Mercantile Trust Co. v. Tennessee Cent. R. Co.

• Decision Date: 05 December 1923
• Docket Number: 3876.
• Citation: 294 F. 483
• Parties: MERCANTILE TRUST CO. v. TENNESSEE CENT. R. CO. MISSISSIPPI VALLEY TRUST CO. v. SAME. TENNESSEE CENTRAL R. CO. v. MISSISSIPPI VALLEY TRUST CO. et al.
• Court: U.S. Court of Appeals — Sixth Circuit

294 F. 483

MERCANTILE TRUST CO. v. TENNESSEE CENT. R. CO. MISSISSIPPI VALLEY TRUST CO. v. SAME. TENNESSEE CENTRAL R. CO. v. MISSISSIPPI VALLEY TRUST CO. et al.

No. 3876.

United States Court of Appeals, Sixth Circuit.

December 5, 1923

Walter Stokes, of Nashville, Tenn., for appellant.

Charles N. Burch, of Memphis, Tenn. (S. R. Prince, of Washington D.C., and A. W. Akers, of Nashville, Tenn., on the brief) for appellees.

Before DENISON and DONAHUE, Circuit Judges, and WESTENHAVER District judge.

DONAHUE Circuit Judge.

On May 21, 1921, the United States District Court for the Middle District of Tennessee entered a decree in a pending mortgage foreclosure proceeding, ordering the sale of all the property of the Tennessee Central Railroad Company, on June 30, 1921 and directing the special master making the sale to receive no bid less than $2,000,000. Section 21 of this decree further provided, in substance, that the purchaser at such sale would be required to pay as a part consideration, and in addition to the sum bid for the property, 'any indebtedness, obligations, and liabilities, costs, and charges that may be adjudged by the court in these proceedings to be prior to the prior lien mortgage foreclosed herein,' in excess of the funds coming into the receiver's hands from the proceeds of such sale and the proceeds of balances, accounts, and bills receivable.

On June 30, 1921, there being no bidders for this property, the sale was postponed until October 1, 1921. No bids being then received, the sale was postponed until December 1, 1921, and at that time, and for the same reason, the sale was again postponed until January 10, 1922. On July 13, 1921, the court modified its order by directing the special master to receive and report a minimum bid of $1,500,000. On January 10, 1922, C. M. Hovey bid $1,500,000 for this property, and on January 20, 1922, a decree was entered confirming the sale to Hovey, and directing that possession be given to him at midnight, January 31, 1922. The decree of confirmation contained the following clause:

'It is further ordered that the question as to who shall pay the taxes for the year 1922 is reserved.'

No objections were offered and no exceptions were taken by either party to the reservation of this question for further consideration and later determination by the court. On the day following the special master executed and delivered a deed to C. M. Hovey, who accepted the same and a few days later conveyed this property to the Tennessee Central Railway Company, a corporation organized on January 26, 1922, under the laws of the state of Tennessee, and possession was delivered to that company at midnight January 31, 1922.

On December 29, 1922, the District Court coming to the determination of the question reserved in the decree of confirmation, and it appearing to the court that the receiver had been in possession and operated the railway but one month only in 1922, ordered and directed the receiver to pay out of the funds in his hands one-twelfth of the 1922 taxes, and that the purchaser take this property subject to the lien for the balance of the taxes for that year, to which order and decree the Tennessee Central Railway Company excepted. It is admitted that there are sufficient funds in the possession of the receiver to pay and discharge all liens entitled to priority over the prior mortgage, including all the taxes for 1922.

The sole question presented by this appeal is whether the highest bidder for this property at this judicial sale was entitled, upon confirmation of the sale to him, to an order directing the receiver to pay out of the purchase price and other funds in his hands all of the taxes for 1922. It is insisted upon the part of the appellant that the lien of taxes for 1922 had attached to the property by operation of law prior to the confirmation of sale, and should therefore be included in the debts, obligations, and liabilities to be paid by the receiver to the extent of the funds in his possession, as provided in section 21 of the original decree ordering the sale and the modification thereof made and entered on July 13, 1922.

The District Court, in disposing of this question, expressly held that the decree of sale did not provide that the property should be sold free from the lien of taxes, either expressly or by necessary implication; that section 21 of the decree had no reference to taxes; that the same clause was repeated in the decree confirming the sale; and that no suggestion was then made that taxes were included therein, but, on the contrary, the question of liability for taxes was informally presented on an entirely different ground and specifically reserved in the same decree.

In reply to this statement by the court, it is urged on behalf of appellant that the court must have understood that paragraph 21 included taxes, for the reason that taxes for 1920 and 1921 were ordered paid, and were paid, out of the proceeds arising from the sale. This argument, however, overlooks the fact that, regardless of whether section 21 of the decree ordering sale included taxes either specifically or by implication, the court had the authority to order the payment of the taxes that had accrued in 1920 and 1921, out of the proceeds of the sale, if, in the opinion of the court, the payment thereof by the receiver was just and equitable.

The original decree ordering a sale was entered in May, 1921, and was, no doubt, based upon existing conditions, and contemplated the sale of the property long before the lien of taxes for 1922 would attach. When the question of confirming the sale was presented to the court, the situation was materially changed by the fact that the lien for the 1922 taxes had attached, although the receiver at that time had operated this property but 20 days in the year 1922. Regardless of what construction should be given to paragraph 21 of the original or modified decree ordering sale,...