A. J. Armstrong Company, Inc., appeals from a judgment of the district court affirming orders of a referee in the Process-Manz bankruptcy proceeding which rejected Armstrong’s challenge of the referee’s summary jurisdiction, invalidated as fraudulent conveyances certain security transactions between Armstrong and the bankrupt which secured a loan of $2,500,000.00, subordinated Armstrong’s claims (asserted to exceed $3,-750,000.00) to those of all general creditors, and directed a sale1 of the bankrupt’s assets free from the liens of the asserted security transactions. In re Process-Manz Press, Inc., 236 F.Supp. 333 (N.D.Ill.1964). We reverse.
Process-Manz, the bankrupt, was, on December 14, 1961, in the printing business in Chicago, Illinois. On October 4, 1961, Manz had borrowed from A. J. Armstrong; a New York financial institution, $1,000,000.00. On December 14, 1961, Manz borrowed from Armstrong an additional $2,500,000.00 and to secure the loan executed a trust deed of its Chicago real estate and a chattel mort*515gage of its personal property, exclusive of inventory and work-in-progress.2 On November 21, 1962, Armstrong, assertedly because of Manz’s default in payments on the loan, took possession of the Manz real estate, machinery, equipment, and other personal property, changed the locks on doors, posted signs giving notice that it had taken possession and was holding the property exclusively in its name, and employed guards to police and patrol the premises. On Friday, November 23, 1962, an involuntary petition in bankruptcy was filed against Manz. On November 26 a receiver was appointed, and on review the district court approved the appointment.
Thereafter, on November 27, Armstrong and the receiver entered into an agreement whereby the receiver went into possession of the bankrupt’s property. On January 31, 1963, Manz was adjudicated bankrupt, and the same day Armstrong demanded possession of the Manz property. The demand was rejected. Meanwhile, Armstrong continued to advance funds for the operation of the Manz printing business, under agreement with the receiver. On February 15, 1963, a trustee was named. Armstrong continued to advance monies for the operation of the business by the trustee until February 19, 1963.
In the interim, on February 4, 1963, the receiver filed a petition, subsequently adopted by the trustee, to sell the bankrupt’s assets. Armstrong objected to the sale, asserting an adverse claim to all of the assets by virtue of its security interest obtained on December 14, 1961, and its possession on November 21, 1962. It objected to the referee’s summary jurisdiction, insisted that the receiver’s possession was in Armstrong’s behalf, and that without its consent the bankrupt’s assets' could not be sold. It asked for determination that it was an adverse claimant and moved to dismiss the petition to sell the assets. The trustee responded that the security transactions underlying the claim were invalid, denied Armstrong was a bona fide adverse claimant, and prayed for subordination of Armstrong’s claim to the claims of all general creditors.
The referee’s order3 on November 27,. 1963, denied Armstrong’s motion to dismiss, declared the security transactions void as liens, claims, or encumbrances, subordinated the Armstrong claim in its entirety to all other claims filed and allowed, and directed the trustee to sell the-assets free and clear of Armstrong’s claims. Armstrong petitioned for review of this order and a subsequent order implementing the direction to sell. The district court, in an exhaustive opinion, adopted and affirmed the referee’s findings of fact and conclusions of law, and denied the prayer of the petition for review. 236 F.Supp. 333, 350.
The vital question presented by Armstrong is whether the referee in bankruptcy had jurisdiction to invalidate the security transactions between Armstrong and the bankrupt, and to subordinate Armstrong’s claim to those of all general creditors. It contends the referee should have conducted a preliminary hearing on the issue of its claim to adverse possession, and that he erred in hearing and deciding the merits of the claim.
The district court’s opinion held adversely to this contention on the grounds that Armstrong recognized the possession of the court, and rendered its demand for possession “in effect a reclamation petition,” when on January 31, 1963,. Manz was adjudicated bankrupt, and Armstrong sought return of possession. *516from the trustee; that whatever possession Armstrong may have had on November 21, 1962, was surrendered to the receiver when he went into physical possession of the property; and that Armstrong had participated in the hearing in the district court on review of the appointment of receiver and had consented thereby to the summary jurisdiction. The district court affirmed the referee’s orders. We think this was error.
The agreement between Armstrong and the receiver shows that in surrendering possession Armstrong did not relinquish its adverse claim. It is true that the district court rejected a provision of the agreement between Armstrong and the receiver which required the receiver to restore Armstrong to the same position it had at the time the bankruptcy petition was filed, but the referee’s order of December 7, 1962, provided inter alia that “the rights of and questions of jurisdiction as to, and possession of A. J. Armstrong Company, Inc., shall be considered and determined in all respects as of the time of the filing of the above proceedings. * * * ” Furthermore, the order provided that neither the receiver nor Armstrong would be prejudiced in making or advancing any contention with respect to possession, jurisdiction, and other matters not pertinent. Moreover, Armstrong necessarily recognized possession in the court when it requested a return of the property in accordance with its agreement with the referee. It persisted in this request, as it had from the beginning in its claim of adverse possession and denial of summary jurisdiction of the referee. And we have read the transcript of the proceeding before the district court on review of the appointment of receiver and are unable to agree with the district court that in its appearance and participation there Armstrong backed off from its resistance of summary jurisdiction, or consented to the referee’s decision upon the merits.
The basic concept underlying summary jurisdiction is possession of the property. 5 Moore, Federal Practice ff 38.30 [3], at 219 (2d ed. 1964). The bankruptcy court has .power in the first instance to determine whether it has actual or constructive possession essential to its jurisdiction to proceed. Harris v. Avery Brundage Co., 305 U.S. 160, 163, 59 S.Ct. 131, 83 L.Ed. 100 (1938).
It is well settled, however, that a bankruptcy court is without jurisdiction to summarily adjudicate a controversy over property held adversely to the bankrupt estate without consent of the adverse claimant; that mere assertion of an adverse claim does not oust the court of its summary jurisdiction; that a preliminary determination should be made as to whether the claim is real and substantial or merely colorable; that if merely colorable the court may proceed to adjudicate the merits summarily, but if otherwise it must dismiss the summary proceeding; and that an actual claim may be adverse and substantial even though in fact fraudulent and voidable. Harrison v. Chamberlin, 271 U.S. 191, 193-194, 46 S.Ct. 467, 70 L.Ed. 897 (1926); Cline v. Kaplan, 323 U.S. 97, 98-99, 65 S.Ct. 155, 89 L.Ed. 97 (1944); In re Kansas City Journal-Post Co., 144 F.2d 812 (8th Cir. 1944). See generally 2 Collier, Bankruptcy ¶ 23.07 (14th ed. 1964).
The bankruptcy court is without summary jurisdiction to determine a claim without the claimant’s consent where it is necessary to weigh the force of opposing credible evidence on a substantial and controverted issue of controlling fact. In re Kansas City Journal-Post Co., 144 F.2d at 815. A claim is substantial if it “ ‘discloses a contested matter of right, involving some fair doubt and reasonable room for controversy,’ * * * in matters either of fact or law; and is not to be held merely colorable unless the preliminary inquiry shows it is so unsubstantial and obviously insufficient, either in fact or law, as to be plainly without color of merit, and a mere pretense.” Harrison v. Chamberlin, 271 U. S. at 195, 46 S.Ct. at 469. The Supreme Court there found the objection to summary jurisdiction well taken because the validity of the claim depended upon dis*517puted facts as to which there was a conflict of evidence and a controversy in a matter of law.
This court gave early expression to the same rule in In re Goldstein, 216 F. 887 (7th Cir. 1914), i.e., that the bankruptcy court may proceed summarily to the point of ascertaining whether the claim has substance or not. “But substantiality appears as soon as the claimant, in response to the rule to show cause, presents his verified answer, which is unmet by the trustee, or which, if met by a replication, is supported by sworn testimony of facts which, if true, would show title and possession antedating the petition in bankruptcy.” 216 F. at 888-889. (Emphasis added.) See also 6 Moore, Federal Practice 56.04 [3] (2d ed. 1965).
It is clear to us that at no time from the beginning to the end of the proceeding before the referee did Armstrong submit to the summary jurisdiction of the court in the disposition of its claim. From the beginning of the hearing of testimony the referee insisted upon hearing all of the evidence, and did not rule on Armstrong’s objection to summary jurisdiction until making its decision as well upon the merits. It is true that had Armstrong participated, instead of refusing, as its claims, to participate in the complete hearing, and presented all of its evidence, it would not have waived the question of jurisdiction. Cline v. Kaplan, 323 U.S. 97, 65 S.Ct. 155 (1944). On the other hand, it was not required to participate on the merits, but was entitled to take the risk that if it was wrong on the jurisdictional question it would ultimately have judgment entered against it upon the evidence that was adduced before the referee. Accordingly, we hold that Armstrong did not consent to summary jurisdiction and that the referee should not have assumed jurisdiction to hear all of the evidence in order to determine whether the Armstrong adverse claim was substantial or merely colorable.
We need not discuss cases relied on by the trustee, to affirm the judgment, where there was no controversy over facts or law. This case is not of that kind. And cases cited by the trustee, such as American Mannex Corp. v. Huff-stutler, 329 F.2d 449 (5th Cir. 1964) (where the court, not the referee, was held to have correctly decided there was no arguable factual basis for the claim), and Buss v. Long Island Storage Warehouse Co., 64 F.2d 338 (2d Cir. 1933), applied the rules we have stated above to facts widely different from those before us.
The referee here found that the transfers of December 14, 1961, between Armstrong and the bankrupt were fraudulent and void under Sec. 67(d) (2) (b-c-d) of the Bankruptcy Act, 11 U.S.C. § 107(d) (2) (b-c-d), and under certain provisions of the Illinois Fraudulent Conveyancing Act and Illinois Business Corporation Act, made part of federal law by Sec. 70(e) of the Bankruptcy Act, 11 U.S.C. § 110(e). The pleadings of a receiver or trustee claiming fraud do not of course subject an adverse claimant to summary jurisdiction over the latter’s objection. 2 Collier, Bankruptcy j[ 23.06 [9], at 517 (14th ed. 1964).
In determining there was fraud the referee went beyond the limit for determination of summary jurisdiction. He erroneously thought he should hear all the evidence. He considered the circumstances under which the security interest instruments were entered into to determine whether Armstrong’s claim was valid. In finding fraud he made credibility decisions.4 He went too far-afield *518from the initial inquiry, which the cases contemplate, concerning summary jurisdiction. He fused the inquiry into his summary jurisdiction with a trial of the merits. He concluded the inquiries simultaneously eight months after Armstrong undertook to show its adverse claim had substance.5
Whether a letter of Armstrong modifying the chattel mortgage by agreeing to fifteen day notice of default nullifies Armstrong’s possession of the Manz chattels is a question for a plenary suit, as is the question of the propriety of its seizure of the Manz realty under the trust deed. The questions of the validity of the mortgage transactions in themselves, and of the validity and treatment of the underlying loan secured by the mortgages, having odors of fraud, may not be aired in the summary proceeding since the documents in themselves have appearances of honesty and arm’s length dealing. And the truth of the testimony of Armstrong’s officers is not for the referee in a preliminary inquiry into the substantiality of the adversity of the Armstrong claim.
It is no justification for the referee’s exercise of summary jurisdiction to state that the adverse decisions relied on by Armstrong in support of its appeal are inapposite because they “involved an unlawful possession.” This begs the question. Unless the security transactions on which Armstrong’s claim rested show mere colorability on their faces, Armstrong was entitled to a plenary trial. See In re Kansas City Journal-Post Co., 144 F.2d at 813-14. The testimony which Armstrong adduced in support of its claim should have been taken as true. In re Goldstein, 216 F. 887 (7th Cir. 1914).
We hold that the referee in bankruptcy, the bankruptcy court, was ousted of summary jurisdiction at that point where Armstrong’s testimony, taken as true, and its exhibits, not merely colorable on their faces, showed prima facie a substantial claim; that the referee could proceed no further thereafter, 2 Collier, Bankruptcy 23.07 [1], at 523-24 (14th ed. 1964); and that the trustee must be remitted to the ordinary court for plenary trial of its challenge to Armstrong’s adverse claim.6
*519This holding is of course no barrier to the referee’s summary disposition of claims with respect to property over which Armstrong took possession but which it obviously had no right to possess, cf., Thompson v. Magnolia Co., 309 U.S. 478, 483, 60 S.Ct. 628, 84 L.Ed. 876 (1940), such as that explicitly excluded from Armstrong’s chattel mortgage and that in which the bankrupt had but an equity under conditional sales contracts 7 made with the seventeen reclamation petitioners in this proceeding.8
The judgment of the district court is reversed. The cause is remanded with direction to dismiss the summary proceeding against Armstrong to the extent that this opinion holds that the trustee must be limited to a plenary suit against Armstrong.
. This court on February 7, 1964, .affirmed .an order by the district court for a stay of the sale conditioned upon a surety bond of $3,000,000.00 and payment of auctioneer’s expenses preparing for the sale. The conditions were fulfilled by Armstrong and the sale stayed. In the Matter of Process-Manz Press, Inc., Bankrupt—Armstrong, Inc. v. Curtis, No. 14506.
. Prior to this date Armstrong required and received, as collateral for the proposed loan, all of the interest and rights to the shares of stock of Manz and a contract for the assignment of all of Manz’s accounts receivable. See' the district court’s opinion, 236 B’.Supp. at 33S, for distribution of the proceeds of this loan.
. The hearing upon the trustee’s petition, Armstrong’s motion and trustee’s response began April 1, 1963. The parties agree that the order on appeal, entered November 27, 1963, is in 66 pages and was preceded by 33 hearings with over 3,000 pages of testimony and over 125 exhibits.
. We need quote only part of the first of liis forty “Conclusions” :
1. Except to the extent that it is corroborated by credible witnesses or by documentary proof, the Court rejects as unworthy of credit the testimony of Armstrong’s witnesses, Greenspan, Hirseh, Rubin, Spoleti and Fine for one or more of the following reasons: (1) their interest as officials or employees of Armstrong (with respect to all five) ; (2) their demeanor on the witness stand (with respect to Rubin, Spoleti and Fine) ; (3) the self-contradiction contained within their own testimony or documents previously prepared by them *518in connection with the transaction of December 14, 1961 (Greenspan, Hirsch and Rubin) ; (4) their evasive answers and their professed inability to recall significant facts likely to be documented and not likely to be easily forgotten (with respect to Greenspan, Hirsch and Rubin) ; (5) inherent improbabilities in their testimony (with respect to all five) ; (6) their contradiction by credible witnesses on behalf of the trustee who were without interest in the result of this litigation, including witness Roskin, a guarantor of the $2,500,000 loan who testified adversely to his interest (with respect to all five witnesses) ; and (7) the hesitating and backtracking manner of their testimony evidencing a lack of candor and a willingness to conceal information detrimental to Armstrong’s case (with respect to Greenspan, Hirsch, Rubin and Spoleti).
The trustee recognized in his brief that: “The Referee credited Margolies’ version of the discussions preceding the seizure and discredited the versions given by Rubin and Spoleti (A. 180, 182), upon which Armstrong’s contentions are based.”
. See note 3 supra.
. The trustee filed a plenary suit in the district court in January, 1965, seeking to set aside the alleged fraudulent security transactions. This was done to toll the statute of limitations. Armstrong filed its answer in February of 1966, together with several counterclaims against the trustee and others. This is not pointed out to buttress this opinion in any way, but merely to show that the parties should be ready to proceed expeditiously in accordance with the mandate. It is unfortunate that the prolonged hearing must go largely for naught. This, however, is not Armstrong’s fault. Had the referee dismissed the summary proceeding at the proper point, the ultimate settlement of the bankrupt estate would not have been postponed for so long a time. See comment of Judge Learned Hand in Ford v. Magee, 160 F.2d 457, 460 (2d Cir.). cert. denied, 332 U.S. 759, 68 S.Ct. 5S. 92 L.Ed. 345 (1947). The early settlement of that estate ought to be the goal of the parties in framing the issues and of the district court in scheduling the plenary suit for trial.
. Several appellee briefs were filed in this court on this appeal on behalf of reclamation petitioners and general creditors, urging the affirmance of the court’s judgment. We deem it unnecessary, in view of the result reached in our opinion, to treat separately the points made.
. As the district court held, 236 F.Supp. at 345:
The Referee correctly ruled that by reason of the explicit exclusion of the inventory, work in process and raw materials from Armstrong’s chattel mortgage, rendered any claim to possession of that property without any color of right. * * * Armstrong, likewise, had no basis to claim the substantial amount of third party property which is the subject matter of seventeen reclamation petitions filed in this proceeding.