43

46

in, and res were in the possession of, the mortgagee. Further, if the court has such jurisdiction, the referee has also.* Cases will arise where it should be exercised. But, in the long run, unless it is absolutely essential to preserve assets, or carry out the purpose of the act, a summary disposition of such controversies in the proceeding and not by suit, should not be asked.** Even a lienor on property vested in and in the possession of the trustee is generally an adverse claimant.45 The analogies of the statute seem to entitle him, if he desires, to a plenary suit; and the District Court will be slow to take it from him. This view is strengthened by the fact that this law, unlike its predecessor,* contains no clause authorizing the trustee to sell incumbered property free from existing liens. The true test here is the same as that which applies where a stay or order to show cause which may result in contempt is asked; a test sufficiently indicated in the preceding paragraphs. Of course, what goes before does not in any way limit the right of the court to take possession summarily of the property of an alleged bankrupt which is found in his possession or that of his agent.47 The section does not authorize a federal court to entertain a bill in equity at the instance of a simple contract creditor to set aside an alleged fraudulent conveyance.18 But the court may entertain a suit by the trustee to set aside a mortgage on lands in his possession because given within four months prior to bankruptcy." Auxiliary proceedings for the protection of the assets of the bankrupt should be brought in the District Court of the district in which the proceedings are pending.50

43. See Bankr. Act, section 38a(4), and Mueller v. Nugent, 184 U. S. 1, 7 Am. B. R. 224; In re Drayton, 13 Am. B. R. 602, 135 Fed. 883; In re Platteville Foundry & Machine Co., 17 Am. B. R. 291.

44. In re Rochford, 10 Am. B. R. 608 (C. C. A.), 124 Fed. 182; In re Moody, 12 Am. B. R. 718.

45. In re Rochford, 10 Am. B. R. 608 (C. C. A.), 124 Fed. 182. Com

pare Marshall v. Knox, 83 U. S. 551. See also Burbank v. Bigelow, 92 U. S. 179.

46. R. S., section 5075.

47. Compare Bankr. Act, sections 3 and 69.

48. Viquesney v. Allen, 12 Am. B. R. 401 (C. C. A.).

49. In re McMahon (C. C. A.), 147 Fed. 658, 17 Am. B. R. 530.

50. In re Williams, 9 Am. B. R.

§ 30. Jurisdiction of State courts." Any State court which would have had jurisdiction had not bankruptcy intervened" now has concurrent jurisdiction51 of any suit which can be brought by the trustees in the United States District Court arising under section 60b and section 67e,52 but suits arising under section 70e must be prosecuted in the State court, except where the defendant consents to their prosecution in the courts of bankruptcy jurisdiction.53 State courts are invested with complete and plenary jurisdiction over fraudulent transfers and conveyances and to entertain jurisdiction and try suits for any cause of action whatever, brought by the trustee of a bankrupt against parties who fraudulently or otherwise are in possession of the bankrupt's estate, or who are indebted to the bankrupt, which jurisdiction is co-ordinate with the jurisdiction of the bankruptcy court.54 A State court has jurisdiction of a plenary suit by an adverse claimant to establish a lien

741, 120 Fed. 38; Ross-Mecham Co. v. Southern Car & F. Co., 10 Am. B. R. 624, 124 Fed. 403.

51. Breckons v. Snyder, 15 Am. B. R. 112, 211 Pa. St. 176, the court of common pleas has jurisdiction of a suit by a trustee in bankruptcy to recover the amount alleged to have been paid by the bankrupt in fraud of creditors; Des Moines Sav. Bank v. Morgan Jewelry Co., 12 Am. B. R. 781, 123 Iowa, 432, a trustee in bankruptcy, by intervening in an action to enforce a specific lien upon an insolvent, pending in a State court, cannot thereby oust the court of jurisdiction; Bindseil v. Smith (N. J.), 5 Am. B. R. 40, the jurisdiction of a State court to set aside an assignment of choses in action by a bankrupt is not affected by the fact that the United States District Court has enjoined the defendant from disposing of the property so assigned to him; French v. Smith, 4 Am. B. R. 785 (Minn.), 84 N. W. 44, the pro

visions of section 23b, as construed by the Supreme Court in Bardes v. Bank, 178 U. S. 524, 4 Am. B. R. 163, conferring jurisdiction in such cases upon the State courts, are constitutional. But see Lyon v. Clark, 2 N. B. N. R. 792.

52. Under sections 60b, 67e.

53. Skewis v. Barthell, 18 Am. B. R. (Iowa) 429, under section 70e, as amended, which provides that for the purpose of a recovery of property fraudulently transferred by the bankrupt any court of bankruptcy and any State court which would have had jurisdiction if bankruptcy had not intervened shall have concurrent jurisdiction," a suit by a trus tee, to set aside a transfer of real estate made by the bankrupt anterior to the four months' period, is not within the jurisdiction of the bankruptcy court except by defendant's consent.

54. Robinson v. White (Ind.), 3 Am. B. R. 88.

on property in the possession of the trustee,55 and to set aside an alleged voidable transfer, notwithstanding an adjudication of bankruptcy.56 If, at the time of the bankruptcy, a suit or proceeding is pending in the State court, of which the Federal court might otherwise have jurisdiction, the adjudication does not oust the State court of jurisdiction, and the State court can proceed unless stayed.57 This is peculiarly true of actions in rem; the court which first takes the property into its custody retains it.58 Where the property in controversy is rightfully in possession of a State court or its officers prior to a period of four months before a petition is filed, the adjudication of bankruptcy does not deprive the State court of a right to continue in possession of such property, or of its jurisdiction to determine the controversy.59 However, when such taking amounts to a fraud on the law, as through a general assignment or a preference or an attachment, the State court, while not, strictly speaking, ousted, in effect, ceases to exercise jurisdiction, the assignee, or sheriff, or parties being permanently restrained. 60 The adjudication vests in the trustee or temporary receiver the title of the bankrupt's property, and stays all seizures made within four months; it has the force and effect of an attachment and an injunction, and is a caveat to all the world. After such adjudication a State court has no jurisdiction to determine any rights affecting the bankrupt's estate, and is

55. Skilton v. Codington, 15 Am. B. R. 810, 185 N. Y. 80; Crosby v. Miller, 16 Am. B. R. 805.

56. Bryan v. Madden, 15 Am. B. R. 388, 109 App. Div. (N. Y.) 876.

57. Matter of Bay City Irrigation Co., 14 Am. B. R. 370, 135 Fed. 850; In re English (C. C. A.), 11 Am. B. R. 674, 127 Fed. 940; In re Girdes, 4 Am. B. R. 346, 102 Fed. 318.

58. Compare Crosby v. Spear, 11 Am. B. R. 613, 98 Me. 542, an action of replevin cannot be commenced and maintained against a trustee to recover property in the possession of

the bankrupt at the time of the adjudication; In re Lemmon, 7 Am. B. R. 291, 112 Fed. 296; In re Russell, 3 Am. B. R. 658, 101 Fed. 248; In re Chambers, 3 Am. B. R. 537, 98 Fed. 865; Southern Loan & Trust Co. v. Benbow, 3 Am. B. R. 9, 96 Fed. 514; Keegan v. King, 3 Am. B. R. 79, 96 Fed. 758.

59. In re Heckman, 15 Am. B. R. 500, 740 Fed. 859, 72 C. C. A. 8; In re English, supra.

60. See Matter of Hornstein, 10 Am. B. R. 308, 122 Fed. 266; Collier, Bankr., 6th ed., p. 293.

powerless to enforce any of its judgments as to such estate. 1 Questions of conflicting jurisdiction have arisen and been determined in many cases, some of which are cited in the note below.62

31. Suits by and against bankrupt; statutory provision.The Bankruptcy Act of 1898 provides as follows:

§ 11. Suits by and against bankrupts.-(a) A suit which is founded upon a claim from which a discharge would be a release, and which is pending against a person at the time of the filing of a petition against him, shall be stayed until after an adjudication or the dismissal of the petition; if such person is adjudged a bankrupt, such action may be further stayed until twelve months after the date of such adjudication, or, if within that time such person applies for a discharge, then until the question of such discharge is determined,

(b) The court may order the trustee to enter his appearance and defend any pending suit against the bankrupt.

(c) A trustee may, with the approval of the court, be permitted to prosecute as trustee any suit commenced by the bankrupt prior to the adjudication, with like force and effect as though it had been commenced by him.

(d) Suits shall not be brought by or against a trustee of a bankrupt estate subsequent to two years after the estate has been closed.

§ 32. Suits by trustees generally.-Vested with the title of the bankrupt, the trustee is also the representative of the creditors.64

63

61. In re Kaplan, 16 Am. B. R. 267, 144 Fed. 159; In re Muskoka Lumber Co., 11 Am. B. R. 758, 127 Fed. 760; In re Knight, 11 Am. B. R. 1, 125 Fed. 35.

62. In re Spitzer (C. C. A.). 12 Am. B. R. 346; Small v. Muller, 8 Am. B. R. 448; In re Emslie, 4 Am. B. R. 126, 102 Fed. 290; In re Russell, supra; Robinson V. White, supra; In re Woodbury, 3 Am. B. R. 457, 98 Fed. 833; Heath v. Shaffer,

2 Am. B. R. 98, 93 Fed. 647; In re Pittlekow, 1 Am. B. R. 472, 92 Fed. 91; In re Sievers, 1 Am. B. R. 117, 91 Fed. 366.

63. Bankr. Act, 1898, section 70a. 64. In re Gray, 3 Am. B. R. 647; In re Griffith, 1 N. B. N. 546; In re Kindt, 2 N. B. N. R. 369. Compare Batchelder & Lincoln Co. v. Whitmore, 10 Am. B. R. 641, 122 Fed. 355, the trustee represents those who were creditors at the time the

He is, further, a quasi officer of the court.65 He must proceed to "collect and reduce to money the property of the estate for which he is trustee under the direction of the court, and close up the estate as expeditiously as is compatible with the best interests of the parties in interest." He may do so, when necessary, by suit or proceeding to set aside fraudulent transfers or preferential liens, 68 In many matters the law requires him to consult the wishes of the creditors.69 He only should sue.70 Before doing so, he ought to submit the reasons for the suit to the creditors and secure an order, based on their action, from the referee.71 How far the question at issue should be gone into on the preliminary hearing is discretionary with the referee. He should at least be sure that there is a probable cause of action.72 The proposed defendant, if a creditor and interested in the fund, may appear in opposition to a motion for permission to sue. If suit is ordered, it should be in the name of "John Doe," as trustee of "Richard Doe," a bankrupt.73 Whether in no-asset cases security may be demanded by the proposed defendant is for the court in which

petition was filed; Dudley v. Easton, 104 U. S. 99; Glenny v. Langdon, 98 U. S. 20; Eyster v. Gaff, 91 U. S. 521; Crooks v. Stewart, 7 Fed. 800; In re Rockford, etc., Co., Fed. Cas. No. 11,978; Barker V. Bankers' Assoc., Fed. Cas. No. 986.

65. McLean v. Mayo, 7 Am. B. R. 115; In re Ryan, Fed. Cas. No. 12,182.

66. Bankr. Act, 1898, section 47a (2); In re Stein, 1 Am. B. R. 662, 94 Fed. 124.

67. See, for instance, Barber v. Franklin, 8 Am. B. R. 468, and cases cited under discussion of section 60 of the Bankruptcy Law, infra.

68. See Bankr. Act, 1898, section 67, and discussion thereof, supra. 69. Bankr. Act, 1898, sections 11-b-c, 26; In re Baber, 9 Am. B. R. 406, 119 Fed. 520.

70. Bankr. Act, 1898, section 11. Compare, for when suit should not be brought, Reade v. Waterhouse, 52 N. Y. 587; Dulcher v. Bank, Fed. Cas. 4,203. See also In re Baird, 7 Am. B. R. 448, 112 Fed. 960, where referee erroneously directed trustee to sue until the moving creditor should indemnify the estate against the expense of a possibly unsuccessful controversy.

71. In re Mersman, 7 Am. B. R. 46. Compare Chism v. Bank, 5 Am. B. R. 56. See also In re McCallum, 7 Am. B. R. 596, 113 Fed. 393; In re Mallory, Fed. Cas. 8,990; Traders' Bank v. Campbell, 14 Wall. (U. S.) 87.

72. In re Phelps, 3 Am. B. R. 396.

73. Collier, Bankr., 6th ed., p. 190.