In re Tresslar
| Decision Date | 07 July 1927 |
| Docket Number | No. 5661.,5661. |
| Citation | 20 F.2d 663 |
| Parties | In re TRESSLAR. |
| Court | U.S. District Court — Middle District of Alabama |
Steiner, Crum & Weil, of Montgomery, Ala., for petitioners for review.
A. A. Evans, Asst. Atty. Gen. (Charlie C. McCall, Atty. Gen., on the briefs), for the state of Alabama and Montgomery county.
Sternfeld & Lobman, of Montgomery, Ala., for city of Montgomery.
The entire amount of the assets of the bankrupt estate now in the hands of the court are $759.62. The payment of the preferred claims will leave nothing for the general creditors.
Farrior claims $345 for wages as clerk of the bankrupt, $260 of which was earned within three months preceding the filing of the original petition in bankruptcy. Tresslar, Jr., claims $420 for wages, $260 of which was earned within three months before the bankruptcy proceedings were begun.
The state of Alabama claims $41.47 for taxes; the county of Montgomery claims $86.83, and the city of Montgomery, where the bankrupt carried on his mercantile business, claims $496.25 for taxes — all of which taxes were due before and at the time the voluntary bankruptcy proceedings were instituted.
The wages claimants insist that the amendment to the Bankruptcy Law, approved May 27, 1926, made effective three months after its approval, in subdivisions (a) and (b) of section 64 of the Bankruptcy Act as amended (44 Stat. 666), provides for priority of payment of such claims over those for taxes. And it is contended that by this amendment the order of priority fixed in subdivision (b) arranges wage claims under the fifth subdivision ahead of taxes, which appears under subdivision 6. And it is insisted that this change in the law makes the payment of taxes specifically subordinate to the payment of wage claims and other debts mentioned in subdivision (b). Also the wages claimants contend that the amendment referred to above was to meet the decision of the Supreme Court of the United States in Oliver, Trustee, v. U. S. of A., 268 U. S. 1, 45 S. Ct. 386, 69 L. Ed. 817.
It is argued that, in the absence of express statement in the Bankruptcy Law, the court would consider that Congress intended that the taxes should be paid first, and that the change in the law giving the payment of taxes a fixed relative position subordinate to that of wages was a direct expression of Congress on the subject to meet the ruling in the Oliver Case, and in the brief for Farrior and Tresslar, Jr., these words are quoted from the opinion in that case: "We adhere to this as a correct statement of the general rule to be followed whenever it does not clearly appear that the particular tax has been subordinated to claims for wages by some relevant law." (Italics supplied.) Other cases are cited, among them Davis v. Pringle, 268 U. S. 315, 45 S. Ct. 549, 69 L. Ed. 974, and Guarantee Title & Trust Co. v. Title Guaranty & S. Co., 224 U. S. 152, 32 S. Ct. 457, 56 L. Ed. 706.
The state, county, and city rely upon the Alabama statute (see margin hereof)1 which it is insisted fixes a lien for taxes superior to the lien or claim for wages, and the familiar doctrine is urged that the trustee in bankruptcy took the property of the bankrupt estate subject to all valid liens. It is urged that the Act of Congress of May 27, 1926, in no way affects the rights of valid lienholders. It does not seem to me that Congress by the amended Act of May 27, 1926, intended to destroy liens such as created by mortgages and the like, and by the same token it does not seem that Congress intended to, if indeed Congress could do so, destroy the lien for taxes created by the Alabama statute.
It is to be observed that subdivision (b) of the amended section 64 of the Bankruptcy Act begins with the words: "The debts to have priority, in advance of the payment of dividends to creditors (except as herein provided) and to be paid in full out of bankrupt estates, and the order of payment shall be," etc. And it is plain that the amended section provides for the payment in full of certain debts out of the bankrupt's estate "in advance of the payment of dividends to creditors." Such prior claims must be paid "out of the bankrupt's estate." As a proposition of law, I think that a valid lien, whether created by contract or by statute, upon the goods, wares, and merchandise in the hands of the trustee, reduces the estate of the bankrupt to the extent of the amount of the debt secured by the lien. The priority provided in subsection 6 of section 64 of the Bankruptcy Act does not interfere with the disposition of money or property that does not belong to the bankrupt's estate. It simply directs the administration of the money belonging to the bankrupt's estate, and nothing more. It is the estate of the bankrupt which is administered, and what constitutes the estate is governed by the laws of the state.
After all questions of title and fraud and the like have been settled in accordance with the Bankruptcy Act and...
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