In re McCahan's Estate

• Decision Date: 30 June 1933
• Docket Number: 281
• Citation: 312 Pa. 515,168 A. 685
• Parties: McCahan's Estate; Taggart's Appeal
• Court: Pennsylvania Supreme Court

168 A. 685

312 Pa. 515

McCahan's Estate; Taggart's Appeal

No. 281

Supreme Court of Pennsylvania

June 30, 1933

Argued May 2, 1933

Appeal, No. 281, Jan. T., 1933, by E. Charles Taggart, as executor of the estate of Anna G. Taggart, deceased, from decree of O.C. Phila. Co., Jan. T., 1907, No. 551, in estate of Mary C. McCahan, deceased. Judgment reversed, case remanded with directions to pay over $6,414.42, being the fund in question, to E. Charles Taggart, executor of the estate of Anna G. Taggart, life tenant, deceased.

Audit of account of trustee. Before MARX, P.J., specially presiding.

The opinion of the Supreme Court states the facts.

Decree awarding life tenant's interest in trust estate to her trustee in bankruptcy, VAN DUSEN, J., dissenting. Executor of life tenant appealed.

Errors assigned, inter alia, were dismissals of exceptions, quoting record seriatim.

Judgment reversed, case remanded with directions to pay over $6,414.42, being the fund in question, to E. Charles Taggart executor of the estate of Anna G. Taggart, deceased.

Mercer B. Tate, Jr., with him Thomas R. Wickersham, of Wickersham & Wickersham and Montgomery & McCracken, for appellant.

George Wanger, wih him Franklin C. Hutchinson, for appellee.

Before FRAZER, C.J., SIMPSON, KEPHART, SCHAFFER, MAXEY, DREW and LINN, JJ.

OPINION

MR. JUSTICE KEPHART:

Mary C. McCahan, testatrix, died in 1905. She bequeathed certain shares of stock in trust, the income to be paid to her niece, Anna G. Taggart, during her life; thereafter the corpus was to be paid to her issue, if any, and if there were no children or issue of deceased's children, the trust fund was to be paid to the life tenant's brothers and sisters. On March 2, 1932, Anna G. Taggart, the life tenant, died without children or issue of any deceased children. By her will she appointed appellant, E. Charles Taggart, executor. Surviving her were brothers, sisters and a nephew.

The life tenant had borrowed a considerable sum from the Norristown-Penn Trust Company, and assigned, as collateral security therefor, certain assets: the income from the trust, stock owned absolutely, and six insurance policies on her life, payable at death to her estate. After this transfer, or on September 5, 1930, life tenant assigned as collateral for loans to the Mogee sisters any equity she might have in the securities held by the trust company. A week later, September 12th, life tenant filed a voluntary petition in bankruptcy, was adjudged a bankrupt and on May 20, 1931, was discharged.

In the bankruptcy proceedings she listed as assets the stock owned absolutely, noting the assignment to the Mogees subject to the prior assignment to the trust company, and her life estate in the trust fund.

When the life tenant filed her petition and was adjudicated a bankrupt, she was indebted to the trust company on notes aggregating approximately $30,000. When she died on March 2, 1932, her indebtedness to the trust company amounted to $31,500. The insurance companies settled the policies at their face value, $31,000, and the trust company satisfied and discharged her indebtedness to it. Thereafter they had no lien on her life interest in the trust fund valued at $6,414.42. Both the trustee in bankruptcy and the executor of the life tenant claimed the value of the life estate. The orphans' court directed this sum to be paid to the trustee, and from its decree the present appeal is taken.

The auditing judge based his decision upon the merits of the case, but the orphans' court in banc, in affirming his decree, held that the orphans' court had no jurisdiction to consider the question of title to the funds representing the interest of the life tenant, reasoning that the federal courts had exclusive jurisdiction to decide such questions.

For nearly thirty years testatrix's estate had been subject to the continuing jurisdiction of the orphans' court for administration and distribution. The bankruptcy proceeding of the life tenant did not cut off this power nor remove all questions of distribution into the sphere of federal jurisdiction. Where the orphans' court has once acquired control over property, the jurisdiction of all other courts, though concurrent, is subject thereto. It may hear and determine all questions respecting title, possession and control of the litigated property: Isaacs, Trustee, v. Hobbs Tie & Timber Co., 282 U.S. 734; Straton v. New, Trustee, 283 U.S. 318. See section 23 of the Bankruptcy Act of July 1, 1898, clause 541, 30 Stat. 552 (U.S. Ann. Code, Title 11, section 46). It was said by the United States Supreme Court in Bardes v. Hawarden Bank, 178 U.S. 524 at 537, that the present Bankruptcy Act clearly manifests the intention of congress "that controversies, not strictly or properly part of the proceedings in bankruptcy, but independent suits brought by the trustee in bankruptcy to assert a title to money or property as assets of the bankrupt against strangers to those proceedings, should not come within the jurisdiction of the District Courts of the United States. . . .

"One object in inserting this clause in the act may well have been to leave such controversies to be tried and determined, for the most part, in the local courts of the State, to the greater economy and convenience of litigants and witnesses. See Shoshone Mining Co. v. Rutter, 177 U.S. 505, 511, 513." See Lovell, Trustee, v. Newman & Son, 227 U.S. 412, where the Supreme Court construed section 23 of the Bankruptcy Act. Also see Bush v. Elliott, 202 U.S. 477; 1 Loveland on Bankruptcy, 4th edition, section 74 et seq.; 1 Remington on Bankruptcy, section 1686.

Justice DAY, in Bush v. Elliott, supra, used the following pertinent language: ". . . the evident purpose of congress [was] to limit the jurisdiction of the United States Courts in respect to controversies which did not come simply within the jurisdiction of the federal courts as bankruptcy courts, and to preserve, to a greater extent than the former act, the jurisdiction of the state courts over actions which were not distinctly matters and proceedings in bankruptcy."

The rule of the federal courts as to this question may be summarized as follows: The jurisdiction conferred upon the federal courts for the benefit of an assignee in bankruptcy is concurrent with and does not divest that of the state courts in suits of which the latter had full cognizance. Where a state court has, in a proper case, taken jurisdiction of the subject-matter there involved prior to the filing of the petition in bankruptcy, it has complete and effective power to determine finally all rights and title in and to such property. A trustee acting for a federal court in bankruptcy can subject the questions involved to a federal court only if he meets the constitutional requirements as to federal jurisdiction: diversity of citizenship where the amount involved is in excess of $3,000; a federal question under the Constitution or laws of the United States; otherwise he is remitted to the state courts: Doyle v. Duncan Spangler Coal Co., 288 F. 897; Kaigler v. Gibson, 264 F. 240; In re Vadner, 259 F. 614; Tripplehorn v. Cambron, 250 F. 605; In re Schmidt, 224 F. 814. In fact, it is the duty of a state court once it has acquired jurisdiction prior to the commencement of proceedings in bankruptcy to proceed to final decree notwithstanding the adjudication in bankruptcy: Pickens v. Roy, 187 U.S. 177; Speakman v. Bryan, 53 F.2d 463; writ of certiorari denied, 285 U.S. 539.

Our own decisions substantiate this conclusion. Recently in the case of Dalton & Dalton v. Supplee, 310 Pa. 474, we said: " The general rule of law that the court first obtaining jurisdiction over the res retains it to the end, prevails in the law of bankruptcy. . . . A state court distributing a fund in its hands raised by it on its process, or in the possession of the res, is entitled to retain jurisdiction for the purpose of enforcing a lien, even though bankruptcy intervenes." See Breckons v. Snyder, 211 Pa. 176. See also Dundas's App., Lippincott's App., 73 Pa. 474; McGettrick's App., 98 Pa. 9; King's Est., 215 Pa. 59.

Mr. Justice ROBERTS aptly concludes the question in Isaacs, Trustee, v. Hobbs Tie & Timber Co., supra, at page 737: "This is but an application of the well recognized rule that when a court of competent jurisdiction takes possession of property through its officers, this withdraws the property from the jurisdiction of all other courts which, though of concurrent jurisdiction, may not disturb that possession; and that the court originally acquiring jurisdiction is competent to hear and determine all questions respecting title, possession and control of the property."

The life tenant was indebted to the trust company when she was adjudicated a voluntary bankrupt, September 12, 1930, in the sum of $30,000, to secure which the trust company held, as collateral, insurance policies having a cash surrender value of $8,500, stock valued at $1,000, and an assignment of a life interest in a trust fund of a value of $6,500, or a total of $16,000. Consequently, when the life tenant was adjudged a bankrupt there was no equity in that collateral which could be enjoyed either by her or by her trustee who succeeded to her rights.

Within eighteen months of the adjudication in bankruptcy and after her discharge, the life tenant died; the policies of life insurance attained their face value of $31,000, and from this fund the trust company satisfied its claim against the life tenant, freeing the other collateral items.

In the court below the executor of the life tenant claimed the trustee was not entitled to this collateral, on the theory that the title of a trustee is determined when the adjudication in bankruptcy occurs and,...