Wheeling Structural Steel Co. v. Moss

• Decision Date: 02 December 1932
• Docket Number: 3390.,No. 3300,3300
• Citation: 62 F.2d 37
• Parties: WHEELING STRUCTURAL STEEL CO. v. MOSS (two cases).
• Court: U.S. Court of Appeals — Fourth Circuit

62 F.2d 37 (1932)

WHEELING STRUCTURAL STEEL CO. v. MOSS (two cases).

Nos. 3300, 3390.

Circuit Court of Appeals, Fourth Circuit.

December 2, 1932.

Wright Hugus, of Wheeling, W. Va., for appellant.

Robert Burnett, of St. Louis, Mo. (Henry H. Stern, of Jefferson City, Mo., and B. L. Liberman, of St. Louis, Mo., on the brief), for appellee.

Before NORTHCOTT and SOPER, Circuit Judges, and CHESNUT, District Judge.

SOPER, Circuit Judge.

Wheeling Structural Steel Company, a corporation of West Virginia, filed a petition in the District Court in the bankruptcy proceedings of Joel E. Moss, a citizen of that state, praying that an order be entered directing the trustee in bankruptcy to pay to it a balance of cash amounting to $8,000 remaining in his hands after payment of all the debts of the estate and costs of the proceeding. Shortly thereafter, the bankrupt filed a petition praying that the trustee be ordered to pay the aforesaid surplus to him. The trustee, having been notified of these conflicting claims, had already prayed the court in his report of receipts and disbursements to hear the evidence and decide the controversy between the petitioners, and the case proceeded between them as if it were an interpleader in equity. The referee, after hearing, ordered that the petition of the steel company be denied, and that the trustee pay the surplus in his hands to Moss. The District Judge, upon review, approved the order of the referee, and the steel company appealed, proceeding under section 24b, by petition in this court, and also under section 25a of the National Bankruptcy Act (11 U. S. C. §§ 47 (b), 48 (a), 11 USCA §§ 47 (b), 48 (a).

Moss had formerly been the president and general manager of the steel company and by reason of certain actions on his part, which apparently included a defalcation, the corporation became his largest creditor. He filed a voluntary petition in bankruptcy, listing debts of $286,148.16, exclusive of the debt due the corporation, and assets, real and personal, valued at $569,643.67, and was duly adjudicated a bankrupt by decree of the court. Prior thereto, the steel company had asserted a claim against him in the amount of $550,000. Subsequent to the adjudication in bankruptcy, negotiations between representatives of the company and representatives of the bankrupt were undertaken, and a settlement of the amount of the claim was arrived at and two memoranda of agreement were drafted. The execution of these agreements and the interpretation placed upon them by the steel company are not conceded by Moss, but for the purposes of this case, we shall assume, without deciding, that the company's position outlined in the following recital is well founded:

It was agreed by the parties in the first memorandum that Moss should get certain scheduled assets, including $10,000 in cash, valued in all at $130,922; and that the corporation should pay certain claims, including notes in the sum of $65,200 held by the banks, retaining the collateral deposited therewith, and should give up certain claims against the bankrupt, including the claim of defalcation, and should get all the other assets scheduled, including $34,000 in cash. The bankrupt agreed to pay all other indebtedness and the costs of the bankruptcy proceeding. In order to carry the arrangement into effect (spoken of in the second memorandum as a composition to be submitted to the District Court for approval), it was provided that the trustee should make prompt sale of all the assets, and that the steel company should become the purchaser at a price sufficient to pay in cash all of the creditors, including itself, in full; and that the steel company should retain as its own all of the assets except those allotted under the agreements to Moss, and that the latter should be held by the steel company until the period allowed by the statute for the filing of claims in bankruptcy should have expired, with power, however, to sell any part of them to reimburse itself for any amounts it might have advanced to the trustee to pay scheduled creditors and costs, if Moss should not pay these amounts within thirty days after the expiration of the period.

The trustee petitioned the court for an order of sale, and the court ordered a public sale of all of the saleable assets, with the provision that any creditor who should become the successful bidder might use his claim as part of the purchase price provided there should be sufficient cash in the trustee's hands to pay all the creditors in full, and the costs of the proceeding. In pursuance of this order, the property was sold at auction to the steel company for $377,357.52; and the trustee reported the sale to the court, and it was duly confirmed. In the meantime, the steel company had filed its claim with the referee amounting to $366,357.77, and it had been allowed. This claim was used in accordance with the order of sale as part of the purchase price, and the balance, amounting to $10,999.75, was paid in cash to the trustee. All of the creditors were paid in full and also all of the costs of the proceeding, and there now remains in the hands of the trustee the sum of approximately $8,000.

After the settlement had been made between the steel company and the bankrupt, the District Judge and the referee were informed by counsel that an agreement had been made concerning the claim of the steel company, and the District Judge said that if all other creditors were taken care of, the arrangement was satisfactory to him. The trustee was also informed that an agreement had been made, and he was present at one meeting of the attorneys of the parties. The agreements, however, were not submitted to the court for approval, and were not filed as part of the proceedings. The judge and the trustee were not acquainted with the details of them, and the trustee did not become a party thereto, or assume any responsibility for their performance. After the sale had taken place, the steel company paid certain notes of the bankrupt, secured by collateral, and delivered them to the trustee, retaining the collateral without objection on his part; but there is no evidence that the collateral exceeded in value the amount of the obligations.

The steel company has performed the agreements on its part, and still retains the property allotted to Moss because he has not made the payments to which he agreed. The steel company has power to sell this property and to reimburse itself from the proceeds, but it has not done so. The inference is that it fears that the property is not now of sufficient value to pay the balance of $38,500 which it claims to be due at this time, and it therefore seeks an order of the court to apply the money in the hands of the trustee to the payment of the debt.

The case has been tried as if it were one solely between the steel company and Moss, the trustee having no interest in the result. But it is not contended by the appellant that the District Court had jurisdiction to try the controversy, arising as it does out of breach of contract between citizens of the same state, unless it falls within the provisions of the National Bankruptcy Act. As a court of bankruptcy, the District Court proceeded under subsection 7 of section 2 of the act, 11 U. S. C. § 11 (7), 11 USCA § 11 (7), to reduce the estate to money and to distribute it to the creditors; and since the surplus remaining is in custodia legis, the court has power to determine its disposition in the subsequent administration of the estate. Lazarus, Michel & Lazarus v. Prentice, 234 U. S. 263, 34 S. Ct. 851, 58 L. Ed. 1305. The jurisdiction of a court of bankruptcy, however, is of a limited character, statutory in its origin, and it covers only such matters as are specified in the statute, and they must be dealt with as the statute directs. In re Hollins (C. C. A.) 229 F. 349; In re Stearns & White (C. C. A.) 295 F. 833; Jones v. Kansas City Custom Garment M. Co. (C. C. A.) 1 F.(2d) 649.

The appellant suggests that the dealings between the parties in this case, taking into consideration that some...