Houston v. Pomeroy

• Decision Date: 14 June 1961
• Citation: 227 Or. 499,362 P.2d 708
• Parties: Frank C. HOUSTON and Doris Houston, husband and wife, and Darreil R. Houston and Audrey Houston, husband and wife, Respondents, v. Herbert O. POMEROY, Appellant.
• Court: Oregon Supreme Court

Page 708

362 P.2d 708

227 Or. 499

Frank C. HOUSTON and Doris Houston, husband and wife, and Darreil R. Houston and Audrey Houston, husband and wife, Respondents, v. Herbert O. POMEROY, Appellant.

Supreme Court of Oregon, In Banc.

Argued and Submitted at Pendleton, May 1, 1961.

Decided June 14, 1961.

Donald H. Joyce, Portland, for appellant.

James F. Bodie, Prineville, for respondents. With him on the brief was James B. Minturn, Prineville.

Before McALLISTER, C. J., and ROSSMAN, WARNER, PERRY, SLOAN, O'CONNELL and GOODWIN, JJ.

SLOAN, Justice.

In this case the trial court entered a decree that reformed a written undertaking entered into by the parties herein and compelled defendant to perform the agreement as reformed. Defendant appeals. We have decided that the trial court was without jurisdiction to hear the case. A resume of the facts will reveal the reason for our decision.

The factual background was peculiar. Prior to the actual events which prompted this litigation defendant had been employed in some capacity aboard a merchant vessel owned by a company referred to as Drytrans, Inc. During the course of that employment defendant was injured. He thereafter retained his present counsel to bring action against Drytrans, Inc. in the circuit court for Multnomah county for the damages arising from the injury. On May 2, 1958, and while his action against Drytrans, Inc. was pending, defendant entered into the disputed contract with plaintiffs. The contract required defendant to buy and plaintiffs to sell the physical equipment, franchises and permits of a taxicab business in Prineville then owned and operated by plaintiffs.

As a part of that transaction defendant executed an order, or assignment as it is called in this record and will be referred to here, to Mr. Joyce, his attorney. This assignment directed Mr. Joyce to pay to plaintiffs one-half of any preliminary payments defendant might receive prior to the final settlement or adjudication of his claim against Drytrans, Inc. and the full balance due plaintiffs on the contract of sale of the taxicab business at the time of final settlement of his claim. The assignment was accepted by Mr. Joyce. The assignment also provided that it 'will not be revoked by me for a period of six months from the date hereof without the prior written consent of [plaintiffs].' Defendant immediately took possession of the taxi property and attempted to operate it.

In November, 1958, defendant gave written notice to plaintiffs that the assignment was cancelled. He also attempted to rescind the contract. We are not concerned with the cause of or his right to rescind.

In January, 1959, plaintiffs filed their original complaint in this proceeding praying for damages for defendant's alleged failure to perform the contract. The damage claimed was the unpaid balance alleged to be due on the contract. Immediately thereafter defendant filed a petition of voluntary bankruptcy in the United States District Court for the District of Oregon. In due time he was adjudicated a bankrupt. The contract obligation of defendant to plaintiffs was listed in the schedules defendant filed. Defendant filed a plea of abatement in this proceeding which directed the trial court's attention to the proceedings in the bankruptcy court.

On May 15, 1959, plaintiffs filed an amended complaint herein. As before indicated, the amended complaint purported to allege facts that would require a reformation of the assignment directed to Mr. Joyce. It attempted to convert the action at law into one of equitable cognizance. The allegations of the amended complaint included allegations that defendant had been adjudicated a bankrupt and that the contractual obligations between plaintiffs and defendant had been included in the schedules filed in the bankruptcy proceeding. It, therefore, appeared on the face of the amended complaint that the circuit court had no jurisdiction of this controversy. When the bankruptcy court assumed jurisdiction of this matter it did so for all purposes. Its jurisdiction was exclusive to determine all of the rights or obligations of the parties arising out of the contract in question. 1 Remington, Bankruptcy, (5th ed. 1950) § 34, et seq.

'* * * Moreover, any determination concerning its own jurisdiction, even though erroneous, is res judicata in a subsequent collateral proceeding. These principles apply even if the question of jurisdiction was not raised; and they apply to orders of the referee as well as those of the judge.

'Of course, in every case, the issue of jurisdiction may be raised by proper direct attack in the district court or on appeal.' (Footnotes eliminated). 1 Collier, Bankruptcy, (14th ed. 1956) § 2.05, p. 146.

'Taking cognizance of the proceedings pending in the bankruptcy court, it is clear that the state court was and is without jurisdiction in this case. * * *' Bernards v. Beck, 1941, 167 Or. 178, 182, 115 P.2d 329, 330.

Plaintiffs argue that they were attempting to enforce an equitable lien and cite cases which hold that the bankruptcy court will not necessarily interfere with state court actions to enforce liens pending at the time the petition for bankruptcy is filed. Assuming, without deciding, that plaintiffs were attempting to enforce a lien the amended complaint by which they attempted to claim a lien was not pending when the bankruptcy petition was filed. Further, it was for the bankruptcy court to decide if it or the state court had jurisdiction. Engelbrecht v. Wildman, 9 Cir., 1959, 268 F.2d 133; 1 Collier, Bankruptcy, supra, § 2.06; Sloan, Procedural Effect of 1952 Amendment to Section 2a(7) of the Bankruptcy Act, 28 J. of Nat'l Ass'n of Ref. 32, 1954.

'* * * Under the law, on that date [of adjudication] the bankruptcy court acquired jurisdiction of all property, including choses in action, possessed by the bankrupt or to which he had a right of possession. Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 60 S.Ct. 628, 84 L.Ed. 876. This is so despite the existence of any liens on such property; indeed the bankruptcy court acquires jurisdiction for the very purpose of determining the validity of any liens asserted against such property, and making distribution of such property provided by law. * * *' Northeast Clackamas County Elec. Coop. v. Continental Gas Co., D.C.Or.1955, 140 F.Supp. 903, 904.

Plaintiffs also contend that in subsequent proceedings in the circuit court of Multnomah county in the case between defendant and Drytrans, Inc. defendant consented to the jurisdiction of the trial court in this case. It is not at all clear from the record that defendant did consent to the jurisdiction of the trial court to proceed with this case. But if he did the jurisdiction of the court in this respect cannot be gained by consent. State Unemployment Compensation Commission v. Bates, Or., 362 P.2d 321. And the same case again states the rule that a court cannot proceed further when, at any time, it appears that jurisdiction is wanting. Thus, the trial court in this case should have declined to act further when it first appeared by the plea in abatement and later on the face of the amended complaint that the bankruptcy court had assumed jurisdiction of the subject matter of this case. Plaintiffs were then required to have challenged the jurisdiction of the bankruptcy court in that court, not in the circuit court, or to have sought relief in the bankruptcy court, or to have moved that court to...