Case Name: William De Graff, as Trustee in Bankruptcy for Fannie Meng, an Adjudged Bankrupt, Plaintiff, v. Rosa C. Lang, Defendant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1904-03
Citations: 92 A.D. 564
Docket Number: 
Parties: William De Graff, as Trustee in Bankruptcy for Fannie Meng, an Adjudged Bankrupt, Plaintiff, v. Rosa C. Lang, Defendant.
Judges: 
Reporter: Appellate Division Reports
Volume: 92
Pages: 564–569

Head Matter:
William De Graff, as Trustee in Bankruptcy for Fannie Meng, an Adjudged Bankrupt, Plaintiff, v. Rosa C. Lang, Defendant.
Action by a trustee in bankruptcy against a judgment creditor of the bankrupt — an adjudication in the bankruptcy proceeding that the bankrupt was insolvent when the judgment was obtained against him, is conclusive against the judgment creditor—refusal to allow a plaintiff, who has rested, to reopen his case—when improper.
Where, within four months after the recovery of a number of judgments, creditors of the judgment debtor institute involuntary bankruptcy proceedings under the Federal Bankruptcy Act, against the judgment debtor, an adjudication made in the bankruptcy proceeding that the judgment debtor was insolvent at the time the judgments were recovered, is conclusive against one of the judgment creditors in an action brought against her by the trustee in bankruptcy to recover moneys Which she received under an execution issued upon her judgment, notwithstanding that none of the judgment creditors were parties to the bankruptcy proceeding. ■
Where the trustee in bankruptcy- rests his case¿ after putting in evidence .the-decree in bankruptcy, and the trial court decides that such decree does not, as against the judgment creditor, furnish evidence of the judgment debtor’s insolvency at the time the judgments were recovered, the refusal to permit the trustee in bankruptcy to reopen the case, in order to introduce common-law proof of the insolvency of the judgment debtor at the time of the recovery of the judgments, constitutes,an improper exercise of the discretion vested in the court.
Motion by the plaintiff, William De -Graff, as trustee in bank ruptcy for Fannie Meng, an adjudged bankrupt, for a new trial upon a ease containing exceptions, ordered to be heard at the Appellate Division in the first instance, upon the dismissal of the complaint by direction of the court after a trial at the Monroe Trial Term.
The action was commenced on the 1st day of February, 1902, by the plaintiff as trustee in bankruptcy for one Fannie Meng, an adjudged bankrupt, to recover from the defendant, a judgment creditor of Fannie Meng, the sum of $845.67, received by her from the sheriff of Monroe county, being a part of the proceeds of the sale by said sheriff of the property of Fannie Meng under and by virtue of executions issued upon defendant’s judgment, and others, which were recovered within four months of the time of the filing by other creditors of Fannie Meng of an involuntary petition in bankruptcy against her; upon which petition such proceedings were had as resulted in the adjudication in the United States District Court that said Fannie Meng was a bankrupt, the entry of judgment to that effect, and the appointment of the plaintiff as trustee, based upon such decree.
Harry Otis Poole, for the plaintiff.
11. B. Hallook, for the defendant.

Opinion:
McLennan, P. J.:
Fannie Meng was the owner of and engaged in running a hat and fur store in the city of Rochester, N. T. On the 26th day of December, 1899, four judgments were recovered against her by her three sisters-in-law respectively, aggregating about $2,615.50. One of said sis.ters-in-law is the defendant in this action and her judgment amounted to the sum of $845.67. Executions were immediately issued, upon all of said judgments to the sheriff of Monroe county, and on the 2d day of January, 1900, all of the property of Fannie Meng was sold thereunder for the sum of $2,068. Out of the proceeds of such sale the- defendant's judgment was paid in full, as were two of the others, and the balance of the proceeds of such sale, being $4.42, was applied upon the other or fourth execution.
On the 6th day of March, 1900,. and within four months of the time when such judgments were recovered, an involuntary petition in bankruptcy was filed against Fannie Meng by certain other of her creditors, alleging that she was insolvent and unable to pay her debts at the time the judgments aforesaid were recovered and asking that she be adjudged a bankrupt. In answer to such petition Fannie Meng denied her insolvency at the time when such judgments were recovered. Neither the defendant nor any of the judgment creditors above referred to were made parties to such proceeding. ,
The issue thus raised by the answer of Fannie Meng was tried in the United States District Court before the court and a jury. The jury found that Fannie Meng was insolvent at the time such judgments were recovered,- and thereupon and on the 17th day of May, 1901, a decree was duly made and entered in said court adjudging that Fannie Meng was insolvent at the time of the recovery of such judg ments and - declaring her a bankrupt. Thereafter, and on the 3d day of June, 1901, the plaintiff was duly appointed trustee-in bankruptcy of the estate of Fannie Meng; he duly qualified and entered upon the discharge of his duties as such. Thereupon the plaintiff brought this action to recover from the defendant the amount which was paid to her upon the judgment which she recovered against Fannie Meng, alleging and claiming that "said judgment and. all proceedings had thereunder were void because recovered and had when Fannie Meng was'insolvent and within-four months prior to the filing of the petition in bankruptcy against her. ' The defendant denied the insolvency of Fannie Meng, and alleged that her judgment was obtained in the ordinary course and in good faith, to ¡recover a valid debt owing to her by. Fannie Meng.
After making prima faoie proof of the other necessary facts, the plaintiff, for the purpose of establishing the insolvency of Fannie Meng, at the time the-defendant and the other judgment creditors referred to recovered their judgments, introduced in evidence the decree of the United States District Court "Which adjudged that Fannie Meng was insolvent at such time, and -rested. The learned trial court held "and decided that -such decree was no evidence of the insolvency of Fannie Meng as against the defendant in this action. The plaintiff then offered to make common Jaw proof; of such insolvency, but the court held that .having rested .his case he ought not to .be permitted to reopen for that purpose, and-denied his application for leave to make such proof. Thereupon the learned trial court granted the defendants motion for a nonsuit, and directed that the exceptions be heard in this court in the first instance.
Tn case Fannie Meng was insolvent within four months prior to the tiling of the petition in bankruptcy against, hep, and the judgment of the defendant'was recovered against her within that time, it must be conceded that such judgment and all proceedings taken thereunder were void, because- unquestionably the effect of the recovery-of such judgment, the issuing of the execution thereon and the sale of Fannie Meng's property thereundep was to give a ' preference to the defendant, which is prohibited by the-Bankruptcy Daw. Subdivision .f of section .67 of said statute (30 IT. S. Stat. at-Large, 565) -is as follows:. " 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."'
We think it should be held that the decree of the United States District Court put in evidence conclusively establishes, for the purposes of this action, that Fannie .Meng was insolvent at the time the defendant recovered judgment against her, and sold her property by virtue of the execution issued upon such judgment. Any other holding would lead to eijdless confusion in the administration of the law, and would in many cases nullify one of the principal purposes of the Bankruptcy Act. If the question of Fannie Meng's insolvency can be retried in this case, notwithstanding the decree- of the United States District Court adjudging such insolvency, it may be controverted and litigated in any case brought by a trustee in bankruptcy, to seenre the estate of a bankrupt against a person who may have obtained such estate by process issued out of the State courts, where such person was not made a party to the bankruptcy proceedings. In the case at bar the entire property of Fannie Meng was devoted to the payment of four judgments obtained by her three sisters-in-law, one of whom is the defendant, within four months of the time when other of her creditors filed a petition in bankruptcy, in which it was alleged, in substance, that- she was a bankrupt at the time such judgments were obtained, and basing such allegation upon the fact of the recovery of such judgments, and upon that and other sufficient proof, as we must assume, such insolvency was established, and the decree of a court of competent Jurisdiction was made in accordance with such allegation and proof.
We think the decree of the United States District Court, for the purposes of this action, should be regarded as conclusively establishing that Fannie Meng was insolvent at the time when'the defendant recovered her judgment, and that the validity of such decree cannot be questioned in this action. ' '
In Carter v. Hobbs (1 Am. Bank. Rep. 215) the head note is as follows: " An adjudication in bankruptcy being an adjudication in rem, all persons interested in the res are regarded as parties to the bankruptcy proceedings. Among such parties are not only the bankrupt and the trustee, but all creditors, including lienors." (See, also, Chapman v. Brewer. 114 U. S. 169; Rhoades v. Selin, 4 Wash. C. C. 716.)
In Levor v. Seiter (34 Misc. Rep. 382) it was held that an adjudication which adjudges bankruptcy is sufficient proof of the fact of insolvency, within the languáge and intent.of the act. '
In Matter of Ulfelder Clothing Co. (3 Am. Bank. Rep. 425) the. head note is as follows: "So, it seems, in proceeding against .the bankrupt, any creditor who had- a right to appear and join-in the petition or to be heard in opposition thereto under section 59, even though not entitled to notice, and though he does not appear, is in contemplation of law represented by the bankrupt, and concluded as to all matters directly in issue, and determined by the decree. At all events, the decree is conclusive. upon the bankrupt and a creditor who is a direct party to the proceeding."
In Chapman v. Brewer (supra) it was said : " The District Court which made the adjudication, having had jurisdiction of the subject-matter, and the bankrupt having voluntarily appeared, and the adjudication having been correct in form, it is conclusive of the fact decreed, and cannot-be attacked collaterally in a suit brought by the assignee against a person claiming an adverse interest in property of the bankrupt." . .
In Matter of Breslauer (10 Am. Bank. Rep. 33) the head note is as follows : " The filing of a petition in bankruptcy is. a cmeat to all the world, and in effect an attachment and injunction."
The many cases cited in the opinion in that case we think fully sustain the proposition.
The cases referred to would seem to establish that the decree of the United States District Court, put in evidence in this case by the plaintiff, was sufficient to prove the insolvency of Fannie Meng at the .time when the judgment of the defendant was obtained, and this was really the only issue involved. There is no suggestion in the evidence that the. adjudication in bankruptcy was obtained' "by collusion with the bankrupt. In fact, as we have' seen, she appeared ' in that proceeding and vigorously contested that issue. We are, therefore, constrained to hold that the decree of the United States District Court put in evidence furnished conclusive evidence that at the time the judgment of the defendant was obtained Fannie Meng, the judgment debtor, was insolvent, and that, therefore, under the Bankruptcy Act, such judgment was absolutely void, and that the plaintiff had a right to recover the amount which the defendant received in satisfaction of such judgment, it having been paid to her out of the proceeds of the property of the bankrupt. We also think the learned trial court improperly exercised its discretion in denying the plaintiff permission to reopen his case and make common-law proof of the insolvency of Fannie Meng at the time when the judgment of the defendant was obtained.
" We, therefore, conclude that the plaintiff's exceptions should be sustained and a new trial granted, with costs to the plaintiff to abide event.
• All concurred ; Spring and Williams, JJ., in result only.
Plaintiff's exceptions sustained and motion for new trial granted, with costs to the plaintiff to abide event.
See 30 .U. S. Stat. at Large, 561.— [Rep