Drybrough v. Ware

• Decision Date: 08 May 1940
• Docket Number: No. 8222.,8222.
• Citation: 111 F.2d 548
• Parties: DRYBROUGH v. WARE. In re BAVARIAN BREWING CO., Inc.
• Court: U.S. Court of Appeals — Sixth Circuit

111 F.2d 548 (1940)

DRYBROUGH v. WARE. In re BAVARIAN BREWING CO., Inc.

No. 8222.

Circuit Court of Appeals, Sixth Circuit.

May 8, 1940.

John Marshall, Jr., of Louisville, Ky. (D. A. Sachs, Jr., and Peter, Heyburn, Marshall & Wyatt, both of Louisville, Ky., on the brief), for appellant.

Orie S. Ware, of Covington, Ky. (Sawyer A. Smith, of Covington, Ky., on the brief), for appellee.

Before SIMONS, HAMILTON, and ARANT, Circuit Judges.

HAMILTON, Circuit Judge.

Appellant, Frederick W. Drybrough, Trustee, was a mortgagee of the Bavarian Brewing Company, a corporation liquidated in a bankruptcy proceeding pursuant to Section 77B of the National Bankruptcy Act, 11 U.S.C.A. § 207.

The debtor was engaged in operating a brewery at Covington, Kentucky, and under the orders of the court, all of its assets, except cash, were sold in bulk for $55,000 at public sale, free of liens. It had $2,900.14 in cash, the total for distribution being $57,900.14, which, after marshaling liens, was distributed to creditors. There was set aside out of the proceeds $1,500 for distribution to those entitled thereto under appellant's mortgage. There were no exceptions or objections to the sale, but appellant appeals from the order of distribution and urges as error that at the time it was made, the validity and priority of his mortgage, which was later adjudged to be valid, had not been adjudicated. He contends he was entitled to receive out of the proceeds of the sale the proportion attributable to the property sold on which he had a superior lien (George Carroll & Bro. Co. v. Young, 3 Cir., 119 F. 576), and that the distribution of the proceeds of the sale was without lawful authority until there had been a final determination of his claim and its priority.

In considering the question sought to be raised by the appeal, it must be remembered that this court is not bound to reverse for errors which are not prejudicial (In re McDuff, 5 Cir., 101 F. 241; Fisher v. Cushman, 1 Cir., 103 F. 860, 51 L.R.A. 292; Lazarus, Michel & Lazarus v. Harding, 5 Cir., 223 F. 50; In re Boston Dry Goods Company, 1 Cir., 125 F. 226; Higginbotham-Bailey-Logan Co. v. International Shoe Co., 5 Cir., 29 F.2d 994; In re Hoffman, 7 Cir., 17 F.2d 925; Rules of Federal Procedure, rule 61, 28 U.S.C.A. following section 723c), and the burden is on him who alleges error to show that it existed and was prejudicial. Marin v. Ellis, 8 Cir., 15 F.2d 321; In re Maki, 6 Cir., 18 F.2d 89.

It is a well-recognized rule that property in a bankruptcy proceeding, under certain conditions, may be sold free of liens and that thereafter creditors cannot assert any further claim to or lien against it, but their respective rights are transferred to the proceeds of the sale (Jones v. Springer, 226 U.S. 148, 157, 33 S.Ct. 64, 57 L.Ed. 161), and under such circumstances it becomes the duty of the court, after the money is paid in and before distribution, to determine the rank of all claims thereto and supervise the distribution and payment accordingly. Where there are several distinct demands of the same class, as is the case here, and the sum is insufficient to pay all, the purchase money must be applied to their payment pro rata and without preference. Union Trust Company v. Illinois-Midland R. Co., 117 U. S. 434, 468, 6 S.Ct. 809, 29 L.Ed. 963.

The record fails to show that the court in its order of distribution complied with the foregoing requirements but it does not follow that appellant is entitled to reversal. The burden rests on him to demonstrate from the record that he would have received more than $1,500 if the distribution had been made pro rata and without preference. This is a fact question and the record contains no findings of fact specially made by the court nor does it appear that any proposed findings of fact or conclusions of law were requested by appellant and his exception to the order is general.

Even were Rule 52(a) of Federal Rules of Civil Procedure in effect, the court would nevertheless be required to find the facts specially and state separately its conclusions of law. Order 37 of General Orders in Bankruptcy, effective February 13, 1939, 11 U.S.C.A. following section 53. While a request for findings is not prerequisite to an appeal, Rule 46, though eliminating the formal exceptions, retains the substance of the previous practice by requiring a party to make known to the court the action he desires taken or his objection to that taken by the court and his ground therefor. Massachusetts Bonding & Insurance Company v. Preferred Automobile Insurance Company, 6 Cir., 110 F.2d 764, decided April 4, 1940.

Rule 75(g) provides that the Clerk shall transmit to the appellate court, under proper seal, copy of the record designated by the parties, always including, even without designation, the material pleadings, findings of fact and conclusions of law, with the direction for entry of judgment thereon, the Master's report, if any, and the opinion.

Under these rules, it devolves upon appellant to see that the record is brought to the court with such of the proceedings of the trial court as may be necessary for the...