Frank v. Vollkommer, 205 U.S. 521 (1907)

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Frank v. Vollkommer

No 184
Argued January 26, 28, 1907
Decided April 29, 1907
205 U.S. 521

ERROR TO THE SUPREME COURT

OF THE STATE OF NEW YORK

Syllabus

The possession of a temporary receiver in bankruptcy of the proceeds of property, upon which the bankrupt had fraudulently imposed a lien, deposited as a special fund to await the further order of the court, did not affect the rule that, under the Bankruptcy Act of 1898, prior to the amendment of February 5, 1903, 33 Stat. 797, the state court in which an action could have been brought prior to the bankruptcy to set aside the lien had exclusive jurisdiction of a similar action brought by the trustee. The amendment of February 5, 1903, gave the bankruptcy court in such a case concurrent, not exclusive, jurisdiction.

Where it was necessary that a trustee in bankruptcy should represent judgment creditors in order to attack the validity of a chattel mortgage given by the bankrupt, if the state court has set the mortgage aside and the record shows that all the proceedings in the bankruptcy court were in evidence in the state court, it will be presumed that the trustee represented the necessary claims of creditors, although the evidence is not returned to this Court.

109 App.Div. 914 affirmed.

This was a suit commenced in December, 1902, in the Supreme Court of New York for the County of Kings by Joseph Vollkommer, Jr., as trustee in bankruptcy of the estate of Jacob Vogt, bankrupt, against Solon L. Frank and Samuel Frank, doing business as S. L. & S. Frank, and Jacob Vogt, to set aside an alleged chattel mortgage on certain horses, harness, wagons, etc., given by Vogt to defendants Frank, April 16, 1902, as fraudulent, and intended to hinder, delay, and defraud creditors.

The mortgagees had taken possession, and creditors immediately thereafter filed petitions in bankruptcy against Vogt in the District Court of the United States for the Eastern District of New York, whereupon and on June 30, 1902, one Stoutenburgh was appointed temporary receiver and duly qualified as such.

As alleged in the complaint, by agreement between the Franks and the petitioning creditors, which was approved by the district court and entered of record therein July 2, A.D. 1902, it was provided that the property in question should be sold at public auction on July 3 by the temporary receiver;

that the expenses of the sale be paid out of the proceeds thereof; that the said temporary receiver deposit the net proceeds of said sale at the People’s Trust Company of Brooklyn as a special fund, there to await the further order of the court upon due notice to all creditors who have or may hereafter appear; that the lien, if any, of the alleged chattel mortgage of the said defendants Frank be transferred to and attached to said special fund or deposit in lieu of and to the same extent as if attached to the said property thereinbefore directed to be sold; that, in pursuance thereof, said sale was had on the third of July, A.D. 1902, and the net proceeds thereof, amounting to about $5,482.47, were, on or about the 10th day of July, 1902, duly deposited in the People’s Trust Company of Brooklyn, as provided by said agreement.

July 10, A.D. 1902, Vogt was duly adjudicated an involuntary bankrupt, and on November 12, A.D. 1902, Vollkommer, Jr., was appointed trustee in bankruptcy of Vogt, duly qualified November 21, and entered upon the duties of his office as trustee. He thereafter filed this complaint against the Franks and Vogt, setting up the proceedings, and averring that defendants Frank claimed a lien upon the special fund to the whole extent thereof, which constituted a cloud on plaintiff’s title to the fund, and he demanded judgment that the chattel mortgage be declared null and void, and cancelled and discharged of record, and that the special fund be declared free of the encumbrance of the alleged chattel mortgage, and from any lien or claim by the Franks under the mortgage or otherwise. The trial court held that the mortgage was made "with the intent and purpose of said Vogt and said defendants Frank to hinder, defeat, defraud, and delay said Vogt’s creditors." And decreed the annulment of the mortgage, and that it was

no lien upon the moneys, viz., $5,481.47, deposited on July 9th, 1902, by Arthur T. Stoutenburgh, temporary receiver, in the People’s Trust Company of Brooklyn, New York, under an order of the District Court of the United States for the Eastern District of New York, made July 2d 1902.

The case was carried to the appellate division of the supreme court and the decree was affirmed. Leave to appeal to the court of appeals was denied by the appellate division, and subsequently by an associated judge of the court of appeals. This writ of error was then allowed.