Opinion
Department Two
Hearing In Bank Denied. Beatty, C. J., Dissented from the Order Denying a Hearing In Bank.
Appeal from a judgment of the Superior Court of the City and County of San Francisco. Eugene R. Garber, Judge.
COUNSEL:
The assignee did not ask to be relieved from a judgment or order taken against him through his mistake, inadvertence, surprise, or excusable neglect, and the code provision was inapplicable. (Code Civ. Proc., sec. 473.) The assignee was vested with all of the estate of the insolvent. (Insolvent Act, secs. 17, 18.) The discharge was only limited to a liability of the assignee to creditors, and did not discharge him from his trust. (Insolvent Act, sec. 34.) The assignee was vested with property not placed in the bankruptcy schedule. (Holbrook v. Coney , 25 Ill. 543; Bank v. Roche , 93 N.Y. 380; Platt v. Lott , 17 N.Y. 479; Holmes v. Hubbard , 60 N.Y. 185; Turner v. Jaycox , 40 N.Y. 473.) The court having original jurisdiction of the subject, jurisdiction over the person of the assignee could be restored by consent. (Hawes on Jurisdiction, sec. 12, p. 18; 7 Waite's Actions and Defenses, 194; 12 Am. & Eng. Ency. of Law, 194, and notes; Brown v. Crow, Hardin, 451; Taylor v. Atlantic etc. R. R. Co ., 68 Mo. 397; Gager v. Doe , 29 Ala. 341; Bostwick v. Perkins , 4 Ga. 47; Overstreet v. Brown, 4 McCord, 79; M'Lean v. Lafayette Bank, 3 M'Lean, 587; Wells on Jurisdiction of Courts, 1st ed., 51.) The assignee could not divest himself or be divested of the right to sue for assets. (Stanford v. Lockwood , 95 N.Y. 582.) The complaint was not required to allege probative facts. (Dambmann v. White , 48 Cal. 439.) The law presumes that the clerk did his duty. (Insolvent Act, sec. 17; San Francisco v. Flood , 64 Cal. 508; Upham v. Hosking , 62 Cal. 250; People v. Smith , 59 Cal. 365; Brennan v. Willson , 71 N.Y. 502-07; Briggs v. Davis , 21 N.Y. 574; Metcalff v. Van Brunt, 37 Barb. 621-27; Cruger v. Halliday, 11 Paige, 314; Savings Bank v. Roche , 93 N.Y. 380.)
Henley, MacSherry & Herrmann, for Appellant.
Newlands, Allen & Herrin, for Respondents.
The order setting aside the order to discharge was void, because application was made more than six months after making the order. (Code Civ. Proc., sec. 473; People v. Greene , 74 Cal. 400, 404; Dean v. Superior Court , 63 Cal. 477, 478; Moore v. Superior Court , 86 Cal. 495; Montgomery v. Ellis, 6 How. Pr. 326.) The complaint does not show an assignment of the insolvent's property, and states no cause of action. (Stats. 1880, sec. 17, p. 321; Deering's Code Civ. Proc., 682; King v. Felton , 63 Cal. 66, 67; Hastings v. Cunningham , 39 Cal. 137.) The constitution gives a new right and a new remedy which is exclusive to the party paying. (Const., art. IV, sec. 26; County v. Abbott , 77 Cal. 541; Reed v. Omnibus R. R. Co ., 33 Cal. 212.)
JUDGES: Haynes, C. Searls, C., and Belcher, C., concurred. McFarland, J., Fitzgerald, J., De Haven, J.
OPINION
HAYNES, Judge
This is an appeal from a judgment rendered upon defendants' demurrer to the complaint. The principal questions arise upon the following facts appearing in the complaint:
On August 19, 1887, C. A. Macomber was on his own petition adjudged an insolvent debtor, and, on September 6, 1887, the plaintiff herein, J. C. Rued, was appointed assignee and qualified as such. On May 8, 1888, the assignee filed in court his final account, which was settled and allowed; and on June 13, 1888, an order was made by the superior court ordering the final discharge of the assignee. After the discharge the assignee discovered that he had a good cause of action against the defendants for a large amount of money upon a liability existing in favor of the insolvent at the time he filed his petition. This liability was not included in the insolvent's schedule nor in the assignee's account, for the reason that it was unknown to him until after his discharge; that on January 18, 1889, after discovering said alleged cause of action against the defendants, he procured an ex parte order to be entered setting aside his said discharge and the order settling his final account, and thereafter commenced this action.
The causes of action stated in the complaint were to recover moneys paid by the insolvent to the defendants for the purchase and sale of stocks on a margin. Respondents contend that the order setting aside the order of final discharge of the assignee is absolutely void, because made more than six months after the order of final discharge was entered; that the only authority given the court to set aside any judgment or order is found in section 473 of the Code of Civil Procedure, which expressly limits its exercise to a period "not exceeding six months after such judgment, order, or proceeding was taken"; while appellant contends that this section has no application; that it applies only to judgments, orders, or proceedings taken "against" the party applying for relief therefrom; that the order of discharge vacated upon his application was one in his favor, procured upon his application, relieving him from responsibility to creditors of the insolvent, and was not final; that even if it were a final order, the court having once had jurisdiction, its jurisdiction may be restored by consent.
In People v. Greene , 74 Cal. 403-04, it was said: "Under the former system of practice in this state the decisions were numerous and quite uniform to the effect that upon the expiration of the term of court all power to alter, change, modify, or annul judgments entered during the term or prior thereto was lost, unless saved by some motion or action of the court during the term, except as otherwise provided by statute. Under our present system of jurisprudence terms of court are abolished, and as the rule cannot apply literally, it is provided by section 473 of the Code of Civil Procedure that the relief which formerly could be had during the term may be sought within a reasonable time, which is defined to be six months." In that case it was further said: "In Hastings v. Cunningham , 35 Cal. 550, it was held that the rule indicated had no application, except as to final judgments, and did not apply while the proceedings remained in fieri ."
The meaning of the old rule was that the court lost jurisdiction at the expiration of the term at which final judgment was rendered. Until jurisdiction was lost the court had full power over its proceedings and the cause.
In determining whether the court had lost jurisdiction to take further proceedings after the discharge of the assignee and the lapse of the time limited by section 473 of the Code of Civil Procedure, the character of the case, the nature of the jurisdiction in insolvency cases, and of the order of discharge must be considered.
By the adjudication of the insolvency, all the property of the insolvent (not exempt from execution) is, by operation of law, placed in the hands of the court, and under its control, and subject to its disposition. The insolvent act requires no conveyance from the insolvent. Upon the appointment and qualification of the assignee "the clerk of the court shall, by an instrument under his hand and seal of the court, assign and convey to the assignee all the estate, real and personal, of the debtor, with all his deeds, [34 P. 99] books, and papers relating thereto, and such assignment shall relate back to the commencement of the proceedings in insolvency, and by operation of law shall vest the title to all such property and estate, both real and personal, in the assignee." (Insolvent Act of 1880, sec. 17.)
By the adjudication, therefore, the property of the insolvent debtor passed from him and came under the control of the court, and the sheriff was required to take possession of it. It is a proceeding in rem, or at the least quasi in rem. The proceeding by creditors to establish their claims, though they name the insolvent as the debtor, is in reality a proceeding to establish their several claims against the property, to which they can alone look for payment. The assignee is but the hand of the court, and, though elected by the creditors, derives his powers from and discharges his duties under the direction of the court, and is, for the purposes of the proceeding, an officer of the court. The insolvent practically disappears as a party to the proceeding, and only the execution of the trust remains. The title to his property has passed from him, and by operation of law is vested in the assignee, who is an officer of the law and a trustee for the creditors. Nor is the title of the assignee restricted to property or demands embraced in the schedule filed by the insolvent.
The status of all the property owned by the debtor, of whatever character, is conclusively fixed by the statute, upon his insolvency being adjudged by the court. Section 18 of the Insolvency Act provides: "The assignee shall have the right to recover all the estate, debts, and effects of said insolvent." The language of the Bankrupt Act of 1841 was scarcely more comprehensive than that above quoted, yet it was held that all but the excepted property of the bankrupt passed to the assignee, although not included in the schedule. (Holbrook v. Coney , 25 Ill. 543.)
In a recent work on Jurisdiction, it is said: "There are two divisions that should be made of proceedings in rem pertaining to 'things indebted.' The first pertains to a class of actions where the entire res comes under the control of the court as the basis of jurisdiction. The second are actions personal in their nature, but in which the law permits the property to be seized in the progress of the action as a basis of jurisdiction. The latter class has been defined to be a proceeding quasi in rem ." (Brown on Jurisdiction, sec. 64.)
In the same section the author places in the first class, among others, probate proceedings, proceedings in bankruptcy, and assignments for the benefit of creditors. In bankruptcy and insolvency proceedings it is clear that the indebtedness of the bankrupt and insolvent is upon the adjudication transferred from the person to the res .
The jurisdiction being based upon the res was not lost by the settlement of what was called the final account, nor by the so-called discharge of the assignee. The insolvent, when he received his final discharge, was no longer a necessary or proper party to the subsequent proceedings. That adjudication, so far as it is personal, is final; but the other jurisdiction must remain until the property, the subject of the trust, is finally disposed of. The title has passed out of the insolvent and is vested in the assignee, and still remains under the control and subject to the disposition of the court. The accident that the assignee believes that he has disposed of all the property of the insolvent and has settled his account does not divest his title, nor so end the proceedings that they may not be revived should other property be discovered. He is not authorized nor empowered by the statute to reassign or convey to the insolvent such subsequently discovered property, and his duty to creditors will not permit him to conceal the property thus discovered, or refuse to recover it and distribute the proceeds among them.
If the court can be said to have lost jurisdiction at all, it could only be as to the assignee; but as to him, if the jurisdiction had lapsed by virtue of the order and the efflux of time, it may be restored by his consent, the court not having lost its jurisdiction of the subject matter. In Brown v. Crow, Hardin, 448, the court said: "It must be admitted as a general principle that consent cannot give jurisdiction; but this principle only applies to original jurisdiction, or, in other words, to those cases where the court never had, by law, jurisdiction in the case. But where the court once had jurisdiction, although the power may have been executed, so that without the consent of parties the court could not change their former judgment or decree, the jurisdiction may be, and in many cases has been, restored by consent. In such cases the maxim 'Consent takes away error' applies. Volume 2 of the Washington Reports, page 213, recognizes this distinction."
The only parties before the court after the discharge of the insolvent were the assignee and the creditors, who are represented by the assignee as their trustee.
Nor do we think that the discharge was a final judgment or order as affecting the jurisdiction of the court. Section 33 of the Insolvent Act authorizes the court, upon the grounds there stated, to "immediately discharge such assignee from his trust, and shall have power to appoint another in his place"; whilst section 34 provides that upon filing his final account and application for its settlement "the court thereupon shall settle the account, and order a dividend of any portion of the estate remaining undistributed, and shall discharge the assignee, subject to compliance with the order of the court, from all liability as assignee to any creditor of the insolvent."
It will be observed in the one case that the assignee is discharged from his trust, whilst in the other he is simply discharged [34 P. 100] from liability as assignee to any creditor of the insolvent; thus, by the very form of the discharge, leaving him with all his powers as trustee in case other property than that disposed of by his previous accounts should be discovered.
Whether or not it was necessary to set aside the former order of discharge and settlement of account in order to bring the present action, it is not necessary to decide; though this action of the court, even if not strictly necessary, was nevertheless proper, as it was a direct recognition of the continuing authority of the assignee. We think section 473 of the Code of Civil Procedure has no application to such an order as that entered, discharging the assignee from liability to creditors, for it is manifest that if the assignee in fact knew of other property which should have been appropriated to the payment of the creditors, and had omitted to apply it, the discharge in question could not have relieved him from responsibility, and that being true the discharge can only apply to matters appearing in his account to which they have had an opportunity of excepting.
It is further contended by respondents that there is no allegation in the complaint that an assignment of the insolvent's property was made to plaintiff, and that the omission of that averment is fatal. The complaint averred "that on the 26th day of September, 1887, an order was duly made by and in the said superior court, duly appointing the said plaintiff assignee of the said insolvent debtor, C. A. Macomber; that on the 27th day of September, 1887, the said plaintiff, as said assignee, filed his bond as required by law, and on the same day duly qualified and entered upon the discharge of his duties as such assignee; that on May 8, 1888, the said assignee filed in said court his final account, and the same was settled and allowed."
We think these allegations sufficient under a general demurrer. The special demurrer of defendants does not go to this point. The statute makes it the duty of the clerk of the court to convey to the assignee all the estate of the debtor as soon as the assignee has given bond and qualified. The clerk is an officer of the court acting under its direction, and the presumption is that every officer discharges every duty specifically enjoined upon him. (Code Civ. Proc., sec. 1963, subd. 15.) If the assignment were required by the statute to be made by the insolvent, a much more serious question would arise; but here the assignment is based upon the previous proceedings of the court, and becomes a step in the cause, and essentially a part of the regular and orderly proceedings therein, and, therefore, is presumed to have been taken. If there was in fact no assignment, it may be pleaded as matter of defense. We think the complaint upon this point is sufficient, at least in the absence of a special demurrer.
Respondents further contend that "Macomber alone, not his assignee, can maintain any action to recover the claims counted upon." The constitution, article 4, section 26, provides: "All contracts for the sale of shares of the capital stock of any corporation or association on margin, or to be delivered at a future day, shall be void, and any money paid on such contracts may be recovered by the party paying it by suit in any court of competent jurisdiction." This provision, it is said, creates a new right and provides a remedy, and that such remedy is exclusive and limited to Macomber personally. We think this contention cannot be sustained. The remedy given is a recovery of money paid on a void contract. There is no distinction between money paid under a contract declared void by the constitution and that paid under any other void contract. In all such cases the party who has paid the money remains the equitable owner of it, though he could not, in many cases, maintain an action for its recovery. But here the constitution, which declares the contract void, expressly authorizes its recovery. It was, prior to Macomber's insolvency, a part of his estate, and in case of his death the right of action would have survived, unless the right of action is limited to him personally; for a right of action which survives is, under the general rule, assignable.
This question was considered in the case of Meech v. Stoner , 19 N.Y. 26. There, by the statute, all wagers, bets, or stakes upon any gaming are declared to be unlawful, and all contracts for or on account of any money or property or thing in action so wagered are void, and it is provided that the person who shall, by playing at any time or betting on the sides or hands of those who play, lose at any time or sitting the sum of twenty-five dollars or upwards, and shall pay or deliver the same, or any part thereof, may, within three calendar months after such payment or delivery, sue for and recover the money, or value of the thing so lost, paid, or delivered from the winner thereof. It was claimed on the part of the defendant that the loser at play has, by the statute, a merely personal privilege to sue and recover back his losses, but has no interest in the money or thing sued for which is capable of assignment, so as to give the right of action to any one else.
In that case it was held that if the statute had not given an action to recover money lost at play, that a suit for such purpose could not be maintained. That this exemption, however, would not result from any title in the defendant to the money or thing won and received by him, but because the courts withheld their remedial process from each of the offending parties, thus leaving the parties where the law finds them, and the defendant prevails, not upon his own merits or title, but because the plaintiff is deemed unworthy to be heard in the case. But the court further said: "That difficulty being removed by [34 P. 101] the legislature, I see no reason why the right to demand and recover money staked and lost in gaming is not as much a part of a man's estate as any other right in action which he can possess; and if this be so why is not such a demand, like any other, capable of being transferred by act of the party or of the law; but the statute, it is said, gives the action to the 'person' and not to his assigns or representatives. Upon the precise terms of the statute this is so; yet it is difficult to suggest any reason why the right to be asserted in such an action would not devolve upon the administrator, and thus become a fund for the payment of debts or for distribution amongst the next of kin; or why an assignee in bankruptcy or insolvency would not succeed to the claim and be able to enforce it for the benefit of creditors. Assignability of things in action is now the rule; nonassignability, the exception; and this exception is confined to wrongs done to the person, the reputation, or the feelings of the injured party, and to contracts of a purely personal nature, like promises of marriage."
The court in this case sustained the views above quoted by further argument and the citation of a number of cases, both English and American, and in these views we concur. We think the court erred in sustaining the demurrer to the complaint, and that the judgment should be reversed with leave to the defendants to answer.
For the reasons given in the foregoing opinion it is ordered that the judgment appealed from be reversed, and that the defendants have leave to answer.