In re Wilka

REED, District Judge (after stating the facts). The sole objection urged in argument to the jurisdiction of the referee is that, because the property covered by the liens of the bank’s mortgage and the bank itself were without the territorial jurisdiction of the court, it had no jurisdiction to make the order for the sale. The referee finds, however, that the trustee was in the actual possession of the property. If this is true, though the property may then have been situated in South Dakota, the court was in the actual custody and possession of the property through its trustee. Section 70 of the bankruptcy act vests the trustee, by operation of law, as of the date of the adjudication, with the title to the property of the bankrupt not exempt to him, wherever it may be situated. Such title authorizes the trustee to reduce such property to his actual possession, and when he has done so the property is then in the actual custody and control of the bankruptcy court administering the estate. The Granite City Bank is a creditor of the bankrupt, Wilka, and therefore a party to the bankruptcy proceedings in such sense that it is bound by the orders of the court made with reference to property in its actual custody. Hanover Nat. Bank v. Moyses, 186 U. S. 181, 22 Sup. Ct. 857, 46 L. Ed. 1113; In re Pekin Plow Co., 112 Fed. 308, 50 C. C. A. 257. Section 58 of the bankruptcy act of July 1, 1898, c. 541, 30 Stat. 561 [U. S. Comp. St. 1901, p. 3444] provides “that creditors shall have ten days notice by mail * * * (4) of all proposed sales of [1006] property.” The bankruptcy court may, if circumstances require, order a sale of the property of the bankrupt free from the liens of mortgage creditors or other lienholders, so that the purchaser will take the title free from said liens; the liens being remitted to the proceeds of the property. In re Worland (D. C.) 92 Fed. 893. In this case the Granite City Bank was given the notice required by the bankruptcy act, and by personal service of such notice upon it at Dell Rapids, S. D., as well. The conclusion is that the referee had jurisdiction to make the order of sale. This, of course, does not preclude the bank from establishing its claim, if it can do so, to the proceeds of the property covered by its mortgage. It may propound its claim thereto before the referee. In fact, the referee should require it to do so before making a.ny order for the distribution of such proceeds. Upon the bank’s presenting its claim to such proceeds, the trustee may take issue thereon, if he so elects, and the referee will then determine the matter upon evidence taken under his directions. Bryan v. Bernheimer, 181 U. S. 188, 21 Sup. Ct. 557, 45 L. Ed. 814; In re Rochford, 124 Fed. 182, 59 C. C. A. 388; In re Worland (D. C.) 92 Fed. 893. The order of the referee, upon the issues and facts shown by his certificate, is approved.