Castaner v. Mora

• Decision Date: 06 July 1956
• Docket Number: No. 5054.,5054.
• Citation: 234 F.2d 710
• Parties: Joaquin CASTA—ER, Debtor, Appellant, v. Rafael MORA, Creditor, Appellee.
• Court: U.S. Court of Appeals — First Circuit

234 F.2d 710 (1956)

Joaquin CASTA—ER, Debtor, Appellant, v. Rafael MORA, Creditor, Appellee.

No. 5054.

United States Court of Appeals First Circuit.

July 6, 1956.

Jorge F. Romany, San Juan, Puerto Rico with whom Romany & Romany, San Juan, Puerto Rico, was on brief, for appellant.

Anibal Padilla Ponce, Puerto Rico, for appellee.

Before MAGRUDER, Chief Judge, and BIGGS^* and WOODBURY, Circuit Judges.

BIGGS, Circuit Judge.

The appellant-bankrupt, Joaquin CastaÒer, filed a petition on November 1, 1949 for a real property arrangement pursuant to Chapter 12 of the Bankruptcy Act, 11 U.S.C.A. ß 801 et seq. The case was duly referred to the Referee in Bankruptcy. On February 27, 1950, the appellee-creditor, Rafael Mora, filed a claim with the Referee secured by a mortgage on some 200 acres of land in Puerto Rico to guarantee the payment of $15,200 by the bankrupt with interest at 6%. The mortgage was duly registered. The bankrupt filed an objection to the claim, asserting that no money was owed by him to Mora and that no consideration had been given for the mortgage. On February 9, 1952, after a hearing, the Referee found that the mortgage was valid, that the amount of $15,200 had been given therefor, and allowed Mora's claim "as a secured claim in the amount of $15,000.00 plus interest at 6% to the date of the filing of these proceedings." This order was reviewed by the United States District Court for the District of Puerto Rico and was affirmed.

On September 4, 1953, finding an arrangement under Chapter 12 to be impossible, the Referee terminated those proceedings and adjudicated CastaÒer a bankrupt. Various other steps were had in the proceedings which are not pertinent here and need not be referred to. It is sufficient to state that the Referee made an order on March 22, 1955, directing the land subject to the mortgage to be sold at public sale on April 19, 1955, free and clear of all liens and encumbrances, liens and encumbrances to attach to the proceeds of the sale in their proper order or priority. On that day the bankrupt tendered to the trustee the sum of $8,000 and made reference to collections and sums of money held by the trustee from the sale of crops and other property of the bankrupt amounting to approximately $9,500 more. It is not clear from the record as to whether the bankrupt intended this as an offer to purchase the real estate securing Mora's claim, or whether he intended to pay off Mora's secured claim. It seems to have been the view of the bankrupt, however, that $17,500 had been made available by him for one of the purposes indicated.

Also on April 19, 1955, Mora moved for a recomputation of principal and interest on his secured claim. He asserted that the amount originally allowed was erroneous in that the principal was understated by the sum of $200 and the interest thereon was allowed only to November 1, 1949, the date of the filing of the petition for a real property arrangement, instead of to the date of payment of the claim. In an order issued on May 24, 1955, after due hearing, the Referee adopted this view and allowed the amendment, settling Mora's claim "in the amount of $15,200.00 as principal plus interest at 6% up to but not in excess of $6,570.00 to the date of payment, plus $250.00 for attorneys fees and costs; said claim to be allowed with a secured status." Mora's motion for recomputation had concluded with these words: "This creditor stands on his rights as a secured creditor, ratifying his disposition to accept the security (farm) in payment for his claim." The Referee, treating these words, quite properly, as an offer and finding the amount of Mora's recomputed claim to be in excess of the consideration proffered by the bankrupt, in the same order directed the trustee to consider the sale to Mora as confirmed, unless the bankrupt redeemed the property within ten days. The District Court reviewed the Referee's order and affirmed. From that decision the bankrupt appeals.

Before proceeding to discuss the merits of the controversy, we state that the proffer asserted by the bankrupt to have been made by him in the sum of $17,500 was no offer to purchase the real estate secured by Mora's claim and no offer to pay off Mora's claim. The bankrupt proposed to employ cash or other assets in the bankruptcy estate either as an aid in paying off a secured creditor or as the purchase price of real estate securing that creditor's claim. He proposed doing this despite the fact that there were general creditors and, apparently, unpaid tax claims. The bankrupt's proffer was properly disregarded by the Referee. It was the trustee's duty to obtain the best price for all of the assets of the bankruptcy estate and to hold those assets not subject to any lien for the benefit of the general creditors. To permit a bankrupt to employ such assets to recover a mortgaged property for his own benefit or to pay off a mortgagee would be insupportable.

The substantial question presented by this appeal is whether, after a lapse of three years, the Referee could validly recompute the amount of a secured claim, allowing a larger amount.

First, it is clear that the Referee erred in his order of February 9, 1952 in that he allowed a lower principal amount than that to which Mora was entitled and in that he computed the interest on the claim secured by the mortgage only to the date of the initiation of the real property arrangement proceedings, viz., November 1, 1949. The first error seems to have been a miscalculation in arithmetic. The second error seems to have been a misunderstanding of the law. Mortgagees are entitled to interest up to the date of payment where the proceeds of the mortgaged property sold by the bankruptcy trustee are sufficient to pay principal and interest. Coder v. Arts, 1909, 213 U.S. 223, 245, 29 S.Ct. 436, 53 L.Ed. 772; In re Macomb Trailer Coach, 6 Cir., 1952, 200 F.2d 611, certiorari denied sub nom. McInnis v. Weeks, 1953, 345 U.S. 958, 73 S.Ct. 940, 97 L.Ed. 1378; Kagan v. Industrial Washington Machine Corp., 1 Cir., 1950, 182 F.2d 139, 146. In making his order of May 24, 1955, the Referee corrected his previous mistakes and confirmed the sale of the real estate to Mora on the terms heretofore stated.

Did the Referee possess the power to make the corrections? We are convinced that he did and we base our conclusions on several grounds. First, Section 2 sub. a(2) of the Bankruptcy Act, 11 U.S.C.A. ß 11 sub. a(2), provides that courts of bankruptcy may "Allow claims, disallow claims, reconsider allowed or disallowed claims, and allow or disallow them against bankrupt estates * *", Section 38(6), 11 U.S.C.A. ß 66(6), where the order of reference has been a general one, confers on a referee in bankruptcy the powers of a court of bankruptcy. In re Gillespie Tire Co., D. C.S.C.1942, 54 F.Supp. 336. It should be noted that the limitations upon the power of the referee, emphasized in Chandler v. Perry, 5 Cir., 1934, 74 F.2d 371, were almost done away with by the Chandler Act and that the referee is in substance the court. Donald v. Bankers Life Co., 5 Cir., 1940, 107 F.2d 810. Section 2, sub. a(2) is rarely referred to in respect to reconsideration of claims but it conferred ample authority on the Referee in the instant case to reconsider and to allow Mora's claim in the larger and correct amount.

Second, Section 57, sub. k, 11 U.S.C.A. ß 93, sub. k, authorized the Referee to make the corrections in the instant case. Section 57, sub. k provides: "Claims which have been allowed may be reconsidered for cause and reallowed or rejected in whole or in part according to the equities of the case, before but not after the estate has been closed." This is to be read in conjunction with General Order 21(6), 11 U.S.C.A. following section 53, which states: "When the trustee or any creditor or the bankrupt or debtor shall desire the reconsideration of any claim allowed against the estate, he may apply by petition to the referee to whom the case is referred for an order for such reconsideration, and thereupon the referee shall make an order fixing a time for hearing the petition, of which due notice shall be given by mail addressed to the creditor. At the time appointed the referee shall take the examination of the creditor, and of any witness that may be called by either party, and if it shall appear from such examination that the claim ought to be expunged or diminished, the referee may order accordingly."

It has been suggested that Section 57, sub. k and General Order 21(6) may not be availed of by a creditor who seeks reconsideration of his own claim but may be employed only by the trustee in bankruptcy or by a creditor who seeks re-examination of another creditor's claim already allowed by the referee to the end that the claim may be reduced, expunged or denied priority. A statement to that effect was made by the Circuit Court of Appeals for the Second Circuit in In re Jayrose Millinery Co., 1937, 93 F.2d 471, 474-475. In the Jayrose case the City of New York claimed priority for amounts due it by way of city taxes on retail sales and priority was denied. Thereafter an application was made under Section 57, sub. k for reconsideration by the referee. The referee reconsidered the claim and again denied it priority. The district court affirmed the...