Martin v. Oliver

• Decision Date: 28 June 1919
• Docket Number: 196.
• Citation: 260 F. 89
• Parties: MARTIN et al. v. OLIVER.
• Court: U.S. Court of Appeals — Eighth Circuit

260 F. 89

MARTIN et al. v. OLIVER.

No. 196.

United States Court of Appeals, Eighth Circuit.

June 28, 1919

J. H Evans and C. I. Evans, both of Booneville, Ark., for petitioners.

W. B Rutherford, of Perryville, Ark., for respondent.

Before SANBORN and STONE, Circuit Judges, and TRIEBER, District Judge.

SANBORN Circuit Judge.

G. W Martin and W. A. McNeill have presented to this court a petition to revise an order of the District Court which affirmed an order of the referee made on February 15, 1918 in the matter of the estate of Lula M. Oliver, a bankrupt, denying the motion of the petitioners to modify the order of the referee made February 8, 1918, wherein he determined that the bankrupt was entitled to certain personal property of the value of $459.50 as her exemptions, and ordered 'that the said articles be delivered to the bankrupt forthwith' by striking from it the order for the delivery of the property to the bankrupt. When this order of delivery was made, and when Lula M. Oliver filed her petition in bankruptcy and was adjudged a bankrupt, this property was in the legal custody of the chancery court of Logan county, Ark., and in the actual possession of its receiver, Martin. A brief statement of the material facts disclosed by the record will aid in the consideration of the questions of law here presented.

On December 30, 1915, Lula M. Oliver and V. E. Oliver, her husband, were indebted and gave their promissory note to the Bank of Magazine for $412.60, and mortgaged certain town lots in Magazine to secure this debt. At the same time, without consideration and for their accommodation, the petitioner, W. A. McNeill, signed this note as their surety. On September 10, 1917, in a suit brought by the bank against Lula M. Oliver, V. E. Oliver, and W. A. McNeill in the chancery court for the Southern district of Logan county, of the subject-matter of and the parties to which that court had jurisdiction, that court rendered a decree of foreclosure of that mortgage, of a sale of the mortgaged property, and of the issue of an execution against the defendants therein for any balance of the judgment not paid by the sale. The lots were sold and the proceeds applied, but there remained unpaid a balance of $272.27. On the 1st day of November, 1917, McNeill caused the bank to issue an execution on the judgment, and to levy it upon the personal property of Lula M. Oliver, including that here in controversy. On November 8, 1917, McNeill presented to the chancery court of Arkansas in the foreclosure suit a petition in which he alleged that, on the same day on which the decree of foreclosure was rendered, Lula M. Oliver made a chattel mortgage of all her personal property to one Kent Ruble, for the fraudulent purpose of hindering and delaying the collection of her debt to the bank; and that on the 1st day of November, 1917, when the levy was made, she and her husband were loading a car at Magazine with all their visible property, billing it in the name of Meade Oliver, a brother of her husband, and shipping it permanently out of the state of Arkansas with the fraudulent intent of defeating the collection of the balance of the judgment from this property, and compelling McNeill, her accommodation surety, to pay it. He prayed for the appointment of a receiver of all this personal property, and that at the final hearing the fraudulent mortgage of Kent Ruble be set aside, and all the property be sold to pay the balance of the judgment. On this petition the Arkansas chancery court appointed W. M. Martin receiver of this personal property on the 8th day of November, 1917, and ordered him to keep it safely, subject to the further order of that court. He immediately took possession of it and still holds it. Lula M. Oliver answered this petition of McNeill that all the property levied on and in the hands of Martin, the receiver, was exempt from levy or sale, but she did not deny any of McNeill's averments of her intents and attempts to defraud him and the bank. On February 8, 1918, upon the pleadings and proceedings in the main suit, the petition of McNeill, the answer of Lula M. Oliver, and oral testimony of witnesses while 'V. E. Oliver and Lula M. Oliver were present in person and by their solicitor,' as its decree recites, the chancery court of Arkansas found and decreed that on November 1, 1917, Lula M. Oliver and V. E. Oliver were shipping all their property, in the name of Meade Oliver, permanently out of the state, with the fraudulent intent and purpose of defeating the collection of the balance of the judgment therefrom, and compelling McNeill to pay it; that they made the chattel mortgage to Kent Ruble on February 10, 1917, for the fraudulent purpose of delaying and hindering the collection of the judgment; that Lula M. Oliver was not entitled to hold the property in question as exempt, and that her claim of its exemption was disallowed; that the mortgage to Ruble was set aside and held for naught; and that Martin the receiver should proceed to sell the property and apply the proceeds to the payment of the balance of the judgment.

Meanwhile, on January 23, 1918, while this property was in the legal custody of the Arkansas court, and in the actual possession of Martin, the receiver, Lula M. Oliver filed her voluntary petition in bankruptcy, was adjudged a bankrupt, and notices of this adjudication, and that the first meeting of creditors would be held on February 8, 1918, were mailed to the Bank of Magazine and McNeill, but neither of them ever appeared in the bankruptcy proceedings except to challenge the jurisdiction of the bankruptcy court and of its officers summarily to try the title to or to take this property from the chancery court or its officers. At the first meeting of the creditors on February 8, 1918, without notice to, or any application for, or demand of the property from the chancery court or its receiver, Martin, the referee made his determination that the property in controversy was exempt, and ordered it delivered to Lula M. Oliver.

When the petition in bankruptcy was filed, and when the adjudication was made on January 23, 1918, and when the order for the delivery of this personal property was made on February 8, 1918, this property was in the legal custody of the Arkansas chancery court, in a suit of which and of the parties to which it had plenary jurisdiction. When that suit was commenced, when Martin was appointed receiver, and when he took possession of the property, Lula M. Oliver was the owner of it, and the bankruptcy court and its officers took their interest in and title to it subject to the actual possession of the receiver of the chancery court, to that court's jurisdiction over it, and to the rights to it of the parties to the suit in that court. In that state of the case the order of the referee that the receiver of the state court and McNeill, the lienholding creditor, should deliver this property to Lula M. Oliver, who was one of the parties defendant in the suit in the state court, was erroneous for more than one reason.

The general rule is that the legal custody of specific property by one court of competent jurisdiction withdraws it, so far as is necessary to accomplish the purpose of that custody, until the purpose is completely accomplished, from the jurisdiction of every other court; that the court which first acquires jurisdiction of specific property by the lawful seizure thereof, or by the due commencement of a suit in that court from which it appears that it is, or will become, necessary to a complete determination of the controversy involved or to the enforcement of the judgment or decree therein, to seize, to charge with a lien, sell, or exercise other like dominion over it, thereby withdraws that property from the jurisdiction of every other court, and entitles the former to retain the control of it requisite to effectuate its judgment or decree in the suit free from the interference of every other tribunal. Sullivan v. Algren, 160 F. 366, 370, 87 C.C.A. 318; Farmers' Loan & Trust Co. v. Lake Street Elevated Railroad Co., 177 U.S. 51, 61, 20 Sup.Ct. 564, 44 L.Ed. 667; Mound City Co. v. Castleman et al., 187 F. 921, 924, 110 C.C.A. 55. According to this general rule, the Arkansas court would have had exclusive jurisdiction to determine the question of Lula M. Oliver's claim to an exemption of this property and to hold and dispose of it according to its decision.

But the bankruptcy law, section 67f (Act July 1, 1898, c. 541, 30 Stat. 564 (Comp. St. Sec. 9651)), declares that all judgments, attachments, and 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 bankrupt, and that the property affected shall pass to the trustee as a part of the estate of the bankrupt unless the court shall order the levy or other lien preserved. But under this section of the bankruptcy law the insolvency of the person against whom the legal proceedings are taken at the time the levy is made or at the time the lien attaches, and the admission or proof of that insolvency are indispensable conditions of an avoidance of such a levy or lien. Stone-Ordean-Wells Co. v. Mark, 227 F. 975, 979, 142 C.C.A. 433; Keystone Brewing Co. v. Schermer, 241 Pa. 361, 88 A. 657, 31 Am.Bankr.Rep. 279, 281, 282; Simpson v. Van Etten (C.C.) 6 Am.Bankr.Rep. 204, 205, 206, 108 F. 199, 201; Severin et al. v. Robinson, 27 Ind.App. 55, 60 N.E. 966; Collier on Bankruptcy (10th Ed.) 963, par. 'e.' And this record contains no evidence or proof of any such insolvency. On the other hand, the only debt of Lula M. Oliver which it discloses is the unpaid balance of...