In re Franklin Brewing Co.

249 F. 333 | 2d Cir. | 1918

HOUGH, Circuit Judge

(after stating the facts as above). [1] The questions raised as to the order for sale free and clear are suggested by the fact that when order made there was no reasonable likelihood that the mortgaged property would produce, or nearly so, the amount of a lien whose validity and existence was denied. It is said that such an order was unlawful.

We have recognized the power of the court sitting in bankruptcy to sell free and clear of liens, and transfer the same to the proceeds of sale (Re Kohl-Hepp Brick Co, 176 Fed. 340, 100 C. C. A. 260; Re Haywood Wagon Co, 219 Fed. 655, 135 C. C. A. 391), agreeing with earlier considerations of the same question in the First Circuit (Re Union Trust Co, 122 Fed. 937, 59 C. C. A. 461; Re Shoe & Leather Reporter, 129 Fed. 588, 64 C. C. A. 156). It is good practice, and the usual procedure in this circuit, not to order such sales unless there is a fair prospect that the proceeds will at least discharge the lieu. Cf. Re Fayetteville Wagon, etc, Co. (D. C.) 197 Fed. 180; Re Saxton Furnace Co. (D. C.) 136 Fed. 697; Re Pittelkow (D. C.) 92 Fed. 901;. and (under an earlier Act) Re Taliaferro, Fed. Cas. No. 13,736.

| 2] The reason, or one very good reason, for this forbearance, is that, unless more is produced by sale than the lien debt, there is nothing coming to the estate in bankruptcy; therefore the bankruptcy court docs not meddle with what it can never administer. But this is not a rule of law, and where (for instance) the very existence of any lien is in litigation, and property is wasting while waiting decision, it must be matter of discretion whether or not to sell promptly and save expense. Nor does a mortgage clause giving the right to bid on bonds in any way limit the power of the court, however much it may influence its discretionary application.

[3] Congress, in the exercise of its constitutional right to establish systems of bankruptcy, may, and indeed always does, impair the obligation of contracts; a doctrine going much further than this point requires. Mitchell v. Clark, 110 U. S. at page 643, 4 Sup. Ct. 170, 312, 28 L. Ed. 279; Canada, etc, Ry. v. Gebhard, 109 U. S. at page 539, 3 Sup. Ct. 363, 27 L. Ed. 1020. Therefore we find in the order directing sale free of lien nothing unlawful, nor any abuse of discretion amounting to error o f law, which is the only error available here upon a petition to revise. There was a drastic exercise of authority, hut no intimation is intended that circumstances might not justify it as matter of discretion.

In Re Roger Brown & Co, 196 Fed. 758, 116 C. C. A. 386, it seems to be regarded as legal error to order sale, unless there is reasonable expectation of a surplus over lien, citing as authority the cases from the First circuit above given. No such limitation can be found in them; on the contrary, the same court-held (In re Loveland, 155 Fed. 838, 84 C. C. A. 72) that bankruptcy had jurisdictional power to order such sale, without “first determining either the validity or amount of the lien.” We agree with that ruling, which covers the present situation.

[4] But what was ordered to sale free of lien was what had been mortgaged, and that was a brewery, something made up of property both real and personal, and constituting a business entity, which in its entirety had been hypothecated by an agreement good until set aside by competent authority. The effect of confirming a sale of personalty ánd leaving the realty unsold was to destroy the brewery and (varying the expressed intent of the order of sale) substantially subtract from the mortgaged property a part only, and sell that alone. If such an order had been made in the first place’, it would have been unlawful, because (if for no other reason) no conceivable discretion could have advised it under the circumstances admitted. We perceive no difference between ordering such a sale, and producing it by a partial con'firmation.

The petition complaining of the order for sale is dismissed, and order approved; that assigning for error sale of personalty only is sustained, the sale set aside, and the matter remanded, with directions to proceed in any manner not inconsistent with this opinion. There will be no costs in this court.