119 F. 520 | E.D. Tenn. | 1902
(after stating the facts). Counsel for the Bank •of Huntingdon and the trustee have both applied by letter to be heard in argument upon the questions raised by this petition for a review ■of the action of the referee, but the matter can easily be disposed •of without any argument. Technically, the bank has no right to be heard at this stage of the proceedings, and the argument would be ■only a matter of courtesy to the bank and its counsel. The application of the trustee is for advice and a direction of the court as to the propriety of his bringing suit against the bank by petition in this courh In the nature of the thing, the bank is not a proper party to such an application by the trustee. It might become a party, under some circumstances, by a proper order of the court; but this proceeding has not progressed to that extent. Therefore, as the bank cannot be bound by any action taken by the court upon this application of the trustee, strictly speaking it has no right to be heard in argument. The court will be very glad to hear the learned counsel for the bank whenever the questions that may be made against it are ■.to be adjudicated.
Notwithstanding that this is only an application by the trustee ■for instructions, the referee has heard the parties, and taken the proof, and decided the case between the bank and the trustee as if it were presented for final decision. The court cannot approve this action of the referee; nor, if the matters were properly presented for decision, ■is the court quite prepared to say that it would approve the judgment of the referee; but the truth is the questions between the trustee and the bank are not ripe for decision. The application of the trustee for advice and instructions of the court ought to have been denied, and, if a proper application were made by any creditor for the purpose, it is not impossible that the trustee ought to be removed, -and another substituted, who is not so squeamish about the proper discharge of his duties, and not so timid about taking responsibility. That which the trustee should have done was to engage competent ■counsel to advise him, submitted the facts of his controversy with the 'bank to such counsel, and followed his advice in the matter of bringing whatever suit was necessary against the bank, or taking such ■other steps as he might be advised If not in funds to pay counsel, he should have notified creditors of that fact, and, if necessary, ask the referee or court to call a meeting of the creditors to advise •him of their wishes in the premises, and to act accordingly. The -court has a strong suspicion, from the facts shown in this record,
There is no provision in our bankruptcy statute, as in the English statute, specially authorizing trustees in bankruptcy to apply to the court in manner prescribed for direction in relation to any particular
It is not necessary to particularly inquire in this place as to the limitation upon that authority in the practice of giving advice or instructions by courts of equity to trustees by contract or private appointment, such as donees of powers, executors, and the like, quasi official trustees,—as administrators, guardians, and the like; for a trustee in bankruptcy is not that kind of a trustee. Neither is he quite the same .as a receiver of a court, although there is more analogy here than in the cases of trustees by contract applying to a court of equity for instructions. The rule of practice as to such applications by a receiver is laid down in Fost. Fed. Prac. (3d Ed.) p. 549, § 248, where the author quotes from a decision in the case of Missouri Pac. Ry. Co. v. Texas & P. Ry. Co. (C. C.) 31 Fed. 862, as follows:
“If there are parties in interest, and they have their day in court, the advice may be decisive. But if the matter is ex parte, the value of the. advice depends largely upon the information and the ability of the judge, and is probably binding only on the receivers, for the judge may change his mind on hearing full argument.”
See, also, Fost. Fed. Prac. (3d Ed.) 542, 557, and Bates, Eq. Prac. § 614.
It will be seen from these and other authorities that the privilege of trustees to apply for advice cannot be abused by running to the court to settle every question that may appear to an irresolute trustee to be desirable to have settled without responsibility of action on his part. Nor can this practice be resorted to for the purpose of carrying on litigation between himself and adverse parties in such an informal and irregular way as has been done in this case. Trustees in bankruptcy are sui generis. As was said by Judge Purnell in the
“While the bankruptcy act creates the office of trustee in bankruptcy, such trustee is a quasi officer of the court in a qualified sense. He is in reality elected by, and represents the creditors of, the bankrupt, under the provisions of the bankruptcy act. The bankruptcy court will protect the trustee in the discharge of his quasi official duties; but as the representative of the creditors his duties as such representative must be discharged, not as an officer of the court, strictly speaking, but as provided in the bankruptcy act.”
He is not, like a receiver, a mere caretaker and manager of the estate to execute the orders of the court in the progress of administration, but he is the agent of the creditors, selected by them as a man of affairs to conduct the business of collecting the assets and ■distributing the proceeds among the creditors. The statute invests him with the title of the bankrupt, and makes him not only quasi owner, but the owner pro hac of all the property and rights of action belonging to the bankrupt. The management of the estate is committed to his discretion, and he is expected to exercise his powers and discharge his duties with the same intelligence that an owner would do, subject, of course, primarily, to the supervision of the creditors in their meetings called for the purpose, and the whole administration subject to the supervision of the court of bankruptcy. The proceedings are not conducted, like insolvency proceedings in the chancery courts of Tennessee, by a receiver, under the constant orders of the court, and who can do nothing, scarcely, without the previous direction of the chancellor; but the proceedings in bankruptcy are to be conducted according to the specific directions of the bankruptcy statutes and the rules and the forms prescribed by the supreme court. It is a comprehensive scheme of administration by the creditors through their trustee, with which the court interferes as little as possible. Tie may employ counsel, using such judgment as an ordinary man would use in the transaction of his own business (In re Abram [D. C.] 103 Fed. 272, 4 Am. Bankr. R. 575); and he may apply to the creditors for authoritative advice and instructions, and for assistance with money if in the conduct of litigation he be without funds (In re Arnett [D. C.] 112 Fed. 770). Under such a statutory system as this the necessity for applications to the court for its instructions and advice should be very rare, and would arise only under somewhat extraordinary circumstances.
As appears from this record, the real question in this case is whether or not, upon a proper application by the trustee, the bank should not have its proof of claim entirely expunged and disallowed because of the alleged fraud set forth in petition offered to be filed, and be required to refund the whole of the dividends which it has received, and be not allowed to participate in the assets at all, leaving the collaterals in its hands for what they may be worth; or, if the creditors shall so determine, they might direct the trustee to compromise this demand upon the bank by allowing it to surrender its collaterals and prove its whole debt, as the bank offers to do in this record by the tender that was made to assign the decree for the collateral notes to the trustee; or to make any other settlement
It may be remarked that the theory of the petition propounded by the trustee, also that indicated by the tender of the bank, and possibly the theory accepted by the referee, namely, that the bank was under an obligation to surrender its securities, does not certainly appear upon the facts shown in the record to be tenable. The petition, on the face of it, does not set up any facts showing a fraudulent preference, and the assignment of the collateral notes to the bank appears to have been more than four months before the bankruptcy, and, if the circumstances were such that the assignment of the col-laterals to the bank was a fraudulent preference outside the four-months limitation, the petition has not been definitely drawn to show or plead that fact. It is, however, unnecessary, in the view the court has taken of the case, to consider that question, as it will be
The court' is of opinion that the referee was not authorized to decide any of these questions as the record was made before him, and that their decision here would be premature. They can only be made upon proper pleadings, issues, and proof, in a litigation between the trustee and the bank by petition and answer in the bankruptcy proceedings. An order will be entered to set aside the rulings of the referee, and dismissing the application of the trustee for the advice and instructions of the court in the premises, leaving him to take such action as he may be advised by counsel or a meeting of the creditors. Any creditor aggrieved by any neglect or refusal of the trustee to properly discharge his duty in the premises may apply to the court for his removal and the substitution of a trustee who will not hesitate to perform his plain duty under the bankruptcy statute.
Ordered accordingly.