Montgomery v. City Council of Charleston

• Decision Date: 06 February 1900
• Docket Number: 335.
• Citation: 99 F. 825
• Parties: MONTGOMERY et al. v. CITY COUNCIL OF CHARLESTON.
• Court: U.S. Court of Appeals — Fourth Circuit

99 F. 825

MONTGOMERY et al. v. CITY COUNCIL OF CHARLESTON.

No. 335.

United States Court of Appeals, Fourth Circuit.

February 6, 1900

This case comes up on appeal from the circuit court of the United States for the district of South Carolina. In order to a complete understanding of the case, it is necessary to state the facts somewhat in detail:

On 8th February, 1888, there was incorporated the Charleston Cotton Mills, a corporation organized for the purpose of manufacturing cotton cloth in the city of Charleston, S.C. It erected a mill building on its lands, and owned real estate adjacent thereto, on which were a cotton warehouse and residences for its operatives. In March, 1896, it became embarrassed, ceased operations, and finally, under decrees for foreclosure, its property was sold under two mortgages executed by it,-- the one to secure certain bondholders, and the other to secure a debt due to O. H. Sampson & Co. O. H Sampson & Co. purchased the parcel of realty mortgaged to them. The bondholders, through a committee, purchased the mill site, buildings, and machinery. On 6th April, 1897, the Charleston Mills was incorporated under a general law composed of the bondholders of the Charleston Cotton Mills and new stockholders. To this corporation the committee of bondholders conveyed all the property purchased by them under the foreclosure proceedings. The new company expended large sums of money in providing new machinery and repairing that purchased at the sale, and engaged in the business of manufacturing cotton goods.

The constitution of South Carolina, adopted 4th December, 1895 authorized cities and towns to exempt from all taxes, except those for school purposes, manufactories established within their limits; the exemption to be for five years; the exempting ordinance to be ratified by a majority of the qualified electors of the municipality. Article 8, Sec. 8. In 1896 the city council of Charleston, under this authority passed an ordinance exempting for five years from taxation, except for school purposes, all manufactories established after the ratification of this ordinance by the qualified voters of Charleston, within the corporate limits of said city, and doing business therein, employing ten hands, and having a paid-up capital of $10,000, with this proviso: 'Provided, however, that should any manufactory entitled under this ordinance to such exemption from taxes, fail in business and be reorganized or convey its plant and property to another person, firm or new company or corporation, the exemption of said plant or property shall be continued or extended for the five years from the original establishment of said manufactory and no longer. ' This ordinance was ratified by popular vote on the fourth Tuesday in April, 1896. The Charleston Mills set up a claim for exemption under this ordinance, and so notified the city authorities. On 19th November, 1898, pending this claim for exemption on the part of the circuit court of the United States for the district of South Carolina against the Charleston Mills, praying sale and foreclosure of its property; and under it C. O. Witte, Esq., was appointed receiver. On 13th December, 1898, the city council of Charleston filed its petition in the cause, setting forth that the Charleston Mills was indebted to it for municipal taxes in the sum of $3,356.52, and that they were unpaid, and, recognizing that the property of its debtor was in the hands of a receiver of that court, and so out of reach of an execution, prayed that provision be made for these taxes out of the first moneys coming into the hands of the receiver. After that an order for the sale of the property under a decree for foreclosure was had. The property was sold for $100,000, and was bid in by John H. Montgomery for himself and others, who organized themselves into a corporation in due form of law, under the name of the Vesta Mills. Before he complied with his bid,-- indeed, the day after the sale,-- Mr. Montgomery paid the state and county taxes due upon the property of the Charleston Mills, and also paid, without protest or exception, the amount of the taxes claimed by the city council of Charleston, and took full acquittance and discharge therefor. When he was ready to comply with his bid, he produced the receipted tax bill for state and county purposes, and asked the special master that it be received as so much cash. This was assented to. He then produced the tax receipt of the city council, and made a similar request. This was refused, the special master (knowing that the claim was disputed) not feeling himself authorized so to receive it without the decision and order of the court. Thereupon it was agreed between them that the matter be brought before the court. Accordingly Mr. Montgomery and the Vesta Mills filed their petition in the cause, setting forth the matters above stated; 'that Mr. Montgomery now has been informed that the liability of the property of the Charleston Mills to general municipal taxes is denied'; that, wholly ignorant of this, on the day the property was sold he paid the city taxes upon it, securing thereby a remission of all penalties, and also in order to anticipate a levy on the property under execution; that having so paid this tax, he sought credit therefor in completing the terms of sale, and that the special master declined to recognize the payment of the taxes made to the city; 'that thereafter your petitioners arranged with the said special master to pay into his hands the purchase money for the property bought at said sale, including the amount of the city taxes aforesaid (the said special master not feeling himself authorized to allow such reduction without the decision and order of the court), but that it was at the same time agreed that the said matter of the city taxes should be forthwith brought to the attention of the court in this case, so that the said court could decide whether or not the city taxes were by law due and payable, and a lien upon the property of the Charleston Mills, and that if the said taxes were decided by the said court to have been so due and payable, and a lien as claimed, then the said amount should be refunded to your petitioners by the special master, as having been already paid on account of the purchase money, but that, if the said court should decide that the taxes were not due and payable, then, by proper order of this court, the city council of Charleston should be directed, after proper hearing and adjudication, to refund and repay into the registry of this court the amount of city taxes paid to it by the said John H. Montgomery, to wit, the sum of $3,076.02.' The petition prayed that a copy of it be served on the city council of Charleston and on C. O. Witte, special master, and that the court would afford relief. The city council of Charleston answered the complaint,-- stating, in effect, that the tax on the Charleston Mills was due and unpaid, and that execution had been issued therefor in the sum of $3,356.52; that it was stayed by the proceedings in the circuit court, and that petition had been filed for its payment under the order of court; that afterwards Mr. Montgomery paid the sum of $3,076.02, and obtained a receipt in full; 'that the said payment was made freely and voluntarily, and for the purpose of obtaining remission of the penalties.' The answer denies in toto the exemption claimed for the Charleston Mills, and adds that this honorable court has no jurisdiction to adjudicate the matters set forth in said petition, as between John H. Montgomery and the said city, for the reason that it is simply an attempt on the part of the said John H. Montgomery to recover money from the city council of Charleston in a matter entirely foreign and outside of the purpose and purport of the bill filed herein. The answer of the special master admits the offer of Mr. Montgomery to deduct the amount paid to the city, and insists that the Charleston Mills are exempt from taxation.

The matters set out in the petition and answers, with testimony, were heard by the circuit court. The court was of the opinion that the city council of Charleston, having received satisfaction in pais, was no longer a party to the controversy, and declined, under these circumstances, to pass upon the validity of the exemption. To this action on the part of the court, exception was taken, an appeal was allowed, and the cause is here on several assignments of error, directed to the reasons given by the court for its action, and ending with the following: 'Because his honor should have held that the city taxes were a lien on the property purchased, legally, and payable by the seller, and that under the law, and in accordance with the agreement made at the time of settlement with the receiver and special master, referred to and set out in the record, the portion of said purchase money so paid twice, to wit, the sum of $3,076.02, by the purchaser, should be repaid him; it being against the law and equity and good conscience to have such sum retained by said special master and receiver.'

Augustine T. Smythe and Frank R. Frost, for appellants.

W. A. Holman, J. N. Nathans, and H. A. M. Smith (George S. Legare, on the brief), for appellee.

Before SIMONTON, Circuit Judge, and PAUL and WADDILL, District Judges.

SIMONTON Circuit Judge (after stating the facts as above).

In discussing this case, these facts must be kept in mind: That under the Walters bill the property of the Charleston Mills had been put into the hands of a receiver, and, under an order of the court, had been sold. That pending the suit the city council of Charleston had presented its claim for the tax of 1898, and had prayed that it be paid out of funds in the hands of the receiver. That...