The facts stated in the certificate follow:
July 1, 1925, Edwards-Slaughter Company, Inc., executed a deed of trust to State-Planters' Bank & Trust Company to secure $60,000 in bonds, the payment of which was guaranteed by First National Company. It also executed and delivered to the bank its promissory note in the sum of $20,000, secured by a preferred maritime mortgage on one of its vessels, to be held under the terms of the trust instrument as security for the bonds. In accordance with article 10 of the deed, which required that, so long as any of the bonds should be outstanding, the bankrupt should carry fire and marine insurance on its steamers, indorsed to the trustee, policies upon the vessel in the amount of $60,000, payable to the bankrupt and to the bank as trustee, were duly delivered to the latter Subsequently, when these policies were about to lapse for nonpayment of premiums, the bank paid the same and renewed the policies with funds furnished to it upon demand by the guarantor.
The steamship was destroyed by fire on September 18, 1927, and the net sum of $58,256.67 was collected on the policies. A controversy arose as to whether the whole fund or only $20,000 thereof was applicable to the bonds secured by the deed of trust, the bank contending that it was entitled to apply the entire amount to this purpose, because of a provision of the deed to the effect that all proceeds of insurance should be treated in the same manner as those from a sale by foreclosure and should be applied in payment of bonds. For the purpose of determining this dispute, the bank filed its bill in the state court, against the bankrupt and others, in which it alleged that the holders of the bonds and coupons were entitled to the entire proceeds of the policies, but that, as certain claims had been asserted thereagainst by others than the bond and coupon holders, it desired to have the guidance and protection of the court, and therefore requested it to supervise the distribution of the fund. The bankrupt and the guarantor filed answers alleging that the whole of the insurance moneys should be applied to the payment of the bonds and coupons, and praying that same be so used.
The suit was institute Feb ruary 8, 1928. and on May 24 was referred to a master in chancery, who filed his report on September 29. Prior thereto, on August 8, Edwards-Slaughter Company, Inc. had been adjudged a bankrupt. Upon the filing of the master's report, the District Judge issued a rule against the bank and its attorneys, Leake and Buford, to show cause why they should not be enjoined from further prosecuting the suit in the state court. This rule was made absolute, and an order was entered directing the bank to pay the fund in its hands into the bankruptcy court. From this order the bank and its attorneys appealed. Pursuant to the order, the fund was paid over to the trustees and is now held by them.
First National Company, not having been made a party to the rule, filed its petition challenging the jurisdiction of the court to interfere with the state court proceedings, or summarily to require an adverse claimant of the fund in controversy to pay the same into court, and praying that the injunction and order be set aside and the money returned to the bank. Upon objection by the trustees in bankruptcy, the court declined to permit the guarantor to intervene or file its petition, and it also has appealed.
Three questions are certified. The first is:
(1) Where a trustee under a mortgage, having in its possession a fund which it claims to be subject to the mortgage, institutes a suit in a state court of chancery asking the court to declare the rights of the parties in the fund and supervise the distribution thereof, and makes parties thereto and obtains service upon all persons claiming an interest in the fund, who file answers praying action on the part of the court, does the state court acquire such jurisdiction of the res as gives it exclusive jurisdiction to determine the rights of the parties in the fund and order the distribution thereof?
This need not be answered. It is unnecessarily general, and has no reference to any conflict between the jurisdiction of a court of bankruptcy and a state court. See White v. Johnson, 282 U.S. 367, 371, 51 S.C.t. 115, 75 L. Ed. 388, and cases cited.
The second and third questions may be considered together. They are: