complete determination of the controversy, the court will proceed to a judgment without his intervention.10

Pleading. Where the trustee intervenes in a suit and claims solely on the rights of the bankrupt, a denial that he is or ever was "the duly elected, appointed, qualified, or acting trustee" of said bankrupt, is an allegation which is material to his recovery. It raises a material issue which it is necessary to decide before the trustee is entitled to any judgment whatever."1

11

§ 16. Actions Against Trustee.-During the pendency of bankruptcy proceedings in the federal court, a creditor cannot apply in an original proceeding in a state court for relief from any neglect or refusal of the trustee to perform his duty. The jurisdiction of the federal court during this period is exclusive.12

Suits by solvent partner.—Although, according to the provisions of the bankruptcy act, the trustee is limited in bringing or prosecuting suits to those courts in which the bankrupt might have brought them, if it were not for the institution of the bankruptcy proceedings, 18 no such limi

10. Kritzer v. Tracy Engineering Co., 16 Cal. App. 287, 116 Pac. 700 (holding that where the defendant in a suit to foreclose an existing lien held by the plaintiff is adjudicated a bankrupt subsequent to the filing of his answer, and there is no demand for a personal judgment, the court will proceed to a judg ment without the intervention of the trustee). See infra, § 20, as to stay of proceedings, in such a case.

11. Summerville v. Stockton Milling Co., 142 Cal. 529, 76 Pac. 243.

12. Greene v. Moore, 29 Cal. App. Dec. 703, 184 Pac. 506 (holding that a trustee, and not any creditor or any number of creditors, is the sole judge of the advisability of bringing actions, and in the absence of

IV Cal. Jur.-5

an alleged abuse of the discretion with which he is invested, he is not subject to the dictation or control of the creditors of the estate). See Depauli v. Espitallier, 3 Cal. App. 239, 84 Pac. 999 (holding that a creditor can intervene in a suit in a state court, before the appointment of the trustee, to prevent the rendering of a judgment which would fraudulently appropriate a part of the estate of the bankrupt. The reason for this rule lies in the fact that, by the adjudication in bankruptcy; the property of the insolvent becomes trust fund, in which every creditor has a special interest or lien).

a

13. National bankruptcy act, § 23b, 1 Fed. Stats. Ann., 2d ed., 761. 65

tation exists as to where a solvent partner brings his action for accounting against the trustee. As the bankruptcy act declares that the partnership property shall not be administered in bankruptcy, but leaves the settlement of the partnership business to the solvent partner, 14 and as this may necessarily require an action for an accounting, in the absence of anything in the act to the contrary, such action is properly brought in the state courts having equitable cognizance of such matters.15

V. STAY OF PROCEEDINGS IN STATE COURTS.

§ 17. In General.—The bankruptcy act provides that: "A suit which is founded upon a claim from which a discharge would be a release, and which is pending against a person at the time of the filing of a petition against him, shall be stayed until after an adjudication or the dismissal of the petition; if such person is adjudged a bankrupt, such action may be further stayed until twelve months after the date of such adjudication, or, if within that time such person applies for a discharge, then until the question of such discharge is determined."16

It is apparent that this provision does not pretend to oust the state court of jurisdiction. At best, it suspends it during a specified period.17 And this is not an absolute suspension even during such period, because this same section provides that the bankruptcy court may order the trustee to enter an appearance and defend any pending suit against the bankrupt, with like force and effect as if it had been commenced against him.18 It has been said

that "The stay is directed against the suitor rather than against the court," and if the suitor presses a suit to its completion, the remedy of the bankrupt, when he has pleaded the pending bankruptcy proceedings as a defense, is against the suitor in a contempt proceeding.19 It is clear that inasmuch as pending suits may be stayed by the filing of the bankruptcy petition, a suit brought after the filing of such petition cannot be prosecuted by a creditor, when it depends on a claim which has already been proved in the bankruptcy proceedings. And under the present act it has been held that the granting of a stay of proceedings is largely discretionary with the bankruptcy court, to be exercised as the best interests of the estate requires."

§ 18. On Valid Liens.-As a general rule, proceedings in a state court by a creditor, to enforce a valid lien, which would not be affected by a discharge in bankruptcy, will not be stayed by the pendency of proceedings in the federal court. Hence, the jurisdiction of the state court to entertain an action to foreclose a pledge on personal property, made in good faith, more than four months before the filing of the petition of the defendant in bankruptcy proceedings, and to sell the pledgor's right of redemption, is not ousted by the filing of the petition in bankruptcy.3

Where, however, the federal court has acquired jurisdiction in respect to the claims of the creditor, the state

and effect as though it had been commenced by him. See supra, §§ 14 and 15, as to actions by trustee in state courts and intervention.

19. Brazil V. Azevedo, 32 Cal. App. 364, 102 Pac. 1049 (per Lennon, P. J., quoting Collier on Bankruptcy, 6th ed., p. 145).

1. Collins V. Scheeline, 52 Cal. 450; Wilson v. Capuro, 41 Cal. 545. See as to maintaining action with

consent of court, Collins v. Scheeline, 52 Cal. 450; Societe D'Epargnes v. McHenry, 49 Cal. 351 (both cases construing act of 1867).

2. In re Penn Development Co., 220 Fed. 222 (case arising in California).

3. Griffin v. Smith, 177 Cal. 481, 171 Cal. 92. See infra, § 27, as to liens in general; and infra, § 34, as to effect of discharge of bankrupt on liens.

court will not intervene. Thus, when the bankruptcy court has jurisdiction of the bankrupt's estate and is considering the priorities of two contestants who hold liens on the same premises, it is impossible for one of the parties to attempt to foreclose his lien in a state court, before his rights have been determined in the federal court.*

§ 19. To Enforce Undertaking of Surety.-An action may be instituted in the state court, pending bankruptcy proceedings, where a judgment against the debtor is made a condition precedent to the recovery against sureties on an undertaking. The proceeding in bankruptcy, when pleaded, will have the effect of granting immunity to the defendant from the execution of any judgment obtained against him. But such a plea cannot operate to destroy the rights of the plaintiff against the sureties on their undertaking. Judgment will be rendered against the defendant in order that the plaintiff may proceed against the sureties. The language of the bankruptcy act, preserving a lien incident to a debt, by implication preserves the debt so far as is necessary to make the lien effective. Hence, where the undertaking of the sureties is executed in order to release an attachment against the debtor, it is altogether immaterial whether the attachment lien was created within four months prior to the commencement of the proceeding.5 So, also, where it is necessary for the creditor to show an execution against the bankrupt, duly returned unsatisfied, before he can proceed against the sureties, he cannot plead that such a proceeding is fruitless, but must show that he has per

4. Levy v. Haake, 53 Cal. 267. 5. Tormey v. Miller, 31 Cal. App. 469, 160 Pac. 858, per Hart, J. See § 16, national bankruptcy act, which states that the liability of a person who is a codebtor with, or guarantor

or in any manner a surety for, a bankrupt shall not be altered by the discharge of such bankrupt. As to effect of discharge on lien created by legal proceeding, see infra, § 35.

formed all acts which are conditions precedent to his recovery from the surety."

§ 20. Where State Court has Complete Jurisdiction.— When the state court assumes jurisdiction in a case in which it can completely determine the rights of the parties, without interfering with the jurisdiction of the federal court, a plea of the pendency of bankruptcy proceedings is of no avail. Thus, the court may settle property rights where it is alleged that the property involved never belonged to the bankrupt or to his estate, and therefore never passed to the trustee. Although such property has been commingled with that of the bankrupt and sold, it is competent for the state court to decide what portion of the resulting fund belongs to the claimant. While the general rule is that the bankruptcy court has exclusive jurisdiction of the property of the bankrupt, partnership property, by an express provision of the bankruptcy act, is not to be administered by the bankruptcy courts, but by the solvent partner. This provision would seem to remit the solvent partner to such state tribunals as have jurisdiction. Therefore, a defense set up that bankruptcy proceedings have been instituted in the federal court is no bar to a suit in a state court by a solvent partner, since by the very provisions of the bankrupt act the federal court is without jurisdiction."

§ 21. On Appeal.-As already stated a creditor, whose debt is provable under the act, cannot prosecute his claim in a state court.10 However, where judgment has been

6. Curtin v. Katschinski, 31 Cal. App. 768, 161 Pac. 764 (interpreting Code Civ. Proc., § 552, which makes the return of the execution, unsatisfied, a condition precedent to bringing the action).

7. Tennyson v. Beggs, 176 Cal. 255, 168 Pac. 140.

8. National bankruptcy

act,

§ 5 (h), 1 Fed. Stats. Ann., 2d ed., 591. See supra, §§ 6, 16, in regard to effect of filing petition on partnership property, and actions by solvent partner against trustee. 9. Williams v. Lane, 158 Cal. 39, 109 Pac. 873.

10. See supra, § 16.