Mr. MONTGOMERY. No, sir; nor do we in any way interfere with the Government's claim at all, because those are claims for income and excise taxes, and these are not.

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Mr. PERLMAN. I am talking in connection with the recommendation that a creditor should file his claim within six months so we should be able to expedite the matter, so the dividend could be expedited; that there are cases where you can not get that, even with the six months provision, because the claim of the Federal Government has not been filed. Do you somehow deal with that question, limiting the time in which the Federal Government can file its claim; can you deal with that?

Mr. MONTGOMERY. I am afraid we can not limit the time of the Government, but the Government comes forward in all good faith with a tax bill and files it, and the debtor or trustee disputes the correctness of the bill, and then comes the question of determination by the court of the matter, or a determination by compromise, and a compromise is a long drawn-out process, involving many months, but a court can say to the Federal Government, "We shall expect you to file all claims you may have against this estate, particularly claims for taxes, within a prescribed time," and after the claim is filed the court has the power to determine the validity of the claim, and then, of course, there is no way to fix the limitation upon the court within the time it will hear claims.

Mr. PERLMAN. How is that brought to the court?

Mr. MONTGOMERY. By petition of the trustee, asking that the Government be required to file.

Mr. PERLMAN. That has been done?

Mr. MONTGOMERY. Yes, sir.

Mr. PERLMAN. I am concerned with a case where, after six months, under your proposed bill, the trustee declares a dividend and winds up the estate; then what becomes of the Federal Government's claim not filed in that time, the creditors having received the money and the counsel having been paid; what happens in that event?

Mr. MONTGOMERY. I am curious to know. I have a case such as that, where I closed the case four years ago and last year the Government came around, or sent a man around, and I gave him the books; he wanted to look at them there, but I asked him to take them away, and later I was told that the estate owed $400 in taxes. Upon learning that, I smiled and asked where he was going to get it.

Mr. PERLMAN. Is not the receiver or trustee liable?

Mr. MONTGOMERY. I think there is an authority that the trustee is liable if he has any knowledge of the existence of such a claim; otherwise not.

Mr. Cook. I want to say one word more about the amendments. The amendments which we have presented in the credit men's bill have, on one occasion, had the approval of the Senate, having been adopted by the Senate, and on another occasion they had the approval of the Senate committee. We have been in conference with Senator Walsh on each and every one of the amendments, and this tax amendment, under section 64, is an amendment which I drew in collaboration with Senator Thomas F. Walsh, only after we had covered the matter from every possible angle.

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With those remarks, I should like to present to you Mr. Jacobs, of Boston.

Let me conclude now; and in the Commercial Law League of America, an organization composed of some 9,000 lawyers all over the United States, having to do very largely with practice in bankruptcy, we have paid a good deal of attention to the subject, and one of the reports looked foward to at every annual convention is the report of the bankruptcy committee. Our committee has pretty wide latitude; the personnel of the committee is as follows: Mr. Brandenburg, of Washington, an author on the subject; Mr. Bierce, of Minnesota; Mr. Barker, a lawyer of New York, who brings to our attention the New York situation; Mr. Jacobs, of Boston; and myself.

Recognizing the scope of your resolution, and being desirous of covering the situation as fully as we could, trying to look at the work from the same position which we would look at it were we standing in your shoes, we have covered the act from its caption to its end, and while we have not dealt with trivialities, yet, in all matters of consequence where we thought the act needed improvement, we have taken the liberty of stating this to you, and Mr. Jacobs is to my mind the ablest man we have at our bar handling the bankruptcy law, and I am sure he will be able to explain the situation thoroughly to you.

Mr. MICHENER. You referred to a memorandum handed the committee.

Mr. Cook. That is Mr. Montgomery's memorandum; I referred to another memorandum.

STATEMENT OF MR. JOSEPH B. JACOBS, BOSTON, MASS.

Mr. JACOBS. Mr. Chairman and members of the committee, I am a member of the Massachusetts bar, and practice in Boston. Representative Perlman asked a question with reference to taxes of the Federal Government. If you will refer to section 64 of the act with reference to Federal taxes, that section says "the court shall order the trustee to pay all taxes legally due and owing by the bankrupt to the United States." We had a case, a case which I defended, where a trustee was sued by the Government for taxes because the estate was all paid out, and we filed a motion to dismiss on the ground that the Government had not come in and filed a petition, and obtained an order from the referee ordering the trustee to pay, and our judge held that the Government was not in any favored position; that a trustee in bankruptcy did not have to guess how much the Federal taxes were, and the Government had to be diligent, like any other creditor, and had to file the petition with the court and referee and obtain an order ordering the trustee to pay. I think that will answer the question.

Mr. PERLMAN. In that case, had the trustee written to the collector of internal revenue?

Mr. JACOBS. No; the trustee had not written to the collector; there was nothing in the schedule disclosing any tax.

Mr. PERLMAN. Is that a recent decision?

Mr. JACOBS. Yes, sir.

Mr. MICHENER. Will you give a brief report of that in your memorandum?

Mr. JACOBS. I will be glad to do it.

Mr. Cook and myself have gone over the statute, taking it up section by section, and we have embodied a series of suggestions to cure defects that have occurred in this act, because of judicial interpre

tation.

We suggest, as our committee suggests, that section 1a, clause 6, be amended by inserting the words "and shall also include all unincorporated companies and associations." That is the section reading now, "Corporations shall mean all bodies having any of the powers and privileges of private corporations not possessed by individuals or partnerships, and shall include limited or other partnership associations organized under laws making the capital subscribed alone responsible for the debts of the association." Then, we suggest adding the words "and shall also include all unincorporated companies and associations."

You know, under the meaning of corporations here, the only unincorporated companies included under this wording are associations organized under laws; that is, a joint stock association organized under the statute, or a limited partnership, but it does not include an unincorporated association, such as the famous Massachusetts business trust. Your act does refer to unincorporated companies. If you will look at section 4b, as it is, any natural person, except a wage earner or person engaged chiefly in farming or the tillage of the soil, not an incorporated company, so there has been a number of adjudications of unincorporated companies, but unfortunately arising under our law, in so-called business trusts. If the certificate holders of the business trust control the election, or the successor of the trustee under the business trust, our laws in Massachusetts and the general laws following Massachusetts, for instance, in Illinois, hold those organizations to be partnerships, that if there is a declaration of trust and the declaration of trust says that the trustee shall have title to the property, and he shall be absolute, he can control the appointment of the successor apart from the certificate holders, then they hold it to be a trust and not a partnership. It is that kind of an organization that we want to call attention to; such as the Amoskeag concern, turning over their affairs to a business trust, and a great number of enterprises seeking to get away from the vexations of taxation of corporations, going into these trusts, and it is incumbent upon this act to cover companies of this kind; that is why we inserted this clause.

We thought at one time of putting a definition into this act, but the difficulty of getting a definition that would hit every case was so complicated that we thought the situation would be taken care of by inserting the words in this way. Every case so far has adjudicated these so-called trusts. The last case, the Intercity Trust case, we thought at one time that there would not be any adjudication, but I want to say of one of these pure trusts that there is going to be, and there has been, a lot of litigation of adjudicating that kind of an enterprise, and it is for that reason that we suggest those words be put in section 1.

The next suggestion our memorandum speaks of is section 1a, and under that section we are inserting the words "and possessions."

With those we are seeking to eliminate some deadwood and put in live provisions. We have dropped the words "Indian Territory" because it no longer exists. The United States District Court of Porto Rico has bankruptcy jurisdiction, and the courts of the Philippines have jurisdiction; they have it by reason of their organiz laws We have put in those words in order to make the statute alive. Mr. MONTAGUE. What possessions would that take in?

Mr. JACOBS. Principally Hawaii and the Philippine Islands.

Mr. MONTAGUE. I think you said that their courts have bankruptcy jurisdiction?

Mr. JACOBS. They have. I think it will clarify the situation if the words "and possessions" are put in the act.

Mr. MONTAGUE. Is that the legal terminology for our territorial possessions; I was wondering whether that was exactly correct.

Mr. JACOBS. Our Supreme Court of Appeals covers the island of Porto Rico; in arguing cases before that court, we always speak, in dealing with these islands, of the possessions of the United States. Mr. MONTAGUE. You speak that way, but how are they expressed in the pleadings and in the opinions?

Mr. JACOBS. They are expressed in the pleadings and in the opinions as possessions.

Mr. MONTAGUE. We speak of it here as insular possessions.

Mr. JACOBS. They are insular possessions, but this word "possessions covers it, as we never know when the Government is coming into other possessions, and whether or not they will be insular or otherwise.

Under section 19 we have included under the definition of ". "persons" the words "unincorporated companies and associations." This is intended to have the word "persons" include unincorporated companies and associations.

Under section 24, the word "States" shall include the Territories "and possessions." We have inserted again the word "possessions." In connection with section 28, "words importing the masculine gender may be applied to and include corporations." We have added "unincorporated companies and associations"; we again insert there "unincorporated companies and associations."

In section 2, we again insert the words "and possessions."

In section 2 (4) we insert the words "and of unincorporated companies and associations," after the words "or other similar controlling bodies, of corporations." We think those words ought to be specifically in under that section, because if we have any members of unincorporated companies committing any crimes, it certainly ought to be definite that they are included under this section.

Under section 3a, which is the act of bankruptcy section, the act now reads:

Suffered or permitted, while insolvent, any creditor to obtain a preference through legal procedure, and not having at least five days before a sale or final disposition of any property affected by such preference vacated or discharged such preference.

We suggest in that section that it be changed to read as follows:

Suffered or permitted, while insolvent, any creditor to obtain a preference through legal procedure, and not having at least five days before a sale or other disposition of any property affected by such preference vacated or discharged such preference.

Mr. MONTAGUE. Is that your amendment on page 3, section 1? Mr. JACOBS. It is at the top of page 3 on your memorandum. Along that same line, we offer another amendment, under the acts of bankruptcy, as follows:

Suffered or permitted, while insolvent, any creditor to obtain through legal proceedings any levy, attachment, judgment, or other lien, and not having vacated or discharged the same within 30 days from the date such levy, attachment, judgment, or other lien was obtained.

That brings up the question spoken about by Mr. Montgomery and Mr. Cook, with reference to attachments. It is a fact, as stated by Mr. Montgomery, that it has been decided by the case of Citizens Banking Co. v. Ravenna National Bank, by the Supreme Court of the United States, that an attachment which becomes four months old is a valid attachment and is not an act of bankruptcy.

There were two questions certified to the Supreme Court by the circuit court of appeals in that case. The first was whether the failure by an insolvent judgment debtor, for a period of one day less than four months after the levy of an execution upon his real estate, to vacate or discharge such levy, is a final disposition of the property, affected by the levy under the provisions of section 3a of the bankruptcy act. The second question certified was whether an insolvent judgment debtor commits an act of bankruptcy rendering him subject to involuntary adjudication as a bankrupt under the bankruptcy act of 1898, merely by taking no action for a period of four months after the levy of an execution upon his real estate. The court held that both questions must be answered in the negative. The counsel for the petitioning creditors had contended that section 3a had the same meaning as if it read "and having failed to vacate or discharge the preference at least five days before the sale or final disposition of any of the property affected, or at most not later than five days before the expiration of four months after the lien was obtained." They read in these words "before the expiration of four months after the lien was obtained." The court declined to read those words by judicial interpretation into the act, which left a loophole under that' section.

Mr. MONTAGUE. Will you kindly cite the reference in your remarks?

Mr. JACOBS. Yes, sir; I shall be very glad to do so. This bankruptcy act is similar to the Massachusetts insolvency act. We have attachments as a matter of course. In bringing proceedings in Massachusetts, a man brings a lawsuit and he levies an attachment. That attachment stays there until final judgment, and you levy execution within 30 days after final judgment, in order to get the benefits of the attachment; otherwise the attachment is vacated. Under the Massachusetts insolvency act there is a provision to the effect

Mr. MICHENER (interposing). Are you about to quote from the Massachusetts law?

Mr. JACOBS. Yes, sir.

Mr. MICHENER. How many States have like laws?

Mr. JACOBS. All the States in New England.

Mr. MICHENER. In these hearings we can not attempt to make the national bankruptcy act conform to all of the State laws; we must view the matter from the national aspect.