Court Opinion

ID: 8628691
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:34:08.58865+00
Date Added: 2024-06-11T16:55:41.809380
License: Public Domain

BOND, Circuit Judge.
It is plain from the record in this case that at the time of the filing of the petition in .bankruptcy, the bankrupt company had no property the sale of which would produce anything for its general or unsecured creditors. All that it *751owned was mortgaged greatly beyond its value.
The only justification of the petition of the assignees for the sale of this property by the bankrupt court is, that they supposed • it would realize something for the general creditors. This the sale did not do, and every one concerned in the proceeding had reason to know it would not. When a bankrupt court, at the suggestion of the general creditors, authorizes the sale of property incumbered by liens, and all proceeds of sale amount to no more than the claims of the lien creditors, it has no control over the fund but to pay it to such lien creditors, and it is not chargeable with any costs in the bankrupt proceeding except the actual costs of sale. The fund is sacred and is devoted to the payment of the lien creditors whose property has been sold, and they are chargeable with no other or further costs than they would have incurred had they sold the property under their liens. The assignees in this proceeding were acting not for the benefit of the bondholders who were secured by mortgage, but for the general creditors of the bankrupt. By what rule of equity can the lien creditors be required out of their funds to pay the expenses of a litigation which was solely for the benefit of the general creditors? Both they and their counsel must look to the general assets of the bankrupt estate for payment of their claims, if they be entitled to payment at all. Nor can the allowance by the special master to the trustees and their counsel, which was confirmed by the bankrupt court, be permitted.
The district court,- when it ordered the sale of the railroad property, was acting solely for the general creditors. When the property was sold under its order, and it was found there was nothing in hand belonging to them, its sole duty was to ascertain who the lien creditors were, the priority and amount of their claims, and to pay over to them the proceeds of the sale. It had no authority in this proceeding to adjust the claims of the trustees under the mortgage against their cestuis que trust, nor to ascertain what was due by trustees to counsel. The mortgaged property in the hands of the bankrupt court was and is bound for nothing but for the lawful charges for the administration of that property in that court. The . sale not being objected to, ánd no motion being made to set it aside, will be allowed to stand, but the circuit court will pass an order revoking the order of the district court referring this cause to Special Master Simons for report, and reversing the order of the district court confirming the report of said master, and will direct that this cause be remanded to the district court with directions to ascertain what were the actual costs incurred in the sale of said mortgaged property, as determined by the bankrupt law, and which in accordance with this opinion are properly chargeable to the proceeds of this sale.