§ 65.]

Priorities under Federal and State Laws-Dividends.

Priorities Under the Laws of States or United States. Section 64b (5). Where a priority is sought under a statute of a State it must be determined under the laws of that State. (In re Byrne, 3 Am. B. R. 268; 97 Fed. 762.) Under this section it was the intention of Congress to recognize liens in priority precisely as the State laws had fixed them, and the fact that the language of the section groups such debts as are entitled to priority under the laws of the State together, does not mean that these liens are to be leveled to a common plane. But when an adjudication is made in bankruptcy, the rules of State practice, regarding the acts to be done within a specified time, yield to the rules of the Federal court. So held in construing the effect of the Kentucky statute respecting the time of assertion of a landlord's lien. (In re Falls City Shirt Manufacturing Co. 3 Am. B. R. 437; 98 Fed. 592.)

Disposition of Property Upon Revocation of Discharge or Composition. Section 64c.-Compare sections 13 and 15 with commentaries thereon. Presumably this section does not affect the right of the bankrupt to all property which he acquires after adjudication. (See section 70.)

SEC. 65. Declaration and Payment of Dividends.-a Dividends of an equal per centum shall be declared and paid on all allowed claims, except such as have priority or are secured.

b The first dividend shall be declared within thirty days after the adjudication, if the money of the estate in excess of the amount necessary to pay the debts which have priority and such. claims as have not been, but probably will be, allowed, equal five per centum or more of such allowed claims. Dividends subsequent to the first shall be declared upon like terms as the first and as often as the amount shall equal ten per centum or more and upon closing the estate. Dividends may be declared oftener and in smaller proportions if the judge shall so order.

c The rights of creditors who have received dividends, or in whose favor final dividends have been declared, shall not be affected by the proof and allowance of claims subsequent to the date of such payment or declarations of dividends; but the cred

Declaration and Payment of Dividends.

[Ch. VII.

itors proving and securing the allowance of such claims shall be paid dividends equal in amount to those already received by the other creditors if the estate equals so much before such other creditors are paid any further dividends.

d Whenever a person shall have been adjudged a bankrupt by a court within the United States and also by a court of bankruptcy, creditors residing within the United States shall first be paid a dividend equal to that received in the court without the United States by other creditors before creditors who have received a dividend in such court shall be paid any amounts.

e A claimant shall not be entitled to collect from a bankrupt estate any greater amount than shall accrue pursuant to the provisions of this act.

Analogous Provisions of former Acts.

As to first dividend: R. S. § 5092; act of 1867. § 27; act of 1841, § 10; act of 1800. § 29. As to subsequent dividend: R. S. § 5093; act of 1867, § 28; act of 1841, § 10; act of 1800, § 30. As to filing of accounts preparatory to final dividend R. S. § 5096; act of 1867, § 28. As to rights of creditors whose claims are allowed after first dividend: R. S. § 5097; act of 1867. § 28; act of 1841, § 10.

Section 39a (1) provides that the referee shall declare the dividends and prepare and deliver to the trustees dividend sheets showing the dividends declared and to whom payable.

Section 58a (5) provides that the creditors shall have ten days' notice of the declaration and time of the payment of dividends.

For list of claims and dividends to be recorded by the referee and by him delivered to the trustee, see Form No. 40. Notice of dividend is thereupon given by the trustee. (Form No. 41.) A dividend in bankruptcy has been defined as a parcel of funds. arising from the assets of the estate rightfully allotted to the creditor entitled to share in the fund whether in the same proportion with the other creditors or in a different proportion. In re Barber (3 Am. B. R. 306; 97 Fed. 547), in which it was held that the referee was entitled to charge commissions upon the gross proceeds of the property which by the consent of the secured creditors had been sold free from liens. Compare in re Coffin (referee's decision, 2 Am. B. R. 344).

But in the case

of the Fort Wayne Electric Corporation it was held that where

$65.]

Declaration and Payment of Dividends.

a payment is made by the trustee upon secured claims such payment is not a dividend within the meaning of the Bankruptcy Act and the referee is not entitled to a commission thereon. See also In re Sabine (1 Am. B. R. 322, referee's decision), and In re Fielding (3 Am. B. R. 135; 96 Fed. 800), in which it was held that commissions of the referee and trustee could not be based upon the disbursements made in payment of claims entitled to priority but must be limited to dividends and commissions on the residue of the estate. See sections 40 and 48 as to compensation of referees and trustees.

When the assets of the estate have all been converted into cash and the accounts of the trustee are ready for a complete and final judicial settlement, such settlement should not be delayed because certain creditors whose claims are included in the schedules have not proved their claims. The money ready for distribution should be paid out on allowed claims and the referee should not retain money for the payment of claims of negligent creditors who have delayed proving their claims. (In re Stein, 1 Am. B. R. 662; 94 Fed. 124.) In declaring the first dividend the referee should hold from distribution sufficient funds to cover expenses of all administration and priorities. He is required to hold back only sufficient funds to cover claims that will probably be allowed. (In re Scott, 2 Am. B. R. 324; 96 Fed. 607.) But where money has been held back by the referee on account of defective proof of claims such claimants do not thereby obtain a lien upon such amount. Id. As to claims of persons contingently liable see G. O. 21 (4).

Under the former act it was held that at the second meeting of the creditors (the first meeting at which dividends were declared), the creditors might vote in favor of the disposition of all the funds as dividends other than those needed for the payment of expenses and those needed for claims then undetermined, which by reason of the distant residence of the creditor, or for other sufficient reason, had not been proved; but they were not obliged to leave any funds in the hands of the assignee to pay claims of creditors whose names appeared upon the schedule, but for whose

Unclaimed Dividends Not Subject to Attachment. [Ch. VII. failure to prove, there appeared no sufficient excuse. Comparing the words "such claims as have not been, but probably will be allowed," in paragraph b, with the provisions of paragraph c, it would seem as if a similar construction of the present act would not be improper. If the dividend has been declared, the court has power in a proper case to restrain the payment of it by the trustee in order to give to parties in interest an opportunity to move to have the order of dividend vacated. (In re N. Y. Mail S. S. Co. Fed. Cas. 10,212; 3 N. B. R. 280.) But a dividend so declared cannot be disturbed except for some error or other cause. It cannot be opened for the purpose of paying an expense which would have been allowed, had it been brought to the attention of the court before the declaration of the dividend. (In re B. K. Smith, Fed. Cas. 12,989; 15 N. B. R. 97.) Neither can a State court in any way interfere with the bankruptcy court in its distribution of the assets of the bankrupt. (In re Bridgman, Fed. Cas. 1,867; 2 N. B. R. 252.) Where the assets are more than sufficient to pay all the claims which have been allowed, interest upon them may be allowed. (In re Hagan, Fed. Cas. 5,898; 10 N. B. R. 383.)

SEC. 66. Unclaimed Dividends.-a Dividends which remain unclaimed for six months after the final dividend has been declared shall be paid by the trustee into court.

b Dividends remaining unclaimed for one year shall, under the direction of the court, be distributed to the creditors whose claims have been allowed but not paid in full, and after such claims have been paid in full the balance shall be paid to the bankrupt: Provided. That in case unclaimed dividends belong to minors such minors may have one year after arriving at majority to claim such dividends.

No Analogous Provisions in Former Acts.

Unclaimed Dividends Not Subject to Attachment.-In Jackson v. Miller (9 N. B. R. 143), it was held (following in re Bridgman. Fed. Cas. 1,867; 2 N. B. R. 252), that dividends in the hands of

the trustee were not subject to attachment by a creditor of the dividend creditor. To the same effect, Gilbert v. Lynch, 17 Blatch. 402, holding that when a dividend is declared in favor of a creditor it is not property, but a right to secure property. The former act contained no express provision as to the method of disposing of unclaimed dividends, but the decisions of the court established substantially the same rules which now appear in statutory form.

See as applicable to this section in re Stein and in re Fielding cited under preceding section.

SEC. 67. Liens.-a Claims which for want of record or for other reasons would not have been valid liens as against the claims of the creditors of the bankrupt shall not be liens against his estate.

b Whenever a creditor is prevented from enforcing his rights as against a lien created, or attempted to be created, by his debtor, who afterwards becomes a bankrupt, the trustee of the estate of such bankrupt shall be subrogated to and may enforce such rights of such creditor for the benefit of the estate.

c A lien created by or obtained in or pursuant to any suit or proceeding at law or in equity, including an attachment upon mesne process or a judgment by confession, which was begun against a person within four months before the filing of a petition in bankruptcy by or against such person shall be dissolved by the adjudication of such person to be a bankrupt if (1) it appears that said lien was obtained and permitted while the defendant was insolvent and that its existence and enforcement will work a preference, or (2) the party or parties to be benefited thereby had reasonable cause to believe the defendant was insolvent and in contemplation of bankruptcy, or (3) that such lien was sought and permitted in fraud of the provisions of this act; or if the dissolution of such lien would militate against the best interests of the estate of such person the same shall not be dissolved, but the trustee of the estate of such person, for the benefit of the estate, shall be subrogated to the rights of the holder of such lien and empowered to perfect and enforce the same in his name as trustee with like force and effect as such holder might have done had not bankruptcy proceedings intervened.