Coulter v. Blieden

• Decision Date: 19 June 1939
• Docket Number: No. 11385.,11385.
• Citation: 104 F.2d 29
• Parties: COULTER et al. v. BLIEDEN et al. In re MORGAN'S ESTATE.
• Court: U.S. Court of Appeals — Eighth Circuit

104 F.2d 29 (1939)

COULTER et al. v. BLIEDEN et al. In re MORGAN'S ESTATE.

No. 11385.

Circuit Court of Appeals, Eighth Circuit.

May 23, 1939.

Rehearing Denied June 19, 1939.

Carl F. Jaggers, of Little Rock, Ark. (Neill C. Marsh, Sr., of El Dorado, Ark., on the brief), for appellant M. B. Morgan.

Curtis E. Garner (Kenneth W. Coulter and E. H. Coulter, both of Little Rock, Ark., on the brief) for appellant E. H. Coulter, trustee.

D. D. Panich, of Little Rock, Ark., and Arthur L. Adams, of Jonesboro, Ark., for appellees.

Before SANBORN, THOMAS, and VAN VALKENBURGH, Circuit Judges.

VAN VALKENBURGH, Circuit Judge.

May 14, 1931, Morgan Utilities, Inc., was adjudicated a bankrupt upon a voluntary petition.

Appellee J. Clyde Lewis, as trustee, operated the assets of this bankrupt. Thereafter, January 8, 1932, four other so-called Morgan Corporations also went into bankruptcy. One S. R. Morgan has been held to be the beneficial party in interest in each of these separate bankrupt corporations. February 13, 1935, he became a bankrupt. Appellant M. B. Morgan is his brother. Thereafter appellee Blieden, as trustee in bankruptcy of the estate of S. R. Morgan, bankrupt, petitioned the district court, in which court the five separate corporate bankruptcies and the estate of S. R. Morgan, bankrupt, were being administered, to consolidate all six bankruptcy proceedings into one consolidated bankruptcy estate. The court granted this petition, with Blieden, Trustee, in charge, as representing the beneficial interest. Thereupon, Lewis, trustee for Morgan Utilities, Inc., bankrupt, delivered the assets in his custody to appellee Blieden, Trustee of the Consolidated Estates, who was by the court directed to dispose of the assets of the bankrupt estates with all practicable expedition. These assets of Morgan Utilities, Inc., consisted of six ice plants, two cotton gins, and a large warehouse, and were scattered in five cities in the State of Arkansas. The properties, exclusive of thirteen delivery trucks, were appraised in the sum of $52,875. June 16, 1938, the referee made an order directing the sale of the assets, prescribing the terms, conditions, time and place. The sale was made by an auctioneer July 1, 1938. Appellant E. H. Coulter, trustee, qualified as a bidder and offered the sum of $43,000 for the assets, less the thirteen delivery trucks, which was received by the auctioneer as the last and highest bid. Immediately the trustee in bankruptcy announced that he was of opinion that the assets did not bring a fair value, and that he would not recommend confirmation. He petitioned for resale, and, in his report, announced that he had received a new offer in the sum of $65,000, which, however, was subsequently withdrawn. Thereafter, the trustee announced another offer, by appellee James through appellee Tooke, his agent, of $55,000 in cash together with a waiver of the profits earned by the properties representing the assets of the bankrupt estate from July 1, through July 19, 1938, which profit was estimated in the amount of $3,600, together, further, with an offer to purchase all manufactured ice on hand on the date of delivery for the sum of $4.00 per ton. This tonnage was estimated at one hundred tons. The bid also included a waiver of approximately $400 in credits, and covered the entire property including the thirteen trucks. The case came before the referee on two motions, that of Coulter, trustee, for confirmation of his purchase at the sale on July 1, 1938, and that of trustee Blieden for resale. The referee overruled the first and granted the second. The district court sustained the referee. At the resale August 3, 1938, no better offer was received than that of appellee James, through C. A. Tooke, his agent. The referee confirmed the sale to James.

Appellant M. B. Morgan claims to hold first mortgage bonds of $100,000 par value, secured by a first deed of trust covering all of the assets of Morgan Utilities, Inc. A claim, based upon these bonds and the deed of trust securing them, was originally filed, and allowed. Thereafter this claim was re-examined, disallowed and expunged. Appellant Morgan thereupon perfected a review of this action of the referee in expunging the claim. This review was still pending before the district court when this hearing was held. It is the claim of appellee that appellant Morgan has permitted this petition for review to lie dormant, and that he is not a creditor secured or unsecured of the estate of Morgan Utilities, Inc., bankrupt. Appellant Morgan alleges that the referee entered the order to sell the assets free of liens without notice to him and while this petition for review was pending. Accordingly, he filed a petition to vacate and stay the orders of sale, alleging that the assets would not sell for enough to pay his lien claim should it finally be allowed. He prayed that the sale of said assets be delayed until the validity of his claim be finally determined to the end that he might have opportunity to bid his claim as part of the purchase price.

August 11, 1938, the referee made an order consolidating the several petitions of appellants Coulter and Morgan to review the several orders of the referee, to which reference has been made, and providing a certificate and record necessary for a review of all the issues raised in said petitions and orders. By stipulation, dated February 11, 1939, the parties agreed that the district judge "passed upon and in all things confirmed the action of the referee in all matters mentioned and set forth in the said order of consolidation". The order of the district court affirming the referee upon certificate of review pursuant to said order of consolidation and stipulation recites that the court:

"Considered, Ordered, Adjudged, and Decreed that the order of said referee in bankruptcy rejecting and refusing confirmation of the said bid of E. H. Coulter, trustee, in the sum of $43,000.00, and also the order of the said referee in bankruptcy refusing to stay the sale upon petition of said M. B. Morgan and to accept the bid of the said M. B. Morgan, and the findings of fact submitted by the said referee in bankruptcy in support of his said order, be and the same are hereby in all things ratified, affirmed, and approved."

From this order appellants have appealed. M. B. Morgan raises three points for argument: (a) The refusal to stay the sale; (b) denying to him the right to use his bonds in purchasing the property; (c) over-ruling his objections to confirmation of sale to James, and confirming that sale. We shall consider these points first.

Appellant Morgan claims to have a bond claim in the sum of $100,000 secured by mortgage upon all the assets of Morgan Utilities, Inc. This claim, originally allowed, was subsequently reconsidered, disallowed, and expunged. Morgan challenged this ruling of the referee by petition for review which was pending at the time this sale was ordered in June, 1938. The expunging order was entered on March 3, 1938. The alleged lien claim of appellant Morgan exceeds the appraised value of the assets. It was the contention of this appellant that the sale should be delayed until the validity of his lien should be finally determined, in order that he might bid his said alleged claim as part of the purchase price at the sale. It is conceded that, if Morgan prevails in the establishment of his claim, it will be a first lien upon the proceeds of sale, and the only question on this point is whether the referee, under the circumstances, was justified in ordering the sale of the assets free of liens.

"A sale free and clear from liens may be ordered before the validity and priority of the liens have been determined, the controversies being transferred to the funds". 6 Remington on Bankruptcy, Sec. 2579; Van Huffel v. Harkelrode, 284 U.S. 225, 52 S.Ct. 115, 76 L.Ed. 256, 78 A.L.R. 453; Hoffecker v. Smith, 5 Cir., 294 F. 883.

Ordinarily such sale will not be ordered over the objection of a lien holder who may desire to bid and use the ascertained value of his lien in payment of the purchase price. Ibid, sec. 2580. But, while this is good practice and usual, it is not a rule of law, and, in special cases, as where the lien itself is in litigation, it is a matter within the discretion of the court to sell the property and save expense. In re Franklin Brewing Co., 2 Cir., 249 F. 333. The court of bankruptcy in its discretion may sometimes order properties sold free and clear of liens, even though the amount of the recorded mortgages equals or is greater than the value of the property, especially where there is a possibility of the mortgages being held invalid, thus leaving an equity for general creditors. Remington on Bankruptcy, Vol. 6, Section 2583; In re Hout, D.C., 9 F.Supp. 419; In re Keet, D.C., 128 F. 651.

The fact that the...