Court Opinion

ID: 8810479
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:01:41.783447+00
Date Added: 2024-06-11T17:04:16.122189
License: Public Domain

ROGERS, Circuit Judge
(after stating the facts as above). The fact cannot be disputed that at the time this order was made the property here in controversy was in the actual possession of the city of New York, and that it claimed then, as it claims now, the right to retain it in its possession, basing its right on the provisions of the contract which it made with the bankrupts. This claim is an adverse one, and it is advanced against the trustees of the bankrupts. It does not rest upon pretense and sham, but is real and not colorable. It raises a serious question of law. The question, therefore, is whether the District Court had jurisdiction to dispose of it in a summary proceeding, or whether the petitioner as a matter of right is entitled to have the matter disposed of in a plenary action.
The Supreme Court in Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405, declared that a bankruptcy court has jurisdiction in a summary proceeding to compel a surrender to a trustee in bankruptcy of property in the hands of a third party which the latter holds as the agent of the bankrupt and to which he asserts no adverse claim. It went on, however, to say that the court must decline to finally adjudicate on the merits if the respondent asserted that he had the right to possession by reason of a claim adverse to the bankrupt, which claim is not merely colorable, but real, even though fraudulent and voidable.
And we held in Re Midtown Contracting Co., 243 Fed. 56, 155 C. C. A. 586, that whether a claim is real or colorable does not depend upon whether it turns upon a question of fact or upon a question of law. If the claim rests upon mere pretense of fact or of law, it is colorable. But it is not colorable if it is put forth in good faith and is real. In the latter event we said the trustee must institute an independent action in a* court having jurisdiction of the subject-matter and have the claim regularly adjudicated, as the bankrupt himself would have done if bankruptcy proceedings had not been pending and he desired to obtain possession of the property. The Supreme Court in Wilds v. Department of Education, 245 U. S. 654, 38 Sup. Ct. 12, 62 L. Ed. 532, declined to grant a writ of certiorari to review the decision in the Midtown Case, and it remains the law in this circuit and is decisive of the question herein presented.
The claim arises under a contract entered into under section 544 of the Greater New York Charter (Daws 1901, c. 466). It is a public contract authorized by law, and relates to the performance of an important and well-established public duty. It involves a public work of great magnitude and necessity, which the public interests demand should be performed speedily and without interruption. Dailey v. City of New York, 170 App. Div. 267, 279, 156 N. Y. Supp. 124.
Prior to the abandonment of the contract by the bankrupts they had been paid by the city of New York under the contract over the sum of $2,775,000; and upon the abandonment of the contract the commissioner of street cleaning advertised for bids to complete the work, *532but the bids were rejected, as the prices demanded were deemed excessive. The city claims that paragraphs O and Q of the contract authorized and empowered it to take possession of the property “pending proceedings to cancel and annul” the contract, and that it is entitled to retain the possession until either the contract is relet or the contract is completely performed by the city itself. Whether it is right or wrong in this contention is hot the question before us. It is sufficient for the present purpose to say that the claim is not color-able, and therefore must be determined in a plenary action.
The order under review is reversed.