Bernard v. Union Trust Co.

• Decision Date: 07 February 1908
• Docket Number: 738.
• Citation: 159 F. 620
• Parties: BERNARD v. UNION TRUST CO. et al.
• Court: U.S. Court of Appeals — Fourth Circuit

159 F. 620

BERNARD v. UNION TRUST CO. et al.

No. 738.

United States Court of Appeals, Fourth Circuit.

February 7, 1908

C. M Bernard, for appellant.

Iredell Meares, for appellees.

Before FULLER, Circuit Justice, and MORRIS and BRAWLEY, District judges.

BRAWLEY District Judge.

This is an appeal from the decree of the Circuit Court disallowing the priority of lien over the first mortgage bonds of a receiver's certificate issued in the circumstances following:

The Carolina Northern Railroad Company filed in the Circuit Court of the United States for the Eastern District of North Carolina its bill in equity against the Southern Sawmills &amp Lumber Company, and the court appointed Augustus Mellier receiver December 1, 1902. Mayer & Co., merchants resident in Norfolk, Va., filed their petition in the cause December 26 1902, setting forth that the Sawmills & Lumber Company was indebted to them by two promissory notes, one for $906. 18 payable February 10, 1903, and one for $1,821.28, payable March 12, 1903, charging that Mellier was the president of both corporations, that the bill in equity wherein he had been appointed receiver was a contrivance for continuing his control and management of the companies, and praying that they might become parties plaintiff in the suit of the railroad company against the lumber company above mentioned. On January 6, 1903, Mellier was removed and W. J. Edwards was appointed receiver of the Sawmills & Lumber Company, and May 16, 1903, the said receiver filed his petition in the cause stating that within five months prior to the receivership Mayer & Co. furnished the said Southern Sawmills & Lumber Company 'upon the faith of its current receipts, and relied upon being paid out of the same sundry supplies, consisting of powerful leather belts, steam pumps, band saws, rolls of tarred paper, and a great quantity of iron piping, all of which supplies were necessary and absolutely essential to keep said corporation a going concern,' and that there was due the sum of $2,727.46, recommending that he be authorized and empowered to issue a receiver's certificate for that amount, the same to be declared by its terms a first lien on all the property of every kind and description of the Southern Sawmills & Lumber Company. On the same day the court authorized and empowered the receiver to issue 'a negotiable receiver's certificate for $2,727.46, with interest at 6 per cent. per annum from December 1, 1902, which, when countersigned by the clerk of this court or his deputy, shall be declared by its terms a first lien on all the property of the defendant corporation,' and such a certificate was issued, and subsequently assigned to C. M. Bernard. On October 29, 1904, Robert L. Forrest, on behalf of himself and others who might become parties, filed a bill in equity against the defendant corporation, W. J. Edwards, receiver, and the Union Trust Company, in which the Union Trust Company filed a cross-bill, admitting its allegations, and praying for the foreclosure of the mortgage which had been executed June 1, 1901, by the Southern Sawmills & Lumber Company, and duly recorded. It appears from an affidavit in the record that Forrest, one of the bondholders, was present in court on the day when Edwards was appointed receiver, and asked the court's permission, through his counsel, to address it in opposition to such appointment, and was permitted to do so, but he did not enter a formal appearance in the cause, and was not a party to it. The two suits were consolidated, and on January 3, 1905, Edwards was removed as receiver and A. H. Slocumb appointed in his stead. It does not appear from the record that there were any profits from the operation of the mills by the receivers Mellier and Edwards, and the court below adjudged a liability against receiver Edwards and a surety on his bond in the sum of $10,994.18. The net proceeds of the sale of the property by the receiver Slocumb amounted to about $36,000. The number and amount of the bonds secured by the mortgage does not appear in the record, but it does appear that the funds in the hands of the court are insufficient to pay the bonds in full, and the other claims held to be entitled to priority. The court below finds as a fact that neither the trustee nor the bondholders were parties to the cause when...