Hutchinson v. Le Roy

• Decision Date: 08 January 1902
• Docket Number: 390.,386
• Parties: HUTCHINSON v. LEROY. In re HUTCHINSON, Petitioner.
• Court: U.S. Court of Appeals — First Circuit

113 F. 202

HUTCHINSON v. LEROY.

In re HUTCHINSON, Petitioner.

Nos. 386, 390.

United States Court of Appeals, First Circuit.

January 8, 1902

Addison C. Burnham and Albert S. Hutchinson (Freedom Hutchinson, on the brief), for appellant.

Roland Gray (Ropes, Gray & Gorham, on the brief), for appellee.

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

PUTNAM Circuit Judge.

These two proceedings were brought to revise the decree of the district court for the district of Massachusetts, sitting in bankruptcy, directing a payment to Le Roy by the trustee in bankruptcy of $6,490.29. As occurred in Re County of Worcester, 42 C.C.A. 637, 102 F. 808, and in Re Fisher, 43 C.C.A. 381, 103 F. 860, 51 L.R.A. 292, and in Re Dickson (C.C.A.) 111 F. 726, the moving party in this court, who is the trustee in bankruptcy, being uncertain as to the nature of his remedy, both appealed, which constitutes the case of Hutchinson v. Le Roy, and filed a revisory petition, which constitutes that of Hutchinson petitioner. There can be no doubt that the latter proceeding is the correct one, and the appeal must be dismissed for want of jurisdiction.

The proceeding commenced by Le Roy filing a proof of debt claiming this $6,490.29, but closing the proof with the following, 'Deponent claims to be entitled as a preferred creditor. ' What Le Roy thus sought to accomplish could not be accomplished in that form, as the claim which he intended to maintain was not a preferred debt, under the bankruptcy act of 1898. Subsequently Le Roy obtained leave to amend as follows:

'And now comes the claimant, Stuyvesant Le Roy, and moves to amend his proof of claim heretofore filed by substituting therefor the following:

''The trustee appointed in the above-entitled bankruptcy proceeding received $6,490.29, belonging to this claimant, and forming no part of the estate of the bankrupts. Wherefore this claimant prays that the trustee may be ordered to pay to him said sum, less the amount of the dividend which has already been paid to him.

"This application is made without prejudice to the claimant's right to share as a general creditor for said amount of $6,490.29, in the event of the denial of this prayer for full payment.''

The amendment having been allowed, what was originally intended as a proof of a preferred claim was converted into a summary petition for the payment to Le Roy of a specific amount from the funds in the possession of the trustee. The district court clearly had jurisdiction over this petition, and granted it. Le Roy claimed the proceeds of 65 shares of American Sugar Refining Company stock, sold as hereinafter stated; the amount realized on the sale being $8,320. According to well-established rules, a court winding up insolvent estates must take cognizance of all equitable set-offs, no matter how they may arise. Bankr. Act 1898, Sec. 68; Carr v. Hamilton, 129 U.S. 252, 256, 9 Sup.Ct. 295, 32 L.Ed. 669; Scott v. Armstrong, 146 U.S. 499, 507, 13 Sup.Ct. 148, 36 L.Ed. 1059; Auten v. Bank, 174 U.S. 125, 148, 19 Sup.Ct. 638, 43 L.Ed. 920. It is sufficient that on the adjustment of all accounts between Le Roy and the bankrupts, including the matter of the 65 shares of American Sugar Refining Company stock, there was a balance due the former of $6,490.29.

Le Roy had pledged to the bankrupts before their failure the 65 shares of American Sugar Refining Company stock. Afterwards, at a date not given, the bankrupts borrowed of the Beacon Trust Company $100,000, pledging it a long list of securities, including with the rest the American Sugar Refining Company stock, and a small amount of other stocks belonging to other persons, without their consent, and without the consent or knowledge of Le Roy. Next, on December 27, 1899, the bankrupts made an assignment for the benefit of their creditors to one George C. Dickson. On the next day, or the day after, Le Roy called at the office of the bankrupts, and offered to pay the balance due from him on the delivery to him of the American Sugar Refining Company stock; but he was advised that nothing could be done, because the assets of the concern had been transferred to Mr. Dickson. Not knowing that his stock had been pledged to the Beacon Trust Company, Le Roy, forthwith after his interview with the bankrupts, informed Mr. Dickson that it belonged to him, and that it and its proceeds should be kept separate from the general assets of the insolvents. Between December 28, 1899, and January 2, 1900,-- the details of the dates not being given, nor important,-- the Beacon Trust Company sold all the securities pledged to it, with some exceptions not necessary to consider, but including Le Roy's realizing on the sale $111,340.75. The dates show that, both at the time of the assignment and of the claim made by Le Roy on Dickson, his stock was still intact in its hands. The trust company paid from the proceeds of the sale the amount of its loan, and delivered to Mr. Dickson a cash surplus of $11,340.75 and the unsold securities. The stock belonging to Le Roy was, as already said, sold for $8,320, and the other stocks belonging to other persons were sold for $3,200. As the net amount of Le Roys's claim is the sum already named, $6,490.29, all the reclamations which could be made by all the owners of all the stocks so pledged were less than the amount thus turned over.

The petition on which the adjudication of bankruptcy was made was subsequently filed, at a date not given in the record, and Hutchinson was duly appointed trustee. Meanwhile Mr. Dickson made some disbursements and realized some other funds, but at all times he had in his hands as assignee at least $11,340.75 in cash, and he turned over to the trustee $30,783.62. The trustee always has had, as trustee, cash in excess of $11,340.75, not required for any special purpose connected with the estate of the bankrupts, or with the proceedings in reference to the bankruptcy. From the time Mr. Dickson received the money from the Beacon Trust Company until the amendment was made which converted Le Roy's proof into a summary petition, there always was in the hands of Mr. Dickson and the trustee a sum which could have been applied to satisfying Le Roy's claim, without affecting any interests, except the amount of dividends to be paid the general creditors, who could prove their claims either under the assignment or in bankruptcy.

The record not showing that Le Roy knew what disposition had been made by the bankrupts of his American Sugar Refining Company stock, or, indeed, that he knew that they had made any disposition of it, we are not to hold that it was in his power to take any further action to protect his rights. Therefore we are to hold that he has not been guilty of any laches which could prejudice him. We might hold that the claim which Le Roy made on Dickson placed sufficiently on Dickson the duty of ascertaining whether any of the stock in the hands of the Beacon Trust Company belonged to Le Roy. But Dickson, as assignee of the insolvents, was not a purchaser for value, and therefore it is of no consequence whether he was advised of this fact. It is also well settled that the trustee, as well as the assignee, took only the equities of the bankrupt. Stewart v. Platt, 101 U.S. 731, 738, 25 L.Ed. 816; Bank v. Yardley, 165 U.S. 634, 17 Sup.Ct. 439, 41 L.Ed. 855. Therefore it follows that the trustee can set up no right against Le Roy which Dickson, as assignee, could not have done.

For the purpose of determining Le Roy's equities, it is not necessary to go back of the condition of things when the securities came into the hands of the Beacon Trust Company. Of course, the circumstantial facts concerning every transaction of this nature differ from those of every other, and it is not always for the trustee in bankruptcy to determine for himself whether such differences involve anything of substance. Nevertheless an examination of the record impresses us that this case must be determined in favor of Le Roy, on simple rules, and on recognized and well-established equitable principles.

There can be no doubt that, before the securities were sold by the Beacon Trust Company, Le Roy had a legal right to pay to it its loan, and take up all of them, for the purpose of protecting his interest in his own stock. It is said, however, that, in case the Beacon Trust Company had refused to accept payment or to surrender the stock, his only remedy would have been by an action at common law. Although this proposition, if sustained, could not affect the equities of this case, nevertheless it is not correct. If the Beacon Trust Company had refused to surrender, Le Roy, being a stranger to the transaction between it and the bankrupts, could have maintained a bill of redemption. Story Eq. Jur. (13th Ed.) Sec. 1032. However, Le Roy had other equities, in all respects the same as those of a surety, including the rights of marshaling and subrogation, and also the right to avail himself of the law of application of payments in such manner as would be most to his advantage. These principles are so thoroughly settled that no citation of authorities is necessary in reference to them; but the two rights first named are well explained by Lord Hatherley in Ex parte Alston, 4 Ch.App. 168, and by Lord Justice Cotton in Ex parte Salting, 25 Ch.Div. 148, 152.

It is quite probable, also, that on a showing that the Beacon Trust Company could have repaid itself, certainly and immediately on a sale of the securities belonging to the bankrupts, Le Roy could, on its refusal to sell, have brought a...