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April 23, 1957

In the Matter of GEORGE TOWNSEND COMPANY, Inc., Bankrupt

The opinion of the court was delivered by: DUSEN

This matter comes before the court on petitions of Francis L. Plumly, trustee of the Estate of George Lasher, deceased landlord, and Hamilton R. Marsh Co., secured creditor, to review the Order of Distribution of the referee in bankruptcy dated November 26, 1956, of certain funds in the hands of the trustee in bankruptcy for George Townsend Company, Inc., of Philadelphia, Pa., which was adjudged a bankrupt on August 15, 1955.

On July 22, 1955, a federal tax lien for $ 1809.38 was filed. The landlord did not distrain for rent prior to the filing of the bankruptcy petition.

 The funds realized from the sale of the bankrupt's personal property on the demised premises at the time of the bankruptcy were $ 5714.92 and such funds were insufficient to meet the allowed claims.

 Two secured claims, consisting of a conditional sales agreement dated August 20, 1954, and a chattel mortgage agreement dated August 6, 1954, were allowed in the respective sums of $ 902.50 and $ 828.40 without determining the order of priority of payment. *fn1" Also allowed were: tax claims totaling $ 3388.66 (the above $ 1809.38 federal tax lien is included in this figure); a landlord's rent claim for $ 653.50; and administrative expenses of $ 2832.55, which sum includes $ 735 to the landlord for use and occupation of the demised premises by the receiver.

 On these facts, the referee determined that the order of distribution should be: (1) administration expenses; (2) the federal tax lien; (3) other taxes; (4) the landlord's priority for rent; and (5) the security interests.

 Generally, it is only after valid liens are satisfied that § 64 of the Bankruptcy Act (11 U.S.C.A. § 104) *fn2" becomes operative. The Supreme Court has consistently recognized that valid liens under state law are a prior charge against the bankrupt's assets unless the liens fall under the terms of § 67, sub. c. *fn3" Section 67, sub. c of the Bankruptcy Act (11 U.S.C.A. § 107, sub. c) postpones in payment 'statutory liens, including liens for taxes or debts owing to the United States or to any State or any subdivision thereof, on personal property not accompanied by possession of such property, and liens, whether statutory or not, of distress for rent' to debts specified in § 64, sub. a(1) and (2), namely, expenses of administration and wage claims. Thus, expenses of administration have priority under § 64, sub. a(1) over the lien of a landlord, a tax lien, and statutory liens.

 The holding of In re Quaker City Uniform Co., 3 Cir., 1956, 238 F.2d 155, that the lien of a chattel mortgagee, inferior under state law to the landlord's lien, should by necessary implication be postponed by § 67, sub. c to a position behind the subordinated lien of a landlord who has distrained, is not applicable here, because there is no 'lien * * * of distress for rent.'

 Since the landlord has not distrained, his claim is an unsecured claim, entitled to priority under § 64, sub. a(5), *fn4" and his claim does not achieve the status of a lien subordinated by § 67, sub. c. His claim is, also, subordinated to the federal tax lien, Miners Sav. Bank of Pittston, Pa. v. Joyce, 3 Cir., 1938, 97 F.2d 973, 978, and to debts given priority by the first four clauses of § 64. In re Lebed, D.C.E.D.Pa.1941, 39 F.Supp. 457.

 Since Congress has not postponed to administrative expenses all of the liens that are valid under state law, and since the security liens of the chattel mortgagee and the conditional sales vendor are not postponed by § 67, sub. c, *fn5" there is here no problem of upsetting state lien priority such as that present in the Quaker City case, supra, as there is no subordinated superior state lien. *fn6"

 Thus, the Congressional intent in § 67, sub. c, to favor administrative expenses and wage claims does not contemplate the postponement of the secured interests *fn7" present in this case, and the order of payment will be: (1) the chattel mortgagee and the conditional sales vendor; *fn8" (2) administration expenses; (3) the federal tax lien; (4) other unsecured tax claims (which receive priority under § 64, sub. a(4)); and (5) the landlord's priority under § 64, sub. a(5).

 The referee's order of distribution is modified to accord with the above opinion and order of payment.

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