Knapp v. Milwaukee Trust Company

• Decision Date: 07 March 1910
• Docket Number: No. 206,206
• Parties: K. K. KNAPP, as Trustee under Certain Deeds of Trust of Standard Telephone & Electric Company, Bankrupt, Appt., v. MILWAUKEE TRUST COMPANY, Trustee of the Estate of Standard Telephone & Electric Company, Bankrupt, Bank of Wisconsin, and Standard Telephone & Electric Company
• Court: U.S. Supreme Court

216 U.S. 545

30 S.Ct. 412

54 L.Ed. 610

K. K. KNAPP, as Trustee under Certain Deeds of Trust of Standard Telephone & Electric Company, Bankrupt, Appt.,

v MILWAUKEE TRUST COMPANY, Trustee of the Estate of Standard Telephone & Electric Company, Bankrupt, Bank of Wisconsin, and Standard Telephone & Electric Company.

No. 206.

Submitted January 10, 1910.

Decided March 7, 1910.

Mr. William Duff Haynie for appellant.

[Argument of Counsel from pages 546-549 intentionally omitted] Messrs. George P. Miller Edward P. Vilas for appellees.

[Argument of Counsel from pages 549-552 intentionally omitted] Mr. Justice Day delivered the opinion of the court:

The Standard Telephone & Electric Company, a Wisconsin corporation, was adjudicated a bankrupt in the district court of the United States for the eastern district of Wisconsin. Under its articles of association it was authorized to carry on the business of selling appliances for telephone purposes and operating telephone exchanges. It had established and was operating a telephone exchange at the village of Sheridan, Wisconsin, and was carrying on the business of manufacturing and selling telephone apparatus in the city of Milwaukee, Wisconsin, where it had a stock in trade and trade fixtures. The trustee in bankruptcy filed a petition to sell all the property of the bankrupt. Appellant Knapp, as trustee of certain mortgagees given by the telephone company, intervened, and asked to have the lien of the mortgage established as the first lien on the property and satisfied out of the proceeds of the sale. The property was sold, and the question is as to the lien of these mortgages upon the fund.

The trustee in bankruptcy answered the petition of Knapp, trustee under the mortgage, averring that it was a chattel mortgage, and fraudulent and void as to creditors, because of certain agreements contained therein, because it was on after-acquired property, and because of the failure to file an affidavit of renewal, as required by the Wisconsin statutes. The referee in bankruptcy found the facts, and held the mortgage void. Upon hearing, the district judge reached a like conclusion. 157 Fed. 106.

The circuit court of appeals of the seventh circuit, upon appeal, affirmed the decree of the district court, holding the mortgage void for the reasons set forth at large in the opinion of the district judge. 89 C. C. A. 467, 162 Fed. 675.

A motion has been filed to dismiss the appeal for want of findings of fact and conclusions of law in the circuit court of appeals, as required by general order in bankruptcy No. 36. Whether or not such a finding of facts was required depends upon the character of the present proceeding. General order in bankruptcy No. 36, authorized under subdivision b of § 25 of the bankruptcy act [30 Stat. at L. 553, chap. 541, U. S. Comp. Stat. 1901, p. 3432], provides for appeals under the act to this court from the circuit court of appeals within thirty days after the judgment or decree, and for the making and filing of a finding of facts and conclusions of law separately stated, and that the record upon such appeal shall consist only of the pleadings, the judgment or decree, the finding of facts, and conclusions of law.

Section 25b provides for appeals from any final decision of a court of appeals allowing or rejecting a claim under the act, under such rules and within such time as may be prescribed by the Supreme Court of the United States. Such appeals are allowed when the amount in controversy exceeds the sum of $2,000, and the question involved might have been taken by appeal or writ of error from the highest court of a state to the Supreme Court of the United States; or where some justice of the Supreme Court of the United States shall certify that, in his opinion, the determination of the question or questions involved in the allowance or rejection of such claim is essential to a uniform construction of the bankruptcy act throughout the United States.

Under authority of subdivision b, § 25, general order No. 36 was adopted, and in the cases enumerated a finding of facts and conclusions of law must be made in the circuit court of appeals, and the appeal taken within thirty days after the entry of the judgment or decree.

The case at bar is not of that class; it is an intervention in a bankruptcy proceeding, and, within the meaning of the act, a controversy arising in a bankruptcy proceeding, and the appellate jurisdiction is the same as in like cases under the court of appeals act. Bankruptcy act, § 24a; Hewit v. Berlin Mach. Works, 194 U. S. 296, 48 L. ed. 986, 24 Sup. Ct. Rep. 690; Coder v. Artz, 213 U. S. 223, 53 L. ed. 772, 29 Sup. Ct. Rep. 436, and cases therein cited.

As the appeal was in the manner provided for in the court of appeals act, no special finding of facts was required under general order No. 36, and the motion to dismiss the appeal must be overruled.

The mortgages in question, which were upon all the property and estate of the mortgagor, acquired or to be acquired, in connection with or in relation to the business of the mortgagor, contain, among others, the following provisions:

'Nothing herein contained shall be construed to prevent said first party from carrying on, in the due and regular course, its said business, and collecting the indebtedness and moneys due or to become due therein, and applying the same to its own use, except as hereinafter provided.'

The mortgage makes provision for a sinking fund of $2,000 annually, $500 quarterly, out of the proceeds of the business, or, if necessary, from the general resources; and the mortgage contains this further provision:

'Said first party further agrees that no dividend shall be declared or paid on its capital stock at any time when any portion of said sinking fund or the interest on said bonds shall not have been duly provided for, according to the terms of this indenture.

'Provided, however, That said trustee be and he is hereby empowered and authorized in his discretion, and in case he does not procure for the sinking fund any of said bonds at par and accrued interest, upon application in writing by said first party to waive the making by said party of full or any payment into or provision for said sinking fund for any quarter year, and in the event of said trustee electing not to require said first party to make such payment into or provision for such sinking fund, the moneys which would otherwise have been placed therein for the purchase of said bonds as aforesaid shall remain at the disposition of said first party, to be divided as dividends, or to enlarge, extend, improve, repair, renew, or rehabilitate its said described business and property.'

It will be seen that under these provisions the mortgagor is allowed to remain in possession of the property, applying the proceeds thereof to his own use, except that no dividends shall be declared or paid without first making provision for the sinking fund and the interest on the bonds, and with this important proviso,—that the trustee under the mortgage may, in his discretion, in case he does not procure for the sinking fund bonds at par and accrued interest, upon the application of the mortgagor, waive the payment into or provision for the sinking fund for any quarter year, and, in such case, the moneys which would otherwise go into the...