CHAPTER VII

THE DISTRICT COURT (Continued)—BANKRUPTCY (Continued)

55. The Trustee.

56. The Title of the Trustee.

57. The Trustee's Duties of Administration-Recordation of Decree of Adjudication.

58. Same The Collection of the Assets.

59.

Same Trustee's Rights against Parties Claiming Adversely under Alleged Void Transfers, etc.

60. Same The Circumstances Avoiding an Alleged Illegal Transfer. 61. Same-Same-Insolvency.

62. The Trustee's Interest in Insurance Policies.

63. The Trustee's Interest in Rights of Action.

64. The Trustee's Power of Sale.

65. The Trustee's Duties as to Distribution of the Estate. 66. The Trustee's Duties as to the Bankrupt's Exemptions.

THE TRUSTEE

55. The election of a trustee is part of the business of the first creditors' meeting. The forty-fourth section of the act vests the right to select a trustee or trustees in the creditors, except that, if the creditors do not appoint a trustee or trustees, the court shall do so. And the seventeenth subdivision of the second section also gives the court the right to appoint trustees pursuant to the recommendation of creditors, or where they neglect to recommend the appointment of trustees.

In voting on the election of a trustee and other matters coming before the creditors' meeting, the fifty-sixth section of the act provides that a majority vote, in number and amount, of all creditors whose claims have been allowed and are present, shall be necessary to pass upon any matter before the meeting. Under this provision, all

creditors are counted whose claims have been allowed and who are present in person or by duly authorized attorney. If, for the purpose of voting, the attorney's proxy is defective, or he has no proxy at all, and on that ground cannot vote, the creditor is not present.1

A general representation of a creditor as attorney is not sufficient to give him a vote. The attorney must have an express written proxy.2

The election of a trustee is subject to approval by the referee or judge, but this power of approval does not confer the power to set aside the choice of the creditors and name a trustee not chosen by the creditors. The effect of the veto is to necessitate another election. It is only when the creditors fail to make any appointment that the referee or judge can act.3

The trustee is required by section 45 to be some individual competent to perform the duties, and a resident of the judicial district wherein he is appointed, or a corporation authorized by its charter to act as such; and he is required by the fiftieth section of the act to give bond for the faithful performance of his official duties.

THE TITLE OF THE TRUSTEE

56. The trustee's title vests as of the date of the adjudication, under the provisions of section 70 of the act. But although his title vests as of that date, it covers all property owned by the bankrupt at the date of filing the petition, including in this all property which has been illegally assigned.

1 In re Henschel, 113 Fed. 443, 51 C. C. A. 277. See "Bankruptcy," Dec. Dig. (Key-No.) § 123; Cent. Dig. §§ 171-179.

2 In re Lazoris (D. C.) 120 Fed. 716. See "Bankruptcy," Dec. Dig. (Key-No.) § 123; Cent. Dig. §§ 171–179.

3 In re Hare (D. C.) 119 Fed. 246; In re Van De Mark (D. C.) 175 Fed. 287. See "Bankruptcy," Dec. Dig. (Key-No.) §§ 126, 127; Cent. Dig. §§ 182, 183.

HUGHES FED. PR. (2D ED.)-10

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The title of the trustee is the usual title of a statutory assignee. It is not the title, by any means, of an innocent holder of negotiable paper. He acquires the bankrupt's interest when that is such an interest as would be good against the bankrupt's creditors. For instance, under the mechanic lien laws of the different states, some of these liens relate back to the date of commencing the work; others, only to the date of giving the notice. If, therefore, work has been done which would be the subject of a lien from the inception of the work, the trustee would take the property subject to that lien. If, on the other hand, the lien dated only from the giving of the notice, and that notice had not been given at the commencement of proceedings, the trustee takes the property clear of the lien.*

On the other hand, any liens or charges that would be void as against the bankrupt and his creditors are voidable by the trustee; and, conversely, any which are good as against the creditors of the bankrupt are good against the trustee. It may be, however, that, even where it eventually turns out that the transaction is valid, yet, for the purpose of administering the bankrupt estate, the court would have jurisdiction of any property in the possession of the bankrupt, or to which the trustee might claim a color of title. In other words, under the seventh subdivision of section 2, the estate to be administered by the court may be more extensive than the property which would on full investigation finally pass to the trustee."

4 In re Coulter, Fed. Cas. No. 3,276; In re Roeber, 121 Fed. 449, 57 C. C. A. 565; In re Laird, 109 Fed. 550, 48 C. C. A. 538; In re Grissler, 136 Fed. 754, 69 C. C. A. 406. See "Bankruptcy," Dec. Dig. (Key-No.) § 192; Cent. Dig. § 294.

5 NORTON v. HOOD, 124 U. S. 20, 8 Sup. Ct. 357, 31 L. Ed. 364; In re New York Economical Printing Co., 110 Fed. 514, 49 C. C. A. 133; In re Williamsburg Knitting Mill (D. C.) 190 Fed. 871; Bryant v. Swofford, 214 U. S. 279, 29 Sup. Ct. 614, 53 L. Ed. 997; Holt v. Crucible Steel Co., 224 U. S. 262, 32 Sup. Ct. 414, 56 L. Ed. 756. See "Bankruptcy," Dec. Dig. (Key-No.) §§ 140, 184.

• In re Union Trust Co., 122 Fed. 937, 59 C. C. A. 461. See "Bankruptcy," Dec. Dig. (Key-No.) § 140; Cent. Dig. §§ 193, 198.

The mere fact, however, that certain property is in the personal custody of the bankrupt, does not necessarily subject it to the control of the trustee. For instance, property that the bankrupt might hold in trust, and that is so earmarked as to be capable of identification, would not pass to the assignee."

While the title of the trustee dates from the adjudication, the property which vests in him dates as of the day of filing the petition."

Character of Property Which Vests in Trustee

The character of the property which vests in him is defined in the seventieth section of the act. The two most general classes named in that section are the fourth and fifth, which are property transferred by the bankrupt in fraud of his creditors, and property 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. This last section has been held to have a very extensive meaning. A seat in a stock exchange which could be transferred vests in the trustee, though the transfer is so uncertain that it requires the consent of certain authorities of the exchange.

Under the act of 1867 (14 Stat. 517, c. 176) it was held that a claim to share in the sum paid to the United States under the Geneva award on account of the Alabama cap

7 Hosmer v. Jewett, Fed. Cas. No. 6,713. Sometimes trust funds or property may be traced. It turns on the facts of each case. In re Royea's Estate (D. C.) 143 Fed. 182; Block v. Rice (D. C.) 167 Fed. 693; In re Lindsley & Co. (D. C.) 185 Fed. 684; In re Ennis, 187 Fed. 728, 109 C. C. A. 476. See “Bankruptcy," Dec. Dig. (Key-No.) § 140; Cent. Dig. §§ 198-225.

8 In re Garcewich, 115 Fed. 87, 53 C. C. A. 510; NORTON v. HOOD, 124 U. S. 20, 8 Sup. Ct. 357, 31 L. Ed. 364; Everett v. Judson, 228 U. S. 474, 33 Sup. Ct. 568, 57 L. Ed. See "Bankruptcy," Dec. Dig. (Key-No.) § 152; Cent. Dig. § 194. 9 PAGE v. EDMUNDS, 187 U. S. 596, 23 Sup. Ct. 200, 47 L. Ed. 318. See "Bankruptcy," Dec. Dig. (Key-No.) § 143; Cent. Dig. §§ 194-224.

tures vested in the assignee, who was the officer corresponding to the trustee under the present act.10

Under this clause the property transferred by the bankrupt in fraud of his creditors includes any property which could be recovered by the trustee on any of the other grounds specified in the act.

For instance, it includes property recoverable under the clause defining illegal transfers. This is covered by the sixtieth section of the act. In its original form, it provided that a person should be deemed to have given a preference, if, being insolvent, he has procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class. And paragraph "b," § 60, of the same act provided that if the bankrupt shall have given a preference within four months before the filing of the petition, or after the filing of the petition and before the adjudication, and the person receiving it or to be benefited thereby, or his agent acting therein, shall have had reasonable cause to believe that it was intended thereby to give a preference, it shall be voidable by the trustee, and he may recover the property or its value from such person.

These two paragraphs have been materially changed by the amendments of February 5, 1903 (32 Stat. 799, c. 487, § 13), and June 25, 1910 (36 Stat. 842, c. 412, § 11), so that they now read as follows (U. S. Comp. St. 1911, p. 1506):

"Sec. 60 (a). A person shall be deemed to have given a preference if, being insolvent, he has, within four months before the filing of the petition, or after the filing of the petition and before the adjudication, procured or suffered a judgment to be entered against himself in favor of any per

10 Williams v. Heard, 140 U. S. 529, 11 Sup. Ct. 885, 35 L. Ed. 550. See "Bankruptcy," Dec. Dig. (Key-No.) § 138; Cent. Dig. §§ 193–204.