1. An adjudication in bankruptcy, until followed by the
appointment of a trustee, does not divest the bankrupt's title to a
cause of action against a third person or prevent him from
instituting or maintaining suit thereon. P.
276 U. S.
545.
2. S assigned to some of his creditors, as security, a claim on
which he had begun suit; agreed to prosecute the suit for their
account, and, more than four months thereafter, began voluntary
bankruptcy proceedings in which no trustee was appointed and in
which he concealed the claim and was discharged.
Held that
the
Page 276 U. S. 543
question whether the assignment was void as to his other
creditors could not be raised by the defendants against the
prosecution of the suit by the bankrupt. P.
276 U. S. 547.
286 S.W. 633 affirmed.
Certiorari, 274 U.S. 733, to a judgment of the Court of Civil
Appeals of Texas affirming a judgment recovered by the respondent
after his discharge in voluntary bankruptcy proceedings, in an
action brought by him more than four months before his petition in
bankruptcy was filed.
Page 276 U. S. 544
MR. JUSTICE SANFORD delivered the opinion of the Court.
This suit was brought by Smith in the District Court for Dallas
County, Texas, to recover brokerage commissions claimed to be due
him from Danciger and the Emerich Oil Co. He assigned part of this
claim to his attorneys, and later assigned the remainder to two of
his creditors as security for antecedent debts, agreeing to
prosecute the suit in his name and account to them for the
proceeds.
Page 276 U. S. 545
More than four months thereafter, he filed a voluntary petition
in bankruptcy. He did not mention this claim in the schedules, and
stated that he had no assets, and that none of his property had
been assigned for the benefit of creditors. He was thereupon
adjudicated a bankrupt. No trustee was appointed for his estate,
and he was granted a discharge.
At the trial of the suit, the defendants, in addition to their
defenses on the merits, relied upon the defense, appropriately
pleaded, that, by reason of the proceeding in bankruptcy, Smith had
ceased to be the owner of the cause of action, and was not entitled
to prosecute the suit. This contention was overruled, and Smith
recovered judgment. This was affirmed by the Court of Civil
Appeals, 286 S.W. 633, and an application to the Supreme Court for
a writ of error was denied, 116 Tex. 269.
The petitioners contend that, by permitting Smith to continue
the prosecution of the suit after his adjudication in bankruptcy,
they were deprived of a right, privilege, and immunity under the
Bankruptcy Act.
*
The Act provides, with certain exceptions not here material,
that a trustee of the estate of a bankrupt, upon his appointment
and qualification, shall be vested by operation of law with the
title of the bankrupt, as of the date he was adjudged a bankrupt,
to all nonexempt property, including rights of action, § 70, and
that the trustee may, with the approval of the court, be permitted
to prosecute any suit commenced by the bankrupt prior to the
adjudication, § 11c.
It is clear that, under these provisions, an adjudication in
bankruptcy, until followed by the appointment of a trustee, does
not divest the bankrupt's title to a cause of action against a
third person or prevent him from instituting or maintaining suit
thereon. Thus, he may institute
Page 276 U. S. 546
and maintain such a suit before the election of a trustee.
Johnson v. Collier, 222 U. S. 538,
222 U. S. 539;
Christopherson v. Harrington, 118 Minn. 42, 45. Or if no
trustee is appointed.
Rand v. Iowa Cent. Ry., 186 N.Y. 58;
Griffin v. Mutual Life Ins. Co., 119 Ga. 664, 665, in
which the opinion was delivered by Judge Lamar, later a member of
this Court.
And see Fuller v. New York Fire Ins. Co., 184
Mass. 12;
Gordon v. Mechanics' & Traders' Ins. Co.,
120 La. 442, 443, and
Schoenthaler v. Rosskam, 107
Ill.App. 427, 436. In
Johnson v. Collier, supra, this
Court said:
"While for many purposes the filing of the petition operates in
the nature of an attachment upon choses in action and other
property of the bankrupt, yet his title is not thereby divested. He
is still the owner, though holding in trust until the appointment
and qualification of the trustee, who thereupon becomes 'vested by
operation of law with the title of the Bankrupt' as of the date of
adjudication. . . . Until such election, the bankrupt has title --
defeasible, but sufficient to authorize the institution and
maintenance of a suit on any cause of action otherwise possessed by
him. . . . During that period, it may frequently be important that
action should be . . . taken to recover what would be lost if it
were necessary to wait until the trustee was elected. The
institution of such suit will result in no harm to the estate. For
if the trustee prefers to begin a new action in the same or another
court in his own name, the one previously brought can be abated.
If, however, he is of opinion that it would be to the benefit of
the creditors, he may intervene in the suit commenced by the
bankrupt. . . . If the trustee will not sue and the bankrupt cannot
sue, it might result in the bankrupt's debtor's being discharged of
an actual liability. The statute indicates no such purpose, and, if
money or property is finally recovered, it will be for the benefit
of the estate. Nor is there any merit in the
Page 276 U. S. 547
suggestion that this might involve a liability to pay both the
bankrupt and the trustee."
It follows that Smith's title to the right of action was not
divested by the proceeding in bankruptcy, no trustee having been
appointed to whom it could pass, and that the Bankruptcy Act did
not prevent him from subsequently prosecuting the suit to
judgment.
The doctrine of
First National Bank v. Lasater,
196 U. S. 115,
196 U. S. 119, on
which the petitioners rely -- that a bankrupt who omits to schedule
and withholds holds all knowledge of a valuable claim cannot, after
obtaining a discharge from his debts, assert title to such claim
and maintain a suit thereon in his own right -- has no application
here, for, in that case, a trustee had been appointed to whom the
right of action had passed.
No other federal question is presented by the record. If, as
urged by the petitioners, the assignments made by Smith were void
as against his other creditors -- who were not before the court --
any question that may arise as to whether he holds the judgment for
the benefit of his assignees or of his general creditors may be
determined in appropriate proceedings taken for that purpose.
See Griffin v. Mutual Life Insurance Co., supra, 665. In
any event, the petitioners were not prejudiced.
Judgment affirmed.
* 30 Stat. 544, c. 541; U.S.C. Tit. 11.