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Opinion of the Court.
of the petition. Michaelis v. Lindeman, 196 Fed. 718; Reed v. Barnett Nat. Bk., supra. See Farmers & Mechanics Bank v. Wilkinson, Trustee, 266 U. S. 503. Any other rule would leave the Bankruptcy Court powerless to deal in an effective way with those holding property for the bankrupt who, pending the bankruptcy proceedings, wilfully dispose of it by placing it beyond the reach of the court. Bryan v. Bernheimer, 181 U. S. 188, 196.
We do not think, however, that respondents stand in any better position with respect to the first debit of $4,516.43 which was made a few days before the filing of the petition. The creditor's agreement, under which respondents were appointed assignees, and which was signed by them and by the Sutter National Bank, provided for only a pro rata distribution among creditors and expressly extended the time of payment of all indebtedness of the bankrupt for one year from the date of the creditors' agreement, which was dated September 15, 1920. The findings of the referee and the supporting evidence leave no doubt that Henderson, who with the assent of the co-assignee, Scannell, was in active control of the account both as an assignee for the benefit of creditors and for the bank as its president, directed this and all later debits to be made in the account, in fraud of the rights of creditors whom he assumed to represent.
There cannot, we think, be any pretense that the bank could assert a lien or counterclaim before the filing of the petition, in the face of its extension of its note by the creditors' agreement (Fifth National Bank v. Lyttle, 250 Fed. 361; Heyman v. Third National Bank, 216 Fed. 685), or at any time, in view of its transfer of the account to trustees for the benefit of creditors under the agreement signed by it. Fitzgerald v. Bank, 64 Minn. 469; Lynman v. Bank, 98 Me. 448. The findings of the referee and the evidence leave no doubt that the surrender or abandonment of their bank account to the bank by the assignees
and its attempted application by the bank to the payment of its note was collusive and without any substantial basis of legal right. At most it was a clumsy, ineffectual and fraudulent effort to divert the funds of the bankrupt to the payment of a favored creditor. While it is now settled that the claim of an assignee for the benefit of creditors, of the right to charge in his account expenses incurred or expenditures made prior to the filing of the petition in bankruptcy, is an adverse claim which cannot be adjudicated in a summary proceeding (Louisville Trust Co. v. Comingor, 184 U. S. 18; Galbraith v. Vallely, 256 U. S. 46), we think the rule cannot be extended to a case such as this where the claim is merely colorable and on its face made in bad faith and without any legal justification.
Nor is it any answer to such a proceeding that the diverted assets are no longer under the control of the assignees. They do not discharge the duty to account by showing that they assented to a cancellation of their bank account as assignees, and its application on an indebtedness of the bankrupt to the bank. The duty of a fiduciary to account for property entrusted to his care is fulfilled by delivery of the property, but if he has put it out of his power to deliver it, he may nevertheless be compelled to account for its worth. United States v. Dunn et al., post, p. 121. He is subject to the summary order of the Bankruptcy Court to restore the property to the bankrupt's estate. If he has sold it or mingled it with his own, he may be compelled by summary order to restore the value of the property thus wrongfully diverted. In re Denson, supra, and see Bryan v. Bernheimer, supra, at
For that reason it is not necessary for us to enquire into the legal consequences which flow from the findings of the referee tending to show that the bank account was at all times under the control of Henderson, acting in
the dual capacity of assignee of the debtor and president of the creditor bank, or to ascertain whether such a situation falls within the rule that one acting in one capacity, subject to a summary order of the court, may not relieve himself from the duty to pay over money on a summary order by setting up that, although the money is still under his control, he holds it in a different capacity. See Smith v. Longbottom & Son, 142 Fed. 291. We rest our decision rather on the duty of assignees, for the benefit of creditors, to account in a summary proceeding for the property which they have received within four months of the bankruptcy and to make restitution of the value of the property of the bankrupt which they have dissipated without a colorable claim of right.
On the argument, respondents relied upon numerous cases in the District Courts and Circuit Courts of Appeals to the effect that the court will not in a summary proceeding make an order requiring a bankrupt to pay over money to his trustee unless the bankrupt's ability to comply therewith is plainly and affirmatively shown. American Trust Co. v. Wallis, 126 Fed. 464; In re Berman, 165 Fed. 383; In re Sax, 141 Fed. 223; In re Goldfarb Brothers, 131 Fed. 643; Epstein v. Steinfeld, 210 Fed. 236; In re Nisenson, 182 Fed. 912; In re Stern, 215 Fed. 979. But we think that a bankrupt who is shown to have turned over generally his assets and property to the receiver or the trustee in bankruptcy, is in a different situation from one not a bankrupt who is under a duty to account in a summary proceeding. A court of bankruptcy should not make useless orders. If the bankrupt has turned over his property generally to the Bankruptcy Court and is not shown to possess or control the specific property which is the subject of summary order, there may be a presumption that any order will be groundless. No such presumption obtains with respect to respondents. They have not shown that they are insolvent or in other
respects are unable to comply with the order of the District Court.
The judgment of the District Court was proper. The judgment of the Circuit Court of Appeals is
UNITED STATES v. DUNN ET AL.
APPEAL FROM THE CIRCUIT COURT OF APPEALS FOR THE
No. 120. Argued March 13, 1925.-Decided April 13, 1925. 1. Parties who take a lease of a ward's property under a secret
agreement with the guardian making the lease that it shall inure in part to his personal benefit, hold the lease, and if that be transferred to a purchaser, hold the proceeds they acquire from it, as trustees ex maleficio for the ward without regard to whether the ward was actually damaged by the fraud of the guardian.
P. 130. 2. In such cases, the ward may, at his option, follow the fraudu
lently diverted trust res until it reaches the hands of a bona fide purchaser for value, or claim the proceeds of the sale or other disposition of it in the hands of the person who fraudulently acquired it from the fiduciary and in the hands of that person's
donees. P. 132. 3. A suit to establish an equitable claim to specific property may
be prosecuted to subject the proceeds of that property to the trust, if it, develop in the course of the trial that the defendant has conveyed it away in violation of his equitable duty to the plain
tiff. P. 133. 4. The guardian of an Indian leased his ward's land partly
in consideration of a secret interest for himself agreed to by his lessees; and afterwards, in a compromise between the lessees and one who had obtained a lease of the same land from the Indian's curator, the guardian's lease was executed by the curator also and, having been approved by a County Court and by the Secretary of the Interior, was assigned to a corporation, shares of which were issued to the respective lessees and parties claiming under them, the assignment of the lease being the sole consideration for the shares distributed to the lessees of the guardian. Held, (a) that a suit by the United States, on behalf of
Argument for Appellees.
the Indian, to set the lease aside or for alternative relief, could be prosecuted to reach the shares, or the proceeds thereof, in the hands of the fraudulent lessees and their donees, including shares bought by these lessees from the guardian, even though relief could not be had as against the corporation and bona fide purchasers for value; and (b) that an agreement by the plaintiff after defeat in the District Court, not to prosecute the appeal as against the corporation and bona fide shareholders, did not
prevent this relief as against the others. P. 135. 5. In a suit praying relief from the execution and legal effects of
a lease because it was procured by the fraud of the lessees, the lessees can not, while claiming under it and holding the benefits derived from it, deny the authority of the lessor to make it.
P. 135. 6. One who claims the benefit derived from a breach of trust in
which he actively participated and who shows no prejudice from a delay of six years in bringing suit to compel him to account, can not
complain of laches. P. 136. 288 Fed. 158, reversed in part; affirmed in part.
APPEAL from a decree of the Circuit Court of Appeals affirming a decree of the District Court which dismissed a bill brought by the United States, on behalf of a fullblooded Choctaw Indian, a minor, to cancel for fraud an oil and gas lease on the Indian's land in Oklahoma, or, in the alternative, to affix a trust on shares held by defendants in a corporation, also a defendant, to which the lease had been assigned.
Messrs. Walter A. Ledbetter and W. W. Dyar, Special Assistants to the Attorney General, for the United States. The Solicitor General was on the briefs.
Messrs. George S. Ramsay and William G. Davisson, for appellees. Messrs. William B. Johnson, Hugh W. McGill, Edgar A. de Meules, and Villard Martin were on the briefs.
Eaves was the duly appointed, qualified, legal and acting curator or guardian of the estate, and as such was the only person empowered by law to execute an oil lease