In re Harralson

HOOK, Circuit Judge.

The trustee in bankruptcy complains of an order of the District Court sustaining the right of a lien creditor, who purchased the incumbered property at trustee’s sale, to have the purchase’ price credited on his allowed claim, instead of requiring him to make payment in cash, and denying the trustee and referee their commissions out of the proceeds.

Among the assets of the bankrupt was a sawmill which was subject to a. mortgage securing a note for $1,640. It was admitted the mortgage was valid and a first lien. The mortgage creditor’s claim was accordingly allowed as a secured one. The trustee and the creditor joined in a petition to the referee that the property be sold free of the mortgage and that the lien be transferred to the proceeds. The petition was granted, and at the sale duly made by the trustee the creditor became, the purchaser. The purchase price was $1,500, and the creditor asked that it be credited upon his allowed claim without deduction. The referee ordered him to pay the price in full to the trustee, or to pay their commissions on the sale, amounting to $85. The creditor declined to do either, and upon his petition for review he was sustained by the District Court. The trustee complains of the action of the court.

A court of bankruptcy should not assume charge of incumbered property and liquidate the liens on it,, unless there are reasonable grounds for believing some advantage will accrue to the bankrupt’s estate. If the validity of the liens is unquestioned, and their amount is such that there is probably no excess of value in the property, it should be surrendered to the lienholders or others entitled, unless some other reason appears for retaining control. A court of bankruptcy is not a court of general jurisdiction for the adjudication of controversies or the administration of assets in which the bankrupt’s estate is in no wise interested. If, hpwever, cognizance is taken, it should be assumed some .benefit or' advantage was expected to accrue to the general creditors, and if it results otherwise it is equitable ,to make the general estate bear the cost of the proceeding. Here the proceeds of sale did not equal the admitted incumbrance, and the deficiency should not be further increased by deducting the commissions of the officers, if there is a general estate against which they can be charged. This is in analogy to the general practice in equity in foreclosure cases, where, if possible, the judgment lien creditors are paid in full, and if a deficiency results from deducting the costs from the proceeds it goes as a judgment against the- debtor. It appears here that there was a general estate of the bankrupt out of which the commissions might be paid. Therefore' we need not determine- what should be done in case of a sale by a trustee in bankruptcy at the instance or with the concurrence of a lien creditor, a deficit of proceeds, and no general estate.

The creditor was entitled to have the purchase price credited on his allowed claim. It would have been a useless ceremony for him to pay the $1,500 into court and then have it repaid him after credit on his allowed claim.

The petition to revise is denied.