RANDOLPH & RANDOLPH v. SCRUGGS(1903)
Messrs. William M. Randolph, Wassell Randolph, and George Randolph for appellants.
No counsel for appellee.
Mr. Justice Holmes delivered the opinion of the court:
The certificate in this case is as follows:
(a.) For services rendered the corporation in preparing the general assignment $500 00 (b.) For general advice and counsel to the assignee in respect to the duties of his trust 250 00 (c.) For legal services in defense of a suit brought in a state court wherein it was sought to have the corporation wound up as an insolvent corporation, and its assets distributed under the orders and decrees of the court 100 00 (d.) For services rendered by employment of the assignee in resisting an adjudication of bankruptcy against the Langstaff Hardware Company 300 00 [190 U.S. 533, 535] 'The appellants asserted and claimed that each of said items constituted a prior charge upon the assets, and asked to have same paid by the trustee in preference to the unsecured creditors. The trustee and certain creditors excepted to each item of this account.
It is admitted that a general assignment for the benefit of creditors, made within four months from the filing of a petition in bankruptcy, is void as against the trustee in bankruptcy, so far as it interferes with his administering the property assigned. This could not be denied. George M. West Co. v. Lea Bros. 174 U.S. 590, 595 , 43 S. L. ed. 1098, 1099, 19 Sup. Ct. Rep. 836; Boese v. King, 108 U.S. 379, 385 , 27 S. L. ed. 760, 762, 2 Sup. Ct. Rep. 765; Bryan v. Bernheimer, 181 U.S. 188 , 45 L. ed. 814, 21 Sup. Ct. Rep. 557. It hardly is necessary to discuss whether such an assignment should be held to be embraced in the express avoidance of conveyances made with intent to hinder, delay, or defraud creditors in 67e, of the bankruptcy law. (30 Stat. at L. 565, chap. 541, U. S. Comp. Stat. 1901, p. 3449.) It is possible to say that constructively a genral assignment falls under that description. Re Gutwilling, 90 Fed. 475, 34 C. C. A. 377, 63 U. S. App. 191, 92 Fed. 337; Davis v. Bohle, 34 C. C. A. 372, 92 Fed. 325. One ground for such a construction would be that making the assignment is declared an act of bankruptcy by 3. As it could not have been intended that the very conveyance which warranted putting the grantor into bankruptcy should withdraw all his property from distribution there, it seems sufficient to rely upon the necessarily implied effect of 3. At all events, if such a conveyance be called constructively fraudulent, it would be severe to deduce consequences as [190 U.S. 533, 537] to the validity of the appellants' claim from that circumstance alone.
The assignment was not illegal. It was permitted by the law of the state, and cannot be taken to have been prohibited by the bankruptcy law absolutely in every event, whether proceedings were instituted or not. Re Sievers, 91 Fed. 366; Re Romanow, 92 Fed. 510. It had no general fraudulent intent. It was voidable only in case bankruptcy proceedings should be begun. At the time when it was made the institution of such proceedings was uncertain. It seems to us that it would be a hard and subtle construction to say, as seems to have been thought in Bartlett v. Bramhall, 3 Gray, 257, 260, that when they were instituted they not only avoided the assignment, but made it illegal by relation back to its date, when, if they had not been started, it would have remained perfectly good. No doubt the corporation had notice of the bankruptcy law, but it could not go into bankruptcy by voluntary petition, and there is no objection to a debtor's distributing his property equally among his creditors of his own motion, if bankruptcy proceedings do not intervene. The view we take is that which has been taken by state decisions with reference to similar questions raised by creditors or under state insolvent laws. Bigelow v. Baldwin, 1 Gray, 245, 247; White v. Hill, 148 Mass. 396, 19 N. E. 407; Clark v. Sawyer, 151 Mass. 64, 23 N. E. 726; Wakeman v. Grover, 4 Paige, 23, 43, 11 Wend. 187, 226, 25 Am. Dec. 624. See also Mayer v. Hellman, 91 U.S. 496, 500 , 501 S., 23 L. ed. 377, 378.
The appellants do not stop here, however, but argue that the avoidance of the voluntary assignment goes only to the administration of the property, and not to the title; that the trustee simply succeeds the privately chosen assignee in the administration of the trust under the deed. Of course the object of this contention is to uphold the provision in favor of the appellants for preparing the deed and for service to be rendered the assignee. It does not seem to us to need much argument to show that this artificial refinement cannot stand. If by declaring the assignment an act of bankruptcy, the statute means that the conveyance shall not be effectual against the bank- [190 U.S. 533, 538] ruptcy proceedings, as is agreed, the natural and simple construction is that it means that the deed shall be avoided as a whole when the trustee takes the goods. The cases which we have cited and others under insolvent and bankruptcy laws evidently take that view. It follows that the appellants can assert no preference by way of lien under the deed.
It does not follow, however, from the avoidance of the deed, that the service of preparing it did not raise a valid debt. There is no sufficient reason why it should not when once it is decided that the service for which the debt is alleged was lawful Bankr. Reg. 168, 170, Fed. Cas. No. 7, 989. Bankr. Reg. 168, 173, Fed. Cas. No. 7,989.
The more difficult question is how to deal with the services rendered to the voluntary assignee. The claim for them must be worked out through the assignee, and cannot be put higher than his claim for allowances, supposing that they had been paid. We may assume that there is no question of form before us, and that whatever the appellants properly might have been paid by the assignee they may prove for now. See Central R. & Bkg. Co. v. Pettus, 113 U.S. 116, 124 , 125 S., 28 L. ed. 915, 918, 5 Sup. Ct. Rep. 387; Mason v. Pomeroy, 151 Mass. 164, 167, 7 L. R. A. 771, 24 N. E. 202. But it has been held that the assignee, even of a corporation, cannot be allowed anything for his services before the filing of the petition in bankruptcy. See e. g. Re. Peter Paul Book Co. 104 Fed. 786. So far as this opinion rests on constructive fraud, we have indicated above that it does not command our assent. The case would be different if the assignee were party to an actual fraud. Hastings v. Spencer, 1 Curt. C. C. 504, 507, Fed. Cas. No. 6,201; Smith v. Wise, 132 N. Y. 172, 178, 30 N. E. 229; Perry- Mason Shoe Co. v. Sykes, 72 Miss. 390, 401, 28 L. R. A. 277, 17 So. 171. But the assignee is acting lawfully in what he does before proceedings in bankruptcy are begun, and, although it may be assumed that the avoidance of the assignment relates back to the date of the deed, still, so far as his services, or services procured by him, tend to the preservation or benefit of the estate, the mere fiction of relation is not enough to forbid an allowance for them. See Lynch v. Bernal, 9 Wall. 315, 325, 326, 19 L. ed. 714, 716. This is the doctrine of the state courts with reference to the operation of insolvent laws upon voluntary assignments, and of the better-considered decisions under [190 U.S. 533, 539] the bankrupt laws. Platt v. Archer, 13 Blatchf. 351, Fed. Cas. No. 11,214; Havemeyer v. Loeb, 5 Abb. N. C. 338, 345; Macdonald v. Moore, 15 Nat. Bankr. Reg. 26, Fed. Cas. No. 8,763; Wald v. Wehl, 18 Blatchf. 495, 6 Fed. 163, 169; Hunker v. Bing, 9 Fed. 277; Re Kurth, 17 Nat. Bankr. Reg. 573, Fed. Cas. No. 7,948; Re Scholtz, 106 Fed. 834; White v. Hill, 148 Mass. 396, 19 N. E. 407; Clark v. Sawyer, 151 Mass. 64, 23 N. E. 726; Wakeman v. Grover, 4 Paige, 23, 43, 11 Wend. 187, 26 Am. Dec. 624; Collumb v. Read, 24 N. Y. 505, 515; T. T. Haydock Carriage Co. v. Pier, 78 Wis. 579, 47 N. W. 945; Perry-Mason Shoe Co. v. Sykes, 72 Miss. 390, 28 L. R. A. 277, 17 So. 171. See Williams v. Gibbes, 20 How. 535, 15 L. ed. 1013; Internal Improvement Fund v. Greenough, 105 U.S. 527, 532 , 26 S. L. ed. 1157, 1160; Thompson v. Phenix Ins. Co. 136 U.S. 287, 294 , 295 S., 34 L. ed. 408, 412, 10 Sup. Ct. Rep. 1019; Woodruff v. New York, L. E. & W. R. Co. 129 N. Y. 27, 29 N. E. 251. If beneficial services are allowed for they are to be regarded as deductions from the property which the assignee is required to surrender, and in that way they gain a preference. Platt v. Archer, 13 Blatchf. 351, Fed. Cas. No. 11,214; Re Scholtz, 106 Fed. 834; White v. Hill, 148 Mass. 396, 19 N. E. 407; Clark v. Sawyer, 151 Mass. 64, 23 N. E. 726.
We are not prepared to go further than to allow compensation for services which were beneficial to the estate. Beyond that point we must throw the risk of his conduct on the assignee, as he was chargeable with knowledge of what might happen.
It does not appear how far the services to the assignee were beneficial. Therefore the questions of the circuit court of appeals connot be answered in full. But the principles as to which it desired instruction may be stated sufficiently for the disposition of the case upon a subsequent finding of facts. None of the claims is entitled to preference under the deed. The charge for the preparation of the assignment properly may be proved as an unpreferred debt of the bankrupt. The services to the voluntary assignee may be allowed so far as they benefited the estate, and, inasmuch as he would be allowed a lien on the property if he had paid the sum allowed, the appellants may stand in his shoes, and may be preferred to that extent. No ground appears for allowing the item for services in resisting an adjudication of bankruptcy. See Platt v. Archer, 13 Blatchf. 351, 354, Fed. Cas. No. 11,214; Perry-Mason Shoe Co. v. Sykes, 72 Miss. [190 U.S. 533, 540] 390, 398, 28 L. R. A. 277, 17 So. 171; T. T. Haydock Carriage Co. v. Pier, 78 Wis. 579, 582, 47 N. W. 945; Clark v. Sawyer, 151 Mass. 64, 23 N. E. 726.
We answer the questions as follows: (1) No. (2) Not under the deed, but, so far as the assignee would be allowed for payment of the claim, the claim may be preferred in the right of the assignee. (3) Not on the facts appearing in the certificate. (4) The charge for the preparation of the deed may be proved as an unsecured claim.