Hynson v. Burton

By the Court, Sebastian, J. The only question which arises on the record is, whether the demurrer to the plaintiff’s replication was rightfully sustained by the court. By the 3d section of the bankrupt act, the decree in bankruptcy, by mere operation of law, divested the plaintiff of all his property and rights of property at the date of the decree and vested it by force of the decree in the assignees appointed by the court for that purpose. Newball, ex parte, 5 Law Rep. 507. Tbfo matter arising since the last continuance of the cause was properly pleaded, and if not denied .or avoided, it might be a bar to the further prosecution of the suit in the name of the bankrupt. By the same act (see. 3,) it is further provided “that all suits in law or in equity then pending, in which such bankrupt is a party may be prosecuted and defended by such assignee to its final conclusion, in the same way and with the same effect as they might have been by such bankrupt.” And the act further provides that “ the assignee so appointed shall be vested with all the rights, titles, powers and authorities to sell, manage and dispose of the property, &c., of the bankrupt, and to sue for and defend the same, &c., as fully to all intents and purposes, as the same were vested in or might be exercised by such bankrupt before or at the time of his bankruptcy.” These provisions, says Story, J., in ex parte Foster, 5 Law Rep. 71, manifestly contemplates that as to all property and rights of property of the bankrupt, and as to all suits in law or equity pending, to which the bankrupt is a party, the bankrupt is to be treated as if he were civiliter mortuus, and all his property and rights of property are vested in the assignee, as his executor or administrator. Taking therefore the facts of the plea as true, was it a matter in abatement of the suit? Under the-English statutes, the bankruptcy of the plaintiff before action brought, can be pleaded in bar and that is the principle established in 15 East, cited by the appellee’s counsel; which was a proceeding against bail, and the bankruptcy of plaintiff before suing out sci.fa. was pleaded. The action does not abate if commenced by the bankrupt before his bankruptcy, but may be prosecuted in the name of the assignee. 1 Ch. on Pl. 15. Hewitt vs. Mantel, 2 Wilson 372. Whatever may be the effect of such a plea under the English bankrupt acts, we think it clear that under the bankrupt act (sec. 3,) of the United States, no such effect was intended to be given to the decree; but on the contrary the act provides that suits pending, to which the bankrupt is a party “ may be prosecuted and defended by such assignee to its final conclusion,” &c. This-certainly precludes the idea of abatement of the suit; and whether in such case the suit proceeds in the name of the bankrupt, or in that of the assignee, it is unnecessary to determine, as in either view of it, the plea is bad, and the court should have so adjudged it upon demurrer to the replication. But supposing the plea to be good, we are clearly of opinion that the matter set up in evidence of it is sufficient. The act clearly intended nothing more to pass by the decree to the assignee, than the property and rights of property, either in suits pending or otherwise,, belonging to the bankrupt at the time of the decree. The object was to transfer such property to the assignee for the creditors, as belonged to the bankrupt, and no more. Such was the conclusion of Story, J., in Newball, ex parte, 5 Law Rep. 308, where he said ís I take the clear rule in bankruptcy to be that the assignee takes the property and rights of property of the bankrupt,subject to all the rights and equities of third persons, which are attached to it in the hands of the bankrupt.” At the instant the decree is made, the property and rights of property of the bankrupt vest in the assignee, and are gone beyond the control of the bankrupt. It is in this light that he is said to be civiliter mortuus. It is only so between him and the assignee for the creditors. The debtor is not concerned in the relation between them, or how their relative rights are settled. What property or right of property did the plaintiff have in the note sued on: for nothing else could be passed to the assignee. He had only the naked legal title to it, the whole property and beneficial interest having passed to Pope and Byers long before, for a valuable consideration. He held as trustee for them only, and they were substantially and equitably the sole owners of the property in it. They were entitled to sue upon it in name of Hynson, from whom the legal title could not pass, except by assignment. Hynson then had nothing but the naked legal title, which he held as trustee for Pope and Byers. This was not such a property as passed by the decree in bankruptcy, for it could not be available as a fund for the creditors. The rule is well settled that a legal title, without a beneficial interest, does not vest in the assignee; and that where the beneficial interest in a chose in action has been transferred to a third person prior to the bankruptcy, the action must be brought in the name of the bankrupt, and not of the assignee. Ch. on Pl. 16. Carpenter, et al. vs. Marnel, 3 B. & P. 40. Arden vs. Watkins, 3 East R. 317. In this last case, which was a suit in the name of the assignees of a bankrupt upon a note which he had trans-fered, but which did not pass the legal interest, Lord Alvanley, C. J. said that though the transfer did not pass the legal' title, yet by it he passed the beneficial interest in the note and thereby became a mere trustee for him to whom he had sold it, and that the action should have been brought in the name of the bankrupt, who had the legal title and to whom the promise to pay was made. In conclusion he further remarks, “the assignees never were in a situation to derive any advantage from this piece of paper. If indeed they possessed the most remote possibility of interest, or if they could state any thing from which a benefit to the creditors would result, we should hold that the action might be maintained; but at the time they brought this action, it was impossible for them not to have known that they had no right to the note. They bring this action in the character of trustees, but they are not trustees for the bankrupt’s creditors, and cannot bring this action.” Such is the case now before us. What good can be effected by abating the action, and bringing it in the name of the ■assignee. He would then sue as trustee for Hynson’s creditors, while the money, when collected, would belong, not to the creditors, but to Pope and Byers, for whom he could not be trustee. We think, therefore, that inasmuch as he held the legal title to the note sued on as a mere trustee for the beneficial owner, that his legal capacity to sue was kept alive in order to support the trust, and did not pass by the decree to the assignee, who by the nature of his office could only be trustee for the creditors. Pike & Baldwin, for appellant, moved reconsideration, which at July term, 1844, was withdrawn. The judgment of the circuit court must, therefore, be reversed, and the case remanded with instructions to overrule said demurrer for the insufficiency of the defendants plea of bankruptcy, and proceed therein, &c.