Goodman Mfg. Co. v. Pittsburgh-Buffalo Co.

• Decision Date: 17 May 1920
• Docket Number: 2524.,2523
• Citation: 265 F. 561
• Parties: GOODMAN MFG. CO. v. PITTSBURGH-BUFFALO CO.
• Court: U.S. Court of Appeals — Third Circuit

265 F. 561

GOODMAN MFG. CO. v. PITTSBURGH-BUFFALO CO.

Nos. 2523, 2524.

United States Court of Appeals, Third Circuit.

May 17, 1920

Reed Smith, Shaw & Beal, of Pittsburgh, Pa. (Samuel McClay, W. L G. Gibson, and W. A. Seifert, all of Pittsburgh, Pa., of counsel), for appellant.

Wright Chalfant & McCandless, of Pittsburgh, Pa., for receivers of Pittsburgh-Buffalo Co.

John S Wendt, of Pittsburgh, Pa., for receivers of Federal Nat. Bank of Pittsburgh.

Before BUFFINGTON, WOOLLEY, and HAIGHT, Circuit Judges.

WOOLLEY Circuit Judge.

Pittsburgh-Buffalo Company, a corporation of Pennsylvania, was extensively engaged in mining and selling coal from a number of properties; some owned by itself, some owned by other concerns. Being heavily indebted, receivers for the coal company were appointed in 1913 by the District Court with authority to continue its business.

The properties owned by the coal company were encumbered by two mortgages held by the Union Trust Company of Pittsburgh, one in a fiduciary capacity and the other in its individual capacity. On the first, which was made to secure an issue of bonds, there was owing at the time of the appointment of receivers the sum of $1,766,000; and on the second there was due and owing the sum of $1,796,458.33. The coal company was not in default under the first mortgage in the payment of interest or principal, but it was in default on its covenant to maintain a sinking fund to provide against coal depletion and to pay therefrom for the redemption of the bonds issued under the mortgage a sum equal to ten cents per ton for each ton of coal mined and shipped from the mortgaged premises. On the second mortgage, the coal company was in default in the payment of interest.

The trust company mortgagee did not oppose the appointment of receivers, but rather acquiesced in their appointment and operation of the properties until the fall of 1914, when it instituted proceedings of foreclosure on the second mortgage. In July, 1915, it purchased the mortgaged premises at foreclosure sale subject to the lien of the first mortgage. Shortly afterward the receivers filed their account showing a balance of about $30,000 for distribution among creditors. Whereupon the trust company in its capacity of fiduciary mortgagee under the first mortgage and as individual mortgagee under the second, filed claims against the fund. Under the first mortgage it claimed the sum of $279,465.15, made up of two items, one for $126,181.31, money due at the time of the appointment of receivers under the sinking fund provision of the mortgage requiring payment of 10 cents per ton on coal previously mined from the mortgaged premises, and the other for $153,283.84, money due under the same sinking fund provision for coal mined from the mortgaged premises by the receivers during their administration of the estate. Asserting a preference or priority in both claims, the mortgagee demanded under the allowance of either one or the other the whole fund remaining in the hands of the receivers for distribution. The master by his report subsequently approved by the District Court denied altogether the mortgagee's claim of preference, allowed as a general claim the sum claimed under the sinking fund for coal depletion during the receivership, and wholly disallowed the claim under the sinking fund provision for coal depletion prior to receivership. From the decree approving the report of the master over exceptions by the mortgagee this appeal was taken.

The provisions of the first mortgage under which the mortgagee's claims were made and on which the court's rulings were based did several things. They preserved to the mortgagor under the law of Pennsylvania (and thereafter to its receivers under the court's order) the right to mine coal from the mortgaged premises and to sell it free from the lien of the mortgage. Hoskin v. Woodward, 45 Pa. 44; Angier v. Agnew, 98 Pa. 590, 42 Am.Rep. 624; Knoll v. N.Y.C. & St. L.R. co., 121 Pa. 467, 15 A. 571, 1 L.R.A. 366. They imposed upon the mortgagor the duty to create and maintain a sinking fund and to pay therefrom semi-annually in retirement of the mortgage bonds an amount equal to 10 cents per ton for each ton of coal mined and shipped. They also conferred upon the mortgagee, upon default by the mortgagor of any of its covenants, the right to enter upon and take possession of the mortgaged premises and hold and manage the same as fully, to all intents and purposes, as the mortgagor could do. Under these provisions the mortgagor mined and sold coal from the mortgaged premises. In the course of time, it defaulted in its sinking fund covenant and mined and sold coal for which it did not pay. When receivers were appointed they began mining coal under authority of the court and continued to mine and sell it without objection from the mortgagee, either by informal complaint, so far as the record shows, or by formal action of entering into possession, as it might have done. It was not until after the mortgaged premises had been taken from the receivers by foreclosure sale under the second mortgage and the mining and sale of coal by the receivers had thereby been stopped that the mortgagee presented its claims for mine depletion under the sinking fund clause of the mortgage as preferred claims.

We are of opinion that the...