Hutchinson v. Otis

• Decision Date: 22 May 1902
• Docket Number: 415,416.
• Citation: 115 F. 937
• Parties: HUTCHINSON v. OTIS et al. In re HUTCHINSON.
• Court: U.S. Court of Appeals — First Circuit

115 F. 937

HUTCHINSON v. OTIS et al.

In re HUTCHINSON.

Nos. 415, 416.

United States Court of Appeals, First Circuit.

May 22, 1902

Freedom Hutchinson, for appellant.

Roland Gray and Robert S. Gorham, for appellees.

Before COLT and PUTNAM, Circuit Judges, and WEBB, District Judge.

PUTNAM Circuit Judge.

These cases relate to proceedings in the district court for the district of Massachusetts, sitting in bankruptcy, with reference to questions between the trustee of E. C. Hodges &amp Co., in bankruptcy, and Otis, Wilcox & Co. The leading facts are well stated in the opinion of the learned judge of the district court, as follows:

'Wilcox a creditor of the bankrupt, sued him and garnished Post &amp Flagg less than four months before the filing of the petition. Thereafter he proceeded to judgment, took out execution, and collected from Post & Flagg the amount due him from the bankrupt, in the belief that it had been duly recovered under a valid garnishment, and that there had thus been effected a full settlement of the judgment rendered against the bankrupt. The judgment was entered satisfied. At that time Wilcox knew that bankruptcy proceedings were pending, and that Swift's trustee claimed the debt owed by Post & Flagg. As Post & Flagg had been informed of the bankruptcy, they took a bond from Wilcox to indemnify them in case of loss. Still later, Wilcox was notified that the bankrupt's seat in the New York Stock Exchange had been sold. The rules of the exchange gave Wilcox a lien upon the proceeds of the seat for the amount of the bankrupt's debt to him, and he was invited to prove his claim against the bankrupt in the manner prescribed by the rules. To this notice he replied that he had already made a settlement with the bankrupt, and that he relinquished whatever claim he had against the bankrupt's membership. The trustee brought suit against Post & Flagg to recover their debt to the bankrupt's estate. As the garnishment made by Wilcox was void under section 67 of the bankrupt act, the payment by Post & Flagg to Wilcox did not avail them to resist the trustee's suit. Wilcox was called upon under his bond of indemnity, and agreed with the trustee that the trustee's suit against Post & Flagg should be settled by the payment by Wilcox of the money due the trustee from Post & Flagg. The payment was made, and the trustee received and applied the same in full settlement of his suit. Wilcox now seeks to prove against the bankrupt's estate, and to reinstate his lien upon the proceeds of the bankrupt's seat in the stock exchange which have been paid over to the trustee.'

This statement, however, requires to be supplemented by a few additional facts. There were two garnishee suits instead of one, each standing on the same basis. The bankrupts, who are residents of Massachusetts, made a voluntary assignment for the benefit of creditors on December 26, 1899. Otis, Wilcox & Co., who are residents of Illinois, and therefore not affected by the assignment so far as assets beyond the jurisdiction of the state of Massachusetts were concerned, brought trustee suits, as explained by the learned judge of the district court, in Illinois and New York, on the same day that the assignment was made. The petition in bankruptcy was filed against E. C. Hodges & Co. in the district of Massachusetts on April 6, 1900. They were adjudged bankrupts on the 27th day of the same month of April, and Mr. Hutchinson was appointed trustee on the 23d day of the following May. The agreed statement which we find in the record, referring to the amounts which Otis, Wilcox & Co. received by virtue of their garnishee suits, says that they received them in the belief that they had been duly recovered under valid attachments, and that thus there had been effected full settlements of their judgments against E. C. Hodges & Co. It is true it also stated that Otis, Wilcox & Co. received the proceeds of their judgments knowing of the pendency of the bankruptcy proceedings against E. C. Hodges & Co., and knowing that the trustee in bankruptcy claimed that the garnishees were liable to pay to him the debts covered by the garnishments. These statements, however, need explanation.

Under the bankruptcy act of 1867, with its amendments, the transfer of the bankrupt's assets was accomplished by a formal assignment, executed by the district court or the register in bankruptcy. That assignment, on its face, related back to the date of the commencement of proceedings in bankruptcy, and expressly stated what that date was; so that any person informed of the assignment was thereby informed of this essential fact. Under the present act there is no formal assignment, but merely an order, which fails to state the date of the commencement of the proceedings, and therefore necessarily fails to make known that the transfer of the assets of the bankrupt relates to that date. Otis, Wilcox & Co., so far as the record is concerned, received their knowledge of the pendency of the bankruptcy proceedings, and of the claim of the trustee that he was entitled to the debts which they had garnished, by letters sent by the trustee to the garnishees, or one of them, under date of May 28, 1900. These inclosed copies of the appointment of Mr. Hutchinson as trustee, but, so far as the record goes, they gave no information as to the date of the commencement of the proceedings. On April 27, 1900, the garnishee suits of Otis, Wilcox & Co. had been running four months, so that their claims were then apparently secured; and, so far as the case shows, never, until after the collection of their judgments in the garnishee suits, were they informed that the proceedings in bankruptcy were commenced in the early part of that month. The record does not expressly state whether the belief of Otis, Wilcox & Co. as to the status of the garnishee suits was based on a mistake of law, or on a mistake of fact arising through ignorance of the date when the proceedings in bankruptcy were commenced. Inasmuch as, on one of the proceedings before us, we are limited to 'matter of law,' it is fortunate that we do not find it necessary on this point to make a finding of fact. We reach this conclusion as the result of putting an interpretation on the record. We would not be justified, in the absence of a necessary conclusion to that effect, in finding, to the prejudice of a resident of the United States, that he was ignorant of the laws thereof. Therefore, as the record leaves the matter open, we are bound to conclude that, in all the proceedings which it is necessary for us to consider, Otis, Wilcox & Co. acted under a mistake of fact, and not a mere mistake of law, although it is settled beyond question that parties acting under a mistake of law will not necessarily be held to that mistake by a court of bankruptcy when the result would be to do substantial injustice.

In this connection we ought to observe that whatever mistake Otis, Wilcox & Co. made has not resulted to the prejudice of any one, that no one has relied on it in such way that he would now be harmed by its being corrected, and that the trustee cannot build up any estoppel thereon, because, as we said in Hutchinson v. Le Roy (C.C.A.) 113 F. 202, a trustee in bankruptcy, like all other representatives of insolvent estates, takes only the equities of the bankrupt.

Within the year limited by the statute of proof of claims in bankruptcy, Otis, Wilcox & Co. filed a proof which failed, in very substantial particulars, to comply with the general orders of the supreme court in reference to such matters. Subsequently, after the expiration of the year, they filed a substituted proof of a claim, alleged to be secured in part by that portion of the proceeds of the sale of the seat of the bankrupts in the New York Stock Exchange which had been paid over to the trustee. Previously they had filed a petition that the court should direct the amount so received by the trustee to be paid to them. After a full hearing of the case, the court, on November 4, 1901, entered the following decree:

'At Boston, in said district, on the fourth day of November, A.D. 1901, upon the question certified to the court by the referee in said matter, on the 1st day of August, A.D. 1901, now, therefore, after hearing arguments of Freedom Hutchinson, trustee, and of R. S. Gorham, Esq., of counsel for Otis, Wilcox & Company, creditor, and after due consideration of the same, and the said Otis, Wilcox & Company having filed, by consent of the trustee, an amended proof of claim to be substituted for the proof annexed to their original petition, it is hereby ordered and decreed that the judgment of the referee be reversed, and that the said substituted proof be allowed, and that the trustee pay to Otis, Wilcox & Co. the balance of the proceeds of the seat in the New York Stock Exchange, to the amount of $4,091.28, on account of their claim, and that for the remainder they may be admitted to receive dividends; and it is further ordered and decreed that Otis, Wilcox & Co. pay to the trustee three hundred dollars paid by him to counsel in suit against Post & Flagg, and recover no costs of these proceedings.'

This decree covers two subject-matters: First, an allowance of the substituted proof of a claim partly secured; and, second, a judgment that the trustee pay to Otis, Wilcox & Co. the balance of the proceeds of the seat in the exchange which he had received. The result is that we have pending before us with reference to that decree both an appeal and a revisory petition. Among the errors assigned on the appeal is that the court below erred in allowing the substituted proof. This, of course, raises a question which properly comes before us on appeal. The substance of the other errors assigned is that ...