Source: https://supreme.justia.com/cases/federal/us/198/280/
Timestamp: 2019-04-20 00:28:53+00:00

Document:
Justia › US Law › US Case Law › US Supreme Court › Volume 198 › First Nat'l Bank v. Chicago Title & Trust Co.
As the proceeding was one in bankruptcy, there was no appeal to the circuit court of appeals, and its jurisdiction was confined, under clause of § 24, to revision in matter of law on notice and petition.
The provisions as to revision in matter of law and appeal must be construed in view of distinctions recognized in §§ 23, 24 and 25, between steps in bankruptcy proceedings proper and controversies arising out of the settlement of estates.
The bankruptcy court is without jurisdiction to determine adverse claims to property not in the possession of the assignee in bankruptcy by summary proceedings, whether absolute title or only a lien is asserted, and suits by a trustee may only be brought in courts where they might have been brought by the bankrupt.
to a waiver of the objections or consent to the jurisdiction of the court, and the sale of the merchandise by court did not, under the circumstances of this case, change the situation or create a fund which conferred jurisdiction.
The circuit court of appeals had no jurisdiction of the appeals, and they should have been dismissed.
The district court had no jurisdiction to go to judgment in the proceeding, and, on ascertaining that fact, should have declined to retain it, and have entered a decree for the return of the money to the claimants without prejudice to the right of the trustee to litigate in a proper court.
Although it turns out that, if the district court has not jurisdiction, it may proceed until that fact appears, and may, on consent, direct a sale of perishable property involved, and on relinquishing jurisdiction an order returning the proceeds is equivalent to an order returning the property.
"1. That for some years prior to the 10th day of May, 1901, Alexander Rodgers was a wholesale dealer in seeds in the City of Chicago, Illinois, and that, on said day, he was adjudged a bankrupt by the District Court of the United States for the Northern District of Illinois, and the Chicago Title & Trust Company, respondent herein, was duly appointed receiver, and subsequently trustee, of the estate of said bankrupt."
"2. That the National Storage Company, respondent, is a corporation organized under the laws of Illinois to do, and is engaged in doing, a warehousing business in the State of Illinois and elsewhere. That some months prior to said 10th day of May, said storage company issued to said Alexander Rodgers sundry warehouse receipts which were similar except as to the quantities and dates; one of which said receipts is in the words and figures following:"
" Warrant No. 8401. Lot No. 1."
charges and delivery of this warrant at its office in Chicago, duly indorsed."
" It is agreed that this company is not responsible for loss or damage to property occasioned by fire, water, leakage, vermin, ratage, shrinkage, accidental or providential causes, riot or insurrection, frost or change of weather, or from being perishable while in storage, and that this company shall, in the custody of the above property, be the agent of the holder of this warrant."
" Storage and charges as per contract on file with this company."
" Chicago, Aug. 31, 1900."
"[Signed by the National Storage Company by its president and treasurer, and the corporate seal affixed.]"
"That immediately thereafter, said Rodgers indorsed and hypothecated thirteen of said receipts to your petitioner, the First National Bank of Chicago, to secure loans made by it to him aggregating about $12,000, and indorsed and hypothecated five of said receipts to your petitioner, H. W. Rogers & Brother, to secure a loan by them to him of $5,000, and that said loans are still unpaid and due to petitioners respectively, and said petitioners at the time said Rodgers was adjudged a bankrupt, held and still hold said warehouse receipts as security for said loans respectively."
by said warehouse receipts was at the time of the adjudication in bankruptcy, in the possession of said storage company, that the district court was without jurisdiction, and recommending a dismissal of said petition."
"That subsequently exceptions to said report were heard by said district court, and it confirmed the referee's finding as to possession, but overruled his finding as to jurisdiction, and held it had jurisdiction, and ordered (the petitioner First National Bank consenting) that said seed be sold and the proceeds thereof be deposited with said First National Bank, subject to the further order of said court; that said seed was sold, and the amount realized therefrom was in excess of the amounts of petitioners' said claims, and this money is still in the hands of the petitioner the First National Bank."
"That said petitioners thereupon severally filed petitions in said court, asking payment of their said claims out of said proceeds. That said Chicago Title & Trust Company, as trustee, and the respondents James A. Patten, and E. W. Bailey & Company, as creditors, answered said petitions, denying the right of your petitioners to said fund, and thereupon said petitions were referred to said referee to take additional proof and report the same to the court, and the said matter again coming before the court upon the report of said referee and exceptions thereto, said petitions of your petitioners were consolidated, and the court confirmed said report of said referee, except so far as it found a lack of jurisdiction in said district court, and adjudged that said district court had jurisdiction; that said decree also found that said storage company was at the time of the filing of the bankruptcy petition herein, in the possession of, and entitled to the possession of, said seed, and decreed that petitioner First National Bank retain out of said proceeds the sum of $9,854.15 on account of its claim, and pay therefrom to petitioners H. W. Rogers & Brother $5,000."
from said order or decree to the Circuit Court of Appeals of the Seventh Circuit."
"That thereafter said two appeals were duly filed in said circuit court of appeals, and were there, by order of court, consolidated and heard as one case."
"That said circuit court of appeals thereafter filed its opinion in said consolidated causes, reviewing the question of fact whether the storage company was in possession of said seed at the time of the proceedings in bankruptcy, and held that said district court had erred in deciding this question of fact, and overruled said district court upon said question of fact, and decided that said storage company was not in possession of said seed, and remanded said cause, with directions to enter a decree for said trustee."
"That thereafter these petitioners filed a petition for rehearing in said cause, which was subsequently denied."
"That your petitioners are advised by counsel that there existed in law no right of appeal by said trustee or said Patten from said order of said district court, and that, if said alleged attempts to appeal should be treated strictly as appeals, said circuit court of appeals was without jurisdiction of the subject matter, and its said order reversing said decree of the district court was null and void."
"That your petitioners are also advised by counsel that, if said appeals rightly could be, and were, treated by said circuit court of appeals as, in effect, petitions for revision, said circuit court of appeals, by the express terms of the bankruptcy statute, was limited in its jurisdiction to a revision of the decision of the district court in matter of law, and that said circuit court of appeals, in reversing said district court upon the said question of fact, proceeded without jurisdiction, and in violation of the said statute."
bankrupt turned over his property, including the seed in dispute, to the receiver. And it was insisted that the proceeding was a plenary suit, to the institution of which, in the district court sitting in bankruptcy, the petitioners, as adverse parties, had consented. Certiorari was granted, and thereafter a motion to quash the writ was filed on the ground that the matters involved and determined in the cause were controversies arising in bankruptcy proceedings, as distinguished from proceedings in bankruptcy, and that the remedy was by error or appeal, rather than by certiorari. Consideration of this motion was postponed to the hearing on the merits.
The case in the circuit court of appeals is reported, 125 F. 169.
In the view we take of the case, the petition for certiorari sufficiently discloses the facts. If the proceeding in the district court was a proceeding in bankruptcy, and not an independent suit, no appeal lay to the circuit court of appeals, and the jurisdiction of that court was confined to revision in matter of law "on due notice and petition" under clause b of section 24.
The distinction between steps in bankruptcy proceedings proper and controversies arising out of the settlement of the estates of bankrupts is recognized in sections 23, 24, and 25 of the present act, and the provisions as to revision in matter of law and appeals were framed and must be construed in view of that distinction. Holden v. Stratton, 191 U. S. 115; Denver First Nat. Bank v. Klug, 186 U. S. 202; Elliott v. Toeppner, 187 U. S. 327, 187 U. S. 333-334.
and the then decisions in respect of a proceeding in bankruptcy and an independent suit are applicable. It was settled that the bankruptcy court was without jurisdiction to determine adverse claims to property not in the possession of the assignee in bankruptcy, by summary proceedings, whether absolute title or only a lien was asserted. Smith v. Mason, 14 Wall. 419; Marshall v. Knox, 16 Wall. 551; In re Bonesteel, 7 Blatchf. 175, Mr. Justice Nelson; Knight v. Cheney, 14 Fed.Cas. 760, Mr. Justice Clifford; In re Ballou, 4 Ben. 135, Mr. Justice Blatchford, then district judge; In re Marter, 16 Fed.Cas., MR. JUSTICE BROWN, then district judge.
"cause the estates of bankrupts to be collected, reduced to money, and distributed, and determine controversies in relation thereto, except as herein otherwise provided,"
"Suits by the trustee shall only be brought or prosecuted in the courts where the bankrupt whose estate is being administered by such trustee might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant."
And that the district courts had no jurisdiction of such plenary suit without consent.
"This brought the controversy within the ruling in Bardes v. Bank, 178 U. S. 524, and the questions attempted to be litigated before the referee and in the district court as to the allowance of the two amounts could only be raised in the district court by consent, and then only by plenary suit. If the jurisdiction of the district court was not consented to, then the state court, under the circumstances of this case, was the proper forum, and the matters in dispute were to be disposed of there. . . ."
"The proceeding was purely summary. . . ."
"The question is whether the district court had jurisdiction to finally adjudicate the merits in this proceeding . . ."
"In many cases, jurisdiction may depend on the ascertainment of facts involving the merits, and in that sense the court exercises jurisdiction in disposing of the preliminary inquiry, although the result may be that it finds that it cannot go farther. And where, in a case like that before us, the court erroneously retains jurisdiction to adjudicate the merits, its action can be corrected on review."
"We are of opinion that, even if Comingor could have consented to be pursued in this manner, he did not so consent. He was ruled to show cause, and the cause he showed defeated jurisdiction over the subject matter -- that is, jurisdiction to proceed summarily. He did not come in voluntarily, but in obedience to peremptory orders, and although he participated in the proceedings before the referee, he had pleaded his claims in the outset, and he made his formal protest to the exercise of jurisdiction before the final order was entered."
district court had no jurisdiction of an independent suit, it follows that the proceeding in that court could not be held to have been such, as, indeed, in form, on reason, and on authority, it manifestly was not. But nevertheless, the district court had jurisdiction to determine whether it could or could not proceed further. Louisville Trust Company v. Comingor, 184 U. S. 18; Mueller v. Nugent, 184 U. S. 1; Schweer v. Brown, 195 U. S. 171.
In the present case, the receiver filed a petition reciting that he had taken possession of the property. This was denied. The district court adjudged that the receiver had not at the time of filing its petition, the right of possession, and that the National Storage Company at that date and also at the time of the filing of the petition in bankruptcy, was entitled to possession and had possession. Nevertheless it retained jurisdiction and decreed payment to petitioners out of the proceeds of the sale.
The sale in the circumstances did not change the situation. The proceeds stood in place of the property, and the order returning the proceeds was equivalent to an order returning the property. This it was proper to do, whether the court had held that it lacked jurisdiction or ruled in favor of petitioners on the merits. The court of appeals sustained the jurisdiction of the district court upon the ground that it had acquired a fund, and had jurisdiction to dispose of it; but we do not think that a court of bankruptcy can create a jurisdiction forbidden by statute. And, in any view, the proceeding was a proceeding in bankruptcy. Being such, an appeal from the decree of the district court under section 25a did not lie, and parties aggrieved could only invoke the supervisory power under section 24b. Holden v. Stratton, 191 U. S. 115; Hutchinson v. Otis, 190 U. S. 552.
power, it would have been confined to matter of law. We are clear that an appeal would not lie, and the decrees of the circuit court of appeals must be reversed, with a direction to dismiss the appeals and remand the cause to the district court for further proceedings in conformity with this opinion.
In our view, the district court should have declined, upon its findings, to retain jurisdiction, and in that event the decrees for the return of the money should have been without prejudice to the right of respondents to litigate in a proper court, which modification we direct to be made.

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