Shafer v. Spruks

• Decision Date: 08 May 1913
• Docket Number: 1699.
• Parties: SHAFER et al. v. SPRUKS.
• Court: U.S. Court of Appeals — Third Circuit

225 F. 480

SHAFER et al. v. SPRUKS.

No. 1699.

United States Court of Appeals, Third Circuit.

May 8, 1913

Samuel B. Price, Cole B. Price, and John H. Price, all of Scranton Pa., for appellant.

George D. Taylor, of Scranton, Pa., for appellee.

Before GRAY, BUFFINGTON, and McPHERSON, Circuit Judges.

BUFFINGTON Circuit Judge.

In the court below David Spruks, receiver of the Lackawanna Dairy Company, an insolvent corporation of West Virginia, brought a bill in equity against H. C. Shafer, trustee, for an issue of bonds under a mortgage given by said company and against the Scranton Savings Bank, a corporation of Pennsylvania, the owner of such bonds. The bill sought to remove a cloud on parcel No. 2 of the insolvent company's real estate, which the bank asserted by reason of an alleged lien thereon of its bonds. The case was referred to a master whose report, holding no such lien existed, was confirmed by the court. Thereupon the bank sued out this appeal.

The facts are not in dispute. On October 8, 1899, the stockholders of the dairy company authorized the company to borrow $20,000 'and that the board of directors of said company be authorized to arrange the details and direct the officers to secure the same by bonds and mortgage upon the property of the said company. ' On the same day the directors resolved:

'That the board of directors authorize the executive committee to have the proper papers drawn and executed for the bonding of the company in the sum of $20,000, and that they also be authorized to secure the mortgage and the bonds for the same amount.'

In pursuance thereof the executive officers executed the $20,000 bonds here involved, which bonds, after reciting that they were secured by the mortgage, made this statement:

'Which mortgage covers all the real estate, machinery, plant, fixtures and equipment of every description now owned or hereafter acquired by the Lackawanna Dairy Company, and all its franchises, rights and privileges.'

The bonds were also indorsed with the certificate of the trustee to whom the mortgage was given to the effect:

'That this bond is one of a series of two hundred bonds of one hundred dollars ($100) each, referred to in the within mentioned mortgage, executed to the undersigned trustee named therein.'

In point of fact the mortgage, whether purposely or by mistake does not now appear, contained no provision covering after-acquired property. These bonds were, on June 9, 1900 used at par by the company in part payment of a loan previously made to it by L. A. Lange, one of its officers. Subsequently Lange, on July 11, 1910, borrowed from the Scranton Savings Bank $7,800, the latter accepting and still holding said bonds as collateral for the loan. Subsequent to the giving of the mortgage, which covered the ground on which the company's dairy was located, the company acquired the adjoining lot of ground, referred to above as parcel No. 2. On the receiver attempting to sell this tract, the savings bank asserted, on such after-acquired property, the lien averred in its bonds to be embodied in its mortgage. Thereupon the receiver filed this bill to remove the cloud of the asserted lien. It will be noticed that the...