Referees in bankruptcy exercise much of the judicial authority
of the court of bankruptcy, and may enter orders to show cause
subject to revision by the district court.
Commitment until assets of a bankrupt are surrendered pursuant
to order does not constitute imprisonment for debt.
The bankruptcy court has power to compel the surrender of money
or other assets of the bankrupt in his possession, or that of
someone for him, on petition and rule to show cause.
The filing of a petition in bankruptcy is a caveat to all the
world, and in effect an attachment and injunction, and on
adjudication and qualification of trustee, the bankrupt's property
is placed in the custody of the bankruptcy court, and title becomes
vested in the trustee.
The refusal to surrender property of the bankrupt does not, in
itself, create an adverse claim at the time the petition is
filed.
Edward B. Nugent was adjudicated a bankrupt March 23, 1900, on
the petition of the Wayne Knitting Mills and others, his creditors,
filed in the District Court of the United States for the District
of Kentucky, February 19, 1900, and the matter was referred to a
referee. Arthur E. Mueller was appointed trustee of the bankrupt's
estate, and on the seventh of April, he obtained an order from the
referee requiring the bankrupt to
Page 184 U. S. 2
show cause why he should not pay over the sum of $14,233.45,
made up of two items of $4,133.45 and $10,100. The response of the
bankrupt was held insufficient; he was ordered to pay over, on
failure to do so, was adjudged guilty of contempt, and the matter
was reported to the court by the referee, with a recommendation
that he be committed. On the suggestion that approaching senile
imbecility made the bankrupt an unfit subject of punishment, the
court discharged him, without prejudice to a renewal of the matter
before the referee if subsequent developments rendered it
proper.
April 13, 1900, the trustee filed his petition praying that an
injunction might be issued against William T. Nugent, restraining
him from disposing of the sum of $14,435.45, or any part thereof,
belonging to the estate of the bankrupt, and for an order requiring
him to pay the money to the trustee. This petition stated that
William T. Nugent was in hiding. The referee granted the
injunction, and entered an order that said William T. Nugent show
cause within five days from service thereof why he should not be
required to pay over.
A copy of this order was served on William T. Nugent, October 8,
1900, and on October 13, he appeared in person and by counsel, and
filed a response to the rule. In this respondent set forth that
"neither the court or the referee in bankruptcy herein has any
jurisdiction either of this respondent or the matter involved, to
make any order or to require this respondent to answer thereto,
because he says that said records herein show that, if respondent
received said money or any part thereof, it was before the petition
in bankruptcy was filed, and in that event neither the court or the
referee in bankruptcy can proceed against this respondent as herein
attempted by order or rule to pay, and he now hereby asks that this
be taken as his response herein, and that said order be set aside
and vacated. He says that at no time since the filing of the
petition in bankruptcy herein has he received said $14,435.45, or
any part thereof."
For further response, he said that he had been indicted in the
district court for receiving said $14,435.45, after the filing of
the petition, and with retaining the same, and aiding and
Page 184 U. S. 3
abetting in the retention thereof, both after the filing and the
adjudication, for the purpose of defeating the bankrupt law, and
that he ought not to be required to respond, and his response would
tend to incriminate him.
The matter came on for hearing October 16, it being stipulated,
without prejudice to the objection to the jurisdiction, that the
depositions of Edward B. Nugent and others named (not including
William T. Nugent), theretofore taken in the cause, might be read.
The referee summarized the evidence, as appears from his
certificate, thus:
"The testimony shows, and I so find, that, on the 9th day of
February, 1900, the bankrupt, Edward B. Nugent, borrowed from
George L. Erbach and Frank Hohmann, executors, the sum of $4,500,
and as security therefor executed a mortgage upon the house and lot
of land owned by said Edward B. Nugent, in the City of Louisville;
that, after paying the taxes and expenses of procuring the loan
there remained from said sum so borrowed the sum of $4, 133.45;
that, on said day, the said balance of $4,133.45 was delivered to
said W. T. Nugent as the agent of the bankrupt, and the said amount
has not been accounted for to the trustee in bankruptcy
herein."
"I further certify that, on the 19th day of February, 1900,
before the hour of 2 o'clock P.M., being more than three hours
before the petition praying for an adjudication of said Edward B.
Nugent as bankrupt was filed in the clerk's office of said court,
the stock of merchandise belonging to the bankrupt was sold to one
Hermann Straus for the sum of $12,000, and on said 19th day of
February, 1900, and before the hour of 2 o'clock P.M., the said
$12,000 was paid to said bankrupt by said Hermann Straus, in the
form of a check on the German Bank of Louisville, Ky.; that said
bankrupt indorsed his name across the said check and delivered the
same to said W. T. Nugent, his son, as his agent; that said W. T.
Nugent received the cash upon said check on that day before the
hour of 2 o'clock P.M., and paid therefrom the sum of $1,900 for
rental on the building where said stock was located and the
expenses of making the sale, leaving the sum of $10,100, which then
and there still remained in the hands of said W. T. Nugent as the
agent of said bankrupt. "
Page 184 U. S. 4
"I further find that both of said balances, to-wit, $4,133.45
and $10,100, belonged to the said bankrupt, and became and still
are the property of Arthur E. Mueller, trustee in bankruptcy in
this cause, and that said W. T. Nugent holds the same as agent or
bailee only, and that he has not accounted for any part of said
sums."
The referee entered an order on the same day, October 16, 1900,
omitting preliminary recitals, as follows:
"And after hearing counsel, now therefore it is ordered and
adjudged that the said response to the rule aforesaid be and the
same is hereby held insufficient, and it appearing from the
evidence in this cause that there came to the hands of W. T. Nugent
$4,133.45, being the net proceeds realized from the mortgage
executed by the bankrupt upon his house and lot in the City of
Louisville, and that there also came to the hands of said W. T.
Nugent the further sum of $10,100, being the net proceeds from the
sale of the stock of merchandise sold to Hermann Straus -- the
first of said sums having come to the hands of said W. T. Nugent as
the agent of the bankrupt on February 9, 1900, and the second sum,
to-wit, $10,100, having come to the hands of the said W. T. Nugent
as the agent of the bankrupt on February 19, 1900, before the hour
of 2 o'clock P.M., on said day -- and it further appearing that the
petition of the Wayne Knitting Mills and others, praying that the
said Edward B. Nugent may be adjudged a bankrupt, was filed in the
office of the clerk of the above-styled court on February 19, 1900
at 5 o'clock P.M., and it appearing that said W. T. Nugent has
failed to pay over said sums, or any part thereof, to the trustee
in bankruptcy herein, and that said sums are the property of the
bankrupt, Edward B. Nugent, and belong to said trustee as part of
said estate, it is ordered that said rule be and the same is hereby
made absolute to the amount of said two sums aggregating the sum of
$14,233.45."
"It is further ordered that said W. T. Nugent be and he is
hereby required to pay to Arthur E. Mueller, trustee in bankruptcy
in this cause, on or before 9.30 o'clock A.M., on October 17, 1900,
the said aggregate sum of $14,233.45."
Thereupon, October 17, William T. Nugent filed his petition
Page 184 U. S. 5
that the order of October 16 might be reviewed by the district
judge, and the referee made his certificate of the proceedings and
the foregoing summary of the evidence, the depositions put in
before him being returned therewith, concluding:
"And the said question, to-wit, the validity of the said order
of October 16, 1900, above set forth in full, is certified to the
judge for his opinion thereon."
The referee also reported that William T. Nugent had failed to
comply with the order in whole or in part; that he was in contempt
of court, and recommended "that he be punished for contempt, and
committed to prison until he shall have paid to the said trustee
the said sum of $14,233.45."
The record of the district court shows that, on the first day of
November the cause came on to be heard on the petition of William
T. Nugent for a review of the order of court entered by the referee
requiring said Nugent to pay over, and the certification of the
referee, and his recommendation that said Nugent be punished for
contempt, and that the court, being fully advised, delivered a
written opinion, which was ordered filed, whereupon William T.
Nugent moved the court to postpone the entry of judgment until
November 3, and it was so ordered.
The district judge stated the facts at length; pointed out that
the response was put upon two grounds; namely, that the court and
referee were without jurisdiction, and that respondent had been
indicted; held that as to the indictment it was not an indictment
for disobedience to the order, but under § 29 of the Bankrupt Act;
that exculpation could not criminate; that he could have denied
receiving or concealing the money, or paid it into court, but he
had done neither; that he had the money, and that it belonged to
the estate; that the response really rested on the denial of
jurisdiction, and that the referee had the power to order the money
to be surrendered. The matter was summed upon these words:
"The respondent has the money in his hands as agent or bailee
only. His possession is that of his principal. His principal was
his father up to a certain stage of these proceedings, but whether
up to the filing of the petition or up to the adjudication we need
not stop to inquire, as it is immaterial in this
Page 184 U. S. 6
case. At one or the other of those times, his principal, by
operation of law, was changed, and an officer of this Court was
substituted for his father. That change in no way lessened the duty
of paying the money to the proper principal upon notice and demand.
After the change, however, the money was potentially in the custody
of the law in these proceedings, and subject to the orders of the
court. The rule and its service constituted sufficient notice and
demand. The order made was that the respondent should pay the money
to the proper officer. Disobedience of that order is made
punishable as a contempt by the express provisions of the act."
"The court therefore has jurisdiction of the person and of the
subject matter. The rulings of the referee appear to be right, and
are approved and confirmed, and his recommendation as to punishing
the respondent for the contempt adjudged will be acted upon with
appropriate vigor. . . ."
"The judgment of the court, in the exercise of its statutory
discretion, will be that the respondent, W. T. Nugent, for his
contempt aforesaid, be imprisoned in the county jail until he shall
deliver to Arthur E. Mueller, the trustee, said sum of $14,233.45,
and the court will reserve the right to suspend or set aside this
judgment and sentence upon the delivery and payment of the money as
ordered."
104 F. 530.
On the third of November the respondent Nugent asked leave to
filed an amended response, stating that he had not made full
response as to the entire facts because the referee had held he
could not be examined as to transactions involved in the
indictment, and denying that the $14,233.45, or any part thereof,
was now in his possession or under his control, or was on October
8, 1900, and saying
"that neither at the time of the filing of the petition in
bankruptcy herein against E. B. Nugent, or at any time subsequent
thereto, did he have in his hands any amount of money belonging to
said Nugent which he held as his agent or bailee. He says that
whatever money came to his hands on February 19, 1900, belonging to
said E. B. Nugent, or any such money at any subsequent date
thereto, was not received or held by this respondent as agent or
bailee, or in any
Page 184 U. S. 7
trust capacity whatever, but was held adversely to said E. B.
Nugent."
The district court would not permit the proposed amendment to be
filed, and entered this order:
"Came William T. Nugent, respondent herein, and tendered an
amended response, and moved to file same, and the court, not having
postponed the imposing of the sentence for that purpose, and being
of opinion that it is not discreet or admissible practice to permit
amendments upon hearings such as this, especially after the
delivery of an opinion of the court, declines at this stage of the
proceedings to permit a further response to be filed."
"And thereupon, pursuant to the opinion of the court, filed
herein on the 1st instant, it is the judgment of the court that
William T. Nugent, for his contempt aforesaid, be imprisoned and
confined in the county jail of Jefferson County, Kentucky, until he
shall deliver or pay to Arthur E. Mueller, the trustee herein, said
sum of $14,233.45, or otherwise satisfy the said trustee with
respect thereto, and the court reserves the right and power to
suspend or set aside the judgment and sentence upon the delivery,
payment, or satisfaction aforesaid."
Thereafter William T. Nugent filed a petition for review under
subdivision
b, section 24, of the act, in the circuit
court of appeals, praying
"that the orders, judgments, and sentence of the district court
be reviewed and revised in the matters of law, so as to adjudge
that your petitioner be released and discharged,"
or "that he be permitted to further respond in said matter."
This petition alleged error in that the district court held that
the referee and the court had jurisdiction to proceed against
petitioner in a summary way; that the court had jurisdiction on the
proceedings and recommendations of the referee to punish petitioner
for contempt; that the referee had power to grant the injunction
against petitioner, or to proceed on rule to show cause; that the
response was insufficient; that the facts were that the money
belonged to the bankrupt's estate, and was held by petitioner as
the bankrupt's agent, and was not claimed adversely; that the
amended response should not
Page 184 U. S. 8
be filed; that the petitioner was properly before the court, and
that the contempt proceedings should not be dismissed and
petitioner discharged.
The amended response was attached as an exhibit to this
petition, although it had not been filed in the district court, or
made part of the record there by certificate of exceptions or order
of identification, and the petition also set up several matters and
exhibits which apparently were not before the referee or the
district court in the proceeding. The trustee moved to expunge
these various matters and exhibits.
To expedite the hearing this motion was reserved, and it was
stipulated that
"such affirmative allegations of said petition for review as
properly should be denied be treated as controverted of record
without prejudice to the hearing of said motion."
The circuit court of appeals, December 13, 1900, filed a
memorandum opinion, and entered judgment reversing the decree of
the district court, with directions to that court to vacate the
order of the referee on respondent to show cause and his order
adjudging respondent to be in contempt thereof, and that respondent
be discharged from imprisonment. An extended opinion was
subsequently filed. 105 F. 581.
The writ of certiorari was then granted by this Court. 180 U.S.
640.
MR. CHIEF JUSTICE FULLER delivered the opinion of the Court.
General Order in bankruptcy XXVII (172 U.S. 662), provides:
"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
Page 184 U. S. 9
certify to the judge the question presented, a summary of the
evidence relating thereto, and the finding and order of the referee
thereon."
Respondent accordingly filed his petition for a review of the
order of October 16. The referee thereupon certified to the judge
the question presented, a summary of the evidence relating thereto,
and the finding and order of the referee thereon. He pursued in so
doing Form No. 56 of the forms in bankruptcy. 172 U.S. 718. The
question certified was "the validity of the said order of October
16th, 1900, above set forth in full." At the same time, the referee
reported the disobedience of William T. Nugent, and recommended
that he be committed. No exception was taken before the referee or
the district court to the sufficiency of the trustee's application,
or to the adequacy of the certificate, and the entire evidence was
transmitted.
Subdivision
b of section 24 provides:
"The several circuit courts of appeals 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."
The district court affirmed the order of October 16, and ordered
respondent to be committed for his failure to comply therewith, and
thereupon respondent filed in the circuit court of appeals his
petition for review. The matters of law to be passed on by that
court were the validity of the order of October 16, as affirmed by
the district court, and the correctness of the order of commitment.
And these were to be determined on the record of the district
court.
The circuit court of appeals had in prior cases recognized the
general proposition that those courts are confined on petitions for
review to matters of law arising on the record of the courts below,
and may well have assumed that there was no necessity for a
specific ruling on the motion to expunge the new matter
accompanying the petition in this instance.
Cunningham v.
German Insurance Bank, 103 F. 932;
Courier-Journal
Printing Co. v. Schaefer-Meyer Brewing Co., 101 F. 699. The
record of the district court in respect of the
Page 184 U. S. 10
order of October 16 was the record made before the referee, who
had certified the question of the validity of the order at the
request of respondent, and to the adequacy of whose certificate
respondent had made no objection as heretofore said.
It is true that, after the decision of the district court was
announced, and the final order was about to be entered, the entry
of the order was suspended, on the application of the respondent,
for two days, and that then the respondent undertook, by way of
amendment, to set up a denial that he held the money as the
bankrupt's agent or bailee, and to assert that he held adversely to
him. The district court refused to allow the amendment to be made
at that stage of the proceedings, and we do not understand that the
court of appeals held that the district court abused its discretion
in so refusing.
At an earlier stage perhaps this ruling might have been
controlled by the rules of equity practice adopted by this Court,
but that would not be so after hearing had been had, the decision
of the court had been announced, and judgment was about to be
entered.
The respondent had denied the jurisdiction on the ground that he
had not received the money, or any part of it, after the petition
in bankruptcy was filed. When the matter came on to be heard on the
rule to pay over, respondent agreed that the enumerated depositions
might be read, reserving his exceptions to the jurisdiction. He
then carried the matter to the district court, and after it was
decided, sought to amend his response to the rule by asserting that
whatever money belonging to the bankrupt came to his hands was not
received as agent of, but was held adversely to, the bankrupt. He
did not even then set forth what money he had received, and how and
when it came to his hands, or the circumstances under which he
claimed to hold it adversely, but put forward simply a conclusion
of law. The district court held it not admissible practice to
permit such an amendment at that stage -- that is, that the
application came too late after the case had been heard and
determined, and a written opinion had been delivered and filed, and
the district judge may have considered it a mere subterfuge in
evasion of the effect of the decision, or that the proposed
amendment was insufficient.
Page 184 U. S. 11
If the proposed amended response be treated as properly before
us, we agree that the orders under consideration ought not to be
disturbed because of this ruling made in the competent exercise of
judicial discretion. And, moreover, respondent did not ask to plead
over before the referee, but had the case certified to the judge as
it stood.
Among the definitions set forth in section 1 of the Bankruptcy
Act are these
"'Court' shall mean the court of bankruptcy in which the
proceedings are pending, and may include the referee; 'judge' shall
mean a judge of a court of bankruptcy, not including the referee;
'referee' shall mean the referee who has jurisdiction of the case
or to whom the case has been referred, or anyone acting in his
stead."
By section 2, courts of bankruptcy are vested with power to
"(6) bring in and substitute additional persons or parties in
proceedings in bankruptcy, when necessary for the complete
determination of a matter in controversy; (7) cause the estates of
bankrupts to be collected, reduced to money, and distributed, and
determine controversies in relation thereto, except as herein
otherwise provided; . . . (10) consider and confirm, modify or
overrule, or return, with instructions for further proceedings,
records and findings certified to them by referees; . . . (13)
enforce obedience by bankrupts, officers, and other persons to all
lawful orders, by fine or imprisonment, or fine and imprisonment; .
. . (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 referees."
Section 36 provides that "referees shall take the same oath of
office as that prescribed for judges of United States courts."
Section 38, that referees shall have jurisdiction to
"(4) perform such part of the duties, except as to questions
arising out of the applications of bankrupts 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 herein
otherwise provided."
And section 39, that, among other duties of referees, they
Page 184 U. S. 12
shall
"(5) 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 therein, and transmit
them to the judges."
Section 41 provides that "a person shall not, in proceedings
before a referee, (1) disobey or resist any lawful order, process,
or writ;" and that
"(b) the referee 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 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."
General Order XII provides that, after the order of reference
reaches the referee, "all the proceedings, except such as are
required by the act or by these general orders to be had before the
judge, shall be had before the referee."
General Order XXIII is:
"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 interest
was represented at the hearing, or that the order was made after
hearing adverse interests."
And we repeat general order XXVII:
"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
thereto, and the finding and order of the referee thereon."
No objection was made before the referee or the district court
to the authority of the referee as such to entertain these
proceedings, to enter the order to show cause and thereby to bring
in William T. Nugent, and to enter the order of October
Page 184 U. S. 13
16, and we do not find that the act or the general orders are to
the contrary.
It is now said that the only power the referee has to direct the
taking possession of property is given by subsection 3 of section
38
a, providing that the referee may exercise the powers of
the judge in that respect on a certificate of the clerk that the
judge is absent or unable to act. But that provision seems to refer
only to the seizure of property by the marshal or a receiver prior
to adjudication and the qualification of the trustee as provided by
section 2, section 3
e, and section 69, and it is at all
events inapplicable here.
We think the referee has the power to act in the first instance
in matters such as this, when the case has been referred, and in
aid of the court of bankruptcy, and exercises in such cases "much
of the judicial authority of that court."
White v.
Schloerb, 178 U. S. 542. By
petition for review, the matter can be carried to the bankruptcy
court, and the entire record and findings laid before that
tribunal, as was done here.
And if the order of October 16 was, in itself, a lawful order,
the power of the district court to commit William T. Nugent until
he surrendered the money to the trustee, or otherwise satisfied the
trustee with respect thereto, was unquestionable under the express
provisions of the Bankruptcy Act in that behalf, as well as the
general jurisdiction of the court to enforce its orders in the
collection of assets.
It is objected that the order of commitment was invalid because
it did not run in the name of the United States. This objection was
not made below, nor was this an attachment. It was an order to
detain Nugent until he complied with an order made in a proceeding
in equity under the Bankrupt Act. The objection is untenable. Nor
was the commitment imprisonment for debt, as also contended. The
order to pay over the money was not an order for the payment of a
debt, but an order for the surrender of assets of the bankrupt
placed
in custodia legis by the adjudication.
The real question was whether the order of October 16, as
confirmed by the district court, was a lawful order. It was to be
determined as a mere question of law on the facts found
Page 184 U. S. 14
that the money belonged to the bankrupt's estate, and was then
in Nugent's possession as the bankrupt's agent, he asserting no
adverse claim. And the question of the validity of that order
involved the validity of the order to show cause.
The proposition was that, as matter of law, where property of a
bankrupt has come into the hands of a third party before the filing
of the petition in bankruptcy, as the agent of the bankrupt, and to
which he asserts no adverse claim, the bankruptcy court has no
power by summary proceedings to compel the surrender of the
property to the trustee in bankruptcy duly appointed.
In other words, the question reduces itself to this: has the
bankruptcy court the power to compel the bankrupt or his agent to
deliver up money or other assets of the bankrupt, in his possession
or that of some one for him, on petition and rule to show cause?
Does a mere refusal by the bankrupt or his agent so to deliver up
oblige the trustee to resort to a plenary suit in the circuit court
or a state court, as the case may be?
If it be so, the grant of jurisdiction to cause the estates of
bankrupts to be collected, and to determine controversies relating
thereto, would be seriously impaired, and in many respects rendered
practically inefficient.
The bankruptcy court would be helpless indeed if the bare
refusal to turn over could conclusively operate to drive the
trustee to an action to recover as for an indebtedness, or a
conversion, or to proceedings in chancery at the risk of the
accompaniments of delay, complication, and expense, intended to be
avoided by the simpler methods of the bankrupt law.
It is as true of the present law as it was of that of 1867 that
the filing of the petition is a caveat to all the world, and in
effect an attachment and injunction,
International Bank v.
Sherman, 101 U. S. 407, and
on adjudication, title to the bankrupt's property became vested in
the trustee, §§ 70, 71
e, with actual or constructive
possession, and placed in the custody of the bankruptcy court.
There was no pretense that at the date of the filing of this
petition in bankruptcy, this money of the bankrupt, $4,133.45 of
which had been collected a few days, and $10,100 a few
Page 184 U. S. 15
hours, before, was held subject to any adverse claim, or that
the right or title thereto had been passed over to another.
The position now taken amounts to no more than to assert that a
mere refusal to surrender constitutes an adverse holding in fact,
and therefore an adverse claim when the petition was filed, and to
that we cannot give our assent.
But suppose that respondent had asserted that he had the right
to possession by reason of a claim adverse to the bankrupt, the
bankruptcy court had the power to ascertain whether any basis for
such a claim actually existed at the time of the filing of the
petition. The court would have been bound to enter upon that
inquiry, and in doing so would have undoubtedly acted within its
jurisdiction, while its conclusion might have been that an adverse
claim, not merely colorable, but real even though fraudulent and
voidable, existed in fact and so that it must decline to finally
adjudicate on the merits. If it erred in its ruling either way, its
action would be subject to review.
In this case, however, respondent asserted no right or title to
the property before the referee, and the circumstances under which
he held possession must be accepted as found by the referee and the
district court.
The decisions of this Court under the present law sustain the
validity of the action we are considering.
In
Bardes v. Hawarden Bank, 178 U.
S. 524, the question related to the jurisdiction of the
district court over suits brought by trustees in bankruptcy to set
aside fraudulent transfers of money or property made by the
bankrupt to third parties before the institution of proceedings in
bankruptcy. The Court said:
"Had there been no bankruptcy proceedings, the bankrupt might
have brought suit in any state court of competent jurisdiction; or,
if there was a sufficient jurisdictional amount, and the requisite
diversity of citizenship existed, or the case arose under the
Constitution, laws, or treaties of the United States, he could have
brought suit in the circuit court of the United States. . . . He
could not have sued in a district court of the United States,
because such a court has no jurisdiction of suits at law or in
equity between private parties, except where,
Page 184 U. S. 16
by special provision of an act of Congress, a district court has
the powers of a circuit court or is given jurisdiction of a
particular class of civil suits."
And it was held that Congress, by the second clause of section
23 of the Bankruptcy Act, had manifested its intention
"that controversies, not strictly or properly part of the
proceedings in bankruptcy, but independent suits brought by the
trustee in bankruptcy to assert a title to money or property as
assets of the bankrupt against strangers to those proceedings,
should not come within the jurisdiction of the district courts of
the United States, 'unless by consent of the proposed
defendant.'"
The Court was dealing there with a suit of the trustee against a
third party to recover property fraudulently transferred to him by
the bankrupt before the filing of the petition in bankruptcy, and
which the third party claimed as his own.
In
White v. Schloerb, 178 U. S. 542,
where, after an adjudication in bankruptcy and reference of the
case to a referee, and before the appointment of a trustee, the
referee had taken possession of the bankrupt's stock of goods in a
store, a writ of replevin of part of the goods was sued out by
third persons against the bankrupt from a state court and executed
by the sheriff forcibly entering the store and taking possession of
the goods, it was held that the district court of the United
States, sitting in bankruptcy, had jurisdiction by summary
proceedings to compel the return of the property seized.
In
Bryan v. Bernheimer, 181 U.
S. 188, Abraham, nine days before the filing of a
petition in bankruptcy against him, made a general assignment to
Davidson of all of his property for the benefit of his creditors.
After the filing of the petition, Davidson sold the property to
Bernheimer. After the adjudication in bankruptcy and before the
appointment of a trustee, the petitioning creditors applied to the
court for an order to the marshal to take possession of the
property, alleging that this was necessary for the interest of the
bankrupt's creditors. The court ordered that the marshal take
possession, and that notice by given to the purchaser to appear in
ten days and propound his claim to the property, or, failing to do
so, be decreed to have no right in it. The purchaser came in and
propounded his claim,
Page 184 U. S. 17
stating that he bought the property for cash in good faith of
the assignee, and praying that the creditors be remitted to their
claim against the assignee for the price, or that the price be
ordered to be paid by the assignee into court, and paid over to the
purchaser, who thereupon offered to rescind the purchase, and waive
all further claim to the property. This Court held that the summary
proceeding was properly entertained, that the purchaser had no
title in the property superior to the bankrupt's estate, and that
the equities between him and the creditors might be determined by
the district court, bringing in the assignee if necessary. In that
case, it was observed that the remark in
Bardes v. Bank
that the powers conferred on the courts of bankruptcy after the
filing of a petition in bankruptcy, and in case it was necessary
for the preservation of the property of the bankrupt to authorize
receivers or the marshals to take charge of it until a trustee was
appointed,
"'can hardly be considered as authorizing the forcible seizure
of such property in the possession of an adverse claimant,' was an
inadvertence, and upon a question not arising in the case then
before the Court, which related exclusively to jurisdiction of a
suit by the trustee after his appointment."
The Court also said:
"The general assignment made by Abraham to Davidson did not
constitute Davidson an assignee for value, but simply made him an
agent of Abraham for the distribution of the proceeds of the
property among Abraham's creditors."
And further: "The present case involves no question of
jurisdiction over a suit by a trustee against a person claiming an
adverse interest in himself."
In the case before us, William T. Nugent held this money as the
agent of his father, the bankrupt, and without any claim of adverse
interest in himself. If it was competent to deal with Davidson, the
assignee in the case of
Bryan v. Bernheimer, by summary
proceeding, William T. Nugent could be dealt with in the same
way.
The cases are indeed different, for Bernheimer, the purchaser,
submitted himself to the jurisdiction of the bankruptcy court, and
the sale was after petition filed; but nevertheless, so far as the
question of subjecting a mere volunteer in possession of assets
Page 184 U. S. 18
belonging to the bankrupt's estate to the control of that court
by summary proceedings is concerned, the ruling in
Bernheimer's case is in point.
We are of opinion that the order of October 16 was a lawful
order. In arriving at that conclusion we have confined ourselves to
the record of the district court. If in the effort to escape the
jurisdiction of the bankruptcy court, that record is not in a
condition as favorable to respondent as the actual facts might have
justified, he has only himself to thank for it; but lest any
injustice should be done, the judgment will be:
Decree of the circuit court of appeals reversed; decree and
order of the district court affirmed, and cause remanded to the
latter court with liberty to take such further proceedings as it
may be advised.
