Kinmouth v. Braeutigam

Reed, Y. C. The bill sets up that Ninmouth obtained a judgment against Frederick C. Braeutigam in the supreme court of this state on December 27th, 1898, for the sum of $2,604.53, and that on December 30th, -fieri facias were delivered, to the sheriffs of Monmouth, Union and Hudson counties; that in default of goods and chattels upon which to levy, each of these officers levied upon certain lands lying within their respective counties. The bill states that Frederick C. Braeutigam had been indebted to the complainant since February, 1894, for which indebtedness certain promissory notes' were given, upon the renewals of which notes the action was brought in which judgment was entered on December 27th, 1898. The bill further states that certain of the properties upon which levies were made were bought by Braeutigam, who caused the title to them to be put in the name of his wife for the purpose of defrauding his creditors, and that certain other property levied on was once in his possession, but was sold under an execution on a judgment against him, which judgment he had bought, and at the sale under it, he caused the property to be bought in in the name of another, but for his benefit, and it was so put in the name of the nominal purchaser for the purpose of defrauding his creditors. The bill is a creditor’s bill, filed January 12th, 1899, seeking to have this property applied to the payment of the complainant’s judgment. To this bill a plea was filed. The plea sets up that on November 21st, 1898, Frederick C. Braeutigam filed a petition in bankruptcy in the United States district court, and on January 12th he was adjudicated a bankrupt; that on February 6th a trustee was appointed who, on February 20th, filed his bond and [105] qualified. It is thus perceived that the judgment was .entered after the filing of the petition in bankruptcy, and before the defendant was adjudicated a bankrupt, and that the present bill was filed on the day of such adjudication. Had the judgment been entered after the adjudication in bankruptcy, it would be entirely clear that no lien could attach to any of the debtor’s property owned by him at the time the petition was filed, by force of any execution or of a creditor’s bill. The title of a trustee to the bankrupt’s property relates to the date of the adjudication in bankruptcy (Bantcruptcy act of 1898 §70), and by no act of the bankrupt or of his creditor can a lien be imposed upon it after that date. That the property the title to which is passed to the trustee would include the property sought to be reached by this bill is manifest, for, by section 70, paragraph 4 of the Bankruptcy act, the trustee is invested with title to all property transferred by the bankrupt in fraud of his creditors. In respect to the status of the property of the bankrupt between the date of the filing of the petition and the adjudication in bankruptcy, the act of 1898 is strangely silent, but I think it is to be concluded from the whole scheme of .the Bankruptcy act that after a petition is filed, no judgment subsequently entered against the bankrupt can be enforced by execution ox by a creditor’s bill. In the first place, the act itself provides for a stay of all suits against a bankrupt after the. filing of the petition in bankruptcy. By the provision of section 11, paragraph A, suits upon a claim which is not only provable, but which will be released by a discharge in bankruptcy, may be stayed. The method for obtaining a stay is either by application to the federal court for an injunction, or to the court in which the proceeding or suit is pending. The latter course is deemed the proper proceeding in the first instance, and a state court will stay such a suit, if informed by proper pleading of the pendency of a proceeding in bankruptcy against the defendant. Coll. Banter. 181. In this case, the debt for which the judgment is entered (for the collection of which this bill is filed) is one which will be released if the discharge is granted. The judgment was not rendered in an action for fraud in the sense of the seventeenth section [106] oi the Bankruptcy act. Barnes Manufacturing Co. v. Nordan, 51 Atl. Rep. 454. It is therefore apparent that if an application had been made to either court, the suit in which the judgment in Kinmouth v. Braeutigam was entered would have been stayed. It was, however, not stayed, and judgment was entered, and, being entered, not within four months preceding the filing of the petition in bankruptcy, but after the filing of the petition, it was not successfully challenged on a motion to vacate it. Kinmouth v. Braeutigam, 36 Vr. 165. The ruling of Mr. Justice Collins in that ease was approved by Judge MacPherson in the case of In re Engle, 5 Am. Bander. Bep. 372. It was that judgment which is the foundation of this creditor’s bill. The sentiment of the federal courts seems to be that section 67, paragraph E applies only to the lien of judgments, and not to the judgments themselves. The judgment itself may remain until it is ascertainable whether the bankrupt will or will not be discharged. In case of a discharge of the bankrupt, the judgment is released. In case of the failure of the bankrupt to obtain his discharge, the judgment remains. But even in the latter event it can never be enforceable against any property owned by the bankrupt at the time he filed his petition in bankruptcy, but can only be used against after acquired property. This view, in respect to the entry of a judgment after the filing of the petition in bankruptcy, as well as in regard to the force of such judgment as a lien, is supported by the provisions of section 63, paragraph A, subdivision 5 of the Bankruptcy act. Debts of the bankrupt may be proved and allowed against his estate which are (5) founded upon provable debts reduced to judgment after the filing of the petition, and before the consideration of the bankrupt’s application for discharge, less costs incurred and interest accrued after the filing of the petition, and up to the time of the entry of such judgment. Here is a recognition of judgments entered between the filing of the petition and the application for discharge; while the provision respecting the provability of debts so reduced to judgment, less costs and interest accrued after the filing of the petition, is an implied negation of the existence of any lien to be obtained [107] ill any manner against the bankrupt’s property .by force of such judgment. My conclusion is—first, that the plea setting up the filing of the petition in bankruptcy, the adjudication and the appointment of a trustee, is good as a foundation for a stay of the creditor’s bill-; and second, that it amounts to a complete bar to the complainant’s right to ever carry such suit to a successful conclusion because the judgment (a lien under which is relied upon by the complainant as the foundation of his right to sue) having been entered after the filing of the petition in bankruptcy, never became a lien upon this equitable property of the bankrupt defendant. The plea is sustained.