Dousman v. Godfrey L. Cabot, Inc.
Dousman v. Godfrey L. Cabot, Inc.
Opinion of the Court
This matter is before the court on a petition by the trustee in bankruptcy of the Gas Products Company, a corporation, bankrupt, seeking an order restraining the sale of certain real 'and personal property of the bankrupt about to be disposed of under an' order of sale made by the district court of the State of Montana, in and for the county of Fallon, in a foreclosure suit ■ by Godfrey L. Cabot, Ine., a corporation, as plaintiff against the Gas Products Company, a corporation, as defendant. An order to show cause was issued by this court directed to the sheriff of Fallon county, Mont., and to said plaintiff, and the return made by both is now before the court for consideration, having been submitted by counsel for the respective parties on oral arguments and briefs. An involuntary petition in bankruptcy was filed in this court for the adjudication of the Gas Products Company, a corporation, as a bankrupt on January 20, 1930. The foreclosure suit of Godfrey L. Cabot, Ine., was commenced by •filing its complaint, in the district' court of Fallon county on January 29, 1930. The Gas Products Company was adjudged a bankrupt on February 13, 1930. Charles J. Dousman qualified as trustee on March 20, 1930.
On July 5, 1930, the trustee filed his petition to intervene in the foreclosure suit in the state court, which was granted on July 19 th, on which date the trustee intervened and interposed defenses to the legality of the mortgages; set up several counterclaims for damages; consented to the trial of the suit in the state court; attended the trial and submitted testimony in support of his defenses and counterclaims; and requested the court to make findings of fact and conclusions of law in his favor. The state court decided the issues in favor of the mortgagee, sustaining the mortgages and holding against the defenses and counterclaims of the trustee in bankruptcy.
In Isaacs v. Hobbs T. & T. Co., 282 U. S. 734, 737, 738, 739; 51 S. Ct. 270, 271, 75 L. Ed. 645, it was held: “Upon adjudication, title to the bankrupt’s property vests in the trustee with actual or constructive possession, and is placed in the custody of the bankruptcy court. Mueller v. Nugent, 184 U. S. 1, 14, 22 S. Ct. 269, 46 L. Ed. 405. The title and right to possession of all property owned and possessed by the bankrupt vests in the trustee as of the date of the filing of the petition in bankruptcy, no matter whether situated within or with-
Another ¡ate case in point is that of Straton et al. v. New, Trustee in Bankruptcy, et al., 283 U. S. 318, 321, 51 S. Ct. 465, 466, 75 L. Ed. 1069, wherein it was held: “The filing of the petition is an assertion of jurisdiction with a view to the determination of the status of the bankrupt and a settlement and distribution of his estate. This jurisdiction is exclusive within tlio field defined by the law, and is so far in rem that the estate is regarded as in custodia legis from the filing of the petition. Acme Harvester Co. v. Beckman Lumber Co., 222 U. S. 300, 32 S. Ct. 96, 56 L. Ed. 208. It follows that liens cannot thereafter be obtained nor proceedings be had in other courts to reach the properly, the district court having act ¡ni red the exclusive right to administer all property in ihe. bankrupt’s possession. Lazarus v. Prentice, 234 U. S. 263, 34 S. Ct. 851, 58 L. Ed. 1305; White v. Schloerb, 178 U. S. 542, 20 S. Ct. 1007, 44 L. Ed. 1183; Murphy v. John Hofman Co., 211 U. S. 562, 29 S. Ct. 154, 53 L. Ed. 327; U. S. Fidelity & G. Co. v. Bray, 225 U. S. 205, 32 S. Ct. 620, 56 L. Ed. 1055; Hebert v. Crawford, 228 U. S. 204, 33 S. Ct. 484, 57 L. Ed. 800. It may inquire into the validity of liens, marshal them, and control their enforcement and liquidation. Isaacs v. Hobbs T. & T. Co., 282 U. S. 734, 51 S. Ct. 270, 75 L. Ed. 645, and authorities cited; Whitney v. Wenman, 198 U. S. 539, 25 S. Ct. 778, 49 L. Ed. 1157; Remington, Bankruptcy (3d Ed.) § 2472. Though a lien be not discharged by bankruptcy, its owner may not, without the bankruptcy court’s permission, institute proceedings in a state court to enforce it, since his so doing might interfere with the orderly administration of the estate. Thus a mortgagee will be restrained from instituting or proceeding further in a foreclosure action, begun after the date of the petition in bankruptcy.”
The question wholly decisive of this controversy seems to be whether the bankruptcy court should be held to have given the trustee permission to proceed, as he did, in the state court; without such permission or consent the injunctive relief sought unquestionably should be granted. The first appearance of the trustee in the state court was made by filing a petition in the foreclosure suit, setting forth various proposed defenses and asking for a stay of proceedings : “In order that petitioner may • have ample time within which to make a complete and exhaustive investigation of the dealings between the Gas Products Company and Ihe plaintiff in this case, and the officers of Ihe said respective corporations with each other, in order to determine the nature and character of the defenses which may and should be interposed in this suit, it ls necessary that a stay of proceedings be had for such purposes. That as soon as petitioner has obtained the necessary information in order to enable him to intervene and defend and set up the cross-complaints and counter-claims that he is informed and believes should be interposed, he will then make proper application to the court for such purpose.” The slate court granted a stay of sixty days. Thereafter the trustee petitioned the referee in bankruptcy, stating, among other things: “That there is also pending in the District- Court of the Sixteenth Judicial District of the State of Montana, in and for the County of Fallon, a certain action, brought by the said Godfrey L. Cabot, Inc;., against the above named bankrupt, subsequent to the filing of the petition in bankruptcy herein seeking to foreclose certain alleged mortgages which, if
It is apparent from the foregoing that the referee was fully advised that one of the purposes of the trustee in employing counsel was to appear in the foreclosure suit in the state court and interpose defenses and counterclaims, and thereby become a party to that suit. Was “consent” or “permission” given in the sense of the proper interpretation of the language of the decisions relied upon as applied to the facts. The usual sigiiifieation of the word “consent” implies assent to some proposition submitted. Under the provisions of the Bankruptcy Act (11 USCA § 46- (b), which requires that suits by the trustee shall only be brought or prosecuted in the courts where-the bankrupt might have brought or prosecuted them if bankruptcy proceedings had not been instituted, “unless by consent of the proposed defendant, etc.,” it was held: “The defendants consent need not have been given before the suit was instituted, nor need' it expressly appear of record, but may be-sufficiently shown by conduct necessarily implying such consent. Where in a suit by-the trustee the defendants appeared and filed pleas to the merits, including not merely defensive pleas but a plea of set-off in which-they affirmatively invoked the jurisdiction off the court in their own behalf and prayed" for judgment against the plaintiff and proceeded to a trial upon the merits without objection to the jurisdiction of the court, they must be deemed to have consented to the-prosecution of the suit in the federal court within the meaning of such section.” McEldowney v. Card (C. C.) 193 F. 475, 478. “And where the trustee seeks affirmative relief or voluntarily submits himself to the-jurisdiction of the state court he is, of' course, bound by its decisions, whether favorable or unfavorable to him.” 5 Rem.. §§ 2285 also 2131.
In the instant case it has been established, that the mortgages were executed more than four months prior to bankruptcy. If the-facts here show that proper consent was actually given and a full trial had on the merits, as outlined above, it would seem to be-a useless thing to do, aside from the error-committed, to allow the trustee to shield himself from the consequences of the judgment, in the state court through protection of the-bankruptcy court. The higher courts will probably have still more to say respecting the much discussed question of procedural jurisdiction over mortgage foreclosures, but:
In view of the showing made by the defendants and the law governing, it appears that the bankruptcy court is without jurisdiction to proceed further and that the restraining order should be vacated and set aside, and it is so ordered.
Reference
- Full Case Name
- In re GAS PRODUCTS CO. DOUSMAN v. GODFREY L. CABOT, Inc.
- Status
- Published