Wiggington v. Auburn Wagon Co.

• Decision Date: 01 July 1929
• Docket Number: No. 2793.,2793.
• Parties: WIGGINGTON et al. v. AUBURN WAGON CO. et al.
• Court: U.S. Court of Appeals — Fourth Circuit

33 F.2d 496 (1929)

WIGGINGTON et al. v. AUBURN WAGON CO. et al.

No. 2793.

Circuit Court of Appeals, Fourth Circuit.

July 1, 1929.

Clarence E. Martin, of Martinsburg, W. Va. (J. O. Henson, Martin & Seibert and C. M. Seibert, all of Martinsburg, W. Va., on the brief), for appellants.

Harry H. Byrer and W. C. Kilmer, both of Martinsburg, W. Va. (Kilmer & Byrer, of Martinsburg, W. Va., on the brief), for appellees.

Before PARKER, Circuit Judge, and McDOWELL and MEEKINS, District Judges.

PARKER, Circuit Judge.

On November 15, 1923, the Auburn Wagon Company, of Martinsburg, W. Va., executed to W. C. Kilmer, trustee, a deed of trust conveying its real estate, machinery, and equipment to secure a bond issue of $75,000. This suit was instituted on September 8, 1925, by one L. R. Myers, the president of the company, who claimed to be the owner and holder of $22,500 of the bonds thereby secured, asking that the deed of trust be foreclosed, and that a receiver be appointed to take charge of the property of the corporation, not on the ground of insolvency, but of temporary embarrassment. The suit not being resisted, receivers were duly appointed, with authority to carry on the business of the corporation pending the sale of its property, and for that purpose to issue receivers' certificates, constituting a first lien upon its assets. Subsequently a special master was appointed to audit its affairs and report upon the extent and nature of its assets and liabilities. Hopeless insolvency was disclosed by this, and thereupon the business of the corporation was closed out, and its real and personal property sold under order of court. The receivers' certificates were retired, and a final order was entered establishing the debts which were owing, making allowances for the costs and expenses of the receivership, and directing the distribution of the proceeds of the property sold. $20,505.94 of the funds derived from the property embraced in the deed of trust was ordered distributed among the bondholders, and $5,374.22, from other property, among the general creditors.

After the receivers and the special master had been appointed, certain bondholders and judgment creditors applied for and obtained leave to intervene and file answers. The answer of the bondholders challenged the ownership of bonds by Myers and his right to maintain the foreclosure suit, and also the power of the court to operate the business of the corporation under a receivership. It set up, however, by way of cross-bill, that there had been default in the payment of interest due on the bonds held by the interveners, and asked that the court discharge the receivers who had been appointed upon the application of Myers, but appoint others to take charge of the property and apply it to the claims of creditors. On motion of Myers, this answer was stricken out, except in so far as it set up the ownership of bonds in the interveners, and an amended answer, which elaborated the denial of the ownership of bonds by Myers, was also stricken out, and the intervening bondholders excepted. The creditors likewise filed an answer and amended answer, which were stricken out, except in so far as they asserted claims. In these answers the creditors also challenged the ownership of bonds by Myers and the power of the court to appoint receivers to carry on the business of the corporation. They alleged, however, that they had obtained judgments against the corporation since the appointment of the receivers, and had caused executions to be issued thereon, and had thereby obtained liens upon its assets, and they prayed that these liens might be protected by the court.

A hearing was duly had before the special master for the establishment of claims. At this hearing one Bradford, the treasurer of the corporation, testified that $22,500 of bonds were sold to and held by Myers. Counsel for the intervening bondholders and creditors asked him on cross-examination how these bonds had been paid for. Counsel for Myers objected, and, upon the objection being overruled, directed the witness not to answer the question, and he did not answer it. Counsel stated that he so directed the witness because the court had not passed upon the motion to strike out the answers in which Myers' ownership of the bonds was challenged, and that the question ought not be allowed until this motion should be passed upon, and it should appear what issues were left in the case. The answers were subsequently stricken, and the master filed his report without requiring the witness to answer the question, or citing him for contempt for failing to do so, and exception was taken to the report on that ground.

Among the allegations of the answer of the intervening bondholders, which was stricken out, was one challenging the ownership of bonds by Myers as follows:

"Respondents now say that the said bonds of the said Myers were not sold to him, so your respondents are informed and believe, but that they were either given to him, without consideration, or as a part of a scheme adopted by the plaintiff and the defendant corporation at or about the time that the bonds were authorized to be issued, and were in fact sold to your respondents; that respondents do not know the exact particulars of this transaction, but respondents say that they are advised that it happened in one of the following ways, so they are now advised and aver: That at the time that this bond issue was authorized, the plaintiff, Lee Roy Myers, was the owner of a great majority, if not all, of the capital stock of the Auburn Wagon Company, the defendant; that the company was unable to meet its obligations and the additional capital was apparently necessary; that, at that time the said company, so your respondents now learn, was insolvent; that a man by the name of Wood or Woods, otherwise to your respondents unknown, together with the plaintiff herein, agreed to incorporate and did incorporate a company under the laws of the state of Delaware, known as the National Commercial Body Corporation, the said Woods and Myers agreeing to direct the policy of the said company; that to this new company the said Myers was to and did assign his stock, then without value, in the Auburn Wagon Company, and there was then issued to him, in lieu of the stock, the amount of bonds referred to above; that the bonds held by your respondents are all unconditionally guaranteed as to payment in full at maturity, in event of default by the National Commercial Body Corporation; that the National Commercial Body Corporation, so the complainant, by and through his duly authorized agent represented to your respondents, was to have assigned to it, assets over and above liabilities, of the value of three hundred fifty-four thousand six hundred and fifty-eight dollars and ninety cents ($354,658.90); that the said Myers took the bonds, but respondents are not advised, but believe that the stock of the Auburn Wagon Company was duly assigned to the National Commercial Body Corporation, but no other assets, so far as your respondents have been able to ascertain, are held by it. Respondents say that, if there was a consideration by reason of this act, then the said transaction not having been completed, the consideration, if any, failed, and the plaintiff herein should be required to deliver to the Auburn Wagon Company, for cancellation, the bonds illegally in his possession."

Many technical points were raised in the court below and were discussed in the briefs of counsel here, but only four questions of any practical importance are raised by the assignments of error, viz.: (1) Did the answers of the intervening bondholders and creditors raise any question as to the right to appoint receivers for the corporation which the District Judge should have passed upon? (2) Were the intervening creditors entitled to a lien upon any of the property in the hands of the receivers because of the judgments and executions obtained after the appointment of receivers? (3) Were the intervening bondholders and creditors entitled to have the ownership of bonds by Myers inquired into? And (4) were the attorneys' fees and the allowance to the receivers excessive or improper?

On the first of these questions, we think there can be no doubt upon the record before us that the appointment of the receivers to take over the affairs of the corporation was within the power of the court and that the answers which were stricken raised no question which the court should have considered with regard thereto. Assuming that the appointment of the receivers might have been resisted successfully by the corporation itself, as complainant had not reduced his claim to judgment and did not allege insolvency, these matters were waived when it failed to object to the receivership. Hollins v. Brierfield Coal & Iron Co., 150 U. S. 371, 380, 14 S. Ct. 127, 37 L. Ed. 1113; Price v. U. S., 269 U. S. 492, 46 S. Ct. 180, 70 L. Ed. 373. As said by Mr. Justice Brewer in the Hollins Case: "If there was a...