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entitled thereto, and that the order should be modified to permit such collection. The agreement stated that the creditor did not waive his right to object to the jurisdiction of the referee in determining the disposition of the book accounts. The creditor then filed an affidavit in response to the previous order to show cause, in which he claimed to be an assignee for a valuable consideration, and in possession, and insisted that the bankruptcy court had no jurisdiction to decide in a summary manner to whom the accounts belonged. Thereafter an order of the referee permitting the receiver, who had been appointed a trustee, to amend the petition, was sustained by the District Court. The preamble of such order recited that testimony was taken before the referee on the rule to show cause; but there was no formal order of the referee overruling the creditor's objection, though it appeared from his petition for review that such objection was overruled. Held, that the affirmance of the order by the District Court, as it did not deal with the question of adverse claimance, did not necessarily involve consideration of that question, and hence did not preclude the creditor from subsequently urging his objections to the ju
isdiction. 2. BANKRUPTCY 212—JURISDICTION-OBJECTIONS.
Where a creditor did not answer to the merits a petition of the referee seeking a recovery of book accounts assigned by the bankrupt until after his objection to the jurisdiction of the bankruptcy court to summarily determine the ownership of the accounts was overruled, the answer to the
merits did not waive the objections to the jurisdiction. 3. BANKRUPTCY 114(1)-RECEIVER.
After adjudication, the receiver, before the appointment of a trustee, in addition to his duty to preserve property actually in his possession, is a proper person to carry out any orders that the court might make, under Bankruptcy Act July 1, 1898, c. 541, § 2, subd. 15, 30 Stat. 545 (Comp. St. 1916, § 9586), for the enforcement of the provisions of the act and it is the receiver's duty, as well as his privilege, to bring to the court's atten
tion any matters which suggest the advisability of making an order. 4. BANKRUPTCY Cw212—JURISDICTION--SUMMARY PROCEEDINGS.
Under Bankruptcy Act July 1, 1898, § 23 (Comp. St. 1916, § 9607), declaring that the United States courts shall have jurisdiction of all controversies at law and in equity between trustees and adverse claimants, a referee in bankruptcy does not have summary jurisdiction to determine a creditor's right to collections already made under an assignment of book accounts by the bankrupt; the court of bankruptcy not having ju
risdiction of the res. 5. ACCOUNT, ACTION ON Cm18-BOOK ACCOUNTS-NATURE OF.
Book accounts are but evidence of money due, and are choses in ac
tion, as distinguished from choses in possession, 6. ACCOUNT, ACTION ON Cm17_NATURE OF ACTION.
An action on book accounts is a recognized remedy to recover moneys due for goods sold and delivered; and the books of account, properly
approved, are prima facie evidence of a right to recover. 7. BANKRUPTCY W212COURTS-JURISDICTION.
A bankrupt corporation passed a resolution providing that book accounts due and to become due should be assigned to a stockholder, who agreed to make advances to the bankrupt to enable it to carry on its busi
The accounts were to be collected by the bankrupt and the proceeds paid over to the stockholder; the stockholder receiving duplicate statements of accounts. Held that, as the resolution contemplated that the accounts were to be collected by the bankrupt, the books of account re. maining in the possession of the bankrupt, the trustee of the bankrupt, who obtained possession of the account books, had such possession of the res that the bankruptcy court might in a summary proceeding de
termine the rights of the parties to uncollected accounts. Om For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexen
& BANKRUPTCY 160—PREFERENCES—EVIDENCE.
In a proceeding to set aside an assignment of book accounts by a bankrupt on the ground that it effected a preference, evidence held to show that the bankrupt was insolvent at the time the assignment was
made. 9. BANKRUPTCY 166(3)–PREFERENCES—EVIDENCE.
In a proceeding to set aside an assignment of book accounts on the ground that it effected a preference, evidence held to show that the assignee, a stockholder of the bankrupt corporation, who in consideration of the assignment agreed to make advances to the bankrupt, knew
of its insolvency. 10. BANKRUPTCY OM 165(1)-PREFERENCES-KNOWLEDGE.
Where a stockholder in a bankrupt corporation, who was already a creditor, agreed to make further advances in consideration of an assignment to him of book accounts, the assignment will be treated as a preference, the value of the accounts assigned exceeding the amount of the advances and effecting a preferential payment on the debts already due
the stockholder. In Bankruptcy. In the matter of the bankruptcy of Gottlieb & Co. On review of referee's order adjudging that the bankrupt's transfer of book accounts to Adolph M. Rosenberg was void. Order of referee affirmed.
Philip J. Schotland, of Newark, N. J. (Edwin G. Adams, of Newark, N. J., of counsel), for Adolph M. Rosenberg.
Kessler & Kessler, of Newark, N. J. (Samuel I. Kessler, of Newark, N. J., of counsel), for trustee.
RELLSTAB, District Judge. This is a review of a referee's order dated November 10, 1916, which, so far as necessary to be stated, adjudged that a transfer of book accounts, made by Gottlieb & Co. (a New Jersey corporation, hereinafter called the bankrupt) to Adolph M. Rosenberg, on December 7, 1915, was fraudulent, constituted a preference, and was void against the trustee. It also commanded him to deliver to the trustee "all moneys in his possession or under his control which were collected from the said book accounts and which moneys were deposited in the National State Bank according to an agreement heretofore made between the trustee and the said Adolph M. Rosenberg," and that he refrain from making any further collections on said accounts.
The bankrupt was a manufacturer of hats, and was twice in bankruptcy, each time on involuntary petition. In the first proceeding there was no adjudication, but in July, 1915, it composed with its creditors, giving them notes for the full amount of their claims, payable in installments. Rosenberg was a stockholder, under disguise, of the bankrupt, from its organization, and a creditor of it in a large amount when said composition was effected. The present bankruptcy proceedings were begun February 2, 1916, on which date a receiver was appointed by this court. On February 4th, upon filing the company's written waiver of service of the petition and process and consent to an immediate adjudication, the company was adjudicated a bankrupt and the cause was referred. On February 8, 1916, the reFor other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes
ceiver filed a petition with the referee, alleging, inter alia, in substance, that on December 7, 1915, the bankrupt had transferred all outstanding book accounts then in existence and those that might thereafter be created to Rosenberg for debts due and to become due to him; that he believed said assignment was made as a preference, and for the purpose of hindering, defrauding, and delaying creditors. On the same day the referee made an order restraining Rosenberg from collecting said accounts, and requiring him to show cause why he should not turn over the moneys collected on said accounts to the receiver or the trustee, when appointed. On February 11th Rosenberg entered into an agreement with the receiver (the agreement referred to in the referee's order) whereby it was declared to be in the interest of the estate and Rosenberg that the accounts be collected without delay, and that an order be made modifying the restraint, so as to permit Rosenberg to collect the accounts upon certain conditions, among which were that the collections should be deposited in said National Bank of Newark in the name of the receiver, later to be changed to the trustee to be elected, and Rosenberg, and that the account should be held intact until it should be finally determined who was entitled thereto.
The referee made an order carrying out said agreement and Rosenberg collected some of the accounts, and deposited the money thus obtained in the bank. It is this deposit, amounting to the sum of $2,719.04, that the order under review directs Rosenberg to deliver to the trustee. In this agreement it was expressly stated that Rosenberg did "not waive his right to object to the jurisdiction of the referee in determining the disposition of the book accounts.” On March 1, 1916, Rosenberg filed an affidavit in response to this rule to show cause, in which he claimed to be an assignee of said accounts for a valuable consideration, and in possession thereof, and insisted that the bankruptcy court had no jurisdiction to decide in a summary manner to whom said accounts belonged, and objected to its doing so.
On April 7th the referee made an order permitting the trustee (the receiver in the meantime having been appointed trustee) to amend the petition (presumably the one made by him as receiver), which order was subsequently sustained by Judge Haight of this court on a review instituted by Rosenberg. In the preamble of this order it is recited that testimony was taken before the referee on the rule to show cause, and from Rosenberg's petition asking for said review it would appear that the referee had ruled adversely to Rosenberg's objection to the court's jurisdiction. No formal order by the referee overruling said objection, or one by Judge Haight affirming the referee's order of April 7th appears of record; but counsel are agreed that the order of April 7th was affirmed.
On May 17, 1916, after the review had been disposed of, Rosenberg filed his answer to said petition and rule to show cause, in substance setting up that by a resolution passed on December 7, 1915, the bankrupt had assigned to him all its outstanding accounts then in existance and those that would be created in the future, in consideration of his supplying raw materials to the bankrupt, to enable it to con
duct its business, and as security therefor, and that in reliance on said agreement he had supplied materials which inured to the bankrupt's benefit; that the agreement was not made as a preference, or for the purpose of hindering, defrauding, and delaying creditors, but to benefit creditors, by enabling the bankrupt to conduct its business and to earn profit; that he held the accounts that he might be reimbursed for the materials he had supplied after the assignment; that the accounts assigned to him and collected prior to the bankruptcy proceedings did not equal the amount of the indebtedness of the bankrupt for materials supplied by him in reliance upon the assignment; and that there is still due him for materials supplied, a sum in excess of the amount of the assigned accounts in dispute. This answer contained no objection to the jurisdiction of the court.
After summarizing the testimony taken on the issues thus made up, the referee certified his findings of fact to be:
"That Gottlieb & Co. was insolvent on the 7th day of December, 1915. That Adolph M. Rosenberg was familiar with and knew the financial condition of Gottlieb & Co. at all times, and particularly on the 7th day of De cember, 1915, and knew on that day that Gottlieb & Co. was insolvent. That there were creditors of Gottlieb & Co. existing at the time of the passing of the resolution whose claims amounted to about $59,000. That Adolph M. Rosenberg procured the transfer of the book accounts in question to himself with full knowledge of all these facts. That Adolph M. Rosenberg knew that the transfer of these book accounts would prefer him to the amount thereof over and above the other creditors of Gottlieb & Co. That the bankrupt intended by this transfer to create a preference in favor of Adolph M. Rosenberg."
He also certified his conclusion of law as follows:
“That the transfer of the book accounts by Gottlieb & Co. was a fraudulent transfer, and was made with the intent and purpose to hinder, delay, and defraud the creditors of the bankrupt, and was received by Adolph M. Rosenberg with full knowledge of the insolvency of the bankrupt and such transfer effected a preference in favor of Adolph M. Rosenberg, and is void as against the trustee, and that the question presented on this review is whether the transfer was fraudulent, and was given with the intention to hinder, delay, and defraud the creditors of the bankrupt, and was received by Adolph M. Rosenberg with full knowledge of the insolvency of the bankrupt, and did create a preference in favor of Adolph M. Rosenberg, and should be declared void as against the trustee, and whether the book accounts or their proceeds should be turned over to the trustee."
Under an arrangement between Rosenberg and the bankrupt, contemporaneous with the composition effected in the first bankruptcy proceedings, he was to loan his credit to the company to enable it to secure the raw materials needed to continue its business. The first installment of the composition notes fell due December 1, 1916. Before this, some time in November of that year, Rosenberg became apprehensive about the credit he was extending to the bankrupt, and a conference with the other stockholders was had, at which the financial condition of the bankrupt was considered. One of the results was an offer to pay to the creditors, on December 1st, 121/2 per cent. of their claims, instead of 25 per cent., as agreed in the composition. This was accepted by nearly all the creditors, and paid by the bankrupt
on the date named. Another result was the passage by the company's directors on December 7, 1915, of the following resolution:
“Whereas, owing to the fact that the company has entered into an agree ment with all of its creditors whereby it has secured an extension of credit on its past indebtedness, the company has been unable to secure credit on new purchases to any great extent; and
"Whereas, Adolph M. Rosenberg is willing to supply all the raw material that the company needs in the manufacture of its products, provided he is secured against loss:
“Now, therefore, be it, and it is hereby, resolved that in consideration of the said Adolph M. Rosenberg supplying to the company the raw material that it requires in conducting its business, the company to secure him against loss for all moneys that he has heretofore guaranteed the payment of, for the bene fit of the company, and against loss for any material he shall hereafter supply to the company, hereby sells, transfers, and assigns all outstanding accounts which the company now has, and all accounts which will in the future be created, as soon as they are created, to the said Adolph M. Rosenberg; and the financial officers are hereby authorized and directed, as soon as they receive any money, or its equivalent, in payment of any account, to draw the company's check for the amount so received to the order of Adolph M. Rosenberg. As soon as the amount received has been deposited and properly credited to the account of the company, and the said Adolph M. Rosenberg to turn over to the financial officers, out of the moneys so received by him, the amount necessary for payroll each week, and at the end of each month, he is to reimburse himself for the amount of material he has supplied to the company, and the balance, if any, he is to return to the treasury of the company, to be used by the company in its business, in the regular manner. For his services in this connection, Mr. Rosenberg is to receive the sum of ten dollars per week.
"Be it further resolved that, as soon as any goods are billed, a duplicate bill should be sent to Mr. Rosenberg, and that the secretary shall, under the seal of the corporation, deliver to Mr. Rosenberg a certified copy of these resolutions, setting forth the contract which the company has made in these resolutions with Mr. Rosenberg, and Mr. Rosenberg, if he accepts same, shall signify it by a writing to that effect on the minute book of the corporation. The contract embodied in these resolutions may be terminated by the company at any time, upon paying Mr. Rosenberg in full for any and all indehtedness the company owes him, and upon securing the release of his liability for any indebtedness that he may have guaranteed for the company. This arrangement may be terminated by Mr. Rosenberg upon 30 days' notice to the company of his desire to terminate it."
There was no formal assignment of any of the book accounts. From that time, however, the bills for goods sold were made in duplicate; one being sent to the purchaser, as theretofore, and the other to Rosenberg. These purchasers, however, were not notified of any assignment of their debts until a few days before the present bankruptcy proceedings were instituted. In the meantime the bankrupt collected the accounts, as theretofore, turning over some of the collections to Rosenberg to reimburse him for cash advanced and merchandise bought by him for the bankrupt's use. The bankrupt's books of account contained no reference to the alleged assignment, and they passed into the hands of the receiver without any indication therein that the open accounts appearing were not the property of the bankrupt. Subsequently the receiver, learning of the passage of said resolution, and that Rosenberg had collected some of the accounts, and was endeavoring to collect the remainder, filed the petition and obtained the rule to show cause of February 8, 1916.