British & American Mortgage Co. v. Stuart

210 F. 425, 127 C.C.A. 157, 1914 U.S. App. LEXIS 2004

• Court: Court of Appeals for the Fifth Circuit
• Decided: January 6, 1914
• Docket: No. 2,538
• Status: Published

Opinions

SHELBY, Circuit Judge.

The petitioner had a mortgage on the bankrupt’s real estate, which contains the following stipulations as to attorney’s fees:

“That the parties of the first part hereby agree to pay the attorney’s fees, and all other expenses which may be incurred by the said mortgagee, its successors or assigns, in the collection of, or in attempting to collect the several sums, herein secured, by a foreclosure of the mortgage, or otherwise, or for enforcing or attempting to enforce any of the terms or provisions hereof, with or without suit, for the payment of which this conveyance is a lien, including solicitor’s fees' for a foreclosure by suit in equity, and this mortgage shall stand as security for the same, and it shall be no defense as to such solicitor’s fees, or other costs, fees, or expenses for a foreclosure in equity, that a foreclosure might have been made under any power herein, the course of procedure being optional with the holder, and it being the purpose and intent hereof to secure such holder in the collecting of principal and, interest — hereby secured — net of everything.”

The controversy here is as to a claim for attorney’s fees based on the foregoing agreement.

After the adjudication in bankruptcy, George Stuart, the trustee of the bankrupt, filed a petition in the District Court to sell the land described in the mortgage, free of liens, and the mortgagee, petitioner here, was made a party to the proceeding. It filed an answer, and also filed proof of the mortgage debt and proof of the attorney’s fees for services rendered in and connected with said proceedings “according to stipulations in the mortgage”; but the services were all rendered after the filing of the petition in bankruptcy. No question is made as to the rendition of the services, nor of the fact that they were fairly worth $250, -the amount claimed. The referee allowed the mortgage debt as proved, but disallowed the claim for attorney’s fees, and the District Court confirmed the referee’s order. The petitioner seeks to revise and reverse the order disallowing the attorney’s fees.

[1] For a clear understanding of the question to be considered later, it is first necessary to ascertain the effect and proper construction of stipulations in notes and mortgages to' pay attorney’s fees for their enforcement and collection. Such stipulations are generally held to be valid, and they are sustained in Alabama, where the mortgaged land is situated. Munter & Faber v. Linn, 61 Ala. 492. The agreement here is for no fixed sum; but such an agreement, if made for a definite sum, would not be conclusive as to the amount on the parties. It could only be enforced for such an amount as was reasonable. Unless the services, or some of the services, covered by the stipulation, are performed, there can be no collection or enforcement of such contract. It follows that the obligation to reimburse the mortgagee or payee for costs of enforcement or collection is contingent, creating no liability unless the services provided for are performed or partly performed. If the debt is paid promptly at maturity, no services of an attorney being required or rendered, no attorney’s fees can be added to the amount of the note or mortgage. The creditor would not be permitted to make a profit by collecting fees he did not have to pay. Until the claim becomes due and the services of the attorney are rendered, no debt exists, on account of such stipulation, to be added to the amount of the note or mortgage. Springstead et al. v. Crawfordsville State Bank, 34 Sup. Ct. 195, 231 U. S. 541, 58 L. Ed. - (decided December 22, 1913); Williams v. Flowers, 90 Ala. 136, 137, 7 South. 439, 24 Am. St. Rep. 772; McCabe v. Patton, 174 Fed. 217, 98 C. C. A. 225.

The stipulation which we have copied from t'he mortgage names no sum which was to be paid as attorney’s fees. It fixes no time of payment. The payment is to be made for attorney’s fees “incurred by the said mortgagee * * * in the collection of, or in attempting to collect, the several sums,” etc. It is obvious that it was not in the contemplation of the parties that an attorney would be employed to collect or attempt to collect the mortgage debt before it was due. When the mortgage became due, without the aid of attorneys and without expense, so far as it appears, the debt was extended for four years — a period not yet expired. So it cannot be that any debt on such account was due and “absolutely owing” at the date of bankruptcy, according to the terms of the contract.

The petition in bankruptcy was filed against Vandiver by his creditors on September 19, 1912, and he was adjudicated a bankrupt on October 10, 1912. Up to that time nothing had occurred which would authorize the addition of any sum to the amount of the mortgage on account of attorney’s fees; the mortgagee had not been required, nor had anything happened to authorize him, to employ and compensate an attorney and add the fees to the amount of the mortgage.

So we have the important if not the controlling facts shown by the record that, at the date of the filing of the petition in bankruptcy, no debt for attorney’s fees existed; and, the mortgage not being due, the time had not arrived when such debt could have been created.

[2] The bankruptcy act designates the debts which may be proved against a bankrupt’s estate. The claim presented here is one “evidenced * * * by an instrument in writing,” and, if provable, it must be under section 63a, the relevant part of which is as follows:

“Debts Which May Be Proved. — (a) Debts of the bankrupt may be proved and allowed against his estate which are (1) a fixed liability, as evidenced by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition against him, whether then payable or not, with any interest thereon which would have been recoverable at that date or with a rebate of interest upon such as were not thefi payable and did not bear interest. * * * ” Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3447]) § 03a.

The limitation is to claims “absolutely owing at the time of the filing of the petition against him.” For accuracy and uniformity of administration, some time had to be fixed. The language used excludes the idea that debts may be proved which did not exist and which the bankrupt did not owe at the time fixed — the date of the filing of the petition. Subdivision S of the same section forbids the proving of interest which accrues on judgments “after the filing of the petition.” When a discharge is granted, it only discharges provable debts, and “none postdating the petition in bankruptcy are affected by the discharge.” Collier on Bankruptcy (8th Ed.) 312; section 17, Bankruptcy Act. The property owned by the bankrupt at the date of bankruptcy vests in the trustee, but property acquired after the adjudication does not pass to the trustee. Section 70, Bankruptcy Act; In re Parish (D. C.) 122 Fed. 553. The date of the filing of the petition is all-important in setting the tirne at which the bankrupt’s condition becomes fixed in relation to-debts provable against his estate. This is shown pointedly by a class of cases relating to court costs. Where part of such costs are incurred before the filing of the petition and part afterwards, the part incurred before the filing is provable against the estate and discharge-able, and the part incurred afterwards is not provable or dischargeable. 1 Remington on Bankruptcy, § 692.

In McCabe v. Patton, 174 Fed. 217, 98 C. C. A. 225, the question was on the allowance of attorney’s fee provided for in the notes. The court held that, to be allowed, it must meet the requirements of being “a fixed liability as evidenced by * * * an instrument in writing absolutely owing at the time of the filing of the petition against him.” The claim was rejected for want of proof of the rendition of collection services before the date of bankruptcy. In Re Gebhard (D. C.) 140 Red. 571, the attorney’s fee was rejected because no attorney was, in fact, employed by the creditor “until after the bankruptcy.” In Re Garlington (D. C.) 115 Fed. 999, the attorney’s fees were rejected because the note had not matured at the time of the bankruptcy. And in Re Keeton, Stell & Co. (D. C.) 126 Fed. 426, the note had become due, but had not been placed in the hands of an attorney prior to the filing of the petition in bankruptcy, and the fees were disallowed. In Re Jenkins (D. C.) 192 Fed. 1000, a provision was placed in chattel mortgages for attorney’s fees, and the mortgages were placed in the hands of an attorney, but no services were performed by him; and, subsequently, on the bankruptcy of the mortgagor, his trustee sold the property, and the question arose as to the proof of the atttorney’s fees as a debt against the bankrupt’s estate. The claim was disallowed. See, also, In re Roche, 101 Fed. 956, 42 C. C. A. 115. The rule that the fees, to be provable, must have accrued before the filing of the petition, seems to be generally recognized. Collier on Bankruptcy (8th Ed.) 708; 1 Remington on Bankruptcy, §§ 670, 671; 1 Loveland on Bankruptcy, 619, § 300.

In Merchants’ Bank v. Thomas, 121 Fed. 306, 57 C. C. A. 374, decided by this court, and cited by the petitioner, in which attorney’s fees provided for by notes were allowed to be proved, the notes had been placed in the hands of an attorney and he had performed services before the bankruptcy. The case in that regard was wholly unlike the instant case.

Although not due, the mortgage was a provable debt, with the rebate of interest prescribed by section 63a.

But the petitioner was not ohliged to prove his mortgage as a debt against the bankrupt’s estate. 1 Jones on Mortgages (6th Ed.) § 729. The discharge of the bankrupt would not have affected his right to enforce his mortgage when it became due (In re Blumberg [D. C.] 94 Fed. 476; Bank of Commerce v. Elliott, 6 Am. Bankr. Rep. 409, 109 Wis. 648, 85 N. W. 417; Paxton v. Scott, 10 Am. Bankr. Rep. 80, 66 Neb. 385, 92 N. W. 611; 2 Jones on Mortgages [6th Ed.] § 1236); .and if, on its becoming due, he was required to resort to s'uit, it may be that the amount of his attorney’s fees would be a proper claim to add to the amount of the mortgage. But that is far from allowing the mortgage debt to be proved, with abatement of interest, before it is due, with the addition of attorney’s fees which, under the circumstances, could not have been within the contemplation of the parties when the contract was made and which were not absolutely owing at the date of bankruptcy.

In Riggin v. Magwire, 15 Wall. 549, 21 L. Ed. 232, it was held tha.t, although the fifth section of the Bankruptcy Act of 1841 gave the right to prove “uncertain and contingent demands,” so long as it remains wholly uncertain whether a contract or engagement will ever give rise to an actual duty or liability and there is no means of removing the uncertainty by calculation, such contract or engagement is not provable under the act. The same construction is placed on_the present act. Dunbar v. Dunbar, 190 U. S. 340, 23 Sup. Ct. 757, 47 L. Ed. 1084. So it seems clear that the agreement as to attorney’s fees, on its face and at the date of bankruptcy, was not provable as a claim against the bankrupt estate.

After the date of the filing of the petition, the bankrupt cannot add to the liabilities of his estate. He may create personal liabilities which' are not affected by the bankruptcy proceedings and against which his discharge, when obtained, will not protect him. It may be conceded (but we do not so decide) that, although the mortgage was not due, the proceedings to sell, free of liens, in the District Court were equivalent to foreclosure, and that the mortgagee, being called into the litigation, was necessarily required to employ an attorney, and that such employment would be embraced within the. clause of the mortgage relating to attorney’s fees, and all this would only show an indebtedness or liability accruing after the filing of the petition in bankruptcy; and, whether considered as a secured or an unsecured claim, it was one not provable nor dischargeable under the provisions of the bankruptcy act. In re Burka (D. C.) 104 Fed. 326.

The petition to revise is denied, and the decree is

Affirmed.