Notice to Trustee of His Appointment - Compensation of Referees. [Ch. V.

the register. A violation of either of the matters mentioned in b (1) or (3), is an offense under section 29.

But the mere fact that the referee is a debtor of the alleged bankrupt does not disqualify him to act as referee in proceedings against his creditor. (Bray v. Cobb, I Am. B. R. 153; 91 Fed. 102.)

Notice to Trustee of His Appointment.-It is the referee's duty to notify the trustee of his appointment. See G. O. 16, which is as follows:

XVI. NOTICE TO TRUSTEE OF HIS APPOINTMENT.

It shall be the duty of the referee. immediately upon the appointment and approval of the trustee, to notify him in person or by mail of his appointment; and the notice shall require the trustee forthwith to notify the referee of his acceptance or rejection of the trust, and shall contain a statement of the penal sum of the trustee's bond.

Expenses of Referee.-The referee must keep an accurate account of his expenses. This subject is covered by G. O. 26,

which is as follows:

XXVI. ACCOUNTS OF REFEREE.

Every referee shall keep an accurate account of his traveling and incidental expenses, and of those of any clerk or any officer attending him in the performance of his duties in any case which may be referred to him; and shall make return of the same under oath to the judge, with proper vouchers when vouchers can be procured, on the first Tuesday in each month.

SEC. 40. Compensation of Referees.-a Referees shall receive as full compensation for their services, payable after they are rendered, a fee of ten dollars deposited with the clerk at the time the petition is filed in each case, except when a fee is not required from a voluntary bankrupt, and from estates which have been administered before them one per centum commissions on sums to be paid as dividends and commissions, or one-half of one per centum on the amount to be paid to creditors upon the confirmation of a composition.

b Whenever a case is transferred from one referee to another the judge shall determine the proportion in which the fee and commissions therefor shall be divided between the referees.

$ 40.]

On Dividends and Commissions.

c In the event of the reference of a case being revoked before it is concluded, and when the case is specially referred, the judge shall determine what part of the fee and commissions shall be paid to the referee.

Analogous Provisions of Former Acts.

R. S. sections 5008 and 5125; act of 1867, sections 4 and 5.

On Dividends and Commissions.-The basis of commissions is not receipts and disbursements, but the sum left for distribution as dividends and as commissions. The commissions and the fee are not payable to the referee until the estate is closed; that is, not until he has sent all the records to the clerk. (Compare sections 51 [4] and 39 [7].) The purpose of these provisions, according to the report of the judiciary committee of the House, is to induce officers to expedite the administration of estates in their charge and to keep down expenses. As to cases in which a voluntary bankrupt is excused from paying a fee, compare section 51 [2].

The term dividend has been judicially defined under the present act as a parcel of the funds arising from the assets of the estate, rightfully allotted to a creditor entitled to share in the fund, whether in the same proportion with other creditors, or in different proportion. (In re Barber, 3 Am. B. R. 306; 97 Fed. 547.) In that case it was held that where a secured creditor does not invoke the aid of the Court of Bankruptcy to enable him to turn his securities into cash, then, although the court in the exercise of its equitable power for the benefit of the unsecured creditors, may order the incumbered property sold free and discharged of the incumbrance, assuming the conservation of the equitable rights of the secured creditor in the disposition of the proceeds of the sale, it seems that the moneys coming to the secured creditor under such circumstances come into the case incidentally and are not to be regarded as any dividend, and should not be charged with any commissions. But where the secured creditors in their own interests invoke the aid of the Court of Bankruptcy to make

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On Dividends and Commissions.

[Ch. V. such a sale, and realize thereby upon their security more than they could have expected through foreclosure, and without the expense and delay of that remedy, thereby preserving their own equities and at the same time realizing the claims of the unsecured creditors, the amount paid to them must be properly considered as a dividend, and hence is properly chargeable with commissions, and this is so even though the secured creditors stipulate that the whole of the fund realized should be paid to an agency of their own selection for division and apportionment among them.

In this case (distinguishing In re Slevin, 4 Dill. 131; Fed. Cas. No. 12,942) Judge Lochren says:

The case of In re Slevin, 4 Dill. 131. Fed. Cas. No. 12.942, has no bearing. There the sale was made by the trustee named in the mortgage, and the assignee in bankruptcy, who would have been entitled to receive only any surplus after the payment of the mortgage debt, joined in the deed. But there was no surplus, no money whatever to be administered by the Court of Bankruptcy, and he was properly held entitled to no commission. Here the entire fund was obtained through the action of the Court of Bankruptcy, whose officers alone made the sale and administered the fund; paying the avails of the security directly to the bondholders, and entirely disregarding the trustee named in the mortgage. The mortgage was functionless in the proceeding, except as it showed the extent of the rights and equities of the bondholders which were entitled to the protection of the court. The payments to the bondholders were of their dividends or allotments of the fund produced in the Court of Bankruptcy through the execution of its orders by its officers upon the motion or request of the secured creditors, and the referee and trustee are entitled to commissions on such dividends. Such sale, when agreed to by all the parties. was doubtless within the equity powers of the Court of Bankruptcy. Ex parte Christy, 3 How. 292, 315. It enabled the mortgagees or bondholders to realize with greater speed the avails of the security than could have been done by foreclosure under the terms of the mortgage, and of the law under which the creditors might have acted. But there is nothing in the law which excludes the referee from commissions upon dividends to any class of creditors from a fund obtained through the action of the court alone, and the services of its officers, when such action and services have been invoked by such creditors."

On the other hand a referee recently held (In re Gardner, 4 Am. B. R. 420), that this portion of the statute relating to commissions on dividends, etc., is unconstitutional on the ground that the judiciary article of the Constitution of the United States is impliedly subject to the general common law rule that

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On Dividends and Commissions.

no one shall be a judge in a matter in which he is interested, and that the referee is interested within the meaning of that maxim, when he passes upon the question of dividends, and therefore such a matter if passed upon at all must be passed upon by the judge. It is probable that the referee has taken too narrow a view of the subject. In the first place, his statement of the common law rule being incorporated by implication in the Constitution of the United States is open to question; and secondly he has undoubtedly given the rule a too narrow interpretation. The "interest" which will disqualify a judicial officer means an interest in the cause of action itself, something more than such interest as may result incidentally by reason of fees, etc. So held in New York where a judge passed upon the constitutionality of a statute which increased his compensation when acting in a certain capacity as well as the compensation of other judges. (People ex rel. Morris v. Edmonds, 15 Barb. 529.) It is probable that the decision of In re Gardner will not be followed. But commission cannot be collected upon claims entitled to priority. (In re Fielding, 3 Am. B. R. 135; 96 Fed. 800.)

It has been held in the case of Fellows v. Freudenthal, C. C. A. 7th C. (4 Am. B. R. 490; 102 Fed. 731), that where issues arising upon an application for discharge are sent to a referee to ascertain and report upon, the reference is made to him in the capacity of special master in chancery and not as referee in bankruptcy, and the duty is independent of the latter office and in no sense incompatible. A reasonable allowance may therefore be taxed for the referee's compensation outside and apart from the provisions of section 40. It must be remembered, however, in this connection that the reference of specified issues arising in the administration of the estate is within the direct contemplation of the Bankruptcy Law. (Section 22 ante.)

On the subject of the compensation of the referee it is important to keep in mind G. O. 35, as follows:

2. The compensation of referees. prescribed by the act, shall be in full compensation for all services performed by them under the act, or under these

On Dividends and Commissions - Contempts before Referees. [Ch. V. general orders; but shall not include expenses necessarily incurred by them in publishing or mailing notices, in traveling, or in perpetuating testimony, or other expenses necessarily incurred in the performance of their duties under the act and allowed by special order of the judge.

4. In any case in which the fees of the clerk, referee and trustee are not required by the act to be paid by a debtor before filing his petition to be adjudged a bankrupt, the judge, at any time during the pendency of the proceedings in bankruptcy, may order those fees to be paid out of the estate; or may, after notice to the bankrupt, and satisfactory proof that he then has or can obtain the money with which to pay those fees, order him to pay them within a time specified, and, if he fails to do so. may order his petition to be dismissed.

On the subject of accounts of the referee see G. O. 26, quoted under preceding section.

G. O. 10 gives the referee with other officers the right to require from the bankrupt or other person in whose behalf expenses are to be incurred indemnity for such expenses.

SEC. 41. Contempts before Referees.-a A person shall not, in proceedings before a referee, (1) disobey or resist any lawful order, process or writ; (2) misbehave during a hearing or so near the place thereof as to obstruct the same; (3) neglect to produce, after having been ordered to do so, any pertinent document; or (4) refuse to appear after having been subpœnaed, or, upon appearing, refuse to take the oath as a witness, or, after having taken the oath, refuse to be examined according to law. Provided. That no person shall be required to attend as a witness before a referee at a place outside of the State of his residence, and more than one hundred miles from such place of residence, and only in case his lawful mileage and fee for one day's attendance shall be first paid or tendered to him.

b The referee shall certify the facts to the judge, if any person shall do any of the things forbidden in this section. The julere shall thereupon, in a summary manner. hear the evidence as to the acts complained of, and, if it is such as to warrant him in so doing, punish such person in the same manner and to the same extent as for a contempt committed before the court of bankruptcy, or commit such person upon the same conditions as if the