Thomas v. Sugarman/Opinion of the Court

This is a bill in equity brought by a trustee in bankruptcy to set aside a transfer of accounts and bills receivable, made by the bankrupt to the defendant, Sugarman, with intent to delay and defraud creditors. Sugarman pleaded in bar that the plaintiff had retified his dealings because, with knowledge of all the facts, the plaintiff had taken a judgment against the bankrupt for $17,500, a part or all of which was money remaining in the bankrupt's hands of $30,000, alleged by the bill to have been paid to him by Sugarman in pursuance of the fraudulent scheme. A majority of the circuit court of appeals held the ratification made out, on the ground that, to get the judgment, the trustee had to rely upon a right inconsistent with that now set up. 15 L.R.A.(N.S.) 1267, 85 C. C. A. 337, 157 Fed. 669. The plaintiff appealed to this court.

It is argued that the appeal was too late because not taken within thirty days after the degree, as required by * 134 general orders in bankruptcy No. 36, for appeals under the act. But this is not an appeal under the act, § 25, by authority of which the general order was adopted, and is not governed by that order. The appellate jurisdiction is under or is the same as that under the court of appeals act of March 3, 1891, chap. 517, § 6, 26 Stat. at L. 828, U.S.C.omp. Stat. 1901, p. 549. Knapp v. Milwaukee Trust Co. March 7, 1910 [216 U.S. 545, 54 L. ed. --, 30 Sup. Ct. Rep. 412.] The appeal was taken within a year and was in time.

On the merits we are of opinion that the decision was wrong. We are quite ready to assume what the court below was at some trouble to establish that an act of election directed toward a third person may operate in rem and establish title as to all parties concerned. But the demand of the trustee on the bankrupt, even when enforced by a resort to the courts and by judgment, had no element of election about it. The legal title to the money had been in the bankrupt, and was transferred by the statute to the trustee. (§ 70). He was entitled to have that money in his hands as against the bankrupt in any event, whether he decided to hand it back to Sugarman or to distribute it in dividends. The law had put him in the bankrupt's shoes with additional powers. Therefore to insist that the bankrupt should do what the statute required him to do was as consistent with a subsequent rescission of the bankrupt's fraudulent acquisition of title as with an affirmance of it. It had no relation to that question, except possibly to put the plaintiff in a position better to decide it.

Decree reversed.