In re American Cooler Co.

• Decision Date: 17 January 1942
• Docket Number: No. 136.,136.
• Citation: 125 F.2d 496
• Parties: In re AMERICAN COOLER CO., Inc.
• Court: U.S. Court of Appeals — Second Circuit

125 F.2d 496 (1942)

In re AMERICAN COOLER CO., Inc.

No. 136.

Circuit Court of Appeals, Second Circuit.

Argued December 10, 1941.

Decided January 17, 1942.

Schiff, Dorfman & Stein, of New York City (Leon L. Brof, of New York City, of counsel), for appellant.

Zalkin & Cohen, of New York City (Israel Akselrod and Barney B. Fensterstock, both of New York City, of counsel), for appellee.

Before AUGUSTUS N. HAND, CLARK, and FRANK, Circuit Judges.

FRANK, Circuit Judge.

On a prior appeal, reported at Standard Capital Corp. v. Saper, 2 Cir., 115 F.2d 383, we affirmed an order of the District Court which denied the appellant's application to compel the appellee to pay to it the sum of $1,074.95 as the unpaid balance of a $5,000 advance (Standard having admittedly received $3,925.05 on account) made by Standard to American Cooler Co., Inc., while American was in reorganization under Section 77B, Bankr.Act, 11 U.S.C.A. § 207. We held that Standard could not enforce payment of the unpaid balance because the loan was unauthorized, but we remanded the case so that Standard might apply to have its advance allowed as an expense of administration within the doctrine of In re Avorn Dress Co., Inc., 2 Cir., 79 F.2d 337. Standard now appeals from an order denying an application based upon the doctrine of that case and granting the trustee's motion to require it to repay the sum of $3,925.05 (less a small adjustment) received on account.

The facts giving rise to the controversy were set out in our opinion on the prior appeal, and need be only briefly restated: American filed its petition under 77B on February 25, 1938, and on the same date the court authorized the borrowing of $15,000 upon receiver's certificates. Unable to obtain a loan upon these certificates, the debtor obtained authority on March 3, 1938, to borrow from Standard the sum of $5,000 to be secured by its equity in certain assigned accounts and, in addition, authority to assign to Standard current accounts for immediate loans of 75% of face value, the balance upon collection to be applied against the $5,000 loan. Such a contract was made. On November 5, 1938, still being in financial difficulties, American borrowed $5,000 more from Standard, giving in return a receiver's certificate purportedly authorized by the order of February 25, and assigning the equities in the accounts already assigned plus all its remaining unassigned accounts. This loan became the subject of both the prior and the present litigation. We held that the order of February 25th became functus officio when the order of March 3rd was entered, and that the loan was consequently unauthorized. Standard Capital Corp. v. Saper, 2 Cir., 115 F.2d 383.

Standard urges that the funds were advanced pursuant to the terms of the authorized factoring agreement, arguing that the loan should be viewed as an advance against the assigned accounts; and, to the objection that there were insufficient accounts to justify the loan, it answers that it had the right to waive the 75% limit, fixed by the court's order of March 3, and to lend up to 100% of the accounts in its hands. This ground (even if we overlook the fact that it was suggested on the prior appeal) is untenable. Since American guaranteed the accounts, the 75% limit was a safeguard which would have the effect of bringing before the court at an earlier date the question...