This section is from the book "American Commercial Law Series ", by Alfred W. Bays. Also available from Amazon: American commercial law series.
The trustee gets all the property of the bankrupt (except his exemptions) which has any value as an asset for the payment of his debts.
After the enumeration of the specific kinds of property passing to the trustee, section 70 of the act concludes by the general provision.
"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."
Generally, we may say, by authority of this language, that a trustee takes title to all property, except his exemptions, that would have been of any value to the creditors of the bankrupt had not bankruptcy intervened, and all property, except the exemptions of the bankrupt, which is of a transferrable sort.
The trustee gets title not only to the property which the bankrupt has in his possession but all property in the hands of others; and he is clothed by law with the right to sue as the representative of the bankrupt, to enforce the rights of the bankrupt which existed at the time of filing the petition the enforcement of which results in assets for the creditors.
111. Bailey v. Baker Ice Mach. Co., 239 U. S. 268.
The bankrupt's property which his creditors could not have reached by process, and which could not be transferred by him does not pass to trustee.
If a bankrupt enjoys title to property which is in the nature of a personal privilege, and has no transferrable value, a trustee takes no title thereto. Thus a saloon license if purely personal does not pass to the trustee.
If, however, there is a right of transfer, even though there may be restrictions upon it which may in fact defeat it, the subject matter is property passing to the trustee. Thus it was generally held in liquor license cases, that the license passed to the trustee if it could have been transferred by the bankrupt, although subject to the consent of the authorities.112
This doctrine is forcibly exemplified by the facts in stock exchange membership cases. Such memberships are not transferrable except with the consent of a certain percentage of the members. The transfer may therefore be impeded. Nevertheless, such memberships are held to be assets passing to the trustee in bankruptcy for him to realize upon if he can.113
These memberships frequently have a value of many thousands of dollars and are bought and sold. The
112. Matter of Doyle & Son, 31 A. B. R. 571.
113. Page v. Edmunds, 187 U. S. 596; Board of Trade v. Weston, 40 A. B. R. 263.
8o The Law of Bankruptcy.
possibility of the sale being defeated by an adverse vote, does not deprive the trustee of the asset.
These are specifically given by Section 70 of the Act.
The law provides that interests in patents, patent rights, copyrights and trade-marks pass to the trustee.
Insurance policies which are assets to the bankrupt pass to the trustee, but the bankrupt can prevent this by paying the cash value to the trustee.
Insurance policies (unless exempt by local law) if they have a cash value, pass to the trustee.
If they have no surrender value they do not pass.114 If they are exempt by the local law they do not pass.115 If the bankrupt has named a beneficiary therein other than himself or his estate, the policy will nevertheless pass if the bankrupt has reserved power to change the beneficiary.116 This is true although the policy provides for the consent of the insurance company to such change.117
An insurance policy is a peculiar species of property from the fact that it may have a value which cannot possibly be replaced. The insured may have become a bad risk, and rates increase with age. Hence the right of the bankrupt to substitute the cash surrender value for the policy is expressly recognized by the act, which provides:
114. Burlingham v. Crouse, 228 U. S. 459.
115. Holden v. Stratton, 198 U. S. 202.
116. Cohen v. Samuels, 245 U. S. 50.
117. In re Greenberg, (C. C. A. 2nd Cir.) 271 Fed. 258; In re Jens, (D. C. la.) 273 Fed. 606.
"That whenever 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 value has been ascertained * * * pay or secure to the trustee the sum so ascertained, and continue to hold, own and carry such policy free from the claims of creditors.
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