Maxwell Lumber Co. v. Connelly (d.C. Trust Co.

• Decision Date: 04 April 1930
• Docket Number: Nos. 3293, 3310.,s. 3293, 3310.
• Parties: MAXWELL LUMBER CO. et al.v.CONNELLY et al. (COLUMBIA TRUST CO., Intervener).
• Court: New Mexico Supreme Court

34 N.M. 562

287 P. 64

MAXWELL LUMBER CO. et al.

v.CONNELLY et al. (COLUMBIA TRUST CO., Intervener).

Nos. 3293, 3310.

Supreme Court of New Mexico.

April 4, 1930.

Syllabus by the Court.

Statutory proceedings by injunction and receiver to wind up insolvent corporation, under Comp. St. 1929, §§ 32–174 to 32–194 (sections 956-976, Code 1915), are in the nature of quo warranto, the principal object of which is to terminate the corporation's existence, and the distribution of the assets of the corporation is incidental thereto.

Syllabus by the Court.

Comp. St. 1929, § 32–189 (section 971, Code 1915), does not authorize receiver to sell assets of insolvent corporation free of liens, unless there is question of legality of the liens and the property is of such nature as that it will deteriorate pending litigation; both factors must be present; one alone will not suffice.

Syllabus by the Court.

Under Comp. St. 1929, § 32–194 (section 976, Code 1915), valid lien claims cannot be diminished by charging costs and expenses of receivership against them, so long as there are general funds of the estate with which to pay such expenses, notwithstanding such lien claimants may have had their security sold and liquidated in the proceedings.

Syllabus by the Court.

Where mortgage contains enumeration of specific property covered thereby, followed by general words “any and all property of every kind and character, real, personal or mixed,” the rule of ejusdem generis applies, and such general words are held to refer to property of like kind and character as that specifically described.

Syllabus by the Court.

Under Comp. St. 1929, § 82–205 (section 3322, Code 1915), where owner makes arrangement to buy material and agrees to pay within 30 days after each lot shipped, and such arrangement amounts to a continuing contract during construction, the fact that owner paid for all deliveries made before mortgage is recorded does not give mortgagee priority over materialman for materials furnished later under such contract.

Additional Syllabus by Editorial Staff.

In statute concerning distribution of corporation's assets under receivership, phrase “to extent of their lawful priority” means that lien claimants have superior right to payment in full over right of general unsecured creditors (Code 1915, § 976).

Code 1915, § 976, concerns the distribution of assets of a corporation under receivership, and provides that, “after payment of all allowances, expenses and costs, and the satisfaction of all special and general liens upon the funds of the corporation to the extent of their lawful priority, all the creditors shall be paid proportionally to the amount of their respective debts. * * *”

Receivership wherein there is no equity to be administered for general creditors, even if action is in statutory form is a “dry receivership” as regards requirement of security for costs and expenses.

Appeal from District Court, Colfax County; Kiker, Judge.

Statutory proceeding for injunction and receiver to wind up the affairs of the Midwest Sugar Company, wherein James J. Connelly was appointed receiver, and wherein the Maxwell Lumber Company and others presented claims after attempting to bring independent actions of foreclosure as lien claimants, and wherein the Columbia Trust Company, trustee, intervened. From the judgment the lien claimants appeal, and intervener cross-appeals.

Affirmed in part and reversed and remanded with directions in part.

Valid lien claims cannot be diminished by charging costs and expenses of receivership against them if general funds are sufficient. Comp.St.1929, §§ 32-194.

Fred S. Merriau, of Raton, for appellants Maxwell Lumber Co., and Springer Lumber Co.

Pershing, Nye, Tallmadge & Bosworth, of Denver, Colo., and Daniel K. Sadler, of Raton, for appellant Mine & Smelter Supply Co.Henry Hunter, of Trinidad, Colo., and J. Leahy, of Raton, for appellant Trinidad Brick & Tile Co.Daniel K. Sadler, of Raton, for appellants Thomas B. Sasse and Continental Tie & Lumber Co.George E. Remley, of Raton, for cross-appellant Columbia Trust Co.Crampton & Darden and G. W. Robertson, all of Raton, for appellee James J. Connelly.

On Motions for Rehearing.

SIMMS, J.

After argument on motions for rehearing, we have concluded that the result reached in the original opinion is sound and that the motions should be overruled. But we have thought it advisable to withdraw the original opinion, in place of which the following will be filed:

This is a statutory proceeding for injunction and receiver to wind up an insolvent corporation under sections 954 et seq., Code 1915 (Comp. 1929, 32–174 to 32–194). The appellants, who are creditors holding liens, have appealed from so much of the final decree as adversely affected them in the matter of costs and expenses of administration, and the Columbia Trust Company, as trustee under a deed of trust and mortgage securing a bond issue of the insolvent corporation, has likewise appealed from so much of the judgment as awarded the Mine & Smelter Supply Company's mechanic's lien claim priority over the deed of trust of Columbia Trust Company, and from so much of the decree as denied to the Columbia Trust Company a first lien on certain assets in the receiver's hands. The causes have been consolidated for the purpose of the appeals.

In the spring of 1924, Midwest Sugar Company started to build a beet sugar factory at Maxwell. While construction was in progress, a bond issue of $125,000 was authorized, dated June 1, 1924, and secured by a deed of trust and mortgage to Columbia Trust Company as trustee, which was recorded June 20, 1924. The factory was practically completed by fall and after running for two or three weeks suspended for lack of funds. On December 18th, the president of the corporation, as a stockholder, filed suit for injunction and receiver under the statute, and on the same day the corporation answered, admitting insolvency and all other facts charged in the complaint, and a receiver was appointed and qualified at once. There was a small amount of cash on hand, together with certain coal, sacks, a few bags of sugar, and certain other assets, such as by-products, accounts, and claims. These the receiver took in charge and immediately proceeded with his duties. He insured the buildings and machinery, placed a watchman in charge, collected such accounts and choses as could be converted into money, and in general went about the ordinary work of such a receivership. Later, certain lien claimants undertook to bring independent actions of foreclosure, all of which were stayed by court orders, and all claimants were directed to present their claims in the receivership case. This they did. The court directed the receiver to sell the assets of the insolvent corporation, free of liens, and, for the purposes of proper marshaling, divided the assets into five groups, as follows:

Asset No. 1. The sugar factory, equipment and machinery, with 40 acres of land at Maxwell.

Asset No. 2. The beet dump at Springer.

Asset No. 3. The beet dump at Rayado.

Asset No. 4. Certain personal property.

Asset No. 5. The sum of $11,650.19 derived from cash on hand, sugar, coal, by-products, and choses collected by the receiver.

The expenses of the receivership were $12,024.63. This included receiver's fee, allowances for his counsel, taxes, insurance, watchman and other help, publication bills, labor claims, and general expenses of every nature. Asset No. 5 was not quite sufficient to defray the entire expense. The court permitted the receiver to use the fund from time to time and of this the Columbia Trust Company, trustee, is the only creditor complaining. We will notice that phase of the matter later.

The receiver's sale was duly made and, after confirmation, the court directed the receiver to charge against the proceeds (treating asset No. 5 as sold) the following cost deductions, apportioned to each asset as the court determined that asset had been benefited by the receivership, as follows:

Asset No Sold for Cost apportioned 1 $ 24,671.49 $ 7,816.20 2 800.00 253.45 3 275.00 87.13 4 558.53 176.95 5 (cash) 11,650.19 3,690.90 $12,024.63

Appellants are lien claimants against asset No. 1. The total of their claims as allowed by the court was $24,671.49. They procured a bidder who purchased the asset for that exact sum. Asset No. 5, being the general fund of the receivership, is the only fund to which the large number of unsecured general cerditors could look. Appellants contend that by forcing them to defray the largest part of the cost of the entire proceeding, the trial court re-established asset No. 5 to a great extent for the benefit of general creditors and thus erred against appellants. They say they did not initiate the receivership proceeding and came into it only because they were ordered to do so, and they claim that the general fund of the receivership, upon which there were no liens (asset No. 5), should be first exhausted in paying expenses before they (appellants) could be forced to contribute anything out of their security for that purpose. The receiver contends that all persons who deal with a corporation in this state must take notice of the possibility of insolvency proceedings and of the law of costs applicable thereto, and contends that the receiver rendered service which protected and benefited appellants' security, and they should pay their just share of that expense. All parties claim the question is one of statute but differ as to the construction thereof.

[1] 1. Sections 971, 975, and 976, Code 1915 (Comp. 1929, 32–189, 193 and 194), read as follows:

Ҥ 971. Where property of an insolvent corporation is at the time of the appointment of a receiver incumbered with mortgages or other liens, the legality of which is brought in question, and the property is of a character materially to deteriorate in value pending the litigation, the district court may order the...