Miller v. Black , 1 Pa. 420 ( 1845 )

The opinion of the court was delivered by

Kennedy, J.

The attachment which is sought to be set aside in this case, was issued as a substitute for an execution, under our act of Assembly, by Alexander H. Miller, assignee of Patterson and Vandyke, upon a judgment previously entered on the 23d day of November, 1842, in the District Court of Alleghany county, against James W. Boyle. The judgment was obtained or entered by virtue of a bond and warrant of attorney, executed and given by Boyle on the 3d day of that month. On the 23d of the month, the same day on which the judgment was entered, Boyle, by his petition presented to the District Court of the United States, held at Pittsburgh, for the Western District of Pennsylvania, applied for the benefit of the bankrupt law; whereupon, the court appointed the 26th day of December then next following for a hearing of him and his creditors, and directed that he should give at least twenty days’ previous notice thereof to his creditors, by a publication in two of the newspapers of Pittsburgh, as specified in the order. This was accordingly done, and on the 26th ¿ay of December, 1842, after a hearing by the said court, was regularly declared a bankrupt. But previously to this, on the 9th nay of December, 1842, the plaintiff below sued out the writ of attachment, here sought to be set aside, upon his judgment, by virtue whereof, the sheriff, to whom the writ of attachment was directed and delivered for the purpose of being executed, attached various debts owing by divers persons to the said James W. Boyle, giving them due notice thereof as garnishees, all which was done before the said 26th day of December, 1842. The only question presented by the facts thus stated, is, whether the plaintiff in the judgment below is entitled to the benefit of his attachment. Fraud is not alleged, so that the judgment in his favour below and the proceeding-had upon it must be regarded as bona fide and fair; and also, as available, unless, rendered otherwise by the bankrupt law, or some provision contained in it.

The only part of the bankrupt act which appears to militate against the judgment and the proceedings had upon it in this case, is contained in the second section, which provides, “ that all dealings and transactions by and with any bankrupt, bona fide made and entered into more than two months before the petition made and filed against him, or by him, shall not be invalidated, or affected by the act: Provided, that the other party to any such dealings, or transactions, had no notice of a prior act of bankruptcy, or of the intention of the bankrupt to take the benefit of this act.” By a fair construction of the provision just recited, the natural, and indeed necessary inference "would seem to be, that Congress intended to make all dealings and transactions by and with- any bankrupt invalid, though made and entered into bona fide, if calculated to give the party with whom sueh dealings or transactions were had, a preference over the other creditors of the bankrupt; unless made or entered into more than two months before the petition made and filed against or by him; and, even then, not to be valid, unless the party with whom such dealing or transaction was had, had no notice, at the time, of a prior act of bankruptcy committed by the bankrupt, or knowledge that he intended to take the benefit of the bankrupt act. It cannot well be denied, that the words “all dealings and transactions,.” might be so construed as to comprehend and embrace the judgment given to the plaintiff below, as also the' proceedings had upon it; were, it not for the provision in the beginning of the same section, which would seem to exclude this construction, by providing specifically, that “ all payments, securities, conveyances, or transfers of property or agreements made or given subsequently to the time when the act was to come into operation, by any bankrupt.in contemplation of bankruptcy, and for the purpose of giving any creditor, endorser, surety, or other person, any preference or priority over the general creditors of such bankrupt, should be deemed utterly void, and a fraud upon the act.” The judgment given to the plaintiff below, being most clearly a security, comes, therefore, both within the letter and the meaning of the clause just referred to, and recited; and was given only twenty days before the defendant in it made and filed his petition for the benefit of the act, and without stay of execution, as it would seem. These matters, taken in connection, if the fact were so and could have been shown, that the bankrupt was insolvent at the time, and unable to go on with his business, would most likely have been sufficient to satisfy a jury, that it was executed in contemplation of bankruptcy, for the purpose of giving the plaintiff below a preference or priority over the other creditors of the bankrupt; which, if so, would doubtless render the judgment void as against them. But, as this is not admitted by the case stated, nor found to he so by a jury, the court, I am inclined to think, cannot say, from all that is in the case stated, that the judgment bond was executed in contemplation of bankruptcy, for the pwpose of giving a preference to the other creditors of the bankrupt, and pass upon it as if it were done with that view. But seeing it was executed according to the case as stated, within less than two months before the bankrupt made and filed his petition for the benefit of the bankrupt act, itbecomes the duty of the court to say, whether it is not void, under the operation of the bankrupt law, as against the other creditors of the bankrupt, and particularly under the provision first recited above. Sir Samuel Romily's act, 46 Geo. 3, cap. 135, sec. 1, contains a provision somewhat similar in its terms. It is thereby enacted, "that all contracts and transactions by and with any bankrupt, bond fide made or entered into, more than two calendar months before the date of the commission, shall, notwithstanding any prior act of bankruptcy committed by such bankrupt, be good: provided, the person so dealing with such bankrupt had not, at the time, notice of any prior act of bankruptcy having been committed by such bankrupt, or that he was insolvent, or had stopped payment.” In an anonymous case, in note, 1 Camp. Rep. 492, where a suit was brought by the endorsee of a bill of exchange, drawn by J. S. more than two months before a commission of bankruptcy sued out against the drawer, payable to his own order, and delivered at the time to the plaintiff, but not endorsed until some time afterwards, within two months of the date of the commission; it was held, that the property in the bill passed by the delivery of it to the plaintiff, and not by the endorsement; and the delivery being more than two months before the date of the commission, it was therefore good under the provision of the act just recited. But it is plain, from the decision of the court, that the bill would have been held void by the operation of the act, if it had been drawn and delivered within two calendar months anterior to the date of the commission. So it was held in Fearnley v. Wright, 1 Bing. N. C. 446, that a bankrupt having, within two months before the fiat, deposited chattels by way of pledge, in consideration of an advance of money, that the transaction, though bona fide, and without notice of an act of bankruptcy, was not valid under the 81st sec. of the bankrupt act of Geo. 4, cap. 16, which enacts "that all conveyances by, and all contracts and other dealings and transactions by and with any bankrupt, bona fide made and entered into, more than two calendar months before the date of issuing of the commission against him, &c., shall be valid, notwithstanding any prior act of bankruptcy by him committed; provided, the person or persons so dealing with such bankrupt, See., had not, at the time of such conveyance, contract, dealing or transaction, notice of any prior act of bankruptcy by him committed.” And held also, that the transaction vras not protected by the section immediately following, which declares, "that all payments really and bona fide made, or which shall thereafter be made by any bankrupt, or by any person on his behalf, before the date and issuing of the commission against such bankrupt, (such payment not being a fraudulent preference of such creditor,) shall be deemed valid, notwithstanding any prior act of bankruptcy by such bankrupt committed; and all payments really and boná fide made, or which shall thereafter be made to any bankrupt before the date and issuing of the commission against such bankrupt, shall be deemed valid, notwithstanding any prior act of bankruptcy by such bankrupt committed; and such creditor shall not be liable to refund the same to the assignees of such bankrupt: provided, the person so dealing with the said bankrupt had not, at the time of such payment by or to such bankrupt, notice of any act of bankruptcy by such bankrupt committed.” But in Cowie v. Harris, 1 Moody & Malkin, 141, where a commission issued on the 14th of May, a dealing on the 14th of March preceding was held good and valid, because more than two calendar months before the issuing of the commission.

So Chief Justice Tindal, in delivering the opinion of the court in the case of Skey v. Carter, 11 Meeson & Welsby, 573, says, “the effect of the 8lst section of the act of 6 Geo. 4, c. 16, taken by itself, would be to protect all executions, whether before or after an act of bankruptcy, under which there had been a seizure more than two calendar months before the fiat, when the execution creditor had no notice of a prior act of bankruptcy. This 81st section of 6 Geo. 4, c. 16, in addition to what is stated above as contained in it, has also the following words: “ and all executions and attachments against the lands and tenements, or goods and chattels of such bankrupt, bona fide executed or levied more than two calendar months before the issuing of such commission, shall be valid, notwithstanding any prior act of bankruptcy by him committed: provided the person or persons at whose suit, or on whose account, such execution or attachment shall have issued, had not, at the time of executing or levying such execution or attachment, notice of any prior act of bankruptcy by him committed.”

Our act of Congress contains no such clause as the one just recited, in which executions or attachments are specifically mentioned; and hence a question may arise, whether they ought to be considered as included in the words “ all dealings and transactions,” contained in the first clause of the act of Congress already recited. If it be that they ought not to be regarded as included, then the proper conclusion would seem to be, that the execution or attachment in the case before us ought not to have been set aside, but, on the contrary, supported, and the rule for setting aside the same discharged. For it is clear, according to the terms of the 3d section of the act, that no claim or right of property to the debt owing to the bankrupt which was attached, vested in the plaintiff, the assignee, before the decree of the court was had, declaring the defendant named in the attachment a bankrupt. The words of the section in this-respect are, “ that all the property, and rights of property, of every name and nature, and whether real, personal,- or mixed, of every bankrupt, except as is hereinafter provided, who shall, by a decree of the proper court, be declared to be a bankrupt within this act, shall, by mere operation of law, ipso facto, from the time of such decree, be deemed to be divested out of such bankrupt, without any other act, assignment, or other conveyance whatsoever; and the same shall be vested, by force of the same decree, in such assignee, as from time to time shall be appointed by the proper court for this purpose; and the assignee so appointed shall be vested with all the rights; titles, powers, and authorities to sell, manage, and dispose of the same, and to sue for and defend the same, subject to the orders and directions of such court, as fully and to all intents and purposes, as if the same were vested in, or might be exercised by such a bankrupt, before or at the time of his bankruptcy declared as aforesaid.” On the 9th of December, 1842, the attachment was issued and executed by the sheriff prior to the 26th of that .month: the day on which the defendant in it was declared by the court a bankrupt.

The execution of the attachment must be considered, I apprehend, as creating a lien, at least, on the debts attached by virtue thereof, in favour of the plaintiff named in it; and, having been executed before the defendant named in it was declared a bankrupt, cannot be affected by the subsequent decree of bankruptcy. Indeed, by the latter clause of the second section, the lien created by the execution of the attachment appears to be protected, which declares, “ that nothing in this act contained shall be construed to annul, destroy, or impair, any liens, mortgages, or other securities, on property real or personal, which may be valid by the laws of the States respectively, and which are not inconsistent with the provisions of the second and fifth sections of this act.” Seeing it does not appeal’ by the case stated, that the plaintiff in the attachment had any notice at the time he sued out the same, or at the time when it was executed, that the defendant in it had applied for the benefit of the bankrupt law, it would be unjust that he should be subjected to the costs of having it sued out and executed without deriving any benefit from it; for, unless it be valid, this injury would inevitably follow to the plaintiff in the attachment. But it may be said, and seems to have been thought by some, that the filing of the petition by the bankrupt for the benefit of the act, and the order of fire court thereon, ought to be considered constructive notice, at least, thereof, to the plaintiff in the attachment. But constructive notice may work great injustice in many instances, where there has been no actual notice, and therefore, perhaps, ought not to be much favoured. It is certainly not declared by the act, that the filing of the petition, and the order of the court thereon, shall be considered notice to the creditors of the bankrupt of his intention to take the benefit of the bankrupt act; nor is there any reason why it should, because it is a voluntary proceeding on his part, and he may not go through with it, but discontinue it without doing so, after having induced his creditors to suspend, for a time, all proceeding against him to enforce the payment of their claims, which may be all that he intended. But it was ruled by the King's Bench, in the case of Sowerby v. Brooks, 4 Barn. & Ald. 523, on writ of error reversing the judgment of the Common Pleas, that the issuing of a commission of bankruptcy was not, of itself, sufficient notice to all tire world of a prior act of bankruptcy, and, therefore, if a pay- ' ment was made of a debt to a bankrupt, after the issuing of the commission, and before the party paying had any actual knowledge of the bankruptcy, such payment was good. So in Hithcox v. Sedgwick, 3 Sug. Vend. 467, 468, it was adjudged by the House of Lords, that a commission of bankruptcy was not, of itself, notice to a purchaser, and accordingly reversed .the decision of the Lords Commissioners Trevor and Hutchins, holding against Lord Commissioner Rawlinson, that a commission of bankruptcy was notice to a purchaser. See also Lord Henly on Bankruptcy, 259 to 262, where the subject is noticed, and it is shown that the issuing of -a commission- of bankruptcy is not, and ought not to be, regarded as notice, unless made so by the express terms'of the act. But even supposing the plaintiff had had actual notice of the bankrupt’s having presented his petition for the benefit of the bankrupt law, I do not see why that should have prevented him from suing out execution upon his judgment, and having the amount thereof made out of the effects of the bankrupt.

Although the bankrupt had presented his petition for the benefit of the bankrupt law, he was still invested, notwithstanding, with his rights to all his property, the same as before presenting his petition, and consequently it remained liable, as before, to be taken in execution for the payment of his debts, until he was declared a bankrupt, and an assignee was appointed. Before this took place, however, the attachment sued out on the judgment, in the nature of an execution, was executed, and a lien thereby created in favour of the plaintiff, upon the effects of the bankrupt so attached, which could not be set aside or defeated by the subsequent decree of the court, declaring the defendant in the attachment a bankrupt, and appointing the plaintiff in error here his assignee. It being a lien, created under a legal proceeding according to the laws of the state, and in nowise inconsistent with the provisions of the bankrupt law, is in express terms protected by the latter part of the second section thereof. The application of the bankrupt for the benefit of the act being voluntary, he was not bound to pursue it, so as to have himself declared a bankrupt, and divested of his rights to his property. He could, at any stage of the proceeding previously thereto, have discontinued it, and thus have baffled, for a time at least, the efforts of his creditors, even of judgment creditors, to collect their debts, if it were to be held that judicial process could not be issued against, and executed upon, the property or effects of one against whom judgments were had for debts owing by him, during the pendency of his petition for the benefit of the bankrupt laws. This would certainly be unjust, and could not, I apprehend, have been intended by the makers of the law. For this reason I would also hesitate to say, as Mr. Justice Story seems to have thought, that the decree by relation covered all the property which the bankrupt had at the time of filing his petition, or during any period of the interim. 5 Law Rep. 307, 308. But the words of the act put an end to all question, in my mind, on this point, and show most clearly and unequivocally that the decree has not, and could not have been intended to have such relation. The words of the law, as recited above, show most conclusively, to my mind, that they are only susceptible of one construction, which is, that tire divesting and vesting of the property must necessarily be confined to the date of the decree. This construction has been given to them by Judge Prentiss of the District Court of the United States for Vermont, 5 Law Rep. 393. Also, by Judge Dickerson of the District Court of the United States for New Jersey, 5 Law Rep. 136. And again, by Judge Randall of the District Court of the United States for the eastern district of Pennsylvania, 1 Law Journal, 145, which was approved and confirmed by Mr. Justice Baldwin, late of the Supreme Court of the United States, in Dudley's case, 1 Law Jour. 302, 330, 331, 332.

We, therefore, think the judgment of the court below ought to be reversed, and accordingly reverse it; thus discharging Üie rule in the court below, granted to show cause why the writ of attachment, and the proceedings thereon, should not be discharged. And further order and direct that the costs of the rule, and also all proceedings had thereon since, be paid by Samuel W. Black, the assignee in bankruptcy; and the cause remanded to the court below to proceed therein.