Summary
In Kidder v. Horrobin, 72 N.Y. 159, the Court of Appeals held that a state court had jurisdiction of an action by an assignee in bankruptcy to recover a debt due the bankrupt.
Summary of this case from McKenna v. SimpsonOpinion
Argued December 21, 1877
Decided January 15, 1878
Samuel Hand, for appellants.
Amasa J. Parker, for respondents.
This action is brought by the plaintiff as assignee in bankruptcy of one Charles H. Glynn, against the indorser and acceptor of a draft drawn May 18, 1875, by F.A. Leigh Co., and which came to the hands of the plaintiff as part of the assets of the bankrupt. The point is now taken for the first time, that the State courts have no jurisdiction of an action by an assignee in bankruptcy to recover a debt owing to the bankrupt.
It is conceded that prior to 1874, State courts had concurrent jurisdiction with the Federal courts, in actions by assignees in bankruptcy, and cases arising under the Bankrupt Act. This is conclusively settled by adjudication both in the Federal and State courts. ( Claflin v. Houseman, 93 U.S.R., 130; Cook v. Whipple, 55 N.Y., 150.) It is now accepted as the general rule upon the subject, that State courts have concurrent jurisdiction with the Federal courts in cases arising under the Constitution, laws, or treaties of the United States, unless excluded by express provision, or from the nature of the particular case. (1 Kent, 397; Ward v. Jenkins, 10 Met., 583; Claflin v. Houseman, supra.) By section one of the Bankrupt Act, as originally enacted March 2, 1867, the district courts of the United States were constituted courts of bankruptcy, with original jurisdiction in their respective districts in all matters and proceedings in bankruptcy, and with authority to hear and adjudicate upon the same according to the provisions of the act. The section declares that the jurisdiction shall extend to certain enumerated cases; among others, "to the collection of all the assets of the bankrupt." In construing this section it has been held, that as jurisdiction in bankruptcy was statutory, it was necessarily exclusive in the courts which were designated as courts of bankruptcy, and vested with jurisdiction in bankrupt proceedings by the Bankrupt Act. But it was also held that the declaration, in the same section, that the jurisdiction of the districts courts should extend to the collection of the assets of the bankrupt, did not exclude the jurisdiction of the State courts in actions by the assignee to recover the assets of the bankrupt. The same construction was given to a similar provision in the Bankrupt Act of 1841. ( Ex parte Christy, 3 How. [U.S.], 319; Nugent v. Boyd, id., 426; Ward v. Jenkins, 10 Metc., 583.)
The first section of the Bankrupt Act was amended by the act of Congress approved June 22, 1874, by adding thereto this proviso: "Provided that the court having charge of the estate of any bankrupt, may direct that any of the legal assets or debts of the bankrupt as contradistinguished from equitable demands, shall, when such debt does not exceed $500, be collected in the courts of the State where such bankrupt resides having jurisdiction of the claims of such nature and amount." It is claimed that this proviso is to be construed as conferring upon the State courts jurisdiction of actions for the collection of the debts and assets of the bankrupt, directed by the bankrupt court to be brought in the State courts, and by implication to exclude jurisdiction in all other cases. We, however, concur in the view expressed by the Supreme Court of Massachusetts, in Goodrich v. Wilson ( 119 Mass. 429), that the effect of this amendment is not to confer or take away jurisdiction of the State court, but simply to allow the Federal courts to decline to entertain actions at common law, to which the assignee is a party, in which the debt demanded is less than the amount which determines the jurisdiction of these courts in other cases.
It is also claimed that the State courts are deprived of jurisdiction of actions by assignees in bankruptcy, to recover debts due to the bankrupt, by section 711 of the Revised Statutes of the United States, which declares that the jurisdiction vested in the courts of the United States in the cases and proceedings mentioned in the section, shall be exclusive of the courts of the several States. This declaration is followed by a specification of eight classes of cases of which the sixth is "of all matters and proceedings in bankruptcy." The argument is that a suit brought by an assignee in bankruptcy to collect a debt due to the bankrupt is a matter and proceeding in bankruptcy, and that the jurisdiction of the State courts is therefore excluded. We do not think that a suit brought for this purpose, is a matter or proceeding in bankruptcy within the meaning of section 711. It is to be noticed that six of the eight classes of cases mentioned in the section are mentioned also in the judiciary act of 1789, and jurisdiction therein is by that act vested exclusively in the Federal courts. The fifth specification in section 711 is "cases arising under the patent-right or copyright laws," and it had been held before this section was passed that it was the intention of the patent laws to confer on the Federal courts exclusive jurisdiction in cases arising under them. This was the construction given to these laws by the courts. ( Dudley v. Mayhew, 3 N.Y., 9; Cook v. Whipple, supra; BRADLEY, J., 3 Otto, 140.) It will be seen, therefore, that as to seven of the eight classes of cases specified in section 711, that section is a mere codification of the law as it stood when the section was passed. If the construction of the language of the sixth specification insisted upon by the defendants prevails, we must conclude that Congress intended, in respect to the class of cases therein mentioned, to depart from the general purpose of the section, and to make a radical change in the prior policy of the law.
This was not, we think, the intention of Congress, and that a construction which would oust the State courts of jurisdiction of common law actions, in cases where an assignee in bankruptcy is a party, is not admissible. It may be difficult to make a complete definition of what are matters and proceedings in bankruptcy, within section 711, but it may be stated in general terms, that they are the matters and proceedings which pertain to the special and peculiar jurisdiction of the Federal courts as courts of bankruptcy. The adjudication of the bankruptcy; the appointment of assignees and other agents for the administration of the system; the vesting of the title to the bankrupt's property in the assignee; the marshaling and distribution of the assets; the discharge of the bankrupt from his debts; these and other like powers belong to the jurisdiction in bankruptcy, and are matters and proceedings in bankruptcy of which State courts have no jurisdiction. But when a common-law action is an appropriate remedy to enforce a right asserted by an assignee in bankruptcy, whether the right is given by the bankrupt act, or existed in favor of the bankrupt before the bankruptcy, an action to enforce or vindicate the right is not a matter or proceeding in bankruptcy within section 711. The exercise of the original and ordinary jurisdiction of the State courts in such cases is in no proper sense an exercise of jurisdiction in bankruptcy. The fact that the plaintiff makes his title under the Bankrupt Act by assignment from the debtor, or by force or operation of the act itself, does not make the suit a matter or proceeding in bankruptcy, any more than would a suit brought by an assignee appointed under the State insolvent law, to recover a debt owing to the insolvent, be a proceeding or matter in insolvency. It is quite clear that the State courts are not deprived of jurisdiction of actions, by assignees, to collect the assets of the bankrupt by the section referred to. If this was the intention of Congress, it is reasonable to suppose that it would have been explicitly declared, and an intention to deprive State courts of jurisdiction will not be inferred from doubtful language, nor will the words of a statute be extended beyond their strict meaning to accomplish this result. Section 429 of the Revised Statutes does not aid the defendant. It is simply a re-enactment of that part of the first section of the act of 1867, which declares to what matters the jurisdiction of the district court shall extend. We conclude, therefore, that the objection to the jurisdiction is not well taken.
The defendants are concluded from the defense based upon the use made by Page, Richardson Co., as agents of Robert Benson Co., of the bills of lading, and of the proceeds of the property embraced therein, by the settlement made by them of the suit brought in the United States Court to recover on their guaranty of the credit given by Benson Co. to Leigh Co. If the defendants were prejudiced by the course of dealing by Page, Richardson Co., with the bills of leading, or the application of the proceeds, it was a matter which might properly have been urged and determined in that action. If their liability as sureties was discharged, in whole or pro tanto, by the acts of Page, Richardson Co., it was a matter of defense, and the defendants should have taken their ground at that time. But they preferred to settle the claim, and gave their paper for the whole amount of the advances made on the letter of credit. Upon the paper being given, the bill in the suit was discharged and the bond canceled. There was, upon the facts found, no duress, or any fraud, concealment or misrepresentation on the part of Robert Benson Co., or their agents, in respect to the settlement. The defendants knew that the bills of lading had been delivered by Page, Richardson Co. to F.A. Leigh Co., and that F.A. Leigh Co. had received the property. They did not know that the proceeds had been paid to Page, Richardson Co., or that they had been applied on another account. But they made no inquiry, and they were put upon inquiry by the fact which they did know, that Page, Richardson Co. had parted with the bills of lading. Under these circumstances the defendants cannot resist the payment of the drafts in question, upon the facts growing out of the original transaction. That matter was concluded by the settlement, and no fraud or mistake is shown which, within the cases, would authorize the matter to be reopened. ( Russell v. Cook, 3 Hill, 504; Stewart v. Ahrenfeldt, 4 Den., 189; Farmer v. Walter, 2 Ed. Chy., 600; Crans v. Hunter, 28 N.Y., 389.)
The possession of the draft by Glynn, the plaintiff's assignee was presumptive evidence of his ownership; and this presumption was not rebutted by the evidence on the trial.
Glynn was one of the firm of Robert Benson Co., upon whose claim the draft was given, and was therefore part owner of the draft when it was given. The paper is produced in court by the assignee of Glynn, and this prima facie establishes the plaintiff's title. The referee could not, as matter of law, have held that the note did not belong to Glynn, and the question of fact is found for the plaintiff.
We think there was no error committed on the trial, and that the judgment should be affirmed.
All concur.
Judgment affirmed.