Ft. Dearborn Nat. Bank v. Gallagher

Seventh Circuit

Ft. Dearborn Nat. Bank v. Gallagher

227 F. 378, 1915 U.S. App. LEXIS 2307

CourtCourt of Appeals for the Seventh Circuit

DecidedOctober 5, 1915

DocketNos. 2204, 2205, 2258, 2263

StatusPublished

Cited by3 cases

This text of 227 F. 378 (Ft. Dearborn Nat. Bank v. Gallagher) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

Ft. Dearborn Nat. Bank v. Gallagher, 227 F. 378, 1915 U.S. App. LEXIS 2307 (7th Cir. 1915).

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Opinion

KOHDLAAT, Circuit Judge

(after stating the facts as above). [1] The several orders of the District Court were clearly proceedings in bankruptcy, and not plenary. Tefft v. Munsuri, 222 U. S. 114, 32 Sup. Ct. 67, 56 L. Ed. 118; Coder v. Arts, 213 U. S. 234, 29 Sup. Ct. 436, 53 L. Ed. 772, 16 Ann. Cas. 1008; Hewit v. Berlin Machine Works, 194 U. S. 296, 24 Sup. Ct. 690, 48 L. Ed. 986. Therefore the proceedings should be by original petition to review and revise.

[2] The main question presented is the construction to be placed upon the term-“costs of administration,” to which the several orders of the court authorizing the loans subjects them. The term cannot be limited to court costs, which would cover practically all the items conceded by appellant. It must therefore refer to all the expenses attending the execution of those orders of the court entered with reference to the furnishing of the contract asset of the bankrupt. Farmers’ Loan and Trust Co. v. Stuttgart St. R. R. Co. (C. C.) 106 Fed. 565. Had the trustee paid cash for the material and labor invested in carrying on the work of completing the sewer, no question could or probably would have been raised. The mere fact that the trustee failed to pay as he should have done, had he funds so to do, does not alter tire situation. The money on hand constituted a fund which should have been distributed, and should be treated as belonging, to the laborers, and, as we think, the materialmen, pro rata. It was obtained from the bank for that purpose. We regard these claims as just as much costs of administration under the facts of this case as would be the feed for stock under the receiver’s care or the housing of perishable property. The bank is in the position of one loaning money to a trustee or receiver for a distinct purpose, and then seeking, to reclaim it and prevent the application of it. It claims to have furnished all this fund, and it did; but it is not therefore.entitled toi recover it contrary to the purpose for which it advanced it. The controversy between the bank and the other claims, we think, grows out of the use of the term “costs of administration,” which might seem, off-hand, to limit the term in a sense to .taxable court costs in an ordinary case.

[381]*381In the case of Anderson v. Condict, 93 Fed. 349, 35 C. C. A. 335, we held that, where the lien of the receiver’s certificates was upon all the property and the proceeds thereof, and net income of the railroad in the receiver’s hands, “after the payment of operating expenses and costs of administration,” a claim for personal injuries was prior to the lien of the certificates, even as against the corpus of the property. The language here employed is, under the circumstances of the present case, the equivalent of that used in defining the limitation upon the lien of the certificates in the case just cited, and the argument of that opinion is applicable here. Undoubtedly the holders of the certificates must be charged with knowledge of the character and uncertainty of the undertaking to complete the said sewer and to have assumed all the vicissitudes of the situation. It was held in Pusey & Jones v. Penn. Paper Mills (C. C.) 173 Fed. 634, that expenses of construction work upon a mill would precede receiver’s certificates, even when expressly made a first lien, as being expenses incurred in preserving the properly upon which the certificates were secured.

[3] We concur in the finding of the referee that the labor and material claims should first be paid pro rata out of the funds in the trustee’s hands, and, that fund being inadequate to satisfy said claims, the certificate holders will take nothing therefrom. We know of no rule of law which would give the labor claimants any preference over the materialmen under the facts of this case. No statutory or other special liens were perfected. As above stated, both classes of claims are held to- be costs of administration and on an equal footing when furnished under the same circumstances.

The decree of the District Court in case No. 2204, in so far as it holds the lien of the bank to be subject to the payment of labor claims, is affirmed. As to the case of Gruner & Bros. Lumber Company, case No. 2258, the decree is reversed, with direction to examine farther into that claim to ascertain whether it has been paid and discharged in part or in whole since the decree therein was entered, and if the court shall find any sum still remaining due from the trustee to said Gruner & Bros. Lumber Company, then to cause distribution from the said balance held by him for distribution, to be made thereon to said Gruner, & Bros. Lumber Company pro rata with said labor claims; otherwise, to distribute said balance pro rata between the labor claimants. In causes Nos. 2205 and 2263, the appeals are dismissed.

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KOHDLAAT, Circuit Judge

(after stating the facts as above). [1] The several orders of the District Court were clearly proceedings in bankruptcy, and not plenary. Tefft v. Munsuri, 222 U. S. 114, 32 Sup. Ct. 67, 56 L. Ed. 118; Coder v. Arts, 213 U. S. 234, 29 Sup. Ct. 436, 53 L. Ed. 772, 16 Ann. Cas. 1008; Hewit v. Berlin Machine Works, 194 U. S. 296, 24 Sup. Ct. 690, 48 L. Ed. 986. Therefore the proceedings should be by original petition to review and revise.

[2] The main question presented is the construction to be placed upon the term-“costs of administration,” to which the several orders of the court authorizing the loans subjects them. The term cannot be limited to court costs, which would cover practically all the items conceded by appellant. It must therefore refer to all the expenses attending the execution of those orders of the court entered with reference to the furnishing of the contract asset of the bankrupt. Farmers’ Loan and Trust Co. v. Stuttgart St. R. R. Co. (C. C.) 106 Fed. 565. Had the trustee paid cash for the material and labor invested in carrying on the work of completing the sewer, no question could or probably would have been raised. The mere fact that the trustee failed to pay as he should have done, had he funds so to do, does not alter tire situation. The money on hand constituted a fund which should have been distributed, and should be treated as belonging, to the laborers, and, as we think, the materialmen, pro rata. It was obtained from the bank for that purpose. We regard these claims as just as much costs of administration under the facts of this case as would be the feed for stock under the receiver’s care or the housing of perishable property. The bank is in the position of one loaning money to a trustee or receiver for a distinct purpose, and then seeking, to reclaim it and prevent the application of it. It claims to have furnished all this fund, and it did; but it is not therefore.entitled toi recover it contrary to the purpose for which it advanced it. The controversy between the bank and the other claims, we think, grows out of the use of the term “costs of administration,” which might seem, off-hand, to limit the term in a sense to .taxable court costs in an ordinary case.

[381]*381In the case of Anderson v. Condict, 93 Fed. 349, 35 C. C. A. 335, we held that, where the lien of the receiver’s certificates was upon all the property and the proceeds thereof, and net income of the railroad in the receiver’s hands, “after the payment of operating expenses and costs of administration,” a claim for personal injuries was prior to the lien of the certificates, even as against the corpus of the property. The language here employed is, under the circumstances of the present case, the equivalent of that used in defining the limitation upon the lien of the certificates in the case just cited, and the argument of that opinion is applicable here. Undoubtedly the holders of the certificates must be charged with knowledge of the character and uncertainty of the undertaking to complete the said sewer and to have assumed all the vicissitudes of the situation. It was held in Pusey & Jones v. Penn. Paper Mills (C. C.) 173 Fed. 634, that expenses of construction work upon a mill would precede receiver’s certificates, even when expressly made a first lien, as being expenses incurred in preserving the properly upon which the certificates were secured.

[3] We concur in the finding of the referee that the labor and material claims should first be paid pro rata out of the funds in the trustee’s hands, and, that fund being inadequate to satisfy said claims, the certificate holders will take nothing therefrom. We know of no rule of law which would give the labor claimants any preference over the materialmen under the facts of this case. No statutory or other special liens were perfected. As above stated, both classes of claims are held to- be costs of administration and on an equal footing when furnished under the same circumstances.

The decree of the District Court in case No. 2204, in so far as it holds the lien of the bank to be subject to the payment of labor claims, is affirmed. As to the case of Gruner & Bros. Lumber Company, case No. 2258, the decree is reversed, with direction to examine farther into that claim to ascertain whether it has been paid and discharged in part or in whole since the decree therein was entered, and if the court shall find any sum still remaining due from the trustee to said Gruner & Bros. Lumber Company, then to cause distribution from the said balance held by him for distribution, to be made thereon to said Gruner, & Bros. Lumber Company pro rata with said labor claims; otherwise, to distribute said balance pro rata between the labor claimants. In causes Nos. 2205 and 2263, the appeals are dismissed.

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227 F. 378, 1915 U.S. App. LEXIS 2307, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ft-dearborn-nat-bank-v-gallagher-ca7-1915.

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