Mann v. Peoples First Nat. Bank & Trust Co.

• Decision Date: 04 January 1954
• Docket Number: 6701.,No. 6700,6700
• Citation: 209 F.2d 570
• Parties: MANN v. PEOPLES FIRST NAT. BANK & TRUST CO. SHERWOOD DISTILLING CO. v. PEOPLES FIRST NAT. BANK & TRUST CO.
• Court: U.S. Court of Appeals — Fourth Circuit

209 F.2d 570 (1954)

MANN v. PEOPLES FIRST NAT. BANK & TRUST CO.

SHERWOOD DISTILLING CO. v. PEOPLES FIRST NAT. BANK & TRUST CO.

Nos. 6700, 6701.

United States Court of Appeals Fourth Circuit.

Argued November 13, 1953.

Decided January 4, 1954.

Wilson K. Barnes, Baltimore, Md. (William Hoffenberg, Baltimore, Md., on brief), for appellants.

Richard F. Cleveland, Baltimore, Md. (William A. Fisher, Jr., Baltimore, Md., on brief), for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

PARKER, Chief Judge.

These are appeals in the involuntary bankruptcy proceedings instituted against one Louis Mann and the Sherwood Distilling Company, a corporation in which he is the sole stockholder. An adjudication of bankruptcy has not been had in either of these proceedings; but, while they are still pending, the Peoples First National Bank and Trust Company of Pittsburgh (hereafter called the bank) has filed a petition that it be allowed to sell the Distilling Company stock which Mann had pledged with the bank as security for a loan. From an order granting the leave to sell, 116 F.Supp. 852, both Mann and the company have appealed.

The facts are that Mann is the sole stockholder in the company, owning its entire capital stock of 980 shares. He and the company were sued by the bank on a note secured by a pledge of the stock and certain whiskey certificates, and the right to recover on the note and to hold the stock and whiskey certificates as collateral thereto was put in issue in that case. Judgment was rendered in favor of the bank and against both Mann and the company for the sum of $694,600, and the judgment was affirmed by this court on January 3, 1952. Sherwood Distilling Co. v. Peoples First National Bank & Trust Co., 4 Cir., 193 F.2d 649. Rehearing was denied February 18, 1952. See 4 Cir., 194 F.2d 387. Petitions in involuntary bankruptcy were filed against both Mann and the company on May 22, 1952. In the petitions it was alleged that both Mann and the company were insolvent, that they had made preferential transfers of property while insolvent and had allowed the bank to acquire under its judgment liens upon their property which they had failed to vacate or discharge. On June 4, 1952, Mann and the company filed motions to dismiss the bankruptcy proceedings and on the same date filed answers denying insolvency and pleading other defenses.

On December 5, 1952, the motions to dismiss the proceedings were denied but no action was taken toward hearing the issues raised by the answers. On January 16, 1953, the petitioning creditors filed petition asking that Mann and the company be required to file their books, papers and accounts for inspection and these were duly filed in accordance with order entered on the petition. On February 9, 1953, before these had been filed, the bank filed a petition in the Mann case asking that it be allowed to sell the stock in the company which it held as pledgee, stating that, if it were allowed to do so, it would purchase the stock or cause it to be purchased if this could be done for not more than $25,000 and would then, as sole stockholder of the company, consent for it to be adjudicated a bankrupt or take the necessary steps to have it file a voluntary petition in bankruptcy. The pertinent paragraphs of the petition are as follows:

"7. That Peoples Bank desires to sell the said 980 shares of the stock of Sherwood, at public sale, pursuant to its rights as pledgee, and/or as a judgment creditor of Sherwood and/or Mann, and is advised and believes that it has the right to sell such stock, notwithstanding the pending petitions in bankruptcy in these causes, but Peoples Bank is further advised that it is appropriate to obtain the prior approval of this Honorable Court, in which these bankruptcy causes are pending.

"8. That Peoples Bank believes said 980 shares of stock of Sherwood are of only nominal value, if any, in view of Sherwood\'s financial condition; Peoples Bank represents that it will purchase such stock at such sale, or cause it to be purchased by a nominee, if the same can be purchased at such sale for not more than $25,000, and Peoples Bank further represents that if and when it or its nominee becomes the owner of such stock, it will promptly take or cause to be taken the necessary steps to consent to adjudication by Sherwood in the present proceedings, or to place Sherwood in voluntary bankruptcy, in this Court; and Peoples Bank further represents that the sole reason for such contemplated procedures is to expedite an orderly liquidation of Sherwood\'s assets for the benefit of all of Sherwood\'s creditors as their rights may be determined pursuant to law."

Mann filed answer in which he denied that the shares of stock in the Distilling Company had been pledged to the bank and alleged that the books of the Distilling Company showed that they had a value of $596,614.13, as of April 30, 1952, less than a month prior to the filing of the petition to have the company adjudged bankrupt. The judge below, taking judicial notice of what was at issue in the suit by the bank on the note and collateral, found that the shares of stock had been validly pledged to the bank and granted it authority to sell them as pledgee, holding that the bank had the right to make the sale without obtaining the court's permission and that there was nothing in the purpose for which the sale was desired which would justify the court in refusing to permit it.

We think that the judge below was correct in holding that he could take judicial notice of the proceedings had before him in the prior suit to which Mann and the Distilling Company as well as the bank were parties. Morse v. Lewis, 4 Cir., 54 F.2d 1027, 1029; Fletcher v. Bryan, 4 Cir., 175 F.2d 716; Ellis v. Cates, 4 Cir., 178 F.2d 791, 793. The record in that case, which was before us on appeal, shows that the validity of the pledge of the stock was expressly put in issue by the pleadings, that evidence was taken at length with regard thereto, that the matter was covered by the charge of the court and that the jury's verdict found the issues in favor of plaintiff. The fact that the judgment may not have dealt with the pledged collateral is not conclusive where it is otherwise shown by the record in the case that the matter was at issue and duly passed upon. The parties are not entitled to try over again an issue which has been tried and decided in the prior litigation.

We do not think, however, that the order allowing the sale of the stock by the pledgee can be sustained when it appears that there is a controversy as to the solvency of the corporation upon which the value of the stock necessarily depends, that this controversy has been raised in an involuntary bankruptcy proceeding against the corporation which it is contesting, that this proceeding has been pending in court for more than a year without having been decided, and that the bank has admitted in its petition that its purpose in asking the sale is to have the stock...