Fischer v. Pauline Oil Gas Co
| Decision Date | 26 February 1940 |
| Docket Number | No. 239,239 |
| Citation | 309 U.S. 294,84 L.Ed. 764,60 S.Ct. 535 |
| Parties | FISCHER v. PAULINE OIL & GAS CO |
| Court | U.S. Supreme Court |
See 309 U.S. 697, 60 S.Ct. 706, 84 L.Ed. —-.
Mr. Claude H. Rosenstein, of Tulsa, Okl., for petitioner.
Mr. Charles E. France, of Oklahoma City, Okl., for respondent.
An appeal taken in this case was dismissed for want of jurisdiction. Section 237(a), Judicial Code, as amended by the Act of February 13, 1925, 43 Stat. 936, 937, 28 U.S.C.A. § 344(a). Theating the papers whereon the appeal was allowed as a petition for writ of certiorari as required by Section 237(c), Judicial Code, as amended, 43 Stat. 936, 938, 28 U.S.C.A. § 344(c), we granted certiorari (308 U.S. 509, 60 S.Ct. 103, 84 L.Ed. —-) because the judgment of the Supreme Court of Oklahoma1 is based upon a construction of § 67, sub. f, of the Bankruptcy Act of 1898,2 which raises an important question concerning the operation of the section, not settled by decision of this court, on which state courts have reached conflicting conclusions.
The petitioner brought action to quiet his title to an oil and gas lease and to gain possession of the leased premises together with materials, machinery, tools, and appliances thereon, and for mesne profits, and damages. His claim was based on a sheriff's deed consummating an execution sale under a judgment entered upon an award of the State Industrial Commission against Geraldine Oil Company. The respondent's title was derived through a conveyance by an assignee for the benefit of creditors of the same company, confirmed by a bankruptcy court. The respondent cross-petitioned for a judgment declaring the sheriff's sale to petitioner void and quieting respondent's title. The trial court directed a verdict for petitioner and entered judgment thereon, which the Supreme Court reversed.
August 30, 1934, the Commission made an award to one Rainholt against Snyder, as employer and Geraldine Oil Company, as owner of the property. For payment of the award Geraldine Oil Company was secondarily liable.
October 11, 1934, Geraldine Oil Company, being insolvent, assigned the property in question to a trustee for the benefit of creditors.
December 8, 1934, the award in favor of Rainbolt was filed of record in a State District Court and became a judgment of that court.
January 21, 1935, the assignee for the benefit of creditors sold the property to the respondent.
September 13, 1935, execution issued on the Rainbolt judgment, and, September 17th, the sheriff levied on the property as property of the Geraldine Oil Co. The execution was issued on the theory that the assignment for the benefit of creditors was invalid, and the property, therefore, remained that of the assignor.3
October 24, 1935, Geraldine Oil Company was adjudged a voluntary bankrupt in the District Court of the United States for Western Oklahoma.
November 12, 1935, the sheriff sold the property, pursuant to the execution, and the petitioner bought it. A notice of the adjudication in bankruptcy was read at the sale in the presence of the petitioner. On the same day the sheriff made return of the sale to the court out of which the execution issued.
November 21, 1935, the trustee in bankruptcy filed in that court his objections to the conformation of the sheriff's sale, alleging, inter alia, that Geraldine Oil Company was insolvent when Rainbolt obtained judgment and had been so ever since; that the company had been adjudicated a bankrupt within four months of the securing of the lien under the execution, and that, by virtue of § 67, sub. f, of the Bankruptcy Act, the lien was absolutely void.
March 28, 1936, the court ordered that the sale of confirmed and granted the trustee in bankruptcy an exception to its action. The latter gave notice of appeal to the Supreme Court of Oklahoma, but it does not appear that he perfected an appeal. The order of confirmation was entered of record April 22, 1936.
June 4, 1936, the respondent petitioned the United States District Court for confirmation of the sale of the property made to the respondent by the assignee for the benefit of creditors on January 21, 1935. The trustee in bankruptcy objected, but subsequently withdrew his objections and the referee made an order confirming the sale. The assignee then paid to the trustee the consideration received by him from the respondent as purchaser at the assignee's sale. It does not appear that the petitioner had notice of the application or was present at the hearing.
June 10, 1936, the sheriff delivered a deed to the petitioner as purchaser at the execution sale.
Both petition and answer allege that the respondent was in possession of the property at the time suit was brought, and we may assume that the petitioner never was in possession.
The Supreme Court held that entry of the Commission's award in the State Court made it a judgment of that court; that such judgment did not constitute a lien on the property of Geraldine Oil Company in question; and that no lien was acquired until the levy of execution on September 17, 1935, about a month prior to the adjudication of the company as a bankrupt.
The respondent asserted that, as the judgment in favor of Rainbolt was not a lien when Geraldine Oil Company assigned for the benefit of creditors, or when the assignee sold the property to the respondent, its title must prevail; and, in the alternative, that the same result must follow from the fact that since the lien of the levy was obtained less than four months prior to the filing of the petition in bankruptcy, it was voided by § 67, sub. f.
The Supreme Court stated that, if either of these contentions were sound, the petitioner could not prevail. It expressly declined to consider the efficacy of the sale by the assignee for the benefit of creditors to pass title to the respondent clear of the lien of the subsequent levy, and rested its decision upon its view of the effect of § 67, sub. f. Since the judgment is based exclusively upon a federal ground, we have jurisdiction.
's 67, sub. f, provides:
The court held that the section, proprio vigore, nullified the lien of the levy so that the property passed to the trustee discharged thereof, and concluded that, since, at the time of the sheriff's sale, the property was discharged of the lien, the sale, and the deed delivered pursuant to it, were void; and, as a trustee's sale would pass title clear of the lien, the same result would follow from the bankruptcy court's validation, with the trustee's consent, of the assignee's sale previously made.
The question is whether the state court was right in holding that, by force of § 67, sub. f, the adjudication in bankruptcy automatically discharged the lien of the levy, irrespective of any action on the part of the trustee. Expressions supporting this view may be found in cases decided by federal courts,4 and statements squinting in the same direction have been made by this court.5 In none of these instances, however, was the litigation between third parties, or between the lienor or one claiming title under an execution sale, and an opponent deriving title from the trustee in bankruptcy. In all of them a bankruptcy receiver or trustee instituted action in the bankruptcy court or some other court, or became a party to the proceeding in which the lien was acquired, to avoid the lien, or the bankrupt brought suit to avoid the lien as to property set apart to him as exempt in the bankruptcy case.
Some state courts have definitely held that the adjudication operates automatically to nullify the lien which must be treated as void whenever and wherever drawn into question, either in a direct or a collateral proceeding, and whether the trustee in bankruptcy has taken the property into his possession or abandoned it.6
On the other hand, it was said in Taubel-Scott-Kitzmiller Co. v. Fox et al., 264 U.S. 426, 429, 44 S.Ct. 396, 397, 68 L.Ed. 770: 'For the statute does not, as a matter of substantive law, declare void every lien obtained through legal proceedings within four months of the filing of the petition in bankruptcy.' The court there pointed out that a number of issues of fact must be resolved before it can be determined that the lien is void. And, in Pigg & Son v. United States, for Use of Leach, 10 Cir., 81 F.2d 334, 337, it was held that liens obtained in judicial proceedings within four months of the filing of the petition are not void, but voidable in a proper suit, and that the property affected by the lien does not automatically pass to the trustee, discharged of the lien.
In Connell v. Walker, 291 U.S. 1, 3, 54 S.Ct. 257, 78 L.Ed. 613, this court indicated that the operation of § 67, sub. f, is not...
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