In re Canyon Pipe Line Co., 8025.
| Decision Date | 12 June 1941 |
| Docket Number | No. 8025.,8025. |
| Citation | 39 F. Supp. 233 |
| Parties | In re CANYON PIPE LINE CO. |
| Court | U.S. District Court — Eastern District of Illinois |
Charles F. Potter and Weeks, Surles & Potter, all of Centralia, Ill., for petitioner.
Robert Crain and Murphey & Crain, all of Centralia, Ill., for trustee.
The assets involved consist of various parts of a pipe line system located in the active oil fields of Illinois. The bankrupt secured possession of the part mortgaged on February 6, 1940, when it is claimed it became the owner, subject to the mortgage hereinafter mentioned, and remained in possession thereof continuously until it made an assignment for the benefit of its creditors, whereupon the property came into possession and custody of the assignee. Following the assignment, the Manley Corporation, claiming to hold a real estate mortgage upon the property, filed suit in the state court to foreclose its security, asking for a receiver. The court announced that it would appoint a receiver but, before that officer qualified as directed by the order, an involuntary petition in bankruptcy was filed in this court and a receiver in bankruptcy appointed and qualified, who immediately received possession of the res. In due course a trustee in bankruptcy was designated and qualified and is now acting as such. Thus the continuous custody and possession of the property have been, first, in the bankrupt, then, in the assignee, then, in the receiver in bankruptcy and finally in the trustee in bankruptcy.
This court, having possession and custody of the res, issued an injunction temporarily restraining the foreclosure suit. The mortgagee then came into court with a motion to dissolve the injunction and for leave to proceed with the foreclosure. The Referee concluded that he should not interfere and that the suit in the state court should proceed. The trustee attacks the validity of this order.
The Referee found that there was no clear showing as to the value of the property or that the property said to be subject to the mortgage was burdensome to the estate. The evidence as to value varies from $10,000 to $75,000. The amount of the mortgage is approximately $60,000. The evidence shows without dispute that the property involved, which formerly belonged to the mortgagee, has been commingled with other pipe lines of the bankrupt; that large sections of the line have been removed and replaced elsewhere; that it is impossible to identify the original property sold by Manley and now mortgaged to it. The relative portions of the property purchased from Manley and mortgaged to it and the remainder of the estate, which belongs to the general creditors, are not clearly shown. Apparently the mortgage covers between 80 and 90 per cent of the estate and the balance of the line belonging to general creditors aggregates from 10 to 20 per cent. There is no practical method indicated in the record by which the respective portions of the estate can be segregated so that they can be sold separately. Rather the evidence indicates that the entire estate, if it has value other than as salvage, must be sold as a single entity, one pipe line system, and that to attempt to segregate the respective portions and to make a division between the property covered by the mortgage and that not covered by it, is impossible from a practical point of view.
These facts become material because the chief issue between the parties is as to whether the state court, by the foreclosure suit instituted prior to bankruptcy, in which a receiver was appointed but which never actually acquired custody of the estate, shall be allowed to proceed as against the trustee in bankruptcy, whose duty it is to conserve and protect the interest of all creditors, general and secured. In addition the trustee questions the validity of the mortgage under the Illinois statutes. The parties have not submitted evidence sufficient to justify any attempt to adjudicate this issue. It is the trustee's position that, inasmuch as the property in due course followed in an uninterrupted stream of custody and possession of the bankrupt, its assignee, receiver and trustee; inasmuch as the state court never obtained actual possession and custody of the res, inasmuch as it is impossible to identify the property covered by the mortgage and unless the estate is sold as a whole, only salvage valuation will be received and inasmuch as no harm can accrue to the mortgagee but only benefit, as the time for redemption under the Illinois statute, 15 months, would be wiped out, it follows that the jurisdiction of this court is not only within the discretion of the court but mandatory.
It is a salutary rule of comity that when courts of concurrent jurisdiction conflict, that which first obtains jurisdiction of the res shall prevail. It is equally true that when federal bankruptcy questions are involved the bankruptcy court becomes the court of paramount and exclusive jurisdiction. Section 2, paragraph 21, of the present Act of bankruptcy, as amended in 1938, 11 U.S.C.A. § 11(21), endows the court with power to "require receivers or trustees appointed in proceedings not under this Act title, assignees for the benefit of creditors, and agents authorized to take possession of or to liquidate a person's property to deliver the property in their possession or under their control to the receiver or trustee appointed under this Act title." Here the receiver in the state court had not qualified; possession had not gone into his hands. Consequently there is no question of adverse possession and it seems clear under the present terms of the act that the receiver and the property upon which the mortgagee claims a lien is subject to the summary jurisdiction of the bankruptcy court. It is its duty and obligation, as a court of bankruptcy, to take jurisdiction of the estate and so administer it that the remedial functions of bankruptcy legislation may be achieved. Amongst these are the marshaling and liquidation of assets and equitable division thereof amongst the creditors according to their respective priorities. The law regarding actions to enforce liens in courts other than that in bankruptcy prior to the present amendment, and concerning the paramount and exclusive character of the latter court, is rather fully...
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...Investment Company v. Weaver, supra; see also United States v. National Furniture Company, 348 F.2d 390 (2d Cir. 1965); In Re Canyon Pipe Line Co., 39 F.Supp. 233, 236, and cases cited therein. 14 Cf. In the Matter of Dennett, In Bankruptcy No. B-1153-67 (Unpublished) Dec. 4, 1967, where pr......
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Crowe v. Fotiades
...The bankrupt court has the power to order a sale of real property lying outside the district in which the court sits. In re Canyon Pipe Line Co., D.C., 39 F.Supp. 233. In the case of In re Maryland Coal Co. of West Virginia, D.C., 36 F.Supp. 142, 144, after announcing the rule that the juri......
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...10 Cal.2d 266, 274, 74 P.2d 264, 114 A.L.R. 708, who has actual or constructive possession of said property. See In re Canyon Pipe Line Co., D.C., 39 F.Supp. 233, 235. The trustee in bankruptcy, however, takes the property of the bankrupt 'subject to all such liens as would have been enforc......