H. B. Claflin Co. v. Furtick

• Decision Date: 04 December 1902
• Citation: 119 F. 429
• Court: U.S. District Court — District of South Carolina
• Parties: H. B. CLAFLIN CO. v. FURTICK.

119 F. 429

H. B. CLAFLIN CO. v. FURTICK.

United States Circuit Court, D. South Carolina.

December 4, 1902

Allen J. Green, for complainant.

Wm. H Lyles and W. D. Mayfield, for defendant.

SIMONTON Circuit Judge.

This case now comes up on the return to a rule to show cause why a receiver be not appointed, and why the temporary injunction heretofore issued be not made permanent. In order to understand the case, a brief statement is necessary. William F. Furtick is a citizen of South Carolina, a merchant resident and doing business in the city of Columbia. Having become embarrassed, he employed Messrs. P. H. Nelson and W D. Melton, attorneys, and instructed them to visit New York and open negotiations with his creditors. These gentlemen visited New York, and finally consummated an arrangement with the H.B. Claflin Company, the chief creditor of Furtick, whereby they obtained an amount of cash sufficient to purchase the claims of the other creditors, and secured a promise from that company to let Furtick have goods from time to time to a sum not exceeding $5,000, so that he could continue in business. With the money so provided by the H.B. Claflin Company, these gentlemen purchased the other outstanding claims against Furtick on such terms as could be had with each separate creditor, the discounts varying in almost every instance. Upon reporting to Furtick the result of their effort and the contract made with the H.B. Claflin Company, their action was entirely approved by him. As a part of the arrangement with the H.B. Claflin Company, and to secure it in full, Furtick executed a mortgage of his stock of goods, furniture, and fixtures. This mortgage, at the request of the Claflin Company, was executed to W. D. Melton, Esq., styled their 'trustee.' This mortgage recites that Furtick is indebted to W. D. Melton, trustee, for merchandise sold and delivered and moneys loaned to him at divers times and in various sums, amounting in the aggregate approximately to the sum of $23,000, and that he (Furtick) may become further indebted to the said Melton, trustee, at divers times thereafter in various sums, amounting in the aggregate to not more than $5,000, with interest on all invoices of merchandise and on all sums of money from the time when same are payable. Now, to secure the same he mortgaged all his stock of merchandise, office and store furniture and fixtures in his establishment at Columbia, and all such merchandise, office and store furniture and fixtures as may from time to time hereafter be acquired in lieu and place of those above mentioned in the current business of said establishment. Among the covenants of the mortgage was this: That, after deducting from the daily sales, the current expenses, and a reasonable sum for the personal expenses of the mortgagor, the remainder of all such sales shall be paid over to William D. Melton, trustee, on account of the indebtedness secured by the mortgage, and to this end W. D. Melton shall appoint a cashier, selected by himself, to receive all cash receipts, and, after making the deductions provided as aforesaid, to pay the remainder to Melton, trustee. The mortgage provides that the indebtedness is to be paid within six months from its date, and in default of that, or on breach of any covenant in the mortgage, that Melton can enter, etc., as in the usual form of mortgages. This mortgage was duly executed and recorded, and the scheme put in operation. It continued for some time, some modifications being introduced, not material now to be mentioned, until October 17, 1902, when Furtick tendered to W. D. Melton, trustee, the sum of $789.12, as payment in full of his entire indebtedness under the mortgage, after allowing him credit for sums paid from time to time, and demanded a receipt in full. This tender Mr. Melton declined. Thereupon Furtick dismissed the cashier, no longer accounted for the sales, and conducted the business on his own account entirely; whereupon the H.B. Claflin Company filed its bill for foreclosure against Furtick, praying also for the appointment of a receiver and an injunction. Upon presentation of the verified bill of complaint, his honor the district judge, presiding in the circuit court, passed an order directing the marshal forthwith to take possession of the property described in the bill and the proceeds thereof, and to hold the same until the further order of the court; that defendant do show cause on a day fixed why the prayer of the bill be not granted, and a receiver appointed, and the injunction issued; that defendant be restrained from intermeddling with the mortgaged property, or in any changing the status thereof or of its proceeds, until the further order of the court,-- issuing the ordinary restraining order in the meantime. The defendant is also ordered to deliver the property to the marshal, and is given leave to move to vacate or modify the order on two days' notice. Subsequently, by stipulation between counsel, the defendant was authorized to conduct the business, reporting daily under oath the amount of the sales, and depositing the same, after deducting clerk hire, to the credit of the marshal, in a bank in Columbia.

The defendant has made his return, as follows:

1. He denies the jurisdiction of the court upon a preliminary application, without notice, to order the marshal to take possession of property in the possession of defendant and of the proceeds thereof, and to order the defendant to turn over the said property to said marshal. Having obeyed this order, he asks that it be rescinded. Perhaps no practice is better established in courts of equity than that of taking into the custody of the court property the subject-matter of litigation, and preserving the status quo by holding it for the benefit of all parties. And this practice is frequently exercised in cases of foreclosure of mortgages even where provision is not made, as is made in this case, that the net profits of the mortgaged property belong to the mortgagee. Kountze v. Hotel Co., 107 U.S. 378, 2 Sup.Ct. 911, 27 L.Ed. 609; Shepherd v. Pepper, 133 U.S. 626, 10 Sup.Ct. 438, 33 L.Ed. 706; American Nat. Bank v. Northwestern Mut. Life Ins. Co., 32 C.C.A. 275, 89 F. 612; Central Trust Co. v. Chattanooga, R. & C.R. Co., 32 C.C.A. 241, 94 F. 282. Whether for this purpose it uses a receiver, or its own marshal, or any one of its other officers, the custody is the custody of the court. Such a course makes no change of title, decides no right; it simply preserves the status quo. This is always a matter wholly within the discretion of the court, and it is adopted when the court thinks it for the best interests of all concerned. If there be an abuse of this discretion, it may be reviewed in an appellate court. As this part of the return is directed to the action of the district judge sitting in this court, I have no right to review it, even if I did not concur in his view of the necessity or expediency of the act. But, considering all the circumstances of the case as then presented to him, I can see no possible objection to the course pursued by him. The question now before the court is whether, in the light of the return and the affidavits now in its possession, the custody of the court will continue. That will be discussed hereafter.

2. The next paragraph of the return says that this court is without jurisdiction at this stage of the proceedings, and before the time for answering has expired, to require the defendant to show cause why the prayer of the bill should not be granted and is without jurisdiction to grant any relief that would be appropriate only on the final adjudication of the case. If by this is meant that the case is not ripe for final...