Baltimore Trust Co. v. Interocean Oil Co.

• Decision Date: 16 September 1939
• Docket Number: No. 2055.,2055.
• Parties: BALTIMORE TRUST CO. v. INTEROCEAN OIL CO.
• Court: U.S. District Court — District of Maryland

29 F. Supp. 269

BALTIMORE TRUST CO. v. INTEROCEAN OIL CO.

No. 2055.

District Court, D. Maryland.

September 16, 1939.

Karl F. Steinman and Carlyle Barton, both of Baltimore, Md., for American Trading & Production Co.

J. Cookman Boyd, Jr., and G. Ridgely Sappington, both of Baltimore, Md., special master.

Hunter Moss and Venable, Baetjer & Howard, all of Baltimore, Md., for Richfield Oil Co.

CHESNUT, District Judge.

The question for present decision in this case is whether the recent judicial sale of the real estate of the Interocean Oil Company shall be confirmed or set aside on the ground of inadequacy of price. To more clearly understand the question presented a brief historical statement will be helpful.

The case was originally brought early in 1932 by the Baltimore Trust Company as Trustee under deed of trust from the Interocean Oil Company securing an issue of $2,000,000 of bonds, to foreclose the deed of trust and sell the property, and in the meantime to have a receiver appointed. By consent of the parties Joseph P. Connor was then appointed receiver, and more recently as special master to sell the property. In the meantime he has operated it as fully as possible, receiving some income and paying necessary expenses. The property consists of about one hundred acres of land at Curtis Bay, Maryland, with 1800 feet of good water front. It has been used principally for the storage of oil products. During seven years of operations gross receipts of about $125,000 have just about equalled the expenses of operation, excluding taxes accruing at the rate of about $10,000 a year, of which amount about $5,000 has recently been paid from the receiver's income and some portion from capital assets.

None of the parties to the case desired an early sale of the property by reason of the depressed value of real estate, and no steps were taken by them to have a sale made until finally the court in 1937 on its initiative indicated to counsel that the case should be brought to a close, and thereupon, on petition of the receiver formally bringing the matter before the court, a sale was ordered and held in January, 1938, an upset price being fixed of $250,000. The property was not then sold, the highest bid for the property as an entirety being about $51,000. After further efforts were made by the receiver to effect a private sale, the court again, early in 1939, indicated that the case should be closed in some way by sale or otherwise; and thereupon on further petition another public sale was ordered without an upset price being named, at which the highest bid was $100,000, made by the American Production and Trading Corporation. Exceptions to the confirmation of the sale were filed by several bondholders on the ground of gross inadequacy of price and a hearing on these exceptions was held before Judge Coleman on July 6, 1939. After hearing some evidence deemed inconclusive, Judge Coleman postponed further consideration of the matter until it could be taken up by the writer of this opinion who had previously been judicially supervising the case. In an oral opinion Judge Coleman indicated that he felt there should be further testimony in the case as to the fair value of the property, and suggested the desirability of having an appraisal made by a disinterested real estate expert familiar with the value of this class of property. He said:

"I do think that there is a prima facie gross discrepancy between what appears to be the probable value, even in a forced sale, of this property, and what was actually offered for it. * * * As an original proposition to me, I think there is probably sufficient discrepancy between what would appear to be a fair value in this property and what has been offered to warrant a court of equity in declining to ratify the sale. But that statement is made with reservation."

Shortly thereafter by conference with and agreement of counsel, a further hearing in the matter was set for September 14, 1939; publication by notice and otherwise was given to the parties in interest that at the hearing further testimony might be submitted by any party in interest on the question of value, and if the sale should be set aside the court would also consider written propositions submitted by bondholders on or before September 1, 1939 for a practical disposition of the case; and on failure of this, then the parties should show cause why the case should not be dismissed for want of prosecution. This hearing has now been held and additional evidence on value has been submitted.

On the question of fair value of the property, there is the testimony of Mr. Harry E. Gilbert, admittedly a competent real estate expert, who was engaged by the receiver upon the suggestion of the court to appraise the property, that in his opinion its fair market value, both as of the date of public offering for sale and of the present time, for land and improvements, is $250,000. One of the bondholders in excepting to the sale stated that at the hearing she would have submitted to the court an offer of $155,000 for the property; and under date of August 31, 1939, this offer was made by the Richfield Oil Corporation which has delivered its certified check for that amount payable to the order of the special master. Counsel for the purchaser, the American Production & Trading Company, in support of its bid of $100,000, has offered no expert opinion or other oral testimony bearing on the fair value of the property, but calls attention to the fact that the property has for seven years been operated at a large loss and the improvements and equipment on the property must have deteriorated in value in recent years. He has also offered the public tax assessments on the property for the years 1924 to 1939 respectively. These show that in 1924 the land and improvements were valued at less than $100,000 but that thereafter the assessments were greatly increased, and in 1931 and 1932, were nearly $300,000 and for 1938 the assessment was $397,000 and for 1939, $307,000. These assessments were made for 1938 and 1939 despite the efforts of the receiver to have them materially reduced, in petitions to the City Bureau of Tax Assessments, stating a requested valuation of $150,000 on land and improvements. The receiver also personally testified that as of June 6, 1939 (the date of the public offering for sale) it was his opinion that the property was fairly worth from $200,000 to $225,000, for the land and improvements. The receiver had been the plant manager of the property for many years prior to the receivership, although not charged with its financial management until he was appointed receiver.

There was also stated at the hearing some former history of the property by Mr. J. Cookman Boyd, Sr., who had long been familiar with it, and now still represents bondholders to the amount of about $500,000. Mr. Boyd's statement, not controverted although not given as a witness under oath, was that on behalf of the owners of the property in 1925 he had negotiated, or at least was familiar with, the sale of the property to the newly organized Interocean Oil Company of Delaware, for a price of about $1,500,000 in cash and about $400,000 of bonds thereof issued to his clients and still now outstanding.

The contention of counsel for the purchaser is that, irrespective of the present fair value the sale was fairly made, and that inadequacy of price is not sufficient to set the sale aside. He also says that the question is to be considered on the basis of the fair value as of June 6th, unaffected by subsequent developments and prospective valuation based on the very recent outbreak of the war in Europe. It will be noted, however, that the testimony as to the fair value in this case is related to the time of the public sale unaffected by subsequent happenings.

The question for decision thus comes to this; where real property is shown to be fairly worth $225,000 to $250,000, and the bid therefor is only $100,000 and there is a subsequent bid, before confirmation of the sale, for $155,000, should the court refuse confirmation of the sale to the highest bidder ($100,000) on the ground of gross inadequacy of price, and re-open the bidding, or is the purchaser entitled as a matter of law to have the sale confirmed because there was no irregularity or other unfairness in the making of the sale.

The most recent statement of the applicable law in this Circuit is found in an opinion by Judge Parker, Speers Sand & Clay Works v. American Trust Co., 4 Cir., 52 F.2d 831, 835, reading as follows:

"The rule is well settled that `a judicial sale regularly made in the manner prescribed by law upon due notice, and without fraud, unfairness, surprise or mistake, will not generally be set aside or refused confirmation on account of mere inadequacy of price, however great, unless the inadequacy is so gross as to shock the conscience and raise a presumption of fraud, unfairness, or mistake.' 16 R.C.L. 95; Pewabic Mining Co. v. Mason, 145 U.S. 349, 12 S. Ct. 887, 36 L.Ed. 732; Everett v. Forst, 50 App.D.C. 215, 269 F. 867, 15 A.L.R. 789. And it is equally well settled that whether the price bid is grossly inadequate and whether and upon what grounds...