Parker v. Black

• Decision Date: 06 February 1906
• Citation: 143 F. 560
• Parties: PARKER v. BLACK et al.
• Court: U.S. District Court — Western District of New York

143 F. 560

PARKER v. BLACK et al.

United States District Court, W.D. New York.

February 6, 1906

Lewis &amp Crowley, for plaintiff.

Werner & Harris, for defendants.

HAZEL District Judge.

This suit in equity for an accounting was brought by the complainant, as trustee in bankruptcy, against the defendants, a partnership, who were creditors of John S Hough, the bankrupt. The sum of $2,929.75 is alleged to have been transferred by the bankrupt, when insolvent, in violation of section 60 of the bankruptcy act (Act July 1 1898, c. 541, 30 Stat. 562 (U.S. Comp. St. 1901, p. 3445)). The trustee claims to be entitled on behalf of the creditors to the amount mentioned. Although lack of jurisdiction was suggested at the hearing, it is not pressed in the brief submitted for the defendants. That the trustee acted within his right in instituting a plenary action for an accounting, instead of resorting to an action at law, seems to be settled by the federal authorities. Pond, Trustee, v. New York Exchange Bank, 10 Am.Bankr.Rep. 343, 124 F. 992; Wall v. Cox, 101 F. 403, 41 C.C.A. 408; Bardes v. Bank, 178 U.S. 524, 20 Sup.Ct. 1000, 44 L.Ed. 1175. In Pond v. New York Exchange Bank, supra, Judge Holt, speaking of the right of a trustee in bankruptcy to enforce his remedy to recover a preference, consisting of money paid a creditor by bill of equity, says:

'This suit is analogous to a judgment creditors' suit to set aside a fraudulent conveyance. The original payment, when made, was valid. It would not have been voidable by the bankrupt. It has only become voidable, at the election of the trustee in bankruptcy, in the same manner as a fraudulent conveyance may be set aside by a judgment creditor. The jurisdiction in such cases has always been in equity.'

In Loveland on Bankruptcy (2d Ed.) p. 608, the practice is thus stated:

'To recover property conveyed by the bankrupt in fraud of the act, either as a preference or a fraudulent conveyance, is not a proceeding in bankruptcy. It must be a plenary suit at law or in equity, according to the nature of the case. Such suit may be actions at law, in ejectment, trover assumpsit, etc., or suits in equity, as a bill to set aside a fraudulent conveyance.'

In Bardes v. Bank, supra, the Supreme Court of the United States, specifically answering the question of jurisdiction certified to them, says:

'The provisions of the second clause of section 23 of the bankrupt act of 1898 (30 Stat. 552; U.S. Comp. St. 1901, p. 3431) control and limit the jurisdiction of all courts, including the several District Courts of the United States, over suits brought by trustees in bankruptcy to recover or collect debts due from third parties, or to set aside transfers of property to third parties, alleged to be fraudulent as against creditors, including payments in money or property to preferred creditors.'

It will be noted that the language employed in the same sentence includes suits to set aside fraudulent conveyances and suits for the recovery of money paid by the bankrupt to third persons. This would seem to indicate that the Supreme Court regarded the payment of money to a creditor or third person in violation of the bankruptcy act as in the nature of a fraud, misrepresentation, or concealment, and that a remedy in equity would more readily afford adequate relief. Jones v. Bolles, 9 Wall. 364, 19 L.Ed. 734.

The adjudications in the courts of the state are not entirely harmonious upon the point under consideration. In Houghton v. Stiner, 92 A.D. 171, 87 N.Y.Supp. 10, the trustee sought to recover the value of a stock of goods transferred to a creditor in violation of the bankruptcy act. The court substantially held that, as the transfer was only voidable by the trustee, his mere election to avoid the same did not destroy the title, ownership, or possession, and that the creditor receiving a preference must be deprived of his right to the property by a court of equity. In Stern v. Mayer, 99 A.D. 427, 91 N.Y.Supp. 292, and Merritt v. Halliday, 107 A.D. 596, 95 N.Y.Supp. 331, it is declared that an action to recover money paid by a bankrupt to a creditor within the period limited by section 60 of the bankruptcy act is in form and substance an action at law. Notwithstanding the indicated conflict of authorities in the courts of the state of New York, the trend of the federal adjudications is firmly in the direction of enabling a trustee to proceed in equity to nullify an alleged preference in violation of the national bankruptcy law. It was not necessary for the trustee to invoke his equitable remedy; he was not exclusively confined to seek redress in a court of law. Wetstein v. Franciscus, 13 Am.Bankr.Rep. 326, 133 F. 900, 67 C.C.A. 62. Either remedy, apparently, was open to the trustee in this case.

The principle is not...