Koester v. Citizens' Pub. Co.
| Decision Date | 09 January 1930 |
| Docket Number | 12804. |
| Parties | KOESTER v. CITIZENS' PUB. CO. CAROLINA NAT. BANK v. MERGENTHALER LINOTYPE CO. |
| Court | South Carolina Supreme Court |
Appeal from Common Pleas Circuit Court of Spartanburg County; T. S Sease, Judge.
Action for appointment of receiver by Mrs. E. P Koester, in her own behalf and in behalf of all other stockholders and creditors of the Citizens' Publishing Company, against the Citizens' Publishing Company wherein the Carolina National Bank, after sale of assets contested the priority of the mortgage of the Mergenthaler Linotype Company. From a decree awarding priority to the mortgagee, the Carolina National Bank appeals. Affirmed.
The material portions of the master's report were as follows:
This action was begun by service of summons and complaint on July 24, 1925, and was brought for the general purpose of appointing an operating receiver to take over the plant and property of the defendant company and operate its business which was that of publishing a newspaper in the city of Spartanburg known as the Sun, the business in which defendant was engaged, and the object of its corporation was the publication of an afternoon paper in Spartanburg. Incidental to such receivership, an injunction was sought to prevent suits against the said company and to call in all creditors to prove their claims, etc.
George R. Koester was the editor of the Sun and the dominating force in charge of the business affairs of the defendant, and he and his wife were very much interested financially as unsecured creditors and as stockholders in the defendant corporation, besides which Mr. Koester himself was drawing a salary of $100 per week as editor and general manager of the business.
By a consent order, signed by Hon. T. S. Sease, Circuit Judge (which was consented to by representatives of plaintiff and of the defendant), and after notice of the application therefor, served upon the defendant publishing company, but not served upon any other person or creditor of the defendant, the said George R. Koester was appointed as operating receiver to carry on and operate the business of the defendant, at a salary of $100 per week and was authorized to employ needed help and to borrow $15,000 to be used in the operating expenses of the business and to execute notes or receiver's certificates which should, according to the terms of the order, have priority over the assets and earnings of the said company. The said order also enjoined all creditors from bringing or maintaining any suit or other legal proceedings against the company otherwise than in that suit, and referred it to the master for said county to advertise for claimants to file and prove their claims and to take proof and pass upon all claims that might be presented, and determine their priorities, etc., etc. A more extended reference to said order and the contested points in issue arising out of the said order will be hereinafter made in connection with the discussion of the issues arising between the mortgagees, holding recorded mortgages over the property of the defendants, and the holders of the receiver's notes and certificates that were issued for the operation of said business in pursuance of the order of the court.
The order of Judge Sease bears date the 28th day of July, 1925. Immediately thereafter the said receiver, after having given bond on August 1st, began to borrow money from the Carolina National Bank, giving his notes therefor, and the said receiver continued to borrow from time to time from said bank upon his notes and to spend the money so borrowed, together with the entire income from the business, and continued in charge of said business as receiver until December 9, 1925, when he filed his report recommending that the receivership be brought to a close. Thereupon an order of the court was passed, referring the said report to the master for this county to examine and take testimony with reference to, and report upon, the accounts of the said receiver.
In the meantime, I published in the newspapers the usual notice, calling in creditors of the defendant company to file and prove their claims on certain dates therein mentioned, and thereafter, on the dates fixed and from date to date thereafter to which adjournment was taken, I held references for the purpose of receiving proof of such claims as were presented and also for the purpose of investigating the report of the said receiver and examining him and his witnesses in relation to the conduct of the business and his acts and doings as receiver, etc. Several references were held from time to time and claims were proven, and the said George R. Koester and other witnesses were examined. The testimony is voluminous and the same, together with the exhibits, documents, notes, mortgages, etc., are herewith transmitted to the court and filed.
Points in Dispute.
I now come to a consideration of the real points in controversy among the parties herein, and which have caused me no little concern, and for that reason and in order to give such matters all due deliberation and thought, I have been delayed in making and filing this report for a considerably longer period than I otherwise would have been.
The main point in dispute involves the question of priority over the printing press and its equipment and the Mergenthaler Linotype Company's machines and equipment, as between the mortgages thereon, held by Roy C. Goodwin and Mergenthaler Linotype Company, respectively, and the claims of the Carolina National Bank, consisting of a certain receiver's notes aggregating $15,000 and accrued interest, which were issued under the provisions of an order of Judge Sease heretofore referred to.
Goodwin and Mergenthaler Company make the claim that their mortgages take priority over the property covered by them, respectively, as against all other claims. The bank, on the other hand, claims that the order of Judge Sease gives their notes a lien over said property with priority over all other liens and claims and over even recorded mortgages.
The mortgagees above named make the contention, in the first place, that under a reasonable and proper construction, the order of Judge Sease was never intended to attempt (even if it could do so) to displace and supersede these duly executed and recorded mortgages.
In the second place the mortgagees contend that, if the order of Judge Sease be construed to undertake to give the holders of the receiver's notes priority over their mortgages (they not having been made parties to the suit and not having been given notice of the application for any such order, or any opportunity to be heard in evidence and argument against the same, and not having consented for their mortgages to be so displaced), said order is utterly null and void in so far as it undertakes to give such priority, for the following reasons, amongst others:
(1) That such an order, in the absence of reasonable notice and opportunity to be heard, would be depriving the mortgagees of their property and property rights without due process of law in violation of the Fourteenth Amendment of the Constitution of the United States and of section 5 of article 1 of the Constitution of South Carolina.
(2) That by so undertaking to displace and destroy their liens, without making the mortgages parties to said action and bringing them before the court in an orderly and lawful manner, and giving them an opportunity to be heard in evidence and argument upon said matter, and in advance of passing any such order, the action of the court did not constitute that due process as contemplated by the said Constitutions and the laws of the land, and was in effect the unlawful confiscation of their property and property rights without the chance to be heard.
(3) That the methods adopted, as shown by the records and in view of all the facts, did not constitute due process.
(4) That in the absence of consent of all mortgagees the said court had no power or authority to authorize the issuance of receiver's notes to take priority over existing mortgages, in order to obtain money with which to operate a purely private business of a private corporation, and that this is true, even if all mortgagees and lienholders had been properly made parties to the action and were before the court at the time such order was passed.
(5) That any such attempt to appoint a receiver and give him the powers mentioned, without previous notice to mortgagees, was in violation of the provisions of the Code of S.C. volume 1, § 524, subd. 6, which requires that, before a receiver of the property of a person or corporation shall be appointed, four days' advance notice of the application therefor shall be given to the party or parties whose property is sought to be put in the hands of the receiver, and to the party or parties to the action in possession of such property claiming an interest therein under any contract, lease or conveyance thereof from the alleged owner.
As to the Facts.
In order to intelligently consider and pass upon these various contentions, it seems appropriate to briefly review the history of the case as bearing upon the points involved. Most of the essential facts appear to be either undisputed or they are clearly established by the evidence. The evidence discloses the following facts:
As already shown in the previous portion of this report, the action was begun by the service of summons and complaint on the defendant on the 25th day of July, 1925, and on or about the same time the notice was served upon the defendant of an application to be made before Judge Sease on the 28th day of July, 1925, for an order appointing George R. Koester as operating receiver, etc. It is of some importance to note...
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