Northern Finance Corporation v. Byrnes

• Decision Date: 30 March 1925
• Docket Number: No. 6774.,6774.
• Citation: 5 F.2d 11
• Parties: NORTHERN FINANCE CORPORATION v. BYRNES.
• Court: U.S. Court of Appeals — Eighth Circuit

5 F.2d 11 (1925)

NORTHERN FINANCE CORPORATION v. BYRNES.

No. 6774.

Circuit Court of Appeals, Eighth Circuit.

March 30, 1925.

William S. Bedal, of St. Louis, Mo. (Eliot, Blayney, Bedal & Eliot, of St. Louis, Mo., and Rodney M. Fairfield, of Carthage, Mo., on the brief), for appellant.

Paul Bakewell, Jr., of St. Louis, Mo., for appellee.

Before SANBORN, Circuit Judge, and POLLOCK and SYMES, District Judges.

SYMES, District Judge.

One Butler was appointed receiver for the Forked Leaf Lumber Company by the United States District Court for the Southeastern Division, Eastern District of Missouri, on October 23, 1921, in an equity proceeding. The appellant corporation had been for some time previous thereto the owner of certain timber lands in Shannon county, Mo., which it sold to the said lumber company, and to secure part of the purchase price took back a deed of trust thereon dated July 10, 1919, to secure $537,079.22. When the receiver was appointed, as aforesaid, the taxes for 1920 on this land were past due. In June, 1921, the trustees under the deed of trust, together with the appellant and others, by permission of the federal court, brought suit to foreclose this deed of trust in the state court.

Butler as receiver in January, 1922, borrowed from the appellant, the mortgagee, moneys to pay the 1920 taxes, including penalties, part of which he later paid back, leaving a balance due of $4,033.77.

The foreclosure suit in the state court went forward, and on June 18, 1923, the sale took place, and the mortgagee, appellant here, became the purchaser for $300,000; $200,000 less than the amount due on the deed of trust. Later, and on July 2, 1923, appellant petitioned the federal court to have the receiver repay it the balance of this money loaned to the receiver for the purpose of paying the taxes as aforesaid. The court refused to allow the claim, or to allow the appellant to be subrogated to the rights of the state of Missouri for the amount so advanced for taxes.

The case is here on appeal from that order.

It may be conceded at the outset that it was the duty of the federal court to recognize the priority of any claim of the state for taxes which, being a prior lien under the laws of Missouri, became such in the receivership proceedings, and that upon proper application it would have been the duty of the court to make the taxes, including penalties, a prior lien. We might also add that the property being in the actual possession of the federal court, no state officer could have levied upon or sold the real property without permission of the court, or exercise the right of distraint given by the statutes of Missouri. Marshall v. N. Y., 254 U. S. 380, 41 S. Ct. 143, 65 L. Ed. 315; Greeley v. Provident Sav. Bank, 98 Mo. 458, 11 S. W. 980. Many cases are cited by the appellant from Missouri and the federal courts, holding that it is the duty of a receiver to fully recognize and pay taxes as a prior lien to other claims against the estate. But in all these cases application was made to the court, and authority granted the receiver before any payment was made.

Appellant relies upon the doctrine of subrogation; that is, having paid the taxes, it was subrogated to the rights of the state of Missouri. But the authorities cited do not bear out this contention. They are mostly cases where a mortgagor failed to protect the mortgaged property against superior liens, as required by the covenant of the mortgage, and the junior lienor, under the well-established rule, stepped in and paid off the prior claim to protect his own lien, and was allowed to include it in the amount of his debt. This doctrine, as stated in Memphis R. R. Co. v. Dow, 120 U. S. at page 301, 7 S. Ct. 482, 30 L. Ed. 595, does not arise from any contractual relation between the parties, but is an equitable doctrine designed to accomplish substantial justice.

The order appointing the receiver is not exhibited in the record. It is conceded, however, that it merely directed him to continue the business, and that no application was made to the court by the receiver or the appellant at the time for permission to borrow money to pay taxes as aforesaid. Receivers appointed by the federal courts are officers thereof, and in the absence of any special authority given by the court, their powers are very limited. As a rule they can do nothing without express authority. They are at liberty,...