Edwin C. (Edwin Charles) Brandenburg.

The law of bankruptcy, including the National bankruptcy law of 1898 as amended, the rules, forms and orders of the United States Supreme court, the Act of 1867, etc., etc, with citations to all relev online

. (page 79 of 105)
Online LibraryEdwin C. (Edwin Charles) BrandenburgThe law of bankruptcy, including the National bankruptcy law of 1898 as amended, the rules, forms and orders of the United States Supreme court, the Act of 1867, etc., etc, with citations to all relev → online text (page 79 of 105)
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Marks, 2 N. B. R. 175, F. C. 9095; 527.

but see Stevenson v. McLaren, 14 le Doll v. Harlow, 11 N. B. R.

N. B. R. 403; In re Briggs, 3 N. B. 350.



§1146. (70a) Time title vests in
trustee and property af-


Trustee's title.

Subject to liens.

Onerous or unprofita-
ble property.


To property held prior

to filing petition.
Between filing and ad-

After adjudication.

Under act of 1867.

Choses in action.

Under contracts.

Obtained through fraud.

Confusion of goods.

Exempt property.

Conveyances void un-
der statutes of fraud.

General assignment.

To property of hus-
band and wife.

Joint estate.

By the courtesy.

Dower rights.

Life insurance payable

to wife.

With cash surren-
der value.












For creditors' ben-

Fire insurance.

To leases; landlord and


Property under judg-
ment or attachment.

Mortgage or pledge.

Chattel mortgage.

To rents and profits, in

case of mortgage.

1176. Partnership property.

1177. Patents, copyrights, and


1178. Secret trust.

1179. Transferable property; com-

mercial paper.

1180. Funds in bank

1181. Growing crops.

1182. Personal privileges, li-
censes, etc.

1183. Legacies — Wills — In-

1184. Vested and contingent

remainders — powers.

1185. Stocks, bonds, or other


1186. Goods delivered to be

paid for when sold.

1187. Property held in trust.
1188 Claims against proper-
ty in trustee's hands.

1189. b. Appraisal; sale of prop-


1190. Appraisers.

1191. Sale of property, control of

court over.

1192. Manner of making.

1193. State court has no

power over.

1194. Of incumbered prop-

1195. Free of lien.

1196. Effect of in case of


1197. Liquidation without.

1198. Confirmation of.

1199. Setting aside.

1200. c. Conveyance of bankrupt's


1201. Trustee to make.

1202. d. Title on setting asida
composition or discharge.

1203. Composition set aside.



— - Collateral.


Fraudulent convey-



Funds in bank.


Stockholder's liability.




Bona fide purchases.


Stoppage in transitu.


Claims against United



f. Title on confirmation of



Effect of confirmation of



1204. e. Avoidance of transfers.

1205. Preferences voidable.

1206. Proceedings when property

under bankrupt's control.

1207. When claimed adverse-
ly by third persons.

1208. Trustee represents creditors

as well as bankrupt.

1209. Failure to take possession,
or abandonment.

1210. Trustee's rights of action —

1211. To contest bankrupt's

account as administrator.

1212. Property in custody of

the law.

§ 1146. * (Sec. 70a) Time title vests in trustee and prop-
'erty affected. — The trustee of the estate of a bankrupt, upon
'his appointment and qualification, and his successor or suc-
'cessors, if he shall have one or more, upon his or their
'appointment and qualification, shall in turn be vested by
'operation of law with the title of the bankrupt, as of the
'date he was adjudged a bankrupt, except in so far as it is to
'property which is exempt, to all

'(1) "Documents:" — Documents relating to his property;

*(2) "Patents:" — Interest in patents, patent rights, copy-
' rights, and trade-marks;

'(3) "Powers:" — Powers which he might have exercised
'for his own benefit, but not those which he might have exer-
'cised for some other person;

'(4) "Property transferred:"— Property transferred by
'him in fraud of his creditors;

'(5) "Transferable property:"— Property which prior to
'the filing of the petition he could by any means have trans-
'ferred or which might h«ve been levied upon and sold under
'judicial process against him:

' "Insurance policies:"— Provided, That when any bankrupt
'shall have any insurance policy which has a cash surrender
'value payable to himself, his estate, or personal representa-
'tives, he may, within thirt}^ days after the cash surrender
'value has been ascertained and stated to the trustee by the
'company issuing the same, pay or secure to the trustee the



Ch. 70

'sum so ascertained and stated, and continue to hold, own, and
'carry such policy free from the claims of the creditors par-
'ticipating in the distribution of his estate under the bank-
'ruptcy proceedinjis, otherwise the policy shall pass to the
* trustee as assets; and

*(6) "Rights of action:"— Rights of action arising upon
'contracts or from the unlawful taking or detention of, or in-
'jury to, his property.'^

§ 1147. Advantage of vesting title on adjudication.— :\Iuch
of the inconvenience incident to a transfer of title to be sub-
sequently avoided upon a refusal to make an adjudication is
obviated by the provision vesting title in the trustee as of the

1 Analogous provision of act
of 1867. "Sec. 14. . . . That
as soon as said assignee is ap-
pointed and qualified, the judge,
or, where there is no opposing in-
terest, 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
such assignment shall relate back
to the commencement of said pro-
ceedings in bankruptcy, and there-
upon, by operation of law, the title
to all such property and estate,
both real and personal, shall vest
in said assignee, although the
same is then attached on mesne
process as the property of the
debtor, and shall dissolve any such
attachment made within four
months next preceding the com-
mencement of said proceedings:
. . . and all the property con-
veyed by the bankrupt in fraud of
his creditors; all rights in equity,
choses in action, patents and pat-
ent rights and copyrights; all debts
due him, or any person for his use.
and all liens and securities there-
for; and all his rights of action
for property or estate, real or per-
sonal, and for any cause of action

which the bankrupt had against
any person arising from contract
or from the unlawful taking or
detention, or of injury to the prop-
erty of the bankrupt, and all his
rights of redeeming such property
or estate, with the like right, title,
power, and authority to sell, man-
age, dispose of, sue for, and recov-
er or defend the same, as the bank-
rupt might or could have had if no
assignment had been made, shall,
in virtue of the adjudication of
bankruptcy and the appointment
of his assignee, be at once vested
in such assignee; and he may sue
for and recover the said estate
debts and effects, and may prose-
cute and defend all suits at law or
in equity, pending at the time of
the adjudication of bankruptcy, in
which such bankrupt is a party ir
his own name, in the same manner
and with the like effect as they
might have been presented or de-
fended by such bankrupt. . . .
No person shall be entitled, as
against the assignee, to withhold
from him possession of any books
of account of the bankrupt, or
claim any lien thereon; . . .
but no property held by the bank
rupt in trust shall pass by such

Ch. to title to property. 737

date of adjudication, and business transactions may accord-
ingly be had with the bankrupt without fear as to imperfec-
tions of title. Should this liberality conduce to improvident
treatment of the estate by the bankrupt, the court, upon satis-
factory proof that the property is being neglected, is deterior-
ating or about to deteriorate in value, may issue a warrant to
the marshal to seize and hold it subject to further orders. ^

§ 1148. Trustee's title.— If the trustee has any power over a
subject, it must be found in the bankruptcy act.^ The trustee
takes title to all of bankrupt's property which prior to the
filing of the petition he could have transferred or which might
have been levied upon, wherever situated, whether within the
district or state where the petition is filed or beyond it. In
the case of property within the United States or any of its
provinces, the title passes to the trustee by operation of law
without any conveyance from the bankrupt,^ while in case of
property beyond the jurisdiction of the United States a con-
veyance by the bankrupt is necessary. He takes no better title
than belonged to the bankrupt or to his creditors at the time
when the trustee's title accrued,^ and cannot therefore convey
any better title.*^ While the trustee is not a purchaser from the
bankrupt and does not occupy a relation similar to a judgment
creditor, he has greater rights than the assignee had under the
Act of 1867,''' and represents the general creditors as well as
the bankrupt.^ He may proceed summarily against one hold-

2 Sec. 69. act of 1898. In re McNamara, 2 N. B. N. R. 341;

3 Butcher v. Bk., 11 N. B. R. 457, Upton v. Jackson, F. C. 16802;
12 Blatch. 435, F. C. 4203. Contra, In re McKay, 1 N. B. N.

* See Markson & Spalding V. Hsa- 133, 1 A. B. R. 292; In re Ohio

ney, 4 U. B. R. 165, F. C. 17980. Co-op. Shear Co., 2 A. B. R. 775,

5 In re New York Economical 1 N. B. N. 477; In re Bozeman, 1
Printing Co., 110 F. R. 514, 6 A. B. N. B. N. 479, 2 A. B. R. 809; In re
R. 615. Booth, 2 N. B. N. R. 377, 98 F. R.

6 In re Kellogg, 112 F. R. 52, 7 975; comp. In re Griffith, 3 N. B.

A. B. R. 270, citing In re New York R. 179; Potter v. Cogswell, 4 N.
Economical Printing Co., 6 A. B B. R. 9; Bromley v. Smith, 5 N.
R. 615; Chattanooga Nat. Bank v. B. R. 152, 2 Biss. 511, F. C. 1922;
Rome Iron Co., 4 A. B. R. 441. Wilkins v. Davis, 15 N. B. R. 60, 2

^ Sec. 67a, act of 1898. Lowell, 511, F. C. No. 17664; Allen

>< In re Yukon Woolen Co., 1 N. v. Montgomery, 10 N. B. R. 503;

B. N. 420, 2 A. B. R. 805, 96 F. R In re Appold, 1 N. B. R. 178. F. C.
326; In re Rudnick, 2 N. B. N. R. 499; Rodgers v. Winsor. 6 N. B.
975. 102 F. R. 750, 4. A. B. R. 531; R. 246, F. C. 12023; In re Dow, tJ



ing the bankrupt's property without claim of title,^ he may set
aside a fraudulent conveyance though the bankrupt could not ;
or bring an action to reach equities beyond legal remedies. He
may avoid any transfer by the bankrupt M^hich any creditor
might have avoided,^" thus subrogating the trustee to the
rights of creditors, as against liens and transfers, which exist
at the time of the bankruptcy.^i Under the Act of 1867,i2 in
addition to the petition and the adjudication, as required now,
an assignment was necessary to vest the assets in the assignee,
such vesting creating a trust against which the statute of limit-
ations ceased to run, as is the case now.^^
See also ante, § 1097,

§ 1149. Subject to liens.— Except in cases affected by

fraud, illegal preferences, or liens avoided by the adjudication
in bankruptcy, the trustee takes the bankrupt's property with
like right, title, power and authority as the bankrupt had sub-
ject to any valid lien existing thereon.^^ He takes it subject
to every equity which would affect the bankrupt himself, if he
were asserting such rights and interests,i^ but the lien must be
perfected before the commencement of the bankruptcy pro-
ceedings,^^ and not be one which the act itself avoids. Where
under the state laws, the legal title to mortgage property re-
mains in the mortgagor, such title vests in his trustee in bank-
ruptcy, together with his statutory right of redemption from a

N. B. R. 10, F. C. 4036; White v. Lipman, 1 N. B. N. 310, 2 A. B. R.
Jones, 6 N. B. R. 175, F. C. 17550. 49, 94 F. R. 353; Sutherland v.

9 In re Moore, 104 F. R. 869. Davis, 10 N. B. R. 424; In re Eld-

10 In re McNamara, 2 N. B. N. R. ridge. 12 N. B. R. 510, 2 Hughes,
341, citing In re Leland, F. C. 256, F. C. 4331; Starkweather v.
8230; Bradshaw v. Klein, F. C Ins. Co., 4 N. B. R. 110, F. C.
1790; In re Collins. F. C. 3007; 13308.

Cook V. Whipple, 55 N. Y. 150; i* In re Winn, 1 N. B. R. 131,
Southard v. Benner, 72 N. Y. 424; F. C. 17876; Courier Journal Co. v.
In re Metzger, F. C. 9510; In re Schaeffer-Myer Co., 101 F. R. 699.
Duncan, F. C. 4131; Barker v. 4 A. B. R. 183; Donaldson v. Far-
Barker, F. C. 986; In re Adams, 1 well. 15 N. B. R. 277; Bk. v. Rome
N. B. N. 167, 1 A. B. R. 94. Iron Co., 102 F. R. 755.

11 In re New York Economical i") In re Hanna, 3 N. B. N. R.
Printing Co., 110 F. R. 514, 6 A. 237; In re Dow, 6 N. B. R. 10, F.
B. R. 615. C. 4036; Bacon v. Heathcote, 1 A.

12 Sec. 14, act of 1867. B. R. 160.

i-! In re Resler. 1 N. B. N. 280, is In re Smith. 1 N. B. R. 169, 2
2 A. B. R. 166, 95 F. R. 804; In re Ben. 432, F. C. 12973.


foreclosure sale under a decree rendered after the adjudica-

In accordance with equitable principles, a mortgage exe-
cuted just prior to the bankruptcy in pursuance of a parol
agreement for a present valuable consideration more than four
months prior to the filing of the petition has been held valid
as against the trustee, as relating back to such agreement,^ ^
but this position does not appear tenable in view of the drastic
provisions of section 67 of the law, and if it were valid such
transaction would be open to the closest scrutiny and would
be sustained only in case of proof to a high degree of cer-
tainty. In those states where a pledge or mortgage is merely
security for the debt, and the superior title remains in the
pledgor or mortgagor, it passes to the trustee on the bank-
ruptcy of the pledgor or mortgagor.!'^

No difference is made between the liens obtained by the
pledge of property and those obtained in any other way, ex-
cept that a pledge implies delivery, though delivery is not
always necessary,^^ and does not require record. Otherwise
the same rules apply to pledges as to mortgages.

Where a license owned by a bankrupt and converted into
money by his trustee had previously been pledged by the bank-
rupt, the pledgee is entitled to intervene in the bankruptcy
proceedings to assert his right to payment from the proceeds.^i
If an insurance policy had been given as security for the
endorsement of a note, negotiated by bankrupt, the cash sur-
render value should be applied by the trustee first to the pay-
ment of such note ; - and the same is true where moneys are
advanced upon the pledge of such policies.-^

The trustee is entitled to hold property of the bankrupt as
against a chattel mortgage or a contract of conditional sale
which is void as against general creditors for want of record.-*
If he sells property encumbered, he conveys only the bank-

1- In re Novak, 111 F. R. 161, 7 -i In re Fisher, 103 F. R. 860.

A. B. R. 27. 4 A. B. R., 646.

isBurdick v. Jackson, 15 N. B. ^'-' In re Weil, 2 N. B. N. R. 295.

R. 318; but see Graham v. Stark, -''. In re Little River Lumber Co.,

3 N. B. R. 92, 3 Ben. 520, F. C. 1 A. B. R. 483, 1 N. B. N. 307, 92

5676. F. R. 585; In re Sands Ale Brew-

i!> In re Coffin, 1 N. B. N. 507, 2 ing Co.. 6 N. B. R. 101. 3 Biss. 175,

A. B. R. 344. F. C. 12307.

2'i Chatt. Nat. Bk. v. Rome Iron 24 in re Andrae & Co.. 117 F. R.,

Co., 102 F. R. 755, 4 A. B. R. 441. 561, 9 A. B. R.. 135.


rupt's interest subject to the iiieumbrance,-"' antl with no
higher or better interest than the bankrupt could have con-
veyed.^" lie takes the bankrupt's property free of all liens
avoided by the bankruptcy proceedings if created either be-
fore or after the filing of the petition.^^

i^ 1150. Onerous or unprofitable property.— Neither a

receiver nor trustee is bound to acce})t proi)crty of an onerous
or unprofitable character, or to assume an obligation of the
bankrupt, unless for the benefit of the creditors;-^ and if the
trustee refuses under such circumstances to take title, it re-
mains in the bankrupt. In case the trustee refuses to assume
the performance of a contract, the contractual rights and lia-
bilities of the bankrupt remain unaffected by the bankruptcy.-'*
This refers to all classes of contracts except for purely per-
sonal service or those involving trust or confidence, to which
the trustee cannot take title.

§ 1151. Extent.— The trustee takes all of the bank-
rupt's right and title and all those of the creditors against
adverse claimants to the estate, free of all claims not valid
against the creditors and every one of them,^*^ so that the bank-
rupt cannot maintain a suit in his own name in relation to
property not exempt, after the appointment of a trustee.*^^
But mere ability of the bankrupt, by deed or otherwise, to
estop or preclude himself from claiming title to or enjoying
property, acquired after the execution of such deed, does not
constitute property which prior to the filing of the petition
he could by any means have transferred.^- A bare possibility
or mere expectation of acquiring property does not constitute
property or a title to property, nor can it be transferred or

23 In re Cooper, 16 N. B. R. 178, sions v. Romadka, 145 U. S. 29;

F. C. 3190. Sparhawk v. Yerkes, 142 U. S. 1.

^6 Ray V. Brigham, 12 N. B. R. ■■^» In re Schierrmann, 2 N. B. N.

145. R. 118.

■■i- In re Wells, 114 F. R. 222, 8 so in re Kindt, 2 N. B. N. R. 369.

A. B. R 75; Rowe v. Page, 13 N. reversed 101 F. R. 107, 4 A. B. R.

B. R. 366. 48.

2s In re Schierrmann, 2 N. B. N. 3i Pickens v. Dent, 106 F. R. 653,

R. 118; In re Ells, 2 N. B. N. R. 5 A B. R. 644, affd. 187 U. S. 177,

360, 98 F. R. 967, 3 A. B. R. 564; 9 A. B. R. 47.

In re Chambers, 2 N. B. N. R. 388, S2 in re Twaddell, 110 F. R. 145

98 F R. 865, 3 A. B. R. 537; File 6 A. B. R. 539.
Co. V. Barrett, 110 U. S. 288: Ses-


levied iipon,^^ The bankruptcy act cannot be construed so
narrowly as to exclude any interest constituting an asset avail-
able to creditors merely on the ground that it is not expressly

§ 1152. Property which vests in trustee in general : prior
to filing petition. — The distinction between the property which
vests in the trustee and the time the title of the bankrupt to
such property vests him in should be observed. The trustee is
vested with the title of the bankrupt as of the date of the
adjudication of bankruptcy,^-'"' but as to the class of property
referred to in subdivision 5, only to that which "prior to the
filing of the petition the bankrupt could by any means have
transferred or which might have been levied upon and sold
under judicial process." This limits the amount of that partic-
ular kind of property, but still as to this the trustee is vested
with the title of the bankrupt as of the date of adjudication.
The one refers to the time the title vests, the other to what
title vests ;^^ and, where bankrupt made a voluntary assign-
ment prior to filing a petition in bankruptcy, the status of
creditors, who did not consent to the assignment, is not affected
by it, but is fixed by the filing of the petition.^^ To illustrate :
suppose, prior to filing his petition, the bankrupt had a trans-
ferable interest in a business left by his father, who, to pro-
tect the business, had provided in his will that, in case of the
bankruptcy of any one of his children, his interest should
cease and there should be paid to whomever was entitled the
value of such interest as of the day he filed the petition in
bankruptcy. Suppose, further, that between the filing of the
petition and the adjudication, events occurred which caused
the business to increase largely in value, by the death of a
brother, the bankrupt received an interest equal to the one
he had formerly had. His trustee in bankruptcy would take
the bankrupt's first interest as the bankrupt held it on the day
of the adjudication, that is, its value on the day the petition
was filed, while, as shown by the interest still held by the

^3 In re Wetmore, 108 F. R. 520. so in re Pease, 2 N. B. N. R.

6 A. B. R. 210. 1108, 4 A. B. R. 578; In re Durka,

34 In re Baudouine, 1 N. B. N 104 F. R. 326.

£06, 3 A. B. R. 55, 96 F. R. 536. tt in re Swift, 3 N. B. N. R. 52.

35 In re Kellogg, 113 F. R. 120,

7 A. B. R. 623.


l);uikrupt, the property itself then was quite different both
in form and value. The elimination of the })art of the para-
graph between the provisions will further emphasize what is
meant. "The trustee * * * shall in turn be vested * *
* with the title of the bankrupt, as of the date he was ad-
judged a bankrupt * * * to all * * * (5) property
which prior to the filing of the petition he could by any means
have transferred. * * *"

If insolvency proceedings were pending when the bank-
ruptcy act was passed and the bankrupt's assets were vested
in the assignee appointed therein, the trustee is entitled only to
property acquired between the institution of the insolvency
proceedings and the filing of the petition.^^

To summarize, it may be generally stated that the trustee
becomes vested as of the date of the adjudication to all prop-
erty of the bankrupt which at the time the petition was filed
by or against him might in any way, by legal or equitable
proceedings, be subjected to the claims of his creditors,^^ in-
cluding such as may have been conveyed in fraud of the act
or of creditors, or by any voidable transfers whatever. This
transition of title is limited as to the class of property in sub-
division 5 of this section, to such interests in property as the
bankrupt could by any means have transferred or which
might have been levied upon and sold under judicial process
against him, or otherwise subjected to the claims of his cred-
itors prior to the filing of the petition, or property into which
such interests have been converted, including such as may have
vested in him on the day but prior to the filing of the peti-
tion.^*^ It w^ould include the interest of a bankrupt in an
estate, vested before the bankruptcy, although such interest is
undetermined,^^ but would exclude all inchoate interests which
he possessed at the time the petition was filed which could
not be alienated or disposed of by him or levied on and sold
or otherwise subjected to his debts,-*- as a grant of public lands

3s In re Mussey, 2 N. B. N. R. 4i In re Hosier, 112 F. R. 138. 7

113, 99 F. R. 71, 3 A. B. R. 592. A. B. R. 268.

"9 In re Elmira Steel Co., 5 A. B. ^2 in re Harris, 1 N. B. N. 384.

R. 484; In re Louis & Bros., 1 A. 2 A. B. R. 359; In re Pease, 2 N.

B. R. 458; In re Appel, 4 A. B. R. B. N. R. 1108, 4 A. B. R. 578; Kee-

722. gan v. King, 96 F. R. 758, 3 A. B.

40 In re Pease, supra; In re R. 79; In re Legg, 1 N. B. N. 420, 2

Stoner, 105 F. R. 752, 5 A. B. R. A. B. R. 805, 96 F. R. 326; but


which had been declared forfeited, although subsequent to
bankruptcy proceedings had been restored.^^ Thus the words
"prior to the filing of the petition" as used in this subdivision,
refer to what passes, while the apparently antagonistic words
earlier in the section refer to when it passes.^^ No payment
by or to a bankrupt subsequent to the bankruptcy in relation
to transactions anterior thereto is valid, though made or re-
ceived bona fide or without notice.^^

§ 1153. Between filing petition and adjudication.—

Since it is the purpose of the act to apply the property owned
by the bankrupt at the time of filing the petition to the pay-
ment of the debts of bankrupt then owing, though the title
thereto does not vest until the adjudication, all property
acquired between the filing of the petition and adjudication,
unless simply a substitute for property held before such filing,
can be retained by bankrupt and does not became a part of
his estate for the payment of debts, and need not therefore be
scheduled.^*^ If the interest is vested when the petition is
filed, it would be otherwise.^' Thus, an inheritance received
during this period but over which bankrupt had no control at
the time of filing the petition, remains his individual prop-

§ 1154. After adjudication.— All property acquired by

bankrupt subsequent to his adjudication remains his individ-
ual property, and does not inure to the benefit of creditors.
Thus a lease which proved valuable, after the adjudication

Online LibraryEdwin C. (Edwin Charles) BrandenburgThe law of bankruptcy, including the National bankruptcy law of 1898 as amended, the rules, forms and orders of the United States Supreme court, the Act of 1867, etc., etc, with citations to all relev → online text (page 79 of 105)