Detroit Trust Co. v. Pontiac Savings Bank

• Decision Date: 07 May 1912
• Docket Number: 2,211.
• Citation: 196 F. 29
• Parties: DETROIT TRUST CO. v. PONTIAC SAVINGS BANK et al.
• Court: U.S. Court of Appeals — Sixth Circuit

196 F. 29

DETROIT TRUST CO. v. PONTIAC SAVINGS BANK et al.

No. 2,211.

United States Court of Appeals, Sixth Circuit.

May 7, 1912

[Copyrighted Material Omitted]

H. R Martin and H. Geer (Elmer R. Webster and Geer, Williams Martin & Butler, on the brief), for appellant.

B. B. Selling, for appellee.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

KNAPPEN Circuit Judge.

On May 19, 1902, Coates, the present bankrupt, gave appellant a mortgage upon his stock in trade, fixtures, etc., to secure a then existing debt. The mortgage was not filed until September 9, 1902. It does not appear that the failure to so file was fraudulent in fact. On January 10, 1903, there was paid to the bank, in satisfaction of the mortgage, from moneys paid on the purchase of the stock and fixtures from Coates, the sum of $2,120.50. Proceedings in involuntary bankruptcy were begun against Coates on February 16, 1903, and he was adjudicated bankrupt on March 6th following. The trustee then brought this suit against the bank for the recovery of the amounts of the claims of creditors who became such between the giving and filing of the mortgage. Complainant's brief asks this recovery for the benefit of creditors generally. See In re Martin (C.C.A.) 193 F. 841. Upon final hearing on pleadings and proofs decree was entered for complainant, from which this appeal is taken.

A preliminary question is presented as to the jurisdiction of the court below over the present suit. Section 23b of the Bankruptcy Act, relating to jurisdiction over controversies between the trustee and adverse claimants, provides that such suits 'shall only be brought or prosecuted in the court where the bankrupt, whose estate is being administered by such trustee, might have brought or prosecuted them if proceedings in bankruptcy had not been instituted, unless by consent of the proposed defendant. * * * ' The bank appeared generally and answered to the merits of the bill without questioning the jurisdiction of the court. After it had taken some testimony under the issues joined, it challenged the jurisdiction for lack of defendant's consent thereto by way of objection made to further testimony. Jurisdiction was not given unless by virtue of the facts stated. The district court overruled the objection. Defendant contends that the statute contemplates a consent previous to the filing of the bill, and that, in any event, consent is not given by mere failure to deny jurisdiction. That the bill in this case could have been maintained only by defendant's consent is settled by Bardes v. Hawarden Bank, 178 U.S. 524, 20 Sup.Ct. 1000, 44 L.Ed. 1175. In that case the question of jurisdiction was raised by demurrer to the bill.

It was not decided that consent must be given before suit begun, nor was it determined what would amount to consent. In support of the contention that consent was not given by appearance and pleading to the merits reliance is had upon Louisville Trust Co. v. Comingor, 184 U.S. 18, 22 Sup.Ct. 293, 46 L.Ed. 413, and kindred cases. In the Comingor Case an attempt was made by summary proceedings to subject an adverse claimant of property to the jurisdiction of the bankruptcy court. The case involved specially the right to summary method of procedure as distinguished from the usual forms of judicial procedure. The case before us is the familiar form of plenary suit, according to the ordinary and regular mode of judicial proceeding. The court had jurisdiction of the subject-matter. The consent required of defendant was only to the particular tribunal. No question of method of procedure was involved. We think the distinction between the two classes of jurisdictional questions was recognized by this court in Sinsheimer v. Simonson, 107 F. 898, 906, 47 C.C.A. 51.

Where a suit is cognizable in the federal courts, objection to the jurisdiction of the court of the district of suit is waived by appearance and pleading to the merits. Central Trust Co. v. McGeorge, 151 U.S. 129, 14 Sup.Ct. 286, 38 L.Ed. 98; Interior Construction, etc., Co. v. Gibney, 160 U.S. 217, 220, 16 Sup.Ct. 272, 40 L.Ed. 401; Western Loan & Savings Co. v. Mining Co., 210 U.S. 368, 28 Sup.Ct. 720, 52 L.Ed. 1101; Erie R.R. Co. v. Kennedy (C.C.A. 6) 191 F. 332, 334, and cases there cited. In Grand Rapids, Newaygo & Lake Shore Ry. Co. v. Gray, 38 Mich. 461, it was held that by pleading to the merits the defendant subjected himself to the jurisdiction of a court of special and limited jurisdiction, to which he otherwise would not have been subject. We think the analogy of these cases is decisive of the question before us. It has been held by several of the District Courts that appearance and pleading to the merits in plenary suits by a trustee, without objection to jurisdiction, is a consent thereto. In re Connolly (D.C.) 100 F. 620, 626; In re Steuer (D.C.) 104 F. 9768 977; Ryttenberg v. Schefer (D.C.) 131 F. 313, 317; Sheppard v. Lincoln (D.C.) 184 F. 182, 183. We think this the correct view, and that the court below rightly overruled the objection to its jurisdiction.

The bill attacks the payment to the bank, first, as an unlawful preference under the bankruptcy act; and, second, as invalid under section 9523, Comp. Laws Mich. 1897, as amended by Act No. 332 of the Public Acts of 1907, which provides that every chattel mortgage 'not accompanied by an immediate delivery, and followed by an actual and continued change of possession of the things mortgaged, shall be absolutely void as against the creditors of the mortgagor, and as against subsequent purchasers or mortgagees in good faith,' unless the mortgage or a copy thereof be field as directed in the statute.

In this court the charge of unlawful preference is abandoned, and relief is asked solely by reason of the invalidity of the mortgage under the Michigan statute. It is settled by the decisions of the Supreme Court of Michigan that the words 'creditors of the mortgagor' mean subsequent creditors in good faith and without notice of the mortgage, and that the statutory invalidity of an unfiled chattel mortgage extends to all creditors who became such after the giving and before the filing of the mortgage. Recovery can be had here on but one of two theories: First, that the bankruptcy act creates a lien in favor of the creditors under which the rights given by the Michigan statute can be enforced; or, second, that the Michigan statute creates such a lien.

The bankruptcy act does not operate as an attachment of the bankrupt's property, nor itself create a lien in favor of creditors of the class before us. York Mfg. Co. v Cassell, 201 U.S. 344, 26 Sup.Ct. 481, 50 L.Ed. 782; ...