In re Frischknecht

223 F. 417 | 2d Cir. | 1915

ROGERS, Circuit Judge

(after stating the facts as above). The Bankruptcy Act provides two modes of procedure in the administration of a bankrupt’s estate. One of these modes authorizes the bankrupt after his adjudication to make a composition with his creditors. The bankrupt, after he has been examined in open court or at a meeting of his creditors.and after he has filed in court the schedule of his property and the list-.of thecreditors required to be filed by bankrupts, may offer terms of “composition” to his creditors. This he does by tendering a certain amount to the creditors in lieu of that which they would ultimately receive upon the distribution of the assets of the estate in the other and more usual mode of administration. The composition which the bankrupt offers must be accepted in writing by a majority in number of all creditors whose claims have been allowed, which number must represent a majority in amount of such claims. It is without effect, however, unless it is confirmed by the court, and unless the amount tendered and necessary to pay all debts which have priority and the cost of the proceeding's has been deposited subject to the order of the judge and in such place as he designates. Section 12 of the Act. A composition thus made restores the estale to the bankrupt, frees him from all his debts provable and dischargable in bankruptcy. Remington on Bankruptcy, § 2346. And the act in section 70, subdivision “f,” expressly declares that:

“Upon the eonikmaiion of a composition offered by a bankrupt, the title to his property shall thereupon revest in him.”

It appears in this case that after the bankrupt had filed the schedules .of liis liabilities and at the first meeting of the creditors duly and regularly held, and after he had been examined at such meeting, he submitted an offer of compromise which was signed by a majority in number and amount of claims filed. This offer of composition was on the basis of 60 per cent on the dollar. An order to show cause was issued and served upon the creditors directing them to appear and show cause why the composition offered by the bankrupt should not be confirmed; and on October 1, 1914, it was duly confirmed in an order which recites that:

“The application for the confirmation of the compos'd ion having duly and regularly come on to bo heard, and it appearing that said composition 5s for the best interests of the creditors, and that the bankrupt has not been guilty of any acts or failed to perform any oí the duties which would, be a bar to his divensn-ge, and that the offer and its accept anee are in good faith and hn\e not been made or procured by any means, averments or acts contrary to the acts of Congress referring to bankruptcy,” etc.

Thereafter the trustee deposited with the Equitable Trust Company of New York the stun of $70,000 to cover a composition on the basis of 60 per cent, on the dollar. This sum was sufficient to cover all the items and amounts required under the bankruptcy law to be paid, as follows : (1) Creditors entitled to priority; (2) costs of the proceedings; (3) creditors whose claims had been scheduled, filed and approved; (4) creditors whose claims had been scheduled but which had not been filed. These various items, as appears from the schedules, were as follows :

Creditors entitled to priority....................................$2,395.00

Coses of the proceedings. ........................................ 464.70

Creditors whose claims had been scheduled and approved........... 03,172.82

Creditors whose claims had been scheduled but not tiled............. 2,312.52

$88,345.04

After the pajunent of the above items there was left in the hands of the trustee a balance of $1,654.96. But of this $259.44 would be required for a .claim to be adjusted. To expedite and facilitate the composition proceeding by making the cash deposit of $70,000 required for that purpose, on August 18, 1914, the attorneys for the petitioning creditors, the attorneys for the bankrupt, and the trustee waived the deposits in the composition proceeding of a sum sufficient to pay their service fees and disbursements as attorneys for the creditors and bankrupt, as well as attorneys for the trustee.

The claim of the creditors Hirschhorn is for rent which accrued after the bankruptcy. The claim was one, therefore, not provable in bankruptcy; it being well settled that a landlord cannot maintain a claim against the estate of his tenant for any rent accruing under the lease after commencement of the proceedings in bankruptcy. As the composition only discharged the bankrupt from debts provable in bankruptcy, the claim of the Hirschhorns survived. As soon as the composition offered by the bankrupt was confirmed by the court the Hirschhorns began their suit against him in the New York court, alleging that he was indebted to them for rent in the sum of $5,077.03, and they attached the money.in the possession of the bankers, Knauth, Nachod & Kuhne, which it is claimed is due from them to the bankrupt.

The attaching creditors assert that the right to money now in the possession of the bankers is because of the confirmation of the composition, and that by virtue of the language of Bankr. Act, § 70, subd. “f,” the money had revested in the bankrupt and so became subject to the attachment. The trustee in bankruptcy, however, asserts that, while the right to the money in the hands of the bankers revested in the bankrupt, it did so subject to all judgments, decrees, and orders of the bankruptcy court, and all rights to and equities imposed upon and attaching to the bankrupt’s estate and in force at the time of the order confirming the composition; that while the trustee did not have immediate manual or actual physical possession, and had not obtained or reduced to possession the funds in the banker’s hands, those funds at the time of the confirmation of the composition were the property of the bankruptcy estate, and that the confirmation of the composition did not destroy or annul the adjudicative force of the order of September 14th, which granted to the attorneys certain allowances for their services; that at that time the trustee was by force of the Bankruptcy Act vested with the title to the balance of the fund in the hands of the bankers and to which they asserted no claim; that that pioney was in custodia legis and as such not subject to attachment.

The persons in whosé interest the trustee seeks to have the attachment set aside are the persons who expressly waived in writing in the composition proceeding the deposit of any money to pay the expenses of administration. They are the attorneys for the bankrupt, the attorneys for the trustee, both as attorneys for the trustee and as attorneys for petitioning creditors, and the trustee himself. If counsel choose to waive payment of their fees in order to make the sum so small that deposit can be made under a composition, so that the composition can be put through, this court is strongly opposed to their thereafter resuscitating their .claims and insisting that they should be paid out of the estate. The bed they made for themselves they should lie in. If the bankrupt benefited by their waiver, being thus enabled to effect a composition, we think he is the one who should pay them.

But, however that may be, we have no authority under the law to grant the petition of the trustee. We do not agree with him in think-, ing that the moneys or the accounts in the hands of these bankers, which they obtained from this bankrupt prior to his bankruptcy, were in custodia legis at the time of the attachment. When the court confirmed the composition, the title to these moneys and accounts under the Bankruptcy Act at once revested in the bankrupt; and such moneys and accounts Plight have been forthwith handed over to the bankrupt by the bankers without asking the permission of the trustee, or the bankrupt without the consent of the trustee could have maintained an action against the bankers to recover the same. We cannot iriiport into the act what Congress left out of it. The language of the act is that upon confirmation of a composition the title of the bankrupt to his property shall “thereupon revest in him.”

The funds which have been attached, and which the trustee is seeking to reach, have never been in the actual custody of the trustee, and formed no part of the sum deposited in the composition proceeding, and the trustee has no right now to reduce them into his possession. The confirmation of the composition operated to supersede the proceedings in bankruptcy, and the Bankruptcy Act operated automatically to revest the bankrupt with the title to his property.

Judgment affirmed.