228 F. 516 | D. Idaho | 1915
The real, and as it seems to me the only serious, question upon this branch of the case is whether the capacity in which outstanding bonds are held may be made an issue prior to decree and sale. The trustee says no, and directs my attention to certain cases, which, while tending to support its view, are seemingly far from being conclusive. It is to be noted that it is not a question merely of what presumptions may he indulged, or of the burden of proof, or the weight of evidence. If the trustee’s contention is sound, it is incompetent for the debtor to raise such an issue at all, and evidence offered by it to show that bonds were issued only as collateral, and that the amount for which they are held is less than their face, is not receivable. Nor is it a question of the character or amount of the relief to which the collateral holder is entitled. Upon the one hand the trustee concedes that upon the distribution of the proceeds of sale the collateral holder cannot demand an amount in excess of the actual indebtedness due him; and upon the other hand it is doubtless true that up to the amount of such claim, and until it is fully discharged, he is entitled to share ratably with other bondholders upon the basis, not of the amount of his claim, but of the face value of the bonds. But if offered by the debtor can the issue touching the just amount of the collateral claim be ignored? There are logical and practical objeclions of the most serious character to the trustee’s position. It here prays for a judicial determination of the amount of the indebtedness secured by the trust deed and for a sale of the property to' pay the same. Admittedly the maximum of the debtor’s obligation, where its bonds are held as collateral only, to secure notes which it has executed. is the face of the notes, and not of the bonds. How, then, can the court by its decree declare that the amount due is the full face of the bonds?
It is urged that the matter can be controlled upon the distribution of the proceeds of sale; but, aside from the illogical aspect of such procedure, suppose the debtor desires to avoid a sale, and is able to raise the amount of money it actually owes, but no more, within the period usually granted to it under the practice, before a sale can be made. Is it to be permitted to discharge its just obligation and thus save its property? And, if so, how, in the face of the decree, is the amount of the actual indebtedness to be ascertained? Are the con
“That the court find and adjudge that the principal of the said bonds issued and outstanding as alleged in the bill of complaint herein, in the amount of $2,230,000, is due and payable,” etc.
And again:
“That an account be had and taken of the bonds, interest coupons, and interest secured by said deed of trust and supplemental mortgages, and the amount due thereon, with the names of the lawful holders or owners thereof, be ascertained; that an account be taken of all property of every kind conveyed or pledged by said deed of trust and supplemental mortgages or intended so to be, whether acquired before' or after the execution and delivery thereof.”
And again:
“That the defendant, Great Shoshone & Twin Falls Water Power Company, and William T. Wallace as receiver of its property, may be decreed to pay, within a short time to be fixed by the court, to the holders of the bonds and coupons secured by said deed of trust and supplemental mortgages, or to your orator as trustee for said holders, the principal amount of said bonds and the defaulted interest thereon,” etc.
Again, upon what basis is redemption from sale to be made if the property goes to sale? And is there to be a personal judgment over, for the entire difference between the face of the bonds and the proceeds of the sale, pursuant to the usual provision of a foreclosure decree? If so, manifestly the debtor will thus be adjudged to pay in excess of the amount of its actual debt. .
While leaning toward the view that the issue may properly be presented and tried at this juncture of the proceeding, I am under the circumstances disposed to yield to the plaintiff’s suggestion that it be reserved, with the understanding, that the decree shall contain appropriate qualifications and provisions guarding against injustice and against prejudice to rights which might otherwise be foreclosed. The debtor is making no defense, and, being insolvent, it is quite apparent that it has no' expectation of either avoiding the sale or causing a redemption to be made therefrom. Hence no serious practical difficulties need be anticipated.
*521 “A .mortgage of personal property is void as against creditors of the mortgagor * * * unless 51 * * it is accompanied toy the affidavit of the mortgagor that it is made in good faith,” etc.
Admittedly no such affidavit was attached to or accompanies the trust deed. Against this defense the first point raised by the plaintiff is that neither the intervening creditors nor the receiver is competent to interpose it. The argument is that the receiver stands in the shoes of the debtor, and can assert ño defense unavailable to it, and that the instrument, being undoubtedly valid as between the mortgagee and the mortgagor, is valid as between the mortgagee and the receiver, and further that the intervening creditors having no judgment or other lien upon, or interest in, any of the property, are without standing as parties, and cannot be heard to question the validity of the mortgage. It must be conceded that as a rule a general creditor without interest in or a lien upon mortgaged property cannot intervene in a foreclosure suit or challenge the sufficiency of the mortgage. But here, it is to be observed, a creditors’ suit was brought long before the institution of the foreclosure suit, and a receiver was appointed therein to take charge of all of the mortgagor’s property. In that suit the claims of these creditors were offered, allowed, and filed as valid subsisting claims against the estate. In Chemical National Bank v. Armstrong, 59 Fed. 372, 375, 8 C. C. A. 155, 28 L. R. A. 231, where a receiver had been appointed to take charge of the assets of an insolvent bank, Judge Taft, delivering the opinion of the court, said:
“It is manifest ttoat it would utterly defeat tile object of the Banking Act if, after the suspension, the assets remained subject to levy, execution, or attachment, and therefore that the passing of the assets into the hands of the receiver removes all the property of the bank from liability to process to secure satisfaction of judgments: Bank v. Colby, 21 Wall. 609 [22 L. Ed. 687]. The right which a creditor of the bank had before suspension of levying an execution to satisfy his judgment is gone, and for it is substituted a fixed and definite interest in the assets as a security for the payment of his debt, which it is the purpose of the Banking Act to reduce to money, and apply on his debt, with all convenient speed.”
Referring to this case, the Supreme Court of the United States,' speaking through Mr. Chief Justice Fuller, in Merrill v. Bank, 173 U. S. 131, 136, 19 Sup. Ct. 360, 362 (43 L. Ed. 640), said:
“This was in accordance with the decision of the Circuit Court of Appeals for the Sixth Circuit, in Chemical National Bank v. Armstrong, 59 Fed. 372, 8 C. C. A. 155, 28 L. R. A. 231; Mr. Justice Brown and Circuit Judges Taft and Burton, composing the court. The opinion was delivered by Judge Taft, and discusses the question on principle with a full citation of the authorities. We concur with that court in the proposition that .assets of an insolvent debtor are held under insolvency proceedings in trust for the benefit of all his creditors, and that a creditor, on proof of his claim, acquires a vested interest in the trust fund.”
Recognizing the same principle, the Supreme Court of California, in Ruggles v. Cannedy, 127 Cal. 290, 53 Pac. 911, 59 Pac. 827, 46 L. R. A. 371, gave it specific application to conditions analogous to those here presented. It is there said:
“In this case the creditors had not obtained judgments against the mortgagor, nor indeed had they instituted any proceedings against him at the time*522 lie was adjudged an insolvent. After that judgment, by force of the insolvency act itself, they were prevented from resorting to any proceeding in law or equity for such purpose. They were limited to the presentation of claims in the insolvency court. This they did, and when those claims were allowed and approved the questions involved in them became res adjudicata. The presentation, allowance, and approval of the claim, while not in strictness a judgment, had much of the force and effect of a judgment, and was the only thing in the nature of a judgment which creditors so situated could obtain. ITor the purpose of enforcing, their rights against fraudulent or void acts of the insolvent, it is the equivalent of a judgment. Roan v. Winn, 93 Mo. 503 [4 S. W. 736].”
Only by giving effect to such principle can great injustice be avoided, for otherwise, at the suggestion and with the encouragement of the trustee, a general creditor could bring such a suit as was here brought, and secure the appointment of a receiver, and the property having thus been placed in custodia legis, other general creditors would .be prevented from acquiring specific liens thereon through the levy of attachment or execution process, with the result that they would be disabled from attacking an invalid mortgage, while the trustee, taking advantage of their disability, could rest secure until, upon the maturity of its right to foreclose, it could appropriate the entire property to the discharge of its claim, notwithstanding the defect in its mortgage. It will therefore be held that the creditors were properly permitted to intervene, and that they have an interest which entitles them to challenge the mortgage.
Complying with the suggestion made at the hearing, counsel for the interveners have incorporated in their brief a schedule in which specifically or generally they have inventoried what they deem to be personal,, property. By ■ section 3054 of the Idaho Revised Codes real property or real estate is defined as embracing lands, mining claims, possessory rights to lands, ditch and water rights, and everything affixed or appurtenant to lands. Under this definition it is not apparent how the several water rights included in the list can be held to be personal property. But, however that may be, they clearly fall
The principle, however, does not extend to' supplies, materials, and tools in excess of present needs; to bills or accounts receivable; to cash on hand or bank balances; to stocks of merchandise which are intended for sale to the public in the ordinary course of retail business; and apparently not to the capital stock of the Jerome Waterworks Company, or to the public ferry at Shoshone Palls; nor, generally speaking, to such articles of personalty as do not form constituent parts of the system, or are not presently necessary to its maintenance and operation' — as to all of which the claims of the in-terveners will be recognized as being superior to the lien of the mortgage. The other property will be sold as a single parcel, but these items upon which it is held the creditors have a superior lien will be sold separately. Either party may, upon notice, introduce further evidence, at a date to be stated in the notice, prior to December 10, 1915, for the purpose of more completely identifying the property embraced in this latter class.