In re Waterloo Organ Co.
| Decision Date | 05 June 1907 |
| Docket Number | 254. |
| Citation | 154 F. 657 |
| Parties | In re WATERLOO ORGAN CO. |
| Court | U.S. Court of Appeals — Second Circuit |
Frederick L. Manning, for Zartman, trustee.
Geo. E Zartman, for petitioner.
Hammond & Hammond, for respondent.
Before LACOMBE, TOWNSEND, and COXE, Circuit Judges.
The corporation was adjudicated a bankrupt July 2, 1902. In 1894 the company executed a corporate mortgage or trust deed to the First National Bank of Waterloo to secure an issue of 80 bonds ($500 each). In the year 1899, another mortgage was executed to the same trustee to secure the same bonds. The later mortgage covered real estate and fixtures which the company had acquired after the making of the first mortgage and it also assumed to cover all the personal property of every kind, except choses in action, which the company then owned or might thereafter acquire. It is conceded that two-fifths of the property is subject to the lien of the mortgages. As to three-fifths of the property, which was after acquired, the lien of the mortgages is disputed.
A few days before the filing of the petition in bankruptcy, the bank, as trustee under the mortgages, on default in payment of interest, took possession of all of said property both real and personal, and continued to operate it until the property was sold by the trustee in bankruptcy under an order of the bankruptcy court that it be sold as free and clear of incumbrances, and that the liens of the mortgages should follow the funds realized from such sale. No one seems to question the propriety of this order. It provided, among other things:
'That immediately after said sale the said two-fifths of the entire proceeds thereof shall be distributed by this court in pro rata payments to the holders of the bonds of the said bankrupt which are secured by said mortgages and which shall be established before this court as valid obligations of said bankrupt.'
The order then provided for the retention, pending the controversy as to title thereto, of the other three-fifths of the proceeds by the bank, upon interest at 3 per cent. per annum, which was the same rate which it was then paying upon moneys deposited with it upon certificates of deposit.
As to the three-fifths, the trustee in bankruptcy brought suit in the state court against the bank, trustee under the mortgages. He succeeded at the trial and at the Appellate Division, and the case is now pending on appeal to the Court of Appeals. At the sale, November 25, 1902, the bank bought in the property for $25,800. It held it, carrying on the business and looking for a purchaser until, about June 1, 1903, it sold the entire property to the Vough Piano Company for the same price, $25,800. The piano company was composed, in part at least, of persons interested in the bank. It paid the purchase price to the bank January 20, 1906, but without interest. The questions here presented deal only with questions arising upon distribution of the two-fifths.
After the sale, opportunity was given to the bondholders to establish their bonds before the referee in bankruptcy. Two bonds presented by one Francis Bacon were presented and allowed, but upon for review this court disallowed them. See 134 F. 341, 67 C.C.A. 255. Twenty-one bonds were presented by the Waterloo Bank. They were allowed by the referee and the District Court, and upon petition for review this court affirmed such allowance. See 134 F. 345, 67 C.C.A. 327.
1. It was contended by the trustee in bankruptcy that the referee should not allow the 21 bonds held by the bank unless the bank should deliver to him $10,500 of the notes which the bank produced, made or indorsed by the Waterloo Organ Company. The referee and the district court declined to require the surrender of such notes, upon which the bank is making claim as a general creditor of the bankrupt's estate. This question has already been disposed of here. We found that there...
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In re Waterloo Organ Co.
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