Texas & NOR Co. v. Phillips

• Decision Date: 02 June 1954
• Docket Number: No. 14622.,14622.
• Citation: 211 F.2d 419
• Parties: TEXAS & N. O. R. CO. v. PHILLIPS.
• Court: U.S. Court of Appeals — Fifth Circuit

211 F.2d 419 (1954)

TEXAS & N. O. R. CO. v. PHILLIPS.

No. 14622.

United States Court of Appeals Fifth Circuit.

April 9, 1954.

Rehearing Denied June 2, 1954.

Ben White, Houston, Tex., Baker, Botts, Andrews & Parish, Houston, Tex., of counsel, for appellant.

Fred Much, Houston, Tex., for appellee.

Before HUTCHESON, Chief Judge, and HOLMES and BORAH, Circuit Judges.

HOLMES, Circuit Judge.

This is a proceeding by the trustee in bankruptcy against the Texas and New Orleans Railroad Company for specific performance of an option to purchase real property described in a lease for ten years given by the Railroad to the bankrupt. The appellant filed its motion to dismiss the petition for lack of jurisdiction. The referee denied the motion to dismiss, and the court below affirmed.

This is the second time that the parties have been before this court. In an earlier proceeding, reported in 5 Cir., 196 F.2d 692, the appellant sought the cancellation of the lease and the surrender of the leased premises to it. The court denied the petition of appellant, and held that it was not entitled to a cancellation of the lease because it had not been terminated, and the option to purchase was not limited to a sale on credit so as to make it personal to the lessee. The principal question on this appeal is whether the referee in bankruptcy had jurisdiction to entertain the petition by the trustee.

We agree with the appellant that the relief prayed for requires a plenary proceeding, and that the bankruptcy court did not have jurisdiction in rem over the railroad's reversionary interest in the leased premises. A suit for specific performance is a suit in personam. It is well settled that, without the consent of the adverse claimant, a court of bankruptcy is without jurisdiction in a summary proceeding to adjudicate a controversy over property held adversely to the bankrupt estate. Harrison v. Chamberlin, 271 U.S. 191, 46 S.Ct. 467, 70 L.Ed. 897; Schumacher v. Beeler, 293 U.S. 367, 55 S.Ct. 230, 79 L.Ed. 433; In re Ballou, D.C., 215 F. 810; Dreyer v. Perkins, 5 Cir., 217 F. 889; Chandler v. Perry 5 Cir., 74 F.2d 371; Collier on Bankruptcy, Sec. 38.09, p. 1425.

In this case, the trustee in bankruptcy has possession of the tangible property described in the lease, but it does not have possession of the railroad's reversionary interest. As in Benton v. Callaway, 5 Cir., 165 F.2d 877, affirmed 336 U.S. 132, 69 S.Ct. 435, 93 L.Ed. 553, the trustee is not disputing the lessor's title but is seeking to acquire it. Consent of the lessor is lacking, because it has consistently resisted the petition of the trustee and has made formal protest against the exercise of summary jurisdiction by the bankruptcy court. Cline v. Kaplan, 323 U.S. 97, 65 S.Ct. 155, 89 L.Ed. 97.

The trustee in bankruptcy is in possession of all the tangible property in controversy, but he has only a leasehold estate therein. The incorporeal reversionary interest of the lessor arose by operation of law when the leasehold was carved out of the fee simple title. It is a vested future interest to commence after the termination of the lease. In the case of a tangible res, there can be possession in fact as well as in contemplation of law; but in the case of something intangible, possession is purely a legal concept that manifests itself only through recognition of legal consequences. The legal consequences of a debtor's possession at the time of bankruptcy are that his trustee in bankruptcy succeeds to the debtor's possession, and the bankruptcy court acquires summary jurisdiction in rem to adjudicate adverse claims respecting the asset. Therefore, for practical reasons, the law attaches to the ownership of intangible property the legal consequences of possession of a tangible asset.

In the instant case, the law limits the possession of the leased property to the duration of the lease, while it attaches to the ownership of the reversion in fee the legal consequences of possession. Such reversion, not being owned by the bankrupt...