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of the western lands. Some time during the year 1903 the bankrupt erased in pencil the credits to himself for salary and services, and made a memorandum of charges for having given warranty deeds to purchasers amounting to $15,300. He had no claim against the stockholders of said corporation which warranted such a charge. Between June, 1903, and the adjudication Mr. Coffin loaned from said accumulated funds to the L. D. Brown & Son Company, of which he was president and treasurer, $6,000, taking as collateral security certain silk goods, and received three notes of $2,000 each, dated in June, September, and October, respectively, made payable to him as trustee. Said corporation has a receiver, and by him two of these notes were paid to said Coffin after adjudication, by a New York draft payable to him as trustee. This draft and the third note have gone into the possession of the trustee in bankruptcy under the referee's orders herein attacked. On November 14, 1903, Mr. Coffin drew out his entire deposit-about $4,800—added thereto $1,000 which he had in a drawer at the office of the assurance company, and $1,915.86, which had come, like former remittances, in the shape of a personal draft from the western agent, and with such proceeds obtained a New York draft to himself as trustee for $7,715.86, which has also, under said orders, been turned over to the trustee in bankruptcy. Since June 2, 1902, the bankrupt has done many things which indicate that he understood that he was acting in his management of the western property in the interest and for the benefit of the stockholders who had made the loans as described. Such a situation existing, Mr. Coffin was adjudicated on his own petition December 2, 1903, and a trustee was chosen by the creditors. Section 10 of the bankrupt act of Tuly 1, 1898 (chapter 541, 30 Stat. 565 [U. S. Comp. St. 1901, p. 3451]), provides what property shall be vested by operation of law in the trustee, and specifies in subdivision 5:

“Property which prior to the filing of the petition he could by any means have transferred or which might have been levied upon or sold under judicial process against him."

The property here in controversy is of two kinds: (1) Western real estate; (2) proceeds of sales of such estate, which have been treated as hereinbefore described. Strictly construed, the section referred to applies to both. The petitioner, however, wishes to avoid such construction by invoking the principle that a trustee in bankruptcy does not take as an innocent purchaser, and that the bankrupt's propei shall be held by him subject to all valid liens, claims, and equities. He claims to have established by the facts in this case that a resulting trust existed prior to the adjudication between the bankrupt and the stockholders of the Nebraska corporation. His petition, after setting forth the facts upon which he relies and the orders of the referee, goes on to say that the beneficiaries, who are the stockholders in the Nebraska corporation, expect him to go on with the execution of his trust, and to distribute what he now has and what he may get, and therefore prays that the orders of the referee may be vacated, and that the trustee in bankruptcy forthwith proceed to reinvest him with all his rights as a trustee for the stockholders of which said orders devested him.

In the course of the hearing before the court the matter has assumed a new shape. Very little is heard now about Mr. Coffin, and much about the so-called "beneficiaries," and the demand now is, not that the trustee in bankrutpcy shall turn the property over to Mr. Coffin, but, admitting his possession of the property under the referee's orders to be legal, that he shall proceed to convert it into cash, and to distribute it among the stockholders of the Nebraska corporation, in accordance with the alleged trust formerly existing between them and the bankrupt, to the exclusion of the general creditors. No such demand appears upon the record, and if such action were proper, it could only be taken after a complete reorganization of the pleadings. On the proofs before the referee, which furnish the only basis for the court's action, it is difficult to understand the line of reasoning which is supposed to lead to such a conclusion.

Passing the question of whether a trustee in bankruptcy should depart from his usual duties so far as would be necessary to enable him to execute such a trust, we are met at the outset with the question as to whether, at the time of adjudication, a trust of any kind, express or resulting, existed between the bankrupt and the stockholders in the Nebraska corporation. It was the possibility that a trust relation existed which influenced the stockholders to quitclaim their rights to Mr. Coffin, and to emphasize such action by consenting to a judgment, and to again cement it by permitting themselves to be forever enjoined from attacking the title, either while in the hands of Coffin, or his heirs or his grantees. It is not conceivable that the stockholders would have come into this condition if in June, 1902, there had been a suspicion that within a couple of years Mr. Coffin would have been forced into his present position. They gave faith and credit to him as a man of high character, and in this they were absolutely right; but they did more than that. Beyond his integrity, which is unquestioned and unquestionable, they relied upon his business ability and financial soundness. From no other point of view can we imagine them as consenting to a situation which gave other creditors an opportunity to satisfy their debts out of the western holdings. If Mr. Coffin had not been adjudicated a bankrupt, and no general creditor had attempted to satisfy his debt out of those holdings, and the stockholders had desired to make a change in the situation, we are not now concerned as to what the outcome might have been, or as to what course the stockholders ought to have pursued. A casual glance would lead one to think that it might have been necessary to go to the district court of Adams county, Neb., and there seek to be relieved from the yoke which they had permitted that court to place about their necks; but we will not pursue that thought. Since they have estopped themselves by deed and judgment from attacking Coffin's title when he should make a transfer, how can they hope to avoid a transfer made by operation of law from Coffin to his trustee in bankruptcy? He was adjudicated on his own petition, and therefore his voluntary act set in motion the machinery of the law, which of its

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inherent force produced the transfer of title from him to his trustee. Such transfer, it is true, carries with it equities which had attached prior to adjudication, but it cannot carry an equity which the beneficiaries had of their own volition already relinquished.

Counsel for the beneficiaries admit that the trustee in bankruptcy is as well off, at least, as a sheriff would have been who might have held an execution based upon a creditor's judgment against Coffin prior to bankruptcy. The beneficiaries have placed themselves in such a position that they could not have assailed such an execution. The Congress has not made a law under which the property of A. can be taken to pay B.'s debt. The law says that a man's entire property shall be applied to the liquidation of his debts, and in the case before us the stockholders have no right to say that the title to the western real estate is not solely, entirely, and completely in the said Coffin. The truth is that the stockholders had such implicit confidence in Mr. Coffin that they both signed and confessed away all their rights, so that immediately after the decree they could not have compelled him to do the right thing had he been otherwise disposed. They voluntarily cut the cord which attached their equities to the property.

There is nothing else to discuss, except the claim made by the stockholders that Mr. Coffin recognized his trust relationship with theni after the decree of June 2, 1902. The testimony shows that after June 2, 1902, Mr. Coffin did exactly what good conscience would lead any man to do. The property was absolutely his, and whenever he obtained any proceeds therefrom, after mingling them with his other funds—an indiscretion which perhaps ought to be pardoned—he kept strict account, and applied an equal amount for the purpose to which it was understood that such proceeds were to be applied. The beneficiaries .understood this, and knew exactly what he was doing. This testimony seems to have been entirely irrelevant to the issues at hand. Mr. Coffin could not, if he would, have restored or recreated a trust relationship which had been put at rest by the decree. He and the stockholders acted under the decree and in obedience to it. Mr. Coffin's later actions would have been enough to give them power to compel him to act in their interest, if it can be imagined that he would have refused. Now the trustee in bankruptcy has the property. His position is not precisely the one which Mr. Coffin occupied prior to the adjudication. He represents general creditors, and the counsel have made an apt illustration when they suggest the attitude of a sheriff pressing an execution. Counsel say that it was not the intention of Mr. Coffin and the stockholders that the legal and equitable titles should merge in Mr. Coffin under the Adams county court decree, but rather that Mr. Coffin should hold both legal and equitable titles in trust for the stockholders. This amounts to saying that the proceedings in the district court of Adams county were intended as a subterfuge to mislead and misguide prospective purchasers of the western lands. That was not the intention of the parties. The acts of Mr. Coffin after the decree undoubtedly put the stockholders in a position where they could, if there had been time, have established such relation; but in that event the western property would have again become clouded, so that a new decree or other device extinguishing the trust relationship would have been a necessity.

In closing it may be well to repeat that this decision simply confirms the orders of the referee, which it now seems that the petitioner who sought this review accepts.

The opinion has been prolonged for the purpose of indicating the attitude which the court will be apt to take whenever in its judgment the time shall be ripe therefor.

In re MOORE.

(District Court, S. D. Georgia, S. W. D. June 27, 1906.) BANKRUPTCY-PROPERTY PASSING TO TRUSTEE-DEED GIVEN AS SECURITY.

An instrument given as security for a loan, and purporting to be a deed conveying real estate, but which was not accompanied by a bond for reconveyance, as required by Civ. Code Ga. 1895, $ 2771 et seq., to constitute a statutory security deed, nor by a transfer of possession of the property, and which contains a power of sale, a recital that it is given for the purpose of securing a debt, and other contradictory provisions, constitutes a common-law mortgage, which does not pass the title, and is enforceable in the courts of the United States as a lien only; and where the property remained in the possession of the debtor until his bankruptcy, and was surrendered to his trustee, it is subject to sale as a part of the

assets of his estate. In Bankruptcy. On petition for review of referee's decision. The following is the opinion of the referee:

Clarence H. Leavy, the trustee in bankruptcy, applied to this court for leave to sell all of the assets of said estate. The application was regularly heard, and at the hearing one B. P. Jones, scheduled as a creditor of said bankrupt, appeared by his counsel, and filed his objections to the sale of that part of the property set out in his objections, and alleged that the same is not the property of the bankrupt, but that objector claims title thereto under a certa'in deed executed by the bankrupt to him on the 5th day of April, 1904, copy of the deed being attached to his objections and made a part thereof. Objector asserts that the said deed was executed and delivered for the purpose of securing the payment of a certain note of even date with the deed for the sum of $9,540, and that by the terms of the deed the title to the property described therein passed into him. He further alleges that the property claimed does not exceed in value the sum of $3,500, and that it is burdensome and without value to the trustee for the benefit of the general creditors. To these objections counsel representing the trustee has demurred, alleging that the instrument claimed to be a deed conveying the title to him is not a deed, but simply a mortgage, and furthermore, that if the instrument is held to be a deed, it is void for usury, etc. Considerable testimony has been heard on these objections, and as to the value of the property claimed by Jones. The evidence satisfactorially establishes the fact that the property claimed is worth a sum substantially in excess of the amount due him on account of the loan secured by the instrument in question. The court therefore concludes that the property is not burdensome in character, and that the trustee of said estate has an interest therein for the benefit of the general creditors of the estate.

The more difficult question to determine, however, is: Is the instrument offered in evidence in behalf of the objector a mortgage or a deed? These facts are undisputed: The paper was given to secure a present loan, and was made as security for debt. The conveyance was not drafted in accordance with, or intended to operate as provided by, Civ. Code Ga. 1895, § 2771 et seq.; no bond to reconvey being given, and no reference made in the instrument to the Code section supra. The possession of the property remained in the grantor, and upon the filing of the petition in involuntary bankruptcy by the creditors of the bankrupt the property was seized by the marshal, and passed to the trustee of the estate as a part of the assets of the bankrupt. The wording of the paper is somewhat contradictory, the word “mortgage" being used in the fifth paragraph thereof in this connection, “which is made a part of this mortgage," and in the seventh paragraph this language is used: “This conveyance is intended to pass the title of the property herein described into the said party of the second part, and for the purpose of securing the prompt payment of the following described note, to wit.” There is a power of sale embraced in the instrument, which provides that upon the failure of the grantor to promptly pay the note to secure which the deed was given, that the grantee should have the right to sell the property at public outcry, after due advertisement, and to make the purchaser or purchasers of the property good and sufficient title in fee simple to the same, thereby divesting out of Moore (the bankrupt) all right and equity which he may have had in said property, and vesting the same in the purchasers. The right and equity which the instrument declares shall be vested in the purchaser or purchasers is the "fee-simple title to the same." Under the peculiar law of the state of Georgia, a debtor may, by a deed to secure debt, transfer the legal title to his creditor as security for a debt; the creditor making, contemporaneously with the execution of the deed, a bond to reconvey the property upon the payment of the indebtedness. In such a case, where the deed purported upon its face to have been made for the purpose of securing a debt, and reciting that it was executed under the provisions of the Code sections relating to deeds to secure debt, although it did not fall strictly within the provisions of said sections, because no bond to reconvey was given, it has been held that the instrument passed title to the grantee. Williamson v. Orient Ins. Co., 100 Ga. 791, 28 S. E. 914. But it was admitted by the learned counsel for the objectors that the instrument in question cannot be classified as a deed to secure debt under the provisions of the Georgia law. Thereupon arises the pertinent inquiry, What is the paper? It is not an absolute deed, because there was no transfer of possession. It is not a security deed under the Georgia law, it is admitted. It therefore must be a common-law mortgage. “If the instrument made by W. T. Alexander be equivalent to a common-law mortgage, nevertheless, in the United States court it can be enforced in equity only.” In that view it would be the creation of a trust estate, with a trust resulting to the mortgagor on the discharge of the debt. This appears to be substantially the effect of the state statutes quoted above. It is true that the statute declares that the instrument provided for "shall be held by the courts of this state to be an absolute conveyance, with right reserved by the vendor to have said property reconveyed to him upon the payment of the debt or debts intended to be secured.” Code 1882, $ 1969. A mortgage at common law is nothing more. Conrad v. Insurance Co., 1 Pet. 442, 7 L. Ed. 189. The statute declares that the instrument is "not a mortgage," but this evidently means a mortgage by the law of Georgia, which does not convey title, and is merely a security for debt. Code 1882, § 1954. Whatever the instrument may be termed by the state statute, or howsoever it may be enforced under the blended practice of the state, a court of the United States cannot fail to perceive in it the creation of a trust for creditor and debtor, the enforcement of which is within the exclusive jurisdiction of equity" (Alexander v. Mortgage Co. [C. C.] 47 Fed. 135); and the United States courts have repeatedly held the security deed, termed by the Georgia law "an absolute conveyance of title," a mere mortgage. “The promissory note, the deed, and the bond to reconvey evidence one transaction, must be construed together, and expressly show that the conveyance of the land was to secure the payment of the debt evidenced by the note. It is too plain to admit of argument that the transaction was a borrowing of money and giving a lien on land to secure the loan. This is a mortgage." Ray v. Tatum, 72 Fed. 112, 18 C. C. A. 466.

It is urged for the defendant with great earnestness that the instrument is called a "deed"; that it "grants, bargains, aliens, conveys, and confirms;" that

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