Blythe v. Gibbons

Decision Date28 November 1893
Docket Number15,224
Citation35 N.E. 557,141 Ind. 332
PartiesBlythe et al., Receiver, v. Gibbons
CourtIndiana Supreme Court

Petition for Rehearing Overruled May 17, 1895.

From the Miami Circuit Court.

The judgment is reversed, the cause remanded with instructions to sustain the motion for a new trial and for further proceedings in accordance with this opinion.

J Mitchell, R. P. Effinger, W. B. McClintic and Hord, Perkins & Miller, for appellants.

J. E McCullough, H. N. Spaan, J. T. Cox and J. J. Rochford, for appellee.


McCabe, J.

On the 27th day of November, 1883, the firm of Benjamin F. Dow & Co., doing business at Peru, Ind., in the manufacture of threshing machines and engines, became financially embarrassed.

Their principal creditors, at the time, were the First National Bank and the Citizens' National Bank, of Peru.

On the date named, said banks, by their attorneys, commenced suit upon the matured obligations of said firm in their favor, and asked the appointment of a receiver to take charge of the assets and business of said firm.

A receiver, the appellant James G. Blythe, was appointed in accordance with the prayer of their complaint, who was qualified, gave bond and filed an inventory.

At the time of his appointment it was made to appear to the court that a large proportion of the assets of said firm consisted of material in process of manufacture and notes taken in the course of the business of said firm, that could only be made available by a temporary and limited continuance of the business, and an order authorizing the receiver to so continue the business was made by the court below.

On taking charge of the business under such order of court, the receiver discovered that all the tangible personal property of said partnership had, previous to the commencement of the proceedings mentioned, been mortgaged by said Benjamin F. Dow & Co. to parties to secure certain claims against the said firm, principally in favor of certain near relatives of the several partners.

In order to continue the business at all in pursuance of the order of court, it was necessary for the receiver to borrow money for temporary use, as there was none in the assets of the firm that came to his hands.

For the purpose of negotiating the necessary loans the receiver applied to the same banks that were mentioned above as the principal original creditors of said insolvent firm. Both said banks, through their officers, expressed a willingness to loan money under proper orders of court authorizing the receiver to borrow it; but having knowledge of the mortgage upon the personal property above mentioned they declined to enter into negotiations until the same should be released by the several mortgagees, among whom was the intervening petitioner herein, William Gibbons.

By the first day of January, 1884, all of said mortgagees had entered upon the record of the mortgage in Miami county their several releases, except William Gibbons and three others.

With these parties, who were supposed to be bona fide creditors of B. F. Dow & Co., the receiver conditionally agreed that in consideration of the release of said mortgage by them they should be held, with the approval of the court, as creditors next preferred to those who should loan the receiver money for the purpose of carrying on the business.

To effectuate this purpose the receiver filed in court on January 15, 1884, his petition setting up the fact of the execution of said mortgage and the release thereof by all the mortgagees except said four creditors, to wit: William Gibbons, Israel Judd, Mrs. David McDonald and Allen Richardson, alleging also the need to borrow money to continue the business and asking an order of court preferring these creditors in the manner named.

Upon said petition the court made an order, on the proper construction of which, whether by its own terms or by the aid of other evidence, rests the principal controversy in the case.

It is as follows:

"Tuesday, Jan. 15, 1884.

"The First National Bank of Peru, et al., v. "Benjamin F. Dow, et. al.


"Comes now Jas. G. Blythe, receiver herein, by

"Messrs. R. P. Effinger, Shirk & Mitchell, his attorneys,

"and files petition for authority to borrow the sum of

"ten thousand dollars, for the purpose of working up

"materials on hand, paying for labor and material and for

"order preferring claim, which petition is in these words [h. i.] which petition the court grants.

"Said receiver is authorized to make claims of Israel

"Judd for $ 370 and interest from Jan. 1, 1884; claim of

"Wm. Gibbons for $ 2,871.81, with 6 per cent int. from

"March 28, 1881; claim of Mrs. David McDonald for

"$ 2,000 and Allen Richardson for $ 348.21 and interest

"from Sept. 1883, preferred claims upon said claimants

"releasing mortgages to secure same, and are made preferred

"claims next to those who may loan receiver money

"to carry on the business and to manufacture the materials

"on hand.

"And the said receiver is authorized to borrow ten

"thousand dollars for that purpose, said sum to be a

"prior claim upon the articles manufactured and the

"notes received for the sale thereof."

Following the entry of said order, the said Wm. Gibbons entered upon the record of said chattel mortgage the following release thereof:

"This mortgage as to me Wm. Gibbons is fully satisfied,

"my debt having been secured otherwise, and I

"hereby release the same this 18th day of January, 1884.

"William Gibbons.

"Attest: Wm. A. Gibney, R. M. Co."

Under this order of January 15, 1884, the said receiver borrowed money of these appellants to the full amount named therein, to wit: of the First National Bank the sum of eight thousand dollars and of the Citizens' National Bank the sum of two thousand dollars.

Subsequently, on further petitions by the receiver to the Miami Circuit Court, he was authorized to borrow the following named additional sums, for the purposes named in said petitions, as follows:

On petition of February 4, 1884, the receiver was authorized to borrow the additional sum of two thousand and twelve and 36/100 dollars.

On petition of April 22, 1884, the receiver was authorized to borrow the additional sum of ten thousand dollars.

On petition of August 9, 1884, the receiver was authorized to borrow the additional sum of five thousand dollars.

On petition of May 13, 1885, the receiver was authorized to borrow the additional sum of three thousand dollars.

Nearly the whole of said several amounts so authorized, were by said receiver borrowed from these appellants, to wit: from said First National Bank the sum of $ 12,494.72, and from said Citizens' National Bank the sum of $ 7,096.21.

Receiver's certificates were issued by said receiver to the banks for the amounts borrowed, which certificates were, under further order of the court, renewed from time to time as they matured. Payments were made on said certificates at different times, so that at the time of the trial of this cause, to wit: in June, 1888, there was due the First National Bank on said certificates thirteen thousand ninety four and 22/100 dollars, besides some accrued interest; and to the Citizens' National Bank, six thousand two hundred and forty-nine and 28/100 dollars, besides interest.

On the 17th day of January, 1885, and prior to that date, several of the former employes of Benjamin F. Dow & Co. had applied to the court for orders preferring their labor claims, not exceeding fifty dollars each, as against the claims of general creditors.

The appellee Gibbons on that day filed his first intervening petition in said cause alleging the filing of labor claims by the employes of B. F. Dow & Co., and claiming preference over them under the order of court of January 15, 1884.

No action on this petition appears of record, except that the "labor claims" were allowed and preferred. Also, report of receiver filed February 14, 1885, which report was approved November 12, 1885.

The appellee Gibbons, next appeared as intervenor in the case on the 8th day of April, 1886, at which time he filed affidavit and motion for permission to sue the receiver; of the filing of which motion, written notice was served on these appellants.

Thereafter, on the 1st day of July, 1886, he filed another petition, asking a cancellation of the release aforesaid, executed by him on the 18th day of January, 1884, and for other relief.

Afterwards, and before any action was taken upon this petition, to wit: on October 11, 1887, said appellee filed an amended petition, in which he contended that under the order of the court of January 15, 1884, hereinbefore set out, he was entitled to have his claim against B. F. Dow & Co. preferred over all other claims and expenses of the trust, except the ten thousand dollars mentioned in said order. Said petition further alleged that the said ten thousand dollars had been repaid to these appellants, and he demanded immediate payment of his claim by the receiver.

Issues were formed on this petition.

The receiver filed answer in two paragraphs.

Demurrer was filed by Gibbons to the second paragraph of receiver's answer, which was sustained and exceptions taken.

The receiver then filed a third paragraph of answer.

To this third paragraph, Gibbons filed reply in two paragraphs, the second paragraph of which was subsequently withdrawn.

The First National Bank asked leave of court to be permitted to defend against said petition, and leave was granted.

The Citizens' National Bank also filed a like petition, with same result.

The First National Bank and the Citizens' National Bank each then filed a separate answer to the petition in two paragraphs.

To the second...

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