Opinion
March 17, 1916.
Frank M. Patterson [ Franklin H. Mills with him on the brief], for the appellant.
David W. Kahn, for the respondent.
This is an action brought by the general assignee for the benefit of creditors of Alessandro Bolognesi and Aldo Bolognesi, who were engaged in business under the name of A. Bolognesi Co., to recover the balance of their deposit account with the defendant on the 13th day of February, 1914, the day when the assignment was made. In the defense to which the defendant desires a reply, it is alleged that on the 12th day of March, 1914, or one month after the general assignment, a petition in bankruptcy was filed against the assignors, and thereafter and on the twenty-third day of July they were duly adjudicated bankrupts, both individually and as members of said firm, in the United States District Court for the Southern District of New York; that trustees in bankruptcy were elected on the thirteenth of August, who are still acting, and that on November fifth an order was made in the Bankruptcy Court directing the plaintiff to turn over to the trustees all assets received by him as such assignee, and that upon so doing he be discharged and his bond as assignee canceled. It is then alleged that the cause of action to enforce which this action is brought is vested in the trustees in bankruptcy, and that they only may prosecute the suit. The defendant moved in the Bankruptcy Court for an order requiring the trustees to apply for substitution as plaintiffs herein. The motion was denied by the referee in bankruptcy; and the opinion shows that the referee in bankruptcy was of opinion that the assignment was not void but only voidable; that the denial was upon the theory that it may be for the interests of the creditors to have the action prosecuted by the assignee.
The appellant insists that the assignment, having been made within four months of the bankruptcy, is absolutely void, and that the trustees in bankruptcy take their title from the assignor and not through the assignee. The object of the defendant in seeking to have a reply interposed to this defense is to have that question of law presented, for it is assumed that the facts set forth in the defense, being matters of record, will, if a reply be required, be admitted.
Where a party, after commencing an action, is adjudicated a bankrupt, the action does not abate, and may be continued by him unless the trustee in bankruptcy obtains leave of the Federal court and becomes substituted in the action as plaintiff ( Hahlo v. Cole, 112 App. Div. 636; Colgan v. Finck, 159 id. 57); but in such case the effect of the bankruptcy is to transfer the title of the plaintiff in the action, and by the express provisions of section 756 of the Code of Civil Procedure the action may be continued in the name of the party by whom it is brought before a transfer of interest. This, however, is not necessarily so where the action is brought by the general assignee for the benefit of creditors of one against whom bankruptcy proceedings are instituted within four months after the assignment, and who is subsequently adjudicated a bankrupt, for the application of the rule in such case depends on whether or not the trustee in bankruptcy obtains title through the assignee. The assignment for the benefit of creditors, made pursuant to the provisions of a State law, is valid when made, notwithstanding the fact that bankruptcy proceedings are instituted against the assignor within four months thereafter; but by section 3 of the Bankruptcy Act (30 U.S. Stat. at Large, 546, § 3, as amd. by 32 id. 797, § 2) such an assignment is an act of bankruptcy and, according to the decisions of the Federal courts, it may be avoided, without any action or proceeding to have it so adjudicated, by such bankruptcy proceedings instituted within four months thereafter, in which the assignor is adjudicated a bankrupt. ( Randolph v. Scruggs, 190 U.S. 33.) The question as to whether the trustee in bankruptcy, takes title through the assignor, or through the assignee, is not presented for decision by this appeal, for the well-settled rule is that a reply may be required unless it is quite clear that the defense to which it is asked to be made is insufficient in law. Without expressing a definite opinion on the point, it may be observed that expressions of opinions are found in the adjudicated cases tending to sustain the contention that the cause of action in such case passes to the trustee in bankruptcy not through the assignee, but in the right of the bankrupt, and that after such adjudication the assignee becomes a mere bailee with neither title nor right to possession, and, if the property is not in the custody of the State court, becomes accountable to the trustee in bankruptcy therefor, on the theory that the title acquired by the assignee is avoided by the adjudication in bankruptcy. (See Matter of Gray, 47 App. Div. 554; Whittlesey v. Becker Co., 142 id. 313; De Long v. Mechanics Metals Nat. Bank, 168 id. 525; Bryan v. Bernheimer, 181 U.S. 188; Louisville Trust Co. v. Comingor, 184 id. 18, 25; Mueller v. Nugent, Id. 1; Collier Bankruptcy [10th ed.], 504, 1003; Matter of Smith, 92 Fed. Rep. 135; Matter of Gutwillig, 90 id. 475; Matter of Knight, 125 id. 35. But see contra, Pearsall v. Nassau Nat. Bank, 74 App. Div. 89 . ) The point has sufficient merit to entitle appellant to a reply in order that it may present it by demurrer if so advised.
It follows that the order should be reversed, with ten dollars costs and disbursements, and the motion granted, with ten dollars costs.
CLARKE, P.J., SCOTT, SMITH and PAGE, JJ., concurred.
Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs.