The possession of a temporary receiver in bankruptcy of the
proceeds of property, upon which the bankrupt had fraudulently
imposed a lien, deposited as a special fund to await the further
order of the court, did not affect the rule that, under the
Bankruptcy Act of 1898, prior to the amendment of February 5, 1903,
33 Stat. 797, the state court in which an action could have been
brought prior to the bankruptcy to set aside the lien had exclusive
jurisdiction of a similar action brought by the trustee. The
amendment of February 5, 1903, gave the bankruptcy court in such a
case concurrent, not exclusive, jurisdiction.
Where it was necessary that a trustee in bankruptcy should
represent judgment creditors in order to attack the validity of a
chattel mortgage given by the bankrupt, if the state court has set
the mortgage aside and the record shows that all the proceedings in
the bankruptcy court were in evidence in the state court, it will
be presumed that the trustee represented the necessary claims of
creditors, although the evidence is not returned to this Court.
109 App.Div. 914 affirmed.
Page 205 U. S. 522
This was a suit commenced in December, 1902, in the Supreme
Court of New York for the County of Kings by Joseph Vollkommer,
Jr., as trustee in bankruptcy of the estate of Jacob Vogt,
bankrupt, against Solon L. Frank and Samuel Frank, doing business
as S. L. & S. Frank, and Jacob Vogt, to set aside an alleged
chattel mortgage on certain horses, harness, wagons, etc., given by
Vogt to defendants Frank, April 16, 1902, as fraudulent, and
intended to hinder, delay, and defraud creditors.
The mortgagees had taken possession, and creditors immediately
thereafter filed petitions in bankruptcy against Vogt in the
District Court of the United States for the Eastern District of New
York, whereupon and on June 30, 1902, one Stoutenburgh was
appointed temporary receiver and duly qualified as such.
As alleged in the complaint, by agreement between the Franks and
the petitioning creditors, which was approved by the district court
and entered of record therein July 2, A.D. 1902, it was provided
that the property in question should be sold at public auction on
July 3 by the temporary receiver;
"that the expenses of the sale be paid out of the proceeds
thereof; that the said temporary receiver deposit the net proceeds
of said sale at the People's Trust Company of Brooklyn as a special
fund, there to await the further order of the court upon due notice
to all creditors who have or may hereafter appear; that the lien,
if any, of the alleged chattel mortgage of the said defendants
Frank be transferred to and attached to said special fund or
deposit in lieu of and to the same extent as if attached to the
said property thereinbefore directed to be sold; that, in pursuance
thereof, said sale was had on the third of July, A.D. 1902, and the
net proceeds thereof, amounting to about $5,482.47, were, on or
about the 10th day of July, 1902, duly deposited in the People's
Trust Company of Brooklyn, as provided by said agreement."
July 10, A.D. 1902, Vogt was duly adjudicated an involuntary
bankrupt, and on November 12, A.D. 1902, Vollkommer,
Page 205 U. S. 523
Jr., was appointed trustee in bankruptcy of Vogt, duly qualified
November 21, and entered upon the duties of his office as trustee.
He thereafter filed this complaint against the Franks and Vogt,
setting up the proceedings, and averring that defendants Frank
claimed a lien upon the special fund to the whole extent thereof,
which constituted a cloud on plaintiff's title to the fund, and he
demanded judgment that the chattel mortgage be declared null and
void, and cancelled and discharged of record, and that the special
fund be declared free of the encumbrance of the alleged chattel
mortgage, and from any lien or claim by the Franks under the
mortgage or otherwise. The trial court held that the mortgage was
made "with the intent and purpose of said Vogt and said defendants
Frank to hinder, defeat, defraud, and delay said Vogt's creditors."
And decreed the annulment of the mortgage, and that it was
"no lien upon the moneys,
viz., $5,481.47, deposited on
July 9th, 1902, by Arthur T. Stoutenburgh, temporary receiver, in
the People's Trust Company of Brooklyn, New York, under an order of
the District Court of the United States for the Eastern District of
New York, made July 2d 1902."
The case was carried to the appellate division of the supreme
court and the decree was affirmed. Leave to appeal to the court of
appeals was denied by the appellate division, and subsequently by
an associated judge of the court of appeals. This writ of error was
then allowed.
Page 205 U. S. 526
MR. CHIEF JUSTICE FULLER delivered the opinion of the Court.
Counsel for plaintiffs in error contended below that the state
courts had no jurisdiction because the suit was brought to
determine title to property or a fund in the possession of the
district court of the United States. The Bankruptcy Act of July 1,
1898, provided that
"suits by the trustee shall only be brought or prosecuted in the
courts where the bankrupt, whose estate is being administered by
such trustee, might have brought or prosecuted them if proceedings
in bankruptcy had not been instituted, unless by consent of the
proposed defendant."
30 Stat. 544, c. 541, § 23
b.
In
Bardes v. Hawarden Bank, 178 U.
S. 524, we held that the bankruptcy court, except by the
consent of the defendant, had no jurisdiction to try and determine
a suit brought by a trustee in bankruptcy to recover property
alleged to be part of the bankrupt's estate, or to have been
transferred by him in fraud of the act, but that such suits must be
prosecuted either in the state courts or in the circuit courts of
the United States where diversity of citizenship existed. The act
of 1898 was amended by the Act of February 5, 1903, 32 Stat. 797,
c. 487, § 19 of which provided that the act should
"not apply to bankruptcy cases pending when this act takes
effect, but such cases shall be adjudicated and disposed of
comfortably to the provisions of the said Act of July first,
eighteen hundred and ninety-eight."
The present case was commenced in 1902, and, besides, the
amendment gave the bankruptcy court concurrent, and not exclusive,
jurisdiction.
We give in the margin
* quotations from
the acts of July 1,
Page 205 U. S. 527
1898, and February 5, 1903, the amendments made by the latter
act being italicized.
Undoubtedly the state court, in which the trustee brought
Page 205 U. S. 528
this suit, was the court
"where the bankrupt, whose estate is being administered by such
trustee, might have brought or prosecuted them [suits], if
proceedings in bankruptcy had not been instituted,"
and its jurisdiction under the applicable general rule must be
conceded.
But plaintiffs in error contend that the possession by the
bankruptcy court of the proceeds of the sale of the mortgaged
chattels deprives the state court of its conceded jurisdiction to
set aside the mortgage as fraudulent.
The contention is wholly inadmissible. The mortgaged property
consisted of horses, vehicles, harness, etc., and the order of sale
of the temporary receiver, agreed to by plaintiffs in error, was
evidently in the interest of all parties, and provided for the
deposit of the proceeds not in the general funds of the estate, but
as a special fund, to which the lien, if any, of the chattel
mortgage was transferred, and clearly contemplated a plenary suit
to determine the validity thereof, which at that time, there being
no diversity of citizenship, and no such possession as might lead
to a different result, could only be commenced in the state court.
The trustee himself commenced it there and obtained the decree,
which was in its nature self-executing, and merely set aside the
mortgage, and, as incident thereto, declared that the special fund
was free from its lien, and, without seeking to interfere with the
possession, left it to the bankruptcy court to carry the decree
into effect by placing the money in the custody of its officer, the
trustee.
Page 205 U. S. 529
No principle of comity was violated and there was no
interference with the bankruptcy court.
First National Bank v.
Chicago Title & Trust Company, 198 U.
S. 280;
Davis v. Friedlander, 104 U.
S. 570;
Eyster v. Gaff, 91 U. S.
521;
Claflin v. Houseman, 93 U. S.
130;
In re Platteville Foundry & Machine
Company, 147 F. 828;
Guaranty Trust Company v. North
Chicago Street Railroad Company, 130 F. 801;
In re
Spitzer, 130 F. 879;
Bindseil v. Smith, 61 N.J.Eq.
645;
Skilton v. Codington, 185 N.Y. 80. In the latter
case, the Court of Appeals, by Cullen, C.J., in sustaining the
jurisdiction of the state court, admirably expounds the applicable
principles, with a full citation of authorities. That was a suit
against the trustee, while the present case was brought by the
trustee.
The possession of the temporary receiver of the special fund was
not, in the circumstances, in any sense sufficient to change the
ordinary rule giving the state courts jurisdiction any more than
the constructive possession in every case created by adjudication.
Mueller v. Nugent, 184 U. S. 1;
York Mfg. Company v. Cassell, 201 U.
S. 344.
It is objected that the trustee had no right to attack the
validity of the chattel mortgage because it did not appear that he
represented any but simple contract creditors. But the record
before us shows that the entire record of the proceedings in the
bankruptcy court was in evidence before the trial court, though it
was not returned here, so that, if it were necessary that the
trustee should represent judgment creditors, which we do not decide
that it was, it must be presumed that the trial court, in passing
upon all the evidence, found that he did. This may explain why the
point was not made in the trial court, and it comes too late
here.
Judgment affirmed.
*
"SEC. 23
b. Suits by the trustee shall only be brought
or prosecuted in the courts where the bankrupt, whose estate is
being administered by such trustee, might have brought or
prosecuted them if proceedings in bankruptcy had not been
instituted, unless by consent of the proposed defendant,
except
suits for the recovery of property under section sixty, subdivision
b, and section sixty-seven, subdivision e."
"SEC. 60
b. If a bankrupt shall have given a preference
within four months before the filing of a petition, or after the
filing of the petition, and before the adjudication, and the person
receiving it, or to be benefited thereby, or his agent acting
therein, shall have had reasonable cause to believe that it was
intended thereby to give a preference, it shall be voidable by the
trustee, and he may recover the property or its value from such
person."
"
If a bankrupt shall have given a preference, and the person
receiving it, or to be benefited thereby, or his agent acting
therein, shall have had reasonable cause to believe that it was
intended thereby to give a preference, it shall be voidable by the
trustee and he may recover the property or its value from such
person. And, for the purpose of such recovery, any court of
bankruptcy, as hereinbefore defined, and any state court which
would have had jurisdiction if bankruptcy had not intervened, shall
have concurrent jurisdiction."
"SEC. 67
e. That all conveyances, transfers,
assignments, or encumbrances of his property, or any part thereof,
made or given by a person adjudged a bankrupt under the provisions
of this act, subsequent to the passage of this act and within four
months prior to the filing of the petition, with the intent and
purpose on his part to hinder, delay, or defraud his creditors, or
any of them, shall be null and void as against the creditors of
such debtor, except as to purchasers in good faith and for a
present fair consideration, and all property of the debtor
conveyed, transferred, assigned, or encumbered as aforesaid, shall,
if he be adjudged a bankrupt, and the same is not exempt from
execution and liability for debts by the law of his domicil, be and
remain a part of the assets and estate of the bankrupt, and shall
pass to his said trustee, whose duty it shall be to recover and
reclaim the same by legal proceedings or otherwise for the benefit
of the creditors. And all conveyances, transfers, or encumbrances
of his property made by a debtor at any time within four months
prior to the filing of the petition against him, and while
insolvent, which are held null and void as against the creditors of
such debtor by the laws of the state, territory, or district in
which such property is situate, shall be deemed null and void under
this act against the creditors of such debtor, if he be adjudged a
bankrupt, and such property shall pass to the assignee and be by
him reclaimed and recovered for the benefit of the creditors of the
bankrupt.
For the purpose of such recovery, any court of
bankruptcy as hereinbefore defined, and any state court which would
have had jurisdiction if bankruptcy had not intervened, shall have
concurrent jurisdiction."
"SEC. 70
e. The trustee may avoid any transfer by the
bankrupt of his property which any creditor of such bankrupt might
have avoided, and may recover the property so transferred, or its
value, from the person to whom it was transferred unless he was a
bona fide holder for value prior to the date of the
adjudication. Such property may be recovered or its value collected
from whoever may have received it, except a
bona fide
holder for value.
For the purpose of such recovery, any court
of bankruptcy as hereinbefore defined, and any state court which
would have had jurisdiction if bankruptcy had not intervened, shall
have concurrent jurisdiction."
Section 19 of act of February 5, 1903:
"
That the provisions of this amendatory act shall not apply
to bankruptcy cases pending when this act takes effect, but such
cases shall be adjudicated and disposed of conformably to the
provisions of the said Act of July first, eighteen hundred and
ninety-eight."
