101 F.2d 365 | 7th Cir. | 1938
These causes were consolidated for appeal from an order of the District Court for the Southern District of Indiana entered in each of two bankruptcy proceedings. The order adjudicated the interests of the bankrupts in a Missouri judgment held as of record by both bankrupts; and the order further enjoined creditors of each bankrupt from further prosecuting a garnishment action then pending in the District Court for the Western Division of the Western District of Missouri. The suit which was enjoined was for the purpose of garnishing the aforesaid judgment.
The bankrupts, Mary E. Marsters and Vernon F. Marsters, were husband and wife at the time of all the transactions herein material, and each of them was adjudicated a bankrupt on December 5, 1935, upon separate voluntary petitions filed on that date in the District Court for the Southern District of Indiana.
Prior to 1929 Mrs. Marsters had operated a dining room as her own separate business venture; and sometime prior to July, 1929, she began negotiations with one Jerome T. Bray for the purchase of a hotel business, including furniture and equipment and a leasehold interest in the building in which the business was operated. The lessor of the hotel building was one S. Herman. The purchase price agreed upon was $18,000 of which amount Mrs. Marsters paid $9,000 in cash, $8,000 of which was
In November, 1929, Mrs. Marsters discovered that Bray, her vendor, had' committed fraud in the aforesaid transaction, and she thereupon surrendered the property and instituted suit against Bray in Missouri in the name of herself and husband. On April 7, 1931, judgment was rendered against Bray in the sum of $10,500.
In 1934 Mr. and Mrs. Marsters became residents of Indiana and, as above stated, on December 5, 1935, filed their separate and voluntary petitions to be adjudicated bankrupts.
During the pendency of the Missouri suit S. Herman, the lessor of the hotel building, purchased from Bray the note signed by Mr. and Mrs. Marsters; and on August 7, 1935, Herman filed suit in a Missouri state court on the Marsters’ note. A writ of attachment was issued in Herman’s action but was returned showing the defendants not found. A notice of garnishment was issued and served on Bray, as judgment debtor of the Marsters, on August 8, 1935. This action was removed to the United States District Court for the Western Division of the Western District of Missouri where it was pending on December 5, 1935, the date upon which the Marsters were adjudicated bankrupts in the District Court of Indiana. This last stated date was less than four months after commencement of the garnishment suit in Missouri and service of the notice of garnishment on Bray.
Each bankrupt scheduled S. Herman as a creditor whose claim was disputed, and each listed as an asset an interest in the judgment against Bray. Howard E. Henley, who was elected trustee in each bankruptcy proceeding, made application in each cause for an order restraining the further prosecution of the garnishment suit in Missouri, on the ground that the Bray judgment was an asset of the estate of one or both bankrupts and that the bankruptcy court had jurisdiction to adjudicate adverse interests in such asset.
The referee granted the relief sought by the trustee holding that Mrs. Marsters was the beneficial owner of the Bray judgment and that Mr. Marsters had no beneficial interest therein; and that the bankruptcy court had jurisdiction in summary proceedings to determine adverse interests in the judgment. This appeal was prosecuted by the representative of S. Herman from the order of the District Court confirming the referee’s decision and order.
Appellant’s cause on appeal may be summarized as follows: (1) The District Court had no jurisdiction to proceed summarily because the garnishment action had removed constructive possession of the Bray judgment from the bankrupts and therefore the trustee could only proceed plenarily. (2) Granting that there was jurisdiction to adjudicate by summary proceedings, the court erred in deciding that Mrs. Marsters was the equitable owner of the entire judgment, whereas the finding should have been that the Marsters held the judgment by entirety or as partners with the consequence that the judgment then jointly held would not pass into the bankruptcy estate of the individual bankrupts. It is appellant’s contention that by the garnishment in Missouri the Missouri court drew to itself the possession of the garnished debt, with the result that the bankrupt’s loss of possession destroyed any basis of summary jurisdiction of the judgment debt by the District Court of Indiana.
It is not questioned that the bankruptcy court had jurisdiction to proceed summarily to adjudicate any adverse claims to property within the possession, actual or constructive, of the bankrupts; and both parties accept the proposition that intangibles are included within such jurisdictional power of the court on the theory that there can be a “constructive” possession of an intangible. But appellant contends that the notice of garnishment in the unconcluded garnishment suit was a disturbance of the bankrupt’s constructive possession and that the “Missouri Court drew to itself the possession of the garnished debt.” This raises the question of whát is the subject of “constructive” possession in the case of an intangible and also, what is the effect on the “constructive” possession of the owner of a judgment debt when a notice of garnishment is served upon the judgment debtor.
The term “constructive,” as applied to the possession of an intangible, is not used to distinguish such possession from some
“The decisions are numerous that, if the bankrupt remained the legal owner of the cho.se in action up to the time of the filing of the petition, though it had become subjected to equitable liens or interests or attachments, his control was such that a trustee in bankruptcy who succeeded him was to be regarded as in ‘possession’ of the chose in action and as in a position summarily to determine his rights as against ■other claimants.”
The law of the state of garnishment proceedings determines the nature of the proprietary interests obtained by a garnishment plaintiff in the garnished debt..
The decisions of the Supreme Court of Missouri hold that while the service of a written notice of attachment in a garnishment proceeding does not create a “full and clear lien upon specific property” it docs give the garnisher “the right to hold the garnishees personally liable for its value.”
In view of the Missouri Supreme Court decisions which hold that a garnishment proceeding docs no more, of itself, than to give plaintiff such a lien, or claim, against the garnishee as will enable him to hold the garnishee personally liable to account for the property in the event of judgment against him, the instant case falls within the doctrine of the decision of this circuit in Spensley v. Theodore Ebert & Co., supra. In that case a garnishment action had been commenced within four months of the filing of a bankruptcy petition and was concluded by judgment a few
“lit follows that a lien was created by the garnishment * * * which it was the duty of the District Court to set aside in view of the time which had elapsed between the date of the lien and the date of the filing of the petition.”
The case involved an Illinois garnishment proceeding which is substantially the same as that of Missouri.
The foregoing holding in Spensley v. Theodore Ebert & Co., supra, presupposes that the garnishment proceeding did not deprive the original owner of possession of the garnished property and is in harmony with the statement in Seligson v. Whitney, supra, that a trustee in bankruptcy acquired possession of a chose in action of which his bankrupt had remained the legal owner up to the time of the filing of the petition, even though the chose in action had become subjected to equitable liens, or attachments.
The decision of the Supreme Court of the United States in Taubel-Scott-Kitzmiller Company, Inc. v. Fox et al.
The referee correctly, concluded that the Bray judgment was subject to summary proceedings and that the law was with the trustee in bankruptcy and against the respondent; and the District Court did not err in entering its order approving and confirming the finding and judgment entered by the referee in bankruptcy relating to the foregoing question.
The appellant’s second point, that the court erred in deciding that Mrs. Marsters was the actual owner of the entire judgment, raises a question of fact which, ,in view of the evidence, becomes a question of weight and credibility. There was substantial evidence to justify an inference in fact that Mr. Marsters had no financial interest in any of the transactions which were involved in the suit in which the Missouri judgment was recovered against Bray. While no doubt his obligation on the note, as between himself and the payee or holder, was that of a maker, it does not follow that, as between- himself and Mrs. Marsters, he had any interest whatever in
There is substantial evidence to support the inference that Mr. Marsters was a party in form only, as between himself and Mrs. Marsters, in the ownership and operation of the hotel, and that he had no beneficial interest in any damages resulting from the fraud of Bray; and, consequently, that he was not in fact the owner of any interest in the proceeds of the judgment.
Since we conclude that the evidence was sufficient to justify the referee’s finding that as between the two bankrupts one was the equitable owner of the Bray judgment, it is not necessary to consider any contentions based upon the assumption that the bankrupts owned the judgment jointly or by the entirety.
We hold that the District Court did not err in entering its order of February 14, 1938, which overruled the petition for review of the referee’s order and confirmed the finding and judgment of the referee.
The order of the District Court is affirmed.
Spensley v. Theodore Ebert & Co., 7 Cir., 77 F.2d 309.
Marx v. Hart, 166 Mo. 503, 60 S.W. 200, 206, 89 Am.St.Rep. 715.
McGarry v. Lewis Coal Co., 93 Mo. 237, 6 S.W. 83, 3 Am.St.Rep. 522.
In Calumet Paper Co. v. Haskell Show Printing Co., 144 Mo. 331, 45 S.W. 1115, 66 Am.St.Rep. 425, the Missouri Supreme Court quoted with approval the following Lpage 1117]:
“By the service of garnishee process, ■there can be no pretense that the property is in any sense transferred to the officer, or that he thereby acquires any right to control it. The garnishee still has the right to retain it, and by the service only becomes liable to account for it, or its proceeds, if judgment shall be rendered against him on the trial. The statute does not prohibit him from disposing of it, but only renders him liable on failing to produce it to satisfy the judgment.” Biglow v. Andress, 31 Ill. 322.
State ex rel. Rabiste v. Southern, Judge, 300 Mo. 417, 254 S.W. 166.
In the instant case the garnishment action was begun within four months of the bankruptcy petition but was not con-eluded before that time. Notice was served upon the garnishee August 8, 1935.
264 U.S. 426, 44 S.Ct. 396, 68 L.Ed. 770.