Court Opinion

ID: 8800259
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:28:23.971833+00
Date Added: 2024-06-11T17:03:51.688706
License: Public Domain

BLEDSOE, District Judge
(after stating the facts as above).
[1-3] It is obvious that the so-called order and decree of the referee is at once, in its substantial aspects, a writ of ejectment and a decree canceling a contract of sale and quieting title to real estate. If it be the fact that the referee has the authority to enter this sort of a judgment in a summary proceeding, or even at all, it will be a matter of *779some surprise as well as concern to the profession generally, who have not understood that possession of real property could thus be transferred summarily, without the verdict of a jury, if demanded, or that cancellation of an instrument could be had without the application of the usual equitable principles and forms of procedure in a forum of appropriate jurisdiction.
After very careful consideration of the matters involved herein, Í can come to no other conclusion than that the referee, doubtless in a commendable desire to expedite the business of his court, has transgressed his jurisdiction and assumed functions which have not been given to him, and, giving due consideration to the rights of private property, ought not to be given to him, or to any other tribunal to be exercised in such summary fashion as they were exercised herein. As I read the case, the very decision cited by the referee, Shea v. Lewis, supra, is in itself a determination that the jurisdiction asserted herein is not possessed by the referee. That case holds, in conformity with the general current of authority, that if the bankruptcy court has not possession of the property involved, and if the claim asserted is an actual and substantial one, as distinguished from one merely color-able and fictitious, the referee has no function save to decline to adjudicate the merits of the controversy. The principle is well stated, in my judgment, in section 1652 of Remington on Bankruptcy, where it is said:
“Third parties having at the time of the bankruptcy possession of the tangible property or funds involved, and under claim of a beneficial or adverse interest therein, cannot be obliged to surrender them, nor can third parties, owing debts to the bankrupt at the time of the bankruptcy, be obliged to pay the debts, nor can such parties be obliged to submit their rights in such property, funds, or debts for determination to the bankruptcy court, by summary proceedings in the bankruptcy proceedings, even on notice and hearing. Such property, funds, or debts, thus owed or adversely held, are to be reached only by instituting plenary suits, in which the parties may be brought into court by due service, summons, or subpoena, pleadings may be filed, issue joined, and trial had in accordance with the usual forms of procedure.”
This statement of the law finds ample authority in the adjudicated cases.
The referee has filed an opinion herein, in which he seems to lay some stress on the fact that the contract does not by its terms vest the vendee with any right of possession. I apprehend this is an immaterial circumstance. Under and pursuant to the contract, and doubtless in accordance with the oral agreement of the parties, the vendee went into possession, and has since remained in that possession. This gives him rights which cannot be summarily taken from him on a mere order to show cause. The referee seems to indulge in the suggestion that the value of the equity in the property would not “justify extensive or costly litigation on the part of the trustee,” meaning thereby, I assume, that, because of the small worth of the equity, the trustee could not afford to institute a plenary suit for its recovery. However that might be, the courts of the land could hardly afford to permit property to be taken from one person and given to another without an observance of the requirements of the law, however little might be *780involved. The rights of private property and the respect which is accorded to those rights are not determinable by a consideration of the mere amounts which may be involved.
The referee also suggests that the vendee was merely in “occupancy” of the premises, but that he did not have the “possession” thereof, within the definition of that term in a juridical sense, but that “the trustee, as the representative of the bankrupt’s estate, is in the potential or constructive ‘possession’ of the real estate which is wrongfully axid' illegally occupied by Albrecht.” The referee cites no authority in support of this, and I would be surprised if he could find one. If this statement be true, then the trustee in every bankruptcy proceeding is constructively in “possession” of all property which may be claimed by the bankrupt or by the trustee as belonging to the bankrupt estate, and consequently there never could arise any controversy with respect to the “possession” of property as between a trustee and a third person. Suffice it to say that the books are full of cases with respect to the rights of one who is in possession of property as against the trustee of a bankrupt’s estate. In addition, the precise point here made was raised and passed upon adversely to the conclusion of the referee in the Case of Rathman, 183 Fed. 913, at page 925, 106 C. C. A. 253, which case is cited in Shea v. Lewis as a basis of the decision therein.
, It might be true that mere possession of property claimed by the trustee would not suffice to require the trustee to institute a plenary suit for its recovery. The untenability of the claim might be so palpable, or. the third person might be holding the property merely as the agent of the bankrupt, and admittedly without right, in such fashion as that the referee would be justified summarily in decreeing that the possession should be transferred to the rightful holder jihereof, the trustee of the bankrupt’s estate. Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405. However, in the present case, it appears that the third person in possession of the property, who was an entire stranger to the bankruptcy proceeding, for a valuable consideration, acquired his rights to the property under and pursuant to a lawful contract, entered into more than a year previous to the inception of the bankruptcy proceeding, and that he had complied'’ with the contract in every respect up to the time his vendor was adjudicated a bankrupt. Thereupon it was his duty to refuse to make payments to the bankrupt, and it was the duty -of the trustee to arrange for him to make succeeding payments to the trustee, or possibly to effect a sale of the,- so-called equity in the property then remaining in the bankrupt estate.
It is apparent from the verified claim of the respondent, as well as from the evidence adduced at the summary hearing, that the contract entered into by him with the vendor had not been performed by the vendor, in. that, the vendor had incumbered the property with a mortgage of $1,250, instead of $1,000, as agreed in the contract. In addition, the trustee does not seem ever to have demanded any of the monthly payments, but to have been insisting upon a complete satisfaction of claimant’s obligation under the contract. In this state *781of the case it could not be expected that the vendee should make the payments as required by the contract, and thereby be compelled to take the property at a higher valuation than he and his vendor had agreed should be tire consideration. It is most obvious that his claim to and right in the property, and Inis right to have au equitable adjustment oí the obligations as between himself and his vendor, and his vendor’s mortgagee, constituted him an adverse claimant to the property within any reasonable construction, of section 23 et seq. of the Bankruptcy Act. jaquith v. Rowley, 188 U. S. 620, 23 Sup. Ct. 369, 47 L. Ed. 620.
It follows, therefore, that the referee acted in excess of his jurisdiction; that his summary hearing, and the order and decree based thereon, were without authority in law; and that the only order he had jurisdiction to make in the premises was one dismissing the petition, without prejudice to the right of the trustee to institute such plenary action or take such other step as in Ills judgment might be deemed meet and proper. This the referee is directed to do.