Galbraith v. Robson-Hilliard Grocery Co.

• Decision Date: 29 July 1914
• Docket Number: 140.
• Citation: 216 F. 842
• Parties: GALBRAITH v. ROBSON-HILLIARD GROCERY CO. et al.
• Court: U.S. Court of Appeals — Eighth Circuit

216 F. 842

GALBRAITH v. ROBSON-HILLIARD GROCERY CO. et al.

No. 140.

United States Court of Appeals, Eighth Circuit.

July 29, 1914

Todd &amp Kerr, of St. Paul, Minn., for petitioner.

Leach &amp Leach, of Owatonna, Minn., for respondents.

Before HOOK and CARLAND, Circuit Judges, and REED, District Judge.

CARLAND Circuit Judge.

This is a petition to revise in matter of law an order of the District Court for the District of Minnesota, affirming an order of the referee in bankruptcy made January 19, 1914 whereby he sustained objections to his jurisdiction to hear the petition of petitioner, made by counsel for respondents. The petition filed with the referee set forth the following facts: That the petitioner, John T. Galbraith, was the duly appointed, qualified, and acting trustee in bankruptcy of the estate of John Magnuson and Victor J. Magnuson, copartners as John Magnuson & Co., and as individuals. That the Robson-Hilliard Grocery Company of Pipestone, Minn., was a corporation duly organized and existing under and by virtue of the laws of the state of Minnesota. That among the assets of said estate in the possession of said John P. Galbraith as trustee aforesaid, was the following described land lying and being in the county of Sully, state of South Dakota, to wit, 'The east half of section 33, township 114, range 74 west. ' That heretofore, and prior to the 21st day of February, 1913, said bankrupts had purchased on open account from the said Robson-Hilliard Grocery Company goods, wares, and merchandise of the agreed value of about $1,700, which said indebtedness on said 21st day of February, 1913, was past due and wholly unsecured, and that on or about the said 21st day of February, 1913, for the purpose of securing said past due and pre-existing indebtedness, and at the solicitation and request of said Robson-Hilliard Grocery Company, and not otherwise, John Magnuson, one of said bankrupts, and wife, executed a certain mortgage covering said real estate to S. Robson, of Pipestone, Minn., which said mortgage recited a consideration of $1,700. That said mortgage was filed for record in the office of the register of deeds in and for Sully county, S.D., on the 25th day of February, 1913, and recorded in Book 34 of Mortgages, p. 634, and that ever since said 25th day of February, 1913, said mortgage purported to constitute a lien and incumbrance against said property. That said bankrupts were wholly insolvent on February 21 and 25, 1913, and that fact on those dates was well known to said Robson-Hilliard Grocery Company, and to said S. Robson, and said Robson-Hilliard Grocery Company and said S. Robson at all of said times had reasonable cause to believe that said bankrupts and each of them were on said date wholly insolvent. That the bankrupts filed a petition in voluntary bankruptcy on April 3, 1913, both as copartners and individually, and that said bankrupts were on the 3d of April adjudicated bankrupts. That the value of the assets of said bankrupts will not pay to exceed 40 per cent. of the approved claims against the estate. That said S. Robson and the Robson-Hilliard Grocery Company claim to be owners and holders of said mortgage, and have refused to satisfy the same of record, and that the lien created by said mortgage is wholly invalid, for the same created an unlawful preference in contravention of the provisions of the Bankruptcy Law. The prayer of the petition prayed for an order of the court, citing the said S. Robson and Robson-Hilliard Grocery Company of Pipestone, Minn., to appear and show cause, if any there should be, at a time and place to be fixed by the court, why an order should not be then and there entered ordering and directing said Robson or Robson-Hilliard Grocery Company, to deliver up said mortgage to said trustee, and to execute and deliver a certificate of discharge thereof sufficient in form to properly purge the record of said register of deeds office of said purported lien and incumbrance. The referee granted an order to show cause, and at the return day thereof the Robson-Hilliard Grocery Company and S. Robson, by their counsel, appeared and objected to the matters involved in said petition being heard or determined or adjudicated in a summary manner by said referee or by said court on the ground that said court had no jurisdiction to determine the same, and that said S. Robson and the Robson-Hilliard Grocery Company did not consent to have the matters involved in said petition heard, tried, or determined in said United States District Court, in a summary manner. The referee sustained the objection of respondents, and the validity of this ruling of the referee was by a petition for review certified to the District Judge, who, upon a hearing thereof, affirmed the ruling of the referee, as hereinbefore stated. There was no question in the court below but that the real estate, upon which the lien is claimed, was in the possession of the United States District Court for the District of Minnesota, by its trustee in bankruptcy. This fact was alleged in the petition, and the referee so certified to the judge of the District Court. While the question raised by this appeal is important, we do not think the determination thereof is difficult in view of the decisions of the Supreme Court of the United States and of this court. The United States District Court for the District of Minnesota, whose power and authority, so far as its jurisdiction existed the referee was exercising, had exclusive jurisdiction to determine the validity of the lien of the mortgage by virtue of its possession of the real estate upon which the lien was claimed. Robertson v. Howard, 229 U.S. 254, 33 Sup.Ct. 854, 57 L.Ed. 1174; Whitney v. Wenman, 198 U.S. 539, 25 Sup.Ct. 778, 49 L.Ed. 1157; Wabash Railroad v. Adelbert College, 208 U.S. 38, 28 Sup.Ct. 182, 52 L.Ed. 642, and cases cited; Herbert v. Crawford, 228 U.S. 204, 33 Sup.Ct. 484, 57 L.Ed. 800; Murphy v. Hoffman Co., 211 U.S. 563, 29 Sup.Ct. 154, 53 L.Ed. 327; Babbitt v. Dutcher, 216 U.S. 102, 30 Sup.Ct. 372, 54 L.Ed. 402, 17 Ann.Cas. 969; Bryan v. Bernheimer, 181 U.S. 188, 21 Sup.Ct. 557, 45 L.Ed. 814; United States Fidelity Co. v. Bray, 225 U.S. 205, 32 Sup.Ct. 620, 56 L.Ed. 1055.

The following language is quoted from Babbitt v. Dutcher, supra, in support of the proposition that the United States District Court for the District of Minnesota did not have jurisdiction to hear the matters arising upon the petition of the trustee:

'There are two classes of cases arising under the act of 1898 and controlled by different principles. The first class is where there is a claim of adverse title to property of the bankrupt, based upon a transfer antedating the bankruptcy. The other class is where there is no claim of adverse title based on any transfer prior to the bankruptcy, but where the property is in the physical possession of a third party or of an agent of the bankrupt, or of an officer of a bankrupt corporation, who refuses to deliver it to the trustee in bankruptcy. In the former class of cases a plenary suit must be brought, either at law or in equity, by the trustee, in which the adverse claim of title can be tried and adjudicated. In the latter class it is not necessary to bring a plenary suit, but the bankruptcy court may act summarily and may make an order in a summary proceeding for the delivery of the property to the trustee, without the formality of a formal litigation.'

Isolated paragraphs may be taken from the opinion of a court and separated from the context, may often seem to support a principle which the court, in rendering the opinion, had not in mind. The case of Babbitt v. Dutcher was as follows: The Randolph-Macon Coal Company was a Missouri corporation and was duly adjudicated a bankrupt March 26, 1907, by the United States District Court for the Eastern Division of the Eastern Judicial District of Missouri. Babbitt was appointed trustee. He made demand upon the president of the coal company for the possession of the corporation's records and stock books which were kept in the office maintained by the company in New York City. Their request was refused. Thereupon the trustee made application to the District Court in and for the Southern District of New York, by petition, for an order directing James T. Gardiner, the president, and Howard Dutcher, the secretary, of the company, or either of them, to deliver to him the stock certificate book, the corporation minute book, and the stock register of said company, together with all other records and documents belonging to said company in their possession or under their control. Gardiner and Dutcher were within the jurisdiction of the District Court for the Southern District of New York, and the books and papers referred to were within their custody. Thereafter a hearing was had on the petition, and the District Judge refused to grant the order prayed for, for the reason that he had no jurisdiction to make it or to entertain proceedings instituted by a trustee in bankruptcy duly appointed in a bankruptcy proceeding pending in another district. The Supreme Court on appeal said:

'We have no doubt that the books and records in question passed, on adjudication, to the trustee, and belong in the custody of the bankruptcy court, and, there being no adverse holding, that the bankruptcy court had power upon a petition and rule to show cause to compel their delivery to the trustee. Bryan v. Bernheimer, 181 U.S. 188 (21 Sup.Ct. 557, 45 L.Ed. 814); Mueller v. Nugent, 184 U.S. 1 (22 Sup.Ct. 269, 46 L.Ed. 405); Louisville Trust Co. v. Comingor, 184 U.S. 18 (22 Sup.Ct. 293, 46 L.Ed. 413); First National Bank v. Title & Trust Co., 198 U.S. 280 (25 Sup.Ct. 693, 49 L.Ed. 1051); Whitney v. Wenman, 198 U.S. 539 (25 Sup.Ct. 778, 49

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