
    Frederick Whittlesey, as Trustee of the Estate of Ralph S. Bevins and Others, as Copartners, Bankrupts, Respondent, v. Philip Becker and Company, Appellant, Impleaded with Thomas Eckensperger, Defendant.
    Fourth Department,
    January 11, 1911.
    Bankruptcy — general assignment for creditors — title of receiver pending adjudication — title of assignee for benefit of creditors — conversion of property held by assignee —when defendant making restitution to receiver in bankruptcy entitled to mitigation of damages—proceeds of converted property.
    A general assignment for the benefit of creditors although made without fraudulent intent is a constructive fraud upon the Bankruptcy Act and is available as an act of bankruptcy if made within four months before the petition was filed.
    The assignee, for the benefit of creditors has no title to the property as against the right of the Bankruptcy Court to possess and administer it; and when the duly authorized officer of that court takes possession, he does not take property of the assignee, but the property of the bankrupt unaffected by the assignment.
    Immediately upon filing a petition in bankruptcy all the assets of the bankrupt come within the jurisdiction and control of the Bankruptcy Court to be applied and disposed of under the statute for the benefit of the bankrupt’s creditors, providing the proceeding should result in an adjudication of bankruptcy. Pending such adjudication the receiver is a mere custodian of the property," •for prior to an adjudication in bankruptcy the title remains in the bankrupt though the court may take custody and control.
    Where a receiver in bankruptcy accepted the rettirn of the property of the insolvent from a creditor who has taken it from an assignee for the benefit of creditors under a void warrant of attachment, and an action for conversion brought by the assignee against the creditor has been assigned to the trustee in bankruptcy, and continued by him, the defendant in that action is entitled to an allowance in mitigation of damages for such sum as the receiver in. bankruptcy realized from the sale of-the converted assets.
    Although the creditor guilty of the conversion joined in the petition in the bankruptcy proceeding, he is nevertheless entitled to have the proceeds of the converted property deducted from the damages which may be recovered in the action for conversion, for the bankruptcy proceeding .was not for his sole benefit, nor directed against the assignee from whom he converted the property, so that he is not brought within the rule that one .is liable for the whole value' of the converted property where he procures it to be seized and sold under process in his own favor.
    Appeal by the deféndant, Philip Becker & Co., from a judgment of the Supreme Court in favor of the plaintiff against said defendant, entered in the office of the clerk of the county of Niagara on the 4th day of April, 1910, upon the.decision of the court, rendered, after a trial at the Niagara Trial Term, both parties having moved for the direction of" a verdict after a trial at the Niagara Trial Term, the complaint having been dismissed as to the defendant Thomas Eckensperger by consent in open court.
    The bankrupts, Ralph S. Bevins, George W. Smith and Mary A. Smith, made up the membership of the partnership firm of Ralph S. Bevins & Co., which on and prior to December 22, 1906, was doing a retail grocery business in the city of Niagara Falls. On that day the firm made a general assignment of its. property to Walter W. Chamberlain for the benefit of its creditors without preferences. He accepted the trust, took charge of the assigned property, and the defendant Philip Becker & Co. had notice of the assignment. On the same day this defendant, a creditor of the firm, obtained a warrant of attachment issued in an action brought by it against the firm, and in the evening of that day levy thereunder was, as directed by defendant’s, agent, made by the sheriff’s deputy and notice given the assignee’s -agent-in charge of the assigned property that all of it was taken under the atta'clunent. One Prime was placed in charge 'of the property as the sheriff’s agent,'who remained in charge of the property and conducted the business at the store, making sales of stock therefrom for about one week. . On December twenty-fourth, Chamberlain, the assignee, demanded of the sheriff’s, agent return of the property, which was refused. On December twenty-seventh the warrant of attachment was vacated for irregularity. December twenty-ninth, three creditors of the. firm of Bevins & Co., one of whom was the defendant, Philip Becker & Co., filed a petition with the District Court of. the United States, having jurisdiction of the proceeding thereby begun, praying adjudication that the members of the firm of Bevins & Co. were bankrupts. One Wood was. thereupon by the District Court appointed receiver in the bankruptcy proceedings of all the property of the copartnership, and he was by the order appointing him directed to take into his custody and- control all the property of the copartnership. Having filed the required bond the receiver on the same day of his appointment received from the' sheriff’s agent and took actual possession of all the property of the firm then remaining in the possession of the latter, including cash received for sales of property by him and accounts where credit had been given purchasers, together with all other accounts due the firm. An appraisal was made of some part of the property taken, and the receiver, as directed by a subsequent order of the District Court, sold perishable property, a part of the stock taken by him, and ultimately sold the remainder of it. He also collected some accounts due the firm when it made the general assignment. He received in cash from the sale of stock and collection of accounts $4,865.09. From these funds he has, as directed by orders made in the bankruptcy proceedings, retained as his fees as receiver allowed by the court, and has paid appraisers’ fees and disbursements as receiver sums aggregating'$1,303.51.
    On December thirty-first, two days after the receiver had taken over from the sheriff’s agent possession of the firm assets, Chamberlain, as assignee, began an action in conversion against Philip Becker & Co. arid Eckensperger, the sheriff, to recovér as damages the value of the property taken under the warrant of attachment. Owing to the fact that the bankruptcy proceedings were contested by Bevins & Co. the order adjudicating its members bankrupts was not made until December 7, 1908. On February 12,1909, plaintiff xvas duly elected trustee of the bankrupt estate. He duly qualified and has since been acting as such trustee. The conversion action brought by Chamberlain was. then pending. He assigned this cause of action to the trustee. By an ordér made in the bankruptcy proceedings substitution of the trustee as plaintiff in place of the assignee and continuance of the action by the trustee for the benefit of the bankrupt estate was authorized. The trustee was thereafter substituted as plaintiff - in the action by order of the Supreme Court. At the close of the evidence the complaint was dismissed as to the defendant Eckensperger; the sheriff.
    
      W. C. Carroll [Lewis & Carroll, attorneys], for the appellant.
    
      Eugene M. Bartlett and Clinton T. Horton, for the respondent.
   Robson, J.:

Appellant seems to concede that Chamberlain, as assignee, had a cause of action against it for the conversion of the property assigned to him by Bevins & Co., which accrued when the property was taken by the sheriff under the invalid warrant of attachment; but ' insists that the damages which plaintiff,' as assignee of Chamber- ■ Iain’s cause of action, can recover in this action should be mitigated to the extent of the amount realized by the receiver in the bankruptcy proceeding on.sale of assets of the bankrupt taken by him from defendants pursuant to the order of the Bankruptcy Court by which he was appointed. (Leggett v. Baker, 13 Allen, 470.) Its answer properly presents this partial defense.

The act of bankruptcy, upon which the application for adjudication of Bevins & Co. as bankrupts was predicated, was the making .of the general assignment to' Chamberlain. This within the decisions, though made with no fraudulent intent,, was. a constructive fraud upon the Bankruptcy Act itself, and was an available act of bankruptcy, if made within’four months before the petition was filed. (Cohen v. American Surety Co. 192 N. Y. 227, 236 ; Matter of Gray, 47 App. Div. 554.) The effect of a general assignment, considered in relation to the Bankruptcy Law, is thus stated in Collier on Bankruptcy (7th ed. p. 814):' “A general'assignment, being not only a fraud on the act, but an act of bankruptcy, seems' .to stand on a different footing from fraudulent transfers per se. The assignment being void by operation of law, no title passes and the general assignee does not become an adverse claimant, but at ' most but an agent of the assignor. Property of the bankrupt in his • possession, or that of his agent, can, therefore, be reached summarily by the method suggested in Bryan v. Bernheimer.” Citations of authorities, upon which this generalization of the author is . ■based, are given and seem to support this statement of the law. Title to the. property of Bevins & Co. never having passed to Chamberlain as assignee as against the right of the bankruptcy court through its authorized officer in the bankruptcy proceeding to take possession and control of it, when such control and possession were, taken, the taking jvas not of property of the assignee, but ■ of the- bankrupt estate unaffected by the assignment. It is doubtless true that the. trustee may, for the benefit of the bankrupts’' estate, avail himself of rights and interests accruing to the ádvantage of the estate by reason of the effect of the assignment itself, or of acts done by the assignee in protecting the assigned property, its possession or the title thereto. (Matter of Fish Bros. Wagon Co. 164 Fed. Rep. 553.) It would appear, therefore, that had the receiver in bankruptcy not taken possession of the bankrupts’ assets, the trustee when appointed could at his option, exercised for the advantage of the bankrupt estate, either .have recovered of the defendant the property taken under the attachment, or have recovered its value in the conversion action as assignee of " the right of action which had accrued to Chamberlain, the general assignee. But it clearly appears, and the court has expressly found, ■that the receiver took possession of such property of the bankrupts as was left on the date' of his appointment as receiver. • We are now brought, to a consideration of this action of .the receiver in taking possession of the property of the bankrupts as affecting, if at all, the right of the trustee to recover damages to the full value of the property taken by defendants from the assignee. Immediately upon tiling the petition in bankruptcy the whole assets of the bankrupts came within.the jurisdiction and control of the bankruptcy court to be applied and disposed of as directed by the Bankruptcy Act for the benefit of the bankrupts’ creditors, provided the bankruptcy proceedings should result in an adjudication of bankruptcy. Asserting and effectuating its control of the bankrupts’ assets the court appointed the receiver its officer to take possession of the bankrupts’ assets. It may be true that the receiver is a mere custodian or caretaker of- the bankrupts’ property of which he takes possession. (Collier Bankruptcy [7th ed.], 30; Matter of Oakland Lumber Co., 98 C. C. A. 388; 23 Am. Bank. Rep. 181, 185.) Pending'and prior to the adjudication in bankruptcy title to the bankrupts’ property st'ill remains in them. But the court may take into its custody and control this property pending an adjudication. As against the rights represented in the bankruptcy pi’oceeding the assignee had no title to the bankrupts’ assets. The possession of the bankrupts’ property taken by the receiver is unaffected by any claim which the assignee could make under the general assignment, for that gives him no title and no right of possession as against the receiver, who, it seems, may summarily take the property from liis possession. (Bryan v. Bernheimer, 181 U. S. 188.) If the receiver liad the right summarily to take the bankrupts’ property from the possession of the assignee, it would seem to follow that he had at least án equal right to take from one who had tortiously taken the bankrupts’ property from the assignee, such taker making no adverse claim to -the property. The receiver in the latter case takes not the property of the assignee, but the property of the bankrupt with the title unaffected by the assignment or by the subsequent unauthorized attack upon the possession of the assignee by the tortious taker of the property from him. It. follows' that to the extent of the bankrupts’ property received from the tortious taker and. taken possession of by the receiver the bankrupts’ property lias been restored to, and taken possession of by, the legal chstodian, who was entitled to accept return of the property-by the tortious taker. The receiver took possession of all the property, unlawfully taken by defendants from the assignee under the warrant of attachment, which remained in the hands of the sheriff’s agent at the date of the receiver’s appointment, which with the cash realized on the sales made from stock by the agent and collections of ; accounts for stock sold on credit thereafter made by the receiver comprised nearly all of the property originally taken by them. From the proceeds of the property, which the receiver thus took from defendant, considerable sums have actually been used as directed by subsequent orders of the bankruptcy court, made in the bankruptcy proceedings, in payment of fees and expenses allowed and incurred in the due administration of the bankrupts’ estate by the receiver before the . appointment of plaintiff as trustee. It would seem that these facts, conclusively establish a return of this portion of the property to one legally entitled to accept for the rightful owner return -thereof and a subsequent legal exercise by him of dominion over it by selling it and disbursing part of the proceeds. It is true that the trustee’s title to the bankrupts’ property “ goes back by relation to the date of the commencement of the proceeding ” in. ■ which he. is appointed • trustee. (Collier Bankruptcy [7th ed.], 808.) But, when before his appointment a receiver.-duly appointed has taken . possession of some part or all of the bankrupts’ assets, the trustee. must necessarily accept those assets, from, the receiver in the form which they have legally assumed in the former’s hands.

It follows that defendant was entitled to an allowance in mitigation of damages of the value of the bankrupts’ property returned to and taken by the receiver.

Respondent further insists that appellant cannot shield itself from liability to plaintiff for the full value of the property taken from the assignee under the warrant of attachment by showing in mitigation of damages that some part of the property taken has been again taken into the legal possession of an officer of the court acting in a proceeding begun by it after the conversion was accomplished. In support of this position our attention is directed to the case of Wehle v. Butler (61 N. Y. 245). In that case the court says: “ It has been considered in the courts how far property illegally taken, and subsequently seized and sold under process- by a third party, who was a creditor of the owner, might be used as a defence in an action for the wrong. If the wrongdoer was not in connivance with the third party, it has been held that the fact of the taking by the third party might be used in mitigation of damages.” (Citing cases.) “ But where the party who wrongfully takes the property procures it to be afterward seized and sold under process in his own favor it affords him no protection in any form, and in this case that fact was made sufficiently apparent.” Though appellant was a petitioning creditor, the proceeding instituted was not in effect in its behalf, or for its benefit, but was one directed not against Chamberlain, the general assignee, in whose right this action is brought, but against Bevins & Co. only, its ultimate object being to have the bankrupts’ property applied ratably in satisfaction of the claims of all creditors of the firm. It is not a proceeding the purpose of which, primarily at least, is, as in the case last above cited, to destroy the title to property of one from whom it has been illegally taken, or render it ineffectual in support of his cause of action against the wrongdoer; but it is to have all the property of the real owners, the bankrupts, including the property taken from the assignee, applied in the orderly course of bankruptcy proceedings in payment of the claims against the bankrupts. There would seem to be no reason why the fact that appellant joined in such a petition should preclude its right to set up the facts, already fully set out above, in mitigation of damages in this action any more than it would in a similar case where it appeared an administrator of an estate had been appointed on its petition. It would hardly be reasonable to hold that such fact would preclude the wrongdoer from showing.in mitigation of damages.the fact that he had returned to the administrator the property which he had wrongfully taken from the intestate’s agent.

All concurred. . ,

Judgment.reversed and new trial ordered, with costs to appellant to abide event. ■ 
      
      181 U, S. 188. —Rep.
     