In re Falls City Shirt Mfg. Co.

• Decision Date: 02 October 1899
• Citation: 98 F. 592
• Parties: In re FALLS CITY SHIRT MFG. CO. et al.
• Court: U.S. District Court — District of Kentucky

98 F. 592

In re FALLS CITY SHIRT MFG. CO. et al.

United States District Court, D. Kentucky.

October 2, 1899

George L. Everback, for John Glock, a creditor.

Strather & Gordon, for J. M. Robinson, Norton & Co., and other creditors.

EVANS District Judge.

The court is asked to review and reverse the ruling of the referee in this case upon two points, the first of which may be stated as follows: The adjudication was made on June 17 1899, while the bankrupt was occupying the premises of John Glock at a monthly rental of $160. A claim for something over six months' rent was presented and allowed, and for $640 of it, covering the four months immediately preceding the adjudication, Glock, under section 2317 of the Kentucky Statutes, was allowed a priority, upon the ground that his lien to that extent was superior to liens claimed by certain material men under sections 2487 et seq. Those sections provide that when the property or effects of any manufacturing establishment, whether incorporated or not shall come to the hands of any trustee or assignee for the benefit of creditors, or shall in any wise come to be distributed among creditors, whether by operation of law or by the act of such company, the persons who shall have furnished materials or supplies for the carrying on of such business shall have a lien upon such of the property, etc as shall have been involved in such business, and all the accessories thereto, etc. It is also provided that such lien shall be superior to the lien of any mortgage or other incumbrance thereon 'thereafter created.' It is clear that the landlord's lien in this case was not created after, but was created before, the property of the bankrupts came into the hands of the trustee in bankruptcy. The landlord's lien was in existence June 17, 1899, at and before the adjudication; but the property of the bankrupts certainly did not come into the hands of the trustee until after that time, and probably not until July 3, 1899, when the trustee was appointed and qualified. Not until that event did the lien of the material men arise or exist. It is manifest, therefore, that the ruling of the referee upon this point was correct, unless, under clause 5, Sec. 64, of the bankrupt act, all liens arising under the laws of the state are placed upon an even footing, regardless of priorities existing by virtue of the state laws. It is contended on behalf of the material men that such should be the construction of the bankrupt act, but the court is of a different opinion. Section 64 of that act, among other things, provides that debts shall have priority, and that the assets of the bankrupt shall be paid out in a certain order the fifth in point of preference thereby fixed being 'debts owing to any person who, by the laws of the states or the United States, are entitled to priority. ' The effect of the contention of the material men here would be that though all the creditors had liens created under the laws of the state, and though by those laws some of these liens had priority over others, still a proper interpretation of the bankrupt act would require a general leveling of these liens to a common plane, elevating some and depressing others, so as to destroy all advantage and all distinction given by the state laws. It cannot be admitted that such contention is sound. It seems to the court that it was obviously the intention of congress to recognize all liens created under the laws of the state, and to leave them precisely as it found them. There does not seem to be any evidence or plausible grounds of contention that congress meant to do anything so unjust or so unjustifiable as a contrary decision would involve. The plain intention of congress was to recognize liens and priorities thereunder precisely as the state laws had fixed them. In no other way could the priorities given by the state laws be made effective. In no other way could the debts 'entitled to priority' under the state laws be preferred in the distribution of the bankrupt's assets. It results, therefore, that the ruling of the referee upon the claim of Glock, and by which he was given a priority in payment to the extent of $640, was correct. He was entitled to it under the laws of the state.

The second question is more difficult, and has received the careful consideration of the court. As already indicated sections 2487 and 2488 give a lien to the material men only when the property goes into the hands of the trustee in bankruptcy, and ipso facto that event. In this case that occurred on July 3, 1899. This lien then became at once absolute and fixed. Under the laws of Kentucky it was then entitled to the priority also given to it by section 64 of the bankrupt act. On July 25, 1899, W. E. Thorn, executor of W. T. Garner, proved his claim as an unsecured debt; but on September 14th he amended his proof of debt, and stated the facts necessary to show that he stood on the footing of the other material men, and thereupon the referee admitted him to share the priority equally with them. It is contended that this was erroneous. Many decisions under the bankrupt act of 1867 permitted amendments of this character. Loveland, Bankr. § 138, and cases cited. This court recently took the same view of the question in Re Smith, at Covington. But counsel insists...