In re O'GARA COAL CO. EQUITABLE TRUST CO. OF NEW YORK v. HANECY et al., 235 F. 883

PER CURIAM. As the matters which seem here to have been put in issue only by the briefs and arguments of counsel do not appear to have had the consideration of the District Court, and are not determined by the order sought herein to be reviewed, we are not in position to pass upon them.

The District Court, by omitting on review of the referee’s order the provision therein which gave respondents’ claim superiority over the lien of the mortgage, would seem by implication to have concluded that this payment must not be made out of any property or funds in the hands of the trustees which are subject to the mortgage lien.

It is our view that the order for payment “out of the property and effects of said estate in the hands of said trustees” must be read as though there had been added to it such words as “properly .applicable to the payment thereof,” for it is not to be presumed that the court intended to direct payment to respondents out of funds on which another held a prior lien, and which were not subject to be used to pay respondents’ claims.

If petitioner or any one else claims to have a lien upon the funds in the hands of the trustees superior to the right of respondents or of any other creditor to have their claims paid out of such funds, it is entitled in a proper proceeding to have such contention heard and determined before such payment of such claim is actually made.

For otherwise, if the trustees wrongfully and on their own responsibility paid out the funds, those having the superior claim thereon might to their disadvantage be obliged to resort to the personal liability of the trustees and their sureties to make good any loss occasioned through such improper payment.

While we are satisfied that the order entered does not authorize the trustees, out of funds on which petitioner holds a first and valid lien, to pay respondents on account of any claim for services not rendered in the realization of the funds in the trustees’ hands, or in the conservation of the property out of which it arose, yet in view of this controversy we deem it to be in the interest of justice and of all concerned that respondents’ claim be not paid until it is ascertained whether all or any part of the funds in the trustees’ hands may properly be applied to such payment.

To that end the order under consideration should be revised and amended so it will provide that such payment may be made only out of funds properly applicable thereto.

The trustees should at once and before making payment report to the court the funds of said estate in their hands, and the source from which the same were derived, and if found to be subject to petitioner’s prior lien, how much, if any, of respondents’ services were rendered in the interest of such fund or mortgaged property, and, upon due notice to all parties concerned, the court should hear and determine all questions as to how much, if any, of the funds in the trustees’ hands, are properly applicable to the payment of respondents’ said claim.

Pending the hearing and determination of these matters, the funds in the hands of the trustees must not be paid out for any purpose so as to reduce same below an amount sufficient to pay in full respondents’ said claim. The matter is remanded to the District Court for further proceedings consistent with the views here expressed. Neither party shall recover costs in this court.