Cragin v. Thompson

6 F. Cas. 708, 2 Dill. 513

• Court: U.S. Circuit Court for the District of Iowa
• Decided: July 1, 1873
• Status: Published

Opinion

DILLON, Circuit Judge.

As this case '■ comes here on a writ of error, only questions of law can be reviewed. The sole question ■ of law presented by the record is, whether, : assuming the truth of the facts specially found by the district court, the defendant. is personally liable to the assignee in bank- : ■ruptey for the value of the property he received from the Messrs. Stern. The material facts are these: The assignment to the defendant under the statute of Iowa, ; and the defendant’s qualification as such assignee by filing in the state court the req- ' uisite bond, and his possession of the assigned property under the deed of assignment, all preceded the initiation of proceedings against the assignors under the bankrupt act. After the adjudication the assignee in bankruptcy demanded of the defendant the property, which he refused to surrender. To compel such surrender summary proceedings were instituted in the federal district court, but were subsequently dismissed in order ’that the present action might be brought, which was commenced therein February 24, 1872. Meanwhile, however, acting under the orders of the state district court, the defendant had sold the property assigned to him, and had distributed the proceeds under the orders of that court. This was before the present action was brought. The fact is expressly found that the defendant acted in good faith, that he had no interest in the assignment and derived no benefit from it, and that he pursued the state law and paid over the proceeds of all property which came to his hands under the orders of the state court to the creditors who proved their debts under the assignment. Under these circumstances the question for decision is, whether the defendant is personally liable to the assignee in bankruptcy for the value of the property" assigned to him, or its proceeds;

1. It has been decided in this circuit that a voluntary assignment by a debtor, under state laws, though free from fraud in fact and embracing all of his property, and made for the benefit of all of his creditors, is. an act of bankruptcy within the meaning of the bankrupt law [of 1807 (14 Stat. 522)]. In re Burt [Case No. 2,210]; Hobson v. Markson [Id. 6,555], The assignee in bankruptcy is entitled, as against the assignee under the state law, to the possession and control of the estate. So far there can be no doubt.

2. I am of opinion that while such an assignment is an act of bankruptcy, the assignment itself is not absolutely void ab initio, but only subject to be avoided by proceedings taken under the bankrupt act. If the assignors are adjudicated bankrupts, the property assigned passes to, and becomes vested in, the assignee in Dankruptcy, and he is entitled to its possession so that it may be used by him to pay the debts which shall be proved against the estate in the bankruptcy court. The proceedings under the state law which contemplates that creditors shall there prove their debts and receive dividends are inconsistent with the proceedings under the bankrupt act, which requires all assets to be administered and all debts established in the bankruptcy court. There cannot be two concurrent administrations of the same estate, and of course the state enactment must give way in cases where it is brought into collision with the bankrupt act.

If the present action were against the creditors who received dividends under the assignment, there could, as it now seems to me, be little or no doubt as to their liability. But is the defendant liable, since he had no property in his possession when this action was brought, and had. before that time, paid over in good faith all the proceeds of the assigned property under the orders of the state court? It is my judgment that the defendant should not, under these circumstances, be held personally liable. It is not necessary so to hold in order to prevent the bankrupt act from being evaded or its operation defeated. One plain remedy for the as-signee in bankruptcy was to apply to the state court which, down to the adjudication of bankruptcy, at all events, if not after-wards, was rightfully exercising its jurisdiction over the assigned estate, and ask for an order upon the assignee under the state law, to surrender the estate to him. If improperly denied, the assignee in bankruptcy would have a remedy by appeal to the supreme court of the state, whose, final judgment, if against him, would be subject to revision by the supreme court of the United States. I do not say, nor in this case is it necessary to affirm, that this would be the only remedy of the assignee in bankruptcy. If the property whose value is sought in this case were still in the hands of the defendant, it may be that he would be liable in respect to it if he should refuse to surrender it to the assignee in bankruptcy. This would depend upon the question, whether, after the adjudication of bankruptcy and the appointment of an assignee (thus superseding the rightfulness in law of any further administration under the state statute), the property assigned was in the custody of the law, i. e. of the state court and its officer, the assignee under the state law.

NOTE [from original report]. See Marshal v. Knox (Sup. Ct. U. S. Dec. term, 1S72) 16 Wall. [36 U. S. 551]; Johnson v. Bishop [Case No. 7,373]; Peck v. Jenness, 7 How. [48 U. S.) 612.

I have strong doubts, notwithstanding the argument of the district judge, whether property in the hands of an assignee under the state law is in custodia legis after the adjudication of bankruptcy, so as to exempt such assignee from liability to the assignee in bankruptcy or from proceedings in the federal courts to protect the rights of creditors under the bankrupt act. If the state as-signee should surrender the property, he ought to be protected in so doing by the state court, but if it denied him such protection he could take the case, if necessary, to the supreme court of the United States. On the other hand, if the mere making of a voluntary assignment under the state laws withdraws the property and the assignee wholly from the operation of the bankrupt act and the machinery it has provided for the collection and distribution of assets under the supervision of the court it has established for that purpose, the bankrupt act would, to this important extent, seem easy of evasion. But I do not need to pursue the subject further or inquire what remedies the assignee in bankruptcy would have under other circumstances. What I hold is, that under the special findings of the district court — which not only exonerated the defendant from bad faith, but affirmatively found that he acted in good faith and under the orders of the state court, whose jurisdiction and right to act were in no way questioned therein by the assignee in bankruptcy —the defendant is not personally liable to the present plaintiff. He must now seek his remedy against those who have received payments from the defendant in contravention of the bankrupt act Affirmed. •