In re Columbia Cotton Oil & Provision Corp.

• Decision Date: 18 December 1913
• Docket Number: 1,197.
• Citation: 210 F. 824
• Parties: In re COLUMBIA COTTON OIL & PROVISION CORPORATION. v. HARLOW et al. VARNEY
• Court: U.S. Court of Appeals — Fourth Circuit

210 F. 824

In re COLUMBIA COTTON OIL & PROVISION CORPORATION.

VARNEY v. HARLOW et al.

No. 1,197.

United States Court of Appeals, Fourth Circuit.

December 18, 1913

D Lawrence Groner, of Norfolk, Va., for petitioner.

Before PRITCHARD and WOODS, Circuit Judges, and ROSE, District Judge.

ROSE District Judge.

The petitioner is a referee in bankruptcy. He will be called the 'referee.' One of the respondents is the trustee in bankruptcy of the Columbia Cotton Oil & Provision Corporation. He will be styled the 'trustee,' it the 'bankrupt.' The others are the trustee under a mortgage of the bankrupt intended to secure bonds issued by it, and the attorneys in fact of the holders of such bonds. The trustee, these attorneys, and the individual holders of bonds will be indifferently referred to as the 'bondholders.'

The question in the case is whether the referee is entitled to be paid $879.55, being one per cent. upon the amount constructively disbursed by the trustee to the bondholders.

An involuntary petition in bankruptcy was filed September 13 1911. On October 9th adjudication followed. The real and apparently most, if not all, of the personal property of the bankrupt was subject to the lien of the mortgage already mentioned. One hundred thousand dollars of bonds secured by it were outstanding. The mortgaged property came into the hands of the trustee. It was by order of the referee appraised. The appraisers reported that, if it was to be used for the purposes for which it was intended, it was worth $155,000. If it was to be dismantled and the machinery sold as junk, its value was only $101,000.

On December 26th the trustee asked for an order of the District Court to sell clear of liens. Due notice of this application was given by the referee. On January 5, 1912, the bondholders united in the request for such sale. It was ordered. The decree was obviously drafted to meet the bondholders' convenience. If they became purchasers they could turn in their bonds as cash. On February 7th the sale took place. The bondholders bought in the property for $90,000; that is, for some $10,000 less than the face of their lien claim. The sale was ratified in due course and without objection. The referee performed the same services he would have been called upon to render had some one other than the bondholders been the successful bidder, except that he did not have to countersign the check or checks which in the latter event the trustee would have given to the bondholders or their representatives. The latter paid the trustee $2,044.30 to cover the cost and expenses of the sale. No other cash passed between the trustee and the bondholders. The District Court directed him to indorse on the bonds as a payment thereon the difference between the purchase price and the cash paid to him for costs and expenses, or $87,955.70. The bondholders were allowed to file as general creditors their claim for the upwards of $12,000 still due them.

The learned judge below treated the statutory commission of the trustee as part of the costs and expenses of the sale to be paid by the bondholders. He did not think that within the meaning of the statute any money had been disbursed to the bondholders by the trustee, and he therefore refused to allow the referee a commission of one per cent. upon the $87,955 which they had nominally received. Such action was taken upon his own motion. It was not asked for by the bondholders or by anyone else.

The referee then filed his petition to superintend and revise. All the respondents had the due and usual notice of its pendency here. None of them entered their appearance to oppose it. Apparently they are perfectly willing that the allowance for which the referee asks shall be given him. Upon the adjudication in bankruptcy, the bondholders doubtless realized that a judicial sale of the mortgaged property had become inevitable. The mortgage provided that one selling under it should receive a commission of 5 per cent. It would be much cheaper for the sale to be made by the trustee under the direction of the bankruptcy court. Such proceeding would doubtless be simpler and more speedy. The bondholders wished to avail themselves of it.

Two questions may arise with reference to the allowance of commissions to referees and trustees on the money paid to lienholders out of the proceeds of property subject to their lien:

First are those officials entitled to commissions at all?

Second, if they are, out of what funds are they to be paid?

The latter problem presents itself when security has been sold by the trustee against the lienholder's consent or without his knowledge. This court has said that under such circumstances he cannot be compelled to contribute to the costs of the general administration of the bankrupt estate. Mills v. Virginia-Carolina Lumber Co., 164 F. 171, 90 C.C.A. 154, 21 L.R.A. (N.S.) 901.

Such is, however, not the case here. The sale was made with the consent and approval of the bondholders. There is no question of saddling them with any part of the expense of the general administration of the bankrupt estate, if indeed there was any estate, other than that covered by their mortgage, to be administered. There is nothing in the circumstances to make it inequitable that they shall be called upon to pay whatever is the legal cost of making such sale in the way in which it was made.

The question whether the law entitles the referee to commissions on the amount constructively disbursed by a trustee to lienholders out of the sum for which they have bid their security in is the only one which arises in this case.

By the original act of 1898 the referee's one per cent. was to be reckoned only on the sums paid as dividends and commissions. It was held that he was not entitled to any allowance upon payments made to secured creditors, as they were not dividends in the...