Jerome v. Carter

• Decision Date: 01 October 1876
• Citation: 24 L.Ed. 136,94 U.S. 734
• Parties: JEROME v. McCARTER
• Court: U.S. Supreme Court

94 U.S. 734

24 L.Ed. 136

JEROME v. McCARTER.

October Term, 1876

APPEAL from the Circuit Court of the United States for the Eastern District of Michigan.

The case is fully stated in the opinion of the court.

Argued by Mr. Matt. H. Carpenter and Mr. George Norris for the appellants.

Mr. George F. Edmunds and Mr. Alfred Russell, contra.

Mr. JUSTICE STRONG delivered the opinion of the court.

There are no less than twenty-seven assignments of error in this case, but the subjects of real controversy are few. The bill is an ordinary one for the foreclosure of a junior mortgage covering the canal and franchises of the Lake Superior Ship Canal, Railroad, and Iron Company, and covering also two separate bodies of land, each containing two hundred thousand acres. The mortgage was given expressly subject to two prior mortgages, one, dated July 1, 1865, upon the canal and one of the bodies of land, and the other, dated July 1, 1868, upon the canal and the other body of two hundred thousand acres of land. Each of these prior mortgages was made to secure the payment of the company's bonds of even date therewith, amounting to the sum of $500,000; and all the bonds were issued, and they are now outstanding. The first of these prior mortgages is known as the Sutherland mortgage. Default having been made in the payment of interest upon the bonds secured by that, John L. Sutherland, the trustee, filed his bill to foreclose it, making all the subsequent mortgagees parties; and they all appeared. In that case, Isaac H. Knox was appointed receiver of all the property covered by the several mortgages, and subsequently, in order to obtain the money necessary for completing the canal by order of the court, he was authorized to create, issue, and sell certificates of indebtedness to the amount of $500,000, to be secured by a mortgage, which he was empowered to make, covering all the property, and which was to be prior in right to all other mortgages. Pursuant to this authority, the receiver did issue and sell such certificates, and for their security executed the mortgage directed by the court. These certificates are now all outstanding.

Such was the condition of affairs when the present bill was filed. But the company having afterwards gone into bankruptcy, a supplemental bill was exhibited making the assignees in bankruptcy parties defendant; and they appeared and made defence, and they are the only parties appellant.

It is now contended, on their behalf, that the bill cannt be sustained, because the prior mortgagees were not made parties. This position cannot be sustained. It is undoubtedly true there are cases to be found in which it was ruled that prior incumbrancers were necessary parties to a bill for the foreclosure of a junior mortgage, but in most of these cases the circumstances were peculiar. Where the effort of the junior mortgagee is to obtain a sale of the entire property or estate, and not merely of the equity of redemption, there is reason for making the prior incumbrancers parties, for they have an immediate interest in the decree. And so, when there is substantial doubt respecting the amount of the debts due prior lien creditors, there is obvious propriety in making them parties, that the amount of the charge remaining on the land after the sale may be determined, and that purchasers at the sale may be advised of what they are purchasing. But the case in hand has no such peculiarities. The prior mortgages were not due when this bill was filed; and, without the consent of those mortgagees, nothing more than the equity of redemption could be sold under any decree made in the case, or under the decree which was sought. Nor is there any doubt entertainable respecting the amount due under the prior mortgages. Indeed, the company is estopped by the provisions of its mortgage, of which the complainant is trustee, from asserting that the entire amount of the two $500,000 mortgages, and of the receiver's mortgage, was not outstanding when the present mortgage was made. The full indebtedness was acknowledged by making the junior mortgage expressly subject to it, and as there is no evidence that any portion of it has been paid, it is not admissible for the mortgagors or their assignees in bankruptcy to deny it now. Bronson v. The LaCrosse & Milwaukee Railroad Co., 2 Wall. 283.

Apart from the exceptional cases, we understand the general rule to be, that, in a suit by a junior mortgagee to foreclose a mortgage, prior mortgagees are not necessary parties. So it has been held in England in Rose v. Page, 2 Sim. 471; Richards v. Cooper, 5 Beav. 304; Delabere v. Norwood, 3 Swanst. 144.

Such, also, is the rule asserted in this country, where the bill of a junior mortgagee, as in this case, seeks only a foreclosure or sale of the equity of redemption. Edwards on Parties, p. 91, and cases cited; Gihon v. Bellville, 3 Halst. (N. J.) Ch. 531; Williamson v. Probasco, 4 id. 571.

The subject has been under consideration by this court in Hagan v. Walker et al., 14 How. 37, in which it was shown that it is not necessary in all cases to make a prior mortgagee a party. And it is not easy to see why it should be in any case, when the decree asked cannot injure or affect him. In Payne v. Hook, 7 Wall. 432, it was said, 'It can never be indispensable to make defendants of those against whom nothing is alleged, and from whom no relief is asked.' See also French v Shoemaker, 14 Wall. 315. We think this is the correct rule. It is certainly consonant with reason, and we see nothing in the present case that justifies a departure from it. We hold, therefore, that the bill is not defective for want of proper parties.

The appellants next contend that the decree is erroneous, because the mortgagors were declared bankrupt after the bill was filed, and before the decree was entered; and it is urged that the bankrupt court had absolute and exclusive jurisdiction, and was entitled to the entire administration of the bankrupts' property. That this objection is without merit was shown in Marshall v. Knox, 16 Wall. 551, and Eyster v. Gaff et al., 91 U. S. 521, to which we need only refer.

A further objection insisted upon is, that while the property was in the charge of a receiver appointed in the suit brought by Sutherland to foreclose the first mortgage, and therefore, as it is said, was in custodia legis, this bill was filed without leave of the court. If there could, under any cic umstances, be any force in this objection, there is none now. Both suits were brought in the same court; these appellants appeared, answered, and cross-examined witnesses, and made no allegation that the suit had been brought without leave until about a year and a half afterwards. It was then too late. They must be held to have acquiesced; and, if not, leave of the court to commence and prosecute the suit must be...