298 F. 45 | 8th Cir. | 1924
Fort Dearborn Trust & Savings Bank (hereinafter called Fort Dearborn Bank), and Frank M. Forrey, as trustees under a mortgage or deed of trust given by Globe Oil Company (called Globe Co.), filed their petition here under section 24b of the Bankruptcy Act (Comp. St. § 9608) against the trustees in bankruptcy of the Globe Co., wherein petitioners pray that an order of the Bankruptcy Court made summarily on December 5, 1922, against their ob
In February, 1919, the Globe Co. gave its mortgage or deed of trust' on oil leases arid other oil properties which it owned in Okmulgee, Tulsa, Carter and Jefferson counties, Oklahoma, and imCaddo Parish, Louisiana, to secure payment of its negotiable bonds or promissory notes to be issued not in excess of $2,000,000. In that mortgage Fort Dearborn Bank and Forrey were named as trustees with express powers, among other things to bring foreclosure suit on default, to have the property sold and the proceeds applied on the mortgage debt. The mortgage was placed of record in those, counties and parish during the month it was given. One year later and on February 17, 1920, the Globe Co. sold the mortgaged properties in Okmulgee, Tulsa and Carter counties to Skelly Oil Company (called Skelly Co.), as evidenced by written contract between them, and Skelly Co. made a down payment of $250,000 on the purchase price, the remainder to be paid when the Skelly Co. approved title to the properties. About three and a half, months after the sale to Skelly Co. a petition in bankruptcy was filed against the Globe Co. and it was adjudged bankrupt on June 29, 1920. Twb like petitions were filed by the same creditors in different jurisdictions, one on May 29th and one on June 3, 1920. Adjudication was on the latter. On June 2, 1920, Skelly Co. filed a suit in the State district court for Tulsa county against the Globe Co. and others, among them Fort Dear-born Bank, for specific performance of the contract of sale made on February 17th. In.that suit Skelly Co. alleged that Globe Co. represented to it that only about $1,000,000 in notes issued under the mortgage were then unpaid, that it was agreed that all of the purchase price, to-wit: $900,000, except $50,000, should be paid to the Fort Dearborn Bank to be applied on the indebtedness, that $200,000 of the first payment was sent to and received by the bank for that purpose, that Globe Co. agreed to pay the balance of the mortgage debt when the deal was closed and obtain a release of the mortgage, that Skelly Co. was ready and willing to. pay the balance, $650,000, when that was done, that according to the terms of the mortgage not more than $1,-400,000 in notes should be outstanding at any time, that the remaining $600,000 had been issued to the Globe Co., as it then believed, in violation of the trust, and it prayed, among other things, that the court find whether any notes had been illegally issued, and if it so found, that they be cancelled, that the court find the true and just amount due on the mortgage debt, that the balance of the purchase price which it was ready to pay be received and credited thereon, ánd that if that did not fully discharge the debt other property of the Globe Co., if it could be found, be first taken and applied before resorting to the property which Skelly Co. had purchased. Thereafter Fort Dearborn Bank and Forrey, as trustees under the mortgage, filed their answer and cross-complaint, in which they alleged that the principal of the promissory notes or bonds secured by the mortgage and then unpaid was $1,445,-
“said pretended contract of sale being a mere subterfuge to get tbe property of said bankrupt beyond tbe reach of its creditors and to hinder, delay and defraud said creditors. The property thus sought to be fraudulently disposed of consisted of certain producing oil and gas leases, and oil wells, which, in its nature, was not' susceptible of actual manual possession, but for all practical purposes the same was in the possession of certain pipe line companies, as agents and bailees of said Globe Oil Company. Petitioners are informed and believe, and so state, that said Skelly Oil' Company claims that it was in possession of said property, at the time of the filing of said petition in bankruptcy, and the adjudication of said Globe Oil Company bankrupt, but petitioners show that there was no visible change of possession, and the only evidence of possession of said Skelly 'Oil Company is by virtue of certain division orders which petitioners are informed were executed by said Globe Oil Company, as a part of said fraudulent scheme. And petitioners further show that said Skelly Oil Company, is not and never has been in.the actual adverse possession of said properties, claiming the title thereto in good faith, and is, and has been subject to the summary orders of this Court.”
They further alleged that on June 2, 1920, the day before the petition was filed on which the Globe Co. was adjudged bankrupt, Skelly Co. brought its suit in the State court for specific performance of its pretended contract of purchase, that Fort Dearborn Bank and Forrey were made defendants in that suit on the ground that $600,000 of the notes had been issued fraudulently, that Fort Dearborn Bank and Forrey by cross-complaint in Skelly Co.’s suit seek to foreclose the mortgage, which is wholly unnecessary, will entail great expense, would be a first charge on the proceeds of sale and greatly impair the equity of redemption of the creditors, and that the trustees in bankruptcy had been made parties to the cross-complaint without their consent and without leave of the Bankruptcy Court. On these allegations the petition prayed that an order issue to ForfDearborn Bank and Forrey and their coun
“and the said Skelly Oil Company did thereupon pay over to the said Globe Oil Company of the consideration named in said contract the sum of Two Hundred Fifty Thousand Dollars ($250,000.00), and the said Globe Oil Company did, on or about the 25th day of February, 1920, surrender and deliver over to the said Skelly Oil Company the possession of all of the said properties described in said Trust Deed, in the State of Oklahoma, and did transfer to the said Skelly Oil Company all of the oil to be run from and after such date, and the said Skelly Oil Company did then enter into the possession of all of the said properties, and has at all times since the said date been in the open, notorious and exclusive possession thereof, claiming title thereto, and has drilled wells thereon for oil and gas, and operated said properties continuously since taking the same, and is now in such possession, claiming title,”
and denied
“that Skelly Oil Company is not in possession of the properties in question, at the time of, and at all times since, and for a long time before the filing of the petition in Bankruptcy, and denies that the pipe line companies, or any of them, are now, or ever have been, in possession thereof.”
It denied that any bonds or notes had been issued under the mortgage in violation of the trust or that they had been negotiated negligently or issued fraudulently or without consideration, and alleged that Skelly Co. brought its suit in the State court for specific performance on June 2, 1920, that Fort Dearborn Bank and-Forrey filed their answer and cross-complaint in that suit before adjudication in bankruptcy, that the property of the bankrupt is not of sufficient value to pay the admitted amount of the mortgage debt, that at- the time the cross-complaint was filed the mortgagor was in default, that cross-complainants prayed for a receiver and the State court appointed a receiver of the properties, who had qualified as such, that Fort Dearborn Bank and Forrey requested the trustees in bankruptcy to enter their appearance in the suit in the State court, and having failed to do so that court on application made them parties and they were then brought in by summons ; and thereon it claimed (1) that the Bankruptcy Court was without jurisdiction “because the property cov.ered by the trust deed (in the nature of a mortgage) is not now, and has not at any time been in
The foregoing facts are brought here by petition to revise under Section 24b, on the claim that the Bankruptcy Court acted summarily and without jurisdiction in making the order of December 5, 1922; and the petitioners further contend that they could not of right be enjoined in the prosecution of the foreclosure proceedings even in a plenary action. The response of the trustees in bankruptcy to the petition to revise admits that the pleadings were filed and proceedings thereon were taken, as alleged. It alleges that the receiver appointed by the State court on the cross-complaint took possession of the property involved on August 22, 1922, but that his appointment by the State court was void because made subsequent to the adjudication of the Globe Co. a bankrupt and because the suit of Skelly Co. in the State court was brought after the first petition in bankruptcy was filed, when no court, except the Bankruptcy Court, had or could acquire jurisdiction over the assets of the bankrupt estate.
1. In this proceeding we are not concerned with the controversy between the trustees in bankruptcy and Skelly Co. over the sale contract, further than the claim of the latter, made in apparent good faith, that it was in possession as a purchaser. It is the rights of the trustees under the mortgage which we are required to consider—whether those rights were disregarded by the injunctive order of December 5, 1922, made without right and power. We are not interested in the suit brought by Skelly Co. further than to say and hold as we do, that the cross-complaint of Fort Dearborn Bank and Forrey and the relief they sought were germane to the subject matter of that suit. It is admitted that the mortgage is a valid lien, created more than a year before bankruptcy proceedings were begun. The amount of indebtedness which it secured was questioned, but whatever it was (certainly a very large sum) the property named in the mortgage was bound for its payment.
“According to these controlling decisions, the possession of property by the bankrupt at the time of the institution of the proceedings in bankruptcy is a necessary condition to jurisdiction in the District Court to determine the rights of third parties to it except when such jurisdiction is invoked by their consent. The possession may be in the bankrupt himself or by some one for him as his agent or bailee.”
In addition to the authorities there relied on, see Shea v. Lewis, 206 Fed. 877, 124 C. C. A. 537; Board of Education v. Leary, 236 Fed. 521, 149 C. C. A. 573; Courtney v. Shea, 225 Fed. 358, 140 C. C. A. 382; Bank v. Hopkins, 199 Fed. 873, 118 C. C. A. 321; In re Midtown Contracting Co., 243 Fed. 56, 155 C. C. A. 586; In re Rathman, supra; Galbraith v. Vallely, 256 U. S. 46, 41 Sup. Ct. 415, 65 L. Ed. 823. The 'trustees in bankruptcy offered no proof to establish their claim that the property was in possession of certain pipe line companies as agents of the bankrupt at the time the petition in bankruptcy was filed. That claim on their part was alleged in their petition for the summary order with indefiniteness and with apparent doubt and uncertainty, as will be seen in the quotation from that petition set out above. Indeed, the excerpt tends to support the claim of Skelly Co. that it had possession. Fort Dearborn Bank and Forrey, in their plea to the court’s summary jurisdiction, denied specifically and positively possession in the pipe line companies, and alleged actual and continuous possession in Skelly Co. as purchaser, that the bankrupt delivered to Skelly Co. all of the property about February 25, 1920, and that ever since then Skelly Co. has been in open, notorious and exclusive possession, operating the properties and claiming title thereto. Fort Dearborn Bank and Forrey offered to prove their allegations, but the order complained of shows that it was made by the court solely on a consideration of the pleadings. A fair and reasonable estimate of the undisputed facts and the respective allegations as to possession at the time the petition in bankruptcy
2. What we have said has been directed ip large part to procedure rather than to the substantive rights of the parties. The latter are so fully disclosed by the pleadings in the case in the State court, by the petition and plea in the Bankruptcy Court, all brought here by reference as exhibits, and by the petition filed here and the response thereto, that we feel it our duty to give the merits attention. The default in the obligations of the mortgage is not denied. When that occurred it was the privilege and right of the mortgagor to redeem the property from the lien by paying the mortgage debt, and when it was adjudicated bankrupt and the title to its equity vested in the trustees in bankruptcy that right and privilege passed to the trustees and the creditors whom they represent. Hailing in that the right to foreclose the equity was clear. The security which the mortgage gave for the payment of the debt is a wasting one, as the oil is extracted and sold., That is alleged in the cross-complaint in the State court suit, and was the reason for the appointment of a receiver by that court—that the receipts from that source might be impounded to be later applied on the debt. When Skelly Co. brought the trustees under the mortgage into the State court they were called upon and it was their duty to set forth fully their rights as trustees. This they did, and alleged the amount of the debt secured, about which, we think, on all the facts stated there is no great difference, alleged default and asked for a decree of foreclosure and sale. The mortgage being given more than four months before bankruptcy was not avoided or rendered voidable by the Act. The trustees in bankruptcy admit it is a valid lien. The property must be soldi to pay the debt, ánd there is nothing to induce a belief that it would bring less at the foreclosure sale than at a sale made by order of the Bankruptcy Court. The trustees in bankruptcy say they want the amount of the mortgage debt ascertained and fixed by the Bankruptcy Court; but that is in issue in the foreclosure suit, the trustees have a right to be heard there on that question, and there is no reason suggested why that court cannot as well, as expeditiously and as correctly ascertain and fix that amount as any other court. In short, we find no substantial reason that causes us to believe that the rights of unsecured creditors will be better served by a sale in the bankruptcy proceedings than in the State court. On the other hand, the note-holders have contract rights secured to them by the mortgage, rights unaffected by the Bankruptcy Act or any other law, a right to have the security applied to the payment of those notes on default, and for that purpose to hold their trustees named in the mortgage to reasonable diligence in taking the necessary steps to see that the application is made. These are valuable rights, judicable in the State court, and when the cross-complaint was filed it was the duty of that court to ascertain them and enforce them; and the Bankruptcy Court could not rightfully prevent their enforce
We think it entirely clear on the facts presented that the Bankruptcy Court at no time had custody of the property, that it was never in the possession of .that court, but that Skelly Co. was at all times after February 25, 1920, in possession, until it was taken over by the State court receiver. The allegations of the trustees in bankruptcy and of-the Fort Dearborn Bank and Forrey in that respect have been considered. The failure of the former to traverse the facts alleged in the plea to jurisdiction and to offer to present proof on the question of possession, should be taken as an admission sub silentio of the latfer’s claim on that subject, if that was in doubt. On the filing of the cross-complaint the State court obtained exclusive control of the property for purposes of foreclosure and sale. The issues required the State court to' deal with the mortgaged property, to ascertain the amount of and enforce the ' admitted and existing lien against that property and to sell it in the exercise of its jurisdiction. No other court had theretofore obtained possession of it and no other court could lawfully interfere with it in the exercise of its powers over the subject matter in litigation. Kline v. Burke Constr. Co., 260 U. S. 226, 43 Sup. 79, 67 L. Ed. 226, 24 A. L. R. 1077; Mound City Co. v. Castleman, 187 Fed. 921, 924, 110 C. C. A. 55.
5The petition to revise is sustained, the injunctive order of December 5, 1922, will be vacated, and the petition of the trustees in bankruptcy on which that order was entered will be dismissed, all costs to be adjudged against the trustees in bankruptcy.