Commonwealth Trust Co. v. Salem Light, Heat & Power Co.

• Decision Date: 06 January 1914
• Citation: 77 N.H. 146,89 A. 452
• Parties: COMMONWEALTH TRUST CO. v. SALEM LIGHT, HEAT & POWER CO.
• Court: New Hampshire Supreme Court

89 A. 452

77 N.H. 146

COMMONWEALTH TRUST CO.

v. SALEM LIGHT, HEAT & POWER CO.

Supreme Court of New Hampshire. Rockingham.

Jan. 6, 1914.

Transferred from Superior Court, Rockingham County; Pike, Judge.

Suit by the Commonwealth Trust Company against the Salem Light, Heat & Power Company and another, to foreclose a mortgage in which unsecured creditors of mortgagor petitioned to appeal. Facts found, and case transferred from the superior court. Decree for plaintiff.

Bill in equity, to foreclose a mortgage given by the defendant to the plaintiff as trustee for certain bondholders. Upon the filing of the bill, a receiver was appointed, who took possession of the property and sold it under order of the court. Certain unsecured creditors of the defendant petitioned for leave to appear, alleging that the mortgage was fraudulent. Leave was granted, the facts hereinafter stated were found by a master, and the case was transferred without a ruling from the January term, 1913, of the superior court. The defendant is a Maine corporation, and the stockholders' meeting at which it was voted to execute the mortgage was held in New Hampshire. All the parties to the issue of the bonds acted in good faith. The corporation received full value for the bonds, and makes no objection to the foreclosure. The mortgage covers real and personal estate owned when it was given and after-acquired personalty. It was recorded in the registry of deeds, but not in the town clerk's office, and the chattel mortgage oath was not taken. None of the intervening creditors attached the property or had any other lien upon it.

Gaston, Snow & Saltonstall, of Boston, Mass., and G. K. & B. T. Bartlett, of Derry, for plaintiff. W. Du Bois Pulver, of Salem, for defendant Alton F. Tupper and L. Wallace Hall, both of Boston, Mass., and Eastman, Scammon & Gardner, of Exeter, for intervening creditors.

PEASLEE, J. The theory upon which third parties are admitted to defend against litigation is well settled in this jurisdiction. "The procedure, from the time of making the motion for leave to appear to the end, is governed by the court as justice requires." Martin v. Wiggin, 67 N. H. 196, 197, 29 Atl. 450, and cases cited. The cases cited in behalf of the creditors to the effect that if they once succeed in securing favorable action upon their motion to appear, they can thereafter make any defense which is open to any one, are not authorities here. This is a proceeding in rem against certain property of the Salem Company. Its original object was to obtain possession of the property and foreclose the plaintiff's claim upon it. It is not a bill for winding up the corporation, nor for a general sequestration of its assets. It is important to note these features of the situation at the outset; for much of the argument has gone upon the assumption that the proceeding was of the latter class. The fact that the property is substantially all that the mortgagor owns does not alter the situation. The property was taken and is held by the receiver because it was mortgaged, not merely because it was owned by the Salem Company. From this it follows that authorities for the proposition that, in a proceeding to liquidate the assets and make distribution to general creditors, such creditors may appear and make defenses are not in point.

Nor does the fact that a receiver has been appointed increase the rights of general creditors. The situation is the same, so far as their rights are concerned, as it would be if the mortgagee had taken possession and was merely asking for a decree of foreclosure.

What right have unsecured general creditors of a mortgagor to appear and insist that defenses to the mortgage shall be made? So far as has been ascertained, no right of the sort, either legal or equitable, either absolute or permissive, in the discretion of the court, has ever been recognized in this state. In all the cases it has appeared that the creditor had secured a lien upon the property as by an attachment. Hodgdon v. Libby, 69 N. H. 136, 43 Atl. 312; Corning v. Records, 69 N. H. 390, 46 Atl. 462, 76 Am. St. Rep. 178.

The only exception to this rule having the support of the authorities generally is that where it is alleged that the foreclosure is collusive, general creditors should be permitted to defend. Louisville Trust Co. v. Railway, 174 U. S. 674, 19 Sup. Ct. 827, 43 L. Ed. 1130. If it were assumed that the fame rule should apply in cases of fraud in making the mortgage, it would not aid these creditors. While their petition to intervene was based upon such allegations, the facts were found against them. It appears that the mortgage was made in good faith and for a sufficient consideration.

The interveners have...