Hooks v. Aldridge

• Decision Date: 30 May 1906
• Docket Number: 1,524.
• Parties: HOOKS v. ALDRIDGE.
• Court: U.S. Court of Appeals — Fifth Circuit

145 F. 865

HOOKS v. ALDRIDGE.

No. 1,524.

United States Court of Appeals, Fifth Circuit.

May 30, 1906

Stuart R. Smith (Smith, Crawford & Sonfield, on the brief), for petitioner.

Eugene Easterling (Greers & Nall, on the brief), for respondent.

Before PARDEE, McCORMICK, and SHELBY, Circuit Judges.

SHELBY Circuit Judge.

The questions involved in this case relate to a conflict of jurisdiction between the District Court of the Fifty-Eighth Judicial District of Texas, hereafter called the 'State Court,' and the United States District Court for the Eastern District of Texas, hereafter called the 'Bankruptcy Court.' The controversy is between J. B Hooks, as receiver, appointed by the state court, and W. H Aldridge, as trustee, appointed by the bankruptcy court, as to the right to the possession of the property of the Turner & Nabers Lumber Company, hereafter called 'Lumber Company,' a corporation engaged in the manufacture and sale of lumber. The litigation was begun in the state court on October 1, 1903, by W. H. Turner, who filed his petition against the lumber company. It was alleged in the petition that the stock of the lumber company consisted of $50,000 divided into 500 shares of $100 each, and that the plaintiff was the owner of 150 shares, of the par value of $15,500. The petitioner alleged that the defendant company was indebted to him in the sum of $5,633.51 for money advanced to the defendant, and that this sum was due and owing the petitioner. It was also alleged that the plaintiff was the owner and holder of the first mortgage 10 year 6 per cent. gold bonds of the defendant to the amount of $20,000, dated August 14, 1903, and maturing August 13, 1913, bearing interest at 6 per cent. per annum; the bonds being secured by a deed of trust executed by the defendant on all of its property of every kind. It was also alleged that the petitioner was liable as the indorser of the paper of the defendant company to the amount of $7,500, which petitioner would have to pay. The petition contained elaborate averments of the financial embarrassment of the lumber company, that it owned a large number of pastdue accounts to creditors, who were insisting on payment, and that the company was unable to pay, and that the creditors were about to institute, and were threatening to institute, suits for the payment of the same, and were about to file a large number of separate suits and proceedings against the lumber company, and that its board of directors could not further carry on and prosecute its business. In relation to the solvency of the lumber company, the following averments were made: 'The defendant corporation is now in imminent danger of insolvency, that its assets amounted to approximately $80,000, and that its liabilities amounted to approximately $78,000,' and that the corporation is and will be unable to realize from its assets a sufficient sum of money to meet said liabilities as they mature. Subsequently, on July 23, 1904, these averments as to solvency were amended by the addition or substitution of the following statement:

'And plaintiff further shows that said property (referring to all the property of the corporation) is of insufficient value, and was at the time of the filing of this suit, to secure and pay the costs of this proceeding and plaintiff's said debt.'

It was alleged, further, that the plaintiff, as a stockholder and for the benefit of all the stockholders of the corporation, was entitled to have the business of the 'corporation wound up, and the value of its assets realized and applied, first, to the payment of the creditors as their priority appeared, and thereafter to the stockholders. ' The petition concluded with a prayer for the appointment of a receiver for the lumber company of and for all its property wherever situated, and that the court should enter an order granting the usual power to wind up and liquidate the said business, and there was also a prayer for judgment for the indebtedness in favor of the petitioner, and that the lien of the plaintiff be established and foreclosed. On the same day (October 1, 1903) the state court made an order appointing J. B. Hooks receiver, as prayed for. The order authorized Hooks to take possession of all of the defendant company's property, and to continue the operation of the saw mills and other business of the defendant company for the purpose of placing the property and estates of the defendant in a marketable condition. It further ordered that all persons having debts against the corporation should intervene in the suit for the establishment and collection thereof, and creditors were enjoined from proceeding otherwise. The court in its decree did not state the grounds on which the appointment of the receiver was made. On the next day Hooks gave bond and qualified as receiver. On October 5, 1903, four days after the beginning of the suit in the state court, three of the creditors of the lumber company filed a petition in involuntary bankruptcy in the bankruptcy court, praying that the lumber company be adjudged a bankrupt. The acts of bankruptcy alleged were: (1) That within four months preceding the filing of the petition, J. B. Hooks, a receiver, was appointed by the state court, and put in charge of the lumber company's property under the laws of the state of Texas, because of insolvency; and (2) that said lumber company within four months preceding the filing of the petition, while insolvent, committed a further act of bankruptcy, in that it transferred a portion of its property to one or more of its creditors, with intent to prefer such creditors over its other creditors. On May 26, 1904, the lumber company was adjudged a bankrupt, and on July 6, 1904, W. H. Aldridge was appointed trustee of the estate and effects of said bankrupt. On July 23, 1904, W. H. Turner filed in the state court his amended petition, restating his ownership of the $20,000 in bonds and the execution of the deed of trust, and alleging that, prior to the filing of the suit, the corporation had violated the conditions and obligations contained in the bond and in the deed of trust given to secure the same, and prayed a foreclosure of his lien and a continuance of the receivership pending the same. In this amended petition he alleged the appointment of Aldridge as trustee in bankruptcy, and that Aldridge was asserting some claim by virtue of his trusteeship to the property, and prayed that his rights to the property, if any, be adjudicated. Aldridge had notice of this amended petition September 20, 1904. On August 16, 1904, Aldridge, as trustee in bankruptcy, filed a motion in the suit in the state court asserting his claim to the possession of the property in the hands of Hooks as receiver, and praying for an order requiring the receiver to turn the property over to him as trustee. This motion was duly heard by the state court, which entered a judgment overruling the same. The motion of Aldridge as trustee in bankruptcy having been overruled by the state court, he, on October 3, 1904, filed with the referee in bankruptcy an application for an order to Hooks, receiver in the state court, to show cause why he should not be required to turn over the property of the lumber company to him as trustee. Upon a hearing the referee entered an order requiring Hooks, as receiver in the state court, to turn over the property to Aldridge, as trustee in bankruptcy. The referee based his order on a finding of facts practically as heretofore stated, and that the receiver in the state court for the lumber company 'was appointed because of its insolvency. ' Hooks thereupon filed a petition in the bankruptcy court to review the order of the referee in bankruptcy, and on April 20, 1905, the bankruptcy court sustained the finding of the referee, and affirmed and repeated his order requiring Hooks to turn over the property of the lumber company held by him as receiver in the state court to Aldridge, trustee in bankruptcy. The case is brought to this court by a petition filed here by Hooks as receiver, seeking to reverse and annul the order of the bankruptcy court requiring him to surrender the property to Aldridge, as trustee.

The question first demanding attention is the character and purpose of the suit in which the state court appointed Hooks receiver. The contention of the receiver is that it was essentially a suit to foreclose the deed of trust and to collect the $20,000 of bonds issued by the lumber company. We cannot accept that construction of the...