In re Lee

• Decision Date: 10 October 1910
• Docket Number: 104.
• Parties: In re LEE.
• Court: U.S. Court of Appeals — Eighth Circuit

182 F. 579

In re LEE.

No. 104.

United States Court of Appeals, Eighth Circuit.

October 10, 1910

Syllabus by the Court

The grant of jurisdiction to the Circuit Court of Appeals (Bankruptcy Act July 1, 1898, c. 541, Sec. 24a, 30 Stat. 553 (U.S. Comp. St. 1901, p. 3431)) to review by appeal the final decision of a controversy arising in bankruptcy proceedings of which that court would have had appellate jurisdiction if it had arisen in any other case in the federal court, and the grant of jurisdiction to revise and superintend in matter of law the proceedings of the inferior courts of bankruptcy (section 24b (U.S. Comp. St. 1901, p. 3431)), are not exclusive of each other, but cumulative or concurrent grants the former of jurisdiction to review questions of law and of fact, the latter of jurisdiction to review questions of law only.

An aggrieved party often has a choice of these methods.

Appeal and review in bankruptcy cases, see note to In re Eggert, 43 C.C.A. 9.)

But the review of such decisions which require the consideration of conflicting evidence regarding controverted facts may not be invoked successfully by such a petition.

To rights of mortgagee, see note to Rachal v. Smith, 42 C.C.A. 304.)

R. L Holmes and Charles G. Yankey, for petitioner.

David Smyth and A. E. Helm, for trustee.

Before SANBORN and ADAMS, Circuit Judges, and REED, District Judge.

SANBORN Circuit Judge.

A petition to revise under section 24b of the bankruptcy law (Act July 1, 1898, c. 541, 30 Stat. 553 (U.S. Comp. St. 1901 p. 3431)) challenges in this case the decision of the court below that the petitioner, F. J. Lee, had no lien upon certain real estate which was in the possession of the bankrupt at the time of his adjudication and which, at the request of the petitioner, was sold under an order of the referee that its proceeds should stand in its place subject to the same liens that had attached to the land.

The trustee moves to dismiss this petition on the grounds (1) that the case involves a controversy arising in bankruptcy proceedings under section 24a as distinguished from proceedings in bankruptcy under section 24b, and that the decision in it is reviewable by appeal only; and (2) that its determination involves a consideration of evidence and a determination of disputed facts. The land which was the subject of this controversy was a part of the estate of the bankrupt held by the court below in trust to sell and to distribute its proceeds to its creditors. With the consent and at the request of the creditor, Lee, the court sold it, held its proceeds in the place of the property and subject to the same liens, and adjudged the validity of his claim. Undoubtedly there is a controversy here arising in a bankruptcy proceeding which is reviewable by appeal under section 24a, but there is no prohibition in the bankruptcy law of the revision in matter of law of such a controversy under section 24b, and, if no controversy arising in bankruptcy proceedings may be reviewed under the latter section, then nothing may be reviewed under it, because, where there is no controversy, there is nothing to review or to decide. The fact is that the grant of jurisdiction to the Circuit Court of Appeals to review by appeal the final decision of a controversy arising in bankruptcy proceedings of which that court would have had appellate jurisdiction if it had arisen in any other case in a federal court under section 24a, and the grant of jurisdiction to revise and superintend in matter of law the proceedings of the inferior courts of bankruptcy under section 24b, are not exclusive of each other, but cumulative or concurrent grants, the former of jurisdiction to review questions of law and of fact, the latter of jurisdiction to review questions of law alone. An aggrieved party often has a choice of these methods. A decision of a controversy arising in bankruptcy proceedings which involves the validity of the claim of a creditor to a lien upon the property of the bankrupt, or its proceeds under administration in possession of the court, is a proceeding in bankruptcy within the meaning of section 24b of the bankruptcy law and reviewable in matter of law upon a petition to revise. In re Holmes, 142 F. 391, 393, 73 C.C.A. 491, 493; Dodge v. Norlin, 133 F. 363, 367, 66 C.C.A. 425, 429; In re McKenzie, 142 F. 383, 385, 73 C.C.A. 483, 485; John Deere Plow Co. v. McDavid, 137 F. 802, 810, 70 C.C.A. 422, 430; Security Warehousing Co. v. Hand, 143 F. 32, 38, 74 C.C.A. 186, 192; Franklin v. Stoughton Wagon Co., 168 F. 857, 860, 94 C.C.A. 269, 272; Thomas v. Woods, 173 F. 585, 588, 97 C.C.A. 535, 538, 26 L.R.A. (N.S.) 1180.

There is no doubt that a petition to revise will not lie to invoke the consideration of evidence to determine disputed questions of fact, but the record is that this controversy was tried and decided upon agreed facts which are spread before us. The petition alleges that the case was finally heard and tried before the referee on December 17, 1909, 'and on said date R. B. Campbell, trustee of said estate, by his attorneys, entered into an agreed statement of facts, which statement and stipulation did cover and include all the facts in connection with said matter. A duly certified copy of said agreed statement of facts is hereto attached marked 'Exhibit F," that the referee allowed the petitioner's claim, and denied his lien and the court affirmed that decision. The trustee did not answer this petition, and there is no denial of these allegations. The agreed facts recited in the stipulation are not contradictory, doubtful, or incomplete, and the only question there presented is their legal import. The motion to dismiss the petition must therefore be denied.

On July 28, 1908, one Hollicke had recovered a judgment for $522.22 against the bankrupt on its promissory note which was secured by a mortgage upon its land. The contention of counsel for the trustee that this mortgage had been released in January, 1908, has not been overlooked. It rests upon the fact that there is in the record a copy of this mortgage and of the following endorsements upon it:

'The amount secured by this mortgage has been paid in full and the same is hereby cancelled this 3rd day of January, 1908. J. F. Hollicke. Filed August 21, 1908, 9 A.M. and recorded on margin of record. T. E. Keller, Register of DEEDS. J. E. Farrow, Deputy.'

But the legal presumption is that the mortgage was in the possession of Hollicke, the mortgagee, on January 3, 1908, and his indorsement of a release upon it without a delivery thereof to the mortgagor or to the owner of the property would be ineffective. The mortgage was not paid until July 28, 1908. There is no evidence that the release was delivered before that date. It is not probable that Hollicke delivered it before the mortgage was paid, and the agreed statement of facts reads:

'Heretofore and prior to the 28th day of July, 1908, one J. F. Hollicke had a mortgage on certain property owned by the bankrupt at that time, * * * a copy of which with the endorsements thereon is hereto attached.'

This condition of the record convinces that the mortgage had not been released on July 28, 1908, when the bankrupt persuaded the petitioner to advance to it $522.22 in reliance upon the security which it furnished. This mortgage had been made in June and had been recorded in July, 1907. In this state of the case the bankrupt on July 28, 1908, agreed in writing to procure an assignment of this mortgage to the petitioner Lee to secure to him the repayment of $522.22, and that he should be subrogated to all the rights of Hollicke, the mortgagee therein, if he would advance to it that amount of money to enable it to pay Hollicke's judgment against it, and thereby to prevent a seizure and sale of its property, and the petitioner advanced this money to the bankrupt and with it the bankrupt paid the judgment and saved its property from sale thereunder. But Hollicke refused to assign the mortgage, and on August 21, 1908, the release of it which has been recited was recorded in the office of the register of deeds. After the petitioner had loaned the money to the bankrupt and had received his agreement of subrogation, and after the bankrupt had paid the judgment against it and had demanded of Hollicke that he assign his mortgage to the petitioner, and after Hollicke had refused to do so and the bankrupt had informed the petitioner of his refusal, the bankrupt within four months of its adjudication gave to the petitioner a new mortgage upon the same property to secure the repayment of his loan. But there is a claim that this new mortgage was not given for a present consideration, and it was never recorded.

Counsel argue that this second mortgage was voidable by the trustee because it was made so long after Lee loaned the money that it constituted a voidable preference under section 60b of the bankruptcy law, and because it was not recorded. But it does not seem to be necessary to discuss or decide the questions presented by this contention. If this second mortgage was valid, it created a lien upon the property, and entitled the petitioner to the relief he sought. If it was void or voidable, why was he not entitled to be subrogated to the rights of Hollicke under his mortgage which the money of the petitioner paid? May not one who, in reliance upon the agreement of the owner of property to give him a first lien thereon to secure his repayment, loans money to pay off a prior incumbrance and takes a defective mortgage or other security, be subrogated to the rights of the prior incumbrancer so far as necessary to secure the payment of his claim? This question received an exhaustive examination and the most thoughtful consideration of this court in 1901,...