King v. Premo & King, Inc.

129 S.E.2d 493 (1963) 258 N.C. 701

Ernest KING, Jr.
v.
PREMO & KING, INC. and Bank of Montgomery.

No. 522.

Supreme Court of North Carolina.

February 27, 1963.

S. H. McCall, Jr., Troy, for appellant Bank of Montgomery.

Craige, Brawley, Lucas & Hendrix and Hamilton C. Horton, Jr., Winston-Salem, for appellant J. N. Rawleigh Co., North Carolina.

Charles H. Dorsett, Troy, for appellee David H. Armstrong, Receiver.

APPEAL BY THE BANK OF MONTGOMERY

PARKER, Justice.

The Bank of Montgomery assigns as error Judge Olive's finding as a fact and as a matter of law "that the Receiver's item of costs of administration and costs of conserving and sales of property, together with the Receiver's fee, attorney's fee, and accountant's fee, were all necessary to the Receivership and the same are hereby in all respects approved and confirmed."

The allowance of the costs of administration of a receivership of an insolvent corporation made by a court affects a substantial right of the creditors, in that it disposes of a part of the assets of the insolvent corporation, and is a reduction to that extent of the amounts to which the creditors are entitled under their claims against it. G.S. § 1-507.9; Bank v. Western Carolina Bank, 126 N.C. 531, 36 S.E. 39.

Costs of administration of a receivership include, inter alia, such items as the following: 1. Court costs in proceedings relating to the receivership; 2. Compensation for the receiver; 3. Reasonable and proper compensation for the receiver's attorney for services which require legal knowledge and skill, and which were rendered to the receiver for the benefit of the receivership; 4. Costs of conserving property in receivership; 5. Costs of sales of property in receivership; 6. Premiums for fire insurance on property in receivership; 7. Bookkeeping, clerical, and accounting expense and postage in connection with the administration of the receivership; 8. Payment of all taxes on property, real or personal, in the possession of the receiver which fall due during the time he is in possession as receiver, or which have accrued upon the property in his possession prior to his appointment. National Surety Corp. v. Sharpe, 236 N.C. 35, 72 S.E.2d 109; Stagg v. George E. Nissen Co., 208 N.C. 285, 180 S.E. 658; 75 C.J.S. Receivers § 383, Counsel Fees, page 1047; 53 C.J., Receivers, sec. 613, Counsel Fees, page 377; 75 C.J.S. Receivers, Taxes, § 179, page 825.

That the amount of the allowance by the superior court of attorney's fees is reviewable by this Court is well settled. Hood, Comr. of Banks v. Cheshire, 211 N.C. 103, 189 S.E. 189; In re Stone, 176 N.C. 336, 97 S.E. 216. However, the allowance of commissions and counsel fees to a receiver by the superior court is prima facie correct, and the Supreme Court will not alter or modify the same unless based on the wrong principle, or clearly inadequate or excessive. Hood, Comr. of Banks v. Cheshire, supra; Graham v. Carr, 133 N.C. 449, 45 S.E. 847.

This is said in 75 C.J.S. Receivers § 384a, page 1049:

"The trial court fixes the compensation, if any, to be allowed for the services of an attorney for a receiver. While the court is vested with discretion in the matter, and its action is presumptively correct, nevertheless its discretion must be properly exercised and not abused, and the matter is discretionary only in the sense that there are no fixed rules for determining the proper amount, and not in the sense that the court is at liberty to award more than fair and reasonable compensation, nor less than such compensation. Bills for counsel fees should be carefully scrutinized by the court or chancellor, and not allowed as a matter of course. The allowance must rest on facts showing actual benefits. A certain esprit de corps among attorneys which prevents them from interposing objections to the allowance of fees may make it somewhat awkward for the court to determine applications for the allowance of fees in receivership cases."

The receiver's report shows, as set forth above, that the total amount received by him from the liquidation of the assets of the insolvent corporation amounted to $29,900.88, and $10,200.00 of this amount was received by the receiver from the foreclosure of a deed of trust on a lot and building in favor of Peoples Mutual Building and Loan Association. This does not include the sum of $1,609.64 which, in his report of 2 May 1962, he states he has collected on accounts receivable factored by the insolvent corporation with Rawleigh. In his report of 2 May 1962 he asked the court to approve costs of administration of the receivership amounting to $7,553.25. In an addendum to this report dated 3 May 1962 he listed an additional cost of administration in the sum of $450.00. The total costs of the administration of the receivership approved by Judge Olive amounted to $8,003.25, which is more than 26% of the total amount received by the receiver from the liquidation of the assets of the insolvent corporation, excluding the sum of $1,609.64 collected on accounts receivable factored by the insolvent corporation with Rawleigh. The $8,003.25 of administration costs are itemized in the receiver's report as follows: 1. Costs of conserving and sales of personal property, $1,137.69, and included in the costs of said sales of property of the receivership is the amount of $81.97 for long distance telephone calls by counsel for the receiver; 2. Personal and real property taxes in the amount of $800.56; 3. Paid to Lee Houston, accountant, $615.00; 4. Paid to receiver for his services, $1,000.00; 5. Paid to Charles H. Dorsett, attorney for receiver, $3,750.00; 6. Court costs and estimate of future expenses for postage and clerical help, $250.00; 7. Paid to Karl H. Vonebeinstein for services rendered to receivership, $450.00. In addition, the receiver receives under Judge Olive's order $510.00 for the foreclosure of the deed of trust above set forth.

The only evidence in the Record before us as to the services rendered by his attorney is set forth in his report of 2 May 1962 as follows:

"9. That your Receiver further reports to the Court that the administration of this Receivership has consisted of numerous sales and resales necessarily involving the contacting of many prospective purchasers and the showing of the property to the same at all hours of the day and night, and the accounting and bookkeeping connected therewith has been most involved, complicated and time consuming; that most of the work in connection with the foregoing has been performed by Charles H. Dorsett, attorney; that under the provisions of G.S. 1-507.9, your Receiver would be entitled to a 5% commission upon receipts and disbursements, which would amount to $2,990.00; that your Receiver respectfully requests the Court that a balance of the fees to which the Receiver would be entitled to over $1,000.00 be applied against the fees to Charles H. Dorsett, Attorney."

It is to be noted that G.S. § 1-507.9 does not state that the receiver is entitled to a five per cent commission upon receipts and disbursements, but reads in part as follows, "the court shall allow a reasonable compensation to the receiver for his services, not to exceed five per cent upon receipts and disbursements." (Emphasis supplied.)

The contacting of purchasers, the showing of property for sale, the sales and resales of property, and the accounting and bookkeeping in respect to the administration of the receivership required no legal knowledge and skill, and are the performance of ordinary duties, which may and should be performed by the receiver himself, and are not the subject of an allowance of counsel fees. Henry v. Henry, 103 Ala. 582, 15 So. 916; Saulsbury v. Lady Ensley Coal, Iron & Railroad Co., 110 Ala. 585, 20 So. 72, where the Court held a receiver is not entitled to allowance for the services of an attorney in hunting up and taking into possession the property belonging to the estate, since it is the personal duty of the receiver to look after such matters; Deputy v. Delmar Lumber Mfg. Co., 10 Del. Ch. 101, 85 A. 669; Olson v. State Bank, 72 Minn. 320, 75 N.W. 378; Conover v. West Jersey Mortgage Co., 96 N.J.Eq. 441, 126 A. 855; Society for Relief of Destitute Children v. McDaniel, Sup., 148 N.Y.S. 951; Elsesser v. Pfleging, 254 A.D. 753, 4 N.Y.S.2d 275; Wilkinson v. Washington Trust Co., 8 Cir., 102 F. 28; 75 C.J.S. Receivers, Counsel Fees, § 383b, page 1048. The receiver states accounting and bookkeeping in respect to the receivership was most involved, and recommended, and Judge Olive confirmed, a payment to Lee Houston, an accountant, of $615.00 for his services rendered to the receivership.

In Conover v. West Jersey Mortgage Co., supra, the Court said: "And while a receiver should be allowed reasonable counsel fees for legal services rendered necessary in the discharge of his duties, he will not be allowed fees paid to counsel for services which are the ordinary duties he is presumed to know how to perform." In Olson v. State Bank, supra, the Court said: "And, when employing counsel, the receiver must also remember that it is his duty to perform such duties as any ordinarily competent businessman is presumed to be capable of performing. These are his duties, and he is paid therefor. It is only for services requiring special legal skill that he will be allowed counsel fees."

In Wilkinson v. Washington Trust Co., supra, the Court said:

"There was no error in the order of the court striking out the $750 paid by the appellant for the services of attorneys in preparing and presenting his reports as receiver and master. It is one of the indispensable personal duties of a receiver and of a master to make a report of his acts, and of his receipts and disbursements, to the court which appoints him. If he is incapable of keeping accounts and of reporting his receipts and disbursements, he ought not to accept the appointment. But if he does accept it, and his reports, like those in hand, involve nothing more than a simple narrative of his acts, and an account of his receipts and disbursements, he cannot be permitted to receive compensation for the discharge of these, his personal duties as receiver, and to charge the trust with moneys expended by him to hire others to discharge them for him. Such allowances would pay twice for the same services. In ordinary cases the making and presentation to the court of reports of the acts, receipts, and disbursements of receivers and masters is one of their indispensable duties. The compensation allowed them as receivers or masters pays them for this service, and they cannot be allowed disbursements which they may have made to hire attorneys or others to discharge these duties for them, because such allowances would effect two payments for the same service, and because cestuis que trustent are always entitled to a report of the doings of their trustee, without expense or charge to them."

There is nothing in the Record before us to indicate there was any litigation or dispute in respect to the collection of the assets of the receivership, or anything to show the amount of professional time necessarily required for the services of the receiver's counsel, or the extent or value of his legal services rendered to the receiver.

As said by Chief Judge Boyd in Friedenwald v. Burke, 122 Md. 156, 164, 89 A. 424, 427:

"One of the most delicate duties courts are called upon to perform is that of fixing the amount of compensation of attorneys in cases in which they are entitled to be paid out of an estate or fund before the court. It would be difficult to lay down a general rule, to be followed in all cases where such compensation is to be allowed, beyond saying that it must be reasonable and fair."

We are confident that the counsel for the receiver performed his professional services in the receivership ably and well, but considering all the pertinent facts and circumstances, the moderate amount of the assets derived from the liquidation of the assets of the insolvent corporation, and its complete insolvency with nothing to be paid to the unsecured creditors, and not enough apparently to pay the preferred creditors in full, it is our opinion, and we so hold, that the allowance by Judge Olive of $3,750.00 as counsel fees to the receiver's attorney is clearly excessive, and we feel it our duty to reduce the sum allowed to receiver's counsel to $1,000.00. This reduction is in accord with former decisions of this Court: Bank v. Western Carolina Bank, supra, where it was held that there was error in that part of the court's order allowing commissions in the amount of $2,350.00 because they were clearly excessive, and the amount was reduced; In re Stone, supra, where services rendered by a lawyer to an infant were reduced from $1,000.00 to $500.00; Outland v. Outland, 118 N.C. 138, 23 S.E. 972, where this Court held that an allowance of $200.00 as an attorney's fee in an action by the next friend of an idiot to have land charged with his support sold declared subject to the lien, etc., is excessive and reduced the fee to $100.00; Moore v. Shields, 69 N.C. 50, where an attorney's fee paid by a guardian was held excessive and reduced to $25.00. See also Richardson v. Tyson, 110 Wis. 572, 86 N.W. 250; Smith v. Smith, 69 Ill. 308, where an attorney's fee of $3,500.00 was reduced to $1,000.00.

The part of Judge Olive's judgment approving and confirming the receiver's report in respect to the costs of the administration of the receivership is affirmed, with the exception that the fees allowed counsel for the receiver are reduced from $3,750.00 to $1,000.00, and with the further exception that the superior court shall investigate and determine whether or not the receiver's report shows there has been a double charge in the costs of administration of the receivership of taxes paid by the receiver to Montgomery County and the town of Troy—a matter not clear from the Record before us.

The Bank of Montgomery further assigns as error that Judge Olive approved the report of the receiver to the effect that it was entitled to interest on its claims against the insolvent corporation only to the date of the appointment of the receiver.

When the Bank of Montgomery took the two above-mentioned chattel mortgages from Premo & King, Inc. in May 1958 and in December 1960, prior to the date of the appointment of the receiver on 11 August 1961, which chattel mortgages secured the two debts of Premo & King Inc. to the Bank of Montgomery by a specific lien on specific property, and caused these chattel mortgages to be registered in the public registry of Montgomery County, the county in which its debtor resided and had its principal place of business, it acquired property rights in the personal property specified in and covered by the chattel mortgages. G.S. § 47-20; National Surety Corp. v. Sharpe, supra; Odom v. Clark, 146 N.C. 544, 60 S.E. 513. In the very nature of things, the receiver took the property of Premo & King, Inc., subject to the lien of these two chattel mortgages, which existed at the time of his appointment. National Surety Corp. v. Sharpe, supra; Vanderwal v. Vanco Dairy Co., 200 N.C. 314, 156 S.E. 512; General Motors Acceptance Corp. v. Mayberry, 195 N. C. 508, 142 S.E. 767.

The liens of these chattel mortgages constituted valuable property rights of the Bank of Montgomery, and this became "trebly true," when Premo & King, Inc. was placed in receivership. "A primary purpose for the receivership of an insolvent private concern owing no duty to the public is the preservation of the rights of lien creditors as they exist at the time of the appointment of the receiver." National Surety Corp. v. Sharpe, supra.

It seems clear from the Record that the insolvent corporation was indebted to the Bank of Montgomery on interest-bearing obligations. The receiver in his report states he calculated and included in the total amount of the claims of secured creditors interest on the amounts due on the claims to 11 August 1961, the date of the receivership, but not later. The receiver allowed one claim of the Bank of Montgomery for $6,749.91—this included interest to 11 August 1961. The pledged property securing this loan was sold by the receiver for $8,000.50, thereby resulting in a surplus of $1,250.59 over the allowed claim, with interest to 11 August 1961. The receiver allowed the other claim of the Bank of Montgomery for $1,548.07—this included interest to 11 August 1961. The pledged property securing this loan was sold by the receiver for $2,900.00, thereby resulting in a surplus of $1,351.93 over the allowed claim, with interest to 11 August 1961. It is manifest that the security given by Premo & King, Inc. to the Bank of Montgomery was given to secure the payment of interest as well as principal of its debts to the Bank of Montgomery.

This Court said in Moore v. Watauga & Y. R. R., 173 N.C. 726, 92 S.E. 361: "Under the law of this state the appointment of a receiver for a corporation does not have the effect eo instanti to stop the interest upon all of its interest-bearing obligations." This Court in the Moore case held that the appointment of a receiver for a railroad company did not stop the running of interest on claims for labor and material furnished in the construction of the road, which were a lien on the property and entitled to a preference over other indebtedness. This Court followed the decision in American Iron & S. Mfg. Co. v. Seaboard A. L. R. Co., 233 U.S. 261, 34 S. Ct. 502, 58 L. Ed. 949, and quoted from it as follows: "For, manifestly, the law does not contemplate that either the debtor or the trustees can, by securing the appointment of a receiver, stop the running of interest on claims of the highest dignity."

The order appointing the permanent receiver enjoined all persons, firms, and corporations "from selling under foreclosure of any mortgage or deed of trust any real estate or personal property which constitutes a part of the property and assets of the said defendant corporation, whether executed by said corporation or assumed by it in the purchase of property, except by permission first obtained from this Court." The receiver cared for and sold property for $8,000.50 upon which there was a chattel mortgage to secure an indebtedness of the insolvent corporation to the Bank of Montgomery in the amount of $6,749.91—this includes interest to the date of the appointment of the receiver. After deducting from the sale price of $8,000.50 the Bank of Montgomery's fair pro rata share of the costs and expenses of the administration of the receivership as modified above (G.S. § 1-507.9; Wood v. Woodbury & Pace, Inc., 217 N.C. 356, 8 S.E.2d 240), the receiver will pay to the Bank of Montgomery $6,749.91, if there is enough left for that purpose, or if not enough, what is left; and if enough is left to pay the $6,749.91 in full and then a surplus remains, then the receiver will pay to the Bank of Montgomery interest on the amount of its claim to the date of the order of disbursement, or if not enough is left to pay the interest to the date of the order of disbursement, to pay what part of it can be paid. If interest can be paid on the claim of the Bank of Montgomery after the appointment of the receiver, the interest is to be figured on the amount of the claim as it was allowed before interest was added to the date of the appointment of the receiver. In other words, no interest is to be paid on interest. No surplus, if any, from the sale in the amount of $8,000.50 can be turned into the general fund of the receivership, unless the allowed claim of the Bank of Montgomery can be paid in full, with interest on its claim to the date of the order of disbursement. The same is applicable to the sale by the receiver for $2,900.00 of property upon which there was the lien of a chattel mortgage in favor of the Bank of Montgomery. In other words, a secured creditor may collect all of his principal and interest as far as his security suffices. Moore v. Watauga & Y. R. R., supra; American Iron & S. Mfg. Co. v. Seaboard A. L. R. Co., supra; Spring Coal Co. v. Keech, 4 Cir., 239 F. 48, L.R.A.1917D, 1152, and annotation following the case in L.R. A.; Georgia, Florida & Alabama R. Co. v. Bankers Trust Co., 5 Cir., 170 F.2d 733; Board of Com'rs of Sweetwater County, Wyo. v. Bernardin, 10 Cir., 74 F.2d 809, cert. denied 295 U.S. 731, 55 S. Ct. 645, 79 L. Ed. 1680; Leach v. Sanborn State Bank, 210 Iowa 613, 231 N.W. 497, 69 A.L.R. 1206; Banco Kentucky Co.'s Receiver v. National Bank of Kentucky's Receiver, 281 Ky. 784, 137 S.W.2d 357, 378; Metropolitan Life Ins. Co. v. Richard Gill Co., Tex. Civ.App., 303 S.W.2d 501; 75 C.J.S. Receivers § 270, page 905. It has been generally held that where in the administration of a bankrupt's estate the sale of pledged property by the trustee realizes more than enough to satisfy the principal of the secured claim, any surplus from the sale of the secured claim should be applied to the satisfaction of after-accruing interest on the secured claim before being turned into the general funds of the estate. Anno. 27 A.L.R. 2d 592, where a multitude of cases is cited in support of the text.

The Bank of Montgomery further assigns as error that Judge Olive approved the report of the receiver to the effect "that the pro rata charge assessed by the Receiver against the various claims of preferred creditors for costs of administration is fair and equitable to each creditor," with the exception that later on in the judgment the judge found as a fact and as a matter of law "that the claims for wages reported by the Receiver * * * shall bear their pro rata share of the costs of administration."

This Court said in Wood v. Woodbury & Pace, Inc., supra: "Ordinarily, it is the rule with us, when a receivership inures to his benefit, to hold that a lienholder should pay a fair share of the administrative expenses, where the receiver has managed, cared for and sold the encumbered property."

The lot and building upon which there was the lien of a deed of trust in favor of Peoples Mutual Building and Loan Association was sold by the receiver for $10,200.00. The receiver fixed as a pro rata charge of the costs of the administration of the receivership against this amount the sum of $1,053.00—a rate of a little less than 10%—as set forth above in detail, and the judge approved it. The receiver realized in the liquidation of the remainder of the assets of the insolvent corporation $19,700.88—excluding the amount of $1,609.64 collected by him on accounts factored with Rawleigh. The receiver reports that he fixed pro rata charges for the costs of the administration of the receivership against the $19,700.88 of the assets of the insolvent corporation at the rate of 32.992%, and the judge confirmed this. Such a difference cannot be sustained as against the Bank of Montgomery on the Record before us. The charges for the sale of the house and lot for $10,200.00 will be added to the costs of administration as modified in this opinion, and then the Bank of Montgomery will pay a fair pro rata share of the administrative expenses of the receivership, based upon the sum of $29,900.88, the total amount received by the receiver from the liquidation of the assets of the insolvent corporation, with the exception of the sum of $1,609.64 which the receiver collected on accounts receivable factored with Rawleigh.

The non-appealing creditors have acquiesced in the order of distribution. "As a general rule, an appellate court will not grant relief to a party who has not appealed or complained of the judgment." National Surety Corp. v. Sharpe, supra. See Queen v. Jarrett, 258 N.C. 405, 128 S.E.2d 894. However, the reduction in the fee allowed counsel for the receiver will necessarily give some relief to some of the non-appealing preferred creditors. Note, no part of the fee allowed the receiver's counsel was charged to Peoples Mutual Building and Loan Association.

The order of distribution on the appeal of the Bank of Montgomery is modified to conform to this opinion. As thus modified it is affirmed.

APPEAL BY J. N. RAWLEIGH COMPANY, NORTH CAROLINA

Rawleigh assigns as error the failure of the judge to pass upon its verified petition, and his order that it shall deliver to the receiver $531.22, representing its proportionate share of the costs of the administration of the receivership, and the sum of $1,243.23, representing a reserve fund held by Rawleigh, as a prerequisite to the receiver paying to it $1,610.44, representing the collection of factored accounts owned by Rawleigh.

The General Assembly of North Carolina enacted an ASSIGNMENT OF ACCOUNTS RECEIVABLE AND LIENS THEREON ACT, which is set forth in G. S. § 44-77 et seq. G.S. § 44-77, (3), states "``Assignment' includes an assignment for value as security and the creation by agreement of a lien on an account." G.S. §§ 44-78 and 44-80 set forth the means by which the assignee of accounts receivable becomes protected as against others. G.S. § 44-80, (2), reads: "When an assignment becomes protected, it shall be deemed to have been fully perfected at that time, and no bona fide purchaser from the assignor, no creditor of any kind of the assignor, and no other assignee or transferee of the assignor, in any event shall have, or be deemed to have, acquired any right in the account so transferred or in the proceeds thereof, or in any obligation substituted therefor, superior to the rights of the protected assignee therein." G.S. § 44-84, (2), reads: "The assignor shall hold in trust for the assignee * * *."

The case of In re Battery King Manufacturing Company, Inc., 240 N.C. 586, 83 S.E.2d 490, involved a receivership. In that case, shortly prior to the receivership, the insolvent corporation delivered to Burlington Mills fourteen batteries, and the account receivable in the amount of $388.00 representing the delivery was assigned to Rawleigh-Moses, who immediately made payment to the insolvent corporation for the account. Upon delivery of the batteries to Burlington Mills, together with two copies of the invoice, one of which was stamped with notice of assignment of the account receivable, the receiving clerk for Burlington Mills refused to accept the shipment on the ground that it contained improper batteries. The returned batteries were in the possession of the insolvent corporation when the receiver was appointed. Later the identical batteries were sold by the receiver to Burlington Mills for the reduced sum of $364.88. The Court stated:

"The foregoing facts bring the claim of Rawleigh-Moses within the provisions of the Returned Goods section of the Assignment of Accounts Receivable Act, G.S. § 44-84, under which the receiver was required to hold in trust for Rawleigh-Moses the goods which gave rise to this assigned account receivable. This being so, the purchase money received from the sale of the goods was impressed with a trust in favor of Rawleigh-Moses, and it is so ordered."

The petition filed by Rawleigh in the cause states, inter alia, that on all accounts assigned to and factored with Rawleigh by the insolvent corporation actual notice of the assignment was given on the face of the original invoice to the account debtor, and in addition Premo & King, Inc. executed a notice of assignment, which is recorded in Book 100 at page 96 of the public registry of Montgomery County. The petition further states that Rawleigh paid Premo & King, Inc. a full consideration for all the accounts receivable assigned to it by Premo & King, Inc.

The receiver's report in failing to state the facts in respect to the accounts receivable factored with Rawleigh, which he collected, and the judgment approving the report in respect to Rawleigh, do not give us facts sufficient accurately and safely to pass on Rawleigh's rights. Consequently, on Rawleigh's appeal the case will be remanded to the superior court that it may find with exactitude the facts in respect to the accounts receivable factored with Rawleigh, which the receiver collected, and then determine Rawleigh's rights according to the applicable law.

On Rawleigh's appeal the case is

Remanded.