134 F. 101 | N.D.N.Y. | 1905
(after stating the facts). It is insisted by the Varick Bank that the policies of insurance were the property of J. M. Mertens individually, the copartnership having no interest therein, and that hence the claim against J. M. Mertens & Co. was not a secured claim. The trouble with this contention is the amended claim does not so show or state, and in one note at least the policies are pledged in writing by the firm as well as by J. M. Mertens as owner. As such policies were assignable, this court will not assume they were owned solely by J. M. Mertens individually. By subdivision 23, § 1 of the act to establish a uniform system of bankruptcy throughout the United States, approved July 1, 1898 (30 Stat. 545, c. 541 [U. S. Comp. St. 1901, p. 3419]), it is provided:
“ ‘Secured creditor’ shall include a creditor who has security for his debt upon the property of the bankrupt of a nature to be assignable under this*103 act, or who owns such a debt for which some indorser, surety, or other persons secondarily liable for the bankrupt has such security upon the bankrupt’s assets.”
It does not appear, and this court will not assume, that the firm did not own at least an interest in these policies, when, upon the face of one of the notes it appears that the company pledged them as security for one of the notes in question. If the Varick Bank relies upon the assignments made by Jacob M. Mertens and Jacob M. Mertens and wife of the policies in question, then we find in such assignments no agreement for the sale of such policies in the mode and manner they were disposed of by the bank. But, however this may be, it is evident to the court that the referee was correct in refusing to allow these claims. Between the date of the filing of the petition and the date of the adjudication the Varick Bank, without notice to any one, delivered these policies to one of its agents or attorneys, with instructions to sell the same at public auction at the New York Real Estate Sales Rooms in the city of New York, and on the same day that said policies were thus delivered to the attorney or agent the designated attorney offered said policies for sale at said place to the highest bidder. No notice of said proposed sale was given to any person except the bank, and, as it was doing the selling, no notice to the bank was required. Only one bid was made, which was for the sum of $10,250, made by an attorney for the bank in the name of another representative of the bank, and payment was made to the auctioneer by this purchaser with money furnished by the Varick Bank prior to his going to the sales rooms, and, strange to say, the bank had furnished the attorney the exact amount of money for which the policies were sold. This attorney of the bank took the policies into his possession, but it is conceded that he was acting for the bank, used the money of the bank to pay for the policies, and thenceforth held the policies for the bank, except that he procured a loan of the Knickerbocker Trust Company upon the strength of said policies for $10,250, and subsequently for the further sum of $2,622.75. The loan procured of the Knickerbocker Trust Company for $10,250 was delivered'to the Varick Bank, and was evidently procured for that bank. I find no statement as to what was done with the $2,622.75 since loaned on the strength of said policies by the Knickerbocker Trust Company.
It is evident that the Varick Bank, on learning of the filing of the petition in bankruptcy, took advantage of the situation to get possession of these policies as owner without making a fair, honest, open, public sale, if it purposed to sell at public sale, and without any attempt to make a fair, honest, private sale of the policies. The bank made no effort whatever to ascertain the true value of these policies. It did not attempt to sell them to any person at private sale. It purported to sell at public auction. There is no pretense that at this sale, made at the Real Estate Sales Rooms, any information was given to the bystanders, if any there were, as to the age or situation of the insured or the nature or character of the policies. It does not appear that even the amount was stated.
There is still another view to be taken of this transaction. As between the bank and J. M. Mertens, it is conceded that the bank was a secured creditor. Subdivision “h” of section 57 of the bankruptcy act of July 1,1898, c. 541, 30 Stat. 560 [U. S. Comp. St. 1901, p. 3443], provides:
“The value of securities held by secured creditors shall be determined by converting the same into money according to the terms of the agreement pursuant to which such securities were delivered to such creditors or by such creditors and the trustee, by agreement, arbitration, compromise, or litigation, as the court may direct, and the amount of such value shall be credited upon such claims, and a dividend shall be paid only on the unpaid balance.”
It is evident that the act contemplates a determination of the value of securities held by secured creditors in one of two ways— either by converting the same into money, according to the terms of the agreement pursuant to which such securities were delivered to such creditors, or by the joint action of the creditors and trus
This pretended sale took place between the filing of the petition and the date of the adjudication. The filing of a petition in bankruptcy is a caveat to all the world, and operates as an attachment and an injunction. From the filing of the petition until the adjudication the property rights of the debtor are in abeyance. Bank v. Sherman, 101 U. S. 406, 25 L. Ed. 866; Mueller v. Nugent, 184 U. S. 1, 22 Sup. Ct. 269, 46 L. Ed. 405. Suits against a bankrupt, if founded on a claim from which a discharge would be a release, are to be stayed until after the adjudication; and in Bank v. Sherman, supra, the court said:
“The filing of the petition was a caveat to all the world. It was, in effect, an attachment and injunction. Thereafter all the property rights of the deb to'- were ipso facto in abeyance until the final adjudication. * * * Those who dealt with his property in the interval between the filing of the petition and the final adjudication did so at their peril.”
The provisions in the notes giving the bank the right to sell at public or private sale without notice, etc., were intended to furnish a remedy to the bank. Without impairing the obligation of the contract, it was perfectly competent for the act to suspend the exercise or enforcement of these remedies until after the adjudication. The act has done this, and hence these acts of the Varick Bank constituting the pretended sale of the policies in question were in violation of the act, and void. Conceding, for the sake of argument, that the bank might sell at public or private sale after adjudication, even without notice, it could not so sell before adjudication.
In the opinion of the court the exercise of the power of sale by the bank was and is subject to the supervision and control of the court. .While it would not deprive the bank of its right to have the value of these policies determined under the provisions of the contract, it has the power and should see to it that the bank exercises those powers honestly, fairly, justly, and in such a manner as to honestly determine with reasonable certainty the actual value of the securities in question.
The orders of the referee disallowing the claims are approved and affirmed.