826
FEDERAL REPORTER.
In re d
NEWCOMB.
(Di8triet (Jourt. N. D. New York. November 14, 1887.)
FUNDS. An assignee in bankruptcy, who disregards the express order of the court in, depositing funds, is liable for the interest which the designated depositary would have paid. ' 2. SAME. Be is liable also, in the absence of all explanation, for legal interest on money !lollected and not deposited, which remained in his hands through a long period of years. ' 8. SAME-LIABILITY OF ASSIGNEE-UNCOLLECTED NOTES. , .Under the act of congress of June 22, 1874, §I 4, it is the duty of the assignee to s,ell at .publicltuctipn notes which belonged to the butwhere he 'retains tbe,m, and suffers them to become outlawed, he is liable only to the that they were collectible. 4. SAMlll.' , Notes taken by the assignee in renewal of notes held by the bankrupt, to a,void the.statute of limitations, or.£or sOllie other reason equally good, ai"e a charge against him, when outlawed, only so far as they were collectible, BANKRUPTcy-LIABILITY OF ASSIGNEE-l:NTEREST ON UNDEPOSITED
1.
5. SAME;'
6. I
An assignee who, without the, sanction of the court, Rells the effects of tbe estate on credit, and suffers .thenotes given for the purchase price to become outIaweq; ill liable for the loss, whether the makers of the notes were responsible or not. ' ' The assignee sold teal estate to the bankrupt's wife, and, without the sanction of thl' court, took a bond, secured by mortgage, for the purchase price. The interest was allowed' to accumulate until the security became inadequate. Held,thatitheassignee was liable for the loss, and that, to avoid the delay of fo:\,ec1o&nre,' the mortgage should be tranllferred to the assignee upon payment to the estate of the amouJl1; due thereon, ' , A new assignee appointed in the place of former assignees, deceased,and who'is seeking to enforce against their estates demands which they permitted to outlaw, should not himself be permitted to set up the statute of limitations asa defense to a not'e given by him to his predecessors for goods purchased of them,
SAME-LIABILITY OF ASSIGNEE-SALE BY ASSIGNEE.
'1.
SAME-LIABILITY OF ASSIGNiE-LmITA'l'ION OF ACTIONS.
S. SAME-AsSIGNEE'S COMMISSIONS-FoRFEI'l1U:ltE BY. MISCONDUCT. Rev. St. U.,S. § 5062, provides that every assignee who shall "fail or neglec\
to well and faithfully discharge his duties * * * shall forfeit all fees and ,emoluments'," etc. ' Held, in 'a case where the assignee, a man of high standing to whom no bad faith was imputed, had a great loss to the estate by Buffering notes, etc., to beoutIawed, that the question as to whether or not commissions should be allowed. was for the register in the first instance. and that they would not be disallowed until the assignee had had full opportunity to be heard in explanation,
In Bankruptcy. Prior to 1872 Alva M. Newcomb was adjudicated a bankrupt and Charles W. Barnes and Ralph Allen were appointed his assignees. In MaTcb,1872, a dividend of 60 per cent. was declared and paid. Though large sums were subsequently collected by the assignees, there has been no dividend since that time. Ralph Allen died in 1881,.and Charles W. Barnes died in 1884, both intestate. After the death of Barnes, Frank M. Newcomb was appointed assignee of the bankrupt's estate. In De..
IN RE NEWCOMB.
827
'Cember, 1885, the representatives of the deceased assignees filed a statement of the transactions of their intestates with the estate of the bankrupt,and' prayed that the account might ,be settled, and the estates of Darnes ahd Allen discharged. The p):'esent 'assignee and a creditor surcharged and filed objections to this account; It appears by this account that after the dividend was declared in 1872 there was a balance in the hands cfthe assignees 0[$1,635.29. Between that time and May, 1880, they collected $6,082.59.; During the same period they disbursed $1,665.61. The balance due to the present assignee is stated at$6,052.27. Of this sum $3,163.68 was deposited in the Schuyler County Bank, where it· aid not draw interest, and in November, 1884, it was turned over to the present assignee. There is now concededly due the estate the sum of $2,788.49. It also appears that there are several notes in the hands of the administrators, given to the bankrupt, which the assignees permitted to outlaw. The account further shows that there are in the hands of the administrators a number of notes taken by the assignees and made payable to them. These noteS were also allowed to outlaw. The administrators also hold a bond and mortgage for $3,162.19, dated November 28,1874" executed by Sarah A. Newcomb to the assignees upon a sale to her of a portion of the bankrupt's real estate. It is alleged that 'the interest has been allowed to accumulate,until the land is wholly inadequate as security for the amount due. The present assignee insists that the administrators should pay interest upon the amounts collected by the deceased assignees, andaccouni for the outlawed notes and for the amount lost, by their negligence, upon the Sarah A. Newcomb mortgage. The administrators deny their liability, except to hand over the money,notes, and mortgages in theh hands. Upon the issue thus raised, testimony has been taken by tht:. register in charge. This testimony, together with the account and objections thereto, is transmitted to the court, with the request that tht! rules which should govern the register in taking and stating the be determined in advance in order to save expense and prevent' delay in closing the estate of the bankrupt. Charles S. Baker, for present assignee and for a creditor. O. P. Hurd, fpr administrators of former assignees. COXE, J. As this controversy will undoubtedly have to be decided by the court at some stage of the proceedings, it may tend to simplify and hasten the settlement of the bankrupt's estate if it is determined dt the outset, although I am aware of no precedent for this practice. The questions at issue between the parties are: First. Should the hdministrators pay the present assignee interest upon the money collecLt:ld by the deceased assignees, and deposited by them in the Schuyler County Bank? Second. Should they pay interest upon the money collected by the assignees and not deposited? Third. Should they account for the notes given to the bankrupt which the deceased assignees permitted to outlaw?' .FPu1·th. Should they account for the notes taken by,the de.ceased assignees and which they permitted to outlaw? Fifth. Should
328
'.hey account for the loss upon the Sarah A. Newcomb mortgage? Sixth. S.hould commissions be allowed to the deceased assignees? Upon the question of interest there can be no The deceased lI,ssignees were the trustees of the creditors. Their duty was clear. They were not permitted to use the trust fund for their own benefit or profit in any way by its possession. The earnings of the fund belonged, not to them, .but to the creditors. Although the assignees disregarded the express 'order of the court in depositing funils in the Schuyler County Bank, yet, as they no personal benefit therefrom, it is not easy to see why thecreditorswiU not be indemnified when they receive the interest which the designated depository would have paid. I think they will be. In re Burt, 27 Fed. Rep. 548; General Order No. 28; Rule 37 of this. court; Bankrupt Act, § 5059; In re Thorp, 4 N. Y. Leg. Obs. . As. to the balance not deposited, the law presumes, in the absence of all explanation, that the assignees, or one of them, had the use of this sum through a long period of years. . The legal inter.est thereon should be paid by their represe;ntatives. Cook v. Lowry, 95 N. Y. 103; jelin v. StewMt, 1 Johns. Ch. 620; Insurance Co. v. Lynch, 11 Paige, 520. Whether or ;not the ndministrators should account for the notes, etc., given the bankrupt, whichpassed by the Msignment, depends upon the question whether they were of any value at the time they came into the hands of the assignees. Strictly speaking it was the duty of the assignees to, sell this property at public auction within a reasonable time. Section ,5062, (Act June 22, 1874, § 4;) Bump,(9th Ed.) 560. By failirigto comply with. the provisions of the law, they assumed the responsibilityof showing that the estate did not suffer by their action. If these notes were at all timeswortllless, the creditors have lost nothing by the supineness of the assignees. As I understand the proof, it is undisputed"ano the present assignee practically concedes that all, or neady all, of these debtors to the bankrupt are and always were utterly irresponsible·. The Wiedman mortgage is an exception, and there seems to. be no reason to doubt that it is collectible. But these are questions ot fact, which Can best be determined by the register. If he is couvinced that the estate has suffered by reason of the failure of the al'signees to enforce these demands, to that extent there should be restitution. The notes and mortgages taken by the assignees stand upon a totally different footing. But, until a preliminary question of fact is determined, the law as applicable to this branch of the case can only be stated in the alternative. The counsel for the present Msignee asserts that these notes were given to the deceased assignees for property of the bankrupt. sold, by them. . The counsel for the administratfllrs denies this" and insists that there is no proof to support the assertion. He argues that they may have been given.in renewl:ll of notes held by the bankrupt to avoid the statute of limitations, or for some other reason equally good. If these notes represent debts due to the bankrupt, they are covered by the rule as applicable to that class. of indebtedness. If, howevef t the nQtes were given in payment of property sold by the as-
377.
829
signees, there can be no doubt as to their liability. And if, as suggested, the parties to whom they sold were irresponsible at the time, the case against them is greatly strengthened. I am familiar with no section of the bankrupt act which permits an assignee, without the sanction of the court, to sell the bankrupt's property on credit, (section 5062, supraj) but, having done so, if he makes no demand of payment, and permits the debt to outlaw, there can, it is thought, be no two opinions regarding his responsibility. To hold that an assignee may with impunity dispose of the p:roperty in his hands on credit, and make no effort to collect the is, in effect, saying that he may give away the trust fund, or waste it in any manner that he may see fit. To sell on credit to a worthless party would, ordinarily, render an assignee liable; to sell to a responsible party, and permit the debt to outlaw, would, if possible, be even more reprehensible; but where an assignee does both, every avenue of escape from liability is closed. One of these notes was given by the present assignee. He must, of course, pay the amount due thereon to the estate. :Much that has been said already applies to the Sarah A. Newcomb mortgage. It does not appear whether the sale of the property to her was made pursuant to an order of the court, or how long the mortgage had to run, 0;1,' whether any payments have been made thereon. No indorsements appear on the bond, but the administrators assert, in the account, that about $929 has been paid thereon at various times. It seems to be conceded that, with the accumulations of interest amounting to over $1;000, the land is inadequate security. If the sale was made without the order of the court, the action of the assignees was Wholly unauthorized; but having taken the mortgage, they should have enforced it while the security was sufficient. Probably the simplest manner of disposing of this question is for the present assignee to assign the mortgage to the administrators upon receiving from them the amount due thereon. The assignee should not be required to foreclose this mortgage. Any further delay will be intolerable. It is manifestly his duty to close up the trust in the speediest possib,le manner, and there should be no impediments placed in his path. But the manner of arriving at the deficiency due the estate may be safely left to the register. It is undeniable that, by the negligent action of the deceased assignees in these particulars, the creditors have lost a large sum of .money to which they are entitled, and for which the estates of the assignees are liable. The question as to whether or not commissions should be allowed the assignees in the settlement of the estate may properly be passed upon in thefir8t instance by the register. It is pOflsible that some proof may be offered by which the court can fairly take this case out of the clause of section 5062, supra, which provides that every assignee who shall "fail or neglect to well and faithfully discharge his duties * * * shall forfeit all fees and emoluments," etc. Cook v. Lourry,8upra. This is a most extraordinary case. Nothing at all ap.proximating it has come under my observation. The papers do not disclose when the assignees were appointed; but they do for aver
,8S0
FEDERAL REPOn'rER.
,10, .assigneesd,elayed without oause the settlement of the estate, '4ndpei'mitted its securities to depreciate and to outlaw. Almost every isectionof the bal1kruptlaw, applicable to assignees, ha.s been disregarded or direcUyviolated,' arid all this without a word 6£ explanation. It is conceded by all that -the deceased assignees were men of high standing in the community in, which they resided, and no bad .faith is or can be imputed to them. Their lips are closed. There may be some explanation of their corrduct,-and all possible opportunity should be given to explain what upon the papers now submitted seems to be a case of un· ,precedented andunpa-rdollable neglect. An order commissions will not be made until a fuU opportunity has been accorded the representatives Of the deceased assignees to be heard upon that issue. The oourt may feel constrained reluctantly to make the order, but it is hoped that the necessity therefor may be averted. Bearing in mind the rules above referred to, it is thought that the register can have no difficulty in correctly stating the account.
THOMPSON' and
others
tI. DERBY
and otherS.
(Oircuit Oowrt, D. Mru,aclw"tt8.
December 8, 1887.)
t. t.
PATENTS FOR INVENTION$-.!.NTICIPATIoN-COm3UfED CHAm AND OABBYAGB.
Letters patent No. 22{928. granted to Joseph W. Kenna for imRrovements in child's combined chair and carriage; are not anticipated by ear ier patents, " although'limited in scope by them. CRAm AND CAlUUA.GE.
SA.ME......
Cbairsmade undertbe two Chichester patents, respectively numbered 259,868 and 260,843, are infringements upon tbe Kenna No. 224,923. The chairs made under the Parker patent, No. 817,668. do not infringe.
In Equity. Jame8 E.Maynadier,for complainants. Thorruis H. Dodge, for defendants.
COLT,J. This is a suit for an injunction, account, and damages, 'based upon letters patent No. 224,923, dated February 24, 1880, granted t8 Joseph W.Kenna for improvements in a combined child's chair and carriage. The specification says: "My invention relates to 3n article of furniture which. by simple adjustDlent of the several parts. may be converted from a nursery chair to a child's carriage. and 'alee ve1·sa. so that it may be used for either a child's high chair or a carriage, as may be; dl'!sired. The invention consists in the manner of connecting tbe chair to its supporting frame and supporting it, therein, and _Iso in spepial devices and combinations of devices." The :first claim of the patent covers some of the. special ,devices described in the specification. The second claim is more general ,in its chart!octer, is relied upon in this sqit. It reads as follows: