Friedheim v. Crescent Cotton Mill

42 S.E. 119 | S.C. | 1902

June 19, 1902. The opinion of the Court was delivered by The defendant was chartered under the laws of this State, on the 11th day of August, 1899. It passed into the hands of a receiver, under an order made in this action because of insolvency, on the 4th day of September, 1900 — aged one year and twenty-three days. In September, 1899, the defendant executed to the Richmond (Va.) Safe Deposit and Trust Company a mortgage covering all its real and personal property situated in the city of Rock Hill, S.C. which secured $50,000 of negotiable coupon bonds to be issued by said Crescent Cotton Mill. Of this $50,000 of negotiable bonds so issued, not a single bond was ever sold on the open market. On the contrary, every one of such bonds was hypothecated to secure loans; for instance, $18,000 of said bonds were hypothecated to the Charleston Savings Institution of Charleston, S.C. to secure a loan of $13,645; $6,000 to the Hibernia Savings Bank of Charleston, to secure a loan of $3,719.07; $10,000 to the plaintiff, to secure a loan of $7,500; $5,000 to the National Bank of Charlotte, N.C., to secure a loan of $5,000; $6,000, to secure a loan made by a Rock Hill bank; $5,000, to secure a debt for machinery to the Saco Pettie Machine Co. Nothing but the exhaustion of the supply of the bonds prevented the president and treasurer of the defendant cotton mill from hypothecating $9,000 of the bonds with one O.K. Eldridge, of New York, to secure a loan to him; and turning over $5,000 to Mr. W.B. Fewell, who paid for them in advance at par. When the affairs of the Crescent Cotton Mills was being examined before Mr. W. Brown Wylie, as special referee, it was ascertained that the books of the mill failed to state its operations as to these bonds, as also the condition of subscriptions to its capital stock. Instead, therefore, of being able to trace the history of the issue of the $50,000 of bonds from the books of the mill to the holders thereof, this history had to be traced from the holders back to the mill. So much by way of preface. Under the action a receiver of the mill was appointed and, as before remarked, Mr. W. Brown Wylie was appointed special referee, and directed to advertise for all creditors of the mill to present and prove their respective demands before him. Quite a number of claims which were unsecured came before the special referee, but as no assets could possibly be available for the payment of their claims, no further attention will be paid to them. The special referee's report upon claims which had or claimed a preference was made, and upon exceptions came on to be heard before Judge Townsend. His decree must be reported. Many appeals have been taken from this decree, and it remains for this Court to dispose of the same.

First. The Hibernia Savings Bank claims that the Circuit Judge inadvertently allowed too little interest on its claim. As we understand the question of this alleged error, it is that the Circuit Judge only allowed interest on its pro rata share up to 1st April, 1901, whereas his decree was rendered on 20th May, 1901, and the distribution was not made until after 20th May, 1901 — say until 1st June, 1901. This error should be corrected — especially as this bank gave up a security which would and did largely yield more than enough to pay its full claim. If the claim, with interest to 1st March, 1901, was $2,719.07, and 1st April, 1901 — one month later — was $2,744.60, then by the same rule, on 1st June, 1901 — two months later — it should be $2,795.66. Let this appellant receive $2,795.66 instead of $2,744.60.

Second. It is contended that the claim of James F. Hart, as attorney for the receiver of the mill, as the balance of his fee (say $200), should not be charged as against the holders of bonds secured by mortgage, and also as against the fund received from A.H. White, as purchaser of the machinery sold separately by the receiver. It is not denied that the sale was pushed forward by the attorney; that such attorney has represented said receiver in several important suits. Such being the case, we will not interfere with the exercise of the discretion of the Circuit Judge involved in his allowance of these fees. This Court admits that A.H. White has had a series of mishaps, which he has met like the man he has proved himself to be, but still it washis contract to protect the machinery company in its sales of machinery to the mill.

Third. It is contended that the other items embraced in the receiver's account should not be allowed; and if allowed at all, should not require of the holders of the negotiable bonds secured by the mortgage as well as A.H. White, as purchaser of the machinery, to pay 95 per cent. Thereof, while the "general account" is only charged five per cent. thereof. Taxes paid by the receiver, amounting to some $850, were paid from the "general fund." These taxes arose from property embraced in the mortgage and the separate machinery. The fees of the receiver arose from these sales. The loss met by the receiver in running the mill for twenty-three days was from an honest effort to save the property harmless, as it is well known that intricate mill machinery is better protected from injury when in use than by allowing it to remain idle. Under all the circumstances, these exceptions must be overruled.

Fourth. What is the status of the six bonds held by O.K. Eldridge? The Circuit Judge decreed that Eldridge was the owner and entitled to set them up as valid claims under the mortgage. This is a serious matter. The facts are not very much complicated, but the deductions to be made from these facts is the serious question. When R. Lee Kerr, as an individual, borrowed $15,000 from O.K. Eldridge, he pledged as collateral to secure that loan $5,000 of stock held by him (Kerr) in the Rock Hill Land and Investment Co., and also $10,000 of stock in the Commercial and Farmers Bank of Rock Hill, S.C. The agreement between R. Lee Kerr and O.K. Eldridge is in writing, signed by both parties. In such agreement no reference is made to the Crescent Mill, as to its proposed issue of $50,000 negotiable bonds by said mill. No effort is made by Eldridge to obtain any of these bonds as collateral to his loan already made to Kerr until after it was discovered that the Commercial and Farmers Bank of Rock Hill, S.C. was insolvent, but that in the spring of the year 1900, the said Eldridge came to Rock Hill on two occasions, the last of which was in April, 1900, at which last visit he sought from R. Lee Kerr some of the bonds of the Crescent Cotton Mill Co.; he knew Kerr was president and treasurer of said mill, and on the 30th April, 1900, the said R. Lee Kerr turned over to the attorneys of the said Eldridge six negotiable bonds of said Crescent Mill Co., secured by a mortgage of its property, under the following circumstances, viz: On the 31st day of January, A.D. 1900, the Crescent Cotton Mill Co. made its note payable to the Commercial and Farmers Bank of Rock Hill, S.C. for the sum of $11,044, due and payable in ninety days after its date, and that to secure said note, the said maker assigned as collateral security for said note the certificate of deposit of $5,000 with said bank, and also six bonds of $1,000 each of the Crescent Cotton Mill Co., such bonds being numbered 45, 46, 47, 48, 49 and 50. That when said Commercial and Farmers Bank became insolvent and went into the hands of a receiver, on the 3d February, 1900, and D. Hutchison was appointed such receiver, he found the note of the Crescent Cotton Mill Co. for $11,044, together with the collaterals, to wit: the $5,000 certificate of deposit and the six bonds of the Crescent Cotton Mills Co., pinned to said note. That R. Lee Kerr was in the vault of the bank in April, 1900. That in May, 1900, the said D. Hutchison, as said receiver, failed to find said six bonds in the bank, and asked R. Lee Kerr if he knew what had become of them, to which inquiry R. Lee Kerr replied that he did not know, but that he thought they were mislaid. That circumstances pointed to their possession by O.K. Eldridge. When applied to, Mr. Eldridge promptly admitted that he held the bonds, having received them on the 30th April, 1900. R. Lee Kerr subsequently admitted that he had taken the six bonds in question from the vault of the Commercial and Farmers Bank, under what he called a claim of right. He claimed to own the bonds, and that he had merely loaned them to the Crescent Cotton Mill Co. to use as a pledge to the debt for the $11,044 debt, and as the debt was paid, he had taken them and turned them over to Mr. O.K. Eldridge as an additional security to his loan of $15,000. The receiver demanded the bonds of Eldridge. On examination there was no entry found upon the books of the Crescent Cotton Mill showing that R. Lee Kerr was the legal holder as an individual of said six bonds for $1,000 each, nor, for that matter, any other holder of bonds. We have heretofore stated that in the written agreement between Eldridge and Kerr as to the $15,000, there was no reference to bonds to or issued by the Crescent Cotton Mill Co.; but in a letter written on the 5th September, 1899, by R. Lee Kerr to Eldridge in regard to this loan, under a postscript and the letters"K.C." occur these words: "The bonds will be executed on the 15th inst., at which time they will be promptly forwarded." As to what bonds were referred to in this second postscript, to be issued on the 15th September, 1899, we are left to conjecture. The safe inference would be that reference was intended to be made to the $50,000 negotiable bonds of the Crescent Cotton Mill Co., as they were issued about that date. And R. Lee Kerr testifies that he had promised verbally to O.K. Eldridge that he would issue to him $15,000 of these bonds as an additional security to the loan of $15,000. Subsequently, in a trial had between the Commercial and Farmers Bank and its receiver on the one side and the Crescent Cotton Mill Company and its receiver on the other side, it was judicially determined that the Crescent Cotton Mill Co. had paid its debt of $11,044 to the Commercial and Farmers Bank, except the sum of $47. This was the result by reason of the deposit check of $5,000 and the payment for the bank by the mill of two notes for $3,000 each, in the city of Charleston. It thus appears that the bank had no claim upon the six bonds of the mill, each bond for the sum of $1,000, except to secure the sum of $47. Practically, therefore, these six bonds were the property of either the Crescent Cotton Mill or of R. Lee Kerr. Both of these two parties claim the bonds. They were certainly used by R. Lee Kerr, although he obtained possession of them by underhand means, so far as the bank and mill were concerned. There can be no doubt that R. Lee Kerr exercised, until May, 1900, a very general control of the means of the Crescent Mill, and that his own means were used for the benefit of the mill. As an illustration of this, the $5,000 deposit check used as collateral to the note of the mill to the bank for $11,044, was the property of R. Lee Kerr, and this very collateral was subsequently held as part payment of such note. Then the mill was said to owe him, besides, over $1,000. It is greatly to be regretted that there was no system used in stating these accounts. We must take the record as we find it. Such was the Circuit Judge's condition when he passed upon these matters. We will have to modify the judgment of the Circuit Judge by requiring Mr. Eldridge to pay to the mill the sum of $47, which is to be paid by said mill to the receiver of the Commercial and Farmers Bank. With this slight modification, we affirm the Circuit judgment in this particular.

Fifth. We will now consider the exception relating to the claim of W.B. Fewell. The testimony leaves no doubt that $5,000 of Mr. Fewell's money was paid into the hands of R. Lee Kerr, as treasurer of the Crescent Cotton Mill Co., upon an agreement that he was to receive $5,000 of the negotiable bonds of the said mill. He never received said bonds. He cannot now receive said bonds. The Circuit Judge ordered that Mr. Fewell should receive as an equity what was left after paying pro rata to the Hibernian Bank of its claim of the $5,000 of bonds held by said bank. We affirm the Circuit judgment in this matter, except as modified by the holding of this Court, whereby the claim of the Hibernian Bank was increased by us.

Sixth. We cannot disturb the Circuit judgment as to the lien on goods in process nor as to the repayment of the money borrowed to run the mill for twenty-three days. From the testimony, it appears that Mr. White and Mr. Hutchison were doing their best to save the property and keep it "a-going concern." It was their misfortune to be stockholders and officers in this factory. The receiver was appointed with their consent. The order of the Court directing the receiver to keep the mill running was made with their acquiescence. The National Bank of Rock Hill should receive its money. The holders of the bonds of the mill and also the assignee of the claims of the machinery company have already been made to stand back, so as to allow certain expenses to be paid from funds coming to such holders of preferred claims. We cannot add anything more to their burdens. These exceptions are overruled.

Seventh. If we have failed to enumerate any other exceptions, they must be considered as overruled.

It is the judgment of this Court, that the judgment of the Circuit Court, except in the two slight particulars stated in this opinion, is affirmed, and in those two particulars it is modified.