U.S. Supreme Court STRATON v. NEW, 283 U.S. 318 (1931)

[Page 283 U.S. 318, 321]

creditors. The filing of the petition is an assertion of jurisdiction with a view to the determination of the status of the bankrupt and a settlement and distribution of his estate. This jurisdiction is exclusive within the field defind by the law, and is so far in rem that the estate is regarded as in custodia legis from the filing of the petition. Acme Harvester Co. v. Beekman Lumber Co., 222 U.S. 300, 32 S. Ct. 96. It follows that liens cannot thereafter be obtained nor proceedings be had in other courts to reach the property, the district court having acquired the exclusive right to administer all property in the bankrupt's possession. Lazarus, Michel & Lazarus v. Prentice, 234 U.S. 263, 34 S. Ct. 851; White v. Schloerb, 178 U.S. 542, 20 S. Ct. 1007; Murphy v. John Hofman Co., 211 U.S. 562, 29 S. Ct. 154; U. S. F. & G. Co. v. Bray, 225 U.S. 205, 32 S. Ct. 620; Hebert v. Crawford, 228 U.S. 204, 33 S. Ct. 484. It may inquire into the validity of liens, marshal them, and control their enforcement and liquidation. Isaacs v. Hobbs Tie & Timber Co., 282 U.S. 734, 51 S. Ct. 270, and authorities cited; Whitney v. Wenman, 198 U.S. 539, 25 S. Ct. 778; Remington, Bankruptcy (3d Ed.) 2472

Though a lien be not discharged by bankruptcy, its owner may not, without the bankruptcy court's permission, institute proceedings in a state court to enforce it, since his so doing might interfere with the orderly administration of the estate. Thus a mortgagee will be restrained from instituting or proceeding further in a foreclosure action, begun after the date of the petition in bankruptcy. [Footnote 1] And a creditor holding a valid judgment

[Page 283 U.S. 318, 322]

more than four months old will be enjoined from enforcing its lien by suit brought after the date of the petition. [Footnote 2] And as the lien created by a judgment entered within four months in avoided, the court of bankruptcy has jurisdiction to administer the property regardless of the lien and will restrain the prosecution of an action to enforce it. [Footnote 3]

[Page 283 U.S. 318, 326]

Following these cases the federal courts have with practical unanimity held that where a judgment which constitutes a lien on the debtor's real estate is recovered more than four months prior to the filing of the petition, the bankruptcy court is without jurisdiction to enjoin the prosecution of the creditor's action, instituted prior to the filing of a petition in bankruptcy, to bring about a judicial sale of the real estate. [Footnote 6]

[Page 283 U.S. 318, 327]

The trustee in bankruptcy may intervene in such suits of protect the interests of the estate. [Footnote 7]

[Page 283 U.S. 318, 328]

statutory action in the state court is, in fact, an insolvency proceeding. The certificate states no facts which lead to such a conclusion, nor does it so denominate the creditors' suit. Reference to the statutes of West Virginia, of which we take judicial notice, demonstrates that it is not in that category.

In that State a judgment is a lien on the debtor's real estate as against all except bona fide purchasers for value without notice, and as against the latter from the date of docketing it in the county where the land lies. [Footnote 8] The debtor's real estate cannot be sold under execution. In re McGraw (D. C.) 254 F. 442. The plaintiff must resort for enforcement of his judgment against real estate to such a proceeding as is described in the certificate. [Footnote 9] He may do so without exhausting his legal remedies, as against personal property. [Footnote 10] The statute provides for a course of procedure such as is described in the certificate,-namely, that the liens and the debtor's real estate shall be determined by a commissioner appointed by the court and, if

[Page 283 U.S. 318, 330]

of West Virginia, which has held that the action is merely one to enforce liens, and that where the bankruptcy of the debtor occurred six months after its institution, it need not be stayed, since the state court which had first acquired jurisdiction was entitled to proceed to final decree. Abney-Barnes Co. v. Davy-Pocahontas Coal Co., 83 W. Va. 292, 98 S. E. 298.

It is suggested that the commissioners appointed by the state court were in effect receivers, and it was stated in argument that they did not qualify by giving bond until within four months of the filing of the petition in bankruptcy, and that therefore the state court action should be enjoined and the property taken into possession of the bankruptcy court. But as above said, the statute of West Virginia merely substitutes these commissioners for the usual judicial officer who makes a sale and reports the result thereof to the court. [Footnote 12]

Assuming them to be receivers, their function is not that of an officer charged with winding up the affairs of the debtor, such as would cause a conflict with the bankruptcy law. [Footnote 13] Moreover, we find nothing in the certificate to the effect that the commissioners had not qualified more than four months prior to the filing of the petition in the bankruptcy court.

[Page 283 U.S. 318, 332]

these cases are contrary to the decisions of this Court and to the great weight of federal authority.

The question is answered, 'No.' Footnotes

Footnote 1 Isaacs v. Hobbs Tie & Timber Co., supra; In re Pittelikow (D. C.) 92 F. 901; In re Ball (D. C.) 118 F. 672; In re Jersey Island Packing Co. ( C. C. A.) 138 F. 625, 2 L. R. A. (N. S.) 560; In re Zehner (D. C.) 193 F. 787; In re Hasie (D. C.) 206 F. 789; George B. Matthews & Sons v. Webre Co . (D. C.) 213 F. 396, affirmed sub. nom. Pugh v. Loisel (C. C. A.) 219 F. 417, cert. denied 238 U.S. 631, 35 S. Ct. 793; McLoughlin v. Knop (D. C.) 214 F. 260; Cohen v. Nixon & Wright (D. C.) 236 F. 407; In re Larkin (D. C.) 252 F. 885; In re North Star Ice & Coal Co. (D. C.) 252 F. 301; In re U. S. Chrysotile Asbestos Co. (D. C.) 253 F. 294; In re Oswegatchie Products Corp. (C. C. A.) 279 F. 547; Brown Shoe Co. v. Wynne ( C. C. A.) 281 F. 807; First Trust Co. v. Baylor (C. C. A.) 1 F.(2d) 24; In re Dyer (D. C.) 8 F.(2d) 376; Allebach v. Thomas (C. C. A.) 16 F. (2d) 853; In re Holstein Harvey, Inc. (D. C.) 26 F.(2d) 798.

Footnote 2 In re L'Hommedieu (C. C. A.) 146 F. 708; In re Arden (D. C.) 188 F. 475; In re Schow (D. C.) 213 F. 514.

Footnote 3 Clarke v. Larremore, 188 U.S. 486, 2 S. Ct. 363; In re Albright (D. C.) 18 F.(2d) 591; Remington, Bankruptcy (3d Ed.) 1905.

Footnote 4 U. S. C., tit. 11, 107(f), 11 USCA 107(f).

Footnote 5 In re Wood (D. C.) 95 F. 946; In re L'Hommedieu (C. C. A.) 146 F. 708; In re Koslowski (D. C.) 153 F. 823; In re Torchia (D. C.) 185 F. 576; In re Randolph (D. C.) 187 F. 186; In re Zeis (C. C. A.) 245 F. 737; In re Fraser (D. C.) 261 F. 558.

Footnote 6 White v. Thompson (C. C. A.) 119 F. 868; In re Koslowski (D. C.) 153 F. 823; In re Pilcher & Son (D. C.) 228 F. 13; In re Brinn (D. C.) 262 F. 527; In re Maddox (D. C.) 280 F. 227; In re Thompson (D. C.) 288 F. 385; In re Berlowe (D. C.) 7 F.(2d) 898; Wilkinson v. Goree (C. C. A.) 18 F.(2d) 455; In re Van Blokland (D. C.) 20 F.(2d) 1016; In re Conservative Mtg. & Guaranty Co. (C. C. A.) 24 F.(2d) 38; Whitney v. Barrett (C. C. A.) 28 F.(2d) 760. Compare Blair v. Brailey (C. C. A.) 221 F. 1; Brown Shoe Co. v. Wynne (C. C. A.) 281 F. 807. See, also, Hillyer v. LeRoy, 179 N. Y. 369, 72 N. E. 237, 103 Am. St. Rep. 919. Contra: In re Baughman (D. C.) 138 F. 742. It is also well settled that where an attachment is levied more than four months prior to bankruptcy, the prosecution of the claim to judgment and sale within the four months will not be enjoined or the sale set aside. In re Blair (D. C.) 108 F. 529; In re Beaver Coal Co. (D. C.) 110 F. 630; In re Snell (D. C.) 125 F. 154; In re Kane (D. C.) 152 F. 587; In re Crafts-Riordon Shoe Co. (D. C.) 185 F. 931; In re Shinn (D. C.) 185 F. 990; Yumet & Co. v. Delgado (C. C. A.) 243 F. 519; Griffin v. Lenhart (C. C. A.) 266 F. 671; In re Norris (D. C.) 283 F. 860; In re Houtman (D. C.) 287 F. 251; In re Thompson (D. C.) 288 F. 385; Gatell v. Millian (C. C. A.) 2 F.( 2d) 365. Contra: In re U. S. Graphite Co. (D. C.) 161 F. 583. On similar grounds the bankruptcy courts refuse to enjoin the prosecution of foreclosure proceedings under a mortgage, the lien of which is preserved in bankruptcy, if initiated prior to the date of the petition. Eyster v. Gaff, 91 U.S. 521; In re Gerdes (D. C.) 102 F. 318; Carling v. Seymour Lumber Co. (C. C. A.) 113 F. 483; In re McKane (D. C.) 152 F. 733; Sample v. Beasley (C. C. A.) 158 F. 607; In re Pennell (D. C.) 159 F. 500; In re Rohrer (C. C. A.) 177 F. 381; In re Wagner's Estate (D. C.) 206 F. 364; In re Schmidt (D. C.) 224 F. 814; American Trust & Sav. Bank v. Ruppe (C. C. A.) 237 F. 581; Duncan v. Girand (C. C. A.) 276 F. 554; Louisville Realty Co. v. Johnson (C. C. A.) 290 F. 176; In re Iroquois Utilities, Inc. (C. C. A.) 297 F. 397; Ft. Dearborn Trust & Sav. Bank v. Smalley (C. C. A.) 298 F. 45; In re Smith, (D. C.) 3 F.(2d) 40; In re Gillette Realty Co. (C. C. A.) 15 F.(2d) 193; In re Hurlock (D. C.) 23 F.(2d) 500; In re Simpson (D. C.) 31 F.(2d) 317; Bushong v. Theard (C. C. A.) 37 F.(2d) 690, certiorari denied 281 U.S. 763, 50 S. Ct. 461; In re Marts (D. C.) 38 F.(2d) 283. Contra: In re Dana (C. C. A.) 167 F. 529; In re Kaplan (D. C.) 144 F. 159; First Savings Bank v. Butler ( C. C. A.) 282 F. 866.

Footnote 7 Section 11b, U. S. C., tit. 11, 29 (11 USCA 29(b); In re Porter ( D. C.) 109 F. 111; In re New England Breeders' Club (D. C.) 175 F. 501; In re Kearney Bros. (D. C.) 184 F. 190.

Footnote 8 Code (Va.) 1849, c. 186, 6; Code (Va.) 1860, c. 186, 6; Code 1868, c. 139, 5; 1882, c. 126, 5; Code 1923, c. 139, 5; Code 1931, 38-3-6; In re McGraw (D. C.) 254 F. 442. And execution is not needed to make the judgment such a lien. Maxwell v. Leeson, 50 W. Va. 361, 40 S. E. 420, 88 Am. St. Rep. 875.

Footnote 9 'The lien of a judgment may be enforced in a court of equity after an execution or fieri facias thereon has been duly returned to the office of the court or to the justice from which it issued showing by the return thereon that no property could be found from which such execution could be made: Provided, That such lien may be enforced in equity without such return when an execution or fieri facias has not issued within two years from the date of the judgment.' Code 1849 (Va.) c. 186, 9; Code (Va.) 1860, c. 186, 9; Code 1868, c. 139, 8; 1872, c. 30; 1882, c. 126, 7; 1891, c. 95, 7; Code 1923, c. 139, 7; Code 1931, 38-3-9.

Footnote 10 Price v. Thrash, 30 Grat. (71 Va.) 515. (The statutory provision of West Virginia is taken from that of Virginia: Code (Va.) 1849, p. 709, c. 186, 9.)

Footnote 11 The bill in Metcalf v. Barker was a true creditors' bill, seeking to make available to a judgment creditor assets which could not be reached by an execution at law. Jones v. Green, 1 Wall. 330; Dunphy v. Kleinschmidt, 11 Wall. 610, 614; Taylor v. Bowker, 111 U.S. 110, 116, 4 S. Ct. 397; National Tube Works Co. v. Ballou, , 13 S. Ct. 165. The bill in this case assumes the existence of the lien on the property and is a mere measure to enforce it.

Footnote 12 Code (Va.) 1860, c. 178; Acts 1882, c. 142; 1899, c. 49; 1903, c. 15; 1915, c. 76. Code 1923, c. 132; Code 1931, 55-12-1. See In re McGraw, supra.

Footnote 13 See In re Smith (D. C.) 92 F. 135; In re Lengert Wagon Co. (D. C.) 110 F. 927; In re Storck Lumber Co. (D. C.) 114 F. 360; In re F. A. Hall Co. (D. C.) 121 F. 992; In re Salmon & Salmon (D. C.) 143 F. 395; In re Weedman Stave Co. (D. C.) 199 F. 948.

Footnote 14 See Note 6, supra.