Randolph Randolph v. Scruggs

• Citation: 190 U.S. 533,23 S.Ct. 710,47 L.Ed. 1165
• Decision Date: 18 May 1903
• Docket Number: No. 272,272
• Parties: RANDOLPH & RANDOLPH, Appts., v. J. W. SCRUGGS, Trustee in Bankruptcy of the Langstaff Hardware Company
• Court: United States Supreme Court

190 U.S. 533

23 S.Ct. 710

47 L.Ed. 1165

RANDOLPH & RANDOLPH, Appts.,

v J. W. SCRUGGS, Trustee in Bankruptcy of the Langstaff Hardware Company.

No. 272.

Submitted April 24, 1903.

Decided May 18, 1903.

Messrs. William M. Randolph, Wassell Randolph, and George Randolph for appellants.

No counsel for appellee.

Mr. Justice Holmes delivered the opinion of the court:

The certificate in this case is as follows:

'This is an appeal from the district court for the western district of Tennessee, sitting as a court of bankruptcy, disal- lowing a claim filed by the appellants against the bankrupt estate, exceeding $500 in amount. From the transcript of the record it appears:

'(1.) That the Langstaff Hardware Company is a mercantile corporation, organized under the general law of Tennessee, providing for the organization of such corporations, which was engaged in carrying on a general hardware business at Memphis, in the western district of Tennessee.

'(2.) Being embarrassed, it, on the 13th day of August, 1900, made a general deed of assignment, under the general-assignment law of Tennessee, by which it conveyed to one C. W. Griffith, as assignee, all its corporate property of every kind, for the equal benefit of all its creditors. The assignee accepted the trust and qualified by executing bond and taking the oath prescribed by the Tennessee statute, and entered into possession of all the assigned estate. This deed of assignment provided that the assignee should pay 'reasonable counsel and attorneys' fees for preparing this deed and for advice and service to be furnished and rendered him in the course of the administration of the trust hereby created.' Within four months after this deed of assignment the Langstaff Hardware Company, upon a petition by its creditors, was adjudicated a bankrupt, and this deed set aside as in contravention of the bankrupt law. A trustee was duly chosen, who has taken possession of the assigned assets of the bankrupt.

'(3.) The appellants filed a claim against the bankrupt estate for professional services rendered the bankrupt in preparing the said deed of general assignment, and the assignee thereunder in advising and counseling him in respect of his duties, and in defending a suit brought to wind up the corporation in a state chancery court, and for services rendered the assignee in resisting the adjudication of bankruptcy.

                      'The items of this claim were as follows
                 
                  (a.)   For services rendered the corporation in 
                         preparing the  general assignment.............. $500 00
                 
                  (b.)   For general advice and counsel to the 
                         assignee in  respect to the duties of his
                         trust..........................................  250 00
                 
                  (c.)   For legal services in defense of a suit 
                         brought in a state court wherein it was sought
                         to have the corporation wound up as an insolvent
                         corporation, and its assets distributed under the
                         orders and decrees of the court................  100 00
                 
                  (d.)   For services rendered by employment of 
                         the assignee in resisting an adjudication
                         of bankruptcy against the Langstaff 
                         Hardware Company...............................  300 00
                 
                

'The appellants asserted and claimed that each of said items constituted a prior charge upon the assets, and asked to have same paid by the trustee in preference to the unsecured creditors. The trustee and certain creditors excepted to each item of this account.

'The referee, upon the evidence, found and certified that the services had been rendered as claimed, and were reasonably worth the amount claimed, but that the same did not constitute expenses allowable as a preference, and were not otherwise a lien. He allowed the item of $500.00 as an unsecured claim against the bankrupt, but disallowed the other items as not being debts of the bankrupt. His order was duly excepted to and the questions certified to the court in due form. The district judge sustained the referee so far as he held the claim to be non-preferential and adjudged that none of the items constituted a debt, provable for any purpose against the bankrupt estate. From this judgment the appellants have appealed and assigned error.

'Upon this state of facts this court desires the instruction of the Supreme Court, that it may properly decide the questions of law thus arising:

'(1) Is a claim for professional services rendered to a bankrupt corporation in the preparation of a general assignment, valid under the law of Tennessee, entitled to be paid as a preferential claim out of the estate of the corporation in the hands of a trustee in bankruptcy, when the corporation was adjudicated an involuntary bankrupt within four months after the making of the assignment, and the assignment set aside as in contravention of the bankrupt law?

'(2) Is a claim for professional advice and legal services rendered such an assignee, prior to an adjudication of bankruptcy against the assignor, the assignment providing that the costs and expenses of administering the trust should be first paid, entitled to be proved as a preferential claim against the bankrupt estate?

'(3) Is a claim against such an assignee for legal services rendered at his employment in resisting an adjudication of involuntary bankruptcy against the assignor allowable as a preferential claim, when the necessary effect of the adjudication would be to set aside the assignment under which the assignee was acting?

'(4) If not entitled to be allowed as preferential claims, may either of the items described in the foregoing questions be proved as unsecured debts of the bankrupt corporation?'

It is admitted that a general assignment for the benefit of creditors, made within four months from the filing of a petition in bankruptcy, is void as against the trustee in bankruptcy, so far as it interferes with his administering the property assigned. This could not be denied. George M. West Co. v. Lea Bros. 174 U. S. 590, 595, 43 L. ed. 1098, 1099, 19 Sup. Ct. Rep. 836; Boese v. King, 108 U. S. 379, 385, 27 L. ed. 760, 762, 2 Sup. Ct. Rep. 765; Bryan v. Bernheimer, 181 U. S. 188, 45 L. ed. 814, 21 Sup. Ct. Rep. 557. It hardly is necessary to discuss whether such an assignment should be held to be embraced in the express avoidance of conveyances made with intent to hinder, delay, or defraud creditors in § 67e, of the bankruptcy law. (30 Stat. at L. 565, chap. 541, U. S. Comp. Stat. 1901, p. 3449.) It is possible to say that constructively a genral assignment falls under that description. Re Gutwilling, 90 Fed. 475, 34 C. C. A. 377, 63 U. S. App. 191, 92 Fed. 337; Davis v. Bohle, 34 C. C. A. 372, 92 Fed. 325. One ground for such a construction would be that making the assignment is declared an act of bankruptcy by § 3. As it could not have been intended that the very conveyance which warranted putting the grantor into bankruptcy should withdraw all his property from distribution there, it seems sufficient to rely upon the necessarily implied effect of § 3. At all events, if such a conveyance be called constructively fraudulent, it would be severe to deduce consequences as to the validity of the appellants' claim from that circumstance alone.

The assignment was not illegal. It was permitted by the law of the state, and cannot be taken to have been prohibited by the bankruptcy law absolutely in every event, whether proceedings were instituted or not. Re Sievers, 91 Fed. 366; Re Romanow, 92 Fed. 510. It had no general fraudulent intent. It was voidable only in case bankruptcy proceedings should be begun. At the time when it was made the institution of such proceedings was uncertain. It seems to us that it would be a hard and subtle construction to say, as seems to have been thought in Bartlett v. Bramhall, 3 Gray, 257, 260, that when they were instituted they not only avoided the assignment, but made it illegal by relation back to its date, when, if they had not been started, it would have remained perfectly good. No doubt the corporation had notice of the bankruptcy law, but it could not go into bankruptcy by voluntary petition, and there is no objection to a debtor's distributing his property equally among his creditors of his own motion, if bankruptcy proceedings do not intervene. The view we take is that which has been taken by state decisions with reference to similar questions raised by creditors or under state insolvent laws. Bigelow v. Baldwin, 1 Gray, 245, 247; White v. Hill, 148 Mass. 396, 19 N. E. 407; Clark v. Sawyer, 151 Mass. 64, 23 N. E. 726; Wakeman v. Grover, 4 Paige, 23, 43, 11 Wend. 187, 226, 25 Am. Dec. 624. See also Mayer v. Hellman, 91 U. S. 496, 500, 501, 23 L. ed. 377, 378.

The appellants do not stop here, however, but argue that the avoidance of the voluntary assignment goes only to the administration of the property, and not to the title; that the trustee simply succeeds the privately chosen assignee in the administration of the trust under the deed. Of course the object of this contention is to uphold the...