London Guarantee & Accident Co. v. Mosness

Mr. Justice Adams delivered the opinion of the court. Section 67 of the national bankruptcy act of 1898, contains this provision: 67f. “ That all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of a petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien, shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the bankrupt, unless the court shall, on due notice, order that the right under such levy, judgment. attachment, or other lien, shall be preserved' for the benefit of the estate; and thereupon the same may pass to and shall be preserved by the trustee for the benefit of the estate as aforesaid. And the court may order such conveyance as shall be necessary to carry the purposes of this section into effect; provided, that nothing herein contained shall have the effect to destroy or impair the title obtained by such levy, judgment, attachment, or other lien, of a honafide purchaser for value, who shall have acquired the same without notice or reasonable cause for inquiry.” December 6,1899, Schaub obtained his judgment against Mosness. February 26, 1900, Mosness obtained his discharge in bankruptcy in the United States District Court for the Northern District of Illinois, on a petition filed December 23,1899. The judgment against Mosness having been recovered less than four months prior to the time of filing his petition in bankruptcy, and Schaub having obtained his discharge February 26, 1900, his judgment against Mosness is within the very words of the act, which declares that such a judgment “shall be deemed null and void, in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment or other lien, shall be deemed wholly discharged and released from the same, and shall pass to the trustee as a part of the estate of the bankrupt,” etc. There is no fact or circumstance apparent in the record to exempt the judgment in Schaub v. Mosness from the operation of the last quoted provision. Section 67, as to the nullity of judgments recovered within four months next preceding the filing of a petition in bankruptcy, in cases where the petitioner is discharged, requires no interpretation, and the federal courts have applied it in accordance with its plain meaning. In re Kenney,.Circuit Court of Appeals, Second Circuit, 105 Fed. Rep. 897, the court states the facts and the question involved thus : “ The facts disclosed upon the papers, chronologically stated, are these: On March 6, 1899, Clark recovered judgment against Kenney in the State court for $20,906.66, and execution was issued on the same day. On March 15, 1899, the sheriff sold out defendant’s stock of goods, which he had levied upon, for $12,451.09. On April 13, 1899, petition in involuntary bankruptcy was filed, and Kenney was adjudged a bankrupt on July 12th. The sheriff not having paid over the proceeds of the execution at the time petition was filed, he was temporarily enjoined from doing so, and subsequently, after a hearing in which Clark appeared, presented testimony and was heard, the order appealed from was made and entered. The question presented is, who is entitled to the $12,451.09 — the trustee or the judgment creditor.” The court, after quoting the provision section 67 f supra, say: “ There can be no doubt that it was the intention of Congress by this section to prohibit creditors of a bankrupt from obtaining preferences over other creditors, as the result of any legal proceedings against him, during, the period of four months prior to the-filing of the petition; and apt words are used to express that intention. The property of the bankrupt is safeguarded against all such proceedings by the provision that such of them as would ordinarily be liens against such bankrupt shall be deemed null and void, and the property wholly discharged and released from the same. A broad and liberal construction of the section should be adopted if necessary to effect this intent, but no strained construction is necessary in the face of language so comprehensive. Applying it to the concrete case now before us we find that four months before petition the bankrupt had a stock of goods worth $12,000 or more. He did not sell them and, if nothing had happened, they would have been in his possession when his estate passed to the trustee, who might have realized the $12,000 from them to distribute among all thecreditors. How has this amount disappeared ? Because Clark obtained a judgment against the bankrupt, and the sheriff under such judgment made a levy, which removed the goods from the bankrupt’s estate, and turned them, through sale, into money. But, under the provisions of the bankrupt act, the judgment and the levy are to be held null and void.” See also, In re Richards, 96 Fed. Rep. 935; Bear et al. v. Chase, 99 lb. 920, and St. Cyr v. Daignault et al., 103 lb. 854. Counsel for appellee do not dispute the proposition that, by the act of Congress, the judgment in favor of Schaub against Mosness having been recovered within four months before filing the petition in bankruptcy, and Mosness having been discharged, was void but contend that appellant can not avail of the nullity of the judgment as a defense, that the privilege of setting up such defense is purely personal to the bankrupt. This proposition is untenable. Section 67 f of the bankrupt law provides that when a judgment shall be deemed null and void for reasons stated in the section, and which exist in the present case, that the property affected by the judgment shall pass to the trustee, as part of the estate of the bankrupt, “ unless the court shall, on due notice, order that the right under such levy, judgment, attachment or other lien shall be preserved for the benefit of the estate.” Ho such order appears in the record before us. The proceeding is garnishment on the judgment in Schaub v. Mosness, under section 1 of chapter 62 of the statutes. That judgment is the very foundation of the proceeding, and it must appear, in order to render valid a judgment against the garnishee, that at the time of the rendition of such judgment the judgment in Schaub v. Mosness was a valid existing judgment. We therefore think that it was entirely competent for appellant to show that the judgment in Schaub v. Mosness had, by valid proceedings, become null and void, pending the garnishment proceedings. In Bear v. Chase, supra, the question of the validity or nullity of certain attachment levies was raised by creditors of the bankrupt. The judgment being, by reason of the proceedings in bankruptcy, null and void, the judgment against appellant has nothing to rest on. In other words, when that judgment became void, the bottom dropped out of the garnishment proceeding. Hothing can be more personal to a judgment debtor, who is the head of a family, than the exemption of certain of his property or wages from execution; yet the law is, that if one is garnisheed as being indebted to such judgment debtor, it is his duty to set up the exemption in his answer. C. & A. R. R. Co. v. Ragland, 84 Ill. 375. We are of opinion that appellant had the right, for its own protection, to show the nullity of the judgment which is the basis of the garnishee proceeding. Suppose it had not done so, and had paid the judgment appealed from; would it be any defense in the pending suit against it by Mosness, that it had paid part of his claim on a judgment against it in a garnishment proceeding based on a void judgment? We think not, and that if appellant had not set up the nullity of the Schaub judgment, he might be compelled to pay the amount of that judgment twice. We dissent from the proposition contended for by appellee’s counsel and held to be law by the court, that the institution of the garnishment proceeding vested Schaub with an interest in the judgment by default in favor of Mosness and against appellant, and that the default could not, thereafter, be set aside and a trial had on the merits, by the consent of the parties to the judgment, and without the consent of Schaub. The judgment order contains a prayer for an appeal; an appeal was allowed and perfected, and it was entirely competent for the parties to the judgment to consent to a dismissal of the appeal, and, upon the cause being remanded, to a setting aside of the judgment by default. That the court had power to set aside the judgment, by consent of the parties, can not be questioned. Sheridan v. Chicago, 175 Ill. 421. The judgment by default was subject to vacation, and the mere pendency of the garnishment proceeding. could not affect the court’s power in the premises, or the validity of the order vacating the judgment. Schaub had no interest in the judgment as such. His sole interest was in its use as evidence, had not his judgment against Mosness been nullified by the proceedings in bankruptcy. The latter judgment having been nullified by the bankruptcy proceedings, he could not have used the Mosness judgment as evidence had it remained in force. Appellee’s counsel suggest collusion and fraud between Mosness and appellant in the setting aside of the Mosness judgment, but there is no evidenpe in support of the suggestion. It is contended by appellee’s counsel that there are no questions of law presented by the record, because appellant did not present to the court any proposition to be held as law in the case. We do not deem it necessary for such propositions to have been submitted to the trial court, in order to warrant us in passing on the question whether the facts proven entitle the plaintiff to recover. In the present case, however, the court, of its own motion, held certain propositions to be law, and such propositions are as subject to review as are instructions given by the court of its own motion, in a trial by jury. Propositions and instructions held and given at the request of a party, are the propositions or instructions of the court, equally with propositions held and instructions given, of the court’s own motion. Both of the propositions announced by the court as law were erroneous, for reasons hereinbefore stated. We find no evidence in the record’ to sustain the finding that no trustee was appointed in the proceedings in bankruptcy, nor to support the finding that Schaub did not file his claim against Mosness in said proceedings. We do not, however, regard these findings as important in the decision of the appeal. The judgment will be reversed.