In re FABIAN.

(District Court, E. D. Pennsylvania. March 9, 1907.)

No. 2,328.

SALES RIGHTS OF PURCHASER'S TRUSTEE IN BANKRUPTCY-SALE OR BAILMENT -VALIDITY.

Petitioners contracted with F. prior to his bankruptcy to ship certain goods to him to be sold for their account, and to remain petitioners' property until sold. F. agreed to sell the goods at retail only, and to remit to petitioners each week the cost price of their goods sold during the previous week, and once each season to account and adjust the difference between sales and remittances. The contract also provided that if F. violated the contract, petitioners might take their goods back and hold F. for any loss they sustained, and that the stock should be fully insured against fire through petitioners, the cost to be paid by F. Held, that such contract, constituted a valid bailment and not a sale as between petitioners and F., though not recorded, and F. having failed to make the payments agreed on, petitioners were entitled to the goods or their, proceeds as against F.'s trustee in bankruptcy.

[Ed. Note. For cases in point, see Cent. Dig. vol. 43, Sales, §§ 7-11.]

In Bankruptcy.

Joshua C. Taylor, for trustee.

Greenwald & Mayer, for claimant.

J. B. MCPHERSON, District Judge. to the bankrupt by Schleestein, Cohn & following contract:

Certain goods were shipped Co., of New York, under the

This contract entered into this 21st day of March, 1905, between Schleestein, Cohn & Co., of New York City, and Louis Fabian, Chester, Pa., witnesseth:

"That Schleestein, Cohn & Co. agree to ship to Mr. Louis Fabian, from time to time, certain goods to be sold for their account, as per schedules to be delivered at time of shipments and all such goods to remain the property of Schleestein, Cohn & Co. until sold for their account. Said L. Fabian agrees to sell these goods at retail only and remit to Schleestein, Cohn & Co., each week, the cost price of their goods sold during previous week, which Mr. L. Fabian guarantees to average, weekly, no less than forty dollars ($40) on each $1,000 stock shipped. Then once each season a regular accounting is to be had and adjustment made between sales made and remittances sent. "Schleestein, Cohn & Co. agree to increase or replenish this stock from time to time, as in their judgment is required.

"If Mr. Fabian violates this contract, Schleestein, Cohn & Co. shall be privileged to take their goods back and hold said Louis Fabian responsible for any loss they may suffer thereby.

"Mr. Louis Fabian agrees to invest at once and keep invested in his business for his own benefit, no less than $3,000 his own capital.

"This stock will be fully insured against fire, through Schleestein, Cohn & Co. the cost of insurance to be paid by Mr. Fabian to Schleestein, Cohn & Co."

The bankrupt filed a voluntary petition in August, 1905, and at the date of adjudication some of the goods were still in his possession. They were claimed by Schleestein, Cohn & Co., as their property, but were afterwards sold under an agreement with the trustee that the proceeds of sale should be awarded to the person who should ultimately be found to be entitled to the goods under the foregoing con

tract. The referee was of opinion that the contract was an agreement of conditional sale, a mere device to retain color of title after a true sale had actually taken place, and decided against the claimants. The question thus raised has been variously decided in different jurisdictions, and has sometimes been decided differently by the same tribunal. As it seems to me, however, the Supreme Court of the United States has recently laid down a rule which renders it unnecessary to discuss the other cases that have been cited in the briefs of counsel. I refer to the decision in York Mfg. Co. v. Cassell, 201 U. S. 344, 26 Sup. Ct. 481, 50 L. Ed. 782 (S. C. 15 Am. Bankr. R. 633), in which the court held, as stated in the syllabus:

"The trustee in bankruptcy is vested with no better right or title to the property than the bankrupt had when the trustee's title accrued; and where, as in the state of Ohio, a conditional sale contract is good as. between the parties themselves, although not filed, the vendor of machinery sold and delivered under such a contract, and payment for which had not been made, may remove the same as against all creditors of the bankrupt who have not fastened upon it by some specific lien."

This quotation states accurately the position of the court, as will appear from the following paragraphs of the opinion:

"We come then to the question whether the adjudication in bankruptcy was equivalent to a judgment, attachment, or other specific lien upon the machinery. The Circuit Court of Appeals has held herein that the seizure by the court of bankruptcy operated as an attachment and an injunction for the benefit of all persons having interests in the bankrupt's estate.

"We are of opinion that it did not operate as a lien upon the machinery as against the York Manufacturing Company, the vendor thereof. Under the provisions of the bankrupt act the trustee in bankruptcy is vested with no better right or title to the bankrupt's property than belonged to the bankrupt at the time when the trustee's title accrued. At that time the right, as between the bankrupt and the York Manufacturing Company, was in the latter company to take the machinery on account of default in the payment therefor. The trustee, under such circumstances, stands simply in the shoes of the bankrupt, and, as between them, he has no greater right than the bankrupt. This is held in Hewit v. Berlin Machine Works, 194 U. S. 296, 24 Sup. Ct. 690, 48 L. Ed. 986. The same view was taken in Thompson v. Fairbanks, 196 U. S. 516, 25 Sup. Ct. 306, 49 L. Ed. 577. It was there stated that 'under the present bankrupt act, the trustee takes the property of the bankrupt, in cases unaffected by fraud, in the same plight and condition that the bankrupt himself held it, and subject to all the equities impressed upon it in the hands of the bankrupt.' See Yeatman v. Savings Institution, 95 U. S. 764, 24 L. Ed. 589; Stewart v. Platt, 101 U. S. 731, 25 L. Ed. 816; Hauselt v. Harrison, 105 U. S. 401. The same doctrine was reaffirmed in Humphrey v. Tatman, 198 U. S. 91, 25 Sup. Ct. 567, 49 L. Ed. 956. The law of Ohio says the conditional sale contract was good between the parties, although not filed. In such a case the trustee in bankruptcy takes only the rights of the bankrupt, where there are no specific liens, as already stated."

After explaining the meaning of the remark in Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405, to the effect "that the filing of the petition in bankruptcy is a caveat to all the world and in effect an attachment and injunction," the court concludes as follows:

"In this case, under the authorities already cited, the York Manufacturing Company had the right, as between itself and the trustee in bankruptcy, to take the property under the unfiled contract with the bankrupt, and the adjudication in bankruptcy did not operate as a lien upon this machinery in favor of the trustee as against the York Manufacturing Company,"

Since there is no doubt that the contract of March 21, 1905, now before the court, was valid between the parties, I am unable to distinguish the present dispute from the York Manufacturing Company's case, and am, therefore, constrained to differ from the conclusion of the learned referee. Undoubtedly the bankrupt violated the terms of his contract in failing to make the payments agreed upon, and apparently, therefore, the claimants, under the decision just referred to, had the right to reclaim the remainder of the goods.

The ruling of the referee is reversed, and it is now ordered that the trustee pay over to Schleestein, Cohn & Co., within 10 days from this date, the sum of $1,531.85, the proceeds derived from the sale of the goods in controversy.

In re FORTH.

(District Court, E. D. New York. February 19, 1907.) BANKRUPTCY-DISCHARGE-FINDINGS OF REFEREE.

The finding of a referee confirmed that objections to the discharge of a bankrupt on the grounds of a failure to keep proper books of account and transfers of property with intent to defraud creditors were not sustained by the evidence where, while there was room for criticism of the testimony of the bankrupt and his witnesses, nothing was shown indicating that the things not satisfactorily explained would have increased the estate or were fraudulent.

In Bankruptcy. On application for discharge.
Bennett, Underhill & Brooks, for bankrupt.
Hastings & Gleason, for creditors.

CHATFIELD, District Judge. The attorneys for the petitioning creditors in this proceeding objected to the granting of the discharge and have filed certain specifications, which have been referred to the referee in bankruptcy. He has made a report to the effect "that the specifications have not been sustained, and that the discharge of the bankrupt should be granted." A motion now comes on for the confirmation of that report and the formal discharge.

The bankrupt shows a plain desire to be discharged of his debts, and an indifference to the claims of his creditors prior to the filing of his petition. He also shows a willingness to carry on substantially the same sort of business which he claims was unprofitable, and is now proceeding as a clerk, acting for a corporation, and transacting the business of that corporation in much the same manner as he conducted his own establishment before the bankruptcy. The objections to the discharge were, substantially, that the bankrupt had not consistently written up such books as he did keep until the time of filing his petition, that certain articles of office furniture were claimed by his wife, as was also a house which had been purchased several years before the bankruptcy, and that neither he nor his wife and the other witnesses entirely corroborated each other as to many of the details of their business relations. But there is nothing to show that the continuance of the books by the bankrupt would have disclosed any sub

stantial assets or the whereabouts of the various small amounts at which the suspicions of the petitioning creditors have been directed. Nor do the discrepancies in the testimony show directly that any of the property held by the wife or the business corporation for which the bankrupt now works was transferred to them in fraud of creditors. These contradictions are evidence to be used in determining the credibility of the witnesses. The questions raised by these discrepancies were all questions of fact. The referee was appointed as special master to pass on the facts, and has decided in favor of the bankrupt, after seeing and hearing the witnesses testify, and it does not seem to the court that his determination upon these questions can be disregarded, as there is apparently sufficient testimony to support his determination.

The application overruling the objections and confirming the referee's report and granting the discharge in bankruptcy will be granted.

In re CHANTLER CLOAK & SUIT CO.

(District Court, D. Rhode Island. March 2, 1907.)

No. 489.

1. BANKRUPTCY-TITLE OF TRUSTEE-LIENS.

A trustee in bankruptcy takes the property subject to all the equities imposed upon it in the hands of the bankrupt which are not invalid as to creditors.

2 SAME MORTGAGE ON AFTER-ACQUIRED PROPERTY-VALIDITY.

A chattel mortgage on property to be subsequently purchased by the mortgagor, given to secure the mortgagee as guarantor of the purchase price of such property, was based on a present consideration, and is valid as against the mortgagor's trustee in bankruptcy.

In Bankruptcy. On petition of the Lederer Realty Corporation for review of decision of referee.

Thomas A. Carroll and Walter. P. Suesman, for petitioner.
J. Jerome Hahn, for mortgagee.

BROWN, District Judge. The trustee in bankruptcy takes the property subject to all the equities imposed upon it in the hands of the bankrupt which are not invalid as to creditors. York Mfg. Co. v. Cassell, 201 U. S. 344, 352, 26 Sup. Ct. 481, 50 L. Ed. 782; First National Bank v. Staake, 202 U. S. 141, 149, 26 Sup. Ct. 580, 50 L. Ed. 967; Thompson v. Fairbanks, 196 U. S. 516, 526, 25 Sup. Ct. 306, 49 L. Ed. 577. The latter case also decides that, on the question of the validity of a mortgage upon after-acquired property, the federal court will follow the decisions of the state court.

Under Rhode Island decisions, an equitable lien or charge upon the after-acquired property arose as soon as the property was acquired. Groton Mfg. Co. v. Gardiner, 11 R. I. 626, and cases cited. See, also, Central Trust Co. v. Kneeland, 138 U. S. 414, 419, 11 Sup. Ct. 357, 34 L. Ed. 1014; Wade v. Chicago, Springfield, etc., R. R., 149 U. S. 327, 341, 13 Sup. Ct. 892, 37 L. E. 755; Bear Lake Irrigation Co. v. Garland, 164 U. S. 1, 15, 17 Sup. Ct. 7, 41 L. Ed. 327; Fisher v. Zollin

ger (C. C. A.) 149 Fed. 54; Benjamin on Sales (5th Ed.) 134. When the bankrupt mortgagor acquired the property, the mortgagee immediately became liable as guarantor for its value, and equitably entitled to a lien corresponding to her liability as guarantor. Such a lien clearly is not voidable as a preference, since it is based upon a present consideration.

I am of the opinion that, as a court of bankruptcy acts upon principles of equity, it must be held, irrespective of whether the mortgagee took possession under the mortgage, that an equitable lien arose in favor of the mortgagee upon the after-acquired property, which was for a present consideration and therefore not invalid as to creditors, and that the lien of the mortgage attaches to the proceeds of the sale of after-acquired property as well as to the proceeds of property in the bankrupt's possession at the date of the mortgage.

It is urged that, even if the claimant had an equitable lien, it may have been waived by an attachment. See Potter v. Greenleaf, 21 R. I. 483, 44 Atl. 718. This contention apparently was not made before the referee, and the testimony cited is too vague to establish the fact of waiver. I find no error in the referee's decision. The finding of the referee is affirmed.

In re BAILEY.

(District Court, E. D. Pennsylvania. February 28, 1907.)

No. 2,094.

BANKRUPTCY-SUIT TO RECOVER ASSETS-DIRECTION ON PETITION OF CREDITOR. The trustee in bankruptcy may properly be directed to institute a suit to recover assets on petition of a creditor and the giving of a bond by the latter to protect the estate from liability for costs and expenses.

In Bankruptcy. On report of special master

J. Alfred Smith, for petitioner.
Charles B. Harding, for trustee.

HOLLAND, District Judge. A petition was presented in this case by Howard J. Green, administrator d. b. n. of the estate of Elizabeth Green, for the removal of John Stockburger, the trustee of this bankrupt's estate. A number of reasons were set forth, and among them the charge that there was some trust company stock and some property in New Jersey which at one time belonged to the bankrupt, and was conveyed under circumstances which would have entitled the trustee to recover both as assets for the bankrupt's estate. The answer to this petition by the trustee, which is fully sustained by the evidence taken by the special master, is a complete justification of the action of the trustee in the administration of the estate. But, at the argument, counsel for the petitioning creditor still insists that the real estate in New Jersey and the trust company stock can be recovered if suits be instituted for that purpose, and offers to pay all costs to which the trustee may be subjected in any suits he may institute for the recovery of this property for the creditors.