Source: https://supreme.justia.com/cases/federal/us/198/539/
Timestamp: 2019-04-24 15:53:14+00:00

Document:
The bankruptcy court has jurisdiction of a proceeding in the nature of a plenary action brought by the trustee to determine controversies in relation to property held by the bankrupt or by other parties for him, and the extent and character of liens thereon, and this applies to a suit brought against parties claiming possession of goods in the bankrupt's store, as warehousemen, under a nominal lease of the store from the bankrupt.
A receiver in bankruptcy is appointed as a temporary custodian, and it is his duty to hold possession of property until the termination of the proceedings or the appointment of the trustee, and meanwhile the bankruptcy court has possession of the property and jurisdiction to hear and determine the interests of those claiming liens thereon or ownership thereof, and this jurisdiction cannot be affected by the receiver's turning the property over to any person without the authority of the court.
into a plan or arrangement with the defendants the Security Warehousing Company, to-wit, a certain alleged lease of the store, display and sales rooms was made by Dresser & Company to the Security Warehousing Company at a nominal rental of $1 a year, in order that thereafter the said warehousing company might claim that the goods and display and sales rooms belonged to it. That the goods in reality belonged to the firm of Dresser & Company, and there was no change of location or ownership of the said goods, but Dresser & Company remained in possession and control thereof, and permitted the display of them in the same manner as that firm had done prior to the pretended storage. Dresser & Company exhibited the goods to their customers, sending portions to dyers and manipulators, and generally handled and used them as if they were their own, and free and clear from all claims and encumbrances. That the Security Warehousing Company exercised no supervision or control over the said goods, but merely employed, or pretended to employ, the confidential clerk and secretary of Daniel LeRoy Dresser and Dresser & Company, as its alleged custodian, in whose charge it was claimed the goods had been placed at a salary of one dollar per month. She exercised no control or supervision over the goods, but, during the period of her employment, continued to act as the confidential secretary of the bankrupts. The security company also placed a few small tags on the shelves and bins in which the goods were stored and displayed for sale, upon which tags the name of the security company was printed, but the tags were not easily discovered, and in most instances were so placed as not to be readily seen, and were not of such a character as to identify the goods.
Dresser & Company before March 7, 1903, amounting to the sum of $22,000. That said receivers collected upwards of $20,000 of accounts receivable of Dresser & Company, and paid the same over to the Security Warehousing Company. That these goods were sold and the accounts collected by the warehousing company before the appointment of complainant as trustee in bankruptcy of Dresser & Company. None of said goods or their proceeds have come into the hands of the trustee except the sum of $1,944.93, paid to the complainant by the security company. Then follow averments as to the payment of the proceeds of the goods sold and accounts collected to the other defendants and the holders of said warehouse receipts. It is averred that the books and records of the Security Warehousing Company are lost or destroyed. It is alleged that the attempt to create a lien upon the goods in the manner aforesaid was contrary to law and the statutes of the State of New York. That the silk goods had been sold at much less than their value. The prayer of the bill is that the security instruments be declared invalid, fraudulent, and void, and that the complainant be decreed the owner of the goods and accounts, and that the defendants be required to account for the value of the same, and for general relief, as the nature of the case may require.
of the alleged lien in view of the lack of change of possession of the goods under the circumstances set forth. The question for this Court now to determine is whether the bankruptcy court, on the allegations made and admitted as true by the demurrer, had jurisdiction to determine the controversy. It is positively alleged in the bill that the supervision and control of the goods continued in the firm of Dresser & Company, and that the alleged doings of the Security Warehousing Company and its agents were merely colorable, and did not in fact change the control over the goods, nor give any notice of the alleged lease of the warehousing company, nor the lien of the instruments thereby secured. It is further positively averred that, when the receivers were appointed, upwards of $150,000 worth of goods belonging to the firm were in the possession and under the control of the bankrupts, and after the receivers had taken possession of the store, the goods were delivered up to the warehousing company without any order or attempt to procure the sanction of the court to such surrender of the property. Under these circumstances, had the bankruptcy court jurisdiction to determine the rights of parties claiming interests in the property?
"appoint receivers or the marshals, upon application of parties in interest, in case the court shall find it absolutely necessary, for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition, and until it is dismissed or the trustee is qualified;"
"cause the estates of bankrupts to be collected, reduced to money, and distributed, and determine controversies in relation thereto, except as herein otherwise provided."
"The Bankrupt Act of 1898, § 2, invests the courts of bankruptcy with such jurisdiction at law and in equity, as to enable them to exercise original jurisdiction in bankruptcy proceedings, in vacation in chambers, and during their respective terms to make adjudications of bankruptcy, and, among other things,"
"(3) appoint receivers or the marshals upon the application of the parties in interest, in case the courts shall find it absolutely necessary for the preservation of estates to take charge of the property of bankrupts after the filing of the petition, and until it is dismissed or the trustee is qualified; . . . (6) bring in and substitute additional persons or parties in proceedings in bankruptcy when necessary for the complete determination of a matter in controversy; (7) cause the estates of bankrupts to be collected, reduced to money, and distributed, and determine controversies in relation thereto, except as herein otherwise provided."
"The exception refers to the provisions of section 23, by virtue of which, as adjudged at the last term of this Court, the district court can, by the proposed defendant's consent, but not otherwise, entertain jurisdiction over suits brought by trustees in bankruptcy against third persons, to recover property fraudulently conveyed by the bankrupt to them before the institution of proceedings in bankruptcy.
Bardes v. Hawarden Bank, 178 U. S. 524; Mitchell v. McClure, 178 U. S. 539; Hicks v. Knost, 178 U. S. 541."
This case (Bryan v. Bernheimer) would seem to limit the effect of the decision in the Bardes case to suits against third persons on account of transfers made before the bankruptcy, and to recognize the right of the bankruptcy court to adjudicate upon rights in property in the possession of the court, belonging to the bankrupt. In the case of Mueller v. Nugent, 184 U. S. 1, this Court recognized the power of the bankruptcy court to compel the surrender of money or other assets of the bankrupt in his possession or that of some one for him. In that case, the decisions in Bardes v. Hawarden Bank, White v. Schloerb, Bryan v. Bernheimer, were reviewed by the Chief Justice, who delivered the opinion of the Court, and it was held that the filing of a petition in bankruptcy is a caveat to all the world, and, in effect, an attachment and injunction, and that, on adjudication, title to the bankrupt's estate became vested in the trustee, with actual or constructive possession, and placed in the custody of the bankruptcy court.
that the jurisdiction of the district court did not obtain, it was pointed out that the court had found that it was not in possession of the property. Nor can we perceive that it makes any difference that the jurisdiction is not sought to be asserted in a summary proceeding, but resort is had to an action in the nature of a plenary suit, wherein the parties can be fully heard after the due course of equitable procedure.
It is insisted that, in the present case, the property was voluntarily turned over by the receiver, and thereby the jurisdiction of the district court, upon the ground herein stated, is defeated, as the property is no longer in the possession or subject to the control of the court. But the receiver had no power or authority, under the allegations of this bill, to turn over the property. He was appointed a temporary custodian, and it was his duty to hold possession of the property until the termination of the proceedings, or the appointment of a trustee for the bankrupt. The circumstances alleged in this bill tend to show that the transfer of the property was collusive, and certainly, if the allegations be true, it was made without authority of the court. The court had possession of the property, and jurisdiction to hear and determine the interests of those claiming a lien therein or ownership thereof. We do not think this jurisdiction can be ousted by a surrender of the property by the receiver, without authority of the court. Whether the rights of the claimants to the property could be litigated by summary proceedings we need not determine. What we hold is that, under the allegations of this bill, the district court had the right, in a proceeding in the nature of a plenary action, in which the parties were duly served and brought into court, to determine their rights, and to grant full relief in the premises, if the allegations of the bill shall be sustained. This view renders it unnecessary to consider the effect of the amendments of the Bankruptcy Act passed February 5, 1903, broadening the power of the bankruptcy courts to entertain suits by trustees to set aside certain conveyances made by the bankrupt.

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