First Nat. Bank of San Francisco v. Detroit Trust Co.

248 F. 16, 160 C.C.A. 156, 1918 U.S. App. LEXIS 1403

• Court: Court of Appeals for the Ninth Circuit
• Decided: February 4, 1918
• Docket: No. 2912
• Status: Published

Opinion

GILBERT, Circuit Judge

(after stating the facts as above).

[1] The question which the appeal presents is whether or not the court below abused the chscretion which was vested in it, in authorizing the receiver to operate the mortgaged property and to make the logging contract which he did. The court had before it these facts: The mortgagor, the mortgagee of the first and second mortgages, and the representatives of the majority of tlie claims secured by the third mortgage, all requested or assented to the appointment of the receiver with the authority to operate, and approved the logging contract which he made. If the mortgaged property were ordered sold at foreclosure sale, its full value would not be realized, and the proceeds thereof would be absorbed by the first mortgage. If properly conserved and operated, the properties would probably be sufficient to pay all the mortgages, and it was probable thaf within two years the Lumber Company would be enabled to refinance its indebtedness. The mortgagor was without available resources with which to meet the expense of caring for its properties or to pay the taxes thereon, and was in danger of having its properties sold for delinquent taxes, and there was danger of loss and destruction of the property by fire, if a force of operatives were not on hand to protect it.

The power of a court of equity to appoint a receiver in a foreclosure proceeding, with authority to continue the business of the mortgagor, is one ivliich is cautiously and sparingly exercised, and only in cases where the interests of the parties require it, and usually the receiver will not be authorized to conduct a business permanently. In 34 Cyc. 284, it is said of the power of the court:

“It has,the power, however, in the exercise of a wise discretion, to direct a continuance of a business, and to authorize its receiver to make expenditures and contract debts in that connection, when such a course seems necessary to preserve the property and to secure a more advantageous disposition of it.”

The same doctrine is affirmed as to the court’s power in foreclosure proceedings in 27 Cyc. 1631. Among the cases applying the doctrine are Cake v. Mohun, 164 U. S. 311, 17 Sup. Ct. 100, 41 L. Ed. 447; American Pig Iron Storage Warrant Co. v. German, 126 Ala. 194, 28 South. 603, 85 Am. St. Rep. 21; Makeel v. Hotchkiss, 190 Ill. 311, 60 N. E. 524, 83 Am. St. Rep. 131; Leader Pub. Co. v. Grant Trust Co., 182 Ind. 651, 663, 108 N. E. 121; Pacific Northwest Packing Co. v. Allen, 109 Fed. 515, 48 C. C. A. 521.

The appellants rely upon Couper v. Shirley, 75 Fed. 168, 21 C. C. A. 288, in which this court, in view of the statute of Oregon providing that a mortgage of real property shall not be deemed a conveyance, so as to enable the owner of the mortgage to recover possession of the real property without foreclosure and sale according to law, held void the appointment of a receiver which was made solely upon the authority of a stipulation contained in the mortgage. But in that case we distinctly pointed out that the appointment had not been made by virtue of any of the established general principles of equity, which when alleged to exist, would authorize a court of equity to apoint a receiver, but was made solely in pursuance of the stipulation contained in the mortgage. We said:

“The sole question for our consideration is whether such a stipulation, of itself, authorized the court to make the appointment, under the laws of Oregon.”

It seems unnecessary to say that in that decision ..there was no denial of the power of a court of equity to appoint a receiver under circumstances such as those disclosed in the case at bar.

[2] Again, it is to be observed that an appellate court will not reverse such an order as that which is here appealed from unless it appears that the discretionary power of the court “has been so improvidently and improperly exercised as to bring its action clearly within the meaning of the term ‘abuse of power.’ ” Heinze v. Butte & Boston Consolidated Min. Co., 126 Fed. 1, 11, 61 C. C. A. 63, 73; United States Shipbuilding Co. v. Conklin, 126 Fed. 132, 60 C. C. A. 680; Briggs v. Neal, 120 Fed. 224, 56 C. C. A. 572. We discover no abuse of discretion in the case at bar, and we are of the opinion that the order of the court below, in view of all the facts,.was made in the proper exercise of the court’s discretion.

[3, 4] We are not impressed with the appellants’ objection that the logging contract operates to deprive the mortgagees of the third mortgage of their right of redemption in a portion of the mortgaged property. They have as full opportunity to exercise that right as they would have under a foreclosure of -the first mortgage, and they are free to exercise it at any time by satisfying the prior incumbrances, in which event the court below would necessarily direct the cancellation of the logging contract, and the discharge qf the receiver. Moreover, the third mortgagees, by taking their mortgage subject to the first mortgage assented to the provision, therein contained, that the mortgagor might cut and remove timber on paying to the trustee of that, mortgage the sum of $3 per thousand feet, the same sum which is realized therefor by the receiver under the logging contract authorized by the court below. .

The order is affirmed.