addressing the issue under the former Bankruptcy Act of 1898Summary of this case from In re Phoenix Petroleum Co.
Submitted December 6, 1904. Decided January 3, 1905.
The payment referred to in § 5198, Rev. Stat. is an actual payment and not a further promise to pay and the mere discharge of the maker of a note by his giving his own note in renewal thereof will not uphold a recovery against the bank on account of usurious interest in the former note. While a trustee in bankruptcy is not bound to accept property of an onerous or unprofitable character, and in case he declines to take it the bankrupt may assert title thereto, he is entitled to be informed of the property and have a reasonable time to elect whether he will accept it or not. If a claim owned by a bankrupt is of value his creditors are entitled to it, and he cannot, by withholding knowledge of its existence from the trustee, after obtaining a discharge of his debts, immediately assert title to and collect the claim for his own benefit.
Mr. J.W. Nichol, Mr. Thomas D. Sporer and Mr. E.W. Nicholson for plaintiff in error:
A bankrupt cannot hold an asset of any kind or sort or any chose in action and conceal it from his creditors and trustee and elect after he had been divested of his title to resume the ownership of it, sue for it, and recover it, and then when his creditors would demand what was their own fly his discharge in bankruptcy in their faces.
Here is an instance of a man concealing a claim, which if valid under the facts — and we believe it is not — of right belonged to his creditors, getting a discharge, and being free from all his debts, immediately upon a release from all liabilities bringing a suit to recover what was not his own. He is not in a position to claim benefits until he has purged himself from all fraud. Herndon v. Davenport, 7 Tex. 462[ 7 Tex. 462]; Jones v. Byron, 57 Tex. 43[ 57 Tex. 43]; Connor v. Express Co., 42 Ga. 37.
Under § 70 of the Bankrupt Act of 1898 this claim passed to the trustee. Monongahela Bank v. Overholt, 96 Pennsylvania, 327; National Bank v. Trimble, 40 Ohio St. 629; Clark v. Clark, 17 How. 315; Rand v. Iowa Central, Am. Bank. Rep., Sept. 1904, 164; Sessions v. Romadke, 145 U.S. 29; Sparham v. Yerkes, 142 U.S. 7; Dushane v. Beall, 161 U.S. 513, distinguished.
Courts never look with leniency on the concealment of assets and will not allow them to be retained when the right to their ownership was questioned. In re Paine, 127 F. 246; In re Morrison, 127 F. 186; Re Fiergenbaum, 121 F. 69; Fowler v. Jenks, 95 N.W. 887.
The almost uniform rule is that having been once divested by bankruptcy proceedings concealed assets do not revest after discharge. Sernby v. Norman, 91 Mo. App. 517, citing Malone v. Martin, 5 S.W. 909; Pickens v. Dent, 106 F. 653; Vandyke v. Shyrer, 98 Ind. 126; Boyd v. Adams, 82 Ind. 294; Seaton v. Hinsman, 50 Iowa 395; Dessau v. Johnson, 66 How. Prac. 5; Atwood v. Thomas, 60 Miss. 162; Peters v. Wallace, 4 S.W. 914; Foraast v. Hyman, 28 N.E. 801; contra Frazier v. Desha's Admr., 40 S.W. 678.
There was no appearance or brief filed for defendant in error.
The mere discharge by A.M. Lasater of the note executed by himself and J.L. Lasater, by giving his own note in renewal thereof, would not uphold a recovery from the bank on account of usurious interest in the former note. Brown v. Marion National Bank, 169 U.S. 416. The payment contemplated by the statute is an actual payment, and not a further promise to pay, and was not made until the bank, in June, 1901, received its money. Prior to the renewal by A.M. Lasater, in October, 1900, there were only two or three small cash payments on the indebtedness.
We shall not stop to inquire whether J.L. Lasater can avail himself of the final payment made by A.M. Lasater. The Court of Appeals held that he could, reaching this conclusion on the authority of cases like Hough v. Horsey, 36 Md. 184; Richardson v. Baker, 52 Vt. 617, to the effect that the grantee of mortgaged property, who in consideration of the purchase agrees to pay off the mortgage, cannot raise the question of usury, that being a personal right of the original debtor.
The Court of Appeals also held that the claim for usurious interest was one which survived the death of the person in whom the right of action was vested, and under the laws of Texas a part of his estate, and consequently one that could be sold and bought like any other chose in action. If so, that claim passed to the trustee in bankruptcy under section 70 of the bankrupt law, which, in describing the property passing to the trustee, names "property which prior to filing of the petition he could by any means have transferred."
The question then presented is whether this right of action having once passed to the trustee in bankruptcy was retransferred to J.L. Lasater upon the termination of the bankruptcy proceedings, he having returned no assets to his trustee, and having failed to notify him or the creditors of this claim for usury, and beginning this action within less than two months after the final discharge of the trustee. We have held that trustees in bankruptcy are not bound to accept property of an onerous or unprofitable character, and that they have a reasonable time in which to elect whether they will accept or not. If they decline to take the property the bankrupt can assert title thereto. American File Company v. Garrett, 110 U.S. 288, 295; Sparhawk v. Yerkes, 142 U.S. 1; Sessions v. Romadka, 145 U.S. 29; Dushane v. Beall, 161 U.S. 513. But that doctrine can have no application when the trustee is ignorant of the existence of the property and has had no opportunity to make an election. It cannot be that a bankrupt, by omitting to schedule and withholding from his trustee all knowledge of certain property, can, after his estate in bankruptcy has been finally closed up, immediately thereafter assert title to the property on the ground that the trustee had never taken any action in respect to it. If the claim was of value (as certainly this claim was according to the judgment below) it was something to which the creditors were entitled, and this bankrupt could not, by withholding knowledge of its existence, obtain a release from his debts and still assert title to the property.
The judgment of the Court of Civil Appeals is reversed, and the case remanded to that court for further proceedings not inconsistent with this opinion.