Case Name: Bromley vs. Goodrich and others
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1876-01
Citations: 40 Wis. 131
Docket Number: 
Parties: Bromley vs. Goodrich and others.
Judges: 
Reporter: Wisconsin Reports
Volume: 40
Pages: 131–143

Head Matter:
Bromley vs. Goodrich and others.
Bedebai. and State Courts : Avoidance of sales as in violation of general bankrupt law.
1. Sales by an insolvent debtor, valid by the state law, but coming within; the provisions of sec. 35 of the federal bankrupt law, are' not absolutely void, but are merely voidable in favor of the bankruptcy, by a proper proceeding, in which the assignee in bankruptcy is presumably the proper plaintiff; and of such proceedings the federal courts have exclusive jurisdiction.
2. Where the proper federal court, in a proper proceeding, has avoided such a sale, the courts of this state will hold it void; but they mil not themselves adjudge a sale to be void under the i>rovisions of the bankrupt law, in the absence of such an adjudication by the federal court. Brigham v. Claflin, 31 Wis., 607, as to this point, reaffirmed.
3. Property acquired by the plaintiff from his debtor, by a sale valid under the law of tins state, was afterwards seized by the sheriff, on attachment, as property of the debtor, who was subsequently adjudged a bankrupt. After the property was so attached, it was taken tom the sheriff’s possession by the marshal, under a warrant from the bankrupt court, and was sold by the assignee, without any judgment of the bankrupt court that the sale to plaintiff was void, or any suit brought for that purpose. Held, that plaintiff is entitled to recover the full value of the properly, Ootton v. Reed, 2 Wis., 458, distinguished.
APPEAL from the Circuit Court to? Jefferson County.
Action for an alleged unlawful seizure and conversion by defendants of certain goods (mainly groceries), the property of the plaintiff. It appears from the pleadings and evidence that the goods had been the property of one Giles, a merchant; that they constituted his whole stock, and were of the value of $375; that on the 17th of April, 1875, they were transferred by bill of sale to the plaintiff, to whom Giles was indebted on a note for $400 with interest; that on the 28th of the same month the goods were seized by the defendant Hutchinson, as deputy sheriff, upon a writ of attachment against the goods and chattels of Giles, issued by a justice of the peace at the suit of the other defendants, creditors of the said Giles; that about May 1, 1875, Giles filed in the proper district court of the United States for the western district of Wisconsin, his petition to be declared a bankrupt, etc., and was on that day adjudged a bankrupt by said court; that the deputy marshal of said district was, on the same day, by the warrant of said court, directed to take possession of the goods and property of said bankrupt; that said deputy marshal, about May 3, 1875, took the goods in question from defendant’s possession, and retained them; that on the 25th of the same month an assignee was duly chosen and qualified in said bankruptcy proceedings, and an assignment made to Mm in due form of law; and that suck assignee, at the time of the commencement and trial of this action,’ claimed to hold said goods, or their proceeds, for the benefit of the creditors of said Giles.
The court instructed the jury that the taMng of the goods by the defendants was unlawful, and plaintiff was entitled to recover at least nominal damages; that if he obtained a good title to the goods by the bill of sale from Giles, then he was entitled to recover herein the value thereof, with interest from the taMng; and that his title would be indisputable but for the bankrupt law. As to the bankrupt law, the court charged that it was “ to be upheld and executed and carried out in all its vigor, in all its import, just as fairly and fully as any law that stands upon the statute book of the state of "Wisconsin. It is the law of the land, and entitled to be respected accordingly.” The court then read to the jury the provisions of sec. 35 of the bankrupt law, and instructed them that if Giles was a merchant and trader, and as such was owing the plaintiff, and was insolvent, and if plaintiff, knowing or having reasonable cause to believe the fact of his insolvency, with a view to obtain a preference over the other creditors, received from Giles the bill of sale above mentioned, and that such bill of sale covered Giles’ entire stock of goods, then the sale was fraudulent and void under the bankrupt law.
Plaintiff had a verdict for nominal damages only; a new trial was denied; and from a judgment in acccordance with the verdict, plaintiff appealed.
Bor the appellant, briefs were filed • signed by Sail <& Skinner, and the cause was argued orally by Daniel Sail.
It .was contended on that side, that the bill of sale from Giles to the plaintiff being valid at common law (Oook v. Rogers, Slip. Ot. of Mich., Am. Law Beg., October, 1875, p. 633), and also under the laws of Wisconsin (Brigham v. Olaflin, 31 Wis., 607), a disturbance of plaintiff’s title could be worked out only by tbe final judgment of tbe bankrupt court, reached by due process of law, in an action by tbe assignee against, tbe present plaintiff. Smith v. Mason, 14 "Wall., 419, 432; Marshall v. Knox, 16 id., 551, 556, 557. Tbe bankrupt act does not work a forfeiture without tbe intervention of court or jury; nor do its penalties fall to tbe assignee by their own weight. By “ void ” tbe act must mean voidable, by its limitation, “ and tbe assignee may recover tbe property, or the value of it, from tbe person so receiving it or to be benefited.” In Allen v. Massey, 17 "Wall., 351, in bankruptcy, the bill of sale was annulled by decree of tbe court in an equity suit for that purpose. If the sale was absolutely void, Giles could at once have brought replevin. But if no petition in bankruptcy was filed nor assignee appointed, there was no one to question tbe sale. Under tbe law, neither this property nor its value could be recovered through any title remaining in Giles after tbe sale to plaintiff. If recovered by the assignee, tbe property is held by a new title awarded by way of penalty, of which tbe judgment of forfeiture for tbe benefit of creditors is tbe sole source of title. And that tbe statute which, upon due proof and by due process of law, sanctions such a judgment, is highly penal, is further shown by its adding to tbe forbidden preference tbe further penalty of precluding tbe vendee from proving bis claim so as to. share in the assets of tbe bankrupt. Bump’s Bankruptcy (8th ed.), 628. And not only was tbe bankrupt law not designed to execute itself upon sales like this, so as to deprive tbe purchaser of bis rights without any adjudication in tbe proper court, but congress, under tbe power to establish uniform laws on the subject of bankruptcy, could not pass a valid act of that kind. Under tbe 5th amendment to tbe federal constitution, tbe vendee could not be deprived of bis right of property exe-cept by “ due process of law;” and this requires a trial and forfeiture declared by the ordinary modes of judicial proceedings. Roelmell v. Meaning, 35 N. Y., 302, 307; Cooley’s Con. Lim., 361-364, and notes. 2. The circuit court bad no right to try the issue which it presumed to try under the bankrupt law, because the proper parties were not before it; and because it had no jurisdiction of the subject matter. That pertains exclusively to the bankrupt court. Brigham v. Glaflvn, 31 "Wis., 607. 3. The property having been wrongfully seized on the attachment, no subsequent proceedings procured by the original trespassers can be set up to mitigate the damages. Ball v. Liney, 48 N. Y., 6; Higgins v. Whitney, 24 Wend., 379; Otis v. Jones, 21 id., 394; Hanmer v. WHsey, 17 id., 91; Dimean v. Sapear, 11 id., 54; Sedgw. on Dam., 48'2, 493, 494. 4. Giles could at least transfer to plaintiff §200 worth of his goods, which were exempt by law; and plaintiff was at least entitled to recover for that amount.
Eor the respondents, the cause was submitted on the brief of Fvnehes, Lynde <& Miller,
who argued that in this action defendants were entitled to show in'mitigation of damages a state of fact's which conclusively proved that plaintiff had no title to the goods; and that consequently the trespass complained of was a mere technical one (Oótton v. Beed, 2 Wis., 484; Haley v. Shed, 10 Met., 317; Sqwk-e v. Hollenbeeh, 9 Rick., 551; Oase v. Babbitt, 16 Gray, 278); that the bankrupt law .is “ the law of the land,” and by its terms the sale to plaintiff' was absolutely void; that the assignee in bankruptcy, upon the facts as proved, could have replevied the property; that he took it, in fact, by virtue of- an order of the bankrupt court; and that plaintiff’s only remedy was by action in that court, against the assignee. 2. As to the claim that plaintiff was entitled at least to the amount of property exempt by law, counsel answered that the -bankrupt court had decided that where a sale was fraudulent under the law, it was wholly void. In re Stephens, 3 Bissell, 194.

Opinion:
Cole, J.
The circuit court clearly ruled that taking the property in controversy from the possession of the plaintiff, was not justified by the attachment; "that that was an unlawful act." The principle was recognized, that under the state law a debtor had the right to prefer one creditor to another, and that the plaintiff acquired, by virtue of the bill of sale executed by Giles, a good title to the property, the bankrupt law being out of the question. But the court held, if the sale from Giles to the plaintiff was fraudulent and void under the provisions of the bankrupt law, that then only nominal damages could be recovered in the action. Indeed, the cause seems to have been tried wholly with reference to the bankrupt law, and upon the theory that the circuit court should exert its jurisdiction to enforce the penal provisions of that act. It is obvious that this was directly in the teeth of Brigham, Assignee, v. Olcoflvn, 31 "Wis., 607. In that case it was held that the courts of this state would not take jurisdiction of an action brought by the assignee in bankruptcy to recover the value of goods transferred in fraud of the bankrupt law, but that the proper tribunal for avoiding the 'sale was the bankrupt court. That decision certainly rules this case, and shows that the court below erred in submitting to the jury the question whether or not the sale from Giles to the plaintiff was fraudulent under the bankrupt law. The proper forum for litigating that question was the bankrupt court. The learned circuit judge remarked in his charge, that the bankrupt act was a law of the land, entitled to be respected as such, and to be carried out and enforced in all its import and vigor, just as any law which stands upon the statute book of the state. This is true in a certain sense, but plainly is not true in the sense in which the case was put to the jury, as the observations already made show. It has been decided that the state courts should not enforce, the penal provisions of that law, although they are doubtless bound to respect and sustain titles derived through bankrupt proceedings, and will give full effect to the adjudications of the bankrupt court. And had the sale from Giles to the plaintiff been avoided by any proper proceeding in the bankrupt court, and the property adjudged to be a part of the estate of the bankrupt, it would be the duty of the state court to carry out and enforce that decision whenever its jurisdiction was invoked. But that is quite a different matter from the state court attempting itself to-annul a sale valid under the state law because it was designed to give a preference to a creditor which was prohibited by the bankrupt act.
The bill of sale under -which the plaintiff claims was executed April 17, 1875, and actual possession of the property was delivered under it. The property remained in the plaintiff's possession until it was taken on the attachment against Giles by the deputy sheriff. It appears that early in May, Giles, on bis own petition, was adjudged a bankrupt, and the marshal took the property from the possession of the deputy sheriff under a warrant from the bankrupt court. The property was afterwards sold by the assignee. As before remarked, the court decided that the defendants could not justify the taking and conversion of the property under the attachment; and further held that the marshal bad no right to take it under bis warrant, but having taken it and subjected it to the payment of the debts of the bankrupt, if the sale were void under the bankrupt law, no more than nominal damages could be recovered. This view we deem erroneous. It is conceded that the original taking of the property was unlawful, and we perceive no ground for bolding that the plaintiff's right to recover its value was affected by the bankrupt proceeding. There are cases which bold that when property has been wrongfully taken by the defendant, the fact that it has been applied to the payment of plaintiff's debt by means of legal process in favor of a third person, may be shown in mitigation of damages. Cotton v. Reed, 2 Wis., 458, and cases cited in the opinion; Kaley v. Shed, 10 Met., 317. And bad the safe to the plaintiff been annulled by a suit at law or in equity, brought by the assignee, as indicated in Smith v. Ma son, 14 Wall., 419; Marshall v. Knox, 16 id., 551, and Allen v. Massey, 17 id., 351, then, within the doctrine of Perry v. Chandler, 2 Cush., 237, the fact might be shown in evidence in reduction of the damages. But it is evident that the doctrine of these authorities has no application to the case at bar, for the reason that it is not pretended that the property wrongfully taken lias been appropriated to the payment of the plaintiff's debt by means of legal process in favor of any creditor of bis; nor has the sale to him been avoided by any proper proceeding in the bankrupt court. The marshal had no right to take the property in the manner be did, and the mere fact that the sale was liable to be declared invalid and fraudulent in some suit which might be instituted by the assignee in the bankrupt court, cannot affect the amount of the recovery, or mitigate the damages. The plaintiff is entitled to recover the full value of the property wrongfully taken from bis possession. Wilkinson v. Wait, 44 Vt., 508.
Tbe judgment of tbe circuit court must therefore be reversed, and a venire de novo awarded.