
    LAUGHLIN et al. v. UNITED STATES ROLLING-STOCK CO.
    (Circuit Court, S. D. New York.
    September 28, 1894.)
    1. Receiver's Certificates — Notice—Lien.
    Where the receiver of an insolvent manufacturing corporation, without notice “to its bondholders or general creditors, secured an order authorizing the issue of receiver’s certificates, and issued such certificates, not for debts of the receiver, as such, but to creditors of the corporation for claims arising in the ordinary course of business prior to the receivership, held, that holders of such certificates were entitled to no priority, in the distribution of the assets of the corporation, over its other creditors, either secured or unsecured.
    S. Election — EvideNce.
    Where a contract between a corporation and B. provided that if. after six months, B. still held certain stock, transferred on account of an indebtedness, and insisted on returning it, the corporation would accept it, and pay for it 90 per cent, in cash, and B., after rhe expiration of the six months, had collected dividends on the stock, and credited the stock to the corporation in statements of account, held, that these facts showed an election by B. to keep the stock in payment.
    This was a suit in equity by Henry D, Laughlin and others against the United States Rolling-Stock Company, and is now heard on exceptions to the master’s report.
    Cravath & Houston, for complainants.
    Seward, Guthrie, Mor a we tz & Steele, for defendant
   LACOMBE, Circuit Judge.

Upon tbe argument two questions only were presented for tbe consideration of tbe court: First, whether tbe receiver’s certificates are entitled to priority over tbe claims of other creditors, secured or unsecured; second, whether tbe receiver should have allowed a claim of Bement, Miles & Co. for $52,275.50.

1. As no brief has been filed in support of tbe contention of tbe holders of tbe receiver’s certificates, it will be unnecessary to enter upon any extended discussion of the law or tbe facts involved in tbe first question. There is no pretense that any notice of application for tbe orders authorizing the issuing of these certificates was given to tbe bondholders or general creditors, whose rights are now claimed to be affected thereby; and tbe receiver and all to whom tbe certificates were delivered, therefore, took tbe risk of tbe final action of tbe'court touching tbe priority of such securities when in tbe fullness of time an opportunity to bear all parties and persons interested should be afforded. Union Trust Co. v. Illinois M. Ry. Co., 117 U. S. 434, 6 Sup. Ct. 809. As tbe certificates were none of them issued 'for indebtedness of tbe receiver as such, but were all turned over to creditors of tbe company for claims accruing prior to tbe receivership for goods sold to tbe company in tbe ordinary course of business or money loaned to it, or for salaries of its officers or fees of its counsel, there is no warrant in tbe authorities for giving them any priority either over secured or even other unsecured creditors. To do so would be grossly inequitable. Cases referred to on the argument, dealing with tbe administration of railroad receiverships, are of no application in tbe case at bar, where tbe insolvent is a private manufacturing corporation. Farmers’ Loan & Trust Co. v. Grape Creek Coal Co., 50 Fed. 481. There is nothing in tbe orders heretofore made by tbe United States circuit court in Illinois which, either as an adjudication or as a matter of comity, should prevent this court from finally administering and distributing tbe assets in tbe bands of tbe receiver, according to these well-settled principles of equity jurisprudence. Tbe Illinois court, on the contrary, has expressly inserted in its orders language which relegates all tbe questions raised upon tbe argument to this court for final decision. Tbe master, therefore, under the terms of tbe order of reference, which required Mm to ascertain and report as to tbe respective priority of all claims, was not precluded by those orders from passing upon tbe priority of these receiver’s certificates. As there is no good reason-why tbe disposition of this question should be any longer delayed, and as tbe master has reported all tbe facts, tbe decree should adjudge that tbe holders of receiver’s certificates are entitled to no preferential lien.

2. As to tbe claim of Bement, Miles & Co., an examination of tbe record affords no sufficient ground for reversing tbe finding of tbe master on the fundamental question of fact, viz. that tbe contract between tbe corporation and tbe firm, under which the stock was transferred on account of tbe indebtedness for machinery, provided that if, at tbe end of six months, it was still in tbe firm’s bands, and they should insist upon returning it, and taking 90 per cent, cash in its place, the corporation would accept it, and pay that sum. Waiving nil question as to the validity of such a contract, the evidence in the case, which is barren of any suggestion as to an extension of the six months, originally limited, and which shows the repeated collection of dividends, and the rendering of a statement of merchandise account showing a crediting of the stock to the corporation in settlement of the debt, satisfies me, as it did the master, that, upon the expiration of the six months, the firm elected to keep the stock as payment for the supplies they had furnished.

There is nothing in the proceedings before the Alabama court to prevent a final disposition of this question in this court. Those proceedings were wholly without notice to the other creditors, who here oppose the claim. Moreover, the Alabama court, as did the Illinois court, inserted, in the order whereby it transferred to the present permanent receiver all the property and effects of the corporal ion in the hands of the temporary receiver it had appointed, a clause providing for the payment of all liens lawfully created or imposed on the property by any order of its own, “as may be hereafter ordered or adjudged, this order being made without prejudice to any existing liens, and without prejudice to any objection or defense thereto.” Evidently, the Alabama court did not undertake so to adjudicate upon the corpus temporarily in its hands as to cur off the i-ights of persons who had no opportunity to be heard before it.

The exceptions to this part of the master’s report are overruled, and the claim disallowed. The receiver, however, should return 1 them the stock which, presumably, they gave up when they received the receiver’s certificate.  