1. Where an assignee in bankruptcy claims a fund as the property
of his bankrupt, which sometime before the bankruptcy a firm of
which the bankrupt was a member transferred to a third party, and
which the transferee now claims adversely to the assignee, the
proceedings in the district court should not be summary and under
the first section of the Bankrupt Act, but formal and under the
second clause of the third section.
2. An appeal from a proceeding in bankruptcy disposing, under
the first section, of such a claim, lies (other requisites allowing
it) from the Supreme Court of the District of Columbia to this
Court.
The Bankrupt Act [
Footnote
1] enacts:
"SECTION 1. That the several district courts of the United
States be courts of bankruptcy, and they shall have original
jurisdiction in their respective districts in all matters and
proceedings in bankruptcy, and they are hereby authorized to hear
and adjudicate upon the same
according to the provisions of
this act. . . ."
"The said courts shall be always open for the transaction of
business under this act, and the powers and jurisdiction hereby
granted and conferred shall be exercised as well in vacation as in
term time, and a judge sitting at chambers shall have the same
powers and jurisdiction, including the power of keeping order and
of punishing any contempt of his authority as when sitting in
court."
"And the jurisdiction hereby conferred shall extend to all cases
and controversies arising between the bankrupt and any creditor or
creditors who shall claim any debt or demand under the bankruptcy;
to the collection of all the assets of the bankrupt; to
the ascertainment and liquidation of the liens and other specific
claims thereon;
to the adjustment of the various priorities and
conflicting interests of all parties, and to the marshaling and
disposition of the different funds and assets so as to secure the
rights of all parties and due distribution of the assets among all
the creditors;
Page 81 U. S. 420
and to all acts, matters, and things to be done under and in
virtue of the bankruptcy, until the final distribution and
settlement of the estate of the bankrupt and the close of the
proceedings in bankruptcy. The said courts shall have full
authority to compel obedience to all orders and decrees passed by
them in bankruptcy, by process of contempt and other remedial
process, to the same extent that the circuit courts now have in any
suit pending therein in equity."
The
second section, in its first clause, gives to the
circuit courts "a general superintendence and jurisdiction
of all cases and questions arising under this act, and, except when
special provision is otherwise made," authorizes
them, upon bill, petition, or other proper process of any
party aggrieved, to hear and determine the case as in a court of
equity.
By its third clause, the act enacts thus:
"Said circuit courts shall also have concurrent jurisdiction
with the district courts of the same district of all suits at law
or in equity which may or shall be brought by the assignee in
bankruptcy against any person claiming an adverse interest, or by
such person against such assignee, touching any property or rights
of property of said bankrupt transferable to or vested in such
assignee."
The eighth section of the act gives appeals and writs of error
from the district to the circuit courts, when the debt or damage
claimed amounts to more than $500. The section proceeds:
"And any supposed creditor whose claim is wholly or in part
rejected, or an assignee who is dissatisfied with the allowance of
a claim, may appeal from the decision of the district court to the
circuit court from the same district."
The ninth section enacts:
"That in cases arising under this act, no appeal on writ of
error shall be allowed in any case from the circuit courts to the
Supreme Court of the United States unless the matter in dispute in
such case shall exceed $2,000. "
Page 81 U. S. 421
The forty-ninth section enacts:
"That all the jurisdiction, power, and authority conferred upon
and vested in the district courts of the United States by this act
in cases in bankruptcy are hereby conferred upon and vested in the
Supreme Court of the District of Columbia . . . when the bankrupt
resides in the District of Columbia."
So far as to provisions of what is called the Bankrupt Act.
The Supreme Court of the District of Columbia, referred to in
the section last quoted, and from which court this appeal came, was
reorganized by an Act of March 3, 1863. [
Footnote 2] The act gives it a general jurisdiction in
law and equity. It is made to consist of four judges. Any one of
them may hold the District Court of the United States for the
District of Columbia, in the same manner and with the same powers
and jurisdiction possessed and exercised by other district courts
of the United States.
In this state of statutory law, Frederick P. Sawyer the bankrupt
in this case, was the senior member of the firm of Sawyer Risher
& Hall, of Washington, D.C., who held a claim against the
United States, which they had put in the hands of George Taylor,
for collection. On the 20th January, 1867, and while the claim was
pending, the firm assigned it to Biddle & Co., of New York, by
an order on Taylor to pay the proceeds over to them collected,
which order was accepted by Taylor. Biddle & Co. assigned the
order in turn, on the next day, to one Smith. Taylor collected
about $100 on the claim, which he remitted to Smith, according to
the arrangement. Sometime after this payment, and before any
further collection was made, Sawyer went into bankruptcy (one Mason
being appointed his assignee), and the firm of Sawyer Risher &
Hall was dissolved, Risher and Hall closing the business of the
firm as remaining partners. After this date, Taylor, by consent of
all parties, received a further sum of $4,744.19, and there was an
uncollected draft yet to be paid to him.
At the time of these collections, the accounts between the
Page 81 U. S. 422
bankrupt partner and the remaining ones were unsettled, and the
partnership debts were unliquidated. The assignee therefore filed a
bill for an account, but the remaining partners had not answered.
At this stage of the proceedings, Mason the assignee of Sawyer on
the 13th of October, 1868, presented a petition to one of the
judges of the Supreme Court of the District of Columbia, sitting in
bankruptcy, setting forth that he had filed his bill against Risher
& Hall, the partners, carrying on the business of Sawyer Risher
& Hall, for the settlement of the partnership accounts; that
Taylor had collected the sum of $4,744.19, above mentioned, and
that other funds would come into his hands for Sawyer Risher &
Hall; that prior to the bankruptcy of Sawyer, the firm made the
assignment (already mentioned) to Biddle & Co., as collateral
security for the payment of a debt to the said firm, which debt had
been paid, and that Biddle & Co. had assigned its claim to
Smith.
Mason accordingly prayed an injunction on Taylor against his
payment of the money pending his suit against Sawyer Risher &
Hall. This application for an injunction was in truth apparently
made at Taylor's instance in order that in any payments which he
made of money that he received, he might act under an order of
court. He did not appear, and the injunction was granted. Mason
then, on the 7th of April, 1869, filed a petition against Smith,
asking for an order on him to show cause why the money should not
be decreed to him, Mason as assignee. Smith appeared and set up his
claim to the money.
On the 10th of April, 1869, Risher & Hall, the remaining
partners, now intervened and also claimed the money on the ground
that the order on Taylor was a mere hypothecation of the claim and
that Biddle & Co. had been fully paid.
The court thereupon went into an examination of the accounts
between Sawyer Risher & Hall, and Biddle & Co., and (Biddle
& Co. not being present, and having had no notice or order
served upon them) decided that the debt originally due to Biddle
& Co. had been satisfied, and that
Page 81 U. S. 423
the funds in the hands of Taylor should be paid over to Mason
the assignee of Sawyer.
From this decree an appeal was taken by Smith. The court in banc
reversed the decision of the court in bankruptcy, dissolved the
injunction, and ordered the money to be paid over to Risher &
Hall, the solvent and surviving partners, thus deciding the right
of Biddle & Co. and Smith without notice to Biddle & Co.,
and in favor of the surviving partners.
From this decree Smith took the present appeal. Counsel for the
appellee appeared generally. The record, which was not a very full
one, did not perhaps show very well notice of the appeal, but it
showed clearly enough that the appeal had been duly claimed, and
that the appellant filed his appeal bond in open court, and that it
was duly approved by the Chief Justice of the Supreme Court of the
District, who presided at the hearing when the final decree was
entered in the case.
Page 81 U. S. 425
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
Jurisdiction, power, and authority in cases in bankruptcy, when
the bankrupt resides in this District, are conferred upon, and
vested in, the Supreme Court of the District, to the same extent
and subject to the same rules, regulations, and restrictions as are
enacted and prescribed in respect to the jurisdiction, power, and
authority of the district courts of the United States, where the
bankrupt resides in anyone of the judicial districts within the
several states. [
Footnote
3]
By the terms of the act establishing the Supreme Court of the
District, the court consists of four justices, any three of whom
may hold a general term, and any one of them may hold a circuit
court or special term for the purposes and under the conditions
therein prescribed, or may hold a district court of the United
States, in the same manner and with the same powers and
jurisdiction as are possessed and exercised by the federal district
courts within the several states. [
Footnote 4]
Enough appears in the record to show that one Frederick P.
Sawyer of the firm of Sawyer Risher & Hall was adjudged
bankrupt by the Supreme Court of this District sitting in
bankruptcy, and that George Mason, the appellee in this case, was
appointed assignee of his estate by decree of the bankrupt court.
He commenced the proceeding in this case by the petition exhibited
in the transcript, in which he represents that George Taylor, as
agent of that firm, had collected from the United States the sum of
four thousand seven hundred and forty-four dollars and nineteen
cents for
Page 81 U. S. 426
the firm, and that other funds due to the firm, it was expected,
would soon come into his hands; that Risher & Hall, the other
two members of the firm prior to the bankruptcy of the senior
partner, made an assignment of the claim, from which that amount
was realized, to George E. Biddle & Co. as collateral security
for the payment of a certain indebtedness of their firm to the said
assignees, which indebtedness the petitioner believes has been
paid; that the assignees of the claim afterwards made an assignment
of their interest in the same to James R. Smith, as collateral
security for their indebtedness to him, which, as the petitioner
believes, has also been paid, wherefore he prayed that the said
George Taylor might be restrained from paying out said money, or
any other money which might come into his hands belonging to the
same firm, pending the petition, and that the respondent might be
required to give bond for the safekeeping of the money and for its
production in court when ordered.
Such an order was issued, and the party holding the money was
enjoined and required to give bond as prayed. Subsequently the
petitioner presented another petition to the same court, in which
he represented that James R. Smith also claimed an interest in the
fund in question, and prayed that an order might be made requiring
him to show cause on a day therein named why the fund should not be
paid to the petitioner. Smith appeared and filed an answer to the
rule, to the effect following:
(1) That the court had no jurisdiction to proceed against him in
that mode.
(2) That the money enjoined came to him by regular assignment
for a valuable consideration before the senior partner of the firm
was adjudged bankrupt, and that he was, and is, the
bona
fide owner of the claim.
(3) That neither the assignee of the bankrupt's estate nor his
creditors have any right to any part of said funds.
Before the hearing the other partners of the firm, to-wit,
Risher and Hall, intervened, and alleged that the money enjoined
rightfully belonged to them and not to the respondent in the rule,
because the assignment of the claim, as they
Page 81 U. S. 427
represented, was made by the senior partner of their firm merely
as a security to the said assignees, to be applied by them to the
payment of the debt due by their firm to those assignees; that it
was expressly understood that if the assignors paid the debt before
the claim was collected from the United States, the claim should
revert to them, the assignors; that they paid their entire debt to
those parties before the claim was allowed at the Treasury
Department, and that they, as the representatives of the firm since
the bankruptcy of the senior partner, are entitled to the money,
wherefore they pray that an order may be passed directing the
depositary to pay the same to them, or, if it be paid to the said
assignees, that it be so paid to their use.
Evidence was introduced by the intervenors tending to show that
the indebtedness of the original owners of the claim to the
assignees of the same had been paid and that the respondent in the
rule held the claim merely as collateral security for his
assignors. On the other hand, the respondent in the rule was
examined, and he testified that he obtained the assignment of the
claim in good faith and for value, without notice that his
assignors held it subject to any conditions or that it was not
their property in case the indebtedness of their assignors was
discharged before the claim was collected. He produced the
assignment duly executed by the original owners, directing the
depositary to pay the amount to the assignees when collected at the
proper department, and also introduced the deposition of the senior
partner of the firm to which the claim was assigned, and he deposed
that his firm transferred and assigned the same to the respondent
in the rule with the knowledge and consent of the original owners;
that they, the assignees, took the order or draft at its date in
the regular course of business, and that they assigned the same for
value to the respondent, and that the accounts of the original
owners with his firm have never been settled, but that they are
still largely indebted to his firm. Hearing was had, but the court
was of the opinion that the respondent took the order or draft
Page 81 U. S. 428
merely as collateral security; that he was not a
bona
fide purchaser of the same; that he was to credit the proceeds
when collected to his assignors, and that they were to credit the
same to the original owners.
Pursuant to that finding, the court entered a decretal order
that the depositary of the claim should pay the net balance in his
hands to the assignee in bankruptcy for the benefit of the
creditors of the original owners. Immediate application was made by
the respondent for an appeal to the general term, which was granted
on the following day. Due appearance was entered not only by the
appellant but also by the intervenors as well as by the assignee in
bankruptcy, and they were again heard before all the justices of
the court, and the court being of opinion that there was error in
the decree and that the intervenors, as the solvent partners of
their firm, were entitled to the money, entered a decree dissolving
the injunction and directing the depositary of the money to pay the
net balance in his hands to those parties as the survivors of the
original owners of the claim, whereupon the respondent appealed to
this Court.
Instituted as the proceeding was to restrain the depositary of
the claim from paying out the money which he had collected or any
which might thereafter come into his hands, it is quite clear that
the alleged purpose of the petitioner was accomplished when the
injunction was granted as prayed in the petition, as the party
respondent in that proceeding never filed any answer and testified
in the case that the order restraining him from paying out the
money was procured by him so that he might not be required to act
without the directions of the court. Had the matters terminated
there, the appellant would not have had any right of appeal to this
Court, as he was an utter stranger to the proceedings. He was not
made a party to the petition, nor was he served with process, nor
did he voluntarily appear. Whatever the purpose of the petition
was, or by whomsoever the injunction was procured, the proceeding
was commenced and terminated without the knowledge of the appellant
and before any steps were taken by the petitioner or anyone else
to
Page 81 U. S. 429
connect the appellant with the litigation. More than a year and
a half before that petition was filed, the original owners of the
claim had assigned and transferred the same to the assignors of the
appellant, and had directed in writing the depositary in whose
hands they had placed it for collection to pay the same when
collected to their said transferees, and the record shows that the
depositary of the claim accepted the draft or order at the time and
agreed to pay the same as directed whenever the same should come
into his hands, less expenses and commissions. None of these facts
is contradicted, and the appellant proved that the assignees of the
claim, within a few days after receiving the same, assigned and
transferred the same to him for full value in the usual course of
business.
Beyond all doubt, therefore, the case is one where the appellant
claimed absolute title to and dominion over the matter in
controversy between him and the assignee of the bankrupt's estate.
Absolute title to the matter in controversy is also claimed by the
assignee in bankruptcy, as appears by his second petition, in which
he prayed that the appellant might be summoned to show cause why
the fund should not be paid to him as such assignee.
Suggestion may be made that the decree gives the fund to the
intervenors, but the Court will at present reexamine the case as
between the parties first made in the second petition, before the
solvent members of the firm to which the claim originally belonged
were permitted to intervene in the litigation, as it is quite
obvious that the whole proceeding subsequent to their intervention
is irregular, and that the decree must be reversed if it be held
that the bankrupt court had no jurisdiction to proceed and
determine the right of property as between the assignee and the
transferee of the same for value in that mode of proceeding.
Neither the depositary of the fund nor the appellant claimed
anything from the estate of the bankrupt, and the appellant
contends that the bankrupt court cannot take jurisdiction in such a
case by a rule to show cause, served on a stranger to come in and
answer in support of his title or
Page 81 U. S. 430
claim to such a fund or to any other property over which he
claims absolute dominion.
Power and jurisdiction in all matters and proceedings in
bankruptcy are conferred upon the district courts, and those courts
as courts of bankruptcy are authorized to hear and adjudicate upon
the same according to the provisions of the Bankrupt Act. Examined
separately, the clause of the first section of the act, which
provides that the powers and jurisdiction therein granted and
conferred may be exercised as well in vacation as in term time, and
that a judge sitting in chambers shall have the same powers and
jurisdiction as when sitting in court, would seem to afford some
support to the views of the assignee in this case, that all the
powers and jurisdiction of the district courts, when sitting as
courts in bankruptcy, may be exercised in a summary way without
process, as by a rule to show cause, as in a motion to set aside a
verdict in an action at common law, or in a collateral proceeding
in a suit in equity. Most matters and proceedings in bankruptcy may
doubtless be heard and adjudicated by the district court in that
way, but that general clause in the first section, which is
referred to as supporting the unlimited scope of that power and
jurisdiction, must be considered in connection with all the other
provisions of the Bankrupt Act, as is expressly required by the
preceding clause of the same section, in which it is enacted that
the district courts shall hear and adjudicate upon all matters and
proceedings in bankruptcy according to the provisions of the
Bankrupt Act. Superadded to that general clause and as an
exposition of the same is another and more important clause in
which is given a specific enumeration of the cases and
controversies to which that general jurisdiction extends, and it is
plain that the enumeration does not include
"suits at law or in equity which may or shall be brought by the
assignee in bankruptcy against any person claiming an adverse
interest, or by such person against such assignee touching any
property or rights of property of said bankrupt transferable to or
vested in such assignee."
On the contrary, the third clause of the second section
expressly enacts that circuit
Page 81 U. S. 431
courts shall have concurrent jurisdiction with the district
courts of all such suits at law or in equity, provided the suit at
law or bill in equity shall be brought within two years from the
time the cause of action accrued. [
Footnote 5]
Controversies, in order that they may be cognizable either in
the circuit or district court under that act, must have respect to
some property or rights of property of the bankrupt transferable to
or vested in such assignee, and the suit, whether it be a suit at
law or in equity, must be in the name of one of the two parties
described in that clause and against the other, as appears by the
express words of the provision. Such a suit, whether at law or in
equity, may be commenced either in the district or circuit court,
at the election of the party suing, and if in the former, it is
clear that the case, when it has proceeded to final judgment or
decree, may be removed into the circuit court for reexamination by
writ of error if it was an action at law, or by appeal if it was a
suit in equity, provided the debt or damages claimed amount to more
than five hundred dollars and the writ of error is seasonably sued
out or the appeal is claimed and the required notices are given
within ten days from the rendition of the judgment or decree.
[
Footnote 6] None of those
regulations, however, applies to petitions for revision under the
first clause of the second section, nor does the Bankrupt Act fix
any precise limitation to the right of a party aggrieved by the
ruling, decision, or decree of the district court to file a
petition for that purpose in the circuit court. Power to revise all
cases and questions which arise in the district courts in such a
proceeding, "except when special provision is otherwise made," is
conferred upon the circuit courts by the first clause of the same
section, but the Court is of the opinion that the power conferred
by that clause does not extend to any case where special provision
for the revision of the case is otherwise made, as where it is
provided that an appeal will lie from the district court to the
circuit court, or where a writ of error will lie from
Page 81 U. S. 432
the circuit court to the district court in the manner provided
in the laws of Congress allowing appeals and writs of error.
[
Footnote 7]
Special provision is made for the revision in the circuit court
of controversies like the one exhibited in this record, and the
Court is of the opinion that such causes cannot be commenced by a
petition for a rule to show cause, as in this case, nor be
determined in a summary way by the district court sitting in
bankruptcy, without due process of law. [
Footnote 8] Cases of the kind before the Court fall
directly within the third clause of the section under
consideration, and must, in the judgment of the Court, be
determined by a suit in equity or an action at law, as the case may
be; and where an action at law is the proper remedy the parties are
entitled to a trial by jury if the value in controversy shall
exceed twenty dollars. Concurrent jurisdiction in such cases, it
must be conceded, is vested in the circuit and district courts, and
it is equally clear that either party, where the proceeding is
correct, may remove the cause, in a proper case, when it has
proceeded to final judgment or decree, into the Supreme Court for
reexamination, as provided in other causes outside of the Bankrupt
Act.
Possession and control of the claim had been surrendered by the
original owners long before the senior partner of the firm was
adjudged bankrupt, and the depositary of the same had duly accepted
the order or draft transferring the proceeds of the same to the
assignors of the appellant, showing that the assignee in bankruptcy
had neither the possession nor the right of possession to the same
at the time the petition for the rule was filed. Independent of the
injunction, which was granted without notice to the appellant, he
was apparently entitled, and if the evidence he introduced is
believed, he was in fact entitled, to demand and to receive the
whole fund as his own property. Suffice it to say, without
expressing any opinion as to the weight of the evidence, the
appellant claimed the fund as his own property, and if his
Page 81 U. S. 433
claim is just and legal, the possession of the depositary was
his possession, and if the assignee in bankruptcy would divest him
of the possession and control of the fund he must do it by a suit
at law or in equity, as provided in the third clause of the second
section of the Bankrupt Act. Equity would certainly have
jurisdiction in such a case, as in that mode of proceeding all the
parties could be brought before the court. Extended remarks in
respect to the decree in the case appears to be unnecessary, as it
is as clear as anything in legal decision can be that the
intervenors could no claim to divest the appellant of his interest
in the funds be becoming parties to a rule like the one before the
court, not in any other manner than by due process of law.
Objection is also made that the appeal is irregular, as having
been prosecuted from the Supreme Court of the District, but the
regulations of the forty-ninth section of the act afford a
satisfactory answer to that objection, which is all that need be
said upon the subject. Want of notice of the appeal comes too late
after a general appearance, but the record shows that the appeal
was duly claimed and that the appellant filed his appeal bond in
open court and that the same was duly approved by the chief justice
who presided at the hearing when the final decree was entered in
the cause.
Strangers to the proceedings in bankruptcy, not served with
process and who have not voluntarily papered and become parties to
such a litigation, cannot be compelled to come into court under a
petition for a rule to show cause, as in this case, nor is the
exercise of such a jurisdiction necessary, as the third clause of
the second section of the Bankrupt Act affords the assignee a
convenient, constitutional, and sufficient remedy to contest every
adverse claim made by any person to any property or rights of
property transferable to, or vested in, such assignee.
Decree reversed and cause remanded for further proceedings
in conformity to the opinion of this Court.
[
Footnote 1]
14 Stat. at Large 517.
[
Footnote 2]
12 Stat. at Large 762.
[
Footnote 3]
14 Stat. at Large 541.
[
Footnote 4]
12
id. 763.
[
Footnote 5]
14 Stat. at Large 518;
Morgan v.
Thornhill, 11 Wall. 65.
[
Footnote 6]
Knight v. Cheney, 5 N.B.R. 309.
[
Footnote 7]
Knight v. Cheney, 5 N.B.R. 310.
[
Footnote 8]
Ex Parte Bacon, 2 Molloy 441.
