Bank v. Fletcher Sav. & Trust Co. , 24017.

• Decision Date: 18 December 1924
• Docket Number: No. 24017.,24017.
• Citation: 195 Ind. 669,145 N.E. 869
• Parties: IRWIN'S BANK et al. v. FLETCHER SAVINGS & TRUST CO. et al.
• Court: Indiana Supreme Court

195 Ind. 669

145 N.E. 869

IRWIN'S BANK et al.

v.FLETCHER SAVINGS & TRUST CO. et al.^*

No. 24017.

Supreme Court of Indiana.

Dec. 18, 1924.

Appeal from Superior Court, Marion County; Solon A. Carter, Judge.

The Fletcher Savings & Trust Company was appointed receiver for the Stenotype Company. From an order and judgment fixing priorities between creditors, Irwin's Bank and others appeal. Reversed in part, with directions.Ralston, Gates, Lairy, Van Nuys & Barnard, of Indianapolis, Baker & Richman, of Columbus, Watson & Esarey, and Elmer W. Stout, all of Indianapolis, Stetson, Jennings & Russell, of New York City, and Shirley, Whitcomb & Dowden, of Indianapolis, for appellants.

Newberger, Simon & Davis, Baker & Daniels, and William W. Seagle, all of Indianapolis, for appellees.

MYERS, J.

This appeal is from an order and judgment of the Marion superior court, fixing priorities as between creditors of the Stenotype Company, an insolvent corporation. The Marion superior court, on November 14, 1918, appointed the Fletcher Savings & Trust Company receiver for the Stenotype Company, hereinafter referred to as the company. The receiver so appointed proceeded to and has converted all of the assets of the insolvent corporation into cash, as shown by its report and supplemental report of January 17 and April 29, 1921, respectively.

The January report of the receiver classified the creditors of the company as follows: (1) Claims of laborers for personal services rendered the company prior to the appointment of a receiver; (2) claims of creditors, approximately 400 in number, in whose favor liability was incurred by the company, growing out of the performance by it of contracts with the government of the United States for the manufacture and production of munitions; (3) claims in favor of those who indorsed government notes pursuant to contracts with the company and identified as guarantors' claims; (4) claims of creditors who incurred liability for the repayment of a loan of $75,000, with interest and commissions pursuant to a contract with the company; (5) claims of creditors in whose favor liability was incurred in the general business of the company independent of its munitions contracts, and also claims of preferred creditors who were not paid in full by the application of the particular fund set apart for that purpose.

In this connection, and bearing upon the questions here for decision, attention is drawn to the receiver's report wherein the money so received by it is classified as: (1) Mortgage fund which was derived from the sale of the real estate, buildings, machinery, and other property of the company, aggregating $390,282.34, from which certain deductions were made by reason of prior liens and expenses incident to that fund; (2) money received from the collection of certain notes given to the company for the sale of Stenotype machines, amounting to $31,457.04; (3) money paid the receiver by the government on account of the cancellation of certain munitions contracts, totaling $396,848.32.

The receiver has discharged all obligations of the company to the United States government, claims of laborers for personal service, and has turned over to the mortgage creditors the fund, less the amount required to pay prior liens, arising from the sale of all property held by the company at the time of the execution of the mortgage. Out of fund No. 2 the receiver paid the Bankers' Investment Company $19,464.54. There is no objection to the action of the court in ordering the receiver to make the above payments, nor to the court's allowances payable out of fund No. 3 on account of the administration and settlement of the insolvent estate.

The question of priorities in the payment of claims between creditors or classes of creditors was presented to the trial court by intervening petitions: First, by the Guaranty Trust Company of New York as trustee representing the mortgage creditors seeking priority over all creditors under the terms of the mortgage; second, the Bankers' Investment Company asserting priority of paymentout of fund No. 2 of the balance due it by virtue of a contract between the company and itself, of date August 12, 1914; third, the munitions creditors-materialmen-claiming priority in the payment of their claims out of fund No. 3, on the theory of an equitable assignment and lien on that fund, in accordance with the contracts of February 7 and 14, and April 15, 1918, between the company and its guarantors on notes to the United States government, and its indorsers of notes to the Continental National Bank and Irwin's Bank; fourth, the Riverside Metal Company insists that it was entitled to priority over all of these intervening creditors, on the ground that it was a subcontractor of the Stenotype Company, and, as such, a commitment creditor under an act of Congress known as the Dent Act; fifth, Stoughton A. Fletcher, Bankers' Investment Company, William G. Irwin, and Irwin's Bank demand priority of payment of their claims out of fund No. 3, under the provisions of a contract between the company and the Continental National Bank, Irwin's Bank, and these interveners, of date February 14, 1918, whereby these banks loaned the company $75,000, with Fletcher, Bankers' Investment Company, and William G. Irwin as indorsers. The notes to the Continental National Bank were paid by the indorsers. The five notes to Irwin's Bank, aggregating $25,000, do not appear to have been paid.

The trial court, upon the issues thus tendered, found the order of priority in the payment of claims out of fund No. 3 as follows: First, munitions creditors; second, commissions to guarantors of government notes; third, Fletcher, Bankers' Investment Company, and Irwin on acount of notes indorsed by them; fourth, commissions in favor of the last-named parties by reason of their indorsements.

The Riverside Metal Company's claim of priority over other munition creditors, and that of the Guaranty Trust Company, and the demand of the Bankers' Investment Company to the balance of the fund arising from the collection of Stenotype notes, were each denied. The action of the court upon the various issues tendered is questioned by proper assignments of error.

From a careful examination of the record, briefs on file, and from counsels' oral argument, we are impressed with the thought that many of the questions here presented have their origin in the conclusion of counsel as to the legal effect of the contracts of date August 12, 1914, February 7 and 14, and April 15, 1918, and the mortgage dated May 1, and recorded May 29, 1917.

For the purposes of this opinion, we will refer to creditors represented by the Guaranty Trust Company, trustee, as “Guaranty Company”; the indorsers on the $300,000 note to the government as “Goodrich”; creditors, S. A. Fletcher, Bankers' Investment Company, and William G. Irwin, indorsers for a loan of $75,000 to the company, as “Fletcher”; creditors growing out of contracts for material furnished and to be furnished in connection with the performance of the company's contracts with the government of the United States for the manufacture and production of munitions, as “munitions creditors”; and the Bankers' Investment Company as the “Bankers.”

We will first call attention to the claims of the “Bankers” against fund No. 2. It takes the position, first that it was entitled to all of the money collected by the receiver on account of notes of the company in its hands at the time of the receiver's appointment. At the trial it was agreed that the receiver had collected on account of Stenotype notes $31,457.04, which included notes actually discounted and delivered to the “Bankers” in the sum of $23,396.34. From this latter amount the receiver paid school commissions amounting to $3,257.85, and allowed discounts on notes paid before maturity in the sum of $673.95, totaling $3,931.80, leaving a balance of $19,464.54, which was paid to the “Bankers.”

[1] The general rule often announced is that a receiver, assignee, or other trustee of an insolvent concern appointed for the purpose of winding up its affairs takes the trust property impressed with the then legal or equitable rights of creditors. Lamb, Rec., v. Morris, 118 Ind. 179, 184, 20 N. E. 746, 4 L. R. A. 111;H. C. Smith Coal Co. v. Finley, 190 Ind. 481, 131 N. E. 5;Hubbard v. Security Trust Co., 38 Ind. App. 156, 78 N. E. 79;Mitchell v. Winslow (1843), 2 Story, 630, 637;Chicago, etc., Trust Co., Receiver, v. Smith, Trustee, 158 Ill. 417, 41 N. E. 1076;Gere v. Dibble, 17 How. Prac. (N. Y.) 31.

[2][3] The phrase, “rights of creditors,” under such circumstances, does not exclude the conclusion that a preference may be good between the parties, but not good against other creditors unless perfected as required by law, so that a controversy between creditors affecting their rights on distribution is determined judicially as of the date of the appointment of the trust officer, and as affected, if at all, by such transfer of the property. Strebel v. Bligh, 183 Ind. 537, 542, 109 N. E. 45;Hastings v. Lincoln Trust Co., 115 Wash. 492, 197 P. 627, 18 A. L. R. 583. At this point it may be well to state that we have considered carefully the record in this case, and, for aught appearing, the rights of these contestants will be determined upon the theory that the receiver stands in the shoes of the company.

[4] The Bankers asserts that the above allowances made by the receiver were unauthorized and in violation of its August 12, 1914, contract with the company, or, in other words, the notes held by the Bankers were impressed with the terms of the contract, and were unaffected by the appointment of the receiver or transfer of the property. It is not claimed that the Bankers waived any of its rights under the contract, nor is our attention drawn to any stipulation therein authorizing the company or the receiver to make any such allowances, or that the receiver was given any...