United Sheet & Tin Plate Co. v. Hess

• Decision Date: 18 March 1908
• Docket Number: 1,744.
• Parties: UNITED SHEET & TIN PLATE CO. v. HESS et al.
• Court: U.S. Court of Appeals — Sixth Circuit

159 F. 889

UNITED SHEET & TIN PLATE CO. v. HESS et al.

No. 1,744.

United States Court of Appeals, Sixth Circuit.

March 18, 1908

I. H Taylor, for appellant.

J. F Foster, for appellees.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

LURTON Circuit Judge.

This is an appeal from a decree arising upon a controversy over a lien claimed against the property of the bankrupt by an intervening creditor. The bankrupt is the United Sheet & Tin Plate Company. The intervening creditors are the appellees Henry Hess, Rankin L. Shoemaker, and the executors of Thomas Hackett. These creditors by petition asserted a mortgage lien upon certain property of the bankrupt corporation arising under a mortgage made to secure them by the Tuscora Steel Company, the then owners of the property upon which the lien is now asserted. This property of the Tuscora Steel Company was subsequently conveyed to the bankrupt. The contract of sale, it is claimed, recognized the lien of the debt due to the petitioners, and, among other things, provided that the United Sheet & Tin Plate Company, the bankrupt, should issue bonds secured--

'by a first mortgage on all the properties of the two plants (the Union Sheet & Tin Plate Company, acquired not only the plant of the Tuscora Company, but also the plant of another company known as the Marietta Sheet & Tin Plate Company) taken in by the said company under this agreement and such other properties as it may take in prior to the execution of the said mortgage, the total amount of the said issue to be $250,000. Said mortgage shall be executed to a trust company as trustee, and it shall be incorporated in the terms of the said mortgage that the said trust company shall receive the proceeds of the said bond issue, and pay over to the said company the first proceeds arising from the sale of said bonds, up to the sum of $60,000, to be used as working capital for the plants taken in by the said company. The said trust company shall apply the proceeds of the sale of the remaining bonds, first and ratably to the payment of the preferred claims against the two companies, said preferred indebtedness of the Tuscora Steel Company, amounting to about $31,000, due R. L. Shoemaker, Thos. Hackett, Henry Hess, H. F. strous, and Larkin C. Taylor, and secured by a mortgage of $38,000 to Thos. Hackett and others.'

The mortgage provided for was drawn and submitted to the attorney for petitioners, and as so submitted was approved. As thus submitted and drawn, the petitioners state that it contained the provisions for their protection recited above. It is then averred that afterwards, and without their knowledge or consent, there was added a clause in these words:

'But nothing in this article (referring to an article of the blanket mortgage providing for the satisfaction of the debt due the petitioners) shall prevent said company from using or employing said bonds or any of them as collateral security.'

This mortgage, with this alleged surreptitious addendum, was recorded September 16, 1903. This alteration in the contract and mortgage, it is charged, was not known to the petitioners until they heard of the issuance of the bonds and the use of the bonds as collateral security as follows: To the American Sheet & Tin Plate Company, to the extent of $27,000; to the Guernsey National Bank, of Cambridge, Ohio, $14,000; to the Harbor Bank, of Canton, Ohio, $19,500. Upon learning the situation, petitioners say, they were about to file a petition to restrain the issuance of other bonds and to compel the return of the bonds so already issued. Negotiations were begun with the mortgagor company, which resulted in a certain showing being made to the petitioners in respect to the solvency of the mortgagor, whereby 'they were induced to waive their objections to the violation of the original contract of consolidation by the fraudulent interpolation in said mortgage and the unauthorized issuance and disposition of bonds as aforesaid, and to take bonds of the Union Sheet & Tin Plate Company, secured by said mortgage,' etc. The purpose of this agreement was, confessedly, to protect these appellees as preferred creditors, and that purpose was so declared. It was agreed between the bankrupt and the appellees, among other things, that appellees--

'hold...