October 10, 2012

Smith et al., v. Craft et al., and Smith v. Mineral Ridge Mfg. Co., Laurel, 1900

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SMITH et al. v. CRAFT et al. 

and

SMITH v. MINERAL RIDGE MFG. CO.

COURT OF APPEALS OF KENTUCKY

58 S.W. 500; 1900 Ky. LEXIS 299; 22 Ky. L. Rptr. 643

October 10, 1900, Decided

PRIOR HISTORY:  [**1] 

Appeal from circuit court, Laurel county.

Action by the Mineral Ridge Manufacturing Company against the Welsh Coal Company and others to have certain acts of the Welsh Coal Company declared to operate as an assignment for the benefit of creditors. Judgment rejecting certain claims of J. D. Smith, and he appeals; and order allowing attorney's fees to J. A. Craft and others, and J. D. Smith and others appeal.

DISPOSITION: Reversed.

COUNSEL: Strother & Gordon and C. P. Chenault, for appellants.

W. H. Holt, J. A. Craft, J. W. Alcorn, and J. B. Paxton, for appellees.

JUDGES: WHITE, J.

OPINION BY: WHITE

OPINION

 [*500]  WHITE, J. These two appeals are here upon one record, and present the questions as to the allowance to appellees Craft and others as attorney's fees, and also the refusal of the court below to allow certain claims that had been assigned to appellant Smith at their full face value; the court adjudging that Smith could only recover of the assets of the Welsh Coal Company the amount paid by him for such claims, and not the full face value thereof. In April, 1900, more than two years after the rendition of the judgment appealed from, the appellants offered to file an amended statement naming as appellees certain creditors of the Welsh Coal  [**2] Company who had become parties to the proceedings below by filing their claims, and also making the debtor, the Welsh Coal Company, a party. Appellees objected to this amended statement because it is presented too late,—after the limit for an appeal had expired. The objection is well taken; for, if those sought to be added as appellees were not already parties to the appeal and bound by it, no appeal could be prosecuted after the expiration of two years that could affect their rights.

 [*501]  However, as the action was to declare certain acts of the debtor, the Welsh Coal Company, a preference under the act of 1856, and to operate as an assignment for the benefit of all creditors, and was instituted and prosecuted to judgment by the Mineral Ridge Manufacturing Company, the judgment thus obtained inured to the benefit of all the creditors of Welsh Coal Company. The various creditors of the Welsh Coal Company, taking under the judgment in the name of the Mineral Ridge Manufacturing Company, need not be made parties appellee on appeal, but would be bound by any judgment or decree rendered on a reversal of the judgment where the Mineral Ridge Manufacturing Company would be bound. The creditors  [**3] derive their rights through the action of the Mineral Ridge Manufacturing Company, and are entitled in that action only to such rights as are finally adjudged to the party obtaining the judgment.

The question that arises on the merits of the case, as it affects the appellees Craft and others, is the allowance to them of $3,270 as fees for their services as attorneys for the creditors of the Welsh Coal Company in procuring the judgment declaring the assignment of that company. We are of opinion that the appellees Craft et al. are entitled to a reasonable allowance out of the estate of the Welsh Coal Company for their services as attorneys. Lyford's Ex'x v. Haines (Ky.) 53 S. W. 646; Strobel v. Boresig (Super. Ct.) 13 Ky. L aw Rep. 398.

In our opinion, however, the amount, $3,270, allowed is excessive. We conclude from the record, which is a full and complete transcript of all the pleadings and steps in this equitable case, that a reasonable allowance to appellees for legal services would be $2,000, to be paid out of the estate of the Welsh Coal Company, adjudged to the creditors pro rata on their claims, which sum will be allowed on the return of the case.

The question on the appeal of  [**4] Smith, as against the Mineral Ridge Manufacturing Company, is as to certain claims brought by Smith against the Welsh Coal Company. Smith is an attorney, and as such had certain claims of the Welsh Coal Company for collection. Smith is also president and principal stockholder in the Pittsburg Coal Company. It appears that some time after the Welsh Coal Company had sold out its plant and outfit to the Pittsburg Coal Company for a number of shares of stock in the Pittsburg Coal Company, and after certain shares of this stock had been pledged by the Welsh Coal Company, which act of pledge is declared to be a preference, and to operate as an assignment by the judgment herein, a power of attorney was given to Smith by the Welsh Coal Company to sell the shares of stock to be issued to the Welsh Coal Company, and to use the proceeds to pay the debts of the Welsh Coal Company. Smith was prevented from selling any of this stock or acting under the power of attorney by reason of an attachment by one of the creditors of the Welsh Coal Company. It also appears that prior to the sale by the Welsh Coal Company to the Pittsburg Coal Company Smith had been general counsel for the Welsh Coal Company.  [**5] In this case, however, it appears that Smith represented the creditors of the Welsh Coal Company, who had received stock in pledge; also represented the Pittsburg Coal Company, while Hr. Ewell represented the Welsh Coal Company, in resisting the petition of the Mineral Ridge Manufacturing Company to declare an assignment. It appears that Ewell and Smith are law partners, yet in this case they each had separate clients, but worked together for the same end, as their clients' interests were, as they thought, identical on that question. No creditor of the Welsh Coal Company from whom Smith made purchase of debts complains or objects to the allowance to Smith of the whole of the claim to Smith, nor is any objection filed by any member of the firm of the Welsh Coal Company, which is not a corporation, as its name would indicate. The objection comes from the creditors of the Welsh Coal Company Who did not sell to Smith, and who never employed him in any matter connected with this case. Objection was also made by the court's receiver appointed herein. The court sustained the objections to the claims, of Smith assigned to him, and refused to allow same, except as to the amount actually paid  [**6] by Smith for same, with interest.

It appears in proof that one of the appellees, Attorney Wilson, wrote to certain creditors of the Welsh Coal Company, and made an offer to buy the claims at 20 per cent.; that Smith also made the same offer, and purchased. It also appears that Welsh, of the firm of the Welsh Coal Company, for himself and others, not members of the firm, undertook to buy the stock pledged to certain creditors by the Welsh Coal Company at a price that was satisfactory to such creditors, but Welsh said at the time he would not take it unless he could obtain a majority of the stock of the Pittsburg Coal Company; his intention being, as expressed, to take the management of the Pittsburg Coal Company out of the hands of Smith, if he could get a majority of the stock. Smith, on learning of this proposition of Welsh and others associated with him, bought the stock from the pledgees. It is insisted that in these purchases Smith acted in behalf of the Welsh Coal Company, or that, by reason of the fact that the power of attorney was given him, Smith was debarred from becoming a purchaser of the debts of the Welsh Coal Company, and any purchase he might make would be for the benefit  [**7] of the Welsh Coal Company,—in other words, a payment of the debt for and on behalf of the coal company,—and that he would be only entitled to his expenditure, and not the amount of the debt from the Welsh Coal Company. From the whole record, we do not find any proof that  [*502]  appellant Smith betrayed any confidence or used any information obtained by him as attorney for the Welsh Coal Company. Indeed, he seems to have paid for the claims all that counsel for the general creditors bringing this action thought they were worth, or, at least, offered to pay for them. It may be that appellant Smith at one time and stage of the action represented the Welsh Coal Company,—a question that we do not determine. It appears clear to us that all relation of attorney and client had ceased between Smith and the Welsh Coal Company long before the purchase by Smith of any of the claims against that firm. It is shown that one of the partners and Smith had disagreed, for some reason, and that partner had combined with others to obtain control of the Pittsburg Coal Company, and to oust Smith from its management. Under these circumstances, we think appellant had a right to purchase claims against the firm,  [**8] as in so doing he used no information obtained as counsel, nor took unfair advantage of the Welsh Coal Company or its general creditors. Wherefore, for the reasons indicated, the judgments appealed from are reversed, and cause remanded, with directions to render judgment directing a pro rata distribution of the estate of the Welsh Coal Company among all its creditors, including appellant Smith, to the full amount of his claims held by assignment; and also to allow to appellees Craft and others, attorneys for the general creditors in the assignment, a fee of $2,000, to be paid out of the funds adjudged to the creditors, and before a distribution is had; and for other proceedings consistent herewith.

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