Court Opinion

ID: 8752415
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:32:10.124829+00
Date Added: 2024-06-11T17:01:02.253506
License: Public Domain

BAKER, Circuit Judge,
after stating the case as above, delivered the opinion of the court.
The bill was against the mortgagor corporation alone. It appeared and consented to the appointment of a receiver. It thus virtually confessed at the beginning, as it did explicitly in the foreclosure decree, its insolvency, the lack of other property, and the insufficiency of the mortgaged estate to pay appellant’s bonds. By this action, and by voluntarily turning over the plant to the receiver, the mortgagor impregnably established, as against itself, that at the time the bill was filed its right of possession had ceased. And the facts respecting insolvency, inadequacy of the security, and the nature of the property would have warranted the court in taking the possession away from the mortgagor over its resistance. Kountze v. Omaha Hotel Co., 107 U. S. 378, 2 Sup. Ct. 911, 27 L. Ed. 609; Grant v. Phœnix Life Ins. Co., 121 U. S. 105, 7 Sup. Ct. 841, 30 L. Ed. 905; First National Bank v. Illinois Steel Co., 174 Ill. 140, 51 N. E. 200.
In the original order of appointment the receiver was authorized to collect the rents, issues, and profits of the trust estate. But there were none, for the plant was held and run by the mortgagor until surrendered to the receiver. If; however, after the suit was pending and Before the receiver was appointed, the mortgagor had leased the plant, it would have been the duty of the receiver under the original order not only to seize the corpus, but to collect the rents, and, the insolvency of the mortgagor and the inadequacy of the security being established, to apply the net income, under the court’s direction, upon the remainder of the mortgage debt.
When the judgment creditors, a year later, came into the case, they adopted the situation as it then existed. They joined the mortgagor in asking the court, through its officer, the receiver, to operate the plant. That presented an administrative question for the court to solve as it thought for the best interest of all the parties. And in the absence of waiver or estoppel, the fruits of possession should go according to priority of right of possession, no matter what party presented the administrative question. Daniell’s Chan. Prac. (6th Am. Ed.) 1740; Miltenberger v. Logansport R. Co., 106 U. S. 286, 1 Sup. Ct. 140, 27 L. Ed. 117; Cross v. Will County Nat. Bank, 177 Ill. 33, 52 N. E. 322; Williamson v. Gerlach, 41 Ohio St. 682.
*743The judgment creditors assert that a waiver or an estoppel arose against appellant by its filing its objections to the petition for the operation of the plant. The first two grounds of objection showed that the receiver could not operate the plant without a further order from the court. This was recognized as true by the appellees and the court, and no party has since changed his attitude with respect to that fact. The third ground raised the question whether, the mortgagor being insolvent and the security inadequate, the court could lawfully operate a private manufacturing plant over the objection of the mortgagee whose right of possession had ripened. Surely a party is not to be penalized for propounding a question of law which the court thinks is either unsound or irrelevant under the circumstances. The fourth urged the court not to imperil the already inadequate security by allowing receiver’s certificates or expenses of' operation to become liens ahead of the mortgage. And the court accordingly limited the order. These objections of appellant did not create an estoppel in favor of the judgment creditors. Appellant’s representations were made to the court, not to them. They took no steps relying upon assurances by appellant. And the order was made despite the objections. Nor did appellant’s opposition to the operation of the plant constitute a waiver of its claim arising from its priority of right of possession. Appellant said to the court, in effect: “The receiver cannot operate the plant unless the original order of appointment is broadened. That should not be done, because you have no right to run the plant; but, if you think otherwise, you ought not to create liens ahead of mine.” This was far from saying: “If you sustain my objections, these judgment creditors, of course, will get nothing; but if you overrule them, I, who equitably am the owner and entitled to the possession of this plant, agree that the judgment creditors shall have all that may be made and I will bear the loss from depreciation.”
Appellees say it was an “open secret” in the court below that appellant is a “trust,” and that its opposition was inspired by its wish to prevent the product of this plant from coming into competition with' its goods. Even if this was established by the record, it would be irrelevant. A court should act upon the merits of demurrers, motions, and objections, and not upon the purposes of parties in presenting them.
It is claimed that the judgment creditors made an “equitable levy” upon the rents, issues, and profits by filing their petition for the operation of the plant. When the petition was filed there was nothing to seize but the corpus, and it equitably belonged to appellant, and was already in the hands of the court to be devoted to the payment of appellant’s bonds. The judgment creditors did not file the petition. They joined the appellee mortgagor in asking that the plant be operated. If the mortgagor alone had presented the same facts, the court, viewing the situation as it did, probably would have made the same order; and then it would scarcely be said that the mortgagor should be paid the rents, issues, and profits in preference to the mortgagee. How the equities are changed by the joinder of the judgment creditors, who claim through the mortgagor, is not ap*744parent to us. And, at all events, the petitioners did not present the issue that they were entitled to the fruits of possession despite the insolvency of the mortgagor and the inadequacy of the trust estate; but, on the contrary, they explicitly represented to the court that in their judgment the plant* if operated, would bring enough to pay the mortgage debt in full, and leave something over for other creditors. On that basis the order was secured.
Finally, as a technical obstacle to reversal, appellees insist that appellant can have no relief, because a deficiency decree was not, and could not be, entered in its favor. If a deficiency decree could properly be entered in favor of a bondholder in a suit by the tru'stee, ap-i pellant made its motion promptly, and is not to be prejudiced by the court’s passing over the matter and entering an adverse final decreé of distribution. But this is not a case in which it is necessary to" have a deficiency decree (equivalent to a judgment at law) under which by an execution the marshal may bring outside property into court. The fund in controversy was already in court in the very cause in which all the contestants were appearing.
The decree is reversed, and the cause is remanded, with the direction to award the fund to appellant.