Court Opinion

ID: 5227611
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:48:39.675749+00
Date Added: 2024-06-11T08:27:36.685434
License: Public Domain

Lambert, J. (dissenting):
The major facts involved upon this appeal are sufficiently-stated in the opinion of Mr. Justice Kruse.
The Bankruptcy Act of 1898 (30 U. S. Stat. at Large, 565, § 67, subd. f) furnishes ample reason for the reversal of the order. By that section it is provided: “ That all levies, judgments * * * 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 * * * shall be deemed wholly discharged and released from the same and shall-pass to the trustee as a part of the estate * *
This statute provides three prerequisites to its operation. The judgment must be against a debtor, insolvent at the time of its rendering. The petition in bankruptcy must have been filed within the four months thereafter. The adjudication of bankruptcy must follow. When these elements are present their legal effect is plain. The judgment is dissolved, ipso facto, as of the time of its rendition. The United States Supreme Court so declared the effect of this statute in the following words: “ This nullity and invalidity relate back to the time of the entry of the judgment and affect that and all subsequent proceedings. The language of the statute is not ‘when,’ but ‘in case he is adjudged a bankrupt,’ and the lien obtained through these legal proceedings was by the adjudication rendered null and void from its inception.” (Clarke v. Larremore, 188 U. S. 486.)
This court has also had occasion to pass upon this section of the Bankruptcy Act, and its conclusions harmonize with the foregoing. (National Bank & Loan Co. v. Spencer, 53 App. Div. 547; De Graff v. Lang, 92 id. 564.)
If the rule of interpretation announced in these cases is applicable to the facts here, then there was no lien remaining under this judgment upon which the saving clause of section 150 of the Debtor and Creditor Law (Consol. Laws, chap. 12; Laws of 1909, chap. 17) might operate. The lien of the judgment having been destroyed by the Bankruptcy Act, the State enactment is ineffectual to reinstate it.
*45It is suggested in the prevailing opinion that the rule established by the cases cited is one for the benefit of creditors, and can only be asserted by the trustee and those claiming through or under him. I cannot accede to this proposition as of unvarying application. But, assuming it to be true, it does not, in my opinion, permit the respondent to retain the order involved upon this appeal.
The real property, upon which it is claimed this judgment was a lien, was scheduled by the bankrupt as a part of his estate and he, in fact, then owned the title. By the clear provisions of subdivision f of section 67 his title vested in the trustee as of the date of adjudication, and equally clear is it that it vested, freed from the lien of the judgment. This is made so by the provision of that section that “ the property ” shall be deemed wholly discharged from such lien and pass to the trustee as a part of the estate. The statute above quoted distinctly so provides. Upon the appointment of the trustee, then, the title, by operation of law, left the bankrupt and vested in the trustee, free from the lien of the judgment.
It is well settled law that a trustee is at liberty to refuse to administer property, so vesting, if its administration would prove disadvantageous to the estate he represents. (First Nat. Bank v. Lasater, 196 U. S. 115; American File Co. v. Garrett, 110 id. 288, 295; Sparhawk v. Yerkes, 142 id. 1; Sessions v. Romadka, 145 id. 29; Dushane v. Beall, 161 id. 513.)
Those and other cases that might be cited decide that in case the trustee elects not to administer the property, the title reverts to the bankrupt by operation of law, and that such election may be inferred from circumstances. The fact is conceded in the record of this appeal that the trustee in bankruptcy did not administer the real property in question, and we may reasonably conclude that his failure to do so resulted from a determination by him that to administer it would prove unprofitable to the estate. The reasonableness of his conclusion not to administer it is not open to question here, as a means for its review is provided in the bankruptcy court. It follows that, by operation of law, the title thereupon passed back to the bankrupt. Unless the trustee did make such a determination, and unless such was its effect, then there is now no title in the appel*46lant to be reached by the execution. It is thus made certain that the title owned by him at the conclusion of the bankruptcy proceedings was a title that he acquired from and through the trustee. Having succeeded to the title of the trustee, he has a privity of title with the trustee, and is in a position to assert any right that the trustee might assert with reference to such title. The privity arises from the succession of title. (Smith v. Reich, 80 Hun, 287; affd., 151 N. Y. 642.)
As has been seen the title vested in the trustee, free from the lien of the judgment, and I can find no provision of law, statutory or otherwise, reviving such lien upon the transition of the title back to the bankrupt.
Undoubtedly a construction of this section of the Bankruptcy Act is proper and even required, which removes from its operation liens upon property not reached by the Bankruptcy Act and which that court cannot administer. Such a construction is essential to a recognition of the property rights in the bankrupt not reached through and by the Bankruptcy Act and leaves such property and the liens attendant thereon to be administered by the State courts, unfettered by the bankruptcy proceedings. Such a construction is recognized by Mr. Loveland in his work on Bankruptcy (4th ed. § 438), and the cases from foreign jurisdictions which he cites to sustain that construction so hold. With the doctrine of these cases I have no controversy as to the facts there involved. Those facts, however, do not quad-rate with those of this case. Here, the judgment debtor sought the bankruptcy court to be relieved from his debt and turned this particular property over to that court for administration by it. Here, the judgment creditor also invoked the aid of that court for the collection of his debt by proving his claim and submitted it and himself to the jurisdiction of that court. Here, the property was of a character which permitted its administration in that court, and it actually passed to the trustee for such administration. With the property, the judgment debt and both parties all in that court and within its jurisdiction, we must assume that their respective rights, which they were there asserting, were fully administered, and no right survived to be enforced in the State courts. If the proceedings had in that court were not complete in the adjustment of their rights, *47then the burden was upon the moving party in this application to make such fact appear. That he has failed to do.
It appears from the record that in the bankruptcy proceeding the judgment creditor proved the judgment as “a debt” against the bankrupt. This, it would seem, justifies the conclusion that he proved such as an unsecured claim. To assume otherwise requires the inference that he proved it not only as a “debt,” but also as a lien. I find no intimation in the record that any claim was made there that the claim was one upon a lien. If in fact the claim was one upon a lien the respondent should have made such fact to appear to escape the conclusion that it was not. Assuming, therefore, as I think we must, that the claim was proven as an unsecured claim, such action effectually bars the relief sought here by the respondent. This is equally true if we assume that a lien existed upon which he might have proven a secured claim. There would then have been two courses of action open to him. He might rely upon such lien and look to the property for the satisfaction of his debt, or he might file an unsecured claim and look to dividends for reimbursement. He could not do both, for the two positions are made inconsistent by the Bankruptcy Act. By subdivision b of section 56 of that act (30 U. S. Stat. at Large, 560) the holder of a secured claim is debarred from voting at creditors’ meetings. By subdivisions e and h of section 57 of the act (30 U. S. Stat. at Large, 560) the holder of such a claim is required, either to realize upon his security or to appraise its value, to the end that it may be determined what proportion of the claim is not protected by the security. The official forms in bankruptcy have practically the effect of statutory enactments and by such the creditor-, in filing his claim, is required to specify whether his claim be secured, and if so, to identify its security. Substantial rights to all creditors are affected by these provisions. It is only the unsecured creditors who participate in dividends, and to allow a secured creditor to receive dividends upon the full amount of his claim, and then to realize upon his security would be manifestly unjust and inequitable.
Nor do I see that the status of the respondent is affected through the failure of the estate to pay dividends. The judg*48ment debtor voluntarily assumed a position which entitled him to receive dividends if any were paid. His claim to be so entitled was repugnant to any claim of security in his hands. With the two inconsistent positions presented, he was required to assume one position or the other and his election to take the stand of an unsecured creditor was an abandonment of all claim that he had any security. This doctrine is recognized in the case of Ansonia Brass & Copper Co. v. Babbitt (74 N. Y. 395) and, as was there stated, the place for him to correct any position he may have misguidedly assumed is not in this court. He stands here, as he did there, an unsecured creditor.
It follows that the order appealed from should be reversed, with costs.
McLennan, P. J., concurred.
Order affirmed, with ten dollars costs and disbursements.