Before FINNEGAN, HASTINGS and PARKINSON, Circuit Judges.
PARKINSON, Circuit Judge.
Prior to adjudication the bankrupt was in the manufacturing business at 3212 West Fillmore Street in Chicago, Illinois. It owned the building at that address and the machinery and other personal property located therein.
The machinery and other personal property was sold by the trustee, pursuant to court order, at an auction sale on April 26 and 27, 1955. It was sold to divers persons with the announced stipulation that the buyer would have until May 14 only to remove the property purchased from the premises. In other words "[the] period to May 14 was free rental, because it would take that much time to clear the property under the normal auction sale."
Immediately after the sale one Martin J. McGuire, an attorney representing Pennvale Steel & Tube Company, an Illinois corporation, went to the trustee and told him Pennvale wanted to purchase all of the machinery and personal property sold at the auction, enter into a lease for the building and carry on the same business therefore conducted by the bankrupt.
Pennvale then arranged with one Samuel Fishman, who had purchased some of the machinery at public auction, to both sell to Pennvale that machinery and to acquire for Pennvale the remaining property from the other successful bidders.Fishman did so "acting as broker for Pennvale Steel & Tube Company."
On May 5, 1955 Fishman called the trustee and said he was coming over with McGuire. When they arrived McGuire asked the trustee if he could rent the building and the trustee said he would have to obtain a court order. There was talk about custodian fees and McGuire agreed to pay for the custodians.
A Mr. Adolph Winternitz, who conducts his own auction business, told one Louis Dreyfuss about "a loan which looked very attractive." The loan would be to Pennvale to enable it to complete the purchase of the machinery from Fishman. Winternitz took Dreyfuss to the building at 3212 West Fillmore Street in Chicago on May 23rd or 24th 1955 to show him the machinery that was to be used for security. The business was not operating. The door was open and there was a custodian there. Dreyfuss dealt with a Mr. Schwartz and his attorney McGuire representing Pennvale. Dreyfuss was told that Pennvale needed the money to acquire a few more machines and was going to operate the plant.
On May 26, 1955 Dreyfuss made a loan of $30,500 to Pennvale and Pennvale executed a chattel mortgage on the machinery. Dreyfuss paid Pennvale $25,000. The balance of $5,500 was retained by Dreyfuss. It was the amount it cost Pennvale to get the loan from Dreyfuss. The chattel mortgage was recorded on June 7, 1955 in compliance with the law of Illinois.
Pennvale defaulted and on September 2, 1955 Dreyfuss, under the provisions of the mortgage, declared the entire amount due and attempted to take possession of the property described in the mortgage. The trustee refused Dreyfuss possession claiming a lien on the property of approximately $7,000 for custodian charges.
To obtain possession and make sale of the property under the defaulted mortgage Dreyfuss, on September 2, 1955, entered into a written stipulation running to the trustee.Dreyfuss agreed thereby that if the sale did not yield sufficient money to satisfy both the mortgage and the trustee's claim Dreyfuss would deposit a sufficient amount to satisfy the trustee's claim. The stipulation and deposit was subject to the order of Wallace Streeter, Referee, without prejudice to the contention of Dreyfuss that the trustee had no lien. Dreyfuss stated therein with reference to the trustee that: "You, at this time, have your custodians in possession of the said property."
Subsequently, on October 20, 1955, Dreyfuss deposited $7,000 with the trustee pursuant to the stipulation.
On February 17, 1956 Dreyfuss filed his petition praying for an order directing the trustee to turn over to him the $7,000. Issues were formed by answer and counter-claim and the proceedings were heard by the referee, who made rather detailed findings of fact and entered an order directing the trustee to retain $5,316.85 of the $7,000 and pay the balance of $1,683.15 to Dreyfuss.
Dreyfuss filed a petition for review. The District Court affirmed the order of the referee ...