Source: https://supreme.justia.com/cases/federal/us/128/489/
Timestamp: 2019-04-20 08:17:24+00:00

Document:
"An Act to prevent debtors from giving preference to creditors, and to secure the equal distribution of the property of debtors among their creditors, and for the release of debts against debtors,"
which provides that whenever the property of a debtor is seized by an attachment or execution against him, he may make an assignment of all his property and estate, not exempt by law, for the equal benefit of all his creditors who shall file releases of their debts and claims, and that his property shall be equitably distributed among such creditors, is not repugnant to the Constitution of the United States so far as it affects citizens of states other than Minnesota.
Statutes limiting the right of the creditor to enforce his claims against the property of the debtor are part of all contracts made after they take effect, and do not impair the obligation of such contracts.
surplus remaining after payment in full to creditors proving their debts, does not invalidate the assignment.
A state statute providing for the distribution of the property of a debtor among his creditors and his discharge from his debts does not release a debt due to a citizen of another state who does not prove his debt nor become subject to the jurisdiction of the court.
An application by the assignee of an insolvent debtor, under a state statute, to be admitted as a party in a suit pending in a circuit court of the United States against the insolvent, in which his property was attached by the marshal on mesne process and for a dissolution of the attachment, and an order of the circuit court allowing him to become a party but refusing to dissolve the attachment, do not make the assignee a party to that suit without further action on his part, and do not estop him from setting up a claim to the property in the hands of the marshal under the attachment.
Trover against the Marshal of the Circuit Court of the United States for the District of Minnesota for the conversion of property seized under a writ of attachment issuing out of that court. Verdict for the plaintiff and judgment on the verdict. The defendant sued out this writ of error. The case is stated in the opinion.
This is a writ of error to the Supreme Court of the State of Minnesota.
The principal point raised by the assignments of error is that an act of the legislature of that state approved March 7, 1881, c. 148, is repugnant to the Constitution of the United States so far as it affects citizens of states other than Minnesota. That statute provides that, whenever the property of a debtor is seized by an attachment or execution against him, he may make an assignment of all his property and estate not exempt by law, for the equal benefit of all his creditors who shall file releases of their debts and claims, and his property shall be equitably distributed among such creditors.
This is the only assignment of error, with the exception of one other, which will be considered further on, that, by any fair construction, can be said to come within the jurisdiction of this Court, though others are set out in the brief of counsel, relative to fraud in the assignment made by the debtors in this instance, which raise no federal question.
"to take possession of the property, and to sell and dispose of the same with all reasonable diligence, and to convert the same into money, and also to collect all such debts and demands hereby assigned as may be collectible, and with and out of the proceeds of such sales and collections to pay and discharge all the just and reasonable expenses, costs, and charges of executing the assignment,"
including a reasonable compensation to the assignee for his services.
"To pay and discharge in full, if the residue of said proceeds be sufficient for that purpose, all the debts and liabilities now due, or to become due, from said party of the first part, to all their creditors who shall file releases of their debts and claims against the said party of the first part, as by law provided, together with all interest due and to become due therein, and if the residue of said proceeds shall not be sufficient to pay said debts and liabilities and interest in full, then to apply the same, so far as they will extend, to the payment of the said debts and liabilities and interest proportionally to their respective amounts and in accordance with the statute in such case made and provided, and if, after payment of all the costs, charges, and expenses attending the execution of said trust, and the payment and discharge in full of all the said lawful debts owing by the said party of the first part, there shall be any surplus of the said proceeds remaining in the hands of the party of the second part, then to repay such surplus to the party of the first part, their executors, administrators, or assigns."
"First, that Charles C. Bennett, assignee, do have, and he is hereby given, leave to intervene and become a party defendant herein; second, that the motion to dissolve the attachment be, and the same is, hereby, denied."
Although the assignee was thus permitted to come in and be made a party, it is not shown that he ever did so, or ever appeared in the case after that time.
the motion to dissolve the attachment was not a bar to the present action by the assignee.
The question of the invalidity of this Minnesota statute, as it relates to the rights of creditors, is an interesting one. The argument in favor of that proposition is two-fold: first, that it impairs the obligation of contracts, and second that such a statute can have no extraterritorial operation, and cannot therefore be binding on creditors living in a different state from that of the debtor and of the situs of his property.
With regard to the first of these, it may be conceded that so far as an attempt might be made to apply this statute to contracts in existence before it was enacted, it would be liable to the objection raised, and therefore in such a case of no effect. But the doctrine has been long settled that statutes limiting the right of the creditor to enforce his claims against the property of the debtor, which are in existence at the time the contracts are made, are not void, but are within the legislative power of the states where the property and the debtor are to be found. The courts of the country abound in decisions of this class, exempting property from execution and attachment, no limit having been fixed to the amount -- providing for a valuation at which alone, or generally two-thirds of which, the property can be brought to a forced sale to discharge the debt -- granting stays of execution after judgment, and in numerous ways holding that, as to contracts made after the passage of such laws, the legislative enactments regulating the rights of the creditors in the enforcement of their claims are valid. These statutes, exempting the homestead of the debtor, perhaps with many acres of land adjoining it, the books and library of the professional man, the horse and buggy and surgical implements of the physician, or the household furniture, horses, cows, and other articles belonging to the debtor, have all been held to be valid, without reference to the residence of the creditor, as applied to contracts made after their passage.
"The inhibition of the Constitution is wholly prospective. The states may legislate as to contracts thereafter made as they may see fit. It is only those in existence when the hostile law is passed that are protected from its effect."
See also Railroad Co. v. Rock, 4 Wall. 177; University v. People, 99 U. S. 309; Knox v Bank, 12 Wall. 379. The doctrine was very early announced in the case of Wales v. Stetson, 2 Mass. 143, and in the separate opinion of Mr. Justice Story in Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, decided in 1819, it was suggested that in a grant of a charter to a corporation, a reservation of the right to repeal it would be valid. This has been acted upon, and such action has been held in many cases to be valid.
The later case of Greenwood v. Freight Co., 105 U. S. 13, contains a review of this whole subject so far as contracts are concerned.
No reason has been suggested why the legislature could not exempt all interests in landed estate from execution and sale under judgments against the owner, and perhaps all his personal property. However this may be, it is very certain that the established construction of the Constitution of the United States against impairing the obligation of contracts requires that statutes of this class shall be construed to be parts of all contracts made when they are in existence, and therefore cannot be held to impair their obligation.
they are where it is done under the present law, because in the first instance they would certainly get nothing out of the debtor's property, though they would retain a right to proceed against him by a judgment and execution, while in the present case, they have the option of pursuing that course or of coming in with the other creditors, executing releases, and obtaining their share of the property assigned. Here, instead of naming the preferred creditors, the assignor gives his property to all who will execute a release of their claims against him. Nobody is required by the statute to do so unless he thinks it is to his interest. The creditor who executes such a release gets his share of the property assigned, while the one who does not receives nothing unless there may be a surplus left after the payment of the releasors, but he is not hindered or delayed in obtaining a judgment against the debtor or in levying upon any other property, if such can be found, not conveyed by the instrument, or upon any afterwards acquired by the debtor. The latter remains liable, notwithstanding this statute and this assignment, as he always was, for the debt of the nonassenting creditor.
It is not easy, then, to see how this statute can be more complained of as impairing the obligation of contracts than the statutes of exemption which we have already mentioned and the principles which lie at the foundation of all voluntary assignments for the benefit of creditors with preferences that exhaust the fund assigned.
before it gets to the debtor's hands, and certainly, wherever that surplus may be found and however it may be got at by any of the processes of law, it is liable to be taken by the nonreleasing creditor. He can pursue all the remedies which the law gives him as against any fund, property, chose in action, or estate liable to the payment of his demand.
"State legislatures may pass insolvent laws provided there be no act of Congress establishing a uniform system of bankruptcy conflicting with their provisions and provided that the law itself be so framed that it does not impair the obligation of contracts. Certificates of discharge, however, granted under such a law cannot be pleaded in bar of an action brought by a citizen of another state in the courts of the United States or of any other state than that where the discharge was obtained unless it appear that the plaintiff proved his debt against the defendant's estate in insolvency or in some manner became a party to the proceedings. Insolvent laws of one state cannot discharge the contracts of citizens of other states, because such laws have no extraterritorial operation, and consequently the tribunal sitting under them, unless in cases where a citizen of such other state voluntarily becomes a party to the proceeding, has no jurisdiction of the cause."
brought within the jurisdiction of the court granting the discharge. In other words, whatever the court before whom such proceedings are had may do with regard to the disposition of the property of the debtor, it has no power to release him from the obligation of a contract which he owes to a resident of another state who is not personally subjected to the jurisdiction of the court. Anyone who will take the trouble to examine all these cases will perceive that the objection to the extraterritorial operation of a state insolvent law is that it cannot, like the bankrupt law passed by Congress under its constitutional grant of power, release all debtors from the obligation of the debt. The authority to deal with the property of the debtor within the state, so far as it does not impair the obligation of contracts, is conceded, but the power to release him, which is one of the usual elements of all bankrupt laws, does not belong to the legislature where the creditor is not within the control of the court.
The Minnesota statute makes no provision for any such release. The creditor who became such after the statute was passed cannot complain that the obligation of his contract is impaired, because the law was a part of the contract at the time he made it; nor can he say that his contract is destroyed, and the debtor discharged from it, which is of the essence of a bankrupt law, because no such decree can be made by the court, neither does the law have any such effect, though the obligation of the debtor to pay may be cancelled or discharged by the voluntary act of the creditor who makes such release, for a consideration which to him seems to be sufficient.
"it was merely a decision of a motion or summary application, which is not to be regarded in the light of res adjudicata or as so far conclusive upon the parties as to prevent their drawing the same matters in question again in the more regular form of an action."
For this they cite the decisions of their own court.
"It is by virtue of this seizure that the marshal holds the property. On this statement of the facts, I shall not decide on this motion who has the better title and right to the possession of the property taken. . . . The writ of attachment properly issued in this suit against the debtor, and if the marshal has seized the property which belonged to Bennett, he is certainly liable in an action of trespass for the damages thereby sustained."
Lapp v. Van Norman, 19 F. 406. See Buck v. Colbath, 3 Wall. 334.
It is therefore clear that the order of the judge refusing to dissolve the attachment was not predicated upon any decision as to the right of the possession of the property, but that he intended to leave the marshal liable to the present action if the facts justified the claim of the assignee. Apart from this, we are not at all satisfied that the effect of this action of the circuit court on the suit afterwards brought by the assignee in the state court is a question of federal cognizance. Its decision, as shown by the opinion of Judge Nelson, was not based upon any law or principle of federal jurisprudence, and must have rested upon the general rules which govern the conclusiveness of former judicial proceedings when called in question in another case.
I cannot assent to a judgment of affirmance in this case.
"Whenever the property of any debtor is attached or levied upon by any officer by virtue of any writ or process issued out of a court of record of this state in favor of any creditor or garnishment made against any debtor, such debtor may, within ten days after the levying of such attachment, process, or garnishment shall have been made, make an assignment of all his property and estate, not exempt by law, for the equal benefit of all his creditors, in proportion to their respective valid claims, who shall file releases of their debts and claims against such creditors as hereinafter provided, . . . and, upon the making of such assignment, all attachments, levy, or garnishment so made shall be dissolved upon the appointment and qualification of an assignee or receiver, and thereupon the officers shall deliver the property attached or levied upon to such assignee or receiver unless the assignee shall, within five days after such assignment, file in the office of the clerk of the court where such attachment was issued or judgment was rendered a notice of his intention to retain such attachment, levy, or garnishment, in which case any such attachment, levy, or garnishment shall inure to the benefit of all the said creditors, and may be enforced by the assignee by his substitution in the action as such, in the same manner as the plaintiff might have enforced the same had such assignment not been made, provided, however, that this section shall not apply to cases where an execution has been issued upon a judgment in an action where the complaint has been filed in the office of the clerk of the court twenty days prior to the entry of the judgment."
Minnesota. If intended to embrace writs of attachment from a court of the United States, so as to vacate levies under such writs, without an order to that effect by the court under whose authority they were made, it would be inoperative. No state enactment can, proprio vigore, work the dissolution of an attachment issuing from a federal court.
"No creditor of any insolvent debtor shall receive any benefit under the provisions of this act, or any payment of any share of the proceeds of the debtor's estate, unless he shall have first filed with the clerk of the district court, in consideration of the benefits of the provisions of this act, a release to the debtor of all claims other than such as may be paid under the provisions of this act, for the benefit of such debtor, and thereupon the court or judge may direct that judgment be entered discharging such debtor from all claims or debts held by creditors who shall have filed such releases."
If this act is to control the rights of the parties in the present case, the result is that the prior right acquired by Lapp & Flershem under their suit and attachment in the federal court is taken from them, and they are denied all interest in the proceeds, as well of the property attached for their benefit as of the property assigned to Bennett, unless they give a release in full to their debtors. Such a result is not, in my judgment, consistent with the rights secured by the Constitution of the United States to the plaintiffs in error.
that the assignment was not made and filed until some three hours after the levy of the attachment by the plaintiffs [Lapp & Flershem]."
"It seems that prior to the making of the assignment in question, the defendant, as United States marshal, by virtue of process of the circuit court, had attached the assigned property."
"according to the decisions of this Court, the rightful owner cannot maintain an action of replevin against him nor recover the property specifically in any way except in the court from which the writ is issued."
leave first obtained from the federal court, he could have been proceeded against for contempt in having parted with the possession of goods in the custody of that court. Bennett asked leave to intervene in the suit in the federal court, and such leave was granted, but he declined to exercise the privilege accorded to him. He moved at the same time to dissolve the attachment, and that motion was denied, the federal court thereby plainly indicating to the marshal a purpose to hold the property until it had adjudicated Bennett's claim. If Bennett had intervened in the suit in the federal court, and if that court had dismissed his intervention or adjudged his claim to be subordinate to that of Lapp & Flershem under their attachment, he could have prosecuted an appeal to this Court. Gumbel v. Pitkin, 113 U. S. 545.
A marshal who levies an attachment from a circuit court of the United States, in a suit of which it has complete jurisdiction, upon goods subject at the time to such attachment is not, I think, liable in trover and conversion for their value upon his refusal, in the absence of any direction of the court under whose writ they were seized, to surrender possession, especially to one whose right, if any, accrued subsequently to his levy. To hold him, under such circumstances, liable to a suit in a state court for damages is to invite those conflicts between courts of different jurisdictions and their respective officers which the former decisions of this Court have sought to prevent.

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