Court Opinion

ID: 8761564
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:08:18.756274+00
Date Added: 2024-06-11T17:01:36.312130
License: Public Domain

HAZEL, District Judge.
The trustee in bankruptcy herein has filed a petition for review of an order made and entered by the referee in bankruptcy on the 4th day of August, 1906, which petition states that said order is erroneous, and sets forth nine objections to the same. The facts are fully stated in the written report of the referee.
1. As the First National Bank of Waterloo became liable to the bondholders from the time it sold the property to the Vough Piano Company, the contention of the trustee that the purchase price was used by the latter during a period of two years and seven months before payment of the same to the bank is not material to a determination of the questions presented, and does not constitute a sufficient reason for charging the bank with interest at the rate of 6 per cent, from the date of sale. Neither is it important that the bank sold the property on credit taking security therefor, nor that Mr. Becker, treasurer of the Vough Company, was also an officer of the bank. It may be fairly inferred that the money belonging to the different bondholders was on call at the bank, and therefore is to be regarded in the nature of a deposit. The bank, acting as trustee for the bondholders, certainly should not be punished for exercising a reasonable and apparently commendable discretion in the disposition of the mortgaged property. There being no agreement between the parties in relation to the rate of interest, what rate would be fair and equitable ? In view of the circumstances, the amount for which the property was sold was not unreasonably withheld by the bank, nor was it invested or misappropriated. The referee was of opinion that the unusual conditions under which the money was realized and held by the bank required an accounting to the bondholders at the rate of 3 per cent, interest for a period of two years. His reasons for charging interest at a sum less than the legal rate are thought sound. It was the duty of the bank, as trustee, to exercise such reasonable care over the fund as would result only in a fair increment. The first objection presented to the order is overruled.
2. The claim that no allowance should have been made by the referee to the bank for services in paying interest on coupons is sustained. The evidence is open to the inference that compensation for services of this character is sometimes exacted, but the}' are not infrequently performed gratuitously. It is doubtful whether a charge for such services was contemplated by the parties. In any event, I think the remuneration is covered by the allowance of 2 per cent, mentioned in the next subdivision.
3 and 4. The trustee in bankruptcy contends that the bank performed no services as trustee for the bondholders under the mortgage; hence, it should not have received an allowance as such trustee. The *823referee was of opinion that valuable services had been performed by the bank, and it should therefore be compensated. I concur in this view, and also, for the reasons stated in the opinion of the referee, in the allowance of $906.05, for attorney’s fees and disbursements incurred by the bank.
5. The amount for services of the attorney for the trustee in bankruptcy and certain bondholders is thought not to be chargeable against the fund in controversy. Such services and expenses were principally incurred for the benefit of the general creditors, and, therefore, should be paid out of the bankrupt estate. „
6. The ground of objection that the bank is required to account for the par value of 21 bonds held as collateral to certain notes amounting' to $1(1,500, before any dividend is paid is not sustained. Stress is laid on the decision of the Circuit Court of Appeals in Re Waterloo Organ Co., 13 Am. Bankr. Rep. 477, 134 Fed. 345, 67 C. C. A. 337, and it is argued by the trustee in bankruptcy that, according to the interpretation by such court of the contract transferring the bonds to the bank by the Waterloo Organ Company, their value was fixed at par; for which amount the bank is now bound to account to the company. This contention is not, in my judgment, warranted by the opinion of the court. As between the bank and the organ company, the bonds were issued at par, and could only be sold at par by the company; but the understanding of the parties, as indicated by the written agreement, did not contemplate a sale of the bonds by the bank. Under the agreement the 31 bonds were merely pledged as collateral, and there was no obligation upon the bank to buy them, nor did the agreement amount to a sale to the bank. TTad the bank sold the bonds, a different question would be presented; but, not having disposed of them, it was not bound to account therefor at par value. The objection is overruled, and the demand for the return of the notes, as stated by the referee, is premature.
7 and 8. Counsel for trustee in bankruptcy contends that the allowance of $1,075.83, as interest upon the collateral bonds from September 2.1, 1900, was erroneous and'improper, for the reason that such bonds represented no actual indebtedness to the company. 3n the brief submitted by the trustee in bankruptcy, it is stated that the interest on the other bonds was allowed only from December 1, 1901, while on the collateral bonds the allowance was made from the former date, and that this apparent discrepancy was inadvertently overlooked by the referee. In reply, counsel for the bank states that the interest on the collateral bonds was allowed by the referee according to the proof of claim made by the bank, '['hat Mr. Ditmars and other bondholders did not claim interest from September 31, 1900, is unimportant. It mav be assumed that the other bondholders were not entitled to interest from any period other flian that claimed by them. If their proofs of claim do not ask for all the interest to which they are entitled, the same may be amended in that respect by proper proceeding before the referee.
9. Finally, the trustee contends that the fees of the stenographer should be paid out of the fund in question. From the examination I *824have given the record perhaps the expenses of the stenographer should be divided between the bank and bankrupt estate, but, as the referee has not specially considered this disbursement, and made no recommendation in relation thereto, the question is submitted to him for his decision on application of the trustee in bankruptcy.
The order may be modified as hereinbéfore indicated.