Gill v. Farmers & Manufacturers Bank

ELLISON, P. J.

This action arises on a petition to which a demurrer was sustained on the ground that it did not state facts sufficient to constitute a cause of action. The following facts appear from the petition: Susan L. Ames was indebted to a number of creditors, the defendant bank being one of them, She owned a stock of merchandise and sold it for $3424.60. This sum constituted all of her assets and, on the 20th of April, 1910, she deposited it with the defendant bank as a special deposit to be distributed by the bank pro rata among all her creditors and that defendant accepted the deposit for such purpose and no other. But that defendant denies that it received the money as a special deposit to be distributed pro rata among her creditors and has attempted to apply a greater part of it in liquidation of its own claim. That on the 23rd of April, three days after the deposit, a part of her creditors filed an involuntary petition in bankruptcy against her and that she was adjudged a bankrupt on the 7th of July following and plaintiff was then elected and qualified as trustee in bankruptcy of her estate. That on the filing of the petition in bankruptcy, the referee issued an order to defendant restraining it from disposing of any part of said deposit. That thereupon plaintiff applied for an order requiring defendant to pay over to him as trustee in bankruptcy the sum so deposited with it by Susan L. Ames. Defendant was ordered to appear before the referee and show cause. It did appear and “filed a plea to the jurisdiction of the court and denied its right to issue the order on the ground that it held said sum of money as an adverse claimant.” The petition further alleges that the proceeding was taken to the United States Circuit Court of Appeals. It is then alleged that that court in delivering its opinion (190 Fed. 726) stated: “The litigation over the validity of the plea to the jurisdiction in this ease has occupied so much time and the probability that the bank’s claim is colorable is so slight that it' seems to us that the better course for the officers below to pursue in this case is to dismiss the petition of the trustee for the order to pay over the money and to let the parties litigate their controversy in a plenary suit.” To that end the court ordered a dismissal of plaintiff’s application for an order requiring defendant to pay to him said deposit, on the ground that it ought not to be tried summarily. This action followed.'

We are of the opinion that the law of the case is with the plaintiff and that the demurrer to his petition should have been overruled. The facts stated, when reduced to their real meaning, are that only three days before the institution of proceedings in bankruptcy the bankrupt handed over all her assets to defendant as one of her creditors with directions to pay them, including itself, their pro rata share of the amount; and that defendant accepted the trust. This was, in substance, and effect, an assignment for the benefit of creditors, within the meaning of the bankruptcy act. A general assignment is an act “by which the parties intend to make an absolute and unconditional appropriation of the property conveyed to raise funds to pay the debts of the vendor; and 44such a conveyance inevitably thwarts the operation of the bankruptcy act.” [In re Thomlinson Co., 154 Fed. 834.] (Italics ours.) It is, says the court in that case, “obnoxious to the provisions of the bankruptcy act, which confers the right of administering an insolvent debtor’s estate upon a trustee to be chosen by and in the interest of the creditors and constitutes an act of bankruptcy.” An assignment for the benefit of creditors is itself an act of bankruptcy without regard to whether actual fraud was intended by the debtor, or whether he is solvent or insolvent. [West Co. v. Lea, 174 U. S. 590.] It is said in Randolph v. Scruggs, 190 U. S. 533, 536, that it could not be denied that4 4 a general assignment for the benefit of creditors, made within four months from the filing of a petition in bankruptcy, is void as against the trustee in bankruptcy (so far as it interferes with his administering the property assigned.”

It is manifest that to sustain the position taken by the defendant, we would put it in the power of a bankrupt to transfer administration of his estate from the bankruptcy court to some persons of his own choosing. This bankrupt’s assets within four months (within three -days in fact) of the bankruptcy was specially deposited with defendant (that is transferred to defendant) to be used in paying all creditors pro rata. It is common for a supposed debtor to dispute owing one claiming to be a creditor; or, if admitting a debt, dispute the amount of it. So creditors often do not agree among themselves. Some claim preferences, liens, or other equities. Selfish claims, or h'onest mistakes make their appearance. Who is to settle these conflicts? Congress, under its power to enact laws in bankruptcy, has placed that jurisdiction in the Federal courts. If the bankrupt may also select the tribunal, then we have the anomaly of two jurisdictions administering the same estate.

The judgment is reversed and the cause remanded.

All concur.