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this conclusion the different views expressed | der 57g depend upon the action of the by the trial court and the supreme court trustee. Counsel say: upon the finding of the jury as to the rela
the creditor receiving such alleged preference must exercise an election as to what course he shall take. Until the trustee exercises his election, no cause of action accrues. The creditor is not called upon to elect what course he shall take until the trustee has acted. It therefore follows that the trustee should exercise his election and make his demand before commencing suit."
"The bankrupt act, therefore, contemtion which the lumber company stood to the plates that the trustee shall exercise his bank. The jury found, in answer to ques-election as to whether or not he shall avoid tions 4 and 5, that the lumber company, a preference, and it also contemplates that acting for the bank, took the legal title for the benefit of the latter under an agreement with Young and the bank to account to it for a portion of the proceeds. The trial court said that this was not a finding "that the lumber company was the agent of the bank." The supreme court thought that the jury "pretty clearly decided" that the bank was a principal and the lumber company "a mere agent" in the matter. It is true the And this, it is argued, is more than a supreme court immediately added: "How- mere question of state practice, and inever, the evidence seems to clearly establish volves the question whether the property that the lumber company purchased the consisting of the alleged preference is any property from Young in the regular course part of the trust estate. If it be intended. of business, without any understanding with by this to assert that the action of the the defendant, other than that its interest creditor under 57g is to wait upon or dein the property as mortgagee and claimant pends upon the action of the trustee under under numerous statutory labor liens should § 60, we do not assent, and nothing can be be recognized, and the equivalent thereof in deduced, therefore, from the supposed relamoney delivered to it out of the proceeds." tion of those sections as to the necessity of [125 Wis. 478, 104 N. W. 102.] And this a demand before suit. We do not see how was deemed sufficient to accomplish the such a demand can even be an element in preference which Young intended to give the the consideration of the creditor, whether he bank. The court passed over, as not impor-will surrender the preference and prove his tant, the distinction between the notes debt. The right of surrender exists as well given by the lumber company to Young as after suit as before suit. Keppel v. Tiffin the purchase price of the lumber. Sav. Bank, 197 U. S. 356, 49 L. ed. 790, 25 Sup. Ct. Rep. 443.
These minor matters out of the way, we come to the more important contentions of Independently of such considerations, the bank. These contentions are expressed whether the election by a trustee to avoid in the form of questions, the first of which a preference should be exercised by a deis: "Can a trustee in bankruptcy, under mand before suit or can be exercised by the the provisions of the bankruptcy act, law-suit itself might be difficult to determine if fully maintain a suit to recover the value it were necessary on the record. 1 Chitty, of a voidable preference without first elect- Pl. 176, and cases cited; Shuman v. Flecking to avoid such preference by notice to enstein, 4 Sawy. 174, Fed. Cas. No. 12,826; the creditor receiving such preference, and Brooke v. McCraken Fed. Cas. No. 1,932; by demand for its return?" Wright v. Skinner, 136 Fed. 694; Goldberg v. Harlan, 33 Ind. App. 465, 67 N. E. 707. But we do not think it is open to the bank to urge the first. The bank, it is true, demurred to the complaint and urged as a ground of demurrer the absence of an alle
It is urged by the bank that it cannot, and to sustain this contention, that a preference is not void, but voidable. And voidable solely at the election of the trustee, who must indicate a purpose to do so. The argument is that, a preference being voidable, the cred-gation of a demand. But the bank did not itor receiving it is not in default until he fail to or refuse to surrender it on demand. Prior to that time his possession is rightful and lawful, and he is not guilty of any wrong, tort, or conversion. And the demand, it is further urged, must be made before suit, for, it seems also to be contended, that the creditor must be given an opportunity to exercise the election given him by subdivision g of § 57 of the bankrupt act to surrender the preference and prove his claim. We say, "seems to be contended," because we are not clear that counsel for the bank claims that the rights of a creditor un
stand on the demurrer. It answered, and not only traversed the allegations of the plaintiff, but set up an independent defense, and showed that a demand would have been unavailing, and a demand is not necessary where it is to be presumed that it would have been unavailing. Davenport v. Ladd, 38 Minn. 545, 38 N. W. 622; Bogle v. Gordon, 39 Kan. 31, 17 Pac. 857. Besides, it appears that a demand was made before suit. In determining from what date interest should be given the trial court said: "There is evidence of a demand, but I think only a short time elapsed until action was com
menced, so that it will make little difference whether interest is computed from the ume of the demand or the commencement of the action."
obtain a greater percentage of its debt than other creditors of the same class. The bank, in its brief in this court, says, "certain other claims were filed and allowed in the bankruptcy proceedings as preferred claims. These were probably claims for wages after the time of the transfers in question." In the list of claims referred to some only are
all were, they were represented by the trustee.
The other questions propounded by the bank are based on the sixth assignment of error. We will not examine the arguments of counsel for the bank in detail. Their fundamental contention is that the transfers to the bank were not invalid as a preference if their enforcement would not operate to give the bank a greater percentage of its debt than other creditors of the same class would receive. And such, it is further contended, was not the result, and it is inti
The trial court instructed the jury substantially, in the words of subdivision a of § 60 of the bankrupt act, as to when a debtor should be deemed to have given a preference, and, in explanation of the in-marked preferred. But, granting that they tention of the debtor, said to "intend to prefer would be to make a transfer for the purpose of enabling the bank to obtain a greater percentage of its debt than any other debtors of the same class." And, defining this class of creditors, said further: "So far as creditors' rights are involved in this action, they are all of the same class, by which is meant they would receive the same percentage of their claims. Claims for taxes or wages within certain times, so as to be preferred, would be of a different class. But claims of general creditors, like those approved in the Young bankruptcy proceed-mated that claims of possible and fictitious ings, are all of the same class." The bank excepted, and assigned as error the charge that all of the creditors were of the same class. Disposing of the assignment the supreme court said: "Whether that is right or wrong does not seem to in any way concern the case. This action, as we have indictated, is simply one in trover to recover the value of property which, as is alleged, was, in fraud of the bankrupt act, wrongfully converted by defendant to its own use. Whether there was one or more classes of creditors, and in what manner the property sought to be recovered would, if the suit were successful, be administered, did not vary in the slightest degree the legal rights of the plaintiff. If the property was obtained by the defendant in fraud of the bankrupt act, plaintiff was entitled to recover the same, and this is the only question involved."
creditors were in effect considered. But this contention encounters the facts found by the jury and the trial court. We have already seen what, in the opinion of the trial court, the evidence established as to the effect of the transfers, and the jury found that Young was insolvent at the time they were made, and that the purpose of their execution was to give the bank a preference and to enable it to obtain a greater percentage of its debt than other creditors of Young of the same class. These findings were not disturbed by the supreme court, and we must accept them as stating the facts established by the evidence, although counsel seem to invoke an examination by us of the record against them. Taking them as true, they show a case of preference and grounds to set it aside. The bank also contends, in effect, that in such suit the validity of all other claims against the bankrupt can be litigated, and whether they have received voidable preferences and have not been required to surrender them. The broad effect of the contention repels it as unsound. To yield to it would transfer the administration of a bankrupt's estate from the United States district court to the state court.
The bank contests this view, and contends that, if accepted, "it would be impossible to ascertain whether or not the preference had been received without first determining the question of whether the enforcement of the transfer would enable the bank to recover a greater percentage of its debt than other creditors of the same class." But there is a question of fact to be considered. It was a question of fact what claims were proved against the estate. At the trial the learned judge who presided described them in his instructions as claims of general creditors. In his memorandum opinion he said that, from his minutes and the statements of the evidence in the briefs of counsel, he was inclined to believe that the point was not well taken that the evidence did not show that the effect of the enforcement of 1. A decision of a state court in a case the transfer would be to enable the bank to in which rights under a statute of the
JOHN C. HAMMOND, Plff. in Err. WILLIAM W. WHITTREDGE, Trustee under the Will of Solon O. Richardson, deceased, et al.
Error to state court-Federal question.
United States were claimed by the defend- | rect shall revert to the said sisters surviving, ant is reviewable in the Supreme Court of the United States, where that statute was referred to by the highest state court and was an element in its decision.*,
Limitation of actions-in bankruptcy cases.
3. Assignees in bankruptcy cannot be deemed to have abandoned the interest in remainder of the bankrupt under a testamentary trust because they did not sell such interest, where, apparently as soon as they and of the fact that creditors of the bankrupt were seeking to reach and apply this interest in satisfaction of his debts, they brought a bill in equity in the nature of a bill quia timet to compel the transfer to them of the bankrupt's interest, and to enjoin the trustee from paying any part of the trust fund to the bankrupt or those claiming under him.
learned of the existence of the trust fund
to be shared equally between them. At the decease of all my three said sisters, I direct that the fund from which they have derived an income from my property be divided equally between the children of my said sisters, and I direct my executors to pay to them each their respective part, the same to be the property of the children of my said sisters forever.'"
The three life tenants survived the testator. Louisa never had any child; Martha Hutchinson had one child; Mary A. Sweetser had one child, a son, Elbridge L. Sweetser. He and the child of Martha were born in the lifetime of the testator. Mary A. Sweetser survived her sisters, leaving her son and niece surviving her.
This bill was brought February 1, 1901, to determine who was entitled to receive Elbridge L. Sweetser's half of the fund,whether his assignees in bankruptcy, appointed in proceedings instituted by him in 1878, by voluntary petition in bankruptcy in the district court of the United States for the district of Massachusetts, or the plaintiff in error, who claims, under an equitable attachment made in 1881, as hereafter stated, and an assignment made in October, 1885, to secure two debts incurred. after Sweetser's bankruptcy. There are other defendants besides the plaintiff in error, but their rights are not before us.
The facts are stipulated, and the most
Argued and submitted January 17, 1907. pertinent are the following:
N ERROR to the Supreme Judicial Court of the State of Massachusetts to review a decree that the interest of a cestui que trust passed to his assignees in bankruptcy, entered on a bill for instructions filed by the testamentary trustee. Affirmed.
On February 23, 1878, Elbridge L. Sweetser filed a voluntary petition in bankruptcy in the district court of the United States, district of Massachusetts, and was, on that day, adjudged a bankrupt. On the 16th of March, 1878, William B. H. Dowse and Horace P. Biddle were appointed the assignees of his estate, and there was duly
See same case below, 189 Mass. 45, 75 N. conveyed to them all the estate which the E. 222.
Statement by Mr. Justice McKenna: The defendant in error, Whittredge, who was trustee of certain property held in trust under the will of Solon O. Richardson, who died in 1873, filed this bill for instructions in the supreme judicial court of the state of Massachusetts.
There was bequeathed by said will $35,000, on the following trusts:
"The income to be paid to his three sisters for life, namely Mary A. Sweetser, Martha Hutchinson, and Louisa Ricnardson; and 'at the decease of my said sisters, or either of them, my will is that the share belonging to the deceased sister shall revert to her children, to be shared by them each and each alike; if either of my said sisters shall die childless, the income belonging to her I di
bankrupt owned or was entitled to on February 23, 1878.
During the year 1878 claims amounting to $13,940.47 were proved against the estate. No other claims have since been proved.
The only assets disclosed by Sweetser in his schedules consisted of a stock of goods subject to mortgage. The proceeds of these goods were consumed in paying the mortgage and certain expenses of the assignees, and the balance, of about $280, was paid to the assignees on account of services.
The Florence Machine Company, in 1881, filed a bill in equity against Elbridge L. Sweetser and Solon O. Richardson, then the sole trustee of Solon O. Richardson, deceased, to reach and apply in payment of five notes held by that company against Sweetser, his equitable interest under the
*Ed. Note.-For cases in point, see vol. 13, Cent. Dig. Courts, §§ 1049, 1053.
will of said deceased. The suit was brought ton, the then trustee under the will. under the provision of General Statutes of On the same day day Sweetser and his Massachusetts, chap. 113, § 2, and is called wife conveyed to one Sidney P. Brown equity suit No. 386. Subpoena was issued their interest under the will, subject to the November 28, 1881, and served on Sweetser mortgage, and Brown conveyed to Hannah and Richardson, trustee, November 29, 1881. Sweetser. Notice of these conveyances was Sweetser filed an answer February 1, 1882, acknowledged by said trustee, William Morin which, among other things, he denied that ton. he had any such interest under the will as could be reached and applied to the payment of the claim of the company, and also denied the validity of the claim, but did not deny making the notes. On the same date Solon O. Richardson, trustee, also filed an answer, setting up the proceedings in bankruptcy and the appointment of assignees, and suggested that any interest that Sweetser had in the fund passed to them. The suit is still pending, no hearing upon the merits having ever been had.
In 1882 the assignees filed a bill in equity against Sweetser and Solon O. Richardson, then the sole trustee under the will of said Solon O. Richardson, in the United States district court, alleging an interest in Sweetser in the fund, that it had accrued before the bankruptcy, but was not set forth in his schedule of property, and that they had no knowledge of such interest until a few days before filing the bill. The bill prayed, among other things, "that the said Elbridge L. Sweetser might be directed to execute and deliver such instruments as would convey to said assignees all of his interest as legatee under the said will, and that the said trustee, Solon O. Richardson, might be enjoined from paying to the said Elbridge L. Sweetser, or any person or persons claiming under him, any part of the said trust fund, or the income thereof, which might accrue and become payable to the said Elbridge L. Sweetser."
On November 15, 1882, the Florence Machine Company, by its attorney, Warren O. Kyle, filed a general replication in suit No. 386.
On December 2, 1882, Sweetser and Solon O. Richardson, trustee, filed general demurrers to the bill. No hearing, however, has ever been had in the case, either upon the demurrers or the merits, and the case is still pending.
On October 24, 1885, Sweetser executed and delivered to the Monitor Oil Stove Company a note for $1,809 and a note to Solon O. Richardson, individually, for the sum of $506.05. As a security for said notes Sweetser gave a written mortgage or assignment, under seal, of all his interest under the will of Solon O. Richardson, deceased, to Richardson and the company. Sweetser's wife signed the notes and mortgage as joint maker. Notice of the mortgage assignment was acknowledged by William Mor
On October 24, 1885, the Florence Machine Company brought an action at law in the superior court of Suffolk county against Sweetser, in which the then assignees in bankruptcy were summoned as trustees, to recover the sum of $7,620.13, amount due on eight promissory notes which had been proved in his bankruptcy proceedings, and and also to recover upon an account based on ledger entries made by the company in 1881. The assignees in bankruptcy were duly served with process, but did not appear, and were defaulted.
On October 26, 1885, in equity suit No. 386, Solon O. Richardson, trustee, filed a further answer, stating that he had resigned as trustee, and that William Morton had been appointed sole trustee, and had accepted the trust.
On June 16, 1891, on motion of W. B. H. Dowse, Warren O. Kyle was joined with him as a party plaintiff in the suit of Dibble v. Sweetser, in the United States district court, and Daniel G. Walton, the then trustee under the will, was summoned as a defendant. He accepted service July 30, 1891, and on November 4, 1891, filed a general demurrer to the bill.
On April 19, 1893, the Florence Machine Company was dissolved by an act of the legislature, chap. 215 of the Acts of 1893.
On August 13, 1894, the Florence Machine Company filed a motion in equity suit No. 386 that Daniel G. Walton, who had become trustee of the trust under the will of Solon O. Richardson, deceased, and the then assignees in bankruptcy, Dowse and Kyle, might be made parties defendant and summoned to answer the plaintiff's bill. Service was made on Walton August 18, 1894, and accepted by the assignees August 30. In September, 1894, Walton's appearance was entered. On May 15, 1899, Hammond, plaintiff in error, having become assignee of the claim in suit, entered his appearance for the plaintiff, and also entered his appearance pro se, and filed a motion setting forth the assignment to him of the claim, and asking to be permitted to prosecute the suit in his own name.
May, 1899, the assignees filed an answer, alleging upon information and belief that Sweetser had, at the time of the assignment in bankruptcy, a vested interest in the trust fund under the will of Richardson, and that, by the operation of the United
States bankruptcy act, said interest had | equitable interest either by reason of the
been transferred to them.
On February 1, 1901, William W. Whittredge, being then the sole succeeding trustee under said will, filed this suit for instructions. On April 22 he was summoned to appear as party defendant in the case of Dibble v. Sweetser, in the United States district court. He accepted service and appeared by counsel June 12, 1901. July 1, 1901, Hammond filed a petition in said case to be made a party. In the petition he alleged, among other things, that the assignees were not entitled to Sweetser's interest as against him as assignee of the Florence Machine Company; among other reasons, because such rights as said assignees had, if any, were barred by the statute of limitations. U. S. Rev. Stat. § 5057. Whittredge, trustee, also filed an answer, alleging the pendency of the suit in equity No. 386, brought by the Florence Machine Company, and that his predecessor had been made a party therein; and also alleging that he, Whittredge, had filed his suit for instructions, and also that the right of action of the assignees was barred by the limitations of law.
On February 10, 1904 (the said assignees Dowse and Kyle having disputed the right of said John C. Hammond to be subrogated to the rights of the Florence Machine Company as to the claims proved by said company against the estate in bankruptcy of said Sweetser in 1878, and having petitioned to have said claims expunged), the United States district court made a decree in favor of said Hammond.
The decree has since been affirmed by the United States circuit court of appeals. Dowse v. Hammond, 64 C. C. A. 437, 130 Fed. 103.
The suit in equity in the United States district court, brought by the assignees of Sweetser in the first bankruptcy, has been continued from time to time at the request of the assignees, who have appeared for that purpose at the callings of the docket to await the termination of the life interests in the trust fund.
As already stated, no hearing has been had either upon the said demurrers or upon the merits.
That part of the trust fund held by Whittredge, as trustee, which is the subject-matter of this suit, consists of property worth about $18,000.
The supreme judicial court decreed that Sweetser's interest in the fund passed to his assignees in bankruptcy. 189 Mass. 45, 75 N. E. 222. And it was decreed that Hammond, as assignee of the Florence Machine Company and as assignee of the Monitor Oil Stove Company, had "no rights in said
provisions of the United States Revised Statutes, § 5057, or otherwise."
Mr. Hollis R. Bailey for plaintiff in error. Messrs. Warren Ozro Kyle and Fred Joy for defendants in error.
Mr. Justice McKenna, after stating the case as above, delivered the opinion of the court:
A motion is made to dismiss, which, we think, should be denied. Plaintiff in error sets up rights under § 5057, which were adjudged against him. The court said:
"The defendant Hammond admits that when the testator died Elbridge had either a vested remainder in one half of the trust fund of $35,000, subject to the life estates created by this item of the will, and subject to the class being opened on the birth of further child or children of the life tenants, or a vested interest in a contingent remainder, and that 'in either case' his interest was 'assignable.'
"His contention, however, is that the assignees are barred by U. S. Rev. Stat. § 5057."
The court decided against the contention, and decided, besides, that "the title of the assignees in bankruptcy became complete on the assignment to them of this interest in remainder," and that "the ownership drew after it the possession," which has continued ever since, "and all persons are barred by U. S. Rev. Stat. § 5057, from controverting it." In other words, the court decided that § 5057 did not preclude the assignees from asserting rights against plaintiff in error, but precluded him from asserting rights against them. Defendants in error, however, urge that the court's decision resulted from facts found or admitted and from general principles of law, and "there remained in the case no question as to any title, right, privilege, or immunity under a statute of the United States; and that the court expressly declined to choose 'between the opinion in Dushane v. Beall, 161 U. S. 513, 40 L. ed. 791, 16 Sup. Ct. Rep. 637, and the decision in Rock v. Dennett, 155 Mass. 500, 30 N. E. 171.'" But rights under a statute of the United States were claimed by plaintiff in error, and that statute was referred to by the supreme ju- . dicial court, and was an element in its decision. We think also that the decree rendered was final for the purposes of this writ of error. We therefore overrule the motion to dismiss and go to the merits.
On the merits nine errors are assigned, but plaintiff in error asserts that the questions really involved are only four, namely: Had Sweetser such "amount of title" in the