Rothwell v. Knight

• Decision Date: 16 August 1927
• Docket Number: 1349
• Parties: ROTHWELL v. KNIGHT, et al. [*]
• Court: Wyoming Supreme Court

258 P. 576

37 Wyo. 11

ROTHWELL v. KNIGHT, et al. ^[*]

No. 1349

Supreme Court of Wyoming

August 16, 1927

APPEAL from District Court, Laramie County; WILLIAM A. RINER, Judge.

Action by Erwin C. Rothwell, trustee in bankruptcy of the estate of George E. Davis, bankrupt, against P. H. Knight and another. From a judgment for plaintiff, defendants appeal.

Judgment affirmed.

Kinkead Ellery & Henderson, for appellants.

The assignee is an officer of the district court; 4152-4161 C. S. That court should judge whether he has faithfully discharged his duties; Stearns on Suretyship, Sec. 227, Pac. 390; Coe v. Patterson, 103 N.Y.S. 473; State ex rel Pope v. Bank, (Minn.) 114 N.W. 651; Brown v Stewart, 78 Ill.App. 387; In re Bieber, 59 N.Y.S. 118; Lambert v. Co., (Pa.) 106 A. 541; High on Receivers, 4th Ed., p. 950; Planter's Ass'n v Harris, (Ark.) 131 S.W. 949; Hershey Chocolate Co. v. Sharp, (Ala.) 74 So. 33; Collier on Bankruptcy, (9th Ed.) p. 992. The title of a trustee in bankruptcy dates from the adjudication; Christofferson v. Harrington, (Minn.) 136 N.W. 289; In re Rathman, 183 F. 913; In re Mertens, 144 F. 818. What was lawfully done before adjudication will be upheld; In re Perpall, 271 F. 466. Davis, but for his assignment to Knight, would have retained title until adjudication; under Section 4168 C. S., Knight was not a purchaser in good faith; flling of petition in bankruptcy did not affect the right of the state court to possession of the property; In re Watts, 47 L.Ed. 933. Chapter 252 C. S. is not suspended by the bankruptcy act; the decision in Hasbrouck v. La Febre, 23 Wyo. 367, was decided prior to the decision in the case of Stellwagen v. Clum, 62 L.Ed. 507, and the question should be reconsidered here; see also, Closser v. Strawn, 227 F. 139, and cases cited; also In re McElwain, 296 F. 113. At common law, only the obligee named in the bond could sue thereon, and this is true today in the absence of a statute providing otherwise; Town v. Chapman, 11 Mich. 499; Stevenson v. Milling Co., 84 F. 114; People v. Laidlaw, (Mich.) 79 N.W. 576; Sunter v. Fraiser, (Cal.) 228 P. 660; Kuhl v. Chamberlain, (Ia.) 118 N.W. 776; 9 C. J. 28; Lumber Co. v. Sels, (Cal.) 159 P. 600; Stevenson v. Morgan, (Nebr.) 93 N.W. 180. The bond here was given under the provisions of Chapter 252 C. S.; the surety is as much protected as the surety of a receiver or administrator; if it be held that Chapter 252 was suspended in toto by the bankruptcy act, the bond would not be good as a statutory obligation; Conant v. Newton, 126 Mass. 105. Having been filed as an official bond of the assignee, it would not be binding unless the assignee was an officer.

M. A. Kline, for respondent.

Knight took possession after the filing of petition in bankruptcy, and was answerable to the bankruptcy court; Louis Neuberger, 233 F. 701; May Trustee v. Henderson, (U.S.) 69 L.Ed. 446; Bryan v. Bernheimer, 181 U.S. 188. The finding of the bankruptcy court, as to liability of defendant on its bond, was binding as to the amount due; 22 Cyc. 136; Stovall v. Banks, 10 Wall. 583; Peery v. Merrill, (Okla.) 179 P. 28. The statute, 252 C. S., does not find that an assignee for creditors is an officer of the court; there is authority to the contrary; Powers v. Ass'n., 86 F. 709; Lehman v. Rosengarten, 23 F. 642; In re Wellmade Gas Mantle Co., 233 F. 250; Fairbanks Steam Shovel Co. v. Mills, 240 U.S. 642, and cases cited. State statutes cannot defeat the operation of bankruptcy law; In re Watts, 190 U.S. 1; Bailey v. Machine Co., 239 U.S. 268; Loveland on Bankruptcy, page 104. The state court was without jurisdiction; Hasbrouck v. La Febre, 23 Wyo. 380; Pelton v. Sheridan, (Ore.) 144 P. 410; In re Curtis, 91 F. 737; In re Knight, 125 F. 35; 5 C. J. 1306. Even if the assignment and the proceedings in the state court were void, the bond given in those proceedings would be enforceable; Town v. Greenlee, (W. Va.) 129 A. S. R. 971; Daniels v. Tearney, 26 L.Ed. 187; 102 U.S. 415; Smith v. Town, (Wash.) 203 P. 369; Esselstyn v. Gold Corporation, (Colo.) 196 P. 185. The surety is estopped from denying liability; People's Lumber Co. v. Gillard, (Cal.) 68 P. 576; Henry County v. Salmon, (Mo.) 100 S.W. 20; City v. Company, (Ore.) 52 P. 26; Emanuel v. McNeil, (N. J.) 94 A. 616. Creditors are entitled, as the real parties in interest, to bring this action through a trustee in bankruptcy, who represents them; Irrigation Co. v. La Porte, (Wyo.) 188 P. 360; Board v. Young, (Wyo.) 29 P. 1002; Kelly v. State, 25 O. S. 567; Michand v. Erickson, (Minn.) 122 N.W. 324; 5581 C. S. Bonds of compensated surety companies are strictly construed against the surety; Duke v. National Surety Co., (Wash.) 227 P. 2.

BLUME, Chief Justice. POTTER, J., and KIMBALL, J., concur.

OPINION

BLUME, Chief Justice.

On February 6, 1922, one George E. Davis was engaged in the mercantile business in Thermopolis, Wyoming, and on that date made an assignment for the benefit of creditors, under the provisions of chapter 252, W. C. S. 1920. P. H. Knight, one of the defendants herein, was made the assignee. The assignment was filed of record with the County Clerk of Hot Springs County within ten days after it was executed, and a certified copy thereof was filed in the office of the District Court of Hot Springs County on or about the 15th day of February, 1922, on which date also a bond, executed by P. H. Knight, as principal, and the National Surety Company, as surety, was filed with said clerk. Upon the execution and filing of the bond, Knight took possession of the stock of goods and other property of Davis. In the meantime and on February 11, 1922, certain creditors of Davis who had notice of the assignment aforesaid, filed in the United States District Court for the District of Wyoming, an involuntary petition in bankruptcy, and upon the hearing on said petition Davis was, on the 2nd day of May, 1922, duly adjudged a bankrupt. Subsequently Rothwell, the plaintiff herein, was elected as trustee in bankruptcy, and he duly qualified as such. Between the date of the filing of the petition in bankruptcy and the date of the adjudication of Davis as a bankrupt, Knight, who at all times had knowledge of the proceedings in bankruptcy as aforesaid, proceeded to administer the property of Davis, as assignee, for the benefit of creditors, and made at least one report to the District Court of Hot Springs County, Wyoming, during that time. On May 18, 1922, which was subsequent to the adjudication of Davis as a bankrupt, Knight filed a final report in the District Court of Hot Springs County, Wyoming, which informed the court of the adjudication in bankruptcy and in which he asked the approval of his acts and the allowance of certain fees and of certain expenditures made by him. On June 6, 1922, the District Court of Hot Springs County, Wyoming, entered an order approving the final report of Knight, as assignee, and his supplemental report thereto, made the allowances asked by Knight, found the sum due to be $ 720.39, and ordered the assignee discharged as such upon the payment of said sum of $ 720.39 to Rothwell, the trustee in bankruptcy. This amount was duly paid. After the adjudication in bankruptcy, the United States District Court for the District of Wyoming, made an order requiring the defendant Knight to account to it for the property and money belonging to the estate of George E. Davis. Knight, accordingly, filed his report in compliance with this order. This report was objected to, and, after a hearing thereon, an order was duly entered finding the amount still due from Knight, after giving credit for the sum of $ 720.39 aforesaid, to be $ 1812.88, and an order was entered requiring him to pay that amount to the trustee in bankruptcy. This was not done and thereupon the present action was started, which is a suit upon the bond given by Knight and his surety, and brought by the trustee in bankruptcy. On the hearing in this action, the District Court found in favor of the plaintiff, entered judgment for $ 1812.88 with interest from September 6, 1922, and from that judgment so entered the defendants have appealed.

1. As heretofore stated, some of the transactions by the assignee took place before adjudication in bankruptcy, some of them thereafter. The adjudication mentioned was made on May 2, 1922. The final report of the assignee showing certain expenditures and certain receipts, was filed on May 18, 1922, and the approval of that report and the order of final discharge of the assignee was entered on June 6, 1922. And the main inquiry herein is as to what effect must be attributed to the fact that he accounted to the state court and that such court approved of his accounts and finally discharged him. Counsel for appellant contend that Knight was an officer of the state court; that as such it was his duty to account to that court, and having done so, and having been discharged, the order of the state court was binding an all parties, and the bankruptcy court had, accordingly, no jurisdiction to make him account as such officer. The nearest case in point cited by them is Lambert v. National Hog Company, 263 Pa. 354, 106 A. 541. In that case a receiver of the state court filed an accounting in that court after proceedings in bankruptcy and after a trustee in bankruptcy has been appointed. The trustee intervened and objected to the accounting in the state court, claiming that it should be made in the bankruptcy court. The court said in part:

"In would be an anomaly in the law if a receiver, who is an officer of the court appointing him, was denied the right to account to that court. He is the arm of the court, doing the court's work, and all that he has he holds for the court. Doubtless Congress could require that an accounting...