Burroughs v. Toxaway Co.

• Decision Date: 16 February 1911
• Docket Number: 1,011.
• Citation: 185 F. 435
• Parties: BURROUGHS et al. v. TOXAWAY CO. et al.
• Court: U.S. Court of Appeals — Fourth Circuit

185 F. 435

BURROUGHS et al. v. TOXAWAY CO. et al.

No. 1,011.

United States Court of Appeals, Fourth Circuit.

February 16, 1911

Charles A. Moore and Junius Parker (Moore & Rollins, Stevens &amp Anderson, and W. R. Perkins, on the brief), for appellants.

J. G Merrimon (James H. Merrimon, on the brief), for appellees.

Before GOFF, Circuit Judge, and McDOWELL and ROSE, District Judges.

ROSE District Judge.

The Toxaway Company is a North Carolina corporation. It owns two large summer hotels, several boarding houses, and 30,000 acres in the mountains of Western North Carolina. Its land is heavily timbered. It has water power of value. All of the property was subject to a first and to a second mortgage. At the time this suit was begun there were outstanding under these mortgages bonds of the aggregate par value of $272,000. The appellant Arrington had $210,000; the appellee Jennings $62,000. The interest on these bonds had been unpaid and in default for about four years. The company was largely indebted to unsecured creditors. At the time of the filing of the bill in this cause its total indebtedness, secured and unsecured, was upwards of $625,000. Its taxes were unpaid. The sheriff of at least one county had advertised such portions of its lands as were in that county for sale for unpaid taxes. The trustee under the mortgage had received notice that the insurance policies on its hotels would be canceled unless the notes which had been given to the insurance agents for the premiums thereon were paid. A lawyer had sued it for his bill, had recovered a judgment against it, and had levied execution upon the furniture in one of its hotels. It was the practice of the company to rent its hotels to persons who made their living by conducting summer resorts. The bill in this case was filed May 5, 1910. Late in the season as it was, no lease of either of its hotels had been made for the then closely approaching summer. Even when rented, the net revenue produced by these hotels was small. The rest of its property produced little income.

On or about January 1, 1910, the company had given the appellant Arrington an option to purchase substantially all its property. That portion of it which lay to the south and the east of the Blue Ridge Mountains he could buy, if he wished, for $300,000; that to the north and west of the mountains for $200,000. He at once went to work to find out all he could about the property. He looked into the value of its timber. He satisfied himself, at least roughly, what water power could be developed, and how much it would cost to develop it, and to what use it could be put when it was developed. He had the titles to all the land it claimed to own thoroughly examined. He found that there had been much carelessness in the previous conveyancing. Most persons, who for the first time have the title to wild lands thoroughly examined, have a similar experience. His conveyancers pointed out to him 300 defects in the title. Most of these were trivial. As to the majority of them, it probably made little difference whether they could be removed or not. Almost all of them could be cured at no great expense and with not an excessive amount of trouble. About 11 of them were, however, serious. The company was at the time a party to a number of suits involving the title to more or less of its land.

Arrington decided not to exercise either of the options. He made up his mind to act under the powers in the deeds of trust securing the bonds. At this time the trustee under the deeds of trust was the Colonial Trust Company of Pittsburg, Pa. The appellee Jennings was an officer of this company. The holder of two-thirds of the bonds could change the trustee without giving previous notice of his intention to any one. It pleased Arrington not to give notice. On the 28th of April he removed the Colonial Trust Company, and appointed the appellant Burroughs trustee. Under the powers contained in the deeds of trust he had the right to declare the principal of both the said issues of bonds to be at once due. This he did. He instructed the new trustee to proceed to collect the principal and interest of the bonds. The appellant Burroughs, as trustee, thereby became entitled to take possession of the mortgaged property and to sell the same. He elected so to do. He preferred, however, not to proceed solely under the powers given him by the deeds. He explains that, as there were disputes over the title to much of the land, he believed that the property could not be sold to advantage until such controversies were definitely settled. He says that he thought, if he did attempt to sell without first having the title cleared, other persons interested in the property would seek to have such sale enjoined, on the ground that the property would not under such conditions bring anything like its fair and reasonable worth. He made up his mind to go into the United States Circuit Court for the Western District of North Carolina and ask for a receiver.

In his bill he set forth the issue of the bonds, the default of the company thereon, the removal of the former trustee, his substitution in its place, and the election of the holder of a majority of the bonds under each issue to declare them then due, principal and interest. He told the story, as has been before recited, of the other indebtedness of the company, how some of its landed property was about to be sold for taxes, and some of its personal property under execution. He alleged that the improvements upon the land were either then uninsured or about to become so. He explained that a sale could not be wisely made until the titles to the land had been straightened out, and he asked that all proper and necessary accounts be ordered taken and reported, and especially an account showing the true state and condition of the title to said tracts of land embraced and described in said deeds of trust; that the title to the said tracts of land might be cleared of the clouds and defects which might be found to exist thereon and therein, and that a receiver be appointed to take charge and possession of the said property during the pendency of the suit; that such receiver be authorized to hold, manage, and operate said property and the improvements thereon in such manner as might be most advantageous in his judgment to the parties concerned; that he be authorized to issue receiver's certificates to the extent of, but not exceeding, $10,000 for the purpose of managing and operating said property, of paying the said taxes, executions, liens, and notes for premiums on insurance, and to keep the said property insured and free of taxes; that the receiver might be authorized to employ and retain such counsel as he might deem necessary, and to bring, prosecute, and defend all such actions at law and suits in equity as he might deem necessary or advisable for the purpose of protecting such property and of clearing the clouds from the titles to the same, and of remedying the defects in the titles thereto; and that a due and proper attorney's fee might be allowed to the attorneys of the complainant for their services in instituting and conducting the litigation.

Judge Pritchard, sitting as judge of the Circuit Court for the Western District of North Carolina, appointed the appellant Burroughs receiver. There can be no doubt that the bill made out a case for the appointment of a receiver. We have no desire in any way to weaken the force of those declarations which declare the appointment of a receiver is an extraordinary relief, only to be granted where the right to it is clear and the necessity for it great. In view of the great damage and injury which may be worked by the hasty and ill-considered appointment of receivers, we would emphasize every such declaration. But these rules have no application to the case made by this bill. Under the express terms of the deeds of trust the...