Clarke v. Larremore, 188 U.S. 486 (1903)

Clarke v. Larremore

No. 51

Submitted December 15, 1902
Decided February 23, 1903
188 U.S. 486

CERTIORARI TO THE CIRCUIT COURT OF

APPEALS FOR THE SECOND CIRCUIT

Syllabus

Where a sheriff, after selling under an execution and before paying over to the judgment creditor, is enjoined in a state court by another creditor from so doing, and immediately after the state court has set the restraining order aside, and while the money is still in the bands of the sheriff, and within the time allowed for the return of the execution, and before it is returned, a petition in bankruptcy is filed against the judgment debtor, the money does not belong to the judgment creditor but goes, under section 67f of the Bankrupt Act of 1898, to the trustee in bankruptcy.

On January 23, 1899, the petitioner, the owner of certain notes of Raymond W. Kenney, commenced an action thereon in the supreme court of the State of New York. On March 6, 1899, he recovered judgment for the sum of $20,906.66. An execution, issued thereon, was by the sheriff of the County of New York levied upon a stock of goods and fixtures belonging to Kenney. A sheriff’s sale thereof, had on March 15, 1899, realized $12,451.09. Shortly after the levy of the execution, Leon Abbett sued out in the same court a writ of attachment against the property of Kenney, and caused it to be levied upon the same stock and fixtures. Immediately thereafter, claiming that the debt in judgment was a fraudulent one, he commenced in aid of his attachment an injunction suit to prevent the further enforcement of the judgment, and obtained a temporary order restraining the sheriff from paying petitioner the money received upon the execution sale. Upon a hearing, the supreme court decided that the debt was just and honest, and on April 13, 1899, set aside the restraining order. On the same day, and before the sheriff had returned the execution or paid the money collected on it, a petition in involuntary bankruptcy against Kenney was filed in the United States District Court for the Southern District of New York, and an order made by the district judge restraining the sheriff from paying the money to Clarke, the execution creditor. 95 F. 427. Kenney was thereafter adjudged a bankrupt, and on November 25, 1899, the plaintiff having been appointed trustee in bankruptcy, the district judge entered a further order directing the sheriff to pay the money to the trustee. 97 F. 555. On review, the United States Circuit Court of Appeals for the Second Circuit affirmed these orders of the district judge, 105 F. 897, and thereupon a certiorari was granted by this Court. 180 U.S. 640. Section 67, subdivision f, of the Bankrupt Act of 1898, 30 Stat. 544, 565, reads:

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 bona fide purchaser for value who shall have acquired the same without notice or reasonable cause for inquiry.