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[1] As to the referee's jurisdiction. On behalf of the trustee, it is contended that this question was disposed of on review of the referee's order of April 7th. This, however, is not the case. Rosenberg's objection to the referee's jurisdiction, reserved in the agreement of February 11th and distinctly interposed in his said affidavit of March 1st, was undoubtedly overruled by the referee when or before he made the order of April 7th; and while such jurisdictional challenge may have been pressed upon this court when reviewing said order, yet that order did not deal with the question of adverse claimance, and its affirmance did not necessarily involve a consideration of that question. Rosenberg having at the outset unequivocally objected to the referee's jurisdiction, and never having expressly waived it, and the order now under review being the first made by the referee determining the ownership of said accounts, the jurisdictional question is still alive, unless Rosenberg's failure to renew such objection in his answer of May 7th, which went to the merits' of the controversy, estops him from raising it now.

[2] In Re Kornit Mfg. Co. (D. C.) 192 Fed. 392, 395, 27 Am. Bankr. Rep. 244, 258, the writer said:

It is elementary law that neither at law nor in equity can a challenge to the jurisdiction be joined with a defense to the merits. When this is done, the court will disregard the objection to the jurisdiction, and put the defendant to his defense.”

That proposition has the support of Jones v. Andrews, 10 Wall. (77 U. S.) 327, 19 L. Ed. 935; but, as in the case of Re Kornit Mfg. Co. respondents were held not to be adverse claimants, that statement was obiter. In the present case the answer to the merits was not interposed until after the objection to the jurisdiction was overruled. In such circumstances pleading to the merits is not a waiver of the objections. Harkness v. Hyde, 98 U. S. 476, 25 L. Ed. 237; In re Indiana Transportation Co., Petitioner, 244 U. S. 456, 37 Sup. Ct. 717, 61 L. Ed. 1253; Foster Milburn Co. v. Chinn, 202 Fed. 175, 122 C. C. A. 577.

[3, 4] The receiver's standing to challenge Rosenberg's right to such book accounts was denied before the referee and is questioned here. At the time the receiver's said petition was filed an adjudication had been entered. The proceedings had therefore entered upon the second stage. They were no longer primarily concerned with the status of a person and whether he had committed an act of bankruptcy, but with the administration of a bankrupt’s property. Adjudication having taken place, the receiver was no longer merely a custodian of property which might be ordered returned to the alleged bankrupt, but of property which was then in the course of administration. In addition to the duties devolving upon him as a preserver of property actually in his possession, he would be a proper person, pending the appointment of a trustee, to carry out any orders that the court might make for the enforcement of the provisions of the Bankruptcy Act under section 2, subd. 15. It would be his duty, as well as his privilege, to bring to the court's attention any matters which suggested the advisability of making such order.

245 F.-10

His petition of February 8th was in line with his duty. It called for no other than summary action. The referee's order to show cause, with ad interim restraint of the same date, was within his power, and in the absence of objection to his jurisdiction, and upon a proper showing, he would have been justified in making an order that the respondent turn over all the collections he had made on such book accounts, whether received before or after the institution of said bankruptcy proceedings. However, Rosenberg's objection called for a preliminary inquiry whether he was an adverse claimant within the meaning of section 23, and, if so, whether the res involved in that controversy was in the possession or control of the bankruptcy court. While the referee's rule covered collections made before the bankruptcy proceedings were begun, his order does not direct the return of such collections. As to those, Rosenberg's possession prevented them from becoming a part of the res which passed into custodia legis with the filing of the petition in bankruptcy. In the absence of consent or waiver, these collections could not be recovered by summary action, the only kind exercised in the proceedings under review. In re Rathman, 183 Fed. 913, 106 C. C. A. 253; 25 Am. Bankr. Rep. 246, and cases cited. The referee properly excluded such collections from the present order.

[5-7] As to the uncollected accounts. Whether the referee had summary jurisdiction to determine the right to the uncollected accounts depends upon whether they had become a part of the res, and that is to be determined as of February 2, 1916, the date when the pending bankruptcy proceedings were begun. These accounts appeared on the bankrupt's books of account as a part of its assets. Rosenberg had no possession of, or control over these accounts, other than could be derived from the resolution of December 7th, and his custody of one of the duplicate bills issued after said accounts were created.

Book accounts are but evidence of moneys due. They are choses in action, as distinguished from choses in possession. Bills are but copies of such accounts. An action on book account is one of the recognized remedies in New Jersey to recover the moneys due for goods sold and delivered, and books of account, properly proven, are prima facie evidence of the right to so recover. See 1 N. J. Dig. Ann., pp. 71, 72. The bankrupt's resolution of December 7th did not put Rosenberg in possession of any accounts. If valid, they gave him but the right to the moneys due or to become due on said accounts. This is so as to the accounts in existence at that time; a fortiori, as to those yet to be created.

It is to be noted that, while this resolution purports to assign the bankrupt's accounts, existing and to be created, to secure Rosenberg against loss for all past guaranties and future supplies of materials, yet it contemplated that they were to be collected by the bankrupt, Rosenberg was to be furnished with a duplicate bill of all sales made, but he was not authorized to make any collections. By this resolution, if valid, said accounts, though charged with a lien in favor of Rosenberg, continued in the possession of the bankrupt, and from the filing of the creditors' involuntary petition were in custodia legis, and on ad

judication were subject to the summary jurisdiction of the bankruptcy court. The physical possession by the receiver of the books of account gave him at least constructive possession of the unpaid accounts therein recorded. He thereby obtained all the indicia of possession that usually accompany the transfer of property of that character from the bankrupt to the trustee.

The possession by Rosenberg of duplicate bills of such accounts before the institution of bankruptcy proceedings did not oust the bankrupt of its possession of, or control over, said accounts; and the institution of such proceedings gave him no greater rights in that respect. In such circumstances, whatever rights Rosenberg had in these accounts, followed them into the bankruptcy court, where, after adjudication, in case of dispute, such rights are to be litigated and determined. O'Dell v. Boyden (C. C. A. 6) 150 Fed. 731, 80 C. C. A. 397, 10 Ann. Cas. 239; 17 Am. Bankr. Rep. 756.

[8] The referee having jurisdiction to summarily determine the right to said uncollected accounts, what of his finding that those covered by said agreement of February 11, 1916, belong to the estate, and that the money collected thereon should be delivered to the trustee? There having been no adjudication in the first bankruptcy proceedings, there is no legal presumption that Gottlieb & Co. was insolvent, within the meaning of the bankruptcy law, at the time such proceedings were brought to an end. As noted, the composition called for payment of the entire indebtedness. That at that time the company was unable to meet its obligations as they matured will be presumed from said composition; but the composition does not prove that the aggregate of the company's property would not, at a fair valuation, be sufficient to pay its debts. That at the institution of the present bankruptcy proceedings, less than seven months after such composition, the company was hopelessly insolvent, is undoubted; but was it so on December 7th, when said resolution was passed? The testimony directly bearing on the fair value of the company's property as of that or an earlier date, while meager, yet, when taken in connection with the bankrupt's then financial difficulties and its hopeless insolvent condition very shortly thereafter, without any evidence of an intervening cause to account for the latter condition, tends to a mental pronouncement that it was insolvent on that date. The referee so found, and his finding has my concurrence.

[9] Did Rosenberg then know it? He bore a very close relationship to the bankrupt. He was a stockholder from the beginning, and at all times familiar with the company's business. This placed him in a different class from ordinary creditors. At the time of such composition the bankrupt was indebted to him in a large amount for merchandise sold to it and for his accommodation indorsements of its commercial paper. His opportunities to ascertain the exact financial condition of the bankrupt during its entire business career were unhampered, and the very largeness of his interest as a creditor would be likely to impel him, as it did, to become conversant with the company's financial needs on and after its resumption of business following the composition. The first payment of the bankrupt's old debts, under the composition, would be due in six months. In the meantime, while relieved of the

pressure of such payment, it would be in need of capital (money or credit) to carry on its business, out of the profits of which it expected to meet the terms of such composition. With knowledge of this, Rosenberg undertook to finance such business. This he did by furnishing to it from time to time the raw materials on his own credit and advancing cash to pay for labor as required.

Seemingly there never was a time after the company resumed business that Rosenberg would not have had reasonable cause to believe that an assignment or pledge to him of the company's book accounts would give him a larger percentage of its assets than other creditors. In November, because of the company's failure to pay for the advances made by him in October, Rosenberg became considerably concerned about the company's finances. Conferences and negotiations then took place, which resulted in the passage of the resolution of December 7th. If at no time before such conference Rosenberg was apprised of the financial condition of the company, he learned it then. The referee found he had knowledge of the company's insolvency at the time said resolution was passed, and I fully agree with him in that conclusion.

[10] Does such knowledge disentitle him to the moneys realized from the book accounts in question? They were intended to secure him, not merely for antecedent debts, but also for advances afterwards to be made, and because of this fact Greey v. Dockendorff, 231 U. S. 513, 34 Sup. Ct. 166, 58 L. Ed. 339, 31 Am. Bankr. Rep. 407, is relied upon to sustain the contention that said security was valid and that the referee's order should be reversed. The present case, however, is radically different, because, first, in the Dockendorff Case the assignee of the book accounts did not know that the debtor was insolvent; and, second, though advances were made by Rosenberg in cash and goods after the passage of the resolution, the aggregate of the collections paid to Rosenberg from the bankrupt's book accounts and the value of merchandise returned to him or to others for his benefit, between the date of the passage of the resolution and the institution of the bankruptcy proceedings, exceeded the aggregate of the cash and merchandise furnished by him during said period.

National City Bank v. Hotchkiss, 231 U. S. 50, 34 Sup. Ct. 20, 58 L. Ed. 115, 31 Am. Bankr. Rep. 291, distinguished in the Dockendorff Case, is more in point on the question of knowledge of insolvency. The fact that under such security Rosenberg received more than the advances made takes it without the Dockendorff Case, and bars his right to the accounts now under consideration.

The order under review is affirmed.

ALBERT et al. v. BASCOM et al.
District Court, W. D. Texas, Austin Division. June 14, 1917.)

No. 279.
1. COURTS 268FEDERAL COURTS-JURISDICTION.

The federal District Court is without jurisdiction solely on the ground of diversity of citizenship where neither plaintiffs nor defendants are citi

zens or residents of the forum. 2. COURTS 269—FEDERAL COURTS-JURISDICTION.

A suit to establish a lien upon or claim to property brought under Judicial Code, & 57 (Act March 3, 1911, c. 231, 36 Stat. 1102 (Comp. St. 1916, § 1039]), providing that, when in any suit commenced in any District Court to enforce any legal or equitable lien upon or claim to, or to remove any incumbrance on the title to real or personal property within the district, one or more of the defendants shall not be an inhabitant of or found within the district, or shall not voluntarily appear, it shall be lawful for the court to make an order directing such absent defendant or defendants to appear, etc., which shall be served on such defendant or defendants if practicable wherever found, or where personal service is not practicable, such order shall be published, may be maintained in the federal District Court for the state where the property is situated, though

neither plaintiff nor defendant is a resident thereof. 3. LIENS 3-AGBEEMENT-EFFECT.

One tenant in common died, devising her interest to plaintiffs, and nominated another of the tenants in common as trustee to hold the property during the minority of plaintiffs. Without ever having accounted, the trustee died. Plaintiffs then executed partition deeds, the trustee having devised his interest to the other original cotenants. The parties entered into an agreement that the execution of the partition deeds should not waive any right or claim plaintiffs might have against the estate of the deceased trustee, or waive any rights they might have to subject any of the property conveyed to their claim, but that all rights should be pre served as though the deeds had not been executed. Held, that the agreement merely preserved the rights that plaintiffs already had, and did not

establish in their favor any lien on the lands of the deceased trustee. 4. JUDGMENT C170)--PERSONAL JUDGMENT-PROCESS TO SUSTAIN.

The federal District Court is without power to enforce a personal judg

ment upon citation of publication. 5. EQUITY M363—DISMISSAL OF BILL-PLEADING.

On motion to dismiss a bill for want of jurisdiction, only the averments

therein can be considered. 6. TENANCY IN COMMON 18LIENS-ADJUSTMENT.

Where one tenant in common was trustee for others, the cestuis que trust cannot, by analogy to the equitable liens enforced in partition, establish a lien on the share of the trustee in the common property; even in partition proceedings a specific lien on particular property is denied, and only those liens arising out of the relationship of the parties to the land

can be enforced. 7. EXECUTORS AND ADMINISTRATORS 133—LIENS-ENFORCEMENT.

Under Vernon's Sayles' Ann. Civ. St. Tex. 1914, 8 3235, the estate of a decedent vests in his devisees subject to payment of his debts, while creditors' claims constitute a lien on all of the property of the estate; and this

lien, which is general, can be enforced by means of administration. & COUBTS 269FEDERAL COURTS-JURISDICTION-LIEN.

One tenant in common who was trustee of the interest of plaintiffs in the common property and who died without having accounted devised his interest to defendants. Neither plaintiffs nor defendants were residents For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

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