In re Franklin Brewing Co.

• Citation: 249 F. 333
• Decision Date: 29 January 1918
• Docket Number: 101.,68
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Parties: In re FRANKLIN BREWING CO. Petitions of PEOPLE'S TRUST CO.

249 F. 333

In re FRANKLIN BREWING CO. Petitions of PEOPLE'S TRUST CO.

Nos. 68, 101.

United States Court of Appeals, Second Circuit.

January 29, 1918

The first order directed certain property of the bankrupt to be sold free and clear of the lien of a mortgage; the second confirmed a sale (pursuant to the first order) of the mortgaged personalty, separated and sundered from the realty the attempted sale of which was set aside. The bankrupt corporation had made a mortgage to a trustee, creating a lien upon existing and after-acquired property, which property taking realty and personalty together, constituted a brewery. The mortgage secured a considerable issue of bonds, and contained provisions specifically authorizing holders to bid on their bonds at any foreclosure sale. When bankruptcy arose, there had been no foreclosure, nor was any suit pending therefor, the mortgaged property came into the physical possession of the receiver and (afterwards) the trustees in bankruptcy, and so remained when the orders complained of were made.

The designed effect of the lower court's procedure was to prevent foreclosure, or the use of bonds in bidding in the manner provided in the mortgage. Bondholders were offered the right to use their bonds up to a large percentage of any bid subject to subsequent ascertainment of their validity. This they declined. Before any order made, the trustee in bankruptcy had instituted plenary suit, alleging the invalidity of the mortgage, and of all the bonds issued thereunder, praying that their nullity be decreed and the mortgaged property declared part of the estate in bankruptcy freed of the mortgaged lien. The sale produced, as was probably expected, much less than the face of the mortgage bond. The trustee under the mortgage took these petitions.

Henry F. Cochrane, of Brooklyn, N.Y., for petitioner.

Samuel E. Maires, of Brooklyn, N.Y., for trustee in bankruptcy.

Before WARD, ROGERS, and HOUGH, Circuit Judges.

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

The questions raised as to the order for sale free and clear are suggested by the fact that when order made there was no reasonable likelihood that the mortgaged property would produce, or nearly so, the amount of a lien whose validity and existence was denied. It is said that such an order was unlawful.

We have recognized the power of the court sitting in bankruptcy to sell free and clear of liens, and transfer the same to the proceeds of sale (Re Kohl-Hepp Brick Co., 176 F. 340, 100 C.C.A. 260; Re Haywood Wagon Co., 219 F. 655, 135 C.C.A. 391), agreeing with earlier considerations of the same question in the First Circuit (Re Union Trust Co., 122 F. 937, 59 C.C.A. 461; Re Shoe & Leather Reporter, 129 F. 588, 64 C.C.A. 156). It is good practice, and the usual procedure in this circuit, not to order such sales unless there is a fair prospect that the proceeds will at least discharge the lien. Cf. Re Fayetteville Wagon, etc., Co. (D.C.) 197 F. 180; Re Saxton Furnace Co. (D.C.) 136 F. 697; Re Pittelkow (D.C.) 92 F. 901; and (under an earlier Act) Re Taliaferro, Fed. Cas. No. 13,736.

The reason, or one very good reason, for this forbearance, is that, unless more is produced by sale than the lien debt there is...