APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE EASTERN DISTRICT OF NEW YORK.
MR. JUSTICE BLATCHFORD delivered the opinion of the court.
This is a bill in equity, filed in the Circuit Court of the United States for the Eastern Destrict of New York, by Charles Jones, as assignee in bankruptcy of David M. Smith, against David M. Smith, Ella F. Willetts, Richard S. Jones, and Albert Slauson, and is a creditors' bill to set aside several distinct transfers of property to several of the defendants, alleged to have been made by Smith in the year 1874, in fraud of the rights of creditors. The bill was filed September 11, 1886. The answers set up the statute of limitations of the State of New York of six years, and the bankruptcy statute limitation of two years. Albert Slauson, Austin M. Slauson, and Robert H. Moses, composing the firm of A. Slauson & Co., were added as defendants to the bill. They demurred to it, and the demurrer was overruled. The opinion of the court overruling the demurrer is reported in 33 Fed. Rep. 632.
Replications to the answers were filed, proofs were taken, and the court, held by Judge Lacombe, dismissed the bill. His opinion is reported in 38 Fed. Rep. 380. The assignee, Charles Jones, appealed to this court. Thomas E. Pearsall has been appointed his successor, and has taken his place as appellant in this suit. Pending the appeal, Richard S. Jones, one of the appellees, has died, and Frances A. Jones, as his sole executrix, has been admitted as appellee in his place.
The conveyances sought to be set aside are those of three separate parcels of real estate to the several defendants.
David M. Smith was adjudged a bankrupt in 1878, and was discharged from his debts in June, 1879. The conveyances complained of were all made and recorded prior to June 1, 1875. Smith's petition in voluntary bankruptcy was filed August 31, 1878. The assignment in bankruptcy to Charles Jones was made February 10, 1879.
The opinion of the Circuit Court dismissing the bill considered, first, the New York state statute of limitations, § 382 of the Code of Civil Procedure, subdivision 5, which provides that there must be commenced within six years after the cause of action has accrued "an action to procure a judgment other than for a sum of money, on the ground of fraud, in a case which, on the thirty-first day of December, 1846, was cognizable by the court of chancery," and that "the cause of action in such a case is not deemed to have accrued until the discovery by the plaintiff, or the person under whom he claims, of the facts constituting the fraud." The Circuit Court held that this suit was one of the class provided for by the terms of § 382, subdivision 5, and that, if the plaintiff would be barred of his relief in the state court by lapse of time, he would be barred in the federal court also, citing Burke v. Smith, 16 Wall. 390, 401; Clarke v. Boorman's Executors, 18 Wall. 493, 509; Wood v. Carpenter, 101 U.S. 135, 138; Kirby v. Railroad Co., 120 U.S. 130, 138. The Circuit Court further said, that the assignee in bankruptcy takes from the bankrupt all the rights of property and of action previously held by him, but that the right to maintain an action such as the present one does not come to the assignee from that source; that a transfer made to defraud creditors is valid between the parties to it; that the debtor has no right of action to set it aside; and that, therefore, no such right passes to the assignee as part of the debtor's estate.
Section 5046 of the Revised Statutes of the United States, which is an embodiment of § 14 of the act of March 2, 1867, ch. 176, (14 Stat. 522,) provides as follows: "All property conveyed by the bankrupt in fraud of his creditors; all rights in equity, choses in action, patent rights, and copyrights; all debts due him, or any person for his use, and all liens and
securities therefor; and all his rights of action for property or estate, real or personal, and for any cause of action which he had against any person arising from contract, or from the unlawful taking or detention, or injury to the property of the bankrupt; and all his rights of redeeming such property or estate; together with the like right, title, power, and authority to sell, manage, dispose of, sue for, and recover or defend the same, as the bankrupt might have had if no assignment had been made, shall, in virtue of the adjudication of bankruptcy and the appointment of his assignee, but subject to the exceptions stated in the preceding section," which are exemptions, "be at once vested in such assignee."
Section 5057 of the Revised Statutes, which is an embodiment of § 2 of the act of March 2, 1867, ch. 176, (14 Stat. 518,) provides as follows: "No suit, either at law or in equity, shall be maintainable in any court between an assignee in bankruptcy and a person claiming an adverse interest touching any property or rights of property transferable to or vested in such assignee, unless brought within two years from the time when the cause of action accrued for or against such assignee. And this provision shall not in any case revive a right of action barred at the time when an assignee is appointed."
The Circuit Court remarked, that by operation only of the express terms of § 5046, the right of action which, before the adjudication in bankruptcy, belonged to the creditors, was taken from them and given to the assignee; and that, when the assignee asserted such right, he claimed under the creditors and not under the bankrupt, citing Brownell v. Curtis, 10 Paige, 210; Jones v. Yates, 9 B. & C. 532; Van Heusen v. Radcliff, 17 N.Y. 580; Bradshow v. Klein, 2 Bissell, 20; Kane v. Rice, 10 ...