Ex parte Bryan

4 F. Cas. 499 | E.D. Va. | 1876

HUGHES, District Judge.

As to the joint petition of the two Majors, it may as well be dismissed, and I will so order. John C. Major’s proof of claim places him before the court as a creditor of the bankrupt, as favorably as his petition can do, and. William Major’s claim for exemptions may as well be made by the usual methods observed in the practice of the court. Practically, therefore, I am called upon now to do no more than to pass upon the validity of the alleged sale of the 2d of September, 1873, upon the petition of Joseph Bryan, the assignee.

First: As to the question whether Smith was in fact the assignee. It is obvious from the terms of the 13th section of the general bankruptcy act, that no general order, appointing in brief terms a named person as assignee in a class of many cases, was ever contemplated by the framers of the section. Rule 9 now expressly forbids such orders. Unless a general order shall at least enumerate the particular cases in which the person is intended to be appointed, it must be invalid. This irregularity in the general order making Smith assignee in Higby’s cases, could only have been cured by Smith’s filing a written acceptance of the trust in each case, and otherwise recording in each case the evidence of his qualification as assignee. Yet nothing of the sort was done by him in this case of William Major. I have repeatedly held, for now more than two years, that I would not recognize the validity in any case of the general order in question, made by the then judge of this court, on the 15th of April, 1871, unless the appointee shall have qualified specially in such case, by complying with the requirements of section 13, especially if he had done no act or acts as assignee. This appointee, Smith, has himself explicitly disclaimed being the assignee in nearly all the several hundreds of cases embraced by the general order of the 15th of April, 1871, by reporting himself to the attorney-general of the United States, under the amended bankruptcy act of the 22d of June, 1874 [18 Stat. 17S], to be assignee only in six of those cases, of which this of William Major is not one. He has recently disclaimed being assignee in this case, in express terms. He therefore is not now and never was the legal assignee. While, however, all this is so, yet it is clear that Smith acted as assignee in the remarkable transaction of the 22d of September, 1873, and was recognized and held out as such, both by the register and the judge. His action in that particular matter therefore must be recognized. as the act of the assignee; though it had very much the character of the act of an executor de son tort. I am bound to consider him to have been the assignee pro hac vice; but in this case I can of course do so only as to that single transaction.

Treating Smith as the assignee, the question recurs upon the validity of the sale. Section 25 of the general bankruptcy act (now section 5063 of the United States Revised Statutes), requires that where the title to any portion of an estate, real or personal, which is claimed by the assignee, is in dispute, the court may, upon the petition of the assignee, and after such notice to the party in adverse interest as the court shall deem reasonable, order it to be sold. The court, and the court alone, is intrusted with discretion whether to sell or not; and, if determining to sell, the court, and the court alone, is intrusted with discretion how long the notice, which the section requires to be given, shall be. The sale of such an interest of the bankrupt as this law describes is allowed to be made even by the court, only after such notice to those claiming adversely as the court in its discretion may deem proper. Of all the persons likely to purchase such an interest, those claiming adversely to the bankrupt would be the ones most apt to bid a liberal price, and the section requires that personal notice shall be given to them. In making it the duty of the court to consider of the propriety of selling, and of the length of notice to be given to adverse claimants, the section intrusts it with a discretion which none but the court itself can exercise, which can be delegated to no officer of the court, and which no officer but the court ■itself can exercise. The intendment of the law also requires that such a sale shall be public after public notice. It is almost useless to say, therefore, that the order of the register of the 2d of September, 1873, authorizing a private sale without notice, is such an order as the court itself could not have made; was without authority of law; was expressly contrary to law; was illegal in its terms; and was, therefore, wholly null and void. It was made by an officer having no authority to make it. It was made without any notice or possibility of notice, personal or by publication, to those claiming adversely. It was illegal in authorizing a private sale. The order was no better than waste paper, and the sale itself being founded upon an illegal, void order, is itself a nullity. It had also the further fault of having been made in contravention of the agreement between the assignee, Higby, and Spilman, on the 1st of October, 1869. No subsequent confirmation by the judge could make vital and valid an order wholly unauthorized by law, contrary in its terms and provisions to express law, and radically void. The sale made in pursuance of such an order is as incurable a nullity as the order itself; and no confirmation of it by the court could give it validity. It is therefore, useless to consider whether Spilman could become purchaser in contravention of the agreement between himself and Higby, on the 1st of October, 1869. It is useless to consider whether the court would countenance a private sale, made by a subsequent assignee, to the counsel who had been charged by his predecessor with the duty of suing for the recovery of the property which that counsel now purchased from a vendor acting in the dark, whom it was his professional duty to enlighten. The private order of the register, the private sale made by Smith, as assignee, the haste and looseness of the transaction, its gross illegality, especially in both the order and the sale being made without notice to the very persons who would have been most likely to have bid most liberally for the property, and the fact of the purchaser being the very person who had been intrusted with the duty of obtaining accurate knowledge of the value of the property, all these circumstances make this transaction one which the court cannot countenance, and is bound to repudiate. Neither the order nor the sale was in fact confirmed by the court. Both seem simply to have beer “approved” by the judge; but the approval in each instance was private, and did not become a part of the record for seven weeks after the sale, and for two weeks after the approval. Such an approval cannot be regarded as a confirmation by the court. It was as private, ineffectual, and void as the illegal order of the register, and the spurious sale by the so-called as-signee. But even if the confirmation itself had been regular and unassailable, it could not give effect to a sale made under a void decree. See Ror. Jud. Sales, §§ 474, 483, 484, 486, and cases cited, and also Shriver v. Lynn, 2 How. [43 U. S.] 43; Morris v. Hogle, 37 Ill. 150; Shelton v. Tiffin, 6 How. [47 U. S.] 163; Hawkins v. Hawkins, 28 Ind. 66. The register had no jurisdiction to make an order for the sale of the property at all; and if he had, the order was illegal in being contrary to the requirements of the 25th section of the general bankruptcy law. A purchaser at a judicial sale made under a void decree is bound by the rule of caveat emptor to look to the jurisdiction of the court and the legality of the decree and proceedings from which it arose. He purchases under a void decree at his peril, and a subsequent confirmation, though ever so regular in itself, cannot help him.

As to the objection that it is incompetent for the bankruptcy court to set aside an order in the bankruptcy proceeding, as against persons not originally parties to the proceeding, claiming under the order by assignment from the purchaser, it cannot be sustained. It seems that in this case Spilman has assigned his right purchased under the void order in question, to Armstrong, and it is insisted that the bankruptcy court cannot affect Armstrong’s right by declaring null and void an order purporting to be its own order, but that the assignee must go into the district court, as a court of chancery, and proceed by bill against Spilman, Armstrong, and all subsequent purchasers from or contractors with Armstrong. Nothing of this is true as to a void order, for that would be virtually to hold that a purchaser, under a spurious sale, made under an illegal order of court, may assign away the jurisdiction of the court, which is a pretension that cannot be entertained. It is very true that strangers to the proceeding in the bankruptcy court, having claims against the assets in bankruptcy, not derived directly or indirectly through the orders of the court, must be proceeded against by plenary suit on the common law or chancery side of the district court; but the bankruptcy court has undoubted power to declare null and void any order falsely purporting to be an order of the court as against all persons claiming under the order itself. I do think, however, that the assignee here, Mr. Bryan, should have made both Armstrong and Green parties to his petition.

NOTE [from original report]. The decrees of the district court, based on the principles of the foregoing opinion, were affirmed by the chief justice, on petition for revision [unreported].

I will enter an order dismissing the petition of John C. Major and the bankrupt, and giving leave to the assignee to amend his petition, with a view to making the persons just named parties defendant, so that they may have opportunity of being before the court when the order is entered, declaring the proceedings of 2d September, 1873, null and void. I do not see that I can interfere with the contract made between Higby and Spilman, on the 1st of October, 1869, unless some special proceeding be instituted for setting it aside on the ground that it was virtually cancelled by the proceedings of 2d September, 1873.