Hoffman v. Knox

• Decision Date: 24 May 1892
• Docket Number: 3.
• Citation: 50 F. 484
• Parties: HOFFMAN et al. v. KNOX et al.
• Court: U.S. Court of Appeals — Fourth Circuit

50 F. 484

HOFFMAN et al. v. KNOX et al.

No. 3.

United States Court of Appeals, Fourth Circuit.

May 24, 1892

Statement by FULLER, Circuit Justice:

This was a bill filed by Samuel Knox against the Columbia Liberty Iron Company, alleging that the company had purchased a large tract of iron ore and woodland for the expressed consideration of $270,000, which was paid in its stock and in 6 per cent. first mortgage bonds to the amount of $150,000 the total issue of which was for $219,000, the balance having been pledged as collateral security, and in 6 per cent second mortgage bonds to the amount of $145,000; that the mortgages bore the same date, and were secured upon the tract of land, and all the property of the company of every description, and its corporate franchises. It was further averred that complainant was the holder of certain of said mortgage bonds of both issues; that default had been made in the payment of interest after demand; that complainant had made various loans to the company, which it had failed and was unable to pay, and that there were other liabilities represented by promissory notes, open accounts for merchandise and supplies, and for wages and salary; that the company was insolvent, and had not the funds to carry on its ordinary business, although a large income could be derived therefrom, and to avoid the sacrifice of the property, and the disastrous consequences of suspending its business, it was necessary that a court of equity should interpose for the immediate appointment of a receiver, with power to administer the company's affairs. The bill prayed for such appointment, for injunction, and general relief. The company filed its answer, in which it 'admitted the truth of the averments, and submitted its interests to the court;' and the court appointed two receivers for the company, with authority to continue its operations, and with instructions to report to the court the condition and circumstances of the company, and its liabilities and debts.

On September 30, 1886, several creditors of the company filed a petition in the cause by leave of court, on behalf of themselves and other similarly situated, setting up certain supply claims recorded by them under the act of the general assembly of Virginia of April 2, 1879, averring that receivers' certificates had been issued; that there were many other like claims; that the affairs of the company were not improving, and praying that the proper accounts might be taken, and a decree for the sale of the property be granted. On October 14, 1886, the cause was referred to a special master to ascertain and report the debts outstanding against the company, not including the first and second mortgage bonds, and the priorities of the debts, if any. On the 4th of February, 1887, a petition was filed on behalf of one Pollard and all other creditors of the company who might avail themselves of the benefit of the same, praying for the removal of the two receivers, and the appointment of a single receiver. This petition (and rule thereon rendered) was answered by both of the receivers, one of whom stated 'that he accepted the position of receiver of said company only at the request of Mrs. Mary W. Pearson, George W. Pearson, and Chas. L. Pearson, of Trenton, N.J., the largest holders of the capital stock of said company, and who now own or control a majority of both the first and second mortgage bonds, and of the complainant Samuel Knox, the petitioner Pollard, and Jacob Wissler;' and expressing entire willingness to relinquish the trust. On the 17th of February, 1887, Mary W. Pearson, Charles L. Pearson, and George W. Pearson, of New Jersey, filed their petition in the cause, by leave of court, setting forth their ownership of 1,885 shares of the capital stock of the iron company; and also that they were holders of 107 of the first mortgage bonds of the company in their own names, and others as collateral; and also of 112 of the second mortgage bonds; and stating that they were not satisfied with the present management of the receivers; that one of said receivers was named at the instance and request of said petitioners and others, and still had their entire confidence, but that a disagreement between the two militated against the proper management of the trust; and they requested the appointment of one Wissler as sole receiver. Thereupon the receivers were removed, though not upon any ground reflecting upon them personally, and Wissler appointed.

On February 14, 1887, the report of the master was filed setting forth the outstanding indebtedness, not including the first and second mortgage bonds, and awarding priority to the labor and supply claims as stated therein. To this report exceptions were filed on behalf of a large number of claimants and creditors, and among others, on the 14th of March, 1887, exceptions by Mary W. Pearson, Charles L. Pearson, George W. Pearson, and H. H. Yard, creditors and bondholders of the company, their 1st, 2d and 3d exceptions being: 'So far as it reports 'all labor claims open on the books of said company up to June 10, 1886, and closed on that day per the several statements filed by the claimants or their assignees. Said claims fell due on said June 10, 1886, and if even not recorded on the 14th of October, 1886, should be reported as subsisting liens, in the intent and meaning of the statute, and must be reported with priority as of that date with the common class, with all that stood unrecorded on that day, even should any of them have been recorded afterwards.' (2) Because he reports the words 'office agent,' used in the statute, as applying to the position of treasurer of said Columbia Liberty Iron Company. (3) As improperly construing the words 'conductors' and 'captains,' as applying to the position of managers.'

Several other exceptions questioned the allowance of particular items as liens, or in respect of priority or of amount. The report was recommitted, with instructions to consider any testimony upon the various exceptions, and another report was made on May 11, 1887, to which exceptions were filed. The report and exceptions related particularly to the construction of the statutes of Virginia in relation to labor and supply claims, and as to whether claimants were barred under that statute, and generally to the classification of claims. The report was again recommitted, and on June 17, 1887, the court by decretal order of that date directed the master to make, state, and settle the following accounts: (1) An account of the indebtedness of the company due by mortgage or deed of trust upon its property, and by whom and in what proportions held, and how evidenced, and the priorities or equities among the several holders or claimants thereof. (2) an account of other indebtedness of the company, together with any priorities by way of lien or otherwise; and in this connection stating specially any lien of any sort that might subsist against any part of the company's property, so stated that there might appear a full and correct account of the company's indebtedness, and with the respective priorities of the same, with a view to a sale of the property. (3) An account of the property, real and personal, of the company. (4) Any other account which any party in interest may require or the commissioner may deem of importance.

On August 31st, a partial report of the special master was made. This was followed by a decree September 8, 1887, disposing of the various exceptions to the master's reports, overruling, among others, the first exception of Mary W. Pearson and others, and sustaining exceptions to particular items. It was decreed, among other things, that all claims for labor and supplies that had not matured more than six months before the order of reference, October 14, 1886, or, having matured more than six months prior thereto, had been recorded, should be liens upon the property and franchises of the company superior to that of the bondholders of the company, and must be paid before said bonds; that all claims which had matured more than six months prior to October 14, 1886, and not recorded as required by the statutes of Virginia, within six months after maturity, were not liens on the company's property, and were subordinate to the bondholders; that, as between claims for labor and supplies furnished said company, the labor claims were prior, and must be paid first; and that the president, treasurer, secretary, and manager were not entitled to priority, but must be treated as general creditors. It was further ordered and decreed that the special master proceed and complete his accounts as directed by the decretal order of June 17, 1887, stating therein all liens upon the property of the company in the order of their priority, in accordance with the opinion of the court expressed in the decree. The disposition of one claim was reserved for further consideration on the master's report.

On September 24, 1887, a report was made by the master, stating the accounts specifically as directed. Exceptions were filed to this report by Mary W. Pearson and others in respect of two specified claims. On October 14, 1887, a decree was entered reciting that the cause came on to be heard upon the papers formerly read and proceedings theretofore had, the report of September 24th, etc., and overruling the exceptions to the report, which report was approved and confirmed, and special commissioners appointed (all parties in interest waiving delay for redemption) to make sale of the property in question, at public auction as prescribed, for one quarter cash on confirmation, and the balance in one, two, and three years, with interest from day of sale. The property was accordingly sold on January 5, 1888, to George W. Pearson for...