Trinity Portland Cement Co. v. Bass Foundry & Machine Co.

• Decision Date: 08 May 1928
• Docket Number: No. 5047.,5047.
• Citation: 26 F.2d 348
• Parties: TRINITY PORTLAND CEMENT CO. v. BASS FOUNDRY & MACHINE CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

26 F.2d 348 (1928)

TRINITY PORTLAND CEMENT CO. v. BASS FOUNDRY & MACHINE CO. et al.

No. 5047.

Circuit Court of Appeals, Sixth Circuit.

May 8, 1928.

George D. Welles, of Toledo, Ohio, and Jerome C. Fisher, of Cleveland, Ohio (Tracy, Chapman & Welles, of Toledo, Ohio, and Thompson, Hine & Flory, of Cleveland, Ohio, on the brief), for appellant.

E. G. Davies, of Toledo, Ohio, as amicus curiæ.

B. H. Davis, of Cleveland, Ohio (Treadway & Marlatt, of Cleveland, Ohio, on the brief), for appellee Union Trust Co.

Alemon F. Hanson, of Toledo, Ohio, for appellee Merriman.

Leslie Reid, of Lima, Ohio, for appellees Lima Trust Co. and Metropolitan Bank.

Before DENISON, DONAHUE, and MOORMAN, Circuit Judges.

MOORMAN, Circuit Judge.

Upon a creditor's bill receivers were appointed for the East Iron & Machine Company by the District Court. Shortly thereafter receivers' certificates in the sum of $50,000 were issued, under orders of the court, to procure funds to maintain and operate the company's properties. Some sixteen months later plans for refinancing the company were formed by its directors and stockholders, pursuant to which, in March of 1922, they authorized the execution of a trust mortgage on the properties of the company to secure a bond issue of a million dollars. These plans were submitted to the court, and on January 6, 1923, an order was entered approving them and restoring to the company conditionally, as appellee contends, but unconditionally, as appellant contends, at the close of business on January 31, 1923, the properties of the company, not including its notes, accounts receivable, and investments in bonds. The effective date of this order was extended by subsequent orders, and on March 12th the company took possession of the property and began to operate it. The mortgage was executed, but the bonds were not issued until May of 1924. In the early part of 1925 the court ordered the receivers to repossess themselves of the property upon the ground that the terms of the order of restoration had not been complied with. At the same time the property was ordered sold, and a special master was appointed to sell it and to hear and determine claims against the company.

In July of 1925 appellant filed a cross-bill in the proceeding, praying that the bonds issued and outstanding under the mortgage be adjudged a first lien upon the property described in the mortgage. The court decided that the mortgage had never become effective, and that the holders of receivership certificates took precedence over the holders of the bonds in the distribution of the estate. From this order appellant was allowed an appeal upon the severance of its claim from the claims of a number of other creditors similarly situated.

The bonds which are held by appellant and by others whom it represents on this appeal, so far as the record shows, were issued in consideration of assignments to the trustee of prereceivership claims against the company. The question presented to us is whether these bonds are entitled to priority over the receivership certificates in the distribution of the estate. It depends for its solution on the order under which the certificates were issued, as also on the effect to be given the order of January 6, 1923, and the action of the company thereunder.

It is admitted that it is within the power of a court of equity to give a proper receivership indebtedness precedence over unsecured claims. The order authorizing these certificates provided that they should "be in the form and tenor comparable to securities of this character as heretofore approved by this court," and should "be given the priorities customarily accorded to such securities by law." On the face of the certificates, it was stated that they were entitled to the benefits and securities specified in the order, and that, in the event of the sale of the property of the machine company or the property in the hands of the receivers, "this certificate shall be paid in full, with interest at or before the confirmation of any such sale." These provisions are explicit enough in their purpose, we think, to give the certificates a preferential status against unsecured claims.

As respects the effect to be given the action of the company under the order of January 6th, it is to be observed that the order stated that the receivership purposes had been "substantially accomplished"; that the creditors, stockholders, directors, and...