In re Wyse

• Decision Date: 25 January 1965
• Docket Number: No. 15642.,15642.
• Citation: 340 F.2d 719
• Parties: In the Matter of Orval WYSE, doing business as Wyse Brothers Turkey Farm, Bankrupt. PIONEER-CAFETERIA FEEDS, LTD., Appellant, v. Willard A. MACK, Trustee in Bankruptcy, Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

340 F.2d 719 (1965)

In the Matter of Orval WYSE, doing business as Wyse Brothers Turkey Farm, Bankrupt.

PIONEER-CAFETERIA FEEDS, LTD., Appellant, v. Willard A. MACK, Trustee in Bankruptcy, Appellee.

No. 15642.

United States Court of Appeals Sixth Circuit.

January 25, 1965.

Milton Boesel, Jr., Toledo, Ohio (Milton C. Boesel, Jr., Toledo, Ohio, on the brief), for appellant.

Robert B. Gosline, Toledo, Ohio (Arthur S. Newcomer, Newcomer & Shaffer, Bryan, Ohio, Shumaker, Loop & Kendrick, Toledo, Ohio, on the brief), for appellee.

Before WEICK, Chief Judge, O'SULLIVAN, Circuit Judge, and PRETTYMAN, Senior Circuit Judge.^*

WEICK, Chief Judge.

This case originated in the bankruptcy proceeding of Orval Wyse, which was pending before the referee in bankruptcy in the District Court for the Northern District of Ohio.

Appellant, Pioneer-Cafeteria Feeds, Ltd., filed an amended proof of claim with the referee alleging that $282,943.47 United States dollars was due it from the bankrupt on a contract of guaranty signed by him. The trustee in bankruptcy filed objections to the allowance of this claim. After hearing, the referee allowed Pioneer's claim as an unsecured claim against the bankrupt's estate in the amount of $87,554.83 United States, but postponed payment of any dividend on it until other unsecured creditors of Wyse had received dividends of 26.43% of their claims, which the referee found was the percentage on its claim that Pioneer had already received out of the assets of the bankrupt's estate.

Pioneer filed a petition for review of the referee's order, which was submitted to the District Court on the certificate of the referee, oral arguments and briefs. The District Court adopted the findings of fact and conclusions of law of the referee and dismissed the petition for review. Pioneer filed a timely motion to amend the findings, which was denied by the District Court. Within thirty days thereafter, Pioneer filed its notice of appeal.

The bankrupt, Orval Wyse, for many years had been engaged in raising turkeys and selling turkey eggs in the general area of northwestern Ohio and neighboring states. Shortly prior to September 5, 1958, he extended his operations to an area near Exeter, Canada, but in partnership with one, Neil D. Campbell. Pioneer sold and delivered feed to this partnership on credit.

Later Wyse and Campbell organized a corporation under Canadian laws, with the name of Northland Turkey Farms, Ltd. (hereinafter called Northland), which took over the assets and business of the partnership. Wyse was its principal shareholder.

Pioneer required Wyse, his wife and Campbell to sign a contract of guaranty before extending credit to the corporation. In the pertinent provisions of the contract, the guarantors agreed to:

"* * * guarantee the due payment and discharge of all liabilities to you Pioneer of Northland Turkey Farms Ltd of Box 84, Exeter, Ontario (herein called the Customer) whether in respect of loans or goods sold on credit or otherwise and whether incurred before or after the date hereof, whether matured or not and whether absolute or contingent, together with any costs and expenses reasonably incurred with respect to any such liabilities or any securities therefor or on account of taxes, wages, insurance or otherwise.

"2. This shall be a continuing guarantee, and shall secure the general balance due or that may be due from time to time and at any time from the Customer to you, notwithstanding any payments from time to time made to you or any settlement of account or any other thing whatsoever.

"3. You shall not be bound to exhaust your recourse against the Customer or other parties or the securities you may hold, nor to value such securities, before requiring payment from the undersigned.

* * * * * *

"5. All debts and liabilities present and future of the Customer to the undersigned are hereby postponed to the liabilities of the Customer to you and all moneys received by the undersigned thereon shall be received as trustee for you and shall be paid over to you."

Subsequent to the signing of the guaranty contract, Pioneer sold feed to Northland on credit. Wyse sold and delivered turkey eggs to Northland on open account.

Wyse filed a voluntary petition in bankruptcy in the District Court on September 30, 1959, and was adjudicated bankrupt. At the time of his bankruptcy, Northland owed Wyse $239,899.98, Canadian dollars, for turkey eggs. This asset was listed in the schedules filed in the Wyse bankruptcy proceeding.

Northland filed its voluntary petition in bankruptcy in the Bankruptcy Court of Ontario, Canada, on November 2, 1959, and was later adjudged bankrupt. Wilmer J. Eicher, Receiver in bankruptcy of Wyse, filed claim in the Northland bankruptcy estate for $239,899.98.

Pioneer filed its claim in the Northland bankruptcy proceeding for $135,203.11 Canadian, and valued security held by it at $100,000. On February 18, 1960, Pioneer filed a new and substituted claim in the Northland bankruptcy proceeding for $142,482.73 Canadian, and valued its security at $64,854.44. The security held by Pioneer was an assignment of the proceeds of sale of 30,406 turkeys belonging to Northland. After prolonged negotiations with Northland's trustee in bankruptcy, Pioneer settled its secured claim for 50%. Pioneer received from Northland's trustee $27,602.06 Canadian as a secured claimant and received a final dividend of $11,923. Canadian on its unsecured claim.

The claim of the Wyse bankruptcy estate against Northland was allowed as an unsecured claim by the Canadian bankruptcy court, in the amount of $239,899.98, on which it was entitled to a dividend of $24,901. Canadian. In a proceeding instituted by Pioneer in the Canadian bankruptcy court to enforce the subordination provisions of the guaranty contract, which was taken to the Supreme Court of Ontario In Bankruptcy, the court ordered that by virtue of the guaranty contract,

"* * * dividends payable by the trustee in bankruptcy of the estate of Northland Turkey Farms, Limited, to the trustee of the estate of Orval Wyse, a bankrupt, shall in the distribution thereof be paid to Pioneer-Cafeteria Feeds in accordance with this declaration, to the extent of the liability of the estate of Northland Turkey Farms Limited in bankruptcy to Pioneer-Cafeteria Feeds Limited."

The Northland trustee, in obedience to this order, paid the dividend of $24,901. on the claim of the Wyse bankruptcy estate to Pioneer. This dividend amounted to 26.43% of Pioneer's claim against the Wyse estate.

On December 17, 1959, Pioneer filed its proof of claim in the Wyse bankruptcy for $149,350.51 Canadian, as a general unsecured claim. On April 17, 1962, Pioneer filed an amended claim for $282,943.47, based on the same allegations as its original claim except it was calculated as of September 30, 1959.

The referee found as a fact that at the time Wyse was adjudicated bankrupt, Pioneer's records disclosed only $2,815.92 Canadian, owing to it from Northland. The referee further found that Pioneer's claim on the guaranty contract was unliquidated and contingent, but could be reduced to a liquidated amount by estimation. He applied on the claim payments made by Northland prior to its bankruptcy and the dividends which Pioneer received from the Northland bankruptcy on its secured and unsecured claims, including the dividend on the Wyse estate's claim. He allowed the claim for the balance in the amount of $87,554.83, but ordered that no dividends be paid on it until Wyse's creditors had received 26.43% of their claims, which was the percentage Pioneer received on its claim against Wyse by reason of the payment to it of the dividend on the Wyse claim in the Canadian bankruptcy of Northland.

Pioneer contends that the judgment of the Supreme Court of Ontario in Bankruptcy, which ordered the dividend on Wyse's claim paid to it in accordance with the subordination provisions of the guaranty contract, was res judicata, and may not be relitigated in the Wyse bankruptcy. It relies on Heiser v. Woodruff, 327 U.S. 726, 66 S.Ct. 853, 90 L.Ed. 970 (1946).

There can be no question but that the Canadian bankruptcy court had exclusive jurisdiction over the administration of the bankrupt Northland's assets in its possession and control. In the distribution of dividends to creditors, it had the right to determine to whom the dividends should be paid.

Pioneer and Wyse were both creditors of Northland. Agreements between creditors providing for subordination or postponement of their claims, have been recognized and enforced in bankruptcy courts. Bird & Sons Sales Corp. v. Tobin, 78 F.2d 371 (C.A. 8, 1935); In Re Aktiebolaget Kreuger & Toll, D.C., 20 F.Supp. 964, aff'd 96 F.2d 768 (C.A. 2, 1938).

It is to be noted, however, that the enforcement of subordination agreements between creditors of the same bankrupt, affects only their rights and does not interfere with or change the rights of other creditors.

In the case at bar, the Canadian bankruptcy court had no jurisdiction over the administration of the assets in the Wyse bankruptcy. The Canadian court did not determine the issue involved here, namely, whether Pioneer's claim should be subordinated on equitable principles, to the claims of other creditors of Wyse. This was not in issue in the Canadian bankruptcy proceeding and could not properly have been raised there, as the District Court had exclusive jurisdiction over the administration of the assets of the Wyse bankruptcy.

In Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939) it was claimed that the bankruptcy court could not examine into a state court judgment and disallow or subordinate it as a claim on the ground of res judicata. Mr. Justice Douglas, who wrote the unanimous opinion of the Court, said in part, at pages 302-303 of 308 U.S., at page 243 of 60 S.Ct.:

"In the first place, res judicata did not prevent the District Court from examining into the Litton

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