Equitable Trust Co. v. Great Shoshone & Twin Falls Water Power Co.

245 F. 697, 158 C.C.A. 99, 1917 U.S. App. LEXIS 1534

• Court: Court of Appeals for the Ninth Circuit
• Decided: October 22, 1917
• Docket: No. 2791
• Status: Published

Opinion

ROSS, Circuit Judge

(after stating the facts as above). [1] We readily concede that none of the intervening creditors of the insolvent corporation had or acquired any lien on any of its personal property, but are unable to sustain the contention of the appellant that the court below erred in permitting the intervention of such of the general creditors who asked to intervene prior to the entry of the decree of the court. One of such creditors had obtained judgment against the insolvent, and the demands of the others of them had been presented and allowed as claims against the insolvent debtor. Section 3418 of the Revised Statutes of Idaho provides, with reference to mortgages upon property within the state, as follows:

“The right of the mortgagee to foreclose, as well as the amount claimed to be due, may be contested in the District Court by any person interested in so doing, for which purpose an injunction may issue if necessary.”

And section 4111 of the same Code reads:

“Any person may, before the trial, intervene in an action or proceeding, who has an interest in the matter in litigation, in the success of either of the parties, or an interest against both. An intervention takes place when a third person is permitted to become a party to an action or proceeding between other persons, either by joining the plaintiff in claiming what is sought by the complaint, or by uniting with the defendant in resisting the claims of the plaintiff, or.by demanding anything adversely to both the plaintiff and the defendant, and is made by complaint, setting forth the grounds upon which the intervention rests, filed by leave of the court, and served upon the parties to the action or proceeding who have not appeared and upon the attorneys of the parties who have appeared, who may answer or demur to it as if it were an original complaint.”

While the Supreme Court of Idaho held in the case of Union Trust & Savings Bank v. Idaho Smelting & Refining Co., 24 Idaho, 735, 135 Pac. 822, that tire appellant there was not entitled to intervene in the foreclosure suit there involved, having failed to allege the insolvency of the corporation which executed the mortgage, or to show that the party claiming the right to intervene had prosecuted its claim to judgment, or had made any effort to collect the same from the debtor, or that an attempt to do so would have been useless, yet held that if the appellant had “first shown the existence of its claim, and that it had exhausted all of its legal remedies, or that those remedies were useless, and it would be vain to pursue them, and that the only way it could secure and collect its claim would be out of the property covered by this mortgage, then it would have been in a position to contest the validity of the mortgage and to raise, the question as to whether or not” the bonds there involved had been issued and the mortgage had been executed in violation of the provisions of the Constitution of the state, citing section 4111 of the state statute, and declaring that:

“Any third party may intervene in an action in this state who has ‘an interest in the matter in litigation, in the success of either of the parties, or a,n interest against both.’ ”

In the present case the interventions allowed by the court below met the requirements of the case just cited. The previous case in the same court of Neustadter Bros. v. Doust, 13 Idaho, 617, 92 Pac. 978, is wholly unlike the present one. There the action was against a sheriff to restrain and enjoin him from selling certain personal property described in the complaint under a chattel mortgage which had been previously executed by the copartnership of Rang & Wunderlich in favor of the Exchange National Bank of Coeur D’Alene City; and the question was as to the sufficiency of the complaint. It alleged, among other things, that Rang & Wunderlich executed to the bank their certain chattel mortgage, which was made a part of the complaint, and that:

“The said chattel mortgage, as to any of the creditors of said Lang & ' Wunderlich, was void from the beginning, and that as to the said creditors and any and all of them, the said chattel mortgage was and still is null and void and of no force and effect whatsoever or at all.”

In holding the complaint insufficient, the court said:

“The plaintiff makes no attempt to show that Lang & Wunderlich had no other property out of which to pay their indebtedness. It contains no allegation of insolvency, nor does it allege any facts from which insolvency can be reasonably inferred. It does not state that the plaintiff has ever made any demand on Lang & Wunderlich for the payment of the debt due, nor does it show any steps taken toward the collection of the same. They are not made parties defendant in the action against the sheriff, nor has the plaintiff reduced his claim to a judgment. He has commenced no action against Lang & Wunderlich, has never attached this or any property, and in no way connects his right, interest, or claim with the property 'that ho seeks to restrain the sheriff from selling, and no assurance is given when he will prosecute his action or that he will over obtain a judgment against them. It can make no difference to the plaintiff whether the sheriff sells this property or not, if Lang & Wunderlich pay the plaintiff. If they should have the means with which to pay their indebtedness to the plaintiff, or if they have other property, either merchandise or cash, then there can be no reasonable objection to their paying their other debtor, the Exchange National Bank.”

We do not understand the case last cited to hold that under the provisions of the Idaho statute that has been cited a chattel mortgage, unaccompanied by the affidavit of good faith and not recorded as required by the state statute, is valid as against all creditors of the mortgagor, except such as have a lien upon the property; nor do we understand the case of Ryan v. Rogers, 14 Idaho, 309, 94 Pac. 427, or Martin v. Holloway, 16 Idaho, 513, 102 Pac. 3, 25 L. R. A. (N. S.) 110, cited by the appellants in support of the contention, to so hold. In the first of these cases what the court held was that where the mortgagor remains in possession of the chattels and with the knowledge and consent of the mortgagee and continues to sell and dispose of the same without applying the proceeds of the sale to the reduction of the mortgage debt, the existence of such facts, whether shown by the mortgage itself or by evidence aliunde, will invalidate the mortgage as against creditors and other interested third parties, and that although such mortgage be defective or invalid as to third parties, if the mortgagee take possession of the property covered by it prior to the acquiring of a claim thereto by attachment, execution, or other lien, the possession of the mortgagee will be protected and his security be held valid to the extent of his claim.

In the second of the cases last cited it was held that the mortgagor and mortgagee to a chattel mortgage may make an agreement, valid as between themselves, that the possession of the property mortgaged shall remain in the mortgagor, with power on his part to dispose of it and apply all or any part of the proceeds in payment of the mortgage indebtedness, and that section 3409 of the Revised Codes of Idaho recognizes the right of a mortgagor and mortgagee to such a mortgage to agree that the possession of the mortgaged property may remain in the mortgagor, or be transferred to the mortgagee, in which latter event such possession by the mortgagee is equivalent to the recording of the mortgage, and gives to the world the same notice that the recording of the mortgage would give.

In all that we see nothing inconsistent with the sections of the Idaho Statutes that we have above quoted, or with the decision of that court in the case of Union Trust & Savings Bank v. Idaho Smelting & Refining Co., supra, or with what we have above held.

[2] We quite agree with the learned counsel for the appellants that, in the absence of specific state statute or decisions of the state courts conferring special rights and powers, and where he is not appointed for the purpose of impounding it for a specific purpose, the appointment of a receiver of property by a federal court is for the protection and preservation of all rights and interests therein existing at the time of such appointment. Authorities to this effect are so numerous that we think it is unnecessary to cite them.

[3] The receiver in the present suit, therefore, held all of the personal property of the insolvent corporation, to which the trustee’s liens did not apply, for the benefit of the complainant in the receivership suit and for such of the other general creditors of the insolvent debt- or as should join therein. So far as appears all such general creditors did so join except the appellant American Waterworks & Electric Company, which company, while having actual notice of all the litigation in question, for some reason or reasons abstained from intervening during the progress of the trial. But after its conclusion and after the entry of the decree in the cause and the creation of a specific fund by stipulation of the respective parties to the suit, which was the agreed value of that portion of the personal property to which the court held the trustee’s liens did not apply, and which was therefore subject to the payment of tire claims of the general creditors who had intervened' in the receivership suit, and after the sale of all the property covered by the deed of trust and supplemental mortgages the appellant American Waterworks & Electric Company presented to the court a petition to intervene, which petition was directed only against the general creditors of the insolvent debtor who had intervened in the foreclosure suit; alleged their respective claims and an allowance thereof in and by the decree of the court; that the amount realized from the personal property held by the court not to be covered by the trustee’s liens was $45,000, and, among others, made these further allegations:

“That all of said claims and a large number of other claims aggregating upwards of $4,000,000, the exact amount thereof being to your intervener unknown, were filed with the receiver in said cause pursuant to the order of the court and the notice of the receiver-requiring the filing of claims against the power company for allowance by the receiver and court, to the end that the same might be entitled to share in the equitable distribution of the assets of such receivership estate pursuant to law and the principles of equity governing the administration and distribution of assets of insolvent debtors by courts of equity in suits brought by one or more creditors in behalf of themselves and all other creditors of the insolvent debtor. * * * That in addition to said sum of $45,000 this intervener is informed and believes that there is approximately $25,000 in the hands of the receiver of said power company that may also be available for the payment of claims of general creditors, making in the aggregate approximately $70,000 available for the payment of claims aggregating upwards of $4,000,000; that the other property of said power company subject to complainant’s deeds of trust and mortgages was sold for $2,000,000 by the special master under the decree of foreclosure, which amount was less, as this intervener is informed and believes and so alleges the fact to be, than is due the said plaintiff under said decree of foreclosure.”

Notwithstanding the allegation in the complaint of intervention thus sought to be filed by the American Waterworks & Electric Company that there were a large number of other claims against the power company, none of those alleged other claimants at any time intervened or sought to intervene in the foreclosure suit, although the record shows that notice was mailed to each known creditor of the insolvent company, and a like notice published once a week for four successive weeks in two designated newspapers by the receiver under the order of the court made May 4, 1915.

That the appellant American Waterworks & Electric Company had the same right to intervene in the foreclosure suit and set up its claim to that portion of the personal property upon which the trust deed and supplemental mortgages were not a lien as had any and every other creditor of the insolvent debtor is clear, and that it had full opportunity of so doing is equally apparent from what has already been said. But instead of availing itself of that right and opportunity, it allowed the contest to be carried on by and at the expense of those of the general creditors of the insolvent that have been named, resulting in the decree and funds that have been referred to. Not until after the suit in which it could have intervened had been ended by the final decree therein and the sale of the property thereunder did that company manifest any intention of intervening, and not until those creditors had made application to the court for the payment of their claims out of that fund, did the appellant American Waterworks & Electric Company appear with its verified complaint in intervention, claiming such an amount as would practically take the whole of the fund in question.

We think that the most favorable view that can be taken of the application of the Waterworks & Electric Company is that it was addressed to the sound discretion of the court below, and are of the opinion that such discretion was not abused by the denial of the application. In denying it the court, after referring to the laches of the petitioner, said, among other things:

“It appears from the record in the case that during the entire time of the pendency of the foreclosure suit all the bonds were held by the National Securities Corporation, and it now appears from the amended petition that there was some sort of an arrangement between that company and the petitioner for the purchase of this claim. In view of the record in the receivership and in this case, it is thought to be incumbent upon the petitioner, before it can ask the court to exercise a liberal discretion in its favor, fully and frankly to negative the proposition that it stood with the holders of the bonds in the attempt to defeat the interveners in procuring the relief, whereas now it seeks to appropriate to itself substantially all that they have succeeded in wresting from the bondholders, at their own expense and peril. But be that as it may, I have been unable to see any substantial ground on which the right of the petitioner to intervene may be predicated. When the matter was first presented to me upon the 14th of February I had the impression that while it would not be permitted tO' intervene to share pro rata in the decree, the intervention might be allowed for another purpose. To explain, there is a fund, the precise amount of which has not yet been determined, in the hands of the receiver in the creditors’ suit, which presumably will ultimately be distributed to the unsecured creditors, including the interveners and the petitioner, and also the plaintiff trustee for such deficiency judgment as may he awarded to it after applying the proceeds of the sale to the liquidation of its claim. My thought was that by paying the §45,000 to the interveners the proceeds of the sale would be diminished by that amount, and therefore the deficiency judgment would be correspondingly increased, and the aggregate of the unsecured claims entitled to share in the receivership fund would be equally increased, and thus the petitioner would receive a smaller dividend than would have been distributed to it if the interveners had stayed oiit of this suit. It occurred to me that perhaps it could be properly held — although that seemed extremely doubtful — that a duty rested especially upon Towle, the plaintiff in that action, and possibly upon other interveners, not to do anything even in another suit by which they would be benefited to the disadvantage of other creditors. But whether such was or was not their duty, upon reflection it now appears clear to me that the petitioner would not suffer the slightest prejudice even in this respect. Indeed it is practically conceded by counsel that the petitioner’s position is precisely the same, and the share it will receive out of the funds in the hands of the receiver is precisely the same that it would have been had, the interveners never come into the foreclosure suit. The aggregate of the claims to participate in the distribution of that fund will not be increased, because in so far as the deficiency judgment is increased the claims of these interveners will be diminished, so that the aggregate will remain precisely the same. Even if therefore it be assumed that for some reason not made clear the interveners owed the petitioner the duty to take no action which would prejudicially affect its distributive share in the receivership fund, it cannot invoke the principle of equitable estoppel here as a ground for intervening, because admittedly it has suffered and will suffer no injury. The interveners have done nothing against good conscience or to the prejudice of the petitioner in securing and appropriating to their own use the judgment in the foreclosure case. They were under no contractual obligations to the petitioner, and I am unable to perceive how it can be held that they have violated any duty or obligation in seeking payment of their claims out of a fund which in whole would have otherwise gone to the bondholders, and not at all to the unsecured creditors. The judgment is entirely the fruit of their diligence, in the exercise of which they took nothing from the petitioner. The petitioner had the same right as they to come into the suit, of the pendency of which it undoubtedly had knowledge. If it did not join hands with the plaintiff to defeat the interveners, still,- having knowledge of the pendency of the foreclosure suit, and presumably being advised of its legal rights, it chose to remain silent and inactive, thus avoiding the expense and peril of litigation, until after these interveners have succeeded, and then, when they are about to receive the fruits of their diligence, it seeks to step in and seize the same. It intimates no reason why, though having knowledge that the plaintiff trustee was seeking to appropriate the entire assets of its debtor to the payment of the bonds, it never lifted a finger in resistance, or suggested that the receiver do so.”

The decree and orders appealed from are affirmed.

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