86 F. 711 | 5th Cir. | 1898
The Southern States Land & Timber Company, Limited, is an English corporation. In May, 1889, it was the owner of a large lumber milling property situated in the states of Alabama and Florida. On May 17,1889, it conveyed this property, described in the deed, to trustees named in the deed, to secure an issue of 1,350 coupon bonds, of £100 each. The deed of trust and the bonds made elaborate provision for the conduct of the company’s business, the payment of interest, and the payments to the sinking fund. Of the issue of bonds under this deed of trust, George H. Moore, the original complainant in this suit, became the owner of 243. The mortgagor company made default in the payment of Interest and in the payments to the sinking fund; and on April 6,1895, George H. Moore, the original complainant, in behalf of himself and all other first-mortgage bondholders (who may come in and pay their pro rata share of the expenses of this suit) of the Southern States Land & Timber Company, Limited, exhibited bis bill against that company and the trustees named ia the
At the same time (April 6,1895) the Southern Btates Land &; Timber Company, Limited, defendant in the bill, appeared and answered that the allegations of the bill are substantially true, and that the'defendant submits the complainants’ application to the honorable court for such action in the premises as to it may seem meet and just and in accordance with the usual practice in equity. Thereupon, on the same day, the court passed its decree granting the prayer of the bill asking for the appointment"of receivers and the issuance of an injunction,-and on April 8, 1895, the receivers took possession of all the property of the debtor company, and continued the operation and business thereof under decrees of the court. They made sales, in doe course of trade, of the lumber and other goods on hand held for sale, and from time to time made considerable needed improvements and repairs on the plant used in the operation of the business.
On the 26th of June, 1895, James McDonnell and IS others, creditors of the Southern Sí ates Land & Timber Company, Limited, presented severally their petitions to intervene in this suit. The 13, referring to the petition of James McDonnell, joined therein. Subsequently other like creditors, by separate applications, joined in the petition of intervention of James McDonnell. After showing the nature of their claims, and the times within which each arose, they show that on the 5ih of June, 1898, and on different subsequent dates, they had obtained judgments in the stale courts against the Southern Btates Land & Timber Company, Limited, on the part of the indebtedness due to each which had then matured, and liad caused executions to be issued on the judgments, and placed in the hands of the sheriff of the county in which the property of the debtor company was situated. They prayed to be made parties to this suit, and that at the hearing of this cause the honorable court will be pleased to take cognizance of their claims, and of the claims of such other persons, similarly situated, as may hereafter join therein, and decree the amount due them, and cause the property and assets (not subject to the lien of the mortgage sought to be enforced by the original’ bill of complaint), or the proceeds thereof, to be applied to the payment of the indebtedness due to them, and to such other persons holding proper liens or claims ugainst the same, in the proportion to which each may be entitled,
On the 6th of February, 1896, the interveners moved the court for the appointment of a special master, and for an order of reference to him to hear evidence upon and ascertain and report to the court what property the debtor company owned at the time of the appointment of the receivers which was not covered by either of the mortgages described in the original bill of complaint; what property was covered by either one of the mortgages and not by the other; what disposition the receivers had made of any of the properties, and whát part still remained on hand; what part of the unmortgaged property had been used in-the betterment of the mortgaged property, and what part of the unmortgaged property had been used in the payment of labor and other expenses or purchase money in the production or procurement of other assets on hand, or proceeds of which or that into which they have been converted, and are now in the hands of the receivers; what portions, if any, of the unmortgaged property have the petitioners or any' of them (indicating which) any lien upon or legal or equitable right to be paid therefrom, and whether or not they, or any of them, have any legal or equitable right to a lien upon the property covered by the mortgages, to the extent, if any, to which any •of the unmortgaged properties have been used by the receivers in the betterment of the mortgaged property; what amount is due to each of the petitioners; and to what extent, if any, these several indebtednesses constitute liens upon any of the property of the company, or any portion thereof, and as to the priority of such liens with regard to the mortgages described in the bill of complaint. • This motion was granted, and John E'. Mitchell, Esq., was appointed special master, and the reference was made to Mm February 7, 1896.
On May 20, 1896, the court passed the following decree:
“This cause coming on to be heard upon the bill of complaint and exhibits thereto, and the decree pro confesso heretofore rendered in this cause against the defendants, and the same being duly considered and understood by the court, the court is of the opinion that the complainánts are entitled to relief. It is therefore ordered, adjudged, and decreed that it be and it is hereby referred to Richard Jones, clerk of the court, as special master (the parties t'o the litigation, by their solicitors in open court, consenting to such appointment, and the court considering such consent sufficient special reason therefor), to ascertain and report, within sixty days from the date hereof: (1) The number and amount of the outstanding and unpaid debentures issued by the said Southern States Land and Timber Company, and secured by the said deed of trust dated on, to wit, the 17th day of May, A. D. 1889, and the amount of interest due thereon. (2) The names of the holders or owners of said debentures, and the number and amount of such debentures held by each. The said master shall cause to be published in-th& London Times, a newspaper published in London, England, and also in a newspaper published in the city of New York, state of New York, a notice calling upon all holders or owners of said debentures to present their said debentures to said Richard Jones, or to John A. Shields, United Stales commissioner, residing in the said city of New York, within the time named in said*715 notice (which time shall be not less than thirty flays from the date of the first publication In said London Times), and they shall also present a statement showing the name of the owner or holder of said debentures. The holders or owners of said debentures may present their said debentures to said John A. Shields, together with a statement of the name of the owner or holder of said debentures, and procure from the said Shields, as United States commissioner, a certificate under his hand and official seal, stating the name of the holder, the number or numb&rs of the debenture or debentures, and the amount thereof, which certificate such holder or owner may present, in lieu of said debentures, to the said Richard Jones, as master, within the time stated in said notice, or within five days thereafter, and which certificate shall be presumptive evidence of the facts stated therein. Said notice provided above to be given by publication shall be by insertion twice a week for two successive weeks in said newspapers.”
On the 10th of June, 3896, the report of the special master, John E. Mitchell, was filed, and to it the interveners filed numerous exceptions, the nature of which is sufficiently shown in the ruling of the court thereon announced July 27, 1806, to the effect: (1) The court will recognize the priority of those judgment creditors who have obtained judgments prior to the decree pro confesso rendered in this cause, and who would have obtained by the levy of an execution such priority if no obstacles had stood in the way of the levy of such process by the action of the court and its appointment of.receivers to take possession of the property of the defendant. And the court holds that the interveners whose judgments were recovered before the decree, though after the appointment of receivers, shall have a lien upon all the property and effects of the defendant not covered by the mortgage, and in the hands of the receivers, and recognizes the right in the interveners paramount to the other creditors to be paid out of such property and effects. The lien is not one that can be enforced or perfected by an execution because of the rule that a judgment recovered after the appointment of a receiver does not become a lien upon the property in the hands of the receiver, but it is such a lien as will be recognized in equity. The petitions herein were filed before any order calling creditors in to establish their claims, and before any decree pro confesso against the defendant was rendered, and its insolvency adjudicated, and the judgments set up were obtained prior thereto. (2) The court holds that the logs cut from the land covered by the mortgage, and removed to the mills, and the lumber manufactured from such logs, are not covered by the mortgage lien. The exceptions to that part of the master’s report finding that petitioners have no lien and are entitled to no priority of payment are sustained; also the exceptions to that part of the report finding that petitioners have no lien or right to priority of payment out of the property and effects of defendant not covered by the mortgage are sustained. The exceptions to that part of the report finding that the logs and lumber are covered by the mortgage lien are sustained, and the exceptions to that part of the report finding that railway equipments are covered by the mortgage are sustained. The exceptions to that part of the report finding that the mills at Millview, Fla., are covered by the mortgage, are overruled. In accordance with which announcement the court the same day (July 27, 1896) passed the following decree:
*716 “This cause coming on to be beard on the interveners’ exceptions to the report of the special master, John E. Mitchell, and the same being argued by the solicitors for the parties, and being considered by the court, it is now ordered, adjudged, and decreed that the exceptions to that part of said report which finds' that said interveners have no lien and are entitled to no priority of payment out of any of the property of the. defendant are sustained; also the exceptions to that part of the report which finds that none of the interveners have a lien or a right to priority of payment out of the property and effects of the defendant not covered by mortgage are sustained; also the exceptions to that part of the report which finds that the logs and' lumber are covered by the mortgage lien are sustained; and also the exceptions to that part of the report which finds that railway equipments are covered by the mortgage are sustained. It is further ordered, adjudged, and decreed that the exceptions to that part of the report which finds that the mills, machinery, etc., at Millview, Florida, are covered by the mortgage, are overruled; and it is further ordered, adjudged, and decreed that all other exceptions to said report not herein specifically passed on shall remain open to be disposed of at a future day of the court.”
On the 18th of June, 1896, a decree had been passed amending the decree of reference to Richard Jones, special master, so as to authorize and instruct him to report the names of all the creditors of the defendant the Southern States Land & Timber Company, Limited, and the amount due to each (other than the names and amount due to the debenture holders secured by the deed of trust dated on the 17th of May, 1889); also what liens any of said creditors may have upon any of the property of the company, and a description of the property upon which the liens may be claimed; also what property is covered by the deed of trust of date' May 17, 1889. The report of the special master, Richard Jones, was filed September 19, 1896. In it this passage appears:
“The creditors other than the holders of the debentures secured by the deed of trust of May 17, 1889, who claim a lien upon any of the property of said Southern States Land and Timber Company, are the judgment creditors named in class A of this report, and I have heretofore stated the personal property upon which they have a lien; and the manner in which such lien arose was that they were diligent, and secured judgments against said defendant before the decree pro confesso was entered in this cause in favor of the complainants, and said judgment creditors were decreed by this honorable court on July 27, 1896, ‘to have a lien upon all the assets of the defendant not covered by the mortgage, and recognizes the right in them paramount to the other creditors to be paid out of such assets and effects.’ ”
The report is elaborate, covering all the ground embraced in the reference. The interveners filed very numerous exceptions to it, of which those relating to the creditors Charles Seales and John J. Fitzgerald were sustained. The complainants also filed 21 exceptions to the report, of which those numbered 14, 15, 17, 18, 19, 20, and 21, not necessary to be set out here, were sustained. All other exceptions to the report were overruled, and that report in all other respects confirmed, by a decree passed the 4th of February, 1897. The exceptions of the complainants that were overruled are as follows:
“(1) Because said master reports that the judgment creditors who have obtained judgments against the Southern States Land and Timber Company prior to the decree pro confesso rendered on November 4, 1895, have liens upon ail the assets of the said company not covered by the mortgage of May 17, 1889, and have priority over the other creditors, and are entitled to be paid first out of such assets and effects. The bill in this cause is a general creditors’ bill, and*717 the said judgment creditors, having obtained their judgments subsequent to the filing cf the bill in this cause, thereby acquired no lien superior to the other creditors of said Southern States Land and Timber Company.
“(2) Because the bill filed in this cause is a bill for the administration of the assets of an insolvent corporation, and a distribution thereof among all the creditors of such corporation, and the said judgment creditors, having obtained their judgments subsequent to the filing of the bill in this cause, thereby acquired no lien superior to the other creditors of said Southern States Land and Timber Company.
“(3) Because the master reports among the property upon which, said judgment creditors of said Southern States Land and Timber Company have a lien certain logs which the receivers had on hand on June 11, 1895, and valued at $17,567.65, because said master has failed to deduct, from said sum of $17,567.05, 869/ío per cent, of the value of said logs, which 86»/io per cent, of said logs were cut from the lands covered by said deed of trust of 'May 17, 1889, and were therefore covered by said deed of trust.
“(4) Because the master has reported among the property upon which said judgment creditors of said Southern Stales Land and Timber Company have a lien certain logs of the value of $30,030.08, and which logs the receivers took possession of at the time of their appointment, because said master lias failed to deduct, from said sum of 830,030.68, 86®/lo P.er cent, of the value of said logs, whic-h 86®/io per cent of said logs were cut from the lands covered by said deed of trust of May 17, 1889, and is therefore covered by said deed of trust.
“(,5) Because the master has reported among the property upon which said judgment creditors of said Southern States Land and Timber Company have a lien certain lumber of the value of $47,924.88, and which lumber the receivers took possession of at the time of their appointment, because said master had failed to deduct, from said sum of 817,924.88, 86®/io per cent, of said lumber, which 86Vio prar cent, of said lumber.was manufactured from logs cut from lands covered by said deed of trust of May 17, 3889, and is therefore covered by said deed of trust, and is not subject to said íien of said judgment creditors.
“(6) Because the master reports among- the property upon which said judgment creditors of said Southern States I.and and Timber Company have a lien certain lumber of the value of $30,010.73, and which lumber the said receivers had on hand on the 11th day of June, 1895, because said master lias failed to deduct, from said sum of 830,010,75, 869/io per cent, of the value of said lumber, which 869/10 per' cent, of said lumber was manufactured from logs cut from lands covered by said deed of trust of May 17, 1889, and is therefore covered by said deed of trust, and Is not subject to said lien of said judgment creditors.
“(7) Said complainants separately except to so much of said master’s report as fails to include, in the property covered by said deed of trust of May'17, 1889, 869/10 per cent, of $30,030.68, the value of certain logs which the receivers took possession of at the time of their appointment, and which 809/10 per cent, of said logs were cut from the lands covered by said deed of trust of May 17, 1889, and is therefore covered by said deed of trust.
“(8) Because said master’s report fails to include, in the property covered by said deed oí trust of May 17, 1889, 86»/10 per cent, of $47,924.88, the value of certain lumber which the receivers took possession of at the time of their appointment, and which 86»/io per cent, of said lumber was manufactured from logs cut from the lands covered by said deed of trust of May 17, 1889, and is therefore covered by said deed of trust.
“(9) Because said master fails to find that all the creditors of said Southern States Land and Timber Company, including the holders of the debentures secured by said deed of trust of May 17, 1889, are entitled to share pro rata in the distribution of the property and assets of said company not covered by the deed of trust of May 17, 1889.
“(10) Because said master fails to find that the holders of the debentures secured by said deed of trust of May 17, 1889, are entitled to participate in the property and assets not covered by the deed of trust ol' May 17, 1889, in the proportion which the whole amount of the debentures and interest thereon, viz. £113.593-16s. bears to the whole indebtedness of said Southern States Land and Timber Company.
“(11) Because said master includes in the description of property upon which*718 said creditors (who have obtained judgments prior to November 4, 1895) have liens the railroad equipments o£ the Pensacola and Mobile Railroad Company, a corporation, which railroad and equipments were taken possession o£ by the receivers in this cause at the time of their appointment. Pour hundred and ninety-three shares of the capital stock of said corporation are pledged to secure the payment of the debentures mentioned and described in the deed of trust of May IT, 1889.
“(12) Because the said master has included in the property which he reports as covered by liens in favor of the intervening judgment creditors the following personal property, to wit:
I locomotive, ‘Baldwin’ o iO
1 “ ‘Shay’... t-
1 “ ‘Montour’
1 “ ‘Mooney’ in
1 caboose . <n
26 flat cars. CO
4 “
1 hand car.
1 push car.
—Although there is no testimony that the said property, or any part thereof, was in Escambia county at the time the executions in favor of said creditors were placed in the hands of the sheriff of Escambia county, Florida, or at any time thereafter.
“(13) Because the testimony of P. Iv. Yonge (the only testimony on the subject) shows that the said property was not at said time and times in said county.”
“(10) Because the said master has included, in the statement made by him of the personal property reported by him to be covered by the lien of the judgment creditors, merchandise, stocks in stores, etc., of the value of $21,888.14, although there was no testimony before the master of the amount or value of said property of the defendant the Southern States Land and Timber Company, Limited, at the date of the placing of the executions issued upon the judgments in favor of the interveners in the hands of the sheriff of Escambia county, Florida, or at any time thereafter.”
April 10, 1897, the circuit court passed its decree of foreclosure and sale in customary form, providing, in default of the debtor company’s making full payment of specified amounts, the whole of the property should be sold in the manner prescribed by the decree. This decree reserves all questions of priority among the several parties to the suit, and the method or rule of distribution of the funds arising from the sales,' and all the questions left open in the decrees on the reports of the special masters, John E. Mitchell and Richard Jones, for a future decree herein. The purpose of this decree is declared to be to direct a sale of the property in the hands of the receivers, and to procure their discharge from the management of the same, and not to prejudice the rights of any of the parties hereto. Prom this decree of April 10, 1897, and the decree of February 4, 1897, and the decree of July 27, 1896, the complainants were allowed an appeal.
From the decree of the court rendered May 30, 1896, denying the petition of James McDonnell and others leave to file demurrers to parts of the original bill of complaint, and from the decree rendered July 27, 1896, whereby the court overruled the exceptions of interveners to that part of the report of the special master, John E. Mitchell, which finds that the mill machinery at Millview, Fla., is covered by the mortgage described in the original bill of complaint, and from the decree rendered on February 4, 1897. which
Numerous errors are assigned by the appellants and by the cross appellants. . From the very nature of the case, these exceptions are fragmentary in their character, and more or less related to and dependent on each other. Taken altogether the exceptions of the appellants and of the cross appellants on the whole record, a substantial summary of which, so far as it affects the real issue in the case, we have just made, embrace and present three questions: (1) Did the interveners, by putting their claims in judgment after the filing of the original bill and the seizure of the property by the receivers, acquire an equitable lien or preference against the property of the mortgagor company not covered by the mortgage? (2) Did the mortgage bondholders have a lien on the logs, and sawn lumber made therefrom, that came into the hands of the receivers at the time they took possession or subsequently? (3) How should .the assets not subject to the mortgage or to judgment liens be distributed?
We believe that a clear answer to the foregoing questions will enable the circuit court to proceed with the administration of this estate without falling into any substantial error. It is urged that the original bill, brought by a mortgage bondholder who had not put his claim in judgment, and who sued only on his own behalf and on behalf of such oilier bondholders as should choose to come in and bear part of the expense of the litigation against the mortgagor company and the trustees in the mortgage, did not present such a case as gave the circuit court jurisdiction in equity over the property of the mortgagor company not covered by the mortgage; that the property of the mortgagor company could not be treated as a trust estate subject to administration in equity until the insolvency of the company was declared by decree; that until, either on the prayer of the complainant or on the court’s own motion, the court passed a decree calling in all creditors, such creditors could proceed at law in any court of competent jurisdiction to put-their claims in judgment against the debtor company, and thereby secure such lien upon the property of the debtor company as is given to judgments by law. It is, however, conceded that as all the property of the debtor corporation was in the custody of the court at the time the judgments at law were rendered, no legal lien could attach to any of the property. But it seems to be insisted that the judgment creditors were prevented from attaining this right by the wrongful act of the circuit court in. seiz
In regard to the second question, we concur with the learned judge of the circuit court that, “by the terms of the mortgage, the defendant had a right ‘to enjoy the mortgaged premises, and to receive the profits thereof, and to let, deal with, and manage the same in the ordinary course of business,’ which was to cut and re
Touching the third question, it is to be observed that, under the ninety-second and the eighth of the equity rules, the complainants in this case will be entitled to a'decree for any balance that may be found to be due them, “over and above the proceeds of sales” of the property on which their mortgage has been foreclosed, and to have execution issue thereon in the form used in the circuit court in suits at common law in actions of assumpsit. ■ Therefore, as to any unsatisfied balance that may remain due the complainants, after the appropriation to their demand of the proceeds of the property upon which they have foreclosed their mortgage, they are on a par with other general creditors who are or may become parties to this proceeding. Such fund, then, as shall be ascertained to- exist free from the lien of the complainants’ mortgage or other lien that may be found to have existed at the institution of the suit, must be divided pro rata among all the creditors who establish their claims, including the complainants, to the extent of the balance of their debt, if any, remaining unsatisfied after the appropriation thereto of the proceeds of the mortgaged property.
The decrees of July 27, 189C, and February 4, 1897, are hereby reversed, so far as they conflict with the views expressed in this opinion; all the other decrees appealed from are affirmed; and the cause is remanded to the circuit court, with instructions to 'so amend and modify the decrees of July 27, 1896, and February 4, 1897, as to make them conform to the views herein expressed, and to otherwise proceed in the case as equity may require; the costs of this court, including cost of transcript, to be equally divided between the appellants and the cross appellants.