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conceding the “traders' insolvent" law to be superseded and made void by the bankrupt law, that the state court had jurisdiction of the suit as one to foreclose a mortgage, and to appoint a receiver of the property covered by the mortgages.
The bankrupt act was unquestionably designed by the congress to secure the possession of the property of the bankrupt for administration under the proceedings in bankruptcy. The district court has authority, under paragraph 3 of section 2, to appoint receivers, or the marshals, upon application of parties in interest, in case the court shall find it absolutely necessary, for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition, and until it is dismissed or the trustee appointed. Other provisions are in the act for the recovery of the bankrupt's property by the trustee when appointed. By authority so conferred, the district court, in a proper case, may direct the marshal, under summary process, to seize the property of the bankrupt in the hands of third persons claiming to own it (Sharpe v. Doyle, 102 U. S. 686, 26 L. Ed. 277; Feibelman v. Packard, 109 U. S. 421, 3 Sup. Ct. 289, 27 L. Ed. 984); may compel the return of property of the bankrupt illegally taken out of the possession of the referee in bankruptcy (White v. Schloerb, 178 U. S. 542, 20 Sup. Ct. 1007, 44 L. Ed. 1183); and may take property from the possession of the purchaser from the assignee of the bankrupt under a general assignment (Brvan v. Bernheimer, 181 U. S. 188, 21 Sup. Ct. 557, 45 L. Ed. 814). But it has not been held that property of the bankrupt in the hands of a receiver of a state court having jurisdiction can be so taken out of his possession. It is indicated in Moran v. Sturges, 154 U. S. 256, 283, 14 Sup. Ct. 1019, 38 L. Ed. 981, that the federal courts, in the exercise of their exclusive jurisdiction to enforce maritime liens, will not interfere with the actual possession of a state court. It was there said: "When its [the state court's] jurisdiction has determined, the admiralty courts may proceed." However this may be in cases of the exclusive jurisdiction of the federal courts, it is clear, on precedent and principle, that the federal courts will not interfere with the actual possession of a state court, through its receiver, of mortgaged property, in a case where the state court has jurisdiction to foreclose the mortgage. The case of Davis v. Railroad Co., I Woods, 661, Fed. Cas. No. 3,648, decided on circuit by Mr. Justice Bradley, is directly in point, so far as it applies to the property covered by the mortgages sought to be foreclosed in the state court. It was there held that a receiver in possession of mortgaged property under order of a state court of chancery, in proceedings for foreclosure begun prior to the commencement of proceedings in bankruptcy, cannot be dispossessed by order of the district court in the bankruptcy proceedings; "that a proceeding to enforce a mortgage or other specific lien involves the right of property, and possession in pursuance thereof, legally or judicially taken, before proceedings in bankruptcy, cannot be interrupted by those proceedings.” This proposition is sustained by Eyster v. Gaff, 91 U. S. 521, 23 L. Ed. 403; for it is there decided that the foreclosure suit may proceed notwithstanding the proceedings in bankruptcy, and that the purchaser at the foreclosure sale will obtain a good title.
The orders made by the bankruptcy court which are under review were made on the theory that the proceeding in the state court was based alone on the insolvent traders' act, and that the appointment of the receiver was void. These orders, in effect, require the receiver of the state court to surrender to the marshal all of the property held by him as receiver. Part of this property, but not all of it, is covered by the mortgages sought to be foreclosed in the state court. rate questions are raised as to the property not mortgaged. The orders made by the bankruptcy court which are submitted for review and revision relate to all the property held by the receiver.
A receiver or trustee, when appointed in the bankruptcy proceedings, wliile not entitled to the mortgaged property, will be entitled to any excess arising from the foreclosure sale, when made by order of the state court after the payment of the mortgages and costs of foreclosure. He will also be entitled, when appointed, to the possession of the choses in action and the other property in the hands of the state court's receiver which is not covered by the mortgages. The bankrupt law is equally binding on the state and the federal court, and we cannot doubt that the former will, on proper application, give full effect to it. Where assets are in the hands of the receiver of one court which legally and equitably belong to the trustee or receiver appointed by another court, comity requires, as a general rule, that application should be made for a proper order to the former court whose officer has possession of the property. This rule is reciprocal between the federal and state courts, each respecting the possession of the other. Hagan v. Lucas, 10 Pet. 400, 9 L. Ed. 470; In re Tyler, 149
C. S. 164
The jurisdiction and authority of the bankruptcy court for the enforcement of the bankrupt law is paramount. State insolvency laws are superseded by the bankrupt act. While it is a general rule that a iederal court may not enjoin proceedings in a state court, an exception is made in cases where such injunction may be authorized by any law relating to proceedings in bankruptcy. Rev. St. U. S. § 720. When the state court is in possession, through its receiver, of assets that it is without jurisdiction or authority to hold against a receiver or trustee appointed in bankruptcy proceedings, instead of making a peremptory order on the receiver of the state court to surrender the funds, an injunction, if necessary, might be granted by the bankruptcy court to prevent the unlawful distribution of the assets, until application could be made to the state court for an order to its receiver to surrender the assets to the proper custodian. The laws of the United States being equally binding on all the courts, we cannot assume that the state court would refuse to administer them. We are not now called on to decide what course should be taken in the event of a disregard of the bankrupt law by the state court. That such application should be made in the first instance to the state court is sustained, not only by the analogous cases relating to comity, but by adjudications directly in point on this question of practice under the bankrupt law. Mauran v. Carpet-Lining Co. (R. I.) 50 Atl. 331 ; In re Lesser (D. C.) 109 Fed. 433, 439; In re Kersten (D. C.) 110 Fed. 929, 931 ; In re Lengert Wagon Co. (D. C.) 110 Fed. 927; Ex parte Waddell, Fed. Cas. No.
17,027; In re Seebold, 45 C. C. A. 117, 105 Fed. 910; Scheuer v. Stationery Co., 50 C. C. A. 312, 112 Fed. 407.
The judgments of the court of bankruptcy rendered December 6, 1901, and December 7, 1901, are reversed.
NOTE 1. Georgia Code 1893-Insolvent Traders. “Section 2716 (3149a). Receiver for Insolvent Trader. In case any corpora. tion not municipal, or any trader, or firin of traders, shall fail to pay, at maturity, any one or more matured debts, payment of which has been properly demanded of such debtor, and by him refused, and shall be in. solvent, it shall be in the power of a court of equity, under a creditor's petition, to which one or more creditors, representing one-third in amount of the unsecured debt of such insolvent corporation, trader, or firm of traders, whose debts are matured and unpaid, shall be necessary parties, to proceed to collect the assets, real and personal, including choses in action and money, and appropriate the same to the creditors of such trader, firm of traders, or corporation.
"Sec. 2717 (3149b). Chancellor's Power in Such Cases. The chancellor, under such proceedings as are usual in equity, may grant injunctions, and appoint receivers for the collection and preservation of the assets in the cases provided by this chapter, and may at any time appoint an auditor and take all proper steps to bring the matter to a final hearing.
“Sec. 2718 (3149c). Who May Be Parties. Any creditor may become a party to said petition, under an order of the court, at any time before the final distribution of the assets, he becoming chargeable with his proportion of the expenses of the previous proceedings.
"Sec. 2719 (3149d). No Preferences; Assets, How Distributed. Upon the appointment of a receiver, no creditor shall acquire any preference, by any judgment or lien, on any suit or attachment, under proceedings commenced after the filing of the petition, and all assignments and mortgages to pay or secure existing debts made after the filing of said petition shall be ra(ated, and the assets be divided pro rata among the creditors, preserving all existing liens.
"Sec. 2720 (3149e). Allowance for Defendant's Support. It shall be in the power o! the judge to make a suitable allowance for the defendant for a support during the pendency of the proceedings, having in so doing respect to the condition of the defendant and the circumstances of the failure.
“Sec. 2721 (31498). Who is a Trader. Any person or firm shall be considered a trader who is engaged, as a business, in buying and selling real or personal estate of any kind, or who is a banker or broker or commission merchant, or manufacturer manufacturing articles to the extent of five thousand dollars per annum.
"Sec. 2722 (3149g). Chancellor may Recommend Debtor's Releasc. It shall be in the power of the chancellor, in his final judgment in the cases provided for, to express his opinion, if the facts autiorize it, that, from the facts as they have transpired during the progress of the cause, the defendant has honestly and fairly delivered up his assets for distribution under the law, and to recommend to the creditors of the defendant that they release him from further liability."
Effect of National Bankruptcy Act on State Insolvency Laws and
on Assignments for Creditors. 1. Validity of State Insolvency Laws. 2. State Insolvency Laws Suspended by National Bankruptcy Law. 3. Same What State Laws Affected. 4. Same-Cases Not Covered by Bankruptcy Law. 5. Same-Laws Regulating Assigninents for Creditors. 6. Rights of Trustee in Bankruptcy as Against Assignee for Creditors. 7. Practical Effect of Suspension of State Insolvency Laws.
8. Pending Proceedings under State Laws. 1. Validity of State Insolvency Laws.
Insolvency laws may be passed by the several states, regulating the dis. tribution of the estates of insolvent debtors, on their own petition or on compulsory proceedings against them, and authorizing the discharge of debtors from their obligations and liabilities on just and reasonable terms. But these laws are subject to three important limitations: First, they cannot have any effective operation while a national bankruptcy law is in force. Whether the federal law is enacted before or after the passage of the state law, it suspends all state statutes on the same subject so long as it continues in effect. Second, state laws of this kind cannot apply to citizens of other states having claims against the debtor, for the state has no jurisdiction over them, unless they voluntarily submit their claims to the jurisdiction and agree to participate in the distribution of the estate. Third, such state laws cannot apply to contracts entered into before their enactment, for that would impair the obligation of such contracts. Ogden v. Saunders, 12 Wheat. 213, 6 L. Ed. 606; Baldwin v. Hale, 1 Wall. 223, 17 L. Ed, 531; Gilman v. Lockwood, 4 Wall. 409, 18 L. Ed. 432; Brown v. Smart, 145 U. S. 434, 12 Sup. Ct. 958, 36 L. Ed. 773; Hempsted v. Bank, 78 Wis. 375, 47 N. W. 627: Newton v. Hagerman (C. C.) 22 Fed. 525; Roberts v. Atherton, 60 Vt. 563, 15 Atl. 159, 6 Am. St. Rep. 133. Compare Orr v. Lisso, 33 La. Ann. 476. But the fact that the constitution vests in congress the exclusive power to enact bankruptcy laws uniform throughout the United States does not deprive the states of authority to make and enforce insolvency laws, until congress acts. "It is well settled that the power granted to congress by the constitution, to establish uniform laws on the subject of bankruptcies throughout the United States, does not, until the power is exercised and such laws are put into operation by congress, exclude the right of the states to pass similar laws; and that the operation of state insolvency laws is therefore superseded and suspended, so far, at least, as the two are applicable to the same persons, as soon as a national bankruptcy law has taken effect, and not before." Day V. Bardwell, 97 Mass. 246. See, also, Pettit v. Seaman, 2 Root, 178; Pugh v. Bussel, 2 Blackf. 394; Butler v. Goreley, 146 U. S. 303, 13 Sup. Ct. 84, 36 L. Ed. 981. 2. State Insolvency Laws Suspended by National Bankruptcy Law.
It is well settled that the passage of a national bankruptcy law by congress renders it the supreme law of the land, binding alike upon state and federal tribunals. All state insolvency laws in force at the time must yield to it, and can no longer operate upon persons or cases within the purview of the federal statute. The latter does not indeed repeal or destroy the state laws on the same subject, but it supersedes them and suspends their operation for the time being. Sturges v. Crowninshield, 4 Wheat. 122, 4 L. Ed. 529; Ogden v. Saunders, 12 Wheat. 213, 6 L. Ed. 606; Baldwin v. Hale, 1 Wall. 223, 17 1. Ed. 531; In re Bruss-Ritter Co. (D. C.) 90 Fed. 651; In re Etheridge Furniture Co. (D. C.) 92 Fed. 329; In re Richard (D. C.) 94 Fed. 633; In re Mallory, 1 Sawy. 88, Fed. Cas. No. 8,991; Ex parte Eames, 2 Story, 322, Fed. Cas. No. 4,237; In re Merchants' Ins. Co., 3 Biss. 162, Fed. Cas. No. 9,441; Hudson v. Bigham, 12 Heisk. 58; Rowe 1. Page, 51 N. H. 190; In re Reynolds, 8 R. I. 187, 5 Am. Rep. 615; Lavender's Lessee v. Gosnell, 43 Md. 153; Steelman v. Mattix, 36 N. J. Law, 344; Fisk v. Montgomery, 21 La. Ann. 446; Van Vostrand v. Carr, 30 Md. 128; Boese v. Locke, 53 How, Prac. 148; Com. v. O'Hara, 6 Phila. 402; Lumber Co. v. Sawyer, 76 Minn. 118, 78 N. W. 1038; Harbaugh v. Costello, 184 Ill. 110, 36 N. E. 363, 75 Am. St. Rep. 147; E. C. Wescott Co. v. Berry, 69 N. H. 305, 45 Atl. 352; Bank v. Ware, 95 Me. 388, 50 Atl. 24; Mauran v. Carpet Lining Co. (R. I.) 50 Atl. 331; Manufacturing Co. v. Hamilton, 172 Vass. 178, 51 N. E. 529, 70 Am. St. Rep. 258; In re Macon Sash, Door & Lumber Co. (D. C.) 112 Fed. 323. In the face of such an array of decisions, the very few cases holding a contrary view (such as Reed v. Taylor, 32 Iowa, 209, 7 Am. Rep. 180, and in re Scholtz [D. C.) 106 Fed. 834) are not entitled to any consideration. The reason for this rule is found in the inevitable conflict between two statutes affecting, for similar purposes, the same subjectmatter, the same property, the same rights, and the same persons. Since they could not subsist together without direct and positive collision, the federal law must prevail; for a valid act of congress is declared by the constitution to be the "supreme law of the land."
We have said that the bankruptcy act, while it suspends the operation of state insolvency laws, does not repeal or destroy them. Several important consequences follow from this doctrine. In the first place, no legislation by the state is necessary to put its insolvency law into abeyance during the life of the bankruptcy act, or to justify its courts in refusing to take jurisdiction of cases under such law; the suspension is accomplished by the mere supremacy of the act of congress and its paramount authority. Secondly, a state insolvency law which was in force at the time a national bankruptcy law was passed, or which has been enacted during the time the latter continues effective, is revived by the repeal of the federal statute, and at once resumes all its original force and operation, and this without any new legislation by the state. In other words, there is no necessity of re-enacting a state insolvency law; it did not cease to be a law of the state; and the repeal of the bankruptcy act suffices to remove the bar to its enforcement. Butler v. Goreley, 146 U. S. 303, 13 Sup. Ct. 84, 36 L. Ed. 981; Tua v. Carriere, 117 U. S. 201, 6 Sup. Ct. 50.5, 29 L. Ed. 855; In re Wright (D. C.) 95 Fed. 807; Lothrop v. Foundry Co., 128 Mass. 120; Ward v. Proctor, 7 Metc. (Mass.) 318, 39 Am. Dec. 782; Lavender's Lessee v. Gosnell, 13 Md. 153; Orr v. Lisso, 33 La. Ann. 476. Nor does the legislation of congress annul that of the state in any such sense that the state law may not be amended without re-enactment after its operation is revived by the repeal of the national law. Torrens v. Hammond, 4 Hughes, 396, 10 Fed. 900. So also, where the court of bankruptcy refuses to grant a discharge to a bankrupt before it, his creditors, after the repeal of the bankruptcy law, may take proceedings against him under the state insolvency law and prove their debts against his estate. Fisher v. Currier, 7 Metc. (Mass.) 424. And again, a state insolvency law, suspended during the operation of a national bankruptcy law and revived by its repeal, may take cognizance of all acts within its provisions done while it was so suspended, and will apply to contracts made during that time. l'almer v. Hixon, 74 Me. 447. So, a conveyance by way of preference, made by an insolvent debtor, in contravention of the provisions of the insolvency law of the state, while the federal bankruptcy act is in force, is a sufficient cause for instituting proceedings in insolvency against the debtor after the repeal of the bankruptcy act. Lothrop v. Foundry Co., 128. Mass. 120. Moreover, it is competent for a state legislature to enact, amend, or repeal a state insolvency law while the bankruptcy act is in force. A state law of this character, passed while the federal act is operative, will not come into effect at once, but this does not make it void ab initio. The legislature has the power to make the time when its enactment shall take effect depend upon the happening of some future event. The event being the repeal of the bankruptcy law, the postponement of the efficiency of the state law until it occurs may be implied, and until that time the insolvency law will remain in abeyance. Tua v. Carriere. 117 U. S. 201. 6 Sup. Ct. 565, 29 L. Ed. 855; In re Wright (D. C.) 95 Fed. 807; Damon's Appeal,