212 F. 229 | E.D.S.C. | 1914
In this cause a bill was filed by the complainant to obtain the instruction of the court upon certain legal questions in the interpretation of the trust instrument with regard to the performance of its duties thereunder. The complainant is the mortgagee trustee. To the bill of complaint there were made as parties defendant the D. T. McKeithan Lumber Company, the mortgagor, and the three individual defendants, Bonsai, Barr, and McKeithan, as being the sole beneficiaries under the terms of the deed of trust by way of mortgage, as they were the holders of all the obligations thereby secured. -An answer was filed by the defendant the D. T. McKeithan Lumber Company, and a separate and independent joint and several answer was filed by the three individual defendants. The questions as to the construction of the mortgage upon which the complainant sought the direction of the court came to a hearing and were decided by a decree filed in this court on the 21st day of May, 1913. Other questions were raised by the answers of the codefendants as against each other, as well as one against the compláinant. The individual defendants, Barr, Bonsai, and McKeithan, alleged that their codefendant, the D. T. McKeithan Lumber Company, was engaged in cutting a large quantity of timber from a tract of land of 2,700 acres, known as the Bright Williamson timber, upon which, when cut, it was required, under the terms of the mortgage, to pay the sum of $2.50 per thousand feet into the sinking fund provided for by the mortgage, as to be paid to the trustee under the mortgage. The other defendant, the D. T. McKeithan Lumber Company, has filed an answer and supplemental answer setting up a number of counterclaims under rule 31 of the rules in equity (198 Fed. xxvii), which answer and supplemental answer were duly served upon the codefendants, the individual defendants
(1) That the deed of trust by way of mortgage should be reformed so as that the clause therein providing for certain payments to be made out of the sinking fund therein provided for, and which has been construed by this court by its decree already filed not to include and cover the payment of the annually recurring interest upon any bonds except those which mature in the year of payment, should be reformed so as. to permit and require the payment by the trustee out of the sinking fund of the annual interest on all the bonds outstanding, whether they mature in the current year or not.
(2) That the plaintiff had paid and redeemed $20,000 at par value of the bonds secured by the deed of trust by way of mortgage, and was entitled under the terms of deed to have the mortgagee release and discharge from the lien of' the mortgage an equal pro rata or proportion of the mortgaged properties; that, although request had been made of the trustee so to do, it had failed to perform its duty in that regard, under the terms of the deed of mortgage.
(3) That the individual defendants,-as holders of all the bonds secured by the mortgage, had taken the same with notice that the D. T. McKeithan Lumber Company had been led to believe that its mill would be completed and ready for operation by the 1st day of October, 1911; that, by reason of the representation on behalf of the corporations from which the defendant had purchased the property to that effect, it had delivered the bonds to its individual codefendants upon the understanding that, inasmuch as the mill had not been completed and ready for operation until the 1st day of January, 1912, one-half of all the coupons on the bonds payable on the 1st day of April, 1912, should not be presented for payment, but should be canceled.
(4) That part of the consideration given by the defendant the D. T. McKeithan Lumber Company for the purchase of the mortgaged premises was the agreement on the part of its vendors, the Williams-Mc-'Keithan Lumber Corporation of Virginia and the Williams & Mc-Keithan Lumber Company of South Carolina, that all accounts and claims for lumber sold since April 1, 1911, should be paid to the ven-dee; that the aggregate amount of lumber sold since that date up to the date when the final conveyance was made to the vendee and the vendee put in possession was $60,958.53, of which the estimated balance remaining after the payment of freight wás $42,670.97, of which about $11,887.92 had been paid, leaving unpaid $30,783.05; that the codefendants', the individual holders of the bonds, had taken the bonds with full knowledge of the obligation to pay this amount, and its failure, and that the amount so due should be taken off from the bonds in the hands of its codefendants.
(5) That misrepresentations of a most -material question had been made as to the quantity of timber, in consideration of the purchase of which the bonds secured by the deed of trust by way of mortgage had been given; that the D. T. McKeithan Lumber Company was entitled to an abatement in price to the extent of' this deficiency; and that the individual bondholders had received and accepted the bonds with full
(6) The counterclaim interposed in the supplemental answer and counterclaim, to the effect that, the bonds held by the individual code-fendants were in like manner responsible in the hands of the individual codefendants for a failure of consideration in the nonconveyance and delivery to the D. T. McKeithan Lumber Company by the vendor corporation, before referred to, of the timber upon a large tract of 3,088 acres of timber mentioned therein, and of the failure to include in the deed of conveyance the timber upon five smaller tracts of land also mentioned therein; that, for the damages or failure of consideration thereby inuring to the D. T. McKeithan Lumber Company, the individual codefendants, as holders of' the bonds, should be decreed to have the amount of such damage or deficiency deducted from the amount of their bonds.
There is involved in one of the counterclaims for a failure of’ consideration the claim that, at the time of the purchase of this property, representations were made which are, for the purposes of the prayer • of the counterclaim binding upon the individual defendants to the effect 'that one of the tracts of land sold, to wit, that lying along the .Great Peedee river,, was in a contiguous connected tract, with a solid boundary; thát it appeared that such was not the case; one portion was separated by an intervening tract, which very much affected the value of the timber thereon by reason of the increased cost of manufacturing and marketing, and that was an element of loss to be considered in estimating the amount of the failure of consideration.
The case having come to a hearing upon these issues, the testimony propounded by the parties has all been heard, and counsel on behalf of all parties interested have been heard, and it is thereupon now adjudged and decreed as follows:
“Such moneys so paid shall be used by tbe trustee for tbe payment of interest upon all outstanding bonds as the said interest may accrue and become due and also to tbe retirement of any bonds that shall be due with interest on tbe same at tbe date of retirement.” • '
It is further ordered that such supplemental deed, when executed, shall be duly recorded by the mortgagor at its own expense in all the counties proper for the record of the same, with leave to have a marginal note or memorandum on the record of the original deed of trust or mortgage referring to the place of the record of the supplemental and reforming deed hereby directed, and that a due report of the execution and record of the same, together with a copy of the supplemental deed and a statement of the places of record, be filed in this court.
The testimony upon this case, taken as a whole, leads to the conclusion that there was a very serious contention or series of contentions between the individual defendants and the D. T. McKeithan Lumber Company as to many matters claimed by the D. T. McKeithan Lumber Company as against the defendants upon an allegation of their liability to perform certain alleged undertakings of the vendor corporations, to wit, the Williams-McKeithan Lumber Corporation of Virginia and the Williams & McKeithan Lumber Company of South Carolina. The D. T. McKeithan Lumber Company h'ad refused to deliver to the véndor corporations or the individual defendants the bonds secured by the mortgage as being a part of the purchase money for the mortgaged property, upon the ground that they should not be delivered until certain claimed liabilities had been performed and satisfied. In February, 1912, after sundry conferences and disputes, apparently an agreement was reached between the D. T. McKeithan Lumber Company and the individual defendants (excepting the defendant J. M. Barr), which agreement was embodied in a letter written by George E. Dargan, the attorney for the D. T. McKeithan Lumber Company, to the Honorable F. K. Pendleton, New York City, dated February 15, 1912, in which it was stated that four matters had been agreed to, namely, that the bonds should be delivered to the individual defendants who held the interim certificates; that the stock of the corporation should be transferred to the individual defendants,
It is therefore decreed that upon the payment by the D. T. McKei-than Lumber Company, within 30 days from the date of this decree, to the defendants of all interest represented by the coupons maturing on the 1st of April, 1912, and accruing from the 1st of January, 1912, together with interest from the date of the maturity of such coupons to the actual date of payment, the same shall be delivered up and be canceled for delivery to the trustee.
During the argument of the cause it was orally stated that all the coupons maturing the 1st of April, 1912, have been already paid. If such be the case, leave is hereby given to the defendant the D. T. McKeithan Lumber Company to move at the foot of this decree, upon due notice, for an order that an abatement equivalent to the abatement hereby ordered be made to be deducted from the coupons maturing the 1st of April, 1914.
Fifth. The next question raised by the counterclaims, viz., the fourth above mentioned, is the right of the D. T. McKeithan Lumber Company to have these defendants pay, in the way of being credited on the bonds or coupons, the sum of $30,783.05, claimed by the D- T. McKeithan Lumber Company to be due to it as representing the proceeds of lumber sold subsequent to the 1st of April, 1911. On this point the pleadings before the court would not call for any such decree. The parties who made the agreement were not these three individual defendants. They were two corporations, known as the
The testimony shows that the two vendor corporations, above referred to., are, as to one of them at least, the Williams-Mc-Keithan Lumber Corporation of Virginia, no longer existing. The testimony is that that corporation has been dissolved and its charter surrendered. Wherever a company goes out of existence or becomes insolvent or in any wise unable to respond, any.one having a legal claim against that corporation has the right to assert it against the corporation, and, in case of adjudication in his favor, haá a right upon the judgment recovered in equity to pursue the individual stockholders for the satisfaction and payment of that judgment to the extent of assets received by the stockholder which he wa's not entitled to receive as being primarily subject to the payment of debts and liabilities of the corporation. Under these circumstances, the court understands the stipulation to mean that the D. T. McKeithan Lumber Company
As a conclusion of law it is therefore adjudged that the McKeithan. Lumber Company is not entitled to have the individual defendants
The court finds as a conclusion of fact in this case that Mr. Poston and his associates in this case rested upon their own responsibility; that they relied, not upon the codefendants in this case as constituting their officers or trustees, but were treating with them in the purchase of this property at arm’s length; that they were intelligent business men, well aware of their rights and well qualified and able to protect them, and they are not entitled in this case to rely upon any rule of responsibility, as that the individual codefendants held towards them any position as quasi trustees. The defendants Bonsai and Barr, so far from that, I find, had nothing whatsoever to do with these negotiations prior to their consummation in the contract of sale and deed of conveyance. That 'they acted wholly as directors and stockholders for the protection of their own interest personally, and that of their
With regard to the other two defendants, Barr and Bonsai, I hold-that they made no representations that the testimony discloses of any kind, and that they are not bound individually as holders of these bonds by any statements made by McKeithan, by Williams, or the cruisers as to what they believed to be the true amount of timber on* this property. I hold further that in this case the words in the contract of sale to the effect that the property contemplated to be sold' under this agreement includes all the timber holdings of the said Williams-McKeithan Lumber Corporation of Virginia, known as the Pee-dee river and Lynch’s creek tracts, recently cruised by Messrs. Morris and Divine at 222,000,000 feet of stumpage, are words of description, not words of representation or warranty. The deed of conveyance itself contains no warranty as to the amount of timber. It grants and conveys all the property, including the lands, trees and timber, rights of way, and easements thereinafter mentioned and described, and then specifically describes the timber living and dead in general terms upon certain specifically described pieces of land. I find as a conclusion of law that under the law of South Carolina the conveyance of that standing timber was a conveyance of the freehold or real estate, and that in such a conveyance, unless the quantity of timber be stated and warranted, there is no warranty in the absence of fraud or misrepresentation. That in this case, if the purchaser had desired to have the quantity of his timber secured according to what he deemed a representation, it was his duty to have required it inserted in the deed in the shape of something equivalent to a warranty ; that he is not entitled in this case to set up for a deduction of the purchase money a deficiency in quantity of the timber, where he has not required a warranty, upon any action against him for the purchase money, in the absence of fraud or misrepresentation, and I find as a conclusion of fact that in this case there was neither fraud nor misrepresentation.
It is therefore adjudged and decreed that under the terms of the deed of conveyance of the 3d of July, 1911, and the preceding con
Seventh. The last counterclaim is upon the ground that as to several specific tracts therein mentioned, to wit, the tracts .known as the Strother tract, the Mary Law tract, the Croswell tract, the Weatherly tract, and the Gardner tract, such tracts were not specifically included in the deed of 3d of July, 1911. - I find that in the memorandum made by Mr. Poston himself on the 18th of March, 1911, at the occasion of his first trip to Charleston, those tracts were specifically called to his attention, and he was specifically notified that they were part of the tracts, the timber on which was claimed by the Williams & McKeithan •Lumber Corporation of Virginia, and to be sold to him. They were not inserted by any specific description in the deed of conveyance, but that was no more the fault or negligence of the vendors than of Mr. Poston himself. He had in his hands a specific detailed statement which he claims was dictated by him from information furnished him at that time, in which every one of those tracts were mentioned, and it is entirely his own negligence that those tracts were not specifically included in the later deed, for he had the information in his own hands, as given to him at the time that those tracts were to be included in the deed. The court finds as a conclusion of law, however, that, under the language of the conveyance itself, the timber on those tracts, as owned by the Williams & McKeithan Lumber Corporation of Virginia, passed to the D'. T. McKeithan Lumber Company, and that company is now entitled to the same, and, being now entitled to the same under the language of the conveyance, it is not entitled to any decree for any alleged deficiency for any failure to receive the same.
Under the. circumstances of this case, the defendant D. T. 'Mc-Keithan Lumber Company having received affirmative decrees on some of its counterclaims, and no defense set up by the codefendants having been sustained, the costs of this case will be paid as follows: The trustee having come into court and 'asked for' instructions and having brought the defendants in- court,' as to the questions raised in the bill of the trustee the costs will be paid by the trustee, with the right, under the terms of the mortgage, to deduct the same out of any fund which, under the ierms of the mortgage, is applicable to the costs and expenses of the trustee in the performance of his duty. The other costs in the case will be paid, two-fifths by. the individual defendants, McKeithan, Bonsai, and Barr, and the other three-fifths by the defendant the’D. T. McKeithan Lumber Company. The costs will be taxed by the clerk, and any difference as to the amount thereof to be paid by the respective parties will be settled by the court.
Any party to this cause shall be at liberty to apply at the foot of this decree, upon proper notice, for any further order or decree necessary to carry into effect the principles hereby adjudged.