
    WELCH & COMPANY v. CENTRAL SAN CRISTOBAL and UNITED STATES MORTGAGE & TRUST COMPANY v. CENTRAL SAN CRISTOBAL.
    Equity,
    Nos. 940, 947.
    Lease oe Receivership Property.
    Master’s Report — When Confirmed.
    1. As a master has a better opportunity for examining the witnesses, his conclusions will be sustained unless shown to be in error.
    Receivership — Lease of Property.
    2. Where it seems advisable to lease out receivership property rather than operate it, the method employed will be in the discretion of the court. It is not necessary to have public bidding if the court is satisfied that it has received offers for the best interest of the fund. The object of the court is the preservation of the property in receivership until the end of the suit, rather than putting it in shape for possible purchasers to carry on the business for profit.
    Lease — Sugar Central.
    3. Preserving a sugar central involves physical preservation of the property and keeping its clients or colonos attached to the central. While the usual method of preserving such a central is by having a receiver operate it by means of receiver’s certificate, if the receiver can borrow an amount which may not be sufficient, and is doubtful if he can get the plant ready for operation in time for grinding, and on the other hand a proposed lessor offers to assume all expenses and give a fixed rental, the latter course will be preferred.
    Receivership — Rental.
    4. The question of borrowing on the one hand, and of leasing on the other, will he determined hy the circumstances of each ease, and the court will exercise its discretion for what it deems the best interest of the property.
    Due Process of Law — Claim in Receivership.
    5. So far as possible everything in receivership is done only after notice to the parties interested, but this cannot always be done. The preservation of the property is the first duty; the effect upon the parties litigant is secondary. Where a party has filed exceptions and they have been considered, and no argument has been asked for, due process of law is not by the courts considering the exceptions without more.
    Receivership — Lease.
    6. A receivership lease for the operation of the property should be for a short time, provide for the return of the property unimpaired, the bond to be approved by the court, and the execution to be under the supervision of the court through its receiver.
    Opinion filed January 21, 1915.
    
      Mr. II. Q. Molina, for Welch & Company.
    
      Mr. J. Henri Brovm for the United States Mortgage & Trust Company.
    
      Mr. Louis Banigan for the Fajardo Sugar Company, Committee of Bondholders, and United States Mortgage & Trust Company.
    
      Mr. Chas. IlartzeTl for the receiver. '
    
      Mr. Francis Neagle for the defendant.
   Hamilton, Judge,

delivered the following opinion:

The matter comes up upon the report of the master filed January 12, 1915, on a proposal by Sostbenes Bebn to lease tbe property and tbe offer of tbe West India Sugar Finance Corporation to lend a specified sum to tbe receiver to operate tbe property. Exceptions bave been filed by tbe United States Mortgage & Trust Company, by Walter A. Simonds, a claimant of a part of tbe property, by tbe Eajardo Sugar Company and others, and tbe matter now comes up for decision.

1. In tbe first place, tbe rule is general that when a matter is referred to tbe master and be bas examined tbe parties and tbe witnesses produced, and they bave bad opportunity to be heard in full, and tbe master reports one way or tbe other, tbe report will be sustained unless tbe master is shown to be in error. In other words, there is no use of referring a matter to tbe master if tbe court is going to start all over again itself. It will bear tbe report of tbe master with tbe idea that it is to be sustained unless it is shown that tbe master is in error. If tbe court is in doubt one way or tbe other, it will sustain tbe master. That I think is tbe general rule and is a proper rule.

2. In tbe second place, however, both of these propositions bave been amended since tbe report of tbe master, or rather offers bave been made to amend. They bave not been filed, perhaps, with tbe clerk, but they bave come to tbe knowledge' of tbe judge. If this was a matter of advertising for bids and tbe court or any party acting bad announced that tbe highest bid would be accepted, it would be very questionable whether any subsequent amendment ought to be permitted. This, however, is not such a case. It is a case where tbe court bas custody under receivership of a sugar central which is not in operation, where tbe colonos are said to be dissatisfied and intend or threaten to transfer their allegiance to some other central, where there is no money in hand to operate, where there is a mortgage foreclosure pending, and where the court has for some time been trying to find some way of handling the property. So that it is a case of necessity rather than of advertising for bids. The court for a long time received no offers of any kind. The receiver reported several times that he was unable to’ borrow money or to see any way to get funds to preserve the property. The court announced that it would have to take some step within a few days, and finally the receiver reported an offer from Mr. Sosthenes Behn to lease the property. Immediately upon that being done, and on the day set for hearing matters, there comes an offer from the West India Sugar Finance Corporation to lend money to the receiver. Whether one offer caused the other or not the court does not know, but that is the order of events, and after the West India Sugar Finance Corporation made its offer, Mr. Behn amended his by withdrawing the proviso that a certain amount of sugar must be produced, and after the hearing the West India Sugar Finance Corporation amended its offer by writing to the clerk stating that it would omit the requirement of a prenda upon the personal property of the concern. Subsequently Mr. Behn has amended his offer in certain particulars, and the court thinks that as the matter of amendment is to be allowed on one side and the other, in order that it be just between them, it is at liberty up to the last moment to entertain the best offer that is made. So the court will consider the matter as it stands, and, under those circumstances, it being in a somewhat different shape from what it was before the master, the court will look into it, and not simply affirm the report of the master pro forma. Objections are made before tbe master and since, on both sides.

It seems that unfortunately tbe plaintiff Welch & Company ■in tbe one case thinks that tbe offer of tbe West India Sugar Finance Corporation is made by tbe bondholders and therefore .in some way is detrimental to Welch & Company. Tbe West India Sugar Finance Corporation suggests that tbe offer of Mr. Behn is made by a man who is interested in tbe sugar business, and that be may intend to shut up tbe central and draw off tbe colonos to other centrals in which be may be interested. Then there are other mutual criticisms. Tbe criticisms on tbe one side, however, about offset those on tbe other, and all tbe court can say is that whatever arrangement is made must contain a clause by which its execution and operation are to be carried out under tbe supervision of tbe court; that tbe receiver must have tbe right and tbe duty of keeping.bis eye upon tbe execution of tbe agreement, whichever agreement is adopted, and that tbe court would have tbe right to look after tbe interests of tbe property. It would seem that this would be tbe only way of covering that situation-.

Tbe court cannot go into speculation as to what other things people have in mind when they make definite offers. It can only see to tbe proper execution of those offers themselves. How, in determining tbe question, which is a difficult one, the court has one thing in mind. What tbe duty of tbe court is and what tbe object of tbe court is, is simply this, — tbe preservation of tbe property that is in receivership until the end of tbe suit. That is tbe object of every receivership, and it is the object of this one. Tbe court cannot go further and contemplate putting this property in shape for possible purchasers to carry on the business at a profit, or for business in any way. It can only keep the property in proper condition and preserve it, so that whoever does buy it can then use it in whatever business it is suited for. The object of a receivership is not to carry on a business. The court has no right to take, a piece of property and carry on business for profit. When it undertakes to carry it on for profit, that is really a speculation. It may. turn out that the court does not know any more about the business than the people who got into trouble, and, as sometimes has happened, the receivership may be a disaster instead of a benefit. But if the court confines its duties and its powers to preserving the property, keeping it in proper shape, it has then, I think, performed its duty and all that can be asked and all that should be asked. So that is what is in the mind of the court in regard to these two offers. Which will best preserve the property during this litigation so that it can be turned over in good condition to the possible purchasers ? How, as an incident to that, it follows that the court cannot take into account to any large extent the fact that the bondholders say they have organized a syndicate to buy the property. That has not come to the court by way. of evidence at all, but, admitting that it is so, to what extent it will be carried out, and if carried out, what difference it should make in the conduct of the court,, is not clear. That would be going into a matter dehors the^ record. It would not be looking to the preservation of the property, but to putting it into shape for the benefit of one of the parties to the suit, and the court thinks that is not the main object of the receivership. So that is not at least a controlling factor.

3. The next point would be, supposing then it is the object of the court to preserve the property, What is the best method of doing so ? This being a sugar central, it is necessary to do two things, to preserve the property physically, keep it from deterioration, and to keep it intact in regard to its clients. A central without cane is no central at all. It is a piece of machinery out of place, and to get canes there must be colonos or growers, under the customs prevailing in Porto Pico. So that the matter of preservation must cover those two or three points, and in this case there are two ways possibly under the offers. One is for the receiver to borrow money upon receiver’s certificates to keep the property intact, to keep the colonos and whatever else is necessary. That is the offer of the West India Sugar Finance Corporation. The course pursued by courts generally is to preserve the property by means of borrow - ing money evidenced by receiver’s certificates, and that would be the course in this case unless there is some defect in the offer or something preferable in the other offer. An objection to the offer of the West India Sugar Finance Corporation, which appears at a glance, is that it is confined to $24,000 while the testimony of the receiver is entirely uncertain as to whether $24,000 is enough; in fact, the tendency of the testimony satisfies the court that it will probably not be enough. It may possibly be enough, but probably not, at least possibly not; so that the offer might not do very much good. It would advance the interests of the property to a certain extent and then possibly leave it in bad shape. It is true that over against that is the possibility, if there should be enough, that the business would realize a profit and would pay some surplus. The bondholders, who seem to expect to purchase the property, favor this procedure. They favor a loan by this company because upon tbe sale tbe receiver can turn tbe property over just as it then stands; but, as seen above, that cannot be taken primarily into account.

Perhaps tbe most serious question in regard to tbe West India Sugar Finance Corporation offer is that tbe receiver in this case on bis examination before tbe master distinctly says that even with sufficient money advanced, be could not get tbe plant ready for operation before tbe middle of March. Tbe evidence tends strongly to show that this would be too late to bold tbe colonos, and that be might very likely be getting ready to grind cane which would not be supplied without litigation. Tbe matter of bolding tbe colonos is of prime importance, and tbe court would not feel justified in adopting a course which very possibly would not effect that result. If nothing else was offered, it might have to act nevertheless; but there is another offer which must be considered before such a determination is reached.

4. This is tbe offer of Mr. Behn of a certain amount of money, some $1,500 a month as rent, and a certain share of tbe profits, if there be any profits. Of course, it will be to tbe interest of Mr. Behn to make a profit, and tbe property would share in those profits, if made. At all events, this plan would repair and maintain tbe property and give a certain amount of rental fixed. Tbe disadvantage of this course would be that any possible purchaser would be met by a lease of the property, and would not be able to go into immediate possession and use tbe property for bis own purposes, which would be tbe object of a purchaser. He would not buy on general principles except to be able to realize something. That is to be taken into consideration in connection with tbe facts of this particular case. Tbe bearing on tbe foreclosure of tbe mortgage bas been bad and tbe case bas been submitted. Briefs are to be furnished by tbe 1st of February. -Of course, it is possible there may be some application for an extension of time, but assuming that they be furnished at that time, there is a great mass of testimony, and in tbe ordinary course of business with everything before it, tbe court could not possibly be expected to reach a decision for some weeks, so that it would be tbe end of February or tbe 1st of March before there could be a decree. A sale must be advertised at least a month, and it might be well that in this instance it should be for a longer time, because the parties interested in tbe sugar business are to a large extent in the States; so that it would probably be some time in March before a sale could be had. There must then be a master’s report, which would lie over for twenty days. It would certainly be-the 1st of April before there could be any confirmation and deed made, and the chances are, from delays which often occur-in large matters, that it would be somewhat later than that; so that it would look as if the grinding season would be far advanced before the purchaser could possibly get the property. The court therefore thinks that the matter of the purchasers taking the property is not to be considered as one of the chief elements in the case, that is, taking it for the purpose of making a profit themselves. This has been met to some extent by an amendment made by Mr. Behn to his offer, by which he-will turn the land over as the cane is cleared, and even turn over the property whenever the sale is made and confirmed, at a certain bonus profit on the sugar. Any person taking the-property takes it to make money out of it, and would be entitled, after he had gone to all expenses in the matter, to have something more than a refund to him. So it looks as if that would meet the occasion about as well as could be expected. On the.whole, therefore, it seems to the court as if it would not be the-best plan to borrow, it being uncertain whether it would be enough to operate the property, and that the better plan would be-to lease it for what would at least put it in good condition, retain, the colonos, and yield a little income to the property, and that course will be pursued.

5. The above discussion has dealt with the substance of most' of the exceptions filed to the master’s report. The exceptions of Simonds raise the additional point that his property is being-taken from him without due process. It seems to rest upon, a misconception of what a receivership is and what is the duty of a court in administering a receivership. The matter of due-process of law does not arise, more‘especially in the case of Simonds, who has come in by leave after the receivership had been established. The object of a receivership is the preservation of the property pending a dispute between two or more parties as to its final ownership and disposition. The matter at present before the court is merely as to which of two possible-methods will better subserve this purpose. The decision of the court is to intrust it to one who is entirely disinterested in-the property and only for so short a time that it will make little-difference to the ultimate owner, while in the meantime the plan will take care of the property under the eye of the court and secure a revenue which is needed. The other plan would be to take the chances of business operations at a time when the-property is about to change hands, and possibly encumber it' with increased liabilities. The choice between these two is a matter of discretion with the court, and is not one requiring; .specific notice to the parties. So far as it is possible, everything is done with notice, but the nature of a receivership is such that some things may have to be done without notice. The preservation of the property is the first duty of the court; the effect upon the parties litigant is therefore of secondary consideration. Simonds would seem to have had all the notice that is called for by receivership proceedings, and is not injured by the master’s report. It only remains to say that he has had opportunity to present his exceptions, and his exceptions together with all others have been carefully considered. No request was made for argument.

6. The amendments made to both offers since the master’s report were the cause of the court going into the above details. They do not seem to change the principle upon which the master’s report was based, that under the circumstances of this property a short lease, not exceeding six months according to the amended offer, is preferable to a loan of a certain amount with uncertain results as to central and colonos. The master’s report is therefore sustained in principle, and the receiver directed to execute the lease to Sosthenes Behn reported by the master, amended as per copy on file, with the addition that this lease require the operation and maintenance of this property, and its return unimpaired, a bond with sureties or a surety company to be approved by the court in the sum of •'$10,000, and that the execution and carrying out of the agreement are to be under the supervision of the court. The receiver will see to all necessary details.

The master not having reported as to what economies are possible in receivership management and expenses, he is directed to examine and report upon this as early as possible.

It is so ordered.  