Whatever may be the legal rights of one claiming legal or
equitable title to an asset, the fact that the bankrupt and his
trustee had physical possession thereof gives the bankruptcy court
control of the
res and authority to administer it.
A petition to determine title to property in the possession of
the bankrupt and his trustee may, as in this case, operate as an
attachment, and thus bring the property into the custody and under
the exclusive jurisdiction of the bankruptcy court.
Page 228 U. S. 205
A finding in a summary proceeding that the trustee has received
physical possession of the property involved is conclusive against
him and is not subject to collateral attack by third persons.
Noble v. Union River Logging Company, 147
U. S. 173.
While the state court has jurisdiction to determine a between
partners whether one is entitled to use the assets of his
partnership to satisfy an order made in a summary proceeding in the
bankruptcy court, and also whether the receiver received the same,
it may not determine title to property in the possession of the
trustee or who is entitled to possession thereof.
The facts, which involve the rights of the trustee in bankruptcy
and others in a crop of rice grown by the bankrupt and the
jurisdiction of the state and federal courts of the controversies
arising thereover, are stated in the opinion.
MR. JUSTICE LAMAR delivered the opinion of the Court.
This conflict of jurisdiction between state court and bankrupt
court, with injunction and counter-injunction, grew out of a
controversy as to who was in possession of a crop of rice when
Moore & Bridgeman, who had planted it, filed their petition on
July 16, 1906, to be adjudged bankrupts. If the rice was then in
their possession, the bankrupt court had jurisdiction to administer
it as assets of the estate and to determine all claims to the
property.
Babbitt v. Dutcher, 216 U.
S. 102;
Bryan v. Bernheimer, 181 U.
S. 188;
Bardes v. Hawarden Bank, 178 U.
S. 524.
The firm of Beaumont Mills claimed, however, that, for value and
in good faith, they had acquired the title and possession of the
rice on June 15, 1906, thirty days before the petition in
bankruptcy was filed; that they had
Page 228 U. S. 206
employed Moore & Bridgeman to harvest and deliver it, and
that LeBlanc, who was soon thereafter elected trustee, used labor,
teams, and machinery of the bankrupts in harvesting and threshing
the crop. The Beaumont Mills paid him, as trustee, for these
services and for hauling and delivering the rice to them at their
warehouse. This they claim did not affect the jurisdiction of the
state court of any controversy as to the ownership and possession
of the crop.
Creditors of the bankrupts, on the other hand, denied the title
of the Beaumont Mills, insisting that the crop belonged to Moore
& Bridgeman, and that the delivery by LeBlanc, trustee, was a
conversion to his own use and that of the Beaumont Mills, of which
firm he was a member. These creditors thereupon instituted summary
proceedings in the bankruptcy court to charge him with its value.
On that hearing, two members of the firm of Beaumont Mills were
sworn and testified as witnesses in his behalf. The district court
found in favor of the creditors, and on December 17, 1907, entered
an order reciting that the rice was the property of Moore &
Bridgeman, that it came into the possession of LeBlanc, as trustee;
that he improperly delivered it to the Beaumont Mills, and was
chargeable with $11,651, its value. The court thereupon directed
that he pay that sum into the registry of the court within ten
days. That judgment was affirmed (166 F. 689).
LeBlanc was without funds with which to comply with this order,
and claimed that, under the circumstances, he had the right to
withdraw $11,651 -- the value of the rice -- from the funds of the
Beaumont Mills, and deposit it in the registry of the court. The
other members of the firm resisted this claim and accordingly
instituted proceedings against him in the state court to prevent
his carrying his threat into execution. On March, 1909, a temporary
injunction was issued restraining him from withdrawing
Page 228 U. S. 207
partnership assets for the purpose of paying the money into the
bankrupt court.
The creditors of Moore & Bridgeman contended that they were
not concerned with the suit between the partners or the source from
which LeBlanc secured the money to pay the judgment rendered
against him on December 17, 1907. They therefore pressed for a
compliance with that order, and, to avoid attachment for contempt,
LeBlanc, in disobedience of the injunction, drew $11,651 from the
bank account of the Beaumont Mills, paid the firm's money to the
clerk of the bankruptcy court, who deposited it with the Gulf Bank
and Crawford, elected to succeed LeBlanc as trustee of Moore &
Bridgeman.
The Beaumont Mills at once filed a supplemental petition in the
state court, making the bank and Crawford, trustee, defendants, and
praying judgment against both of them for the partnership money in
their hands, and for other and further relief. Crawford, in turn,
immediately brought this bill in the bankruptcy court to enjoin the
Beaumont Mills from prosecuting their suit against him in the state
court. He insisted that the bankruptcy court had jurisdiction of
the
res and was, alone, authorized to determine his right
to retain the $11,651 paid over to him as trustee. He contended
also that the order of December 17, 1907, in the summary
proceedings was not only conclusive that the bankruptcy court had
jurisdiction of the
res, but he also insisted that, as the
Beaumont Mills had taken part in that litigation, they were bound
by the finding that the crop belonged to Moore & Bridgeman. A
decree was rendered in Crawford's favor by the district court. It
was affirmed by the court of appeals, and is brought here by the
Beaumont Mills for review.
Crawford's contention must, in part, be sustained. For whatever
may have been the legal or equitable rights of the Beaumont Mills
under their contracts with Moore & Bridgeman and under the bill
of sale of June 15, 1906, it
Page 228 U. S. 208
still appears that, first, Moore & Bridgeman, and, later,
LeBlanc, as trustee, engaged in gathering, threshing, hauling, and
delivering the rice. This physical possession, under the decision
in
Murphy v. John Hofman Company, 211 U.
S. 562, and cases cited, gave the bankruptcy court
control of the
res and authority to administer it along
with all other property in their physical possession when their
petition was filed. That petition operated as an attachment, and
brought the rice into the custody of the bankruptcy court.
"Where property was in the possession of the bankrupt at the
time of the appointment of a receiver . . . , the bankruptcy court
had jurisdiction to determine the title to it. . . . When the court
of bankruptcy, through the Act of its officers, such as referees,
receivers, or trustees, has taken possession of the
res, .
. . it has ancillary jurisdiction to hear and determine the adverse
claims of strangers to it, and that its possession cannot be
disturbed by the process of another court."
Murphy v. John Hofman Co., 211 U.
S. 562,
211 U. S.
569-570, and authorities. Nor was this jurisdiction
lessened because LeBlanc, trustee, after gathering the crop,
delivered the rice into the possession of Beaumont Mills at their
warehouse.
"The court had possession of the property and jurisdiction to
hear and determine the interests of those claiming a lien therein
or ownership thereof. . . . This jurisdiction can[not] be ousted by
a surrender of the property by the receiver, without authority of
the court."
Whitney v. Wenman, 198 U. S.
553.
Under these decisions, the physical possession of the crop
brought the property within the exclusive jurisdiction of the
bankruptcy court. The finding in the summary proceeding that
LeBlanc had received possession as trustee was conclusive against
him, and was not subject to collateral attack by third persons.
Noble v. Union River Logging Company, 147
U. S. 173,
147 U. S. 174,
and cases cited.
Page 228 U. S. 209
But that decision was not entered in a suit, in its nature
plenary, to try title, and was not binding upon the Beaumont Mills,
even though two members of the firm testified as witnesses. It was
an order in bankruptcy finding that LeBlanc, having been in
possession of the property as trustee, was accountable for its
value. But it did not determine what was to be done with the rice,
or who owned it, or whether the Beaumont Mills had a title thereto
or a lien thereon. All these matters were left open for
adjudication by the bankruptcy court when plenary suits were filed
by any person having a claim to the property. Or, since the rice
had been withdrawn from the custody of that court, the trustee
could institute therein a suit for the rice or its proceeds. He
would hold the same when recovered for the benefit of whosoever
might be determined to be entitled thereto in whole or in part.
None of these issues could be settled by LeBlanc. The fact that
he was trustee, and at the same time a member of the firm of
Beaumont Mills, did not give him the right to use partnership
assets of any sort for the purpose of satisfying the judgment
rendered against himself, and, by a wrongful conversion of firm
money, rectify what had been held to be a wrongful conversion of
the bankrupt's rice. There is no claim that the $11,651 had been
earmarked, or had been set apart as a specific fund to represent
that property, or that what LeBlanc delivered to Crawford was the
same money that had been received from the sale of the rice two
years before. On the contrary, Crawford, in his bill, insists that
the Beaumont Mills "still have the rice or its proceeds," and the
answer of the Beaumont Mills avers that the money was checked out
by LeBlanc from the firm's bank account and deposited with
Crawford.
That being so, LeBlanc was not authorized to draw out this
partnership money and hand the same over to Crawford, trustee, even
though the latter may have had a
Page 228 U. S. 210
claim against that firm for an equal amount. When LeBlanc
threatened to misapply their assets, whether $11,651 in money or
corn or anything else of equal value, the other partners were
entitled to apply for equitable relief, and the state court had
jurisdiction to restrain him from using money of the Beaumont Mills
to satisfy his personal obligation. As an incident of that
jurisdiction, the state court could determine the liability of
Crawford, trustee, who received such money of the firm with notice
that it had been taken in violation of that injunction.
In re
Kanter, 121 F. 984;
In re Spitzer, 130 F. 879;
In
re Mertens, 147 F. 182.
Cf. Act of 1888 (25 Stat.
436, c. 866). For his representative capacity did not exempt him
from liability for wrongfully receiving or retaining these funds
paid over in disobedience of an injunction, since money thus
tortiously paid and held did not thereby become a part of the
res within the exclusive control of the bankruptcy
court.
The fact that the jurisdiction of the two courts is limited as a
result of the Bankruptcy Act makes it impossible for either,
without the consent of both parties, to determine the whole
controversy in one suit. The state court has the right to try the
question as to whether Crawford and the bank received the money
with notice that it was partnership assets, and, if so, to enter
judgment in favor of the Beaumont Mills. But it could not determine
who was in possession of the rice on July 16, 1906, or who was
entitled to the property or its proceeds. That matter had been
drawn within the jurisdiction of the bankruptcy court by the order
of December 17, 1907, and that decision was not subject to review
by the state court. The decree must therefore be reversed insofar
as it enjoins the Beaumont Mills from suing Crawford, trustee, for
partnership assets paid into his hands in violation of the state
injunction, but without prejudice to the right of Crawford,
trustee, to proceed in the district court of
Page 228 U. S. 211
the United States against the Beaumont Mills for the recovery of
the rice, its proceeds, or its value, and without prejudice to the
right of the Beaumont Mills, in such suit, to make any defense or
to assert any claim, lien, or title to the property by reason of
contracts and transactions with Moore & Bridgeman, Moore, or
others, before the petition in bankruptcy was filed.
The decree is reversed and remanded for further proceedings
in conformity with this opinion.