Atlantic Trust Company v. Edgar Chapman

• Decision Date: 24 February 1908
• Docket Number: No. 109,109
• Citation: 208 U.S. 360,52 L.Ed. 528,28 S.Ct. 406,13 Ann. Cas. 1155
• Parties: ATLANTIC TRUST COMPANY, Petitioner, v. EDGAR C. CHAPMAN, Receiver of the Woodbridge Canal & Irrigation Company, et al
• Court: U.S. Supreme Court

208 U.S. 360

28 S.Ct. 406

52 L.Ed. 528

ATLANTIC TRUST COMPANY, Petitioner,

v EDGAR C. CHAPMAN, Receiver of the Woodbridge Canal & Irrigation Company, et al.

No. 109.

Argued January 15, 16, 1908.

Decided February 24, 1908.

Messrs. Stanley W. Dexter and Edward B. Whitney for petitioner.

[Argument of Counsel from pages 360-362 intentionally omitted] Mr. Edgar C. Chapman in propria persona for respondents.

[Argument of Counsel from pages 362-364 intentionally omitted] Mr. Justice Harlan delivered the opinion of the court:

The principal question in this case—now before us upon writ of certiorari for the review of a final order of the circuit court of appeals for the ninth circuit—is stated by counsel to be this: Is a complainant who has, in good faith, prosecuted a suit upon a good cause of action, and upon whose application the court has properly appointed a receiver, and who obtains a decree fully establishing his rights, nevertheless personally responsible for a deficiency caused by the failure of the property which is the subject of the suit to bring enough to cover the allowances made by the court to the receiver and his counsel, and the expenses which the receiver, without special request of the complainant in any instance, had incurred?

The Woodbridge Canal & Irrigation Company, a corporation of California, executed July 17th, 1891, a mortgage conveying all its property and franchises to the Atlantic Trust Company, a New York corporation, in trust to secure certain bonds, with interest coupons attached, issued by the mortgagor company for the purpose of raising money to fully complete and equip its canal and headworks, and of paying its indebtedness then existing or to be subsequently incurred. The bonds were made payable with interest semiannually at the office of the trust company in the city of New York.

In the event of default in the payment of semiannual interest of the bonds for six months, or of any tax or assessment for the same period, the trustee and its successors were authorized, on the written request of the majority of the holders of the outstanding bonds, or, if the principal of the bonds shall be due, upon the request of the holders of outstanding bonds, to take actual possession of the mortgaged property, and, by themselves or agents, hold, use, and enjoy the same, and from time to time make repairs, replacements, alterations, additions, and improvements as fully as the company might have done before such entry, and receive all tolls, income, rent, issues, and profits arising from the property. The trustee and its successor or successors were authorized, on such default, to sell the mortgaged property at public auction, after at least two months' notice, and execute to the purchaser or purchasers a deed in fee simple, or otherwise, for all the right, title, interest, and estate reversionary or in possession which they might be entitled to receive, have, or hold of the company, such sale to be a complete bar against the company, its successors or assigns, and all persons claiming from or under it.

The mortgage made provision as to the disposal of moneys received from tolls, income, profits, etc., and provided that, 'nothing herein shall be construed as limiting the right of the trustee to apply to any competent court for a decree of foreclosure and sale under this indenture, or for the usual relief in such proceedings, and the said trustee, or its successor, may, in its discretion, so proceed.'

The Canal & Irrigation Company, having made default in the payment of the principal and interest due on its bonds, its board of directors, by formal action, recognized their inability to meet its obligations, and requested the trustee to bring the present suit for the foreclosure of the mortgage, and enforce the payment of the principal and interest of the bonds. The bringing of the suit was also in conformity with the written request of the owners and holders of fifty-five of the outstanding bonds, who expressed their election and option that the principal of the bonds should forthwith become due and payable.

The bill filed by the trust company prayed: 1. That a receiver be appointed to take charge of the mortgaged property and to maintain and operate the canals pending the suit and until sale under a judgment of foreclosure. 2. That the court ascertain the number and amount of outstanding bonds, fix the compensation of the receiver and his attorney, and that the plaintiff have judgment against the Canal & Irrigation Company, for the amount due for principal and interest on the bonds, and for attorney's fee, trustee's commissions, costs, and expenses of the suit. 3. That the mortgaged property be sold at public auction, and that out of the proceeds the expenses of sale, costs of suit, trustee's commissions, and counsel fees be paid, the balance to be applied in payment of outstanding bonds.

The court, on motion of the trust company, the Canal & Irrigation Company appearing and consenting thereunto, appointed E. C. Chapman receiver of the mortgaged property, with authority to take possession of it. The receiver was empowered by the order of court to continue the operation of the main and branch canals of the mortgagor company in the usual and ordinary way as the same were then operated, discharging, so far as practicable, contracts for water supplies entered into by the company, collecting rents, tolls, moneys payable under water contracts, keeping the property in good condition and repair, employing needful agents and servants at such compensation as he deemed reasonable, paying for needful labor, supplies, and materials as might seem to him to be necessary and proper in the exercise of a sound discretion, 'with leave to apply to the court from time to time, as he may be advised, for instructions in the premises.' 'He shall,' the order proceeded, 'do whatever may be needful to preserve and maintain the corporate franchises of said defendant corporation and its rights to the use of the water and all its property, until final judgment in this action, and to defray the necessary and proper expenses incident thereto.' The above order was made October 3d, 1894.

In the progress of the cause the receiver, upon his own motion, and not, so far as the record shows, by direction of the plaintiff, applied to the court and obtained its authority to borrow money and issue certificates, which were used by him in the operation of the property, paying debts, etc.

Certain parties were permitted to intervene, and the litigation lingered until September 18th, 1897, when a decree of foreclosure and sale was entered, nearly three years after the receiver was appointed. There was great difficulty in effecting a sale, partly because of the washing away of a dam. Finally, a bid of $21,000 by one Thompson, acting on behalf of the receiver and his attorneys, was accepted. That amount was just enough to cover the fees of the receiver and his counsel and the expenses of the sale, and to make a small pro rata payment on the accrued interest on receiver's certificates. This left unpaid all other expenses and certificates of the receiver. The sale was confirmed August 15th, 1898, and the commissioner was directed to deliver a deed for the property.

The order confirming the sale directed the clerk of the court to report the balance remaining unpaid on account of the fees of officers or appointees of the court, or of advances made by them, and on account of receiver's certificates, time checks, or other expenses of the receiver's administration. The order also directed the receiver to render an account of his receipts, disbursements, and expenses in the management and care of the property between the date of the decree of foreclosure and the date of the sale and transfer of possession.

The clerk made the required report, from which it appeared that the proceeds of sale, $21,000, were absorbed by these claims: Compensation of receiver, $9,000; receiver's attorneys $9,000, and fees of commissioner, master, advertising, etc., $3,000. He further reported that of the amounts found due by the decree of foreclosure of September 18th, 1897, there remained unpaid, on the following accounts, these sums: Receiver's certificates, $12,292.47; receiver, for advance made by him, care, and management of property, $3,105.72; time checks issued by receiver, $5,728.89; work done for receiver, $2,269.85; expenses of operating canal system, $5,728.54; other sums, $13,723.49; total, $42,848.96.

On the 3d of August, 1899, nearly five years after the appointment of the receiver, he filed his final report and peti- tion, in which he prayed that the balance due him on account of his receipts and disbursements after the making of the decree, also the balance due to his employees after the making of the report upon which the decree was based, and the compensation to be allowed to him and his counsel since the date of the decree, be fixed and established by the court, and judgment entered 'Against the plaintiff in this cause for the full amount of the deficiency hereinbefore stated, with the sum so allowed for services and expenses since the date of said decree, and that the proper process of court be issued for the collection thereof from plaintiff, and that, when collected, the same be paid into court, to be by the court disbursed to the several persons entitled thereto.'

The petition alleged that the Canal & Irrigation Company was insolvent and unable to respond to any judgment for deficiency that had been or might be entered in the cause. Upon this report and petition being filed, the circuit court ordered the trust company to show cause why the amount due the receiver and his employees should not be settled and allowed, and why judgment for such deficiency should not, when ascertained, be entered against that company and it be required to pay the same into court.

The trust company appeared and demurred to the receiver's report and ...