134 F. 503 | U.S. Circuit Court for the District of Northern Ohio | 1905
On the 5th day of August, 1903, a bill was filed in behalf of the complainant, alleging that a materialmen’s lien existed in favor of the complainant, and that the defendant was insolvent, and with other allegations sufficiently broad to make it a creditors’ bill for the administration of the assets of the defendant railway company. A receiver was appointed for all of the property and assets of the company. Injunction was issued against the officers and agents of the railway company from in any wise interfering with the management of the property by the receivers. On August 17, 1903, the court made an order requiring all creditors to file their claims on or before the 1st day of October following, on penalty of being forever barred from participating in the distribution of the assets of the company. Notice was given of this order. Later the claims filed were referred to a master, and the master made his report, which was confirmed. On March 20, 1904, the Cleveland Trust Company intervened by petition and cross-bill, setting up a mortgage upon a portion of the premises. Issue was made, and solved in' favor of the intervener, and the prop - erty covered by the mortgage was sold under a decree of foreclosure. About the time of the sale, or perhaps a little after, it was discovered by the receivers that property of the defendant corporation existed in Summit county, of 'which they had theretofore had no knowledge.
The answer and cross-bill shows that the claim of Berk originated pending this suit, a considerable time after its commencement, and after the appointment and qualification of the receivers; that C. W. French, president of the Take & River Railway Company, applied to Berk for a loan; that Berk agreed to lend to the Take & River Railway Company the sum of money, provided the proper corporate steps were taken by the directors authorizing the loan and providing for the execution and delivery of the mortgage, and provided further that the property was free and clear of all incumbrances; that action was taken by the stockholders and directors authorizing the company to borrow a sum not to exceed $17,000, to be evidenced by a promissory note. Further answering, Berk shows that an abstract of title covering the property was prepared for him by a reliable abstracter, and all of the records of Summit county, Ohio, in which said property was located, were searched for the purpose of ascertaining the title to the property contemplated to be mortgaged under the provisions of the resolution above referred to; that he was advised by said abstracter, and now states the fact to be, that upon the 5th day of November, 1903, the record title to said property was in the Take & River Railway Company, free and clear of all incumbrances, in so far as might appear from the records of Summit county; that, relying upon the action of the stockholders and directors, and without any knowledge of the pendency of this suit, he took from the Take & River Railway Company a note and mortgage deed dated November 5, 1903, by the terms of which the Take & River Railway Company sold and conveyed to Berk, his heirs and assigns, the property, which is fully described in the bill, and which is the property situated in Summit county. There are further allegations in the answer and cross-bill of Berk adapted to be the basis of attack upon
The theory upon which relief is given under a so-called creditors’ bill, or a bill brought by one creditor in behalf of all for the administration of the assets of an insolvent corporation, is that such assets form a trust fund, of which the then creditors are the cestuis que trustent. In order to administer this trust, receivers are appointed to preserve the property pending the ascertainment of the rights of creditors as to priority and as to amount. It is of course, true that neither the pendency of such a suit nor the decree of sale affects the corporate existence of the defendant, nor in any way prevents it from acting as a corporation; and particularly such suit does not in any wise prevent the corporation from incurring indebtedness. It does not follow from this that either the corporation, or a creditor who becomes such pending such a suit, can divert the distribution of the trust fund from those entitled to its distribution at the time of the impounding of the assets, to wit, the filing of the bill. A suit affecting title to property, in a federal court, is constructive notice of lis pendens with respect to all property in the district and division. Berk shows in his bill that he relied upon an examination of the records of Summit county and in no wise examined the records of this court. This, perhaps, is not material, but it shows that Berk omitted those things which would have given him actual notice of at least a cloud upon the Summit county property.
Because of the striking of the pleading from the files, it is unnecessary to pass upon the demurrer, which is also stricken from the files.
With respect to the cross-bill of the defendant the Columbus Savings & Trust Company, it is shown that the intervener became a mortgage creditor of the Lake & River Railway Company pending this suit, as hereinbefore stated. This intervener intervened in the suit brought by Berk in the court of common pleas of Summit county, Ohio, for the purpose of foreclosing its mortgage. It was enjoined from proceeding further in the state court, and allowed to intervene in this cause. The cross-bill is confined to allegations in regard to the bonds and mortgage upon which it founds its claim. It has been allowed to intervene with respect of this matter, and, for the purposes referred to in the part of this opinion which relates to the answer and cross-bill of Berk, its appearance in this case and the filing of its pleading are proper. The motion to strike its cross-petition from the files is therefore overruled.
Demurrer is filed to this cross-petition. Inasmuch as the allegations in the petition may, under certain circumstances, to wit, there being a surplus of assets above an amount necessary to pay the creditors who existed at the time of the filing, of the bill, entitle the cross-petitioner to relief, the demurrer is overruled.
The cross-bill of Herndon shows an indebtedness which has arisen pending this suit. He has a right to intervene, under the former orders of this court, and for the purposes mentioned with respect to the other interveners herein. The motion to strike this petition from the files is therefore overruled. Inasmuch as he shows an indebtedness, although it had its inception pending this suit, he may be entitled to relief of some nature. Therefore the demurrer to his cross-bill is overruled.