Johnson v. Norris

• Decision Date: 02 October 1911
• Docket Number: 2,110.
• Citation: 190 F. 459
• Parties: JOHNSON et al. v. NORRIS et al.
• Court: U.S. Court of Appeals — Fifth Circuit

190 F. 459

JOHNSON et al. v. NORRIS et al.

No. 2,110.

United States Court of Appeals, Fifth Circuit.

October 2, 1911

(Syllabus by the Court.)

The rule in bankruptcy for the computation of interest on claims to the date of filing the petition has no application to a solvent estate.

Bankr Act July 1, 1898, c. 541, Sec. 66, 30 Stat. 564 (U.S. Comp St. 1901, p. 3348), providing for distribution of the bankrupt's entire estate among his creditors, and authorizing only a return to the bankrupt of unclaimed dividends, has no application to a surplus remaining after payment of all claims and expenses in full.

After paying all debts of the bankrupt in full, including interest due before and subsequent to the filing of the bankruptcy petition, any surplus then remaining was payable to the bankrupt without statutory authority.

Where in voluntary proceedings by a bankrupt partnership and the individual partners, there was a surplus arising from the individual estates of the partners after paying all debts and interest up to the filing of the petition, the creditors having proved interest-bearing claims in the first instance, were entitled to a distribution, out of such surplus, of interest from the date of the filing of the petition until the debts were paid before any part of the surplus should be returned to the bankrupts.

A discharge in bankruptcy, while relieving the bankrupt of further liability, did not relieve the funds in the hands of the trustees or affect the claim of creditors thereon to interest accruing subsequent to the filing of the petition.

When there is a surplus of a voluntary bankrupt's estate, after the payment of all proved claims and interest thereon to the date of the filing of the petition, such surplus should be applied first to the payment of the interest accruing on the claims subsequent to the filing of the petition, and the remainder only returned to the bankrupt.

On November 6, 1907, in the court below, the firm of Vineyard, Walker & Co., and the individuals composing the firm, to wit, B. L. Vineyard, A. M. Waugh, Peter Hahn, Leo Hahn, and R. E. Walker, were, on their voluntary petition, adjudged bankrupts. F. O. Norris, J. J. Whatley, and L. R. McFarlane were appointed trustees. During the course of administration, dividends were paid to the partnership creditors and to the creditors of the individual partners amounting to 100 cents on the dollar, including interest to the date of the filing of the petition; but no interest which accrued subsequent to November 6, 1907, was paid.

On March 26, 1910, the trustees filed a report showing the following assets on hand:

B. L. Vineyard ..

$60,061 45

R. E. Walker ......

7,119 54

Peter Hahn .......

16,357 78

Leo Hahn ..........

4,894 04

----------

Total ........

$88,432 81

The trustees prayed that their report be approved as a final report, and that they be discharged and ordered to return the surplus assets to the bankrupts. J. E. Johnson and other holders of approved claims against the partnership estate, and S. S. Robinson, the holder of an approved claim against the individual estate of R. E. Walker, opposed the application, and prayed that the trustees be required to further administer the estate and to pay such interest as had accrued on all approved claims from and after November 6, 1907, the date of the filing of the petition. The referee denied the creditors' petition for interest, granted the trustees' application, and ordered the surplus assets turned over to the bankrupts. The creditors mentioned, whose claims aggregated over $70,000, filed their petition for review. On May 30, 1910, the matter came up for hearing before the district judge, who rendered a decree affirming the order of the referee and refusing the creditors' prayer for interest, and ordering the trustees to return to the bankrupts the surplus, $88,432.81. In their petition for review, the creditors assign this decree as error.

Walter F. Brown (Carothers & Brown, on the brief), for petitioners.

T. M. Kennerly and J. F. Wolters (C. A. Warnken, Richard G. Maury, and Lane, Wolters & Storey, on the brief), for respondents.

Before PARDEE, McCORMICK, and SHELBY, Circuit Judges.

SHELBY Circuit Judge (after stating the facts as above).

This controversy involves the disposition of $88,432.81, a surplus left in the hands of the trustees of the bankrupts after paying the principal of all claims proved and allowed, and the interest thereon up to the date of the filing of the petition in bankruptcy. The contention of the creditors is that interest on their claims accruing subsequent to the filing of the petition should be computed and paid out of the surplus, and that the bankrupts are entitled to have returned to them only the surplus left after paying such interest. The contention of the respondents is that the creditors are entitled to collect only the principal of their claims and interest to the date of the filing of the voluntary petition, and that therefore the entire surplus should be returned to the bankrupts. The referee sustained the contention of the respondents, and the District Court affirmed the referee's decision and directed by decree that the trustees pay the entire surplus to the bankrupts.

The creditors seek to review and reverse that decree.

The record presents this question for decision: Where there is a surplus of a voluntary bankrupt's estate after the payment of all proved claims with interest thereon to the date of the filing of the petition, should all of such surplus be returned to the bankrupt, or should it be first applied to the payment of the interest which has accrued on the claims subsequent to the filing of the petition and the remainder only be returned to the bankrupt?

Section 63 of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 562 (U.S. Comp. St. 1901, p. 3447)) designates the debts which may be proved and allowed against the bankrupt's estate, and the first class of debts named is described as follows:

'A fixed liability, as evidenced by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition against him, whether then payable or not, with any interest thereon which would have been recoverable at that date or with a rebate of interest upon such as were not then payable and did not bear interest.'

And section 65e provides that:

'a claimant shall not be entitled to collect from a bankrupt estate any greater amount than shall accrue pursuant to the provisions of this act.'

Relying on these provisions, the respondents contend that only such claims as are a fixed liability at the date of the filing of the petition can be proved, and that no interest can be proved or paid except that which has accrued when the petition is filed.

Ordinarily, no question as to subsequently accruing interest can arise, for it is a very rare occurrence that a surplus is left after paying the principal and interest to the date of the filing of the petition. When the fund is insufficient to pay the whole amount of the debts, it is immaterial between creditors holding claims bearing interest at a uniform rate as to what time interest should be computed. The bankrupt would have no interest in the question, and it is unimportant to such creditors whether the dividend is at a higher or lower rate per cent., as the amount received by them would be the same. That the interest on all interest-bearing claims should be computed to the same time is necessary to secure an equitable distribution, and both state insolvency statutes and bankruptcy acts usually fix a time, or the courts, in practice, adopt a time. The purpose is to secure uniformity and an equitable distribution. The provision is made in both state insolvency statutes and in bankruptcy laws as a rule for the settlement of an insolvent or bankrupt estate. It was not intended to be applied to a solvent estate. It was not in the contemplation of Congress that a solvent estate would be settled in the bankruptcy courts. In involuntary cases, the adjudication is only had when an act of bankruptcy has been committed and when the estate of the alleged bankrupt is insolvent; that is, 'whenever the aggregate of his property * * * shall not, at a fair valuation, be sufficient in amount to pay his debts. ' Bankruptcy Act, Sec. 1. The voluntary bankrupt is required to allege in his petition 'that he owes debts which he is unable to pay in full. ' General Order 38, Form 1 (89 F. xv, 32 C.C.A. xxxix). With the exception of property exempt under state laws from liability for debts, the bankruptcy act provides for the distribution of the bankrupt's entire estate among his creditors. The only reference in the act to returning any of the estate to the bankrupt relates to unclaimed dividends. Dividends that remain unclaimed for six months after the final dividend has been declared are to be paid by the trustee into court and dividends unclaimed for one year are, under the direction of the court, to be distributed to the creditors whose claims have been allowed, but not paid in full, and, after such claims 'have been paid in full, the balance shall be paid to the bankrupt. ' Bankruptcy Act, Sec. 66.

This section relates to unclaimed dividends only. It shows that the Legislature intended (exempt property and costs, and debts having priority, being excepted) that the entire estate should be divided pro rata among the creditors by the declaration of dividends. When a dividend is unclaimed, it provides for its disposition-- it is to go to the satisfaction of other claims till they are paid in full. It is only after the claims are paid in full that 'the balance shall be paid to the bankrupt. ' The balance meant is not a surplus, but the...