219 F. 655 | 2d Cir. | 1914
(after stating the facts as above). We are asked to set aside and annul an order entered in the court below confirming a sale of the bankrupt’s property. The court had the subject of the confirmation of this sale before it twice and seems to have given the matter careful consideration. In his final decision of the question the District Judge declared he had “become satisfied that a resale of the property of the bankrupt company which is the subject of. this controversy, or of any separate parcel thereof, free from mortgages, accrued interest, and taxes, would not be of substantial benefit to the unsecured creditors and would probably be detrimental to the secured creditors.” He stated it as his opinion that the liens and incumbrances on the property were valid and that the existence of these liens and incumbrances accounted for the small amount realized at the sale. He also stated it as his conviction that a resale separately of the Baldwinsville property free from all liens might bring something more than the amount of the incumbrances thereon, but that the probability of its doing so was remote and would not in any event compensate for the additional costs and expenses which it would entail. And he concluded by saying that he thought that the sale subject to mortgages and liens was for the best interests of the secured and unsecured creditors of the bankrupt company, and he directed that an order be entered affirming the referee’s confirmation of the sale.
At the sale all of the real estate together with the plant, fixtures, machinery, equipment, etc., was struck off subject to all incumbrances, including the trust mortgage, for $200. The value of this property as reported by the company to R. G. Dunn & Company, in February, 1912, was $160,000.' At the time of the sale the incumbrances were as follows: The trust mortgage for $50,000; another mortgage of $5,000 on that part of the Newark property not used for manufacturing purposes; another mortgage for $1,400 upon the Baldwinsville property — the whole aggregating about $61,400.
The real estate at Newark was offered for sale separately — subject to liens- — -and the highest and only bid therefor was $50. The real estate at Baldwinsville — subject to liens — was then offered and the highest and only bid therefor was $75. Both parcels were then offered together upon the same terms, and there were three bids, $150, $175, and $200, and the property was struck off to Russell S. Johnson, of Camden, N. Y., for $200.
Then the personal property was offered for sale on exactly the same terms as the real estate — subject to liens and incumbrances.
The first parcel offered consisted of 52 unfinished wagons which were sold subject to a supposed lien of the Union Trust Company of Rochester, N. Y., to the amount of $8,814.91. The highest and only bid on the wagons was $1. Then other portions of the personal property were offered for sale, first in separate lots and then in one lot; the whole bringing between $3,500 and $4,000.
There is no doubt but that courts have held that sales of real property en masse are improper. In Woods v. Monell, 1 Johns. Ch. (N. Y.) 505 (1815), Chancellor Kent laid down the rule:
“That where a tract of land is in parcels, distinctly marked for separate and distinct enjoyment, it is in general the duty of the officer to sell by parcels and not the whole tract in one entire sale.”
In Williams v. Allison, 33 Iowa, 278 (1871), the court held that where the property sold was not contiguous — and in the case at bar it was not contiguous, a part being in Newark and a part in Baldwinsville —different tracts could not be sold together and that the illegality of such a sale could not be avoided by first offering the different tracts or lots separately. The court said that, if no bids were received when distinct parcels were offered separately, this fact could give no authority to sell en masse, and that, if a sale was made en masse, the sale could be set aside upon the principles of either the common law or the statute. And it added that such a sale could be avoided even as against a third person who was a bona fide holder for value, provided the application to avoid was made without laches. Where the property is contiguous, a different principle would be applied. And the same court has held, without expressly overruling its former decision, that if the entire tract or the different tracts, for any reason,
"The real estate and property above mentioned situate in Newark, shall first be put up for sale in one parcel but shall not be struck off at once, but*660 the highest bid therefor recorded; thereafter the real estate situate at Baldwinsville shall be sold in the same manner, but not struck off, but the highest bid therefor recorded; thereafter the real estate and property above mentioned situate at Newark and at Baldwinsville shall be offered for sale in one parcel and if the sum bid therefor in one parcel shall be greater than the sum bid for the two parcels theretofore offered separately, both parcels shall be struck off to the highest bidder upon this last sale. Otherwise each parcel shall be struck off to the highest bidder when the properties were first offered.”
“We are aware that there is great diversity in the rulings on this question by the courts of the several states; but whatever may be our individual views as to what the law ought to be in respect thereto, there is so much of a local nature entering into chattel mortgages that this court will accept the settled law of each state as decisive in respect to any case arising therein.”
The fact of the matter, however, is that.the mortgage does not authorize- the mortgagor to do what counsel insist the New York courts condemn as amounting to fraud in law. The parties to this mortgage took care to keep strictly within the law as expounded by the courts of the state. The mortgage states expressly that:
It is “the intention of the parties hereto, so far as lawful to include within the term and lien of this instrument all property and rights of the character hereinbefore described now owned or hereafter acquired by the company but*661 not to include hereunder any merchandise, materials, property or chattels which ordinarily are the subject of sale in the usual course of business of said company or any cash or any claims, book accounts or bills receivable, so long as said company is not in default hereunder.”
The bondholders do not claim, and never have contended, that this mortgage was a lien on this excepted personalty. And at the sale the merchandise, materials, and stock in trade were sold separately from the bankrupt’s plant and not as being subject to any lien of any description.
But counsel for the petitioners complain that the mortgage permitted the mortgagor “to alter, remove, sell or dispose of any buildings, fixtures, machinery or other appliances upon the mortgaged premises which cannot be advantageously used in judicious operation and management of the business of said company.” The criticism passed upon this provision might be justified if that clause stood without qualification but the clause also declared that in the event of such alteration, removal, sale or disposition the company agreed that in such case it would replace “any buildings, fixtures, machinery or other appliances removed, sold or otherwise disposed of by acquiring subject to this mortgage, other real estate or placing upon the mortgaged property, subject to this mortgage, other buildings, fixtures, machinery or other appliances equal in value to the value of the property so removed, sold or otherwise disposed of or by paying to the trustee the appraised value of such property, etc.” This court, however, in the case of In re Marine Construction & Dry Dock Co., supra, declared through Judge Uacombe that it was abundantly settled by authority that a mortgagee of materials could agree with the mortgagor that the latter should remain in possession of the goods and might sell them from time to time, provided that the proceeds of all goods thus sold were applied either to payment on the mortgage or to reducing the amount of some prior lien, or to the purchase of additional property, of not inferior value to take the place of what was sold. Applying to the clause in question the principle we then announced, we find nothing in the clause to invalidate the mortgage.
We fail therefore to find any invalidity in this mortgage and think Lhe claim that it is fraudulent in law is without merit. And as the mortgage was a subsisting lien, we cannot see how creditors were prejudiced by a sale of the property subject to it.
The objectors assert that the trust mortgage does not cover the real property of the bankrupt situated at Baldwinsville or the southerly eight acres at Newark not covered by the factory, and that, as all the real estate was sold subject to this mortgage, it failed to bring as much as would have been realized if it had not been sold subject to this particular incumbrance. That it was not possible to obtain a fair price for the property as the question had not been determined whether the whole of the real estate was subject to the mortgage. Under some circumstances, there would be force in this objection; but under the circumstances of this case it is without merit, for the trust mortgage was not the only lien upon these properties. If the trust mortgage is valid and we have held it to be such, it is unquestionably
At the hearing before the referee when the subject of confirmation of the sale was under consideration and certain creditors were opposing confirmation, the referee at the close of the discussion inquired whether they or any of them would indemnify the bankrupt estate and guarantee it against loss upon a resale of the property sold if confirmation of the sale should be denied. To this inquiry none of the parties appearing made any response whatever. Notwithstanding this fact, attention is called in the argument before us to the small amount realized at the sale and we are asked to set the sale aside and order the property resold. Under the old English practice, before a sale had been confirmed courts would open the biddings and direct a resale of the property in case a person was ready to offer a larger price than the property brought at the first sale. But this practice in England was abolished by statute. St. 30 and 31 Vict. c. 48, § 7. And now in that country to entitle the parties to open the biddings it appears to be necessary to show either fraud or such misconduct as borders on fraud. Delves v. Delves, L. R. 20 Eq. 77. In the courts of this country there seems to be 'some difference of opinion whether before confirmation it is proper to open the biddings to obtain a greater bid, and the practice of doing so has been widely condemned in our courts as making judicial sales unstable and as tending to chill the bidding. In a number of cases it has been held that there must be some further reason arising out of the circumstances of the sale sufficient to cause a refusal of confirmation or the application to reopen the bids will be denied. 24 Cyc. 42; Files v. Brown, 124 Fed. 133, 59 C. C. A. 403. If courts are strongly inclined to decline to open biddings even in cases where the advanced bid is actually brought into court, or a bond or guarantee of a higher bid is furnished, a fortiori the bid-dings cannot be opened where no such bid is offered and no such guaranty is produced.
The order is affirmed.