Straton v. NewStraton v. New
- Reporters:
- , , ,
- Before:
- Roberts
delivered the opinion of the Court.
The District Court for Southern West Virginia entered an order in the bankruptcy of the Fall Branch Coal Company enjoining commissioners appointed by a West Virginia state court from proceeding with the sale of certain real estate of the bankrupt pursuant to a decree of that court. The petitioners were the trustee in bankruptcy and two mortgagees.
The petition alleged that the commissioners were advertising for sale only the property of the bankrupt in West Virginia, that it would be advantageous to all parties to have this property sold with property of the bankrupt situate in Kentucky, and that the bankruptcy court had exclusive jurisdiction to make the sale. The respondents in their answer denied the right of the District Court to enjoin‘the proceedings in the state court, and appealed from an order awarding an injunction.
April 11,1927, one Alley obtained judgment against the coal company in the Circuit Court of Mingo County, West Virginia, which was docketed May 5, 1927, and thus be
Upon these facts the question certified is:
Where creditors have obtained and docketed judgments constituting liens on the real estate of defendant, and have instituted a creditors’ suit in a state court to marshal and enforce the liens and sell the real estate subject thereto, does the bankruptcy of defendant occurring more than four months after the institution of the creditors’ suit oust the state court of jurisdiction, or vest in the court of bankruptcy power to enjoin further proceedings in the state court?
The purpose of the Bankruptcy Law, passed pursuant to the power of Congress to establish a uniform system of bankruptcy throughout the United States, is to place the property of the bankrupt, wherever found, under the control of the court, for equal distribution among the
Though a lien be not discharged by bankruptcy, its owner may not, without the bankruptcy court’s permission, institute proceedings in a state court to enforce it, since his so doing might interfere with the orderly administration of the estate. Thus a mortgagee will be restrained from instituting or proceeding further in a foreclosure action, begun after the date of the petition in bankruptcy.
1
And a creditor holding a valid judgment
The bankruptcy law contains no express provision preserving liens acquired by legal proceedings more than four months before the petition is filed. But it is clearly implied that they shall be saved from the operation of the law, for § 67 (f) 4 voids only liens obtained by legal proceedings within that period. It has consequently been held that those acquired earlier, if valid under state law, are preserved, and will be accorded priority by the bankruptcy court in distribution of the estaté, in accordance with applicable local law. 5
There is no dispute concerning these propositions. Appellants, however, assert that the jurisdiction in bankruptcy to ascertain, marshal and enforce liens, is not exclusive, but concurrent with that of other courts competent to that end, if the liens in question are not discharged but recognized as valid in bankruptcy, and that the rule of comity is applicable that the court first lawfully taking jurisdiction shall retain it.
Wabash R.
Co. v.
The certificate states that the judgment of the plaintiff in the creditors’ suit constituted a lien on real estate from a date sixteen months prior to the initiation of the bankruptcy proceeding. It is obvious that it and any other judgments involved in that suit, and the mortgage liens which were to be marshalled in it, including those of the two mortgagees who joined in the petition for injunction against further action by the state court, were valid notwithstanding the bankruptcy, because the creditors’ suit was filed five and one-half months before the petition in bankruptcy, and all such other judgments and liens must then have been in existence and matured, or they would not have been proper subjects for the state court’s action.
If appellants are correct in their contention that the creditors’ suit was no more than a proceeding to enforce liens saved from discharge by the subsequent bankruptcy of the debtor, it follows, as they claim, that the District Court sitting in bankruptcy had no power to enjoin that action.
In
Metcalf
v.
Barker,
187 U. S. 165, Lesser Brothers were adjudged bankrupts on their own petition, on May 12, 1899. They had on October 2, 1896, being insolvent, transferred all their property, partnership and individual, to certain favored creditors. On October 22, 1896, and October 29,1896, Metcalf recovered judgments in the Supreme Court of the State of New York against the Lessers, upon which executions were issued and returned unsatisfied. On December 17, 1896, Metcalf commenced a judgment creditors’ action in the Supreme Court of New York, which came to trial on December 17, 1897, as a result
From this judgment there were appeals, as a result of which the decree in favor of Metcalf did not become final until March 12, 1900. On March 8, 1900, the trustee in bankruptcy procured from the United States District Court an order on Metcalf to show cause why an injunction should not issue enjoining him from taking any further proceedings under any judgment in the creditors’ action. Objection was made to the jurisdiction of the court, which was overruled, and the injunction made permanent. Metcalf presented a petition to revise to the Circuit Court of Appeals, which certified to this Court certain questions, amongst others, whether the District Court had jurisdiction to make the injunction order, and whether Metcalf, by the commencement of the creditors’ action, acquired a lien on the property of the bankrupts superior to the title of the trustee. This Court answered that the District Court had no jurisdiction, and that Met-calf did acquire such a lien.
The bill was a technical creditors’ bill; its purpose was to subject equitable assets to the lien of a judgment which the judgment did not bind at law. This Court held that the lien when established related back to the date of the filing of the bill, which was much more than four months
“ In our opinion the conclusion to be drawn from this language is that it is the lien created by a levy, or a judgment, or an attachment, or otherwise, that is invalidated, and that where the lien is obtained more than four months prior to the filing of the petition, it is not only not to be deemed to be null and void on adjudication, but its validity is recognized. ... A judgment or decree in enforcement of an otherwise valid preexisting lien is not the judgment denounced by the statute, which is plainly confined to judgments creating liens.”
In Clarke v. Larremore, 188 U. S. 486, a judgment was recovered, but did not constitute a lien on the debtor’s personal property. Within four months prior to the filing of a bankruptcy petition the judgment creditor issued execution under which levy was made on the debtor’s goods. It was held that the levy and the sale thereunder were avoided. The Court said: “The judgment in favor of petitioner against Kenney was not like that in Metcalf v. Barker, . . . one giving effect to a lien theretofore existing, but one which with the levy of an execution issued thereon created the lien. . .
In Globe Bank v. Martin, 236 U. S. 288, the Court said: “ The difference, having the provisions of the act in view, between the beginning of a proceeding to assert liens that existed more than four months before the filing of the petition in bankruptcy, and the attempt to create them by attachment or other proceedings within four months, has been recognized in decisions of this court ” (citing Metcalf v. Barker).
It is clear that if the action in the state court was merely in the nature of an execution or proceeding to obtain the avails of the judgment lien it should not have been enjoined by the district court.
The appellees, however, insist that the purpose and function of the creditors’ bill was a general disposition and distribution of the debtor’s property; that it was a winding up proceeding pursuant to state law, and was therefore superseded by the bankruptcy. They invoke the settled rule that state insolvency laws which are tantamount to bankruptcy because they provide for an administration of the debtor’s assets and a winding up of his affairs similar to that provided by the national act are suspended while the latter remains in force, and proceedings under them are utterly null and void whether commenced within four months of the filing of a petition in bankruptcy or before. Sturges v. Crowninshield, 4 Wheat. 122; Mayer v. Hellman, 91 U. S. 496; Hanover Nat. Bank v. Moyses, 186 U. S. 181; Miller v. New Orleans Fertilizer Co., 211 U. S. 496; Stellwagen v. Clum, 245 U. S. 605; International Shoe Co. v. Pinkus, 278 U. S. 261.
It was pointed out in
Stellwagen v. Clum, supra,
that state laws which provide for sale and distribution of a debtor’s property may not amount to insolvency laws; and it was there held that such laws, if not inconsistent with the administration of the bankruptcy act, are available to litigants. Appellees must therefore show that the
In that State a judgment is a lien on the debtor’s real estate as against all except
bona fide
purchasers for value without notice, ‘and as against the latter from the date of docketing it in the county where the land lies.
8
The debtor’s real estate cannot be sold under execution.
In re McGraw,
254 Fed. 442. The plaintiff must resort for enforcement of his judgment against real estate to such a proceeding as is described in the certificate.
9
He may do so without exhausting his legal remedies, as against personal property.
10
The statute provides for a course of procedure such as is described in the certificate,—namely, that the liens and the debtor’s real estate shall be determined by a commissioner appointed by the court and, if
. It is suggested that the commissioners appointed by the state court were in effect receivers, and it was stated in argument that they did not qualify by giving bond until within four months of the filing of the petition in bankruptcy, and that therefore the state court action should be enjoined and the property taken into possession of the bankruptcy court. But as above said, the statute of West Virginia merely substitutes these commissioners for the usual judicial officer who makes a sale and reports the result thereof to the court. 12
Assuming them to be receivers, their function is not that of an officer charged with winding up the affairs of the debtor, such as would cause a conflict with the bankruptcy law. 13 Moreover, we find nothing in the certificate to the effect that the commissioners had not qualified more than four months prior to the filing of the petition in the bankruptcy court.
The appellees rely upon
In re Watts,
190 U. S. 1. But that case does not support their contentions. It is suffi
“ We do not understand it to be contended that the passage of the bankruptcy act in itself suspended the statute of Indiana in relation to the appointment of receivers, but only that when the proceedings for such appointment took the form, as they did here, of winding up the affairs of the insolvent corporation, the proceedings in bankruptcy displaced those in the state court and terminated the jurisdiction of the latter.”
This was merely a statement of the well settled principle that a general winding up receivership is tantamount to an insolvency proceeding which will be superseded by bankruptcy, and, a fortiori, if, as in that case, the petition is filed within four months of the appointment of the receiver. The language quoted from that case by appellees respecting the paramount and exclusive jurisdiction of the court of bankruptcy must be read in connection with the facts on which it was predicated.
Most of the cases cited by the appellees to the effect that the initiation of bankruptcy proceedings confers on the district court jurisdiction to enjoin pending suits in state courts deal with the situation where a lien was acquired within four months of the filing of the petition, or where, after the filing of the petition an action was begun to enforce a lien valid in bankruptcy. As heretofore noted, there are a few cases which have held that the bankruptcy court may enjoin proceedings, brought prior to the filing of the petition, to enforce valid liens which are more than four months old at the date of bankruptcy;
14
but
The question is answered “ No ”
Notes
Isaacs
v.
Hobbs Tie & Timber Co., supra. In re Pittelkow,
92 Fed. 901.
In re Ball,
118 Fed. 672.
In re Jersey Island Packing Co.,
138 Fed. 625.
In re Zehner,
193 Fed. 787:
In re Hasie,
206 Fed. 789.
Matthews
v.
Webre Co.,
213 Fed. 396; affirmed
sub. nom. Pugh v. Loisel,
219 Fed. 417 (cert. denied, 238 U. S. 631).
McLoughlin
v.
Knop,
214 Fed. 260.
Cohen
v.
Nixon & Wright,
236 Fed. 407.
In re Larkin,
252 Fed. 885.
In re North Star Ice & Coal Co.,
252 Fed. 301.
In re U. S. Chrysotile Asbestos Co.,
253 Fed. 294.
In re
In re L’Hommedieu, 146 Fed. 708. In re Arden, 188 Fed. 475. In re Schow, 213 Fed. 514.
Clark v. Larremore, 188 U. S. 486. In re Albright, 18 F. (2d) 591. Remington, Bankruptcy (3d ed.) § 1905.
U. S. C., Tit. 11, § 107 (f).
In re Wood, 95 Fed. 946; In re L‘Hommedieu, 146 Fed. 708; In re Koslowski, 153 Fed. 823; In re Torchia, 185 Fed. 576; In re Randolph, 187 Fed. 186; In re Zeis, 245 Fed. 737; In re Fraser, 261 Fed. 558.
White
v.
Thompson,
119 Fed. 868;
In re Koslowski,
153 Fed. 823;
In re Pilcher,
228 Fed. 139;
In re Brinn,
262 Fed. 527;
In re Maddox,
280 Fed. 227;
In re Thompson,
288 Fed. 385;
In re Berlowe, 7
F. (2d) 898;
Wilkinson
v.
Goree,
18 F. (2d) 455;
In re Van Blokland,
20 F. (2d) 1016;
In re Conservative Mtge. & Guaranty Co.,
24 F. (2d) 38;
Whitney
v.
Barrett,
28 F. (2d) 760. Compare
Blair
v.
Brailey,
221 Fed. 1;
Brown Shoe Co.
v.
Wynne,
281 Fed. 807. See also,
Hillyer
v.
LeRoy,
179 N. Y. 369; 72 N. E. 237. Contra:
In re Baughman,
138 Fed. 742. It is also well settled that where an attachment is levied more than four months prior to bankruptcy, the prosecution of the claim to judgment and sale within the four months will not be enjoined or the sale set aside.
In re Blair,
108 Fed. 529;
In re Beaver Coal Co.,
110 Fed. 630;
In re Snell,
125 Fed. 154;
In re Kane,
152 Fed. 587;
In re Crafts-Riordon Shoe Co.,
185 Fed. 931;
In re Shinn,
185 Fed. 990;
Yumet
v.
Delgado,
243 Fed. 519;
Griffin
v.
Lenhart,
266 Fed. 671;
In re Norris,
283 Fed. 860;
In re Houtman,
287 Fed. 251;
In re Thompson,
288 Fed. 385;
Gatell
v.
Million,
2 F. (2d) 365. Contra:
In re U. S. Graphite Co.,
161 Fed. 583. On similar grounds the bankruptcy courts refuse to enjoin the prosecution of foreclosure proceedings under a mortgage, the lien of which is preserved in bankruptcy, if initiated prior to the date of the petition.
Eyster
v.
Gaff,
91 U. S. 521;
In re Gerdes,
102 Fed. 318;
Carlin
v.
Seymour Lumber Co.,
113 Fed. 483;
In re McKane,
152 Fed. 733;
Sample
v.
Beasley,
158 Fed. 607;
In re Pennell,
159 Fed. 500;
In re Rohrer,
177 Fed. 381;
In re Wagner’s Est.,
206 Fed. 364;
In re Schmidt,
224 Fed. 814;
Amer. Trust Bank
v.
Ruppe,
237 Fed. 581;
Duncan
v.
Girand,
276 Fed. 554;
Louisville Realty Co.
v.
Johnson,
290 Fed. 176;
In re Iroquois Utilities, Inc.,
297 Fed. 397;
Ft. Dearborn Tr. & Sav. Bank
v.
Smalley,
298 Fed. 45;
In re Smith,
3 F. (2d) 40;
In re Gillette Realty Co.,
15 F. (2d) 193;
In re Hurlock,
23 F. (2d) 500;
In re Simpson,
31 F. (2d) 317;
Bushong
v.
Theard,
37 F. (2d) 690; certiorari denied, 281 U. S.
§ 11 (b); U. S. C., Tit. 11, § 29; In re Porter, 109 Fed. 111; In re New England Breeders’ Club, 175 Fed. 501; In re Kearney Bros., 184 Fed. 190.
Code 1849, c. 186, § 6; Code 1860, c. 186, § 6; Code 1868, e. 139, § 5; 1882, e. 126, § 5; Code 1923, e. 139, § 5; Code 1931, c. 38, art. 3, § 6; In re McGraw, 254 Fed. 442. And execution is not needed to make the judgment such a hen. Maxwell v. Leeson, 50 W. Va. 361; 40 8. E. 420.
“The hen of a judgment may be enforced in a court of equity after an execution or fieri facias thereon has been duly returned to the office of the court or to the justice from which it issued showing by the return thereon that no property could be found from which such execution could be made: Provided, That such hen may be enforced in equity without such return when an execution or fieri facias has not issued within two years from the date of the judgment.” . , . Code 1849, c.. 186, § 9; Code I860, c. 186, § 9; Code 1868, c. 139, § 8; 1872, c. 30; 1882, c. 126, § 7; 1891, c. 95, § 7; Code 1923, c. 139, § 7; Code 1931, e. 38, art. 3, § 9.
Price v. Thrash, 30 Grat. 515. (The statutory provision of West Virginia is taken from that of Virginia: Code (Va.) 1849, p. 709, c. 186, § 9.)
The bill in
Metcalf
v.
Barker
was a true creditors’ bill, seeking to make available to a judgment creditor assets which could not be-reached by an execution at law.
Jones
v.
Green,
1 Wall. 330;
Dunphy
Code 1860, c. 178; Acts 1882, c. 142; 1899, c. 49; 1903, c. 15; 1915, c. 76. Code 1923, c. 132; Code 1931, c. 55, art. 12. . See In re McGraw, supra.
See In re Smith, 92 Fed. 135; In re Lengert Wagon Co., 110 Fed. 927; In re Storck Lumber Co., 114 Fed. 360; In re F. A. Hall Co., 121 Fed. 992; In re Salmon, 143 Fed. 395; In re Weedman Stave Co., 199 Fed. 948.
See Note 6, supra.