Morgan v. First Nat. Bank

• Decision Date: 01 May 1906
• Docket Number: 616,642.
• Citation: 145 F. 466
• Parties: MORGAN et al. v. FIRST NAT. BANK OF MANNINGTON et al.
• Court: U.S. Court of Appeals — Fourth Circuit

145 F. 466

MORGAN et al. v. FIRST NAT. BANK OF MANNINGTON et al.

Nos. 616, 642.

United States Court of Appeals, Fourth Circuit.

May 1, 1906

Scott C. Lowe, for appellants.

C. A Snodgrass, for appellees.

On the 16th day of May, 1903, five gentlemen of the town of Cameron W. Va., consisting of A. E. Fox and others, as parties of the first part, entered into an agreement with the Mannington Realty Co., party of the second part, and the First National Bank of Mannington, W. Va., and others, parties of the third part, to construct, build, and equip a pottery plant. Said Fox and others were to construct the plant, the said Mannington Realty Company to donate and convey on or before the 26th day of May, 1903, three acres of land to said Fox and others, promoters, and the First National Bank of Mannington and others, parties of the third part, were to furnish the money. The contract provided that the deed for the three acres of land should be made to A. E. Fox and others, the parties of the first part, and upon the charter and organization of the pottery company said Fox and others were to convey said land to the pottery company. The said Fox and others, parties of the first part, were to execute to the said parties of the third part their interest-bearing gold bonds, to become due on the 1st day of January, 1904, and to be dated and delivered to the parties of the third part as money was needed in the construction and equipment of the plant; and the agreement further provided that the said bonds so executed should be taken up and canceled, and the stock or gold bonds of the pottery company, or both such stock and bonds, to be secured by deed of trust upon the whole property, should be substituted, and the said parties of the first part released from all responsibility for their said notes. Most of the provisions of said agreement were carried out. The deed to Fox and others, however, was not made, and said Fox and others waived this requirement; and, some months after the same was to have been executed, directed that the Mannington Realty Company make the conveyance direct to the Augusta Pottery Company, which was done on the 29th day of December, 1903, and recorded on the 15th day of January 1904. The plant was built and equipped during the summer and fall of 1903 in the name of the Augusta Pottery Company; the company having been incorporated in that name by the said Fox and others shortly after the contract was entered into of the 16th day of may, 1903, and pursuant to said agreement. The deed to the land was not made and recorded until the dates above mentioned, and the said contract was kept in the possession of the parties in interest, was not known of, and never put to record until it was incorporated in the deed from the Mannington Realty Company of the 29th day of December, 1903, and admitted to record on the 15th day of January, 1904, eight days after the deed of trust had been executed and recorded by the said Augusta Pottery Company, as contemplated in the said agreement, mortgaging its property to cover its bonded indebtedness. The mortgage bore the date of the 1st of January, 1904, and was recorded on the 7th day of the same month, was executed pursuant to a resolution passed at a meeting of the board of directors and of the stockholders of said Augusta Pottery Company held on the 16th day of November, 1903, and secured a bond issue of $45,000. During the construction of the plant, the parties of the third part to said agreement, being the appellees in this appeal, from time to time advanced money, according to the terms of the contract of the 16th day of May, 1903, to the said A. E. Fox and others, and accepted the notes of said Fox and others for the amount of their advances, as aforesaid, and as was contemplated by said agreement; and after the execution of the mortgage aforesaid, all of said notes of said Fox and others were duly taken up by said Augusta Pottery Company, and the bonds of said company so secured regularly substituted in their place, and the said pottery company assumed the interest-bearing gold bonds of said Fox and others to the banks and others, the parties of the third part to the said contract furnishing the money, all of which was done long after the money was furnished under said contract, and used in the construction and equipment of the said plant, and within four months of the time of the inauguration of the involuntary bankruptcy proceedings herein on the 23d day of April, 1904. The said plant was duly constructed and equipped in the name of the Augusta Pottery Company, and the said company contracted debts at various times, for some of which the creditors were entitled to mechanics' liens under the laws of the state of West Virginia, and upon the recordation of the mortgage aforesaid and the title deeds to the property, and within the time provided by the statutes of West Virginia, filed their mechanics' liens, claiming a lien upon the property of the said pottery company prior to said bonded indebtedness. These debts amounted in the aggregate to some $12,000, of which $6,025.22 was covered by mechanics' liens. The unsecured creditors having filed their involuntary petition in bankruptcy against the pottery company, the same was regularly adjudged bankrupt, and pending such proceedings the said real estate and plant was sold, from which was realized the sum of $38,000. The case was duly referred to the referee, who decided that out of the $38,000 should first be paid the costs of sale, certain unpaid taxes, and costs of the bankruptcy proceedings; second, two labor claims, aggregating $66.01; and, third, the mechanics' liens aforesaid; and that the amount remaining, of $29,297.73, should be distributed pro rata between the unsecured creditors and the bonded indebtedness of $45,000, on the basis of 61.68 per cent.; the referee's conclusion being that said mortgage was avoided by reason of the bankruptcy proceedings, it having been executed to secure payment of an antecedent debt. From this decision of the referee an appeal was taken by the holders of the mortgage bonds, the appellees herein, to the United States District Court, and that court reversed the action of the referee in as far as he held that the mortgage given by the bankrupt company was avoided by the bankruptcy proceedings, and that the mechanics' lien took precedence over such mortgage indebtedness, and placed the unsecured creditors upon a footing with the mortgage bondholders. From this decision the supply lien creditors, the bankrupt's trustee, and certain of the unsecured creditors appealed to this court. After the appeal was taken, a motion was regularly made to dismiss the same, because an appeal was not the proper method of presenting the questions involved in this court, and thereupon the appellants regularly filed their petition for review, and presented the same record, which is case No. 642, the number of the case on appeal being 616.

Before PRITCHARD, Circuit Judge, and WADDILL and KELLER, District Judges.

WADDILL District Judge, after stating the facts as above, .

We are first called upon to determine whether this court can afford the relief sought, either by appeal or on motion for review under the bankruptcy act; and, if so, which is the appropriate proceeding. Just when one or other of the remedies referred to is applicable may be said to be not free from doubt under the existing bankruptcy act, and as to which there has been much diversity of view by the different courts. But, so far as the questions arising in this case are concerned, it does not seem to the court that there is room for serious controversy as to which is the proper remedy to be adopted, and we shall not therefore enter into any general discussion thereof, or attempt to harmonize the apparently conflicting views of the courts on the subject. The question here is one arising in bankruptcy proceedings; that is, in the administration of the estate in bankruptcy, as distinguished from a controversy at law or in equity arising in the course of bankruptcy proceedings, such as is clearly contemplated by sections 23 and 24 of the bankruptcy act of July 1, 1898, c. 541, 30 Stat. 552, 553 (U.S. Comp. St. 1901, p. 3431). Denver Nat. Bank v. Klug, 186 U.S. 202, 205, 22 Sup.Ct. 899, 46 L.Ed. 1127;

In re Friend, 134 F. 778, 67 C.C.A. 500. The debt is not disputed, and the point sought to be reviewed is one of law arising upon the determination of the validity of a trust deed executed by the bankrupt company within four months of the institution of the bankruptcy proceedings, and hence belongs clearly to the class of cases made subject to review by this court under its general power to 'superintend and revise in matter of law the proceedings of the several inferior courts of bankruptcy. ' Bankr. Act July 1, 1898, c. 541, 30 Stat. 553, Sec. 24b (U.S. Comp. St. 1901, p. 3432). This view has been taken by the Circuit Courts of Appeals of several of the circuits, notably, in the First, Sixth, and Seventh. In re Rouse, Hazard & Co., 91 F. 96, 33 C.C.A. 356; In re Richards, 96 F. 935, 37 C.C.A. 634;...