In re Eagson Corp.

• Decision Date: 24 February 1984
• Docket Number: Bankruptcy No. 76-1971G.
• Citation: 37 BR 471
• Parties: In re EAGSON CORPORATION, Bankrupt. FIRST PENNSYLVANIA BANK N.A., Plaintiff, v. Myron HARRIS, Trustee in Bankruptcy of Eagson Corporation, Willard T. Jackson, Harold E. Stassen, Central Penn National Bank, Mary Jane Black, Robert E. Breidenstein, Commonwealth of Pennsylvania (Bureau of Corporation Taxes, Department of Revenue), Stockard Shipping & Terminal Corp., American Equipment Rental, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

37 B.R. 471 (1984)

In re EAGSON CORPORATION, Bankrupt.

FIRST PENNSYLVANIA BANK N.A., Plaintiff, v. Myron HARRIS, Trustee in Bankruptcy of Eagson Corporation, Willard T. Jackson, Harold E. Stassen, Central Penn National Bank, Mary Jane Black, Robert E. Breidenstein, Commonwealth of Pennsylvania (Bureau of Corporation Taxes, Department of Revenue), Stockard Shipping & Terminal Corp., American Equipment Rental, Defendants.

Bankruptcy No. 76-1971G.

United States Bankruptcy Court, E.D. Pennsylvania.

February 24, 1984.

James M. Matour, White & Williams, Philadelphia, Pa., for Central Penn Nat. Bank, defendant.

Frank J. Eisenhart, Jr., Dechert, Price & Rhoads, Philadelphia, Pa., for Mary Jane Black, also known as Mary Jane Brown, individually and as Executrix under the Will of Edward M. Brown, Deceased, defendant.

Leslie J. Carson, Jr., Philadelphia, Pa., for Robert E. Breidenstein, defendant.

Marjorie O. Rendell, Duane, Morris & Heckscher, Philadelphia, Pa., for creditors' committee under Chapter XI.

Harry G. Mahoney, Deasey, Scanlan & Bender, Ltd., Philadelphia, Pa., for Stockard Shipping Co., defendant.

Robert G. Cherwony, Kraft & Kraft, Philadelphia, Pa., for American Equipment Rental, defendant.

J. Dennis Faucher, Kristin R. Hayes, Saul, Ewing, Remick & Saul, Philadelphia, Pa., for plaintiff, First Pennsylvania Bank N.A.

Myron Harris, Philadelphia, Pa., trustee.

Horace A. Stern, Wexler, Weisman, Forman & Shapiro, P.C., Philadelphia, Pa., for trustee/defendant, Myron Harris.

Joseph Pokart, Pokart & Pokart, New York City, for defendant, Willard T. Jackson.

Guillermo L. Bosch, Stassen, Kostos & Mason, Philadelphia, Pa., for Harold E. Stassen, defendant.

OPINION

EMIL F. GOLDHABER, Bankruptcy Judge:

The issue presented herein is how much the plaintiff is entitled to receive out of the $625,000.00 proceeds presently being held by the trustee as a result of the latter's sale of a certain parcel of realty formerly owned by the bankrupt. While we conclude that the plaintiff is entitled to recover some of the proceeds held by the trustee pursuant to a state court judgment the plaintiff recovered against the bankrupt, we nonetheless find that, predicated on various admissions made by the plaintiff, its claim to the proceeds is non-interest bearing and limited to $280,000.00.

The undisputed facts of the instant case are as follows:¹ On October 19, 1976, Eagson Corporation ("the bankrupt") filed a petition for an arrangement under Chapter XI of the Bankruptcy Act ("the Act")² and was adjudicated a bankrupt on November 16, 1979. On November 25, 1980, we entered an order authorizing Myron Harris, the trustee in bankruptcy, ("the trustee") to sell a parcel of realty known as the "Eagson Parcel" at a private sale, free and clear of liens and encumbrances, to Thomas E. Clem and Rebecca J. Clem for the sum of $650,000.00 (later reduced to $625,000.00 pursuant to our order of March 26, 1981).³ With respect to the treatment of the various liens against the Eagson Parcel, our previous order of May 5, 1980, provided, in relevant part, as follows:

4. At settlement for the property, the liens of all mortgages, judgments and tax assessments held by the Defendants above-named,⁴ shall be divested from the property which is the subject of the proposed sale, and the claims of the holders of such liens and encumbrances shall be relegated to the proceeds of the sale, to be paid therefrom if, as and when proved.⁵

None of the proceeds of the aforesaid sale have, as yet, been distributed to any of the lienholders. On January 26, 1983, First Pennsylvania Bank N.A. ("the bank"), the holder of a mortgage against the Eagson Parcel, filed the instant complaint, wherein the bank alleged that the lien it has on the proceeds of the sale of the Eagson Parcel (based on its status as a mortgagee) has priority over the liens of other defendants named in said complaint.⁶

The basic writings which form the basis of bank's claim are four documents, all of which were executed on November 6, 1972. On that date, the bank entered into a Loan Agreement ("the loan agreement") with Joan M. Weber, Forward Lands, Inc. and the Foerderer Tract Committee, Inc. ("the borrowers") whereby the bank agreed to loan the borrowers $3,295,000.00.⁷ The loan was evidenced by a note ("the note")⁸ and secured by a Mortgage ("the mortgage")⁹ on land commonly known as the "Foerderer Tract", including the portion of the Foerderer Tract owned by the bankrupt, the Eagson Parcel.¹⁰ While the bankrupt signed both the note and the mortgage, it is undisputed that it was not a party to the loan agreement. Simultaneously with entering into the loan agreement, note and mortgage, the bank and the borrowers entered into an agreement with Willard T. Jackson, the holder of two existing mortgages on the Eagson Parcel, to subordinate those mortgages to the bank's mortgage.¹¹

A default under the note occurred in May of 1974, and on August 23, 1974, the bank entered judgment by confession ("the judgment") in the Court of Common Pleas of Montgomery County, Pennsylvania, against the borrowers and the bankrupt in the amount of $2,805,497.14 on account of said default.¹² A sheriff's sale of the Eagson Parcel was scheduled for October 20, 1976,¹³ but said sale was, of course, stayed when the bankrupt filed the aforesaid petition for an arrangement under Chapter XI of the Act.

Meanwhile, as a result of a separate action filed in the Court of Common Pleas of Montgomery County ("the Court of Common Pleas") captioned Edward G. Bogosian and Kathy A. Bogosian, his wife v. Foerderer Tract Committee, Inc., No. 74-14866, Sandra Schultz Newman ("the receiver") was appointed receiver of the Foerderer Tract Committee, Inc., one of the three borrowers involved in the aforementioned loan agreement. The receiver negotiated an agreement dated May 14, 1979, for the sale of the Foerderer Tract for $3,500,000.00. The Court of Common Pleas approved the agreement of sale by order dated May 15, 1979, as a consequence of which the Foerderer Tract was to be sold for that amount in the event that a higher price was not realized at a public sale.

Following the entry of the aforesaid order, the bank and the receiver, without our approval, entered into a "Stipulation and Agreement" ("the stipulation")¹⁴ dated June 8, 1979 (at which time the bankrupt was a chapter XI debtor), which, in pertinent part, provided:

1. Subject to the provisions of paragraph 9 hereof, Bank shall be paid the sum of $2,500,000 in full, complete and total satisfaction of that portion of any and all debts due it for, because of or on account of its loan to the Foerderer Tract Committee, Inc., Joan M. Weber, and Forward Lands, Inc. (including but not limited to all costs, interest, fees, expenses and any other sums directly or indirectly concerned therewith) which shall be recovered from disposition of the Tract; but this is exclusive of sums which may be or shall be recovered from disposition of the Eagson Tract referred to in paragraph 9 hereof, as to which Bank is reserving its rights and remedies (emphasis added).

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3. (b) In the event that the foreclosure proceedings against the Tract do not produce a third party bid in an amount sufficient to satisfy the current balance due on the obligation secured by the mortgage (including but not limited to all costs, interest, fees, expenses and any other sums directly or indirectly concerned therewith), Receiver shall re-assign to Bank all of Receiver\'s interest of any kind or nature whatsoever in the mortgage, and in the obligation secured thereby, so as to give Bank the full, complete and absolute right to proceed in the enforcement thereof against the Eagson Tract for recovery of the deficiency or balance due thereon, as fully and completely as though the Receiver itself was acting in pursuing all of the Mortgagee\'s rights and remedies thereunder as Assignee of the Bank, with the result that by this re-assignment the Bank shall be restored to its position with respect to enforcement of the mortgage against the Eagson Tract as though Bank had never assigned the mortgage to Receiver.

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9. This Stipulation and Agreement does not include or affect in any way the rights or interests of the Bank in or with respect to the Eagson parcel of real estate more specifically described in Exhibit "C" attached hereto, concerning which a Chapter XI proceeding is pending in the United States District Court for the Eastern District of Pennsylvania, and against which Bank may continue to pursue the claim evidenced and secured by the mortgage, in those proceedings or elsewhere, as provided by law (emphasis added).

Pursuant to this stipulation, the bank executed an assignment of its note and mortgage to the receiver.¹⁵ The Court of Common Pleas approved the stipulation on June 11, 1979, and ordered the immediate conduct of a sheriff's sale of the Foerderer Tract, which sale was to be jointly conducted by the receiver so that it would be both a sheriff's sale and a receiver's judicial sale.¹⁶

On September 28, 1979, pursuant to a writ of execution which the receiver caused to be issued in enforcement of the bank's judgment, the Sheriff of Montgomery County exposed the Foerderer Tract to public sale. Pursuant to the Court of Common Pleas' June 11, 1979, order, the sale was advertised as a receiver's sale and a sheriff's sale. At this sale, the receiver, as assignee of the bank's judgment, became the successful bidder on a bid of $260,000.00. The sheriff's sale was consummated when the Sheriff of Montgomery County conveyed the property to the receiver by deed dated November 13, 1979, and recorded on December 5, 1979.

Subsequent to the Foerderer Tract's being conveyed to her, the receiver filed a "Petition to Fix Fair Value" in the Court of Common Pleas which sought to have the fair market value of the Foerderer Tract declared to be $3,500,000.00 as of September 28, 1979, the date of the...