Ridgely Nat. Bank v. Matheny

105 F. 754, 45 C.C.A. 32, 1901 U.S. App. LEXIS 3901

Opinion

WOODS, Circuit Judge,

after making the foregoing statement, delivered the opinion of the court.

It is insisted that the petition should be dismissed for the lack of necessary parties, who, it is said, are directly interested and not represented'by the trustee, who is the sole respondent. It is a sufficient answer that none of those referred to were parties to the proceedings below, none of them had intervened for the purpose of asserting a claim upon the fund, and except in the petition of the trustee their names appear nowhere in the record. Represented as they were solely by the trustee below, they must be deemed to be sufficiently represented by him here. Besides, as already stated, those of them chiefly concerned joined the trustee in accepting service of notice of the proposed application to this court, and also in acknowledging receipt of a copy of the petition which it was proposed to file, and it has been, therefore, a matter of their own choice that they have not appeared here in their own behalf, — an illustration, perhaps, of the scripture that “a prudent man foreseeth evil and hideth himself.” Only the foolish needlessly expose themselves to a judgment for costs when there is a possibility of hiding behind a trustee, who, by reason of presumed innocence of wrongful intention, will not be held personally responsible, notwithstanding the only visible purpose of the proceedings has been to create claims for costs and commissions which could be paid only by the displacement of vested rights.

Concerning the merits: The mortgaged property having been sold by the trustee in bankruptcy under the order of the district court, it is equitable and right that the expenses of the sale, including advertisement, appraisement, if appraisement was required by law, revenue stamps, and compensation to the trustee, not exceeding that of the master in chancery if the sale had been made by him under the decree of the state court, should be paid out of the proceeds of the sale; but, in so far as it was directed that attorneys, the clerk, and the marshal should be paid for services in the bankruptcy proceedings not directly connected with the sale, or in the suit for an injunction, the order made was without justification in law or equity. This includes the $100 directed to be paid to the attorney for the trustee, for whose assistance, in connection with the sale, there could have been no necessity. What facts were alleged in the bill upon which further proceedings in the foreclosure suit in the state court were enjoined the record before us does not show, and whether, at the stage the suit had reached, there could have been a showing such as to justify the injunction, we do not consider. See, on the subject, In re Pittelkow (D. C.) 92 Fed. 901; In re Holloway (D. C.) 93 Fed. 638; In re Horton (C. C. A.) 102 Fed. 986. Without a clear showing of a substantial value in excess of the mortgage liens the applica tion for the injunction ought not to have been entertained, and it is difficult now to understand how such a showing could have been possible. It was, however, a matter within the jurisdiction of the court, and, the writ having issued, it was at least the privilege of the mortgagees, instead of appealing from the order, to apply for relief to the bankrupt court'. Indeed, no other way of obtaining a prompt sale was open. The order of sale made, in its original form, provided for the application of the proceeds, after payment of the costs of the sale, to the discharge of the mortgage liens; but that provision was afterwards stricken out, and the question, held meanwhile under advisement, was finally determined by the order which we are asked to review.

If the commissions allowed to the trustee and the referee are warranted by the law, the allowances to attorneys and others are probably equally justifiable. By sections 40 and 48 of the bankrupt act the trustee and referee are to receive for their services a commission “on sums to be paid on dividends and commissions.” The point in dispute is: What is the meaning of “dividends,” as the word is used in these provisions? The question has been considered in a number of cases by the district courts. In re Wayne Electric Corp. (D. C.) 94 Fed. 109; In re Fielding (D. C.) 96 Fed. 800; In re Barber (D. C.) 97 Fed. 547; In re Sabine, 1 Am. Bankr. R. 321. We agree with the conclusion declared in the first two of these cases that sums to be paid upon secured claims or other claims entitled to priority of payment are not “dividends” upon which the trustee or referee may receive a commission. This is made clear by other provisions of the statute. By sections 56b and 57e creditors holding claims which are secured or have priority can vote at creditors’ meetings, or their claims be counted in computing either the number of creditors or the amount of their claims, only when the claims exceed the value of the securities or priorities, and then only for the excess. They are treated as creditors only for the unsecured excess. Section 65a declares that “dividends of an equal percentum shall be declared and paid on all allowed claims, except such as have priority or are secured.” This, if not strictly speaking a definition of the word “dividends,” is equivalent to a declaration that in this respect’ claims having priority and secured claims are upon the same footing. The opinion in the Barber Case, supra, recognizes this construction, but makes a distinction against secured creditors who invoke the action of the bankrupt court, and through "the action of that court alone have their security converted into a fund in the hands of the trustee. “If a secured creditor,” it is said, “refrains from asking or invoking the aid of the court of bankruptcy to enable him, through its officers, and its exercise of jurisdiction, to turn his securities into cash, then, although the court, for the benefit of the unsecured- creditors, should use its equitable power to the extent of selling the incumbered property free and discharged of the incumbrance, assuming to care for the equitable rights of the secured creditor in its disposition of the moneys arising from the sale, there would seem to be reason for holding that the monéys going to the secured creditor under such circumstances only came into the case inci dentally as the result of the effort to realize and obtain other money for the unsecured creditors, and that it should not be regarded as any dividend, or charged with any commissions. * * * But there is nothing in the law which excludes the referee from commissions upon the dividends to any class of creditors from a fund obtained through the action of the court alone, and the services of its officers, when such action and services have been invoked by such creditors.” We find no warrant for this distinction in the terms of the statute. It rests on considerations of reasonableness and justice, which, if brought to the attention of congress, might perhaps have led to its express adoption; but if the statute, as it stands, does not exclude commissions to the referee or trustee upon a fund obtained through the action of the court when invoked by the secured creditor or by a creditor entitled to priority, then it does not exclude such commissions upon the fund when obtained by the action of the court upon the petition of the trustee, and when the creditor not only has not asked, but has objected to, the interference of the bankrupt court. If, however, the distinction were conceded in the terms stated, it would not apply in letter or spirit to the present case. These mortgagees had already obtained, and were proceeding to sell under the decree of the state court, and not until they had been enjoined against further steps in that direction did they apply to the district court. That court was not asked and did not assume to act independently and alone. In respect to the validity, amount, and priority of the mortgage liens one over the other and of both over the demands of other creditors, it recognized the conclusiveness of the foreclosure decree, and the sale ordered to be made was, in effect, a substitute for that about to have been made by the master in chancery. The effect may have been to cut off a right of redemption which would have existed if the sale had been made under the decree of foreclosure, but it does not appear that that right was of any value which could have been made available to the bankrupt estate, or that the sale was for a greater price than would have been offered at a foreclosure sale. On the contrary, it is evident that the entire value of the property was much less than the sum due upon the mortgages. To bring the case within the distinction declared in the Barber opinion, if conceded to be sound, it Should be shown that the property had a rental value during the period of redemption of which the purchaser got the benefit under the sale made by the trustee, and which he could not have obtained by a purchase under the decree of foreclosure. It follows that the order under review should be set aside,, and, that done, the court will proceed in accordance with this opinion. It not appearing that the trustee was responsible for what was done, and the petitioning creditors and their counsel, who presumably were responsible, not being parties to this proceeding, neither party will be allowed costs in this court. So ordered.