In re Gay

• Decision Date: 16 July 1910
• Docket Number: 14,188.
• Citation: 182 F. 260
• Parties: In re GAY et al.
• Court: U.S. District Court — District of Massachusetts

182 F. 260

In re GAY et al.

No. 14,188.

United States District Court, D. Massachusetts.

July 16, 1910

Tyler &amp Young, for trustee.

George W. Anderson, for bankrupt.

DODGE District Judge.

At the time of the bankruptcy an action of tort was pending in the Massachusetts superior court, which the bankrupts had brought against the firm of Tucker, Anthony & Co. The declaration alleged that the bankrupts, who were dealers in stocks and bonds, had been induced to buy certain bonds from the defendants, who were in the same business, at prices greater than their value, by false and fraudulent representations made by the defendants regarding facts materially affecting the value of the bonds. Damages were claimed for alleged losses to the plaintiff resulting from the purchase. The question to be decided is: Were the bankrupts' rights of action asserted in this suit 'rights of action arising * * * from * * * injury to (the bankrupts') property,' so as to pass to the trustee under section 70a (6) of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 565 (U.S Comp. St. 1901, p. 3451)).

Assuming that the bankrupts were in fact induced, as their declaration alleged, to pay $239,594.44 for bonds having no such real value, by means of false and fraudulent representations such as the declaration set forth, I think it may be said, as a matter of fair and reasonable construction, that their right of action arose from injury to their property. If those were the facts, they lost by the deceit practiced upon them money then belonging to them which might otherwise have been available to meet their obligations. This construction of clause 6 has the support of a recent decision by the District Court for the Northern District of New York. In re Harper, 175 F. 412. A trustee in bankruptcy was there allowed to set off against a claim for goods sold and delivered a counterclaim for damages to the bankrupt, caused by the creditor's deceit in connection with the sale. The bankrupt's claim for damages by the deceit was held to have passed to the trustee, because, if deceived as the bankrupt alleged his money had thereby been lost and his estate diminished. It was held (page 421) that the trustee might therefore establish the claim for damages as a counterclaim before the referee, unless some other mode of establishing and liquidating it should be directed.

It is urged on the bankrupt's behalf that the court does not appear in Re Harper to have held the right of action for the deceit a right which may be properly described as a right arising from injury to the bankrupt's property, but to have held only that it passed to the trustee because made assignable by the New York Code. Such a right of action, it is said, is not assignable under the law of Massachusetts, and the decision is, therefore, of no authority here. But if the right of action dealt with in Re Harper belonged to the trustee only because assignable in New York, and not because a right arising from injury to the bankrupt's property, it belonged to him, not by virtue of subdivision 6 of section 70a, but by virtue of subdivision 5, or, in other words, because it was property transferable by the bankrupt, or which might have been sold under judicial process against him. See Remington, Bankruptcy, Sec. 1019, p. 569. And the court expressly says in Re Harper, at page 418 of 175 Fed.:

'It is self-evident, I think, that rights of action for unliquidated damages for false and fraudulent representations, * * * whether assignable or not, are not regarded as property under subdivision 5.'

The decision, as I understand it, holds the trustee entitled to the right of action only because subdivision 6 gives it to him. The definition of 'injury to property' in the New York Code is discussed, because a definition of words used in subdivision 6, and the New York decisions bearing upon the Code definition are quoted only as interpreting and illustrating that definition. The Code can hardly have been supposed capable of making 'injury to property' in subdivision 6 mean something in New York which it does not mean elsewhere. I am unable to see in this contention any reason for declining to follow In re Harper.

No other decision has been found which deals with this question as presented under the present bankruptcy act. Under the bankruptcy act of 1867 the rights of action belonging to a bankrupt which were to pass to his assignee were those 'arising from an unlawful taking or detention or injury to his property. ' Rev. St. Sec. 5046. The language used may be regarded as substantially identical, for the purposes of the question under consideration, with that of clause 6. Two decisions under that act are relied on by the bankrupts. They are In re Crockett, 2 Ben. 514, Fed. Cas. No 3,402, and In re Brick, 4 Fed. 804. In the first of these cases the question was whether there were any assets in existence belonging to a partnership which had been dissolved. A suit which the partnership had brought to recover damages for fraudulently and deceitfully recommending a person, to whom it had sold goods, as worthy of trust and confidence, was held to be not within the description of the assets which pass to the assignee in bankruptcy. The court said: 'It is not a debt, or a security for a debt, or a right in equity, or a chose in action, or a right of action for property. Nor is it a right of action or a cause of action arising from contract. It is an action of tort for the fraud and deceit, and not an action on a...