In re National Grain Corporation

• Decision Date: 04 January 1926
• Docket Number: No. 131.,131.
• Citation: 9 F.2d 802
• Parties: In re NATIONAL GRAIN CORPORATION. Petition of WILSON.
• Court: U.S. Court of Appeals — Second Circuit

9 F.2d 802 (1926)

In re NATIONAL GRAIN CORPORATION.

Petition of WILSON.

No. 131.

Circuit Court of Appeals, Second Circuit.

January 4, 1926.

I. J. Cohen, of Bridgeport, Conn. (Arthur Frank, of New York City, of counsel), for petitioner.

Slade, Slade & Slade, of New York City (Benjamin Slade, of New York City, of counsel), for respondents.

Before ROGERS, MANTON, and HAND, Circuit Judges.

MANTON, Circuit Judge.

The bankrupt was the owner of real property which was subject to incumbrances of various mortgages. The trustee in bankruptcy petitioned for leave to sell the property free and clear of all incumbrances. The matter was referred to the referee in bankruptcy, who, after due consideration, directed the sale of the property as petitioned. Upon reviewing this determination, the District Judge reversed the order of the referee and denied the petition for the sale. The referee found that the recorded incumbrances of the property consisted of mortgages, interest, taxes and insurance, amounting to $175,328.27. There was of record a $70,000 mortgage, which was placed on the property less than a month before the filing of the petition in bankruptcy. The validity of this mortgage was questioned. It was said to have been given in exchange for a one-half interest in the equity of the property, and the referee found this was given at a time when the corporation was hopelessly insolvent. A mortgage of $10,000 and another of $17,000 are also said "to arouse grave suspicion" as to their validity.

All of the mortgagees resided in Connecticut and appeared at the hearings. Under the Connecticut statute, the trustee in possession would be unable, for want of funds, to redeem under strict foreclosure, even if successful in defending against the three disputed mortgages. The referee ruled that it is not necessary to bring the plenary suit, and that ordering a sale free and clear of liens would not impair the obligations of the contracts of the mortgages, nor take the property of the mortgagees without due process of law, or in violation of their constitutional rights. Mitchell v. Clark, 110 U. S. 633, 4 S. Ct. 170, 312, 28 L. Ed. 279; Canada So. R. Co. v. Gebhard, 109 U. S. 527, 3 S. Ct. 363, 27 L. Ed. 1020; In re Franklin Brewing Co., 249 F. 333, 161 C. C. A. 341. He fixed the appraised value at $149,260, and held that the bankruptcy court had authority to authorize the sale free and clear of the incumbrances held by the various claimants, and that such sale would produce a surplus for the benefit of the estate.

In reversing the referee, the District Judge said: "Upon all the facts in the matter, no pecuniary benefit will accrue to the bankrupt estate if the trustee's petition to sell the property free of incumbrances is granted * * * because it appears that such sale will not be to the advantage of the bankrupt estate." The referee holding that the trustee was in possession, as he was, and that the value of the property exceeded the unquestioned liens, and that the trustee would be unable to redeem if foreclosure was brought in the state court, and therefore that a judgment of strict foreclosure would result in the ultimate loss to the estate, we think it was error for the District Judge to reverse this finding of the referee. In re Franklin Brewing Co., 249 F. 333, 161 C. C. A. 341; Wilson v. Building Ass'n, 232 F. 824, 147 C. C. A. 18; In re Knox Auto Co. (D. C.) 210 F. 569.

The fact that the value of the real property to be sold was less than its recorded mortgages was not decisive, where the validity of some of the incumbrances is questioned. In each instance the determination of the bankruptcy court to sell free of liens depends upon the particular facts. A sale will...