Court Opinion

ID: 8744796
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:02:18.729189+00
Date Added: 2024-06-11T17:00:36.172038
License: Public Domain

PURNELL, District Judge
(after stating the facts). The questions presented by the exceptions are not new. Most of them have been settled by decisions. Claimants having submitted their claims, no question of jurisdiction can arise. Bryan v. Bernheimer, 181 U. S. 188, 21 Sup. Ct. 557, 45 L. Ed.-, 5 Am. Bankr. Rep. 623. Firms or partnerships and the individuals composing such firms or partnerships are distinct legal entities, and proceedings in bankruptcy by or against one do not of necessity involve the other. A firm, as such, may be bankrupt, and the individuals composing such firm solvent, and not bankrupt. In re Meyer, 3 Am. Bankr. Rep. 559, 39 C. C. A. 368, 98 Fed. 976; In re Barden (D. C.) 4 Am. Bankr. Rep. 31, 101 Fed. 553; Strause v. Hooper (D. C.) 5 Am. Bankr. Rep. 225, 105 Fed. 590; Coll. Bankr. (3d Ed.) 72, 73. This proceeding was against B. J. Sanderlin alone, and in no way involved the acts or assets of Sanderlin & McMillan or J. R. McMillan. The mortgage made by Sanderlin & McMillan to McNair & Pearsall, and the prior liens on the property covered by the mortgage, are therefore not affected by the proceedings in bankruptcy, except in so far as an equitable division of the costs of selling the property. Both claims are valid, in no sense a preference, and this court administers the proceeds of sale to ascertain the interest of the bankrupt in the excess, if he has such interest, and to have such excess, if any there be, paid to the creditors of the bankrupt. If the court had not interfered, if the holders of the liens and mortgage had been permitted to sell the property, they would have paid out of the proceeds of sale first the cost of making the sale, then the liens according to priority, then the debt secured by the mortgage, and then the surplus to the mortgagor. This is according to the terms of the mortgage (which adds to the cost of sale a reasonable fee to an attorney, but such fee cannot be charged against the estate), and the usual practice in such cases. Under the dissolution agreement, Sanderlin having taken the assets and assumed the liabilities of the firm, he would, under the most favorable circumstances, have been entitled to the surplus after paying the cost and the claims against the property. Creditors can claim no more. Out of the proceeds the trustee will therefore pay the costs of making the sale first, then the two liens according to priority, then the mortgage debt and interest, and the surplus, if any, will be retained as a part of the bankrupt estate.
The exception to the report of the referee “that the sums so going to the mortgage and lien creditors should be charged with such proportionate part of the expenses incident to making such sale as their amount bears to the total proceeds of sale” is sustained. The decision of the referee that the proceeds of sale of the property should be applied to the payment of the liens, and then to the payment of the McNair & Pearsall mortgage, is affirmed; but this application can only be made after paying the cost of sale. The balance, if any, will be retained by the trustee as a part of the estate *860in bankruptcy of B. J. Sanderlin, as successor to Sanderlin & McMillan, and not paid, as the referee directs, to the unsecured creditors of Sanderlin & McMillan. The court is not administering the estate of that dissolved firm.
The second exception to the finding of the referee — that he erred in holding the mortgage executed by B. J. Sanderlin to- McNair & Pearsall is a-valid lien upon the proceeds of sale of the property conveyed therein ($2,605.50) to the extent of the cash consideration, $805.59, and interest, and the part of the consideration which represents the pre-existing indebtedness is upon the same footing as other unsecured claims, and can be proved as other unsecured claims — is overruled, and the finding of the referee affirmed. The former decision in Re Ratliff (D. C.) 5 Am. Bankr. Rep. 713, 107 Fed. 80, and the reasoning therein relied on in the argument has, since that cause was decided, been passed upon by the supreme court in Pirie v. Trust Co. (referred to in the opinion as pending on appeal), and the supreme court holds:
“Payment by a debtor on account and in tbe ordinary course of business, within four months of the filing of petition in bankruptcy by or against him, though made and received innocently, the debtor not intending to give a preference, and the creditor not knowing or having reason to believe that the bankrupt is insolvent at the time of the payment, are nevertheless preferences under the bankruptcy act, which must be surrendered if the creditor so paid desires to participate pro rata in the distribution of the bankrupt estate. A preference which has been received innocently by a creditor may.be retained by him, if he so elects; but he cannot be permitted to prove his claim in the bankruptcy case. Where creditors had, within four months, received payments on account amounting to $1,300, and upon bankrupt’s adjudication proved their claim for the balance due them, and a dividend amounting to $464 was allowed and paid thereon before the trustee discovered creditors had been given preferences within the four months, and the trustee, upon such discovery, filed in the bankruptcy court a petition for a reconsideration of the claim, and its rejection on the ground of such preferences, and for the recovery of the dividend paid, and the prayer was allowed, but the creditor contends that in view of section 23b, Bankr. Act, the court erred in compelling him to repay the amount of dividends so received: Held, the proceedings were not a suit within the meaning of that section, and the order of the court requiring the repayment of the dividend was properly and legally made.” 181 U. S.-, 21 Sup. Ct. 906, 45 L. Ed.-, 3 Nat. Bankr. N. 566.
True, this decision was by a divided court, the chief justice and three associate justices dissenting; but this court must follow the decision.
The decision of the referee that the mortgage is a valid lien on the proceeds of sale to the extent of the cash consideration is not excepted to, and is correct. Tiffany v. Lucas, 15 Wall. 421, 21 L. Ed. 198; In re Cobb (D. C.) 3 Am. Bankr. Rep. 129, 96 Fed. 821; Coll. Bankr. (3d Ed.) 355, and cases cited.
As to the pre-existing debt it was a preference which is void. The same rule hereinbefore set out for the payment of costs applies to the costs of sale of the property covered by the mortgage by B. J. Sanderlin to McNair & Pearsall, and the exception to the ruling of the referee charging the fund of $805.59 due McNair & Pearsall with a pro rata part of the cost as the $805.59 bears to the proceeds *861of sale is sustained. The costs of sale will be paid from the fund first, then the debt of §805.59 and interest will be paid in full, the balance to be held as a part of the estate of B. J. Sanderlin in bankruptcy for distribution under the further order of the court of bankruptcy. The third exception — “that the referee erred in not holding that the surplus after paying the debts of McNair & Pearsall should be charged with the entire expenses in this cause” — is overruled. :