Opinion
No. 1372.
August 5, 1932.
Carlisle, Brown Carlisle, of Spartanburg, S.C., for bankrupt.
Samuel R. Watt, of Spartanburg, S.C., for trustee.
Osborne Butler, Lyles Daniel, Perrin Tinsley, H.E. DePass, Jr., Jesse W. Boyd, and Nicholls, Wyche Russell, all of Spartanburg, S.C., for the various creditors.
In Bankruptcy. In the matter of William Simpson Glenn, Sr., bankrupt. On exceptions to, and petitions for the review of, referee's report concerning sale of mortgaged realty of bankrupt's estate and disposition of proceeds.
Order in accordance with opinion.
The report of the referee on petitions for sale of real estate follows:
This bankrupt was possessed at the time of the adjudication with considerable real estate, some encumbered and some unencumbered, which has under the Bankrupt Act (11 US CA) passed in due course to the trustee. Petitions have been filed by a number of the mortgage creditors interested in various parcels of the property, such petitions being addressed to Hon. H.H. Watkins, District Judge, and which petitions set forth the liens held by the various creditors and pray sale of the real estate covered by such liens in satisfaction thereof. The trustee has also filed a petition praying the sale of certain of the real estate, assets of this estate, including in his petition several parcels covered by petitions of mortgagees. Other petitions have been filed requesting disclaimers as to alleged burdensome property and some lienholders have challenged by returns to the petitions the jurisdiction of the bankruptcy court to foreclose mortgages, and sell property free from liens or subject thereto, so as to give by the trustee's deed a good title. The various contentions of the parties with respect to these matters will be hereinafter fully considered. All the petitions relating to the sale of real estate have been referred by the District Judge to me as referee, and I now report my conclusions of law and fact with respect to all matters connected therewith. A considerable number of questions have arisen in the course of the consideration of these petitions and some of them justify a somewhat extended discussion, in order to thoroughly understand the basis on which the conclusions are reached.
In order that there may be an orderly account of the various properties involved in this report, and of the liens on each parcel of property and the amounts thereof, it is undoubtedly best that in commencing this report each parcel be treated separately and the liens arranged in accordance with their rank, priority, and in relation to the respective parcels which they cover. For convenience I shall number the various individual tracts and reference in this report to any particular parcel will be by the number assigned to it.
Taxes due the city of Spartanburg, state of South Carolina, and county of Spartanburg are not listed with respect to the liens on each piece of property, but all mortgage and judgment liens are junior to the rights of the city, state, and county to the payment of any accrued taxes.
Property Involved.
1. The first parcel is that described as follows:
"All that lot of land in the City and County of Spartanburg, South Carolina, on the south side of that portion of West Main Street called Morgan Square, and described as follows: Beginning on the southwest corner of Morgan Square and Spruce Alley at the intersection of the inner edge of sidewalk of West Main Street with the west line of Spruce Alley, and running thence in a southerly direction with west line of Spruce Alley twelve and two-tenths feet; thence in a westerly direction forty-seven hundredths feet; thence in a southerly direction with west line of Spruce Alley one hundred and ninety-seven and eight-tenths feet to Broad Street; thence in a westerly direction with the north line of Broad Street fifty feet to lot belonging to the estate of Joseph Walker; thence in a northerly direction with line of said lot eighty feet to lot of H.A. Ligon; thence in an easterly direction with said Ligon's back line twenty-five feet; thence in a northerly direction with said Ligon's east line One hundred and thirty feet to West Main Street; thence in an easterly direction with inner edge of sidewalk on West Main Street twenty-five and sixty-three hundredths feet to the beginning, be the said distances more or less. This lot contains on the front and narrow portion a three-story brick building, and on the Broad Street portion the building is only one-story high. It is bounded on the north by West Main Street (Morgan Square) and lot of H.A. Ligon; on the east by Spruce Alley; on the south by Broad Street, and on the west by lot belonging to the estate of Joseph Walker and lot of H.A. Ligon. Being the same property conveyed to me by J.B. Lee, by deed dated June 27, 1914 recorded in R.M.C. office for Spartanburg County in Deed Book 5-M, page 109."
The first lien on this property (except taxes as hereinabove explained) is held by the Life Insurance Company of Virginia under a mortgage executed by W.S. Glenn to that company to secure a note dated June 13, 1919, which mortgage is recorded in R.M.C. office for Spartanburg county, the office where, by law, a deed of such an estate is required to be recorded, in book 98, page 674. This mortgage contains provisions for repayment of the principal, interest at 6 per cent., insurance premiums, taxes, and a reasonable attorneys' fee. The amount due on this mortgage as of May 20, 1932, is the sum of $32,049.72, which includes all amounts due thereunder on that date except attorneys' fees. To this amount should be added interest at 6 per cent. from May 20, 1932, to the date of final payment and the further sum of $870.50, as attorneys' fees to Osborne Butler, attorneys for Life Insurance Company of Virginia, which amount I find to be reasonable, for their services herein. I will hereinafter discuss the right to attorneys' fees and the basis on which I have calculated the same.
The second lien on this property is a mortgage executed by W.S. Glenn to Moses Greenewald, I.H. Greenewald, and Max Greenewald, dated June 21, 1922, providing for interest at 8 per cent. and attorneys' fees, which mortgage is recorded in R.M.C. office for Spartanburg county in Mortgage Book 125, page 84. There is due on this note and mortgage as of June 30, 1932, the sum of $3,937.02, which includes all amounts due to June 30, 1932, except attorneys' fees and these attorneys' fees in the amount of $196.85 are due to Lyles Daniel, attorneys for the present holder and owner of this note and mortgage, Mr. I.H. Greenewald, to whom the note and mortgage were in due course assigned.
The third lien on this property is a judgment obtained by L.L. White against W.S. Glenn represented by judgment roll No. 24819 in the clerk's office for Spartanburg county, entered in the clerk's office on the 8th day of May, 1931. This judgment was obtained more than four months prior to the filing of the petition in bankruptcy and is therefore a valid lien on the debtor's real estate under the law of South Carolina making such judgments a lien on said real estate. Since this judgment was obtained long before the four-month period, and since there is clearly no question about it, I will make no further statement with respect to its validity as a lien on the bankrupt's real estate. It amounts to $343.95, with costs of $16.80, and on the judgment must be added interest at 7 per cent. from March 23, 1931, to the date of payment.
2. The second parcel of property involved is described as follows: "All that certain lot, piece or parcel of land situate, lying and being in the City of Spartanburg, County of Spartanburg, South Carolina, at the junction of East Main and South Church Streets, fronting 25 feet on East Main Street and running back with South Church Street 101 feet, with two-story brick store building and cellar thereon; being bounded on the north by East Main Street, on the east and south by property of the F.M. Trimmier Estate, and on the west by South Church Street. Being the same property conveyed to William S. Glenn by J.N. Cudd by deed dated September 30, 1905 and recorded in R.M.C. office for Spartanburg County on October 2d 1905 in Deed Book 4-G, page 589."
The first lien on this property is held by the Life Insurance Company of Virginia by virtue of a mortgage securing a note dated June 2, 1930, which mortgage is recorded in R.M.C. office for Spartanburg county in Mortgage Book 178, page 301. On this mortgage is due as of May 20, 1932, the sum of $26,751.50, which includes all amounts secured by that mortgage as of that date except attorneys' fees. To this amount must be added interest at 8 per cent. from May 20, 1932, to date of payment and the further sum of $817.50 as attorneys' fees to Osborne Butler, for their services herein. As to this property, I am of the opinion, for the reasons hereinafter given, that it will be best if the property is sold subject to the deferred balance of the Life Insurance Company of Virginia's mortgage. I recommend that it be sold upon the conditions hereinafter stated.
The second lien on this property is held by Max Greenewald by virtue of a mortgage securing a note dated November 3, 1930, recorded in book 191, page 347, R.M.C. office for Spartanburg county. There is due on this mortgage as of June 30, 1932, the sum of $15,786.62, which includes all amounts secured by the mortgage as of that date, except attorneys' fees. To this amount must be added interest at 7 per cent. from June 30, 1932, to the date of final payment and the further sum of $644.67 attorneys' fees to Lyles Daniel, attorneys for Max Greenewald.
The third lien is the L.L. White judgment.
3. The third parcel of property is described as follows:
"All that certain lot or parcel of land in the State and County aforesaid, in the City of Spartanburg, on the south side of West Main Street (Morgan Square) and described as follows, to-wit: Beginning at a point twenty (20) feet eleven inches east of the inner edge of the sidewalk on the corner of Wall and West Main Streets, and running thence S. 25 E. Fifty nine and 63/100 (59.63) feet to a point; thence S. 26 E. Thirty three and 3/10 (33.3) feet; thence in a westerly direction about nineteen (19) feet to Wall Street; thence in a southerly direction with the inner edge of sidewalk of Wall Street sixteen and 85/100 (16.85) feet to a point on a 12 foot alley; thence with said alley N. 69 E. Sixty one and one-tenth (61.1) feet to corner of Heinitsh's lot; thence in a northerly direction with Heinitsh's line one hundred seventeen and 92/100 (117.92) feet to a point on west Main Street (Morgan Square); thence in a westerly direction with the inner edge of sidewalk of West Main Street (Morgan Square) Thirty-eight (38) feet to the beginning corner, as will more fully appear by reference to plat made for W.S. Glenn by Paul H. Nash, Surveyor, April 1911, recorded in R.M.C. office for said County in Plat Book No. 3 at page 70; bounded on the north by West Main Street (Morgan Square) and lot of Carolina National Bank (formerly Clavert Johnson); on the east by lot of G.W. Heinitsh estate; on the south by 12 foot alley; and on the west by lot of Carolina National Bank and Wall Street; said lot being composed of the property conveyed to me by Sallie F. Wilson by deed dated August 21, 1906, and by deed of Caroline Stevens, Laura Stevens and Lillie May Steadman to me dated May 16, 1910."
The first lien on this property is held by the Life Insurance Company of Virginia in the form of a mortgage secured by a note dated March 31, 1927, which mortgage is recorded in book 172, page 32. There is due on this note and mortgage as of May 20, 1932, the sum of $29,589.24, which includes all amounts secured by said mortgage up to that date, except attorneys' fees. To this amount must be added interest at 6 per cent. from May 20, 1932, to date of payment, and the sum of $845.90 as attorneys' fees for Osborne Butler, attorneys for Life Insurance Company of Virginia.
The only other lien on this property is the L.L. White judgment.
4. The fourth parcel of property is described as follows: "All that certain tract or parcel of land on the waters of Chinquapin Creek and known as part of the Spartanburg Water Works property, beginning at an iron pin, L.P. Walker's corner and running thence N. 41 E. 1734.6 to iron pin, thence N. 51.10 W. 1984.2 to brushy tree near branch, thence S. 43.31 W. 1145.5 to corner, thence N. 47.47 W. 2096.8 to corner, thence S. 43.31 W. 210.5 to stone, thence N. 49.49 W. 377.1 to stone, thence N. 40.26 E. 163.9 to stone, thence N. 48.32 W. 1101.1 to stone, thence S. 7.47 W. 630.1 to concrete hub, thence S. 49.25 E. 2605.4 to iron pin, thence S. 57.03 W. 542.2 to iron pin, thence S. 72 E. 634.2 to B.J. tree, thence N. 78.51 E. 366.6 to iron pin at a stump, thence S. 49.21 E. 2063.59 to beginning corner. Said tract of land containing 124.035 acres more or less. Being situated on the head of the waters of Chinquapin Creek and bounded on the North by lands of J.N. Cudd J.J. Cudd; and on the West by J.J. Cudd W.S. Glenn; and on the South by lands of W.J. White, W.S. Glenn L.P. Walker; and on the East by L.P. Walker. Said land deeded to us by the City of Spartanburg, deed recorded in Deed Book 7 `I' at page 388 in office of R.M.C. Spartanburg County."
The undivided one-half interest of W.S. Glenn is all that is involved in this proceeding and therefore only a one-half interest will be sold by the trustee. The first lien on this property is held by I.H. and Max Greenewald in the form of a mortgage securing a note dated March 12, 1930, which mortgage is recorded in book 191, page 11, on which is due the sum of $6,144.05, as of June 30, 1932, which amount includes everything secured by this mortgage as of the date given except attorneys' fees. To this amount must be added interest thereon at 8 per cent. from June 30, 1932, and the further sum of $307.20 as attorneys' fees for Lyles Daniel, attorneys for mortgagees.
The second lien on this property is the judgment of L.L. White.
5. The fifth parcel of property is described as follows: "All that certain lot of land just without the limits of the City of Spartanburg, said County and State, shown and designated as lot #22 of property of W.S. Glenn, known as `North Spartanburg' on plat made by Ira U. Kauffman, C.E., April 1928; said lot fronting 60 feet on Ridgecrest Avenue and running back along the line of lot #24 on said plat 218.1 feet; along line of lot #20 on said plat 213.0 feet, with a rear width of 60.22 feet."
As to this property, after investigation, the trustee concluded that the property was burdensome and was not worth nearly the amount of the first mortgage. Testimony was taken and from it I conclude that there was no question but that the property was burdensome and I therefore ordered the trustee to disclaim, which he has done. This property therefore passes out of consideration.
6. The sixth parcel of property is described as follows: "All that lot or parcel of land in the City of Spartanburg, State and County aforesaid on the West side of North Church Street and known and designated as Lot No. 3 on plat of A.F. McDowell property, made by W.N. Willis, June, 1923, and recorded in Plat Book No. 7, page 143, in the Office of the R.M.C. for said County, reference is hereby made to said plat for a full description of this lot. This being the same property deeded to me by deed to be recorded herewith."
I have investigated and determined that this property was clearly burdensome and therefore ordered the trustee to disclaim, which he has done and this property is therefore not involved further.
7. The seventh piece of property is described as follows: "All that lot of land with dwelling house thereon, situated in the City and County of Spartanburg, South Carolina, on the North side of East Main Street and being my residence lot, bounded by said Street and situated between the property now or formerly belonging to Mrs. J.W. Simpson and lot now or formerly belonging to H.L. Bomar, and being the same property conveyed to me by Millie C. Dean, J.J. Dean and Sallie D. Heinitsh March 21, 1907 by deed duly recorded in proper office for said County, reference to which record is hereby made for fuller description."
The first lien on this property is held by Mrs. Elizabeth B. Buckheister in the form of a mortgage, executed April 1, 1921, recorded in book 122, page 314, securing note on which is due as of June 30, 1932, the sum of $10,887.25, which includes all amounts secured by the mortgage to that date except attorneys' fees. To this amount must be added interest at 8 per cent. from June 30, 1932, to the date of final payment and the further sum of $522.18, as attorneys' fees to H.E. DePass, Jr., attorney for the mortgagee.
The second lien on this property is the White judgment.
8. The eighth piece of property is that described as follows: "All that certain lot or parcel of land, in the said State and County, within the City of Spartanburg, on the East side of Magnolia Street, with two 2-story buildings thereon, being Nos. 119 121, embracing all of lot #7, and about 21.2 feet of Lot #6 and a strip of land eight inches wide by 101 feet long, on South side of said lot #7, as shown on plat made for W.S. Glenn, by W.B.W. Howe, C.E. dated April 16, 1903, and recorded in Book ZZZ, page 696. It is understood and agreed that this mortgage is intended to cover that lot of land upon which the store rooms Nos. 119 and 121 are situated, being about 44.5 feet front on Magnolia Street."
The first lien on this property, with the exception hereinafter noted, is the mortgage held by the South Carolina Annual Conferences, dated July 25, 1914, recorded in book 89, page 314, on which is due as of June 30, 1932, the sum of $9,406.66, which amount includes as of that date everything secured by the mortgage except attorneys' fees. To the amount must be added interest at 6 per cent. from June 30, 1932, to the date of final payment and the further sum of $470.33 as attorneys' fees to Jesse W. Boyd, attorney for the mortgagee.
It appears, however, that this mortgage does not now cover lot No. 7 on the Howe plat for the reason that in 1915 a loan was made by Converse College on lot 7 and at that time Mr. H.B. Carlisle who was treasurer for the South Carolina Annual Conference and also attorney for Converse College intended to execute a waiver of the lien of the South Carolina Annual Conference mortgage in favor of the mortgage to Converse College so as to make Converse College's mortgage a first lien on lot 7. Mr. Carlisle so testified and I therefore conclude that a waiver was either executed at the time the Converse College mortgage was drawn or was intended to be executed and in order to carry out the intention of the parties I recommend that this deficiency in the record be supplied and that the Converse College mortgage be held to be a first mortgage on lot No. 7 and the South Carolina Annual Conference mortgage held the first mortgage on the other property described therein and a second mortgage on lot No. 7. The Converse College mortgage referred to was executed to secure a note dated April 13, 1921, recorded in book 122, page 357, and on this mortgage is due as of June 30, 1932, the sum of $6,479.07, which includes all amounts secured by the mortgage up to that date except attorneys' fees. To this amount must be added interest at 7 per cent. from June 30, 1932, to the date of final payment and the further sum of $323.95, as attorneys' fees to Carlisle, Brown Carlisle.
The White judgment ranks immediately after these two mortgages on lot 7 and immediately after the South Carolina Annual Conference mortgage on the other property described in it.
The attorneys for Converse College made return to the petition for the sale of the bankrupt's real estate in which they requested that the bankruptcy court surrender its jurisdiction as to that property in order that they might foreclose in the state courts of South Carolina, contending that the bankruptcy court has not sufficient jurisdiction to foreclose mortgages or to sell property free from liens so as to bar the dower of the bankrupt's wife. I have concluded that this request should be refused and my reasons therefor will be stated in full hereinafter.
9. The ninth piece of property is described as follows:
"All that tract or parcel of land in the County of Spartanburg and State aforesaid about 1½ miles northwest of the City of Spartanburg, containing one acre, more or less, and being the same property described in Deed Book 6-G at page 106, R.M.C. Office for Spartanburg County;
"Also, all that lot or parcel of land in said County and State, about 1½ miles from the City of Spartanburg, fronting on Howard Gap Road (old course) Twelve Hundred Eighty-eight (1288) feet and containing approximately twenty-three and 05/100 (23.05) acres, more or less, bounded by Southern Railway, Howard Gap Road, and others, and being fully described in Mortgage Book 117, at page 323."
The interest of the bankrupt in this property is only a one-eighth undivided interest and after investigation and after taking testimony, it conclusively appears that in so far as the bankrupt's interest in this property is concerned, the property is clearly burdensome and not worth the first mortgage. I therefore ordered the trustee to disclaim any interest in this property and he has executed such a disclaimer and this property is not involved further in this proceeding.
10. The tenth piece of property is described as follows: "All that tract of land in the County of Spartanburg and State of South Carolina about ¼ of a mile from the limits of the City of Spartanburg on the east side of the Howard Gap Road containing 97½ acres, more or less, and bounded by lands of W.M. Beattie, L.P. Walker, Thomas Bomar Estate, S.W. Scruggs and by Howard Gap Road and Centennial Avenue, being composed of the parcels of land purchased by the said W.S. Glenn from Harriet Keriston, Estate of Chas. Bomar (colored) and Jesse W. Boyd."
The first lien on this property is now held by Ellie Lee Kahl, who was formerly Ellie Lee Hydrick. This lien was represented by mortgage executed by W.S. Glenn to D.E. Hydrick dated September 27, 1919, recorded in book 114, page 21. Ellie Lee Kahl has succeeded to the interest of D.E. Hydrick and there is now due on this mortgage as of June 30, 1932, the sum of $6,187.28, which covers all amounts secured by the mortgage to that date, except attorneys' fees. To this amount must be added interest at 6 per cent. from June 30, 1932, to date of final payment and the further sum of $309.36 as attorneys' fees to Carlisle, Brown Carlisle, attorneys for the mortgagee. The same contentions with respect to the jurisdiction of this court were made by the attorneys representing this mortgagee as were made with respect to the Converse College mortgage.
The second lien on this property is the White judgment.
11. The eleventh piece of property is described as follows: "All that lot or parcel of land, near the City of Spartanburg, in the County and State aforesaid, and known as Lot No. 5 of T.D. Ladshaw, said plat recorded in Plat Book No. 2, at page 186, bounded by lots Numbers Two (2), Four (4), Six (6) and by Jas. L. Maxwell and D.R. Duncan's estate."
A mortgage executed by W.S. Glenn and B.T. Earle to Richard S. Gantt, now held by Mary R. Gantt, as executrix, was offered as a first lien on this property. The trustee objected to the mortgage as a lien for the reason that the same is out of date and barred by the statute of limitations. I conclude that the lien of this mortgage is no longer effective and sustain the trustee's objections. My reasons for this conclusion will be fully given later in this report. This leaves the L.L. White judgment as the first lien on this property. As to this property, it will, of course, have to be sold subject to the inchoate right of dower of the bankrupt's wife unless the trustee can succeed in making arrangements to secure a renunciation on his deed. I will discuss the question of dower with respect to all the property in a subsequent portion of this report.
As to this parcel of property Mr. Earle conveyed his interest to Mr. Glenn before the adjudication in bankruptcy so that this estate now owns the entire interest in this parcel of property.
12. The twelfth parcel of property is described as follows: "All that lot or parcel of land lying and being situated on Magnolia Street of the City of Spartanburg and County and State aforesaid and known on plat of W.B.W. Howe made April 16, 1903 as lot #8. Said plat is recorded in Book ZZZ at page 696 on which is situated a brick garage, said lot measures 126.4 feet on the East side, 73 feet on the South side, and 71.3 on North side; 134.9 feet on the West side including a 10 foot lane which leads to Magnolia Street."
The first lien on this property is held by H.H. Herring in the form of a mortgage executed by W.S. Glenn on March 21, 1931, recorded in book 122, page 280. The amount due on this mortgage as of June 30, 1932, is the sum of $8,532.42, which includes all amounts secured by the mortgage as of this date, except attorneys' fees. To this amount must be added interest at 8 per cent. from June 30, 1932, to date of final payment, plus attorneys' fee of $426.62 to Carlisle, Brown Carlisle, attorneys for the mortgagee. The same contention with respect to jurisdiction of this court was made in connection with this mortgage as was made in connection with the Converse College and Ellie Lee Kahl mortgage. The White judgment follows the Herring mortgage as a lien on this parcel of property.
13. The thirteenth parcel is described as follows: "All my undivided interest, the same being one-fourth (1/4), in and to all those two lots of land, and the buildings thereon, lying and being in the City of Spartanburg, County and State aforesaid, known as Lots Nos. 1 and 2 on plat made for me by W.B.W. Howe on April 16, 1903, each lot fronting on Magnolia Street, twenty-five (25) feet, and running back, of uniform width, one hundred and twenty-five (125) feet. Bounded on the West by Magnolia Street, South by ten foot lane, East by lot No. 8, and North by lot of Mrs. Russell and children. For a fuller description of said lots, see said plat of W.B.W. Howe recorded in R.M.C. office of Spartanburg County, S.C., in Book ZZZ, page 696."
The first lien on this property is a mortgage held by R. Gantt Jervey executed by W. S. Glenn on January 2, 1915, and recorded in book 90, page 272. There is due on this mortgage as of June 30, 1932, the sum of $3,103.83, which includes everything secured by the mortgage up to that date except attorneys' fees. To this amount must be added interest at 7 per cent. from June 30, 1932, to date of final payment and the further sum of $155.19 attorneys' fees to Nicholls, Wyche Russell, attorneys for mortgagee. The interest of the bankrupt in this property is only an undivided one-fourth interest and the sale will therefore be of a one-fourth interest in the property described in this paragraph.
The White judgment follows as the other lien on this property.
14. The fourteenth parcel of property is described as follows: "All that lot or parcel of land, lying and being in Spartanburg County, State of South Carolina, containing one hundred thirty seven and five-tenths (137.5) acres, more or less, lying on Ben's Creek, waters of South Tyger River, bounded by lands now or formerly belonging to William Hughes, Jonas Anderson, W.R. Gaston and others, being more particularly described by courses and distances, metes and bounds by plat made by H.G. Barley, Surveyor, 1919, to which plat reference is hereby made for a more particular description. This being the same tract of land conveyed to J.H. Brockman by H.B. Carlisle, Master, November 4th, 1889, recorded in deed Book DDD, page 55, R.M.C. office, Spartanburg County. Courses and distances as follows: Beginning at a pin at the northeast corner and running thence N. 18-15 W. 870 feet; thence N. 15-30 E. 420 feet; thence N. 19-15 W. 870 feet; thence N. 15-30 E. 420 feet; thence N. 19-15 W. 330 feet to stake on public road; thence N. 29 E. 2050 to forks of roads; thence to stake; thence N. 56 E. 490 feet; thence S. 33 E. 2560 feet to stone; thence S. 62 2900 feet to the beginning corner as will appear by reference to said plat, and being property conveyed by J.C. Wrightson, Trustee of James Hiram Brockman to W.S. Glenn, by deed recorded in Book 7-L, page 19."
Upon investigation it was found that this property was clearly burdensome and I so determined from the testimony and ordered the trustee to disclaim, which he has done, and this parcel of property is therefore no longer an asset of the estate.
15. The fifteenth parcel is described as follows: "One-half interest in that lot of land in the City and County of Spartanburg, located on the North side of Morgan Square between N. Spring St. and the Cleveland Hotel, fronting 27 feet on Morgan Square and running back to Ezell Street; said lot being appraised at $4050.00 and being encumbered by a mortgage given by W.S. Glenn and J.N. Cudd to LeRoy Moore, Master, June 12, 1926, originally for $12,250.00 recorded in Mortgage Book 51 at page 220. The property, as mortgaged, containing 52 feet on Morgan Square, however, from the original lot there was sold to the City of Spartanburg 25 feet therefrom."
The bankrupt only owns a one-half undivided interest in this property, the other one-half interest being owned by J.N. Cudd and therefore the trustee's sale will only be of a one-half interest.
The first lien on this property is a mortgage executed by W.S. Glenn and J.N. Cudd, to LeRoy Moore, master for Spartanburg county, dated June 12, 1926, recorded in book 51, page 220, to secure a bond of the same date, both bond and mortgage having been assigned thereafter to Aug. W. Smith Company, which is now the owner thereof. There is due on this bond and mortgage as of June 30, 1932, the sum of $11,493.17, which includes all amounts secured by the mortgage as of that date except attorneys' fees. To this amount must be added interest thereon at 7 per cent. from June 30, 1932, and the further sum of $537.33, as attorneys' fees for Perrin Tinsley, attorneys for the mortgagee.
The only other lien on this property is the White judgment.
16. The sixteenth parcel of property is described as follows: "All that lot with the business building thereon in said State and County in the City of Spartanburg, on the East side of Magnolia Street, measuring 26 ft. front, more or less, running back 125 ft., more or less, being all of lot No. 5 and so much of lot No. 6 as is necessary to contain the entire building, which said lots are delineated on plat made for me in 1903 by W.B.W. Howe, recorded in book ZZZ, page 696, conveyed to me by William Fowler by deed dated April 15, 1903, recorded Book ZZZ, page 707."
A note and mortgage of date October 14, 1910, recorded book 73, page 326, was offered in evidence as a first lien on this property. The trustee objected that the lien of the mortgage was out of date and barred by the statute of limitations. I find that the lien is barred by the statute and will give my reasons therefor hereinafter in connection with this and the Richard S. Gantt mortgage.
This leaves this property unencumbered except for the White judgment and the property will, of course, have to be sold subject to the inchoate right of dower unless the trustee can arrange for renunciation.
Jurisdiction of Bankruptcy Court.
In view of the various contentions made by certain mortgagees, the "reservation of rights" filed by the bankrupt's wife and of the importance of these questions, I think it advisable to devote a portion of this report to a discussion of these issues. They go directly to the jurisdiction of the court to deal with property of bankrupts under certain conditions and are therefore of fundamental importance.
Certain of the mortgagees, immediately upon the adjudication of bankruptcy, filed their petitions praying foreclosure of their mortgages and the sale of the mortgaged property in satisfaction of the liens they hold. These petitions along with others subsequently filed, and along with the petition of the trustee for sale of the properties embraced in this report, were made the basis of a rule to show cause issued by this court and directed to all creditors and particularly lien creditors, who were specifically named and served with copies of the petitions and the rule. In addition to service on the lien creditors, and the creditors generally, the rule to show cause, as well as the petitions of all mortgagees, and the petition of the trustee were duly served on Willetta C. Glenn, wife of the bankrupt. This rule to show cause and the petitions of the mortgagees and trustee are herewith annexed as a part of my report in order that the court may know the exact nature and extent of the proceedings had, leading up to the actual references and argument.
On the return day of the rule, all lienees came in and filed return, joining in the prayer of the petitions, except that the mortgagees Ellie Lee Kahl, Converse College, and H.H. Herring filed returns setting up their mortgages, but denying in effect the jurisdiction of this court to deal therewith, and asserting their right to have the court renounce jurisdiction to leave them free to proceed in the state court. Mrs. Willetta C. Glenn, who was represented for the purpose of her special appearance by the same attorneys representing the Kahl, Converse College, and Herring mortgages, filed with the court an affidavit which it is assumed was intended to be in the nature of an objection to the jurisdiction of this court to deal with the matters referred to in the petitions. The body of this notice or affidavit, being brief, is incorporated herein and was as follows:
"Mrs. Willetta C. Glenn, the wife of the above named Bankrupt, having been served with copy of Notice of meeting to consider sale of real estate and rule to show cause dated February 26, 1932, herewith appears specially in this proceeding solely for the purpose of entering of record a full reservation of all her rights, interests and incidents by way of dower in the real estate involved in this proceeding and further for the purpose of entering of record the fact that so far as her consent may be necessary thereto, she withholds her consent to the doing of anything in this proceeding that would in any way prejudice her said rights, interests and incidents.
"Wherefore having specially appeared solely for the purpose aforesaid, she elects to take no further part in this proceeding."
These mortgagees who had invoked the jurisdiction of this court insisted upon their right to proceed herein and challenged the correctness of the contentions of those mortgagees attempting to have themselves relegated to the state court. I confess that I am unable from the uncertain terminology of Mrs. Glenn's special appearance to conclude either what her position is or what her contentions with respect thereto are. In view, however, of the fact that she entered this special appearance through the same attorneys, who challenged the jurisdiction of this court with respect to its right to deal with the property covered by their clients' mortgages, I feel that it is a safe assumption to conclude that the fundamental basis of Mrs. Glenn's position is included in the position taken by these objecting mortgagees and I will proceed to discuss these issues from the standpoint of the challenge issued by these mortgagees to the jurisdiction of this court as embodying not only their own contentions but those of Mrs. Glenn as well.
It is the contention of those mortgagees who insist upon the jurisdiction of this court that since the decision of the Supreme Court of the United States in the cases of Isaacs v. Hobbs Tie Timber Company, 282 U.S. 734, 51 S. Ct. 270, 272, 75 L. Ed. 645, and Straton v. New, 283 U.S. 318, 51 S. Ct. 465, 466, 75 L. Ed. 1060, the jurisdiction of the bankruptcy court is exclusive, and that the state court has not jurisdiction to entertain proceedings involving property of the bankrupt estate, except where that jurisdiction attached prior to the filing of the petition. They further contend that it is not within the power of the bankruptcy court to surrender its jurisdiction to another court, or to place the administration of any of the affairs of the bankrupt estate involving any of its assets in any other court. The trustee has, through his attorney, objected to withdrawing any of the assets of the estate from the jurisdiction of this court except where it affirmatively appears that the property is burdensome and therefore ought to be disclaimed. In other words it is the contention on the part of these mortgagees and the trustee that this court might not even with their consent turn over to a state court assets of the estate for administration and liquidation, but that this court is bound to proceed to administer and marshal the assets of the estate, except those as to which another court of competent jurisdiction had acquired jurisdiction prior to the filing of the petition under Straton v. New, supra, and that this court is bound to determine all questions with respect to such assets and all interest in or liens upon the same.
It is the contention of those who seek to avoid the jurisdiction of this court that this court has not jurisdiction to foreclose mortgages or to sell property free from the liens of mortgages, so as to bar the dower of the bankrupt's wife and that the only courts which can entertain such a proceeding as will have the effect of transferring title, free from the claims of dower, are the state courts of South Carolina. It is the further contention of these mortgagees, resulting necessarily from their first contention to a certain extent, that this court may under proper conditions surrender its jurisdiction to the state court and they even go so far as I understand, as to contend that this court may surrender its jurisdiction to a state court in the absence of any valid reason. I do not understand however that they seriously contend that this latter rule would apply over the objection of the trustee and since the trustee has here objected, we may only consider their contentions with respect to the conditions under which the bankruptcy court may surrender its jurisdiction in view of such objections. The reason advanced as justifying the surrender by this court of its jurisdiction with respect to the property covered by these mortgages is that this court does not possess as a part of its jurisdiction the power to sell property in satisfaction of liens so as to bar dower and that such being the case, it is incumbent on this court to surrender its jurisdiction to a court which can bar dower, to wit, the courts of the state of South Carolina.
I cannot agree that there is any merit in the contention that this court is impotent to deal with property over which there is a lien on which the bankrupt's wife has renounced dower, where there is equity in that property which may be realized for the benefit of general creditors. This conclusion I have drawn from the inherent nature of bankruptcy courts as courts of equity and from the decisions of appellate courts with respect to the rights and duties of the bankruptcy courts in dealing with assets of the estate. Counsel for the Kahl and other mortgagees contend that dower may be barred under the South Carolina laws only by foreclosure of a mortgage on which the wife has renounced dower and that this court has no jurisdiction to foreclose mortgages, because that power is granted in specific terms by the bankruptcy court. This conclusion is attempted to be reached by a process of reasoning which I confess I am not able to follow. It seems to be the contention of these parties that dower is exempt property or perhaps it may be better expressed as being property not owned by the bankrupt and therefore property as to which the trustee never takes title. Authorities are cited from the courts of South Carolina to establish the contention that the inchoate right of dower is a separate estate. Authorities are cited from the federal courts to establish the conceded rule that a bankruptcy court may not without the consent of the bankrupt's wife sell property free from her dower. But these latter authorities relate exclusively to property as to which the bankrupt's wife has not renounced her dower. See In re Macklem (D.C.) 28 F.2d 417, In re Kelly (C.C.A. 4) 252 F. 115. This rule undoubtedly has its application with respect to that property not covered by a mortgage on which the bankrupt's wife has duly renounced dower and as to such property I have heretofore held and I now hold that the sale thereof would be subject to the inchoate right of dower of Mrs. Glenn unless she consents otherwise.
But an entirely different situation arises with respect to that property on which exist past due mortgages carrying renunciations of dower signed by Mrs. Glenn. There is no contention made that her renunciation was obtained other than fairly and freely and the issue therefore resolves itself into whether or not this court has power to deal with and administer property covered by such mortgages. It is a well-established rule of property in South Carolina that a wife is not entitled to dower in the proceeds of the sale of property in satisfaction of a lien on which she has renounced her dower. See Grube v. Lilienthal, 51 S.C. 442, 29 S.E. 230. And neither is she entitled under the same authority and other cases to any dower in the surplus proceeds of sale over and above the amount due on the mortgages carrying her renunciation. The rule is different where the sale takes place after the husband's death, for in such event, the wife is not entitled to dower as against the mortgage, but if the surplus be sufficient, is entitled to dower not only in the surplus but in the entire sale price. Mrs. Glenn's husband still being alive, this latter rule has no application. This being true, and the rules of property of South Carolina being binding on the bankruptcy courts, we shall proceed to see just what effect the intervention of bankruptcy has with respect to the sale of the property covered by a mortgage. It is contended that a bankruptcy court has not power to "foreclose" a mortgage, but whether it has the power to technically "foreclose" a mortgage, it seems certain under the authorities that it has power to do the same thing, that is, sell property free of liens and in satisfaction thereof. The distinction, if one exists, is hard, if not impossible, to grasp. But we are not left to reach a conclusion independently of any binding authority, for a decision of the Circuit Court of Appeals of the Fourth Circuit has concluded all issues raised in this estate with respect to power of the bankruptcy court in dealing with mortgaged property and the wife's dower therein. Perhaps no finer judge ever adorned either the Supreme Court of South Carolina or the Circuit Court of Appeals of the Fourth Circuit than Judge Woods. He is noted for his unusual grasp of rules of property under the laws of South Carolina and his opinion in the case of Gantt v. Jones, 272 F. 117, 118, is therefore entitled to unusual respect. This opinion written while Judge Woods was the senior judge of the Circuit Court of Appeals of this Circuit and after he had served capably on the Supreme Court of South Carolina, squarely decides the right of a bankrupt's wife under such circumstances. In that case, a petition was filed by the trustee with due notice to the mortgagees (but without notice to the bankrupt's wife), praying sale of land covered by mortgages on which the wife had renounced dower, free of the liens of the mortgages. At the sale, the bankrupt's wife gave notice of her claim of dower. The issue was raised as to whether the purchaser at such sale took free of the claim of dower and Mrs. Gantt, the wife of the bankrupt, was brought into the proceeding which resulted in Judge Woods' opinion. Judge Woods states the question involved to be: "First, whether the purchaser took a good title at the sale free from the claim of dower; and, second, whether Mrs. Gantt was entitled to an allotment of dower in the surplus proceeds of the sale."
In disposing of these issues contrary to the contention of Mrs. Gantt, Judge Woods says: "The power to sell a bankrupt's property free from liens is not expressly conferred by the statute. But such a sale is often necessary to the due execution of the power and duty to reduce the assets to money and distribute it to creditors. This necessarily implied power of the court of bankruptcy as a court of equity has been asserted in numerous cases. 7 C.J. 231, § 359, note."
And with respect to the effect of such a sale on the dower right, Judge Woods concludes once and for all, all questions there-about. He says: "At such sale the purchaser takes the same title as if the sale were made in any other court of equity, to foreclose the mortgages or to marshal the assets of an insolvent, with all lienholders and other parties in interest before the court. This title is good against the mortgagor, the mortgagees, and all their privies, including the wife of the mortgagor, who has renounced her dower. So, also, the proceeds of sale come into the hands of the bankruptcy court for distribution among creditors precisely as if the mortgage had been formally foreclosed. The same incidents attached to the surplus over the lien debts. It is a rule of property in South Carolina that, when a wife renounces her dower on a mortgage executed by her husband and the land is sold to satisfy the mortgage, she has no right of dower, either in the land or in the surplus proceeds of sale. Grube v. Lilienthal, 51 S.C. 442, 451, 29 S.E. 230."
It will be seen, therefore, that whether the sale be under formal foreclosure or in satisfaction of the liens by a sale free of liens the effect is the same and it does not seem to me important for the purposes of the wife's rights, whether that sale takes place in a state court or in the bankruptcy court. Certainly under Judge Woods' opinion there is no distinction.
But the objecting mortgagees rely on certain language in an opinion of the Supreme Court of South Carolina written by Mr. Justice Cothran in the case of Harris v. Rice, 131 S.C. 171, 126 S.E. 754, as denying the power of a bankruptcy court to foreclose a mortgage. I do not construe the language referred to as being in conflict with Judge Woods' opinion in the Gantt Case, but even if the South Carolina Supreme Court did intend to reach such a conclusion there are two reasons why I would not feel under any obligation to follow that decision: In the first place that opinion was written prior to the decision of the Supreme Court of the United States in the case of Isaacs v. Hobbs Tie Timber Co., supra, and Straton v. New, supra, and before the recent case of Van Huffel v. Harkelrode, 284 U.S. 225, 52 S. Ct. 115, 116, 76 L. Ed. 256. The other and more compelling reason is that the delineations of bankruptcy jurisdiction announced by the state courts are not binding on the bankruptcy courts for the reason that the federal courts themselves sitting as bankruptcy courts must determine for themselves the extent of their jurisdiction under the Bankruptcy Act (11 USCA).
That Judge Woods' decision is in line with the correct rule as to the extent of jurisdiction of the bankruptcy courts is clearly demonstrated by the Supreme Court opinions in the Isaacs, Straton, and Van Huffel Cases. In the Isaacs Case, Mr. Justice Roberts says: "It follows that the bankruptcy court has exclusive jurisdiction to deal with the property of the Bankrupt Estate," and further: "Thus, while valid liens existing at the time of the commencement of a bankruptcy proceeding are preserved, it is solely within the power of a court of bankruptcy to ascertain their validity and amount and to decree the method of their liquidation." The Straton Case proceeds, as does the Isaacs Case, upon the well-established rule that a court first acquiring jurisdiction of a res, will retain that jurisdiction to a complete adjudication, and it necessarily follows that where a state court has acquired jurisdiction, prior to bankruptcy, it may proceed because its jurisdiction of the res antedates the jurisdiction of the bankruptcy court. But where bankruptcy intervenes before another court acquires jurisdiction, the bankruptcy court acquires the prior power of dealing with the res and this jurisdiction is exclusive. For instance, Mr. Justice Roberts says in the Straton Case: "The filing of the petition is an assertion of jurisdiction with a view to the determination of the status of the bankrupt and a settlement and distribution of his estate. This jurisdiction is exclusive within the field defined by the law, and is so far in rem that the estate is regarded as in custodia legis from the filing of the petition. * * * It follows that liens cannot thereafter be obtained nor proceedings be had in other courts to reach the property, the district court having acquired the exclusive right to administer all property in the bankrupt's possession. * * * It may inquire into the validity of liens, marshal them, and control their enforcement and liquidation."
And in the more recent case of Van Huffel v. Harkelrode, Mr. Justice Brandeis says, among other things, in discussing the jurisdiction of bankruptcy courts, in this connection, the following: "First. The present Bankruptcy Act (July 1, 1898, 30 Stat. 544, c. 541 [11 USCA § 1 et seq.]), unlike the Act of 1867, contains no provision which in terms confers upon bankruptcy courts the power to sell property of the bankrupt free from incumbrances. We think it clear that the power was granted by implication. Like power had long been exercised by federal courts sitting in equity when ordering sales by receivers or on foreclosure. First National Bank v. Shedd, 121 U.S. 74, 87, 30 L. Ed. 877, 882, 7 S. Ct. 807; Mellen v. Moline Malleable Iron Works, 131 U.S. 352, 367, 33 L. Ed. 178, 183, 9 S. Ct. 781. The lower federal courts have consistently held that the bankruptcy court possesses the power, stating that it must be implied from the general equity powers of the court and the duty imposed by section 2 of the Bankruptcy Act (11 USCA § 11) to collect, reduce to money and distribute the estates of bankrupts, and to determine controversies with relation thereto."
Among other authorities cited in the note as sustaining the Supreme Courts' conclusions is the Gantt Case and also a recent case from the District Court of West Virginia in Re King, 46 F.2d 112. See, also, In re Cook (D.C.) 7 F.2d 888.
Even without the authority of Gantt v. Jones, I would feel compelled to hold that bankruptcy courts possess as a necessary part of their jurisdiction the power to sell property encumbered with mortgages and convey good titles as against any claim of dower. The object of the Bankruptcy Act was to create a court of competent, general jurisdiction which might fully and fairly administer all of the assets of an insolvent for the best interests of his creditors. Unless this jurisdiction extended to include the power of dealing with the encumbered property of married bankrupts, the objects of the Bankruptcy Act would, to a large extent, be defeated and a court of bankruptcy would be compelled to surrender the liquidation and distribution of estates in large part to courts, whose practices and method of sale and distribution are essentially different from those employed by the bankruptcy courts. The bankruptcy court being a general court of equity for the purpose of marshaling and administering the assets and distributing the same to creditors, that court has, as it seems to me, the necessary jurisdiction to take such steps as will effectually accomplish that purpose. This jurisdiction must of necessity be extended to include the sale of encumbered property and it must necessarily follow that this jurisdiction is not defeated by the fact that the incumbrance carries the renunciation of dower of the bankrupt's wife. It is insisted that the bankruptcy court never takes jurisdiction of exempt property or property belonging to others than the bankrupt, and that this necessarily means that the court never acquires jurisdiction of the inchoate right of dower. But this argument overlooks the fact that, when a wife renounced dower on a mortgage, she consents that the property may be sold in satisfaction of that mortgage, and, when a bankruptcy court takes jurisdiction of property encumbered with a mortgage carrying a renunciation of dower, it takes jurisdiction with full power to administer that property just as if it had been sold in the state court. A state court in foreclosing a mortgage does not come into possession of dower rights except that where the wife has renounced dower, she has consented that the property may be sold in satisfaction of that mortgage. When bankruptcy intervenes, the bankruptcy court has as full power to deal with such property as the state court would have had but for bankruptcy. I therefore conclude that a court of bankruptcy has power to sell encumbered property in satisfaction of the incumbrances, and, if those incumbrances carry renunciations of dower executed as provided by the Constitution of South Carolina, as do the mortgages involved in this proceeding, that the bankruptcy court has power to sell that property and to bar the wife's dower by such sale.
It necessarily follows then that there is not a lack of jurisdiction in the bankruptcy court on account of Mrs. Glenn's inchoate right of dower, which makes it necessary for this court to surrender. I see no other basis on which jurisdiction may be surrendered, especially in the presence of objections on the part of the trustee and creditors. As a matter of fact I do not feel in view of the decisions of the Supreme Court, that a bankruptcy court would be at liberty to surrender its jurisdiction, except where the property is clearly burdensome and there is no equity for the creditors generally. Some confusion seems to have arisen, by reason of certain language used in the case of Isaacs v. Hobbs Tie Timber Co., supra, where Mr. Justice Roberts says: "Such injunctions [against the prosecution of actions in other courts involving the bankrupt's property] are granted solely for the reason that the court in which foreclosure proceedings are instituted is without jurisdiction, after adjudication of bankruptcy, to deal with the land or liens upon it save by consent of the bankruptcy court."
It has been suggested that this language necessarily means that a bankruptcy court may surrender jurisdiction of assets in any case, and the case of In re Schulte United, Inc., 49 F.2d 264, from the Circuit Court of Appeals, 2nd Circuit, has been cited as authority for this position. I do not think the construction of the Isaacs Case reached in the Schulte Case was necessary for a decision in that case, but even if it were, I do not feel that the proper construction has been placed on the Isaacs Case and other cases. In the Schulte Case it appears that there was little equity in the property above the mortgage, and that the trustee had declined to take care of the property. This in itself would have been sufficient to justify a disclaimer and would have been a sufficient basis for the court's decision. The court, however, quotes that portion of Justice Roberts' opinion italicized above as authority for the court's power to surrender jurisdiction. It seems to me that what the Supreme Court intended in the Isaacs Case was to say, that, if property carried no hope of payment to general creditors, then it might surrender its jurisdiction, and under these circumstances would have been held to have consented to an action based on the lien brought in another court. Any other construction of the Isaacs Case is inconsistent with the language of that decision and the language of certain other opinions of the Supreme Court. For instance in the Isaacs Case, Mr. Justice Roberts says: "It follows that the bankruptcy court has exclusive jurisdiction to deal with the property of the bankrupt estate. * * * When this jurisdiction has attached, the court's possession cannot be affected by actions brought in other courts. * * * Thus, while valid liens existing at the time of the commencement of a bankruptcy proceeding are preserved, it is solely within the power of a court of bankruptcy to ascertain their validity and amount and to decree the method of their liquidation."
But whatever question might have existed by reason of the other language used in the Isaacs Case, all question seems to be dispelled by the last portion of the opinion in which the court concludes with the following statement: "The jurisdiction in bankruptcy is made exclusive in the interest of the due administration of the estate and the preservation of the rights of both secured and unsecured creditors. This fact places it beyond the power of the court's officers to oust it by surrender of property which has come into its possession. Whitney v. Wenman, 198 U.S. 539, 49 L. Ed. 1157, 25 S. Ct. 778; In re Schermerhorn, 76 C.C.A. 215, 145 F. 341. Indeed, a court of bankruptcy itself is powerless to surrender its control of the administration of the estate. U.S. Fidelity G. Co. v. Bray, 225 U.S. 205, 56 L. Ed. 1055, 32 S. Ct. 620."
A reference to the Bray Case will demonstrate further that this conclusion is correct. There the court said among other things, after having discussed the nature and purposes of bankruptcy courts, the following: "Of the fact that the suit was begun in the circuit court, with the express leave of the court of bankruptcy it suffices to say that the latter was not at liberty to surrender its exclusive control over matters of administration, or to confide them to another tribunal."
But it is insisted by counsel for the objecting mortgagees that they are not concerned with the title to be acquired under the liens held by those mortgagees who are insisting on the jurisdiction of this court, but that they are entitled to take such action as satisfies them of its sufficiency. These mortgagees very properly answer that they are vitally interested in whether this court concludes it must or can surrender jurisdiction of certain mortgaged property, for the reason that, if the court sustained such contentions, there would of necessity be an inconsistent conclusion if the court further entertained jurisdiction of other mortgaged property, and that, further, such an inconsistent conclusion would of necessity throw a cloud on the title conveyed by the trustee herein to any property sold under the orders of this court. It is therefore necessary to reach some consistent conclusion and I cannot agree that this result could be accomplished by consenting to foreclosure actions in the state court and sending, as counsel for the Kahl and other mortgagees say, the trustee of bankruptcy into the state court to maintain this court's control over the administration of the property covered by such mortgages. A trustee in bankruptcy in an action in the state court would occupy no higher position than any other party to such an action. The jurisdiction of the bankruptcy court to deal with property involved in a state court or any other court would not project itself to the point of allowing the bankruptcy court to interfere with or control either through its trustee or otherwise the conclusions of that other court. When a bankruptcy court permits another court to take into its possession a part of the assets of a bankrupt's estate, then the bankruptcy court surrenders to the state court possession and control of the res and the state court would reach its own conclusions and make its own administration of the property and its own distribution of the proceeds thereof. Two courts cannot at the same time administer the same res and this rule is not affected by the presence in an action in another court of the trustee in bankruptcy who would be subject to the orders and decrees of that court having possession of the res. This court could not therefore administer property foreclosed in an action in a state court, thru its trustee or otherwise. The only way this court can administer property is to have the possession and control of that property and I therefore hold that this court must as a matter of duty administer and distribute all of the assets of the bankruptcy estate which are not affirmatively determined to be burdensome.
I therefore recommend that all of the properties described in the foregoing portions of this report be sold under orders of this court and conclude that the trustee's conveyance of any property sold in satisfaction of a lien carrying the renunciation of Mrs. Glenn's dower will, under the authorities, carry a complete title free of all claims on Mrs. Glenn's part.
Homestead.
I have heretofore, by consent of all parties, passed an order allowing real and personal property homestead to the bankrupt. The bankrupt will be entitled to the payment of $1,000 in money from the proceeds of the sale of any property as to which he has not conveyed his homestead by mortgage. This homestead should first be paid after the payment of all mortgages on the respective parcels and before the payment of the White judgment or other claims except taxes.
Attorneys' Fees.
I have heretofore stated, in calculating the amount due on the mortgages, that I was allowing attorneys' fees. I feel that under the authorities, the attorneys representing the various mortgagees are entitled to attorneys' fees as a part of the lien to the extent that the property will pay these fees. In other words, if the property brings an amount sufficient to pay the mortgage with principal, interest, and attorneys' fees, then these attorneys' fees should be paid as a part of the lien, regardless of whether the obligations were placed in the hands of the attorneys before or after the filing of the petition in bankruptcy. I base this conclusion on the rather recent decision of the Supreme Court in the case of Security Mortgage Company v. Powers, 278 U.S. 149, 160, 49 S. Ct. 84, 73 L. Ed. 236, 243. There the court, speaking through the late Mr. Chief Justice Taft, held that, when, under the state laws where the contract was made, attorneys' fees are allowable as a part of the debt secured by the mortgage, such fees must be allowed by the bankruptcy court whether the papers were placed with the attorneys before or after bankruptcy. In South Carolina attorneys' fees are collectable as a part of the debt secured by the mortgage and therefore Security Mortgage Company v. Powers is conclusive of this question.
So far as attorneys' fees being a claim against the general estate as distinguished from the specific property covered by the various mortgages, these fees are allowable as a claim only where they were placed in the hands of the attorney prior to bankruptcy. Some of the mortgages involved in this proceeding, with the notes secured thereby, were turned over to the attorneys prior to bankruptcy, while others were not so placed until after the adjudication. There will be no difficulty in the distribution of the general estate in fixing which claims are entitled to attorneys' fees as a part of same.
The attorneys representing the lienholders in this bankruptcy have been confronted with a very considerable amount of work. They have diligently prosecuted all necessary steps for the protection of their clients' interest, and the complications, size, and nature of the estate has involved upon them a very considerable amount of work. I think that the basis on which I have reached a conclusion as to the amount of fees, fully meets the rule announced by the Supreme Court of South Carolina, that such fees must be reasonable, taking into consideration the amount involved, the work done, and the results accomplished, and all other circumstances connected therewith. I have calculated the fees on the basis of 5 per cent. on the first $10,000 or any portion, 2½ per cent. on the next $10,000, and 1 per cent. on all over that.
Statute of Limitations.
The petition and rule embraced a mortgage given by the bankrupt and another to Richard S. Gantt on October 9, 1911, for $2,000, which mortgage was recorded on the same date in mortgage book 71, page 211 in the register's office for Spartanburg county, S.C., which mortgage covers a tract of land located near the city of Spartanburg, described in subdivision 11. This mortgage nor the record thereof shows any maturity date of the mortgage indebtedness. Likewise, a mortgage given by the bankrupt to E.R. Memminger for $4,000 dated October 14, 1910, recorded on the same date in mortgage book 73, page 326 in the register's office for Spartanburg county, S.C., embracing a lot on Magnolia street in the city of Spartanburg, described in subdivision 16. This mortgage and the record thereof shows the maturity date of the indebtedness to be one year after the date of the mortgage. The mortgagee Richard S. Gantt is now dead and his executrix answered the petition through her attorneys, Carlisle, Brown Carlisle. The mortgagee E.R. Memminger answered the petition through his attorneys, Mansfield Ravenel.
The allowance of these mortgages as liens on the property covered was objected to by the attorney for the trustee on the grounds that the liens of the mortgages were barred by the statute relating to such in this state. Both of these are considered together as the same principle is involved.
It is admitted that numerous payments of interest have been made on both mortgages; in fact, the interest payments have been kept up until the last few months. It is further admitted that no note of payment on account or written acknowledgment of the mortgage indebtedness has been recorded upon the record of either of said mortgages.
The state statute governing the liens on real estate is section 8864 of the 1932 Code and is as follows:
" Liens on Real Estate of No Force after Twenty Years. — No mortgage, or deed having the effect of a mortgage, no judgment, decree or other lien on real estate, shall constitute a lien upon any real estate after the lapse of twenty years from the date of the maturity of the same: Provided, That if the holder of any such lien or liens, as aforesaid, shall, at any time during the continuance of such lien, cause to be recorded upon the record of such mortgage, or deed having the effect of a mortgage, or shall file with the record of such judgment, decree or other lien, a note of some payment on account, or some written acknowledgment of the debt secured thereby, with the date of such payment or acknowledgment, such mortgage, deed having the effect of a mortgage, judgment, decree or other lien, shall be, and continue to be, a lien for twenty years from the date of the record of any such payment on account or acknowledgment: Provided, further, That nothing herein contained shall be construed to affect the duration of the liens of judgments as prescribed by the Code of Procedure: Provided, further, That on and after the first day of January, 1902, the provisions of this section shall apply to all mortgages, those executed prior to the 24th day of December, 1879, as well as to those executed since that date: Provided, further, That where there is no maturity stated or fixed in the mortgage or the record of same, then the provisions hereof shall be applicable from the date of such mortgage and such mortgage shall not constitute a lien after the lapse of twenty years from the date thereof."
It may help to clarify this matter by entering into a discussion of the history of the present statute. An examination of section 5305 of the Civil Code of 1922 discloses a provision to the effect that a mortgage on real estate should constitute a lien after the lapse of twenty years from the date of the creation of same. In Lyles v. Lyles, 71 S.C. 391, 51 S.E. 113, the South Carolina Supreme Court, by divided court, held the lien to be good for twenty years from the maturity date of the mortgage indebtedness. In 1924 (33 St. at Large p. 990), the Legislature passed the present act which is now section 8864 of the 1932 Code, above referred to, specifically providing that a mortgage shall not constitute a lien upon real estate after the lapse of twenty years from the date of the maturity of same, and in order that there could be no question as to the meaning of the statute, the Legislature evidently put in the last proviso above set out to the effect if there be no maturity stated or fixed in the mortgage or the record of same, the provisions of the statute should be applicable from the date. An application of this clarified statute to the two mortgages under investigation forces one to the conclusion that neither of the liens of the two mortgages under investigation were alive at the time of the filing of the petition in bankruptcy. The attorneys for these two mortgagees have ably argued that as between the parties themselves the lien would be preserved. However, it appears to me that the effect of the act is to declare what can be done, and what only can be done, to preserve the lien of the mortgage and that by reason of a failure to record the evidence of payments on the mortgages, or, in other words, to comply with the statute there is now no lien thereon to foreclose. See McSween v. Windham, 104 S.C. 508, 89 S.E. 500. In addition to the above, it appears that the rights of subsequent creditors, which under the South Carolina statute, section 8875 of the 1932 Code, includes both lien and simple contract creditors, would be affected, were the lien of the mortgages permitted to be preserved as between the bankrupt and these two mortgages.
This appears to be a hard application of the law, however, ita lex scripta, and I have no alternative.
Eloise B. Daniel Judgment.
There remains only one other question to be determined, and that is as to the validity and effect of a judgment obtained by Eloise B. Daniel against the bankrupt in the court of common pleas for Spartanburg county. The order for judgment was obtained and the judgment entered in the clerk's office on June 22, 1931. By section 743 of the Code of Laws of South Carolina, 1932 (vol. 1, p. 461), final judgments are declared to be liens upon the real estate of the judgment debtor, the lien to begin from the date of entry of such judgment on the book of abstracts and to continue for ten years, etc., this judgment therefore became effective under the South Carolina Laws as a lien on June 22, 1931. The petition in bankruptcy in this case was filed in the clerk's office for the District Court on October 22, 1931. In view of the insolvency of the bankrupt on June 22, 1931, when this judgment was obtained, it becomes necessary only to determine whether the judgment is voidable as a preference under section 60 of the Bankruptcy Act (11 USCA § 96) which provides that, if the judgment is obtained "within four months before the filing of the petition," it shall be a preference and as such avoided.
I conclude in this connection that this judgment is a preference under that section for the reason that by a proper computation of time the judgment was entered "within four months before the filing of the petition." Excluding the date of the filing of the petition and including the date of entry of the judgment as is required, leaves this judgment lacking one day of being effective against the preference statute. See Dutcher v. Wright, 94 U.S. 553, 24 L. Ed. 130, and Bell v. West, 44 F.2d 161 (C.C.A. 4).
This claim is therefore allowable as an unsecured claim against this estate, but not entitled to be considered as a lien.
Recommendations as to Sale.
I therefore recommend that the trustee in bankruptcy of William Simpson Glenn be ordered to sell the property described in this report (except that on which disclaimers have been ordered) after due advertisement according to law and that all such sales be in satisfaction of the liens on the respective parcels of land and free of all such liens, including taxes, except as to the parcel described in subdivision 2. As to that property I recommend that the sale be made in satisfaction of the lien held by Max Greenewald and that such sale be subject to the deferred balance on the Life Insurance Company of Virginia mortgage (the amount of which shall be announced at the sale), and such sale to be subject further to the requirement that the purchaser at the trustee's sale shall assume and pay the deferred balance of mortgage to the Life Insurance Company of Virginia as a part of the consideration.From the proceeds of the sale of this property, as hereinafter provided, there should first be paid the taxes on the property and next should be paid to the Life Insurance Company of Virginia or its attorneys, all past due installments of principal with interest, all interest, insurance premiums, and taxes that may have been advanced under the mortgage and all other amounts due thereunder, including the attorneys' fees hereinabove recommended to be paid to Osborne Butler, attorneys.
I further recommend that such sale shall carry all the right, title, and interest in the bankrupt and of this estate and to be free, except for the assumption of the Life Insurance Company mortgage on the property described in subdivision 2, of all claims of the creditors of this estate and of all liens thereon and further that except for the properties described in subdivisions 11 and 16, such sales shall be free of all claims of dower of the bankrupt's wife, and the purchaser to take titles free of dower, of the equity of redemption, and of all liens except in that instance where the first lien is to be assumed. The sales of the properties described in subdivisions 11 and 16 will of necessity be made subject to the inchoate right of dower of Mrs. Willetta C. Glenn, unless the trustee can arrange to secure her renunciation of dower as to these two parcels of property. Upon compliance by the purchasers at the trustee's sale, I recommend that the trustee do execute to such purchasers deed conveying the respective properties in fee simple, free of all liens, dower, and claims of this estate with the exceptions indicated as to the properties referred to in subdivisions 2, 11, and 16.
The lien creditors having been required to invoke the jurisdiction of this court or having been brought in and the sales herein recommended being made for the benefit of the general estate, it is proper that the costs of the sale of such properties shall be charged against the general estate before resorting to the mortgaged property. I therefore recommend that the costs of the sale shall be paid from the general estate, and, if that be insufficient, that any remaining costs be prorated against the proceeds of the sale of the encumbered properties, on the basis that the amount of each sale price bears to the sales price of the whole property.
I further recommend that the liens of the various secured creditors shall attach to the proceeds of the sale of the various parcels of property to the same extent and with the same force and effect that they now have over the properties themselves and that the lien shall be transferred to such proceeds.
From the proceeds of sale of the various parcels should be first paid any costs that may be properly taxable on the basis hereinabove outlined and then any taxes or assessments which may be past due and owing to the state of South Carolina, county of Spartanburg, or the city, should be paid on the respective parcels. There should next be paid the liens against the respective parcels except that the homestead claim must be paid after the payment of the mortgages and before the payment of the White judgment. This, of course, is subject to the specific recommendations regarding the property described in subdivision 2 and so far as this property is concerned, there should first be paid costs, then taxes, and then the past due items on the Life Insurance Company of Virginia mortgage, and then the Greenewald mortgage, etc.
I further recommend that the properties hereinabove described be sold by the trustee as soon after the order of the District Court on this report as may be convenient.
All of which is respectfully submitted.
Statement of Facts.
At the time of the adjudication of William Simpson Glenn, Sr., as a bankrupt, he was possessed of a large amount of real estate, a considerable portion of which was encumbered by mortgages and other liens, other portions being unencumbered, and all of these lands have now been transferred by the adjudication to the trustee, subject to administration by this court. Petitions were filed, both by the trustee and a number of the mortgage creditors, who were interested in various parcels of the property, praying for a sale of the real estate for the purposes of administration, the sale of the encumbered property to be made free from liens. Other petitions were filed requesting disclaimers as to alleged burdensome property, and some lienholders have challenged by their returns the jurisdiction of this court to sell the real estate free from liens or subject thereto, so as to give, by the trustee's deed, a good title. All the petitions relating to the sale of the real estate were addressed to me, and a reference was made to H.E. DePass, Esq., referee in bankruptcy, to ascertain and report the facts and his conclusions of law with respect to all matters connected with the petitions and returns. He has filed with the court an elaborate, comprehensive and able report, embracing thirty-six typewritten pages, setting out his conclusions both of law and of fact. To this report various exceptions have been filed in connection with petitions to review the same. The exceptions and petitions are embraced in the record, and it will be unnecessary to recapitulate them here. The points involved will be considered and disposed of in order in the subsequent discussion herein.
After filing the report, some question arose as to the omission therefrom of certain advances made for the payment of insurance premiums, and a supplemental statement was filed by the referee from which it appears that advances in the aggregate sum of $89 had been made by Mr. R. Gantt Jervey on the property covered by his mortgage for the payment of insurance premiums. It appears that this is a just claim and should be added to his lien debt, as shown by the referee's report, and it is so ordered.
The trustee also excepts to the inclusion in the order of sale in this proceeding of the real estate covered by the mortgages designated as the Gantt and Memminger mortgages. In view of the decision of the referee, which must be confirmed, that the liens upon these parcels had expired prior to the filing of the petition in bankruptcy and the adjudication, the trustee's contention must be sustained and these parcels sold as unencumbered property. In all other respects the report of the referee will be confirmed and approved.
At the hearing before the referee, among the various contentions overruled by him, appeared the following:
1. That a court of bankruptcy is without jurisdiction to foreclose mortgages of real estate or to sell property free from lien, so as to bar the wife's right of dower in property in which she has renounced dower in favor of the mortgagee.
2. That the Gantt and Memminger mortgages, the liens of which were determined by the referee to have expired, still constitute valid liens upon the property.
3. That the costs, fees, and expenses of the sale of all encumbered property should be charged first against the proceeds of the sale of each specific parcel and not against the general fund. The referee recommended that, under the circumstances disclosed by the evidence, these expenses should be charged first against the general fund, if sufficient.
Conclusions of Law.
1. Upon the question of the general powers of a bankruptcy court, sitting as a court of equity, to sell property free from liens, and thereby bar the wife's right of dower in all property in which she has renounced dower in favor of a mortgagee, the referee's statement of the law is so full and convincing as to require no further discussion. While bankruptcy courts are not in specific terms empowered to foreclose mortgages, in the sense in which that expression is sometimes technically employed, the courts have held that the sale of property free from liens by a court of bankruptcy, vested with all the powers of a court of equity, is a judicial proceeding and has the same effect as a formal foreclosure in the state court. It is merely an expeditious and economical method of liquidating the debt without the cumbersome and expensive formalities pursued in foreclosure proceedings. Upon an adjudication and when elected, the trustee becomes vested with the title to all the properties owned by the bankrupt, and charged with the duty of administering the fund for the benefit of creditors. This duty is imperative and the jurisdiction of bankrupt courts, as shown by the authorities, is an exclusive one, unless the property has been previously taken over by some court of competent jurisdiction, vested with authority to administer it. It is, however, the duty of a court of bankruptcy to have an appraisal made of the value of all the bankrupt's property and to use every reasonable means to ascertain whether, in cases of lien debts, there is a reasonable prospect of realizing a surplus for the creditors. If such probable equity is not found to exist, it becomes the duty of the bankrupt court, through its trustee, after proper resolution of creditors, to disclaim all interest in the property and surrender it to the mortgagee. At the same time, because of its exclusive jurisdiction and its duty to administer all property, even where no equity or probable equity is found to exist, a bankruptcy court should, upon petition of a mortgagee or lien creditor, proceed to sell the property free from debt, in such case charging against the proceeds the necessary costs and expenses thereof. This principle will be further referred to later on in the opinion.
2. We have examined with great care all of the South Carolina authorities relating to a construction of the recording acts and statutes of limitation of this state applicable to the question here under consideration, and particularly as to the effect of section 8864, page 1097, vol. 3, Code of Laws of South Carolina, 1932. It must be confessed that in the earlier decisions of the Supreme Court with reference to the original act, which has been amended from time to time, both as to the general effect of the statute and as to the maturity of the limitation therein provided, beginning with the promise that, as between the parties, no record was necessary to give validity to the lien, and that the recording acts constituted a curtailment or limitation of the provisions of such instruments for the protection of subsequent creditors or purchasers without notice, it was still held that an unrecorded mortgage was good as between the original parties. The original act was amended so as to require after the first day of January, 1902, that its provisions apply to all mortgages, including those executed prior to the 24th day of December, 1879, as well as those executed since that date. The constitutionality of the act, as thus amended, was challenged from time to time, but the Supreme Court was able generally to dispose of the cases without specifically deciding that question. It will be observed that there is nothing in the act itself specifically referring to the rights of subsequent creditors or purchasers for value without notice. In passing, I venture the suggestion that, if the act be construed as merely a statute of limitation, defining the time in which the remedy may be asserted, there can be no question of its constitutionality. If construed as impairing the obligation of contracts antedating the passage of the act, that question might well have arisen. As we construe the statute, it is not intended merely as a limitation upon the time in which an action may be brought, nor, as stated, a provision for recording merely for the protection of subsequent creditors or purchasers. The act specifically states: "No mortgage, or deed having the effect of a mortgage, no judgment, decree or other lien on real estate, shall constitute a lien upon any real estate after the lapse of twenty years from the date of the maturity of the same," [Code S.C. 1932, § 8864], it being provided, however, that in case of mortgages the lien may be perpetuated by noting on the record some written acknowledgment of the debt, etc. Both of the mortgages in question were executed after these provisions had been incorporated in the act, and by them there was incorporated in every mortgage of real estate a provision that the lien should expire in twenty years from the date of its maturity. When the mortgages in question were recorded, they, therefore, carried to all persons who might thereafter deal with the mortgagor, a notice that the lien would automatically expire in twenty years, unless kept alive by the indorsement required by the statute. The mortgagor and mortgagee did not and could not agree to anything else in the face of the law. The later decisions of the Supreme Court will, we think, be found fully to sustain the position taken by the referee. See particularly, Lyles v. Lyles, 71 S.C. 391, 51 S.E. 113; McSween v. Windham, 104 S.C. 508, 89 S.E. 500; Ewbank v. Ewbank, 64 S.C. 434, 42 S.E. 194. The Gantt mortgage was dated October 9, 1911, and recorded on the same date. The record did not show the maturity of the note which it secured, but did show that it bore interest from date, payable semiannually. The Memminger mortgage was dated October 14, 1910, and recorded on the same date. The maturity of this mortgage is shown to be one year after date. Whether viewed from the standpoint of notice to subsequent creditors or purchasers for value without notice, or construed independently with reference to the statute above discussed, the liens had become ineffective or had expired. The conclusions reached by the referee are correct and must be sustained. As stated in the case of Schmucker v. Sibert (1877) 18 Kan. 104, 26 Am. Rep. 765, cited in 41 A.L.R. page 828: "Whenever the mortgage is barred, the property is free from the lien. It is, as respects the mortgage, as though the latter had never existed." The debts secured by these mortgages were created on the date of their execution. All whose debts arose thereafter were subsequent creditors, and when the mortgages expired and became as though they had never existed, even if they had remained good as mortgages between the original parties, the notice required by the statute expired with the mortgages and was as though it had never existed. See, also, 19 R.C.L., section 252, p. 465, and section 55, p. 283, and cases therein cited.
3. Upon the question of the allocation of the costs, fees, and expenses of selling mortgaged property free from lien, the decisions of the courts show considerable conflict. This has arisen, in some measure, out of the uncertainty as to the jurisdiction or extent of jurisdiction of bankruptcy courts to sell property in this manner, and the duty of the court as to the administration of such property. The recent decisions of the Supreme Court in Straton v. New, 283 U.S. 318, 51 S. Ct. 465, 75 L. Ed. 1060, and Isaacs v. Hobbs Tie Timber Company, 282 U.S. 734, 51 S. Ct. 270, 75 L. Ed. 645, have clarified the situation so far, we think, as now to permit the statement of such definite rules as to prevent any substantial confusion in future decisions. In the case of Isaacs v. Hobbs Tie Timber Company, supra, it is unequivocally held that the jurisdiction of a bankruptcy court over the assets of the estate is exclusive and may not be surrendered or challenged except where the property has already been taken over, as stated in Straton v. New, supra, by some other court of competent jurisdiction. It had been previously held in the case of First National Bank v. Lasater, 196 U.S. 115, 25 S. Ct. 206, 49 L. Ed. 408, that, while a trustee in bankruptcy is not bound to accept property of an onerous or unprofitable character, and in case he declines to take it, the bankrupt may assert title thereto, he is entitled to be informed of the property and have a reasonable time to elect whether he will accept it or not. In all cases of mortgaged property, it is the duty of the trustee to make this investigation, and, where the property is found to be of an onerous or unprofitable character, to disclaim and surrender it to the bankrupt, upon proper resolution of creditors. Even in such case, however, we think that the bankrupt or the lien creditor has a right to demand of the trustee the administration of the property and its sale free from liens as authorized by law, in order to avoid the more cumbersome and expensive proceeding by way of foreclosure in the state court. In such case the reasonable costs, fees, and expenses of such sale should first be charged against the proceeds arising out of the sale. It has been held in a number of cases that these charges should not exceed the amount, in any event, which would have been incurred by foreclosure in the state court. In re Dawkins (D.C.S.C.) 34 F.2d 581, In re King (D.C.W. Va.) 46 F.2d 112, and Id. (D.C.) 46 F.2d 115, and cases therein cited. The case of Van Huffel v. Harkelrode, 284 U.S. 225, 52 S. Ct. 115, 76 L. Ed. 256, confirmed unequivocally the power of bankruptcy courts to sell the bankrupt's mortgaged property free from encumbrances, and the amendment of 1910 confirmed the right of the officials of a bankruptcy court to charge commissions in such cases. As far back as August 1, 1921, the writer of this opinion, in Ex parte E.C. McArthur and Mrs. Sallie D. Young, petitioners, in the matter of J.L. Estes, Bankrupt, 2 F. Supp. 576, handed down an opinion to the effect that where property covered by mortgages is sold free from liens, primarily for the benefit of the mortgagees and upon their petition, that the costs, fees, and expenses of such sale should be first chargeable against the proceeds. This decision is in harmony with that of the Circuit Court of Appeals of this Circuit in the case of Virginia Securities Corporation v. Patrick Orchards, Inc., et al., 20 F.2d 78, 81, 10 A.B.R. (N.S.) 113. There the court used the following language: "The general rule with regard to the expenses of foreclosure and administration in bankruptcy is to pay such expenses out of the general estate, if there is one, rather than out of the fund derived from the sale of mortgage or lien property; but where there is no general fund, * * * or where the expense has been incurred wholly for the benefit and the advantage of the mortgaged property, * * * such expenditure is properly chargeable against it, and particularly is this true where the mortgage or lien creditor voluntarily chooses to avail himself of the administrative functions of the court in bankruptcy to realize on his security." The question has been before the court in previous cases, and in Allebach et al. v. Thomas (C.C.A.) 16 F.2d 853, 855, Judge Waddill, speaking for the court, in an elaborate opinion said: "This entire subject, however, is one solely within the discretion of the bankruptcy court, and it may adopt one of several courses in disposing of the property, best suited to the circumstances of the particular situation, and which it is believed will yield for those interested the best results." Subsequently, the matter came before the court in Re King (D.C.) 46 F.2d 115, and the court said: "An examination of the authorities as to costs seems apparently well settled as to the proposition that, where there is a general fund in a bankruptcy case, that general fund must be exhausted before any part of the fund derived from the sale of property covered by liens should be used." In that case the court quoted with approval the above-quoted language used in the case of Virginia Securities Corporation v. Patrick Orchards, Inc., et al., citing numerous authorities to sustain that view. In the case of Seaboard National Bank v. Rogers Milk Products Co., Inc., et al. 21 F.2d 414, the Circuit Court of Appeals expressed a doubt as to whether the expense of sale should in any event be charged to the lienor if he did not consent to the same. It must be remembered that a bankruptcy court is a court of equity, in which the general rule prevails that the allocation of costs is within the discretion of the judge. It would require too much time, and, we think, serve no useful purpose to extend this opinion for a discussion of the great number of cases relating to this subject.
The record shows that in the instant case, after an appraisal of the properties and all petitions for and against the sale of the real estate by the trustee free from debt had been presented and considered, along with such petitions as prayed for a disclaimer, it was decided, without further controversy, that certain parcels of property should be disclaimed as furnishing no probable equity for the general creditors, but that all other real estate should be sold free from liens, evidently with a view of realizing a surplus for the benefit of the general creditors. The right of sale in this manner by the trustee was paramount to the right of the lien creditors, and especially so unless the resolution to sell was challenged by lien creditors as improvident or oppressive. Since there is no challenge in the instant case to the resolution thus to sell, the right must be here treated as absolute. It is evident to my mind, both from the record of the proceedings and from the decision of the referee as set forth in his opinion, that the sale of all real estate as determined by him was made primarily for the benefit of the general creditors, and not primarily in the interest of the lien creditors, although some of them joined in the petition for sale. It was, therefore, correctly held by the referee, in line with the decisions of the Circuit Court of Appeals of this Circuit, that the costs should be first paid out of the general fund, if sufficient, and not out of the mortgaged property. There is herewith submitted a statement of certain principles which may serve as a useful guide in future cases:
1. A court of bankruptcy is vested with authority to administer all property of the bankrupt, whether encumbered or unencumbered, excepting only those cases in which the right of administration of specific property has been previously acquired by another court of competent jurisdiction, in which event only the equity payable to the trustee out of the funds realized from sale shall be subject to the jurisdiction of the bankruptcy court.
2. Where specific property is subject to a valid lien, it is the duty of the trustee to make suitable investigation of the value of the property, in order to ascertain whether there is a probable equity in excess of the lien debt, and, unless such probable equity is found to exist, to enter a disclaimer upon a proper resolution of creditors.
3. If such equity or probable equity is found to exist, it is the duty of the trustee to administer the property and the jurisdiction and duty to administer is exclusively in the bankruptcy court, unless previous jurisdiction has been acquired by another court of competent jurisdiction, as above outlined.
4. Ordinarily the right of a court of bankruptcy to property subject to a lien of mortgage is paramount to that of the lien creditor, and may not be challenged except for improvidence or abuse of discretion in taking over property in which there is clearly no apparent equity.
5. Even where there is no apparent equity in excess of the lien debt and where the case justifies a disclaimer, the lien creditor should be given the privilege of availing himself of the economical and expeditious manner of liquidating the property provided by the bankruptcy laws, in which case the costs, fees, and expenses of the sale free from liens should be charged against the proceeds of sale.
6. Ordinarily where the sale is requested by the lien creditor, it is presumptively for his benefit, and all costs, fees, and expenses incident to the sale should be charged against the proceeds.
7. Where, as in the instant case, after investigation and appraisal of various lots or tracts of land covered by mortgages and other liens, the trustee and the creditors elect to disclaim as to some and exercise the right of sale as to others, and this determination has been approved by the court, it is presumed that the failure to disclaim as to specific property is due to the determination that an apparent equity exists, and that the sale is made or to be made by the trustee primarily for the benefit of the general creditors and not of the lienees. This presumption arises because of the paramount right of the bankruptcy court to determine what is to the best interest of the general creditors and its exclusive jurisdiction to administer the property in such case.
8. A bankruptcy court, being a court of equity, is clothed with a wide discretion in allocating costs, and its determination, as in this case, under the circumstances detailed should not be disturbed.
For the reasons above set out, the decision of the referee, with the modifications above outlined, must be and is in all other respects confirmed and approved.
And it is so ordered.