George Thatcher Corporation v. Bullen

153 P.2d 655, 107 Utah 310, 1944 Utah LEXIS 103

• Court: Utah Supreme Court
• Decided: November 30, 1944
• Docket: No. 6688.
• Status: Published

Opinions

TURNER, Justice.

Plaintiff and appellant filed in the original action in the District Court of Cache County, Utah, a petition, later amended, to set aside and vacate the satisfaction of its judgment previously entered therein. The lower court sustained a demurrer to and dismissed the amended petition. This appeal is taken from such order and judgment of dismissal.

The following facts are taken from the amended petition of plaintiff and are deemed true for the purposes of the demurrer interposed by defendant. The grounds of demurrer to the amended petition are that it does not state sufficient facts to sustain an order vacating the satisfaction of judgment and that the lower court has no jurisdiction to vacate the satisfaction or restore the judgment to effectiveness.

In December, 1940, appellant George Thatcher Corporation secured judgment against the respondent Russell Bullen in the City Court of Logan, Utah, for $796.07. An abstract of this judgment was duly filed with the clerk of the First Judicial District Court of Cache County and an execution issued thereon. On February 5, 1941, the sheriff sold at public auction the four tracts of land belonging to defendant and which are described in plaintiff’s petition. Plaintiff bought the land in for the amount of its judgment and a few days later the sheriff issued to plaintiff his certificate of sale and made and filed with the clerk of the District Court his return of sale and the judgment was satisfied in the judgment docket. On August 8, 1941, after six months’ period of redemption from this sale had expired, the sheriff’s deed was executed and delivered to plaintiff covering Tracts 1, 2 and 4. Tract 3 had been redeemed by defendant by the payment of $53.00 to plaintiff. The sheriff’s deed was duly recorded August 9, 1941.

In the meantime, and on December 12, 1940, the First National Bank of Logan filed suit to foreclose a first mortgage on the lands in question, naming as defendants this plaintiff and this defendant and another party. Judgment in favor of the Bank in this foreclosure suit was entered March 8, 1941, and on April 3, 1941, the property was again sold at sheriff’s sale and the Bank became the purchaser for the amount of its judgment.

Following this, on or about September 5, 1941, and prior to the expiration of the period of redemption under the Bank’s foreclosure sale, defendant Bullen filed in the United States District Court for the District of Utah a voluntary petition in bankruptcy under the provisions of Sec. 75 of the Frazier-Lemke Bankruptcy Act, 11 U. S. C. A. § 203. He listed the four tracts of land involved herein as his property and listed the First National Bank of Logan in the list of his creditors, and he also listed the aforesaid judgment of the plaintiff as a subsisting obligation against him and the plaintiff as such judgment creditor.

On October 4, 1941, while this petition in bankruptcy was pending, and on the day following the expiration of six months from the date of the Bank’s foreclosure sale, a sheriff’s deed was executed and delivered to the Bank covering the property in question. The Bank and the plaintiff Thatcher Corporation on or about October 8, 1941, filed a joint petition in the Bankruptcy Court praying to have this property excluded from the bankruptcy proceedings because of the sheriff’s deed above referred to. This petition was resisted by defendant, in whose motion it was stated in part “that it appears on the face of the said petition that the above entitled proceeding [bankruptcy] was initiated before the expiration of the period of redemp tion from the sale of the property therein described by the First National Bank of Logan.” The Bankruptcy Court granted defendant’s motion and dismissed the petition of plaintiff and the Bank, holding that the filing by defendant of his petition in bankruptcy “automatically stayed all proceedings” in the Bank case. Subsequently and on March 13, 1943, by order of the Bankruptcy Court, the property in question was sold for $28,275 in cash; all claims of the creditors of defendant Bullen listed in his petition were paid except that of the plaintiff herein. The defendant expressly objected to the payment of this plaintiff’s claim on the ground that plaintiff had no interest remaining in the property or proceeds therefrom in view of the satisfaction of judgment entered in its original action. Money in excess of $2,000 was paid to the defendant through the bankruptcy proceeding, and the Bankruptcy Court retained $1,000 in its custody to secure payment of plaintiff’s judgment pending the outcome of this action to set aside and vacate the satisfaction of judgment previously entered.

After a careful consideration of the foregoing facts, it is unnecessary to write a prolonged opinion. The lower court was in error.

There can be no doubt that the lower court has jurisdiction to set aside and vacate the satisfaction of judgment, if, under the facts, it is a mere docket entry, without consideration. Knaak v. Brown et al., 115 Neb. 260, 212 N. W. 431, 51 A. L. R. 237; Reed v. Fisher, 90 Neb. 697, 134 N. W. 409; Young Cleveland, 33 Mo. 126, 82 Am. Dec. 155.

In determining the questions presented in this appeal, we are concerned primarily with the factual allegations of the petition filed in the District Court, with the legal effects of the acts of the parties involved and with the legal effects of what the Bankruptcy Court did, according to the allegation of the petition.

The bankrupt had to have some property right in the tracts of land to give the Bankruptcy Court jurisdiction over the lands. It should be remembered that the Thatcher Corpora tion, prior to the commencement of the bankruptcy proceedings, had secured a sheriff’s deed to three of the tracts of real estate with which we are concerned. It should also be remembered that the Bank had a lien prior to that of the Thatcher Corporation, but the period of redemption in the Bank’s foreclosure action had not run when the bankruptcy proceedings were commenced.

We are of the opinion that the only property right the defendant had in the real estate involved was a right of redemption from the foreclosure action brought by the Bank. This right of redemption is a property right and a valuable one, and subject to being administered in the Bankruptcy Court. Wragg v. Federal Land Bank, 317 U. S. 325, 63 S. Ct. 273, 87 L. Ed. 300; Buss v. Prudential Ins. Co., 8 Cir., 126 F. 2d 960.

Sec. 104-37-30, U. C. A. 1943, provides that property sold subject to redemption may be redeemed by “The judgment debtor, or his successor in interest * * and the courts have held that he has this right even though someone else has succeeded to his interest in the property. Yoakum v. Bower, 51 Cal. 539; Higgs v. McDuffie, 81 Or. 256, 157 P. 794.

We must therefore conclude that when the defendant filed his petition in bankruptcy and listed among his assets the tracts of land involved herein and listed Thatcher Corporation and the Bank as creditors, the Bankruptcy Court did acquire jurisdiction over the bankrupt and his property. The Federal Court having jurisdiction, has exclusive jurisdiction of the person and property of one petitioning for agricultural composition under the Bankruptcy Act until the proceedings are terminated. Sec. 75 subs, n, o, p. of the Frazier-Lempke Act, 11 U. S. C. A. § 203, subs, n, o, and p; Security First Nat'l Bank of Los Angeles v. Superior Court, 12 Cal. App. 2d 140, 55 P. 2d 532; Clinton v. Shoop, 8 Cir., 1941, 118 F. 2d 811; Bernards v. Beck, 1941, 167 Or. 178, 115 P. 2d 329.

It is well established by recent decisions that where the Bankruptcy Court has acquired jurisdiction and there is a mortgage foreclosure involved, all proceedings in the state court are automatically stayed from the filing of the petition. Cusack v. Prudential Ins. Co. of America et al., 1943, 192 Okl. 218, 134 P. 2d 984; Kalb v. Feuerstein, 308 U. S. 433, 60 S. Ct. 343, 84 L. Ed. 370. In Cusack v. Prudential Ins. Co., supra [192 Okl. 218, 134 P. 2d 990], the court says:

“The question is one of federal law and it is incumbent upon us to follow the decisions of the Supreme Court of the United States. Any disposition which we might have to adopt the view of the trial court and of the subordinate federal courts (above specifically referred to) is foreclosed by the more recent decision of the Supreme Court of the United States in Kalb v. Feuerstein, 308 U. S. 433, 60 S. Ct. 343, 84 L. Ed. 370. It was therein held in substance that the stay contemplated under section 75 of the Act operates as an automatic statutory ouster of jurisdiction in so far as the power of state courts in foreclosure proceedings is concerned.”

Note the following excerpt quoted from the decision of the Supreme Court of the United States in the Kalb Case [308 U. S. 433, 60 S. Ct. 347, 84 L. Ed. 370], above cited:

“ ‘All such property shall be under the sole jurisdiction and control of the court in bankruptcy, and subject to the payment of the debtor farmer’s creditors, as provided for in * * * Section 75 * *

“As stated by the Senate Judiciary Committee in reporting these amendments: * * subsection (n) brings all of the bankrupt’s property, wherever located, under the absolute jurisdiction of the bankruptcy court, where it ought to be. Any farmer who takes advantage of this act ought to be willing to surrender all his property to the jurisdiction of the court, for the purpose of paying his debts, and for the sake of uniformity.’ ”

Counsel for the defendant Bullen contend that the time for redemption by Thatcher Corporation in the Bank foreclosure case was not stayed; that Thatcher Corporation slept on its rights; that it did not redeem within the time allowed by law and, therefore, it having bought the lands at sheriff’s sale to satisfy its judgment and satisfaction of judgment having been entered, the corporation got what it bargained for and cannot assert itself as a creditor.

By consent or acquiescence of creditors, or after giving notice to creditors, the bankruptcy court may order the sale of realty free from liens.

See Miller v. McKenzie, 1983, 217 Cal. 389, 19 P. 2d 1; McRaney v. Riley et al., 1922, 128 Miss. 665, 91 So. 399, 22 A. L. E. 685.

We belief the automatic stay of proceedings stayed the running of time of redemption for the debtor’s successor, Thatcher Corporation, as well as for the debtor. The wording of the Federal Act and the recent decision of the Supreme Court of the United States (supra) warrant this conclusion.

The following recital of provisions of the act are copied from the court’s opinion in Kalb v. Feuerstein, supra, at page 441, of 308 U. S., at page 347 of 60 S. Ct., 84 L. Ed. 370:

“‘(p) The prohibitions * * * shall apply to all judicial or official proceedings in any court or under the direction of any official, and shall apply to all creditors, public or private, and to all of the debtor’s property, wherever located. All such property shall be under the sole jurisdiction and control of the court in bankruptcy, and subject to the payment of the debtor farmer’s creditors, as provided for in (paragraph) 75 of this Act.”

• If such were not the case, Thatcher Corporation to preserve itself from a loss of approximately $1,000 would be required to expend more than $25,000 to redeem the property from the bank and it would be compelled to sit and wait for months or even years until proceedings in the Bankruptcy Court were terminated before it could take possession of the lands or make a sale of the lands and during this time might be confronted' with orders of the Bankruptcy Court.

The allegations of the petition before us justify the conclusion that the corporation would have been warranted in making the purchase, under its right of redemption, if it were not for the stay of proceedings. This is made evident from the allegation respecting the sale made through Bankruptcy proceedings for the lands were sold for con siderable more than enough to pay the claim of the bank and that of Thatcher Corporation. We cannot conceive of a bank willing to make a loan for purchase of redemption if the purchaser could not have possession of the property or right to safely sell the same for a matter of months or years from time of purchase, neither can we visionalize a redemptioner able to afford such an expenditure under such conditions.

From the allegations of the petition it is fairly inferable that the Bankruptcy Court, by its order, authorized the sale of the listed real estate free from incumbrances. As the proceedings stayed the running of time of redemption, record title remained in Thatcher Corporation at the time of sale. Clear title to the lands could be had only through coooperation of Thatcher Corporation. The lands were sold, not just Bullen’s right of redemption. Out of the money received the Bank was paid in full; one thousand dollars was set aside by the Court to be paid Thatcher Corporation, contingent upon it having the District Court vacate the satisfaction of judgment heretofore referred to. The defendant received more than two thousand dollars from the sale.

Because of the sale, further proceedings in the Bank’s foreclosure action were avoided. Without completion of the Bank’s foreclosure proceeding the right of Thatcher Corporation to the lands was not extinguished. We think it fairly inferable from the pleadings that the plaintiff accepted the position of creditor because of the actions of the defendant and those of the Bankruptcy Court and consented to the sale of the property and acquiesced in it, expecting to be treated as a creditor instead of relying on its deed to the three tracts, or its right of redemption.

Where the plaintiff has come into equity seeking to have satisfaction of judgment set aside, we believe we can justly conclude it stands ready and willing to do equity and has released its title and interest in and to the lands to the purchaser in bankruptcy proceedings, or is ready and willing to do so.

•Clear title in the purchaser is contingent upon this. We believe the purchaser who paid $28,275 for the lands at least was assured he would get clear title to them. He undoubtedly did not make such an expenditure to purchase litigation. The Bankruptcy Court realized the Thatcher Corporation would have to be paid, as a creditor, if it were to consent to the sale of the lands and stand ready and willing to convey its right, title and interest in and to them.

The Bankruptcy Court made its order authorizing sale of the lands with these facts before it and made its order setting aside $1000 to be paid the plaintiff when satisfaction of judgment was vacated or set aside, knowing the situation of this plaintiff. By its acts it has placed Thatcher Corporation in the position of creditor, entitled to payment from funds received through the sale of the lands and in doing so Bullen has benefited, as he could not have done otherwise.

The defendant has attempted to substitute cunning for candor in an effort to circumvent his obligation to the plaintiff. It was Bullen who instituted bankruptcy proceedings and where he has received benefits from the sale of the lands in bankruptcy, he cannot consistently take a position that will defeat clear title or necessitate additional legal proceedings because of the sale. This court will not encourage cunning tactics to defeat justice.

We are of the opinion that the amended petition clearly states facts sufficient to warrant the relief sought if the allegations are found to be true. The judgment of the lower court is reversed and the cause remanded with directions to overrule the demurrer and for such other appropriate proceedings as are consistent with this opinion. Costs to appellant.