Robert Moody Son v. Century Savings Bank

• Citation: 239 U.S. 374,36 S.Ct. 111,60 L.Ed. 336
• Decision Date: 13 December 1915
• Docket Number: No. 70,70
• Parties: ROBERT MOODY & SON, Appts., v. CENTURY SAVINGS BANK
• Court: U.S. Supreme Court

239 U.S. 374

36 S.Ct. 111

60 L.Ed. 336

ROBERT MOODY & SON, Appts.,

v CENTURY SAVINGS BANK.

No. 70.

Argued November 10 and 11, 1915.

Decided December 13, 1915.

Messrs. S. F. Prouty, Newton P. Willis, and George F. Haid for appellants.

Messrs. W. G. Harvison, Horatio F. Dale, and Thomas F. Stevenson for appellee.

Mr. Justice Van Devanter delivered the opinion of the court:

The facts bearing upon the questions presented by his appeal are these: On his voluntary petition Oscar M. Hartzell, a resident of Madison county, Iowa, was adjudged a bankrupt. He owned 960 acres of land in that county, 40 acres of which he and his family had been and were occupying as a homestead. Three mortgages in terms covering all the land had been given by him,—the first to Emma Johnson, the second to Moody & Son, and the third to the Century Savings Bank. His wife had joined in the first and third, but not in the second. After he was adjudged a bankrupt, he and his wife executed an instrument waiving and surrendering their right in the homestead, and authorizing the trustees in bankruptcy to take possession and dispose of the same for the benefit of all the creditors. At a later date the trustees filed in the bankruptcy proceeding a petition asserting title to all the land, reciting the existence of the mortgages and other asserted liens, and praying that the 960 acres be sold free of all liens, that the proceeds be held by the trustees subject to the further order of the court, that all persons asserting liens on any part of the land be required to set them up by answer, that certain of the asserted liens be declared void, and that as to the others the assets be marshaled. Acting upon this petition the court, with the assent of the parties in interest, directed that the land be sold as prayed, that all liens thereon be transferred to the proceeds, and that the latter be held by the trustees for the payment of whatever liens or claims might be established against the same. The lands were sold, all liens found to be superior to the three mortgages were paid out of the proceeds, and there remained a balance of $54,264.77 which, although $13,683.94 in excess of what was required to pay the first mortgage, was insufficient to pay it and either of the others. Of this balance, $8,000 arose from the sale of the homestead. Moody & Son and the Oentury Savings Bank, both appearing in response to notice of the trustees' petition, asserted conflicting rights under their respective mortgages to a part of the proceeds. Although conceding that the first mortgage that to Johnson—should be fully paid, they differed widely respecting the disposition of the proceeds of the homestead, Moody & Son asserting a right to have the same applied on the first mortgage, and to receive on their mortgage whatever remained of the proceeds of the other land, and the bank asserting a right to have the first mortgage satisfied from the proceeds of the other land, and to receive on its mortgage the proceeds of the homestead. Under the first contention Moody & Son would receive $13,683.94 and the bank nothing, while under the other, Moody & Son would receive $5,683.94 and the bank $8,000. The bankruptcy court rejected both contentions and held that the proceeds of the homestead and those of the other land should be proportionally applied in paying the first mortgage, that the balance then remaining from the sale of the homestead, being $2,947.22, should be paid on the bank's mortgage, and that the balance from the sale of the other land, being $10,736.67, should be paid on Moody & Son's mortgage. A decree was entered accordingly and the bank appealed to the circuit court of appeals, which, after overruling a motion challenging its jurisdiction, sustained the bank's contention, and reversed the decree with instructions which were equivalent (see Chesapeake & P. Teleph. Co. v. Manning, 186 U. S. 238, 240, 46 L. ed. 1144, 1145, 22 Sup. Ct. Rep. 881; Metropolitan Water Co. v. Kaw Valley Drainage Dist. 223 U. S. 519, 523, 56 L. ed. 533, 535, 32 Sup. Ct. Rep. 246) to directing a decree giving full effect to that contention. 123 C. C. A. 285, 204 Fed. 963; 126 C. C. A. 499, 209 Fed. 775. Moody & Son then appealed to this court.

Whether the circuit court of appeals rightly sustained this jurisdiction turns upon whether this is one of those 'controversies arising in bankruptcy proceedings' over which the circuit courts of appeals are invested, by § 24a of the bankruptcy act, with the same appellate jurisdiction that they possess in other cases under the Judicial Code, § 128 (36 Stat. at L. 1133, chap. 231, Comp. stat. 1913, § 1120), or is a mere step in bankruptcy proceedings, the appellate review of which is regulated by other provisions of the bankruptcy act. If it is a controversy arising in bankruptcy proceedings, the jurisdiction of that court was properly invoked, as is also that of this court. We entertain no doubt that it is such a controversy. It has every attribute of a suit in equity for the marshaling of assets, the sale of the encumbered property, and the application of the proceeds to the liens in the order and mode ultimately fixed by the decree. True, it was begun by the trustees, and not by an adverse claimant, but this is immaterial, for the mortgagees, who claimed adversely to the trustees, not only appeared in response to notice of the trustees' petition, but asserted their mortgage liens and sought to have them enforced against the proceeds of the property conformably to the contentions before stated. This was the equivalent of an affirmative intervention, and, when taken in connection with the trustees' petition, brought into the bankruptcy proceedings a controversy which was quite apart from the ordinary steps in such proceedings, and well within the letter and spirit of § 24a. Hewit v. Berlin Mach. Works, 194 U. S. 296, 300, 48 L. ed. 986, 987, 24 Sup. Ct. Rep. 690; Knapp v. Milwaukee Trust Co. 216 U. S. 545, 553, 54 L. ed. 610, 613, 30 Sup. Ct. Rep. 412; Teft, W. & Co. v. Munsuri, 222 U. S. 114, 118, 56 L. ed. 118, 119, 32 Sup. Ct. Rep. 67; Houghton v. Burden, 228 U. S. 161, 165, 57 L. ed. 780, 782, 33 Sup. Ct. Rep. 491; Globe Bank & T. Co. v. Martin, 236 U. S. 288, 295, 59 L. ed. 583, 587, 35 Sup. Ct. Rep. 377.

Coming to the merits, the matter for decision is the proper application or disposition of the proceeds of the 40 acres which the bankrupt and his family occupied as a homestead when the mortgages were given and...