Court Opinion

ID: 6898359
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:52:19.160853+00
Date Added: 2024-06-11T16:06:04.801081
License: Public Domain

Decided 12 May, 1900.
On the Merits.
Mr. Justice Bean
delivered the opinion of the court.
On or about October 5, 1893, the defendant, the Victory Placer Mining Co., a corporation organized under the laws of the State of Illinois, purchased of the appellant Nash certain placer mining ground in Douglas County, and issued and delivered to him in part payment therefor $90,000 in bonds, secured by a first mortgage on the property. The company immediately thereafter entered into possession of the mine, and continued to operate it until November 18, 1896, when, being insolvent, and unable to meet its obligations, S. W. Blaisdel was appointed receiver, and as such took charge of all the property of the corporation. At the time of his appointment the corporation was indebted to divers and *327sundry persons for labor and supplies furnished and used in operating the mine in the aggregate amount of $7,013.09, claims for which were afterwards presented to and allowed by the receiver. On December 21, 1896, Nash presented to the receiver his claim, duly verified, wherein he stated that in July, 1894, in a suit against the defendant corporation, it was decreed that the bonds held by him were given in part payment of the purchase price of the property, and were a first lien thereon, prior in time and right to the other bonds described in.the mortgage and to all other indebtedness of the corporation. On April 23, 1897, the receiver, under an order of the court, sold the property of the corporation to Frank B. Smith, the agent and representative of certain of the bondholders, for $50,000, and the sale was confirmed. On February 21, 1898, the court ordered the proceeds of the sale applied — first, to the payment of the expenses of the receivership; second, to- the payment of the unsecured claims for labor and supplies furnished prior to the appointment of the receiver ; and, third, the balance to Nash, except $3,500, which the receiver was directed to hold until the final determination of certain proceedings then pending against him.
Thereafter, on June 9, 1898, upon the application of one of the unsecured, but preferred, creditors, the court ordered the receiver to pay into court within thirty days the amount due the labor and material claimants. On July 2, 1898, Nash appealed from the order of distribution, whereupon the receiver refused to pay the money into court, and on December 5, 1898, an order was made removing him from office, and requiring him to pay into court within ten days the sum of $50,000, the proceeds of the property sold by him, less $3,497.46, costs and expenses of the receivership as allowed by the court. Thereafter Nash, certain of the other creditors of the cor*328poration, and the receiver separately moved the court for a revocation of the order removing the receiver, and requiring him to pay the money into court, and in support thereof the receiver filed a report to the effect that, although he reported the sale as made for cash, no money was in fact paid, for the reason that the real purchasers were John Addison, William L. Breyfogle, and E. N. Camp, who, together with Nash, at the date of the sale owned all of the first mortgage bonds of the corporation except $2,500, and all the other claims filed with the receiver, except the unsecured claims preferred by the order of distribution ; that at the time of the sale it was agreed between such parties and the receiver that the amount of the bonds and claims held by them should be considered as an offset against any bid they should make or cause to be made for the property, so far as they should be adjudged valid by the court, and that Addison and Camp would advance and pay to the receiver from time to time all sums necessary to defray the expenses of the receivership, and which should be decreed by the court to be disbursed for any purpose whatever; that in pursuance of such agreement they paid to the receiver all expenses of the receivership and disbursements theretofore allowed by the court and directed to be paid, and had paid to Nash on his bonds the sum of $36,804.23 ; that the receiver never actually had in his hands any sum of money, except as needed to pay expenses and the disbursements allowed and directed by the court to be paid, but treated the sale as cash for the reasons already stated, and therefore at no time had it been, or was it then, possible for him to comply with the order, and pay into court the amount of the bid, or any part thereof. An order was thereafter made allowing the receiver credit for $36,804.23, paid to Nash on his claim, and for which he filed a receipt; but .the *329court refused to revoke the order removing him, and he appeals.
3. The unsecured, but preferred, creditors in the order of distribution of February 21, 1898, have filed a motion to dismiss the appeal of Nash on the ground that he had no appealable interest at the time it was taken. The evidence bearing upon this question is not in the record, but the fact is sought to be proven here by the affidavit of counsel, from which it appears that on the twenty-seventh of November, 1896, Nash entered into an agreement with John Addison to sell to him the bonds of the defendant corporation which he (Nash) held; that, after Nash had presented his claim to the receiver, and it had been allowed, and before the order of distribution, this contract was consummated, and the bonds sold and transferred by Nash to Addison. It is quite well settled that evidence of facts outside of the record, occurring after the rendition of the judgment in the court below, and which affect the proceedings of the appellate court, when deemed necessary, will be received and considered by such court for the purpose of determining its action : Ehrman v. Astoria Ry. Co. 26 Or. 377 (38 Pac. 306); Dakota County v. Glidden, 113 U. S. 222, 28 L. Ed. 981 (5 Sup. Ct. 428); Elwell v. Fosdick, 134 U. S. 500, 33 L. Ed. 998 (10 Sup. Ct. 598). But the record of the court below, upon which the appeal is based, cannot be contradicted or varied by an ex parte showing in the appellate court. From the affidavit filed in support of the motion to dismiss it appears that Nash sold and transferred the bonds, if at all, prior to the final decree of distribution in the court below ; hence the effect of the showing made here is to contradict the order adjudging and decreeing that at the time of the distribution he was the owner of the bonds in question, and as such entitled to receive a share of the proceeds of the property. We are of the opinion, therefore, *330even if it be conceded that the transfer by a party of his interest in the subject-matter of pending litigation requires the substitution of his successor in interest, and the subsequent proceedings to be had in his name (a question at least doubtful under pur statute), Elliot v. Teal, 5 Sawy. 188 (Fed. Cas. No. 4389), that the motion in this case must be denied, because it is an attempt to contradict the record of the court below.
4. The remaining question, so far as Nash’s appeal is concerned, is one of priority in the distribution of the proceeds of mortgaged property in the hands of a receiver between a mortgagee and unsecured claimants for labor and supplies furnished the mortgagor prior to the appointment of the receiver, and after the execution and recording of the mortgage. It is sought to sustain the decree of the court below by invoking the rule that the court appointing a receiver may, under certain circumstances, order and direct the payment of debts for labor or supplies contracted by a corporation within a limited period before the appointment of the receiver. But this doctrine is peculiar to railroads, and is nowhere applied, so far as we have been able to ascertain, to an ordinary corporation. It may be regarded as settled that, under special circumstances, the court appointing a receiver for a railroad may direct the payment out of the earnings of the road, or the corpus of the property, of a certain class of ante-receivership debts, notwithstanding the prior lien in favor of the mortgage bondholders : 20 Am. & Eng. Enc. Law (1 ed.), 417. But “this doctrine rests,” says Mr. Chief Justice Wolverton, “upon the ground that the maintenance of the road and the prosecution of its business are essential to the preservation of the mortgage security. The primary object is to keep the enterprise a going concern, from considerations of both public and private interest McCornack v. Salem St. Ry. Co. 34 Or. *331548 (56 Pac. 518). And Mr. Smith, in his work on Receiverships, says : “The reasons for these rules are that a railroad is a public concern, and is operated and kept in motion for the benefit of stockholders, mortgage bondholders and the public, all of which are interested in it as a going concern Smith, Rec. 575. The power of a court to appoint a receiver in a proper case is undoubted, but it has no general authority by reason thereof to affect vested rights, or the contract obligations of the parties.
“The appointment of a receiver,” says Mr. Justice Brewer, “vests in the court no absolute control over the property, and no general authority to displace vested contract liens. Because in a few specified and limited cases this court has declared that unsecured claims were entitled to priority over mortgage debts, an idea seems to have obtained that a court appointing a receiver acquires power tp give such preference to any general and unsecured claims. It has been assumed that a court appointing a receiver could rightfully burden the mortgaged” property for the payment of any unsecured indebtedness. Indeed, we are advised that some courts have made the appointment of a receiver conditional upon the payment of all unsecured indebtedness in preference to the mortgage liens sought to be enforced. Can anything be conceived which more thoroughly destroys the sacredness of contract obligations? One holding a mortgage debt upon a railroad has the same right to demand and ■ expect of the court respect for his vested and contracted priority as the holder of a mortgage on a farm or lot. So, when a court appoints a receiver of railroad property, it has no right to make that receivership conditional upon the payment of other than those few unsecured claims which, by the rulings of this court, have been declared to have an equitable priority. No one is *332bound to sell to a railroad company or to work for it, and whoever has dealings with a company whose property is mortgaged must be assumed to have dealt with it on the faith of its personal responsibility, and not in expectation of subsequently displacing the priority of the mortgage liens. It is the exception, and not the rule, that such priority of liens can be displaced. We emphasize this fact of the sacredness of contract liens for the reason that there seems to be growing an idea that the chancellor, in the exercise of his equitable powers, has unlimited discretion in this matter of the displacement of vested liens Kneeland v. American Loan Co. 136 U. S. 89, 97 (10 Sup. Ct. 953).
It will thus be seen that the right of a court appointing a receiver to give priority of payment to unsecured debts over the lien of a mortgage is restricted to creditors of railroads which are public concerns, and is only exercised as to them under special circumstances, and in favor of a particular class of claims. As between creditors by mortgage and general creditors, the former are entitled to priority of payment out of the mortgaged property by virtue of their contracts and the law of the land, and the court has no authority to disregard their contract rights. It was so held even where a court had authorized a receiver, in order to prevent a threatened destruction of property, to borrow money for the purpose of paying unsecured debts, and to issue certificates therefor, containing on their face a declaration that they were issued for “a debt of the receiver incurred for the benefit and protection of the property in his hands, and a first lien thereon prior to the mortgage Raht v. Attrill, 106 N. Y. 423 (60 Am. Rep. 456, 13 N. E. 282). See, also, Phillips v. Wise (Tex. Civ. App.), 31 S. W. 428. It follows, therefore, that the order of the court below giving to the unsecured claims for labor and supplies, however meritorious, priority over *333the holders of the first mortgage bonds in the distribution of the proceeds of the mortgaged property, finds no support in the law, and cannot be sustained without destroying the sacredness of a contract obligation.
It is contended at the hearing that the mortgage did not cover all the mining property sold by the receiver ; but there are no facts in the record upon which to base this contention. Indeed, the record indicates that the entire property was covered by the mortgage. It is so stated in the petition for the appointment of the receiver, the receiver’s report, and in Nash’s claim as filed with and allowed by the receiver.
5. A motion was also made to dismiss the appeal taken by the receiver on the ground that a receiver has no right of appeal from an order requiring him to pay funds in his hands into court. As a general rule, this is probably true; but it is held that, when the order erroneously fixes the amount of the property in his hands, and directs him to turn over more than he has in his custody, it is essential to the protection of his rights that he be allowed an appeal, and the law gives its sanction thereto : How v. Jones, 60 Iowa, 70 (14 N. W. 193). But, as the conclusion we have reached in reference to the distribution of the fund disposes of the interests of the contesting creditors, it is unnecessary to determine in this suit when and under what circumstances, if at all, a receiver may appeal from an order removing him.
It follows from the foregoing that the decree of the court below as to the distribution of the fund must be reversed, and a decree entered here directing its payment to the holders of the first mortgage bonds, less the unpaid costs and expenses of the receivership, to be ascertained and allowed by the court below. Reversed.