Haines v. Buckeye Wheel Co.

• Decision Date: 20 July 1915
• Docket Number: 2746.
• Parties: HAINES v. BUCKEYE WHEEL CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

224 F. 289

HAINES v. BUCKEYE WHEEL CO. et al.

No. 2746.

United States Court of Appeals, Sixth Circuit.

July 20, 1915

On June 25, 1907, appellant was appointed receiver of the New Decatur Buggy Company, a corporation, by a decree made and entered by the lower court in the case of Harry W. Quackenbush v. Harry H. Elwood et al. Four days later and on June 29, 1907, the receiver petitioned the court for authority to continue the business of the corporation and to borrow the sum of $3,000 for that purpose. His petition was granted and an order made and entered accordingly. Inasmuch as the decision of this controversy hinges upon the construction to be given to this order of the court, the receiver's petition and the order are here set forth in full:

Petition.

'Your petitioner, H. H. Haines, having been duly appointed receiver herein, represents to the court:

'First. That in his opinion it is proper and necessary that he should make an inventory and appraisement of all the property and assets coming into his hands as said receiver and he therefore respectfully suggests to the court that the court appoint three judicious disinterested persons as appraisers of all said property and assets.

'Second. Your petitioner further represents that in his opinion it is wise and expedient and for the best interest of the creditors and other parties interested that the business of the New Decatur Buggy Company should be continued by him as receiver for the following reason, to wit: There is on hand in the factory of said company at Middletown, Ohio, a large quantity of stock and materials for the manufacture of buggies and other vehicles, and that there are in various stages of manufacture buggies and other vehicles in said plant; that said stock and materials and partly manufactured products are of an approximate value of $40,000 to $50,000.

'Your petitioner further says that the spring season for the manufacture and sale of buggies and other vehicles is now at hand; that said spring season has been delayed by the rains and inclement weather of the past spring and summer; and that said period for the sale of said products will be most profitable commencing about July 1, 1907, and continuing until about November 1, 1907.

'Your petitioner further says that, unless said stock and materials shall be so manufactured into the products of said concern, said stock and materials will have to be sold at a great sacrifice and work great loss to both creditors and parties interested.

'Your petitioner further says that said company now has many orders for manufacture and shipment of goods, and that it can procure many more; that in the opinion of your petitioner orders can be obtained of such a number and size as to keep said factory continually and profitably in operation.

'- Your petitioner further says that said factory having been closed so recently, the necessary working force thereof can be readily assembled for the purpose of running said plant.

'Wherefore, your petitioner prays for an order authorizing him to reopen said factory and employ the necessary working force and continue said business until the further order of said court.

'Third. Your petitioner says that it will be necessary in order to manufacture said goods and reopen said factory and employ said hands to use certain money, and that there is nothing on hand in the treasury of said company, and he therefore prays for an order of this court authorizing him to borrow money, not to exceed $3,000, at a rate of interest not exceeding 6 per cent., and that he be authorized to issue receiver's certificates or other evidence of indebtedness therefor.'

Order.

'This day this cause came on to be heard on the application of H H. Haines, receiver herein, praying for an order appointing appraisers to make an inventory and appraisement of the property and effects coming into his hands as said receiver, and was submitted to the court, and the court being fully advised in the premises finds that it is proper and necessary to grant said order, and does hereby order that said inventory and appraisement be made by said receiver, and that R. B. Edson, W. T. Harrison, and L. T. Palmer, be and they hereby are appointed appraisers for said purpose.

'Second. Thereupon this cause came on for further hearing on the application of said receiver for an order of court to reopen the factory of the New Decatur Buggy Company, referred to in the application, and to employ the necessary working force, and to continue said business, and was submitted to the court.

'On consideration whereof the court finds that it is necessary and for the best interests of the creditors and all parties interested that said order be granted, and the court does hereby order said receiver to reopen said factory, employ the necessary working force and continue said business until the further order of this court.

'Third. Thereupon this cause came on for further hearing upon the application of said receiver for authority to borrow money, and was submitted to the court.

'On consideration whereof the court finds that it is proper and necessary for the profitable operation of said plant that said order be granted.

'It is therefore ordered by the court that said receiver be and he is hereby authorized and empowered to borrow money for the purpose of continuing said business in a sum not to exceed $3,000 at a rate of interest not to exceed 6 per cent., and he is hereby authorized and empowered to issue receiver's certificates or other proper evidence of indebtedness therefor.'

Pursuant to the authority so granted, the receiver immediately borrowed from the First National Bank of Middletown, Ohio (hereinafter called the 'bank '), the sum of $3,000, and gave his promissory notes therefor. On July 25, 1907, the receiver again petitioned the court for authority to borrow an additional $2,000 'in order to carry on said business and meet the pay roll and other necessary expenses incurred by him as receiver.' On the same day the court made an order authorizing him to borrow 'money not exceeding $2,000, in addition to the money heretofore authorized to be borrowed by him.' Immediately thereafter he borrowed $1,000 from the bank upon his promissory note. These sums of money aggregating $4,000, so borrowed by the receiver, with interest, constitute the claim of the bank.

The business of the New Decatur Buggy Company, which was continued by the receiver, consisted largely of assembling the parts of buggies which it purchased from dealers and manufacturers and then selling the completed product. Without applying for or obtaining other authority than that contained in the order of June 25, 1907, the receiver commenced at once to purchase on credit additional merchandise and parts of buggies from the Buckeye Wheel Company and many other concerns. He continued to operate the factory for about eight months, and, during that time, his purchases on credit aggregated about $34,000 and his payments thereon about $20,700, leaving a balance of upwards of $13,000 then owing by him. When the factory finally shut down in February, 1908, he owed the Buckeye Wheel Company alone more than $4,000 and his other merchandise creditors more than $9,000. Since then he has paid on these accounts about $7,200, leaving a balance of about $5,800 still owing to such creditors. The business was conducted at an enormous loss, and, through shrinkage in values as well as losses in operation, the receivership has terminated disastrously for all concerned. The net results are that the creditors of the New Decatur Buggy Company have received nothing, the entire estate (appraised at upwards of $93,000) has been lost, and the receiver now has in his hands about $4,000 with which to pay debts, amounting to nearly $10,000 owing by him to the bank and other creditors.

On September 28, 1908, the bank filed its intervening petition against the receiver to recover the moneys borrowed by him and evidenced by his notes. The receiver answered the petition, admitting the indebtedness, but presenting a counterclaim in an amount larger than the indebtedness. In its reply the bank denied liability upon the counterclaim. On May 5, 1911, a decree was made by the District Court disallowing the counterclaim of the receiver and ordering and directing him to pay to the bank the sum of $4,000 with interest out of the funds and assets in his hands. This decree was affirmed by this court. Haines v. First National Bank of Middletown, Ohio, 203 F. 225, 121 C.C.A. 431.

On April 14, 1910, the receiver filed his first report from which it appears that he had then sold and converted into money all of the property which had come into his possession and that 'his total receipts from the operation of said plant and the running of said business, the collection of accounts, sales of property, and from all other sources up to March 21, 1910, amounted to $89,725.44; his disbursements for the same period amounted to $81,041.63, leaving a balance of cash on hand for distribution of $8,683.81. ' Attached to his report as exhibits are tabulated statements of his receipts and disbursements. Among the receipts appears the $4,000 borrowed from the bank, and among the disbursements appear the payments to his merchandise creditors aggregating $28,015.70. The report contains no hint of the fact that he was still owing upwards of $5,800 to his merchandise creditors. While the record is imperfect and incomplete as to the court's action upon this report, it may fairly be inferred that the report was received, the account approved, and the receiver allowed $2,000 as compensation for his own services and $2,000 for the services of his attorneys. More than three years later and on May 12, 1913, the receiver...