Court Opinion

ID: 6900171
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:54:08.38194+00
Date Added: 2024-06-11T16:06:08.718639
License: Public Domain

Mr. Justice Moore
delivered the opinion of the court.
The question presented by this appeal is whether or not, after -an adjudication of bankruptcy, a suit can be maintained in a state court by a third person against a trustee in bankruptcy to foreclose a Ren upon personal property belonging to the bankrupt’s estate. The pleadings do not state who was in possession *243of the logs and lumber in question when this suit was instituted. The testimony shows, however, that Buck had possession of such property until it was seized in pursuance of the writ of attachment issued in the action of the First Bank of Elgin against him, when the sheriff of Union County secured the possession thereof.
1. A trustee in bankruptcy upon his appointment and qualification becomes vested by operation of law with the title' to all unexempt property of the bankrupt, and is authorized to avoid any transfers by the latter of his property which a creditor of such bankrupt might have set aside, and he may recover the property so transferred, or its value, from the person to whom it was assigned, unless such person was a bona fide holder for value prior to the date of the adjudication of bankruptcy: Act July 1, 1898, 30 Stat. U. S. 544, 565, 566, c. 541, § 70, subds. “a,” “e” (U. S. Comp. St. 1901, pp. 3451, 3452, 1 Fed. Stat. Ann. 525, 697, 702). The filing of a petition in bankruptcy is in effect a notice that the unexempt property of the person named therein as having committed an act of bankruptcy may be seized and the proceeds arising from the sale thereof applied in payment of his debts, and such petition is also a warning to all persons not to meddle with such property, the title to which, upon an adjudication in bankruptcy, vests in the trustee when qualified, whereby he secures the actual or acquires the constructive possession, thereby bringing the property applicable to the payment' of debts into the jurisdiction of the bankruptcy court: Mueller v. Nugent, 184 U. S. 1 (22 Sup. Ct. 269, 46 L. Ed. 405); Moore Mfg. Co. v. Billings, 46 Or. 401 (80 Pac. 422). Though the sheriff of Union County was in possession of the logs and lumber in controversy, July 13, 1903, when Buck was adjudged a bankrupt, the defendant Galloway, as trustee of the bankrupt’s estate, having qualified before this suit was instituted, he became vested with the legal title to such property, and, invoking the disputable presumption that official duty has been regularly performed (B. & C. Comp, § 788, subd. 15), it must be assumed, in the absence of any evidence on the subject, that the trustee immediately took' possession of the logs and lumber.
*2442. In controversies relating to concurrent jurisdiction the rule is elementary that the court which first acquires authority to hear and determine the merits of the case retains it for all purposes: Farmers' L. & T. Co. v. Lake Street Ry. Co. 177 U. S. 53 (20 Sup. Ct. 564, 44 L. Ed. 667) ; Louisville Trust Co. v. Comingor, 184 U. S. 18 .(22 Sup. Ct. 293, 46 L. Ed. 413); McFarlan Carriage Co. v. Wells, 99 Mo. App. 641 (74 S. W. 878). In construing the provisions of the bankruptcy act of July 1, 1898, the Supreme Court of the United States held that a trustee in bankruptcy was not authorized to maintain a plenary suit in the United States district court having jurisdiction of the bankruptcy proceedings to set aside alleged fraudulent transfers of property made by the bankrupt to third parties, in fraud of the rights of creditors, before the institution of bankruptcy proceedings, unless such parties as proposed defendants voluntarily appeared and consented thereto: Bardes v. Hawarden Bank, 178 U. S. 524 (20 Sup. Ct. 1000, 44 L. Ed. 1175). The justice who wrote the opinion in that case also on the same day handed down another to the effect that after an adjudication in bankruptcy an action of replevin in a state court could not be commenced or maintained against the bankrupt to recover property in the possession of and claimed by the bankrupt at the time of that adjudication and in the possession of a referee in bankruptcy at the time when the action of replevin was begun, and that the district court of the United States, sitting in bankruptcy, had jurisdiction by summary proceedings to compel the return of the property seized: White v. Schloerb, 178 U. S. 542 (20 Sup. Ct. 1007, 44 L. Ed. 1183).
After these decisions last referred to were rendered, the bankrupt act of July 1, 1898, was amended in certain particulars: Act Feb. 5, 1903, 32 Stat. U. S. 797, c. 487 (U. S. Comp. St. Supp. 1905, p. 682, 1 Fed. Stat. Ann. 525, 533). In Whitney v. Wenman, 198 U. S. 539 (25 Sup. Ct. 778, 49 L. Ed. 1157), Mr. Justice Day, referring to the opinion reported in 178 U. S. 524, and considering its applicability to Subdivision 7 of Section 2 of the bankruptcy act of 1898, says: “This case (Bardes v. Hawarden Bank) did not determine the right of the district *245court to entertain jurisdiction of a proceeding having in view the adjudication of rights in or liens upon property which came into the possession of the bankruptcy court as that of the bankrupt, the right to proceed concerning which would seem to be broadly conferred in the section of the bankruptcy act above quoted.” Further in the opinion, after commenting upon the effect of other decisions rendered by the Supreme Court of the United States, it is also observed: “We think the result of these cases is, in view of the broad powers conferred in Section 2 of the bankrupt act, authorizing the bankruptcy court to cause the estate of the bankrupt to be collected, reduced to money and distributed, and to determine controversies in relation thereto, and bring in and substitute additional parties when necessary for the complete determination of a matter in controversy, that when the property has become subject to the jurisdiction of the bankruptcy court as that of the bankrupt, whether held by him or for him, jurisdiction exists to determine controversies in relation to the disposition of the same and the extent and character of liens thereon or rights therein.”
In Truda v. Osgood, 71 N. H. 185 (51 Atl. 633), which was an action of trover instituted in a state court against a trustee in bankruptcy for the alleged conversion of certain property, taken in possession by the trustee in bankruptcy as a part of the bankrupt’s estate, it was held that a state court had concurrent jurisdiction of an action to determine the title to such property. In deciding that ease, Mr. Chief Justice Blodgett,. speaking for the court, says: "The- question raised by the agreed facts is not one of jurisdiction, but title. The plaintiff’s action is not one of replevin, but of trover. It concerns, not the judicial custody or lawful possession of the property in controversy, but only the trial of the title to it. The jurisdiction conferred on the federal courts in actions of this character between trustees in bankruptcy and strangers to the bankruptcy proceedings is not exclusive; but, on the contrary, it is well settled that in all questions of title to property derived through such proceedings the state courts have concurrent jurisdiction.” If it be assumed that the case last cited correctly states the *246law, the rule announced is not controlling herein, for in the case at bar the right to the possession of the logs and the lumber, and not the title thereto, is involved.
Decided 20 March, 1906.
3. It is insisted by plaintiff’s counsel that, the demurrer of the defendant Galloway having been overruled, he answered over, praying for affirmative relief, thereby conferring jurisdiction of the subject-matter upon the state court. If the principle contended for should be recognized as a rule of practice, it would necessarily follow that a trustee in bankruptcy, by appearing as a party in a state court in a suit or action involving the right to the possession of the bankrupt’s property in the custody of the United States district court, could deprive the latter tribunal of jurisdiction, notwithstanding it had secured possession of the bankrupt’s estate before the jurisdiction of the state court had been invoked. Though parties to suits and actions, who are sui juris, may voluntarily waive jurisdiction of their persons, they cannot confer jurisdiction of the' subject-matter which always depends upon a valid grant of power by the legislative department. The answers of the defendants, though praying for affirmative relief, were ineffectual to confer upon the state court power to hear and determine the controversy involved herein, after the federal court had secured jurisdiction of the res.
4. This suit not having been begun until after the adjudication of bankruptcy, the state court could not secure jurisdiction 'of the property belonging to the bankrupt’s estate, the title to which was vested in the trustee who was also in the possession thereof and hence an error was committed in overruling the demurrer, which error was not waived by answering over. It follows, from these considerations, that the appellants’ demurrers should be sustained, the decree of the lower court reversed, the injunction dissolved, and the suit dismissed.
Reversed.