Vallely v. Northern Fire Marine Ins Co

• Decision Date: 13 December 1920
• Docket Number: No. 96,96
• Citation: 41 S.Ct. 116,65 L.Ed. 297,254 U.S. 348
• Parties: VALLELY v. NORTHERN FIRE & MARINE INS. CO
• Court: U.S. Supreme Court

254 U.S. 348

41 S.Ct. 116

65 L.Ed. 297

VALLELY

v NORTHERN FIRE & MARINE INS. CO.

No. 96.

Submitted Nov. 17, 1920.

Decided Dec. 13, 1920.

Mr. Rome G. Brown, of Minneapolis, Minn., for Vallely.

[Argument of Counsel from pages 349-351 intentionally omitted] Mr. N. C. Young, of Fargo, N. D., for Insurance Co.

Mr. Justice McKENNA delivered the opinion of the Court.

The Insurance Company was adjudged an involuntary bankrupt May 3, 1917, upon petition of its creditors. The petition averred the corporate capacity of the company under the laws of North Dakota, and that it had been 'engaged in the business of insuring property against loss by fire, hail,' etc. Process was duly issued and served, and the company making default, an order of adjudication was entered against it. No appeal was taken from the order. The administration of the estate proceeded in due course, claims presented, assets collected and reduced to money, payments made to protect equities, and suits brought by the trustee in his official capacity. In the matters of the estate the trustee frequently conferred with the president and secretary of the bankrupt and received from them co-operation, assistance and information without question of the validity of the adjudication. Considerable moneys were paid out and expenses incurred by the trustee.

After the above course of administration, and on December 18, 1917, the company by its attorneys filed a motion in the District Court to vacate the adjudication as null and void, and to dismiss the proceedings, upon the ground that it appeared that the company was an insurance corporation and that the court was, therefore, without jurisdiction. The motion was sustained and an order entered vacating the adjudication and dismissing the petition of the creditors on authority of section 4b of the Bankruptcy Act as amended by the Act of June 25, 1910 (36 Stat. 839 [Comp. St. § 9588]), which provides that——

'Any moneyed, business, or commercial corporation, except a municipal, railroad, insurance, or banking corporation * * * may be adjudged an involuntary bankrupt upon default or an impartial trial, and shall be subject to the provisions and entitled to the benefits of this act.'

The trustee filed a petition to revise the order of the District Court in a matter of law in the Circuit Court of Appeals, and the latter court certifies that it is indispensable to the determination of the case, and to the end that the court may properly discharge its duty, desires instruction upon the following questions:

'1. Is a petition to revise in matter of law under section 24b of the Bankruptcy Act the proper remedy to review an order of an inferior court of bankruptcy vacating an adjudication and dismissing the bankruptcy proceeding for want of jurisdiction upon the motion of the bankrupt after the expiration of the time for appeal, he having neither contested the involuntary petition against him nor appealing from the adjudication?

'2. Where it appears from the averments of a petition in involuntary bankruptcy that the person proceeded against is an insurance corporation and therefore within the exceptions of section 4b of the Bankruptcy Act, as amended June 25, 1910 (36 Stat. 839), is there such an absence of jurisdiction in the court of bankruptcy that its adjudication, rendered upon due service of process and default, and not appealed from, should be vacated and the proceeding be dismissed upon the motion of the bankrupt after the time for appeal has expired?

'3. Where an insurance corporation adjudged bankrupt in an involuntary proceeding after the passage of the amendatory Act of June 25, 1910 (36 Stat. 839), upon due service of process and default, does not appeal from the adjudication, but acquiesces therein and aids the trustee in the performance of his duties in administering the estate, may it be estopped from thereafter questioning the validity of the adjudication and the power of the court and the trustee to proceed?'

Of the construction of the statute there can be no controversy; what answer shall be made to the questions turns on other considerations, turns on the effect of the conduct of the company as an estoppel. That it has such effect is contended by the trustee, and there is an express concession that if objection had been made the company would have been entitled to a dismissal of the petition. It is, however, insisted that it is settled 'that an erroneous adjudication against an exempt corporation, whether made by default or upon a contest or trial before the bankruptcy court, can be attacked only by appeal, writ of error, or prompt motion to vacate,' and that section 4 does not relate to the jurisdiction of the court over the subject-matter. 'It does not, therefore,' is the further contention, 'create or limit jurisdiction of the court with respect to its power to consider and pass upon the merits of the petition,' and that 'the valid exercise of jurisdiction does not depend upon the correctness of the decision.' And again, if the court in the exercise of its jurisdictional power, 'reached a wrong conclusion, the judgment is not void, it is merely error to be corrected on appeal or by motion to vacate, timely made, but as long as it stands it is binding on every one.' There is plausibility in the propositions taken in their generality, but there are opposing ones. Courts are constituted by authority and they cannot beyond the power delegated to them. If they act beyond that authority, and certainly in contravention of it, their judgments and orders are regarded as nullities. They are not voidable, but simply...