Walter v. Peninsula Cut Stone Company
| Decision Date | 12 April 1912 |
| Citation | 82 A. 961,9 Del.Ch. 374 |
| Court | Court of Chancery of Delaware |
| Parties | HARRY E. WALTER, v. PENINSULA CUT STONE COMPANY |
EXCEPTIONS AS TO ALLOWANCE OF INTEREST ON TWO MORTGAGES. A receiver for the defendant company having heretofore been appointed, in due course of administration of its affairs claims against said company were filed, among them being claims for city and county taxes. The holders of two mortgage liens against the same real estate also filed claims for the principal thereof and interest to the date of payment and exceptions were filed by the receiver to the interest claims. After the filing of these claims the receiver was ordered to sell the real estate free and clear of all liens created by or recovered against the defendant company, and the liens were transferred to the funds to be derived from such sale. Upon the return of said sale of the real estate by the receiver it appeared that the proceeds thereof were not sufficient to fully satisfy both of the liens and interest and an order was made requiring the persons interested therein to appear before the Chancellor for the purpose of determining the validity, amount and priority of said claims.
Saulsbury Ponder & Morris, for receiver.
John P. Nields, Christopher L. Ward and Horace G. Eastburn, for holders of first mortgage.
Reuben Satterthwaite, Jr., for second mortgagee.
The affairs of the Peninsula Cut Stone Company have been fully administered by a Receiver appointed by this Court on the ground of insolvency. From the report of the receiver it appears that the assets have all been converted and about $ 3,000 obtained from the personal property and assets other than real estate, and $ 20,500 from a sale of the real estate. By order of the Court the real estate was sold clear of liens created by or recovered against the insolvent company and the liens were transferred to the fund. Upon the real estate there were two mortgages made by the Peninsula Cut Stone Company, the first for $ 12,500, on which a balance of principal of $ 12,105 is due, with interest from February 5th, 1911, and the second for $ 7,000 with interest. There are no other debts of the insolvent corporation which were liens on the property of the company. There are city and county taxes on the real estate which have priority. The proceeds of sale of the real estate, after paying the taxes, are not sufficient to pay the two mortgage liens; and the other assets in the hands of the receiver are sufficient to pay the costs of the sale of the real estate and the costs of the general administration of the receivership, including the compensation of the receiver and his counsel. By the appraisement, the real estate was valued at $ 30,000, so that it was supposed that there was a value in it to the estate of the insolvent over the liens against it. The real estate consisted of a manufacturing plant, which was not operated by the receiver, or used in any way for the benefit either of the lien holders or general creditors.
Several questions were raised and discussed: (1) As between the mortgagees on one side and the general creditors on the other, are the former entitled to interest to the date of the appointment of a receiver, or until the proceeds of sale have been received by the receiver, or until these debts are paid through the receiver? (2) Should the mortgagees, who are to be paid in full, pay some portion of the costs and expenses, either of the sale of the real estate, or of the general administration of the estate, or of both, and, if so, what proportion? (3) As between the two lien holders, the first and second mortgagees, as the fund from the sale of the security for both is inadequate to pay both, in full, is the holder of the first lien entitled to payment in full?
First Question. This question has not, so far as reported decisions show, been decided in this State. In administering the estates of insolvent decedents interest is paid by the executor or administrator on liens to the time of satisfaction. In allowing payment of liens on land sold in partition proceedings in Chancery, interest is allowed to the date of the decree of distribution.
In the case of Blair v. Clayton Enterprise Co., ante p. 95, 9 Del.Ch. 95, 77 A. 740, this Court in administering the estate of an insolvent corporation by a receiver, where the claims were all of one grade and there were no liens or other priorities, and the estate was insufficient to pay all claims and interest in full, allowed interest only down to the date of the appointment of the receiver; but it was expressly stated in the opinion given by the Chancellor in that case that it did not necessarily or probably apply to liens, or to cases where the assets were sufficient to pay all claims and interest in full to the time of distribution. In the federal courts and in Massachusetts and Texas it is settled that the lienor is entitled to interest on the debt due him, at the rate in the instrument creating it, to a point beyond the appointment of a receiver. 34 Cyc. 372; Trust Co. v. Condon, 67 F. 84; Jourolmon v. Ewing, 85 F. 103; Grand Trunk, etc., Co., v. Central, etc., Co., 91 Fed. 569; First, etc., Bank v. Ewing, 103 F. 168, 191; Solomons v. Building, etc., Ass'n., 116 F. 676; Coder v. Arts, 152 F. 943, affirmed without comment in 213 U.S. 223, 53 L.Ed. 772, 29 S.Ct. 436. In re Stevens, 173 F. 842; Atty. General v. American Legion of Honor, 206 Mass. 131, 138, 92 N.E. 134; First, etc., Bank v. Campbell, etc., Co., 52 Tex. Civ. App. 445, 114 S.W. 887. Some of the cases in the federal courts related to administration of estates of bankrupts, but the statute did not affect the determination of the question. There the decisions are based on the contract right to interest as part of the debt. This seems the right basis for a right rule, and is an exception to the general rule that equality is equity. In Massachusetts, in the case cited, the Court said:
"A creditor's...
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