Where a person took the benefit of the bankrupt law of the
United States, omitted, in first schedule of property, to take any
notice of a claim which he had against the Mexican Republic for the
unlawful seizure of the cargo of a vessel. filed an amended
schedule in which he mentioned the claim so indistinctly as to give
no information of its value, although he was then prosecuting it
before the board of commissioners, concealed the evidence of the
property so that the assignee in bankruptcy reported that it was of
no value, and sold the whole for a nominal consideration to the
sister of the bankrupt, who afterwards transferred it to him, the
purchase was fraudulent, under the 4th section of the bankrupt law
and also by the general principles of equity.
Where a creditor of the bankrupt filed his bill and gave his
bond within thirty days after the award of the board of
commissioners, this was sufficient within the 8th section of the
Act of March 3, 1849, to carry into effect our treaty with
Mexico.
The creditor was a
cestui que trust of the fund, and
had a right to intervene, as the assignee in bankruptcy was dead.
This was sufficient to give jurisdiction to the court. His not
having proved his debt did not debar him of this right. Another
assignee was appointed, and filed his claim without loss of
time.
The 8th section of the bankrupt law, limiting actions to two
years after the bankruptcy, relates only to suits brought against
persons who have claims to property or rights of property
surrendered by the bankrupt. And moreover, no right of action
accrued until the fund existed
Ferdinand Clark, the appellant, prosecuted a claim before the
commissioners who acted under the treaty between the United States
and Mexico, which claim was for the unlawful seizure of the cargo
of a vessel called
The Louisiana. The commissioners
awarded to him $86,786.29, out of which there was deducted, by
agreement, a sum of money as compensation to the agents employed in
its recovery, leaving $69,429.04.
The award was made on the 15th of April, 1851, and on the 15th
of May following, Benjamin C. Clark, of Boston, filed a creditor's
bill in the Circuit Court of the United States for the District of
Columbia, claiming the fund, for himself and other creditors of
Ferdinand Clark who had taken the benefit of the bankrupt law of
the United States, on the 22d March, 1843, in the State of New
Hampshire. Soon after this bill was filed -- namely on the 30th May
-- Hackett, the then assignee in bankruptcy of Ferdinand Clark,
filed his bill, also claiming the entire fund, for the purpose of
distribution amongst the creditors; Palmer, the original assignee
in bankruptcy, has died, and Hackett was appointed in his
place.
The substance of Hackett's bill was as follows:
In this bill, Hackett sets forth his appointment as assignee
in
Page 58 U. S. 316
place of Palmer, deceased, and prays for leave to come in, under
the prayer of the original bill of B. C. Clark and to be made
complainant in said cause. He then avers that Ferdinand Clark was
duly and regularly declared a bankrupt in 1843, and that all his
property and effects passed out of the bankrupt and vested in the
assignee, Palmer, who was regularly appointed, and is since dead,
leaving the proceeding in bankruptcy still pending; that the
bankrupt had among his assets a claim on the Republic of Mexico,
which is the claim in satisfaction of which the award in
controversy was made; that the said claim was not described in any
manner to make the same available to his creditors, and that no
such evidences as would enable him to recover said claim were put
into the hands of the assignee; and that the assignee was ignorant
of the true value of the assets, and that he therefore reported
them to the court as of no value; that no right, title, or interest
in said claim ever passed out of said assignee or became revested
in said bankrupt; that said bankrupt had since prosecuted said
claim in his own right, falsely and fraudulently claiming that his
debts in bankruptcy had been satisfied and that said claim had
revested in him; that the amount of said award legally belongs to
complainant as assignee. The complainant then submits that the said
Benjamin C. Clark and others, the creditors of said Ferdinand at
the date of his bankruptcy, being in the condition of
cestuis
que trust whose trustee is dead, have complied with the true
intent and meaning of the act of Congress. Prayer for an injunction
and general relief.
The answer to this bill, amongst other things --
Admits that defendant had among his assets a claim against
Mexico, and that the claim on which the award was made is the same;
admits that said claim was set down in the schedule, but denies
that it was not described so as to make the same available to his
creditors, and he expressly and particularly denies that such
evidences and information as would have enabled said assignee to
recover said claim were fraudulently withheld by this defendant,
and denies that his assets and effects generally were so described
in his schedules that the assignee was in ignorance of their true
value; avers that this Mexican claim was expressly mentioned in
said schedule in the manner demanded by the rules and practice of
the District Court of New Hampshire; that said claim was mentioned
as subject to a mortgage; that such mortgage did exist in fact;
that he did not know the amount thereof, but verily believed it to
be more than the value of the claim; that no value was set to said
claim, because he believed, and had reason to believe, that said
claim was wholly without value; that defendant communicated
Page 58 U. S. 317
to Palmer, the assignee, the situation of all the claims
mentioned in his schedules; that all the papers and evidences in
support of said Mexican claim were not in his possession, but had
been, in the year 1842 or earlier, filed publicly before the
commissioners appointed under the convention of April 11, 1839, and
were afterwards placed, and, at the time of the commencement of the
proceedings in bankruptcy, were in the public archives of the
government of the United States, and there remained till the time
of said award.
The defendant then sets forth more particularly the bankrupt
proceedings up to his discharge, on the 17th December, 1844, from
all debts then owing by him. He states that notice of the
proceedings in bankruptcy was published in the leading papers in
the district, and that notice, personally and by letter, was also
served on all creditors, whose residence was known; that
notwithstanding this, no creditor ever filed in the district court
any proof of debt or any objections to the proceedings in
bankruptcy or to the doings of the assignee until after the award
was made.
The answer then avers that on the 14th day of March, 1845, the
assignee filed a petition for an order to sell the estate of the
defendant, and on the 14th it was so ordered; that in pursuance of
said order, Palmer did, on the 9th day of April, 1845, after
posting up advertisements &c., sell at public auction all the
estate and demands of the bankrupt mentioned in the schedules
attached to the petition of Ferdinand Clark to be declared
bankrupt, to R. M. Clark, and that, by sale, said Mexican claim
passed to said R. M. Clark. And the answer denies all artifice or
fraud to depress the value of said demands, or this Mexican claim
particularly; that on the 9th of April, 1845, said Palmer executed
a formal bill of sale, with schedules attached to it, in which
schedules this Mexican claim was included; that on the 10th April,
1845, defendant purchased, for valuable consideration, all the said
property from R. M. Clark, including said claim; that he has
prosecuted said claim in his own name and at his own risk and
expense; that complainant has not filed his notice with the
Secretary according to the provisions of the 8th section of the Act
of March 3, 1849.
On the 2d of June, 1851, the circuit court issued an injunction
restraining the Secretary of the Treasury from paying, and
Ferdinand Clark from receiving, the amount of the award until the
further order of the court.
The 8th section of the Act of March 3, 1849, 9 Stat. 394,
authorized any person who claimed any part of an award to file a
bill and directed the fund to remain in the Treasury, to await the
decision of the courts.
Page 58 U. S. 318
The case went on in the circuit court and much testimony was
taken. A part of it related to the proceedings in the bankrupt
court of New Hampshire, which are summarily referred to in the
opinion of the Court and need not be further noticed here.
On the 30th of May, 1853, the circuit court decreed that the
fund should be paid over to Hackett for distribution in the
bankrupt court of New Hampshire, amongst the creditors of Ferdinand
Clark.
From this decree, Clark appealed to this Court.
MR. JUSTICE CATRON delivered the opinion of the Court.
Ferdinand Clark applied for the benefit of the bankrupt law, and
filed a schedule of his debts and another of his property and
rights of property. Pursuant to the latter schedule, the assignee
in bankruptcy sold all Clark's interest in the property and rights
of property at auction for the sum of two dollars, Clark himself
bidding at the sale, but ordering the title to be made by the
assignee to his Clark's sister, who relinquished to him by a formal
deed on the next day. By virtue of this purchase, Clark claims to
be
bona fide owner of all the property and rights of
property he had given in or indicated on his schedule.
The bill alleges that the claim against the Republic of
Mexico
Page 58 U. S. 319
for an unlawful seizure of the cargo of a vessel owned by the
bankrupt called
The Louisiana, the proceeds of which are
in dispute, was not described in any manner to make the same
available to Clark's creditors; nor was any such information or
evidences of the claim put into possession of the assignee as would
enable him to recover it, but that all the information and
evidences were fraudulently withheld by said bankrupt, and that his
assets and effects generally were so described in his schedule that
the assignee was ignorant of their true value, and in fact reported
to the court that the same could not be sold, and that because of
this fraud the sale was void.
This allegation is put in issue by the answer, and was sustained
by the circuit court, which ordered the moneys awarded to Clark by
the commissioners, acting under our treaty of peace with Mexico to
be paid over to the assignee in bankruptcy, and distributed by him
among the bankrupt's creditors. From this decree Clark
appealed.
If the right of property to the claim for indemnity was
concealed so that the assets were sold for a nominal amount, and to
Clark himself in the name of his sister, then Clark's purchase was
fraudulent and the decree below setting aside the purchase was
proper. This is the rule prescribed by the 4th section of the
bankrupt law, and which rule would be enforced by the general
principles governing a court of equity, independently of the
bankrupt law.
In his first schedule, the bankrupt did not mention the claim
against the Republic of Mexico, but in an amendment, filed in
December, 1844, after he had received his discharge, this claim is
alluded to in connection with others, as follows:
"United States government of America" -- Claim
Spanish government do.
Buenos Ayres government do.
"Mexican Republic subject to a mortgage"
This statement gave no information that the bankrupt claimed
remuneration against the government of Mexico for an illegal
seizure of the cargo of the schooner
Louisiana. The proof
is that Clark was prosecuting this claim before he applied for the
benefit of the bankrupt law, which was in January, 1843, and relied
on its ultimate recognition and payment through commissioners
acting under treaties with Mexico. He continued to pursue the
claim, steadily and earnestly, up to the time it was allowed in
1851, when there was awarded to him 86,786 29/100 dollars.
Clark's letters to Mr. Caustin, his agent in Washington, who
prosecuted the claim, show, as does the deposition of Mr.
Caustin,
Page 58 U. S. 320
also, that in December, 1844, when the amended schedule was
filed, the bankrupt had a right to expect ultimate success, and did
rely on it with much confidence. Clark's papers and correspondence
were extensive in regard to the matter, and which must have been
concealed from the assignee in bankruptcy, or he would not have
reported the assets as of no value in 1845, when they were
sold.
From the obscurity of the schedule and the concealment of the
evidences of a right of property from the assignee and the
creditors, we feel satisfied that the bankrupt intended to rid
himself of his debts and to secure to himself the effects in
dispute by contrivance, and that part of the contrivance was a
purchase in the name of his sister for his own benefit.
Some minor objections to the decree below have been raised,
which it is proper to notice.
First, it is insisted that the Circuit Court of the District of
Columbia had no jurisdiction of the parties under the act of March
3, 1849, § 8, to carry into effect our treaty with Mexico of 1848.
The 8th section provides that in all cases arising under the act,
where any person or persons other than those in whose favor the
award was made, claimed the money awarded, should within thirty
days after the date of the award notify the Secretary of the
Treasury of his intention to contest the payment of the money to
the party to whom it was awarded, and file with the district
attorney a bond &c., then the money should be retained in the
Treasury, subject to legal investigation in the courts of justice;
and the party claiming the fund might file his bill in the Circuit
Court in the District of Columbia, which should have jurisdiction
to determine the right of property. In this instance, the award was
made on the 15th day of April, 1851, and on the 15th day of May
following, Benjamin C. Clark, of Boston, a judgment creditor, filed
his bill in the circuit court claiming the fund awarded to
Ferdinand Clark, and gave the notice and bond required by the act
of 1849, § 8.
This was a creditor's bill on behalf of the complainant and all
other creditors of the bankrupt, and which alleged that the
complainant had reason to believe the assignee, Palmer, was dead,
and invites him, if living, or any subsequent assignee that might
be appointed, to come in &c. It was ascertained that Palmer was
dead, and Hackett was appointed successor to Palmer, May 19, 1851,
and on the 30th day of that month made himself a party to Benjamin
C. Clark's bill by petition in the nature of an original bill.
Other creditors came in likewise, but all of them after the thirty
days had expired.
It is insisted that Benjamin C. Clark, as a general creditor of
the bankrupt, had no standing in court, his debt having been
discharged
Page 58 U. S. 321
by the certificate of bankruptcy. Secondly, that Clark had never
made himself a party to the bankrupt proceedings by proving his
debt, and therefore Hackett must stand on his own bill, and cannot
connect himself with that of Clark.
"3. That the Circuit Court of the District of Columbia had no
jurisdiction in this case, except that conferred by said 8th
section. The fund was in the Treasury of the United States, and the
parties were nonresidents. Inasmuch as Hackett, the assignee, had
not given the bond nor filed the notice specified in said 8th
section, upon which the jurisdiction of the court was to attach,
the bill should have been dismissed."
The bankrupt is personally discharged from his debts, and so are
his future acquisitions, but the property and rights of property
which vested in the assignee are subject to the creditors of the
bankrupt as they were liable in his hands before he applied for the
benefit of the act, and the money in controversy was held in trust
for the creditors in whatsoever hands it was found. Benjamin C.
Clark was a
cestui que trust, and the Treasury a
stakeholder between Ferdinand Clark and his creditors; Palmer, the
assignee, had died, and there being no trustee, the creditor had a
right to file a bill and detain the fund for the creditors
generally, to be administered by an assignee subsequently appointed
by the bankrupt court.
The circumstance that Benjamin C. Clark has not proved his debt
and made himself a party to the proceedings in bankruptcy is
immaterial; the proof that debts were owing by Ferdinand Clark can
be made at such times as the bankrupt court may prescribe by its
rules and orders, and we are not aware that any objection can be
interposed to reject Benjamin C. Clark's claim in the bankrupt
court of New Hampshire. All the creditors seem to be in the same
condition, no one having proved his debt. Benjamin C. Clark having
the right to sue and detain the fund in the Treasury, Hackett could
properly come in and make himself a party to the proceeding.
It is also insisted that this action is barred by the 8th
section of the bankrupt law, which provides that no suit shall be
maintainable against any person claiming an adverse interest
touching property or rights of property surrendered by the
bankrupt, unless the same shall be brought within two years after
the declaration and decree in bankruptcy, or after the cause of
action shall first have accrued.
The interest adversely claimed, and which the statute protects
if not sued for within two years, is an interest in a claimant
other than the bankrupt, but, supposing that Ferdinand Clark had
been placed in that condition, as to the fund in the Treasury, by
his pretended purchase of his own assets, yet as no cause of
Page 58 U. S. 322
action accrued to the assignee in bankruptcy against Clark until
he got possession of the money, and as he never held the fund
adversely, it follows that the act does not apply; but if it did,
the fund had no existence till the award was made, which was only
thirty days before the suit was brought.
We order that the decree of the circuit court be
affirmed.
Order
This cause came on to be heard on transcript of the record from
the Circuit Court of the United States for the District of
Columbia, holden in and for the County of Washington, and was
argued by counsel. On consideration whereof it is now here ordered,
adjudged, and decreed by this Court that the decree of the said
circuit court in this cause be and the same is hereby affirmed,
with costs.
