Kinkead v. J. Bacon & Sons

• Decision Date: 07 March 1916
• Docket Number: 2827.
• Citation: 230 F. 362
• Parties: KINKEAD v. J. BACON & SONS et al.
• Court: U.S. Court of Appeals — Sixth Circuit

230 F. 362

KINKEAD v. J. BACON & SONS et al.

No. 2827.

United States Court of Appeals, Sixth Circuit.

March 7, 1916

[Copyrighted Material Omitted]

H. H Nettelroth, of Louisville, Ky., for appellant.

Wm Marshall Bullitt, of Louisville, Ky., for appellees J. Bacon & Sons.

Before WARRINGTON and KNAPPEN, Circuit Judges, and SATER, District Judge.

KNAPPEN Circuit Judge.

Review of an order fixing the compensation of a referee in bankruptcy. The case is here both on appeal and on petition to revise in matter of law under section 24b of the Bankruptcy Act. In our opinion, the case involves a 'proceeding in bankruptcy,' and so is reviewable only under section 24b. Davidson v. Friedman (C.C.A. 6) 140 F. 853, 72 C.C.A. 553; Barnes v. Pampel (C.C.A. 6) 192 F. 525, 113 C.C.A. 81. The appeal is therefore dismissed and the case heard on the petition to revise. We are thus limited to a consideration of the questions of law arising out of the facts found or conceded. Duryea Power Co. v. Sternbergh, 218 U.S. 299, 302, 31 Sup.Ct. 25, 54 L.Ed. 1047; In re Stewart (C.C.A. 6) 179 F. 222, 228, 102 C.C.A. 348; In re Holden (C.C.A. 6) 203 F. 229, 233, 121 C.C.A. 435.

On July 13, 1914, J. Bacon & Sons, a merchandising corporation of Louisville, Ky. (one of 23 corporations controlled by or associated with the H. B. Claflin Company of New York), was adjudged bankrupt. It owed only about $50,000 of merchandise claims, but was liable on notes aggregating more than $2,300,000 held by various parties-- much of the latter being paper of the H. B. Claflin Company. At the request of the general creditors, the bankrupt's business was carried on by the trustee until the confirmation of the offer of compromise later mentioned, occupying for the purpose premises under lease to the bankrupt at an annual rental of $30,600.

On March 5, 1915, about 8 1/2 months after bankruptcy, as a result of the efforts of the note holders' committee appointed by the creditors of the 24 associated corporations (including the H. B. Claflin Company), the bankrupt offered in writing (filed with the referee) a composition 'at 35 per cent. of the claims of its creditors, allowed or to be allowed, except those entitled to priority. ' ^[1] A meeting of the creditors of J. Bacon & Sons to consider the offer was called for March 17th. The offer was on that day accepted in writing by merchandise creditors whose claims aggregated $30,373.60, and by the note holders' committee representing notes amounting to $2,326,067.67. The offer of composition was thus accepted by a majority of creditors in both number and amount of claims.

The note holders' committee, by writing filed contemporaneously with its offer of acceptance of the composition, waived 'the deposit to the credit of the judge * * * of the 35 per cent. composition offer made by said bankrupt, so far as said creditors' claims (so represented by the note holders' committee) are concerned. ' March 31, 1915, the referee certified the composition proceeding to the District Judge, further reporting the fact of deposit by the bankrupt of $30,000 only, and its refusal to make further deposit, and stating that so far as the referee was advised no reason was apparent why the composition should not be confirmed. Meanwhile, on March 22d (after the acceptance of the composition offer by the statutory majority of creditors) the note holders' committee moved to withdraw claims aggregating $512,610.20, which had already been voted by it in favor of the acceptance of the offer of composition; the referee denied the motion.

On April 24th the composition was confirmed. The referee, whose term of office had expired March 29th, then moved the court to allow his compensation under the Bankruptcy Act as claimed in his certificate of the proposition of composition, including 1 per cent. ($306) on one year's rent under the lease before mentioned, $186.55 expenses of administration (not opposed), $169.43 of miscellaneous fees (not opposed), and $4,159.35, as one-half of 1 per cent. upon $831,870.40, which was 35 per cent. of the claims of creditors.

Upon objection of the bankrupt and the note holders' committee, the court disallowed the commission claimed on confirmation of the composition, except as respects the $30,000 actually deposited with the referee (allowing to the referee's successor the entire of that commission-- $150), and allowed the commission on rentals only to the amount of $27.15, being 1 per cent. of the amount of rent paid previous to the authority given the trustee to conduct the business. This review involves the propriety of the referee's charge for commissions on (a) the entire amount payable to creditors under the composition offer, and (b) one year's rentals (except to the extent on which the commission of $27.15 was allowed).

The referee's claim to commission on rentals paid may be shortly disposed of. The asserted right depends upon whether the rental is to be treated as a disbursement by the trustee to a creditor of the bankrupt, and so entitling the referee to commission under section 40a of the act, or as a mere expense of carrying on the business.

We think that to the extent it was rejected by the District Judge it was clearly of the latter class. True, under the Kentucky statute the lessors had a lien upon the bankrupt's personalty upon the leased premises for one year's rent (Courtney v. Trust Co. (C.C.A. 6) 219 F. 57, 134 C.C.A. 595); but the trustee had nevertheless the right to the use of the premises by virtue of the lease (Courtney v. Trust Co., supra, 219 Fed.at page 67 (134 C.C.A. 595)), and so long as he paid the rent, and had such use, it is immaterial that even in the absence of such use the rent could have been collected, and would have been a prior debt to the extent at least of effecting a prior lien. The situation after the referee's term of office expired is not materially different, for until the composition was confirmed the trustee continued to carry on the business, and after the confirmation possession was presumably restored to the lessee.

The referee's right to a commission upon an amount equaling 35 per cent. of the claims of creditors depends upon the construction to be given section 40a of the act, which allows referees, 'as full compensation for their services,' a deposit fee of $15, plus 25 cents for every proof of claim filed for allowance, and 'from estates which have been administered before them one per centum commissions on all moneys disbursed to creditors by the trustee, or one-half of one per centum on the amount to be paid to creditors upon the confirmation of a composition. ' The District Judge held that the clause 'the amount to be paid to creditors upon the confirmation of a composition' means only the amount actually paid the creditors out of moneys provided for that purpose through deposit by the bankrupt. The case turns upon the correctness or incorrectness of this construction. No authoritative decisions on this question have been cited, and we have found none.

Section 12b of the Bankruptcy Act permits the filing of application for confirmation when the composition has been accepted by a majority of creditors in number and amount, 'and the consideration to be paid by the bankrupt to his creditors, and the money necessary to pay all debts which have priority and the cost of the proceedings, have been deposited in such place as shall be designated by and subject to the order of the judge. ' This in the ordinary case means a deposit somewhere sufficient to pay in full the costs of the proceedings and debts having priority (and so payable in full), together with whatever the creditors are to receive by virtue of the composition. But the 'consideration to be paid by the bankrupt to his creditors' may or may not be cash. A bankrupt usually does not have enough ready money of his own to carry out a composition. The 'consideration to be paid' may be the bankrupt's notes, secured or even wholly unsecured, or his mere promise to pay in the future a given amount. 2 Loveland on Bankruptcy (4th Ed.) p. 1264. It is common knowledge that compositions sometimes contemplate the taking by creditors of stock or securities under a reorganization, as in the arrangement under consideration in Re Kinnane (D.C.) 221 F. 762.

It is we think, also clear that such 'consideration' need not be actually deposited with the court. True, the statute requires that it 'be deposited in such place as shall be designated by and subject to the order of the judge,' thus plainly permitting a deposit of notes or other evidences of debt, secured or unsecured, with any approved depositary. But this deposit is for the sole benefit of the creditors concerned, and there can, we think,...