1. The assignment made to assignees in bankruptcy in proceedings
which were brought more than four months after attachments, issued
in a chancery suit pending in a state court, were levied upon the
property of the bankrupt, does not divest the jurisdiction of that
court to determine the priority of lien respectively claimed by the
attaching creditors, or to administer the fund arising from the
sale of the property.
2. His assignees in bankruptcy, if they enter their appearance
in the suit, are bound by the decree, affirming the validity of the
liens acquired by the levy of the writs, and directing the
application of the proceeds of the sale to satisfy them. The
assignees cannot thereafter set up in any other court their title
to the property.
3. A., claiming that by a proceeding at law he had a prior lien,
filed in the district court sitting in bankruptcy his bill against
the other attaching creditors, the assignees in bankruptcy, and the
purchasers of the property. He prayed that the sale under the writs
sued out of the chancery court be set aside, that the property be
delivered to and sold by the assignees, and that the proceeds be
first applied to the satisfaction of his lien.
Held that
the bill would not lie.
Friedlander, Stich, & Co., sued Kaufman, their debtor, in
the Law Court of Memphis, taking out an attachment, which was
levied, Nov. 30, 1866, upon his real estate in that city. On
different days in December, 1866, and January, 1867, Davis and
other creditors sued him in the chancery court, each taking out an
attachment, which was promptly levied on the same real
Page 104 U. S. 571
estate. On the 14th of July, 1868, he was adjudged a bankrupt
upon his petition, filed the 30th of the preceding May -- more than
a year after the levy of the last of the attachments. Cirode and
Coronna were appointed his assignees in bankruptcy, and to them was
made an assignment of his rights, property, and effects. On the
21st of November, 1868, they appeared in the suits in the chancery
court -- then consolidated and about to be heard -- and, with their
consent, and order was entered making them, in their capacity as
his assignees, parties defendant. They had the benefit of any
defense they might at any time have had, and assented that the
hearing of the cases should proceed. On the 21st of December, 1868,
a final decree was entered in the chancery court ascertaining the
amount of his indebtedness to the respective complainants, and
adjudging that the attached property be sold, free from any right
or equity of redemption in him, or in any of the other defendants,
and that the proceeds be applied in satisfaction of the debts due
the attaching creditors -- the surplus, if any, to be paid to his
assignees.
On the 1st of March, 1869, the day fixed for the sale of the
attached property, by the master's advertisement, Friedlander,
Stich, & Co. presented to the chancellor of the chancery court
a petition asserting, in virtue of their prior attachment in the
law court, a lien superior to that acquired by Davis and others,
under their respective attachments in the chancery court, and
praying that the sale, so far as it related to the property covered
by their attachment, be postponed; that they be made parties to the
consolidated equity suits; and that their priority of lien be
established. He declined to order the postponement asked, but
indorsed upon the petition that
"the sale will proceed, and the complainants to this bill may
file this, or a petition, in the consolidated causes to establish
their priority, if such exists, to the fund."
It does not appear that Friedlander, Stich, & Co. availed
themselves of this right, or gave any further attention to, or had
any further connection with, the chancery suits. The sale took
place as advertised, Hill becoming the purchaser of a part of the
property at the price of $2,500, while the remainder was struck off
to Carter, Kirtland, & Co., attaching creditors, at the price
of $12,520.
Page 104 U. S. 572
The bids were less, by nearly one-half, than the aggregate debts
of the attaching creditors in the equity suits. No exceptions were
filed to the report of sale. Hill complied with the terms of sale,
and his purchase was confirmed. A decree was entered declaring that
all the right, title, and interest of the parties, in and to the
property purchased by Hill, be divested out of them, and vested in
him. It does not appear, from the transcript, that Carter,
Kirtland, & Co. complied with the terms of sale, or that any
final action was taken by the court as to their purchase. In July,
1869, Friedlander, Stich, & Co. obtained judgment in the law
court against Kaufman for the sum of $19,311.81, the amount of
their claim, and also an order for the sale of the attached
property, the same previously sold under the decree. But that order
was suspended to await the consent of the court in bankruptcy to
its execution, or until the further order of the law court.
The present suit was commenced on the 20th of August, 1870, by
Friedlander, Stich, & Co. filing their petition in the district
court sitting in bankruptcy. The attaching creditors in the suit in
the chancery court, the purchasers at the sale of March 1, 1869,
and the assignees in bankruptcy of Kaufman were made defendants.
Its manifest object is to secure an adjudication, establishing the
prior lien of Friedlander, Stich, & Co., as against the other
attaching creditors, upon the real estate attached, alike, in the
suits in the law and the chancery courts of Memphis. To that end, a
decree is asked declaring the sales under the order of the latter
court to be void, and placing the attached property in the
possession of Kaufman's assigns, to be by them sold, under the
order of the bankruptcy court, the proceeds of sale to be applied
first to the satisfaction of the judgment of Friedlander, Stich,
& Co., in the law court. The district court disregarding the
sale made under the decree of the state court, gave those parties
all the relief asked, and its decree was affirmed by the circuit
court. Davis and the other creditors thereupon appealed.
Other facts are disclosed by the record, but in the view taken
of the case by the court it is unnecessary to state them.
Page 104 U. S. 573
MR. JUSTICE HARLAN, after stating the facts, delivered the
opinion of the Court.
In
Doe v.
Childress, 21 Wall. 642, we considered the effect
of proceedings in bankruptcy upon an attachment issued from a state
court and levied upon the property of the bankrupt, more than four
months prior to their commencement. That was an action of ejectment
by the assignee of a bankrupt to recover land claimed by the
defendant under a decretal sale in an attachment suit in a state
court against the bankrupt. The latter was declared a bankrupt ten
months after the institution of the attachment suit, four months
before the decree therein, and seven months prior to the sale at
which the defendant became the purchaser of the land. Upon this
state of facts it was ruled that the proceedings in bankruptcy did
not operate to dissolve the attachment; that the debtor's title
passed to the assignee, subject to the lien created by the
attachment; and that a judgment could be entered for the sale of
the property, notwithstanding a discharge previously granted was
pleaded in bar of the action. It was said by the court that,
"where the power of a state court to proceed in a suit is
subject to be impeached, it cannot be done except upon an
intervention by the assignee, who shall state the facts and make
the proof necessary to terminate such jurisdiction. . . . If the
assignee had intervened in the suit, he would have been entitled to
the property or its proceeds, subject to this [the attachment]
lien. He did not, however, intervene or take any measures in the
case. He allowed the property to be sold under the judgments in the
attachment suits, and those under whom the defendant claims
purchased it, obtaining a perfect title to the same."
In
Scott v. Kelly,
22 Wall. 57, it appears that the assignee in bankruptcy became a
party to an attachment suit in a state court, commenced shortly
before the defendant was declared a bankrupt. The attachment was
issued and levied after the
Page 104 U. S. 574
adjudication. The assignee claimed the attached property, but
the decision in the state court was adverse to him. Upon writ of
error to this court, we said that
"the assignee in bankruptcy voluntarily submitted himself and
his rights to the jurisdiction of the state court. Being summoned,
he appeared without objection, and presented his claim for
adjudication by that court. No effort was made to remove the
litigation to the courts of the United States. It in now too late
to object to the power of the state court to act in the premises
and render judgment."
In
Eyster v. Gaff, 91 U. S. 521, the
main question considered was whether a state court, in which a
foreclosure suit was pending at the time of the bankruptcy of the
defendant, had jurisdiction to proceed without bringing the
assignee before the court. The question arose in an action of
ejectment instituted by the assignee against the purchaser at the
decretal sale in the foreclosure suit. Referring to the authority
expressly given the assignee by statute, to prosecute or defend all
suits in which the bankrupt was a party, the court said:
"If there was any reason for interposing, the assignee could
have had himself substituted for the bankrupt, or made a defendant
on petition. If he chose to let the suit proceed without such
defense, he stands as any other person would on whom the title had
fallen since the suit was commenced. It is a mistake to suppose
that the bankrupt law avoids, of its own force, all judicial
proceedings in the state or other courts the instant one of the
parties is adjudged a bankrupt. There is nothing in the act which
sanctions such a proposition. The court, in the case before us, had
acquired jurisdiction of the parties and of the subject matter of
the suit. . . . Having such jurisdiction, and performing its duty
as the case stood in that court, we are at a loss to see how its
decree can be treated as void."
Again:
"The debtor of a bankrupt, or the man who contests the right to
real or personal property with him, loses none of those rights by
the bankruptcy of his adversary. The same courts remain open to him
in such contests, and the statute has not divested those courts of
jurisdiction in such actions. If it has, for certain classes of
actions, conferred a jurisdiction, for the benefit of the assignee,
on the circuit and district courts of
Page 104 U. S. 575
the United States, it is concurrent with, and does not divest
that of, the state courts."
These doctrines were further elaborated in
Claflin v.
Houseman, 93 U. S. 130, where
it was held that the assignee in bankruptcy, under the act of 1867,
had authority to bring a suit in the state courts, wherever those
courts were invested with appropriate jurisdiction suited to the
nature of the case.
See also Jerome v. McCarter,
94 U. S. 734;
McHenry v. La Societe Francaise, 95 U. S.
58.
The principles announced in the foregoing cases would seem to be
decisive of the main questions arising on this appeal, and we are
of opinion that the decree below cannot be sustained. It rests,
necessarily, upon the ground, that immediately upon the assignment
of the bankrupt's property to his assignees, the state court of
chancery -- although the attachments therein were sued out more
than four months preceding the bankruptcy -- had no jurisdiction to
determine the relative rights of the attaching creditors and the
assignees in bankruptcy, or to order a sale of the attached
property, and apply the proceeds to the satisfaction of the debts
of those creditors. But no such position can be maintained. It was
competent for the assignees, upon their appointment and
qualification, by appropriate proceedings, directed against
individual creditors, suing in other courts, to have brought all
the property in which the bankrupt had an interest, including that
attached in the suits in the state courts, under the direct control
of the bankruptcy court, to be disposed of under its orders, with
due regard, however, to the previously acquired rights and
equities, in whatever way arising, of all the creditors of Kaufman.
But they were not bound to pursue that course. Consistently with
the bankrupt law, as interpreted by this court, they were at
liberty to appear in the state court, and assert there whatever
rights they, as assignees, had in the attached property. Electing
to pursue the latter course, they voluntarily submitted to the
jurisdiction of the state court, which had ample authority to
adjudicate, between the attaching creditors and the assignees in
bankruptcy, upon all matters arising in the suits before it.
Without questioning (as they do not now) the debts of the attaching
creditors or the validity of their attachments, the
Page 104 U. S. 576
assignees became parties defendant in the equity suits. They
neither filed nor offered to file any formal pleading. Nor did they
advise the chancery court of the attachment of Friedlander, Stich,
& Co. in the law court. They left that court to adjudge what
were their rights in the property attached. Its final decree
secured to them whatever surplus might remain after applying the
proceeds of sale to the demands of the attaching creditors. If the
bankrupt owed the attaching creditors the sums by them respectively
claimed, and if the attachments were so issued and levied as, under
the laws of the state, to create a valid lien upon the property, it
is clear that the state court gave the assignees all that could
have been awarded them.
It results from what has been said, that the sale, under that
decree -- whoever became the purchasers of the attached property,
whether third persons or parties to the suits -- divested the
assignees of whatever interest or title they had in the
property. That decree, having been passed by a court of competent
jurisdiction as to parties and subject matter, and never having
been modified by the court which rendered it, or by any court
having authority to review its action, the assignees are precluded
from asserting in any other court any interest or title whatever in
the property thus sold. Had the present suit been instituted
directly by the assignees, for the purpose of setting aside the
sale made under the order of the state court, and of procuring
another sale of the attached property, under the orders of the
court in bankruptcy, the proceedings in the state court would have
been a conclusive answer to such an action.
Plainly, therefore, the present suit by Friedlander, Stich,
& Co. is an attempt to invoke the jurisdiction of the district
court sitting in bankruptcy, to the end that they may establish, as
against other creditors of Kaufman, their priority of lien upon
property, in which, as we have seen, the assignees can now assert
no right or interest for the benefit of general or unsecured
creditors. Whether appellees have such priority of lien in virtue
of their attachment in the law court; whether the proceedings in
that court were such as, under the laws of Tennessee, gave them a
lien superior to that acquired by the
Page 104 U. S. 577
respective attaching creditors in the suits in the chancery
court; whether, by reason of their petition addressed to the
chancellor of the latter court, and his action thereon, they
became, in any proper sense, parties to those suits, or bound by
the decree therein rendered, or, whether their rights were
altogether unaffected by that decree -- are all questions in which
the assignees have now no interest. These questions concern only
the respective attaching creditors in the law and chancery courts,
and for the determination of them the present appellees may not
invoke the jurisdiction or aid of the bankruptcy court. The decree,
and the sale thereunder, withdrew the attached property from the
assets of the bankrupt. The property brought less than the claims
of the attaching creditors; and since the assignees cannot
question, collaterally, the proceedings in the state court, to
which they voluntarily became parties, they have no possible
interest in this litigation. It is, we repeat, a contest
exclusively between attaching creditors as to priority of liens
upon property in the disposition of which, so far as we can
ascertain from the present record, the assignees have not the
slightest pecuniary interest.
The decree of the circuit court will be, therefore, reversed,
with directions that the petition of Friedlander, Stich, & Co.,
filed in the district court sitting in bankruptcy, be dismissed
with costs to the present appellants, but without prejudice to any
claim they may assert, by any proper proceedings in a court of
competent jurisdiction, to a prior lien as against appellants, or
others, upon the property levied upon by the attachment in the law
court of Memphis; and it is
So ordered.
