An assignee in bankruptcy brought a suit in equity in September,
1886, to set aside transfers of property made by the bankrupt in
1874 in fraud of creditors, and recorded prior to June, 1875. He
had been declared a bankrupt in August, 1878, and the assignment in
bankruptcy had been made in February, 1879. The answers set up the
statute of limitations of the State of six years and the bankruptcy
statute limitation of two years. Judgment creditors of the bankrupt
included in his schedules in bankruptcy brought a suit in the
supreme court of the state in July, 1875, against the present
defendants to set aside as fraudulent the conveyances in question,
and duly filed a
lis pendens, in which suit the same
charges were made as in the present suit. The bill alleged that a
decree was made in that suit, in favor of the plaintiffs, in
November, 1885, and that it was not until the assignee in
bankruptcy was informed of that decree in July, 1886, that he
received knowledge or information of the transfers of the property
or of any facts or circumstances relating thereto or tending to
show or to lead to inquiry to any fraudulent transfer. The bill did
not set forth what were the impediments to an earlier prosecution
of the claim, how the plaintiff came to be so long ignorant of his
rights, the means, if any, used by the defendants fraudulently to
keep him in ignorance, or how and when he first obtained knowledge
of the matters alleged in the bill.
Held that the case was
a clear one in favor of the bar of limitation both by the state
statute and by the bankruptcy statute.
The case is stated in the opinion. After hearing counsel for
appellant, the Court declined to hear further argument.
Page 149 U. S. 232
MR. JUSTICE BLATCHFORD delivered the opinion of the Court.
This is a bill in equity, filed in the Circuit Court of the
United States for the Eastern District of New York by Charles
Jones, as assignee in bankruptcy of David M. Smith, against David
M. Smith, Ella F. Willetts, Richard S. Jones, and Albert Slauson,
and is a creditors' bill to set aside several distinct transfers of
property to several of the defendants, alleged to have been made by
Smith in the year 1874 in fraud of the rights of creditors. The
bill was filed September 11, 1886. The answers set up the statute
of limitations of the State of New York of six years, and the
bankruptcy statute limitation of two years. Albert Slauson, Austin
M. Slauson, and Robert H. Moses, composing the firm of A. Slauson
& Co., were added as defendants to the bill. They demurred to
it, and the demurrer was overruled. The opinion of the court
overruling the demurrer is reported in 33 F. 632.
Replications to the answers were filed, proofs were taken, and
the court, held by Judge Lacombe, dismissed the bill. His opinion
is reported in 38 F. 380. The assignee, Charles Jones, appealed to
this Court. Thomas E. Pearsall has been appointed his successor,
and has taken his place as appellant in this suit. Pending the
appeal, Richard S. Jones, one of the appellees, has died, and
Frances A. Jones, as his sole executrix, has been admitted as
appellee in his place.
The conveyances sought to be aside are those of three separate
parcels of real estate to the several defendants.
Page 149 U. S. 233
David M. Smith was adjudged a bankrupt in 1878, and was
discharged from his debts in June, 1879. The conveyances complained
of were all made and recorded prior to June 1, 1875. Smith's
petition in voluntary bankruptcy was filed August 31, 1878. The
assignment in bankruptcy to Charles Jones was made February 10,
1879.
The opinion of the circuit court dismissing the bill considered
first the New York state statute of limitations, § 382 of the Code
of Civil Procedure, subdivision 5, which provides that there must
be commenced within six years after the cause of action has
accrued
"an action to procure a judgment other than for a sum of money
on the ground of fraud in a case which, on the thirty-first day of
December, 1846, was cognizable by the court of chancery,"
and that
"the cause of action in such a case is not deemed to have
accrued until the discovery by the plaintiff, or the person under
whom he claims, of the facts constituting the fraud."
The circuit court held that this suit was one of the class
provided for by the terms of § 382, subdivision 5, and that if the
plaintiff would be barred of his relief in the state court by lapse
of time, he would be barred in the federal court also, citing
Burke v.
Smith, 16 Wall. 390,
83 U. S. 401;
Clarke v. Boorman's
Executors, 18 Wall. 493,
85 U. S. 509;
Wood v. Carpenter, 101 U. S. 135,
101 U. S. 138;
Kirby v. Railroad Co., 120 U. S. 130,
120 U. S. 138.
The circuit court further said that the assignee in bankruptcy
takes from the bankrupt all the rights of property and of action
previously held by him, but that the right to maintain an action
such as the present one does not come to the assignee from that
source; that a transfer made to defraud creditors is valid between
the parties to it; that the debtor has no right of action to set it
aside, and that therefore no such right passes to the assignee as
part of the debtor's estate.
Section 5046 of the Revised Statutes of the United States, which
is an embodiment of § 14 of the Act of March 2, 1867, c. 176, 14
St. p. 522, provides as follows:
"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, or any person for his use, and
all liens and
Page 149 U. S. 234
securities therefor, and all his rights of action for property
or estate, real or personal, and for any cause of action which he
had against any person arising from contract, or from the unlawful
taking or detention or of 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 recover, 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 appointment of his
assignee, but subject to the exceptions stated in the preceding
section [which are exemptions] be at once vested in such
assignee."
Section 5057 of the Revised Statutes, which is an embodiment of
§ 2 of the Act of March 2, 1867, c. 176, 14 St. p. 518, provides as
follows:
"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 interest 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."
The circuit court remarked that, by operation only of the
express terms of § 5046, the right of action which, before the
adjudication in bankruptcy, belonged to the creditors, was taken
from them and given to the assignee, and that when the assignee
asserted such right, he claimed under the creditors, and not under
the bankrupt, citing
Brownell v. Curtis, 10 Paige 210;
Jones v. Yates, 9 B. & C. 532;
Van Heusen v.
Radcliff, 17 N.Y. 580;
Bradshaw v. Klein, 2 Bissell
20;
Kane v. Rice, 10 Nat.Bank.Reg. 469;
In re
Leland, 10 Blatchford 503, 507;
Trimble v. Woodhead,
102 U. S. 647;
Dudley v. Easton, 104 U. S. 99.
The circuit court further said that in determining as to the
effect of lapse of time upon the right of action in this case, it
became necessary first to inquire whether there was a discovery of
the fraud by those under whom the plaintiff claims; that actual
personal knowledge of the facts constituting the
Page 149 U. S. 235
fraud need not be shown to charge a person who had been
quiescent for a period longer than that fixed by statute with
discovery thereof; that it was enough if he was put upon inquiry,
with the means of knowledge accessible to him, citing
Burke v.
Smith, 16 Wall. 390,
83 U. S. 401,
and
Wood v. Carpenter, 101 U. S. 135,
101 U. S. 138;
that in the present case, Joseph Kittel and Joseph J. Kittel were
judgment creditors of the bankrupt, and as such included in his
schedules in bankruptcy; that, appearing by the attorney who
brought the present suit and represents the other creditors, the
Kittels, on July 7, 1875, brought a suit in the Supreme Court of
the State of New York against those who are defendants in the
present suit to set aside as fraudulent the very conveyances
attacked in this suit, and duly filed a
lis pendens; that
in their complaint in that suit, the Kittels averred not only that
those conveyances were made by an insolvent, but also that the
grantees had full knowledge of the insolvency and participated in
the fraud, and that the conveyances were without adequate
consideration; that as to one parcel, the Kittels expressly alleged
that the nominal consideration for the conveyance was $1,000, "a
grossly inadequate consideration;" as to another parcel, that,
though there was a pretended consideration of $18,000 in the deed,
there was "really no consideration whatever," and as to the third
parcel that, though the alleged consideration expressed in the
conveyance was $4,300, the transfer was made "in reality, if for
any consideration whatever, for a debt of $500;" that it was by
endeavoring to prove that the facts as to those conveyances are
substantially as they were set forth in the Kittels' suit that the
plaintiff in this suit sought to make out his case; that it
therefore appeared that, upwards of eleven years before the
plaintiff brought this suit, all the facts constituting the fraud
had been discovered by one of the creditors under whom he claims;
that the six-years statute of limitations began to run at least
from the commencement of the Kittels' suit, and that the bar became
complete long before the beginning of the present suit.
The plaintiff alleges in his bill that a decree was made in the
Kittels' suit on November 30, 1885, in favor of the plaintiffs
Page 149 U. S. 236
therein, and that it was not until he was informed of that
decree, which was in July, 1886, that he received any knowledge or
information of the conveyances and transfers of Smith's property,
or of any facts or circumstances relating thereto or tending to
show, or to lead to inquiry as to, any fraudulent conveyance,
transfer, or disposition of property by Smith.
But this is not sufficient to avoid the allegation of laches in
bringing the present suit, or to bar the application of § 5057 of
the Revised Statutes in regard to the two-years limitation.
Bailey v.
Glover, 21 Wall. 342;
Wood v. Carpenter,
101 U. S. 135;
Kirby v. Lake Shore Railroad, 120 U.
S. 130;
Norris v. Haggin, 136 U.
S. 386.
Although this Court has attached to § 5057 of the Revised
Statutes a qualification, that qualification is that, where relief
is sought on the ground of fraud, it is necessary, in order to
postpone the right of action on the part of the assignee in
bankruptcy until the discovery of the fraud, that ignorance of it
should have been produced by affirmative acts of the guilty party
in concealing the facts, and that there should have been no fault
or want of diligence or care on the part of the person who claims
the right of action -- in other words, that when there has been no
negligence of laches on the part of a plaintiff in coming to the
knowledge of the fraud which is the foundation of the suit, and
when the fraud has been concealed or is of such character as to
conceal itself, the statute does not begin to run until the fraud
is discovered by, or becomes known to, the party suing or those in
privity with him or ought to have been so discovered or known.
In the present case, the deeds of conveyance by Smith were
recorded. The suit by the Kittels was a public suit. Notice of
lis pendens was filed in it, giving the name and the
address of the attorney for the plaintiffs, and they were creditors
through whom the present plaintiff claims, their names being
included as creditors in the bankruptcy schedules. Charles Jones,
the assignee in bankruptcy, was a lawyer of longstanding, familiar
with such matters. The bill does not set forth what were the
impediments to an earlier prosecution of
Page 149 U. S. 237
the claim, how the plaintiff came to be so long ignorant of his
rights, the means, if any, used by the defendants fraudulently to
keep him in ignorance, or how and when he first obtained knowledge
of the matters alleged in his bill.
Badger v.
Badger, 2 Wall. 87,
69 U. S. 95;
Richards v. Mackall, 124 U. S. 183,
124 U. S. 189;
Greene v. Taylor, 132 U. S. 415,
132 U. S.
443.
We think the present is a clear case in favor of the bar of
limitation, both by the statute of New York and by the bankruptcy
statute.
Decree affirmed.