Source: http://supreme.nolo.com/us/283/318/case.html
Timestamp: 2020-08-05 17:21:50
Document Index: 613062081

Matched Legal Cases: ['§ 2472', '§ 67', '§ 67', '§ 67', '§ 1905', 'art, 266']

STRATON V. NEW, 283 U. S. 318 - Volume 283 - 1931 - Full Text - US Supreme Court Center - USSC Cases - Nolo
US Supreme Court Center > Volume 283 > STRATON V. NEW, 283 U. S. 318 (1931) > Full Text
creditors. The filing of the petition is an assertion of jurisdiction with a view to the determination of the status of the bankrupt and a settlement and distribution of his estate. This jurisdiction is exclusive within the field defined by the law, and is so far in rem that the estate is regarded as in custodia legis from the filing of the petition. Acme Harvester Co. v. Beekman Lumber Co., 222 U. S. 300. It follows that liens cannot thereafter be obtained nor proceedings be had in other courts to reach the property, the district court having acquired the exclusive right to administer all property in the bankrupt's possession. Lazarus, Michel & Lazarus v. Prentice, 234 U. S. 263; White v. Schloerb, 178 U. S. 542; Murphy v. John Hofman Co., 211 U. S. 562; United States Fidelity & G. Co. v. Bray, 225 U. S. 205; Hebert v. Crawford, 228 U. S. 204. It may inquire into the validity of liens, marshal them, and control their enforcement and liquidation. Isaacs v. Hobbs Tie & Timber Co., 282 U. S. 734, and authorities cited; Whitney v. Wenman, 198 U. S. 539; Remington, Bankruptcy (3d ed.) § 2472.
Though a lien be not discharged by bankruptcy, its owner may not, without the bankruptcy court's permission, institute proceedings in a state court to enforce it, since his so doing might interfere with the orderly administration of the estate. Thus, a mortgagee will be restrained from instituting or proceeding further in a foreclosure action, begun after the date of the petition in bankruptcy. [Footnote 1] And a creditor holding a valid judgment
more than four months old will be enjoined from enforcing its lien by suit brought after the date of the petition. [Footnote 2] And as the lien created by a judgment entered within four months in avoided, the court of bankruptcy has jurisdiction to administer the property regardless of the lien, and will restrain the prosecution of an action to enforce it. [Footnote 3]
The bankruptcy law contains no express provision preserving liens acquired by legal proceedings more than four months before the petition is filed. But it is clearly implied that they shall be saved from the operation of the law, for § 67(f) [Footnote 4] voids only liens obtained by legal proceedings within that period. It has consequently been held that those acquired earlier, if valid under state law, are preserved, and will be accorded priority by the bankruptcy court in distribution of the estate, in accordance with applicable local law. [Footnote 5]
Adelbert College, 208 U. S. 38; Harkin v. Brundage, 276 U. S. 36. They contend that, when the petition was filed in this case, the state court was proceeding in a suit within its jurisdiction and had taken possession of the res for the purpose of enforcing such a lien.
In Metcalf v. Barker, 187 U. S. 165, Lesser Brothers were adjudged bankrupts on their own petition, on May 12, 1899. They had, on October 2, 1896, being insolvent, transferred all their property, partnership and individual, to certain favored creditors. On October 22, 1896, and October 29, 1896, Metcalf recovered judgments in the Supreme Court of the New York against the Lessers, upon which executions were issued and returned unsatisfied. On December 17, 1896, Metcalf commenced a judgment creditors' action in the Supreme Court of New York, which came to trial on December 17, 1897, as a result
before the initiation of the cause in bankruptcy. It was urged that, at the date of bankruptcy, the claim was contingent and was only an equitable lien, and that, in truth and in substance, the judgment was recovered within four months of bankruptcy, and under § 67(f), must be declared null and void. This Court overruled the contention, quoted § 67(f), and said (p. 187 U. S. 174):
In Clarke v. Larrenmore, 188 U. S. 486, a judgment was recovered, but did not constitute a lien on the debtor's personal property. Within four months prior to the filing of a bankruptcy petition, the judgment creditor issued execution under which levy was made on the debtor's goods. It was held that the levy and the sale thereunder were avoided. The Court said:
In Globe Bank & Trust Co. v. Martin, 236 U. S. 288, the Court said:
"The difference, having the provisions of the act in view, between the beginning of a proceeding to assert liens that existed more than four months before the filing of the petition in bankruptcy, and the attempt to create them by attachment and other proceedings within four months, has been recognized in decisions of this Court [citing Metcalf v. Barker]. "
Following these cases, the federal courts have with practical unanimity held that, where a judgment which constitutes a lien on the debtor's real estate is recovered more than four months prior to the filing of the petition, the bankruptcy court is without jurisdiction to enjoin the prosecution of the creditor's action, instituted prior to the filing of a petition in bankruptcy, to bring about a judicial sale of the real estate. [Footnote 6]
The trustee in bankruptcy may intervene in such suits of protect the interests of the estate. [Footnote 7]
The appellees, however, insist that the purpose and function of the creditors' bill was a general disposition and distribution of the debtor's property; that it was a winding up proceeding pursuant to state law, and was therefore superseded by the bankruptcy. They invoke the settled rule that state insolvency laws which are tantamount to bankruptcy because they provide for an administration of the debtor's assets and a winding up of his affairs similar to that provided by the national act are suspended while the latter remains in force, and proceedings under them are utterly null and void, whether commenced within four months of the filing of a petition in bankruptcy or before. Sturges v. Crowninshield, 4 Wheat. 122; Mayer v. Hellman, 91 U. S. 496; Hanover Nat. Bank v. Moyses, 186 U. S. 181; Miller v. New Orleans Acid & Fertilizer Co., 211 U. S. 496; Stellwagen v. Clum, 245 U. S. 605; International Shoe Co. v. Pinkus, 278 U. S. 261.
In that state, a judgment is a lien on the debtor's real estate as against all except bona fide purchasers for value without notice, and as against the latter from the date of docketing it in the county where the land lies. [Footnote 8] The debtor's real estate cannot be sold under execution. In re McGraw, 254 F. 442. The plaintiff must resort for enforcement of his judgment against real estate to such a proceeding as is described in the certificate. [Footnote 9] He may do so without exhausting his legal remedies, as against personal property. [Footnote 10] The statute provides for a course of procedure such as is described in the certificate -- namely, that the liens and the debtor's real estate shall be determined by a commissioner appointed by the court and, if
the claims which he reports be not paid, a decree shall be made for a sale of the real estate subject to the liens so far as may be necessary to pay them according to their priorities, if any. If a lien-holder, after notice has been given of the proceeding as required by the statute, does not appear and present his claims, he is barred from participation except that, if a surplus remain after the payment of claims presented, he may share in such surplus upon proving his claim at any time before final decree. There is also a provision for the presentation and participation of lien claims where judgment has been recovered before final decree in the creditors' action. This statute says nothing about a distribution of assets amongst general creditors. It contains no provision that lien claims presented which cannot be paid because the proceeds of the sale are insufficient shall be wiped out as debts of the defendant. It does not purport to discharge the debtor from his indebtedness generally. It is merely a proceeding in equity to do what would be done by a sheriff or marshal under an appropriate writ for the sale of real estate in execution at law. In re McGraw, supra. Such officer, upon receiving the proceeds of a judicial sale, would, under the supervision of the court, pay them to those whose liens were discharged by the sale. He would marshal the liens against the proceeds precisely as this statute directs the chancellor to do. The act is in no sense an insolvency statute, and a proceeding thereunder is not therefore avoided by the adjudication of the debtor as a bankrupt. On the contrary, it is a mere proceeding to enforce a valid lien or liens against the real estate bound thereby, and falls within the rule announced in Metcalf v. Barker, supra. [Footnote 11] This is the view of the Supreme Court
It is suggested that the commissioners appointed by the state court were in effect receivers, and it was stated in argument that they did not qualify by giving bond until within four months of the filing of the petition in bankruptcy, and that therefore the state court action should be enjoined and the property taken into possession of the bankruptcy court. But, as above said, the statute of West Virginia merely substitutes these commissioners for the usual judicial officer who makes a sale and reports the result thereof to the court. [Footnote 12]
Assuming them to be receivers, their function is not that of an officer charged with winding up the affairs of the debtor, such as would cause a conflict with the bankruptcy law. [Footnote 13] Moreover, we find nothing in the certificate to the effect that the commissioners had not qualified more than four months prior to the filing of the petition in the bankruptcy court.
The appellees rely upon In re Watts, 190 U. S. 1. But that case does not support their contentions.
Most of the cases cited by the appellees to the effect that the initiation of bankruptcy proceedings confers on the district court jurisdiction to enjoin pending suits in state courts deal with the situation where a lien was acquired within four months of the filing of the petition, or where, after the filing of the petition, an action was begun to enforce a lien valid in bankruptcy. As heretofore noted, there are a few cases which have held that the bankruptcy court may enjoin proceedings, brought prior to the filing of the petition, to enforce valid liens which are more than four months old at the date of bankruptcy; [Footnote 14] but
Clarke v. Larremore, 188 U. S. 486; In re Albright, 18 F.2d 591; Remington, Bankruptcy (3d ed.) § 1905.
White v. Thompson, 119 F. 868; In re Koslowski, 153 F. 823; In re Pilcher & Son, 228 F. 13; In re Brinn, 262 F. 527; In re Maddox, 280 F. 227; In re Thompson, 288 F. 385; In re Berlowe, 7 F.2d 898; Wilkinson v. Goree, 18 F.2d 455; In re Van Blokland, 20 F.2d 1016; In re Conservative Mtg. & Guaranty Co., 24 F.2d 38; Whitney v. Barrett, 28 F.2d 760. Compare Blair v. Brailey, 221 F. 1; Brown Shoe Co. v. Wynne, 281 F. 807. See also Hillyer v. LeRoy, 179 N.Y. 369, 72 N.E. 237. Contra: In re Baughman, 138 F. 742. It is also well settled that, where an attachment is levied more than four months prior to bankruptcy, the prosecution of the claim to judgment and sale within the four months will not be enjoined or the sale set aside. In re Blair, 108 F. 529; In re Beaver Coal Co., 110 F. 630; In re Snell, 125 F. 154; In re Kane, 152 F. 587; In re Crafts-Riordon Shoe Co., 185 F. 931; In re Shinn, 185 F. 990; Yumet & Co. v. Delgado, 243 F. 519; Griffin v. Lenhart, 266 F. 671; In re Norris, 283 F. 860; In re Houtman, 287 F. 251; In re Thompson, 288 F. 385; Gatell v. Millian, 2 F.2d 365. Contra: In re U.S. Graphite Co., 161 F. 583. On similar grounds, the bankruptcy courts refuse to enjoin the prosecution of foreclosure proceedings under a mortgage, the lien of which is preserved in bankruptcy, if initiated prior to the date of the petition. Eyster v. Gaff, 91 U. S. 521; In re Gerdes, 102 F. 318; Carling v. Seymour Lumber Co., 113 F. 483; In re McKane, 152 F. 733; Sample v. Beasley, 158 F. 607; In re Pennell, 159 F. 500; In re Rohrer, 177 F. 381; In re Wagner's Estate, 206 F. 364; In re Schmidt, 224 F. 814; American Trust & Sav. Bank v. Ruppe, 237 F. 581; Duncan v. Girand, 276 F. 554; Louisville Realty Co. v. Johnson, 290 F. 176; In re Iroquois Utilities, Inc., 297 F. 397; Ft. Dearborn Trust & Sav. Bank v. Smalley, 298 F. 45; In re Smith, 3 F.2d 40; In re Gillette Realty Co., 15 F.2d 193; In re Hurlock, 23 F.2d 500; In re Simpson, 31 F.2d 317; Bushong v. Theard, 37 F.2d 690, cert. denied, 281 U.S. 763; In re Marts, 38 F.2d 283. Contra: In re Dana, 167 F. 529; In re Kaplan, 144 F. 159; First Savings Bank v. Butler, 282 F. 866.
The bill in Metcalf v. Barker was a true creditors' bill, seeking to make available to a judgment creditor assets which could not be reached by an execution at law. Jones v. Green, 1 Wall. 330; Dunphy v. Kleinschmidt, 11 Wall. 610, 78 U. S. 614; Taylor v. Bowker, 111 U. S. 110, 111 U. S. 116; National Tube Works Co. v. Ballou, 146 U. S. 517. The bill in this case assumes the existence of the lien on the property and is a mere measure to enforce it.
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