Central Trust Co. of Maryland v. American Foundry & Mfg. Co.

• Decision Date: 09 February 1928
• Docket Number: 91.
• Citation: 141 A. 111,154 Md. 477
• Parties: CENTRAL TRUST CO. OF MARYLAND v. AMERICAN FOUNDRY & MFG. CO.
• Court: Maryland Court of Appeals

141 A. 111

154 Md. 477

CENTRAL TRUST CO. OF MARYLAND v. AMERICAN FOUNDRY & MFG. CO.

No. 91.

Court of Appeals of Maryland

February 9, 1928

Supplemental Opinion March 13, 1928.

Appeal from Circuit Court, Frederick County, in Equity; Hammond Urner, Judge.

Creditor's bill by Charles A. Opel, Jr., against the American Foundry & Manufacturing Company. From an order relative to distribution of funds in the hands of the receiver, the Central Trust Company of Maryland, holder of receiver's certificates appeals. Affirmed in part, reversed in part, and cause remanded for further proceedings.

Argued before BOND, C.J., and PATTISON, ADKINS, OFFUTT, DIGGES PARKE, and SLOAN, JJ.

Leslie N. Coblentz and Leo Weinberg, both of Frederick, for appellant.

W. Clinton McSherry, of Frederick, for appellee Opel.

Albert S. Brown, of Frederick (Arthur D. Willard and Milton G. Urner, Jr., both of Frederick, on the brief), for other appellee.

OFFUTT J.

The American Foundry & Manufacturing Company was from 1910 to 1915 engaged in the manufacture of iron and steel products in Frederick City, Md. Whether it was ever successful does not appear, but it does appear that for some time prior to December 15, 1925, it had been suffering heavy losses, and that on that date its credit was crippled, it was unable to meet its pay roll, the interest on bonds aggregating $44,000, secured by a mortgage deed of trust on its property, was overdue, it was unable to meet its current obligations, and that it was in urgent need of additional working capital.

In that crisis some interested persons conceived the idea that if a receiver were appointed to take charge of and operate the company, that he could secure sufficient working capital through the issuance of receiver's certificates to carry it on at a profit and that it would in that way be carried over its difficulties.

Accordingly, on December 25, 1925, Charles A. Opel, Jr., a stockholder and creditor of the company, filed a creditor's bill against it in the circuit court for Frederick county, in which, in addition to the facts stated above, he alleged:

"The officers and directors of the company have been in negotiation with an experienced operator of an iron and steel foundry, whose services can be secured, and they believe that by a continued operation of the defendant company a plan of operation or sale can be developed which will be of material benefit and advantage to the defendant company, its creditors, and stockholders. For this reason and for the reasons hereinafter stated your complainant believes and so charges that it is absolutely imperative and essential that your honorable court intervene to preserve the property of the defendant company as a going concern in order to carry out the proposed plan and in order to preserve to the defendant company and to the bondholders, creditors, and stockholders the most vital and important asset of the defendant company, to wit, its good will; that the defendant company employs a large amount of skilled labor in its industry, which class of labor is greatly in demand at the present time throughout the country, and that if the plant be permitted to shut down, this labor will promptly seek other fields of work, with the result that another important asset of the defendant company will be lost.

Your complainant further states to the court that the defendant company is also extensively engaged in completing contracts and unfilled orders, and that much of its material to complete these contracts and orders is in the process of manufacture and shipment, and that in the event it could not so complete its orders and contracts, great loss would be entailed by reason of the lack of value of the unfinished material, and damages would result by reason of its failure so to complete its unfilled orders and contracts; * * * that as heretofore stated the company is actively engaged in the manufacture of its products, but that it has no means with which to meet the current pay roll, nor the means to buy material necessary to carry on its business; that some of the other creditors of the company are now pressing for payment, and your complainant as one of the substantial creditors of the company feels that the only way to save the company and preserve its assets for the benefit of all its creditors, stockholders, and bondholders is by the appointment of a receiver by your honorable court, with proper authority and power to continue the operations of the company as a going concern, to collect and preserve its assets, and under the direction of the court to carry out its contracts and complete its unfilled orders, and, if deemed advisable, to consummate a reorganization or sale of the company."

And in that bill he asked:

That "a receiver or receivers may be appointed to take possession of, hold, control, and manage the property and assets belonging to the defendant within the jurisdiction of this court, and for that purpose to appoint all necessary agents and attorneys that may be necessary to collect all outstanding accounts and bills receivable, and to prosecute and defend all suits in which the defendant may be interested; that the said receiver may be authorized and directed under the order of this court to continue the business of the defendant company as a going concern until the further order of the court in the premises, and to borrow money on receivers' certificates for that purpose."

The defendant appeared on the same day, admitted the allegations of the bill, and consented to the appointment of a receiver, and on the same day the court appointed William A. Riddell a receiver to take charge of and operate the company. Riddell qualified, took charge of the company, and operated it until the following September, when it was shut down. On the day after his appointment, Riddell filed a petition in the case stating that he had no money for the pay roll and that he had on hand unfilled contracts which he could not complete because he had not either the necessary material or the money with which to buy it. Upon that petition the court passed an order, the material part of which is as follows:

"That the said William A. Riddell, as receiver, and not individually, is authorized and empowered to borrow the sum of five thousand dollars ($5,000.00) and to issue therefor his five (5) certain certificates, as receiver, each in the sum of one thousand dollars ($1,000.00), bearing interest at the rate of six per cent. (6%) per annum from date, and maturing on the 15th day of March, 1926; and said certificates are hereby created a first lien on all and singular the funds coming into the hands of said receiver from the operation of said plant and said business of the American Foundry & Manufacturing Company, and on all other assets of said company not subject to existing liens."

From time to time other similar petitions were filed, and the court authorized the receiver to borrow money on receiver's certificates, until it had authorized and he had borrowed $18,000 on certificates maturing at intervals between March 15 and October 1, 1926, inclusive, and all of this money was loaned by the Central Trust Company of Maryland, trustee, under the mortgage deed of trust, and also the owner of a part of the bonds secured thereby. The dates and amounts named of these orders, were as follows: December 16, 1925, $5,000; January 7, 1926, $5,000; July 3, 1926, $3,000; July 30, 1926, $5,000.

So far as we can learn from the record, which is not very much, during his operation of the plant Riddell received about $160,000, and spent in cash something over $151,000, and at the close of operations he owed various persons who had furnished him with material about $10,262.28, and he had in hand available for distribution $9,331.59.

On October 9, 1926, he filed a petition asking that he be directed to cease operating the plant (which he had already done), and that the affairs of both the receivership and the company be wound up, and on the same day an order to that effect was passed. Nothing further was done until May 14, 1927, when the receiver filed a petition alleging the insolvency of the receivership, and asking that the case be referred to the auditor for the statement of a distribution account. Reference was accordingly made, and the auditor directed to "state an account in the above-entitled cause, allowing court costs and the costs of receivership, commissions having been waived by the receiver, and that distribution of the balance be made in three ways, First, allowing priority to the holders of receivers' certificates. Second, allowing unto holders of receivers' certificates and creditors for material, etc., a pro rata dividend. Third, allowing a preference and priority to creditors of the receivers for raw materials, etc."

In accordance with that instruction, the auditor on June 7 1927, filed an account in which the fund was distributed under these three alternative plans: (1) "To the Central Trust Company of Maryland in part payment of receivership certificates, together with interest upon which there is due $18,726, the whole balance of $9,331.59;" (2) to all creditors of the receiver 25 per cent. of their claims; and (3) "to the creditors of the receiver allowing preference pro rata to creditors for materials and supplies to the holders of receivership certificates, distributing to them 75 per cent. of their claims." Exceptions were filed to the entire audit by H. N. Mehrling Company, a creditor, on the ground that there was some trifling error in figures, and especially to form 1 on the ground that its claim should be allowed to it in full; by the Central Trust Company to forms Nos. 2 and 3 on the ground that it was entitled to the whole fund under the receivers'...