Opinion ID: 249441
Heading Depth: 1
Heading Rank: 2

Heading: The Distribution in Bankruptcy

Text: 13 The general scheme of distribution of a Bankrupt's assets under the Federal Bankruptcy Act is shown below. The claims shown are the claims against the Trustee in the case at bar. 14 I. Secured Creditors Claims A. Bank's lien on merchandise inventory, covering amount of loans plus interest $38,026.33 These liens are postponed | B. Commonwealth's liens on all property in payment until | of Bankrupt, covering sums due under claims for costs of administration | Unemployment Compensation Law 5,368.81 and claims | for wages have been paid < C. Landlord's lien on property distrained, in full. See Sec. 67, sub. | covering rent actually accrued and in c(1) of the Federal | arrears for a period not exceeding 3 Bankruptcy Act. 4 | months prior to bankruptcy 1,054.11 D. Other secured claims 5 II. Unsecured Creditors A. Claims given priority over other unsecured claims by Sec. 64 of the Federal Bankruptcy Act 6 1. Claims for costs of administration a. Costs of Chapter XI proceedings $10,441.56 b. Costs of Administration in Bankruptcy 6,292.12 __________ 16,733.68 2. Claims for wages due employees of Bankrupt 4,839.73 B. Other Unsecured Creditors 1. Claim of the Health Insurance and Retirement Fund of the Philadelphia Dress Joint Board 7 1,200.00 15 Referring to the chart, the secured creditors are listed in the order in which their respective liens arose. It must be remembered that the Federal Bankruptcy Act does not provide any rule for deciding questions of superiority among competing liens. 8 State law governs such questions. The Commonwealth and the landlord in this case contend that their respective liens are superior to the lien of the Bank, even though the Bank's lien arose before the liens of the Commonwealth and before the landlord obtained its lien by distress. 16 Assuming that this contention is correct, the Trustee in Bankruptcy, following Pennsylvania law, would distribute the proceeds of the merchandise inventory first to the Commonwealth and the landlord, and then to the Bank. But the Trustee would also have to consider the effect of Sec. 67, sub. c(1) of the Federal Bankruptcy Act (quoted in footnote 4, supra) which requires the postponement of payment of both the liens of the Commonwealth and the lien of the landlord to the payment in full of costs of administration and wages. The Act does not in terms postpone the payment of the Bank's lien. Nor does the Act dictate what effect is to be given the Bank's lien by the postponement of the two liens superior under State law to the Bank's lien. This Court has already, however, concluded that the effect to be given the Bank's lien by the postponement of the superior liens is postponement of the Bank's lien. In re Quaker City Uniform Co., 3 Cir., 1956, 238 F.2d 155. 9 Following the doctrine of the Quaker City case, the order of distribution in this case would be (1) costs of administration, (2) wages, (3) liens of Commonwealth, (4) lien of landlord, and (5) Bank's lien. 10 That is the order of distribution adopted by the Referee and affirmed by the Court below. 11 17 The Bank did not seriously urge this Court to overrule its decision in Quaker City. Instead the Bank has attempted to show that the claims of the Commonwealth and landlord were not valid liens; or, if these claims did amount to valid liens, such liens were not superior to the lien of the Bank. If the Bank is correct in either of its contentions, then the Bank should have received full satisfaction of its claim out of the proceeds of the sale of the inventory subject to its lien before any other claim was paid.