and must recover all sums of money due the bankrupt. (2) The trustee must see to it that such property is made to yield the highest possible return, and that it is distributed in accordance with the provisions of the bankrupt act among the various classes of creditors. Of course, all of these acts must be done under the supervision and by the authority of the federal court, or, as is commonly the case, under the immediate control of an officer of the federal court called the referee in bankruptcy.

A casual survey of the work which must be accomplished by the trustee might indicate that the legal problems connected therewith. would be relatively simple and perhaps few in number. Such is not necessarily the case. There are many bankruptcy proceedings which are rushed through with but little difficulty, but there are others where the legal aspects become numerous and very involved. Note the situation which may be presented: A large business enterprise is suddenly stopped in the administration of its affairs. All the legal ties which connected the owner to all other persons with respect to the properties are cut, or, if not completely severed, they are materially altered. An attempt is then made to introduce another person, the trustee, not only into the position which the bankrupt occupied, but also, to some extent, into the position occupied by creditors. All of the elaborate provisions of the Bankruptcy Act are simply devices for bringing about such a condition of affairs that the ultimate ends of the proceeding may be realized. If a bankrupt owed only simple contract debts, and his property was not incumbered, and if he had not theretofore made fraudulent conveyances or preferential transfers, and if he had no incomplete business transactions outstanding, settlement of the estate would be relatively easy. But this situation is not always present. The bankrupt's property may be mortgaged. He may have borrowed money and pledged property as security. He may have various kinds of sureties. He may have been fighting bankruptcy for some time, and accordingly may have made many preferential transfers and even fraudulent conveyances. Various creditors may have obtained judgments against him, and the proceedings thereunder may be in various stages of development. Innumerable incomplete transactions, of purchases and of sales of property, may be discovered by the trustee. The properties, the creditors, and various business transactions still pending, may be scattered over many states. There can be little doubt, therefore, but that the settlement of some bankrupt estates may not only call for a high order of business judgment, but also for a knowledge of a wide range of the law in some of its most intricate phases. Very little may here be attempted in discussing the problems that may arise. during the administration of a bankrupt estate. A few of the more prominent points, however, will be treated.

The position of the trustee with respect to the administration of the bankrupt estate may be dealt with conveniently under three heads: (a) Methods of obtaining control over the bankrupt's

property; (b) extent of the right of the trustee to recover property which may be, wholly or partially, under the control of other persons; (c) payment of claims.

(a) TITLE TO BANKRUPT'S PROPERTY VESTS IN THE TRUSTEE In order to confer upon the trustee the power to control and to dispose of all of the bankrupt's property, the Bankruptcy Act operates to take the ownership of the property from the bankrupt and vests it in the trustee. Section 70 provides as follows: (a) The trustee of the estate of a bankrupt, upon his appointment and qualification, and his successor or successors, if he shall have one or more, upon his or their appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, except in so far as it is to property which is exempt, to all (1) documents relating to his property; (2) interests in patents, patent rights, copyrights, and trade marks; (3) powers which he might have exercised for his own benefit, but not those which he might have exercised for some other person; (4) property transferred by him in fraud of his creditors; (5) property which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him: Provided, that when any bankrupt shall have any insurance policy which has a cash surrender value payable to himself, his estate, or personal representatives, he may, within thirty days after the cash surrender value has been ascertained and stated to the trustee by the company issuing the same, pay or secure to the trustee the sum so ascertained and stated, and continue to hold, own, and carry such policy free from the claims of the creditors participating in the distribution of his estate under the bankruptcy proceedings, otherwise the policy shall pass to the trustee as assets; and (6) rights of action arising upon contracts or from the unlawful taking or detention of, or injury to, his property.

It is necessary, of course, that the statute shall fix the precise moment at which title to the bankrupt's property shall vest in the trustee, and the date fixed is the date on which the court enters the order of adjudication. However, at that moment there will never be a trustee in bankruptcy who can take title, because the trustee will not be appointed until the first meeting of creditors, which meeting will not occur until several days later. Accordingly, it is held that, after adjudication and until the trustee is appointed and qualified, the bankrupt still retains the title, although it is a title. held in trust for creditors.18

The remaining portion of the section specifies in detail certain kinds of property and then employs clauses of sweeping character for the purpose of including all other kinds of valuable things and vesting the title thereto in the trustee. Clause 5 is the principal.

18 Johnson v. Collier, 222 U. S. 538, 32 Sup. Ct. 104, 56 L. Ed. 306 (1911)..

one. Instead of attempting to enumerate all of the various kinds of property and of interests in property, Congress selected language here which already had a definite meaning in the law. It is perfectly obvious that courts frequently have been called upon to decide what kinds of interests in property could be transferred and what kinds of interests could be sold by judicial process. Generally, but not always, any interest capable of transfer was likewise capable of sale under execution but not always under common law execution. The two phrases taken together are probably as all-inclusive and as satisfactory from a standpoint of policy as could well be devised. The use of these clauses makes it unnecessary to specify the numerous kinds of divided interests in property, as, for example, the respective interests of mortgagor and mortgagee, pledgor and pledgee, bailor and bailee, the interests of tenants in common, future interests in property, etc. There are some kinds of future interests, or rather possibilities, that are so contingent that they are not transferable, nor may they be levied upon. Such interests, of course, would not pass to the trustee. The clause, however, may be taken as including practically every interest relating to property which one deems valuable from a business standpoint. It is not to be supposed that the clause is so definite in meaning that no controversy arises in regard to its interpretation, for frequently such questions are presented. For example, the question whether a seat in a stock exchange was property within the meaning of this section was carried to the Supreme Court of the United States for settlement, and it was decided that such a right was property and that such right passed to the trustee.19 And there are many other questions of like difficulty that have arisen. It follows, also, that the trustee will not take title to property held by the bankrupt as trustee for other

persons.

20

Where the bankrupt does not have complete ownership in property, persons who possess interests in it are, of course, protected to the extent of their respective rights. Third parties who hold liens upon the bankrupt's property are protected under some circumstances. Section 67 (d) provides: Liens given or accepted in good faith and not in contemplation of or in fraud upon this act, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to import notice, shall, to the extent of such present consideration only, not be affected by this act.

Section 70 (a), clause 6, includes valuable rights that are not true rights with respect to property. For the most part they are contract rights. It is under this clause that the trustee proceeds to collect debts due the bankrupt. Notice that the clause gives to the trustee the right to recover for some, but not all, kinds of

19 Page v. Edmunds, 187 U. S. 596, 23 Sup. Ct. 200, 47 L. Ed. 318 (1903). 20 In re Coffin, 152 Fed. 381, 81 C. C. A. 507 (1907).

torts. The right to sue for damages to the person does not pass to the trustee.

Clause 4 confers upon the trustee a right which was not possessed by the bankrupt. While a fraudulent conveyance may be treated as if it had not been made by creditors of the fraudulent grantor as against all persons not innocent purchasers, the fraudulent grantor cannot recover his property. Clause 4, therefore, gives to the trustee rights with respect to fraudulent conveyances which creditors possessed under state statutes. Section 70 (e) further amplifies this provision as follows: The trustee may avoid any transfer by the bankrupt of his property which any creditor of such bankrupt might have avoided, and may recover the property so transferred, or its value, from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of adjudication.

**

The title acquired by the trustee is not only the title possessed by the bankrupt, but his rights are farther extended by the provisions of section 47 (a) (2) as follows: * And such trustees, as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings thereon; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied.

(b) RECOVERY OF PROPERTY AND DISSOLUTION OF LIENS There are three general situations where legal proceedings are likely to be necessary in order to recover possession of property or to remove attaching liens: (1) Fraudulent conveyances; (2) preferences; (3) liens other than those which operate as preferences. The trustee is not empowered to recover all property fraudulently conveyed nor all preferences. Nor may the trustee take property of the bankrupt free from all liens. The general principle is that all bona fide purchasers of property fraudulently conveyed, and of property transferred as preferences and bona fide holders of liens may retain their interests free from the claims of the trustee, even when such interests were acquired within the four months' period, and all such transferees who were not bona fide purchasers will lose their interests if acquired within the four months' period, but if such interests arose before the four months' period began to run the trustee cannot recover such interests even though the holders thereof were not bona fide purchasers. Interests acquired bona fide during the four months' period are protected. Interests acquired not bona fide during the four months' period may be dissolved by action of the trustee. Interests acquired not bona fide before the commencement of the four months' period cannot be recovered by the trustee. These results are accomplished by the following sections:

Section 67 (e): That all conveyances, transfers, assignments, or incumbrances of his property, or any part thereof, made or given by a person adjudged a bankrupt under the provisions of this Act subsequent to the passage of this Act and within four months prior to the filing of the petition, with the intent and purpose on his part to hinder, delay, or defraud his creditors, or any of them, shall be null and void as against the creditors of such debtor, except as to purchasers in good faith and for a present fair consideration; and all property of the debtor conveyed, transferred, assigned, or encumbered as aforesaid shall, if he be adjudged a bankrupt, and the same is not exempt from execution and liability for debts by the law of his domicile, be and remain a part of the assets and estate of the bankrupt and shall pass to his said trustee, whose duty it shall be to recover and reclaim the same by legal proceedings or otherwise for the benefit of the creditors. And all conveyances, transfers, or incumbrances of his property made by a debtor at any time within four months prior to the filing of the petition against him, and while insolvent, which are held null and void as against the creditors of such debtor by the laws of the State, Territory, or District in which such property is situate, shall be deemed null and void under this Act against the creditors of such debtor if he be adjudged a bankrupt, and such property shall pass to the assignee and be by him reclaimed and recovered for the benefit of the creditors of the bankrupt.

Section 60 (b): If a bankrupt shall have procured or suffered a judgment to be entered against him in favor of any person or have made a transfer of any of his property, and, if at the time of the transfer, or of the entry of the judgment, or of the recording or registering of the transfer if by law recording or registering thereof is required, and being within four months before the filing of the petition in bankruptcy or after the filing thereof and before the adjudication, the bankrupt be insolvent and the judgment or transfer then operate as a preference, and the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such judgment or transfer would effect a preference, it shall be voidable by the trustee and he may recover the property or its value from such person."

Section 67 (f): That all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the bankrupt, unless the court shall, on due notice, order that the right under such levy, judgment, attachment, or other lien shall be preserved for the benefit of the estate; and thereupon the same may pass to and shall be preserved