Perkins v. First National Bank of Holbrook, Arizona, a Corp.

• Decision Date: 30 March 1936
• Docket Number: Civil 3596
• Citation: 47 Ariz. 376,56 P.2d 639
• Parties: C. F. PERKINS and L. E. PERKINS, His Wife, Appellants, and C. E. PERKINS and MARY L. PERKINS, His Wife, Appellants, v. FIRST NATIONAL BANK OF HOLBROOK, Arizona, a Corporation, Appellee
• Court: Arizona Supreme Court

56 P.2d 639

47 Ariz. 376

C. F. PERKINS and L. E. PERKINS, His Wife, Appellants, and C. E. PERKINS and MARY L. PERKINS, His Wife, Appellants, v. FIRST NATIONAL BANK OF HOLBROOK, Arizona, a Corporation, Appellee

Civil No. 3596

Supreme Court of Arizona

March 30, 1936

APPEAL from a judgment of the Superior Court of the County of Navajo.Frank Harrison, Judge.Judgment affirmed.

Mr Thorwald Larson, for Appellants C. F. and L. E. Perkins.

Messrs Favour & Baker and Mr. A. M. Crawford, for Appellants C.E and Mary L. Perkins.

Mr Sidney Sapp and Mr. Guy Axline, for Appellee.

OPINION

ROSS, J.

The First National Bank of Holbrook, on January 18, 1933, commenced this action against Cephas (C. F.) Perkins and Louise (L. E.) Perkins, his wife, and Charles (C. E.) Perkins on two pastdue promissory notes of Cephas and Louise, one for $2,500 and the other for $1,000, and to foreclose a realty mortgage executed by Cephas and Louise on a number of lots in Perkins addition to the townsite of Holbrook, Navajo county, and 2,480 acres of range land in said county, and a chattel mortgage executed by Cephas and Charles on all cattle branded CP on left hip and all cattle branded TD on left hip, approximately 150 head, together with the increase, ranging at the mouth of Leroux wash in Navajo county; said mortgages being security to the notes.

Cephas and Louise filed an answer setting up that prior to the commencement of the action, on, to wit, January 5, 1933, Cephas had filed his petition of voluntary bankruptcy in the United States District Court for Arizona; that he was adjudicated a bankrupt on January 9, 1933; and that the state court was without jurisdiction to preceed.

Mary L. Perkins is the wife of Charles Perkins.She, her husband joining her, intervened, claiming that the cattle covered by the chattle mortgage were the community property of herself and Charles; that she did not sign the notes or the chattel mortgage; that the debt evidenced thereby was not a community debt of herself and husband; and that the community received no benefit therefrom, but that said notes were the obligation of Cephas and Louise Perkins, and that her husband, Charles, signed the chattel mortgage only as surety.

The plea to the court's jurisdiction was overruled, and thereafter, in April, 1934, the parties waiving a jury, the case was tried to the court, resulting in a judgment for the plaintiff for the full amount of the notes, interest, costs and attorneys' fees.The mortgages were foreclosed and the mortgaged property was ordered sold, and, if an insufficient amount to pay the judgment was realized, that judgment be entered against Louise Perkins for such deficiency.

The defendants and interveners have appealed.Cephas and Louise prosecute one appeal, and Charles and Mary another.

Cephas Perkins and wife made no defense to the merits but stood upon their plea to the jurisdiction of the court.They now insist that the suit should have been abated for want of jurisdiction.

Interveners also assign the court's ruling on the plea in abatement as error, and in addition contend that the court erred in foreclosing the chattel mortgage on the cattle, claiming that the cattle were the community property of the interveners and could not be mortgaged by the husband alone.

It appears that Cephas Perkins filed his petition in voluntary bankruptcy and listed as his sole creditor the plaintiff, First National Bank of Holbrook; that he gave as his only liability the sum of $3,500 owing to plaintiff, secured by the mortgages here being foreclosed; that thereafter, on January 9th, he was adjudicated a bankrupt; that on January 18th plaintiff instituted this action of foreclosure; that the bankruptcy court appointed a trustee in bankruptcy and the trustee petitioned the court to authorize and permit him to abandon any claim to the "said real estate on account of mortgage liens, tax liens, and exemptions against the same"; whereupon, on March 31, 1933, an order was entered by the bankruptcy court granting the petition and directing the trustee to abandon the mortgaged property.On such showing, the superior court refused to dismiss the foreclosure proceeding and in April, 1934, long after the trustee had abandoned the property, proceeded with the trial and to judgment.

The question as to whether the superior court should have abated the action was presented to this court by Cephas and Louise Perkins, by certiorari, on the 21st day of November, 1933, and it appearing that the bankruptcy court had abandoned the mortgaged property, we held (without a written opinion) that the superior court property retained jurisdiction of the action and on January 22, 1934, dismissed the petition.The Supreme Court of the United States refused to review our action, as shown by its order of April 30, 1934, filed in this court on May 7, 1934.

It is contended by the appellants that the ruling on certiorari is contrary to the holding of the Supreme Court in Isaacs v. Hobbs Tie & Timber Co.,282 U.S. 734, 51 S.Ct. 270, 75 L.Ed. 645, and similar case.In the Isaacs case the mortgagee brought his action to foreclose after the debtor had been adjudicated a bankrupt, just as in this case, but the trustee in bankruptcy insisted that all of the assets of the bankrupt, including those assets with valid and subsisting liens against them, were in bankruptcy court and that the mortgagee's remedy was to submit to the court first taking jurisdiction.The Supreme Court sustained this position of the trustee, saying (282 U.S. 734, 51 S.Ct. 270, 272, 75 L.Ed. 645, at page 665):

"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 questionsrespecting title, possession, and control of the property."

And later, 282 U.S. 734, 51 S.Ct. 270, 272, 75 L.Ed. 645, at page 670, it said:

"That the court in which foreclosure proceedings are instituted is without jurisdiction, after adjudication of bankruptcy, to deal with the land or liens upon it save by consent of the bankruptcy court."(Italics ours.)

It is well settled that the trustee"may refuse to take possession of the property where it is so encumbered that there is not sufficient equity to justify administration thereon (Re Hasie,[D.C.1913]206 F. 789, 30 A.B.R. 83), and it is his duty to do so (Re Rogers Brown & Co.,[1912]116 C.C.A. 386, 196 F. 758, 28 A.B.R. 336;Re Zehner,[D.C.1912]193 F. 787, 27 A.B.R. 536)."

From note 2, at page 654, of 75 L. Ed., Isaacscase, supra.

Since there is no claim or suggestion that the mortgaged property was worth more than the mortgage and tax liens and exemptions, we must conclude the action of the trustee in abandoning the property was properly confirmed by the bankruptcy court and that such action was tantamount to consent of the bankruptcy court that the mortgage might proceed to foreclose in the state court.The bankruptcy court refusing to go ahead and administer the debtor's estate, the mortgagee had no forum open to it unless it could foreclose in the state court.If appellant is right, the doors of the courts were barred against the mortgagee bank.It is said in 7 Corpus Juris 349, section 615:

"The filing of a petition in bankruptcy does not prevent the commencement of an action against the bankrupt, although it is subject to be stayed."

This statement, we think, is in conformity with a general rule of procedure.In Servall Automotive Service v. McDuffie,44 Ariz. 498, 38 P.2d 655, this court held that an adjudication in bankruptcy did not deprive the state court of its jurisdiction over the person of the bankrupt or the subject-matter, and that while the court could not enforce a judgment against the bankrupt, it could ascertain the amount of the indebtedness and enter judgment therefor.

Just why Cephas Perkins went into bankruptcy when he had but one creditor, whose debt was secured by mortgages on all of his assets except exemptions, is not clear, unless he wanted to prevent any deficiency judgment being taken against him in case the mortgaged property proved insufficient to pay his debts in full.At all events, there was no creditor except the plaintiff bank for the bankruptcy court to protect and, since the bank's security could be foreclosed without the expense of administration by the bankruptcy court, the only reasonable and natural thing to do was to leave the matter in the state courts.

Cephas and Louise Perkins complain because the court denied their motion for a continuance of the case for a period of two years on account of an "emergency"; the motion being based upon the provisions of chapter 29,Laws 1933.Granting, for the purposes of this case, that chapter 29 is valid, it provides that if "good cause is shown" why there should not be a continuance the court may refuse to grant...