Case Name: WEST INDIA OIL COMPANY, Complainant, v. CAYEY SUGAR COMPANY, Dft.
Court: United States District Court for the District of Puerto Rico
Jurisdiction: United States
Decision Date: 1923-06-26
Citations: 13 P.R. Fed. 171
Docket Number: No. 1153
Parties: WEST INDIA OIL COMPANY, Complainant, v. CAYEY SUGAR COMPANY, Dft.
Judges: 
Reporter: Porto Rico Federal Reports
Volume: 13
Pages: 171–175

Head Matter:
WEST INDIA OIL COMPANY, Complainant, v. CAYEY SUGAR COMPANY, Dft.
San Juan,
Equity,
No. 1153.
Opinion filed June 26, 1923.
Mr. O. B. Frazer for complainant.
Mr. Gabriel de la Haba for defendant.
Mr. H. G. Molina, and Mr. Leopoldo Feliu for receivers.

Opinion:
OdliN, Judge,
delivered tbe following opinion;
Tbe controversy wbicb bas arisen in tbis case is an extremely unfortunate one, but tbe rules and precedents of other United States courts controlling matters of tbe same nature as tbe present controversy make it easy for me to reach a decision.
Briefly stated, the facts are as follows: In the month of July, 1922, Rafael Martinez Dominguez and Jose Maria del Valle were appointed receivers of the properties of the defendant corporation by the Hon. Harvey M. Hutchinson, associate justice of the supreme court of Porto Rico while he was the acting judge of this court during the absence of the undersigned in the United States. Mr. H. G. Molina acted as counsel for these receivers, and recently he has associated with him Mr! Leopoldo Feliu. The receivers administered the property, and there is no complaint as to the result of their administration, but it is claimed by the officers of the defendant corporation that they both agreed to accept the appointment as receivers and to act without any compensation, because all parties were desirous of keeping down the expenses, and this receivership was a friendly proceeding, all parties consenting to the action which was taken by Mr. Justice Hutchinson. In the month of April or May of the present year plans were instituted for a reorganization of the defendant company or corporation, which plans if carried out, would result in a dismissal of the present proceeding, and, of course, a discharge of these two receivers. A dispute then arose as to whether these two gentlemen who had been acting as receivers actually made an agreement to serve without compensation, as has been testified to by various officers of the defendant corporation. The receivers denied any such agreement, whereupon application was made to this court by counsel for the defendant corporation that these two receivers be removed and that two other receivers be named in their place. Mr. Rafael Martinez Dominguez and Mr. Jose Maria del Valle declined to resign and protested against their removal until and unless their compensation should be fixed by this court and paid to them. About tbe same time of the.filing of the petition for removal there was also filed a petition by the present receivers and by their counsel for compensation to be fixed by this court. The two matters have been heard together, and a large amount of testimony has been taken.
I am satisfied that if an agreement actually be made that a receiver of an insolvent corporation shall serve without compensation, this agreement is not an illegal one. Of course it is a very unusual contract, but I have found at least one case in which such an agreement was made, and thereafter it was argued before the supreme court of Indiana that that agreement should not be recognized because contrary to public policy. That court, however, did hold that in the absence of fraud an agreement of this nature would be recognized by the court. The case is that of Polk v. Johnson, decided in 1903 by the supreme court of Indiana, opinion by Chief Justice Hadley, reported in 66 N. E. 752, also in 160 Ind. 292, 98 Am. St. Rep. 274.
Believing that the law is the same in the Federal court as established by the supreme court of Indiana, the only question remaining before me is one of fact. Was this agreement made, or was it not made ? The witnesses for the defendant corporation are positive and direct in their testimony that it was made,- and the two receivers positively deny that it was made. It is an extremely unpleasant situation in which this court is placed, because I am forced to hold that certain witnesses have testified falsely, and I must disregard their testimony; or I must decide that there was a very serious misunderstanding, which seems to me almost inexcusable. All these gentlemen who have testified in this case are experienced business men engaged in large and important enterprises in tbe Island of Porto Rico, and prominent in tbe commercial and financial world. It is, however, beyond question, that tbe officers of tbe defendant corporation acted with gross negligence, if such an agreement was made, in not insisting that it be in writing so as to avoid any possible controversy of this nature arising thereafter. It is claimed that tbe matter was discussed during a meeting of tbe board of directors before tbe filing of tbe bill in this case, and there is also testimony tending to show that this matter was discussed in a subsequent meeting, not only of tbe directors of tbe defendant corporation, but also of its stockholders. No reference whatever to this alleged agreement is made in tbe minutes of tbe corporation book. Tbe explanation of tbe secretary of tbe corporation why this was not done is very unsatisfactory to me.
Furthermore, such an agreement as this being an unnatural one, tbe burden of proof of course is upon tbe party who seeks to establish such an agreement. I have carefully considered tbe testimony which has been taken before me personally, and I am' clearly of tbe opinion that this burden of proof which the law imposes upon the defendant corporation'has not been supported by tbe testimony.
I therefore am obliged to deny tbe petition for tbe removal of tbe two present receivers until their compensation shall be paid, as fixed by me, and I understand that they are willing to resign as soon as such payment shall be made.
I am clearly of tbe opinion that each of said two receivers, Mr. Rafael Martinez Dominguez and Mr. Jose Maria del Valle, is-entitled to tbe sum of $2,000 for bis services in connection with tbe present case. I am also clearly of .the opinion that Mr. Hi G. Molina, as counsel for said two receivérs, is entitled to the like amount of $2,000 for his services.
It is Ordered and Decreed that each of said two receivers shall be allowed to withhold from the funds in the possession of the receivers the sum of $2,000 for each of them, and
It is further Ordered and Decreed that the' said two receivers pay to H. G. Molina the sum of $2,000 in full, as counsel for - said receivers.
To this order and decree the attorney for the Oayey Sugar Company excepts.
Done and Ordered in open court at San Juan, Porto Pico, this 26th day of June, 1923.