Chapman v. Brewer/Opinion of the Court

The principal question considered by the circuit court, as appears from its opinion accompanying the record, was whether, the judgment and levies in the suit in the state court being prior to the appointment of the assignee in bankruptcy, although that suit was not begun till after the first petition in bankruptcy was filed, the circuit court had authority to enjoin a sale of the lands on the executions. The appellant take the points that nothing appears to have been done under the first petition in bankruptcy; that no order appears to have been made or notice given thereon; that the second petition was a new petition, and does not profess to be, and was not, an amended petition, and was not filed under any order authorizing it as an amendment; and that the adjudication recites the date of filing of the petition as October 19th, instead of October 10th. The questions presented here by the appellant are (1) whether the alleged cloud on the plaintiff's title was a proper ground for equitable jurisdiction; (2) whether the circuit court had authority to interfere with the proceedings of the state court; (3) whether the assignee should not have made himself a party to the proceedings in the state court, or have intervened therein; (4) whether the bill and the proof correspond, and whether the bill is adapted to contest the validity of such lien as arose by virtue of the attachment.

All the bankruptcy proceedings, except the appointment of the assignee, and the assignment to him, and all the proceedings in the suit in the state court, except the issuing and levy of the second execution, took place before the enactment of the Revised Statutes on the twenty-second of June, 1874. The Revised Statutes purport to re-enact the statutes in force on December 1, 1873. At the latter date none of the proceedings in bankruptcy had taken place save the filing of the first petition, and the state court proceedings had not been begun.

The bankruptcy act in force on December 1, 1873, was the act of March 2, 1867, c. 176 (14 St. 517,) the fourteenth section of which provided that the assignment to an assignee in bankruptcy 'shall relate back to the commencement of said proceedings in bankruptcy, and thereupon, by operation of law, the title to all such property and estate, both real and personal, shall vest in said assignee, although the same is then attached on mesne process as the property of the debtor, and shall dissolve any such attachment made within four months next preceding the commencement of said proceedings.' The provision of section 5044 of the Revised Statutes is that the assignment 'shall relate back to the commencement of the proceedings in bankruptcy, and by operation of law shall vest the title to all such property and estate, both real and personal, in the assignee, although the same is then attached on mesne process as the property of the debtor, and shall dissolve any such attachment made within four months next preceding the commencement of the bankruptcy proceedings.' Under these provisions, if the bankruptcy proceedings were commenced October 10, 1873, they were begun before the state court attachment was made, and the assignment, when made, related back to October 10, 1873, and vested title in the assignee as of that date, and overreached and defeated all claim under the attachment. Bank v. Sherman, 101 U.S. 403; Conner v. Long, 104 U.S. 228. If the bankruptcy proceedings were not begun till March 5, 1874, the attachment, having been made within four months next preceding that date, was dissolved by the making of the assignment, and the title of the assignee vested as of March 5, 1874, which was before any execution levy. In this view it would not be necessary to notice any of the objections made as to the first petition, or as to the second petition regarded as an amended petition, were it not that the bill is founded on the first petition. The date of October 19th in the adjudication must be regarded as a clerical or typographical error. The proper date is stated in the bill and admitted in the answer, and is stated in the clerk's certificate and in the bankruptcy assignment, and in a stipulation signed by the solicitors. Enoch C. Hoyt died February 25, 1874, before the second petition was filed, and the order made by the bankruptcy court, May 2, 1874, states that he had died 'since the commencement of the proceeding in said matter;' and it was that fact, in co nection, probably, with the fact that no order to show cause had been served on Enoch C. Hoyt, which made it necessary for that order to direct the marshal to surrender to the representatives of Enoch C. Hoyt all his individual property.

It is also objected by the defendant that the petition was filed against the firm, and that the record does not show that the petitioner filed any proof of his claim, or any proof of bankruptcy. By section 36 of the act of 1867, (section 5121 of the Revised Statutes,) where two persons, partners in trade, should be adjudged bankrupt, not only was the property of the firm to be taken and administered, but also the separate estate of each partner. When Enoch C. Hoyt died, the partnership estate vested in the survivor, and the proceedings were, by consent of attorneys then appearing for the survivor, ordered to stand against him as survivor, and to proceed against him as survivor. He appeared by attorney, and consented to an adjudication. By section 41 of the act of 1867, (section 5026 of the Revised Statutes,) the appearance and consent of the debtor were made a waiver of other notice. The adjudication states that, on consideration of the proofs, it was found that the facts set forth in the petition were true. It was not necessary to show in this case what the proofs were. If the district court had jurisdiction of the subject-matter, and the bankrupt voluntarily appeared, and the adjudication was correct in form, it is conclusive of the fact decreed, and can be impeached only by a direct proceeding in a competent court, and can no more be attacked collaterally in a suit like the present than any other judgment. Michaels v. Post, 21 Wall. 398. The adjudication and the assignment embraced the individual property of Benjamin C. Hoyt; and it is alleged in the bill, and admitted in the answer, that the property levied on by the defendants was his individual property.

These views cover all the objections made to the bankruptcy proceedings, and it must be held that the adjudication was regular and valid, and refers to, and was made on, the first petition, as amended by the second, and on a proceeding commenced when the first petition was filed.

It is objected that the bill makes no mention of the attachment. But the answer sets up the attachment and the levy thereunder. The question as to whether a priority of right was acquired thereby was raised by the pleadings, and the decree makes no reference to the attachment, but annuls the execution levies. By section 2 of the act of 1867, the circuit court of the district has jurisdiction of all suits in equity brought by an assignee in bankruptcy against any person claiming an adverse interest touching any property of the bankrupt transferable to or vested in the assignee. This provision is re-enacted in section 4979 of the Revised Statutes. By section 720 of the Revised Statutes it is provided that 'the writ of injunction shall not be granted by any court of the United States, to stay proceedings in any court of a state, except in cases where such injunction may be authorized by any law relating to proceedings in bankruptcy.' It is contended for the appellant (1) that a suit in equity will not lie for the relief granted; (2) that, at all events, there was no power to award the injunction.

That the defendant claimed an adverse interest touching the property is clear. The question is whether the plaintiff can have relief in equity. He was in possession of the land, and, as he says, of the only building there was on it. By statutory provisions in Michigan, commencing with section 29 of the act of April 23, 1833, (Code 1833, p. 358,) followed by section 1 of the act of March 28, 1840, (No. 76, p. 127,) and the Revised Statutes of 1846, (title 21, c. 90, § 36, p. 360,) and now in force as section 6626 of Howell's Statutes, 'any person having the actual possession of, and legal or equitable title to, lands, may institute a suit in chancery against any other person etting up a claim thereto in opposition to the title claimed by the complainant, and, if the complainant shall establish his title to such lands, the defendant shall be decreed to release to the complainant all claim thereto.' If there should be a sale on the executions, there would be a sheriff's deed; and, by another statute of the state, such deed is made prima facie evidence of the regularity of the sale. Act February 19, 1867, No. 20, § 2, now in force as section 5678 ofHowell's Statutes. It is held by the supreme court of Michigan that the statute first cited covers a claim of a lien on land, and that a lien which may result in a sale and a deed constitutes such a cloud that equity will afford relief. Scofield v. City of Lansing, 17 Mich. 437, 447, 448. Especially will this be done, if the lien is not void on its face, as the lien here is not, but is a cloud on the plaintiff's title. Therefore, the plaintiff could obtain, under the Michigan statute, and in a court of Michigan, the relief he has had. In such a case, a circuit court of the United States, having otherwise jurisdiction in the case, will, as a general rule, administer the same relief in equity which the state courts can grant. Clark v. Smith, 13 Pet. 195, 203; Case of Broderick's Will, 21 Wall. 503, 519, 520; Van Norden v. Morton, 99 U.S. 378, 380; Cummings v. National Bank, 101 U.S. 153, 157; Holland v. Challen, 110 U.S. 15; S.C.. 3 SUP. CT. REP. 495; Reynolds v. Crawfordsville Bank, 112 U.S. 405; S.C.. ante, 213. It has general power given to it, irrespective of citizenship, to grant equitable relief, in a suit in equity by an assignee in bankruptcy against any person who claims an adverse interest touching the assigned property.

We are not disposed, however, to rest the case upon jurisdiction arising from the Michigan statute. We hold that, under the equity jurisdiction conferred by the bankruptcy act, the circuit court had authority to remove this cloud on the plaintiff's title. It was the duty of the assignee to remove it, and to obtain a title which would enable him to sell the land for the benefit of the estate. The claim of the defendants, under the levies, is one which ought not to be enforced. It has no validity as against the rights of the plaintiff; it throws a cloud on his title; he is in possession, and cannot sue at law; and the papers supporting the defendant's claim are not void on their face. Story, Eq. Jur. §§ 700, 705; 3 Pom. Eq. Jur. §§ 1398, 1399, and cases cited; Pettit v. Shepherd, 5 Paige, 493; Carroll v. Safford, 3 How. 463; Ward v. Dewey, 16 N. Y. 519; Mustian v. Jones, 30 Ga. 951; Martin v. Graves, 5 Allen, 601; Stout v. Cook, 37 Ill. 283; Clouston v. Shearer, 99 Mass. 209; Sullivan v. Finnegan, 101 Mass. 447; Anderson v. Talbot, 1 Heisk. 407; Marsh v. City of Brooklyn, 59 N. Y. 280; O'Hare v. Downing, 130 Mass. 16, 19. In Pettit v. Shepherd it was held that a court of chancery might interpose to prevent the giving of a conveyance, under pretense of right, which would operate as a cloud upon the title to real estate. In O'Hare v. Downing it is said that 'a court of chancery will restrain by injunction a threatened levy of execution upon real estate which is not legally subject to such a levy, and thus prevent a cloud upon the title, without compelling the owner of the land to wait until the levy has been completed, and then admit himself to be disseized, in order to maintain a writ of entry.' Much more will it prevent a sale after a levy.

But it is contended that the circuit court had no authority to award or issue the injunction. The jurisdiction of that court in this case is conferred by the 'law relating to proceedings in bankruptcy;' and we think the injunction was authorized by that law. The court of bankruptcy was authorized, (section 5024 of the Revised Statutes,) where a petitio in involuntary bankruptcy was filed, to restrain all persons by injunction from interfering with the debtor's property. The jurisdiction of suits in equity, given to the circuit court by section 2 of the act of 1867, (section 4979 of the Revised Statutes,) was given to it concurrently with the district courts. It must be held that congress, in authorizing a suit in equity, in a case like the present, has, in order to make the other relief granted completely effective, authorized an injunction, as necessarily incidental and consequent, to prevent further proceedings under the levies already made and new levies under the judgment. But for the supposed inhibitory force of section 720, a court of equity, in granting on the merits the other relief here granted, would necessarily have power to award the injunction. We think the circuit court was authorized to award it here, within the exception in section 720.

It is urged that the plaintiff should have made himself a party to the proceedings in the state court, and have contested the matter there, under the authority given to him by section 14 of the act of 1867, (section 5047 of the Revised Statutes,) to defend suits pending against the bankrupt at the time of the adjudication. As the assignment in bankruptcy was not made till October, 1, 1874, and the judgment and the levy under the first execution were in May, 1874, we do not think the assignee was called upon to take any steps in the state court, after the assignment, to obtain relief. He was entitled to pursue the remedy he did.

The cases of Krippendorf v. Hyde, 110 U.S. 276, S.C.. 4 SUP. CT. REP. 27, and Covell v. Heyman, 111 U.S. 176, S.C.. 4 SUP. CT. REP. 355, are relied on by the appellant to show that the decree in this case was erroneous. The view urged is that, by virtue of the levy by the sheriff, the state court acquired custody, control, and jurisdiction of the property, which could not be disturbed by the circuit court. But the doctrine of those cases has no application in favor of the appellant in a case like the present. In the first case it was held that after property had been attached by a marshal of the United States, on mesne process from a circuit court of the United States, a third person, claiming its ownership, could, without reference to citizenship, come into the circuit court for redress, by ancillary proceedings. In the second case it was held, in pursuance of the decision in Freeman v. Howe, 24 How. 450, that possession of property by a marshal of the United States, under a writ of execution from a circuit court of the United States, could not be disturbed by virtue of a writ of replevin from a state court, issued by a third person. E converso, as was held in Taylor v. Carryl, 20 How. 583, property seized by a sheriff, under process of attachment from a stae court, cannot be taken from the sheriff by initial admiralty process, issuing from a district court of the United States. But those were none of them cases where, under the bankruptcy act, an assignee in bankruptcy claimed a paramount title, and resorted to regular judicial proceedings to first vacate and declare void the adverse title, and sweep it away, and then have such final process in regard to the subject-matter of the title as should be necessary to make the decree effective. And in Covell v. Heyman, the court, speaking by Mr. Justice MATTHEWS, after explaining the point of the decision in Freeman v. Howe, says: 'The same principle protects the possession of property, while thus held by process issuing from state courts, against any disturbance under process of the courts of the United States, excepting, of course, those cases wherein the latter exercise jurisdiction for the purpose of enforcing the supremacy of the constitution and laws of the United States.' This exception includes the present case. The bankruptcy proceeding dissolved the state attachment, and the bankruptcy act conferred on the assignee a paramount title, which he was empowered by that act to enforce, by proper equitable remedies, in the circuit court, against the adverse title set up by virtue of the suit in the state court. Decree affirmed.