May v. Henderson

• Decision Date: 13 April 1925
• Docket Number: No. 126,126
• Citation: 69 L.Ed. 870,268 U.S. 111,45 S.Ct. 456
• Parties: MAY v. HENDERSON et al
• Court: U.S. Supreme Court

268 U.S. 111

45 S.Ct. 456

69 L.Ed. 870

MAY

v HENDERSON et al.

No. 126.

Argued March 5, 1925.

Decided April 13, 1925.

Messrs. H. A. Jacobs and Henry G. W. Dinkelspiel, both of San Franchisco, Cal., for petitioner.

Messrs. A. A. De Ligne, of San Francisco, Cal., for respondents.

Mr. Justice STONE DELIVERED THE OPINION of the Court.

This is a writ of certiorari to the Circuit Court of Appeals for the Ninth Circuit to review its action (reported as Henderson v. May, 289 F. 192) on a petition to revise an order of the District Court confirming the order of a referee in bankruptcy, summarily directing the respondents to pay over a sum of money to the trustee in bankruptcy.

On September 15, 1920, prior to, but within four months of, the filing of the petition, the bankrupt made to respondents, Henderson and Scannell, a general assignment for the benefit of creditors. At the time of the assignment the assignor was indebted on a promissory note in the sum of $15,000 to the Ft. Sutter National Bank, of which respondent Henderson was president, and in which the assignor carried a deposit account. The referee found, on sufficient evidence, that the respondents accepted the trust under the assignment to them and continued the business of the assignor until the appointment of the receiver in bankruptcy on November 4, 1920; the petition in bankruptcy having been filed on October 9, 1920. In the meantime the deposit account of the assignor with the bank, with the knowledge and assent of the assignees, was changed from the name of the assignor to the names of the assignees, as 'trustees,' and further deposits were from time to time made by them to the credit of the account, in the course of their management of the business of the assignor. The assignor was duly adjudicated a bankrupt, and thereafter the trustee in bankruptcy petitioned the bankruptcy court for an order directing the respondents, as assignees, to account for and pay over all moneys received by them from the date of the assignment to the date of the appointment of the receiver. Proceedings on the petition resulted in the order of the District Court, directing respondents to pay over to the trustee an amount which would have stood to the credit of the assignees in their deposit account with the bank, had the account not been closed in the following manner:

On September 30, 1920, 10 days before the filing of the petition, the deposit account of the assignees with the bank was debited with the sum of $4,516.43, which amount was credited on the note of the bankrupt held by the bank, and on October 13, 1920, subsequent to the filing of the petition and on various dates thereafter to and including October 25, 1920, further debits were made in the account which were credited on the note. These credits, including the first mentioned, amounted to the sum of $12,883,81, which was the amount directed to be paid over by respondents by order of the District Court. These debits and credits were made by direction of the respondent Henderson, who throughout the period in question acted as one of the assignees and was also president of the bank. Although there was no explicit finding on the subject the debits appear to have been made with the tacit assent of Scannell, the other assignee, who in any event appears to have left the management of the financial operations of the assignees to Henderson, and made no objection or protest with respect to this use of the account standing to his credit as an assignee. We think that the finding of the Circuit Court of Appeals that this application of the bank deposit on the note of the bankrupt constituted a 'partial payment of the note as fully as if the assignees had given their check or withdrawn the money from the bank and paid it over the counter' is correct, and that both the assignees must be held legally responsible for this result. Where one of two cotrustees assents to a breach of trust by the other without objection, he is legally chargeable with liability for the breach. Bermingham v. Wilcox, 120 Cal. 467, 472, 52 P. 822; Adair v. Brimmer, 74 N. Y. 539; Matter of Niles, 113 N. Y. 548, 21 N. E. 687; Hill v. Hill, 79 N. J. Eq. 521, 82 A. 338.

The referee found that respondent Henderson was at all times from September 24, 1920, until the appointment of the receiver in bankruptcy, in control of the assignee's deposit account, and that he was the only officer of the bank who at any time exercised any control over the account, and that as president of the bank he at all times, and until the filing of the referee's report, had personal control of the funds deposited in the account; that the original ledger sheet of the bank, showing the account standing in the names of the respondents as assignees, was destroyed by officials of the bank some time after the filing of the petition in bankruptcy, and then an attempt was made to restore this account to the name of the bankrupt by rewriting the ledger sheets. He also found that on and after September 24, 1920, both the respondents and the Ft. Sutter National Bank, which with respondents had on that date executed the creditors' agreement under which the assignment to respondents for the benefit of creditors was made, had actual knowledge of the insolvent condition of the bankrupt.

On the petition to revise, the Circuit Court of Appeals held that, when the money on deposit with the bank was applied on the note of the bankrupt, 'the money passed into the possession and under the control of the bank, and out of the possession and beyond the control of the respondents * * * that the funds in the bank are not the funds of the president, nor are they subject to his order and control, and an order directing him to pay over the money is not an order against the bank, and is not binding upon the bank.' The court accordingly held that the bank, which was not a party to this proceeding, held the funds received by it in its own right adversely to any claim of the assignees or the trustee in bankruptcy, and could not be reached by a summary proceeding, and it reversed the judgment and order of the District Court.

It is well settled that property or money held adversely to the bankrupt can only be recovered in a plenary suit and not by a summary proceeding in a bankruptcy court. Louisville Trust Co. v. Comingor, 184 U. S. 18, 22 S. Ct. 293, 46 L. Ed. 413; First National Bank of Chicago v. Chicago Title & Trust Co., 198 U. S. 280, 25 S. Ct. 693, 49 L. Ed. 1051; Galbraith v. Vallely, 256 U.S. 46, 41 S. Ct. 415, 65 L. Ed. 823. But property held or acquired by others for account of the bankrupt is subject to a summary order of the court which may direct an accounting and a payment over to the trustee or receiver appointed by the bankruptcy court. White v. Schloerb, 178 U. S. 542, 20 S. Ct. 1007, 44 L. Ed. 1183; Mueller v. Nugent, 184 U. S. 1, 22 S. St. 269, 46 L. Ed. 405; Babbitt v. Dutcher, 216 U. S. 102, 30 S. Ct. 372, 54 L. Ed. 402, 17 Ann. Cas. 969; Chicago Board of Trade v. Johnson, 264 U. S. 1, 44 S. Ct. 232, 68 L. Ed. 533. Such is the rule with respect to assignees for the benefit of creditors within four months of filing of the petition. In re Stewart, 179 F. 222, 102 C. C. A. 348; In re Rathman, 183 F. 913, 106 C. C. A. 253; In re Neuburger, Inc., 240 F. 947, 53 C. C. A. 633; In re Diamond's Estate, 259 F. 70, 74, 170 C. C. A. 138. And see Bryan v. Bernheimer, 181 U. S. 188, 21 S. Ct. 557, 45 L. Ed. 814. See Louisville Trust Co. v. Comingor and Galbraith v. Vallely, supra, where, however, the jurisdiction was defeated by the adverse claim of the assignee arising before the filing of the petition. And see Randolph v. Scruggs, 190 U. S. 533, 23 S. Ct. 710, 47 L. Ed. 1165, as to the nature of the title of the assignee for the benefit of creditors when bankruptcy ensues. See, also, Taubel, etc., Co. v. Fox, 264 U. S. 426, 433 and note, 44 S. Ct. 396, 68 L. Ed. 770. Courts of bankruptcy do not permit themselves to be ousted of jurisdiction by the mere assertion of an adverse claim. The court has jurisdiction to inquire into the claim for the purpose of ascertaining whether the summary remedy is an appropriate one within the principles of decision here stated. Mueller v. Nugent, supra; Schweer v. Brown, 130 F. 328, 64 C. C. A. 574; Id., 195 U. S. 171, 25 S. Ct. 15, 49 L. Ed. 144; Hebert v. Crawford, 228 U. S. 204, 33 S. Ct. 484, 57 L. Ed. 800; In re Ellis Bros. Printing Co. (D. C.) 156 F. 430. It may disregard the assertion that the claim is adverse, if on the undisputed facts it appears to be merely colorable. In re Weinger, Bergman & Co. (D. C.) 126 F. 875; In re Rudnick & Co. (D. C.) 158 F. 223; In re Ransford, 194 F. 658, 115 C. C. A. 560; In re Michaelis & Lindeman (D. C.) 196 F. 718.

The petition upon which this proceeding was initiated was in the usual form and prayed that the respondents be required to account for all moneys and properties coming into their hands as assignees or trustees under the assignment for the benefit of creditors. Such was their duty. Having assumed to take possession of the property of the bankrupt for its account, it was their legal duty to turn the property or its proceeds over to the trustee in bankruptcy or to account for their inability to do so by showing either a disposition of it in performance of a legal duty assumed toward the bankrupt or the bankrupt's trustee or by clothing themselves with the protection of a claim adverse to the bankrupt which was not merely colorable. As found by the court, respondents came into the possession of moneys of the bankrupt which were by them placed on deposit to their credit as trustees or assignees for the benefit of creditors. The result of this transaction was that neither the bank nor the assignees held any specific money for account of the bankrupt and his creditors. They were creditors of the bank and the bank was their debtor. Marine Bank v. Fulton Bank, 2 Wall. 262, 17 L. Ed. 785; Phoenix Bank v. Risley,...