Court Opinion

ID: 8757583
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:52:33.55864+00
Date Added: 2024-06-11T17:01:20.851876
License: Public Domain

PHIEIPS, District Judge,
after stating the casé as. above, delivered the opinion of the court.
The chief contention of the petitioner is based upon a misconception .of the scheme and policy of the bankrupt act. The filing of the petition in bankruptcy, “was a caveat to all the world. It was in' effect an attachment and injunction. Thereafter all the property rights of the debtor were ipso facto in abeyance until the final adjudication. If that were in his favor, they revived, and were again in full force. If it were against him, they were extinguished as to him, and vested in the assignee. (trustee) for- the purposes of the trust with which he was charged. The bankrupt became, as it were, for many purposes, civiliter .mortuus/’ ' This was- said by. the Supreme Court in Bank v. Sherman, 101 U. S. 406, 25 L. Ed. 866, in respect of tlue operation of the bankrupt act of 1867.
Mr. Chief Justice Fuller, in Mueller v. Nugent, 184 U. S. 1-14, 22 Sup. Ct. 269, 273, 46 L. Ed. 405, said:
• ’ “It Is as true of the present law as it was of- that of 1867 that the filing of the petition is a'caveat to all the world, and in effect an attachment and in'Junction;' *. * * and, on adjudication,:.title to the bankrupt’s property *821became vested In the trustee (sections 70, 21c, Act July 1, 1898, c. 541, 30 Stat. 565, 552 [U. S. Comp. St. 1901, pp. 3451, 3430]), with actual or constructive possession, and placed in the custody of the bankruptcy court.”
In short, the adjudication operates as a seizure of the property of the bankrupt, by which it is taken in custodia legis. In re Rodgers, 125 Fed. 169, 60 C. C. A. 567. Upon the selection and qualification of a trustee, all the rights, title, and interest of the bankrupt, as of the time of the filing of the petition in bankruptcy, in any property or property rights, by operation of law (section 70, Bankr. Act July 1, 1898, c. 541, 30 Stat. 565 [U. S. Comp. St. 1901, p.,3451]), pass to and vest in the trustee, who then became the custodian for the court. The possession of the bankrupt, without more, is transferred to the trustee. No demand for the surrender and possession of the bankrupt’s property is necessary. Indeed, he would stand in contempt of court, were he to assert the right to hold and possess the property against the trustee. He could not maintain trespass or replevin respecting any personal property owned by him prior to the adjudication in bankruptcy. No matter where the property of the bankrupt estate may have its situs, if within the United States, it passes to and vests in the trustee. By section 7, subsec. 8, of the bankrupt act (30 Stat. 548 [U. S. Comp. St. 1901, p. 3425]), on the adjudication the bankrupt is required to prepare and file schedules of all his property. This is all that is required of him as to property situate within the limits of the United States. As to property without the domain of the national act, section 7, subsec. 5, requires the bankrupt to execute transfers thereof to the trustee in bankruptcy.
It is thus made manifest that the criticism upon the petition of the trustee for an order of sale of the property in question, that it did not specifically aver that the property had been taken into the actual custody of the trustee, is without merit. As the fact appeared that the bankrupt owned the property at the time of the adjudication in bankruptcy, and as possession is presumptively with the owner, it has never been supposed by courts of bankruptcy that such petition should, ipsissimis verbis, aver that the trustee has thev property in custody. The finding of the referee that the trustee had possession of the property, with or without evidence in pais, was justified as a conclusion of law from the facts apparent in the proceeding. The conclusion was in no degree contradicted by the fact that the bank held a mortgage on the property. The legal presumption was and is that, until entry by the mortgagee for condition broken, the right of possession and actual possession remained with the mortgagor.
The bankrupt- act • authorizes the court of bankruptcy to sell the personal property of the bankrupt freed from all liens, in the conservation of the interests of all creditors of the estate. This has been recognized under all the bankrupt acts as resting in the sound discretion of the court, exercising a jurisdiction equitable in its nature. In re Union Trust Company, 122 Fed. 937, 939, 940, 59 C. C. A. 461; In re Worland, 92 Fed. 893. When sold, any person claiming a preferred lien on the property can protect *822himself by bidding thereon' to prevent its sacrifice, and by applying to the court to disaffirm the sale. And after sale he can assert his right to the proceeds before the referee, when and where his claim can be heard, and its priority determined. In re Rochford, 124 Fed. 182, 59 C. C. A. 388; Bryan v. Bernheimer, 181 U. S. 188, 21 Sup. Ct. 557, 45 L. Ed. 814.
Counsel for the bank seem strangely affected with notions about state lines under the bankrupt act. They challenge the right to reach the bank in South Dakota by notice sent out by the referee in Iowa, and the right of the court of bankruptcy in Iowa to draw the bank from its residence in South Dakota to determine its rights as a preferred mortgagee. Under the scheme of the bankrupt act, the District Court of the domicile of the bankrupt takes exclusive jurisdiction df the bankrupt and his property, wherever situated, to administer it and distribute the proceeds pari passu among the creditors according to their respective rights and priorities. Only one court—the court making the adjudication—collects, marshals, administers, determines priorities of the parties, and directs the distribution of the assets. There are no such things in bankruptcy proceedings as courts of primary and ancillary jurisdiction. The court in this instance acquired jurisdiction as to the Granite City Bank by giving the notice prescribed by section 58 of the act (30 Stat. 561 [U. S. Comp. St. 1901, p. 3444]), which in this case was supplemented by notice served personally on the president of the bank where the bank was located. The bank could have appeared and contested at its pleasure the propriety of the referee ordering the sale of the property free from all liens, and the District Court of Iowa, and it alone, could pass upon the validity of the bank’s claim to the proceeds of the sale of the property. In re Kellog, 121 Fed. 333, 57 C. C. A. 547. The trustee was authorized to sell the property on the premises in South Dakota, or drive it away, as the court might direct. The Granite City Bank could not replevin it from the trustee. White v. Schloerb. 178 U. S. 542, 20 Sup. Ct. 1007, 44 L. Ed. 1183.
The action of the District Court is approved, and the. petition for review is dismissed.