Hull v. Dicks, 235 U.S. 584 (1915)

This reasoning would be applicable if the widow and children were asserting rights of inheritance under the Statute of Distribution. Moreover, there would be no answer to the argument advanced if the title, which vested in the Trustee, was in its nature like that which would have been acquired if Dicks in his lifetime had made a Deed of Assignment to the Trustee. But such is not the case. For construing the statute as a whole it will be seen that while § 70 12 (30 Stat. 565) of the Bankruptcy Act vested title in the Trustee primarily for the benefit of the creditors, there was an exception in favor of the bankrupt himself, and the transfer was also subject to a condition in favor of his family if he died before the p. 587proceedings ended. If the Bankrupt elected to claim a homestead the exempt property, even though it had passed to the Trustee, would, after identification and appraisal, be turned back into his possession. Chicago &c. R. R. v. Hall, 229 U. S. 511, 515. The Trustee’s title was also subject to the condition that if the bankrupt died during the pendency of the proceedings, the widow and children would be entitled to receive the allowance given them by the laws of the State of his residence. This latter limitation on the Trustee’s title was in connection with legislation on the subject of abatement.

For the statute seems to assume that, in the absence of a statutory provision to the contrary, the death of the bankrupt would have abated the proceedings. In that event the property, although the title thereto had been previously vested in the Trustee, would have been surrendered to the bankrupt’s personal representatives, who would then have been in possession of an estate, out of which, under the Georgia Code, a year’s support could have been set apart to the widow and children. Congress need not have made any change in the general law but, as in the act of August 19, 1841, c. 9, 5 Stat. 440, could have allowed the suit to abate on the death of the bankrupt; Or, as in the act of March 2, 1867, c. 176, 14 Stat. 517, 522, § 12, it could have permitted without requiring, an abatement; Or, as in the act of April 4, 1800, c. 19, 2 Stat. 19, 27, § 19, it could have made a mandatory provision that the proceedings should continue if the bankrupt died “after commission sued out;” Or, it could have legislated, as in § 8 of the present statute (30 Stat. 549, § 8) where Congress went further than in any of the previous bankruptcy laws and made a universal and mandatory provision that “the death . . . of a bankrupt shall not abate the proceedings.” That sweeping declaration, however, was coupled with the Proviso that “in case of death the widow and children shall be entitled to all p. 588rights of dower and allowance fixed by the laws of thè State of the bankrupt’s residence.”

It is claimed that, under this interpretation, if the bankrupt died after the Trustee had wholly or partially administered the estate the widow and children could still enforce their rights to a year’s support out of the bankrupt estate, even if the property had passed into the hands of purchasers. But this loses sight of the fact that the family had nothing in the nature of a lien which, during his lifetime, prevented the bankrupt or the Trustee from disposing of his property. What was done by the court, while the bankrupt was in life and a party to the proceeding, was binding upon him, and therefore as effectual p. 589235 U. S. Syllabus.

These notes were not paid when they fell due and the New York Finance Company’s equity of redemption was acquired by the respective holders of the two notes. In February, 1913, when Conrad Morris Braker attained the age of fifty-five, the respective holders of the notes and assignments demanded that the Trustee should pay over to them that to which they were entitled by virtue of the instruments aforesaid. The Trustee refused to comply and thereupon the Executors of Wood and the p. 592Trustees of Clara Schermerhorn (all of whom were citizens and residents of Pennsylvania) brought suit in the United States District Court for the Southern District of New York against Fletcher, Trustee, and Conrad Morris Braker, beneficiary, both being citizens and residents of New York.

vol . ccxxxv—38 p. 594United States v. Moulton, 27 Fed. Cas. 11, 12; Mercantile Trust Co. v. Gumbernat, 143 N. Y. App. Div. 308; Bouvier’s Law Dictionary; 2 Blackstone Comm. 389, 397; Ayers v. West R. R., 48 Barb. 135; Gillett v. Fairchild, 4 Den. 80; Haskell v. Blair, 57 Massachusetts, 534, 536; Prudential Life Ins. Co. v. Hann, 21 Ind. App. 525; Steele v. Gablin, 115 Georgia, 929; 3 Am. & Eng. Ency., 1st ed. Sub. Tit. “ Choses in Action,” 236; Brown v. Fletcher, 206 Fed. Rep. 461.

The appeal from that decision involves a construction of § 24 of the Judicial Code, which limits the jurisdiction of p. 595the United States District Court when suit is brought therein . . . “to recover upon any promissory note or other chose in action in favor of any assignee. . . J’1

Except for a short time when the act of March 3, 1875, c. 137, 18 Stat. 470, restricted suits “founded on a contract in favor of an assignee,” the several statutes on the subject, in force prior to the adoption of § 24, made this limitation on the jurisdiction of United States courts apply to “any suit to recover the contents of any promissory note or other chose in action in favor of any assignee ” (Act of September 24, 1789, c. 20, 1 Stat. 73, 78, §11; Rev. Stat., § 629; Act of March 3, 1887, c. 373, 24 Stat. 552; Act of August 13, 1888, c. 866, 25 Stat. 433, 434). These were technical terms of variable meaning. They might have been given a literal construction, in which case the act would not have wholly remedied the evil intended to be corrected. They were also susceptible of a construction so broad as to include subjects far beyond the congressional policy. For a “chose in action embraces in p. 596one sense all rights of action.” Dundas v. Bowler, 3 McLean, 204, 208. So that if the words of the statute had been given their most comprehensive meaning every assignee or vendee would have been prevented from suing in the United States court unless the assignor could have maintained the action. It is evident, however, that there was no intent to prevent assignees and purchasers of property from maintaining an action in the Federal court to recover such property, even though the purchaser was an assignee and the deed might, in a sense, be called a chose in action.

That ruling, though criticized in Bushnell v. Kennedy, 9 Wall. 387, 393, was constantly followed {Sheldon v. Sill, 8 How. 441; Shoecraft v. Bloxham, 124 U. S. 730), and it has been settled that the prohibition applied not only to suits on instruments which might be said to have “contents,” but also to suits for the recovery of “all debts, and all claims for damages for breach of contract, or for torts connected with a contract . . . but . . . not to suits to recover the specific thing or damages for its wrongful caption or detention.” Bushnell v. Kennedy, 9 Walt 387, 390, 391. Ibid. 392. Neither did it apply to suits p. 597for damages for neglect of duty. Deshler v. Dodge, 16 How. 622, 631; Ambler v. Eppinger, 137 U. S. 480.

If the trust estate consisted of land it would not be claimed that a deed conveying seven-tenths interest therein was a chose in action within the meaning of § 24 of the Judicial Code. If the funds had been invested in tangible personal property, there is, as pointed out in the Bushnell Case, nothing in § 24 to prevent1 the holder p. 598by virtue of a bill of sale from suing for the “recovery of the specific thing or damages for its wrongful caption or detention.” And if the funds had been converted into cash, it was still so far property—in fact instead of in action—that the owner, so long as the money retained its earmarks, could recover it or the property into which it can be traced, from those having notice of the trust. In either case, and whatever its form, trust property was held by the Trustee,—not in opposition to the cestui que trust so as to give him a chose in action, but—in possession for his benefit in accordance with the terms of the testator’s will.

But here there was no contract and this is not a suit for a breach of a contract. For whatever may have been the earlier view of the subject (Holmes Common Law, 407, 409) the modern cases do not treat the relation between Trustee and cestui que trust as contractual. The rights of the beneficiary here depended not upon an agreement p. 599between him and Braker, but upon the terms of the will creating the trust and the duty which the law imposed upon the Trustee because of his fiduciary position. And a proceeding by the beneficiary or his assignee for the enforcement of rights in and to the property, held—not in opposition to but—for the benefit of the beneficiary, could not be treated as a suit on a contract, or as a suit for the recovery of the contents of a chose in action, or as a suit on a chose in action. Upham v. Draper, 157 Massachusetts, 292; Herrick v. Snow, 94 Maine, 310. See also Edwards v. Bates, 7 Man. & G. 590; Nelson v. Howard, 5 Maryland, 327.

The beneficiary here had an interest in and to the property that was more than a bare right and much more than a chose in action. For he had an admitted and recognized fixed right to the present enjoyment of the estate with a right to the corpus itself when he reached the age of fifty-five. His estate in the property thus in the possession of the Trustee, for his benefit, though defeasible, was alienable to the same extent as though in his own possession and passed by deed. Ham v. Van Orden, 84 N. Y. 257, 270; Stringer v. Young, Trustee, 191 N. Y. 157; Lawrence v. Bayard, 7 Paige, 70; Woodward v. Woodward, 16 N. J. (Eq.) 83,84. The instrument by virtue of which that alienation was evidenced,—whether called a deed, a bill of sale, or an assignment,—was not a chose in action payable to the assignee, but an evidence of the assignee’s right, title, and estate in and to property. Assuming that the transfer was not colorable or fraudulent, the Federal statutes have always permitted the vendee or assignee to sue in the United States courts to recover property or an interest in property when the requisite value and diversity of citizenship existed. Barney v. Baltimore, 6 Wall. 280. The equity jurisdiction of such courts extends to suits by heirs against executors and administrators (Security Co. v. Black River Bank, 187 U. S. 211, 228) and to suits against p. 600Trustees for the recovery of an interest in the trust property by the beneficiary or his assignee.

This view of the record makes it unnecessary to discuss the question as to whether the Executors of Wood could in any event be treated as assignees of the character referred to in § 24 {Chappedelaine v. Dechenaux, 4 Cranch, 305, 306), since their title was cast upon them by operation of law. The nature of the case is also such that we cannot consider the effect of an assignment of $35,000 out of the $50,000, if it shall appear that the trust estate in the hands of the Trustee consists of property and not of money. These are questions which the United States District p. 601235 U. S. Syllabus.