39 F. 193 | W.D. Pa. | 1889
John Carrier and Andrew F. Baum were adjudged bankrupts on June 22, 1874, and on the 28th day of the succeeding September James Bredin, J. M. Wilcoxon, and Gilíes McGregor became their assignees in bankruptcy. These assignees were successively discharged, and on February 19, 1877, Richard Arthurs was appointed the assignee. He acted in that capacity until April 12, 1880, when, upon his own petition, he was discharged from the trust, and Levi Bird Duff was then appointed assignee. On Augustñ, 1880, Arthurs filed his final account in court, and on November 11, 1880, he filed with the register a similar account, hut in a more formal shape. The account showed a balance of $1,275.78 in the hands of the accountant. Shortly thereafter he honored a draft for $1,000 which his successor drew on him; and thus there then remained in his hands, apparently, the small balance of $275.78 only. On March 4, 1881, the new assignee presented his petition to the court, setting forth that he had reason to believe that Arthurs’ account was incorrect, and he annexed to his petition specifications of objection thereto; and thereupon, at his instance, the court made an order referring the account and objections to the register, who was directed
If a proper case was made out for surcharging the accountant, such action should have been taken promptly. This was imperatively required by the policy of the bankrupt law, which contemplated that two years were a reasonable period for the settlement of the estates of bankrupts. Bailey v. Glover, 21 Wall. 342, 347. But here nearly eight years elapsed before the register undertook to restate Mr. Arthurs’ account, for it was not until April 5,1889, that he filed his report surcharging the accountant with large sums, the balance reported against him being $26,604.46. Of this unexplained laches the accountant justly complains. He had, indeed, good right to suppose that the attempt to surcharge his account had been abandoned. But, while such may not be the legal conclusion deducible from a delay so unreasonable, still, at the threshold of this discussion, I do not hesitate to declare that at this late day no surcharge should be sustained here unless the accountant’s liability is indubitably established. After so great a lapse of time every reasonable presumption should be made in favor of the accountant. With these preliminary observations, I now proceed to consider the several items of surcharge, but in a somewhat different order from that in which they are discussed in the register’s report.
1. The two bankrupts and Alexander McClure were owners as tenants in common of certain timberlands in Clearfield county, Pa., each owning the undivided one-third part. During the winter of 1877 one Mc-Urackin, under some adverse claim of right, went upon these lands and cut, manufactured, and rafted 27 rafts of square timber. This timber having been run into Jefferson county, Pa., a writ of replevin therefor was sued out of the court of common pleas of that county at the suit of Arthurs, as assignee, and McClure, and upon their giving security the sheriff delivered the timber to them, and they jointly ran it to Pittsburgh, some of the rafts arriving there in the spring, and the rest in the fall, of that year. At Pittsburgh, P. B. Bohlen caused a writ of replevin for this timber to be issued out of the United States circuit court, making Arthurs and McClure defendants. McClure gave security to the marshal, who thereupon left the timber in the defendants’ possession. It does not appear when the action of replevin in Jefferson county was tried, but it resulted in a verdict for the plaintiffs. The suit in the circuit court was tried at May term, 1878, when a verdict was rendered for the defendants. But there was a motion for a new trial, which was not dis
Under the peculiar circumstances of the case, I am not satisfied that Arthurs was guilty of any negligence creating liability on his part. As joint owner McClure had an undoubted right to take possession of the 14 rafts. Moreover, he had given security to the marshal, and thus relieved the rails from the Bohlen writ of replevin. Again, the title was in litigation, and that litigation had not ended when Arthurs retired from his position as assignee in bankruptcy in April, 1880. McClure made an assignment for the benefit of creditors, as early as January, 1879, and nothing was then to bo gained by a personal suit against him. Baum was utterly insolvent, and it does not appear that any good result would have followed any attempt to pursue the persons to whom he sold the three rafts. Arthurs paid most of the expenses incurred in running the rafts to Pittsburgh, etc., and he took credit for the same. It is admitted that these expenditures were reasonable. Yet the register charged
2. By written agreement dated September 1, 1868, A. F. Baum sold to John B. Campbell an interest (the undivided one-third) in a saw-mill, lands, and certain timber situated in Jefferson county, and Campbell agreed to deliver to Baum, at Pittsburgh, 5,000,000 feet of boards, 500,-000 feet in the spring of 1869 and the like amount annually thereafter until the whole quantity was delivered; and Baum afterwards, for the benefit of Campbell, entered into a contract with R. J. Nicholson to manufacture the lumber. On May 12, 1874, Baum assigned to Richard Arthurs 2,750,000 feet of the boards coming to him under the Campbell contract as collateral security for the sum of $3,875.93, then paid by Arthurs to Baum, and the further sum of $6,667.23, the amount of three judgments against Baum, which the Deposit Bank of Clarion had entered up in Jefferson county. These judgments Arthurs then paid, and the bank assigned them to him. On the same day Baum and Arthurs signed a paper, which, after reciting the assignment., reads thus:
“The said Arthurs is to sell said boards and payout any liens or debts that the said Baum may be liable for, such as Sulger’s, and any liens that may now be entered in the common pleas of Jefferson county, after taking expense ' which he is to have, 15 per cent, for advances and personal attention, besides anything he may expend on the same, and, if any balance, to pay the same to A. F. Baum.”
On May 21, 1874, Arthurs, with Baum’s knowledge and consent, advanced to Campbell $5,100 for the purpose of paying Nicholson the expense of manufacturing the lumber, and on June 1, 1874, Arthurs advanced for Baum to Sulger $3,074.14. The fourth specification of objection to Arthurs’ account relates to the Campbell boards, and, after stating that the said assignment of May 12,1874, was made “as security for a certain debt which Baum owed him,” (Arthurs,) it alleges that the latter received under the same more than was sufficient to pay his debt, and that “he [Arthurs] should render an account of said lumber, and make a statement of his debt, and account to said Baum’s estate for the surplus.” During the hearing before the register, Arthurs submitted an account covering the whole transaction, and to the correctness of the same he testified. This account shows a large balance in favor of Arthurs. The register adopted it as the basis of his report upon this branch of the case, but he so modified it that he produced a balance against Arthurs of $1,680.18, and with this sum he charged him.
After a patient examination of all the items of the account and the proofs touching the same, I am unable to agree with the register in the result here reached by him. In the first place, the register undertook to restate the account between Arthurs and Campbell by making deductions for alleged usurious interest. But that account seems to be perfectly satisfactory to Campbell, and I do not see that it was within the
“I do not presume to consider whether they are right or wrong as claims that Arthurs may prove against the bankrupt’s estate. ”
But if these are provable claims against Baum’s estate in bankruptcy, then Arthurs is clearly entitled to set them off against his liability, if any, to Baum under the contract ol' May 12, 1874, Rev. St. § 5078; Blum. Bankr. 282, 283. Now, in fact these two specified items are very fully explained in the evidence. By deed dated January 1, 1874, containing the usual covenants for title, Baum, for the consideration of $6,000 paid to him by Arthurs, sold and convoyed to the latter certain lands in the state of Michigan. But those lands, as Arthurs afterwards discovered, had been previously sold for taxes, and Arthurs was compelled to pay $1,000 to redeem them. This payment, it is true, was made after Baum was adjudged a bankrupt, but Baum’s covenants were broken at the date of the delivery of his deed, and I cannot doubt that his liability here was a provable debt against his estate in bankruptcy. Then as to McCrea & Co’s notes. They wrere produced before the regís
I have now gone far enough to show that the surcharge of $1,680.18 cannot stand, nor any part of it, and hence I deem it unnecessary to consider the question arising upon the register’s report, whether the assignment of May 12, 1874, created such a confidential relation between Baum and Arthurs in respect to the lands embraced in the Campbell contract as would preclude Arthurs from purchasing in his own behalf at the tax-sale, and make him chargeable with the sum he realized by his resale.
3. Means & Nicholson brought suit against Andrew F. Baum in the court of common pleas of Jefferson county, and therein obtained an award of arbitrators for $3,226.46, which was filed August 13, 1873. From this award Baum appealed, and on the 22d day of September, 1874, upon a trial in court, there was a verdict for the plaintiffs for $3,440.48, and for this sum judgment was entered. This judgment was assigned by the plaintiffs to Arthurs on January 13, 1875. The register finds that the date of Arthurs’ purchase of the judgment was January 13, 1874; but in this he is undoubtedly mistaken. He relies very much upon a letter from Arthurs to Baum, notifying the latter of the purchase, which letter bears date January 13, 1874. It is, however, satisfactorily shown that there was a mistake in this date as to the year. I do not regard the date of the purchase as a matter of controlling importance, but that it actually was January 13, 1875, is established by the direct and positive testimony of all the parties to the transaction. Arthurs paid for the judgment the sum of $2,000, and this was his own money. This is not disputed. It is clear, also, that he bought the judgment for himself. At the time of the purchase Arthurs had no money in his hands belonging to Baum. The account as stated by the register shows that at that time he was in advance to Baum to an amount exceeding $13,000. It will be observed that the transaction took place more than two years .before Arthurs became the assignee in bankruptcy. Out of the proceeds of a sheriff’s sale of certain real estate of Baum, which occurred in November, 1879, and which will be more particularly referred to hereafter, Arthurs received the whole amount of this judgment, viz., $4,572.24. The register holds that he was entitled to collect from the estate of the bankrupt only the amount of money he invested in the judgment, with interest, and therefore he charged him with the excess, to-wit, $2,089.82. The register bases this decision upon the alleged ground that in respect to this judgment Arthurs stood to Baum in a confidential relation of a twofold nature,—first as his counsel or attorney at
4. By an agreement in writing, dated November 6, 1866, Andrew F. Baum sold and agreed to convey, upon payment of the purchase money, his undivided interest in certain lands in Jefferson county, Pa., known as the “North Fork” property, to E. G. Carrier. This matter stood open when Baum was adjudged a bankrupt, at which time his interest was heavily incumbered with liens, and it passed to his assignees in bankruptcy so charged. Shortly after Arthurs became assignee by an agreement between him and E. G. Carriér, dated March 21, 1877, the balance of purchase money was fixed at $20,000, payable in four equal yearly installments. The register’s report shows, and the fact is, that the amount of liens against Baum’s interest, which had attached prior to his adjudication as a bankrupt, and subject to which the assignees took title, was in excess of its value. I may add that such excess was large. These liens were kept alive. The second of them was the Means & Nicholson award, which, it will be remembered, was filed August 18, 1878. It appears that by deed dated and acknowledged August 13, 1878, and duly recorded on the 15th of the same month and year, Andrew F. Bamn and wife, for the recited consideration of $20,000, conveyed to Jake Hill all their estate and interest in the North Fork property. It does not appear at what hour of the day this deed was delivered or the said award was filed, and which was the earlier in time is undetermined. On June 9, 1875, the Pittsburgh National Bank of Commerce obtained a judgment in the court of common pleas of Jefferson county against Jake
“And now, June 21, 1879, the objections filed by John Wilson and S. P. Fulton, Esq., to the application of Richard Arthurs for leave to issue writs of execution on judgment No. 75 of Sept, term, 1878, court of common pleas of Jefferson county, entitled Means & Nicholson, for use of Richard Arthurs, vs. A. F. Baum, having been withdrawn, and on due consideration of said petition it is hereby directed that said Richard Arthurs, assignee of said bankrupt, have leave to issue all necessary writs of execution required to sell the interest of said A. F. Baum, bankrupt, in certain purchase money due from E. G. Carrier on a certain article of agreement for the purchase of what is known as the North Fork property in Jefferson county, and said Richard Arthurs, assignee of said bankrupt, has leave to bid at said sale in his individual right, giving due notice to bidders of his intention on the day of sale. Per Curiam.”
Accordingly, on June 26, 1879, a writ of fi. fa. was issued out at the court of common pleas of Jefferson county upon the Means & Nicholson judgment, and a levy was made on Baum’s interest in said property, and, after inquisition and condemnation, upon a writ of vend, ex., the sheriff of said county on November 6, 1879, sold Baum’s said interest to Richard Arthurs for the sum of $9,500, and by deed dated Novem-
The register decides that Arthurs is accountable to the estate of the bankrupt for the whole of the Carrier purchase money as fixed by the agreement of March 21, 1877, with interest, less the $9,500 he paid to the sheriff, and accordingly he has surcharged Arthurs with the sum of $17,148.93. The register proceeded upon the idea that here was a good security of the value of $20,000, available to the estate of the bankrupt Baum,—a secured debt which the assignee Arthurs might and should have collected. This erroneous notion pervades his report. The register was strangely oblivious to the fact that Baum’s interest in this property came to his assignees in bankruptcy burdened with liens much beyond its value, and that to his estate in bankruptcy, or, in other words, to his general creditors, it ivas an absolutely worthless asset. In suggesting that Arthurs was censurable because he did not sue E. G. Carrier, the counsel overlooked the authoritative decisions which show that he could not have maintained the action without removing the liens. Withers v. Baird, 7 Watts, 227; Magaw v. Lothrop, 4 Watts & S. 316; Garrett v. Crosson, 32 Pa. St. 373. That Arthurs had any funds of the estate in his hands with which to discharge the liens, even if that had been a wise thing to do, is not pretended. The fact is in the incumbered condition of the title the only-persons who had any real interest in this security were the lien creditors. Hence it was that the prior assignees in bankruptcy, who had bad charge of the bankrupt’s estate for more than two years before Arthurs was appointed, were not able, and did not attempt, to realize anything out of this purchase money. In simple truth there was nothing in it for the general creditors. Therefore it was not the duty of Mr. Arthurs to apply to the bankrupt court for an order to sell the properly discharged of liens, (In re Mebane, 3 N. B. R. 347;) and if he had made such application it is very certain that it would have been denied, (Blum. Bankr. 292.) Nothing, then, remained to be done but to let the lien creditors sell the property, and Arthurs was guilty of no'infidelity to tlio general creditors in applying to the bankrupt court for leave to proceed to sell upon his judgment in the state court. There is not anything in the evidence to warrant the register’s conjecture that the judge who signed the order of June 21, 1879, was not fully advised as to its scope. Under the then existing circumstances there was nothing out of the way in granting to Arthurs permission to bid in his individual right at tho sheriff’s sale. It had come to be a mere matter of competitive bidding between incumbrancers, and it was right enough to put Arthurs on the same footing with the other lien creditors. That it was within the discretion of the court to make such order is not to be doubted.
At this point occurs the question, what appreciable difference did it make to the general creditors whether the property at the sheriff’s sale brought $9,500 or $16,000, seeing that in either case the liens would have absorbed the entire proceeds? That the general creditors sustained any substantial loss by reason of the sale being made at the lesser of the named sums instead of at the larger is not apparent. There is no evidence whatever tending to show that the sheriff’s sale was conducted otherwise than openly and fairly. That the highest bid was only $9,500 is not even a suspicious circumstance. Baum’s title, to say the íeast of it, was most seriously clouded by reason of his conveyance to Hill and the sheriff’s sale of Hill’s title to the Pittsburgh National Bank of Commerce. The purchaser at the sheriff’s sale under the Means & Nicholson judgment took a grave risk in view of the bank’s adverse claim, undoubtedly. Arthurs was alive to this, and hence, when he came to convey to Cassius M. Carrier he was willing to warrant the title only to the extent of $11,000, as is fully explained in the testimony. But the register concluded that there was some sort of collusion between Arthurs, on the one hand, and E. G. Carrier and Cassius M. Carrier on the other, and in his report he states and comments upon the circumstances from which he deduces bad faith. This opinion, however, has grown to such a length that I must forbear to follow the register in that discussion, and I here content myself with saying that I am unable to assent to the register’s reasoning or conclusion. I can discover no evidence to justify a finding of any fraud. It is true that before the sheriff’s sale took place there was some conversation between Arthurs and Cassius M. Carrier about a sale by the former to the latter in the event of Arthurs’ becoming the purchaser; but nothing was then definitely arranged, and in fact they never came to an agreement until August 7, 1880. It does not appear that they had any understanding not to bid against each other, or that thejr, or either of them, did anything to deter or mislead bidders or to repress competition at the sheriff’s sale. There is not a scintilla of evidence to impeach the sheriffs sale on account of any misconduct on the part either of Arthurs or Carrier. It was freely open to any and every person to overbid Arthurs; and upon the whole I cannot perceive any just reason for depriving him of the fruits of a purchase which he was authorized to make by the order of the bankrupt court.
And now, to-wit, June 28, 1889, upon consideration, the exceptions to the register’s report, in so far as they are in accordance with the foregoing opinion, are sustained, and the register’s surcharges against the accountant are set aside, and it is decreed that the balance in the hands of the accountant, Bichard Arthurs, is the sum of $275.78, and this sum he is ordered to pay to the present assignee, with interest from January 1, 1882; and it is further ordered that the costs of this proceeding be paid out of the funds of the estate of the bankrupt Baum.