The judgment in this case that the vendor of goods sold to the
bankrupt had a right to, and did, rescind the contract of sale on
the ground that the goods were obtained by the bankrupt's fraud,
and that the rescission was seasonably made on that ground,
involves no provision of the bankruptcy law, but depends on
principles of general law, and an appeal will not lie to this Court
from the judgment of the circuit court of appeals.
Chapman v.
Bowen, 207 U. S. 89.
Where, after writ of replevin, the state court turns the goods
over to the receiver, who so receives them on the express condition
that he assume the liabilities incurred in that court which has
held that the liability under the redelivery bond was incurred for
benefit of the estate, no provision of the Bankruptcy Act is
involved that would make the decision reviewable in this Court on
writ of error.
Page 216 U. S. 323
Where, after replevin, the paramount authority of the bankruptcy
court is conceded and the replevin suit is considered only as
evidence of rescission and identification of goods, no provision af
the bankruptcy law or jurisdiction of the bankruptcy court is
involved on which a writ of error from, or an appeal to, this Court
can be based.
157 F. 536 affirmed.
The facts are stated in the opinion.
Page 216 U. S. 324
MR. JUSTICE McKENNA delivered the opinion of the Court.
This appeal was taken to review the decree of the circuit court
of appeals, reversing the disallowance of a debt due to
Page 216 U. S. 325
Openhym & Sons as a preferential claim against the estate of
Walkeen-Lewis Millinery Company (we shall call it the millinery
company).
A motion to dismiss is made on the ground that the question
involved is not one which could be brought here on writ of error
from the highest court of a state, and that no justice of this
Court has certified that a determination of the question is
essential to a uniform construction of the Bankrupt Act throughout
the United States.
The facts, which we condense somewhat from the findings of the
court of appeals, are that the millinery company, then being in the
millinery business at Kansas City, Missouri, obtained, by false
representations of its liabilities, goods of the value of $3,125.70
from Openhym & Sons, of New York City. Subsequently, a suit was
brought against the millinery company by another creditor, and a
receiver was appointed of all its property. The receiver of the
property forthwith took possession, and, under the orders of the
court, continued its sale. A few days afterwards, certain other
creditors of the millinery company filed a petition in the District
Court of the Western District of Missouri to have the company
declared a bankrupt. Four days later, the company admitted its
insolvency, and consented that it be declared a bankrupt.
Openhym & Sons, the appellees, asserting that their goods
had been obtained from them by the millinery company by false
representations of its solvency, demanded possession of the goods
from the state court's receiver. Possession was refused, and
Openhym & Sons, having obtained from the state court permission
to do so, brought an action of replevin against the receiver and
the millinery company.
"Process was duly served on both defendants. In the execution of
the replevin writ, but $2,582.80 worth of the goods obtained from
Openhym & Sons were found. The sheriff, in executing the writ,
separated the goods so found from the remainder of the
Page 216 U. S. 326
stock then in possession of the state court receiver, and took
them into his own possession. The receiver thereupon gave a
redelivery bond, resumed possession of the goods, put them back
into the stock, and continued sales therefrom."
On September 23, 1905, the millinery company was adjudged a
bankrupt. Before the date of the adjudication, no receiver had been
appointed by the district court, and no order had been made
affecting the property in the possession of the state court or the
continuance of the sales thereof by the state court receiver. On
the day of the adjudication of bankruptcy, Daniel F. Blake,
appellant, was appointed receiver in bankruptcy, and was directed
to apply to the state court for an order on its receiver for the
possession of the property. He was further directed, before taking
possession, to request the state court to fix and determine the
liabilities which its own receiver had incurred for the benefit of
the estate.
"The order of direction to the receiver in bankruptcy contained
this clause: 'The liabilities incurred by the said receiver
appointed by the state court shall be assumed and paid by the
receiver herein.'"
On September 25, 1905, the state court stated the liabilities
incurred by its receiver, and, in addition thereto, recited the
proceedings in the replevin action brought by Openhym & Sons,
and found that whatever liability had been incurred under the
redelivery bond had been incurred for the benefit of the estate.
The court then ordered the delivery of the property to the receiver
in bankruptcy upon the conditions that the latter should assume and
pay the liabilities recited and the liability arising under the
redelivery bond. It was not shown what part of the goods in
controversy actually passed into the possession of the receiver in
bankruptcy, but it was shown that all of the stock remaining
unsold, and all of the proceeds of sales by the state court
receiver, largely in the form of customers' accounts, were, less
expense of conducting the business, turned over to the receiver in
bankruptcy.
Page 216 U. S. 327
October 2, 1905, the receiver in bankruptcy sold all of the
property of the millinery company; on the thirteenth, the receiver
was selected as trustee; on the twenty-seventh, the district court
ruled Openhym & Sons to show cause why they should not be
enjoined from prosecuting the action of replevin, and temporarily
enjoined them from doing so; December 1 the temporary injunction
was made permanent.
On December 10, 1905, a dividend upon the claims against the
estate of the millinery company was declared, but its payment left
the greater portion of the estate in the hands of the trustee. Up
to that time, Openhym & Sons had not intervened and presented
their claim for preferential payment but this fact had no effect
upon the declaration of the dividend, and no creditor was
prejudiced thereby.
December 21, 1905, Openhym & Sons intervened and presented
their claim for $2,582.80 as a preferred one. On March 24, 1906, it
was found by the referee to be entitled to be allowed as such. Upon
petition for review, the district court reversed the finding. Upon
appeal, the circuit court of appeals substantially found the above
facts, and reversed the decree of the district court, 157 F.
536.
The conclusions of law of the circuit court of appeals were as
follows:
"1. There were sufficient grounds for a rescission of the sale
by Openhym & Sons, the right of rescission was seasonably
asserted, and the right was not impaired or destroyed by the
commencement of bankruptcy proceedings against the vendee, who
obtained the goods by fraud. The receiver and trustee in bankruptcy
had no greater right or title to the goods in controversy than the
bankrupt had."
"2. It was competent for the bankruptcy court to permit the
prosecution of the replevin action in the state court for the
recovery of the goods. The continuance of such prosecution was
lawful up to the time it was forbidden by the injunction of the
bankruptcy court. The commencement and prosecution of that action,
though subsequently enjoined, was available
Page 216 U. S. 328
to Openhym & Sons as an act of rescission, and the
proceedings therein could properly be resorted to in ascertaining
what part of the goods sued for was in the possession of the state
court, and afterwards, with proceeds of sales, went into the
possession of the bankruptcy court."
"3. There was no such delay by Openhym & Sons in intervening
in the bankruptcy proceedings as estopped them from asserting their
right to a preferential claim for the value of their goods."
"4. Openhym & Sons are entitled to an order that the trustee
pay their claim out of funds in his hands before making further
payments to general creditors."
The contention of appellee upon the motion is that the bankrupt
law limits the right of appeal to two classes of cases, in neither
of which, it is further contended, the case at bar falls: (1) where
the amount in controversy exceeds a thousand dollars and the
question involved is one that might have been taken on appeal or
writ of error from the highest court of a state to the Supreme
Court of the United States; (2) where a Justice of the Supreme
Court of the United States shall certify that the determination of
the question involved is essential to a uniform construction of the
act throughout the United States.
The consideration of the second ground we can immediately
dismiss, as there is no such certificate. Of the other, or first
ground, it is urged that
Chapman v. Bowen, 207 U. S.
89, is decisive. In that case, the facts were that there
was borrowed from Bowen, on two different occasions, the sum of
$5,000, for which two promissory notes were given, signed by the
firm of A. McCoy & Company and by the individual names of
Alfred McCoy and Thomas McCoy, the proceeds of the transactions
going into the partnership business. The firm and the individuals
became bankrupt, and the notes were presented as claims against the
firm, and allowed to the extent of thirty percent. A claim was
presented for the balance against the estate of Alfred McCoy, and
disallowed
Page 216 U. S. 329
by the referee, whose decision was affirmed by the district
court. The decision was reversed by the circuit court of appeals,
150 F. 106. An appeal was allowed to this Court by a judge of the
circuit court of appeals, which, on motion, was dismissed, on the
ground that a writ of error from the highest court of the state to
this Court could not be maintained, because no validity of a treaty
or statute of, or an authority exercised under, the United States
was drawn in question, nor the validity of a statute of, or any
authority exercised under, any state, on the ground of repugnancy
to the Constitution, treaties, or laws of the United States, nor
was any treaty, right, privilege, or immunity claimed under the
Constitution or any treaty or statute or commission held or
authority exercised under the United States and decided against it.
It was further said that
"the decision below proceeded on well settled principles of
general law broad enough to sustain it without reference to
provisions of the Bankruptcy Act."
We think that case controls this, and that the cases cited by
appellant, of which this Court took jurisdiction, are not apposite.
The determining facts in the case at bar are that the goods were
obtained by the millinery company by fraud, and that the sale was
seasonably rescinded on that ground. In the decision of this there
was involved no provision of the bankruptcy law. Nor is any
provision of the bankruptcy law involved in the consideration of
the question whether the goods turned over by the state court to
the receiver in bankruptcy could be identified as the goods
obtained from Openhym & Sons. Surely, as decided by the court
of appeals, the proceedings in the state court
"could properly be resorted to in ascertaining what part of the
goods sued for was in the possession of the state court, and
afterwards what proceeds of sales went into possession of the
bankruptcy court."
To these facts must be added the important one that the goods
were ordered by the state court to be delivered to the receiver in
bankruptcy upon the express condition, and they were
Page 216 U. S. 330
received by him subject to the condition, that he should assume
and pay the liabilities incurred in that court, that court finding
"that whatever liability was incurred under the redelivery bond was
incurred for the benefit of the estate."
It was from these facts that the court of appeals concluded that
Openhym & Sons were "entitled to an order that the trustee pay
their claims out of funds in his hands before making further
payments to general creditors." In this conclusion we cannot see
that any provision of the bankruptcy law was involved, so that, if
the decision had been made by a state court, it would have been
reviewable here on writ of error.
It is the contention of appellant, however, that the writ of
replevin brought by Openhym & Sons and the levy under it "were
unlawful and unauthorized acts," and that Openhym & Sons "could
not, and did not, conserve any rights thereby." And further, the
appellant says,
"it will be observed at the outset that this question goes
directly to the jurisdiction of the bankruptcy court over the
res of the bankrupt after the filing of the involuntary
petition in bankruptcy."
Putting it another way, appellant says that "the question in the
case is as to the force and effect of a proceeding in bankruptcy
followed by a subsequent petition in replevin." And it is insisted
that the result reached by the court of appeals "depended upon the
force and effect given to the action in replevin," and that
therefore a federal question is presented. This, however, proceeds
from a misapprehension of the opinion of the court of appeals. The
paramount jurisdiction of the bankruptcy court was conceded. The
replevin suit was considered as showing the purpose of Openhym
& Sons to rescind the sale of the goods and as a means of their
identification, as we have already pointed out. In holding it
competent for those purposes we cannot see how any provision of the
bankrupt law was involved.
The motion to dismiss must therefore be granted.
So ordered.