In re Harralson

• Decision Date: 03 May 1910
• Docket Number: 101.
• Citation: 179 F. 490
• Parties: In re HARRALSON.
• Court: U.S. Court of Appeals — Eighth Circuit

179 F. 490

In re HARRALSON.

No. 101.

United States Court of Appeals, Eighth Circuit.

May 3, 1910

The following is the opinion of Dyer, District Judge, in the court below:

This is a proceeding for review of an order made by the referee in bankruptcy, directing the Ozark Cooperage & Lumber Company to pay to the trustee of the bankrupt estate the sum of $1,500 being the amount bid by it for a sawmill and hoop machinery sold by the trustee pursuant to the order of the referee. It appears from the certificate of the referee that at the time of the adjudication of bankruptcy the Ozark Cooperage &amp Lumber Company had a valid chattel mortgage upon the sawmill and machinery of bankrupt, securing an indebtedness of $1,640. The Ozark Cooperage & Lumber Company proved its claim for the debt due it before the referee, and the chattel mortgage securing such claim was adjudged valid by the referee, and the claim allowed as a secured claim. It was stipulated between the trustee and the Ozark Company that the property covered by the chattel mortgage might be sold by the trustee under an appropriate order of the referee free and clear of the lien of the mortgage, and the lien transferred to and held upon the proceeds of such sale. Pursuant to such stipulation the referee made an order authorizing the trustee to sell the property described in the chattel mortgage at public or private sale, such sale to be subject to the approval of the referee, and to deposit the proceeds of sale in a designated depository. In accordance with the order of the referee, the trustee offered the property for sale, and it was bid in by the Ozark Cooperage & Lumber Company for the sum of $1,500.

The sale was duly approved by the referee, who entered an order directing that the property be delivered to the purchaser upon the payment of 'sufficient funds to meet expenses of sale and commissions, namely, $85.'

It appears that in the first instance the trustee only demanded that the Ozark Company, in carrying out its bid, pay him $70 for his commissions and $15 for commissions of the referee making an aggregate of $85. (See report of trustee, Exhibit F.) Afterward the trustee insisted that the Ozark Company pay him in money $1,500, being the full amount of its bid for the property purchased. The Ozark Company declined to pay the purchase price of $1,500, or any other sum, in money, but insisted upon its right to fulfill its bid by entering a credit of $1,500 upon its secured claim of $1,640, which had been adjudged by the referee to be a valid first lien upon the proceeds of the property purchased. The referee thereupon made an order directing the Ozark Company to appear and show cause 'why they persistently refuse to pay the purchase money for the property. ' The Ozark Company filed a return to the order to show cause, in which it set up that it had a first lien upon the proceeds of the property purchased by it, that it had informed the trustee of its willingness to have the amount of its bid credited upon the secured claim and that it was advised by its counsel 'that it is entitled to credit the full purchase price upon its said secured claim, and that it cannot be compelled to pay the purchase price in cash. ' The referee thereupon made an order directing the Ozark Company to pay the trustee the sum of $1,500, the amount of its bid, on or before May 25, 1909. Upon the petition of the Ozark Company, duly filed, this order has been certified to the court for review.

Under the facts here presented, I am of opinion that the referee's order was erroneous and should be set aside. The Ozark Company had a first lien upon the property bid in by it, and the validity of this lien was not only undisputed but had been expressly adjudicated in the bankruptcy proceedings. There appears to have been other property out of the proceeds of which the costs and expenses of the bankruptcy proceeding could be met; but, whether this was the case or not, the secured creditor was entitled to the entire proceeds of the property upon which it had a lien until its debt was fully satisfied, and no part of such proceeds could properly be withheld from it...