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(113 Fed. 483.)
ARGUED AND DETERMINED
UNITED STATES CIRCUIT COURTS OF APPEALS.
CARLING v. SEYMOUR LUMBER CO. et al.
(Circuit Court of Appeals, Fifth Circuit. February 11, 1902.)
1. GEORGIA INSOLVENCY ACT-SUSPENSION BY BANKRUPTCY ACT.
The Georgia insolvency laws (Code Ga. 1895, c. 4, §§ 2716-2722), provid ing for the distribution of the assets of insolvents, and authorizing the chancellor to recommend to the creditors of the defendant that they release him from further liability, being in effect a state bankruptcy act, its operation was suspended by the passage of the bankruptcy act of 1898, and proceedings under the former act are void.
1 See note 2 at end of case.
-TRUSTEE IN BANKRUPTCY-RIGHT TO POSSESSION OF PROPERTY.
A petition in equity filed in the Georgia superior court, which, under Code Ga. § 2770, has jurisdiction of mortgage foreclosure suits, alleged that the plaintiff was a mortgage creditor of defendant, and contained all allegations necessary to authorize a foreclosure, alleged that defendant was insolvent, and asked the foreclosure of the mortgage, and the appointment of a receiver for the debtor's property: but other allegations and prayers for relief showed that the plaintiff had the insolvency law in view in framing his petition. Held, that the proceedings would be sustained as a mortgage foreclosure suit within the jurisdiction of the superior court, even though the bill was imperfect, and required amendment; and that the proceedings were not void as taken under the Georgia insolvency law (Code Ga. 1895, c. 4, §§ 2716-2722),
which was suspended by the passage of the bankruptcy act; and therefore that the possession of the mortgaged property by a receiver appointed by the state court would not be disturbed in bankruptcy proceedings against the debtor.
A trustee in bankruptcy, of a bankrupt whose property has been seized under a mortgage and is in possession of a receiver appointed in the mortgage foreclosure suit by a state court of competent jurisdiction, is entitled to the possession of the property not covered by the mortgage, and to the excess of the proceeds of a sale of the mortgaged property over the mortgage debt and costs of foreclosure.
Where a trustee in bankruptcy is entitled to assets of the bankrupt which are in possession of a receiver appointed by a state court of competent jurisdiction, comity requires, as a general rule, that the trustee should first make application to the state court instead of the bankruptcy court for an order for the possession of such assets.
Petition for Revision of Proceedings of the District Court of the United States for the Southern District of Georgia.
For decision of district court reversed by this opinion, see 112 Fed. 323.
This is a petition in equity to this court, under the jurisdiction conferred on it by clause "b" of section 24 of the bankruptcy act of July 1, 1898 (30 Stat. 553), to superintend and revise in matter of law certain proceedings in bankruptcy of the district court of the United States of the Southern district of Georgia. A full statement of the facts will be necessary to make clear the questions that are raised by the petition.
Proceedings in the State Court.
On the 1st day of October, 1900, the Exchange Bank of Macon, Ga., a corporation, filed in the superior court of Bibb county, Ga., a petition in equity against the Macon Sash, Door & Lumber Company, also a Georgia corporation, doing business in Bibb county. It is alleged in the petition that the defendant corporation was indebted to the petitioner in the sum of $13,350, evidenced by 18 promissory notes, each indorsed by W. J. Beeland and T. C. Hendricks. These notes were secured by a mortgage executed by the defendant company to the petitioner. This mortgage is on personal property and real estate described in the petition. It is alleged that the object of the mortgage was to create in favor of the petitioner a lien, not only on the entire contents of the defendant's storehouse and the entire plant and materials situated upon the described real estate, but also upon all additions that may be made thereto, until the said notes have been fully paid. The defendant, at the petitioner's request, on July 21, 1897, made to petitioner a second mortgage for the purpose of securing the same debt, shown by renewal notes. The second mortgage embraced other and additional property to that described in the first mortgage. Copies of the two mortgages were made exhibits to the petition. It is alleged that the defendant and the indorsers on the defendant's notes are insolvent, and that the property described in the mortgages is deteriorating in value, and that the defendant owes cther debts, evidenced by notes and open accounts, amounting to $11,500.10, and that judgments amounting in the aggregate to about $700 have been rendered against the defendant, which the defendant is unable to pay. It is also alleged that petitioner has demanded of the defendant payment of its indebtedness which had matured, and that defendant had failed to pay the same; that petitioner has no adequate or complete remedy against the defendant except in a court of equity, and that the interposition of a court of equity is demanded, both in the interest of all the defendant's creditors as well as of the defendant itself; that, in order to avoid a multiplicity of suits at law and the needless sacrifice of defendant's property, it is necessary that a court of equity, through its receiver, should administer and wind up the affairs of the said company,
converting its property and assets into cash. There is a prayer for process," and the following special prayers: "Wherefore it prays: (1) That the said defendant company be restrained and enjoined from selling, incumbering, or in any wise disposing of any of said property upon which plaintiff has its mortgage lien, and which is hereinbefore fully set forth and described. (2) That a permanent receiver be appointed by this court to take possession of the entire property and assets of every description, to administer the same under the direction and orders of this court, and to convert the same into cash at some early date for prompt distribution among defendant's various creditors, according to their respective priorities. (3) That all the other creditors of the said defendant company be allowed to become parties to this proceeding, which plaintiff prays may be taken as a creditors' bill, for the purpose of protecting the rights of all parties at interest. (4) Plaintiff prays that it may have a judgment and decree against defendant for the amount of its debt, and foreclosing its said two mortgages, and that the same may be decreed to be the highest and best lien upon the fund realized from the sale of the mortgaged property." This petition was signed by counsel, and duly verified. On October 2, 1900, the judge of the superior court of Bibb county, at chambers, made an order for the defendant to show cause on October 11th why the prayers of the petition should not be granted, and in the meantime restraining the defendant from incumbering or selling or in any way disposing of the property owned by it, and appointing Dupont Guerry temporary receiver of the defendant's property to take possession of and to hold the same subject to the further order of the court. Certain orders of continuance were then made on different dates. On the 27th of November, 1900, the defendant, the Macon Sash, Door & Lumber Company, filed an answer to the petition. The mortgage debt was admitted, the averment of insolvency was denied, and it was admitted that the machinery had deteriorated in value. It was claimed in this answer that its assets were largely in excess of its liabilities. On November 30, 1900, the superior court entered a formal decree appointing Thomas J. Carling permanent receiver to take possession, subject to the orders and directions of the court, of all the property, both real and personal, and choses in action, of every character, belonging to the defendant company. Carling was required to give and did give bond as such receiver in the sum of $10,000. There were many orders made in reference to the receivership, which it is unnecessary to state. It appears from the record that the receiver came into the possession, under these orders, of all the property embraced in the two mortgages, and of choses in action and other property not covered by the mortgages.
Proceedings in the United States District Court.
On the 17th day of November, 1900, the Seymour Lumber Company and two other creditors of the Macon Sash, Door & Lumber Company filed a petition in the district court to have the latter company adjudged to be a bankrupt. On December 3, 1900, the lumber company filed an answer to the petition in bankruptcy, resisting the same, denying that it had committed an act of bankruptcy, denying that it was insolvent, and demanding a trial by jury. On motion of the Seymour Lumber Company and the other creditors, petitioners in said bankruptcy proceedings, on May 21, 1901, the district court made an order restraining the Exchange Bank of Macon, Ga., and others who had become parties to the said suit in the superior court of Bibb county, Ga., from further prosecuting that suit until the 1st day of July, 1901, and until the further order of the court. On November 25, 1901, the Macon Sash, Door & Lumber Company, having withdrawn its answer and demand for jury trial, was by said district court adjudged a bankrupt. On the same day, November 25, 1901, the district court made an order directing the marshal to take possession of the property of the bankrupt, and ordered Thomas J. Carling, the receiver theretofore appointed by the superior court of Bibb county, Ga., to surrender the same to the marshal. That part of the order relating to Carling is as follows: "That the said T. J. Carling be, and he is hereby, ordered and directed to deliver to said marshal all of the property, money, deeds, books, and papers of the said Macon Sash, Door & Lumber Company in Lis possession, custody, or control." The marshal
demanded of Carling that he surrender the property to him, and, Carling having failed to do so, the district court, on the petition and motion of the Seymour Lumber Company and others, the original pet..ioning creditors in the cause in bankruptcy, on November 29, 1901, made the following order: "Upon considering the foregoing petition, it is ordered by the court that the said T. J. Carling be and appear before the undersigned, judge of the United States district court for the Western division of the Southern district of Georgia, at the United States court house in Macon, Georgia, at 10 o'clock a. m., on the 2d day of December, 1901, then and there to show cause, if any he can, why he has refused to surrender the property, money, deeds, books of account, and papers of the said bankrupt, the Macon Sash. Door & Lumber Company, in his possession, cust dy, or control, described and mentioned in the order and warrant of seizure issued out of the said United States district court on the 25th day of November, 1901, and, in case he should fail to show such cause as aforesaid, why an attachment should not be issued against him for his disobedience to the orders of the court. Let the said T. J. Carling be served with a copy of the foregoing petition and this order forthwith."
Thomas J. Carling filed a written answer to this rule to show cause, in which he stated that he made the answer under the direction of the superior court of Bibb county, state of Georgia; that he held the property demanded of him by the marshal, not in his own right or personally, but as the receiver appointed by said state court in the case of the Exchange Bank of Macon against the Macon Sash, Door & Lumber Company. In this answer he stated that Dupont Guerry had been app inted the temporary receiver on October 2, 1900, and that subsequently, on November 30, 1900, he had been appointed permanent receiver by said state court; that the property had been continuously in the possession of the state court from October 2, 1900, when Dupont Guerry was appointed temporary receiver, up to the present time; that he employed counsel by leave of said court that appointed him, and had incurred expenses, and had not been paid anything for his services; and that he was under bond in the sum of $10,000 for the faithful performance of his duties as receiver. He attached to his answer a copy of the proceedings in the state court showing the petition, answer, and orders. Carling claimed in this answer that, the superior court having first taken jurisdiction of the property and having taken possession of it through its temporary and permanent receiver, the possession and control of the property ought not to be interfered with by the district court, and that in all of these proceedings he had acted in good faith, and without the purpose and intention to treat with disrespect any of the orders of the district court, and that he had not treated any of the orders of the court with disrespect; that in good faith he was advised and believed that as an officer of the superior court of Bibb county charged with the administration of the property, and under a bond for the faithful performance of his duties as receiver, he could not surrender the property except upon the order of the judge of the superior court, under which court he held his appointment. He attached to the answer copy of an order of the state court directing him not to surrender the property, but to show the fact and date of his appointment as receiver to the district court.
After hearing argument, the district court held that Carling's answer was insufficient, and on the 6th day of December, 1901, made the following order: "A rule having been issued out of this court requiring T. J. Carling, one of the defendants in the above-stated cause, to show cause before this court why he refused to surrender the property, money, deeds, books of account, and papers of the said bankrupt, Macon Sash, Door & Lumber Company, in his custody, possession, and control, described and mentioned in the order and warrant of seizure out of this court on the 25th day of November, 1901, with which order and warrant of seizure he had been duly served, and, in case he should fail to show such cause, why an attachment should not be issued against him for his disobedience to the order of this court; and the said T. J. Carling, for showing cause as required by said rule, having filed his answer and response therein, and the court having heard and considered the evidence in said matter submitted and the argument of counsel: It is now ordered, adjudged, and decreed by the court that the response
and showing made by the said T. J. Carling is insufficient; that the said T. J. Carling be, and he is hereby, peremptorily ordered, directed, and required to surrender and deliver to John M. Barnes, marshal of the United States for the Southern district of Georgia, all the said property, money, deeds, books of account, and papers of the said bankrupt, Macon Sash, Door & Lumber Company, in his possession, custody, and control, described and mentioned in the order and warrant of seizure issued out of this court in the above-stated cause, on the 25th day of November, 1901, by 10 o'clock a. m. on the 7th day of December, 1901, and, in case he should not so surrender and deliver the same, he shall be attached as for contempt of court."
Carling having failed to obey this order, the district court on December 7, 1901, made the following additional order: "It having been adjudged and decreed by the court in the above-stated cause, on the 6th day of December, 1901, after due notice and hearing, that T. J. Carling, one of the parties in said cause, was in contempt of this court in resisting and refusing to obey an order and warrant of seizure issued out of this court in said cause on the 25th day of November, 1901, requiring the marshal of said district to seize and take possession of, and the said T. J. Carling to deliver to said marshal, the pr. perty, money, deeds, books of account, and papers of the said bankrupt, Macon Sash, Door & Lumber Company, in his possession, custody, and control, and described and mentioned in said order and warrant of seizure, with which said order and warrant of seizure the said T. J. Carling has been duly served; and the said T. J. Carling having appeared in open court this day, and admitted that he had purged himself of said contempt s adjudged and decreed against him, by surrendering and delivering to said marshal said property, money, deeds, books of account and papers by 10 o'clock this day: It is now adjudged and decreed by the court that the said T. J. Carling is still in contempt of this court in refusing to surrender and deliver said property, money, deeds, books of account, and papers by 10 o'clock this day, as ordered and directed to do by this court on the 6th day of December, 1901. It is now ordered that the inarshal of said district be, and he is hereby, directed and required, immediately after the expiration of 10 days from this date, unless the judgments, orders, and decrees adjudging and decreeing said T. J. Carling to be in contempt as aforesaid shall be sooner superseded according to law, to attach and seize the body and person of said T. J. Carling, and confine him in the common jail of Chatham county, Georgia, in said district, and there him safely keep until he shall have purged himself of the said contempt adjudged and decreed against him, by surrendering and delivering to the said marshal all of the property, money, deeds, books of account, and papers of the said bankrupt, Macon Sash, Door & Lumber Company, in his possession, custody, and control, described and mentioned in the order and warrant of seizure issued out of this court on the 25th day of November, 1901, or until the further order of this court."
The purpose of the petition for revision and review filed in this court is to revise, as matter of law, the foregoing proceedings in the court of bankruptcy; and it is alleged here that the court erred in making the foregoing orders of December 6 and December 7, 1901.
Washington Dessau and N. E. Harris, for petitioner.·
Before PARDEE, MCCORMICK, and SHELBY, Circuit Judges.
SHELBY, Circuit Judge, after stating the case as above, delivered the opinion of the court. Under the Georgia system the superior courts have exclusive jurisdiction in cases affecting the title to lands and in equity cases. The superior court of Bibb county, Ga., is a court of general jurisdiction, and has the powers and jurisdiction of a court of chancery. Code Ga. 1895, § 5842. It has, by express statute, jurisdiction of suits to foreclose mortgages (Id. 2770); and to appoint receivers (Id. 4904). The judges of the superior courts