Opinion
January 11, 1911.
W.C. Carroll [ Lewis Carroll, attorneys], for the appellant.
Eugene M. Bartlett and Clinton T. Horton, for the respondent.
Appellant seems to concede that Chamberlain, as assignee, had a cause of action against it for the conversion of the property assigned to him by Bevins Co., which accrued when the property was taken by the sheriff under the invalid warrant of attachment; but insists that the damages which plaintiff, as assignee of Chamberlain's cause of action, can recover in this action should be mitigated to the extent of the amount realized by the receiver in the bankruptcy proceeding on sale of assets of the bankrupt taken by him from defendants pursuant to the order of the Bankruptcy Court by which he was appointed. ( Leggett v. Baker, 13 Allen, 470.) Its answer properly presents this partial defense.
The act of bankruptcy, upon which the application for adjudication of Bevins Co. as bankrupts was predicated, was the making of the general assignment to Chamberlain. This within the decisions, though made with no fraudulent intent, was a constructive fraud upon the Bankruptcy Act itself, and was an available act of bankruptcy, if made within four months before the petition was filed. ( Cohen v. American Surety Co. 192 N.Y. 227, 236; Matter of Gray, 47 App. Div. 554.) The effect of a general assignment, considered in relation to the Bankruptcy Law, is thus stated in Collier on Bankruptcy (7th ed. p. 814): "A general assignment, being not only a fraud on the act, but an act of bankruptcy, seems to stand on a different footing from fraudulent transfers per se. The assignment being void by operation of law, no title passes and the general assignee does not become an adverse claimant, but at most but an agent of the assignor. Property of the bankrupt in his possession, or that of his agent, can, therefore, be reached summarily by the method suggested in Bryan v. Bernheimer." Citations of authorities, upon which this generalization of the author is based, are given and seem to support this statement of the law. Title to the property of Bevins Co. never having passed to Chamberlain as assignee as against the right of the bankruptcy court through its authorized officer in the bankruptcy proceeding to take possession and control of it, when such control and possession were taken, the taking was not of property of the assignee, but of the bankrupt estate unaffected by the assignment. It is doubtless true that the trustee may, for the benefit of the bankrupts' estate, avail himself of rights and interests accruing to the advantage of the estate by reason of the effect of the assignment itself, or of acts done by the assignee in protecting the assigned property, its possession or the title thereto. ( Matter of Fish Bros. Wagon Co. 164 Fed. Rep. 553.) It would appear, therefore, that had the receiver in bankruptcy not taken possession of the bankrupts' assets, the trustee when appointed could at his option, exercised for the advantage of the bankrupt estate, either have recovered of the defendant the property taken under the attachment, or have recovered its value in the conversion action as assignee of the right of action which had accrued to Chamberlain, the general assignee. But it clearly appears, and the court has expressly found, that the receiver took possession of such property of the bankrupts as was left on the date of his appointment as receiver. We are now brought to a consideration of this action of the receiver in taking possession of the property of the bankrupts as affecting, if at all, the right of the trustee to recover damages to the full value of the property taken by defendants from the assignee. Immediately upon filing the petition in bankruptcy the whole assets of the bankrupts came within the jurisdiction and control of the bankruptcy court to be applied and disposed of as directed by the Bankruptcy Act for the benefit of the bankrupts' creditors, provided the bankruptcy proceedings should result in an adjudication of bankruptcy. Asserting and effectuating its control of the bankrupts' assets the court appointed the receiver its officer to take possession of the bankrupts' assets. It may be true that the receiver is a mere custodian or caretaker of the bankrupts' property of which he takes possession. (Collier Bankruptcy [7th ed.], 30; Matter of Oakland Lumber Co., 98 C.C.A. 388; 23 Am. Bank. Rep. 181, 185.) Pending and prior to the adjudication in bankruptcy title to the bankrupts' property still remains in them. But the court may take into its custody and control this property pending an adjudication. As against the rights represented in the bankruptcy proceeding the assignee had no title to the bankrupts' assets. The possession of the bankrupts' property taken by the receiver is unaffected by any claim which the assignee could make under the general assignment, for that gives him no title and no right of possession as against the receiver, who, it seems, may summarily take the property from his possession. ( Bryan v. Bernheimer, 181 U.S. 188.) If the receiver had the right summarily to take the bankrupts' property from the possession of the assignee, it would seem to follow that he had at least an equal right to take from one who had tortiously taken the bankrupts' property from the assignee, such taker making no adverse claim to the property. The receiver in the latter case takes not the property of the assignee, but the property of the bankrupt with the title unaffected by the assignment or by the subsequent unauthorized attack upon the possession of the assignee by the tortious taker of the property from him. It follows that to the extent of the bankrupts' property received from the tortious taker and taken possession of by the receiver the bankrupts' property has been restored to, and taken possession of by, the legal custodian, who was entitled to accept return of the property by the tortious taker. The receiver took possession of all the property, unlawfully taken by defendants from the assignee under the warrant of attachment, which remained in the hands of the sheriff's agent at the date of the receiver's appointment, which with the cash realized on the sales made from stock by the agent and collections of accounts for stock sold on credit thereafter made by the receiver comprised nearly all of the property originally taken by them. From the proceeds of the property, which the receiver thus took from defendant, considerable sums have actually been used as directed by subsequent orders of the bankruptcy court, made in the bankruptcy proceedings, in payment of fees and expenses allowed and incurred in the due administration of the bankrupts' estate by the receiver before the appointment of plaintiff as trustee. It would seem that these facts conclusively establish a return of this portion of the property to one legally entitled to accept for the rightful owner return thereof and a subsequent legal exercise by him of dominion over it by selling it and disbursing part of the proceeds. It is true that the trustee's title to the bankrupts' property "goes back by relation to the date of the commencement of the proceeding" in which he is appointed trustee. (Collier Bankruptcy [7th ed.], 808.) But, when before his appointment a receiver duly appointed has taken possession of some part or all of the bankrupts' assets, the trustee must necessarily accept those assets from the receiver in the form which they have legally assumed in the former's hands.
It follows that defendant was entitled to an allowance in mitigation of damages of the value of the bankrupts' property returned to and taken by the receiver.
Respondent further insists that appellant cannot shield itself from liability to plaintiff for the full value of the property taken from the assignee under the warrant of attachment by showing in mitigation of damages that some part of the property taken has been again taken into the legal possession of an officer of the court acting in a proceeding begun by it after the conversion was accomplished. In support of this position our attention is directed to the case of Wehle v. Butler ( 61 N.Y. 245). In that case the court says: "It has been considered in the courts how far property illegally taken, and subsequently seized and sold under process by a third party, who was a creditor of the owner, might be used as a defence in an action for the wrong. If the wrongdoer was not in connivance with the third party, it has been held that the fact of the taking by the third party might be used in mitigation of damages." (Citing cases.) "But where the party who wrongfully takes the property procures it to be afterward seized and sold under process in his own favor it affords him no protection in any form, and in this case that fact was made sufficiently apparent." Though appellant was a petitioning creditor, the proceeding instituted was not in effect in its behalf, or for its benefit, but was one directed not against Chamberlain, the general assignee, in whose right this action is brought, but against Bevins Co. only, its ultimate object being to have the bankrupts' property applied ratably in satisfaction of the claims of all creditors of the firm. It is not a proceeding the purpose of which, primarily at least, is, as in the case last above cited, to destroy the title to property of one from whom it has been illegally taken, or render it ineffectual in support of his cause of action against the wrongdoer; but it is to have all the property of the real owners, the bankrupts, including the property taken from the assignee, applied in the orderly course of bankruptcy proceedings in payment of the claims against the bankrupts. There would seem to be no reason why the fact that appellant joined in such a petition should preclude its right to set up the facts, already fully set out above, in mitigation of damages in this action any more than it would in a similar case where it appeared an administrator of an estate had been appointed on its petition. It would hardly be reasonable to hold that such fact would preclude the wrongdoer from showing in mitigation of damages the fact that he had returned to the administrator the property which he had wrongfully taken from the intestate's agent.
All concurred.
Judgment reversed and new trial ordered, with costs to appellant to abide event.