Coursey v. International Harvester Co.

• Decision Date: 12 February 1940
• Docket Number: 1910.,No. 1909,1909
• Parties: COURSEY et al. v. INTERNATIONAL HARVESTER CO. et al. (two cases).
• Court: U.S. Court of Appeals — Tenth Circuit

109 F.2d 774 (1940)

COURSEY et al. v. INTERNATIONAL HARVESTER CO. et al. (two cases).

Nos. 1909, 1910.

Circuit Court of Appeals, Tenth Circuit.

February 12, 1940.

Earl Bohannon, of Parsons, Kan., and John H. Hunt, of Topeka, Kan. (J. L. Hunt, of Topeka, Kan., and A. H. Noyes, of Parsons, Kan., on the brief), for appellants.

Harry W. Fisher, of Fort Scott, Kan., and George W. Berry, of Piqua, Ohio, for appellee French Oil Mill Machinery Co.

Douglas Hudson, of Fort Scott, Kan., for appellee International Harvester Co.

Before PHILLIPS, HUXMAN, and WILLIAMS, Circuit Judges.

WILLIAMS, Circuit Judge

The two appeals are from a proceeding under Section 74 of the Bankruptcy Act, as amended and approved March 3, 1933, 11 U.S.C.A. § 202, for permission to effect a compromise or extension with creditors, and question of priority of liens for receiver's certificates and expenses incurred while the business was being operated under an order of the United States District Court of Kansas.

Prior to December 20, 1937, Markwood Webster Coursey and Clinton Cecil Zercher were co-partners under the name of Coursey Rendering Service at Parsons, Kansas, engaged in the business of gathering carcasses of dead animals in the surrounding territory and reducing the same to oils, meat scraps, feeds, hides and other by-products. The partnership having become heavily indebted and unable to operate such business, on December 20, 1937 filed a petition in the United States District Court for the District of Kansas to effect a compromise or extension with its creditors under Section 74, as amended, of the Bankruptcy Act.

The petition having been found by the court to have been properly filed under said section was approved. On the same date, a petition was presented to the judge of said court asking for the appointment of a receiver,¹ and without any appearance by or any notice had upon either of said appellees (International Harvester Company or French Oil Mill Machinery Company) the court made an order, no appeal being prosecuted therefrom, in part as follows:

"It appearing to the court that it is necessary to preserve said estate that a receiver be immediately appointed; now, on motion of Earl Bohannon, Esquire, attorney for said debtors,

"It Is Ordered that M. W. Coursey of Parsons, Labette County, in said District, be, and he is hereby appointed receiver of the estate of said bankrupts, on filing of bond in the sum of $5,000.00, with sufficient sureties to be approved by this court; that said receiver continue the business of said bankrupts at Parsons, in said District; that said receiver have power to employ such clerical help and labor as may be necessary to operate said business, with power and authority to borrow money with which to operate said business, in a sum not to exceed $5,000.00, and to issue receiver certificates therefor, which said certificates, when so issued, shall be and constitute a first lien upon all the assets, not exempt by law, of said debtors."

M. A. Coursey immediately qualified as receiver and continued to act as such until February 28, 1939, and under said order as receiver issued certificates totaling $4,500, each certificate containing the following clause: "* * * and by virtue thereof the holder hereof has a first lien upon all of the property belonging to the said debtors, as such partnership, except such as is exempt by law."

Certificates were issued as follows: December 22, 1937 for $1,000; December 31, 1937 for $1,000; April 9, 1938 for $500; in May, 1938 for $500; June 14, 1938 for $500; October 28, 1938 for $1,000; all of said certificates being issued to the Parsons Commercial Bank, said bank paying the receiver therefor the full face value.

On January 18, 1938 an offer of extension was filed in which the debtors proposed that the receivership be continued until the propositions submitted were carried out and completed, providing that debtors were to make periodical payments to the French Oil Mill Machinery Company, the International Harvester Company and others, the time of payment of indebtedness to be extended. The offer of extension was approved by 95 creditors and over 95% of all the allowed claims. The referee recommended that the plan be approved. On January 19, 1938, the District Court having found that approximately 95% in number of all creditors whose claims had been allowed and over 98% in amount of all claims allowed had approved the plan of extension, approved such plan and authorized the receiver to carry it out.

The International Harvester Company on January 14, 1938, filed a claim as a secured creditor with a lien upon three trucks, same being allowed as a secured claim in amount of $874. The French Oil Mill Machinery Company on January 11, 1938 filed a claim for $7,814.16, as a secured claim, which was allowed.

The receiver continued the operation of the business until October 18, 1938, when he filed a petition showing that there had been a loss of $6,915.40 in its operation to October 1, 1938. An offer was made by James H. DeJarnette for the purchase of the property free and clear of all liens for $8,500, the offer being later increased to $9,650. The petition for sale was set for hearing on November 3, 1938, the creditors notified, and a hearing held. The receiver in said petition claimed priority in the proceeds of the sale to pay receiver's certificates and expenses of the receiver. This was controverted and the Harvester Company asserted liens by virtue of conditional sales notes and chattel mortgages on three trucks, and the French Company by conditional sale contracts on the machinery of the partnership, constituting the principal assets of the concern. Objection was made as to such sale save and except that any such order for sale and as a part thereof the priority of the secured claims be recognized and immediately paid. The Harvester Company also filed a reclamation petition seeking to recover the three trucks on which it claimed such lien. The referee, among other things, found that the Harvester Company and French Company were bound by the order appointing the receiver and authorizing him to borrow moneys, and further that both companies waived any claim they might have to priority over the receiver's certificates and operating expenses, and concluded that the offer which had been increased to $9,650 should be accepted and the property sold free and clear of all liens, and the proceeds applied first to the payment of the expenses of the receiver and the receivership certificates, with interest, and the balance applied to the payment of the "formerly secured claims."

The report of the referee was filed in the United States District Court for Kansas on November 29, 1938, and thereafter the court duly entered an order for a hearing on the referee's report. The Harvester Company and French Company filed petitions for review. On December 8, 1938, the referee submitted his certificate on petitions for review to the court. The report of the referee being disapproved by the court, the whole proceeding was referred to the referee under a general order of reference, dated February 16, 1939, in which it is stated: "The court, considering the report of A. M. Keene, Esquire, finds that the said master apparently misconstrued an order made by this court on December 20, 1937, authorizing the receiver to borrow not to exceed Five Thousand Dollars ($5,000.00) and to issue Receiver's Certificates therefor, which said Certificates, when so issued `shall be and constitute a first lien upon all the assets, not exempt by law, of said debtors.' It was not the intention of the court in granting such order to make such Certificates prior to valid, subsisting liens on any part of the debtors property existing at the time of the granting of the order."

Notice of appeal therefrom was filed in the district court on March 16, 1939, together with assignments of error, and a petition for appeal was presented to said court on March 17, 1939, and a cost bond fixed in the sum of $250.

The matter was again heard before the referee on February 27, 1939. The referee, on the testimony, pleadings, record, and exhibits introduced at the first hearing and on certain statements and admissions by counsel and the parties, made his findings and conclusions of law on the re-reference. On the said second hearing the referee directed the assets to be sold free and clear of all liens to James H. DeJarnette for $9,650, and ordered that the proceeds from such sale should be paid as follows: $834 to the Harvester Company, $5,500 to the French Company, and the residue to be held subject to the further order of the court.

Petitions for review were filed by the bank, the receiver, the Harvester Company, and the French Company, the referee submitting with his report the following certified question to the court: "The precise question presented to the court is, whether the receiver's certificates issued herein and the unpaid receiver's expense shall have payment in advance of payments to the secured creditor." The certified question and the report were heard by the court on March 30, 1939, the report being approved as filed. In the findings of fact contained in the receiver's report, it appears that on February 27, 1939, the proposed offer of DeJarnette for $9,650 was considered, and the attorneys representing the Harvester Company and the French Company suggested that they had been authorized to reduce the claims as follows: Harvester Company from $874, to $834, and the French Company from $7,814.16 to $5,500, provided the sale was made and such claims be recognized and paid forthwith, but if an appeal was taken they desired to save their exceptions to an agreed order to that effect so as to reserve the right to contend for the full amount of their respective liens.

Notice of appeal and assignments of error were filed on April 6, 1939. Petition for allowance of an appeal was also filed in the district...