Koester v. Citizens' Pub. Co.

Full title: KOESTER v. CITIZENS' PUB. CO. CAROLINA NAT. BANK v. MERGENTHALER LINOTYPE…

Court: Supreme Court of South Carolina

Date published: Jan 9, 1930

154 S.C. 154 (S.C. 1930)

151 S.E. 452

Opinion

12804

January 9, 1930.

Before SEASE, J., Spartanburg, March, 1928. Affirmed.

Action for appointment of Receiver by Mrs. E.P. Koester, in her own behalf and in behalf of all other stockholders and creditors of the Citizens' Publishing Company, against the Citizens' Publishing Company, wherein the Carolina National Bank, after sale of assets, contested the priority of the mortgage of the Mergenthaler Linotype Company. From a decree awarding priority to the mortgagee, the Carolina National Bank appeals.

The material portions of the report of LeRoy Moore, Master, were as follows:

This action was begun by service of summons and complaint on July 24, 1925, and was brought for the general purpose of appointing an operating Receiver to take over the plant and property of the defendant company and operate its business, which was that of publishing a newspaper in the City of Spartanburg known as the Sun, the business in which defendant was engaged, and the object of its corporation was the publication of an afternoon paper in Spartanburg. Incidental to such receivership, an injunction was sought to prevent suits against the said company and to call in all creditors to prove their claims, etc.

George R. Koester was the editor of the Sun and the dominating force in charge of the business affairs of the defendant, and he and his wife were very much interested financially as unsecured creditors and as stockholders in the defendant corporation, besides which Mr. Koester himself was drawing a salary of $100 per week as editor and general manager of the business.

By a consent order, signed by Hon. T.S. Sease, Circuit Judge (which was consented to by representatives of plaintiff and of the defendant), and after notice of the application therefor, served upon the defendant publishing company, but not served upon any other person or creditor of the defendant, the said George R. Koester was appointed as operating Receiver to carry on and operate the business of the defendant, at a salary of $100 per week and was authorized to employ needed help and to borrow $15,000 to be used in the operating expenses of the business and to execute notes or Receiver's certificates which should, according to the terms of the order, have priority over the assets and earnings of the said company. The said order also enjoined all creditors from bringing or maintaining any suit or other legal proceedings against the company otherwise than in that suit, and referred it to the Master for said county to advertise for claimants to file and prove their claims and to take proof and pass upon all claims that might be presented, and determine their priorities, etc., etc. A more extended reference to said order and the contested points in issue arising out of the said order will be hereinafter made in connection with the discussion of the issues arising between the mortgagees, holding recorded mortgages over the property of the defendants, and the holders of the Receiver's notes and certificates that were issued for the operation of said business in pursuance of the order of the Court.

The order of Judge Sease bears date the 28th day of July, 1925. Immediately thereafter the said Receiver, after having given bond on August 1st, began to borrow money from the Carolina National Bank, giving his notes therefor, and the said Receiver continued to borrow from time to time from said bank upon his notes and to spend the money so borrowed, together with the entire income from the business, and continued in charge of said business as Receiver until December 9, 1925, when he filed his report recommending that the receivership be brought to a close. Thereupon an order of the Court was passed, referring the said report to the Master for this county to examine and take testimony with reference to, and report upon, the accounts of the said Receiver.

In the meantime, I published in the newspapers the usual notice, calling in creditors of the defendant company to file and prove their claims on certain dates therein mentioned, and thereafter, on the dates fixed and from date to date thereafter to which adjournment was taken, I held references for the purpose of receiving proof of such claims as were presented and also for the purpose of investigating the report of the said Receiver and examining him and his witnesses in relation to the conduct of the business and his acts and doings as Receiver, etc. Several references were held from time to time and claims were proven, and the said Geore R. Koester and other witnesses were examined. The testimony is voluminous and the same, together with the exhibits, documents, notes, mortgages, etc., are herewith transmitted to the Court and filed.

POINTS IN DISPUTE

I now come to a consideration of the real points in controversy among the parties herein, and which have caused me no little concern, and for that reason and in order to give such matters all due deliberation and thought, I have been delayed in making and filing this report for a considerably longer period than I otherwise would have been.

The main point in dispute involves the question of priority over the printing press and its equipment and the Mergenthaler Linotype Company's machines and equipment, as between the mortgages thereon, held by Roy C. Goodwin and Mergenthaler Linotype Company, respectively, and the claims of the Carolina National Bank, consisting of a certain Receiver's notes aggregating $15,000 and accrued interest, which were issued under the provisions of an order of Judge Sease heretofore referred to.

Goodwin and Mergenthaler Company make the claim that their mortgages take priority over the property covered by them, respectively, as against all other claims. The bank, on the other hand, claims that the order of Judge Sease gives their notes a lien over said property with priority over all other liens and claims and over even recorded mortgages.

The mortgages above named make the contention, in the first place, that under a reasonable and proper construction, the order of Judge Sease was never intended to attempt (even if it could do so) to displace and supersede these duly executed and recorded mortgages.

In the second place the mortgagees contend that, if the order of Judge Sease be construed to undertake to give the holders of the Receiver's notes priority over their mortgages (they not having been made parties to the suit and not having been given notice of the application for any such order, or any opportunity to be heard in evidence and argument against the same, and not having consented for their mortgages to be so displaced), said order is utterly null and void in so far as it undertakes to give such priority, for the following reasons, amongst others:

(1) That such an order, in the absence of reasonable notice and opportunity to be heard, would be depriving the mortgagees of their property and property rights without due process of law in violation of the Fourteenth Amendment of the Constitution of the United States and of Section 5 of Article 1 of the Constitution of South Carolina.

(2) That by so undertaking to displace and destroy their liens, without making the mortgagees parties to said action and bringing them before the Court in an orderly and lawful manner, and giving them an opportunity to be heard in evidence and argument upon said matter, and in advance of passing any such order, the action of the Court did not constitute that due process as contemplated by the said Constitutions and the laws of the land, and was in effect the unlawful confiscation of their property and property rights without the chance to be heard.

(3) That the methods adopted, as shown by the records and in view of all the facts, did not constitute due process.

(4) That in the absence of consent of all mortgages the said Court had no power or authority to authorize the issuance of Receiver's notes to take priority over existing mortgages, in order to obtain money with which to operate a purely private business of a private corporation, and that this is true, even if all mortgagees and lienholders had been properly made parties to the action and were before the Court at the time such order was passed.

(5) That any such attempt to appoint a Receiver and give him the powers mentioned, without previous notice to mortgagees, was in violation of the provisions of the Code of S.C. Volume 1, § 524, Subd. 6, which requires that, before a Receiver of the property of a person or corporation shall be appointed, four days' advance notice of the application therefor shall be given to the party or parties whose property is sought to be put in the hands of the Receiver, and to the party or parties to the action in possession of such property claiming an interest therein under any contract, lease or conveyance thereof from the alleged owner.

AS TO THE FACTS

In order to intelligently consider and pass upon these various contentions, it seems appropriate to briefly review the history of the case as bearing upon the points involved. Most of the essential facts appear to be either undisputed or they are clearly established by the evidence. The evidence discloses the following facts:

As already shown in the previous portion of this report, the action was begun by the service of summons and complaint on the defendant on the 25th day of July, 1925, and on or about the same time the notice was served upon the defendant of an application to be made before Judge Sease on the 28th day of July, 1925, for an order appointing George R. Koester as operating receiver, etc. It is of some importance to note that neither the complaint, nor the notice so served, nor any affidavit attached to or forming a part of the complaint make any reference whatever to any intention to ask the Court for the issuance of receiver's notes or certificates with priority over existing liens or with any priority over any of the property of the defendant. The only reference made at all to such matters is in a separate affidavit of George R. Koester, in which he refers to the matter of receiver's certificates, etc., and also an affidavit of Mr. W.W. Lancaster, who was one of the members of the board of directors of the defendant company, who states that he recognizes that the expenses of the receivership will take precedence and priority over their debts. The matter came on then before Hon. T.S. Sease, Circuit Judge, on the 28th day of July, who signed an order that had been prepared by consent of representatives for the plaintiff and the defendant. No notice of the application for such order was given to anybody except to the Citizens Publishing Company, with the exception as will be hereinafter more fully referred to. The Merganthaler Company did consent by telegram to the appointment of the receiver, and Messrs. Pelot and Lide, who will hereinafter be referred to also at greater length, signed affidavits in which they set forth their confidence in the ability of George R. Koester as a newspaper man and their recommendations that he be appointed as operating receiver, etc.

The first notice that Mr. Roy C. Goodwin ever had of the appointment of the receiver consisted of a printed copy of the order, which was casually mailed to him and to the other creditors of the defendant company by Mr. Blanton, who was employed in Mr. Koester's office. The evidence shows that Goodwin received this printed copy of the order some time the early part of August, the exact date not being shown, and that he carried the same along with him and went to call upon his attorney, who was sick in the hospital, and whom he was not able at that time to see. Goodwin then went to another attorney and consulted him in regard to filing his claim with the master as provided in the order, Goodwin's understanding of the paper which he held was that it was a title-retaining contract, and his belief and that of his lawyer was that Goodwin was the owner of the property covered by said paper, and he claims that it never occurred to either of them that the order of Judge Sease pretended to interfere or endanger the priority of his rights to said property. His attorney wrote to the master for this county and filed with him a written claim in regard to said property. He also wrote to the receiver, Koester, in regard to the progress that was being made and as to the prospects of paying his notes and, in the course of the correspondence, Mr. Koester made it plain that the contention was being made that the notes executed by the receiver for moneys used in the operation of the business would take priority over Goodwin's paper, whatever that paper might be in its legal effect.

Goodwin's attorney then wrote to Mr. H.B. Carlisle, attorney, of Spartanburg, S.C. inquiring his views as to any such contention and was advised by Mr. Carlisle, in substance, that the order appointing receiver could not have the effect of displacing or supplanting the rights of Mr. Goodwin under his paper, if it was duly recorded. Goodwin, however, being informed of references being set for the taking of testimony and receiving proofs of claims, came on in person to Spartanburg and employed counsel to appear at the references and present his claims and contest the alleged priority of the receiver's notes. This is, in brief, a substantially full and correct statement of the developments in so far as Goodwin is concerned. It appears to him, then, that there was no pretense whatever of giving him any notice in advance of the proposed action of the Court vitally affecting his property rights, and that he never had any opportunity whatever to be heard in regard to the propriety or legality of any such action until he appeared in the master's Court and made his contention in connection with the proof of his claim.

As already shown in a previous part of this report, the title-retaining paper which was executed to him bears date the 29th day of August, 1924, and was duly recorded in the office of R.M.C. for said county and was to secure the sum of $6,200, being the balance of the purchase price of the printing press and equipment. This instrument I construe to be a chattel mortgage, and the same is subject to the laws generally applicable to such mortgages.

The facts show, as to the Mergenthaler Company, that they held four mortgages, all of which were executed to secure the purchase price of various Mergenthaler Linotype machines and equipment, and that said mortgages were executed before the said property was ever delivered or placed upon the rented premises.

They were not made parties to this action nor named therein. Their place of business is in the City of Brooklyn, where their executive officers reside. No officer or agent of the said company, with authority to act for the company in such matters, was ever consulted or given any notice whatsoever in regard to any proposal to authorize the receiver to issue notes for borrowed money which should have the effect of taking priority over their mortgages. As indicated above, Messrs. Pelot and Lide, who are alleged to have been agents of the Mergenthaler Company, signed affidavits which are attached to the complaint recommending the appointment of Koester as operating receiver, and it is contended on the part of the bank that the said Mergenthaler Company, through said alleged agents, knew of the purpose to ask the Court to give the receiver authority to issue notes for borrowed money, which should take priority over the lien of the said company's mortgages. The facts in regard to these contentions will be discussed more in detail later.

THE LEGAL PRINCIPLES INVOLVED

There are certain legal questions involved in the case that appear to be clearly established by the authorities.

The first and most important question involves the matter of due process as applied to the legal proceedings herein in which Judge Sease's order was signed.

DUE PROCESS

The Fourteenth Amendment to the Constitution of the United States provides that no person shall be deprived of his liberty or property without due process of law, and a like provision is contained in the Constitution of South Carolina. This provision as to due process has been uniformly construed by the Courts to require that, before any action can be taken by any Court injuriously affecting the property rights of a person, such person must, in advance of the adjudication, have due notice of such proposed action and a reasonable opportunity to appear and defend against it, if he be so inclined.

The following authorities are in point:

In Constitution of the United States of America, Annotated, 1923, at page 634, the following language is used:

"What is due process of law in the respective states is regulated and determined by the law of each state, and this amendment in no way undertakes to control the power of a state to determine by what process legal rights may be asserted or legal obligations enforced, provided the method of procedure adopted for these purposes gives reasonable notice and affords a fair opportunity to be heard before the issues are decided."

And further, at page 635:

"By `due process' is meant one which, following the forms of law, is appropriate to the case and just to the parties to be affected. It must be pursued in the ordinary mode prescribed by the law; it must be adapted to the end to be attained; and, wherever it is necessary for the protection of the parties, it must give them an opportunity to be heard respecting the justice of the judgment sought. The clause in question means, therefore, that there can be no proceeding against life, liberty, or property, which may result in the deprivation of either without the observance of those general rules established in our system of jurisprudence for the security of private rights."

The rule is stated in 12 Corpus Juris, as follows:

"Notice to a party whose rights are to be affected by judicial proceedings is an essential element of due process." Page 1228.

"It is not enough that a person may by chance have notice or that he may, as a matter of favor or courtesy, have a hearing." Page 1229.

"That to condemn without a hearing is repugnant to the due process clause of the Fourteenth Amendment needs nothing but statement. Every man is entitled to his day in Court before his rights can be finally disposed of, and he cannot be divested of this right by any Act of the Legislature. Due process of law requires an orderly proceeding adapted to the nature of the case, in which proceeding the citizen has a right and an opportunity to be heard, and to defend, protect, and enforce his rights, by establishing any fact which, under the law, would be a protection to him or to his property. The object of notice, which is an essential element of due process, is to afford an opportunity to appear and be heard, and if a hearing is denied the notice is ineffectual for any purpose." Page 1236.

And so in 6 R.C.L., 446 et seq.:

"The essential elements of due process of law are notice, and an opportunity to be heard and to defend in an orderly proceeding adapted to the nature of the case. In fact, one of the most famous and perhaps the most often quoted definitions of due process of law is that of Daniel Webster in his argument in the Dartmouth College case, in which he declared that by due process of law was meant `a law which hears before it condemns, which proceeds upon inquiry, and renders judgment only after trial.' * * * Judgment without such citation and opportunity wants all the attributes of a judicial determination; it is judicial usurpation and oppression, and can never be upheld where justice is fairly administered."

See also 6 R.C.L., 448, 450, 451, 453.

In Hagar v. Reclamation District, 111 U.S. 701, 4 S. Ct., 663, 667, 28 L.Ed., 569, the United States Supreme Court, speaking through Mr. Justice Field, says:

"It is sufficient to observe here that by `due process' is meant one which, following the forms of law, is appropriate to the case, and just to the parties to be affected. It must be pursued in the ordinary mode prescribed by the law; it must be adapted to the end to be attained; and, wherever it is necessary for the protection of the parties, it must give them an opportunity to be heard respecting the justice of the judgment sought. The clause in question means, therefore, that there can be no proceeding against life, liberty, or property which may result in the deprivation of either, without the observance of those general rules established in our system of jurisprudence for the security of private rights."

So in Postal Telegraph Co. v. Newport, 247 U.S. 464, 38 S.Ct., 566, 570, 62 L.Ed., 1215, Mr. Justice Pitney delivered the unanimous opinion of the Court, saying:

"The opportunity to be heard is an essential requisite of due process of law in judicial proceedings (citing cases). And as a state may not, consistently with the Fourteenth Amendment, enforce a judgment against a party named in the proceedings without a hearing or an opportunity to be heard (citing further authority), so it cannot, without disregarding the requirement of due process, give a conclusive effect to a prior judgment against one who is neither a party nor in privity with a party therein."

Also in the case of Roller v. Holly, 176 U.S. 398, 20 S.Ct., 410, 414, 44 L.Ed., 520, the Supreme Court of the United States says, through Mr. Justice Brown:

"That a man is entitled to some notice before he can be deprived of his liberty or property is an axiom of the law to which no citation of authority would give additional weight; but upon the question of the length of such notice there is a singular dearth of judicial decision. It is manifest that the requirements of notice would be of no value whatever, unless such notice were reasonable and adequate for the purpose." Davidson v. New Orleans, 96 U.S. 97, 24 L.Ed., 619; Hagar v. Reclamation District, 111 U.S. 701-712, 4 S.Ct., 663, 28 L.Ed., 569-573.

In Bellingham, etc., Ry. Co. v. City of New Whatcom, 172 U.S. 314, 19 S.Ct., 205, 206, 43 L.Ed., 460, Mr. Justice Brewer says:

"The purpose of notice is to secure to the owner the opportunity to protect his property from the lien of the proposed tax, or some part thereof. In order to be effectual, it should be so full and clear as to disclose to persons of ordinary intelligence in a general way what is proposed."

In this case, as well as many others from the Supreme Court of the United States; and from the various other Courts of last resort of this country, it is held that, even under the drastic power of taxation, private property may not be taken without affording the persons whose property will be affected by such levy an opportunity to be heard on the questions affecting their property. For a full discussion and history of "due process of law," see Twining v. New Jersey, 211 U.S. 78, 99-103, 29. Ct., 14, 53 L.Ed., 97, 106-108.

The recent case of Shealy v. Seaboard, etc., Ry. Co., 131 S.C. 144, 126 S.E., 622, 626, in which the opinion was delivered by Special Judge Morgan, and concurred in by all justices who were present, uses the following language:

"`A hearing or an opportunity to be heard, prior to judgment, is absolutely essential." * * * One of the essential elements of due process of law is the opportunity to be heard."

A proceeding according to the established mode in this State would necessitate a service of the summons on these claimants, and reasonable time in which to come into Court and defend their rights.

That such notice is necessary before action may be taken affecting the rights of mortgage holders is well established in this State. The case of Ex parte Mitchell, 12 S.C. 83, is very much analogous to the case at bar. In that case, there had been a receiver appointed for the Savannah Charleston Railroad Company. During the term of the receivership, the receiver made application to the Court to be allowed to issue receiver's certificates for the purpose of repairing the road and making it safe for the transportation of life and property. The necessity was absolute, according to the report of the receiver, and he asked that the Court authorize the issuance of certificates to take priority over existing mortgages. Counsel for some of the bondholders appeared at the time when the matter was before the Court for consideration of the question of issuance of certificates, and objected to their issuance on several grounds, one of which was that sufficient notice had not been given. The Circuit Court granted the order, overruling all objections of the attorneys for the bondholders. The lower Court said, in part:

"I do not regard the controversy as arising on a motion of which formal and due notice is required. The receiver of the road in the discharge of his duty laid before the Court important information touching the responsible trust imposed upon him, which information, in the judgment of the Court, calls for prompt and decisive action. * * * No one * * * asks that it be suspended. To suffer it to be operated at great hazard to human life, and at the risk of loss to private property, without the means of responding in damages, would not only be an act of remissness and negligence in the Court, but would be criminal. * * * But I deem my power in this respect to be exhausted, by ordering only such purchases of rolling stock and repairs of the road, as are necessary to preserve the property in running order."

The case was carried to the Supreme Court, and that Court a per curiam opinion, reversed the case, saying:

"The order below, made on the application of C.T. Mitchell, receiver, was improperly granted. Orders of that class can only be made on motion and after a proper investigation and hearing."

A stronger case for the issuance of receiver's certificates, or a more urgent necessity for Court action, could hardly be imagined. And yet the Court reversed the cause because notice and hearing were not afforded to the bondholders. There was something of a notice and something of a hearing, because the attorneys for the bondholders were present at the hearing in the lower Court, but nevertheless the Supreme Court, realizing the seriousness of the order which purported to displace existing liens without an opportunity to prepare to defend, would not let the order stand, however, essential it may have been to the preservation of the railroad. The only cause for reversal was the lack of notice

The case of State v. Port Royal Augusta R.R. Co., 45 S.C. 464, 23 S.E., 380, 381, is also conclusive of the question presented in this case. In that case also the Court authorized a receiver of a railroad to issue certificates and incur indebtedness to take priority over existing liens. The application was purely an ex parte matter, and on appeal the correctness of the decision was assailed on the ground that no notice was given to the bondholders. In considering this point, the Supreme Court says, through Chief Justice McIver:

"* * * It would seem to be plain, upon well-settled and fundamental principles, that no order or judgment affecting the rights of a party to the cause should be made or rendered without notice to the party whose rights are to be thus affected; for otherwise a party would be practically deprived of his property without `the judgment of his peers or the law of the land,' in violation of Section 14, Art. 1, of the Constitution, which declares," etc.

The Court proceeds to discuss the question, and quotes as follows from Windsor v. McVeigh, 93 U.S. 274, 23 L.Ed., 914:

"Wherever one is assailed in his person or his property, there he may defend, for the liability and the right are inseparable. This is a principle of natural justice, recognized as such by the common intelligence and conscience of all nations. A sentence of a Court pronounced against a party without hearing him, or giving him an opportunity to be heard is not a judicial determination of his rights, and is not entitled to respect in any other tribunal."

The Court did not pass upon any other question, saying:

"We do not pass upon, or even consider, the question of the necessity for, or propriety of, the expenditures or acts authorized by these orders, for, under our view, such a question cannot properly be considered until the parties interested have been afforded the opportunity to be heard, both by testimony and argument, is they so desire." People v. Kempner, 208 N.Y., 16, 101 N.E., 794, 46 L.R.A. (N.S.), 970, Ann. Cas., 1914D, 169.

"Nor can extra official or casual notice, or a hearing granted as a matter of favor * * * be deemed a substantial substitute for the due process of law that the Constitution requires." Coe v. Armour Fertilizer Works, 237 U.S. 413, 424, 35 S.Ct., 625, 629, 59 L.Ed., 1027, 1031 and 1032.

There is no basis for any reasonable contention, I believe, in the evidence that Roy C. Goodwin was accorded the due process which was guaranteed to him under the Constitution. In fact, about the only contention that was offered in argument or evidence against him was that as soon as he received the printed copy of the order of Judge Sease, he should have at once taken action to protest against the order and to get Judge Sease to revoke the order, if he wishes to contest it. I know of no authorities, and have been cited to none, which placed the burden upon Goodwin at his peril, to undertake to construe the order of Judge Sease as supplanting or jeopardizing his record title-retaining contract, and in the second place, to rush to Spartanburg and attempt to get the order set aside. In the first place, Goodwin was not aware, and neither was his attorney, that it could be reasonably contended that Judge Sease's order was intended to supplant or jeopardize his paper, and, in the second place, to sustain this contention would be equivalent to substituting mere casual notice after the event of a judgment of a Court for the due process of law which is guaranteed under the Constitution. If a person's property rights can be confiscated, so to speak, by the unconstitutional act of a Court without due process of law, and then, if a mere notice of such action and after the event is equivalent to due process under the Constitution, the constitutional guaranty would become a farce.

Mr. Daniel, in his testimony in regard to the claim of Goodwin, appears to base his contention solely upon the ground mentioned. He further states, frankly, that having secured the consent of the Mergenthaler Company to the order appointing a Receiver, and the Mergenthaler mortgaged property being the principal assets of the company, and the property of Goodwin being considered as of no serious consequence in value, he concluded "to take a chance" on Goodwin following the lead of the Mergenthaler people and consenting to the proposed action. However, Goodwin did not follow such lead and insisted, as he had a constitutional right to do, upon the protection of his property rights.

It may be well to note in this connection that Goodwin did no positive act to mislead the bank into lending the money to the Receiver; that the bank was on the ground and had better opportunity to examine the records and ascertain the jurisdiction of the Court than Goodwin had, and, if it had investigated the matter even casually, it would have ascertained that the Court was without jurisdiction to take any action jeopardizing Goodwin's property rights.

I feel no hesitancy, therefore, in holding that, so far as Goodwin is concerned, the priority of his mortgage has not been affected by the order of Judge Sease, and that he is entitled to the full proceeds of the sale of the property covered by his mortgage, subject to ratable contribution toward the costs of the action, the taxes and such storage charges as may be allowed to the landlord herein.

The same principle as contained in the foregoing authorities apply with equal force to the Mergenthaler Company, unless it should be determined that by their conduct and that of their alleged agents, they consented to the issuance of such notes with priority over their mortgages, or unless they waived their rights in some way are estopped by their conduct from questioning the validity of Judge Sease's order. I shall discuss this phase of the matter later in this report.

For the present, I think it appropriate to refer to other legal principles that seem of vital importance as bearing upon this case.

POWER OF COURT TO GIVE RECEIVER'S CERTIFICATES PRIORITY OVER MORTGAGES IN CASE OF PRIVATE ENTERPRISES

It appears from the authorities that the principle is universally accepted that a Court of equity has no power or authority, in case of a private corporation, to authorize a receiver to borrow money and issue notes giving them priority over existing liens or mortgages, without the consent of the mortgagees whose interests are thereby affected.

In the note to Ann. Cas., 1913-C, at page 41, the rule is well stated, as follows:

"The reason usually given why railroad receivers' certificates may be issued and given priority over other outstanding liens is that railroads are quasi public concerns, through which the public interests and convenience, as well as private ownership, are largely subserved, and that a maintenance of the roadway and equipment, and a continuation of the business and operation of the road, are essential to the preservation of the mortgage security. Any person or corporation, in taking and accepting a mortgage on the property of a railroad, therefore, does so with reference to the law governing such corporations, and with knowledge, presumably, of the legal condition that for the purpose of keeping the enterprise a going concern, receivers may be appointed and receivers' certificates issued in appropriate cases, which, in their force and effect, will supplant the mortgage, and hence, with the understanding that the mortgage liens may be superseded by the necessary expenses for continuing the business and thereby preserving the security of the mortgage."

And in Kneeland v. American L. T. Co., 136 U.S. 89-104, 10 S.Ct., 950, 953, 34 L.Ed., 379:

"One holding a mortgage debt upon a railroad has the same right to demand and expect of the Court respect for his vested and contracted priority as the holder of a mortgage on a farm or lot. So, when a Court appoints a Receiver of railroad property, it has no right to make that receivership conditional on the payment of other than those few unsecured claims which, by the rulings of this Court, have been declared to have an equitable priority. No one is bound to sell to a railroad company, or to work for it; and whoever has dealings with a company whose property is mortgaged must be assumed to have dealt with it on the faith of its personal responsibility, and not in expectation of subsequently displacing the priority of the mortgage liens. It is the exception, and not the rule, that such priority of liens can be displaced. We emphasize this fact of the sacredness of contract liens for the reason that there seems to be growing an idea that the chancellor, in the exercise of his equitable powers, has unlimited discretion in this matter of the displacement of vested liens" — citing St. Louis, Alton T.H.R.R. Co. v. Cleveland, C.C. T.R. Co., 125 U.S. 658-673, 8 S.Ct., 1011, 31 L.Ed., 832-837.

As is stated in the note to Ann. Cas., 1913-C, at page 42:

"The principles on which the doctrine regarding quasi public corporations rests have no application whatever to private corporation which owe no duty to the public. in the case of a private corporation the Court cannot authorize the issuance of receivers' certificates for the purpose of improving, adding to, or carrying on the business of the company, without first having the consent of creditors whose liens would be affected thereby."

And further:

"The Supreme Court of the United States has not as yet expressly declared that Receivers' certificates cannot be given priority in the case of a purely private corporation, but it has so strongly observed the distinction in that relation between the two characters of corporations that there is left but little room for conjecture as to what its determination, in a case calling for a decision in the premises, would be."

The late Mr. Justice Woods, while a member of the Circuit Court of Appeals for the Fourth Circuit, delivered the opinion of the Court in the case of Smith v. Shenandoah, etc., Bank, 246 F., 379, 381, in which he says:

"The rule is that receiver's certificates given for the operation of the business of a private corporation cannot be made to displace prior liens, unless the holders of such liens have waived them, either expressly or impliedly. The necessity for the continued operation of a railroad induced of Chancery having charge of railroad property might authorize the issuance of receiver's certificates for operating expenses, which would be a lien prior to the mortgage bonds. Wallace v. Loomis, 97 U.S. 146-162, 24 L.Ed., 895; Fosdick v. Schall, 99 U.S. 235, 25 L.Ed., 339. Though not deciding the point, the Court indicates in Wood v. Guarantee Trust Co., 128 U.S. 416, 9 S.Ct., 131, 32 L.Ed., 472, that such a power is not to be extended to receiverships of industrial corporations."

This conclusion, reached by Judge Woods, is supported by the opinion in the case of Wood v. Guarantee Trust Co., in which the Court says:

"The doctrine of Fosdick v. Schall has never yet been applied in any case except that of a railroad. The case lays great emphasis on the consideration that a railroad is a peculiar property, of a public nature, and discharging a great public work. There is a broad distinction between such a case and that of a purely private concern." 128 U.S. 416, 9 S.Ct., 131, 132, 32 L.Ed., 472.

And in Laughlin v. U.S. Rolling Stock Co. (C.C.), 64 F., 25, 26, the Court expresses the rule thus:

"Cases referred to on the argument, dealing with the administration of railroad receiverships, are of no application in the case at bar, where the insolvent is a private manufacturing corporation."

"* * * It may now be stated as a general rule, supported by the overwhelming weight of authority, that in the case of a purely private as distinguished from a quasi public corporation, the Court will not, as against the objection of a minority of the bondholders, issue receivers' certificates and made them a prior lien upon the mortgaged property, for the purpose of procuring funds to continue the management and operation of the business, the power of the Court to incur liabilities being limited strictly to the necessary care and preservation of the property during the receivership. Such cases are held to be distinguishable from receiverships over railways, where, from the public, character of the property and its relations to the public, such certificates are sometimes issued." High on Receivers (4th Ed.), 377, § 312b.

Beach, in his work on Receivers, criticizes severely the practice of issuing receiver's certificates in the case of railroads (pages 311 to 344), and concludes that:

"Now, nothing is clearer than that this (forcing lien holders to consent to the issuance of certificates taking priority) impairs the obligation of the contract between the mortgagor and mortgagee. What the state cannot do, and what the federal government cannot do, a Court of Chancery ought to hesitate to do."

Such an order as has been granted in this case is beyond the power of the Court, as to binding the rights of the lienholders who were not properly before the Court and who had no notice of the action to be taken.

"In a creditors' suit against a private corporation to which neither the bondholders of the corporation nor the trustee in the mortgage securing the same are parties, the Court has no authority to issue receivers' certificates for pre-existing debts of the corporation and make the same a first lien on its property." Syllabus, Union Trust Company v. Southern Sawmills Co. (C.C.A.), 166 F., 193.

"It is elementary that no man can be deprived of his property, or any security or lien which he may have acquired, except by his own consent, or his own negligence or default, or by proceedings had in accordance with the law of the land, that is to say, the opportunity to be heard in defense of his rights. In accordance with this principle it is generally held that receivers' certificates to have priority over other liens should be authorized only after notice to lienholders and a full hearing and investigation of the merits." Ann. Cas., 1913-C, 46 note; Smith v. Shenandoah, etc., Bank (C.C.A.), 246 F., 379.

"The Court has given the question careful consideration; and in view of the principles on which the authority of Courts of Equity to order the issuance of receivers' certificates in any case rests, and in view of the weight of the authorities cited, the Court is clearly of opinion that it has no power to authorize a receiver of a private corporation to issue certificates to be a paramount lien for the purpose of carrying on the business of an insolvent corporation, when all the lien creditors do not consent thereto, unless it be necessary * * * to preserve the existence of the corporate property and its franchises." Fidelity Ins., Trust Safe-Deposit Co. v. Roanoke Iron Co. (C.C.), 68 F., 623, 626.

"In order to subordinate the receiver's certificates to the vested lien of a mortgage, the proof of the assent of the trustee, or of the bondholders thereto, must be tangible and certain." Nowell v. International Trust Company (C.C. A.), 169 F., 497, 508.

"`In the case of private corporations the Court cannot authorize the issue of receivers' certificates for the purpose of improving, adding to, or carrying on the business of the company without first having the consent of the creditors whose liens would be affected thereby.' * * * There is one circumstance which will justify a Court in authorizing the issuance of receiver's certificates in the case of a private corporation and displacing prior liens thereby. In a case in which the money is required, not for the purpose of operating the business, but for the purpose of saving the property from destruction, the authority exists." Ann. Cas., 1913-C, 44, 45, note.

"Equity generally declines to authorize the issuance of such certificates to improve, foster, or develop a private corporate enterprise, and thereby defer prior liens without the consent of creditors whose rights may injuriously be affected." McDermott v. Pentress Gas Co., 82 W. Va., 230, 95 S.E., 841, 842. See also Smith v. Shenandoah Bank (C.C.A.), 246 F., 379.

"A Court cannot authorize the issuance of receiver's certificates for the purpose of improving or adding to the property of a private corporation, or of carrying on its business, without the consent of creditors whose liens would be affected thereby." Syllabus to opinion of Judge Simonton, Baltimore B. Loan Ass'n v. Alderson (C.C.A.), 90 F., 142, 143.

"The precise question * * * is whether a Court of Chancery which has appointed a receiver for an insolvent private corporation is a foreclosure brought by a second mortgagee may, against the objection of the first mortgagee, authorize its receiver to issue receiver's certificates to raise money to carry on the business of the insolvent corporation and to improve its lands, and make such certificates a first and paramount lien upon the lands covered by the first mortgage.

"* * * When a receiver is appointed under such a bill, he usually makes haste as the receiver did in this case, to assure the Court that, if he only had some capital to start on, he could greatly benefit the estate by carrying on the business that bankrupted the corporation. * * *

"As commonly happens in cases of this character, the receiver, the insolvent corporation, and the junior mortgagee united in urging the Court to arm its receiver with the desired powers. They ran no risk in so doing. * * *

"It is not a function of a Court of Equity to carry on the business of private corporations, whether solvent or insolvent. * * *

"If it were once settled that a Chancery Court, through a receiver appointed on the petition of a junior mortgagee, could carry on the business of such insolvent corporations at the risk and expense of those holding the first or prior liens on the property of the corporation, such liens would have little or no value. * * *

"It (the junior mortgagee) had no equity to ask that the expense and the hazards of doing so should be saddled on the first mortgagee, and the Court had no jurisdiction or power to place it there." Hanna v. State Trust Company (C.C.A.), 70 F., 2, 5, 30 L.R.A., 201.

"* * * The Court will not, as against the objection of a minority of the bondholders, issue receiver's certificates and make them a prior lien upon the mortgaged property, for the purpose of procuring funds to continue the management and operation of the business, the power of the Court to incur liabilities being limited strictly to the necessary care and preservation of the property during the receivership." High on Receivers (4th Ed.), p. 377, § 312b.

Under the foregoing authorities, it is evident that Judge Sease was without power to authorize the receiver in this case to issue the notes that would take priority over existing mortgages, unless the mortgagees consented to such priority. That Mr. Goodwin did not consent is evident.

JUDGMENT OF COURT RENDERED WITHOUT POWER OR JURISDICTION, IS NULL AND VOID

As may be well imagined, any judicial officer who is called upon to determine matters of this sort feels the greatest reluctance in undertaking to ignore, as being without legal effect, any order or judgment of a Court, and I particularly feel such reluctance in this case. I not only have great respect for the orders of Judges generally, but I particularly have such feeling toward the judgments and the decree of Hon. T.S. Sease. If I did not feel impelled to do so, I certainly would not hold as I am here doing, that Judge Sease's order is without effect.

The following authorities, however, show that any order of any Court not having jurisdiction of the subject-matter or of the parties, is absolutely null and void and must be utterly ignored by every other Court.

"A sentence of a Court, pronounced against a party without hearing him, or giving him an opportunity to be heard, is not a judicial determination of his rights, and is not entitled to respect in any other tribunal." Windsor v. McVeigh, 93 U.S. 274, 23 L.Ed., 914.

"That Court (speaking of the State Court) was in possession of the railroad through its receiver. By virtue of such possession, the State Court had jurisdiction to authorize its receiver to borrow money and to issue certificates therefor. As to the parties before it, that Court could decree that such certificates should constitute a first and prior lien. But, as to mortgagees or creditors not before that Court, it could not make any valid order adjudging the rank or priority of such certificates. That question was not before the State Court, because it had no jurisdiction over such mortgagees or creditors, and its order or decree, if any, as to them, would be a nullity." Metropolitan Trust Co. v. Lake Cities Elec. Ry. Co. (C.C.), 100 F., 897, 900.

"No one shall be personally bound until he has had his day in Court: He must be cited to appear and afforded the opportunity to be heard.

"A judgment against a party not named in the complaint nor any part of the record is void. We cannot presume that one who does not appear to have been a party had his day in Court." Freeman on Judgments (2d. Ed.), § 141.

"If the judgment or decree is silent upon the subject of service of summons, and the service shown by the return upon the summons is not such as will give the Court jurisdiction, no doubt the judgment is void." Freeman on Judgments, § 133.

"If the decrees are void and the parties not served, that is a fatal defect without proof." Bradley v. Calhoun, 116 S.C. 7, 106 S.E., 843, 844.

"The order affected the interests of Henry Middleton, and neither Mr. Middleton nor his attorneys had any notice of the motion. It needs no citation of authority to show that it was error to make an order affecting the interest of a party of which he had no notice. The high character of all the parties and their attorneys leaves no doubt of perfect good faith, but notice was necessary, and, as none was given, the order appealed from is reversed." Smith v. Heyward, 116 S.C. 286, 108 S.E., 83.

"A Court without jurisdiction cannot render a valid judgment. Its judgment may be disregarded and objected to at any time." Beaudrot v. Murphy, 52 S.C. 118, 30 S.E., 825, 826.

"But a judgment by a Court without jurisdiction of the parties and subject-matter is a nullity, and must be so treated by other Courts whenever and for whatever purpose it is presented and relied on." State v. Murray, 79 S.C. 316, 60 S.E., 928, 930.

"Jurisdiction to hear and determine the cause must exist before any decree or judgment therein can have any vitality whatever. * * * In every case there must not only be jurisdiction of the person and the subject-matter, but the person and the subject-matter must be brought before the Court in a manner authorized by law; otherwise the judgment or decree is void, and not merely erroneous or voidable, and may be set at naught, either by a direct proceeding in the cause in which it was rendered or by a collateral attack. These propositions are elementary and fundamental, and are recognized as law everywhere." Brenham v. Smith, 120 Va., 30, 90 S.E., 657, 658.

"But a judgment obtained without process is not a judgment, it is a nullity; and may be declared void by every Court in which it is called in question, whether collaterally or directly." New Eagle Coal Co. v. Burgess, 90 W. Va., 541, 111 S.E., 508, 509.

"It is a fully established position in this State and elsewhere that: "A judgment rendered by a Court against a citizen affecting his vested rights, in an action or proceeding to which he is not a party, is absolutely void, and may be treated as a nullity whenever it is brought to the attention of the Court." Johnson v. Whilden, 171 N.C. 153, 88 S.E., 223, 224.

"When the record itself discloses the fact that the Court had no jurisdiction of the controversy, or the jurisdiction of the person of the defendant did not attach in the particular case, the judgment is a mere nullity, and may be collaterally impeached, by any person interested, whenever and whereever it is brought in question. Thus, when the defendant against whom a judgment was entered had no notice, and that appears from the proceedings, the judgment is void on its face. It is equally true of want of jurisdiction of the subject-matter. Orders and judgments which the Court has not the power under any circumstances to make or render are null and void, and their nullity can be asserted in any collateral proceeding where they are relied on in support of a claim of right." Black on Judgments, Vol. 1, § 278.

"A judgment rendered by a Court having no jurisdiction is a mere nullity, and will be so held and treated whenever and for whatever purpose it is sought to be used or relied on as a valid judgment." 33 C.J., 1072, § 34.

DID MERGENTHALER COMPANY CONSENT OR WERE THEY ESTOPPED, ETC.?

I now come to a consideration of the principal contentions made against the Mergenthaler Company, which is that by the conduct of Pelot and Lide, their alleged agents, and by their own inaction in the matter after they had received copies of the summons, complaint and order, that they either consented to the action complained of or were estopped or waived their mortgage priority.

The testimony shows that the Mergenthaler Company had representatives throughout the country who negotiated with prospective purchasers for the sale of the Mergenthaler machines and equipment. Such representatives, according to the evidence, had no authority whatever to sell any machines or equipment or to consummate any contract. They can only secure signed proposals from the prospective purchasers and forward the same to the executive offices in Brooklyn, who alone had authority to execute the contract. Their traveling solicitor in South Carolina was A.F. Lide. They also had representatives who covered a larger territory and who had some sort of supervision over Mr. Lide, and this representative was Mr. E.E. Pelot. The evidence shows that for some months prior to giving of this action, George R. Koester had been the editor of the newspaper published by the defendant and the general manager of its business, He, on behalf of his wife, had invested considerable money in the purchase of the stock of the company, and he and his wife were both greatly concerned as to its business. The records show that the financial condition of the company had become worse and worse, and that it was insolvent. In order to get absolute control of the management of the business, and in order that he might not be compelled to consult with and be guided by the board of directors, so that he would have a free hand in the control of the defendant, Mr. Koester appears to have conceived this idea of having himself appointed receiver of this business, and on July 21, 1925, he wired the Mergenthaler Company as follows:

"Have Arthur Lide come here at once."

The Mergenthaler Company, on July 22nd, wired in reply:

"Have wired Lide at Charleston see you immediately."

On the same date the Mergenthaler Company wired Lide at Charleston:

"Spartanburg Sun wires for you come there immediately. Answer."

Thereupon Mr. Lide called Koester from Charleston over the phone and inquired what he wanted. Koester gave him no definite information as to what he really wanted, but insisted upon his coming to Spartanburg. Thereupon Lide and Pelot came on to Spartanburg about July 23rd, and at once got in personal touch with Koester, who informed them of his scheme to have himself appointed as operating receiver of the company, and stated that he wanted the co-operation of the Mergenthaler Company in securing such appointment. They informed him that they were without any authority in such matters and suggested that he communicate with the company at New York. Koester then sat down to a type-writer and typed the following message to the Mergenthaler Company, in Brooklyn:

"Directors Citizens' Publishing Company, publishers Spartanburg Sun, are joining certain creditors of Sun in asking Court appoint George R. Koester, publisher of Sun, and formerly publisher Columbia Record and Greenville Piedmont, operating receiver to conserve property for benefit of all creditors. Sun in straits from pressure debts before Koester took charge last April. Circulation gained two thousand net in forty-five days. Advertising increasing. Paper valuable only as going concern. Koester desires us join other creditors in asking for appointment as operating receiver. Notice of application be given today-. Four days required after notice for action. Koester will pay all Court expenses. Wants answer by 3 o'clock. Answer to Koester."

This telegram, bearing date July 23, 1925, was forwarded, and to it the Mergenthaler Company replied:

"Your appointment as operating receiver Spartanburg Sun satisfactory to us."

After receipt of this telegram, considerable discussion was had between Pelot, Lide, Koester, and Mr. C.E. Daniel, in regard to the proposed action to appoint Koester receiver. There is a sharp dispute as to what, if anything, was said or understood in regard to the proposed plan of authorizing the receiver to borrow money and issue notes which should take priority over existing mortgages. Passing for the moment this disputed issue, which appears to be vital, it is undisputed that Pelot and Lide recommended Koester in the highest terms as being thoroughly competent and capable of running a newspaper and recommended him most highly for such appointment.

These recommendations were contained in affidavits which were attached to the complaint, and these affidavits and the complaint were dictated by Mr. Daniel in the presence of these men. The evidence also shows that Mr. Daniel handed one or the other of these men copies of the complaint, and they thereupon, about the 24th or 25th of July, left Spartanburg and never returned again until their reappearance before the master to testify as witnesses in reply to the testimony of Mr. Koester and Mr. Daniel.

It is contended on the part of the bank's attorney than Pelot and Lide, acting for the Mergenthaler Company, knew of the proposed plan to give priority over said company's mortgage and consented thereto. It is contended on the part of Pelot and Lide and the said company that they did not consent to any such thing and had no idea that there was any such plan on foot.

Ordinarily, the effect upon the rights of people due to the orders and decrees of Courts is to be determined by the records in the cause and not left to the uncertainty of human recollection and undisputed verbal testimony as to what took place outside of such records. It is highly important that the legal property rights of persons should be definitely determined and settled by the records of the Court and not left to doubtful influences to be drawn from occurrences on the outside.

I take it, therefore, that where the record in the cause pending in Court fails to show that a person was a party to the suit and fails to show that he consented in any way to the Court's supplanting or injuriously acting upon his property rights, that the burden should be on the party ascertaining such effect from such an adjudication to clearly establish the facts relied upon. I think that any consideration of this disputed matter must be premised upon the basis of the burden being upon the bank here to establish the facts relied upon.

I have reached the conclusion that such contention has not been established in this case, and my reasons are briefly state as follows:

There is nothing in the record of this cause in the form of an affidavit or otherwise, from Pelot or Lide or from the company, which in any way whatever shows that they or either of them had any idea or notice that a plan was on foot to supplant the priority of their mortgage. In order to successfully contend that they are estopped or waive their lien, the proof must show that they understood that such was the purpose and plan and that they either consented to it or waived their right.

The only reference to anything of the sort in the records is that contained in the affidavit of Koester, which affidavit was dictated and sworn to after Pelot and Lide left the city, in which Koester does make the contention that the Mergenthaler Company freely consented to the notes of the Receiver taking precedence over their mortgage. This statement, however, is apparently without any basis in fact so far as the records are concerned. It is true that Koester testifies that he understood that Pelot and Lide understood that such a plan was on foot, but this is emphatically denied by Pelot and Lide, and their conduct throughout the transaction negatives any such understanding. It would seem that Pelot and Lide would have been so careful not to overstep their bounds of authority by putting Koester on notice at the very outset that he must deal directly with the company as to a proposal to appoint an operating receiver, and yet at once overstep any such authority by consent to an arrangement that would actually supplant their mortgage, when the company had never received the information from any source that such was intended. The telegram that was sent by Koester contains no such intimation. All that the Mergenthaler Company did was to consent that Koester be appointed operating Receiver. They had assurance in his telegram that their property rights were not in jeopardy, because he tells them he is even going to pay the costs of the action. The very wording of the complaint, which was sworn to by Koester, shows that it contained every assurance to creditors that their property rights were not only in jeopardy, but that the only purpose and object of the receivership was to protect and preserve their rights, and a copy of this complaint was furnished to Pelot and Lide, and from it they could not have gotten any conception of any such drastic action as Koester evidently contemplated. Koester, according to his testimony, merely took it for granted that the appointment of himself as operating Receiver necessarily implied the authority to him to create liens with priority over mortgages, and his testimony further shows that he assumed that Pelot and Lide understood that such was the case. His testimony in one place does state that he understood that Mr. Daniel explained the matter to them.

Mr. Daniel does not verify or corroborate the testimony of Koester. Mr. Daniel does testify, in effect, that he would not undertake to say just to what extent it was understood by Pelot and Lide that the Receiver's notes would take priority, but he testifies that he discussed the matter over the long distance telephone with Mr. Cansler, in Charlotte, and referred to the fact that the Receiver's notes would take such priority, and that Pelot and Lide were in the room along with Koester. He assumed from this, apparently, that they understood his conversation and consented to the proposed arrangement.

Pelot and Lide emphatically deny that they heard any such conversation, or that they ever had any such understanding, and that if they had been so informed, they would at once have notified their company or any such proposed action. This contention seems reasonable in view of the fact, as already adverted to, that great care was taken to get authority direct from the Mergenthaler Company for the appointment of a Receiver, which would indicated if it had been suggested that the company's mortgage was to be supplanted, Pelot and Lide would have insisted also that such a vitally important matter should be taken up directly with the company. In addition to this, the record shows that on that very day Pelot and Lide made a detailed report to their company in writing of this entire transaction, and not one word or intimation is contained therein of any such proposed plan, but on the other hand assurance is given that the rights of the company are not jeopardized further than the possibility of postponing the payment of some of their notes.

I must hold, therefore, as a matter of fact, that it has been shown by the testimony that Pelot and Lide ever consented to give the Receiver's notes priority over their company's mortgage, even if they had the power to do so.

In the second place, the evidence fails to show that Pelot and Lide had any authority to bind their company by any such consent as is alleged.

They both emphatically deny any such authority, and the deposition of Mr. Joseph T. Mackey, treasurer of the Mergenthaler Company, is to the same effect. The evidence further shows that Mr. Mackey came in possession of this copy of the order of Judge Sease on the 26th day of September, which was long after the money had been borrowed and spent, and that he had no notice whatever that there had been any proposal to give the Receiver's notes priority over his company's mortgage.

Before the company could be bound by the acts of Pelot and Lide, even if they had consented to such a proposed plan, it must appear that they were acting within their authority, as shown by the following authority:

"A general authority to collect or receive payment implies no authority, in the absence of the principal's consent, to assign or compromise the claim, or to waive his principal's lien or release securities, without payment of the debt, etc. Such authority, if it exists at all, must be clearly proved and strictly pursued." See C.J., 634, § 277.

On a point closely allied to the one in question is the case of Ludden Bates Co. v. Sumter, 45 S.C. 186, 22 S.E., 738, 739, 55 Am. St. Rep., 761, wherein Judge Pope says:

"Clearly, an attorney at law, to whom a claim is sent for collection, has no power to release a lien upon property held by his principal without express authority from his principal.

* * * Generally, it is no part of the attorney at law's business, in attending to the business of his client, to alter or change, by substitution or satisfaction, any liens held by his client, unless he is authorized to do so. And other people deal with such attorneys at law at their peril, when they have such attorneys to change or substitute one security for another."

In the syllabus to the case of Johnson v. Wilson Co., 137 Ala., 468, 34 So., 392, 97 Am. St. Rep., 52, it is said:

"An agent having authority merely to collect for his principals can relinquish no right of theirs, or recognize any adverse claim in property mortgaged to secure their claim, without their express authority."

The Supreme Court of South Carolina in two recent cases has held:

"If the mortgagor relies upon payment to an agent, he must show real or apparent authority to receive payment. It is not claimed that there was any real authority, and apparent authority is based solely upon the agent to collect interest. Receiving interest and calling in a loan are very different. Miss Morris says the papers were always under her control." Morris v. Carlisle, 128 S.C. 417, 122 S.E., 51, 512.

"We are not inadvertent to the consideration that the facts make a case of peculiar hardship for this plaintiff. But in conformity to settled principles of the law, grounded in reason and sound public policy, among others, that it is the duty of one dealing with an agent to use due care to ascertain the scope of the agent's authority. Colt v. Britt, 129 S.C. 226, 123 S.E., 845, and that it is `the duty of the debtor * * * to see that the person to whom he pays it is in possession of the security." Mr. Justice Marion, speaking for the Court in Bacot v. South Carolina L. T. Co., 132 S.C. 340, 127 S.E., 562, 564.

The Court also held that it would not work an equitable estoppel against a mortgagee if he allowed a mortgagor to pay interest to an agent, to later claim that the agent had no authority to collect the principal.

From the foregoing authorities, it is apparent that Pelot and Lide could not bind their company by undertaking to consent to a release or waive the priority of their company's mortgage, in the absence of express authority to do so.

There are other considerations in connection with this matter supporting the conclusion that the Mergenthaler Company did not consent for their mortgages to be supplanted by the receiver's certificates, but I deem the foregoing to be sufficient to justify the conclusion that I have reached in the matter.

I therefore conclude and hold that the priority of the Mergenthaler Company's mortgages over the property covered thereby was not affected by the order of Judge Sease, and that they are entitled to their original priority against the claims of the bank and all others, subject to the ratable contribution in the payment of the costs of the action and of the storage charges, taxes, etc.

As to the construction of Judge Sease's order.

I am unable to sustain the contention that the order of Judge Sease, in view of the language thereof, does not undertake to give the receiver's notes priority over the mortgages. While it is true that the complaint itself contains every assurance that the plaintiff does not contemplate any action that will jeopardize or injuriously affect the rights of any creditor, but that, on the contrary, the sole purpose is to preserve and protect the rights of creditors, nevertheless, the language of the order is very broad in its terms. The language is that such notes or certificates "given for said purpose shall be a prior and preferred claim on all the assets and earnings of the concern." The property covered by these mortgages was "assets of the concern," and would come within the meaning of the order.

CLAIMS OF LANDLORDS FOR RENT

The landlords have set up a claim for rents at $220 per month from the appointment of the receiver to the date of the final sale, subject to payments made by the receiver of $440. They also claim rents due for the month of July, 1925, which accrued prior to the receivership, at the same rate. The evidence shows that prior to the receivership an agreement was made between the Citizens' Publishing Company, through Mr. Koester and the landlords, for the payment of the sum of $220 per month, which included the third story of the building. During the receivership, it was agree to reduce the rents to $180 per month on condition that the receiver give up the third story, which was done, and pay the arrearages of rent, which was not done. The landlords claim priority for their claims as against the mortgages and other liens.

As practically all the assets of the defendant were subject to the prior mortgages of Goodwin and Mergenthaler Company, whose mortgages antedated the placing of the said property upon the rented premises, the said mortgagees contest the landlords' claim to priority.

I think the priority of the mortgages referred to would hold good as against any claims for rent, as such, incurred by the receiver, whether by special agreement or otherwise. My understanding of the law is that a chattel mortgage given over property prior to its being placed upon rented premises, takes priority over the claim for rents. However, it seems to me that when the Court took over this property under a receivership, it had the right to subject all the assets to such reasonable expenses as were necessary to protect and preserve it pending the sale of it.

This would include reasonable storage charges, which would have to be paid in the same way as other costs and expenses incident to the receivership. In this view of the matter, in my opinion, the claims of the landlords for reasonable storage charges should be allowed, to be paid pro rata out of the funds arising from the various sales, etc. In determining what is a reasonable allowance for storage of said property, the Court and parties are not necessarily bound by any amounts previously agreed to be paid by the former owner. My opinion is, and I so hold, that the amount claimed is not a reasonable charge for storage of this property, but that $100 per month would be reasonable for such purposes, and the claim is allowed for that amount. The time covered is 15 1/3 months, which would be $1,533.34, less the $440 paid, leaving a balance due the landlords of $1.093.34.

There was certain property that was not subject to mortgage, which was on the rented premises, and therefore subject to the claims of the landlords. It sold at the sale for $375. I hold that this sum, after contributing ratably to the payment of taxes and costs of the action, should be applied pro tanto to the landlords' claims, and that the balance of their claim should be paid ratably out of the other various funds arising out of this cause.

Calhoun Co. should be charged with their pro rata of all such costs, taxes and storage charges, etc., in accordance with the previous order of the Court.

I therefore recommend: That the claims of Roy C. Goodwin and Mergenthaler Company to priority for their mortgages be sustained and that of the Carolina National Bank be overruled, and that the moneys arising from the sale of the properties mortgaged to Roy C. Goodwin and to Mergenthaler Company, respectively, together with accrued interest thereon, less their ratable contributions, as hereinabove mentioned, be paid them or their attorneys, respectively.

THE DECREE OF CIRCUIT JUDGE SEASE

This matter comes before me upon exceptions of Carolina National Bank to the report of the master for this county, in which he finds and holds that the mortgages of the Mergenthaler Linotype Company are entitled to priority, as against the claims of said bank and all other creditors of Citizens' Publishing Company, over the machinery and appliances covered by said mortgages, and to the proceeds of the sale of said property, notwithstanding the provisions of the order of receivership which I signed on July 28, 1925, at the instance of the plaintiff and the defendant.

The order referred to authorized the receiver, George R. Koester, amongst other things, "to borrow for operating expenses and necessary supplies, on notes or receiver's certificates, to be numbered serially from one to such number as, with the previous notes or certificates, will not aggregate above $15,000, a sum not exceeding $15,000, for the necessary supplies and operating expenses, which notes or certificates given for said purpose shall be a prior and preferred claim on all the assets and earnings of the concern."

The mortgages in question were executed by the Citizens' Publishing Company to the Mergenthaler Company to secure the balances due for the purchase price of several linotype machines and other equipment, and were duly recorded in this county long before this action was begun. The record shows that the Linotype Company was not made a party to the action and was never notified in any way that any application would be made to the Court for an order that would displace or jeopardize the priority that their mortgages had under the law.

The proof shows that immediately upon qualifying as receiver, the said George R. Koester began borrowing money from the Carolina National Bank in large sums, giving his notes therefor, and that within but little more than a month thereafter he had borrowed and spent the full amount of fifteen thousand dollars so borrowed, besides the income from the operation of the newspaper plant. By early December the receiver reached the end of his row, so to speak, and thereupon made his report and turned the remaining property back over to the Court. The issues involved in this case arose in the progress of taking proof of claims before the master. The Mergenthaler Company presented its mortgages as having priority, and were met with the claim on behalf of the bank that under the prior order of the Court, above referred to, the receiver's notes issued to said bank had priority over the mortgages. The attorneys for the Mergenthaler Company, Messrs. Bomar Osborne, at the outset made the claim that the order was null and void in so far as it attempted or might be construed as depriving their clients of their priority, for the reason, in brief, that the Mergenthaler Company was not a party to the original suit, at its inception, and had never been given notice and an opportunity to be heard on any proposal to supplant or displace their mortgage liens in favor of receiver's notes to be issued and that to now give such receiver's notes priority over said mortgages would amount to the taking of said company's property without due process of law, in violation of the Constitution of the United States and of the State of South Carolina; and that the provisions of the order which attempted or pretended to do this are absolutely null and void and must be ignored and disregarded by all other Courts or officers before whom the matter comes up for consideration.

Much testimony, bearing more or less directly upon the matters in dispute, was taken and reported by the master, and is before me, along with the various exceptions filed. The whole matter has been fully argued, and I have given the case most careful consideration. The case presents a most unfortunate situation, for obvious reasons. The matter originally came before me on July 28, 1925, as a matter of ordinary routine, involving the signing of an order upon presentation, in a matter that was uncontested upon the face of the records. Uncontested and consent orders are customarily so handled by all the Courts, and the order complained of here was so signed. No hearing was had before me involving any investigation or determination as to the propriety or legality of attempting to displace the mortgages of the Linotype Company with receiver's notes for money to be borrowed to operate this newspaper, and no notice was given to said company of any application for said order, and no opportunity was given said company, in advance of said order, to appear and present any objections they might have had against the same. I unhesitatingly say now that if such a hearing had been had before me, and said company had appeared and objected to the displacement of their mortgages, I would have recognized their constitutional rights and have refused to sign any order that would jeopardize their liens. To have done so would have been merely to recognize and give full force to their constitutional rights. That they were entitled to that right is too obvious to require further statement; and that any order of Court, by whomsoever signed, which undertook to deprive them of such rights, without hearing or notice, is null and void, requires no citation of authorities to support it.

Counsel for the bank, however, contends that the Mergenthaler Company was largely responsible for the bringing of the receivership proceedings, and that it was fully aware of what was done and contemplated to be done, and that by such participation and by its acquiescence it consented to the said order, or at least by its silence after being fully informed, it waived its rights or is estopped by its conduct from now asserting its original mortgage priorities as against the bank. Basis is claimed to be found for these contentions in the fact that two alleged agents of the Mergenthaler Company, pretending to act for said company, filed affidavits strongly recommending Koester as being fully qualified to act as receiver, and by the fact that they were furnished with copies of the complaint, which was dictated in their presence, and by the fact that, soon after the order complained of was signed, a copy of it was sent to the agents of the company at New Orleans, and that the company, owing the duty to take prompt action to protect their rights, remainded inactive and, without protest, allowed matters to proceed until all the money referred to was borrowed and spent.

Other contentions are made, that need not be further detailed, as the foregoing substantially covers the material ones. I do not deem it essential to enter into a detailed discussion of the facts bearing upon these contentions. I have carefully considered all of them, however, and am unable to sustain them. It will be sufficient for me to state in brief my conclusions, and to refer to the master's report, which I fully concur with and affirm, for a more detailed discussion of the various points of law and fact.

The evidence convinces me that the Mergenthaler Company did not participate in procuring to be entered that provision of the order of July 28, 1925, which undertook to give priority of receiver's notes over their mortgages. It is true that two traveling solicitors of that company did come here at the instance of Mr. Koester and conferred with him, but upon ascertaining that Koester wanted their company to consent to his appointment as receiver, they at once informed him that he would have to deal directly with the company, and thereupon Koester himself typed a long telegram to the company in Brooklyn, seeking their consent to his appointment as operating receiver. That telegram contained no hint of any purpose to displace their mortgages; on the contrary, it indicated every purpose to preserve and fully safeguard their interests. The company wired back their own consent, which put Mr. Koester on notice that as to any matter concerning that company's interest, he must deal with them and not with any alleged agents. Koester claims that he went forward with the proceedings with the understanding that these traveling solicitors, called agents (Pelot and Lide, by name), understood that money was to be borrowed by the receiver not yet appointed, and in amounts not then known, and that notes would be given therefor (notes not yet given or even authorized by the Court), which would displace their company's mortgages. That Pelot and Lide did not so understand the matter, they both swear, and their testimony is corroborated by a number of facts and circumstances pointing convincingly to their truthfulness. That they were entirely without authority to bind their company by agreeing to any such thing, even if they had tried to do so, is proven fully by the evidence. The records of the case, which ought to and ordinarily do show all important matters occurring in the progress of a case pending in Court, contain nothing from Pelot and Lide or from this company that tends to show that they, or either of them, had had any hint of a purpose to apply for any such order of Court. In fact, the first record of any reference to any such intention was an affidavit by Koester, made after Pelot and Lide had left Spartanburg. The record evidence does show that while they were here on that trip they wrote their company a detailed report of all that occurred here, and in it no mention is made of any such purpose. The first time any responsible officer of the company even had in his possession a copy of that order was about September 26, 1925, which was some considerable time after the entire funds had been borrowed from the bank and spent by the receiver. Just what the company could have accomplished if they had then sent some one here to Spartanburg and attempted to undo the order of Court is not quite clear. It is claimed that they should have acted, and by their silence they waived their rights or are estopped. It is not in evidence that they mislead the bank by their silence or inactivity, or that the bank, in reliance thereon, was led into making the loans. The bank was here on the ground and could ascertain the conditions of the records better than the Mergenthaler Company. The bank could easily have ascertained that no jurisdiction had been obtained of said company, and that the order of Court was not binding on them, so it does not seem to me that the bank is in position to claim either waiver or estoppel upon the facts in evidence. But I find that the facts as proven do not sustain the claim of waiver or estoppel. When this company put its mortgages on record, it did all the law required of it, and any persons thereafter dealing with respect to such mortgages was bound to take notice of them and of the rights of the company. The constitutional requirements of "due process" included the right in the company to be notified in advance and to have an adequate opportunity to appear in advance of any order or judgment, and defend its property rights. I know of no substitute for such due process. If it be lawful to take judgment that seriously jeopardizes one's property rights, and to notify that person afterwards that such has been done, then what becomes of the constitutional guarantee? In such circumstances, I hold that the person may rightly ignore any judgment or order that has been taken against him without due process, and may assume that no Court will attempt to enforce it against him or his property. And I hold here that since this company was not given advance notice and opportunity to be heard, the provisions of the order referred to are null and void in so far as they purported to give the receiver's notes priority over said company's mortgage liens.

There is still another reason, in my opinion, why the provision in said order complained of is not valid and binding against said Mergenthaler Company, and that is this:

The legal authorities seem to hold, with apparent unanimity, that it is beyond the jurisdiction and powers of a Court of Equity to authorize a receiver of a purely private business concern (as distinguished from a quasi public enterprise, such as a railroad company) to borrow money to keep the same in operation and issue notes that shall have priority over outstanding liens, except with the specific consent of the lienholders. In this case, the money borrowed was for use in keeping a private business enterprise going, through a receivership, and since the Mergenthaler Company did not give its consent to have its liens displaced, it was not bound by the order in question.

As I fully agree with the master's findings and holdings, I hereby confirm the same as the judgment of this Court, and the exceptions of the appellant are hereby overruled.

It is therefore ordered and adjudged: That the proceeds of the sale of the property covered by the Mergenthaler Linotype Company's various mortgages be applied, first, to the payment of that company's pro rata share of the costs of this action and of such sale, and the taxes, rents, etc., in accordance with previous orders herein, and that the balance of said proceeds be paid by the master over to said company or its attorneys, Bomar Osborne.

The Carolina National Bank appealed on the following exceptions:

(1) The Court erred in not finding and holding that the Mergenthaler Linotype Company so participated in and seconded the receivership proceeding, and, through a copy of the order and the receiver's circular letter, mailed not later than August 2nd, had such notice and knowledge that, by its continued silence, acquiescence and failure to indicate any dissent, it is estopped to assert the priority of its mortgage after the authorized borrowings on receiver's certificates had been spent.

Messrs. Lyles, Daniel Drummond, for appellants, cite: Bound by acts: Bigelow on Estoppel (6th Ed.), 710-11.

Messrs. Bomar Osborne, for respondent, cite: Finding of fact by master, concurred in by Circuit Judge, sustained on appeal: 147 S.E., 874; 147 S.E., 661; 131 S.C. 416; 141 S.C. 145; 139 S.C. 117; 139 S.C. 95; 138 S.C. 169; 135 S.C. 365; 135 S.C. 173. Due process: 12 S.C. 83; 45 S.C. 464. Receiver's certificate: 235 Pac., 580; 12 S.C. 83; 45 S.C. 464.

January 9, 1930. The opinion of the Court was delivered by

MR. JUSTICE CARTER.

For a statement of the case and the issues involved in this appeal the Court adopts the agreed statement of counsel.

"This action was commenced on July 24, 1925, by service of summons, verified complaint, supporting affidavits and notice of application for appointment of a receiver. The plaintiff was the wife of George R. Koester, business manager of the defendant, whose principal business was the publication of an afternoon daily newspaper in Spartanburg. The only service was on the defendant corporation.

"Application was made on the noticed date. The Court made the order. It provided for calling in creditors, proving claims before the master, the operation of the business, enjoining suits, and the borrowing of not exceeding $15,000 to continue publication, and undertook to give the receiver's certificates the status of prior and preferred claims on all assets and earnings. It provided that any creditor might come in and make such contentions as advised relative to continuing the receivership. Claims were proved before the master in accordance with the published notice pursuant to the order.

"There was and is no dispute as to the validity of the Mergenthaler mortgage, nor its amount, but only as to the priority between it and the receivers' certificates.

"At the time of application for the order, the Mergenthaler Company held four duly recorded mortgages on six Linotype machines, aggregating above $14,000. Roy C. Goodwin had a recorded mortgage of the printing press amounting to $6,200. Calhoun Office Supply Company had a recorded mortgage for $900 on office furniture.

"The Carolina National Bank lent $15,000 to the receiver on his certificates on notes issued by him, the loan being made in different sums at various times, as shown by the testimony and the certificates.

"In accordance with the order appointing him, the receiver took immediate charge of the printing plant and assets of the defendant and operated it, publishing a daily afternoon paper, called `The Sun,' continuously from August 1, 1925, to November 9, 1925.

"On November 9, 1925, the receiver reported that operation could not be continued and publication was suspended. References were held December 9, 1925, December 11 and 18, 1925, May 7, 1926 and July 15 and October 2, 1926.

"By consent order, the tangible property of the defendant was sold by the master, freed of liens, and the various liens transferred to the proceeds of sale. The property covered by the Mergenthaler mortgages brought $7,750 and was purchase by the appellant.

"The bank contested the priority of Goodwin's claim before the master, and also by exceptions to the master's report, but, at the argument on circuit, conceded the priority of the Goodwin mortgage. The priority of the Calhoun mortgage was conceded shortly after the property was sold. It insisted on its claim of priority over the Mergenthaler Linotype Company. The master reported in favor of the Linotype company. The bank excepted. The circuit Court sustained the master. Notice of intention to appeal was duly served and the Carolina National Bank now appeals on the exception appearing at the end of the transcript."

For the reasons set forth in the decree of the Circuit Judge, the appellant's exception is overruled and the judgment of the Circuit Court affirmed.

MR. CHIEF JUSTICE WATTS and MESSRS. JUSTICES COTHRAN, BLEASE and STABLER concur.