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Possession of Property - Marshal's Liability in Serving Warrant. [Ch. VII.

SEC. 69. Possession of Property.—a A Judge may, upon satisfactory proof, by affidavit, that a bankrupt against whom an involuntary petition has been filed and is pending has committed an act of bankruptcy, or has neglected or is neglecting, or is about to so neglect his property that it has thereby deteriorated or is thereby deteriorating or is about thereby to deteriorate in value, issue a warrant to the marshal to seize and hold it subject to further orders. Before such warrant is issued the petitioners applying therefor shall enter into a bond in such an amount as the judge shall fix, with such sureties as he shall approve, conditioned to indemnify such bankrupt for such damages as he shall sustain in the event such seizure shall prove to have been wrongfully obtained. Such property shall be released, if such bankrupt shall give bond in a sum which shall be fixed by the judge, with such sureties as he shall approve, conditioned to turn over such property, or pay the value thereof in money to the trustee, in the event he is adjudged a bankrupt pursuant to such petition.

Analogous Provisions of former Acts.

R. S. § 5024; act of 1867, § 40.

Taking Possession of the Property.-The remedy provided for in this section is provisional. It can be used only during the pendency of the petition, and it is limited to cases where there is a neglect by the alleged bankrupt of his property, causing a deterioration thereof. It does not in express terms authorize the seizure of property upon the ground that the bankrupt is about to remove the same, or to conceal it, or to preferentially transfer it; neither is there any authority under this act as under the former act for arresting one against whom a petition has been filed, because of attempts to remove, or conceal, or fraudulently dispose of his property. The provisions requiring the giving of a bond are new. The section should be read in connection with section 3 (c).

Marshal's Liability in Serving the Warrant.-If the warrant is in general terms to seize and take possession of the property of the bankrupt, it will be the duty of the marshal to take possession of all the assignable property and effects of the bankrupt. The

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responsibility of determining the ownership of seized property rests upon him. He must determine for himself whether or not the property which he takes is the property of the bankrupt or of another. If he should seize the property of another, although he acts in good faith, he is liable to the injured party for any damages which the latter may sustain. The warrant is no protection to him in seizing the property of any person other than the bankrupt. (Marsh v. Armstrong, 11 N. B. R. 125; s. c. 20 Minn. 81; in re Muller v. Brentano, 3 N. B. R. 329; s. c. Deady, 513. Compare, however, in re Vogel, Fed. Cas. 16,982; 7 Blatch. 18; 3 N. B. R. 198; in re Havens, Fed. Cas. 6,230; 8 Ben. 309; in re Marks, Fed. Cas. 9,095; 2 N. B. R. 575.) He cannot seize property belonging to a person other than the debtor, even though the transfer to the latter by the bankrupt may be one voidable under the Bankruptcy Act. The bankruptcy court has no authority under such a provisional warrant to order the seizure of property from such transferee. Until the adjudication at least the title of the transferee will not be questioned.

See section 67 PROCEEDINGS TO ANNUL LIENS.

SEC. 70. Title to Property.-a 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, except in so far as it is to property which is exempt, to all (1) documents relating to his property; (2) interests in patents, patent rights, copyrights, and trade-marks; (3) powers which he might have exercised for his own benefit, but not those which he might have exercised for some other person; (4) property transferred by him in fraud of his creditors; (5) 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: Provided, That when any bankrupt shall have any insurance policy which has a cash surrender value payable to himself, his estate, or personal representatives, he may, within thirty days after the cash surrender value has been ascertained and stated to the trustee by the company

Date as of Which the Trustee's Title Vests.

[Ch. VII.

issuing the same, pay or secure to the trustee the sum so ascertained and stated, and continue to hold, own, and carry such policy free from the claims of the creditors participating in the distribution of his estate under the bankruptcy proceedings, otherwise the policy shall pass to the trustee as assets; and (6) rights of action arising upon contracts or from the unlawful taking or detention of, or injury to, his property.

b All real and personal property belonging to bankrupt estates shall be appraised by three disinterested appraisers; they shall be appointed by, and report to, the court. Real and personal property shall, when practicable, be sold subject to the approval of the court; it shall not be sold otherwise than subject to the approval of the court for less than seventy-five per centum of its appraised value.

c The title to property of a bankrupt estate which has been sold, as herein provided, shall be conveyed to the purchaser by the trustee.

d Whenever a composition shall be set aside, or discharge revoked, the trustee shall, upon his appointment and qualification, be vested as herein provided with the title to all of the property of the bankrupt as of the date of the final decree setting aside the composition or revoking the discharge.

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.

f Upon the confirmation of a composition offered by a bankrupt, the title to his property shall thereupon revest in him.

Analogous Provisions of former Acts.

As to property in general passing to trustee: R. S. section 5044; act of 1867, section 14; act of 1841, section 3; act of 1800, sections 10, 11, 17. 27. 50. As to rights of action, patent rights, copyrights, and kindred rights, and the right to recover property fraudulently conveyed: R. S. section 5046; act of 1867. section 14; act of 1841. section 3; act of 1800, sections 13, 17.

Date as of Which the Trustee's Title Vests.-The Act of 1867, section 14. R. S. section 5,044, provided that after the adjudica

§ 70.]

cree.

Date as of Which the Trustee's Title Vests.

tion the register should execute a written assignment of the estate of the bankrupt to the assignee and "such assignment should relate back to the commencement of the proceedings in bankruptcy and by operation of law should vest the title to all such property and estate, both real and personal, in the assignee." Under the Act of 1841, there was much conflict of authority as to whether the assignee's title related back earlier than the deThe provisions of the present act as to time of the vesting of the title are somewhat peculiar, since the general provision is that the assignee shall be vested by operation of law with the title of the bankrupt as the date he was adjudged a bankrupt; and yet subdivision (5) provides that he shall be vested with title to all property which prior to the filing of the petition the bankrupt could by any means have transferred or which might have been levied upon or sold under judicial process against him. The two provisions, at first, seem difficult to reconcile. The statement of the framers of the bill may be of aid in ascertaining their intention. In submitting its report to the Fifty-fourth Congress (House Report, number 1,228), the judiciary committee said with reference to section 70 of House Bill, number 8,110, the provisions of which as to the trustee's title were the same as those of the present law: "

"Under section 70 an important change has been made from the former laws, as well as from proposed legislation. Under the act of 1867, as interpreted by the courts, it was held that the title to the bankrupt's property vested by operation of law as of the date of the filing of the petition. By the proposed bill it is provided that the trustee shall be vested with the title of the bankrupt as of the date he was adjudged a bankrupt. By this change the alleged bankrupt can sell and convey a perfect title up to the date of the adjudication. and the purchaser does not buy at his own risk and in danger of having secured an imperfect title by reason of an adjudication which may be made subsequent to the purchase. It does not follow that because a petition is filed against a person in a bankruptcy court he will be adjudged a bankrupt, and it seems but proper that the public in dealing with him until he is adjudged a bankrupt should deal without fear of loss or danger as to title. It may be suggested that this is too liberal a provision, and that the bankrupt may neglect his business or estate as soon as bankruptcy proceedings are commenced against him, and that he may allow it to deteriorate in value. But this is provided for in section 69, where it is provided that 'a judge may, upon

Date as of Which the Trustee's Ttile Vests.

[Ch. VII.

satisfactory proof, by affidavit, that a bankrupt against whom an involuntary petition has been filed and is pending has committed an act of bankruptcy, or has neglected, or is neglecting, or is about to so neglect his property, that it has thereby deteriorated, or is thereby deteriorating, or is about thereby to deteriorate in value, issue a warrant to the marshal to seize and hold it subject to further orders.'

Whether, indeed, the provisions of section 69 are adequate to protect the bankrupt's estate, is a question as to which there may be some dispute; but to us they would seem to be totally inadequate. They may be sufficient to prevent a deterioration of the property while it remains in the hands of the bankrupt; it can hardly be said that they will restrain a conveyance which one may wish to make. Greater protection will, we think, be found in an application for a receivership under the provisions of section 2 (3). But whatever means are afforded by the statute for the preservation of the property it is clear that the bankrupt's title is divested as of the date of the adjudication; but only property owned at the time of the petition passes to the trustee.

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That is to say the words "prior to the filing of the petition refer to what passes, and the words as of the date he was adjudged bankrupt " refer to the time when it passes. (See In re Barrow, 3 Am. B. R. 414; 98 Fed. 582.) A very recent opinion (Oct., 1900), by Referee Hotchkiss (In re Pease, 4 Am. B. R 578) contains a very complete discussion of this question. Because of the clearness of the opinion and because of its author's knowledge of the bankruptcy law and legal scholarship the statement of fact and the opinion are here quoted at length.

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The bankrupt, up to November 22nd, 1899, was doing business at Buffalo, N. Y., under the name of the F. S. Pease Oil Co. On that day the sheriff took possession of her store on executions, and continued in possession until the appointment of a trustee in bankruptcy on February 16th, 1900. Certain creditors filed a petition in bankruptcy on December 15th. 1899. An adjudication of bankruptcy followed on January 8th, 1900. Delays incident to negotiations toward a settlement satisfactory to all creditors delayed the appointment of a trustee until February 16th, 1900.

Meanwhile, the alleged bankrupt continued business as before. filling orders, as she claims, by purchase of goods outside, and receiving payments on account of goods sold previous to the filing of the petition as well as in the interval between that date and the dates of the adjudication and the appoint

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