Snow v. Dalton

• Decision Date: 04 February 1913
• Docket Number: 1,095.
• Citation: 203 F. 843
• Parties: SNOW et al. v. DALTON et al. In re EAGLE FURNITURE CO. et al.
• Court: U.S. Court of Appeals — Fourth Circuit

203 F. 843

SNOW et al. v. DALTON et al.

In re EAGLE FURNITURE CO. et al.

No. 1,095.

United States Court of Appeals, Fourth Circuit.

February 4, 1913

E. J Justice, of Greensboro, N.C. (Justice & Broadhurst, of Greensboro, N.C., on the brief), for petitioners.

R. C Strudwick, of Greensboro, N.C. (William P. Bynum, of Greensboro, N.C., on the brief), for respondents.

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

KELLER District Judge.

The first question to be determined arises upon a motion by respondents to dismiss the petition because:

'(1) That it appears upon the face of the said petition, and of the papers and exhibits attached thereto, that the case presented by this petition and record is not a proceeding of said District Court in bankruptcy, which this court is given power and authority to superintend and revise in matter of law, within the true intent and meaning of section 24b of the Bankruptcy Act of July 1, 1898 (30 Stat. 553, c. 541 (U.S. Comp. St. 1901, p. 3432)).

'(2) That it appears upon the face of such petition and record that the case presented thereby is a controversy arising in a bankruptcy proceeding within the true intent and meaning of section 24a of said Bankruptcy Act of July, 1898, and is therefore one which is reviewable by this court only by appeal, and not by petition to superintend and revise.'

While we have given respectful consideration to the contentions of respondents' counsel upon this point, we are not impressed with the appositeness of the citations of authorities in the brief to the facts in this case. It seems to us that the order sought to be reviewed is really nothing more than the allowance to provable debts of the right to participate in the proceeds of certain security, and these debts having been proved in the bankruptcy proceeding proper, and the proceeds of the securities being in the bankruptcy court for administration, the apportionment of this fund is strictly and properly a part of the bankruptcy proceedings, and in no proper sense can be called a 'controversy arising in bankruptcy proceedings.'

We think that the latter phrase, as used in the Bankruptcy Act, must be limited to cases where third parties claim not in and under the administration of the bankrupt's estate in bankruptcy, but, on the contrary, assert some right hostile to the title of the trustee or going to the right of the court to administer the particular estate in the bankruptcy case. The following authorities seem directly in point:

'Where it becomes necessary as incident to a step in bankruptcy, to determine the title or interest of third parties who may be brought in for that purpose, it is not a controversy arising in bankruptcy, but continues to be a proceeding in bankruptcy proper. ' Coder v. Arts, 213 U.S. 223, 29 Sup.Ct. 436, 53 L.Ed. 772, 16 Ann.Cas. 1008; In re McMahon, 147 F. 685, 77 C.C.A. 668; Loveland on Bankruptcy (last Ed.) p. 1454; Morgan v. First Nat. Bank (C.C.A. 4th Cir.) 145 F. 466, 76 C.C.A. 236.

'Such is * * * where a creditor proves his claim asserting a security for his debt, or where, in determining the priority of claims, the validity of a trust deed is drawn in question, the debt not being disputed. ' Loveland, p. 1454, and cases there cited; Coder v. Arts, supra. See, also, Remington, vol. 3, p. 805, and cases there cited.

'An order allowing or denying priority to a security claimed has been reviewed on petition as to matter of law. ' Courier-Journal Job Printing Co. v. Schaeffer-Meyer Brewing Co. (C.C.A. 6 Cir.) 101 F. 699, 41 C.C.A. 614; In re Rouse, Hazard & Co. (C.C.A. 7 Cir.) 91 F. 96, 33 C.C.A. 356; In re Richards (C.C.A. 7 Cir.) 96 F. 935, 37 C.C.A. 634.

And an appeal for this purpose has been dismissed. Gaudette v. Graham (C.C.A. 9 Cir.) 164 F. 311, 90 C.C.A. 243.

In Thompson et al. v. Mauzy, 174 F. 614, 98 C.C.A. 457, this court stated the following conclusions, which we regard as correct and as determinative of the proper classification of the order sought to be reviewed:

'There is a clear distinction between 'controversies arising in bankruptcy proceedings,' as mentioned in section 24a, and the 'proceedings in bankruptcy,' which by section 24b the Circuit Courts of Appeals are given jurisdiction to superintend and revise in matter of law; for the former being generally held to embrace questions between the trustee, representing the bankrupt and his creditors, on the one side, and adverse claimants, on the other, and not directly affecting those administrative orders and judgments ordinarily known as 'proceedings in bankruptcy,' and the latter being confined to those questions arising between the bankrupt and his creditors, which are the very subject of such administrative orders and judgments, from the petition for adjudication to the discharge, and including the intermediate administrative steps and such controversies as arise between parties to the bankruptcy proceedings as are involved in the allowance of claims, fixing their priorities, sales, allowances, and other matters to be disposed of summarily.'

This is the case of a dispute between parties to the bankruptcy proceedings as to their respective rights to participate in the proceeds of an admittedly valid security, and we hold belongs in the category of 'proceedings in bankruptcy.'

Coming, now, to the case on its merits, the material facts appear to be as follows:

The Eagle Furniture Company, a corporation, and the bankrupt in this case, was organized by some gentlemen of High Point N.C., for the manufacture of furniture, some years prior to the transactions hereinafter to be detailed, and appears to have conducted a fairly successful business up to the year 1905, when its property, or a portion thereof, was destroyed by fire. Mr. W. H. Ragan, one of the incorporators, was the active manager of the concern for a time, and was succeeded by his son, Charles Ragan, and according to the testimony in the case Mr. W. H. ragan, after retiring from the active management, was still the adviser of the management on behalf of the directors of the company, of whom he was one. It appears that prior to the year 1907 the company had borrowed money from various sources, and notes, in the name of the company, were made for these loans, and were indorsed by W. H. Ragan individually. In the summer of 1907, according to the undisputed testimony of the petitioners, Mr. Ragan came to his fellow directors, E. A. Snow, J. E. Kirkman, and J. H. Millis, and said to them that he had borrowed a considerable amount of money from the Wachovia Loan & Trust Company, upon which he was sole indorser, and he did not think it was fair and right that he should be indorser alone on these notes, and asked the other directors to jointly indorse these...