
    In re KANE.
    (District Court, N. D. New York.
    May 9, 1904.)
    No. 1,276.
    1. Bankruptcy — Adverse Claims — Courts—Jurisdiction.
    A bankruptcy court lias jurisdiction to determine in the first instance whether an asserted adverse claim to property claimed by the bankrupt’s trustee is colorable or actual.
    2. Same — Summary Proceedings.
    Where an adverse claim to property claimed by a bankrupt’s trustee is colorable merely, or clearly a nullity, the referee has jurisdiction to require a surrender of the property to the trustee in bankruptcy, or to determine such adverse claim by summary proceedings; but, if it appears that the claim is asserted in good faith, and substantiated by verified pleadings or oral testimony, the issue can be determined only by a plenary suit.
    ¶ 2. See Bankruptcy, vol. 6, Cent. Dig. § 447.
    In Bankruptcy.
    T. S. Fagan (H. D. Bailey, of counsel), for trustee.
    Henry J. Speck, for National State Bank of Troy.
   HAZEL, District Judge.

Certain questions have been certified to the court for decision by Referee King. Upon the petition of the trustee in bankruptcy, an order was issued by the referee directing the National State Bank of Troy to show cause why certain moneys of which the bankrupt is the owner, and which came into the possession of the bank after the bankruptcy proceedings were instituted, should not be paid over to the trustee. On behalf of the bank an answer, later a proposed answer, and finally a demurrer to the jurisdiction, were filed. The attorney for the trustee moved the court to cancel from the files the demurrer on the ground that an answer joining issue had previously been filed, and therefore no special plea to the jurisdiction of the court should be entertained. It was stated by counsel for the bank at the preliminary hearing that, if the referee decided the jurisdictional point adversely to his contention, he desired to file an amended answer traversing the allegations set forth in the petition. The ruling upon these questions was reserved by the referee. Subsequently he decided that the bankruptcy court had authority and jurisdiction in a summary proceeding to compel the delivery to the trustee of money or other property belonging to the bankrupt, where it appears that such property is merely held as agent or bailee, and where it is withheld from the possession of the trustee. This holding is justified by the decisions. Louisville Trust Co. v. Cominger, 184 U. S. 25, 22 Sup. Ct. 293, 46 L. Ed. 413; Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405; In re Knickerbocker (D. C.) 121 Fed. 1004; Jaquith v. Rowley, 188 U. S. 620, 23 Sup. Ct. 369, 47 L. Ed. 620. The referee is quite right when he says the bankruptcy court has jurisdiction to determine in the first instance whether an asserted adverse claim to property is colorable or actual. If it be clearly a nullity, the referee has jurisdiction, and may by summary process require the surrender of the property so withheld to the trustee in bankruptcy. On the other hand, should evidence of a claimant satisfy the referee that an adverse right to such possession and control is asserted in good faith, and there is reasonable cause for believing that the intention of the claimant is to protect an asserted right of ownership and control, then the petition of the trustee should be dismissed. The remedy of the trustee for the recovery of the property may then be found in a plenary suit instituted in the proper tribunal. The determination of the respective rights of the parties demands judicial investigation by the referee to ascertain the facts. Both sides are heard, and evidence may be taken, though the conclusions of the court may be based upon the pleadings or affidavits presented to him. He must exercise a sound judicial discretion in the determination of questions of this character, to the end that no injustice be done to either party. If he is satisfied, either from personal knowledge of the facts or from testimony, that an order to show cause ought to be directed to a person charged with having in his possession property belonging to the bankrupt estate, the essential inquiry upon return of the order to show cause, if an adverse claim is made, is whether such claim is colorable or fictitious. In short, if it is a colorable claim, it should be set aside, and the claimant summarily directed to deliver the property to the trustee; but if, as already indicated, the claim is asserted in good faith, substantiated by verified pleadings or by oral testimony, then the objection to the jurisdiction of the court is controlling. In such an event the property is no longer constructively in the possession of the bankrupt and subject to the order of the bankruptcy court.

The certificate of the referee apparently submits the following question for my decision: Was the decision proper, overruling the objection to the jurisdiction of the court, and allowing the National State Bank to interpose its proposed amended answer ? This question is answered in the affirmative. I am unable to perceive from an examination of the record any cogent reason for passing upon any other question found in the voluminous briefs submitted by counsel.  