In re Pilot Radio & Tube Corporation

• Decision Date: 14 June 1934
• Docket Number: No. 2894.,2894.
• Citation: 72 F.2d 316
• Parties: In re PILOT RADIO & TUBE CORPORATION. ECKHARDT et al. v. BALL et al.
• Court: U.S. Court of Appeals — First Circuit

72 F.2d 316 (1934)

In re PILOT RADIO & TUBE CORPORATION ECKHARDT et al. v. BALL et al.

No. 2894.

Circuit Court of Appeals, First Circuit.

June 14, 1934.

Frank H. Pardee, of Boston, Mass., for appellants.

Charles B. Rugg, of Boston, Mass., James H. Eaton, of Lawrence, Mass., and Ellsworth E. Clark and Ropes, Gray, Boyden & Perkins, all of Boston, Mass., for appellees.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

WILSON, Circuit Judge.

This is an appeal from a decree of the District Court of Massachusetts under section 24 of the Bankruptcy Act (11 USCA § 47) and General Orders in Bankruptcy No. 36, as amended by order of the Supreme Court made April 17, 1933 (11 USCA § 53).

The appellants are trustees in bankruptcy of the Pilot Radio & Tube Corporation, which was adjudged a bankrupt June 1, 1933. The appellees were grantees or vendees named in a trust mortgage of personal property by the bankrupt under its corporate seal and under date of August 11, 1932, by which mortgage certain personal property of the bankrupt was conveyed to the appellees to hold in trust and conditioned upon the performance of all the duties required of the bankrupt by the terms of an agreement of even date with said conveyance, and in case of default the mortgagees were empowered under the terms of the mortgage to enter the premises of the mortgagor and take possession of the mortgaged chattels and sell the same at public auction, and out of the proceeds of such sale discharge the obligations of the mortgagor under the agreement and pay any balance to the mortgagor.

The agreement referred to in the instrument of conveyance stated the obligations of the bankrupt, which is therein referred to as the corporation, as follows:

"Whereas the corporation is now indebted to the Bay State National Bank of Lawrence, a corporation, duly organized and having its usual place of business in said Lawrence, on account of its notes held by said bank.

"And whereas it desires that said bank refrain from pressing it for immediate payment of said notes when the same next fall due,

"And whereas said bank is presently willing to refrain from making demand for payment of said notes when they next fall due and it is presently willing to extend the time for payment of the same by permitting the renewal of said notes, provided that said bank be given some added measure of collateral and protection;

"And whereas the corporation is desirous of obtaining a loan of fifty thousand dollars ($50,000) from the Essex Savings Bank, a banking corporation, having its usual place of business in said Lawrence;

"And whereas said Essex Savings Bank is willing to lend the corporation said sum of fifty thousand dollars ($50,000) provided that it shall receive the corporation's note in that sum, secured by a mortgage of all the corporation's real estate in said Lawrence (said mortgage to be subject to a prior mortgage on said real estate which was given by Lawrence Factories, Inc. to said Essex Savings Bank under date of January 3rd, 1930, * * *) and also provided that said Essex Savings Bank shall receive some added measure of collateral or protection;

"And whereas to these ends the said banks and the said corporation are agreed that a mortgage of all the corporation's tangible personal property situated in said Lawrence shall be executed as such added measure of collateral or protection;

"And whereas said banks and said corporation both desire that said mortgage shall run to private individuals as trustees for said banks, said Richard Ward, said J. Rodney Ball and said James H. Eaton have been selected to serve as said trustees and such chattel mortgage is being executed by the corporation to said trustees simultaneously with the execution of this agreement, it is hereby mutually agreed as follows:

"Said Trustees shall hold said chattel mortgage for so long a period of time as said corporation shall continue to be indebted to the said Bay State National Bank, and for so long a time as said corporation shall continue to owe said Essex Savings Bank any part of the said fifty thousand dollar ($50,000) loan this day made by said Essex Savings Bank to said corporation; but when said corporation shall cease to be indebted to the said Bay State National Bank and shall have paid off said fifty thousand dollar ($50,000) loan to said Essex Savings Bank and be entitled to a discharge of its mortgage of real estate which it has this day executed to said Essex Savings Bank, then the Trustees shall promptly execute and deliver to the corporation a discharge of said chattel mortgage. If said corporation shall, however, default on any payment of interest when due to either of said banks or if it shall fail to make any payment of principal on account of its obligation to either of said banks when either of said banks shall demand such principal payment, or if said corporation shall fail to perform any of the conditions mentioned in said chattel mortgage, then the Trustees shall be authorized to take such action as is permitted by said chattel mortgage, including the right to foreclose the same, and they shall thereafter divide the proceeds of such foreclosure sale between said banks in such proportion as the said two banks may then agree upon.

"And the corporation promises the Trustees that it will pay said banks as demanded all sums which it may owe said banks, that in the meantime it will promptly pay all interest charges thereon and will faithfully and punctually do and perform all of the terms, covenants and conditions contained in said real estate mortgage of even date and in said chattel mortgage to be done and performed by the mortgagor, that it will promptly pay to said Trustees whatever expenses said Trustees may be put to on account of these premises, together with a reasonable compensation for the service rendered by said Trustees."

The trust mortgage was recorded in the office of the city clerk of the city of Lawrence within fifteen days of its execution as required in section 1 of chapter 255 of the General Laws of Massachusetts (Ter. Ed.), but the agreement referred, to therein and above set forth was not recorded with the mortgage.

Following the adjudication in bankruptcy, the bankruptcy court having ordered the trustees to sell at public auction all the tangible personal property of the bankrupt, the appellees filed a petition with the referee in bankruptcy to determine whether by their mortgage of said chattels they had a lien on the proceeds of the sale of said chattels by the trustees in bankruptcy, the petitioners having entered into a stipulation with the trustees in bankruptcy that whatever lien the appellees had on the personal property of the bankrupt by virtue of the trust mortgage above referred to should attach to the funds received from the public sale of the same.

Upon a hearing before the referee, the referee held: First, there was no consideration given by the mortgagee to the mortgagor for the mortgage; second, that the Essex Savings Bank did advance $50,000, and that the mortgage given to the appellees as trustees was given as additional security for the loan by the Essex Savings Bank, but that no consideration was given for the mortgage by the Bay State National Bank and no trust relationship existed between the Bay State National Bank and the mortgagees; and, third, that the mortgage was not recorded as required by chapter 255, § 1, of the General Laws of Massachusetts and was therefore void as to the trustees in bankruptcy.

The District Court, however, upon the report of the referee setting forth the above facts, reversed the order of the referee and held that the mortgage to the appellees being under seal, it was not open to the trustees in bankruptcy to raise the issue of lack of consideration. In any event, the trustees named in the mortgage assumed certain obligations that were not only for the benefit of the cestuis, but for the benefit of the bankrupt. We think the referee erred in holding that the conveyance was without consideration. Kaplan v. Suher, 254 Mass. 180, 150 N. E. 9, 42 A. L. R. 1142; Rogers v. Abbott et al., 128 Mass. 102.

It is also urged that the banks were not parties to the agreement and that it does not appear that they had any knowledge that the conveyance was made for their benefit. If that knowledge was essential to the validity of the conveyance in trust for their benefit, the...