MINERS'BANK OF WILKES-BARRE v. Acker

• Decision Date: 19 July 1933
• Docket Number: No. 4837,4906.,4837
• Citation: 66 F.2d 850
• Parties: MINERS' BANK OF WILKES-BARRE v. ACKER et al.
• Court: U.S. Court of Appeals — Third Circuit

66 F.2d 850 (1933)

MINERS' BANK OF WILKES-BARRE v. ACKER et al.

Nos. 4837, 4906.

Circuit Court of Appeals, Third Circuit.

July 19, 1933.

H. C. Reynolds, Cole B. Price, John H. Price, and H. R. Van Deusen, all of Scranton, Pa., for appellant.

Wm. J. Fitzgerald (of Kelly, Balentine, Fitzgerald & Kelly), of Scranton, Pa., for appellees.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

DAVIS, Circuit Judge.

These are appeals from an order of the District Court affirming in part and overruling in part the recommendations of the special master.

This case arose out of the receivership of the Scranton, Montrose & Binghamton Railroad Company, hereinafter called the Montrose Company. Its line of railway ran from Factoryville, in Wyoming county, to Montrose, in Susquehanna county, Pa. The Montrose Company also operated, under lease made in 1910 to its subsidiary, the Scranton & Binghamton Traction Company, hereinafter called the traction company, the Northern Electric Street Railway Company, hereinafter called the Northern Company. It also operated the Dalton Street Railway Company, hereinafter called the Dalton Company, whose lines ran from Scranton to Factoryville, with a branch line to Lake Winola. This company was a subsidiary of the Northern Company.

The appellant is trustee under the first and prior lien mortgage made by the Montrose Company in 1919 to secure outstanding bonds to the amount of $1,800,000. The mortgage covered the company's line of railway in the counties of Wyoming and Susquehanna together with all its equipment, fixtures, rolling stock, etc. The appellant is also successor trustee under the first and prior lien mortgage of the Northern Company which covered its line of railway and the leasehold of the Dalton Company, with its rolling stock, tools, and equipment.

E. C. Randolph filed a bill in equity against the Montrose Company on behalf of himself and all other creditors who might join in the suit, and prayed for the appointment of a receiver with authority to operate and manage the railroad and conduct its business. The appellees were appointed receivers and operated the Montrose Company and the subsidiaries as above stated.

The operation of the Montrose Company resulted in a loss, and so, on a petition filed by the receivers on August 31, 1931, the court granted a rule to show cause why the personal property and choses in action should not be sold free and clear of all liens and incumbrances. On the return day, the appellant filed objection to the sale on the ground that much of the property proposed to be sold belonged, not to the Montrose Company, but to the Northern Company and the Dalton Company. A rule to show cause was granted on this objection returnable October 23, 1931.

On October 20, 1931, the court ordered the receivers to return to the Northern Company, the railway, equipment and fixtures which had been leased to the traction company.

On the same day the appellant filed a petition for leave to foreclose the mortgage of the Northern Company, in which petition was set out specifically the property which the mortgage covered. The court allowed the petition and ordered the foreclosure, but on October 24, 1931, on further consideration, it filed an opinion (____ F. Supp. ____) dismissing the petition to foreclose and made absolute the petition of the receivers filed August 31, 1931, for the sale of its personal property and choses in action free and clear of all incumbrances as of October 20, 1931.

On October 26, 1931, appellant filed a petition to foreclose the mortgage of the Montrose Company, but this petition was dismissed November 3, 1931.

On October 27, 1931, the return of the sale of the property of the Montrose Company was filed setting forth that Ira C. Fine, one of the receivers, was the highest bidder for the property, with two parcels excepted, in the sum of $25,000. On the same day the sale was confirmed to Abram Salsburg on Fine's designation.

On November 3, 1931, on petition of the appellant, the court granted a rule to show cause why the sale should not be set aside. Answer was filed the following day. The matter was referred to a special master who heard the evidence and reported to the court on January 18, 1932, that all the property was subject to the mortgage of the Montrose Company, except that embraced in schedule "I," which belonged to the Dalton Company or to the Northern Company under and in accordance with the terms of the lease of the Northern Company to the traction company, which lease was assumed by the Montrose Company when it reorganized and took over the traction company, and with the exception also of the stock of the Lake Winola Park Company and the stock of the Lake Winola Association. The special master further reported that the property should be sold free and clear of the lien of the mortgage, and that the lien thereof should be transferred to the fund, and that in all other respects the sale should be approved.

Exceptions to this report were filed by Abram Salsburg, by the appellant, and by the receivers. On March 18, 1932 (____ F. Supp. ____), the court filed its opinion and orders sustaining the exceptions of Abram Salsburg, and of the receivers as to the stock of the Lake Winola Park Company, and Lake Winola Association, but disregarded the master's recommendation that the lien be transferred to the fund, discharged the several rules granted, except as to property included in schedule "I," and ordered the appellant to pay the master's expenses within thirty days.

Two appeals were taken from these three orders. The first was from the order of October 24, 1931, dismissing the petition of the appellant and rule to show cause for the foreclosure of the mortgage of the Northern Company and making absolute the rule of August 31, 1931, for the sale of the personal property and choses in action of the Montrose Company and from the order confirming the sale of the Montrose Company. The second was from the order which sustained the exceptions of Salsburg and the receivers to the master's report (holding that the stock of the Lake Winola Association and Winola Park Company was covered by the mortgage and belonged to the trustee) and directed the appellant to pay the master's expenses within thirty days.

Out of these appeals both parties say three main questions arise, but they differ as to what they are.

1. Had the District Court, sitting in equity, under the circumstances of this case, power to order the receivers to sell the assets of the Montrose Company consisting of rails, bridges, trolley wires, cars, tools, etc., as personal property, free and discharged of the first and prior lien mortgage?

Both parties agree that this is substantially the first question. These rails, bridges, and wires under the decisions of the Pennsylvania courts are real estate, though described in the advertisement and rule to show cause as personal property. Titus v. Poland Coal Company, 275 Pa. 431, 436, 119 A. 540. This false designation, however, is not fatal to the sale if it was otherwise valid. We do not find any decisions in Pennsylvania which hold that a mortgage lien may not be divested by a judicial sale of real estate. The appellant relies principally upon the Act Pa. of March 23, 1867, P. L. 43, § 3 (see 21 PS § 651 note), which provides that: "When the lien of a mortgage upon real estate is, or shall be prior to all other liens upon the same property, except other mortgages, ground rents, purchase money due to the Commonwealth, taxes, charges, assessments and municipal claims, whose lien though afterwards accruing has by law priority given it, the lien of such mortgage shall not be destroyed, or in any way affected by any order, or decree of any Orphans or other court, or any writ of execution, or otherwise howsoever: Provided, that this section shall not apply to cases of mortgages upon unseated lands, or sales of same for taxes."

This section has no application to the sale of real estate generally divested of the lien of the mortgage thereon. The antecedents of the word "lien" in the words, "whose lien, though afterwards accruing," etc., are "taxes, charges, assessments, and municipal claims." These words in many of the Pennsylvania statutes are used together, and in connection with the word "lien." Act April 16, 1845, P. L. 488; Act of January 23, 1849, P. L. 686; Act of April 5, 1844, P.L. 199. The purpose of this act of 1867 was to introduce into the general law of the Commonwealth of Pennsylvania another class of liens against which the lien of mortgages is protected. Fisher v. Connard, 100 Pa. 63, 68, 69. The liens of taxes, charges, assessments, and municipal claims, though accruing after mortgages, destroyed by law the lien of prior mortgages. The effect of this section of the statute was to prevent this. It therefore has no reference to the facts of the case at bar.

A court of equity under proper circumstances has power to order a receiver to sell property free and clear of all incumbrances, and to deny the mortgagee the right to foreclose his mortgage. Stokes v. Williams (C. C. A.) 226 F. 148; In re Dyer (D. C.) 8 F.(2d) 376; Broadway Trust Company v. Dill (C. C. A.) 17 F.(2d) 486; Seaboard National Bank v. Rogers Milk Products Company (C. C. A.) ...