Ritter v. Arizona Cattle Co.

• Citation: 34 Ariz. 278,271 P. 25
• Decision Date: 23 October 1928
• Docket Number: Civil 2712
• Parties: WAYNE RITTER, Plaintiff, v. ARIZONA CATTLE COMPANY, a Corporation, Defendant; FEN S. HILDRETH, Receiver, Defendant-Appellant, v. STOCKGROWERS' FINANCE CORPORATION, a Corporation, Plaintiff-Appellee
• Court: Supreme Court of Arizona

271 P. 25

34 Ariz. 278

WAYNE RITTER, Plaintiff, v. ARIZONA CATTLE COMPANY, a Corporation, Defendant;

FEN S. HILDRETH, Receiver, Defendant-Appellant, v. STOCKGROWERS' FINANCE CORPORATION, a Corporation, Plaintiff-Appellee

Civil No. 2712

Supreme Court of Arizona

October 23, 1928

APPEAL from a judgment of the Superior Court of the County of Maricopa. Joseph S. Jenckes, Judge. Affirmed.

Messrs Jennings & Strouss, Mr. J. L. B. Alexander and Mr. Robert McMurchie, for Appellant.

Mr Hugh M. Foster and Mr. Graham Foster, for Appellee.

OPINION

ROSS, C. J.

Fen S Hildreth, on August 2, 1923, upon the application of the plaintiff, a general creditor, in the case of Wayne Ritter v. Arizona Cattle Company, instituted on that day in the superior court of Maricopa county, was appointed receiver of the assets and property of the defendant company. He immediately took possession of such property, consisting of approximately five thousand head of range cattle, ranges, ranches and watering places, and held possession until July 14, 1924, when he sold and delivered with the approval of the court, the entire outfit to the Stockgrowers' Finance Corporation (hereafter referred to as the Finance Corporation) for the sum of $100,000.

For reasons hereafter stated the receiver did not make his final report and ask to be discharged when relieved from the duty and burden of looking after the property by reason of its sale, but postponed that report and request until November 1, 1926. The final report showed expenditures by the receiver of $26,236.93, and, upon a hearing, at which the Finance Corporation appeared and protested, the court disallowed thereof the sum of $14,449.13. The hearing was had upon the record and files of the case and the oral protest of the Finance Corporation. This appeal is from the order of disallowance.

Before discussing or stating the legal aspects of the case, we will outline, as best we can, the salient facts as they appear from the record.

At the time of the appointment of appellant as receiver the Finance Corporation held the note of the defendant Arizona Cattle Company for $100,000, secured by a first chattel mortgage covering all of the above-mentioned property, and such note and mortgage were of record and past due. The known debts of the Arizona Cattle Company, secured and unsecured, were $237,000, and the assets of the insolvent were estimated by the receiver to be $158,000. The receiver was appointed such without the knowledge or consent of the Finance Corporation, and as soon as it obtained information of the appointment, to wit, in September, 1923, it asked of the court and was granted leave to foreclose its mortgage, which it proceeded to do in a separate action. It also offered to take possession of the property and care for it at its own expense. This offer was not accepted. In the foreclosure suit the receiver tiled an answer raising the question of the mortgage's validity, and the superior court held it was void but gave the Finance Corporation judgment for the face of the note and interest, amounting to $118,755, and costs. From this judgment an appeal by the Finance Corporation was taken, and the Supreme Court, on September 16, 1926, reversed the judgment, held the mortgage valid, and directed its foreclosure. Stockgrowers' Finance Corporation v. Hildreth et al., 30 Ariz. 505, 249 P. 71.

An inspection of the records on file shows that much of the money expended by the receiver was not for the care and preservation of the mortgaged property, but that it was expended in trying to defeat the mortgage. Just to mention some of the larger items: The receiver paid $8,500 to attorneys and was allowed for his personal services $3,600; also other sums for court costs incurred and other expenses attendant upon the foreclosure litigation. It is also shown by the record that the entire estate upon a sale did not realize enough to pay the Finance Corporation's mortgage, and that the receiver, although he tried hard to raise money with which to care for the property, could get no one except the mortgagee to make any advances for that purpose; that at the first offer of receiver's certificates no purchasers were found. The receiver then actually negotiated a private sale of the ranches, ranges, and watering places, reserving their use to February, 1924, for the sum of $10,000, and the carrying out of this sale was prevented only when the Finance Corporation offered to take receiver's certificates and advance money to care for and conserve the property. These advances by the mortgagee, on property already mortgaged to it for its full value, can be explained only on the theory of protecting its mortgage security from loss or waste. Finally, after advancing large sums, it offered the receiver $100,000, including advances, for the property covered by mortgage, the money to be held subject to its mortgage lien and to be repaid to it in the event the Supreme Court should hold the mortgage valid. This offer was approved by the court and carried out on July 14, 1924. The $100,000, less advances theretofore made, were paid to the receiver, and the cattle outfit was turned over to the Finance Corporation on or about that date.

The trial court in its findings, after reciting the existence of the $100,000 mortgage in favor of the Finance Corporation and after stating that the mortgagee bought the property from the receiver subject to its mortgage, stated:

"That the said Fen S. Hildreth, as such receiver, received said purchase price of said property from said Stockgrowers' Finance Corporation charged with the payment of said chattel mortgage indebtedness due and owing from said Arizona Cattle Company to said Stockgrowers' Finance Corporation in preference, and prior to the payment, of all expenses of said receivership, save and except costs and expenses incurred by said receiver in the preservation of said mortgaged property prior to said sale."

The court found that the receiver had expended during his administration the sum of $26,236.93, and that of this sum $11,787.80 were for "costs and expenses incurred by said receiver in the preservation of the said mortgaged property prior to said sale," and that the "remainder of $14,449.13 has been paid out by him to defray costs and expenses of the said receivership other than expenses incurred in the preservation of said mortgaged property."

The order appointing the receiver, so far as here material, authorized him to "take immediate control and supervision of all ranches, cattle, horses, and real and personal property of every kind and description belonging to said corporation wherever situate in the state of Arizona, and to manage and conserve said property, and to take all necessary measures for its proper protection and preservation."

We have here this situation: The court, at the instance of an open unsecured creditor of an insolvent corporation, with all its assets mortgaged to their full value, appointing a receiver thereof without the knowledge or consent of the owner and holder of the mortgage, and such receiver taking possession of such assets and out of the proceeds thereof paying, not only the costs and expenses of caring for and preserving the property, but out of such proceeds paying large sums in an effort to defeat the mortgage lien. In other words, the receiver used the mortgagee's property to preserve it and used the mortgagee's property in an effort to show that it was not the mortgagee. The former was permissible but hardly the latter. If the open creditor or creditors wanted to expend their money or the assets of the insolvent, subject to the payment of their debts, in an effort to defeat the Finance Corporation's mortgage, that they might well do, but the receiver owed the same duty to the secured creditors as to those whose debts were not secured. It was no part of his duty to take sides as between these any more than it would have been the duty of the debtor, in the absence of a receivership, to take sides between them. 23 R.C.L. 108, § 118. There was never any question as to the legality of the mortgage as between the mortgagor and the mortgagee or its assigns (Stockgrowers' Finance Corporation v. Hildreth et al., supra), and since the receiver stepped into the mortgagor's shoes he was as duty bound to acknowledge its validity and binding effect as the mortgagor was. 34 Cyc. 191. A defeat of the mortgage lien would not have benefited anyone but the general creditors; yet the receiver assumed to appropriate some of the property covered by the mortgage to secure a court declaration that the mortgage was, for some technical reason, void. The effect of this conduct of the receiver was to compel the mortgagee to pay lawyers' fees and court costs and other expenses in an effort by the receiver to defeat his own mortgage. This was a violation of one of the commonest and most revered rights known to an American citizen. It is prohibited by the federal and state Constitutions. The state Constitution forbids the taking of private property, except for private ways and public uses, and then only after compensation has been paid or provided for. If the insolvent had property other than that mortgaged, or if after the mortgage was satisfied there was left a balance subject to the claims of general creditors, the payment of fees to lawyers rendering valuable services to the receiver might well have been approved. At least nobody but the general creditors could have objected. The mortgagee would not be concerned except as to any deficit after applying the proceeds to his mortgage.

But appellant contends the orders allowing the items rejected by the court, on hearing the receiver's final account, were all appealable orders under paragraph 1227, ...