Allen v. Cooley , 53 S.C. 414 ( 1898 )

The opinion of the Court was delivered by

Mr. Chief Justice McIver.

The plaintiff and the defendant, D. K. Cooley, were copartners in trade, under the name of Allen & Cooley, carrying on a mercantile business for a series of years prior to the 30th of September, 1897, and on that day the partnership was dissolved by mutual consent. For the purpose of the dissolution a statement of the assets and liabilities of the firm was submitted by D. K. Cooley, who seems to have had the active management of the mercantile business — the plaintiff being a farmer, and taking but little part in the management of the business. This statement seems to have been prepared by the defendant, T. D. Cooley, who is the brother of his codefendant, and had been for several years a clerk in the store, and since June, 1891, the book-keeper of the concern. In this statement the total assets of the partnership, not including certain real estate owned by it, was set down ,at $38,871.84, and the total liabilities at $11,536.72, which, after deducting the amount of certain choses in action, said to be not good — $8,737.10—showed a balance of good personal assets to the amount of $18,598.02. By the terms of the dissolution the plaintiff agreed to receive, and did receive, in full of his interest a tract of land estimated at $3,500, and two notes of D. K. Cooley, indorsed by T. D. Cooley, for $790 each — one payable on 1st of November, 1898, and the other payable on 1st of December, 1898; and all the other assets of the firm, real as well as personal, were turned over to the defendant, D. K. Cooley, he agreeing to pay all the debts of the firm, and releasing plaintiff from any liability therefor. A few days after this transaction was consummated, Mrs. K. W. Allen presented a note, bearing date 20th of November, 1891, purporting to be signed by Allen & Cooley, for $2,000, to the defendant, D. K. Cooley, and demanded payment thereof. He refused to pay it, saying he knew nothing about any such debt of Allen & Cooley. Very soon thereafter, probably the next day, D. EL. Cooley made an arrangement to sell his stock of goods to his brother, T. D. Cooley, and went to the insurance agent and had the policy issued on the goods changed to the name of T. D. Cooley. But a few days afterwards, D. K. Cooley returned to the insurance agent and procured a retransfer of the insurance policy to himself — stating to the agent “that the trade with T. D. Cooley had fallen through, as T. D. Cooley had failed to get some money from a kinsman of bis whom he expected to let him have it.” All this occurred about the 8th of October, 1897, eight days after D. K. Cooley had bought out the interest of the plaintiff in the assets of Allen & Cooley, and assumed the payment of the debts of that firm. On the 1st of November, 1897, Mrs. K. W. Allen commenced an action against D. K. Cooley on the $2,000 note above referred to, and recovered judgment thereon, probably at the next term of the Court, as the execution issued on such judgment was returned unsatisfied, on the 9th of February, 1898. Before this judgment was recovered, but after the action was commenced, to wit: on the 8th of November, 1897, D. K. Cooley executed a bill of sale to T. D. Cooley of the said stock of goods and store fixtures for the consideration expressed therein of $3,580, to be paid as follows: $2,000 to the Bank of Anderson on a note of Allen & Cooley, due 3d of December, 1897, and $1,580 to the plaintiff on the two notes given by D. K. Cooley'to plaintiff, and indorsed by T. D. Cooley, on the dissolution of the partnership; and on the 9th of December, 1897, D. K. Cooley executed a mortgage to T. D. Cooley on the storehouses which he received upon the dissolution of the partnership of Allen & Cooley, to secure the sum of $714.03 claimed to be due T. D. Cooley by Allen & Cooley for his services as clerk and book-keeper; but this sum, as well as a claim for $1,750 by T. D. Cooley against D. K. Cooley for money alleged to have been advanced by T. D. Cooley to D. K. Cooley in 1891, when he was a fugitive from justice, do not appear to have been considered in the trade between the two brothers for the stock of goods.

Upon the foregoing facts, which cannot well be disputed, the plaintiff commenced this action on the 10th of February, 1898, amongst other things, for the purpose of having a receiver appointed to take charge of all the assets of the late firm of Allen & Cooley, and administer the same under the direction of the Court. In the complaint, many other allegations are made, the most of which are disputed, going to show that D. K. Cooley was wasting the assets of the late firm of Allen & Cooley, left in his hands for the payment of the debts of that firm, whereby the plaintiff is in danger of being subjected to personal liability to the creditors of said firm; wherefore, amongst other things, the appointment of a receiver is prayed for. But the allegations of the complaint are so clearly and succinctly stated in the decree of the Circuit Judge, which will be incorporated by the Reporter in his report of the case, that no more detailed statement'is needed here.

On the 3d of March, 1898, the plaintiff applied for and obtained from his Honor, Judge Aldrich, an order restraining and enjoining the defendants from delivering to any person whomsoever the property and assets belonging to the late firm of Allen & Cooley, pending the hearing of an application for the appointment of a receiver of said property, motion to be heard by him at Pickens, S. C., on the 10th of March, 1898; and on the same day the plaintiff issued a notice, addressed to the defendants: “That upon the verified complaint in the above stated case, and upon the accompanying affidavits,” an application would be made to Judge Aldrich, at Pickens C. H., on the 10th of March, 1898, at 10 o’clock a. m., for an order appointing a receiver as aforesaid. It is stated in the “Case” that “A certified copy of the above order of injuction and copies of the above notice of motion and affidavits were duly and personally served on the defendant, Thomas D. Cooley, on the 4th day of March, 1898, and on the same day the sheriff left copies of the above papers with the wife of D. K. Cooley, at his residence ’ at Rowndesville, he being absent.” By consent of counsel the hearing of the motion for the appointment of a receiver was transferred to Greenville, and it was there heard on the 10th of March, 1898, at 8 o’clock P. M. At the hearing the defendants, for cause why the motion should not be granted, submitted the pleadings, including the answer of D. K. Cooley to the complaint, which had been served on the 25th of February, 1898, together with numerous affidavits set forth in the “Case.” The plaintiff was represented at the hearing by Messrs. Wells, Ansel & Cothran, and the defendants, D. K. Cooley and T. D. Cooley, by Messrs. Graydon & Graydon; Messrs. Bonham & Watkins being also of counsel for T. D. Cooley. The complaint and affidavits submitted in support of the motion were read by plaintiff’s attorneys, and Mr. Graydon read the answers of D. K. Cooley and T. D. Cooley, together with numerous affidavits submitted in their behalf, in opposition to the motion, all of which are set out in the “Case.” The defendants then claimed the right to open and reply in argument, but the Circuit Judge held that plaintiff had the right to open and reply. After the argument of Mr. Cothran for plaintiff, and Mr. Watkins for defendant, T. D. Cooley, Mr. Graydon raised the objection, for the first time, that defendant, D. K. Cooley, had never been served, personally, either with a copy of the order of injunction or with the notice of the motion for the appointment of a receiver, and, therefore, the Circuit Judge could not take jurisdiction of the matter, so far as said D. K. Cooley was concerned. The objection was overruled and the application was considered on the merits. After argument and due consideration, an order was granted appointing W. C. Tennent receiver, fixing the value of the property at $2,500, and the amount of the bond which defendants might give at $5,000 — saying that his reasons would be stated in a decree thereafter to be filed. This order was granted on the 11th of March, 1898, and was served on T. D. Cooley on the 14th of March, 1898, but has not been served on D. K. Cooley, nor has any notice of the appointment of a receiver been published. Subsequently, to wit: on the 24th of March, 1898, Judge Al-drich made a decree, setting forth, at length, the reasons for granting the above mentioned order of the 11th of March, 1898, and taking occasion to correct an inadvertent error in that order as to the value of the property, and in the amount of the bond which defendants might give, explaining how such error occurred.

On the 23d of March, 1898, the receiver presented his verified petition to Judge Aldrich, setting forth that said D. K. Cooley is in possession of a large quantity of choses in action belonging to the late firm of Allen & Cooley; “that ever since the proceedings were instituted to have a receiver appointed, the said D. K. Cooley has absented and secreted himself to avoid service of process, and it has been impossible to effect personal service upon him; and that the wife of said Cooley is alone with her family at the residence of said Cooley, at Lowndesville; that the receiver has made demand upon her for the said premises, but the same has been refused.” Wherefore, he asks the instructions of the Court as to how to proceed in the present situation of affairs. Thereupon the Circuit Judge granted an order, without notice either to D. K. Cooley or his attorney, directing the receiver to procure from the records of the office of register of mesne conveyances a list of all notes secured by mortgages of real and personal property, executed to the firm of Allen & Cooley, notify the makers of such notes and mortgages that the same are payable to him and not to D. K. Cooley, and that he proceed at once to collect the same. This order bears date 24th of March, 1898. On the 31st of March, 1898, the attorneys of D. K. Cooley gave notice to the attorneys fór the plaintiff of a motion to vacate said last mentioned order upon the several grounds stated in the motion, which will hereinafter appear, but Judge Aldrich refused to vacate said order.

The defendants gave due notice of appeal from the foregoing orders and decree in reference to the appointment of a receiver, including the last mentioned order instructing the receiver how to proceed with reference to the collection of choses in action belonging to the late firm of Allen & Cooley, upon the several exceptions set out in the record, which will be incorporated in the report of this case.

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2 We do not propose to consider these exceptions seriatim, but rather to consider the several questions which we understand them to present. The first question which we propose to consider is, whether the Circuit Judge had acquired jurisdiction of the person of the defendant, D. K. Cooley, at the time he heard and determined the application for the appointment of a receiver? While the act of 1897 — 22 Stat., 510 — does require notice to be given to the party whose property is sought to be put in the hands of a receiver, of the application for such an order, it does not prescribe how such notice shall be given, and hence we must look to the law as it stood at the time of the passage of such act, in order to ascertain how such notice should be given. Sec. 408 of the Code provides that “notices shall be in writing, and notices and other papers may be served on the party or attorney in the manner prescribed in the next three sections, where not otherwise provided by this Code of Procedure.” Sec. 409 provides that “The service may be personal, or by delivery to the party or attorney on whom the service is required to be made; or it may be as follows: * * * If upon a party, it may be made by leaving the paper at his residence, between the hours of 6 in the morning and 9 in the evening, with some person of suitable age and discretion.” It will be observed that neither the act of 1897 nor any other statute, so far as we are informed, requires personal service of the notice of the motion for the appointment of a receiver, though the act of 1897, in th& proviso to the second paragraph of the first section, does require, “that wherever a receiver is appointed, and the party claiming the property cannot be found within the State, notice of such appointment shall be forthwith given by publication ox personal service without the State, as prescribed by law in the case of a summons in a civil action” (italics ours). This shows that the legislature, in passing that act, had in mind the difference between personal service and other modes of service recognized by law, and that, when their intention was to require personal service, they knew how to express such intention. We agree, therefore, with the Circuit Judge that the service of the notice of the motion for the appointment of a receiver upon D. K. Cooley, who was not shown, or even alleged, to be absent from the State, but simply that he was evading the service of process, and who, probably, was near at hand, as he verified his answer before a magistrate of Abbeville County, where his residence was, by leaving copies of the papers with his wife at his place of residence in Rowndes-ville, Abbeville County, S. C., was a good service. But, in addition to this, we also agree with the Circuit Judge in holding that even if he was not served with notice, he waived such service by appearing, through his counsel, at the hearing of the motion, submitting his verified answer in the case, and otherwise resisting the motion. This Court has frequently held — one of the last cases being Rosamond v. Earle, 46 S. C., 9—that a defendant waives any objection to jurisdiction of his person by want of service of process, when he appears and answers, thereby waiving any such objection, and submitting himself to the jurisdiction of the Court.

3 The next question to be considered is, whether the Circuit Judge erred in holding that the plaintiff had the right to open and reply in argument. Rule BIX. is conclusive of this question. It provides as follows: “On all rules to show cause, where a party failing to answer would be in contempt, the party called on shall begin and end his cause; and on all motions or special matters, either springing out of a cause or otherwise, the actor or party submitting the same to the Court shall in like manner begin and close.” This motion for the appointment of a receiver was not a rule “to show cause where the party failing to answer would be in contempt,” but, on the contrary, it “is a motion in a cause,” submitted by the plaintiff; and hence, under the express terms of the rule, the plaintiff was the actor, and entitled to open and reply.

4 The next question is, whether there was any error in striking out the affidavits submitted by defendants, tending to show that D. K. Cooley was in Kentucky at the time the note to Mrs. K. W. Allen purports to have been given. Those affidavits were not pertinent to any issue presented by the motion for the appointment of a receiver. They related not only to an issue between Mrs. K. W. Allen and D. K. Cooley, but to an issue which had already been decided, and we are unable to see any relevancy to the issue in this case. There was no error, therefore, in striking out such affidavits.

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6 The next inquiry is, whether the creditors of Allen & Cooley were necessary parties to this action. This question could not properly be raised except by demurrer or answer, as it is an objection for “defect of parties;'" and as it was not so raised, the objection was waived. Code, sec. 169. But, in addition to this, we are not prepared to admit that such creditors are necessary parties to, this action, although they may have been proper parties. The main object of this action was to protect the plaintiff against being subjected to liability to the creditors of Allen & Cooley, by preserving the assets of Allen & Cooley, which had been left in the hands of D. K. Cooley for. the very purpose of meeting such liabilities, from waste and misapplication. The issue, therefore, was between the plaintiff and D. K. Cooley and his brother, T. D. Cooley, who was charged with complicity in such waste and misapplication. The rights of the creditors were not necessarily involved; for, even if the assets of Allen & Cooley were entirely wasted, they would still have their claims not only on D. K. Cooley personally, but also on the plaintiff.

7 Our next inquiry is, whether the allegations contained in the complaint, if shown to be true, are sufficient to warrant the appointment of a receiver. We do not think that there can be any doubt that where two partners dissolve their partnership under an agreement -whereby one of them assumes the payment of all the debts of the partnership and releases the other from any liability for the same, the relation between them becomes that óf principal and surety, as between themselves, though they both continue liable to the partnership creditors. If there could be any doubt of so plain a proposition, so exactly in accordance with reason and justice, such doubt would be entirely dispelled by the authorities cited in the Circuit decree. It is clear, therefore, that upon the dissolution of the partnership of Allen & Cooley, on the 30th of September, 1897, upon the terms set out in the complaint, and proved by the writing signed by D. K. Cooley, the relations between D. K. Cooley and the plaintiff became those of principal and surety, so far as the partnership debts were concerned. This being so, what, then, are the rights of the plaintiff as surety? There is no doubt that the surety might have brought an action against the principal debtor and the creditor to require the principal debtor to pay the debt, to the relief of the surety, as was done in the case of Norton v. Reid, 11 S. C., 593, and, if so, we see no reason why the surety may not, in a case like this, where the creditors are, probably, numerous, and the assets left in the hands of the principal debtor for the payment of the partnership debts consist largely of choses in action, which can be so easily dissipated, resort to the mode which has been adopted by the plaintiff to protect himself from liability to the partnership creditors. This view is amply sustained by the authorities cited in the Circuit decree. Indeed, this view may be sustained upon another ground. The partnership assets were left in the hands of D. K. Cooley, with an obligation on his part to apply the same to the payment of the partnership debts, in relief of the'plaintiff, and are, in fact, impressed with a trust for that purpose. If so, then the plaintiff, unquestionably, would have a right in equit}’-to take any suitable measures for the protection of that trust fund, and enforce its application to the purpose for which it was intended, so as to relieve himself from loss. It is said, however, that the complaint contains no allegation that the defendants, or either of them, are insolvent. In the first place, we do not regard such an allegation as necessary. It certainly was not so regarded in the case of Norton v. Reid, supra, a case analogous in principle to this— for in that case the Circuit Chancellor said in his decree: “From the evidence, there is no great danger of the complainant’s having to pay any portion of the single bill, but his fears upon that subject cannot be regarded as groundless;” and the only allegation in the bill as to this point was that the principal debtor “was in affluent circumstances, but that he (the surety) now fears that so much of his fortune was swept away by the disastrous termination of the late war, that he will not be able to pay his debts,” but this allegation was denied in the answer. But, even if an allegation of insolvency were necessary, we think it was sufficiently made in the complaint. It was alleged that executions obtained on partnership debts against D. K. Cooley had been returned '■'•nulla bona/” and this has always been regarded as one of the highest evidences of insolvency. See Akers v. Rowan, 33 S. C., 451; and as to the allegations in reference to the defendant, T. D. Cooley, they practically amount to an allegation that he has no property subject to the payment of his debts. It is also insisted that there should be an allegation that some creditor of Allen & Cooley either has attempted or is about to attempt to subject the plaintiff to liability for the payment of the debt of Allen & Cooley; but the cases of Norton v. Reid, supra, and Hellams v. Abercrombie, 15 S. C., 110, show that such an allegation was unnecessary. We agree, therefore, with the Circuit Judge that the allegations in the complaint, if proved, were quite sufficient to warrant the appointment of a receiver.

8 The next inquiry is, whether these allegations were sustained by the proof. This presents a question of fact pure and simple. It would unnecessarily prolong this opinion to enter into a discussion of the numerous questions of fact presented by the exceptions, and such discussion would prove of no value as a precedent. We must, therefore, say that, after a careful consideration of the numerous affidavits presented at the hearing, we have been unable to discover any error in the conclusions reached by the Circuit Judge upon all the material questions of fact, and we, therefore, concur in his conclusions.

9 The defendants set up, as a separate defense, the charge that plaintiff does not come into Court with “clean hands,” referring to the fact which appears in some of the affidavits, that plaintiff has transferred some of his real estate to his wife. What this, if true, has to do with any issue presented in this case, we are at a loss to conceive; whether such a transfer is in fraud of the creditors of Allen & Cooley, is a question with which defendants have no concern.- The defendant, D. K. Cooley, has assumed the payment of the debts of Allen & Cooley, and has been provided with funds sufficient for that purpose; and if he performs his duty, this question can never arise. At all events, as the Circuit Judge well says, it will be time enough to consider that question when some one of the creditors of Allen & Cooley sees fit to raise it — the defendants, certainly, are in'no position to raise any such question.

10 The next question is, whether the Circuit Judge erred in correcting an inadvertent error into which he had fallen in his short order, fixing the value of the property and the consequent amount of the bond which the defendants would be entitled to give, under the provisions of the act of 1897, above referred to, in order that they might move to vacate the.order appointing the receiver. It seems to us that the power of the Circuit Judge to correct such error is fully vindicated by the decision of this Court, in Chafee v. Rainey, 21 S. C., 11, and that the Circuit Judge, in his decree, has satisfactorily explained how he fell into this inadvertent error.

The only remaining inquiry is, whether there was any error in granting the order of 24th of March, 1898, based upon the verified petition of W. C. Tennant, as receiver. The error assigned in granting this order is lack of jurisdiction, based upon four grounds. 1st. Because the order was made without notice to the defendants’ attorneys. 2d. Because notice of appeal to the Supreme Court having been served from the order appointing a receiver, the Circuit Court no longer had the jurisdiction of the case. 3d. Because the notice of appeal operated as a stay of proceedings, and hence the Circuit Judge had no jurisdiction to grant the order. 4th. “Because no notice of the appointment of a receiver having been served on the said D. K. Cooley, in accordance with the provisions of the act of 1897, regulating the appointment of receivers, his Honor was without jurisdiction to pass said order.”

11 It will be observed that the application of the receiver was simply for instructions as to his duty in the premises under the state of facts presented in his petition. It was not a motion to take property from the possession of one party and deliver it to another. The defendants had already been ordered by the Judge to deliver all of the property and assets of the partnership of Allen & Cooley to the receiver, to be by him administered under the directions of the Court. This was done by the order of 11th of March, 1898, made upon the hearing when all parties were before the Court, represented by counsel. Nor was it an application for leave to expend any of the funds in his hand as receiver, as in the case of the State v. Port Royal and Augusta R. R. Co., 45 S. C., 464, where it was held that notice of an application to make such expenditure was necessary. But it was simply an application to the Court for instructions how to proceed under the circumstances stated in the petition, in the performance of his duties. The receiver is an officer or agent of the Court— the hand of the Court, as it is expressed in some of the cases— and when the Court takes possession of property and places it in the hands of a receiver, to be administered under its direction, and when an application is made to the Court for its instructions under a given state of circumstances, we see no necessity for notice of the application, and we know of no statute which requires notice of such an application.

12 The second ground upon which jurisdiction is denied is, that after notice of appeal from the order appointing a receiver, the Circuit Court no longer has jurisdiction of the case. In the first place, there is nothing in the “Case” to show that any such notice of appeal Had been given before the application for the order in question was made. But even if such notice had then been given, that would not oust the jurisdiction of the Circuit Court, for the jurisdiction of the Supreme Court does not attach until the return is filed; and there is no pretense that the return had then been filed.

13 The third ground upon which it is claimed that the Circuit Judge had no jurisdiction to grant the order under consideration is, that the notice of appeal operated as a stay of proceedings. Besides the fact above adverted to, that it does not appear from the “Case” that any notice of appeal had been given when the order of 24th of March, 1898, was applied for, it is quite clear from the statute, as well as from the decision of this Court in the case of Harmon v. Wagener, 33 S. C., 487, that a mere notice of appeal in a case like this, where the order appealed from directs “the assignment or delivery of documents or personal property, the execution of the judgment shall not be stayed by appeal, unless the things required to be assigned or delivered.be brought into' Court, or placed in the custody of such officer or receiver as the Court shall appoint, or unless an undertaking be entered into on the part of the appellant, by at least two sureties, and in such amount as the Court, or a Judge thereof, shall direct, to the effect that the appellant will obey the order of the Supreme Court upon the appeal,” Code, sec. 350; and there is no pretense that any of these provisions were complied with in this case.

14 The fourth ground upon which the objection to the jurisdiction is ba-sed, is because notice of the appointment of a receiver was never served upon D. K. Cooley, in accordance with the provisions of the act of 1897, above referred to. While that act does provide for notice of the-application for the appointment of a receiver, the only provision requiring notice of such appointment is where “the party claiming the property cannot be found in the State;” and in this case it has not been shown that D. K. Cooley cannot be found in the State. The return of the sheriff of Abbeville County, at most, only shows that he could not be found in Abbeville County, but there is no affidavit or other evidence that. he cannot be found in the State. On the contrary, as we have said above, the circumstances tend to show that he was in the State, and was merely concealing himself to avoid the service of process, so as to avoid any proceeding for contempt in disobeying the order appointing the receiver. If this had been an application for a rule to show cause why D. K. Cooley should not be attached for contempt in failing or refusing to obey the order appointing the receiver, then, apart from any statute, we could see the necessity for showing that the order appointing the receiver had been personally served upon him. But this is, ' not the nature of the order under consideration, and we see no necessity, in this case, for serving D. K. Cooley with notice of the order appointing the receiver, especially when that order was granted at a hearing where D. K. Cooley was represented by able and experienced counsel, in a case to which he had become a party by answering the complaint, if in no other way..

The judgment of this Court is, that orders appealed from be affirmed.