Hudson v. New York & Albany Transp. Co.

188 F. 630, 110 C.C.A. 104, 1911 U.S. App. LEXIS 4353

• Court: Court of Appeals for the Second Circuit
• Decided: May 8, 1911
• Docket: No. 245
• Status: Published

Opinion

EACOMBE, Circuit Judge.

This litigation was before us on a former appeal, and reference may be had to the opinion then filed. 180 Fed. 973, 104 C. C. A. 129. It will be sufficient now briefly to state the sequence of events which resulted in the decrees appealed from.

A stockholder of the New York & Albany Transportation Com-pairy having brought suit to have its assets marshaled and! distributed, the Empire Trust Company, as trustee under a mortgage, intervened and filed bill of foreclosure. A receiver of all the property of defendant was appointed, and he took possession of the same. Various creditors filed claims against the estate; some of them claiming to have liens of one sort or another. The defendant owned two river steamboats, the Saratoga and the Frank Jones, which it was decided should! be sold forthwith, as they were likely to deteriorate in value unless kept in commission. The court ordered these two vessels to be sold at public auction, “subject only to maritime liens or liens under a state law for supplies, labor, or "materials furnished on the credit of said vessels.” The vessels were sold, subject to such liens, on July 27, 1909, for $7,500, to Edward C. Burns, concededly acting for the Manhattan Navigation Company. The sale was duly confirmed by the Circuit Court, and from the order directing a sale and the order confirming the sale appeals were taken.

It appearing that at the sale the auctioneer had made a statement as to the probable amount of maritime liens and liens under state law, which the purchaser would have to satisfy, which was greatly exaggerated and calculated to deter prospective bidders from making offers to purchase, the order confirming the sale was reversed. As to the order of sale, it was left to the Circuit Judge to determine,, after investigation, whether there was any likelihood that a resale would produce a substantial increase in the price paid for the boats. As a result of such investigation, the boats were resold at a net advance of over $20,000. The purchaser paid $76,000 in cash. The present appeal concerns the disposition which the Circuit Court has made of the proceeds of this sale.

Except as to a single item we concur with Judge Hough as to the disposition .of the proceeds and do not find it necessary to add anything to his exhaustive and careful review of the facts, or to his statement of the reasons which induced the conclusions he reached.

[2] The item in question is a claim of the Morse Dry Dock & Repair Company for $13,090.56, which had been paid as a claim secured by lien, by the purchaser at the first sale. Repayment of this amount was ordered to be made to such purchaser. The Morse Company’s claim was for work done and materials furnished at the home port of the vessel; no maritime lien under the general admiralty law was claimed — none, in fact, could be claimed — but it was asserted that, by compliance with the state statute, the creditor had obtained a lien under the law of the state of New York. When the suit was brought an order was made that all creditors of the defendant should file their claims with the receiver and that all claims filed which might be disputed and all for which any priority is claimed be referred to a spe-dal master “to take proof of the amount of such claims aiul of the priorities thereof, if any, and report the same to the court.’’ Thereupon the claim of the Morse Company was filed: it claimed priority by reason of its alleged lien, and it appeared and introduced testimony in support, not only of its claim, but also of such lien before the special master. Subsequently to the entry of the order confirming the sale, the special master reported that the Morse Company had liens on the respective vessels for the amounts named. Exceptions were duly filed to his report, and it was eventually held that, because o f its failure to comply with the requirements of the statute, the Morse Company had not acquired any lien under the state law, but was merely a general unsecured creditor of the defendant to the amount named. Subsequent to the filing of the special master’s report, and before the same came up for consideration by the court, the purchaser at the first sale paid this claim of the Morse Company.

Upon the former appeal we held that, if the first sale were set aside,, “the property cannot be retaken from the purchaser without paying him the purchase price $7,500 and whatever other sums may have been expended on the boats in repairs and betterments.” It was intended, of course, to include as purchase price, in addition to the $7,500, whatever the purchaser might have had to pay in order to extinguish'existing- maritime or state liens so as to perfect his title to the property. Rut it is only liens which, if not paid!, would be a cloud on the title that should thus be provided for. The mere assertion of a lien, which could not be maintained by proof, was not sufficient to require its payment or to entitle the person paying it to reimbursement out of the proceeds. The first purchaser seems to have acted in good faith, in paying this Morse claim; the special master having reported that it was a valid lien, although the order which sent it to him apparently authorized him only to “take proofs and report the same.” ¡Moreover, the president of. defendant told the purchaser that the lien was good and should! be paid. But in paying it before adjudication as to its validity the purchaser took the chances. If the first sale had not been set aside, the payment by it to the Morse Company of a debt due to that company by the New York & Hudson Transportation Company, unsecured by a valid lien, would have resulted in a loss of the money so paid to extinguish another person’s debt, except for what it might be able to obtain through subrogation, by prosecuting the claim of the Morse Company against the defendant's estate. So far, therefore, as this sum oí $13,090.56 is concerned, its situation is not affected by not being repaid that sum from the proceeds of the sale; it had already lost the money (before resale was ordered) except for what it might obtain by subrogation, and its right to prosecute the Morse Company’s claim has been in no way affected by subsequent proceedings.

To repay this sum to the Manhattan Navigation Company out of the proceeds of the sale, would be, in substance and effect, to give priority to the unsecured claim of the Morse Company over the bondholders secured by the mortgage.

With this modification the decrees are affirmed.