In re Smith-Flynn Com'n Co.

• Decision Date: 22 August 1923
• Docket Number: 235,6309.
• Citation: 292 F. 465
• Parties: In re SMITH-FLYNN COMMISSION CO. v. DOYLE (two cases). LIVE STOCK STATE BANK
• Court: U.S. Court of Appeals — Eighth Circuit

292 F. 465

In re SMITH-FLYNN COMMISSION CO.

LIVE STOCK STATE BANK v. DOYLE (two cases).

Nos. 235, 6309.

United States Court of Appeals, Eighth Circuit.

August 22, 1923

John P Kyle, of St. Paul, Minn., for petitioner and appellant.

John A Burns, of St. Paul, Minn., for respondent and appellee.

Before LEWIS and KENYON, Circuit Judges, and TRIEBER, District Judge.

KENYON Circuit Judge.

This case is before us on appeal and also on petition to revise. Out of an abundance of caution in these bankruptcy matters practically all of the cases are similarly presented. Each case, as to the proper procedure for review, must depend on its own record. Appeal is a substantial right, and the parties should not be deprived thereof, unless the law is clear. On an appeal the court can consider both questions of law and fact; on petition to revise, only questions of law. The line of demarcation between the right to appeal and the proceeding known as petition to revise is at times almost invisible, and many cases are what might be termed border line ones.

The relief here sought is to establish a lien on property in possession of the trustee in bankruptcy and require him to deliver the same to claimant. It is a suit between the trustee and the claimant concerning the right to certain property of the bankrupt's estate. This presents a controversy arising in bankruptcy proceeding, and the proper procedure is appeal under section 24a of the Bankruptcy Act (Comp. St. Sec. 9608). It would be futile to review the cases on this subject. Their number is legion. We refer, however to some authorities and text-writers as supporting the position we here take. Collier on Bankruptcy (11th Ed.) 576, states:

'Confusion may be avoided by bearing in mind that under section 24a a controversy arising between a trustee and a third party, in respect to property either in possession of the trustee or a third party, the review in the Circuit Court of Appeals is had on appeal in the same manner as in other cases. In the case of such controversies the revisory power is not available.'

In Dodge v. Norlin, 133 F. 363, 365, 66 C.C.A. 425, 427, this court said:

'Section 25a vests the Circuit Court of Appeals with appellate jurisdiction of controversies arising in bankruptcy proceedings of which they have jurisdiction in other cases. As this court has appellate jurisdiction of this controversy in other cases in which it might be presented in a federal court, it has such jurisdiction when it arises in proceedings in bankruptcy.'

In the same case it was held that there was nothing in the provisions of section 25a (Comp. St. Sec. 9609) which excludes, revokes, or diminishes the general appellate jurisdiction granted by the previous section over controversies within the jurisdiction of the Circuit Courts of Appeals before the Bankruptcy Law was passed, and that the effect of section 25a was to grant additional jurisdiction and restrict the time within which appeals could be taken in the three classes there designated.

In Re Holmes, 142 F. 391, 73 C.C.A. 491, this court said:

'This is a controversy over the title and property of the estate of the bankrupt between the trustee and the mortgagee, a party adverse to the trustee and the bankrupt, of which this court is given appellate jurisdiction by Bankruptcy Act July 1, 1898, c. 541, Sec. 24a, 30 Stat. 553, U.S. Comp. St. 1901, pp. 3431, 3432.'

And again (142 Fed.on page 394, 73 C.C.A. 494), the court said:

'The order challenged in this case involved the right of the creditor under a chattel mortgage to certain property of the bankrupt, or its proceeds, which had been taken by the trustee. It was therefore an appealable order.'

The same doctrine will be found in Loveland on Bankruptcy, Sec. 826; Hewit v. Berlin Machine Works, 194 U.S. 296, 24 Sup.Ct. 690, 48 L.Ed. 986; In re B. & R. Glove Corporation (C.C.A.) 279 F. 372; Tennessee Finance Co. v. Thompson (C.C.A.) 278 F. 597; Petition of National Discount Co. (C.C.A.) 272 F. 571; Knapp v. Milwaukee Trust Co., 216 U.S. 545, 30 Sup.Ct. 412, 54 L.Ed. 610; Rode & Horn v. Phipps, 195 F. 414, 115 C.C.A. 316.

Some of the authorities that might be considered as taking a contrary view are O'Neal v. Stuart (C.C.A.) 281 F. 715, where the court held that an order denying petitioner a lien was reviewable by petition to revise, but said the record presented a case which was near the line between review by petition to revise and appeal; also Marion Mach. Foundry & Supply Co. v. Girand et al. (C.C.A.) 285 F. 160; In re Whitener, 105 F. 180, 44 C.C.A. 434; In re Rouse, Hazard & Co., 91 F. 96, 33 C.C.A. 356; Hutchinson v. Otis, 190 U.S. 522, 23 Sup.Ct. 778, 47 L.Ed. 1179; O'Dell v. Boyden, 150 F. 731, 80 C.C.A. 397, 10 Ann.Cas. 239.

We are convinced that in the present case the proper remedy is appeal. The petition to revise is therefore dismissed.

Without entering into elaborate detail as to facts, it may be briefly stated that the Smith-Flynn Commission Company was organized as a corporation June 14, 1913, under the name of the Oehler-Forsythe Company. November 19, 1918, the name was changed to the Smith-Forsythe Company, and on June 19, 1920, to the Smith-Flynn Commission Company. We will hereafter refer to it as the Commission Company. At the time of the first transaction with petitioner, Forsythe seems to have been in entire control and management of the company. The company was the owner of a certificate of membership in the South St. Paul Live Stock Exchange, and this certificate was deposited some time during the year 1918 with appellant as collateral security for loans or overdrafts. No corporate action was taken as to the assignment of said certificate. The Commission Company continued to have a checking account with appellant. At the time of the change in the company's name the certificate of the Live Stock Exchange was delivered temporarily by the bank to some officer of the Commission Company, and later redelivered to the bank. December 23, 1920, the Commission Company was indebted to the bank in the sum of $16,503.99. The Commission Company had on deposit in the bank, subject to check at that time, more than sufficient to pay this indebtedness, and the bank applied said deposits in payment of the indebtedness, and, having done this, delivered the certificate to the Commission Company, and the same was held by the Commission Company until the appointment of a trustee in bankruptcy of said company.

Immediately prior to the offset made by the bank there was presented to the bank in the regular course of business two checks, aggregating $4,723.09, which the bank refused to honor. April 2, 1921, the Commission Company was adjudicated a bankrupt, and Timothy J. Doyle was duly elected trustee, and took possession of the property of the bankrupt, including the certificate in question. The trustee then brought an action against appellant to recover the sum represented by the two checks, and secured judgment in the amount of $4,723.09, which represented the amount of the checks the bank had refused to honor when it had funds of the Commission Company in its hands and subject to check. Petitioner thereupon paid said judgment and filed claim against the bankrupt estate for the sum of $4,723.09 so paid, and demanded possession of the certificate, or that the same be sold and the proceeds thereof applied on the amount of the judgment. Upon this state of facts the referee made findings, and the trial court approved his findings, establishing the claim of appellant in the sum of $4,337.69, and rejecting its claim to the said certificate, or to the proceeds thereof, except as it might participate as a general creditor of said bankrupt.

There was no error in the court's finding as to the question of interest. The statute itself settles this. The provable debt was limited to principal and the interest that would have been recoverable at the date of the filing of the petition in bankruptcy. Bankruptcy Act, Sec. 63a (1), being Comp. St. Sec. 9647. See, also, In re Chandler, 184 F. 887, 107 C.C.A. 209.

The other question in the case is more important and more difficult. Appellant claims that the District Court erred in not recognizing that it had a valid lien under a claimed assignment upon the certificate of membership in the South St. Paul Live Stock Exchange held by it up to the time that the debt was supposed to be paid, and that the District Court erred in not reinstating its lien upon said certificate of membership, or the proceeds thereof, when a part of the debt of the bankrupt to petitioner was reinstated; appellant contending that no intervening liens had accrued against the certificate, and no rights of any kind had intervened, except those of general creditors as represented by the trustee. To the consideration of this question we therefore address ourselves.

Appellee challenges the alleged assignment of the membership certificate on the ground that there was no action of the board of directors authorizing the pledging of said certificate, that no assignment was in fact made, and further that there was a rule of the Live Stock Exchange requiring it to consent to a transfer of a membership certificate. It is unquestioned that there was no written assignment of the certificate. It was delivered to the bank originally by Forsythe, president of the company, and he was apparently in complete control of the corporation at that time. There was no action of any board of directors; the record not disclosing that there was any such board, Forsythe's wife seeming to be the only other person having an interest in said business. The certificate remained with the bank, except when it was temporarily given up in June, 1920, for a few days, at the time of the change in...