121 F. 1004 | W.D.N.Y. | 1903
The trustee in bankruptcy claims to be entitled to receive from certain judgment creditors of the bankrupt the sum of $1,652.74, the proceeds of an execution issued upon a judgment against the bankrupt within four months prior to the filing of the petition upon which the adjudication of bankruptcy was made. By virtue of the execution, the property of the bankrupt was levied upon and sold by the sheriff, and the proceeds paid over to the judgment creditors, leaving a balance unpaid upon the judgment. The referee in bankruptcy, at the instance of the trustee, upon the foregoing facts, issued an order to show cause, returnable before him at a future day, why the proceeds of the sale should not be paid over to the trustee. On the return day of the rule to show cause, the judgment creditors appeared specially and questioned the jurisdiction of the court on the ground that the referee had not jurisdiction of the subject-matter, nor the power to require by summary process the payment of the proceeds which prior to the filing of the petition had been paid over by the sheriff to the respondents. At a later hearing before the referee a demurrer to the claim of the trustee was filed on the ground that, assuming the facts set forth in the statement to be true, it appeared that the respondents held the money adversely, and, furthermore, that the property to which the trustee asserted the claim had never come
“First. Whether the court of bankruptcy * * * bas jurisdiction of proceedings, at the instance of the trustee of said bankrupt, for the recovery from a creditor of said bankrupt of moneys alleged, to have been received by such creditor as a void or voidable preference, or upon a judgment and lien against the property of said bankrupt made void by the adjudication of bankruptcy herein.
“Second. Whether the court of bankruptcy * * * has jurisdiction of such a creditor without the creditor consenting thereto.”
The right of the bankruptcy court to restrain a sheriff from paying money collected on an execution issued against the property of the bankrupt, and invalidated by the bankruptcy proceedings, to a judgment creditor, and to require such sheriff to pay the proceeds of the sale on execution issued against the property of the bankrupt to a trustee of the bankrupt estate, while those proceeds still remain in his custody, is now firmly established by the recent decision of the Supreme Court in Clarke v. Larremore, Trustee, etc. (decided February 23, 1903) 23 Sup. Ct. 363, 47 L. Ed. —, affirming In re Kenney (D. C.) 97 Fed. 555. It seems, however, to be still an open question whether a trustee in bankruptcy may recover from a judgment creditor the proceeds of a levy and sale on execution, voided by bankruptcy proceedings, where the writ of execution has been fully executed by payment to the judgment creditor. At the end of the opinion in the case of Clarke v. Larremore, the Supreme Court mooted a case such as this, and said:
“A different question might have arisen if the writ had been fully executed by payment to the execution creditor. Whether the bankruptcy proceedings would then so far affect the judgment and execution, and that which was done under them, as to justify a recovery by the trustee in bankruptcy from the execution creditor, is a question not before us, and may depend upon many other considerations.”
The precise question was, however, considered in Re Blair (D. C.) 102 Fed. 987. Judge Brown was of the opinion that, as the transaction was completely executed by the payment of the money by the sheriff before the petition was filed, the remedy of the trustee was by. plenary action. Persons in possession of property claimed by the bankrupt, or by his trustee, who is vested by operation of law with the title of the bankrupt, and who claim an actual adverse right
The referee was of the opinion that, as the judgment was not satisfied in full by the money realized on the execution sale, the respondents were creditors of the bankrupt, and that jurisdiction may therefore be exercised over this controversy. This contention is without merit. The respondents are not now before this court in the capacity of creditors. They aré not seeking to’ prove a claim, and no order has been made directing a surrender of a preference as a condition of its allowance. The questions submitted must, in the light of the amended act, be answered in the affirmative. The remedy of the trustee, however, must be sought in a plenary suit brought under the provisions of section 23(b), as amended (Act Feb. 5, 1903, c. 487, § 8; 32 Stat. 798), either in this court, or the proper state tribunal, at his election.