Court Opinion

ID: 9586845
Source: CourtListenerOpinion
Date Created: 2023-08-21 23:15:50.511123+00
Date Added: 2024-06-11T17:32:54.035524
License: Public Domain

Oxner, Justice
(dissenting).
*318The result of the majority opinion is that in a receivership proceeding, a holder of a past due chattel mortgage is entitled either to the possession of the property mortgaged or to an order requiring the receiver to immediately sell same for the purpose of satisfying the debt, notwithstanding the fact that there may be considerable equity in the property and the rights of the mortgagee are fully protected by the Court pending the liquidation of the assets. It is said that a Court of Equity has no discretion in the matter because every right of the lienholder denominated in the bond must be rigidly enforced. The disastrous effect of such a rule on the orderly and just administration of receiverships in this State is apparent. Neither sound reason nor authority justifies such a harsh doctrine.
No one questions the general rule that the appointment of a receiver does not change any existing contractual relations or disturb valid liens but, on the contrary, all such hens are recognized and preserved. But that is far from saying that the parties are left to the same remedies as existed before the jurisdiction of the Court attached and that such lienholders may proceed to enforce their liens or contracts in the manner prescribed in the instruments creating them. The remedy may be altered without impairing the obligation of the lienholder’s contract so long as adequate provisions are made by the Court for the protection of his rights. Everyone who takes a mortgage takes it subject to the contingency that a receivership proceeding or a proceeding in bankruptcy against his mortgagor may deprive him of the specific remedy which is provided for in his contract. As stated by the Court in Re Wagoner, D. C., 206 F. 789, 792: “There is no principle more uniformly recognized and rigidly enforced by the courts than that valid hens, untainted by fraud, shall not be disturbed by the institution of bankruptcy proceedings. But this has reference entirely to the validity and obligation of the contract, and not to the remedies for enforcing the lienholder’s rights. These can be changed without impairing the obligation of the contract.”
*319The receiver represents no particular creditor. It is his duty to manage the property and administer the estate for the best interest of all parties. It is not infrequent that some of the assets are mortgaged or subject to other liens. Ordinarily if the amount of the lien exceeds the value of the property, it should be relinquished to the lienholder or sold to satisfy his debt. But where there is a substantial equity, the Court has broad powers in determining when and how the property shall be sold so as to protect the interests of all creditors, both secured and unsecured. There are occasions when sound principles of equity require that a sale be effected and the proceeds administered by the receiver under the supervision of the Court rather than by some secured creditor whose only concern is the satisfaction of his own claim. Western Powder Mfg. Co. v. Interstate Coal Co., D. C., 13 F. Supp. 77.
The foregoing principles were recognized by this Court in James Freeman Brown Co. v. Harris, Receiver, 88 S. C. 558, 70 S. E. 802. In that case a receiver was appointed for a cotton mill and creditors called in. A secured creditor brought an action against the receiver to recover possession of 189 bales of cloth, produced by the mill and which had been consigned and pledged to said creditor as security for money advanced thereon. In holding that this creditor, although having a lien on the goods, was not entitled to recover possession from the receiver, the Court said “They were in the actual possession and custody of the receiver who held them for the benefit of all concerned. There are cogent reasons why a creditor who has only a lien upon goods, should not be allowed to take them out of the hands of a receiver. One of the purposes of a receivership is that the assets shall be held in impartial hands, that the proceeds may be administered according to the priorities of the claims thereto. This purpose would be thwarted if any creditor who has a lien upon a particular asset is allowed to take it out of the hands of the receiver and administer it himself. The re-cciver might thereby be driven to numerous suits for ac*320counting for any surplus in the hands of such creditors, after satisfaction of their liens, and the estate would be squandered in useless litigation, which it is one of the objects of a receivership to avoid.” (Italics mine.)
The precise question before us was passed upon by the Court of Appeals of Ohio in Frye v. MacWilson, 39 Ohio App. 158, 177 N. E. 232. In that case the assignees of a past due mortgage on a hearse brought an action against the receiver of the mortgagor, an undertaking establishment, for the possession of a hearse. The plaintiffs contended that as a matter of law they were entitled to the possession of the mortgaged property immediately upon default in payment. In denying the right of the assignees of the mortgage to immediate possession, the Court said: “The law seems to be that the appointment of a receiver for the mortgagor may or may not affect this right. It seems to be clear that although such a receivership is ordinarily not permitted to interfere with the priority of the mortgage lien it may quite properly affect the method by which such lien may be asserted, especially in cases in which the evidence does not show that the value of the mortgaged property 'is less than the unpaid portion of the debt. In other words the mortgagee may be required to file his claim with the receiver and allow the property to remain in custodia legis, so that the receiver may have the opportunity of attempting to effect a sale for an amount in excess of the mortgage debt, and thereby realize something for the benefit of other creditors as well as paying in full any valid claim of the mort-OTcrpp
The facts in the instant case are: In September, 1948, the Star Cleaners and Laundry purchased a cash register from the National Cash Register Company for $640.00, making a down payment of $110.00 and securing the balance of $530.00 by a title retention contract or chattel mortgage, to be paid in monthly installments of $45.00. There remains unpaid the sum of $350.00. In January, 1949, *321another cash register was purchased for $1,227.00, a down payment made of $485.00 and the balance of $742.00 secured by a similar lien, payable $60.00 monthly. The balance due on this paper is $727.00;
In March, 1949, a receiver was appointed for the Star Cleaners and Laundry with authority to temporarily operate said business as a going concern. It appears that the business was operated at a profit. On October 13, 1949, the receiver was directed to pay $50.00 per month on the mortgages held by the National Cash Register Company. Under this arrangement these mortgages would have been paid in full in a little less than two years. From the net operating income, the Court also authorized payments to be made on various other secured claims. The National Cash Register Company declined to accept the above monthly payments and in December, 1949, filed a petition asking for immediate possession of the cash registers. A hearing was had and by order dated January 10, 1950, the petition was refused but the receiver was directed to pay to petitioner, in addition to the monthly payments above mentioned, 5% on the decreasing monthly balances. Petitioner’s general manager testified that the life of these machines was approximately ten years. The receiver alleged in his return that petitioner had agreed to enter into a new contract providing for the payment of its indebtedness in monthly' installments of $60.00, provided a carrying charge of $105.12 was paid. The payments authorized by the Court were only slightly less than the payments contemplated by' this proposal.
There is no showing by petitioner that its indebtedness represents the full value of the cash registers. It is reasonable to infer that there is a substantial equity. There is no contention by petitioner that the payments authorised by the Court should have been larger or that there was otherwise any abuse of discretion. Petitioner’s sole contention is that the Court had no discretion except to surrender the property *322or authorize an immediate sale to pay its indebtedness. I do not think this contention is tenable.
The suggestion is made that petitioner should have been given notice and an opportunity to be heard by the Court on the question of authorizing the payment of its indebtedness in monthly installments. This question is academic, however, in view of the fact that petitioner was later fully heard on the matter.
I would affirm the order of the lower Court.
FishburnE, J., concurs.