Case ID: wash_20/html/0545-01.html
Source: Caselaw Access Project
Author: {"author": "Reavis, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

[No. 3209.
    Decided February 9, 1899.]
    The State of Washington, on the Relation of Wellington Strohl, as Receiver, v. The Superior Court of King County et al.
    
    MANDAMUS TO COURT-JURISDICTION IN INSOLVENCY CASES—BANKRUPTCY LAW-APPOINTMENT OE RECEIVERS.
    Mandamus will lie to compel a superior court to assume jurisdiction of an action by a receiver of an insolvent corporation, which the court had declined on the ground that the enactment of the federal bankruptcy law of July 1, 1898, had suspended the jurisdiction of state courts in insolvency cases, where there has been no proceeding in bankruptcy instituted respecting the matter in controversy.
    Under the laws of this state authorizing the courts to appoint receivers of corporations which are insolvent, or in imminent danger of insolvency, with a view to rendering the insolvent estate a trust fund for the benefit of. all creditors, ratably and equally, the courts retain jurisdiction over such corporations until they may he adjudged, bankrupt under the law of congress, by the proper tribunal.
    
      Original Application for Mandamus.
    
    
      Donworth & Howe, and Ira Bronson, for relator.
    
      Strudwick & Peters, and Bausman, Kelleher & Emory, for respondents.
   Tlie opinion of tlie court was delivered by

Reavis, J.

The facts set forth in the application are substantially that about the 19th of December, 1898, the relator was appointed receiver of the Skookum Box & Lumher Company, a corporation created and existing under the laws of this state; that the appointment was made in a case wherein the Seattle Hardware Company, a corporation, was plaintiff, and the Skookum Box & Lumber Company was defendant; that as the duly qualified and acting receiver of the Skookum Box & Lumber Company, on the 27th day of December, 1898, the relator instituted an action in the superior court of King county against the Seattle National Barde, a corporation, and the sheriff of King county and certain other defendants. The object of the action was to vacate a certain judgment of foreclosure rendered by the superior court of King county, in favor of the Seattle National Bank and against the Skookum Box & Lumber Company, which judgment foreclosed a chattel mortgage executed by the Skookum Box & Lumber Company to the Seattle National Bank, and to have the mortgage adjudged void. The allegations of the complaint show that the mortgage was given by the Skookum Box & Lumber Company to secure a pre-existing debt, and, at the time it was executed, the Skookum Box & Lumber Company was insolvent, in the sense that it was wholly unable to meet its obligations as they matured in the ordinary course of business, and that the intent of the mortgage was to constitute the Seattle National Bank a preferred creditor of the Skookum Box & Lumber Company. It was further alleged that the property covered by the mortgage, if sold at forced sale, would be insufficient to pay the indebtedness, and there would be no property remaining of the Skookum Box & Lumber Company out of which the general creditors of the corporation could receive payment; and the further allegation was made that another defendant had obtained a judgment against the Skookum Box & Lumber Company and had caused its property to be levied upon. The complaint prayed for an injunction against the defendants restraining them from selling the property of the Skookum Box & Lumber Company, and that the mortgage of the Seattle National Bank be declared void, and the possession of the property of the lumber company be delivered to the receiver, and for general equitable relief. The defendant Seattle National Bank appeared and answered that the Skookum Box & Lumber Company was a corporation organized under the laws of this state engaged in manufacturing, trading and mercantile pursuits, and, at all times in the complaint mentioned, owed debts to the amount of a thousand dollars, and that the purpose and scope of the receivership proceedings in which the relator was appointed receiver was to declare the Skookum Box & Lumber Company an insolvent corporation and to wind up and distribute all its property to its creditors. It appears from the return of the judge of the superior court to the alternative writ that the action came on for hearing on the lYth of January, 1899, and that the answer of the Seattle National Bank in said cause was deemed a plea to the jurisdiction of the court, and that the court held such plea sufficient and dismissed the cause for want of jurisdiction. No proceedings in bankruptcy under the law of the United States which took effect on the first day of July, 1898, have ever been instituted, and all the proceedings in the action dismissed took place since the first of July, 1898.

1. Belator appears to have no plain, speedy and adequate remedy by appeal, and, if the superior court had jurisdiction, mandamus is the proper remedy here to require that court to proceed and try the cause. The single question presented is, Did the enactment of the federal bankruptcy law July 1, 1898, suspend the right of the state court to appoint a receiver for an insolvent corporation under the laws of this state % It is conceded that the enactment of the general bankruptcy law by Congress superseded and suspended all state insolvency laws. While the industry of the learned counsel upon each side in this controversy in the citation of authorities is commendable, yet we are unable to find one precisely in line with the facts here, and there is apparently some conflict in the expressions of different courts. First noticing authorities presented by counsel for the respondent:

In re Merchants Insurance Co., Fed. Cas. No. 9441, an insurance company was declared insolvent and a receiver appointed by the state court. Thereafter a petition was filed in the federal court to declare the corporation bankrupt and take possession of its assets, and the petition was allowed 'and the court observed:

It also seems clear to us that in so far as a state law attempts to administer on the effects of an insolvent debtor and distribute them among creditors, it is to all intents and purposes an insolvent law, although it may not authorize a discharge of the debtor from further liability on its debts.”

It was also held in this case and In re Washington Marine Insurance Co., Fed. Cas. No. 17,246, that the acquiescence of the defendant in the appointment of the receiver was an act of bankruptcy. The case In re Independent Insurance Co., Fed. Cas. No. 7017, arose under the bankruptcy act of 1867. It was there observed, citing from Griswold v. Pratt, 9 Metc. (Mass.) 23:

When the power is exercised by Congress, and a bankrupt law is in force, it does suspend all state insolvent laws applicable to like cases; and this effect follows the enactment of the bankrupt law, and does not require the actual institution of proceedings in bankruptcy to produce such result.”

But the Massachusetts case goes further than any of the other authorities. In re Reynolds, Fed. Cas. No. 11,723, by Bradley, Judge, the exclusive supremacy of the bankruptcy courts is announced, whether the state statute is in the nature of an insolvency or a bankruptcy act. Black on Bankruptcy, p. 128, observes:

“ Several cases are found in the reports of the inferior federal courts wherein it is held that, although an insolvent corporation is in the hands of a receiver appointed by a state court, this will not deprive the national courts of jurisdiction in proceedings against the corporation under the bankruptcy law; for, it is said, any other construction would entirely defeat the operation of that law.”

Some of the cases heretofore noticed are cited, and the author continues: “ But this view is contradicted by a considerable body of authorities.”

Of relator’s citations: The case of Boese v. King, 108 U. S. 379 (2 Sup. Ct. 765), was where an assignment was made under the state insolvency law of New Jersey, entitled “An act to secure to creditors an equal and just division of the estates of debtors who convey to assignees for the benefit of creditors.” The act provided, among other things, that every conveyance or assignment by a debtor of his estate, real or personal or both, in trust, to an assignee for the benefit of creditors, shall be made for their equal benefit in proportion to their several demands to the net amount that shall come to the hands of the assignee for distribution; and all preferences of one creditor over another, or whereby one shall be first paid or have a greater proportion in respect to his claim than another, shall be deemed fraudulent and void. The assignees under such assignment converted the assets of the assignor into money and deposited it, for convenience of distribution, in a bank in New York city. No proceedings in bankruptcy were ever taken against the assignor. Creditors in New York of the assignor procured judgment in the supreme court-of that state, and endeavored to secure satisfaction thereof from the fund deposited by the assignees in the bank. The supreme court of New York held that the assignment in Yew Jersey was void because of tbe operation of tbe general bankruptcy law, but on writ of error to the supreme court of tbe United States from tbe court of appeals it was said:

“ Tbe supreme court of Yew York ruled that tbe statute of Yew Jersey was, in its nature and effect, a bankrupt law, and tbe power conferred upon Congress to establish a uniform system of bankruptcy, having been exercised by tbe passage of tbe act of 1867, tbe latter act wholly suspended tbe operation of tbe local statute as to all cases within its purview; consequently, it was held, tbe assignment was not valid for any purpose. Tbe court of appeals, recognizing tbe paramount nature of tbe Bankrupt Act of Congress, and assuming that tbe 14th section of tbe Yew Jersey statute, relating to tbe effect upon tbe claims of creditors who exhibit their demands for a dividend, was inconsistent with that act, and therefore inoperative, adjudged that other portions of tbe local statute providing for tbe equal distribution of tbe debtor’s property among bis creditors, and regulating tbe general conduct of tbe assignee, were not inconsistent with nor were they necessarily suspended by tbe act of 1867; further, that tbe ISTew Jersey statute did not create tbe right to make voluntary assignments for tbe equal benefit of creditors, but was only restrictive of a previously existing right and imposed, for tbe benefit of creditors, salutary safeguards around its exercise; consequently, bad the whole of tbe Yew Jersey statute been superseded, tbe right of a debtor to make a voluntary assignment would still have existed. Tbe assignment, as a transfer of tbe debtor’s property, was, therefore, upheld as in harmony with tbe general object and purposes of tbe Bankrupt Act, unassailable by reason merely of tbe fact that some of tbe provisions of the local statute may have been suspended by tbe act of 1867.”
“We are of opinion that, except as against proceedings instituted under tbe Bankrupt Act for tbe purpose of securing tbe administration of tbe property in tbe bankruptcy court, tbe assignment, having been made without intent to hinder, delay or defraud creditors, was valid, for at least tbe purpose of securing an equal distribution of the estate among all the creditors of Locke, in proportion to their several demands.”

The following authorities also seem to be analogous: Watson v. Citizens’ Savings Bank, Fed. Cas. No. 17,279; In re National Life Ins. Co., Fed. Cas. No. 10,046; Smith v. Buchanan, Fed. Cas. No. 13,016; Watson v. Citizens’ Savings Bank, 5 S. C. 159; Eyster v. Gaff, 91 U. S. 521; Buchanan v. Smith, 16 Wall. 277; Collier, Bankruptcy, pp. 19 and 20; Reed v. Taylor, 32 Iowa, 209 (7 Am. Rep. 180).

2. The test of insolvency under the federal bankruptcy law of 1898 is thus stated:

“ A person shall be deemed insolvent within the provisions of this act whenever the aggregate of his property, exclusive of any property which he may have conveyed, transferred, concealed or removed with intent to defraud, hinder or delay his creditors, shall not at a fair valuation be sufficient in amount to pay his debts.”

It will thus be seen that the allegations of the complaint in the suit for the receiver in the case at bar would not conclusively make a case under the federal bankruptcy law. It is true that the fact of a fraudulent preference would be a single act of bankruptcy under that law. The statutes of this state (Code Proc., § 326, subd. 5, Bal. Code, § 5456) expressly authorize the court to appoint receivers of corporations which are insolvent or are in imminent danger of insolvency; and this court has uniformly affirmed the doctrine that the assets of such a corporation are always a trust fund to be administered in equity for the benefit of the creditors ratably and equally. Thompson v. Huron Lumber Co., 4 Wash. 600 (30 Pac. 741); Conover v. Hull, 10 Wash. 673 (39 Pac. 166, 45 Am. St. Rep. 810); Biddle Purchasing Co. v. Port Townsend Steel, etc., Co., 16 Wash. 681 (48 Pac. 407).

It would seem that a corporation created under the laws of this state should he subject to the chancery jurisdiction of the courts, and that creditors of such corporations should have their ordinary remedies under existing state laws until such corporation is adjudged a bankrupt under the law of Congress and by the proper tribunal. Unquestionably, upon such adjudication the power of the state court to further proceed ceases.

The writ will issue directing the superior court to proceed with the cause in consonance with this opinion.

Gordon, C. J., and Andebs, Dunbar and Fullerton, JJ., concur.