Where a sheriff, after selling under an execution and before
paying over to the judgment creditor, is enjoined in a state court
by another creditor from so doing, and immediately after the state
court has set the restraining order aside, and while the money is
still in the bands of the sheriff, and within the time allowed for
the return of the execution, and before it is returned, a petition
in bankruptcy is filed against the judgment debtor, the money does
not belong to the judgment creditor but goes, under section
67
f of the Bankrupt Act of 1898, to the trustee in
bankruptcy.
On January 23, 1899, the petitioner, the owner of certain notes
of Raymond W. Kenney, commenced an action thereon in the supreme
court of the State of New York. On March 6, 1899, he recovered
judgment for the sum of $20,906.66. An execution, issued thereon,
was by the sheriff of the County of New York levied upon a stock of
goods and fixtures belonging to Kenney. A sheriff's sale thereof,
had on March 15, 1899, realized $12,451.09. Shortly after the levy
of the execution, Leon Abbett sued out in the same court a writ of
attachment against the property of Kenney, and caused it to be
levied upon the same stock and fixtures. Immediately thereafter,
claiming that the debt in judgment was a fraudulent one, he
commenced in aid of his attachment an injunction suit to prevent
the further enforcement of the judgment, and obtained a temporary
order restraining the sheriff from paying petitioner the money
received upon the execution sale. Upon a hearing, the supreme court
decided that the debt was just and honest, and on April 13, 1899,
set aside the restraining order. On the same day, and before the
sheriff had returned the execution or paid the money collected on
it, a petition in involuntary bankruptcy against Kenney was filed
in the United States District Court for the Southern District of
New York, and an order made by
Page 188 U. S. 487
the district judge restraining the sheriff from paying the money
to Clarke, the execution creditor. 95 F. 427. Kenney was thereafter
adjudged a bankrupt, and on November 25, 1899, the plaintiff having
been appointed trustee in bankruptcy, the district judge entered a
further order directing the sheriff to pay the money to the
trustee. 97 F. 555. On review, the United States Circuit Court of
Appeals for the Second Circuit affirmed these orders of the
district judge, 105 F. 897, and thereupon a certiorari was granted
by this Court. 180 U.S. 640. Section 67, subdivision
f, of
the Bankrupt Act of 1898, 30 Stat. 544, 565, reads:
"That all levies, judgments, attachments, or other liens,
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, attachment, or other lien shall be deemed wholly
discharged and released from the same, and shall pass to the
trustee as a part of the estate of the bankrupt, unless the court
shall, on due notice, order that the right under such levy,
judgment, attachment, or other lien shall be preserved for the
benefit of the estate, and thereupon the same may pass to and shall
be preserved by the trustee for the benefit of the estate as
aforesaid. And the court may order such conveyance as shall be
necessary to carry the purposes of this section into effect:
Provided, That nothing herein contained shall have the
effect to destroy or impair the title obtained by such levy,
judgment, attachment, or other lien of a
bona fide
purchaser for value who shall have acquired the same without notice
or reasonable cause for inquiry."
MR. JUSTICE BREWER delivered the opinion of the Court.
The contention of the petitioner is that --
Page 188 U. S. 488
"The sheriff having sold the goods levied on before the filing
of the petition in bankruptcy, the proceeds of the sale were the
property of the plaintiff in execution, and not of the bankrupt at
the time of the adjudication, and the trustee therefore has no
title to the same."
This contention cannot be sustained. The judgment in favor of
petitioner against Kenney was not like that in
Metcalf v.
Barker, 187 U. S. 165, one
giving effect to a lien theretofore existing, but one which, with
the levy of an execution issued thereon, created the lien, and as
judgment, execution, and levy were all within four months prior to
the filing of the petition in bankruptcy, the lien created thereby
became null and void on the adjudication of bankruptcy. 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.
Further, the statute provides that "the property affected by" --
not the property subject to -- the lien is wholly discharged and
released therefrom. It is true that the stock and fixtures, the
property originally belonging to the bankrupt, had been sold, but,
having, so far as the record shows, passed to a "
bona fide
purchaser for value," it remained by virtue of the last clause of
the section the property of the purchaser, unaffected by the
bankruptcy proceedings. But the money received by the sheriff took
the place of that property.
It is said that that money was not the property of the bankrupt,
but of the creditor in the execution. Doubtless, as between the
judgment creditor and debtor and while the execution remained in
force, the money could not be considered the property of the
debtor, and could not be appropriated to the payment of his debts
as against the rights of the judgment creditor, but it had not
become the property absolutely of the creditor. The writ of
execution had not been fully executed. Its command to the sheriff
was to seize the property of the judgment debtor, sell it, and pay
the proceeds over to the creditor. The time within which that was
to be done had not elapsed, and
Page 188 U. S. 489
the execution was still in his hands, not fully executed. The
rights of the creditor were still subject to interception. Suppose,
for instance, there being no bankruptcy proceedings, the judgment
had been reversed by an appellate court and the mandate of reversal
filed in the trial court; could it for a moment be claimed that,
notwithstanding the reversal of the judgment, the money in the
hands of the sheriff belonged to the judgment creditor, and could
be recovered by him, or that it was the duty of the sheriff to pay
it to him? The purchaser at the sheriff's sale might keep
possession of the property which he had purchased, but the money
received as the proceeds of such sale would undoubtedly belong and
be paid over to the judgment debtor. The bankruptcy proceedings
operated in the same way. They took away the foundation upon which
the rights of the creditor, obtained by judgment, execution, levy,
and sale, rested. The duty of the sheriff to pay the money over to
the judgment creditor was gone, and that money became the property
of the bankrupt, and was subject to the control of his
representative in bankruptcy.
It was held in
Turner v.
Fendall, 1 Cranch 117, that money collected by a
sheriff on an execution could not be levied upon under execution
placed in his hands against the judgment creditor, and that the
latter could maintain an action against the sheriff for a failure
to pay the money thus collected. A similar ruling was made in New
York,
Baker v. Kenworthy, 41 N.Y. 215, in which it
appeared that a sheriff had collected money on an execution in
favor of one Brooks, that he returned the execution without paying
the money to Brooks, but, on the contrary, levied upon it under an
execution against Brooks, and it was held that such levy did not
release him from liability to Brooks. It was said in the opinion
(p. 216):
"The money paid into the hands of the sheriff on the execution
in favor of Brooks did not become the property of Brooks until it
had been paid over to him. Until that was done, the sheriff could
not levy upon it by virtue of the execution against Brooks then in
his hands."
The rule in that state in respect to a levy upon money in the
hands of a sheriff may have been changed -- at least
Page 188 U. S. 490
so far as an attachment is concerned.
See Wehle v.
Conner, 83 N.Y. 231.
In
Nelson v. Kerr, 59 N.Y. 224, it is said: "The money
collected by the sheriff belongs to the plaintiff." But in that
case, the execution had been returned, and yet the officer had not
paid the money to the execution creditor.
See also Kingston
Bank v. Eltinge, 40 N.Y. 391.
In none of those cases had anything been done to affect the
validity or force of the writ of execution. Whatever was done was
done under a writ whose validity and potency were unchallenged and
undisturbed, while here, before the writ of execution had been
fully executed, its power was taken away. Its command had ceased to
be obligatory upon the sheriff, and the execution creditor had no
right to insist that the sheriff should further execute its
commands.
A different question might have arisen if the writ had been
fully executed by payment to the execution creditor. Whether the
bankruptcy proceedings would then so far affect the judgment and
execution, and that which was done under them, as to justify a
recovery by the trustee in bankruptcy from the execution creditor
is a question not before us, and may depend on many other
considerations. It is enough now to hold that the bankruptcy
proceedings seized upon the writ of execution while it was still
unexecuted and released the property which was held under it from
the claim of the execution creditor.
The judgment of the court of appeals is
Affirmed.
MR. JUSTICE WHITE and MR. JUSTICE PECKHAM dissented.
