Central Trust Co. of New York v. Worcester Cycle Mfg. Co.

• Decision Date: 17 March 1902
• Docket Number: 927.
• Citation: 114 F. 659
• Court: U.S. District Court — District of Connecticut
• Parties: CENTRAL TRUST CO. OF NEW YORK v. WORCESTER CYCLE MFG. CO. et al.

114 F. 659

CENTRAL TRUST CO. OF NEW YORK v. WORCESTER CYCLE MFG. CO. et al.

No. 927.

United States Circuit Court, D. Connecticut.

March 17, 1902

Butler Notman, Joline & Mynderse, for complainant.

C Walter Artz, for receiver.

H.D McBurney, for Thomas Towne.

Perkins & Jackson and Seymour C. Loomis, for trustee.

Watrous & Day, for special master.

Breed &amp Abbott, for J. Burnett Nash.

TOWNSEND District Judge.

The history of this case will be found in the various opinion filed on questions heretofore raised. 86 F. 35; 90 F. 584; 91 F. 212; 35 C.C.A. 547, 93 F. 712; 110 F. 491. This hearing was on motion to dismiss the petition of one Camille Weidenfeld, an accommodation indorser of the note of defendant held by J. Burnett Nash, who, as holder of said note, brought suit prior to the appointment of the receiver, and levied an attachment on the property of defendant, and who, on February 4, 1898, obtained judgment thereon against defendant. Afterwards, said Nash obtained judgment against said Weidenfeld as indorser of said note, and Weidenfeld paid the amount thereof to Nash, and is now the owner and holder of said note and the assignee of said judgment recovered against the defendant the Worcester Cycle Company.

Weidenfeld, therefore, became subrogated to all of the rights accruing to Nash in the various proceedings herein, and Nash now prosecutes said claims for the benefit of said Weidenfeld and as his trustee. Nash and Weidenfeld join in this petition, which is for an order for the payment to Nash, as such trustee, of certain moneys in the hands of the special master, and granting leave to Nash to issue execution against the property of defendant in possession of the receiver, and authorizing the sheriff to levy thereon and sell so much of the same as shall be sufficient to satisfy the balance of petitioner's attachment claim, and for an order that, in case the proceeds from such sale shall be insufficient to pay such balance, said receiver shall pay the balance thereof, or, in case of dispute as to the facts alleged, the same may be referred to a master, and for general relief.

Goodrich, the trustee in insolvency, moves to dismiss said petition on the ground that 'upon the facts stated in said petition the petitioner is not entitled to any relief, inasmuch as the said petitioner's attachment has been dissolved, and for that and other reasons the property now in the hands of the receiver is not subject to any attachment lien in favor of said Nash or anyone claiming under him.'

The receiver herein, appointed on June 26, 1897, having claimed that his appointment dissolved two prior attachments, those of said Nash and one Towne, the property was turned over to him under a stipulation that this should be done without prejudice to any rights under said attachments, and that said rights should be afterwards determined by the court. Subsequently, be decree of this court, which, as to the personal property involved herein, was affirmed by the circuit court of appeals, it was determined that said personal property, as against the trustee in insolvency, was free from the lien of the mortgage, but subject to the rights, if any, of attaching creditors, which rights were reserved for future determination. Goodrich was appointed trustee in insolvency of defendant on November 5, 1897, by the Connecticut probate court, and, as already stated, Nash took judgment against defendant on his claim February 4, 1898.

The trustee, Goodrich, in support of the motion to dismiss, claims first that said attachments were dissolved by the appointment of the receiver, or of the trustee. The provisions of the Connecticut statute relied on by the trustee are as follows:

'The commencement of proceedings for the appointment of a receiver of a corporation or a copartnership shall dissolve all attachments and all levies of executions, not completed made within sixty days next preceding, on the property of such corporation or copartnership; but if the property is subsequently taken from the receiver, so that it cannot be used for the benefit of the creditors of said corporation or said copartners, nor made subject to the orders of the court in the settlement of the affairs of said corporation or copartnership, or if the receivership shall be terminated by order of the court, pending the settlement of the affairs of the corporation or copartnership, said attachments and levies of execution shall revive, and the time from the commencement of such proceedings to the time when the receiver shall be dispossessed of the property, or the finding of the court that said property is not subject to the orders of said court, or when said trust shall continuance of the lien created by such attachment; but the attaching or levying creditors shall be allowed the amount of their legal costs, accruing before the time of the appointment of a receiver, as a preferred claim against the estate of said corporation or copartnership, if their respective claims upon which the attachments are founded shall, in whole or in part, be allowed. ' Pub. Acts Conn. 1895, p. 491.

The bill filed by the bondholders was for the foreclosure of their mortgage, which purported to cover the real and personal property of the defendant, alleged that it was expedient that all of said mortgaged property should be placed in the possession and control of a receiver, and prayed for the appointment of such a receiver. The court appointed Smith receiver of the property of defendant, being the mortgaged property described in the bill of complaint. 86 F. 35, 35 C.C.A. 547, 93 F. 712.

Counsel for the trustee lays great stress on those portions of the order in which the receiver was directed, inter alia, to take possession of all the 'above-described' property of the company, 'and to wind up its affairs,' and was authorized to conduct the prosecution or defense of any suit which will 'be for the interest and rights of creditors interested therein. ' In view of these circumstances, counsel for the trustee says:

'The court had jurisdiction of the parties and of the bill, and had jurisdiction to make the order that it did make. The fact that afterwards it turned out that the statements of the bill were not true, and that the mortgage was invalid as to the personal property, does not effect the jurisdiction of the court in making the appointment and in giving the receiver the power and authority which it did give. It is true that the receiver ought to have been appointed him a general receiver and gave him general powers to act for, and in place of, the corporation.'

Upon the ex parte application it appeared that said mortgage purported to cover all property owned by said corporation at the date of the mortgage, and which might thereafter be acquired by it, and also its corporate franchise. It is not clear that the order as drawn embraced property not covered by the mortgage, as between mortgagor and mortgagee, and it should not be so construed as to affect rights which were paramount to said mortgage.

In Smith v. McCullough, 104 U.S. 25, 26 L.Ed. 637, in a mortgage foreclosure suit where a receiver was appointed, the supreme court said:

'Notwithstanding the broad terms of the order appointing him (the receiver), we are satisfied that the court had no purpose to appoint him receiver of any property except that covered by the mortgage.'

As to the jurisdiction of a court under such a,petition to empower a receiver to appropriate property not covered by the mortgage, the court of appeals in the Eighth circuit says:

'When a bill is filed to foreclose a mortgage, the court may, upon a proper showing, appoint a receiver to take into this possession and control and mortgaged property. But the jurisdiction possessed by a court of chancery to foreclose a mortgage and to appoint a receiver for the mortgaged property pending the foreclosure gives it no jurisdiction or power to seize or take into its custody or control, through a receiver or otherwise, property of the debtor which is not covered by the mortgage. Nor can the court in such a suit rightfully make any order that will prevent, hinder, or delay the other creditors of the mortgagor from subjecting property not included in the mortgage to the payment of their debts. ' Scott v. Trust Co., 16 C.C.A. 358, 69 F. 17. See, also, United States Trust Co. v. New York, W.S. & B.R. Co., 101 N.Y. 478, 5 N.E. 316; Tyler v. Hamilton (C.C.) 62 F. 187.

The Connecticut courts have held that a receiver appointed under the provisions of the statutes of that state is like a trustee in insolvency, and holds all the property of the debtor for equal division among creditors, and is not in any sense a receiver such as is appointed pendente lite under the ordinary powers of a court of equity to preserve property pending the determination of a suit involving title to the property in dispute. Pond v. Cooke, 45 Conn. 126, 29 Am.Rep. 668; New...