Court Opinion

ID: 8806082
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:48:11.688958+00
Date Added: 2024-06-11T17:04:06.356108
License: Public Domain

GRUBB, District Judge
(after stating the facts as above). [1]
A motion to dismiss the appeal was submitted at the time of the sub*245mission on the merits. It was based upon the fact that the appeal was not taken within ten days from the date of the order appealed from, the contention being that it was an order allowing or rejecting a claim under section 25a of the Bankrupt Act. We hold, in conformity with our decisions in the case of Wuerpel v. Commercial Germania Trust & Savings Company, 238 Fed. 269, 151 C. C. A. 285, following the case of Hewit v. Berlin Machine Works, 194 U. S. 296-299, 24 Sup. Ct. 690, 48 L. Ed. 986, that the appeal was not taken under section 25a, but from an order in a controversy arising in bankruptcy proceedings from a court of bankruptcy under section 24a, and that the time for perfecting the appeal was six months f rom the date of the order appealed from. In view of the circumstances under which the delay in filing the transcript of the record here is shown to have occurred, wc are not disposed to dismiss the appeal for this cause. The motion to dismiss is overruled.
[2] The decision of the case, as we see it, is controlled by the construction of the contract between the bankrupt, the Ragland Brick Company, the Bank of Ragland, the appellant, and N. W. Quillin, the lessee of the bankrupt of the brickyard at which the brick involved were made, and which was executed November 11, 1913, and which is set out in the statement of facts. Appellant contends that this contract gave it a lien on all brick in the possession of the bankrupt or its lessee, and stored on the brickyard, whensoever made. Appellee contends that the bank’s lien covered brick in process of manufacture and such as were made and shipped during each month of the lease, only until the amount advanced by the bank to the lessee for the making of each month’s output had been repaid it, and then ceased. It was conceded that the part of the fund in controversy arose from the sale of brick made prior to the last month’s operation of the plant, for the advances on which the bank had been paid. The bank received the amount representing all brick sold that were made from advances made^by it for the last month’s operation, but not enough brick were made and sold during the last month’s operation to reimburse the hank for the amount advanced the bankrupt’s lessee during that month, and it seeks to collect the balance of its advances by going back to brick that had been made in previous months hut still remained on the yard when bankruptcy intervened. These brick were covered by appellee’s bills of sale, executed under his agreement with the bankrupt to purchase the monthly output of the bankrupt, which it, in turn, had bought from its lessee. The question of the respective priority of right of the appellee under his bills of sale, and of the appellant under its mortgage agreement, depends upon whether appellant retained any lien on brick made and stacked on the bankrupt’s yard after the appellant bank had received its current monthly advances to the bankrupt out of the current monthly output of brick.
It appears from the record that the bankrupt and its lessee were unable to finance the current operations of the brickyard and had no security to offer for that purpose, other than the brick made out of the funds advanced for the cost of their making. Each month’s expenses must be paid out of each month’s output. However, the *246monthly expenses had to be met before returns on brick made could be received. It was therefore necessary for some one to finance the operations by advancing during the month the pay roll and expense of making the brick made during that month. This the appellant bank agreed to do, taking as security for such advances a lien by way of chattel mortgage on the brick in process of manufacture, for the making of which the money was advanced, and while stacked on the yard and until sold. In this financial condition of the bankrupt, it was equally necessary for the bankrupt and its lessee to be assured of disposing of its output by sale, as soon as ready for shipment, so that it could currently reimburse the appellant bank its advances. To accomplish this feature, the bankrupt’s lessee sold its output for the period of the lease to the bankrupt, which, in turn, resold it to1 the appellee for the same period, with the understanding conformed to in practice that bills of sale should be executed for each month’s output, and paid for by appellee, out of the proceeds of which payments the bank was to be and was monthly reimbursed its advances. While the appellant may not have known with whom the bankrupt had this arrangement, we have no doubt it knew that such an arrangement existed; otherwise, it would have been unwilling to enter into such an agreement with the bankrupt and its lessee, which otherwise would have been impossible of fulfillment by the bankrupt. Looking at the .situation of the parties, and the necessity of leaving the current output of the bankrupt free for its disposition after manufacture, in order to malee a workable arrangement for the operation and financing of the business of the bankrupt, we conclude that the appellant bank must have contemplated retention of its lien only until each month’s production was sold, and until it was reimbursed out of the proceeds of the sale for the advances it had made on the faith of that month’s production. Under this arrangement the appellee took the risk arising from a failure on the part of the bankrupt to. pay the appellant’s monthly advances from the purchase price of the brick appellee paid the bankrupt. If this was done, the lien of the appellant bank on the brick was released. Appellant" took the risk of a failure on the part of the bankrupt’s lessee to produce enough brick in any one month to repay it the advances it had made during that month. The taking of this risk by appellant was necessary to the conduct of the business, since, if the lien of appellant continued after the brick were made and the advances of appellant repaid, the bankrupt’s power to dispose of them would have been taken away by the continuance of the lien, and its ability to repay the bank would have ceased. The arrangement contemplated a contemporaneous payment of the bank’s advances from the proceeds of the sale of the brick, and a cessation of the bank’s lien. Otherwise, the agreement would have been unworkable, or would have worked a fraud on appellee, if unaware of the existence or continuance of appellant’s lien. The contract should not be construed to have such an effect, unless the language imperatively demands it. Its pro^visions are far from being clear. We think, however, they may fairly be construed as providing for the security of the bank by giving it a lien on each month’s output,for each month’s advances, a lien which *247was to be satisfied when those advances were repaid to it, thereby vesting in the appellee as purchaser an unincumbered title under his bill of sale to that mouth’s production, though it remained stacked on the brickyard. This construction is the more reasonable in the view we have taken that the record amply shows that the appellant bank was cognizant that the bankrupt and its lessee had made a sale of its output to some purchaser for the six months period of the lease, and must have acquiesced in such a sale, since it afforded the only feasible plan for the bank to be repaid each month the advances made by it for brick ma.de during the month. If the advances were not repaid as provided, the bank was given the right under its contract to possess itself of the plant and complete the making of the unfinished brick. The security of the appellant was evidently on the brick till disposed of. Provision for Immediate payment of its advances made longer security unnecessary, and it would have been fatal to the carrying out of the agreement, since it would have prevented the prompt sale of its output, from which source alone the appellant could expect repayment of its advances.
As the record shows that the bank was paid all advances, except what it contributed to the last month’s operation, and that it has received all the proceeds of sales of brick made during the last month’s operations, and as we conclude its lien on the production of previous months was released by the payment of the advances made by it for those months, we think the District Court rightly ruled that the appellee’s title under his bills of sale was superior to that of the appellant under its chattel mortgage, to the extent the referee disallowed the appellant’s claim. The execution of the bills of sale operated as a constructive delivery of the brick covered by them and which were stored on the brickyard.
The loss of the appellant is attributable to the risk, which we think it assumed by the terms of its contract, viz. the failure of the bankrupt’s lessee to make enough brick during the last month’s operation to pay the appellee the amount, he had advanced for that month’s operation.
The order of the District Court is affirmed.