Marine Midland Trust Co. v. Callaghan

CHASE, Circuit Judge (after stating the facts as above). The theory upon which the appellees in the main rely is that, although Prudence-Bonds Corporation held the legal title to the securities which it transferred to each of the appellants in trust, those securities were, as between Prudence-Bonds Corporation and itself, owned by the Prudence Company, Inc., whose obligation as the guarantor of the bonds issued by Prudence-Bonds Corporation was the primary obligation which they understood the trust property was to be held to secure; that is to say, the property held by these appellants, as trustees, is that of the debtor. Such rights as the debtor did possess in the trust property by virtue of any such understanding were subject to its own obligation to comply with the terms of its guaranty which were a part of the arrangement. Before this proceeding was brought, it was in default as to those obligations and has remained in default. The contract was made and was to be performed in New York concerning trust property there. We adopt the construction of the highest court in that state as to its meaning and effect. Hiscock v. Varick Bank, 206 U.S. 28, 27 S.Ct. 681, 51 L.Ed. 945; Prudential Ins. Co. of America” v. Liberdar Holding Corporation (C.C.A.) 72 F.(2d) 395. That court has already decided that, under circumstances in all essentials like those in each of these appeals the Prudence Company, Inc., had no rights in the trust res not dependent upon the fulfillment of its own obligation to perform its guaranty. President and Directors of Manhattan Co. v. Prudence Co., Inc., et al., 266 N.Y. 202, 194 N.E. 408. Its default uncured has therefore deprived it of any right to question the apparent title which Prudence-Bonds Corporation had to the securities it transferred to these appellees in trust or that they are held to secure the obligation of that corporation to pay its own bonds. The court is given under section 77B (a), 11 U.S.C.A. § 207 (a), after petition approved, exclusive jurisdiction “of the debtor and its property wherever located, * * * and shall have and may exercise all the powers, not inconsistent with this section, which a Federal court would have had it appointed a receiver in equity of the property of the debtor by reason of its inability to pay its debts as they mature.” Such a receiver takes over only the property of the debtor so unable to pay debts. Union Nat. Bank of Chicago v. Kansas City Bank, 136 U.S. 223, 10 S.Ct. 1013, 34 L.Ed. 341. As in each instance the trust res is not the property of this debtor, it is no part of the property within the jurisdiction of the court in these proceedings and so subject to its orders. In re Prudence Bonds Corporation (C.C.A.) 79 F.(2d) 212. There remains the contention that the order was within the sound discretion of the court, on the theory that, as Prudence-Bonds Corporation is also being reorganized under section 77B in the same court and the judge in charge of that proceeding had made an order under which the appellees were acting in respect to some of this property, it was proper for the judge who made the order appealed from to adopt the same course. As [758] suming that it were possible for two judges to make valid orders concerning these various trust securities, it is easy to understand the desirability of having the orders essentially ijnconflicting. But there is really no possibility of any such confusion. Each of these 77B proceedings is separate and distinct from the other though they are both pending in the same District Court. The jurisdiction of the court in each instance is governed by section 77B(a), above referred to, and what property may be administered in each is dependent upon what is the property of each debtor. It does by no means follow that, because some property is within the jurisdiction of the court in one 77B proceeding, orders concerning it may be made in another such proceeding in the same court. Order reversed.