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of the true owner, any goods or chattels, where of he shall be the reputed owner, and take upon himself the sale, alteration or disposition as owner, they shall go to his creditors. This singular law appears to have remained unnoticed for a hundred years or more, but when it was rediscovered, it received. from the courts a very wide construction, as in the leading case of Ryal v. Rolle,2 where it was held that "goods or chattels" included unnegotiable choses in action, and that if these had been transferred without notice to the person indebted, they remained in the order and disposition of the bankrupt.

Of late years, the legislature and the courts have seemed less. impressed than formerly with the wisdom of this enactment. Able judges have said that it would have been much better to leave all questions of fraud to be decided according to the merits of each case upon principles already well settled by the courts, and parliament has taken all choses in action excepting the trade debts of traders, out of the operation of the rule.3

The law of order and disposition does not obtain in the United States. If goods are left with the bankrupt for the express purpose of giving him a false credit, the assignees cannot retain them. The creditors who have been actually deceived may, no doubt, have their own remedies.*

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§ 363. Title Incomplete. It was held that a bankrupt may make a written declaration of trust to satisfy the statute of frauds after the act of bankruptcy, a jury having found that the declaration accorded with the fact.5 There was no equitable lien, but it was the bankrupt's undoubted moral duty to make the declaration, and as he performed it before the title accrued to the assignees except by relation, he was still the holder of the legal title. If at that time he had conveyed the

1 21 Jac. 1, c. 19, § 11.

21 Atk. 165.

3 Robson, 7th ed.,
p. 515.

4 Audenried v. Betteley, 5 Allen, 382; Sawyer v. Turpin, 91 U. S. 114, 121, per Strong, J. [For a further discussion of this subject, see Robson, Bankruptcy, 7th ed., title, Reputed Ownership; and Re Young, 25 L. R.

Ire. 372; Re Lock, 8 Morrell, 51; Re Webber, 64 L. T. 426; Re Harrison, 10 Morrell, 1; Ex parte Murphy, 31 L. R. Ire. 465; Re Chapman, 1 Manson, 415; Re Peel (1894), 1 Ir. R. 235; Rutter v. Everett (1895), 2 Ch. 872; Re Seaman, 3 Manson, 19; Re Goetz (1898), 1 Q. B. 787.]

5 Gardner v. Rowe, 5 Russ. 258.

property to a new trustee or to the cestui que trust, it is difficult to believe that any court would have set the deed aside. A trust which is good without writing can always be set up against trustees in bankruptcy.1

In all cases in which there could be any doubt of the propriety of the act whether it is to be done by the debtor or the assignees, it would be wise to consult the creditors, or the court after notice to creditors, and obtain their consent or a judicial order.

§364. Property fraudulently held by Bankrupt. If the bankrupt has obtained possession of property by fraud, mistake, or in contempt of an order of court, the assignees must restore it, and the bankrupt may do so after his insolvency without being guilty of a preference; and his bankruptcy will not be a good defence to a suit for its recovery if it remains in his possession. If the bankrupt is a fraudulent trustee of the property of a third person upon a secret trust, the creditors of that person have a better title than the assignees of the fraudulent trustee.3

§ 365. Liability of Assignee to Principal. — The specific property of a third person, or any property or securities into which it may have been converted, coming to the assignee, and all money received by him upon the sale, conversion, or collection. of such property or securities, may be recovered of him by the true owner. A banker or factor has power to give a valid pledge of his principal's goods or securities to an innocent person. If he does this, and his assignee in bankruptcy, after notice, settles with the third person, he will be responsible to the true owner for any surplus above the valid pledge which he might by due diligence have obtained. And so of any set

1 Sibley v. Quinsigamond Bank, 133 Mass. 515.

2 Skip v. Harwood, 3 Atk. 564; Gladstone v. Hadwen, 1 M. & S. 517; Montgomery v. Bucyrus Works, 92 U. S. 257; Purviance v. Union Bank, 8 N. B. R. 447, Fed. Cas. No. 11,475; Load v. Green, 15 M. & W. 216; Cornfoot v. Fowke, 6 M. & W. 358; Noble v. Adams, 7 Taunt. 59; Ex parte Huth, 4 Dea.

294; Ex parte Cole, 3 M. D. & De G. 189;
Mackworth v. Marshall, 3 Sim. 368;
Donaldson v. Farwell, 93 U. S. 631,
S. C. 5 Biss. 451, Fed. Cas. No. 3983;
Ex parte Barnett, 3 Ch. D. 123. See
Coryell v. Klehm, 157 Ill. 462.

8 Pratt v. Wheeler, 6 Gray, 520.

4 See cases cited infra, § 368, note 1 ; and Re Hallett (1894), 2 Q. B. 237; Knapstein v. Tinnette, 156 Ill. 322.

tlement he may make by which the rights of the true owner of property are lost or diminished.1

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$366. After acquired Property. By the law of England an undischarged bankrupt was incapable of holding property except for the use of his old creditors. This was part of a system which likened the decree in bankruptcy to a judgment, which was to be satisfied in preference to debts afterwards contracted. It led to great practical difficulties, because such bankrupts would enter into trade again, sometimes at a remote place, and the creditors of the new trade might be deceived.

By the statutes of 1869 and 1883 the doctrine is modified to give the bankrupt all his acquisitions after the close of the bankruptcy (which the courts have power to declare, though in fact no bankruptcy is ever finally closed), or his discharge, whichever event first occurs.

The rule in England is modified by decisions in several important particulars.

1. The assignees cannot claim the bankrupt's wages or salary, though they could claim any money or property which came to him by descent, devise, or gift, or which he has acquired in trade.3

2. The bankrupt has a qualified interest in his after acquired property, which is good against all the world except his assignees, and it is, therefore, no defence to an action by him to recover any such debts, money or property, that he is a bankrupt, unless the assignees have forbidden the payment or transfer thereof to him.4

3. A new creditor taking security upon the newly acquired property can hold it against the assignees even if he was aware of the bankrupt's situation, if the assignees have not actually intervened.5

Dea. &

1 Ex parte Cunningham,
Ch. 58; Ex parte Solomous, ib. 77;
Ex parte Wylie, ib. 82; Ex parte Nat.
Bank of Scotland, 4 Dea. & Ch. 32;
Ex parte Simpson, I Dea. 47.

2 Robson, 7th ed., p. 426; Re Rogers
(1894), Q. B. 425; Mercer v. Vans
Colina, 78 L. T. 21.
3 Robson, 7th ed.,
p. 634.

4 Herbert v. Sayer, 5 Q. B. 965; Ex parte Dewhurst, L. R. 7 Ch. 185.

5 Cohen . Mitchell, 7 Morrell, 207; Hunt v. Fripp, 5 Manson, 105. But this rule does not apply to real estate, Re New Land Assoc. (1892), 2 Ch. 138, nor to a controversy between trustees under two different bankruptcies, Re Clark (1894), 2 Q. B. 393.

4. If the assignees have knowingly permitted him to engage in trade, they are estopped to claim the fruits thereof in competition with his new creditors.1

In the United States, the title of the assignees stops with the adjudication, and all after acquired property belongs to the bankrupt, subject to be taken by his old creditors severally by the ordinary process of law, unless he shall receive his discharge, and by his new creditors, of course, in like manner.2

The English decisions, however, have exercised an unfortu nate influence on some American cases, for they have been often cited as if they held that the bankrupt had a qualified interest in the property owned by him at the time of his bankruptcy unless the assignees chose to intervene, overlooking the fact that those decisions are confined to property acquired after the bankruptcy.

§ 367. Advice of Creditors. Since assignees represent and act for creditors, almost any course of proceeding which the creditors are unanimous in asking will be taken. Thus it was the practice to grant leave to the assignees to carry on the business of the debtor, if every creditor assented; though not if one or more objected. So the proceedings would be discontinued upon a like request. So of the appointment or removal of an assignee.1

Considering this, I doubt the soundness of a decision which refused to an assignee compensation beyond the statutory fees, notwithstanding the assent and agreement of every creditor.5 There is no illegality in such an arrangement. The limit of fees was imposed for the benefit of the creditors, and they may waive it.

But not even the assent of all the creditors will authorize assignees to bring a suit whose sole purpose is to settle the priorities of secured creditors, if the equity of redemption is of no value whatever. The mistake of law in such a case would

1 See supra, §§ 345, 350.

2 Bennett v. Bailey, 150 Mass. 257.

8 [But see Cochrane v. Bridendolph, 72 Md. 275].

4 Act of 1867, §§ 13, 18, 14 Stat.

522, 525, R. I. §§ 5034, 5039.

5 Cowing v. Altman, 1 T. & C. 494;

5 Hun, 556.

not prevent the assignees from being indemnified for costs out of the assets if they acted in good faith.

§ 368. Bankrupt as Agent or Trustee. - Property held by the debtor as trustee, agent, or however otherwise for a third person, does not vest in his trustees. The true owner may follow it so long as it can be traced, and may recover it of the trustees if they have received it or its distinguishable proceeds; 1 but he has no preferred claim as a creditor.2

1

If the agent or trustee before his bankruptcy has made good. a misappropriation, though by an act unknown to the principal, it will be held good unless within the rule against preferences, which it would not usually be.3

In England, if a trustee or quasi trustee has mixed the trust moneys with his own in a single bank account, the courts will marshal the deposit as against the depositor's creditors, so as to give to the cestui que trust the balance remaining, without regard to the respective dates of the deposits and the checks. For they will assume that the drafts were honestly made by the agent against his own share of the account. In the United States this point has until lately received but little judicial investigation. If the money is in fact kept separate, though without an earmark, it will belong to the principal,5 but whether, if there be no such setting apart, the trustee can make good a deficit without being guilty of a preference is not clear. There

1 Godfrey v. Furzo, 3 P. Wms. 185; Ex parte Chion, ib. 187 note; Price v. Ralston, 2 Dall. 60; Scott v. Surman, Willes, 400; Ex parte Moldaut, 3 Dea. & Ch. 351; Kip v. Bank of N. Y., 10 Johns. 63; Ex parte Pauli, 3 Dea. 169; Taylor v. Plumer, 3 M. & S. 562; Ex parte Rogers, 8 De G. M. & G. 271; Veil v. Mitchell, 4 Wash. C. C. 105, Fed. Cas. No. 16,908; Cook v. Tullis, 18 Wall. 332; Fisher v. Henderson, 8 N. B. R. 175, Fed. Cas. No. 4820; Denston v. Perkins, 2 Pick. 86; Ex parte Gillett, 3 Mad. 28; Ex parte Cooke, 4 Ch. D. 123; Re Hulton, 8 Morrell, 69.

2 Hosmer v. Jewett, 6 Ben. 208, Fed. Cas. No. 6713; Anderson v. Tuttle, 26

N. J. Eq. 144; 28 N. J. Eq. 449. See $365.

3 Ex parte Sayers, 5 Ves. 169; Pinkett v. Wright, 2 Hare 120; s. c. nom. Murray v. Pinkett, 12 Cl. & Fin. 764; Whitecomb v. Jacob, 1 Salk. 160; Cook v. Tullis, 18 Wall. 332; Re Dodds, 8 Morrell, 86; New's Trustee v. Hunting (1897), 2 Q. B. 19.

4 See Pennell v. Deffell, 4 De G. M. & G. 372; Frith v. Cartland, 2 H. & M. 417; Re West of England Bank, 11 Ch. D. 772; Ex parte Cooke, 4 Ch. D. 123; Re Hallett's Estate 13 Ch. D. 696; Harris v. Truman, 7 Q. B. D. 340.

5 Kip v. Bank of N. Y., 10 Johns. 63; Birt v. Burt, 11 Ch. D. 773 note; Hancock v. Smith, 41 Ch. D. 456.

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