State Bank Of Va. v. Domestic Sewing-mach. Co

• Decision Date: 20 June 1901
• Citation: 39 S.E. 141,99 Va. 411
• Parties: STATE BANK OF VIRGINIA. v. DOMESTIC SEWING-MACH. CO.
• Court: Virginia Supreme Court

39 S.E. 141

99 Va. 411

STATE BANK OF VIRGINIA.

v.DOMESTIC SEWING-MACH. CO.

Supreme Court of Appeals of Virginia.

June 20, 1901.

CORPORATIONS—ASSIGNMENT FOR CREDITORS —PRIORITY OF CLAIMS—NOVATION.

1. The receiver of an insolvent corporation agreed with a bank to take certain notes which the bank had discounted for the receiver, and collected them himself, replacing such notes with receiver's certificates, and stipulating that the money collected on the notes should be applied to the payment of the receiver's certificates. Held, that the acceptance by the bank of the receiver's certificates was not a novation, the parties not intending the same.

2. A receiver of an insolvent corporation, empowered by orders of the court to continue the business, and to discount and protect such commercial paper as might come into his hands, and to issue receiver's certificates to a certain amount, agreed with a bank to take in trust for collection notes to the amount of $6,614.34, which the bank had discounted for the receiver, and to replace the same with receiver's certificates to the amount of $8,500. All money collected on the notes was to be deposited in the bank as a trust fund to be applied on the payment of the receiver's certificates so deposited. Held that, the receiver having power to discount notes, the receiver's certificates, deposited as collateral to protect the discounts made by the bank, to the extent required for the protection of such discounts, became the absolute property of the bank, and, to the amount of the discounts, were entitled to priority over open accounts for goods purchased by the corporation.

3. The certificates to the amount in excess of the amount necessary to protect the discounts, were not entitled to precedence over claims of other creditors of the same class.,

Appeal from chancery court of Richmond.

Proceedings by the State Bank of Virginia against the Domestic Sewing-Machine Company to determine the priority of the claims against the defendant, an insolvent corporation. From a decree sustaining exceptions to the commissioner's report, the complainant appeals. Reversed.

Coke & Pickrell, for appellant.

B. T. Crump, for appellee.

WHITTLE, J. This is an appeal from a decree of the chancery court of the city of Richmond. The controversy is one for priority of claim between the State Bank of Virginia and the receiver of the Domestic Manufacturing Company, creditors of the Domestic Sewing-Machine Company.

In 1893 the Domestic Sewing-Machine Company became insolvent, and executed a deed of trust or assignment conveying all its property in its agency and place of business in the city of Richmond to Henry C. Jones, trustee, for the benefit of its creditors.

Thereupon the trustee filed a bill in the chancery court to administer the trust, and in that cause was appointed receiver, and authorized to continue the business, so far as, in his judgment, it might be necessary to speedily dispose of the assets and wind up the trust.

Subsequently he submitted an exhaustive report of his transactions to the court, from which it appeared that it was the opinion of the creditors that great loss and damage would result if the affairs of the company were closed at once, and recommending that the business be temporarily conducted by the receiver until a permanent organization or other final settlement could be effected.

The receiver, conforming to this policy, and with the consent of the creditors, adopted the necessary measures to continue the business. He suggested, among other things, that authority be conferred upon him to have discounted from time to time, as the necessities of the receivership required, such negotiable paper then in his hands, or which might come into his bands, as he should consider it expedient to discount, and to arrange for its proper protection. The report and all acts of the receiver were approved and confirmed by the court, especially his action in changing the management from a passive to an active receivership, and looking to a temporary continuation of the business. To effectuate the new policy, the receiver was empowered to discount and protect such commercial paper as might come into his hands; and also to issue receiver's certificates, not to exceed $40,000, payable at the State Bank of Virginia. These certificates were declared to be the first lien upon all the sewing machines and upon all other property in the store or warehouse of the company, or which the receiver might have in the conduct of his office, wheresoever the same might be, together with all notes, leases, open accounts, and other bills receivable for or on account of sewing machines theretofore sold by him, or which he might thereafter sell. The lien, however, was to be subject and subordinate to the payment of rent, taxes, and the expenses of conducting the business, including salaries, wages, costs, fees, and charges, together with the cost price of any machines or other goods or merchandise which the receiver might purchase.

By a subsequent decree, Henry C. Jones was discharged from the receivership, and J. H. Derbyshire appointed receiver in his place and stead, who was clothed with all the rights and privileges and subject to all the liabilities and duties conferred or imposed upon the former by previous decrees in the cause.

Afterwards, the business having been attended with considerable loss, the cause was referred to a commissioner in chancery to take certain accounts, looking to a final settlement of the affairs of the company. The commissioner reported a large claim in favor of the receiver of the Domestic Manufacturing Company, composed of open accounts and receiver's certificates. He also reported the demand of the State Bank of Virginia, represented by notes discounted by it for Receiver Derbyshire and receiver's certificates. The commissioner says of this latter claim: "The business was continued by Receiver Derbyshire under these decrees, and on the 16th of December, 1896, the State Bank of Virginia held certain notes which had been discounted for Receiver Derbyshire of the face value of $6,614.34. * * * The receiver believed that he could collect these notes to better advantage than the bank, and wished to get possession of them for that purpose. With this object in view, the evidence shows that he made the following agreement with the bank: 'On December 16, 1896, said bank discounted 17 receiver's certificates, to wit, Nos. 1 to 16, inclusive, and No. 41, dated December 15, 1896, of the face value of $8,500, and payable to the State Bank of Virginia, on April 26, 1897, with interest from date. Said bank thereupon credited the account of said receiver by $8,500, whereupon the receiver on the same day checked on said account for the sum of $6,615.34, and received the discounted notes mentioned above, amounting to that sum, upon the understanding and parol agreement that he was to hold said notes as a special...