In re Maier Brewing Co., 37544-H.
| Decision Date | 03 May 1941 |
| Docket Number | No. 37544-H.,37544-H. |
| Citation | 38 F. Supp. 806 |
| Court | U.S. District Court — Southern District of California |
| Parties | In re MAIER BREWING CO. |
Baldwin Robertson, of Los Angeles, Cal., for debtor.
Musick & Burrell, by Harold H. Streight, all of Los Angeles, Cal., for trustee.
Sherman Anderson, of Los Angeles, Cal., for petitioner Pacific Indemnity Co.
This cause is a corporate reorganization proceeding, commenced through the filing of a creditors' petition on December 4, 1940. Said petition contained the requisite jurisdictional recitals, including allegations to the effect that a proceeding to foreclose a mortgage against the greater portion of the property of the debtor corporation was then pending. On December 28, 1940, the court approved said petition and appointed a trustee, together with a special additional trustee, to take charge of the debtor's estate. On the same day, these trustees qualified and they are now acting as such.
On November 28, 1940, Pacific Indemnity Company, hereinafter referred to as petitioner, commenced an action in the Superior Court of the State of California, in and for the County of Los Angeles, against the within named debtor and others to foreclose a chattel mortgage executed by debtor on December 15, 1938, and also to foreclose a certain lien represented by an assignment executed by debtor on May 22, 1940. This chattel mortgage had been recorded May 13, 1939, and constituted a lien against substantially all of the plant machinery, equipment and office furniture belonging to said debtor, while said assignment constituted a lien against the principal labels and trade-marks used by said debtor in the operation of its business. Concurrently with the giving of said chattel mortgage, said debtor had executed a certain deed of trust, likewise recorded May 13, 1939, whereby it conveyed to a certain trustee for the benefit of petitioner certain real property, including the land and buildings upon which debtor's plant is located, and also certain residential property. The aforementioned chattel mortgage, assignment and deed of trust had been executed to secure one and the same obligation, to-wit, a certain note payable to petitioner in the principal sum of $81,852.08.
This note is, by its terms, payable as to the principal thereof on October 1, 1943, while interest thereon is payable quarterly. Said instrument further provides that should default be made in the payment of any installment of interest when due, the whole sum of principal and interest shall become immediately due at the option of the holder of said note.
In its complaint filed in said foreclosure action, petitioner alleged that said debtor had defaulted in the payment of the installment of interest which became due and payable on September 15, 1940, and that petitioner thereby elected to declare the entire sum of principal and interest immediately due upon said note. While in said complaint it is stated that said debtor had executed the aforementioned chattel mortgage and assignment to secure the payment of said note, no mention is made of the fact that said debtor had also executed the aforementioned trust deed to secure the same note. It is also there alleged that the aforementioned chattel mortgage, a copy of which is attached to said complaint, provides, in part, that if said debtor shall default in the payment of any obligation or indebtedness secured by said mortgage, then petitioner may take possession of the mortgaged property and care for or manage the same and may be entitled to the appointment of a receiver to assist it in performing any of said acts.
In said foreclosure complaint it is further alleged that the chattel mortgage given to petitioner is subject to the prior chattel mortgage in favor of the bank as above mentioned, also—but this is stated only on information and belief—that the personal property described in the chattel mortgage held by petitioner is insufficient security because petitioner holds a second lien thereon, and that the value of the debtor's interest in said mortgaged personal property, because of prior liens hereinafter described thereon in favor of the Bank of America National Trust and Savings Association, is insufficient to secure the payment of the principal and interest due and owing upon the aforementioned note given to petitioner. In addition, it is there alleged that the chattel mortgage given to petitioner provides that all remedies allowed to it under the law and by the terms of said chattel mortgage are cumulative, and may be enforced without reference to time or manner of foreclosure or enforcement of any other security for said indebtedness.
Although the prayer of the complaint in said foreclosure suit contains a request for the appointment of a receiver to take possession of and control over the mortgaged property, no hearing has been held nor has any motion been made for the appointment of a receiver.
The chattel mortgage previously mentioned is junior to two certain chattel mortgages each executed on September 15, 1938, in favor of Bank of America National Trust and Savings Association, hereinafter referred to as the Bank, one of said mortgages being security for the debtor's note in the principal amount of $120,000 payable in installments, and the other being security for the debtor's note in the principal sum of $7,000, both of said prior mortgages having been recorded October 8, 1938. Likewise the aforementioned trust deed is, as to the land and buildings upon which debtor's plant is located, junior to a certain trust deed executed September 15, 1938, in favor of said bank, and given to secure the payment of said $120,000 note, upon which latter note there is still owing approximately $78,000.
In addition to said prior liens held by said bank, there are other prior claims and liens against the properties securing said indebtedness owing to petitioner, said prior claims and liens consisting of taxes amounting to about $18,000, Federal tax liens amounting to approximately $11,500, and also balances totalling about $37,000 owing on personal property covered by conditional sales contracts.
The debtor has filed a return to the order to show cause issued upon the petition of Pacific Indemnity Company, and in its answer has raised several defenses, any one of which, if determined in favor of debtor, would require a denial of said petition.
One of such defenses is in substance that it has cured the default which constituted the sole ground upon which petitioner bases its right to commence and prosecute said foreclosure suit. In support of the latter defense it is alleged in the answer that on December 13, 1940, the debtor tendered to petitioner the sum of $1,296.38, together with a letter informing petitioner that said sum was in payment of the interest due on September 15, 1940, interest on said interest to date, the attorney's fee as provided by Section 2924c of the Civil Code of California, the fee for the filing of said foreclosure suit, service fees, notary's and miscellaneous expenses, and the interest due on December 15, 1940. It is also alleged that petitioner refused said tender upon the sole ground that the amount of money so tendered was insufficient to pay the entire principal and interest, that thereupon the debtor, on the same day, deposited said sum to the credit of petitioner in a certain bank, and that pursuant to the provisions of Section 1500 of the Civil Code of California debtor immediately notified petitioner that said money had been so deposited in said bank with instructions to pay the same to petitioner. It is further alleged that said money still remains on deposit to the credit of petitioner.
Another defense places in issue the contention made by petitioner to the effect that the indebtedness owing by debtor to it is not adequately secured. Upon that issue the debtor asserts that the reasonable market value of the real estate and personal property, on which petitioner claims a lien, greatly exceeds the total of the indebtedness of said debtor to said bank and to petitioner, and that the security claimed by petitioner is more than adequate to repay to it the entire sum that is or could be due it under the terms of said note, trust deed and chattel mortgage.
While at this stage of the litigation it is unnecessary to outline the nature of the other defenses interposed by the debtor, much less to discuss the merits thereof, it should be pointed out that during the oral argument counsel for petitioner conceded that by said Superior Court action petitioner is seeking to foreclose a chattel mortgage against the great bulk of the machinery and equipment necessary to maintain the debtor as an operating enterprise, that is to say, the heart of the machinery and equipment comprising the debtor's brewery plant. In other words, if the mortgaged property were to be sold through such foreclosure, it would be impossible for the debtor to continue in business.
Likewise, it became clear during the oral argument that, while counsel differed as to the legal effect thereof, it could not be disputed that the debtor had undertaken to cure the alleged default in the manner hereinbefore described.
As stated by its counsel, the position of petitioner is that it is entitled to proceed with the prosecution of said foreclosure suit, because the same was filed prior to the commencement of the instant reorganization proceeding and is based upon a lien created more than four months prior to the filing of this proceeding; that by virtue of such priority the state court acquired constructive possession of the mortgaged personal property; that thereby, under the rule of comity, the state court obtained exclusive jurisdiction over said property; and hence, unless and until the latter tribunal shall relinquish its control over said property, this court is powerless to enjoin, for any period, such foreclosure suit, even though the further prosecution thereof...
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