Otto W. Heider v. Samuel A. McAllister Trustee in Bankruptcy of the Estate of Rand Truck Line, Inc.

The sole question in this case is whether a Referee in Bankruptcy has jurisdiction to determine the validity of an alleged secured claim on property in possession of the Bankruptcy Court, irrespective of the fact that the Bankruptcy Court has permitted the Trustee to bring action against the claimant and others in the state court for the recovery of certain corporate funds used by officers and directors of the bankrupt and alleged to have been delivered to claimant.

The Referee had issued an order to Heider to show cause why certain property of bankrupt in custody of the court should not be sold free of liens. Heider, in response, filed proof of a secured claim thereon with mortgage and notes attached. A hearing was had and, with consent of Heider, an order of sale, free from any claim of mortgage, was entered. The certificate of the Referee states this order was conditioned “providing that the proceeds of the sale be impressed with the lien of such mortgage or claimed mortgage, the court expressly reserving the right and power to determine the validity or amount due upon such mortgage.” The record bears out the statement of the certificate. The order authorizing sale impressed a…