Opinion
Nos. 4216, 4217, 4241, 4245, 4246.
February 11, 1930.
Appeals from the District Court of the United States for the Eastern District of Illinois.
In the matter of the Danville Hotel Company, Inc., bankrupt. Proceeding by John W. Cherry, trustee in bankruptcy, to require Caldwell Co., underwriter of a bond issue of the Danville Hotel Company, to pay over to the trustee in bankruptcy a portion of the proceeds of the issue remaining in the underwriter's hands, and certain other funds, and petition by John W. Cherry, as trustee in bankruptcy of Danville Hotel Company, to marshal liens and to sell the property of bankrupt free of all liens, in which proceeding Arthur A. Marer Co., by its answer and intervening petition, sought to set up a claim for a mechanic's lien, and the Liberty Central Trust Company and another, as trustees under a deed of trust on behalf of the bondholders, and the trustee in bankruptcy, each filed objections to the lien claimed. Caldwell Co. appealed from the order in the first proceeding requiring it to pay over certain money, and the Liberty Central Trust Company and H.J. Miller, as trustees, Rogers Caldwell, E.J. Heitzeberg, and J.D. Carter, as bondholders' protective committee, etc., and others appeal from that part of the decree approving the referee's order allowing O.K. Yeager, doing business as Yeager Sons, E.M. Weymer Company, and Carson-Payson Company, prior liens [ 33 F.2d 162]. From the decree in the second proceeding Arthur A. Marer Co. appeals.
Affirmed as to Arthur A. Marer Co., but otherwise reversed and remanded.
Cause No. 4216 is an appeal from an order of the District Court, entered on review of an order of the referee in bankruptcy, in a proceeding to require appellant, Caldwell Co., underwriter of a bond issue of the Danville Hotel Company, a bankrupt, to pay over to the trustee in bankruptcy the portion of the proceeds of the issue remaining in the underwriter's hands at the time the petition in bankruptcy was filed, and also to pay over to said trustee certain amounts which the underwriter had paid out of the fund preceding the filing of the petition in bankruptcy.
On November 11, 1925, the Danville Hotel Company entered into a contract with Chas. Benson, Inc., to build the Wolford Hotel at Danville, Ill. On February 13, 1926, a written contract, hereinafter referred to as the underwriting agreement, was made between Danville Hotel Company, hereinafter referred to as hotel company, and appellant. The object of the contract was to dispose of the hotel company's bonds, which were to be issued and secured by a mortgage on the hotel, then under construction.
Summarizing the parts of said agreement which are pertinent to the questions involved, it was provided:
In section 2, for the execution and issuance by the hotel company of 6½ per cent. bonds aggregating $700,000 in total principal amount and maturing serially in from two to fifteen years from date of issuance.
In section 3, for the payment of said bonds to execute a deed of trust to such trustee as the underwriter should select and in such form and with such provisions as the underwriter and its counsel should approve.
In section 4, for the making of monthly payments by the hotel company to the underwriter for the purpose of providing a fund to insure the prompt payment of interest and principal of bonds as same matured, the said funds to be segregated in bank for that purpose.
In section 5, for delivery of bonds to the underwriter, with power of sale to any one it might choose, such purchaser to receive said bonds bona fide for value.
In section 6, for the hotel company to receive $630,000 from the underwriting of the bonds.
In section 7, for the use of the proceeds of the bonds in the construction of the building and after identifying building and itemizing values of lot, building, etc., that the owner will furnish such additional funds as may be necessary when added to the proceeds of said bonds to complete the improvements on said property.
In section 8 the underwriter shall deposit the proceeds of said bonds as rapidly as needed, in some bank selected by it, and they shall be drawn and paid out by it as the building progresses, in such amounts and at such times and dates as the owner and underwriter may agree upon, or, if they fail to agree, as the underwriter may determine to be necessary and best.
In section 9 the underwriter may at all times hold sufficient of such funds on deposit in said bank or banks as it may select to entirely complete the building contemplated to be erected hereunder, free from any and all liens that are prior to said trust deed, and shall stop disbursements of said proceeds of said bonds at any time until such deficiency is made up by the owner. The owner will furnish to the underwriter waivers of liens and receipts for payment of moneys for material and labor entering into the construction of said building or satisfactory sworn statements showing such payments as will under the law relieve the property from liens in favor of materialmen, mechanics, and contractors so as to always maintain said trust deed or mortgage as a first lien against said property, and under no circumstances shall the underwriter be held liable to the contractors, materialmen, or laborers furnishing material, work, or labor in the construction of said building, but only for a proper payment or disbursement of all moneys which the underwriter is called upon to account for under this contract.
In section 14, that the underwriter shall make disbursement and payment of the proceeds of said bonds from time to time on vouchers for materialmen, contractors, sub-contractors, laborers, or others, on the order of the owner and architect's certificate, approved by consulting architect upon the receipt of the necessary waivers of liens and affidavits which have the effect of waivers of liens, satisfactory to the underwriter, and shall generally supervise the erection of the building and the disbursement of the moneys employed in said building to the end that this contract shall be carried out so as to fully protect the purchasers and holders of said bonds. The underwriter shall have the privilege of employing a consulting architect or architects, whose fee, not exceeding 1 per cent. of the contract price, shall be borne and paid by the owner, and engineers, architects, or contractors, employed by said consulting architect or by the underwriter, may enter the premises at any time during the construction of the building for the purpose of examining the progress made and material used, etc.
The underwriter, if it sees fit to do so, may pay off and discharge from any of the funds deposited by it as the proceeds of said bonds, any lien or claim upon said building for labor or material without being obligated to determine whether such claim or lien is valid in law or not, providing that the work and labor went into said building and such payments shall be deducted as other payments from the proceeds of such bonds so deposited as aforesaid and said underwriter shall be given due credit for all such payments in the final accounting for the proceeds of said bonds.
Shortly after the execution of the underwriting agreement, and pursuant thereto, the hotel company executed and delivered to Liberty Central Trust Company and H.J. Miller, as trustees, a deed of trust or mortgage on its real estate, dated March 1, 1926, securing the payment of serial first mortgage bonds of the hotel company in the aggregate principal amount of $700,000; and the same was recorded. This instrument provided that the hotel company should make monthly payments to appellant for segregation in a bank, out of which appellant was to forward funds to the paying agent to meet coupons and bonds as they matured; it further provided for acceleration of maturity of all bonds in case of default in performance of any covenant therein; it also contained a covenant against liens or other incumbrances on the property; and another covenant that the hotel company would promptly furnish all moneys necessary, in addition to and prior to the use of the proceeds of the bond issue, to complete and furnish said hotel. This deed of trust or mortgage, and the notes secured thereby, were delivered to appellant and sold by it, appellant retaining $70,000 as its commission and depositing $630,000 with the Bank of Tennessee in the name of Danville Hotel Company. This deposit was not subject to the check of the hotel company, but was to be withdrawn only by Caldwell Co.
On July 30, 1927, a petition in bankruptcy was filed against the hotel company, and it was adjudged a bankrupt on August 19, 1927.
Both from the express understanding at the time the underwriting agreement was written, as well as from a later implied agreement resulting from repeated notification of the application of a portion of the bond proceeds to the monthly amortization required by section 4 of the underwriting agreement and section 21 of the deed of trust, without dissent on the part of the hotel company, it was the understanding of appellant and the hotel company that such use was to be made of a sufficient portion of the bonds. No payments toward meeting the principal or interest of the bonds were made by the hotel company, except such as were made from the bond proceeds. Four months prior to the filing of the bankruptcy petition appellant knew that the unpaid material and labor bills on the hotel building exceeded, by approximately $73,000, the balance of the proceeds of the bonds on hand. The hotel was completed about May 1, 1927. Appellant would have disbursed the balance of the bond proceeds on construction claims had it been able to receive full releases and waivers of liens; but these releases and waivers were not, and could not be, furnished to it. The balance of the bond proceeds on hand at the time of bankruptcy were applied by appellant, from time to time, to meet the monthly amortization as set forth in section 4, and the bondholders have given full credit for such payments. Under the order of sale, by the trustee in bankruptcy, the bondholders, through a protective committee, bid in the property, both real and personal, for $622,500, and put up $200,000 to meet all possible prior liens of furnishers and materialmen and the costs. This amount is sufficient for such purposes.
On the date of the filing of the bankruptcy petition appellant had in its possession, of the $630,000, the sum of $40,762.43. During the five months preceding this date it had paid out of the bond fund, on the maturing principal and interest of the bonds, the aggregate sum of $15,487.47; and on September 26, 1926, it had paid out of the bond fund the sum of $8,227 to L.B. Stevens as a fee of consulting architect in relation to the hotel construction. Stevens was an employee of appellant and was drawing a regular salary. He was not an architect, and in fact never received the money.
These three items were ordered by the court to be paid by appellant to the trustee in bankruptcy; and their payment constitutes the controversy between the parties.
The court further ordered the trustee in bankruptcy, after paying the costs of administration, to prorate and to apply these sums upon the amounts due and unpaid for labor and material in proportion to the respective amounts due the parties who furnished said labor and material, irrespective of whether these parties held liens for the respective amounts due them.
The court decreed that appellant held the three sums in trust for the hotel company, and, after the date of bankruptcy, for the trustee in bankruptcy, who was impressed with the obligation, after receiving these sums, of holding them in trust for construction costs.
Certain persons who furnished labor or material, or both, held liens under the Illinois statute, while others did not.
At the time causes No. 4216 and No. 4245 were presented, there was also presented to this court cause No. 4217. It is an appeal from the same decree, but relates to that part of it allowing liens and fixing priority thereof on the funds derived from the sale of the assets of the hotel company, bankrupt, and also those funds ordered paid by Caldwell Co. to the trustee in bankruptcy.
The referee's order allowed O.K. Yeager, doing business as Yeager Sons, E.M. Weymer Company, and Carson-Payson Company, liens for $38,722.86, $26,959.96, and $10,167.63, respectively, prior and superior to the lien of the trust deed to Liberty Central Trust Company and H.J. Miller, trustees. The District Court approved the referee's order with reference to the liens allowed, and this appeal is prosecuted by Liberty Central Trust Company and H.J. Miller, as trustees, Rogers, Caldwell, E.J. Heitzeberg and J.D. Carter, as bondholders' protective committee, and John W. Cherry, as trustee in bankruptcy, from that part of the decree. The appellees in this particular case, No. 4217, had furnished labor and materials which went into the construction of said building. The estimated cost of the hotel when completed exceeded the total proceeds of the bond sale by a considerable amount, which deficiency was to be furnished by the hotel company from the sale of stock of said company. Many of the persons furnishing labor and material had agreed to accept designated amounts of such stock in part payment of their accounts, in the aggregate sum of $217,800, which stock had been placed in escrow in the Palmer National Bank. Appellees in No. 4217 had agreed with the hotel company to accept of said stock, as part payment of their accounts, the respective amounts of $18,000, $3,500, and $6,750.
After the proceeds of the bonds had been placed in the custody of Caldwell Co. for distribution, according to the terms of the underwriting agreement, it refused to disburse any part of the bond proceeds until it was assured that a sufficient amount of the stock had been sold and paid for to liquidate that part of the cost of the property which exceeded the total bond proceeds. The general contractor, Benson, assured Caldwell Co. that this had been done, and, as evidence of that fact, he submitted to Caldwell Co., on May 6, 1926, waivers of liens of certain subcontractors in the aggregate sum of $115,350; he further stated that he had received that amount from the sale of stock and had paid it to said subcontractors. Among this list were three waivers, one of which was signed by Yeager Sons for $44,500; one by E.M. Weymer for $7,500; and one by Carson-Payson Company for $13,500, each being dated March 10, 1926. Each of these waivers was directed "to all whom it may concern," receipted for the specific amount of money named therein, and waived and released any and all liens, or claims, or right of lien, on the hotel building. After each signature appears the following:
Contract _____ Paid _____ Balance _____
These blanks were filled in each waiver, and the amount of the contract was erroneously placed at a figure in excess of the actual contract price to the extent of the exact amount receipted for. This of course resulted in showing the balance of the contract price to be that which was in fact the true original contract price.
At the time these waivers were delivered, Benson also delivered to Caldwell Co. a blanket waiver of Charles Benson, Inc., dated March 10, 1926, waiving and releasing its lien on account of labor and material to date. Caldwell Co. relied upon these waivers and statements of Benson, and believed them to be true, and was thereby led to believe and did believe that sufficient funds had been provided from the sale of stock, together with the proceeds of the bonds, to pay the entire cost of the hotel; and by reason thereof Caldwell Co. issued its vouchers on the bond proceeds to Charles Benson, Inc., for $42,882.85; and it continued to issue its vouchers on this fund, from time to time, for the construction costs of the building until December 17, 1926, when the last estimate was paid by it out of the bond fund.
The statements of Benson in relation to the sale of stock were false, in that a sufficient amount had not been sold to meet the deficit of funds to finish the building; and the waivers of appellees in cause No. 4217 were false, in that on the date of their execution there had been paid to Yeager Sons only $6,300, and nothing had been paid to either of the other two appellees; and of the amount of receipts and waivers filed that day with Caldwell Co. by Benson, totaling $115,350, only $6,875 had been actually paid.
When the last estimate was paid on the bond fund, on December 17, 1926, Caldwell Co. did not know that the amounts stated in these waivers to have been paid were false, and it did not learn of these facts until about March 1, 1927.
Causes Nos. 4217, 4241, and 4246 arose out of a petition filed by John W. Cherry, as trustee in bankruptcy of Danville Hotel Company, to marshal liens and to sell the property of the bankrupt free of all liens. All lien claimants were duly notified of the filing of the petition, and each claimant filed answer thereto, which answers, by order of the court, were considered as intervening petitions for the purpose of setting forth the nature of the liens claimed, and of obtaining, on their merits, the judgment and decision of the referee upon the claims for liens. The order also provided that any claimant desiring to object to the allowance of any lien claimed by any other claimant, should file his answer and make his objections to the lien claimed.
As a part of the same proceeding to marshal liens, Arthur A. Marer Co., appellant, in cause No. 4241, by its answer and intervening petition sought to set up a claim for a mechanics' lien for the sum of $127,400, being the amount claimed to be due and unpaid on a contract between claimant and the hotel company for the furnishing of carpets and furniture for the hotel. Liberty Central Trust Company and H.J. Miller, as trustees under the deed of trust, on behalf of the bondholders and also the trustee in bankruptcy, each filed objections to the lien claimed. Upon hearing, the referee in bankruptcy denied appellant's lien, but allowed its claim in the sum of $121,051 as a general claim.
Considerable time was consumed in securing a contractor for the carpets and furnishings who was satisfactory to the bondholders, due to doubts in the minds of the bondholders as to the financial ability of the bidders seeking such contract to successfully fulfill it. The bondholders were interested in this transaction. Before the contract for the furnishings and carpets was let, the bondholders and the hotel company had agreed that such contract would be let to no one who would not execute in favor of the bondholders' mortgage an absolute waiver of lien for the carpets and furnishings so furnished. Appellant knew this fact and made no objection. It also knew the contents of the deed of trust and the underwriter's agreement.
In April, 1926, a contract for the carpets and furnishings was let to Olson Martens, in which they waived all liens and claims as against the bondholders' mortgage. In the following August the bondholders questioned this firm's financial ability to perform the contract and insisted that Benson, Inc., secure a surety bond from Olson Martens, or obtain some other means of furnishing the hotel. Benson, Inc., elected to furnish another contract. At this time negotiations between Benson, Inc., and appellant (Marer Co.) began. Prior to August 27, 1926, Benson, Inc., notified bondholders that it had completed furniture arrangements with appellant. Thereupon the bondholders wrote to Benson, Inc., demanding that appellant give a full release of the furniture to the bondholders and a guaranty that it would install the furniture and look to the other parties for payment. Following this date, and previous to October 13, 1926, the bondholders wired and wrote Benson and the hotel company for a copy of appellant's (No. 4241) contract, and also wired them to secure the release from appellant, and stopped further disbursements of bond proceeds until the release was received. On October 13, 1926, the bondholders prepared a waiver or release in the form of a letter directed to Caldwell Co., and requested Benson to have appellant sign it and return it to Caldwell Co. This was done, the letter being as follows:
"Chicago, Ill., October 13, 1926.
"Caldwell Company, Nashville, Tenn.,
"Gentlemen: We are advised that there is a mortgage or deed of trust upon the Wolford Hotel property, Danville, Illinois, to include the furnishings and equipment, in the sum of $700,000.00 to the Liberty Central Trust Company and H.J. Miller, of St. Louis, Missouri, as Trustees: that, as underwriter of the said bond issue, you are disbursing proceeds on construction of building and that your further disbursement is conditioned upon your having an absolute obligation for the furnishings and installation of the equipment and furniture of said hotel.
"We beg to advise that we have entered into a contract, dated October 9th, 1926, with the Danville Hotel Company, the owner of said hotel, to install the furnishings and equipment to the price or value of $170,000.00, by December 15, 1926, a true list of said furnishings and equipment being attached hereto. Said contract provides for a cash payment and the giving by the Danville Hotel Company of its thirty monthly interest bearing notes, the first due December 15, 1926, all secured by certain of its stock as collateral. We further advise that we have received the cash payment therein mentioned and that we absolutely guarantee to you and the said Trustees, if you will continue disbursement of bond proceeds, whether the deferred payment notes are promptly met or not, to install said furnishings and equipment free of any lien or encumbrance thereon with the understanding that same will be subject to the lien of the mortgage to the Liberty Central Trust Company and Miller, Trustees, looking alone for the payment of said deferred payment notes to the maker of said notes, the collateral attached thereto and any other rights that we may have subordinate to the lien of said mortgage on said furnishings and equipment. Yours very truly, [Signed] Arthur A. Marer Co. By Arthur A. Marer Its President. [Copy.]"
The bondholders believed and relied upon the contents of this letter, and, relying on the release, paid to Benson, Inc., and the hotel company, on October 14, 1926, the respective sums of $66,484.66 and $23,999.43.
At the time appellant signed the above letter, it had not entered into a contract with Benson or the hotel company for the furniture, and did not sign any contract of such import until December 15, 1926; but this fact was not known to Caldwell Co. or the bondholders until after November 29, 1926, and they continued to write to Benson requesting him to send a copy of appellant's contract.
During the latter part of October, 1926, Benson informed Caldwell Co. that the hotel company was considering changing the agreement with appellant by deducting $55,000 worth of miscellaneous equipment, and thereby reducing the furniture to be installed by appellant to $115,000. A change was afterwards made. Caldwell Co., for the bondholders, immediately notified Benson and the hotel company that it would be necessary for appellant to execute another release similar to that of October 13, 1926. This was done by appellant in the form of a letter directed to Caldwell Co., dated December 15, 1926, which was the same date as the contract; and this was the only contract ever signed by appellant and the hotel company for the carpets and furnishings. This contract expressed a total consideration of $154,000, and included carpets, furniture, draperies, and ornaments. It acknowledged a cash receipt of $24,000; seventeen notes, each for the sum of $2,600, due consecutively every thirty days after December 15, 1926, and one note for $85,000 due eighteen months from December 15, 1926 — all of which notes were secured by a trust deed to Chicago Title Trust Company upon the realty of the hotel company. The release last above referred to is as follows:
"Chicago. Dated Dec. 15, 1926.
"Caldwell Co., Nashville, Tenn.,
"Gentlemen: We are advised that there is a mortgage or deed of trust upon the Wolford Hotel property, Danville, Illinois, to include the furnishings and equipment, in the sum of $700,000.00 to the Liberty Central Trust Company and H.J. Miller, of St. Louis, Missouri, as Trustees; that, as underwriter of said bond issue, you are disbursing proceeds on construction of building and that your further disbursement is conditioned upon your having an absolute obligation for the furnishing and installation of the equipment of said hotel.
"We beg to advise that we have entered into a contract dated December 15, 1926, with the Danville Hotel Company, the owner of said Hotel, to install the furnishings and equipment to the price or value of $115,000.00, to be substantially installed on or before January 15, 1927, and to be completely installed on or before February 1, 1927, a true list of said furniture and equipment having been heretofore furnished you.
"Said contract provided for a cash payment, which has been made, and interestbearing notes secured by a second mortgage, the first due January 15, 1927, and one every thirty days thereafter, said mortgage being a trust deed running to the Chicago Title Trust Company to secure $130,000.00, evidenced by eighteen certain promissory notes, seventeen of said principal notes being for the sum of $2,600.00 each, due consecutively one every thirty days after date, and one note for $85,800.00 due eighteen months after date, with interest at the rate of seven per cent. per annum, payable monthly upon the unpaid balance, said indenture or trust deed and said notes being dated December 15, 1926.
"Said trust deed has stamped across the face that it is a junior mortgage, and in the body thereof is made subject to the trust deed and chattel mortgage heretofore given to Liberty Central Trust Company of St. Louis, Missouri, and H.J. Miller, as trustees, to secure the principal sum of $700,000.00.
"You are further advised that we have received a cash payment of $24,000.00 as part payment under said contract, and we absolutely guarantee to you and the said trustees, if you will continue disbursements of bond proceeds, whether the deferred payment notes are promptly met or not, to install said furniture and equipment free of any lien or encumbrance thereon, save and except the said second mortgage aforementioned, with the understanding that the same will be subject to the lien of the mortgage to the Liberty Central Trust Company and H.J. Miller, Trustees, and any rights that we may have being subordinate to the lien of said first mortgage and first chattel mortgage to said Liberty Central Trust Company and said Miller, Trustees. Yours very truly, Arthur A. Marer Company By Arthur A. Marer its President. AAM-BG. [Corporate Seal of Arthur A. Marer Company.]"
The bondholders believed and relied upon the contents of this letter and by reason thereof paid to Benson, on December 16, 1926, of the bond proceeds the sum of $12,000. The deed of trust to Chicago Title Trust Company recites that it is a junior mortgage and subject to that of the bondholders' mortgage, and also to a certain chattel mortgage which the hotel company had given to the bondholders upon the contents of the hotel as a further security for the bond issue. This chattel mortgage attempted to cover the very carpets and furnishings which appellant put in the building, but inasmuch as the property attempted to be conveyed was not in existence at the time the mortgage was executed, and was never in the possession of the bondholders, the referee and the court held the chattel mortgage invalid.
Another reason assigned by Caldwell Co. for discontinuing disbursements of bond proceeds during the summer and fall of 1926 was the fact that it did not consider appellant financially able to fulfill the contract of furnishing the hotel, and it therefore demanded a guaranty to this effect, which was given on November 24, 1926, and thereafter on November 26, 1926, it delivered its draft to Benson, Inc., upon the bond proceeds for $60,167.39.
On December 15, 1927, appellant filed its claim for a mechanics' lien for $127,400 in the circuit court of Vermillion county, Ill. The last work done by appellant — and the last material furnished on this contract — was in the latter part of February, 1927, about which time the carpeting for ten rooms was rejected because it did not comply with the specifications. Other carpet was ordered therefor, but it was not cut or delivery attempted until August or September of 1927, which was after the adjudication of bankruptcy of the hotel company. Appellant then offered to fit the remaining carpets, but it was not permitted to do so. A large part of appellant's furnishings was carpets which were glued to the floors; another portion was for articles fastened to the building by hooks, sockets, and screws; another portion was for articles made specially to fit certain places; and the remaining articles, so far as the evidence shows, were standard patterns and not attached to the building in any way.
W.E. Norvell, Jr., of Nashville, Tenn., for appellants Liberty Central Trust Co., Miller, Caldwell, Heitzeberg, Carter, Caldwell Co. and others.
V.W. McIntire, of Danville, Ill., for appellants Liberty Central Trust Co. and Miller.
Ross D. Netherton, of Chicago, Ill., for appellant Arthur A. Marer Co.
Wm. M. Acton, of Danville, Ill., for appellees Yeager, E.M. Weymer Co., and Carson-Payson Co.
Walter T. Gunn, of Danville, Ill., for appellee Cherry.
Before EVANS, PAGE, and SPARKS, Circuit Judges.
The primary question in cause No. 4216 is whether or not the trustee in bankruptcy can recover from Caldwell Co. for money unexpended or misapplied, which was derived from the sale of the hotel company's bonds under the contract between appellant and the hotel company. In deciding this question it is well to remember that, if the trustee in bankruptcy recovers in this action, he must do so on the strength of his own title, and not on the weakness of his adversary's title. In comparative terms it is quite easy to determine the title of the trustee in bankruptcy to said funds, for he has exactly the same title which the bankrupt had at the time the petition in bankruptcy was filed. He has no more and no less than this. To determine what title the bankrupt had in the funds previous to its bankruptcy we must look to the underwriting agreement executed by Caldwell Co. and the bankrupt, for it measures the rights and liabilities of all parties to this controversy so far as this fund is concerned.
All the parties hereto agree that this agreement is an underwriting contract, and that by its terms Caldwell Co. agreed, for a valuable and sufficient consideration, to sell the bond issue of the hotel company or to purchase it in case it failed to sell the issue. It has been decided, without exception, we think, that such an instrument is not an agreement to loan money, but it is a guaranty either to sell or to buy the bonds, and the underwriter is in fact considered the ultimate purchaser of the bonds. Fraser v. Home Telephone Telegraph Co., 91 Wn. 253, 157 P. 692; Stewart v. G.L. Miller Co., 161 Ga. 919, 132 S.E. 535, 45 A.L.R. 559; Busch v. Stromberg-Carlson Tel. Mfg. Co. (C.C.A.) 217 F. 328.
By the terms of this underwriting agreement the underwriter was to deposit the proceeds of the bonds in some bank selected by the underwriter, and was to pay out from such sum, as the building progressed, such amounts and at such times and dates as the owner and underwriter might agree upon, or, upon failure to agree, as the underwriter might determine to be necessary and best.
Whether, under this agreement, Caldwell Co. held and disbursed the funds as an agent of the bondholders or as an agent of the hotel company, is a question upon which the parties hereto differ. In determining this question it is helpful to consider the purposes of the parties in entering into such an agreement, and to examine the obligations placed upon each party thereto.
It was the purpose of the hotel company to have the sale of the bond issue guaranteed, that it might construct and pay for its building. Being engaged in the business of underwriting bond issues, it was evidently the purpose of Caldwell Co. to protect its customers and patrons by putting on the market high-grade mortgage bonds, which should constitute a first lien on the property covered by the mortgage or deed of trust. It was the duty, as well as the purpose, of the underwriter to see that no prior liens attached. Its credit and business standing depended on it. The terms of the agreement explicitly show these facts to be true.
The underwriter reserved the right to select the trustee; it was to dictate the provisions of the trust deed; it required the hotel company to make monthly payments to it to meet the principal and interest as they matured; it required the owner to furnish such additional funds as might be necessary, when added to the proceeds of the bonds, to complete the improvements on the hotel property; it selected the bank or banks where the proceeds were deposited, and reserved the right to disburse the same in such amounts and at such times and dates as it might determine to be necessary and best; it reserved the right at all times to hold sufficient of said funds on deposit in said bank or banks to complete the building free from any and all prior liens, and to stop disbursements at any time until such deficiency, if any, be made up by the owner; it required the owner to furnish it with waivers of liens and receipts for payment of moneys for material and labor as would, under the law, relieve the property from liens, so as always to maintain the trust deed or mortgage as a first lien against the hotel property; it reserved the right to disburse the proceeds from time to time on vouchers for materialmen, contractors, sub-contractors, laborers, or others, upon receipt of the necessary waivers of liens; and to supervise generally the erection of the building and the disbursement of the moneys employed in its construction, to the end that the contract should be carried out so as to protect fully the purchasers and holders of the bonds.
These reservations and requirements were for the protection of the bondholders, and were very properly inserted into the underwriting agreement for the purpose of making the investment secure. Caldwell Co. was charged with the carrying out of these provisions, and as such it was, to that extent, the protector of the bondholders' rights. While an underwriter may in some respects be the agent of the issuer of the bonds, yet, when the agent is to retain a portion of the money until a prior incumbrance is discharged, he does this for, and in so doing is the agent of, the owner of the bonds, who alone is interested in having the discharge before he parts with the money. If the agent acts for the issuer, then the agent's possession is the possession of the principal, and the latter may demand that the money be paid him without discharging prior claims against the property. Travelers' Ins. Co. v. Jones, 16 Colo. 515, 27 P. 807; Fraser v. Home Telephone Telegraph Co., 91 Wn. 253, 157 P. 692; Larson v. Lombard Inv. Co., 51 Minn. 141, 53 N.W. 179; Jensen v. Lewis Inv. Co., 39 Neb. 371, 58 N.W. 100; McLean v. Ficke, 94 Iowa 283, 62 N.W. 753; Hubbard v. Wallace Co., 201 Iowa 1143, 208 N.W. 730, 45 A.L.R. 1065; Day v. Dages, 17 Ind. App. 228, 46 N.E. 589; Gibson Young v. Davenport, 29 Ohio St. 309; Stockton v. Watson (C.C.A.) 101 F. 490.
In the case of Fraser v. Home, etc., supra, the court held that the underwriter of bonds, as a matter of law, is not an agent of the company whose bonds he sells. The other cases cited on this proposition are cases of loans and not of underwriting agreements, but the facts are analogous, and the principle of law governing each, in this respect, is the same. We hold, therefore, that in holding and disbursing the proceeds of the bonds Caldwell Co. was acting as agent for the bondholders and not of the hotel company. As such agent it was bound to disburse said proceeds strictly in accordance with the directions imposed by the underwriting agreement. A failure to do this would have rendered it liable to its principal. Its plain duty was to see that no prior liens attached to the property. It was agreed by both parties that the mortgage or trust deed should at all times be a first lien, but the mere statement of this fact would not make it irrevocably so, because prior liens for labor and material, as the work progressed, might attach. Hence this was not an agreement to turn over to the hotel company all of the $630,000 absolutely and at all events, but this sum was to be paid in various amounts and at such times as the work progressed as Caldwell Co. might determine necessary and best, and upon certain precedent conditions, and these conditions were such as would, if fulfilled, maintain the priority of the bondholders' lien. The hotel company agreed to these conditions, and specifically promised to present receipts and waivers of liens from materialmen, subcontractors, and laborers before their respective claims should be paid by Caldwell Co.; and the hotel company further promised to furnish sufficient money, other than the proceeds of the bonds, to keep the property free from liens which might be superior to that of the bondholders.
There was no agreement on the part of Caldwell Co. to pay any sum of money to materialmen, contractors, subcontractors, or laborers, but the agreement was to pay money for them, from time to time, upon receipt of the necessary waivers of liens and affidavits, which have the effect of waivers of liens, satisfactory to the underwriter. These conditions were not met by the hotel company. Counsel for the trustee in bankruptcy cite the case of Busch v. Stromberg, etc., Co. (C.C.A.) 217 F. 330, 331, and quote from it extensively. In that case Busch and others underwrote a million dollars of bonds for the telephone company, but before the subscription contracts became due the telephone company became insolvent and Busch refused to pay. He attempted to defend upon the claim that the underwriting agreement was a mere executory contract to loan money, and that no recovery could be had because (1) an action for specific performance would not lie; (2) the breach caused no damage, for the agreement to repay the loan offset the contract to make it; (3) no recovery can be had for refusal to advance money on overdue bonds; and (4) the insolvency of the company and the worthlessness of the bonds relieves it of the previous obligations.
None of these questions are raised in the instant case. Each was decided adversely to the appellant, and very properly so.
In that case there was no claim that the telephone company had violated any agreement other than the agreement to pay the bonds when due. The court, however, used some language in its opinion which is very pertinent to the issues in the case at bar, and which lends no aid to the contention of the hotel company. It says:
"The subscribers might have provided in their agreement that they should be released from their undertaking in case the company became insolvent or, the bonds became worthless or depreciated in value. They did not do so."
In the instant case it was provided in the agreement that the hotel company should do certain things, which have heretofore been enumerated, before this money should be paid to it, or for its use and benefit. This it failed to do on account of financial inability which resulted in bankruptcy.
For the reasons as stated we hold that the trustee in bankruptcy had no right to have the sums in question turned over to him as a part of the assets of the estate of bankrupt.
The trustee in bankruptcy further claims that he is entitled to have these sums of money turned over to him for distribution to the parties who furnished the material and labor regardless of whether or not they had established mechanics' liens, and this was decreed by the court below. This is on the theory that, where a contract is made for the benefit of a third person, the third person may recover the benefit. We concede this proposition to be sound, but if there be conditions precedent imposed upon the third person, he must meet these conditions before there can be a recovery. We hold that the conditions are identical under which the trustee in bankruptcy and those furnishing labor and material are entitled to these funds, and that under this theory the laborers and materialmen are not entitled to the funds on account of failure to meet those conditions.
The lower court stated in its order that the trust deed, in the absence of waivers, was invalid as to all lienholders for labor and material; and that it was to prevent such prior liens that the parties stipulated that the proceeds should be disbursed as mentioned. In this we concur, but we find nothing by way of agreement or in the conduct of the parties to convince us that it was the intention of any of the parties that materialmen or laborers, or any one, who had no prior lien, nor the right to one, should be paid out of the proceeds of the bonds. The mortgage was a prior lien as to all such persons, and no agreement as to them was necessary, nor was it intended.
All persons having liens prior to the mortgage are entitled to be paid. When the property was sold by the trustee in bankruptcy such prior liens attached to the proceeds of the sale. The trustee, by order of the court, required the purchaser to pay to him the sum of $200,000 to secure the payment of all prior lien claimants, costs, and taxes. This was, and is now, deemed by all parties concerned sufficient to protect all prior lien holders.
We think the court erred in ordering Caldwell Co. to pay any of the proceeds of the bonds to the trustee in bankruptcy. Whether or not there was a misapplication of funds by Caldwell Co. we intimate no opinion, as we consider that to be a matter between the bondholders and Caldwell Co., and that issue is not before us.
Cause No. 4245 is based on the same record and raises the identical question as cause No. 4216, the only difference being that in cause No. 4216 this court granted the appeal, and in cause No. 4245 the District Court granted the appeal. This decision, therefore, disposes of both cases.
In cause No. 4217 it is the theory of appellants that each appellee is estopped from asserting a lien upon the proceeds of the sale of the hotel property to the extent of the error in the amount of money acknowledged to have been received by it, as contained in its waiver presented to Caldwell Co. by Benson, and that the appellees have no interest whatever in the bond proceeds. In regard to the conduct of Benson the referee, in his order, used the following language:
"Representations by Benson, Inc., to Caldwell Company as to waiver of liens, amounts paid to the subcontractors in cash, and credits available by reason of representation that there were several hundred thousand dollars in stock substantially subscribed or paid for was unquestionably a misrepresentation that worked to the detriment and fraud of the holders of bonds as sold through Caldwell Company, underwriters."
Upon review of this order the court, referring to Benson, said:
"His misrepresentations of fact were inducements to the payments of sums of money by the disbursing agent on the sale of bonds, which clearly would not have been paid except for his representations. * * * His fraud misled Caldwell Company and the bondholders. * * *"
"The referee found the facts to be such that the claimant (Benson, Inc.) is estopped. * * * It has no standing in a court of equity. The referee's report upon this claim is approved."
It is quite apparent that all of these representations were ones upon which Caldwell Co. and the bondholders had a right to rely, so far as Benson, Inc., was concerned; and they did rely upon them and were thereby damaged. It may be true that appellants relied upon other representations in the way of letters and an audit of the hotel's financial standing; yet the court found, and we think very properly so, that Benson, Inc., was precluded from recovery by reason of the fact that said appellants had also relied upon Benson's representations as enumerated in the referee's order. The question before us is, What connection, if any, did these appellees have with these representations of Benson? That appellees were negligent in executing the receipts and waivers cannot be doubted. The natural consequences of such acts are so far reaching that they could hardly be regarded as the reasonable acts of an ordinarily prudent person under any circumstances. That every person is presumed to intend the natural consequences of his acts is elementary. Appellees seek to avoid the charge of negligence herein by disclaiming any harmful intentions in respect thereto. They insist that they did not know the waivers were to be delivered to Caldwell Co.; that they were executed at the request of Benson at the suggestion of Ætna Casualty Surety Company, which was demanding that Benson secure from all the subcontractors waivers as to all that portion of the general contract price represented by Benson's profit and overhead. Appellees say the waivers were intended for the surety company only, and that Caldwell Co. had no right to rely on them. The remarkable thing about this position is that they were addressed "to all whom it may concern," and the name of the surety company is not mentioned, nor is there one word contained therein concerning the purpose or the reason for the execution.
Surely the payment of these subcontractors' accounts was of the very highest concern to all the bondholders, and, this being true, the bondholders were entitled to rely upon the matters contained in the waivers just as much as if the waivers had been specifically directed to the bondholders. That these waivers, addressed as they were, should get into the hands of the disbursing agent of the bondholders is not to be wondered at, especially when they were delivered to Benson, who was very much interested in participating in the disbursement. This was but the natural consequence of the execution of the waivers and the delivery of them to Benson, and it will therefore be presumed that appellees intended that the bondholders should receive them and rely upon the contents.
Appellees insist, however, that the contents of the waivers were not sufficient to mislead appellant bondholders to their damage, but that the bondholders, through their disbursing agent, did not exercise ordinary care. On this subject appellees say (1) that Benson told the agent that the waivers were for the use and benefit of the surety company only; (2) that the waivers do not state that the amounts receipted for were cash, but they may have been for stock; (3) that the waivers showed the correct balance due the subcontractors.
As to the first reason assigned, the bondholders' agent denied Benson's statement, and both the referee and the court believed the agent, and we are bound by this finding.
It is true that each of the appellees had subscribed for a small amount of stock as part payment of its account, but not for any such amount as these waivers represent. Besides, all of the stock subscribed by the subcontractors was deposited in escrow with a bank at Danville, and it was there at this time, and of this fact the agent of the bondholders had knowledge. Appellees are not claiming that these were receipts for stock delivered, but they say they might have been, and that the bondholders' agent was negligent in regarding them as receipts for money.
We are not impressed with this argument. Appellees had received neither cash nor stock when they signed the waivers. The amounts in the waivers are stated both numerically and in writing, the dollar sign is used, and the word dollars is spelled. We are convinced that appellants' agent was not negligent in considering these waivers as receipts for that much cash. Besides, it makes no difference whether the amounts named be considered as cash or as stock. A payment of any part of the consideration named in the contracts, whether by cash or stock, would reduce the owner's liability that much, and protect the bondholders' lien to that extent, and this was the fact that concerned the bondholders most.
It is said that the waivers showed the correct amount due as a balance. They do. They are about the only correct statements in them; and yet they are wrong in that they show balances instead of the original contract prices. Appellees virtually say: We have signed false receipts, we have misrepresented to you the several amounts of our original contracts, but the balances show the several amounts of our original contracts. If you had examined the original contracts you would have detected the fraud, but, not having done so, you are guilty of negligence.
We agree with appellees that a party desiring to claim the benefit of an estoppel cannot shut his eyes to obvious facts, or neglect information easily obtainable, and then charge his ignorance to others. But to what obvious facts did the bondholders' agent shut its eyes, or what information easily obtainable did it neglect? It did not have the several contracts. It knew the total cost; it knew the amount of the bond proceeds; and it knew that, if stock to the amount of $115,350 had been sold and paid on subcontractors' contracts, there was sufficient on hand to satisfy the cash requirement of the contract of Benson, Inc. There were two things which it especially wanted to know, and these were: (1) Had a sufficient amount of stock been sold; and, if so (2), had the proceeds thereof been applied on the debts of the subcontractors? If these questions were truthfully answered in the affirmative, it could safely open up the bond proceeds. Benson answered these questions in the affirmative, and to substantiate his answers he produced one of the highest classes of evidence known to the law, i.e., voluntary admissions against interest, signed by the very parties to whom Benson said he had paid the money. Certainly there was no negligence in believing that these payments had been made. No reasonable man would ask for further proof of payment. These waivers proved more than payment; they proved that that amount of stock had been sold, because there was no other source from which additional money could come. We regard the statements of the amounts of the contracts and of the balances as of secondary importance so far as the disbursing agent was concerned. It had a right to believe that appellees would not misrepresent these facts to it. There was no apparent reason for it to question their motives in this particular, and we think that appellees are not in any position to charge it with negligence for failing to do so.
We hold that the lower court erred in allowing liens to appellees upon any part of the bond proceeds in the hands of Caldwell Co.; and that it further erred in allowing $28,200 of the claim of O.K. Yeager, and $7,500 of the claim of E.M. Weymer, and $13,500 of the claim of Carson-Payson Company, as prior and superior to the lien of the trust deed of Liberty Central Trust Company and H.J. Miller, trustees.
In relation to appellants' right to present the question of negligence to this court, it is sufficient to say that the conclusion of negligence in this case is a deduction from uncontroverted testimony, and in such event this court is at liberty to draw its own inferences and to make its own conclusions. Gilbert's Collier on Bankruptcy, 571; Remington on Bankruptcy, § 3872.
As to appellants' right to rely on estoppel by reason of negligence of appellees when the complaint is based on intentional acts of appellees, we are of the opinion that the word "intention" includes both express and implied intentions, and it is sufficiently broad to cover the negligence from which the implied intention arises. In any event, objections to matters of form and modes of procedure in the court below cannot be made for the first time in the appellate court. Campbell v. United States, 224 U.S. 99, 32 S. Ct. 398, 56 L. Ed. 684.
Cause No. 4246 is based on the same record and raises the identical questions as cause No. 4217, the only difference being that in cause No. 4217 this court granted the appeal, and in cause No. 4246 the District Court granted the appeal. This decision, therefore, disposes of both cases.
Whether in No. 4241 appellant Marer Co. shall prevail in its appeal depends at least upon the answers to two questions:
1. Was any part of the articles furnished by appellant lienable under the Mechanics' Lien Law of Illinois?
2. Did appellant waive its lien, if it had one, in favor of the bondholders' lien?
If the first question is answered in the affirmative and the second is answered in the negative, this appeal should be sustained as to this appellant; but if either of the questions is otherwise answered, then appellant must fail.
That part of section 1, c. 82, Illinois Revised Statutes, which is applicable to this case reads as follows:
"That any person who shall by any contract or contracts, express or implied, or partly expressed or implied, with the owner of a lot or tract of land * * * for the improvement of, or to improve the same, furnish material, fixtures, apparatus or machinery, forms or form work used in the process of construction * * * altering, repairing or ornamenting any house or other building, walk * * * fence or improvements * * * or do landscape work * * * or perform services as an architect or as a structural engineer for any such purpose * * * or perform labor or services as * * * mechanic, laborer, or otherwise * * * shall be known under this Act as a contractor, and shall have a lien upon the whole of such lot or tract of land * * * for the amount due to him for such material, fixtures, apparatus, machinery, services or labor, and interest from the date same is due * * * nor shall the taking of additional security by the contractor or subcontractor be a waiver of any right of lien which he may have by virtue of this Act, unless made a waiver by express agreement of the parties; and this lien shall attach as the date of the contract."
Sections 4, 7, 15, 16, and 39 of the same act read as follows:
"When the owner of the land shall fail to pay the contractor moneys justly due him under the contract at the time when the same should be paid, or fails to perform his part of the contract in any other manner, the contractor may discontinue work, and the contractor shall not be held liable for any delay on his part during the period of, or caused by, such breach of contract on the part of the owner; and if after such breach for the period of ten days the owner shall fail to comply with his contract, the contractor may abandon the work, and * * * shall be entitled to enforce his lien for the value of what has been done.
"No contractor shall be allowed to enforce such lien against or to the prejudice of any other creditor or incumbrance or purchaser, unless within four months after completion, or if extra additional work is done or material is delivered therefore within four months after the completion of such extra or additional work or the final delivery of such extra * * * material, he shall either bring suit to enforce his lien therefore or shall file with the clerk of the Circuit Court * * * a claim for lien.
"Upon all questions arising between different contractors having liens under this act, no preference shall be given to him whose contract was made first.
"No incumbrance upon land, created before or after the making of the contract under the provisions of this act, shall operate upon the building erected, or materials furnished until a lien * * * shall have been satisfied * * * previous incumbrances shall be preferred to the extent of the value of the land at the time of making of the contract, and the lien creditor shall be preferred to the value of the improvements erected on said premises.
"This act is and shall be liberally construed as a remedial act."
We have carefully read the evidence bearing on this particular phase of the case and the authorities cited, and we are convinced that none of the material furnished by appellant Marer was lienable under the statute. The only part of the material furnished by appellant which can be seriously contended to be a part of the real estate is the carpets, which the evidence shows were glued to the floor; but even this method of physical connection appears from the evidence not to be so permanent, as witnessed by the fact that appellant at one time refastened some of the carpets which had become loosed, and at other times took a carpet up more than once to meet the whim of one of the officers of the hotel company. Permanency of fastening, however, is not controlling, but it is a fact to be considered, together with all the other circumstances, in determining the intention of the parties. We concur in the proposition of law cited by appellant that the intention of the parties is the predominating test as to whether an article, personal in character has become a part of real estate; and we are not at variance with the exception to this rule that the parties, by their intent, cannot declare a part of a building to be personalty where the rights of third persons are affected. The question of intention many times can best be determined from the voluntary acts of the parties previous to litigation. There can be no question about the original intention of the hotel company and the bondholders. They considered the furnishings personalty, for the hotel company gave a chattel mortgage upon it, and the bondholders received the mortgage.
But what about appellant — can it bring itself within the exception to the rule, as an innocent third person whose rights will be affected by the general rule? We think not, for the evidence convinces us that it too was of the same opinion until it filed its claim for a lien on December 15, 1927. At least this is the first act on its part to indicate that it regarded the materials furnished as a part of the realty. As further evidence that it regarded the materials as personalty, it required the hotel company to execute to it, to secure the payment of its account, a second and junior mortgage on the real estate, a thing that was absolutely unnecessary if appellant's contention is correct. Furthermore, appellant knew at the time it signed its contract that, before the bond proceeds would be disbursed, whoever secured the carpet and furniture contract would have to admit that such materials would not become a part of the realty, or to execute a waiver of lien. This was the mutual understanding of every one concerned. That this was the understanding of appellant is suggested by the letters it wrote to the bondholders' disbursing agent on October 13 and December 15, 1926. Appellant insists, however, that the statements in these letters relative to a release in favor of bondholders were merely voluntary and without consideration; but we are discussing now the question of intentions, and voluntary expression of intention does not require a consideration for its interpretation.
It may also be noted in this connection that appellant installed its last material and did its last work in the hotel in February, 1927; that a receiver was appointed for the hotel company on July 30, 1927, which was followed by an adjudication in bankruptcy on the 19th day of August, 1927; and yet, in the face of financial distress, appellant never filed its claim for a lien until December 15, 1927. It is true there were a few carpets which had neither been installed nor delivered, representing about $1,000 of the contract price; yet appellant had installed material valued at more than $121,000, and, if it considered its account lienable, why did it not file its claim within four months from the time the last work and material were provided, regardless of whether the contract had been completed, for the statute gave appellant this right if the delay was not caused by it, and appellant says that it was not. If appellant believed that its material had become a part of the real estate, why did it take the chance of losing the lien for $121,000 by deferring the filing of its claim for the lien until such time as it would be permitted to complete the contract, when everything pointed to the fact that it never would be permitted to do so, by reason of the bankruptcy proceedings. This delay merely confirms our belief that appellant never intended that its material furnished should become a part of the realty. Having originally and voluntarily concurred in the intention of all the parties concerned, it cannot, at this late day, change that intention merely because matters have turned out disastrously.
We are also of the opinion that appellant waived any lien which it otherwise might have had. This is clearly shown by the mortgage which it received from the hotel company, and by the letters it wrote to Caldwell Co. on October 13 and December 15, 1926. Appellant insists that these were voluntary statements and made without consideration. It is sufficient to say in this connection that each of these letters was prepared by Caldwell Co. and sent to appellant accompanied by a demand that appellant sign and return them, which was pursuant to the original understanding of all the parties concerned; and that a further statement was then and there transmitted to appellant that, if they were not signed, further disbursement of bond proceeds would cease. They were signed by appellant without objection, but surely they cannot be considered as voluntary statements on the part of appellant.
We are also of the opinion that there was a valid consideration for these waivers, and that the bondholders fully performed their part of the contract, in so far as they were permitted to do so.
Appellant contends the consideration was that Caldwell Co. should continue disbursement of proceeds. Even if this be the true consideration, we think the disbursing agent has complied with it according to the underwriter's agreement, although all the proceeds have not yet been disbursed. Appellant had knowledge of this underwriter's agreement and of the duties which the underwriter owed to bondholders in disbursing the bond proceeds, and the meaning of this consideration in question must be construed in the light of the knowledge which the parties had at that time. To "continue disbursements" implies the continuation of an act or acts which before had been satisfactory. The prior disbursements, so far as the contractor and subcontractors were concerned, had been made according to the underwriter's agreement. To have disbursed the bond proceeds differently would have been a violation of the trust confided by the bondholders in their underwriter. We would be reluctant to construe appellant's intention to be that of seeking to have the underwriter violate such trust.
It is our opinion, however, that the continuation of disbursements was not the true consideration for the execution of the waiver. The award of appellant's original contract was the consideration for this waiver. The letters merely constituted agreements to do something which it had already obligated itself to do, and therefore appellant was in no position to demand a further consideration. The taking of additional security for a lienable debt does not, of itself, release the right of lien, unless there be a waiver by express agreement of the parties. In this case there was clearly an express agreement to waive the mechanics' lien, and in such event we may well look to the execution of the mortgage of appellant as a circumstance bearing on appellant's intention to waive liens in favor of the bondholders.
Under all the circumstances we hold that appellant did expressly waive whatever lien it had, if any, in favor of the bondholders' mortgage, and that the bondholders are proper parties to the proceeding within the meaning of Illinois Statutes, c. 82, §§ 1 and 11. We think the court was right in refusing a lien to appellant Arthur A. Marer Co., and in allowing its account as a general claim, and the decree in cause No. 4241 is affirmed.
Causes Nos. 4216, 4217, 4245, and 4246 are reversed and remanded for further proceedings not inconsistent with this opinion.