DISTRICT COURT, S.D. NEW YORK
October 30, 1933
In re KERR
The opinion of the court was delivered by: PATTERSON
PATTERSON, District Judge.
The trustee brought a summary proceeding for permission to sell a tapestry as part of the bankrupt estate and for an adjudication that the respondent had no interest in the tapestry. The respondent objected to the jurisdiction of the bankruptcy court to entertain a summary proceeding. After taking proof, the referee held that there was no jurisdiction, and dismissed the proceeding.
At the time of bankruptcy, the tapestry was in possession of one Sabbagh to whom it had been consigned by the bankrupt for sale. The trustee brought a summary proceeding against Sabbagh to turn the tapestry over. Sabbagh made no opposition, and delivered the tapestry to the trustee. The present respondent was not a party to that proceeding. In the present proceeding, commenced after the trustee had recovered possession of the tapestry, the respondent, who was the bankrupt's sister, gave testimony tending to indicate that she had purchased the tapestry from the bankrupt nearly a year before bankruptcy and had left it with him as agent on consignment. On the other hand, there was evidence that cast doubt upon the alleged sale, as well as evidence that previously the respondent had claimed that she had an interest in the tapestry as security for a debt owed her by the bankrupt. Any such security would be void for lack of change of possession and lack of filing. The referee held that the trustee's remedy was by plenary suit, and dismissed the case for want of jurisdiction.
The basic principle is that the bankruptcy court, like other courts, has jurisdiction to decide controversies over property in its possession. Whitney v. Wenman, 198 U.S. 539, 25 S. Ct. 778, 49 L. Ed. 1157; Murphy v. John Hofman Co., 211 U.S. 562, 29 S. Ct. 154, 53 L. Ed. 327. Property is deemed to be in possession of the court when it is in the hands of the bankrupt's agent or bailee at the time when the petition in bankruptcy is filed, or when it is held by another who makes no claim of his own to it. Taubel-Scott-Kitzmiller Co. v. Fox, 264 U.S. 426, 44 S. Ct. 396, 68 L. Ed. 770; Johnston v. Spencer (C.C.A.) 195 F. 215; In re Hoey, Tilden & Co. (D.C.) 292 F. 269. In this case the tapestry was in the actual possession of Sabbagh when the petition was filed. Sabbagh derived his possession directly from the bankrupt, who had consigned the article to him for sale. He made no claim to it either for himself or for any one else.These facts would seem to establish the jurisdiction of the court from the inception of the bankruptcy proceeding, however the ultimate facts as to ownership might develop. But the case for jurisdiction is much stronger. In the course of the administration of the estate, Sabbagh turned the tapestry over to the trustee in bankruptcy. From that time forward the property was in actual, not constructive, custody of the court, and the power of the court thereafter to pass upon all claims to it by way of summary proceedings was beyond question. See In re Walsh Bros. (D.C.) 163 F. 352; In re Dana (C.C.A.) 167 F. 529. The referee was therefore in error in holding that he did not have jurisdiction to determine the validity of the respondent's claim to the property.
The matter will be remitted to the referee for decision on the merits.
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