In re American Slicing Mach. Co.

• Decision Date: 27 June 1923
• Citation: 118 S.E. 303,125 S.C. 214
• Parties: IN RE AMERICAN SLICING MACH. CO. v. HOBBS-HENDERSON CO. LIPSCOMB-RUSSELL CO.
• Court: South Carolina Supreme Court

118 S.E. 303

125 S.C. 214

IN RE AMERICAN SLICING MACH. CO.

LIPSCOMB-RUSSELL CO. v. HOBBS-HENDERSON CO.

Supreme Court of South Carolina

June 27, 1923

Appeal from Common Pleas Circuit Court of Pickens County; T. J Mauldin, Judge.

Creditor's bill by the Lipscomb-Russell Company against the Hobbs-Henderson Company, in which J. P. Abernathy was appointed receiver. From a decree denying priority to the claim of the American Slicing Machine Company, it appeals. Reversed and remanded, with directions.

Gary C.J., dissenting.

Carey & Carey, of Pickens, for appellant.

Stephen Nettles, of Greenville, for respondent.

COTHRAN J.

The appellant, American Slicing Machine Company, held a claim against Hobbs-Henderson Company, based upon the sale of one of its machines, under a contract retaining title. The contract was not recorded within 10 days, and not until after a receiver had been appointed. The circuit decree allowed the appellant no priority over either prior or subsequent creditors, in the assets in the hands of the receiver, and the machine company has appealed.

It appears that on February 7, 1922, at the instance of creditors, Hobbs-Henderson Company, a corporation, was placed in the hands of a receiver, by order of Hon. Frank B. Gary circuit judge, upon the ground of insolvency; on March 31, 1922, Hon. T. J. Mauldin, circuit court, passed an order directing the receiver to sell the assets of the corporation for a certain cash price, and providing that they should be sold free of all incumbrances, the lien or other rights of creditors being transferred to the purchase-money received; the sale was completed on the same day and the purchase price, $6,000, in cash, paid to the receiver; thereafter the American Slicing Machine Company filed a claim with the special master, claiming the possession of a certain machine sold to the insolvent, or the sum of $290, the balance due under the contract of sale reserving title.

The claim arose under the following circumstances: In October 13, 1921, the slicing machine company entered into a contract with the corporation for the sale of a slicing machine which was delivered and installed by the corporation in its place of business; the contract fixed the terms of payment, on credit, and reserved title until the price should be paid in full; it was not recorded until March 30, 1922, after the appointment of the receiver, and on the day before the order of sale of the assets was passed by Judge Mauldin. The machine was included in the assets sold on March 31, 1922, under that order.

It appears that the corporation was insolvent; that the majority of the claims filed with the special master were for debts contracted before the date of the slicing machine contract; that the claims which arose subsequently to the execution of that contract amounted to more than $1,000. The amount of the claims which arose prior is not stated in the record, but as the corporation with net assets of $6,000, was insolvent, and the subsequent claims amounted to about $1,000, it is apparent that the prior claims amounted to more than $5,000.

The hearing upon the claim was had before the special master on July 17, 1922. He held that the failure to record the contract of sale reserving title (which will be treated herein and termed a chattel mortgage), within the statutory period of 10 days and until after the appointment of a receiver, left the claimant in the position of an unsecured general creditor. Upon exceptions, Judge Mauldin confirmed the report, and from his decree the claimant has appealed.

The question whether or not the claimant is entitled to any preference in the distribution of the net proceeds of sale, is to be decided upon the relative rights of the receiver, representing all the creditors, and the holder of a chattel mortgage not recorded within the time required by the statute and not until after the appointment of the receiver.

A receiver is the officer of the court--as he has been termed, the arm of the court--appointed by the court to receive and preserve the property or fund in litigation, together with the rents, issues and profits, and to apply or dispose of them at the direction of the court. The receiver of an insolvent corporation represents, not only the corporation, but also its stockholders and creditors, and it is his duty to assert and protect the rights of each of these several classes of persons; he is regarded as a trustee for them. 23 R. C. L. 7. The court will see that, in the distribution of the assets of the corporation, it will be effected with proper consideration for the legal and equitable rights of all concerned. The property becomes a trust fund for the payment of debts, and the receiver simply holds it for the benefit of those ultimately entitled, in law or equity, to it.

This being true, it is clear that the appointment by the court can vest in the receiver no greater interest than the insolvent possessed. As is said in 34 Cyc. 191:

"A receiver can acquire no other, greater, or better interest than the debtor had in the property, and to this extent the receiver has been held to stand in the shoes of the debtor."

It is suggested in many authorities that the appointment transfers the title of the insolvent's property to the receiver; but the more logical conclusion is that the title remains in the insolvent, to be disposed of, as the court may decide, through its officer the receiver. It is quite certain that the receiver is in no sense a creditor or purchaser. See authorities cited upon this point in Carroll v. Cash Mills (S. C.) 118 S.E. 290, April Term, 1922.

At the time of the appointment of the receiver in the case at bar, the machine covered by the claimant's reservation of title contract, or chattel mortgage, passed from the possession of the insolvent corporation to that of the receiver, incumbered exactly as it was before. The title, whether considered as not having passed from the seller to the buyer, or still remaining in the buyer, or vested in the receiver, underwent no metamorphosis. In 34 Cyc. 348, it is said: " Under the general rule that a Receiver takes the property subject to all valid prior liens, such incumbrances are entitled to protection and to payment out of the property which they cover."

In an extended note to Ann. Cas. 1916A, 1258, it is said:

"By the weight of authority a conditional sale contract, valid as between the original parties is also valid as against the vendee's receiver, and may be enforced against him,"--citing cases from New Jersey, Colorado, New York, North Carolina, Oklahoma, Washington, and federal courts.

In Sayles v. Water Co., 141 N.Y. 603, 36 N.E. 740, the opinion in 62 Hun, 618, 16 N.Y.S. 555, ^[1] was affirmed, in which the court held:

"By the receivership the receiver got no better or greater right than the Globe Knitting Company had, and could only, as receiver, convey the interest which vested in him as the receiver; and if, as between the defendant and the knitting company, defendant retained the title to the filter, the same right would remain in the defendant as against the receiver and his grantee. As a general rule the receiver gets only such title as the defendant or judgment debtor has in the estate of which he takes possession. * * * Adopting, as I think we must, this as the settled law, we must hold that if the defendant, by the reservation in the bill of sale, reserved the title to this filter, or, in other words, if the delivery of the filter under that agreement conferred no title in the knitting company, then the receiver got no title by virtue of the receivership, and could confer none upon the purchaser from him."

To the same effect are Ardmore v. Briggs, 20 Okl. 427, 94 P. 533, 23 L. R. A. (N. S.) 1074, 129 Am. St. Rep. 747, 16 Ann. Cas. 133; Sumner v. Wolten, 61 Wash. 689, 112 P. 1109; 23 R. C. L. 56; 34 Cyc. 191; Auten v. City Electric St. R. Co. (C. C.) 104 F. 395; McRae v. Dredging Co. (C. C.) 86 F. 344; Bradford v. United Co., 11 Del. Ch. 76, 97 A. 620; Bank v. Lawrence, 194 Mich. 200, 160 N.W. 601; Philadelphia Trust Co. v. Traction Co., 258 Pa. 152, 101 A. 970; Brown v. Hunt, 111 Wash. 564, 191 P. 860; Trust Co. v. Elder (Del. Ch.) 112 A. 370; Wright v. Seaboard Co. (C. C. A.) 272 F. 807; Peterson v. Lindskoog, 93 Ill.App. 276; Bank v. McGettigan, 152 Ind. 582, 52 N.E. 793, 71 Am. St. Rep. 345; Cramer v. Iler, 63 Kan. 579, 66 P. 617; Battery Park Bank v. Western Carolina Bank, 127 N.C. 432, 37 S.E. 461; Knickerbocker v. Phosphate Co., 62 Fla. 519, 56 So. 699; Lawson v. Warren, 34 Okl. 94, 124 P. 46, 42 L. R. A. (N. S.) 183, Ann. Cas. 1914C, 139.

It appears therefore beyond question, upon reason and authority that when the receiver took possession of the machine, then subject to the reservation of title contract held by the claimant, he did not, by the order of his appointment, acquire any greater interest in it than Hobbs-Henderson Company had, which was the right to the possession and use of the machine, subject to what was practically a chattel mortgage in favor of the American Slicing Machine Company, securing the unpaid portion of the purchase price. As between the receiver and the claimant the priority of the claimant is clear. But it does not necessarily follow from this conclusion that the claimant is entitled to recover the possession of the machine, or to a perferred claim out of the proceeds of sale, as against both classes of creditors, prior and subsequent. The court in the administration of the insolvent estate is bound to recognize and protect, not only the rights of the claimant as a mortgagee of the machine as against the receiver, but the rights of creditors as they existed at the time of the appointment of the receiver, as against the mortgagee. The ...