Sidney L. Bauman Diamond Co. v. Hart

GRUBB, District Judge

(after stating the facts as above). [1] .The appellants are creditors of the bankrupt and are entitled, as such, to have intervened and resisted the adjudication, if they’ had received ••timely notice. They complain of the order of adjudication entered ¡in their absence and by default, upon many .grounds. The question *501 that presents itself to the court upon the threshold is whether the District Court or its referee acquired jurisdiction to adjudicate the ■bankrupt upon the substituted service shown by the record to have been had. Section 18 of the bankruptcy act of 1898, as amended ⅛ 1903, provides:

“But in case personal service cannot be made, then notice shall be given by publication in the same manner and for the same time as provided by law l'or notice by publication in suits to enforce a legal or equitable lien in courts of the Untied States, except that, unless the judge shall otherwise direct, the order shall be published not more than once a week for two consecutive weeks, and the reí,urn day shall be ten days after the last publication unless the judge shall for cause fix a longer time.”

The act of March 3,1875, § 8, relates to notice by publication in suits to enforce a legal or equitable lien in the courts of the United .States, and provides that in cases where one or more defendants shall not be inhabitants of or found in the district and shall not voluntarily appear — ■

“it shall be lawful for the court to make an order directing such absent defendant or defendants to appear, plead, answer, or demur, by a day certain to be designated, which order shall be served on such absent defendant or defendants, if practicable, wherever found, and also upon a person or persons in possession or charge of said properly, if any there be; or where such personal service upon such absent defendant or defendants is not practicable, such order shall be published in such manner as the court may direct, nof loss than once a week for six consecutive weeks.”

It is apparent from both section 18 of the bankruptcy act and from section 8 of the act of March 3, 1875, that it is the order of the court directing the substituted service upon the absent defendant or bankrupt that is to be published, and that this order shall designate a day upon which the' absent defendant or bankrupt is required to appear and demur, answer, or plead. The order of the court is in no sense process. In the case of Forsyth v. Pierson (D. C.) 9 Fed. 801 -803, the court said :

“The act says the absent defendant shall be ordered to appear on a day to be designated in the order — -not on a rule day. And furthermore, the order for the appearance of the absent defendant is not a subpoena or process within the meaning of rule 17 or rule 15 [20 Sup. Ct. xxvi, xxvii] which provides that the service of all process, mesne or final, shall be by the marshal of the district or by his deputy or by some other person specially appointed for that purpose.”

In the case of Bracken v. Union Pacific Ry. Co., 56 Fed. 447 -449, 5 C. C. A. 548, 550 , the Circuit Court of Appeals for the Eighth Circuit said;

“The mode provided by the act of Congress for acquiring jurisdiction over an absent defendant by publication is exclusive of any other mode, and to render such service effectual, the requirements of the statute must be strictly pursued, in this case there was a total failure to comply with the requirements of the act of Congress. There was no order of the court directing the defendant to appear by a designated day; there was "nothing to show that such an order if made could not have been personally served on the defendant and the person in possession of .the property;- and nof such ■order was published for six consecutive weeks, as. required by the act.”

*502 In the case of United States v. American Lumber Co. (D. C.) 80 Fed. 309 -312, the court said:

“In ttie second place, the only proper and legal method provided by the laws of the United States for the service of extraterritorial process in. a certain class of cases, upon absent or nonresident defendants, is by obtaining the special order of service, sometimes termed the ‘warning order’ as required by section S of the act of March 3, 1875. That it is competent for Congress to provide for extraterritorial service, so long as such service does not violate the constitutional guaranty of ‘due process by law’ is well settled (citing cases). The special order of service, required to be obtained by the act referred to, is not a subpoena or a summons.”

From these decisions, it follows that, in order to accomplish substituted service under section 8 of the act of March 3, 1875, it is necessary (1) that the court make an order designating a day upon which the absent defendant is required to appear and demur, answer or plead, and (2) that the order of the court be published the required time. It also appears that the method prescribed by the act of Congress is exclusive and must be strictly pursued. In this case the order of the judge did not designate any day upon which the defendant was required to appear and demur, answer or plead, but merely directed that the bankrupt be cited by publication, and that the citation be published once a week for two consecutive weeks in the Daily Courier-Times, a paper published at Tyler, Smith county, Tex. The order itself was defective for this reason. Again, the publication was defective in that the order of the court was not published, but instead of it a citation issued by the clerk directing the marshal to summon the bankrupt by making publication of the citation, which contained a direction to the bankrupt to appear before the cotirt at a time and place named in the citation to answer the petition in bankruptcy.

We are constrained to hold that the' method pursued in this case was not in substantial conformity to the requirements of section 18 of the bankruptcy act in that the order of the court did not designate the day upon which the bankrupt was required to appear and answer, and, further, in that the order of the court was not published as is expressly required by section 18 of the bankruptcy act and by section 8 of the act of March 3, 1875, and for that-reason the order of adjudication must be set aside and the cause remanded to the District Court.

[2] The contention of appellants that the order should have been served on the state receiver in possession or charge of the property seems to be answered by the fact that the act of March 3,-1875, requires such service on the person in possession only when service is had upon the defendant in person in another district, and not when service is had upon the defendant by publication. Publication is constructive notice to the person in possession as well as to the defendant.

[3] The order of adjudication also contains the appointment of a receiver for the bankrupt’s property, which was then in the custody of the state court through its receiver. No notice appears to have been given the bankrupt or the receiver of the application for a receiver. Notice to the bankrupt is excused by the showing in the petition that he had absconded. . Notice to the state court receiver should have *503 been given, in view of the fact that the receiver in bankruptcy when appointed is entitled to supersede the possession of the receiver in, the state court (Faulk & Co. v. Steiner, 21 Am. Bankr. Rep. 623, 165 Fed. 861 , 91 C. C. A. 547 ). Nor were the petitioning creditors required to execute a bond as a condition of being allowed to seize the property. An appeal does not lie from an order of the District Court appointing a receiver in bankruptcy, but as the appointment in this case was made by the same order adjudicating the bankrupt, which has been reversed and set aside on this appeal, the appointment of the receiver falls with it.

Appellees contend that no injury to the bankrupt or intervening creditors is shown because it abundantly appears that the bankrupt was insolvent and had committed an act of bankruptcy and cannot, therefore, escape the adjudication after the case is remanded. It is enough that the bankrupt and intervening creditors were deprived of an opportunity to contest these facts, if they desired, by the failure to give the character of notice which alone could avail to bring them into court.

The order adjudicating the bankrupt and appointing a receiver of his property is set aside, and the cause remanded to the District Court for further proceedings.