Tiger Shoe Mfg. Co.'s Trustee v. Shanklin

• Decision Date: 16 May 1907
• Citation: 125 Ky. 715,102 S.W. 295
• Parties: TIGER SHOE MFG. CO.'S TRUSTEE v. SHANKLIN.
• Court: Kentucky Court of Appeals

102 S.W. 295

125 Ky. 715

TIGER SHOE MFG. CO.'S TRUSTEE v. SHANKLIN.

Court of Appeals of Kentucky.

May 16, 1907

Appeal from Circuit Court, Mason County.

"To be officially reported."

Action by the Tiger Shoe Manufacturing Company's trustee in bankruptcy against S. A. Shanklin. From a judgment for defendant, plaintiff appeals. Reversed.

A. B. &amp A. D. Cole and Allan D. Cole, for appellant.

Worthington & Cochran, for appellee.

CARROLL C.

The Tiger Shoe Manufacturing Company was on petition of its creditors adjudged a bankrupt. Afterwards the trustee in bankruptcy, without an order of the United States District Court, in which the adjudication in bankruptcy was had authorizing or directing him so to do, and without any order of court directing the stockholders of the bankrupt corporation to pay to the trustee or into court any balance remaining unpaid on their stock subscriptions, instituted this action at law in the Mason circuit court to recover from appellee an alleged balance on shares of stock purchased by him, and also a sum equal to the amount of stock subscribed under the double-liability statute of this state. To the petition as amended, a general demurrer was sustained. Two questions are presented for our consideration on this appeal Assuming that it is necessary, can a trustee in bankruptcy maintain a suit in a state court or in a federal court other than the one in which he was appointed to collect a debt due the bankrupt without an order of the bankrupt court directing him to bring such suit? And if an ordinary debt can be collected without direction of court, can the trustee proceed to recover unpaid subscriptions to the capital stock of a bankrupt corporation or to enforce the double-liability statute without any call having been made therefor by the board of directors or by the bankrupt court?

Section 547 of the Kentucky Statutes, Edition of 1899, which contained the law applicable to the question we are considering, provided in part that: "The stockholders of each corporation shall be liable to creditors for the full amount of the unpaid part of stock subscribed for by them--the stockholders of corporations * * * shall be individually responsible equally and ratably and not one for the other for all contracts and liabilities of such corporation to the extent of the amount of their stock at par value in addition to the amount of such stock." Bankruptcy Act July 1, 1898, c. 541, § 47, 30 Stat. 557 [U S. Comp. St. 1901, p. 3438], reads as follows: "Trustees shall respectively account for and pay over to the estates under their control all interest received by them upon property of such estates, collect and reduce to money the property of the estates for which they are trustees under the direction of the court, and close up the estates as expeditiously as is compatible with the best interests of the parties in interest." In Loveland on Bankruptcy, p. 429, it is said: "In the course of the administration of an estate in bankruptcy, the trustee may be obliged to resort to suit for the purpose of collecting or reducing to money the property of the estate for which he is trustee, or for the purpose of reclaiming or recovering property or the value of such property as has been fraudulently conveyed, or to set aside a fraudulent preference. That the trustee has authority to bring and prosecute such suits cannot be questioned. It is not necessary for him to apply to the court for leave to institute such suits. It is his duty to invoke the court of justice for these purposes, if he cannot obtain possession of the assets in any other way. And under the statute now in force suits by the trustee may be brought either in the state or the federal court." In 5 Cyc. p. 339, the rule is announced and supported by ample authority: "That the trustee represents the bankrupt debtor as the custodian of all of his property not exempt, and he represents the creditors of such bankrupt in that he is to gather from every source the property of the debtor, protect and dispose of the same to the effect that their interest may be preserved and their claims paid. He succeeds to all the interests of the bankrupt, becomes in effect the owner of his property and subject to his accountability to the court holds absolutely the title to such property." In Re Arthur E. Smith, 9 Am. Bankr. Rep. 603, 121 F. 1014, the court said, in speaking of the powers of a trustee: "A trustee in bankruptcy is defined by the bankrupt act as an officer, and is in a certain restricted sense an officer of the court, but he is not an officer of the court in any such sense as a receiver. He takes the legal title to the property and in respect to suits stands in the same general position as a trustee of an express trust or an executor." In Traders' Ins. Co. v. Mann, decided by the Supreme Court of Georgia, and reported in 11 Am. Bankr. Rep. 270, 118 Ga. 381, 45 S.E. 426, the court said: "The duties of a trustee in bankruptcy are fixed by statute. They shall collect and reduce to money the property of the estates for which they are trustees--words as fully warranting him to sue as an administrator with the same power and duty. The fact that this is to be under the direction of the court no more requires a preliminary order to sue than it would necessitate a special order to authorize him to go in person and present a note and demand payment. The money when collected after suit or without suit, and the use to be made thereof, was to be under the direction of the court; but, being bound to collect, he was not obliged to secure a special order to bring a suit necessary to collect. As to action by or against the bankrupt pending at the time of the adjudication, the act requires him to obtain instructions from the court before intervening; but the express requirement that he must obtain an order in such instances, while being silent as to the necessity therefor, in cases like this, is conclusive that special permission was not necessary where he had to sue in order to collect a debt due the estate."

The provisions of the bankruptcy act before cited fully sustain the authorities in declaring that the trustee may, without an order of co...