4. Bills and notes 126-Filing of claims in receivership by attorney, a collection act within terms of note.

The filing of claims after appointment of receivers was a collection act, and not an administrative one, for which creditor was entitled to reasonable attorney's fees under a provision in a note.

In Equity. Proceeding by the Liberty Central Trust Company of St. Louis, Mo., and another against the Gilliland Oil Company, in which a receiver was appointed. Heard on exceptions to master's report on claims of Morris A. Quilter. Exceptions sustained in part, and overruled in part.

Robert H. Richards, of Wilmington, Del., for receivers.

E. Ennalls Berl, of Wilmington, Del., for claimant.

MORRIS, District Judge. Receivers having been appointed by this court for Gilliland Oil Company, a Delaware corporation, Morris A. Quilter filed in the cause his proofs of claim for principal, interest, and an additional 10 per centum as attorney's fee for collection of five promissory notes of the Gilliland Oil Company, each containing the following provision:

"If not paid at maturity, we agree to pay all costs of collection, including reasonable attorney's fee, if placed in an attorney's hands for collection."

The receivers, not questioning the amounts claimed for principal and interest, excepted to the items for attorney's fees. The master to whom the claims and exceptions were referred disallowed the challenged items. The matter is now here upon exceptions to the master's report.

One note, dated March 20, 1921, for $10,895, due June 18, 1921, on which $5,000 was paid at maturity, was placed by Quilter in the hands of his attorneys for collection on June 20th. Receivers were appointed for the Gilliland Oil Company by this court July 6th upon bill and answer admitting insolvency. The remaining notes, aggregating upwards of $46,000, were placed by Quilter in the hands of his attorneys between July 30th and August 15th as they severally matured. Each was made in Tulsa, Okl., is there payable, and provides for the payment of interest at the rate of 8 per cent. per annum from its date. Quilter agreed to pay his attorney 10 per cent. of the principal and interest of the notes. The Gilliland Oil Company was an oil and gas producing company, having property in Louisiana, Oklahoma, Texas, and Kansas. On June 22d it conveyed its Louisiana property, alleged to be worth upwards of $6,000,000 to Foster Oil Company for about $2,500,000. Receivers were appointed June 27th by the state court of Oklahoma, and a few days later by the state court of Louisiana. Soon after the appointment of receivers by this court, the state receivers were discharged and ancillary receivers were appointed by the federal courts in the several districts in which the property was located.

Quilter's attorneys, residents of Houston, Tex., seem to have taken no step looking to the collection of the first note until June 27th.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

(289 F.)

Being then advised of the conveyance of June 22d, the attorney having immediate charge of Quilter's claim went, at the request of Quilter, to Shreveport, and for two days examined the conveyances and bills of sale and conferred with creditors. He then went to Tulsa, made an investigation of the assets in Oklahoma, made inquiries as to the liabilities of the company, its assets in states other than Louisiana and Oklahoma, conferred with the receivers and creditors to the end that the property conveyed to Foster Oil Company might be recovered and that the receivership suits in the state courts might be dismissed and like suits in the federal courts instituted.

After the appointment of the receivers a lengthy and detailed offer of Foster Oil Company for the rescission of the contract of sale of June 22, 1921, was made to the receivers of Gilliland Oil Company. The offer so submitted was made subject to approval by substantially all of the creditors and stockholders, preferred and common, and the District Court of the United States for the Western District of Louisiana. A copy of the offer was sent by the receivers to each creditor and stockholder. Quilter submitted to his attorney the question of approval or disapproval. The attorney considered the offer and the advisability of its acceptance by Quilter. He likewise attended the hearing thereon, and had certain conferences with other creditors or their counsel, for the purpose of obtaining a better offer for the receivers. Quilter's attorney likewise filed a petition of intervention in the United States District Court for the Western District of Louisiana. Upon being advised of the appointment of a special master by this court to take proofs of claims, the petition of intervention was withdrawn or abandoned. The attorney made out and filed the proofs of claim before the special master. The attorney also attended a creditors' meeting in St. Louis to consider some plan of reorganization of the Gilliland Oil Company or for the sale of its property. In attending to all the foregoing matters both before and after the appointment of the Delaware receivers Quilter's attorney was away from his office 25 days and while in his office devoted much time to the matter of Quilter's notes.

[1] The receivers admit the validity of the attorney's fee clause, but deny that Quilter's attorneys rendered any services within the intendment of that clause. It is made clear, both by the express wording of that clause and by the decided cases, that Quilter's right to indemnity for attorney's fees pertaining to any particular note extends only to fees for services rendered after the maturity of that note, is then restricted to fees for collection services, and is limited in amount to such sum as the evidence shows to be reasonable. McCabe v. Patton, 174 Fed. 217, 98 C. C. A. 225 (C. C. A. 3); British-American Mortgage Co. v. Stuart, 210 Fed. 425, 427, 127 C. C. A. 157 (C. C. A. 5): Mechanics-American Nat. Bank v. Coleman, 204 Fed. 24, 29, 122 C. C. A. 338. (C. C. A. 8). In the absence of bankruptcy, receivership, or other judicial sequestration of the property of the debtor, I think the rule laid down by the Appellate Court of Indiana in Monroe v. Staser, 6 Ind. App. 364, 32 N. E. 563, 33 N. E. 665, that "the services contemplated by the contract, and which an at

torney at law would be required to render, are not alone to prosecute an action in the courts, but such services as he may render, by reason of his special qualifications to procure the desired result for his client, either with or without a resort to the courts to enforce such rights," may be safely followed.

In the light of this rule and bearing in mind that the state receivers were not appointed at the domicile of the corporation, and that consequently the receivers thus appointed were not receivers of and for the corporation, but only of the assets in the states of their appointment, and that the corporation had assets elsewhere, I think that the services rendered by Quilter's attorneys prior to the appointment of the Delaware receivers were collection services within the intendment of the attorney's fee clause in the note, and that the performance of such service was reasonably necessary under the circumstances. I see no ground upon which a fee of 10 per cent for those services may be held to be unreasonable, but as only one note had then matured the fee for such services must be limited to that note.

[2, 3] The receivers contend that it is a general rule with respect to the administration and liquidation of receivership estates that the rights of all parties are fixed as of the time of the appointment of the receiver and that no claim for services thereafter rendered may be sustained. In support of this contention they cite Brown v. Massachusetts Hide Corp., 218 Fed. 769, 134 C. C. A. 447; Thomas v. Taggart, 209 U. S. 385, 28 Sup. Ct. 519, 52 L. Ed. 845; Zartman v. Bank, 216 U. S. 134, 30 Sup. Ct. 368, 54 L. Ed. 418; 2 Tardy's Smith on Receivers, § 594, p. 1660; Trust Co. v. Lombard Investment Co. (C. C.) 73 Fed. 537. That rule seems, however, to be only a rule of convenience in the administration of bankrupt or insolvent estates, and not applicable where the estate is more than ample to discharge all claims. Tardy's Smith on Receivers, vol. 2, p. 1678; Citizens' Bank & Trust Co. v. Thornton, 174 Fed. 753, 98 C. C. A. 478; American Iron & Steel Manufacturing Co. v. Seaboard Air Line Railway Co. et al., 233 U. S. 261, 34 Sup. Ct. 502, 58 L. Ed. 949.

The receivers here concede that the receivership estate will in all probability be more than sufficient to pay all creditors. Consequently the principle thus urged by the receivers cannot be here applied. There are, however, other principles involved in the determination of the right of the claimant for indemnity for counsel fees for services rendered after the appointment of the receivers. Such appointment suspends the rights of creditors to collect their debts from the property of the debtor by the usual processes of law. Property in the hands of a receiver is wholly within the jurisdiction of the appointing court for administration and distribution according to the priorities and liens of the persons interested. Hayes v. Columbus, L. & M. Ry., Co. (C. C.) 67 Fed. 630; In re Tyler, Petitioner, 149 U. S. 164, 13 Sup. Ct. 785, 37 L. Ed. 689. The effect of a receivership upon creditors' claims "is to substitute for the right of action in personam theretofore existing a right to a proportional share of the impounded assets." Clark on Receivers, vol. 1, § 755. The duties of gathering in the assets, converting them into cash, and distributing them to those

(289 F.)

entitled thereto, devolve upon the appointing court and its receivers. Such acts are acts of administration. Services rendered by a creditor or his attorney in connection with such matters are likewise administrative acts; for which under exceptional circumstances equitable costs are at times allowed. Ross v. South Dela. Gas Co., 10 Del. Ch. 236, 89 Atl. 593; Clark on Receivers, § 840; Tardy's Smith on Receivers, § 639; Meeker v. Winthrop Iron Co. (C. C.) 17 Fed. 48. But I fail to see how such services, when rendered by a creditor through his attorney or otherwise, can be considered as "collection" services. Moreover, an inevitable corollary of the provisions in the notes and the principle that the fees recovered must be reasonable is that fees may not be recovered for services that were not reasonably necessary under the circumstances.

[4] I do not find that any service, other than the preparation and filing of the proofs of claim, rendered by the attorneys for Quilter after the appointment of the Delaware receivers, either appeared to be or was even remotely necessary to the collection of the Quilter notes, or even beneficial to the receivership estate. See first National Bank v. J. I. Campbell Co., 52 Tex. Civ. App. 445, 114 S. W. 887. As I view the matter the only opportunity for collection services after the appointment of receivers is in the preparation and filing of claims. This, I take it, is a collection act, not an administrative one. As Quilter's attorneys performed this service with respect to the four notes maturing after the appointment of the receivers, I think Quilter is entitled to be indemnified to the extent of reasonable fees therefor. That, however, was a simple matter, for which a fee of $50 for each of the four proofs of claim filed is, in my judgment, ample.

To the extent herein indicated, the exceptions to the master's report will be sustained. In all other respects, the exceptions must be overruled.

In re BREWER.

(District Court, E. D. North Carolina. March 15, 1923.)

1. Executors and administrators

by assent of executor.

No. 715.

291-Title to legacy vests in legatee only

Title to a legacy vests in the legatee only by assent of the executor, or one of the executors, if more than one, which assent may be either express or implied from the acts of the executor, and merely perfects the title, which is acquired under the will.

2. Executors and administrators 291-Acts of executors held to operate as assent to the vesting of title to legacies in the legatees.

Acts and conduct of executors held to operate as an assent to the vesting of title to the interest of the testator in a mercantile partnership in the legatees to whom it was bequeathed.

3. Executors and administrators

cannot be revoked.

291-Assent of executors to vesting of legacy

Assent of executors to the vesting of title to a legacy, once given and acted on, cannot be revoked.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

4. Executors and administrators 291-Property held to have vested in legatees by assent of executors, and no longer part of estate.

Testator, who for 20 years had been owner of a half interest in a mercantile partnership managed by his partner, bequeathed one half his interest to such partner and the other half to another. By assent of the executors, the legatees took control of and continued the business. Testator's estate was large, the partnership business was prosperous, and its net assets above liabilities were valued by the executors at $147,000. Held, that the action of the executors in assenting to the passing of the legacies was justified, and operated to withdraw the partnership property from the estate; that the business was thereafter conducted, not by the surviving partner as such, but by the legatees as owners.

5. Partnership 178-Right of creditors to preferred payment from partnership assets is derived from equities of partners.

The right of partnership creditors to preferred payment from partnership assets is derived from the equities of the partners, each of whom is entitled to have partnership assets applied to partnership debts for which he is liable, rather than to debts of his partner.

6. Partnership 178-Administration of assets.

To enforce the preferred right of unsecured partnership creditors in partnership assets, such assets must be within the control of the court through bankruptcy or other proceedings for their administration.

7. Partnership 183(3)—Partner in solvent firm may transfer his interest to other partner.

If one of two partners, in good faith and while the firm is solvent, transfers his interest without restriction to the other partner, the partnership property ceases to be such, and becomes the several property of the transferee, in which creditors of the partnership having no lien have no greater rights than his personal creditors.

8. Partnership 183(3)-Testator, bequeathing his interest in a partnership to his partner, held to have reserved his equity to have the firm property applied to firm debts.

Where one of two partners on his death bequeathed his interest in the partnership to his partner and another, subject to the payment of any indebtedness to himself, "and subject to all other firm indebtedness outstanding at the time," he retained his equity to have the partnership property applied to firm debts, which inured to partnership creditors on the subsequent bankruptcy of the surviving partner, who had acquired the interest of the other legatee.

9. Bankruptcy

creditors.

11-Bankruptcy court may enforce equities of partnership

A court of bankruptcy under its equity powers may enforce the equities of partnership creditors in property of a bankrupt in its possession for administration.

10. Bankruptcy 88 (2)-Executors of deceased partner may intervene in bankruptcy proceedings against surviving partner.

On the bankruptcy of a surviving partner, who has succeeded to the ownership of the partnership property, subject to payment of its debts, the executors of the deceased partner, whose estate is solvent, may intervene to assert his equity to have the partnership assets applied to the partnership debts.

11. Bankruptcy 312-Executors held not estopped to assert testator's equity as a partner.

One of two partners on his death bequeathed his interest in the business to his partner and another, subject to the firm indebtedness. His estate was amply solvent, and the business was solvent and prosperous. His will was probated and of record. With the assent of the executors, the legatees took possession of the business and continued it, notice of which was given by publication. Shortly afterward the surviving partner bought For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes