22

21

trustee, 20 But it has been held otherwise as to a right of action for injuries causing the death of the bankrupt's son.2 The right of a bankrupt corporation to sue for the recovery of unpaid subscriptions to capital stock passes to the trustee.2 It has been held that a person who has been adjudged a bankrupt and obtained his discharge cannot sue upon a claim for services upon a quantum meruit, which arose prior to the filing of his petition, where it appears that he did not disclose the existence of the claim or any other asset, in the bankruptcy proceedings, because of which no trustee was appointed.23 It seems that, after being vested in the trustee, such rights of action may be carried to judgment by the bankrupt for his own benefit after a composition is confirmed.24

The

§ 16. Burdensome property.-Here the statute is silent. English law goes into this subject with considerable particularity, the trustee there being given twelve months in which to elect to claim or disclaim onerous property.25 The general rules phrased into that law are, however, doubtless also the law in this country. Thus, a trustee may disclaim burdensome property and has a reasonable time in which to do it.26 This doctrine is usually asserted as to leases,27 though it has been applied where property is mortgaged beyond its value, in which case the court may direct that the property be released and surrendered to the mortgagee upon such conditions as it may deem just.28 The question is not one of jurisdiction or of right, but of dis

20. Cleland v. Anderson, 11 Am. B. R. 605 (Neb. Sup. Ct.).

21. In re Burnstine, 12 Am. B. R. 596.

22. Allen v. Grant, 14 Am. B. R. 349.

23. Rand v. Iowa Central Ry. Co., 12 Am. B. R. 164, 96 App. Div. (N. Y.) 413.

24. See Stone v. Morris, 4 Am. B. R. 568.

25. Act of 1883, section 55, as amended by act of 1890, section 13.

26. Compare Glenny v. Langdon, 98 U. S. 20; Sparhawk v. Yerkes, 142 U. S. 1; In re Scheermann, 2 N. B. N. Rep. 118, and cases cited.

27. Collier, Bankr., 6th ed., p. 604. 28. Equitable Loan & Security Co. v. Moss & Co., 11 Am. B. R. 111 (C. C. A.), 125 Fed. 609; In re Jersey Island Packing Co., 14 Am. B. R. 689 (C. C. A.), 138 Fed. 625.

cretion.29 The doctrine has no application to property which the bankrupt has concealed, and of the existence of which the trustee has no knowledge and has not therefore had the opportunity to make an election.30 The practice is simple. The trustee, if satisfied, after appraisal or even on an independent investigation, that some or all of the property which has vested in him is of no value or will be a charge on the estate, should file a report to that effect and ask for instructions. The referee may, it is thought, act without calling a meeting of creditors or even submitting the application to a pending meeting; but safe practice suggests that the creditors be consulted and their wishes observed. If the trustee is instructed to disclaim the property as onerous, an order should be entered to that effect. This in effect revests the title

in the bankrupt.31 Leases should be accepted or disclaimed promptly, but a continuance in possession will not usually be construed an election to accept the burdens and obligations of the lease.32 Another method of disposing of burdensome property is to sell it at a meeting of creditors called for that purpose. This is often done at final meetings, and sometimes at the instance of lien creditors, who thereby get title without the usual delays and costs attending foreclosures and judicial sales.

§ 17. Exempt property.-The trustee does not take title to property exempt by the law of the State, but, until the exempt property is set off, has possession.33 The reference to exemptions in this section does not show an intent to require a claim for an exemption to be made prior to adjudication.3 The proviso clause in subdivision (5) has already been often considered by the courts. It was doubtless inserted to prevent the hardship which might result to beneficiaries of life insurance policies did the lat

34

32. Collier, Bankr., 6th ed., p. 604.

33. In re Castleberry, 16 Am. B. R. 159, 143 Fed. 1018; In re Sullivan, 16 Am. B. R. 87; McKenney v. Cheney, 11 Am. B. R. 54 (Ga. Sup.). 34. In re Fisher, 15 Am. B. R. 652.

In effect, the bank

ter pass to the insured's trustee absolutely. rupt may retain the advantage which years of premiums may have given him, provided he pays or secures to the estate the cash surrender value of the policy. The practice is sufficiently indicated by the words of the statute. But the question generally discussed is whether, since most of the States declare life insurance policies exempt, the clause here is subject to section 6,35 or a limitation on it. The Supreme Court has now declared that the provisions of this section do not apply to life insurance policies which are exempt under a State law; as to such policies the State law must control regardless of whether they had a cash surrender value.36 To policies which are so exempt section 6 applies; this is since the opening clause of the section vests the trustee with the bankrupt's title except as to "property which is exempt." This qualification necessarily controls all the enumerations, and therefore excludes exempt property from all the provisions contained in the respective enumerations. It controls the proviso as well as other parts of the section and makes the life insurance policies which are exempt by State statutes subject in all respects to the provisions of section 6.37

§ 18. Exemptions in property fraudulently conveyed or concealed.—The bankruptcy law provides that the act shall not affect the allowance to bankrupts of the exemptions which are pre

35. Section 6 of the Bankruptcy Law provides as follows:

§ 6. Exemptions of bankrupt.— a This act shall not affect the allowance to bankrupts of the exemptions which are prescribed by the State laws in force at the time of the filing of the petition in the State wherein they have had their domicile for the six months or the greater portion thereof immediately preceding the filing of the petition. Compare sections 2(11) and 47a (11), Bankr. Act and General Order XVII.

36. Holden v. Stratton, 14 Am. B.

R. 94, 198 U. S. 202, rev'g 7 Am. B. R. 615, 113 Fed. 141; Steele v. Buel, 5 Am. B. R. 165, 104 Fed. 968, rev'g 3 Am. B. R. 549, 98 Fed. 78. See also explaining effect of proviso, Hiscock v. Mertens, 17 Am. B. R. 484, 205 U. S. 202. The following cases are opposed to this doctrine: In re Lange, 1 Am. B. R. 189, 91 Fed. 361; In re Scheld, 5 Am. B. R. 102, 104 Fed. 870; In re Welling, 7 Am. B. R. 340, 113 Fed. 189.

37. Collier, Bankr., 6th ed., p. 605.

scribed by the State laws in force at the time of the filing of the petition in the State wherein they have had their domicile for the six months or the greater portion thereof immediately preceding the filing of the petition.38 In some States, the bankrupt is denied his exemptions, if he has been guilty of a fraud on creditors generally or has intentionally transferred or concealed any portion of his property, whether exempt or not.39 This is probably due to local statutes.40 The rule, however, is that, exemptions, being a matter of right, should not be denied, even if asserted in property fraudulently transferred or concealed and later recovered by the trustee.*1 Where the bankrupt acquires property by fraud, he can have no exemption.42 Where the bankrupt

has scheduled property out of which he claims exemptions, and the trustee later recovers other property which had been preferentially transferred, it is held by some authorities that the former will not be permitted to abandon his previous claim and assert it against such property, 43 but other authorities hold to the contrary.** Where the alleged fraudulent transaction involves the sale of non-exempt property, and the use of the avails in reducing an incumbrance against an exempt homestead, it will not avail.45 And where, pending suit in a State court to set aside a deed of

38. Section 6a.

39. Matter of Alex, 15 Am. B. R. 450, 141 Fed. 483; In re Allen, 13 Am. B. R. 519, 134 Fed. 620; In re Duffy, 9 Am. B. R. 358; In re Yost, 9 Am. B. R. 153, 117 Fed. 792; In re Long, 8 Am. B. R. 591, 116 Fed. 113; In re Tollett, 5 Am. B. R. 505, 105 Fed. 425, overruled in 5 Am. B. R. 404, 106 Fed. 866; In re Waxelbaum, 4 Am. B. R. 120, 101 Fed. 228; McDowell v. McMuria, 107 Ga. 812, 73 Am. St. Rep. 155.

40. Collier, Bankr., 6th ed., p. 101. 41. In re Rothschild, 6 Am. B. R. 43; In re Park, 4 Am. B. R. 432, 102 Fed. 602; Wilcox v. Hawley, 31 N. Y. 648; In re Noll, 2 N. B. N. R. 789;

In re Buckingham, 2 N. B. N. R. 617. Thus even in Georgia, where the "good faith" rule is in the local statute; In re Talbott, 8 Am. B. R. 427, 116 Fed. 417, aff'd Bashinski v. Talbott, 9 Am. B. R. 513, 119 Fed. 337; In re Neal, 14 Am. B. R. 550.

42. In re Wolcott, 15 Am. B. R. 386, 140 Fed. 460.

43. In re Coddington, 11 Am. B. R. 122, 126 Fed. 891; In re White, 6 Am. B. R. 451, 109 Fed. 635.

44. In re Falconer, 6 Am. B. R. 557, 110 Fed. 111. See also In re Neal, supra; In re Evans, 8 Am. B. R. 730, 116 Fed. 909.

45. In re Boston, 3 Am. B. R. 388, 98 Fed. 587.

land, the debtor obtains a reconveyance of the land and executes a proper deed of homestead under the State law, and is adjudicated a bankrupt prior to a decree setting aside the conveyance, the bankruptcy court may determine the claim of homestead exemption in the land.46 A general assignment is not sufficiently fraudulent to come within the rules previously stated.*7

19. Transfers fraudulent under State laws may be avoided by trustee; subs. e.-The Bankruptcy Act provides that "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." 48 This subsection has been referred to elsewhere." It is the corollary of section 67b,50 and simply means that if a creditor could have avoided any transfer (not merely a lien) under the laws of the State, the trustee can do the same,51 and it is immaterial that the creditors of the bankrupt were not in a position to attack the transfer.52 The trustee is subrogated to the rights of creditors and may sue to avoid and set aside any conveyance or transfer

46. In re Allen, 13 Am. B. R. 519, 134 Fed. 620.

47. In re Tilden, 1 Am. B. R. 300, 91 Fed. 500; In re Noll, 2 N. B. N. R. 789.

48. Bankr. Act, 1898, section 70e. 49. See under sections 60 and 67, Bankr. Act, and section 5, supra.

50. Section 67b provides that whenever a creditor is prevented from enforcing his rights as against a lien created, or attempted to be cre

49

ated, by his debtor, who afterwards becomes a bankrupt, the trustee of the estate of such bankrupt shall be subrogated to and may enforce such rights of such creditor for the benefit of the estate."

51. Mueller v. Bruss, 8 Am. B. R. 442, 112 Wis. 406, 88 N. W. 229; Hunt v. Doyal (Ga.), 57 S. E. 489.

52. Sheldon v. Parker, 11 Am. B. R. 152, 66 Neb. 610, 92 N. W. 923, 95 N. W. 1015.