In re Morris

• Decision Date: 14 April 1913
• Docket Number: 190.
• Citation: 204 F. 770
• Parties: In re MORRIS.
• Court: U.S. Court of Appeals — Second Circuit

204 F. 770

In re MORRIS.

No. 190.

United States Court of Appeals, Second Circuit.

April 14, 1913

Kurzman & Frankenheimer, of New York City (A. L. Gutman, of New York City, of counsel), for petitioners.

M. S Hyman, of New York City, for respondent.

Before LACOMBE, COXE, and NOYES, Circuit Judges.

LACOMBE Circuit Judge (after stating the facts as above).

The petitioners rely upon the decision in Butler v Baudouine, 84 A.D. 215, 82 N.Y.Supp. 773; Id., 177 N.Y 530, 69 N.E. 1121. In that case it was held that a trustee in bankruptcy was not entitled to maintain an action to reach surplus income to which a debtor was entitled under a will as a judgment creditor would be under Williams v. Thorn, 70 N.Y. 270, Tolles v. Wood, 99 N.Y. 616, 1 N.E. 251, and Wetmore v. Wetmore, 149 N.Y. 520, 44 N.E. 169, 33 L.R.A. 708, 52 Am.St.Rep. 752. If this were still the law it would be a hardship to judgment creditors to discharge the obligation of their judgment debtor and thus prevent the only persons who could reach the surplus income from securing its application to indebtedness of the bankrupt. The decision in the Baudouine Case was reached in view of the provisions of section 70a (5) of the Bankrupt Act, which vests the trustee with title to 'property which prior to the filing of the petition (the bankrupt) could by any means have transferred or which might have been levied upon or sold under judicial process against him. ' The Court of Appeals points out that the bankrupt could not by any means have transferred this surplus and that it could not have been levied on and sold. The court says:

'We find, as the barrier to the plaintiff's successful assertion of a claim to that surplus, the requirement that none but a judgment creditor with his remedy at law exhausted is entitled to reach it. Our decision is placed on that ground alone.'

One result of that decision was to create preferences among general creditors of the bankrupt. One object of the Bankruptcy Act was to insure equality of distribution of the assets among all the creditors, except for such advantage as might be secured to some creditor through a specific lien of some sort. This equality of distribution would not result, if some of the creditors, who had no specific lien on anything, but who had put their claims in judgment, even after the filing of the petition in bankruptcy, could secure for themselves exclusively a particular fund which under the state law a debtor might be required to give up.

It is not surprising, therefore, to find that subsequent to the Baudouine decision Congress in 1910 amended the Bankruptcy Act-- section 47a (2)-- by providing that trustees of bankrupts:

'As to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied.'

This amendment is incorporated, not in section 70, but in section 47. That circumstance, however, is...