BECK v. UNRUH

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District Court of Appeal, Second District, Division 3, California.

BECK v. UNRUH et al.

Civ. 17523.

Decided: September 27, 1950

Alfred L. Armstrong, Hollywood, for appellants. Charles I. Rosin, Los Angeles, for respondent.

Action to quiet title to real property in Los Angeles County. Plaintiff's claim of title is based on a deed from a trustee in bankruptcy, and defendants' claim of title is based on tax deeds to and from the State of California.

On November 4, 1927, the United Finance Company, a corporation, was adjudged a bankrupt. The real property involved herein was owned by the bankrupt and was listed in the schedule of assets in bankruptcy. Taxes assessed against said property for the fiscal year 1926–1927 were not paid, and on December 1, 1932, the tax collector of Los Angeles County executed deeds which allegedly conveyed the property to the state for such delinquent taxes. The trustee in bankruptcy was discharged on December 11, 1936, and the bankruptcy proceedings were terminated. No disposition was made of the property herein in the bankruptcy proceedings. On May 19, 1944, said property was sold at public auction by the tax collector to Fred R. Salter, and the collector executed deeds which allegedly conveyed the property to him. On June 9, 1944, Salter conveyed his interest in the property to one Ewald who, on February 12, 1945, conveyed his interest to Ida W. Unruh, one of the defendants herein. The deeds to Salter, the deed to Ewald and the deed to Ida W. Unruh were all recorded on November 15, 1945. On May 2, 1947, the bankruptcy proceedings were reopened, and on June 9, 1947, another trustee in bankruptcy was appointed. On December 15, 1947, the trustee sold all the right, title and interest of the bankrupt corporation in said property to plaintiff and executed a deed therefor in favor of plaintiff.

On March 15, 1948, plaintiff commenced this action to quiet title to the property. In the complaint it is alleged that plaintiff is the owner of and in possession of said property; and that defendants claim some title or interest in the property but the defendants have no title or interest therein. Defendants in their answer deny those allegations, except that they admit that defendant Ida W. Unruh claims some title and interest in the property; they allege that Ida W. Unruh is the owner of and in possession of the property, and that plaintiff has no title or interest therein. As affirmative defenses, they allege that the cause of action is barred by sections 3521 and 3725 of the Revenue and Taxation Code.

The court found, among other things, that plaintiff is the owner, in possession and entitled to possession of the property; that ‘from Nov. 4, 1927 and until Dec. 15, 1947, when the said real property was sold to the plaintiff by the trustee in Bankruptcy * * *, the said real property was in the custody of the Court, and the said Fred R. Salter [purchaser at the tax sale] acquired no right, title or interest in or to the said real property, and the defendants acquired no right, title or interest’ therein by reason of the conveyance by Fred R. Salter to Ida W. Unruh; and that the cause of action is not barred by either section 3521 or section 3725 of the Revenue and Taxation Code. Judgment was rendered quieting title in plaintiff on the condition that ‘plaintiff reimburse defendants, repaying to them the amount of taxes, penalties and costs expended by them, determined by the Court to be in the amount of $1728.51.’ Defendants appeal from the judgment.

Appellants contend that the cause of action is barred under the provisions of sections 3521 and 3725 of the Revenue and Taxation Code. Section 3521 provides that: ‘A proceeding based on an alleged invalidity or irregularity of any deed to the State for taxes or of any proceedings leading up to the deed can only be commenced within one year after the date of recording of the deed to the State in the county recorder's office * * *.’ Section 3725 provides that: ‘A proceeding based on alleged invalidity or irregularity of any proceedings instituted under this chapter can only be commenced within one year after the date of execution of the tax collector's deed.’ Plaintiff (respondent) asserts, in substance, that those sections are not applicable to the present case. He argues that the tax sales were made while the property was in the custody of the federal court in bankruptcy proceedings, and that therefore such sales were void.

Upon an adjudication of bankruptcy the United States District Court acquires exclusive authority and control over all property of the bankrupt. Manter v. Howard, 94 Cal.App.2d 404, 408, 210 P.2d 880; Wells v. California Tomato Juice, Inc., 47 Cal.App.2d 634, 636, 118 P.2d 916; Loeffler v. Wright, 13 Cal.App. 224, 230, 109 P. 269. It was stated in the Manter case, supra, 94 Cal.App.2d at page 408, 210 P.2d at page 882, that: “The filing of the petition [bankruptcy] is an assertion of jurisdiction with a view to the determination of the status of the bankrupt and a settlement and distribution of his estate. This jurisdiction is exclusive within the field defined by the law, and is so far in rem that the estate is regarded as in custodia legis from the filing of the petition.” Such jurisdiction extends ‘to the adjudication of questions respecting the title’ to the property, Ex Parte Baldwin, 291 U.S. 610, 616, 54 S.Ct. 551, 554, 78 L.Ed. 1020, which title is vested in the trustee in bankruptcy, Nuckolls v. Bank of California, 10 Cal.2d 266, 274, 74 P.2d 264, 114 A.L.R. 708, who has actual or constructive possession of said property. See In re Canyon Pipe Line Co., D.C., 39 F.Supp. 233, 235. The trustee in bankruptcy, however, takes the property of the bankrupt ‘subject to all such liens as would have been enforceable against it in the hands of the bankrupt himself’, In re Knox-Powell-Stockton Co., 9 Cir., 100 F.2d 979, 982, but the owner of a lien may not institute proceedings in a state court to enforce it without permission of the bankruptcy court. Wells v. California Tomato Juice, Inc., 47 Cal.App.2d 634, 636, 118 P.2d 916; Straton v. New, 283 U.S. 318, 51 S.Ct. 465, 75 L.Ed. 1060.

In Re Eppstein, 8 Cir., 156 F. 42, 17 L.R.A.,N.S., 465, certain real property belonging to a bankrupt corporation was sold for taxes prior to the filing of the petition in bankruptcy, but title and possession remained in the bankrupt, and these passed to the trustee upon his qualification. After the period of redemption had passed and while the property was in the custody and control of the court of bankruptcy, the holder of the tax sale certificate, without leave of that court, obtained a tax deed from the county treasurer. The court held therein that a court of bankruptcy may require those who assert title to property which had rightfully come into its possession and control as part of the bankrupt's estate, to present their claims to that court. It was stated therein, 156 F. at page 43: ‘We do not mean that property in the course of administration under the bankruptcy act is exempt from taxation, or freed from tax liens or claims theretofore fastened upon it * * * but that it is in custodia legis, and that any act interfering with the court's possession, or with its power of control and disposal, and done without its sanction, is void.’

In the case of Dayton v. Stanard, 241 U.S. 588, 36 S.Ct. 695, 60 L.Ed. 1190, sales of land for taxes and special assessments, which land belonged to a bankrupt estate, were held to be invalid because the sales were made without permission of the federal court.

As above shown, the corporation herein was adjudged a bankrupt in 1927 and the sale to the state for delinquent taxes was made in 1932—at which time the property was under the exclusive jurisdiction of the federal court. The consent of the court to make such sale was not obtained. The tax collector was without power to convey the property, and therefore he passed no title to the state. It was stated in Re Kirkpatrick, D.C.Cal., 17 F.Supp. 56, 57, wherein creditors attempted to foreclose a deed of trust without permission of the court in bankruptcy, that until the court ‘abdicated its jurisdiction, no person and no other court could acquire power or jurisdiction to deal with it [the property of the bankrupt estate], or change its status and of course could pass no titlt to it to another by a purported sale or otherwise.’ Since the state had acquired no title to the property, it had no title to convey to the purchaser at the tax sale. As was stated in DeFlon v. Van Lue, 83 Cal.App.2d 288, 290, 188 P.2d 301, 302, “The state cannot convey title that it does not possess.” The trial court properly found that the defendants herein acquired no right, title or interest in the property by reason of the conveyance by the purchaser at the tax sale. Under such circumstances the cause of action was not barred by said sections of the Revenue and Taxation Code. See 3 A.L.R.2d pp. 893–908 for a discussion of the subject, ‘Necessity of consent of court to tax sale of property in custody of court * * * or trustee appointed by it.’

The judgment is affirmed.

WOOD, Justice.

SHINN, P. J., and VALLÉE, J., concur.

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