Ohio Savings Bank & Trust Co. v. Willys Corporation

• Decision Date: 08 June 1925
• Docket Number: No. 295.,295.
• Parties: OHIO SAVINGS BANK & TRUST CO. v. WILLYS CORPORATION et al.
• Court: U.S. Court of Appeals — Second Circuit

44 ALR 1162, 8 F.2d 463 (1925)

OHIO SAVINGS BANK & TRUST CO. v. WILLYS CORPORATION et al.

No. 295.

Circuit Court of Appeals, Second Circuit.

June 8, 1925.

Cotton & Franklin, of New York City (H. F. Reindel, of New York City, of counsel), for appellants.

David Hunter Miller, of New York City, for receiver.

Rushmore, Bisbee & Stern, of New York City, for bank creditors' committee.

White & Case, of New York City (David Hunter Miller, Eldon Bisbee, and Joseph M. Hartfield, all of New York City, of counsel), for merchandise and construction creditors' committee.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

ROGERS, Circuit Judge (after stating the facts as above).

The question which this appeal brings into this court is an interesting and important one. It involves the proper method to be pursued in making payment of debts of an estate being administered by receivers appointed in an equity proceeding. The receiver appointed in the Southern District of New York, Francis G. Caffey, filed in the United States District Court for that District, on April 12, 1924, a petition asking the instructions of the court. Its material portions are as follows:

"Dividends of 100 per cent. of the face amount of the claims of general creditors allowed herein have been paid. The aggregate amount of cash and securities held by the receivers in this cause in the Northern district of Ohio, Western division, and in the district of New Jersey, and by myself as receiver in this district, is at least $2,600,000. There is no doubt that these funds will be sufficient to pay, either in whole or in part, the amount which remains due to general creditors herein by reason of the running of interest. The exact amount which will be available for this purpose cannot now be determined, however, because of the claim of the United States of America which is pending in New Jersey. * * *

"In addition to the assets of this estate above mentioned, the security for the benefit of creditors to the extent of $500,000, mentioned in the second report and accounting herein, verified October 17, 1923, is still held by me as receiver. The parties in interest in this cause do not agree as to the method which should be followed in calculating the amounts which remain due to creditors by reason of the running of interest on their allowed claims. It is essential in the administration of this estate that an adjudication of the court as to such method and as to the amounts which remain due to creditors should be had before any further distribution to creditors is made.

"Accordingly I respectfully pray the court that such an adjudication be made, and that such other and further instructions be given me as receiver and such other and further relief be granted as to the court may seem just."

It resulted in the following order, entered on June 3, 1924:

"(1) The receiver herein, in calculating the interest upon proved and allowed claims, is hereby instructed to adopt the method described as method 2 in the affidavit of H. L. Green annexed to said petition of Francis G. Caffey, receiver, verified April 12, 1924.

"(2) The respective amounts remaining due to the respective creditors having adjudicated claims herein are those set forth in the schedule annexed to said affidavit of said Green under the heading `Method 2,' and said amounts so due to said creditors are amounts of principal due, with interest from March 15, 1924, and, except as noted in said schedule, at 6 per centum per annum.

"(3) Said amounts so adjudicated to be due to creditors herein are also set forth in the schedule annexed to this order, the figures whereof are the same as those in the above mentioned schedule annexed to said affidavit of said H. L. Green.

"(4) The claim of Chase National Bank, allowed herein in the sum of $1,687.20 by order dated July 19, 1922, has been wholly paid, and nothing remains due thereon, either by way of principal or by way of interest."

It is from this order that the appeal is taken. The total amount of the claims allowed against the estate aggregate $15,021,748.57.

At the time the petition for instructions was filed, three claims, aggregating $37,957.26, were pending unadjudicated in the District Court of New Jersey. There was also pending in the same court a disputed claim of the United States arising out of war contracts, and no adjudication thereof has yet been had. This claim the comptroller of the receiver in his sworn statement declares involves about $1,500,000, which, with interest, may amount to $2,000,000; and he also stated that "sufficient funds have been set aside by the receivers in New Jersey to meet that claim if and to the extent to which the same shall be finally allowed."

Five dividends to general creditors, aggregating 100 per cent. of the amount of the claims as allowed, have been paid. The orders allowing the claims recited that they were allowed, with interest from April 1, 1922, which was the last day for filing claims against the estate, some at the rate of 6 per cent. per annum, and others at the rate of 7 per cent. per annum, "if interest is paid upon other general claims." The pertinent provisions of the orders directing payment of the dividends are as follows:

"Orders, dated November 8, 1922, December 27, 1922, and April 24, 1923, respectively, of the District Court for the Northern District of Ohio: (1) `That the receivers forthwith pay a dividend of 40 per cent. upon the adjudicated claims against the defendant Willys Corporation, allowed in all districts, as set forth in the report of the special master hereby approved and confirmed.' (2) `That the receivers forthwith pay a dividend of 17 per cent. upon the adjudicated claims against the defendant Willys Corporation, allowed in all districts, as set forth in said report of the special master.' (3) `That the receivers forthwith pay a dividend of 21 per cent. upon the adjudicated claims against the defendant Willys Corporation, allowed in all districts, as set forth in the reports of the special master.'

"Orders, dated August 21, 1923, and March 11, 1924, respectively, of the District Court for the Southern District of New York: (1) `The receiver herein is hereby authorized and directed to pay out of the funds in his hands a dividend of 12 per centum upon the amount of claims of general creditors duly allowed herein.' (2) `That the receiver herein is authorized and directed to pay a dividend of 10 per cent. on the claims of general creditors duly allowed herein.'"

It appears that the total amount paid to the creditors is as large as the amount of the claims allowed; and it also appears that the receivers still have in their hands $3,100,000 unexpended. It thus is apparent to us that the assets still in the hands of the receivers are sufficient to pay the pending and unadjudicated claims, if they are finally allowed, together with the interest which may be due on the claims.

It is conceded by the appellants that there is a surplus in the estate available for the payment of interest on the adjudicated claims during the period of the receivership. They also concede that interest accrues upon unpaid balances of claims against the estate after the date when the court took over the administration of the estate, and that the creditors are entitled to such interest in cases where, as in this case, a surplus remains after the payment of the principal of the claims as allowed. They admit that it is well-established law that, where there is a surplus remaining in the hands of the receivers after the payment of the claims as allowed, the corporation is not entitled to such surplus until the interest which accrued during the receivership upon the unpaid balances of the claims has been paid in full. The only disagreement between the appellants and the appellees is as to the method of computing the amount of the unpaid balances and the amount of interest so payable.

By petition verified April 12, 1924, the receiver appointed in the Southern District of New York applied to the District Court in that district for instructions as to whether interest upon the general claims for the period of the receivership should be calculated by one of two methods:

In method No. 1, the dividend payments to creditors hereinbefore referred to are treated as payments made on their respective dates, wholly on account of the principal of the various claims as allowed. Inasmuch as dividends aggregating 100 per cent. have been paid, this method assumes that the principal of these claims has been paid in full, and that nothing remains to be paid thereon, except interest.

In method No. 2, each dividend payment is treated as a payment first on account of the interest accrued on the respective claims during the period of the receivership up to the date of the payment, the balance of the payment then being applied to reduce the principal of the claims. Under this method, the principal of the claims has not been paid in full, although dividends aggregating 100 per cent. of the principal amount of the claims have been paid thereon.

Specifically, by method No. 1, there remained unpaid on the general claims on March 15, 1924, $841,276 of interest, and by method No. 2, $900,414 of principal. By order dated June 3, 1924, being the order appealed from, the District Court instructed the receiver to follow method No. 2. Appellants contend that method No. 1 is the proper method.

The question involved in the appeal is as to the extent to which the principal of the claims has been paid by the five dividends aggregating 100 per cent. of such principal. It is the contention of appellants that the principal has been paid in full and that only interest remains to be paid. If we understand their contention, and the reason therefor, it is that under the method they contend for, which is method No. 1, the surplus which the corporation will ultimately receive after the payment of all claims, principal and interest, has been...