In re Stineman
| Decision Date | 07 May 1946 |
| Docket Number | No. 9012.,9012. |
| Parties | In re STINEMAN. Appeal of CHASE NAT. BANK OF CITY OF NEW YORK. |
| Court | U.S. Court of Appeals — Third Circuit |
Milbank, Tweed & Hope, of New York City, John G. Buchanan and Smith, Buchanan & Ingersoll, all of Pittsburgh, Pa., and Thomas P. Farley, of New York City, on the brief, for appellant.
Harry Doerr, of Johnstown, Pa., for appellee.
Before BIGGS, GOODRICH and O'CONNELL, Circuit Judges.
The appeal at bar presents an anomaly in the administration of the Bankruptcy Act. The facts are as follows. On June 10, 1926 Harvey C. Stineman was adjudicated a bankrupt upon a voluntary petition and the case was referred to a referee. Among the principle assets of the estate was an undivided one-sixth interest in a large acreage of valuable coal lands. Some of these lands were being mined by lessees and were producing substantial royalties. The value of the interest of the bankrupt estate in the realty was appraised at $90,000. United States National Bank of1 Johnstown and First National Bank of South Fork had procured judgments which were, respectively first and second liens on the bankrupt's interest in these coal lands.
General claims filed against the estate amount to about $225,000. Included among these is the claim of the appellant, Chase National Bank of the City of New York as successor to Equitable Trust Company.2 Chase's claim as a general creditor was allowed on May 14, 1935 in the amount of $55,231.98. This represented a reduction of the bank's original claim which had been secured in part by collateral given by the bankrupt. The reduction was ordered by the referee upon exceptions filed to Chase's claim by National Bank of Johnstown and South Fork Bank. On January 8, 1927 National Bank of Johnstown filed a secured claim in the amount of $10,000, reciting as its security the lien of the judgment hereinbefore referred to. Thereafter, on July 14, 1932, it filed another claim designated by it as an "Amended Liquidated Claim" for $13,685 including interest. The latter claim contains no recital of any security and appears to be a general claim intended to take the place of the original secured claim. On August 3, 1944 an order was entered by Judge Gibson, affirming an order of the referee which reduced National Bank of Johnstown's claim to $10,000. On June 29, 1926 South Fork Bank filed a claim in the amount of $18,463.45. It recited the security of the judgments against the bankrupt. We omit any discussion as to whether this claim was timely filed since it is presently unnecessary to resolve that question.
On December 31, 1929, approximately three and a half years after the adjudication, an important meeting of creditors was held by the referee. What transpired at this meeting is far from clear from the record offered to this court. It would appear, however, that P. J. Little, Esquire, at that time was serving as counsel for Chase and other creditors as well as counsel for the trustee in bankruptcy.3 Chase was represented also by another counsel, Arthur John Keefe, Esquire, a member of the bar of New York. The trustee was present, as was the bankrupt and certain of the general creditors. It was believed that if National Bank of Johnstown and South Fork Bank foreclosed on their liens, little, if anything, would be left for the general creditors. Mr. Little suggested that the estate Whether the referee ever made an order in support of this division is not clear. In any event the estate was administered as if an order supporting the division of the estate into the "two items" had been made, National Bank of Johnstown and South Fork Bank assenting to the course followed and forebearing to realize on their liens.
The trustee in bankruptcy presently insists that what Mr. Little stated at the meeting of December 31, 1929 was prompted by Chase and amounted to a stipulation by Chase agreeing to the proposed division. It is not clear why the trustee should take the position that Mr. Little was making the proposal for Chase rather than on behalf of the trustee himself or of the other creditors, i.e. Hartwell and Lester, Second National Bank of New Haven and Lester Coal Company, which he also represented. Mr. Keefe who did represent Chase was present. Apparently he did not protest the proposed division. The trustee contends that Chase by this lack of protest and by its subsequent actions, which will be referred to at a later point in this opinion, is estopped from asserting that National Bank in Johnstown and South Fork Bank are not entitled to be paid as secured creditors.
Precisely what National Bank of Johnstown or its successor, National Bank in Johnstown, received from the income from the real estate is not clear but is does appear that it was paid at least $1364.76. It is clear that National Bank of Johnstown and National Bank in Johnstown received seven dividends from the general estate paid between November 27, 1935 and March 16, 1942, or a total of $2435.06.4 South Fork Bank also received dividends under the seven schedules of distribution filed by the referee but the amounts received by this bank do not appear in the record. Apparently, South Fork Bank received no money from the real estate of the bankrupt.
Section 65, sub. a, of the Bankruptcy Act provides, "Dividends of an equal per centum shall be declared and paid on all allowed claims, except such as have priority or are secured."5 Section 57, sub. h, of the act provides, "The value of securities held by secured creditors shall be determined by converting the same into money according to the terms of the agreement pursuant to which such securities were delivered to such creditors, or by such creditors and the trustee by agreement, arbitration, compromise or litigation, as the court may direct, and the amount of such value shall be credited upon such claims, and a dividend shall be paid only on the unpaid balance. * * *"6
It is fundamental that the value of securities held by creditors must be valued before they may participate in distributions from the general estate and dividends may be paid only on the unpaid balances. In re Rogers, D.C., 20 F.Supp. 120, 133. Cf. Hartford Accident & Indemnity Co. v. Coggin, 4 Cir., 78 F.2d 471, 477; see also Hiscock v. Varick Bank of New York, 206 U.S. 28, 40, 27 S.Ct. 681, 51 L.Ed. 945. The dividends paid to National Bank of Johnstown, to its successor and to South Fork Bank were not paid pro rata upon the balance of the respective claims after the values of the judgment liens were deducted. No deductions were ever made. As to this fact all parties agree. The participants in the bankruptcy proceeding simply ignored the pertinent provisions of the Bankruptcy Act. It is asserted that this resulted in a substantial benefit to the general creditors but we cannot test the accuracy of this assertion from the present record. National Bank of Johnstown and South Fork Bank in their brief state: "As the result of the lien creditors foregoing a forced sale of the real estate, a large amount in royalties was received by the Trustee, and distributed to general creditors, as is evidenced by the seven dividends." We will assume for the purposes of this opinion that royalties from the coal lands were received into the fund for the general creditors: viz., into Mr. Little's second "item," and that seven dividends could be paid because of the receipt of royalties into the general creditors' fund. This result, however, cannot justify the course of the administration in the case at bar. The course pursued was not only without statutory justification but, as we have indicated, probably was unnecessary for the reasons set out in the next paragraph.
If, as National Bank in Johnstown and South Fork Bank presently assert, the appraisal of Stineman's interest in the coal lands was $90,000, the trustee would have been justified in paying off the liens by money borrowed upon trustee's certificates; or, the general creditors could have effected a composition under Section 74 of the Bankruptcy Act, 11 U.S.C.A. § 202; or, in any event, National Bank of Johnstown and South Fork Bank could have availed themselves of the provisions of Section 57, sub. h, hereinbefore quoted, and could have had the value of their respective securities ascertained and credited against their claims in order that they might receive dividends from the general estate upon the balances. The trustee seems to have concluded that the banks could have foreclosed their liens but this was not the case. They had filed their claims in the bankruptcy court and were subject to the jurisdiction of that tribunal. The equity of the general estate in the coal lands was substantial. Stineman's interest in them could have been sold under order of the referee, free and clear of all liens and encumbrances, the liens and encumbrances to attach to the proceeds of the sale, or Stineman's interest could have been sold subject to the liens. In any event a substantial fund should have been created for the benefit of the general creditors. How much has been created for the general estate by the course pursued by the referee and trustee cannot be determined on the very incomplete transcript offered to us. From the dividends paid to National Bank of Johnstown or National Bank in Johnstown we may surmise that general creditors have received about 15 cents on the dollar by reason of the seven dividends already paid. But we do not know what assets remain in the general estate. In view of the deficiencies of the record further...
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United States Nat Bank In Johnstown v. Chase Nat Bank of New York City
...and South Fork banks had waived their liens and were entitled to share in the bankruptcy estate only as general creditors. In re Stineman, 155 F.2d 755. Sections 65, sub. a, and 57, sub. h of the Bankruptcy Act are the ones pertinent to this case. Section 65, sub. a, provides: 'Dividends of......
- Bailey v. Stoutamire, 11668.