Source: https://openjurist.org/238/f2d/155/in-the-matter-of-quaker-city-uniform-co-inc-daniel-p-veloric
Timestamp: 2018-02-26 01:57:45
Document Index: 57835272

Matched Legal Cases: ['§ 104', '§ 67', '§ 221', '§ 67', '§ 64', '§ 67']

238 F2d 155 In the Matter of Quaker City Uniform Co Inc Daniel P Veloric | OpenJurist
238 F. 2d 155 - In the Matter of Quaker City Uniform Co Inc Daniel P Veloric
238 F2d 155 In the Matter of Quaker City Uniform Co Inc Daniel P Veloric
238 F.2d 155
In the Matter of QUAKER CITY UNIFORM CO., Inc., Bankrupt.
Daniel P. Veloric, Appellant.
Reargued Oct. 2, 1956.
Decided Oct. 31, 1956.
1. Administration expenses            $  676.00
2.  Philadelphia Joint Board,
Amalgamated Clothing
Workers of America, valid
wage claims                        2,543.53
3.  College Hall Fashions, assignees
of valid wage claims               1,517.00
4.  Synthetic Specialists, Inc.,
assignees of valid wage
claims                             7,001.60
5.  Delsea Corporation, landlord;
gross rent in arrears              3,641.07
6.  Veloric, chattel mortgagee          3,480.00
7.  Fidelity-Philadelphia Trust
Company, chattel mortgagee         2,612.80
Section 64 of the Bankruptcy Act, 11 U.S.C.A. § 104, provides priorities among certain unsecured creditors. This section does not purport to dictate priorities among holders of valid liens. In fact, it is only after valid liens are statisfied that Section 64 becomes operative.
'c. Where not enforced by sale before the filing of a petition initiating a proceeding under this Act * * * (1) though valid against the trustee under subdivision b of this section, statutory liens * * * on personal property not accompanied by possession of such property, and liens, whether statutory or not, of distress for rent shall be postponed in payment to the debts specified in clauses (1) and (2) of subdivision a of section 64 of this Act * * *.'
As we have seen, Section 67, sub. c, expressly subordinated the lien of the landlord to the payment of administrative expenses and wage claims, the first and second priorities under Section 64, sub. a. The referee took the position that since the landlord's lien was subordinated under Section 67, sub. c, and the liens of the chattel mortgages were not so postponed expressly by the section, these latter liens were to be satisfied first; then administrative expenses and wage claims were to be paid, and finally the landlord's lien. Such also was the position taken by the chattel mortgagees. The district court agreed with the referee that the chattel mortgagees were entitled to payment ahead of administration costs and wage claims but ordered that the landlord be paid out of the amount awarded to the chattel mortgagees because, under the law of Pennsylvania, interests of the chattel mortgagees were subjected to the landlord's lien. In the Matter of Quaker City Uniform Co., Inc., D.C., E.D.Pa. 1955, 134 F.Supp. 596.
The intent of Congress in the passage of Section 67, sub. c, as stated in 4 Collier on Bankruptcy 288 (14th ed.), was 'to provide a measure of much-needed protection, (1) for administrative costs and expenses in the interest of bankruptcy administration, and (2) for wage claims in the interest of protecting a weak but deserving economic class, against the ravages of certain accumulated liens on the bankrupt's property.' Again, the purpose of subordination of liens was expressed in a Committee Report Analysis of H.R. 12889, 74th Cong., 2d Sess. (1936) 212, n. 1:
'There is therefore need for a provision to protect the administration costs and expenses; and similar considerations apply to wage claims. Accordingly we have selected, from among the priorities fixed by Section 64 (as revised), these particular items for protection.'3
It is not necessary to decide whether or not a Pennsylvania chattel mortgage is a 'statutory lien' within the meaning of Section 67, sub. c, and thus subordinated by that section to administration expenses and wage claims.4 For the purposes of this opinion, however, we shall assume that it is not a 'statutory lien' within the purview of Section 67.5 Thus the determinative issue may be stated in this manner: Where a landlord's lien which is subordinated by Section 67, sub. c, is superior under applicable lien law to the lien of a chattel mortgage not within the express terms of Section 67, sub. c, is this latter lien also subordinated by necessary implication?6 We are of the opinion that it is.
'From a consideration of both the language used in the Act and the legislative history we are persuaded that § 67, seb. c. does not affect or impair the priorities of liens * * *.'
1 An agreement was reached between counsel that the mortgaged chattels be sold and the amount realized from the sale substituted for the pledged personalty. The proceeds of that agreed sale represent the bulk of the funds in the hands of the trustee.
2 See In re Curran's Restaurant & Baking Co., D.D.E.D.Pa.1934, 11 F.Supp. 8, 9, where it was decided that the Pennsylvania statute (43 Purdon's Pa.Stat. Annot. § 221) did not give wage claimants a 'lien' cognizable in banruptcy even though the word 'lien' was used in the statute. And even if the statute meant that a 'lien' was given, there is nothing in the record of the instant case to show that such wage claims were filed in the appropriate prothonotary's office as required by the Act. In the case of In re Pennsylvania Central Brewing Co., 3 Cir., 1940, 114 F.2d 1010, 1012, certiorari denied Stern v. Pennsylvania Central Brewing Co., 1941, 312 U.S. 685, 61 S.Ct. 612, 85 L.Ed. 1123, failure to file wage claims as prescribed by statute was deemed sufficient to deny the claim the status of a lien.
3 Cited in Goggin v. California Division of Labor, 1949, 336 U.S. 118, 127-128 note 8, 69 S.Ct. 469, 93 L.Ed. 543.
4 Clause (2) of Section 67, sub. c, states that 'statutory liens created or recognized by the laws of any State for debts owing to any person * * * shall not be valid against the trustee * * *.' The effective date of this amendment was October 7, 1952. Since both chattel mortgages in the instant case were recorded before that date, the amendment, prospective only in its effect, is not applicable here.
5 In re Tele-Tone Radio Corp., D.C.N.J. 1955, 133 F.Supp. 739, decided that a factor's lien in New Jersey was not a 'statutory lien' within Section 67, sub. c.
6 This problem of priority in lien circuity has been described as 'insoluble on any known principles,' Andrus v. Burke, Ch. 1901, 61 N.J.Eq. 297, 299, 48 A. 228, 229, and a 'first-rate legal puzzle,' in Professor Kocourek's article in 29 Ill.L.Rev. 952, 1935. Osborne, Mortgages (1951) 532-539 summarizes seven methods of solution in these problems of lien circuity. However, it must be remembered that the intent of Congress must be given operative effect in bankruptcy proceedings, and consequently we are given little assistance by decided cases which do not touch federal questions.
7 Note 14 in 4 Colliers on Bankruptcy 291 discussed Section 67, sub. c: 'While clause (1) of subdivision c is restricted in its terms to statutory liens and liens of distress for rent, other liens not within its terms may be subordinated under an interpretation that liens inferior under applicable lien law to those postponed by § 67c(1) are likewise postponed by necessary implication.'
Footnote 41 at page 297 is explanatory of this result: 'This mode of disposition carries out the view that the subordination provision does not affect the relative priority of (landlord) and (chattel mortgagee), and that the subordination of (chattel mortgagee) as well as (landlord) to the claims entitled to priority under § 64a is merely the incidental result of the application of § 67c(1) to (landlord's) lien. It presumably underlies Matter of Michael's Cafeteria, Inc., D.C.La.1943, 49 F.Supp. 657, 53 Am.B.R.,N.S., 289, on rehearing, D.C. 52 F.Supp. 799, 55 Am.B.R.,N.S., 332, where the court apparently subordinated a chattel mortgage along with a prior landlord's lien to administrative and wage claims.'