Court Opinion

ID: 8866290
Source: CourtListenerOpinion
Date Created: 2022-11-26 18:06:57.531928+00
Date Added: 2024-06-11T17:06:00.833053
License: Public Domain

EWART, District Judge
(after stating the facts as above). Am interesting question always arises with respect to how far the jurisdiction of a court of bankruptcy extends to obtain possession of the assets of a bankrupt. In cases of property voluntarily surrendered to *519the trustee, there can he no controversy; hut where the property is in the actual possession oí another court, or an officer thereof, the remedy is not so plain. The rule which has been regarded by the federal courts generally is that, where property is in the actual possession of oik; court of coinxietent jurisdiction, such possession cannot he disiurbed by process issued from another court. Shields v. Coleman, 157 U. S. 168, 15 Sup. Ct. 570; Moran v. Sturges, 154 U. S. 274, 14 Sup. Ct. 1019; The Lotta, 65 Fed. 319.
In Compton v. Jesup, 15 C. C. A. 397, 412, 68 Fed. 263, 279, Judge Taft said:
‘■.Necessity and comity both require that where, by its officers acting under color of its orders and processes, a court has taken into its custody property of any kind, another court, though of equal and co-ordinate jurisdiction, should not be permitted either to oust the possession of the first court, or in any way to interfere with its complete control and disposition of the property for the purpose of the cause in which its action has been invoked. This principle has been laid down by the supreme court of the United States in a long line of cases. Hagan v. Lucas, 10 Pet. 400; Williams v. Benedict, 8 How. 107; Freeman v. Howe, 24 How. 450; Bank v. Calhoun, 102 U. S. 256; Gumbel v. Pitkin, 124 U. S. 131. 8 Sup. Ct. 379; In re Tyler, 149 U. S. 181, 13 Sup. Ct. 793; Byers v. McAuley, 149 U. S. 608, 13 Sup. Ct. 906. In Riggs v. Johnson Co., 6 Wall. 196, the court, speaking.of the state and federal courts, said: •The process issued by one court is as far beyond the reach of the oilier as if the lino of division between them was traced by landmarks and monuments visible to the eye.’ ”
Ln a more recent case (In re Abraham, 93 Fed. 774), Judge McCormick, of the circuit courl of appeals, Fifth circuit, in a most learned and elaborate opinion, says:
“Immediately upon the taking effect of the bankruptcy act of 1807, the dockets of the courts of bankruptcy became crowded. The most able and careful judges of the district court, pressed by urgent conditions and argument, with little call or time to doubt, began to extend summary process and proceedings so as to meet all individual cases presented. The growing weight (if precedent thus nourished by their own practicably unrcviewable, or actually unreviewed, decisions, carried their jurisdiction to that point where, a few years later, it became burdensome and dangerous to all persons engaged in agriculture, manufacturing, or commercial purposes, and dealing to any considerable extent on credit. However, after the lapse of some years, cases began to reach the dockets of Hie supreme court; and, after the substantial final settlement by the subordinate courts of the great bulk of business (hat arose under I he act, the supreme court llegan to reach the cases on irs (lockets which involved the construction of the act, and. announce decisions marking the boundaries of the jurisdiction it conferred, and the manner of procedure in its exercise. These decisions sel lied that most matters and proceedings in bankruptcy were to be heard and adjudicated in a summary way, but that the general jurisdiction thus to proceed did not extend to controversies by an assignee in bankruptcy against any person claiming an adverse Interest, or by such person against such assignee, touching any property or rights of property of 1he bankrupt transferred to, or vested iii, die. assignee; that such controversies, where they could not be settled oilier-wise than by legal proceedings, could be prosecuted only by plenary suits at law or in equity.”
In Eyster v. Gaff, 91 U. S. 521, it was held that the jurisdiction conferred upon the federal courts for the benefit of an assignee in bankruptcy was concurrent with and does not devest that of the state courts in suits in which they had full cognizance. As highly instruct*520ive and pertinent to our own inquiry, we quote some of tlie language of the opinion in the ease last cited:
“The opinion seems to have been quite prevalent in many quarters at one time, the moment a man is declared a bankrupt the district court, which has adjudged, draws to itself, by that act, not only all control of the bankrupt’s property and credits, but that no one can litigate with the. assignee or contest rights in another court, except in so far as the circuit court took concurrent jurisdiction, and all other courts can proceed no further in suits of which they had, at that time, full cognizance, and it was a prevalent practice to bring any person who contracted with the assignee any matter growing out of disputed rights of property or of contracts into the bankrupt courts by the service of a rule to show cause, and to dispose of their rights in a summary way. This court has steadily set its face against this view. The debtor of a bankrupt, or the man-who contests the right to real and personal property with him, loses none of these rights by the bankruptcy of his adversary. The same courts remain open to him in such contests, and the statute has not devested those courts of jurisdiction in such actions. If it has, for certain classes of actions, concurrent jurisdiction for the benefit of the as-signee in the circuit and district courts of the United States, it is concurrent with and does not devest that of the state courts.”
In the case just cited (In re Abraham), Abraham, the bankrupt, had executed, under the laws of Alabama, a deed of assignment to one Davidson, covering a certain stock of goods. Davidson immediately took possession of the said stock, and filed his inventory of the same in the proper state court. Appraisers were duly appointed, and filed their report in the said state court; whereupon Davidson, as assignee, sold the goods, for cash, to one Bernheimer, who immediately went into possession of the same, and was disposing of the said stock from day to day, when, under a special warrant issued out of the court of bankruptcy, the marshal seized the remainder of the said stock. Pending the action of the assignee in disposing of this stock, proceedings in involuntary bankruptcy were filed against Abraham by certain creditors, and he was duly adjudged a bankrupt. The circuit court of appeals, Fifth circuit (Judge Parlange dissenting as to the intimation in the opinion of the court that the court of bankruptcy could not have taken possession of the bankrupt’s estate prior to the sale and while it was in the hands of the assignee), held that the application and issuance of the writ, directing the marshal to seize the whole of the stock of goods in the possession of Bernheimer, was totally unwarranted and unlawful, and that the possession thereof must be restored to the adverse claimant. The court, referring to the proceedings, said:
“It is our duty to prevent tbe springing up of a practice that will extend summary process in proceedings in bankruptcy to controversies between trustees or other parties to the bankruptcy proceedings and adverse claimants. Under the act of 1867, such a practice was prevalent in many quarters at certain times, but it rested on opinions taking a view of the provisions of the act, against which, as we have seen, the supreme court steadily set its face. As we construe the provisions of the present law, they not only do not admit of such a view or authorize such a practice, but carefully guard against it and forbid it.”
In Ex parte Chetwood, 165 U. S. 443, 17 Sup. Ct. 385, it is said:
“Where the jurisdiction of a court, and the right of a plaintiff to prosecute his suit in it, have once attached, that right cannot be arrested or taken away by proceedings in another court. Where property is in the possession of a *521court of competent jurisdiction, that possession cannot be disturbed by process out of another court of concurrent jurisdiction.”
See, also, Kimberling v. Hartly, 1 Fed. 571; Carr v. Fearington, 63 N. C. 560; Erwin v. Lowry, 7 How. 172; Miller v. Sherry, 2 Wall. 237; In re Easley, 93 Fed. 419; Sedgwick v. Menck, 1 N. B. R. 675, Fed. Cas. No. 12,616; Beach, Rec. 38.
It will be observed that in Eyster v. Gaff, and in all other cases above cited, the property of the bankrupt was in the actual possession of the state courts or adverse claimants. Where the property in question is not covered by litigation, or is not in the possession of the state courts, the jurisdiction of the bankruptcy courts will not be ousted. It is the interference with the possession of another court, that would ensue if jurisdiction was taken, and the existence of a receivership, if a receiver has taken the property in controversy into his own possession. Andrews v. Smith, 5 Fed. 833; 20 Am. & Eng. Enc. Law, p. 67; Eyster v. Gaff, 91 U. S. 521.
A careful comparison of the provisions of the bankruptcy acts of 1841 and 1867 with similar provisions of the act of 1898 shows that the power and jurisdiction of the United States district court under the act of 1898 is as complete and extensive as under the acts of 1841 and 1867.
In the absence of any decisions of the United States supreme court construing the act of Í898, it may be of interest to note the leading case upon the powers and jurisdiction of the district courts under the act of 1841. The case referred to is In re Christy, 3 How. 292. Chief Justice Ftory, in delivering the opinion of the court, says:
“We entertain no doubt that, under the provisions of the sixth section of the pro visions of the act of 184!, the district court possesses full jurisdiction to suspend or control such proceedings [proceeding's to enforce liens] in the state courts, not by acting on the. courts, over which it possesses no authority, but by acting on the parties through the instrumentality of an injunction or other romtdial proceedirigs in equity, upon due application made by the assignee, and a proper case being laid before the court requiring such interference. ⅞ * * But because the district court does possess such a jurisdiction under the act there is nothing in the act which requires that it should, in all cases, be absolutely exercised. On the contrary, where suits are pending in the state courts, and there is nothing in them which requires the equitable interference of the district court to prevent any mischief or wrong to other creditors under the bankruptcy, or any waste or misapplication of the assets, the parties may still be permitted to proceed in such suits, and consummate them by proper decree and judgments, especially where there is no suggestion of any fraud or injustice on the part of the plaintiffs in those suits.”
Continuing (page 319), Justice Story says:
“It would he easier to put cases in which the exercise of this authority may be indispensable on the part of the district court to prevent irreparable Injury or loss or waste of tlie assets without adverting to the case at bar, where, upon the allegation in the petition and supplemental petition, the creditors of the bankrupt are attempting to enforce a mortgage asserted to be illegal and invalid, and to procure a forced sale of the property by the sheriff in an illegal and irregular manner, thereby sacrificing the interests of the other creditors under the bankruptcy.”
Justice Story further says:
“If we are told that resort, may be had to the state courts for redress, one answer is that in some of the states no adequate jurisdiction exists in the *522state courts, since they are not clothed with general jurisdiction in equity; but a stronger and more conclusive answer, is that congress did not intend to trust the working of the bankrupt system solely to the state courts of twenty-six states, which were independent of any control by the general government, and were under no obligations to carry the system into effect. The judicial power of the United States is, by the constitution, • competent to all such purposes, and congress, by the act, intended to secure the complete administration of the whole system in its own courts, as it constitutionally might do.” “The truth is [says Justice Story on page 321] that in no other way could the bankrupt system be put into operation without interminable doubts, controversies, embarrassments, and difficulties, or in such a manner as to achieve the true end and design thereof. Its success was dependent upon the national machinery being made adequate to all the exigencies of the act.”
The principles established in this case were reviewed at length in Nugent v. Boyd, 3 How. 426, and confirmed. In delivering the opinion, Chief Justice Taney says:
“Where a creditor, by virtue of a special mortgage, elects to foreclose that mortgage before a state tribunal, the federal court is not called upon to interpose, except in cases where, from the nature of the case, wrong or injustice may be done to other creditors in interest, or where the mortgage itself may be contested. I wish it, however, to be distinctly understood -that I am fully of the opinion 'that the district court of the United States is vested with jurisdiction over mortgaged property belonging to the bankrupt; that, when a proper cause is shown, it has power to foreclose the mortgage, and to do all other acts necessary to bring about a final distribution and settlement of the bankrupt estate. I am also .of the opinion that, in a case where a creditor calls in question the validity of a mortgage held by another creditor, it is the duty of the said court (the district court) to exercise jurisdiction over the question involved, and, if necessary, to declare the mortgage null and void.”
Collier on Bankruptcy (pages 12-17) says:
“The opinion in Re Christy is reviewed and followed by Baker, District Judge, in the case of Carter v. Hobbs, 92 Fed. 594, a case arising under the existing act. The bankruptcy court has complete original jurisdiction over the bankrupt, or of his assets and all of his creditors. In Re Winn, 30 Fed. Cas. 303, the object of the bankruptcy act is declared to be ‘to establish a uniform system of bankruptcy throughout the United States.’ The fundamental element in other systems of bankruptcy has been to provide for and regulate the distribution of the bankrupt’s property among his creditors, and to do this by means of agencies created by the act. The very moment an act of congress, establishing a uniform system for the administration of an insolvent estate, takes effect, every local and private system for the administration of same estates is necessarily superseded. Both systems cannot operate side by side as respects the same estates. The one must necessarily supersede the other, and the state and voluntary systems must yield to the system established by congress.”
See In re Gutwillig, 90 Fed. 475.
This decision, confirmed by the circuit court of appeals, Second circuit (34 C. C. A. 377, 92 Fed. 337), as is also In re Sievers, 34 C. C. A. 372, 92 Fed. 325, confirmed by the circuit court of appeals, Eighth circuit, under the changed title of Davis v. Bohle, is in conflict with the decision of the circuit court of appeals, Fifth circuit, in Re Abraham. See, also, in support of the proposition, as laid down in Re Gutwillig, 90 Fed. 475: In re Francis-Valentine Co., 93 Fed. 953; In re John A. Etheridge Furniture Co., 92 Fed. 331; In re Smith, Id. 135; Lea v. George M. West Co., 91 Fed. 237; In re Brown, Id. 358; In *523re Pittelkow, 92 Fed. 901; Carpenter v. O’Connor, 16 Ohio Cir. Ct. R. 526.
The aboye summary of cases, reported during the first year of the present bankruptcy law, makes it possible to deduce some generalizations which should control the court’s decision in the case at bar. An injunction after adjudication is always discretionary, provided the cause of action is dischargeable in bankruptcy, and should surely be granted (1) if the bankrupt is threatened with arrest; (2) if the suit is not yet in judgment, and even after judgment, if the rights of the general creditors, not parties to the suit, will be jeopardized by furtiier proceedings in the state courts; (3) or if the judgment is founded on the transaction, which is an act of bankruptcy, or a fraud on creditors, or the law. It should never be granted after the judgment has ripened into an execution sale, provided the state court has, or can be given, jurisdiction of all parties interested in the distribution, including the general creditors represented by the trustee in bankruptcy. See Black, Bankr. pp. 8-10; Branden. Bankr. pp. 26, 194, 415; Coll. Bankr. pp. 12-17; Bush, Bankr. pp. 33-38; Bump, Bankr. p. 283; Loveland, Bankr. p. 75. Courts of the United States are forbidden “to stay proceedings in any court of a state except in such cases where such injunctions may be authorized by any law relating to proceedings in bankruptcy.” Rev. St. U. S. § 720; Haines v. Carpenter, 91 U. S. 254; Dial v. Reynolds, 96 U. S. 340; Peck v. Jenness, 7 How. 625. The act of 1898 (section 2, subsec. 15) expressly authorizes “the court of bankruptcy to make such orders, issue such process and enter such judgments, in addition to those specifically provided for ⅞ * * the enforcement of the provisions of this act.” “To bring in and substitute additional persons, or parties, in proceedings in bankruptcy, when necessary for the complete determination of a matter in controversy.” Id. subsec. 6. “To cause the estates of bankrupts to be collected, reduced to money, and distributed, and determine controversies in relation thereto, except as herein otherwise provided.” Id. subsec. 7.
Applying the above-cited authorities to the facts in the case at bar, I am clearly of the opinion that when the superior court of Guilford county declared the deed of assignment made by Benbow, the bankrupt, to Cox, assignee, on the 23d day of January, 1894, null and void, as being in fraud of his creditors, the property attempted to be conveyed by Benbow to Cox, assignee, eo instante vested, by operation of the bankruptcy law, in the Southern Loan & Trust Company, the trustee of the said bankrupt.
It cannot be successfully maintained that the decree entered by the superior court of Guilford county was procured in good faith. All the evidence and the circumstances surrounding tire proceedings point to the fact that it was a collusive judgment. It is manifest that, if the court had been apprised of the fact that Benbow had been adjudicated a bankrupt in the month of April preceding the rendition of this decree; that a trustee of his estate had been appointed, who was empowered, under the act, to take charge of tire property and estate of the bankrupt; and that Charles D. Benbow, son of the bankrupt, and one of the beneficiaries under the deed of assignment to *524Cox, was actually, at the time of the signing of this decree, the sole and only plaintiff in the pending cause, and that as a matter of fact there were “no several plaintiffs” among which priorities of liens were to be waived, as erroneously stated in the decree, but only the one plaintiff, — the court would not for one moment have entertained jurisdiction.
It is significant, in this connection, to note that the two wards of ■ Benbow, Oliver 0. and William C. Benbow, also beneficiaries under the Cox assignment, appear to have had no representative in this proceeding to protect their interests; and that Cox, the assignee, at the hearing of the matter, June term, 1899, of the superior court of Guil-ford county, made no effort to protect their interests, under the deed of assignment, as it was most certainly his legal duty to have done, but, on the contrary, assents to the judgment declaring the deed made to him in trust for the said wards null and void, and a fraud upon the creditors of Benbow. In the undue haste exhibited to procure this decree, the interests of these wards appear to have been entirely lost sight of by Cox and D. W. C. Benbow, the bankrupt. While there is no direct evidence that the bankrupt is the actual owner of the judgments taken by the five creditors who filed the five separate creditors’ bills, there is sufficient evidence to make out a prima facie case for the petitioner, — the trustee of the bankrupt, Benbow, — and this court most certainly has the jurisdiction and power to inquire into this matter, with a view of ascertaining whether fraud has been perpetrated upon the creditors of the said Benbow. On that day, the 23d day of January, 1894, the title passed from D. W. C. Benbow, bankrupt, to J. S. Cox, his trustee, by deed of assignment, and at the same time possession of that property was transferred to said Cox, as appears from the evidence, and the title and possession remained in the said Cox, trustee, until the decree of the June term of the superior court of Guilford county was made, when the deed of assignment was set aside, as being a fraud on the creditors of the said D. W. C. Ben-bow. That the decree directed that the property be sold to satisfy certain alleged prior liens has no bearing on the question of title. The decree of the court at June term, 1899, declares that the title of J. S. Cox, trustee, was void ab initio. That being so, it is clear that the title to the property alleged to have been assigned remained in Benbow at the date of his adjudication in bankruptcy, on April 5, 1899, when, by operation of law, the title to the property in question passed to the Southern Loan & Trust Company, his trustee in bankruptcy. This title is held by the trustee in bankruptcy, subject, of course, to any equitable and valid liens that existed against the property in the hands of the bankrupt.
In Eyster v. Gaff, 91 U. S. 521, which the able counsel for Charles D. Benbow and D. W. C. Benbow insists fully sustains their contention, Justice Miller says:
“It may be conceded, for the purpose of the present ease, that the strict legal title to the land did not pass to the assignee upon his appointment.”
Again, on page 525, Justice Miller says:
“It is the duty of that court to proceed to a decree as between the parties before it, until, by some proper pleadings in the case, it was informed of the *525changed relations of any of those parties to the subject-matter of the suit. * *' * It is almost certain that if, at any stage of the proceedings before a final confirmation, the assignee [in bankruptcy] had intervened, ho would have been heard to assert any right, or set up any defense, to the suit”
The facts in the case of Eyster v. Gaff are unlike those in the case at bar. In the case of Eyster v. Gaff, the property had been sold to Gaff, and a master’s deed to bim had been confirmed by a court of competent jurisdiction; while in the case pt bar the sale of the property in question had only been ordered, and in a decree rendered in the state court, manifestly procured by collusion, as between Benbow, the bankrupt, and Charles D. .Benbow, one; of the defendants in the ease when the decree was entered.
Chief Justice Taney, in Nugent v. Boyd, 3 How. 426, says:
“1 am of the opinion that in a case, where a creditor calls in question the validity of a mortgage held by another creditor it is the duly of the said court to exercise discretion over the question involved.”
The contention of the respondents that Reagan, the receiver appointed by the clerk of the superior court of Guilford county, in proceedings supplementary to execution instituted by the National Bank of Greensboro, of'which bank lie was a director at the time, is entitled to the custody of this property by virtue of his appointment: as receiver, May 2, 1894, is not tenable. The legal effect of granting a restraining order and the appointment of a receiver in proceedings supplemental to execution is ordinarily to vest the receiver with the property and effects of the judgment debtor from the time of the filing of such order, and disables the debtor from transferring the title thereto. Code N. C. § 494; Rose v. Baker, 99 N. C. 323, 5 S. E. 919; Mayer v. Hellman, 91 U. S. 497; Coates v. Wilkes, 94 N. C. 180.
In the case last cited (Coates v. Wilkes) the court says:
“The general principles of law applicable to receivers apply to receivers appointed under supplemental proceedings. It is the duty of such receivers to take possession of the property of the debtor at once, and to bring actions to recover any property belonging lo him which may he in the hands of third persons, and particularly to recover property conveyed 1o third parties fraudulently as to creditors.” Bank v. Stevens, 169 U. S. 459, 18 Sup. Ct. 403.
When Reagan was appointed receiver in the proceedings supplementary to execution, by the clerk of the superior court of Guilford county, May 2,1894, the property described in the deed of assignment to Cox was in the possession of said Gox. Reagan had neither active nor constructive possession. It appears that under the order appointing him he was vested with nothing more than the right to bring action to reduce to possession certain notes alleged to have been transferred by D. W. 0. Benbow to bis son Charles D. Benbow the day before his assignment, and to reduce to possession the property assigned to Cox, assignee, which was at all times in the possession of the said Cox. He appears to have been a mere receiver, without power and without title. 20 Am. & Eng. Enc. Law, p. 67. For five years following his appointment as receiver it appears that he took no steps to reduce the property of Benbow, and assigned by Benbow to Cox, to possession, except Ms suit for the possession of the Fisher and Ross notes; the last-named party, Cox, continuing, as the evi*526dence shows, to manage the property and collect rents and profits from the same.
In Olney v. Tanner, 10 Fed. 101, Judge Brown held that the receiver had ho title as against the trustee of the bankrupt, because, after his qualification, he had for six months taken no steps to set aside the fraudulent transfer, and meanwhile bankruptcy had intervened. In Andrews v. Smith, 5 Fed. 833, in a suit in the United States circuit court by the first mortgage bondholders of the Vermont Central Railroad against the mortgage trustees, it was held that the receivership in the state court had practically ceased prior to the period covered by the accounting claimed in this case, and that the state court had so determined, and, as the parties themselves had brought the receivership to a close by their own acts, no formal entry in court of such discharge was necessary, and that the pendency of such proceedings would be no bar to this suit. In this case it was also held that the rule of comity towards the state court could not operate to deprive this court of its own rightful jurisdiction. The United States court of this district, sitting in bankruptcy, is charged with the protection of the interests of creditors of the bankrupt throughout the whole country. Its discharge- of the bankrupt here is operative in all the states, and, as the interests with which the court is charged with protecting are not local, but national, there would seem to be no good reason why a United States court in bankruptcy, sitting in this state, should be bound to aid an officer of a state court in securing a preference over other creditors owning same, any more than if the bankruptcy proceedings happened to be -in a similar court charged with the same duties, and in favor of the same creditors, sitting in a state adjoining,, or in the District of Columbia. We quote from the opinion (Olney v. Tanner, supra):
“The essential point in the decision of Booth v. Clark, 17 How. 322, is that a receiver holding the property not reduced to possession, and not supported by any assignment from the debtor, is not such a title as will prevail in independent tribunals against the interests of the creditors entitled to its equal protection, and, if this doctrine is applied as regards the undisputed property of the debtor, it would still seem to be more applicable to cases where a fraudulent assignment stands in the receiver’s way.” “Such a receiver represents his judgment creditor oply, and, like a receiver in a judgment creditors’ bill, does not become vested with the title to such property, except through an action to which the fraudulent assignee is a party. Upon the authority of Booth v. Clark, Id., I think there is much doubt whether the appointment as receiver and officer of a state court has any such standing in a court of the United States, sitting in bankruptcy, as entitles him .to its aid in a case like this, seeking a preference in contravention of the intent and policy of the bankrupt act.”
Moreover, it appears that in Reagan’s suit, to recover tbe Fisher and Ross notes, there was a judgment adverse to him, and he was taxed with the costs, which judgment, while it may not have wholly discharged him as receiver, certainly terminated his duties and functions as such. 20 Am. & Eng. Enc. Law, p. 217. The appointment of Reagan, made, as it was, at the suggestion of the bankrupt, Benbow, and made while Reagan was acting as director in the bank, — the national Bank of Greensboro, — the judgment creditor, which instituted the pro ceedings supplementary to exepution, the sale of the judgment pending *527the receivership to tlie son of the bankrupt, Charles IX Benbow, and the activity displayed by Reagan in purchasing claims against the bankrupt for the benefit of the bankrupt and his son Charles I). Ben-bow, indicate very strongly that Reagan was acting with Benbow in his efforts to secure absolute control of certain judgments against the estate. It is significant that his appointment as receiver appears to have been entirely ignored when the “consent decree” was made by the superior court of Guilford county, June term, 18!)!); nor does the court now understand that the said Reagan has asserted any claim to the custody or title to the estate of the bankrupt by virtue of bis appointment as receiver, May 2, 1894, or is now asserting the same. It apx>ears to he the contention of the bankrupt and diaries D. Benbow, one of (he respondents in this case. Clearly, in my opinion, Reagan, as receiver, has no right or title to tlie custody or possession of the property described in the schedules in bankruptcy of D. W. C. Ben-bow; and it is equally clear that the trustee in bankruptcy cannot be compelled to go into a stale court, and petition for the possession and control of property that vested in him by operation of the bankruptcy-law, and especially in proceedings when a fraud was practiced upon the state court in procuring its decree. Nor can there he any question but that the bankruptcy court, in the exercise of its discretion, may authorize a bankrupt’s trustee to sell all property of the bankrupt free from liens and incumbrances, and may preserve and transfer bona fide liens to the fund arising from the same.
In the case of Houston v. Bank, 6 How. 504, it was held that, under the bankrupt act of 38-41, the district courts have power to order the sale of the properly of the bankrupts under mortgage, and make tide free from the mortgage, marshaling and disposing of the proceeds according to the priorities of those interested. Chief Justice Taney says:
"Tlie power of the district court over mortgages in cases of bankruptcy was fully argued and considered in tlie two cases reported in 3 How. 292 and 426 (In re Christy, and Nugent v. Boyd), as appears by the opinions delivered by the court, and the chief justice, who dissented. But whatever differences of opinion existed as to some of tlie propositions maintained in these cases by the majority of tlie court, there has been no division of opinion upon tlie quesiton like the one presented in this record; and the courts are unanimously of opinion that the sale made by the assignee of property in question is valid, and that tlie purchasers are entitled to hold it free and discharged of the mortgage of the City Bank, and free of all other incumbrances mentioned In the proceedings.”
In the case of In re Kirtland, 10 Blatchf. 515, Fed Cas. No. 7,851 before the district court in the Southern district of New York, Woodruff, J., in the course of the opinion (page 536), says:
“There is no doubt of the power of the court to order a sale of land free of the incumbrances thereon, and the proceeds wifi stand as a substitute for the lands themselves, for the benefit of those holding liens to the extent of tlielr Interests therein, and, as to the surplus, for tlie benefit of the general creditors.”
Black, in his work on Bankruptcy, is of the opinion that such sale can he made free of incumbrances. See notes on page 161. Bump, *528in his work on Bankruptcy (11th Ed.), edited by Williams, is of the same opinion. See notes and authorities cited on pages 514-517.
Under the act of 1898, so far as I have been able to examine,.the decisions are uniform to the effect that the district courts are invested with such jurisdiction, at law and equity, as will enable them to exercise jurisdiction in bankruptcy proceedings, and that the bankruptcy act is remedial, and should be interpreted reasonably, and according to a fair import of its terms, with a view to effect its objects and to promote justice. In re Bruss-Ritter Co., 90 Fed. 651; In re Christy, 3 How. 292; Hugent v. Boyd, Id. 426; Houston v. Bank, 6 How. 504.
It is insisted by the able counsel for the respondents that D. W. C. Benbow, having been discharged by proceedings in bankruptcy, cannot now be enjoined. This position cannot be sustained. Love-land on Bankruptcy (page 612) says: “A discharge in bankruptcy is in the nature of a personal privilege granted to a debtor, in consideration of his yielding up all of his property for distribution among his creditors.” A bankruptcy proceeding is a proceeding in rem, and all persons interested in the res are regarded as parties to the bankruptcy proceedings. These include the bankrupt and the trustee, as well as creditors of the bankrupt, both secured and unsecured. Carter v. Hobbs, 92 Fed. 594. The case of Herzberg, cited for counsel for respondents in support of this position, and reported in 25 Fed. 699, is not, in the opinion of the court, applicable to this case.
It is therefore ordered that D. W. C. Benbow, the bankrupt, and all persons acting at his instance, at once comply with the written demands of the trustee, the Southern Loan & Trust Company, made on the 17th day of August, 1899, and the 19th day of August, 1899. It is further ordered and adjudged that the said Southern Loan & Trust Company, trustee of the said D. W. C. Benbow, bankrupt, is hereby authorized and empowered to sell the property of the said bankrupt, D. W.. 0. Benbow, free from all incumbrances (first having set apart to him the exemptions allowed by law), for cash, to the highest bidder, after having advertised the same in each county where said property may be located, in some newspaper published in the said county, for four successive weeks preceding said sale. It is further ordered and adjudged that the proceeds realized from the said sale stand as a substitute for the lands and property sold, and be held by the trusted for the benefit of those holding bona fide claims and liens, to the extent of their interest therein, and as may hereafter be established. It is further ordered that the Southern Loan & Trust Company, trustee as aforesaid, file a bond, in lieu of the one now on file, in the sum of $25,000, which said bond shall be approved by the clerk of this court at Greensboro, 1ST. C. And this cause is retained for further orders.