Brown v. Crawford

• Decision Date: 27 June 1918
• Docket Number: 7426.
• Citation: 252 F. 248
• Parties: BROWN v. CRAWFORD et al. (DAVID INV. CO., Intervener). DAVID INV. CO. v. BROWN et al.
• Court: U.S. District Court — District of Oregon

252 F. 248

BROWN v. CRAWFORD et al. (DAVID INV. CO., Intervener).

DAVID INV. CO. v. BROWN et al.

No. 7426.

United States District Court, D. Oregon.

June 27, 1918

[Copyrighted Material Omitted] [Copyrighted Material Omitted] [Copyrighted Material Omitted]

Ralph A. Coan, of Portland, Or., for complainant.

O. A. Neal, of Portland, Or., for defendants Crawford and Assets Realization Co.

Carey & Kerr and C. A. Sheppard, all of Portland, Or., for intervener.

Martin L. Pipes, of Portland, Or., and Dey, Hampson & Nelson, for John W. Kaste.

Platt & Platt and Hugh Montgomery, all of Portland, Or., for cross-defendant Brayton & Lawbaugh.

Maurice W. Seitz, of Portland, Or., for cross-defendant Moody.

WOLVERTON District Judge (after stating the facts as above).

The first inquiry may be directed to whether the bill of complaint states a cause of suit, because of the absence of J. W. Kaste as a party to the bill. It may be stated at the outset that Kaste is now, and was at the time of the institution of the suit, the owner of the equity of redemption of the real property covered by the Monarch Lumber Company mortgage. This much is settled by the decree of the state circuit and Supreme Courts rendered in the case of Brayton & Lawbaugh, Limited, v. Monarch Lumber Co. et al., 169 P. 528. The bill is for an accounting, and, upon this branch of the inquiry, it can scarcely be doubted that it states a good cause. It is only as to another branch of the inquiry that its sufficiency may be questioned, namely, whether a subsequent lienholder may maintain a bill for redemption without making the owner of the equity of redemption a party to the bill.

First, let us inquire as to the position of Brown as trustee in bankruptcy of the Monarch Lumber Company, as it respects the title and right to administer the property of the bankrupt for the benefit of the creditors. The trustee, when appointed, is vested with the title to all the property of the bankrupt as of the date of the adjudication in bankruptcy. The property to which the trustee succeeds is that which, prior to the filing of the petition in bankruptcy, the bankrupt could by any means have transferred, or which might have been levied upon and sold under judicial process against him. Section 7a, Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 548 (Comp. St. 1916, Sec. 9591)). This covers any interest in the property the bankrupt may have had, however minute, that was subject to transfer by him or levy and sale by judicial process. The statute is designed to be so broad and searching as to comprise all property that the bankrupt may have that may be of use or benefit to him, however small. By subdivision 2, section 47, of the act (Comp. St. 1916, Sec. 9631), the trustee is deemed to be vested with all the rights, remedies, and powers of a creditor holding a lien by legal or equitable proceedings as to all property coming into the custody of the court, and as to property not in such custody he is deemed to be vested with all the rights, remedies, and powers of a judgment creditor holding an execution duly returned unsatisfied.

The statute deals with the property of the bankrupt, not with that of another, and is designed to vest the trustee with the broadest rights, remedies, and powers commensurate with possessing himself of the property of the bankrupt for the benefit of the creditors. It not only vests the trustee with the rights of the bankrupt, standing in his shoes, but with all the rights of a creditor, whether he or the court is in or out of possession. 2 Remington on Bankruptcy, pp. 943, 944, thus interprets the section:

'As long as other sections of the act give the trustee greater rights than merely those that might be asserted by the bankrupt, the statute must be construed to mean that he takes the bankrupt's title and rights and in addition thereto takes more-- takes also the rights of creditors, not only those rights that have been already actually asserted by some creditor but any and all that might have been asserted had the trustee been a judgment creditor who had levied on the property in his custody or who holds an unsatisfied execution as to property not in his custody, as well as the rights of creditors under state law to avoid fraudulent transactions. It is doubtless true that the trustee's title since the amendment of 1910 is the most extensive and complete of any in jurisprudence. It also must be borne in mind that the amendment of 1910, by placing the trustee in the position of an execution creditor with a levy on the property in his custody and with an unsatisfied execution on the property not in his custody, gives him more than the rights, which any creditor might have chanced already to have asserted. It gives him in addition thereto, all rights which would have been obtainable by creditors under state law had the trustee been an officer holding an execution or equitable process in behalf of all creditors.'

Ordinarily the right of redemption belongs to the mortgagor, or his successor in interest-- in reality, to the owner of the equity of redemption; that is, the owner of the estate redeems it from the incumbrance of the mortgage or other liens that may have attached thereto. But a junior incumbrancer may redeem a prior mortgage or other lien. This is a proposition too well settled, says Judge Woodruff, in Jenkins v. Continental Insurance Company, 12 How.Prac. (N.Y.) 66, to be now open for discussion. The right is recognized by text-writers and the adjudicated cases. McDermutt et al. v. Strong et al., 4 Johns.Ch. (N.Y.) 687; United States v. Sturges, Fed. Cas. No. 16,414; 11 Am. & Eng. Enc. of Law, 219, 222; 27 Cyc. 1809, 1811.

The right of foreclosure and the right of redemption are said to be correlative, and any person, who is not himself liable as a principal debtor, who is compelled to redeem for the protection of his own lien on mortgaged premises, is entitled to subrogation to the rights of the senior mortgagee.

The question has been presented whether the owner of the equity of redemption is, first, an indispensable party to a mortgage foreclosure; and, second, an indispensable party whose presence is necessary to the entertainment of jurisdiction by a federal court. In the strictest sense the owner of the equity of redemption is not an indispensable party to a foreclosure, although it is said the object of the foreclosure is to extinguish the equity of redemption, for, if such owner be not joined as a party, the decree for that reason will not be void. 27 Cyc. 1570, 1571. The procedure is quasi in rem, and so treated by the authorities. Mr. Justice Brewer, while on the circuit bench, sitting in the district of Minnesota, in Martin v. Pond, 30 F. 15, says:

'A foreclosure in the form in which it is ordinarily prosecuted is really, in its nature, partly an action in rem, for the seizure and sale of the property, and partly in personam, for the ascertainment of the debt of the mortgagor, and a personal judgment against him.'

He then cites and quotes from Waples on Proceedings in Rem, Sec. 607:

'It has been held that a mortgage suit to foreclose by barring the right of redemption is personal, but that, so far as it is for the condemnation of property to pay debt, it is in rem. Courts, both state and national, have frequently spoken of the mortgage suit, in which there is the object of obtaining an order of sale, as of the latter description. Though nominally against persons, such suits are to vindicate liens. They proceed upon seizure. They treat property as primarily indebted, and, with the qualification above mentioned, they are substantially property actions. In the civil law, they re styled 'hypothecary actions,' and their sole object is the enforcement of the lien against the res. In the common law, they would be different if chancery did not treat the conditional conveyance as a mere hypothecation, and the creditor's right as an equitable lien; so, in both, the suit is a real action, so far as it is against property, and seeks the judicial recognition of a property debt, and an order for the sale of the res.'

Again, a purchaser under a foreclosure sale, even though the holder of the equity of redemption is not made a party, is subrogated to the rights of the mortgagee, and may require the holder to redeem or be barred of his equity, so that, as expressed by Cyc., supra, the holder of the equity of redemption is not in the strictest sense an absolutely necessary party to a foreclosure. If, however, a personal judgment is sought as against the holder, he would be an indispensable party, and the mortgagee could not have relief without his personal presence.

As it relates to the jurisdiction of a federal court, the question is to be resolved by the application of section 50 of the Judicial Code (Act March 3, 1911, c. 231, 36 Stat. 1101 (Comp. St. 1916, Sec. 1032)) and equity rule 39 (198 F. xxix 115 C.C.A. xxix). The Code seems to contemplate that where there are several defendants, and one or more of them are neither inhabitants nor found within the district in which the suit is brought, and do not voluntarily appear, the court may entertain jurisdiction, and may proceed to trial as between the parties properly before the court; but the decree will be without prejudice to those not served nor appearing. Equity rule 39 is somewhat broader, in that it applies, not only to a defect of parties due to their being out of reach of process, but also to parties within the reach of process whose joinder would oust the jurisdiction of the court. In the latter contingency the court may, in its discretion, proceed without making such persons parties. Hughes, Fed. Procedure (2d Ed.) 256, 257. As it relates to equity, the statutory enac...