Realty Associates Securities Corp. v. O'Connor

delivered the opinion of the Court.

The controversy is one as to the compensation of a referee in bankruptcy upon a composition with the creditors.

Realty Associates Securities Corporation was adjudged a bankrupt, July 10, 1933, upon the filing of a voluntary petition. At the same time the proceeding was sent to a referee in bankruptcy. The chief claims ($12,631,-949.67) were on bonds issued under indentures between the bankrupt and a trust company as trustee. The other claims were only $208,133.90, of which amount one for $207,583.95 is contested and undetermined. On February 16, 1934, the bankrupt made an offer to the creditors of terms of composition pursuant to the statute (Bankruptcy Act, 30 Stat. 549 , c. 541, § 12; 11 U. S. C. § 30 ), which offer was accepted by the requisite majority. The District Judge found the composition to be for the best interests of the creditors (Bankruptcy Act, § 12 (d)) and confirmed it. By its terms, all creditors were to receive cash for fifteen per cent of the amount of their claims as filed and allowed. Holders of bonds (after crediting the cash) were to extend and otherwise modify the obligation for the remaining eighty-five per cent. Creditors not bondholders, an almost negligible number, were to receive

The creditors took no appeal, acquiescing in the award, though some believed it to be too large. The referee, however, did appeal. The Court of Appeals for the Second Circuit sustained the position of the referee, one judge dissenting. 74 F. (2d) 61 . The decision was that in figuring the commissions the bonds were to be reckoned as a payment of the full amount of the principal payable thereunder. On the petition of the bankrupt and a creditor a writ of certiorari issued from this court.

We think it an unreasonable view of the meaning of the statute (Bankruptcy Act, § 40; 11 U. S. C., § 68) that would treat the bonds of the bankrupt in the situation here developed as equivalent to cash.

In determining the effect of any particular composition, a “ payment ” or an “ amount paid ” must have a sensible construction, which may vary in one case and another according to the facts. Here, at the date of the bankruptcy, creditors were the owners of the bonds of the bankrupt, its promises, non-negotiable in form, for the payment of money, to the extent of nearly $13,000,000. At the date of the composition and afterwards, they held the same bonds, scaled down in amount as to principal

Referees in bankruptcy are public officers ( 11 U. S. C. §§ 61 , 64), and officers of a court. Like public officers generally, they must show clear warrant of law before compensation will be owing to them for the performance of their public duties. United States v. Garlinger, 169 U. S. 316 , 321; People ex rel. Rand v. Craig, 231 N. Y. 216 , 221. Extravagant costs of administration in the winding up of estates in bankruptcy have been denounced as crying evils. Strengthening Procedure in the Bankruptcy System, Sen. Doc. No. 65, 72d Congress, 1st Sess., (1932), p. 53; also H. R. Rep. 65, 55th Congress, 2d Sess. (1898), p. 44. In response to those complaints, Congress has attempted in the enactment of the present statute to fix a limit for expenses growing out of the services of referees and receivers. Bankruptcy Act §§ 40, 48 (d) (e); 11 U. S. C. §§ 68 , 76. The pay for referees is no longer involved in uncertainty as to the applicable percentage. By mischance there is still uncertainty at times as to the principal amount to which the rate is to be applied. In cases of composition the principal is “the amount to be paid to creditors upon the confirmation,” and before we can compute what is due we must know what payment is. The ascertainment of that fact, like the ascertainment of facts generally in the discharge of the judicial function, is a process that must be flexible and broad enough to keep all the circumstances in view. In weighing their significance a court will not forget that Congress meant to hit the evil of extravagance, and that the meaning of its words, if doubtful, must be adapted

Viewing this case from that .angle of vision, we hold that the referee had full compensation in the award of commissions that was made by the District Judge. Whether he was entitled to as much, we do not now determine, the creditors and the bankrupt, who were at liberty to oppose, having preferred to acquiesce. For present purposes it is enough that he was not entitled to more. The bonds had a value in the market that would have made it possible for a creditor to convert them into money at 22% of par. If present values were to be estimated, this was the present value of the promise of the debtor as of the date of composition. To find anything in addition would be to capitalize a hope.

The facts of the case before us define the scope of our decision. We are not required to adjudge the effect to be given to the acceptance of bonds or notes when made in different circumstances or with other possibilities of benefit. For like reasons there can be no profit in stating or analyzing the holdings in other federal courts. In re Batterman, 231 Fed. 699 ; In re Mills Tea & Butter Co., 235 Fed. 815 ; American Surety Co. v. Freed, 224 Fed. 333 ; In re J. B. White Co., 225 Fed. 796 ; Kinkead v. J. Bacon & Sons, 230 Fed. 362 ; In re Columbia Cotton Oil & Provision Corp., 210 Fed. 824 . They grew out of situations very different from this one, and are not consistent with one another. No principle of general .application can be extracted from them.

The respondent referee invokes the analogy of General Order XLVIII (4), adopted April 24, 1933 (288 TJ. S. 636, 637), which fixes the commissions of referees in proceed

We find no merit in the objection that there has been an omission of parties whose presence is essential to the exercise of our supervisory jurisdiction.

The decree of the Circuit Court of Appeals should be reversed, and that of the District Court affirmed.

Reversed.