Freedman Saving Trust Co v. Shepherd Shepherd v. Thompson

• Decision Date: 30 April 1888
• Citation: 127 U.S. 494,8 S.Ct. 1250,32 L.Ed. 163
• Parties: FREEDMAN'S SAVING & TRUST CO. et al. v. SHEPHERD et al. SHEPHERD v. THOMPSON
• Court: U.S. Supreme Court

8 S.Ct. 1250

127 U.S. 494

32 L.Ed. 163

FREEDMAN'S SAVING & TRUST CO. et al. v. SHEPHERD et al.

SHEPHERD

v. THOMPSON.

April 30, 1888.

[Statement of Case from pages 494-500 intentionally omitted] Enoch Totten, for appellant, Freedman's Savings & Trust company.

M. F. Morris and H. H. Wells, for appellee John W. Thompson.

Wm. F. Mattingly and A. C. Bradley, for Alexander R. Shepherd.

Mr. Justice HARLAN, after stating the facts in the foregoing language, delivered the opinion of the court.

What rights did the trust company acquire, under Bradley's deed, in respect to the income or rents of the mortgaged property, accruing after the execution of that instrument? This is the principal question presented for our consideration, and will be first examined. In Gilman v. Telegraph Co., 91 U. S. 603, 616, the question was as to the disposition of certain earnings of a railroad, accruing after a decree of foreclosure and sale, and before the purchaser at the sale was let into possession. The first, in point of time, of the mortgages conveying the property to secure the company's bonds, provided, among other things, that it might remain in possession, and operate the road, enjoying the revenues thereof, until default occurred in paying the interest or the principal of its bonds at maturity; and if such default continued six months, or if the company failed to set apart, deposit, and apply certain moneys, as required by the mortgage, then the trustees might, and it should be their duty, to enter upon and take possession of, and, by agents, operate the mortgaged property. The second mortgage contained substantially the same provisions. After the decree of foreclosure and sale was passed, a judgment creditor of the company, proceeding under the local law, garnished, in the hands of the company's agents at its various stations, moneys received by them from the operation of the road, the company having been permitted to remain in possession up to the time of the sale under the decree. The trustees in the mortgage claimed that these moneys should be applied in payment of the balance remaining unpaid on their mortgage bonds. This claim was denied. The court, following the previous case of Railroad Co. v. Cowdrey, 11 Wall. 459, said: 'It would have been competent for the court in limine, upon a proper showing, to appoint a receiver, and clothe him with the duty of taking charge of the road, and receiving its earnings, within such limit of time as it might see fit to prescribe. It might have done the same thing subsequently, during the progress of the suit. When the final decree was made, a receiver might have been appointed, and required to receive all the income and earnings until the sale was made and confirmed, and possession delivered over to the vendee. Nothing of this kind was done. There was simply a decree of sale. The decree was wholly silent as to the possession and earnings in the mean time. It follows that neither during that period was in anywise affected by the action of the court.' Again: 'It is clearly implied in these mortgages that the railroad company should hold possession and receive the earnings until the mortgagees should take possession, or the proper judicial authority should interpose. Possession draws after it the right to receive and apply the income. Without this the road could not be operated, and no profit could be made. * * * If the mortgagees were not satisfied, they had the remedy in their own hands, and could, at any moment, invoke the aid of the law, or interpose themselves withouti t. They did neither.' In Bridge Co. v. Heidelbach, 94 U. S. 798, 800, the mortgage included the rents, issues, and profits of the mortgaged property, so far as it was necessary to keep it in repair, and pledged such rents, issues, and profits to the payment of the interest on the mortgage bonds as it matured, and to the creation of a sinking fund for the redemption and payment of the principal. In the event of a continuous default for six months in meeting the interest, the trustees, upon the written request of the holders of one-half of the outstanding bonds, were authorized to take possession of the mortgaged premises, and receive all rents and claims due and to become due to the company. In a contest between the trustees and a judgment creditor, as to which was entitled to certain moneys in the hands of the mortgagor, the decision was in favor of the creditor, the court saying: 'In this case, upon the default which occurred, the mortgagees had the option to take personal possession of the mortgaged premises, or to file a bill, have a receiver appointed, and possession delivered to him. In either case, the income would thereafter have been theirs. Until one or the other was done, the mortgagor, as Lord MANSFIELD said in Chinnery v. Blackman, 3 Doug. 391, was 'owner to all the world, and entitled to all the profit made." In Kountze v. Hotel Co., 107 U. S. 378, 392, 2 Sup. Ct. Rep. 911, it was held that a bond given on appeal with supersedeas, from a final decree of foreclosure and sale, did not cover rents and profits, or the use and detention of the property, pending the appeal. The court said that 'in the case of a mortgage, the land is in the nature of a pledge; and it is only the land itself—the specific thing—which is pledged. The rents and profits are not pledged; they belong to the tenant in possession, whether the mortgagor or a third person claiming under him. * * * The taking of the rents and profits prior to the sale does not injure the mortgagee, for the simple reason that they do not belong to him. * * * But perception of rents and profits is the mortgagor's right until a final determination of the right to sell, and a sale made accordingly.' It is, of course, competent for the parties to provide in the mortgage for the payment of rents and profits to the mortgagee, even while the mortgagor remains in possession. But when the mortgage contains no such provision, and even where the income is expressly pledged as security for the mortgage debt, with the right in the mortgagee to take possession upon failure of the mortgagor to perform the conditions of the mortgage, the general rule is that the mortgagee is not entitled to the rents and profits of the mortgaged premises until he takes actual possession, or until possession is taken in his behalf by a receiver, (Teal v. Walker, 111 U. S. 242, 4 Sup. Ct. Rep. 420; Grant v. Insurance Co., 121 U. S. 117, 7 Sup. Ct. Rep. 841;) or until, in proper form, he demands, and is refused, possession, (Dow v. Railroad Co., 124 U. S. 652, 654, ante, 673.) See, also, Sage v. Railroad Co., 125 U. S. 361, ante, 887. The principles announced in these cases are decisive against the claim of the trust company to the rents of the property represented by the two drafts delivered by the United States to Wilson. Bradley's deed pledged the property, not the rents accruing therefrom, as security for the payment of his notes. It is true, it provides, generally, that the mortgagor may remain in possession, and receive rents and profits, until there is default upon his part. But...