First National Bank v. Staake - 202 U.S. 141 (1906)
U.S. Supreme Court
First National Bank v. Staake, 202 U.S. 141 (1906)
First National Bank v. Staake
Argued March 15, 16, 1906
Decided April 30, 1906
202 U.S. 141
Under § 67j of the Bankruptcy Law of 1898, attachments obtained within four months of filing the petition on property which, in the absence of the attachments, would pass to other persons, and to which the bankrupt has only a bare legal title, may be preserved for the general benefit of the estate, and whatever the trustee realizes thereon may be distributed among the body of the creditors. The lien is valid, but it loses its preferential character in favor of the attaching creditor by the institution of the bankruptcy proceedings.
The extent to which the bankruptcy court shall recognize the rights obtained by creditors upon property attached as property of the bankrupt, but which has been conveyed by unrecorded contract, and the extent to which liens obtained by prior judicial proceedings shall be recognized are wholly within the discretion of Congress.
This writ of certiorari was allowed to review an order of the circuit court of appeals affirming a decree of the district court in favor of Staake, as trustee in bankruptcy of the estate of Chester R. Baird, bankrupt, subrogating him to the rights of certain creditors and authorizing him to enforce their attachment liens with like force and effect as the attaching creditors -- one of which was the First National Bank of Baltimore -- might have done had not the bankruptcy proceedings intervened.
The facts of the case are substantially as follows: Chester R. Baird, doing business under the name of C. R. Baird & Company, and owning certain real estate in Virginia known as the West End Furnace Company, sold the same, December 7, 1899, to the Roanoke Furnace Company, subject to certain encumbrances, executed a contract in writing, and received from the furnace company the entire consideration, namely, $500,000, in the capital stock of the furnace company. Under this contract of sale, the furnace company took immediate possession, but no deed to the company was made until November 5, 1900, when a deed was executed and recorded.
Meantime, however, and on October 26, 1900, nine different attachments, among them one by the petitioning bank, were sued out of the Hustings Court for the City of Roanoke, amounting to over $40,000, against Baird as a nonresident, and were levied upon the furnace property. Under the provisions of the law of Virginia, the attachments, having been levied before the deed of the furnace property had been executed and recorded, the attaching creditors acquired, as against Baird and the furnace company, a lien on the properties attached.
Within four months after the levy of the attachments -- namely, December 24, 1900 -- Baird was adjudicated a bankrupt in the District Court for the Eastern District of Pennsylvania, and on January 2, 1901, the District Court for the Western District of Virginia assumed ancillary jurisdiction of such property as was located in Virginia. On December 29, 1900, the Roanoke Furnace Company was also adjudicated a
bankrupt. On March 26, 1901, Staake was appointed trustee of Baird's estate, and on June 29, 1901, John M. N. Shimer was appointed trustee of the Roanoke Furnace Company.
It was further agreed that the deed of November 5, 1900, from Baird to the Roanoke Furnace Company, was a valid conveyance to a purchaser in good faith for a then fair consideration, and was not affected by the bankruptcy proceedings.
The proceedings in question here were instituted by a petition filed by Staake, entitled both in the cases of Chester R. Baird and the Roanoke Furnace Company, averring that, under the laws of Virginia, the rights of the attaching creditors were superior to those of the furnace company, and that, as to them, the property attached was the property of Baird; but that, by reason of his insolvency and of the fact that these attachments had been levied within four months preceding the filing of the petition in bankruptcy, such attachments were null and void, unless the court should order them preserved for the benefit of the estate. He therefore prayed that they be decreed null and void as regards plaintiffs, but that they be preserved for the benefit of petitioner.
The bank demurred to this petition, and also answered, denying that its attachment was null and void, and also denying the right of the court to enter an order preserving the attachment for the benefit of the petitioner, and alleging that respondent is entitled to the benefit of the attachment, said property when sold by an interlocutory order having realized enough to pay said attachment, as well as all prior liens.
Shimer, trustee for the Roanoke Furnace Company, also answered, praying that, if the attachment be continued for the trustee of Baird, the petitioner should be required to abate a large claim which he filed against the estate of the Roanoke company, by the amount of said attachments.
Upon a hearing before the district court, that court overruled the demurrer to Staake's petition, and authorized him to enforce the attachment liens for the benefit of the estate.
126 F. 845. The court of appeals affirmed this action (133 F. 717), and the bank petitioned this Court for a writ of certiorari, which was granted.