Thornton v. Scarborough

• Decision Date: 12 July 1965
• Docket Number: No. 22146.,22146.
• Citation: 348 F.2d 17
• Parties: Jack M. THORNTON, as Trustee in Bankruptcy of the Estate of John F. Scarborough, Jr., Bankrupt, Appellant, v. John F. SCARBOROUGH, Jr., Bankrupt, et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

348 F.2d 17 (1965)

Jack M. THORNTON, as Trustee in Bankruptcy of the Estate of John F. Scarborough, Jr., Bankrupt, Appellant, v. John F. SCARBOROUGH, Jr., Bankrupt, et al., Appellees.

No. 22146.

United States Court of Appeals Fifth Circuit.

July 12, 1965.

Theo J. McGee, Max R. McGlamry, Columbus, Ga., for appellant.

Cubbedge Snow, Macon, Ga., W. Edward Swinson, Roscoe M. Thompson, Columbus, Ga., for appellees.

Before TUTTLE, Chief Judge, and EDGERTON^* and SMITH,^** Circuit Judges.

TUTTLE, Chief Judge:

This is an appeal from the denial by the trial court, affirming the Referee in Bankruptcy, of orders to bring into the bankruptcy court for administration whatever interests John F. Scarborough, Jr., the bankrupt, may ultimately obtain in the estate of his father, who died four days after the filing of the petition in bankruptcy. The father's will left his entire estate to trustees for his widow for life and thereafter for distribution to such children or descendents of children as might then survive the widow. The question we have before us is whether this created interests in the bankrupt which fit the description of § 70, sub. a of the Bankruptcy Act, Title 11, § 110, sub. a U.S.C.A. of "property * * * which vests in the bankrupt within six months after bankruptcy by bequest, devise or inheritance."

There are no fact issues before the court. John F. Scarborough, Jr. filed a voluntary petition in bankruptcy on January 24, 1958. He was adjudged a voluntary bankrupt on the following day. On January 28 his father died testate leaving as survivors his wife, Lillie Stephens Scarborough, one son, the bankrupt, and four daughters. The will made certain bequests and then provided that the residuum should be left in trust, the bankrupt and Hines Holt, Sr. being named as Trustees. During the life of the testator's wife, the Trustees were directed to pay to her the entire net income from the trust property and the trustees were authorized to encroach upon the corpus of the trust property to the extent necessary to provide her with proper support and maintenance. The will provided that after the death of the testator's wife, the Trustees were to "divide the trust property into as many equal shares as I have children then living, and deceased children with descendants then living" and pay over one such share to each member of such class. The bankrupt was thus one of five possible remaindermen under the will. The widow is still living and the estate has thus not been disposed of.

The provision of the Bankruptcy Act upon which the appellant predicates his right is the second full paragraph of § 110, sub. a of Title 11 of the U.S.Code. This is § 70, sub. a of the Act. This full paragraph reads as follows:

"All property, wherever located, except insofar as it is property which is held to be exempt, which vests in the bankrupt within six months after bankruptcy by bequest, devise or inheritance shall vest in the trustee and his successor or successors, if any, upon his or their appointment and qualification, as of the date when it vested in the bankrupt, and shall be free and discharged from any transfer made or suffered by the bankrupt after bankruptcy."

Since appellant's case is at least partially dependent upon his contention that a gloss on this quoted language is provided by another part of § 70, sub. a of the Act, to wit: numbered Item 5 and numbered Item 7, both contained in the first full paragraph of the Section, we quote the relevant parts:

"(a) The trustee of the estate of a bankrupt and his successor or successors, if any, upon his or their appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under this title * * * to all of the following kinds of property wherever located * * * (5) property, including rights of action, which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him, or otherwise seized, impounded, or sequestered * * * (7) contingent remainders, executory devises and limitations, rights of entry for condition broken, rights or possibilities of reverter, and like interests in real property, which were nonassignable prior to bankruptcy and which, within six months thereafter, become assignable interests or estates."

On this state of facts, and under these provisions of the bankruptcy law, the Referee and the district court held that the kind of property described in the second paragraph of § 70, sub. a, contained in the first quotation above, should be read as if it embodied the language contained in (5), that is, "property * * * which * * * the bankrupt could by any means have transferred or which might have been levied upon and sold under judicial process against him * *" and also embodied the language of (7), that is, "contingent remainders * * which, within six months after bankruptcy became assignable." The Referee and the court then decided, however, that the interest which the bankrupt has in his deceased father's estate, was one which under Georgia law is known as contingent as to the person, was therefore not a vested interest, and was also not property which the bankrupt "could by any means have transferred," and was not an interest that had become "assignable." The court thus held that the appellant, Trustee in Bankruptcy, was not entitled to reach this interest in the estate of John F. Scarborough, Sr.

While applauding the decision of the trial court, the appellees here take the position that it was right for a much narrower reason than that advanced. They contend that since the will left the entire residuary estate to Trustees with legal title vesting immediately in them to administer during the life of the widow and then, after her death, with the duty to ascertain who would be the members of the class then named to take the remainder, there not only could be no "vesting" of any property right but that there was no property right either equitable or legal of any kind in the bankrupt or his fellow contingent remaindermen. They say that the bankrupt had nothing but a possibility of participating in his father's estate if he should survive his mother's death and that such a possibility or expectancy was neither transferable by any means nor assignable under the Georgia laws.

The appellant, on the other hand, contends that the trial court was wrong on all counts except that the court was correct in construing the particular paragraph dealing with property vesting in the bankrupt after bankruptcy and within six months, in the light of the language contained in parts 5 and 7 of § 70, sub. a. Appellant contends that even without consideration of sections 5 and 7 the provisions of the Bankruptcy Act dealing with vesting within six months after bankruptcy were fully satisfied in that Scarborough, Jr., obtained upon the death of his father, a vested interest as a remainderman, which interest was subject to be divested if he did not survive his mother. Moreover, he says that if this is not sufficient to bring Scarborough's contingent interest into the bankruptcy estate, then, in any event, the interest which Scarborough did receive upon the death of his father was such a one as under the Georgia law was transferable or assignable.

Further, appellant says even if this were not true in the legal sense, Scarborough could have conveyed his interest, even though not legally assignable, and having done so, if and when he ultimately became entitled to take if he survived his mother, he would be prevented by principles of estoppel from denying his conveyance, and thus his interest was one which "he could by any means have transferred."

A simple reading of the Bankruptcy Act would, it seems to us, lead to the conclusion that in order for this interest to be subjected to administration in bankruptcy, it would have to satisfy the following requirement: that it was "property * * * which vests in the bankrupt within six months after bankruptcy by bequest, devise or inheritance." This is the precise language of the statute which purports to deal with a property right which did not exist at the time of the filing of the petition in bankruptcy. We conclude that the word "vests" used here is not a word of art used in determining what kind of property interest the bankrupt acquired upon the death of his father. We think the words "vests in" are synonymous with "is acquired by" or "passes to." Thus, the language may be paraphrased as "all property * * * which is acquired by the bankrupt within six months after bankruptcy by bequest, devise or inheritance * * *." Thus, it must be determined whether the interest acquired by Scarborough was "property" within the meaning of the Bankruptcy Act. No general definition of property is contained in the Act. However, Section 70, sub. a deals extensively with "property" having elements of contingency and elusiveness. We think the trial court, therefore, correctly construed "property" in the second paragraph of Sec. 70, sub. a in pari materia with "property" in (5), that is "property * * * which prior to the filing of the petition the bankrupt could by any means have transferred or which might have been levied upon and sold under judicial process against him * * *." Subdivision (7) adds nothing to the definition for our purposes because it deals only with interests in real property.

Thus, we agree with the trial court's construction of the language of the second paragraph of 70, sub. a which seems to be supported by the text...