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upon attacking transactions occurring within four months before the voluntary petition, would be lost if this proceeding should be dismissed, and the creditors left to the remedies which they would have at the present time, and which they have not previously exercised by reason of the pendency of this voluntary proceeding.
By section 14b of Act July 1, 1898, c. 541, 30 Stat. 550 [U. S. Comp. St. 1901, p. 3427], provision is made for the discharge of a bankrupt unless he has"(5) in voluntary proceedings been granted a discharge in bankruptcy within six years."
By the provisions of section 14a, the bankrupt may, within 12 months subsequent to adjudication, file an application for a discharge, and“if it shall be made to appear to the judge that the bankrupt was unavoidably prevented from filing it within such time, it may be filed within but not after the expiration of the next six months."
Many statutes of limitation are prevented from running by certain acts upon the part of the bankrupt, or by certain matters made express exceptions by the provisions of the act creating the limitation; but in the bankruptcy statute the period of four months prior to the filing of the petition, within which certain transactions may become preferences, is not extended by exceptions or reservations, and in a situation like that shown on the present motion the position of the creditors would be materially injured if the time intervening since January 11, 1907, should be lost by the dismissal or withdrawal of the present proceedings. The bankrupt must wait until January 17, 1908, before applying for his discharge, and (the 12 months after adjudication apparently expiring upon the 11th day of January, 1908) the bankrupt will be within the provisions of the statute giving him permission to apply for an extension of his time to apply for a discharge, inasmuch as he is unable by the force of the statute to apply for such discharge within.the statutory 12 months period. In this way the rights of the creditors will be entirely preserved, and yet the bankrupt will not be deprived of the benefit of a discharge. The necessary delay is the result of his own act, and to leave the bankruptcy proceedings undisturbed would seem to be the only method of doing equity as well as complying with the provisions of the bankruptcy statute. The language of the court in the case of In re Little, 137 Fed. 521, 70 C. C. A. 105, well sustains and explains the reasoning by which this conclusion is reached. The opinion contains the following:
"The expression 'within six years,' as we think, measures the time between the first and second discharge, and not between the first discharge and the filing of the second petition in bankruptcy.
The fundamental principle of the bankruptcy law is to take into legal custody the property of the bankrupt, and to distribute it ratably among creditors, protecting the latter from frauds and unjust preferences, and to relieve the honest bankrupt from his load of obligation. The latter may or may not result, but that in no way interferes with the right of the court, either by voluntary or involuntary proceedings, to take over and distribute among creditors the estate of the bankrupt. The fact that one has been discharged from his debts within six years cannot possibly be an objection to the institution of involuntary proceedings by creditors. That would leave them at the mercy of the debtor, and tend to the perpetration of the very frauds denounced by the bankruptcy
act. Why, then, should the debtor be debarred from doing that voluntarily which the creditors might compel, namely, the turning over of his estate for equitable distribution among his creditors ?”
The motion to withdraw the petition will be denied.
In re NATIONAL LOCK & METAL CO. .
(District Court, E. D. New York. July 16, 1907.)
BANKRUPTCY - CLAIMS - VALIDITY-PROCEEDINGS IN STATE COURT-APPEAL
Code N. Y. Civ. Proc. § 1351, provides for an appeal within 30 days without security, but declares that the appeal does not stay the execution of the judgment or order appealed from, in the absence of a stay directed by the judge. Held, that where, in a suit in the state court against a bankrupt's trustee to enforce the lien of a chattel mortgage on the proceeds of certain of the bankrupt's property, it was determined that the mortgage was void, from wħich judgment the creditor appealed, but failed to procure a stay, and an execution against him for costs was returned unsatisfied, the appeal was ineffective to prevent the trustee from assuming possession of the fund and disbursing the same free from the lien of the mortgage.
Morris H. Hayman, for Schleestein.
CHATFIELD, District Judge. On September 9, 1904, an involuntary petition in bankruptcy was filed against the National Lock & Metal Company, and in November of that year a trustee was appointed. The trustee took possession of certain property, upon which one Schleestein claimed a chattel mortgage for the sum of $7,500, filed September 3, 1904. Subsequently such proceedings were had that this court made an order, dated December 8, 1904, directing the personal property to be sold, and the proceeds, viz., $6,300, be deposited in a trust company, in the joint names of Schleestein and the trustee, to stand in lieu of the personal property described in the chattel mortgage, and to be held subject to any lien which might be found to exist in favor of Schleestein under said mortgage.
An action was begun in the Supreme Court of New York, involving the validity of this chattel mortgage, and upon May 3, 1907, a judgment was entered adjudging and decreeing the chattel mortgage fraudulent and void, and granting costs in favor of the trustee in bankruptcy, who was a party to the said suit. The trustee now asks for an order directing the payment of the sum on deposit, with accrued interest, to him, free and clear of any lien thereon. The mortgagee, Schleestein, has appealed to the Appellate Division of the Supreme Court from the judgment of May 3, 1907, but has given no security to stay proceedings under that judgment. Execution has been levied for the costs awarded, and this execution has been returned unsatisfied; but no application for any stay has been made, under the provisions of section 1351 of the Code of Civil Procedure of the state of New York, which provides as follows:
"An appeal, authorized by this title, must be taken, within thirty days after service, upon the attorney for the appellant, of a copy of the judgment or order appealed from, and a written notice of the entry thereof. Security is not required to perfect the appeal; but, except where it is otherwise specially prescribed by law, the appeal does not stay the execution of the judgment or order appealed from; unless the court, in or from which the appeal is taken, or a judge thereof, makes an order, directing such a stay. Such an order may be made, and may, from time to time, be modified upon such terms, as to security or otherwise, as justice requires.
The appellant might have applied to the state court for a stay, upon such terms as the court might consider sufficient; and it is suggested that, inasmuch as the fund is in a reasonably secure place, the difference between the rate of interest paid by the trust company, and per cent., the legal rate, might be the only loss for which security would be required. In the case of Steinback v. Diepenbrock, 5 App. Div. 208, 39 N. Y. Supp. 137, the appellant was allowed a stay, upon giving security to cover the difference between the legal rate of interest on a judgment, and the amount, viz., 2 per cent., accruing to a fund on deposit with the chamberlain of the city of New York. But on the present motion no such question arises. The money on deposit in the Franklin Trust Company was placed there to be held in lieu of the property claimed under the chattel mortgage. As far as the legal effect of the proceedings already had is concerned, this fund is in the same situation as if the property itself were in the possession of the trustee. No stay has been secured, and, the chattel mortgage having been held to be invalid, the trustee is under no obligation to await the outcome of any further proceedings.
The Code provided for a method by which, if the appellant desired to prosecute his appeal, he might have kept matters in statu quo. This he has not seen fit to do. The execution for costs has not been satisfied, but no undertaking is necessary to secure the payment of these costs, inasmuch as there has been no attempt to prevent the issuance of execution thereon. The fact that the execution has not been satisfied of itself indicates that, if the trustee should secure a further judgment upon the appeal, he would be unable to satisfy this out of the property of the appellant, and this fact furnishes an additional reason why the bankruptcy court should not, in effect, grant a stay, when the trustee is not protected from additional expense and loss.
There appears to be no reason why the trustee should not be allowed to proceed to administer the estate, unless in the state courts the appellant can protect the trustee or obtain a stay on such terms as to prevent loss.
The motion for the payment of the fund to the trustee, free and clear of any lien, and for the execution of such papers as may be necessary to accomplish that result, will be granted.
In re STROBEL
(District Court, E. D. New York, July 16, 1907.)
Bankr, Act July 1, 1898, c. 541, $ 39b, 30 Stat. 556 (U. S. Comp. St. 1901, p. 3436], providing that referees in bankruptcy shall not act in cases in which they are directly or indirectly interested, does not disqualify a referee, where the only interest he has in the matter submitted to him is the compensation he may receive by way of fees.
Albert C. Aubery, for bankrupt.
CHATFIELD, District Judge. An involuntary petition in bank- ? ruptcy was filed August 17, 1905, and a receiver appointed, who turned over to one Bachrach, a creditor, certain property which, in the receiver's opinion, belonged to said Bachrach. Subsequently, a trustee was elected, who objected to the delivery of these goods by the receiver. Upon a motion by the creditor to have the action of the receiver confirmed, and that he be permitted to retain the property, a bond was given, in the sum of $3,500, to take the place of the property, pending a reference to the referee in bankruptcy. Upon the 11th day of June, 1906, the referee, as special commissioner, reported that the act of the receiver, in so far as it related to the delivery of these goods to the creditor, should not be confirmed. An order was entered confirming the report of the referee, upon August 2, 1906. On the 19th of November, 1906, a further reference to the referee in bankruptcy, as special commissioner, was ordered, to ascertain and inquire as to the value of the property wrongfully obtained by this creditor, in the place of which the bond had been given. The special commissioner, upon the 3d day of May, 1907, filed a report, in which he fixed the value of this property at $3,015./6. Upon a motion to confirm this report, the creditor makes objection and asks that the preceding orders of the referee and all action thereunder be set aside, and that the entire matter be sent to a new special commissioner, on the ground that the referee in bankruptcy, who had acted as special commissioner upon the two preceding references above referred to, was interested in the questions referred to him, in so far as he, as referee, might receive additional fees from any property turned over to the trustee, and on the further ground that the trustee was also the clerk of this same referee. The creditor, in addition to these fundamental objections, objects to the confirmation of the referee's report upon the merits, in that the special commissioner disregarded certain testimony offered by him as to the price which he actually received for the sale of certain of the articles included in the property mentioned.
Taking up the last objection first, it appears from the record that the property, among other things, consisted of watch cases, certain refuse containing gold filings, and various materials and articles of gold. The referee has found that the testimony offered by the creditor as to the sale made by him through the United States assay office, of the
actual quantity of gold contained in certain material submitted, is indefinite; that it is not proven that the gold assayed covered all of the articles taken; and that, much of the material being manufactured into the form of watch cases, etc., its value was not represented merely by the amount of gold included therein. Certain questions as to the market value of 8, 12, and 16 carat gold are also involved; but upon all of these questions of fact the report of the referee is apparently correct, and there seems to be no reason for disturbing his determination thereon.
As to the objection to the appointment of the referee in bankruptcy as special commissioner, the United States Circuit Court of Appeals in this Circuit (In re Abbey Press, 134 Fed. 51, 67 C. C. A. 161) holds that the bankruptcy act and general orders, taken together, give the referee authority to pass upon questions involving a claim for property which it is sought to bring into the bankrupt's estate. In that case the court was passing upon the powers of the referee, rather than upon a referee acting as special commissioner. But the situation is exactly parallel, and the reasoning in that case seems to apply directly. The court said:
"The only pertinent statutory limitation upon the powers of referees in this connection is that they shall not act in cases in which they are directly or indirectly interested.' Act July 1, 1898, c. 541, § 39b, 30 Stat. 556 [U. S. Comp. St. 1901, p. 3436]. This provision cannot apply to the compensation by way of commissions or sums paid as dividends, etc., because, if so applied, the effect would be to disqualify the referee from acting in any case. The referee's commission is upon the amount paid creditors, not necessarily upon the amount collected, which might be largely disbursed in making the collection. Referees, in the performance of their duties, must be constantly deciding matters which will affect the amount paid to creditors. The amount of allowance of attorneys and appraisers, the decision of applications by third parties for property in the custody of the trustee, but claimed to belong to them, must always affect their commissions. If the statute were held unconstitutional on this ground, such ruling would terminate substantially all of the present procedure thereunder."
In so far as the creditor may be seeming to urge any conceivable constitutional objection, his objection would apply as well to the provisions of the bankruptcy law itself, in defining the powers and duties of a referee in bankruptcy, and it does not seem to this court that there is any sufficient ground urged for questioning the constitutionality of either the bankruptcy law or the employment of a referee in bankruptcy as a special commissioner, with relation to an issue in the proceeding in which he is acting as referee.
It is explained by the affidavits upon this motion that the trustee is not the clerk of the referee, and never has been in his employ, and that objection therefore does not seem to be based upon fact.
The objections to the report of the referee will be overruled, and the report confirmed, but without costs.