Opinion
No. 74-B-344
January 16, 1980
Former Bankruptcy Act — Summary Jurisdiction — Adverse Claim — Disputed Debt
A bankruptcy court cannot exercise jurisdiction over an action to recover an alleged debt owing to the bankrupt, where the creditor has a "substantial adverse claim" to the subject property. Rather, where the very existence of the debt is disputed, it cannot be said to be in the court's possession for purposes of summary jurisdiction. See Sec. 23(a) at ¶ 2227.
[Digest of Opinion
Prior to filing a petition in bankruptcy, the bankruptcy traded $3,000 deposited by the creditor in a commodities futures trading account. This trade resulted in not only the loss of the creditor's investment, but also in additional payments to unknown third parties, in the amount of $16,511.50.The trustee in bankruptcy brought an action against the creditor to recover the amount alleged to have been lost by the bankrupt as a result of such trades. The creditor alleged that no trdes were to be made by the bankrupt without his prior authorization, and that the transcations which gave rise to the additional loss of $16,511.50 were not authorized. Hence, he asserted that he had no responsibility to reimburse the bankrupt for the bankrupt's unauthorized trades. Contrary to the creditor's contentions, the trustee argued that the creditor was obligated to repay the lost monies, and further, that creditor had induced the bankrupt to deliver property for his account upon the representation that the propety would be returned.
The creditor moved to dismiss the complaint on the ground that the court was without jurisdiction since the suit did not concern property within the court's actual or constructive possession.
The court noted that "in controversies between the estte and an adverse claimant over right to property, courts have denied the bankruptcy court summary jurisdition." In the instant case, the court found that the creditor had presented a substantial adverse claim to the subject property. Whether, the court said, the agreement between the bankrupt to engage in trades without the creditor's prior approval is a substantial issue that should be resolved in a plenary suit. Further, the creditor asserted that even if the debt for the trading loss was owed, it had been extinguished by expiration of the statute of limitations.
Thus, the court concluded, that where the very existance of a debt is disputed, it cannot be said to be in the court's possession for purposes of the exercise of the court's jurisdiction. Consequently, the objection taken by the creditor to the court's jurisdiction was sustained.