Island Improvement Co. v. Holman

• Decision Date: 21 September 1938
• Docket Number: No. 1636,1637.,1636
• Citation: 99 F.2d 63
• Parties: ISLAND IMPROVEMENT CO. v. HOLMAN et al. (two cases).
• Court: U.S. Court of Appeals — Tenth Circuit

99 F.2d 63 (1938)

ISLAND IMPROVEMENT CO. v. HOLMAN et al. (two cases).

Nos. 1636, 1637.

Circuit Court of Appeals, Tenth Circuit.

September 21, 1938.

W. Q. Van Cott, of Salt Lake City, Utah, for appellant.

J. D. Skeen and E. J. Skeen, both of Salt Lake City, Utah, for appellees.

Before PHILLIPS, BRATTON, and WILLIAMS, Circuit Judges.

BRATTON, Circuit Judge.

These separate appeals from proceedings in bankruptcy were lodged by a creditor of the two bankrupts, Warren Holman and Ray Holman. The facts are essentially the same and the parties stipulated that the appeals be considered together.

On September 1, 1926, Warren Holman and Ray Holman entered into a contract with the Rigby Ranch Company to purchase approximately 9,504 acres of grazing land situated in Summit County, Utah, and Uinta County, Wyoming. A new contract was entered into on December 1, 1930, in which the manner of payment was changed. The Rigby Ranch Company subsequently executed a mortgage upon the land to secure an issue of bonds in the sum of $100,000. The mortgage ran to the California Trust Company and Randolph Smith as trustees for the holders of bonds. The Continental National Bank and Trust Company became the successor trustee, and Island Improvement Company became the owner of $48,000 face value of the bonds, being one-half of the outstanding issue. The trustee foreclosed the mortgage and Island Improvement Company acquired an undivided half interest in the land by reason of its ownership of half of the bonds. The remaining half interest in the land was conveyed to David P. Howells. The respective beneficial interests of the Holmans in the sale contract were threefourths in Warren and one-fourth in Ray. The debtors were in possession of the land as tenants in common during the grazing seasons in 1934, 1935, and 1936. They did not pay anything for the use and occupancy of such land for the years 1934 and 1935.

On March 21, 1934, the Holmans filed separate petitions for debtor's relief under subsections (a) to (r) of Section 75 of the Bankruptcy Act, 11 U.S.C.A. § 203 (a-r). Prior thereto the trustee under the indenture securing the bonds commenced proceedings in the state court to terminate the purchase and sale contract. Immediately upon assuming jurisdiction, the bankruptcy court issued an order restraining further proceedings in the action in the state court, and allowing the debtors to retain the possession and use of the grazing land. Due to a failure to obtain acceptance of a majority in number and amount of their creditors to their proposal for composition and extension on the Holmans on March 4th, 1935 petitioned for adjudication as bankrupts under subsection (s) of the first Frazier-Lemke Act. 48 Stat. 1289.

On April 6, 1935, the court offered the privilege of grazing the land to the highest bidder. The bankrupts submitted a bid of thirty-four cents per acre and it was accepted. Following the decision in Louisville Joint Stock Land Bank v. William Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593, 97 A.L.R. 1106, holding the first Frazier-Lemke Act unconstitutional, the court dismissed the cases as to subsection (s) of Section 75 due to a lack of jurisdiction; but jurisdiction was retained under other sections of the act. The debtors were required by an order entered on August 19, 1935, to show cause why they should not be restrained from grazing their sheep upon the land because of failure to pay the amount which they had bid; and they were required by an order entered on September 11, 1935, to pay the referee's fee for services rendered under the original subsection (s) of Section 75 of the Bankruptcy Act. On October 28th, the debtors filed separate petitions to be adjudicated bankrupts under subsection (s) of the second Frazier-Lemke Act, 49 Stat. 942, 943, § 6, 11 U.S.C.A. § 203(s); and the adjudications were made on the following day. The referee made an order on December 11th continuing the bankrupts in possession of the land and fixing an annual rental thereof at seventeen cents an acre. The bankrupts were further ordered to pay the rental for the grazing season of 1936 on or before November 1st of that year. The court increased the amount from seventeen cents an acre to twenty-five cents an acre. The increased sum was paid and is now in the registry of the court. The court entered orders in each case from time to time during the years 1935 and 1936, one purporting to discharge the sheep from the jurisdiction of the court, and others allowing the bankrupt to obtain loans from the Regional Agricultural Credit Corporation with which to pay operating expenses. The court made an order on June 12, 1935, authorizing the trustee under the indenture to institute proceedings in the state court to terminate the purchase and sale contract. The trustee commenced such an action, but failed to prevail. On March 14, 1936, the court again authorized the institution of proceedings to terminate the contract, but continued the bankrupts in possession of the land. Pursuant to such order the trustee served notice upon the bankrupts purporting to terminate the contract within forty-five days, but no suit was instituted. The Chalk Creek Ranch Company was organized under the laws of Utah on October 3, 1936, while the bankruptcy proceedings were pending. Ray Holman, Catherine Holman, his wife, E. J. Skeen, his attorney, and two others were the incorporators. Virtually all of the capital stock was issued in the name of Ray Holman. He held one-fourth for his own beneficial use and three-fourths for the beneficial use of Warren Holman. Howells and the corporation entered into a contract on October 5th, in which he agreed to sell his interest in the land and water rights previously acquired, with certain minor exceptions, to the corporation for $52,010 payable on or before four years from date. Ray Holman executed a mortgage covering his sheep to secure a note of $5,000 and that sum was paid to the corporation for 5,000 shares of the capital stock. The corporation in turn paid the sum received to Howells as a part of the purchase price of the land.

On February 5, 1937, the bankrupts interposed separate motions to dismiss the proceedings. Island Improvement Company thereupon filed petitions asking that the bankrupts be required to pay rental; that the court appoint a trustee to take over all of their assets; that the court withdraw as improvident the orders purporting to discharge the mortgaged sheep from the jurisdiction of the bankruptcy court; that the bankrupts be required to account for all assets in which they had dealt since the adjudication; and that the petitions for dismissal be denied. Howells filed motions in intervention. After an extended hearing, the court entered an order in each case in which it was found that the earlier order discharging the mortgaged sheep from further jurisdiction of the court in the bankruptcy proceedings was within the discretion of the court; that the contract of sale of the land was terminated by the parties thereto; that the bankrupt was obligated to pay rental for the year 1936; and that the court did not have authority to require the payment of rental for the years 1934 and 1935. Island Improvement Company appealed.

It is contended at the threshold that the ...