Pugh v. Loisel

• Decision Date: 18 January 1915
• Docket Number: 2658,2663.
• Citation: 219 F. 417
• Parties: PUGH et al. v. LOISEL (two cases). [1] In re JOSEPH WEBRE CO., Limited.
• Court: U.S. Court of Appeals — Fifth Circuit

219 F. 417

PUGH et al. v. LOISEL (two cases). ^[1]

In re JOSEPH WEBRE CO., Limited.

Nos. 2658, 2663.

United States Court of Appeals, Fifth Circuit.

January 18, 1915

E. N Pugh, of Donaldsonville, La., and Charlton R. Beattie, of New Orleans, La., for appellants.

Ralph J. Schwarz, Wm. B. Le Bourgeois, Edwin T. Merrick, and Philip Gensler, Jr., all of New Orleans, La., for appellee.

Before PARDEE and WALKER, Circuit Judges, and SHEPPARD, District judge.

WALKER Circuit Judge.

Between the dates of the filing of a petition to have the Joseph Webre Company, Limited, adjudged an involuntary bankrupt, and the adjudication in pursuance of that petition, the holder of a mortgage, which had been made by the bankrupt nearly a year before the institution of the bankruptcy proceeding instituted in a Louisiana state court a proceeding for the enforcement of the lien created by that mortgage; that proceeding being one the sole purpose of which was the enforcement of the mortgage lien, no personal judgment against the mortgagor being sought. By an appeal and also by a petition to superintend and revise, the mortgagee brings into question the validity of an order of the court below for the issuance of an injunction enjoining and restraining the mortgagee and the sheriff, who had made a seizure of the mortgaged property under the proceedings for the enforcement of the mortgage lien, from selling, claiming possession of, holding, or in any wise claiming or exercising dominion or control over the property embraced in the mortgage.

The mortgagee claims the right to proceed in the state court to enforce his mortgage lien without interference by the court of bankruptcy, and complains of the action of the latter court as an unauthorized meddling with and obstruction of the exercise of the right claimed. The question presented is whether the bankruptcy court exceeded its authority in taking the action which is complained of.

The record discloses nothing other than the seizure under the foreclosure proceeding that could be regarded as an obstacle to the bankruptcy court's exercise of control over the bankrupt's property. At the time the petition was filed the property embraced in the mortgage was so situated as to be as much subject to be taken into custody by the bankruptcy court as if it had then been in the actual possession of the bankrupt, as plainly the act of bankruptcy alleged in the petition, namely, the alleged bankrupt's causing a receiver of its property to be appointed within four months prior to the filing of the petition, could not have had the effect of depriving the bankruptcy court of the right to the possession and control of the bankrupt's property. Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 546 (Comp. St. 1913, Sec. 9587)) Sec. 3, subd. 4; In re Hecox, 164 F. 823, 90 C.C.A. 627. The record does not indicate that the receiver appointed by the state court asserted any right of possession as against the trustee in bankruptcy.

In the argument by which the claim made is sought to be supported much reliance is put on the rulings made in the cases of Hiscock v. Varick Bank of New York, 206 U.S. 28, 27 Sup.Ct. 681, 51 L.Ed. 945, and Jones v. Springer, 226 U.S. 148, 33 Sup.Ct. 64, 57 L.Ed. 161, and especially upon certain expressions used in the course of the opinion rendered in the first mentioned of these cases. Nothing that was said by the court in making disposition of the case of Jones v. Springer indicates any departure from the propositions stated in previous decisions (Mueller v. Nugent, 184 U.S. 1, 22 Sup.Ct. 269, 46 L.Ed. 405; Acme Harvester Co. v. Beekman Lum. Co., 222 U.S. 300, 32 Sup.Ct. 96, 56 L.Ed. 208) to the effect that the filing of a petition to have one adjudged a bankrupt is a caveat to all the world, and in effect an attachment and injunction, and that property of the bankrupt which was in his possession when the petition against him was filed is to be regarded as in custodia legis from the date of the petition as against a subsequent attachment or seizure of it under process of another court. On the contrary, the court, in the opinion rendered in that case, distinctly recognized that such property was to be regarded as having been subject to the control of the bankruptcy court from the date of the petition; but it was held that where, under an attachment from another court, levied before the petition was filed in a distant state, property of the bankrupt had been, without notice of the petition, put into the hands of a receiver appointed by the court from which the attachment issued, that court, having the actual custody of the res, had the power to preserve the subject-matter of the controversy that necessarily was incident to such conditions, and that a sale of the property under its order, on the ground that it was 'of a perishable nature, and liable to be lost or diminished in value before the final adjudication of the case, ' within the terms of a local statute providing for a sale in such circumstances, was to be regarded, not as the exercise of a power over the property inconsistent with that acquired by the bankruptcy court as a result of the filing of the petition, but as within the authority which, from the necessity of the case, a court having the actual custody of a thing possesses to preserve that thing while in its custody. It was on this ground that it was held that the sale stood, with the result that the claim of the trustee was transferred to the proceeds, which were presumed to represent the fair value of the property and to take its place. The decision in that case by no means recognized the existence of power in the court which by its receiver took possession of property of the bankrupt after the petition against him was filed to withdraw that property from the grasp of the bankruptcy court. It simply recognized the propriety of the action taken by the court which had the actual custody of perishable property in ordering its sale for the benefit of all persons who might assert claims to it, not because that court had the right to determine to what claim the property so converted into cash should be subjected, but because the thing might have perished while in its custody, with the result of defeating the beneficial exercise of power over it by either that court or any other one that might have a superior right to its custody and administration. In that case the court, which by its receiver took possession of property of the bankrupt after the petition against him was filed, was not held to have thereby acquired any other power than that of preserving the subject of controversy while in its actual custody.

In the case of Hiscock v. Varick Bank of New York, supra, it was held that the pendency of a petition to have one adjudged a bankrupt did not invalidate a sale of personal property by his pledgee who at the time the petition was filed had both the title and possession of the subject of the sale. The court did not in that case deal with the question of the right of another court, by a seizure under process issued by it in suit brought after the petition in bankruptcy was filed, to remove beyond the reach of the bankruptcy court property, or the administration of it, of which at the time the petition was filed the bankrupt had possession and the title, though subject to a lien sought to be enforced by the suit brought in such other court. It dealt with the case of a sale by one who at the time the petition was filed, and long before that date, was in possession of the thing sold, having a title to it which was good against the bankrupt and all the world. Collier on Bankruptcy (9th Ed.) 948. It is not permissible to give to any expression used by the court in the opinion rendered in that case the effect of a decision that the existence of a valid lien on property of the bankrupt which was in his possession at the time the petition against him was filed enables another court, in which the enforcement of that lien subsequently is sought, to withdraw the subject of the lien beyond the reach of the bankruptcy court. Many provisions of the bankruptcy statute forbid the conclusion that the right of the court of bankruptcy to control the administration of the bankrupt's estate extends only to that part of it, if any, which may happen to be unincumbered by a valid lien. We think it is apparent that the bankruptcy act, as a whole, contemplates the taking possession and control of the bankrupt's estate by the court of bankruptcy acting through its trustee. The property is taken into custody in the condition in which it is found at the time of the filing of the petition, subject to all existing valid liens upon it. The filing of the petition, of course, does not displace or disturb such liens; but neither the existence of such liens, nor attempts of the lienors to enforce them without resorting to the court of bankruptcy for that purpose, constitute obstacles to the exercise by that court of the right to take into custody the bankrupt's estate and to control the administration of it. The court is vested with ample power to protect the rights of lienholders otherwise than by permitting them to be enforced in some other court or courts. Whitney v. Wenman, 198 U.S. 539, 552, 25 Sup.Ct. 778, 49 L.Ed. 1157; Bankruptcy Act, Secs. 2, 57, 67, 69a, 70. In reference to the power of the bankruptcy court from the time of the filing of the petition, the following was said in the opinion rendered in the case of Acme Harvester Co. v. Beekman Lumber Co., 222 U.S. 300, 306, 32 Sup.Ct. 96, 99 (56 L.Ed. 208):

'Whatever may be the limitations of the doctrine declared by this court, speaking by the late Chief Justice Fuller in Mueller v. Nugent, 184 U.S. 1, 14 (22 Sup.Ct. 269, 275 (46 L.Ed. 405)) where it is

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