Harris v. First National Bank of Mt Pleasant Texas/Opinion of the Court

This case presents the single question of the jurisdiction of the district court of the United States to entertain a suit brought by Harris, as trustee in bankruptcy, against the First National Bank of Mount Pleasant, Texas.

The petition alleged that Hargrove, the bankrupt, was indebted to the defendant bank for an overdraft in the sum of $2,000; that, to secure the payment of the same, Hargrove delivered into the bank's possession as collateral security certain notes; that, at the time of the adjudication in bankruptcy, Hargrove had paid the overdraft in full.

Further, the petition alleged that, at the time Hargrove was adjudged a bankrupt, the bank had in its possession two certain promissory notes, which had been signed by one McGee as principal and by Hargrove as surety. That prior to the bankruptcy Hargrove paid the notes, and thus became entitled to the same. That defendant refuses to account for said notes, and wrongfully withholds them from the trustee. The prayer of the petition is that the bank be required to surrender to the trustee the notes so pledged as collateral security, and also the notes paid by Hargrove as surety, or, in default thereof, judgment against the bank in the sum of $3,500, the value of all the notes. Upon issue made as to its jurisdiction, the district court held it was without jurisdiction, and dismissed the suit.

In Bardes v. First Nat. Bank, 178 U.S. 524, 44 L. ed. 1175, 20 Sup. Ct. Rep. 1000, this court held that under § 23 of the bankruptcy act of 1898 [30 Stat. at L. 544, chap. 541, U.S.C.omp. Stat. 1901, p. 3418], the district court of the United States could, by the consent of the defendant, and not otherwise, entertain suits by the trustee against third persons to recover property conveyed by the bankrupt before the institution of proceedings in bankruptcy.

Subsequently, Congress, by the act of February 5, 1903 (32 Stat. at L. 797, chap. 487, U.S.C.omp. Stat. Supp. 1909, p. 1308), amended certain sections of the bankruptcy act. To § 23b, which provided that suits by the trustee should only be brought in courts where the bankrupt, whose estate was being administered by the trustee might have brought them if proceedings in bankruptcy had not been instituted, unless by the defendant's consent, these words were added: 'Except suits for the recovery of property under section sixty, subdivision b, and section sixty-seven, subdivision e

Subdivision b of § 60 made provision for the recovery of preferences given by the bankrupt within four months before the filing of the petition in bankruptcy. To that subdivision these words were added: 'And, for the purpose of such recovery, any court of bankruptcy, as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction.'

Subdivision e of § 67 made provision for setting aside fraudulent conveyances, and the recovery of property so conveyed at the suit of the trustee. To that subdivision these words were added: 'For the purpose of such recovery, any court of bankruptcy, as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction.'

A consideration of these amendments, having reference to the recovery of preferences and of property fraudulently conveyed, shows that they cannot include the action under consideration here. Nor is it claimed that they are sufficient of themselves to authorize the present suit. Reliance is had on the amendment made by the act of February 5, 1903, of subdivision e of § 70. We give that subdivision, putting the amendment in italics:

'e. The trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided, and may recover the property so transferred, or its value, from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the adjudication. Such property may be recovered or its value collected from whoever may have received it, except a bona fide holder for value. For the purpose of such recovery, any court of bankruptcy, as hereinbefore defined, and any state court which would have had jurisdiction if bankruptcy had not intervened, shall have concurrent jurisdiction.'

It is to be noted that § 70, subdivision e, is not mentioned in the amendment to § 23, enlarging the jurisdiction of the Federal court to entertain suits without the consent of the defendant. And it has been held that suits under § 70, subdivision e, can only be brought in a court of bankruptcy with the consent of the defendant. Hull v. Burr, 83 C. C. A. 61, 153 Fed. 945. The contrary view was taken in Hurley v. Devlin, 149 Fed. 268.

But we do not find it necessary to pass upon that question. Assuming for this purpose that actions may be brought by trustees in the courts of bankruptcy in cases coming within the terms of § 70, subdivision e, without the consent of defendant, we do not think the present action is one of that character.

That subdivision provides for avoiding transfers of the bankrupt's property which his creditors might have avoided, and for recovery of such property, or its value, from persons who are not bona fide holders for value. In this action, no such transfer is alleged; no attack is made upon a transfer by the bankrupt which would have been void as to creditors. The petition seeks to recover property held by the bank, if the allegations are true, which belonged to the bankrupt, and consequently passed to the trustee as the representative of the bankrupt's estate. The recovery sought is of property held for the bankrupt estate, which the defendant wrongfully refused to surrender. The District Court was right in denying jurisdiction of the suit, and its judgment is affirmed.