Court Opinion

ID: 9422349
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:02:14.285102+00
Date Added: 2024-06-11T17:17:35.025985
License: Public Domain

MR. Justice Frankfurter,
whom Mr. Justice Harlan joins,
dissenting.
Of course one agrees with the Court that an important purpose of the Bankruptcy Act was to ensure an equitable distribution of assets among creditors. I also agree that § 57j, 11 U. S. C. § 93 (j), denying claims for penalties against the estate, reflects a policy against disadvantaging innocent creditors for the wrongs of the bankrupt. If that were the only policy of the Act, § 57j would hold the exclusive field and there would be no problem. As it is, if there be a countervailing policy as a matter of historic bankruptcy law, it can neither be discarded nor disregarded in giving § 57j its proper setting and its resulting scope.
*43In bankruptcy a sharp distinction has always been drawn between secured and unsecured creditors. Secured creditors may not vote at creditors’ meetings, § 56b, nor may their claims be allowed against the bankrupt estate, § 57e, except to the extent that these claims exceed the value of the security. Fully secured creditors are not counted in determining the total number of creditors in order to ascertain the number required to initiate involuntary bankruptcy, § 59e. Liens have been held unaffected by a discharge under § 17, e. g., Prebyl v. Prudential Ins. Co., 98 F. 2d 199; see 1 Collier, Bankruptcy ¶ 17.29 (14th ed. 1961).
Sections 64, 65, and 67 establish three classes of debts: those which are secured by lien, those which are given priority and all others. Those having neither security nor priority are satisfied on a pro rata basis, § 65. Those with priority, as listed in § 64, are. to be paid in full in specified order before the distribution of pro rata dividends to other claimants. Liens, in § 67d of the statute as enacted in 1898, 30 Stat. 544, 564, were declared to be unaffected by the statute — they were entirely without its scope. Consequently they were entitled to precedence over claims granted priority by § 64. City of Richmond v. Bird, 249 U. S. 174. This section was omitted in the 1938 revision because its wording permitted inferences that by negative implication it disallowed certain liens not otherwise invalidated by the Act, and because the substance of the provision was thought to be preserved in other sections — not because of disapproval in policy. S. Rep. No. 1916, 75th Cong., 3d Sess. 17 (1938); see 4 Collier, supra, ¶ 67.20. This Court has held that liens remain immune from and are not displaced by the Act’s priorities under the 1938 Act, Goggin v. California Labor Div., 336 U. S. 118, 126-127, and liens for federal taxes are expressly preserved by § 67b. A limited exception *44to the immunity of liens was made in § 67c, but the extent of the invalidation or subordination of liens to other debts was carefully circumscribed, and the basic lien immunity remains. 4 Collier, supra, ¶ 67.20[3]-67.20[7].
Congress has thus treated liens as outside the policy of equal treatment of creditors in bankruptcy. 3 Collier, supra, ¶ 57.07. A lienor does not hold simply a first priority; he has “a right to enforcement independent of bankruptcy,” id., ¶ 64.02, at 2061. The Bankruptcy Act deals with the distribution of unencumbered assets among unsecured creditors. Id., ¶ 60.01. Lienholders need no Bankruptcy Act. Liens are independent of and essentially unaffected by bankruptcy proceedings. I agree with the court below that liens are unaffected by § 57j; they are outside its scope.