1. Under § 67(f) of the Bankruptcy Act, where an attachment of
an insolvent's property was obtained within four months prior to
the filing of a petition in bankruptcy against him, the trustee has
the election of preserving it for the benefit of the bankrupt
estate; it is not void at the election of the bankrupt alone.
Lehman, Stern & Co. v. Gumbel & Co., 236 U.
S. 448;
Chicago, B. & Q. R. Co. v. Hall,
229 U. S. 511,
distinguished. P.
291 U. S. 3.
2. A suit in a state court brought by a creditor of a bankrupt
within four months prior to the filing of the bankruptcy petition,
to set aside a fraudulent conveyance made by him more than four
months prior to the petition, is not terminated by the mere
existence of the bankruptcy proceeding, and the right of the
creditor to maintain it under the state law is withdrawn only if
the trustee elects under § 70(e) to prosecute it for the benefit of
the bankrupt's estate. P.
291 U. S. 5.
3. The refusal of the state court to stay such a suit at the
demand of the bankrupt upon the bare showing of the bankruptcy
adjudication was not an abuse of the sound discretion permitted by
§ 11(a) of the Bankruptcy Act, assuming that section applicable. P.
291 U. S. 5.
4. Assuming that § 11(a) does not apply under the circumstances
of this case, but that the general scheme of the Act implies some
duty of the state court to preserve the estate until the bankruptcy
court had opportunity to assert its jurisdiction, still it has not
been shown that such an opportunity has not been afforded. P.
291 U. S. 6.
63 N.D. 622, 249 N.W. 726, affirmed.
Page 291 U. S. 2
Certiorari, 290 U.S. 620, to review the affirmance of a judgment
in an attachment suit setting aside, as in fraud of creditors, a
conveyance of the land attached, and directing a sale and
application of the proceeds of sale to the plaintiff's claim.
MR. JUSTICE STONE delivered the opinion of the Court.
This case comes here on certiorari to review a judgment of the
Supreme Court of North Dakota involving the application of certain
provisions of the Bankruptcy Act. The respondent, a creditor of
petitioner Connell, brought suit in the district court of Ramsey
county, North Dakota, to set aside, as in fraud of creditors, a
conveyance by Connell to the other petitioners of land located in
the state. The suit was begun by attachment of the land, and, while
it was pending in the trial court, the petitioners, by a motion for
stay of proceedings and by their amended answer, set up that,
within four months after the attachment, petitioner Connell had
filed a voluntary petition in bankruptcy in the District Court for
Southern California which had resulted in an adjudication of
bankruptcy. It was not shown whether a trustee had been selected.
The county court, upon the trial, found that the conveyance was in
fraud of creditors, and gave judgment for the respondent, which the
Supreme Court of the state affirmed, 63 N.D. 622, 249 N.W. 726,
directing that the land be sold and the proceeds applied to the
satisfaction of the indebtedness to respondent. The relief granted
was restricted to the sale of the attached land by a provision of
the judgment that it should not be deemed to establish the personal
liability of any of the petitioners.
Page 291 U. S. 3
Petitioners argue here, as they did in the state courts, that,
under § 67(f) of the Bankruptcy Act, the lien of the attachment
upon which the judgment was founded was a nullity because procured
when the bankrupt was insolvent and within four months before the
filing of the petition in bankruptcy, so that no judgment could be
given or enforced against the attached property, and they insist
that, in any event, the state court should have stayed the action
until the termination of the bankruptcy proceedings.
We may assume, for present purposes, that the trustee in
bankruptcy, if there is one, could have taken and may still take
appropriate proceedings to set aside the attachment as invalid
under § 67(f), [
Footnote 1]
either by intervention in the action in the state court, as
authorized by § 11(b),
see Lehman, Stern & Co. v. S. Gumbel
& Co., 236 U. S. 448;
Isaacs v. Hobbs Tie & Timber Co., 282 U.
S. 734, or by procuring an order of the bankruptcy court
staying any further proceedings by the state court to secure
the
Page 291 U. S. 4
benefit of the attachment,
Clarke v. Larremore,
188 U. S. 486;
see Globe Bank & Trust Co. v. Martin, 236 U.
S. 288;
compare Metcalf v. Barker, 187 U.
S. 165;
Straton v. New, 283 U.
S. 318, or that he might have avoided the attachment by
the assertion of dominion over the property inconsistent with the
continued existence of the lien,
Chicago, B. & Q. R. Co. v.
Hall, 229 U. S. 511. But
§ 67(f) also extends to the trustee the privilege of procuring an
order of the bankruptcy court directing that the right under the
lien of attachment be preserved for the benefit of the bankrupt's
estate, and, to secure its benefits, he may, as provided in §
67(c), be subrogated to all the rights of the lienor.
See Rock
Island Plow Co. v. Reardon, 222 U. S. 354;
Miller v. New Orleans Acid & Fertilizer Co.,
211 U. S. 496,
211 U. S. 505;
First National Bank v. Staake, 202 U.
S. 141.
Here, the trustee, if any, is not a party to the suit, and he is
not shown to have made the election with respect to the attachment
lien for which § 67(f) provides. This privilege is one of
substance,
see Rock Island Plow Co. v. Reardon, supra, and
the statute gives it to the trustee, not to the bankrupt or his
creditors. A judgment of dismissal, as prayed by the petitioners,
would have dissolved the attachment, and thus would have enabled
the bankrupt to cut off the privilege reserved to the trustee to
preserve it. We do not think the statute can be construed to
require that result.
Petitioners place reliance upon the language of the opinions in
Lehman, Stern & Co., Ltd. v. Gumbel & Co., Ltd.,
supra, and in
Chicago, B. & Q. R. Co. v. Hall,
supra, which state in the broad words of the statute that
liens acquired within four months of the filing of the petition are
"void." But in the one case, the receiver, by his intervention in
the action in the state court, and in the other the trustee, by
appropriate action taken in the bankruptcy court, had asserted the
invalidity of the lien acquired by the local suit. In neither does
the decision militate against the
Page 291 U. S. 5
conclusion which we reach here that the bankrupt alone cannot
invoke a judgment which would preclude the exercise of the
privilege reserved to the trustee to assert rights under the
lien.
Bankruptcy proceedings do not, merely by virtue of their
maintenance, terminate an action already pending in a nonbankruptcy
court, to which the bankrupt is a party.
Pickens v. Roy,
187 U. S. 177;
Jones v. Springer, 226 U. S. 148;
Straton v. New, supra. This is obviously the case where
the suit like the present one is brought by a creditor to set aside
a fraudulent conveyance of the bankrupt, made more than four months
before the petition in bankruptcy. The right asserted is one given
the creditor by state law which the Bankruptcy Act withdraws from
him only upon the election of the trustee to assert the rights of
the creditor, as he is privileged to do by § 70(e), 11 U.S.C. §
110(e), an election which, in this case, does not appear to have
been made.
Compare Sparhawk v. Yerkes, 142 U. S.
1;
Dushane v. Beall, 161 U.
S. 513;
First National Bank v. Lasater,
196 U. S. 115;
American Exchange Bank v. Goetz, 283 F. 900;
Laughlin
v. Calumet & Chicago Canal & Dock Co., 65 F. 441,
and cf. Thomas v. Sugarman, 218 U.
S. 129. Upon this record, no case is made entitling the
petitioners, under any provision of the Bankruptcy Act, to a
judgment of dismissal.
The question remains whether, the trustee having failed to
assert any rights with respect to the pending action, the state
court was required to stay it by any provision or necessary
implication of the Bankruptcy Act. We find it unnecessary to decide
whether § 11(a), 11 U.S.C. § 29(a), authorizing a stay of certain
suits pending against a bankrupt, [
Footnote 2] lays down a rule for nonbankruptcy
Page 291 U. S. 6
as well as bankruptcy courts, [
Footnote 3] or whether it is applicable to suits like the
present one, [
Footnote 4] or
whether the bankrupt may invoke its provisions. [
Footnote 5] For, if applicable here, the
authority given by that section to stay pending suits after
adjudication, which has taken place here, is not mandatory, but
permissive, to be exercised in the sound discretion of the court.
There is no suggestion that there was any abuse of discretion by
the state court in refusing to stay its hand on the bare showing by
the fraudulent bankrupt that there had been an adjudication in
bankruptcy. It does not appear that there is any creditor other
than respondent, or that the trustee had not been advised of the
suit, or that the bankrupt could not, by giving notice to the
trustee, have afforded the trustee ample opportunity to assert his
rights if there were other creditors to protect. On the other hand,
if § 11(a) does not apply, but if it be assumed that the general
scheme of the Act implies some duty of the state court to preserve
the estate until opportunity is given the bankruptcy court to
assert its jurisdiction,
see Acme Harvester Co. v. Beekman
Lumber Co., 222 U. S. 300,
222 U. S. 308;
In re Moore, 42 F.2d 475, 478, still the petitioners have
failed to show that there has been no such opportunity.
Affirmed.
[
Footnote 1]
"§ 67(f). 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.
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."
[
Footnote 2]
"Section 11(a). A suit which is founded upon a claim from which
a discharge would be a release, and which is pending against a
person at the time of the filing of a petition against him, shall
be stayed until after an adjudication or the dismissal of the
petition; if such person is adjudged a bankrupt, such action may be
further stayed until twelve months after the date of such
adjudication, or, if within that time such person applies for a
discharge, then until the question of such discharge is
determined."
[
Footnote 3]
See Smith v. Miller, 226 Mass. 187, 115 N.E. 243;
Star Braiding Co. v. Steinen Dyeing Co., 44 R.I. 8, 114 A.
129; Collier, Bankruptcy (13th ed.) 414.
[
Footnote 4]
Cf. Hill v. Harding, 107 U. S. 631;
but cf. Remington, Bankruptcy (4th ed.) § 3491.
[
Footnote 5]
See In re Geister, 97 F. 322.