, 379. Fraudulent conveyances and transfers, 459. Acts done in, as affecting right to discharge, 683. CONTEMPT, Before referees, punishable by court, 78. Pending proceedings on, in state court, not stayed by bankruptcy of con- temnor, 194. Commitment for, as means of enforcing surrender of property, 231. By witnesses at examinations in bankruptcy, 274. Perjury as a contempt, 274. Assignee for creditors refusing to surrender property, 439. CONTINGENT DEBTS, How and when pi-ovable, 499. What is meant by, 499. CONTRACTS, Claims founded on, provable in bankruptcy, 495. Executory, of bankrupt, assumption of, by trustee, 306. As assets in bankruptcy, 338. For sale of land, interests under, as assets in bankruptcy, 329. Of conditional sale, property held under, as assets, 358. Option contracts and "sale and return," 359. CONTRIBUTION, Between co-sureties not barred by discharge of principal, 749. CONTROVERSIES, Arising in bankruptcy distinguished from '"proceedings" in bankruptcy, 47. 1792 INDEX [The flsnres refer to sections] CONVERSION, Provability of claims founded on, 487, 514. Effect of discharge on liability for, 745. CONVEYANCES, Fraudulent, as acts of bankruptcy, 82. Fraudulent, voidable by trustee in bankruptcy, 445-468. Of property sold by trustees, 483. When voidable preferences, 578. COPYRIGHTS, As assets in bankruptcy, 334. CORPORATIONS, Proceedings for winding up, under state laws, suspended by bankruptcy act, 8. Entitled to file voluntary petition, 97. Involuntary proceedings against, 132-150. Jurisdiction of, in bankruptcy, 132. Effect of proceedings for dissolution under state law, 133. Corporations amenable to bankruptcy law, 134. Trading and mercantile corporations, 135. Manufacturing corporations, 136. Banks and bankers, 137. Railroad and insurance companies, 188. Mining and quarrying companies, 139. Public-service corporations, 140. Moneyed, business, and cordmercial companies, 141. Religious, charitable, educational, and other corporations not for profit, 142. Unincorporated and joint-stock companies, 143. De facto corporations, 143. Acts of bankruptcy by corporations, 144. Admission of insolvency, 145. Whether directors have power to make, 145. Effect of adjudication on status of corporation, 146. Corporate franchises as assets, 147. Assessments on unpaid stock, 148. Bankruptcy court has power to make call, 148. Statutory liability of stockholders and directors, 149. Discharge of corporations, 150. As petitioning creditors, execution of petition by, 162. Eligibility of, to office of trustee in bankruptcy, 285. Bankrupt's interest in undivided profits of, as assets, 318. Bankrupt, purchase of assets of, by syndicate of stock or bondholders, 478. Contracts of, ultra vires or unlawful, not provable claims, 518. Claims of, against bankrupt estate, how proved, 527. Knowledge of officers imputable to, with reference to taking preference, 601. Right of, to offer terms of composition, 646. Liabilities of stockholders, discharge of, in bankruptcy, 719. Discharge of, as affecting liabilities of officers and stockholders, 751, COSTS, Taxable, are provable claims in bankruptcy, 504. Against trustee intervening in pending suit, 198. Of receivership, audit and allowance of, 216. When chargeable against exempt property of bankrupt, 253. Of examinations in bankruptcy, 273. Right of trustee to demand indemnity for, from creditors, 283. ' Of proceeding for removal of trustee, 296. Liability of trustee for, 308, 311, 482. Incurred under dissolved lien, payment, of, 386. Allowance to superseded assignee for creditors, 444. Of sales by trustees, payable out of proceeds, 484. Secured creditor's claim for, .565. INDEX 1793 [The flsnres refer to aectlons] COSTS — Continued, Payment of, on sale of mortgaged property, 571. Of bankruptcy proceedings, as preferred claims, 623. To be deposited on ofCer of composition, 652. Requiring security for, 769. Power to award, 770. Amount and items of, 771. Persons entitled to, 772. Persons and funds- liable for, 773. Taxation of, 774. COUNSEL FEES, Allowance of, in bankruptcy proceedings, 781. To attorney for bankrupt, 782. To attorneys for creditors, 783. To attorney for receiver, 216, 784. To attorney for trustee, 785. Lien for, when recognized and preserved in bankruptcy, 370. Allowance of, to superseded assignee for creditors, 444. Allowance of, out of proceeds of trustee's sale, 484. Allowance of, on provable claim, 504. "When entitled to priority of payment, 625. COUNTERCLAIM, When allowed in favor of bankrupt's debtor, 544. In suits by trustee in bankruptcy, 552. In suits to recover preferences, 553. COUNTY, Debts due to, when entitled to priority, 631. COURTS OF BANKRUPTCY, See Circuit Courts, District Courts, District of Columbia, State Courts, Supreme Court, Territorial Courts. COVENANTS, Claims for breaches of, are provable debts, 495, 513. Of title, not implied in trustee's deed, 483. Effect of discharge on liabilities under, 726. COVERTURE, As defense to petition in bankruptcy, 100. CREDITORS, Right of, to appeal from orders and decrees, 50. Opposition by, to voluntary petition, 152. Who entitled to file involuntary petition, 153. Secured creditors, 153. Preferred creditors, 154. Creditors estopped to petition, 155. Requisites as to number and amount, 156. Single creditor as petitioner, 156. Solicitation, procurement, or purchase of claims, 157. Withdrawal of petitioners, 158. Notice to, of involuntary proceedings, 167. Who entitled to oppose adjudication, 170. Intervention of creditors, 169. Concluded by adjudication, 182. Notice to, of application to vacate adjudication, 183. Restrained from prosecuting actions against bankrupt, 186-198. ' Procuring sequestration of property before adjudication, 201. Indemnity bond by, 208. Procuring appointment of receiver, 210. List of, to be filed by bankrupt, 225. Bi,k.Bkb.(3d Ed.)— 113 1794 INDEX [The tlenrea refer to sections] CREDITORS— Continued, Preparation of schedules by, on bankrupt's default, 223. Right of, to object to allowance of exemptions, 253. Right to demand examination of bankrupt and other witnesses, 258. When subject to examination, 264. Entitled to notice of various proceedings, 275, Meetings of, 277. Special and final meetings, 278. Representation of, by attorney or proxy, 279. Assignment of claims by, 280. Participation of, in proceedings, 281. Duty to advise and assist trustee, 282. Effect of majority vote of, 282. Indemnifying trustee against costs and expenses, 283. Right to information concerning estate, 284. Eligibility to office of trustee, 285. Election of trustee by, 286. Rights of, as voters in election of trustee, 288. Objections to votes, 288. Secured creditors, 288. Preferred creditors, 288. Creditors having priority, 288. Representation by agent or attorney, 289. Solicitation of votes of, 290. Objections by, to confirmation of trustee, 291. Trustee as representative of, 298. Not to select attorney for trustee, 309. Objecting to accounts of trustee, 313. Holding liens, rights and remedies of, 363-391. Right to sue independently of trustee, 393. Right to sue trustee, 396. Conveyances in fraud of, voidable by trustee, 445. Right to share in property or fund recovered, 468. Entitled to notice of sales by trustee, 475. Who are entitled to prove claims, 488. Estoppel to prove, 489. Fraudulent conduct barring right to prove, 490. Proof of claims by, 524-543. Right to object to claims offered for proof, 536. Right to move for reconsideration of proved claim, 542. Set-off of claims by, in bankruptcy proceedings, 544. Secured, rights and duties of, see Secured Creditors. Preferred, rights and liabilities of, see Preferences. Classification of, v?ith reference to preferences, 576. Entitled to priority of payment, who are, 617-634. Distribution of dividends to, 635-644. Acceptance of composition by, 649. What creditors entitled to vote, 650. Buying consent of, 651. Right to oppose bankrupt's application for discharge, 665. Collusively consenting to discharge, 669. Omissions in list of, as affecting right to discharge, 673. Notice to, of application for discharge, 687. Right to withdraw opposition to discharge, 689. Specifications of opposition by, 691-697. CREDITOR'S BILL, Lien acquired by filing of, preserved in bankruptcy proceedings, 364. Trustee's suit to avoid fraudulent transfers, 465. Lien by, not released by discharge, 754. INDEX 1795 [Tbe flgnres refer to aectlonii] CRIMES UNDER THE ACT, Persons liable, 786. Concealment of property by bankrupt, 787, Making false oath or account, 788. • Receiving property from bankrupt, 789, Extortion, 790. Conspiring with bankrupt, 791. Offenses by referees and trustees, 792. Jiirlsdiction, 793, Indictment or information, 794. Burden of proof and evidence, 795. CRIMINAL CONVERSATION, Liability in damages for, not released by discharge, 742. CRIMINAL LAW, Proceeding in involuntary bankruptcy is civil, not criminal, 13. CROPS, Right of trustee in bankruptcy to, 333. CURTESY, Estates by, as assets in bankruptcy, 328. D DAMAGES, Claims for, as debts to support involuntary petition, 153. Recoverable on creditors' indemnity bond, 208. Recoverable against bankrupt's fraudulent grantee, 467. Claims for, as provable debts in bankruptcy, 487. For breach of contract, 495. Unliquidated demands, 500. Breaches of real covenants, 513. Claims for torts, 514. DATE OF BANKRUPTCY, As fixing date of trustee's title, 317. As affecting dissolution of existing liens. 380. With reference to previous assignment for creditors, 435. As fixing provability of claims, 494. As fixing right of set-off of mutual debts, 546. DEATH, Of bankrupt, not to abate proceedings, 178. Of trustee, not to abate i)ending suits, 295. Of partner does not prevent adjudication of firm, 117. Of bankrupt, dower and allowances to widow, 256. Entry of order of discharge after death of bankrupt, 706. DEBTS, I Appeal from allowance or rejection of, 44. Amount required to authorize proceedings, 20, 153, 156. In partnership cases, 127-130. What are partnership debts, 127. What are individual debts of partners, 128. , Joint and several liability and double proof, 129. Claims of partners against firm and each other, 130. Allegations of, in petition in bankruptcy, 160. List of, to be filed by bankrupt, 225. May be allowed at first meeting of creditors, 277. Privileged or secured, not entitled to vote, 277. Preferred creditors cannot prove until surrender, 277, 288. Rights of secured creditors, 277, 554. Assignment of, before or after proof, 280. 1796 INDEX [The fleareB refer to aectlonal DEBTS— Continued, Due to bankrupt, as assets of estate, 340. Claims against government, 341. Suits by trustee for recovery of, 392-432. What debts are pro'v'able in banltrnptcy, 487-523, Unliquidated claims, hovir proved, 600. Barred by limitations, not provable, 516. Proof and allowance of, 524-543. Mutual, set-off of, 544. Entitled to priority of payment, 617-634. Dividends on, 635-644. Discharge of, by composition proceedings, 659. What debts released by discharge, 718-757. New promise to revive debt barred by discharge, 758. DECEDENT'S ESTATE, Proceedings in bankruptcy cannot be instituted against, 103. Interest of bankrupt in, as assets, 345. DECEIT, Right of action for, vests in trustee in bankruptcy, 343. Claim for damages for, not a provable debt, 514. Judgment for, is provable, 497. Liabilities for, not released by discharge, 744, DECREE, See Adjudication. DEED OF TRUST, When a fraudulent preference, 84, 91, 578. Lien of, when valid in subsequent banlcruptcy, 366. Sale under, after adjudication of bankruptcy, 391. As "security" under bankruptcy act, 555. DEEDS, Relating to bankrupt's property to pass to trustee, 318. Fraudulent, avoidance of, at suit of trustee, 467. By trustees, conveying property sold, 483. Power of court to order cancellation of, 485. DE FACTO CORPORATIONS, Liability to bankruptcy proceedings, 143. DEFAULT, Suffering judgment by, when a preference, 579. In performing composition, effect of, 656. DEFENSES, To petition In bankruptcy, what allowed, 172. To proceedings to punish for contempt, 78. To order requiring surrender of property, 230. To trustee's suit, 428. To suit to avoid conveyance as fraudulent, 465, To suit to avoid or recover preference, 612. DEFICIENCY, Secured creditor's claim for, 565. Bight of secured creditor to, after composition, 660, Effect of discharge on liability for, 755. DEMAND, By trustee, not necessary before suing to avoid fraudulent conyeyance, 449. Or suit to avoid or recover preference, 609. DEMURRER, To petition In Involuntary bankruptcy, 171. To specifications filed in opposition to discharge, 697. INDEX 1797 [Tbe flenrea refer to aectlona] DEPOSIT OF MONET, Trustee to make, 310. Court to designate depositories, 310. To bankrupt's credit, claimable by trustee, 318. When regarded as trust fund in bankruptcy of banker, 355. Equitable assignment of, by ctieck or draft, 362. Right to set off claims against, 550. Set-off against, as voidable preference, 590. To pay composition, 652. DEPOSITION, Taking of, in bankruptcy proceedings, 261. In proof of claim offered for allowance, 531. Form and sufiBciency, 531. Acknowledgment, 532. DIRECTORS, Power of, to put company into bankruptcy, 145. Statutory liability of, for debts, not assets in bankruptcy, 149. Effect of discharge of corporation on, 751. DISCRETION, JUDICIAL, Review of, on appeal, 48. As to allowing amendments to petition in bankruptcy, 163. As to appointment of receiver, 210. In confirmation or disproval of trustee, 291. In removal of trustee from office, 296. In allowing arbitration or compromise, 304. In ordering reopening of estate, 315. As to approval of trustee's sale, 481. As to vacating sales in bankruptcy, 485. DISCHARGE OF BANKRUPT, In partnership cases, 131. In case of bankrupt corporation, 150. Right to examine bankrupt after, 262. Effect of composition as, 658. General discussion of, 662-717. Right to discharge in general, 662. Responsibility for acts of partner, agent, or employs, 663. Effect of prior application or decision, 664. Parties entitled to oppose, 665. Grounds for refusal of, 666. Want of jurisdiction, 667. Transactions before enactment of bankruptcy law, 668. Purchasing consent of creditor, 669. Fraudulent or preferential transfers, 670. Creation of fiduciary, fraudulent, or tortious debts, 671. Concealment of property, 672. Omissions in schedule and list of creditors, 673. Knowledge and fraudulent purpose, 674. Omission by mistake or by advice of counsel, 675. Omission of property without value, 676. Omission of doubtful claims or assets, 677. False oath or testimony, 678. Refusal to testify, 678. Obtaining credit by false statements, 679. Failure to keep books of account, 680. Destruction, mutilation, or concealment of books, 681, Intent to conceal financial condition, 682. Contemplation of bankruptcy, 683. 1798 INDEX [Tbe flgrnres refer to sectloius] DISCHARGE OF BANKRUPT— Continued, What are proper books of account, 684. Time of application for discharge,, 685. Petition for discharge, 686. Notice of application for discharge, 687. Proceedings in opposition to, 688. Withdrawal of opposition, 689. Want or failure of opposition, 690. Time to file specifications in opposition, 691. Form and sufficiency of specifications, 692. Allegations of knowledge, falsity, and intent, 693. Allegations as to failure to keep book.s, 694. Allegations as to destruction of books, 694. Signature and verification of specifications, 695. Amendment of specifications, 696. Exceptions to sufficiency of specifications, 697, Dismissal for want of prosecution, 698. Evidence on application for discharge, 699. Admissibility, 700. Burden of proof, 701. Weight and sufficiency, 702. Hearing and determination of application, 703. Powers and duties of judge and referee, 704. Staying or suspending discharge, 705. Order of discharge, 706. Revoking discharge, 707. Time for application, and laches, 708. Grounds for revoking, 709. Conclusiveness and effect of discharge, 710. Effect of discharge as to property fraudulently transferred, 711. As to property not scheduled, 711. Collateral impeachment of discharge, 712. Pleading discharge, 713-715. Necessity of pleading, 713. Who may plead, 714. Form and effect of plea, 715. Evidence as to discharge, 716. Effect of refusal of discharge or failure to apply, 717. Appeal from grant or refusal of, 43. What debts and claims released by, 718-757. Not to release persons jointly liable with bankrupt, 747, New promise to revive debt barred by, 758-767. DISCHARGE OF TRUSTEE, How and when ordered, 314. DISCONTINUANCE, Of proceeding in involuntary bankruptcy, 177. Not by death of bankrupt, 178. DISCOUNT, Payment or charging of, not a preference, 587. DISMISSAL OF PETITION, In involuntary bankruptcy, 177. For want of prosecution, 177. By referee, when authorized, 64. As breach of condition of creditors' indemnity bond, 208. Terminating liability on bankrupt's forthcoming bond, 209. DISMISSAL OF PROCEEDINGS, Proposed, creditors must be notified of, 177. INDEX 1799 [Tlie flsnrea refer to aectlons] DISSOLUTION, Of corporation, not preventing bankruptcy proceedings, 133. Adjudication in banl^ruptcy as effecting, 146. Of existing liens by adjudication in banliruptcy, 378, DISTRAINT, Landlord's lien under, preserved In banliruptcy, 373, Right to levy, after adjudication, 391, 519, 520. DISTRESS, Landlord's lien under, preserved in bankruptcy, 373. Bight to levy, after adjudication, 391, 519, 520. DISTRIBUTION OF ESTATE, In partnership cases, 123. In compositions, 655. See, also, Creditors, Dividends, Priorities. DISTRICT COURTS, Constituted courts of bankruptcy, 15. Nature and extent of jurisdiction of, 15-33. Powers of, are statutory, 16. Are not inferior tribunals, 16. Ancillary jurisdiction of, 24. Power to restrain state courts, 29. Summary jurisdiction of, 22. Jurisdiction depending on residence of debtor, 19. Appointment of receiver by, 210. Power to call in stock subscriptions, 148. Jurisdiction for enforcement of liens, 387. Restraining actions on liens in state courts, 389. Jurisdiction of suits by and against trustees, 407-412. Enjoining superseded assignee for creditors, 436. Proceedings to compel surrender of property by assignee, 439. Jurisdiction of suit to avoid fraudulent conveyance, 465. Jurisdiction of proceedings for sale of assets, 469, 476. Jurisdiction of criminal proceedings, 793. Appellate jurisdiction over, in bankruptcy, see Appeals. DISTRICT JUDGE, Powers and authority of, in general, 32. Disqualification by interest, 32. Appointment and removal of trustees by, 292, 296. Confirmation of composition by, 654. To hear and determine applications for discharge, 704. DISTRICT OF COLUMBIA, Supreme court of, constituted a court of bankruptcy, 15. Appellate jurisdiction over, 35. DIVIDENDS, Meaning of, in bankruptcy, 635. Funds for distribution as, 636. Time for declaration of, 637. Proceedings for declaration and payment of, 638. Creditors to have notice, 275, 638. Referee to prepare dividend sheet, 70, 638. Opening and setting aside order for, 639. Payment of, 640. Assignment of right to receive, 640. Not subject to attachment or garnishment, 640. Collection of, by receiver, 640. Paid on claims afterwards rejected, recovery of, 641. Status of claims proved after dividend, 642. Interest on, 643. 1800 INDEX [The flgrnres refer to Bectlonri] DIVIDENDS— Continued, Unclaimed, disposition of, 644. Effect of receipt of, on non-dlschargeable claims. 752. DOCKET, Of bankruptcy cases to be kept by clerk, 184. DOCUMENTS, Meaning of term as used in act, 318. Relating to bankrupt's property, trustee entitled to, 318. DOMICILE, Jurisdiction as depending on, 19. Of corporation, 33, 132. Allegation of, in involuntary petition, 160. Of bankrupt as determining right to exemptions, 240. Eligibility of trustee as depending on, 285. DORMANT PARTNERS, Liability to adjudication in bankruptcy, 112. DOWER, Of bankrupt's wife not divested by trustee's sale, 472. Of widow of bankrupt dying pending proceedings, 256. Interest or estate in, as assets in bankruptcy, 351. Wife of bankrupt not estopped to claim, by joining in fraudulent conveyance, 467. DRAFT, As equitable assignment of funds, 362. DRAWER OP BILLS, Bankrupt's liability as, a provable debt, 496, 605. DUE PROCESS OF LAW, Constitutionality of bankruptcy act, with reference to, 2. DUPLICATE, Petitions in involuntary bankruptcy required to be in, 165. DURESS, No excuse for giving preference, 602. E EDUCATIONAL CORPORATIONS, Not liable to proceedings in bankruptcy, 142. ELECTION, Of trustee, how conducted, 286. By trustee, as to acceptance or abandonment of property, 321, As to claiming property fraudulently conveyed, 447. ELECTRIC LIGHT COMPANIES, Liability of, to proceedings In bankruptcy, 140. ELIGIBILITY, To oflSce of referee in bankruptcy, 61. Of receivers in bankruptcy, 210. Of trustees in bankruptcy, 285. EMBEZZLEMENT, Actions for, not stayed on bankiniptcy of debtor, 189. By trustee in bankruptcy, as ground for removal, 293, 296. As criminal offense, 311, 792. Debts created by, as provable claims, 511, 514. Payment of, as voidable preference, 583. Not released by discharge, 729. INDEX 1801 [The flgrnres refer to ■ectlona] EMPLOYES, Of bankrupt, not counted in computing number of creditors who must Join in petition, 156. Wages of, have priority, 626. Proving claims for damages for breach of contract, 495. Acts of, as affecting bankrupt's right to discharge, 663. EQUITABLE DEMANDS, Provable in bankruptcy, 498. EQUITABLE JURISDICTION, Of courts of bankruptcy, 23. Of circuit courts of appeals on appeal, 41. On petition for revision, 45. Suits in equity by trustee In bankruptcy, 401. EQUITABLE LIENS, Recognition and enforcement of, in bankruptcy, 364. As "securities" under bankruptcy act, 555. Enforcement of, not a preference, 585. EQUITY OP REDEMPTION, In property mortgaged by bankrupt, vests in trustee, 323, Sale of, by trustee in bankruptcy, 470. Release of, as voidable preference, 581. ESTATES IN BANKRUPTCY, Closing and reopening, 315. What constitutes assets of, 318. Trustee's suits to recover assets, 392-432. EfEect of reopening, on statute of limitations, 422. Trustee's sale of assets of, 469. Proof and allowance of claims against, 524-543. Declaration and payment of dividends, 635-644. ESTOPPEL, To petition in bankruptcy against debtor, 155. Effective against bankrupt, also binds trustee, 316, 352, 362. Against creditor to prove claim, 489. EVIDENCE, Review of, on appeals In bankruptcy, 57. Taken at examinations, to be reported by referee, 72, On Issue of insolvency, 174. On examination of debtor as to solvency, 175. Burden of proof. In general, 176. Adjudication in bankruptcy, conclusiveness of, 182, Not impeachable collaterally, 182. To justify appointment of receiver, 210. To sustain order requiring surrender of property, 229. On disputed claims to exemptions, 253. Examination of witnesses in bankruptcy, 257-274. Taking of depositions, 261. Elicited at examination in bankruptcy, use and effect of, 272. Order approving trustee's bond as evidence of title, 316. In suits by trustees in bankruptcy, 430. In actions against trustees, 431. In suits to avoid fraudulent conveyances, 466. On objections to allowance of claims, 540. In suits to avoid preferences, 614. False oath or testimony of bankrupt as bar to discharge, 678, Refusal of bankrupt to testify, 678. On application for discharge, 699. Admissibility, 700. 1802 INDEX [Tbe fisnres refer to sections] EVIDENCE— Continued, Burden of proof, 701. Weight and sufficiency, 702, Conclusiveness of order of discharge, 710. Evidence as to grant of discharge, 716. In action on new promise to pay discharged debt, 767. In criminal prosecutions under bankruptcy law, 795. EXAMINATIONS IN BANKRUPCTY, Statutory provisions as to, 257. At what stage may be ordered, 257. Who may apply for, 258. Application and order for, and notice, 259. Process to secure attendance of witnesses, 260. Examination .of non-resident witness, 261. Foreign witnesses, 261. Parties subject to examination, 262-264. The bankrupt, 262. Examination as to solvency, 175. Examination before adjudication, 262. Examination after discharge, 262. Second examination, 265. On offer of composition, 647. Wife of bankrupt, 263. Other witnesses, 264. Conduct of examination, 266. Bight to counsel, 267. Objections to questions and rulings thereon, 268. Scope of the inquiry, 269. Privileged communications, 270. Self-criminating testimony, 271. Use and effect of evidence elicited, 272. Witness fees ahd costs of examination, 273. Contempts by witnesses, 274. On offer of terms of icomposition, 647. False testimony in, as ground for refusing discharge, 678. Refusal of bankrupt to testify bars right to discharge, 678. EXCHANGE, Of securities, not a preference, 586. EXECUTION. Levy of, on proi)erty in custody of bankruptcy court, 26, 191, 199. Suffering, or failing to discharge, as act of bankruptcy, 86. Restraining, before adjudication, 206. Lien of, how affected by subsequent bankruptcy of debtor, 377. To enforce judgment against trustee in bankruptcy, 396. Stay of, on judgment barred by discharge, 756. EXECUTORS AND ADMINISTRATORS, Proceedings in involuntary bankruptcy against, 104. Of deceased bankrupt, substitution as parties, 169. In what cases are regarded as fiduciary debtors, 731. EXECUTORY CONTRACTS, Damages for breach of, a provable debt, 495. EXEMPT PROPERTY, Conveyance of, not voidable by trustee as fraudulent, 456. Transfer of, not voidable preference, 575, 580. •Not excluded in computing assets of alleged bankrupt, 173. See, also, "Exemptions." INDEX 1803 [The flsnres refer to aectlona] EXEMPTIONS, Allowance and allotment of, to bankrupt, 238-255. Provisions as to, not unconstitutional, 2. Exemptions under federal laws, 238. Pension money, 239. Exemptions under state laws, 240. Exemption by value, 241. Exemption of specific property, 242. Policies of life insurance, 248. Homestead exemption, 244. Forfeiture of, 246. Abandonment and waiver of, 247. Rlgbts and remedies of creditors holding waivers, 248. liiens and claims against exempt property, 249. Claims for unpaid purchase money, 250. Jurisdiction of bankruptcy court as to, 251. Claim for, 252. Setting apart exempt property, 253. Sale of property and allowance of exemptions out of proceeds, 254, Exemptions in partnership cases, 255. Dower and allowances to bankrupt's widow, 256. EXPECTANT ESTATES, ^ As assets in bankruptcy, 327. , EXPENSES, Of administering estates, allowance of, 308, 775. To have priority, 623. Of referees, account and allowance of, 77. Of receivership, 216. When chargeable against exempt property, 253. Of examinations in bankruptcy, 273., Trustee may demand indemnity against, 283. Allowance of, to superseded assignee for creditors, 444. Of trustee's sale payable out of proceeds, 484. Allowance of, in connection with provable claim, p04. EXPUNGING, Of proved claims, grounds for, and proceedings, 542. Proved claim of preferred creditor, 604. EXTORTION, As criminal offense under bankruptcy law, 790. EXTRADITION OF BANKRUPT, Jurisdiction of bankruptcy court as to, 232. When ordered, 232. F FACTORS, Reclamation of property held by bankrupt as, tiSQ. Validity of lien of, as against subsequent bankruptcy, 364. Enforcement by sale of goods, 391. Debts of, not created in a fiduciary capacity, 736. FACTS, Review of, on appeal, 55. Referee's decision on, effect of, oh review by court, 76. "FAIR VALUATION," Of assets of alleged bankrupt, meaning of term, 173, FALSE IMPRISONMENT, Claim for damages for, not a provable debt, 514. Not released by discharge, 741. 1804 INDEX [Tbe flgrnres refer to sectional FALSE PRETENSES, Judgments in actions for, not released by discharge, 744. Obtaining property by, as ground for refusing discharge, 679. FALSE REPKESENTATIONS, Debts created by, not released by discharge, 744. FALSE STATEMENTS IN WRITING, Obtaining property on credit by, bars right to discharge, 679. FARMERS, , Not subject to involuntary bankruptcy, 106. Amenability to state insolvency laws, 9. FEDERAL COURTS, Jurisdiction of, exclusive for certain purposes, 17. FEES, Of clerks "of court, in bankruptcy cases, 776. Of marshals, 216, 777. Of receivers in bankruptcy, 216, 777. Of trustees in bankruptcy, 778. Of referees in bankruptcy, 779. Of attorneys in bankruptcy cases, 781. Attorney for bankrupt, 782. Attorneys for creditors, 783. Attorney for receiver, 784. Attorney for trustee, 309, 785. Collection of, by clerk on filing petition, 165. Of witnesses at bankruptcy examinations, 273. Accrued under liens dissolved by bankruptcy, payment of, 386. Allowance of, to superseded assignee for creditors, 444. When payable out of proceeds of trustee's sale, 484. To have priority of payment, 623. Deposit of filing fees, 768. FEME COVERT, When liable to be adjudged bankrupt, 100. See, also. Wife of Bankrupt. FIDUCIARY DEBTS, Not released by discharge, 729. Who are fiduciary debtors, 730-740. Pending action on, not stayed on bankruptcy of debtor, 189. Not released by composition, 659. Existence of, not ground for refusing discharge, 671. PILING, Of petition in bankruptcy, 165. Of proofs of claims, 533. Of petition, time of, with reference to voidability of preference, 593. Of lien, time of, as affecting voidability of preference, 594. Deposit of filing fees, 768. FINDINGS OP FACT, Required on appeal to U. S. Supreme Court, 39. Effect of, on appeal to circuit court of appeals, 57. By refer^, effect of, on review by court, 76. FINE, As punishmnet for misdemeanor, not a provable debt, 515. Not released by discharge, 726. FIXTURES, When claimable by trustee as assets, 318. Rights of purchaser at trustee's sale as to, 480. INDEX 1805 [Tbe agnrea refer to liectlonB] FOROIBLOa DETAINER, Judgment In, not released by discharge, 741. FORECLOSURE, Of mortgages, effect of bankruptcy on right to, 390. By secured creditor, 567. Obtaining leave of bankruptcy court, 568. Proceedings for, when stayed or enjoined, 569, Redemption by trustee, 570. FOREIGN ADJUDICATIONS, Rights of domestic creditors in case of, 14, Effect of discharge in, 14. FOREIGN ASSIGNEE, In bankruptcy, suits by, 395. FOREIGN COUNTRIES, Property of bankrupt in, as assets, 319. FOREIGN CREDITORS, May prove claims in bankruptcy, 488. Claims of, when barred by discharge, 723. FORFEITURES, Proof and allowance of claims ioi, 515. Forfeiture of bankrupt's right to exemptions, 246. FORGERT, Liability of bankrupt on forged indorsement, 505. FORMS, Prescribed by United States Supreme Court, 30. For petitions in bankruptcy, 159. For adjudication in bankruptcy, 181. For warrant to marshal and indemnity bond, 201. For schedule and list of creditors, 222. FORTHCOMING BOND, Right of trustee to sue on, 400. Surety on, not released by discharge of principal, 74S FRANCHISE, Owned by bankrupt passes to trustee, 336. Of corporation as assets in bankruptcy, 147. FRATERNAL BENEFIT SOCIETIES, Liability to Involuntary bankruptcy, 143. FRAUD, May be set up by creditors opposing adjudication, 170. As defense to petition in bankruptcy, 172, As ground for impeaching adjudication collaterally, 182. As ground for vacating adjudication, 183. Actions founded on, not stayed on bankruptcy of debtor, 189. Of bankrupt, as forfeiting right to exemptions, 246. In election of trustee, 290, 291. Property procured by bankrupt by, reclamation of, 360. Concealed, application of statute of limitations to, 418. Vitiating trustee's sale; 478. Of creditor, bars proof of claim, 490. Debts created by bankrupt's, as provable claims, 511. Judgment In action for, is provable, 497. , Effect of, as vitiating composition, 651, 657. As affecting bankrupt's right to discharge, 669-679. As ground for revoking discharge, 709. Collateral impeachment of discharge for, 712. Debts created by bankrupt's, not released by discharge, 743. 1806 INDEX [The flsni^es refer to gectians] FEAUDULBNT CONVEYANCES, As acts of bankruptcy, 82. Allegation of, in involuntary petition, 160. Receiver not authorized to sue for vacation of, 214. As forfeiting bankrupt's right to exemptions, 246. Form of action to vacate, 401. Issue as to, not triable summarily, 403. Jurisdiction of actions to set aside, 410, 465. Voidable by trustee in bankruptcy, 445-468. Statutory provisions, 445. Eights of trustee as to fraudulent transfers, 446. Election by trustee to sue or not, 447. Trustee's right of action exclusive, 448. Conditions precedent to trustee's action, 449. Proof of debts, and insufficiency of assets, 450. Nature and form of transaction, 451. Sales of merchandise in bulk, 452. "Preference" and "fraudulent transfer" distinguished, 453. Transfers void under state laws, 454. Transfers fraudulent as to partnership or individual creditors, 455. Property or rights transferred, 456. Time of conveyance or transfer, 457. Insolvency of debtor, 458. Intention of debtor, 459. Intention as to future creditors, 460. Consideration, 461. Knowledge, bad faith, or participation of transferee, 462. Eights and liabilities of transferees, 463. Eights of bona flde purchasers, 464. Jurisdiction, form of action, parties, pleading, 465. Burden of proof and evidence, 466. Nature and extent of trustee's recovery, 467. Eights of creditors in property or fund recovered, 468. When constitute bar to discharge of bankrupt, 670. When made criminal, 787. FUGITIVE FEOM JUSTICE, Jurisdiction of proceedings in bankruptcy against, 19. Trustee becoming, vacates office, 293. FUNDS, Of estate, to be deposited by trustee, 310. Court to designate depositories for, 310. FUTUEE ADVANCES, Giving security for, not a preference, 584. G GAMBLING CONTEACTS, Not provable as debts in bankruptcy, 517. GAMING, Eight of action for money lost at, vests in trustee, 343. GAENISHMENT, Of debtor's property, when dissolved by adjudication in bankruptcy, 378. Of debtor's property after adjudication in bankruptcy, 199. Of property in custody of receiver, 213. Trustee not subject to, 399. Dividends ordered but not paid are not subject to, 399, 640. Belease of, by discharge in bankruptcy, 753. INDEX 1807 [Tbe fisares refer to sectlonRl GAS COMPANIES, Liability of, to proceedings in banliruptcy, 140. GENERAL ISSUE, As plea to petition in involuntary bankruptcy, 171. GENERAL ORDERS, In bankruptcy, prescribed by Supreme Court, 30. GOOD-WILL, As an asset in bankruptcy, 339. Passes to purchaser of business from trustee, 480. GUARANTY, Bankrupt's liability on contract of, a provable debt, 505. Guarantor of bankrupt, paying debt, may prove claim, 506. Entitled to subrogation, 506. Of third party is not a security within the act, 559. Guarantor as "creditor" in fraudulent preference, 577. Guarantor of bankrupt not released by composition, 661. Nor by discharge of bankrupt, 748. GUARDIANS, Proceedings in bankruptcy against, 104. For insane bankrupt, appointment of, 168. Debts due from, when preferred claims, 632. Not released by discharge, 731. H HABEAS CORPUS, For release of bankrupt arrested on civil process, 234. To bring up imprisoned bankrupt for examination, 260. HEARINGS, ' , See Examinations. HIRING OF PERSONS, Damages for breach of co'ntract of, as provable claim, 495. Wages as preferred clainis, 626. HOMESTEAD, Exempt to bankrupt, 244. Liens against, 249. Claim for, 252. Setting apart, 253. Transfer of, not a preference, 575. HUSBAND AND WIPE, Joint petition in bankruptcy by, 97. See, also, Married Women ; Wife of Bankrupt. I IGNORANCE OF LAW, No defense in suit to recover preference, 612. ILLEGAL CONTRACTS, Not provable as debts in bankruptcy, 517. IMMORAL CONSIDERATION, Claims founded on, not provable in bankruptcy, 517. INADEQUACY OF PRICE, As ground for vacating trustee's sale In bankruptcy, 485. INCRIMINATING TESTIMONY, -Privilege of witness in bankruptcy examination against, 271. INCUMBRANCES, See Liens. 1808 INDEX [Tbe flernres refer to aectlons] DCDEBTEDNBSS, Amount of, necessary to jurisdiction in involuntary cases, 20, 156. In partnerslilp cases, 127-130. What are partnership debts, 127. What are separate debts of partners, 128. Joint and several liability, double proof, 129. Claims of partners against firm and each other, 130. List of, to be filed by bankrupt, 225. Of third persons to bankrupt, as assets, 340. Nature and kinds of, provable in bankruptcy, 4S7, 491. Mutual, set-off of, in bankruptcy, 544. INDIANS, Amenability of, to bankruptcy law, 99. INDICTMENT, In prosecution under bankruptcy act, 794. INDORSEMENT, Of bankrupt's note, not a security within the act, 558. Liability of bankrupt indorser as provable claim, 505. Eights of bankrupt's Indorser, 506. Indorser as "creditor" in fraudulent preference, 577. INDORSER, Bankrupt's liability as, a provable debt, 505. For bankrupt, right to prove claim, 506. As "creditor" In fraudulent preference, 577. Not released by composition with bankrupt's creditors, 661. Nor by bankrupt's discharge, 747. 'Claim against bankrupt, how affected by discharge, 720. INFANT, Cannot be adjudged a bankrupt, 102. Child of bankrupt, his acquisitions as assets of bankrupt, 350. INFORMATION, Prosecution of offenses against bankruptcy act by, 794. INFORMER, Right of, to share in penalty, not a provable debt, 515. INJUNCTION, To restrain creditors from prosecuting actions in state courts, 29. Will not issue from state court to prevent filing of petition in voluntary bank- ruptcy, 3. Appeal from interlocutory order granting, 41. Jurisdiction of referee to grant, 68. To stay pending suits against bankrupt in state courts, 187. To prevent waste of property by alleged bankrupt, 204. To prevent interference with property pending adjudication, 205, Forbidding levy, sale, or replevin pending adjudication, 206. To prevent arrest of bankrupt on civil process, 233. To restrain foreclosure of liens in state courts, 389, 569. Grant of, in trustee's suit to recover assets, 426. Does not lie to prevent collection of assets, 396. To restrain suits against trustee, 398. Against assignee for creditors, on bankruptcy of assignor, 436. To restrain suits pending composition proceedings, 658. To restrain execution on judgment barred by discharge, 756. INQUIRY, Duty of preferred creditor to make, 599. INSANITY. As defense to petition In bankruptcy, 101. Of bankrupt, does not abate proceedings, 177. Of partner, effect on jurisdiction of firm, 109. INDEX 1809 [The agnren refer to aectiona] INSOLVENCY, When essential to commission of act of bankruptcy, 81, What constitutes. In partnership cases, 114. Meaning of, as used in banliruptcy law, 173. Issue of, in involuntary cases, 173. Proof of solvency or insolvency, 174. Examination of debtor as to, 175. Allegation of, in involuntary petition, 160. As affecting validity of lien in subsequent bankruptcy proceedings, 379. As affecting validity of alleged fraudulent transfer, 458. Grantee's knovyledge of, 462. As essential to creation of voidable preference, 595. Creditor's knowledge or notice of, 597. INSOLVENCY LAWS, Of states, validity of, in general, 6. Suspended by national bankruptcy act, 7. What state laws affected, 8. As to eases not covered by bankruptcy law, 9. Laws regulating assignments for creditors, 10. Practical effect of suspension of state laws, 11. Pending proceedings under state laws, 12. Priorities given by, when recognized in bankruptcy, 632, INSTRUCTIONS, In suits to recover preferences, 615. INSURANCE, Of bankrupt's property by receiver, 211. By trustee in bankruptcy, 301. Exemption of policies of life insurance, 243. Life policies as assets, 348. Assignment of, as preference, 578. INSURANCE COMPANIES, Cannot file petition in voluntary bankruptcy, 97. Not subject to Involuntary proceedings, 138. INTENT, As affecting voidability of preference, 596. Creditor's knowledge of, 597. As affecting right to prove preferred claim, 605. To conceal financial condition, as affecting right to discharge, 682. INTERES'T, Constitutes part of provable debt, 503. Accruing after adjudication, not provable, 503. Disqualification of referee by reason of, 62. Allowed secured creditor on trustee's sale of property Incumbered, 484, Secured creditor's claim for, 565. On dividends delayed or withheld, 643. On discharged debt revived by new promise to pay, 766. INTERVENTION, . In proceedings in bankruptcy, 169. Of trustee in pending suits in state courts, 198. In suits to foreclose liens, 388. INTOXICATING LIQUORS, . Illegally sold, price of, not a provable debt, 517, INVENTORY OF ESTATE, Bankrupt to make and file, 221. ~^ Made by trustee, 300. JBlk.Bkr.(3d Ed.)— 114 1810 INDEX [Tbe flgnres refer to sections] INVOLUNTAKY BANKRUPTCY, Appeal from adjudication in, 42. What Is an act of bankruptcy, 79. Who are subject to, 98-106. In partnership cases, 115. In corporation cases, 132-150. Creditors entitled to file petition in, 153. Requisites of petition in, 159-163. Limitation of time for filing petition, 164. Service of process and notice, 166, 167. Parties in, 168. Intervention and substitution of parties, 169. Persons entitled to oppose adjudication, 170. Defenses and grounds of opposition, 172. Issue of insolvency, 173-175. Death or Insanity of bankrupt, 178. Trial by jury in, 179. Adjudication in, 181. Conclusiveness and effect, 182. Vacating and setting aside, 183. Provisional seizure of alleged bankrupt's property, 201. Appointment of receiver, 210. IRRIGATION COMPANIES, Liability of, to bankruptcy proceedings, 140. J JEWELRY, When claimable by bankrupt as exempt, 242. JOINDER OF PARTIES, In voluntary petition in bankruptcy, 97. In involuntary petition, 156. Withdrawal of petitioners, 158. Intervention and substitution of parties, 169. For purpose of opposing petition, 170. Intervention of trustee In pending suits in state courts, 198. In actions by and against trustees, 423, 424. In suit to avoid fraudulent conveyance, 465. JOINT ADVEISITURES, Debt? arising out of, not fiduciary debts, 738. See, also, Partners. JOINT DEBTS, Right of set-off as to, 549. Of bankrupt and another, effect of discharge on, 747. JOINT PARTIES, Proof of claims against estates of, 507. JOINT-STOCK COMPANIES, When subject to bankruptcy law, 143. JOINT TRUSTEES, Rights and duties of, 312. JUDGE, See District Judge. JUDGMENTS, In bankruptcy proceedings, when appealable, 41-44. SuffOTlng or permitting, as act of bankruptcy, 86. Confession of, as act of bankruptcy, 90. INDEX 1811 [Tbe AisnTea refer to sections] JUDGMENTS— Continued, In bankrupt's favor, as assets in bankruptcy,, 340. Lien of, when dissolved by adjudication in bankruptcy, 377, Against trustee, how enforced and collected, 396. As provable claims in bankruptcy, 497. For torts, are provable debts, 497. Dormant, not provable, 516. Recovered by trustee, set-ofC against, 552. As "securities" under bankruptcy act, 556. As preferences, 579. Effect of discharge on rights of judgment creditor, 756. Cancellation of judgment released by discharge, 757. JUDICIAL NOTICE, State courts will take, of national bankruptcy law, 13. JURISDICTION, Of courts of bankruptcy, 15-33. Creation of courts of bankruptcy, 15. General jurisdiction of bankruptcy courts, 16. Exclusive in bankruptcy matters, 17. Territorial limits of, 18. Jurisdiction depending on residence or domicile, 19. On amount of debts, 20. Jurisdiction of bankrupt's person, 21. Summary jurisdiction, 22. Equitable powers and jurisdiction, 23. Ancillary jurisdiction, 24. Jurisdiction to reverse or set aside former proceedings, 25. Conflicts of jurisdiction with state courts, 26. Appointment of receiver by state court, 27. Property in possession of sheriff, 28. Power to enjoin proceedings in state courts, 29. Rules of practice, 30. Powers and authority of judge of bankruptcy court, 32. Priority of petitions and transfer of causes, 33. Appellate and revisory, see Appeals. Of referees in bankruptcy, 65. Surrender or reclamation of property, 67. Grant of injunction, 68. Appointment of receiver, 69, 210. For sequestration of property before adjudication, 201. Appointment of receiver, 210. Of bankruptcy court over exempt property of bankrupt, 251. For appointment of trustee, 292. Of actions on trustees' bonds, 294. For removal of trustee, 296. For enforcement of existing liens on bankrupt's property, 387. To restrain foreclosure of liens in state courts, 389, In bankruptcy of partnership, 108. In bankruptcy of corporations, 132. Actual notice to creditors not essential to, 167. Decree in bankruptcy conclusive as to, 182. Want of, as defense to involuntary petition, 172. As ground for vacating adjudication, 183. As ground for impeaching adjudication collaterally, 182. Of actions by and against trustees, 406. Statutory provisions, 406. Jurisdiction of court of bankruptcy, 407. Claims on property in custody of court, 408. Independent suits against third persons, 409. 1812 INDEX [The flgnres refer to sections] JURISDICTION— Continued, Preferences and fraudulent conveyances, 410. Suits which bankrupt could not have maintained, 41 1. Consent or waiver of objections, 412. Federal courts in other districts, 413. Jurisdiction of state courts, 414. Conflicting jurisdiction, 415. Of proceedings against assignee for creditors, 438, 439. Of claims and accounts of assignee for creditors, 444. Of suit to avoid fraudulent conveyance, 465. To order sale of property free of liens, 471. To authorize private sale by trustee, 476. Over purchaser at trustee's sale, 479, 482. To determine claims to proceeds of sales, 484. Of suits to avoid or recover preferences, 608. Want of, as ground for refusing discharge, 667. To hear and determine application for discharge, 704. To revoke discharge, 707. Collateral impeachment of discharge for want of, 712. Of criminal prosecutions under bankruptcy act, 793. JURY, Questions for, in suits to recover preferences, 615. JURY TRIAL, On petition in Involuntary bankruptcy, 179. Writ of error to review, 40. K KNOWLEDGE, Of debtor's insolvency, effect on lien, 379. As affecting rights of grantee under alleged fraudulent ■conveyance, 462. As affecting validity of preference, 597. Allegations of, in opposition to discharge, 693. Of bankruptcy proceedings, by owner of unscheduled claims, effect of dis- charge, 728. L LABOR CLAIMS, To have priority of payment, 626. LACHES, Barring right to bring petition for revision, 49. Appeal from referee to- court, 74. Right to move to vacate adjudication, 183. Right to object to allowance of exemptions, 253. To apply for reopening of estate, 315. Of trustee, in neglecting to claim property, 321. As defense to suit by him. 421. Of creditor bars proof of claim, 494. Barring right to move for expunging of claim, 542. Barring right to move for revocation of discharge, 708. LANDLORD AND TENANT, See Leases ; Rent. LEASES, Assumption or rejection of, by trustee, 307. Property under, as assets in bankruptcy, 326. Rights and remedies of bankrupt's lessor, 519. Landlord's lien, 520. Rent to accrue after adjudication, 521. Occupation and use of premises by trustee, 522. Damages for breach of covenant, 523. INDEX 1813 tThe flsnrea refer to seetlonBl IiEAVE OF COURT, To continue pending suit against bankrupt in state court, 188. To sue receiver in bankruptcy, 214. For trustee to institute suit, 394. For bringing suit against trustee, 397. To foreclose mortgage on bankrupt's property, 568. LEGACIES, To bankrupt, when assets of estate, 345. LEVY, Upon debtor's property within four months before bankruptcy dissolved by ad- judication, 375. Property in possession of sheriff under, jurisdiction of bankruptcy court over, 28. Failure to discharge, as act of bankruptcy, 86, 88. Not permissible after bankruptcy of judgment debtor, 191, 199. Enjoining, before appointment of trustee, 206. LIBEL, Right of action for, does not pass to trustee, 343. Liability for, not released by discharge in bankruptcy, 741. LICENSE, Owned by bankrupt, when passes to trustee, 336. Not required for sale of bankrupt's liquors by trustee, 469 LIENS, Appeal from order recognizing or affirming, 44. Suffering or permitting, as act of bankruptcy, 86, 88. On bankrupt's exempt property, 249. Existing, effect of bankruptcy on, 363-391. Statutory provisions, 363. Validity of liens as against trustee, 364. Liens invalid as against creditors, 365. Mortgages of real property, 366. Chattel mortgages, 867. Pledges and assignments of collateral, 368. Maritime liens, 369. Attorneys' liens for services, 370. Vendors' liens, 371. Statutory liens, 372. Landlord's lien for rent, 373. Liens of mechanics and materialmen, 374. Acquired by legal proceedings before bankruptcy, 375. Attachment or garnishment, 376. Judgment or execution, 377. Dissolution of liens by adjudication, 378. Insolvency of debtor, 379. Date of attaching, as affecting dissolution, 380. Rights of bona fide purchasers, 381. Rights of trustee as to property affected by, 382. Conveyance or surrender of property ordered by court, 383. Subrogation of trustee to rights of lien-holders, 384. Remedies of creditor on dissolution of lien, 385. Costs and fees incurred under dissolved lien, 386, Proceedings to establish or enforce, 387. Proceedings in state courts, 388. Restraining proceedings in state courts, 389. Foreclosure of mortgages, -390. Proceedings out of court, 391. Jurisdiction, when property in custody of court, 408. Lien of superseded assignee for creditors for costs and fees, 444. 1814 INDEX [Tbe figures refer to Bectlaniil LIENS — Continued, Sale of banjirupt's property free from, 471. ' Eights of secured creditors in general, 554-572. As preferences, 578. Transfer of property in satisfaction of, when a preference, 581. Time of filing, as affecting voidability of preference, 594. Not displaced by claims entitled to priority, 619. Effect of composition on, 660. Effect of discharge of bankrupt on, 752. LIFE ESTATE, In real property, as assets in bankruptcy, 324. LIFE INSURANCE, Policies of, when exempt in bankruptcy,. 243. What assets of estate in bankruptcy, 348. LIMITATION OP ACTIONS, Time for appeal or revisory petition, 49. Time within which Involuntary petition must be filed, 164. In actions by and against trustees, 416. What suits and proceedings barred, 417. Suits on concealed frauds, 418. Parties affected by statute, 419. Pleading the statute, 420. Laches of trustee as defense, 421. Effect of reopening estate, 422. In suits to avoid fraudulent transfers, 465. Debts barred by statute, not provable, 516. Institution of bankruptcy proceedings stops running of statute, 516. New promise to revive debt barred by discharge, 758-767. Time to file application for discharge, 685. Time to file specifications opposing discharge, 691. Time to move for revocation of discharge, 708. LIMITED PARTNERSHIPS, When subject to bankruptcy law, 134, 143. LIQUIDATING PARTNER, Effect of bankruptcy of, 122. Right of, to exemptions out of firm assets, 255. LIQUOR LICENSE, As an asset in bankruptcy, 336. Not required for sale of stock by trustee, 469. LIST OP CREDITORS,, Bankrupt to prepare and file, 225. LIVERY STABLE KEEPER, Lien of, not impaired by bankruptcy proceedings, 372. LUNATIC, Cannot commit an act of bankruptcy, 101. But may be proceeded against for acts committed while sane, 101 M MAJORITY, Of creditors, what shall constitute, 277. In election of trustee, 2S6, 288. Of creditors, acceptance of composition by, 649. MALICIOUS INJURIES, Claims for, not released by discharge, 741. INDEX 1815 [Tbe flgrnres refer to sections] MALICIOUS PROSECUTION, In bantruptcy, creditor liable in damages for, 172. Right of action for, does not vest in trustee in bankruptcy, 343. Liability for, not released by discharge in bankruptcy, 741. MANUFACTURING CORPORATIONS, Are subject to bankruptcy law, 136. What are, 136. MARITIME? LIENS, Preserved in bankruptcy proceedings, 369. MARRIAGE, As consideration to support alleged fraudulent conveyance, 461. MARRIED WOMEN, May be adjudged bankrupts, when, 100. See also Wife of Bankrupt. MARSHAL, Service of process on involuntary petition by, 166. Warrant to, for seizure of property, 201. Seizing goods of stranger on warrant, liability for, 203. Fees of, in bankruptcy cases, 216. MARSHALING ASSETS, By court of bankruptcy, 572. In bankruptcy of partnership, 124. MASTER AND SERVANT, Wages of labor entitled to priority of payment, 626. MATERIALMAN, Lien of, how affected by bankruptcy proceedings, 374. MEASURE OF DAMAGES, For breach of contract, as fixing amount of provable claim, 492. In suit to avoid or recover preference, 616. MECHANICS' LIENS, When not impaired by proceedings in bankruptcy, 374. Bankrupt's right under, as assets of estate, 342, When entitled to priority of payment, 632. Effect of discharge in bankruptcy on, 752. MEETINGS OF CREDITORS, Notice to creditors of first meeting, 275. First meeting held when, 277. Place of meeting, 277. Proceedings at first meeting, 277. Qualifications of voters, 277. Majority in number and amount to govern, 277, Right of secured creditor to vote, 277. Bankrupt to attend fir^t meeting, 262, 277. Further meetings, when called, 278. Final meeting, when ordered, 278. Representation by attorney or proxy, 279. For election of trustee, 286. MERCANTILE CORPORATIONS, Subject to bankruptcy law, 135. What are, 135. MINING COMPANIES, Liable tp adjudication in bankruptcy, 139. MONET, Payment of a debt in, when a preference, 587. Deposit of, to pay composition, 652. 1816 INDEX [The figures refer to sectlanal MONEYED CORPORATIONS, Liability of, to proceedings in bankruptcy, 141. What are, 141. MONEYS, See Funds. MORTGAGES, When fraudulent preferences, 82, 578. Giving, when an act of bankruptcy, 84. Foreclosure of, may be stayed by bankruptcy court, 190, 569. Of exempt property, are not preferences, 245. On homestead or other exempt property^ 249. Redemption from, by trustee, 305, 570. Bankrupt's equity of redemption vests in trustee, 325. Made in good faith,, preserved In bankruptcy, 366. As fraudulent transfers, 451. Trustee's sale of property mortgaged, 470, 471, 571. Payment of creditor out of proceeds, 484. Are securities veithin meaning of statute, 555. Effect of discharge in bankruptcy on lien of, 755. MULTIFARIOUSNESS, In petition in bankruptcy, 161. Joinder of causes of action in trustee's suit, 405. MUNICIPAL CORPORATIONS, Cannot file voluntary petition In bankruptcy, 97. Not subject to involuntary proceedings, 141. When entitled to priority of payment out of bankrupt's estate, 631. MUTILATION, Of books of account, as ground for refusing discharge, 681. MUTUAL DEBTS, Set-ofC of, 545. Meaning of the term, 545. Joint debts and credits, 549. NATIONAL BANKRUPTCY ACT, See Bankruptcy Act NATIONAL BANKS, Not subject to bankruptcy law, 137. NB EXEAT, To prevent removal of bankrupt pending proceedings, 232. NEGLIGENCE, Of trustee, liability for, 311. Right of action for damages for, not a provable debt, 514, Judgment in action for, is provable, 497. Not "willful and malicious injury," 741. NEGOTIABLE INSTRUMENTS, Sale and transfer of, by trustee in bankruptcy, 483. Liability of bankrupt as indorser or guarantor of, 505, Rights of bankrupt's indorser or surety, 506. NEW PROMISE, To revive debt barred by discharge, 758-767. NEWSPAPERS, To be designated by court for publication of notices and orders, 167 276. NEW TRIAL, Authority of court of bankruptcy to award, 180. INDEX 1817 [Tbe flgnires refer to sections] KOTART PUBLIC, Verification of petition in bankruptcy before, 162. NOTES AND BILLS, Sale and transfer of, by trustee in bankruptcy, 483. Liability of bankrupt as indorser or guarantor of, 505. Rights of bankrupt's surety or indorser, 506. , Not "securities" under bankruptcy act, 558. NOTICE, To creditors, actual, not essential to jurisdiction, 13. Of appeal in bankruptcy, 51. Of petition for revision, 52. To debtor to show cause against petition, 166. To creditors of filing of involuntary petition, 167. Of proposed dismissal of proceedings, 177. Of application to set aside adjudication, 183. Of application. for receiver, 210. Of receiver's claim for commissions, 216. Of examinations in bankruptcy, 259. To creditors, on what occasions to be given, 275. Of meetings of creditors, 275. To trustee, of his election, 293. Of proposed compromise, 304. Of debtor's insolvency, actual or constructive, 379. Of fraudulent purpose of conveyance or transfer, 462. Of sales of property by trustee, 475. To lien creditor of sale free of incumbrances, 471. Of application for confirmation of trustee's sale, 481. Of effect of transaction as a preference, 597. Knowledge or reasonable cause of belief, 597. Grounds of doubt or suspicion, 598. Facts putting on inquiry, 599. Circumstances constituting ground of belief, 600. Imputed knowledge of agent or attorney, 601. Of application for confirmation of composition, 653. Of application for discharge, 687. Unscheduled creditor, having notice of proceedings, barred by discharge, 728. o OATHS, Of oflice of referee \n bankruptcy, 61. Authority of referees to administer, 66. Verification of petition in bankruptcy, 162. False, in bankruptcy, as ground for refusing discharge, 678. As criminal offense, 788. OBLIGATION OF CONTRACES, Bankruptcy act not invalid for impairing, 2. OFFICE, Of referee, appointment to, 60. Qualifications for, 61. Removal from, 63. Of trustee in bankruptcy, qualifications for, 285. Forfeiture of, on conviction for offense under bankruptcy law, 792. OFFICERS, Debts of, not released by discharge, 739. Of corporations, eflrect of discharge of corporation on liabilities of, 751. 1818 INDEX ■ [Tbe fisnres refer to sections] ONEROUS CONTRACTS AND INTERESTS, Tinistee not bound to accept, 320. Trustee's election to accept or abandon, 321. OPEN ACCOUNTS, Claims upon, provable In bankruptcy, 491. ORAL PROMISE, To pay debt barred by discharge, suflSdoncy of, 763. ORDERS, General, in bankruptcy, prescribed by Supreme Court, 30. In bankruptcy, jurisdiction to reverse or set aside, 25. Not nece'ssary to authorize trustee to sue, 393. For sales of property by trustee, 469. For discharge of bankrupt, 706. OSTENSIBLE PARTNERS, Liability to adjudication in bankruptcy. 111, 112. OWELTY OF PARTITION, Not a provable debt in bankruptcy, 491. P I'AROL, Promise to pay debt barred by discharge, sufficiency of, 763, PART PAYMENT, Reducing amount of provable claim, 493. When a preference, 591. Does not revive barred debt, 762. PARTIES TO ACTIONS, Trustee's right of intervention in pending suits, 198. Parties to appeal or petition for revision, 50. Petitioning creditors in involuntary cases, 153-157. Withdrawal of petitioners, 158. Intervention and substitution of, 169. Parties entitled to oppose adjudication, 170. To application to vacate adjudication, 183. In suits by and against trustees in bankruptcy, 423, 424. In suits to avoid fraudulent conveyances, 465. PARTITION, Right of trustee to sue for, 400. Owelty of , not a provable debt in bankruptcy, 491. PARTNERS, Allowance of exemptions to, out of firm assets, 255. Acts of one as affecting other's right to discharge, 663. Debts of one to other are not fiduciary debts, 738. PARTNERSHIP, Jurisdiction in bankruptcy proceedings against, 108. Petition, where to be filed, 108. Notice to members not petitioning, 108. Jurisdiction follows petition first filed, 33, 108. Minority or insanity of one partner, 109. Proceedings in bankruptcy of, 110. What constitutes partnership. 111. Secret and presumptive partners, 112. Acts of bankruptcy by, 113. Insolvency of firm and of partners, 114. Involuntary proceedings against, 115. Etfect of dissolution of firm, 116. Dissolution by death of one partner, 117. INDEX 1819 [Tbe flsnreB refer to Bectlonn] PARTNERSHIP— Continued, Bankruptcy of firm without adjudication of any partner, 118. Voluntary petition by one or more partners, 119. Individual bankruptcy of one or more partners, 120. Effect of adjudication of one or more partners, 121. Continuing or liquidating partner, 122. Distribution of estate in bankruptcy, 123. Marshaling of assets, 124. What are partnership assets, 125. What are individual assets, 126. Partnership debts and claims, 127. Separate debts of partners, 128. Joint and several liability and double proof, 129. Claims of partners inter sese and against the firm, 130. Discharge of partners, 131. Exemptions in bankruptcy of, 255. Trustee in bankruptcy of, how chosen, 110. Trustee of, to keep separate accounts of joint and separate estates, 110. Liability of de facto corporation as, 148. Limited, liability of, to bankruptcy proceedings, 143. As creditor, verification of petition by, 162. Exemptions in bankruptcy of, 255. Conveyances fraudulent as to creditors of, 455. Claims of, against bankrupt estate, how proved, 527. Preference of creditors of, 603. Voting on offer of composition, 649. Offering terms of composition, 649. Effect of discharge on partnership and individual debts, 750. PATENTS AND PATENT-RIGHTS, Bankrupt's interest in, vests in trustee, 334. Right of trustee to sue for infringement, 392. Claim for damages against infringer not a provable debt, 491. PAYMENT, Of a debt in money, when an act of bankruptcy, 84. ' Not a defense to involuntary petition, 172. Of bankrupt's exemptions in money, 254. Of debt to bankrupt, after adjudication, 340. ■ By bankrupt, when a fraudulent transfer of property, 451. Of price of property sold by trustee, 482. Affecting provability of claim, 493. When a preference, 587. Payment by third person, 588. Payments to attorneys, 589. Partial payments on running accounts, 591. Of dividends in bankruptcy, 640. Recovery of dividends erroneously paid, 641. Of composition, deposit for, 652. Distribution of comjjosition money, 655. To creditor, to withdraw opposition to discharge, 669. Part, does not revive barred debt, 762. PENALTIES, For crimes under the act, 786-795. Claims for, proof and allowance of, 515. PENSION MONEY, Exempt in bankruptcy proceedings, 239. PERISHABLE PROPERTY, Ordering sale of, before appointment of trustee, 217. Sale of, by trustee, 473. 1820 INDEX [Tbe fignrea refer to aectlons] PBEJURT, Under the act, a criminal offense, 788. At examinations in bankruptcy, punishable as contempt, 274. As barring right to discharge, 678. PETITION, Priority as between different petitions against some debtor, 33. For revision of proceedings of bankruptcy court, see Appeals, For certification of case by referee to court, 74. Voluntary, and adjudication thereon, 151. Opposition by creditors, 152. Involuntary, creditors entitled to file, 153. Number and amount ot creditors required, 156. Withdravcal of petitioners, 158. Formal requisites of, 159. Allegations of, 160. Multifarious and mis joined- matter, 161. Signature and verification of, 162. Amendment of, 163. Time for filing, 164. Filing and presenting of, 165. Service of copy of, 1C6. Who may Intervene in, 169. Who may be admitted to defend, 170. Answer to, 171. Dismissal of, 177. For appointment of receiver, 210. For sale of property by trustee, 469, 471. For expunction of proved claim, 542. Time of filing, with reference to voidability of preference, 593, For confirmation of composition, 653. For vacation of order confirming composition, 657. For discharge in bankruptcy, 686. PLACE OF BUSINESS, Of bankrupt, principal, as determining jurisdiction, 19, la partnership cases, 108. In corporation cases, 132. Allegation of, in petition, 160. PLEADING, To be verified, 162. Allegations of petition must be certain and detailed, 160. Amendment of petition relates back to filing, 163. Amendments, when allowed, 163. Debtor's plea or answer to petition, 171. Plea of tender not admissible, 172. Payments after petition, 172. In suits by and against trustees, 427-429. Pleading special statute of limitations, 420. In suits to avoid fraudulent conveyances, 465. In suits to avoid or recover preferences, 611. Petition for discharge in bankruptcy, 686. Specifications in opposition to discharge, 692-697.' Pleading discharge in bankruptcy, 713-715, Necessity of pleading, 713. Who may plead, 714. Form and effect of plea, 715. Indictments for offenses under bankruptcy act, 794, INDEX 1821 [Tbe flgurcs refer to sections] PLEDGE, Of property by bankrupt available against trustee, 361. Lien of, preserved in bankruptcy proceedings, 368. Sale of goods under, after adjudication, 391. When avoidable as fraudulent transfer, 451. As "security" under bankruptcy act, 557. As voidable preference, 578. PORTO RIOO, Api)eal from district court of, to U. S. Supreme Court, 35. Suspension of insolvency laws of, by Bankruptcy Act, 7. POVERTY AFFIDAVIT, To avoid payment of fees in voluntary bankruptcy, 165. POWERS, Exercisable by bankrupt for his own benefit pass to trustee, 332. PRACTICE, In bankruptcy, principles of, 31. Rules of, prescribed, by Supreme Court, 30. Rules adopted by district courts, 30. On appeal to U. S. Supreme Court, 39. On appeal to circuit court of appeals, 51. Notice and bond, 51. On petition for revision, 52. On appeal from referee to court, 74. In proceedings before referees, 71. On proceeding to force surrender of property, 228. Amendments to petition, 163. Intervention and opposition by creditors, 170. . Dismissal of petition, 177. In compulsory proceedings, 180. At examinations in bankruptcy, 266. Sight to attendance of counsel, 267. Death or removal of trustee not to abate pending suits, 295. Limitation of actions by and against trustee, 416-422. Proof and allowance of claims, 524. Withdrawal and amendment of proofs of claims, 541. Postponement of proofs of claims, 535. Declaration and payment of dividends, 638. In composition proceedings, 653, 654. On applications for discharge, 703, 704. On proceedings to revoke discharge, 707-709. Motion for cancellation of judgment barred by discharge, 757. PREFERENCES, Giving, as act of bankruptcy, 84, 86. Right of preferred creditor to file petition, 154. Allegations of, in petition in involuntary cases, 160. Evidence of, to support adjudication, 176, Presumption of intent, 176. Receiver cannot sue to recover, 214. Validity of, at common law, 573. Voidable under bankruptcy act, 574. Essentials of a voidable preference, 575. Distinguished from fraudulent conveyance, 453. Transferee as "creditor" or "person benefited," 576. Guarantors, sureties, and indorsers, 577. Nature and form of transaction, 578. Procuring or suffering judgment, 579. Transfers of property, 580. In substitution or satisfaction of lien, 581. 1822 INDEX [The flgnrea refer to sections] PKEFBRRNCES— Continued, Restoration of converted or embezzled property, 582. Trust funds, 583. Effect of giving present consideration, 584. Security for present loan or future advances, 584. Prior agreement to give security or convey, 585. Exchange or substitution of securities, 586. Payments of money by debtor, 587. Payment or transfer by third person, 588. Payments to attorneys for past or future services, 589. Set-off or adjustment of mutual accounts, 590. Partial payments on running accounts, 591. Time of giving preference, 592, Time of filing petition, 593. . Time of recording or filing lien, 594. Insolvency of debtor essential to, 595. Intention of debtor as to, 596. Creditor's knovyledge or reasonable cause of belief, 597. Grounds of suspicion or doubt not enough, 598. Facts putting on inquiry, 599. Circumstances constituting ground of belief, 600. Imputed Uijowledge of agent or attorney, 601. Effect of solipitation or coercion by creditor, 602. Preferences in partnership cases, 603. Rights of preferred creditor as to proving cluim, 604. Creditor's knowledge of intent to prefer, 605. What constitutes surrender of preference, 606. , Proof of separate or independent claims, 607. Proceedings to avoid or recover preference, 608. Jurisdiction, 410, 414, 608. Right of action, 609. Form of action or proceeding, 400, 610. Assumpsit, 400. Bill in equity, 401. Not summary proceedings, 403. Pleadings, 611. Defenses, 612. Set-off not allowed, 553. Set-off of amount of new credit, 618. Statute of limitations applies to, 417. Burden of proof and evidence, 614. Trial, 615. Measure of damages «r recovery, 616. When constitutes objection to banlcrupt's discharge, 670. PREFERRED CREDITORS,' Rights of, as to proof of claims, 277, 288, 604. Right of, to file petition in bankruptcy, 154. Not entitled to set off claims, 553. Preference of assignee for creditors as to costs and commissioim, 444 See also Preferences. PRESUMPTIVE PARTNERS, Liability to adjudication in bankruptcy, 112. PRINCIPAL PLACE OF BUSINESS, Of bankrupt, as determining jurisdiction, 19, In partnership cases, 108. In corporation cases, 132. Allegation of, in petition, 160. PRIVILEGED COMMUNICATIONS, Bankrupt's wife not required to disclose, 263. As between attornr'' rid cHent, 270. INDEX 1823 [The fflBures refer to seotionaj PRIORITY, As between different, petitions against same debtor, 33. Appeal from order granting, to particular claims, 44. Of payment, certain debts entitled to, 617-634. Statutory provisions, 617. General rights of priority creditors, 618. Relative rank of priority claims, 619. Assignment of priority claims, 620. Priority of taxes, 621. What taxes included, 622. Costs and expenses of administration, 623. Receivers' certificate, 624. Attorney's claim for services, 625. Wages of workmen, clerks, and servants, 626. Traveling salesmen, 627. Iiimitation of three months, 628. Advance of money to pay labor claims, 629. Claims of United States, 630. Claims of state or municipality, 631., Claims entitled to priority under state laws, 632. Landlord's claim 'for rent, 633. Trust creditors -and claimants of trust funds, 634. Payment of, on composition, 652. PRIVATE SALE, By trustee in bankruptcy, when authorized, 476. PROCEEDING IN BANKRUPTCY, Is in rem, 13. Is civil, not criminal, 13. Rules and principles of practice In, 31. Appeals from, and review of, see Appeals. Distinguished from "controversies" in bankruptcy, 47. Proceedings in partnership cases, 110. In involuntary cases, 153-183. Enforcing surrender of property by bankrupt, 227. Claim and allowance of exemptions, 252-254. Examinations, 257-274. Declaration and payment of dividends, 638. PROCESS, In involuntary bankruptcy, service of, 166. PROCURING OR SUFFERING JUDGMENT, With intent to defraud, an act of bankruptcy, 84. When amounts to fraudulent preference, 579. Contributive action on part of debtor necessary to, 579. PROFITS, Undivided, of corporation, bankrupt's Interest in as assets, ' 318. PROMISSORY NOTES, See Notes and Bills. PROOF OF CLAIMS, Necessity of proof, 524. Effect of proof, 525. Time of making proof, 526. Persons authorized to prove, 527. Proof by agent or attorney, 528. Proof by assignee of claim, 529. Proof by persons contingently liable for bankrupt, 530- Forin and sufficiency of deposition, 531. AjCknowledgment of deposition, 532. 1824 INDEX [The flenres refer to aectlonal PROOF OF CLAIMS— Oontinned, Receiving and filing proofs, 533. Allowance of proved claims, 534. Postponement of proofs, 535. ' Objections to claims, 536. Who may object, 536. Manner and form of objections, 537. Grounds of objection, 538. Contest and determination, 539. Burden of proof and evidence, 540. Amendment and withdrawal of proofs, 541. Re-examination of claims and expunging, 542. Review of referee's proceedings by judge, 543. Set-off of claims already proved, 548. By secured creditors, 561-563. Proof of claim as secured, 561. Proof of debt as unsecured, 562. Amendment of proof, 563. By preferred creditors, 604. Surrender of preference, 606. Proof of separate or independent claims, 607. Effect of, on non-dischargeable debts, 752. PROPERTY, Of bankrupt, may be seized on warrant, 201. Vests in trustee, 316. Conveyed in fraud of creditors, belongs to trustee, 446. Acquired by bankrupt after adjudication does not pass to trustee, 236. Trustee need not take property which may be onerous to estate, 320. Certain property of bankrupt to be exempt, 238, 240. Concealment or removal of, an act of bankruptcy, 83. Concealment of, as criminal offense, 787. Of bankrupt partnership, what joint, what separate, 125, 126. Enforcing surrender of, by bankrupt, 227-231. Trustee's suits for recovery of, 392-432. Prom previous assignee for creditors, 437-439. Revests in bankrupt on confirmation of composition, 658. PROVABLE DEBTS, See Debts. PROXY, Representation of creditors by, at meetings, 279. In election of trustee, 289. PUBLIC LANDS, Settlers' rights and improvements on, as assets, 330. PUBLIC OFFICER, Debt created by bankrupt's defalcation while acting as a, not affected by dis- charge, 739. PUBLIC POLICY, As embodied in bankruptcy act, 3. Contracts contrary to, not provable debts, 517. PUBLIC-SERVICE CORPORATIONS, Liability of, to bankruptcy proceedings, 140; PUBLICATION, Of petition and subpoena, 166. PURCHASE-MONEY, Unpaid, claim for, enforceable against exempt property, 250. Lien for, effect of bankruptcy on, 371. Payment and recovery of, on sales by trustees, 482. INDBX 1825 [Tbe ilgrnres refer to sections] PURCHASERS, Bona fide, under liens dissolved by bankruptcy, rights of, 381. Trustee in bankruptcy Is not, 364. From trustee, how affected by statute of limitations, 417, 419. From assignee for creditors, rights of, 442. From fraudulent grantee, rights of, 464. At trustee's sale, who may become, 478. Rights and liabilities of, 479. Q QUALIFICATIONS, Of referee in bankruptcy, 61. Disqualification by interest, 62. Ot trustee in bankruptcy, 285. QUARRY COMPANIES, Liable to adjudication In bankruptcy, 139. QUASI CONTRACTS, Provability of claims founded on, 487, 514. R RAILROADS, Not subject to provisions of bankruptcy act, 138. Cannot file voluntary petition in bankruptcy^ 97. REAL ESTATE, As assets of bankrupt partnership, 125. Description of, in schedule of assets, 222. Rights arid interests In, which vest In trustee, 324. Equity of redemption, 325. Leased property, 326. Remainders and expectant estates, 327. Estates by curtesy and community property, 328. Estates of vendor and vendee, 329. Settlers' rights on public lands, 330. Resulting trusts' In land, 331. Powers, 332. Liens on, effect of bankruptcy on, 366. Sale of, by trustee in bankruptcy, 469. Subject to or free' of incumbrances, 470, 471. Situate in another district or state, 474. Nature and extent of title conveyed, 480. Conveyance by trustee, 483. REASONABLE CAUSE OF BELIEF, As to debtor's insolvency, as affecting validity of liens, 379. As affecting alleged fraudulent conveyance, 462. As necessary to voidable preference, 597.. Grounds of doubt or suspicion not enough, 598. Facts putting on inquiry, 599. Circumstances constituting ground of belief, 600. Imputed knowledge of agent or attorney, 601. RECEIVER, Appointed by state court, right to hold property, 27. Appointment of, because of insolvency, an act of bankruptcy, 95. Application for, by corporation, an act of bankruptcy, 144. Entitled to oppose adjudication in bankruptcy, 170. Appointment of, by court of bankruptcy, 210. Jurisdiction of referees, 69, 210. Blk.Bkb.(3d Ed.)— 115 1826 INDEX [Tie flgnres refer to Bectlons] RECEIVER— Continued, Notice of application for, 210. Grounds for appointment, 210. Petition and evidence, 210. Selection and qualifications, 210. Powers and duties of, 211. Not invested with bankrupt's title, 211. Collection of assets, 211. Custody and care of property, 211. Insurance of property, 211. Paying rent of leased premises, 211. Employment of attorney, 211. Turning over property to trustee, 211. Carrying on bankrupt's business, 212. Borrowing money, 212. Receiver's certificates of indebtedness, 212. Claims of third persons against, 213. Actions by and against, 214. Recovery of property outside the district, 214. No authority to vacate preferences or fraudulent conveyances, 214. Leave of court to sue, 214. Trespass against, for taking goods of stranger, 214. Ancillary receiverships, 215. Accounts and compensation of, 216. Allowance of fees of attorney for, 216. May apply for examination of witnesses, '258. Appointment of, in trustee's suit to recover assets, 426. To take property from previous assignee for creditors, 436. Certificates issued by, entitled to priority of payment, 624. RECORDS, Of referee, 77. On appeal, 54. Clerk's docket of bankruptcy cases, 184. To be open to inspection of creditors, 284. Unrecorded liens, validity of, as against trustee, 365. Time of recording lien, as affecting voidability of preference, 594. REDEMPTION, Prom mortgage or other liens, by trustee, 305, 570. Prom tax sales, 305. REFEREES IN BANKRUPTCY, Findings of, presumed correct on appeal, 57. Appointment of, 60. Number of, 60. Vacancy in ofl^ce of, how filled, 60. Qualifi.cations of, 61. Ofllcial oath of, 61. Bonds of, 61. Disqualification by Interest, 62. Removal of, from office, 63. Reference and transfer of causes, 64. Jurisdiction and powers of, in general, 65. Specific powers and authorities of, 66. Ordering surrender or reclamation of property, 67. Pow^r to grant injunctions, 68. Appointment of receiver by, 69, 210. Duties of referees, 70. To. prepare dividend sheet, 70. To give notices to creditors, 70. Duties of, at first meeting of creditors, 277. INDEX 1827 rThe flgnres refer to sections] REFEREES IN BANKRUPTCY— Continued, Proceedings before referees, Yl. Taking and preservation of evidence, 72. Review and reopening of case, 73. Certifying questions for review by judge, 74. Review of proceedings of, by judge, 75. Effect of referee's findings of fact,, 76. Records and accounts of, 77. Contempts before, 78. Jurisdiction to vacate adjudication, 183. No authority to enjoin pending suit in state court, 187. .Conduct of examinations by, 266. Conduct of election of trustee by^ 286. When authorized to appoint trustee, 292. Not authorized to remove trustee from office, 296. Giving instructions to trustee, 299. Examining and passing trustee's accounts, 313. Ordering discharge of trustee, 814. When authorized to set apart bankrupt's exemptions, 253. Power to order sale of property, 469. To order sale free of liens, 471. To authorize private sale, 476. Cannot purchase at trustee's sale, 478. Approval or confirmation of trustee's sale by, 481. Duties with reference to declaration of dividends, 638. Rights and jurisdiction of, in composition proceedings, 654. Reference to, of applications for dlscliarge, 704. Fees and expenses of, 779. How comml.sslons are calculated, 780. Crimes by, under the act, 792. REFERENCES, Of cases after adjudication, 64. REFUND, To purchaser at invalid bankruptcy sale, 482. Of dividends paid on claim afterwards rejected, 641, RELIGIOUS SOCIETIES, Not liable to proceedings in bankruptcy, 142. REMAINDER, Vested interest in, passes to trustee, 327. REMOVAL FROM OFFICE, Of referee, 63. Of trustees, 296. Of trustee, does not abate pending suits, 295. REMOVAL OP PROPERTY, By bankrupt, when an act of bankruptcy, 83. Writ of sequestration to prevent, 426. RENT, Payable by receiver occupying leased premises, 211. Liability of trustee for, 307. Accruing from bankrupt's property, as assets, 318. Landlord's lien for, preserved in bankruptcy, 373, 520. Right of purchaser from trustee to claim, 480. Claims for, as provable debts, 519. Rent to accrue after adjudication, 521. Occupation and use of.premlses by trustee, 522. Damages for breach of covenant to pay, .52y. Payment of, when not a preference, 587. Claim for, as privilescd or priority debt, 633. 1828 INDBX [Tbe flgrnres refer to aectlonB] REORGANIZATION COMMITTEE, Purchase of bankrupt corporation's assets by, 478. REPLEVIN, From state court, for property in custody of bankruptcy court, 26, 199. Enjoining, pending adjudication, 206. Receiver in bankruptcy may bring, 211. Bankrupt may maintain, in respect to exempt property, 245. Trustee may bring, to recover assets, 316, 400. Seizure on, annulled by adjudication of bankruptcy within four months, 375. Does not lie against trustee in bankruptcy, 396, 414. REPLICATION, To answer in involuntary proceedings, 171. To plea of discharge in bankruptcy, 715. RES JUDICATA, Conclusiveness of adjudication in bankruptcy, 182. Of order of discharge, 710. RESIDENCE, Of bankrupt, place of, as determining jurisdiction, 19. In partnership cases, 108. Allegation of, in voluntary petition, 160. As determining right to exemptions, 240. Eligibility to office of trustee as depending on, 285. RESIGNATION, Of trustee in bankruptcy, 293. RESULTING TRUSTS, As assets in bankruptcy, 331. REVERSAL, Of prior orders in bankruptcy case, jurisdiction for, 25. Of judgment of bankruptcy court on appeal, 58. REVISION, Of proceedings in bankruptcy, jurisdiction of circuit court of appeals, 45. Time of filing petition for, 49. Parties to petition for, 50. Practice on petition for, 52. Facts not reviewed on i)etition for, 55. Of referee's decisions by court, 74-76. REVIVAL OB' BARRED DEBTS, Validity and consideration of new promise to pay, 758. To whom promise made, 759. Time of making promise, 760. Sufficiency of new promise, 761. Part payment, 762. Written or oral promise, 763. Conditional promise, 764. Promise to pay when able, 765. Remedies of creditor, 766. Burden of proof and evidence, 767. REVIVAL OP JUDGMENT, When a preference, 579. By scire facias, when barred by debtor's discharge, 756. REVOKING DISCHARGE, Provisions as to, 707. Time for application for, 708. Laches in moving for, 708. Grounds for, 709. INDBX 1829 [Tbe flgmres refer to aectlonsl RULES, Of practice In bankruptcy, prescribed by Supreme Court, 30. ■ Adopted by district courts in bankruptcy, 30. s SALARY, Provability of claim for damages for loss of, 495. Of clerks and others, as priority debt, 626. SALES, Of property of alleged bankrupt before appointment of trustee, 217, Of property claimed by bankrupt as exempt, 254. Conditional, property held by bankrupt under, right to, 358. Of property by bankrupt, when voidable as fraudulent, 451. Of property by trustees in bankruptcy, 469-486. Authority of trustees and orders of court, 469. Sale of incumbered property, 470, 571. Sale free of incumbrances, 471. What interests not divested, 472. Sale of perishable property, 473. Land in another district or state, 474. Notice, 475. Manner and conduct of sale, 476. Terms of sale, 477. Who may purchase, 478. Rights and liabilities of purchasers, 479. Nature and extent of title conveyed, 480. Approval, or confirmation of sale, 481. Payment or recovery of purchase money, 482. Conveyance and delivery, 483. Application of proceeds, 484. Vacating and setting aside sale, 485. Collateral impeachment of sale, 486. SALESMEN, Debts to, entitled to priority of payment, 627. SCHEDULE OP ASSETS AND DEBTS, Preparation and filing, 221. Form and contents, 222. Preparation of, on bankrupt's default, 223. Mistakes, and omissions in, 224. Amendment of, 226. Omissions in, as ground for refusing discharge, 673-677, Unlisted debt not barred by discharge, 727. False, filing of, as criminal offense, 787. SECRET PARTNERS, Liability to adjudication in bankruptcy, 112. SECRETING PROPERTY, An act of bankruptcy, 83. As ground for refusing discharge, 672. As criminal offense, 787. SECURED CREDITORS, Defined, 554. Mortgagees, 555. Judgment creditors, 556. Pledgees, assignees, holders of collateral, 657. Holders of notes, 558. EfEect of bankruptcy on existing liens in general, 363-391. Effect of holding additional security, 559. 1830 INDEX [The fflgrnres refer to sections] SECURED CREDITORS— Continued, Effect of claim against third person, 559. Right of, to join in petition in banlcruptcy, 153, 560. Rights of, at creditors' meetings, 277, 288, 560. Can prove only for excess of debt, 277. Proof of claim as secured, 561. Waiver of security and proof of debt as unsecured, 562, Amendment of proof to claim security, 563. Settling value of security, 564. Claim for deficiency, 565. Claim for interest and costs, 565. Right to rely on security and disregard bankruptcy, 566. Foreclosure independently of bankruptcy, 567. Obtaining permission to foreclose, 568. Foreclosure by, vchen stayed or enjoined, 569. Redemption of property by trustee, 570. Sale of property by order of bankruptcy court, 571. Marshaling securities, 572. Rights of, as against privileged or priority claims, 619. Eifect of composition on rights of, 660. SECURITIES, Exchange of, not a preference, 586. Debtor may give, for advajices in good faith, 584. SEDUCTION, Liability in damages for, not released by discharge, 742. SELF-CRIMINATING EVIDENCE, Privilege of witness in bankruptcy examination against, 271. Privilege against, in bankruptcy schedules, 221. SERVANTS, Wages of, to have priority, 626. Not counted in computing number of creditors, 156. SET-OFF, Right of, in bankruptcy proceedings, 544. What are mutual debts and credits, 545. Time of accrual of debts or claims, 546. Claims purchased with a view to set-off, 547. Claims already filed or proved, 548. Joint debts and credits, 549. Set-off against deposit account in bank, 550, 590. Unpaid stock subscriptions, 148, 551. Set-off against trustee in bankruptcy, 552. In suit to recover preference, 553. Of mutual accounts, not a preference, 590. SETTING ASIDE, Adjudication in bankruptcy, 183. Discharge in bankruptcy, 707-709. SHERIFF, Property in possession of, under process of state court, jurisdiction of bank- ruptcy court over, 28, 323. Holding proceeds of judicial sale, annulled by bankruptcy, duty to pay over to trustee, 382. Official liabilities of, not released by discharge, 739. SIGNATURE, To petition in bankruptcy, 162. To specifications opposing discharge, 695. SILENT PARTNERS, Liability to adjudication in bankruptcy, 112. INDEX 1831 [Tlie figures I'eter to sections] SLANDER, Right of action for, does not pass to trustee in banljruptcy, 343. Liability for, not released by discharge, 741. SOLICITATION, By creditor, no excuse for giving preference, 602. SPECIFICATIONS, In opposition to discharge of bankrupt, 692-697. Who are entitled to file, 665. Grounds for, 666. Time to file, 691. Form and sufficiency of, 692-694. Signature and verification of, 695. Amendment of, 696. Exceptions to sufficiency of, 697. Dismissal for want of prosecution, 698. Evidence on, 699-702. Hearing and determination on, 703, 704. STATE, Priority of debts due to, 631. Presence of, as a creditor, does not defeat jurisdiction of court of bankrupt- cy, 16. May join as petitioning creditor in bankruptcy, 153. May prove debt in bankruptcy proceedings, 488. Debts entitled to priority under laws of, 632. Debts due to, how affected by discharge, 724. STATE BANK, Not subject to bankruptcy law, 137. As depository for bankruptcy funds, 310. STATE COURTS, Cannot enjoin debtor from filing voluntary petition, 3. Will take judicial notice of bankruptcy law, 13. Conflicts of jurisdiction with bankruptcy courts, 26. Appointment of receiver by state court, 27. Property in possession of sheriff, 28. Proceedings in, enjoined by bankruptcy courts, 29. Writ of error to, from U. S. Supreme Court, 38. Prohibition to, pending bankruptcy appeal, 58. Pending actions in, by or against bankrupt, stay of, 185-198. Intervention of trustee in, 198. Restraining proceedings in, pending adjudication, 207. Jurisdiction of, over bankrupt's exempt property, 245, 248. Jurisdiction of suits by and against trustees, 414. Cannot enjoin trustee from collecting assets, 396. No jurisdiction to set aside sale by trustee, 485. Jurisdiction of trustee's suit to recover .assets, 414. Dividends declared but not paid not attachable, .399. Bankrupt's exemption from arrest on civil process from, 233. Releasing bankrupt from Imprisonment, 234. Arrest prior to bankruptcy, 235. Proceedings in, for foreclosure of liens, 388. When stayed- or enjoined, 389. Plea of limitations in suits by trustee in, 416. STATEMENT, In support of proof of claim, requisites of, 531. Verification of, 532. STATUTE OF LIMITATIONS, See Limitation of Actions. 1832 INDIQX [The figures refer to sections] STATUTES, Liens created by, preserved in bankruptcy, 372. STAY OF PROCEEDINGS, In case of petitions against same debtor in different districts, 33. Pending appeal or review, 58. Stay of actions against bankrupt until discharge, 29. Pending suits in state courts, 185-198. After filing petition and pending adjudication, 207. For foreclosure of liens, 389. Staying or suspending discbarge, 705. On judgments barred by discbarge, 756. STBNOGRAGHER, May be employed to take evidence at examinations, 266. Compensation of, 273. STOCK, Unpaid, assessment on, by court of bankruptcy, 148. Assets of bankrupt stockholder, 318. Lien of corporation on, not impaired by bankruptcy of stockholder, 364. Fraudulently transferred, recovery of, by trustee, 467. Unpaid subscription for, as provable debt, 510. Stockholder's statutory liability, 510. .No set-off allowed against, 551. STOCK-BROKER, Money or collateral in hands of bankrupt as, right to, 357. Debts of, not created in fiduciary capacity, 735. STOCK-EXCHANGE, Membership in, as assets in bankruptcy, 337. Settlement of debts according to rules of, not a preference, 578. STOCKHOLDERS, Bankruptcy court has, power to call in subcriptions of, 148. Cannot set off claims against liability for unpaid stock, 148, 551. Statutory liability of, not assets of bankrupt corporation, 149. May file petition in bankruptcy against their corporation, 153. Purchase of bankrupt corporation's assets by, 478. Right to contest bankruptcy proceedings against corporation, 170. Unpaid subscription as provable debt, 510. Statutory liability of, as provable debt, 510. Released by discharge, 719. How affected by discharge of corporation, 751. STOPPAGE IN TRANSITU, Bxerdse of right of, does not give preference, 575. STREET RAILWAY COMPANIES, Liability of, to bankruptcy proceedings, 138. SUBPCENA, Service on bankrupt in Involuntary cases, 166. To witness to attend examination, 260. SUBROGATION, Of surety of bankrupt, paying debt, to rights of proving creditor, 506. Of trustee in bankruptcy to rights of lienholder, 384. Of one advancing money to pay labor claims, 629. To rights of United States as preferred creditor, 630. SUFFER OR PERMIT, Meaning of term as applied to acts of bankruptcy, 89. As applied to giving preferences, 579. SUITS, See Actions. INDEX 1833 [The flsrurea refer to sections] STTMMARX JURISDICTION, Of bankruptcy court, 22. In contempt proceedings, 78. To enforce "surrender of property by bankrupt, 228. To establish and enforce valid liens, 3^7. For collection and reclamation of assets, 402. Against adverse claimants, 403. Determination of character of claim, 404. Against superseded assignee for creditors, 439. Over purchaser at trustee's sale, 479, 482. To determine claims to proceeds of sales, 484. In proceedings to recover preferences, 403, 610. SUMMONS, To witness to appear for examination in bankruptcy, 260. SUPERINTENDENCE AND REVISION, Jurisdiction of circuit court of appeals, see Appeals. Review of referee's decisions by court of bankruptcy, 74-76. SUPERSEDEAS, Appeal in bankruptcy as, 58. Of referee's orders on appeal to court, 74. SUPPLEMENTARY PROCBBblNGS, Pending in state court, effect of bankruptcy of debtor on, 192. SUPPORT OF FAMILY, Liabilities for, how affected by discharge, 722. SUPREME COURT OF THE UNITED STATES, General orders and forms in bankruptcy prescribed by, 30. Appellate jurisdiction in bankruptcy cases, 35. On certification of questions, 36. On certiorari, 37. On writ of error to supreme court of state, 38. Rules governing appeals to, 39. SURETY, Bankrupt's liability as, a provable debt, 505. Of bankrupt, paying debt, may prove same, 506. For bankrupt, not released by latter's discharge, 748. On trustee's bond, 294. Obligation of, not a "security" under bankruptcy act, 559. As "creditor" in fraudulent preference, 577. Not released by composition proceedings, 661. On bonds of fiduciary debtors, effect of discharge on, 740. SURPLUS OF ESTATE, Bankrupt's right to, 237. Preferred creditor entitled to share in, 575, 604. SURPLUS OR UNDIVIDED PROFITS, Of corporation, bankrupt's interest in, as assets, 318. SURRENDER OF PREFERENCE, Necessary before allowance of claim, 604. What constitutes, 606. SUSPICION, Of debtor's insolvency, not enough to make transfer preferential, 598. Knowledge of facts putting. on inquiry, 599. SYNDICATE, Of stock or bond holders, purchase of bankrupt corporation's assets by, 478. 1834 INDEX [The flsnres refer to BectionsJ TAXATION OF COSTS, In bankruptcy cases, 774. TAX SALES, Of bankrupt's property, when invalid, 391. Redemption from, by bankrupt pending proceedings, 200. By trustee in bankruptcy, 305. TAXES, Entitled to priority of payment, 621. Not released by discharge, 725. Proceedings against bankrupt to recover, not stayed or enjoined, 189. Duty of trustee to pay, 308. Lien for, not impaired by bankruptcy proceedings, 364, 372. Paid by assignee for creditors, allowance for, 444. Lien of, not divested by sale in bankruptcy, 472. Liability of trustee's vendee for, 480. As provable debts, In bankruptcy, 512. As secured debts, 554. TELEGRAPH AND TELEPHONE COMPANIES, Liability of, to bankruptcy proceedings, 140. TENDER, ' Not an admissible plea to petition in bankruptcy, 172. TERMS OP COURT, Bankruptcy court has no separate, 31. TERRITORIAL COURTS, District, constituted courts of bankruptcy, 15. Supreme, appellate jurisdiction of, 59. TIME, Of taking effect of act, 5. For taking appeal in bankruptcy cases, 49. For petition for revision, 49. For appealing from referee to court, 74. For discharging preferential lien, 88. For filing petition in involuntary bankruptcy, 164. For ordering examination in bankruptcy, 257. Computation of, with reference to dissolution of liens, 380. Limitation of actions by and against trustees, 416-422. Of accrual of debt, as affecting provability, 494. For proof of claims, 526. For claiming right of set-off, 546. Of giving preference, with regard to its voidability, 592. Time of filing petition, 593. Time of recording or filing lien, 594. For declaration of dividends, 637. For filing application for discharge, 685. J3 0r filing specifications opposing discharge, 691. For moving to revoke discharge, 708. For moving to cancel discharged judgment, 757. TITLE, Vested in trustee, 316. Of trustee relates back to adjudication, 317. To exempt property does not pass to trustee, 245. To property in hands of superseded assignee for creditors, 440. To property fraudulently conveyed by bankrupt, 445. To property sold by trustees, nature and extent of, 480. Revesting in bankrupt on confirmation of composition, 658, INDEX 1835 [The fisnres refer to sections] TOOLS, Of mechanic, exempt in bankruptcy, 242. TORTS, Claim against partnership for, as joint and several deht, 129. Actions for, how affected by bankruptcy of plaintiff, 197. By trustee, liability for, 311. Rights of action on, passing to trustee, 343, 392. Claims for, when provable debts, 514. Provable if merged in judgment, 497. Not released by discharge, 726. TRADE MARK, Title to, vests in trustee in bankruptcy, 335. TRADING CORPORATIONS, Are subject to bankruptcy law, 135. What are, 135. TRAVELING SALESMEN, Debts due to, entitled to priority, 627. TRANSFER, Of cases from one district to another, 33. From one referee to another, 64. Of property, fraudulent, an act of bankruptcy, 82, Voidable by trustee, 445-468. Of property, when amounts to preference, 580. Payment in money as transfer of property, 587. TRESPASS, To bankrupt's property, right of action for, vests in trustee, 342. Against marshal seizing property of stranger, 203. Against receiver in bankruptcy, 214. On exempt property, bankrupt may sue for, 245. Right of trustee to maintain, 400. Against trustee, when lies, 396. Damages for, not a provable debt, 514. TROVER, Trustee in bankruptcy may maintain, 316, 400. Against trustee, when lies, 396, 414. By trustee, to recover goods fra.udulently transferred, 465j Against trustee, to recover goods sold by him, 483. TRUST, Resulting, as assets in bankruptcy, 331. Property held in trust for bankrupt as assets, 346. Property held by bankrupt as trustee, 354. Trustees as fiduciary debtors, 730. TRUST COMPANIES, Liability of, to bankruptcy proceedings, 137. Eligibility to office of trustee in bankruptcy, 285. As depositories for bankruptcy funds, 310. TRUST FUNDS, Held by bankrupt, do not pass to trustee, 354. Restoration of, not a preference, 582. Claim for, as privileged debt, 634. Liabilities for, not released by discharge, 730. TRUSTEE IN BANKRUPTCY, May intervene in pending actions, 198. Takes no title to exempt property, 245. Setting apart bankrupt's exemptions, 253. May demand examination of witnesses, 258. 1836 INDEX [Tbe figrnres retei- to sections] TBUSTEH IN BANKRUPTCY— Continued, May be subjected to examination, 264. To conduct litigation for or against estate, 281. Kiglit of creditors when trustee refuses, 281. Taking advice of creditors as to administration, 282. When controlled by majority vote, 282. May require indemnity against costs and expenses, 283, To furnish information to parties in interest, 284. Election, appointment, and tenure of office, 285-296. Qualifications, 285. Residence in district, 285. •Competency, 285. Eligibility of creditor, 285. Eligibility of creditor's attorney, 285. Bankrupt's attorney not eligible, 285. Debtor of bankrupt not eligible, 285. Directors or officers of corporation as, 285. Trust company may be, 285. Election of, 286. Time of, 286. One or three trustees to be chosen, 286. In banki'uptcy of partnership, 286. Conduct of election, 286. Adjournment of meeting, 286. Majority required to elect, 286, 288. Cases where no trustee is appointed, 287. Rights of creditors as voters in election, 288. Objections to votes, 288. Secured creditors, 288. Creditors having priority, 288. Preferred creditors, 288. Representation of creditors by agent or attorney, 289. Attorney at law, 289. Corruption and improper influences in election, 290. Confirmation or disapproval by the court, 291. Grounds for disapproval, 291. Presentation of objections, 291. Appointment of trustee by court, 292. • Authority of referee, 292. No official or general trustee ' appointed, 292. Cases where court may appoint, 292. Acceptance and resignation of office, 293. Notice Of appointment, 293. Effect of failure to qualify, 293. Bight to resign office, 293. Case of trustee embezzling funds and absconding, 293j Bonds of trustees, 294. Separate bonds for each case, 294. Sureties on bonds, 294. Breach of condition, 294. Actions on bonds, 294. Effect of death of trustee, 295. Removal of trustees, 296. By judge only, not referee, 296. Proceedings for removal, 296. Grounds for removal, 296. Effect of appointment and qualification, 297. As representative of creditors, 298. Taking instructions of court or referee, 299. Inventory and appraisal of property, 300. INDEX 1837 [Tbe iigares refer to flectionsj TRUSTEE IN BANBOIUPTCT— Continued, Custody and care of property by, 301. Carrying on bankrupt's business, 302. Duty in collection of assets, 303. Arbitration and compromise of controversies by, 304. Redemption of property by, 305. Assuming bankrupt's contracts and obligations, 306. Assuming or rejecting lease to bankrupt, 307. Liability for rent of leased premises, 307. Expenditures by, 308. Attorney for, employment and compensation of, 309. Deposit and disbursement of funds, 310. Eesponsibility for neglijgence or misconduct, 311. Joint trustees, 312. Accounts and reports of, 313. Discharge of, 314. Title to bankrupt's property vests in, 316. Title of, relates back to adjddlcation, 317. ' Takes no greater interest than bankrupt had, 316. What property vests in, 318. Takes subject to liens and incumbrances, 363. Actions by and against, 392-432. Trustee's right of action exclusive, 393. Leave or direction to sue, 394. Suits against trustee, 396-398. Not subject to garnishment, 399. What actions available to, 400. Summary proceedings In court of bankruptcy, 402. Jurisdiction of suits by and against, 406-415. Limitation of actions, 416-^22. Pleading and evidence in actions by and against, 427-431. Liability for costs, 432. Bights of, as against prior assignee for creditors, 433-444. Right to avoid fraudulent transfers of bankrupt, 446. Election as to suing or not, 447. Right of action exclusive, 448. Conditions precedent to trustee's suit, 449, 450. Sales of property by, 469, 486. Authority of trustee in 'general, 469. Sale of land in another state, 474. Buying at his own sale, 478. Recovery of purchase money, 482. Conveyance or delivery by, 483. Personal presence at sale, 476. Objecting to allowance of claims, 536. Moving for expunction of proved claim, 542. Set-ofE of claims as against, 552. Not in suits to recover preferences, 553. Right and duty to avoid unlawful preferences, 609, Payment of dividends by, 640. Right of, to oppose bankrupt's discharge, 665. Compensation of, 778. How calculated, 780. Criminal offenses by, 792. TRUSTEES, Proceedings in bankruptcy against, 104. Property in hands of, as assets in bankruptcy, 346. Testamentary trusts and annuities, 347. Property held by bankrupt as trustee, 354. Liabilities of, not released by discharge, 730. 1838 INDEX [Tbe figures refer to sections] u ULTRA VIRES, As objection to proof of claims against corporation, 518. UNDIVIDED PROFITS, Of corporation, bankrupt's share in, as assets, 318. unifor:\iity. Constitutionality of bankruptcy act with reference to, 2. unincorporated associations. Subject, to bankruptcy law, 143. UNITED STATES, May prove claim against bankrupt's estate, 488. Debts due to, entitled to priority, 630. Whether released by discharge, 724. Claim against, as assets in bankruptcy, 341. UNLIQUIDATED CLAIMS, How liquidated and proved in bankruptcy, 500. Not entitled to vote on composition, 650. UNMATURED CLAIMS, Provability of, 494, 502.. Right of set-ofe as to, 544, 546, 552. Settlement of, when a preference. 576. USUFRUCT, In real property, as asset in bankruptcy, .324. USURY, Right to sue for, vests in trustee, 344. Right and duty of trustee to plead, 429. As affecting provability of claim, 517. V VACANCY, In office of referee, how filled, 60. In office of trustee, 286, 292, 293. VACATING ADJUDICATION, When proper, and proceedings for, 183. VACATION, Jurisdiction of bankruptcy courts in, 16. Of trustee's sale, 485. Of order declaring dividend, 641. Of order confirming composition, 657. Of discharge in bankruptcy, 707-709. VENDOR AND PURCHASER, Interests of, under executory contract, as assets, 329. Vendor's lien preserved in bankruptcy, 371. Fraudulent conveyances voidable by trustee, 445. Knowledge, bad faith, or collusion of purchaser, 462. Rights and liabilities of transferees, 463. Rights of bona fide purchasers, 464. VERDICT, Without judgment, not a provable debt, 497. VERIFICATION, Of petition in involuntary bankruptcy, 162. Of statement in support of proof of claim, 532. Of specifications in opposition to discharge, 695. INDEX 1839 [The flsfnres refer to sections] VOLDNTARX BANKRUPTCY, Proceedings for, cannot be enjoined by state courts, 3. Who may file petition in, 97, 132. Corporations, 97. Of partnerships, 119. Opposition to, by creditors, 152. Previous, as. bar to discharge, 664. w WAGE-EARNERS, Defined, 105. Not subject to bankruptcy law, 105. Amenability to state insolvency laws, 9. As creditors entitled to priority of payment, 626. WAGERING CONTRACT, Not provable as debt in bankruptcy, 517. WAGES, Of labor, entitled to priority of payment, 626. Exemption of, in bankruptcy proceedings, ■ 241. WAIVER, Of benefits of bankruptcy act by debtor, not valid, 3. Of defects in jurisdiction of bankruptcy court, 16. Of benefit of exemption laws, 247. Rights of creditors holding waivers, 248. Of privilege against self-crimination, 271. Of objections to jurisdiction of bankruptcy court, 412. Of security by lien creditor, 562. WANT OP PROSECUTION, Dismissal of bankrupt's application for discharge for, 698. Effect of dismissal for, 717. WARRANT-, For arrest of debtor, when issued, 232. To be directed to marshal, 202. For seizure of property, 201. Creditor petitioning for, to give bond, 208. WARRANT OF ATTORNEY, To confess judgment, an act of bankruptcy, 90. Confession of judgment under, when annulled by subsequent bankruptcy, 377. Giving of, when a preference, 579. Time of creation of preference by, 592. Revpkied by discharge in bankruptcy, 710. WARRANTY, None expressed or implied in bankruptcy sales, 479. By bankrupt, as provable debt, 505. Breach of covenant of, as provable debt, 513. WATCHES, Exemption of, in bankruptcy proceedings, 242. WATER COMPANIES, Liability of, to proceedings in bankruptcy, 140. WEARING APPAREL, Exemption of, in bankruptcy, 242. WIPE OF BANKRUPT, May be examined, 263. Not required to disclose confidential communications, 263. Dower of, not divested by trustee's sale, 472. May prove her claim as a creditor, 508. 1840 INDBX [Tbe flgnres refer to fsectlonsl WIFE OF BANKRUPT— Continued, Her personalty and choses in action as assets of bankrupt, 349. Fraudulent transfers of property to, 451. WILLFUL AND MALICIOUS INJURIES, Claims for, not released by discharge, 741. WINDING-UP, Of corporations under state insolvency laws, effect of bankruptcy act on, 8. Proceedings for, when an act of bankruptcy, 95. WITNESSES, Persons having knowledge of bankrupt's affairs may be examined, 264. Jurisdiction of referee to summon and examine, 66. WOMEN, Eligibility to office of referee In bankruptcy, 61. To office of trustee in bankruptcy, 285. WORKMEN, Wages of, entitled to priority, 626. WRIT OF ERROR, Prom U. S. Supreme Court to supreme court of a state in bankruptcy cases, 38. Jurisdiction of circuit court of appeals on, 40. See, also. Appeals. Trustee may maintain, on judgment against bankrupt, 400. [End op Volume] KF 1524 B62 1922 Author Black, Henry Campbell. Vol. ™' A treatise on the law & practice of bankruptcy etc. Copy Date Borrower's Name