95 Pa. Super. 29 | Pa. Super. Ct. | 1928
Argued October 5, 1928. Appellants in these two appeals complain that the court erred in not adequately surcharging the trustee for deficiency in both principal and income. Appellant in No. 82 is one of the remaindermen entitled to principal; appellant in No. 81 is administrator of the estate of the deceased life-tenant entitled to income. Appellee is trustee under the will of James L. Bugh.
The principal, $50,000, was awarded to appellee, trustee in 1900. The trust ended with the death of the life-tenant Julia L. Tressler Fickinger, March 2, 1927. The trustee then filed its first and final account, showing a balance of principal, $48,721.87 and some undistributed income. The shortage in principal and income, and the present controversy, result from an investment of $12,000 made by the trustee in 1906 in *32 the bond and mortgage of one, Brown, secured on 121 S. 41st Street, Philadelphia. On a creditor's petition filed in Philadelphia in October, 1916, Brown was declared bankrupt; debts of $62,568.03 were proved in the bankruptcy cause and his assets were distributed among creditors; in that proceeding, appellee made no claim, now conceding, however, that it should have done so.
The mortgagor being in default in December, 1916, appellee issued a sci-fa to foreclose, making Brown's trustee in bankruptcy a party; judgment for want of an affidavit of defense was taken and January 27, 1917, damages were assessed as follows:
Principal of the mortgage ...................... $12,000.00 Interest June 21, 1916 to Jan. 26, 1917 ........ 439.97 Attorney's Commissions ......................... 373.08 --------- $12,813.05
At the sheriff's sale the property was sold to the appellee for $50, and title was duly taken by deed of March 12, 1917; it may be added that there is no suggestion of fraud in the sale. April 29, 1919, the trustee sold the property for $12,000, which the court below found to be a fair price.
1. The claim to the first item of surcharge to principal made by appellant in No. 82, was based on the difference — $12,763.05 — between the amount of the appellee's foreclosure judgment, $12,813.05, and $50 realized at the sale and credited on the judgment. As appellee had made no claim to participate with other creditors in the bankruptcy case, appellants sought to show in the Orphans' Court that if a claim for $12,763.05 had been made by appellee in the bankruptcy proceeding, it would have been allowed and a dividend of $2,093.14, principal, would have been received, for which amount they asked that the trustee be surcharged. On the other hand, appellee contended that the amount of the allowable claim in bankruptcy was *33 the difference between the balance ($12,763.05) unpaid on the judgment and the value of the security which, though taken over at a nominal bid by the creditor, was subsequently sold for $12,000, credited to principal. The court below found that the rule of law applicable to such case in the federal court in the administration of the bankruptcy law limits the proof of claim to the difference between the judgment debt and the value of security acquired by the creditor. It was accordingly determined, since $12,000, the principal invested in the bond and mortgage was received for the property sold in 1919 and credited to principal, that if appellee had proved the claim in the bankruptcy proceeding, it would have been allowed in the sum of only $749.33, composed of the following undisputed items:
Cost of foreclosure .......................... $439.33 Cost of foreclosure .......................... .50 Taxes 1916 ................................... 285.35 Water rent 1916 .............................. 24.15 -------- $749.33
and that on that claim a dividend of $142.37 would have been payable to the appellee. A principal surcharge in that sum was therefore ordered.
Appellants insist that the court erred in stating the rule of law which the federal court applies in such case. The court below based its finding on decisions of the Circuit Court of Appeals for this circuit administering the bankruptcy act, notably an opinion written by the late Judge McPHERSON: In Re: Davis, 174 Fed. 556. Against this, appellants contend that the federal courts in this circuit erred in ascertaining the law of Pennsylvania on the subject and misapplied it and that the court below, instead of finding the federal law to be as stated, should have adopted what is said to be the state rule that (in the words of the brief) the "sum for which property is bid in at a mortgage *34
foreclosure sale [is] conclusive as to its value with respect to the legal rights of the obligee and mortgagee, as against the obligor and mortgagor," for which appellants cite Lomison v. Faust,
The court also found that, in time to present the *36 claim in the bankruptcy case, there was a known loss of income in the sum of $1,689.90, on which the dividend in bankruptcy would have been $321.08, which the court ordered surcharged to income. Appellee makes no complaint of that.
What has been said in approval of the surcharge to principal of $142.37 disposes of the questions concerning surcharge to income not allowed. Little need be said concerning the claim of loss of $3,000 of principal in the sale of the premises for $12,000 in 1919; appellants contended that the value of the property was $15,000 and that there should be a surcharge of the difference. As there was evidence to support it, the finding that $12,000 was a fair price, stands.
In No. 81 another item is in dispute; between the time when the trustee took title, March, 1917 and the date of sale in June, 1919, the premises were vacant; a claim of $2,400 loss of income during that period was made. The court found from the evidence that, in the circumstances, it could not be said that the trustee acted unwisely in permitting the premises to be vacant while it was making efforts to sell; as there was evidence that they were more readily saleable vacant than if rented, we must accept the finding.
No. 81, decree affirmed, appellee for costs.
No. 82, decree affirmed, appellee for costs.