Head v. Brainard

• Decision Date: 25 May 1925
• Docket Number: No. 4383.,4383.
• Parties: HEAD et al. v. BRAINARD.
• Court: U.S. Court of Appeals — Ninth Circuit

5 F.2d 289 (1925)

HEAD et al. v. BRAINARD.

No. 4383.

Circuit Court of Appeals, Ninth Circuit.

April 20, 1925.

Rehearing Denied May 25, 1925.

E. R. Ringo and Cochran & Eberhard, all of La Grande, Or., for plaintiffs in error.

Sidney Teiser, of Portland, Or., for defendant in error.

Before ROSS, HUNT, and RUDKIN, Circuit Judges.

HUNT, Circuit Judge (after stating the facts as above).

Plaintiffs in error contend that the District Court made no decision upon the question of title and was without power to make such determination in the present action; that the trustee could not maintain this action; that it was error for the court to refuse to permit defendants below to prove ownership of the property and to direct a verdict in favor of plaintiff below.

In our opinion the court by its order of confirmation of the master's report in the ancillary bankruptcy proceedings adjudged that the bankrupt estate had title to the property in question, and that the claimants thereto, who were these plaintiffs in error, did not hold the property by right or assertion of right made in good faith. No steps to review that order in the summary proceedings were taken by Head and others affected. There was a challenge by the respondents in the ancillary proceedings to the jurisdiction, but that step did not oust the court of jurisdiction, or do more than to impose upon it the duty to cite claimants to show cause why they should not yield possession of the property to the trustee, and to inquire whether the claim of title was genuine and adverse and made in good faith. Cohen v. Hessel (C. C. A.) 278 F. 929. Repeated decisions have recognized the obvious proposition that before jurisdiction of the District Court can be ousted by mere assertion of title by a claimant, there must be a hearing and a decision whether the claim interposed is in good faith and real, or is without actual merit or legal foundation. If the decision is the one way, the bankruptcy court should decline to try the issue summarily; but if it be decided that the claim is wholly without merit and is not filed in good faith, then the court has power to make an order requiring the wrongful holder to surrender to the trustee and to direct administration. In re Eilers Music House (C. C. A.) 270 F. 917, certiorari denied 257 U. S. 613, 646, 42 S. Ct. 53, 55, 66 L. Ed. 397, 414. In Taubel, etc., Co. v. Fox, 264 U. S. 426, 44 S. Ct. 396, 68 L. Ed. 770, the court held that under the act of 1898 the bankruptcy court had power to adjudicate, without consent, controversies concerning the title arising under either sections 67e, 60b, or 70e (Comp. St. §§ 9651, 9644, 9654), where the property was in possession of the court, but that while possession was essential to jurisdiction, it need not be actual, but was sufficient if constructive, and in giving several instances wherein the court might exercise jurisdiction, Justice Brandeis includes those "where the property is held by one who makes the claim, but the claim is colorable only." The court also held that as the bankruptcy court must have power to determine whether it has possession, actual or constructive, "it may conclude, where it lacks actual possession, that the physical possession held by some other persons is of such a nature that the property is constructively within the possession of the court." Myers v. International Trust Co., 263 U. S. 64, 44 S. Ct. 86, 68 L. Ed. 165, also has a bearing. There the trust company entered its appearance in an application for discharge filed by Myers Bros., claiming that Myers Bros. had obtained a loan from the trust company upon a materially false statement. The District Court discharged the bankrupts upon the ground that the statement was not materially false, but was true....