125 F.2d 396 | 7th Cir. | 1942
Lead Opinion
This appeal is from an order of the Bankruptcy Court approving and confirming certain orders of the referee. The orders granted the trustee in bankruptcy leave to foredose a mortgage in the state court and denied Ryan leave to foreclose her senior mortgage on the same property.
The facts are these. One Aaron Roth was the sole stockholder of A. Roth, Inc., the present bankrupt. In order to induce the creditors of the corporation to accept the provisions of a Chapter XI, Bankr. Act, 11 U.S.C.A. § 701 et seq., arrangement filed on the company’s behalf, he deposited with their nominee his quitclaim deed to real estate as collateral to secure the notes which the company had executed under the plan.
Appellant is a creditor of the individual Roth, not of the bankrupt company, and she claims a lien superior to the one claimed by the respondent trustee. As the holder and owner of a mortgage executed by Roth, individually, she has a legal right to foreclose her mortgage, but to cut off effectively all claim of right or interest in the mortgaged property subsequent to her mortgage it is necessary that all parties having or claiming an interest in the property subsequent to her superior mortgage be made party defendants in the contemplated foreclosure proceeding. Gregory v. Suburban Realty Co., 292 Ill. 568, 127 N.E. 119. It has long been the practice that when one desires to make the trustee a party to a foreclosure suit, to first obtain permission from the Bankruptcy Court. Certainly, once the Bankruptcy Court asserts control of the res, whether the trustee claims as mortgagee or mortgagor, is of little moment to the creditor. The wisdom of the practice is no, less corn
Perhaps the right of Ryan to deny that the trustee, has sufficient color of title to institute foreclosure proceedings in the state court is gone,
Appellee contends that refusing to grant leave to foreclose is a matter of discretion, not to be interfered with on appeal except in case of abuse.
Determination of abuse of discretion involves the exercise, by us, of sound judgment upon the facts. If there is controversy as to facts, and if the facts themselves largely define the wisdom of the discretion, review by the appellate court is seldom effective and it should not be. Then appellate court’s review does not include trial court’s discretion.
If, however, the facts are not in dispute and it is a question of sound judgment based upon the undisputed facts which are before us as fully as before the trial judge, we are in about as good a position as he to say whether the discretion has been wisely exercised. In short, both trial and appellate courts have the same situation upon which to exercise the same sound judgment. Weeks et al. v. Bareco Oil Company, 7 Cir., 125 F.2d 84, decided December 22, 1941. The fact that the question is now one of discretion, and not power, makes no less impelling the considerations of our volunteered statement in Roth v. Chatz, supra. We believe that this is a case which falls within the second category of discretionary act, and to deny appellant leave to foreclose her superior mortgage was an abuse of discretion. Accordingly, the order’ is modified to permit Ryan to institute foreclosure proceeding. The costs of this appeal will be taxed one-half to each party.
The conditions of the deposit and the terms of the plan are immaterial to this opinion. They are summarized in our previous opinion recorded in 7 Cir., 118 F.2d 156.
Roth v. Chatz, 7 Cir., 118 F.2d 156, 159. An interesting ease of a bankrupt junior mortgagee’s effort to subject a senior mortgagee to a bankruptcy court is Brunn v. Wichser, 3 Cir., 75 F.2d 25.
Cf. Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 83 L.Ed. 104; Chicot County Drainage District v. Baxter State Bank et al., 308 U.S. 371, 60 S.Ct. 317, 84 L.Ed. 329; 40 Col.L.Rev. 1006, 1008; 53 Harv.L.Rev. 652; 49 Yale L.J. 959.
Concurrence Opinion
(concurring).
I concur in the Court’s disposition of this case. I agree that the District Court abused its discretion and this court has reached a right result in vacating the lower court’s order.
I do not want to agree to any decision which holds or seems to hold that Ryan had to have the consent of the Bankruptcy Court to foreclose her mortgage or to sue the trustee in foreclosure proceedings. Ryan did not seek to foreclose a mortgage on property of the bankrupt. She wanted to foreclose a mortgage on property of a third party, upon which property the bankrupt also held a mortgage.
The Court’s opinion in this case recites: “It has long been the practice that when one desires to make the trustee a party to a foreclosure suit, to first obtain permission from the Bankruptcy Court.”
This practice may very properly and necessarily prevail where the suit was to foreclose a mortgage on the property of the bankrupt. In re Dyer, D.C., 8 F.2d 376. I think that is as far as we should go. I have never understood that A, wanting to foreclose a mortgage on property owned by B, had to get consent of a bankruptcy court to foreclose that mortgage, or to make a trustee in bankruptcy a party, simply because C, the bankrupt, also had a mortgage on B’s property. Mortgagee A’s rights in foreclosure against Mort
I have found no case where a court has held that consent to foreclose or to sue the trustee must be obtained from a bankruptcy court under circumstances such as appear in this- case.
The practice in such cases has been so universal to proceed without consent of the bankruptcy court that authority for my position that such consent is not necessary is not abundant. The following cases seem to support my view: Rice v. Kelly, 226 Ky. 347, 10 S.W.2d 1112; In re Smith, D.C., 121 F. 1014; In re John Condon Contracting Co., D.C., 2 F.Supp. 52.