McRaney v. Riley

• Decision Date: 17 April 1922
• Docket Number: 22056
• Court: Mississippi Supreme Court
• Parties: MCRANEY v. RILEY ET AL

91 So. 399

128 Miss. 665

MCRANEY v. RILEY ET AL

No. 22056

Supreme Court of Mississippi

April 17, 1922

1 BANKRUPTCY. Referee authorized to decree a sale of bankrupt's real estate free from liens.

A referee in bankruptcy, to whom a bankruptcy cause has been referred by the court in pursuance of law, has authority to decree a sale, on a proper showing of the necessity therefor of any part of the estate of the bankrupt, including real estate, in the custody of the trustee in bankruptcy, free from liens of creditors, and transfer their liens to the proceeds of such sale.

2 BANKRUPTCY. Trustee vested with title and custody of bankrupt's entire estate; bankruptcy court acquires jurisdiction of an bankrupt's assets with authority to adjudicate conflicting claims.

By virtue of section 70 of the Bankrupt Act (U. S. Comp. St section 9654), upon adjudication of bankruptcy, and appointment of a trustee as provided by the Bankrupt Act such trustee becomes vested with the title and custody of the entire estate of the bankrupt of every kind, subject to his debts, for the purpose of administration; and the bankrupt court is authorized by the act to adjudicate in said cause all conflicting claims and liens of creditors of the bankrupt thereto; and the bankrupt court thereby acquires jurisdiction of all the assets of the bankrupt, except such as are in possession of adversary claimants, by reason whereof the trustee fails to get possession thereof.

3. BANKRUPTCY. Bankrupt's land may be sold free from creditor's liens after ten days' notice to creditors.

Under the provison of section 58 of the Bankrupt Act (U. S. Comp. St., section 9642), an application by the trustee for the sale of the property of the bankrupt in his custody, free from the liens of creditors, is authorized to be made on not less than ten days' notice to the creditors of such bankrupt, including the creditors having such liens, given by mail to the respective addresses of such creditors as they appear on the schedule of such bankrupt.

4. BANKRUPTCY. Constitutional law. Bankruptcy Act, authorising sale of bankrupt's property free from liens on due notice, not violative of due process clause of constitution.

Section 58 of the Bankrupt Act (U. S. Comp. St., section 9642), which authorizes the sale of the property of the bankrupt in the custody of the trustee free from liens of creditors on at least ten days' notice by mail to the respective addresses of such creditors as they appear in the schedules of the bankrupt, does not violate the due process clause of the Constitution of the United States, in that such a sale of the property of the bankrupt under such notice amounts to the taking of the property of such lien creditors without due process of law.

5. BANKRUPTCY. Court may sell bankrupt estate in custody of trustee on notice to creditors by mail, though notice amounts only to constructive notice.

Where the bankrupt court through a trustee in bankruptcy has acquired the title and custody of the estate of the bankrupt, and by virtue thereof under the bankrupt law has acquired jurisdiction of such estate, the bankrupt court is authorized on a proper showing to sell the bankrupt estate, or any part of it, so, in the custody of the trustee, free from the liens of creditors, and transfer such liens to the proceeds of such sale, on the notice by mail provided for by section 58 of said act, although such notice amounts only to constructive notice, because, where a court has acquired jurisdiction of property, it may decree a sale thereof on constructive notice to adverse claimants and creditors interested therein; and such notice and decree of sale in pursuance thereof is not violative of the due process clause of the federal Constitution.

HON. D. M. RUSSELL, Chancellor.

APPEAL from chancery court of Covington county, HON. D. M. RUSSELL, Chancellor.

Bill by O. C. McRaney against J. H. Riley and others. Decree of dismissal, and plaintiff appeals. Reversed and rendered.

Decree reversed.

Chambers & Treeholm, for appellant.

Appellees, in their brief, page 8, submit the following proposition: "The order of the referee in bankruptcy directing the bankrupt's property to be sold clear of the appellee's lien was void because: (a) the referee had no jurisdiction of the subject-matter, and (b) the referee acquired no jurisdiction over the appellee."

We respectfully submit that appellee is wrong on both of these propositions. Attention is called to the text of Collier on Bankruptcy in support of the assertion that the referee had no jurisdiction of the subject-matter and, that the United States supreme court has never passed upon the question. The text of Collier is directly opposed to the position taken by appellee. While it is true the United States supreme court has never directly passed upon the question, the circuit court of appeals has. Matter of New England Piano Co., C. C. A. 1st Cir., 9 Am. B. R. 767; 122 F. 937.

Appellee cites not a single case denying the authority of the referee to make the order for sale free from liens, and we submit that the decisions of the Federal courts cited by Mr. Collier in support of the authority of the referee will be followed by this court, the matter being for determination by the Federal and not by the state courts.

Upon the proposition that the referee acquired no jurisdiction over appellee Riley, we simply remind the court of the fact that Riley had filed a claim in this bankruptcy proceeding, and renew our citation to Wisewall v. Campbell, 193 U.S. 347; 23 L.Ed. 923. Appellee's brief, page 24, discusses the forms, rules, etc., to be followed in the bankruptcy court in matters of this kind, thus inferentially admitting the authority of the bankruptcy, and then call attention to form 196, petition for sale free and clear of liens, and to the fact that the petition is required to be verified. A casual examination of form 196 will disclose that it is not one of the forms adopted by the United States supreme court, its forms being 63 in number, only, and numbered from 1 to 63. Form 196 is by Hagar & Alexander. See Hagar & Alexander's, Bankruptcy Forms, Annotated (2 Ed.), form 248, p. 385. Therefore, said form has not the force of law, attributed to it by appellees. Nor does a single annotation appear in Hagar & Alexander showing that said form has ever been adopted by the courts.

But we say, furthermore, that the question is: was Riley in the bankruptcy court? If he was not, then what is the use of considering the form or substance of its proceedings? If he was, then that court was the proper place to raise those questions. Nashville Sadlery Co. v. Green (Miss.), 89 So. 816.

Rule 37, of the supreme court rules relating to bankruptcy (being general order) and Equity Rule XV, are not applicable to the controversy, because the petition and order for sale of property free from liens was not a "proceeding in equity (or in law) instituted for the purpose of carrying into effect the provisions of the act," but was a part of the due and usual administration of the proceeding in bankruptcy, controlled by the act, general orders and forms applicable to such a proceeding. But, we again say that Riley was in court when he filed his claim, and was bound to take notice of all that went on affecting his interests in the estate under administration, and, if the form and substance of the proceedings were irregular, to these object.

Appellee contends that if jurisdiction of Riley was obtained by mailing the notice under section 58, of the Bankruptcy Law, so that the sale in question could be made, then section 70 of said act, and particularly subdivision B thereof is violative of the declaration of the federal constitution that no person shall be deprived of life, liberty or property without due process of law. What becomes of the claims of creditors when a bankrupt is discharged? What notice is provided by the act to be given creditors, other than by mail? The constitutionality of the Bankruptcy Act of 1898, and amendments has been many times attacked as being unconstitutional, and on many grounds, but we do not know of a single attack that was successful. By section 17 a bankrupt, when discharged, is released from all of his provable debts, except certain stated kinds. By section 58 the only notice required to be given to creditors of the bankruptcy and the application for discharge is by mail. The constitutionality of the act was therefore attacked by Messrs. Green & Green, of the Jackson Bar, in the United States supreme court upon the very ground that it did not provide for notice as required by due process of law. What was the result? That was in 1902. The act is still in force. Hanover National Bank v. Moyse, 186 U.S. 181, 46 L.Ed. 1113, 8 Am. B. R. 1.

We respectfully submit that the decree of the court below should be reversed and that a decree should be entered here as prayed for in the original bill.

R. H. Thompson, for appellant.

First: Did the bankruptcy court obtain jurisdiction of the land? Under the Mississippi Statute, Code of 1906, section 2779, to which we have called attention in our statement of the facts, A. V. Easterling, afterwards the bankrupt, was the owner of the land in suit.

A court of bankruptcy acquires jurisdiction of all the property including the land of the bankrupt. The bankruptcy law throughout its entire scope provides and its objects and purposes are that the bankruptcy court shall administer all of the property of the bankrupt, except perhaps his exempt property, and is given full jurisdiction over all of his property; it requires the bankrupt to schedule all of his property, even his exempt property, thus enabling the court to pass upon the validity of his claim to any property as...