Source: https://supreme.justia.com/cases/federal/us/264/426/
Timestamp: 2019-04-21 15:04:08+00:00

Document:
1. Section 67f of the Bankruptcy Act does not invalidate a lien obtained by levy of an execution within the four months preceding the filing of the petition in bankruptcy on which the judgment debtor is adjudged a bankrupt if the debtor was in fact solvent when the levy was made. P. 264 U. S. 429.
be exercised by summary proceedings and to what extent by plenary suit. Pp. 264 U. S. 430, 264 U. S. 438.
3. But the bankruptcy court has not been given jurisdiction by summary proceedings or otherwise to avoid, under § 67f, a lien created by levy of an execution under a judgment of a state court within four months preceding the filing of the petition in bankruptcy, where the property is in the actual possession of the sheriff and neither he nor the judgment creditor has appeared in or consented to adjudication by the bankruptcy court, and where the claim of the creditor that the bankrupt was not insolvent at the time of judgment and levy is not colorable, but substantially supported. Id.
4. Section 67f, in providing that the bankruptcy court may order that a lien void as against the trustee shall be preserved for the benefit of the estate, does not confer by implication jurisdiction to determine whether the lien is void, but grants substantive rights effected by means of subrogation. P. 264 U. S. 435.
Certiorari to a judgment of the circuit court of appeals reversing, on petition to revise, an order of the district court in bankruptcy which stayed a summary proceeding before the referee brought by trustees in bankruptcy for the purpose of having an execution declared void and to obtain possession of property upon which it had been levied.
the levy could not be assailed by the trustees, except by a plenary suit in the appropriate forum. The trustees, on the other hand, urged that the referee had jurisdiction even if the adverse claim by the judgment creditor be deemed a substantial one. The district court sustained the contention of the judgment creditor and stayed the proceeding before the referee. Upon a petition to revise, its order was reversed by the circuit court of appeals. 286 F. 351. The case is here on writ of certiorari. 260 U.S. 719.
was then insolvent, because the property had passed into the hands of a bona fide purchaser; [Footnote 3] or, although the debtor was then insolvent and the levy was made within the four months, because inchoate rights by way of lien had been acquired earlier. [Footnote 4] As the establishment of any one of these facts would bar recovery by the trustee, their assertion presents a judicial question. In this case, since the possession of the sheriff was the possession of the state court, the trustees' claim to the property would, under general principles of law, have to be litigated in the state court. [Footnote 5] The question for decision is: has Congress conferred upon the bankruptcy court, under these circumstances, jurisdiction to adjudicate the controverted rights by summary proceedings?
whose possession the property is. Congress has also (subject to the constitutional guaranties) power to determine to what extent jurisdiction conferred, whether through possession of the res or otherwise, shall be exercised by summary proceedings, and to what extent by plenary suit. [Footnote 7] But Congress did not, either by § 2, § 23 of the Bankruptcy Act of 1898, or any other provision of the act confer generally such broad jurisdiction over claims by a trustee against third persons. [Footnote 8] Nor has it provided in terms that a substantial adverse claim to property which is not in the possession of the bankruptcy court, and which is demanded by the trustee under subdivision "f" of § 67, may be litigated, without consent, by a summary proceeding. To sustain the judgment under review, a specific grant of power to so deal with such a controversy must be shown. The contention is that a specific grant of the power is implied in a clause contained in subdivision "f." Before examining the clause, it will be helpful to consider the rules, established by decisions of this Court, governing like proceedings under provisions of the Bankruptcy Act cognate to subdivision "f" of § 67.
to the bankrupt and which, within four months of the commencement of the proceedings in bankruptcy, had been subjected, in some manner, to a lien. The substantive rights of the trustee under these provisions differ according to the nature of the lien or of the infirmity therein. Under subdivision "e" of § 67, where the lien was created in pais, it is voidable if it was made, within the four months, with the intent to hinder and defraud creditors, or if, within that period, it was made while insolvent under such circumstances that, under the laws of the state where the property is situated, it is void as to creditors. Under subdivision "b" of § 60, the lien is voidable, whether it was created in pais or through legal proceedings, if it was created within the four months while the debtor was insolvent and the effect of its enforcement would be to give a preference. Under subdivision "e" of § 70, a lien, however created, although not within the four months, is voidable by the trustee if any creditor of the bankrupt might have avoided it. But the adjective rights of the trustee to litigate in the bankruptcy court claims incident to the lien were the same under these differing provisions.
could the bankruptcy court, under the law as originally enacted, nor can it now (without consent), adjudicate in a summary proceeding the validity of a substantial adverse claim. [Footnote 17] In the absence of possession, there was under the Bankruptcy Act of 1898, as originally passed, no jurisdiction, without consent, to adjudicate the controversy even by a plenary suit. [Footnote 18] The Act of February 5, 1903, c. 487, § 8, 32 Stat. 797, 798, 800, together with the Act of June 25, 1910, c. 412, § 7, 36 Stat. 838, 840, conferred upon the bankruptcy court jurisdiction, under certain circumstances, against the adverse claimant, in a plenary suit under § 60, subdivision "b," § 67, subdivision "e," and § 70, subdivision "e." But no amendment has conferred upon the bankruptcy court jurisdiction, even in a plenary suit, of proceedings under subdivision "f" of § 67.
"the property affected by the levy [held void] shall pass to the trustee as a part of the estate of the bankrupt, unless the court shall, on due notice, order that the right under such levy . . . shall be preserved by the trustee for the benefit of the estate as aforesaid. And the court may order such conveyance as shall be necessary to carry the purposes of this section into effect."
In this case, the sheriff had, before the filing of the petition in bankruptcy, taken exclusive possession and control of the property, and he had retained such possession and control after adjudication and the appointment of the trustees. [Footnote 26] The bankruptcy court therefore did not have actual possession of the res. The adverse claim of the judgment creditor was a substantial one. The bankruptcy court therefore did not have constructive possession of the res. Neither the judgment creditor nor the sheriff had become a party to the bankruptcy proceedings. [Footnote 27] There was no consent to the adjudication by the bankruptcy court of the adverse claim. The objection to the jurisdiction was seasonably made, and was insisted upon throughout. The bankruptcy court therefore did not acquire jurisdiction over the controversy in summary proceedings. Nor did it otherwise.
"f. That all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent at any time within four months prior to the filing of a petition in bankruptcy against him shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the bankrupt, unless the court shall, on due notice, order that the right under such levy, judgment, attachment, or other lien shall be preserved for the benefit of the estate, and thereupon the same may pass to and shall be preserved by the trustee for the benefit of the estate as aforesaid. And the court may order such conveyance as shall be necessary to carry the purposes of this section into effect: Provided, that nothing herein contained shall have the effect to destroy or impair the title obtained by such levy, judgment, attachment, or other lien, of a bona fide purchaser for value who shall have acquired the same without notice or reasonable cause for inquiry."
Henderson v. Mayer, 225 U. S. 631. Compare City of Richmond v. Bird, 249 U. S. 174, 249 U. S. 175; In re Emslie, 102 F. 291; In re Lillington Lumber Co., 132 F. 886; In re Robinson & Smith, 154 F. 343; Kemp Lumber Co. v. Howard, 237 F. 574, 577; American Trust & Savings Bank v. Ruppe, 237 F. 581.
See Simpson v. Van Etten, 108 Fed.199, 201; Stone-Ordean-Wells Co. v. Mark, 227 F. 975, 977; Martin v. Oliver, 260 F. 89, 93; In re Community Stores of Iowa, 282 F. 328, 329. Cases like Cook v. Robinson, 194 F. 785, 792, and In re Arizona Smelting Co., 231 F. 87, 92, to the contrary are not consistent with the express words of the act. In Clarke v. Larremore, 188 U. S. 486, it appeared (see original papers) that there was no contention that the bankrupt was solvent at the time of the levy. In Hutchinson v. Otis, 190 U. S. 552, it was agreed (see original papers) that the debtor was insolvent at the date of the attachment. In Chicago, Burlington & Quincy R. Co. v. Hall, 229 U. S. 511, 229 U. S. 514, it is found that the debtor was insolvent at the time of the garnishment. See In re Ann Arbor Machine Co., 278 F. 749, 752. As against an adverse claimant, the mere adjudication of bankruptcy does not, even in involuntary proceedings, conclusively establish insolvency at the date of the attachment or levy. Compare Gratiot State Bank v. Johnson, 249 U. S. 246.
Jones v. Springer, 226 U. S. 148.
Metcalf v. Barker, 187 U. S. 165; Pickens v. Roy, 187 U. S. 177.
Taylor v. Carryl, 20 How, 583, 61 U. S. 595; Covell v. Heyman, 111 U. S. 176, 111 U. S. 179. Compare Lion Bonding & Surety Co. v. Karatz, 262 U. S. 77, 262 U. S. 88-90.
In re Watts & Sachs, 190 U. S. 1, 190 U. S. 27; Robertson v. Howard, 229 U. S. 254.
It has not done so in terms. In the absence of congressional definition of the scope of summary proceedings, it has been determined by decisions of this Court and the General Orders in Bankruptcy. The bankruptcy court may deal by summary proceeding with property in its possession in all matters administrative in their nature, and also with all matters judicial in their nature, to the extent commonly practiced in courts of equity. See United States Fidelity & Guaranty Co. v. Bray, 225 U. S. 205, 225 U. S. 217; Robertson v. Howard, 229 U. S. 254, 229 U. S. 260.
Harris v. First National Bank, 216 U. S. 382; Park v. Cameron, 237 U. S. 616; Kelley v. Gill, 245 U. S. 116. Compare Lovell v. Newman, 227 U. S. 412.
Page v. Edmunds, 187 U. S. 596.
White v. Schloerb, 178 U. S. 542; Fairbanks Shovel Co. v. Wills, 240 U. S. 642. Compare Pirie v. Chicago Title & Trust Co., 182 U. S. 438, 182 U. S. 442; Acme Harvester Co. v. Beekman Lumber Co., 222 U. S. 300, 222 U. S. 307.
Mueller v. Nugent, 184 U. S. 1, 184 U. S. 15.
Babbitt v. Dutcher, 216 U. S. 102, 216 U. S. 105.
Compare In re Weinger, Bergman & Co., 126 F. 875; In re Rudnick & Co., 158 F. 223; In re Ransford, 194 F. 658, 663; In re Columbia Shoe Co., 289 F. 465.
Hebert v. Crawford, 228 U. S. 204. Compare Noble v. Union River Logging R. Co., 147 U. S. 165, 147 U. S. 173; Schweer v. Brown, 195 U. S. 171; In re Kramer, 218 F. 138, 141.
In re Weinger, Bergman & Co., 126 F. 875; In re Eddy, 279 F. 919. Compare In re Rockford Produce & Sales Co., 275 F. 811; also In re Yorkville Coal Co., 211 F. 619; In re Goldstein, 216 F. 887; In re Goldstein, 216 F. 889.
Murphy v. John Hofman Co., 211 U. S. 562, 211 U. S. 569; Hebert v. Crawford, 228 U. S. 204; Weidhorn v. Levy, 253 U. S. 268, 253 U. S. 271-272; Board of Trade of Chicago v. Johnson, ante, 264 U. S. 1. Compare Whitney v. Wenman, 198 U. S. 539, 198 U. S. 553; Matter of Loving, 224 U. S. 183; Houghton v. Burden, 228 U. S. 161; Lazarus v. Prentice, 234 U. S. 263.
Louisville Trust Co. v. Comingor, 184 U. S. 18; Jaquith v. Rowley, 188 U. S. 620; First National Bank v. Chicago Title & Trust Co., 198 U. S. 280, 198 U. S. 289; Galbraith v. Vallely, 256 U. S. 46. In Bryan v. Bernheimer, 181 U. S. 188, 181 U. S. 197, there was consent to the jurisdiction.
Bardes v. Hawarden Bank, 178 U. S. 524; Mitchell v. McClure, 178 U. S. 539; Wall v. Cox, 181 U. S. 244; Frank v. Vollkommer, 205 U. S. 521; Wood v. Wilbert's Sons Co., 226 U. S. 384, 226 U. S. 389. Compare Hicks v. Knost, 178 U. S. 541; Bush v. Elliott, 202 U. S. 477; Lovell v. Newman, 227 U. S. 412; Collett v. Adams, 249 U. S. 545; Flanders v. Coleman, 250 U. S. 223.
The Act of 1841 (5 Stat. 440) was said, in Ex parte City Bank, 3 How. 292, 44 U. S. 312, to have conferred upon the bankruptcy court jurisdiction over adverse claims, although the property was not in its possession, and it was also said that this jurisdiction might be exercised by summary proceeding. But see Bardes v. Hawarden Bank, 178 U. S. 524, 178 U. S. 533-534. The Act of 1867 (14 Stat. 517) conferred the jurisdiction upon the federal District and Circuit Courts, but required that the jurisdiction be exercised in a plenary suit. Smith v. Mason, 14 Wall. 419; Marshall v. Knox, 16 Wall. 551; Lathrop v. Drake, 91 U. S. 516.
First National Bank v. Staake, 202 U. S. 141, 202 U. S. 148; McHarg v. Staake, 202 U. S. 150. Compare In re Hammond, 98 F. 845.
"as to all property in the custody or coming into the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings."
Compare Bailey v. Baker Ice Machine Co., 239 U. S. 268, 239 U. S. 276.
Compare Chapman v. Brewer, 114 U. S. 158, 114 U. S. 170-171; De Friece v. Bryant, 232 F. 233, 239.
Invalidity was admitted in First National Bank v. Staake, 202 U. S. 141, 202 U. S. 143; in Rock Island Plow Co. v. Reardon, 222 U. S. 354, 222 U. S. 356, and in Fallows v. Continental & Commercial Trust & Savings Bank, 235 U. S. 300 (see original papers). Compare Miller v. New Orleans Fertilizer Co., 211 U. S. 496. It was admitted or assumed in In Re Alabama Coal & Coke Co., 210 F. 940, 942; Bell v. Frederick, 282 F. 232, 233. Compare In re Francis-Valentine Co., 93 F. 953, 954; In re Hammond, 98 F. 845, 859; Bear v. Chase, 99 F. 920, 924; In re Lesser, 100 F. 433, 438; In re Kemp, 101 F. 689, 690; In re Breslauer, 121 F. 910, 913, 914; In re Petersen, 200 F. 739, 741; In re Obergfoll, 239 F. 850; In re Community Stores, 282 F. 328; In re Chebot, 288 F. 1006.
Objections to the jurisdiction of the bankruptcy court were at first raised, but later withdrawn, and express consent given, in Clarke v. Larremore, 188 U. S. 486 (as the original papers disclose); First National Bank v. Staake, 202 U. S. 141 (see 126 F. 845, 846); Rock Island Plow Co. v. Reardon, 222 U. S. 354, 222 U. S. 356; Globe Bank & Trust Co. v. Martin, 236 U. S. 288, 236 U. S. 293; also In re Porterfield, 138 Fed.192, 197. In other cases, the objection to the jurisdiction was waived, or the existence of jurisdiction was assumed. See In re Beals, 116 F. 530, 534; In re Southern Arizona Smelting Co., 231 F. 87, 89; Jones v. Ford, 254 F. 645, 646; In re Dukes, 276 F. 724; In re Ann Arbor Machine Co., 278 F. 749, 751. Compare Knapp v. Milwaukee Trust Co., 216 U. S. 545, 216 U. S. 552; also Wells v. Sharp, 208 F. 393, 396; In re Brantman, 244 F. 101, 104; In re Rockford Produce & Sales Co., 275 F. 811, 814.
The property was in the actual possession of the bankruptcy court at the time of the adjudication of the adverse claim in Fallows v. Continental Savings Bank, 235 U. S. 300, 235 U. S. 303-304. Also In re Fitzhugh Hall Amusement Co., 228 F. 169, 171; 230 F. 811. Compare Henderson v. Mayer, 225 U. S. 631, 225 U. S. 632. In some other cases where subrogation was ordered, the bankruptcy court was deemed to have constructive possession because the claim of the person in actual possession was held to be colorable. See In re Weinger, Bergman & Co., 126 F. 875; In re Graessler & Reichwald, 154 F. 478.
The fact that the property remained on premises formerly occupied by the bankrupt is, of course, immaterial. Compare Duffy v. Charak, 236 U. S. 97, 236 U. S. 98; In re Rhoads, 98 F. 399, 400.
Compare Gratiot State Bank v. Johnson, 249 U. S. 246, 249 U. S. 249.

References: § 67
 § 2
 § 23
 § 67
 § 67
 § 67
 § 60
 § 70
 § 8
 § 7
 § 60
 § 67
 § 70
 § 67
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