Hall v. Main

• Decision Date: 22 August 1929
• Docket Number: No. 178-D.,178-D.
• Citation: 34 F.2d 528
• Parties: HALL v. MAIN.
• Court: U.S. District Court — Eastern District of Illinois

34 F.2d 528 (1929)

HALL v. MAIN.

No. 178-D.

District Court, E. D. Illinois.

August 22, 1929.

John J. Bullington, of East St. Louis, Ill., Conger & Elliott, of Carmi, Ill., and Lewman & Carter, of Danville, Ill., for plaintiff.

J. W. Browning, of Harrisburg, Ill., H. A. Evans, of Metropolis, Ill., and Acton, Acton & Snyder, of Danville, Ill., for defendant.

LINDLEY, District Judge.

The plaintiff, as trustee in bankruptcy of Daniel E. Rose, seeks to set aside a sale of 65 head of cattle by Rose to defendant, Main, for $4,900, early in December, 1928, within four months prior to the filing of a voluntary petition and adjudication in bankruptcy of Rose, on the ground that the sale was in violation of the Bulk Sales Law of Illinois.

Rose was a farmer. The cattle constituted all of his stock of feeding, breeding, and milking cattle, including 13 steers, the balance being cows, some with calf and some shortly to bear calf. His only other assets were his farm implements and some hogs, which were sold at public auction a few days after the sale of the cattle to Main for approximately $2,000. He had been gradually disposing of corn and certain other property during the fall, apparently in the regular course of business. When the cattle were delivered, the presidents of the First National Bank of Carmi and of the First National Bank of Vienna, each having extensive claims against the bankrupt, learning of the sale, approached Main, protested as to the validity of the sale, asked him to stop payment upon the check he had given in payment, offered to indemnify him against damage, and prepared and forwarded to him such contract of indemnity. These two gentlemen testified that Main agreed to accede to their request. This he denies. The day following the conversation, being the day prior to the receipt by Main of the written contract of indemnity, at the request of the bankrupt, Main gave a new check upon a Metropolis bank to one Clara Harris of Cairo, whom the bankrupt shortly thereafter married. This check was cashed, and Rose and Miss Harris disappeared. Later Rose filed a petition in bankruptcy and was adjudicated bankrupt. His exact whereabouts are unknown. During the fall, preceding the sale of the cattle to Main, Rose sold various assets, which over and above the amount received at the auction, but including the cattle sold to Main, produced over $8,000, no part of which found its way to the trustee.

In view of these facts, the sale to Main was void, in violation of the Bulk Sales Law of Illinois. See Cahill's Rev. St. 1929, c. 121a, pars. 1, 2, and 3. That act provides that the sale of the major part of the goods and chattels of the vendor's business, otherwise than in the ordinary course of trade and in the regular and usual prosecution of the vendor's business, shall be fraudulent and void as against the creditors of the vendor, unless certain notice is given. Main gave no notice of the purchase in question. The statute applies to sales made by farmers. Weskalnies v. Hesterman, 288 Ill. 199, 123 N. E. 314, 4 A. L. R. 128. The sale of all of the cattle stock of the bankrupt, including his feeding, milking, and breeding cattle, was a sale of the major part of his goods and chattels, not in the regular or ordinary course of business or trade.

Defendant relies upon the case of Larson v. Judd, 200 Ill. App. 420. The court is of the opinion that the reasoning of that case supports the conclusion of this court in the present instance. There the court found that the goods and chattels sold did not constitute the major portion of the assets of the bankrupt. In the instant case, at the time of the sale challenged, the total value of bankrupt's other property was about $2,000.

Furthermore, if there be anything in that case at variance with the court's conclusion here, it should be borne in mind that by the statutes of the state of Illinois (Cahill's Rev. St. 1929, c. 37, par. 49) the decisions of the Appellate Court are by legislative enactment forbidden to be accepted as binding precedents, and therefore cannot be accepted by the federal court as determinative of the law of the state.

Defendant contends that the trustee is estopped to maintain this suit by the judgment entered in a trial of right of property in Massac county, in a suit between Main, as plaintiff, and the First National Bank of Carmi, Ill., judgment creditor, as defendant, on the ground that the trustee participated in that trial and was in fact a party to the same, although not nominally so.

The First National Bank of Carmi, Ill., procured judgment against the bankrupt within four months prior to the adjudication in bankruptcy. Before the filing of the petition in bankruptcy the bank caused an execution upon said judgment to be levied upon the cattle delivered to Main. Main served notice of the trial of rights of property, a special statutory proceeding in Illinois wherein, after such notice is served, the county court proceeds without written pleadings to determine, as between the claimant and the judgment creditor, whether or not the claimant is the owner of the property. Marshall v. Cunningham, 13 Ill. 20. The statute makes no provision for intervention by any person.

The time of trial was continued from time to time until after the petition in bankruptcy was filed, and finally in March, 1929, a trial was had between Main and the bank upon Main's claim of ownership. At this hearing the trustee in bankruptcy appeared and filed written objections to the jurisdiction of the court, setting up the intervention of bankruptcy and asking the court to desist from further hearing. The court overruled the objections and proceeded with the trial. The trustee did not thereafter file in that cause any claim of ownership to the property, or intervene therein in any manner. The trustee is also president of the bank and testified at the trial. Some of the counsel who now represent the trustee in that trial represented the bank. The jury returned a verdict in favor of plaintiff, and judgment was entered accordingly. The record discloses no other facts with regard to the activities of the trustee in that trial. It fails to show that the trustee as such employed counsel, or that in his fiduciary capacity he participated in any manner in the trial. He asserted no title as trustee.

In this connection we must first determine what authority the trustee had to appear in the state court. The bankruptcy court may order the trustee to enter his appearance and defend any pending suit against the bankrupt. See Bankruptcy Act, § 11b (11 USCA § 29(b). Under this subsection the court may, but need not, order the trustee to intervene, and the trustee may not so act without first obtaining the approval of the bankruptcy court. See In re Porter & Bros. (D. C.) 109 F. 111; In re Price (D. C.) 92 F. 987; Bear v. Chase, 99 F. 920 (C. C. A. 4). The state court may not compel a trustee to intervene. Collier on Bankruptcy (13th Ed.) vol. 1, p. 421. But a plaintiff may be entitled to have a trustee made a party defendant in the state court, although he cannot be compelled to answer, except by direction of the bankruptcy court. Victor Talking Machine Co. v. Hawthorne, etc., Co. (C. C.) 173 F. 617. The bankruptcy court may restrain the action in the state court for such time as will permit the trustee to prepare his papers and intervene. In re Klein (D. C. Ill.) 97 F. 31.

Remington says that the trustee need not obtain the approval of the court in advance of starting a suit for the recovery of property or debts, but there are no authoritative decisions to such effect. In view of the fact that the trustee occupies a dual position — that is to say, that he is both officer of the court and has title to the general assets in trust for unsecured creditors — he should not be allowed to endanger the estate by engaging in cumbersome and expensive litigation without permission of the court of which he is an officer. There are many decisions to the effect he shall not begin suits to set aside fraudulent or preferential transactions without applying for and obtaining direction of the referee in bankruptcy. In re Mersman, 7 Am. Bankr. Rep. 46.¹ And in Re Meadows, Williams & Co. (D. C.) 181 F. 911, the court remarked it was good practice to obtain such leave, without deciding whether or not it was absolutely necessary. Judge Platt, of the District Court of Connecticut, held in Re Ryburn, 145 F. 662, that after a trustee has been appointed by the court he cannot go into the state court without authority. "Trustees in bankruptcy are not justified in rushing the estates of bankrupts into doubtful or unproductive litigations." Judge Ray, In re Harper (D. C.) 175 F. 412, at page 428.

There was no suit pending against the bankrupt, nor was there any suit instituted by the trustee. The only suit pending in the state court was the trial of right of property by the alleged owner of the property, levied upon by a judgment creditor as the property of the bankrupt. The trustee did not institute this suit. The...