Case ID: alaska-fed_3/html/0319-01.html
Source: Caselaw Access Project
Author: {"author": "GILBERT, Circuit Judge", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

169 F. 497
    NOWELL et al. v. INTERNATIONAL TRUST CO. et al. (GILLESPIE, et al., Interveners).
    No. 1,641.
    Circuit Court of Appeals, Ninth Circuit.
    April 5, 1909.
    
      George M. Nowell and Malony & Cobb, for appellants.
    Winn & Burton, for appellees Gillespie and others.
    L. P. Shackleford, T. R. Lyons, John J. Boyce, E. S. Eillsbury, and Alfred Sutro, for appellee International Trust Co.
    Before GILBERT, ROSS, and MORROW, Circuit Judges.
   GILBERT, Circuit Judge

(after stating the facts as above).

The questions involved on the appeal are: First, did the court err in postponing the payment of the compensation and disbursements of the receiver from February 12, 1898, to February 21, 1906, to the lien of the mortgage indebtedness, and to the payment of the receiver’s certificates? Second, did the court err in postponing the payment of the receiver’s certificates to the lien of the mortgage indebtedness? And, third, did the court err in denying the motion of the appellants Nowell and Clapp to set aside the decree and reopen the litigation for the purpose of making certain specified bondholders parties to the suit ?

We find no difficulty in the way of sustaining the conclusion of law which is reached by the court below — that the complaint in the suit of Decker Bros, presented no case for the appointment of a receiver. The plaintiffs in that action were simple contract creditors of the Berners Bay Mining & Milling Company. The purpose of the suit was to obtain the payment of a money demand of $154.65 for goods sold and delivered, and to protect the plaintiffs against liability on certain checks or drafts. The property of the defendants in the suit did not constitute a special fund to which the plaintiffs had the right to resort. The complaint contained no allegation that the defendants were insolvent, or that their property was in danger of loss from mismanagement. The only allegations it contained by the way of showing the propriety of the appointment of a receiver were that the output of the mines for the six months prior to the commencement of the suit was insufficient to meet current expenses, that creditors were threatening suit, that the property of the defendant companies was in danger of being wasted and exhausted, that they were in danger of becoming insolvent, and that if their property was sold at forced sale there would not be realized a sum sufficient to pay their indebtedness. Not only was the showing so made in the complaint insufficient to authorize the appointment of a receiver in the first instance, but at the time when F. D. Nowell was substituted as receiver the claims of Decker Bros, had been paid in full, and Nowell himself had made the payments. There was then no controversy between the parties to the suit. It was the plain duty of the receiver to report to the court the fact that Decker Bros. had been paid in full, and to obtain the dismissal of the suit and his own discharge as receiver. During the whole of the time from his appointment as receiver until the appearance of the International Trust Company in the suit, a period of nearly eight years, there was no con- ^ troversy before the court. If the corporations defendant to that suit chose to submit to the situation and to conduct their mining operations all those years through the medium of a receiver, they should be held responsible for the expenses of the receivership. There is no ground in equity for charging those expenses to the mortgagee, or making them paramount to the mortgage lien, or to the expenses represented by the receiver’s certificates. Not only was the claim of Decker Bros, paid, but at the time when F. D. Nowell was appointed receiver he had in his hands money sufficient to pay all the debts of the corporations except the mortgage debt, money which had been furnished him expressly for that purpose. By a collusive arrangement with his brother and other relatives, the money was diverted from the purpose for which it was furnished and was devoted to the exploitation of the mines. The operations of the receiver were financially unsuccessful. He incurred debts for which receiver’s certificates were issued, and are outstanding, to the amount of $228,700, exclusive of interest. He refused to bring a suit to acquire for the corporations whose property he controlled the group of mines known as the “Johnson group,” and thereby aided his father, Thomas S. Nowell, to withhold from ' the corporations valuable • mining claims, which, as this court has held in the case of Nowell et al. v. McBride, Receiver (C.C.A.) 162 F. 432, were in equity the property of the defendant corporations. Again, there were irregularities in the issuance of certain of the receiver’s certificates such as to invite the severest criticism. One among several of such certificates was that issued to Wallace Hackett for $5,500. It is not denied that this was issued, not for the benefit of Hackett, but for Thomas S. Nowell, to whom it was indorsed by Hackett. It was issued to repay Thomas S. Nowell his expenses incurred in assisting the receiver to secure moneys for his use and in the promotion of plans for the reorganization of the companies. On March 26, 1903, Judge Brown, then the judge of the lower court, denied Thomas S. Nowell’s petition for an order that the receiver issue a certificate in recognition of the claim. According to the testimony of F. D. Nowell, Judge Brown subsequently verbally gave him authority to .issue the certificate. There is no such order in the record. There can be no question that the claim was not a proper charge upon the properties in the hands of the receiver, as the receiver must have known. In addition to this, the receiver unlawfully issued a number of certificates to himself and to his brother for debts of the Berners Bay Company incurred prior to the commencement of the action in which the receiver was appointed. In short, the whole of the management of the properties by F. D. Nowell as receiver appears to have been for speculative purposes, and a large majority of the certificates issued by him were for the expense of exploration and development of the mining properties, evidently in the hope of making rich discoveries, in which event the Nowells and the corporations defendant would profit, and with the understanding that in case of failure to make such discoveries the expenses would be charged to the proper-' ties, to the postponement and possibly the exclusion of the mortgage bonds.

Where a receiver has unnecessarily prolonged a receivership when justice required that he be discharged and the receivership ended, or where a receiver has been guilty of misconduct in the management of the property committed to his charge, the court may, if the circumstances warrant, deny him compensation. Forrester & MacGinnis v. B. & M. Co., 30 Mont. 181, 76 P. 2; Receivership Sheets Lumber Co., 52 La.Ann. 1337, 27 So. 809; MeAnrow v. Martin, 183 Ill. 467, 56 N.E. 168; Harrison v. Boydell, 6 Sim. 211; Willis v. Sharp, 58 Hun, 608, 12 N.Y.S. 120; High on Receivers (2d Ed.) § 796. Upon-the facts disclosed in this case, it would seem that the court below would have been justified in denying the receiver any compensation whatever for his services from the time of his appointment until the appearance of the trust company in the suit. But, however that may be, we are convinced that there was no error in deferring the payment of his compensation for services during that period to the payment of the mortgage and the receiver’s certificates, and thereby imposing the burden thereof upon the corporations by whose consent and connivance the receivership was unnecessarily maintained and prolonged.

The principal question on the appeal is whether the mortgage lien is prior and superior to the receiver’s certificates. Counsel for the appellants do not contend that the mere order of the court decreeing the receiver’s certificates to be a first lien on the property could, without the consent of the mortgagee, have the effect to make them so. It was decided otherwise by this court on the former appeal in this case. International Trust Co. v. Decker Bros., 152 F. 78, 81 C.C. 302, 11 L.R.A. (N.S.) 152. But counsel point to various facts in the record which they contend show that the bondholders consented that the lien of the certificates should be prior. One of these facts is that all of the original bondholders save three were stockholders in the Berners Bay Company; but this, if true, would in no way tend to show a waiver of the priority of the mortgage lien. Again, it is said that no interest has ever been paid on any of the bonds. This fact may have been sufficient to cause the bondholders to inquire what was being done with the mortgaged property, but we do not see that the inference is to be drawn therefrom that the mortgage lien was waived. Nor can that inference be drawn from the fact that the companies consented to the appointment of the receiver. But it is said that Endicott, Hackett, Hobart, and Sawyer, who were holders of 78 of the 500 bonds, joined in a request for the appointment of F. D. Nowell as receiver. No such request appears in the record, but, assuming that it was made, it could have no effect upon the question of the priority of one class of liens to another. It is said, also that the certificates of $35,000, issued in 1898, afterwards retired by the first issue certificates of $190,000, were taken “by the bondholders in Boston”; but the evidence is that those certificates were issued to Thomas S. Nowell, and were by him assigned to Henry Endicott, a bondholder holding but 13 of the bonds. It is further said that $45,000 in case was advanced by “the bondholders” in anticipation of the first issue certificates of $190,000; but the evidence is that $20,000 of those certificates were sold to Thomas Stokes, who held 10 bonds, $10,000 thereof were sold to David L. Webster, who held 35 bonds, $5,000 to E. Hobart, who held 8 bonds, and $10,000 to Henry Endicott, who held 13 bonds. In other words, four of 30 bondholders, holding 66 of 500 bonds, received $45,000 of the first issue certificates. Assuming that these four bondholders, in view of the terms of the order of the court which made the certificates a first lien on the property, believed that the order was valid, and that in taking the certificates they acquired a lien on the property prior to that of the mortgage, their belief could have no effect upon the law of the case, nor can it be construed into assent upon their part that the mortgage should be displaced as a first lien. Much less could it have that effect upon the trustee, which held the bonds for the great majority of the bondholders.

It is said that the second issue of certificates was ordered, and the issue made, pursuant to a contract between the bondholders and the Mines Securities Company, which points to the fact that the contract must have been known and assented to by the International Trust Company, since that company was to hold the papers in escrow, and was the agent through which payments were to be made. The record shows, however, that the certificates issued under the Mines Securities contract were not of the second issue, but of the first and there is no evidence that the trust com- ' pany was a party to the agreement or had notice or knowledge thereof, or that any papers were ever placed with it, or that any payments on the contract were ever made through it. The contract was never carried out, and none of the certificates issued under it are held by the appellants in this case.

It is said, also, that of the second issue, certificate No. 2, for $15,996.29, was issued to Wallace Hackett for money payable to the International Trust Company on foreclosure of its mortgage against the American Gold Mining-Company, and that in purchasing the certificate Hackett acted as agent for the trust company, and that the latter has never disavowed his act. But there is no proof in the record that Hackett acted under authority from the trust company, or that the trust company had anything to do with that certificate, or that the certificate, is among those which are held by the appellants.

The appellants insist that by virtue of the document signed by Wallace Hackett on June 13, 1904, which they designate a “waiver,” the bondholders and the trust company are estopped to deny the priority of the receiver’s certificates. At the time when Hackett signed that instrument, the first and second series of the issues of receiver’s certificates had been issued and sold, and the waiver could not affect the rights of the holders thereof. If there was an estoppel by virtue of that instrument, it related to the certificates of the third issue only. The waiver recites that Wallace Hackett, for himself and as trustee for the bonds deposited with him, amounting in all to 498, consented to and waived all objection to the orders of the court giving the receiver’s certificates priority to the mortgage bonds. The record shows, however, that Hackett, in making that waiver acted without authority from the bondholders other than that which was given him in the contract of February 26, 1903. That contract by its terms gave him no power to waive the priority of a bondholder’s lien. On the contrary, its reasonable construction is that it imposed upon him the duty to protect the bonds. His authority was “to do and perform all things necessary for the purpose of carrying out this contract, so far as it devolves upon him,” and that authority appears in a contract, which elsewhere provides that the Nowells, who were parties thereto, should provide for the prompt payment of the receiver’s certificates. Hackett in his deposition testified that he had no recollection of having consulted with any of the bondholders prior to executing the waiver of June 13, 1904. He deposed that he did not at the time investigate the question whether the terms of the contract of February 26, 1903, authorized him to sign the waiver, and that without consulting the bondholders, or giving the matter much thought, he signed the waiver at the request of the receiver’s attorneys, and without due consideration, and at a time when it seemed unimportant whether or not there was any priority in the securities; that he never intended to jeopardize the rights of the bondholders, and had no authority to do so; and that he regarded the signing of the instrument a harmless gratification of a request of the receiver, inasmuch as it was based upon the payment of all of the certificates by the Nowells before the bonds were considered in reorganization. In fact, the waiver was signed to carry out a scheme to sell the mining properties to outside people to obtain money wherewith to pay the receiver’s certificates and to increase the capital stock, leaving the property subject to the lien of the mortgage. It is intimated by counsel for the appellants that Hackett had a motive for coloring his testimony in favor of the appellees. But whether this is true or not is not important. His testimony is but an admission of what otherwise appears in the record, that he had no authority from the bondholders or from the trust company to sign the waiver. Allusion is made to the circular letter of Hackett to the bondholders of March 31, 1903, as furnishing evidence that the bondholders assented to the waiver which Hackett subsequently signed. That letter, it is true, expresses the opinion of the writer that the bonds are worthless, and that the bondholders are menaced with the danger that the receiver may sell the property, “thus cutting them off entirely.” This was but the expression of the writer’s view of the rank of, the liens, and the fact that in response thereto the bondholders sent-him their bonds in order to consummate the contract of February 26, 1903, cannot be deemed an assent to any of such statements so made in the letter.

Before an estoppel can arise, it must appear that the person invoking it has been influenced by and has relied upon the acts or conduct of him who is sought to be estopped, and that those acts and conduct were sufficient to warrant reliance and action thereon. In the present case there is entire absence of proof that the appellants purchased or received any of their certificates in reliance upon any act or conduct of the trust company or of the bondholders, or that they were in any way misled' or influenced thereby. The fact that the trust company delayed the foreclosure of its mortgage so many years cannot operate to displace its prior lien. In order to subordinate the receiver’s certificates to the vested lien of a mortgage, the proof of the assent of the trustee, or of the bondholders thereto, must be tangible and certain. Farmers’ Loan & Trust Co. v. Centralia & C. R. Co., 96 F. 636, 37 C.C.A. 528; Belknap Sav. Bank v. Lamar Land & Canal Co., 28 Colo. 326, 64 P. 212.

It is assigned as error that the court did not of its own motion require certain of the bondholders to be made parties to the suit, and that the court overruled the motion of the appellants to set aside the decree and make said bondholders parties so that complete justice might be done between the certificate holders and the said bondholders. The motion was made four months after the opinion of the court below was filed, and two months after the findings and decree had been entered, and long' after the time for moving for a new trial had expired. The answer of F. D. Nowell, the cross-complaint of the Berners Bay Company, the answer of McBride, receiver, and the petition of intervention of Nowell and Clapp, raised the issue as to the priority of the receiver’s certificates over the mortgage. In none of the pleadings was any issue presented as to any specific bonds or any individual bondholder. These pleadings were filed about a year and a half before the decree was rendered. The appellants had ample opportunity to make timely application to bring in additional parties, and no excuse is suggested for their delay. Under the circumstances, we are clearly of the opinion that the trial court committed no error in not, of its own motion, bringing in new parties, and that it was no abuse of the discretion vested in the trial court to deny the application to set aside the decree.

It is said that it appears that the court below reached the conclusion that Thomas Stokes, D. L. Webster, Henry Endicott, Wallace Hackett, F. D. Slade, F. S. Landon, and George K. McLeod, bondholders, waived the priority of their bonds to the receiver’s certificates, but this is not sustained by the record. In the opinion the court alluded to the effort to prove estoppel against said bondholders, because of the fact that they had purchased certificates and thereby waived the priority of their bond lien, and said: “The answer to that is that none of these persons are made parties to this suit. No issues are presented in the pleadings upon which they were required to come before the court. They have not individually had their day in court, and no judgment ought to go against them without notice.”

From this language of the opinion, we are not warranted in drawing the conclusion that the court found in the facts disclosed by the evidence proof whereon to hold those particular bondholders estopped. The motion for leave to bring in additional parties was based upon two grounds: First, that the said bondholders procured and consented to the issuance of receiver’s certificates; and, second, that they consented to the orders of the court adjudging those certificates superior liens to the mortgage. Even if the motion below had been presented in apt time, before we would be justified in saying that it was error to deny it, we must find in the record some ground for holding that, if it had been allowed, a different decree might have been rendered. The appellants, in making their motion, offered no suggestion of new proof to be taken to substantiate the defense of estoppel. It was a motion to set aside the decree and to bring in new parties, so that, upon the evidence submitted, the court might render appropriate relief. On that evidence, as we find it upon a careful examination, there is no sufficient proof that the bondholders so named consented that the receiver’s certificates should displace the mortgage lien. But the question whether the court erred in denying the application is not properly before us. Where the appeal is from the final decree only, an order subsequently made denying a motion to set the decree aside cannot be reviewed by an appellate court. 3 Cyc. 229; Second Natl. Bank of St. Paul v. Larson, 80 Wis. 469, 50 N.W. 499; Leary v. Leary and Wife, 68 Wis. 662, 32 N.W. 623; L. S. & M. S. Ry. et al. v. C. & W. I. R. R., 100 Ill. 21; Pennsylvania Co. v. Gresco, 79 Ill.App. 127; Kellogg v. Hamilton, 43,Mich. 269, 5 N.W. 315; Aultman Miller Co. v. Becker, 10 S.D. 58, 71 N.W. 753.

The decree is affirmed.