Purchasers from an assignee in bankruptcy of property
transferable to or vested in him as such cannot maintain a suit in
equity asserting their title to such property against persons
claiming adverse rights therein if, at the time of the purchase,
his right of action was, under the Bankrupt Act, 14 Stat. 517;
Rev.Stat., sec. 5057, barred by the lapse of time.
The facts are stated in the opinion of the Court.
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
District courts, though constituted courts of bankruptcy, do not
possess the power under the twenty-fifth section of the Bankrupt
Act to order, in a summary way, the sale of an estate, real or
personal, although the same is claimed by the assignee, even though
the title to the same is in dispute, if it also appears that the
estate in question is in the actual possession of a third person,
holding the same as owner, and claiming absolute title to and
dominion over the same as his own property, whether derived from
the debtor before he was adjudged bankrupt, or from some former
owner. Knight v. Cheney,
5 Nat.Bank.Reg. 305.
Courts of bankruptcy may exercise many of the powers conferred
by the first section of the Bankrupt Act in a summary way, as well
in vacation as in term time, first giving notice to the party
opposed in interest to the prayer of the petition, as in a rule to
show cause in an action at law or in a suit in
Page 98 U. S. 249
equity without service of process, the rule being that in such a
proceeding neither party is entitled to a trial by jury, and that
the only remedy for error is to seek a review under the first
clause of the second section of the same act. Smith
14 Wall. 431.
Power to revise cases and questions which arise in the district
courts in such proceedings is conferred upon the circuit courts by
that clause of sec. 2, but it is settled law that the power so
conferred does not extend to any case where special provision for
the revision of the case is otherwise made. Morgan
11 Wall. 74.
Two trust deeds were executed by the debtor of the complainant
in his lifetime -- one to each of the two trustees named in the
bill of complaint; the first embracing several tracts of land which
were conveyed to secure his creditors, and the second consisting of
an interest in a tract of two hundred acres, arising from a verbal
contract to purchase the same, and an advance of $7,000 in part
payment of the stipulated consideration, in respect to which the
party who agreed to purchase the same, not being able to pay the
balance, determined to abandon the contract and assert a lien upon
the tract for the amount paid.
Twenty-nine hundred dollars of the amount paid for the tract by
the debtor was the money of his wife, which she derived from the
estate of her father, and which, by agreement between her and her
husband, made while the money was still in the hands of the
executor, he was allowed to apply towards paying for the land, the
stipulation between them being that in taking title to the land
such an interest in the same should be conveyed to her in her own
separate right as would be proportionate to the amount of her money
applied to the payment of the consideration.
Abundant evidence to substantiate those facts is found in the
record, and it also appears that the debtor of the complainant, on
the 10th of June, 1867, conveyed to his son all of his equitable
interest in the several properties previously transferred to the
before-mentioned parties, together with whatever interest he owned
in the turnpike therein described, which was not included in either
of said trust deeds. Proof of that
Page 98 U. S. 250
conveyance is placed beyond doubt, but it is equally clear that
the chief object of the same was to secure the repayment to his
mother of the money belonging to her which the father used and
applied towards paying for the prior-described tract of land, the
son becoming bound to her for that amount under the agreement.
Eight months and a half later, to-wit, on the 28th of February,
1868, the said debtor of the complainant filed his petition in
bankruptcy, and in the month of February of the succeeding year
received his discharge. On the 6th of May next, after the petition
in bankruptcy was filed, the assignee of the estate was appointed,
and due conveyance of all the assets of the bankrupt was made to
him, as required by law. Schedules of the bankrupt's liabilities
were duly filed, but they did not mention the name of the original
complainant as a creditor.
Allegations to the effect that the complainant proved debts to
the amount of $4,500 are contained in the bill of complaint, which
was filed Aug. 31, 1871, and the record shows that his own
deposition given in the cause affirms the allegation, but the
answer of the respondents denies the fact alleged, and the
deposition of the bankrupt fully supports the averment of the
Service was made, and the respondents appeared and demurred to
the bill of complaint, and they subsequently filed an answer
setting up several defenses, including most or all of the causes
shown in support of the demurrer. Hearing was had, and the court --
the district judge presiding -- overruled the demurrer to the bill
of complaint. Proofs were subsequently taken, and the parties
having been again heard, the court -- the circuit justice presiding
-- entered the final decree as to the merits in favor of the
complainant, from which the respondents appealed.
Since the suit was commenced new parties have been made, in
consequence of the death of the complainant and the principal
respondent, but the questions to be decided are unaffected by that
Three of the errors assigned were fully discussed at the bar.
They are as follows:
1. That the court erred in holding that the conveyances made by
the assignee to the complainant included any of the property sued
for in the bill of complaint.
Page 98 U. S. 251
2. That the court erred in holding that the said conveyance was
of any validity, even if it did include the property for which the
suit is brought.
3. That the court erred in overruling the defense that the suit
is barred by the Statute of Limitations.
These several assignments of error were discussed at the bar in
the order herein stated, but it will be more convenient to consider
the question of limitation first, for the reason that, if that is
sustained, the other assignments of error will become immaterial,
as sufficiently appears from the prayers of the bill of complaint,
of which the following are the most material:
1. That the conveyance from the bankrupt to his son may be
decreed to be fraudulent, null, and void.
2. That the equities and personal property therein described may
be decreed to the complainant.
3. That if the court should be of the opinion that he, the
complainant, is not entitled to all of the equities described, then
that his pro rata
in the same may be decreed to him, and
that the $4,000 paid by the son, if found to have been paid out of
his own money, may be decreed to have been paid in fraud and with
notice that he is not entitled to recover the amount.
4. That all debts included in the deed of trust may be decreed
to be invalid as a lien on the estate of the bankrupt, and that all
claims against the bankrupt which are unproven, whether secured or
not, may be decreed invalid as to the estate of the bankrupt, and
not entitled to be paid out of the same in whole or in part.
5. That the cloud caused upon the titles by the conveyance to
the son may be removed, and that the titles to the tracts may be
decreed to the complainant free from the liens created by the
Actions at law or suits in equity may, in a proper case, be
brought by the assignee against any person to recover interests of
the bankrupt held adversely, or by any person against such assignee
touching any property vested in such assignee, but the same section
of the Bankrupt Act provides that no suit at law or in equity shall
in any case be maintained by or against such assignee, or by or
against such person in any court whatsoever, unless the same shall
be brought within two years from the time the cause of action
accrued for or against such assignee. 14 Stat. 518; Rev.Stat., sec.
Deeds of trust, as before explained, were executed to
Page 98 U. S. 252
trustees, and on the 10th of June, 1867, the equities in
controversy were conveyed by the debtor to the son. On the 28th of
February of the next year, the debtor filed his petition in
bankruptcy. Due proceedings followed, and on the 6th of May, 1868,
more than two years before the bill was filed, the assignee was
appointed, and conveyance was duly made to him of all the assets of
Speedy administration as well as equal distribution of the
assets among the creditors is the policy of the Bankrupt Act, and
the former is almost as necessary as the latter to accomplish the
beneficent ends for which the law was passed. Impressed with that
view, Congress enacted the limitations contained in the second
section of the Bankrupt Act, which, like other statutes of
limitation, must receive a reasonable construction. Beyond doubt,
it applies to all judicial contests between the assignee and other
persons touching the property or right of property of the bankrupt,
transferable to or vested in the assignee, where the interests are
adverse, and have so existed for more than two years from the time
when the cause of action accrued for or against the assignee.
21 Wall. 346.
Absolute title to the equities in controversy was claimed by the
respondent from the moment the deed to him of the same was executed
by the bankrupt, and if that conveyance was made in fraud of
creditors, as alleged by the complainant, it is clear that the
equities were transferred to and vested in the assignee when he was
appointed, and of course his right of action to recover the same
commenced at the time the instrument of assignment was executed and
delivered. Whatever remedy for the supposed fraud the assignee had,
it is evident he might have pursued and enforced at any time after
he acquired title to the bankrupt's estate. Ex parte
7 Law Times N.S. 486; Cleveland v. Boerum,
Ignorance of the state of the title is not alleged, nor is there
any pretence of concealment. Instead of that, the proof is clear
that the assignee knew all the facts, and that he came to the
conclusion that the title of the respondent was valid, and that the
assignee had no just claim to the equities. Terry v.
Anderson, 95 U. S. 632
Clark v. Hackett,
1 Cliff. 280.
Page 98 U. S. 253
Nor is there any thing to benefit the complainant in the
suggestion that he does not sue as assignee or creditor, as the
record clearly shows that he claims as purchaser from and under the
Pending the proceedings in bankruptcy, the assignee partitioned
the court for authority to make sale of the notes, judgments, and
accounts of the bankrupt, for the reasons set forth in the
petition, not including the equities which the bankrupt had
previously conveyed to his son. Enough appears to show that the
reason he did not include those equities in the petition was, that
he had reported to the court the day previous that the conveyance
to the son was without fraud, and valid. Reasonable doubt upon that
subject cannot be entertained, but the order entered by the court
upon the petition is broader than the prayer of the petition, and
includes the interest of the bankrupt in the property conveyed to
"the son, and all other property belonging to the estate." Pursuant
to that order, dated May 17, 1871, the assignee, on the 13th of
June following, sold all the assets of the bankrupt for the sum of
$225 to the complainant, he being the highest bidder for the same
at the public sale.
Nothing can be plainer in legal decision than the proposition
that the complainant did not acquire, by the conveyance made to him
under that sale, any greater rights than those possessed by the
grantor. Whatever rights the assignee possessed, if any, were
acquired May 6, 1868, when he was appointed and qualified as the
assignee of the estate of the bankrupt. Throughout the whole period
intervening between that date and the date of the purchase by the
complainant, the respondent held the equities in controversy
adversely to the supposed right of the assignee.
Viewed in the light of these suggestions, it is clear that the
right, if any, of the assignee was barred by the statute of
limitations before purchase of the same by the complainant.
The decree must be reversed with costs, and the cause remanded
with directions to dismiss the bill of complaint; and it is