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ruling a bid one-eightieth of the inventoried value of the property was so grossly inadequate as to be shocking to the court
Summary of this case from Moore v. RoweOpinion
12922
May 14, 1930.
Before SEASE, J., Union, November, 1929. Affirmed.
Action by the Kraemer Hosiery Company against the Liberty Fabrics Corporation, in which receivers were appointed and defendant corporation's property was sold at auction. J.G. Hughes and D.N. Jones as receivers were applied to the Court to refuse to confirm the sale, and this application was contested by P.E. Wilburn and others, as purchasers. From a judgment setting aside the sale, the purchasers appeal.
The order of Judge Sease is as follows:
This matter comes before me on the report of sale by the receivers of Liberty Fabrics Corporation and their petition asking that the Court refuse to confirm the sale of the property of the Liberty Fabrics Corporation to P.E. Wilburn, who was the last and highest bidder at the sale and upon the petition of South Carolina Savings Bank, one of the largest creditors of the Liberty Fabrics Corporation, joining in the request of the receivers that the Court refuse to confirm the bid of P.E. Wilburn and asking that the receivers be authorized and empowered to resell the property of the Liberty Fabrics Corporation at private or public sale, in whole or in part.
It appears from the petition that the said receivers, in obedience to an order of the Court, duly advertised all of the fixed assets of the defendant Liberty Fabrics Corporation, inventoried at $200,953.78, to be sold as a whole for cash on the 14th day of November, 1929, at public outcry, said advertisement stating, "Any bid must be confirmed by the Court."
That, in pursuance of said order and advertisement, the said property was offered for sale at public outcry upon said date, upon the terms and conditions set forth in said advertisement, and at such sale P.E. Wilburn, of Union, South Carolina, who was the last and highest bidder, bid the sum of twenty-five hundred ($2,500.00) dollars, which sum the receivers allege is totally inadequate, ridiculously low, and represents an unfair price. That certain offers were made for portions of the property before and after the sale, which would indicate that the property would bring a considerable higher and much greater price at a resale.
That among those who made the deposits as required by the order and advertisement as a prerequisite for bidding at such sale were H.M. Arthur and B.F. Kennedy. That during the progress of the sale H.M. Arthur did not register a bid. That the bid of P.E. Wilburn was for the joint benefit of H.M. Arthur, P.E. Wilburn, and B.F. Kennedy: that such joint bidding stifled competition and chilled bidding.
That the property offered for sale was returned for the purpose of taxation for the current year as of the value of sixty thousand dollars. The State and County taxes thereon for the year 1929 were $3,210.00.
It appears from affidavits attached to the petitions that the manufacturing plant of Liberty Fabrics Corporation was appraised by Lockwood, Greene Company, Industrial Engineers, on March 8, 1927, at One Hundred and Twenty-eight Thousand, Two Hundred Sixty-seven and 45/100 dollars ($128,267.45) and that after such appraisal considerable additions were made to the plant; that all prospective purchasers were notified before the sale that the same would be subject to the confirmation of the Court; that no bill of sale has been executed to P.E. Wilburn, H.M. Arthur or B.F. Kennedy, either individually or collectively, and no transfer of the property has been made to any or all of said parties.
Messrs. P.E. Wilburn, B.F. Kennedy, and H.M. Arthur appeared, in pursuance to the notice served by the receivers, and demurred to the petitions upon the grounds that the petitions fail to allege any facts that would furnish any legal basis to vacate the sale. Answering the petition, the defendants allege that the receivers procured from Judge J. Henry Johnson an order ordering the property of Liberty Fabrics Corporation sold, and in pursuance of the same the said plant, equipment, etc., were duly advertised; that various parties, in accordance with said order, filed with the receivers their certified check for One Thousand Dollars ($1,000.00), amongst the number being P.E. Wilburn for himself and for B.F. Kennedy and H.M. Arthur; that the property was publicly and fairly sold; that the decree was valid; that there was no fraud, no mutual mistake, surprise or accident, and no misconduct of an officer; that the price was not inadequate and there were no facts or circumstances as to chilling the bidding or collusion to buy at a lower price; that everything was open, fair and according to law and in strict compliance with the order of Judge Johnson; that P. E. Wilburn, for himself and for B.F. Kennedy and H.M. Arthur, complied with the terms of the order; that the receivers have no right to question the sale upon the ground of inadequate price without other facts and circumstances surrounding the sale and that they have complied with the order of the Court in all particulars; that the order of the Court did not provide that the sale was to be subject to the confirmation of the Court.
I am of the opinion that the demurrers should be overruled.
It is therefore ordered, adjudged and decreed that the demurrers be and the same are hereby overruled.
The record in this case shows that the receivers were appointed to take charge of the Liberty Fabrics Corporation on the 26th day of June, 1928, and that for a period of several months the corporation was operated by the receivers under the direction and control of the Court, goods were manufactured and sold in the market until a short time before the decree of the Court providing for the sale of the plant, machinery, equipment, etc., of the corporation.
The property ordered by the Court to be sold is located in Union, South Carolina, where the receivers most likely hoped to find purchasers. The record shows that two residents of the city of Union filed the necessary deposit money required by the order of the Court to bid for the property. One of these, Mr. Arthur, did not bid at the sale. Mr. Wilburn filed a bid in behalf of himself and Mr. Arthur and Mr. Kennedy. There was but one other bidder at the sale, who bid one thousand dollars, and it appears was interested in the property only as "junk." The only prospective purchasers of the plant for the purpose of operating it, who appear to have been present at the sale, were Mr. Arthur, Mr. Wilburn and Mr. Kennedy, who, it appears, combined their interests and agreed that only one should bid. Mr. Wilburn bid Twenty-five Hundred Dollars ($2,500.00). Mr. Emslie Nicholson, the president of the corporation, then stated to Mr. Wilburn that he would not give one thousand dollars for the property. There was no other bidding.
I am of the opinion that there is no merit in the contention that the order did not provide that the sale was subject to the confirmation of the Court. All judicial sales in South Carolina are subject to the confirmation of the Court.
"A judicial sale is not final and complete until it has been duly confirmed and ratified by the Court under whose order it was made." McIver v. Thompson, 117 S.C. 175, 108 S.E., 411.
I am of the opinion that the Court is invested with a larger discretion when dealing with exceptions to a sale filed by its receivers than it would be when dealing with exceptions filed by other persons. Williams v. Owensboro Savings Bank Trust Co., 153 Ky., 789, 156 S.W., 899.
The law should be different where a prospective purchaser seeks to have the Court refuse confirmation, in order that he may have an opportunity to purchase the property, than where the receivers themselves, who are agents of the Court, request that the sale not be confirmed. In this case the receivers asked the Court to refuse confirmation of the sale, not for the gratification of a selfish desire of a prospective purchaser or because of disappointment as an interested party, but in the interest of justice and in the interest of creditors in whose behalf the Court controls the property and the sale thereof. While there does not appear to be any decisions of our Supreme Court governing circumstances like these, it seems to me that under such circumstances the law should be that the receivers are but the agents of the Court, through whom the highest bidder transmits his bid, which the Court, in the exercise of a sound discretion, may accept or reject, and gross inadequacy of price should be a good ground justifying refusal to confirm sale of property by the receivers. (O.K. Warehouse v. West, 151 Va., 809, 145 S.E., 253), and where it is brought to the attention of the Court by report of the receivers that the proposed bid for the property in receivership is far less than the property is reasonably worth, the Court should refuse to confirm the proposed sale. Robineau v. De Long, 92 Fla., 418, 109 So., 636.
In this case, there is no question but that the highest price bid at the sale is totally and wholly inadequate and to such an extent that it would shock the conscience of the Court to confirm it, and since the receivers were the agents of the Court, and are disinterested, have asked the Court to refuse to confirm the sale, I am of the opinion that in such case the sale should not be confirmed. But even if the rule established by the Courts of other States as applying to receivers be held not to be the rule in South Carolina, I am still of the opinion that the sale in this case should not be confirmed. In the case of Ex Parte Cooley, 69 S.C. 155, 48 S.E., 92, 95, our Court decided:
"If the inadequacy of price is so gross as to shock the conscience, a Court of Equity would doubtless seize upon other circumstances impeaching the fairness of the transaction as a cause for vacating it. * * * But the circumstances impeaching the fairness of the transaction should relate to the conduct of the officer making the sale, as in Farr v. Sims, Rich Eq. Cas., 122, 24 Am. Dec., 396, or to the conduct of the purchaser participating in the attempt to stifle competition or affected with notice thereof, as in Carson v. Law, 2 Rich. Eq., 296, etc."
It matters not whether the prospective purchasers in Union were prompted by the patriotic motive of preserving an industry for the community or of reaping financial profits for themselves. The fact appears to be that all of the prospective purchasers in the city of Union combined their interests and agreed that a bid would be filed only by Wilburn for the account of Kennedy, Arthur and Wilburn.
Our Courts have always guarded the sanctity of judicial sales with the most exacting jealousy. To this end it has long been an established principle in this jurisdiction that any agreement or combination, the object and effect of which is to chill the sale and stifle competition is illegal, and no party to the agreement or combination can derive benefit from the sale. ( Hamilton v. Hamilton, 2 Rich. Eq., 355, 46 Am. Dec., 58).
"Anything by a party in interest that chills the sale — prevents free competition amongst the bidders — will, on complaint, cause such a sale to be set aside. * * * That it is a principle ingrafted upon our laws that at public sales fair competition must exist is too long and firmly settled by our decisions to need comment." Herndon v. Gibson, 38 S.C. 357, 17 S.E., 145, 146, 20 L.R.A., 545, 37 Am. St. Rep., 765.
"When a Court of Equity detects among ordinary bidders an agreement or combination the effect of which is to chill the sale or stifle competition, no one implicated therein will be allowed to derive any benefit from a sale so conducted." Matheney v. McDonald, 5 Strob., 77.
In Toole v. Johnson, 61 S.C. 34, 39 S.E., 254, 256, there was evidence that an attorney interested in the case expressed the hope that no one would bid, as the property was to be bought for the children, and the Court said:
"From this testimony the conclusion cannot be resisted that the bidding was chilled, competition was shut out, and the purchaser was thereby enabled to acquire a deed to the property for much less than its real value."
In this case, counsel for the purchaser at the sale states the record as follows: That a gentleman from another state bid for the property the sum of one thousand dollars; that P.E. Wilburn, bidding for the residents of Union who had qualified to bid, bid the sum of twenty-five hundred dollars, whereupon the president of the corporation, Mr. Emslie Nicholson stated he would not give one thousand dollars for the property.
The combination of the only prospective purchasers residing in the City of Union, coupled with the statement of the president of the corporation that he would not bid one thousand dollars for the property, could have had no other effect than to chill the bidding and stifle competition.
"Inadequacy of price, coupled with other circumstances tending to cause it, or with any unfairness or impropriety in the sale, may be sufficient, even though neither, standing alone, would be." Per Hydrick J., in Farrow v. Farrow, 88 S.C. 333, 70 S.E., 459, 461.
In the case of Barrett v. Bath Paper Co., 13 S.C. 128, 144, the Court said:
"Any combination between a number of persons to unite their bids and to purchase property at sheriff's sale jointly, to that extent diminishes the possible number of bidders, since every member of the combination was at liberty to bid at the sale before he became bound by his agreement not to do so. Certainly this does impair, to some extent, the chances of competition at the sale. As said by Judge Spencer `a public auction is open to every one.' Therefore it must be closed to none, or, as he expresses it, `there must be no combination among persons competent to bid, silencing such bidders, for the tendency to sacrifice the debtor's property is inevitable.'"
The conclusion that the attending circumstances are such as to impeach the fairness of the transaction involves no conclusion that the participants were guilty of moral fraud. As was said in the case of Bath Paper Co. v. Langley, 23 S.C. 129, 144:
"It not unfrequently happens that acts involving no moral wrong are set aside by a Court of Equity upon the ground of legal fraud, as contradistinguished from moral fraud, because they violate some settled principle of public policy."
Again in the case of Carson v. Law, 2 Rich. Eq., 296, the Court said:
"Even though the Court may detect `not the least taint of corruption in the motives of the bidders, yet it may without difficulty conclude that the bidders have so suppressed competition as to void the sale.'"
Under the facts of this case, I am forced to the conclusion that the sale should not be confirmed. In all of the cases relevant to the issues herein which have been called to my attention the question of inadequacy of price has been raised where the price offered for the property was at least fifty per cent. of the alleged value of the property. In this case, the bid of twenty-five hundred dollars is but one-eightieth of the inventoried value of the property. It is so grossly inadequate as to be shocking to the Court, and circumstances attending it could have no effect other than to stifle competition and thus impeach the fairness of the transaction. For the foregoing reasons, I am of the opinion that confirmation of the said sale to P.E. Wilburn should be refused and that the same should be set aside and declared null and void.
It is therefore ordered, adjudged and decreed that confirmation of the sale of the property of the Liberty Fabrics Corporation to P.E. Wilburn be and the same is hereby refused, and that said sale be set aside, declared null and void and of no effect, upon the grounds hereinbefore stated, and that the receivers have leave to apply to the Court for further disposition of the property and for such other and further relief and such further orders as they may deem advisable.
Mr. L.G. Southard, attorney for appellants, cites: Judicial sale with no upset price named and bidding free and open should be confirmed: 35 S.C. 409; 2 Rich. Eq., 355; 25 S.C. 585; 38 S.C. 357; 5 Strob., 79; 5 S.C. 131; 13 S.C. 128; 3 Rich. Eq., 61; 25 S.C. 405; 88 S.C. 333; 2 Strob. Eq., 285; 12 Rich. Eq., 441; 69 S.C. 155; 142 S.E., 607; 99 S.E., 828. Sale can only be set aside on ground of fraud: 68 S.C. 250; 27 S.C. Eq., 347. Mistakes, surprise or accident: 69 S.C. 143; 50 S.C. 1. Misconduct of officer: Rich. Eq. Cas., 122. Inadequacy of price with other elements: 69 S.C. 143; 14 S.C. 148; 161 U.S. 334. When agreement as to bidding sufficient to set aside sale: 25 S.C. 585; 3 Rich. Eq., 61. Pleading improperly verified: 1 Civil Code, 1922, Sec. 418; 28 S.C. 181. Estoppel: 142 S.E., 607; 83 S.C. 165. When sale will not be confirmed on account of stifling competition and chilling bidding: 35 C.J., 40 and cases cited: Inadequacy of price alone insufficient: 83 S.C. 165; 35 S.C. 416; Bailey Eq., 19; 99 S.C. 118; 82 S.E., 989. Rule in Federal Courts: 145 U.S. 349; 117 U.S. 191.
Messrs. Nicholls, Wyche Byrnes, P.D. Barron and Donald Russell, for respondent, cite: Powers of Court before confirmation of sale: 117 S.C. 175; 134 S.E., 840; 205 Fed., 276; 98 S.E., 608; 145 S.E., 231; 216 Fed., 16; 5 S.E., 673; 154 Fed., 617; 145 U.S. 349; Bailey Eq., 13; 88 S.C. 333. Different where effort is to set aside executed sale: 68 S.C. 250; 6 Rich. Eq., 347; 50 S.C. 1; 69 S.C. 143; Rich. Eq. Cas., 122; 14 S.C. 148; 161 U.S. 334. Grossly inadequate bid ground for refusal of confirmation: 239 Fed., 122; 6 Remington Bankruptcy, 3rd Ed., Sec. 2554; Rice Eq., 3; 4 Des., 651; 205 U.S. 285; 5 S.E., 673; 145 S.E., 253; 53 S.E., 232; 125 S.E., 102; 254 Fed., 538. What is inadequate price: 154 Fed., 675; 35 C.J., 46. Joint bid stifled competition and chilled bidding: 2 Rich. Eq., 355; 80 Ind., 245; 102 N.W., 278; 5 Strob., 79; 101 S.E., 171; 5 S.C. 131; 13 S.E., 128; 23 S.C. 129; 2 Rich. Eq., 296; 3 Rich. Eq., 61; 73 S.E., 261; 25 S.C. 405. Verification sufficient: 103 S.C. 283.
May 14, 1930. The opinion of the Court was delivered by
For the reasons assigned by his Honor, Judge Sease, it is the judgment of this Court that the judgment of the Circuit Court be affirmed.
MESSRS. JUSTICES COTHRAN, BLEASE and STABLER concur.
MR. JUSTICE CARTER concurs in result.