The limitation of two years made by Rev. Stat. § 5057 to suits
and actions between an assignee in bankruptcy and persons claiming
an adverse interest touching any property or rights of property
transferable to or vested in such assignee, is applicable only to
suits growing out of disputes in respect of property and of rights
of property of the bankrupt which came to the hands of the
assignee, to which adverse claims existed while in the hands of the
bankrupt and before assignment.
Assignees in bankruptcy are not bound to accept property which,
in their judgment, is of an onerous and unprofitable nature and
would burden, instead of benefiting, the estate, and can elect
whether they will accept or not after due consideration and within
a reasonable time, while if their judgment is unwisely exercised,
the bankruptcy court is open to compel a different course.
From the record in this case, the Court is constrained to the
conclusion that the assignee should not have been held by the court
below to have exercised the right of choice between prosecuting the
claim and abandoning it, in the absence of any evidence whatever to
justify the conclusion that he had knowledge, or sufficient means
of knowledge, of its existence prior to August 10, 1888, and that
therefore there was error in its judgment.
This was a garnishee proceeding in the Court of Common Pleas for
Fayette County, Pennsylvania.
The record of that court shows the issue in favor of Alpheus
Beall, on a judgment recovered by him against Abraham O. Tinstman,
of an attachment execution, dated June 9, 1888, and service thereof
accepted by the Pittsburgh & Connellsville Railroad Company, as
garnishee, June 15, 1888.
August 10, 1888, McCullough, assignee in bankruptcy, appeared in
the garnishment proceeding, and participated in the choice of
arbitrators, who made an award September 25, 1888, in favor of
Beall, from which award an appeal was taken. December 13, 1889, the
case was continued
"on account of death of assignee of A. O. Tinstman, said case
not to be again placed on trial list until after appointment and
appearance of another assignee in bankruptcy."
April 23, 1890, "Edward
Page 161 U. S. 514
Campbell, Esq., appears for J. M. Dushane, assignee in
bankruptcy of A. O. Tinstman." September 11, 1890, "Joshua M.
Dushane, assignee of A. O. Tinstman, appears in court, and asks
leave to be added to the record as defendant." Thereafter the case
was submitted to the court for determination on a case stated,
which embodied the following facts:
On the 5th of April, 1876, Abraham O. Tinstman was adjudicated a
bankrupt in involuntary proceedings in bankruptcy, and, during the
same month, Welty McCullough was appointed assignee, and took upon
himself the duties thereof. The deed of the register in bankruptcy
to the assignee conveyed the property which Tinstman possessed, was
interested in, or entitled to, on the 5th day of April, but the
schedule of assets filed by the assignee did not embrace the
bankrupt's interest in a certain telegraph line hereinafter
mentioned. Tinstman was duly discharged as a bankrupt January 3,
1877.
In 1882, James L. Shaw instituted an action against the
Pittsburgh & Connellsville Railroad Company in the Court of
Common Pleas for Fayette County, Pennsylvania, to recover damages
for a breach of contract relative to the maintenance and working of
a line of telegraph between Uniontown and Connellsville, and on
October 2, 1885, Tinstman was made one of the "use plaintiffs�
therein.
After his discharge, Tinstman engaged in business, and became
indebted to Alpheus Beall in the sum of $730.54, for which a
judgment was rendered against him November 24, 1886, in said court
of common pleas.
Shaw recovered judgment against the railroad company for a
considerable amount, covering damages from January 1, 1874, to
September 1, 1887. Of these damages, the sum of $947.73 was
Tinstman's share on account of an interest in the line of
telegraph, which became his property "by subscription and payment
therefor in the year 1865." McCullough died August 31, 1889. Joshua
M. Dushane was appointed assignee in his place December 14, 1889,
and intervened in this case, as such, September 11, 1890.
The court of common pleas ruled that the assignee had
Page 161 U. S. 515
lost any right to the fund by reason of delaying claim thereto
for an unreasonable time, and also that the limitation of two years
prescribed by section 5057 of the Revised Statutes of the United
States applied, and entered judgment in favor of Beall, and against
the railroad company, as garnishee, for $947.43, "the debt due by
said garnishee to said Tinstman." The case was taken to the Supreme
Court of Pennsylvania, which affirmed the judgment on the ground
that the delay of the assignee was fatal to his claim. 149 Penn.St.
439. A writ of error from this Court was then sued out.
MR. CHIEF JUSTICE FULLER, after stating the facts in the
foregoing language, delivered the opinion of the court.
We concur with the Supreme Court of Pennsylvania that the
limitation of section 5057 of the Revised Statutes did not apply.
That limitation is applicable only to suits growing out of disputes
in respect of property and of rights of property of the bankrupt
which came to the hands of the assignee, to which adverse claims
existed while in the hands of the bankrupt, and before assignment.
In re Conant, 5 Blatchford 54;
Clark v.
Clark, 17 How. 315,
58 U. S. 321;
Phelps v. McDonald, 99 U. S. 298,
99 U. S. 306;
French v. Merill, 132 Mass. 535.
It is well settled that assignees in bankruptcy are not bound to
accept property which in their judgment is of an onerous and
unprofitable nature, and would burden, instead of benefiting, the
estates, and can elect whether they will accept or not after due
consideration and within a reasonable time, while, if their
judgment is unwisely exercised, the bankruptcy court is open to
compel a different course.
Sparhawk v. Yerkes,
142 U. S. 1,
142 U. S. 13;
Glenny v. Langdon, 98 U. S. 20;
American File Co. v. Garrett, 110 U.
S. 288;
Smith v. Gordon, 6 Law Rep. 313;
Amory v.Lawrence, 3 Clifford 523;
Ex Parte
Houghton, 1 Lowell 554;
Nash v. Simpson, 78 Me. 142;
Streeter v. Sumner, 31 N.H. 542. The same principle is
applicable also
Page 161 U. S. 516
to receivers and official liquidators.
Quincy &c.
Railroad v. Humphreys, 145 U. S. 82;
St. Joseph &c. Railroad v. Humphreys, 145 U.
S. 105;
Sunflower Oil Co. v. Wilson,
142 U. S. 313;
United States Trust Co. v. Wabash &c. Railway,
150 U. S. 287;
In re Oak Pits Colliery Co., 21 Ch.Div. 322, 330.
And
see Bourdillon v. Dalton, 1 Esp. 233,
s.c., Peake's
N.P. 312;
Turner v. Richardson, 7 East 336; Domat, vol. 2,
part 2, Book I, Title I, sec. v.
If, with knowledge of the facts, or being so situated as to be
chargeable with such knowledge, an assignee, by definite
declaration or distinct action or forbearance to act, indicates, in
view of the particular circumstances, his choice not to take
certain property, or if, in the language of Ware, J., in
Smith
v. Gordon, he, with such knowledge,
"stands by without asserting his claim for a lapse of time, and
allows third persons, in the prosecution of their legal rights, to
acquire an interest in the property,"
then he may be held to have waived the assertion of his claim
thereto.
In
Sparhawk v. Yerkes, we held that as the conduct of
the assignees was such as to show that they did not intend to take
possession of the assets in controversy, as they avoided assuming
any liability in respect thereof, and as they allowed the bankrupt,
after his discharge, by the expenditure of labor and money, to save
the assets and render them valuable, they could not be permitted to
assert title against him. That was a suit directly against the
bankrupt, and this is in effect the same, for Beall does not appear
to occupy any better position than Tinstman himself. The judgment
of the Supreme Court of Pennsylvania proceeded upon the ground that
the assignee delayed too long in the assertion of his claim; that
the litigation against the railroad company was protracted,
uncertain, and expensive, and that, as the assignee did not appear
to have intervened in the matter until, as is stated, December 11,
1890, although the litigation began in the summer of 1882, he must
be held to have elected to abandon the claim, and could not come in
at so late a day and share in the fruits of litigation carried on
by others. And on that view of the facts, this conclusion would
seem to be correct if the record showed on
Page 161 U. S. 517
the part of Tinstman's assignee knowledge of the facts or
willful blindness in relation to them.
The supreme court manifestly referred to the intervention in
this proceeding of Dushane as assignee, which was, according to the
case stated, September 11, 1890, but McCullough had intervened as
assignee August 10, 1888, and he having died August 31, 1889, the
cause was continued for the appointment and appearance of another
assignee.
It is said by counsel for the assignee that the original
litigation was commenced April 29, 1878, by a bill in equity filed
for the benefit of all the owners of the telegraph line, which it
was decided January 9, 1882, would not lie; that thereupon the
action at law, which resulted in judgment, was brought July 10,
1882, in the name of Shaw alone, the contract being under seal, but
for the benefit of his assigns as well, who were very numerous;
that afterwards some, but not all, of the "use plaintiffs" were
added to the record, and that Tinstman's assignee just as much
participated in the litigation from April, 1878, to its end, in
1888, as any of the others, whether named as plaintiffs or not. The
difficulty with this is that very little, if any, of the matter
stated can be deduced from the record, which fails to disclose that
the assignee was represented in the litigation against the railroad
company, or asserted his claim to his share of the fruits thereof,
whether as a party of record under Shaw or otherwise, prior to his
intervention in this action, August 10, 1888.
The case stated does show that Tinstman was made one of the "use
plaintiffs� in Shaw's action, October 2, 1885, but there is no
explanation of how that entry came to be made, and nothing to
indicate notice thereof to the assignee, or to charge him with
notice, assuming that he was ignorant of the claim.
On the other hand, the bankruptcy proceeding was involuntary,
and it appears that the schedule of assets (the term "schedule"
being used in the case stated as the equivalent of "inventory") was
made by the assignee, the law providing that the order of
adjudication should require the bankrupt to deliver a schedule of
creditors and an inventory and valuation
Page 161 U. S. 518
of his estate; and, if the bankrupt were absent or could not be
found, such schedule and inventory should "be prepared by the
messenger and the assignee from the best information they can
obtain." Rev.Stat. §§ 5030, 5031. And this inventory, thus prepared
by the assignee, the record affirmatively shows, did not embrace
the bankrupt's interest in the telegraph line, as we must presume
it would if the assignee had had, or been able to obtain,
information in respect thereof. Nor can we find elsewhere in the
record any evidence that the assignee knew or was informed of
Tinstman's interest prior to August 10, 1888. Counsel for the
assignee argues that the fact is that Tinstman's interest was the
ownership of certain shares of stock in the telegraph company,
which were included in the inventory and delivered to the assignee,
but the exact contrary appears from the case stated. Nor does the
fact appear, which he likewise insists upon, that the assignee not
only did not abandon, but actively asserted, his claim.
The question whether the assignee in bankruptcy was entitled to
this claim was clearly a federal question.
Williams v.
Heard, 140 U. S. 529. And
if all the facts stated in the record before us do not as matter of
law warrant the conclusion at which the highest court of the state
arrived upon this question, it is the duty of this Court so to
declare, and to render judgment accordingly.
We must take the record as we find it, and are constrained to
the conclusion that the assignee should not have been held to have
exercised the right of choice between prosecuting the claim and
abandoning it, in the absence of any evidence whatever to justify
the conclusion that he hand knowledge, or sufficient means of
knowledge, of its existence prior to August 10, 1888, and that
therefore there was error in the judgment.
Judgment reversed, and the cause remanded, that the judgment
of the court of common pleas may be reversed and further
proceedings had not inconsistent with this opinion.
