Kinder v. Scharff/Opinion of the Court

This is an action by a trustee in bankruptcy to recover land alleged to have been conveyed by the bankrupt in fraud of creditors. The defendant pleaded that the estate had been closed and that the action was barred by the lapse of two years, under § 11d of the bankruptcy act, and also that he purchased the land for its full value and in good faith. The estate had been closed and the two years had run, but after they had elapsed, the former trustee petitioned to have the proceedings reopened on the ground that he had just discovered the facts, and that the sale should be set aside. The petition was granted, this suit was brought, and the judge of first instance ordered a reconveyance. The supreme court of Louisiana found, as it was compelled to by the testimony of the trustee himself, that during the pendency of the original proceeding the trustee suspected the alleged fraud, made some inquiries, but dropped the matter because he thought that it was not worth while; that is, that it would not pay to go farther: He 'voluntarily abstained from availing himself of the means put in his hand by the law itself for the ascertainment of a suspected fact,' by examining the bankrupt and otherwise. On this ground the court held that he could not remove the bar of the statute, reversed the judgment, and dismissed the suit. 129 La. 218, 55 So. 769.

We are of opinion that the decision of the supreme court was right. It is not necessary to consider whether the running of the two years after the estate is first closed is a bar to all suits upon claims that might have been collected if they had been known, or to controvert the conclusion of Bilafsky v. Abraham, 183 Mass. 401, 67 N. E. 318, that such suits are not barred. But it is obvious that there must be some limits if the promise of repose after two years in § 11d is not to be a mirage. The power to reopen estates given in § 2 (8) 'whenever it appears [that] they were closed before being fully administered' [30 Stat. at L. 546, chap. 541, U.S.C.omp. Stat. 1901, p. 3421] cannot be taken to put it into the power of the court of bankruptcy to remove the bar of § 11 at its own will simply because a trustee may have changed his mind. It was argued that the court of first instance found fraud, and that we could not review the findings of fact. Waters-Pierce Oil Co. v. Texas, 212 U.S. 86, 97, 53 L. ed. 417, 424, 29 Sup. Ct. Rep. 220. But if so, we equally are barred from reviewing the findings of the supreme court, that the trustee was chargeable with knowledge of the fraud, if there was one. Therefore, a part from the difference between the statutes considered there and here, cases like Bailey v. Glover, 21 Wall. 342, 22 L. ed. 636, and Traer v. Clews, 115 U.S. 528, 29 L. ed. 467, 6 Sup. Ct. Rep. 155, where the cause of action for fraud was concealed, do not apply. The question is simply whether, when, after an estate is closed, and more than two years later a trustee comes, to the conclusion that he undervalued a claim that he knew of and might have sued upon, or finds that the value has risen since, the bankruptcy court may reopen the estate for the sole purpose of getting rid of the statute, and allowing the trustee to sue. See Wood v. Carpenter, 101 U.S. 135, 25 L. ed. 807; Rosenthal v. Walker, 111 U.S. 185, 196, 28 L. ed. 395, 399, 4 Sup. Ct. Rep. 382.

The judge had no power, by an ex parte order reopening the estate, to remove the bar that was completed, and that there was no ground for removing. Whether it be put on the construction of the bankruptcy act or on the ground that the estate was fully administered quoad hoc, or of laches on the part of the trustee, it comes to the same thing. The claim in controversy cannot be made the ground of a suit.

Judgment of the Supreme Court affirmed.

Mr. Justice Pitney concurs in the result.