which goods were sold to the bankrupt contained no limitation upon the right to sell and only prescribed the method of making payment, and contained a provision to the effect that the title and ownership of the goods purchased and the proceeds of the sale thereof should remain the property of the seller, such contract was held to create a secret lien constituting a fraud upon the creditors of the bankrupt, and was invalid as against his trustee in bankruptcy.93 Where machinery is sold on trial, and retained by the bankrupt vendee for a year without offer to return, expression of dissatisfaction, or demand by vendor, the sale is absolute and title is vested in the trustee.94 § 13. Property affected by fraudulent representations.—Since the trustee takes the bankrupt's property charged with all claims and equities against it, his title to the same is inferior to that of one who was induced to sell on materially false representations. In such cases, the claimant usually proceeds as in replevin.95 But, where the property is in the custody of the bankruptcy court, it is immune from replevin process in the State court.96 It has been held that the false representation need not be the sole and exclusive consideration for the credit, but only a material consideration;97 also, that false representations to a mercantile agency are enough.98 Other cases under the present law appear in the note below.99 93. In re Galt, 9 Am. B. R. 632, 120 Fed. 443; In re Corputer, 11 Am. B. R. 147, 125 Fed. 831, in which case it was held that a similar agreement passed the title to the goods sold to the vendee, to which title the trustee in bankruptcy succeeded; that there was no purpose apparent therefrom to create an agency in the vendee, nor could such agreement be sustained as a conditional sale, a mortgage, or an instrument attempting to create a lien in behalf of the seller. See also In re Tweed, 12 Am. B. R. 648; In re Butterwick, 12 Am. B. R. 536, 131 Fed. 371; Matter of Rasmussen, 13 Am. B. R. 462, 136 95. See next paragraph. 96. In re Russell, 3 Am. B. R. 658, 101 Fed. 248; In re Mertens, 12 Am. B. R. 698. 97. In re Gany, 4 Am. B. R. 576. 98. In re Epstein, 6 Am. B. R. 60, 109 Fed. 878; In re Roalswick, 6 Am. B. R. 752; In re Weil, 7 Am. B. R. 90, 111 Fed. 897. 99. In re Davis, 7 Am. B. R. 276, 112 Fed. 294; In re O'Connor, 7 Am. 3 §14. Reclamation proceedings.-These may be in or out of the bankruptcy proceedings. A petition to reclaim consigned goods is an instance of the former; the proceeding in the nature of a bankruptcy replevin which, in most large trade centers, has of late been so common if not notorious, is an instance of the latter. The petition in such proceedings should contain allegations sufficient to sustain a complaint in trover and conversion, or required by the strictest practice in an affidavit for replevin.2 The evils resulting from so-called "reclamation proceedings" are patent and hard to overcome. In effect, estates are often dissipated by greedy and not over-scrupulous creditors, who apply for possession, after recession, on the ground of alleged fraudulent representations, and are granted what they ask, without adequate judicial investigation of their right to it and before there is a court officer authorized to bond back the goods reclaimed. Their right to possession on a proper showing cannot be doubted.5 For instance, it is well settled that false representations as to the financial status of a buyer, made as a basis of credit, and but for which the sale would not have been made, was fraudulent, and entitled the seller to reclaim the goods B. R. 428, 114 Fed. 777; Silvey v. Tift, 17 Am. B. R. 9, 123 Ga. 804., 51 S. E. 748. 1. See "Property sold to the bankrupt on condition," section 12, supra. 2. Levi v. Picard, 17 Am. B. R. 430. 3. These are pointed out with great distinctness in an address delivered by Charles A. Hough, Esq., of New York, printed in the proceedings of the fourth annual convention of the National Association of Referees in Bankruptcy, at Milwaukee, in August, 1902. See also address on "The Merits and Defects of the Bankrupt Law," by Mr. Referee Holt, before the American Social Science Association, at Washington, April, 1902. 4. See Matter of Murphy, etc., Shoe Co., 11 Am. B. R. 428, holding that the right to reclaim goods should only be granted in cases where it clearly exists, and that the burden of proof is with the creditors to establish their right clearly and by a preponderance of evidence. 5. This follows from the rule that the trustee when appointed can have no greater title than the bankrupt had. The trustee holds the goods affected with the fraud of the bankrupt. Neither law nor morals will justify the trustee in holding goods obtained by the fraud of the bankrupt for the benefit of other creditors. Creditors have no right to profit by the fraud of the bankrupt to the wrong and injury of the party who has been deceived and defrauded. In re Hamilton Furniture, etc., Co., 9 Am. B. R. 65, 117 Fed. 774. 7 thereby obtained." He should exercise this right before he has of his own volition placed himself in the position of a creditor, for if he joins in the election of a trustee, with knowledge of the fraud perpetrated against him, he is estopped from thereafter insisting on a return of the goods. Where machinery or other articles are sold upon the condition that if they are not satisfactory the purchaser may return them and such purchaser prior to his bankruptcy expressed himself as dissatisfied and declared that he would not accept such machinery or articles, the seller may reclaim them, and the receiver or trustee of the bankrupt purchaser will not be heard to say that the refusal of the bankrupt to accept was arbitrary or capricious, fraudulent and in bad faith. So also reclamation should be permitted where the bankrupt was in possession of articles being manufactured by him under contracts requiring payments at stated periods which had been regularly made, it 6. Matter of Patterson, 10 Am. B. R. 748, 125 Fed. 562; In re Weil, 7 Am. B. R. 90, 111 Fed. 897; In re Epstein, 6 Am. B. R. 60, 109 Fed. 878; In re Hamilton Furniture, etc., Co., 9 Am. B. R. 65, 117 Fed. 774, in which case the rule was laid down that where a party by fraudulently concealing his insolvency, and his intent not to pay for goods, induces the owner to sell them to him on credit, the seller, if no innocent third party has acquired an interest in them, is entitled to disaffirm the contract and recover the goods: Hildebrant, 10 Am. B. R. 184; In re O'Connor, 9 Am. B. R. 18, 114 Fed. 777; Silvey v. Tift, 17 Am. B. R. 9, 123 Ga. 804, 51 S. E. 748; Matter of Levi, 16 Am. B. R. 756, holding that in the absence of fraud in making the statement, reclamation should not be allowed. In re Rose, 14 Am. B. R. 345, 135 Fed. 888, in which case it was held that the return of goods should not be permitted where the evidence is insufficient as to the mak In re 8 ing of a false verbal statement to a commercial agency; Levi v. Picard, 17 Am. B. R. 430. 7. Standard Varnish Works V. Haydock (C. C. A.), 16 Am. B. R. 286, 143 Fed. 318. 8. In re Hill Co., 12 Am. B. R. 213, note, 123 Fed. 866. Compare In re Simpson Mfg. Co., 12 Am. B. R. 212 (C. C. A.), 130 Fed. 207, in which case the evidence was considered, and it was held that there being no complaint made that the machinery was unsatisfactory, a sale of the machinery was completed, and that the vendor upon the bankruptcy of the purchaser was not entitled to a return of the machinery upon a claim that it was never accepted; In re Froelich Rubber Refining Co., 15 Am. B. R. 72, 139 Fed. 201, holding that where the contract contained an option to purchase within a prescribed time, the title to the property only passed to the bankrupt after such time expired. appearing that the trustee did not intend to complete the contract and deliver the completed articles.9 If personal property be sold upon the express condition that payment be made on delivery, and delivery is made on the faith that the condition will be immediately performed, and payment is refused upon demand, title does not pass, and the seller may properly be permitted to reclaim the property.10 Most of the evils resulting from reclamation proceedings will be avoided if the claiming creditor is at least required in the first instance, always after a short notice to the receiver or creditors, to prove identity strictly, either before the judge or a referee sitting as special master. 11 The delay incident to such proof will check at the outset a practice which, under the State systems, has fostered perjury and made" diligence" a word at which lawyer and layman were wont to blush. Nor is it thought that such a practice will be against the well-recognized principle that adverse claims to the bankrupt's assets must be settled in a plenary suit.1 Is the transaction whereby the bankrupt becomes possessed of the property a sale or a bailment? This question enters into the determination of nearly every case. If the property is consigned to be sold under terms and at prices fixed by the consignor the contract is not one of sale, but is a bailment and the consignor may reclaim.13 Identity is the sine qua non of the right to possession. Proof of it is insisted on even in the far less important proceeding when a consignor creditor claims goods in the hands of the trustee. The court whose right to possession is questioned can, it is thought, nay, in the interest of that pro-rating which the bankruptcy law 9. In re McDonald, 14 Am. B. R. 797, 138 Fed. 463. 10. Southern Pine Co. v. Savannah Trust Co. (C. C. A.), 15 Am. B. R. 618, 141 Fed. 802. 11. For cases where the claim was judicially investigated, see In re Weil, 7 Am. B. R. 90, 111 Fed. 897; In re Davis, 7 Am. B. R. 276, 112 Fed. 294; and Bloomingdale v. Empire Rubber Mfg. Co., 8 Am. B. R. 74, 114 Fed. 1016. Read also In re 12 O'Connor, 7 Am. B. R. 428, 114 Fed. 777. 12. In re Russell, 3 Am. B. R. 658, 101 Fed. 248. 13. In re Wells, 15 Am. B. R. 419, 140 Fed. 752; In re Tice, 15 Am. B. R. 97, 139 Fed. 52; In re Heckathorn, 16 Am. B. R. 467, 144 Fed. 499; In re Wood, 15 Am. B. R. 411, 140 Fed. 964; In re Galt, 13 Am. B. R. 575, 56 C. C. A. 470; In re Poore, 15 Am. B. R. 174. commands, should, insist on the claimant establishing identity by proof in open court, with right to cross-examination by the adverse party, before yielding that which in bankruptcy cases is often more than "nine points of the law."14 In such proceedings it is only recovery of the identified articles which may be had; as to the articles which have been sold or disposed of by the bankrupt, the vendor is left to his remedy as a general creditor. 15 § 15. Rights of action; subd. (6).—This subdivision is declaratory of the law. A cause of action for damages arising out of a personal wrong suffered by the bankrupt is not embraced in those rights of action which vest in the trustee of the bankrupt. The right to sue for a personal tort, such as slander, malicious prosecution, assault, etc., is strictly personal; it cannot be assigned, is not subject to levy and sale by judicial process, and the act does not contemplate that the bankrupt's right to maintain an action to recover damages for such wrongs shall constitute part of his estate in bankruptcy.18 There are exceptions to this doctrine. Thus, where the suit is to recover usurious interest paid by the bankrupt,17 and money lost in gaming,18 and perhaps where the gravamen is deceit or fraud.19 The safe rule is that stated in the text that the trustee is vested with the bankrupt's rights of action on contract and for the unlawful taking or detention of or injury to his property. An action for conspiracy, whereby the plaintiff was "driven out of business as a dealer in lumber," is an action in tort, and is not included within the rule; even though such an action is pending at the time of the plaintiff's bankruptcy, the right of action does not pass to his 14. In re Coleman & Sherman, 8 Am. B. R. 763. 15. In re Eliowich, 17 Am. B. R. 419. 16. In re Haensell, 1 Am. B. R. 286, 91 Fed. 355; Noonan v. Orton, 12 N. B. R. 405; Beckham v. Drake, 8 Mass. & W. 845. 17. Tiffany v. Boatmen's Sav. Bank, 18 Wall. (U. S.) 375; Wheelock v. Lee, 64 N. Y. 242. But see Bromley v. Smith, Fed. Cas. 1,922. 18. Meech v. Stoner, 19 N. Y. 26. 19. Crockett v. Jewett, 2 Ben. (U. S.) 514, 6 Fed. Cas. No. 3,402; Hyde v. Tuffts, 45 N. Y. Super. Ct. 56 (13 J. & Sp.). |