Court Opinion

ID: 8632006
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:39:10.450147+00
Date Added: 2024-06-11T16:55:47.881245
License: Public Domain

BRIAN, District Judge.
In this case the schedules of the bankrupt showed that he had an interest in certain parcels of real estate and in a small personalty. The personalty was set off to the bankrupt under the provisions of the fourteenth section of the act. The real estate was bound by the lien of a judgment entered in the state court for some seventy-five (75) dollars, which had also been duly proven in bankruptcy. This real estate, under an order of this court, had been sold by the assignee free from all encumbrances, and brought at the sale eighty (80) dollars. There are no other funds in the hands of the assignee. The creditor holding the judgment claims that the proceeds of the sale of the realty, bound by his lien, should be applied to the extinguishment of his lien, after paying the special costs incurred in proving it. The assignee contends that before the proceeds of sale can be applied to the lien, all the costs incurred in the whole proceedings in bankruptcy must be paid out of them. The point was submitted to Mr. Register Clawson, who decided it in favor of the assignee, and has certified his opinion, with the reasons for it, to this court.
The register relies upon the twenty-eighth and forty-seventh sections of the bankrupt act. The forty-seventh section, after providing a schedule of fees for the several officers of the court, says: “Such fees shall have priority of payment over all other claims out of the estate of the bankrupt. And if there are not sufficient assets for the payment of these fees, the person upon whose petition the warrant issues shall pay the same.” What is meant by the expression “estate of the bankrupt”? Evidently such property and rights of property of the bankrupt as the bankrupt act vests in the assignee. The as-signee can take nothing more than the bankrupt himself had in any case, except the case of a fraudulent conveyance by the bankrupt. The act does not divest liens acquired and consummated before the adjudication in bankruptcy. When the act, therefore, speaks of the estate of the bankrupt in the hands of the assignee, it means such estate with all the encumbrances existing upon it at the time of the bankruptcy. In other words, the net value of the property -after the liens upon *316It are satisfied. This will appear upon examining the twentieth section of the act.
The first clause of this section provides that in all cases of mutual account the account shall be stated, and one debt set off against the other, and the balance only allowed or paid. The second clause provides that when a creditor has a mortgage, or a pledge of real or personal property of the bankrupt, or a lien thereon for securing payment of a debt owing to him, he shall be ■admitted as a creditor only for the balance •of the debt after deducting the value of such property, to be ascertained by agreement between him and the assignee, or by a sale. The third clause authorizes the creditor in such a case to release or convey to the as-signee his claim upon such property, and then prove for the whole debt. The fourth clause provides that if the value of the property exceed the debt, the assignee may release to the creditor the bankrupt’s right of redemption therein, on receiving such excess, •or he may sell the property subject to the claim of the creditor. No comment is necessary. It is clear that the estate of the bankrupt, in property bound by a lien, is in the ■excess of the value of the property after satisfaction of the lien, and that this is all the act conveys to the assignee. That this forty-seventh section, in providing for the payment •of the fees out of the “estate of the bankrupt,” in its terms forbids the idea of the payment of the fees out of that portion of the property bound by a lien, which is not in excess of the lien. Inasmuch as the lien creditor seeks and enjoys the aid of this court in enforcing and realizing his lien, he is bound to pay the costs incurred in obtaining this aid. But with regard to the costs of general administration in which he has no concern, and .in which he can have no interest until his lien is either satisfied or realized, it would be inequitable to require him to bear the burthen of them.
Upon examining the twenty-fifth section of the act, on which the register also relies, it will be seen that it makes provisions for the payment of certain preferred debts when a dividend is declared. It will be observed that a dividend is paid only to general creditors, and that no creditor holding a lien shall share in it, except for the overplus which may remain after crediting the debt with the full value of the property bound by the lien, •or by the surrender and release of his lien altogether. Section 20. It will also be observed that the twenty-eighth section gives preference not only to the fees, costs, and expenses of suit, but also to four other classes •of creditors — such as debts to the United States, debts to the state, wages of operatives, and debts due to persons who, by the laws of the United States, are entitled to priority or preference. The debts due to the United States are to be paid next after the costs. And yet it has been decided by a series of judicial decisions that a debt due to the United States is not in the nature of a lien, nor has a debt due the government a preference over the claims of a lien’ creditor. U. S. v. Hooe, 3 Cranch [7 U. S.] 73; [Bank of Columbia v. Hagner] 1 Pet. [26 U. S.) 458; Philips v. The Thomas Scattergood [Case No. 11,106]; U. S. v. Sheriff of Charleston [Id. 16,276]. So that this section puts in the same category of preferred debts the costs, &c.; and debts due to the United States must be understood to mean such a preference as is not inconsistent with the vested rights of a lien. Indeed, it can hardly be maintained that a creditor holding a lien which is recognized by this court should be postponed to all these five classes of creditors, or will be compelled to meet these debts of the bankrupt out of property pledged to him.
The register seems to apprehend that if <the lien creditor can insist upon his lien to the exclusion of the general costs, he can also insist upon it as against the personalty set off to the bankrupt. But there is no ground for such' apprehension. The bankrupt act takes hold of and administers all the property and rights of property of the bankrupt. When it has assumed jurisdiction, it exercises power over all persons and property connected with the bankrupt. It invites and compels the discovery and surrender, not only of visible property bound by liens, but of all rights, interests, and equities. In return for this frank and full discovery, it secures the bankrupt certain parts of his estate, which are set off to him free of all claim. Of these he, in fact, becomes the purchaser, in consideration for the purchase being the surrender of all his estate, and the sanction of his title being in the supreme law of the land. Again, the act of congress directs the court of bankruptcy to set apart a certain portion of the property in the schedule of the bankrupt for his use, free from the claims of creditors. The lien of a creditor upon the property so set apart could not. therefore, be enforced in this court Nor could he use the state court for such a purpose before the adjudication of bankruptcy. This court assumes jurisdiction over all the property under the control of the bankrupt, and in this court it must be administered. The creditor having come into this jurisdiction, has submitted himself to it, and he is bound by its orders. An effort to enforce the law through the state court would put him in contempt, and would be punishable accordingly. I am of opinion that the register has erred in his ruling, and that the assignee, after paying the costs of the proceedings necessary for proving the lien, should pay the remainder of the proceeds of the sale of the real estate to creditors holding the same.