1. It is only through the instrumentality of his assignees that
creditors can recover, and subject to the payment of their claims,
the property which the bankrupt fraudulently transferred prior to
the adjudication in bankruptcy, or which he conceals from, and
fails to surrender to, his assignees.
2. Assignees of the bankrupt are subject to the control and
direction of the proper court, and it may, for good cause shown,
compel them to take the requisite steps for the full and complete
protection of the rights of his creditors.
The facts are stated in the opinion of the Court.
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
District courts of the United States are constituted courts of
bankruptcy, and as such they have original jurisdiction in all
matters and proceedings in bankruptcy, with power to hear and
adjudicate the same according to the provisions of the Bankrupt
Act.
Jurisdiction of those courts in that regard extends as well to
the collection of all the assets of the bankrupt as to all cases
and controversies between the bankrupt and any of his creditors,
and to all acts, matters, and things to be done under and in virtue
of the bankruptcy, until the final distribution and settlement of
the estate of the bankrupt and the close of the bankruptcy
proceedings. 14 Stat. 518; Rev.Stat., sec. 4972.
Creditors appoint the assignee, and the provision is that as
soon as he is appointed and qualified, the judge, or when there is
no opposing interest, the register, shall, by an instrument under
his hand, assign and convey to the assignee all the estate, real
and personal, of the bankrupt, with all his deeds, books, and
papers relating thereto, and that such assignment shall relate back
to the commencement of the proceedings in bankruptcy, the express
enactment being that by operation of law
Page 98 U. S. 21
the title to all such property and estate, both real and
personal, shall vest in such assignee.
Id., sec. 5044.
Explicit, comprehensive, and unqualified as the words of that
provision are, still the instrument of assignment is made even more
extensively operative by what follows in the same section of the
original enactment, which provides that
"All property conveyed by the bankrupt in fraud of his
creditors, . . . and all his rights of action for property or
estate, real or personal, and all other causes of action arising
from contract or from the taking or detention or injury to the
property of the bankrupt, . . . shall, in virtue of the
adjudication of bankruptcy and the appointment of his assignee, be
at once vested in such assignee."
14 Stat. 523; Rev.Stat., sec. 5046.
Sufficient appears to show that certain debtors of the
complainant and other creditors failed in business, and made, under
the state law, a general assignment of their property to an
assignee for the benefit of their creditors, prior to their being
adjudged bankrupts. Pursuant to that assignment, the assignee
accepted the trust, and converted all of the visible property of
the insolvents surrendered to him into money, and made final
distribution of the proceeds among the creditors.
Charges of fraud against the debtors are made by the
complainant, to the effect that they concealed large amounts of
other property from their creditors and from the assignee, as fully
set forth in the bill of complainant.
On the 10th of August, 1867, one of the said debtors filed his
petition in bankruptcy, and on the 11th of October following, the
firm of which the first-named debtor was a partner also filed their
petition in bankruptcy; and the firm and each partner were duly
adjudged bankrupts, the respondent, J. W. Caldwell, being
subsequently appointed assignee in each case. They, the bankrupts,
surrendered no property, and made oath that they had none, not
excepted from the operation of the Bankrupt Act. Discovery has
since been made, as the complainant alleges, that the bankrupts had
fraudulently concealed a large amount of property not surrendered
to the state assignee, or the assignee in bankruptcy, and that one
of the firm made large gains and profits subsequent to the
assignment
Page 98 U. S. 22
under the state law and prior to the time when the firm was
adjudged bankrupt.
Secret and fraudulent devices, as the complainant alleges, were
employed by the insolvent debtors to conceal their property from
the knowledge of their creditors and the assignee, and he describes
the means which led to the discovery of the property, and avers
that the respondent assignee was advised of the facts set forth,
and that he was requested to adopt means to recover the same, or to
allow his name to be used for that purpose, but that he refused so
to do.
Both the complainant and respondents are citizens of the same
state; but the complainant, being a creditor of the bankrupts,
instituted the suit in his own name, claiming the right to do so
because the assignee refused to proceed to recover the property, or
to allow his name to be used for that purpose. Service was made;
and the respondents appeared, and demurred to the bill of
complaint, showing, among other things, the following causes:
1. That the complainant has no capacity or right in equity to
bring the suit.
2. That the complainant has never proved his claim against the
estate of the bankrupts.
Beyond all doubt, the suit in this case is brought to recover
property conveyed by the bankrupts in fraud of their creditors,
which, by the express words of the Bankrupt Act, vested in the
assignee by virtue of the instrument of assignment executed at the
time the assignee was appointed.
Jurisdiction of the circuit court in the case cannot be
sustained upon the ground of the citizenship of the parties, as the
record shows that the complainant and respondents are citizens of
the same state; nor can it be upheld under the provision of the
Bankrupt Act, which provides that the circuit courts shall have
concurrent jurisdiction with the district courts of all suits at
law or in equity, brought by an assignee in bankruptcy against any
person claiming any adverse interest, or by such person against an
assignee, touching any property or rights of the bankrupt,
transferable to or vested in such assignee, for the plain reason
that controversies, in order that they may be cognizable under that
provision, either in the circuit or district court, must have
respect to some property or rights of property
Page 98 U. S. 23
of the bankrupt, transferable to or vested in such assignee, and
the suit, whether it be a suit at law or in equity, must be in the
name of one of the parties described in the provision, and be
against the other, as appears by the express words of the
provision.
Smith v.
Mason, 14 Wall. 431;
Morgan
v. Thornhill, 11 Wall. 75.
Nor is there any thing in the case of
Clark v.
Clark, 17 How. 315, inconsistent with the preceding
proposition, when that case is properly understood. By the
pleadings and proofs, it appears that the debtor had a large claim
against Mexico pending before commissioners prior to the time he
filed his petition in bankruptcy; that he was adjudged bankrupt
before his claim was allowed; that the description of the claim in
his schedule of assets was not such as to render it available to
his creditors; that the assignee, having been empowered to sell his
assets, sold the same to the sister of the bankrupt for a nominal
sum, and that she immediately reconveyed the same to her brother;
that he, the brother, subsequently prosecuted the claim, and
recovered the same to the amount of $69,429.04, which was paid into
the national treasury; that his brother, a judgment creditor, for
himself and others, filed a bill of complaint here in the circuit
court against the bankrupt, claiming the fund, the assignee having
died before the same was recovered. Immediate steps were taken to
procure the appointment of a new assignee, which appointment was
made by the proper district court without delay; and the case shows
that he forthwith petitioned the circuit court here to be admitted
a party complainant in the same bill of complaint, and that he
claimed the fund. Hearing was had, and the circuit court admitted
the new assignee as a party complainant, and enjoined the secretary
of the treasury not to pay out the fund until the further order of
the court, and finally decreed that the fund belonged to the newly
appointed assignee. Appeal was taken by the bankrupt, and this
court affirmed the decree of the circuit court.
Nothing was decided in that case except that the newly appointed
assignee was a proper party complainant in the bill filed by the
bankrupt subsequent to the decease of the original assignee, and
before his place was filled by a new appointment,
Page 98 U. S. 24
and that the fund belonged to the successor as the
representative of the bankrupt estate. Further litigations
followed, which show to a demonstration that neither the bankrupt
nor any creditor could maintain any such suit.
Clark v.
Hackett, 1 Cliff. 273;
s.c. 66
U. S. 1 Black 77.
Suppose it to be true, as alleged, that the described property
and rights of the bankrupts which form the subject matter of the
present controversy were transferred to and vested in the assignee,
it by no means follows that the circuit court has jurisdiction of
the case, or that the complainant can maintain the suit; as it is
clear to a demonstration that the instrument of conveyance referred
to did not vest the property or any right to recover the same in
the complainant or his associate creditors; nor is the claim which
he makes to the property in any legal sense adverse to the rights
of the assignee. What the complainant claims as against the
assignee is that he, the assignee, refused to institute the suit,
or to allow his name to be used for the purpose. He claims no
interest in the property of the bankrupt adverse to the assignee;
and if he did, the claim could not be sustained for a moment, as
the entire property is transferred to the assignee, to be converted
into money for distribution.
Unless the assignee can collect what is due to the bankrupt, he
can never perform the duty assigned to him as the representative of
the bankrupt, and the first section of the Bankrupt Act expressly
provides that the jurisdiction of the district courts shall extend
to the collection of all the assets of the bankrupt, and to all
acts, matters, and things to be done under and in virtue of the
bankruptcy.
"Debts due" to the bankrupt, as well as all his rights of
action, vest in the assignee by virtue of the adjudication in
bankruptcy, and the appointment of the assignee as the
representative of the bankrupt.
Shearman v. Bingham, 7
Nat.Bank Reg. 493.
Power and authority are also vested in the assignee by virtue of
the bankruptcy, and his appointment to manage, dispose of, sue for,
and recover all his property or estate, real or personal, debts or
effects, and to defend all suits at law or in equity pending
against the bankrupt. 14 Stat. 525.
Page 98 U. S. 25
Congress, in framing the Bankrupt Act, it is believed, intended
to provide instrumentalities for its complete execution, and such
as are sufficient to carry it into full effect. State courts may
doubtless exercise concurrent jurisdiction with the district courts
in certain cases for the collection of assets not inconsistent with
the Bankrupt Act, but Congress, in the judgment of the court,
intended to provide the means for the execution of the law in all
cases, even though the state courts should refuse to exercise
jurisdiction in such cases.
Lathrop v. Drake, 91 U. S.
516.
Support to that proposition is found in the fact that the
assignee is authorized under the order of the court to redeem or
discharge any mortgage or conditional contract or pledge or
deposit, or lien upon any property, real or personal, whenever
payable, and to tender due performance thereof, or to sell the
same, subject to such mortgage, lien, or other encumbrances; the
provision being that the debtor shall, at the request of the
assignee, and at the expense of the estate, make and execute any
instruments, deeds, and writings which may be proper to enable the
assignee to possess himself fully of all the assets of the
bankrupt.
Other provisions of the Bankrupt Act forcibly confirm the same
views, two of which will be mentioned:
1. That the assignee shall demand and receive from any and all
persons holding the same, all the estate assigned, or intended to
be assigned, real or personal, and shall sell all such as is
unencumbered which comes to his hands, on such terms as he thinks
most for the interest of the creditors, subject to the right of the
court for cause shown to make such order concerning the time,
place, and manner of sale, as will, in its opinion, promote those
objects.
2. That the assignee shall have the like remedy to recover all
said estate, debts, and effects, in his own name, as the debtor
might have had if the decree in bankruptcy had not been rendered,
and no assignment had been made. 14 Stat. 524.
Bankruptcy courts have original jurisdiction in their respective
districts of all matters and proceedings in bankruptcy, and are
authorized to hear and adjudicate upon the same, according to the
provisions of the Bankrupt Act. They have full authority
Page 98 U. S. 26
to compel obedience to all orders and decrees passed by them in
bankruptcy, by process of contempt and other remedial process, to
the same extent that the circuit courts now have in any suit
pending therein in equity.
Assignees are in the first instance chosen by the creditors; but
they may be removed by the court, after due notice, for any cause
which, in the judgment of the court, renders such removal necessary
or expedient.
Id., 525.
Authority for a creditor to bring suit to recover the property
or rights of property of the bankrupt, under any circumstances, is
certainly not given in the Bankrupt Act, nor is any such pretence
set up by the complainant. Instead of that, he admits, what cannot
be denied, that the entire property of the bankrupt, except what is
reserved from the operation of the Bankrupt Act, vests in the
assignee by virtue of the instrument of conveyance required to be
made as soon as the assignee is appointed and qualified.
Due conveyance of the kind was made in this case, nor does he
attempt to controvert the proposition that the assignee is the only
party designated by the Bankrupt Act as the proper claimant of the
bankrupt's property and estate. The grounds of recovery, as stated
in the bill of complaint, are that before filing the same he made
application to the assignee to proceed by bill in chancery or other
proper mode, or allow his name to be used for the purpose, to
subject the said property and rights of the bankrupt, fraudulently
concealed and retained, and to convert the same into money, to be
paid and distributed to the creditors, which he as such assignee
declined and refused to do.
Viewed in the light of those allegations, the theory of the
complainant is that the assignee, inasmuch as he declined to comply
with the request, and refused either to bring the suit or to allow
his name to be used to recover the property and rights of property
of the bankrupt, was guilty of a fraud against the creditors; and
that the latter, by virtue of such request and refusal, had a right
to seek a remedy in their own names, not only against the bankrupt
and the possessor of the concealed property and estate, but also
against the assignee, who is deemed to be responsible for the
concealed property. Such a remedy, it is conceded, does not grow
out of or depend upon the
Page 98 U. S. 27
bankrupt law; but the argument is, that it is founded upon the
enlarged principles of equity which adapt themselves to the
exigencies of the case, and enable the court to mould the decree to
suit the various equities arising between the parties to the
litigation.
Authorities are cited to prove that the person for whose benefit
a trust is executed, who is to be the ultimate receiver of the
money, may maintain a suit in equity to have it paid to himself,
and the proposition is advanced, that, where a trustee is guilty of
what the law considers a breach of trust in regard to the trust
property, the
cestui que trust may invoke the aid of
equity to give him such remedy in the premises as the circumstances
may require.
Grant that, and the concession shows to a demonstration that the
present suit cannot be maintained, as the record shows that the
complainant and respondents are citizens of the same state; and of
course the circuit court had no jurisdiction of the case, it being
conceded by the complainant that the remedy sought does not grow
out of or depend upon the bankrupt law.
Conceded or not, it is clear that the suit in this case finds no
support in the provisions of the Bankrupt Act, as sufficiently
appears from the references to that act already made; but if more
be needed, it will be found in the section which provides that no
creditor whose debt is provable shall be allowed to prosecute to
final judgment any suit at law or in equity therefor against the
bankrupt until the question of the debtor's discharge shall have
been determined. Rev.Stat., sec. 5106.
Appellate jurisdiction, as exercised under the twenty-second
section of the Judiciary Act, is not conferred upon the circuit
courts in any case under the Bankrupt Act, where the ruling, order,
decision, or decree of the circuit court is made or rendered by
that court in a summary way. All such rulings, orders, decisions,
or decrees must be revised, if at all, under the first clause of
the second section of that act, in respect to which the
determination of the circuit court is final and conclusive.
Knight v. Cheney, 5 Bank.Reg. 313;
Morgan v.
Thornhill, 11 Wall. 65.
Creditors can have no remedy which will reach property
Page 98 U. S. 28
fraudulently conveyed, except through the assignee, for two
reasons:
1. Because all such property, by the express words of the
Bankrupt Act, vest in the assignee by virtue of the adjudication in
bankruptcy and of his appointment.
2. Because they cannot sustain any suit against the
bankrupt.
Property fraudulently conveyed vests in the assignee, who may
recover the same and distribute its proceeds as the Bankrupt Act
requires. Such a conveyance, says Curtis, is no effectual
conveyance as against the interest intended to be defrauded, which
is represented by the assignee, so far as respects all creditors
who prove their claims. They can have no remedy which will reach
such property except through the assignee, not only for the reasons
already assigned, but because their remedies are absorbed in the
great and comprehensive remedy under the commission by virtue of
which the assignee is to collect and distribute among them the
property of their debtor, "to which they are justly and legally
entitled."
Carr v. Hilton, 1 Curt.C.C. 234.
Opposed to that proposition is the case of
Franklin v.
Farr, 2 Eq.Ca.Abr. 102, in which it was held that, if the
assignee refuses to bring a bill that is for the benefit of the
bankrupt's estate, the creditor has the right to bring such a bill,
under peril of costs.
Enough has been already remarked to show that the Bankrupt Act
makes it the express and positive duty of the assignee to collect
and distribute all the assets of the bankrupt, including property
fraudulently conveyed prior to the decree of bankruptcy, and that
authority is given to him to sue for the same under the direction
and control of the court, which may, in its discretion and for good
cause shown, require the assignee by a specific order to take any
proper step to secure the due administration of the bankrupt law,
and the full and complete protection of the rights of the creditors
interested in the proceedings; that ample means are placed in the
hands of the creditors to enable them to inform the court of the
necessity of any particular proceeding to be taken for that
purpose, to which it may be added that the power of the court to
compel a compliance with any such order is plenary and beyond all
doubt; or if the assignee fails to do so, to
Page 98 U. S. 29
punish him for contempt, or to remove him and appoint another in
his place. Bump, Bankruptcy (10th ed.) 147.
Plenary as the powers granted to the bankrupt courts are, there
is no occasion for any departure from them in order to the complete
execution of the duties imposed, which of itself is a sufficient
reason for holding that the rule laid down in the preceding case is
not applicable in our bankrupt system. Rev.Stat., sec. 5039.
Neither the assignee nor any creditor can have any greater right
under the Bankrupt Act than the act itself confers, and if it be
conceded that the remedy sought in this case does not depend upon
the Bankrupt Act, then it is clear that the court below had no
jurisdiction of the case, unless the proposition can be sustained
that such a suit may be maintained in a circuit court, where both
parties are citizens of the same state.
Nor is that the only objection to the theory advanced by the
complainant; for if one creditor may sue in such a case, then all
may sue, and the result might be that the proceedings in bankruptcy
would be transferred not only to the circuit court, but to every
state court within whose jurisdiction a defendant may reside.
Even if the case referred to, and others of like character, were
good law in the courts of the country where they were made, still
it is clear that the question before the court must be controlled
by the provisions of our Bankrupt Act; but the doctrine of that
case has long since been overruled, and is no longer regarded as
correct, even in the jurisdiction where it was made, of which there
is abundant evidence.
Creditors of an insolvent, said Lord Cottenham, cannot maintain
a suit to recover the property or rights which belong to the
insolvent, and the same rule applies to suits for a similar object
brought by the insolvent himself.
Heath v. Chadwick, 2 Ph.
649.
Prima facie the bankrupt is divested of the whole
estate, nor have the creditors any right to sue; but if it be
represented that the assignees will not sue, the court having
jurisdiction of the matter may direct the recusant assignees to
proceed, or may give the bankrupt or a creditor the right
Page 98 U. S. 30
to institute the suit in the name of the assignee, first
indemnifying the assignee against costs.
Benfield v.
Solomons, 9 Ves. 83.
Attempt to maintain such a suit was made in
Yewens v.
Robinson, 11 Sim. 105; but the assignees demurred to the bill
of complaint, and the court sustained the demurrer, holding that
the true method to proceed in such a case was to apply to the court
of insolvency to have the assignees removed and others appointed in
their place.
Application was made to the court in the case of
Ex parte
Ryland, and the petitioning creditor was allowed by the court
to sue in the name of the assignee, first giving the assignee
indemnity against cost and damage. 2 Deac. & Chit. 393.
Corresponding decision was made in the case of
Hammond v.
Atwood, 3 Madd.Ch. 158, the court holding that the proper
course was to apply to the court by petition to have the assignees
removed and new assignees appointed.
Major v. Aukland, 3
Hare 77.
Bankrupts uncertificated cannot file a bill of complaint against
their assignees for an account; nor can the bankrupt obtain such
relief by charging fraud and collusion between the assignees and a
third party, the true remedy being a petition for relief to the
court of original jurisdiction.
Tarleton v. Hornby, 1 You.
& Coll. 193.
Suffice it to say that the law is now well settled in the parent
country that creditors cannot maintain any such suit against the
assignee, for the purpose set forth in the present bill of
complaint.
Strong support to the conclusion is also derived from the fact
that cases arise in bankruptcy proceedings where the assignee is
not bound to take possession of some particular asset which passed
to him by the instrument of assignment. Examples of the kind, such
as certain leasehold estates which would burden instead of
benefiting the fund to be distributed, are given by Judge Ware in
the case of
Smith v. Gordon, 6 Law Rep. 317, to which
reference is made as showing the principle of the rule.
Leasehold estates pass to the assignee under the English
bankrupt laws, but the assignee, in certain cases, is not bound
Page 98 U. S. 31
to take the lease of the estate where the rent is greater than
the value of the lease, as the effect would be to burden the estate
of the bankrupt, and to diminish the fund to be distributed among
the creditors.
Copeland v. Stephens, 1 Barn. & Ald.
604;
Amory v. Lawrence, 3 Cliff. 535;
Fowler v.
Down, 1 Bos. & Pull. 157;
Fox v. Webb, 7 T.R.
397;
Wilkins v. Fry, 1 Meriv. 244.
It has long been a recognized principle of the bankrupt law,
says Robson, that the assignees of a bankrupt are not, in certain
cases, bound to take property of an onerous or unprofitable
character, which would burden instead of benefiting the estate; and
there are numerous decisions, English and American, which support
the proposition; nor are the creditors without remedy in such a
case, even if the assignee should erroneously or unwisely fail to
take such possession, as the creditors may, by petition, apply to
the court of original jurisdiction to compel him to carry out their
wishes; and if the district court should deny their petition, they
would have the right to demand a review of the decision by the
circuit court, under the first clause of the second section of the
Bankrupt Act. Robson (3d ed.) 398.
Decree affirmed.