The defendant appeals from a judgment obtained by. the trustee in bankruptcy of the Associated Gas & Electric Company, appointed in a reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. The action was to recover part of $21,000 paid to one Milton J. Milvy, a brother of the defendant, who had adopted that name instead of Levy. Milvy had received this sum in settlement of an action which Milvy had brought in the name of two shareholders of the Associated Gas & Electric Company, but in the right of that corporation. Milvy and Levy had entered intо two contracts at or before the action was brought, the substance of which, talccn together, was that the two had in contemplation bringing - suits against some eleven corporations, — which by January 4, 1938, they had reduced to four. Milvy engaged “to do all the legal work” and “to act as attorney for the plaintiffs,” and Levy was *203 “to render services as statistician and accountant,” “to do the necessary research work, ascertain the facts and figures * * get the reports and papers” and “to devote sufficient time and to diligently apply himself to such cases and matters as will be referred to him, * * * to make written reports, testify in court if necessary and to do all things and work as will be required of him in such legal matters as Milvy will retain him to perform services.” Milvy was to receive two-thirds of any gross fees that they might receive for both, and Levy one-third; and each was to pay his own expenses.
■Milvy brought suit in the New York Supreme Court against the Associated Gas & Electric Company on the day of the second contract in the name of two shareholders, who 1 together held 183 shares, but on behalf of all who might join. The gravаmen of the suit was the mismanagement of the corporation by its officers who were parties to the action; and the suit was brought on behalf of the corporation. On July 7, 1938, without any order of the court, the corporation, through the same officers who were charged with misfeasance, and who were still in control of it, settled the action by paying to Milvy, as attorney of the plaintiff, $21,000, which came except for a trifling amount out of the treasury of a wholly owned subsidiary of the Associated Gas & Electric Company. This sum Milvy divided as follows: he gave a little over $200 to the two plaintiff shareholders, $6,000 to Levy and kept for himself the balance, apparently about $14,800. All this took place in 1938.
On January 10, 1940, the Associated Gas & Electric Company filed in the Northern District of New York a petition for reorganization under Chapter X of the Bankruptcy Act, which was at once “approved,” and shortly thereafter was transferred to the Southern District; and on February 6, 1946, that court appointed the plaintiff trustee in bankruptcy. Both sides agree that the New York Statute of Limitations for such an action as that at bar is six years; hence it had not run when the petition was approved because the date of “adjudication” in a reorganization under Chapter X, is the date of approval of the petition. 1 On the other hand the action was commenced on June 28, 1948, nearly ten years after Milvy had received the money in sеttlement and distributed it to Levy. The case was tried to a jury, to which Judge Conger submitted five questions, which they answered as follows: (1). Levy received the money from Milvy knowing that it was part of the settlement of the action that Milvy had brought for the two- shareholders. (2 and 3). Of the sum received by Milvy he gave Levy $6,000 between August 18th and November 9, 1938. (4 and 5). Neither the plaintiff nor his predecessor trustee learned, or could with due diligence have learned, that Levy had received the money before June 17, 1947, which was less than thirteen months before suit was brought.
Levy first argues that he was never liable to thе corporation for the money received. Indeed he asserts that, when Milvy made the settlement the money that he received he did not hold upon a constructive trust for the corporation. It made not the slightest difference whether Milvy supposed that the money cаme from the corporation, although in that event the payment was plainly a conversion, or whether it came from the officers whose conduct created the claim of the corporation against them. If it had come from the officers sued, it was in considerаtion for a release of the corporation’s claim. The claim discharged was as much the corporation’s property as its factories or apparatus, and Milvy and Levy had no more right to take it as their fees,, than they would have had to take the proсeeds of any other sale. Clarke v. Greenberg,
A faintly more plausible defence is that, even though Milvy may have received' the money on a constructive trust, Levy was not charged with nоtice of it, and held) *204 it as a bona fide purchaser, because of the assistance he gave to Milvy. That, however, ignores the agreement between them, which made the suit a concerted venture in the execution of which Milvy was to contribute the legal work and Levy the accounting. Not only were the two' brothers to divide their fees which were contingent in the proportion of one to two, but Milvy was to consult Levy “in the event of settlement,” they are both to work “on a contingent basis,” and Levy , was to do all that “will be required of him in such legal matters” as Milvy niay retain him in. Thus their joint purpose included sharing in any contingent fee which Milvy might get upon the settlement of the suit, because Milvy did “retain” Levy. The jury found that Levy knew that Milvy paid him out of the money that Milvy had collected in settlement of that suit; it followed that, as he knew that Milvy was bound to “consult him” in the settlеment, he also knew that he had as much of a proprietary interest in the settlement as Milvy, and that out of it alone was he to get a cent for any help he had given his brother. By what reasoning it can be supposed that he was not a joint constructive trustee with Milvy, we are at а loss to understand. We decline to dignify with an answer the argument that the plaintiff did not identify the actual cash-which Milvy paid to Levy as part of the proceeds of the settlement.
The only defence which deserves discussion is that of the 'Statute of Limitations. As has already appeared, the New York statute had not run on January 10, Í940, the date of the “adjudication,” but Levy argues that the Bankruptcy Act
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does not extend the period of limitation more than two' years after the “adjudication.” Therefore, he proceeds, we must always look at the local statute, and if that extends the time for suit by more than two1 years beyond the date of “adjudication,” the suit must be brought within the time fixed by the local statute. Since the cause of action át bar arose at the latest in- November, 1938, and since the limitation under New York law was only .six years,- the trusteе had only until No^ vember, 1944; because the federal statute of two years did not extend the time beyond January, 1942, two years after January, 1940. As a new question it must be owned that this reasoning has much to commend it, but the Supreme Court has plainly ■ written a gloss upon the section which is authoritative. Before adverting to that the plaintiff attempts to answer under the New York law, alleging that the claim was in “fraud,” and that within the doctrine df Erie Railway Company v. Vanderbilt,
Indeed it is not clear that the defendant at bar means to argue that if Bailey v. Glover, supra, had not been overruled, it would not apply to this cause, although it makes no difference whether he doеs or not. What he certainly does argue is that Avery v. Cleary,
However, even were there any basis for arguing that Avery v. Cleary overruled Bailey v. Glovеr, it would fail because of the unequivocal statements in later decisions. Thus in Exploration Company v. United States,
The defendant also complains of the allowance of interest from the date of the payment. The liability arose from a tort— the unlawful misappropriation of money belonging to the corporation by its attorney and his confederate Levy. The wrong did not depend upon any demand by the corporation; because it was a tort the money was due at the moment it was received. The two confederates, Milvy and Levy, received it under an implied promise to return it instanter. Flamm v. Noble,
Judgment affirmed.