In re Stearns & White Co.

• Decision Date: 05 January 1924
• Docket Number: 3292.
• Citation: 295 F. 833
• Parties: In re STEARNS & WHITE CO. v. LEE. STEARNS & WHITE CO.
• Court: U.S. Court of Appeals — Seventh Circuit

295 F. 833

In re STEARNS & WHITE CO.

STEARNS & WHITE CO. v. LEE.

No. 3292.

United States Court of Appeals, Seventh Circuit.

January 5, 1924

Rehearing Denied February 8, 1924.

Robert McMurdy and Howard M. Harpel, both of Chicago, Ill., for appellant.

Charles Dickerson, of Aurora, Ill., for appellee.

Before BAKER, EVANS, and PAGE, Circuit Judges.

PAGE Circuit Judge.

This is an appeal under section 25a of the Bankruptcy Act (Comp. St Sec. 9609). On July 11, 1922, after an extended hearing, the referee allowed appellee's claim for $17,056.96. On February 3, 1923, the court entered an order denying the bankrupt's petition for a review. On February 28, 1923 in a little different language, the court again denied the petition for a review. Appeal was prayed and allowed, but not perfected.

On April 12th, the bankrupt moved 'to vacate orders of February 3d and 28th, enter new order in re claim of Chas. H H. Lee, allow appeals and supersedeas, approve appeal bond and issue citation, etc. ' Thereupon the following order was made:

'Orders of February 3d and 28th vacated petn. of Stearns & White to review order of F. L. Wean, referee, of July 11, 1922, denied and order of referee affirmed.'

Therefrom the present appeal was taken, and the question here is on a motion to dismiss for the reason that when the appeal was allowed the court was without jurisdiction to make such an order.

It is conceded that an appeal from the allowance or disallowance of a claim must be taken, under section 25a, within 10 days from the entry of the order appealed from. The question as to what control a court of bankruptcy has over its orders has been frequently before the courts. The Congress used the existing federal courts for the administration of the Bankruptcy Law. In a general way, jurisdiction under the Bankruptcy Act of 1867 was similar to that under the present act, and the language of the court in Lathrop v. Drake, 91 U.S. 516, 23 L.Ed. 414, is pertinent here. Speaking of the jurisdiction of the District Court in bankruptcy matters under the act of 1867 (14 Stat. 517), the court said:

'But the enacting clauses which confer this jurisdiction' on appeal 'make such direct reference to the jurisdiction of the District Court that it is necessary first to examine the latter jurisdiction. Of this there are two distinct classes: First, jurisdiction as a court of bankruptcy over the proceedings in bankruptcy initiated by the petition, and ending in the distribution of assets amongst the creditors, and the discharge or refusal of a discharge of the bankrupt, secondly, jurisdiction, as an ordinary court, of suits at law or in equity brought by or against the assignee in reference to alleged property of the bankrupt, or to claims alleged to be due from or to him.'

These two jurisdictions are clearly retained in the present law, where the first is designated as proceedings in bankruptcy and the latter as controversies arising in bankruptcy proceedings.

The jurisdiction of the bankruptcy court under each Bankruptcy Act has been derived wholly from the provisions of the act, and the court has no equitable jurisdiction independent thereof. Ex parte Christy, 44 U.S. (3 How.) 292, 311; Morgan v. Thornhill, 78 U.S. (11 Wall.) 65, 78, 20 L.Ed. 60. Concerning the administration of estates in bankruptcy the Supreme Court has said:

'A proceeding in bankruptcy from the time of its commencement, by the filing of a petition to obtain the benefit of the act, until the final settlement of the estate of the bankrupt, is but one suit. The District Court, for all the purposes of its bankruptcy jurisdiction, is always open. It has no separate terms. ' Sandusky v. National Bank, 90 U.S. (23 Wall.) 289, 292, 23 L.Ed. 155.

And again, in the same case, it said:

'Its proceedings in any pending suit are, therefore, at all times open for re-examination upon application therefor in an appropriate form. Any order made in the progress of the cause may be subsequently set aside and vacated upon proper showing made, provided rights have not become vested under it which will be disturbed by its vacation. Applications for such re-examination may be made by motion or petition, according to the circumstances of the case. Such a motion or petition will not have the effect of a new suit, but of a proceeding in the old one.'

That meant that, from the beginning to the close of a proceeding in bankruptcy, the court, under the act of 1867, had, as to the matter there involved, the same control over its orders that a court having terms has during the term at which an order is entered, viz.:

'During the term the record is 'in the breast of the court' and may be altered during that time in its discretion as justice may require. ' So. Utah Mines v. Beaver County, 262 U.S. 325, 330, 43 Sup.Ct. 577, 578 (67 L.Ed. 1004.)

Comparing the acts of 1867 and 1898, we find important parallels, as well as important differences. In Morgan v. Thornhill, supra, the court said:

'Appellate jurisdiction * * * is certainly conferred upon the Circuit Courts in four classes of cases by the express words of the Bankrupt Act' of 1867, 'without any resort to construction: (1.) By appeal from the final decree of the District Courts in suits in equity commenced and prosecuted in the District Courts by virtue of the jurisdiction created by the third clause of the second section of the act. (2.) By writs of error sued out to the District Court in civil actions finally decided by the District Courts, in the exercise of jurisdiction created by the same clause of that section. (3.) By appeal from the decisions of the District Courts rejecting wholly or in part the claim of a creditor, as provided in the eighth section of the act. (4.) By appeal from the decisions of the District Courts allowing such a claim when the same is opposed by the assignee.'

The appeal (1) and the writ of error (2) mentioned are provided for in the first paragraph of section 8, Act of 1867, and in section 24a, Act of 1898. The appeals (3) and (4), referred to, are covered by the second paragraph of section 8, Act of 1867, and by section 25a, Act of 1898. Under section 8, Act of 1867, an appeal was allowed within ten days from the action of the court on the allowance of a claim, whereas, under section 25a, not only the right of appeal from the action on the allowance of a claim was limited to 10 days, but the right of appeal from the order of adjudication and the order of discharge was likewise limited.

In the Sandusky Case, the question for review was upon an adjudication of bankruptcy. If the question had arisen as to the right of the District Court to review its judgment on the allowance or disallowance of a claim, where the 10 days' time for appeal under the statute of 1867 had expired, without appeal, it is probable that question would have been decided otherwise. Stickney v. Wilt, 90 U.S. (23 Wall.) 150, 23 L.Ed. 50. Under the present act there is an express limitation in the grant of power to the bankruptcy court to deal with claims that have once been allowed, viz., section 57k provides:

'Claims which have been allowed may be reconsidered for cause and reallowed or rejected in whole or in part, according to the equities of the case, before but not after the estate has been closed.'

The bankruptcy court having no power to reconsider its action upon the allowance or disallowance of a claim except for cause, Congress must have intended that in the absence of cause for reconsideration the order allowing or disallowing the claim was a final judgment. This conclusion is supported by the language of section 25a and the provisions for appeal in the Judicial Code and in the act establishing the Circuit Courts of Appeals. Section 25a provides:

'That appeals, as in equity cases, may be taken in bankruptcy proceedings * * * (3) from a judgment allowing or rejecting a debt or claim of five hundred dollars or over * * * within ten days after the judgment appealed from has been rendered.'

The general provision for appeals, section 128 of the Judicial Code (Comp. St. Sec. 1120) reads:

'The Circuit Courts of Appeals shall exercise appellate jurisdiction to review by appeal or writ of error final decisions in the District Courts,' etc.

Section 7 of the Circuit Court of Appeals Act (Comp. St. Sec. 1121) provides for appeals from certain specified interlocutory orders or decrees, to be taken within 30 days; but the provisions there made have nothing to do with the question here involved. In McLish v. Roff, 141 U.S. 661, 664, 12 Sup.Ct. 118, 119 (35 L.Ed. 893) in considering section 5 of the Court of Appeals Act, which reads in part as follows:

'That appeals or writs of error may be taken from the District Courts or from the existing Circuit Courts direct to the Supreme Court in the following cases: In any case in which the jurisdiction of the court is in issue, * * * '

the court said the question there presented was: 'Has this court jurisdiction to review the question before any final judgment in the cause? ' It was urged that such jurisdiction existed, because there is in the section above quoted no express requirement of finality of judgment. The court said:

'We think that upon sound principles of construction such is not the meaning of the act of Congress under consideration. It is manifest that the words in section 5, 'appeals or writs of error,' must be understood within the meaning of those terms as used in all prior acts of Congress relating to the appellate powers of this court, and in the long standing rules of practice and procedure in the federal courts. Taken in that sense, those terms mean the proceedings by which a cause, in which there has been a final judgment, is removed from a court below

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