Rubenstein v. Nourse

• Decision Date: 16 April 1934
• Docket Number: No. 9717.,9717.
• Citation: 70 F.2d 482
• Parties: RUBENSTEIN v. NOURSE.
• Court: U.S. Court of Appeals — Eighth Circuit

70 F.2d 482 (1934)

RUBENSTEIN v. NOURSE.

No. 9717.

Circuit Court of Appeals, Eighth Circuit.

April 16, 1934.

Irl B. Rosenblum, of St. Louis, Mo. (Louis Mayer, of St. Louis, Mo., on the brief), for appellant.

R. R. Brewster, of Kansas City, Mo. (R. R. Brewster, Jr., of Kansas City, Mo., on the brief), for appellee.

Before GARDNER, SANBORN, and VAN VALKENBURGH, Circuit Judges.

GARDNER, Circuit Judge.

This is an appeal from an order of the lower court approving and confirming an order of the referee in bankruptcy with reference to the allowance of a claim filed by appellant based on two promissory notes as follows:

(1) Promissory note for $15,153.60 dated October 15, 1930, executed by the Arrow Pipe Line Company, payable to the order of the United Construction & Engineering Company one year after date, with interest at 7 per cent. per annum from date, payable at "the office of the * * * St. Louis, Mo." The note was indorsed by the United Construction & Engineering Company and by the General Utilities Company, and was given as the purchase price of certain pipe. Before the maturity of the note, it was purchased by appellant for value and in the due course of business. The note contained provision that if it should be placed in the hands of an attorney for collection, there should be paid as attorney fees the sum of 10 per cent. of the balance, including interest due on the note. The note was secured by a mortgage on certain pipe which had been delivered f. o. b. cars Council Grove, Kan., and Helmick, Kan., freight prepaid, a certain right of way for the laying of pipe line in Morris county, Kan., and "all appurtenances or equipment attached to or which may hereafter be attached to or become a part of said pipe line, and also any and all additions, improvements and substitutions." This mortgage, executed by the Arrow Pipe Line Company, bore even date with the note, and was executed by the president and secretary of said Company. Thereafter, and on November 8, 1930, this mortgage was acknowledged by the president of the Arrow Pipe Line Company in Jackson county, Mo. The certificate of acknowledgment recites that the Arrow Pipe Line Company is "a corporation organized and existing under the laws of the State of Delaware." The mortgage was placed of record in Morris county, Kan., on December 15, 1930.

(2) Promissory note for $9,832.50, dated April 9, 1931, executed and delivered by the Arrow Oil & Gas Company, payable on demand to the order of the United Construction & Engineering Company, with interest from date at 7 per cent. per annum prior to maturity, and at 8 per cent. after maturity. This note contained provision that if it should not be paid at maturity, and should be placed in the hands of an attorney for collection, the maker promised to pay as attorney fees for collection, 10 per cent. additional on the full amount due thereon. The note was indorsed by the payee, the United Construction & Engineering Company, and by the General Utilities Company, bankrupt herein. This note had attached thereto a pledge or collateral security agreement executed as a part of the note, which agreement recited: "As collateral security for the payment of the above note and for the payment of any other liability and demands of any kind of the holder hereof now existing or which may hereafter arise, whether created directly or acquired by assignment, whether absolute or contingent, the undersigned does hereby assign, pledge and deliver the following property: Oil and gas leases as per schedule attached."

The oil and gas leases described in the schedule attached to the note were, with the pledge agreement, duly delivered to the pledgee. This note, before its maturity, was acquired by the appellant for value and in the due course of business.

Both notes were, subsequent to their maturity, and before the indorser, General Utilities Company, went into bankruptcy, placed in the hands of an attorney in the city of St. Louis, Mo., for collection.

In the course of the bankruptcy proceedings, a sale of the property of the bankrupt, including the property subject to the mortgage securing note No. 1, was made, free and clear of liens, for an amount in excess of the total lien claims.

The referee held that appellant was entitled to a secured claim as to note No. 1, in the amount of the claim and interest, but was not entitled to the attorney fees of 10 per cent., and further that there should be assessed and charged against claimant a proportionate share of the cost and expense of the administration of said bankrupt estate in the sum of $2,601.70; and as to note No. 2, the referee allowed the full amount of the claim as to principal, interest, and 10 per cent. attorney fees thereon, but denied the allowance of this claim as a secured claim. The lower court on petition for review affirmed the order of the referee.

Under a statute of Kansas, a provision for attorney fees in a note or mortgage is void. Rev. St. Kan. 1923, 67 — 312. Under the laws of Missouri, on the other hand, such a provision is valid and enforceable. American Savings Bank v. Sutton (Mo. App.) 204 S. W. 572.

The referee was of the view that note No. 1 was a Kansas contract, and hence, claimant was not entitled to include in his claim on this note the amount of stipulated attorney fees, while appellant contends that this note was a Missouri contract, and, hence, the provision for attorney fees was valid. The maker of the note is a Delaware corporation, and it is recited in the mortgage that it is authorized "to transact business in the State of Kansas, with its chief or principal office in the City of Herington, in the State of Kansas." The mortgage also recites that the mortgagee, United Construction & Engineering Company, is a Delaware corporation, authorized "to transact business in the State of Kansas, with its chief or principal office in Herington, Kansas." The note bears no evidence on its face as to where it was executed, but is "payable at the office of the * * *, St. Louis, Mo." There is no evidence as to where the note was actually executed and delivered. The mortgage securing the note was on certain pipe, a certain right of way in Morris county, Kan., definitely described in the mortgage, and "all appurtenances or equipment attached to or which may hereafter be attached to or become a part of said pipe line, etc."

It is clear that the property on which a lien was created by this mortgage was situate in Kansas. The mortgage was recorded in Kansas. It is, therefore, necessary first to determine to what extent this note and mortgage created a lien on this Kansas property. As has been observed, under the Kansas statute the provision for payment of attorney fees was void. The Supreme Court of Kansas, in Young v. Nave, 135 Kan. 23, 10 P.(2d) 23, has held that such a provision in a note is contrary to the public policy of Kansas, and will not be enforced by the courts of that state, even where the contract is conceded to be the contract of another state and there valid. Appellant, therefore, acquired no lien on the Kansas property for the amount of the attorney fees. When the property was sold clear of liens, the lien which appellant had on the property attached to the proceeds. The bankruptcy court sitting in Missouri had jurisdiction to order a sale of the Kansas property (Isaacs v. Hobbs Tie & Timber Co., 282 U. S. 734, 51 S. Ct. 270, 75 L. Ed. 645), and on the consummation of the sale the lien was transferred to the proceeds which became substituted for the property, and subject to the same lien as existed against it. Van Huffel v. Harkelrode, 284 U. S. 225, 52 S. Ct. 115, 76 L. Ed. 256; In re Rochford (C. C. A. 8) 124 F. 182; In re Kohl-Hepp Brick Co. (C. C. A. 2) 176 F. 340; Fierman v. Seward Natl. Bank (C. C. A. 2) 37 F.(2d) 11. The bankruptcy court in exercising its jurisdiction to sell the mortgaged property located in another state, free from liens, substituted its procedure for the procedure that otherwise might have been available to the lienholder. Substantive rights of the lienholder were neither curtailed nor enlarged. In re Zehner (D. C.) 193 F. 787; In re Jersey Island...