US SUPREME COURT DECISIONS

One who received money to indemnify him for giving bail bonds for a person subsequently and more than four months thereafter adjudicated a bankrupt, and against whom the judgment creditors in the suits in which he gave the bonds are seeking to enforce execution, holds such money as an adverse claimant within the meaning of § 23a and b of the Bankruptcy Act of 1898, and the district court of the United States does not have jurisdiction in a summary proceeding on the petition of the trustee to compel him to turn such money over to the trustee in bankruptcy.

It makes no difference as to this question of jurisdiction whether the judgment creditors have or have not proved their claims before the referee in bankruptcy. Such creditors have the right to obtain and enforce their judgments in the state courts.

The appellant herein was appointed a trustee in bankruptcy by the United States District Court in Massachusetts on September 18, 1900, and his bond was approved on the 21st of that month. The bankrupt was duly adjudged such on August 15, 1900, and at the date of that adjudication, there were pending in the Superior Court of Massachusetts, for Middlesex County two suits -- one of E. W. Thayer against the bankrupt, in which a bail bond had been taken on November 14, 1899, and the other a suit of E. F. Flanders against the bankrupt, in which case a bail bond had also been taken on that day, and in order to protect the surety, Joseph P. Silsby, Jr., on the bail bond in each of the two cases, the bankrupt on the same day deposited in the hands of the surety the two sums of $148 in the Thayer suit and $125 in the Flanders suit. These sums were to be held to indemnify the surety in each case, respectively, if the bankrupt avoided the bail bond. After the adjudication in bankruptcy, these suits proceeded to judgment in the state court, and the plaintiffs took out execution, which they are seeking to enforce chanrobles.com-red

Page 188 U. S. 621

against the surety on the bail bond, but not against the bankrupt himself.

At the first meeting of the creditors, the plaintiff Thayer in the suit in the state court against the bankrupt appeared in the bankruptcy court and proved her claim for $150. Flanders, the plaintiff in the other suit in the state court, did not appear or prove his claim. After the appointment of the trustee, and without leave of the bankruptcy court, and without notice to or the knowledge of the trustee, the plaintiff in each of the two suits took judgment by default in the state court. Upon learning of the entry of the judgments, the trustee notified the surety not to pay the money over, and then, in the name of the bankrupt, petitioned the state court to vacate the judgment and to order the execution returned, which the state court refused to do, and thereupon the trustee filed his petition in the District Court of the United States for the District of Massachusetts against the plaintiffs in the two suits, their attorney, and the surety, setting up that the prosecution of the suits in the state court was contrary to the provisions of the Bankruptcy Act and a contempt of court, and praying that the plaintiffs and their attorney be enjoined from collecting the judgments, and that the surety be enjoined from paying the money in his hands, and that the parties plaintiffs in the judgments and their attorney be adjudged in contempt, etc. This motion was denied and the restraining order refused.

The petition was subsequently amended by leave of the court so as to ask that the plaintiffs and their attorney in the states suits be enjoined from collecting the judgments, or making any levy under the execution, or taking any further proceedings therein pending the further and final determination of the court in bankruptcy upon the petition of the trustee, and also that the surety, Joseph P. Silsby, Jr., be ordered to pay over to the trustee the funds deposited in his hands; also that the several plaintiffs in the state suits be ordered to appear before the referee in bankruptcy and prove their claims against his estate and establish their liens, if any, upon the funds paid over to the trustee by Joseph P. Silsby, Jr. This amended petition omitted the prayer that the plaintiffs in the suits in the state court might chanrobles.com-red

Page 188 U. S. 622

be adjudged guilty of contempt, etc. Upon the petition as amended, a motion for a rehearing was made and granted, and the appellees appeared and objected that the court had no jurisdiction in the matter of the petition, and after argument, the court so held, and denied the petition for want of jurisdiction only, and allowed an appeal to this Court.

In dismissing the petition, the district judge certified that the following questions arose before him, namely:

"1. Do the provisions of the second clause of section 23 of the Act of Congress known as the Bankruptcy Act of 1898 control and limit the jurisdiction of the several district courts of the United States, so that said courts cannot permanently enjoin a creditor of the bankrupt who has proved his debt in the bankruptcy court from collecting a judgment recovered in the state court and from making levy under an execution taken out on said judgment, and do they limit the jurisdiction of the said courts so that these courts may not require said creditor to submit the controversy to their judgment?"

"2. Do the provisions of the second clause of section 23 of the Act of Congress known as the Bankruptcy Act of 1898 control and limit the jurisdiction of the several district courts of the United States, so that said courts cannot permanently enjoin a creditor of the bankrupt who has not proved his debt in the bankruptcy court from collecting a judgment recovered in the state court and from making levy under execution taken out on said judgment, and do they limit the jurisdiction of the said courts so that these courts may not require said creditor to submit the controversy to their judgment?"

"3. Do the provisions of the second clause of section 23 of the Act of Congress known as the Bankruptcy Act of 1898 control and limit the jurisdiction of the several district courts of the United States over controversies between the trustee and a third person in the possession of property alleged to belong to the bankrupt, it being also alleged that said third person has no beneficial interest in the said property, but has the sole duty of paying or delivering it over in settlement of the debts of the bankrupt?"

"4. Can the district court of the United States entertain

Page 188 U. S. 623

jurisdiction of proceedings on petition by a trustee in bankruptcy to recover property alleged to belong to the bankrupt, but held under a claim of lien or security by the bankrupt's creditor, or by third parties for the benefit of said creditors?"

"5. Can the District Court for the District of Massachusetts take jurisdiction over this suit as it now stands on record?"