Court Opinion

ID: 5231928
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:58:23.202821+00
Date Added: 2024-06-11T08:27:40.735832
License: Public Domain

Kellogg, J. (dissenting):
Michael W. Nolan rendered certain services and furnished certain material under a contract with the city of W atervliet, for paving, curbing and improving certain streets, and on the 11th day of January, 1912, was adjudged a bankrupt. Prior to the bankruptcy the plaintiff, under a contract with said Nolan, furnished certain material which was used by bim in performing said contract, and on the 13th day of January, 1912, and within thirty days from the completion of said contract, filed a mechanic’s hen for the value of such material.
The only question for consideration is whether the plaintiff’s lien, filed two days after the adjudication in bankruptcy, takes precedence over the interest of the trustee in bankruptcy in the amount due upon the contract.
In Kane Co. v. Kinney (174 N. Y. 69) it was held that under an assignment for the benefit of creditors the assignee took the title of the assignor as it was at the assignment, subject to the legal or equitable claims thereon, and that under the Lien Law the materialman had a preferential statutory right in the nature of an unperfected equitable lien which could not be defeated by act of the debtor, and when the notice was duly filed the assignment became subject to the lien.
In York Mfg. Co. v. Cassell (201 U. S. 344), decided in 1906, it was held that the vendor under a conditional contract of sale, which under the Ohio law was void as against creditors and purchasers in good faith, could hold the *425property against a trustee in bankruptcy, as the latter was in no better position than the bankrupt at the time of the adjudication. In the Kane Co. case the assignee, and in the York case the trustee in bankruptcy, only acquired the rights which the assignor or bankrupt had at the time of the assignment or adjudication. Under those cases, and others to the same effect, it must be conceded that prior to the amendment of the Bankruptcy Law in 1910, a mechanic’s lien, filed under the circumstances existing in this case, would be prior in rights to the claim of the trustee in bankruptcy.
In 1910, subdivision a of section 47 of the Bankruptcy Law, which defines the duties of the trustee in requiring him to account for all money received, and to collect and reduce to money the property of the estate for which he is trustee, under the direction of the court, and to close up the estate as expeditiously as is compatible with the best interests of the parties in interest, was amended by adding thereto the following: “And such trustees, 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 thereon; and also, as to all property not in the custody of the bankruptcy court, shall be deemed vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied.” (30 U. S. Stat. at Large, 557, § 47, subd. a, as amd. by 36 id. 840, §8.)
The discussions in Congress at the time of the amendment show that the amendment was intended primarily to do away with the effect of the decision in the York case, but it expressly gave the trustee all the rights of a creditor who had a lien by legal or equitable proceedings. The language cannot be warped from its fair meaning. The amendment changed the rule established by the cases cited, with the result that the rights of the trustee in bankruptcy take precedence over the defendant’s claim.
It is urged, however, that the bankrupt had a mere chose in action against the municipality and that the money sought to be reached by the plaintiff was not property in the custody or coming into the custody of the bankruptcy court. I think the *426plaintiff takes too narrow a view of the amendment. The words, “All property in the custody or coming into the custody of the bankruptcy court,” arqnot limited to the property which has been brought into the actual physical possession of the trustee. By the adjudication all the property of every name and nature representing a money value goes to the trustee, who is a mere officer or instrument of the court, and such property is in the custody of the court, at least so far as it is within the jurisdiction of the court and is not in the custody of some other court. An “adjudication foEows as matter of course, and brings the bankrupt’s property into the custody of the court for distribution among aE his creditors.” (Hanover National Bank v. Moyses, 186 U. S. 181, 191.) As to property in foreign countries title does not pass by the adjudication, but the bankruptcy court, by putting pressure upon the bankrupt, compels him to convey title. (Booth v. Clark, 58 U. S. [17 How.] 322.)
It is unnecessary to consider whether the same rule would apply to property outside of the jurisdiction of the court or to property which at the time of the adjudication may be in the custody of another court. • Such cases, and perhaps others, may be covered by the 2d paragraph of the amendment, when it speaks of property not in the custody of the court. I think the claim to .the moneys due from the municipality was property in the custody of the court before the mechanic’s lien was filed, and that, therefore, at that time the trustee had all the rights in the property of a creditor holding a lien by legal or equitable proceedings. His claim was, therefore, superior to the plaintiff’s.
The order and judgment should, therefore, be affirmed, with costs.
Howard, J., concurred.
Judgment and order reversed and new trial granted, with costs to appeEant to abide event.