§ 642. Duties of trustees.

the share of a lienor upon part of property sold for a lump sum, see, Vollmer v. McFadgen, C. C. A., 161 Fed. 914; Re B. A. Lockwood Grain Co., 225 Fed. 873. Where such a lienor was allowed no priority, Re Keyser v. Wessel, C. C. A., 128 Fed. 281, 62 C. C. A., 650, 12 Am. Br. 126; and Re F. & B. Co., C. C. A., 256 Fed. 73; and in case the lienor is a purchaser, to permit the amount of the lien to be credited upon his bid, Re Roger Brown & Co., C. C. A., 196 Fed. 758; Clark Hardware Co. v. Sauve, 220 Fed. 102; Re States Printing Co., C. C. A., 241 Fed. 245; Re Franklin Brewing Co., C. C. A., 249 Fed. 333. Where it is contended that the amount secured by the lien is in part a voidable preference, the trustee may deduct that amount from the payment and withhold the same until the controversy has been adjudicated. Re V. & M. Lumber Co., 182 Fed. 231. It has been said that a sale free of liens should be directed whenever there is reasonable ground to believe that more may be realized than the amount of the encumbrance, although there is doubt upon the point. Re Zehner, 193 Fed. 787; Re Progressive Wall Paper Corp., 222 Fed. 87. In such a case, the creditor will usually be enjoined from foreclosing in the State court. Ibid. Where it is reasonably certain that the property is encumbered to its full value, the court will not direct such a sale, nor enjoin foreclosure proceedings in the State court. Ibid; Re Foster, 181 Fed. 703; Re Rose, 193 Fed. 815; Re Fayette

ville Wagon Wood & Lumber Co., 197 Fed. 180, where there was a dispute as to the validity of the lien. But see, Re Franklin Brewing Co., C. C. A., 249 Fed. 333. Upon an application for such a sale, the court is not bound by the opinions of witnesses as to the value of the property even when they are uncontradicted, when they are at variance in the appraisers' estimate. Clark Hardware Co. v. Sauve, 220 Fed. 102. Where a trustee had taken possession of property in another State where a lienor lived, it was held that he might be authorized to make such a sale. Re Wilka, 131 Fed. 1004 Re States Printing Co., C. C. A., 241 Fed. 245; Kelly v. Minor, C. C. A., 252 Fed. 115. When a trustee finds that the bankrupt owns property subject to liens, he should petition the court for instructions, Re Cutler & John, 228 Fed. 771. An order directing a sale of a bankrupt's property on which valid liens exist should be granted only on notice to lien creditors, and the record should affirmatively disclose that every creditor whose lien will be discharged by the sale has received such notice. Re Platteville Foundry & Machine Co., 147 Fed. 828; Re Stewart, 193 Fed. 791; Re Torchia, 185 Fed. 576; Re National Boat & Engine Co., 216 Fed. 208; Re Reading, 224 Fed. 786; Re North Star Ice & Coal Co., 252 Fed. 301. In one case a lienor not a creditor was not permitted to object, Re Pittsburg-Big Muddy Coal Co., C. C. A., 215 Fed. 703; see Re States Printing Co., C. C. A., 241 Fed.

245. Slight circumstances may constitute an estoppel against an objection by a lienor to such an order, even though the order was irregularly made. Re N.. Y. & Phila. Package Co., 225 Fed. 219; Crampton v. Massie, C. C. A., 236 Fed. 901; Gugel v. New Orleans Nat. Bank, C. C. A., 239 Fed. 676; Re States Printing Co., 241 Fed. 245. But see North Star Ice & Coal Co., 252 Fed. 201; Re McAusland, 235 Fed. 173. An action of trover is an affirmance of the sale. Re Platteville Foundry & Machine Co., 147 Fed. 828. An order by the bankruptcy court directing a sale of the bankrupt's property without mentioning liens is construed as only authorizing a sale subject to existing liens. Re Platteville Foundry & Machine Co., 147 Fed. 828; Re Reading Hat Mfg. Co., 224 Fed. 786. In such a case any lienor may bid at the sale. Re Old Oregon Mfg. Co., 236 Fed. 804. The details as to the sale of encumbered property may be left to the discretion of the creditors, subject to the approval of the court, after the lienor has been afforded a hearing. Re Zehner, 193 Fed. 787. Ordinarily, no more should be expended for advertising than would be required in case of a sale under the State laws. Ibid. Where it is doubtful whether the property will sell for more than the amount of the lien, the trustee may be directed to sell the property himself without the aid of an auctioneer. Ibid. Where the trustee sells mortgaged property free from a mortgage, which the court holds to be valid, the mortgagee is entitled to the payment of

1 (2)

interest, as well as principal, out of the proceeds, if the mortgage entitles him to interest. Coder v. Arts, C. C. A., 15 L.R.A. (N.S.) 372, 152 Fed. 943, aff'd 213 U. S. 233, 53 L. ed. 772; Re Allert, 173 Fed. 691. The amendment of 1910 gives the trustees commissions "on all moneys disbursed or turned over to any person, including lienholders, by them." 36 St. at L. 838, amending 30 St. at L. 544, § 48; Re Holmes Lumber Co., 189 Fed. 179. See § 663, infra. For the previous decisions see the fifth edition of this book § 642, note 11. The court of bankruptcy cannot order mortgaged premises sold clear of the mortgage lien and deduct from the mortgagee's share of the proceeds any of the general expenses of the administration of the estate beyond the expense of the sale of the proceedings to ascertain the amount due the lienor and the trustee's commissions. Re Howard, 207 Fed. 402.

§ 642. 1He is liable for all profits, beyond the statutory compensation, made by him in connection with his trust, including those resulting from the purchase at a discount alone or in connection with others, of claims against the bankrupt. In the latter case, such profits made by his partners must also be returned to the estate. U. S. Fidelity & Guaranty Co. v. Eichel, 220 Fed. 803; Re Webster Loose Leaf Filing Co., 252 Fed. 959. It has been held that a trustee is not bound to account for profits made by a corporation, of which he was a stockholder, upon goods sold by the corporation to himself and other

receivers of the bankrupt's estate. Re Frazin & Oppenheim, C. C. A., 181 Fed. 307. It is hoped that this decision, which opens the door for fraud, will not be followed. Union Electric Co. v. Hubbard, C. C. A., 242 Fed. 248. A trustee in bankruptcy is bound to use due diligence to collect the assets of the estate, and he may be charged in his account with the value of assets which never came into his possession, if he failed to exercise reasonable diligence in collecting them.

2 Re Reinboth, C. C. A., 16 L.R.A. (N.S.) 341, 157 Fed. 672. Re Kane, 161 Fed. 633. See Re Di Cola, 217 Fed. 743. He is prima facie liable for his failure to collect assets stated in the schedules. Re Kuhn Bros., C. C. A., 234 Fed. 277. He may be personally responsible for transferring property in such a way as to defeat a lien thereon, of which notice has been given him. Re Cadenas & Coe, 178 Fed. 58. The fact a trustee failed to object to the discharge of a bond for the value of property given by a third party in possession thereof is evidence of the negligence in this respect. Ibid. A trustee is under no obligation to buy property at a foreclosure sale in order to prevent its being acquired by the mortgagor for less than the amount of the mortgage. Re Graves, 182 Fed. 443. Where a trust company was appointed receiver and trustee, it was held that it was its duty to act as custodian of the property and that

Fed.

3 It has been said that the trustee is to some extent a stakeholder and occupies a fiduciary relation to ward the bankrupt as well as the creditors. Re Lenters, 225 Fed. 878, 883. Contra Re Kreuger, 196 705, 708. He and the estate, irrespective of negligence, are liable for the loss of property in his possession belonging to another which he has refused to surrender to the rightful owner. Re Reeves, 227 Fed. 711, or for his other conversion of such property. McAuley v. Jackson, 165 App. Div. (N. Y.) 846; Bramble v. Brett, C. C. A., 236 Fed. 385. He may be liable for the penalties imposed by a State statute for the non-payment of taxes. Stanard V. Dayton, 220 Fed. 441. The court may instruct the trustee what counsel to employ, Re Arnett, 112 Fed. 770; and give orders concern ing litigation by him; Re Bailey, 151 Fed. 953. He should not engage in expensive litigation concerning doubtful claims without the authority of a large majority of the creditors, unless creditors wish the litigation instituted assume responsibility for the expense. Harper, 175 Fed. 412; Re Kearney, 184 Fed. 190. But he may be required to do so upon the petition of a creditor, Re Bailey, 151 Fed. 953, or stockholder, Re John

who

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Woodbury Dermatological Institute,

C. C. A., 191 Fed. 819, of the bankrupt who files a bond to protect the estate from liability for costs and expenses; and, in such a case, the court may direct that the creditors who paid the expense of the litigation should have a prior lien for the same and for the amount of their claims out of any amount that may be recovered, Cornell v. Nichols & L. Mach. Co., C. C. A., 201 Fed. 320, affirmed, 189 Fed. 556; Cf. Re Buchanan, 219 Fed. 492; see §§ 311, 322, 421, supra. A trustee may be sued in a State court in trover, without leave of the Court of Bankruptcy, for an act done in the performance of his official functions, Re Smith, 121 Fed. 1014; Re Hunter, 151 Fed. 904. But it has been held that rent cannot be collected from him, except by a proceeding in the Court of Bankruptcy; Re Bishop, 153 Fed. 304. See $$ 643, 647, infra. The trustee is liable for reimbursement from the estate for rent, which he is obliged to pay for the reasonable use of property for the purposes of his trust, Re Hunter, 151 Fed. 904. When because of his payment of attorney's fees the assets were insufficient to pay claims entitled to a priority he was directed to make up such deficiency. Re Mitchell, C. C. A., March 10, 1914.

4" Courts of bankruptcy shall designate, by order, banking institutions as depositories for the money of bankrupt estates, as con venient as may be to the residences

of trustees, and shall require bonds to the United States, subject to their approval, to be given by such banking institutions, and may from time to time as occasion may require, by like order increase the number of depositories or the amount of any bond or change such depositories." 30 St. at L. 544, 562, § 61. See Re Barnett, 214 Fed. 263. It has been held that the District Court should not direct a trustee to withdraw the proceeds of a sale from the designated depository and deposit them in a national bank in the district, in return for a time certificate of deposit bearing the highest current rate of interest. Huttig Mfg. Co. v. Edwards, C. C. A., 160 Fed. 619. And even that without the approval of the creditor he cannot make deposits in the savings departments of such depositaries where it bears interest, but is not subject to being withdrawn by checks. Re Dayton Coal & Iron Co., 239 Fed. 737. The estate to which the deposit belongs should be stated at the time thereof. Re Cobb, 112 Fed. 655, 657; Re Carr, 117 Fed. 572. But see State Bank v. Dodge, 124 U. S. 333, 31 L. ed. 458. The deposit should be made in the name of the court or judge, Re Cobb, 112 Fed. 655, 657, or in that of the trustee in his official capacity, Carr, 117 Fed. 572.

5"No moneys deposited as required by the act shall be drawn from the depository unless by check or warrant, signed by the