Stuart v. Hines & Eames , 33 Iowa 60 ( 1871 )

Day, Ch. J.

1. Bankruptcy proceedings! jurisdiction or State courts. On and prior to August 13, 1868, Thomas H. Isett, John Kerr and Watson B. Earr were .copartners tlle name °f Isett> KelT & 0°-> doing business as bankers and brokers at the city of ]S[ew York, in the southern federal judicial district of New York. On the 31st of December, 1868, Kerr and Earr filed their petition in bankruptcy in the United States district court of that district, asking that they and their copartner, Isett, be declared bankrupts, alleging that Isett refused to join in the petition with them. On the 21th of March, 1869, Isett, Kerr and Earr were adjudged bankrupts. On the 25th of October, 1869, the plaintiff, John M. Stuart, was - regularly chosen to be assignee of the estate and effects of the said bankrupts. On the 28th day of October, 1869, the proper register in bankruptcy executed a deed of assignment, conveying to said John M. Stuart all the estate, real and personal, of the said Thomas M. Isett, or in which he was interested on the 31st day of December, 1868. This deed was filed for record in Muscatine county, Iowa, on the 9th day of November, 1869.

Thomas M. Isett owned the real estate in controversy, situated in Muscatine county, Iowa. Hines & Eames caused an attachment to be levied on said property, on the 13th day of February, 1869. They obtained judgment on the 14th day of June, 1869. The property was purchased by Jacob Butler, as trustee of Hines & Eames, on the 25th of June, 1810. Streeter & Co. levied an attachment upon the same lands, March 11, 1869, and obtained their judgment in September, 1869. .The Farmers’ Savings Association attached March 26,1869, and obtained judgment in September, 1869. The abstract does not show that any sale has taken place under these judgments. The attachment of Powers & Newman was levied May 3,1869. They have not obtained judgment.

Appellants discuss the points made in their 'assignment of errors, under two general heads:

1. Did the judgment of the State courts estop the plaintiff from proceedings in this suit ?

2. Had the bankruptcy court jurisdiction over either the person or property of Thomas M. Isett ?

Ve will pursue the same order in our consideration of the case.

I. As to the effect of the judgments v. Isett, Kerr & Co. in the Muscatine district and circuit courts. Appellants claim that by these proceedings, valid and subsisting liens have been created in favor of the defendants. In support of their position they cite numerous authorities, aE of which we have examined with a care commensurate with ffhe importance of the questions involved in this appeal, None of them, in our opinion, support the position they are cited to sustain.

In re Houseberger, 2 Bank. Reg. 33, is as follows : An attachment was levied on the 8th of dune, and the petition in bankruptcy was filed on the 10th of June. The assignee claimed the attached property of the sheriff, who refused to deliver it until his fees and charges for keeping were paid. It was held that the attachment was dissolved as of the date of filing the petition in bankruptcy; but that,,-having been issued regularly, the sheriff had a lien upon the attached property for his fees.

In re Hugh Campbell, Supplement, 1 Bankrupt Beg. page 37, is a case in which judgments had been rendered, in the State court of Pennsylvania, against the party sought to be declared a bankrupt, prior to the period when the bankrupt law went into operation. Upon final process a large amount had been realized by sale of property, and the money brought into the State court for distribution. It was held by McCandless, J., that the court in bank-, ruptey could not restrain the plaintiffs in the judgments, and the courts of the State and their executive officers from further proceedings, with the desigu to bring all the property of the bankrupt into the United States district court, for division among creditors.

In re S. and M. Burns, ex parte Wm. Burns, Supplement, Bank. Reg., page 38, Burns filed his petition in bankruptcy on the 31st of July, 1867, and was duly adjugded a bankrupt. On the 18th day of July, 1867, thirteen days before the filing of the petition, the First National Bank of Clarion, a creditor of the firm of which the bankrupt was a partner, obtained judgment on warrant of attorney, for the sum of $10,300. A fi. fa. was issued, and a levy jnade prior to the commencement of bankruptcy proceedings. It was held that the judgment, could not be assailed in the bankrupt court.

In re W. W. Kerr, 2 Bank. Reg., p. 124, judgment was obtained and levy made upon the property of the bankrupt, seven days prior to the filing the petition in bankruptcy. Action was brought by the assignee of Kerr, petitioning the court to declare the levy void, aud for an order directing the sheriff to deliver the goods levied upon to the assignee. The attached property having been, upon an order of the bankruptcy court, delivered to the assignee, the court ordered the assignee to pay the amount of saicl judgment, interest and costs, and that the balance of the proceeds of the attached property be considered and dealt with as part of the estate of the bankrupt.

Substantially to the same effect is In re Francis Schnepf, 7 Am. Law Reg. 204.

In re Abraham B. Clark and Abraham Bininger, 3 Bank. Reg. 123, Clark commenced an action against his copartner Bininger, in the superior court of tlie city of New York, on the 19th. of November,-18.69, for tlie dissolution of tbe partnership, and praying the appointment of a receiver. Tbe receiver was appointed on tbe 19th of November, and on tbe same day be took possession of tbe partnership effects. On tbe 11th day of December, 1869, a petition in involuntary bankruptcy was filed against Clark & Bininger, under which they were adjudged bankrupts. Tbe receiver resisted tbe marshal in bis endeavors to take possession of tbe copartnership estate of tbe bankrupts. Upon petition, presented by tbe assignee, it was held that all right of action of the plaintiff Clark was vested in tbe assignee. Clark was ordered to execute to tbe assignee a proper instrument to enable him to prosecute the suit pending in the State court, and all further proceedings, without tbe consent of the bankruptcy court, were enjoined. And, as it was thought desirable that tbe possession of tbe receiver should not be disturbed, until tbe subtitution of tbe assignee took place, a decision upon that portion of tbe assignee’s petition, praying tbe possession of tbe property in tbe receiver’s bands, was deferred.

The case of Clark v. Bininger, in tbe superior court of New York, 9 Am. Law Reg. 304, is the one referred to in tbe above case. In this case the superior court of New York held that, where the jurisdiction of a State court has attached in a bill for an account between partners, tbe jurisdiction is not disturbed by a subsequent adjudication in bankruptcy; and tbe assignee, for attempting to take the property from tbe custody of tbe receiver, was punished for a contempt.

The case of The United States v. The Judges of the Superior Court of the City of New York, 9 Am. Law Reg. 297, grew out of tbe order in the above case, of tbe superior court of tbe city of New York, adjudging tbe assignee guilty of a contempt. A petition was filed in the circuit court of tbe United States for tbe southern district of New York, asking a writ of prohibition to the State court. It was held that the power of the circuit court of the United States to issue a writ of prohibition to another court is confined to cases where the issuing of such writ is necessary for the exercise of its own jurisdiction, and the writ was denied.

In Samson v. Burton, 4 Bank. Reg. 1, Oscar A Burton in 1860, and subsequently, instituted various suits against Alunson M. Clark, in the State courts. These suits were pending at the time the petition in bankruptcy was filed. On the 18th day of February, 1870, the day before the filing of the petition in bankruptcy, Clark and Burton entered into a written agreement with reference to their disputes. The assignee filed his petition in the bankruptcy court, asking that Oscar A. Burton be restrained from proceeding in the State court, and that the bankruptcy court proceed to settle the claims Clark and Burton had upon each other. The latter part of the prayer was denied. Burton was enjoined from making any use of the agreement of the 18th of February, 1870, and Clark was required to execute such papers to the assignee as would enable him to prosecute the causes pending in the State courts.

In re Geo. J. Davis, 2 Bank. Reg. 125, was a case in which a creditor of the bankrupt held a claim secured by a deed of trust, in the nature of a mortgage, with a power of sale in a third person, as trustee. It was held that he must prove his .debt as a creditor holding a' security, and obtain the permission of the court to have the security sold, and that a sale without such permission would be set aside.

In re Bates v. Tappan, 3 Bank. Reg. 159, it was held that the provision of the United States bankrupt act, that an assignment under the act shall vest in the assignee the title to all the bankrupt’s property, although the same is attached on mesne process, and shall dissolve any such attachment made within four months next preceding the commencement of said proceedings in bankruptcy, does not prevent the enforcement of a judgment against the bankrupt, on a portion of his property attached in the action more than four months before he commenced proceedings in bankruptcy. Bowman v. Harding, 4 Bank. Reg. 5, decides the same point.

In Charles Armstrong, assignee, v. Rickey Bros., a judgment, obtained in the State court’ of Ohio, and a levy made thereon the day before the petition in bankruptcy was filed, were sustained.

Sedgwick v. Minick, 1 Bank Reg. 204, is as follows :

On the 6th day of Jan., 1857, Andrew Beiser, being insolvent, made an assignment of his property, giving preference among his creditors. In, Jan., 1868, Beiser was adjudged a bankrupt. The assignee claimed the property of the bankrupt theretofore assigned.

Nelson, J. said : “ It is difficult to see what right exists in the assignee in bankruptcy to this property thus devoted by’the law to the payment of the debts of these judgment creditors, some ten years before any right attached in bankruptcy,” and his right thereto was denied.

In Hawkins’ Appeal, supreme court of errors of Connecticut, 8 Am. Law Reg. 205, it was held that the bankrupt act does not absolutely and totally suspend or abrogate State insolvent laws, and that a voluntary assignment, good at common law, will be sustained where no proceedings have been instituted under the bankrupt act.

In Ex parte Donaldson, 7 Am. Law Reg., p. 213, a creditor had acquired a valid lien prior to the commencement of bankruptcy proceedings. The bankruptcy court refused to restrain, delay or hinder the creditor in prosecuting his claim.

In re Wallace, 2 Bank Reg., p. 52, the bankrupt petitioned for an injunction to prevent certain of his creditors who had obtained judgments against him, pending the bankruptcy proceedings, from selling his property on execution after he had been adjudged a bankrupt. The judgments were obtained after the filing of the petition in bankruptcy, in pursuance of attachments levied within four months of the commencement of bankruptcy proceedings. It was held that the attachments were dissolved by the assignment to the assignee, and must be considered as of no effect. That the respondents could not subject the estate of the bankrupt to the exclusive payment of their particular demands, and they were enjoined from selling the property under execution.

Thus we have reviewed all the authorities cited by appellant. Not one of them is a case where an attempt was made in a State court to acquire a lien against the property of the bankrupt, after the filing of the petition in bankruptcy. Not one of them, even by implication or analogy, sustains the validity of such a lien. Indeed, the last case is a very strong one against the position of appellants, for if an attachment, levied within four months prior to the filing of the petition in bankruptcy, will in another court be held void, and execution for the enforcement of the .judgment be stayed by injunction, what becomes of an attachment levied many months after the petition in bankruptcy is filed %

In the case at bar the petition for an adjudication of bankruptcy was filed on the 31st day of December, 1868. The filing of this petition constituted the commencement of the bankruptcy proceedings.

The filing of a petition for adjudication in bankruptcy, either by a debtor in his own behalf, or by any .creditor against a debtor, upon which an order may be issued by the court, or by a register in the manner provided in section 1, shall be deemed and taken to be the commencement of proceedings in bankruptcy under this act.” Bankrupt Act, § 38.

In re Patterson, Bank. Reg. Sup. 27. “ When an adjudication of bankruptcy is made, following the filing of a petition, then it is judicially established that the proceedings in the case commenced when the petition was filed.”

In re Patterson, supra, section 14 of the bankrupt act provides: “ That as soon as said assignee is appointed and qualified, the judge, or, where there is no opposing interest, the register, shall, by an instrument under his hand, assign and convey to the assignee all the estate, real and personal, of the bankrupt, with all his deeds, boobs and papers relating thereto, and such assignment shall relate back to the commencement of said proceedings in bankruptcy, and thereupon, by operation of law, the title to all such property and estate, both real and personal, shall vest in said assignee, although the same is then attached on mesne process as the property of the debtor, and shall dissolve any such attachment made within four months next preceding the commencement of said proceedings.” The date of the filing of the petition in bankruptcy becomes the date from which the assignee takes all the property of the bankrupt, which was his property at that date.

In re Patterson, supra. “The commencement of proceedings in bankruptcy operates as a supersedeas of all process in the hands of the officer of any" other court, and as an injunction against all other proceedings than such as may afterward be had under the authority of the court of bankruptcy, until such case is closed. Thus the levy of an execution, or the filing of a bill to foreclose a mortgage, or the filing of a libel vn rem, or the issuing of a distress warrant, or the-filing of a mechanic’s lien claim where the lien only exists from the time of such filing, or the issuing of a writ of replevin for .the purpose of affecting the estate, are null, and void, when such proceedings are instituted in any other court after that time. Claims against the bankrupt’s property can only be enforced in the court of bankruptcy during the pendency of the proceedings, and this principle extends not only to liens, but to all- controversies concerning -even the title to property which was in his possession at the time of filing the petition.” Bump’s Law and Practice of Bankruptcy, citing Pennington v. Sale & Phelan, 1 Bank. Reg. 157; In re Kerosene Oil Co., 2 id. 164; S. C., 3 id. 31; In re People's Mail Steamship Co., 2 id. 170; In re Charles H. Wynne, 4 id. 5 ; In re Dey, 3 id. 81; In re Vogel, 2 id. 138; S. C., 3 id. 49; which fully sustain the doctrine of the text.

The conveyance to the assignee was made on the 28th day of October, 1869, and related back to the 31st day of December, 1868, and vested in the assignee all the property of the bankrupt owned by him at that date. The attachments under which the defendants claim were all levied after the petition in bankruptcy was filed. The authorities cited clearly settle the doctrine, that after the filing of a petition in bankruptcy, no valid lien upon the property at that time owned by the bankrupt can be acquired by proceedings in a State court, and are conclusive in favor of the assignee against these defendants. And, if this were not so, the requirements of the bankrupt act might easily be ignored, and its provisions nullified. It can have force and efficiency, and can accomplish its purposes by no other construction.

There is another view of this case which is equally conclusive against the title of these defendants. The sale of the land upon execution to Jacob Butler, under the Hines & Eanies judgment, occurred on the 25th of June, 1870. On the 9th of November, 1869, the deed of conveyance to the assignee was recorded in Muscatine county, and, by the provisions of the bankrupt act, section 14, related back to the 31st day of December, 1868,- the date of filing the petition in bankruptcy. It was apparent of record then, at the time of the sale upon execution, that the judgment debtor had no title to, or interest in, the property sold. Hence, under the doctrine of Norton, Jewett & Busby v. Williams, 9 Iowa, 528, the purchaser at sheriff’s sale acquired no title. See, also, Bell v. Evans et al., 10 Iowa, 353. And. as it does not appear that the sales under the judgments of Streeter & Co., and of the Farmers’ Saving’s Association occurred before the deed to the assignee was recorded, nor indeed that any sale has taken place under these judgments, the same principle applies as to them. And as Powers & Nqwman are simply attaching creditors, without any judgment, the deed to the assignee, though unrecorded, takes precedence of their claim. Bell v. Evans, supra.

2. PnEADiNa: replication. Appellants claim that the allegation that they are the owners of the premises in dispute, by virtue of the procee0ings in the State courts, makes a counterclaim, of title, which, not being denied by plaintiff, must be taken as admitted. This position is not tenable. The allegation of title is made mei-ely as a defense to plaintiff’s claim. No affirmative relief is sought-against the plaintiff. A counter-claim is a cause of action in favor of the defendants, or some of them, against the plaintiffs, or some of them. Rev., § 2889.

3. Bankruptcy proceedings: It is further claimed that it was the duty of the assignee to appear and defend in the State court, in place of the bankrupt, and that having failed to do so, he estopped from asserting any claim to the ProPei-ty- This position is equally unsound.The bankimpt act authorizes the assignee to prosecute and defend for the bankrupt, causes pending at the time of filing the petition in bankruptcy. Section 16.; We find no provision of the bankrupt law, nor any adjudged case, which requires the assignee to go into a State court to defend an action commenced against the bankrupt Subsequently to the date of filing the petition in bankruptcy. Such a determination would be in direct; conflict with the whole current of the authorities, which, hold that all proceedings instituted against the bankrupt, after the filing of the petition, in any other court than the court of bankruptcy, are invalid. Besides, the judgments in all the cases, which have been prosecuted to judgment, were rendered before the assignee was appointed.

We conclude that the first position assumed by appellants can hot be maintained.

4. -service of order. II. As to the jurisdiction of the bankruptcy court over the person and property of Thomas M. Isett. This ques-ti°n ma7 brie% considered. Appellee claims that the deed of assignment is, in this case, conclusive that such jurisdiction existed. In the view which we take of the case, we heed not determine as to the soundness of this claim.

The petition in bankruptcy was addressed to the Hon. Samuel Blatchford, judge of the district court of the United States, for the southern district of New York. The order upon Thomas M. Isett, to show cause why the prayer of the petition should not be granted, was served in Jersey City, State of New Jersey, by Fisher A. Baker, one of the solicitors of Farr and Kerr, the petitioners.

Appellants claim, first: That personal service cannot be made out of the district in which the petition is filed. Second : That service must be made by the U. S. marshal, or by a messenger, as provided by statute.

1. The first position is not sound. Section 36 of the bankrupt act provides that a partnership may be declared bankrupt upon the petition of any one of its members. Bule 18 promulgated by the supreme court of the United States, Bump’s Bankruptcy, 487, provides that notice shall be given to any partner refusing to join in the petition, in the same manner as provided in the ease of a debtor petitioned against. Section 40 of the bankrupt act provides that, upon the filing of the petition in bankruptcy, the court shall direct the entry of an order requiring the debtor to appear and show cause why the prayer of the petition should not be granted. “ A copy of the petition and of such order to show cause shall be served on such debtor by delivering the same to him personally, or leaving the same at his last or usual place of abode; or, if such debtor cannot be found, or his place of residence ascertained, service shall be made by publication, in such manner as the judge may direct.” Bump’s Bankruptcy, 449.

The act is entirely silent as to the place of service. The mode is. designated. Under section 11 of the bankrupt act, any member of a firm may file his petition to have the firm declared bankrupt, in any district where the partnership business has been carried on for the longest period of the six months immediately preceding the filing of the petition. In such case, if the other members of the firm reside out of the district where the business is carried on and the petition is filed, efficiency can be given to this provision only by service out of the district. We do not, however, understand appellants to deny the power to obtain service out of the district. They contend that such service 'can be made only by publication. But the act authorizes service by publication only when the party to be-served ^cannot be found, or his place of residence ascertained. The fact that Isett was found and personally-served, shows that he does not come within the exception authorizing service by publication.

Nepee, if any service outside of the district in which the petition is filed is proper, personal service must be.

5. -by whom served. 2. The second position is, in our opinion, equally untenable. ^The act nowhere provides by whom this service shall made. Section 11 of the act provides that the ju(3ge or register shall issue a warramt directed to the marshal; and section 40 provides that the court may issue a warrant to the marshal of the district, commanding him to arrest the said bankrupt. The fact that the act makes special provision for the service of certain processes by the marshal, and remains entirely silent as to the person by whom the order to show cause shall be served, is a strong argument against the position that such order can be served by tbe marshal only. Expressio wnius est exclusio alterius.

In the case of McMillan v. Scott & Allen, 2 Bank. Reg. 28, the question was raised whether a subpoena could be served by the party. In determining the question, AEcCandless, district judge, holds this language : “ It is true that the marshal is the executive officer of the court, and may be directed by the court to serve it, but the mandate of the writ is not to him, but to the witness, who is commanded to appear and testify. As there is no legislation of congress directing the service of a subpoena by the marshal, we do not feel disposed ■ to depart from the practice .of the State courts, which has always permitted the , party to serve the precept, and allowed him costs for the same. The first section of the act of 24th of September, 1Y99, requires the marshal ‘to execute throughout the district all lawful precepts directed to him, and issued under the authority of the United States.’ But the subpoena is not directed to him, but to the witness, and the marshal might legitimately refuse to serve it, unless commanded so to do by an order of the court.” The order to show cause, in like manner, is not directed to the marshal, but to the debtor, and in the absence of legislation upon the subject we know of no reason why another may not serve it.

6.-jurisdiction : pleading. III. Some objection is urged in the argument to the . sufficiency of the averments of the petition in bankruptcy. It is averred that the petitioners for the six months next preceding the application have been residents of the judicial district in which the petition is filed, and that they and said Isett within said time were • partners in trade in said district. While it might have been more formal if the petition had averred that during the past six months they had been engaged for the longest period, in business in said district, thus negativing the idea that as to said firm the proper jurisdiction was elsewhere, yet as the court to which it was directed has treated it as sufficient, and it does not appear that thé firm did business for a longer period in. any other district, we must, for the purposes of this proceeding, regard the petition as containing enough to confer upon the court jurisdiction of the application.

"We discover no error in fhe judgment of the district court.

Affirmed.