Bailey v. Bailey

• Decision Date: 02 March 1933
• Docket Number: No. 152.,152.
• Citation: 247 N.W. 160,262 Mich. 215
• Parties: BAILEY v. BAILEY et al.
• Court: Michigan Supreme Court

262 Mich. 215

247 N.W. 160

BAILEY

v.BAILEY et al.

No. 152.

Supreme Court of Michigan.

March 2, 1933.

Appeal from Circuit Court, Cheboygan County, in Chancery; Victor D. Sprague, Judge.

Suit by Martha Bailey against Etta Bailey, as surviving partner of the partnership composed of Etta Bailey and John E. Bailey, deceased, for appointment of a receiver, wherein William Childs and others, as a committee for the protection of certain bonds, intervened, and in which William B. Heath was appointed receiver. From an order making the deficiency resulting from receiver's expenses a first lien over a mortgage, the interveners appeal.

Affirmed.

Argued before the Entire Bench.Milburn & Semmes, of Detroit, for appellants William Childs, Robert M. Morton, and Horace L. Pike, as a committee for protection of certain bonds.

James F. Shepherd, of Cheboygan, and George E. Nichols, of Ionia, for appellee William B. Heath.

CLARK, Justice.

Etta Bailey and John E. Bailey, her son, as E. R. Bailey & Son, owned and operated a summer hotel on Mullet Lake, in the county of Cheboygan. John E. Bailey died in October, 1930. His widow, the plaintiff, is a chief beneficiary under his will. During the season of 1930 the loss in conducting the hotel business was nearly $5,000. The property, then valued at $100,000, is mortgaged to Union Trust Company, trustee, to secure an issue of bonds in the sum of $37,500. Fire insurance premiums, taxes, and interest were unpaid. Sums were due on title-retaining contracts covering some fixtures or equipment of the hotel. There were liabilities to general creditors for nearly $15,000. The surviving partner was not able to manage the hotel. In December, 1930, plaintiff, the widow, filed this bill for appointment of receiver, naming Etta Bailey as defendant, apparently a friendly suit. Etta Bailey answered, admitting the bill and in effect consenting to receivership. It is not disputed that before filing the bill, the trustee was consulted and consented to and advised the receivership. William B. Heath was appointed receiver. In January, 1931, he prayed an order authorizing him to borrow money and to issue receiver's certificates in the sum of $5,000, to be first liens, subject only to prior valid liens. By order he was given authority to borrow the sum on receiver's certificates to pay taxes, insurance, expense, etc. The order is otherwise silent as to lien and priority. He borrowed $4,000 on such certificates and used the money as ordered. At this point it appears that the bondholders under the trust mortgage became active, and were thereafter considered and treated as the mortgagees under the mortgage. General creditors proved their claims. All parties, it appears, desired the hotel to be operated during the season of 1931. The receiver refused unless the mortgagees would consent to his borrowing money and issuing certain receiver's certificates to be a first lien and prior to the mortgage and unless the possible loss of such operation be treated as an expense to be preferred over the mortgage. The mortgagees agreed with the receiver. Accordingly, and on petition and on showing the agreement, it was so ordered. The receiver issued certificates in the total sum of $2,125. The hotel was operated during the season of 1931 and a net profit of nearly $7,000 made. Certificates in the total sum of $5,125 were retired.

In and after 1931, due to collapse of real estate values, it was apparent there was nothing for general creditors, nothing for the Baileys, and insufficient to pay the mortgage debt. The mortgagees were given notice of the hearing and were represented at hearing of the receiver's account and were heard and made objections. Later they were permitted to intervene formally. An account of the costs and expenses of receiver's administration of sums paid in satisfaction of the title-retaining contracts, and of sums paid for taxes, insurance, etc., showed a deficiency of nearly $4,000, which was ordered paid and made a first lien over the mortgage. There has been no proceeding to foreclose the mortgage. It is a fair inference, at least, that mortgagees co-operated in an attempt to sell the property at receiver's sale, but bids were not acceptable. The mortgagees have appealed.

The receivership is not auxiliary to any other action or proceeding. It is the end and aim of this litigation. 53 C. J. 21. But all parties of record by participation and conduct in the matter are estopped to question validity and no point in that regard is urged seriously. However, the character of the receivership is to be noted in respect of expenses of administration and of preserving assets.

We consider first administration expenses. If the mortgagees had kept out of this matter, except perhaps in respect of contest of the receiver's account, there might be force in their contention that they are liable for no part of the administration costs and expenses of the receivership. 53 C. J. 307. But, as stated, the bill was filed by consent. The mortgagees dealt with the receiver promptly and in an effort to save loss to themselves by keeping the hotel a going concern, and receivership was used in an attempt to effect sale of the property. As they availed themselves of any possible advantage of the receivership, they will not be heard to say that the property in the hands of the receiver is not chargeable with the receiver's expense and administration costs, even though it may...