Court Opinion

ID: 3863593
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:57:07.807142+00
Date Added: 2024-06-11T13:49:39.740816
License: Public Domain

By a decree entered November 5, 1881, in this cause, the court directed Chafee, the trustee of the Sprague estate, "to proceed and advertise and sell the same, and deposit the net proceeds of each and every sale he may make in the R.I. Hospital Trust Company, in Providence, upon its participation account, in his name as trustee, not to be withdrawn except by order of this court, or some justice thereof, and either party may from time to time apply to the court for any directions to said trustee in relation to such sales."
The bill, and, of course, the decree referred to, covered all the property which was conveyed to the trustee by the joint assignment executed November, 1873, and by the separate assignments of Amasa and William Sprague executed in April, 1874.
The trustee accordingly advertised the property for sale in parcels, but on account of certain proceedings in court and subsequent offers of negotiation, the advertisements were withdrawn. These negotiations related, as is well known, to the sale of the property in the mass instead of in parcels.
The sale and disposal of such an amount of property has embarrassed the trustee, and the court also, and one of the most important questions is whether it is most for the interest of the creditors that it should be disposed of in the mass or in parcels.
It is evident that if it is disposed of in parcels it would be in the power of the larger creditors, combining, perhaps, with persons outside, and by agreeing not to bid against each other, for the separate parcels, to obtain them at a very low price. The very fact of their holding a large amount of the trust notes would enable them to overbid outside persons not in the combination. And the estates, or most of them, would be beyond the means of the smaller creditors, even if they did combine, of which there would not be much probability.
On the other hand it is evident that if the property is to be sold together, it can then only be sold to a combination of persons, unless purchasers are to be found without the State. There *Page 409 
are but two or three families in this State who have the means to purchase and pay for it.
December 12, 1881, B.F. Butler, for himself and others, made an offer to the trustee, Chafee, which, after some negotiations was rejected.
December 21, 1881, a meeting of the creditors voted to recommend to the trustee to accept any offer of $2,600,000 for the whole property.
And January 23, 1882, Hopkins and associates, numbering 152, and representing, as it is claimed, $4,682,000, being more than half the amount of the debt, made an offer for the whole property of $2,600,000.
And January 25, 1882, the trustee petitioned the court for its advice and direction in the premises.
At the hearing on this petition before the court, February 11, 1882, Benedict Lapham, for himself and others, in open court made an offer in writing for the whole property of $2,880,000.
And the court, after hearing the parties, postponed the further consideration of the matter until March 4, saying that they would not "advise the acceptance of the offer made by Mr. Hopkins and others at present, as another, and, in our opinion, a better offer, and by a responsible party, has been made. . . . We will advise the acceptance of the offer made by Mr. B. Lapham, unless some further and better offer be made before that time."
Even if neither of these offers is accepted it may be well to compare them, as they suggest many things which ought to be considered in any sale of the estate.
Now on comparing these two offers we find that in certain portions, the language is the same.
Hopkins proposes to take from the trustee all his right and title to all the property as it stood in the hands of said Chafee on the first day of July last, deducting certain expenses, belonging to or in any way coming to him by virtue of the said trust deed, and the several deeds of assignment made in April, 1874, to him of said property, with the Bank of Commerce judgment, free from all incumbrances except the Baltic lease.
Lapham's offer is identical in words, except that he uses the phrase "a full and perfect title to the property as it stood on the *Page 410 
first of July." We must understand this to mean that he is to make as full and perfect title as he as trustee can make. He is not required to give a warranty, and the court could not require or authorize him to warrant.
The title by the Hopkins proposal is to be conveyed by deeds sufficient in form or fact to convey all such title in the opinion of counsel learned in the law, c. The language of the Lapham proposal is the same.
The provisions as to time of payment, interest, and default are the same, except that Lapham is to pay $10,000 down when his offer is accepted. Both are to have the right to pay in excess of the instalments due, in cash. Lapham proposes to have the privilege of paying any excess in trust notes, which certainly cannot be allowed.
Both parties propose to have the right to sell portions of the property, the purchase money of such portions to go to the trustee in payment of the amounts due from said Hopkins or said Lapham.
The provisions as to certain property already sold are the same in both offers.
In what do the offers differ?
The Hopkins proposal is that Chafee shall sell all of certain stocks, receive the proceeds, and deduct them from the $2,600,000. This provision is not in the Lapham proposal, but it should be inserted in any terms of sale, whether at private sale or at public auction. It does not affect the amount to be paid to the trustee for the property, but it does affect the security.
Lapham offers to pay $10,000 down as earnest money; but the most important difference, and which, with certain modifications, must be decisive as between these two offers, is that Lapham offers $2,880,000, while Hopkins  Company offer only $2,600,000, being a difference of $280,000.
Hopkins offers to pay certain back interest to the Franklin Savings Bank, which Lapham does not. This, however, does not at all affect the general creditors.
There can, therefore, be no question as between these offers.
Now, if the whole body of creditors, small as well as large, could participate in the benefits or profits derived from the sale; *Page 411 
in other words, if the property was conveyed to the whole body of creditors or to a corporation in which any creditor could invest his notes as stock, the price paid would not be so material. For if all the creditors join and form a corporation and purchase, then if they purchase for a sum less than the real value, or if the property rises in value afterwards, each creditor will participate in this increase of value by the increase in the salable value of his stock.
But it is very evident this cannot be. Even if the National Banks and the Savings Banks could go into such business, there are many other creditors who could not or would not.
But, December 21, 1881, at a meeting said to include a large number of creditors, and who are now represented by what is called the creditors' committee, it was voted, and, so far as appears, unanimously, to advise the assignee to accept $2,600,000 for the whole property, and subsequently Mr. Hopkins and others of the creditors offered that sum.
Now, the creditors represented at that meeting, and including their committee, must have thought that sum the fair value of the property at that time. Many of them are known to be shrewd, sensible business men, who know the value of property; and to say that they did not consider that sum the fair value is to accuse them of being designedly unfair towards the smaller creditors, who could not join in the purchase.
Now I do not believe that the creditors at that meeting intended any such thing. There is every reason to suppose that they thought that, considering the condition the property was in, and the great expense necessary to start the business, the price they named was a fair one. And I see no reason to suppose it a fair price. As fair men they must have supposed it a fair price, not only for themselves but for the small creditors. And it is but just to the creditors' committee to say, I do not understand them as objecting now so much to the sum offered by Lapham, as to the conditions. And as to some of the conditions, we all agree with them.
What then enables others to make a larger offer for the property? It is well known that there are important suits pending, the decision of which may materially affect its value, and that *Page 412 
there are other disputed matters which may become the subject of litigation, and the Lapham company say that they have arranged all these disputed matters, and that they can therefore afford to pay a better price.
Some of these contested matters have been brought to the attention of the court by the papers in the various suits and by the discussions upon them.
One of them, and a very important one, is the claim of Fanny Sprague and Mary Sprague.
December 2, 1873, they transferred their 1,400 shares of Quidnick stock on the books to Chafee, "by way of pledge and collateral security," to secure the performance of the conditions of the trust mortgage, and they subsequently executed a transfer of the right to redeem it to certain persons for the benefit of creditors, and this latter transfer it is claimed that William Sprague never signed.
If, as these ladies contend, this was, so far as concerns the mortgage creditors, only a pledge, then the pledge can only be sold at public auction after due notice for that purpose, or by bill in equity for sale. And whenever the case arises, it is easy to foresee that the argument against an order of sale will be, that the pledge was merely collateral; that the assignee had in his hands property, at the value put upon it by the creditors themselves, more than double the mortgage notes conveyed to him by these pledgors and others; that by mismanagement that property has been wasted, and therefore the assignee has forfeited all claim to hold the pledge.
The latter assignments were for the payment of debts generally, and as, from the statements made to us, all claims against them except the trust notes and any judgments would be outlawed, it is difficult to see how they would affect the law or equity of the case.
I am only stating the facts as I understand them to be admitted or claimed. If on trial the facts should turn out to be different, the effect, of course, would be different. But there might be litigation, nevertheless.
I do not mean in saying this that there is anything before the court to impeach Mr. Chafee's honesty or conduct. On the contrary, *Page 413 
so far as now appears, he seems to have been in the midst of fires on all sides of him; and probably not one man in ten thousand but would have in his place done acts, thought prudent at the time, but in the light of subsequent events shown to be blunders.
And if their claim to hold the stock is established, then another consequence follows: This court has already decreed, November 5, 1881, in this case, that the Quidnick Company is entitled to an account and repayment of all funds of that company which Chafee used to carry on the business of his trust. Whatever amount was found due, Fanny and Mary Sprague would be entitled to their proportion of it, either in money or in the increased value of the stock. And if a corporation on demand refuses to take proper measures to protect the rights of its stockholders, an injured minority can always appeal to a court of equity.
Again, if the Quidnick Company establishes a claim against the trust estate, it would require some portion of the trust estate to satisfy it. This, of course, would be so much lost to the creditors.
This is only one of several complications which may arise in the settlement of the trust; and it is easy to see that the one we have mentioned would lead to great delay. And I have alluded to them as explaining the reason why the Lapham party, having settled them, can afford to give more than the creditors had before fixed as a fair value.
It is suggested by the creditors' committee, in a letter written by them February 22, 1882, that if the sale takes place by parcels, the trustee should ask the court for authority to deposit the proceeds in the Hospital Trust Company, and that the proceeds, instead of the property, be held as a fund to await the result of pending litigation.
This may be a matter for future hearing if necessary. Ordinarily, where a person, a creditor, for instance, has a claim for payment upon a particular fund, it is no injury to require that the fund be converted into money. But if the question arises whether a particular piece of property constitutes a part of the fund; to sell a man's property, and then, if he succeeds, turn the money over to him instead, is not, as I understand, according to the principles of equity. *Page 414 
Each offer now before us is recommended by portions of the creditors. The claim on behalf of the Hopkins offer is that they represent more than one half of the amount of debts. This is denied by other creditors, who say that if the name of the receiver of one of the savings banks is stricken out, they have not a majority, and a committee of depositors of the same bank have signed the recommendation of the Lapham offer.
It is to be noticed also that the committee of creditors, in their letter of February 22, 1882, do not undertake to say that the property is worth more than Lapham offers. To have said so would have been rather inconsistent with the valuation they themselves had made of it a few months before.
The court has now to decide upon the last proposition made to us. Notice had been given that the Lapham offer would be accepted unless, before March 4, 1882, a better offer for the property was made.
No offer at all has been made of any larger amount than the Lapham offer.
What has been done is this: Certain persons, March 3, 1882, send a letter to the trustee saying that if the court will put up the property at auction, they will bid the same amount Mr. Lapham has offered. And this latter was marked confidential. It was, of course, not intended to be made public. It has not yet been communicated to the court by the trustee. A copy of it, without the signature, was indeed read to the court on March 4, and the name of the firm was afterwards disclosed.
This new proposal also does not undertake to say that the property is worth more than $2,880,000, nor to guarantee a bid of any sum over that of any amount.
If the firm of Wilbour, Jackson  Co. had, within the time fixed, pledged themselves to bid at auction $100,000 or even $50,000 over and above the Lapham offer, I should have thought it the duty of the court to try the experiment for the benefit of the creditors. But they have not done it.
It seems to me, therefore, that the last offer, if it can be called an offer, is no better than the former ones, and that it may lead to considerable delay without any certainty of benefit, and that, therefore, it is for the interest of all the creditors that the Lapham *Page 415 
offer, with a few modifications, should be accepted. If he should not consent to the modifications, the assignee must of course look for further offers.
And it seems to me important to consider that these parties who, instead of making any additional offer, merely suggest that it would be better to try an auction, are, so far as we are informed, entirely outside parties. They are not creditors. And not a single creditor has appeared before the court to object to the acceptance of it Lapham's offer if some of the conditions are modified. Quite a large portion of the creditors have recommended the acceptance of it unconditionally. The creditors' committee object only to some conditions, but not to the sum. They do indeed suggest an auction, in their letter to the trustee, if Lapham's offer should be rejected, as I understand them.
Unless something has happened since December 21, 1881, to increase the value of the property, or unless the creditors' committee think there is some chance of compromising the pending and threatened litigation, there is no probability that any creditor would bid even as much as the Lapham offer.
I think that instead of the decree simply providing for advising the assignee to accept any particular offer, without more, it should, in order to remove any ambiguity, specify as terms: that the deed should convey all the title of the property as it stood July 1, 1881, this is in both propositions as we understand them, and is probably intended to provide against the case of any transfer since made; that the conveyance should be by deed of assurance of title sufficient in form, and in fact in the opinion of counsel learned in the law to convey all such title, this provision being the same in both offers; that the deed should be deposited in the registry of the court in escrow; that until complete payment the purchasers shall be deemed tenants at will, subject to the order of the court; and that no bank or other stocks should be transferred to the purchasers, except upon actual payment in cash of the amount of their value; and to remove all doubt, these provisions should be inserted in a contract of some sort or in the deed, and that all risk of title to the property should be taken by the purchasers.
If Mr. Lapham consents to the explanations and modifications I have suggested, I think the court should advise the trustee to accept it. *Page 416
Decree entered March 22, 1882. This cause came on to befurther heard at the above term before the full court, forfurther instructions to the trustee in reference to the sales ofthe trust estate, and counsel for the several parties were heardthereon, and thereupon, upon consideration thereof, it isordered, adjudged, and decreed:
That the said Chafee, as trustee and assignee, proceed tosell the estate at public sale by open competition to the highestbidder on the 4th day of May, 1882, at 12 o'clock noon, at LyceumHall, in the city of Providence, the estate to be put up at theupset price of $2,880,000; upon the following terms, viz.:
First. The estate to be sold is all the right, title, andinterest in the estate and every part and parcel thereof now heldby Z. Chafee, as trustee and assignee under the deed of trustbearing date the 1st day of November, A.D. 1873, and under theseveral deeds of assignment bearing date the 6th day of April,A.D. 1874, from the A.  W. Sprague Manufac. Co. and others tothe said Z. Chafee, and under the various transfers and otherconveyances between the same parties or any or either of them,first deducting therefrom the necessary legitimate expenses ofthe trustee in and about said estate and the expenses ofupholding his trust remaining unpaid to an amount not exceedingone hundred and ten thousand (110,000) dollars; and all theright, title, and interest of the trustees under a certain deedof trust from the National Bank of Commerce in New York, bearingdate the 14th day of February, A.D. 1881; subject to all existingliens and claims upon the same, including that of the QuidnickCompany against the trust estate.
Second. Payments to be made as follows:
1st. One hundred thousand (100,000) dollars to be paid downas earnest money to said Chafee, at the time of sale, and if notpaid estate to be immediately resold.
2d. Twenty-five (25) per cent. of the whole amount ofpurchase money, less said ($100,000) one hundred thousanddollars, to be paid to said Chafee, as trustee, on the 13th dayof May, A.D. 1882, at 12 o'clock, noon, at which time the deedshall be placed as an escrow in the registry of the SupremeCourt, county of Providence; the purchaser to be then put intopossession of all the real estate, machinery, and other personalproperty belonging to the *Page 417 trust estate, appertaining to and necessary for the running ofthe mills.
3d. The remainder of purchase money to be paid in four equalquarterly instalments thereafter, and to be upon interest at therate of six per centum per annum from said 4th day of May, A.D.1882, until paid; provided, however, in case Winthrop De Wolf, asreceiver of the Franklin Institution for Savings, does not joinin the deed under such sale, the pro rata dividends, of the wholeamount bid, upon the mortgage notes originally turned out to saidFranklin Institution for Savings, may be deducted from thepurchase money, and the balance remaining after such deductionand payment of the (25) twenty-five per cent. as above provided,shall be the remainder to be paid in the four equal quarterlyinstalments as aforesaid.
4th. Any failure to make either of the payments subsequentto aid earnest money, for five days, to work a forfeiture of thecontract and all payments made thereunder, the purchaser and allpersons claiming or holding under him, if in possession, to bethen deemed tenants at will, subject to the summary order of thecourt, without notice in the cause under which this sale is to bemade; the purchaser to be at liberty to anticipate said paymentsor either of them; and when the whole amount of purchase moneyhas been paid, the purchaser to be entitled to receive said deedfrom the registry of this court.
Third. Stocks and personal property other than that abovespecified to be retained by the trustee until he has received inthe payments subsequent to the first (25) twenty-five per cent.the full value thereof; and if the parties cannot agree upon thevalue of the same, or any part thereof, the trustee to be atliberty to sell the same at public auction, and the net proceedsthereof to be applied toward the payment of the purchase money.
Fourth. The grantors in the above deed lying in escrow, orsuch of them as shall be necessary for the purpose, and thepurchaser, may unite in a deed for the sale of any portion of theproperty for a sum which they may agree upon as a fair marketvalue for the same, the net proceeds of any such sale to bereceived by said Chafee, and applied toward the purchase moneyunder this sale in the order said payments shall become due. *Page 418
Fifth. The purchasers to assume and pay all taxes,assessments, and expense of insurance from the date of sale, andupon failure so to do, the trustee to have the privilege ofmaking any or all of such payments, the same with interest to beadded to the purchase money, and to be repaid to the trustee withthe then next instalment.
Sixth. The deed to be a quitclaim in form already approvedby the court and now exhibited, subject to such changes in thedescription of the estates as the court on application maydirect.
That said Chafee advertise the time and place of said salein accordance with the provisions of the trust mortgage.
That upon payment by the purchaser of the earnest moneyabove provided for, said Chafee and the purchaser shall execute awritten contract of sale and purchase of the property upon theabove terms for the sum bid. That thereupon the deeds in the formhereto annexed and hereby approved shall be made and executed asprovided in said terms of sale; the said Kimball, Robinson, andJackson, as trustees, are hereby ordered to unite with saidChafee in the execution of said deed, which deed shall bedelivered in escrow to the clerk of this court upon payment madeaccording to said terms of sale, and shall be delivered to thepurchaser upon full compliance with said terms of sale.
That said Chafee from time to time, as said purchase moneyis received by him, pay to the holders of the mortgage notes,excluding the notes originally turned out to said FranklinInstitution for Savings, unless said De Wolf joins in said deedas aforesaid, upon presentation, pro rata dividends upon the facevalue thereof, reserving such amounts as may be reasonablynecessary to meet incidental expenses.
All further orders and decrees are reserved, with leave toany party or to the purchaser to apply.
Annexed to the decree was a form of deed approved by the court.
In accordance with the foregoing decree Chafee offered the trust estates for sale May 4, 1882; and failing to obtain any bids for them postponed the sale to May 18, 1882, when he again failed to obtain any bids and adjourned the sale without day. After *Page 419 
each attempted sale he reported his doings to the court and asked for further instructions.