In re Creech Bros. Lumber Co.

• Decision Date: 26 February 1917
• Docket Number: 2827.
• Citation: 240 F. 8
• Parties: In re CREECH BROS. LUMBER CO. [1] v. MacPHAIL. TITLOW
• Court: U.S. Court of Appeals — Ninth Circuit

240 F. 8

In re CREECH BROS. LUMBER CO. ^[1]

TITLOW v. MacPHAIL.

No. 2827.

United States Court of Appeals, Ninth Circuit.

February 26, 1917

R. P Oldham and R. C. Goodale, both of Seattle, Wash. (Walter L Nossaman, of Seattle, Wash., of counsel), for appellant and petitioner.

John T Welsh and Martin C. Welsh, both of South Bend, Wash., for appellee and respondent.

Creech Bros. Lumber Company, a corporation operating a sawmill and engaged in the manufacture of lumber, being in an insolvent condition and for that reason unable to pay its debts, procure credit, or purchase logs necessary in the operation of its sawmill, entered into an agreement with H. W. MacPhail, respondent and appellee, on October 29, 1912, whereby all the property and assets of the lumber company were assigned to MacPhail, who was given an irrevocable power of attorney and was to continue operations for such time as the plant could be operated at a profit of $1,000 per month, sell the property and assets, and apply all proceeds for the benefit of all the creditors; it being provided, however, 'that any sums advanced by the second party (MacPhail) or any sums which he may contract as indebtedness in the operation of said plant, or in the purchase of logs or the employment of labor for the operation of said plant shall be a first and prior lien and shall be paid prior to the payment of any sums now due the creditors of said corporation. ' It was further provided 'that from the profits derived from the operation of said plant, he (MacPhail) shall first reimburse himself for any sums advanced by him and shall next pay and discharge any bills or indebtedness which he may contract in the operation of said plant, and the remainder, if any, he shall pay to the creditors pro rata, share and share alike, in proportion to their said claims;' and, further, that in case the plant should fail to clear the sum of $1,000, net, per month, MacPhail might, at his option, 'cease to operate said plant, and sell and dispose of all of said real estate and personal property, and accounts and bills receivable for the purpose of first reimbursing himself for any sums advanced by him or any sums contracted by him in the operation of said plant, and second to pay the creditors of the first party in full or pro rata, and the fact that he may cease to operate said plant shall not be construed as terminating his rights under this contract until he has been fully paid for all sums by him advanced and until all sums by him contracted for have been fully paid, satisfied and discharged, and creditors have been paid in full or said assets have been all reduced to cash and the second party reimbursed, and the balance paid, pro rata, to the creditors of the first party.'

Stockholders owning a majority of the stock of the Creech Bros. Lumber Company indorsed upon this instrument their consent to and approval of all its terms and conditions, and the action of the president and secretary in executing the same. The instrument was never acknowledged or recorded.

Prior to the execution of this instrument, on October 21, 1912, Creech Bros. Lumber Company secured from its creditors an agreement, consenting to the assignment mentioned in the foregoing contract of October 29, 1912, and reading, in part, as follows:

'Whereas, the stockholders and trustees of said corporation have agreed to make an assignment to H. W. MacPhail for the benefit of all of the creditors of said corporation, and whereas, the said H. W. MacPhail has agreed to operate said plant as assignee and purchase logs for that purpose and otherwise finance the operation of the same, provided the same can be operated at a profit, and also provided the creditors will extend the time of payment of their several accounts and desist from pressing said accounts until they can be paid by the profits derived from the operation of said plant: Now, therefore, we the undersigned creditors, in consideration of said assignment and of the agreement of the said H. W. MacPhail to finance said plant, severally agree that if said assignment is made and if the said H. W. MacPhail shall finance and operate said plant, that we will extend the time of payment of our several claims and desist from pressing said claims in the courts or otherwise, so long as said plant is operated at a monthly net profit of $1,000 or more per month. It being understood that in the operation of said plant that the said H. W. MacPhail shall first pay the cost of operation and all sums contracted by him as such assignee, and all sums advanced by him, and thereafter shall pay to the creditors interest at the rate of eight per cent. per annum on their said accounts, and shall pay the balance to the said creditors pro rata, share and share alike in proportion to their several claims, payments to be made quarterly, commencing on the 1st day of March, 1913, and continuing until all of said indebtedness, including principal and interest is paid in full.'

'This consent was executed by most of the creditors, though not all; the books of the lumber company at that time being in such condition that it was impossible to definitely ascertain to whom or in what amounts the company was indebted.

MacPhail took possession of the plant as trustee under the assignment of October 29th about November 1, 1912, and operated the same until July or August, 1913, when it was found the plant could no longer be operated at a profit, due to a 'break' in the market. MacPhail immediately notified all creditors and stockholders of the bankrupt by letter, and requested to be relieved of the so-called assignment or agreement, but was not relieved, and retained possession of all of the assets until about July 28, 1914, when a receiver was appointed by the superior court of the state of Washington in a suit against the lumber company by John L. Myers. During the operation of the mill MacPhail paid something over 10 per cent. of the claims of the creditors; paid over $3,000 in insurance; over $2,000 in taxes; and upon the mill being closed down, after having paid for all of the logs amounting to over $93,000 and for labor amounting to over 46,000, together with other items necessarily disbursed, he found that he had expended $13,877.71 of his own funds in excess of the various payments which had been made him from the earnings.

On August 27, 1914, proceedings in involuntary bankruptcy were instituted by certain creditors of the lumber company, and on November 16, 1914, an adjudication of bankruptcy was made, and Robert G. Chambers duly appointed trustee in bankruptcy on December 28, 1914. MacPhail presented his claim, which, with interest thereon, amounted to $15,170.69, to the referee, who, on October 6, 1915, disallowed the same as a preferred claim. Thereupon MacPhail petitioned for an order certifying the record to the United States District Court for the Western District of Washington, Southern Division, for review; and an order was entered by that court on March 25, 1916, allowing the claim as preferred in the sum of $13,877.74.

The plant and other property and assets of the bankrupt estate were sold by the trustee in bankruptcy, and the amount realized therefrom was somewhat less than the amount of appellee's claim. The appellee received no compensation for his services in operating the property.

The United States National Bank of Centralia became insolvent on September 21, 1914, and A. R. Titlow was thereafter duly appointed receiver thereof. At the time of the execution of the agreement of October 29, 1912, the United States National Bank was not a creditor of the bankrupt company, but subsequently became such, and the receiver has proved its claim in the sum of $16,255.75. Charles H. Gilchrist, the vice president and manager, and George Dysart, one of the other officers of this bank, were instrumental in procuring the signature of the bankrupt corporation and of the creditors to the agreements of October 21, 1912. The former was at that time the president of the Willapa Harbor State Bank, and at the time the United States National Bank procured the notes on which its claim is founded and which make it a creditor, it knew, through the dual capacity of its vice president and manager, that MacPhail was in possession of the mill and all of the property of the bankrupt, and of the agreement signed by the creditors, and had full notice and knowledge of all of the facts relating thereto.

A. R. Titlow, as receiver of the United States National Bank of Centralia, appearing in the name and stead of Robert G. Chambers, as trustee in bankruptcy of the estate of Creech Bros. Lumber Company, petitions this court for a review of, and appeals from, the order allowing the preferred claim of MacPhail in the sum of $13,877.74.

Before GILBERT, MORROW, and HUNT, Circuit Judges.

MORROW Circuit Judge (after stating the facts as above).

1. The case comes here upon appeal from an order of the bankruptcy court under section 24a of the Bankruptcy Act, and also upon a petition to review such order under section 24b of the same act, because of a doubt as to the correct procedure for obtaining a review of the order in controversy. Both methods of procedure may be resorted to in order to avoid a mistake in the remedy. Chavelle v. Washington Trust Co., 226 F. 400, 405, 141 C.C.A. 230.

But when the case is here upon both methods of procedure, this court must determine which of the two the court is authorized to entertain, since each is exclusive of the other (Bothwell v. Fitzgerald, 219 F. 408, 413, 135 C.C.A. 212; Pindel v. Holgate, 221 F. 342, 346, 137 C.C.A. 158, Ann. Cas. 1916C, 983), and the scope of the review is not the same.

The matter in controversy is a claim which the bankruptcy court allowed as a...