W.S. Gray Cotton Mills v. Spartanburg County Mills

• Decision Date: 08 March 1927
• Docket Number: 12172.
• Parties: W. S. GRAY COTTON MILLS et al. v. SPARTANBURG COUNTY MILLS. In re MASON MACH. WORKS CO.
• Court: South Carolina Supreme Court

137 S.E. 684

139 S.C. 223

W. S. GRAY COTTON MILLS et al. v. SPARTANBURG COUNTY MILLS.

In re MASON MACH. WORKS CO.

No. 12172.

Supreme Court of South Carolina

March 8, 1927

Appeal from Common Pleas Circuit Court of Spartanburg County; M. L Bonham, Judge.

Action by the W. S. Gray Cotton Mills and others, creditors, against the Spartanburg County Mills. From a decree denying preference to the claim of the Mason Machine Works Company claimant appeals. Affirmed.

Cothran J., and Watts, C.J., dissenting.

The following is the decree of the Circuit Court:

"This action was begun for the purpose of procuring the appointment of a receiver for Spartanburg County Mills, and to wind up its affairs. It was a corporation organized and chartered under the laws of South Carolina for the business of manufacturing cotton goods, with its plant and principal place of business at Spartanburg, S.C. Its charter was issued in 1919, and it organized with John B. Cannon as president. In 1920 the corporation, finding itself in financial difficulties, entered into negotiations with its creditors looking to the adoption of some plan by which the mill might continue to be operated and loss to the creditors averted. These negotiations culminated in March, 1921 in a written agreement between the mills and its creditors by the terms of which the affairs of the company were placed in the hands of a committee of the stockholders for a period of five years, viz., till March 1, 1926. In turn this committee of stockholders was under the supervision of a committee of the creditors, consisting of Mr. George Norwood of Norwood National Bank of Greenville, Mr. Fiske, of Fiske-Carter Construction Company, and Mr. Edwin Howard, the Southern Agent of Mason Machine Works. Mr. Wade H. Gray, president of W. S. Gray Cotton Mills of Woodruff, S. C., was selected by these committees to take charge of and operate the Spartanburg County Mills, under and in accordance with the terms of the written agreement. He assumed the management of the mills and operated the concern till April of 1923, when, finding that its condition had not improved, he ceased operating it and shut it down about the last of March or first of April. In August, 1923, the summons and complaint in the present action were served, and in the fall of that year George Norwood and B. C. Fiske were appointed receivers, and are now engaged in the duties of their office.

By the order of the court of common pleas for Spartanburg county it was referred to Le Roy Moore, Esq., master for said county, to take the testimony, consider, and pass upon all the claims presented against the Spartanburg County Mills, and report to the court upon the amounts, the validity, and the priorities of said claims. He has filed his report, and the matter comes on to be heard by me on exceptions to that report on behalf of Mason Machine Works, which claimed a preference for its debt on the ground that it had a contract of sale with Spartanburg County Mills for machinery sold to it, which contract reserves title in the vendor. The master found and reported against the validity of this claim of preference or priority. At the reference to prove claims the receivers and certain of the creditors objected to the allowance of this claim as a preference and filed with the master the written grounds of their objections. These objections are, mainly: (1) That Mason Machine Works did not file with W. H. Gray claim of lien, and the paper on which it was based, as provided by paragraph 3 of the agreement; (2) that it was the understanding of the parties to the agreement that all liens were removed; (3) that the contract of Mason Machine Works with Spartanburg County Mills dated October 11, 1919, was not recorded till April 23, 1923, and was unknown to the other creditors; (4) that the agreement of the creditors (par. 8) was intended to protect creditors who had a lien till they filed their claim of lien with W. H. Gray; (5) that to allow the preference now claimed by Mason Machine Works would be a fraud on the rights of the other creditors.

No objection is made to the amount of the claim, or to the proof thereof, nor to its validity; the sole objection is to the claim of preference.

The contract of sale reserving title was signed by Spartanburg County Mills, by John B. Cannon, president, and by Mason Machine Works, by Edwin Howard, Southern Agent. No one signed as witness of the signature of the contracting parties.

April 23, 1923, acknowledgment in writing was procured of two witnesses to the execution of the contract, their probates made, and that day the contract was recorded in the office of the register of mesne conveyance for Spartanburg county.

The exceptions to the master's report are numerous, but the issues are few.

The master, referring to the claim of Mason Machine Works, says this: 'This creditor claims, and not without some merit, that under the proviso of section 5312 of the Civil Code of 1922, the Registry Statute, as amended in 1914, their contract affects all creditors of Spartanburg County Mills the same as if this contract had not existed prior to the date of recording, but had been executed, delivered, and recorded on that date, and that the recording of their contract confers a lien as against all creditors who did not already have liens on the date of its record.' That statement is in accord with the doctrine laid down in the luminous opinion of Mr. Justice Cothran (concurred in by the majority of the Supreme Court) in the case of Carroll v. Cash Mills, 125 S.C. 332, 118 S.E. 290, which opinion was filed April 12, 1923. The master was bound by the ruling in that case to find in favor of the claim

of preference by Mason Machine Works, unless he found that this creditor had waived its lien or estopped itself to claim it. And he did so find, and the exceptions to his report deal with this finding.

It is excepted that the master erred in admitting, over the objection of attorneys for Mason Machine Works, the testimony of various persons relating to the negotiations leading up to the creditors' agreement of March 25, 1921, which testimony was offered to show that it was discussed and was understood, and the agreement was signed in the light of such understanding, that all liens were to be removed. It is objected to on the ground that there is no ambiguity in the terms of the contract which needs the aid of parol testimony to make it clear. That the testimony offered varies and alters the terms of the written instrument. That if it does not so vary and alter them it is irrelevant. That fraud was not pleaded, or, if pleaded, it was not pleaded with sufficient detail as to the facts on which the charge of fraud is predicated.

Let us review the terms of the written agreement between the Spartanburg County Mills and its creditors.

The preamble states that the purpose of the agreement is to inaugurate a plan by which the business of the company may be made profitable, its assets saved, and its creditors paid in full. If a majority of the stockholders approve the plan, a great majority of the stockholders shall transfer their stock to a committee of stockholders for a period of five years, viz., to March 1, 1926.

Paragraph 1 provides that at least 90 per cent. of the undisputed creditors in amount shall sign the agreement, and it must be ratified by a majority vote of the stockholders.

Paragraph 2 sets forth scope of the duties of the committee.

Paragraph 3 is as follows: 'Upon the execution of this agreement, each creditor shall forward to W. H. Gray, at Woodruff, S. C., a statement showing the items of its claim and if any lien is claimed a copy of the paper constituting the basis of such claim.'

Paragraph 4 provides that creditors shall extend the time of the payment of their claims for a maximum period of five years, but also provides for earlier payment if possible, and for the giving of the notes of the company to each creditor for the admitted amount of its claim; for the time and method of the payment of said notes, and for their renewal if necessary.

Paragraph 5 makes provision for raising a commercial fund to be employed in promoting and conducting the business of the company, which fund shall not exceed $75,000, to be evidenced by the notes of the company, to the payment of which indebtedness the creditors subordinate their claims.

Paragraph 6. By this paragraph the company agrees that by no act or deed will it suffer or cause any mortgage or other lien to be placed on any part of its plant or machinery so long as any indebtedness shall be due to any of the signatory creditors.

Paragraph 8 is in the following language: 'It is agreed that any creditor executing this agreement shall not be understood as waiving or releasing any lien which it may have upon any property of the company, but the execution of this contract and the acceptance of the notes herein provided shall be without prejudice to any such lien, and that the lien, if any, shall be preserved as though this agreement had not been executed by such creditor.'

Paragraphs 9 and 10 relate to routine matters which are not involved in this controversy.

I have reproduced in full paragraphs 3 and 8, because it is around their terms and language the settlement of the question of ambiguity centers.

I think it may be taken as granted that the language of each paragraph is plain, and, in itself, presents no element of doubtful construction, which requires the aid of parol testimony to make it plain. The application of the provisions of the two paragraphs may create a condition of uncertainty which would require extrinsic aid for its interpretation. The question arises whether it was intended by the provision of paragraph 3 that the creditor intending to claim a lien should file

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