Court Opinion

ID: 9736787
Source: CourtListenerOpinion
Date Created: 2023-08-26 19:06:40.010443+00
Date Added: 2024-06-11T07:23:54.649707
License: Public Domain

Additional Opinion Upon Petition For Rehearing. As appears from our opinion, the principal contention urged by the Bank in its brief in support of the judgment was that “a Trustee in Bankruptcy who intervenes in a foreign State court proceeding upon leave of the court of his appointment and participates in the merits of the case, is bound by the judgment of the State court,” but as it is clear from certain cases cited in our opinion that the Bankruptcy Court was given by the Act exclusive jurisdiction to deal with the property of the bankrupt estate and that that court cannot surrender or waive that jurisdiction, the Bank abandoned, apparently, the waiver contention. In the petition for a rehearing it contends: “The bank’s claim under the counterclaim was not against the bankrupt or his bankruptcy estate. It was a direct and primary claim against a third party — Weber Costello Company, who expressly undertook and agreed to pay a specified sum of money to the bank in consideration of which the bank advanced its funds to Mr. Council. The assignment was not conditional, but passed the title to the funds thereunder directly to the bank, and such funds were not a part of the bankruptcy proceedings filed eighteen months after the assignment was given. Therefore the Bankruptcy Court did not and could not have constructive possession over property that wasn’t owned by the bankrupt. ” “Upon adjudication, title to the bankrupt’s property vests in the trustee with actual or constructive possession, and is placed in the custody of the bankruptcy court. Mueller v. Nugent, 184 U. S. 1, 14. The title and right to possession of all property owned and possessed by the bankrupt vests in the trustee as of the date of the filing of the petition in bankruptcy, no matter whether situated within or without the district in which the court sits. Robertson v. Howard, 229 U. S. 254, 259-260; Wells v. Sharp, 208 Fed. 393; Galbraith v. Robson-Hilliard Grocery Co., 216 Fed. 842. It follows that the bankruptcy court has exclusive jurisdiction to deal with the property of the bankrupt estate. It may order a sale of real estate lying outside the district. Robertson v. Howard, supra; In re Wilka, 131 Fed. 1004. When this . jurisdiction has attached the court’s possession cannot be affected by actions brought in other cou,rts. White v. Schloerb, 178 U. S. 542; Murphy v. Hofman Co., 211 U. S. 562; Dayton v. Stanard, 241 U. S. 588. . . . Thus, while valid liens existing at the time of the commencement of a bankruptcy proceeding are preserved, it is solely within the power of a court of bankruptcy to ascertain their validity and amount and to decree the method of their liquidation. Ex parte City Bank of New Orleans, 3 How. 292; Houston v. City Bank of New Orleans, 6 How. 486; Ray v. Norseworthy, 23 Wall. 128; In re Wilka, supra; Nisbet v. Federal Title & T. Co., 229 Fed. 644.” (Isaacs v. Hobbs Tie & T. Co., 282 U. S. 734, 737, 738. Italics ours.)  The Bank, in its brief upon the appeal, when it was relying upon the point of waiver, stated: “It is an established general rule in bankruptcy law that after an adjudication in bankruptcy, the Bankruptcy court has exclusive jurisdiction to determine all questions involving the bankrupt’s property including the right to determine the extent and character of liens against the bankrupt’s property. It has also been said that the filing of a bankruptcy petition is a caveat to all the world and in effect an attachment and injunction. ’ ’ In passing upon the Bank’s present position we deem it advisable to restate certain salient facts: On November 3, 1947, the Bank filed a complaint in the Circuit court of Cook county against J. W. Council, the complaint alleging that Council was indebted to the Bank by virtue of a certain note dated August 18, 1947, in the principal sum of $7,388.24, which was past due. On the same day, upon an affidavit for attachment, a writ issued to attach any estate or effects of Council, and service of the writ was had 'on Weber Costello Company as garnishee. The affidavit stated that Weber Costello Company “has effects or estate of said defendant [J. W. Council] in its possession, custody or charge. ’ ’ The answer of the garnishee stated: “1. It holds indebtedness in the sum of $4811.28, representing commissions due J. W. Council on account of orders obtained by him and shipped to respective customers; “2. Indebtedness in the sum of $200.25 representing commissions due J. W. Council on account of orders obtained by him and having been shipped and payment having been made therefor after the date of service; “3. Said J. W. Council obtained certain orders for garnishee’s products, shipped to various customers, but payment not made in amount of $192.40. J. W. Council obtained orders which had not been accepted. Goods not shipped and commissions when accepted and shipped total $1372.50.” It is clear from the record that “effects or estate” of J. W. Council reached by the attachment writ were deposited by Weber Costello Company with the clerk of the Circuit court by order of that court. In the “counterclaim” of Weber Costello Company filed December 15, 1947, it alleged that on the date of the service of the writ it was indebted to J. W. Council in the sum of $4,811.28, representing commissions due, and that since the service of the writ it has become indebted to Council in further amounts, and it prayed that it “may be ordered to bring the said sums of money into this court, subject to the further order of the court.” In an order entered March 22,1948, Weber Costello Company was ordered to pay to the clerk of the court the sums it owed J. W. Council. In the “answer” of the Bank to the “counterclaim of Weber Costello Company it admitted that said Company was indebted to J. W. Council as set forth in its “counterclaim. ’ ’ On December 12,1947, which date was within four months of the service of the attachment writ, Council filed his petition in bankruptcy and was adjudicated a bankrupt on December 13,1947. On December 26, 1947, thirteen days after the adjudication in bankruptcy, the Bank filed an “answer” to the “counterclaim,” and as it was then certain that the attachment writ would be quashed upon motion of the Trustee, the Bank in its “answer” abandoned its claim against Council and asserted a claim against Weber Costello Company based upon assignments of commissions executed by Council and accepted by that Company, which agreed to pay the Bank the amounts of the assignments, and the new suit asserted that the assignment is in full force, that Weber Costello Company is indebted to the Bank in the sum of $3,026.86, and the Bank prays for judgment against Weber Costello Company and “that Court order all of assignment paid in the amount of $3026.86.” The Bank contends, and the Trustee asserts, that the “answer” of the Bank was the commencement of an entirely new suit. It follows, of course, that the Circuit court of Cook county could not even claim that it acquired jurisdiction of the subject matter of the new suit until the “answer” of the Bank was filed. It was stipulated that the attachment writ in the case of the Bank against Council was voidable and the trial court was obliged to quash if upon the motion of the Trustee. In the final judgment order the trial court entered a judgment in favor of the Bank and ordered the clerk of the court to pay to the Bank $3,026.86 and costs out of the funds that had been deposited with the clerk by Weber Costello Company by the following order of the court: “. . . that Weber Costello Company pay to the Clerk of the Circuit Court, $5178.68 [the amount Weber Costello Company stated in its 'counterclaim’ that it was indebted to Council] subject to the order of this court.” The amount so deposited was the amount reached by the attachment writ. The trial court recognized that the funds that he ordered Weber Costello Company to deposit with the clerk were funds belonging to the bankrupt, and in the judgment order also ordered ‘ ‘ that the Trustee in Bankruptcy is entitled to receive all funds in the possession of Weber Costello Company in excess of the sum of $3026.86 to he administered hy the Court of his appointment.” Indeed, the trial court in deciding the case recognized that the funds in the possession of the clerk of the court were assets or effects of the bankrupt and stated that although he quashed the attachment writ the court still had possession of the funds and the Bankruptcy Court could not oust the trial court of that jurisdiction. Until the attachment writ was quashed all parties recognized that the funds deposited with the clerk of the court were assets or effects of J. W. Council. It must be noted that the judgment order in the instant case was entered March 23, 1948, three months and ten days after the adjudication in bankruptcy. The answer of the Trustee in Bankruptcy, filed March 2, 1948, alleged that jurisdiction to determine the validity of all liens against the property of Council was exclusively in the Bankruptcy Court in North Carolina. Despite the arguments of the able attorneys for the Bank it clearly appears from the record that the trial court passed upon the validity of the alleged lien of the Bank against the funds deposited with the clerk of the court, held that it was a valid lien, and ordered the claim of the Bank paid out of the said funds. It is our considered judgment that under the record in this case and the law only the Bankruptcy Court could pass upon the validity or invalidity of the alleged lien first asser ted by the Bank in its “answer” to the “counterclaim. ’ ’ We find no good reason why the petition for a rehearing should be allowed, and it is accordingly denied. Petition for rehearing denied.