In re International Mineral Co.

• Decision Date: 19 April 1915
• Docket Number: 2033.
• Citation: 222 F. 415
• Court: U.S. District Court — District of Connecticut
• Parties: In re INTERNATIONAL MINERAL CO.

222 F. 415

In re INTERNATIONAL MINERAL CO.

No. 2033.

United States District Court, D. Connecticut.

April 19, 1915

[Copyrighted Material Omitted]

Marvin M. Taylor, of Worcester, Mass., for petitioners.

Ralph H. Clark, Arnon A. Alling, and John Q. Tilson, all of New Haven, Conn., for respondents.

THOMAS District Judge.

This is a petition to review an order of the referee in bankruptcy denying the right of Frank W. Cavanaugh and Paul Potter members of the Massachusetts bar, to $7,500 held by the trustee of the International Mineral Company, a bankrupt corporation, in a petition filed by them under subdivision 7 of section 2 of the Bankruptcy Act of July 1, 1898, c. 541 30 Stat. 546 (Comp. St. 1913, Sec. 9586).

The order sought to be reviewed was entered on December 15, 1913, and contemporaneously with the filing of this order the referee filed a written memorandum in the form of a letter to the counsel for Cavanaugh and Potter and the trustee, respectively, setting out the reasons for the order, but made no detailed finding of facts or summary of the evidence. Hence a detailed statement of the facts found by the court is set out at length and is as follows:

This corporation was organized under the laws of the state of Maine, but its affairs and principal business were conducted in this district. On June 15, 1908, it was adjudicated a bankrupt by the District Court for this district, and on July 14, 1908, proceedings were had in which Felix Chillingworth was appointed and qualified as its trustee. Mr. Chillingworth continued to act as trustee until his death in February, 1914, and his successor was thereupon appointed, who accepted said trust and qualified and continued the duties of administering the estate until some time in July, 1914, when he resigned. Thereupon the present trustee was appointed and qualified, and is now such trustee. The funds in controversy are now on deposit in the name of the trustee in an approved depository.

Cavanaugh and Potter, who resided in Worcester, began proceedings of review, and to that end filed this petition; but before the referee had filed any finding, other than the memorandum referred to, he died. His successor, acting under an order of the District Judge, entered upon the stipulation of counsel for the respective parties, thereupon transmitted all of the proceedings had before the referee, including a stenographic report of all the evidence and the documents produced in evidence, or copies thereof. No question is made as to the finality of the referee's order denying the original petition, excepting as it may be reviewed.

The bankrupt corporation, at the time of said adjudication and for a considerable time previously, conducted talc quarries located at Moretown, Vt., and Ticonderoga, N.Y., and in connection with its business owned quarry properties made up of real estate and sundry interests therein and personal property at the places named. Following the adjudication, to wit, on October 12, 1908, Mr. Chillingworth entered into an option contract with one John W. Taylor for the sale of the interest of the bankrupt estate in said properties for a cash payment of $7,500, to be made on or before December 15, 1908. The terms of said option included a conveyance by said trustee, to be approved by the referee and a committee of the creditors, to a corporation which Taylor was to organize, and which, as soon as its organization was completed, was, in consideration of the conveyance to it, to execute a trust mortgage to secure an issue of bonds which were to be held by the New Haven Trust Company-- with the exception of bonds of the par value of $15,000-- to be sold from time to time under certain conditions expressed in said option until a sum should be realized sufficient to satisfy all of the allowed claims presented against the bankrupt. Subsequently this option was extended by the agreement of the parties and expired unexecuted on May 1, 1909.

In the meantime Mr. Taylor had effected the organization of this corporation, the American Quarries Company, under the laws of the state of Maine, with a capital stock of $2,000,000, and after such corporation was completed, on March 24, 1909, Mr. Taylor appeared at a special meeting of the board of directors of the American Quarries Company held at Boston, and stated that he had facilities for acquiring all of said bankrupt estate upon the payment to him or his representatives on or before July 1, 1909, of $8,000, and of $62,000 on or before December 14, 1909, and the issuing and turning over to him of 2,000 fully paid shares of the capital stock of the American Quarries Company and the delivery to him of $350,000 of first mortgage 6 per cent. coupon bonds of said company, secured by a trust mortgage upon the said quarry properties of the bankrupt corporation.

Some six weeks later, on May 4, 1909, Mr. Chillingworth and Mr. Taylor executed an agreement whereby the latter released all right under the option of October 12, 1908, and which had then expired, for the purchase of said bankrupt's estate from Mr. Chillingworth, as trustee, and on said May 4, 1909, with the approval of the referee and the committee of the creditors of the International Mineral Company, Mr. Chillingworth entered into an option agreement with one Guy C. Holliday, who was acting in behalf of Mr. Taylor, for the sale of said property of said bankrupt estate to the American Quarries Company for the sum of $70,000, $500 of which was paid by said Holliday at the time of the execution of said option, and $7,500 of which was to be paid on or before the 1st day of July, 1909, the balance of said purchase price, amounting to $62,000, to be secured by $985,000 worth of bonds of the American Quarries Company, these bonds to be secured by a trust mortgage of said properties deposited with the New Haven Trust Company. One of the terms of the option provided that Mr. Chillingworth was to convey to the American Quarries Company such title only as he might have as trustee to the property described. On June 23, 1909, Cavanaugh and Potter, acting as trustees for certain subscribers to a syndicate agreement of that date, and for the purpose of raising the sum of $7,500 to be furnished Mr. Taylor, and to be paid by the latter to Mr. Chillingworth upon said conditions, entered into an agreement with Mr. Taylor and with the subscribers to the syndicate, pursuant to which the sum of $7,500 subscribed was to be paid to Mr. Chillingworth by Cavanaugh and Potter upon receipt from the American Quarries Company of a binding and valid agreement, guaranteed by Mr. Taylor, for the payment to Cavanaugh and Potter on or before July 1, 1910, for said sum of $7,500, the sum of $15,000, to secure which Cavanaugh and Potter should receive a bill of sale of 5,000 tons of marketable talc then lying in piles at Moretown, Vt., and which was to be sold under certain conditions and the proceeds applied to the payment of the loan made by Cavanaugh and Potter. Mr. Chillingworth had no knowledge of this agreement or these facts until June 21, 1912, when Cavanaugh and Potter filed their petition demanding the turning over to them by Mr. Chillingworth of $7,500.

Contemporaneously with this agreement, Cavanaugh and Potter, as individuals, made another agreement with Mr. Taylor, and of which Mr. Chillingworth was ignorant until June, 1912, pursuant to which Mr. Taylor agreed, among other things, to cause $250,000 of bonds or interim receipts therefor, and $125,000 of the stock of the American Quarries Company, to be issued to Cavanaugh and Potter in order to enable them to better secure the subscribers to said syndicate agreement, Cavanaugh and Potter retaining absolutely for their services $150,000 of the bonds and $7,500 of the stock. A week later, on June 30, 1909, Cavanaugh and Potter, as individuals, made another agreement with Mr. Taylor, whereby the latter agreed that he would cause either Cavanaugh or Potter to be elected as a director of the American Quarries Company, and guaranteed that the salaries of the officers of said American Quarries Company should not exceed certain sums therein specified until Cavanaugh and Potter, as trustees, had been paid $15,000, as specified in the syndicate agreement above referred to. Mr. Chillingworth had no knowledge of either of these agreements until June 21, 1912.

On June 30, 1909, at the request of Mr. Taylor, Mr. Chillingworth went to Boston to receive the sum of $7,500 to be paid under the terms of the option agreement with Holliday, and which had been executed on May 4, 1909. It is clear, from the evidence, that at this time there was a definite understanding and agreement between all of the parties concerned that Mr. Chillingworth's title as trustee to the property of the bankrupt should be conveyed to the American Quarries Company in execution and performance of the option contract of May 4, 1909, entered into between Mr Chillingworth and Mr. Holliday; and it was also known at that time, and for a considerable time prior thereto had been understood by all the parties interested, Mr. Taylor, Mr. Chillingworth, and Mr. Holliday, that Mr. Chillingworth could not give a good title to a certain portion of the real estate in New York by reason of the pendency of a suit brought to foreclose a mortgage thereon, and which was then pending in the Supreme Court of New York. Cavanaugh and Potter as early as September, 1909, had actual knowledge of this defect in title. It was believed, however, by all the parties, that upon appropriate proceedings in the New York courts the cloud upon the title could be removed, and the understanding of Mr. Chillingworth, Mr. Holliday, Mr. Taylor, and the American Quarries Company was definite that Mr. Chillingworth's deed of...