Court Opinion

ID: 6892648
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:45:41.903678+00
Date Added: 2024-06-11T16:05:52.894442
License: Public Domain

O’CONNELL, Circuit Judge
(dissenting).
I cannot agree with the conclusions reached by the majority. What was here done was at the request of the general creditors, or at least the principal general creditor (the appellant), with the knowledge and approval of the trustee. It was motivated by a desire on the part of the secured creditors (the appellees) to cooperate in working out a plan of liquidation which the trustees and representatives of the general estate believed would realize to the fullest extent on the assets of the bankrupt. After approximately twenty years application of the terms of the participation agreement, promoted at its instance and for its express benefit, the appellant now seeks to'repudiate it.
The record discloses that the banks in their claims set forth the nature of the security held by them. The value of the interest of the bankrupt’s estate in the coal lands was appraised at $90,000. The claim of the National Bank of Johnstown was but $10,000; that of the First National Bank of South Fork, $18,463.45. , These claims were secured by first and second liens respectively on the bankrupt's interest in the aforesaid coal lands. If the appraisal was accurate, and the majority finds, “The equity of the general estate in the coal lands was substantial,” the claims were fully protected in their entirety, and it was the acknowledgment of this fact by all that led to the participation agreement whereby the secured creditors also shared in the dividends from the general estate. Must the receipt of dividends by the secured creditors under such circumstances compel the conclusion under applicable law that the National Bank of Johnstown and the First National Bank of South Fork have waived their rights to the security of their judgment liens and have elected to be treated as general creditors? I do not think so.
I believe sanction may be found for the action of the parties in the second clause of Section 57, sub. h of the Act, which provides, “The value of securities held by secured creditors shall be determined * * * by such creditors and the trustee by agreement, arbitration, compromise or litigation * * The net result of what was here accomplished was the determination of the value of securities held by the banks to be the amount of their claims, the parties providing the means by which said amounts would be liquidated. “Among the modes of evaluation to which the bankruptcy court may resort, evaluation by means of an agreement between the creditor and the trustee is the most desirable”. 3 Collier on Bankruptcy, 14th Ed., 282. *761In this, the general estate was not harmed, but rather benefited.
The nature of the asset against which the security attached must be borne in mind. Every ton of coal mined reduced the equity of the lien creditors. This is not a case of a pledgee in possession who may close out his security when the pledgee is free to choose his time to sell or where the lienor may liquidate his security under his agreement with the debtor. True it is that once a petition in bankruptcy is filed, the holder of a lien on the property in the custody of the court may not foreclose without permission of the bankruptcy court, but were such authority .sought the court would be guided by what under the circumstances appeared to be in the best interest of all the parties concerned. True also, the trustee might have liquidated the claims of the judgment creditors by various other means, but, obviously, the banks would not have objected to such methods had the trustee or the creditors indicated a desire so to do. By the method adopted, the parties concerned crystallized the best interests of all by an actual conversion into money of the assets in the hands of the trustee against which the lien attached.
The equity in the coal property being admittedly greater than the liens of the judgment creditors, shall we say then that such judgment creditors must stand idly by until all the coal is mined except enough to cover secured claims? Or, under their security, are the lien creditors entitled to all the royalties received from the coal lands until their claims are paid in full ?
As to such royalties, the effect of the agreement here was not that of the secured creditors receiving dividends with the general creditors on any balance over and above their securities, but rather of the general creditors receiving a dividend upon their claims out of the security held by the judgment creditors before such secured claims were paid in full. The sharing by the secured creditors in the dividends paid from the general estate was not intended by any of the parties to put the secured creditors in position to receive payment of more than the value of their security, but rather to more speedily pay off the secured claims. I cannot find in such action, to the disadvantage of the secured creditors, adopted for the benefit of the general estate, a waiver by the secured creditors of their rights to the security of their judgment liens. “Acts relied on as a waiver or a release must either be done with intent to waive or to release or else they must be such as might reasonably have led, and in point of fact did lead, other persons to act to their hurt upon the assumption that the waiver or release had been made.” Maxwell v. McDaniels, 4 Cir., 1912, 195 F. 426, 428, 429. Bankruptcy courts are not powerless to act when equity and good conscience dictate the determination of equitable relief. Hutchinson v. Otis, 1 Cir., 1902, 115 F. 937, affirmed Hutchinson v. Otis, Wilcox & Co., 190 U.S. 552, 23 S.Ct. 778, 47 L.Ed. 1179. The filing of a general claim, although allowed and dividends paid thereon, does not estop a creditor from afterwards claiming his right to preferential payment where no injury to another is shown. Wuerpel v. Commercial Germania Trust & Savings Bank, 5 Cir., 1916, 238 F. 269. A waiver of rights will only be construed where the conduct of the claimant clearly evidences his intention so to elect.1 Thomas v. Taggart, 1908, 209 U.S. 385, 28 S.Ct. 519, 52 L.Ed. 845; In re Kap-lan & Myers, 3 Cir., 241 F. 459.
I am unable, therefore, to agree with the majority that the appellees made a final election to share in the bankrupt estate only as general creditors when they agreed to the suggestion of the appellant. This case having been in litigation for approximately twenty years, I agree with the suggestion made by the majority that these proceedings be terminated as rapidly as possible. The record should be returned so that the appellees might in the light of the changed attitude of the appellant elect their remedy, with the subsequent adjustment in accounting that might result thereby, the winding up of the affairs of the bankrupt providing ample opportunity therefor.