Federal Land Bank of Baltimore v. Kurtz, 3558

• Decision Date: 03 April 1934
• Docket Number: No. 3558,3592.,3558
• Citation: 70 F.2d 46
• Parties: FEDERAL LAND BANK OF BALTIMORE v. KURTZ (two cases). In re POST.
• Court: U.S. Court of Appeals — Fourth Circuit

70 F.2d 46 (1934)

FEDERAL LAND BANK OF BALTIMORE v. KURTZ (two cases) In re POST.

Nos. 3558, 3592.

Circuit Court of Appeals, Fourth Circuit.

April 3, 1934.

William Beasley, of Baltimore, Md. (I. P. Whitehead, of Baltimore, Md., on the brief), for appellant.

Before PARKER and SOPER, Circuit Judges, and WILLIAM C. COLEMAN, District Judge.

PARKER, Circuit Judge.

On October 18, 1924, G. W. Post, of Lewis county, W. Va., with the joinder of his wife, executed a mortgage on a tract of land to secure a loan of $1,500 made to him by the Federal Land Bank of Baltimore. On February 26, 1930, he was adjudged bankrupt; and the land was listed in his schedules among his assets and the debt to the Land Bank among his liabilities. Shortly thereafter the Land Bank filed proof of secured debt showing that there was due it by the bankrupt a balance of $1,415.01 secured by the mortgage, but that it did not intend to prove same as a claim against the bankrupt estate. At the same time it filed a petition praying that its mortgage be not disturbed, and that, in the event the court should determine to sell the land, it sell only the bankrupt's equity of redemption subject to the mortgage.

Some time after this, the trustee in bankruptcy filed a petition, which the Land Bank resisted, asking that the land be sold free of liens; and the referee entered an order to that effect except that it provided that the sale be subject to the inchoate right of dower of Mrs. Post. The order recited that the land had been appraised at $2,100; but there was no other finding as to value and no finding of facts from which an inference would be justified that in the period of financial distress then prevailing the equity of redemption of Post had any real value or that the interest of the bankrupt estate would be in any way promoted by the sale. It was stated at the bar of this court by counsel for the Land Bank that the land would not bring at public sale the amount of the mortgage, and that for this reason the bank preferred not to foreclose at this time. Objection was made also to a sale which would not carry the wife's inchoate right of dower, which was embraced in the Land Bank's mortgage. The opinion filed by the referee indicated that the sale was ordered, not because it was thought to be in the interest of the bankrupt estate, but because of the belief that the court was powerless to do otherwise. The case was reviewed by the District Judge; but he made no finding that there was any equity for general creditors in the land or that the estate of the bankrupt would be in any way benefited by the sale free of liens. He merely confirmed the order of the referee, setting forth that this was done for the reasons set out in the opinion of the latter.

We are not impressed by the argument of the Land Bank that in no case can the court sell property free of liens over the protest of a lienholder. The law is to the contrary, and was succinctly stated by the Supreme Court in the recent case of Van Huffel v. Harkelrode, 284 U. S. 225, 227, 52 S. Ct. 115, 116, 76 L. Ed. 256, as follows: "The present Bankruptcy Act (July 1, 1898, 30 Stat. 544, c. 541 11 USCA § 1 et seq.), unlike the Act of 1867, contains no provision which in terms confers upon bankruptcy courts the power to sell property of the bankrupt free from incumbrances. We think it clear that the power was granted by implication. Like power had long been exercised by federal courts sitting in equity when ordering sales by receivers or on foreclosure. First National Bank v. Shedd, 121 U. S. 74, 87, 7 S. Ct. 807, 30 L. Ed. 877; Mellen v. Moline Malleable Iron Works, 131 U. S. 352, 367, 9 S. Ct. 781, 33 L. Ed. 178. The lower federal courts have consistently held that the bankruptcy court possesses the power, stating that it must be implied from the general equity powers of the court and the duty imposed by section 2 of the Bankruptcy Act (11 USCA § 11) to collect, reduce to money and distribute the estates of bankrupts, and to determine controversies with relation thereto."

And in Gantt v. Jones (C. C. A. 4th) 272 F. 117, 118, one of the cases cited by the Supreme Court in Van Huffel v. Harkelrode, the late Judge Woods, speaking for this Court, stated the rule as follows: "The power to sell a bankrupt's property free from liens is not expressly conferred by the statute. But such a sale is often necessary to the due execution of the power and duty to reduce the assets to money and distribute it to creditors. This necessarily implied power of the court of bankruptcy as a court of equity has been asserted in numerous cases. 7 C. J. 231, § 359, note. At such sale the purchaser takes the same title as if the sale were made in any other court of equity to foreclose the mortgages or to marshal the assets of an insolvent, with all lienholders, and other parties in interest before the court. This title is good against the mortgagor, the mortgagees, and all their privies, including the wife of the mortgagor, who has renounced her dower. So, also, the proceeds of sale come into the hands of the bankrupt court for distribution among creditors precisely as if the mortgage had been formally foreclosed." And see, also, Isaacs v. Hobbs Tie & Timber Co., 282 U. S. 734, 51 S. Ct. 270, 75 L. Ed. 645; Allebach v. Thomas (C. C. A. 4th) 16 F.(2d) 853; Union Electric Co. v. Hubbard (C. C. A. 4th) 242 F. 248; In re King (D. C.) 46 F.(2d) 112; In re Civic Center Realty Co. (D. C.) 26 F.(2d) 825; In re North Star Ice & Coal Co. (D. C.) 252 F. 301; Southern Loan & Trust Co. v. Benhow (D. C.) 96 F. 514; Collier on Bankruptcy (13th Ed.) vol. 2, p. 1758; Remington on Bankruptcy, §§ 2577, 2589; notes 35 A. L. R. 255, 258; 78 A. L. R. 458, 462.

Whether the bankruptcy court shall exercise the power to sell incumbered property of the bankrupt free of liens, or sell merely the bankrupt's equity of redemption subject to the incumbrances, is a matter resting in the sound discretion of the court. Allebach v. Thomas, supra; In re North Star Ice & Coal Co., supra; Sturgiss v. Corbin (C. C. A. 4th) 141 F. 1. But, ordinarily, the power to sell free of liens and thus in effect foreclose the mortgages should not be exercised, unless there is some equity for general creditors or some other benefit to the estate to be derived from this course. The liens of prior mortgages are not affected by bankruptcy; and, where they amount to more than the value of the property, the estate has no interest in their foreclosure, and should not be burdened with the costs and proceedings incident thereto. The rule applicable was thus stated by this court in Union Electric Co. v. Hubbard, supra, 242 F. 248, 250: "Where the admitted and uncontested liens on any part or portion of the bankrupt estate clearly exceed the value of that property, so as that it is manifest that under no circumstances there can be any fund therefrom to be administered for the unsecured...