In re See

• Decision Date: 11 November 1913
• Docket Number: 22.
• Citation: 209 F. 172
• Parties: In re SEE.
• Court: U.S. Court of Appeals — Second Circuit

209 F. 172

In re SEE.

No. 22.

United States Court of Appeals, Second Circuit.

November 11, 1913

Frank H. Reuman, of New York City, for appellant.

C Elmer Spedick, of Brooklyn, N.Y., for respondent.

Before LACOMBE, COXE, and ROGERS, Circuit Judges.

ROGERS Circuit Judge.

In October, 1911, J. Albert See and Henry H. Meeker entered into an agreement which provided that Meeker should be permitted to carry on the business of buying and selling goods in the name of See.The latter was to receive 5 per cent. on the gross sales; was to receive all moneys collected by Meeker and pay all bills for goods purchased by him.In order to protect See from any losses which might occur through the sale of goods by Meeker, the latter deposited the sum of $800 with See as security to be returned on the termination of the agreement.Meeker carried on the business until January 10 1912, when a petition in involuntary bankruptcy was filed against See, and Joseph Steinberg, the petitioner, was appointed receiver and subsequently trustee in bankruptcy.After the appointment of the petitioner, Meeker collected for goods sold by him certain sums of money amounting approximately to $519.He was required to show cause why he should not turn this amount over to the receiver.He admitted the collection of this money, but asserted the right to retain that sum on account of having a lien against the same for the $800 which he had deposited with See by way of security.It was admitted that See had deposited the $800 which he received in the AEtna National Bank, and that when the bankruptcy petition was filed there was very little, if anything, in the bank to See's credit, because of the fact that the main balance that had been in the bank was paid to the AEtna National Bank to take up a $1,500 note within a week prior to the failure.An order was made by the district judge requiring the respondent Meeker to pay to the receiver the $519 which he had collected and the question was referred to a special master as to whether the $800 deposited by the respondent Meeker with the bankrupt See was a lien upon such moneys as might be collected on the accounts due under the agreement between them.At the same time the receiver or trustee was directed to set aside out of the assets in his possession the sum of $1,000, the same to be held until it should be determined whether the claimant Meeker had any lien thereon.The master reported against the existence of the lien.The district judge refused to confirm the master's report and ordered that the claim of respondent Meeker should be declared a lien upon the sum of $1,000 in the hands of the trustee, who was directed to pay to Meeker $690.71; it having been ascertained that this was the amount due from See to Meeker.The trustee in bankruptcy has appealed from this order and filed a petition for review.

It is admitted that no part of the $800 has been traced into the funds of the bankrupt or reached the hands of the trustee in bankruptcy.The question which this court has to decide therefore, is whether one who entrusts money to another to be held as security has a preferred claim on the assets which come into the possession of a trustee in bankruptcy of that other in case the latter wrongfully appropriates the funds held in security to the payment of certain of his creditors, or whether he must come in and share pari passu with the general creditors.

The respondent insists that his claim is to be preferred on the ground that the security fund was wrongfully used by the bankrupt to diminish his debts and that by the payment of the note to the AEtna Bank, the bankrupt's estate was by so much enriched.The argument is that the presumption should be indulged that this wrongful application of the security fund had contributed to the benefit of the bankrupt's estate in the proportion that it had lessened the volume of the general claims against the estate and that on that account the special creditor, in this casethe respondent Meeker, is to be given the same preference over the general creditors that he would have had if the security fund had not been wrongfully appropriated but had come into the hands of the trustee in bankruptcy.

On the other hand, the petitioner, the trustee in bankruptcy, insists that as the security fund was dissipated by the bankrupt and never reached the petitioner's hands as a specific fund and cannot be traced into the assets of the bankrupt's estate, the respondent is not entitled to any preference over the general creditors.

There is no doubt that See held the $800 deposited by Meeker as a trust fund.If the fund had remained in its integrity in See's hands--Meeker would have been entitled to claim the entire amount in preference to the general creditors.And if in perversion of his trust See misappropriated the money Meeker was entitled in equity to pursue the trust fund into any form...