Smith v. Brainerd

Mitchell, J. Counsel have discussed various questions as to the extra-territorial effect of insolvency or bankruptcy proceedings, and as to whether the provisions of the insolvent law of Vermont will govern this case. It is wholly unnecessary to consider these questions, for the reason that, conceding all that the intervenor claims in that respect, and that the Vermont statute will control precisely as if the property were situated in that state, yet, upon all the facts stated in his complaint, he has no possible standing in court. He relies first upon the provisions of that statute to the effect that a preferential transfer or conveyance by an insolvent, or one in contemplation of insolvency, within four months of the filing of a petition by or against him, to one having reasonable cause to believe that such person is insolvent, or in contemplation of insolvency, “shall be void; and the assignee may recover the property or the value thereof, as assets of the insolvent debtor.” This and similar provisions in bankrupt or insolvent laws are always construed as meaning simply that such conveyances are voidable only in favor of proceedings under and in aid of the law. Smith v. Deidrick, 30 Minn. 60, (14 N. W. Rep. 262;) Berry v. O'Connor, 33 Minn. 29, (21 N. W. Rep. 840.) The intervenor is an entire stranger to these insolvency proceedings. He is not claiming under them, but in hostility [484] to them under his attachment and judgment lien in a suit instituted by himself against the insolvent debtor. His further contention is that the legal effect of the act of the St. Albans Trust Company, in proving their claim against Brainerd before the court of insolvency in Vermont, and accepting dividends thereon, is to release and discharge their security on the land covered by their trust deed. It is not alleged that it was ever in fact released or discharged, and no provision of the Vermont statutes is pleaded which would give to the act of proving the debt any such effect. But, as a matter of fact, by reference to the statute itself, it will be found that a secured creditor has three courses, either of which he may pursue : (1) He may rely on his security alone, and not prove his debt at all; (2) he may have the property held as security sold under the order of the court, and the proceeds applied towards payment of his claim, and then be admitted as a creditor for the residue, if any; or (3) he may release and deliver up to the assignee the property held as security, and be admitted as a creditor for the whole of his debt. Assuming that the St. Albans Trust Company had proved the full amount of their claim, this, without a release, would not of itself operate to discharge this mortgage or trust deed. It might prevent them from setting it up against the assignee claiming the property as part of the assets of the estate of the insolvent debtor. But only the assignee can avail himself of the rights which the provisions of the insolvent law were intended to secure. The intervenor can claim no benefit from it. Neither can he set up the acts of the Trust Company in the insolvency proceedings by way of estoppel. There is an entire want of mutuality as well as privity. He has acquired no title from the assignee, and is not a party to the proceedings. Cook v. Farrington, 104 Mass. 212. The facts pleaded, tending to show that the insolvent debtor will be entitled to a discharge from his debts provable under the insolvent law when the insolvency proceedings are brought to a close, are utterly irrelevant. Even if such a discharge had been already granted, it would simply release the debtor from personal liability for these debts, and relieve his subsequently acquired property from attachment or levy. It would in no [485] way affect valid liens acquired upon property prior to the institution of the insolvency proceedings. The demurrer to the intervenor’s complaint was properly sustained. Order affirmed.