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Under § 70 of the bankrupt law of July 1, 1898, 30 U.S. Stat. 565, the trustee takes the title of the bankrupt to powers which he might have exercised for his own benefit and to 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.
Wilson F. Henderson, the bankrupt, a citizen of Chicago, was admitted to membership in the Board of Trade in 1899, and for many months prior to March 1, 1919, was president and one of the principal stockholders in a corporation known as Lipsey and Company. In March, 1919, Lipsey and Company became insolvent and ceased to transact business, being then indebted to thirty or more members of the Exchange on its contracts in an aggregate amount of more than $60,000. The membership of Henderson was worth $10,500 on January 24, 1920, when the petition in bankruptcy was filed against him. All assessments then due had been paid and the membership was not in any way impaired and forfeited. On May 1, 1919, Henderson had posted on the bulletin of the Exchange a notice and application for a transfer of his membership. Several days after the petition in bankruptcy was filed, members, creditors of Lipsey and Company on its defaulted contracts signed by Henderson, lodged with the Directors objections to the transfer, alleging that the membership was not property. The district court concluded that the membership seat was property passing to the trustee free of all member claims. According to the district court, the creditors lost their right to object to the transfer by failing to object within ten days of the transfer posting as required by the rules governing board membership. The creditors appealed.
Under the circumstances, did the creditors lose their right to object to the transfer by failing to object within ten days of the transfer?
The Supreme Court reversed the district court’s decision because the creditors duly objected to the transfer. The board membership rules did not operate as a statute of limitations against making objections before the board's directors had acted. Since the creditors objected before any transfer occurred, the objections were valid. Creditors' lien could be asserted at any time before actual transfer.