In re Shotwell

49 Minn. 170 | Minn. | 1892

Lead Opinion

Collins, J.

This appeal is from an order of the district court auditing and allowing the final account of respondent, Lindeke, as the assignee of the firm of Shotwell, Clerihew & Lothman, who assigned for the benefit of creditors on June 20, 1888. This firm was a large wholesale concern, dealing generally in dry goods and notions at Minneapolis. The assignee — selected because of his peculiar qualifications and fitness for so important a trust — was a member of the firm of Lindekes, Warner & Schurmeier, a very prominent house, engaged in the same line of business in St. Paul. The stock and fixtures of the insolvents, less goods replevied after the as-signee took possession,were inventoried and appraised at $459,566.35, while the accounts and bills receivable, less some in Wisconsin and Dakota, which were seized on attachment, were inventoried and scheduled at $223,2S3.32. There was received from sales of goods and fixtures the .sum of $386,581.51, and from cash in hand, accounts, bills receivable, and other sources, the sum of $205,417.87, a total of $591,999.38. The total amount of established liabilities on which dividends, two in number, have been paid by the as-signee, is $1,002,979.81. From these figures it will be seen that in value the assigned estate was no ordinary one. Prior to the sale in gross on the order of the district court, as hereinafter stated, the assignee had realized the sum of $41,053.09 from sales of goods. On September 14, 1888, by order of the court and at public auction, the fixtures and the remainder of the goods were sold to the highest bidder for 80 5-8 per cent, of the appraised valúation according to the inventory, or for the sum of $345,528.42, and this sale was approved by order of the court. There were several bidders present at the sale, but William Lindeke, a brother of the assignee, and also one of the firm of Lindekes, Warner & Schur-meier, was the successful bidder, and a large percentage of the goods so bought thereafter became a part of the stock of the firm just referred to, and were sold by it in the usual course of business.

It is urged by appellant creditors as one objection to the allowance of the account that the assignee has failed to charge himself with the amount of profits derived by his firm from a sale of the goods purchased by William Lindeke on September 14th, the contention being that from the testimony it conclusively appears that the sale, nominally to the last-named person, was in reality to the firm, of which the assignee, as well as the purchaser, were members; the rule invoked being that well stated in Abbot v. American Hard Rubber Co., 33 Barb. 593, that a trustee cannot, directly or indirectly, by himself or through the agency of another, become the purchaser of trust property, nor can he be permitted to purchase an interest in the same. The substance of this rule, and the principle on which it rests, have been fully recognized in Baldwin v. Allison, 4 Minn. 25, (Gil. 11;) King v. Remington, 36 Minn. 15, (29 N. W. Rep. 352;) Lewis v. Welch, 47 Minn. 193, (48 N. W. Rep. 608, and 49 N. W. Rep. 665,) and other cases in this court, and enforced unhesitatingly where warranted by the facts. So the only question here is as to its application. The trial court found, when disregarding appellants’ objection, that the fixtures and goods purchased at the sale of September 14th by William Lindeke were not, in truth or in fact, bought by the assignee, or by the firm of which he was a member, and that neither said assignee nor the said firm had any interest, direct or .indirect, in the purchase. This finding of fact was certainly broad enough, if sustained by the testimony. There can be no doubt but that proof was submitted upon the trial of acts and circumstances of a suspicious character, strongly tending to establish appellants’ contention that the sale to William Lindeke was in reality to the firm of which he was a partner. But these acts and circumstances were susceptible of two opposite constructions, one consistent with perfect fidelity on the part of the assignee. Again, these acts and circumstances were met and opposed by others, and also by the positive testimony of the assignee and of the purchaser, that the property was not bought for the firm, and that it had no interest in its purchase, immediate or remote, and had no interest in the goods purchased, until some time after the sale of September 14th. A trustee is only prohibited from dealing with the trust .property for his own benefit so long as the trust continues. When his duty towards the property ceases, he occupies the same relation to it as does a stranger to the trust, and, acting throughout in good faith, may become the owner of the property by purchase or otherwise. Munn v. Burges, 70 Ill. 604; Bush v. Sherman, 80 Ill. 160; Foxworth v. White, 72 Ala. 224; Wortman v. Skinner, 12 N. J. Eq. 358; Boehlert v. McBride, 48 Mo. 505; 1 Perry, Trusts, § 133. There was evidence reasonably tending to sustain and support the finding under consideration. We do not think that relied on by appellants is sufficiently strong to overcome and overthrow the conclusion of the’ court below.

The trial court held that the assignee was not chargeable with interest or use or profits on moneys deposited with the firm of Lin-dekes, Warner & Schurmeier, and of this appellants complain; citing the leading case of Docker v. Somes, 2 Mylne & K. 664. The law on this subject is well put in 1 Perry, Trusts, § 429, thus: “ Trustees cannot make a profit from the trust funds committed to them by using the money in any kind of trade or speculation, or in their own business.” But a trustee is not to pay interest solely because he has deposited the trust funds with his own, or even because he makes use of them in his business, unless there be superadded some breach of the trust. Rapalje v. Hall, 1 Sandf. Ch. 399; In re Hess’ Estate, 68 Pa. St. 454. In fact, in Docker v. Somes, supra, and in all of the cases cited by appellants, the right to recover interest or use or profits was expressly based upon the fact that there had been a palpable breach of the trust. See Norris’ Appeal, 71 Pa. St. 106; Seguin’s Appeal, 103 Pa. St. 139. Also cases in footnotes, 1 Perry, Trusts, §§ 427-429. An assignee, whose stewardship is merely temporary, and not a continuing one, is not required to invest the funds which may come into his hands that they may earn interest or return a profit. His duty is to safely keep the money in hand, so that it may be promptly and seasonably distributed in the way of dividends among the sharing creditors. No claim is made in this instance that the money was unreasonably retained, or that the payment of dividends was improperly delayed; and there was no testimony offered or produced tending to show that the money deposited with the firm was used by it. The question, the exclusion of which is the foundation for appellants’ ninth assignment of error, had no tendency to produce an answer which would have disclosed that the firm had actually used the money, and the counsel made no attempt to go further in that direction, although an opportunity was afforded in the direct examination of Mr. Schur-meier, — the financial man of the concern. There was no proof that the assignee or the firm of which he was a member used the money, or made a profit out of it; there was no delay in the payment of •dividends, no failure in the performance of a duty, and no breach of trust with respect to the trust funds. The conclusion of the trial court was right on this point.

A claim of $32,000 was made against the estate by Mr. Brackett, of whom the insolvent firm had leased their place of business. The term was unexpired, and the rent reserved amounted to the sum above mentioned. It was claimed by one of the attorneys for the creditors that the claim should not be allowed, because within the rule laid •down in Wilder v. Peabody, 37 Minn. 248, (33 N. W. Rep. 852;) but oounsel for the assignee advised him that there was a marked difference in the cases, and there may have been. After some negotiations between the assignee and the claimant, the latter consented to compromise his demand for the sum of $6,000. All of the larger creditors, save one, joined in a request to the assignee that he accept the •offer of compromise, and, acting on the advice of his counsel, he did so. We regard the finding of the court on this point as equivalent to a finding that the assignee acted in good faith in the settlement of a disputed claim, by way of compromise. The court below did not err when allowing this item.

As the counsel for appellants did not see fit to discuss such other assignments of error as relate to the admission or exclusion of testimony on the trial, we are of the opinion that none of the assignments should be considered at length. It will suffice to say that none seem to be well taken.

The various items of disbursements objected to by appellants, and covered by the fourth assignment of error, were properly charged against the trust fund.

We now come to a consideration of the amount allowed to the assignee — $25,000—as compensation for his services, and to the attorneys — $1,500 each — who appeared for him in the present proceedings, but who were not the general attorneys employed in the matter of the insolvent estate. From a statement of the assignee, styled an “expense account,” we learn that over $20,000 was disbursed in what are called “clerical services and sundries.” This does not include some items of fees paid local attorneys, employed, we judge, in various places outside of Minneapolis, and the fees paid attorneys employed in the cases of Clark v. Lindeke, 43 Minn. 463, (45 N. W. Rep. 863,) and 44 Minn. 112, 179, (46 N. W. Rep. 326, 339,) a total, as we make it, of about $2,0u0. It does not include any part of the sum ordered to be paid the regular attorneys of the assignee for services rendered up to a day or two after the examination of witnesses began in this proceeding, fixed at $12,500; no objection being made, But it does include salaries paid for clerks and bookkeepers, who, judging from their compensation, were men of more than ordinary business capacity. Prior to the amendments to the insolvency law found in Laws 1889, ch. 30, there had been no attempt to regulate or control the compensation of assignees, or the fees of attorneys, in insolvency proceedings. By section eight (8) of that chapter the legislature undertook to fix by a graduated scale, based on the proceeds of the estate, the amount which should be paid to assignees, and, with less definiteness, the fees of their attorneys. Assignees are to receive, in ordinary cases, not to exceed ten per cent, on the first $1,000 of the proceeds, five per cent, on the balance up to $5,000, and two per cent, on the excess. This plain provision of the law could be easily applied in all cases were it not for the complication which grows out of the very careless language used in the clause which follows, in which attorney fees are referred to. The allowance for attorneys shall not exceed $150 in ordinary eases where the gross proceeds of the estate do not exceed $3,000. If in excess of that sum, “or in extraordinary cases, involving unusual litigation, the fees of the assignees or receivers, as well as of the attorneys, shall be fixed by the court at the reasonable value of their services.” Construed literally, and without reference to the first part of the section, the latter clause conferred full power upon the district court to fix the fees or compensation of assignees in all cases where the amount received as proceeds exceeds $3,000, and also where the proceeds are less than that amount, “in extraordinary cases, involving unusual litigation.” But this section must be construed as an'entirety, and its fair meaning is that the assignee’s compensation shall be the specified percentage, except in extraordinary cases, where there has been unusual litigation. Unless the facts here have brought this case within the exceptional class in which compensation is to be fixed at the reasonable value of the services, and in which a discretion must be exercised by the court, not to be interfered with on appeal unless abused, the respondent assignee is entitled to compensation on the percentage basis only. The proceeds or receipts, aggregating $591,999.38, as before stated, would entitle him to $12,039.98, — less than half the sum actually allowed. The court below declared by its findings of fact that this was a case of the exceptional class, specially provided for by statute, and this finding is assailed by appellants’ fifth assignment of error. It will be noticed that to authorize discretionary action in relation to an assignee’s compensation the case must be extraordinary, in that unusual litigation has resulted, presumably taking the assignee’s time and attention. An assignment with ordinary litigation is not sufficient. Now, in that at bar we are unable to discover that it was extraordinary, except in the amount of the liabilities and the value of the assets. We are free to admit that an assignment of this magnitude is quite uncommon in this jurisdiction, but evidently the legislature has not provided for assignees of very valuable estates, in the absence of unusual litigation, save on the percentage plan. The insolvents had a stock of very salable merchandise, as is evidenced by the fact that more than eighty-four per cent, of its appraised value was realized in cash, within less than four months, — an unusually quick sale. The collections, mostly made within one year thereafter, and by one of the insolvents, in the assignee’s employ on a large salary, do not seem to have been particularly troublesome, and the balance of the estate was nominal. Save in amount and value of the assets the assignment was not extraordinary.

The testimony in respect to the litigation was meager. The as-signee states the number of lawsuits in this state at about ten. The first of the Clark Cases, 43 Minn. 463, (45 N. W. Rep. 863,) consumed ten days’ time before the referee, while the others, 44 Minn. 112, 179, (46 N. W. Rep. 326, 339,) were tried in district court in one day. In all of these cases the questions were largely of law, not of fact. Two actions of claim and delivery were actually tried, one lasting two days. No real litigation resulted from the bringing of the balance of the lawsuits, all being in claim and delivery. Quite a number of attachments were made in Wisconsin and the Dakotas, but there is nothing to indicate that litigation followed the commencement of the actions and the seizures under the writs. The consequences of the seizures seem to have been acquiesced in without legal controversy. There are few assignments in which more or less litigation does not follow, and the statute in regard to fees and compensation was enacted with reference to the fact. We are warranted in saying that very few estates of this character and value could be put into insolvency and brought to the point of final distribution and settlement with less; none of the same being important except the Clark Cases, they becoming so because very large sums of money were at stake.

If, then, the litigation which resulted here was not unusual, so that the case became extraordinary in that respect, if it was no more than was to be apprehended from the value of the assets and the amount of the liabilities, that part of the statute which authorized the district court to exceed the percentage compensation had no pertinency. In our judgment, it appears conclusively that this was not an extraordinary ease, involving unusual — that is, uncommon — litigation, and therefore the compensation awarded the assignee for his services must be reduced to the sum before mentioned as the statutory percentage. Counsel have referred to the fact that a bond very large in .amount was required and furnished; that there was a great responsibility assumed by the assignee; that he has manifested marked .ability in discharging his duty; and that his firm met'with losses in aiding and carrying along merchants indebted to the insolvents. All this is true, and would be equally true had there been an entire absence ■of legal contention. But the lawmakers, in fixing the compensation of assignees, receivers, and attorneys, — and not without good reason for so doing, — disregarded all these matters, and declared that, with the exception before noted, the basis for such compensation should be the net proceeds or receipts. This express declaration upon a subject which was fast becoming of the utmost concern to the creditors ■of insolvents must not be evaded, directly or indirectly.

As before stated, appellants objected to the allowance of any fees whatever to the attorneys for the assignee employed on the hearing of the present proceeding. -It will be observed at the outset that the value of the services, whether considered in connection with the ■amounts paid the original attorneys for the assignee or as an independent claim, is not at issue. The objection is made solely on the ground that the expense was made necessary by reason of the .assignee’s misconduct, resulting in injury to the estate. From what has been heretofore said, it is obvious that the ground assigned is not tenable. But, in any event, it was part of the duty of the assignee to render a final account to the court. He was entitled to the advice ■and assistance of counsel when preparing and presenting the same, :and, ordinarily, the fees of counsel for such services must be paid out ■of the trust funds. The case is remanded, with directions to reduce the amount allowed as compensation to the assignee in accordance with the views herein expressed.

(Opinion published 51 N. W. Rep. 909.)

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Rehearing

ON REHEARING.

Argued July 13, 1892. Decided Aug. 29, 1892.

Collins, J.

On examination of a petition for a reargument in the above-entitled matter, it was ordered that upon two questions a rehearing be had, and except as to these the petition be denied. These questions were: (1) As to the correctness of the ruling whereby the trial court allowed the item of $6,000 paid to George A. Brackett by the assignee. (2) As to the correctness of the rulings of said court as to the admissibility of testimony tending to show that profits were made by the firm of Lindekes, Warner & Schurmeier on moneys deposited with the firm by the assignee. With reference to the first question, it may be said that no distinction can be made between the claim presented by Mr. Brackett and that litigated in Wilder v. Peabody, 37 Minn. 248, (33 N. W. Rep. 852,) and hence no part of it was a proper demand against the assigned estate. The action of the court below in allowing this item of the assignee’s account was approved here on the ground that its finding of fact was, in effect, a finding that the assignee acted in good faith in the settlement of a disputed claim by way of compromise. The trial court made no attempt to pass upon the legality of the demand itself, although the merits of the same were quite fully gone into by both parties. Upon a re-examination of the evidence upon this point, we are satisfied that the good faith of the assignee was not the vital question, and that the court below should have found whether the demand was a legal one in whole or in part. This was really made the main issue on the trial, the good faith of the assignee being regarded as incidental only, and not seriously questioned. That the payment to Brackett was not considered as a completed settlement and compromise, and that it was intended and expected to have the court ultimately determine the validity of the claim, is manifest from the agreement in the nature of a bond, entered into by Mr. Brackett, wherein it was recited that the assignee had expressed a willingness to pay $6,000 in settlement, if such payment should be allowed by the district court, and in which was the condition that, if the claim should be disallowed by said court, the money paid should be returned. While the court below allowed to the assignee'the amount so paid as a proper disbursement, it was obviously upon the assumption that the actual liability of the estate was not in issue. This was error, for, on the conceded facts, this was just what-should have been determined, and the finding made did not warrant the allowance. George A. Clark & Bro. are the only creditors who have contested this item in the assignee’s account. Some of the appealing creditors expressly authorized the payment to'Mr. Brackett, and others have never objected, and on appeal do not object, to it. The assignee will therefore pay to appellants George A. Clark & Bro. their percentage of the sum of $6,000, and to this extent the decision heretofore rendered is modified. We have seen no reason for changing our views in respect to the rulings of the court concerning the admissibility of testimony tending to show that profits were made out of the trust funds by the firm of Lindekes, Warner & Schurmeier, and on the second question our former conclusion is adhered to.

(Opinion published 52 N. W. Rep. 1078.)