state laws on the same subject or in conflict with the national laws when invoked. When property sold to the bankrupt prior to proceedings in bankruptcy is found in his possession, mingled with his stock in trade or other property, it is presumably his, and when the bankruptcy court has taken possession of it and assumed control through its duly appointed receiver before a rescission of the sale, the vendor who assumes thereafter to rescind the sale on the ground of fraud practiced by the vendee (now the bankrupt), and who seeks to recover the property or its proceeds, or damages from such officer of the court who has held and sold it pursuant to the order of the court, should be compelled to come into the court having the possession and control of the property, and try the question of title thereto there, unless that court is without jurisdiction to try the question, or the law of the United States has expressly placed concurrent jurisdiction elsewhere. If the court should find that the sale was procured by fraud, then the rescission would be valid, and the title would be in the vendor, and he would be entitled to the property, or its value, from the estate of the bankrupt, and this court would so award; but, should the court find that such sale was not procured by fraud, then the rescission would be of no avail, and the title would be in the trustee in bankruptcy when appointed. Is not the bankruptcy court, in possession of the property, possessed of power and jurisdiction to try and determine this question? Or must it await the trial and determination of a suit for conversion against its officer in the state court before proceeding to administer the trust and wind up the bankruptcy proceedings? It is conceded that in such a case as this the bankruptcy court may enjoin an action in replevin in the state court against the receiver or trustee to recover the property. Why may it not enjoin an action in trespass, or for conversion brought against the receiver or trustee in bankruptcy in the state court to recover the proceeds of a sale of the property or its value as damages for a conversion, based on the claim that the title was in the vendor? Does the one action interfere with the property or the proceedings in the court of bankruptcy any more or any less than the other? If so, wherein? Section 720, Rev. St. U. S., above quoted, recognizes the paramount authority of the bankruptcy laws in such a case, and does not attempt to forbid the enjoining of suits in a state court by the federal court as against a provision of the federal laws permitting such action. This property in question here was included in the trust committed to the receiver, and then to the trustee. It was a part of the trust estate. The American Woolen Company attempts to take it out of the trust and from the jurisdiction of the court in bankruptcy by rescinding the sale after such jurisdiction was obtained and asserted by this court. If the sale by the woolen company was procured by fraud, then this court should order the trustee to pay to it the value of the property; otherwise it should not. Must this receiver and trustee litigate this question of fraud in the state court and in another judicial district of the United States? Clearly, it seems to this court the question may be fully determined by the bankruptcy court.

Section 2 of subchapter 2 of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 545 [U. S. Comp. St. 1901, p. 3420], as amended Feb

131 F.-33

ruary 5, 1903, c. 487, § 1, 32 Stat. 797 [U. S. Comp. St. Supp. 1903, p. 409]) defines the jurisdiction of courts of bankruptcy, viz.:

are hereby

"That the courts of bankruptcy as hereinbefore defined, made courts of bankruptcy, and are hereby invested, within their respective territorial limits as now established, or as they may be hereafter changed, with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in bankruptcy proceedings, in vacation in chambers and during their respective terms as they are now or may be hereafter held, to (7) cause the estates of bankrupts to be collected, reduced to money and distributed, and determine controversies in relation thereto, except as herein otherwise provided.”

Here clearly is jurisdiction to try and determine the title to property found in the possession of the bankrupt purchased by and delivered to him, and which sale is sought to be rescinded for fraud after the bankruptcy proceedings have been instituted and after the bankruptcy court has taken possession of the property. Clearly, this is a controversy in relation to the estate of the bankrupt. In vain we search the act for

a provision that deprives the bankruptcy court of power to determine such a controversy regarding the title to the property.

It would seem equally clear that the action of the American Woolen Company in rescinding the sale after the petition in bankruptcy was filed is an attempt to divest the title of the trustee in bankruptcy. Section 70 of the Bankruptcy Act, c. 541, 30 Stat. 565 [U. S. Comp. St. 1901, p. 3451], provides:

"The trustee of the estate of a bankrupt, upon his appointment and qualification, and his successor or successors, if he shall have one or more, 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 he was adjudged a bankrupt, to all # * ** property which prior to the filing of the petition he (the bankrupt) could by any means have transferred or which might have been levied upon and sold under judicial process against him."

This property in question the bankrupt could have sold and transferred, giving good title, at any time before the petition was filed. It is, of course, true that if the property was obtained by fraud the woolen company had the right to rescind the sale, and recover the property, or its proceeds, or damages for its conversion, if converted. In such case the title of the trustee would be subordinate to that of the woolen company. But the question of the right to the property, its possession and disposition, and also the disposition of its proceeds, depends on this question of fact, which the courts of the United States are as competent to try and determine as are those of the state; and, having the custody of the property and its proceeds, and jurisdiction to determine the title thereto, this court will not permit the state court to intermeddle either with the property, its proceeds, or with the officer who has disposed of it by order of the federal court. Freeman v. Howe, 24 How. 450, 16 L. Ed. 749. And this court has no hesitation in holding that in this case neither the receiver nor the trustee has been guilty of a conversion or wrongful disposition of the property in question. The conversion, if any, or wrongful disposition of the property, if any, has been committed by this court in bankruptcy, for it has ordered and directed and approved these acts of its officers complained of, and alleged to constitute a conversion of the property, in proceed

ings duly had in this court, with the American Woolen Company present in court by counsel, and also by petition made by it, asking other disposition of the property than that made by the court. The defendants in the suit in the action in the state court, sought to be restrained, have done no act not directed by the court. If the authority and jurisdiction of this court in bankruptcy is paramount and superior to that of the state court, and it has jurisdiction to determine conflicting claims to property forming a part of the estate of the bankrupt at the time the petition in bankruptcy is filed (and this property concededly was a part of the property of the bankrupt at that time, for the sale had not been rescinded), then this action in the state court should not be permitted to proceed further, for a judgment that either the receiver or trustee has converted this property would be an adjudication by the state court that this court in bankruptcy had no authority or jurisdiction to direct its officers to take possession of and sell the property. The sale to the bankrupt was not void; only voidable. 14 Am. & Eng. Enc. Law, 156; Foreman v. Bigelow, 4 Cliff. 508, Fed. Cas. No. 4,334; Cobb v. Hatfield, 46 N. Y. 533; Gould v. C. C. N. Bank, 86 N. Y. 75; Baird v. New York, 96 N. Y. 567.

This court cannot assent to the doctrine that its trustee in bankruptcy is liable to an action in the state court as for trespass, trover, or conversion, when he follows the order of the court in disposing of property in its possession. This is not a case where the receiver or trustee has taken and held and disposed of property which was outside of the possession and control and apparent ownership of the bankrupt at the time of the filing of the petition in bankruptcy, in which case this court should not and would not interfere. In such case the officer of this court would act on his own responsibility, and take his chances.

In Re Gutman & Wenk, 8 Am. Bankr. R. 255, 114 Fed. 1009, Adams, District Judge, said:

"Ordinarily, where the receiver of the court has merely general directions to take into his possession the property of the bankrupt, and there is a claim that he has taken the property of a third person, the court, in conformity with general principles, would leave him to answer in any proper forum for his individual acts (Buck v. Colbath, 3 Wall. 334 [18 L. Ed. 257]; Covell v. Heyman, 111 U. S. 176 [4 Sup. Ct. 355, 28 L. Ed. 390]; McNulta v. Lochridge, 141 U. S. 327 [12 Sup. Ct. 11, 35 L. Ed. 796]; Central Trust Co. v. East Tenn., V. & G. Ry. Co. [C. C.] 59 Fed. 523; High. Inj. § 298; Hale v. Bugg [C. C.] 82 Fed. 33); but where it appears without dispute, as it does here, that the third party cannot possibly have any legal rights to be established by the litigation in the state court, and the result of permitting it to be continued would not only suffer an injustice to the receiver, but indirectly tend to embarrass this court in administering the estate, the equitable powers of the court should be exercised both for the prevention of the injustice and to protect the court's full jurisdiction. Dietzsch v. Huidekoper, 103 U. S. 494 [26 L. Ed. 497]; Chapman v. Brewer, 114 U. S. 158 [5 Sup. Ct. 799, 29 L. Ed. 83]; Garner v. Second Nat. Bank of Providence, 67 Fed. 833 [16 C. C. A. 86]; James v. Central Trust Co., 98 Fed. 489 [39 C. C. A. 126]; Mueller v. Nugent [184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405], 7 Am. Bankr. R. 224."

In Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405, 7 Am. Bankr. R. 234, it was decided:

"It is as true of the present law as it was of that of 1867 that the filing of the petition is a caveat to all the world, and, in effect, an attachment and injunetion (Bank v. Sherman, 101 U. S. 407 [25 L. Ed. 866]); and on adjudication title

to the bankrupt's property became vested in the trustee (sections 70, 21e), with actual or constructive possession, and placed in the custody of the bankruptcy court."

So here the filing of the petition in bankruptcy was notice to all the world of the pendency of the proceeding, and, in effect, an attachment of this property, and an injunction against all persons prohibiting them from intermeddling with it. This court took immediate custody of the property through its receiver.

In Mueller v. Nugent, supra, the bankrupt had delivered, shortly before the petition was filed, property to a third person, who had no adverse claim to it; and he refused to deliver it to the trustee. In the summary application to compel this third person to deliver the property the Supreme Court said, referring to the necessity of a suit in the circuit or state court:

"If it be so, the grant of jurisdiction to cause the estates of bankrupts to be collected, and to determine controversies relating thereto, would be seriously impaired, and in many respects rendered practically inefficient. The bankruptcy court would be helpless, indeed, if the bare refusal to turn over could conclusively operate to drive the trustee to an action to recover as for an indebtedness, or a conversion, or to proceedings in chancery, at the risk of the accompaniments of delay, complication, and expense, intended to be avoided by the simpler methods of the bankrupt law."

Here we find not only a direct affirmance of the power of the bankruptcy court to determine conflicting claims to property in the possession of the court, actually or constructively, but a condemnation of the theory that in case of dispute as to title the bankruptcy court should be subjected to the expense, delay, and embarrassment incident to the settlement of that question in some other tribunal-as the state court. It is well known that this action brought in the state court against this receiver and trustee cannot be reached for trial in New York county in less than two or three years, and to permit it to proceed would delay the settlement of this bankrupt estate for years. The whole question may be determined in this court, even allowing for an appeal to the Circuit Court of Appeals, in a few months.

The case last cited is direct authority, in effect, for the proposition that adverse claimants to property in the hands of the bankrupt at the time of the filing of the petition, and claimed by him, and apparently his, should try the question of title in the bankruptcy court. The federal court should not permit an evasion of this rule by allowing the adverse claimant to lie still until the property is disposed of by the trustee, and then prosecute an action of trespass or trover in the state court. It is the duty of the federal court to protect its officers in such a case as this from the annoyance and expense of such suits in the state court, as well as the possible injury both to the officer and the creditors of the bankrupt. No warrant for permitting the prosecution of such suits in the state courts, under such circumstances as exist here, is found in any well-considered case.

The motion is granted, and an order will be entered restraining the plaintiff and its attorneys by name from taking further proceedings in the action referred to.


(District Court, E. D. Kentucky. February 25, 1904.)


No. 340.


Under Bankr. Act July 1, 1898, c. 541, § 5f, 30 Stat. 548 [U. S. Comp. St. 1901, p. 3424], joint debts of partners composing a bankrupt partnership cannot be proved against the partnership estate, to share on an equality with firm creditors.

2. SAME JOINT NOTES OF PARTNERS-EVIDENCE TO SHOW LIABILITY OF FIRM. Parol evidence is admissible to show that joint notes signed by the members of a bankrupt partnership are in fact firm debts.

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A bank made a loan of money to each of the two members of a partnership, taking in each case a note signed by both partners. The proceeds were passed to the individual accounts of the partners, respectively, and were by them checked to the partnership account and used in the firm business. Held, that the notes did not constitute debts of the firm provable against its estate in bankruptcy; it having received the money from the partners, and not from the bank.


The testimony of the cashier of a bank that loans made by the bank on notes signed by members of a bankrupt partnership were made to the firm, and not to the partners, is not admissible to establish such fact, which must be determined from the facts of the transaction, and not from the intention of the witness.

In Bankruptcy. On review of decision of referee.

Frank Chinn, for Deposit Bank of Frankfort.
T. N. Lindsey, for appellees.

COCHRAN, District Judge. The bankrupt L. B. Weisenberg & Co. was a firm engaged in the business of buying and selling wheat at Frankfort, Ky., composed of the bankrupts L. B. Weisenberg and A. Dudley Blanton. January 24, 1903, the Deposit Bank of Frankfort, a corporation engaged in the banking business at said place, discounted two joint. notes of said Weisenberg and Blanton-one for $15,000 and the other for $10,000, both due 60 days after date, and negotiable and payable at said bank, which discounting placed them on the footing of a bill of exchange. The only difference between the two notes, other than as to the amount, was that the largest one was signed by Weisenberg first, and the smallest by Blanton. The bank presented these two notes to the referee for allowance as claims against the estate of said firm, asserting in the affidavit that they were firm debts. This application was resisted by firm creditors, and, after hearing evidence in relation to the matter, the referee denied the application, and refused to allow said notes as firm debts. In his opinion the referee gave two reasons for his action. One was that said notes, on their face, were the joint debts of the members of the firm, and parol evidence was inadmissible to prove that they were firm debts. The other was that they were in

12. See Evidence, vol. 20, Cent. Dig. § 1909.

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