Case Name: In re LICE
Court: United States Court of Appeals for the Eighth Circuit
Jurisdiction: United States
Decision Date: 1910-10-10
Citations: 182 F. 579
Docket Number: No. 104
Parties: In re LICE.
Judges: Before SANBORN and ADAMS, Circuit Judges, and REED, District Judge.
Reporter: Federal Reporter
Volume: 182
Pages: 579–590

Head Matter:
In re LICE.
(Circuit Court of Appeals, Eighth Circuit.
October 10, 1910.)
No. 104.
(Syllabus 6y the Court.)
1. Bankruptcy (§ 440 ) — Revie-vV—Appeal oe Petition eoe Revision — Adjudication of C'keditob’s Claim of Lien — Reviewable Either Way— “Proceeding in Bankruptcy.” ,, , ,
,, , , A decision of a controversy arising in bankruptcy proceedings which involves the validity of the claim of a creditor to a lien upon the property of the bankrupt, or its proceeds under administration in possession of the court, is a proceeding in bankruptcy within the meaning of section 24b of the bankruptcy law and reviewable in matter of law upon a petition to re-
V1Tho grant of jurisdiction to the Circuit Court of Appeals (Bankruptcy Act July 1, 189¾ c. 541, § 24a, 30 Stat. 553 [U. S. Comp. St. 1901, p. 3431]) to review by appeal the final decision of a controversy arising in bankruptcy proceedings of which that court would have had appellate juris diction, if it had arisen in any other case in the federal court, and the grant of jurisdiction to revise and superintend in matter of law the proceedings of the inferior courts of bankruptcy (section 24b [U. S. Gomp. St. 1901, p. 3431]), are not exclusive of each other, but cumulative or concurrent grants, the former of jurisdiction to review questions of law and of fact, the latter of jurisdiction to review questions of law only.
An aggrieved party often has a choice of these methods.
[lid. Note. — For other cases, see Bankruptcy, Dec. Dig. § 440.*
For other definitions, see Words and Phrases, vol. 6, pp. 5631-5038.
Appeal and, review in bankruptcy cases, see note to In re Eggert, 43 O. O. A. 9.]
2. Bankruptcy (§ 440 ) — Petition to Revise — Questions of Daw on Agreed Facts Reviewable.
Decisions of issues of law which arise on agreed or proved facts that are neither contradictory nor doubtful and that leave nothing but their legal effect for determination may be reviewed by petition to revise under section 24b (Act duly 1, 1898, c. 541, 30 Stat. 553 [U. S. Comp. St. 1901, p. 3431]).
But the review of such decisions which require the consideration of conflicting evidence regarding controverted facts may not be invoked successfully by such a petition.
[Ed. Note. — For other cases, see Bankruptcy, Dec. Dig. § 440.*]
3. Subrogation (§ 23*) — Bankruptcy (§ 314*) — Loan to Pay Incumbrance Under Agreement of Owner to Give Dike Dien Entitles to Subrogation.
Where money is lent in pursuance of an express agreement that it is to be used to discharge an existing incumbrance on the borrower’s property and that the lender is to have a first lien upon the property to secure its payment, and the money is so used, such lender may be subrogated to the rights of the incumbrancer whose debt has been paid, not only as against the borrower, but also as against his trustee in bankruptcy, and as against any one else who subsequently acquires an interest in the property with knowledge of the circumstances under which the money was lent.
[Ed. Note. — For other cases, see Subrogation, Cent. Dig. §§ 60-66; Dec. Dig. § 23 ;* Bankruptcy, Dec. Dig. § 314.*
To rights of mortgagee, see note to Rachal v. Smith, 42 C. C. A. 304.]
Reed, District Judge, dissenting.
Application of E. J. Lee for the establishment of a lien on certain real estate in possession of a bankrupt at his adjudication. Order denying the application and the creditor petitions to review the judlgment.
Reversed.
R. L. Holmes and Charles G. Yanlcey, for petitioner.
David Smyth and A. F. Helm, for trustee.
Before SANBORN and ADAMS, Circuit Judges, and REED, District Judge.
For other cases seo same topic & § number m Dec. & Am. Digs. 1907 to date, & Rep r Indexes
For otter cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes

Opinion:
SANBORN, Circuit Judge.
A petition to revise under section 24b of the bankruptcy law (Act July 1, 1898, c. 541, 30 Stat. 553 [U. S. Comp. St. 1901, p. 3431]) challenges in this case the decision of the court below that the petitioner, E. J. Lee, had' no lien upon certain real estate which was in the possession of the bankrupt at the time of his adjudication and which, at the request of the petitioner, was soldi under an order of the referee that its proceeds should stand in its place subject to the same liens that had attached to the land.
The trustee moves to dismiss this petition on the grounds (1) that the case involves a controversy arising in bankruptcy proceedings under section 24a as distinguished from proceedings in bankruptcy under section 24b, and that the decision in it is reviewable by appeal only; and (2) that its determination involves a consideration of evidence and a determination of disputed facts. The land which was the subject of this controversy was a part of the estate of the bankrupt held by the court below in trust to sell and to distribute its proceeds to its creditors. With the consent and at the request of the creditor, Lee, the court sold it, held its proceeds in the place of the property and subject to the same liens, and adjudged the validity of his claim. Undoubtedly there is a controversy here arising in a bankruptcy proceeding which is reviewable by appeal under section 24a, but.there is no prohibition in the bankruptcy law of the revision in matter of law of such a controversy under section 24b, and!, if no controversy arising in bankruptcy proceedings may be reviewed under the latter section, then nothing may be reviewed under it, because, where there is no controversy, there is nothing to review or to decide. The fact is that the grant of jurisdiction to the Circuit Court of Appeals to review by appeal the final decision of a controversy arising in bankruptcy proceedings of which that court would have had appellate jurisdiction if it had arisen' in any other case in a fedteral court under section 24a, and the grant of jurisdiction to revise and superintend in matter of law the proceedings of the inferior courts of bankruptcy under section 24b, are not exclusive of each other, but cumulative or concurrent grants, the former of jurisdiction to review questions of law and of fact, the latter of jurisdiction to review questions of law alone. An aggrieved party often has a choice of these methods. A decision of a controversy arising in bankruptcy proceedings which involves the validity of the claim of a creditor to a lien upon the property of the bankrupt, or its proceeds under administration in possession of the court, is a proceeding in bankruptcy within the meaning of section 24b of the bankruptcy law and reviewable in matter of law uppn a petition to revise. In re Holmes, 142 Red. 391, 393, 73 C. C. A. 491, 493; Dodge v. Norlin, 133 Fed. 363, 367, 66 C. C. A. 425, 429; In re McKenzie, 142 Fed. 383, 385, 73 C. C. A. 483, 485; John Deere Plow Co. v. McDavid, 137 Fed. 802, 810, 70 C. C. A. 422, 430; Security Warehousing Co. v. Hand, 143 Fed. 32, 38, 74 C. C. A. 186, 192; Franklin v. Stoughton Wagon Co., 168 Fed. 857, 860, 94 C. C. A. 269, 272; Thomas v. Woods, 173 Fed. 585, 588, 97 C. C. A. 535, 538, 26 L. R. A. (N. S.) 1180.
There is no dioubt that a petition to revise will not lie to invoke the consideration of evidence to determine disputed questions of fact, but the record is that this controversy was tried and decided upon agreed facts which are spread before us. The petition alleges that the case was finally heard and tried! before the referee on December 17, 1909, "and on said date R. B. Campbell, trustee of said estate, by his attorneys, entered into an agreed statement of facts, which statement and stipulation did cover and include all the facts in connection with said matter. A duly certified! copy of said agreed statement of facts is hereto attached marked 'Exhibit E/ " that the referee allowed the petitioner's claim, and denied his lien and the court affirmed that decision. The trustee did not answer this petition, and there is no denial of these allegations. The agreed facts recited) in the stipulation are not contradictory, doubtful, or incomplete, and the only question there presented is their legal import. The motion to dismiss the petition must therefore be denied.
On July 28, 1908, one Hollicke had recovered a judgment for $522.-22 against the bankrupt on its promissory note which was secured by a mortgage upon its land. The contention of counsel for the trustee that this mortgage had been released in January, 1908, has not been overlooked!. It rests upon the fact that there is in the record a copy of this mortgage and of the following endorsements upon it:
"The amount secured by this mortgage has been paid in full and the same is hereby cancelled this 3rd day of January, 1908. J. F. Hollicke. Filed August 21, 1908, 9 A. M. and recorded on margin of record. T. E. Keller, Register of Deeds. J. E. Farrow, Deputy."
But the legal presumption is that the mortgage was in the possession of Hollicke, the mortgagee, on January 3, 1908, and his indorsement of a release upon it without a delivery thereof to the mortgagor or to the owner of the property wouldl be ineffective. The mortgage was not paid until July 28, 1908. There is no evidence that the release was delivered before that date. It is not probable that Hollicke delivered it before the mortgage was paid, and the agreed! statement of facts reads:
"Heretofore and prior to the 28th day of July, 1908, one J. F. Hollicke had a mortgage on certain property owned by the bankrupt at that time, a copy of which with the endorsements thereon is hereto attached."
This condition of the record convinces that the mortgage had not been released on July 28, 1908, when the bankrupt persuaded the petitioner to advance to it $522.22 in reliance upon the security which it furnished. This mortgage had been made in June and had been re-cordled in July, 1907. In this state of the case the bankrupt on July 28, 1908, agreed in writing to procure an assignment' of this mortgage to the petitioner Ree to secure to him the repayment of $522.22, and that he should be subrogated to all the rights of Hollicke, the mortgagee therein, if he would advance to it that amount of money to enable it to pay Hollicke's judgment against it, and thereby to prevent a seizure and sale of its property, and the petitioner advanced this money to the bankrupt and with it the bankrupt paid the judgment and! saved its property from sale thereunder. But Hollicke refused to assign the mortgage, and on August 21, 1908, the release of it which has been recited was recorded in the office of the register of deeds. After the petitioner had loaned the money to the bankrupt and had received his agreement of subrogation, and after the bankrupt had paid the judgment against it and had demanded of Hollicke that he assign his mortgage to the petitioner, and after Hollicke had refused to do so and the bankrupt had informed the petitioner of his refusal, the bankrupt within four months of its adjudication gave to the petitioner a new mort gage upon the same property to secure the repayment of his loan. But there is a claim that this new mortgage was not given for a present consideration, and it was never recorded.
Counsel argue that this second mortgage was voidable by the trustee because it was made so long after Lee loaned the money that it constituted a voidable preference under section 60b of the bankruptcy law, and because it was not recorded. But it does not seem to be necessary to discuss or decide the questions presented by this contention. If this second mortgage was valid, it created a lien upon the property, and entitled the petitioner to the relief he sought. If it was void or voidable, why was he not entitled to be subrogated to the rights of Hol-licke under his mortgage which the money of the petitioner paid? May not one who, in reliance upon the agreement of the owner of property to give him a first lien thereon to secure his repayment, loans money to pay off a prior incumbrance and takes a defective mortgage or other security, be subrogated to the rights of the prior incumbrancer so far as necessary to secure the payment of his claim? This question received an exhaustive examination and the most thoughtful consideration of this court in 1901, in the case of Cumberland Building & Loan Ass'n v. Sparks, 111 Fed. 647, 651, 652, 653, 49 C. C. A. 510, 514, 515. The Cumberland Building & Loan Association had made a loan to the owner of real estate to pay off a debt secured by a trust deed thereon, the money had been used for that purpose, the trust deed had been released, a defective and void mortgage on the property had been given to the association, and third parties who knew these facts had subsequently purchased of the owner and paidl the full value of the property. Judge Thayer expressed the opinion of the court with his usual conservatism and accuracy to the effect that the authorities cited below held and the law was:
"That when money is advanced to a debtor in pursuance of an express agreement that it is to be used to retire existing liens or incumbrances on his property, and that the creditor who loans the money is to have a first lien upon the property to secure its repayment, such creditor may be subrogated to the rights of the incumbrancer or lienor whose debt has been paid, not only as against the borrower, but as against any one else who subsequently acquires an interest in the property with knowledge of the circumstances under which the money to pay off the incumbrances was advanced." Association v. Thompson 32 N. J. Eq. 133; Tyrrell v. Ward, 102 Ill. 29; Bank v. Bierstadt, 168 Ill. 618, 48 N. E. 161, 61 Am. St. Rep. 146; Draper v. Ashley, 104 Mich. 527, 62 N. W. 707; Wilton v. Mayberry, 75 Wis. 191, 43 N. W. 901, 6 L. R. A. 61, 17 Am. St. Rep. 193; Levy v. Martin, 48 Wis. 198, 4 N. W. 35; Trust Co. v. Peters, 72 Miss. 1058, 18 South. 497; Dillon v. Kauffman, 58 Tex. 696.
The rule thus announced is just and reasonable, is in accord with the decisions of the Supreme Court of Kansas, where the property involved in this litigation is located (Everston v. Central Bank of Kansas, 33 Kan. 352, 358, 6 Pac. 605; Zinkeison v. Lewis, 63 Kan. 90, 592, 66 Pac. 644), it still commends itself to our judgment, the case at bar falls under it, and we are unwilling to depart from it. On July 28, 1908, the property of the bankrupt was subject to a valid mortgage for $522.22 to Hollicke. It agreed with the petitioner in consideration of his advance of the money to pay that debt that he should have the benefit of that lien and the first mortgage upon the property to ssrttrc the repayment of his money. The debt was paid with that money. If the bankrupt could now repudiate its obligation andl hold the property free from the lien because it subsequently made a voidable mortgage, it would secure without compensation, and the petitioner would lose, a large part of the money that the latter advanced. If the petitioner is subrogatéd to the rights of Hollicke before the mortgage was paid, neither the bankrupt nor his creditors, nor the petitioner can lose, but the property of the former is preserved from sale under the judgment subject to its previous validl incumbrance and the petitioner receives the agreed security for its loan. The claim of Lee is stronger than that of the complainant in Cumberland Building & Loan Ass'n v. Sparks, 49 C. C. A. 510, 514, 111 Fed. 647, because there is no purchaser for value in this case, but the trustee stands in the shoes of and has no •greater rights against Lee than the bankrupt. There is no proof or claim that there are any creditors who permitted the bankrupt to contract debts to them after the reléase of the Hollicke mortgage in reliance upon its satisfaction, and reason and the law alike demand that the claim of the petitioner to his lien upon the proceeds of the property by subrogation to the rights of Hollicke should be sustained. The order of the District Court which affirmed the report of the referee is vacated and set aside with directions to allow and pay the claim of the petitioner for $522.22 and legal interest from July 28, 1908, as a claim secured by a first lien upon the proceeds of the property mortgaged to Hollicke.