192 F. 683 | N.D.N.Y. | 1912
More than four months prior to the, institution of the bankruptcy proceedings against Augustus S. Downing, he transferred to his wife, Louise B. Downing, certain real estate by deed, dated November 27, 1907. Barbara Troutwine obtained a judgment against Augustus S. Downing more than four months preceding the date of the institution of the bankruptcy proceedings, and brought an action in the Supreme Court of the state of New York against the bankrupt and his wife to set aside the said deed on the grounds that it was executed and delivered by the bankrupt, and received by the grantee in fraud of the creditors of the bankrupt. This action was brought within four months preceding the institution of bankruptcy proceedings, and was pending in the Supreme Court of-the state of New York when the bankruptcy proceedings were instituted.
The trustee, duly appointed, has not brought any action to set aside
I have examined the evidence, and find nothing to justify a conclusion that Augustus S. Downing did not deliver possession of the real estate in question to his wife, I/yuise B. Downing, at the time of the delivery of the deed. The referee does not find or state that possession of the property in question was not delivered to the grantee, Mrs. Downing. The attorney for Mrs. Downing also contends that the transfer of this right of action to Mrs. Troutwine will tend to cast a cloud upon her title.
Under section 67e all conveyances and transfers made by the bankrupt within four months of filing the petition in bankruptcy—
“with intent and purpose on life part to hinder, delay or defraud his creditors or any of them, shall be null and void as against the creditors of such debtor,” except, etc., “and be and remain a part of the assets and estate of the bankrupt and shall pass to his said trustee whose duty it shall be to recover and reclaim the same by legal proceedings or otherwise for the benefit of the creditors.”
By section 70:
"The trustee of the estate of a bankrupt, upon his appointment and qualification, and his successor or successors, if he shall have one or more, upon his or their appointment and qualification shall in turn be vested by operation of law with the title of the hanlcrupt, as of the date he was adjudged a bank*686 rupt, except in so far as it is to property which is exempt to all * * * (4) property transferred by him in fraud of his creditors,” etc.
By subdivision “b” of the same section:
“Ileal and personal property shall when practicable be sold subject to the approval of the court.”
And by subdivision “c”:
“The title to the property of a bankrupt estate which has been sold, as herein provided, shall be conveyed to the purchaser by the trustee.” .
By subdivision “e” of section 70, it is also provided:
“The trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided and may recover the property so transferred, or its value, from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication. Such property may be recovered or its value collected from whoever may have received it, except a bona fide holder for value.”
. By section 47, as amended by Act June 25, 1910, c. 412, § 8, 36 Stat. 840, it is provided that trustees—
“as to all property not in the custody of the bankrupt court shall be deemed vested with all the rights, remedies and powers of a judgment creditor holding an execution duly returned unsatisfied.”
It would seem clear that the trustee in bankruptcy as to real property conveyed by the bankrupt in fraud of his creditors more than four months prior to the filing of the petition in bankruptcy, and found in the possession of the transferee or grantee, has the same rights and remedies that a judgment creditor of the bankrupt would have had if bankruptcy had not intervened. He has the right to bring and prosecute an action to set aside the fraudulent conveyance, and have the property sold for the satisfaction of the debts owing by the bankrupt. The right of the trustee to prosecute such an action must be for the benefit of the creditors. The setting aside of the fraudulent transfer would leave the title to the property of record in the bankrupt, and by operation of the provisions of the bankruptcy act such title would vest in the trustee as of the date of the adjudication. If the transfer was in fraud of creditors, the trustee has not only an interest to set aside the transfer, but an interest in the property. Is this an interest which the trustee may convey under the order of the court? Would the purchaser at a sale take, not only the interest of the trustee in the real estate, if any, but the right to bring and maintain an action to set aside the fraudulent transfer? And possibly the inquiry is res'olved into this: May the court order a sale of, and may the trustee in bankruptcy sell and transfer to a third person the right to.prosecute such an action?
Section 70 says that the trustee shall be vested by operation of law “with the title of the bankrupt * * * to all * * * (4) property transferred by him in fraud of his creditors.” I do not think this refers solely to property transferred by the bankrupt in fraud of his creditors within the four-month period. But has the bankrupt any title whatever which he can assert in property transferred' by him in fraud of his creditors more than four months prior to the filing of a
In. this view of the case, it would seem that the true inquiry is whether such a statutory right of action conferred upon an officer of the court, trustee in bankruptcy, is transferable? Troutwine, the proposed purchaser of this right of action, has no right of action as she has proved her claim on her judgment, and thereby abandoned her suit in equity to set aside the alleged fraudulent deed.
As stated by the learned counsel for the petitioner, Mrs. Downing, the trustee, is not armed with an actual judgment, but with the “rights, remedies, and powers of a .judgment creditor holding an exe
“See. 260. Effect of grant or mortgage of real property adversely possessed. A grant of real property is absolutely void unless tbe same shall be made to the people of the state of New York, if at the time of the delivery thereof such property is in the actual possession of a person claiming under a title adverse to that of the grantor. * * * ”
Assuming that Mrs. Downing is an adverse claimant in possession (Wall v. Cox, 181 U. S. 244, 21 Sup. Ct. 642, 45 L. Ed. 845; Re Grahs, 1 Am. Bankr. Rep. 465; Re Cohn [D. C.] 3 Am. Bankr. Rep. 421, 98 Fed. 75), I do not think the statute applies to judicial sales of an interest in real estate held adversely when ordered by a court of competent jurisdiction. Coleman v. Manhattan Beach Improvement Co., 94 N. Y. 229, 234. Such a deed under the circumstances of this case by order of the court would not be “within the mischief at which the statute was aimed or the intention of the Regislature.”
“The trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided and may recover the property so transferred or its value from the person to whom it was transferred,” etc.
In Traer v. Clews, 115 U. S. 528, 539, 6 Sup. Ct. 155, 159 (29 L. Ed. 467), the general rule is stated thus:
“The rule is that an assignment of a mere right to file a bill in equity for fraud committed upon the assignor will he void as contrary to public policy and savoring of maintenance. But, when property is conveyed, the fact that the grantee may be compelled to bring a suit to enforce his right to the property does not render the conveyance void.”
See, also, Dickinson v. Burrell L. R., 1 Eq. 337; Brush v. Sweet. 38 Mich. 574; McMahon v. Allen, 35 N. Y. 403; Conn. Mut. Life Ins. Co. v. Smith, 117 Mo. 261, 22 S. W. 623, 38 Am. St. Rep. 656; 4 Cyc. 12-14, and cases there cited; 2 Story’s Eq. Jur. § 1040. Of course, a distinction may be made between an assignment of such a claim made by the party defrauded and one made by his trustee in bankruptcy.
It seems to me that inasmuch as the trustee in bankruptcy is vested with all the rights, remedies,' and powers of a judgment creditor of the bankrupt with execution returned unsatisfied, and one of those rights is (assuming the transfer was in fraud of creditors) to set aside the transfer, have the specific real property sold, or sell same, and the proceeds applied to the payment of all proved aird allowed claims against the bankrupt, the trustee has an interest in such property. His rights and interest are something more than a mere possibility or expectancy, not coupled with any interest in or growing out of property. And it is something more than a litigious right. If the action is prosecuted successfully, the judgment reaches and operates on the specific property sold or transferred by the bankrupt, the title of the fraudulent vendee is divested, and the true title transferred to a purchaser or to the trustee in bankruptcy and the proceeds so far as necessary go to the trustee for creditors or to the purchaser of such rights from such trustee. It is true that the transferee (assignee) of the trustee in bankruptcy would not be prosecuting the action for the benefit of the creditors of the bankrupt, but in his own interest and for his own benefit. The answer to this is that such assignee of the trustee has paid a consideration for the transfer of the rights to the trustee who holds same for the creditors. The creditors do not object to this mode of realizing on the claim or right of action, but, in fact, make a resort thereto necessary. The assignment of the right of action with a transfer of such interest as the trustee has in the real property in no way prejudices Mrs. Downing. She is not deprived of any defense.
In Chester v. Jumel et al., 125 N. Y. 237, 251, 26 N. E. 297, one Ju-mel died owning certain real estate, and certain persons entered into possession thereof, and claimed to be the owners thereof. Certain of the heirs of Jumel employed one Dte Chambrun to prosecute their claim to this property, and recover same, and agreed to give him a lien upon and interest in the property recovered to the extent of 47½ per cent, thereof, which was to be a lien or mortgage thereon. Before any of such property had been recovered, De Chambrun assigned and transferred for a consideration certain undivided shares of his interest in such property to various parties. The court held that De Cham-
“That the rights of De Ghambrun in this property, whether vested or contingent. and whether the property was in existence or not, were at all times alienable by him in whole or in part at his will and pleasure, is too well settled by authority to admit controversy.”
It seems to me that, if De Chambrun had an alienable interest in the Jumel property while in the hands of adverse claimants ..in possession, the trustee in bankruptcy has an alienable interest in the property here in controversy. In Jones v. Mayor, etc., 90 N. Y. 387, one K. assigned to Jones certain claims against the city of New York which were not legally enforceable. Subsequently the Legislature of the state passed an act making the city liable for claims of that character. The court held that the assignment of K. to Jones was good, and operated as an equitable assignment of whatever might ultimately be allowed to K. on his claims, and the fact that there was no fund in existence or claim which could be enforced by action at the time of the assignment did not prevent the instrument taking effect at the later time when the Legislature created the liability. Here the property is in existence, and, if the deed to M rs. Downing is set aside as fraudulent as to creditors, the title thereto would vest in the trustee if no transfer were made and will vest in Troutwine if the transfer and assignment is made. The interest is contingent on the success of the suit, but not more so than was the interest in the Jumel property. In view of all the authorities, I am compelled to hold that, while the right of a trustee in bankruptcy to bring suit to set aside a deed as made in fraud of the creditors of the bankrupt may not alone be assigned, still a trustee in bankruptcy has a transferable interest in real estate owned by the bankrupt and transferred by him in fraud of his creditors more than four months before the institution of proceeding's in bankruptcy against him, and that such trustee may transfer or convey same and assign with it the rights vested in him by statute to maintain an action to set aside such fraudulent transfer. I also hold that such transfers and assignments by trustees should only be authorized and permitted under extraordinary and peculiar circumstances making such course necessary to protect and serve the best interests of the estate.
The order of the referee is therefore affirmed.
See, also, In re Matthew McNamara, 2 Am. Bankr. Rep. 566, 577, 578, and Carr v. Hilton, 5 Fed. Cas. 134.