Rauer v. Hatfield

HUNT, Circuit Judge

(after stating the facts as above). The trustee has moved to dismiss the appeal of Rauer from the decree of September 11, 1916, on the ground that the decree was final and that no appeal therefrom was taken until November, 1922. True, in the provisions of that decree the court determined that after February 19, 1915, the ownership of the stock of the Sunset Construction Company vested in Cords as trustee of the estate of Buckman, bankrupt; but the court also ordered that Rauer and others account before the master for property and money received since December 12, 1911, for the purpose of determining “what claim, if any, exists between the company and said persons.” The decree, therefore, went farther than merely to refer the case to a master for a ministerial purpose with no further proceedings in court being contemplated. The reference to the master was as to a subordinate court for judicial purpose as stated, especially that of determining what claims, if any, existed between the company and the persons named, and upon tiie master’s report further decree was to be entered. Such a decree does not dispose of all the issues, and is not final or appealable. Section 128, Judicial Code (Comp. St. § 1120); California National Bank v. Stateler, 171 U. S. 447, 19 Sup. Ct. 6, 43 L. Ed. 233. Nor was it treated by the lower court as final, for no final decree was made until, after the master made his report and exceptions thereto had been argued and considered. McGourkey v. Toledo & Ohio R. Co., 146 U. S. 536, 13 Sup. Ct. 170, 36 L. Ed. 1079; Rumsey v. New York Life Ins. Co. (C. C. A.) 267 Fed. 554; Gay et al. v. Focke (C. C. A.) 291 Fed. 721. It follows that Rauer is not limited by the provisions of the interlocutory °decree. By his appeal from the final decree that he must pay certain sums to the trustee the whole case is properly before us.

The facts appear to be as follows: About 1910 Buckman was a contractor in San Francisco, and caused the Sunset Construction Company, a corporation, to be organized. He owned all of the stock, although not in his own name. The corporation, however, failed to pay its taxes and lost its franchise. In 1911 Buckman caused another corporation to be organized under the same name, Sunset Construction Company. All of the books and property of the Sunset Construction Company No. 1 were turned over to the Sunset Construction Company No. 2. No new certificates of stock were issued, it being agreed by the officers of the new company that the certificates of stock issued in the old company should stand and be evidence of ownership in the new company. Buckman owned all of the shares of the new company execpt two qualifying shares, and he was general manager with full power to act. In 1911 Rauer loaned money to the Sunset Construction Company, and at different times thereafter loaned it large additional sums until about October 27, 1915, the date the complaint herein was filed. In the course of the business of the company, Buckman, as general manager, gave notes to Rauer when he made advances and as further security made assignments to Rauer of the contracts and money payable under contracts for construction work held by the corporation. On January 15, 1914, the company owed Rauer about $20,000. Buckman then gave Rauer his note signed as an individual, and as security pledged to Rauer 10,150 shares of his capital stock in the company. The shares were evidenced by a certificate issued by the Sunset Company No. 1, there being, as before stated, no certificates issued by Sunset No. 2. At that time Rauer also held a chattel mortgage on the personal property of the corporation, the mortgage having been made by Buckman, general manager, to one Wehrle, a relative of Rauer. There is no evidence that Rauer knew of the agreement that the certificates of stock of the old corporation should be evidence of the ownership of shares in the new company, or that at the time he took the pledge note he had knowledge of the internal arrangements between the two Sunset Companies. Apparently, in the best of faith he dealt with the company. To secure the debt he had a right'to take the securities he held and upon default to proceed to enforce collection of his notes. He was therefore clearly within his legal rights when, guided by advice of counsel, on August 12, 1914, he sold the pledged corporation stock. The sale was regularly held after notice. The shares sold for $50 to Wehrle, who in turn transferred the stock to Meadows, a defendant herein, who died in 1920. When the stock was sold, the corporation had no assets of value; the stock was practically valueless. The company was heavily in debt to Rauér, and even though he was a pressing creditor, there is nothing whatever tending to show fraud or collusion on his part with Buckman.

It is clear that on February 19, 1915, when Buckman filed his petition in bankruptcy, the corporation owed Rauer over $18,000, and thereafter, by reason of the further advances made by Rauer, it owed him a very much larger sum. There is not sufficient ground for holding that Buckman was guilty of wrong or had any unlawful purpose in organizing the first or second Sunset corporation. The mere fact that he owned all of the stock is not evidence of intent to hinder and defraud. No decision can be predicated upon the ground that the transfer of the shares and the delivery of the certificate by Buckman to Rauer, who was a bona fide creditor, was made with intent to hinder or delay or defraud the creditors of Buckman. The fact that the shares had no value does not affect the validity of the transaction. No finding of fraud in connection with the organization of the Sunset Company No. 2 could stand. It was a corporation. Clark on Cal. Corps. p. 64.

The final decree does not find that the pledge made was fraudulent, but proceeds upon the theory that the pledged stock belonged to Buckman as an individual and therefore passed to the trustee in bankruptcy when Buckman was declared bankrupt in February, 1915, and that the trustee should be regarded as the owner of the shares. But in the absence of fraud of any kind, there being a valid debt for' which the stock could have been lawfully pledged and Rauer having acted in good faith, he cannot be deprived of the right to foreclose the pledge or to claim that the debt for which the stock was pledged should be awarded priority as against any claims of the trustee.

The appellee also says that Rauer could not complain of a ruling to the effect that title to the stock in the corporation was in Buck-man’s trustee and argues that Meadows, purchaser of the stock, has not appealed from the decree. Meadows, however, could not appeal from the interlocutory order, and it appears he died in August, 1920, before final decree in the case was made, and that no administration of his estate has been had. But as it is clear that the shares of stock were pledged, in no event would the trustee be entitled to be regarded as the successor of the pledgor without recognizing the rights of the pledgee or of the owner. The accounting ignoring the pledge was fundamentally inaccurate.

We turn now to Rauer’s appeal from the order of the District Court, fixing the special master’s compensation. Equity Rule No. 68 provides that the compensation of a master shall be fixed by the District Court in its discretion, having regard for all circumstances of the case, and compensation shall be charged upon and borne by such of the parties in the cause as the court shall direct. The master had no in- ■ terest in the cause except to arrive at an accurate result and; in an earnest effort to understand and obey the provisions of the interlocutory decree, made a careful and detailed examination of the books and papers. He has received no money for his services. It is our opinion that the order of the District Court, in so far as it requires the payment of the master’s compensation to be paid by Rauer in the first instance, must be upheld. In recovering his costs Rauer may include the sums which he was directed to pay and must pay the master.

The decree of the District Court with respect to the appeal of Rauer from the final decree in favor of the trustee adopting the master’s report upon the accounting is reversed, and the cause is remanded, with directions to proceed as indicated in this opinion, and dismiss .the complaint.

The appeal from the order of the District Court fixing the compensation of the special master for his services is affirmed.