Fidelity-Philadelphia Trust Co v. Weaver

98 F.2d 471, 1938 U.S. App. LEXIS 3243

Opinions

BUFFINGTON, Circuit Judge.

In the bankruptcy case of the Pennsylvania Central Brewing Company (hereafter, called Central), it appears that on October 25, 1897, that company had given a mortgage on all its property then owned or subsequently acquired to a trust company (hereafter called Fidelity) as trustee for an issue of $2,800,000 bonds. The mortgage was duly recorded. Thereafter, on demand of the trustee and to prevent a foreclosure of the mortgage, Central delivered to Fidelity I, 581 shares of stock it owned of the Pilsener Brewing Company. Accompanying such delivery was a power of attorney to transfer such stock. No transfer has yet been made, but the stock and the power of attorney are still held by Fidelity.

It further appears that the mortgage, allowing for sale of any portion of the mortgaged property, provided “that the whole consideration moneys and the securities therefor shall be paid to the said Trustee, to be appropriated or applied to the purchase and extinguishment of the bonds hereby secured.” Forty thousand dollars was paid by Central to Fidelity.

It is clear that thereafter Central had no right to get the stock and cash back until its mortgage debt was paid in full and that, had it attempted by legal action to recover the same, such suit could not be maintained. Such being the situation when Central thereafter went into the court below jfor reorganization under section 77B, IBankr.Act, 11 U.S.C.A. § 207, it is clear ‘that the rights of the trustees of Central ■were no higher than Central then had. [Moreover, the then situation was such that, Central not having possession of the stock [and cash, any attempted reclaiming thereof 'could not be done by summary order, but only by plenary suit. Such being the case, it is clear that in making the summary order below the court erred and its order must be vacated, as was held in our opinion heretofore filed.

In so holding we have not overlooked the contention made that Fidelity submitted itself to the jurisdiction of the court by proving its claim. It was entitled to prove its claim, which would be for the balance of the mortgage owing less any payments or liquidations of any collaterals.