Court Opinion

ID: 3435488
Source: CourtListenerOpinion
Date Created: 2016-07-05 20:08:07.063239+00
Date Added: 2024-06-11T13:35:00.558396
License: Public Domain

With great respect for the conflicting views of my Brothers, I am constrained to dissent from the majority opinion. I am more concerned for the ground of the opinion than for the result of it. The case involves the relation sustained by the superintendent of banking, as the receiver of an insolvent bank, to the assets of that bank and to the creditors thereof.
The ground of the opinion in the case at bar is not very definitely stated, but is a matter of inference to some extent from the result reached. In order to reach such result, the opinion does definitely overrule the case of Schlesselman v. Martin, 207 Iowa 907, *Page 967 223 N.W. 762, 763. This is the particular feature of the opinion to which my dissent is directed. I think that such overruling order must later involve us in inconsistency and in fundamental error. I direct my first attention therefore to the Schlesselman case. That case involved a controversy between Andrew, receiver of an insolvent bank, and a foreclosing mortgagee of real estate over the right of leasehold under a written lease. The insolvent bank was Parnell Savings Bank. Decree was entered on April 14, 1927, declaring said bank insolvent and appointing the superintendent of banking as statutory receiver thereof. On the same date the statutory receiver took dominion of all the property of the insolvent. This property included a mortgaged farm. The tenant, Hahn, was in possession of the farm under a one-year lease made in December, 1926. The lease and the rent notes were turned over to the receiver as a part of the assets of the estate. On June 13, 1927, the mortgagee brought his foreclosure action and claimed the rents and profits for the ensuing year. We held, in substance, that the right of the receiver had attached to the lease on April 14, and that the lien of the mortgage had not attached thereto at that time; that, inasmuch as the receiver took subject to existing liens only, the prospective lien claimed by the mortgagee as of June 13, 1927, could not relate back to the supplanting of the rights that had already vested in favor of the creditors of the insolvent. It is now claimed by the opinion in the case at bar that the decision, and the ground thereof, in the Schlesselman case, were erroneous; that, in so far as the receiver is a representative, he is primarily a representative of the debtor, and the debtor's debtor, rather than a representative of the creditors; that in relation to the property of the insolvent, the receiver becomes its owner and stands in the shoes of the former owner. I disagree with such pronouncement. In the Schlesselman case we said:
"The receiver is something more than the representative of the debtor. He is the representative also of the creditors. Indeed he is primarily such. He may assert, as against the debtor, and those claiming under him, any right, which the creditors themselves could have asserted. We think his position is necessarily analogous to that of a creditor, who had taken the rent notes either as payment or security of a debt. In such a case the subsequent right accruing to the mortgagee to assert a lien, under his receivership clause, will not relate back so as to defeat the creditor, who already has a lien *Page 968 
upon the subject-matter. Our recent case of Lynch v. Donahoe [205 Iowa 537], 215 N.W. 736 [218 N.W. 144], is quite conclusive on this point. In that case we allowed a second mortgagee to take priority over a first mortgagee as to the rents and profits, because he asserted and acquired his lien first. This is the logical result of our holding that the receivership clause is merely remedial, and that it is not a present lien upon the crops or rents, but becomes such only as a part of the remedy in event of foreclosure. If Martin, or the Parnell Savings Bank, had rented this land to Andrew for the redemption period, he could have held it by right superior to the claim of the mortgagee. If Andrew, as such lessee, had sublet the farm to Hahn for an agreed rental, he could have held such rental.
"The necessary effect of the receivership was to convey to the receiver all the property of the bank of whatever kind, subject only to plaintiff's lien. Whatever rights the receiver acquired by such transfer, on April 14, 1927, may not be defeated by the assertion of a later lien under the receivership clause. The plaintiff had no lien on the rents and profits at the time of such transfer.
"This proposition is not affected by the fact that the receiver took subject to the mortgage. In the Lynch case, the second mortgage was subject to the first one. Nevertheless the mortgagee was permitted to retain the lien which he acquired by his prior proceeding."
It will be noted that the lease and rent notes involved above could have been transferred at any time prior to April 14, 1927, by the bank to any creditor and that such transfer would have taken priority over any alleged lien of the mortgagee at that time. If the receiver may be deemed primarily as the representative of the creditors of the insolvent, it would seem to follow logically that he, as such receiver, could have taken the lease and the notes for the benefit of all the creditors as effectively as a single creditor could have taken the same from the bank itself, before insolvency. Such is the controlling point in the Schlesselman case. The basic proposition of the majority opinion herein is:
"It is apparent, therefore, that, at the time this proceeding was commenced, Andrew, as receiver, was the fee title holder of said property, subject to the mortgage of the plaintiff."
It is further argued that the receiver stood in the shoes of the *Page 969 
mortgagor and that he could set up no other or superior right than the mortgagor himself could have done. The result of this reasoning is to deny any and all legal effect to the priority ofdate upon which the receiver took dominion of the property. Up to April 14, the mortgagee had asserted no right in the rents and profits. His lien had not attached. If a single creditor could have acquired this asset before insolvency, then it would seem to follow that the receiver could acquire it upon insolvency provided he is to be deemed as representative of the creditors of the insolvent. The answer to this question, as made in the majority opinion, is that the receiver became the owner of said property, "the fee title holder", and that he stood on an equality with the former owner, — not as of the date that he seized the property, but as of the later date when the mortgagee asserted its lien. In my judgment one of the fallacies of the argument is to assume that the receiver becomes the owner of the property. If a sheriff becomes the owner of the property, which he seizes under process, for the purpose of sale, then it might be said by analogy that a receiver becomes likewise the owner of the property of which he takes dominion for the purposes specified in the statute. Surely, however, the sheriff does not
come into any ownership of property held under process; nor, for the same reason, can the receiver be said to come into ownership of the property, which is committed to his dominion. I submit that the Schlesselman case presents the true answer to this question. A receivership is a mere statutory method of sequestering the property of the insolvent debtor for the benefit of his creditors. Such sequestering, when accomplished, is as effective as when done by any other process. The dominion of the receiver becomes exclusive so far as subsequent rights are concerned. No new lien can arise and attach itself to the property thus sequestered. The receiver took dominion of the property subject to existing liens, and not subject to any future
one. The lien now claimed by the mortgagee had not accrued to him on April 14, 1927.
I have no purpose herein to go into the merits of the doctrine, thoroughly established, that the receivership provisos in the mortgages, which we have had under consideration, are remedial only, and that they come into force and effect only as a part of the remedy. The cases on this subject are not confined to ours. Cases decided prior to about 1920 may be found collated and reviewed in large numbers in Sullivan v. Rosson, 223 N.Y. 217,119 N.E. 405, *Page 970 
4 A.L.R., pages 1400-1412, and a later supplemental list including our own cases may be found in Beindorf v. Thorpe, 126 Okla. 157,259 P. 242, 55 A.L.R. 1020 et seq.
The fundamental proposition for which I am contending here is that the statutory receiver of an insolvent bank is primarily a representative of the creditors of such insolvent; that his seizure and dominion of the property of the insolvent is done primarily for the benefit of such creditors as a body; and that he had the same right to take and receive for the benefit of the body of creditors, the lease and rents in question, as any creditor would have had in his own behalf if no receivership had occurred. In support of this contention I bring into this discussion excerpts from a leading case, Blackman v. Baxter, Reed Co., 125 Iowa 118, 100 N.W. 75, 70 L.R.A. 250, 2 Ann. Cas. 707. This case deals with the question of trustees, administrators, and receivers and the relation they sustain to the creditors, and beneficiaries of their trusteeships.
In that case a suit was brought by the administratrix to set aside an alleged fraudulent conveyance executed by the decedent shortly before he died. Defense was offered that the rights of the administrator could rise no higher than those of her decedent and that the deed was binding upon the decedent, and therefore on the administrator, as such. The defense was not sustained. On the contrary, it was held that the primary function of the administrator was to protect the creditors of the estate and that she was their representative for that purpose. In the course of the discussion in the opinion it is made to appear that the rule invoked applies alike to administrators, receivers, trustees, and assignees for the benefit of creditors. I quote sufficient from the opinion of Mr. Justice Ladd in that case to indicate its strong support of the principle laid down in the Schlesselman case:
Quoting (page 121 of 125 Iowa, 100 N.W. 75, 76):
"The interest of the heirs in an insolvent estate is purely technical. It is held by the administrator solely for the discharge of the debts of the deceased. This was recognized in Cooley v. Brown, 30 Iowa 470, where, in holding that an administrator might maintain an action to set aside the conveyance of deceased because voluntary or fraudulent, the court said:
"`Ordinarily, it must be true that an administrator can maintain only such actions at law as the intestate might if living. This *Page 971 
must be invariably so in all actions for the enforcement of rights grounded upon the inheritance. So far as the administrator represents the heirs and the actions brought by him are to secure their rights and interests, he must be limited to such as the decedent himself might have maintained. But under the general statutes relating to the distribution of estates and the duties of administrators the latter are charged with certain trusts in favor of the creditors of the estate. They are required to collect the assets, and to pay them over to the estate creditors. Whatever ought to be applied to the payment of debts ought to be recoverable by the administrator, representing the rights andinterests of the creditors.'"
Quoting (page 122 of 125 Iowa, 100 N.W. 75, 76):
"Thus in Graham Button Co. v. Spielmann, 50 N.J. Eq. 120,24 A. 571, the court held that the moment a corporation is declared insolvent, and a receiver appointed to wind up its affairs, the legal effect of the statutes regulating such matters was to fasten the debts of the corporation upon its property; saying:
"`From that time forth its property is by law appropriated exclusively and irrevocably to the payment of its debts. Power is conferred upon its receiver to take possession of all its property and convert it into money, to the end that the money thus obtained may be distributed among its creditors.'"
Quoting (page 123 of 125 Iowa, 100 N.W. 75, 77):
"By the appointment of a receiver the rights of creditors to attach or levy on such property are suspended. The law thus disables the creditors from interfering with the property, or from in any way appropriating it for their sole benefit; but in so doing it does not lessen their rights with respect to such property, nor does it destroy them; it merely provides for their protection and enforcement in another way. And whenever the law thus disables creditors from helping themselves, whether by proceedings in bankruptcy or insolvency, or by the appointment of a receiver or otherwise, it provides for the enforcement for whatever rights they may possess against the property of the debtor, through the instrumentality of its agent, the trustee,assignee, or receiver. For the purpose of enforcing any such right which the creditor could have enforced for his sole advantage, and for the purpose of holding or taking any property which a creditor could hold or take by law, or for recovering back *Page 972 
any property of which a creditor could avail himself in payment of his debt, the trustee, assignee, or receiver is, in effect,the creditor."
Quoting (page 124 of 125 Iowa, 100 N.W. 75,77):
"In Schaller v. Wright, 70 Iowa 667, 28 N.W. 460, the assignee was held to be trustee for the creditors, and as such entitled to maintain an action to set aside the fraudulent conveyance of the assignor; the court saying: `While, therefore, the husband (assignor) could not set aside the deed and claim the property, the trustee of the creditors, chosen by him, whose action is recognized and controlled by law, who is made an instrument by the law for awarding remedies to the creditors, is not subject to the rules and doctrines to be applied between the fraudulent grantor and grantee.'"
Quoting (page 125 of 125 Iowa, 100 N.W. 75, 77):
"`The creditors of a mortgagor do not cease at his death, and, so long as they continue to be such creditors, such mortgage is void as against them. By relation the executor or administrator became trustee for the creditors from the death of the mortgagor.' * * * `The cases thus maintaining the right of an assignee, receiver, and executor or administrator of an insolvent estate, as representing the general creditors, to avoid in their interest a fraudulent or void chattel mortgage, we think correctly present the law upon the question. The doctrine is supported by sound reason, and comports with our ideas of justice in premises. The mortgage is without validity as to the creditors. As against them it is no mortgage, and represents no interest in the property.'"
There is a faltering note perceptible in some of our cases as though we hesitated to face the logic of our precedents. We have almost said in effect that though the mortgagee has no lien until he brings his foreclosure suit, yet he does have something that is the potential equivalent of a lien from the date of his mortgage. If in truth the mortgagee does, as of the date of his mortgage, acquire something that is the equivalent of a lien, then he acquires a lien; and nothing less. And vice versa. If he acquires no lien until he commences his foreclosure suit, then he acquires no equivalent of a lien, potential or otherwise. In other words, it cannot be said either directly or indirectly that the mortgagee has no lien, and yet has the equivalent of one. Logic has no evasions; neither can it be deceived. *Page 973 
Along the line here indicated, inconsistency to some degree may be found in some of our cases on this subject. But in the main our moorings have been firm until now. One of these moorings was our pronouncement in the Schlesselman case, — logically sound and self-evident as Aristotle himself. This pronouncement is now overruled. This commits us unavoidably to the only alternative argument left: that the lien of the mortgage begins, not with its foreclosure, but with an imaginary gestation period, which precedes its birth.